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I Have A Dream PDF Print E-mail
Written by Burnham Banks   
Tuesday, 02 July 2013 06:14

I have a dream. A dream of a different wealth management model. A model where the interests of the staff, the firm and the clients are aligned. Where the reward relies on the minimum of subjectivity. Where the people are at the top if their field. Where the infrastructure is adequate and efficient and supports the client and the business. And where there is mutual and universal professional and personal respect.

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European Equities are a Buy PDF Print E-mail
Written by Burnham Banks   
Monday, 17 June 2013 04:40

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Thoughts about General Investing Conditions. Why We Should Invest in Managed Products. PDF Print E-mail
Written by Burnham Banks   
Friday, 07 June 2013 00:06

Economic Growth

In the decades prior to 2008, rising credit allowed most economies, even inefficient or unstable ones, to grow and prosper. 2008 marked a turning point in the long term credit cycle. With global deleveraging, weak and strong economies have been revealed for what they are.

Last Updated on Friday, 07 June 2013 13:45
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Japan QE. Rationalized Equilibria. Lucas Critique. PDF Print E-mail
Written by Burnham Banks   
Thursday, 30 May 2013 07:08

The policies that Japan has embraced in an effort to revive its flagging economy are indeed desperate measures. To be clear, I believe that they will work in at least boosting asset prices and reviving the economy for a period of time. The long run prognosis is not so good.

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Europe's Troubled Economy and the Euro. Why the Euro Doesn't Work and Where it will Break. PDF Print E-mail
Written by Burnham Banks   
Sunday, 19 May 2013 23:24

 

The credit infused growth of the last twenty years has allowed many an inefficiency to persist undetected or un-addressed. The EUR is one such inefficiency. Unless national factor prices are flexible or factor productivities converge between countries in the Eurozone, a single currency must impede market clearing leading to inefficient allocation of resources leading to underemployment or unemployment. Only the acute dearth of credit has exposed this systemic weakness, at least to some. Many economists and central bankers continue to focus on the financial markets effects of the EUR without addressing its impact on the real economy. A point will be reached when the real economy issues will demand resolution.

Last Updated on Monday, 20 May 2013 00:58
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Recap on 2Q investment outlook PDF Print E-mail
Written by Burnham Banks   
Thursday, 16 May 2013 03:00

Not everyone has time to read the lengthy, boring letters that I write, so I thought I'd summarize and simplify.

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Exiting QE. The Game of Chicken. Welcome to the Hotel California. PDF Print E-mail
Written by Burnham Banks   
Monday, 13 May 2013 23:18

 

The game of chicken is played when two cars are driven at each other at high speed. The one that flinches first, loses. The one that flinches last, wins. If neither flinch, they both lose. 

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A Theory About the Gold Rout and Implications for Risk Assets under QE PDF Print E-mail
Written by Burnham Banks   
Monday, 13 May 2013 10:44

The sudden weakness in gold is intriguing given the acceleration in global QE most recently by the Bank of Japan. Gold has always been thought as a hedge against inflation and deflation. In fact most gold bugs would have one believe it can cure physical ailments. It is established wisdom, however, that gold is a hedge against the debasement of fiat currency. Now this thesis at least sounds plausible and I can accept it. But why then, in the midst of rotational, global, wholesale currency debasement, is gold weak?

Last Updated on Monday, 13 May 2013 10:58
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Market Outlook Review 4Q 2012 to 2Q 2013 PDF Print E-mail
Written by Burnham Banks   
Thursday, 09 May 2013 05:40

 

Our methodology is simple. Its getting it right that’s difficult. First of all, we observe, all the time, data, anecdotal evidence, trends, events and developments, everything. Then we postulate theses, what we think all the information evolving before us means. From these theses come predictions about the evolution of investable asset markets. This is the hard part. The next part is easy. We sit back and see if our predictions come true. If they do, we still ask ourselves if it is a coincidence or pure dumb luck, or if it was a consequence of our theses. If they don’t, then we revisit our theses to see if they are still sound or valid. If they are not, then its back to the drawing board. We almost never rely entirely on the price evolution of the asset markets we are interested in. That’s like forecasting the weather by looking out the window. We are not going to wait for a 20% drawdown in the market to inform us that we are in a bear market. That type of signal is ever so slightly late.

Last Updated on Monday, 13 May 2013 10:46
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The Slowdown in the US Economy. A Temporary Pause. PDF Print E-mail
Written by Burnham Banks   
Tuesday, 30 April 2013 22:26

The US economy is currently in a slowdown. How significant is this?  If we assume that trend growth for GDP is 4%, as was widely believed to be the case pre 2008, then 2.5% GDP growth would have indicated an economy failing to recover fully in its latest cycle, which would be quite negative. If, however, trend growth is 2% as I believe it is in a post 2008 world where the economy is not only no longer fueled by credit creation but also attempting to gradually deleverage itself, then 2.5% growth represents an overshoot, a cyclical high from which the US economy is currently climbing down, and therefore to be expected. It would be indicative of a normal recovery, albeit along a so-called 'new normal' equilibrium path of lower growth. 

Last Updated on Thursday, 02 May 2013 06:59
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Second Quarter 2013: Investment Thoughts PDF Print E-mail
Written by Burnham Banks   
Sunday, 14 April 2013 12:42

The first quarter of 2013 has ended with risk assets mostly higher than at the end of 2012. It would seem that the optimism that greeted the new year was well placed. Indeed many of the problems in the world have been solved, patched or postponed.

Last Updated on Monday, 15 April 2013 05:05
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Is The Stock Market Rally Sustainable? PDF Print E-mail
Written by Burnham Banks   
Tuesday, 26 March 2013 00:13
  • Inflation is an emerging market problem created in the developed markets.
  • Equities are being boosted by factors other than fundamentals, which is fine.
  • We invest and spend in nominal terms, it pays to stay invested and it costs to not be invested.
  • Uncertainty prolongs trends, consensus ends them. Until bullishness reaches an extreme, the trend will continue.
  • Its not useful to think of equities or companies along national lines. Most businesses are global.
  • Developed markets have an intellectual property advantage. In trade wars, exchange rates are the first salvo. Intellectual property is the next.

Last Updated on Monday, 01 April 2013 02:43
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Equities and Credit: One Correlated Bet? PDF Print E-mail
Written by Burnham Banks   
Tuesday, 19 March 2013 03:55

Today, equities, bonds, FX and most asset classes are driven by one thing. Central bank policy.

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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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2H Strategic Outlook PDF Print E-mail
Written by Burnham Banks   
Wednesday, 19 June 2013 00:27

A very useful way of approaching investing is to first assess the underlying prospects for a particular company and then to find the best value and risk reward in its capital structure to buy. Often, however, we tend to assess macro conditions, then market implications and asset allocate between equities or bonds before we look at companies. This approach often fails to discriminate between the diverse geographical sources or revenues and costs. Unfortunately, the force of habit is so entrenched that mainstream investment strategies will find it hard to adjust to the more targeted approach, and so we march on with the old tools. One has to be cognizant of the existing methodology since it will drive current capital allocations and fund flows which move the market.

Last Updated on Wednesday, 17 July 2013 11:12
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QE Tapering. How the Fed will roll it back. PDF Print E-mail
Written by Burnham Banks   
Friday, 14 June 2013 02:39

The Fed will roll back QE gradually and will telegraph its intentions well in advance. This is clear. And it has begun. The Fed will continue to keep QE tapering in the news maintaining a 'will they won't they' stance until the market begins to get tired of the message and accept QE tapering as a reality. Only then will the Fed roll back its asset purchases. By then, the market won't care. It will be focused on fundamentals such as earnings growth, cost of capital, balance sheet quality etc. Correlations will have slowly leached out of the system.

Last Updated on Friday, 14 June 2013 07:37
 
The Bursting of the Bond Bubble PDF Print E-mail
Written by Burnham Banks   
Friday, 31 May 2013 00:53

The thirst for yield has compressed spreads across high grade to high yield bonds, and bid up the prices of sovereigns and loans and just about any security that threatens to pay an income stream. Yield junkies a.k.a investors have even bought unrated, first loss securities, paying an uncertain coupon and with infinite duration, a.k.a equities, in their quest for yield. The usual intermediaries have of course been quick to meet this demand by offering all manner of income funds.

Last Updated on Friday, 31 May 2013 23:44
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Sometimes, you can’t just buy some of something. You have to buy all of it. Japan QE. PDF Print E-mail
Written by Burnham Banks   
Tuesday, 28 May 2013 01:25

 

10 Year JGB Yields.

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Gold. the Alternative to Hope PDF Print E-mail
Written by Burnham Banks   
Sunday, 19 May 2013 23:22

The trouble with gold is that it has long derived its value as an alternative  to fiat currencies and paper assets whose values are derived from collective trust or faith and little else.  Gold has very little use except as a supply constrained store of value. As trust and faith are restored in paper assets, it is reasonable not to be surprised that gold should lose its value as an alternative. It is ironic that gold, by being an alternative to fantasy, should find its value hostage to the whims of fantasy.

 
China Trade Data Anomaly Explained PDF Print E-mail
Written by Burnham Banks   
Tuesday, 14 May 2013 23:39

Official trade data for China showed exports growing YOY by 14.7%, ahead of forecasts of 9% and imports of 16.8%, ahead of forecasts of 13%. Closer inspection of the data reveals interesting themes. Notably, the bulk of the rise in exports was to Asia, as was the bulk of imports. Ex Asia, the numbers for imports and exports were less exuberant, particularly for exports.

What's going on?

 

Last Updated on Tuesday, 14 May 2013 23:56
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A Corporate Strategy For Rising Interest Rates PDF Print E-mail
Written by Burnham Banks   
Monday, 13 May 2013 10:59

Having borrowed heavily in the bond markets in the past couple of years. If interest rates should rise substantially, a corporate CFO might be tempted to buy back their company's debt at below par and retire its debt. Its an interesting way of making money without producing a single widget.

One wonders how significant this impact could be. It certainly won't hurt to own the equity.

Last Updated on Monday, 13 May 2013 11:03
 
The Japan Trade. Heading Higher PDF Print E-mail
Written by Burnham Banks   
Friday, 10 May 2013 04:58

 

The Japanese stock market is up some 40% year to date while the JPY has gone from 86 at the end of 2012 to 101 today. Wow. Is it too late to invest in Japan? I think not, but at the same time, it pays to be more circumspect.

Last Updated on Monday, 13 May 2013 10:47
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'Abenomics'. This Time Is Different. Japanese Economic Recovery and Central Banking PDF Print E-mail
Written by Burnham Banks   
Tuesday, 30 April 2013 22:28

'Abenomics' isn't particularly innovative. Keynesian spending funded by central bank debt monetization was popularized by the Bank of Japan as an ineffective tool to raise output since before every Western Central bank and its accessories multiplied their balance sheets post 2008, with some surprising success. Japan has tried this before with little success, so is this time different? Yes and no. Past attempts at QE by the BoJ were sterilized so that while on the one hand it was buying assets, on the other it sold to maintain a moderate balance sheet expansion. You cannot have a semi-responsible central bank. Irresponsibility is best overdone if one decides to do it. In previous QEs, the current account and the JPY strengthened confounding efforts. Today we see the reverse. So large is the scale of asset purchases by the BoJ that the JPY has lurched down while the current account has deteriorated. Good job!

Last Updated on Monday, 13 May 2013 10:46
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How Dependent Is The Economy On Low Interest Rates? PDF Print E-mail
Written by Burnham Banks   
Friday, 19 April 2013 22:50

Corporate balance sheets have been significantly repaired since the crisis of 2008. On the other hand, sovereign balance sheets became and remain in poor condition. Most countries have addressed this problem by instituting programs of debt monetization with, as an associated bonus feature, artificially low interest rates across the relevant term structure.

Last Updated on Saturday, 20 April 2013 00:30
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Ransom the European Financial System. Buy Italian Banks PDF Print E-mail
Written by Burnham Banks   
Tuesday, 02 April 2013 05:17

The cool thing about the Euro is that it doesn't really work, and yet, the politicians in Europe insist on having it. This creates periodic buying opportunities. Here is an indirect Euro 'we'll hold it together come hell or high water' trade.

Last Updated on Tuesday, 02 April 2013 05:36
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Deposit Insurance: How To Protect Your Money The Alternative Way PDF Print E-mail
Written by Burnham Banks   
Thursday, 21 March 2013 07:56

When you keep your money in a bank, you are basically a general creditor to a business that is typically leveraged by about 10 X to 50 X, even today after the deleveraging post 2008.  Fortunately, most countries have some form of deposit insurance. Unfortunately, the guarantees are limited. In the Eurozone, which includes Cyprus for example, the limit of deposit insurance is 100,000 EUR. In Switzerland, it is 100,000 CHF, in the UK it is 85,000 GBP, in Hong Kong it is 500,000 HKD, in the US it is 250,000 USD and in Singapore it is 50,000 SGD. That’s not a lot.

Last Updated on Thursday, 21 March 2013 07:59
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Economic War: Trade wars, currency wars and intellectual property wars. PDF Print E-mail
Written by Burnham Banks   
Friday, 08 March 2013 13:24

 

When the pie shrinks, people are less likely to share. It was clear back in early 2011 that with successive rounds or quantitative easing and debt monetization rotating through the world's central banks, that eventually a trade war would develop. With the consumer demoralized, businesses cautious and governments broke, exports would be the last desperate hope for many countries seeking to grow their way out of voluntary and involuntary austerity. And so country after country, both net creditor and net debtor began to print money in an effort to either monetize a debt pile grown too big or to improve their terms of trade or both. Equal success in the former and equal failure in the latter has brought the phoney war to the surface. Japan's once and new prime minister was firs to break the deadlock, sending the JPY into a downward spiral that today worries her trading partners but which tomorrow may worry the Japanese themselves as unforeseen consequences and diminishing returns to policy set in.

Last Updated on Monday, 11 March 2013 03:54
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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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