Prieur’s readings (April 28, 2010)
This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.
• Doug Kass (TheStreet.com): 20 Signs That Could Mark a Top Redux, April 26, 2010.
In February 2009, a few weeks before the markets hit a generational low, I created a watch list, which was helpful in gauging the timing of the eventual market bottom during the first week of March last year. Late last month, nearly 13 months later and 550 S&P 500 points higher, I created a new checklist that might possibly help in signaling a market top and a reversal of investors’ good fortunes. The checklist is mostly serious (though two items were tongue in cheek), but by no means is it meant as a comprehensive and exhaustive list; I will leave that to Wall Street’s strategists.
• Steven Brant (The Huffington Post): The death of Goldman Sachs, April 27, 2010.
I saw something die today. It didn’t die accidentally either. It was killed. This was a very painful event to watch, not just because death is tragic and not because this death was intentional rather than accidental. It was very painful to watch because the thing being killed didn’t even know it was dying… and it didn’t know it was actually participating in its own death. What died today was Goldman Sachs.
• Johnathan Weil (Bloomberg): Goldman Sachs dictionary reveals hidden truth, April 27, 2010.
The key to understanding Goldman Sachs resides not in its opaque balance sheet, or the trove of internal e-mails that the Senate Permanent Subcommittee on Investigations will release at its hearing on the bank’s role in the financial crisis. What you must realize, foremost, is that Goldman’s employees speak their own distinct language.
Andrew Ross Sorkin (The New York Times): A crowd with pity for Goldman, April 27, 2010.
In Beverly Hills, at the gathering once known as the Predator’s Ball, the bankers, investors and analysts in attendance look at the Goldman Sachs scandal and feel not outrage, but sympathy. After all, who wasn’t shorting the subprime market by 2007? And why shouldn’t a bank help a hedge fund bet against weak mortgages? The client is always right. Attendees of the gathering put on by Michael Milken – the former junk bond king who years ago pled guilty to six counts of securities fraud and conspiracy – see similarities between Goldman’s fate and that of Mr. Milken’s firm, the late Drexel Burnham Lambert, which was ruined by the affair.
• Eliot Spitzer (Slate): The Goldman Casino, April 26, 2010.
In ordinary times, the SEC’s fraud case against Goldman Sachs would have been settled before it was even filed. There would have been a consent decree in which Goldman neither admitted nor denied any wrongdoing, paid a fine, and agreed to make more fulsome disclosures in the future. But these are not ordinary times, and the SEC’s very public announcement that it’s charging Goldman with misrepresentation and fraud in its marketing of a subprime debt product has become one of the biggest stories in the entire Wall Street scandal.
• Paul Sandison: Greece and the House of Cards, April 27, 2010.
• Polyvios Petropoulos: Some proposals to the Greek Government, April 26, 2010.
• Angeliki Koutantou (Reuters): Most Greeks disapprove of EU/IMF aid deal – poll, April 27, 2010.
A majority of Greeks disapprove of their government’s decision to ask for financial aid from the European Union and the International Monetary Fund, the first opinion poll taken since the request showed on Tuesday. The survey showed increasing pressure on Prime Minister George Papandreou’s government, which has suffered a fall in voters’ trust in its ability to solve a debt crisis that has threatened Athens’s solvency and shaken the euro.
• Ambrose Evans-Pritchard (Telegraph): ECB may have to turn to “nuclear option” to prevent Southern European debt collapse, April 27, 2010.
The European Central Bank may soon have to invoke emergency powers to prevent the disintegration of southern European bond markets, with ominous signs of investor flight from Spain and Italy.
• David Marsh (Financial Times): Greek crisis begets a German backlash, April 27, 2010.
Leading German figures never explained that large deficits in countries such as Greece would eventually impinge on Germany’s own finances.
• Simon Kennedy and Theophilos Argitis (BusinessWeek): G-20 seeks credible plans to cut stimulus, curb debt burdens, April 24, 2010.
Group of 20 finance chiefs called for “credible” plans to withdraw economic stimulus as the recovery strengthens and Greece’s attempt to avert default highlights the risks posed by mounting government debt. “The global recovery has progressed better than previously anticipated,” the group’s finance ministers and central bankers said in a statement after meeting in Washington. “We should all elaborate credible exit strategies from extraordinary macroeconomic and financial support measures.”
Carolyn Cui (The Wall Street Journal): Rising interest rates might be a buy signal for commodities, April 24, 2010.
The Federal Reserve raised a key interest rate in February, and market gauges are pointing to more increases in coming months. Does that mean it is a good time to buy commodities? According to new research, the answer is yes. In fact, periods of rising rates may be the best time to buy.
• Vincent R. Reinhart (The American): The deflation club, April 27, 2010.
Declining inflation, veering into outright price declines (or deflation) in some countries, continues to be a major risk to the global economy.
• Martin Wolf (Financial Times): Why cautious reform is the risky option, April 27, 2010.
A financial system in which intermediaries assume risks on their own books is inherently unstable. It is too likely that they will make the same mistakes together, thereby creating a panic and threatening the system. This is the Achilles heel of market economies.
• Gretchen Morgenson (The New York Times): Do you have any reforms in size XL? April 23, 2010.
Every once in a while, Congress awakens from its lobbyist-induced torpor, realizes that the masses are cranky and sets out to appease them. Such a moment occurred last week when lawmakers finally got the message that Main Street is disgusted with Wall Street and wants them to do something about it. Financial reform, which had been stumbling along, suddenly got traction. Bills and proposals began flying around Capitol Hill, and President Obama chided the bankers in an appearance in New York. Unfortunately, the leading proposals would do little to cure the epidemic unleashed on American taxpayers by the lords of finance and their bailout partners.
Chris Whalen (Zero Hedge): OTC derivatives and the “Buffett Amendment”, April 26, 2010.
There is a lot of news this week on financials coming from Washington and the noise level is drowning out some of the detail. So when I heard that Berkshire Hathaway (BRK) CEO Warren Buffett was trying to slip an exception into the substitute legislation offered by Senator Blanche Lincoln (D-AK) to give his OTC derivatives book special treatment, I put aside my book project and picked up the short sword.
• Steve Forbes (Forbes): A short money treatise for D.C. dummies, April 27, 2010.
A devastating trade war with China has once again been averted, thanks to some last-minute diplomacy. But the destructive idea behind this ongoing crisis is still there, which means the dispute will undoubtedly flare up again. Uncle Sam believes Beijing manipulates its currency, the yuan, to give China an unfair trade advantage. Washington claims that since China’s economy has long been strong and growing rapidly the yuan should go up against the greenback as if it were a common stock experiencing a surge in earnings. This theory is preposterous, but it has a stranglehold on Washington policymakers in both the legislative and executive branches.
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