Archive - Jan 2010 - Blog entry

If it weren’t for Hugo Chávez, my favorite Latin American dictator, life would be pretty dull. The guy is a walking, talking economics lesson. He’s so easy to pick on because he has the Sadim touch (you know, instead of turning things into gold like Midas, he turns things into crap). Everything he has done has moved Venezuela backwards. The people who actually do something productive in the economy hate him. The have-nots love him because he promised them lots of free stuff. But lately his numbers are sinking: his policies don’t work.

This post demonstrates how economic ignorance and megalomania combine for a devastating result for the people of Venezuela. This is a script for Venezuela’s future.

If the government isn't doing anything to fix this dangerous situation, we'll have to do it ourselves ...

- New Study Analyzes The Bill’s 200-Plus Pages Covering Derivatives, Outlines Potential Industry Impact And Gives A Timeline Leading To US Senate Passage
- Says New Competition Lies Ahead For Dominant Major Dealers From New Group Of Smaller, Nimble Tech-Savvy Dealers

Dumping the world’s most overvalued asset. America’s debt service to double. Hey buddy, can you spare $2.5 trillion? Short a few JGB’s while you’re at it. The fourth in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation Review. (TBT), (JGB)

If governments do not nip this bonus bonanza in the bud, then the next financial meltdown is only a matter of time. How long will we allow the rest of the economy to be subservient to the reckless arrogance and greed of a financial sector gone rogue?

Is the government going to force 401k and IRA money into treasuries?

Or is that just a wild rumor?

As a muni trader, my bonus is derived directly from my P/L which is accrued over the quarter and kept in a separate account. It does not go into the firms bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account in case I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50mm for the year my bonus is $5mm

What does my bonus have to do with the MBS trader who's sitting on losses? Did I or did I not show a profit of $40mm to the firm’s bottom line?

As I have stated throughout all of last year, the macro, fundamental and
political headwinds facing banks make them good shorts and risky
investments. They faced a good run in this recent bear market rally,
but the spirits have cursed them for the medium term. In addition,
these guys act as if they have never heard of PR and strategy, ex. this
bonus thing.

Can you say "Massive Debt Overhang", Kids?

Pension reform advocates are warning that federal and provincial governments will pay a political price if they fail to turn a vague commitment made in December to pursue pension reform into a concrete plan to bolster Canadians' retirement savings.

In continuing the rant on the possibility of the US entering a stagflationary environment, as was hinted by Alcoa's quarterly report (see "Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?"), I have decided to graphically illustrate the historically most successful inflation hedges as well as demonstrate where North America and Western Europe currently stand.

Markets will end the year lower. Technology, REIT’s, and retailers are looking ripe. Companies with poor balance sheets will get clubbed. Shorting Treasuries is a home run staring you in the face.

Is it time to head for the hills, stockpile food and ammo, and wait in the bunkers? I get a number of e-mails from readers seeking advice, usually investment advice. Last year I received messages of a theme that can be described as folks who felt The Great Collapse was happening. Armageddon and that type of thing. Here's my advice. Do you agree?

A year ago I stated that if I had to pick a scenario, the most likely would be stagflation wherein high input costs would co-exist with a deflationary drop in asset values, creating a "worst of both worlds" style environment. Well, Alcoa has given us some anecdotal evidence of the likelihood of such an occurrence approaching.

Change?

Not much ...