Friday, October 29, 2010


I have always been socially liberal and fiscally conservative. Not to the extreme in the sense insofar as I take no issues with debt raised for long-term investment be it education, R&D, trains, Chunnels, or the like, things likely to maintain value and use for many years, and which yield externalities that are in the Public Interest. Nor do I find fault with a bit of counter-cyclical intervention now and then. However, I take issue with credit as a seeming birth-right, and believe that pricing credit too low is more often than not, as dangerous and ultimately dislocating as setting the price of credit too high. I am on record as such for a rather "extended period" (in Fed speak). After all, I am a saver, so it is natural to desire one's savings afforded protection in real terms.

I say these things because in the process of the following provocation, I do not wish to be categorized as a perma-anything, excepting perhaps a perma-skeptic, but in particular do not wish to be labeled an apologist for overly loose money - something that would be patently false.

I must further admit in order to insure the proper stamping of my anti-easy-money-credentials that I am as concerned as anyone about the concept of quantitative easing. I understand that it can be seen as dilution. And in many circumstances - certainly historic ones, printing was hazardous.

But here, today, being inquisitive and hopefully provocative, I must ask the frank question, what is the big deal about a bit of quantitative easing under the present circumstances? Hear me out. Look back over the past 25 years . Witness the ballooning of asset prices. The credit that has been extended and therefore money created, has been, in a single word, enourmous. No, actually ENOURMOUS!! I do not need to reproduce all the graphs that luridly depict this vertiginous reality. And they [asset prices] are still high, as any owner Schiller-measure, or owner of an inner London 2br flat can testify to. This money has already been created. And not only has it been created, it has been spent. And the cascade effects too have already spilled over and paid for the beneficiaries' Porsches, and Hampton or Nantucket digs. Yes, these asset prices and the S&P 500, might continue to go higher. But credit is and will likely remain constrained for a long time. Deleveraging continues apace. Asset prices - both real estate and equity remain elevated, and could easily compress a great deal more under the continuing scenario of limited credit, limited domestic investment opportunities, diminishing construction and consumption spending as a percentage of GDP, aging populations, high and long-term rising energy prices and the perception of the fiscally-constrained state.

Now focus on Japan. Here, too, witness the slow inexorable grind of rates lower during, yes, twenty-five years. The aging of the population. The rising ratio of national debt to GDP. The falling asset prices. No matter quantitative easing. The conjured liquidity seemingly disappears into one black-hole after another, unable to have any meaningful priapic impact upon velocity of money, asset prices, inflation or economic activity. These are vivid images, but accurate depictions. And why? It is not clear we even know.

Lets look at some numbers on our turf. Not the real precise numbers because I am lazy and in a rush for you to contemplate my point before hurling insults back at me, but rough back-of-envelope numbers will do for illustrative purposes. US GDP is $14 trillion. Equities have quadrupled over twenty years. US public market aggregate Market Cap is, I don't know $14 trillion? And private unlisted values - maybe quarter to half as much again? US Bond Market values - combined Federal, corporate, mortgage, municipal, are probably close enough to $30 Trillion, and who knows what the size of privately extended loans are on US bank balance sheets, but it must be a couple of trillion. Net real estate equity value - the unencumbered portion NOT accounted for in market cap of listed and private companies, must be several trillion. These values reflect money already out there. Asset values that already inflated by the massive credit binge during more optimistic times. These, like Japan, are likely compressing in a very long term move. The aggregate net worth of $40, $50 maybe $60 trillion, could be compressing to $30, $40 and $50 trillion respectively. Or, like Japan, lower, and over a longer period. So, one trillion of QE has no bearing on anything (unless you are the guy who has sold them duff assets for real money that you can transform quite easily into a large edible Philadelphia Hoagie. For more or less the same price as one transformed it ten years ago. Would two trillion do anything? In the scheme of things, it would seem, probably not. Oh, sure it might get the speculative juices flowing for a nanosecond (as it did in intermitant intervals in Japan) when traders attempt to front-run this government stimulus package, special budget, or the much vaunted QE, but this would turn out to be but a small blip in velocity, as it flatlined, seemingly forever, or beyond the patience of any reasonable trader or even long-term investor.

So this must be good news, and you now think me an optimist, right? Well, if you recall, virtually all Japan's largest banks needed recapitalisations by ten years after-the-fact. As did the finance companies, and the brokers, and many life insurers. Some needed several and some still need them, twenty-five years later as the inexorable deterioration in asset quality and repayment was eventually reflected in diminished asset prices which was eventually reflected in capital conjurations by pen-stroke, to insure systemic "solvency". Quantitative easing? This was like throwing a few pebbles into a gigantic sinkhole, hoping eventually to fill it in. Inflationary fears? Yes. Inflation? Not in anything subject to Peak Credit and the overhang, like home prices, the S&P, or the wages you pay your secretary. At least that was the experience in Japan. Where did it all go? Why does it not, to this day, make people hyperbolic in their vilification of authorities who have, to the objective observer with no preconceptions about how large the BoJ's balance sheet should be, preserved a semblance of normality in what otherwise have been something else. Maybe that something else is preferred. Maybe that something would have been better. Tea-party-ers and inflationista's certainly seem to think so. Maybe Japanese asset prices are falling for other reasons, and our asset prices are different. Better. They will respond because, ummm, because they are American. Perhaps, but only if they were in aggregate NOT overrvalued by $10 or $15 trillion or some other equally large (or larger) number. I am not sure I would want to make the case that outlying commuter suburbs with no reasonable public transport links are fairly valued in an era of peak oil. What IS the right price? Who knows, but where is fat tail? Seems like the left side - before the right side, at least before desperation sets in, and a trillion here or there is hardly desperation in the grand scheme of market values. Is this better or worse than inflation? I do not really know...

Thursday, October 28, 2010

Dear Mr Cameron

The Rt Hon Mr David Cameron
Downing Street
London SW1
28 October, 2010

Dear Mr Prime Minister

Quite the performance during Question Time yesterday. Such Passion! Such Fire! Such Resolve!
You have started to make the most significant contribution of any politician in a generation (possibly two) to the cause of Austerity as a requisite cleanser for the moldy undergrowth of entitlement, mindless bureaucratic inertia, waste, and indolence, some would argue is necessary to prepare the land for sounder more robust growth than the Thatcherite assault on The Public Interest and new-labour's smoke-and-mirror attempt at wallpapering prosperity over cracked walls that rather obviously required sounder work and treatment than PFIs and Privatisations. I applaud your efforts which have exceeded any expectation. The British people are stoic and in the main understand and support your efforts, which I expect will kindle a similar flame across our boated peers.

Yet, I would highlight to you that the stoicism is not unlimited, and that your efforts will generally supported, have neither been implemented and felt, nor have the rippled through the chain of dependancies that will surely see the economy shrink by several percent as they are felt. My point is that you, and so your austerity and reforms, are vulnerable to the criticism of unfairness. While the working and middle class is, and will greatly impacted, mostly through unemployment, The Rich have only seen small rise in the marginal tax rate, a means-testing of benefit here or there, a tax on banks as payment for insurance backstop. You have left yourself vulnberable with little valid riposte when the moment occurs.

The stoicism is based upon shared pain, and with it, still disspipate. Since the pain is likely to persist, you do I will suggest need to share it more evenly, for both appearances and to legitimately justify fairness of truly shared pain inherent in national austerity. You have tapped VAT, income tax, fuel and sin taxes. There is little more to gain here. But the number of Swiss registered and number-plated supercars roaming Chelsea of Swiss-forfaited super-rich is significant. There remains great injustice and unfairness in walking through Chelsea past the gated mini-palaces in which uber-rich reside for their maximum days, yet paying little in comparison the benefit of maintaining their business, their lifestyle, and the protection of their property-rights from the great unwashed, no to mention the superior road-paving, rubbish collection, policing, and other fringe benefits for which they do materially contribute.

Yes, the time has come to raise property taxes - less as a means to revenue generation than as a means to showing the soon-to-unemployed that you are serious about fairness and burden-sharing. And do it in a progressive fashion, since in many cases it is the only means by which one my capture the flag from loop-hole dodging owners (many of whom I might point out are indeed non-voting foreigners). It probably will not raise a lot of revenue - though it will raise some. And you can let property-rich, cash poor grannies have exemptions if that is important to your constituency. But proceed you must, for without fairness, when the austerity shit hits the proverbial fan, your stoic supporters will soon be organizing lynch-mobs for your party ack-benchers who supported what will be seen as draconian recession-inducing reforms.

It is the time to call upon YOUR party faithful to make the sacrifices that the average brit will be forced to suck up. It would be such a shame to squander a truly amazing start, and significant public support for fear of a backlash amongst our constituents. They surely will understand if you explain if the vernacular of shared pain.

Good night and good luck!



Chelsea is Dead! or Why I Hate Urban Outfitters

URBN has over the years been both a personal boon and bane. This City of Brotherly Love-originated retailed founded by selling incense, bongs, dope-leaf tee-shorts and ultra-cheap imported bohemian stuff to skint college students has been loved (nearly to death) by growth investors and momo humpers alike. For the reversion-oriented plunger this affection of seeming endless relative outperformance on the way up, coupled with short-covering during risk-off regimes is the proverbial Scylla and Charybdis to one trying to make a buck on the short side. Fortunately, capitulation eventually occurs and patience is rewarded with outsized lumpy returns.

Frustrating as this has been over the years for a skeptic who refuses to buy-in to the growth forever mantra of this slick schlock retailer, today, I hate Urban Outfitter for another, more significant reason. For this morning I went to visit the venerable Chelsea landmark known as the Chelsea Antiques Market where stalls run by passionate niche specialists from antiquarian books to art-deco cut crystal formed a charming maze in the heart of the Kings Road. So one can imagine my disappointment to arrive there morning in search of an overdue wedding gift for a dear friend only to discover that it along with all its old-world charm has been completely and totally obliterated in favor of a gi-normous URBN "Lifestyle" subsidiary Anthropologie store one blindingly bright, filled to the brim with shite. I stood for a moment in horror, thinking of all the cappucino's drunk at a friends Cafe which [formerly] dwelled within before I cried.

This must be the the final nail in the coffin called Chelsea...a now souless vapid pit-of-a-bedroom-community devoid of one of it's few remaining tethers to humanity. RIP Chelsea...and F@#k Y*@ Urban Outfitters

Saturday, October 23, 2010

Time Standing Still

Serendipity took my family and I to our nation's capital city,Washington, DC, ostensibly for a family holiday. My son was taken by the shiny metal and technology of the Air & Space center, while my daughters preferred the Smithsonian Natural History museum. I was keen too, since although I had spent reasonable amounts of time in DC with friends who worked the political circuit, I'd never actually been a tourist. So I was quite excited to visit the ground-zero of politics: The Capitol.

While I'd always been deeply interested in politics, an overtly political career never appealed. I skirted it via academia and applied research, my studies in economics, and philosophy, but had little lacked the convitction, missionary zeal for bottom-up activism. For every time I thought I knew for certain what was what, I would without faily later  discover how much I didn't know. This is not to fault those with vision, or those fighting for causes with obvious benefit for the public interest, though I remain suspect of those with too much zeal on issues where the ratio of concentrated parochial gain is large in comparison to that of the public interest.

With a tour arranged via the internet booking system - one that worked well enough to temporarily silence critics of governement ineptitude, we set out. I had few preconceptions of what to expect insude the halls of the Capitol, outside the idealized images  remaining from civics class, which had somehow displaced the more realistic and sordid images of K-Street lobbyists at their most insidious. I did imagine that we would be met by a knowledgeable guide, who would focus their considerable enthusiasm and proximity to power to enlighten the visiting public about the political process as it is - even if sugar-coated.

Once past security, our guide began their show. Yes they annoyingly spoke to us as if we were idiots. Mind-numbing detail about the physical building, the statues, the paintings, the cornice work - everything EXCEPT politics. Amazing. Here we were in the center - and everything was form, not function. Perhaps I was unrealistic in my expectations. No visit to committee rooms. No view of the big chambers despite the absence of congressional sessions.  No descriptions of torture methods employed by whips tto tame party rebels. Nothing of what makes Washington Washington.

Two images stuck in my mind. The first was a lunch visit to the Longworth Office building which houses offices of members of the House. Somehow (wrongly) I imagined (or wished) our leaders and their staff more elightened, but what I witnessed in the cafetaria was perhaps unsurprisingly a reflection of the nation: fried chicken, hamburgers, slathered in ketchup or mayonaise accompanied by a 20oz bucket of Coca-Cola. No wonder healthcare costs are 18% of GDP for non-universal coverage. Sure there was lip service to healthier food, but these lines were short to non-existant in comparison to the fried wings, french fries, ribs, and the like. No wonder logic and pragmatism seems unable to assert itself and unseat parochial interest. How can lawmakers and their staff - nourished as such, fight the focus their better nourished lobbysists.

The second was that while civic and administrative life in Washington itself seems to function beautifully  - transport, cleanliness, gentrification, zoning, sufficiently so to challenge the convention wisdom of administrative ineptitude, I couldn't help but notice that in the Capitol building itself, two of the three large ornate clocks were broken - freezing time. And I couldn't help thinking just how emblematic this is of American politics. A bold experiment in its time, now ossified, incapable of introspection, or evolvultion beyond the prevailing sad state of wholesale capture by those who can. On the lower floor, beneath the rotunda sits the exhibit I was expecting from the tour itself. A history of laws, documents displays of important laws enacted in our nations history along with the embellishing colour to ehance one's understanding. But like the broken timepieces, this proud timeline of legislation - from emancipation, womens, suffrage through to civil and social rights  - trails off dramatically as we approach the 21st century with increasingly abusurdly-named acts like "The No Child Left Behind Act" or insubstantive focus like steroid-use in professional sports, or banning assault weapons from public schools. The US must surely be alone amongst advanced nations in misusing the people's resources for such legislative folly. Where are the adults. Who will fix the clock, so the important matters of State facing our nation can be tackled and discussed pragmatically as citizens who share a common nation and common reality, rather than as two species inhabiting entirely separate realities - one characterized by Murdochian Fox, and the other resembling some L. Frank Baum inspired Land of Oz, where the responsibility is wholly-separated from the individual.

This may sound jaded and harsh, and unfairly focused upon what I wanted to see. Yet the problems facing this nation require a pragmatism -  free from dogma - such as we've rarely seen for many decades. And not just at the Federal level, but at the State and municipal level too. And if we were as a people, the least bit curious and introspective, we would see other nations and people that are already wrestling with the issues we face, challenging the parochial interests to re-examine what we've promised and what is feasible, what is desirable. Even hear, other nations seem farther on the road to viewing the world of the possible and plausible through similar eyes. I can nly hope we fix the clocks, and begin to approach the problems through a common reality.

Friday, October 08, 2010



Friday, October 01, 2010

Who Needs PM's Anyway?

The money-management business has indeed changed. One would be forgiven for wondering whether it even has anything at all to do with investment. While I have suspected such for a long time from mere observation of the long-only world, it was confirmed, again, today from an Advent Software Press release that I came across:
About Advent Portfolio Exchange(R) Advent Portfolio Exchange(R) (APX) is an end-to-end portfolio management solution that integrates the front-office functions of prospecting, marketing, and customer relationship management with the back-office operations of portfolio accounting and reporting.

Yes it's official: Portfolio Management, not only doesn't rate as "Front-Office", but seemingly has no place in Advent's Characterization of the Investment Management organization - strange for a company dependent upon a continuation of errrr ummm investment. Revenge of the organizational bureaucracy indeed!