The new leader is going to make some tough political choices. Very likely this will cause the currency to strengthen. Bloomberg has the details:
Merrill Lynch & Co., Goldman Sachs Group Inc. and Deutsche Bank AG predict gains of as much as 4 percent in the next six months. They say pressure will mount on the central bank to let the ruble appreciate to stem inflation even if it risks damping profits of oil and energy exporters, which according to Merrill Lynch fund more than half of the federal budget.
The last time Bank Rossii, which must submit proposed changes in monetary policy to the government, allowed the ruble to strengthen was in August, when the inflation rate was 8.5 percent. It’s now 13.3 percent, five times the average of the Group of Seven industrialized nations. Two interest-rate increases this year failed to restrain consumer prices, and Russia “isn’t ruling out” letting the ruble gain, Bank Rossii Deputy Chairman Alexei Ulyukayev said April 24.
“Ruble appreciation will continue to be a key anti- inflation tool given the limited domestic monetary instruments the central bank has at its disposal,” said Ramin Toloui, a senior vice president at Newport Beach, California-based Pacific Investment Management Co., which manages more than $800 billion. “That favors continued ruble appreciation.”
May 5, 2008 No Comments
In From Dawn to Decadence Jacques Barzun noted that, “A decadent culture offers opportunities chiefly to the satirist.” Maybe so, but these days it is nearly impossible to distinguish satire from fact:
May 2, 2008 No Comments
Remember all the criticism Enron took over doing just this (after getting permission from the SEC by the way)? Now the Bank of England is encouraging it:
While market-based estimates and the write-downs announced by firms may be unduly pessimistic, if such concerns persist there is a risk they could become self-fulfilling.
[...]
In that environment, firms may find that previous mark-to-market loss estimates have been overstated and some writebacks of reported losses may occur.
So instead of marking-to-market, you can just mark to anything you feel like…
May 1, 2008 No Comments
This excerpt is from Charles Darwin’s The Journey of the Beagle, published in 1839. As you can see from this passage he recognized the role of property rights in the ascent of man above a substinance living:
Whether we look at it as a cause or a consequence, the more civilized always have the most artificial governments. For instance, the inhabitants of Otaheite, who, when first discovered, were governed by hereditary kings, had arrived at a far higher grade than another branch of the same people, the New Zealanders, — who, although benefited by being compelled to turn their attention to agriculture, were republicans in the most absolute sense. In Tierra del Fuego, until some chief shall arise with power sufficient to secure any acquired advantage, such as the domesticated animals, it seems scarcely possible that the political state of the country can be improved. At present, even a piece of cloth given to one is torn into shreds and distributed; and no one individual becomes richer than another. On the other hand, it is difficult to understand how a chief can arise till there is property of some sort by which he might manifest his superiority and increase his power.
April 30, 2008 No Comments
From today’s WSJ. I keep searching for the punchline but it appears to be real:
Federal Deposit Insurance Corp. Chairman Sheila Bair is finalizing a legislative proposal that would allow the Treasury Department to make direct loans for close to one million homeowners in the latest government initiative to stabilize the slumping mortgage market.
…For loans to qualify, mortgage investors would “pay Treasury’s financing costs and agree to concessions on the underlying mortgage to achieve an affordable payment.”
To modify one million loans, the FDIC estimated it would require a $50 billion public debt offering. Treasury would recoup the costs because it would have the first priority to recover funds if homes are sold, refinanced, or if the borrower goes into default.
So the State plans to modifying private contracts to appease the chattering classes. If contacts can be changed by bureaucratic whim, what good are they? If this goes through count on the cost of a mortgage to go up to compensate the banks for the risk of more state control.
And another tax payer funded bailout. It’s like these politicos have the memory of a goldfish…
April 30, 2008 No Comments
A case in point about the incompetence of state control. According to this story, during a period of record high oil prices, the Mexican national oil company is actually LOSING money:
Mexico’s Cantarell oil field — discovered in 1976 and one of the world’s largest — is drying up. Pemex reported a 2007 net loss of US$1.48 billion (euro98 billion) this week, as its revenues are drained to fund schools, hospitals and public works. Meanwhile, every other major oil company is reinvesting unprecedented profits in oil exploration.
Mexico could lose its standing as a major oil exporter in five years if it does not find more oil, experts say.
And yet the fact that the company is state owned is celebrated in Mexico!
The sentiment dates back to March 18, 1938, when President Lazaro Cardenas kicked out the American and European oil companies that refused to pay union wage demands while reaping Mexico’s oil profits.
Every year on that day, school children learn about the bold eviction of foreign companies, especially those from the United States, whose annexation of half of Mexico’s territory after the 1846 Mexican-American War still hurts.
Women offered their jewelry to help pay to establish the national oil company. Arriola says her grandparents gave their chickens and pigs, and she is hell bent on protecting the company 70 years later.
Put these bureaucrats in charge of a desert and in short order there would be a shortage of sand…
April 28, 2008 No Comments
Caroline Baum places the blame where it belongs:
From legislation to root out discrimination in mortgage lending, to the resultant relaxation of lending standards, to the tax-advantaged status of housing, “the aggressive pursuit of homeownership as a benchmark for success is at the root of the problems we’re seeing today,” says Mark Zandi, chief economist at Moody’s Economy.com.
Reasonable people can disagree over the extent to which the 1977 Community Reinvestment Act, designed to eliminate the practice of “redlining” minority neighborhoods and denying those residents credit, contributed to today’s rising default and foreclosure rates among subprime borrowers. But most agree that government policy played some role.
April 25, 2008 No Comments
Understanding the credit crisis means acknowledging that while the financial instruments involved may be new, the government sponsored inflation and regulation that brought it on is not. The classics of Bastiat, Mises, and Rothbard read like they could have been written this week. This great find by the Mises Institute is by Thomas Paine:
One of the evils of paper money is that it turns the whole country into stock jobbers.
…
There are a set of men who go about making purchases upon credit, and buying estates they have not wherewithal to pay for; and having done this, their next step is to fill the newspapers with paragraphs of the scarcity of money and the necessity of a paper emission, then to have a legal tender under the pretense of supporting its credit, and when out, to depreciate it as fast as they can, get a deal of it for a little price, and cheat their creditors; and this is the concise history of paper money schemes.
April 24, 2008 No Comments
Gekko’s comments in the movie Wall St. still ring true, “They’re analysts, they don’t know preferred stock from livestock, alright?” Businessweek sums up a new book which details how little respect should be paid to the dart throwers:
McClellan, admits that price targets are “fiction,” and buy/sell/hold ratings aren’t taken seriously by professional investors. Analysts spend perhaps only 20% of their time on research and the rest on marketing and other tasks, he says. They create sophisticated computer programs to track a company’s earnings, revenue, and cash flow in close detail. But the results are “not accurate at all,” he says. In fact, analysts often miss big trends and have a terrible record as stockpickers.
April 23, 2008 No Comments
This clearly written FT article discusses why banks loved this tranche of CDO debt and why it is now such an issue:
Sometimes they did this simply to keep the CDO machine running. But there was another, far more important, incentive: regulatory arbitrage.
Most notably, because super-senior debt carried the AAA tag, banks were only required to post a wafer-thin sliver of capital against these assets – even though this debt has typically offered a spread of about 10 basis points over risk-free funds. Thus, banks such as UBS and Merrill have been cramming their books with tens of billions of super-senior debt – and then booking the spread as a seemingly never-ending source of easy profit. And it is not just the CDO desks that have been playing this game; treasury departments have been playing along. So have many hedge funds, including those financed by . . . er . . . the major investment banks.
But, last August it became clear why this 10bp spread existed: namely, because these assets are not as liquid as government bonds in a crisis. Indeed, the prices of some tranches of debt have fallen by 30 per cent in recent months, to the shock of senior managers. Hence these sudden, gobsmacking writedowns at places such as UBS, where the CDO desk alone produced over $15bn of losses, mostly super-senior linked.
April 21, 2008 No Comments
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