Chris Lau - Seeking Alpha

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Monday, December 28, 2009

Outlook for 2010

Many financial media sources are providing outlooks that argue either a bullish case or a bearish case for the stock markets in 2010.

My view is that investors need to macroeconomic factors and then react accordingly, since making predictions is an act that is very difficult to do so accurately and consistently.

While searching for the factors that will matter in providing a financial outlook for 2010, two excellent arguments were found.

The first is from Zero Hedge. The site's argument is based on the dynamics of fixed income.

The full article is here, and is entitled "Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else."

The site concludes with the following:

Everyone has major problems at home, and is more focused on the supply than the demand side of the equation.
What options does this leave for the administration? Very few, and all of them are ugly. As we stated earlier on, the options for the Fed are threefold:
  1. Announce a new iteration of Quantitative Easing. This will be met with major disapproval across all voting classes (at least those whose residential zip codes do not start with 10xxx or 068xx), creating major headaches for Obama and the democrats which are already struggling with collapsing polls.
  2. Prepare for a major increase in interest rates. While on the surface this would be very welcome for a Fed that keeps hinting that deflation is the biggest concern for the economy, Bernanke's complete lack of preparation from a monetary standpoint (we are surprised the Fed's $200 million reverse repos have not made the late night comedy circuit yet) to a forced interest rate increase, would likely result in runaway inflation almost overnight. The result would be a huge blow to a still deteriorating economy.
  3. Engineer a stock market collapse. Recently investors have, rightfully, realized there is no more risk in equities, not because the assets backing the stockholder equity are actually creating greater cash flow (as we demonstrated recently, that is not the case), but simply because taxpayers have involuntarily become safekeepers for the entire stock market, due to Bernanke's forced intervention in bond and equity markets. Yet the President's Working Group is fully aware that when the time comes to hitting the "reverse" button, it will do so. Will the resultant rush into safe assets be sufficient to generate the needed endogenous demand for Treasuries is unknown. It will likely be correlated to the size of the equity market drop.
If the Fed decides on option three, we fully believe a 30% drop (or greater) in equities is very probable as the new supply/demand regime in fixed income becomes apparent. We hope mainstream media takes the ideas presented here and processes them for broader consumption as indeed the Fed is caught in a very fragile dilemma, and the sooner its hand is pushed, the less disastrous the final outcome for investors.
My second source below is more optimistic.

Jon Fisher combines the observation of the inverse relationship between housing starts and unemployment with a model in entrepreneurship: the planning the actions while having the end in mind.

In this video, Fisher asks what would happen if everyone was wrong with the forecast that unemployment will continue to rise. What if unemployment peaks at 10.4% in the United States, and then falls...rapidly? If that is the case, then the place to invest in will be in technology and real estate.


Entrepreneurism, Begin With The End In Mind: Jon Fisher
Commonwealth Club



Thursday, December 03, 2009

I Can't Remember If the Car Left First, or If the Girl Left First

Carl Icahn is an American billionaire financier. He appears in headline news as a "corporate raider." This means that his company will do what it has to do to unseat existing management of poorly run companies. The purpose for doing so is to change the way it does business. Most recently, Icahn wants to break-up Motorola. He believes its wireless division is worth more than the 0 value that the market is assigning it.

I am reviewing Motorola. Its wireless division is undervalued. Indications for strong sales are favorable:  Motorola's Droid and Cliq are very well-designed and well-received.

In the video below, Yale University's Professor of Economics Robert Shiller introduces Icahn as guest lecturer. Icahn speaks extensively about the lack of accountability in many (but not all) corporations. He explains that these CEO's are morons. They are selected to run the company, because they move up the corporate ladder by being:

1) likeable
2) politically astute.

A CEO's assistant is "dumber" than the CEO for the reason that the job security of the CEO will not be threatened by the assistant. When the CEO retires, the assistant gets promoted.

h/t marketfolly.com for originally posting this video.

"I Can't Remember If the Car Left First or the Girl Left First" - Icahn, on winning ~$10,000 in poker, losing it all in 1962, and then deciding to earn money through his own skill and intellect.


Watch it on Academic Earth

During Q&A, Icahn talks about how to handle when things are going well or going poorly:
If you are do great, don't think you are a genius. If you are doing poorly, don't think the world is coming to an end.
- @27:42 min

So what? Work hard. Believe in your abilities. Stay on course (Embrace luck, which comes and goes). Below is Kipling's poem, If, Icahn mentioned to illustrate this frame of mind. My markings are in bold.


If
By Rudyard Kipling 

If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don't deal in lies,
Or being hated, don't give way to hating,
And yet don't look too good, nor talk too wise:
If you can dream - and not make dreams your master;
If you can think - and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;
If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build 'em up with worn-out tools:
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: 'Hold on!'
If you can talk with crowds and keep your virtue,
Or walk with Kings - nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds' worth of distance run,
Yours is the Earth and everything that's in it,
And - which is more - you'll be a Man, my son!