3 Fund Manager Viewpoints: Doom; Gloom; & Extreme Caution

Recently I read the most disturbing economic description I've seen for a while. It's been a month since I've seen anything this gloomy. It's an 11-20-2009 article in the Business Intelligence-Middle East covering a talk given by Dr Mark Faber, a Swiss fund manager, and was posted by Mike Shedlock (Mish). Mish created a faux discussion using points from the article on Faber and responding to them seperately. It shows where Mish and Faber agree and not. These are two well informed financial mind's. Later, I'll cover another interesting mind to see another point of view, and possibly more. Here is a link to Mish's post. (http://globaleconomicanalysis.blogspot.com/2009/11/marc-faber-sees-war-against-invented.html) .

To give you a flavor of the message in the article on Dr Faber, here is a piece describing his point of view.

Faber has been warning about a collapse of the capitalistic system 'as we know it today,' massive government debt defaults and the impoverishment of large segments of Western society.

In a May interview with CNBC, he said central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries.

From: The Onion

BCS Picture Made Clearer By Pretending Certain Teams Don't Exist

NEW YORK—Faced with ongoing criticism of what many believe is a flawed system, representatives from the Bowl Championship Series assured college football fans Wednesday that the NCAA football title picture becomes much less complicated when one simply pretends certain teams do not exist.

"Yes, Boise State and Utah are undefeated, but if there are no such teams as Boise State and Utah, considering them for a national title shot becomes a nonissue," said David Frohnmayer, chair of the BCS Presidential Oversight Committee, who acknowledged that many BCS voters already used a limited version of the technique. "Furthermore, if the University of Oklahoma is able to beat Texas Tech this Saturday, we are fully prepared to act as if there is no such institution as the University of Oklahoma, since if there were it would confuse the entire picture unnecessarily. And, as always, no matter what happens with the rest of USC's season, we will pretend that any team that comes between them and a BCS bid is imaginary." Concluded Frohnmayer, "The BCS works."

U. A.E. to use special facility in support of banks liquidity needs

Here is an article from a reporter for Bloomberg. This is good for depositors who are worried.

Nov. 29 (Bloomberg) -- The United Arab Emirates’ central bank said it “stands behind” the country’s local and foreign banks, which face losses from Dubai World’s possible default, and offered them access to more money under a new facility.
Banks will be able to use a special facility tied to their current accounts that can be accessed at a cost of 50 basis points above the three-month local benchmark interest rate, the Abu Dhabi-based regulator said in an e-mailed statement today.

“This is a very reassuring move by the central bank to limit the risk of any run on Dubai-based banks,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. It will alleviate any “liquidity concerns by foreign banks about the banking system, mostly those based in Dubai.”
Dubai World, a state-owned holding company struggling with $59 billion of debt and other liabilities, said Nov. 25 it would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The news led to a slump in financial markets around the world and raised prospects of new loan losses for U.A.E. and foreign banks.

The benchmark three-month Emirates interbank offered rate was at 1.919 percent on Nov. 25, the last working day before a religious holiday, according to Bloomberg data. The U.A.E. has 24 local banks and 28 units of foreign lenders operating in the country, including those of Citigroup Inc. and HSBC Holdings Plc.

Dubai Debt Problem is covered by news services

Thanks to Doug Noland for posting these and more on Safe Haven. I am making no conclusion from these. If any readers do, please leave a comment. The size of the problem seems to be hidden. If it is $90 billion or less, then my guess is that it will be contained with not too much destruction to other investors, thanks to Abu Dhabi. The real danger is if the news caused too many people to panic. The economic recovery is balanced on a pin head and it won't take a lot to knock it off. So my, and yours I'm sure, question is... will this be big enough? I'm going to watch for news on the banks in Britain for signs they are unable to take on new stress.


November 27 - Zawya Dow Jones (Andrew Critchlow and Oliver Klaus): "Pressure mounted Friday on oil-rich Abu Dhabi to step in with financial support for Dubai after fears of a debt default by one of its state-owned conglomerates hit stock markets in Asia and Europe. 'Abu Dhabi's support for Dubai might be less generous than the markets have assumed so far. Perhaps Abu Dhabi has forced Dubai to tackle the problem of excessive corporate debt 'in-house' first before extending more financial support,' Swiss lender UBS AG said... Persons close to the Abu Dhabi government told Zawya Dow Jones Friday that the United Arab Emirates as a whole won't allow Dubai to be crushed by the problems of its troubled business conglomerate Dubai World. The company, which has $60 billion of total liabilities, is seeking a debt standstill amid problems at its real estate and investment units Nakheel and Istithmar World. Abu Dhabi helped Dubai in February through the Central Bank of the U.A.E., which bought $10 billion of emergency bonds for the emirate. Abu Dhabi banks majority-owned by the government this week bought another $5 billion of Dubai sovereign debt. The U.A.E. is a federation of seven sheikdoms including Abu Dhabi and Dubai. Abu Dhabi is the senior partner in the grouping and controls 90% of its vast oil reserves, considered to by the world's fifth largest."

Case-Schiller report for Seattle area market

The Seattle-Times on-line is reporting on the release of the Case-Schiller report of housing activity by market.

"Home prices rose in 11 major cities, with the strongest gains in San Francisco and Minneapolis, according to the Case-Shiller report. That's a shift from the summer, when price gains were more widespread. In July, for example, prices were up in 17 cities.
In the Seattle-area market, which includes King, Snohomish and Pierce counties, the Case-Shiller index peaked in May 2007 and has dropped every month since. But in most of the nation prices started falling a year earlier, and some experts say Seattle's turnaround may come later as well.
Home prices fell by the most in September in Las Vegas and Cleveland. Compared with a year earlier, the 20-city index was down 9.4 percent, the smallest year-over-year decline since January 2008."

I agree that Seattle's recovery will be delayed. The area is not immune to global forces even though it was able to withstand the early pressure. Hope for price stability next year. I think we'll get it.

Inflation or Deflation, or both? Right now?

I have been puzzled for a long time over the question of "inflation or deflation" as the next economic condition to challenge our economy in the US. Before I get into this topic, the terms have to be defined. They do not have universally accepted definitions. Monetarist's (the Monetarist school of economics, i.e. Milton Friedman), Keynesian's (the followers of John Maynard Keynes economic theory) and Austrian's (the Austrian school of economics, i.e. Friedrich von Hayek) all use differing definitions. I have gravitated to appreciate the Austrian's definition which Michael Shedlock (Mish's Global Economic Trend Analysis) describes in his article http://globaleconomicanalysis.blogspot.com/2008/12/humpty-dumpty-on-inflation.html . It's several pages long and inquiring minds will find it interesting. From this article I take the definition for inflation as the increase in the money supply along with credit outstanding. Deflation is the opposite, a reduction of the money supply and the amount of credit outstanding. In the case of credit, using the market value of the credit securities is the most accurate measure. The alternative is when I, as owner of the security, am allowed to tell you what I think it is worth for establishing my net worth. (This situation is what is permitted in the case of the former investment banks, AIG and the too-big-to-fail organizations after the FASB changed the rule earlier this year. I digress.)

A Blog! What are you thinking?

Hello reader. Let me describe for you what has inspired me to create this blog. I currently work in the financial service industry, under a license to a particular organization and therefore must remain anonymous. During the past two years, I grew more and more concerned about the economy I was observing from my office. I felt alone in my concerns since there was almost no visible sign of concern from most corners in my industry. The companies with huge financial stakes seemed to be missing in action, making no effort at describing their economic perspective in any manner that I could support. There is now, was then, and always has been the same old story of keeping "a long-term perspective" and ride this out. The firm I work with was in this group. I shared my observations with a friend/colleague who I respect a lot for his business sense and economic awareness. We discovered that we were both of the same mind and were relieved to find this out. We agreed that these times are not ordinary times, for example just another business cycle. We believed we were watching the beginning of an economic crisis developing, a perfect financial storm. We quickly decided to meet more often and discuss the results of our mutually independent research. As a result of this collaboration, when the credit crisis mushroomed in September 2008, I was already somewhat better positioned than most of my peers were. I was also much quicker to offer recommendations to move from investments into cash, at substantial sacrifice to my gross income for most of 2009. This did not help me manage my panic at the daily occurrences in the financial markets. But what could?