1. Another Review of Gillian Tett's Book "Fool's Gold"-MASTERS OF DISASTER: I am admittedly being a cheapskate by reading a few books at my local libraries, Barnes & Noble and Borders, both located near my home, and will soon finish reading Ms. Tett's new book "Fool's Gold". This is a link to a recent review of her book and another by Daniel Gross called "Dumb Money". NYT Okay, I agree with the term "Dumb" to describe the financial wizards. If an author said that they were worse than worthless, with a negative value of about 4 trillion, I would not mutter a word of dissent. After reading a great deal about the Masters of Disaster over the past year, I understand how brilliant they think they are, but the reality is unfortunately quite different-unfortunate for mankind, not for the Masters of Disaster.
I am curious about why anyone would allow them to handle or invest real money, give them some play money next time. While richly compensated, they were neither smart nor innovative, though they considered themselves to be the cream of civilization. The products invented by them were used recklessly, even stupidly in many cases. It is hard to justify a financial product like CDO squared & CDO cubed (CDO-Cubed) to a sensible human being, not motivated solely by greed, possessing a modest amount of common sense, and with a level head and deep pocket of experience to draw upon.
While I have always viewed the need for regulations to restrain Wall Street's propensity to blow up the world's financial system, and look forward to reviewing Obama's plans to make that objective less likely to occur in the future, the main objective has to be to prevent these self proclaimed wizards of finance from ever making a single decision again. They are simply not equipped to do it. This assumes-unfortunately-that there are a few adults capable of supervising them, which may be an unjustified assumption after reading the NYT series "The Reckoning". I will keep one thing in mind.
The Masters of Disaster became very wealthy blowing up the world's financial system. I would not hold my breathe waiting for any of them to accept responsibility. Better to blame poor minorities for the economic disaster as a distraction for the brain dead. The Masters have just walked away after detonating their neutron bombs to allow others to clean up the mess and to pay for it.
I am curious about why anyone would allow them to handle or invest real money, give them some play money next time. While richly compensated, they were neither smart nor innovative, though they considered themselves to be the cream of civilization. The products invented by them were used recklessly, even stupidly in many cases. It is hard to justify a financial product like CDO squared & CDO cubed (CDO-Cubed) to a sensible human being, not motivated solely by greed, possessing a modest amount of common sense, and with a level head and deep pocket of experience to draw upon.
While I have always viewed the need for regulations to restrain Wall Street's propensity to blow up the world's financial system, and look forward to reviewing Obama's plans to make that objective less likely to occur in the future, the main objective has to be to prevent these self proclaimed wizards of finance from ever making a single decision again. They are simply not equipped to do it. This assumes-unfortunately-that there are a few adults capable of supervising them, which may be an unjustified assumption after reading the NYT series "The Reckoning". I will keep one thing in mind.
The Masters of Disaster became very wealthy blowing up the world's financial system. I would not hold my breathe waiting for any of them to accept responsibility. Better to blame poor minorities for the economic disaster as a distraction for the brain dead. The Masters have just walked away after detonating their neutron bombs to allow others to clean up the mess and to pay for it.
2. Report Critical of Traditional Asset allocation Models: I read a summary today of a report, contained in the periodical "Pensions and Investments" which was critical of slavish adherence to asset allocation models. Pensions & Investments If anyone is as much a nerd as LB, you can download the entire 74 page report to read. http://www.pionline.com
As far as I am concerned, they are only starting to see the light, babes in the woods so to speak, but at least the "professionals" are taking a baby step in the right direction to a more dynamic asset allocation process. This is a link to my Gateway Post on Dynamic Asset Allocation which contains links to my discussions on that topic. It seems clear that asset allocation models have to be sensitive to what is happening in the real world.
Time for a Paradigm Shift in Asset Allocation Theory: Need Dynamism, Better Assessment of All Forms of Risk, and Due Regard to Volatility Patterns
Time for a Paradigm Shift in Asset Allocation Theory: Need Dynamism, Better Assessment of All Forms of Risk, and Due Regard to Volatility Patterns
See also:
3. S & P Cuts Ratings on 22 Banks and Moody's Has Negative Comments about Bank Subordinated Securities: S & P cut the debt ratings of 22 banks based on its outlook for the sector. Moody's announced that it was reviewing the ratings for subordinated bank securities for possible downgrade. Moody's expects that the ratings of 40% of those securities will be downgraded one or two levels, 25% by 3 or 4 notches, and 10% more than 5.
Terminology can be tricky in this area. Bloomberg.com Although I am not certain, I believe that Moody's is referring to bank equity preferred securities rather than the Trust Preferred. The Trust Preferred, as I use that term, refers to a junior debt obligation, which has a maturity, and allows for liberal deferral of the interest payment which accumulates upon deferral with interest, generally speaking. The equity preferred is not debt but a form of senior equity. Generally speaking, for U.S. banks, it is a security that allows for the elimination of a dividend as long as the common dividend is not paid, with no cumulative feature (just gone!), and has no maturity date. I call those securities non-cumulative perpetual equity preferred stocks.
Several of the bank equity preferred stocks have have been reduced deep into junk during this crisis.
There is a need to adopt a common nomenclature to distinguish equity and trust preferred issues. Possibly, it would be better to just refer to Trust Preferred as "junior debt" and to refrain from using that phrase at all to describe what I call Trust Certificates, which, depending on the certificate, may have junior or senior debt as the underlying security, but no equity preferred securities to my knowledge.
Terminology can be tricky in this area. Bloomberg.com Although I am not certain, I believe that Moody's is referring to bank equity preferred securities rather than the Trust Preferred. The Trust Preferred, as I use that term, refers to a junior debt obligation, which has a maturity, and allows for liberal deferral of the interest payment which accumulates upon deferral with interest, generally speaking. The equity preferred is not debt but a form of senior equity. Generally speaking, for U.S. banks, it is a security that allows for the elimination of a dividend as long as the common dividend is not paid, with no cumulative feature (just gone!), and has no maturity date. I call those securities non-cumulative perpetual equity preferred stocks.
Several of the bank equity preferred stocks have have been reduced deep into junk during this crisis.
There is a need to adopt a common nomenclature to distinguish equity and trust preferred issues. Possibly, it would be better to just refer to Trust Preferred as "junior debt" and to refrain from using that phrase at all to describe what I call Trust Certificates, which, depending on the certificate, may have junior or senior debt as the underlying security, but no equity preferred securities to my knowledge.
I sold my Bank of America floating rate equity preferred stocks soon after it announced its conversion offer. The news today from Moody's seems to be adversely impacting another equity preferred floater, ZBPRA, an issue from Zions.
I intend to hold that one, at least until Zions eliminates the common dividend which it has yet to do. Once the common dividend is eliminated, I would have no legal protection against the elimination of this non-cumulative equity preferred stock dividend. I would just evaluate the problem if and when that occurs and then decide what if anything to do.
I intend to hold that one, at least until Zions eliminates the common dividend which it has yet to do. Once the common dividend is eliminated, I would have no legal protection against the elimination of this non-cumulative equity preferred stock dividend. I would just evaluate the problem if and when that occurs and then decide what if anything to do.
4. SOLD NVS AND BOUGHT BRK/B: RB wanted to tell a story.
Sometimes, I am asked whether I look back at my decisions. My answer is that I prefer to focus on the future, and the here and now to a lesser extent. I do not judge the past decisions based on what happened after I make a decision. I only try to learn from the process that I followed to make the decision and to improve upon it. Many of the wrong turns are easy to identify from the past, looking back with twenty-twenty hindsight. One big one was to pass up 30 year treasury bonds when there were yielding over 14% in the early 1980s, and to instead feed my predisposition to become a Stock Jock.
And, there are always securities that were bought or sold too early, and I have had my share of those where I would have been better off if I had never heard of them. But one of my most significant decisions was a decision not to buy 100 shares of a stock in 1973 or 1974, one of those two years. I had the phone in my hand, even dialed the broker and decided to hang up before the call was answered. That day I was going to buy 100 shares of Berkshire Hathaway at around $16 a share or maybe even less than that as I remember. Now, $1,600 would have just about exhausted my free capital in 1974. But, still, it is not 9 million either. So, that is a pretty good what if story I think. It is best not to carry too much baggage from the past or dwell on decisions made way back when, other than to learn from them.
Sometimes, I am asked whether I look back at my decisions. My answer is that I prefer to focus on the future, and the here and now to a lesser extent. I do not judge the past decisions based on what happened after I make a decision. I only try to learn from the process that I followed to make the decision and to improve upon it. Many of the wrong turns are easy to identify from the past, looking back with twenty-twenty hindsight. One big one was to pass up 30 year treasury bonds when there were yielding over 14% in the early 1980s, and to instead feed my predisposition to become a Stock Jock.
And, there are always securities that were bought or sold too early, and I have had my share of those where I would have been better off if I had never heard of them. But one of my most significant decisions was a decision not to buy 100 shares of a stock in 1973 or 1974, one of those two years. I had the phone in my hand, even dialed the broker and decided to hang up before the call was answered. That day I was going to buy 100 shares of Berkshire Hathaway at around $16 a share or maybe even less than that as I remember. Now, $1,600 would have just about exhausted my free capital in 1974. But, still, it is not 9 million either. So, that is a pretty good what if story I think. It is best not to carry too much baggage from the past or dwell on decisions made way back when, other than to learn from them.
Prior to 2008, I sold out of my baby Berkshire stock, BRK/B, and I bought back just 1 share of those five at $2,861 To help fund that purchase, since I am under severe trading restrictions now, I sold 50 Novartis at $41.86 that I just bought at $36.9. BOUGHT NVS AND SOLD GJO
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| 2009 NVS 50 Shares +$230.94 |
If I feel the urge to buy another share of Baby Berkshire, I will have to sell something else, possibly the SNY shares which have also rallied.
The consumer stable and drug stocks did well today, as the big money shifted out of names more sensitive to an economic recovery. Being a timid Stock Jock, my excursion into stock buying in March was primarily limited to consumer staple stocks and a few drug companies, which have done well since those purchases for the most part.
DISCLAIMER
I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing readers of these posts with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments NOT A RESEARCH SERVICE/Add of PWE Last Week These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post. Everyone is responsible for their own investment decisions, and no one should ever make any decision unless they are willing to accept full personal responsibility for it.
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