Category Archives: About me

About This Space…

I might as well say it here, even though it has been on Twitter while I was on vacation. My macroeconomic goodness is moving to The Davian Letter and Minyanville.  So I guess I know who my two readers were: an investment newsletter and a financial infotainment website. Thanks for all the pageviews, guys.

But I don’t want to give up this space. I enjoy using it and I want to see what else can be done. Maybe I’ll turn it into a photoblogging site. Doubt it, though. I mean, I may be the only person on Twitter that actually admits I have mental diarrhea. There’s no way I’m going to comply with a STHU memo that easily. Plus, I fear my mental diarrhea is just getting worse and no amount of mental Maalox or Phillips Milk of Magnesia is going to help.

So I’ll just have to figure out what to do with the space in the meantime…

So stay tuned.

And thanks for stopping by, San Diego…

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Forgetting Faux Stress Tests, Reclaiming Experience and Possibly Ourselves

Today was some day.  While I’m on vacation, the release of the European bank stress tests was a big enough event for me to at least keep tabs on while I was away…

And then came the leaks.  What was stressed.  What wasn’t stressed.  How much.  How little.  The reaction to the test was a given at that point.

So while I was sitting in the cottage reading “Flow,” I was struck by this sentence on Reclaiming Experience:

There is no way out of this predicament except for an individual to take things in hand personally.  If values and institutions no longer provide as supportive a framework as they once did, each person must use whatever tools are available to carve out a meaningful, enjoyable life.

This is about finding happiness wherever you are, no matter what your predicament.  There was nothing any of us could do about the construct of the stress tests, we just had to choose how to react and figure out how to trade in markets after it was announced.  There’s nothing we can do about unemployment numbers or Fed interest rate decisions or even if we get fired from our jobs.  Ours is simply to choose how we will respond.  Even sitting back and watching reactions is a reaction, after all.

To be honest, finding a sense of contentment (I won’t even go so far as to call it happiness because what is that, anyway?) and balance has been problematic for me over the past three or four years.  I don’t think I’m alone in saying that.  So I’ve been on a quest to reclaim a part of me, or perhaps a better version of me, even if it only existed for a fleeting moment.

So when my wife got this picture…

I was thrilled.  You see, I call this guy “The Dude.”  Do I know if he bowls and has an eye for carpets that pull a room together?  No.  But this is actually a formal photo of the man.  Usually he’s just in swim trunks and sunglasses, sometimes with a boogie board under an arm.  Riding around barefoot and shirtless, he epitomizes contentment.  He could spend his days shoveling poop when he’s not visiting friends and family in the hospital, nursing home or cemetery for all I know.  The point is, when you see him, whatever bad events may be going on in his life don’t get him down.  That was a choice.

We had been trying to get a picture of him for four years now.  This time we got him.  So maybe there’s hope for us. Maybe Paradise isn’t lost.  Maybe we can get back to that place in our minds we once knew and we felt good.

Before the Dark Times.  Before The Deleveraging…

At any rate, I’m choosing to believe I can get back there.

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Filed under About me, government, Markets, Way Forward

In Other News

I know Bernanke spoke today.  Frankly, I don’t care at the moment.  He said what he said, the market reacted the way it reacted to that message.  I’ll get back to that soon enough.

But for now, the biggest going on here in Kure Beach?  We arrived at our favorite cottage (i.e. home away from home)…

We went to a ribbon cutting since our friends took over management of a new property.  A place that has been there since the 1930s…

And the one and only Gyro stand with a walk-up window is now a burger shack.  Beach House Burgers to be exact…

And we met the mayors of both Kure and Carolina Beach, the two towns on the island.

Amazing what a 4 hour drive can do to your perspective.  I enjoy coming here precisely for that purpose.

Well, it’s getting late on the island.  I’m going to do something I haven’t done in ages.  Sack out early.

Good night, folks…

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Going Coastal

I just wanted to take a brief moment and inform all three of my readers (myself included) I am going to be taking a break from the normal financial and macro-related fare you find on this piece of blog.  I’ll be at the beach with my family for the rest of the month, taking a well-deserved and long overdue reprieve.

I’ll still have some posts, but they’ll be a different kind.  Perhaps a bit more personal, maybe even a bit more poignant.  There’s bound to be more photos.  Maybe even a video or two.  I haven’t thought that far ahead.

But it’s good to get away.  The ongoing nightmare known as European interbank lending isn’t going anywhere.  Neither is the debate on FinReg.  Nor the bigger macro backdrop complete with de-leveraging and debates about fiscal stimulus and whether or not central banks drove the macroeconomic bus off the proverbial cliff.  If all of that changed on a dime simply because I wasn’t blogging it, well, I guess I’ll shut up and let everything turn for the better.

But I know it won’t and you know it won’t.  These issues and the debate about how we respond to them will rage on, regardless of what any one of us might think or feel.

So in the meantime I’m going to take the opportunity to listen more attentively to my wife when she asks me to do something (an area I’m sure I have constant room to improve on), to play a bit more with my son and in general, let some of this stuff fade into the background…

And find something else to talk about for a little while…

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Sometimes, You Just Gotta Step Away From the Keyboard

I’d been on the road practically non-stop the last month and a half.  While I had the chance to go to some great places, I’m glad that’s done for now.  I have a real life with my family I’d like to get back to.

But one thing that has been great about being on the road is seeing what’s going on outside your town.  Different sights, sounds and smells can add context and texture to this moment in time we all find ourselves in, which I think is rather transformational.

And why do I say that?  The power of the internet and social media.  I’ve had a tremendous opportunity while I’ve been on the road to meet a dazzling array of people.  If I was on the road for these past several weeks without Twitter or Facebook and other social media/web-based platforms, I wouldn’t have met the number of people I did and that would’ve been a terrible shame.   Because I discovered that a lot of the people I came across are actually better to interact with in real life than they are in my Twitter stream, Facebook feeds, etc.

So when you get the chance to sit down and have a cup of coffee or a drink with someone that you’ve been following or if someone who has been following you wants to do the same, give it some thought.  The imprints in your memory those interactions create are priceless.

To all of the folks who I met over the past few weeks, consider this a global ‘thank-you’ note for helping make my trip a joy and a delight to go on.  To the other folks?  Your turn is next… so consider yourselves warned…

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Psychology and Econoblogging

Edward Harrison wrote a really good missive on the nexus of psychology and the econoblogosphere (Confession: I need more coffee before I try to say that again).  Back then, here’s what he said:

Over the past few months, as the evidence of a potential bottoming has grown stronger, I have moved away from the bearish view toward a more bullish stance. Yet, I do get the distinct impression that many commentators in the blogosphere do not share my renewed optimism. Their view is rather dark. Mind you, I am no out-and-out wild eyed bull. Nevertheless, I do think my increasingly upbeat views stand in contrast to most of what you read in the blogosphere about the economy, the market and the banking industry.

via Through a glass darkly: the economy and confirmation bias in the econoblogosphere | Credit Writedowns.

Which was definitely warranted, for a trade.  My concern then, as it is now, was the possibility of sudden disappearances (and more importantly, reappearances) of the liquidity trap door.  Perhaps it wasn’t as justifiable then as it is now, but each of us have different risk profiles.  That’s just a fact.

And when it comes to the stock market, Kevin Depew offers this reminder from a piece in October of last year (emphasis mine):

It’s always good to remember that the stock market is not the economy. Every day I come into the office to find literally dozens of emails complaining that the market is ignoring the relentlessly bearish news flow. But that doesn’t bother me. What will bother me is when we start getting good news. Markets tend to reach exhaustion on good news, not bad.

via How Much Longer Can This Bear Market Rally Last? | Business & Markets | Minyanville.com.

Mood and sentiment.  They drive so many of our actions and reactions, but I don’t think we are always that well attuned to them.  Numbers are meaningless in an environment devoid of context.  Which makes dealing with the issue of confirmation bias so problematic.  Going back to Edward’s post, here’s what he said and my two cents follows:

Here’s my take.  Humans are naturally pre-conditioned to seek confirmatory evidence once they have made a conclusion.

Indeed.  Never let the facts get in the way of your conclusions.

He also offers up this thought, which I think we can all relate to:

Think about this for a second.  When you have bought a car, a house, quit a job, gotten a divorce, taken on a new job, what have you – did you sit around looking for ways to figure out why those decisions were wrong? Unless, you are a masochist or in need of some serious therapy, the answer is no.

Well, maybe I’m a masochist because I do spend some time doing this.  I don’t think I ever have full confidence in my thought process, partially because I’m willing to accept my own limits, partially because of a number of other things.  I don’t obsess over my decisions, but I do look at them and wonder what I could’ve done differently.

Also, because it seems like these days there don’t seem to be any clear-cut decisions.  They just seem to be choices that offer bad and worse outcomes.  And again, each person’s definition of what’s “bad” and what’s “worse” depends on how we define them individually.

So whose right? And whose wrong?  Sadly we’re not going to know the answers to those questions for years to come.  The best we can do is be willing to challenge ourselves.  To do, as the ancient Greeks used to say, “know thyself.”

But make no mistake.  That’s not an event.

That’s a process…

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Filed under About me, finance, macro, Markets, risk management, Way Forward

Hedging and 2-Way Liquidity Explained, Ice Block Edition

We’ve all seen pictures like this:

Or this:

Even tweets sent out that discuss the possibility of such an event:

The Ice.  Devastating.  Even embarrassing.  But the only thing that is worse?  The Ice Block:

Ah, the Ice Block.  In the bizarrely hilarious and demeaning game that is Icing, there are only two rules:

  • Whenever and wherever you’re presented with an Ice, get down on one knee and chug.  If you refuse you’re banned.
  • You can Ice Block by presenting an Ice of your own in the event you’re presented with an Ice.  Whomever presented the Ice to you now has to get down and chug.

The Ice Block, in simple terms, is a hedge.  A hedge against an undesired outcome.  I mean, even I spent some time in Manhattan this past week lugging around a 24oz bottle as insurance while I was out & about.  Will I do it again?  You bet.  I’m risk averse when it comes to Icings.  I may keep several with me.  Like a building super with a giant belt full of Smirnoffs (I hear the Wild Grape or the Mango are particularly great).

Thinking about hedging makes this piece from Zero Hedge important in my mind, because there are some very serious questions about risk management that are brought up as a result.  I wrote earlier in the week about my views on CRE and CMBS from a fundamental credit and asset valuation perspective, but this piece hits on some added dimensions worth considering with FinReg and the talk about the health of banks in the background.  Let’s start with some stats:

  • US CMBS delinquenices are now at 7.5%, an increase of 48bps according to Moody’s.
  • Number of delinquent loans more than doubled from last year.  There were 1,800 delinquent loans last year, now there are 4,400.  Balances on delinquent loans more than tripled from $15.5bn to $48.8bn.
  • Hotel and multifamily are the worst with delinquency rates above 13% while industrial and office are the best with delinquency rates between 5 and 6%.

Now why is that important?  Because of the news that JPM launched a new CMBS offering this week.  While they sold the AAA tranche rather easily, other pieces won’t be sold so the bank will retain them.  Given the current state of the CRE market, I’d think they’d want to hedge that exposure (Call me crazy.  You’re dying to anyway after I put that ridiculous image in your head of seeing someone walk around with a Smirnoff Ice utility belt).  But here are some key pieces from Cheeky Bastard I want to highlight:

Therefore I ask this question in name of all potential future investors who might want to know who, where and based on which pricing method will sell the protection in form of a CDS on a CMBS structure which bears little resemblance to CMBS structures of the past.

I know of no derivatives desks who are willing to act as a counterparty in such a transaction; so JPMs Structured Products desk might have succumbed to hedging its exposure to non-investment grade tranche by buying in-house CDS from their derivatives trading brethren.

That’s a terrible state for the market to be in.  Others have talked about the issues in the CDS market as is, which need to be addressed, but in the meantime let’s focus on what the bank is going to be able to do here.  The short answer is not much.  This is an individual transaction which will have very little correlation to previous transactions that made up CMBX indices in the past.  Unhedged risk can be painful.  Just like walking around without the ability to Ice Block.

I see some folks at JPM getting ready to take a knee and chug in the future…

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