Wednesday, April 29, 2009

John Thain, Merrill, B of A and the US Government

I have purposefully not written anything about John Thain since he left Merrill, but now that he has chosen to speak out, so will I. I had the honor of working for John for my entire 14 year career at Goldman. Early on he co-headed the mortgage securities department where I was a trader, and at the end of my tenure I worked directly for him in the executive office. He truly is a quality human being and it broke my heart to read the stories that were being written about him regarding his departure from Merrill. I did not believe half of what I read and I am happy that he finally chose to speak out about what really went down. Every Merrill employee that I have spoken to since he joined that firm said they thought he did a great job. At Goldman John had a stellar reputation, and was known for his strong worth ethic, his integrity, his raw intellectual ability and his compassion. I cannot imagine how challenging it was to come in to the head role at Merrill when he did, but I am sure he did the job to the best of his ability. Was he perfect? No... but tell me someone who could have done better.

For a must read OPED the Bank of America/ Merrill merger I encourage you to read this piece that appeared yesterday in the WSJ. ( the same day as above) So much trust has been broken and it is hard to imagine how we are going to build it back. There are going to be books written about how this deal got done and the whole truth is yet to come out.

I am off again, this time to Atlanta for the Women’s Funding Network conference. Sorry the blogs have been few and far between as heaven knows there is MUCH MUCH to write about.

Thursday, April 23, 2009

Ugly Headlines, Happy News, Green Shoots, and Where to put your Money.

I am not sure what headline/story upset me more today. Could it be “IMF sees 1.3% drop in Global Output?” Or maybe “Freddie Mac Finance chief found dead in home.” Now I think it would have to be “Taliban Seize Pakistan Area Near Capital.” Not that I want to walk around with my head in the sand or anything but perhaps one new business idea would be to launch a new web-site that only reports on good things that are happening in the world. So funny, after just typing that I thought hmm…. I wonder if that domain is available – – sure enough it is not, the site exists, and it is all about up to the minute news meant to lift your spirits. How cool is that? Their tagline is “Real News. Compelling Stories. Always Positive.” Add that address to your favorites and remember to visit it regularly.

So needless to say the news out there is just horrible. For a well articulated piece on why I think this rebound in the market is short lived read Martin Wolf’s piece in yesterday’s FT called “Why the ‘green shoots’ of recovery could yet wither.” I, like him, believe that we are still in the ‘early stages of a long and painful deleveraging and restructuring’ process. The IMF just recently upped their estimate of system wide loan losses up to $4.1 trillion and how much of that has been accounted for? I don’t know but it someone has the answer please do share. All these massive government programs are working hard to cushion the global economy’s free fall, but bottom line; we are still in a downward trajectory, albeit at a slower rate than earlier in the year.
So what does this mean from an investment perspective? For me it means remain defensively positioned, maintain liquidity, and look for lower entry points for both domestic and international equities. In the fixed income space I think opportunities do exist and I will pay attention to funds that are emerging out of the TALF and Public/Private Partnership Programs. I think you need to be careful about adding too much duration in your portfolios as although there is short term deflation, I worry longer term about the opposite. More importantly however is the massive amounts of debt issuance the government needs to do combined with how much debt that is already outstanding. YES the fed is buying treasuries, especially at around 3% on 10 year notes, but trying to effectively front run the fed and ignoring fundamentals is a dangerous game indeed. Might be ok for professional traders that are in the flow of information and flow, but for you and me??? Not good. I did spend a lot of time today talking to some exceptionally smart and experienced guys who are launching a venture capital fund in the digital media space, which was really fun. Their primary focus area is in gaming and is amazing to think about how so many other areas, like media, are being game ‘ified’.

Well my pillow is calling my name so of to sleep for a mighty early wake up call. I am heading to Colorado tomorrow for the weekend so the next post may not be until Monday. Wishing you all a wonderful weekend…..

Sunday, April 19, 2009

Green Shoots or Wishful Thinking plus PIMCO

I have spent the past few days getting prepared for our (Circle Financial Group's) quarterly asset allocation meeting and have been trying to gather and digest information from some of the country's leading investment thinkers. I can honestly say that in my now 21 years in the financial world, this moment is truly an exceptionally challenging time to come up with a long term investment strategy, with a mindful short term tactical bent. Arguably it was harder a few months back when everything seemed to be imploding, but even now there is still a tremendous amount of uncertainly about whether the massive government interventions will take effect, and at what long term cost. The economic news continues to be terrible, and these green shoots are truly small indeed. Everytime I look outside at my hydrangea plants, which currently look like a mass of dried out sticks ( see above) with a just a hint of green on a few stems, I think of our economy. I think of how last summer these plants were lush and full and vibrant, and now, well.... you get the picture. To carry on the analogy the Fed has certainly added a lot of fertilizer, but in order for plants to grow there also has to be water and sunlight. All three of these factors are relevant and likewise, many things have to be present for there to be meaningful econonomic stablity and growth. The Fed and the Treasury can do what they can do, but they can't do everything that is needed to stop the decrease in housing and other asset values and stimulate demand in the global economy. Food for thought is always provided by our friends at PIMCO - read Bill Gross's latest here. ( The Future of Investing: Evolution or Revolution?)

Friday, April 17, 2009

"The Grasp of Your Hand"






" 1861-1941"

My friend Kim sent this prayer to me. She has been such a support to her friend Sam who is dying from cancer. This wonderful woman and mother is only in her forties. Kim and Sam, I am just sending you both by love and God's warm embrace.

5 Things We Have Learned Over the PastMonth - According to ML's David Rosenberg

David is one of my favorite investment and economic thinkers. Below are some recent thoughts too good not to share.

"There are five things we have learned over the past month

1. Whenever the S&P 500 slices to a new low, it’s time to cover shorts. Every new low in the past 18 months was met by a vigorous bounce, especially the last two.

2. Be wary of upward spasms where financials and consumer discretionary lead the way, because they typically go into these bear market rallies with the largest short positions. Also, be skeptical when the rally is led by low-quality stocks.

3. Investors seem to be enamored with the second derivative (rate of change in the rate of change) in the economic data even though bear markets usually end just in advance of a turnaround in the first derivative (the rate of change itself).

4. There seems to be confusion between an actual improvement in the economy and an improvement relative to the post-Lehman trend, when the economic indicators began to implode at annual rates of 30%-70%. Even Wily Coyote hits the ground at some point.

5. The profits recession is two-thirds of the way through; there is another one third to go. Equity investors pay for profits, and with one-third of the downturn still ahead of us, it is difficult for us to be excited about any sustainable rally in stock market."

Thursday, April 16, 2009

Susan Boyle - You have to watch this.

Need to feel good today, you have to watch this. The lesson here........... be open to every possibility in life. Tue beauty comes in a lot of different packages. ( it is a seven minute Youtube video)

Wednesday, April 15, 2009

The Next Shoe to Drop May be Munis according to Buffet.

A small piece in the right hand corner of the WSJ caught my attention just now so had to share. The title of the piece "Muni Bonds Keep Buffett Up at Night". A few pages before I had read about the unprecedented fall in sales tax revenues and it's impact on local budgets. "In the next two fiscal years, 47 states are likelyto face budget shortfalls of a combined $350 bb, according to the Center on Budget and Policy Priorites." It goes on to say that "Moody's assigned a negative outlook to the creditworthiness of every local government in the US." Read that line again. I like how this writer ends the piece - "if the Oracle of Omaha is concerned, investors should listen." Now every muni bond is different so I am not saying run out and sell your muni funds, but at the same time, you better be sure you know what risk you do have. For most munis you are likely owning a scant 1 to 2% on the short end, so you have to ask yourself if that incremental yield is worth the incremental risk? I am beginning to think that a portfolio with the safest of the safe, barbelled with true high yield paper, might prove a lot better then once high quality paper that now has substantial risk of downgrade or worse. Remember last year when money funds broke the buck and the government had to rush in and guarantee them? One has to think all is possible in this market.

Tuesday, April 14, 2009

Goldman Sachs - A Great Quarter!

How could I not do a brief post on the GS earnings report? Wow and congrats. Net income of $1.81 billion for the quarter is nothing short of amazing given the environment. What that is telling us about the industry in general is less obvious. Some will do well, some will not. There is no doubt that Goldman was early to recognize that there were going to be major problems in credit product, and i believe turned the ship around quite well. Though I have not done any homework on this, I would assume that they are making a lot of money due to very wide bid ask spreads. With many of the competitors know gone, they are well positioned on the trading side to print a lot of money. They are also raising some mega sized funds in credit products which will generate some nice fees, but man of man, some of their funds have had major issues and I am sure that has caused problems with many a private wealth client. I should now because I am in some of them. This has got to be true of almost all the large firms that take a fairly traditional approach to how they run their business - meaning have clients own a lot of equities, private equity and hedge funds. Most people I know are doing a serious review of their providers and really holding them accountable for performance, as one should always do. The problem for many is - where do you go? Who is better then the next? Good question and one I should truly address in a how to evaluate a wealth manager essay! I have learned so many investing lessons over the years and I am trying hard to put them in to practise. A few of them are: keep it simple if you can, maintain liquidity as you never know when you might need it, don't get talked in to something you do not understand, try to have transparency in all your investments, proper due diligence pays off and most importantly for me is , trust my instincts! Have a good evening....

Sunday, April 12, 2009

Happy Easter!

Sorry for the lack of posts. We decided to take a last minute trip to BOSTON for a few days prior to EASTER. I hope you all had a wonderful celebration. This holiday is such a special one for me. It is a celebration of hope, of forgiveness, and of possibility. Our pastor gave a beautiful definition of faith today that I have to share. "Faith is reason reflecting rightly upon what is true." I like that...........

Wednesday, April 8, 2009

The Market Moves Downward plus Credit Losses Mount

The markets reversed course yesterday whether due to exhaustion from the strong move up, profit taking on recent purchases, the anticipation of some soon to be reported horrible earnings numbers, or news that credit related losses continue to rise dramatically. According to RGE monitor "IMF Boosts Global Loss Estimate To $4 Trillion: RGE Monitor Calculates $1.8 Trillion Fall On U.S. Banks/Brokers, $2 Trillion On European Banks, Remainder On Asia." I remember last year when the talk was that losses could hit $1 billion and the raging bears were predicting $2 to $2.5. The question is, and I will have to dig for the answer, how much of this losses have been effectively taken. With the new rules on mark to market accounting, meaning you don't have to, they can be hidden for some time. It is somewhat ironic to me that almost on the same day the gov't announced this private/public program to rid the banks of toxic assets, they changed the rules so they were less incentivized to do so. What also seems to be a little odd is that given the total losses are projected to be in the US around $1.8 trillion, if the gov't just figured out a way to eat a good part of that upfront, would that not have been a lot cheaper then what they have done already over the past 12 months? Yes big number, hard to swallow, probably impossible to sell to congress and the public.... but, as my mother always use to say when taking a band-aid off me - "rip it off quickly, it hurts, but it is over".

Monday, April 6, 2009

A Quick Look at the Quarter plus a look at BUBBLES

I have been busy collecting all my month end and quarter end summaries but it is likely that by time I can gather it all together and make it as pretty as I want it to look it will be outdated, so let me give you a quick and dirty version instead.

Headline: March was good, the quarter was bad, but it could have ended a lot worse.

The Dow ended the month up close to 8% but closed the quarter down 13%. Similar for the S&P. The Nasdaq faired much better with a plus 11% month, and only down 3.1% for the year. The strong performers globally were China, India and Brazil. The big news was really the strong move up from the lows in the month of March. 676 was the low close on the S & P on March 9th It went on to hit 797 at the end of the month and arrived at 835 today. An impressive bounce indeed. As I pour through my stack of papers I will add to this post some good month end summaries so we all have it to look back on.

There was a particularly good piece in the journal today that is worth reading called "From Bubble to Depression." It is a good study of the recent housing bubble and helps to explain why this crisis is of a particular variety - the too much leverage variety. "It appears that we're witnessing the second great consumer debt crash, the end of a massive consumption binge." This reminded me of something I wrote at the beginning of last year - my second oped ever...
"His ( Treasury Secretary Paulson's) advice to spend our way out of this temporary problem may well prove a ridiculous suggestion for an economy diseased from extreme over-consumption in part caused by a lack of appropriate financial oversight as well as overly stimulating monetary policy. Who ultimately will claim responsibility for America's addiction to buying stuff, made possible by cheap money and corner-store credit dealers? Though I am not quick to blame any one party, the first step in our collective healing process, as any AA member will tell you, is to admit you have a problem. " Judging by the country's new found interest in saving.... I guess the process of healing has begun.

Friday, April 3, 2009

The Public/Private Progam to Rid Banks of Toxic Assets - OH MY!

There is so much to write about right now I cannot even see straight but unfortunately so is my general to do list. So again this one is going to be quick. This public private partnership that has been offered as a solution to the problem of toxic assets is a joke. When I first read about it last week I wrote that it sounds 'too good to be true' for those who are allowed to participate and that the risk would be that the public (taxpayers) figures that out and would go 'NUTS'. That is happening. Mark my words this program is going to blow-up. Yesterday this piece in the FT highlights the problems with the program: "Why Geithner's plan in the taxpayers' curse." Today the front page featured this story "Bailed-out bank groups consider buying toxic assets from rivals." In my search I found another BLOG has picked up on the insanity of this - MonkeyBusiness ( what a great name). Add to this the suspension of mark to market accounting for financial institutions which again, I could write pages about, and you just have to throw up your hands. This will result in an accounting windfall while hiding the fact that banks are still loaded with loans marked at prices they will never see again. OH WAIT!!! They may see them again because the treasury has found a way for a handful of institutions to buy them at too high of a price because the government is offering them free money and limited downside. So much so that now they are trying to buy the junk from each other. It is all a big shell game and the taxpayer will most certainly be the ones to pay. How can it end nicely? So much more to say but have to go.................

6 hours later - just read another article talking about the problems of this program - worth adding to the collection. READ THIS.

Wednesday, April 1, 2009

Welcome to America

I am going to work on a quick market summary for the quarter but this is a must read. (My husband ( ex emerging market trader ) could have written it, as for many. many years he lived it, and has been talking about the many issues raised in this piece for some time). The piece is from the Washington Post - "Welcome to America - The World's Scariest Emerging Market." I love this line..."On Wall Street there is an old joke that the longest river in the emerging-market economies is "de Nile" - very sad and very true. Let's hope the 10% probability does not come to be....... Read it and think.