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A China Debt Obligation PDF Print E-mail
Written by Burnham Banks   
Friday, 08 March 2013 03:45

In November 2011 I counseled caution on the Chinese economy, expecting a serious slowdown in growth. At the same time, I was concerned about the poorly policed financial system, a concern which has not gone away, despite the recovery in other parts of the Chinese economy. While the Chinese economy has recovered, it remains at risk from a fragile financial system and excessive credit creation.

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The Singapore Housing Market. Contingency Plans. PDF Print E-mail
Written by Burnham Banks   
Sunday, 03 March 2013 10:13

Singapore's property market has surged since 2008 when it had previously halved from the highs of 2007. Low interest rates, easy credit and an influx of foreigners and foreign capital have propelled housing prices in the past 4 years. Money printing in desperate developed markets have also overflowed into capital attractors like Singapore fueling general inflation as well as asset prices.

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Singapore Issues PDF Print E-mail
Written by Regular Zhou   
Sunday, 10 February 2013 00:03

 

Singapore needs new ideas. Growing the economy through growing the population is the easy way out while ignoring he glaring space constraints. In addition, GDP growth alone does not distinguish between the share that goes to households and the share that goes to firms. Moreover, per capita income and consumption are neglected. These are more important metrics to the people of Singapore.

Last Updated on Sunday, 10 February 2013 00:20
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Capital Controls. Inflation. An Eerie Calm PDF Print E-mail
Written by Burnham Banks   
Monday, 28 January 2013 00:14

Asset markets are coiled as tight as a spring, mostly wound up by the spread of quantitative easing of central banks the world over from the US fed to the ECB to the BoJ. Competitive easing is equivalent, or at least has as a collateral strategy, to competitive devaluation. In depressionary economies QE doesn't create the kind of inflation one might expect from the wholesale debasement of currency. However, inflation is already rising even in the weak economies of Europe and Britain. Only in the US is inflation low, suppressed by the shale oil, fracking boom that keeps energy costs, no small part of the CPI, low. Emerging markets are overheating as capital created in the developed markets flows elsewhere. At some point, countries in emerging markets will realize that open capital accounts render them vulnerable to the self interested yet  collectively destructive policies of the West. The case for capital controls may once again arise.

Last Updated on Monday, 28 January 2013 00:35
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The Tyranny of Governments. How Politicians are NOT US. PDF Print E-mail
Written by Burnham Banks   
Friday, 11 January 2013 00:53

Britain's MPs have apparently lost the trust of the people. One of the charges leveled against MPs, indeed in any country, is that they are out of touch with society and don't understand the plight of the people. This is patently false. They understand the people alright; they just don't want to be the people.

Last Updated on Friday, 08 February 2013 23:44
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Risk and Damage. Worry 2013 PDF Print E-mail
Written by Burnham Banks   
Tuesday, 08 January 2013 10:09

The VIX index has sunk to remarkably low levels, as has the MOVE index. Yields on bonds from treasuries to investment grade to junk have compressed significantly. The market is now more optimistic about the prospects for a recovery in China, a more robust US housing market and the ability of the Europeans to hold their common currency together. All is well.

Time to worry. Risk is highest in calm waters. Once the iceberg hits, its just damage. The best asset can be priced sufficiently highly to be a poor investment, and the worst asset can be priced sufficiently lowly to be a good investment.

Last Updated on Wednesday, 09 January 2013 03:43
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Misguided Tax Strategy PDF Print E-mail
Written by Burnham Banks   
Thursday, 20 December 2012 07:03

In the age old children’s story of persuasion versus force, the sun and the wind compete to remove the traveler’s coat to prove their power. The wind’s efforts only make the man wrap his coat more tightly and securely while the sun’s heat eventually drives the man to voluntarily remove his coat.

Last Updated on Thursday, 20 December 2012 07:04
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Buy Equities Sell Bonds PDF Print E-mail
Written by Burnham Banks   
Monday, 10 December 2012 00:52

The thirst for yield has led to companies raising more debt at cheaper funding levels than before. This has led to a deterioration of credit quality. Of late some companies have been raising debt for share buy backs recognizing the gap between the cost of equity funding and debt funding. This should imply that investors should prefer equities to bonds since the insiders are clearly signaling this through their adjustments to their capital structures and additionally, since debt issuance has increased to the extent that companies have sufficient liquidity for the foreseeable future, risk of default is low and yet leverage has increased, an ideal confluence for equities which can be regarded as a call option on the underlying value of the firm. 

 
The Wide Angle: Agency PDF Print E-mail
Written by Burnham Banks   
Monday, 10 December 2012 00:41

The Wide Angle: 

  • Customers of a company should want to see the employees of the said company buy their own products and services and own shares in the company or at least have a direct link between their compensation and the quality of the products and the satisfaction of the customers. As an employee of a company, I want to diversify my share holdings among my company's competitors and other industries as well. 
  • In some industries, the asymmetry of information between the seller and the buyer of the service is more acute. Examples are financial services, in particular retail financial services. There is the additional problem of institutions which represent systemic risk by being too big to fail. One solution to these problems is to require such institutions to constitute themselves as unlimited liability partnerships.
  • The encouragement to greater scope for risk taking and risk sharing is incompatible with the concept of limited liability. On the one hand economists encourage individuals to take more entrepreneurial risk and on the other they condone limited liability business structures. In fact the limited liability institution is a structure designed to encourage risk taking.
  •  The interests of the shareholder, customer, employee troika is beyond resolution.
 
Fix one thing, break another. Parallels Between 2001 and 2009. Another Credit Bubble. PDF Print E-mail
Written by Burnham Banks   
Wednesday, 05 December 2012 11:39

The Parallel Stages of the Credit Bubble 2001 versus 2009

Last Updated on Sunday, 09 December 2012 23:52
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Collecting Luxury Watches PDF Print E-mail
Written by Burnham Banks   
Friday, 30 November 2012 01:14

You never really own a Patek Philippe, you merely look after it for the next generation. It has been one of the most successful advertising slogans ever. It appeals to our vanity, yet tempers it, it appeals to our immortality, yet reminds us of our mortality, it panders to our hopes for our progeny, yet gets us to buy today, and by suggesting an element of investment for the future it makes us less price sensitive and willing to move up the complication and price point curve.

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Heptadecagonal Tires PDF Print E-mail
Written by Burnham Banks   
Monday, 26 November 2012 07:33

Anyone who has ever worked in a bureaucracy will have figured out what's wrong with our world. Apocalyptic risks can present themselves in no uncertain terms to the market and still evoke the calmest, most dazed and serene of reactions. Solutions to calamitous problems can stare a herd in the face, and the herd will stare blankly back without even the slightest pupil dilation.

Last Updated on Monday, 26 November 2012 07:38
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Instability: Macro, Banking and Agency: PDF Print E-mail
Written by Burnham Banks   
Thursday, 15 November 2012 05:19

Instability: Macro, Banking and Agency:

 

Thirty years of prosperity, falling interest rates, rising stocks and bonds, moderate inflation and widening inequality of wealth within nations had led to an unstable position. While inequality has receded between countries, it had increased within countries regardless of their economic model or system of politics.

Last Updated on Friday, 30 November 2012 01:05
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Friday Pearls of Folly Nov 9 PDF Print E-mail
Written by Burnham Banks   
Friday, 09 November 2012 01:06

 

The yield on high yield bonds is not very high.

 

The ability of an insolvent concern to raise debt can stave off insolvency.

 

  • I’m sorry, I can’t pay you in silver or gold, will you take an IOU?
  • But that’s what you said last time. Can you pay off the last IOU?
  • Will you take paper money? 
Last Updated on Monday, 26 November 2012 07:31
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Time is Running Out, Even For Countries With Low Borrowing Costs. PDF Print E-mail
Written by Burnham Banks   
Tuesday, 30 October 2012 06:54

 

How does one put an economy in order? An economy is like a business, but it is a lot more complex, with more stakeholders. Still, a business in distress is a good starting point to try to find a way out.  

Last Updated on Tuesday, 30 October 2012 07:00
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Singapore Car Loans. Imprudent Banking Practices PDF Print E-mail
Written by Burnham Banks   
Tuesday, 05 March 2013 00:06

Until a week ago it was possible to buy a car in Singapore with a 10% down payment and a 10 year loan. Cars are acutely expensive a shortage of land (Singapore is a tiny island at the foot of Malaysia) has necessitated the rationing of cars through a quota system. The rationing requires car buyers to first buy a 10 year right to operate a car called a certificate of entitlement or COE. COEs are auctioned monthly with supply based on the number of cars being de-registered that month plus an acceptable growth rate. This idiosyncratic system has led to wild swings in COE prices, mostly to the upside, resulting in Singapore having the most expensive cars in the world. As an example, an Audi A6 in Singapore would cost the same as a Ferrari 458 Italia in London.

Last Updated on Thursday, 08 August 2013 05:20
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Pension Model PDF Print E-mail
Written by Burnham Banks   
Saturday, 16 February 2013 07:43

 

The ideal pension would be a defined benefit scheme whereby workers would be required to contribute a minimum portion of their earnings into a pension scheme. The assets of this pension scheme would be held in custody on behalf of the worker.

Last Updated on Saturday, 16 February 2013 07:59
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US Economic Growth 2012 PDF Print E-mail
Written by Burnham Banks   
Wednesday, 30 January 2013 23:53
  • US 2012 Q4 growth was -0.1% which surprised most analysts who expected at least slow to moderate growth. While disappointing, this is no cause for alarm.
  • Inventory draw downs shaved 1.3% off GDP growth. Worries about the fiscal cliff in the 4th quarter of 2012 tempered business expectations and investment.
  • Defense spending and government cutbacks accounted for a further 1.3% shortfall in growth. The rollback from 2 major areas of conflict and the need to reduce government debt will only reinforce this trend.
  • Seasonal weather effects such as Hurricane Sandy on the Eastern Seaboard also detracted from growth.
  • Without the decline in government spending and inventory destocking, GDP growth would have been a healthy +2.5%, above the post crisis long term equilibrium rate of circa 2%.
  • On the positive side consumption and business investment remain robust. Consumption growth has accelerated to 2.2% helped by increased household after tax income. Household's debt service, that is, debt payments as a percentage of disposal income has fallen sharply from 14% in 2007 to 10.6% today on the back of lower interest rates and debt repayment. Debt outstanding to personal income has also fallen.
  • Employment appears to be recovering albeit at a glacial pace. US productivity is improving.
  • The housing market continues a steady recovery. House building grew at over 15% accelerating from 13.5% in the prior quarter.  The November reading of the Case Shiller 20 City home index accelerated to a 5.5% increase in November from a prior 4.2% increase in October. 
Last Updated on Wednesday, 30 January 2013 23:57
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The Origination and Distribution of Intellectual Property and Implications for Growth PDF Print E-mail
Written by Burnham Banks   
Monday, 21 January 2013 00:46

‘We think of it, we build it, we buy it.’ This all works nicely until the economy reaches its speed limits and potential. Then the economy overheats and prices rise more quickly. The limits of an economy can be extended by trade and specialization where productive capacity is exported to areas or countries with cheap labour to bring down costs and relieve capacity constraints.

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The True Cost of the Euro PDF Print E-mail
Written by Burnham Banks   
Thursday, 10 January 2013 00:08

With the ECB warrantying that it will be lender of last resort to Euro zone governments it seems that the risk of a break up of the Euro is no longer. Be that as if may, as each day passes the cost of maintaining the Euro becomes more and more apparent. The charge is not one of market turmoil, sovereign funding cost, financial sector imbalances or fiscal discipline but a more fundamental issue of price discovery and factor and goods market equilibrium. If a single currency is to persist, domestic prices of all things, goods, services and inputs, need to be flexible so that markets clear. Yet we know that for various reasons wages tend to be sticky upwards, that is, wages are easier to raise than to lower. Labour laws and unions are the main reasons for this asymmetry of wage friction. As a result, the labour market fails to clear and we have Euro zone unemployment close to 12% with youth unemployment substantially higher and Club Med countries running at double the zone's average.

Last Updated on Thursday, 10 January 2013 00:14
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Investment Strategy 2013. Q&A With Burnham Banks PDF Print E-mail
Written by Burnham Banks   
Thursday, 27 December 2012 02:04

Q&A with Burnham Banks

Last Updated on Friday, 01 March 2013 02:44
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Investment Review 2012. Investment Outlook 2013. PDF Print E-mail
Written by Burnham Banks   
Wednesday, 12 December 2012 02:56

Model Portfolio and Strategy Review:


 

It's time to review our investment outlook and strategy for 2013. It is remarkable how have arbitrary time intervals when we review and make our plans but that is how we humans have chosen to behave and so any study in human behavior or endeavor should reasonably respect these arbitrary wavelengths. We begin with a review of the investment strategy for 2012.

Last Updated on Monday, 17 December 2012 00:35
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Even Regulators and Investment Professionals Don't Get Hedge Funds PDF Print E-mail
Written by Burnham Banks   
Monday, 10 December 2012 00:50

Hedge funds don't make investors rich, they preserve the wealth of the investor who is already rich. Most hedge funds are aware of and carefully manage downside risk and volatility. Long only mutual funds have benchmarks to which they tend to cling. A volatile benchmark can seriously injure an investor's portfolio.

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Please Don't Invest In Hedge Funds. You'll Crowd Me Out. PDF Print E-mail
Written by Burnham Banks   
Sunday, 09 December 2012 23:50

I discourage investors from investing in anything they don't understand. Hedge funds are fairly complex as far as investment strategies go, so I often discourage investors from investing in them unless they are sufficiently knowledgeable. If they want to invest in hedge funds, I tend to steer them towards funds of hedge funds or asset managers who run portfolios of hedge funds, professional hedge fund investors who can help with due diligence and portfolio construction.

Last Updated on Monday, 10 December 2012 00:32
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Being Too Bearish? The Next Bubble. PDF Print E-mail
Written by Burnham Banks   
Wednesday, 05 December 2012 03:48

I've not taken my own advice lately and have been too bearish on risk assets. Entirely my fault for ascribing more weight to fundamentals than I normally do.

Last Updated on Wednesday, 05 December 2012 08:34
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Capital Gains and Long Term Investing PDF Print E-mail
Written by Burnham Banks   
Friday, 30 November 2012 01:02

Capital gains tax should be reduced over the life of an investment. This creates an incentive for long term investment and discourages short term trading. Every year that an investment is kept, there should be a 10% discount on the capital gains tax payable on that investment so that an investment that is held for 10 years attracts no capital gains tax. A similar principal would apply to losses eligible for offset against income or profits. Such loss offsets would decay similarly.

Last Updated on Friday, 30 November 2012 01:05
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Instability: Labour PDF Print E-mail
Written by Burnham Banks   
Monday, 26 November 2012 07:18

For as long as one can remember the path to a better future began with a college degree. Especially in emerging markets where college graduates used to be a scarce commodity this was particularly true. In small, rapidly growing markets the scarcity premium was high. Even public sector jobs paid a substantial premium for college graduates while providing them with job security.

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Another Intractable Problem: Economic Growth, Sovereign Solvency, Inflation and Equality PDF Print E-mail
Written by Burnham Banks   
Wednesday, 14 November 2012 08:45

In early 2012 it gradually became apparent that the world was slipping into a synchronized slowdown. At least it became gradually apparent to slower minds like this one. By mid 2012 it became quite clear that the US recovery which started in August or September 2011 was petering out, Europe had never really picked up since the Summer of 2011 when Greece first exposed the vulnerability of the Union, and China’s slide was gaining momentum. In the last month we have seen better numbers from China, continuing weakness in Europe and in the US, a rebound in the real estate market if nowhere else in that economy.

Last Updated on Thursday, 15 November 2012 05:19
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Engineering Inflation, A Good Idea? PDF Print E-mail
Written by Burnham Banks   
Monday, 05 November 2012 01:23

Since the great transfers following the great crisis of 2008 and the realization that debt levels had surged out of control, inflation has seemed like a tantalizingly viable and easy solution to the debasement of debt.

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The Thirst For Yield (and other Class A drugs) PDF Print E-mail
Written by Burnham Banks   
Wednesday, 24 October 2012 01:06

The past decade has seen the emergence of the yield junkie. You recognize them from their propensity to pay and subsequently overpay for anything with the tiniest shred of yield from investment grade corporate bonds to sovereign bonds to AAA rated junk. In the past couple of years, the yield junkie has trampled on spreads and thinned out yields across investment grade and high yield bonds. The more hardened ones even buy equities for an at risk dividend payout.

Last Updated on Friday, 04 January 2013 06:41
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