{"id":2922,"date":"2010-07-01T09:05:30","date_gmt":"2010-07-01T13:05:30","guid":{"rendered":"http:\/\/www.technologyinvestor.com\/?p=2922"},"modified":"2010-07-01T09:18:34","modified_gmt":"2010-07-01T13:18:34","slug":"the-sun-is-shining-were-healthy-its-a-new-quarter","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=2922","title":{"rendered":"The sun is shining. We’re healthy. It’s a new quarter."},"content":{"rendered":"

I fired two money managers yesterday. They were low on performance, but big on charm. In hindsight, it was wrong of me to hire them. I have an ultra-low pain threshold. I’m a superb Monday morning quarterback. And I’m very critical of managers who buy and hold, especially when the world is going against them. My experience with outside managers has been awful<\/strong> with two exceptions — one money manager I still have and one hedge fund, who sadly “fired” me at the end of last year when he decided to retire and give me my money back.<\/p>\n

The reality is that virtually all money managers are awful. All can perform well during the good times. But these aren’t good times. Worse, some managers are prohibited by their firms from hedging (i.e. short selling). I guess their firms don’t trust them. And some managers don’t use tools\u00a0 which could juice their returns such as writing covered calls and married puts (which I’m gong to learn more about today).<\/p>\n

The reality is that I’m not a very good money manager, either. I have an account I manage. It’s down ever so slightly this year — much better than the two I fired. My little foray into covered calls has been good. For example, BHP has fallen since I bought it. But the money I got from selling the covered has more than covered that paper loss. I like Apple, but even it’s been squirrely in recent weeks. I’m not sure why. Annaly is down but not as much as the dividend it paid recently. Most ultra-high yielders are holding up. Their dividends are another “tool” to manage Mr. Market’s volatility.<\/p>\n

Cash remains king. Of\u00a0 investible funds, I’m over 90% in cash. But that doesn’t include a big swatch of muni bonds, whose interest\u00a0 I regard as my “pension.”<\/p>\n

Bill Gross’s new normal.<\/strong><\/span> Prieur du Plessis writes Investment Postcards from Cape Town<\/em>. This comes from his latest posting:\u00a0 “Bill Gross, co-founder and co-CIO of PIMCO, is to my mind one of the shrewdest money men around. His monthly newsletter, this month entitled \u201cAlphabet Soup\u201d, therefore always makes for thought-provoking reading.”<\/p>\n

Here are the first and last paragraphs:<\/p>\n

\u201cGlobal financial market returns stand at the threshold of mediocrity. With bonds priced not for recession but near depression, most major global bond indices now yield less than 3%, surely a forerunner of returns to come. Stocks, long the volatile vamp of investor optimism, have not yet adjusted to the New Normal of half-size economic growth induced by deleveraging, reregulation, and deglobalization and have low single digit prospects as well. Yet, what has seemed obvious to those of us collectively at PIMCO for several years now is less than standard fare in the trading rooms of institutional money managers. While the phrase \u201cNew Normal\u201d has been welcomed into the lexicon of reporters and commentators alike, the willingness of investors to accept its realities is fog-ridden and whispered, or perhaps softly whistled, much like midnight passersby at a graveyard. Our \u201cNew Normal\u201d two-word duality seems to resonate more on the \u201cnormal\u201d than the \u201cnew\u201d to economists whose last names aren\u2019t Roubini, Reinhart, Rogoff, or Rosenberg. It\u2019s as if \u201cR\u201d has been eliminated from the financial alphabet, and \u201cnew\u201d from investors\u2019 dictionaries worldwide.<\/p>\n

\u201cConsumption when brought forward must be financed, and that financing is a two-way bargain between borrower and creditor. When debt levels become too high, lenders balk and even lenders of last resort \u2013 the sovereigns, the central banks, the supranational agencies \u2013 approach limits beyond which private enterprise\u2019s productivity itself is threatened. We have arrived at a New Normal where, despite the introduction of 3 billion new consumers over the past several decades in \u201cChindia\u201d and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it. Slow growth in the developed world, insufficiently high levels of consumption in the emerging world, and seemingly inexplicable low total returns on investment portfolios \u2013 bonds and stocks \u2013 lie ahead. Stop whispering (and start shouting) the words \u201cNew Normal\u201d or perhaps begin to pronounce your last name with an RRRRRRRRRRRR. Our global economy, our use of debt, and our financial markets have changed \u2013 not our alphabet or dictionary.\u201d<\/p>\n

Bill also explained his thinking\u00a0 in this\u00a0 CNBC interview:<\/p>\n

<\/embed><\/object><\/p>\n

The financial regulation bill is probably a disaster. <\/strong>You may wish to contact your senators. This “opinion<\/em>” piece in today’s Wall Street Journal<\/em> is disturbing:<\/span>
\n<\/strong><\/span><\/p>\n

The Dodd-Frank Financial Fiasco<\/strong>
\nThe bill all but guarantees bailouts as far as the eye can see, while failing to address real problems like Fan and Fred and our outdated bankruptcy code.<\/p>\n

By JOHN B. TAYLOR<\/p>\n

The sheer complexity of the 2,319-page Dodd-Frank financial reform bill is certainly a threat to future economic growth. But if you sift through the many sections and subsections, you find much more than complexity to worry about.<\/p>\n

The main problem with the bill is that it is based on a misdiagnosis of the causes of the financial crisis, which is not surprising since the bill was rolled out before the congressionally mandated Financial Crisis Inquiry Commission finished its diagnosis.<\/p>\n

The biggest misdiagnosis is the presumption that the government did not have enough power to avoid the crisis. But the Federal Reserve had the power to avoid the monetary excesses that accelerated the housing boom that went bust in 2007. The New York Fed had the power to stop Citigroup’s questionable lending and trading decisions and, with hundreds of regulators on the premises of such large banks, should have had the information to do so. The Securities and Exchange Commission (SEC) could have insisted on reasonable liquidity rules to prevent investment banks from relying so much on short-term borrowing through repurchase agreements to fund long-term investments. And the Treasury working with the Fed had the power to intervene with troubled financial firms, and in fact used this power in a highly discretionary way to create an on-again off-again bailout policy that spooked the markets and led to the panic in the fall of 2008.<\/p>\n

But instead of trying to make implementation of existing government regulations more effective, the bill vastly increases the power of government in ways that are unrelated to the recent crisis and may even encourage future crises.<\/p>\n

The bill creates a new resolution, or “orderly liquidation,” authority in which the Federal Deposit Insurance Corporation (FDIC) can intervene between any complex financial institution and its creditors in any way it wants to. Effectively the bill institutionalizes the harmful bailout process by giving the government more discretionary power to intervene. The FDIC does not have the capability to take over large, complex financial institutions without causing disruption, so such firms and their creditors are likely to be bailed out again. The problem of “too big to fail” remains, and any cozy relationship between certain large financial institutions and the government that existed before the crisis will continue.<\/p>\n

Another false remedy is a new Bureau of Consumer Financial Protection housed at, and financed by, the Fed. The new bureau will write rules for every type of financial service, most of which (such as payday loans) have no conceivable connection with the crisis. Yet another false remedy is a new Office of Financial Research at the Treasury that will look into systemic risk. The unrealistic hope here is that it will somehow do a better job than the Fed, which already had that responsibility leading up to the crisis.<\/p>\n

The bill does reduce the power of the Fed to intervene to bail out the creditors of a single financial institution, as the Fed did in the case of Bear Stearns and AIG. But at the same time it authorizes bailouts if the financial institution is a “participant in any program or facility with broad-based eligibility” that the Fed has established for emergency purposes, which hardly is a constraint on bailouts in an interconnected financial system. It also gives complete discretion to the Fed and the Treasury to determine “the policies and procedures governing emergency lending.”<\/p>\n

Yet another false remedy is a new regulation for nonfinancial firms that use financial instruments to reduce risks of interest-rate or exchange-rate volatility. The bill gives the Commodity Futures Trading Corporation (CFTC) authority to place margin requirements, which call for higher collateral on risk-reducing instruments, on such firms even though they had nothing to do with the crisis; their customers and employees will be penalized by the increased costs. And while the bill sensibly merges the Office of Thrift Supervision into the Office of the Comptroller of the Currency, it creates more regulatory ambiguity by assigning both the SEC and the CFTC the new job of regulating over-the-counter derivatives with imprecise guidance on who does what.<\/p>\n

Other innocent bystanders hit by the legislation are the stockholders of firms that had nothing to do with the crisis. The bill gives the SEC the explicit authority to impose “proxy access” provisions empowering shareholders to run their own candidates for boards. Research by David Larcker of Stanford Business School shows that stock prices react negatively to proxy access regulations.<\/p>\n

Some claim that corporate governance problems were a cause of the crisis because corporate boards of large complex banks did not prevent risky lending practices. But those who make this argument did not do so before the crisis, and they do not mention that hundreds of government regulators at these banks on a daily basis also failed to deal with the problem.<\/p>\n

By far the most significant error of omission in the bill is the failure to reform Fannie Mae and Freddie Mac, the government sponsored enterprises that encouraged the origination of risky mortgages in the first place by purchasing them with the support of many in Congress. Some excuse this omission by saying that it can be handled later. But the purpose of “comprehensive reform” is to balance competing political interests and reach compromise; that will be much harder to do if the Frank-Dodd bill becomes law. For example, many of the same activists who supported proxy-access provisions are those that also favor the Fannie and Freddie subsidies.<\/p>\n

Another serious error of omission is reform of the bankruptcy code to allow large complex financial firms to go through a predictable, rules-based Chapter 11 process without financial disruption and without bailouts\u2014a far better alternative than the highly discretionary resolution authority in the bill. Without this orderly bankruptcy alternative, the too-big-to-fail problem will not go away. At least Section 216 of the bill calls for a study of the matter, but this is obviously no substitute for action.<\/p>\n

The continuing debate over the Dodd-Frank bill in the days since it emerged from conference is good news. People may be waking up to the fact that the bill does not do what its supporters claim. It does not prevent future financial crises. Rather, it makes them more likely and in the meantime impedes economic growth.<\/p>\n

Mr. Taylor, a professor of economics at Stanford and a senior fellow at the Hoover Institution, is the author of “Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis” (Hoover Press, 2009).<\/em><\/p>\n

Playing around with my new iPad, which works. <\/strong><\/span>Conclusions: If you have a fast laptop, you don’t need an iPad. If you don’t like your laptop– e.g. it’s too heavy to schlep around — get yourself the iPad. But recognize: the iPad is quirky. In fact, ultra-quirky — often to the point of being downright annoying. Some issues:<\/p>\n

+ Getting the iPad to work on a closed, password-protected network is a pain. You simply can’t get it to connect to some protected networks, even if you know the password. And it drops connections regularly and then may or may not reconnect.\u00a0 Which is a pain. Sometimes it says it’s connected to the network you chose, but it isn’t. Actually, it basically useless on closed networks. Apple doesn’t seem to like Linksys.<\/p>\n

+ Some of the iPad apps are gorgeous. For example, Bloomberg is gorgeous. The Wall Street Journal doesn’t work well. Fortunately, I can still use Safari to browse to ww.wsj.com or www.nytimes.com. Some aiPad apps\u00a0 re decidedly mediocre. Some don’t work at all. Apple tests them but only against its own rules of taste and commerce. Before you spend money on an app, read the reviews. I’ve deleted a bunch, mostly free ones.<\/p>\n

+ There’s a lot of software to read books. You won’t be short of reading on your next trip. There’s Kindle, Barnes & Noble, iBooks and Borders. You can also run these on your laptop and they’ll look and work pretty much the same on your laptop.<\/p>\n

+ The software to watch movies is limited. If you “buy” your movie from Apple, you’re actually renting it for 24 hours. If you have a DVD and copy it into your iTunes, you can watch it. If someone sent you the movie in a form Apple dislikes — which is most forms — you’re out of luck. Fortunately, you can always watch the movie on your PC or laptop using VLC Media Player<\/strong><\/a>, which is free, flawless and wonderful.<\/p>\n

+ Battery life is not what it’s cracked up to be on the iPad. Allegedly it will last 25 hours. That hasn’t been my experience. Worse, when you’re downloading apps, photos, music and movies through iTunes on your PC, it’s not charging the battery on your iPad. I don’t know why.<\/p>\n

+ Above all, iPad ‘s world is quirky. For example, you can only open one program at a time. You can’t scissors and paste stuff into an email. In fact, there’s no way to scissors and paste anything.<\/p>\n

+ Finally there’s the issue of how you hold an iPad. It’s not light. You have to hold it or lean it against something. I can read a laptop much easier in bed than I can the iPad.<\/p>\n

To repeat my original conclusion,\u00a0 the iPad is useful for content consumption — read a book, watch a movie, show your kids’ pictures to the grandparents, skim the day’s news. But for more? I couldn’t write this column on my iPad. Nor would I try. As I play with my iPad, I come to increasingly appreciate the iPod Touch, essentially a pocket-sized iPad. I listen to music and NPR podcasts on the Touch. It’s great.<\/p>\n

Comment on the days of our lives.<\/strong><\/span><\/p>\n

l\"\"<\/a><\/p>\n

\"\"<\/a><\/p>\n

\"\"<\/a><\/strong><\/div>\n

Harry Newton, who cannot predict the future, but can get a handle on it IF <\/strong>he actively manages his money better. Most importantly, don’t get in very far (position size is key) and get out fast. Especially on things you don’t control.
\n<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

I fired two money managers yesterday. They were low on performance, but big on charm. In hindsight, it was wrong of me to hire them. I have an ultra-low pain threshold. I’m a superb Monday morning quarterback. And I’m very critical of managers who buy and hold, especially when the world is going against them. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2922","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/2922","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2922"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/2922\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2922"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2922"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2922"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}