Saturday, March 13, 2010
In a recent presentation in Orlando, Christopher Thornberg noted the likelihood of a double dip in 2011. Thornberg famously predicted the real estate bubble, disastrous downturn in California and the high probability of recession in 2008. He is a former economist at UCLA and currently works at Beacon Economics, the firm he founded. I relied heavily on Thornberg’s analysis in helping to side-step the housing debacle and I have found his research to be not only straight forward, but well reasoned.
Thornberg says the economic recovery is mostly government induced and could lead to a double dip as the government steps aside and attempts to hand over the baton to the private sector. In the presentation Thornberg noted the continuing concerns:
- The bad news: we haven’t completely fixed the problems, instead the economy is being driven by government policy
- The worse news: government policy is causing its own set of problems: namely public debt and the potential for inflation (more)
German Chancellor Angela Merkel was full of praise and recognition for Greek Prime Minister Georgios Papandreou. His government, Merkel said on Friday evening after the two leaders had met to discuss the Greek financial crisis, had performed "a massive feat of strength." The Greeks, Merkel continued, had implemented a package of measures, which impressed the capital markets, "in a remarkably short space of time." (more)
One of the best lessons I've learned over my career as an investment analyst is the myth of excellent management or "great execution" is really just that – a myth.
When I see companies in troubled industries reporting quarter after quarter of great results, while all of their peers are getting killed, I know a fraud is going on. I remember in the early 2000s, WorldCom kept reporting profits when all of the other long-distance carriers were getting killed. I knew it couldn't last. And it didn't. WorldCom's accounting was revealed to be a fraud – the company was counting its network access costs as capital expenses. Once the real numbers came out, the company collapsed in what was the largest bankruptcy in American history at that point. (more)
Is China broke?
It seems like a silly question, right? China's foreign-exchange reserves stood at $2.4 trillion at the end of 2009. Yes, China announced that its proposed annual budget for 2010 would produce a record deficit, but the deficit is just $154 billion, or 2.8% of China's gross domestic product. In contrast, the Congressional Budget Office projects the U.S. budget deficit for fiscal 2010 at $1.3 trillion. That's equal to 9.2% of GDP.But remember the theme of my column earlier this week: All governments lie about their finances. At worst, as in Greece and the United States, the lies are bold and transparent. Everybody knows the emperor has no clothes, but no one want to say so. At best, as in Canada and China, the lies are more subtle -- more like a magician's misdirection than a viking raider's ax. Look at these great numbers, the lie goes, but don't look at those up my sleeve.
There's a good argument to be made that if you look at all the numbers, instead of just the ones the budget magicians want you to see, China is indeed broke.Want to see how that could be? (more)
About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners. And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can't obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.
As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market. (more)
On Thursday, Forbes Magazine carried an updated list of the world's wealthiest people.
As of late 2009, the number of billionaires soared from 793 to 1,011 and their total fortunes from $2.4 trillion to $3.6 trillion. The number of Russian billionaires almost doubled, from 32 to 62.
The list's authors believe that an increase in the number of wealthy people highlights the end of the recession, but it may also signal the appearance of new bubbles in the economy.
Mexican telecommunications king Carlos Slim Helu opens the list with $53.5 billion. He is followed by last year's leader, Microsoft founder Bill Gates with $53 billion and American investor, businessman, and philanthropist Warren Buffet with $47 billion. (more)