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Dudley: It's Basic Math

Posted by: Tom Keene on February 24, 2012

"I cannot accept Mr. Schaeuble insulting my country...Who is Mr. Schaeuble to taunt Greece? Who are the Dutch? Who are the Finns?" the president said in a speech at the Defense Ministry."

Greek President Karolos Papoulias, a Wednesday in mid-February, 2012, Xinhua via Al-Jazeerah.

I am unsure of the sourcing.

I am sure of the most excellent day that the University of Chicago Booth School arranged in New York City. The "fresh water" descended upon the besalted heathens of BostNewYorkington.

I was honored to advance the statements and Q&A of one Dudley, Plosser and Stark. If you know not these names, that is okay. All you need to know is it was a fiscal and monetary big deal. Everyone behaved themselves except Stark who would/strategically did/ not sit between Dudley and Plosser.

Stark, recently of the Bank of Frankfurt, was quite careful not as to taunt, to shake the assembled press and the "markets" that hang on said Press's every syllable.

Plosser, of the First Philadelpha Bank of Dissent, waxed philosophical about a desired distance between Geithner and Bernanke.

Dudley, of the Bank of Wall Street, stepped most delicately. But there, there amidst the tight reasoning, and parsed notes was the single phrase to get you and me to March and to July of this 2012.

Dudley: "This is not a policy choice; it's basic math." Discuss.


Posted by: Tom Keene on February 23, 2012

Well, I think it has actually become a little bit less likely that the core countries, especially Germany, would want Greece to leave. And the reason is that it's now become very obvious for the Germans how high Germany's exposure not only to Greece, but to the peripheral countries is. Where it - it is all crystallized in the huge claims that the Bundesbank, the German central bank, has accumulated against the euro system, against the other central banks. These claims are now in excess of EUR 500 billion.

Joachim Fels, Morgan Stanley, on Surveillance Midday, 22 February 2012.

I have no idea if the Greece-German spread will widen or narrow. What I do know, is very smart people like Dr. Fels are paying less attention to the markets (spreads, CDS and such) and are spending more time on Political economics, with a capital P.

The euphoria of recent days will evaporate. In its place will be the cold reality of fiscal adjustment and, the protest of an austere Public.


It is the spring of 2012. Winter recedes. It is time that choices, decisions and the certitude of the elite all, like a snow flake, be crystallized. Discuss.

Dow 13,000 Media Hysteria

Posted by: Tom Keene on February 22, 2012

It's because of two mistakes that retail investors make - one is trying to time the market and the other is chasing the performance of a manager. The retail investor performance in mutual funds is 600 basis points lower - six percentage points lower - than the mutual fund itself.

Thomas Brown, Second Curve Capital, Bloomberg Surveillance, 21 February 2012.

Robert Kirby, late of The Capital Guardian Trust, suggested eons ago that the goal was to beat the market by two percentage points per year (move the decimal point two units to the right and you have 200 basis points.)

You do the math.

You hit the ball out of the park, over the Monster and the Cask'n Flagon (pitchers and catchers!)

Start at Mr. Kirby's nirvana less 200 bps. to the S&P 500 less another 400 bps. because you bought when comfortable and did not buy when of a fear generated by yourself, your father-in-law, and/or some yahoo guest on Bloomberg Surveillance.

Then overlay a possible new-normal total return that is say 8% gross return and not 12% from another time and place.

8 less 2 = 6 less 4 = 2

A 2% NOMINAL return. With inflation in the vicinity of 3%, you enjoy a Tom Brown adjusted -1% return. (See present Congress for future tax treatment.)

Stop timing the markets. There is a John Henry and Fenway Park of research that suggests timing is...difficult. Stop chasing one- and three-year performance.

Start with cash flow. Start with the study of a good business. And, lose the Dow 13,000 media hysteria. Discuss.

The Dither Spring

Posted by: Tom Keene on February 21, 2012

"We are here today ready to conclude this long process," Greek Finance Minister Evangelos Venizelos said. "I am optimistic, but in any case we need a clear political approval."

"Governments can't make more tax money available -- that would overburden the states," Fekter told reporters. "We in Austria would have problems getting it through parliament."

--James G. Neuger and Chiara Vasarri of Bloomberg News, Greece Moves Toward Second Bailout, Feb 20, 2012 7:38 PM ET.

They're having "problems" "moving."

Greece and Austria seem to be modestly apart. The economists are not. Whatever the political economics of a given economist, all economists agree we are beyond economics. (Skidelsky!)

For me, it was a single Bloomberg headline while sitting on the TV set. Something about 7% fiscal drag. This suggests lower tax both Greece and Austria, and for that matter Australia.

Politics is front-and-center and politics needs crisis to advance. (Read Tuchman.) We are in search of a catalyst to lead us to "political approval."

The days are getting longer. March beckons. We search. Last year, we enjoyed an Arab Spring. Less Grecian catalyst, this 2012 may be the Dither Spring.


Posted by: Tom Keene on February 16, 2012

The buyback is a sign the company is committed to give back to shareholders after Time Warner Cable Inc., the second-largest U.S. cable company, announced a $4 billion buyback plan last month, according to Vijay Jayant, an analyst at ISI Group in New York. Comcast said $3 billion of the new repurchase program will be made in 2012, up from $2.1 billion in last year.

Alex Sherman, Comcast Authorizes $6.5 Billion Buyback as Profit Jumps 26%, Bloomberg Businessweek,15 February 2012.

The less-than-known knowns, they are what will kill you. The ambiguity (read Douglass North) of the outcomes of your, and my, recent certitude always surprise.

We state with bombastic "fact" that cash flow will be deployed. Yet, how prepared was I, or you, or the gloom-crew from the reality of Chez Roberts success and commitment to shareholders. (See my interviews with Craig Moffett at Bloomberg Radio+ and Bloomberg TV+.)

As we approach December 2012, or for that matter April 2014, remember this day. Model, think and frame to your heart's content.

Something changed today in American finance.

The debate over sources, and particularly uses of cash shifted like the Red Sox hopes on a Sunday afternoon in very early August.

Something happened. Comcast. Discuss.

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EconoChat captures Tom Keene's thoughts on economics, finance and investment. He is editor-at-large for Bloomberg News and hosts Bloomberg Surveillance and Bloomberg on the Economy on NYC1130, Sirius 129 and XM 130 and Surveillance Midday on Bloomberg Television. His complete interviews are at Tom Keene on Demand. Look for Tom on twitter @tomkeene

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