THREE THINGS I THINK I THINK
1) Blogging is hard, don’t let economists tell you otherwise! I loved James Montier’s note a few weeks ago on economics bloggers. I certainly echo his opinions and take it even one step further. The most interesting thing about the financial blogosphere is that it is unlike any other part of the web. Some of the absolute brightest people in the world of economics and finance write blogs or at least write weekly or daily letters that are in essence, some form of blog (what differentiates a blog from a regular old website is a mystery to me as they all seem to be some form of the other these days).
The best part about the financial blogosphere is that it is not filled with a bunch of Perez Hilton wannabes who sit around in their underwear writing nonsense or voicing their opinions so they can hear the sound of their own voice. You can access Nobel prize winners, PhDs, prestigious professors, superb analysts, etc. You can obtain access to usually inaccessible people through the internet. The financial blogosphere has, in my opinion, become the most vital source of information and honest opinion available to the investment public. I read a mountain of sell side research every day (mostly for a fee), but I also filter 20-30 blogs on a daily basis that provide as good, if not better research than any Wall Street firm or hedge fund. And the best part about the blogs is that they are entirely free of charge. For a place that is known for its fee structures (Wall Street) this is about as good as it gets.
2) Speaking of economics – how is the de-leveraging of American households coming along? We’re certainly making progress, however, we’re coming off an extraordinary mountain of debt. According to data from the Fed the Financial Obligations Ratio remains above historically high levels. It’s no wonder that consumers seem to have never fully recovered from the Great Recession. If mean reversion plays its usual role here we’re likely in for several more quarters (if not years) of consumer deleveraging.
3) There are a few macro trends that I believe were the cause of this financial crisis and the most glaring is the gross expansion of the financial sector. The worst crime in this multi-decade trend was the movement of skilled workers into this sector. And these weren’t just regular old workers. For the most part they were our best and brightest – many of our best thinkers and most talented sales people. The financial sector, an industry that doesn’t really create anything, has become a place where the best and brightest congregate in order to figure out how they can best transfer money out of Joe Schmos pockets and into Bank A’s pockets.
I am probably downplaying the value of banks and financial institutions to the overall economy, but I am sincerely frustrated at the Japanese response we have taken to this crisis. I have long maintained that the financial crisis was the markets way of telling us that this industry was too large and too unproductive – that resources were being wasted in this largely unproductive industry. The credit crisis was the market trying to impose its will on this sector and right the laws of economics. Then comes the government. This industry might be our largest hurdle coming out of the Great Recession. And if it explodes back to its previous health I have a feeling the markets will once again impose their will on this sector at some point in the future – read, future bank crisis. I believe we’ve truly wasted a good crisis.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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25 Comments
Hey TPC,
Thanks for all of your hard work!
Could you share some of the blogs that you most highly recommend?
last thing on his posts is: “more on this topic”…..gotta think those and authors of other posts not bylined “TPC” at the top are his haunts…..i know i have made a folder of them in my favorites…………man like this can’t be selfish enough to have great ones he never quotes if i have learned anything about human nature since 49′
Let’s see. I hate to play favorites, but lets name a few:
Annaly Salvos
James Montier
Bond squawk
Calculated Risk
Michael Pettis
Data Diary
Zero Hedge
Mark Thoma
Edward Harrison
FT Alphaville
Interfluidity
Market Folly
John Mauldin’s Investors Insight
Winterspeak
Todd Harrison
and then several blogs from WSJ, Market Watch, etc
I am sure I’ve missed a bunch of others….Feel free to add to the list. I am sure there are a whole bunch of great ones out there that I don’t read.
what do you think of david goldman’s blog? he has had some very useful analysis over the past few years.
I am not familiar enough with it to comment. Sorry.
“Shlomo”, keep waiting, he will not, hehehe…
TPC, your comments today strike a note. I am retired and dabble in wealth management… my own. I can easily handle the mechanics of investing, but the strategy is not so easy. Your blog, and blog participants, offer a wide variety of solid opinion, and data, without the “wealth transfer” agenda. TPC, and its community, has earned my trust, something the commercial wealth management community used to have, abused, and lost.
I think your shooting for the Upton Sinclair Muckraker award
funny how the beginning of the secular bear market in 2000 ( and the beginning of gold’s run) lines up with the beginning of that rise on the graph……..last three years reminds me of drinking coffee and eating greasy food in the morning after the nite before’s party…..
if there truly is an accounting done when we leave this life, this blog could offset some adolescent missteps you might of had……education of others is revered by higher powers i believe……
i, for one, fear the day you get tired of it.
Boatman,
Those are generous comments. Something tells me I’ll be writing in some form or another for many many years to come. I am sincerely glad that I’ve helped even one person. It makes me feel like my venture into the world of finance was not a life wasted.
Nice compliment Boatman. Thanks for paying it forward.
OtP
It may be one of those urban myths, but I’ve seen it stated that in the Harvard class of 2007 (last graduating class before things got a bit “dicey”) 47% of the graduates went into investment banking. Even if that’s twice the actual number, think of all those kids who spent all those years working so hard in high school to have a chance at the lottery of getting into Harvard and then having four years of exploring so many different fields of knowledge at such a high level and being exposed to all the interesting cultural currents in Cambridge, just to end up working 70 hours/week running algorithms for Morgan or Goldman. Multiply that by the number of students at the other highly competitive schools who did similarly, and that represents an enormous shift of brain power and creativity from what could have helped society to what has helped weaken it. Kind of reminds me of Sophocles’ Antigone, where reason (“greed is good”) “triumphs” over morality, only in the end to have them both laid low. It does seem as if our society is in the middle of a Greek tragedy, except that Bernanke is more a figure from an Aristophanic comedy.
TPC
Your heartfelt lamentations are indeed felt by many, including myself.
I dont always agree with you but your work is appreciated and the above thoughts are SPOT on. As a participant in the industry I often wail over the fact that as a whole all the big players seem to do is take and not create. At the purest form of the business we do facilitate moving capital from those that have it to those with good ideas that need it. This is the good that we do, but unfortunately it has become less and less prominent in the industry so that the majority of financial services is just the uber rich stealing from the not so rich and trying to maintain their position. Makes me sick. For now I am just trying to keep clients safe and ride out this storm that does not appear will end well.
TPC
I also think that the misallocation of human capital over the last couple of decades is one of the greatest tragedies of our time. It will have negative consequences for a long time. And instead of trying to right this wrong by letting “nature take its course”, our govt is busy trying to prop it all up; at the behest of the financial sector through bribe money, of course. Disgusting.
I just want to echo boatman’s comments…
Just think of it from the viewpoint of the banksters, if you can fleece 100s of billions of $ a year from 300 million in US, imagine the potential of 3 billion suckers globally with no debt, mostly in underdeveloped countries. No wonder they support globalization and use of the military industrial complex to pave the way.
“Three Things I Think I Think” simply doesn’t come around often enough. Always very insightful and I look forward to every one.
An open question related to item (3): Do banks create wealth, or do they simply move it around? My view is that if we assume that wealth is created by combining the factors of production so that the whole is greater than the sum of the parts, the difference being profit or wealth, then capital does not create wealth anymore than land or labor do in isolation. Only by skillfully combining the factors of production is wealth created.
I think that unfortunately, today, banks are only creating wealth for themselves.
Boatman, thanks for eloquently stating exactly how I feel about TPC and this blog. Education is an amazing skill to possess and I thank TPC for taking me to school on an almost-daily basis!
Roger,
I like to think of banks as utilities. They are more a facilitator. They grease the engine if you will. I am a bit too critical of banks. They provide a necessary service, but it is the transformation of banking over the years that has become destructive. For instance, most trading desks are just shuffling money around. I’d love to say that most wealth managers are providing a great service and adding to the wealth of their clients, but in reality the majority are just index fund copy cats (or worse) who charge high fees (read, disservice to clients). So yes, banks certainly can help create wealth, but the evolution of their businesses over time has become largely counterproductive in my opinion.
I can’t remember where I saw it, but I recall seeing something that banks destroy most of the equity they create every 20 years. For instance, this last crisis destroyed most of the profits these firms had made in the preceding boom. It almost makes you wonder what differentiates it from a money laundering scheme.
I’d love to see a return to something closer to a 3-6-3 model and not this insane model where trading makes up 50% of profits and the Execs take all of that home at the end of the year. Banks are here to grease the engines – not generate record profits. The US economy was better off when banks were simple boring old businesses.
It’s okay to create wealth for one’s self, but are the banks creating or stealing it?
Okay, since everyone else is commenting, I’ll chime in too. I follow a two dozen econ/financial blogs. TPC is by far the best. If I could only follow one, this would be it. Thanks to TPC for always exceedingly worthy, thoughtful, and actionable content.
Agreed, banks should be boring and play golf. Let the hedge funds do the coke and explode every now and then.
There’s my financial reform in a nutshell.
And that chart you’ve got there is the most important chart I have seen in months. Looks like 2-3 more years of deleveraging and hopefully the pig will be through the snake.
As it should be.
Hear, Hear TPC (loud banging and scraping of feet),
The financial blogosphere (broadly defined) is the single biggest disrupter to the conflicted Wall Street model that prevails today. I’m hopeful that the evolution of financial media, of which your fine blog is part, will ultimately drive a deep wedge between the ‘product manufacturers’ and those that provide research/advice in one form or another.
Cheers
Rohan
Admittedly, I am biased, but I have always felt that Russ Winter was one of the best financial bloggers in the world since before blogging became popular. He went to a paid subscription model in 2008. Recently, at my urging, he has again begun sharing more of his general economic insights at the Winter (Economic and Market) Watch, while confining his strategy and tactical posts, including reporting his actual trades to his subscription blog. He has posted 4 new articles over the past week including the most recent one today– The FHA Money-for-Squatters Program http://www.wallstreetexaminer.com/blogs/winter/?p=3051 You can find the 3 other new pieces on the front page Winter Watch.
Disclaimer: I am the publisher of his site, so admittedly, I am biased.
and redundant