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December 10, 2010, Vol. 28, No. 24

The Bentonville, Ark., monetary hedge

Buy Treasurys for deflation, gold for inflation--and something entirely different for the condition at hand

High-altitude copper

Something's sustaining the great bull market, but what?

Green shoots on the Interstate

A Grant's orphan returns from a Herbert Hoover-quality collapse in the big-rig business

Bullish on books

Monetary reading for this holiday season

To print or not to print?

Taking exception to Chairman Bernanke's semantic quibble

November 26, 2010, Vol. 28, No. 23

The credit cycle in full

In three years, everything can change

Insurable risks

Dull businesses, cheap stocks: What's not to like?

Chemical attraction

A bankrupt regains its solvency--will no one pay attention?

Thrifty investments

Another trio of demutualized savings institutions

Serendipity strikes

And we dial down our bullishness

Flat-earth monetary report

Just how much gold would a gold standard require?

Credit Creation • Cause & Effect

November 12, 2010, Vol. 28, No. 22

Consumer protection for the dollar holder

A discussion of the gold standard.

Thrifts on the cheap

A discussion of the mutual-to-stock conversion wave.

Our dollar and yours

A speech on monetary confusion.

Dance of the dollars

A discussion of an “early warning system” to spot current-account imbalances.

October 29, 2010, Vol. 28, No. 21

The thrifts are coming! The thrifts are coming!

A discussion of newly converted thrifts coming to the market.

Franklin County high

A follow-up of an Iowa farm auction.

Entitled no more

A discussion of a threat that will impact title insurers.

Been there

A discussion of the ramifications of China slowing down.

That ‘70s show returns

A discussion of inflation.

Get into Africa

A discussion of investment opportunities in Africa.

Up with dividends

A discussion of dividend investing.

Elder statesman deals

A historical perspective from Felix Rohatyn

Dealer de novo

The case for building a government securities dealer.

It ain’t beanbag

A discussion of politics in America.

Threat or blessing?

A discussion of high-frequency trading

Watering the whiskey

A discussion of inflation-indexed notes.

October 15, 2010, Vol. 28, No. 20

On the high cost of being rescued

A discussion of the TARP program.

Income from shale

A discussion of ECA Marcellus Trust I.

Money chases farms

A discussion of prime Midwestern agricultural property

In which we erred

A follow-up of Dex One and SuperMedia.

On the coming shortage of labor

A discussion of labor forecasts.

October 1, 2010, Vol. 28, No. 19

Ron Paul for executor

A proposed living will for the Federal Reserve.

De-leveraging story

A discussion of Alliance One International.

Gold bites its tongue

A discussion of exchange rates and currencies.

Yield famine relief

A discussion of Annaly Capital and Redwood Trust.

Latent energy

A discussion of the Fed’s excess reserves.

September 17, 2010, Vol. 28, No. 18

Over to you, H. Parker Willis

A discussion of central bank policy

Happy to sin

A discussion of the Swiss National Bank and the Singapore Monetary Authority.

Certifiably formerly toxic

A discussion of the transformation of Innospec.

Patience of a saint

A discussion of Seacor Holdings and its Chairman, Charles Fabrikant.

America's stimulus export

A discussion of quantitative easing and its impact on Asian currencies.

September 3, 2010, Vol. 28, No. 17

IBM makes bookends

A discussion of bonds, inflation and the Fed.

Contrarians wanted

A discussion of the real estate market.

Where the analysts aren’t

A discussion of companies ignored by the sell-side.

Rush hour in La Paz

A discussion of Bladex and intraregional trade.

What’s the hurry?

A discussion of low interest rates.

August 6, 2010, Vol. 28, No. 16

'A disgrace to the human race'

Take stock instead

Without shopping bags

Comeuppance delayed

Rockin' Europe

July 23, 2010, Vol. 28, No. 15

Back to the well for the Land of Lincoln

A history of default in Illinois.

A funny old cycle

A discussion about high yield debt.

Memo to Mrs. Malone

An update on the Canadian housing market.

No depression yet (watch this space)

A discussion about shipping and trade.

Credit Creation • Cause & Effect

July 9, 2010, Vol. 28, No. 14

Channeling Ben S. Bernanke, Ph.D.

A discussion about deflation and quantitative easing.

For the long run

A discussion about Treasury surrogates.

All things housing

An update on the housing market.

Eastern tremors

A discussion of Asian economies.

June 25, 2010, Vol. 28, No. 13

Concerning the American repudiation gene

A discussion about the municipal bond market past and present.

Bernanke's curious silence

A discussion about deflation and quantitative easing.

Mobile payout

A discussion about an attractively priced large capitalization phone company.

Not so scrutable

A discussion of exchange rates

June 11, 2010, Vol. 28, No. 12

There'll always be a J&J

A discussion about Treasury surrogates.

Profitably wasting away

An undervalued company in run-off.

Wow, Canada!

A discussion of the Canadian housing market and economy.

Trains, planes, trucks – and bonds

The transportation industry is recovering as investors seek the safety of bonds.

May 28, 2010, Vol. 28, No. 11

Of bonds and beer

A pair trade.

Miracle play

A discussion of a manufacturer with ever expanding margins.

Cigar butts for sale

A discussion of two publishers recently out of bankruptcy.

Memory misremembers

A discussion of the Swiss franc.

New 'affordability' crisis

Rising house prices cause an affordability crisis.

May 14, 2010, Vol. 18, No. 10

What's wrong with the euro

A discussion of monetary policy.

XL mortgage comeback

Private label securitization makes a comeback.

Revisionist history

Initial GDP reports are not the final numbers.

Value in fear

Just auctioned warrants remain in the bargain bin.

Dogs' day

A discussion about gold.

'Strongest since the 1970s'

Leading indicators turn in strong performance but long-term unemployment turns down.

April 30, 2010, Vol. 28, No. 09

'Boats for all' – a cautionary tale

Regulatory responses to crises can have unintended consequences.

Warrants to go

The warrants sold publicly from the Capital Purchase Program have outperformed the underlying equities and the market.

Three-dollar tale

A discussion of worldwide monetary policies.

That sinking feeling

Shipping companies are only cheap on the surface.

'Retail has to move this time'

A discussion about inflation.

April 16, 2010, Vol. 28, No. 08

Concerning the success of the TARP

A discussion of government bailouts - past and present.

'Nowhere but up'

The New York Times forecasts interest rates.

Goodbye, good Lufkin

Artificial lift becomes fully priced.

12-step mortgages

A comparison of RMBS securitization deals of toady with those from the boom.

Not counting deflation

The cost of the U.S. Census through the centuries.

Sell the renminbi

A discussion of exchange rates.

April 2, 2010, Vol. 28, No. 07

Memo to Sheila Bair

Brazil's solution to the too big to fail problem.

Instant gratification

Steve Eisman presents a long and a short idea at the conference.

From the ashes

Sy Jacobs discusses his strategy for buying quality banks.

Ronald Reagan Obama?

Tom Gallagher compares the Reagan and Obama administrations.

Coca-Cola afterthought

Adam Weiss presents his case for two companies.

'A perfect surprise'

Byron Wien presents the 2010 surprise he is most confident in.

Now's the time

Steve Galbraith talks about the importance of timing in investing.

Optimist buys equities

Tom Gayner makes the case for large capitalization equities.

Up in the air

Paolo Pellegrini argues for a change in monetary policy.

March 19, 2010, Vol. 28, No. 06

Mystery meat priced rich

"Unanalyzable financial institution" is redundant, like "sullen teenager" or "burdensome tax." To the outside observer, even the c. 1933 Bailey Bros. Building & Loan was a blind pool. Still less comprehensible is the 21st-century, derivatives-enhanced mega-bank. The mega-bank managers themselves seem confused enough. Pity the public investors. What's wrong with the modern financial institution, however, isn't what Sen. Christopher Dodd, the chairman of the Senate Banking Committee, keeps trying to fix....

Second thoughts

"Large numbers of these second liens have no real economic value," Rep. Barney Frank, chairman of the House Financial Services Committee, wrote to the chief executive officers of four big commercial banks on March 4. "[T]he first liens are well underwater, and the prospect for any real return on the seconds is negligible." Frank's breezy markdown of a trillion dollars or so of home-equity loans could not have failed to moisten the palms of the hands that held his letter....

Hostage to rates

The sanguine projections of out-year interest expense contained in the Grant's model Treasury prospectus of two weeks ago prompted a San Francisco reader to imagine an alternative scenario. Let us say, that the interest-rate forecast of the Congressional Budget Office, which Grant's quoted, proves too low. Assume, instead, a proper bond bear market....

Then there was one

More than a few readers have weighed in to lament the quality of the investment ideas currently being presented here. We seemed so much on top of things in 2008 and even 2009, they say. But this year, they grumble, they might as well be reading Runner's World or The American Scholar. What's gone wrong? No happier than they are, we invoke extenuating circumstances. The inflation that nobody can see on Main Street is in full flower on Wall Street....

March 5, 2010, Vol. 28, No. 05

A prospectus for the United States of America.

A preliminary prospectus for the United States of America.

February 19, 2010, Vol. 28, No. 04

Warm thoughts on a cold metal

Earnings season is almost over, but for GLD it never began. Not since the earth's crust cooled has the 79th element in the Periodic Table earned a dime. Yet that hasn't stopped SPDR Gold Trust, a.k.a. GLD, from becoming an institutionally recognized investment asset. Still, the question hangs in the air: What's an ounce worth? Now begins a reappraisal of our Nov. 27 reconsideration . . .

Different this time

To earn investment-grade, double-digit yields denominated in U.S. dollars, you need a time capsule and a ticket back to 1981. Nowadays, certifiably "safe" income-producing securities fetch zero. Triple-B-rated corporate bonds are quoted at all of 6.4%, junk bonds at 9.5% and 10-year California general obligation bonds at 4.5% (that's tax-free, not risk-free). . . Everyone, these days, needs income, while no one needs permanent capital impairment. And most everybody is jumping at shadows. . .

Concerning next time

March 6 marks the first anniversary of the world not coming to an end. On that date one year ago, the Standard & Poor's 500 Index put in its low. The broken bones of credit began to knit, and the economy stopped shrinking and resumed growing. So powerful is the recovery today that it is almost possible to imagine a company hiring an employee and a bank making a new loan. Compared to the darkness of the abyss, even a partly cloudy sky looks dazzling. The world economy has, it seems, been saved from a fate even worse than our Great Recession. But at what cost?

Gnomes get quantitative

At last, some good news for shipowners, including the new seagoing private-equity investors who may just have bought in at the lows: World trade by the Grant's measure (the dollar value of imports from the U.S., Britain, the euro zone, Japan, and the BRICs) grew 2% year-over-year in November, the first positive reading in 13 months, with December logging a further 9% gain. . .

February 5, 2010, Vol. 28, No. 03

When Rep. William S. Holman (D., Ind.) said ‘no’

Forecasts of a 2010 fiscal-year deficit of $1.6 trillion, a shade of red never before seen in the federal accounts, sent statesmen to the airwaves and pundits to their keyboards. President Obama condemned the obstructionism of the Republican Party in his State of the Union address: "Just saying no to everything may be good short-term politics, but it's not leadership." Newspaper columnists denounced Congress, especially the Senate, where it takes 60 ayes to block a filibuster. How this country came to such a sorry fiscal pass is a very good question, and we happen to have an answer. . .

Where is thy sting?

With respect to the Great Recession, the question posed in the headline answers itself. The world economy is one big bug bite. Yet, for a doughty band of companies, the pain and swelling long ago subsided. . .

Treasurys on stilts

You, let us say, are the State of Wisconsin Investment Board, and you have a problem. You are heavily exposed to the stock market (55% of pension assets). Still more heavily are you exposed to the stock market's volatility (90% of fund volatility is from that source). You are wedded to a 7.8% actuarial-return assumption, which you privately despair of meeting. What do you do?

Stuy Town in Siberia

Amateurs were debarred from subscribing to last week's $2.55 billion offering by [COMPANY--and a good thing, too. The investment appeal of a money-losing, debt-stuffed, covenant-breaching, oligarch-bossed, top-tick-prone cyclical on the brink of insolvency is chiefly apparent to professionals. . .

Teachable moment

The failure of [Bank] last week is expected to set back the Deposit Insurance Fund (DIF) by $825.5 million, a pretty stiff bill for an institution with only $2.18 billion in assets. Concerning which a stunned subscriber asks, "Shouldn't a loss this big be mathematically impossible?" Actually, it's old hat. . .

BRIC belt tightening

On Tuesday, Australia's central bank issued a press release seemingly intended to explain a rise in the prevailing 3.75% policy rate. All that was missing was the move itself, because the Reserve Bank stood fast.

January 22, 2010, Vol. 28, No. 02

House plant says that rates go up

Addressing the annual meeting of the American Economic Association in Atlanta on Jan. 3, the chairman of the Federal Reserve Board exonerated the Fed and its interest rates from blame in the great mortgage mess. Why, the central bank's own vector autoregression model closes the

Principal of the thing

Jubilee--or a partial jubilee, at least--is the way forward in housing, according to the experts who seem to know what they're talking about. Grudging concessions on monthly interest payments merely serve to push defaults into the future.

Sell Product 97

Do you, gentle reader, fancy a 3.5% renminbi-denominated yield? To snag it, would you reach all the way to the Golden Sunflower loan product No. 97, recently on offer from China Merchants Bank? WuHan DingJin Food Corp. is the borrower, but China Merchants Bank, the No. 5 bank in the People's Republic with assets of $288 billion, is not the lender. You, to repeat, are the lender, or would be if you chose to forgo the presumptive safety of a 2.4% account at China Merchants Bank and venture into loan No. 97. A huge debt bubble is inflating China's economy and, by extension, the world's.

Distress at full price

The fiscal news is bad from Greece to California, though bondholders would hardly know it from the wages they're earning for worry. On a three-year maturity, the Golden State's debt yields 1.89%, that of the Hellenic Republic, 3.45%. Go out 30 years and California is quoted at 5.59% and Greece at 6.26%. Yes, spreads have been widening. But, still, we wonder: What would complacency look like?

January 8, 2010, Vol. 28, No. 01

Yields a la Bernanke

Hard on the heels of the worst modern credit disaster, hundreds of billions of dollars of professionally managed assets are bearing non-trivial risks for literally no return. "Return-free risk" was how the bond bears characterized the value proposition in the government securities market last year. They could not have imagined that today's money funds would make the 3% long bond look like a value stock.

$1 short sale

For the next three years, the Treasury Department muttered up its sleeve on Dec. 24, the sky's the limit on the government's net-worth-plugging investments in Fannie Mae and Freddie Mac. Furthermore, Timothy Geithner's bureaucracy disclosed, on a day not ordinarily given over to the announcement of major changes in public policy, the mortgage behemoths will not be prohibited from growing in 2010 after all. They will rather be allowed to expand their combined balance-sheet size to $1.8 trillion (as of November, they jointly weighed in at $1.5 trillion). We say these are evil omens, but the market has its own ideas.

Money shows its age

"It is a victory for the U.S. government," says an interest-rate strategist at Citigroup Global Markets, speaking last week of the Treasury's epic 2009 borrowing campaign. "It is a defeat for the world's investors," says Grant's of the very same borrow-a-thon. At auction last year, according to calculations quoted by The Wall Street Journal, two-year notes yielded an average of just 1.002%, 10-year notes an average of just 3.262%. Never mind flu season: For 2010, expect a pandemic of buyers' remorse.

Loans, ahoy!

"[B]ecause companies have been very much in a de-leverage mode and preservation-of-capital mode and a strengthening-of-the-balance-sheet mode," Andrew Cecere, chief financial officer of U.S. Bancorp, told a Goldman Sachs bank conference last month, "loan demand will come back quickly once it does come back." Cecere was singing our tune. Bank lending plunged in the 2007-09 downturn as it had never done in any previous post-World War II recession. Now what? Why, a new cycle of lending and borrowing. It seems it's already begun.

The gentleman obliges

"Perhaps," we suggested in the June 12, 2009, issue of Grant's, "Mr. Market would be so obliging as to mark it back down to book, or, say, 1.2 times book at a minimum, in order to afford the value-minded investor a margin of safety?" Now look: "It"--Redwood Trust (RWT on the Big Board)--trades at 1.24 times book and yields 6.9%, down from 1.6 times book, with a yield of 6.6% in June. Sometimes you just have to ask.

Warm glow of leading indicators

Bank lending is shrinking and money supply growth is laboring--not exactly the expected fruits of the Fed's heroic balance sheet expansion. But the credit data for November may point to a change in trend. The sum of loans and securities held by commercial banks, a.k.a. commercial bank credit, jumped by $57 billion, to $9.1 trillion. Higher, too, was the volume of loans held on bank balance sheets, up by $51 billion, to $6.8 trillion.

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