Just the Trick

Yesterday's rant left me a bit worn out, so I thought it might be time for a post that's a bit more light-hearted (but still gets the point across about the kind of nonsense that Wall Street and Washington keep spouting these days).

The following cartoon is just the trick:

(Courtesy of immobilienblasen.)


Thursday links: competition and liquidity

Competition will bring down the profitability of high frequency trading.  (Falkenblog also Dealscape, The Stash)

“Is it possible that HFT is entirely benign and just provides liquidity to the market? Yes. But that seems improbable to me.”  (Felix Salmon, ibid)

The NYSE is moving to New Jersey, kind of.  (WSJ)

To what degree was statistical arbitrage to play in the huge rise in volume in energy ETFs?  (FT Alphaville)

Newsletter writers are getting a bit more bullish.  (Bespoke)

On the continued divergence between the VIX and the CSFB Fear Index.  (Zero Hedge)

A skeptical take on the recent Dow Theory “buy signal.”  (Barron’s also The Pragmatic Capitalist)

Taking a closer look at Blackrock’s closed-end PPIP fund.  (Abnormal Returns also Atlantic Business)

WisdomTree files for an ETF that invests in closed-end bond funds.  (IndexUniverse)

As the ETF industry becomes more complex it shifts towards institutional investors who understand the differences between the various fund types that are generally grouped under the ETF rubric.  (FT Alphaville)

Bill Gross implies his fellow, less successful, mutual fund managers greedy.  (Infectious Greed)

Tighter bond spreads have reduced opportunities.  (Breakingviews)

With hedge funds absent bond managers now have a clear field.  (Marketwatch)

Hedge funds are compromising on fees.  (WSJ)

Rounding up some hedge fund news. (market folly)

On the use of dividend forecasts to build portfolios.  (The Psy-Fi Blog)

The Dollar General IPO as a leading economic indicator.  (The Stash)

15 more private equity-backed firms that may come back public.  (peHUB)

“All signs point to the CFTC putting in trade position limits [for energy futures] by the fall; and those unwanted consequences may affect exchanges and the government as much if not more than the trading firms.”  (24/7 Wall St.)

Everyone in the oil markets is a speculator.  (Clusterstock)

Putting crisis post-mortems in perspective.  (Big Picture)

The case for a V-shaped recovery.  (Clusterstock, Curious Capitalist)

“The level of initial claims has fallen fairly quickly – but is still very high (over 580K), indicating significant weakness in the job market.”  (Calculated Risk also Free exchange)

New and existing home sales have probably bottomed, but a price bottom is a ways off.  (Big Picture)

Goldman Sachs (GS) has a culture that works.  (The Big Money)

“Goldman’s integrity and cohesiveness certainly makes it admirable in my eyes. But that does not necessarily mean it is not evil.”  (Epicurean Dealmaker also True/Slant)

Can Apple (AAPL) stock continue its run?  (Silicon Alley Insider)

The market overreacted to the Yahoo! (YHOO) search deal.  (Deal Journal, Breakingviews)

Ten blogs for making sense of the economy.  (Blogs.com)

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Don’t Be Fooled

I was originally going to write about something else, but after a loyal Financial Armageddon visitor alerted me to the following Financial Times commentary, "Insight: Learn to Love the Recovery," by Tim Bond, head of asset allocation at Barclays Capital, I changed my mind. Frankly, I couldn't believe this piece of excretia was written by a senior financial industry executive who makes decisions about where to invest. Because some FT readers might be fooled into thinking Mr. Bond had something useful to say, I felt duty-bound to respond to his "insights" with a few brief comments of my own (interspersed with his italicized text):

Never has a bull market climbed a steeper wall of worry. In spite of a proliferation of positive economic indicators, the consensus remains gloomy. Bullish economists are than hens’ teeth.

The average forecast for third-quarter US gross domestic product growth is a weak 0.8 per cent, which would be by far the slowest first quarter of any recovery on record. Since 1945, the average annualised real US growth rate in the first two quarters of recovery is 7 per cent. History provides abundant evidence that the deeper the recession, the stronger the bounce. Even the recovery from the Great Depression conformed to this rule, real US GDP grew 10.8 per cent in 1934 and 8.9 per cent in 1935.

There are so many inconsistencies and logical fallacies in the above paragraph that it's hard to know where to begin. Among other things, Mr. Bond assumes that the consensus is correct in seeing a third-quarter uptick in GDP. That may or may not be the case, but given how wrong economists have been about every aspect of this downturn so far, I'd lean towards the latter. Even if they are right, what evidence does he have that a third-quarter rebound will be the turning point, rather than the equivalent of an economic dead-cat bounce? Moreover, his assumption that the postwar time frame is the relevant reference period when it comes to forecasting the kind of recovery we might eventually expect to see is laughably ignorant given the extraordinary upheavals of the past two years. Paradoxically, he also makes reference to the upturn that followed the Great Depression, conveniently ignoring the fact that the earlier downturn dragged on for more than twice as long as the current one has before the subsequent upturn began.

Yet today’s consensus assumes this time things will be different. The persistence of such pessimism is striking given a strong Asian recovery is visible, with output, employment and demand all following V-shaped trajectories, and regional industrial production rapidly bouncing back above the previous peak. Yet this recovery is dismissed by western analysts, who appear unable or unwilling to believe the region is capable of endogenous growth. That 2009 will be the second year in a row in which the increase in Chinese domestic demand exceeds that of the US is a point roundly ignored.

Actually, anybody who's been paying attention knows that most mainstream forecasters still seem to believe that what we are going through right now is "more of the same" -- that is, the same kind of (admittedly severe) cyclical downturn we've seen in the decades since World War II, rather than a bursting-credit-bubble-induced secular unraveling. The fact that Mr. Bond fails to grasp that the alleged V-shaped rebound in China and its sphere of influence is anything other than a steroidally-inflamed mirage spawned by a government-ordered blast of reckless spending and an XXX-rated orgy of forced bank lending makes you wonder why he still has a job (oops, I forgot: competence is not a prerequisite when it comes to those who are paid to make "forecasts" for a living).

The fate of the Chinese economy is supposedly in thrall to the US consumer, in spite of clear and persistent evidence to the contrary. The US economy, which provides a home to 17 per cent of China’s exports, is still seen as the arbiter of growth in Asia. This obstinate adherence to an outdated assessment of economic dependence is not the only gaping intellectual flaw.

I suppose in one respect he's right: China is no longer as in thrall as it was to the US consumer; rather, the country now seems to be dependent on the whims of 1) panicky authorities, worried about the domestic social consequences of a global collapse in growth and trade; 2) corrupt and overextended lenders, who have apparently mistranslated the words "bad loan" and "malinvestment" into "any borrower will do"; and, 3) speculators, who've decided that all they need to do to get through this troubled period is buy a lot of stocks, commodities, real estate, etc. -- using tons of borrowed money -- and they will invariably make a killing.

The 9.5 per cent US unemployment rate is also viewed as an obstacle to recovery. This objection ignores the many contrary examples of high unemployment rates and subsequent recoveries, not least in the US. Thus in 1982, US unemployment hit 10.8 per cent, yet GDP soared at an average annual pace of 7.7 per cent over the next six quarters.

Mr. Bond uses a baseless assumption -- that the current unemployment rate is at or near its peak -- and a bogus comparison -- that today's unemployment rate means conditions are similar to what they were back in 1982 -- to make a ridiculous argument. I wonder: Does this reflect the sort of analytical talent you need to manage other people's money?

Similarly, few commentators consider the possibility that the large post-Lehman rise in US unemployment was a mistake on the part of panicky managements. Yet this is precisely what trends in labour productivity growth, not to mention common sense, tell us occurred. In the first half of 2008, labour productivity growth averaged 3.3 per cent, while the unemployment rate rose to 5.6 per cent. At that point, there was no evidence US companies were overstaffed. Thereafter, output collapsed, yet business productivity growth remained positive, registering an average yearly pace of over 2 per cent, as companies shed labour at a faster pace than they reduced output. Businesses, like markets, panicked after Lehman went under. Employment and output were both reduced far more than it turned out to be necessary, as businesses temporarily and understandably assumed a worst case scenario.

Again, Mr. Bond makes a number of dubious assumptions and ridiculous assertions. Was it really "a mistake" that "panicky" managements slashed payrolls, or was it an entirely rational response to epic declines in global cross-border trade, orders, and revenues, a sudden seizing up of many traditional financing mechanisms, and a dramatic about-face in the spending habits of overleveraged consumers, among others? While Tim Bond and his fellow economic revisionists might see things differently, my recollection is that much of corporate America -- not to mention Wall Street and Washington -- remained upbeat on the outlook for the economy up until the very moment the bottom fell out, sucked in by the reassurances of mainstream prognosticators who failed to see the meltdown coming until it was too late?

Just as global output is performing a V-shaped recovery, there is a big risk US employment will do the same, with monthly payrolls showing surprising growth by the end of 2009.

If Mr. Bond engaged in even a modicum of research that went beyond crunching massaged and mangled economic statistics and hobnobing with clueless policymakers and delusionists in the financial industry -- say, by reading a small town newspaper or talking to people on the streets about what is really going on, he would quickly realize just how out-of-touch and ignorant he sounds -- then again, maybe not -- when he makes statements like those in the paragraph above.

If unemployment is one half of the bearish consensus, de-leveraging is seen as the other main obstacle to recovery. Yet increases in private leverage never play a significant role in recoveries. Indeed, since 1950, US private sector borrowing ex-mortgages has declined an average 0.1 per cent of GDP in the first year of recovery, with non-financial business borrowing declining 0.6 per cent of GDP.

The fact that Mr. Bond is effectively discounting the role that leverage played in creating the mess we are in, and takes no real account of the fact that the financial industry is almost completely dependent on government largesse while many lending and market mechanisms are in disarray or have broken down, suggests to me that he is experiencing a degree of denial -- or, perhaps, incoherence -- that is breath-taking. The fact that total debt as a percentage of GDP is at record extremes and the overleveraged consumer, who represents about two-thirds of the U.S. economy, has neither the will nor the wherewithal to spend more or increase his borrowing appears not to mean much to Mr. Bond, who keeps insisting, bizarrely, that the postwar period is the correct frame of reference. Who in their right mind would argue that the events of the past two years bear even a passing resemblance to what has occurred over the past six decades?

A regression of the household savings rate on the wealth-to-income ratio tells us the former has made the appropriate adjustment to declines in the latter. In fact, the rally in the stock market, the low level of interest rates and the stabilisation in house prices all tend to limit the risk of a further sizeable increase in the savings rate. So over the rest of this year, the standard cyclical timing of a US economic turning point tells us pessimistic expectations are likely to collide with the economic reality of a strong recovery. The net result is almost inevitable, in the shape of an inexorable continuation of the equity rally.

In many respects, Mr. Bond's final paragraph is the pièce de résistance, a fitting climax to a stuporous journey through economic la-la land. In fact, some might say the collage of bogus relativistic comparisons, irrelevant details, distorted "facts," circular reasoning, and logical inconsistencies is like a WTF?-Wet Dream stoked with lashings of LSD. Is he really saying that a few months worth of a few seasonally-adjusted data points represents "stabilization in house prices"? Is he suggesting that current debt levels and the long-term trend of historical savings rates relative to disposable income are not all that important in assessing whether an "appropriate adjustment" has been made in the savings rate? Why does the "standard cyclic timing of a US economic turning point" matter when the events of the past two years have been neither standard nor cyclical? And since when is a "rally in the stock market" a driver for "an inexorable continuation of the equity rally"?

Great job, Mr. Bond. Can't wait to hear what you have to say next.


Book Review: Mr. Market Miscalculates

Since the first time I read him, I have been a fan of James Grant.  He helped to sharpen my focus on how money and credit work in the long run, and how they affect the economy as a whole.  Reading one of his early books, Minding Mr. Market: Ten Years on Wall Street With Grant’s Interest Rate Observer, I gained perspective on the increasingly complex financial world that we were moving into.

But not all have shared the opinion of Mr. Grant’s wisdom.  When I worked for Provident Mutual, the Chief Portfolio Manager (at that time new to me, but eventually a dear colleague) said to me, “feel free to borrow any of the publications we receive.”  For a guy who likes to read, and learn about investments, I was jazzed. But, when I came back and asked whether we subscribed to Grant’s Interest Rate Observer, I got the look that said, “You poor fool; what next, conspiracy theories?” while she said, “Uh, noooo. We don’t have any interest in that.”

Now the next two firms I worked for did subscribe, and I enjoyed reading it from 1998 to 2007. But now the question: why buy a book that repeats articles written over the last fifteen years?

I once reviewed the book Just What I Said: Bloomberg Economics Columnist Takes on Bonds, Banks, Budgets, and Bubbles, by another acquaintance of mine, the equally bright (compared to James Grant) Caroline Baum.  This book followed the same format, reprinting the best of old columns, with modest commentary.  In my review, I cited Grant’s earlier book as a comparison, Minding Mr. Market.

As an investor, why read books that will not give an immediate idea of where to invest now?  Isn’t that a waste of time? That depends.  Are we looking to become discoverers of investment/economic ideas, or recipients of those ideas?  Books like those of Grant and Baum will help you learn to think, which is more valuable than a hot tip.

Here are topics that the book will help one to understand:

  • How does monetary policy affect the financial economy?
  • Why throwing liquidity at every financial crisis eventually creates a bigger crisis.
  • Why do value (and other) investors need to be extra careful when investing in leveraged firms?
  • What is risk?  Variation of total return or likelihood of loss and its severity?
  • Why financial systems eventually fail at compounding returns at rates of growth significantly above the growth rate of GDP.
  • Why great technologies may make lousy investments.
  • Why does neoclassical economics fail us when trying to understand the financial economy?
  • How does one recognize a speculative mania?
  • And more…

The largest criticism that can be leveled at James Grant was that he saw that he would happen in this crisis far sooner than most others.  Being too early means you eventually get disregarded.  The error that the “earlies” made, and I knew quite a few of them, was not recognizing how much debt could be crammed into the financial economy in order to juice returns on fixed income assets with yields lower than likely default losses.  That’s a mouthful, but the financial economy had not enough good loans to make relative to the amount of loans needed to maintain the earnings growth expectations of the shareholders of financial companies. Thus, the credit bubble, facilitated by the Fed and the banking regulators.  You can read all about it in its many facets in James Grant’s book.

You can buy the book here: Mr. Market Miscalculates: The Bubble Years and Beyond.

Who would benefit from the book?

  • Those that have assumed that neoclassical economics adequately explains the way our economy works.
  • Those that want to understand how monetary policy really works, or doesn’t.
  • Those that want to learn about equity or fixed income value investing from a quirky but accurate viewpoint.
  • Those that want to be entertained by intelligent commentary that proved right in the past.

As with other James Grant books, this does not so much deal with current problems, as much as educate us on how to view the problems that face us, through the prism of how past problems developed.

Full disclosure: If you buy anything through the links to Amazon at my blog, I get a small commission,  but your costs don’t go up.   Also, thanks to Axios Press for the free review copy.  I read the whole thing, and enjoyed it all.

Wednesday links: low quality liquidity

“In less than 9 months, the Nasdaq has gone from being 40% below its 200-day EMA to being 10% above its 200-day EMA. Talk about a huge swing.”  (StockCharts Blog)

The reversal in high yield spreads are nearly as breathtaking as the crisis-led rise.  (Bespoke)

Is China’s stock market gotten ahead of itself?  (Trader’s Narrative also Contrarian Edge)

Thank goodness.  Congress is going on vacation.  (Marketwatch)

Paul Wilmott, “Thus the problem with the sudden popularity of high-frequency trading is that it may increasingly destabilize the market.”  (NYTimes)

“..they [HFT firms] can pull their liquidity from the market at any time, and they’ll pull it at exactly the moment we need it the most.”  (Atlantic Business)

High frequency trading brings “low quality liquidity” into the markets.  (Marginal Revolution)

High frequency trading as a “hidden liquidity tax.” (Felix Salmon)

“In a world where technology and algorithms can give you an immediate advantage there’s a huge incentive in electronic-izing OTC order flow.”  (FT Alphaville)

How are the 3x leveraged S&P 500 ETFs SPXY and UPRO being traded?  (VIX and More)

The hedge fund rebound meme gains ground.  (naked capitalism)

Goldman Sachs (GS) has backed away from commercial real estate.  (Matthew Goldstein)

Is an IPO of Dollar General by KKR a turning point for private equity?  (WSJ)

With the investment-banking industry a shadow of its former self, could it be that the future of the newly public KKR, along with Blackstone and maybe others, will be to become increasingly like, and competitive with, Goldman Sachs?”  (Economist)

“The truth here is that the SEC realizes the markets need a certain amount of shorting to keep everyone honest. Shorting is like free trade: The more you know, the more you realize its importance.”  (Dealscape)

“Unless companies are compelled to keep their offerings “simple enough to understand”, we will face repeated rip-offs and crises – both macroeconomic and personal – arising from our financial sector.”  (Baseline Scenario)

Is a PPIP mutual fund really a good deal for individual investors?  (Clusterstock)

The technology industry held up pretty well through the recession.  (Real Time Economics)

Peru and its stock market has weathered the global economic meltdown.  (Slate)

The Emerging Global Shares Dow Jones Emerging Markets Titans Composite Index Fund (EEG) looks a lot like a BRIC fund.  (TheStreet)

China’s IPO market isn’t working.”  (Breakingviews)

A cautionary note on the house prices have bottomed meme.  (Calculated Risk, ibid also Free exchange)

Leave it to Microsoft (MSFT) to craft such a complicated deal with Yahoo! (YHOO) fraught with execution risk.  (24/7 Wall St., DealBook)

Think a coin toss is a 50/50 proposition?  Think again.  (The Big Money)

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Tuesday links: an uneven playing field

There’s not an even playing field out there. Learn to live within it or don’t trade/invest, unfortunately it’s that simple.”  (Daily Options Report)

Markets have always been skewed against retail money, whether information sloshes around an open outcry pit or a high-tech algorithm.”  (FT)

Ron Insana on the sideshow that is high frequency trading.  (Zero Hedge, ibid)

Does a pullback by some brokers on leveraged funds mean we seeing a slowing in the “ETF-ization of everything“?  (FT Alphaville, WSJ, Bespoke)

3x leveraged is too much for an equity fund.  (Quantitative Trading)

According to the CFTC it really was the fault of speculators that oil spiked in 2008.  (WSJ)

Ignore Jeremy Grantham at your own risk.  (Clusterstock)

Developed markets have held their own since July 10th.  (Bespoke)

Corporate insiders are selling shares at a rapid rate.  (Marketwatch)

Some thoughts on retail funds geared to invest in “legacy” mortgage assets.  (The Reformed Broker)

“Indeed, one does not need the theory to be in favour of index funds; it is all a matter of averages.”  (Buttonwood)

The reputation of hedge fund managers ranks right up there with used car salesmen.  (All About Alpha)

“The problem with the market isn’t that it is trading abnormally. The problem is that it’s trading like the stock market usually trades.”  (TraderFeed)

Michael Lewis, “And nothing that happens at Goldman Sachs — nothing that Goldman Sachs thinks, nothing that Goldman Sachs feels, nothing that Goldman Sachs does –ever happens by accident.”  (Bloomberg)

“Indicators like new home sales, housing starts and residential investment will bottom long before house prices.”  (Calculated Risk also Felix Salmon)

How the Case-Shiller data might play out over time.  (Caveman Forecaster)

No sign yet of a turn in trucking tonnage.  (Big Picture, The Pragmatic Capitalist, Research Reloaded)

When it comes to booze, consumers are trading down but not out.  (Free exchange, Real Time Economics)

Thinking about what a spun-off AOL might look like.  (Rolfe Winkler)

Ten iPhone applications for investors.  (ETF Database)

An 80% probability that the Apple Tablet exists.  (Gizmodo)

Texting while driving “in its own universe” in terms of risk.  (NYTimes)

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‘Difficult to Recall a Greater Example of Wishful Thinking Combined with Hubris’

Admittedly, I've expended a lot of ink -- or, rather, worn out a few keys on the computer keyboard -- railing against the incompetence and delusions of the mainstream forecasting crowd.

Not surprisingly, few of them have felt it necessary to answer to me or to the broader public for their failure to anticipate one of the worst financial crises this century and the first global economic downturn since World War II.

However, when Queen Elizabeth II starts asking questions about what went wrong, then it's not so easy for the experts -- at least those who live and work in the United Kingdom -- to ignore her or fob her off with a bogus response.

As it happens, their answers, as detailed by The Observer in "This Is How We Let the Credit Crunch Happen, Ma'am," acknowledge more professional culpability than I would have expected:

A group of eminent economists has written to the Queen explaining why [almost] no one foresaw the timing, extent and severity of the recession.

The three-page missive, which blames "a failure of the collective imagination of many bright people", was sent after the Queen asked, during a visit to the London School of Economics, why no one had predicted the credit crunch.

Signed by LSE professor Tim Besley, a member of the Bank of England monetary policy committee, and the eminent historian of government Peter Hennessy, the letter, a copy of which has been obtained by the Observer, tells of the "psychology of denial" that gripped the financial and political world in the run-up to the crisis.

The content was discussed at a seminar at the British Academy in June that was attended by economic heavyweights including Treasury permanent secretary Nick MacPherson, Goldman Sachs chief economist Jim O'Neill and Observer economics columnist William Keegan. The letter explains that as low interest rates made borrowing cheap, the "feelgood factor" masked how out-of-kilter the world economy had become beneath the surface, with some countries, such as the United States, running up enormous debts by borrowing from others, including China and the oil-rich Middle Eastern states, that were sitting on vast piles of cash.

Despite these yawning imbalances, they say, "financial wizards" managed to convince themselves and the world's politicians that they had found clever ways to spread risk throughout financial markets - whereas "it is difficult to recall a greater example of wishful thinking combined with hubris".

"Everyone seemed to be doing their own job properly on its own merit. And according to standard measures of success, they were often doing it well," they say. "The failure was to see how collectively this added up to a series of interconnected imbalances over which no single authority had jurisdiction."

That meant when the reckoning came it was extreme, starting in summer 2007 and culminating in the near-collapse of the entire world financial system after the bankruptcy of Lehman Brothers last autumn.

"In summary, Your Majesty," they conclude, "the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole."

Besley stressed that the experts had not been in "finger-wagging mode" and had agreed that the causes of the credit crunch were extremely complex. "There was a very complicated, interconnected set of issues, rather than one particular person or one particular institution."

Other experts at the seminar last month included Paul Tucker, deputy governor of the Bank of England, Vernon Bogdanor, the constitutional expert from Oxford University, and HSBC's chief economist, Stephen King.

A spokesman for Buckingham Palace said the Queen has displayed a particular interest in the causes of the recession, summoning Bank of England governor Mervyn King to a private audience earlier this year to explain what he was doing to tackle it.

Official figures published on Friday revealed that Britain's economy has now been contracting for 15 months, and the recession is deeper than any since the 1930s, outside of wartime.

Robin Jackson, chief executive and secretary of the British Academy, said: "The global recession is a huge development, and it is reasonable to ask to what extent it could have been foreseen. What's more, we can't say 'never again' if we don't fully understand what occurred. The academy forum was an opportunity to get an exceptional range of experts, participants and commentators in one room, sifting fact from fiction and shedding light on what had gone on. We hope Her Majesty - and indeed others - will find our letter informative."

The academy plans to hold a second seminar later in the year to ask how best to prevent another such crisis occurring. Besley denied that economics as a profession had been discredited by the scale of the crisis, but admitted that unconventional ideas - about how herd psychology and bouts of irrationality can grip financial markets, for example - had sometimes received "less play" during the boom years.

He said the academy hopes to provide a forum for airing economic differences: "What we need is a forum where people can come together on a very open basis, to provide challenges and have a debate."

Professor Luis Garicano, to whom the Queen directed her question when she visited the LSE in November last year, said: "She seemed very interested, and she asked me: 'How come nobody could foresee it?' I think the main answer is that people were doing what they were paid to do, and behaved according to their incentives, but in many cases they were being paid to do the wrong things from society's perspective."


Monday links: bullish bandwagon

Consistently profitable trading should be boring.”  (Tickerville)

(I)t’s not different this time, next time or any time. It never is and never can be.”  (The Psy-Fi Blog)

The bullish bandwagon is getting crowded.  (Clusterstock, FT Alphaville)

Check out the rally in corporate bonds.  (WSJ, MarketBeat)

Real yields are at their highest level in 15 years.  (EconomPic Data)

What the increase in TIPS issuance implies.  (Across the Curve)

How much farther does the downward run in the VIX have to go?  (VIX and More)

A firm can only cut costs for so long. “At some point, a business needs to expand to survive.”  (Crossing Wall Street)

Doug Kass recommends holding a bunch of cash.  (TheStreet)

Do hot hands exist among hedge fund managers (and institutional investors)?  (Journal of Finance, ibid)

Are smaller hedge funds a vanishing breed?  (FT Alphaville)

Blackrock (BLK) is giving individual investors a chance to invest alongside in the PPIP.  (NYTimes)

Does the hedge fund pay model actually induce “more prudence”?  (naked capitalism also Felix Salmon)

Explaining some of the finer points of high frequency trading.  (Kid Dynamite)

Goldman Sachs (GS) doesn’t care what you think about them:  “If we can push the envelope without D.C. punishing us, we don’t care about our Main Street reputation. Blankfein in particular is said to be dismissive of the firm’s critics.”  (NY Magazine also Planet Money, Dealbreaker)

Credit derivative exposure is concentrated in five Wall Street firms.  (Clusterstock)

Loans outstanding remain under pressure.  (WSJ)

The End of the End of the Recession:  a mash-up.  (Zero Hedge)

The recession is likely over.  What kind of recovery comes next?  (Newsweek also Big Picture)

“If corporate America seems to think—as home-buyers now seem to be thinking—that the time is right to convert low-earning cash into a higher-earnings hard asset, we’re in for a surprisingly strong recovery.”  (Jeff Matthews)

New home sales may have bottomed, but there still remains an overhang.  (Calculated Risk, Free exchange)

Is the worst of the slump in global trade over?  (Economist)

Should Bernanke be reappointed?  (Marginal Revolution, The Pragmatic Capitalist)

An interview with Todd Harrison.  (Wall St. Cheat Sheet)

“As with all get-rich schemes, one question is never answered:  if the system is that good, why doesn’t the promoter simply get rich using it themselves.”  (FT Alphaville)

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Will They Ever Grasp the Simple Truths?

It's funny how little those in charge have learned from the nightmare of the past two years.

All the evidence suggests that the various machinations of the Fed, the misjudgments of the Treasury, the manipulations of the moneyed interests, and the malfeasance of elected officials who supposedly serve our interests has helped bring about the worst financial crisis since the Great Depression.

And yet, what do we have now? More of the same. More of the same kind of disastrous thinking and misguided policy-making that has helped transform the U.S. from an unrivaled economic powerhouse into a nation that is slowly being consumed from within by wreckless profligacy and an addict's dependence on borrowed money.

Sadly -- and to our country's ultimate detriment, I might add -- I'm not sure whether any of these individuals will ever grasp the simple truths highlighted in the following report from Business Intelligence Middle East, "Money Printing, Debt Growth and Deficits Don't Create Prosperity, Says Marc Faber":

Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said the US Federal Reserve managed, through stimulus, to do something that had never before been done - create a worldwide bubble in just about everything -stocks, bonds , housing and art.

The only thing that didn't go up was the dollar, according to Faber.

Speaking to the 10th Annual Agora Financial Investment Symposium in Vancouver this week, Faber said: “You cannot create prosperity through money printing and debt growth.”

Faber preached an idea that became the theme of the event: Government fiscal and monetary intervention, “can postpone, but not prevent crisis.

“I believe next year’s economy will face even larger deficits. Their deficit is attempting to stimulate credit growth. Unless real credit growth returns, they will have to put more and more money into the system to maintain the status quo. All polices target consumption. That is a mistake,” Faber said.

So what’s this mean for the market? “The S&P 500 will not recover to 2007 highs. At the peak, 44% of the S&P was the financial sector. That is gone… not coming back.”

"In the period, 2001 -2007, the Fed managed to do something that had never before been done - create a worldwide bubble in just about everything. Stocks, bonds, art, oil, housing - you name it; it went up. The only thing that didn't go up was the dollar," Faber said.

All this was achieved through stimulus, Faber said.

After a half a century of stimulus - with credit, inflation and the money supply growing faster and faster - the Fed put the pedal to the metal following the nano-recession of 2001. It dropped interest rates to just 1% - well below the rate of consumer price inflation - and kept them there until an expansion had been going on for three years.

Instead of increasing real output in the US, it lured Americans to spend and speculate...and drove Chinese entrepreneurs to put up new factories in order to give them something to buy. In America, debt grew 5 times faster than GDP; for each dollar of extra income, Americans added US$5.50 to their debt. In China, manufacturing capacity grew faster than ever.

"Bubbles had been localized in the past," Faber explained. "A bubble in one area drew investment from another area. In one market, prices soared. In another they slumped. Overall, things didn't change much."

But a worldwide bubble in everything is something new. And it caused something else that is new - a worldwide crash. We have been ducking explosions and stepping over the debris for the last two years.


Sunday links: errors happen

Summarizing the blog debate over high frequency trading.  (NYTimes)

European stocks are cheap relative to the US.  (Barron’s)

Looking for new leadership to lead this stock market rally.  (Howard Lindzon)

The role of emerging markets, says Prof. Dimson, “is to provide diversification, not to add to returns.”.  (WSJ)

Checking in on investor sentiment at week end.  (Trader’s Narrative, The Technical Take)

“When all is said and done, the VIX reflects supply and demand for options on the S&P 500 index. The factors that affect movements in the VIX from day to day or week to week, however, are always in flux.”  (VIX and More)

More money is lost through shame and the compounding of error that accompanies it, I think, than through merely being wrong.”  (Ultimi Barbarorum)

Everyone is wrong in the markets at times. The difference between the great traders and the unsuccessful ones is in how long they stay wrong.”  (TraderFeed)

The first few steps in asset allocation are deceptively easy.  (Capital Spectator)

The best-selling mutual funds at the moment.  (Morningstar)

The United States Natural Gas Fund (UNG) has ventured into the swaps market for the first time.  (Bloomberg)

“Bottom line, the current Wall Street trader compensation system stinks. It is terrible for shareholders. It is bad for long-term equity building. And it isn’t that great for traders.”  (Information Arbitrage)

Citigroup (C) has a pay battle looming with its Phibro unit.  (WSJ also Clusterstock, naked capitalism)

Nouriel Roubini endorses another term for Fed Chairman Bernanke.  (NYTimes also Economist’s View)

Debating the relevance of the Taylor Rule with a 0% Fed funds rate.  (Calculated Risk)

“Perhaps a lot of the disagreement over healthcare reform, and maybe other policy issues as well, stems from the fundamental question of what kind of institutions a person trusts.”  (Greg Mankiw)

Should we take comfort from Japan’s continued ability to borrow?  (WSJ)

Past as prologue?  How the financial system weathered the Spanish flu pandemic.  (Alea Blog)

An interesting interview with uber-blogger Felix Salmon.  (Free exchange)

What is CNBC thinking?  (Daily Options Report)

The primary problem with newspaper companies isn’t their revenue. It’s the size and scope of their operations.”  (Daring Fireball also A VC)

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Friday links: Peak Finance

A Dow Theory buy signal.  (Investment Postcards)

Post-rally where do we stand compared to previous bear markets?  (dshort)

A closer look at the S&P 500/gold ratio.  (Buttonwood)

After a rapid rise, some stock market skepticism.  (The Pragmatic Capitalist, Market Talk, Bespoke)

Warren Buffett is now cleaning up on his position in Goldman preferred stock.  (DealBook)

The reach for yield is back with a vengeance as some investors have been forced to jump into the far reaches of the junk bond market to boost returns.”  (Agnes Crane)

Great.  Another index the CBOE S&P 500 Implied Correlation Index to watch.  (VIX and More, Daily Options Report)

Just how much profit to be made in high frequency trading? (NYTimes also Zero Hedge, TraderFeed, Bronte Capital)

How some large investors using the SPDR Gold Shares (GLD) ETF.  (IndexUniverse)

Hedge funds are outsourcing all sorts of functions.  (FINalternatives)

Is the Adapative Markets Hypothesis a worthy successor to the EMH?  (FT Alphaville)

Perhaps a naive 1/N portfolio strategy isn’t all that sub-optimal.  (SSRN)

Cerberus and Fortress are trying to right their respective ships.  (Breakingviews, FT)

Did bad publicity cause Goldman Sachs (GS) to pay more than they had to retire their TARP warrants?  (Deal Journal, Clusterstock)

Citigroup (C) has Goldman envy.  Pandit is rebuilding a proprietary equity trading desk.  (Matthew Goldstein)

“The No. 1 reason these two banks [Goldman and J.P. Morgan] are doing so much better than their rivals is that they’re better at what they do than their rivals are.”  (Time)

“The era of financial globalization may be coming to an end.”  (NYTimes)

“The political consequences of Peak Finance greatly complicate our economic recovery.”  (Baseline Scenario)

“Simply put, the danger is that in even a moderate recovery, the remaining expanding sectors will lack sufficient strength to compensate for these permanent [job] losses.”  (Tim Duy’s Fed Watch)

Why has the unemployment rate run up so far, so fast?  (macroblog)

Demand for electricity is still languishing.  (Mish)

“Basically, Summers took a massive gamble with Harvard’s money, and lost — big. The buck stops with him, and I look forward to Summers admitting as much sooner rather than later.”  (Felix Salmon)

How much should we worry about the impact of H1N1 on the markets this Fall?  (Economist)

Should Cisco (CSCO) buy Dell (DELL)?  (GigaOM)

Some additional thoughts on Covestor Investment Management business model.  (Abnormal Returns)

A positive review of A Colossal Failure of Common Sense:  The Inside Story of the Collapse of Lehman Brothers.  (BusinessWeek)

Apparently CNBC can take a joke.  (CNBC)

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Thursday links: blog bashing

Stocks driving the Nasdaq rally.  (Big Picture)

Momentum is one of the great puzzles of finance.”  (Buttonwood)

Many think that learning to trade the charts is the key to success. Nothing can be further from the truth. While TA can be very helpful, it is actually money management that is what separates the eventual winners from the losers.”  (beanieville)

Earnings aren’t everything.  Revenue continues to lag.  (Bespoke, Clusterstock)

Warren Buffett has changed his mind about his Moody’s (MCO) position.  (Jeff Matthews also 24/7 Wall St., WSJ, FT Alphaville)

“While cheap options volatility may not prove a good buy all that fast, it does provide an excellent way to hedge.”  (Daily Options Report also EconomPic Data)

Is the endowment investment model broken?  (World Beta)

A new emerging markets ETF joins the fray.  (IndexUniverse, greenfaucet also Random Roger)

A new absolute return mutual fund launches (with a 3 year track record) with a focus on fixed income markets.  (FinAlternatives)

TIPS serve as a good hedge to equity positions.  (SSRN)

Does a covered call strategy for commodities make sense?  (Minyanville)

Black Swan investing is a sucker’s game, endemic in markets, a perennial loser, and highlights asset classes to avoid, not pursue.”  (Falkenblog)

Some wisdom from Seth Klarman. (Distressed Debt Investing)

The worm has turned.  Analysts want Morgan Stanley (MS) to take more risk.  (Clusterstock also WSJ)

Goldman Sachs (GS) treads carefully when buying back its TARP warrants.  (Breakingviews, Atlantic Business, The Stash)

GE (GE) is making the most of the government’s largesse.  (Clusterstock)

Is Wall Street risking the ire of Washington by boosting compensation so soon after the crisis?  (WashingtonPost)

The credit rating agencies get a slap on the wrist from the Treasury Dept.  (Atlantic Business)

A Consumer Finance Protection Agency could reassure “burned consumers.”  (Economix)

Home inventories continue to fall.  (Calculated Risk)

To what degree does a “power elite” influence American business (and society)?  (Economist’s View)

Some additional detail on how Harvard manages (or not) its interest rate exposure.  (Greg Mankiw)

An interview with Trader Mark of Fund My Mutual Fund.  (Wall St. Cheat Sheet)

Will Covestor Investment Management be the next big thing?  (Bull Bear Trader)

Do financial journalists bend over backwards to be fair?  (Curious Capitalist)

Blog basher Dennis Kneale profiled.  (New York Observer via Dealbreaker)

Does CNBC bash bloggers as a matter of policy?  (Daily Options Report, Condor Options, Mediaite)

Investment blogs worth more than five seconds of your time.  (My $10,000)

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Wednesday links: earnings vs. revenues

“Bonds not only have outperformed stocks by a large margin over the past year because of the financial crisis, but also roughly matched stocks over the past 40 years. This begs the question, will bonds continue to outperform?”  (Morningstar)

Taking a closer look at the relationship between risk taking in the bond market and stock returns.  (Condor Options)

The market has risen on the back of better than expected earnings releases.  (Bespoke)

However, companies continue to miss on the revenue line.  (The Pragmatic Capitalist)

How is the Endowment Model doing through the first half of 2009?  (World Beta)

Is the timing right for a stock replacement strategy?  (Bull Bear Trader, WSJ)

Volatility is as low as it has been since September.  How to play it.  (Daily Options Report)

One brokerage firm, Edward Jones & Co., is going to stop trading leveraged ETFs. (WSJ)

Ban levered ETFs, because “..people will NEVER fully understand how these products work…”  (iBankCoin)

“..when we’re using the relative performance of two assets to come to a conclusion about just one of those assets, we have to make sure that we’re not confused by the inherent nature of traded asset itself.”  (MarketSci Blog)

The curious case of hedge funds (and Harvard) during the economic crisis.  (Abnormal Returns, ibid)

Hedge fund fees are coming under pressure.  (All About Alpha)

What role do unrealized capital gains have on the returns to a momentum strategy?  (SSRN)

Some less than positive news for crude oil.  (FT Alphaville)

Apple (AAPL) and Google (GOOG) are now neck-and-neck in terms of market cap.  (Newsweek)

Big investors cry foul because high frequency trading is costing investors millions.  (FT, Clusterstock, Zero Hedge)

Goldman Sachs (GS) is free of the clutches of the Treasury Department.  (24/7 Wall St.)

“But Morgan Stanley (MS) still doesn’t know what it wants to be. And an unclear mission is not good for any business — especially one stuffed with big egos and big paychecks.”  (Mean Street)

“Is there anything to salvage in the last 60 years of financial innovation post-crisis?”  (Rortybomb)

Martin Feldstein on the risks of a double dip recession.  (Big Picture, Fund My Mutual Fund)

“I fear that the United States government is mistakenly assuming that it can borrow essentially unlimited sums without undermining confidence in the dollar itself.”  (Econbrowser)

Maybe everyone just expects too much from economics. It’s not rocket science. It’s more a question of what defines sensible and decent behavior, and then devising incentives to get people to behave accordingly.”  (Emanuel Derman)

Private equity has become the land of second chances for former corporate titans.  (peHUB, Dealbreaker)

An interview with the acerbic “The Fly.”  (My $10,000 Dollars)

A guide to keeping track of the econoblogosphere on Twitter.  (Real Time Economics)

A new book chronicles the dissent inside Lehman Bros. prior to its demise.  (Deal Journal, Dealscape)

The investment “junk mail indicator” is heating up.  (Kirk Report also Clusterstock)

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Tuesday links: incremental yield

Anything with incremental yield is on fire.”  (Across the Curve)

High yield spreads are nearing pre-Lehman bankruptcy levels.  (Bespoke)

Nearly 80% of stocks are above their 50 day moving average.  (Financial Ninja)

Semi-annual Fed chair testimony often marks market turning points.  (Sentiment’s Edge)

Is capital structure arbitrage back?  (Zero Hedge)

Auditioning replacements for Russia in the BRIC scheme.  (The Reformed Broker)

On the challenges of using VIX products to hedge a portfolio.  (TheStreet)

What David Einhorn has been buying.  (market folly)

Traders learn from their losses, not their gains. (Aiki14)

You cannot trade every ETF the same way.  (ETF Trends)

General Electric (GE) before and after Jack Welch.  (Value Expectations)

Secondary offerings come back in a hurry.  (24/7 Wall St.)

SPACs have been unable to get deals done.  (Breakingviews)

Are there common factors driving non-fuel commodity prices?  (SSRN)

Conceptualizing the EMH as there being “no free lunches.”  (Baseline Scenario)

Cheap government capital is allowing “Goldman to speculate on trades that would normally be too risky.”  (Clusterstock)

“Was the TLGP really just a GE bailout?”  (Clusterstock)

“Just how much could the bailout of the financial system end up costing American taxpayers?”  (NYTimes also EconomPic Data, MarketBeat)

Ben Bernanke, “We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.”  (WSJ also Economist’s View)

Andy Lo, “The implications of the AMH for regulatory reform are significant. Markets can be trusted to function properly in normal times, but if humans are subject to emotional extremes, animal spirits may overwhelm rationality, even among regulators and policymakers.”  (FT also Dealscape)

Elizabeth Warren defends the Consumer Financial Product Agency.  (Baseline Scenario)

“The “quality” of the financing of the US deficit has gone down.”  (Brad Setser)

Is small cap a viable alternative to US private equity?  (SSRN)

VC funding is on pace to return to pre-Internet bubble levels.  (Bits)

An interview with proprietary trader Mike Bellafiore of SMB Capital. (Wall St. Cheat Sheet)

David Wessel’s “In Fed We Trust” gets a rave review.  (NYTimes)

In praise of diversity in economic journalism. (Curious Capitalist)

“Undeniably, there is money to be made in digital publishing with free reader access, but whether that revenue leads to profits depends upon the scale and scope of the organization.”  (Daring Fireball)

“If the human tongue has a secret password, then this sweet, salty and fatty breakfast sandwich [McGriddle] is the code.”  (Frontal Cortex also Atlantic Business)

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Monday links: innovation indigestion

How much financial innovation is desirable?  (Baseline Scenario, Curious Capitalist, Felix Salmon, Free exchange)

More sentiment measures.  (The Pragmatic Capitalist, The Technical Take, TraderFeed)

T. Boone Pickens takes another shot at the hedge fund biz.  (market folly)

CIT Group (CIT) lives, for now.  (Calculated Risk, Felix Salmon)

Fortress Investment Group (FIG) is behind the eight ball.  Good thing their new Chairman is the former CEO of Fannie Mae.  (WSJ)

The risks of high frequency trading have been known for some time now.  (Zero Hedge, ibid)

Did Blackrock (BLK) pay too much for BGI?  (Institutional Investor)

Using Dr. Brett as a virtual trading adviser.  (A Dash of Insight)

Doug Kass reviews his 20 surprises for 2009.  (TheStreet)

Why do people listen to Nassim Taleb?  (Locklin on science via aleablog)

Countries with higher levels of individualism tend to demonstrate more price momentum.  (Journal of Finance)

Taking a closer look at Richard Tortoriello’sQuantitative Strategies for Achieving Alpha.”  (CXO Advisory Group)

The number of skilled mutual fund managers has decreased over time.  (Journal of Finance)

No wonder toxic assets are so difficult to price.  (WSJ)

The collapse in commercial real estate is going to take a toll on smaller regional banks.  (WSJ, Clusterstock, ibid)

“In the midst of this downturn, some of the biggest players in the economy—state and local governments together account for about thirteen per cent of G.D.P.—will be doing precisely the wrong thing.”  (New Yorker)

The state of California needs all the revenue it can get.  (Gregor Macdonald)

States are seeing revenue shortfalls.  (EconomPic Data)

“Guarantees operate as budgetary time bombs.”  (Clusterstock)

Why housing hasn’t bottomed yet.  (Big Picture)

Does Jamie Dimon hold the fate of the proposed Consumer Financial Protection Agency in his hands?  (Baseline Scenario also New York)

Is the New York Fed populated with too many former Wall Streeters?  (WashingtonPost)

An upside to the economic crisis.  The US trade deficit has been cut in half.  (Brad Setser)

TIPS-implied inflation is back on the march.  (Capital Spectator)

Imperfect models of risk ought to be better than no models at all but the evidence so far is that this isn’t the case – people abrogate their responsibilities and start putting unjustified faith in the models rather than thinking for themselves.”  (The Psy-Fi Blog)

Malcolm Gladwell, “From an individual perspective, it is hard to distinguish between the times when excessive optimism is good and the times when it isn’t. All that we can say unequivocally is that overconfidence is, as Wrangham puts it, “globally maladaptive.”  (New Yorker)

Business news is booming.  Business magazines are not.  (Time, Mediaite)

A couple of thoughts on blogging.  (Abnormal Returns)

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Huge thanks

This is Brad Setser. I am back, and will resume posting soon.

But I first wanted to offer my enormous thanks to Mark Dow of Pharo and Rachel Ziemba of RGEMonitor for filling in here when I was away. They set a standard that I will have a hard time matching.

Two weeks is a long time in blog land. I though needed a true break – and thanks to their efforts, this blog didn’t miss a beat. I can not thank them enough.

Sunday links: Internet investing

The Internet is dead as an investment.  (WSJ contra A VC)

2009 has been a good year for semiconductors.  (Bespoke, StockCharts Blog)

A round-up of investor sentiment measures.  (Trader’s Narrative)

Which is the better world equity ETF?  (greenfaucet)

Charles Schwab (SCH) is getting into the ETF business.  (Investment News)

Keeping tabs on hedge fund letters all in one place.  (Hedge Fund Letters)

Getting people save more, by helping them gamble.  (WSJ)

Explaining the equity risk premium, using a better measure of consumption, i.e. garbage.  (Real Time Economics)

On the discrepancy between natural gas and crude oil prices.  (Econbrowser)

Just how much might a firm like Goldman be making from high frequency trading?  (Zero Hedge)

Goldman should give up its government support or part of its profits.  (Barron’s, Matthew Goldstein)

Why are we surprised that the banks are showing profits?  That was the plan all along.  (Free exchange, Atlantic Business)

Are investment banks run for employees or shareholders?  (Barron’s, Economist)

Investment banking execs, “You have the best excuse in the world right now to screw over your employees.”  (Epicurean Dealmaker)

This is the moment were we take the training wheels off the economy. We had to do it at some point. We had to eventually send a message to the world of finance that not everything was going to be bailed out.”  (Accrued Interest)

On the dark side of leverage.  (Atlantic Business)

Why isn’t anybody listening to economist Joseph Stiglitz?  (Newsweek via Economist’s View)

There will likely be two bottoms for the housing market.  (Calculated Risk)

“If a consumer agency had been set up 20 years ago, would the subprime mortgage crisis have been prevented“  (NYTimes)

Hope will not end the recession.”  (Howard Lindzon)

Is China really growing at 8%?  (The Big Money)

Crowdsourcing works when it is focused.  (NYTimes)

If you think you are unbiased, think again.  (Aiki14)

An interview with the pugnacious Charlie Gasparino.  (FT)

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Friday links: conflicting signals

The 200 day moving average will soon start dropping some substantially higher prices.  (VIX and More)

Idiosyncratic moves in volatility indices require confirmation.  (Condor Options)

Option strategies for the United States Natural Gas Fund (UNG).  (Barron’s)

Are (option) collars the solution to what ails asset allocation?  (Minyanville)

Conflicting signals persist in the corporate-bond market. While demand is outstripping supply for new deals, the creditworthiness of the market as a whole continues to slide.”  (WSJ)

Just what is a “trend day“?  (Fund My Mutual Fund)

How the hedge fund boom and bust paralleled that of the dot-com bust.  (All About Alpha)

The right questions to ask about position sizing.  (Minyanville)

There are plenty of things to worry about.  Fed policy is not one of them.”  (A Dash of Insight)

According to financial theory Google (GOOG) should lever up.  (Clusterstock)

Intermodal rail traffic is still in the dumps.  (The Pragmatic Capitalist)

Getting the housing starts statistics correct.  (Big Picture)

What “sticky” housing prices mean.  (Calculated Risk)

How useful is the price-to-rent ratio for spotting housing bubbles?  (Baseline Scenario)

“In sum, the economy has a raft of problems that will take a long time to resolve. But none of them can head off the imminent economic recovery that ECRI’s objective leading indexes are promising today”  (Big Picture)

How much blame for the economic crisis should we put on the Efficient Markets Hypothesis?  (Economist)

Cognitive biases are an embarrassment of riches that lead everywhere and nowhere.” (Falkenblog)

“Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself.”  (Economist)

What role did income inequality play in the housing boom.  (The Stash)

A big way, food expenditures, how this downturn is unlike the Great Depression.  (Carpe Diem)

Central bank independence is overrated (and unrealistic).  (Aleph Blog contra Economist’s View)

What does “too big too fail” really mean?  (Atlantic Business)

The many ways in which Goldman Sachs (GS) continues to benefit from government largesse.  (True/Slant)

“I doubt that Goldman is making much of its money from high frequency trading.”  (Rick Bookstaber)

Goldman is getting to have its cake and it too.  (Abnormal Returns)

The rhetoric around Goldman Sachs has lost touch with reality.  (Free exchange)

The Daily Show takes on Lenny Dykstra and Goldman Sachs.  (Wall St. Cheat Sheet, Zero Hedge)

A book review of “Street Fighters.”  (market folly)

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Thursday links: obsession with growth

The VIX is up.  Should we be worried?  (Research Reloaded, Daily Options Report, VIX and More)

Catching up with June hedge fund performance.  (market folly)

Investor sentiment is still weak.  (Bespoke)

“The ProShares Credit Suisse 130/30 (CSM) fund falls under the realm of actively managed funds.”  (TheStreet)

The State of Massachusetts begins sniffing around leveraged ETFs.  (WSJ also IndexUniverse)

Is natural gas dropping due to a freeze in share issuance at the United States Natural Gas Fund (UNG)?  (WSJ)

“Some people on Wall Street are suggesting that Goldman Sachs inflated its staffing numbers to deflate its compensation figures per employee.”  (DealBook)

How pay works at Goldman Sachs (GS).  (Clusterstock)

The debate (in full) over the Matt Taibbi-penned Goldman Sachs story.  (The Opinionator, Rolling Stone)

It turns out that CIT Group (CIT) really was too small (and lent to the wrong firms) to get bailed out. (Baseline Scenario, Matthew Goldstein)

Prepare for the backlash against letting CIT Group fail.  (Clusterstock, Jeff Matthews)

“I would argue that investment banking’s obsession with growth, as an industry, has contributed immeasurably to the enormity of the systemic clusterf**k in which we currently find ourselves entangled.”  (Epicurean Dealmaker)

What role does cognitive ability play in testing behavioral finance?  (The Psy-Fi Blog)

Calpers vs. the rating agencies.  (FT Alphaville, Atlantic Business)

Are banks forced to grow due the commoditization of its core businesses?  (Dealscape)

The slack in the economy is profound.  (Atlantic Business, EconomPic Data)

It is worth maintaining the fiction that the Federal Reserve remain independent?  (Breakingviews, Real Time Economics, Crossing Wall Street)

Interviews with traders Anni Virag and aiki14.  (Wall St. Cheat Sheet, My $10,000)

Jim Cramer is now an internet hack shill.”  (Falkenblog)

How CNBC makes money these days.  (Zero Hedge)

Econblogs have become the darlings of the blogosphere, including a list of 25 top econoblogs.  (WSJ, Real Time Economics)

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Wednesday links: bonus backlash brewing

Goldman Sachs (GS) risks a backlash if it pays out record bonuses.  (Clusterstock, Breakingviews, Bespoke)

Goldman is just better than their competition. (Curious Capitalist, Economist)

For investors, there is nothing to be gained by moaning about Goldman.  (Andy Swan also Falkenblog)

Goldman doesn’t always win.  It fails to get GoldmanSachs666.com taken down.  (Telegraph)

The equity risk premium is no longer a puzzle.  (Aleph Blog also Crossing Wall Street)

An interesting development in volatility land.  (Daily Options Report)

Leveraged ETFs based on factor returns are on their way.  (IndexUniverse)

On the never ending risks of 3x leveraged ETFs.  (Aiki14)

With all the ETFs out there, is there room for three proposed funds?  (Morningstar)

Is a 130/30 ETF in your future?  (Bull Bear Trader)

On the importance of checklists in investing and more from the Value Investing Seminar.  (Manual of Ideas)

Seven questions for Roger Ibbotson.  (All About Alpha)

J.P. Morgan (JPM) is feeling a bit frisky these days.  (WSJ, Clusterstock)

How did CIT Group (CIT) become too big to fail?  (Baseline Scenario also The Stash)

The ratings agencies should be very nervous.  (Big Picture)

California muni bonds have held up during the never ending budget crisis.  (ROI also Money &Co.)

Splitting investment and commercial banking vs. a cap on bank size.  (naked capitalism)

When you are the market, stop buying.  (WSJ)

The recession may be over soon, but the good times are a ways off.  (Calculated Risk)

Is Robert Rubin the modern day Robert McNamara?  (WashingtonPost via peHUB)

Is there a market for subscription-based financial commentary? (Felix Salmon)

Taking a look at add-on programs that make using Twitter easier.  (WSJ)

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