no good news

From John Mauldin 2010.01.08

• credit card lending dropped $17 billion last month, the largest drop in history. And this was during Christmas!
• roughly 8% of the working population is getting some form of unemployment assistance
  
• the actual, the real [unemployment] benefits paid (Initial, Continuing, and EUC claims) hit another record of 11.268 million
• one in eight children in this country is living on food stamps

if you look at past recessions, it is not all that unusual (8 out of 11 times) for there to be positive GDP quarters in the midst of an ongoing recession. 

• year-over-year comparisons are looking better, since 2008 was horrific
• the way GDP is figured, a reduction in inventory reduces GDP. ... because inventories not falling any more, it is easier to get a positive GDP
• growth in GDP in the third quarter was attributable to the [federal] stimulus
• reduction in imports is also a positive for GDP

2009 april reading

• Generation Finance talks about lessons in a market bust including the importance of liquidity matching - nice term
  
  
• As an exit strategy in a volatile market, The Dividend Guy's advice "Sell only when you need the cash. My suggestion is to never sell, but if you have to then do so only when you actually need to." Same as "buy and hold" but answers "until when?" Also suggests that returns over the next few years will be around 4%, down from 9% in recent years.
  
  
• If we see inflation levels of 10% or 15% (the same as the 70's), the impact to daily lives will be noticeable.
  
  
• John Hussman observes "policy-makers ... attempt to address this problem by making lenders whole with public funds. This is an ethical abomination, putting the public in the position of absorbing the losses that should properly be borne by those who provided capital to these institutions"
  
  
• Since I'm looking for blogs to read, it is nice to come across a list like FIRE Finance's Top 100 Personal Finance Blogs - Ranked By Traffic
  
  
• In Deliberately Misplaced Blame, Sean W. Malone explains the general misunderstanding regarding corporatism "(what some in the media unfortunately like to call "crony capitalism"), where government colludes with businesses and provides special benefits and tax provisions, and looks the other way on accounting fraud and other crimes."
  
  
• If Marc Faber says We're In For A 5% to 10% Correction, then we likely are. Even if it doesn't happen quite like he predicts, Faber is a pretty interesting guy with a great track record and a caustic wit.
  
  
• I don't always agree with the guy at Free Money Finance, and some posts are better than others. This one on Investing Safeguards seems pretty reasonable.
  
  
• How much life insurance do you need? CashMoneyLife says Only buy term life insurance for income replacement and family protection. Think of life insurance in terms of income replacement. How much income will you need and for how long?
  
  
• Million Dollar Journey suggests Real Return Bonds as a hedge against inflation. Real return bonds pay their distributions adjusted for inflation. For example, iShares ETF, XRB.
  
  
• Another Top 10 financial books list - this one from Canadian Capitalist
  
  
• Why have only one in five opened up "no-brainer" TFSA accounts? asks Wealthy Boomer. Lots of reasons - lack of funds, lack of understanding of rules for distribution and benefits
  
  
• Consumerism Commentary provides Eight Tips for Living Through a Recession. These are pretty basic but sometimes that is enough to get you thinking and taking some action.

bonds and income

We were talking about having a cashflow without having a job. Real estate, pyramid schemes, stock dividends and bonds are the usual topics for consideration.

There has been plenty of talk recently about how the government is going out of its way to protect the bondholders of the failing financials. It is high time I learned more about bonds. John Hussman's piece today addresses the current mess and ends with a note about bonds.

the potential downside in the S&P 500 from these levels could approach 30-40%. That is not a typo, and it is not a possibility that should be ruled out. ... what matters is the long-term stream of deliverable cash flows that investors can actually expect to reach their hands. It's exactly that consideration that makes it clear that we will sink deeper into this crisis until we observe debt restructuring on a large scale. If we don't restructure the debt, the debt will fail, because for many borrowers, the cash flows aren't there, and it is not possible to service the debt on existing terms.

the overall price-volume behavior still appears more consistent with a standard bear market rally punctuated by periodic short-squeezes. ... [In bonds,] it is too early to purchase distressed corporate debt

Buckle up

John Hussman always has some interesting commentary in his weekly posting. This week is no exception...

Buckle up
I suspect that the markets are about to get volatile, possibly to an extent beyond what we observed in October and November. The misguided policy response from Washington has focused almost exclusively on squandering public money and burdening our children with indebtedness in order to defend the bondholders of mismanaged financial institutions.

Unfortunately, he launches right in to a detailed description of how his mutual funds are going to weather the coming storm - tough reading, even if you know about the funds, their investment strategy and years of history. However, there is some good stuff - worth skimming because Hussman is usually right. Worth noting...

• proposal for dealing with financial institutions that are too big to fail
• long-term stock returns prospects
• discussion of US dollar valuation
• indicators of the state of financial markets - VIX and others
• current asset allocations within the Hussman funds including TIPS, precious metals shares, foreign currencies, utility shares.

The day will dawn when it will be very satisfying to say that I read this in Hussman's commentary back in March of oh nine.
.

you are not alone

Good news and bad news. Family and friends are appalled and frustrated about the greed, arrogance, and amoral behavior that is rampant. I'm not alone.

David Einhorn writes about similar concerns.

I care that the SEC and other regulators seem to have stopped enforcing laws against corporate malfeasance. I care that company officials can lie with impunity on public conference calls. And I have been appalled that the government officials overseeing the lending programs that Allied has defrauded are so indifferent and unwilling to act even when presented with clear evidence of abuse. The overall lack of law enforcement is startling.

Keynes, Upside Down

Keynes, Upside Down
Commentary by Richard Benson
February 09, 2009

Every time I pick up a copy of the prestigious financial press, I can't help but read articles pushing Keynes theories. Writers point or wag a finger at the lack of liquidity and the fact that America is in a Keynesian-feared “Liquidity Trap.” Indeed, almost every night, the talking heads on TV recite old quotes from textbooks taken out of context and use them to brainwash the last two generations of American college students with Keynesian notions. We can only marvel at the fact that the theory is actually being sold to us as religious dogma, straight from academics that have only lived through America's good times. continues...

Keynes theories, liquidity, TARP, inflation