Tuesday, December 16, 2008 1 comments ++[ CLICK TO COMMENT ]++

Random Articles For A Tuesday

Some articles some may find worth checking out:

  • FedRes targets a hard limit of 0% to 0.25% (MarketWatch): Monetary policy has run out of ammunition. FedRes will try unorthodox strategies but their impact is uncertain. Fiscal policies will start having a much greater impact from now on so the actions of governments, rather than central banks, will significantly impact investors going forward.
  • Will we see high inflation if government stimulus works? (Financial Post): I am not sold on the inflation case. Anyone calling for quick re-flation--this is the consensus of commodity bulls, including some quoted in the article--will be in for a surprise. Betting against the bond market is very risky, since it tends to be correct most of the time (recall how the yield curve was inverted a few years ago and was indicating a potential economic weakness, while everyone thought it was a bogus signal due to foreign central bank purchases.)
  • Nortel bondholders bailing out (The Globe & Mail): For Canadians, Nortel is the skeleton hanging in their closets. Unlike many other dot-com stars, it has neither gone bankrupt (e.g. Pets.com) nor survived and solidified its position (e.g. Cisco). Telecom equipment manufacturers are struggling--tales of woes from Alcatel-Lucent is quite common--and this looks like the end game for Nortel.
  • Bad derivative bets happen in China too (Financial Post): We have seen quite a few American and Canadian firms lose big on derivative bets lately--particularly bad bets on commodity prices or currencies. Well, Chinese companies are not immune, with some terrible bets on Australian currency movements that have blown up badly: "The 'foreign exchange accumulator' contracts were highly risky, reportedly structured so that a 10% drop in the Australian currency would amount to a 150% loss to the holder of the contract. The bets went sour as the value of the resource-driven Aussie dollar sank by more than 40% in the face of slowing demand for Australian minerals."
  • Semiconductor sales expected to drop 16.3% next year (The Globe & Mail): When I was more of a newbie than I am presently, I thought semiconductors were a growth industry. I mistakenly compared semiconductor companies, such as Intel, against growth companies such as Microsoft. Took a while to realize that semiconductors are cyclicals and need to be treated like other cyclicals such as oil&gas companies. Intel is actually pretty good but others such as AMD, ATI, Nvidia, and so on, are extremely cyclical. My opinion is that semiconductors are somewhat like the railroads in the 1800's. High-tech...has a big influence on society...but terrible investments.
  • BusinessWeek's 25 worst investments of 2008 (BusinessWeek): A collection of some of the worst investments of the year. It's a mixed list with some specific stocks being highlighted along with whole industries. As an investor, especially a concentrated investor who only has a few holdings, you definitely do not want to be on a list like this but, alas, I end up on it :( I would fall into the "bond insurers" and "insurers" category (although my P&C re-insurer, Montpelier Re, held up for the most part.) Ignoring risk arbitrage, I did very little this year (only purchased one infamous investment that shall remain nameless, although it's hard to miss the big letters clearly visible on the left ;) )

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1 Response to Random Articles For A Tuesday

December 17, 2008 at 7:44 PM

"Monetary policy has run out of ammunition" doesn't make any sense. Interest rates are not like a bullet that can only be fired once - they can be kept low for days, weeks, months, years or even decades. By definition they are a gun with *infinite* ammunition.

This has to be the most overused and inaccurate metaphor in finance!

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