Sep 29, 2010

Ken Fisher nays the naysayers on the state of the world economy

We can quibble about details, but right now, we’ve got the world snarky, skeptical, pessimistic, which is normal a year and a half after the bottom of a big bear market. It’s what we always get.

~Ken Fisher, CEO, Fisher Investments, Inc., Bloomberg.com, September 29th, 2010

(Fisher said in October 2008 that U.S. stocks were close to the bottom. The S&P 500 fell about 30 percent from October 2008 to a 12-year low in March 2009.)

Ken Fisher misses the credit picture in 2007

Skepticism and pessimism are normal sentiments for investors 18 months after the bottom of a bear market, according to Fisher, who said in July 2007 that the global credit crunch was “just all minor volatility” and “just fears of much ado about nothing.”

~Ken Fisher, CEO, Fisher Investments, Inc., Bloomberg.com, September 29th, 2010

Ken Fisher on the idiocy of the "New Normal" PIMCO-brigade

We are chimpanzees with no memory.

The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It’s the same stupid old normal we’ve always had. We’ve got a great future.

~Ken Fisher, CEO, Fisher Investments, Inc., Bloomberg.com, September 29th, 2010

Sep 27, 2010

Congresswoman Eddie Bernice Johnson on legislation to expand the CRA

The 30th Congressional District of Texas, like many communities, is diverse and its residents should not be denied bank loans because of where they live. The Community Reinvestment Act (CRA) came into existence to protect people from housing discrimination. President Jimmy Carter signed the CRA in 1977 to establish a system to monitor and rate whether banks and thrifts meet a variety of needs that include: financing for rental housing, home mortgages, small business startup and expansion costs. The CRA encourages prime lending by offering banks incentives for its foreclosure prevention efforts, counseling loan recipients, modifying loans and investing in finance loan modification. The CRA also penalizes banks through reduced CRA ratings that result when a bank is caught practicing discriminatory loan practices – not lending to all of their qualified customers. Presently, the CRA only applies to banks and thrifts (thrifts are depository institutions like savings banks and savings and loan associations), however the CRA does not apply to other financial institutions that lend money like bank affiliates, independent mortgage companies and credit unions.

To solve this issue, I introduced the H.R. 1479, the Community Reinvestment Modernization Act. My legislation strengthens the existing CRA by expanding it to all institutions. I believe the CRA Modernization Act will help restore integrity to and trust of our financial system. The legislation will also strengthen the accountability of banks, address racial disparities in lending, penalize banks that engage in predatory and abusive lending practices and require federal regulatory agencies to hold more public hearings and meetings when banks merge.

~ Congresswoman Eddie Bernice Johnson (D-TX), Summer 2010 News and Views

Sep 25, 2010

Alan Abelson builds the skeptic's case against China

In a kind of backhanded recognition of the country's status as a growing economic colossus is the fear, voiced occasionally by market mavens, that should the perpetual China boom go bust, the result would be widespread havoc. As it is, of course, Corporate America and investors here are wild about China.

All of this is a prelude to recommending a piece on China by Ian Johnson in the Sept. 30 issue of the New York Review of Books. Johnson, now based in Beijing, is a former Wall Street Journal writer and bureau chief (we never met him), who has collected a number of awards, including a Pulitzer. His take on China is not only informed but extraordinarily revelatory and compelling.

Early on, he points to "the spectacular misperceptions about China, a key one being that the government has been privatizing the economy." Actually, he says, what it has been doing is turning state-owned enterprises into shareholder-owned companies but—and this is rather a big but—with the government holding a controlling stake. And, he adds, "even today, almost all Chinese companies of any size and importance remain in government hands."

Throughout the '90s and into this decade, he recounts, prospectuses for IPOs of Chinese companies written by Western lawyers fudged the fact that the Communist Party's Organization Department, rather than the company, would remain in control of all personnel decisions. The ability to hire and fire is scarcely trivial. And major Chinese companies, Ian relates, have Party secretaries who manage them in conjunction with the CEO.

China has changed and for the better in many ways, Ian feels, such as largely withdrawing from what he dubs the "personal lives of Chinese citizens," permitting them to "pursue their own ambitions and goals as long as they avoid the high crime of directly challenging the party."

For all the economic growth achieved by what Ian calls China's "conventional mercantilist policies" in the past 30 years, he's skeptical those policies will continue to work in the future. What's badly lacking, in his opinion, is a "more open economic and social system that can foster innovation and creativity." One badly needed reform on this score, he argues, would be to pry loose the Party's iron grip on businesses. But don't hold your breath waiting for that to happen.

The tight ties in China between politics and economics have "created giant state-owned companies that have had spectacular success on foreign stock markets." Those big companies, he goes on, are giants, but merely because of their size. Essentially, they're little more than partially privatized quasi monopolies, not very nimble or inventive or even influential in global markets, except "when trying to buy natural resources."

Ian bemoans the fact that after Tiananmen, the Chinese government "channeled huge sums into better dorms for students, housing for teachers, labs for scientists and junkets for administrators" to little avail. This may have satisfied material demands and lured foreign universities hoping to set up programs in China. But it hasn't produced a bumper crop of "creative and innovative" students that Chinese companies can draw on.

"Even among China's elite universities," Ian claims, the academic level, in most cases, is on a par with one of our "mediocre community colleges."

While economic reform hasn't quite come to a halt, says Ian, the state sector is regaining lost ground in part because of Beijing's policy of "recentralizing control." The powers that be lack any impetus to reform. That would suggest that an awful lot of folks, businessmen and investors alike, in our blessed land who can't wait to get a piece of the Chinese miracle might wake up one day more than a little disappointed.

~Alan Abelson, Barron's magazine, "The Bad News Bulls", September 25th, 2010

Alan Abelson builds the skeptic's case against economic recovery

That the market is on a roll is undeniable (and who but a cockeyed grizzly would want to deny it). But what's providing the biggest lift is the prevailing investor tendency to respond like gangbusters to even a glimmer of good news and to ignore bad news no matter how telling. Take the response to the latest data on housing.

First came the disclosure that existing home sales were up 7.6% in August—immediately seized upon as evidence that housing was on the mend, supposedly a harbinger of an accelerated recovery and reason enough to take the plunge into equities. But it ain't necessarily so.

As Mark Hanson, of Hanson Advisors, is quick to point out, while last month's sales were better than economists' forecasts (most of whom never saw the housing crash coming), they were down 19% from sales in August '09, and inventory edged up to 11.6 months. That awesome pile of unsold homes all by itself is going to be exceedingly tough to unload.

Moreover, Mark warns that you better be prepared from here on for the full impact of the end of government stimulus, including some pretty irresistible tax breaks, which helped goose demand this year. The absence of such artificial resuscitation is likely to translate into extremely disappointing year-to-year comparisons, including more than a few months of double-digit declines in existing home sales. He also sees the heavy mass of foreclosures and so-called short sales "pushing median and average prices lower, quickly."

As for new home sales in August, they were flat at a pitiable annual rate of 0.288 million units, just a sneeze above May's all-time low of 0.282 million. As a matter of fact, Mark says August sales were the smallest for the month ever. And he notes that foreclosure starts and actual foreclosures were close to 300% of overall new home sales, which stacks up as "a huge obstacle to builder sales" as we head into the slow season for housing.

Again, maybe we're missing something, but a decent recovery without a revival in housing strikes us as a BLT on toast without bacon. It just isn't going to happen. But investors at the moment apparently couldn't care less.

~Alan Abelson, Barron's magazine, "The Bad News Bulls", September 25th, 2010

Sep 24, 2010

David Tepper forecasts the S&P500 heading into Q4 2010

It's not as easy in the near-term, because, what we talked about before is, you know, the economy, I'm not sure which way it is right now. I think it's getting better. I'm not absolutely sure. And if it's not getting better, the market can go down a little bit.

What does that mean, can it go down to 1100? Sure it can. Can it go down to 1000? No. I don't believe that. I mean, it can but if it does we're going to be 100% equities. Well, 90% equities, I do like to have some cash around.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

David Tepper on comparisons between Japan and the US

No, we're not Japan.

We're not Japan because, what's your mortgage rate? Five and change. So, if it's 4%, you save money, right? Do you spend some of that money you will save? Damn, that will work!

Okay, the Fed can buy mortgages. They can make it work. We're not at zero, are we, on mortgages? No. So, we can go to 1%, 1.5%, 2%-- on that way, you're buying stuff.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

David Tepper says don't fight the Fed

[The Fed] said they want economic growth, and not only do we not care if there's inflation, but we want a little more inflation. Have they ever said that before? No. They said they want the market up, so what am I going to say, "No, Fed, I disagree with you, I don't want to be long"?

Right now, what's going to happen? Two things are happening, it's that easy sometimes. Either the economy is going to get better by itself in the next three months, and what assets are going to do well? Stocks will do well, bonds won't do well, gold won't do so well. Or, the economy is not going to pick up in the next three months and the Fed's going to come in with QE, right? Then, what's going to do well?

Everything... in the near term.

So, let's see, what I got is two different situations. One, the economy gets better by itself. Stocks are better, bonds are worse, gold is worse, if you want to talk about those three assets. The other situation is, the Fed comes in with money. Now, up until the point the Fed comes in with money the stock market can go down a little bit-- but not that much! Because I got a put. Ya gotta love a put, especially when the government is issuing it.

So, I can't go down that much. It doesn't mean I go up until that point, but after that it means I go up, so what do I do? I gotta buy! I can't take the chance of not being a little bit longer now.

It's that easy. That's how easy it is.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

David Tepper on the risks of herd leadership

For better or for worse, we're a herd leader. We're at the head of the pack. We're one of the first-movers.

First-movers are interesting: you get to the good grass first, or sometimes the lion eats ya.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

David Tepper on how easy it is to invest alongside government bailouts

It was easy. It was real easy. The government told you what they were gonna do. Basically, the government put out a white paper, I can't remember the exact date, in March, a Treasury paper. You can't put out a paper and say you're going to buy securities, and not buy them. Even the government has to be subject to the laws.

They told me they were going to buy Bank of America at a six-handle, they told me they were going to buy other stocks. Nobody believed them and the market kept going down-- they actually did. So what we did is we didn't just buy stocks, we bought bonds and preferred at twelve cents on the dollar, fifteen cents on the dollar, twenty cents on the dollar. Then, you know, stuff went up.

You have to believe the government's not above the law. Now, at that point and time, people were confused, they thought that... I don't know what they thought. They thought that this was, habeas corpus in the Civil War? It wasn't that bad.

You can't put things in writing and say you're going to buy at a price, and then not do it. That's securities law fraud.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

Sep 16, 2010

Ludwig von Mises on economics and war

It is certainly true that our age is full of conflicts which generate war. However, these conflicts do not spring from the operation of the unhampered market society. It may be permissible to call them economic conflicts because they concern that sphere of human life which is, in common speech, known as the sphere of economic activities. But it is a serious blunder to infer from this appellation that the source of these conflicts are conditions which develop within the frame of a market society. It is not capitalism that produces them, but precisely the anticapitalistic policies designed to check the functioning of capitalism. They are an outgrowth of the various governments' interference with business, of trade and migration barriers and discrimination against foreign labor, foreign products, and foreign capital.

~ Ludwig von Mises, Human Action [1949]

Sep 13, 2010

Fabius Maximus on the left-right political spectrum

Today we get to choose a political party like cattle at the Chicago stockyards get to choose a chute. The cattle (being smarter than us) don't bother with party identification. They don't cheer the “left-side” pen, or admire the virtue of its prisoners, the beauty of its fence, the wisdom of their keepers, or the free food. Those in the “right-side” pen don't wear logos or trumpet their superior intelligence over those in the other pen.

~ Fabius Maximus, "Which Political Party Will Best Protect Our Liberties?," LewRockwell.com, September 13, 2010

Sep 10, 2010

Norway invests in Greek debt

One could say we are investing for infinity. It is important when you look at the time scope of the fund and the investments that there should be a portion of active management.

"Norway buys Greek debt as wealth fund sees no default", Bloomberg, September 9, 2010

Sep 9, 2010

Henry Morgenthau on the failure of New Deal Spending in 1939

We have tried spending money. We are spending more than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. ... I say after eight years of this administration we have just as much unemployment as when we started ... and an enormous debt to boot!

~ FDR's secretary of Treasury and close friend, Henry Morgenthau, who served from 1934 to 1945, writing in 1939

Sep 8, 2010

Ludwig Von Mises on higher living standards (message to Ayn Rand)

You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your conditions which you simply take for granted you owe to the efforts of men who are better than you.

~ Ludwig Von Mises to Ayn Rand

Jens O. Parssons on the role of inflation in stock market investing

Attempting to make profits from the stock market, or even to make sense of it, without completely understanding the universal determinant of inflation was like being at sea among uncharted rocks and shoals without so much as a tide table.

~Jens O. Parssons, Dying of Money: Lessons of the Great German and American Inflations, 1974

Sep 7, 2010

The Obama Administration on the "Summer of Recovery" of 2010

As the summer heats up, it is becoming clear that it could quite possibly be the most active season yet when it comes to recovering our economy. There are Recovery Act-funded projects breaking ground across the country that are creating quality jobs for Americans and economic growth for businesses, large and small.

This summer is sure to be a Summer of Economic Recovery.

~Ron Sims, Deputy Secretary of Housing and Urban Development, WhiteHouse.gov blog, A Summer of Recovery, June 17, 2010

Irving Fisher admits socialist sympathies to Yale Socialist Club, 1941

I believe [William Graham Sumner] was one of the greatest professors we ever had at Yale, but I have drawn far away from his point of view, that of the old laissez faire doctrine.

I remember he said in his classroom: "Gentlemen, the time is coming when there will be two great classes, Socialists, and Anarchists. The Anarchists want the government to be nothing, and the Socialists want government to be everything. There can be no greater contrast. Well, the time will come when there will be only these two great parties, the Anarchists representing the laissez faire doctrine and the Socialists representing the extreme view on the other side, and when that time comes I am an Anarchist."

That amused his class very much, for he was as far from a revolutionary as you could expect. But I would like to say that if that time comes when there are two great parties, Anarchists and Socialists, then I am a Socialist.

~ Irving Fisher, in a speech to the Yale Socialist Club in 1941, as quoted in the biography My Father, Irving Fisher, p. 44

Sep 1, 2010

Barton Biggs diving headfirst into stocks after 56% rise

This is not a time where you want to be underinvested. The odds of a significant slowdown are one in five, pretty remote.

~ Barton Biggs, managing partner, Traxis Partners, "Biggs Recommends Stocks Given Odds Economy Will Avoid Recession", Bloomberg.com, September 1st, 2010

James Altucher on bullish Q2 2010 GDP growth

It was positive. Certainly 1.6% growth is better than negative growth. We've now had 4 quarters in a row of positive GDP growth. Clearly we are not in a recession. Are we heading for a double-dip? I doubt it.

~ James Altucher, partner, Baytree Capital, "Seven Reasons Why There Is No Double Dip," SeekingAlpha.com, September 1st, 2010