“A ship in the harbor is safe – but that is not what ships are for” – John Shedd

PIMCO - Secular Outlook “A Tale of Two Cities”

• Continued robust global growth that, in composition, is less G-3 centric and driven to a greater extent by emerging markets that are in the midst of a development breakout phase
• An upward trend in global inflationary pressures reflecting the spillover of global demand into commodities, gradually rising wage rates in emerging economies, industrial/developing policy responses that place greater emphasis on employment and social spending, and a U.S. monetary policy that may be domestically appropriate but internationally inflationary
• A reversal in the secular bullish run for corporate profits in industrial countries, overall and relative to labor
• Institutional re-alignments in the global financial sector: In industrial countries, this will be driven by regulatory changes and post-crisis balance sheet management; and in emerging economies, it will be driven by the further maturation of capital markets and the evolution of sovereign wealth funds

Haha!

Blackstone’s Annual Report: Link

Via Felix Salmon – Market Movers – Portfolio.com

Federal Reserve Chairman Ben S. Bernanke lunched on
March 11 with a Who’s Who of Wall Street leaders, including JPMorgan
Chase & Co.’s Jamie Dimon, three days before the central bank
rescued Bear Stearns Cos. from bankruptcy.
Other guests included
Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein, Lehman
Brothers Holdings Inc. CEO Richard Fuld, Morgan Stanley President James
Gorman, Citigroup Inc.’s Robert Rubin, Blackstone Group CEO Stephen
Schwarzman and Merrill Lynch & Co. CEO John Thain. Alan Schwartz,
the CEO of Bear Stearns, was not listed among the attendees.

Also on the guest list: Tim Geithner (natch, since he was hosting),
Stone Point Capital LLC Chairman Stephen Friedman, Citadel Investment
Group LLC CEO Kenneth Griffin, American Express Co. CEO Kenneth
Chenault, Duquesne Capital Management LLC CEO Stanley Druckenmiller and
Caxton Associates LLC Chairman Bruce Kovner. Plus two executive vice
presidents at the New York Fed: William Dudley, head of open market
operations, and Terrence Checki, who oversees emerging markets and
international affairs.

Apple Squash « Ultimi Barbarorum

It’s all about margins. In its iPod franchise, Apple has reigned supreme, developing a 100% owned closed system used by millions. The “halo effect” of the iPod drove Mac sales. Over the past 6 months Apple’s EBIT margin has been a rather tasty 20%. But as iPod dies, this margin will tend to go down. The strategic imperative of finding a replacement for the iPod and the importance of the handset as an emerging computing platform means that, as so often in technology, “things must change so they can stay the same”. Clearly, from Apple’s perspective, they needed a beachhead in mobile handsets.

However, handset market EBIT margins are structurally lower than what AAPL shareholders are used to. You can, with the scale that comes as number 2 or 3 in the industry, if you are lucky, earn a 12-13% EBIT margin, exactly where Samsung and Moto were. Nokia’s is about 20% in a good quarter too, but it owns 40-50% of the market. So iPhone, were it to be successful, would be seriously dilutive for many years to come.

Happily for Apple, pure smartphone players tend to have better margins, as their GM base is higher. For instance Taiwanese HTC earns 23% But it has a special (hybrid OEM/ODM if you really want to know) business model where it has avoided having to pay so much in marketing to date, and has a lower R&D cost base in Asia. So not much chance of Apple copying that successfully. Research in Motion, at a whopping 29% EBIT margin, is much more the thing. So Apple cheerfully set out to rip off RIM. RIM’s business model is a beautiful thing: it combines the leverage of a smartphone hardware model with the recurring revenue from subscription to its push email service and software upgrades. It has a lock on the business market, and legions of addicted users prepared to pay whatever it takes to keep getting their fixes, and upgrading to the latest models.

youth is a blunder, middle-age a struggle and old-age a regret.—Benjamin Disraeli


Gold Inverse ETN DGZ
Gold Double inverse ETN DZZ
Gold Double Upside ETN DGP

‘A Huge Amount of Financial Folly’ – WSJ.com

I should mention that people who expect to earn 10% annually from equities during this century—envisioning that 2% of that will come from dividends and 8% from price appreciation—are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about doubledigit returns from equities, explain this math to him—not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.

We paid the IRS tax of $1.2 billion on our PetroChina gain. This sum
paid all costs of the U.S. government—defense, social security, you
name it—for about four hours.

The best anecdote I’ve heard during the current presidential campaign
came from Mitt Romney, who asked his wife, Ann, “When we were young,
did you ever in your wildest dreams think I might be president?” To
which she replied, “Honey, you weren’t in my wildest dreams.”

Origami Mathematics: Via Robert Lang

The Economic Value of Teeth

This Time is Different: A Panoramic View of Eight Centuries of Financial Crises

The Aleph Blog » Blog Archive » Another Dozen Notes on Our Manic-Depressive Credit Markets

Capitalism is good, but Capitalists often abuse it. Short-sighted
capitalists play for short-term advantage, and end up burning up
relationships. Longer-term capitalists play fair, because they not
only want deal one, but deals two, three, four, etc. They play fair
because they will do better in the long run, even if they are
intelligent…...

Economics isn’t everything. Smart businessmen know that a good
reputation is golden. They also know that happy employees are more
productive. Suppliers that get paid on time are more loyal. These are
the benefits of ethical, long-run thinking.

During much of the 2000s, the housing boom was generated by six factors:

1. Interest rates artificially pushed down by the Federal Reserve to try to rotate from high-tech to construction as a leading sector, and so avoid a recession.
2. Closely related, interest rates artificially pushed down by the Federal Reserve to try to stem incipient deflation, and so avoid a depression.
3. Lower spreads than in the past on long-term mortgages out of confidence that the Fed does have and will keep inflation licked.
4. The filling-up of America so that you can no longer build a detached single-family house within half-an-hour’s driving time of the interesting places people want to be, and the consequent rise both in current location premia and expected future location premia.
5. Interest rates artificially pushed down by foreigners seeking political risk insurance—both private (i.e., get your money into a Citigroup account certain to be safe) and public (i.e., keeping the renminbi low and U.S. imports high in order to avoid unemployment in the streets of Shanghai.
6. A speculative housing bubble leading to a crash.

The Organization Kid

Are we heading for a credit crunch?

Penn put to sword Economist.com

The irony of American politics: Hardline Democrats support free movement of labor (immigration) but not free movement of capital (free trade). Hardline Republicans support free movement of capital (free trade) but not free movement of labor (immigration).

A Splendid Exchange: How Trade Shaped the World by Bernstein.

Inflation is like the boor who goes to the hottest restaurant in town without a reservation, barges past the maitre d’ and then grabs a seat, refusing to leave. The restaurant can accommodate the unwelcome customer, hope he’ll eventually depart of his own volition or try to throw him out.

Elementary (AGES 5-10)

• Dick has $1m. Jane has $1m. If Dick and Jane both give their $1m to
  T. Boone, how many millions will he claim he can turn it into?
• Among those earning 10-figure incomes, Mr Soros’s total annual
  compensation is greater than Mr Falcone’s. Mr Falcone’s is greater than
  Mr Griffin’s. Mr Griffin’s is smaller than Mr Soros’s, and Mr Paulson’s
  is greater than Mr Soros’s. In descending order, list the men by the
  respective hotness of their trophy wives.

Intermediate (AGES 11-15)

• Your middle-class parents have a combined household income of
  $115,000. You receive an allowance of $20 per week. If you save all
  your allowance for two years, how much debt will you need to finance a
  hostile takeover of your family? How will you structure the debt?
• At 10 am, a private Gulfstream G650 takes off from New York, headed
  south to the Caribbean island of St Bart’s, traveling at a speed of
  Mach 9. At 11 am, a private Gulfstream G550 takes off from St. Bart’s,
  headed north to New York, traveling at Mach 8.85. Both jets fly at
  50,000 feet on parallel flight paths. When the aircraft pass each other
  somewhere over the Atlantic, how long after seeing the G650 will the
  owner of the G550 kick himself for not going top-of-the-line? (Answer
  should be expressed in nautical miles.)

Advanced (AGES 16-18)

• Mr Smith is being investigated by the SEC for insider trading. Calculate the probability of Mr Smith’s relocation to Dubai.
• If an American hedge-fund manager makes $900 million and is taxed
  at a rate of 15 percent, how many American factory workers making
  $32,500 and being taxed at a rate of 25 percent does that make a sucker
  of? (Show your work.)
• Days before the housing bubble bursts, you short the ABX subprime
  index and, when the ensuing mortgage crisis causes millions of families
  to lose their homes to foreclosure, you realize a $550m profit. Since,
  for you, this is the opposite of a problem, find the opposite of an
  answer.

Wall Street is, as always, little more than a sublimated pirate fleet,
albeit a highly educated, highly compensated one. Many are called, few
are chosen, and fewer still rise through the ranks to run an entire IB
division.

Succeeding in the upper echelons of a Wall Street firm is as much a matter of nuanced power politics as anything else. You need to be good at the actual job, to be sure. But you also need to be good at favor-trading, strategic maneuvering, and convincing the board of directors that you’re good at your job.

In the U.S., with a population of 300 million, the average person uses 25 barrels of oil a year. In Asia, with a population of 3 billion, the average person uses two barrels a year.

Alan Greenspan stoked the dotcom bubble with low interest rates, all the while blowing smoke about productivity and the new Economy.

Barely had that bubble burst than he was stoking the real estate bubble with low interest rates, blowing smoke about financial innovation and new collateralised instruments.

Barely has that bubble burst than Greenspan’s equally inept successor Ben Bernanke has further slashed interest rates, financing rampant, margin-fuelled speculation in commodity futures, creating a crude oil price bubble.

There’s no way the oil price is due to supply and demand fundamentals. Demand did not spike suddenly, nor did supply plunge. It’s a bubble. It will burst. The price of oil will plunge when it does. Commodity traders will queue up behind mortgage lenders.You read it here first.

The age of bubbles. Exciting time to be alive.

“All progress is based upon a universal, innate desire on the part of every organism to live beyond its income.” – Samuel Butler

Alan Greenspan stoked the dotcom bubble with low interest rates, all the while blowing smoke about productivity and the new Economy.

Barely had that bubble burst than he was stoking the real estate bubble with low interest rates, blowing smoke about financial innovation and new collateralised instruments.

Barely has that bubble burst than Greenspan’s equally inept successor Ben Bernanke has further slashed interest rates, financing rampant, margin-fuelled speculation in commodity futures, creating a crude oil price bubble.

There’s no way the oil price is due to supply and demand fundamentals. Demand did not spike suddenly, nor did supply plunge. It’s a bubble. It will burst. The price of oil will plunge when it does. Commodity traders will queue up behind mortgage lenders.You read it here first.

The age of bubbles. Exciting time to be alive.

The rapping of The Economist