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.


Anyway, I haven't forgotten you all. I'm getting back into the swing of things. Stay with me.


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.

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.

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.


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...

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!

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.


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!