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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Greenspan on the “Blossoming of Finance”

On March 28, 2010, in Housing, Stocks, WTF?, by Tim

The key to our economic well-being has been and will continue to be higher stock prices and the “blossoming of finance” according to former Fed chairman Alan Greenspan in this interview with Al Hunt at Bloomberg.

Higher asset prices have been the central component of his view of “prosperity”, however transient that prosperity turns out to be. Here’s a gem from about the 7 minute mark:

Remember that, the bursting of a bubble, by itself, is not a big catastrophe. We had a dot-com bubble – it burst – and the economy barely moved and the result of this is it’s hard to tell, when that bubble bursts, what the consequences will be.

Warning: This video becomes hazardous to your health just after the fall of the Berlin Wall is again cited as the root cause of the bursting housing and credit market bubble.  I became physically ill at about the 9:30 mark and had to rush to the bathroom.

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What if It Was All Just a Big Bubble?

On March 24, 2010, in Article of the Week, Economy, Housing, Our Culture, Stocks, by Tim

One of the things that many people go through their entire lives without ever realizing is that conditions haven’t always been the way they remember them to be. Due to the length of a typical lifetime and the number of those years that individuals are productive, it’s reasonable to think that someone in their mid-60s could retire today and look back at the last 40 years only to conclude that what they just experienced was normal.

But, what if the last 40 years were anything but normal?

What if, in the world of finance and economics, it was all just a big bubble?

One look at the chart below from this recent Wall Street Journal story and it becomes instantly clear that stock market valuations over the last twenty years have been nowhere near normal. In fact, what were deemed “generational lows” for valuations at the peak of the financial market crisis a year ago look like nothing of the sort over the broad sweep of time.

And when you consider what happened in the natural resource sector in the 1970s and then what followed in Japan in the 1980s, it’s quite easy to come to the conclusion that, since the world left those last vestiges of sound money when Nixon closed the gold window in 1971, we live in a radically different world.

While some quickly dismiss ideas like this, reminding anyone who will listen that “correlation is not causation” while citing technological advances made during this time as just cause for the changes we’ve seen in financial markets, breakthroughs such as railroads and electricity a hundred or more years ago likely had a bigger impact on the world than computers, communication, and medical technology more recently.

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ECONned

On March 14, 2010, in Economy, Housing, Stocks, by Tim

A new book by Yves Smith of Naked Capitalism has just hit bookstores – ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism. It follows in a long line of post-crisis books and, so far, the reviews look pretty good. There’s also this slick video that may help boost sales a little.


Interestingly, the only negative review at Amazon complains about there being too many conspiracy theories – what’s wrong with conspiracy theories anyway?

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Household Flow of Funds

On March 11, 2010, in Housing, Stocks, by Tim

The Federal Reserve released their quarterly Flow of Funds report today that includes data through the fourth quarter of last year and the two charts that have appeared here for a number of years now have been updated and are shown below.

Now a year or so past the worst phase of the financial market crisis, household assets have recovered somewhat but it continues to amaze me how much they declined relative to the asset bubble that burst earlier in the decade.
IMAGE Thanks to the inflating housing bubble, overall assets never fell between 1999 and 2002 after the stock market bubble burst and then, after 2002, it was “off to the races” again.

This time around, there doesn’t yet appear to be a new bubble on the horizon, though technology stocks sure seem to be vying for that position.

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Are Stocks Expensive?

On March 9, 2010, in Stocks, by Tim

For some reason, an important graphic was left out of the online version of this story in today’s Wall Street Journal and it seemed like a good idea to reproduce it here from the print edition in an attempt to better understand the questions that David Wessel asks about whether stocks are cheap or expensive today, on the one-year anniversary of the low last March and a full ten years after the Nasdaq reached its all-time high back in 2000.

Anyone looking closely at this chart from Yale economist Robert Shiller would say that, at this point, stocks are a bit pricey. In fact, what’s remarkable about the data below is just how expensive shares were a year ago when people talked of generational lows in valuations. As it turns out, early-2009 was the only period since 1991 when stocks were below the long-run historical average when calculated as Shiller has done.
IMAGE While some would surely argue that we’ve reached a permanently high plateau for valuations since the 1980s, higher prices may have much more to do with how radically different the financial world is today than it was in the century before the 1980s.

With seemingly no limit on how much money and credit can be created and pushed into the system to make all sorts of asset prices levitate, is it reasonable to think that we’ll ever see a secular bear market bottom like the ones in 1982 and prior?

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WSJ Joins the Next Gold Rush

On March 7, 2010, in Commodities, Stocks, by Tim

Don’t look now, but they’re talking about junior gold mining stocks in the Wall Street Journal. Surely that’s a first and, if not, you can probably count the times that this subject has appeared in the paper over the last ten years on one hand.

There are no references to Mark Twain and what he thinks about “gold in the ground”, but Jeff D. Opdyke’s report is a fairly complete description of what the junior gold mining sector is all about and it’s in the free section of the Journal.

Should You Join The Next Gold Rush?

Main Street investors always want in on the ground floor of the next Microsoft or Google, or, in the commodity world, the next gusher or mother lode.

At a time when gold is above $1,100 an ounce and some expect it to go far higher, a lot of investor energy is focused on the so-called junior miners. These are the tiny mining firms that often own little more than a piece of land, some geology studies and dreams of El Dorado. So much cash has flowed into the Toronto Stock Exchange’s small-company Venture Exchange—where mining firms in 2009 raised nearly $3 billion Canadian dollars—that its total market capitalization surged by 112% last year.

For too many investors, though, this pursuit of El Dorado ends up as a financial nightmare. Even if you are lucky enough to pick a miner that finds a rich vein of gold, you can arrive so early that your stake crumbles while the miner navigates the hurdles between locating a gold deposit and actually producing it.

He goes on to discuss the the different stages of a gold mining company – from the pure explorers to near-term producers to the producers themselves – and then recommends picking stocks where the company is within a year of production.

You’d think that the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) would have been worth mentioning here since it is a first-of-its-kind product, launched late last year, that offers many advantages (and some disadvantages) over selecting individual stocks.

Full Disclosure: Long GDXJ at time of writing

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