So, the news that I’m reading:

The Eurozone Debt Crisis

The key points:
  1. Everything mostly continues unchanged. Greece is still close to a deal, but not there yet.
  2. The Greek deal will not be enough to make her debt sustainable. Even if there is a 70% haircut.
  3. Germany is still irritated.
  4. France is still telling everyone that they’ll only ratify the new Fiscal Treaty after elections (ie. once Sarkozy has been replaced – that seems to be the general idea…)
  5. Journalists still keep writing misleading headlines like “Greek Debt talks continue as EU signs new treaty”. From what I can tell, that treaty is still unsigned and unratified. The best we can talk about is general agreement to agree.
  6. Portugal is the new Greece.
  7. People (important ones) think that the EU is dysfunctional: the Southern countries (and, for some reason, Ireland) have one code of fiscal discipline (debatable use of the word “discipline”) where the Northern countries have another (less debatable use). No big surprises there.
  8. I found an interesting slide show on CNBC: “What happens if Greece defaults?”. Although I felt that Slide 11 was frankly unnecessary. Link:
The Golden Cross
  • Stocks form “Golden Cross” (CNBC) link: When the 50-day moving average crosses the 200-day moving average – considered a bullish signal. Issue with technical chartists.
The key point:
  1. The Golden Cross is a trend observed by technical chartists: when the 50-day moving average crosses above the 200-day moving average. It’s considered to be a bullish signal, mainly because it means that the average share price (that’s more or less what an index is) over the last 50 days is now higher than the average over the last 200 days. Higher short-term averages over long-term averages sounds like the markets are picking up.
  2. I’m just not sure why everyone is so excited. Generally speaking, technical chartists are dismissed as not having predictive power.
  3. It’s interesting that the markets seems to be recovering, but the technical chartists then take it a step further and say that we can now reasonably expect a bullish market (an 81% chance) because that’s what has happened historically.
  4. Many academics consider this an incorrect assumption for a number of reasons (including a number of quantitative academic studies). But mostly, in my mind, the problem is the oranges and apples story. There is a mismatch between the underlyings: the historic data was generated in a period that had definitively different economic characteristics to today’s. We are not the same fruit anymore.
The Republican Nomination
I’ll admit that I don’t really understand the nomination process. Everyone runs around collecting delegates in various states, all in the lead-up to a convention. Anyway – I read it because I like the word “caucuses” – and I’m interested to see if the Republicans will nominate a candidate with a name like Newt Gingrich. He sounds like a character out of Harry Potter. But I suppose it worked for the Democrats with Obama.
If politics had technical chartists, they would be predicting Newt Gingrich for the win on that basis alone.
Sorry – that was a bit mean.
The US Housing Market Saga
  • Treasury Investigates Freddie Mac Investment (The New York Times via CNBC) link: Freddie Mac is a mortgage giant. Pressure from the Obama administration to forgive some of the principal for mortgage-holders whose principal exceeds the value of the underlying house (election year) – ease refinancing, and participate in debt forgiveness programs. Under investigation for investing in “inverse floaters” in 2010 – effectively giving them exposure to the interest component of mortgages. At the same time, Freddie Mac has barriers in place to prevent refinancing.
  • Foreclosures draw Private Equity as US sells homes (Bloomberg) Link:
The key points:
  1. Firstly, this is hugely interesting. I’m going to have to write a series of posts on the US Housing Market because it’s both fascinating and important on a number of levels (it did, after all, trigger a crisis).
  2. The Freddie Mac (the Federal Home Loan Mortgage Corporation) is a US government-sponsored enterprise that is intended to expand the credit available to home-owners (the topic of a future post).
  3. The Freddie Mac has been under pressure recently from the Obama administration to ease refinancing for mortgage-holders, and participate in debt forgiveness programs. It is, after all, an election year.
  4. The background to this story is that after the housing market crashed, some investors were left with principal amounts to repay that exceeded the value of their properties (to be honest, for many, this was the case before the crash as well). So the Obama administration would like to forgive some of the principal for these home-owners; and also to permit them to refinance the mortgages at the new lower interest rates being pushed by the Treasury. (“Refinancing a mortgage” essentially means that you can take out a new mortgage at the lower rates of interest, and use those proceeds to pay off the old mortgage at the higher rates of interest, with the net effect that you pay less interest).
  5. Freddie Mac has been actively resisting both the refinancing and the principal forgiveness – arguing that it does not make economic sense.
  6. It turns out, however, that Freddie Mac has been investing in “inverse floaters”. Basically, an “inverse floater” is a financial instrument that has higher values when mortgage-holders pay higher rates of interest (ie. when they’re not permitted to refinance).
  7. It all smells a little like vested interest.
The US Credit Rating
The key points:
  1. The issue is health-care costs. As these go up, so the spending pressure increases.
  2. The interesting question being raised is whether a US downgrade will make a difference. After all, the dollar was still a safe haven after its downgrade in August 2011. It actually strengthened.
  3. According to the economist interviewed in the article, it seems that Ratings Agencies have a very short term view. If you project out any healthcare and pension costs, there should be no AAAs at all.
The key points:
  1. The Dodd-Frank is to the Subprime Crisis what Sarbanes-Oxley was to the Enron crisis.
  2. We should all know more about it.
The key points:
  1. The Adult Entertainment industry is a $14 billion industry, despite being under threat from piracy and legislation.
  2. Like the Tobacco industry, most users repeat.
  3. Would you invest in a listed Adult Entertainment conglomerate? Ethically, maybe not. But morals aside? Forgive the pun – but yes, you’d probably want to have a closer look…