Guest post by Peter Tchir.
With part of NYC under water this week, I can’t shake the image of the Statue of Liberty from the end of the Planet of the Apes. In that case, the devastation was something mankind had done to itself. In many ways, it is hard to imagine people making such a big mistake – and in the real world we have avoided it – so far. Yet, in Europe we are back to a situation where the weakness of people may push us over the edge once again.
Greece Highlights the Foibles and Follies of the EU
Greece remains a small country. The entire Athens stock market has a market cap of about €25 billion, about the amount Apple swings in any two days. And even that market cap is misleading since 25% of it, is the Coca Cola Hellenic Bottling Company which I think is moving its listing. So I’m not particularly worried about the moves in the Greek stock market (which many have been pointing to), but I am concerned by the noise that is coming out of Greece, and more specifically about the noise coming out of the Troika regarding Greece.
The ECB doesn’t want to take a loss. The IMF can’t reduce rates. The ESM or EFSF could take a loss, but politicians don’t want to see that. Who are they kidding? Greece has no ability to pay its debt. It has nothing to do with some magical 120 in 2020 Troika guideline. It is too much principal and interest due now. They can talk about the PSI bonds, but that is just plain stupid. €60 billion of debt, with a 2% coupon and no maturities within 10 years is NOT the problem. These bonds trade at 25% to 32% of par for a reason – they don’t offer good coupons to the investors. These bonds also have good documentation – they aren’t Greek law bonds – so harder to fool with this time around. Also, they are largely owned by strong hands who have taken the mark to market hit. That means they will fight.
A few thoughts by Biderman.
Intrade today was taking bets at odds of 1 – 2 that Barack Obama will be relected as President of the United States. Odds of 1 to 2 means you have to bet $1 to win 50 cents. To me that means if Obama wins as seems likely, I need to start selling my big winners.
By the way, Intrade also is quoting even more certain odds that the Republicans will keep control of the House and the ditto the Democrats with the Senate. In other words gridlock will be here for at least two more years, so do not expect any major initiatives absent the miraculous.
That brings up what an Obama re election means for the so called Fiscal Cliff. The Fiscal Cliff is in essence the result of a law requiring $560 billion combined in government spending cuts and higher taxes that will reduce a $1.1 trillion budget deficit by half. To me, if Obama wins, I cannot imagine that there will not be very many if any spending cuts any time soon
A Google search says that this year’s presidential and congressional campaign spending will total around $6 billion. Six billion dollars, most of that coming from the special interest groups that benefit the most from government largesse. Do you think that those that put up the $6 billion will allow the government to cut spending? Maybe growth in spending could be cut, but certainly not current spending.
Guest post by Doug Short.
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It’s a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Z.1 Flow of Funds Accounts of the United States, which is released quarterly.
The first chart shows Q Ratio from 1900 to the present. I’ve calculated the ratio since the latest Fed data (through 2012 Q2) based on a subjective process of extrapolating the Z.1 data itself and factoring in the monthly averages of daily closes for the Vanguard Total Market ETF (VTI).
When it comes to sleepless nights, Toimi Soini of Finland originally set the record by using the “toothpicks under the eyelids” method for 11 straight days. In hindsight, Toimi was an amateur. You wouldn’t know it, but the nice people running the Bank of Canada have gone sleepless since 2003 – that’s 3,564 days without sweet dreams. Yet, that’s nothing compared to the very private folks at the Swiss National Bank. These super-secretive bankers have surpassed over 4,660 sleepless nights – despite living in Zzzzzzurich. This, of course brings us to the World record for sleepless nights. At 5,025 nights and counting, the always polite and well dressed chaps over at the Bank of England are reigning champions. Toimi Soini was not a banker and this was his downfall. As for the Canadians, Swiss and British – yes they are all bankers, but not just any bankers. This terrific trio have the displeasure of forever being known as the bankers who sold their gold. The irony of course, is the action of the World’s central bankersthemselves is the reason why gold is destined to remain golden forsometime to come. And with gold sitting near $1700/oz, and with noend to the money printing games, the sleepless nights are destined tocontinue.