1)� A modest proposal: The government announces that they will refinance all debtors.� Not only that, but they will buy out existing debt at par, and allow people and firms to finance all obligations at the same rate that the government does for whatever term is necessary to assure profitability or the ability to make all payments.� The US Treasury/Fed will become “The Bank.”� No need for the lesser institutions, The Bank will eat them up and dissolve their losses, taking over and refinancing their obligations.� Hey, if we want a single-payer plan in healthcare, why not in finance?� Being healthy is no good if you can’t make your payments. 😉

This scenario extends the US Government’s behavior to its logical absurd.� The US Government would never be large enough to achieve this, but what they can’t do on the whole, they do in part for political favorites.� They should never have bailed out anyone, because of the favoritism/unfairness of it.� Better to have a crash and rebuild on firmer ground, than to muddle through in a Japan-style malaise.� That is where we are heading at present.� (That’s the optimistic scenario.)

2)� I have exited junk bonds, and even low investment-grade corporates.� Consider what Loomis Sayles is doing with junk.� Yield = Poison, to me right now, which echoes a very early post in this blog.� There are times when every avenue in bonds is overpriced — that is not quite now, because of senior CMBS, carefully chosen.� All the same, it makes me bearish on the US Dollar, and bullish on foreign bonds.� This is a time for capital preservation.

3) High real yields are driving the sales of US Government debt.� Is that a positive or a negative?� I can’t tell, but there is always a tradeoff for indebted governments, because they can usually reduce interest expense by financing short.� When their average debt maturity gets too short, they have a crisis rolling over the debt.� We are not there yet, but we are proceeding on that road.

4)� I have a bias in favor of buyside analysts, after all I was one.� But this research makes me question my bias.� Perhaps sellside analysts are less constrained than buyside analysts?

5) Debtor-in-possession lending is diminishing, reflecting the likelihood of loss.� In some cases that may mean more insolvencies go into liquidation.� Interesting to be seeing this in the midst of a junk bond rally.

6)� Short-selling isn’t dead yet.� Would that they would take my view that a “hard locate” is needed; one can’t short unless there is a hard commitment of shares to borrow.

7) Should we let managers compete free of the constraints imposed by manager consultants?� You bet, it would demonstrate the ability to add value clearly.� I face that� problem myself, in that I limit myself to anything traded on US equity exchanges.� As such, I have beaten most US equity managers (and the indexes) over the last nine years, but no one wants to consider me because I don’t fit the paradigms of most manager consultants.

8 )� Is there a fallacy in the “fallacy of composition?”� I think so.� Yes, if everyone does the same thing same time, the system will be unstable.� But if society adopts a new baseline for saving/spending, the system will adjust after a number of years, and there will be a new normal to work from.� That new normal might be higher savings and investment, in this case, leading to a better place eventually than the old normal.

9)� Anyway, as I have said before, stability of a capitalist system is not normal.� Instability is normal, and is one of the beauties of a capitalist system, because it adjusts to conditions better than anything else.

10)� Corporate treasurers are increasingly engaged in a negative arbitrage where they borrow long and hold cash so that the company will be secure.� How will this work out?� Will this turn into buybacks when things are safe?� Or will it just be a drag on earnings, waiting for an eventual debt buyback?

11)� Does debt doom the recovery?� Maybe.� I depends on where the debt is held, and how is affects consumption spending.� Personally, I think that consumers and small businesses are under a lot of stress now, and it won’t lift easily.

12)� So things are looking better with junk bond defaults.� Perhaps it was an overestimate, or that it would not all come in 2009.� We will see.

13)� Junk bonds do well; junk stocks do better.� In a junk rally, everything flies.� All the more to hope that this isn’t a bear market rally; if so, the correction will be vicious.

14)� Eddy, pal.� Guys who criticize data-mining are near and dear to me.� Now the paper in question has a funny definition of exact.� I don’t know how to describe it, except that it seems to mean progressively more accurate.� I didn’t think the paper was serious at first, but given the relaxed meaning of “exact,” it data-mines for demographic influences on the stock market.� Hint: if you have lots of friends when you are nine, ask for stock as a birthday present.

15)� I’m increaisngly skeptical about China, and this doesn’t help.� I sense that the global recession is intesifying, amid the current positive signs in the US.

16)� Do firms with female board members do worse than companies with only male board members?� No, but they get lower valuations, according to this study.� I started a study on female CEOs in the US, and I got the same result, but it is imcomplete at present — perhaps new data will invalidate my earlier findings.� Why does this happen, if true?� Men seem to be better at managing single investments, while women are better at managing portfolios.

17)� Do we have more pain coming from the banks?� I think so.� Residential real estate problems have not reconciled, and Commercial real estate problems are just beginning.� If we mark loans to market, many large banks are insolvent, and this is not an issue that will easily be healed with time.

18)� As a nation, I like Japan, and would like to visit it someday.� What I don’t want is for the US to imitate its economic stagnation, but maybe that could be the best of all possible worlds for the US.

19)� I am de-risking my equity and bond portfolios at present.� I do not think that the present market levels fairly reflect the risks involved.� I am reducing risk in bonds, and looking for strong sustainable equity yields in equities.

20)� Echoing point 17, we face real problems on bank balance sheets from commercial real estate lending.� There is more pain to come.� The time to de-risk is now.

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