Dec 31, 2010

Howard Davidowitz on the "wealth effect" of capital markets in 2010 on retail sales

About thirty percent of America did much better [financially in 2010] because of the performance of capital markets, so I knew there was going to be a comeback. I don't think it's indicative of anything going forward because I think if you look at our fiscal and monetary policy, we went $2 trillion in the hole last year. Two, trillion. Two TRILLION! To produce this. And unemployment, went up! ... to 9.8, and we spent two trillion.

They're printing money, we're going bananas! We've got 2.6 trillion on the [Fed] balance sheet, he's got government securities and the mortgage-backed securities. If interest rates go up a point he's bankrupt. Everything he bought is going to be underwater. All his mortgage-backed securities are underwater. The whole country is underwater. We're going nowhere.

~Howard Davidowitz, chairman, Davidowitz and Associates, Bloomberg.com interview, December 31st, 2010

Howard Davidowitz sees continued problems for CRE and community banks in the US

In the end, what do you do with the retail space? This is going to be a huge question for retailers in the next ten years. That's why Wal-Mart is starting to build smaller stores. That's why Wal-Mart is building more overseas than they're building here.

[Commercial real estate landlords] already have occupancy problems, rent problems and everything else right now. I don't think commercial real estate problems are fixed by any means. That's why we're going to close hundreds of community banks going forward.

~Howard Davidowitz, chairman, Davidowitz and Associates, Bloomberg.com interview, December 31st, 2010

Howard Davidowitz on the coming transformation of the American retail marketplace

With the explosion of online sales, what happens to all of these retail malls and the tons of shopping centers that are marginal? I think there are huge questions going forward about size of stores, location of stores, distribution facilities. Huge changes are going to be taking place in the next five years as people continue to shop online.

~Howard Davidowitz, chairman, Davidowitz and Associates, Bloomberg.com interview, December 31st, 2010

Dec 28, 2010

Epitaph For 2010?

Once left for dead, shares of bailed-out American International Group Inc. have defied critics and rallied to become one of the market's top performers in 2010.

On Tuesday, AIG's publicly traded shares closed 45 cents lower at $58.93, capping a nearly 97% gain in the year to date and over 42% in December alone. The insurer is the fourth-best performer in the S&P 500 index this year.

~The Wall Street Journal, "AIG Stock's Unlikely Comeback", December 28th, 2010

Fred C. Koch on the value of failure

I hope your first deal is a loser, otherwise you will think you're a lot smarter than you are.

~ Fred C. Koch, founder, Koch Industries, to his son Charles G. Koch upon joining the family business, as quoted in "The Science of Success", 2007, pg. 10

Will Durant on history serving as a determinant of the present economic and social structure

In the end nothing is lost, for good or evil every event has effects forever.

~Will Durant, historian, "Our Oriental Heritage," 1935, pg. 264

Will Durant on the permanence of bad ideas

There is hardly an absurdity of the past that cannot be found flourishing somewhere in the present.

~Will Durant, historian, "Our Oriental Heritage," 1935, pg. 244

Will Durant on the fragility of civilization

Civilization is an occasional and temporary interruption of the jungle.

~Will Durant, historian, "Our Oriental Heritage," 1935, pg. 226

Dec 19, 2010

Mark Thornton on the tech bubble (2000)

Dear Investors Business Daily:

In "Are Boom- Bust Cycles Gone Forever?" (08-23-00, p. A10) a strong case is made that the business cycle is dying, if not dead. Once again the "new economy" mantra of technology, globalization and government management of the economy has raised its ugly head.

The same mantra was common in the U.S. during the 1960s when Keynesian "counter- cyclical fiscal policy" was in charge of the business cycle while American high tech companies expanded around the globe. Then came the stagflation of the 1970s. The Japanese boom of the 1980s was said to be due to its "managed economy" that allowed Japanese industry to dominate world markets. The Japanese bust of the 1990s followed. And who can forget the "Roaring 20s" when America's new technology (radios, cars, planes, refrigerators, motion pictures, etc.) had the world in awe. Economist Irving Fisher declared a "permanent prosperity" right before the stock market crash of 1929 and the Great Depression.

Technology cannot kill the business cycle. In fact, technology is the mechanism that traps capital in unsustainable and premature investment projects. Entrepreneurs are lured by artificially low or stable interest rates during the "boom" phase of the business cycle only to see their plans go bust as interest rates and inflation increase.

Clearly FED chief Alan Greenspan understands that monetary instability is the key to the cycle and he has recently stated his knowledge of the Austrian business cycle theory to Congress. But knowing the problem and solving it are two different things. Knowledge of economic theory does not allow bureaucrats to solve the problems of government inefficiency, taxation, business regulation and price controls.

The business cycle will not die until money and credit are purely market-based institutions, rather than government bureaucracies that supply, control, and regulate. While such a radical change of institutions is an unlikely event in the near future, requiems for the death of the business cycle might serve as a good forecast for what is.

~ Mark Thornton, letter-to-the-editor sent to IBD, never published, August, 2010

Ludwig von Mises on economic forecasting

Economics can predict the effects to be expected from resorting to definite measures of economic policies. It can answer the question whether a definite policy is able to attain the ends aimed at and, if the answer is in the negative, what its real effects will be. But, of course, this prediction can be only "qualitative." It cannot be "quantitative" as there are no constant relations between the factors and effects concerned. The practical value of economics is to be seen in this neatly circumscribed power of predicting the outcome of definite measures.

Dec 18, 2010

Doug Casey on providential lessons and contrary indicators

At any rate, the day Elmer came in happened to be the day that gold hit its absolute bottom for that cycle — $103.50, if I recall correctly — and also happened to be the very same day there were big riots in Soweto that made headlines in the U.S.

So, Elmer gets hit with these two things at the same time, calls me back up and says he wants to cancel his order. I said: "Elmer, this isn't Woolworth's. You can't really take the merchandise back." But rather than paying me for what he ordered, he hung up the phone on me.

Having entered the orders for the stocks the previous day, I had to ask myself what I would do about it. It was something of a revelation to me — it was clear that I was dealing with a typical member of the public, a representative of their mindset. I figured he must be the perfect contrary indicator. In today's terms, I had to ask myself if I was just talking the talk, or if I was willing to walk the walk.

I have no idea what happened to him after he hung up on me, but I thank him for appearing at the right time. Elmer was completely ignorant of economics and the markets, but he nonetheless taught me a more valuable lesson than any teacher in four years of college.

~Doug Casey, international investor, Casey Research, "Education of a Speculator", LewRockwell.com, May 27, 2010

Max Stirner on the operating logic of the world's power elite

He who has the might, has-- right; if you have not the former, neither have you the latter. Is this wisdom so hard to attain? Just look at the mighty and their doings!

~Max Stirner, German philosopher, The Ego and His Own, pg. 193, 1845

Dec 17, 2010

USA Today reader demonstrates the wisdom of the experts

You dirt bags in Wall Street took me in the tech bubble and the housing bubble and left me with useless pieces of paper. From now on I invest in the local Indian casino, at least they will feed me after they clean me out.

~"doctor pangloss", commenter and voice of America on the article "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

David Bianco says emerging markets will drive US stock market in 2011

About 40% of the S&P 500's revenue comes from abroad, where many countries are growing at a faster clip than the U.S. The S&P has a lot of powerful indirect exposures to the world economy, via emerging market and commodity demand. Commodity prices are very important to the energy, industrial and material companies. Business spending also has a lot of connections to global growth. And that's what drives S&P earnings.

David Bianco, chief US equity strategist, Bank of America Merrill Lynch "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

Richard Burnstein says don't fight the Fed in 2011 (or even 2012)

We can argue to great length as to whether all this monetary and fiscal policy is good for the long-term health of the U.S. economy. But it's hard to fight the fact that in the next 12 to 18 to 24 months, this is going to put the wind in the sails of the U.S. economy.

Richard Burnstein, CEO and CIO, Richard Burnstein Advisors, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

Richard Bernstein says investors are in "denial" about bull market

Markets go through four phases. The first phase is a period of denial, where people say, it can't happen (stocks rising despite risks), it won't happen, and if it's happening it can't continue. That's where we are in the U.S. The second phase is acceptance, like OK, I should probably be (buying stocks). The third is what I call the brave new world, things are never going to change, everything is wonderful. The fourth phase is the bear market.

In the U.S. we're in phase one. The fact that the stock market is up more than 80% from its trough, and people refuse to believe that there's actually a bull market underway, reflects that we are in the denial phase.

~Richard Bernstein, CEO and CIO, Richard Burnstein Advisors, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

David Bianco says plays the EM in 2011, but do it through the S&P so he can make money

When we talk to clients and we look at portfolios that are largely cash, Treasuries, municipal bonds and gold, we point out that that's just not a balanced portfolio. It's a portfolio with its own kind of risks, and a portfolio that, over time, is not going to keep up with your wants and desires for funding your long-term financial needs.

Within the S&P 500, our advice is to stick with strength in 2011. And strength in the world is the emerging economies. But we want to point out that there are lots of plays on emerging economy growth within the S&P 500, particularly the technology, energy, industrial and materials sectors.

~David Bianco, chief US equity strategist, Bank of America Merrill Lynch, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

BlackRock's Bob Doll says confidence begets confidence and the only way is up in 2011

We've been through a period of very low confidence: consumer confidence, CEO confidence. And there's nothing like a slightly better economy, a slightly better stock market to argue that confidence will beget more confidence. CEOs are never more confident than when their stock price is going up.

They will be more willing to do some positive things with the $2 trillion-plus in excess cash sitting on their balance sheets: raise their dividend; buy back their stock; engage in M&A; re-invest in their business; hire a worker or two; or maybe put up a new plant. I think that's what's in front of us.

~Bob Doll, chief equity strategist, BlackRock, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

Bob Doll says the risks are to the upside in 2011

First, why are individuals shunning stocks? We cut them in half in 2000. We cut them in half again from 2007-2009. They're scared. That's to be expected. You have to ask, OK, what are the alternatives? And where have they been putting their money? We all know they've been selling stocks and buying bonds. You look at the big gap that's opened up in the valuation of stocks vs. bonds, and you've got to believe, unless the world is going to end and we are going to have a depression, that the gap is going to close.

We all know that the public tends to buy after things are moving up. So maybe what we've seen in the last few weeks is the beginning of the reversal.

The difference is, in 2010 the risks were more to the downside. In 2011, in my view, the risk is more to the upside. So if we're wrong, I think our forecast is too low.

~Bob Doll, chief equity strategist, BlackRock, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

Abby Joseph Cohen still can't see double-dip, targets 12-mo S&P 1450

One can certainly understand why investors are so concerned. We have gone through an extraordinary experience between the credit crisis, very severe recession and extremely volatile markets.

But now that we're seeing that the U.S. economy has some traction, and the likelihood of a double-dip recession is remote, it's time to look again, not just at so-called risky securities like stocks, but to do the really hard work on valuation. Because a security that seems safe, if it is priced too high, is not safe.

I would put quite a few bonds in that category. To be buying a bond at record low yields makes one think that there is now risk there. Investors have to recognize that there may be risk in the so-called safe securities, but there's also the opportunity cost of not participating in some other securities.

When the economy does better, things like stocks and commodities tend to rise in price. U.S. equities are now trading between 13 and 14 times earnings, and that is significantly below the historical average. That suggests that there's good value there. Our 12-month market forecast for the S&P is 1450.

~Abby Joseph Cohen, president and senior investment strategist of Global Markets Institute, Goldman Sachs, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

David Bianco says go buy some stocks for 2011

We're broadly bullish on U.S. equities. It's important for investors to get back into the asset class. Go buy mutual funds. Go buy index funds.

~David Bianco, chief US equity strategist, Bank of America Merrill Lynch, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

BlackRock's Bob Doll says economic recovery clears the way for stocks in 2011

If you don't believe in a depression, and I don't, stocks will go up and bonds will go down in the next few years.

~ Bob Doll, chief equity strategist, BlackRock, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

Dec 16, 2010

Ludwig von Mises on the government's attempt to eliminate vices

It is an established fact that alcoholism, cocainism, and morphinism are deadly enemies of life, of health, and of the capacity for work and enjoyment; and a utilitarian must therefore consider them as vices. But this is far from demonstrating that the authorities must interpose to suppress these vices by commercial prohibitions, nor is it by any means evident that such intervention on the part of the government is really capable of suppressing them or that, even if this end could be attained, it might not therewith open up a Pandora's box of other dangers, no less mischievous than alcoholism and morphinism.

~ Ludwig von Mises, Liberalism

Dec 12, 2010

Ron Paul on the Federal Reserve

Today, there is no principled opposition to the corporate bailouts and the Fed’s trillions of dollars of new credit and the takeover of insurance, mortgages, medical care, banks and the auto industry. The arguments have only been over amounts, financial vehicles, and which political group gets to wield the economic power. If there is no moral argument against the economic takeover of America, there will be no resistance to the dictator who rules over our lives with an iron fist.

"The Fed? Ron Pauls not a fan", New York Times, December 12, 2010

Dec 11, 2010

Kevin Duffy on having successful CEOs run government agencies

Even if you put the brightest people in charge of government agencies they will fail. Companies serve customers peacefully and voluntarily; their decisions are rationally guided by the price system, making sure resources aren’t wasted. If they lose money for long they close their doors. Government bureaucrats, on the other hand, serve their customers through coercion (taxes). Their decisions are guided by votes and special interest bribes. They spend other peoples’ money, have no price system to guide them, have a limited feedback system (elections with no real choice every 2 years), and are essentially flying blind.

~ Kevin Duffy, December 10, 2010

Dec 8, 2010

50 Cent on the decline of America

America was once a country of great realists and pragmatists. This came from the harshness of the environment, the many dangers of frontier life. We had to become keen observers of everything going on around us to survive. In the nineteenth century, such a way of looking at the world led to innumerable inventions, the accumulation of wealth, and the emergence of our country as a great power. But with this growing power, the environment no longer pressed upon us so violently, and our character began to change.

Reality came to be seen as something to avoid. Secretly and slowly we developed a taste for escape- from our problems, from work, from the harshness of life Our culture began to manufacture endless fantasies for us to consume. And fed on such illusions, we became easier to deceive, since we no longer had a mental barometer for distinguishing fact from fiction.

This is a dynamic that has repeated itself throughout history. Ancient Rome began as a small city state. Its citizens were tough and stoic. They were famous for their pragmatism. But as they moved from being a republic to an empire and their power expanded, everything reversed itself. Their citizens' minds hungered for newer and newer forms of escape. They lost all sense of proportion - petty political battles consumed their attention more than much larger dangers on the outskirts of the empire. The empire fell well before the invasion of the barbarians. It collapsed from the collective softness of its citizens' minds and the turning of their back on reality.

"The 50th Law", 50 Cent and Robert Greene

Todd Harrision on the stimulus drug

I've also been too cautious in the past few months as I've waited for the other side of the storm to arrive. I'm quite certain the imbalances are cumulative still; the longer we take drugs that mask symptoms rather than medicine that cures the disease, the more profoundly painful the eventual comeuppance will be.

[...]

At the end of the day, we must ask ourselves an honest question: If the capital markets need an IV drip from the government to stay afloat — or if the financial industry remains one FASB 187 accounting change away from technical insolvency — how will that dormant toxicity and ever-expanding largesse manifest as we edge ahead?

~ Todd Harrison,"Conventional Wisdom: Financial Crisis is Over," MarketWatch, December 1, 2010

Andrew Mellon on the 1929 Crash (1930)

There is nothing in the situation to be disturbed about.

~ Secretary of the Treasury Andrew Mellon, February 1930

Bernard Baruch on the 1929 Crash (1929)

The financial storm has definitely passed.

~ Bernard Baruch in a cablegram to Winston Churchill, Nov. 15, 1929.

George W. Bush on the Iraq War (2003)

Mission accomplished!

~ President George W. Bush regarding the Iraq War, May 1, 2003

John Maynard Keynes: "no more crashes in our time" (1927)

We will not have any more crashes in our time.

~ John Maynard Keynes, 1927

President Herbert Hoover on the 1929 Crash (1930)

While the crash only took place six months ago, I am convinced we have now passed the worst, and with continued unity of effort, we shall rapidly recover.

~ President Herbert Hoover, May 1, 1930

Dec 6, 2010

Jim Sinclair on OTC dervatives

The securitized debt OTC derivative market is seizing up. It is not seizing up, it is dying. This mountain is a two trillion dollar scam. It was known in 2008, but nothing was done about it. Now litigation is going to set the victims free. What the first OTC derivative crisis did not do to the international investment banks, litigation will. Here comes the final act in the OTC derivative crime against humanity.

Jim Sinclair on OTC derivatives, www.JSMineset.com, October 19, 2010

Christian Science Monitor on the Titanic (1912)

"Passengers Safely Moved and Steamer Titanic Taken in Tow."

~ Christian Science Monitor headline, April 15, 1912

Dec 1, 2010

Jim Chanos on the China property bubble

Dubai, at the peak of its building boom, had 240 square meters of property under development for every $1 million in national GDP. In urban China today that ratio is four times as high. We've seen this movie before. It was Dubai a couple of years ago, Thailand and Indonesia during the Asian crisis of the late '90s, and Tokyo in 1989. This movie has a bad ending.

~ Jim Chanos, "Chanos vs. China," Fortune, December 6, 2010