Archive for January, 2010

International Debt Defaults

With Greece standing on the lip of a debt default and the resulting bond pressures that will bring, Niall Ferguson gives a ‘big picture’ vision in this interview.

He also points out the likely scenario for world-wide interest rates, as these are a function of the bond markets. With an increasing number of international debt defaults will come a demand for increasing bond rates. With the increasing bond rates comes increasing interest rates.

Niall points this out correctly and also indicates that the window of opportunity for the continued low interest rates that we have seen will only persist for a few more years.

What does this mean for ‘the little guy/gal?” Watch your debt to earnings ratio = too much debt now can spell your doom when the rate of interest you pay for that debt starts to rise.

Further, you may want to examine your debt margins and where possible either lock in for long term at low rate or have a ‘flow lock’ where you will have time to react to the rising interest rate challenge on your floating paper … soon such things as ‘variable’ rates will become the bane of business and commercial real estate.

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Amazingly enough there are still market boosters that are promoting doing MORE investment into high-cost US based stocks.

The market has moved back more than 40% since the lows of March 2009 and there are stock advisers that are making the bald-faced statements that they expect the market to continue to grow at a rate of 4% in general and certain ‘silos’ sectors will be advancing at rates as high as 25%.

The acceptance of this message is a dangerous one from my perspective, the need for ongoing trades and the idea that ‘all boats float’ is also dangerous right now.

The need for effective reporting and ongoing monitor of any investment you are participating in has never been greater, yet the efficacy of company communications has been dropping like never before.

Never before has the ‘public’ investor needed great information ~ yet been so poorly served by both an education system and ‘professional’ investment services.

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Proposal to examine FED books

Ron Paul’s efforts to examine the FED books are continuing, see his interview with Forbes here.

The proposal is very populist, however I suspect that little in the important arena of money policy will be changed even if the FED were to be “audited”.

The important connection between the Congress and the FED will not be upset by this, unless the contents of the ‘books’ are accurately represented to the populace and explained completely.  Should the details of the transactions from the TARP funds completed during the end of the Bush and start of the Obama administrations be openly discussed then a shift in awareness regarding the FED ~ Congress partnership will likely result.

Such an open presentation is not likely as the privacy of the FED and its dealings is vital to the Corporate survival of the ‘quasi-governmental’ body.

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Short Sale Merry-go-round

It has often been said that once a process, story or other investment activity becomes headline news then the activity is dead.

Is this the case with the short sale?

One starts to wonder what is in the mind of the Whitehouse with a process like this:

The concept on the surface ‘seems fair’, my challenge is with the investors and the future of the mortgage marketplace. With a precedent set like this it will not be in anyone’s interest to ever bother with a loan secured by residential real estate. The power of foreclosure will be lost and thus the ‘security’ factor removed increasing the risk.

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Fed Warns of Rate Hikes

The picture that was painted in the 1930’s returns.

With the rate hike(s) that are being put forward by the US Fed and FDIC showing that they are out of money the prospects of a quick recovery or even a silo recovery are rapidly slipping away.

As Bloomberg reports :

and Karl Denninger supports from his article:

There are clear signs that this will have an impact on the financial sector and following that everybody else.

Consider the impact on your industry or sector of the economy of an increase in the cost of borrowing money … that is if you could even find a bank willing to lend since the financial institutions could make more money buying T-Bills on the 0% rate FED money they got and earn loads of profits virtually risk free for these past many months.

For small business this will mean a continuation of a tightening of credit = secure your terms NOW.

For Real Estate, the commercial sector will start to really feel the pinch, any survivors from the S&L mess of the 1980’s can already hear the rhyming notes in this new song. Expect a lot of commercial real estate to start going on FIRE SALE soon, with the potential for great deals coming ~ watch for the critical factor = your own leverage position and keep the yield high with CAP rates in the double digits only. Many owners of Commercial properties financed in the heydays of the mid ‘naughts’ and have property that they cannot refinance already ~ with the next round of tightening coming they will likely look to dump non-performing assets first.

Likewise with Equities, the weak performers will be dumped first. When examining the equities better time can be used in the “discovery” space ~ especially Bio Med, Bio Tech, Commodities (such as copper and uranium) and the many start-ups that will come from the wreckage of so many of the ‘dinosaurs’ which face extinction due to their inability to restructure so much debt that is moving in the world system right now.

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The Tech Horizon

Erick Schonfeld, in his article from seeking alpha,

10 Technologies that Will Rock 2010

With 10 definitive leaps that are ready to move forward in 2010 which will do even more to re-shape the business-to-business systems working in the world today and, even more importantly, the relationships of businesses with their clients.

Gone for certain are the days of ‘the customer is always right’; for now we are entering the world of delivery of a service or product to a client in the way that the client wants it or face expulsion from that client’s circle of influence.

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