Three recent stories with one theme in common: the rise of the middle class and the availability of credit. Looking at banks or diversified financials top-down is not our specialty and, as we’ve said in our Q3 2011 report, “is only of interest to us in order to gauge an important part of the risks”. Keeping this in mind, one of the articles is bullish and points to recent reports showing that credit here has actually accelerated in September, despite talks of banks – and financial authorities – reining in loan growth. The other two articles are also bullish but still reflect, in a way, the difficulties of sustaining such growth.
Two very recent stories on CDSs (credit default swaps) highlight the issue of Risk. Risk has a lot of aspects to it and some get overlooked, such as counterpart risk, process risk, instrument risk (liquidity, clarity of regulations, how tested it was in real-life distressed situation etc.)… Not reading the fine print, for instance, has led more investors astray than they would like to confess. Much has been said about CDO-Squared and complex instruments in general, but the CDS was actually not supposed to be complex. Even so, investors in Greek debt CDSs are finding that “default” may not be what they thought it was… And another side of the debate is counterpart risk: what if the instrument is good, the writing is clear and so on – but the counterparts (whoever they are in this immensely interconnected financial world) just can’t honor their side of the deal?
The Occupy Wall Street movement is so anarchic as to be impossible to name one “mentor” or group behind it – although that’s not stopping some people from claiming influence over it. Ultimately, in investments or revolutions, it’s all about the key people – it’s vital to understand their real motivations, aspirations, personalities and incentive/moral systems. Not what they say it is, what it really is. And that’s why it’s so hard to define “OWS”. We highlight three articles about it that may shed some light in a few spots.
The UN expects “Earthling #7 Billion” to be born this week – the report will be released on Tuesday, Oct. 26th 2011. Yet it’s just a symbol to spark a stream of articles about overpopulation – demographics, at this level, is open to much debate. Clive Cookson in the Financial Times had a short piece with a brilliant infographic, and the New York Times today has an entire debate series about it. We link to other sources. Not being able to reach a conclusion is no excuse not to think about it.
A few notes about Day One (Monday, Oct. 17th) in the 2011 Value Investing Congress. You can follow their own live updates on Facebook or Twitter. We start with David Einhorn – he wasn’t the first speaker of the day, but things started to get interesting when he came onto the stage. Having attended both, the Ira Sohn Investment Conference is a better event: shorter in length, better attended and with better speakers, more focused and, we dare say, with more committed speakers.
Interesting Wall Street Journal editorial pointing out some contradictions within the Occupy Wall Street movement. As with all movements that start small and seem innocuous or naive at first, politicians and Wall Streeters ignore them at their own peril. How long before someone with any kind of political relevance gets tempted into picking up this flag?
After depicting both sides of the Eurozone crisis – Greece on the one hand and Germany on the other – Michael Lewis now turns his attention to the USA and to where he might find trouble. That he does, and plenty of it, in California. Our usual cautionary notes – about great writers sometimes skimping over a bit too much evidence for the sake of an argument – apply.
In what is admittedly light reading after yesterday’s trouncing of the equity markets – but loyal readers have read our “Don’t panic” post, right? – there’s bound to be intense debate around this proposition by scientists: it IS, apparently, possible to achieve speeds in excess of the speed of light in a vacuum (at least for neutrinos, that is). It was considered impossible until now (you know, E=mc2) and, if confirmed, it may change quite a few theories. Talk about a ‘black swan’ of enormous proportions. It’s one of those occasions where we’re supposed to remind you to seek the source material, remain skeptical and filter the signal from the noise. However, the ‘multidisciplinary geek’ in us wants to see some scientific foundations shaken up.
Two very public comments by high-level Brazilian authorities regarding currency wars: one by the highest possible authority – our President herself, in an editorial piece in the Financial Times. Another by our finance minister, Guido Mantega. Regardless of what one thinks about the global financial crisis and the state of macroeconomic policies each country should follow amidst the turmoil, it’s hard to see what diplomatic, political or practical gains could be achieved through this kind of rhetoric via the global press vehicles.
We’d usually prefer to post “beefier” updates, but this article grabbed our attention. Alice Schroeder has a very interesting piece that, in the first part, sheds more light on Ted Weschler’s background and achievements. The next part is “noisy” and speculative, but it’s still thought-provoking enough to merit a highlight: Ms. Schroeder then looks at the details of the press release and comes up with interesting questions about Buffett’s succession – mainly that Mr. Weschler appears to have qualities that could make him more than a capital allocator.
