Amazing Sunset Tonight

(click to order a print from SmugMug.com)

View from our balcony (Kallebäck neighborhood of Gothenburg, Sweden).

Couple of Good Roubini and Einhorn Articles

As some of you know, Nouriel Roubini and David Einhorn are, IMHO, two of the best minds in their fields and I’ve been posting some of their stuff on here since at least 2006 (list of posts here).  Here are their latest articles:

Two Excellent Michael Lewis and David Einhorn Articles

I’ve posted a bunch of stuff from these guys over the years:

• Here’s an especially good David Einhorn speech from October 2007: What’s Wrong With the Credit Ratings System?
• And at the end of my 11/21/08 market update are two Michael Lewis articles: Hank, Let Me Help You Help This Great Country and The End.

Here’s the latest:

Titles:

1. The End of the Financial World as We Know It
2. How to Repair a Broken Financial World

By Michael Lewis and David Einhorn
2009-1-4
New York Times

In the past year there have been at least seven different government bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers.

U.S. Homeownership and Stock Market Participation Rates

Just a quick post of some interesting date from the U.S. Census Bureau. As shown on the chart above (click for larger image), the percentage of Americans who own their own homes is declining. No surprise there, but it does beg a few questions, such as:

What (and when) was the peak and how far (and how long) will the rate fall?

To consider these questions, I hopped over to this page at U.S. Census Bureau website,  downloaded this spreadsheet and quickly crunched a few numbers in this spreadsheet.

What I found was that…

The Investment Cycle – Where Are We Now?

Seems like a good time to take a look at the investment cycle and consider where we might be, which IMHO is somewhere between fear and capitulation.

Regarding stocks, right now we’re on day five of a rally attempt.  Today is also election day in the U.S.  Anything could happen.  By the end of the week I expect the market will either: (a) follow through to the upside with a huge gain, or (b) fail. It could, of course, also just mark time, but that seems least likely, IMHO.

Regarding real estate, I am 100% out, after selling my last piece of USA real estate the day before the worst week in modern stock market history a few weeks ago.  I am looking to buy back in 2009 or 2010, depending on where we are living and the relevant investment factors.

Article: Europe on Brink of Currency Crisis Meltdown

Ok, this answers my question from a few weeks ago about “what about the ROW (‘rest of world’) subprime mess? Where is it?? It’s not mortgages, it’s this (see article). And it’s [probably] going to make USA subprime look like a walk in the park:

Europe on the brink of currency crisis meltdown
The crisis in Hungary recalls the heady days of the UK’s expulsion from the ERM.
By Ambrose Evans-Pritchard
2008-10-26
telegraph.co.uk

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

Web 2.0 Expo Next Week, First Doing Market Update

Susanne and I just got back from a great 4-day trip to Berlin for the Web 2.0 Expo. Met a lot of interesting people and startups there and will report on it next week. First, however, a quick market update.

The reprieve rally I blogged about here is over, with new lows being set Thursday. See the 18 comments I added to that blog post for a number of interesting articles. Also see Nouriel Roubini’s video from yesterday in London: “It’s going to be a financial and economic wreak.”

Problems at Zillow? Confusing UI? Yes. Deceptive? Maybe.

UPDATE: Zillow has replied, see the comments section.

Don’t get me wrong, I am (or at least was) a fan of Zillow, but my personal experience, described below, suggests that there may be problems beneath the surface (otherwise how and why would this have occurred).

I’ve asked the company to comment, but have received nothing, unless you count the two customer service emails I received (screenshots below). I ask them again at the end of this blog.

So, the problem started when…

USA Bailout: So, How Much Is $700+ Billion, Anyway? And What Would Sweden Do?

UPDATE #1: See the comments to this post for updated numbers and links.

UPDATE #2: See updates and articles on my 2009-2-12 blog post. Also see this New York Times graphic: The tab is now $8.8 trillion, equivalent to the second largest economy in the world, behind USA at $13+ trillion.

The chart above shows the world’s largest economies (measured by GDP), ranked by size.  Assuming the US bailout is only $700 billion, the bailout is larger than all the economies highlighted in yellow.

Note: The bailout is actually already well over $950 billion if you count $150 billion stimulus package (checks to individual tax payers this spring), Bear Stearns, FannieMae, FreddieMac, and AIG.  If you add in the cost to bail out insured bank depositors and all the others who are lining up, it’s going to be well over $1 trillion. But let’s just call it $700-$800 billion for now.  How much is that?

As shown on the chart above (Wikipedia page here), it’s about the size of the Dutch economy, the 15th largest economy in the world (it shows as #16 on the list because the list counts the EU as #1). That’s a lot of “coffee”!

Remember, GDP (the “economy”) is the total value of ALL goods and services produced by ALL people and entities in a country in a year. All that money, down the drain.  Well, not actually down the drain, but into the pockets of those who profited on the way up (privatize the profits) and will profit and/or not lose as much on the way down (socialize the losses).  Nice.  Ok, I better nip that rant in the bud ’cause I gotta hop in a minute.

Real quick, lets say the bailout cost climbs to $1 trillion, how much is that? Larger than Mexican, Australian, and South Korean economies, getting close to the size of Inda’s and not far from Rusia, Brazil, and Canada.

Yeah, it’s that big…

Quick Updates: Stock Market, London, BuzzPal, Nouriel Roubini

2008-9-24 UPDATE: See here for pics and a complete debrief of me week in London.

Some interesting events since my most recent post (“The End of an Era“) and market update, when I said “it’s time to allocate some [brain] CPU and bandwidth, primarily for the purpose of monitoring the sentiment as it works towards its next extreme (and reversal).”

This is exactly what happened.  Unfortunately (for my trading), BuzzPal and I were in London for Seedcamp week, where we went to events, held meetings, and co-sponsored the first-ever TechCrunch Tech Talk, which was a smashing success and a great party, including after hours with some people you might recognize (see pic, below).

The End of an Era

Just a quick post to note today’s taxpayer bailout of Fannie Mae and Freddie Mac, which was inevitable given the system of corruption, which has been discussed on this blog since its inception over four years ago, such as in this April 2004 post, where I said:

What we have here is the greed-fed denial of a flawed system whereby real estate sales people, mortgage brokers, appraisers, Fannie Mae, Freddie Mac, and investment banks are driven to originate volume, earn their fees, and pass off the risk to others. It’s a great game in a booming market, but after markets boom there is another phase that ain’t so pretty.

One day this will unwind and besides creating some surprised and upside-down homeowners and burnt bond and asset-backed securities investors there could easily be enough carnage to carry beyond Capitol Hill and to U.S. taxpayers. Could even be enough to make the S&L crisis of the ‘80’s look like child’s play.

The man who said it best, and who thinks and articulates most clearly, is Nouriel Roubini:

Cartoon Capitalism

Exactly on point! It would be funny it wasn’t true.

Of course, the same may be said of America’s – and Britain’s – entire economies during the last 20 years. The loose credit that built cartoon houses also constructed cartoon economies; they look like real economies, but they are essentially perverse, consuming wealth rather than creating it.

What Happens Next to Fannie and Freddie?

Insolvency of the Fannie and Freddie Predicted Two Years Ago. What Happens Next? Or How to Avoid the “Mother of All Bailouts”
By Nouriel Roubini
2008-7-11

A pretty good article from Nouriel Roubini. A choice quote below, then on to the article.

“Privatizing profits and socializing” losses may dominate the policy outcome. Financial institutions love a system where they gamble recklessly, pocket the profits in good times and let the fisc (taxpayer) pay the bill when their reckless behavior triggers a financial crisis; this is socialism for the rich. That is why you already hear the whole Wall Street Greek chorus moaning for a bailout of the GSEs.

New Trend in Home Buying: Sleep on It

Interesting article from the Wall Street Journal. Great for buyers. Bad for sellers with noise or other nuances.

“Buy and Bail”: Is It Wrong? Discuss.

This question was prompted by today’s Wall Street Journal story with the biased headline “Some Buy a New Home to Bail on the Old” (click through to read the article).

It’s an interesting question. As long as it doesn’t violate the terms of any contract, my initial thought is that it’s perfectly ok, indeed a rational economic decision that maximizes individual self interest, which is the system in the USA.

That last part raises another question: Should the focus be on maximizing individual self interest or collective self interest? That is, of course, the topic of many a book and debate.

In a nutshell, the Adam Smith / USA argument is that the way to maximize the collective good is for each individual to maximize his individual good. Some people agree with this, others not so much (or only partially and/or with conditions or tweaks). I suspect that many people, at least secretly, prefer it one way when it benefits them and the other way when it doesn’t. Sounds like that is the case with these lenders and investors who now want to change the rules halfway through the game (see article, below).

It’s fascinating for me, an old USA finance guy who worked at a relatively ruthless investment firm, which by the way appears to be in a death spiral right now (I bailed and sold all my stock as fast as I could in 2003). On Wall Street, “Ruthless” is a compliment in many circles because it just means “hard-nosed deal making and the expectation that the other guy is a big boy and if he gets into the ring then he knows what he is doing and it is up to him to protect and maximize his self interest.” That works fine when both parties are equally matched, but breaks down when information and positioning are asymmetrical, indeed when a lamb goes into the arena with a lion.

Now I live in Sweden, a country that values the collective good over the individual good. It’s great to get such a close look at the other side of the capitalism/socialism coin. Neither system is perfect, of course, but if I were to design a new system from scratch it would incorporate aspects from both.

Now on to the article:

The Numbers Racket: Why The Economy Is Worse Than We Know

The Numbers Racket: Why The Economy Is Worse Than We Know
By Kevin Phillips
13 May 2008
Harper’s Magazine

If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

The corruption has tainted the very measures that most shape public perception of the economy-the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances-inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.

Is Housing Slump at a Bottom?

Interesting WSJ article and chart that suggests a turning point may be near. Readers of this blog know that I was on the “housing bubble” story from before it even came on to most people’s radar screens, writing stories and selling my Washington, DC co-op for 6x the purchase price and then renting in the summer of 2004, which is exactly when the rate of price change peaked and reversed, with actual prices peaking the following year. Now that rinse cycle is closer to the end than the beginning. Now on to the article:

Recession or Confusion?

John Mauldin clarifying some “Recession” confusion (denial) that’s been going around lately.

Also a correction on some housing numbers.