Investment Postcards from Cape Town

CBS’s “60 Minutes” has just spent two days interviewing Michael Lewis at his home in California. Lewis, of course, is the author of Liar’s Poker, The New New Thing, Moneyball, The Blind Side, Panic, Home Game and hot-off-the-press The Big Short: Inside the Doomsday Machine. His new book explains how some of Wall Street’s finest minds managed to destroy $1.75 trillion of wealth in the subprime mortgage markets.

Part 1:
Lewis writes about a handful of Wall Street outsiders who realized the subprime mortgage business was a house of cards and found a way to bet against it.

Watch CBS News Videos Online

Part 2:
Lewis talks about the current situation on Wall Street, the large bonuses still being paid and his predictions for the future of the industry.

Watch CBS News Videos Online

The following extra segments are also featured:

Web Extra: Is Wall Street Overpaid?
Web Extra: Bailout Blues
Web Extra: The $8.4 Billion Bet
Web Extra: Wall Street Misfit
Web Extra: The Blind Side

Source: CBS 60 Minutes, March 14, 2010.

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I often refer to the technical analysis of Adam Hewison (INO.com) to provide insight into the most likely near-term movements of financial markets. He has just produced four short presentations on various markets. As my day is chock-a-block with meetings today, these links are posted without further comment.

S&P 500 Index: Uptrend, but some concerns are emerging. Click here for video.

US dollar: Is greenback about to resume its downtrend? Click here for video.

Gold bullion: A move down to bottom level of trading range? Click here for video.

Crude oil: Breaking short-term support. Click here for video.

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With the United States preoccupied with two wars, Russia is taking advantage of an opportunity to expand its influence and control over neighboring states. The first phase is nearly complete, and Stratfor analyst Marko Papic says pressure now is growing on the Baltics.

As an aside, “extortion by corrupt officials in Russia has got so bad that some Western multinationals are considering pulling out altogether,” Alexandra Wrage, the head of a US anti-bribery group, told Reuters. “There appears to be a sense of near-complete impunity, a sense of entitlement … there is no sympathetic low-level management, no sympathetic mid-level management, or sympathy at the top (for anti-bribery efforts).”

Russia really worries me. I hope I’m wrong.

>

Source: Stratfor Global Intelligence (via YouTube), March 9, 2010.

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US Senate Banking Committee chairman Christopher Dodd yesterday unveiled his plans for financial regulatory reform. Dodd had hoped to release a bipartisan bill but has been unable to do so.

Meanwhile, Senator Ted Kaufman will on Thursday be delivering “the speech for which we have been waiting” (in the Words of Simon Johnson) - “a strong blow to the overly powerful and unproductively mighty within our financial sector”. Click here for what is expected to be the essence of Kaufman’s speech.

Source: CNBC, March 15, 2010.

A Q & A follows below.

Source: CNBC, March 15, 2010.

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In the three-part interview below, Aaron Task and Henry Blodget of Yahoo Finance - Tech Ticker interview Marck Faber, publisher of the Gloom, Boom and Doom Report, and Mish Shedlock, investment advisor at Sitka Pacific Capital and author of the economics blog, Mish’s Global Economic Trend Analysis. They discuss, among others, the economic outlook, inflation vs deflation, and the prospects for stock markets.

These are admittedly two of the most bearish commentators around, but well worth listening to.

Part 1: Economic outlook

Source: Yahoo Finance - Tech Ticker, March 12, 2010.

Part 2: Inflation vs deflation

Source: Yahoo Finance - Tech Ticker, March 12, 2010.

Part 3: Prospects for stock markets

Source: Yahoo Finance - Tech Ticker, March 12, 2010.

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An interesting indicator worth monitoring is the Barron’s Confidence Index. This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds. The relative movement of the yields is indicative of investor confidence. There has been a solid improvement in the ratio since its all-time low in December 2008, showing that bond investors have favored more speculative bonds over high-grade bonds over the past 15 months. (Note that this is a relative comparison, as both categories have improved, but lower-quality bonds more so than high-grade ones.)

It is interesting that the Index has surpassed its pre-Lehman level, but still has more work to do in order to reach pre-crisis levels. As an aside, the S&P 500 Index has to gain another 8.8% in order to reach its pre-Lehman level of 1,252, and 36.1% to reclaim the 2007 pre-crisis peak. As equities and corporate bonds scale fresh cycle peaks, this should serve as a reminder that the economic recovery still has quite a way to go.

Source: I-Net Bridge

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