You may have been wondering what became of That Retired Guy, it's been a long time with no posts. Truth is, he's been busy with a new project that, and he will not be retired anymore. Probably this will be the last post on this blog.
That Retired Guy has decided to sink his savings into a house in Portugal which will (hopefully) be a running bar/cafe sometime in 2014. You can follow our progress at the new website:
www.terraplanacafe.com
Saturday, February 16, 2013
Wednesday, November 21, 2012
France Takes Center Stage
Long time readers (ok, there are none... I admit this is the least popular blog on the internet) will know that I've been looking at France as the real tipping point for the crisis see here, here and here. In fact, it's a shame that nobody seems to read this blog, because That Retired Guy (TRG) has been pretty good at predicting the crisis (just a little early on most of his calls).
Recent events as well as this brilliant cover on the Economist bring TRG welcome vindication.
As if on cue, immediately after the above was published, Moody's came out with a downgrade on Frances debt. S&P already made that judgement, but that mattered less for two reasons.
First, S&P had already lost any credibility that might remain when they botched the US downgrade. Of course saying S&P is the least credible of the rating agencies is a bit like saying they are the worst wreck in the junk yard, but it made it possible to completely blow them off rather then giving some short consideration.
Second, for any institutions that use credit ratings in their investment criteria, the rules are generally structured such that when the agencies disagree then the outlier is discarded (up until now, the outlier for France was S&P). Of course investment criteria everywhere are a bit of a joke, and can always be changed (or completely ignored) if the investor decides. For a great example, look at the ECB and their collateral criteria which used to rely on rating agencies until the agencies inconveniently started marking down European sovereign debt. At that point, the ECB promptly changed the requirements so the debt of Europe's sovereigns would continue to function as collateral. A bit like a parent who can't get their kid to come home on time, and fixes the problem by setting a LATER curfew.
So what now? That depends, it is still possible to blow off the ratings agencies, and ignore the Economist (and those other haters in the press). France's bonds are still priced at RIDICULOUSLY low levels. They have started to creep up this week, but they have a long way to go. The 10 year bond in France is currently at 2.15%, and it will not gain much attention unless it raises above 3.5% quickly.
The crisis may not kick off for France until the January or February, but something important has still happened this week. This is the week that the ball gained momentum, not much, but more momentum then Hollande's government is likely to control. It's not out of control yet, but it's on a track with few likely detours and a big catastrophe at the end. Sure the track is long, probably longer then we can guess, but does that really matter when we know what's at the end?
Recent events as well as this brilliant cover on the Economist bring TRG welcome vindication.
As if on cue, immediately after the above was published, Moody's came out with a downgrade on Frances debt. S&P already made that judgement, but that mattered less for two reasons.
First, S&P had already lost any credibility that might remain when they botched the US downgrade. Of course saying S&P is the least credible of the rating agencies is a bit like saying they are the worst wreck in the junk yard, but it made it possible to completely blow them off rather then giving some short consideration.
Second, for any institutions that use credit ratings in their investment criteria, the rules are generally structured such that when the agencies disagree then the outlier is discarded (up until now, the outlier for France was S&P). Of course investment criteria everywhere are a bit of a joke, and can always be changed (or completely ignored) if the investor decides. For a great example, look at the ECB and their collateral criteria which used to rely on rating agencies until the agencies inconveniently started marking down European sovereign debt. At that point, the ECB promptly changed the requirements so the debt of Europe's sovereigns would continue to function as collateral. A bit like a parent who can't get their kid to come home on time, and fixes the problem by setting a LATER curfew.
So what now? That depends, it is still possible to blow off the ratings agencies, and ignore the Economist (and those other haters in the press). France's bonds are still priced at RIDICULOUSLY low levels. They have started to creep up this week, but they have a long way to go. The 10 year bond in France is currently at 2.15%, and it will not gain much attention unless it raises above 3.5% quickly.
The crisis may not kick off for France until the January or February, but something important has still happened this week. This is the week that the ball gained momentum, not much, but more momentum then Hollande's government is likely to control. It's not out of control yet, but it's on a track with few likely detours and a big catastrophe at the end. Sure the track is long, probably longer then we can guess, but does that really matter when we know what's at the end?
Thursday, November 15, 2012
Fault Lines - What's Now
There's not really much to say in the Fault Lines department. Things seem to grind along without much better or worse. This should certainly be NOT be taken as an indication that the crisis is over, or even ending, however the probability that we are able to grind along back to normality has increased. In some ways this is a shame. Grinding along to normality may take 10 to 15 years, and there must be a quicker way to heal the wounds and move on. TRG is going to take a break from the Fault Line predictions, but the following issues will still interrupt his sleep:
Public Revolt
Spain, Italy and Portugal staged major strikes yesterday, and the public mood across Europe has turned decidedly against austerity. Regardless, every batch of politicians plays from the exact same script. There exists an extremist fringe in Europe, but up until now they have not been able to front a leader who can effectively rally the masses. Will the extremists produce a movement before the standard politicians bumble their way out of the debt mess?
Crisis Spread
The real frontier of the crisis is not Spain or Italy, it is the UK, France and even Germany. Take the UK first, the shrinking in the financial sector is putting a major drag on London, and since London is the last bright spot holding a very shaky housing market together, things do seem likely to get a bit worse. France is full of problems, Hollande is losing credit with his people fast even though he has been pretty good at threading his way through a hopeless situation. What's wrong with Germany? First off the population thinks they are economically superior to the rest of Europe, and that sort of overconfidence can make for painful realizations. Germany's state banks are not particularly stable, and even the great Deutsche Bank is pretty threadbare when it comes to capital.
Crisis on Entirely New Front
The world is shaky right now. The US is facing another political crisis, Japan is realizing that a lost decade is actually starting to look like a lost future. China is going through a change of guard. There's potential for problems everywhere.
Public Revolt
Spain, Italy and Portugal staged major strikes yesterday, and the public mood across Europe has turned decidedly against austerity. Regardless, every batch of politicians plays from the exact same script. There exists an extremist fringe in Europe, but up until now they have not been able to front a leader who can effectively rally the masses. Will the extremists produce a movement before the standard politicians bumble their way out of the debt mess?
Crisis Spread
The real frontier of the crisis is not Spain or Italy, it is the UK, France and even Germany. Take the UK first, the shrinking in the financial sector is putting a major drag on London, and since London is the last bright spot holding a very shaky housing market together, things do seem likely to get a bit worse. France is full of problems, Hollande is losing credit with his people fast even though he has been pretty good at threading his way through a hopeless situation. What's wrong with Germany? First off the population thinks they are economically superior to the rest of Europe, and that sort of overconfidence can make for painful realizations. Germany's state banks are not particularly stable, and even the great Deutsche Bank is pretty threadbare when it comes to capital.
Crisis on Entirely New Front
The world is shaky right now. The US is facing another political crisis, Japan is realizing that a lost decade is actually starting to look like a lost future. China is going through a change of guard. There's potential for problems everywhere.
Tuesday, October 9, 2012
Revisiting Apple
It's been a while since That Retired Guy (TRG) has commented on Apple. In the time since the last post, Apple had a mildly disappointing quarter, and released a new version of the the iPhone. The iPhone re-design is a particularly big deal because it is the first major re-vamp post Steve Jobs. First impressions are that it's not earth shattering, but it is probably good enough for Apple to continue selling as many of them as it can make for the next few quarters.
The change from Google Maps on the iPhone has been a major hiccup, but is probably not a fatal flaw. If Apple really throws their development weight behind the new mapping app, then they can probably fix most of the issues by the next release, and longer term, owning the mapping tool will be positive for Apple. As great as Google maps are, the fact is that they have left the door wide open on this feature, and there is plenty of room to do it better. Having a unique mapping application on Apple products gives one more opportunity to pull user's into the 'Apple Ecosystem', and any Apple user will tell you that once someone starts using Apple products they quickly (and happily) become 'locked in'.
TRG came across a very interesting article yesterday. Apparently, Toni Sacconaghi at Bernstein Research (one of the better Wall Street Research firms) believes that 70% of iPhone 5 purchases are coming from NEW USERS and not upgrades. TRG finds this a little hard to believe, but if it's true, it's really bad news for Google and Samsung because Apple users are very loyal, and not just because the products are good. Apple creates loyal users because the products work together in a seamless way, and users become comfortable, and dependent on the features.
The iPhone will have a limited impact on this quarter, but it MAY be enough to bring Apple's yearly profit to 44 Billion. That would place them in the top 5 in the list of largest earnings ever, and there's still an outside chance that they will make number 1 on the list this year. For those who want to measure the historical greatness of Apple, this is the list to pay attention to. The press has spilled a lot of ink on the fact that Apple's market capitalisation has made it the 'most valuable company ever'. Even though on an inflation adjusted basis, Microsoft still holds the title. The fact is that market capitalization really doesn't mean much. When Microsoft topped the list, it was no where near as profitable as Apple is today. In fact, Microsoft's highest earnings do not even place them in the to 20 of highest earnings of all time. Microsoft rode the tech bubble to an inflated market value, while Apple continues to trade at a very modest 15 times earnings.
Is AAPL stock as good of an investment as it was a year ago? No, the stock price growth has started to match (even exceed) earnings growth. But at 15 times earnings, AAPL is still a pretty good deal. Apple will struggle to keep up with demand for the iPhone in the next quarter, and if the rumors are true of a new iPad mini, then they will likely continue to increase profits. Most analysts forecast growth greater then 20% for next year, and TRG does not see any major issue with Apple meeting or exceeding that target.
Longer term, it's harder to say. Apple's products are by far the best designed consumer electronics, but it is always hard to stay on top when everyone is gunning for you. Can Apple create the next big thing without Steve Jobs?
The change from Google Maps on the iPhone has been a major hiccup, but is probably not a fatal flaw. If Apple really throws their development weight behind the new mapping app, then they can probably fix most of the issues by the next release, and longer term, owning the mapping tool will be positive for Apple. As great as Google maps are, the fact is that they have left the door wide open on this feature, and there is plenty of room to do it better. Having a unique mapping application on Apple products gives one more opportunity to pull user's into the 'Apple Ecosystem', and any Apple user will tell you that once someone starts using Apple products they quickly (and happily) become 'locked in'.
TRG came across a very interesting article yesterday. Apparently, Toni Sacconaghi at Bernstein Research (one of the better Wall Street Research firms) believes that 70% of iPhone 5 purchases are coming from NEW USERS and not upgrades. TRG finds this a little hard to believe, but if it's true, it's really bad news for Google and Samsung because Apple users are very loyal, and not just because the products are good. Apple creates loyal users because the products work together in a seamless way, and users become comfortable, and dependent on the features.
The iPhone will have a limited impact on this quarter, but it MAY be enough to bring Apple's yearly profit to 44 Billion. That would place them in the top 5 in the list of largest earnings ever, and there's still an outside chance that they will make number 1 on the list this year. For those who want to measure the historical greatness of Apple, this is the list to pay attention to. The press has spilled a lot of ink on the fact that Apple's market capitalisation has made it the 'most valuable company ever'. Even though on an inflation adjusted basis, Microsoft still holds the title. The fact is that market capitalization really doesn't mean much. When Microsoft topped the list, it was no where near as profitable as Apple is today. In fact, Microsoft's highest earnings do not even place them in the to 20 of highest earnings of all time. Microsoft rode the tech bubble to an inflated market value, while Apple continues to trade at a very modest 15 times earnings.
Is AAPL stock as good of an investment as it was a year ago? No, the stock price growth has started to match (even exceed) earnings growth. But at 15 times earnings, AAPL is still a pretty good deal. Apple will struggle to keep up with demand for the iPhone in the next quarter, and if the rumors are true of a new iPad mini, then they will likely continue to increase profits. Most analysts forecast growth greater then 20% for next year, and TRG does not see any major issue with Apple meeting or exceeding that target.
Longer term, it's harder to say. Apple's products are by far the best designed consumer electronics, but it is always hard to stay on top when everyone is gunning for you. Can Apple create the next big thing without Steve Jobs?
Wednesday, September 19, 2012
Book Review - Debt the First 5000 Years
It is not often that TRG finds a statement about finance and markets that looks at the industry from a totally new prospective and completely broadens the debate.
However, the book 'Debt the First 5000 Years' by David Graeber accomplishes that feat in spades, and goes on to completely shake the foundations of Modern Economic Theory. Graeber is a well respected Anthropologist and also a Wobbly, and an Anarchist. Recently, he has been active with the Occupy movement, and has even been credited (by Rolling Stone Magazine) with coining the statement 'We Are the 99%'.
TRG loves to have his ideas shaken, and Graeber's background makes him well qualified to accomplish that. TRG has been in contact with other anarchists, and has generally found their arguments weak, poorly thought through, and or Utopian. Graeber's book does NOT make an argument for anarchism directly. What it does is show that the current political debate that pits Government vs Markets is nonsense, and probably counter productive. We need to start asking bigger questions.
The book starts with an analysis of the founding principles of Economics. At it's core, Economics has a creation myth, and the book rather effectively attacks this myth. The creation myth of economics is that markets grew naturally as an efficiency improvement over barter based systems. According to Graeber, Anthropologists have long had a major problem with this idea because they have NEVER been able to find evidence of any society that ever existed on anything like the barter system as Adam Smith (and every entry level Economics book) describes it. Graeber lays the arguments out effectively, and although he generally does so in a calm, academic way, don't be fooled. For Economists, attacking Smith this way is a bit like telling the Pope that Jesus was a serial killer!
Graeber goes on to debate that our money system is really an abstraction who's existence only works because of an implicit (and sometimes explicit) threat of violence.
It is really fascinating stuff! TRG is not totally swayed by all the arguments in the book, and he has not been turned into an anarchist by reading it, but it certainly opens a great debate, and asks the right questions.
If you still need further convincing to read the book, there is this interview with Graeber... enjoy:
Monday, September 10, 2012
Fault Lines - The Economist
TRG would like to thank The Economist for doing a guest post this week... OK, not exactly, but the leader 'Tick Tock' in this weeks edition basically hits on all the topics that should be listed here. It was awfully nice of them to come through when TRG had taken such a low profile for August. Funny, but being retired does not seem to preclude an August break!
One Addition
France is still waiting for word on their credit rating from Fitch and Moody's. Considering that they have been on negative review since December (Fitch) and October (Moody's) of last year the verdict should be out soon. Moody's has recently become more negative on Europe so it's hard to imagine that they will have nice things to say for France. It seems likely that the news will not be good, and as TRG has pointed out before, this could lead to trouble.
One Addition
France is still waiting for word on their credit rating from Fitch and Moody's. Considering that they have been on negative review since December (Fitch) and October (Moody's) of last year the verdict should be out soon. Moody's has recently become more negative on Europe so it's hard to imagine that they will have nice things to say for France. It seems likely that the news will not be good, and as TRG has pointed out before, this could lead to trouble.
Thursday, August 9, 2012
Crime and Banking
That Retired Guy (TRG) has already posted about banking culture and how it has created the latest mess. In that post, he emphasized how banking culture had degraded to a point where fiduciary duty became a quaint joke, he also eluded to the presence of fraud and corruption. We are now learning about some of the horrendous crimes that came as a result (for example, see here and here, or just look at this post from The Big Picture). It should come as no surprise really when you think about the culture that was cultivated over the last 30 years in banking.
In TRG's opinion, the future will bring us a banking industry that once again becomes mundane, as it was in the 1950's or 1960's. It will likely take some major regulatory changes to achieve this, but the public outcry and Dodd Frank Act have shown that it CAN happen (even if, so far, there has not been nearly enough done so far). In a way, the fact that we are even hearing about serious and systematic lawbreaking by the banks is a result of a change in public mood that no longer allows the regulators to quietly accept a fine and forget about everything they discover.
Of course the criminal behavior has been going on for years, and the regulators have frequently uncovered it, but the standard practice was to quickly settle with the bank. The settlements allowed for a reasonable sized fine (banks have paid billions) but the banks were allowed to deny guilt, and most importantly, avoid making the details of the transgression public.
Things are slowly changing. The public mood has now come to see banking for what it is, and that is pushing the regulators to do their jobs. In banking speak, the regulators are "growing a pair of balls", and latest action by Benjamin M. Lawsky against Standard Chartered Bank is a great example. Another example is Judge Jed S. Rakoff (a TRG hero) and his rejection of the settlement with Citibank.
TRG is thrilled to see the tide changing, but disappointed that the change is not faster. There are lots of people who should be behind bars, but even that is not enough. The regulation must change, DRASTICALLY (Dodd Frank is not enough).
In TRG's opinion, the future will bring us a banking industry that once again becomes mundane, as it was in the 1950's or 1960's. It will likely take some major regulatory changes to achieve this, but the public outcry and Dodd Frank Act have shown that it CAN happen (even if, so far, there has not been nearly enough done so far). In a way, the fact that we are even hearing about serious and systematic lawbreaking by the banks is a result of a change in public mood that no longer allows the regulators to quietly accept a fine and forget about everything they discover.
Of course the criminal behavior has been going on for years, and the regulators have frequently uncovered it, but the standard practice was to quickly settle with the bank. The settlements allowed for a reasonable sized fine (banks have paid billions) but the banks were allowed to deny guilt, and most importantly, avoid making the details of the transgression public.
Things are slowly changing. The public mood has now come to see banking for what it is, and that is pushing the regulators to do their jobs. In banking speak, the regulators are "growing a pair of balls", and latest action by Benjamin M. Lawsky against Standard Chartered Bank is a great example. Another example is Judge Jed S. Rakoff (a TRG hero) and his rejection of the settlement with Citibank.
TRG is thrilled to see the tide changing, but disappointed that the change is not faster. There are lots of people who should be behind bars, but even that is not enough. The regulation must change, DRASTICALLY (Dodd Frank is not enough).
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