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Showing posts from 2010

A Bonded future?

Quick rallies make me a little more skeptical than usual. The bond markets seem to tickle the skeptic in me. In times of doubt, I turn to history for a new perspective through which to view the present moment. As I browsed through the past, I chanced upon this article on the Great Bond Massacre of 1994. As with almost all instances, the 1994 bond market episode is instructive as much for the parallels with the present moment as for the uniqueness. Back then, as today, bond yields were at historic lows and inflation was muted. Wages were subdued and companies were struggling to raise prices. At the same time, idiosyncrasies exist, making the comparison an interesting and instructive exercise.

In 1994, euphoria ran high and the big spread between short and long rates saw speculators loading in on the carry trade (borrow short, invest long). The Fed kept rates low as the Clinton administration contemplated ways of slashing the deficit and Mr. Greenspan worried about inflation. Then Mexi…

Conjectures and reality

I have always loved writing. Investing, it turns out, provides ample opportunities to pander to the writer's urge in me. Apart from serving as a repository of my misses (which have been way more instructive than the hits), the blog has been a storehouse of investment conjectures over time.
I strongly believe the best gauge of one's guessing ability is to periodically note down investment conjectures and test them against reality. This has helped me get better at guessing over time. One can never get everything right all the time (I have had the good fortune of numerous humbling experiences), but net-net if one's guessing right, I think things will be alright over the long run. Below are excerpts from my writings in the past. A check of predictions versus subsequent performance.

The following was written on July 31, 2007 when the S&P 500 index was ~1,500.

Credit spreads have widened sharply over the past few months after bottoming out at historic lows, but the equity ma…

Greece: A 2,500 year parallel

Old habits die hard. So the adage goes. As the Greece bailout drama unfolds, the curious mind began prodding, 'Maybe its in their history?'. The questioning mind always seems to find a way to some provisional answers. Till more questions goad it on to continue the journey. 
5th century BC Greece's economic history, interestingly, provides some thought-worthy parallels to Greece's present-day problems. 
History The discovery of gold and silver mines at Siphnos provided Greece access to easy revenues. As was the flavour of the day, once the Gods took their share the rest of the profits from the mines were distributed among the subjects. The Greek citizens abhorred direct taxes but approved taxing foreigners, taxing property and indirect taxes. The easy prosperity somewhat fuelled imperial ambitions and marked the beginning of a sense of entitlement among the subjects. 
While rulers in Asia managed to impose a direct tax on their subjects, Greece continued living off its boun…

Book review: In the Long Run we are all Dead

In the Long Run we are all Dead: A Macroeconomics murder mystery The US economy faces a deep recession, raging inflation and an impending run on the dollar. President Wedik likes economics as much as a fish likes land. Should he listen to the Keynesians, who favour government intervention or the Monetarists, who favour market fundamentalism?

Unable to decide, he delegates the tough decision to his Chief of Staff, Admiral Harcourt Green. Green laboriously goes through the process of coming up with an economic policy package...only to be mysteriously murdered on D-day. Details of the economic package dies with him...
Something has to be done soon to avoid an economic collapse. What? How?
Who committed the murder? And why?
The murder story could probably have been constructed better but the crux of the book is economics! Recommend it to those looking for a light read on macroeconomics without running the risk of drowning in jargon.
In this delightfully light read, Wolfson & Buranelli, weav…

A Scary Scry?

I feel much like the protagonist in Microsoft's Age of Empires game; at the beginning the only rays of light shine on me and my target at the other corner of the map. I need to get to the target but there's a problem. Everything is dark out there. I don't know the way. The darkness camouflages danger but also opportunities. I don't lose if I don't move, but I don't win either. As I start moving around feeling my way, the blanket of darkness lifts gradually, revealing reality. Sometimes I hit a dead end, forced to backtrack and embark on a new path, but at other times I get lucky and hit jackpot soon. There is a huge premium attached to action and adaptability to a dynamically evolving environment.

Investing is similar in many respects. The ghost of uncertainty lurks in the darkness at every turn in Investorville. But decisions have to be made. Often based on an incomplete, uncertain and biased perception of reality. As in the game, ones experiences are coloure…

The Pig's resurrection

With many banks continuing to dance with death, there’s one bank that is smiling. The Pig’s.
The long period of declining savings rate – or an increase in consumer spending – was one of the reasons fuelling the boom that popped not-so-long ago. As over-indebted consumers look forward to an extended period of deleveraging, the US government hopes that with interest rates hovering close to 0%, consumers will be incentivized to borrow and jumpstart the Great Consumption story! Simultaneously, lending norms are gradually being tightened, stoking fears of rising defaults in the near term. The poor Fed can only encourage, but not compel, banks to lend. As consumers mend their profligate spending ways of the past, it looks difficult in the current environment to see either banks lining up to lend or consumers lining up to borrow.
Then there’s Bernanke-speak about keeping interest rates low for an ‘extended period’. With nominal rates close to 0% and inflation hovering around 2%, negative real …

77th anniversary of the '1933 Bank Holiday'

Today is the 77th anniversary of the global Bank Shuttering that was initiated by President Roosevelt in reaction to the crisis that engulfed the system at that time. I thought today was an appropriate day to look back at events surrounding those dark days of 1933 for parallels today. What I see resonates eerily.


The Great Depression in 1929 triggered a series of events that had unintended global secondary and tertiary consequences. As always, the invisible hands of Haphazard Linkages and Reflexivity ensure that seemingly harmless stimuli set off a chain of rippling consequences that spread out rapidly. While circumstances, market characteristics and regimes shift over time, there is an element of temporal neutrality to man-made economic and financial disasters. Often, I have found practical lessons in economics, markets and human behavior residing in the treasure trove of history. I turn first to similarities between the build-up of events through the 1920s and the 2000s decade. The ta…