Archive for January, 2009

  • Where Do You Place Johnny Cash?
    , January 6th, 2009 at 12:11 pm

    Tyler Cowen asks: “Where is the geographic center of Johnny Cash’s moral and musical universe?”
    I’m particularly pleased with my answer. Johnny Cash walks the line.

  • More Financial History
    , January 6th, 2009 at 12:06 pm

    The Economist opens its vault:

    Having fully admitted the disappointments, we find some justification for regarding 1928 as a year of no small promise for the future. Quite possibly it will be remembered in history as a year in which the foundations of recovery were laboriously laid.

  • Iceland to Sue Britain
    , January 6th, 2009 at 11:05 am

    From the 1950s through much of the 1970s, Britain and Iceland were involved in the Cod Wars, which was an overgrown fishing dispute. Now the financial mess has brought these two rivals back to confrontation.

    Iceland’s state-run Kaupthing bank will sue the British government for its decision to force the bank’s British subsidiary into a form of bankruptcy, the Icelandic Prime Minister’s office said Tuesday.
    The committee appointed to run Kaupthing — which collapsed last autumn — is taking Britain to court because it forced the unit Kaupthing Singer & Friedlander into administration at the height of Iceland’s financial crisis, according to the prime minister’s press secretary, Kristjan Kristjansson.
    ”They are suing on the grounds of the actions taken by the Financial Services Authority,” Mr. Kristjansson told The Associated Press.
    The F.S.A., Britain’s financial regulator, swooped in to protect British depositors shortly after Iceland’s banking sector fell under the weight of its bad debts, removing savings accounts from Kaupthing Singer & Friedlander and seizing assets from another Landsbanki, another Icelandic bank.
    Britain said the moves were necessary to safeguard British savers’ deposits, but the actions strained relations between the north Atlantic neighbors. Iceland has repeatedly threatened to sue over the matter.
    It was not clear whether damages would be sought in the Icelandic suit. The F.S.A. and Britain’s treasury did not immediately return requests for comment.
    Prime Minister Geir Haarde said Monday that his government supported the lawsuit and could help fund it.
    ”We think that it is very important that we ascertain if U.K. laws were misused against Icelandic interests,” he said.

    Honestly, it’s hard for me to read that last sentence without laughing.

  • The Price of Forecasts
    , January 6th, 2009 at 12:28 am

    Here’s Paul Farrel highlighting absurdly bullish forecasts from 10 years ago. Let me again make my claim that overly bullish forecasts are routinely held to account, but absurdly bearish ones are rarely held accountable.
    Here’s some advice: If you ever go in the econ-predictions biz, be pessimistic and vague. Then claim anything that goes wrong as something you predicted.
    By the way, are we allowed to start making fun of this?

  • Prepayments and the Subprime Market
    , January 6th, 2009 at 12:01 am

    Here’s the abstract of a recent paper:

    This paper demonstrates that the reason for widespread default of mortgages
    in the subprime market was a sudden reversal in the house price appreciation of
    the early 2000’s. Using loan-level data on subprime mortgages, we observe that
    the majority of subprime loans were hybrid adjustable rate mortgages, designed
    to impose substantial fi…nancial burden on reset to the fully indexed rate. In a
    regime of rising house prices, a fi…nancially distressed borrower could avoid default
    by prepaying the loan and our results indicate that subprime mortgages originated
    between 1998 and 2005 had extremely high prepayment rates. Most important,
    prepayment rates on subprime mortgages were extremely high (i) not just for ARMs
    but FRMs as well, (ii) even before the reset dates on hybrid-ARMs and (iii) despite
    prepayment penalties on the contract. However, a sudden reversal in house price
    appreciation increased default in this market because it made this prepayment exit
    option cost-prohibitive. In short, prepayments sustained the subprime boom and
    the extremely high default rates on 2006-2007 vintages were largely due to the
    inability of these mortgages to prepay (an option that was available for mortgages
    of earlier vintages).

  • Two Days in 2009 and We’re Kicking Butt
    , January 5th, 2009 at 11:16 pm

    With two days under our belt, the Buy List already has a lead over the S&P 500, 4.12% to 2.68%. Obviously, a two-day lead doesn’t mean much, but I mention it because the Buy List was helped out enormously today by the 27.7% jump in Nicholas Financial (NICK).
    Since NICK is such a low-priced stock, the bid/ask spread can make a big difference on how well the Buy List does each day. Some days we’re punished, but some days, like today, it’s a big, big help.

  • Meg Whitman for Governor?
    , January 5th, 2009 at 3:28 pm

    Apparently so.

    Meg Whitman stepped down from the boards of Procter & Gamble Co., eBay Inc. and Dreamworks Animation SKG Inc. effective Dec. 31, her spokesman said.
    The move is another signal that Ms. Whitman is seriously considering a run for governor of California, a person familiar with the matter said, adding that an announcement could come in the next four to six weeks.
    Ms. Whitman’s spokesman, Henry Gomez, declined to comment on her political ambitions, saying she stepped down “for personal reasons.”
    A spokesman for P&G said, “We deeply valued the contribution Meg made to our board over the last five years.” EBay and Dreamworks couldn’t be reached for comment.

  • The Gold-to-Silver Ratio
    , January 5th, 2009 at 11:29 am

    In 1792, the U.S. Congress, at the advice of Alexander Hamilton, passed the Coinage Act of 1792. This was the government’s first attempt at price-fixing. The act defined a U.S. dollar as 371.25 grams of silver or 24.75 grams of gold. In other words, gold was worth 15 times as much as silver.
    So how did they do?
    Well, not too well. The guys at Bespoke posted a chart looking at the ratio of gold to silver over the past few years. The ratio has exploded in the past year, rising from under 50 to nearly 80 today. They conclude: “Based on the ratio of gold to silver over the last ten years, a reversion of the mean trade would be to go long silver and short gold.”

  • Best Paragraph of the Day
    , January 5th, 2009 at 11:16 am

    James Surowiecki on Wall Street con games:

    In David Mamet’s movie “House of Games,” the grifter played by Joe Mantegna explains to a former mark, “It’s called a confidence game. Why? Because you give me your confidence? No. Because I give you mine.” So the bankers gave us their confidence, in the form of mortgages and other forms of credit, and we gave them ours. This culture of credulity did plenty of damage to the economy, but now it has given way to something even more corrosive; namely, endemic mistrust. Because if there’s one thing worse than too much confidence it’s not enough. Fraud impoverishes a few; fear impoverishes the many. As long as mistrust prevails, people will keeping pulling money out of the system—sometimes even at gunpoint.

  • Renaissance Waives Fees
    , January 5th, 2009 at 10:45 am

    James Simons, the Grand Poobah of Renaissance Technologies, said he’s going to waive the fees on his futures fund which was down 12% last year, or as Simons called his performance, “less than stellar.”
    The break in fees for this year adds up to $30 million for his $3 billion futures fund. In light of Simons move, I’d also like to announce that I’m waiving all user fees for this blog due to the Buy List‘s less-than-stellar performance.
    Simons’ Medallion Fund, I should add, was up 80% last year.