Friday, June 29, 2012

Generalisimo Francisco Franco, Redux

     There are two big, unsustainable boosts flowing through to corporate profits these days. Both are measured in trillions of dollars. The first is the federal budget deficit, which has been over a trillion dollars for each of the past three years. The second is extraordinary central bank stimulus in the U.S. and Europe, including short-term interest rates at, essentially, zero.
     There are other lurking problems, like the underfunding of pension plans, particularly at the state and local level. And Washington has yet to figure out what to do with Fannie Mae and Freddie Mac, which really are the U.S. mortgage market, and which are still reliant on support by the U.S. Treasury.
     For a fundamentally-oriented investor like me, this feels odd. I lately have been wondering what the editor of a left-of-center newspaper in Spain must have felt at the time Francisco Franco took power in 1936. “Spain, led by a dictator? This is not Spain! Spain is a western democracy, not a dictatorship!”  That would have been right…long-term. But Franco was in power for nearly four decades, and there was no way to put out a newspaper like that during his reign. 
     One of the great challenges for investors is figuring how to deal with something that is not sustainable long-term, but that may not be going away any time soon.

ADDENDUM, in response to a comment from a friend:
     When I mention the "past three years" above, I do so only because it corresponds to the period of huge budget deficits incurred by the U.S. federal government. We have run these to try to to deal with the aftermath of the 2008 financial crisis. Spending went up, and tax revenue went down. It has nothing to do with who was president, in my mind, because I believe that any president, regardless of party or politics, would have presided over huge deficits.
     I try not to be partisan on this blog, or, really, anywhere, any more.

Wednesday, June 27, 2012

Nashville's Genius Real Estate Broker

If there's a nicer, more effective, and more intellectually gifted commercial real estate broker in this part of the world than Stephen Prather, I would be very surprised. Take a look at this article Stephen wrote, with Tee Patterson, for the Nashville Business Journal recently.  How many articles on real estate quote mathematicians, in German no less, on their way to giving sound, straightforward business advice? In a local paper, too. This is par for the course for Stephen.

Stephen helped me with a lease recently, so I speak not just as a reader, but also as a happy client.

Monday, June 25, 2012

Implications of a Euro Breakup

A superb Bloomberg article by Simon Johnson on how the demise of the euro currency would affect big banks. Don't miss it. Johnson is a professor at MIT, and former chief economist of the IMF. It has long been reasonably obvious that if the euro breaks up, it will be messy to figure out how to settle contracts that were denominated in it. But this article points out that as you game the scenario through and imagine how it affects big banks, the situation is even stickier than it might have, at first, seemed.

Johnson may be trying to say that a euro breakup will likely be avoided, simply because a breakup would be so messy.

Thursday, June 21, 2012

Buying Time, at a Price

I like this post (registration required) at an FT blog by Mohamed El-Erian of PIMCO. Commenting on the Federal Reserve's extension of "Operation Twist" yesterday, he writes, "[I]n continuing to act on its own, all the Fed will do is buy some time that will again be wasted by the country's politicians. Meanwhile, collateral damage will mount, making the next policy steps even more excruciating."

He continues later in the post, "Whether you are worried about insufficient demand or the economy's sluggish supply response, it is hard to argue that what ails the US is in the domain of Fed tools."

To use another metaphor, large doses of financial medicine have side effects, and make the body politic feel queasy.

The whole piece is worth reading.

Wednesday, June 13, 2012

Robert Rodriguez Interview

Robert Rodriguez, of FPA Capital in Los Angeles, is an unusually uncensored money manager. As I have mentioned before, his logical thought and surprising candor reminds me of the late, great physicist Richard Feynman. There is a new interview of Rodriguez by Kathryn Welling that is long, but worth reading. The first part is largely on politics and maybe a little bit too much so. I recommend especially the last few pages, which are about the markets, valuation, and money management. His accounts of conversations with clients and other money managers start on page 12 and ring true. They are not something you would hear many (probably any) other money managers say.

Thursday, June 7, 2012


Good piece about the need for change, and resistance to it, in Spain.

Tuesday, June 5, 2012


...this spoof is about where things are, for Europe right now.