Wednesday, February 25, 2009

Beyond the Sound Bite: An Interview with Richard Tortoriello

My interview with the author of "Quantitative Strategies for Achieving Alpha" explored the value proposition for quantitative strategies, predictive elements of quantitative analysis, how to incorporate quantitative analysis into traditional fundamental analysis, and utilizing a multi-factor approach.

Beyond the Sound Bite postings can be found at
To listen to this week's podcast interview, click here

Tuesday, February 24, 2009

The Damage Has Been Done

Thank you, FASB. Thank you for the turning what would have been a bad, deleveraging-driven economic downturn into the borderline depression here in the US. Oh, and let’s not forget to thank your efficient market cohorts who have chosen to ignore decades of behavioral science and stick to the dogma of market efficiencies, including illiquid assets depressed by panic driven redemptions and forced liquidations.

Thank you for not appreciating the power of reflexivity and the feedback loop from the financial to the real economy with its negative wealth effect. For that is where things stand these so many months into the relentless graveyard spiral of bank assets writedowns, with its unchecked inevitability of creating the very real economy conditions that justify the depressed prices. At this lovely moment, the efficient market advocates are certain to proclaim the “wisdom” of the market in forecasting where the fair value of the depressed assets truly belonged (of course ignoring how reflexivity creates the very conditions it “predicts”. A self-fulfilling prophecy example if ever there was one.)

To be clear, I get the transparency argument put forth by FASB and certain groups advocating mark-to-market, such as the CFA Institute. However, it takes an intellectual leap backward to conclude that mark-to-market is the only asset valuation method worthy of consideration. In such a view and since markets are "efficient at all times and under all circumstances", only the last trade can be considered an acceptable data point to know what the “fair value” of an asset is. No reason to consider other valuation methodologies (such as mark to maturity), for such methods are fraught with potential senior management chicanery. In such a view.

Investment Strategy Implications

With all the talk of a Great Depression II, I have a recommendation. I recommend that FASB and the efficient market cohorts hire a spokesperson. A spokesperson with a trademark expression that exemplifies the economic situation we find ourselves in. I recommend Oliver Hardy, who said it best, “Well, here's another nice mess you've gotten me into."

The damage has been done. Repeal or modification of FAS 157 will now almost certainly have limited positive effects now that reflexivity has begun to work its magic. In fact, one could argue that repeal or modification of mark-to-market will actually inhibit, if not outright eliminate, the recognition of the capital appreciation potential in many of the panic driven depressed assets once fear recedes and balanced thinking returns. Under such conditions, one can only conclude that the winners will be those who scoop up the babies thrown out with the bath water. Tragically, those winners are not likely to be the entities who were forced to writedown all the "toxic" assets - the banks.

(By the way, I wonder if the history books will conclude that the adoption of FAS 157 is the equivalent of Smoot-Hawley: What the Smoot-Hawley act did for the Great Depression, FAS 157 does for the economic mess we are in today – turn a bad recession into a depression.)

Wednesday, February 18, 2009

Beyond the Sound Bite: An Interview with Joseph Battipaglia

In my second conversation with the Market Strategist/Private Client Group for Stifel Nicholas and Chief Investment Officer with Washington Crossing Advisors we discussed his deep and long recession call, the consequences to earnings, the inefficiencies of government spending, and the lack of a central theme to the Obama stimulus plan.

Beyond the Sound Bite postings can be found at
To listen to this week's podcast interview, click here

Friday, February 13, 2009

Quotable Quotes: I Now Pronounce You Vinny and Larry

Someone over at CNBC may have taken a shine to my Minyanville commentary yesterday (see below) as its main point - amortizing the losses - found its way into one of its programs.

Last evening, on CNBC's "Kudlow Report", Larry and his three guests discussed the TARP with two moments that readers of this blog will find particularly interesting. Five minutes and forty-five seconds into the interview, the infamous mark-to-market took its deserved beating as all three guests and Larry advocated against it. But then a few seconds later, Larry makes a statement that readers of yesterday's Minyanville posting will find familiar - "...amortize the losses...".

Tomorrow is Valentine's Day. And while love may be fleeting, you gotta feel the karma. Now, if only Secretary Geithner would get the karma (like his predecessor Robert Rubin recently did) and help the US and world economy by helping to put an end to the madness of fair value based on mark-to-market accounting rules.

To view the segment, click here*

Have a good weekend.

*If the video does not load immediately, go to and search the word Kudlow. The segment choice will then show up.

Thursday, February 12, 2009

Minyanville posting: Pandit's Amortization Trial Balloon - Can It Float US Out of Crisis?

"At yesterday’s congressional hearing, Citigroup’s (C) CEO Vikram Pandit floated what looked to me like a trial balloon that may turn out to be the path out of the credit-induced economic crisis and, in the process, put to bed the doomsayers' chatter about insolvent banks.

In reply to a question from Congressman Gutierrez from Illinois -- who started off referencing a meeting the congressman and Mr. Pandit had the day before -- Mr. Pandit, with an intriguing smile on his face, described..."

To read the full current Minyanville commentary as well as other Minyanville postings, click here

Wednesday, February 11, 2009

Beyond the Sound Bite: An Interview with Don Rissmiller

In my second interview with the Chief Economist at Strategas Research Partners we explore the probabilities of multiple economic Ws, the importance of monitoring interest rate sensitive industries, capex for signs of economic stability, and the multiplier effect of the monetary and fiscal stimulus, and the need for global coordination of economic stimuli.

Beyond the Sound Bite postings can be found at
To listen to this week's podcast interview, click here

Tuesday, February 10, 2009


Now that the outlines of the fiscal stimulus package and the so-called bank bailout plan are fully in the public domain, in other words now that the big news is out, experienced investors know it is time to see if the market action matches the real economy rhetoric. For these are such times when a mismatch between the news and the markets, between fundamental and technical analysis can yield positive returns in both absolute and certainly relative performance terms.

Under such circumstances, the investment trap less experienced investors can get into is to assume that after so much news has been disclosed all in one direction (bad, in this case) and the markets have moved in that direction (down, in this case) that new news, especially big new news (bad, again in this case) will be matched by a similar market action (down, as before). Au contraire, says the experienced investor.

Investment Strategy Implications

“What’s past is prologue”, advises the Bard. Investors would be wise to heed these words, particularly in times when big news does not produce the expected inexperienced investor results.

Key to watch for is the following:

• Price, Volume, and Volatility declines (all versus earlier in the cycle periods)
• Performance variance of sectors, styles, regions, and countries versus the broad market indices

For the more bullishly inclined longer-term investors, both sets of observed data will strongly imply a cyclical rally is in the offing. This does not mean a sustainable secular bull market is about to erupt. Rather, a cyclical bull rally WITHIN A SECULAR BEAR MARKET would be a distinct probability. Watch for the mismatch. And don’t miss the potential for a money making opportunity in stocks. Heaven knows we could all use some ways to make money.

Note: Since the fall of last year, key technicals analysis indicators of the equity markets have improved, most notably the near term Momentum and MACD.

Thursday, February 5, 2009

Minyanville posting: The Rise of Behavioral Finance

This week's Minyanville posting introduces an area that I have been involved with for over a decade - Behavioral Finance.

"Behavioral science will be the next step in the evolution of economic and investment thinking. With the destruction of laissez-faire, American style cowboy capitalism, academics, policy makers, and practitioners will look toward the behavioral sciences to..."

To read the full current Minyanville commentary as well as other Minyanville postings, click here

Wednesday, February 4, 2009

In Case You Hadn’t Noticed.

Here are few items that have been noted on this blog and in Blue Marble Research reports:

The Slow Thaw

3 month LIBOR 1.24
3 month US Treasury rates 0.29%
TED Spread 0.95

NY Fed Commercial Paper Facility: Today 1.24%; Jan. 14 1.16%

At long last, Robert Rubin gets mark-to-market religion*

“I spent my whole life at Goldman Sachs believing in mark- to-market accounting, and having said that, if you look at the experience from the last two years, I think mark-to-market accounting has led to terrible vicious cycles in asset prices…”

Japan Slams Buy America Plan**
FT today

FYI - Last time I checked, Japan was a big buyer of US debt obligations.


Tuesday, February 3, 2009

“Buy America” = Protectionism

If you are looking for one subject that will tilt an already precarious world economy toward a very bleak future, it is the "Buy America" provision of the stimulus bill currently under negotiation. For nothing in the stimulus bill – not the ill-advised earmark pork of the power starved liberal Democrats, not certain suspect components of the business tax cuts favored by Republicans, not the not-shovel-ready infrastructure spending – is more threatening to the global economy than the “Buy America” provision.

But don’t just take my word for it. Consider the warning from the EU today. Or British Prime Minister Brown when he “warned gravely against "deglobalisation" and denounced trade and financial protectionism.”

* What signal does “Buy America” send?
* How are other countries faced with economically-derived internal strife likely to respond?
* What are other countries that provide capital to the US likely to do?

While not exactly Smoot-Hawley, it is a big step toward closing the door on the prosperity that trade and globalization facilitates. Moreover, it generates more issues and problems precisely at a time when cooperation and communication matter most. And, in the process, how Mr. Obama handles this issue will speak volumes as to his governing style.

Investment Strategy Implications

At my first five Market Forecast events conducted thus far this year and on these pages*, I have raised the larger economic question, “What will be the economic philosophy that follows the death of laissez-faire, American-style cowboy capitalism?” Heaven help us if the answer includes protectionistic measures like “Buy America.”

*see Jan. 13 & 17 postings