MONETARIUS

June 16

Boo-yah Jim!

 Jim Cramer is a howling megalomaniac and an internet stock tout, but you can always count on him to speak his mind. This rant, on his June 15 broadcast, perfectly captures the frustration felt by “ordinary” investors who can’t be sure what the rules of the game are anymore. Market moves do not seem to be based on fundamentals and what goes up one day can reverse on a dime. A stop loss order was the traditional way to protect your profits by posting a floor price on a stock that would trade on a market reversal. The May 6 “flash-crash” caused the activation of thousands of stop loss tickets in a twenty minute period as high frequency traders took a coffee break and pulled their orders. The indexes fully recovered in less than an hour, but left a pile of burned out stock positions smouldering on the exchange floor. Traders call this getting “whip-sawed”.

High frequency or algorithmic traders don’t care about the fundamentals of valuing stocks; the price action is all that counts and they are capable of instantly shooting off thousands of buy and sell orders on the instructions from a piece of software that can measure technical changes in the markets in nano seconds. In fact, so important is processing speed to these outfits, that they have negotiated deals with the exchange bosses to co-locate their computers with those of the exchange in order to cut the distance that the electronic market information must travel. It is probably the first time in history that a dollar value has been assigned to the speed of light.

High frequency trading is the mainstay of the proprietary trading desks of the Wall Street merchants JP Morgan and Goldman Sachs, who boasted recently that their “prop” desk was profitable every single day for the last four years. That fact ought to tell you that somebody is losing skin in the game. Trading volumes on the major stock exchanges have exploded in the last several years, but it’s not because the average retail investor has suddenly decided that stocks are the place to be. Now institutional portfolio managers, the men and women who manage our pension funds, are questioning if the “casino” atmosphere of modern stock markets offer a fair playing field on which to execute their fiduciary duty.

Volatility may be here to stay, but long term investors may not be. When stocks fall out of favour, valuations sink as price to earnings multiples drop to single digits – that’s historically where the real bear market bottoms are to be found. It won’t matter one wit to the HFT’s who care not for fundamentals. They’ll trade stocks down to P/E’s of 8 and not lose a day of profitability. Buy, hold and….prosper?

2:52 PM GMT  |  Read comments(0)

June 03

The Sunsets Are Still Nice

 Barak Obama is furious. Tony Hayward, BP’s CEO, is sorry. Both are spinning their stories like mad on TV to cover up their gross negligence in the Gulf drilling disaster. The government is condemned for permitting an oil company with one of the worst records of environmental miscreance to engage in high-risk drilling without verifying that it could cope with a blow-out. BP is a mendacious corporation that advertises its initials as standing for “beyond petroleum” and wraps itself in “green” in well contrived media spots. BP is “beyond propaganda” and this unfolding drama strips away the subterfuge that it ever had a concern for the environment. Hayward’s teary-eyed contrition acted out on a prime time television commercial rings hollow after having stated last week that the amount of oil gushing from Deep Water Horizon was actually insignificant given the total volume of water in the Gulf of Mexico. He has no credibility. Obama will attempt to restore his tomorrow on another trip to Louisiana where he will try to get his oleaginous ducks in a row.

I, myself, have moved beyond the disgust and depression that have weighed on me these last weeks. I am buoyed by the indomitable spirit of capitalism which will assuredly find a business opportunity in this calamity. The beaches on Florida’s Gulf side will no doubt be despoiled of their pristine beauty and property values will plummet, but innovation will prevail to create a brand new good. Welcome to Tarball Beach, Florida’s newest retirement community. Here’s the idea: form up and press down the oil laden sand to form a strip of blacktop right on the beach. Not a highway mind you, but a two-lane road on which the new residents can drive their obesity scooters from their ocean side condos to strategically placed ice cream stands. It’s a winner I tell ya. You’ve gotta think positively!

7:33 PM GMT  |  Read comments(0)

May 03

Still About The Oil

 Next time you are driving to Red Lobster, think about this: the Cajun shrimp won’t be on the menu. Actually. they will be, but the shrimp will be from Thailand, not Louisiana.You will never know the difference. As consumers, we may think that we are hard to please, but generally, we are easily satisfied. Substitutions will be accepted so long as it does not cost us more.

I never saw a Red Lobster restaurant that you could walk to from any normal place of habitation (you could get there on foot if you lived under an overpass). It is one of a dozen corporate eateries that accommodate the masses who have parked their families in the indistinguishable suburban sprawl covering the continent. Civilization does not need sidewalks when you must use a car to get even a loaf of bread and a quart of milk, and it works on cheap oil.

So now we have the tragic consequence of the trade off of the natural environment for life in an automobile. In the quest for more, drillers went boldly where they had never gone before -one mile down to the ocean floor- to poke their diamond bits into the earth’s crust. With two thousand deep-sea oil rigs in the Gulf waters, it was only a matter of time and the law of large numbers for a serious breakdown to occur, and British Petroleum was not prepared. They figured that being forty-eight miles from the shore would give them plenty of time to clean up a spill. Not so. Consider this: one mile either way from the surface of the earth is a place where humans don’t easily operate. When I’m flying, I’m comforted to know that the machine that I have trusted my life to has redundant systems that will keep it in the air in the event of a system failure. Deep Water Horizon was doomed by a faulty blow-out preventer valve and there was no other device to kick in to prevent the ensuing catastrophe. Blame it on weak regulation which in turn is symptomatic of the lack of political will in North America to promote alternate forms of energy production. We are still deluded by the myth of the endless frontier. Do we care that the groundwater in Alberta is being poisoned by the extraction of the tar sands? Not enough it seems to put a halt to that project.

The tide of concern and hand-wringing over the disaster on the Gulf Coast will recede when CNN pulls its cameras from the scene after milking the spectacle for all it is worth in viewership, ratings and advertising revenue. Give it a couple of weeks before the public tires of seeing one more pathetic, bunged-up seabird and turns back to I Love Lucy reruns (life was so much simpler then). The powers that be, political and commercial, prefer to keep the populace high on the real thing: a clean windshield and a full tank of gasoline. Climb into the Vista Cruiser kids and we’ll drive to Disney World where the sea turtles can talk (mind you they only say what they’re told to). The dead ones tell no lies. How long will we remain in suspended animation, inured to the inescapable fact that we are destroying our planet?

Contrast this with the forward looking German Renewable Energy Act which promotes the development of renewable energy through scaled feed-in tariffs which guarantee a higher revenue for producers of renewable energy, from biogas, wind and photovoltaics, than for conventional producers of hydro, nuclear and coal generated electricity. It is a market mechanism that limits bureaucracy and regulatory arbitrage and it lowers the barrier to entry for small producers who have proven to be very innovative in creating new economies  built around renewable energy. Currently 16% of electricity consumption in Germany is sourced from renewable energy, well exceeding the targets initially set out in 1997. They are on track to reach the 30% threshold in less than ten years. According the the architect of this policy initiative, Dr. Hermann Scheer, at this pace Germany could conceivably secure all of its electrical energy needs from renewable sources in twenty years.

5:45 PM GMT  |  Read comments(0)

April 13

Chinese Walls

 

 Listen to Jim Chanos in this interview with Charlie Rose. This talk is 30 minutes long where Chanos, famous investment manager who shorted Enron, gives his reasons why he is negative on the Chinese property market. Hang in, though, for the last 10 minutes where he gives his thoughts on the U.S. credit meltdown and the fraud he says has yet to be punished. It is fascinating, informative and a must see:

http://www.charlierose.com/view/interview/10960

1:15 PM GMT  |  Read comments(0)

March 22

Here’s Looking At You Kid

   The headline on page four of Saturday’s Globe and Mail, Canada’s “national” newspaper, states, “The face of Quebec revealed in niqab debate – English-speaking Canada assails province’s opposition to headwear…”  I appreciate the editor’s cleverness of juxtaposing  a metaphor for Quebecer’s supposed social attitudes with the function of the muslim headress which serves to cache the presentation of self in everyday life, but I think he and the rest of Canada have got it wrong. The move to remove the niqab from civic life in Quebec is not about an intolerance to Islam, but rather is a practical “tweaking” of rules of behaviour on the part of a society that has always concerned itself with the social solidarity of the group. This contrasts with the Anglo-American ideal of the sovereignty of the individual and the attendant protection of personal liberty at all costs. The author of the piece rightly points out that this is not a particularly recent debate in Quebec and it is one that has engaged all Quebecers from every social milieu. The consensus that has arisen is resolute: the hijab–yes, the niqab-no.

The hijab is the headscarf worn by devout muslim women, and it is ubiquitous in Montreal. I have never met anybody who has ever expressed distaste for this symbol of religiosity, unlike in France where anything which deviates from an expression of the secular is verboten. The niqab, however, raises the ire of everyone here, but not, I believe, for the reasons most often cited in the press. Feminists disparage the wearing of the niqab as an example of the subjugation of women, but I can only presume that a muslim woman who puts on the headcover does so willingly. Nor do I buy into the Globe’s conjecture that Quebecers suffer from some post-traumatic disorder caused by a history of intrusion into everyday affairs by Roman Catholic priests, the symptoms of which are an extreme allergic reaction to religion. Practical reasons for condemning the niqab, such as the original complaint which led to the quasi-judicial prohibition - that a language teacher could not see the movement of her student’s lips and therefore could not properly teach her - hold little water: the Globe article points out that there are probably no more than sixteen women in Montreal who wear the niqab, and I, myself, have seen the niqab on only several occasions in the last few years. 

Quebec society’s universal disapproval of the niqab stems from a simple human desire and need to see our neighbour's face. In a culture that has a history of trying to overcome language barriers (English and French), the ability to read emotional response in faces is an important tool. I may not be sure if I adequately communicated with my customer in his language, but I can tell from his facial expression if I am on the right track or not. In this linguistically split society, the need to promote social cohesion has always been apparent and this is generally manifest in Quebec by its tolerant and mostly liberal attitude towards immigrants whose cultural differences are usually overlooked. In societies where there is a concentration on individual rights and liberties, there is a tendency, I would argue, for cultural differences to be magnified as exemplified by the policy of multiculturalism in the ROC (Rest of Canada). If I were an immigrant, which culture would I choose to live in? It’s an open question with many variables to consider, but if I was to look at at least one statistic, I might make up my mind more quickly. The following chart is taken from Statistics Canada from data collected in 2006, showing the incidence of reported crimes due to racial hatred per 100,000 of population. Montreal stands below the national average, and so far below the numbers posted by four major Ontario cities that I would dispute any argument which says that differences in the way the data was compiled could explain the disparity.

 

10:48 AM GMT  |  Read comments(2)