tag:wcgortel.com,2013:/posts wcgo2 2017-10-08T18:25:31Z tag:wcgortel.com,2013:Post/1196828 2017-10-08T18:25:31Z 2017-10-08T18:25:31Z This site will no longer be updated.

This is my final post on wcgortel.com. 

I've decided to come out publicly as a transgender woman, and will be changing my name. I was born in New York City as William Charles Gormley Ortel II, and soon enough will have that formally changed to Sloane River Veda Ortel. 

Further thoughts and observations will be posted at srvo.org. I look forward to writing more frequently, and invite you to follow along there. 

tag:wcgortel.com,2013:Post/1050854 2016-04-20T16:00:00Z 2016-05-13T16:59:15Z Maximizing Your Philanthropic Impact

When you read up on philanthropy, you come across one word an awful lot: impact.

Obviously that makes sense. If you just want to make someone’s life better, buy me a Jet Ski. If you want to have as big a positive impact on the world as possible, you are starting down an interesting, under-traveled, and complicated road.

There is a spectrum of causes you can support, ranging from the sublime and spiritual to the frivolous. You can help a guy make potato salad, support a local museum, or save somebody’s life.

Clearly, one of these things is not like the other. And that should serve to clarify the stakes. But even charities with the same objectives can differ widely in terms of their effectiveness. Last month, Eric Friedman, CFA, made the point that some charities can make life-saving interventions for a fraction of the cost of other organizations.

So, by using the right approach, you can save more than 600 lives for the cost of one. Conservatively.

That sort of gap in performance denotes opportunity for investors, both in optimizing personal giving and in helping clients achieve the same efficiency. Friedman and I connected over email to take the discussion a bit further, but certainly the hope is that it does not end here. We would both appreciate it if you would share your own questions in the comments section below.

Will Ortel: One of the most influential concepts in investing is the idea of “efficient” markets, which basically states that it is difficult to beat the market because the best investment opportunities are spotted quickly and buyers bid up the price to fair value. Does this same principle apply in charitable giving?

Eric Friedman, CFA: Somewhat, but not as much as in investments. A lot of donor money goes to the nonprofits that are best at fundraising, not necessarily those with the best programs.

Fundraising success is more correlated with being able to tell compelling stories rather than being charities with evidence-based programs demonstrated to have a strong impact. Further, donors often constrain their giving to areas that they relate to, so causes that are not personally appealing to upper-middle-class and wealthy donors tend to be neglected.

As a result, there are broad swaths of extremely effective charities that have huge funding gaps.

There are some very savvy donors trying to close these gaps, but they are small relative to the total amounts donated. For example, grants from the Bill and Melinda Gates Foundation, which is one of the most sophisticated donors and the largest foundation by far, are only about 1% of the size of what Americans donate annually.

Investors frequently complain about not having access to enough information in making investment decisions. The same complaint is probably relevant for charities, but can you compare the information that decision makers use in both contexts?

A key difference between information available to investors and donors is that the regulatory environment for information-sharing is much stricter for investments. For example, mutual funds have to disclose many things about their strategies, and their marketing material is tightly controlled to minimize their ability to over-promise or mislead. Investment firms typically can’t highlight a single winning position without disclosing their whole portfolio performance.

The same cannot be said about charities. While that might make donors cautious, there are also reasons to be more optimistic about the quality of information available.

In the for-profit sector, participants protect their trade secrets and competitive advantages. In contrast, participants in the not-for-profit sector have aligned interests — making the world better — so there is greater potential for sharing information.

In both investing and donating, there are experts who are professionally skilled at identifying the best places to allocate capital. One of the biggest differences is that in the investment world, those experts often guard that information as trade secrets, while experts in the charitable sector more frequently share it publicly.

We are all familiar with portfolios where risk and return are balanced. Can the idea of optimizing risk and return be applied to charitable giving?

One of the most important questions when considering a giving opportunity is the level of evidence that it will be effective. This can be thought of as tied to the level of risk. Some interventions have a lot of evidence, sometimes even being tested with similar scientific practices to what pharmaceutical companies are required to use to get new medicines approved. Other giving opportunities are not conducive to such hard evidence, such as with policy advocacy or research.

As with investing, the lowest risk approach isn’t necessarily the best, but taking risk is only desirable if it has the possibility for an outsized return — or impact.

Charitable giving doesn’t have a quantitative “efficient frontier” in the same sense as exists in investing, but risk and return are still important ideas.

If I give without using this framework or a similar one, what are the risks?

In the investing world, an adviser who is unconcerned about risk and return would undoubtedly be breaching fiduciary duties. With charitable giving, if you’re not focused on the evidence behind your approach and the potential outcomes, then you’re flying blind with respect to impact.

The impact of a charity is fundamentally tricky to understand. Can you talk about that?

Sometimes donors only take a surface look at the evidence for impact, which can lead them in the wrong direction.

For example, many people who want to support education donate to college scholarships without thinking through how much the scholarships actually increase education versus facilitate people graduating with less debt.

Or worse, scholarships may enable universities to get away without controlling costs. It isn’t clear without a fairly deep understanding of the dynamics, but it is very possible that the impact of this type of donation is less than a donor might initially expect.

In contrast, giving to some causes might be greater than what one might assume on initial consideration. For example, research indicates that treating parasitic intestinal worms in developing world countries actually increases educational and economic outcomes in addition to health, possibly by the flow-through effects of improved nutrition.

This is an important reason why using intuition alone is often not a good strategy to maximize charitable impact.

How does this compare to some of the key ways donors have historically evaluated charities?

A lot of donors emphasize financial efficiency, such as evaluating charities based on the percentage they spend on overhead. The problem is that there can be very lean organizations that are not especially effective. In fact, “overhead” costs can often be critical for the success of a nonprofit, such as program evaluations and competitive salaries for quality staff.

To create an analogy to the investing world, don’t you want the companies you invest in to spend money on marketing, R&D, and technology? Similarly, a certain level of overhead is critical for charities.

Of course, donors can rest assured that a wasteful organization is unlikely to have a high impact by any legitimate measure. I think the nonprofit community as a whole now recognizes that it is better to evaluate the program impact of a charity. This is a more difficult task than computing a few ratios from a charity’s IRS filings, but well worth the added effort.

Many advisers shy away from talking about charitable giving with their clients because they view it as too complex or not their specialty. Is there something that simplifies the research process and gives donors access to a broadly diversified, rigorously constructed basket of charities?

Yes. There are several charity evaluators that do very robust research and share their results publicly. The really good ones only give their top ratings to a handful of the most deserving charities.

The group I work with, The Life You Can Save, aggregates research from several reliable sources to provide a broader list of recommendations than any one source individually. Importantly, we try hard to present the information in a way that is easy to digest for both financial advisers and donors.

This was conducted for the CFA Institute and originally posted on the Enterprising Investor

tag:wcgortel.com,2013:Post/1050858 2016-03-23T16:00:00Z 2016-05-13T17:06:56Z 24 Charts: Chaotic China

I bet you’ve been thinking about China more often than usual over the past few months.


Why focus there? The Shanghai Composite sits right around 3,000 today, which is quite a long way down from the 5,000 it was at three quarters ago. There are big questions to ponder. Think like a Chinese policymaker. With a slowing domestic economy and significant evidence of capital flight, do you focus on a stable currency or a stable monetary policy?

That question has, to put it mildly, some implications for the investment community.

It’s also helpful to note that, on at least one quantitative basis, systemic risk in China is the highest of any country in the world. That’s not much of a surprise to those who are paying attention. More than half of the CFA Institute Financial NewsBrief readers who we polled think that the economy will turn in less than 6% growth this year.

Investors looking for additional context have been studying the most recent report to the National People’s Congress (NPC), but it is also helpful to examine the fundamental differences that China has in terms of market structure. Some things do not look at all like they do elsewhere. For instance, credit analysis requires an investor to be, to some degree, an analyst of state policy.

I was eager to get some perspective on what’s happening and what to expect, so I enlisted the help of Gordon Chang, a peripatetic and knowledgeable observer of the region and a return guest to the Enterprising Investor. Chang is the author of two books and also writes for Forbes and World Affairs.

The format of what follows is relatively simple: The charts and questions come from me, and the answers come from him. Let’s jump in.

Chinese Equity Markets Have Grown Meaningfully in Market Capitalization

Chinese Equity Markets have Grown Meaningfully

Enterprising Investor: Looking just at the growth of China’s market capitalization, it’s an impressive track record. How would the Communist Party of China like us to see this? 

Gordon Chang: They’d like you to look at the market as really being modern. Really as a rival to New York, and in some ways it is. For instance, before the collapse of the Chinese stock market last year, the Chinese stock index futures market was the largest in the world. The volume there is very, very big.

The problem is that although you have a lot of money sloshing around China, those markets are not modern. We saw that as the Communist Party tried to rescue stock prices beginning the first week of July. They directly intervened. They criminalized a lot of forms of trading. They prevented the institutions from selling. They directly bought up stock through the so-called “National Team.”

Despite the fact that these stock markets are now about 25 years old, they really haven’t reformed very much. There’s been relatively little progress because the government right now is just dominating the markets. China no longer has functioning equity markets.

As GDP Growth Slows
But GDP Growth is Slowing

We’ve all been told not to trust China’s GDP figures. Can you take us inside the statistics a little bit? 

The National Bureau of Statistics reported 6.9% growth for 2015, but very few people now actually believe that. There’s a consensus forming around 4.0%. For instance, you have the Conference Board reporting 3.7% growth for last year.

Capital Economics in London is saying 4.3%. Although, you can make a case for 1% or 2%, especially when you look at electricity consumption, which is still by far the most reliable indicator of Chinese economic activity, and when you look at price data. For instance, for last year, when they were reporting 6.9% real, they were also reporting 6.4% nominal.

China’s officially in deflationary territory. Q4 was really ugly, because Q4, nominal was 5.8% and real was 6.8%. This is a situation going downward. It doesn’t really matter what China’s growth rate is, whether it’s 6.9% or 1%. The point right now is that Chinese leaders cannot change the downward trajectory. China’s growth has been slowing fast. It’s going to continue to do that.

Eventually, it’s going to go into contraction, and that’s a problem because China has accumulated all this debt in order to create growth. In some way, it’s got to pay this debt back. In one way or another, it’s got to retire these obligations. This means that China’s headed towards a debt crisis.

While Debt Grows Meaningfully

While Debt Grows Meaningfully

It sounds great, 50% year-on-year growth, until you realize we’re measuring debt. And again, that’s just as reported by the government, which we’re taught to suspect fudges numbers from time to time. What could the true number be? 

Their debt, we don’t really know what it is. For instance, McKinsey Global Institute said, in the middle of 2014, that it was 282% debt to GDP. Soros, in Davos in January, said 350%. Some people are talking 400%, which I think is actually closer to the mark.

This is not a good story. There’s an enormous amount of debt out there. A lot has been stuffed away in corners. We don’t have a really good view of what it is. When you combine that with stalling growth, it means that there’s got to be an adjustment, and that adjustment’s probably going to look like 1929.

Are Domestic Borrowers Preparing for a Devaluation?
fx Are Borrowers Getting Ready For a Devaluation

It seems like Chinese borrowers are maybe anticipating a currency move. If they were caught offsides with renminbi revenues and dollar debts, that would be really bad. Is that what’s going on here?

Last year, there was $1 trillion of net capital outflow, according to Bloomberg. Other people say a little bit less. A large part of that net capital outflow were Chinese borrowers switching out of US dollar debt into renminbi debt, because they are concerned about the exposure. They don’t want to get caught on the wrong side of a declining renminbi, which is actually happening right now.

Of course, the central bank is trying to support it, but eventually they’re going to have to relent. They will have to capitulate. When they capitulate, it’s going to probably be at the last moment, because they’re going to hold on for as long as they can do so. When they can no longer do so, we’re going to see a run out of this currency.

Trading Volumes and Margin Balances Have Dropped Appreciably
Something Changed Recently

What’s going on with the plummeting volume and margin balances?

First of all, you’ve got to remember that one thing that’s happened since the first week of July, and that is the central government, through various state entities — the so‑called National Team — has been buying up stock. When the National Team buys out stock, it doesn’t trade them, so you’re going to have declining volume.

Also, this is a partial re-nationalization of state enterprises, so this is bad on two counts. That’s why you have volume declining. One thing that’s fascinating: Bloomberg reported that volume of the stock index futures market — which was the world’s largest prior to the mid‑June collapse — volume in the July-August-September time frame declined 99%.

This is an indication of how tough the central government has been, how determined it’s been to support stock prices. They’re going to do everything they possibly can to prevent the market values from tanking, but when they do that, they’re killing volume, and China no longer has a functioning stock market right now. It just doesn’t. It’s the government playing.

What we see in terms of changes in the Shanghai Composite, when they go up, it’s mostly the government. When they go down, it’s when the government isn’t looking.

Zooming Out, You Wonder: What Currency Volatility?

It Cant Just Be the Currency

The renminbi is this big specter that looms over any thought an investor might have regarding China. Recent currency moves have not been that big, if you look at them on a long time horizon. 

There has been talk about further devaluation, but what range of values are we really talking about here?

The central bank has said that they’re not going to have a big one-time devaluation, which might make sense. They will continue to support it until they no longer have dollars and foreign currency to do so, which means that when it adjusts, it’s going to adjust sharp. It’s going to be sudden, and there’s no bottom to this market.

They will hold on until the very last moment. They can prevent large downward movements to the renminbi, but they really cannot, I think, do this for that much longer. There’s too much money coming out of the country.

One of the things that’s even worse: There was, in February, a much smaller decline in the foreign exchange reserves compared to January, when it was $99.5 billion. It declined to under $30, about $28 billion in February. That’s because basically no one’s allowed to remit money out of the country. Or, if they do so, it’s under very tight circumstances.

China’s essentially re-imposed very strict capital controls. A lot of these controls are off the books, so they’re not official. This works for a little while, but the problem is: Who’s going to put their money into a country when they may not be able to get it out?

The issue for China is going to be inward flows. Eventually those inward flows will stop, because of what they’re doing to prevent the outward flows.

Forex Reserves Seem to Have Been Spent to Support the Currency
ForEx Reserves are Being Spent to Support It

But Are They Just Replacing Outward Capital Flows?

Seemingly Directly Replacing Outward Capital Flows

The reported declines in foreign exchange reserves I think have been minimized. They give us a number. We can back check it, but it’s hard to do that.

Also, the one thing they’ve been doing is they’ve been engaging in forward transactions to hide the decline in the foreign reserves. They’re going with these derivatives. This is what Brazil did in 2013. It never ends well. Yes, China has a lot of firepower, but it’s declining fast.

Also, some of the funds in the reserves may not be liquid, so, therefore, they may not be available for defense of the currency. There’s a big black box there, and the global financial community just relies on the numbers that China has been giving us. I don’t know if we can actually do that.

Chaos Is Becoming Consensus

Chaos is Becoming The Consensus

This is definitely news. We were joking at the beginning of this. We titled our last conversation, “Is China Going Off the Rails?” At the time, that was not a question many were asking. Recently The New York Times ran a headline saying the answer was yes: “A New Economic Era for China as They Go Off the Rails.” Are enough people talking enough about this? Are too many?

I think that the global financial community understands that there are real problems in China, and they didn’t understand this, let’s say, eight or nine months ago.

For instance, you go back to August of 2015. You have relatively unimportant news coming out of the Chinese manufacturing sector causing big drops in equity markets in Asia, Europe, and the United States. For instance, we had six days in August when we lost $2.1 trillion in value because of inconsequential things happening in China.

Now, when you have bad news out of China, it doesn’t necessarily affect global markets. I think we’re becoming inured to that. Also, I think the global financial community, although it understands there are problems there, I don’t think they understand the dimension of the problems.

They see the Chinese government sort of rescuing things, but they don’t really look behind how that’s occurring and the sustainability of Beijing’s moves. Beijing’s moves: They can do this for a year or two, but the problem is that as they prevent the adjustment, the underlying imbalances are becoming bigger.

As the underlying imbalances become bigger, the inevitable adjustment has to be severe. Chinese leaders are continuing to do this stuff until they no longer have the ability to do that. When they no longer have the ability to do it, their economy will go into free fall. I don’t think the global financial community understands that.

China Seems to Be Moving from One Sort of Outlier to Another
Is This a Transition from One Sort of Outlier to Another

How much of this is just demographics?

At the moment, they have a massive working-age population supporting a relatively small number of retirees, but World Bank estimates have us right at the inflection point where it heads the other way. By 2050, China will have more retirees than the rest of the world and perhaps a less dynamic population and economy, by extension.

A view that’s forming is that really this is the beginning of the end for them. Is it the case that there are a couple of reforms that they can enact, burn off some bad debt, and get back to business, or are we witnessing a structural decline?

There are structural economic reforms that if they were implemented could save China, but the problem is that those reforms are not possible within the context of the political system that China’s president, Xi Jinping, will not change. The answer is that we’re not going to see the reforms that are necessary.

Indeed, at Premier Li Keqiang’s work report at the ongoing National People’s Congress meeting, it’s clear that they’re prioritizing growth over reform. They’ve basically given up on reform. Yes, they talk about it, but they’re not implementing it.

That means that what we’re seeing is essentially a long, slow decline. Without reform, they aren’t going to be able to make the changes that are absolutely necessary. There’s just no political will to do that.

In fact, if we look at the changes in the economy since Xi Jinping became China’s general party secretary in November 2012, he’s taken China backwards. He’s recombining already large-state enterprises back into monopolies.

We’re seeing the partial re-nationalization of the Chinese economy as more and more state ownership of state enterprises. More state money going to favored market participants. Foreign companies are losing market share, because they’re being attacked by the state.

These are all things that are regressive, so Deng Xiaoping’s policy of reform and opening up is over. We’re going back to a Maoist-inspired economy. That may sound a little harsh, but indeed what Xi Jinping is doing is very reminiscent of what we saw in the 1950s. This is a bad story for China.

Yes, they can stave off problems while they have more and more state control, but eventually this whole thing just fails, as it did before.

You say the recipe is similar to Mao’s in terms of centralizing control. What are some other major points of concordance between what Xi Jinping has been doing and the 1950s period in China?

When we look at it, I think the most telling thing is the re-creation of state monopolies, which is absolutely the wrong way to go. China created growth in the 1990s when they went the other way, when they were breaking up state monopolies, allowing state enterprises to compete with each other.

Now, we’re about a year and a half, two years into a reversal process. That means there’s more and more of these recombinations. That means less and less competition. That can’t be good for the competitiveness of these enterprises except for competitiveness at home.

Of course, the bigger they get with no competitors, yes, they will be able to maximize profits. Only in China, though. Around the world, they’re going to get beaten, because they are losing those qualities of competitiveness that are absolutely necessary to compete in global markets.

Growth in Energy Consumption Has Stalled
Slowing Growth in Electricity Usage

Analysts love to look at electricity usage in China, under a theory that you can’t really trust GDP that much.

For 2015, electricity consumption increased by 0.5%. Generally speaking, GDP growth has been about 85% of the growth of electricity. We’re talking a pretty low GDP number.

Of course, electricity’s only one indicator, but there are others that corroborate, essentially, a no‑growth environment. If we go back to the last downturn at the end of the 1990s, a lot of people were saying electricity was no longer so indicative. Afterwards, after that downturn passed, people went back and realized electricity was indeed still the best indicator.

Now, people are saying there’s a move away from manufacturing to services, so therefore electricity is not as important as it once was. There may be a little bit of truth in that, but nonetheless, when you look at all the range of indicators that we have, electricity, I believe, is still number one.

We’re seeing so many other signs of minimal growth that I think electricity still is telling us what the Chinese economy is doing.

And Rail Volume Has Fallen
And Theres Less Stuff Moving Around

How relevant is rail freight volume?

Rail freight was one of the three indicators that Premier Li Keqiang mentioned as the things that he looked at when he was a provincial party secretary. This is going back to 2007, when he was talking to the American ambassador.

This was in a WikiLeaks cable. The three things he mentioned were electricity consumption, rail freight volume, and bank lending. Rail freight volume is something we can measure. It’s something that is easy to verify, and we see it going down.

People say, “Well, more stuff is being moved by truck.” Maybe, but nonetheless, the decline in rail freight volume is especially troubling because it is so large, these percentage decreases. I think that, essentially, we’re looking, again, at another factor showing basically the contraction of the manufacturing sector.

I think the manufacturing sector is contracting. It did last year, 2% or 3%, maybe a little bit more. There may be an increase in services, but not nearly enough to make up for the decline in manufacturing, especially because the central government devastated the financial services industry beginning in the middle of July, when they tried to rescue stock prices.

A lot of things are going in the wrong direction right now. Not everything, but a lot of them.

We’ll get to the stuff that’s going in the right direction in a little bit.

That’s a one‑minute discussion.

It seemed a bit that way when I started digging through the data. What is going in the right direction?

There are more retail sales, certainly not as much as the central government statistics indicate. The problem with the increase in consumption, I think, is that it’s basically a derivative of growth elsewhere, especially growth of investment.

Investment growth is completely unsustainable. It’s anti‑reform. When investment growth starts to choke even more than it is now, I think it’s going to take consumption with it. What we’re seeing from consumer products companies is some growth, but not very much.

A lot of people like to report, “Oh, say, well, the growth of volume over Alibaba’s platforms and JD.com, online retailers,” but they’re really taking away sales from bricks and mortar. When you start to look at companies that sell across both platforms, online and offline, there really is unimpressive growth or even some contraction in the earnings of these companies related to China.

There’s some positive story there, but it’s not enough to counteract the collapse of manufacturing.

The Export Picture Is Grim

A Grim Export Picture

Should we be taking the recent export numbers as an accurate signal?

There might be a little bit of distortion related to Chinese New Year, but when you combine January and February numbers for both imports and exports, they’re both down deep in the double digits. That eliminates entirely the New Year effect.

Trade is just disastrous. You notice that Premier Li Keqiang, in his work report, didn’t have a target for trade this year. That’s the first time, I think, ever. For the last four years, they have not met their target.

Last year, their target was 6% growth in exports and imports combined. It actually came out down 8%. They missed by 14 percentage points. It’s not getting any better, as we saw from January and February.

This is a real indication of problems in the Chinese economy. The import number, I think, is the more important one because that reflects manufacturing demand, and it also reflects consumer demand. You have some pretty atrocious‑looking numbers coming out of imports and exports.

Certainly, just looking at this chart, even if you take the 12‑month average, it’s negative. There’s a very senior person on Bloomberg saying, “Oh, no, it’s not that bad. It’s only down 4% on average all year,” which seems like a spurious argument.

Aluminum Consumption Fell Sharply
A Sharp Drop in Aluminum Consumption

Is there anything in particular to be made about of the drop-off in aluminum consumption?

That’s a reflection of contraction of manufacturing. You’re going to see that in steel and coal statistics as well. That’s pretty much across the board in the manufacturing sector.

It Appears China Is in an Industrial Recession

Industrial Recession

The satellite index is the most negative and, presumably, the most reliable.

It’s hard to hide from space. The satellite indices have been the most negative, but even traditional ones, the one done by Markit, the London‑based research firm, it’s just been continually negative in manufacturing.

Even their services indices, which are still above water, they’re heading towards the contraction point. This is an economy which is slowly grinding to a halt.

If they devalue their currency, presumably it makes their exports more competitive?

Yeah, but they can’t do that. The reason is they will trigger even worse capital outflow. They’re basically prevented from doing that. Donald Trump says, “Well, they’re manipulating their currency to help their exporters.”

Yes, they are manipulating their currency, but they’re keeping it at an artificially high value. They have to do that to prevent capital outflow. It’s basically our exporters are being helped by China’s currency manipulation now, which is a reversal, of course.

Traditionally, China kept its currency below its market value in order to help exporters. Now, it’s keeping it above market value.

Industrial Profits Aren’t Growing

Long-Lived Profit Recession

How does the government talk about the stagnation in industrial profits?

They don’t. I think earnings, as reported out of Chinese companies can be a little bit not as reliable because of the nature of the accounting profession and other things. Nonetheless, it’s more reliable than what comes out of the Bureau of National Statistics because some of those numbers are completely made up.

It’s just fantasy land. At least with the accountants, they’ve got to at least have some responsibilities to the market. Therefore, it does give us a better window into what’s actually happening.

This is true at the revenue level as well. If you look at the Shanghai Composite, revenues are not growing. This is also true of indices in the States. In many ways, it’s the elephant in the room for global equity markets. Is there a way out of this?

I don’t think there is a way out of it. I think that they’re heading to that adjustment as the Chinese economy continues to slow. Especially when it gets to that contraction point, where it’s very close already, then I think we’re going to see a lot of things happen very quickly.

They’re just hanging on right now, and they’re able to do that. They can slow the inevitable, but they can’t prevent it because they have not been able to repeal the laws of economics. That’s why they’ve now got this fight with Moody’s over their ratings.

That just shows, Moody’s said, “Look, you can’t have the impossible trinity.” China then gets outraged that Moody’s would ever say that. What China’s trying to do is say, “Well, oh, the laws of economics do not apply to China.” They do apply. They apply differently because of the degree of state control, which is becoming more and more state control, but nonetheless, they cannot prevent the inevitable.

Non-Performing Loans (NPLs) Are Booming

Booming NPLs

Does this headline increase in non-performing (NPLs) capture the reality?

The numbers have gone up, but the reported number is not nearly as high as they, in effect, are, because people are not applying international standards.

A lot of this stuff is being rolled over, and so, therefore, it’s being counted as good. It’s only good because banks have been ordered not to call in loans. This means we’ve seen a lot of credit growth, but we haven’t seen growth in the economy, which you would expect.

As interest builds up, you have to lend more and more just to roll over what exists. That’s what occurring now. If you were to actually apply international standards to the loan books of these banks, we’d be seeing NPL ratios of 20%–30%, easy.

Banking Assets Are Ballooning

Screen Shot 2016-03-22 at 112411 AM

We’ve got overall banking assets that have slowed to “just” 40% growth year on year.

It’s crazy. It’s absolutely crazy. What they’re doing is they’re just throwing a lot of money. People say, “Well, look, they’ve got a relatively high reserve requirement ratio for the banks, and they’ve got relatively high interest rates.”

They say, “Therefore, they have a lot of ammunition.” No, they don’t, because you can throw more money into this economy, and it isn’t going to do any good because there’s a fundamental lack of demand for money.

Yes, the government will build infrastructure, and yes, technically that does create gross domestic product, but it’s only government directed. Private businesses just don’t have a need for money, unless it’s connected to some government infrastructure or other government program.

That means, essentially, that it isn’t going to work. You throw more money in this economy, you just have more money. You don’t have more growth.

It’s a sad state in the world, when you think about it, if people are sitting around going, “Oh, you know, I don’t need more money.” That says a lot.

That says a lot. China’s not the only country with that problem, but their problem is so much greater than our problem here in the States, for instance.

Did a Memo Go Out?

Did a Memo Go Out

The all‑system financing aggregate hit an all‑time high, after having been trending downward. Is this just evidence that the government is opening a spigot somewhere?

Absolutely. They’ve done this before, and they say they’re not going to do it again, because Premier Wen Jiabao, who authorized the stimulus program in November 2008, he put too much money into the economy.

He created about as much credit in five years as the entire US banking system, even though in November 2008 the Chinese economy was less than a third the size of America’s. Everyone said, “Well, look, that’s not what we should be doing.”

They say, “Oh, no, no, no, no, we’ll never do that,” but of course, that’s exactly what they’re doing. A memo did go out. Everyone was told to lend, and this is what we got. We got a lot of money supply.

Real Estate: Supply Crunch?

A Supply Crunch in Real Estate

If you look at the leading indicators of inventory, like land purchased and the actual amount of real estate that’s under construction, you see it trending down. Meanwhile, you see a 50% year-on-year increase in the price of one square meter in a Tier 1 city.

Tier 1 cities, there is still demand for real estate. There’s no question about that. When you start going to Tier 3 cities, there’s just enormous amount of supply, and there’s very little demand, so it’s a bifurcated market.

If you’re in Beijing and Shanghai, you have a relatively healthy real estate market, and prices are still going up. You start to get out of China’s major cities, and there are real problems. What they did to create growth in the past was just to build, build, and build, and now they don’t know what to do.

Even in places like Guangdong Province, which is a relatively prosperous, modern province, you now have calls for state enterprises to buy apartments, because that’s the only way they can do this to solve their problem, use one state entity to bail out another.

There’s a real problem once you get out of Beijing, and Shanghai, and Guangzhou.

Where I live in Brooklyn, a million bucks buys you a fixer‑upper, but travel 500 miles in any direction and you can have almost whatever you want for that price. Is that the analogy?

That’s the same thing, yeah.

A Retail-Driven Bubble?
A Retail-Driven Bubble

I want to ask you about retail investors and the domestic stock market. One of the things you notice when you look into it is there’s this incredible boom in the number of trading accounts that were opened in the mainland. Then, the government discontinued the statistics on it.

About two or three months after they discontinued the statistics, the Shanghai Composite hit its recent high. Did we see recent inflows of retail investors who were basically gamblers? Is that what’s going on?

There was a lot of that, especially because when you start to go back to September 2014 or so. Keqiang’s policy was to talk up the stock market. You did have a lot of retail investors start to go into it, especially when prices started to move up. That created momentum.

That’s why you have a sharp increase in the number of retail accounts in the first part of 2015. Then, of course, June occurs. You have the beginnings of real problems. The markets start to turn down. Then you have retail investors start to leave, because they’ve been burned, lost their money.

I think that a lot of it was retail driven, but also, there’s Chinese institutional money in there. Even some foreign money’s starting to flood in when they saw the markets turn up. There’s a lot of stuff going in, but the real sensitive stuff was the Chinese retail investors. When they get burned, that becomes a social stability issue.

Why Do Vehicle Sales Keep Growing?
Why Are Vehicles Still Selling So Well

Vehicle sales seem to be a bright point though.

Vehicle sales have done really well. Vehicle sales started to tail off last summer, but they’ve recovered. Right now, they’re starting to turn down again. This has been a real pillar industry, and we have seen state enterprises go out and buy vehicles in the hundreds. They then store them. That’s called lot rot. There’s been a certain amount of that.

Nonetheless, there’s no question that vehicle sales have held up well. Either you see the wealthy in Tier 1 cities buying cars at a pretty healthy clip. I don’t think that’s going to last, but, nonetheless, it is one of the bright spots.

So Bad It’s Good?
So Bad Its Good

There’s some sense that we’re getting totally used to the negative economic surprises that are coming out. Our expectations are low. Maybe the news is so bad it’s good on China. I wonder how you’d react to that statement.

Apart from what we saw in August and September last year when it was, as I mentioned, unimportant news really triggered very big falls in equity markets around the world. Now, I think people are not focused on China. They’re focused on problems closer to home.

I think that’s what’s really driving markets right now much more so than that. When China starts to have real troubles, then again, we’re going to see the same phenomena that we saw last August and September. Again, I don’t think that bad China news has really been discounted.

A lot of people still say low sixes for growth. People are saying four, which the consensus is now at. If it really is closer to one or two, then clearly they haven’t discounted all the bad news. When it gets to zero and negative one, watch out.

Presumably there’s even a threat to the government’s ability to stay in power at that point.

People talk about that right now. I was on a panel for a bank with Asian connections in Boston [several] weeks ago. Afterwards, a young Chinese woman came up to my wife, and she’s the type who would come to the United States, get an education, work five years, and then go back to China for their career.

She told my wife, “I’m not going back. None of my friends are going back. My friends in China are saying this government might not last.” Yeah, there’s a lot of talk about that right now among Chinese themselves. There is a real issue about where this is going to go.

Can the Government Keep Growing Revenues?
Can The Government Keep Growing Revenues

One potentially reassuring thing is that the government has done a decent job at actually growing its revenues, although it’s grown debt much faster.

Spending is growing much faster than revenue growth.

Yes, there was revenue growth in 2015, something on the order of, I forget exactly, like 7% or 8%. Fiscal spending last year, according to the government itself, was up 15.8%. There’s a pretty big gap there, and those are official numbers. Who knows what the real numbers are.

We know that a lot of central government spending is not disclosed in the central government’s budget. Military, for instance. A lot of military expenditures are not there.

There have been fantastic increases in fiscal spending. Last October, fiscal spending year on year up 36.1%. November it was up 15.9%. They didn’t disclose December, and I don’t blame them, probably because it was pretty bad. This is an out of control spending government.

While it’s good for them that they’ve got some revenues and they’re able to drive that line higher, they’re not able to drive it as fast as spending.

You’ve got to remember that in the work reports that we’ve been seeing at the National People’s Congress meeting, they’re increasing their deficit from 2.4% of GDP, which is what they claimed for 2015, to 3% this year.

Now, 3% is a psychological line, not just for the Chinese but for others. China is probably going to bust through 3% in reality, because they don’t disclose all their spending. Who knows what they’re going to be next year. This is not going in the right direction.

I realize I haven’t asked you at all about security. China’s neighbor and a critical part of the global security question is North Korea, who’s been testing their nuclear weapons . . .

And long‑range missiles.

. . . and threatening to use them preemptively. How should we be contextualizing that? Will China be an effective partner in working with the North, and what really can be done there?

I don’t think so, for a lot of reasons. First of all, the China and North Korea relation has eroded, especially after the execution of Jang Sung‑taek in December 2013, because Jang handled relations with Beijing.

The real problem is you’ve got a government in North Korea, a regime, where you have Kim Jung Un, the ruler, feuding with the military, which is still the most important institution in North Korean society. It’s unstable, and I don’t think the Chinese or anybody else can actually have much influence where you have intense infighting.

Plus, also, you’ve got intense infighting in Beijing. Not as bad as it looks like in Pyongyang, but, nonetheless, this is an unstable situation as well. You’ve got two governments right now that are starting to splinter, and that means that north Asia is exceedingly dangerous.

That’s not great news, but thank you so much, Gordon, for sharing your view and for spending time with us. I’m sure Enterprising Investor readers are quite pleased to have your perspective, as well.

Thanks so much, Will.

This was written for CFA Institute and first published on the Enterprising Investor.

tag:wcgortel.com,2013:Post/997262 2015-07-29T16:00:00Z 2016-02-19T18:45:44Z 10 Keys to a Retirement System that Works

When clients ask you whether the hodgepodge of social security programs, private savings accounts, and employer-sponsored retirement plans that we collectively rely on will be sufficient to provide them with a comfortable living after they stop working, you probably have an easy answer at the ready. “Ha!”

We can fix that. Read how on the Enterprising Investor

tag:wcgortel.com,2013:Post/819704 2015-03-05T20:04:57Z 2016-05-13T17:16:37Z The Reasons We Honor Irving Kahn, CFA

About 10 days ago a young man passed away to whom CFA Institute owes a lot. He was 109. His name was Irving Kahn, CFA.

I never had the pleasure of meeting him, but I do have the honor of starting a discussion about his legacy in this forum and talking about what his example means to me — and what it should mean to professional investors everywhere.

Why do we choose to honor this man? Perhaps it’s because as a teaching assistant to Benjamin Graham, he watched and guided the creation of this industry from the very beginning. Or perhaps it’s because he belonged to the first class of CFA charterholders, a group of people who set in motion a social movement that helped professionalize the world of investing. He was among the founders of the New York Society of Security Analysts, one of our largest societies, as well as the Financial Analysts Journal, a sister publication to the Enterprising Investor.

Or maybe it’s because, at 109 years old, he still loved the stuff that we professional investors do day in and day out. Kahn was still working when he passed away, even though he had more than earned his retirement and could have moved somewhere with a better climate than New York City and lived a life of leisure.

I Guess He Just Loved This Game.

The investment industry is considered boring by the uninitiated. We are unrepentant geeks. We print out annual reports and read them in alphabetical order. Our nicknames for things — the Swissie, crack spreads, 2s10s — make literally no sense to other people. When our contemporaries are profiled in the media, they often come off as morally bankrupt. This characterization is so common that it’s discussed as a TV Trope.

So when we, or at least, when I see a distinguished investor quietly grinding out alpha because he likes it, I find it inspiring. I like it, too.

And hearing about someone else who likes it makes me feel like a little bit less of a nerd. So in part I honor him because I hope I can retain his enthusiasm. But I also honor him because there is much to learn from his example. In particular, I think he did three things that every professional investor should emulate.

He Read Different News Sources.

One of the more intriguing stories about Irving that I’ve come across is that he was actually responsible for the expansion of the Financial Times to the United States. In the early 1950s, he would — at great expense — procure copies of the pink paper because he was fascinated with European companies. When he later traveled to London, he met with the FT to see if he could convince them to begin publishing in the United States. They laughed at him. By the time he was profiled for CFA Magazine, they had been hand delivering a weekend Financial Times to him for more than 40 years as a way of saying “thank you” and “we’re sorry.”

He Didn’t Keep His Knowledge to Himself.

When Irving got to Wall Street, “analyst” was not a job title. Analysts were called statisticians. We owe the existence of the investment management profession in large part to the work of Irving and his mentor Benjamin Graham, who would trek up from Wall Street to Columbia Business School after work to teach others how to properly analyze companies. Many people would have just turned in year after year of stellar performance and allowed their investors to believe they were magicians instead of passing on their knowledge.

He Kept Learning.

There are very few widely respected investors who don’t spend most of their time engaged in their primary job: learning new stuff. Kahn could have decided after 30 (or 40, 50, 60, or even 70) years of experience that he had all the knowledge he needed, and fallen into the trap of trying to force markets to fit his well-constructed beliefs rather than updating them. Instead, he kept reading.

I imagine that the investment career I have ahead of me will be different in many ways from the one that Kahn had. At the very least, I’ll never have the same difficulty getting a hold of the Financial Times. I hope I can mimic his example in these three important ways though. 

This was written for CFA Institute and first published on the Enterprising Investor.

    William Ortel
    tag:wcgortel.com,2013:Post/819724 2015-03-04T17:00:00Z 2016-05-13T17:17:23Z 14 Charts Worth Your Time: Apple, Macro Trends, and Global Inequality

     Am I the only one starting to feel like we’re pretty darn late in the business cycle? Read more

    tag:wcgortel.com,2013:Post/819711 2014-12-09T17:00:00Z 2015-03-05T20:19:54Z Grumpy Cat Means Business

    Grumpy Cat is a moneymaker, and we should evaluate why that’s surprising. Read more

    tag:wcgortel.com,2013:Post/819706 2014-12-01T17:00:00Z 2016-05-13T17:22:19Z Free Investing is the new Free Checking

    Are you paying for checking? You totally don’t need to. 

    Most Americans, at least, have access to a free checking account that offers many of the features we closely associate with a traditional investment account: secure storage of and access to money.

    It’s not farfetched to ask the same question about an investment account and provide the same answer. Particularly for investors who own index funds (or “closet index” funds with low active shares), it’s becoming increasingly apparent that there is no need to pay significant fees for a diversified portfolio. Vanguard has long offered target date funds that combine their low-cost index offerings, but Charles Schwab’s “Intelligent” portfolios, which do not have associated fees, are a harbinger of what is to come.

    I’ve already said that in the fight against algorithmic investment services, financial advisers “had better compete on something other than cost, accuracy, and speed” but haven’t yet taken that analysis further. My colleague Lauren Foster has noted that robo-advisers and financial advisers had better start getting along, but I will state that more strongly.

    Charging for Non-Differentiated Investment Products Is About to Get Very Hard.

    If you are selling the same thing as everyone else, and that thing is infinitely scalable at minuscule marginal cost — like many equity index funds — there is little reason for someone to pay you for it. A preponderance of services have evolved to combine various low-cost investments into “customized” investment portfolios, but those products have essentially the same characteristics. The algorithms that combine the products are as scalable as the products themselves.

    This leads to a competitive dynamic that is easy to name but difficult to survive: a race to the bottom. Vanguard’s ownership framework, which is not designed to earn a profit, seems to be structured in anticipation of this competitive dynamic.

    There is not going to be only one firm providing low-cost index funds, but it is difficult to imagine a true need for the hundreds of them that exist now. In 2012, Business Insider did a survey of S&P 500 index funds and found that Vanguard effectively dominated its competition. Businesses attempting to extract excess fee income from either these non-differentiated funds or the construction of a portfolio comprised of them will have a difficult time justifying their existence.

    So Are Professional Investment Managers Going Away?

    No way. Fortunately for investment professionals, we are not selling buggy whips. As long as there are organizations and individuals with money, there will be a market for figuring out what to do with it. That market is simply evolving, which is why Lauren’s framing of the next step for advisers as “getting on the right side” of the trend is so perceptive.

    I have personally never been more bullish on the future of the investment profession, but that doesn’t mean it’s going to look the same. It’s unlikely that there will be many highly paid employees doing work that could easily be performed by algorithms in the years to come. Instead, look for small teams of investment professionals to be levered as never before by software. To me, it seems like there will still be ample room to provide products along one of three lines:

    • Personality: A more pleasant interface to money management than is otherwise available. This can take the form of a trusted adviser, but also software that integrates more thoughtfully into your daily life. I imagine that many investors would pay for value-added services, particularly for things like life coaching bundled alongside financial advice.
    • Performance: Pure alpha. Simple enough — there has always been a market for outstanding investment results and it is hard to imagine that changing. It will likely become more difficult for “closet indexers,” who are in essence pretending to provide active management, to pass by undetected, but many professional investors will probably welcome that development.
    • Permanence: Advice for the wealthy centered on specific issues relating to their legacy. This currently includes considerations like trust and estate planning, but I imagine that it will evolve to encompass a range of products that are not currently widely offered, like charitable plans that rival investment plans in sophistication, diversification, and analytic rigor.

    What have I left out? Do you see a vector where financial professionals can offer value above and beyond that provided by low- or no-cost indexing services? Let me know in the comments section. After all, “free checking” has been around for a while, and it would be difficult to argue that the retail banking industry has altogether gone away since then.

    This was written for the CFA Institute and originally posted on the Enterprising Investor

    tag:wcgortel.com,2013:Post/765042 2014-10-15T16:03:00Z 2016-05-13T17:36:23Z Can Financial Advisers Make Their Clients Happy?

    Financial advisers work with their clients to understand their goals and needs, then suggest investments that make sense in that context, and thereafter consult with them periodically to make sure everything is on track to realize those aspirations.

    That simple feedback loop can be a powerful force. Even professional investors who don’t believe it’s possible to beat the stock market will acknowledgethe value that comes from dealing with an adviser and working towards well-defined goals and checking in over time.

    In that process, advisers gain a lot of highly personal information about their clients’ innermost selves. In a world where the fees advisers can charge are shrinking and the market for financial advice is arguably being disrupted, it would behoove financial advisers to extend their value proposition.

    As an observer, it seems that one way they might do that is by taking on something of a life-coaching role. Since advisers must justify their value among a sea of algorithms and exchange-traded funds, they had better compete on something other than cost, accuracy, and speed. Empathy, intuition, and rapport are core strengths of financial advisers, and they should be building business plans that take those fully into account.

    What would the world look like if the financial adviser’s job was also to focus their clients on taking tangible steps towards becoming happier, better-adjusted people?

    Think Before You Laugh

    There is a market for the pursuit of happiness. The “self-help” industry is estimated to generate $1 billion per year in the United States. At minimum, this is a sign of engagement with the concept of self-improvement.

    Annual spending on self-help is just one measure of how consumers interact with products and literature aimed at improving their lives. What if that same information could be delivered as a service by somebody with an unusual amount of insight into a particular consumer and who was already regularly talking about long-term life goals with them? It seems likely that if the proper approach to integrating life and financial goals was applied, consumers would find substantial value there.

    Joe Biden repeatedly said, “Don’t tell me what you value. Show me your budget, and I’ll tell you what you value” during the 2008 and 2012 US presidential elections. Those words were piercingly perceptive. As investment professionals, we are exposed to a vast array of explicit and implicit data about the values of our customers. Every decision to save or spend is reflective of the ambitions your clients have and the difficulties that they face in reaching them.

    How Can Financial Advisers Actually Help?

    It’s not necessary to transform yourself from security analyst to psychologist to begin helping your clients reach both their life and financial goals. It can really be as simple as framing the goals that you discuss in a way that focuses on more than just their financial implications and by paying attention to a client’s non-financial desires (like finding more time to read or doing yoga regularly) that might otherwise get ignored in favor of more “heavyweight” aspirations like retirement or buying a house.

    Though even listening to these goals is important, consider taking two simple steps to extend the conversation a bit further. It might be useful to encourage a conversation about pursuing non-financial aspirations as more than just an icebreaker. Get granular with them and figure out what they are driving after. Then jot down notes and discuss what would be a reasonable goal for them to pursue in time for your next annual or quarterly review. Some clients may find that this approach brings them additional insights and helps them work towards their ambitions.

    If you’d like to get serious, structure these conversations so that you can discuss how often your clients are having the sorts of experiences that researchers have determined lead to happiness. Though these are not rigidly defined, they provide a framework for inquiry and can give you the opportunity to suggest objectives that may help your clients increase their overall happiness. Here are a few of the key elements that recur in academic discussions of what contributes to happiness. If you’re really trying to understand what makes your clients tick, it might make sense to ask about them directly or indirectly:

    • How often are they having new experiences? They don’t necessarily need to be traveling the world on a regular basis. Simply trying new restaurants or going on hikes from time to time can be enough.
    • How do they play? It could be golf, tiddlywinks, or World of Warcraft. Experiencing the sensation of play is a powerful driver of happiness.
    • How close are their relationships? Friends and family are critical to feeling fulfillment in our lives, and grasping how your clients relate to these groups and the sort of satisfaction they receive from them will greatly help you to understand them.
    • Are they finding meaning? A sense of meaning can be a powerful contributor to happiness, and most people are eager to talk about the areas of their lives where they are finding it. It could be through volunteer work, raising their children, or their day job.
    • Do they appreciate the good things in their lives? People who take time to reflect on their positive experiences by writing diaries or simply acknowledging the good times they’ve had are found to be happier in general than those who don’t.

    Integrating an understanding of what drives happiness into a wealth management practice can be useful in a lot of ways. On one hand, it gives advisers the opportunity to help clients work directly towards success and fulfillment, but it can also help them troubleshoot relationships with problem clients.

    This is just an armchair survey of a developing branch of human understanding, but if you find yourself intrigued consider watching the documentary Happy, which talks through the research in some more depth and gives examples of particular aspects of happiness in detail. It might be a powerful set of information to tuck away.

    This was originally written for CFA Institute and published on the Enterprising Investor.

    tag:wcgortel.com,2013:Post/765045 2014-09-30T16:00:00Z 2016-05-13T17:20:14Z Three Charts That Will Rekindle Your Interest in Financial Market History

    This post originally ran on the Enterprising Investor.

    Interest in financial history (as measured by Google Trends data) has been declining fairly steadily since April 2004 and has since fallen by about 80%. If that roughly describes the amount you’ve focused on financial history over the last 10 years, it’s likely time for a quick refresher.

    In the introduction to our New York Financial Market History Roundtable, our head of curriculum development Bobby Lamy noted that portfolio managers from around the world have consistently told him that an understanding of financial market history and how it affects the investment process is key to doing their jobs well.

    In other words, it’s surprising that global interest in a topic that senior investment professionals around the world find valuable is dwindling. What should investors be paying attention to?

    That question permeated a nearly two hour discussion in which investment luminaries Richard Sylla, Marty Fridson, CFA, Tom Scherer, and Jack Malvey, CFA considered why investment managers find so much value in the study of market history, what can be learned from it, and how investment professionals might use history to make better decisions in the Future of Finance.

    tag:wcgortel.com,2013:Post/751651 2014-09-12T19:01:00Z 2016-05-13T17:22:58Z The Apple Watch: Towards a New Era in Human-Computer Interaction

    I was born in 1988, and by the time it became important for me to manage my own schedule (when I was about 11), I had a cell phone to tell me the time. Watches have always seemed like a matter of personal preference rather than one of incontrovertible utility. After all, why would I want some clunky wrist thing? Now I’m changing my mind.

    What sold me was the unstated implication at the end of the Apple Watch’s product video. Jony Ive, the senior vice president of design at Apple, observes that “We’re now at a compelling beginning: actually designing technology to be worn, to be truly personal.”

    This is a very big deal. The Apple Watch is the first device that lives on a user’s body and has the potential to deliver technological interactions without separating the wearer from their environment. Accordingly, it represents a bright line: technology is no longer something you necessarily stop interacting with the world to use. It’s just something that exists.

    This post will not conduct the analysis you might expect. I will not discuss the addressable market for Apple Watches, sales estimates, or share prices. I’m more focused on what a wearable device with the potential for commercial success means for human-computer interaction than with any particular device. Accordingly, let’s consider the only question that matters.

    What Is Actually Being Sold?

    This thing is not just a watch. But it’s not the physical product that I am excited about. I am excited because hardware companies are recognizing that I want to use technologybetween screens rather than on them.

    Consider a way that you might actually use the Apple Watch. The intuitive thing to focus on is querying a service or retrieving email, but that is a use case that occurs only because it’s the way we use technology now. What if it augmented our experience in another way, by giving us a new window to other people?

    One of the features I have not heard enough buzz about are the Snapchat-style sketches that we will be able to share at the flick of a wrist. These sketches — like notes passed in class or cave paintings — are the essence of communication. I can share drawings (which will wind up looking fundamentally like cave paintings) with others, and we can communicate using those sketches, just like we did thousands of years ago. We have developed immeasurably complex technology which will allow us to interact with our surroundings as intuitively as we did in the Stone Age.

    Much of the technology that we use in our daily lives is something that we consider separate from non-technological artifacts. As I write this on my iPhone in the subway, I am consciously using technology. I’ve made a choice to engage with my surroundings only in order not to bump into anyone in the spirit of getting work done.

    But that can and will change. Apple Watches are designed to exist with us, not to be awkwardly fondled. They are a piece of technology that lives with us in reality rather than transferring us into a virtual one. A charred twig used to make a cave painting didn’t feel like technology to a caveman, and in the same way the descendant of an Apple Watch might not necessarily feel like technology to my grandchildren. After all, do you consider an analog watch to be technology?

    This is one significant evolution in a trend that my colleague Jason Voss, CFA, and I classify as the rise of human technology. It’s a big trend with a lot of implications, but its ultimate implication is that tech products will come to feel more like our limbic systems than something that we consciously interact with.

    This phone’s features fulfill that trend in several key ways:

    • It’s a tech product that’s differentiating itself with fashion. If you look at the watch’s product page, you may notice something interesting: the different lines of the product stress fashion features, not technical ones. Have you ever seen a laptop marketed as a fashion accessory? I haven’t even heard how fast the processor of the Apple Watch is or how much RAM it has.
    • Human health is one of its killer apps. The Apple Watch will gather the same data that a Fitbit or FuelBand does, but it will also offer other functionality. This means that one of the key ways we’ll use these devices will be to improve our well-being. In a very real sense, health will be one of its killer apps.
    • Finally, human security is assured. If you heard about Apple Pay, you might naturally wonder how they intend to keep your data secure. After all, somebody might pick up and use your watch without you present and just spend your money. Ingeniously, this watch will use contact with your skin to verify your identity. Imagine a world where such an iterated version of a system like this replaces passwords as a means of verifying your identity. In that world, technology looks a lot more human.

    If Not This One, Then the Next

    Whether the Apple Watch or a competing product ultimately delivers a more human interaction with technology, it seems clear that an important trend is being born: technology that doesn’t separate you from your environment.

    Wearables have existed for a while (notably the Pebble Smartwatch and the large collection offered by Samsung), but the debut of the Apple Watch suggests that wearable devices will gain a large audience among both consumers and software developers inside of the next two years.

    I might be being too enthusiastic, but I’m biased here. As I said, I’m excited to buy a watch. Watch geeks are excited too, so I feel like my excitement is substantiated. But what do you think? Let me know in the comments section below.

    This was conducted for the CFA Institute and originally posted on the Enterprising Investor

    tag:wcgortel.com,2013:Post/735000 2014-09-01T18:48:47Z 2015-03-05T18:08:24Z What Marketing Looks Like When Your Brand is Really Boring...And You're At A Party
    I went to this great party today, and the best music was played by the NY State Nurses Association and the NY State Comptroller. 

    Yeah, I just totally wrote that sentence. What's going on? It's the West Indian parade today, and a lot of brands that people don't typically care very much about--think health insurers, associations, and unions--are doing whatever they can to demonstrate their relationship with this community. 
    tag:wcgortel.com,2013:Post/721701 2014-08-01T16:27:51Z 2016-05-13T17:37:08Z Getting Excited about Stellar
    I heard about Stellar recently, and I think it might become kind of a thing. The platform is similar to bitcoin, but it seems like it's designed to particularly serve a lot of the core functions that people are getting excited about, particularly:
    • Transacting between two arbitrary currencies (dollars, yen, euro, bitcoin) seamlessly. Stellar accepts currency from gateways and transmutes it into whatever currency might be desired. 
    • Kicking untrusted gateways off the network. Gateways are essentially lending each other money, so there's a built in "creditworthiness" mechanism that can handle a financial system where trustworthiness is impermanent. 
    • Governance. Stellar seems to have put the foundation that governs its deployment and use together ahead of mass adoption. This could be seen as a bad thing (or just a way to cash in), but I think it leads to a better formed product. Bitcoin got popularity first, and is now building respectability. I feel like taking the opposite approach and designing specific rebuttals in the protocol to commonly leveled criticisms of bitcoin is a great way to get adoption from the conservative, image-conscious financial community. 
    I don't really have the ability to evaluate the technical merit of this platform, but I can definitely evaluate the way it might play among traditionally conservative financial firms. Many of these are aware that financial infrastructure can be improved, but for whatever reason are wary of bitcoin. 

    This seems like someone built a custom version of bitcoin for the powerful institutions that exhibit that conservatism, and I feel like it might work. Not a prediction, but this is an exciting idea. 
    tag:wcgortel.com,2013:Post/709106 2014-06-30T15:24:13Z 2015-03-05T18:08:24Z Adventures in Brooklyn's B-Side Parks
    One of the things that you realize when you spend time in parts of Brooklyn that are not synonymous with cultural movements is that if you try, you can really avoid the crowds out here. 

    It's also really nice. I had a lot of fun today exploring McGolrick Park in Greenpoint, which is one of the nicer outdoor spaces I can think of. It wouldn't be that remarkable if it was crowded with people...what's remarkable about it is that it's beautiful and empty. 
    ]]> tag:wcgortel.com,2013:Post/695446 2014-05-23T18:16:03Z 2014-05-29T19:53:40Z Piketty's Problem
    Every time i've talked about Thomas Piketty with someone, the first question I've gotten was "have you seen any takedowns of him?" 

    Here's one from the FT, and if true it's a big deal: 

    Prof Piketty, 43, provides detailed sourcing for his estimates of wealth inequality in Europe and the US over the past 200 years. In his spreadsheets, however, there are transcription errors from the original sources and incorrect formulas. It also appears that some of the data are cherry-picked or constructed without an original source.

    For example, once the FT cleaned up and simplified the data, the European numbers do not show any tendency towards rising wealth inequality after 1970. An independent specialist in measuring inequality shared the FT’s concerns.

    Read the whole thing. It's short. 
    ]]> tag:wcgortel.com,2013:Post/691489 2014-05-15T12:50:37Z 2014-05-15T12:50:37Z Have You Made a Profit on your Life? I wrote something inspired by the excellent old article "why I never hire brilliant men". Take a look below. 

    Personal finance can at times seem less scintillating than the world of high finance that is sometimes covered on these pages, but in many ways it’s much more important.

    There is simply no way to make money through investing without already having money, and I’ve got bad news: There’s no better way to accumulate money than earning it, saving it, and not spending it.

    Why is that so important? Well, investment media occasionally does a poor job reminding its readers that, as far as their wealth is concerned, the most recent high-profile earnings announcement is a passing distraction compared to their savings pattern.

    This post’s title offers a simple way to think about it. Imagine that your personal life is a business. Are you profitable? If you’re neglecting your loan balances and buying expensive things on credit, consider how you would react if one of the companies in your portfolio was doing the same thing. What about a company that managed to go a whole lifetime without ever generating a meaningful amount of cash?

    Read the whole thing here
    ]]> tag:wcgortel.com,2013:Post/689388 2013-10-10T16:00:00Z 2016-05-13T17:37:36Z Why Are You Not Indexing?

    I spoke with friend and Inside Investing contributor Lars Kroijer about a core premise he's developed: most investors should index. It's a good read, and it's worth remembering as you look through this that he still believes it's possible to beat the market...just that it's not likely for the bulk of investors. 

    As with all the stuff I do for work, I'll add this humble plea: if you like this sort of thing, you should subscribe to Inside Investing

    Conventional wisdom says that if you want to make money in the stock market, you need to exercise fanatical discipline and develop unique competence as an investment analyst.

    Lars Kroijer thinks that’s all kind of a waste of time for most people. Can his mom really do that? Since she can’t, does it mean that she can’t ever make money investing?

    The big question to him is reasonably straightforward. Do you really think that you are good enough to beat the market? If not, you can invest simply in low-cost alternatives. It’s easier, cheaper, and for many investors, likely to produce better results.

    A lightly edited transcript of our interview follows. It’s long, but worth reading. We start by talking about his career (he used to run a hedge fund) and move to talk about how he came to the idea that most investors don’t have an edge.

    tag:wcgortel.com,2013:Post/689379 2013-09-20T16:00:00Z 2016-05-13T17:39:48Z What is Good Research?

    I had an immensely enjoyable discussion with Tom Brakke about the nature of good research. If you like this sort of stuff, you should subscribe to Inside Investing.

    We were privileged to have Tom Brakke, CFA, stop by our offices in New York City a few weeks ago. After a multi-hour meeting where many of us talked about all sorts of things, I managed to wrangle Tom into a quick interview.

    Before posting the interview, I’ll say that if you don’t already follow Tom on Twitter or on his excellent blog, The Research Puzzle, then you are probably missing out. He is a regular font of provocative thoughts, and that can be one of the most useful things in the world. He has also written a number of excellent posts for Inside Investing, including a thoughtful look at how you should consider cash and a post about the most important question to ask about a projected rate of return.

    ]]> tag:wcgortel.com,2013:Post/689376 2013-08-27T16:00:00Z 2016-05-13T17:38:12Z Are you Sure Your Money is Worth Anything? I had a great discussion with Paul Brodsky and my colleague Jason Voss. If you like this sort of stuff you should subscribe to Inside Investing

    In the spirit of last week’s feature, which asked a few of our contributors to speak about things that they believe to be true but know they could never prove, we present this week’s podcast interview with Paul Brodsky. Though we spoke with the benefit of data and research, the ultimate subject of our conversation was difficult to draw solid conclusions about: the probability of a shift in the way that humans store and exchange value.

    For many years, Brodsky has been a partner at QB Asset Management, a firm that recently folded into Kopernik Global Investors, which was founded by Dave Iben, CFA. We began our conversation with Brodsky by talking about Plato’s Allegory of the Cave, which he uses to introduce his thinking about monetary policy. What follows in part 1 is a wide-ranging discussion that treats the mechanics of the global system of interchange and our financial infrastructure. 

    We begin part two with a question from Jason Voss that is likely at the top of many investor’s minds: what is the catalyst that spurs the radical shift we are discussing?

    tag:wcgortel.com,2013:Post/689375 2013-07-16T16:00:00Z 2016-05-13T17:38:34Z An Hour with Mike Mayo

    I was lucky to get to speak to Mike Mayo for work. Here's the interview (in two parts). If you like this sort of stuff, you should subscribe to Inside Investing

    Part 1

    “I realized that when I couldn’t understand something that a company was saying, it wasn’t my fault.”

    Mike Mayo, CFA, is an outspoken analyst and a notable expert on the banking system, but the above statement is perhaps one of the most important things to come out of our hour-long conversation. In a nutshell, Mayo is saying that companies are responsible for providing good disclosure that is intelligible.

    This is an important lesson: often, poorly written or difficult to understand disclosure leads investors to believe that the underlying dynamics of the business or investment are impossible to understand. In conversation with Robert Stammers, CFA and me, Mike speaks about how investors should go about analyzing financial institutions, gives his views on the present state of the industry, and talks about the surprising tack that he adopted to gain access to company management. We also treat some of the topics he raises in his excellent book, such as the accountability of the banks, their governance structures, and the role that they have played in economic history.

    Part 2
    This is part two of an hour long conversation with Mike Mayo, CFA, a banking analyst at CLSA and author of Exile on Wall Street, which details his long and very interesting career.

    We start this portion of the conversation by talking about the peculiar nature of growth in financial companies. Mike explains that one of the most important things to remember when analyzing a bank is that their product is money. To grow at an above-average clip they can simply sell more money or—as it is typically described—make more loans.

    When asked to categorize the various banks that he analyzes, he makes a distinction between two types of banking companies: banks that are well-run and banks that aren’t. To hear how he analyzes that, please listen to the podcast below! Part one can be found here.

    tag:wcgortel.com,2013:Post/689351 2013-07-02T16:00:00Z 2016-05-13T17:39:27Z Is China Coming off the Rails?

    I spoke with Gordon Chang of Forbes and my colleague Jason Voss about the heightened risks in China. Read and listen to the whole thing here. If you like this kind of stuff, you should subscribe to Inside Investing.

    Here's an excerpt of the post: 

    In the past month, many security analysts have begun asking whether the miraculous growth of the Chinese economy is headed for a standstill. While we were at a conference in Canada last week, we noticed that overnight rates in China had begun to spike, so we arranged to speak with Gordon Chang as soon as we got back to New York City.

    Gordon is one of the world’s experts on China and has authored a number of articles and books on the country, in addition to speaking to the media frequently. He spoke with me and my colleague Jason Voss about what’s happening in China, what we can expect to happen in the future, and how the market has evolved.

    In addition to speaking about the loans that Chinese banks have made and the curious ghost cities that have been popping up in china, we discussed the philosophy of the Chinese government and the relationship that their notable portfolio of treasuries has with the United States’ future. Check out the podcast below, and read on for a few clips from Gordon’s excellent Forbes column.

    “The overnight repo rate in China has just hit 25%, an indication the credit market is now frozen.

    This month, liquidity tightened considerably. Two government bill auctions failed, and several banks defaulted on their interbank obligations. Overnight rates in the last few weeks surged to about 15% but had fallen back, settling in at just north of 7%. The 25% rate indicates credit is becoming unavailable.

    Nothing is going right for China at the moment. In the last few hours, the HSBC Flash PMI for June came in at 48.3, down considerably from the 49.2 final reading for May. The country’s problems are now starting to feed on themselves.”

    “And there is a broader issue. For more than four decades, Washington has sought to “engage” Beijing and bring it into the international community. Inside the existing geopolitical order China prospered, and in the past quarter century the people who have benefited the most from the American-led system are not the Americans but the Chinese. In a peaceful world the Chinese manufactured and traded their way up through the ranks of nations and, as a consequence, transformed their country for the better.

    Yet their leaders no longer accept the world as it is. Once deft, subtle, and patient, Chinese diplomacy has, especially since the end of 2009, become shrill and hostile. And Beijing has increasingly set itself against America—as well as its generals and admirals. We are now hearing war talk in the Chinese capital from civilians, such as new leader Xi Jinping, and flag officers alike.

    Unfortunately for Chinese policymakers, the resulting controversies are occurring in conjunction with others, both internal and external. As Fitch suggested last week, more geopolitical risk is the one factor, during this period of economic fragility, that could push the Chinese economy over the edge.”

    tag:wcgortel.com,2013:Post/689626 2009-06-11T16:00:00Z 2015-03-05T20:38:29Z So I guess It's Not News....

    I learned, via cryptogon, of a recent attempt by two Japanese nationals to creep into Switzerland via Italy. This wouldn't have been that strange, except they were carrying $134 billion (with a b) in possibly counterfeit US Government securities. 

    It gets even crazier. The securities are in denominations that are not available to ordinary human beings in the private market. Some of these bonds are available only to states and carry billion-dollar denominations.

    So, if they're real, this is a pretty big deal. Italy gets a finder's fee and the private market becomes aware that the Japanese government or some other nation-state actor (the only people who could get these things) want to do something with their US government debt holdings.

    If they're fake, it's even more interesting. Though it's of course fascinating to surmise that foreign governments are dumping US Treasuries, what about the supposition that there might be in circulation a quantity at least as large as $134 Billion in fake Treasury obligations? Obligations so realistic as to be indistinguishable for 7 days to Italian authorities? This story came out there in a press release dated June 4.]]>
    tag:wcgortel.com,2013:Post/689624 2009-06-10T16:00:00Z 2016-05-13T17:38:53Z An Open Data Source for Risk Analysis

    I was delighted to learn somebody is trying to create a new, open-source model for producing opinions on creditworthiness. Any attempt to replace broken credit rating agencies as decision makers for who receives capital should be greeted as a wholly welcome step. 

    Freerisk is not yet - and does not seem to hope to be - a replacement for rating agencies in their entirety. It is instead a way to lever individual analysts by allowing them to query across a wide range of SEC filings at once using a relatively simple language called SPARQL. In addition, it provides a framework for people to share insights from these statements with each other. In time, the creators hope to move to a more user-friendly way of getting data from their database (which is wonderful). 

    The creators are toying with the ability to include comments and insights from footnotes into standard query data in hopes of creating a fuller picture from a standard query. 

    A great potential "value add" for this comes in the example of highlighting an interesting footnote. Having read company filings, I can attest that a great deal of their footnotes are pretty boring. There are occasional gems contained therein which make the process worthwhile, but wouldn't it be nice if there was a way to get quickly to the interesting ones? 

    The difficulty that Freerisk and other projects like it will face in replacing credit rating agencies is that consumers have come accustomed to regarding credit simply: as a letter. There will always be a market for the distillation of knowledge that can be gathered off of a platform like Freerisk into a format that allows for simple, "thumbs up/thumbs down" evaluation.

    If anything, I think freerisk is simply an excellent substitute for certain functions of a Bloomberg terminal for people willing to learn a Query language (not many). It's nice to see so much data opening up for public consumption, especially with the ability to share relevant insights on a public forum.
    tag:wcgortel.com,2013:Post/689623 2009-05-24T16:00:00Z 2016-05-13T17:40:08Z Education: Where's the Radical Change?

    Greg Mankiw had an Op-Ed in the New York Times recently about the changes that he will be implementing in his freshman economics course as a result of the recent "great recession."

    It's interesting that even though there is a frenzied discussion about what economic educators have been doing wrong in the past few years, there is little discussion about what they have been doing wrong for the past hundred. To this observer, there is a need for a genuine re-imagining of the educational process. 

    It can be argued that there isn't much wrong with the traditional "Tell 'em what you're gonna tell em, tell 'em, then tell 'em what you told 'em" method of teaching, but there wasn't much wrong with swords until europeans found out about gunpowder. 

    I'm not saying that there is no value in the traditional system, and I say that not just because some of my professors might stumble across this website. Arnold Kling blogged a few weeks ago that for an autodidact, the presence of the Internet makes for a golden age of learning. 

    It's cheap to harp on the transformative power of the internet, but I wonder why there isn't more of a societal method to acknowledge autodidactic learning of the sort that can take place over the internet.

    The exercise of blogging (when done regularly, sorry for sparse updates) is after all much like writing a spate of reaction essays to topics as they are presented by cobloggers and the news cycle. Isn't there grist somewhere in there for an educational process to replace the quiz-and-lecture format?

    There's nothing wrong with kickin' it old school, but a new school needs to emerge.

    tag:wcgortel.com,2013:Post/689621 2009-05-19T16:00:00Z 2016-05-13T17:40:53Z Warren Buffet: Human?

    Since I am still a young buck, I am often surprised to read past works of financial commentators who I respect very much and find that their commentary reflects present trends. I was directed by the excellent Felix Salmon to an article that Michael Lewis wrote in 1992 about Mr. Buffet's rescue of the troubled Salomon Brothers.  

    His windfall came out of the shareholders' pockets, since his cheap option dilutes the value of the existing shares. Although a few of them sued, the deal never met the popular resistance it deserved, mainly because it involved Buffett. Public feeling was that if it was wrong, Buffett would never have done it; therefore it must have been right.

    In effect the moralist had sold his reputation, without pausing to measure the man willing to pay such a price for it. Perhaps heartened by the critical success of the first foray, Buffett quickly made the business of saving CEOs from corporate predators a rule rather than an exception in his portfolio. He cut about $1.2 billion more of similar sweet, off-market deals with the chief executives of U.S. Air, Champion, and Gillette.
    Curious to this observer is the similarity that this pattern of investments has to his more recent investments in Goldman Sachs and GE. In his more recent review of a 960 page biography of Buffett, Lewis happily points out further deviations from the folksy style of investment that Berkshire Hathaway trumpets in its annual newsletters, and notes the similarity of the recent Berkshire investment in Goldman Sachs to Buffett's investment in Salomon.

    He stops short of acknowledging that in another customer of Buffett's positive image rental service has been General Electric - an institution that he mentions only as an entity which used to have a AAA rating that is "in the process of collapsing."

    At the conclusion of the interview, he notes that this biography will be valuable to a reader in twenty years because it paints the most renowned investor in history with a human brush. This only leads me to wonder: why must we wait so long to see him thusly?  

    tag:wcgortel.com,2013:Post/689616 2009-05-18T16:00:00Z 2016-05-13T17:39:09Z Dustin Curtis Has A Pretty Good Point...

    This post was originally published on a prior version of my site. 

    Dustin Curtis recently did a redesign of American Airlines' website (apparently out of sheer frustration) and he makes a pretty good point...check out his rant here and his redesign here

    How does a company like American Airlines justify having such a medieval website? Are they actually trying to prevent customers from booking on line? They are actually driving people (like me) away from their website to places like kayak that make it possible to book a plane ticket without internal hemorrhaging. 

    Businesses need to begin to understand that a website is essentially another employee. Having a website as archaic as American's is kind of like having these guys greet your customers. 

    "Duuuuhh...you wanna go to Fiji?" AA should listen to Mr. Curtis...at least get the guy on the right a clean shirt.

    tag:wcgortel.com,2013:Post/689620 2009-05-18T16:00:00Z 2016-05-13T17:40:38Z America's AAA Rating at Risk

    I remember reading that America's storied AAA rating was at risk years ago, but it seemed to have been ignored by most talking heads at the time. 

    Now we have an op-ed in the FT from a former Comptroller General of the United States about it. It's worth a read. 

    An excerpt: 

    For too long, the US has delayed making the tough but necessary choices needed to reverse its deteriorating financial condition. One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate. The credit rating agencies have been wildly wrong before, not least with mortgage-backed securities.

    How can one justify bestowing a triple A rating on an entity with an accumulated negative net worth of more than $11,000bn (€8,000bn, £7,000bn) and additional off-balance sheet obligations of $45,000bn? An entity that is set to run a $1,800bn-plus deficit for the current year and trillion dollar-plus deficits for years to come?

    tag:wcgortel.com,2013:Post/689611 2009-05-05T16:00:00Z 2016-05-13T17:41:39Z The Zombism Scare and the Way we Validate our Information

    Recently, a satirical article was posted on the internet in such a way that an untrained observer would think it was on the BBC website. The article detailed an alleged mutation in the Swine Flu virus.  

    There has been a small outbreak of "zombism" in London due to mutation of the H1N1 virus into new strain: H1Z1.

    Similar to a scare originally found in Cambodia back in 2005, victims of a new strain of the swine flu virus H1N1 have been reported in London.

    After death, this virus is able to restart the heart of it's victim for up to two hours after the initial demise of the person where the individual behaves in extremely violent ways from what is believe to be a combination of brain damage and a chemical released into blood during "resurrection."

    The likely intent of the article was to produce belly laughs among a subculture of individuals who are web savvy enough to understand the article to be fake. My roommate and I both saw it and immediately laughed. Another effect was to induce an element of panic among people who didn't know how to spot a fake website. 

    Both groups had a great reason to spread the article around; but one group was spreading a joke while the other was spreading an article which contained a credible threat to their life. 

    It didn't even occur to me that there were very many people who would take this seriously, until a friend made a reference to it in conversation and discussed it in a serious tone. I was taken aback, and frankly didn't know how to break it to him that he had been trolled

    This is curious to me because we are all part of a generation that is (at least in theory) supposed to be more web savvy. If we're so great, how come people who are part of our generation are still falling for this stuff? 

    I'll posit a guess that it comes not in a small way in the way that we get our information. I found that website through reddit.com, a website which is designed to link its users to other interesting information on the internet. Much of the content that users are directed to is pretty entertaining, so I assumed it would be a joke because of the source.

    My friend likely received the link through a more traditional source; perhaps a friend or a family member sent him a link and advised him to be cautious.

    It then became clear to me that he wasn't using the same internet I was, even though there is no barrier to him accessing the internet in the same way as I have been.

    If he wasn't using my internet, then there must be a whole other group of people who use the internet as a superpowered post office/newspaper. They haven't developed the tools to validate information from sites that they don't always go to because for them the internet is a collection of websites which they regularly visit. These people hang out on ESPNthe New York TimesYahoo!Youtube, and the like. 

    Since they always go to the same sites, their ability to detect a poor source atrophies. One doesn't need to think as hard about information they get from the paper of record as one does when gleaning information from a collection of lower-profile blogs and websites. 

    We begin to see a clash when the more web-savvy culture crashes with the first. An excellent NYT article worth a full read profiles the people behind these "trollings." One prominent troll characterizes his activities as "Leading on confused people" and adds "Why don't people fact-check who this stuff is coming from? Why do they assume it's true?"

    I would guess it's because they're not conditioned to.]]>
    tag:wcgortel.com,2013:Post/689610 2009-05-01T16:00:00Z 2016-05-13T17:42:24Z Hey! This Isn't Right!

    I guess a group of "investment firms and hedge funds" are Chrysler's demons. 6:20 in the video. Linked here.

    The level of control the president has been exercising here must be brought up. He emphasizes that this process will be "quick", "efficient", and "controlled". If this doesn't terrify you, you aren't thinking about it.

    To characterize the president's actions as unjust is close to a patriotic imperative. He has been able to draw those banks that have accepted TARP money to his heel and force them to abide by his diktat as concerns the Chrysler bankruptcy. It should be a gigantic; neon exclamation point that those who object to the government's handling of this event are those who have not taken TARP money. 

    These healthy financial institutions, who have not taken a dime of government money are forced to deal through those who have taken taxpayer dollars in order to gain a voice in negotiations. I'm still just a neophyte, but if this isn't criminal, it should be.

    From the open letter of the "investment firms and hedge funds," courtesy of John Carney

    As much as anyone, we want to see Chrysler emerge from its current situation as a viable American company, and we are committed to doing what we can to help. Indeed, we have made significant concessions toward this end - although we have been systematically precluded from engaging in direct discussions or negotiations with the government; instead, we have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds.

    Perhaps these guys are engaged in doublespeak as much as Obama. Look to the point about how they must deal through conflicted intermediaries; in the past there has been a certain binary question. That question has been: Is this the government, or is it a private company? Who exactly are investors dealing with?

    tag:wcgortel.com,2013:Post/689609 2009-04-30T16:00:00Z 2016-05-13T17:41:13Z Someone Actually Bought CDS on Italy from Milan?

     When stories like this come out, you know there's more than a little bit of trouble afoot. Beyond the strong arm tactics being used by the Milanese government, there is this little nugget:

    In 2007, Milan also sold a credit-default swap, exposing itself to the risk that the Republic of Italy might default
    What kind of lunatic buys insurance against Italy going bankrupt from an Italian city?