Archive | June 2015


Puerto Pobre


An honest politician may be oxymoronic (or is just moronic?), or maybe it’s the black swan that surprises us when seen. Either way, Alejandro Garcia Padilla, governor of the US Commonwealth of Puerto Rico, stated in clear terms a 5-year old could understand (which thus qualifies it as a black swan of political clarity) that Puerto Rico cannot pay its debts; period. This island of 3.5 million very nice people, with a GDP less than Sacramento, has amassed debts of $72 billion. As is so often (always?) the case, excessive debt is not the disease, it is a symptom of Read More




Here we go again, as Ronald Reagan used to say. Asian equities off 2-3%, Europe down 3-4%, Treasuries rallying, gold up. What’s going on? The latest act of this tragedy was the imposition of capital controls and the closing of banks in Greece. These acts were logical following the ECB’s decision to continue to provide emergency funding to the Greek banking system, but capped that funding at the 89 billion euros it has already lent. That’s enough to keep the banks afloat, for now, but not enough for Greek banks to meet any deposit withdrawals which, as you might imagine, Read More


More on Rates…


A few days ago (Beginning’s End) I suggested 2015 might turn out to be the worst year for bond investors in the past three decades. Here are some additional pictures (courtesy of Goldman Sachs) to quantify the risks. First we show the principal loss by the end of this year under various scenarios, with yields rising per current expectations or rising to historical means. The consensus expectation is for a loss greater than the current yield. Should yields revert to any of the historic means, losses would be greater. Before the tears start flowing, though, consider that US investors are Read More


Beginning’s End


In November 1942, with the Battle for Egypt under way, Winston Churchill addressed his nation with these words: Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. Words meant to rally a nation engaged in an existential battle that very much hung in the balance. Churchill grasped at some tentative victories that would, in fact, mark the end of the beginning phase of the war, one which saw Allies routed from Calais to Hawaii. Government bonds rarely post a net loss in any given calendar Read More


Party Like It’s 1999?


Some observers point to the eye-popping valuations for companies with little revenue (WhatsApp, e.g., bought by Facebook for $19 billion) as indicative of an equity market that is partying like it’s 1999, and thus on the verge of imminent collapse. I suppose that’s possible, although I don’t think so. But I do think that investors should show a little humility when extrapolating trends, particularly into the future (as Yogi Berra wisely noted), and especially in highly dynamic industries. The table below, courtesy of Mary Meeker, reminded me of the precariousness of corporate longevity. Most of the largest internet companies of Read More


June Gloom Will Fade


1024″June gloom” is what you get when a warming land mass meets a cooler ocean: a layer of marine fog that the sun burns off into afternoon haze. It is the weather pattern in Santa Monica for every June that I can remember. Ignore the “bad news” headline of Friday’s May employment report, that the unemployment rate ticked up to 5.5% from 5.4%. Job growth is robust. Payrolls grew 280,000 in May, with another 32,000 added to the two previous months. Private sector payrolls added 262,000 in May, the 63rd straight monthly gain, the longest such streak since at least Read More