Showing posts from May, 2010

Will Canada Lead G7 Rate Hikes?

Reuters reports, World trade growth slows in 1st qtr:
Global trade volumes in the first three months of this year were 5.3 percent higher than in the previous quarter, representing slightly slower growth than in recent months but still a healthy rebound from the crisis, data from the Dutch CPB institute showed on Monday. The CPB, whose data are used by the European Commission and World Bank, said world trade in the three months ended February had grown by 5.8 percent over the previous three months and grown 6.0 percent in the last quarter of 2009.Trade growth remained strongest in Asia and Latin America, but was relatively low in the euro area, it said in its latest monthly world trade monitor. On the more volatile monthly figures, world trade volumes were 3.5 percent higher in March than in February, when they grew 1.7 percent.Trade volumes grew worldwide except for Japanese imports, and both imports and exports in the euro area were strong. World trade in March wa…

Beyond Market Turbulence

As a follow-up to my last comment, David Parkinson of the Globe & Mail reports, Despite the turbulence, strategists stay bullish:
The sight of slumping stock prices hasn’t shaken most market strategists’ confidence that the bull market still has further to fly. But they warn investors to buckle up – we could be in for plenty of turbulence. In the wake of a selloff that has knocked the U.S. benchmark S&P 500 stock index into official “correction” territory (a drop of more than 10 per cent) in the space of a month while lopping 7 per cent off Canada’s S&P/TSX composite, strategists on Wall and Bay streets are reminding clients that the size of this correction is nothing out of the ordinary in a post-recession bull market. What’s more, they insist that the selling is being driven by fear rather than fundamentals – meaning that markets with solid growth prospects are merely getting cheaper and creating buying opportunities. “It is difficult to be very bearish of corporate asset…

Relax! It's Not as Bad as You Think!

Stocks closed out their worst month in more than a year by sliding again on more unsettling news about Europe, including a downgrade of Spain. The old adage "sell in May and go away" seems to be absolutely right on the money again.

But not everyone is buying all the gloom & doom. James Altucher, president of Formula Capital, was on Tech Ticker on Friday stating that the U.S. recovery is better than a V and look for new highs in 2012:
The debt crisis in Europe likely spells slower growth across the Atlantic. China is taking steps to put the brakes on its runaway economy and the U.S. housing market still looks weak. There's seemingly plenty of reasons to be a stock market bear, especially after the run we've had over the last year. Nonsense, says James Altucher, president of Formula Capital. The economy and market will continue to surprise, he tells Aaron in this clip. In fact, he's calling for a 'checkmark'-shaped recovery, stronger than the …

Easy Money, Hard Truths?

I want to share with you comments on my last entry on a pension chief's exit. A senior pension fund manager emailed me with some important observations which I will share with you (some comments are edited out):
Here are some things you may want to consider in shaping your argument:

I believe that economies of scale are important in asset management so having public sector related funds operate at arm's length on competitive terms is a good thing.

Moving from a fund to a supplier is a bit much, but what drove the guy out is problematic as well.

The public seems more worked up about paying internal managers for performance than paying external managers double or triple regardless of performance

This year, my internal team added 600 million over public market benchmarks and may get 10 million (in addition to about 10 in wages and benefits); external managers lost 500 million relative to market and their fees are related to assets and amount to 120 million. Want to guess what the hea…

Ties Surface in Pension Chief's Exit

Michael Syre of the Boston Globe reports, Pension chief says he’ll quit over pay:
Michael Travaglini, who as head of the state’s pension fund is among the highest-paid government employees in Massachusetts, plans to quit next month, citing as a reason efforts by legislators to limit what he and his staff can earn. In his six-year tenure as executive director, Massachusetts Pension Reserves Investment Management ran one of the top-rated public pension funds in the nation — until last year, when losses from the financial crisis made it one of the worst.Prior to that downturn, the pension fund’s high performance earned Travaglini a $64,000 bonus in 2008, on top of his $322,000 salary. But now he cites the legislative backlash to that bonus system as a factor in his decision to leave June 11 and go to work for a Chicago investment firm.“The issue of incentive compensation here is back on the front burner,’’ said Travaglini, who will formally announce his resignation June 1. “If you need th…

Bailing Out Union Pension Funds?

Megan McArdle of the Atlantic asks, Should the Government Bail Out Union Pension Funds?:
Fox Business has made something of a splash claiming that Senator Casey has introduced a bill to bail out union pensions that will cost $165 billion. Media Matters lashes back, arguing that the bill will only cost $8-10 billion and isn't a bailout. Who's right?

As so often with these things, the truth is somewhere in between.

The bill in question will essentially let multi-employer union pension plans, like the Teamster's plan that is currently causing UPS so much trouble, segregate out the workers of defunct companies and get the Pension Benefit Guarantee Corp to pony up for their benefits. Media Matters says that the bailout won't cost $165 billion, and they're right; that's the total liabilities of the plan. Theoretically, it could cost $165 billion if every single employer went bankrupt, but that's not a very likely scenario.

However, Media Matters also says it's no…

The End of Welfare States?

Following up on my previous comment, Steve Doughty of the London Mail reports, Euro crisis 'spells the end of welfare states': Post-war system in ashes, warns U.S. think tank:
The welfare states of Europe that rose out of the ashes of the Second World War are now facing destruction because of the sovereign debt crisis, analysts say. The troubles that began with the collapse of Greece and which now threaten the euro spell the end for excessive and occasionally corrupt welfare systems, they say. The pronouncement from a highly regarded U.S. think tank reflected popular opinion across northern European countries.
Uri Dadush, of the Carnegie Endowment's International Economic Programme, said: 'The current welfare state is unaffordable. 'The crisis has made the day of reckoning closer by several years in all the industrial countries.' The verdict follows the surprise in the U.S. caused by the discovery that the average age of retirement in Greece is 53, thanks to a ge…

A Death Blow to Europe's Welfare State?

Steven Erlanger of the NYT reports, Europeans Fear Crisis Threatens Liberal Benefits (HT: Tyler):
Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II. Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism. Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union. But all over Europe governments with big budgets, falling tax revenues and aging populations are exp…

The Paradox of Market Chaos?

Zachary Goldfarb of the Washington Post reports, SEC launches inquiry into market's 'flash crash': The Securities and Exchange Commission is looking at whether key financial firms broke securities laws when they stopped buying and selling stocks during the "flash crash" on May 6, helping fuel the historic plunge in prices.
SEC Chairman Mary Schapiro said at a congressional hearing Thursday that these companies, known as market makers, might have violated a legal duty to continue to buy and sell during the rapid decline. "We don't have evidence yet of market makers who had affirmative obligations from withdrawing from the market," Schapiro told the Senate banking committee. "It is absolutely something that we're looking at and we've incorporated our enforcement division into our ongoing investigation." Schapiro's comments are the first signal that the regulator might seek to sanction firms if they contributed to th…