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The Absolute Return Letter, February 2010
“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for [...]

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John Mauldin’s latest is about deleveraging and how this secular trend will drive the macro picture in 2010. The question is why? Read and find out. Also see A conversation with Bridgewater Associates’ Ray Dalio for another good commentary on this topic.
John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free [...]

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You have heard me use the phrase “liquidity is seeking return” to describe the increase in the price of riskier assets due to monetary stimulus. The Bloomberg News video clip below points to an increase in lending for buyers of riskier loans like high yield and mortgage bonds.

The blurb below from the associated article at [...]

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This entry from Gary Shilling comes via John Mauldin’s site InvestorInsight.com where he highlights commentary from some of the best economic thinkers. Shilling, who correctly predicted problems in residential real estate in the US, is in the deflation camp.  He thinks the US will be a slow growing economy prone to recession and high unemployment [...]

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OK, I lied.  I am forced to used that dreaded phrase – one last time.  What did a commenter just call it: “Photosynthetically capable new plant growth?”  The reason the dreaded phrase is making a comeback is due to the excellent analysis of Niels Jensen, Senior Partner over at Absolute Return Partners in London. Visit [...]

Citigroup is looking to raise capital and shed assets in order to deleverage and prevent a worst-case outcome for the financial institution. Case and point is the fact that the company is putting its Brazilian subsidiary Redecard on the block for sale. What remains unclear is whether Citi is making these moves just to stave off a worst-case outcome (i.e. bank failure). These sales certainly make the company easier to sell or nationalize.

Update: 18 Mar 2008. I am reposting this entry from Feb 10th because it is relevant to the need to liquidate insolvent institutions like AIG that are now getting bailouts.

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David Rosenberg has been one of the voices of reason warning of excesses during the recent boom and predicting the unraveling to which we are now witness.  I have quoted him liberally here.  There is a very good piece on Rosenberg in the Canada’s National Post (Rosenberg is a Canadian) from Dec 30th.  Below is [...]

To my mind, lowering interest rates in the aftermath of an enormous credit bubble where institutions have just destroyed $1 trillion in capital is wrong. It distorts lending decisions such that yet more money will eventually be lent out imprudently. The only way to increase credit availability is by getting reserves into the system. And normally you do that by making a profit. However, profits are hard to come by for financial institutions right now.

The Tribune was simply over-leveraged with a balance sheet made for this age of debt, leverage and bubbles. Note the lack of equity and the enormous debt load. Why would anyone, especially someone as savvy as Sam Zell load up a declining business with this much debt? Was it greed, hubris? It seems inexplicable to me.