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  Quotations - Invest  
[Quote No.37637] Need Area: Money > Invest
"When VIX [volatility index] is high, it’s time to buy. When VIX is low, it’s time to go." - Trader Adage

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[Quote No.37639] Need Area: Money > Invest
"I'm not afraid of storms, for I'm learning how to sail my ship." - Louisa May Alcott

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[Quote No.37660] Need Area: Money > Invest
"The typical business cycle growth ends when some kind of shock (usually monetary - interest rate rises - due to excessive credit, inflation and low productivity) delivers a blow to demand. The result is that producers find themselves suddenly overstocked with inventory and they cancel orders. Businesses along the supply chain start to furlough or fire workers to maintain margins. This, in turn, delivers a further blow to demand and a negative feedback loop forms that leads to recession. This is called the inventory cycle." - Seymour@imagi-natives.com

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[Quote No.37661] Need Area: Money > Invest
"U.S. states' answer to a weak economy: gambling: As the U.S. economy stubbornly resists stimulus efforts, New Jersey and Maine are among several states betting on a simpler way to fill their coffers: gambling. Both northeastern states are holding Election Day referendums to increase the once-outlawed practice, following states such as Massachusetts and New Hampshire that have already embraced gaming to boost revenue and jobs in tough times. Maine will gauge support for a new casino and slot machines at two race tracks, known as 'racinos', while New Jersey is seeking to overturn a federal law prohibiting sports betting. 'When states experience economic hardship, they turn to gaming,' said Cory Morowitz, chairman of Morowitz Gaming Advisors. 'Post-2008, almost all gaming increases are related to the economic downturn.' A recent push to build casinos and increase slot parlors at race courses, particularly in the Northeast, echoes similar moves elsewhere in the early 1990s when economic recession hit. States whose residents pop over the border to spend - and generally lose - their hard-earned gambling cash, are looking to increase betting opportunities in their own backyard to keep the money in state. This fall, the Massachusetts legislature approved three casinos and one slots parlor in a bill under which 25 percent of casino revenues and about 50 percent of slots revenue would return to the state. In New Hampshire, a House legislative panel last week voted to permit two casinos. The proposal still faces several legislative hurdles. Outside the Northeast, Minnesota lawmakers struggling to find a way to provide public funding for two-thirds of a proposed $1.1 billion Minnesota Vikings football stadium have floated several options to expand gambling in the state. They include permitting slot machines at horse racing tracks, allowing electronic pull-tabs at bars and restaurants and a private casino in downtown Minneapolis. Illinois, which is among the most financially strapped states, in May voted to authorize new casinos that could generate up to $1 billion a year, including one in Chicago. Governor Pat Quinn, worried about the state's reputation for corruption, has threatened to veto the plan unless it is slimmed down and includes more oversight. If the referendum passes in New Jersey as expected, it is just a first step on the long road to making it legal to gamble on professional, college or amateur sporting events by placing bets at casinos and racetracks in the Garden State. That kind of betting is outlawed by federal law except in Nevada and Delaware. Passing the referendum would set the stage for New Jersey to file a lawsuit to overturn the federal ban within its borders too." - Edward McAllister
NEW YORK Nov 5, 2011 (Reuters) [http://www.reuters.com/article/2011/11/05/election-gambling-idUSN1E7A21SL20111105?feedType=RSS&feedName=bondsNews ]
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[Quote No.37664] Need Area: Money > Invest
"[The investing] Life is the art of drawing sufficient conclusions from insufficient premises." - Samuel Butler II
(1835 - 1902), English novelist, translator, and author
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[Quote No.37668] Need Area: Money > Invest
"Economists miss the start of recessions for two reasons: 1) they focus on coincident to lagging data, and 2) they use data series that are heavily revised, rendering them useless in real time. For example, most mainstream economists did not recognize the beginning of the last recession that began in December 2007 until mid-2008. Leading indicators had plunged, yet coincident and lagging data continued to be positive. However, once the data for non-farm payrolls and GDP were revised, the loss of employment and the loss of economic output were much greater than had originally been estimated." - Jonathan Tepper
Investment analyst with Variant Perception and co-author of the best selling economics book, 'Endgame'.
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[Quote No.37672] Need Area: Money > Invest
"[It is common in investing to hear the phrase, 'High yield means high risk' and 'The higher the yield, the higher the risk'. To quote Warren Buffett] More people have lost money stretching for yield than at the point of a gun. [So when investing always consider first the return of your capital - the risk, before you consider the return on your capital - the reward and remember 'If something sounds too good to be true, it usually is!']" - Warren Buffett
Famous value share investor and one of the richest men in the world.
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[Quote No.37702] Need Area: Money > Invest
"[The demand for and therefore the price of copper is an important indicator of economic activity as the following facts suggest...] A typical U.S. home has 439 pounds (199 kilograms) of copper wire and plumbing, while a car has about 50 pounds." - Whitney McFerron
Bloomberg BusinessWeek November 02, 2011 [http://www.businessweek.com/news/2011-11-02/inflation-peaking-in-u-s-with-most-prices-tumbling-commodities.html ]
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[Quote No.37704] Need Area: Money > Invest
"...since 1963, when the [Economic Cycle Research Institute] ECRI Weekly Leading Index growth rate has been below -5 and the ISM Purchasing Managers Index has been below 54, the [US] economy has already been in recession 81% of the time, and the probability of recession within the next 13 weeks was 86%. If in addition, the S&P 500 was below its level of 6 months earlier, the economy was already in recession 87% of the time, and the probability of recession within the next 13 weeks climbed to 93% (and then to 96% within 26 weeks). Under these conditions, once the PMI fell below 52, the probability of recession within 13 weeks climbed to 97%. That simple set of conditions (WLI < -5, PMI < 52, SPX < 6 months earlier) has been seen in every postwar recession for which the data is available. Though we've seen recessions without a drop in the WLI much below -5, when a WLI below -7 has been coupled with a PMI below 52 and an S&P 500 below its level of 6 months earlier, the economy has been in recession within 13 weeks, 100% of the time." - Lance Paddock
CEO and Director of Investment Strategy for Thompson Creek Wealth Advisors. [http://riskandreturn.net/index.php/2011/10/30/lagging-versus-leading-indicators/#ixzz1d5YqMR9f ]
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[Quote No.37768] Need Area: Money > Invest
"I have found that the LEI [Leading Economic Indicators] to be of marginal use when calling turns [from bull to bear market = recession - and bear to bull market = recovery and expansion] in the economy, largely because forecasters focus on it so much and it has been tweaked so many times. A more reliable indicator is the ratio of Coincidental to Lagging Indicator (RTCL), which is released at the same time as the LEI. That ratio, which has been in recessionary territory [below 95] for several months, sagged again on Friday. I have extensively written about RTCL before... I remember getting nervous when it began in early 2007. David Schawel, who writes over at Economic Musings, agrees: 'One of the theories behind this ratio is that when the expansion is nearing its final stages both sets of indicators will be rising, but the increase for the coincident will be slower than the lagging hence the ratio will fall.' Richard Yamarone notes in his book 'The Trader’s guide to key economic indicators' that this ratio has fallen before every recession since 1959. Legendary investor Ken Fisher is also known to use this ratio in his view of the economy. In 1992 Fisher noted that 'when this ratio is rising sharply, always be bullish' and 'when it is falling, adopt your most bearish posture'." - Cam Hui
Portfolio manager at Qwest Investment Funds Management. Quoted 21 Nov 2011. [http://seekingalpha.com/article/309226-recession-anxiety?ifp=0&source=email_macro_view ]
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[Quote No.37769] Need Area: Money > Invest
"The amount of the US total public debt outstanding has breached $15 Trillions, to be more specific it reached $15,033,607,255,920.32. The height of a stack of 1,000,000,000,000 (one trillion) one dollar bills measures 67,866 miles. Stacking the US debt is equivalent to two times back and forth to the moon. " - Ramy Saadeh
a trader at Banque Bemo sal. Quoted on 20th Nov, 2011. [http://seekingalpha.com/article/309167-at-a-crossroads-facing-another-financial-abyss?ifp=0&source=email_macro_view ]
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[Quote No.37773] Need Area: Money > Invest
"When national economies suffer a downturn, governments should borrow and spend money to boost economic activity. Part of the proceeds of the resulting economic growth should then be used to repay the debt. [He failed to answer the question: What if there is no 'resulting economic growth? [Due to debt to GDP levels above 90%, which, Rogoff and Reinhart showed, is where growth is slowed by government borrowing or the borrowing is used to prop up the government's political base rather than to create growth. The latter two situations increase the likelihood the government will default on its sovereign debt either explicitly with a 'haircut' or implicitly with high inflation - both of which further stress the economy rather than help it.]" - John Maynard Keynes
Founder of big government Keynesian economics
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[Quote No.37774] Need Area: Money > Invest
"Wherever there is a reckless borrower, there is also a reckless lender. [Where fraud is not involved, both are responsible for excessive debt, default, bankruptcy, etc. and it is therefore in the long-term interests of economic stability, competence and responsibility in society that both suffer as a consequence.]" - Michael Noonan
Irish Finance Minister, 23rd Nov, 2011.
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[Quote No.37775] Need Area: Money > Invest
"The central thesis of the article is that, as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit. [This is part of a disfunctional form of capitalism called crony capitalism or corporatism, where existing powerful businesses use their influence with politicians and bureaucrats, that create the regulations and need the businesses' political and financial support, to create regulations and laws that protect the businesses from competition while increasing their opportunities to profit and receive higher pay and promotion, while increasing risk and lowering value, service, choice and freedom.]" - George Stigler
Nobel Laureate explaining the theory of regulatory capture - 1971, 'The Theory of Economic Regulation'.
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[Quote No.37776] Need Area: Money > Invest
"[Can you trust what an important public servant says in an economic crisis?] Our financial institutions are strong. Our investment banks are strong. Our banks are strong. They’re going to be strong for many, many years. [Many of those 'stong' - i.e. safe - banks became insolvent-bankrupt only seven months later in October, 2008 and had to be recapitalised by the US Government. So just like in war the first casualty in an economic crisis is truth and it behooves serious investors to always keep this in mind and develop their own capacity to judge the economic and investing environment, without relying on anyone else, or... suffer the consequences of excessive, unjustified trust in others who will never care about you or your situation as much as you do.]" - Hank Paulson
U.S. Treasury Secretary , March, 2008.
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[Quote No.37777] Need Area: Money > Invest
"[All foreign exchange investing is about the relative value between the currency pairs.] The dollar is a very weak currency except all the others." - George Soros
Famous and highly successful investor, June, 2009.
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[Quote No.37778] Need Area: Money > Invest
"A government cannot become insolvent with respect to obligations in its own currency [since it can print the money it needs to repay its debts - but it must then be prepared to accept the devaluation of its own currency, the domestic inflation this will cause and the future reticence of foreigners to lend to them in the future.]" - Alan Greenspan
Chairman of the US Federal Reserve
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[Quote No.37779] Need Area: Money > Invest
"We’re in the midst of an international currency war, a general weakening of currency [deliberately engineered by government monetary policy to increase their country's exports]. This threatens us because it takes away our [export] competitiveness." - Guido Mantega
Brazilian Finance Minister, Sep 2010
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[Quote No.37780] Need Area: Money > Invest
"[Can you trust economists?] Stock prices have reached what looks like a permanently high plateau. [The market within a month began falling and eventually fell more than 80% over the next 4 years into the 1930's in what we now call The Great Depression. The only person you should ultimately trust in investing is yourself and your own vigilant and hard won economic and investing competence. Then if things go wrong with your assessment of risk and reward you have no-one else to blame.]" - Irving Fisher
Respected US economist who misunderstood the boom of the 1920's, which included the new technologies of mass produced cars and radios, making this statement when the sharemarket was about to crash.
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[Quote No.37782] Need Area: Money > Invest
"When the fact change I change my mind, what do you do sir? [An often repeated quote of technical chart traders, who while having an expectation for the price movement of a share are very quick to change their opinion should the price behaviour deviate from their expectations.] " - John Maynard Keynes
Economist
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[Quote No.37794] Need Area: Money > Invest
"Government debt dynamics, once an esoteric subject of interest only to macroeconomists, are suddenly in vogue. With Greece flirting with default, Italy's bond yields rising fast, and America's government bonds losing their AAA status, public-debt burdens have become dinner-party talk. Our interactive chart above shows current IMF forecasts but also allows you to input some basic economic assumptions to see where general government debt as a percentage of GDP might head. There are two things that matter in government-debt dynamics. The difference between real interest rates and GDP growth (r-g), and the primary budget balance as a % of GDP (ie, before interest payments). In any given period the debt stock grows by the existing debt stock (d) multiplied by r-g, less the primary budget balance (p). The simple r-g assumption is one of the most important in debt dynamics: an r-g of greater than zero (when interest rates are greater than GDP growth) means that the debt stock increases over time. An r-g of less than zero causes it to fall. Our interactive model uses the nominal interest rate (i)—approximately equivalent to the ten-year bond yield—and allows you to input your own inflation rate, ∏. Inflation helps reduce the total debt stock over time, by reducing the real value of debt. In our model and using approximations, r-g becomes i - ∏ - g. The greater the inflation rate, the lower r-g becomes. The second consideration is the primary budget balance. A primary budget surplus causes the debt stock to fall, by allowing the government to pay off some of the existing debt. A primary deficit needs to be financed by further borrowing. As Greece has found out to its cost, interest rates increase when governments run large budget deficits, and as they do it becomes increasingly difficult to reduce r-g to a sustainable level. In reality, these variables are all related. When inflation rises, for instance, bondholders will expect a higher nominal interest rate on new debt. If a country runs a larger primary surplus, the interest rate it is forced to pay may fall. Adjustments in countries' deficits will also affect their growth rates. To keep matters simple, we have ignored these interactions. Our calculator shows the evolution of a government's debt stock based directly on the values for inflation, growth, interest rates and the primary deficit that you determine. Changing these assumptions can have striking results. Using the average IMF forecasts for 2011-16, general government debt in America is expected to rise from 94% of GDP in 2010 to 129% in 2020. Assuming anaemic GDP growth of just 1.5% a year as opposed to 2.6%, and a nominal interest rate of 4% rather than 2.8%, US debt rises to 157% of GDP in 2020." - The Economist online
Nov 9th 2011 [http://www.economist.com/blogs/dailychart/2011/11/debt-dynamics-0 ]
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[Quote No.37870] Need Area: Money > Invest
"Remember, bull markets are borne out of bad news and investor apathy. Bear markets are borne out of good news and investor enthusiasm. " - Doug Kass
President of Seabreeze Partners Management Inc.
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[Quote No.37879] Need Area: Money > Invest
"Some of the important indicators to watch in the real estate industry to gauge demand and future prices are: auction clearance rates, number of listings, the time properties are on the market, the average sale prices, rental vacancy rates, rental yields, loan approval rates, building commencements, demographics, employment, interest rates, loan to valuation ratios, non-performing loans [in arrears], foreclosures, etc." - Seymour@imagi-natives.com

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[Quote No.37882] Need Area: Money > Invest
"[One of the ways that free market capitalism can be undermined hurting a society and its economy is called 'crony capitalism'. This is where government parties or individuals, for personal or political 'profit', advantage some market participants to the detriment of others. This can go all the way from the President to a lowly official. This is sometimes illegal but it is always unethical, especially if the people believe in free markets and equality. The book 'Throw Them All Out' by Peter Schweizer, a research fellow at the Hoover Institution, Stanford University, details many of these 'suspect' behaviours of US government officials and business titans in recent years. The following article is another example:] How Paulson Gave Hedge Funds Advance Word of Fannie Mae Rescue: Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co. (JPM) Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae (FNMA) and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding, Bloomberg Markets reports in its January issue. Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable. 'If you have a bazooka, and people know you have it, you’re not likely to take it out,' he said. On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets. A Different Message - At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure. Around the conference room table were a dozen or so hedge-fund managers and other Wall Street executives -- at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC. After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into 'conservatorship' -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets. Stock Wipeout - Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said. The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information. There’s no evidence that they did so after the meeting; tracking firm-specific short stock sales isn’t possible using public documents. And law professors say that Paulson himself broke no law by disclosing what amounted to inside information. Rampant Rumors - At the time, rumors about Fannie and Freddie were tearing through the markets. The government-chartered firms’ mandate, which continues today, is to buy mortgages from banks and repackage them into securities either for their own portfolios or to sell to others. The banks can then use the proceeds from those transactions to write new mortgages. By mid-2008, delinquencies and foreclosures were soaring, and the GSEs set aside billions of dollars against future losses. In the first six months of 2008, they racked up net losses of $5.46 billion as they slashed dividends and marked down the values of their huge inventories of mortgage-backed securities. On Wall Street, confusion reigned. UBS AG analyst Eric Wasserstrom on July 10 cut his share price target on Freddie to $10 from $28. The next day, Citigroup Inc. (C) analyst Bradley Ball reiterated a 'buy' recommendation on the two GSEs. On July 12, the Times of London, without citing a source, reported that Paulson was contemplating a $15 billion capital injection into the firms. Shares Rally - At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals -- and the GSEs’ shares were rallying, with Fannie Mae’s nearly doubling in four days. William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers. 'You just never ever do that as a government regulator -- transmit nonpublic market information to market participants,' says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. 'There were no legitimate reasons for those disclosures.' Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern. 'What is this but crony capitalism?' she asks. 'Most people have had their fill of it.' A Lawyer’s Advice - The fund manager who described the meeting left after coffee and called his lawyer. The attorney’s quick conclusion: Paulson’s talk was material nonpublic information, and his client should immediately stop trading the shares of Washington-based Fannie and McLean, Virginia-based Freddie. Seven weeks later, the boards of the two firms voted to go into conservatorship under the newly created Federal Housing Finance Agency. The takeover was effective Sept. 6, a Saturday, and the companies’ stock prices dropped below $1 the following Monday, from $14.13 for Fannie Mae and $8.75 for Freddie Mac (FMCC) on the day of the meeting. Various classes of preferred shares lost upwards of 85 percent of their value. A complete list of those at the Eton Park meeting isn’t publicly available. A Treasury Department roster of those expected to attend, obtained by Bloomberg News under the Freedom of Information Act, includes Ripplewood Holdings LLC CEO Timothy Collins, who says, through a spokesman, that he didn’t participate. Storied Investors - At least one fund manager who wasn’t listed in the FOIA document, Daniel Stern of Reservoir Capital Group, did attend, says the manager who described the meeting. The gathering comprised some of Wall Street’s most storied investors. Mindich, a former chief strategy officer of New York-based Goldman Sachs, started Eton Park in 2004 with $3.5 billion, at the time one of the biggest hedge-fund launches ever. Singh, a former head of Goldman’s proprietary-trading desk, also began his fund in 2004, in partnership with private-equity firm Texas Pacific Group Ltd. Lone Pine’s Mandel worked as a retail analyst at Goldman before joining Julian Robertson’s Tiger Management LLC, one of the most successful hedge funds of the 1980s and 1990s. He started his own firm in 1997. Och was co-head of U.S. equity trading at Goldman before founding Och-Ziff in 1994. The publicly listed firm managed $28.9 billion in November. Goldman Alums - One other Goldman Sachs alumnus was at the meeting: Frank Brosens, founder and principal of Taconic Capital Advisors LP, who worked at Goldman as an arbitrageur and who was a protege of Robert Rubin, who went on to become Treasury secretary. Non-Goldman Sachs alumni who attended included short seller James Chanos of Kynikos Associates Ltd., who helped uncover the Enron Corp. accounting fraud; GSO Capital Partners LP co-founder Bennett Goodman, who sold his firm to Blackstone Group LP (BX) in early 2008; Roger Altman, chairman and founder of New York investment bank Evercore Partners Inc. (EVR); and Steven Rattner, a co-founder of private-equity firm Quadrangle Group LLC, who went on to serve as head of the U.S. government’s Automotive Task Force. Another person in attendance: Michele Davis, then-assistant secretary for public affairs at the Treasury Department, who now represents Paulson as a managing partner at public relations firm Brunswick Group Inc. In an e-mail response to Bloomberg Markets, she referred all questions to Paulson’s book on the financial crisis, 'On the Brink' (Business Plus, 2010), which makes no mention of the Eton Park meeting. Paulson Thinktank - Paulson is now a distinguished senior fellow at the University of Chicago, where he’s starting the Paulson Institute, a think tank focused on U.S.-Chinese relations. Eton Park’s Mindich, Lone Pine’s Mandel, TPG-Axon’s Singh and Och-Ziff (OZM)’s Och all declined to comment through spokesmen. Reservoir’s Stern didn’t return phone calls. Altman, through a spokesman, confirmed his attendance and declined to comment further. Brosens confirmed in an e-mail that he had attended and said he couldn’t recall details. A spokesman for Rattner acknowledged he attended and said he didn’t trade in Fannie Mae- or Freddie Mac-related instruments after the meeting. Chanos declined to comment. A Blackstone spokesman confirmed in an e-mail that GSO’s Goodman attended the meeting. Blackstone doesn’t believe market-sensitive information was discussed, and in any event Blackstone didn’t take any positions in Fannie or Freddie between the luncheon and Sept. 6, he wrote. Strong Short Interest - Records show that many investors were betting against Fannie Mae and Freddie Mac at the time. According to Data Explorers Ltd., a London-based research firm, short interest in Fannie Mae shares rose sharply in July, to 163 million shares on July 14 from 86.3 million shares on July 9. Short Interest continued to rise, to 240 million shares, on the day of the Eton Park meeting; it hit 262 million on July 24, its high for the year. Freddie Mac’s short interest showed a similar trajectory. Revelations about the meeting come at a sensitive time. 'The optics are awful; there’s no doubt about it,' says professor Larry Ribstein of the University of Illinois College of Law in Champaign. 'Everyone knows that insider trading is a huge issue.' Rajat Gupta, the former head of McKinsey & Co. who was a member of Goldman’s board, was indicted by a federal grand jury on Oct. 26 for disclosing nonpublic information on Goldman and other companies to Raj Rajaratnam, a hedge-fund manager who earlier in October was sentenced to 11 years in prison for profiting from inside information provided by a web of industry insiders, including Gupta. Gupta has pleaded not guilty. LightSquared Probe - Several U.S. agencies face increased scrutiny in Congress for possible improper disclosures or ties to hedge funds. Senators are looking into whether the U.S. Department of Education divulged nonpublic details about new rules being considered to regulate for-profit educational institutions to outsiders, including Steven Eisman, former managing director of FrontPoint Partners LLC, who held short positions in the sector. Education Department spokesman Justin Hamilton denies any impropriety. Eisman hasn’t been accused of any wrongdoing. In October, Republican Senator Charles Grassley of Iowa asked hedge-fund manager Philip Falcone for copies of all communications between his Harbinger Capital Partners and the Department of Commerce, the Federal Communications Commission and the White House. Grassley is looking into whether Falcone improperly sought to influence regulators and the White House while seeking approvals for LightSquared Inc., the company constructing a broadband wireless network his fund is bankrolling. ‘Government Information’ - Robin Roger, general counsel for the fund’s management firm, says any assertion that the fund or LightSquared tried to improperly influence regulators is unfounded. For government officials, the leaking of market-sensitive information, even if inadvertent, represents an ethical minefield. 'There’s a lot of government information out there, and the hedge funds are trying to get it,' says Richard Painter, a law professor at the University of Minnesota who advised the Bush administration on Paulson’s sale of his Goldman stock when he became Treasury secretary. 'It’s a huge problem that has to be addressed.' The rules for what can or cannot be disclosed by government officials are often either unclear or nonexistent. Tipping Hands - 'The bottom line is that senior-level people in Washington, in the name of keeping in touch with their stakeholders, are tipping their hands,' says Adam Zagorin, a senior fellow at the Project on Government Oversight, a Washington watchdog group. 'You can’t prosecute them for insider trading if they didn’t trade the shares. You may not be able to even reprimand them. What the hell are the rules?' An official such as Paulson has no legal obligation to keep material nonpublic information to himself, says Phillip Kaplan, partner for litigation at Manatt Phelps & Phillips LLP, where he specializes in securities and class-action cases. 'I don’t think a government person is liable,' he says. 'He didn’t profit from the information or trade on it.' In the rapidly evolving world of insider-trading prosecutions, that could change, says the University of Illinois’s Ribstein, adding that the U.S. Securities and Exchange Commission is taking a broader view of what constitutes insider trading. SEC Enforcement Director Robert Khuzami, who can bring only civil cases, and the Justice Department, which can mount criminal prosecutions, have cast their net wide, Ribstein says. Small Players Sued - In addition to going after big names like Rajaratnam and Gupta, the authorities are suing and indicting smaller players who might not have been prosecuted in the past, like accountants and analysts at so-called expert networks, who sell their expertise to hedge funds. The University of Missouri’s Black says there’s no question that the plan to take over Fannie and Freddie -- however uncertain -- was material nonpublic information that could not be lawfully traded on. 'What Paulson said put those managers in an untenable position,' he says. 'They were exposed to all kinds of liabilities.' The situation also generates some sympathy for Paulson. 'It seems to me, you’ve got to cut the guy some slack, even if he tipped his hand,' says William Poole, a former president of the Federal Reserve Bank of St. Louis. 'How do you prepare the market for the fact that policy has changed without triggering the very crisis that you’re trying to avoid? What is he supposed to say without misleading these people?' Market Insights - Poole says government officials need to communicate with industry participants in order to gain insights into market conditions and gauge likely reaction to interventions. Black says the Eton Park meeting was the wrong way to communicate to the markets. 'Wink, wink, nod, nod is no way to approach sensitive information,' he says. Paulson often contacted Wall Street participants throughout his tenure, according to his calendar. On that July trip to New York alone, he talked to Lehman Brothers Holdings Inc. CEO Richard Fuld, Washington Mutual Inc. CEO Kerry Killinger and Citigroup senior adviser Rubin. Morgan Stanley and BlackRock Inc. both helped the Federal Reserve and OCC prepare the reports on Fannie Mae and Freddie Mac that Paulson told the New York Times would instill confidence the morning of the Eton Park meeting. ‘Unsafe and Unsound’ - Paulson learned by mid-August that the Federal Reserve had found the GSEs 'unsafe and unsound,' he told the Financial Crisis Inquiry Commission, which was appointed by President Barack Obama and Congress to probe the causes of the financial collapse. 'We’d been prepared for bad news, but the extent of the problems was startling,' he wrote in 'On the Brink.' On Sept. 6, when the GSEs’ boards agreed to have their companies placed in conservatorship, full-year 2008 losses were projected to reach as much as $50 billion for Fannie Mae and $32 billion for Freddie Mac. In October 2011, the FHFA estimated the cost to taxpayers of rescuing the firms at $124 billion through 2014. The manager who described the Eton Park meeting says he also discussed it with an investigator from the FCIC. The discussion was confirmed by a former FCIC employee. That manager says he ended up profiting from his Fannie Mae and Freddie Mac positions because he was already short the stocks. On his lawyer’s advice, he stopped covering his short positions and rode Fannie and Freddie shares all the way to the bottom. " - Richard Teitelbaum
Journalist. Published in Bloomberg Markets Magazine, Nov 30, 2011. [http://www.bloomberg.com/news/2011-11-29/how-henry-paulson-gave-hedge-funds-advance-word-of-2008-fannie-mae-rescue.html ]
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[Quote No.37883] Need Area: Money > Invest
"Q+A: Why everyone cares about dollar liquidity swaps: Stock markets soared on Wednesday after coordinated announcements from the Federal Reserve, European Central Bank and four other government central banks about 'temporary U.S. dollar liquidity swap arrangements.' Here's a primer to what the swaps are and why the step was so important: Q. Why did the central banks act? A. The banks said it was 'to ease strains in the financial markets' that threaten access to loans for individuals and companies. Outside experts offered more urgent descriptions, ranging from stemming a run on European banks by their money market lenders [steeply rising costs -ie interest rates, refer EURIBOR, etc], to bolstering the markets in case of a collapse of the euro, to, possibly, heading off damage from an imminent failure of a major bank. 'They're basically responding to the looming failure of the European Summit on December 9,' said Cornelius Hurley, director of Boston University's Morin Center for Banking and Financial Law and former assistant general counsel at the Federal Reserve. 'They're putting foam on the runway.' More immediately, the signal is that they are ready to provide dollars European banks need. 'It is the moral equivalent of breaking an incipient bank run,' said Paul McCulley, a former Pacific Investment Management Co executive. This run, slightly different from individual depositors rushing to get their money back, has been building in the form of U.S. money market funds and U.S. banks taking back short-term loans of dollars to European banks. The dollar lenders have retreated out of fear that some banks could be insolvent because they own too much bad debt from countries including Greece, Italy, Portugal and Spain. To repay the dollars they owe, the European banks could be forced to sell, or call in for repayment, loans they have made in dollars to businesses, including companies in the United States. 'It could lead to fire sales of assets, which would have further spiraling effects on other firms in the economy,' said Viral Acharya, a professor at New York University's Stern School of Business. 'This is an aggressive move to meet the dollar shortages of the European banks,' he said. 'It is a signal that the situation is getting pretty tight for the banks.' Q. What did the central banks actually do? A. They made it easier and less costly for banks to get U.S. dollars. The central banks already had in place agreements -- going back to December 2007 and emergency actions they took in the early days of the global financial crisis -- to swap local currencies with the Federal Reserve for dollars for, typically, up to three months. On Wednesday, they reduced the charge for doing that and extended the size and timing of the swap lines. The lower price should encourage European commercial banks to go to the European Central Bank to borrow, through repurchase trades, the dollars that came from the swaps. The ECB also announced that it was reducing the amount of margin the banks have to post on those deals. The steps are 'designed to both remove the stigma and costs associated with the use of cross border swap lines,' according to a report from bank analysts at Keefe, Bruyette & Woods. Q. Did you say the central banks have done this before? A. Yes, and how. In December 2007 [before the 2008 stock market crash and recession], the swap arrangements were put in place as financial markets worldwide were cracking from a chain of defaults starting with U.S. subprime home mortgages and extending to short-term money market instruments and held around the world. Demand began to build a few months later and then, as Lehman Brothers and other banks collapsed and funding markets froze up, soared to $583 billion in December 2008. Use of the swaps then trailed off in 2009 as banks raised new capital and the situation steadied. Only $2 billion of the swaps were outstanding as of November 23, according to Federal Reserve data. 'It started to smell like [the credit crunch of] 2007 again [when market appetite for risk and debt collateral quality and value was falling]. That's the easiest way for me to describe it,' said Peter Vinella, a director at consultancy Berkeley Research Group who previously held senior trading and management roles on Wall Street. 'They're trying to do things to keep banks liquid enough so there's not a big failure.' Q. Will this solve the European financial crisis? A. No, though it buys time in which lasting solutions might be put in place. Providing liquidity is 'no substitute for other actions that Europe must take to solve its current woes,' Anthony Crescenzi, a strategist and portfolio manager at Pacific Investment Management Co said in an email. European banks still need to be convincingly solvent [as many may not just be illiquid but also insolvent - ie not just temorarily but permanently unable to meet their upcoming bills], said Acharya of New York University. To do that, they need new capital and dependable values for the loans they have made to problem areas of Europe. Shoring up the loans will likely require new promises from European governments. 'If buying time is important to get recapitalization and a political solution in Europe, this is probably a useful tool,' said Acharya." - David Henry, Jennifer Ablan and Lauren Tara LaCapra
Reuters, Wed Nov 30, 2011. [http://www.reuters.com/article/2011/11/30/us-centralbanks-primer-idUSTRE7AT2XT20111130 ]
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[Quote No.37884] Need Area: Money > Invest
"[Why are credit ratings so important for companies and especially banks? The following article helps explain it.] S&P downgrades hit bank funding, counterparty cost: Banks face a double hit to costs and revenues from a spate of credit rating downgrades, another burden for a sector already struggling because of the European Union's failure to deal decisively with its financial crisis. Standard & Poor's cut its ratings on 15 big banks such as Bank of America Corp (BAC.N) and Morgan Stanley (MS.N) on Tuesday, as it seeks to give more insight into its methods and repair its reputation after the credit crisis. While the downgrades were driven by a revision of the agency's internal models and not because of a change in the banks, they will have a real impact on funding costs for the sector, already on edge because of Europe's debt crisis. 'It will likely raise concerns about their short-term funding because they will be sidelined by money-market funds who are the traditional buyers of that short-term paper,' said Andrew Fraser, investment director at Standard Life. 'The timing of the... statement is perhaps more significant than its content because it comes at a time when liquidity is under pressure at banks,' Fraser told Reuters in an interview that took place ahead of the S&P statement. European Union talks to save the single currency limped ahead this week, with a key functionary saying the region was entering a 'critical period' of 10 days to come up with plans to stave off the crisis once and for all. Interbank markets have largely frozen up as commercial banks grow increasingly wary of lending to one another. They rely on the European Central Bank for most of their short-term funding. Ahead of the S&P downgrades, rival Moody's said on Tuesday it could downgrade the subordinated debt of 87 European banks, concerned that governments are too cash-strapped to bail out holders of riskier bank debt in times of stress. TRADING MORE EXPENSIVE - British banks RBS (RBS.L) and Lloyds (LLOY.L) were the only European banks to have their short-term credit ratings cut -- to A2 from A1 -- by S&P. When this happens, it can be a step change that increases funding costs, analysts said. The S&P move could moreover force the banks to put up more scarce collateral in their daily trading activities. A downgrade can trigger clauses in contracts underlying derivative trades, forcing banks to put up more collateral. That makes trading more expensive for investment banks in derivative markets such as interest rate swaps and credit default swaps, denting income at the sprawling trading floors that provide much of their income. Trading desks in fixed income, currencies and commodities markets (FICC) alone generate between 40 and 60 percent of investment banking revenues at a range of leading investment banks, according to a Morgan Stanley estimate. Clients are monitoring counterparty credit risk much more actively since the onset of the crisis and some have already reassigned business from banks deemed more risky, IFR reported. 'In negotiations, if (a client) is not happy with the credit (risk) and (the counterparty) refuses to give them the collateral requirements, then (the client) will do less business with them,' said one market participant. Clearing houses also put much bigger safety margins in place once counterparties drop below a certain level. LCH.Clearnet, for instance, requests counterparties in repo trades put up twice as much collateral if they get downgraded two notches to BB+ from triple-B. Below that level, the trading party will no longer be allowed to trade at all. In swap trading, a downgrade to A- from A requires 10 percent more collateral. At the next step, BBB+, counterparties need to double collateral, and they will be barred from trading if they reach a level below BBB. In uncleared trades, the amount of collateral needed for a derivative deals is spelled out in a so-called Credit Support Annex (CSA) that can be part of standard agreements from the International Swaps and Derivatives Association (ISDA). The collateral requirements are negotiated bilaterally between counterparties and vary widely. Collateral is already scarce for Europe's cash-strapped banks, who have started paying institutional investors to swap illiquid bonds in exchange for better quality ones and secure cash from the European Central Bank. 'With lower ratings, counterparty risk goes up and so do margin calls, so it does make it more difficult (for trading),' said Carlo Mareels, credit analyst at RBC Capital Markets, adding that tighter rules and other factors also weighed. 'It's hard to see which bit makes it more difficult to trade. A one notch downgrade is not going to help -- but things are difficult anyway,' Mareels said." - Douwe Miedema
Wed Nov 30, 2011 [http://www.reuters.com/article/2011/11/30/us-banks-trading-idUSTRE7AT15L20111130 ]
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[Quote No.37888] Need Area: Money > Invest
"[In response to the now denied rumor of the IMF rescue of Italy in 2011, the sovereign bond credit markets might not react well to such an outcome:] In the real world of global finance the reality is that any country that is forced to accept an IMF bailout is also blocked from issuing debt in the public markets. IMF (or other supranational debt) is ALWAYS senior to other indebtedness of the country. That’s just the way it works. When Italy borrows money from the IMF it automatically subordinates the existing creditors. Lenders hate this. They will vote with their feet and take a pass at Italian new debt issuance for a long time to come. Once the process starts, it will not end. There will be a snow ball of other creditors. That's exactly what happened in the 80's when Mexico failed; within a year two dozen other countries were forced to their debt knees. " - Bruce Krasting
a former hedge fund manager.
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[Quote No.37889] Need Area: Money > Invest
"[Here are some interesting facts about the International Monetary Fund, IMF, which many countries contribute to, and the way they can offer cheap loans to countries that cannot afford the extremely high interest rates the sovereign bond market demands reflecting the risk of not being repaid in full:] ...The second reason to avoid IMF intervention in Europe is that lending to a potentially insolvent country has serious implications for the Fund. For starters, taking the IMF’s preferred-creditor status at face value, an IMF loan would entail substituting its 'non-defaultable' debt for 'defaultable' debt with private bondholders, because the Fund’s money is used primarily to service outstanding bonds. As a result, a group of lucky bondholders would be bailed out at the expense of those that became junior to IMF debt and remained highly exposed to a likely restructuring. Since a 'haircut' can be imposed only on whatever is left of the defaultable private debt, the larger the IMF share, the deeper the haircut needed to restore sustainability. For the same reason, IMF loans can be a burdensome legacy from a market perspective. Because they represent a massive senior claim, they may discourage new private lending for many years to come. This brings us to the third reason why the IMF should stay out of Europe’s crisis: what if Fund seniority fails? The implicit preferred-creditor status is based on central-bank practices that establish that the lender of last resort is the 'last in and first out.' It is this seniority that enables the IMF to limit the risk of default so that it can lend to countries at reasonable interest rates when nobody else will. This works when the IMF’s share of a country’s debt is small, and the country has sufficient resources to service it. But seniority is not written in stone: poor economies that are unable to repay even the IMF are eligible for debt reduction under the Heavily Indebted Poor Countries program, and 35 have received it since the program was established in 1996. What would happen if, in five years, Italy were heavily indebted to the IMF? What if private debt represented a share so small that no haircut would restore sustainability, forcing multilateral lenders to pitch in with some debt relief? The IMF’s seniority is an unwritten principle, sustained in a delicate equilibrium, and high-volume lending is testing the limit. From this perspective, the proposal to use the IMF as a conduit for ECB resources (thereby circumventing restrictions imposed by European Union’s treaties), while providing the ECB with preferred-creditor status, would exacerbate the Fund’s exposure to risky borrowers. This arrangement could be seen as an unwarranted abuse of [International Monetary] Fund seniority that, in addition, unfairly frees the ECB from the need to impose its own conditionality on one of its members. It makes little sense for the international community to assume that unnecessary risk. Let us hope that the IMF’s non-European stakeholders will be able to contain the pressure. The solution for Europe is not IMF money, but its own." - Mario I. Blejer and Eduardo Levy Yeyati
Mario I. Blejer is a former governor of the Central Bank of Argentina and former Director of the Center for Central Banking Studies at the Bank of England. Eduardo Levy Yeyati is Professor of Economics at Universidad Torcuato Di Tella and Senior Fellow at The Brookings Institution. From the article 'Keep the IMF Out of Europe'. Published on Project Syndicate, 4th Dec, 2011. [http://www.project-syndicate.org/commentary/blejer8/English ]
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[Quote No.37890] Need Area: Money > Invest
"A panic is a generalized run by providers of short-term funding to a set of financial institutions, possibly resulting in the failure of one or more of those institutions. The historically most familiar type of panic, which involves runs on banks by retail depositors, has been made largely obsolete by deposit insurance or guarantees and the associated government supervision of banks. But a panic is possible in any situation in which longer-term, illiquid assets are financed by short-term, liquid liabilities, and in which suppliers of short-term funding either lose confidence in the borrower or become worried that other short-term lenders may lose confidence. Although, in a certain sense, a panic may be collectively irrational, it may be entirely rational at the individual level, as each market participant has a strong incentive to be among the first to the exit." - Ben Bernanke
US Federal Reserve Chairman. Quote from his speech entitled, 'Reflections on a Year of Crisis (Interpreting the Crisis: Elements of a Classic Panic)' at the Jackson Hole conference on August 21, 2009
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[Quote No.37891] Need Area: Money > Invest
"In our view, it is very difficult to obtain useful views about economic direction using the standard 'flow of anecdotes' approach that is the bread-and-butter of many analysts. The economic data reported daily are a mix of leading, coincident and lagging indicators, often noisy and subject to revision, and without any overall economic structure. Adjusting one's entire economic views following each report, as if each somehow adds significant information, is a recipe for confusion. Treating economic data as a flow of anecdotes, without putting any structure around them, is why the economic consensus has failed to ever anticipate an oncoming recession. We use a variety of methods to gauge recession risk. The most straightforward is to form fairly low-order indicator sets like our Recession Warning Composite (see November 12, 2007, Expecting A Recession ), that have a long historical record of accurately distinguishing recessions. These indicator sets are comprised of what might be called 'weak learners' - conditions that do not in themselves have infallible records of identifying recessions, but that provide very strong signals when observed in combination with other recession flags. They include fairly straightforward conditions such as whether or not the S&P 500 is below its level of 6 months earlier, whether credit spreads are wider than they were 6 months earlier, whether the Purchasing Manager's Index is in the low 50's or below, and so forth." - John Hussman PhD
President at Hussman Investment Trust. 5th Dec, 2011. [ http://www.financialsense.com/node/7062?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fso+%28Financial+Sense%29&utm_term=FSO ]
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[Quote No.37892] Need Area: Money > Invest
"[There are dangers in fiscal and monetary Keynesian intervention in 'free' markets, which therefore cannot do their only job which is to send realistic price signals to market participants about supply and demand as well as risk and reward in capital allocation and raising debt for company growth. The following quote relates to these ideas in relation to the sovereign debt issues in Europe late 2011.] ...As of Friday the yield on 1-year Greek debt is up to a new record of 297%, with the 1-year note trading at 32.50 and other debt trading at about 25% of face value. Haven't we moved past Greece already? Well, no. Based on reported holdings of Greek debt in the European banking system, the implied losses on Greek debt alone are now enough to put many European banks into capital shortage. Europe could solve Italy's issues tomorrow and European banks would still face a banking crisis. Investors were quite excited last week when central banks announced a coordinated reduction in the interest rate for U.S. dollar swap lines. It's interesting that the more arcane an intervention is, the more excited investors get - maybe because complex-sounding interventions allow Wall Street's imagination to run wild and substitute for actual understanding. Very simply, what happened last week was a liquidity operation - essentially, European banks can now borrow dollars for a fraction of a percent less than they previously could. This prevents transactions denominated in dollars from 'freezing up' across Europe (since European banks are no longer willing to lend to each other). But it does nothing to address the sovereign debt crisis. It does nothing to make European banks more solvent. All a 'swap' is, really, is a loan of X dollars, in return for some number Z euros. At the end of the period, the borrower pays back X dollars, plus some interest, and gets back exactly Z euros. Notably, it doesn't matter what the actual value of the euro is at the time of repayment. X and Z don't change. So the Federal Reserve, for example, doesn't take on any foreign currency risk in this trade. The euros are really nothing but collateral for what otherwise is a simple loan of U.S. dollars. Meanwhile, we're seeing various proposals for more complex ways for some institution to buy distressed European debt. The most recent iteration looks for the IMF to buy the debt. But when the IMF buys debt, it takes a senior claim to all other bondholders, and imposes conditions to make sure that their tranche of debt gets repaid (the IMF is emphatically not in the business of providing loans that it doesn't think it will get back). Europe doesn't face a liquidity problem. It faces a solvency problem. What investors really want isn't just for someone to buy distressed European debt, but for someone to buy that debt and willingly take a loss on it so the money doesn't ever actually have to be repaid. That isn't going to happen easily. Short of major fiscal improvements in Europe (which appear increasingly hopeless in the face of an oncoming recession) any solution will have to explicitly or implicitly impose losses on someone. In my view, the best 'someone' is the investors who willingly made the loans in expectation of earning a spread, and who knowingly took a risk. The worldwide hope among these investors is that the 'someone' taking the hit will instead be the German people, but Germany remains resolutely against printing permanent new euros in order to effectively redeem the debt of Italy and other countries. Despite hopes that the ECB [European Central Bank] will suddenly shift its policy on this, I continue to expect that any ECB purchases of distressed European debt will follow an agreement on European fiscal union, and that even if initiated, will be on a smaller scale than investors seem to hope. Without airtight fiscal credibility among distressed Euro-area countries, whatever debt purchases the ECB makes will be almost impossible to reverse. We represent the Lollipop Guild - Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums. What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world's policy makers are increasingly wrecking the prospects for long-term economic growth. The world's standard of living (what we can consume for the work we do) is intimately tied to its productivity (what we can produce for the work we do). That productivity requires our scarce savings to be allocated to productive physical capital, and to productive human capital (primarily education). Nietzsche famously said 'What does not kill me makes me stronger.' The corollary is 'What constantly rescues me makes me weaker.' [Paternalistic government intervention - 'capitalism without the disciplining risk of bankruptcy' or in other words 'privatising the gains and socialising the losses' onto the tax-payer - creates a socialist, if not fascist, economy of crony capitalism and companies that are poorly run both for customers, staff, shareholders and society in general.] The world will only stop looking for bailouts when policy makers stop handing them out [in a short-sighted and misguided attempt at providing risk-free economic gains and greater stability, along with dangerously enhancing the power for the incumbent political classes and their acolytes]. " - John Hussman PhD
President at Hussman Investment Trust. 5th Dec, 2011. [ http://www.financialsense.com/node/7062?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fso+%28Financial+Sense%29&utm_term=FSO ]
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[Quote No.37893] Need Area: Money > Invest
"Preventing small forest fires can cause large forest fires to become devastating. [Likewise preventing small recessions (which reduce exuberance and ensure resilient business models and managers) can cause large recessions like the Great Depression. Governments and voters that insist that Keynesian stimulus should prevent recessions, misunderstand how important small recessions are to the health of an economy.]" - Nassim Nicholas Taleb

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[Quote No.37896] Need Area: Money > Invest
"[There's a link between LEIs, Stock Prices and Bond Yields:] Both the bond market and the stock market are both leading economic indicators. When a recession is right around the corner stocks often fall in anticipation of reduced economic activity, which in turn depresses inflationary pressures and bond yields fall. When a recovery is developing, stocks rise as do bond yields in anticipation of higher corporate profits and greater inflationary pressures. For this reason, LEIs [leading economic indicators] such as the ISM Manufacturing PMI, which also leads turns in the economy, often move coincidently with stock prices and bond yields." - Chris Puplava
Analyst with Financial Sense.
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[Quote No.37929] Need Area: Money > Invest
"The market will do whatever it must to fool the majority." - Share market saying

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[Quote No.37930] Need Area: Money > Invest
"One of the oldest rules of trading is simply this: a market that cannot or does not respond to bullish news is a bearish market, not a bullish one. [and vice versa]" - Dennis Gartman
Economist and the publisher of the Gartman Letter.
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[Quote No.37936] Need Area: Money > Invest
"A virtuous [economic] circle of increased investment and increased productivity would increase the [nominal rather than unsustainably high debt to income or GDP] debt-carrying capacity of all, through [higher consumption, greater exports and imports,] higher wages, greater profits and higher government revenues. This should be our common focus." - Mark Carney
Governor of the Bank of Canada and Chairman of the Financial Stability Board, speech entitled 'Growth in the age of deleveraging' to the Empire Club of Canada/Canadian Club of Toronto, Toronto, Ontario, 12 December 2011. [http://www.bis.org/review/r111215a.pdf ]
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[Quote No.37937] Need Area: Money > Invest
"Excesses of leverage [in family finances, business and economies] are dangerous, in part because debt is a particularly inflexible form of financing. Unlike equity, it is unforgiving of miscalculations or shocks. It must be repaid on time and in full. While debt can fuel asset bubbles, it endures long after they have popped. It has to be rolled over, although markets are not always there. It can be spun into webs within the financial sector, to be unravelled during panics by their thinnest threads. In short, the central relationship between debt and financial stability means that too much of the former can result abruptly in too little of the latter [in the classic 'Minsky Moment']." - Mark Carney
Governor of the Bank of Canada and Chairman of the Financial Stability Board, speech entitled 'Growth in the age of deleveraging' to the Empire Club of Canada/Canadian Club of Toronto, Toronto, Ontario, 12 December 2011. [http://www.bis.org/review/r111215a.pdf ]
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[Quote No.37939] Need Area: Money > Invest
"In this business [of investing] if you're good, you're right six times out of ten. You're never going to be right nine times out of ten." - Peter Lynch
Famous and successful fund manager
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[Quote No.37945] Need Area: Money > Invest
"To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties." - Paul Samuelson
(1915 - 2009), economist.
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[Quote No.37946] Need Area: Money > Invest
"In conditions of great uncertainty people tend to predict the events that they want to happen actually will happen." - Roberta Wohlstetter

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[Quote No.37953] Need Area: Money > Invest
"We use a combination of fundamentals and technicals — fundamentals tell you what to buy, but the charts tell you when. Sometimes the fundamental story remains intact but since nobody else is believing it, the stock cannot manage to get out of its own way again [and the stock can become even cheaper]." - Barry Ritholtz
CEO and Director of Equity Research, Fusion IQ.
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[Quote No.37954] Need Area: Money > Invest
"...my foregoing acceptance of the possibility that stock value in aggregate can become irrationally high is contrary to the hard-form ‘efficient market’ theory that many of you once learned as gospel from your mistaken professors of yore. Your mistaken professors were too much influenced by ‘rational man’ models of human behaviour from economics and too little by ‘foolish man’ models from psychology and real-world experience." - Charlie Munger
Lawyer, business partner of Warren Buffett and highly successful value share investor in his own right.
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[Quote No.37955] Need Area: Money > Invest
"[Decision-Making for Investors: Theory, Practice and Pitfalls –] ...individuals who achieve the most satisfactory long-term results across various probabilistic fields tend to have more in common with one another than they do with the average participant in their own field. [Further, the] ...distinguishing features of probabilistic players include a focus on process versus outcome, a constant search for favorable odds and an understanding of the role of time. Success in a probabilistic field requires weighing probabilities and outcomes – that is, an expected value mindset. [Another] ...key to success is a high degree of awareness of the factors that distort judgment." - Michael Mauboussin
Chief Investment Strategist at Legg Mason Capital Management Inc., Adjunct Professor of Finance at the Columbia Business School and one of the leading real world experts in the field of behavioral finance.
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[Quote No.37957] Need Area: Money > Invest
"...the board of directors ...represent the stockholders, and whose duty it is to champion the owners' interests -[and] if necessary, against the interests of the operating management [who like Josh Billings, in patriotic zeal stood ready to sacrifice all his wife's relations on the altar of his country, are sometimes willing to sacrifice their stockholders' last dollar to keep the business and their highly-paid employment going, or at least under their control rather than being bought by another company]. " - Ben Graham
Highly successful fund manager and author, considered 'The Father of Value Investing'. [http://www.forbes.com/forbes/1999/1227/6415410a_print.html ]
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[Quote No.37958] Need Area: Money > Invest
"What we do is look for extremes in markets: very undervalued or very overvalued. ...When you have a theory to work from, you avoid the problem that comes with stumbling around in the dark over chairs and nightstands. At least you can begin to visualise in the dark, which is where we all work. The future is always unlit. But with a body of theory, you can anticipate where the structures might lie. It allows you to step out of the way every once in a while." - James Grant
The Austrian Economics Newsletter (1996)
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[Quote No.37959] Need Area: Money > Invest
"Thousands of experts study overbought indicators, put-call ratios, the Fed’s policy on money supply... and they can’t predict markets with any useful consistency, any more than gizzard squeezers could tell the Roman Emperors when the Huns would attack." - Peter Lynch
One of the most prominent and successful funds managers of the last four decades.
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[Quote No.37960] Need Area: Money > Invest
"[The First Law of Economic Prediction:] For every economist [and prediction], there is an equal and opposite economist [and prediction]." - Chris Leithner
Fund manager. [http://mises.org/journals/scholar/Leithner.pdf ]
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[Quote No.37961] Need Area: Money > Invest
"...keep firmly in mind two seemingly flippant but nonetheless very important 'laws' of mainstream economics. The first is that, for every economist, there is an equal and opposite economist. The second law is that both are likely to be wrong." - Chris Leithner
Fund Manager, [http://mises.org/journals/scholar/Leithner.pdf ]
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[Quote No.37962] Need Area: Money > Invest
"[At Berkshire Hathaway’s 2003 AGM Warren Buffett stated] In our view, the same conclusion fits stocks generally. Despite three years of falling prices, which have significantly improved the attractiveness of common stocks, we still find very few that even mildly interest us. That dismal fact is testimony to the insanity of valuations reached during The Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge. The aversion to equities that Charlie [Munger] and I exhibit today is far from congenital. We love owning common stocks – if they can be purchased at attractive prices. In my 61 years of investing, 50 or so years have offered that kind of opportunity. There will be years like that again. [Until then] we will sit on the sidelines. With short-term money returning less than 1% after-tax, sitting it out is no fun. But occasionally successful investing requires inactivity." - Warren Buffett
Highly successful value investor and CEO of Berkshire Hathaway.
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[Quote No.37965] Need Area: Money > Invest
"Using The OECD's Leading Indicators To Avoid Both Bull And Bear Traps: ...Any experienced economist/analyst/trader knows that stock prices lead economic and corporate earnings trends, and that is why stock prices are included in government measures of leading economic indicators. Stock prices over the short term however are noisy. As the economist Paul Samuelson once observed, 'the stock market has predicted nine out of the last five recessions'. That said, longer-term stock prices in aggregate have an almost one-to-one correspondence with upturns and downturns in economic growth. The downside is that the compilation and release of 'leading' economic indicators takes time, creating a noticeable delay between their release and 'real time' stock prices. For example, the OECD's (composite leading indicator, CLI) indices are released one month and a couple of weeks after the fact, e.g., the October reading was released on December 12. However, because the CLI is a) readily available on the OECD’s web site, b) is designed to provide early signals of turning points in the economic/business cycle 6~9 months in advance of the actual turning point, and c) continues to trend in the new direction for several months or longer once the turning point is reached, it is useful in confirming or denying stock market turning points. The OECD’s monthly CLIs can therefore help you as an investor avoid both bull and bear stock market traps. For example, the OECD CLI for the U.S. peaked in June 2007. While the S&P 500 peaked soon afterward in July 2007, it rallied to a new high after a short correction of about 8%, only to collapse some 56% by March 2009. In other words, the short rally from the brief selloff was a bull trap. Conversely, the S&P 500 peaked in April 2010 and sold off some 16%, but there was no confirming peak in the U.S. CLI. This time, the selloff was a bear trap that shook investors out of positions while the S&P 500 went on to rally some 33% to the April 2011 high. So where does the S&P 500 stand today versus its CLI? Since the April 2011 peak, the OECD, U.S., Euro area (17 countries) and Japan CLIs continue to deteriorate with no signs of a turning point. In other words, the developed nations are again slipping into recession. Meanwhile, the S&P 500 has apparently bottomed after an 18% selloff and gave us a Christmas rally that could very well be a bull trap. Until there is confirmation of a new uptrend from the U.S. CLI, this rally is suspect until further notice. Does the CLI work for other markets? Since the capital markets in the emerging economies are not as efficient as the U.S., the relationship between individual country CLIs and that country's stock market index seems to be generally looser, but still applies. In the case of the Shanghai Composite and the China CLI, the lags/leads in the Shanghai Composite vis-à-vis the CLI have been up to two months. The other conclusion that can be derived from the China and other BRICs CLIs is that the Euro contagion, in addition to indigenous factors, is visibly dragging down emerging economy growth as well, implying that this time, the emerging markets will not be spared from a global recession. " - Darrel Whitten
He is editor and publisher of The Japan Investor - japaninvestor.com - and as of 2011 has lived and worked in Japan for the past 31 years. A native of California, he began his Japan career as an investment analyst for Nomura Securities at their Nihonbashi Headquarters. He has been director and managing director of Japanese investment research for three major investment banks-Prudential Securities, Lehman Brothers and ABN AMRO Securities. Darrel has been providing investors with value-added research on Japanese financial markets for over 20 years. Published December 28, 2011. [http://seekingalpha.com/article/316211-using-the-oecd-s-leading-indicators-to-avoid-both-bull-and-bear-traps ]
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