Good Riddance

Posted on September 4, 2015 by MN Gordon

High-risk investing is rewarded with higher returns when the financial tide is rising.  The vast sea of liquidity hides the hazards and perils of a rock bottom reef.  Madmen and lunatics get rich.  But when the tide turns…watch out…

“You only find out who is swimming naked when the tide goes out,” remarked Warren Buffett back in 2001.  Since mid-May the DOW is down nearly 2,000 points.  At this rate, the receding tide will soon expose a multitude of skinny-dippers.

What we mean is, a big hedge fund or pension fund will soon be caught with its pants down.  Perhaps it will be billionaire David Einhorn.  His Greenlight Capital hedge fund is already down nearly 15 percent in 2015.  While it’s still too early to tell if Einhorn’s swimming naked…the water line has dropped significantly.

But it’s not just the high risk hedge funds with something to hide.  Pension funds, seeking higher yields, have been swimming with hedge funds.  They didn’t have much choice.

The Fed’s artificially pinned Treasury yields down to an absurdly low rate for over 80 months. Continue reading →

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The Chinese Fiasco

Posted on September 1, 2015 by MN Gordon

The twilight receded into the vista of the glowing port lights.  Docked container ships melded into the profusion of overhead cranes.  Sporadic refinery flares overtook the final sparkles of dusk.

The sun slipped beyond the far side of the Palos Verdes cliffs.  We lit a giant bonfire and settled down to its tantalizing flames.  The kindling crackled and snapped.  Sparkling embers escaped in the light onshore breeze.

School’s back in session tomorrow.  But for the under 10-year old crowd we tent camped with last Saturday night at Cabrillo Beach Youth Center, sitting in a classroom was the furthest thing from their mind.  Whittling drift wood, tying bowline knots, and kayaking the breakwater were the tasks at hand.

Our vantage point from Cabrillo Beach in San Pedro, looking back at the Port of Los Angeles and over to the Port of Long Beach, was a sight for reflection.  At this outer peninsula tip the managed chaos of container ships, docks, cranes, semi-trucks and railcars intermingled in harmony.  Each shipping container, no doubt, was overloaded with low priced goods from the Far East for the American consumer. Continue reading →

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Manna from Heaven

Posted on August 28, 2015 by MN Gordon

Modern day monetary policy’s something we disparage around here at the Economic Prism.  Relegating what price to set the key lending rate to a cadre of unelected technocrats is a contradiction of life in a free society.  That’s how we see it, at least.

Make of it what you will.  But we think willing lenders and borrowers can agree on a fair rate of interest on an individual basis much better than Janet Yellen and her fellows can dictate for all.  For their part, the Fed’s made a great mess of their efforts to remake the world in their image.

When the stock market crashed on October 19, 1987, newly appointed Fed Chairman, Alan Greenspan took monetary policy in a new direction.  He seized the day and planted seeds of disaster…dropping the federal funds rate a half percent from 7.5 percent to 7 percent.  The influx of liquidity backstopped the market and soon stock prices were again moving up and to the right.

The stock market’s quick recovery made Greenspan the maestro.  Wall Street cheered.  Widows poured their savings into stock mutual funds.  Bob Woodward even wrote a book celebrating Greenspan’s greatness. Continue reading →

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All Bets Are Off

Posted on August 25, 2015 by MN Gordon

Stock markets across the planet gazed out across the economic landscape yesterday and vomited all over themselves.  After that, they convulsed and dry heaved again and again.  For the global economic disfiguration has grown so grotesque, so awesomely awful, that the collective stomach of world markets has wrenched into knots.

Japan and China started the great purge.  In the land of the rising sun, the Nikkei 225 expelled 895 points.  The Middle Kingdom followed this up with a remarkable feat…the Shanghai Composite Index projectile spewed 8.49 percent.

Unfortunately, the sickness spread to Europe and the United States.  The German Dax gave up 4.7 percent and, in London, the FTSE gutted out 4.7 percent.  The Dow followed this up with an initial 1,089 point freefall…before crawling its way back to just a 588 point discharge.

What’s next?  No one quite knows, for sure.  But something different is underway.  Over the last six years there’s hardly been a notable stock market decline. Continue reading →

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