Tuesday, March 08, 2011
On may way to Orlando for 14 hours, and there are some things I've seen you might want to read.
Are we on the brink of a huge bull market in equities? It doesn't feel that way, but then there is that pesky 100 year-old data.
The new CEO of BP says the "industry must guard against spills." Actually, even before Deepwater Horizon BP was known to have played it fast and loose. So maybe he's projecting. Or trying to spread the pain. He should hire this firm, if he has not already done so.
Gender diversity on corporate boards: Does investors actually care?
Former German Chancellor Helmut Schmidt thinks we need to investigate the UN's climate change panel.
What does the end of QE2 -- the policy, not the passenger liner -- mean for various asset classes?
Egads, doors are closing faster than I expected. TTYL.
As for that bull market blogpost, it is a terrible thing to confuse correlation with causation. Why in heaven's name would an upward turn in interest rates lead one to believe it would "cause" a bull market?
By the way, there was a bit of a turn in 1929 too.
As far as gender diversity on corporate boards, I imagine that the only investors who care are the professional shareholder activist-types who run CALPERS and other state pension systems. Maybe if they cared less about social issues and more about things like, oh, I don't know, sensible investing, the pension systems wouldn't be facing the problems that they're facing now.
I read the shareholder materials and assess the background of the nominees. In general, the women nominated, especially for the bigger corporations and universally for the California corporations, have diversity, HR and/or marketing backgrounds. They don't get my vote.
I may be a misogynistic pale male bitter-clinger, but if you find me a a set of minority feminist whole-earth green types with gender and equity studies degrees, who believe in global warming, tofu, 9/11 truthism, socialism, and vegetarianism who are producing a mutual fund that returns 20% above the market norm on a regular basis, I’ll be happy to put money in. And I suspect I would have to stand in line behind a bunch of other pale males with money.
Bill Gross seems to think inflation is coming, hard and fast. PIMCO's TRF is rumored to be completely out of Treasuries, which is hard to do considering it's a fixed income investor.
A simplistic thesis on QE1 - QEn!:
With QE1 and QE2 the Fed has been acting as the buyer of last resort for all the Treasuries that Little Timmy has needed to sell to cover the huge deficits that we've been running. The other explanations in the linked article have validity, but miss this point. In the absence of QE1 and QE2, rates would have needed to have been higher to attract other buyers, which would have killed our little recovery.
But Bernanke can't keep buying Treasuries like this forever, can he? If he could, we wouldn't need federal taxes, would we? We could just park IOUs at the Fed to infinity. Note that the USA doesn't have savers like Japan does.
So Bernanke has to try to stop. No QE3, at least not for awhile.
After QE2 ends rates will start going up, I expect. Other treasuries and bonds will fall in value, which would explain why Pimco's Bill Gross has dumped all his Treasuries.
If so, we'll see a big trap for anyone that's invested in long-term debt. Warren Buffet warned of this a couple of years ago.
Rising rates will cause no end of trouble, with lots of second- and third-order knock-on effects. Can you say double-dip?
Expect a weird world with deflation in some things (real estate -- but always based on location, location, location), and inflation in others (necessary commodities).
Further to Georgfelis' point.
Some of the Sarbanes-Oxley Act gave us necessary reforms, especially over auditor independence. But the crisis of 2002 enabled lots of pet projects to get pushed into this legislation. We're suffering over this today.
This included micro-managing the composition of our public company boards by regulatory fiat. The result has often been bigger, more pondererous and politically correct boards. Directors now often have little actual business experience. e.g., women college presidents who satisfy diversity goals.
If you've dealt with corporate boards, the most effective typically have seven to ten members, including the CEO and CFO, one or two big shareholders and a couple of grayhair ex-CEOs. We've gotten far away from that, thanks to Sarbanes-Oxley.
There's lots of other problems with Sarbanes-Oxley that have depressed our start-up venture capital-driven entrepenurial break-outs.
Actually, even before Deepwater Horizon, BP was known to have played it fast and loose.
Indeed. I know someone who retired from BP. In his last job with BP he documented all the repairs that needed to be done, which BP didn't bother to do. Even though BP didn't do the repairs he documented needed done, he was given a promotion. He decided that retirement was a better option than being a sitting duck in a higher-up job, trying to explain why BP didn't do the repairs he had documented needed to be done.
BP billed itself as "Beyond Petroleum." BP was indeed "Beyond Petroleum," as it considered itself beyond following established oil industry safe procedures for drilling operations and for repairing and replacing equipment.
What occurred on the Deepwater Horizon was entirely consistent with BP corporate culture. [NOT Amoco culture].