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Noteworthy News – July 6, 2010

Politics:

Obama commits nearly $2 billion to solar companies – Reuters

As Oil Industry Fights a Tax, It Reaps Subsidies – New York Times

Politics of Jobless Claims: Is Two Years of Benefits Too Much? – ABC News

Economy:

When should jobless benefits end? – Orlando Sentinel

A Year in Foreclosures: Bank-Owned Properties – Mint.com

The three biggest lies about the economy – Marketwatch

June Job Losses at 125,000, But Jobless Rate Falls to 9.5% – CNBC

With the US trapped in depression, this really is starting to feel like 1932 – Telegraph

Illinois Stops Paying Its Bills, but Can’t Stop Digging Hole – New York Times

The Brokest Generation – The National Review

23 Doomsayers Who Say We’re Heading Toward Depression In 2011 – Wall St.Cheat Sheet

Markets:

Euro Set to Rise Above $1.30 as Bund Yields Beat Treasuries: Chart of Day – Bloomberg

Housing Shortage Defuses Australia’s `Time Bomb’ as Prices Top U.S. by 82% – Bloomberg

Global stocks dip on growth fears – Reuters

Bulls on the run in shortened week – Reuters

Banks:

How to keep Wall Street under control – CNN

So, You Thought BP Was An OIL Company? – EconoTwist

The ABCs of Reform: How Washington blew its chance to bring real change to Wall Street. – Slate

Bank Balance Sheets Could Torpedo Recovery – Spiegel

Posted in Economics, Markets, Media, Politics.


Happy 4th of July

Despite all of the shortcomings that are so easy to focus on, let us all celebrate this 4th of July with friends and family while remembering all that we should be grateful for. Take a few minutes to read the Declaration of Independence and then enjoy some of the thoughts from history’s greatest orators.

“Those who deny freedom to others deserve it not for themselves” ~ Abraham Lincoln

“May the sun in his course visit no land more free, more happy, more lovely, than this our own country!” ~Daniel Webster

“We must be free not because we claim freedom, but because we practice it.” ~ William Faulkner

“My God! How little do my countrymen know what precious blessings they are in possession of, and which no other people on earth enjoy!” ~ Thomas Jefferson

“Liberty is the breath of life to nations” ~ Bernard Shaw

“It ought to be commemorated, as the Day of Deliverance by solemn Acts of Devotion to God Almighty. … I am well aware of the Toil and Blood and Treasure, that it will cost Us to maintain this Declaration, and support and defend these States. Yet through all the Gloom I can see the Rays of ravishing Light and Glory. I can see that the End is more than worth all the Means. And that Posterity will tryumph in that Days Transaction, even altho We should rue it, which I trust in God We shall not.” ~ John Adams

“Nothing is more difficult, and therefore more precious, than to be able to decide” ~ Napoleon Bonaparte

“Where liberty dwells, there is my country” ~ Benjamin Franklin

“We stand for freedom. That is our conviction for ourselves; that is our only commitment to others. ”
~ John F Kennedy

“We on this continent should never forget that men first crossed the Atlantic not to find soil for their ploughs but to secure liberty for their souls.” ~ Robert J. McCracken

“All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope”. ~Winston Churchill

“Better to starve free than be a fat slave” ~ Aesop

“If our country is worth dying for in time of war let us resolve that it is truly worth living for in time of peace.” ~ Hamilton Fish

Posted in Media.


US Senators Outperform Market by 12% per year

A 2004 study finds that United States senators outperformed the market by 12% per year versus the -1.4% underperformance of the average US household during the same period.  Even corporate insiders paled in comparison at a 6% out-performance per annum.  Do you think there was any insider knowledge that assisted these non-financially savvy senators?  I am sure that a 12% return per year is quite the hefty supplement to their salaries and pensions.  I wonder if that will keep a cap on capital gains taxes…

You can read the whole study here.

This is also why there has been a proposal to stop senators and congressmen from trading because it creates perverse legislative incentives.   Professor Stephen M. Bainbridge has written a proposal called the “Stop Trading on Congressional Knowledge Act”.  Download it here:

[Download not found]

Posted in Conspiracy, Markets, Politics.

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Opportunity in VIX Futures

I have been watching this for the last few days, but there seems to be a great opportunity in VIX futures.  The futures curve is dramatically misshaped:

Interesting shape for a futures curve...

The markets are pricing in dramatically higher premium for September, October and November VIX futures than for December.  This is most likely due to historically high volatility in September and October, but I find it rather ridiculous.   I think a lot of the mis-pricing has to do with the demand created from the VXZ exchange traded note which purchases futures on that part of the curve.   I would tend to love selling a contract of October at 35.50 and buying a contract of November or even December at much lower prices.  The position is mostly self-hedged and should make money as the curve flattens out.

Posted in Derivatives, Markets, Trading Ideas.

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Aging Developed Nations

The demographics of developed nations are becoming increasingly dire. I have looked briefly at old age dependency ratios in the past, but I think that as we assess sovereign risk and growth rates it is an opportune time to revisit these stats.  It is well known that Japan has a very old population with one retiree being supported by just two working citizens by 2030, but BofA’s research provided some surprising newcomers to the old-age dilemma.

Korea, Taiwan, Singapore and HK are facing ritiree challenges

You might ask, “So why should we care?”  There are a few very important factors to consider.  Population growth creates economic growth.  A growing population generally produces a growing economy.  An aging population could mean a shrinking economy, but more importantly it means that pension and entitlement systems will be stressed.  When you have 2 people supporting 1 retiree, it requires significant taxation to fund which generally leads to lower economic competitiveness.  In addition, an older population will invest in a different asset allocation than a young population.  Older people will invest in more bonds and less stocks:

Older populations invest more in fixed income and less in equities

So what does this mean from an investment standpoint?  It seems to me that India, Malaysia, and the Philippines look like the most attractive places to invest for long-term growth.  Great demographics, a poor starting point, and a very educated population:

Very educated workforce in developing countries

Posted in Economics, Markets, Trading Ideas.

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