Random Articles For A Monday

Some articles some of you may find interesting...

• Has a trading mentality taken over the capital markets, business community, and government? (The Globe & Mail): An essay by the CEO of Thomson Reuters, Geoffrey Beattie, presents his opinion on the matter. He makes some fine points on the differences between a short-term mentality and a long-term one. I agree with most of the opinion but feel that an important point is missed. It is important to remember that this is not a North American problem; neither is it a capitalist problem. Some people like to say that countries like China have a longer term plan, but they don't. China, and others, are following a short-sighted policy on par with America. If you think about China's low currency peg or the ignorance of environmental problems, not to mention the disastrous one-child policy, you'll see that they share a lot with the executives, leaders, and politicians in America and Europe.
  
• Simple illustration of structured products (Bloomberg): If someone wants a quick graphical overview of what a CDO is, or how an SIV fits into the crisis, check out this illustration. There is also this accompanying article.
  
• Japanese cross-shareholdings starting to bite banks (Economist): Japanese banks looked clean--they did steer clear of the toxic American mortgages--but they face a uniquely Japanese problem. A lot of companies in Japan have sizeable cross-shareholdings and the banks have to mark them to market. As the Japanese stock market falls, banks' capital is declining astronomically.
  
• Newspaper circulation keeps dropping in America (The New York Times): Not exactly surprising but newspapers probably have a good idea of how the buggywhip manufacturers must have felt. About 2% decline in print for several years, with steeper declines in the last year, is hard to absorb (do note that some of the decline is due to tactical circulation cuts by the papers.) To make matters worse, online advertising seems to be flat and can't make up the print decline.
  
• The shrinking hedge fund industry (The Economist): A good article providing a historical overview of the industry, along with the current woes faced by hedge funds. One thing people forget is that it is not just banks that are heavily leveraged; it's also hedge funds. A lot of the selling of late likely has little to do with financial institutions or investment banks, and are, instead, likely to be coming from hedge funds. Even if the financial institutions de-lever, we need to wait for the hedge funds to de-lever as well. On top of seeing asset price declines, hedge funds are also getting clobbered by unwinding of various carry trades.