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Articles by Martin Lowy
ESG Investing For All? Maybe There Is No Choice
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If Demographics Are Destiny... A Guide For Long-Term Investing: Part I
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Worried About The Jobs Numbers? Don't Be, Please
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The Pollyanna Market Can Continue For A Few Years Longer (NYSEARCA:SPY)
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The 'Everything Bubble' Gets A Bagel
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Inflation, Sterilized Reserves, And Eventual Instability
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The Competing Market Narratives Make Sense: Don't Feel Forced To Choose Between Them
Jim Sloan (here) and Lyn Alden Schwartzer (here) explained it all in their posts on June 29. If you have not read their posts, please do. I have one thing to add - and it echoes what Jim said about his own asset allocation: this is the kind of economy and market (pulling in opposite directions, both for good reasons) where one’s asset allocation should depend heavily on one’s objectives.
Freedom and privacy in the time of coronavirus
“Opening up America” is about restoring the health of our society, not only about getting people back to work. A contact-tracing app, coupled with wider (though not universal) diagnostic testing, would enable more Americans to prudently go back to work, to school, and to ordinary life far more quickly than is now currently possible.
Why The Markets Make The Dollar Strong And Dangerous
“The dollar’s surge will renew calls for a shift from a dollar-centric global financial system,” said Eswar Prasad, who once led the International Monetary Fund’s China team and is now at Cornell University, reported Bloomberg.com. That is Dr. Prasad’s hobbyhorse, as he showed in his book The Dollar Trap. He wants a new global financial architecture to replace the primacy of the dollar.
The Virus, The Government, And The Market: An Update
I have published three articles on the psychological impact of the COVID-19 virus on the American stock markets and what government needs to do to help people and businesses. In those articles, I thought I was ahead of the curve. I was, but not as much as I thought. Events are moving even faster than I believed.
Only Government Can Save The Markets But It Is Afraid To Do What Is Necessary
The Fed has cut rates to zero and has authorized banks to make themselves more vulnerable. Congress is wrestling with a bill for paid sick leave and family leave. And the Administration is waking up from a somnolent start to fighting the economic burdens of COVID-19 fallout. The markets want to know whether it will be enough.
Markets Need A More Targeted Stimulus
No one knows how extensive the spread of COVID-19 infections will be in the U.S. or, indeed, anywhere else. For a good explanation of how a containment policy might work, see Justin Fox at Bloomberg.com here. Fox explains that with intensive testing and stringent quarantines, the virus could be contained. On the other hand, New York City schools appear unlikely to close until the virus clearly has spread widely in the City.
The Coronavirus And You - An Action Plan
The impact of the coronavirus on asset values has depended and will depend on psychology - but on psychology at many levels not only among stock market participants. No one can know when the virus will stop spreading or when drugs will be identified that can cure it in individual patients. And no one can know whether the virus will continue to spread rapidly. The numbers of cases and of deaths are quite modest so far.
Investing And The Environment - A Long-Term View
The environment—what some refer to as “free goods”—has been here for a few billion years. There has been life on earth for, they tell me, more than a billion years. Humans have been around a couple hundred thousand years. Through all those years, species came and went, ice ages came and went, environmental catastrophes came and went. Yet until about 1750—only 270 years ago—no one actually utilized much of the bounty available in the environment.
Treasury Market Indigestion Is Overcoming Fed Monetary Policy
Do you ever have an "aha!" moment when you aren't looking for it? I just did a few days ago. I had been following the repo story and had written about it here on seeking alpha - here and here. But all of a sudden the most obvious thing about it struck me. The Fed is out of its depth because the market is saying, "You can't get there from here." Treasury market indigestion What do I mean?
The Fed Should Not Be Protecting Hedge Funds From The Market
On September 23, 2019, Seeking Alpha published my article on the repo market disruption. At that time, I could surmise that the Fed was worried about something other than the repo market, but I did not have proof. Now comes something close to proof, an article in the WSJ that is thorough and based on interviews with FRBNY staff.
The Repo Problem Is Deeper Than The Fed Admits
There they go again! Offering a put for mismatched dealers that will continue to promote borrowing short to carry long securities. See here. For an update, see here. Borrowing short to lend long is what tanked the financial system in 2007-2008, as well as just about every other financial crisis described in This Time Is Different.
New Business Roundtable Statement Of Corporate Principles Is A Step In The Right Direction
As of August 19, 2019, the Business Roundtable ("BRT") made what some people see as a very important change in its fundamental statement about corporate governance and what some others see as a palliative to prevent legislation that would be far more burdensome. I think both things happened. The new statement is here.
Investors Have Special Policy Needs: Let's Evaluate Policy Proposals That Way
With over 20 Democratic presidential hopefuls, interesting policy ideas are appearing frequently. Probably the winning candidate will not be the one with the best ideas. But discussion about the ideas should transcend the candidates—and even which party should win. Over the next year, winnowing the good ideas from the bad is a task that independent thinkers should warm to.
Constructive Competition, Not Enmity, Between America And China Would Serve Investors Best
This is the second article of two on U.S.-China relations. The first focused on industrial policy, subsidies and trade. It asked the question, “Does America Need an Industrial policy in order to compete with China?” In response, I received many comments, most of them quite thoughtful. However, in reply to many of the comments, I have the following comment: I am surprised at the degree of nostalgia I observe in America today.
Does America Need An Industrial Policy In Order To Compete With China's 2025 Ambitions?
In a February 15, 2019 article, I asked “Does America Believe In Free Enterprise?” My question was prompted by the combination of President Trump’s approach to a trade deal with China and the Democrats’ turn to the left. I found the Trump approach of demanding that the Chinese adopt a lesser role for the state in economic affairs ironic, in light of traditional Republican theory about the relative benefits of free enterprise and government control.
Should I Worry About Market Liquidity? Probably Not
Over the last few years, a great deal has been written about market liquidity. John M. Mason published a good summary at Seeking Alpha on February 14. Paul J. Davies wrote about it in the February 12 WSJ. The message that all investors should take away from these and other articles on the subject is that securities markets appear to be liquid - until you need the liquidity. At that time, liquidity may well disappear. One may argue about why this is so.
Does America Believe In Free Enterprise?
For a very long time, it has been an unchallenged tenet of American policy that free enterprise is superior to government-backed enterprise because the market is a better arbiter of efficiency than government panjandrums (read “elites”) are. And that tenet was reinforced by the failure of the Soviet Union and its central planning regime, as well as by China's success after adopting Deng's pro-market reforms 40 years ago.
A Partial But Significant U.S.-China Trade Deal Is Likely In The Near Future
This article is a follow-up to a shorter one published on S.A. December 14. In that article, I said that if an investor wanted to know how the U.S. equity market would perform over the next two years, she would have to guess whether President Trump will settle for a trade deal or will demand other concessions from China in the form of reduced emphasis on technological development.
Want To Know How Equity Markets Will Perform The Next Two Years? Tell Me What President Trump Will Decide About China's Growing Technological Prowess.
The consensus seems to be that technological innovation in Europe beginning around 1800 was the primary cause of the Great Divergence between the economies of Europe and China, then that is not lost on today’s Chinese leaders, and they will not, under almost any circumstances, permit China to fall behind technologically. Before 1800, China and the West basically had similar economic outcomes. Sometimes one led, sometimes the other. But progress in both societies was slow.
Could Americans Handle A Financial Collapse? No. But We Could Make The Next Recession Less Threatening
The Seeking Alpha editors asked, “Can We Handle Another Financial Collapse?” The answer probably is “no.” But my guess is that we won’t have to. The main way we could not handle a financial collapse has nothing to do with the Fed’s ability to manage the economy. It has everything to do with the collective psyche of the American people.
The Fed's Financial Stability Report Shows Worrisome Credit Standards
On November 28, the Federal Reserve Board published its Financial Stability Report. Its stated purpose is: This report summarizes the Federal Reserve Board’s framework for assessing the resilience of the U.S. financial system and presents the Board’s current assessment. By publishing this report, the Board intends to promote public understanding and increase transparency and accountability for the Federal Reserve’s views on this topic.
Former Fed Chairman Greenspan's Strengths And Weaknesses Are Displayed In His New Book Capitalism In America
Former Fed Chairman Alan Greenspan’s new book Capitalism in America is at the same time a tour de force and a simplistic affirmation of the laissez faire philosophy that he embraced 50 years ago as an Ayn Rand acolyte. Greenspan longs for the 19th century days of laissez faire. Progress was made back then, he says, when government was small and men were big.
Simple Advice For A Complex Time
Some people are surprised that everything is going down at once - stocks, bonds etc. But we should not be surprised by that because for several years it has appeared that everything was overpriced and that there was nothing good to invest in. Going back five years, I have attended conferences where that was the theme: Everything is overpriced. And with record issuance of U.S. debt securities at higher interest rates than were available in recent years, there is a better safe place for money.
Superstars And Value Destroyers: The Top And Bottom Of The Global Business Pool
McKinsey Global Institute published an important research paper on October 25. It depicts large global businesses, business sectors and cities, allocating some companies to superstar status (the top 10%) and some companies to value destroyer status (much of the bottom 50%).
Don't Be Wonked Out, This Is Important: To See The Causes Of The Great Recession, Identify The Causes Of The Housing Boom That Preceded It
Paul Krugman wrote an excellent short critique (New York Times, September 16, 2018) of a new Ben Bernanke paper on the causes of the Great Recession. Bernanke is saying that the post-Lehman credit crunch caused the greatest damage. Krugman is saying, no, it was the real estate bust. Bernanke wrote a good response. But in my view, Krugman is correct.
No Interest Rate Depression Is Coming To The United States
John M. Mason reported here on Seeking Alpha that Martin Feldstein predicts a depression to rival the Great Depression of the 1930s if the interest rate on the 10-year Treasury spikes (to an unnamed number). Mr. Mason discusses what might happen to the interest rate on the 10-year Treasury and seems to accord credence to Feldstein’s Chicken Little surmise.
Is Corporate Concentration The Cause Of Wage Stagnation?
On August 17, the Federal Reserve Bank of Kansas City, the arm of the Fed that runs the annual Jackson Hole economic meeting at the end of August, announced the symposium topic for 2018. The announcement seems rather opaque to me, but perhaps that is intentional, in the best central banker and Chairman Greenspan tradition.
Turkey Is Caput But The U.S. May Be Its Own Victim
The Turkish financial crisis is a typical case of a nation and/or its banks and businesses borrowing in dollars to finance a domestic boom and welfare largesse. I have written frequently about this phenomenon, including in my Seeking Alpha articles here, here and here. I went back over my Seeking Alpha articles, and I see nothing about Turkey, even though had I looked at the data on Turkey, I think I would have seen that it was a typical case that leads to financial crisis.
The American Banking System Should Be Modernized, But Narrow Banking Is Not The Right Way
Lawrence Kotlikoff published a useful article at S.A. on June 6, in which he advocated a form of narrow banking—his version being basically “all-equity” banking.
It's Bolton's World Now
On March 23, I wrote here at S.A. that “The equity markets are in imminent danger because President Trump’s paranoia has seized the levers of power. The appointment of John Bolton as National Security Adviser signals this ascendance.” Since that date, actions by the Trump Administration have roiled world markets through an unprecedented series of policy lurches and adjustments.
The 2-Track Economy: Employers Versus Moat Builders
On April 23, James Mackintosh, who writes the “Streetwise” column for the WSJ, asked the following question: “These days, the biggest companies have high profit margins. There’s a vital question for investors: Will those margins fall now that wage pressures are on the rise?” The answer is probably “no”. The big companies with high profit margins are not the big employers.
What The Market Wants To Know: Will There Be A Quick Tariff Settlement With China?
The biggest question facing the equity markets over the next few months is whether President Trump is going to settle the trade spat with China quickly and declare victory - or not. By agreeing to a few win-win changes, my guess is that China would be willing to help create the window dressing to allow Trump to say he won, so long as it is not a real victory for Trump. I do not think China will give Trump an actual victory on trade. Trump wants a quick victory, but China plays the long game.
Let's Not Put All Our Eggs In The Coastal Cities Basket
Left, right and center, economists and other pundits are plunking for a reduction in impediments to building new residences in high-cost cities like NYC and SF where the best high-paying jobs are to be found. See the articles referred to below and John Cochrane’s excellent Grumpy Economist blog here as examples. Restricting access to these cities, it is reasoned, contributes to inequality and reduces potential national output. In fact, the reverse is true, as I will argue in this article.
CoCos Would Be Dumb Investments - And They Are Dumb Policy, Too
CoCos are a dumb way to try to shore up bank capital. They probably also will end up being a bad way to invest. A recent Bloomberg article pointed out some of the problems with CoCos - and it is worth reading for those interested in the subject. But in my opinion, it did not get to some of the most fundamental defects. As of a year ago, a respected study by two professors from the Netherlands estimated that there was $157 billion of CoCos outstanding.
Sell: Take The Gains And Losses Now
The equity markets are in imminent danger because President Trump’s paranoia has seized the levers of power. The appointment of John Bolton as National Security Adviser signals this ascendance. Therefore I sold almost half my portfolio today. These sales included some or all of my Alphabet (GOOG), Apple (AAPL), Berkshire (BRK.B), Blackstone (BX), PJT Partners (PJT), Facebook (FB), and Whirlpool (WHR). They have been good investments, but the time for caution has come.
The European Financial System Remains A Danger To European Economies
The European financial system, despite some improvements, remains rotten at the core and is a danger to many of the Continent’s national economies. How can that be ten years after the onset of the last crisis and after so many legislative and regulatory changes? Alas, it is because the basic political philosophy has not changed. I hesitate to hold up the American financial system as a model for the world because it has so many flaws.
The Fed Is Dead - Long Live The Market
This is going to be a very simple article—and some will complain that it is simplistic. In the current economic climate, the Fed is close to being irrelevant. Watch the Fed at your peril. It may raise rates, but the market will dominate interest rates for the near future. Thus the Fed’s actions will not lead you to the grail of market knowledge. Federal (and state) deficits are going to drive the train, and the Fed cannot control that train.
How We Will Know That The Next Crisis Is Imminent
It takes chutzpah to write that title, but perhaps I can help readers to anticipate what the clues may look like. Commenter "black knight", in response to an article I published on Seeking Alpha a few days ago, asked "Any guesses on what will eventually cause the "day of reckoning"? I had said that a financial crisis was not coming soon, but that eventually there would be a day of reckoning, perhaps in a couple of years.
This Correction Does Not Foretell A Financial Crisis Soon
With the renewal of market volatility and a 10% correction in the U.S. equity markets, many dangerous ideas are taking on new life. (I wrote this before seeing what the market did on Monday, Feb. 12--as of 3 pm, it is up a lot. Happily, that does not change anything I have written.) Deregulatory ideas prevail in the U.S. Administration, but on the other side of the political spectrum, ideas to regulate anything that might be large or dangerous are taking hold.
Sane Bank Regulation Is Good News For The Economy And Investors
The U.S. economy derives strength or weakness from many components, and banking is not by any means the most important. But the availability of credit is, at the margins, important to growth, and weakness and failures play a disproportionate role when the economy suffers reverses. And the bigger the reverses, the worse can be the influence of bank failures and accompanying strictures on credit and capital formation.
Party Like It's 2004 - Or Maybe 2006?
The Tax Reform Act of 2017 has good things and bad things. But one of the bad things is too much incentive toward investment at the expense of increasing budget deficits. There is so much money from all over the world looking for good investments that asset prices are consistently being driven up without concurrent increases in corporate incomes.
Is There Anything New About New Lenders?
What is one to make of the large number of fairly new entrants into the consumer and small-to-middle-size corporate lending markets? The new entrants include Lending Club (LC), Prosper, and SoFi for consumer loans and many hedge funds and specialized corporate lending funds for business borrowers. How different are they from more traditional lenders? Do they have a new secret (technological?) sauce that enables them to be better judges of credit than traditional bankers?
Globalized Lending Causes Financial Crises But Will It Cause One Soon? Part III
Part I explained the importance of cross-border lending in creating boom/bust cycles that lead to financial crises. Part II described recent cross-border capital flow tendencies and the current stock of cross-border obligations.
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