Monthly Archives: November 2011

Europe Must Decide Its Future – Self Induced Financial Crisis Has Led Europe to the Brink

November 10, 2011
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Europe Must Decide Its Future – Self Induced Financial Crisis Has Led Europe to the Brink

After Wednesday’s market action around the world, it’s a good time for a big picture assessment on the state of the financial markets. The attitude out of Europe has pendulated between nonchalance and vitriolic attacks among the EU-17. Italian sovereign rates spiraling above 7% have brought the eleventh hour upon the region. Escalation of the crisis has caused all types of forward looking investment to become somewhat of a farce. The environment of complete and utter policy uncertainty will no longer be withstood by markets as the full scale part of the European financial crisis enters its fifth month. After bungling the first few opportunities to implement a fix, it has become clear that dramatic action will be required to keep the Eurozone intact. The problems of the Eurozone’s...

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Chinese Inflation Turning Down – More Confirmation on Inflection Point

November 9, 2011
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Chinese Inflation Turning Down – More Confirmation on Inflection Point

Overnight, China released inflation data for October, which came down as expected and declined meaningfully from the previous month. Chinese consumer inflation, which includes food and energy prices, rose 6.1% in September, and 5.5% in October. This data shouldn’t be a complete surprise because China is on a tightening campaign with higher interest rates, lower credit growth, and an exchange rate that has slowly appreciated this year. The actualization of lower Chinese inflation is  important because it provides the political cover for China to start easing monetary policy. In addition, many global commodities such as; copper, oil, cotton, wheat, corn, sugar, etc. have declined which will eventually help ease pressure on Chinese inflation. The Chinese Producer Price Index also declined meaningfully based on the same factors. PPI inflation fell...

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New York City Taxi Medallion Bubble – Prices Appreciate to $1M

November 8, 2011
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New York City Taxi Medallion Bubble – Prices Appreciate to $1M

Bloomberg recently reported that New York taxi medallions changed hands this October for a record $1 million. There have been a number of reports over the years demonstrating that investment in taxi medallions outperformed stocks, bonds, real estate, and other financial assets. While this may be true, the yield has clearly come way down making investments at the new elevated prices much riskier. Reportedly, a $1M taxi medallion returns $2,500 in profit per month ($30k per year) which amounts to a 3% annual yield. The argument for medallion investment revolves around the regulated supply and recession-proof taxi fare industry dynamics. There is a public company called Medallion Financial Corp (TAXI) which has participated in the bull market. The company offers financing for the purchase of the medallions, has purchased...

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Market Confidence in Italy Hits New Lows – Berlusconi to Face New Rounds of Confidence Votes

November 7, 2011
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Market Confidence in Italy Hits New Lows – Berlusconi to Face New Rounds of Confidence Votes

Italian 10-YR bond yields hit 6.62% this morning, which marks a new high since concerns over the sustainability of European sovereign debt began to unfold. This wasn’t supposed to work this way after the Eurozone leaders announced a new structured investment vehicle to be put in place to leverage up the EFSF. It remains unclear who is going to fund the SIV which raises doubts around how much firepower the EFSF will really have and whether Italian interest rates can be maintained at sustainable levels? All of this uncertainty takes place while Italian bonds yields escalate towards unsustainable levels, government approval ratings hit new lows, Berlusconi’s trial for soliciting an underage prostitute moves forward, and the real economy in Italy remains under intense pressure. The above issues are scary...

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Magnifico! – Getting to Know Mario Draghi & Analysis of the ECB Monetary Policy Press Conference

November 4, 2011
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Magnifico! – Getting to Know Mario Draghi & Analysis of the ECB Monetary Policy Press Conference

The global equity markets have been held hostage by fears of a crisis since the summer. Taking another step back; crisis fears, macro, and policy responses have really been driving all financial markets since the summer of 2008. To be clear, the economy always has a meaningful impact on the investing environment, but the recent four years have been remarkable. Sound and prudent public policy has been of paramount importance, and a necessary condition, towards stabilizing the economic and business environment. The importance of the change at the helm of the ECB this week cannot be overstated. Now there are hardened and unrelenting cynics in the investment community, often quite vocal, who will say that nothing matters and the global financial system is inevitably doomed. Those who have read...

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ECB Cuts Rates 25 basis points – Dovish Comments From Draghi

November 3, 2011
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ECB Cuts Rates 25 basis points – Dovish Comments From Draghi

The ECB cut interest rates by 25 bps down to 1.25%. This was somewhat of a surprise cut as many expected Draghi to start his tenor by demonstrating some hawkish resolve – consistent with the views of departing ECB President Jean-Claude Trichet. Draghi presents a viewpoint that inflation is expected to fall further while highlighting that monetary growth is only moderate. He appropriately downgrades the forecast for Eurozone GDP growth and points out the “intensified downside” risks to the Eurozone economy. He goes on to point out that inflation is likely to fall below 2% in 2012. These are important comments because they immediately reveal that Draghi has a more dovish inclination relative to his predecessor. The ECB has more room to cut rates and the comments regarding the...

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When Will the Market Start to be Forward Looking – Early Signals from Asia?

November 2, 2011
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When Will the Market Start to be Forward Looking – Early Signals from Asia?

The markets have been through a period of wicked volatility with a significant pullback almost to the point of entering a new bear market. Intraday the S&P 500 was down 20% from its high but closed above those levels and went up from there. From the market’s closing bottom of 1,099 the S&P had a tremendous move higher up about 17% in 4-weeks. During this period, the market maintained an obsession with day-to-day and even hour-to-hour news. The situation becomes impossible for investors because the news flow is utterly unpredictable and investors can get whipsawed and hacked up quite easily. Often the market is described as a voting mechanism for 6-9 months out. Understanding that this is the normal state of things will be important at some point in...

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Welcome to the ECB Mario Draghi!

November 1, 2011
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Welcome to the ECB Mario Draghi!

Who is Mario Draghi? Today is day #1 of a new job for Mr. Draghi, the President of the ECB, which right now is the world’s most powerful position in finance. Under normal circumstances, that position would be the Chairman of the Federal Reserve Board but at the present moment, the ECB President will have more of an impact on the direction of the global economy in 2012. I wish I could outline a viewpoint on whether Mario Draghi tends to be more of a hawk or a dove. Based on a read of the few writings and speeches that are archived it is difficult to have a strong impression. Here is what I came across which I believe to be concrete: Mr. Draghi’s CV: Undergraduate Degree from La...

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