Global Trade in Trouble?
By Jon Menaster | September 25, 2008
Yes, it has been a while.. I am now in grad school, busy with a million and one things, but I will try and keep posting. Here’s something that caught my eye: Japanese exports to US tumble by 22%
In the article, the always informative Financial Times explains:
Japan’s trade balance occasionally slips into negative territory at the start of the year as production slows over its long new year holiday. But economists said August’s deficit was the first outside the month of January in 26 years, and the first on a seasonally adjusted basis since 1980.
The contraction was led by plunging sales of Japanese cars and trucks in a weak US automobile market. Exports to Europe also declined while growth in shipments to China and other Asian countries – including sales of Japanese factory equipment used in those countries’ own export industries – slowed sharply.
Why might this be happening? Well, beyond the fact that most Americans are cutting back on purchases in general, it is also much more difficult to obtain loans and other forms of credit now for purchasing these expensive vehicles. Either way, this is not good for Japan and a scene which is likely to start being repeated worldwide. As much as most people don’t like the United States, they do rely on us for our excessive consumption!
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Bear Sterns Fund Managers Indicted
By Jon Menaster | June 19, 2008
As reported by just about every media outlet under the sun, two high profile executives from now disgraces brokerage house Bear Sterns, Ralph Cioffi and Matthew Tannin, have been indicted on federal securities fraud charges. The two of them were running two hedge funds for Bear Sterns which completely collapsed. What exactly did they do that was so wrong? This article in the Business Week mentioned:
The indictment also alleges the two men concealed the fact that one of the largest investors in the hedge funds wanted out and sought to withdraw some $57 million in April. Authorities say the pair repeatedly told investors to put more money into the fund and withheld information about redemption requests. Tannin allegedly told investors on more than occasion that he was putting more of his own money into the funds, even though he never did. On May 3, Tannin told one of the hedge funds’ bank lenders he doesn’t anticipate any large redemptions.
Ouch. Sounds pretty bad. Lied, manipulated people, all that jazz. Not a nice person - but then again I wonder if this sort of thing happens more than we’d think. I’ll leave you with this quote from the end of the article, which I often find contains the article writer’s true feelings about what happened (and in this case my feelings are mirrored with the authors)
Ross Intelisano, an attorney who represents a number of hedge fund investors, says: “These are the first criminal indictments related to the subprime debacle and it’s fitting that Cioffi and Tannin who helped trigger the crisis are the first ones indicted.”
Topics: Business, Finance, Investing | No Comments »
Inflation Looms!
By Jon Menaster | June 11, 2008
Inflation is always a concern. Nobody likes to have their money devalued. Yet with each passing interest rate cut by the Fed, the inflation rate will increase. Now that the federal funds rate and discount rate are at lows not seen since Greenspan’s attempt in the early 2000s to fix the post-technology bubble, people have started chirping about inflationary concerns. Reacting to those concerns, good ol’ Ben has now started leaking out words which may indicate a shift in the strategy the Federal Reserve will take. In the article “Concerns on Economy Are Shifting to Inflation“, the New York Times illustrates everyone’s attempts to read into each and every word Bernanke says. According to the Times, Bernanke said on Monday night that:
on Monday night that the central bank would “strongly resist an erosion of longer-term inflation expectations,” implying a pause in its rate-cutting campaign and, perhaps, eventual rate increases.
The best part is the use of the term “implying”. Nobody really knows what’s going on in Ben’s head. Only Ben. The media, the pundits, Wall Street, the individual investor, everybody tries to figure out which way the Fed will shift because so much is affected by every move. For instance, bond prices move in the opposite direction of rate movements.
In case you weren’t quite sure exactly how the Fed goes about protecting against inflation by raising rates, here’s a quick primer. Say the Fed sets a new target rate higher than the existing one. To achieve that rate, the Fed will sell securities to banks, who then lose capital but gain securities such as treasuries in exchange. This in turn decreases the supply of money in the economy. With less money in the economy, each dollar is worth more and therefore inflation is slowed somewhat.
The problem is that with less money available to the banks due to the draining of their reserves to buy securities, they cannot lend as much money to consumers and businesses due to reserve requirements (the percentage of banks’ customers deposits which they must hold and cannot lend out - isn’t fractional reserve lending wonderful?). This lowers the availability of money and makes entrepreneurial inclinations harder to fulfill. It also makes it harder for consumers to purchase new homes, and as we already know most banks are being a whole lot more careful about who they lend to. I hope that made sense - I just wanted to give all of you a picture of what a double edged sword trying to stop inflation can be. Good luck Ben!
Topics: Investing, Money News | No Comments »
Why the US really has gone broke
By Jon Menaster | April 29, 2008
I wish I had the time to research and write an article as great as this, but sadly I do not. Instead, I will link to it and ask that you all read it and inform yourselves!
As a result, going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out, or preparing for a war in outer space against unknown adversaries. Instead, the Bush administration puts off these costs for future generations to pay or repudiate. This fiscal irresponsibility has been disguised through many manipulative financial schemes (causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.
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It’s the economy, smart?
By Jon Menaster | April 18, 2008
Just a couple quick links for Friday reading and listening fun:
How Hedge Funds Pushed the Economy Down is an audio interview on NPR, described as:
Largely unregulated by the government, the hedge fund “shadow market” has played a critical role in the housing crisis. Alex Chadwick talks to Michael Greenberger, law professor at the University of Maryland, about what hedge funds are and how the government deals with them.
British Banks start to pass round the begging bowl is a story by the venerated Economist magazine (a must read, in my opinion) about how big British Banks, who for months were saying they had no need to raise new capitol, are finally realizing they need in fact exactly that!
A few great blog pieces:
The Fed is serving the Wall Street Banks not the Republic is an absolutely fabulous article! Just read it, I’m not even going to tell you why. Do it!
Another one, Why do oil prices keep rising?, by Mish, is a great explanation of that seemingly always asked question.
Read up, stay educated, and I’ll be back again after I finish my hectic weekend! Happy Passover!
Topics: Money News | No Comments »
The Fed, Bear Sterns, and JP Morgan
By Jon Menaster | March 30, 2008
So I’m sure you heard all about how the Fed was stepping in to save Bear Sterns from imminent disaster; but maybe you weren’t quite sure how it all worked. Business Week has a detailed breakdown explaining what the Fed is doing and why it may never have done anything like that before. From the article:
Here’s how it works: A Delaware-based limited liability company will be set up to receive, upon completion of the merger, $30 billion in various Bear holdings, such as mortgage-backed securities. The Fed will lend $29 billion to that company, which will pass all the money along to JPMorgan, Bear’s new owner. JPMorgan itself will lend $1 billion to the Delaware company. The company, managed by BlackRock Financial Management, will pay back the loans by gradually liquidating the assets. As a protection for the Fed, it gets paid back fully before JPMorgan gets back anything on its loan. The other sweetener for the Fed is that if there’s money left over even after JPMorgan gets repaid, the Fed gets it all.
Curiouser and curiouser…
Topics: Money News | No Comments »
Who are the central bankers working for?
By Jon Menaster | March 25, 2008
Big central banks such as the Federal Reserve Bank or the European Central Bank are supposed to be looking out for the interests of the people, working to stave of financial disaster. At least, that is what common wisdom holds. Unfortunately, recent monetary moves by the Fed seem to show otherwise. Unless you’ve been living in a cave for the past 6 months, you’ve noticed that the Federal Reserve has lowered interest rates every time it has met as of late. In total, there has been a 225 basis point drop (2.25%) in the fed funds rate, the rate at which banks loan money to other banks. This was supposed to help keep the markets from collapsing. Well, in my eyes it hasn’t worked very well. And I thought about why the central banks were doing this - especially after a friend of mine commented that as far as she knew the banks were trying to help us. A recent article in the excellent blog Jesse’s Cafe Americain stated,
The central banks are also cutting interest rates to try to boost banking profits, and this is making currencies such as the dollar increasingly unstable.
That is such a key point I cannot overstate it. The Federal Reserve, contrary to what you might think, is actually a consortium of mostly privately owned banks making decisions affecting the monetary policy of the United States. I recommend thoroughly reading through the Wikipedia article I linked to to gain a real understanding of how the system actually works, and how every single dollar printed by the reserve is actually loaned to the United States Government.
When the interest rate is cut it tends to both increase inflation and decrease the value of the dollar, and that is precisely what is happening. If one takes a look at the Consumer Price Index, it is clear that inflation has been steadily increasing. According to the Department of Labor’s statistics, the Consumer Price Index has risen by 4% over the past year. The Euro has risen from being worth around $1.33 a year ago to $1.56 today.
Things are bad, but they could be worse. The Fed needs to hurry up and slow down. Try keeping interest rates at least stable for a little while longer, which will hopefully reinvigorate the dollar and keep inflation low. This will allow the American consumer to retain some of its spending power. It’s going to be a rough 2008 but let’s ride the rapids, hang on tight, and hope for the best! Till next time!
Topics: Finance, Money News, Savings | No Comments »
Venezuela and Ecuador vs… Colombia?
By Jon Menaster | March 7, 2008
As reported by James J. Brittain and R. James Sacouman in the excellent on-line newspaper Venezuelanalysis,
On March 1, 2008, the Colombian state, under the leadership of Uribe, Vice-President Francisco Santos Calderón, and his cousin Defence Minister Juan Manuel Santos, illegally deployed a military campaign within Ecuador, which resulted in the deaths of Raúl Reyes, Julian Conrado, and fifteen other combatants associated with the FARC-EP. Such actions are a clear display of the US-backed-Colombian state’s open negation of international codes of conduct, law and social justice.
Now in analyzing a situation like this, one must be careful, because there are so many different forces at work here (aren’t there always). The key is understanding the dynamics of the United States and Colombian relationship. The United States government, in all its wisdom, has decided countless times since its inception to back a country whose political system is much less than a democracy, in order to further its own goals. In this case, the War on Drugs has resulted in the United States pouring military aid into Colombia’s government, in the hopes it will use the money to help capture some of the top drug dealers in the region. This is what led to the capture of Pablo Escobar, as documented in the book,Killing Pablo
Venezuelan president Hugo Chavez, in response to the March 1 attacks, actually went ahead and labeled Colombia the “Israel of Latin America” during his weekly Sunday talk show Aló Presidente. In response, Chavez has moved thousands of troops to the Venezuelan and Colombian border. While this could be saber-rattling, Chavez is certainly not taking this lightly. In economic terms, the two countries do around $6 billion in trade every year. Chavez is unlikely to risk that over something which did not take place on his soil, but who knows. Tracking some of the Latin American ETFs, such as ILF and GML, clearly shows a downward trend this week (Although ILF remains on a tear, up a remarkable 48.75% so far this year). For investors in Latin America, this issue cannot have demonstrated any more clearly the axiom, no risk, no reward. The market volatility is high and so are diplomatic tensions. Neither are good for the people of Latin America - I’ll keep a close eye on this one from here on out.
Topics: Business, Money News, Politics | No Comments »
You CAN make money on renewable energy
By Jon Menaster | February 20, 2008
Reuters news service is reporting that “Investors pledge $10 billion for renewable energy“, stating:
U.S. institutional investors pledged at a U.N. summit on Thursday to invest $10 billion over two years in technologies that aim to reduce greenhouse gas emissions and to pressure companies to disclose their risks associated with climate change.
This is a big deal for many reasons, but especially because so many old time U.S. companies whose destiny sat on producing so-called dirty energy such as nuclear, coal, and gas, repeatedly made claims that renewable energy simply was not cost effective enough to make sense. Remember, in a society as capitalistic as America, the key to convincing anyone to do anything is properly explaining that there is money to be made. The reason dirty energy companies are able to continue making money is due to the huge energy subsidies the federal government pays them every year. These companies then give huge campaign contributions to both major political parties, thus ensuring the continuation of the cycle. For instance, as reported by Public Citizen, over $6 billion in oil and gas subsidies were given in the energy bill passed in 2005. $9 billion in subsidies to coal companies and $12 billion in subsidies to nuclear energy companies complete the circle of doom.
Since the federal government is clearly not giving this kind of money to renewable energy suppliers, such as wind and solar energy producing companies, they cannot price their products as cheaply as the oil, natural gas, and nuclear power companies do. This problem must then be solved by private investment, which is exactly what this United Nations summit is trying to do. As the article mentions in the end,
“Some analysts have said green technologies like solar power, ethanol and biodiesel are forming an investment bubble that could soon pop.”
The key to making money off this is finding the when and the where and the how, but as many people have come to recognize that global warming is indeed a serious issue for the planet, seeing that $10 billion being invested in potential solutions (or at least ways to slow down the destruction) should motivate companies looking to grab a piece of the pie just work just a little bit harder. Or maybe a lot harder.
Topics: Finance, Investing, Money News | No Comments »
What a week!
By Jon Menaster | January 26, 2008
Wow. That’s all I can say after taking in everything that was this week in the markets. Monday, January 21st, saw huge sell-offs worldwide as everybody panicked over a potential United States recession. Then come Tuesday, the Fed himself panics and decides on a non-scheduled 75 basis point cut in the interest rate, the largest such cut ever. Ever! I mean, wow. And since then, all the markets worldwide have been going up, and down, and up, and down, in moves gyrating enough to make even the most seasoned rollercoaster rider sick. What do I think? I just try and tune out the noise! Of course, I’m in a unique position and you may not be able to do that. Well, lucky you, the amazing federal government will ride in on its gold plated horse and offer you nothing less than.. free money!
Yes, that’s right, the House, Senate, and President all managed to agree on one thing - that they didn’t want to look bad in an election year! So they worked out a nice pretty little economic stimulus package - how quaint! As discussed in the Times article,
The centerpiece of the plan is a rebate of as much as $1,200 per household — even more for families with children — that could be mailed to most taxpayers as soon as late spring. The package also includes temporary tax breaks to encourage businesses to expand and create more jobs this year.
Hmph. Sounds great. How much will it cost the government, you say?
The cost of the economic stimulus package, some details of which remain murky, would be roughly $140 billion — $100 billion for the rebates and $40 billion for the business tax incentives. Leaders have set a deadline of Feb. 15 for passing the legislation, although it remained to be seen whether the Senate would leave the deal intact.
Wow. $140 billion. Almost the cost of a year’s worth of the war in Iraq. I wonder how we intend to pay for all this, what with the ballooning federal deficit. Ah, that’s right, borrow some more. Or wait, even better, why not just print more money? That sounds like fun!!
As you can see I’m being entirely too cynical about the matter, but nonetheless I think we need serious reforms to our budget along with the tax code to really see any long term change. This “shot in the arm” stimulus package is entirely dependent upon.. drumroll please.. people irresponsibly spending the tax rebate checks they receive! If people just take the cash and stash it in a bank, why the economy won’t get much stimulus at all (except for the banks. lucky them.) If, on the other hand, people take that tax rebate check and spend it wildly, everybody wins! The corporations have more money to make their annual profits rise, and the people have.. more junk they don’t need. Hmph. And isn’t overconsumption and overextension of most people’s finances what really got us in this mess in the first place? Plus, with all this money printing/money borrowing and cutting interest rates, that tends to.. raise inflation! If the measures the government took this week don’t help, but hurt, we’ll even have a potential for some stagflation! Bottom line: if you get money back, save it for the rainy day which is sure to come. Try and keep your budget balanced, even if the government can’t do the same. You’ll be better off in the long run avoiding debt in general. Till next time meat popsicles, away!
Topics: Business, Money News | No Comments »