The WSJ has an article about the impact of the credit crunch on colleges. It appears that the effects are being felt all through the academic complex.
Good!
Higher education has been one of the most mis-priced and overvalued products in this country. The rate of increase in college costs has been flatly absurd. Why? Too much money.
For the longest time, colleges and universities have been overpriced. The price inflation we've seen for college education was completely ridiculous, fueled by easy government grants, loans and other spending. Isn't that the kind of government spending that leads to inflation - spending that creates no marginal increase in value? Sure seems like it. We're not talking Weimar Germany yet, but still, the entire college financing market has been able to increase in cost at insane rates of growth on the back of cheap money, mostly in the form of debt.
It had to come to an end. Good riddance.
I think there is a lot more to come - a lot more layoffs, more construction to be postponed, and other crazy spending by universities to reign in costs. No longer will they be able to finance this madness with 6% annual tuition increases, because shortly there will be few (if any) with the capacity to pay. Definitely not from the "middle class".
And socioeconomic stratification will get worse.
I feel sorry for anyone who was counting on getting loans to pay for any kind of higher education. Its going to be ugly, but it is long overdue.
Friday, October 17, 2008
Wednesday, October 15, 2008
Is Anyone In Charge Here?
THIS (WSJ.com sub req'd) is abso-fucking-lutely absurd!
Doesn't anybody realize that artificial demand is what caused this problem in the first bloody place? The whole point is that real, market clearing prices need to be found for houses. This is so simple even I get it! WTF?
People need to start saving for the things they want to buy, and that includes houses. That means getting your 20% or greater down payment, and having a way to cover not just PI (principal + interest) but TI (taxes + insurance) as well, and maintenance costs, furniture, utilities, landscaping or yard work, and all the other associated expenses that no one ever seems to take into account. And don't forget to factor in inflation and increasing tax rates as well.
Get over it already!
Doesn't anybody realize that artificial demand is what caused this problem in the first bloody place? The whole point is that real, market clearing prices need to be found for houses. This is so simple even I get it! WTF?
People need to start saving for the things they want to buy, and that includes houses. That means getting your 20% or greater down payment, and having a way to cover not just PI (principal + interest) but TI (taxes + insurance) as well, and maintenance costs, furniture, utilities, landscaping or yard work, and all the other associated expenses that no one ever seems to take into account. And don't forget to factor in inflation and increasing tax rates as well.
Get over it already!
Tuesday, October 14, 2008
Beware the Second Order Effects!
A nice piece, several days old, by John Dizard over at the Financial Times. Not sure where I picked this one up, but thanks to whomever supplied it!
If nothing else, the moral of this story is "beware those second-order effects". It seriously takes conscious thought to catch this stuff, and I figure 99.99% of the planet is technically unconscious so...we should be surprised that we get the results we do.
Beware those second order effects!
If nothing else, the moral of this story is "beware those second-order effects". It seriously takes conscious thought to catch this stuff, and I figure 99.99% of the planet is technically unconscious so...we should be surprised that we get the results we do.
Beware those second order effects!
Monday, October 06, 2008
An Old Market Hand Speaks
Nice interview with Seth Glickenhaus here (WSJ.com sub req'd). Definitely worth a few minutes to read. I'd say it was spot on, but then I'd probably be gushing.
Saturday, October 04, 2008
Clicked
This has been floating around in my mind for a while, but it all just came together right now as I finished reading the Bloomberg article referenced in my last post.
Whenever you hear someone make an analogy between almost any advanced derivative or structured product and some simpler product, the simpler product is almost always a call option. There is almost a 100% chance that the simpler product will be an option of some sort, but usually, it is a call option. If THAT doesn't convince you to just trade the underlying options directly, I don't know what does.
Just a thought.
Whenever you hear someone make an analogy between almost any advanced derivative or structured product and some simpler product, the simpler product is almost always a call option. There is almost a 100% chance that the simpler product will be an option of some sort, but usually, it is a call option. If THAT doesn't convince you to just trade the underlying options directly, I don't know what does.
Just a thought.
Laziness Insurance
So I'm finally catching up on some reading, post-vacation. After getting about halfway through this piece of reporting at Bloomberg.com, I'm once again led to wonder who the hell would buy a principal protected note. Ever. From anyone.
The Japanese and Chinese investors, apparently, and as usual. Somehow they seem to embrace a product just as it is getting ready to implode.
Think about this shite. After some term, you are guaranteed - GUARANTEED - to get back your principal. Return of principal versus return on principal. Fair enough. However, did no one calculate the loss due to inflation?
No laughing!
If you're that inclined to lose money, why not just get a regular bank account (in the US)? I don't know what the HK folks had at their disposal, but somehow I imagine there were safer products, plain vanilla products, available for purchase. The whole notion of principal protection, while it sounds good, should more accurately be considered an insurance policy against doing one's research. We see how well that works out. Doing the research improves your odds.
(It made sense in my head. Hopefully it makes sense when you read it. If not, that's what the comments are for.)
So what have we learned, if nothing else, childrens?
1. To hell with the bells and whistles. If you don't understand the product, and most importantly, the risks attendant with investing in the product, you don't purchase it. Salient advice for all time.
2. The game IS risk management. This is a world of probability. While it could be said I am re-stating #1, I don't fully agree. You must always be present to the risks around you, because EVERYTHING, even the safest of activities, have some level of risk. Look at the swap spreads on US Treasuries to see what I mean - even the "risk-free" investment has risk. Can you live with the risk? Can you hedge it? Because you can't eliminate it.
3. Beware asset gathering. Any firm which has rumors swirling around it that introduces a high return product is probably trolling for funds. So consider this, and be sure about where you land in the capital structure if said firm goes tits up. Basically, see #1. If BSC had already been chewed through, and you're an unsecured investor in Lehman Brothers, the #4 investment bank, you're next in line to be chewed through. So if you MUST buy, buy quality, and that means buy Goldman unsecured products. Duh!
4. Don't bet what you can't afford to lose. This goes for the $100 I blew in Vegas playing craps this past week, and it goes for the $2B US that those suc...investors in Hong Kong will be blessed to recover. (I'd say lucky, but you create your own luck.)
5. Do your homework. Swap spreads and the death of BSC should have told people to avoid Lehman structured debt products.
6. Homie don't play dat!
Oh, and if you ever feel the need to be separated from your money that badly, just give it to me. I accept PayPal donations. At least that way, you know its going to a good cause - liquor and women, although not necessarily in that order.
:)
G'night, all!
The Japanese and Chinese investors, apparently, and as usual. Somehow they seem to embrace a product just as it is getting ready to implode.
Think about this shite. After some term, you are guaranteed - GUARANTEED - to get back your principal. Return of principal versus return on principal. Fair enough. However, did no one calculate the loss due to inflation?
No laughing!
If you're that inclined to lose money, why not just get a regular bank account (in the US)? I don't know what the HK folks had at their disposal, but somehow I imagine there were safer products, plain vanilla products, available for purchase. The whole notion of principal protection, while it sounds good, should more accurately be considered an insurance policy against doing one's research. We see how well that works out. Doing the research improves your odds.
(It made sense in my head. Hopefully it makes sense when you read it. If not, that's what the comments are for.)
So what have we learned, if nothing else, childrens?
1. To hell with the bells and whistles. If you don't understand the product, and most importantly, the risks attendant with investing in the product, you don't purchase it. Salient advice for all time.
2. The game IS risk management. This is a world of probability. While it could be said I am re-stating #1, I don't fully agree. You must always be present to the risks around you, because EVERYTHING, even the safest of activities, have some level of risk. Look at the swap spreads on US Treasuries to see what I mean - even the "risk-free" investment has risk. Can you live with the risk? Can you hedge it? Because you can't eliminate it.
3. Beware asset gathering. Any firm which has rumors swirling around it that introduces a high return product is probably trolling for funds. So consider this, and be sure about where you land in the capital structure if said firm goes tits up. Basically, see #1. If BSC had already been chewed through, and you're an unsecured investor in Lehman Brothers, the #4 investment bank, you're next in line to be chewed through. So if you MUST buy, buy quality, and that means buy Goldman unsecured products. Duh!
4. Don't bet what you can't afford to lose. This goes for the $100 I blew in Vegas playing craps this past week, and it goes for the $2B US that those suc...investors in Hong Kong will be blessed to recover. (I'd say lucky, but you create your own luck.)
5. Do your homework. Swap spreads and the death of BSC should have told people to avoid Lehman structured debt products.
6. Homie don't play dat!
Oh, and if you ever feel the need to be separated from your money that badly, just give it to me. I accept PayPal donations. At least that way, you know its going to a good cause - liquor and women, although not necessarily in that order.
:)
G'night, all!
Friday, October 03, 2008
Thinking about CDS
Not like this is due to happen anytime soon, but I do have to wonder when shorting CDS becomes a viable strategy?
Just a thought...
Or how about a company shorting its own CDS, maybe through a shell or subsidiary?
Just a thought...
Or how about a company shorting its own CDS, maybe through a shell or subsidiary?
Wednesday, October 01, 2008
Natural Progression?
Oh My God
I'm angry.
Sitting in my room in the Monte Carlo hotel on the Las Vegas strip, I've been watching the absurdity of the last few days. Needless to say, I'm disgusted. However, that's not why I'm writing this. I'm writing this because for some reason, the elected officials in DC are getting on my nerves with all of the political pandering we've seen. However, its not their fault. They're doing what they were chosen to do, with a bit of criminality thrown in for good measure.
(Thank you, America, for voting in these cocksuckers! Just had to throw that in. YOU got the politicians YOU DESERVE. I hope you're proud of yourselves, American public, you fucktards!)
Moving on, everyone wants to know what should be done. I think its pretty obvious that there is no "right" answer. Shit is fucked. All of that said, here's what makes sense to me given that we live in a world of probability. (Nothing makes that clearer than walking around the casinos in this town.)
First, the bills hitting the congress need to be simplified. I don't honestly care about the numbers being bandied about. We long ago passed the point of those being relevant. Plenty of people have already noted that the $700B is a ROLLING number. Once $700B is burned, a next $700B is up. The $700B is the amount outstanding that Treasury could put to work at any given moment. THAT'S ALL. So I wish people would get off that one. Just make it a cool trillion even. The amount is somewhat irrelevant. Its a question of what happens to it - how is it used - that matters the most.
Second, the notion that Treasury should not have oversight is patently absurd. Paulson had a better chance of getting a blowjob from an electrical socket than getting that one through. If it somehow has crept back in...well, see paragraph 3 above. No, he wasn't elected, but his boss was. Utter bullshit that should be thrown out.
Third, the purchases by Treasury should be at market price. I think Merrill put down a $0.05 price on its most recent sale. Hey, at $0.05, I'm a buyer of as much of that paper as possible. Hell, that's a 95% markdown or better. I doubt 95% of the mortgages in any securitized deal are going to hell. 50% - maybe. 30% - likely. 80% - oh please! If you want private buyers to come in with capital, the price has to be right. Getting these illiquid assets off the books of public commercial financing institutions is the order of the day. Allowing the Treasury to buy this crap from the banks at par - THAT is a monumental mistake which will accelerate the downfall of the American empire. I don't know who Hank was blowing (or being blown by) to put that fuckery into the measure, but THAT is my biggest problem. The folks sitting on this debt either need to put a bullet in their own heads and be done, or sell that shit for the best amount they can get. The writing is on the wall. Will their brains be as well? If the price is $0.05, then dammit, sell and move on.
Now, what the hell is with all of this partisan politics adding pork to these bills? Again, thank you America! You have no one to argue against about greed when clearly, by virtue of the fact that your elected officials are sticking in amendments and other dick sucking measures into this legislation. You know, this is one of those times (like, well, really, EVERY OTHER TIME) when legislators shouldn't be playing sides, state against state, pork against pork. These motherfuckers need to be doing the best for the ENTIRE NATION, not sucking their constituents' dicks on some bullshit. How come no one is calling in to make sure that shit doesn't pass? Because YOU, American public, are a greedy, selfish, self-centered motherfucker who doesn't honestly give a flying fuck about anyone else in this country except yourself. I guess we can nickname you Gordon Gekko. You want a better outcome? Get the legislators to remove all the bullshit and get the bill down to the basic, fundamentals to address this ONE ISSUE.
But where are you when it comes to making that call? Absent. As expected.
You know what is really upsetting about this whole thing isn't that the politicians are doing what they are doing. They're mostly pathetic cocksmokers pandering for votes anyway. Expecting more from them at this point is useless. However, the dicks they are trying to suck -- their constituents' -- aren't out there instructing them to do the BEST thing for the NATION. No, the constituents are out there saying that the pols should be fucking over the next American so that they can sleep well, have their cake and eat it too. The pols are just doing as they have been instructed.
I'm inclined to ask people how it feels to be greedy, evil bastard motherfucker willing throw your fellow American under the bus. But I don't even know that there's a point to that. If you people actually gave a shit about anyone other than yourselves, you'd be encouraging - nay, screaming for - your representatives and senators to cut out the bullshit and whittle down the bill to the simplest incarnation to address the short term credit market liquidity problem. PERIOD.
But considering there is no heart left among the populace, I don't see that happening. You people want it nice and easy. Fuck, if everything were meant to be easy, everyone would do it. If marriage were easy, no one would get divorced. If saving were easy, everyone would have 6 - 12 months of funds put away for an emergency and no credit card debt. (Not saying I'm perfect here. Just making the point, plain and simple.) If college were easy, more than 25% of the population would have college degrees. If being healthy and fit were easy, less of you people would be clinically obese, overweight, and about to drop dead due to your inability or unwillingness to be disciplined about exercise and eating in a healthy manner. Worthwhile shit is hard to do. That's the price of doing it. At the end, you're supposed to feel good about overcoming whatever you had to overcome to win the ring. That's how it works.
This is the most difficult economic problem to face this nation in a long fucking time, and the easy solutions were passed over decades ago. So get over it. You - yes, you, American public - chose this course with your willingness to be forgo difficulty, your willingness to throw your fellow man under the bus so you could get what you wanted, and your willingness to believe that the economic fundamentals of the last 300+ years of capitalism had been suspended in your favor.
I laugh when I hear people talk about the character of the American public. It sure hasn't been on display in my lifetime. If you people want to start claiming any sort of high ground, then the simple fact is that you need to take your medicine. The American public - everyone, myself included - created this problem. There is no easy way out. So just deal with it and get to the other side as quickly as possible. It won't be easy. That doesn't mean that good companies need to go to zero because of the over-emotional American investor. But the pain has to be felt, lifestyles have to be adjusted downward, and EVERYONE has to de-lever. That's all there is to it.
If you're really up to it, then do it! Fuck talking about it. BE ABOUT IT.
Or don't. It really is your choice. But if you're not going to take the pain; prepare for emergencies; cut your standard of living; eliminate your debt; put your foot on the neck of the politicians in Washington, DC; bust your ass adding or creating value at your employer or in your business; and otherwise tighten your belts, then realize that the shit only GETS WORSE from here.
What are you going to do?
Ahhh, I feel much better now. Time to see what's going on outside of my room.
Sitting in my room in the Monte Carlo hotel on the Las Vegas strip, I've been watching the absurdity of the last few days. Needless to say, I'm disgusted. However, that's not why I'm writing this. I'm writing this because for some reason, the elected officials in DC are getting on my nerves with all of the political pandering we've seen. However, its not their fault. They're doing what they were chosen to do, with a bit of criminality thrown in for good measure.
(Thank you, America, for voting in these cocksuckers! Just had to throw that in. YOU got the politicians YOU DESERVE. I hope you're proud of yourselves, American public, you fucktards!)
Moving on, everyone wants to know what should be done. I think its pretty obvious that there is no "right" answer. Shit is fucked. All of that said, here's what makes sense to me given that we live in a world of probability. (Nothing makes that clearer than walking around the casinos in this town.)
First, the bills hitting the congress need to be simplified. I don't honestly care about the numbers being bandied about. We long ago passed the point of those being relevant. Plenty of people have already noted that the $700B is a ROLLING number. Once $700B is burned, a next $700B is up. The $700B is the amount outstanding that Treasury could put to work at any given moment. THAT'S ALL. So I wish people would get off that one. Just make it a cool trillion even. The amount is somewhat irrelevant. Its a question of what happens to it - how is it used - that matters the most.
Second, the notion that Treasury should not have oversight is patently absurd. Paulson had a better chance of getting a blowjob from an electrical socket than getting that one through. If it somehow has crept back in...well, see paragraph 3 above. No, he wasn't elected, but his boss was. Utter bullshit that should be thrown out.
Third, the purchases by Treasury should be at market price. I think Merrill put down a $0.05 price on its most recent sale. Hey, at $0.05, I'm a buyer of as much of that paper as possible. Hell, that's a 95% markdown or better. I doubt 95% of the mortgages in any securitized deal are going to hell. 50% - maybe. 30% - likely. 80% - oh please! If you want private buyers to come in with capital, the price has to be right. Getting these illiquid assets off the books of public commercial financing institutions is the order of the day. Allowing the Treasury to buy this crap from the banks at par - THAT is a monumental mistake which will accelerate the downfall of the American empire. I don't know who Hank was blowing (or being blown by) to put that fuckery into the measure, but THAT is my biggest problem. The folks sitting on this debt either need to put a bullet in their own heads and be done, or sell that shit for the best amount they can get. The writing is on the wall. Will their brains be as well? If the price is $0.05, then dammit, sell and move on.
Now, what the hell is with all of this partisan politics adding pork to these bills? Again, thank you America! You have no one to argue against about greed when clearly, by virtue of the fact that your elected officials are sticking in amendments and other dick sucking measures into this legislation. You know, this is one of those times (like, well, really, EVERY OTHER TIME) when legislators shouldn't be playing sides, state against state, pork against pork. These motherfuckers need to be doing the best for the ENTIRE NATION, not sucking their constituents' dicks on some bullshit. How come no one is calling in to make sure that shit doesn't pass? Because YOU, American public, are a greedy, selfish, self-centered motherfucker who doesn't honestly give a flying fuck about anyone else in this country except yourself. I guess we can nickname you Gordon Gekko. You want a better outcome? Get the legislators to remove all the bullshit and get the bill down to the basic, fundamentals to address this ONE ISSUE.
But where are you when it comes to making that call? Absent. As expected.
You know what is really upsetting about this whole thing isn't that the politicians are doing what they are doing. They're mostly pathetic cocksmokers pandering for votes anyway. Expecting more from them at this point is useless. However, the dicks they are trying to suck -- their constituents' -- aren't out there instructing them to do the BEST thing for the NATION. No, the constituents are out there saying that the pols should be fucking over the next American so that they can sleep well, have their cake and eat it too. The pols are just doing as they have been instructed.
I'm inclined to ask people how it feels to be greedy, evil bastard motherfucker willing throw your fellow American under the bus. But I don't even know that there's a point to that. If you people actually gave a shit about anyone other than yourselves, you'd be encouraging - nay, screaming for - your representatives and senators to cut out the bullshit and whittle down the bill to the simplest incarnation to address the short term credit market liquidity problem. PERIOD.
But considering there is no heart left among the populace, I don't see that happening. You people want it nice and easy. Fuck, if everything were meant to be easy, everyone would do it. If marriage were easy, no one would get divorced. If saving were easy, everyone would have 6 - 12 months of funds put away for an emergency and no credit card debt. (Not saying I'm perfect here. Just making the point, plain and simple.) If college were easy, more than 25% of the population would have college degrees. If being healthy and fit were easy, less of you people would be clinically obese, overweight, and about to drop dead due to your inability or unwillingness to be disciplined about exercise and eating in a healthy manner. Worthwhile shit is hard to do. That's the price of doing it. At the end, you're supposed to feel good about overcoming whatever you had to overcome to win the ring. That's how it works.
This is the most difficult economic problem to face this nation in a long fucking time, and the easy solutions were passed over decades ago. So get over it. You - yes, you, American public - chose this course with your willingness to be forgo difficulty, your willingness to throw your fellow man under the bus so you could get what you wanted, and your willingness to believe that the economic fundamentals of the last 300+ years of capitalism had been suspended in your favor.
I laugh when I hear people talk about the character of the American public. It sure hasn't been on display in my lifetime. If you people want to start claiming any sort of high ground, then the simple fact is that you need to take your medicine. The American public - everyone, myself included - created this problem. There is no easy way out. So just deal with it and get to the other side as quickly as possible. It won't be easy. That doesn't mean that good companies need to go to zero because of the over-emotional American investor. But the pain has to be felt, lifestyles have to be adjusted downward, and EVERYONE has to de-lever. That's all there is to it.
If you're really up to it, then do it! Fuck talking about it. BE ABOUT IT.
Or don't. It really is your choice. But if you're not going to take the pain; prepare for emergencies; cut your standard of living; eliminate your debt; put your foot on the neck of the politicians in Washington, DC; bust your ass adding or creating value at your employer or in your business; and otherwise tighten your belts, then realize that the shit only GETS WORSE from here.
What are you going to do?
Ahhh, I feel much better now. Time to see what's going on outside of my room.
Randomness
I like Marc Faber, and his analysis seems to be generally good, but man does he like to hear himself talk. Just answer the damn question, Marc. 20% in US dividend paying shares. 10% in gold. The rest in Treasuries, presumably preferring TIPS. Got it.
See how simple that is, Marc?
Yes, this has nothing to do with anything. I'm definitely tired. But I'm back.
G'night, all.
See how simple that is, Marc?
Yes, this has nothing to do with anything. I'm definitely tired. But I'm back.
G'night, all.
Tuesday, September 30, 2008
Woo Hoo!
Yes, I did just post. I've been on vacation in Las Vegas for the last week. I thought I said that, but maybe not.
Anyway, I've got some thoughts on some of the things we've been seeing out there in the markets and the economy generally. Not very original thoughts really. Maybe that's the liquor. Or the women. Or the lack of sleep.
Eh.
Anyway, I haven't forgotten you all. I'm getting back into the swing of things. Stay with me.
Anyway, I've got some thoughts on some of the things we've been seeing out there in the markets and the economy generally. Not very original thoughts really. Maybe that's the liquor. Or the women. Or the lack of sleep.
Eh.
Anyway, I haven't forgotten you all. I'm getting back into the swing of things. Stay with me.
Damn!
Its really time to get out of this country. That's really all that I can think of now.
Thanks to P. Kedrosky for this one.
Thanks to P. Kedrosky for this one.
Tuesday, September 23, 2008
The Story of LIBOR
I am fascinated by the inputs to, machinations of, and outputs from the global financial system. That's why I love this kind of behind the scenes, in depth coverage of something as arcane as LIBOR. (Well, I guess its not arcane in this world, but among "normal" people, a group I've never been accused of belonging to, it is.) It gives you a sense of what really goes on in calculating LIBOR, dollar LIBOR in particular. And FINALLY, an explanation of "eurodollar"! Very cool indeed.
Monday, September 22, 2008
Friday, September 19, 2008
Buffett's Latest Buy
This is really just a stream of consciousness post.
A friend of mine sent along a recent Market Mover's post by Felix Salmon over at Portfolio. Anyway, in reading this, especially the comments, it occurred to me that Buffett will probably ditch the trading operation. Now, I'm not sure who the buyer might be, but considering that trading likely had something to do with making Constellation Energy the target it became, weakening it and increasing the collateral requirements, I can't see MidAmerican holding on. It seems a bit too volatile for Berkshire.
I think about the General Re acquisition some years ago. It took a long time, but Buffett unwound a bunch of contracts that Ge Re had entered into which increased the overall corporate risk exposure. I'll go dig up that story if I have some time. The same forces would appear to come into play now with CEG. Buffett will keep the parts that generate free cash and sell off the bits that detract more than they add, slowly if necessary but quickly otherwise. At least, that's the first thing that comes to my mind.
Thoughts?
Its all about risk management, baby. I think that, if nothing else, is the lesson of the week.
A friend of mine sent along a recent Market Mover's post by Felix Salmon over at Portfolio. Anyway, in reading this, especially the comments, it occurred to me that Buffett will probably ditch the trading operation. Now, I'm not sure who the buyer might be, but considering that trading likely had something to do with making Constellation Energy the target it became, weakening it and increasing the collateral requirements, I can't see MidAmerican holding on. It seems a bit too volatile for Berkshire.
I think about the General Re acquisition some years ago. It took a long time, but Buffett unwound a bunch of contracts that Ge Re had entered into which increased the overall corporate risk exposure. I'll go dig up that story if I have some time. The same forces would appear to come into play now with CEG. Buffett will keep the parts that generate free cash and sell off the bits that detract more than they add, slowly if necessary but quickly otherwise. At least, that's the first thing that comes to my mind.
Thoughts?
Its all about risk management, baby. I think that, if nothing else, is the lesson of the week.
Wednesday, September 10, 2008
General Blog Updates
You'll notice quite a few additions to the right hand navigation here. I've added a few blogs that really are must-reads, and moved around a few other sites. DealBreaker and FINalternatives really needed to go under the News heading. Instead of just Investing, we now have Trading and Investing. Too much specialization is a dangerous thing.
Yes, this site really is an aggregator for me. Instead of trying to remember all these sites, or even using deli.cio.us or another social bookmarking site, I just use this blog. It just seems easier and contextually appropriate.
Anyway, hopefully I'll have some connectivity at home tonight, for the first time in about 3 weeks, so I can post more frequently AND comfortably. As always, there is more to come...
Yes, this site really is an aggregator for me. Instead of trying to remember all these sites, or even using deli.cio.us or another social bookmarking site, I just use this blog. It just seems easier and contextually appropriate.
Anyway, hopefully I'll have some connectivity at home tonight, for the first time in about 3 weeks, so I can post more frequently AND comfortably. As always, there is more to come...
Wednesday, September 03, 2008
Investing in Endowments - The Dream that Will Never Be
I LOVE this idea from Felix Salmon about alumni being able to invest in their alma mater's endowments. Its innovative, its different, and it will never happen in our lifetimes. However, I love it.
As John Mauldin is one to point out, regular people should be allowed to invest in alternatives as a way of enhancing returns in their retirement portfolios (or whatever other funds they allocate to the alternatives space). You can find his 2003 congressional testimony on the subject here.
I imagine the biggest problems would be the administration of small(er) investor accounts and the accredited investor rules. You could attack the first problem by allowing minimum investments of greater than 6 figures, say $250K+. The second problem requires US government intervention, which makes it almost impossible to see how one would ever get past this limitation.
I also imagine many larger endowments would want to avoid the kind of incessant inquiries that small investors would bring with them. No matter how experienced those investors are, they are probably going to require or request some level of hand holding, and endowments likely aren't interested in such time sinks. The larger endowments (Harvard and Yale in particular) would not need to resort to this kind of asset gathering; it would purely be a "perk" offered to alumni. There are plenty of smaller institutions, with smaller endowments, that would probably seek to use this re-configuration of the landscape to draw assets and increase their management fees. The new laws would have to take this into account. It makes sense if this structure only imposes fees on profits when the investor withdraws, and reduces the management fees. Endowment investors shouldn't be paying standard hedge fund management fees, especially when the endowments are non-profit organizations and they employ their own managers. A range of 0.5% - 1.25% in fees seems appropriate, based on whether the endowment managers are in-house (lower) or outsourced (higher).
Even so, investing in your university's endowment, with the management fee going to your university, would be a nice way to contribute and still benefit from the expertise the university employs. (That is, if the endowment is large enough to employ in-house investment managers and strategists. If they outsource significant amounts of their endowment management, then this idea is probably unworkable.) Maybe all the drama which led to the founding of Convexity Capital by Jack Meyer could have been avoided if those vocal alumni had been able to invest alongside the endowment, instead of watching from the sidelines. Felix's idea has some obvious tax benefits as well, and if one did not need the money from the endowment, they could let it ride or donate it to the university easily. Brilliant!
Anyway, I had to comment on that idea. I'd love to see alumni offered this kind of investment opportunity. It would sure take a lot of work to make it happen though, which makes me cautiously pessimistic that it would ever occur. (Thanks to Paul Vixie for that phrase, one of my favorite quotes of all time, received from him in personal e-mail!)
Still, how awesome would this be if it became real! A man can dream, can't he?
Until next time, peeps!
As John Mauldin is one to point out, regular people should be allowed to invest in alternatives as a way of enhancing returns in their retirement portfolios (or whatever other funds they allocate to the alternatives space). You can find his 2003 congressional testimony on the subject here.
I imagine the biggest problems would be the administration of small(er) investor accounts and the accredited investor rules. You could attack the first problem by allowing minimum investments of greater than 6 figures, say $250K+. The second problem requires US government intervention, which makes it almost impossible to see how one would ever get past this limitation.
I also imagine many larger endowments would want to avoid the kind of incessant inquiries that small investors would bring with them. No matter how experienced those investors are, they are probably going to require or request some level of hand holding, and endowments likely aren't interested in such time sinks. The larger endowments (Harvard and Yale in particular) would not need to resort to this kind of asset gathering; it would purely be a "perk" offered to alumni. There are plenty of smaller institutions, with smaller endowments, that would probably seek to use this re-configuration of the landscape to draw assets and increase their management fees. The new laws would have to take this into account. It makes sense if this structure only imposes fees on profits when the investor withdraws, and reduces the management fees. Endowment investors shouldn't be paying standard hedge fund management fees, especially when the endowments are non-profit organizations and they employ their own managers. A range of 0.5% - 1.25% in fees seems appropriate, based on whether the endowment managers are in-house (lower) or outsourced (higher).
Even so, investing in your university's endowment, with the management fee going to your university, would be a nice way to contribute and still benefit from the expertise the university employs. (That is, if the endowment is large enough to employ in-house investment managers and strategists. If they outsource significant amounts of their endowment management, then this idea is probably unworkable.) Maybe all the drama which led to the founding of Convexity Capital by Jack Meyer could have been avoided if those vocal alumni had been able to invest alongside the endowment, instead of watching from the sidelines. Felix's idea has some obvious tax benefits as well, and if one did not need the money from the endowment, they could let it ride or donate it to the university easily. Brilliant!
Anyway, I had to comment on that idea. I'd love to see alumni offered this kind of investment opportunity. It would sure take a lot of work to make it happen though, which makes me cautiously pessimistic that it would ever occur. (Thanks to Paul Vixie for that phrase, one of my favorite quotes of all time, received from him in personal e-mail!)
Still, how awesome would this be if it became real! A man can dream, can't he?
Until next time, peeps!
Movin' On Up!
When your largest provider of vendor financing starts pulling back, you have a problem. I think I've said this a few times recently. It was truly inevitable.
While mortgage rates have climbed recently, I think you've only seen the beginning. They have not yet begun to increase!
On another note, it totally makes sense for PIMCO to invest in agencies, no matter how Mish feels about it. PIMCO is in business to make money, for their clients, shareholders (vis-a-vis Allianz), and by extension, themselves. They are in a position to hold the bonds and get made whole (or at least a decent return on invested capital) when the US eventually nationalizes the GSEs. That's their job, right? To make money. I don't see why Bill Gross and PIMCO should be faulted for attempting to follow their mandate. Its a perfectly reasonable position for them given their business.
The part I find most interesting is that if foreign holders of agency debt are unloading, is the US Federal government going to be as interested in taking care of the debtholders, PIMCO among them? Hmmm. It makes me wonder. The Feds have to take care of the people who are holding US government debt of all stripes, even though I think eventually the damn will break and the Treasury rates will soar. For now, the Fed are just trying to maintain as much control as possible. Taking care of China and Japan is in order given the scenario, and anyone (such as PIMCO) can go along for the ride if they choose. I just wonder if Japan has also been selling out of its positions in agencies? In every trade, there's a buyer and seller, but its easier to screw over your populace than a foreign government that facilitates your shell games.
No matter how you slice it, rates are going up. I stand by that assertion.
While mortgage rates have climbed recently, I think you've only seen the beginning. They have not yet begun to increase!
On another note, it totally makes sense for PIMCO to invest in agencies, no matter how Mish feels about it. PIMCO is in business to make money, for their clients, shareholders (vis-a-vis Allianz), and by extension, themselves. They are in a position to hold the bonds and get made whole (or at least a decent return on invested capital) when the US eventually nationalizes the GSEs. That's their job, right? To make money. I don't see why Bill Gross and PIMCO should be faulted for attempting to follow their mandate. Its a perfectly reasonable position for them given their business.
The part I find most interesting is that if foreign holders of agency debt are unloading, is the US Federal government going to be as interested in taking care of the debtholders, PIMCO among them? Hmmm. It makes me wonder. The Feds have to take care of the people who are holding US government debt of all stripes, even though I think eventually the damn will break and the Treasury rates will soar. For now, the Fed are just trying to maintain as much control as possible. Taking care of China and Japan is in order given the scenario, and anyone (such as PIMCO) can go along for the ride if they choose. I just wonder if Japan has also been selling out of its positions in agencies? In every trade, there's a buyer and seller, but its easier to screw over your populace than a foreign government that facilitates your shell games.
No matter how you slice it, rates are going up. I stand by that assertion.
Longing...
I soooo need to get back to London! Fuggin' amazing are those photos! That's all that can be said.
Tuesday, September 02, 2008
The Four Horsemen of the Market
Brief but nice profile over at MarketWatch of 4 investment personalities that are definitely non-mainstream. Hussman and Grantham, in particular, I find to be very solid thinkers and lucid writers. If you aren't reading Hussman's weekly commentary, you should click on the link in the right sidebar and do so. Now! As for Grantham, you have to register over at GMO but its free and they publish commentary and research from time to time. Managing the kind of money they do, its probably not high on their priority list to publish much of anything for non-paying customers.
Anyway, go check it out, and read Hussman and Grantham's writings when they come out!
Later.
Anyway, go check it out, and read Hussman and Grantham's writings when they come out!
Later.
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