Tuesday, August 30, 2005
Now that's more like it! Suzy Assaad is currently interviewing Bill Fleckenstein, who thinks core inflation is a misnomer for there's nothing more core than food and energy. Thus, inflation for him is often understated. Plus, he opines that Alan Greenspan isn't doing anywhere near a good job. Housing, stocks, and bonds are far from promising. For him, basic investments hold little favor. Go for currencies and commodities especially if you're familiar with them. Cool! Like the inimitable Jim Rogers, the iconoclastic Bill Fleckenstein tells it like it is, warts and all. He's not beholden to big business, the government, or anyone else who makes him toe the party line; he goes his own way.
Traditional portfolios are typically proposed as a tradeoff between stocks and bonds. However, in this day and age when stocks drop because of corporations' limited investment opportunities while bonds are likewise unattractive due to geopolitical shenanigans, there must be somewhere else to go. Likely, that isn't hedge funds, which frequently charge fees incommensurate with their returns (sorry, Bill). Study on your own and make your own decisions. Only you can set you free.
Monday, August 29, 2005
OPEC stands for Organization of Petroleum Exporting Countries. To me, that means OPEC's members not only produce oil for export, but are
net exporters of oil who rake in the money when oil prices are high such as now. Meanwhile, Bloomberg TV is
reminding me every half hour that Indonesia--an OPEC member--is suffering from high oil prices as evidenced by near-Asian crisis like rupiah devaluation. Indonesia has been a net importer of oil for a few months now. What is particularly head-scratching is why, in this short space of time, oil has turned from friend to foe with such force.
Political reasons may be part of why Indonesia hasn't been kicked out of OPEC.
It's been suggested that OPEC doesn't want to lose the nation for risk of being seen as an "Arab cartel." Even suggestions that Indonesia is playing off OPEC against the US (which dislikes the cartel) in hopes that the former might decide to invest in boosting Indonesia's output again have been mooted in the said article. Nevertheless, given the potential for large-scale turmoil to envelop Indonesia, it'd be wise for their government to consider the long-term implications of its oil policies. Should Indonesia seek to recapitalize the oil industry and become a net exporter of the black stuff again? Are oil subsidies economically feasible, or are they contributing to the current rupiah devaluation? Time is ticking away.
UPDATE: The central bank of Indonesia has
upped its O/N rate by 75 basis points to 9.5% and is selling off dollar reserves to defend the rupiah's value. Shades of 1997: it's flashback time. I just might start playing some "Savage Garden" records. Truly, madly, deeply do.
Take a look at Don Gimbel here of Carret & Co. Subconsciously, you probably said to yourself, "This is a bonds guy." If you did, well, you were largely right. The stereotype of bond dealers is that they wear bowties. To be sure, bond dealers mostly don't, but when businessmen do, there's a good chance that they dabble in bonds. Why is this so? Well, I'm unable to find a definitive answer, so I'll venture one here. Feel free to pitch in with your own.
Just as some doctors prefer bowties to ties since ties tend to get tangled up while performing their tasks, so did bond traders as a practicality in the days of yore. Before the calculator, they had to perform calculations manually. The tedious operations involved--discounting coupon payments one by one--demanded more vigorous busywork than leaving it to the Bloomberg machine. Hence, bonds guys preferred bowties to ties for bowties were rather less likely to get tangled up. In this day and age, there's no comfort advantage for a bowtie wearer. But, as a tradition, the bonds guy with a bowtie lives on. The search for yield leads us to strange places.
It seems that after every two minutes of watching Bloomberg TV, I am reminded that crude futures have hit $70 a barrel and are hovering thereabouts. Although this is a staggering price, I really can't say whether it'll dent America's great petroleum addiction. (See the
Economist cover.) Now, Americans have many things going for them, but common sense isn't always one of these. At a time when health care costs are going through the roof, they decide to become lardier than all get out. At a time when an entire (baby boomer) generation is set to retire, they decide to whittle down their savings rate to zero. At a time when oil supplies are pinched, they decide to roil markets with a war of convenience that so far has actually dented oil supplies.
Will the real-estate led consumption binge fed by mountains of debt and boundless unwarranted optimism continue? It's really the country's choice. With a net international investment position of
-$2.5 trillion and counting with no end in sight, painful adjustments are on the horizon. $70 a barrel might trigger a bout of sanity, but evidence so far suggests the party may go on. Delaying the onset of less consumer spending and more saving, as well as investment in things that actually help roll back the trade deficit instead of real-estate, will only make the eventual bitter pill that much worse.
Wednesday, August 17, 2005
One of the funniest books of all time is Jim Glassman and Kevin Haslett's Dow Jones 36,000. Practically every page of this irrationally exuberant magnum opus generates more laughs than anything Jay Leno or David Letterman ever thought of. Of course, the humor mostly comes from the fact that the authors were earnest in writing such drivel. Things look quite different in 2005 from what they did in 1999.
So why is it that I open my TV today and see someone trying to sell stocks as superior to bonds for investing one's nest egg? For starters, it won't surprise anyone that this guest was from Oppenheimer Funds, so he's basically promoting his company's products. However, the way it's being marketed--stocks instead of bonds for one's nest egg--smacks of irrational exuberance. Stocks that pay out higher dividends can mimic bonds to an extent, but the trouble remains the same. From the time
Dow Jones 36,000 came out to now, stock markets have gone precisely nowhere. Throw in the depreciation of the dollar and inflation, and US stocks have been a losing proposition. What guarantee is there that stocks will do better than they did for the remainder of the decade, during which boomers will start to retire? In the age of mass terror, soaring energy prices, corporate malfeasance, and housing bubbles, I'll stay on the safe side and stick with bonds. So far, the evidence suggests that most people are doing the same.
I am by now vary wary of the endless parade of housing market boosters on Bloomberg TV, most of whom apparently take great offense to our pink friend who's selling a bucketload of shirts. Frankly, I wish that coverage weren't so one-sided. Paul Krugman said in his New York Times column that Americans make a living selling each other houses with money borrowed from the Chinese. That, of course, is a bit of an exaggeration, but the truth is close. 40% of the jobs spawned after the recession are housing-related. American foreign indebtedness, particularly to the Chinese, is at an all-time high and is showing no signs of stopping. If the $hirt fit$...
Friday, August 12, 2005
Since Bloomberg TV Asia deems it proper to monitor the exchange rate for USD/HKD, why doesn't it do the same for USD/MYR? After all, the Malaysian ringgit is back to its free-floating self after so long. The same could be said for the Chinese yuan, although it's nowhere near being a widely-traded currency. In time, perhaps, but for now, it would be highly informative if the ringgit could be monitored as it's the currency of a Southeast Asian economic power. In fact, it seems to be gaining strength even with the implied threat of Malaysian central bank intervention which has so far limited revaluation to 1.3%. Which, of course, is less than the yuan's 2.1% revaluation.
Monday, August 08, 2005
Behold Bloomberg's fabulous spiral escalator, one of only three in the world. The others can be seen at Caesar's Palace and Wynn Las Vegas. The Big Picture also has camera phone photos of the new set that its writer took while visiting as a guest. Needless to say, the jazzed-up broadcast facilities fit the profile of Mike's jazzed-up building.
Traditional market movers include Alan Greenspan, Mervyn King, Warren Buffett, and Bill Gates. A reflection of our times is that Dr. Zawahiri and his boss appear to be in a similar mold. I once stated that the US markets' response to the London bombings was muted for they even ended higher on the day due to a "didn't happen here" mentality. But, when al-Zawahiri explicitly warned America about forthcoming attacks there, the markets promptly fell out of the sky. Sure there was other negative news last Thursday when the video was aired, but his appearance was the coup de grace. It's plain sad that US markets need brutal reminders about their insularity, and it would do a world of good for them to understand that the US is not an island unto itself.
Wednesday, August 03, 2005
Personal income and personal saving were up 0.5% and 0.8% respectively in June. That was promptly reported by Bloomberg. However, the big news--the downer that never seems to get reported--is that
the US personal savings rate fell to 0.0%. Nada, zip, zilch. That this bit escapes mention is inexcusable. Households bereft of savings will be hard hit by economic shocks that are readily conceivable--terror attacks stateside, oil at $80 a barrel or more, foreigners stop funding the gaping current account deficit, etc. Already, the forthcoming retirement of the baby-boom generation threatens to further decimate marginal savings. Message to Bloomberg: More air time for
disappearing savings, please.
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