Diary of a Financier

Bookshelf Update: Top Newstuffs (March 26-April 1)

In Bookshelf on Sun 1 Apr 2012 at 07:45

Perennial bellweather Alcoa (AA) will kickoff 1q2012 earnings season after the close on April 10.  As I’ve discussed ad nauseum, I expect this round of reports to trigger a period of underperformance by risk-assets.  With our portfolio saddled by equities & high yield credit, I’m spending this weekend formulating a base-case plan for reallocation.  The biggest question is not what assets we should cycle into, but rather when we should start cycling.

Anyway, here are this week’s Top Newsstuffs…



Bernanke should focus on Roaring ’20s, not Great Depression | Jim Grant
After deep downturn of 1920-21 (GDP fell 23.9%), the Fed allowed rates to rise, the government balanced the budget, and a vibrant recovery began.


Global Households’ Balance Sheets | ZeroHedge
Japan, US & Euro Area Households.


Global Governments’ Balance Sheets | ZeroHedge
Japan, US & Euro Area central bank balance sheets.



Occam’s Razor: Complexity, Context, Probability & Bias | The Big Picture
“When we select among competing explanations for any given unknown, we prefer the simplest explanation. This includes that which makes the fewest assumptions and requires the least logical contortions. One should proceed to simpler theories until simplicity can be traded for greater explanatory power…
“Some people work backwards: They start with their conclusion, than set about hunting for any data that supports it. This is the worst form of confirmation bias. The preferred method is to research all of the relevant data, and see what conclusion that leads you to.”



China Coal Processing Traps Carbon | Bloomberg
Wang Youqi discovered a catalyst that speeds up reaction converting coal’s methanol into a substance called dimethyl carbonate. When added to diesel, this reduces black carbon soot emissions by 90%.


Earnings: 4q2011 Summary & 1q2012 Outlook | Zacks
Net margins continued to increase from 5.88% in 2008 to 8.84% in 2011. The Street arrives at even wider margin forecasts of 9.53% & 10.22% through 2013 via low revenue growth (1.37%/4.91%) and high net income growth (9.3%/12.5%). Those revenue expectations are low in nominal terms, so the probability for EPS beats is high.


FHA Bailout Risk Looming Larger After Guarantee Binge | Moody’s
“The U.S. government mortgage-insurer, which guarantees $1.1 trillion in home loans, had been counting on ‘robust growth’ in home prices to help rebuild its insurance fund after paying out $37 billion to cover defaults the past three years… Prices will fall 3 percent in fiscal 2012 before growing 1.4 percent in 2013 and 6.5 percent in 2014, said Celia Chen, a Moody’s Analytics housing economist.”



The Yen’s Looming Day of Reckoning | Andy Xie
BOJ must devalue JPY by 30-40% to maintain competitiveness and encourage investment. Even with JGB 10-year yield around 1%, interest expense is expected to top 22.3T yen in this fiscal year; that’s 25% of general account budget. Yen devaluation will impact China & South Korea most.


We’re Expelling The Netherlands from Europe’s “Core” | Citigroup
“As a consequence of the euro area sovereign debt and banking crisis, financing conditions in the Netherlands have tightened, creating pressure on the country’s highly leveraged households, which is likely to lead to further contractions in house prices and domestic demand… As a result, we expect the general government deficit in the Netherlands to reach 4.5% of GDP in 2012 and 3.4% in 2013, above the EA averages of 3.4% of GDP and 2.6%, respectively. The reliance of Dutch banks on Eurosystem liquidity has also multiplied since mid-2011.”





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