Thursday, October 27, 2011

France is in trouble

Rumors are swirling that China will be a major part of the Eurozone rescue by buying the debt of many of the troubled countries through the EFSF entity. Below is my understanding of such a move. It is clear the leaders pushing for funding by the BRIC countries are desperate. This leads me to believe that the country most in trouble is actually France with its President, Nicolas Sarkozy the main proponent of such an idea. From what I understand, it is actually France, with its high fiscal deficits and reliance on exports that could be most hurt by securing funding from China.
If the funding does take place not directly into the EFSF, but through an IMF led program, I am not sure how this will affect EU trade balances and capital flows. I hope to dig more into this as the information is released.

Tuesday, September 27, 2011

Global Warming

I'm sure most of you have heard of global warming, but I propose a new type of warming. This warming takes place in the the ring of currency intervention that has caught fire around the globe. Whether countries are seeking to promote strength or weakness in their local currencies, the ring is heating up. Brazil, Swiss, Japan, and Poland have now all intervened in some way over the last 90 days.

My two questions are who is next and what are the implications as more and currencies go this route. My guess is that all this intervention will not lead to the stability in which officials are hoping...

Wednesday, September 14, 2011

Where are we?

A book that I recently re-read (The Great Wave: Price Revolutions and the Rhythm of History by David Hackett Fischer). Fischer goes through history to determine commonalities in all price movements. Whether you know it or not, your everyday life is dominated by prices: the price of gas, food, soda, milk, public transport, and stocks.

Yesterday the US Census published its 2010 report. The report showcased something very clear: real wages (those adjusted for inflation) have contracted for 11 years at a total of 7% (SEE BELOW). Oddly enough, a marker of all price revolutions has included negative real wage growth. In addition, food and fuel has led the upward price movement. There are many other indications that confirm where we are in price stages. We have many of the markers of a stage 3 or 4: population growth in the developing world, money supply expansion, class inequality, real wage deflation, and the recognition phase that the price move is secular. At the same time we have some odd differences: social unrest in many parts of the world which would suggest a crisis phase and very low interest rates reminiscent of equilibrium times.

Over time price waves have changed in complexity due to technology and other factors, but its seems like one thing is clear, we are in fact in the midst of a price revolution. Daily news flow may suggest otherwise, but that is just noise. Focus on the bigger picture.

Friday, September 9, 2011

Volatility Selling

The Swiss national Bank (SNB) recently announced it will seek defend the 1.20 level in the EURCHF to stem the strength of its currency by buying unlimited quantities. Upon further information, it seems has though they are selling options volatility as a means to defend that significant level. A central bank engaging in option vol selling sounds like a disaster to me. The question I have is what will happen when the plan backfires or they run out of bullets? Seems like to me that a BRIC country running surpluses and room for reserve growth will come to the rescue. The price; high. I bet it will be in the form of the SNB's 1,041 tons of gold as the continued wealth transfer to the eastern economies from the western accelerates.

Sunday, August 14, 2011

This is not 2008...'s a potential continuation of the events started in 2008 as the system continues to be sick and is seizing up again. Maybe the resolution is closer than we all think. With that said, some questions I am asking myself as we inch closer to fall:

1. Has the U.S entered a new recession?
a. Did oil over $115 or gas over $4.00/gallon get us there?
b. Was it the sovereign crisis in Europe that pushed us over the edge?

2. What effects will the "proposed" austerity in the U.S. have on global growth?
a. After a brief respite, has Washington D.C swung back to the epicenter of the crisis?

3. How much will recessions in the U.S and Eurozone effect demand for Chinese goods and in-turn Chinese accumulation for global assets (namely USD and UST's)?

4. If we have indeed entered a new recession or on the verge of one, can the U.S afford it?
a. Running approximate budget deficits of 8% of GDP (down from 11% in 2008) can the U.S step up and pump fiscal stimulus for the 3rd time in 12-years?
b. What happens if they can't?

I maybe early on this trade, but I think the gold/bond futures is the chart that will give us clues on the level stress in the system:

Saturday, June 11, 2011

Cultural Trends

In 2007, Tishman Speyer bought New York City's iconic Stuyvesant town for an ungodly price of $5.4B. Their plan was to take the former MetLife buildings built for returning servicemen from WW2, revamp them, and turn the residences into luxury condos.

Four years and a handful of heavyweight investors (Bill Ackman, etc) later, Stuytown remains the same grounds it has been for years. What these high-powered investors with the deepest pockets did not realize was that they were fighting one of the strongest cultural trends I have ever seen: New York City frugality.

From an investment perspective, fighting cultural trends must be considered. These trends can shift over time, but they are like the titanic heading towards an iceberg, they take time to turn. I don't know how Stuytown plays out, but I can guess 10 years from now, it will look very similar as it does today.

I enjoy thinking about the cultural implications of any situation. Whether it is geographic, demographic, or psychographic they all must be considered, especially when investing in new ideas and trends. I am keeping my eyes open for new cultural trends and will write as I see them.

Picture: Original 1947 Stuyvesant Town

Monday, May 30, 2011

Live Music's Turn

I came across a new live music venue yesterday. It is the size of a living room, has the acoustics of Carnegie Hall, and can be seen by million of viewers (if not more). This location, TRI Studios, has been debuted by Bob Weir from The Greatful Dead. I've been told by a family member that there are more studio's like TRI around and there will be to come, but either way, the model has serious potential.

Traditional live concerts with finite seating capacity and old cost structures rely on cheap energy that allow consumers to travel long distances to see their favorite performer or group. Now, for a fraction of the price, music patrons can watch these live events from the comfort of their own home or office. Home audio and visual technology creates an even better experience. Listening to music on a computer or TV with HDTV or 3-D technology makes the whole live feed concert equation viable.

From an investors point of view, TRI has unlimited operating leverage built into its model. It seems as though the costs involved with putting on the show (booking the talent, operating the location, studio rental, data feed, etc.) will be incurred whether there is one subscriber or ten-million. Those are the kind of business models and numbers we like: each additional dollar in revenue is extremely high margin. Think about it, as the studio operator, how does 5 million $5 tickets sound vs. 20,000 $80 tickets? This setup means money will flow into the sector, most likely from big media starving for growth.

Everyone I talk to says live concerts will never go away, people want to experience the music and the atmosphere. Those people are probably right. Still, I think these live studio concert feeds have a chance of being a major disruptor. It hits on a few key macro themes: high energy prices, proliferation of high quality (cheap) home entertainment, and the growth of online video consumption. In 5 years will we see some of the worlds biggest acts going this route?