January 22nd, 2010 by Neha
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TARP deployed upto $700bn to save the financial system. The final cost however turns out to be much lower. In August 2009 the bill was estimated to be $341bn, revised down to $117bn this month. The final number, according to the administration, is expected to be $90bn.. and that is almost equal to carmakers bailout + AIG + subsidies to homeowners. America did not even experience a simultaneous currency crisis. This really means that the crisis barely costs 1% of the GDP!
To put that in relative context, IMF issued a paper – Leaven & Valencia - that examines all the past banking crises between 1970 to 2007 concluding that the average cost of such events is around 16% of the GDP. This paper has a good database so check out the tables that start from pg.32. We notice that although countries have adopted different crisis management strategies, almost all of them used emergency liquidity support and blanket guarantees.
Too good to believe?
Well..
1. The cirsis is rooted in illiquidity, not insolvency.
2. It’s too early. The long term performance of the economy determines the ultimate amount of aid the ailing financial system requires. For example, in 1996 Japan’s bail out cost was penciled at 3% of GDP. Today it is 14%.
3. Numbers are too optimistic. Perhaps the government accounting takes a narrow view of the fiscal cost of the crisis leaving out impact of the recession on the broader economy
January 19th, 2010 by Daniel
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As I compose this blog on the first day of school, the polls are now open in Massachusetts for a special election for the late Senator Ted Kennedy’s vacant seat. Though Martha Coakley – the state’s Democratic Attorney General – has been widely foretasted to easily win the election, in recent weeks Republican Scott Brown has surged to the front of the race on the back of a well orchestrated campaign that played well into popular discontent with elevated unemployment, health-care reform and other entitlement programs that are a signature of the Democratic majority.
A Republican victory tonight would remove the 60-seat, bulletproof – or rather filibuster-proof – Democratic majority in the Senate and potentially put the Obama administration’s health care and social agenda in significant jeopardy. Let’s see what happens.
January 18th, 2010 by Adam
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Recently, I’ve noticed a new trend that seems to be applying to the generation of the early 90s, or Generation Y/Z (disputes occur regarding the calendar frequently), and this trend focuses on the spending habits of youthful adults. Economists have noticed that we have cut back in general, like during the Great Depression, and this will probably continue throughout our entire lives. The generation from which he have come is known for spending, interestingly enough, and so I wonder if that is why the “Great Recession” hurt them on the level it did. Obviously, savings were not large enough, but did the spending and over-budgeting habits kill the Baby Boomers?
On another note, I’ve observed that a dollar has lasted longer if it is my own money . . . I still spend the money that I receive from my mother rather foolishly (I’m food-minded and Hugo Boss is my life partner), but I know that I’m not the only one who’s truly beginning to appreciate the value of a dollar, in general. As business and economically-minded individuals, an amount of currency holds a sacred status with us, since we want to multiply it, and of course, spend it! I’m approaching my penultimate year, and as I freak out about internships and other rather unimportant concepts, I want to hear your thoughts on this topic. Do you think your spending habits have been changed forever, temporarily, or not at all? Have you started saving or investing wisely?
December 14th, 2009 by Ken
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Finals coming up, and according my portfolio activity will be a little sporadic. I originally was going to do a post on the Google/Apple rivalry that seems to be heating up combined with a few updates and actually wrote most of it.. but I didn’t feel like it had enough meat in it yet to post and my all-nighter is making me too spacey to finish it. So I figured I’d just get the update out.
A few quick things first though which I wanted to highlight. The first is the very, very easy way to follow this blog (or any blog). Just go to www.feedmyinbox.com, type in the site of the blog and your e-mail and voila! You get notified when posts go up. It’s not real-time (will only update once a day per RSS feed to avoid spamming your inbox on the more hyperactive blogs/news feeds), but it’s very handy. And before some wise guy tries to sign me up for some random site, there is a confirmation e-mail that gets sent out 
Also, I’d very much encourage people to ask questions. The tougher the better really, since if we don’t get people picking at our ideas they don’t get fully developed. It’s always nice to get a fresh perspective because without it we can get caught in our own circular feedback loop. You think gold will rally? Sure, make a convincing argument. Think the semiconductor market is going to stagnate in 2010? I’d love to know what supports that view.
» Read more: Market/Portfolio Update
December 11th, 2009 by Nicu
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Seems that debt stricken companies (unfortunately in some cases even sovereigns) subdued in strength to generate cash and support creditor payments are having a tough time. One interesting example is MGM which paired in a glut expansion that is hard to sustain. Pairing up with Dubai World in Las Vegas City Center does not sound like a winning strategy. It will be hard to maintain their poker face with 15B in LTD on their balance sheet and with a credit line maxed up by bankers; the only thing they can to is to keep keep rolling the dices–unfortunately, the odds seem to be against the house this time–
Shorted 1500 shares this week.
December 9th, 2009 by Daniel
1 comment »
Proposals of financial reform are floating around Congress. Mr. Bernanke advocates that the Fed is in the best position to regulate the financial markets. What says ye? How should we proceed forward? The forum is open.
December 3rd, 2009 by Ken
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Hey guys, originally this was going to be posted yesterday but because Roadrunner decided to crap out as I was writing this, no salami. Actually, not a terrible thing because I’ll just tack on today’s trades as well.
VXX – I sold out of the position Monday night after the rally in imp. volatility (Dubai). Mostly because it seems to be the way of the market to let things settle until the end of the year. And as predicted, Dubai was not nearly as big a scare to put a permanent dent or concern in the market. Turns out to have been a decent exit time since the VXX has sloped downwards the past few days. As I’ve said, I’ll very likely be re-entering this position late December. If this sounds like a trade more than a value pick, keep in mind that the VXX isn’t an actual company, or ETF of commodities/sectors. I’m using it as a pure hedge, so this is the one exception to the rule of trying to get into traders’ heads.
DSX – Increased the position slightly to max it out at 15%, wasn’t able to do so before due to lack of cash but now the portfolio seems to be in the opposite extreme.
ELON – I like this company, I really do. But the uncertainty with so many municipalities running into budget crises has shaken it (at least, that’s the best explanation I can deduce). And that doesn’t seem to be shaping up anytime soon. The smart grid stimulus package notwithstanding I’m very concerned about how the stock seems to be more a trader’s hot potato than anything related to the company. Note just today how the stock dropped $1.02, only to rise $1.02 after hours. So, I took the opportunity tonight to cut the headache and leave it out. Unfortunately, it seems I entered the trade for 11/03 instead of 12/03 so the sell shows up a month back :-/. I’m not sure if I’m going to consider this company again. Given the even higher expected volatility after the year end, probably not. It’s valuation is slippery because it’s basically a growth company currently operating with losses. Would I pick it up again at 9-10 to hold for 5 years? Certainly. But this is the type of company I don’t think will fit particularly well for the Initiative.
TIF – Relating back to the last post where I discussed the new outlook, this is the first buy on it. I feel like I may have written too much emphasis on the commodities/USD on the outlook, because the way I look at it is it’s the icing I’m looking for to find strong companies, if that makes sense. Tiffany’s is a company that I personally like quite a bit (as a stock, not merchandise). It has in some ways the best possible jewelry niche. Think of it this way – Tiffany’s is a brand that a lot of people can and will splurge on, especially as a gift. From that perspective, it’s a luxury brand with broad appeal. On the other hand, it’s not exactly cheap, and for that reason it scales very well in that it’s rare a piece from them won’t be “good enough”. For the company itself, the valuation is definitely not cheap but it’s not expensive either at 20x forward P/E. Bought into it a few days ago, and now with more cash I’m maxing out the position.
November 28th, 2009 by Ken
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Wow, so much has happened in such a short time. Did anyone think that Dubai would run into liquidity problems? Some, probably. But probably not to the degree it occurred. The fact that Abu Dhabi is reluctant to fully bail out the creditors is significant, not the least of which is because it means banks can no longer pump debt into Dubai despite its heavy leverage and assume payments are virtually guaranteed. Anyway, I’ll let someone else flesh out the story with more details because I don’t want this post to drag out too long. One thing I will clarify though, as I’ve expressed before the market’s surged too quickly too far. The rise in the stock market is not commensurate with actual economic recovery, even taking its forward looking nature into account. So is this the surprise that corrects the market? I’ll have to go with no. It’s certainly possible, but I’m thinking it’ll take a lot more than 59B from a sovereign corporation already known to be debt heavy to send the market into tailspin. As a piece of the harbinger, perhaps. But not in itself.
The portfolio will be undergoing quite a few shifts the coming week, and a new (bolder) outlook after the break!
» Read more: Post-Thanksgiving Madness
November 24th, 2009 by Daniel
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And on that bombshell, have a wonderful Thanksgiving everyone!!
November 19th, 2009 by Nicu
2 comments »
Finally All-Star portfolio has made it to the blog.
I will provide you with a short update on today’s trades.
Firstly, I will cash out on some of my position in PCX. Stock soared post earnings as they provided great outlook. They expect to contract more for Chinese exports, they modified some of the quality mix of the coal so that they can take advantage of better prices going thorough the next year. Additionally, management declared they have a high degree of operational leverage for their metallurgical coal production and can increase production from 5M tons/year to 9.5M tons/year. I believe the stock might depress a bit more before it stabilizes.
Also with TNP I am taking some money off the table as it seems that the stock is reaching it’s 3 months resistance point of ~17. If it falls again, i’ll pick up again more shares as I did when it traded around 15 and gave us the returns we have.
So far, so good.
See you guys Friday!!!
