Can Turtles Fly?

One of the popular strategies these days is for governments to announce that they are backing the deposits in their country. I approve of the government strategy since we need to prevent bank runs that were the norm in the 1900's or earlier (or in modern day developing and undeveloped countries.) However, as investors and savers, the question is whether there is any merit to any of this. Can these governments actually back up their deposits? The Economist examines this topic , and produces the following chart plotting debt and deposit as a percentage of GDP (as usual, click on chart for a bigger picture): That chart looks scary. We can easily see how Iceland has little ability to do anything given the size of the exposure. I also remarked recently that Switzerland is another country that may face potential difficulties (I questioned whether a bullish bet on the Swiss Franc, as Jim Rogers seems to favour, is a smart bet.) Well, I never knew that Britain and Ireland were just a tad b...

One of the popular activity these days is to figure out how the present financial crisis compares to past ones. History doesn't repeat, but it does rhyme as Mark Twain is famous for saying. I ran across two articles from The Globe & Mail mentioning the similarities, and the not-so-similar relationships, between two past crises: 1929 and 1873. The biggest impact of a crisis is not necessarily the losses and suffering. I don't mean to downplay that but that's generally short-term and humans always battle through adversity. Rather, the biggest results generally include a shift in politics and societal attitudes. Just like how the malaise of the 70's with excessive government intervention and price controls led to de-regulation and less intervention in the 80's and 90's, the current crisis will likely lead to a shift towards the left with greater government oversight of financial institutions and capital markets. For investors this likely means that returns on c...

I just ran across a good article by The New York Times discussing the current investing climate . It's a good time to invest according to superinvestors such as Ken Heebner and Martin Whitman, among others. Both of them are down around 40% for the year. Whitman's declines aren't a surprise but it's amazing that Heebner, who was up something like 20% in the middle of the year (or something like that) end up with massive losses within a few months. Talk about a commodity collapse. The best thing about the article is the interactive charts ( click one of the left sidebar links,) which plots the current decline against the big ones from the 1930's, among others. It's hard for me to imagine that the current decline is among the worst of all time. Maybe it's because I have done very little all year and the huge decline in Ambac is not surprising. I suppose it is more shocking to see G.E or Citigroup or some "solid" name drop 50%. Anyway, there is a pote...

There is indiscriminate selling in the markets right now so solid, brand-name, companies are starting to be attractive. Companies that I felt were expensive are actually reasonably valued right now. I am personally starting to concentrate on higher quality companies and moving away from the distressed, low quality, companies. Such a shift amounts to moving the modern Warren Buffett strategy of paying fair price for a good business (as opposed to paying a low price for an uncertain business.) One company that I initially researched 2 or 3 years ago but felt was too expensive was Diageo (DEO). Diageo, a British company, is the largest spirits--hard liquor for those not familiar--company in the world. It owns many of the premier brands such as Smirnoff, Guiness, and Johnny Walker. The alcohol industry consists of 3 segments: beer, wine, and spirits. The wine industry is heavily fragmented, and the beer industry is somewhat localized. The spirits industry is concentrated with Diageo domina...

Supposedly this is the worst week ever for the stock market. The short-selling ban was removed on Thursday so that is partly what made it look worse than ever. Anyone sitting on the sidelines waiting to short clearly jumped into the market on Thursday and made it seem worse than it really was. This is more of a one-time thing and likely to subside in the future. Anyway some articles of interest: GM & Chrysler consider a merger (The New York Times): A blockbuster merger is being considered, with GM possibly merging with Chrysler. The transaction may involve GM giving up a small stake in the merged entity to Cerberus, the current majority owner of Chrysler, and/or swapping GMAC. A mega-merger with Chrysler? I'm not really sure whether this can be executed successfully. They would need serious concessions from the unions since there is going to be huge overlaps that they need to eliminate. Furthermore, I am of the belief that GM has mixed branding strategy and way too brands, a...

One of the macro things that was popular in the last 2 years was the infrastructure boom thesis (I'm going to leave out energy for the time being.) This hypothesis was based on the view that the world was short of infrastructure and needed hundreads of billions in investments. Think of the internet infrastructure thesis in the late 90's, which postulated that we needed hundreads of billions invested to increase internet accessbility. There is some merit to the infrastructure strategy but I have always been skeptical of the timing. Namely, I have always felt that this is a theme that will take a long time--10 to 20 years--to play out, which essentially means that profits will come slowly. It isn't a scheme to get rich quick. Something that always made me skeptical of the infrastructure boom is the seeming ignorance of government finances. Almost all of the infrastructure was expected to be financed by governments yet most governments out there, right from USA to Mexico to In...

Warren Buffett ran a hedge fund. So did Benjamin Graham. Edward Lampert's hedge fund has done well over the years (supposedly.) Although not a big fan of him, so has William Ackman's hedge fund. So this isn't a criticism of the concept of a hedge fund. Nevertheless, it shouldn't surprise anyone to know that there are some bad funds out there. Unlike mutual funds or directly owning stocks, hedge funds are capable of using high leverage and being opaque so the chance of a total blowout are really high. Well, it looks like a small Japanese life insurer has gone bankrupt because it invested in alternative funds (aka hedge funds). It's one thing for investment funds or individual investors to lose money but it's dangerous to see an insurer go bust. Yamato Life Insurance Co., a 98- year-old Japanese insurer, filed for court protection from creditors in the nation's first bankruptcy in the industry in seven years, with debts exceeding assets by 11.5 billion yen (...