Anatomy of a “fire sale”

[IMF, September 2007 Global Financial Stability Report]

This guy knows

A wise man who drives a yellow Porsche –but refuses to buy the stock on the basis that the approx. third of revenues from the U.S, renders Porsche “too dependent on debt-ridden Americans”–once said: “U.S. consumers won’t benefit much from cheaper loans if their bank is too worried about liquidity to give them one.” [Germany’s Ehrhardt Drives Porsche, Shuns Its Stock on U.S. Link, Bloomberg]

Consider the following, a hypothetical…hypothetically posed in your upper division Macroeconomics course in undergrad, lower division where I come from, but hey each economics department has it’s own virtues:

The introduction of a seductive new credit tool and homeownership promotion by the central bank of Country X has led to an age of irrational homeownership (see chart, source: US Census). A few years and a peak in single-family home sales later, talk of defaults and spiking foreclosure rates populate the pages of most mainstream national newspapers. In response, there’s a threat of some irresponsible homebuilders and mortgage lenders seeing bankruptcy [for the 101B folks (who can handle noise for what it is): investment entities holding assets packaged with home loans cannot calculate returns for anal investors b/c the terror -and subsequent downgrades by credit rating agencies that should have been doing their jobs- has eliminated demand for said assets, thus wiping out the semblance of any functioning, liquid market for the things and rendering their values unknown –this forces a few investment managers into selling boats, helicopters and vacation homes]. You are primarily worried about inflation and preserving what little value your currency maintains against those of robust economies around the globe. At the moment, gold, oil, wheat, and other commodities are at multi-year highs. Your currency is about as valuable as baby wipes bought with ₤s. Oh, and a newscaster has a breakdown on network television (he yells at you, are you going to take that?)Q: You sit on the FOMC, and for the purpose of this exercise your vote is the only one that matters, how should you enact monetary policy to best respond?

I’m almost certain that if I had answered with ‘lower both the discount and federal funds rates by 50bps’ the GSI grading my exam for Janet Yellen would not have even offered partial credit. But, anyway thank you for the rally –great opportunity to dump US equities and move cash offshore.

Teenager out to mark territory in hedge fund space; AUM: low thousands, but growing

From the WSJ weekend edition (In case you miss it, Brandon Conley is 14): 

Brandon Conley opens his weekly Wednesday 7:30 a.m. conference call with a briefing of news items affecting the portfolio of his fund, Mariner Investment Advisers.
…
Listening in on the call are his investment analysts, 17-year-old David White-Goode and 13-year-old Jeremy Hitotsubashi. Brandon himself is 14. David, who covers the defense and aeronautics industry, gives an update on Northrop Grumman, emphasizing its strong position as a shipbuilder. His recommendation: A buy.
…
Along with semiweekly conference calls, Brandon holds weekly meetings, often at Starbucks after chess class on Fridays, to discuss investing strategy with his three employees. None of them have been paid yet, but Brandon plans on paying each of them a percentage of profits, plus bonuses based on their research. He also plans on adding staff. “I will probably take a couple more employees to specifically handle trading and an IT manager,” says Brandon. “Right now, I do all the trading.”

A-shares, it can only end badly

Or, as my friend Jeff once said to me, “You could open your front door to a black hole. You just don’t know.”

Lyrics to a contemporary Chinese pop-song written by Kaijie Gong:   

I Won’t Sell Even if I Die
I won’t sell if I die
Buy stocks because they are investments
Don’t care if the market is good or bad 
I won’t care what others say
Use intuition to buy stocks and make money
I won’t be excited unless my investment goes up multiple times
I won’t be excited unless my investment hits irrational highs
As stock investors, we must persist
Don’t be afraid of losing money or stock suspensions
There is a future for investing in stocks