"Power Unused Is Power Useless" - A Case For Gender Lens Investing

"Gender Lens Investing." This is the piece I have been wanting to write forever, and I thought this new site for Women Investment Advisors would be a great place to launch it! Thank you to Ruthie Ackerman for the encouragement. I hope to write a lot more about this topic and will be building out my web-site to hold more information related to how we can use our money power to drive positive change.

"Non-profit dollars will never be enough to solve the complex issues and negative outcomes associated with gender inequality. By thinking about gender when investing, we can use the markets to narrow the gender gap which, as studies show, has the additional benefit of fostering economic growth and creating jobs. Moreover, many government, economic and business entities have showered us with research saying that, in addition to positive economic and social implications, increased political stability is also highly correlated to the status of women and girls. In other words, greater gender equality results in greater economic and human security."

Some Facts About the Deficit

Deficit reduction is likely to be the hottest, domestic, political topic this year so let me arm you with some facts according to the WSJ.

- The government is currently spending about $100 billion more a month then it is taking in, adding about $1.3 trillion to the federal debt per year.

- Right now the government only has $400 billion before it hits the $14.3 trillion ceiling. ( and there is really no way to avoid hitting it)

- I love this quote - "Today's deficits are political problem, tomorrow's economic threat."

- Federal borrowing grew by $3.9 trillion between the end of 2007 and the third quarter of 2010. ( Why? to cushion the blow of the economic downturn)

- Every additional $100 billion borrowed this year adds $43 billion in interest over the next 10 years.

My comments to this - Scary. The numbers are extraordinary. When we raise the debt ceiling the federal debt will exceed our national GDP. This does not include state and local debt. You have likely been reading that there are HUGE issues in the muni area right now as bond holders are worried about the ability of many issuers to repay. This does not include mortgage debt, credit card debt, corporate debt, high yield debt...... We are an indebted nation and to a large extent that has been good, it has fueled growth, but at the end of the day it comes down to this. can the debt payments be made? No, for the subprime mortgage market and that is what contributed greatly to the financial crisis. Partial no for commercial real estate which has also caused big issues. So far yes for government, but at what cost to our future? The federal government can print money which is a good thing if you need to pay people. Printing does risk credibility and the credibility is reflected in both interest rates and exchange rates. Again so far ok because many other developed countries are in the same position and hey, we are the US, the world's largest economy.

So where does that leave me? Worried, as i have been for some time. Worried for the economic future of our collective children. I teach my children to be financially responsible. I teach them to spend within their means and our nation's capital is not exactly setting a good example.

"Bonds as Lemons" - And US 10 Year Notes at 2.5%

Below is a comment on why US Gov't 10 year notes are at 2.5%. As a reminder I used to be a bond trader, and were I still one, I likely would have had my face handed to be for shorting 10 years long before they hit 2.5%. This piece comes from David Zervos at Jefferies. I hope he doesn't mind the reprint.

"Suppose the Congress controlled the production of all the lemons in US. Then assume the Federal Reserve decided that it was going to use its balance sheet to buy lemons as a means of adding liquidity into the market when times were tough. While the government ramped up lemon production during tough times, the Fed not only bought most of those lemons, but sent out a clear message that it stands ready to buy a whole bunch more lemons if the economy falters. Finally, suppose that the government started changing the rules and regulations forcing financial institutions to hold more lemons rather than limes - as lemons were deemed the only safe fruit. What happens to the price of lemons? The answer is a 2.50% 10 year note!

These are not “market prices”. The Congress, Fed and Treasury are controlling the supply, demand and the rules of the game in the US government bond market. And make no mistake – lemon production is ripping higher. Eventually people will realize there are not enough Corona bottles to stuff those lemons into and there will be lemonade all over the streets. Until then, please remember that this will go down as one of the greatest examples government price control and manipulation in history. Maybe soon we will be lining up at 15th and Constitution in DC - at the doors of the Treasury on odd and even days depending on our birthdays - in order to buy limited supplies of those precious lemons!! There is a great book by two gentlemen from the Hoover institution -http://www.amazon.com/Doomsday-Myth-Years-Economic-Crises/dp/081797962X. The stories span 10,000 years but they all have one thing in common – when governments distort asset prices, bad things happen. It is an easy and fun read. I encourage you to grab a copy.

Finally, it has been a humbling summer watching 10 year rates move to these levels. I remain steadfast in the view that we are at least 75 to 100bps expensive in long term rates. But with the supply, demand and rules fixed by the Fed/Treasury/Congress Troika, I probably should have been more prepared for this – mea culpa. In any case, I’ll fall back on one of the better calls we have had and that is in MBS space where price manipulation is just as rampant. In fact, we can see that as the Fed has decided not to treat MBS like lemons anymore, they were quickly turned to lemonade. Once again my market screens are all red in MBS – days with 5yr futures down 5 tics and FBCL6.5s down 11 tics are amazing to watch. The 5.5/4.5 swap which peaked at 5-15 has fallen to 2 points since April. There is a lot of pain in the MBS world and it may be a good preview to what happens when government price manipulation schemes unravel. Good luck trading!"

David Zervos
Managing Director
Global Fixed Income Strategy
Jefferies & Co

As an add. US Treasury notes are a benchmark for all spread products. It you agree that these rates are low because of manipulation, then what is the right "spread" for anything? I argue that investors should be looking at absolute yield levels versus the risk of the bond and asking themselves, does this make sense? I don't follow debt spreads too closely anymore, but if I were an investor I would be careful. If treasury rates break down, so will spread product... bigtime.

Bill Gross, Nouriel Roubini - The New Normal

The New Normal was an investment term first put out there by Bill Gross (picture left) of Pimco. ( Read Bill's most recent comments here.) Bill started talking about it a couple of years ago and it has developed in to a full investment thesis. Bill says - "Our New Normal, to repeat ad nauseam, is predicated upon deleveraging, reregulation and deglobalization, all of which promote slower economic growth and lower inflation in developed economies while substantially bypassing emerging market countries that have more favorable initial conditions."

This term was mentioned by another author, this time from one of the most well known economists, Nouriel Roubini, in his recent comments. I have met Nouriel and other members of his team many times and find them both thorough and thoughtful. Nouriel's website Roubini.com.

Roubini -"Since the end of 2009 we have been emphasizing that the recovery would be multi-speed—or at least two-speed—with much of the advanced world displaying a below-trend, anemic growth pace and the emerging world showing a more V-shaped recovery. Now, the global macroeconomic deterioration that we still see emerging in the second half of 2010 increasingly is becoming the consensus view. In much of the advanced world this low growth will feel like a recession even if these economies technically avoid a double dip. Meanwhile, emerging markets are showing that even their more robust recoveries are not insulated from the slowdowns and structural adjustments in advanced economies. We have never been subscribers to the decoupling thesis and believe that emerging markets also will have to partially adjust to a "New Normal."

I agree with this New Normal view and it will remain challenging to construct an investment portfolio with strong positive returns. Personally I remain very cautious on developed country equites and bonds. I think it will pay to hang out on the sidelines and see how this theory plays out. That said, for how to invest with this investment thesis in mind, follow or invest with PIMCO. They manage over $1 trillion in assets. Yes, $1 trillion. I am not sure how that is even possible with just over 1300 employees. I have had the pleasure of meeting many folks from PIMCO and it is one impressive shop.

Naked Capitalism - The Origins of the Next Crisis

I have to run in to the city but this piece is too good not to share. Read the Origins of the Next Crisis from Naked Capitalism. If you don't subscribe.. you should.

Asset Allocation - International Fixed Income

A few entries ago I mentioned that I was preparing for a quarterly asset allocation meeting and promised to share my thinking on the two asset classes I am responsible for - fixed income and currencies. Below please find a brief summary but please, this is not investment advice, it is food for thought....

2009 was clearly a great year for virtually all fixed income. Central banks around the world cut rates in hopes of preventing economic disaster, and by and large they did. By cutting short term rates to near zero, while credit spreads were wide, huge amounts of money poured in to credit products of all kinds tightening spreads dramatically. Since the saver got and still gets literally nothing to stay in short term cash equivalent instruments, the incentive was huge to look for incremental income whether one could find it. This opportunity and incentive, combined with government action in terms of ‘quantitative easing” leaves us where we are today. Spreads across all sectors have tightened dramatically, and it could be argued that overall rates are artificially low because of government purchases, again particularly in the US.

So what next? The direction of interest rates is clearly dependent on economic growth, and this is where we already have begun to see major differentiation by country depending on how quickly their economies have rebounded. Where growth has picked up, and concerns about inflation have begun to take hold, rates have been moving higher. In the US fed funds have remained at zero and there are mixed views as to when it will move higher. A few economists are calling for slightly higher rates by year end, and many others believe the fed will remain on hold well in to 2011 in fear of adding pressure to the housing market and choking off a possible recovery. Where the fed has less control obviously is the longer end of the curve. 10 year rates have been rising and are at the higher end of their recent range, pushing towards 4%. Most economists think that US rates are headed higher overall with a steep yield curve continuing.

What about spread products? In the US it is clear that the massive $1.7 trillion of fed purchases of MBS, Agencies and Treasuries has worked to keep both rates down and spreads tight. Given the treasury has already said they are stopping their purchase programs it seems logical that spreads should widen UNLESS of course other buyers emerge which I and most of the folks I read doubt. There has been significant supply in all sectors in Q1 but particularly in US Treasuries. US corporate issuance was $225 billion in Q1, High Yield was $67 billion, Treasuries $601 billion. So bottom line I would expect at a minimum for the tightening of spread products to end and pressure coming because of supply. On the positive side however, with cash yields anchored at zero, the positive carry of high quality credit remains attractive.

In summary – Q2 may prove a much turning point for the global bond markets on average. For countries experiencing an economic recovery rates may move higher to protect from higher inflation. This may also prove true for the US, but the more likely scenario is the absence of government purchase programs, combined with lots of supply, but pressure on both rates and spreads.

Quarterly Asset Allocation

Sorry for the lack of commentary on the markets of late. Life has just been so busy and it has been challenging to find time to write a thoughtful one. I am picking up my investment reading in the next few weeks in preparation for a quarterly asset allocation meeting that I have with a group of the most amazing women investors on the planet! I would love to take you on this learning journey with me. Over the next couple weeks as I come to grips on my own views I will share it on this site and link to great people and articles that I lean on for their insights.






Here is our quarterly process!

- We each are accountable for reading and summarizing the thinking of two investment guru's. Mine are John Mauldin and Mark Faber. In total we review about 20. We fill out a common template on each person and submit it. This saves the group from having to do all the reading.

- We each have a sector of the market that we are responsible for aggregating the thinking on, layering in our own opinions, and share both with the group the day of the meeting. My area is global fixed income. We have the pundit sheets to use for reference, as well as more detailed sectoral reviews from the various investment firms.

- Each individual shares their current asset allocations and investment vehicle selections. We also have a 'to be considered' list that we continually review. In general we look for the most simple, cost effective way to express a view. We have a favorite EFT list that is vetted that we turn to in order to implement both long term and tactical strategies.

- We review market performance and discuss what has changed since our last meeting.

- We have a lot of discussion about all of the above.

- We come up with a consensus view and make changes to our group model portfolio.

- We personally implement whatever changes we think are appropriate.



Why this is so cool! It forces us to have discipline around the process, it leverages both the networks and the intelligence of the group, and it creates accountability for implementation.

Let the research begin!!

Rocking-Horse Winner - The Latest from Bill Gross

Bill's commentaries are always worth a read and this one is no exception. (click here to read) For the full content archive at PIMCO click here. I was fortunate to spend some time at PIMCO recently and truly consider them an outstanding company. If you can believe if they manage $1 trillion in assets as of DEC 2009. Yes, $1 trillion. For that reason alone if you are an investor you want to know what they are thinking.

V, U and W - What Shape Will the Recovery Be? Nouriel Roubini

I am a subscriber to RGE Monitor, an economic and financal information source founded by the legendary Nouriel Roubini. ( yes AKA Dr. Doom... though I don't think he likes that) The work he and his team does is exceptional! This morning he had what is below to say. What do I think? We need to INVEST our way to a better future not SPEND our way to a worse one. Both require money but of course one has a hope of a return. ( see more below)

" A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession. This is not the conventional wisdom. Heated debate continues to rage in the United States on whether the economic recovery will be V-shaped (with a rapid return to robust growth above potential), U-shaped (slow anemic, sub-par, below trend growth for at least the next two years) or W-shaped (a double-dip recession). The V camp includes distinguished research groups and individuals such as Ed Hyman’s ISI, Larry Meyer’s Macroeconomic Advisors, the research group of JP Morgan, Michael Mussa and others. The U camp includes—among others—Roubini Global Economics, Goldman Sachs’ U.S. economic research group, PIMCO and Ken Rogoff. As early as August 2009, I worried in a Financial Times op-ed about the risk of a double-dip recession even if our RGE benchmark scenario characterizes the risk of a W as still a low probability event (20% probability) as opposed to a 60% probability for a U-shaped recovery. Others concerned about the double-dip risk include also David Rosenberg, Gary Shilling and John Makin. Ed Hyman and I debated whether the recovery would be U or V-shaped on a February 22 conference call attended by over 2,200 listeners. Since that call, a slew of new U.S. macro data have come out. They have been almost uniformly poor, if not outright awful. Consumer confidence, based on the Michigan survey, has tanked. On the real estate front, new home sales are collapsing again, existing home sales are also falling sharply, and construction activity (both residential and commercial) is sharply down. Durable goods orders are down, initial claims for unemployment benefits remain stubbornly high (way above the 400K mark). Real disposable income for Q4 has been revised downward while real disposable income (before transfers) for January was negative again. The manufacturing ISM index—while still expanding being above 50—has now fallen a couple of notches and its production and new orders index levels are falling, too; and global PMIs suggest a loss of momentum in the global economic recovery. Real inventories look unchanged in Q1 relative to Q4; auto sales were at best mediocre; core CPI was falling and core PCE was close to 0%, suggesting anemic demand and economic weakness. Q4 GDP growth was revised upward to 5.9% but most of it (3.9%) was due to inventories; final sales grew at a 1.9% rate while consumption grew at a dismal 1.7% (down from 2.8% in Q3). Q3 growth has been revised from an initial 3.5% to 2.8% to 2.2%, with final sales growing only 1.7%. So, at the time of maximum policy stimulus (H2 of 2009), final sales were growing only at a pathetic 1.8% average rate. The eurozone (EZ) debt crisis, which RGE discusses in depth in a major new paper, predisposes Europe to a rising double-dip risk, due to the wave of fiscal austerity sweeping the periphery of the EZ. Even if the EZ doesn’t enter a double dip, the growth of domestic demand there will be as or more constrained than in the United States. This, in turn, will be a drag on the potential for U.S. export growth. The U.S. dollar rally on risk aversion reflects this risk. The U.S. dollar is settling back down and the threat of a debt crisis is headed off by a stronger Greek fiscal adjustment and potential adjustment package. But fiscal spending cuts, confidence hits and the looming threat of either rising unemployment or falling wages in the public sector—on top of private sector retrenchment—will remain. A similar retrenchment may well lie ahead in the United Kingdom, given rising fiscal sustainability concerns and the threat of a sterling crisis. Europe then will have great difficulty being a source of demand for U.S. exports, and may even provide impetus to faltering global demand growth, contributing to the threat of a wider double dip across high-income countries."

What do I think? I have for years, years, been more negative on the US economy then the consensus thinking and I remain that way. Bottom line I believe WE, individuals, gov't's, private equity funds ( though less so corporations....) have taken on too much debt and it it time to deal with it. As evidenced by the riots in GREECE, and in California, the public does not want to bear the cost of fiscal restraint, and of course I understand that. BUT... So many new taxes are being added and many are losing faith that those funds are going to good use.

We need innovation to drive job creation on a massive scale and it just does not happen like that. Too many American jobs are low paying service jobs, or rest on a consumer spending beyond thier means. That model is just not working anymore nor should we hope that excess consumerism is what saves us. Green jobs, technology jobs, cutting-edge health care, innovative start-ups are what is needed.... What we need to do is stop spending so much and start INVESTING more. We need to INVEST our way to a better future not SPEND our way to a worse one. Both require money but of course one has a hope of a return. I am BIG on the idea of reframing and that is what we need to do right now.

John Mauldin's on GREECE

John Mauldin is one of my favorite thinkers on investing. You can subscribe to his free newsletter by clicking here. A short while ago he wrote this piece on the situation is GREECE that is really insightful. ( This Time Is Different) The country's financial situation continues to grab headlines and is the reason most cited for any downward equity moves. There is not a happy ending here and John thoughtfully lays out the trade-offs. The whole piece is worth a read though the section on GREECE is about half the way down. One key take away for me was this - "Obama offering to freeze spending by 17% in US discretionary-spending programs, after he ran them up over 20% in just one year, is laughable. Greece is an object lesson for the world, as Japan soon will be. You cannot cure too much debt with more debt."

John's books are Bulls Eye Investing and Just One thing (amazon link)

He also mentions this book in this newsletter which I am most certainly going to get.

This Time is Different, by Carmen M. Reinhart and Kenneth Rogoff ( amazon link )

"Silicon Valley - You Have a Gender Problem"

Please check out this great article by Vivek Wadhwa ( an entrepreneur turned academic) pointing to the challenges women face raising venture money. It is a very thoughtfully written piece and highlights many of the issues we did in our "Women in Fund Management" paper. "Sharon Vosmek, CEO of venture accelerator ASTIA doesn’t think that VCs have an overt bias against women. Instead, it’s the way the venture-capital industry operates." She goes on to give us a list of exclusionary practises which again, we have found to be very true. His conclusion is this, "it is clear we have a problem here: we’re holding back the most productive half of our population." I could not agree more and his follow-up piece will seek to address some solutions. For now check out some of the 192 comments for ideas.

If we want to grow jobs in this country we to not only increase the amount of money that funds entrepreneurs, but also ensure that the playing field is level as it relates to access to capital, and it clearly is not. I have suggested before that the government should seriously consider a VC fund as part of it's job creation program, but so far NADA. It could easily co-invest with existing managers, like Golden Seeds and others, and it is beyond my understanding what this idea has not been acted upon. This investment would have the double impact of creating jobs, and creating a positive return for taxpayers. If the money is going to be spend anyways, this makes a lot more sense.

ASTIA is a great resource for entreprenuers. Check it out.

As is GOLDENSEEDS - where I am a proud member. (pictured is Stephanie Hanbury Brown, the founder)

"Requiem for the Dollar" - Read this.

I just read one of the most important business articles I have read in a long time. The Wall Street Journal - " After a glorious run, has the greenback become the General Motors of currencies, hobbled by bad management? James Grant mourns the loss of his beloved classical gold standard and says that paper money has had its day." It commands two pages of the WSJ and you will see why once you read it. I agree with him, in part because my husband has been talking about this for years. Years. Houston we have a problem....

Lessons Learned From the Financial Crisis

Bill Dudley, President of the New York Fed made further remarks on the causes of the financial crisis that I thought are worth sharing. (click her for the full report) Thanks to Naked Capitalism for highlighting it. "One clear culprit was the failure of regulators and market participants alike to fully appreciate the strength of the amplifying mechanisms that were built into our financial system." You can say that again. The reasons and learnings are pages long but what is really good is that there seems to be real learning happening that should result in some very positive changes in the industy. Much needed indeed.

Have a great day.

John Mauldin, Economic News ..... sorry, not good

I read a lot about the economy, and the one person who consistently talks about the issues that matter to me most is John Mauldin. If you have not already done so, please just sign up for his newsletter and get his detailed analysis sent to you directly. You can do that here....

It is a beautiful day and I am looking forward to spending some time with my awesome kids, but ... this is John's latest. ( excerpt below )

"Like teenagers, we as a US polity have made a number of bad choices over the past decade. We allowed banks to overleverage and, in the case of AIG (and others), sell what were essentially naked call options of credit default swaps, based on their firm balance sheets, far in excess of their net worth; and that put our entire financial system at risk. We gave mortgages to people who could not pay them, and did so in such large amounts that we again brought down the entire world financial system to the point that only with staggering amounts of taxpayer money was it brought back from the brink of Armageddon. We assumed that home prices were not in a bubble but were a permanent fixture of ever-rising value, and we borrowed against our homes to finance what seemed like the perfect lifestyle. We did not regulate the mortgage markets. We ran large and growing government deficits. We did not save enough. We allowed rating agencies to degrade their ratings to a point where they no longer meant anything. The list is much longer, but you get the idea.

Now, we are faced with a continuing crisis and the aftermath of multiple bubbles bursting. We are left with a massive government deficit and growing public debt, record unemployment, and consumers who are desperately trying to repair their balance sheets.

If present trends are left unchecked, we will need to find $15 trillion in the next ten years, just to pay for US government debt, let alone state, county, and city debt. And perhaps some loans for business will be needed? Where can all this money come from? The answer is that it can't be found. Long before we get to 2019 there will be an upheaval in the market, forcing what could be unpleasant changes.

We are left with no good choices, only bad ones. We have created a situation that is going to cause a lot of pain. It is not a question of pain or no pain, it is just when and how we decide (or are forced) to take it. There are no easy paths, but some bad choices are less bad than others. So, let's review some of the choices we can make........" - subscribe for more............

There has been a lot of activity in GOLD of late. My husband's favorite site for 'all things gold' is JSMineset.com

GOLD

Gold is the favorite commodity in the Zehner household. No I wish it was because of all the lovely jewlery I have, but rather it is the investment/trade that my husband has embraced for a long time, mainly because of his negative views of the US dollar combined with his inflationary outlook. I have written about Gold before, but what is noteworthy this week is that it has hit new highs. I just checked the price it is at $1090. For all things GOLD check out JSMINESET . Here is what David Rosenberg has to say about recent performance -

"With the dollar soft, commodities are firming with oil breaking above $80/bbl and on its way for a third winning session in a row; the metals are following suit. Gold has broken out yet again and is up another 1% so far today as it begins to challenge the $1,100/oz mark (according to unofficial IMF estimates, the Reserve Bank of India bought gold at $1,045/oz. With the size of the purchase (8% of annual mined production) and at that price it certainly helps establish a floor! The fact that the yellow metal is accomplishing this with ongoing deflationary developments — Euroland PPI came out for September and showed a 0.4% MoM decline and a -7.7% YoY trend — suggests that other factors are driving bullion to new bullish heights. It’s called scarcity of supply relative to fiat currency. "

Are we still bullish? Yes.

Unemployment, Meredity Whitney, and more....

Well for anyone waiting for good news about the economy they did not get it yesterday with the unemployment report. “Payrolls shrunk by 263,000 from the previous month.” ( 175,000 was the street estimate) Ok, now get ready. The total number of people that have lost their jobs since the recession began is million and the total number of people on assistance is 15.1 million. Barrons goes on to talk about what they consider a better estimate of unemployment which includes part-timers and more and that number is 17%. ( read the full story here in Alan Abelson’s column) Bottom line they continue to deliver a bearish economic rant and I would have to agree.

I would encourage you to read a piece by Meredith Whitney (pictured hear) that appeared in the journal on Friday. She opens this way – “Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit.” ( read the full piece here) Her argument is that small businesses cannot get financing, and this is a huge problem. “In the US small businesses employ 50% of the country’s workforce and contribute 38% to GDP. Without access to credit, small businesses can’t grow, can’t hire, and too often end up going out of business…”

You know my friend was beating me up the other day saying that I am a perma bear and have missed the boat. My response was this, I have been and do remain very bearish on the ECONOMY but my view on the markets ( equity, credit and currency) has actually been highly variable. There is a difference. Just because you are negative on the economy does not mean you cannot be positive on the markets as it depends on what news you feel is build in to the market. Right now, I am negative on US equities, credit spreads generally, and the US dollar, but I have not been that way all year. March was clearly a buying opportunity as so much negative news was priced in, but that, I believe, is not the case now. Also just because markets get ‘cheap’ does not necessarily mean one should ‘buy’ as it truly depends how much of your assets are already invested. What I have learned about myself is that I invest with a macro view, and when that macro view is negative, I have a hard time buying risky assets even if they look “cheap.” Too many years of trading bonds I guess…..

Next week I will be attending the World Business Forum in NY featuring the likes of Bill Clinton, Jeff Sachs, Warren Buffet, and more. I am also attending a dinner with Nouriel Roubini, also known as Dr. Doom, so I will be reporting back on that as well. Stay tuned and have a nice weekend.

Krugman on What Economists Need to Do, Unemployment and TONIGHT ON CBS EVENING NEWS!

Though I remain annoyed with Mr. Krugman over his ridiculous piece on Goldman Sachs, (click here for my rant) here is his latest deep dive in to the problems with the economists. It is a great read as it summarizes much economic theory that drives policy decisions and offers insight about why the powers that be failed to anticipate and react appropriately to the financial crisis. ( see piece from yesterday). His conclusions are….

“So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. ( great book by the way – JZ) Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.”

Here is what else they have to do - Listen to women - and in particular Anna Schwartz. If I had to pick 5 people to have dinner with, she would be on it! Google her. Read about her and her work. One of her latest opeds in the WSJ. She should have been on Hank Paulson's call list....

Next - Unemployment rate jumps to 9.7%, job losses only 216,000 - and yet the press is saying "signs emerged that the recession is ending." Last time I checked job losses are a bad sign. Read more from BLOOMBERG here which also has a quote from one of my favorite economists - David Rosenberg who was one of the few that called the financial crisis. When David says we are recovering, I will listen.

Last - TONIGHT on CBS Evening News with Katie Couric, there will be a segment on the "Women in Fund Management Paper" which will consider the question "If there were more women on Wall Street and in Finance in general - would we be in this mess?" I am honored to be featured in this piece though I have to say... I am a little nervous as of course I have not seen it! Working with the crew was a complete honor and I want to thank all of them, and especially Kelly Wallace, for being so fabulous! Thanks for bringing this issue - the lack of women in finance and what we can do about it - to broad attention. Click here to access the research from the National Council for Research on Women. There will be a link to the segment available after it airs.

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."

Feminine Leadership and the Financial Crisis

My friend Kathy LeMay sent me this piece, "Can Feminine Leadership Mend the Financial Crisis in Iceland?" written by her friend Masum Mamay. It is a must read on this topic and her conclusions are very consistent with those in our paper "Women in Fund Management: A Roadmap to Critical Mass and Why it Matters." She says "the climate was ripe for and open to what has been called a ‘feminine’ way of leading characterized by balance, transparency, fairness, social responsibility, accountability and sustainability."

She features a woman wealth manager who bases her business on these principles: "We have five core feminine values. First, risk awareness: we will not invest in things we don't understand. Second, profit with principles: we like a wider definition so it is not just economic profit, but a positive social and environmental impact. Third, emotional capital: when we invest, we do an emotional due diligence - or check on the company - we look at the people, at whether the corporate culture is an asset or a liability. Fourth, straight talking: we believe the language of finance should be accessible, and not part of the alienating nature of banking culture. Fifth, independence: we would like to see women increasingly financially independent, because with that comes the greatest freedom to be who you want to be, but also unbiased advice."

I like it...........

The Securitization Process

This morning's BASELINE SCENERIO linked to a very good piece from JP Morgan on how securitization works. ( click here ) I am adding this to my 'investing 101" category on this BLOG. I am working on converting this BLOG into a web-site where I hope to provide access to some of my favorite articles and reference pieces on a whole variety of topics. Stay tuned.....