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David Einhorn, President, Greenlight Capital, a very large hedge fund:

“It sometimes feels like the Federal Reserve is more concerned about which way the next 50 points in the S&P go than the average hedge fund manager.”

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Read the Introduction
to Panderer to Power

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"The Coming Collapse of the Municipal Bond Market"

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"Chairman Greenspan: A Fiat Mind for a Fiat Age"

For speaking, interview, writing, and research requests, please contact Frederick Sheehan at info@aucontrarian.com

Insights and Analysis

Wednesday, August 20, 2014
Meet Your Investment Manager

     There is little else left in the asset-pricing world than central bankers. The redoubtable Ben Hunt, chief risk officer at Salient investment managers ($20 billion under management), wrote on David Stockman's Contra Corner: "I've spent the past few weeks meeting Salient clients and partners across the country.... When I had conversations [with clients and partners] six months ago, I would get a fair amount of resistance to the notion that narratives dominate markets and that we're in an Emperor's New Clothes world. Today, everyone believes that market price levels are largely driven by monetary policy and that we are being played by politicians and central bankers using their words for effect rather than direct communication. No one requires convincing that markets are unsupported by real world economic activity. Everyone believes that this will all end badly, and the only real question is when." - Read more

Tuesday, August 12, 2014
End-of-the-Cycle Mispricing

The attachment is to a paper Joe Calandro and I wrote for the November 2013 Gloom, Doom & Boom Report.  "Catastrophe Insured: Cat Bonds," discusses the money-making potential of a specific cat(astrophe) bond strategy. Such an investment appeals to a small audience but the characteristics apply broadly.

"What is the price?" should be fundamental to investment decisions. We know that is often not the case. A fund manager who invests in small-cap stocks must buy small-cap stocks. Managers are usually permitted the alternative of holding money in cash, but are wary of doing so. Relative performance is the manager's calling. - Read more

Saturday, July 26, 2014
No Decency

 
MarketWatch should be ashamed of itself. In a July 24, 2014, interview, Mephistopheles was treated with the respect due a senior statesman, when he should have been asked: "Have you no sense of decency sir, at long last? Have you left no sense of decency?"

The answer, of course, is "no," though Greenspan does not understand that. - Read more

Some Things Never Change
Old Insights Now Relevant

The blowup ahead is baked in the cake, just as it was in 2007. “When and where will it start?” is often asked. The proverbial snowflake that launches the avalanche fell some time ago. It is more difficult to interpret the when and where of collapses than in olden days with so much interference in markets. The avalanche rumbling in the distance is probably credit rather than the stock market. Stocks get much more attention, so the blame will most likely fall on Facebook or Yelp! or Twitter or Tweeter or Cynk or Right, On! or Drop Dead!

In the June 2007 and July 2007 issues of Marc Faber’s Gloom, Boom, and Doom Report, I described the collapse we were then entering. I discussed similarities to the 1960s and 1980s credit busts. (Credit is usually the reason. In 1929, margin loans, foreign loans, and the Florida Land Bubble pushed the stock market to the point of no return. The dot.com crash in 2000 was made much worse from telecom borrowing.)

This is an introduction to a condensed version of what appeared in the Gloom, Boom, and Doom Report under the title of “Tin Men with Tin Ears.” It was abbreviated for the November 2007 issue of Charles Allmon’s Growth Stock Outlook.

This is also an introduction to the new-and- improved AuContrarian website.“Some Things Never Change” will be a regular feature. Here is a link to the Growth Stock Outlook version of “Tin Men with Tin Ears.”

This précis was entirely wrong in one regard. The comparison to the earlier periods went beyond financial similarities to the public outcry that accompanied the destruction. In the 1960s and 1980s, public opinion, the media, Congress, and the courts did justice to the perpetrators. After 2008, the worst offenders, sometimes having committed multiple felonies, were not touched. Not one of them, in the United States, at least, even had to appear in a courtroom. They have gotten richer and richer, with the means to isolate themselves even further from the body politic.

Predictions and Advice

Frederick Sheehan is a regular contributor to Marc Faber’s The Gloom, Boom & Doom Report. Click here to read excerpts from some of Sheehan’s articles.

June 21, 2004: “[Americans] are caught in the pitiable condition of not being able to live on 1% interest; the disincentive to save has been energetically promoted with a short-term yield of microscopic content…. The flows have not been channeled towards productive enterprise but towards speculation.”

July 1, 2007: “The CDO and CLO markets have acted as both lubricant for structuring credit with no thought to tomorrow and as glue by which all asset classes have risen the past couple of years."

December 2012: “It is important to note, for all the talk of deleveraging, there has not been a single quarter when non-financial debt decreased. The government took over when consumer debt and investment bank leverage collapsed between 2007 and 2009…. [C]orporations increased borrowing by 6.2% in the third quarter…. [N]et capital investment by corporations during the quarter was negative. This is the death knell for companies and economies alike. …. Sufficient investment leads to profits. Profits generate more capital to invest. This cycle was propounded by J. Maynard Keynes: ‘It is investment, i.e., the increased production of material wealth in the shape of capital goods, which alone creates national wealth.’”

About Frederick Sheehan

Fred Sheehan

Frederick J. Sheehan Jr. is an investor, investment advisor, writer, and public speaker. He is currently working on a book about Ben Bernanke.

He is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and co-author, with William A. Fleckenstein, of Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve (McGraw-Hill, 2008). He writes regularly for Marc Faber's “The Gloom, Boom & Doom Report."

Sheehan serves as an advisor to investment firms and endowments. He is the former Director of Asset Allocation Services at John Hancock Financial Services where he set investment policy and asset allocation for institutional pension plans. For more than a decade, Sheehan wrote the monthly "Market Outlook" and quarterly "Market Review" for John Hancock clients.

Sheehan earned an MBA from Columbia Business School and a BS from the U.S. Naval Academy. He is a Chartered Financial Analyst.