Can Turtles Fly?

In what can only be deemed a draconian move—not surprising given Steve Jobs' history of strong arming everyone—a police force influenced by Apple has seized the assets of the editor at popular technology blog, Gizmodo . MarketWatch has the full details : The chief deputy district attorney for San Mateo County, Stephen Wagstaffe, said Tuesday that computers and other gear taken from the Bay Area home of Jason Chen, an editor for the popular gadget blog Gizmodo, will not be examined until the office determines whether the material is covered by California "shield laws" that prevent law-enforcement authorities from examining material gathered by journalists. On Monday, Gizmodo reported that Chen's house had been raided by the Rapid Enforcement Allied Computer Team task force, which seized several computers and related gear. See full story on the raid on the blogger. Earlier this month, Chen and his employer said they paid $5,000 for an apparent prototype of an iP...

(source: The Economist, Innovation Visualization interactive chart from the April 15th (2010) special report) Watch that line for China... it's amazing to see the line rise so much from 1985 to 2007... I'm still bearish on China but a chart like this shows why it has great potential. Everyone talks about China's strength in cheap labour and the like but the reality is that the country's greatest strength is its human potential. Someone like Wang Chuanfu, founder of BYD, shows how great their scientific and engineering potential can be... the question is whether their totalitarian system will allow these people to flourish. The Chinese government quietly removed one of their horrendous mistakes, the so-called 'one child policy'—I have a post coming up on demographics soon—but they have a few other big problems ahead (including various bubbles)...

History books of the future may mark the stock market bottom set in April of 2009 as a major bottom. It may turn out to be a 100-year bottom in nominal terms. How does the picture look compared to the 1933 bottom? The following graph illustrates the S&P Composite price performance (monthly data) from the 1933 and 2009 bottoms. I started the chart 6 months prior to the bottom and, in addition, the 1933 line is scaled so that the bottom aligns with the 2009 bottom. As usual, click on image for a bigger picture. Thanks to Robert Shiller for freely providing most of the data; I also used the current P/E and dividend yield from  WSJ Market Data Center (I can't find the current yields for the S&P Composite so I'm going with the S&P 500.)

Sorry about the lack of investment-specific posts. I find the market unattractive and haven't really run into anything worth contemplating. Most of my time has been spent thinking about a bearish outcome in China and investigating Mega Brands (TSX: MB.) One of the biggest dangers I see is that many appear over-confident due to strong gains in the last year. Given the big rally in almost everything (except US Treasuries), it's hard to tell if someone was lucky or knew what they were doing. In any case, as I have done regularly in the past, I thought I would try to gauge where contrarian opportunities may lie. Since a multi-decade bottom may have occurred almost exactly an year ago, I thought it was good time to see the performance of various industries. I should warn people that the industry performance results depend on the industry definition used. Dow Jones' definition can be misleading and the numbers may also be wrong at times (sometimes the case with OTC stocks in th...

When the capital development of a country is the byproduct of the operations of a casino, the job is likely to be ill done. — John Maynard Keynes How dangerous are financial derivatives to societies? I don't have an answer so this is more of a post to make you think and maybe respond. I have never really worried about the damage derivatives pose to society. My feeling is that the damage won't be that bad because derivatives are a zero-sum game. I still think that's true but, given how financial institutions making huge mistakes end up running up to the taxpayer, I am slowly shifting my position towards a negative view. I have a bad feeling that developed societies—only they have sophisticated derivatives markets—may be edging closer to irreparable harm.

I'm not too knowledgeable about legal matters and hence am not exactly clear on what the Goldman Sachs civil suit by the SEC entails. It looks like the SEC case is weakening by the day, at least in the public eye. Published reports, including one from Reuters (via the The Globe & Mail,)  suggest that ACA was informed of the short sale by Paulson. One of the key portfolio managers at the Paulson fund, Paolo Pellegrini, apparently told ACA of their short-side bet. It's not clear if Pellegrini's comments were informal and outside of the legal disclosures involved in selling the CDO. If ACA was told before the sale of the CDO by Goldman Sachs, the SEC case would be weak (note: I'm talking about the perception from the public and not about the legal case— I don't know anything about how this impacts the law.) The main criticism appeared to be the fact that Goldman Sachs didn't disclose to ACA, as well as the CDO buyers, that Paulson was not only betting against...

Most of you are likely aware by now that the SEC has made a civil charge* against Goldman Sachs for a CDO that they sold. I wasn't going to comment on this story, since it has been covered by others and you can get better information from those sources; but I changed my mind and thought I would just say something just for historical record-keeping purposes. The more I thought about the situation, the more I realize how significant this event may end up. To recap the situation, it seems Goldman Sachs sold a synthetic CDO called ABACUS 2007-AC1 in 2007 and the SEC is charging that Goldman Sachs made misrepresentations. Basically, it seems that Goldman Sachs didn't disclose material information. The material information centers on the fact that the CDO appears to have been constructed with the input of the hedge fund run by John Paulson. This is important because Paulson was attempting to short the CDO (for those not familiar, Paulson rose to fame after shorting the subprime mo...

The Charlie Rose interview with Jim Chanos, which was covered in the media and blogs last week, was finally released. I was really looking forward to this interview given my interest in this topic, and the master interviewer, Charlie Rose, doesn't dissapoint. Rose does an excellent job probing Chanos on most of the key issues. Even if you are not interested in China, I recommend this interview. Whether you like or hate Jim Chanos, or believe China is seeing a real estate bubble or not, I think it's worth checking out this 30 minute video (or at least read the transcript.) Chanos' insights on the nature of bubbles, especially from someone who makes a living trying to identify and profit from them, is interesting. Chanos is also a liberal so I'm in tune with his political thinking too; not sure about you ;) There are too many important points touched in the interview but the most interesting to me is Chanos' speculation on what would happen if China actually deval...

A stack of hardbacks sits on the windowsill in the office of hedge fund manager Hugh Hendry. They make up a reading list perhaps now common in London's embattled financial community. The Volatility Machine: Emerging Economics and the Threat of Financial Collapse sits under a copy of Lords of Finance: The Bankers Who Broke the World, a timely examination of the Great Depression. On top of the pile, lies a dog-eared dictionary open at the page with words beginning "sco-". What was Hendry looking up? He bounds around his desk. "Oh, yes," he says, running his finger down the page, "it was for an article I wrote about hedge fund managers last week. I was looking up 'scourge', as in 'scourge on society'." ###   Hendry is the boss at Eclectica Asset Management, which he launched five years ago. Like all hedge funds, it takes money from investors and uses it to make bets on their behalf. A good bet means a healthy return for investors –...

The Life of the Rich & Famous (source: Visualizing Economics )

From MarketWatch: Athabasca Oil Sands Corp. makes its stock debut on Thursday in Canada after the producer of petroleum from Alberta raised nearly $1.4 billion as the richest Canadian IPO since 1999. Not only is the Canadian dollar at parity with the U.S. greenback for the first time since 2008, but the Great White North appears ready to float the biggest stock offering so far this year in North America. Athabasca Oil Sands will trade under the stock symbol ATH on the Toronto stock market. Its shares won't trade on any U.S. exchange. On March 30, Athabasca said it sold 75 million shares, or a 19% at C$18 each, raising C$1.35 billion. With about 400 million shares outstanding after the IPO, Athabasca Oil Sands will carry a market cap of C$7.2 billion. The IPO ranks as the richest from Canada since Manulife Financial Corp. raised C$2.48 billion in 1999, according to data compiled by Bloomberg. Santana Technologies priced 31.6 million shares at $18 a share for proceeds o...

One of the big difficulties that will be faced by the elderly population in developed countries will be the cut-backs their pension systems will undertake. The problem is that many pension plans, like mutual fund salespeople, over-promised the future and built in rosy asset return expectations. A good sign of the current state of affairs is the situation faced by the Ontario Teacher's Pension Fund. If I recall, the Ontario Teacher's Pension Fund is the second or third largest pension fund in Canada. It may also be the best managed mega-fund in Canada. Yet, it is facing a short-fall, even after many years of strong performance. The Globe & Mail reports : The pension fund said Tuesday it earned 13 per cent on its investments last year, boosting its asset base to $96.4-billion from $87.4-billion at the end of 2008. The returns beat several other major public pension funds that have so far reported 2009 results, including the Caisse de dépôt et placement du Québec, whic...

A History of the Canadian Dollar by James Powell. Free PDF book at Bank of Canada's website .

It probably isn't a surprise to many that my favourite column in the business weekly, The Economist , is the Buttonwood column. It closely parallels my interests, with a blend of macro views intermingled with investing. I have no idea how useful any of it is to investing but I like reading it :) A few weeks ago, Buttonwood had an interesting column, " The very long view ," talking about how asset returns typically depend on when you invest. This isn't true for stockpickers since they will do well in any conditions if they are right. Indeed, it's hard to say what type of environment suits someone like Warren Buffett or Walter Schloss, given their strong performance in almost any environment. Yet, for the general public, it is likely true that your returns will depend heavily on the timing. The article quoted a Barclays Capital analyst, Tim Bond, as saying that asset returns are strongly correlated with the 'saving age' portion of the population. Button...

During Grant's 2010 Spring Conference, Jim Grant of Grant's Interest Rate Observer debated David Rosenberg of Gluskin Sheff + Associates  on the merits of buying US Treasury bonds. Grant is very bearish on the bond while Rosenberg took a bullish stance. For the video of the debate, click on the top video from this link . Overall, anyone versed in the bull vs bear cases for US Treasuries wouldn't learn much from the debate. But if you want a refresh of the two sides, it is worth checking out.