MW Investment Strategy Group: Martins View

My book recommendation for 2009

Martin Weil — 2009-06-30T17:32:44+00:00

Three Cups of Tea - an astonishing story of one person making a difference in a very dangerous, and important, region of the world. After finishing the book, you can support Greg Mortenson's heroic efforts here.

A primer for spouses about investing

Martin Weil — 2009-06-18T15:40:55+00:00

Morningstar has a great summary of questions anyone should be able to answer in the event of a death or disability of a spouse. Tops on the list: "Whom to contact?" 'Where is everything?" and "Which assets to tap first?" If you or your spouse do not know the answers, now would not be too soon to get up to speed.

Our $1.2T deficit, a decade in the making

Martin Weil — 2009-06-10T18:24:33+00:00

From the NY Times

Quote of the week

Martin Weil — 2009-06-02T05:01:03+00:00

Speaking at the Morningstar investment conference, John Bogle [founder of Vanguard and indexing champion] says the best investing advice he ever got was when, as a young man working as a "runner" in a brokerage firm, a fellow runner--"who was probably the same age I am now"--told him the secret:

Nobody knows anything.

Bill Clinton accepts some blame

Martin Weil — 2009-05-29T15:31:12+00:00

Then there are the derivatives. There, Clinton pleads guilty. Alan Greenspan, the Federal Reserve chairman, opposed regulation of derivatives as they came to the fore in the 1990s, and Clinton agreed. "They argued that nobody's going to buy these derivatives, we'll do it without transparency, they'll get the information they need," he recalled. "And it turned out to be just wrong; it just wasn't true." He said others share blame, including credit-rating agencies that underestimated the risk. But he accepts responsibility as well. "I very much wish now that I had demanded that we put derivatives under the jurisdiction of the Securities and Exchange Commission...That I think is a legitimate criticism of what we didn't do." He added: "If you ask me to write the indictment, I'd say: 'I wish Bill Clinton had said more about derivatives. The Republicans probably would have stopped him from doing it, but at least he should have sounded the alarm bell.'"

From the Sunday NY Times.

I have said from the outset that the CFMA (Commodities Futures Modernization Act), product of Senator Phil Gramm and the Enron lobbyists, and signed into law by Bill Clinton, were, along with the gross negligence of the ratings agencies, the chief enablers of this entire credit crisis.

GOP, anyone like to step up to the plate for your share in this?

The bank stress tests explained

Martin Weil — 2009-05-21T17:34:38+00:00

As only SNL can. (The answers to the tests are priceless. Note that you have to wait through a 30 second random commercial to view)

California ballot measures

Martin Weil — 2009-05-19T23:37:04+00:00

Wherein UCLA social policy prof Mark Kleiman makes some sense:

Once the measures fail, the only hope is that Barack Obama will come in and play the role of the IMF: "Here's a bunch of Federal dollars you can have if and only if you change the two-thirds rule and eliminate the Prop. 13 rip-off for business." It might even work.

My micro-loan portfolio on Kiva

Martin Weil — 2009-05-19T02:47:46+00:00

In September 2007, I made my first loan through Kiva, a nonprofit that matches micro-lenders in the developed world with entrepreneurial borrowers in the developing. I remember being slightly nervous and disoriented when I clicked on the $100 I was lending Dr. Sykes Ally, a pharmacist in Tanzania. Dr. Ally repaid on time. And I have been making loans ever since.

Since 2007, I have made 17 loans of different sizes through Kiva, 11 of which have been fully repaid, 5 of which are in repayment, and 1 which defaulted. The defaulter did manage to repay 40% of the original principal.

Kiva says that my portfolio default rate is 3.74%, more than the average user's 1.76% (so much for my acumen as a micro-banker). However, I am fairly certain I am still ahead of Countrywide's mortgage default rate by a comfortable margin. My personal portfolio and lender page is at Kiva here. I recommend the experience and Kiva highly.

Not the right stuff for a new bull market

Martin Weil — 2009-05-12T16:03:44+00:00

Debt levels at the start of the last great bull market in 1982 vs. today.

What's wrong with the CDS market - in one paragraph

Martin Weil — 2009-04-23T18:34:01+00:00

In an analogy, ten of us could have bought a fire insurance policy on our neighbor's house. Even though we like our neighbor and think he is a standup guy, our ten policies for his $1 million dollar house become kind of tempting and all of sudden his house goes up in flames. The fire department (ie, SEC, Fed, Treasury) can't prove arson, so we all get paid $1 million each -- for the loss of one $1 million house! Hmm..something doesn't seem right...

So writes my very astute colleague Rick Ashburn in his firm's latest quarterly letter.

Kevin Phillips on the banking crisis

Martin Weil — 2009-04-08T22:32:49+00:00

This is a much grander-scale disaster than anything that happened in 1929-33. Worse, it dwarfs the abuses of debt, finance and financialization that brought down previous leading world economic powers like Britain and Holland (back when New York was New Amsterdam). ... let me underscore: the average American knows little of the dimensions of the financial sector aggrandizement and misbehavior involved. Until this is remedied, there probably will not be enough informed, focused indignation to achieve far-reaching reform in the teeth of financial sector money and influence.

Fairly strong stuff from Phillips, former Republican strategist turned populist, sounding an awful lot like my pal Al who sends me weekly missives on the imminent collapse of the US financial system.

William Safire (!) on bank regulation in 1998

Martin Weil — 2009-03-25T20:33:00+00:00

"No private enterprise should be allowed to think of itself as "too big to fail." Federal deposit insurance, protecting a bank's depositors, should not become a subsidy protecting the risks taken by non-banking affiliates. If a huge "group" runs into trouble, it should take the bank down with it; no taxpayer bailouts should allow executives or stockholders to relax.

Let's not be in such a big rush to knock down barriers. The Government's biggest financial mistake of the past generation was to raise deposit insurance to $100,000 while allowing housing S.& L.'s to plunge into commercial lending. That all but removed the element of risk from foolish or corrupt loans and helped bring on the S.& L. debacle.

Beware the slippery slope to crony capitalism...."

That's Safire in a 1998 NYT Op-Ed arguing against the proposed merger of Citibank and Travelers Insurance. His thesis - knocking down the walls between "safe" government-guaranteed banking and risk capital is a really bad idea. A lesson we are now having to relearn.

Thanks to The Big Picture for the pointer,.

Quote of the week

Martin Weil — 2009-03-24T01:22:19+00:00

My dad said a fool with a plan can beat a genius with no plan.

Paul Kedrovsky commenting on the Geithner bank bailout plan, here quoting T. Boone Pickens

What I am reading

Martin Weil — 2009-03-07T18:22:35+00:00

Are We Rome? by historian Cullen Murphy examines the founding of the USA as the "New Rome" and traces our ascent as a world power and possible current decline from that position, paralelling at times closely, at times not, the rise and fall of the Roman Republic. It is a great read of history and my favorite book hands-down of 2008.

Animal Spirits by UC Berkeley economist George Akerlof and Yale economist Robert Shiller is no less than an attempt to wholly reformulate our understanding of economics through the lens of behavioral economics. More than a little cumbersome in its writing (as with prior Shiller books), it offers so far (I am on Chapter Three) fascinating and even groundbreaking insights into the likely role of consumer confidence and fear in the rise and fall of economic cycles. Written in the heat of the current economic crisis, the book promises to address remedies for how to get us out of this mess. Shiller is one of our best contemporary economists (as is Akerlof) and strikes a very reasoned balance between the competing pulls of the Chicago Classical and neo-liberal Keynesian schools of economic thought.

Beware investment advisors with yachts

Martin Weil — 2009-02-25T05:25:35+00:00

In light of the multi-billion dollar frauds perpetrated on investors by Bernie Madoff and Sir Allen Stanford (pictured), the WSJ's "Wealth Blog" recalls this neglected but good old-fashioned rule of thumb.