What are the Origins of Groundhog Day?

Tuesday, February 2nd, 2010

Ever asked yourself, what is this Groundhog Day thing anyway?

This excerpt is courtesy of National Geographic, February 1, 2010.

Video: Wild Groundhog in “Action”

Groundhog Day Origins

According to the official Punxsutawney Phil Groundhog Day Web site, Groundhog Day is the result of a blend of ancient Christian and Roman customs that came together in Germany.

In the early days of Christianity in Europe, clergy would distribute blessed candles to the faithful on February 2 in honor of Candlemas, a holiday celebrating the Virgin Mary’s presentation of Jesus at the Temple in Jerusalem 40 days after his birth.

Along the way, February 2 also became associated with weather prediction, perhaps due to its proximity to the pagan Celtic festival of Imbolc—also a time of meteorological superstition—which falls on February 1.

Tradition held that the weather on Candlemas was important: clear skies meant an extended winter.

Legend has it that the Romans also believed that conditions during the first days of February were good predictors of future weather, but the empire looked to hedgehogs for their forecasts.

These two traditions melded in Germany, and was brought over to the United States by German immigrants who settled in Pennsylvania. Lacking hedgehogs, the German settlers substituted native groundhogs in the ritual, and Groundhog Day was born.

Source: NationalGeographic.com

Tags: Candlemas, Celtic Festival, Clear Skies, Clergy, Excerpt, February 2, Future Weather, German Immigrants, German Settlers, Groundhog Day, Groundhogs, Imbolc, Jesus At The Temple, National Geographic, Origins, Punxsutawney Phil, Romans, Superstition, Virgin Mary, Weather Prediction
Posted in Markets | No Comments »

Why American Consumers Will Spend Lavishly Again

Monday, November 30th, 2009

Via Harvard Business -An excerpt:

Let me introduce you to Susan Householder.* Here she is, standing in the entrance of her garage in a middle class suburb of Ridgefield, New York. She is surveying a mountain of stuff: bicycles, toboggans, a work bench, exercise equipment, canned goods, Christmas decorations, a picnic hamper, board games, lots of wrapping paper, several boxes of stem ware, and lots and lots of containers, contents unknown. There’s so much stuff here, this ceased to be a garage a long time ago. It’s now a storage locker, Susan’s very own U-Store-It. (Cars are consigned to the drive way.) If we wanted a monument to all the spending Susan did in the 00s, this is it.What created this mountain of stuff? Was it irrational exuberance and cheap money? It was not. This crowded garage springs from cultural motives. These things were not purchased to express vanity or pursue status. They were purchased to help Susan build a life.

Source: Harvard Business

Tags: American Consumers, Bicycles, Board Games, Business Advertisement, Canned Goods, Cheap Money, Christmas Decorations, Christmas Hamper, Class Suburb, Excerpt, Exercise Equipment, Harvard Business, Householder, Irrational Exuberance, Life Source, Middle Class, Motives, Mountain Bicycles, Picnic Games, Picnic Hamper, Storage Locker, Vanity, Work Bench, Wrapping Paper
Posted in Markets | No Comments »

Jeremy Seigel: Stocks for the Long Run (Still Alive)

Friday, October 9th, 2009

Jeremy Siegel, Wharton School Professor, has recently published an op-ed in FT.com, arguing in favour of his  “Stocks for the Long Run” thesis, which has been challenged in recent times as a result of the ‘lost decade’ in equity markets.

Here is an excerpt:

A look at history shows that the recent experience is not uncommon and excellent returns are available to those who survive rough patches. Since 1871, the three worst 10-year returns for stocks have ended in the years 1920, 1974 and 1978.

These were followed, respectively, by real, after-inflation stock returns of more than 8 per cent, 13 per cent, and 9 per cent over the next 10 years.

In fact for the 13 10-year periods of negative returns stocks have suffered since 1871, the next 10 years gave investors real returns that averaged more than 10 per cent per year. This return has far exceeded the average 6.66 per cent real return in all 10-year periods, and is twice the return offered by long-term government bonds.

Strong future returns also followed poor returns if one extends the analysis to the worst-performing of all 127 10-year stretches since 1871. Without exception, for each 10-year return that fell in the bottom quartile, the following 10-year period yielded positive real returns and the median return exceeded the long-run average.

Stocks also swamp the returns on fixed-income assets over the long run. Even with the recent bear market factored in, stocks have always done better than Treasury bonds over every 30-year period since 1871. And over 20-year periods, stocks bested Treasuries in all but about 5 per cent of the cases.

Read the whole article here.

Tags: 10 Years, Bear Market, Bottom Quartile, Excerpt, Favour, Fixed Income, Future Returns, Government Bonds, inflation, Jeremy Seigel, Jeremy Siegel, Periods, Rough Patches, School Professor, Stock Returns, Stocks, Stretches, Treasuries, Treasury Bonds, Wharton School
Posted in Markets | No Comments »

Charlie Munger: Man on the Money with Buffett

Friday, July 17th, 2009

Charlie Munger has always been described simply as Warren Buffett’s business partner. Buffett however is the son of several investing fathers, mentors, according to a profile/interview with Munger in FT. This enlightening interview sheds light on perhaps the most successful business partnership in history. Here is an excerpt:

Over the years, generations of investors, chief executives and journalists have wondered why Mr Munger has stayed happily in the background for almost half a century as Mr Buffett forged a reputation as the world’s greatest stock-picker.

“Warren is peculiar, and I’m peculiar,” says Mr Munger, who is also Berkshire’s vice-chairman. “We’ve got our own peculiar operating model. Nobody else operates the same way or stays in the game in a major corporation as long as we have, so we’ve got a different model. And we like it that way.”

Working 1,500 miles apart – Mr Buffett remains in his hometown of Omaha, Nebraska – the two “intellectual pals” have built up a stellar record by sticking to the basic principles of value investing: they buy companies in industries they understand, with managers they trust, at cut-rate prices. “We think all intelligent investing is value investing,” he says. “What the hell could it be if it wasn’t value?”

While Mr Buffett’s mentor, the economist Benjamin Graham, is considered the father of value investing, it is Mr Munger who is credited with helping Mr Buffett evolve beyond buying stocks for no other reason than that they were cheap.

Read the complete article here.

Tags: Benjamin Graham, Berkshire, Business Partner, Business Partnership, Buying Stocks, Charlie Munger, Chief Executives, Economist, Excerpt, Half A Century, Man On The Money, Mentors, Mr Buffett, Omaha Nebraska, Pals, Stellar Record, Stock Picker, Successful Business, Vice Chairman, Warren Buffett
Posted in Markets | No Comments »

Jeremy Siegel: “The Market Will Stage a Comeback”

Tuesday, July 14th, 2009

Jeremy Siegel, Wharton School prof and Director of Wisdom Tree ETFs, says “Now that it’s clear the recession will not turn into a depression, stocks are poised for a recovery.” Siegel recently was the subject of an interview conducted by Knowledge@Wharton. You may listen by clicking the player below, or read the edited transcript of the interview below.

Click Play to Listen:

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

Here is an excerpt:

Knowledge@Wharton: The market just had its first weekly [decline] in a number of weeks. What was driving that?

Siegel: I think there are two principal concerns in the market. One is the rising commodity prices — particularly energy prices and oil. And the other is the rising interest rates, which are in turn caused by fears of huge deficits, as well as rising commodity prices. My feeling is, the market would have been up last week, too, if it didn’t have to contend with those. And now, it’s concerned that those [factors] might push the economy down. Today [June 22], we had a decline in energy prices and in the market. But … energy prices and interest rates [are] our main concerns.

Knowledge@Wharton: Are the energy prices being driven by demand?

Siegel: Demand in China is rebounding very rapidly, although there are some experts who say that there’s still a lot of speculation in it, and that the price … has run a little bit ahead of itself. But China and India are recovering quickly. There are a record number of applications for new cars in China, and those generally use gasoline and oil. So, looking forward, over the next couple of years, those bulls in oil are saying there’s going to be a big increase in [consumption].

Knowledge@Wharton: Doesn’t the rise in demand [indicate] an improving economy overall?

Siegel: Certainly … a good part of the rebound in oil and in interest rates is because the depression scenario has basically been taken off the record. It’s now considered an extraordinarily low probability. So, we’re dealing with a severe recession, and [the question of] how fast we are going to improve from that. And once you’re into that mode, you don’t accept 2% to 3% bond rates any more, and oil won’t stay down at $35 a barrel. But I think some of [the movement has occurred] in anticipation of strong demand from China, particularly for oil, and, on the bond side, from the huge deficits, trillion-dollar-plus deficits that are going to cascade down on the market.

You may read the whole transcript here.

Source: Jeremy Siegel: ‘The Market Will Stage Another Recovery’, Knowledge@Wharton, June 24, 2009

Tags: Array, Bulls, Commodities, Commodity Prices, Consumption, Decline, Depression, Emerging Markets, Energy Prices, ETF, Excerpt, Fears, Gasoline, India, Jeremy Siegel, Kw, Little Bit, Mp3, New Cars, oil, Principal Concerns, Rebound, Recession, Rising Interest Rates, Speculation, Stocks, Upenn, Upenn Edu, Wharton School, Wisdom Tree Etfs
Posted in Emerging Markets, India, Markets | No Comments »

Birth of the Credit Monster

Monday, May 4th, 2009

Gillian Tett, of FT.com has written an in-depth exposé about the birth of innovative securities that gave rise to the markets’ abuse of leverage finance and ultimately, the catastrophic rise of debt. Here is the first excerpt from Tett’s new book, Fool’s Gold provided by FT.com, Genesis of the Debt Disaster, May 1, 2009.

In the 1990s, a young team at Wall Street investment bank JP Morgan pioneered a new way of making money – credit derivatives. Within a decade, the market for these exotic securities had exploded to more than $12,000bn – and some people later blamed them for fuelling the global financial fiasco. In the first of two extracts from her book, Fool’s Gold, the FT’s Gillian Tett reveals how the innovation genie was first let out of the bottle – and eventually devoured the system, to the horror of its creators.

The first sign that there might be a structural problem with the innovative bundles of credit derivatives that bankers at JP Morgan had dreamed up emerged in the second half of 1998. In the preceding months, Blythe Masters and Bill Demchak – key members of JP Morgan’s credit derivatives team – had been pestering financial regulators. They believed that by using the new credit derivative products they had helped create, JP Morgan could better manage the risks in its portfolio of loans to companies, and thereby reduce the amount of capital it needed to put aside to cover possible defaults. The question was by how much. (Though these bundles of credit derivatives later went under other names, such as collateralised debt obligations [CDOs], at that time these pioneering structures were known as “Bistro” deals, short for Broad Index Secured Trust Offering). Masters and Demchak had done the first couple of Bistro deals on behalf of their own bank without knowing the answer to their question for sure. But when they were doing these deals for other banks, the question of reserve capital became more important – the others were mainly interested in cutting their reserve requirements.

The regulators weren’t sure. When officials at the Office of the Comptroller of the Currency and the Federal Reserve had first heard about credit derivatives and CDOs, they had warmed to the idea that banks were trying to manage their risk. But they were also uneasy because the new derivatives didn’t fit neatly under any existing regulations. And they were particularly uncertain over what to make of the unusually low level of capital available to cover losses on the derivatives.

When the team did their first Bistro deal, they pooled more than 300 of JP Morgan’s loans, worth a total of $9.7bn, and issued securities based on the income streams from these loans. The lure of the idea was clear: the team had calculated that they only needed to set aside $700m - a strikingly small sum - against the risk of defaults among the 300-plus loans. After much debate, the credit rating agencies had agreed with the team’s assessment of the risks, and the deal had gone ahead on the basis that if financial Armageddon wiped out the $700m funding cushion, JP Morgan would absorb the additional losses itself. To Masters and Demchak, the chance that losses would ever eat through $700m were minuscule…

Read the entire article here, or PDF version here.

Tags: 1990s, Catastrophic Rise, Collateralised Debt Obligations, Creators, Credit Derivatives, Derivative Products, Excerpt, Excerpt From, Extracts, Fiasco, Financial Regulators, Fool S Gold, Genesis 1, Genie, Gillian Tett, Investment Bank, Jp Morgan, Leverage Finance, May 1, Monster, Reser, Wall Street, Wall Street Investment
Posted in Gold, Markets | No Comments »

Peter Thiel: Letter to Clarium Capital Partners (April 2009)

Tuesday, April 21st, 2009

Clarium Capital, Peter Thiel’s hedge fund, has released its quarterly letter to shareholders which includes a lucid assessment of the economy, credit market, and a eloquent explanation of what exactly Quantitative Easing is and how it differs from credit easing, as well as whether or not this move is inflationary.

The letter effectively provides a key to understanding how the U.S. of 2009 resembles the U.S. of 1900, and it is not only educational, it is enlightening, and one of the best explainings that we have seen of Quantitative Easing yet in the last year. We urge you to put this on top of your must read pile.

Ordinarily, economic reading is quite onerous, and generally boring. Not this time though.

Here is one excerpt:

Since both Credit Easing and Quantitative Easing increase the monetary base, why don’t they both create inflation? To answer this question one must understand how these operations work. In both Credit Easing and Quantitative Easing, the central bank purchases securities from banks and then credits them with reserves; the increase in reserves is the expansion in the monetary base. In order for this expansion of the monetary base to be inflationary it must make its way into the economy, and the mechanism for doing this is for banks to make more loans against the increased reserves. But in conditions where bank lending is weak, merely increasing the monetary base will not increase lending; hence it is questionable whether a straightforward Quantitative Easing policy would have any effect at all today in the US. (And there is considerable debate whether Japan’s policy had any effect during the time it operated.) Even further, the Fed is paying an interest rate on excess reserves equal to what banks could expect to make on them by lending them overnight, which explicitly motivates the banks to leave the reserves on deposit with the Fed. As long as those reserves simply sit with the Fed, their mere increase has no inflationary effect on the economy.

This comprehensive analysis written by Patrick Wolff, CFA, Managing Director, Clarium Capital, leaves few stones unturned. You may download the complete letter here, or you may view it below, via scribd (click on full screen view button on the top right).

Source: MarketFolly.com, Peter Thiel’s Clarium Capital Investor Letter (Market Commentary)

Download: Clarium April 2009 Letter to Partners

Tags: April, Bank Purchases, Banks, Capital Partners, Central Banks, Clarium Capital, Economy, ETF, Excerpt, Excess Reserves, Hedge Fund, inflation, Interest Rate, Japan, Letter To Shareholders, Loans, Monetary Base, Peter Thiel, Quantitative Easing, Quarterly Letter, Sit
Posted in Credit Markets, Markets | No Comments »

Are Leveraged ETFs Putting Cracks in Market Close?

Monday, April 20th, 2009

Jason Zweig, author of the Intelligent Investing at WSJ.com discusses the effect that leveraged ETFs may be having on the market’s closes. Here is an excerpt:

At 3 p.m., do you get queasy just thinking about the toll that the final hour of trading might take on your portfolio?

New research suggests that on days when the indexes make big moves, leveraged exchange-traded funds could trigger a trading cascade, turning the market close into a buying or selling frenzy.

To be fair, there has been no meltdown — yet. But as the financial crisis has intensified since last fall, the final hour of the trading day has felt rougher than ever.

Leveraged ETFs offer double or even triple the daily return of a market index. Some of them, called “inverse” ETFs, move opposite to the market — for example, going up twice as much as an index goes down. Each day, they all adjust their exposure by rebalancing, or “releveraging,” their positions.

Read the whole piece here.

Tags: Blog, Cascade, Cracks, ETF, Excerpt, Exchange Traded Funds, Final Hour, Financial Crisis, Frenzy, Indexes, Jason Zweig, Leveraged Etfs, Market Index, Meltdown, Rebalancing, Wsj
Posted in Markets | No Comments »

Bill Gross: The Future of Investing - Evolution or Revolution?

Tuesday, April 14th, 2009

Bill Gross has recently published his April 2009 Investment Outlook: The Future of Investing, and it is serious food for thought. We’re a little late bringing this to your attention, because somehow we overlooked it during last week’s rush. Gross discusses the possibilities for the global economy and markets and deliberates consequentially on the reversal of 50 years’ worth of activities. Here is an excerpt:

I. Future of the Global Economy
The future of the global economy will likely be dominated by delevering, deglobalization, and reregulating, yet if so, it is important to state at the outset that we do not envision a mean reversion, cyclically oriented future, but instead a new world where players assume different roles, and models relying on bell-shaped/thin-tailed outcomes based on historical data are less relevant. Historical models look backward while modern-day finance is being fast forwarded and reconstituted almost as we speak.

II. The Future of Investing
Whether evolution or revolution it is important to recognize that the aftermath of an economic and investment bubble transitioning from levering to delevering, globalization to deglobalization and lax regulation to reregulation leads to an across-the-board rise in risk premiums, higher volatility and therefore lower asset prices for a majority of asset classes.

This issue of IO is longer than usual, very detailed, and insightful. We urge you to read it or make it your weekend reading. Gross is very close to the inner sanctum, and seems to understand things, along with El-Erian, in a way that only folks this close to the bond, credit and corporate debt markets can. Its their time, and its their world, and possibly something they have foreseen for some time.

The complete PDF can be downloaded here.

Tags: Aftermath, Asset Classes, Asset Prices, Bill Gross, Consequentially, Corporate Debt, Debt Markets, Erian, Excerpt, Food For Thought, Global Economy, globalization, Inner Sanctum, Investment Outlook, Mean Reversion, Outset, Risk Premiums, Transitioning, Volatility, Weekend Reading
Posted in Bonds, Credit Markets, Economy, Markets | No Comments »

Byron Wien: March 2009 Commentary

Tuesday, March 24th, 2009

This article is a guest contribution from MarketFolly.com.

Here’s Pequot Capital Management’s March commentary from Byron Wien. We’ve covered Pequot’s Q3 holdings earlier, and are soon going to be covering their latest Q4 holdings so keep an eye out. In terms of recent movements, we’ve detailed those here. (RSS & Email readers may need to come to the blog to read).

Here is an excerpt:

“I wonder if we are too impatient with our new President. After less than two months in office the stock market is still declining, house prices continue to drop, the futures of the banking and automobile industries remain uncertain, corporate profits are shrinking, industrial production is falling and unemployment is rising. Did we really think he would come out with a flawless plan to reverse these conditions within the first 60 days? The programs announced so far are not bereft of positive aspects. You can criticize the stimulus package for having been written by various congressional committees who put their pet projects in the bill but the legislation contains programs for alternative energy, the environment, education and healthcare which were all promised by the President during the campaign. What’s more, support for the infrastructure projects at the state and local level creates jobs or keeps public employees from being laid off and attends to deferred maintenance projects that may have been on the books for years. More than $1 trillion dollars has already been committed and it may be several times that before we are done in a $15 trillion economy. That’s probably going to be a boost to the
gross domestic product (GDP) of five to seven percent starting this year and continuing into next in an economy that is shrinking at about five percent.”

“Even the pessimists think GDP will turn positive late this year or early in 2010. Nobody knows when the stock market will bottom, housing will stabilize, the banks will feel solid enough financially to start lending again, unemployment will turn down and fear among consumers and business people will dissipate. To assume that there are not a number of constructive aspects to the programs announced (and passed) to date is too harsh a judgment in my opinion. It took decades to create the problems we are facing and it will take years to solve them. The long-term implications of the debt we are taking on to accomplish our goals are another atter, but the economy was in free fall and a series of dramatic steps had to be taken.”

“So I remain one of the few optimists who believe the market will begin to anticipate a recovery in the economy sometime in the second half of this year. I am prepared for the fundamental backdrop for equities to get worse before it gets better. I expect earnings will be disappointing and company guidance will be revised downward and more layoffs and bankruptcies will take place. However, once the positive effects of this enormous stimulus program begin to be seen, I believe the stock market will have already anticipated the good news. Even if the fundamentals only show improvement in 2010 we could see a better stock market later this year.”

You can read the whole document here, by clicking the full screen button at the top right of the viewing pane.

You may also download the document here.

Tags: Alternative Energy, Array, Automobile Industries, Blog, Byron Wien, Congressional Committees, Corporate Profits, Creative Writing, Environment Education, ETF, Excerpt, GDP, Gross Domestic Product, House Prices, Infrastructure Projects, Maintenance Projects, New President, Pequot Capital Management, Pessimists, Pet Projects, Q3, Scribd, Short Stories, Stimulus Package, Stock Market, Trillion, Writing Music
Posted in Economy, Markets | No Comments »

Meredith Whitney: Outlook Grim for Banks, Spending

Thursday, December 11th, 2008

Meredith Whitney, Oppenheimer’s influential bank analyst appeared on CNBC to discuss what she says is a “grim” outlook for banks and spending. Click on the image below for the whole interview:

Here are some excerpts from the interview:

“The big banks are going to be on life support for at least 18 months, if not 36 months,” said Whitney. “The big banks will not fail, but the big banks will not grow, in my opinion, for at least another two years.”

She commented that TARP is being used to “fill holes,” but does nothing to stimulate the economy.

“You’ve had massive asset deflation,” she said.  “There’s more of this to come.”

“Just over 70 percent of American households have credit cards, but over 90 percent of those households revolve at least one time a year, so they’re using it as a cash flow management vehicle,” she explained. “The banks now are starting to cut those lines back. That will impact spending.”

Tags: American Cards, American Households, Banks, Br, Cash Flow Management, Cash Management, Cnbc, Credit, Credit Cards, Deflation, Eco, Economy, Excerpt, Excerpts, Grim Outlook, Holes, Img, interview, Meredith Whitney, Oppenheimer, Outlook, Tarp, Video
Posted in Economy, Markets, Outlook | 2 Comments »

Nassim Taleb on Charlie Rose

Tuesday, December 9th, 2008

Charlie Rose interviews Nassim Taleb, author of The Black Swan, December 4. Taleb’s outlook makes Roubini seem an optimist. The interview is 23 minutes in length. Taleb leads a fascinating discussion with Charlie Rose, rich in analogy, and with a clarity that is brings all that is going on in the financial system into the glare of daylight.

Here is an excerpt:

CHARLIE ROSE: But let me go - you mentioned Nouriel Roubini, who has been here and who has become well-known as someone who has predicted this and saw it coming, and scares the hell out of people when he comes and sits where you do, because he sees it as getting worse, and even suggests sometimes it may mark the decline of America. How bad do you think…

NASSIM NICHOLAS TALEB: I think it is worse than Roubini thinks.

No, I - I had the same story, haven’t changed my story since - and what convinced me of this is that we switched from an environment of inflation, hyperinflation, where people are afraid of commodity prices rising, to a total deflation in no time. Look at inflation bonds…

… I know that we are going have massive deflation. The overhang of debt, massive deflation. Debt needs to be reduced. And I think Paulson seems to be doing a good job, particularly that they were part of the cause of what happened, you know, it is quite commendable.

Tags: Analogy, Black Swan, Blog, Bonds, Br, Charlie Rose, Clarity, Commodity, Commodity Prices, Decline Of America, Deflation, Dow, Eco, Excerpt, Glare, Good Job, Hell, Hyperinflation, inflation, interview, Interviews, James Taylor, Loc, Nouriel Roubini, Optimist, Outlook, Overhang, Paulson, People, Rose, Roubini, Swan, Taleb, Value, Video, Yo Yo Ma
Posted in Bonds, Markets, Outlook | 2 Comments »