Monday, January 28, 2008

Are Equities Cheap?

I feel so blessed that I have so many really smart, really great friends. In the hope that one day I might understand the equity markets so I can more confidently invest in them, I called a handful of friends that manage equity funds to talk to them about whether or not equities are cheap? First of all, they all hate that question. Since all equity managers are long (own stocks) they always believe they hold companies that have tremendous value that is yet to be realized. After I apologized for asking them that question, I asked it in a different way. “Today, are you finding that there is much more value to be realized in the companies that you own? How long has it been since you have found so much value at current prices? The short answer is, not for a long time. Three very smart, very successful managers say that they cannot believe how cheap they are buying their companies. “Even in a recession scenario? Even with substantial revisions to earnings” I ask? They still respond confidently. I like that. Honestly I am still very afraid of buying indexes right here, but the time might well be right to give money to very good managers in search of that ever elusive alpha.

Friday, January 25, 2008

Quickfixonomics - another Huffingtonpost!

How could I not respond to the latest announcement given I was once a mortgage backed bond trader??? Hope you enjoy the read.

I Agree With Soros - The Billionaire Speaks

For a a thoughtful explanation of the current situation you have to read the thoughtful piece by George Soros.

Here is the link

A few excerpts from that piece worth highlighting

"The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.
However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years."

Please see the whole piece for further elaboration....

Let's say it again....

"The END of the CREDIT EXPANSION on the dollar as the International Reserve Currency."

This is where the future differs from the past. The credit unwind will not be pretty, and has already resulted in realized losses at major financial institutions in excess of $100 billion. This is far from over. Though fed rate cuts help, the problem still remains. Many. Many. Many institutions have ugly balance sheets and the need to bring in capital to fix them is massive. Again, we have only seen the beginning of this. Quick fixes will help but not solve anything. This unwind will have to run it's course. Talk will soon shift dramatically to the monoline insurers - which I understand to be the folks that effectively wrap guarantees around all sorts of assets. They started out in the muni business, a good business, but got pulled in to wrapping ever other asset that ended up being securitized thanks to fancy financial engineering.

The problem is so complex that FED rate cuts and a stimulus package is only a a baby step towards the sophisticated thinking that needs to happen to help to get us out of this mess. Let's hope that the powers that be pull in the most brilliant minds in the financial world to help come up with long term, sustainable solutions.

Thursday, January 24, 2008

What a Difference a Day Makes - Huffpost Part Three

What an amazing honor it has been to have three opeds appear on the front page business section of the Huffingtonpost in just one week! Please see the latest one via the link -

When I said at the beginning of the year I was committed to writing, little did I realize it would be as an oped writer musing on our governments fiscal and monetary policies. Big thanks to Deborah Sieglel ( to helping me unleash my voice. I am now PursePundit and loving it.

Needless to say it has been a wild week to be talking about the markets. I believe it only came to light today that a big reason for the overseas sell-off was because of some rogue trader at SOCGEN. Love that headline " Random Rogue Trader Causes leads to Unprecedented Move by the Fed." I could not have made that one up if I tried.

So what have we learned this past week? For one, the FED is clearly going step in if the markets start going down again. With fed funds at 3.5% they still have some bullets in the gun. The problem with that is obviously inflation, and oh, yes, the US dollar. Look at the price action of GOLD this week to validate both those concerns. What about US stocks? Are they cheap? Well I have called some of the smartest equity folks I know, and they say yes. Even in a recession scenerio I ask? They still say yes. International equities? I think the answer is, selectively. What do I think is going to happen in the next little bit? I think the stock market in general could go fine as long as we don't have any major negative news. With the FED put on the market, and possibly great value to be found, why not? I worry about the monoline insurers being the next big problem, and the unfolding credit derivative mess. Watch for Fannie Mae and Freddie Mac to have issues as well.

Thanks for reading!

Tuesday, January 22, 2008

Ben Bernanke Saves The Day, But Will He Save Tomorrow?

see my new post at Huffington Post at

Ben Bernanke Saved Today , But Will He Save Tomorrow? Jacki Zehner

With an extraordinary move, the Federal Reserve stepped in to catch the tumbling US equity markets. A shocking 75 basic point rate cut in advance of the market open, replaced the shallow words of the Bush administration with bold and aggressive action. Where Hank Paulson failed, Ben Bernanke succeeded. But now the question is, will it last?

Clearly the folks in Washington did not get much sleep last night, choosing instead to try to figure out how to prevent a Wall Street bloodbath. One only has to wonder how long it took them to figure out that the ONLY WAY to do that was to call in The Federal Reserve. “This was the biggest rate cut by the Fed since October 1984. And it was the first cut between regularly scheduled meetings since a half-point cut on the day the market reopened following the September 2001 terrorist attacks” reported CNN money.
Of course we should be calmed by the fact that the Fed was ready to respond quickly, but should we not also be frightened at how worried they must have been do to it like this?

Thankfully the market did what it was told and rallied back from what was surely going to be a significant drop of approximately 450 points at the open. (CNNMoney). The DOW closed down 128 points (1.06%), which according to my trader handbook, is not a great result and still cause for concern. Tonight’s performance by the overseas market will offer key insights to the overall psyche of the investing world. This time around Ben Bernanke has put himself on the stage, and the markets will once again cast their votes. Buy orders mean thank you and all is well with the world, while sell orders mean thanks for holding the markets up for another day but I am out of here.

What has really changed since last night when the global markets plummeted? (Germany down 7.2%, India down 7.4%, Britain down 5.5%) Do Jane and Joe Jones suddenly get their house back? Does Countrywide go back to becoming one of the largest mortgage lenders? Are people going to run out and buy that time share in Florida? Can Merrill Lynch just forget about the $10 billion write-off? The party is still over.

On the positive side the Fed is pretty strong and the markets do tend to think in the shorter term. Many are calling for another fed move next week, after a regularly scheduled meeting which could calm the markets further. Additionally many argue that global equities are a lot cheaper then they were just a few weeks ago and there is plenty of value to be found in the longer term.

The question then becomes what about the long term? Will lowering the fed funds rate cure what ails the American Economy? And what about inflation? This aggressive Fed move will mostly give the administration some time to answer those questions, but then again, maybe not.

Oh My! Oh My! They shot their bullet!

A fed rate cut of 75 bps before the market even opened!!!!!! Was it not just last week that the fed, the gov't, the treasury secretary were telling us that we are on a solid foundation with no real reason to worry. My heavens. Do I think they needed to respond to what was going on overseas, yes, but I have to imagine that this kind of aggressive action is almost unprecedented. Of course the market is going to say thanks, but I think it is another short term 'boost in the arm" that the market reacted so negtively to in the first place. To say they, we, are in between a rock and a hard place is an understatement. We all need to take a keep breath and think about this. Why were the markets trading off in the first place? Those reasons have not gone away. How does a fed rate cut really, really solve the problem? There only had one type of gun at their disposal, and argueably one bullet, and they just shot it.

The US markets should trade off today to catch up with the overseas market. The action by the fed, and what is likely to be some coordinated support of some other behind the scenes action to hold up the equity market, is still likely to be a short term fix. Could this be a buying opportunity, yes it could, but I would argue it would be a short term one. As an ex trader I am so tempted to get in the game, but I still fundamentally believe the US economy is in trouble. I am not an equity analyst, an equity trader, nor an investment guru. My claim to fame is that I generally have a lot of common sense and I talk to a lot of people that are very, very smart. I did a bit of a survey and my 'smart' friends still feel that if the market rallies back, this will be a dead cat bounce.

Spots of value? Sure, but not sure where. ML? ( yes and over Citi) Bond Insurers? GE? GOLD? Strong tech cos? maybe... consumer discretionary, homebuilders, non-transparent financials where you don't know what the heck they are doing? I don't think so. Japan? I thought so last year so why not now. India? no way. China? no way.... the BRICS have come so so so so far, and I think they should give a lot of that back. ( see comment from yesterday)

Today, yesterday, the past week or so is truly historic and complicated. Looking back on history is not going to help us that much. So much has changed. So much.

A few of the highlights

- US Consumer had never been so leveraged ( i think)

- a prolonged period of low interest rates (domestically and globally), combined with strong global growth

- a significant credit crunch, the effects of which are just beginning to unfold

- record write-downs at US financial institutions

- lack of confidence in both bond insurers and rating agencies

- China and India becoming global powerhouses

- the power of Global sovereign funds

- housing prices that were at historic highs, and falling at historic velocity. ( plus the ability to borrow easily against that value - Homes as checking accounts)

- the emergence over the past few years of financial instruments that are impossible to understand. ( HOUSE of CARDS)

- proliferation of hedge funds and other trading and investment businesses that are only in the business to make money off money

-agricultural price inflation

-commodity price inflation

- a feeling that the gov't really did not do it's job in overseeing the whole thing ( "lack of adult supervision")

Has any of that gone away with a 75 bp rate cut?

Now of course there are a lot of positives, but that is not what the market is thinking about right now. For the market to stage a sustainable rally it has to believe that a lot of these problems will be solved by a fed rate cut and other, short term fixes. Sorry, I just do not see it.

Monday, January 21, 2008

OH MY!!!! More on the Markets

I spent last night working on a follow-on piece for the Huffington Post which unfortunately has not yet been posted! I am keeping my fingers crossed because Friday, this weekend, tomorrow, are going to go down in financial history. For quite a while now, almost two years, I have been waiting for a significant market correction. The main reason for that is because I have believed for some time that the US consumer was overextended and in trouble. Money was too cheap for too long, and that combined with our consumerist culture was a very, very bad combination. Deadly combination. I also spent most of my working like as a mortgage backed bond trader and had a handle on how that market was evolving. Credit was too readily available to almost everyone, and way too much junk found it's way in to the capital markets with a stamp of approval from the rating agencies. Now I wish I could tell you that I turned this insight in to brilliant money making strategies, but really it just meant that I sat out of the equity market. I spent time searching for great managers that I thought would make us money no matter what the environment. ( ya right)

On to todays piece. What I called for in that piece was exactly what happened today in the global markets. The US market failure to stage a comback on Friday in response to Paulson's comments was a very bad sign. Very bad. If you read the first, my first, HUFFPO piece with my writing partner Deborah Siegel on Friday, you know that we did not think very highly of the Bush Plan. What I feared is that the more time the world had to digest it, the more frightening it would be perceived. The superficial solution was out of touch with economic reality. While we were sleeping the global markets got hammered. Hammered. I guess they did not think too highly of the remarks either. In the piece I likened Mr. Paulson's performance to that of a singer on American Idol. He gave his performance, and we were waiting for America to cast their vote by buying or selling shares. Now we have to wait and see what will happen tonight.... Even if the overseas markets recover, which I doubt, the US should still open a lot lower. There is a possbility that the overseas markets do a lot worse than the US in this sell-off, as they have been up a lot more then the US markets over the past few years. They have exploded thanks to the US consumer, so why should they not impode if the US consumer is going back in to the cave? The arguement is of course that thanks to the US consumer ( in good part) all these domestic economies have taken off and now are strong enough to stand on their own two feet. Sorry, don't really buy it. The US still drives Global GDP. That might we true if the US was only to experience a mild recession, but not a more significant one. Regardless, markets do tend to overreact, and that is what I am expecting this time. Will it all happen tomorrow? Probably not. My guess ( and my husbands ) is that the FED is going to get busy and cut rates. The market will breath another sigh of relief, and might just be fine, temporarily. Longer term the problems have not gone away and fed actions might prove very inflationary. Further short term fixes are not going to really help what really ails America. For more on that, stay tuned....

as of right now - so far this year!

Japan NIKKEI - down 13%
Hang Seng - down 14%
Brazil - down 16%
DAX - down 16%
S & P - 9.7% 9 ( but did not trade today) - would have to drop 6% to keep in line with international market performance

2 yr treasury 2.17%

A note on writing about Hank Paulson. I had the honor to work at Goldman Sachs and for Hank. Obviously he is a very, very smart man, but unfortunately he has joined an administration that I feel has made some big, big mistakes, particularly on the economic front. He has a tough road ahead of him to get this economy back on track and I really do wish him the best in doing it.

Saturday, January 19, 2008

"Mania's, Panics and Crashes." - More on the Bush Plan

This is going to be a very interesting year! Those who know me know I have been talking about America's credit addiction for a long, long time. A particularly good summary of the series of events leading to our current situation can be found in todays WSJ. ( page a12 - The Panic Stage) You will notice that after a long discussion of the problem, there is a very short paragraph on the possible solutions. Follow the page down to the piece on "Feel-Good Economics" and you will read that the stimulus package that the Bush administration is very, very, very unlikely to make a difference. Let me quote "In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increases personal saving doesn't help the economy because the federal budget deficit, which can be though of as negative saving, offsets all of it in the aggregate." Oops.... I guess someone in the whitehouse did not do a good enough job on their homework. All this is yet another example of the Bush strategy of "FEEL GOOD ECONOMICS", which got us in this mess in the first place.

My Debut on the - "The Confidence Man"

As many of you know one of my goals this year was not only to write, but to get published. Today I was working with my writing coach/collaborator, Deborah Siegel, ( ) and we took a break to watch Paulson tell America about the latest government response to what is going on in our economy. I felt it was time to take a stand and share my thinking. In collaboration with the brilliant and insightful Deborah, we wrote the attached. I hope you will take a moment to read the post and I would welcome your response. Please feel free to pass it on!!

Monday, January 14, 2008

The Markets 2008 - Yes, Inflation

How can anyone say that there is little to no inflation right now? Do they pay their own bills ( particularly the energy bill)? Go grocery shopping? Put gas in thier car? Do they buy something, almost anything? I am actually frightened to compare my 2006 cost of living to that of 2007, and not because I have really changed my lifestyle. I am scared because if I do, it might cause be to short the heck out of the US dollar, the equity markets, put on a curve steepening trade, and buy even more gold futures! I have successfully avoided 'trading' over the past few years, but the markets seem to be calling out to me. If a review of your bills does not convince you there is inflation, then just have a look at how commodity prices in general have moved the past year, particularly the agricultural commodites. Wheat, corn, sugar.... up and up alot. Gold? Up and up alot. Oil? Up and up alot. A few folks have started to write about stagflation, but sadly, I think you are going to hear a lot more about it.

For those readers of like gender who do not tend to read the financials, think about how much you are willing to pay ( would pay if you bought one ) for a handbag these days? ( a discussion I had with a dear friend of mine recently.) It was not that long ago that I thought that $250 was a huge amount for a bag... now, forget it. The same store in my town that used to sell bags that averaged around that amount, now average at least 30% higher. At least. Sure a little of it might be moving to more upscale brands, but I think more of it has been the combination of rising material prices, lower US dollar, AND pushing the margins. As further evidence I looked through some old magazines and just reviewed the prices for products offered. If you were to 'add up' the cost of the average outfit offered to you through LUCKY magazine today, compared to two years ago, trust me, the prices are much higher that the reported inflation numbers are telling us. Much higher.

There is inflation, and we may already be in a recession. EEK... I am really, really happy I am not a FED official right now. What do I think they will do? Continue to cut rates and take the risk on the inflation side. With the credit markets in such trouble, and the banking system on sandy ground, they cannot afford not to.

Friday, January 11, 2008

The Markets 2008 - Yes, a Recession

Well it has been said that if you keep saying the same thing for long enough, you are bound to be right at some point. Those of you who know me know that I have been negative on the overall equity markets for a while now with the main reason being that sooner or later the world was going to recognize that the US ( gov't, consumers, investors....) had become addicted to credit. Yes, we are a country of credit junkies. For so many they got a little, and it felt good, so they kept going back for more and more. In the market for a house you could not afford? Come on over, and let me see what I can do for you? Need that big screen TV, no problem, we will give it to you know and you can pay later. Want to buy a big office building assuming rents will go up forever at 95% occupancy? Not only were the bankers in line to lend, but the hedge fund managers were too. Two words you do not want to hear in the financial markets are negative contagion and you are already seeing it, the subprime market was only the beginning. So yes I think the US is headed for a recession as we unwind the effects of too much credit availability. In case you want to get even more depressed, read on about my outlook on inflation... not pretty.

Thursday, January 10, 2008

Full Bio

In 1996, Jacki Zehner was the youngest woman, and first female trader, to be invited into the partnership of Goldman Sachs. After leaving the firm in 2002, she became a Founding Partner of Circle Financial Group, a private wealth management operation consisting of a small group of women committed to effectively managing their families’ assets and philanthropic activities. She is an active member of Golden Seeds, an angel investing network that invests in women-led ventures, and an Advisory Board Member of the philanthropic voice of New York, Contribute magazine. An impassioned philanthropic visionary committed to the economic empowerment of women, she serves on the boards of The Women’s Funding Network, The Breast Cancer Research Foundation, The Center for Work Life Policy, her alma mater The University of British Columbia, and is President of The Jacquelyn and Gregory Zehner Foundation. She is a frequent media commentator on women’s success in the workplace, women and wealth, investing, current market events, and high-impact philanthropy.

Throughout her fourteen-year career at Goldman Sachs, she remained one of very few senior women traders on Wall Street and actively participated in numerous recruiting and mentoring activities aimed at both attracting and retaining women professionals. In 1999 Ms. Zehner left her role as manager of the mortgage-backed trading desk for an executive office appointment in which she assumed a broad human capital management role. She assumed responsibilities in the areas of leadership development, diversity, performance evaluation, promotion, succession planning and recruitment. She served on multiple internal committees including the firm’s Partnership Committee, Diversity Committee, Compliance and Control Committee, and Pine Street, Goldman’s Leadership Development Initiative. Her vision of creating community among high-impact women led to the creation and launch of Goldman’s ASCEND Initiative, a Leadership Exchange which connects, educates, and empowers the firm’s most influential women clients.

Ms. Zehner has been recognized as a “Wall Street Trailblazer”; a “next-generation role model” for women navigating the complex constellation of work, family, and civic service; and is the recipient of multiple leadership awards. Her work continues to be informed by her own journey from humble beginnings to Wall Street success. She learned early on the power of the dollar working as a cashier in her father’s grocery store. Twenty-five years later the journey continues at Circle Financial Group, where eighteen high net worth women work together to thoughtfully direct their time, treasure and talent to make a difference in the world. The group also serves as a think-tank, attracting diverse thought leaders on matters of investing, current affairs, and social responsibility.

Through multiple platforms, Ms. Zehner leverages her unique access and expertise by bridging knowledge and resources across the corporate, philanthropic, and nonprofit sectors. Her strong belief in women’s need to individually and collectively assert their economic clout fuels her ongoing engagement across these realms.

She lives in Connecticut with her husband, Greg Zehner, and two young children. Greg - a retired Goldman Sachs Partner, recent Yale Divinity Graduate and now acting pastor - shares his wife’s commitment to social activism.