Jan 31, 2011

Gene Epstein winds up to place foot firmly in mouth on 4Q 2010 GDP call?

The fourth-quarter 2010 GDP report, released Friday, should convince all but the most diehard double-dippers that that the expansion of 2011 is firmly aloft.

Growth in the fourth quarter at an annual rate of 3.2% not only meant that real (inflation-adjusted) gross domestic product finally exceeded its prerecession peak of Q4 '07, thus signaling the recovery's end.

As mentioned, however, business is slow to hire during a recovery from a recession, which itself boosts output per worker. As confidence builds with the onset of expansion, workers are hired at a faster rate, while productivity growth tends to slow. Look for that to start happening in 2011.

~Gene Epstein, "Economic Beat" writer, Barron's magazine,  "GDP: Favorable Auguries", Barron's, January 29, 2011

Davos conference marks peak in global confidence bubble?

The momentum is back and very noticeable. The key word is confidence, the cheapest stimulus there is. With or without the statistics to support it, confidence is still important.

~William Green, chairman, Accenture, as quoted at the 2011 Davos conference, "At Davos, Emerging Markets Were the Stars", Barron's, January 29, 2011

Jan 20, 2011

Jim Chanos on winners and losers once the China bubble bursts

In an investment driven economy, once you finish putting up a building, you have to start all over again and put up another building. Anyone using common sense, this leads to its own set of problems. Everyone gets affected by China's Real estate bubble bursting. The US get affected least. The US is not dependent on resource exporters like Australia, Canada, and Brazil. Those will be the economies that will be hit the most. The real problem is China's credit growth is somewhere between 25 and 35% of the economy. They are expanding credit 3-4 times as fast as their economy which is growing at 9%. Bulls point out that individual purchasers of apartments are not highly leverage. What they are missing is the system, which is geared toward fixed investment is massively leveraged. The system is simply not stable. There will be a reversion to the mean pretty hard for some industrial commodities.

~Jim Chanos, founder, Kynikos Associates, CNNMoney.com interview, January 20, 2011

Jim Chanos on the overvalued Chinese Yuan

Nobody wins a beggar-thy-neighbor devalue your currency race to the bottom. That we know. It simply does not work. We found that out in the 1920's. ... Any economist worth his salt will tell you tariffs add costs. Free trade is the cheapest of all, but politics interferes in these things. Politics can get out of control quickly. Currencies are a case of the tail wagging the dog. I do not think the Yuan is terrifically undervalued. In fact, I think it might be overvalued. The whole world thinks it's undervalued and everyone is positioned for it to be undervalued. When everyone is positioned on one side of the boat you might want to explore the other side. The yuan is overvalued because of China's credit problems, the amount of RMB regulators will have to flood in to refloat the system.

~Jim Chanos, founder, Kynikos Associates, CNNMoney.com interview, January 20, 2011

Jan 18, 2011

Marcus Aurelius on the mania of crowds

The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.

~Marcus Aurelius, Roman emperor and Stoic philosopher

Marcus Aurelius on good fortune

Here is the rule to remember in the future, When anything tempts you to be bitter: not, "This is a misfortune" but "To bear this worthily is good fortune."

~Marcus Aurelius, Roman emperor and Stoic philosopher

Jan 17, 2011

Nassim Taleb on profit, loss and opportunity

The characteristic feature of the loser is to bemoan, in general terms, mankind's flaws, biases, contradictions, and irrationality - without exploiting them for fun and profit.

~ Nassim Taleb, The Bed of Procrustes, p. 12

Nassim Taleb on friendship

Friendship that ends was never one; there was at least one sucker in it.

~ Nassim Taleb, The Bed of Procrustes, p. 15

Nassim Taleb on wisdom and frivolity

Wisdom in the young is as unattractive as frivolity in the elderly.

~ Nassim Taleb, The Bed of Procrustes, p. 16

Nassim Taleb on the value of newspapers

To be completely cured of newspapers, spend a year reading the previous week's newspapers.

~ Nassim Taleb, The Bed of Procrustes, p. 21

Nassim Taleb on being "wealthy"

"Wealthy" is meaningless and has no robust absolute measure; use instead the subtractive measure "unwealth," that is, the difference, at any point in time, between what you have and what you would like to have.

~ Nassim Taleb, The Bed of Procrustes, p. 23

Nassim Taleb on dreams

Decline starts with the replacement of dreams with memories and ends with the replacement of memories with other memories.

~ Nassim Taleb, The Bed of Procrustes, p. 24

Nassim Taleb on true wealth

You are rich if and only if money you refuse tastes better than money you accept.

~ Nassim Taleb, The Bed of Procrustes, p. 27

Nassim Taleb on role models

People focus on role models; it is more effective to find antimodels - people you don't want to resemble when you grow up.

~ Nassim Taleb, The Bed of Procrustes, p. 28

Nassim Taleb on advice givers

It seems that it is the most unsuccessful people who give the most advice, particularly for writing and financial matters.

~ Nassim Taleb, The Bed of Procrustes, p. 33

Nassim Taleb on rumors

Rumors are only valuable when they are denied.

~ Nassim Taleb, The Bed of Procrustes, p. 33

Nassim Taleb on writing

Writing is the art of repeating oneself without anyone noticing.

~ Nassim Taleb, The Bed of Procrustes, p. 43

Nassim Taleb on bureaucrats

Just like poets and artists, bureaucrats are born, not made; it takes normal humans extraordinary effort to keep attention on such boring tasks.

~ Nassim Taleb, The Bed of Procrustes, p. 47

Nassim Taleb on history

Many are so unoriginal they study history to find mistakes to repeat.

Nassim Taleb, The Bed of Procrustes, p. 53

Nassim Taleb on the media and knowledge

Most info-Web-media-newspaper types have a hard time swallowing the idea that knowledge is reached (mostly) by removing junk from people's heads.

Nassim Taleb, The Bed of Procrustes, p. 58

Nassim Taleb on hypocrisy

Finer men tolerate others' small inconsistencies thought not the large ones; the weak tolerate others' large inconsistencies though not the small ones.

Nassim Taleb, The Bed of Procrustes, p. 58

Nassim Taleb on wit

Wit seduces by signaling intelligence without nerdiness.

Nassim Taleb, The Bed of Procrustes, p. 60

Nassim Taleb on nationalism

We find it to be in extremely bad taste for individuals to boast of their accomplishments; but when countries do so we call it "national pride."

Nassim Taleb, The Bed of Procrustes, p. 64

Nassim Taleb on trust

I trust everyone except those who tell me they are trustworthy.

~ Nassim Taleb, The Bed of Procrustes, p. 67

Nassim Taleb on the fragility of politicians

Robust is when you care more about the few who like your work than the multitude who dislike it (artists); fragile when you care more about the few who dislike your work than the multitude who like it (politicians).

~ Nassim Taleb, The Bed of Procrustes, p. 71

Nassim Taleb on government bailouts

The main difference between government bailouts and smoking is that in some rare case the statement "this is my last cigarette" holds true.

~ Nassim Taleb, The Bed of Procrustes, p. 88

Jan 16, 2011

Marc Faber says the dollar is no longer a unit of account

If you measure the stock market not in dollars but gold, it is down 80% since 1999. I no longer regard the U.S. dollar as a valid unit of account. People shouldn't value their wealth in dollars because one day, in dollars, everyone will be a billionaire.

~Marc Faber, investor and author, The Gloom Boom Doom Report, Barron's magazine 2011 Barron's Roundtable, January 15, 2011

Barron's Forsyth says smart money is piling into muni bonds

Forecasts of a wave of municipal defaults totaling hundreds of billions contrast with actual experience. S&P reported Friday that actual municipal defaults totaled $2.65 billion in 2010, equal to approximately 0.095% of the $2.8 trillion muni market, down from $2.8 billion in '09. Smart managers are buying munis, not the hysteria.

~Randall Forsyth, columnist, Barron's magazine,  "Yields Soar on Overpunished Munis", January 15, 2011

Todd Salamane dismisses AAII poll as a contrary indicator

One such market [sentiment] indicator is the weekly American Association of Individual Investors (AAII) survey, which for weeks has indicated optimism among retail investors. I have noticed that many market participants are reacting to this survey's bullishness with caution. In fact, we would argue that the intense focus on this survey has kept many would-be investors on the sidelines, as they use this survey as a contrarian signal, missing the market's advance in the process.

The bullish sentiment found in this survey is in major conflict with actual fund flows in the domestic equity fund world, a more robust measure of retail market sentiment. For example, one might anticipate that on the heels of double-digit 2010 gains and a fresh start to a new year, fund flows into domestic equity funds would have been positive. However, in the first week of 2011, fund flows were more negative than they were during any of the first weeks of the prior five years. As a reminder, this period includes 2008-2009, the height of the real estate bust and financial crisis. So, while some avoid the market due to "excessive optimism," there is evidence that fear among this contingent of investors is higher now than during the dreary fundamental and technical backdrop of 2008-2009.

~ Todd Salamane, "Monday Morning Outlook: DJIA 12,000 is Within View,"January 15, 2011

Jan 14, 2011

Marvin Goodfriend says markets undeservedly overconfident in Fed in 2005

It was a major mistake of the Fed. It gave markets a sense that the Fed was on top of everything to a degree that wasn’t the case. It gave the impression that this was a mechanical adjustment to normality. The market was overconfident.

~Marvin Goodfriend, professor, Carnegie Mellon University, on attending Richmond Fed meetings in 2005, "Fed Officials Saw Housing Bubble in 2005, Didn't Alter Policy" Bloomberg.com, January 14, 2011

Marcus Aurelius on the volatility of reality

How ridiculous and how strange to be surprised at anything which happens in life!

~Marcus Aurelius, Roman emperor and Stoic philosopher

Dave Rosenberg on rational portfolio allocation

I fielded an email the other day with the oh so original saying “Dave, you do realize that the market can stay irrational longer than you can stay solvent”. Well, yes, I do know that, but the reality is that we don’t want to be fully invested in anything that is irrational, and the reason we have an equities weighting is because there is the share of the market that we can identify as trading at multiples that seem sensible and .... rational.

~David Rosenberg, chief economist and strategist, "Breakfast with Dave", January 14, 2011

Jan 13, 2011

Dick Bove says banking problems are ancient history, fuhgeddaboutit

Bank of America in 2009 wrote off just under $50 billion in bad loans. How ya gonna do that again? I mean, where are you going to find $50 billion worth of bad loans to write off? You're not.

Essentially, we're talking about ancient history when we talk about all this, housing "stuff," if you will.

~Dick Bove, Rochdale Securities, CNBC interview

Dick Bove on what's ailing US banks

They're all legal problems, they're not financial problems.

~Dick Bove, Rochdale Securities, CNBC interview, January 13, 2011

Dick Bove says End the Fed! the banks don't need it

Well I wish the Fed would go away because [the banks] don't need it. In other words, you basically have balance sheets which were built up because over the last three years, since the crisis we'll say began at the end of 2007, banks have raised a hundred billion dollars in the open market from investments in common equity and they've increased by $76 billion the retained earnings of the industry. So the industry has added $176 billion in capital, in addition to which the banks have shifted out of loans and they've increased their holdings of Treasuries and cash-like items. So they've completely restructured their balance sheets.

~Dick Bove, Rochdale Securities, CNBC interview, January 13, 2011

Dick Bove on the post-crisis Golden Age of Banking in 2011

I really believe that history repeats itself. In 1990 the balance sheets of the banks were shaped up because of the financial crisis that had existed before that time. The same thing is happening now. There's so much cash in some of the banks in the United States that they're actually selling at below their cash value per share. For example, Citigroup, Bank of America, Bank of New York, State Street, Northern Trust, they all sell at below their cash per share. What that means is these banks all have a tremendous amount of liquidity, which ultimately can be put to use to generate further earnings growth.

I think for the next 2-3 years, what you will see is that banks will actually increase their earnings at about a 20% rate per year which will be far faster than what you're going to see from the industrial averages.

~Dick Bove, Rochdale Securities, CNBC interview, January 13, 2011

Jan 12, 2011

Marcus Aurelius and ignoring the noise

How much time he saves who does not look to see what his neighbor says or does or thinks.

~Marcus Aurelius, Roman emperor and Stoic philosopher

Jan 11, 2011

Robin Griffiths on the insanity of not owning gold

I think not owning gold is a form of insanity, it may even show unhealthy masochistic tendencies, which might need medical attention. Real assets hedge paper money being printed into oblivion, so you've got to own gold and you've got to own other commodity-related investments still. Gold is far from being an overowned trade at the moment, far, far from it. Although it's been a top performer for each of the last ten years, it's still in a linear trend. Eventually it will go exponential and make more in the last little bit than the whole of the ten year trend.

~Robin Griffiths, technical strategist, Cazenove Capital, CNBC Europe, January 10, 2011

Paul Krugman defends his intelligence, suggests he is actually just evil

Get your insults right. There is, I believe, a fair bit of evidence against the hypothesis that I’m stupid. What you mean to say is that I’m evil.

~Paul Krugman, NYT columnist and Nobel laureate, "Notes to Commenters", NYT.com, January 11, 2011

Bill Gross on "mindless U.S. deficit spending"

Above all, remember that all investors should fear the consequences of mindless U.S. deficit spending as far as the eye can see. Higher inflation, a weaker dollar, and the eventual loss of America's AAA sovereign credit rating are the primary consequences.

~ Bill Gross

Jan 10, 2011

James Altucher on bubble investing

We're on the right side of a bubble now, let's try and take advantage of it by buying stocks.

~James Altucher, investor and author, CNBC interview, circa August 28, 2009

Arthur Schopenhauer on the lesson of financial loss

Money is never spent to so much advantage as when you have been cheated out of it, for at one stroke you have purchased prudence.

~Arthur Schopenhauer (1788-1860), philosopher, as quoted in "The 48 Laws of Power", pg. 343

Japanese wisdom on the hidden danger of the free lunch

There is a popular saying in Japan that goes "Tada yori takai mono wa nai," meaning: "Nothing is more costly than something given free of charge."

~Michihiro Matsumoto, "The Unspoken Way", 1988

Robert Greene on the one law of power continually ignored by investors

Law 40: Despise the free lunch.

~Robert Greene, author, "The 48 Laws of Power", 1998

Jan 9, 2011

Marc Faber on the China bubble

naIt may be a painful adjustment, but in the near term there is no danger of an implosion in China. If I was negative about China and the credit implosion in China, I would short the Chinese banks.

~ Marc Faber, Hong Kong-based investment adviser and fund manager who publishes the Gloom, Boom & Doom report, "Eclectica's Hendry Turns Greece Profit Into China Failure Bet," Bloomberg, January 9, 2011

Jan 6, 2011

Huerta de Soto on uninterrupted stock market growth

Uninterrupted stock market growth never indicates favorable economic conditions. Quite the contrary: all such growth provides the most unmistakable sign of credit expansion unbacked by real savings, expansion which feeds an artificial boom that will invariably culminate in a severe stock market crisis.

~Jesus Huerta de Soto, economist, Money, Bank Credit and Economic Cycles, 1997, pg. 462

Jan 5, 2011

Austan Goolsbee on playing chicken with the public debt ceiling

The impact on the economy would be catastrophic. That would be a worse financial economic crisis than anything we saw in 2008. I don't see why anybody's talking about playing chicken with the debt ceiling.

~ Austan Goolsbee, chairman, White House Council of Economic Advisers, ABC's This Week, January 2, 2011

Barack Obama argues against his 2011 national debt policy in 2006

The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. … Increasing America's debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

~ Barack Obama, then senator from Illinois, arguing against raising the US debt ceiling, March 20, 2006

Mark Zandi on the U.S.'s fiscal mess

I think we're going to come to a - what I would call - a reasonably graceful resolution to the problem.

[...]

Let me give you some numbers. The deficit-to-GDP today is 9%. With an improving economy we'll probably get to a deficit-to-GDP of about 5%. To get to a sustainable deficit-to-GDP - one that's not causing our debt loads to rise and interest payments to increase - we need to get to 3% of GDP. So we have to close a 2% to GDP deficit gap. That's about $300 billion a year. I think we can address that: couple hundred billion in spending restraint, hundred billion in tax increase. If we do that and lay out a credible path to doing that over the next 5-7-10 years, I think we'll be just fine.

~ Mark Zandi, Yahoo Finance tech/ticker, January 5, 2011

Warren Buffett shares a confused interpretation of America, past and present

We had four million people here in 1790. We’re not more intelligent than people in China, which then had 290 million people, or Europe, which had 50 million. We didn’t work harder, we didn’t have a better climate, and we didn’t have better resources. But we definitely had a system that unleashes potential. This system works. Since then, we’ve been through at least 15 recessions, a civil war, a Great Depression. … All of these things happen. But this country has optimized human potential, and it’s not over yet. It’s like what’s written on the tomb of Sir Christopher Wren: If you seek his monument, look around you.

~Warren Buffett, investor, as quoted in the New York Times' DealBook, January 5th, 2011

George Bush provides a rationale for bailing out the financial markets in 2008

If money isn’t loosened up, this sucker could go down!

~George Bush, 43rd president of the United States of America, comment made on the financial markets and economy in September, 2008

Warren Buffett on the wisdom of George Bush

The 10 most immortal words in the history of economics.

~Warren Buffett, investor, commenting on George Bush's 2008 declaration, as quoted in the New York Times' DealBook, January 5th, 2011

Warren Buffett defends George Bush's bailout

People should see that the government can do things right. I may not have convinced anyone, but it should mean something when I say George Bush was right!

~Warren Buffett, investor, as quoted in the New York Times' DealBook, January 5th, 2011

Mark Zandi defends the American Empire based on blind faith in policymakers

We have big problems, the number one issue is our fiscal situation. In my view, it was very important for policymakers to act aggressively in response to the financial panic and the Great Recession, but as they say there is no free lunch. It did cost us, you can see it in our deficits and in our debt load. So, we've got a lot of hard work to do but I think we're up to the task and ultimately we will address the issue gracefully enough that we'll get through this reasonably well.

~Mark Zandi, chief economist, Moody's, Yahoo! Tech Ticker interview, January 5th, 2011

Jan 4, 2011

Jim Cramer on the investing outlook for 2011

Your New Year’s resolution should be to temper caution… 2011 is the year for aggressive investing.

~ Jim Cramer, as appeared on CNBC, January 3, 2011

(Cramer gave his top DJIA picks for the year: #1 - Alcoa, #2 - Intel, #3 - American Express.)