MW Investment Strategy Group: Martins View

A timely tale for all lawyers and real estate professionals

Martin Weil — 2010-02-24T16:56:17+00:00

I shared the quintessential trait of all young attorneys: unrelenting, paralyzing fear. It overwhelms everything we do and contaminates the first two to three years of our law jobs. ... I know nothing. How the hell did I get this degree? How the hell did I pass the bar? Law school didn't teach me anything. ... How long can I fake this before they figure it out? How come everyone else knows what they're doing? What happens if I get fired or fail? I bet I'll get disbarred! Please, God, don't let me get disbarred."

An epic saga of real estate foreclosure and redemption, and the real-world education of newly-minted lawyer, Wajahit Ali

Loss Aversion

Martin Weil — 2010-02-19T20:52:04+00:00

Jonah Lehrer, author of How We Decide, updates and explains the classic Kahneman & Tversky loss aversion experiment that is at the foundation of behavioral economics in his blog post. A short read and a very accessible explanation of how our emotions distort the human decision-making process, and why the economics theory that man is a rational actor is not based in reality. One excerpt that investors should note:

Loss aversion also explains one of the most common investing mistakes: investors evaluating their stock portfolio are most likely to sell stocks that have increased in value. Unfortunately, this means that they end up holding on to their depreciating stocks. Over the long term, this strategy is exceedingly foolish, since it ultimately leads to a portfolio composed entirely of shares that are losing money.

Just another reason we need universal health coverage

Martin Weil — 2010-02-18T23:31:15+00:00

In statements and letters, Anthem and WellPoint have explained what the industry calls a recessionary death spiral: as unemployment and declining wages prompt healthy people to drop their insurance, the remaining risk pool becomes sicker and more expensive to insure, which in turn forces up prices and pushes more people out of the market.

From an article in the NY Times on Anthem's much criticized plan to raise rates by 39% in California.

Having just been billed $35,000 for my daughter's four hours in a San Francisco hospital OR (and yes it was covered, by Anthem no less, and yes, the hospital got much much less than they billed), I can only stand in disbelief at those who do not see that our current health care financing system is utterly broken.

The Dynamite Prize in Economics

Martin Weil — 2010-02-13T14:55:41+00:00

No one questions that economics and strongly-held economic beliefs played a role in the financial meltdown. You can vote here for the economists you think most contributed to the global financial crisis.

Eat food!

Martin Weil — 2010-02-12T15:05:46+00:00

I first heard food writer Michael Pollan last year and was struck by his statement that staying healthy was a pretty simple task. All you had to do was to "Eat Food." By that he meant avoiding processed food and eating fresh. Don't worry about supplements and all the competing health claims that are put out year in and year out, just shop more from the outside edges of the supermarket, where the fresh stuff is, and less from the inside aisles where the packaged and frozen stuff is.

In a recent Commonwealth Club lecture, Pollan made the point that it is our American diet - a lot of fast food and heavy in red meat - that is killing us, as well as greatly increasing our carbon footprint. Cardiovascular disease and diabetes are the main symptoms. And this is supported by the government's agriculture subsidies to corn growers (that feed the cows), feed lots and the elimination of the normal OSHA, environmental and health restrictions that apply to most other industries. This is where agriculture policy intersects health policy. It is not a pretty picture.

According to Pollan, eating less meat would be the single thing we could do to improve our health, lower our health costs, reduce our dependence on foreign oil and lower our carbon footprint. As close to a no-brainer as I can think of. Not suggesting vegetarianism in any way, Pollan said that were an average meat eater in the US (who eats 400 pounds a year of the stuff) to reduce their meat consumption by just 20%, the greenhouse gas emissions savings would be the equivalent of swapping a Hummer for a Prius. Something to think about as the debate rages over these issues.

Pollan's books are In Defense of Food, The Omnivore's Dilemma, and Food Rules.

Simon Johnson's 2010 forecast

Martin Weil — 2010-02-10T05:52:36+00:00

The former IMF Chief Economist testified today before the US Senate Budget Committee on the state of, and prospects for, the global economy. He concludes his lengthy remarks, covering the prospects for a slowdown in 2010, ongoing problems in the Eurozone and a continuing boom in the emerging markets with the following, somewhat chilling, concluding point:

We are steadily becoming more vulnerable to economic disaster on an epic scale.

Book of the Month (Year?)

Martin Weil — 2010-02-07T03:45:39+00:00

The Lords of Finance is an extremely well-written narrative of the financial urgencies that drove the western world from WWI to the Great Depression and ultimately WWII. This fascinating and gripping tale tells the personal and professional stories of four men - Ben Strong, Montagu Norman, Hjalmer Schacht, Emile Moreau - who headed the central banks of the four great powers through the great financial crisis of the 20th century. The parallels to our present situation are inescapable. Economics students, history buffs and biography fans should find much worthwhile.

Best political idea of the decade, so far

Martin Weil — 2010-02-04T05:54:57+00:00

Demand question time is a bi-partisan grassroots effort to encourage this and future Presidents to engage in the sort of civilized public dialogue with members of the opposite party that occurred last week. Follow the link and you can add your name to the petition. It is overdue time to restore an informed democracy and drive out the demagogues, panderers, lobbyists and political hatchet men from the temple.

Three cheers for Obama's banking reforms

Martin Weil — 2010-01-21T18:22:01+00:00

So writes Reuter's columnist Felix Salmon this AM. And while I have at least one colleague who is skeptical that this is anything more than window dressing, I say it is a long overdue and important step in the right direction.

Simon Johnson, outspoken critic of the mega-bank bailout, concurs "Paul Volcker prevails."

How to gain weight

Martin Weil — 2010-01-16T21:38:08+00:00

Say you order a Venti Caramel Brulee Creme with nonfat milk? That's 480 calories, 70 of which are fat. Or how about a Venti Double Chocolaty Chip Frappucino Blended Creme with whipped creme? Friend, you just inhaled a whopping 670 calories, 200 of which were pure fat....
Some of these things are like pouring rendered tallow directly down your throat. I'm actually not kidding: If you ate a half stick of butter you still wouldn't come close to the calorie count of a Venti Pumpkin Spice Frappucino Blended Creme.

So writes Clive Thompson on his blog.

'The Only People Who Have Recovered From The Meltdown, Are Those Who Caused It'

Martin Weil — 2010-01-14T14:33:09+00:00

So says Jon Stewart as reported here

Ten market rules

Martin Weil — 2010-01-10T19:47:49+00:00

Bob Farrell, chief market strategist at Merrill Lynch until 1992, penned this particular list. Pretty much a summary of the collective wisdom on markets that every investor should understand.

1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras - excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree - something else is going to happen.
10. Bull markets are more fun than bear markets.

Reprinted from The Big Picture

What has become of the American nation?

Martin Weil — 2010-01-07T05:18:11+00:00

we have descended in the clutches of corporate and other special interests to a second world state defined by K Street instead of Independence Square. Our government doesn't work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people.

No not Arianna Huffington, but Bill Gross, Chief Investment Officer of PIMCO (Newport Beach, CA.), the US' largest fixed income manager. Gross continues in his January "Investment" Outlook":

What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying for what is likely to be a $50-100 billion annual return. The fact is that American citizens have never been as divorced from their representatives - and if that description fits the Democratic Congress now in control - then it applies to Republicans as well - past and present. So you watch Fox, or is it MSNBC? O'Reilly or Olbermann? It doesn't matter. You're just being conned into rooting for a team that basically runs the same plays called by lookalike coaches on different sidelines. A "ballot box" pox on all their houses - Senators, Representatives and Presidents alike. There has been no change, there will be no change, until we the American people decide to publicly finance all national and local elections and ban the writing of even a $1 check for our favorite candidates.

Add Gross to the angry chorus of voices from financial professionals of all description regarding the stranglehold on DC politics by the largest industry players. Should be interesting to see where this leads.

Historical quote of the year

Martin Weil — 2010-01-01T03:57:50+00:00

A healthy financial system cannot be built on the expectation of bailouts.

Current head of President Obama's National Economic Council, Larry Summers, in a 2000 speech referencing the emerging market crisis of the late 1990s.

Simon Johnson, former chief economist for the IMF and outspoken critic of the Bush-Obama bailouts of major banks, wishes that Mr. Summers would simply employ the same advice he found appropriate for South Korea circa 1998 to the USA in 2009.

And with that, I bid adieu to 2009 and the Oughts.

Were you involved in the CDO industry?

Martin Weil — 2009-12-31T04:53:09+00:00

Pro Publica, a new online journal in the public interest, is digging up what it can on the CDO collapse, taking up the mantle dropped by the SEC and Congress.

CDOs (Collateralized Debt Obligations) - not to be confused with CDSs (Credit Default Swaps) - were a major contributor to the excess risk that was created during the financial free-for-all era of the pre-Lehman collapse. CDO losses are on the order of $600B with much of this cost born by us the taxpayers.

If you were involved in the CDO business during the end days of the boom, please contact Jake and Jesse -- cdos@propublica.org or (917) 512-0258. Or, if you have information about others we should reach out to, please send that along, too. This is a serious investgative inquiry - responses can be confidential.