The Financial Crisis - A Great Summary

Thanks to Baseline Scenerio here is a very good summary of the causes of the financial crisis by the "La Follette Policy Report" from the University of Wilsconsin Madison. Last year I gave a number of speeches on this topic and it is good to see our lists match up. Interest rates that were kept to long for too long was a primary culprit, as was US overconsumption. These factors are related to what they call the ""capital flow cycle" in which foreign capital floods a country, stimulates as economic boom, encourages financial leverage and risk taking, and eventually culminates in a crash." Of course we are now in the process of trying to reverse much of this, though large US budget deficits will be pulling in excess foreign capital for some time to come. Meanwhile US consumption can no longer be the driver of global growth and "who will take up this role remains the next big question."

Home Sweet Home plus Home Prices

We are back in Connecticut and it truly is good to be home. Facing two months of mail and half-processed emails? Not so good. I am sure I am not the only one that treats September 1st as the New Year. With school age kids it is a natural new beginning with a fresh set of resolutions and priorities. Although I know the ‘to do list’ is a life necessity, last night I actually dreamt I was being strangled by it. Good thing one of the items on it was to learn to meditate to decrease stress. All good. All good.

The headlines over the past few days were filled with “Signs of Life” over New Home Sales, with many calling for the end of the housing crisis. It was also reported on Wednesday that the “latest Standard and Poor’s Case Shiller home price index showed improvement in 18 of the 20 cities tracked.” (NYT) Again, better news, just not good news. From a person who has two properties on the market, one in Canada and one here, from where I sit the market continues to be down and dead. ( granted we are at a higher price point on both properties)

The key to the end of the recession is employment. The pom poms seem to be coming out when the numbers entering in to unemployment from one month to the next stop getting worse, but the key will be for them to turn positive, which still seems a way off. I have read many reports that suggest when you account for those underemployed or those seeking employment yet not part of the ‘unemployed count’ the actual percentage is in the mid to upper teens. Not good. Watch those numbers for true signs of recovery.

Happy end of summer to all….

Nicholas Kristof, Sheryl WuDunn and Goodbye to Canada….

We are saying goodbye to Kelowna this morning, after yet another wonderful summer visit. Since leaving Goldman Sachs in 2002 we have been coming here and it truly has become our family tradition. This discussion around the dinner table last night was whether we were going to set up a full-fledged fruit stand next year or continue with an overturned apple bin. Soon I will take one last walk with my dog Sunnie around the perimeter of the property, throwing apples from the ground for her to chase and stopping at the raspberry bush to pick her a handful. I am blessed indeed.

Be sure to pick up the NYTimes this weekend and watch for the magazine section. I am told it is all about women! This essay by Lisa Belkin features Women Moving Millions and the Womens Funding Network. The main piece, I understand, is about the new book to arrive September 8th by Nickolas Kristof and Sheryl WuDunn. I am honored to know these fabulous people and I cannot wait to read “Half the Sky: Turning Oppression to Opportunity for Women Worldwide.” Be SURE to pick up a copy and right a review for them on Amazon. Change is happening. Positive change towards gender equality. It will be the force that changes the world for the better. I know it.

Just checked - it is on line. Here is is! "Saving the World's Women"

Oh my gosh - The HALF THE SKY contest! What a brilliant idea. BRILLIANT.... submit, submit, submit!!! What an amazing way to gather who is doing what in this space. Brilliant.

Women Matter

Although I LOVE spending the summer in Canada one thing I truly miss is getting the NEW YORK TIMES. Sadly I have yet to find it anywhere in Kelowna. Sadly I missed this piece by Judith Warner on Hillary Clinton called "Hillary Fights a Tide of Trivialization." Sadly I missed this response by Marie Wilson, also published in the NYT. But here they are thanks to being on the distribution list for the White House Project.

I believe this comment from Judith with all my heart. "U.S. security depends on women’s empowerment. Global economic growth depends on women’s participation." It is this belief that fuels the work I do in the world. Quoting Marie Wilson - "Increasingly, our citizenry is realizing that the insights, experiences and perspectives of women do matter — and that we will collectively benefit when women participate and lead alongside their male peers." I am there with ya sister. Hey Marie - How about adding "Women Matter" t-shirts to your White House Project store? I will wear it proudly along with my "VOTE. RUN. LEAD" one....

ALSO - be sure to pick up the NYT on Sunday - I hear that the magazine section will be all about women's empowerment. NOT TO BE MISSED!!!!!

ALSO - as I googled for an image for "Women Matter" I came across this report (pictured above) by that name put out by McKinsey. Check it out...

Sell Mortimer, Sell..

No joke... I woke up this morning thinking I have to buy a market short ETF. I was noodling the post from Saturday and having done a very chunk of financial reading over the past week I was growing more and more negative. For all the reasons listed in the entry below, and then some... I think that equities up 50% from the lows do not make any sense at all. So I did it... I bought SDS ( ultra short S & P ) EFT. I am putting my money where my mouth is....

"Ten Unsolved Problems in the Global Economy"

Naked Capitalism ( I suggest subscribing) forwarded the blog entry below from "The Aleph Blog" on problems that still remain in the global economy. I agree with all of them and have added a few of my own..

"There are many celebrating the recovery as if it were already here. This is a brief post to outline my main remaining concerns for recovery of the global economy.

1) China is overstimulating its economy, and forcing its banks to make bad loans. This pushes up commodity prices, and makes it look like China is growing, but little of the investments made are truly needed by the rest of the global economy.
2) Western European banks have lent too much to Eastern European nations in Euros. The Eastern Europeans can’t afford it, and widespread defaults are a possibility.
3) The average maturity of bonds held by foreign investors in US Treasuries is falling. Runs on currencies happen when countries can no longer roll over their debts easily, which is facilitated by having a lot of debt to refinance at once.
4) On a mark-to-market basis, market values for commercial real estate have fallen dramatically. Neither REIT stocks nor carrying values for loans on the books of banks reflect this yet. Many banks are insolvent at market-clearing prices for commercial real estate.
5) We still have yet to feel the effects from pay-option ARMs resetting and recasting. Most of the pain in residential housing is done, but on the high end, there is still more pain to come, and the pay-option ARMs will reinforce that.
6) The rally in corporate debt and loans was too early and fast. Conditions are not back to normal for creditworthiness. There should be a pullback in corporate credit.
7) We had global overbuilding is cyclical sectors 2002-2007. We overshot the demand for large boats as an example. We overdeveloped energy supplies (that will be short-lived), metals, and other commodities. It will take a while to grow into the extra capacity.
8 ) The US consumer is still over-levered. It will be a while before he can resume his profligate ways, assuming a new frugality does not overcome the US. (Not likely by historical standards.)
9) The Federal Reserve will have a hard time removing their nonstandard policy accommodation.
10) We still have the pensions/retiree healthcare crisis in front of us globally."

My additions...............

1) Number 10 again.... Huge entitlement problem in the future in the US. Huge.

2) Unsustainable budget deficits ( local, state and national) - Yes fiscal stimulus was needed to prevent the economy from entering a black whole but money spent is money that has to be paid back. Further tax revenues are down dramatically. The US has to raise taxes big time but to do that when the economy is in the tank is ill-advised. We are stuck with deficits for some time to come. The risk of course is that the US demands too much of the world's capital to fund itself and the day might well come when others say enough is enough. ( currency and debt crisis - think emerging markets)

3) PIMCO has calling the period we have entered in to the "new normal." The wording highlights that we cannot expect a business as usual economic recovery. We will have to feel the pain and consequences of deleveraging and it will not be pretty. The consumption party is over. As above the US consumer will not recover back to pre-crisis levels. Not in the short term or likely the long term. Our economy will have to adjust. Unemployment will remain high for some time which is the major problem not mentioned above.

I will stop there as this blog entry is growing very long indeed...............

Oprah Magazine, Women and Power

Webster's defines POWER as "the capability of doing or effecting something." By that definition we all have it, though some clearly have more than others. In this month's issue of OPRAH Magazine she features 20 women who Oprah sees as using their power wisely. "The list are remarkable visionaries flexing their muscles in business and finance, politics and justice, science and the arts. Their power isn't based on their money, fame or status in the boardroom—real power is so much more than that." It is a wonderful list and includes one of my personal heros that I had the honor of meeting this year, Lilly Ledbetter. ( pictured right) Lilly fought tirelessly on the issue of equal pay and her passion resulted in the passing of the '"Lilly Ledbetter Fair Pay Act" this spring.

Power. We all have it. We all have to use it to create the change we want to see in the world. I feel this is especially true for women who too often fail to embrace their power. I truly believe that the empowerment of women will be the force that will change our world for the better and set a course for the future that has as it's goal to create a more just and equitable world.

The Markets.....

I expected no internet service where I am currently, Savary Island BC, (pictured left) but yippee I have it! As I digest some of the economic news that I am reading I thought I would link to some of the pieces that I am finding particularly insightful. If you have been reading my blog you will know that I remain very skeptical about the 'recovery'. From a personal investment perspective I have been a bear for some time and I remain that way. For me that has met a low allocation ( though not zero or short) to equities in general which saved me a lot on the way down but has had an opportunity cost on the way up. With equities generally speaking up 50% from the March 9 lows one has to ask, what now? I remain cautious, very cautious, and am tempted to sell out/hedge the exposure we do have to protext from a correction. Why you may ask? Check out some of these links for greater detail.

The Skeptical Market Observer - Good News, Bad News About the Economy.

Hoisington Asset Management - Quarterly Forecast ( thanks to Naked Capitalism for links)

"The combination of an extremely overleveraged economy, ineffectual monetary policy and misdirected fiscal policy initiatives suggests that the U.S. economy faces a long difficult struggle. While depleted inventories and the buildup of pent-up demand may produce intermittent spurts of growth, these brief episodes are not likely to be sustained. In several years, real GDP may be no higher than its current levels. However, since the population will continue to grow, per capita GDP will decline; thus, the standard of living will diminish as unemployment rises. These conditions will produce a deflationary environment similar to the Japanese condition."

Pimco - From Mohamed El-Erian - The Crisis is Morphing Again

"The bottom line is a simple yet powerful one. The global crisis is morphing again. Having already contaminated (in a sequential and cumulative manner) housing, finance and the consumer, it is now threatening the potency and credibility of the economic policymaking apparatus. As far as I can see, there are no first best policy responses that are readily available and easy to implement. Instead, the economy will continue to struggle, navigating both the adverse implications of last year’s financial crisis and the unintended consequences of the experimental policy responses. Given the inevitable socio-political dimensions, this story will play out well beyond the realm of the economy, policymaking and markets."

Pimco - Bill Gross's August Commentary

More to come..........................

Time Away....

As mentioned in my last post I will be travelling for the first two weeks of August so thanks for stopping by to visit my blog and I will be back with lots to say mid August.