Via S&M I came across this ace post which helpfully details US economic commentators who denied that there was a housing bubble. One name that sticks out like a sore thumb is Kevin Hassett, who is based at the right-wing think tank the American Enterprise Institute.
In addition to not buying that there was a housing bubble he was also famously co-author of the confidently-titled Dow 36,000. Published at the end of the 90s, this was his prediction for the level of the Dow within next few years (based on the idea that we had entered new territory). It was kind of the mirror to Irrational Exuberance, and I think we can fairly say Shiller won that one (Dow today is around 10,500). If you're sad enough, have a read through some of the comments on Dow 36,000 on US Amazon.
But there's another reason why his name sticks out - he's senior economic adviser to John McCain.
Friday, 3 October 2008
Interesting stuff at LSE
A few interesting bits coming up in the next few weeks -
Nassim Nicholas Taleb is speaking a week on Monday.
Then there's a presentation on sovereign wealth funds the end of the same week.
And a bit on instinct and decision-making the following Monday.
Nassim Nicholas Taleb is speaking a week on Monday.
Then there's a presentation on sovereign wealth funds the end of the same week.
And a bit on instinct and decision-making the following Monday.
What a difference a month makes
It was only a few weeks back that Righties with an interest in the US election were declaring Sarah Palin to have transformed American politics. This was seemingly based on the fact that she's attractive and can do folksy soundbites. Slam dunk! After a number of lacklustre meejah performances opinions underwent a serious revision, with some conservative commentators in the US even questioning whether she was a liability to the campaign. So a lot hung on last night's debate with Biden.
According to reports it looks like no out and out winner, though the post-debate polls seem to suggest Biden probably shaded it. I wouldn't be surprised to see some Righties try and portray this as some kind of victory (for not completely fouling it up), but if they do take that line compare and contrast with what they were saying a few weeks back.
UPDATE: Iain Dale says "But I do think Palin edged it, simply because she didn't make a single gaffe and surpassed everyone's expectations."
I think The Finkster is more accurate: "By not winning Sarah Palin lost."
According to reports it looks like no out and out winner, though the post-debate polls seem to suggest Biden probably shaded it. I wouldn't be surprised to see some Righties try and portray this as some kind of victory (for not completely fouling it up), but if they do take that line compare and contrast with what they were saying a few weeks back.
UPDATE: Iain Dale says "But I do think Palin edged it, simply because she didn't make a single gaffe and surpassed everyone's expectations."
I think The Finkster is more accurate: "By not winning Sarah Palin lost."
Thursday, 2 October 2008
Worth a read
The latest issue of Renewal that is. Plenty of stuff on where next for the Left, and a really good article on Andrew Glyn.
A bit wrong
Guido has another pop at 'hypocrisy' in respect of shorting but I think he's off-target.
Except that -
1. If you read the FT article (to the end, like) you find this para:
"A House of Commons spokesperson said pension fund trustees were “not able to opt out” of the terms of stock-lending arrangements required by managers of pooled funds in which the scheme held equities. In separate segregated funds, however, the custodian of assets appointed by trustees was not permitted to lend stock."
So the trustees have blocked lending where they are able to, but not where they... err... can't. If there's an issue here I think it's the lack of power of clients in pooled funds.
2. It's not clear to me either that an investor in a pooled fund would necessarily benefit from stock-lending in respect of the underlying securities (since they are technically a unit-holder, not the owner of the shares). Maybe the fund manager hoovers up the lending fees rather than the fund's investors. Anyone got any views either way on that?
3. We don't know that the stock that was lent in respect of the fund's pooled investments was used to short (on the basis of the article at least). As one investmemt consultant pointed out recently, most lent stock isn't used for shorting. So we simply don't know..
UPDATE: Actually Zedman points out I'm a bit off the mark on point 2 - managers usually do split the fees with clients. So Guido has a bit of a point afterall.
It gets even better, the FT has discovered that MPs' own pensions are invested in a hedge fund manager, Quellos. Not only that, in addition the MPs' pension fund also made money lending stocks out to hedge funds to enable them to short shares. The hypocrisy is huge here, they condemn short sellers publicly and yet they roll up the profits of short selling in their pension plans.
Except that -
1. If you read the FT article (to the end, like) you find this para:
"A House of Commons spokesperson said pension fund trustees were “not able to opt out” of the terms of stock-lending arrangements required by managers of pooled funds in which the scheme held equities. In separate segregated funds, however, the custodian of assets appointed by trustees was not permitted to lend stock."
So the trustees have blocked lending where they are able to, but not where they... err... can't. If there's an issue here I think it's the lack of power of clients in pooled funds.
2. It's not clear to me either that an investor in a pooled fund would necessarily benefit from stock-lending in respect of the underlying securities (since they are technically a unit-holder, not the owner of the shares). Maybe the fund manager hoovers up the lending fees rather than the fund's investors. Anyone got any views either way on that?
3. We don't know that the stock that was lent in respect of the fund's pooled investments was used to short (on the basis of the article at least). As one investmemt consultant pointed out recently, most lent stock isn't used for shorting. So we simply don't know..
UPDATE: Actually Zedman points out I'm a bit off the mark on point 2 - managers usually do split the fees with clients. So Guido has a bit of a point afterall.
Private equity and pension funds, again
I must be thick, but this story doesn't seem to make much sense to me.
Err... so almost a third of the pension funds in the PPF are those attached to private equity owned companies. Surely we need to know what private equity ownership accounts for as a proportion of companies as a whole before we can say that these figures show there isn't a correlation between PE ownership and failing pension schemes. And I'm sure it isn't a third!
A couple of caveats. Firstly I reckon it's likely that the set of schemes in the PPF is skewed towards those run by SMEs - hence the large proportion of privately-owned companies' schemes in there. And some PE (the venture end) both focuses on smaller companies, and is high risk. Secondly, PE folks themselves would argue (with some justification) that in many cases the presence of PE (via a MBIs at least) indicates a company in trouble, and many of them won't make it. So perhaps we shouldn't be too surprised to see so many PE-backed companies' funds in there.
But still, I just don't see how the raw stats back the argument. Unfortunately I can't find the original research on the Close Bros site to see how it stacks up.
PS. A reminder of the GMB report (PDF) detailing PE's links to insolvent pension funds.
UK – Claims that private equity firms are driving pension funds into the control of the Pension Protection Fund (PPF) have been challenged by new research.
According to the research conducted by Close Brothers, companies backed by private equity firms accounted for 29% of the pension schemes that had been forced to end to the PPF. Of the remaining companies with schemes in the PPF, 58% were privately owned and 13% were from publicly listed companies.
Err... so almost a third of the pension funds in the PPF are those attached to private equity owned companies. Surely we need to know what private equity ownership accounts for as a proportion of companies as a whole before we can say that these figures show there isn't a correlation between PE ownership and failing pension schemes. And I'm sure it isn't a third!
A couple of caveats. Firstly I reckon it's likely that the set of schemes in the PPF is skewed towards those run by SMEs - hence the large proportion of privately-owned companies' schemes in there. And some PE (the venture end) both focuses on smaller companies, and is high risk. Secondly, PE folks themselves would argue (with some justification) that in many cases the presence of PE (via a MBIs at least) indicates a company in trouble, and many of them won't make it. So perhaps we shouldn't be too surprised to see so many PE-backed companies' funds in there.
But still, I just don't see how the raw stats back the argument. Unfortunately I can't find the original research on the Close Bros site to see how it stacks up.
PS. A reminder of the GMB report (PDF) detailing PE's links to insolvent pension funds.
Wednesday, 1 October 2008
Short thoughts
I thought I'd splurge some general thoughts about short-selling because I'm not sure that (so far) I agree with any commonly articulated viewpoint. These aren't very technical arguments, so I'm very open to comments/corrections from more expert views on what really happens. Anyway here goes.
1. I've always thought, and recent events reinforce my view, that stock-lending to facilitate shorting is an odd thing for long-term investors like pension funds to engage in. Put simply, you are renting your asset to someone who is going to tell the market that it's overvalued. By definition they expect the value of your asset to drop, and hope it does. And they aren't going to be shorting a company if they only think it's a bit over-priced. So unless you are making a bundle out of stock-lending to offset the potential drop in value this seems a bit counter-productive.
2. I don't think I buy the argument that shorting brings prices back to realistic levels. As I posted previously, academic evidence appears mixed. And real-world experience seems to point in the other direction - see the TMT bubble for details. Also this argument implies that those shorting are more rational, or have a better idea of the 'true' value of the stock, but why should that be that case? And even to entertain the idea that it were true perhaps - again thinking of the TMT bubble - the sceptics will never be strong enough to overwhelm the rampers. So perhaps all shorting does is accelerate and accentuate the drop when it comes.
3. Is shorting, as is sometimes implied, really just the mirror of going long? If so where do selling, and not buying fit in the spectrum? Isn't selling the opposite of going long and as such shorting almost a sort of leveraged position?
4. Pointing in the other direction, let's not fall into the trap of thinking that shorting is inherently more speculative than buying stock. Yes, those shorting typically only borrow stock for a limited amoung of time, but is this any different from those trying to profit from a post-IPO surge, buying shares in companies about to enter key indexes (and hence whose shares will be boosted when index-trackers have to buy), or engaging in momentum trading?
5. Equally let's be careful about the way we describe shorting. It's not really selling something you don't own, which makes it sound to the average punter to be almost fraudulent. It's renting something, selling it, buying it back, and returning it. Put like that it makes it much clearer that the person shorting is undertaking a risky activity but the ownership issues are clearer.
6. Time to hold our hands up - the corporate governance & responsible investment world I inhabit has appeared irrelevant by not making more of an issue out of this. We (me personally) have tended to focus on the obvious ownership policy issues - like what happens to voting rights when stock is lent - rather than focusing on the big stuff. The ability to vote on the report and accounts doesn't matter much if the company ends up being taken over/nationalised/etc.
So - where am I right and where am I wrong?
1. I've always thought, and recent events reinforce my view, that stock-lending to facilitate shorting is an odd thing for long-term investors like pension funds to engage in. Put simply, you are renting your asset to someone who is going to tell the market that it's overvalued. By definition they expect the value of your asset to drop, and hope it does. And they aren't going to be shorting a company if they only think it's a bit over-priced. So unless you are making a bundle out of stock-lending to offset the potential drop in value this seems a bit counter-productive.
2. I don't think I buy the argument that shorting brings prices back to realistic levels. As I posted previously, academic evidence appears mixed. And real-world experience seems to point in the other direction - see the TMT bubble for details. Also this argument implies that those shorting are more rational, or have a better idea of the 'true' value of the stock, but why should that be that case? And even to entertain the idea that it were true perhaps - again thinking of the TMT bubble - the sceptics will never be strong enough to overwhelm the rampers. So perhaps all shorting does is accelerate and accentuate the drop when it comes.
3. Is shorting, as is sometimes implied, really just the mirror of going long? If so where do selling, and not buying fit in the spectrum? Isn't selling the opposite of going long and as such shorting almost a sort of leveraged position?
4. Pointing in the other direction, let's not fall into the trap of thinking that shorting is inherently more speculative than buying stock. Yes, those shorting typically only borrow stock for a limited amoung of time, but is this any different from those trying to profit from a post-IPO surge, buying shares in companies about to enter key indexes (and hence whose shares will be boosted when index-trackers have to buy), or engaging in momentum trading?
5. Equally let's be careful about the way we describe shorting. It's not really selling something you don't own, which makes it sound to the average punter to be almost fraudulent. It's renting something, selling it, buying it back, and returning it. Put like that it makes it much clearer that the person shorting is undertaking a risky activity but the ownership issues are clearer.
6. Time to hold our hands up - the corporate governance & responsible investment world I inhabit has appeared irrelevant by not making more of an issue out of this. We (me personally) have tended to focus on the obvious ownership policy issues - like what happens to voting rights when stock is lent - rather than focusing on the big stuff. The ability to vote on the report and accounts doesn't matter much if the company ends up being taken over/nationalised/etc.
So - where am I right and where am I wrong?
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