Category Archives: Investment outlook

Tell Me Why This Isn’t Tantamount to "Bubble?"

I’ve seen this factoid before, but lifted this recounting from Monday’s editorial in the Financial Times, “Why finance will not be unfettered“: According to the McKinsey Global Institute, the ratio of global financial assets to world output soared from 109 per cent in 1980 to 316 per cent in 2005. The value of the global […]

"What Happens When No One is Left to Hold the Bag?"

A good post from John Hussman at Seeking Alpha. He thinks we are on the verge of a sharp and overdue correcttion: In the microscopic focus on day-to-day fluctuations in the market, it is easy to overlook how unusual — specifically, unusually unfavorable — current market conditions are from a long-term historical perspective. The S&P […]

"Capital spending faces big squeeze"

One of the hopes, or more accurately, fantasies of a few months ago was that increased business investment would offset slowing consumer spending. This forecast defied basic logic. Why would businesses take on more risk if consumer buying, the big driver of the economy, was sluggish? One would expect lower rather than higher capex. And […]

Bear Stearns Hedge Fund Fallout Continues

In case you missed it, the US stock market was rattled by the continuing aftershocks of the Bear Stearns subprime-related hedge fund fallout, with the Dow down 185, and Bear itself was down in line with the Dow (both fell 1.4%, although Bear was up slightly in the aftermarket at this hour). Now the odd […]

Investors Starting to Choke on LBO Debt

One of the reasons the US market traded down today was fears the LBO boom is coming to an end, and support for that thesis came in a Bloomberg story, “Thomson Learning Shows `Breaking Point’ for Junk Debt.” Three deals, Thomson Learning, US Foodservice, and Dollar General, are having trouble finding lenders on terms recently […]

Gloomy Reading From the Economist on Subprime Prospects

The Economist takes a detached, often ironic, tone in its articles. So when one reads a piece that exudes worry, as this week’s “Bearish Turns” does, it’s noteworthy. The piece recites a litany of likely developments in the credit markets, all negative: the indeterminate state of the Bear Stearns subprime hedge funds; the near-certainty of […]

Confused About Inflation?

It turns out you have every reason to be confused. Even the data watchers can’t agree, which makes one wonder how the Fed can make sense of our situation. Barry Ritholtz at Seeking Alpha give us this recap: Over the years, we’ve looked at — and coined one or two — terms for the current […]

Bear Stearns Hedge Fund Meltdown Rattles Subprime Sector

The Financial Times and the Wall Street Journal give complementary updates on the unraveling of the Bear Stearns subprime hedge funds, the larger of which was the High Grade Structured Credit Strategies Enhanced Leverage Fund. Merrill Lynch and Deutsche Bank put up over $1 billion in assets seized from the funds for sale today. Some […]

Who is the Bagholder in the Subprime Correction?

In recent years, financial services firms have become increasingly adept at the game of “pin the liability on the bagholder.” Wall Street players structure complicated new products and seem peculiarly able to strip a disproportionate share of the economic value out as up-front fees. I say “peculiarly” simply because investors buy this stuff, even the […]

Even Brokers Admit Housing Market is Desperate

One of New York’s features is its acute housing cycle, a function of the local economy’s dependence on Wall Street. So the sounds of pain coming from real estate professionals are not unfamiliar. A point occurs in every cycle where the brokers, perennial optimists, can no longer deny how bad things are. It’s partly because […]

Marc Faber on Liquidity, Leverage, and Bubbles

Marc Faber, who likes a colorful turn of phrase, has a sobering piece in the Financial Times, “Market insight: Beware the driving forces behind surging asset prices.” He looks at the symptom of pervasive asset bubbles (at least until US housing started unravelling) and traces it back to rapid money supply growth, which produced the […]

Tokyo Retail Investors Out Carry-Trading the Pros

A Bloomberg story tells us that Japanese retail investors are undermining the forecasts (and worse, trades) of large investment banks. The banks think the yen is seriously undervalued. Unfortunately, when it appreciates, retail investors buy more assets in countries that offer more yield, which leads them to sell yen, keeping the currency in its place. […]

The Bond Market Hath Spoken (But a Lot of People Aren’t Listening)

I know we are in the midst of a classic pattern, but it is still mystifying to watch it operate. At the end of a cycle, bonds start to decline in price before the equity market starts to fall. One would think that this sequence was sufficiently well established that the time lag between the […]

Troubled Bear Stearns Hedge Fund May Be Liquidating

When the story broke of trouble at a Bear Stearns hedge fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, that led it to auction $4 billion of its holdings to raise cash, we speculated that this might wind up being the beginning of a liquidation. That scenario now appears likely. The Wall Street Journal […]

Is (the Perception of) Risk Returning?

Many moons ago, we lamented, “Where Has the (Perception of) Risk Gone?” Even though the markets got religion for a couple of weeks after the global downdraft of February 27, things returned surprisingly quickly to status quo ante. Over the last week and a half, we seem to have had a mini rerun of February […]