Posts Tagged cash
Best option for car shoppers: Postpone buying
Posted by Oksana Grebenjuk in Favourites, Trading Markets on Май 26th, 2011
Inventory shortages caused by the effects of Japan’s earthquake have led to rising prices for new and used vehicles, creating what one analyst describes as a ‘huge seller’s market.’ Attention all car buyers: The era of cut-rate financing, generous cash-back offers and big discounts is coming to an end.
With the effects of the earthquake in Japan rippling through the industry and causing shortages, prices are rising for both new and used cars, and fewer models and options will be available come summer, especially for the hybrids and fuel-efficient vehicles that Japan produces.
That’s prompted many experts to voice something rarely said in the sales-happy auto industry: With consumers facing the toughest market in recent memory, if you can, put off purchases until things sort out, probably early next year.
«If you don’t have an immediate need, you are probably better to wait and figure out where the market is headed,» said Jesse Toprak, an analyst with auto information company TrueCar.com. Read the rest of this entry »
Buffett Fires Elephant Gun
Posted by Oksana Grebenjuk in Investing on Март 18th, 2011
On Monday, business newswires buzzed with reports that the world famous investor, Warren Buffett, had agreed to purchase Lubrizol, a chemical company.
Under the deal, Buffett’s Berkshire Hathaway will purchase all outstanding shares of Lubrizol for $135 per share in a the deal valued at $9.7 billion, one of the firm’s largest acquisitions.
This move is a welcomed relief for Buffett fans who have been closely monitoring the multi-billionaire’s inflating pile of cash. In the period following his record-breaking purchase of Burlington Northern Santa Fe Railroad, Berkshire has seen little action on the M&A front, leading many to ponder what Buffett had in store for his legendary firm.
Historically, Buffett has not been a fan of large cash positions. In a recent article, I noted that, during an interview with Charlie Rose, he likened cash to oxygen, explaining that it is important to have around but unnecessary to have in excessive amounts.
In regards to Berkshire Hathaway, he insists that his company always has necessary reserves on hand but does not view cash as a good long-term investment. Read the rest of this entry »
November 2010 Federal Deficit $150.4 Billion — Highest November on Record
Posted by Oksana Grebenjuk in Budget on Декабрь 13th, 2010
….on an unrelated note, corporations are flush with cash and paid the lowest % of taxes to GDP in history in last year we have records (2008), Americans are being sent cash by the bushel, entitlement spending is through the roof, aid to states is historic, and the stock market propels higher. These items are completely unrelated as long as there is no cost in cost-benefit analysis. 
Just like I suddenly have $50,000 if I borrow $50,000 on my credit card. (no cost of course…only the benefit)
Kind of laughable in retrospect when I hand wringed about half a trillion deficits «back in the day» (Jul 28, 2008: US Budget Deficit to Half a Trillion) — that’s 3-4 months of federal government work nowadays.
Via WSJ
The U.S. government ran its 26th straight monthly budget deficit in November amid wrangling over a package that would extend big tax cuts to Americans trying to recover from recession.
The Treasury Department, in its regular budget monthly statement, said the government spent $150.4 billion than it collected in the second month of fiscal 2011.
Last month’s red ink pushes up the deficit to $290.8 billion for the fiscal year, which began Oct. 1. That figure is a little smaller than the deficit during the same period last year. But President Barack Obama’s administration expects the deficit to top $1 trillion in this fiscal year. (uhhh… that’s an understatement considering this latest $900B package soon to pass). Read the rest of this entry »
The Fed Forcing Us Into Risk Asset?
Posted by Oksana Grebenjuk in Fund Markets on Ноябрь 10th, 2010
By signalling its intention to purchase another $600bn of longer-term Treasury securities by the end of June 2011, the Fed hopes its injections of cash will lower interest rates, bolster asset prices, increase wealth and encourage households and companies to spend and hire. Moreover, by noting the possibility of doing more if the data disappoint, it is also hoping that markets could price in the institution’s future asset purchases, turbo-charging the direct policy impact before those purchases have even been specified.
For a little more color you can check in with Cullen Roche, aka Pragmatic Capitalism who has been writing about this in a lot of detail. My focus has been to be more concerned with portfolio implications as this is my job, not trying to solve the world’s problems.
However, it is important to be cognizant of what I will call a malignancy in the US stock and bond markets being unleashed by Ben Bernanke and his Federal Reserve Posse. Between all of the commentary on what the Fed is doing and Bernanke’s op-ed in the Washington Post you should realize that policy is now targeting asset prices. If you do some blog reading you will find comments saying that the Fed is making it so that just holding cash is stupid, that by keeping interest rates so low investors are forced into buying risk assets. To the extent this is true it is heinous.
It is heinous for what could be several different bad outcomes, outcomes that could be worse than what is trying to be fixed. While I don’t know if that will be the outcome this is one conclusion to draw from keeping interest rates at 1% for too long seven or eight years ago (although this was only one factor and not the biggest factor). If the rally in US equity prices we have enjoyed for the last few months has nothing but air under it then the consequence could be another painful decline—this would not be unprecedented obviously but could push any non-government induced recovery further down the road if the wealth effect actually does matter. Read the rest of this entry »
Why The Stimulus May Not Have Stimulated
Posted by Oksana Grebenjuk in Trading Markets on Ноябрь 5th, 2010
Arnold Kling points to an interesting study by economists John Taylor and John Cogan. It’s an analysis of the effect of the stimulus from a different and intriguing perspective. They write:
Because the ARRA grants to state and local government are fungible and not synchronized with purchases, determining the effect of ARRA on state and local government purchases is more difficult and uncertain than determining the effect on federal government purchases. We therefore analyze the state and local purchases data in detail.
We also consider counterfactuals, trace where the money went, and estimate time-series regressions of the relationship between ARRA grants and state and local government purchases. Our main finding is that the increase in government purchases due to the ARRA has been remarkably small, especially when compared to the large size of the overall ARRA package. In fact, the effect of ARRA on purchases appears to be so small that the size of the government purchases multiplier does not matter much compared to many other factors affecting the growth of GDP.
Taylor and Cogan contend that state and local governments simply substituted federal money for money they would have appropriated via cash flow or borrowing. Effectively, they conclude that little new money actually found its way to the economy.
Kling offers three views of their hypothesis: Read the rest of this entry »
Are There Bubbles All Around?
Posted by Oksana Grebenjuk in Investing on Октябрь 26th, 2010
One thing we learned in the 1990s and the 2000s is that there can be asset bubbles in the economy without growth in either money stock variables or increases in consumer (flow expenditure) price inflation. The financial system seems to be flexible enough so that it can leverage up where it wants to even though monetary policy and consumer spending seem to be «in control». This is the lesson of modern «financial engineering.»
However, the monetary statistics are not benign for most of the time period from January 1961 up to September 2008. During this time period, the monetary base which is supposedly under the control of the Federal Reserve System rose at a compound annual rate of slightly more than 6%. Total credit during this time period rose much more rapidly. Consequently, the United States experienced a period if «credit inflation» that dominated everything going on during this 47 years or so. This secular inflation drove the financial innovation that took place as the whole financial system took on more-and-more leverage and more-and-more risk.
Since September 2008, the Federal Reserve has caused the Monetary Base to increase explosively by more than 130%. However, the banking system is not lending and much of these funds seem to have ended up on the balance sheets of the banking system. Excess reserves in the banking system went from about $2 billion in August 2008 to almost $1.2 trillion in February 2010. Excess reserves for September 2010 averaged slightly below $1 trillion.
Even with all of these excess reserves, the current concern is whether or not the economy will go into a period where prices actually decline. That is, might the United States be headed for a period of deflation? Read the rest of this entry »
Watch The Currency
Posted by Oksana Grebenjuk in Currency, Favourites on Сентябрь 10th, 2010
The value of a currency is «the single most important price in a nation’s economy.» So claims Paul Volcker. If this is the case then the eurozone continues to have problems.
As information has filtered out that European banks may have more problems than originally thought given recent «stress tests», the Euro has shown continued weakness, almost across the board.
«The euro suffered and haven demand sent the yen and the Swiss franc to record highs amid renewed concerns over the health of the eurozone financial system.
Analysts said nervousness was heightened by news from the German Banking Association, which said the country’s 10 biggest lenders might need another €105bn of additional capital. Hans Redeker, of BNP Paribas, said the outcome of the European bank stress tests were being put in doubt.
He added that there were increasing signs that countries on the periphery of the eurozone, such as Greece and Portugal, were showing a frightening decline of growth momentum with the risk that these economies were moving into a debt spiral.» (See http://www.ft.com/cms/s/0/9a698e7a-ba61-11df-8e5c-00144feab49a.html.) Read the rest of this entry »
Is It Time To Sell Long-Bonds?
Posted by Oksana Grebenjuk in Fund Markets on Сентябрь 9th, 2010
As the market declines and fear sets in, there has been a pronounced movement from equities to bonds. This cash in-flow has helped fuel higher bond prices and lower interest rates. For some portfolios, bonds have been one of the few positives over the last 24 months. Is it possible that bonds are the next big bubble to burst?
Jeremy Siegel certainty thinks so based on his recent Wall Street Journal article The Great American Bond Bubble. In the article, he opined that the bond bubble may have far more serious consequences for investors than the internet and technology bubble that burst some 10 years ago. The Nasdaq has yet to recover those losses as it is currently selling at less than half the peak it reached a decade ago.
The longer a bond’s maturity, the more volatile its price. Thus, long and intermediate bonds stand to lose substantially when rates reverse, as noted in the aforementioned article:
If over the next year, 10-year interest rates, which are now 2.8%, rise to 3.15%, bondholders will suffer a capital loss equal to the current yield. If rates rise to 4% as they did last spring, the capital loss will be more than three times the current yield. Is there any doubt that interest rates will rise over the next two decades as the baby boomers retire and the enormous government entitlement programs kick into gear? Read the rest of this entry »
Cash Is Cheap
Posted by Oksana Grebenjuk in Investing on Сентябрь 8th, 2010
The first half of 2010 has been dominated by questions lacking immediate answers: Will Europe disintegrate, will financial regulation cripple capital markets, will Brett Favre finally retire? Investors, businesses, and sports fans alike have grappled with plenty of ambiguity, and maybe that’s why private firms are finding such a huge, cheap market for their debt. Indeed, only the latest in a lengthening line of firms to offer bonds at ultra-low rates, IBM sold $1.5 billion worth of 3-year notes for 1% on Tuesday. US firms successfully raised $90.1 billion in July alone, with an average yield of 5.01%—an amount not matched since 1999 at the lowest rate since 2004.
Investors may be betting deflation’s on the way (making future interest payments more valuable) or they may be seeking the perceived safety of fixed income plus a little extra to top Treasuries. But unless current dour appraisals of economic health prove true (unlikely in our view), the corporate bond binge is hugely encouraging. For all the talk of broken credit markets, corporate bond sales show credit is amply available for the creditworthy. And investors don’t accept ultra-low rates unless they’re confident corporations are healthy and low-risk. Indeed, balance sheets are solid, costs under control, and profits up hugely.
Businesses holding record levels of cash are wisely building those piles higher by leveraging them at today’s ultra-low rates. Firms may be a little conservative at the moment, but they aren’t borrowing money to sit on it and pay interest. They expect investment in future economic growth will yield a return at least above what they’re paying to borrow—and likely quite a bit more. One metric shows this clearly—the earnings yield on global stocks is 8.2%—much higher than today’s borrowing costs for highly rated companies.* Said another way, firms can borrow funds on the cheap, reinvest them in new business investment opportunities, mergers, or share buybacks and reap a rich reward. Read the rest of this entry »
Be Wary the Rush to Gold
Posted by Oksana Grebenjuk in Banks on Май 27th, 2010
Most of us have seen advertisements to buy gold or offering cash for gold. With the economy still unsettled and gold prices steadily rising, you may be tempted. But not all gold investments are safe.
On Tuesday, Representative Anthony D. Weiner, a Democrat from New York, attacked one company that is a gold and precious metals dealer, Goldline International Inc. He accused the company of “shady practices,” alleging that it overcharges for collector coins and provides misleading financial advice to consumers. “They’re exploiting the economy that we’re in,” he said.
Mr. Weiner also spoke of the company’s “unholy alliance” with television and radio personalities like Mike Huckabee, the former governor of Arkansas and Republican presidential candidate; and Fred Thompson, a former Senator from Tennessee and TV actor. But he particularly singled out Glenn Beck, the conservative talk show host.
“It’s debatable whether gold is a good investment,” Mr. Weiner said at a news conference in front of the Mercantile Exchange building in lower Manhattan. “There’s a confluence between a declining economy and the ignorance many consumers have about how the marketplace works.” Read the rest of this entry »
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