Author Archive | Michael Rosen

criminals-in-diapers

Criminals in Diapers

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Japan grew from the (literal) ashes of the Second World War to become the second largest economy in the world by creating products we all wanted. Some were revolutionary, like the Sony Walkman, some just a better version of an existing product, like the Toyota automobile. And some were wildly popular for inexplicable reasons, such as Hello Kitty or Teenage Mutant Ninja Turtles. The Japanese economy was an amazing success story. But two decades of no growth, deflation and a shrinking population combine with public comments from politicians and CEOs that are often platitudinous, mysterious and contrary to reality, leaving Read More


dry-hole

Dry Hole

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Southern California just had the wettest July on record, the Angels were rained out of a home game for the first time in 20 years, and we’re all getting excited that a strong El Niño is developing for the winter. But let’s all take a deep breath. The record July rain at LAX was about one-third of an inch. That’s about a 15-minute downpour in the rest of the country. It was a little better in San Diego, just over an inch-and-a-half. So, while welcomed, it wasn’t much, especially when we consider the (dry) hole we’re in. The first chart Read More


hot-bidding

Hot Bidding

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The housing recovery, from its worst downturn since at least the 1930s, has been steady, but much less robust than most had expected. There are many explanations offered, from mean banks who have tightened lending standards, to over-indebted households who have no capacity to borrow, to a societal shift away from ownership to renting. There’s probably some truth in all of these. But housing is picking up steam, and one of the phenomenon of previous bubbles, bidding wars, may be coming back. This first graph (courtesy Redfin) shows the percentage of homes nationally selling above their asking prices: 23% last Read More


plunging

Plunging

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Commodity prices are in free fall. The Bloomberg Commodity Price Index (5-year chart below) is off about 30% in the last year. Gold is dropping toward $1,000/oz., and oil (WTI) is back below $50/barrel. A hundred years, Nikolai Kondratiev proposed his wave theory of capital markets, and 50 years ago Benoit Mandelbrot observed the fractal nature of these waves, their similarity over multiple time frames. When two waves of different frequencies but similar magnitudes collide, the result is a much-amplified force. That, I think, is what we are seeing in commodity prices. Commodity prices have historically moved in long waves, Read More


wild-east

Wild, Wild East

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The central planners in Beijing have gotten so much right for the past three decades, that they might be forgiven for believing in their own infallibility. But it’s one thing to shuffle resources around an economy—a road here, an airport there—and quite another thing to dictate supply and demand in a large market. John Major learned the folly of fighting markets in 1992, and there have countless similar experiences both before and since. Apparently confusing a healthy stock market with a healthy economy, the political powers in China decreed that stock prices should rise, directing banks and other lenders to Read More


όχι

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I’m not sure why the pundits were predicting the Greeks would volunteer to walk meekly to their certain ruin, but the vote yesterday apparently surprised these experts. European equities are down 1 ½%, bonds of Italy, Spain, Portugal are selling off, the euro is a little weaker. Risk off, but the markets are not pricing in any calamity this morning. Of course, just because the Greeks voted against certain repression, does not mean they will avoid it. More like choosing the devil they don’t know for the devil they do. Unlike the dramas of their ancestors, there are no gods Read More


puerto-pobre

Puerto Pobre

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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


drachma

Drama/Drachma

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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

More on Rates…

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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


beginnings-end

Beginning’s End

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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