Archive for the ‘Fixed Income’ Category
PIMCO Co-CEO: When Markets Collide
Sunday, August 31st, 2008
About a month ago, Charlie Rose interviewed PIMCO’s Mohamed El Erian. El Erian is one of the country’s most successful money managers. He’s the co-CEO of the Pacific Investment Management Company, better known as PIMCO which oversees more than 829 billion dollars. He previously led Harvard University’s endowment to substantial returns on investment. In the interview, which is available below, Charlie Rose speaks to him about his new book “When Markets Collide” and how he sees the global economy today.
View Part 1, Click Play
View Part 2, Click Play
View Part 3, Click Play
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Tags: Credit Market, Derivatives, El-Erian, PIMCO
Posted in Banks, China, Credit Markets, Economy, Emerging Markets, Financials, Fixed Income, Gold, India, Investment Strategy, Markets, Monetary Policy | No Comments »
Hendry: Speculation is Dead, Gold is Heading to $600
Saturday, August 30th, 2008
As you know, GreenLightAdvisor.com is a huge fan of the outspoken Hugh Hendry, CIO, Eclectica Asset, who has been a unique, eloquent, and brash voice in this market. Its our sense that Hendry is also uniquely alone, and lucid, in the marketplace in terms of his outlook, and for this reason should be added to your must see/must listen to list.
click image to watch
The segment which aired August 19, 2008 on CNBC Europe, also contains midway, a terrific interview with GE CEO Jeff Immelt.
“There is no role for speculation or speculators today. This is kaput,” Hendry said. “If we were Second World War generals, we’ve exposed our flanks. We’ve been wiped out. This is about fundamentals … this is about losing money.”
As the crisis unfolds, the policymakers’ focus should shift from the threat of inflation to that of the world economic downturn, which could be more severe than economists anticipate, he said. (Watch Hendry’s interview below for more on the economy, inflation and commodities).
China, which many believe will balance out slowdowns elsewhere, will struggle if difficulties in the U.S. continue, while the current spike in producer prices is just a hangover from rising oil prices earlier this year, Hendry said.
“I fear that the central bankers of the world are fighting yesterday’s battle,” he said.
As for the banking sector, it is “insolvent,” Hendry said, adding he can’t tell just how low those stocks will go.
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Tags: Banks, Commodities, Economy, Hugh Hendry, Monetary Policy, Recession
Posted in BRIC, Banks, Brazil, China, Commodities, Credit Markets, Crude Oil, Economy, Emerging Markets, Financials, Fixed Income, Gold, India, International Markets, Markets, inflation | No Comments »
Horizons BetaPro Bull Plus and Bear Plus ETFs
Friday, July 11th, 2008
Canadian investors looking for the equivalent of the popular Proshares which are available on American exchanges can do so via Horizons BetaPro ETFs which trade on the TSX. These ETFs allow investors with long-only accounts to easily bet against the market or hedge their bets. The Horizons BetaPro ETFs provide either double or double the inverse of the daily returns of the asset classes they track. In the current market environment, the HBP Financials Bear Plus ETF (up 31.4%) and HBP Nymex Crude Oil Bull Plus (up 113.8%) have been huge winners.
Below is a listing of Horizons BetaPro ETFs and their YTD returns. YTD returns are not available for the funds launched this year.
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Tags: Agricultural Grains, Bear Plus, Bull Plus, ETF, Financials, Horizons BetaPro, Howard Atkinson, JovFunds, Mining, Natural Gas, Nymex, Proshares, S&P 500, TSX 60, ultrashort, US Dollar
Posted in Agriculture, Canadian Stocks, Commodities, Crude Oil, ETF, Emerging Markets, Financials, Fixed Income, Gold, Markets, Oil & Gas, US Stocks, mining stocks | No Comments »
Moody’s ‘AAA’ Mistake
Wednesday, May 21st, 2008
FT Alphaville exclusive: Moody’s error gave top ratings to debt products
Moody’s awarded incorrect triple A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models, an Financial Times investigation has discovered.
Internal Moody’s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.
News of the coding error comes as ratings agencies are under pressure from regulators and governments, who see failings in the rating of complex structured debt as an integral part of the financial crisis. While coding errors do occur there is no record of one being so significant.
Moody’s said it was “conducting a thorough review” of the rating of the constant proportion debt obligations - derivative instruments conceived at the height of the credit bubble that appeared to promise investors very high returns with little risk. Moody’s is also reviewing what disclosure of the error was made.
The products were designed for institutional investors. In the recent credit market turmoil, those who still hold the products will have suffered some paper losses while others who have bailed out have lost up to 60 per cent of their investment.
On discovering the error early in 2007, Moody’s corrected the coding glitch and instituted methodology changes. One document seen by the FT says “the impact of our code issue after those improvements in the model is then reduced”. The products remained triple A until January this year when, amid general market declines, they were downgraded several notches.
In a statement to the FT, Moody’s said: “Moody’s regularly changes its analytical models and enhances its methodologies for a variety of reasons, including to reflect changing credit conditions and outlooks. In addition, Moody’s has adjusted its analytical models on the infrequent occasions that errors have been detected.
“However, it would be inconsistent with Moody’s analytical standards and company policies to change methodologies in an effort to mask errors. The integrity of our ratings and rating methodologies is extremely important to us, and we take seriously the questions raised about European CPDOs. We are therefore conducting a thorough review of this matter.”
Credit ratings are hugely important within the financial system because many investors - such as pension funds, insurance companies and banks - use them as a yardstick either to restrict the kinds of products they buy, or to decide how much capital they need to hold against them.
The world’s other major credit agency, Standard and Poor’s, was the first to award triple A status to CPDOs but many investors require ratings from two agencies before they invest so the Moody’s involvement supplied that crucial second rating.
S&P stood by its ratings, saying: “Our model for rating CPDOs was developed independently and, like our other ratings models, was made widely available to the market. We continue to closely monitor the performance of these securities in light of the extreme volatility in CDS prices and may make further adjustments to our assumptions and rating opinions if we think that is appropriate.”
Related links: CPDOs expose ratings flaw at Moodys - FT.com
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Tags: Credit Market, Economy, Fixed Income, Markets
Posted in Credit Markets, Economy, Fixed Income, Markets, inflation | No Comments »
Chart: US M3 Money Supply Growth
Wednesday, May 7th, 2008
May 7, 2008 - Courtesy: Nick Barisheff, The Bullion Buzz Newsletter, Bullion Management Group Inc.
US M3 Money Supply Growth
M3, which is no longer published by the US Federal Reserve, is the broadest measure of money supply. It includes M2, as well as certain accounts held by banks and thrift institutions (including balances in money market mutual funds held by institutional investors). Since March 2006, M3b, a reconstructed version of M3, has grown by nearly $4 trillion, from approximately $10.5 trillion to about $14.2 trillion. To put this in perspective, total M3 in 1971, when the US cut the dollar’s link to gold, was less than $800 billion. The current annualized rate of increase is now about 20%. Since the classical definition of inflation is an increase in money supply that leads to an increase in goods and services, the price increases we are now experiencing are destined to accelerate. Given these inflation realities, portfolios need to be rebalanced to ensure that purchasing power is preserved. As precious metals are proven hedges for inflation, portfolio holdings should be rebalanced to ensure adequate allocations are held.
http://www.nowandfutures.com/key_stats.html
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Tags: Currency, Economy, inflation, M3, M3 Money Supply Growth, precious metals
Posted in Banks, Credit Markets, Economy, Financials, Fixed Income, Gold, Markets, Monetary Policy, inflation | No Comments »
Don Coxe’s Recommendations (Basic Points, 04/29/2008)
Monday, May 5th, 2008
May 5, 2008 – Here we feature the recommendations of Don Coxe, BMO Capital’s Chief Investment Strategist. As usual, his paragraphs are eloquent and provide significant guidance.
Don Coxe’s Investment Recommendations, excerpted from Basic Points, The Hinge of History II, April 29, 2008
1. In long-only equity portfolios, continue to underweight Wall Street banks and others that have been reporting high exposure to perfumed products of indeterminable value, including those which last year revealed—under duress— high exposure to SIVs. Within the financials, emphasize those whose loan losses are of the traditional, cyclical variety—not in derivatives or in untraditional banking businesses. Good banks that have stuck to their knitting—and whose CEOs compensation has suffered along with their stock prices—should be retained.
2. In long/short portfolios, be long commodity stocks and short bank stocks that make headlines for untraditional losses. That trade hasn’t been working lately, but it remains an overall portfolio risk-reducer. The list of banks that have shown great skill and profitability by going heavily into new kinds of products and new kinds of accounting is roughly as long as the list of major copper, oil and gas producers that profited by selling heavily forward.
3. A financial-led bear market within a financial-led recession can be particularly perilous if central banks run out of ways to reflate the system—and surprisingly benign if the central banks’ rescues remain timely. To date, the central banks have been up to the job—if propping up a badly-behaving financial sector is a key component of their job descriptions. Result: the overall stock market has outperformed our expectations. We still don’t like the risk/reward ratio.
4. Dividends become more attractive as central banks cut rates. The problem for investors is that many of “The Great Dividend-Paying Stocks” are financials that have been reporting ghastly blunders. In many cases, their payout ratios have climbed far above the 50% threshold that has made these stocks better investments than bonds. Opportunities remain—and dividends may be the only positive return most US stocks will deliver this year.
5. Although North American consumers have yet to see the cost pass-through in major foodstuffs of $6 corn and $8 wheat, it will come sooner or later. Based on past periods of food inflation, one of the first consumer cutbacks is on eating out. Restaurant stocks are especially unappetizing when food costs soar out of control.
6. Gold has pulled back from its high because the dollar stopped falling and the bank bailouts seem to be working. Remain overweight gold as a clear-cut hedge against further bad news on both those fronts.
7. The Canadian dollar decoupled from the euro, failing to rally to new peaks—which makes little sense to us. US clients should continue to use Canadian government bonds and Canadian short-term investments as alternatives to Treasuries and US cash.
8. Within the commodity group, continue to accumulate the leading agricultural stocks. Given the spectacular performance of the fertilizer stocks, the best bargains currently on offer are in the farm machinery companies. The global food crisis will almost surely cripple the opposition to GM seeds, which means the seed stocks have great upside room.
9. Within debt portfolios, continue to emphasize inflation hedge bonds—preferably in strong currencies. Treasuries remain overvalued, despite the recent strong run-up in yields from barely-observable levels.
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Tags: Agricultural commodities, Agriculture, Bank stocks, BMO Capital Markets, Commodities, Donald Coxe, Emerging Markets, energy, Financials, Grain prices, Investment Strategy, Markets
Posted in Agriculture, Banks, Commodities, Credit Markets, Crude Oil, Economy, Financials, Fixed Income, India, Markets, contango, energy, gold stocks, inflation | 1 Comment »
A Look at Alan Greenspan’s Long Lost Thesis
Wednesday, April 30th, 2008
April 28, 2008 - Barron’s magazine has gotten their hands on Alan Greenspan’s Ph. D. thesis and provides analysis. The bottom line is that Greenspan long underestimated the potential effects of a popped housing bubble. Here are some excerpts:
There are only two known copies: the Maestro’s own and the one we viewed. As far as we can tell, Barron’s is the only news organization ever to have seen the thesis since a third and now missing copy was removed from the public shelves of NYU’s Bobst library at Greenspan’s request in 1987, the year that Ronald Reagan appointed him chairman of the Federal Reserve Board. Glancing at the document, we momentarily felt like Indiana Jones at the dramatic moment in which he discovers the Lost Ark of the Covenant.
We were tickled to find that the work’s introduction includes a discussion of soaring housing prices and their effect on consumer spending; it even anticipates a bursting housing bubble. Writes Greenspan: “There is no perpetual motion machine which generates an ever-rising path for the prices of homes.”
Greenspan, however, didn’t foresee a housing mania spilling into the general economy, toppling banks and brokerage houses and paralyzing key portions of the credit system. The worst he could anticipate was that a sharp “break in prices of existing homes would pull down the prices of new homes to the of construction costs or below, inducing a sharp contraction in building.” Back then, there were no home-equity lines of credit, derivatives or subprime mortgages. Mortgages were largely concentrated at savings and loans. Credit was harder to come by, too, because conventional mortgage rates were about 8.5% and headed significantly higher. Still, the thesis shows that the former Fed boss was focused on housing very early in his career. Thus, it casts doubt on his recent assertions about being surprised by the Mesozoic-era-size impact of this decade’s housing mania.
For the complete article click here: Looking At Greenspan’s Long Lost Thesis, Barron’s, April 28, 2008.
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Tags: Alan Greenspan, Economy, Fed, inflation, Markets, Monetary Policy, Ph. D., Thesis
Posted in Credit Markets, Economy, Financials, Fixed Income, Gold, Markets, Monetary Policy, Politics, Satire, Strategy, inflation | No Comments »
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