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December 16, 2011, Vol. 29, No. 24

Bull market in counterfeits

Someone--if the euro zone did break up--would have to print the new pesetas, drachmas, lira and Deutsche-guilder-francs as well as to dispense and count the new currency and protect it from counterfeit. Who might that money-printer be? On the haunting similarities between Jackson Pollock's painting and Ben Bernanke's banking.

All together now

"In the entire history of the S&P," so Bianco Research advises its clients, "there have been 11 days when 490-plus stocks all moved in the same direction on a given day. Of those 11 instances, six have occurred since July 2011." New cause to fear for the future of securities analysis.

Security analysis – ‘on’

Herewith a portrait of a metal making company in macroeconomic context, along with an answer to a timely question: Now that stocks, bonds, commodities and currencies seem to trade in lockstep--as if there were just two tickers, "risk on" and "risk off"--why even bother opening an annual report?

Bank risk reprise

Deutsche Bank is leveraged 34:1. That is, Deutsche Bank is leveraged 34:1 if we compare tangible assets to tangible equity and shrink the DB derivatives portfolio in accordance with U.S. accounting convention. American and European finance is separated by more than an ocean.

Earth by the spoonful

Four farmers in Sioux County, Iowa, last week dueled at auction over a 74-acre tract near Hull, with an opening bid of $15,000 an acre. The winner paid $20,000 an acre, a new record in nominal Bernanke money, topping the $16,750-per-acre set in October. Few regions are bubblier than northwestern Iowa, but the bull market in black earth is lifting the Midwest bodily.

Fire and ice

In the last three months through Dec. 9, assets of the European Central Bank--that's the conservative institution in Frankfurt--soared at an annual rate of 87%. While central banks run the pressers, commercial banks stand still.

December 2, 2011, Vol. 29, No. 23

How the bond vigilantes got fat

Failure of a German government debt auction on the Wednesday before Thanksgiving launched a thousand tweets. Ah, said the bold ones who presume to speak for Mr. Market: The vigilantes will work their will on the Germans as they have already done on the Italians, Spaniards and Greeks. But what the avenging creditors really want isn’t what you think.

Private island markdowns

Real estate—illiquid, despised, discounted—is the subject at hand. It was subscriber Todd Tateo who observed last year that, for the precious right to convert an asset into cash at the twitch of a nerve, the world was prepared to pay exorbitantly. The price of liquidity has only gone up in the meantime.

He smells gas

At $3.63 per million BTUs, the price of natural gas has plunged by 78% since the 2005 peak. Once upon a time, the market feared a chronic shortage; today, it fears perpetual glut. “Now,” says a man who buys cast-off interests in conventional wells for a song, “that theoretically should not happen.”

Spare a worry for China

Not that the euro zone is chopped liver, but the world’s second largest economy is fast receding. Demand is weakening, home prices are falling and trade finance is becoming harder to obtain. The rueful lesson of Zoomlion.

Apologies to Morgan

In which Grant’s erred.

November 18, 2011, Vol. 29, No. 22

Not your father’s Bundesbank

The un-stolid Germans have built towers of leverage, the un-gnome like Swiss are printing boxcars full of francs and the €1 trillion European Financial Stability Facility was reduced to buying its own bonds last week to mask the failure of a €3 billion 10-year note auction. A new look at an aging crisis.

On the money

An unscripted monetary moment with Gov. Rick Perry.

P.E. at a discount

Buying cheap listed private equity funds wasn’t how Henry Kravis got rich. But investing at a 30% to 40% discount to NAV—much deeper during Europe’s periodic sinking spells—holds appeal both financial and aesthetic.

Distant early warning

Four months into the California fiscal year, the Golden State shows a deficit of $12.1 billion, $3.4 billion more than budgeted in June. Not to worry, Sacramento counsels.

Greatest short never sold

As attractive a short-sale opportunity as U.S. Treasurys may present (past performance is no guarantee of future results), Japanese corporate debt must surely be better.

November 4, 2011, Vol. 29, No. 21

Banking itself is broke

If ideas could file for bankruptcy protection, the modern model of money and banking would have beaten MF Global Holdings to the courthouse. The concept of leveraged finance in a world of paper money and socialized risk deserves rehabilitation under an intellectual Chapter 11.

Man vs. market

Market timing--indeed, active investment management of any kind--according to John Bogle, the index-fund pioneer, Vanguard visionary and must-read author, is "by definition, a loser's game." When and how to pick a fight with Mr. Market was the day's constant topic.

Why monetarism flunks

Emanuel Derman, the former theoretical physicist whose "Models. Behaving. Badly" was published 24 hours before the Grant's event, held forth after lunch on the difference between a theory and a model. The late Milton Friedman should have been there.

Around and around

"I don't believe there is any upside anymore, "said Carl E. Walter, who worked in the People's Republic for 20 years and together with Fraser Howie, wrote "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise." Walter lived in China and invested in China--"invested my career in China"--but now, he said, he is through.

Up with Mongolia

Sooner or later, Bill Fleckenstein told the Grant's faithful, the bond market and/or the currency market will force the Fed to cease and desist. Pending that happy denouement, he went on, gold is the thing--that and Mongolia.

Capitalist manifesto

R. Brad Martin, Tennessee-based entrepreneur and investor, told the conference-comers about government regulation (suffocating), corporate governance (often inept), and where and why he's investing.

Grand tour economique

"It took us four and a half decades to get where we are," said David Bonderman, the leadoff speaker at the Grant's event, "and we're not cleaning it up in 18 months….On the other hand, the world isn't coming to an end, either."

'What kind of a lunatic?'

In response to a question from the audience, John Bogle held forth on exchange-traded funds: "When I studied the [mutual fund] industry at Princeton, I thought: 'What a miracle! You mean you can get your money back by redeeming your fund's shares any day you want to do that? How can that be possible?' Now, that's not good enough."

States' rights

The median income of the American household has risen fourfold since 1971, according to Sean Fieler. Yet, over same span of years, the dollar has lost 82% of its purchasing power, which reduces the improvement in median household income to just 16%. Blame the shrinking dollar, said our speaker, but don't try to rehabilitate it.

So far from Switzerland

If Monday's attempt by the Bank of Japan to cheapen the yen, its third in a year, is no more successful than the first two tries, the Japanese unit is on its way to new highs. Simultaneously, the Japanese stock market is approaching new lows, official purchases of exchange-traded funds notwithstanding.

October 21, 2011, Vol. 29, No. 20

Ready-mixed short sale

Not every Grant’s reader will choose to act on a bearish investment idea concerning a company situated 7,649 miles west of the New York Stock Exchange. Each, however, will value the chance to learn more about what makes the world’s No. 2 economy tick—or, as we see the situation, not tick.

Orbits, the earth

Though the corn market has come off its highs, Iowa farmground continues to set price records. “I bid until it didn’t make any more sense for me to bid any further,” says a farmer who did not contract buyer’s remorse.

Leveraged loan reprise

In this time of twisted and twisting interest rates, senior creditors can earn returns of 6% and higher at the very top of the capital structure. On the importance of the first-lien leverage ratio.

What we've forgotten

Compared to the illiquid, subsidized, undercapitalized and crisis-prone banks of the 21st century, the institutions of 19th century Boston and New Orleans seem as if they were the products of an advanced civilization.

Roll out the euros

Doing its bit—and more—the ECB has ballooned its assets at an annual rate of 83.9% over the past three months. Meanwhile, across the English Channel, comes an inconvenient burst of inflation. What bonds not to buy.

October 7, 2011, Vol. 29, No. 19

The death of bonds

"Only the elderly, who have not understood the changes in the nation's financial markets, or who are unable to adjust to them, are sticking with stocks." Thus did Business Week magazine blight an entire asset class in an infamous 1979 cover story. An update on the age-old duel between "risky" assets and the other kind.

Greece, clarified

With its unimaginably large numbers, perfervid rhetoric and complex twists in political plot, the European monetary crisis would seem to defy comprehension, never mind a solution. How much simpler it would be if this Continental mess could be expressed in the simple analytical terms of a single, representative common stock. It just so happens that it can.

Opportunism Inc.

It's not much of a world, but it's the only world we have. And if it doesn't end--let's just suppose--it will pay to own something besides U.S. Treasurys again. A kind word for a dividend play with an embedded call on prosperity.

Income least bad

The raging, telegenic crises in money and credit deflect attention from the quiet desperation of the American saver. Collapsing Treasury yields, zero-percent money rates and the flattening yield curve--all in the context of a 3.8%-rising CPI--bring ever closer the realization of the "euthanasia of the rentier."

The way of all paper

Assets of the Swiss National Bank ballooned at an annual rate of 253% in the three months through August. And that was before the SNB really put its back into the Franc debasement program . Compare and contrast the Asian Swissie.

September 23, 2011, Vol. 29, No. 18

Monetary elephant in the room

As we go to press, the Federal Open Market Committee is deep in ponderation over how to make monetary policy even easier. What the public servants are likely not pondering is the topic at hand.

Just do nothing

Because zero percent interest rates, “quantitative easing,” stupendous borrowing and upwards of $1 trillion of spending have failed to reignite the U.S. economy, the administration and the Federal Reserve are weighing mighty new interventions. The case for constructive inaction.

Pull to par

Hypothesis: Though the sovereign debt crisis rages, the corporate credit crisis has ended. In the United States, it ended in 2009. Barring a new recession, corporate credit is likely to prove a better investment than the sovereign debt that supposedly never defaults but actually does, recurrently.

Arise, dead money

Even the bulls are mad at this value stock cum growth stock. We write not to pound the table but to finish setting a table previously set.

Black cloud over bank stocks

To judge by the stock market, the banking business is dead and decomposing. Yet—by most historical standards—it is hale and hearty. Net interest margins? You’d be surprised.

September 9, 2011, Vol. 29, No. 17

Gold at high altitudes

In a mid-August Gallup poll, 34% of Americans identified gold as the "best long-term investment," double the percentage choosing equities. "Gold is Americans' top pick as the best long-term investment regardless of gender, age, income or party ID." Today, at $1,800-plus to the ounce, gold is just as much a valuation cipher as it was in 1999, at $260 an ounce. Which leads us back to the question of the hour: is gold, in fact, a long-term investment of any kind, let alone the best one? Is it a bubble?

Not so sunny

We now revisit two analyses served up in these pages over the summer. For the subjects at hand, the world has changed, and not for the better.

In case we survive

What with the United States sagging and Europe imploding, stock markets are understandably struggling. Which is not to say, however, that all is lost. In stocks--for the philosophical and patient value seeker with money to commit--lower prices have much to commend them. Therefore, let the value restoration project proceed--within reason, of course.

Only in Europe

Banque Nationale de Belgique, the publicly traded central bank of Belgium, is a profitable, legally protected monopoly quoted at 28% of book value and yielding 6.5%. A value investor's knees would buckle. But buckling of another kind is the subject at hand.

Then there was one

"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of deflationary development," exploded Tuesday's bombshell from the Switzerland's FOMC. "With today's decision," said SNB President Philipp Hildebrand in a statement on Tuesday, "the SNB sets foot on a challenging journey. We have to accept that the costs associated with it might be very high." Don't say they didn't warn us.

August 12, 2011, Vol. 29, No. 16

Counting the A’s in America

According to Warren Buffett, Standard & Poors should have upgraded the United States, not demoted it. Certainly, with respect to the long-run success of the American enterprise, a quadruple-A rating, if such existed, would seem conservative. But shocked—and stunned and confused and a good deal lower—the markets are. Value investors, however, are invigorated, as cheapskates love a sale.

Yield machines crank

In a downgrade to junk, who knows how far Treasurys might rally? A status report on two mortgage REITs that invest in the obligations of the Treasury’s no longer triple-A housing finance wards.

'Bonanza' was better

Forty years ago this Monday, the world lost its semi-golden dollar. Last week, the United States lost its unqualified triple-A rating. In 1971, the gross public debt totaled 37.8% of GDP. As of July 31, gross public debt stood at 94.8% of GDP. Monetary cause and fiscal effect are the subjects at hand.

Leaning tower

"Our banks are liquid," Prime Minister Silvio Berlusconi assured the Italian parliament two Wednesdays ago, "they passed the stress tests, and Italian families are less indebted than others among the major economies." Which got us wondering: if the debt crisis is manageable, why aren’t the Italian banks rallying? And if the debt crisis is unmanageable, why isn’t the Euro sinking?

Buffett on the beam

On Sunday, the European Central Bank tipped its intention to buy Italian and Spanish sovereign debt. Equities plunged on Monday, but Italian and Spanish 10 year bonds rallied by 80 and 89 basis points, respectively. Dramatic the ECB’s intervention may have been. Novel it was not.

July 29, 2011, Vol. 29, No. 15

A piece of their long-departed minds

Concerning the crisis of the federal debt ceiling, living American politicians have had their say. So have living ratings analysts, TV commentators, mutual fund bond managers, federal debt functionaries, central bankers and Chinese sovereign wealth fund administrators. Yet, for all their words—what did they say?—the situation is unresolved.

Ready, Fire, Aim

In what seems another age, people you knew would hold a stock to the end of the 12th month to qualify for U.S. long-term capital gains treatment. Nowadays, the high-frequency traders you may or may not know conduct their affairs as if there is no capital gains tax—and for that matter, no annual reports, analyst reports, 10-Qs, proxy statements, channel checks or conference calls, either. Maybe their computers do the reading.

Not digging it

Not for nothing do China’s lights flicker. While the government suppresses domestic electricity rates, coal trades freely on world markets. Coal-fired utilities therefore face the choice of producing at a loss or not producing at all. The consequences are the ones you might expect: rolling blackouts and rising coal inventories.

Not in this life

So it’s safety you want? Sound sleep and modest—but dependable—appreciation of principal, with an occasional flutter to the upside? Though it surely isn’t too much to ask, it doesn’t happen to be available.

Uncle Sam gets a trim

If the treasury lost its triple-A credit rating, so, too, would its wards, Fannie and Freddie. The mortgage REITs, big holders of agency securities, could well feel the loss.

July 15, 2011, Vol. 29, No. 14

The case of the reluctant currency

Against the Swiss franc—and gold, too—the euro has made an all-time low, Against the U.S. dollar, however, it has scored just a 17-week—mind you, not even 17-month—low. All the world knows what’s wrong with the euro. But what’s wrong with the dollar?

Hairy collateral

A soybean is a soybean—unless, perhaps, it’s a soybean in China doing double duty as bankers’ collateral. Nonperishable commodities have long served in that financial capacity—Chinese lenders have a special affinity for copper. But soybeans and cotton? The People’s Republic writes another chapter in the book of frenzied finance.

Orphans get love

Last summer, this publication asked its can-do Bloomberg terminal to list the names of profitable public companies to which the sell side was paying no attention. Maybe, we speculated, investment value was present where the analysts weren’t. Herewith an update of those analytical orphans plus a look at a new set of marginalized businesses.

CPI at a discount

You thought your rent was going up? Not according to the Bureau of Labor Statistics. The story behind the “right-hand turn” of owners’ equivalent rent.

July 1, 2011, Vol. 29, No. 13

Phil Fisher meets Benjamin Graham

Growth is well and good—no value investor is against it. The question is how to define it. Viewed on the basis of gross dollars of sales and earnings, a certain mature blue chip company may look as if it were sound asleep. But divide those dollars by a constantly shrinking share count and the same company begins to resemble the stupendous Apple. On this great proposition, a growth stock guru might agree with a great value guru.

Earth and sky

Let us say that inflationary forces will triumph (a working assumption, not a high-confidence forecast). Brick-and-mortar REITs are one coping asset, gold-mining equities another. In the past year or so, REITs have been favored, gold-mining stocks disfavored. That, however, is history.

Sale of the century

In 2005, a certain storied American bank undertook an investment, noblesse oblige, in a certain under-managed Chinese bank. Come the Great Recession, the great American institution lost its halo, while the Chinese bank went—seemingly—from strength to strength. Deliciously, the tables have turned, but who’s solvent now?

Chill in the air

“Lend more,” one set of federal regulators exhort the banks. “Make the wrong loans in the wrong manner and we’ll sue,” warns another band of public servants. Maybe the stagnation in bank credit is not so mysterious after all.

June 17, 2011, Vol. 29, No. 12

The cumulative effect of history

Has the government taken the measure of the cumulative effects of the onslaught of new banking regulations over the past year? The CEO of J.P. Morgan Chase reasonably inquired of the chairman of the Federal Reserve the other day. Which prompts a question of our own: Has anyone taken the measure of the cumulative effects of the sea change in monetary affairs and regulatory philosophy over the past hundred years?

Big fat zero

Starved of interest income at home, money-market mutual funds are venturing across the Atlantic—smack dab in the middle of the European credit crisis. Another unintended consequence of the Fed’s miniature funds rate

End of the whip

Bearish on the People’s Republic of China, Grant’s is on the prowl for handy China-themed short-sale candidates.

Still not gilded

The “Worst Prospective Fixed Income Investment of 2011,” as Grant’s styled British gilts in January, has indeed proved unrewarding—for anyone who shorted them. We reappraise our view.

Not your father’s expansion

Two years into this most reluctant of economic recoveries, mortgage lending volume is falling and bank credit is shrinking. From the Economic Cycle Research Institute, a forecast to ponder.

June 3, 2011, Vol. 29, No. 11

The risk down under

A bear on China must confront the implications of his bearishness. The cessation of Chinese growth would turn down the economic and financial lights in places as geographically far removed from the People's Republic as the United States, Brazil, New Zealand and Australia. It would deflate the reflation trade, the dimensions of which would become fully apparent only after it ended.

As Greece goes

Curious is the European Central Bank's aversion to the facts of the intra-European debt crisis. A restructuring of Greece's sovereign debt, a high ECB official was recently quoted as saying, would be no solution but "a horror story." In fact, such a default would be especially horrific for the ECB itself.

Believe it

Credit continues to heal, as tiny borrowers are admitted to the hospitality of the public high-yield market and yield-starved investors compete for the meager supply of new leveraged loans. Google and Texas Instruments borrow at interest rates not far from zero. Where to find a variable-rate 4% yield.

Hark to Gideon Gono

China's municipal debt crisis--as big a mess, as in proportion to China's economy as America's subprime mortgage bust was to the U.S. economy--is at last revealed. So, too, is the good news from America's auto-finance industry (subprime's back), as well as the deep monetary thinking of Zimbabwe's star central banker.

May 20, 2011, Vol. 29, No. 10

From New York to Beijing to Vancouver

The less you know about the workings of the great transpacific money press, the better you probably sleep at night. Behind the veneer of reasonable equity valuations, China's banks are busily planting the next bumper crop of non-performing loans. Helicopter money flies home to British Columbia.

Dig we must

Cheap stocks are hard to find--the Federal Reserve is apparently trying to make them extinct--but we acolytes of Graham and Dodd keep looking. In a certain diversified resources producer, we believe we've found a candidate.

Concerning perpetuity

$100 invested continuously at 2% upon the death of Cleopatra in 30 B.C. would, by now, expand the Forbes rich list to include every man, woman and child on the face of the planet. Why this worthy endeavor didn't take root 2,041 years ago, and why it's even less likely to catch on today.

Do as we say

Basel III will require commercial banks to maintain leverage ratios no higher than 14.3 times. Central banks, however, not so constrained, balance immense piles of risk---foreign exchange and/or interest rate---on slivers of capital. What would Emile Moreau say?

May 6, 2011, Vol. 29, No. 09

Not your father's inflation

"Our customers are running out of money," the CEO of Wal-Mart, Mike Duke, declares. Inflation is always and everywhere a monetary phenomenon, as Milton Friedman adjured. But what if the people have no money to spend? High prices without the customers to pay them quickly become low prices.

Demand a recount

"It's not the voting that's democracy," to quote the playwright Tom Stoppard. "It's the counting." So, too, with inflation. It's the calculation. Governments say one thing, the incredulous citizenry sees another. Nowhere is the gulf between assertion and perception wider than in the People's Republic of China. A kind word for some Asian currencies.

Farmland gets crazy

A new record set in Mitchell County, Iowa, as investors begin to outbid farmers. "It's been a phenomenal run-up," a broker attests of the great rally in Midwestern black earth, "the strongest I've seen in 26 years." Which would you rather own, land at 28 times earnings, or shares in the agribusiness ETF---ticker: MOO--at 17 times earnings?

View from the cheap seats

Our intrepid reporter delivers the inside story at the Fed's first press conference.  Where is Bernanke's birth certificate?

April 22, 2011, Vol. 29, No. 08

The whys and wherefores of QE3

To its congressionally directed dual mandate—stable prices and full employment—the Bernanke Fed has unilaterally added a third. It has undertaken to make the markets rise. When the S&P next breaks lower, the Fed will confront the need to bail out the innocents it had previously bailed in.

Raining REITs

The previous issue of Grant’s took note of a coming wave of mortgage real estate investment trust IPOs. The issue you hold in your hands takes stock of the newcomers while pausing to remember the REITs that came a cropper.

A matter of trust

Externally managed REITs create the potential for misaligned interests, as the governance police say. CreXus is one such REIT. Annaly Capital Management is one such manager.

Getting physical

Oddly enough, gold investors rarely buy gold itself. Options, futures and mining shares are rather the favored bullion investment vehicles. Enter Gold Bullion International, which buys, sells, lugs and stores the real McCoy.

Same old Standard & Poor's

Concerning the precariousness of America’s triple-A credit rating, the venerable rating agency is right for the wrong reasons. Quantitative easing and the reserve currency franchise as sources of “credit strength”?

April 8, 2011, Vol. 29, No. 07

Trillions of dollars lift billions of prices

MIT’s Billion Prices Project, a daily, real-time, Web-based alternative to the CPI, shows soaring merchadise prices. Will Treasury yields, too, take flight? In 2008-09, new disclosures confirm, the Fed lent freely at tiny interest rates against poor collateral to insolvent institutions. Weep, Walter Bagehot. .

One price fits all

The five biggest mortgage REITs in America buy different assets, deploy different hedging strategies and use varying amounts of leverage. Not that you’d know it from their valuations, which are virtually identical. Opportunities for the discriminating investor.

Opportunity now

Baupost, the eclectically value-seeking investment management company, holds cash equivalent not to 50% or 60% of assets, as one might have guessed from the strength in the averages, but only to 28% of assets...

All together now

In days gone by, recalled James Bianco, eponymous chief of Bianco Research, stocks seemed to know their own minds. Some went up, others down. Now they move together in packs, like teenagers. It's "risk on" or "risk off."

Take the insurance

You can find insured state and local bonds yielding 8% and higher, Mark Doyle, president of Sterling Grace Municipal Securities, informed the conference-goers. When he finished, a man wanted to know if tax-equivalent yields were perhaps what he had in mind. "I'm not talking about tax-equivalent," Doyle replied. "I'm talking about tax-exempt yield to maturity. Some of the stuff is that cheap."

For free options

Let us say, said Joshua Friedman, that in the post-crisis world, investment returns are lower and surprise more prevalent than they used to be. Knowing only that much, how should we invest?

And read all over

Nothing's wrong with the modern newspaper that modern technology can't fix, Conrad Black, the former Canadian press baron, told the lunchtime audience.

Nobody loves them

"Deeply unpopular" the so-called old media may be, Randall Smith, the legendary distressed investor, acknowledged to the Grant's crowd. But which promising distressed opportunity isn't? Consider the humble--and seemingly ever more humble--newspaper...

Monetary bartender

Enormous deficits and quantitative easing are destroying mankind's faith in paper money, Steve Eisman, senior portfolio manager of FrontPoint Financial Services Fund, reminded the not unreceptive Grant's audience.

Think small

You'd be surprised, Michael Harkins mused before the Grant's assemblage, how many companies don't make money. GAAP-compliant earnings, they do produce, but not profits, i.e., funds "that we can take out of a business and spend on completely different things. . .and when we come back on Monday morning, we still have an asset to come back to."

For real money

Lewis E. Lehrman closed the day's proceedings with an appeal for radical monetary reform. Down with the Bernanke standard, he argued in so many words (in company with your editor); up with the gold standard.

Robins of the cycle

Not one tradable bank loan defaulted in March, which happy fact has set investment bankers working to produce the defaults of the future. Leveraged bank-loan total return swaps, anyone?

March 25, 2011, Vol. 29, No. 06

'Hold still, little fish!'

In one regulatory generation, "creeping inflation" has eviolved from anathema to settled policy. Where this dubious doctrine came from and where it might be leading. "A connived-at or complaisant depreciation," declared a bold Reserve Bank president of yesteryear, "cannot be covered with the cloak of respectability."

'Core' inflation

'Core' inflation   The recovery in commercial real estate is uniquely concentrated. Shiny, high-rent office towers in major coastal markets  command 4% cap rates while solid, cash-flowing  properties in flyover cities go bidless. "Miniature money-market interest rates distort every valuation."

Buy the predators

Despite the crisis-induced culling, America still has too many banks. Consolidation is the familiar rallying cry, but this time there's a new wrinkle. Some sage words from Sy Jacobs.

Deflation in beer, inflation in rents

Concerning the inflationary consequences of America's mortgage-induced bankruptcies. Inflation is on the rise the world over, yet bondholders seem unfazed. Anyone for 10-year gilts priced now to deliver a real yield of minus 0.8%?  

March 11, 2011, Vol. 29, No. 05

Henry Ford, roll over

In days gone by, capitalists and workers sank or swam together. As a rule, corporate profits were flush when jobs were plentiful, and vice versa. No more. .

Profitless prosperity

Not the least of the troubles of Chinese capitalism is how little the capitalists seem to earn, their massive state subsidies notwithstanding. The case of the coddled automaker

The story changed

PDL BioPharma (PDLI on the Nasdaq), which earns its living by collecting royalties on a portfolio of patents, is weighing a tweak in the business model.

Back door to China

To lay down a bearish bet on the People’s Republic, look no further than the world’s third largest economy. Compelling values in credit default swaps on leveraged Japanese industrials.

Infernal engine

Never mind subprime mortgages, David Stockman, the former director of the Office of Management and Budget under President Ronald Reagan, told the Grant’s audience in London. “The real financial widow-maker of the present era is likely to be U.S. government debt itself.”

Good old abnormal

With dictators coming to grief, currency markets in turmoil and inflation worries rampant, the time has come, according to investor Paul Isaac, to shop for values in well-secured municipal bonds.

Bullish on dividends

Regrettably, James Montier told the Grant's audience, everything is overvalued, with one or two notable exceptions.

At your peril

Johnson & Johnson recalled 667,632 packages of Sudafed. There was nothing wrong with the "24 Hour Extended-Release Tablets" themselves, the company explained. The problem was a typo...

Pinch points

To the British audience, Lisa Hess sang the praises of America's Chapter 11. "The American bankruptcy system is one of our great glories," the founder and managing partner of SkyTop Capital Management, declared.

Defaults come later

Just wait, John Dizard, the Financial Times columnist, advised the London audience. "There will be some serious opportunities after the crisis," he said.

Bullish on America

Frederick E. "Shad" Rowe, a self-described "recovering short seller," unapologetically declared himself to be bullish on America, and he urged his listeners to be the same.

Gnomes’ lament

Futilely trying to beat back the advance of the Swiss franc last year, Switzerland’s central bank incurred a loss of $20.5 billion and the wrath of its stockholders. For the Swiss National Bank does, in fact, have public stockholders.

February 22, 2011, Vol. 29, No. 04

Springtime for leverage

Liquidity, not credit analysis, is driving the markets in junk bonds and leveraged loans. Yields scrape lows, inflows reach peaks. Re-leveraging, anyone?

Whirling dervishes

Astoundingly, the world manages to trade $4 trillion a day of paper currencies, 100 times the average daily volume of international merchandise trade. Coming soon, the CNBC's new forex show.

Art of the sale

A note on the fine art of selling---not so much the when of it as the why. As for "toxic," it's a defined term.

Nutmeg State conversion

Herewith a winning example of the depositor-owned thrift about to go on the IPO auction block. There is, however, a catch. . . .

How lucky we are – so far

In five short years, the public debt has swollen by 136%. As for the cost of servicing the debt, it's risen by just 2%. These are the good old days.

February 9, 2011, Vol. 29, No. 03

'Exceptional' is the word

American exceptionalism is a bullish doctrine. Not so, American monetary exceptionalism. The case of the derivative without an underlier.

Beyond bonds

Speculate knowingly to glean high yields, we say, rather than investing –with possibly no greater safety- to earn low ones

Grundy County confidential

Interest rates are low, corn prices are high and ethanol is a federal darling. Land values, therefore, continue their climb.

Groundhog Day

Dividend deals resume. “Some crap” is getting done in structured mortgage finance. Gold is money again.

January 28, 2011, Vol. 29, No. 02

Bear market preview

Sixty five years ago this spring, long Treasury yields began the long migration that would take them  to 15%.  The next bond bear market will be different, of course--but just how different?

Bets against perfection

Up and up go grain prices; down and down go buffer stocks. How to prepare for an unscripted supply disruption.

Iraq bulletin

The country that couldn't shoot straight is the beneficiary of a market-rendered credit rating somewhat stronger than that of the Land of Lincoln

Your call--and put

Ideas and strategems for the hedged investor in stocks and interest rates

Take a seat

Concerning the risk that America's office furniture industry is going the way of its residential cousin

From worse to bad

Deleveraging makes no headway at the flagship branch of the Federal Reserve System

January 14, 2011, Vol. 29, No. 01

Sell the `Daltons’—again

Paper money is in an epic bear market against gold. Yet long-dated bonds—denominated in paper—remain in a gigantic bull market. Grant's explores this paradox—and nominates its candidate for the "Worst Prospective Fixed-Income Investment of 2011."

Bridge finance

Trading at tangible book value, one of North America's top engineering companies is priced for the bad news that only seems to get worse. "I think we've created value."

It isn’t mutual

Another safe and sound depositor-owned thrift that's about to go public at an attractive discount to net worth. Quoth the CEO: "We make money the old-fashioned way—quality loans and investments."

Bane of certainty

The chairman of the Fed professes to be "100% certain" that he can reverse course to scotch the next inflation. Foreign central bankers, among others, are properly doubtful.

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