Animated Unemployment
Lance on Nov 21 2009 | Filed under: Economic Indicators, Economics, Employment, economy
A very cool animated Graphic showing the change in unemployment over the last two years.
Click Image for Animation
Taking a Closer Look at Unemployment
Lance on Nov 08 2009 | Filed under: Economic Indicators, Employment, economy
Employment as measured by the “establishment survey,” was down by 190,000; and Many feel it is an improvement that we are not falling as fast.
Well, let us take a moment to look under the hood of these numbers. First, while the establishment survey was down 190k, the number of unemployed soared by 558,000, to 15.7 million, as measured by the household survey. The establishment survey is taken from large businesses while the household survey calls individual households. It is the household survey that sets the unemployment rate. The establishment survey of companies doesn’t count the self-employed and undercounts employees of small businesses. So the economic picture is probably worse than the headlines when it comes to jobs.
Fat Pitches and the Carry Trade
Lance on Nov 05 2009 | Filed under: Absolute Return, Alternative strategies, Arbitrage
At the end of last year, my opinion was the fattest pitch in investing over the near term was convertible arbitrage. The downside seemed very limited, the upside large and unlikely to correlate with the market. Well, it did correlate with the market, at least once the market turned. In essence everything did. Before that, it did pretty well on the downside so I got that part right.
Jake at Econompic gives us this chart, which shows that convertible arbitrage has indeed led the way this year:
Unfortunately, he has a fine post, which shows the dark side of this rally and the “carry trade” which has been helping finance it:
if the correlation of assets purchased is near one on the way up, it is sure as hell going to be that high or higher on the way down. And what happens to all these investors that are attempting to leave the same exit door at the same time? Massive re-purchasing of the dollar and massive selling of any risk asset… joy.
Joy indeed.
Cross posted at “The View From the Bluff.”
Economists Monkeying Around
Lance on Nov 05 2009 | Filed under: Economics
What can we learn from monkeys about economics? It seems monkeys value skills, at least those in scarce supply.
Testing on the Great Economists
Lance on Nov 05 2009 | Filed under: Economics
A little fun. Robert Whaples, an economics professor, has posted a short timed quiz on the contributions of great economists. Okay, maybe only fun for geeks such as myself. I missed the last question, and frankly don’t know a lot about that economists actual work, though I am familiar with his overall view of things and read some of his stuff. Everybody else was pretty much obvious, or at least to a geek like myself. Have fun!
A Roll of the Dice
Lance on Nov 03 2009 | Filed under: Uncategorized
Emma James of the Baton Rouge Business Report interviews myself, Mike Patton of Integrity Wealth Management (a pretty good egg from what I know of him) and Professor Kelley Pace of LSU on the subject of Real Estate Investment Trusts (REIT’s.) I think she does a pretty good job on what is in fact a very complex issue at the moment.
On a longer term basis public REITs are reasonably valued, and the very possible collapse in the Commercial Real Estate market will give public REITs with their more flexible capital structures the ability to buy some very attractive property at distressed prices. However, they will likely be under tremendous pressure in the shorter run, and the overall market environment is likely to be unkind as well. Which means we may get a chance to buy them at a much cheaper price down the road, with the opportunity for them to profit from the distressed property market still in front of us. It may seem a bit like dancing on gravestones, but I would welcome it.
Unlike 2006-2008 I am not of a mind to go “short” publicly traded REITs however, as reasonable long term valuations make that potential decline far from a given.
More “Money on the Sidelines” Nonsense
Lance on Sep 28 2009 | Filed under: Uncategorized
Barry Ritholtz jumps on one of my pet peeves, the whole “gobs of money on the sidelines” scam (silliness, nonsense or delusion work also) which constantly crops up in financial commentary.
Folks, don’t fall for it. The stock market may rise or fall in coming months but “money on the sidelines” will not have anything to do with it. Barry resurrects an old John Hussman piece which is one of my favorite dissections of this myth:
I’ve said this before, but it’s important. If Ricky sells his money market shares and buys stocks, then his money market fund has to sell commercial paper to Nicky, whose currency goes to Ricky, who uses it to pay for the stock bought from Mickey. In the end, the currency that Nicky held is now held by Mickey, the commercial paper held by Ricky is now held by Nicky, and the stock held by Mickey is now held by Ricky, and there is exactly as much stock, commercial paper, and currency outstanding as there was before. All that happened is that the owner of each security has changed.
I suggest reading the whole thing, but if ordinary logic doesn’t prove it then maybe actual facts about the behavior of markets will help, also courtesy of Barry:
Notice, when the market was rising so was cash. It didn’t disappear into the stock market and explain the rising market. In fact, during the tech crash it declined along with the market. Before the most recent market crash this argument “cash on the sidelines” was used to argue why the stock market wouldn’t decline. How did that work out?
Amusingly (if somewhat darkly so) Hussman in the piece above wrote in 2006 how the fallacy might mislead us:
There is an important reason for these considerations here. As I’ve noted in recent months, it’s likely that China and Japan will at least stabilize in their willingness to absorb the flood of government liabilities that they’ve been snapping up in recent years. That means that more of these liabilities will be forced into the hands of U.S. investors. As that happens, we’re likely to observe an accumulation of “cash on the sidelines” that might look like a hopeful sign for stocks.
A hopeful sign that left investors holding the bag. Don’t believe it this time or next time.
The Bailout May Need a Bailout
Lance on Sep 27 2009 | Filed under: Uncategorized
Our government is now on the hook for trillions in mortgage loans, and traders are making money selling them more debt. The problem is that the bailout just may be suffering losses that are leaving our government scrambling to shuffle the pea from cup to cup. From Heidi Moore:
Look deeper, however, and the government isn’t really quitting its bailouts at all. It is just shifting strategy away from banks and financial services to a new set of quieter bailouts, centered on the housing and real estate markets in general and Fannie Mae and Freddie Mac in particular. In this way, the administration’s actions are meshing with the wishes of House financial services committee Chairman Barney Frank, who said last year, “I want at least two years with President Obama and a solidly Democratic Senate so that we can get the federal government back in the housing business.” Now it is, even to the point that the government is at risk of creating another mortgage bubble. We just have to see if the government can handle it.
The government has to concentrate all of its resources on keeping the housing and real estate markets stable because the government is now the single biggest investor in mortgage-backed securities. It bought more than 80 percent of all the mortgages issued by Fannie and Freddie. What this means is that if homeowners start to fall behind on those mortgages in even bigger numbers than the current 9.24 percent default rate, the government is in deep trouble, starting with the Federal Reserve. The Fed’s own balance sheet—its financial holdings—has ballooned to $2.1 trillion from just $800 billion a year ago. One-third of the Fed’s balance sheet is weighed down with $625 billion of troubled mortgage-backed securities, once floating around the market and now invited to stay in Uncle Sam’s own accounts.
How Bad is the Employment Picture?
Lance on Sep 27 2009 | Filed under: Uncategorized
Whither Inflation?
Lance on Sep 17 2009 | Filed under: Uncategorized
American Public Media’s Paddy Hirsch does a good job of breaking down the deflation and inflation risks we are facing. I think he ends up discussing the likely outcome. Deflation, or at least very low inflation, for the next 2-3 years followed by accelerating inflationary pressures for the next 5-7 years.
Inflation from Marketplace on Vimeo.
The Debt Mountain
Lance on Aug 08 2009 | Filed under: Uncategorized
The problem ultimately from an economic point of view is the mountain of debt. Short term it may be argued, and I say that with caution, that keeping debt from falling is what we needed to do to give us time to work it down in an orderly manner.
However, working that mountain of debt down needs to be done and will be a large drag for years. Hat tip: Clusterstock
Stephen Roach on Green Shoots: “get a new metaphor”
Lance on Jul 22 2009 | Filed under: Uncategorized
Stephen Roach, chairman of Morgan Stanley Asia, lets CNBC know something many seem to be missing, the financial crisis is not over.
Green Shoots and Brown Weeds
Lance on Jun 19 2009 | Filed under: Currency, Dollar, Economic Indicators, Economics, Employment, Federal Reserve, Government policy, Housing Market, Inflation, economy
We conducted our first webcast last week, an update on the housing market, unemployment and the economy. We had a couple of technical issues which were a bit distracting, and we need a new microphone, but all in all a fair overview of the economy which was well received by those who attended. The webcast can be viewed at our new YouTube page.
Here is part I:
Thanks for visiting Risk and Return. Please feel free to contact us with any questions and/or comments. Please note our disclaimer.
Bennet Sedacca RIP
Lance on Mar 18 2009 | Filed under: Absolute Return, Great Investors
I just saw this and am very distressed. Bennet has been a ray of light in a world filled with people trying to obscure the truth. His passing is a sad moment.
For some of the best and most insightful financial writing around I recommend combing through his archives. I occasionally do. Revisiting past musings of the greats may not be as immediately useful as some things, but longer term it allows a perspective that will serve you well over time. distributed raman amplifier
A Brilliant Couplet
Lance on Mar 12 2009 | Filed under: Econ Blogs, Economics
One need not share Arnold Klings view on the particular issue. However, I think one must appreciate the cleverness of his rhetoric.
One view of the Japanese stimulus (or multiple stimuli) is that it (they) failed because it was (they were) too small. Just as the reason that in World War I all British attacks prior to the Battle of the Somme failed was because they were too small.
The Stanford Group Fraud
Lance on Mar 07 2009 | Filed under: Advisory services, Baton Rouge News, Personal Finance
I have had a problem with the Stanford Group, and the “CD’s” they were pushing, for several years now. No need to explain why at this point. Anyway, this has hit Baton Rouge extremely hard. I don’t believe in relative terms (outside of Antigua itself) any other community had a larger exposure to Stanford than Baton Rouge.
Therefore it is no surprise that it is a larger story in Baton Rouge than elsewhere. Anyway, The Baton Rouge Business Report’s (as fine a local business publication as there is in the United States) Olivia Watkins interviewed me on how those of us in the industry viewed the impact and fallout from this. It was a long discussion, but some of my thoughts on how this kind of thing has played out in the past made it into this story.
A Painful Restructuring
Lance on Mar 07 2009 | Filed under: Economic Indicators, Employment, economy
An excellent overview of the dramatic restructuring of the US economy at the NY Times.
Click for larger version of charts.
Best Compensation Idea of the Year
Lance on Dec 19 2008 | Filed under: Uncategorized
Goes to Credit Suisse:
The bank will use leveraged loans and commercial mortgage- backed debt, some of the securities blamed for generating the worst financial crisis since the Great Depression, to fund executive compensation packages, people familiar with the matter said. The new policy applies only to managing directors and directors, the two most senior ranks at the Zurich-based company, according to a memo sent to employees today.
I love it. If they go up the execs get a big payoff. If they don’t, at least they are off the banks books. Cash is preserved, the balance sheet strengthens.
Bad Housing Solutions, They Keep Coming
Lance on Dec 19 2008 | Filed under: Government policy, Housing Market, economy
I have already given the only measure that I think makes sense when it comes to the housing crisis, but people keep coming up with others. Like most of the ideas coming out to deal with this crisis, Glenn Hubbard and Charlie Mayer try to convince us that the way to deal with our credit and housing bubble is to reflate it. Felix Salmon tears into this idea, and he should. Higher housing prices, and lower rates on mortgages is not the answer, and he details exactly why. Read the whole thing.
The cure for our housing crisis is prices coming down and all the pain that comes with it. Making them “affordable” through extra low interest rates just creates a new crisis down the road.
Value and Regression
Lance on Dec 10 2008 | Filed under: Domestic Equities, Valuation
Over at dshort.com there is an interesting look at valuation and regression to the mean (click image to link to larger version)
The peak in 2000 marked an unprecedented 160% overshooting of the trend, which is double the overshoot in 1929. The index has been above the trend for 17 years. We also see that the major troughs saw declines in excess of 50% below the trend. If the S&P 500 were sitting squarely on the regression, it would be hovering around 820. If the index should decline over the next 12 months to a level comparable to previous major bottoms, it would fall to the vicinity of 400-425.
That is a teeny bit lower than how I see it, but it is about right. However, he provides a chart which adjusts for inflation using John Williams’ shadow government stats. That shows the markets at all time lows. You can see and read the rest here.
I have one problem with that analysis. While I do think some adjustment might make it look a little better, if John Williams’ numbers are correct then stocks should be as low as they are because GDP and earnings have been horrible in inflation adjusted terms for a very long time. We have been in a recession for two decades similar to Japan. I don’t think that is true, but if so then stocks deserve every bit of the undervaluation they have experienced.
I’ll stick with the first graph being slightly overstated. It should be noted that statisticians would likely have problems with the while idea of the long term regression line having any meaning. I disagree, there are fundamental economic reasons the line makes sense as an approximation. I won’t go into the details now, I just want it noted I am aware of the issue.
Hat tip: Barry Ritholtz.
