Williams Inference Center update

We recently sat down with our Williams Inference Center guy, Syd, for the Winter 2009 look at the Williams’ material.  Here’s a look at the list of files we reviewed this time round.  Each file is a collection of articles that the WIC folks think portends change (click to enlarge).

gps-wic_0001This time–as is often the case–several of the files went hand-in-hand.

Big- this file covered the complexity involved with big enterprises.  Exhibit 1 of this has to be the too-big-too-fail banks, which have only gotten bigger.  For example, JPMorgan Chase now holds $1 of every $10 of deposits, as do Bank of America and Wells Fargo.  Include Citigroup, and the four issue one of every two mortgages.

A telling takeaway is this quote from an article in the file from The Washington Post:  “It is at the top of the list of thigns that need to be fixed,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp. “It fed the crisis, and it has gotten worse because of the crisis.”

Key takeaway:  one of the–if not causes–catalysts of the crisis still remains.

Delayed Financial Problems  – this file leads off with something that’s been featured here, the huge amount of option adjustable rate mortages that will reset in 2010 and beyond.  We’re past the sub-prime problem, but the Option ARM problems are still to come.  A New York Times article featured some chilling facts.

  • “Many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal.  Monthly payments can jump by as much as 75 percent.”
  • “John Karevoll, a longtime senior analyst for MDA DataQuick, sees the plight of interest-only owners this way:  ‘You’re heading straight for a big wall and you can’t put the brakes on.’ “
  • “Nationally about 18 percent of prime interest-only loans are at least 60 days delinquent.”

Vampires – the Williams’ folks also look for symbolism in both . . . well, popular symbols and in colors.  WIC says that symbols represent what we subconsciously want.  Gargoyles, a symbol spotted in the early part of the decade, were symbolic of the subconscious desire we had for protection against risk, but which we weren’t pursuing.  (Gargoyle statuettes were originally place on buildings to ward off evil.)  The vampire represents longevity, something is notably absence today, in things are far afield as romantic relationships and stock holding periods, which have dropped precipitously (“stocks are no longer owned, but ‘rented.’ “)  WIC sums it up this way.

Vampires represent longevity.  In today’s world nothing lasts even for a short time.  We want jobs that will last until retirement.  We want assurances of being able to retire.  We want marriages that last.  We want romance and love that lasts . . . We want to know that our children have a good future.  We want more certainty in our lives.  Vampires express that subconscious desire.cc

Wanna know what I think of when I think of vampires as a symbol, not being a TV watcher, as I’m not?  You probably couldn’t care less, but it’s Count Chocula, the disgusting chocolate-flavored cereal.  (BTW, did you know that there were four other-monster-themed cereals launched with and after it?  Boo Berry, Franken Berry, Fruit Bruit and Fruity Yummy Mummy, the last two of which were later scuttled.)  Here’s a look at the timing of the cereal launches.  I think I might be on to something, but I’m not sure what.

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Bond Bubble- we’ve talked about this phenomenon before, and that’s the flood of funds into bond funds.  Something that many have cited as a reason that stocks could go higher was the so-called Money Mountain, the huge amount of money market funds earning next to nothing (“but at least it can’t go down.”)  Well, the money mountain has dwindled, but it’s gone into bonds, which are at generationally-low yields.  With inflation somewhere on the horizon, investors in bonds could be in for a good, ol’-fashioned portfolio whuppin’.  We also picked up this theme earlier when we saw that PIMCO’s Total Return bond fund had moved–or was close to moving–into the slot of largest mutual fund–stock or bond.  Richard Russell, 85-year old master caller of market moves, has this concern

In the next two years the US must roll over $2.5 trillion. Worldwide, banks during the coming two years will have to roll over $7 trillion. On top of that commercial real estate in the US has $750 billion to roll over. Whether all this debt can be successfully rolled over is doubtful, but one thing is clear – interest rates will go up.

So where is one to invest?  Stocks are dicey, having risen by a bjillion percent in a lousy economy.  Bonds are in a bubble.  Cash yields nothing.  Commodities get hurt with a rising dollar.

Currencies

This wasn’t a Williams theme or focal point, just a line buried in a summary of an article on the global economy and the dollar. 

Earlier in this decade [oops] we told our clients that currencies need to be considered an asset class just as stocks and bonds, the traditional cornerstones of investments.

We’ll have to look into that for you.

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