Sapient

Is this the Final Capitulation?

Gustaf Rounick — Mon, 15 Sep 2008 21:25:30 +0000

It is certainly feels like the panic selling typical of capitulation at this point, at least for the financial industry. However, I foresee more pain in the horizon. When you have financial institutions using so much leverage to support depreciating and overvalued assets, it is difficult to see the light at the end of the tunnel. This is especially true when you know that some of them are just now being forced to liquidate these assets in distressed sales which will force more asset writedowns at “healthier” financial institutions. (more…)

$135 Oil: Who is the Culprit?

Gustaf Rounick — Tue, 10 Jun 2008 09:04:38 +0000

With oil seemingly headed straight for Goldman Sachs’ $150 new price target, there is lively debate going on right now whether or not commodities as a whole are in a speculative bubble. We may very well be at the beginning stages of a bubble much like the U.S. housing market was in a bubble during the early 2000’s but that is still open for debate. If so, who is responsible? Is it the greedy speculators? Is it the billions of consumers in Asia? Is it those corrupt OPEC ministers? While it might be overly simplistic to point the finger in any one direction, in this case, I find it much more logical to blame the past and present actions of government officials. More often than not they try to correct things only to exacerbate the problem or create an entirely new “problem.” A majority of the time, governments overspend, ignore the long term implications of their actions, and generally do not have the slightest clue about economics. As an investor, what I do like about them is that they are predictably foolish. The current debate should not be whether the commodities market is in a speculative bubble but rather, if it is in a bubble, how much and how long will government officials expand it. (more…)

The Commodities Bull Continues its Charge

Gustaf Rounick — Tue, 04 Mar 2008 20:36:23 +0000

“Inflation is back!” that’s what the headlines are starting to say and what I have been predicting for some time. Why is it back? The all mighty U.S. economy is slowing and the E.U. is also so how could we be in an inflationary environment? First of all, this should not be a shock to anyone. Stagflation (high inflation with a stagnating economy) has happened before and there is no reason to think that it cannot happen again. In fact, the pieces are in place for just that scenario. The aggressive easing of monetary policy is doing very little to improve the credit crunch but it is putting downward pressure on the dollar and other soft currencies. How can you make money in this environment? As Mad Money’s Jim Cramer loves to say, “There is always a bull market somewhere.” Right now, that bull market is in commodities. (more…)

Power of Denial in the Housing Market

Gustaf Rounick — Sat, 16 Feb 2008 18:33:44 +0000

What is going on with the real estate market in the U.S.? How bad will it get? When is it time to jump back in? Should sellers wait it out? These are questions frequently posed to me. My answers often disappoint people, which is no fun but I am not one to say what I do not believe. Obviously, different regions have their own set of circumstances. As a general rule, any markets that experienced phenomenal appreciation in the past couple of years are getting slammed. Manhattan is an exception to this because it was a direct beneficiary of Wall Street’s leveraged buyout mania. 2008 will be a different story for Manhattan as well. It is always ultimately a question of supply and demand so let us explore this balance in order to make an informed assessment. (more…)

Election 2.0

Gustaf Rounick — Tue, 27 Nov 2007 22:31:52 +0000

When I first heard the term Web 2.0 about two years ago, I thought, “maybe that’s some kind of faster Internet technology.” I have to admit my ignorance and that I truly believed it was just a gimmick to promote Internet companies. I could not have been more wrong. Being a person that is fascinated with growing trends, I am currently mesmerized by the very real and significant impact that the so called Web 2.0 is having on our lives. (more…)

What to Expect from the Fed and the Dollar

Gustaf Rounick — Mon, 12 Nov 2007 23:30:55 +0000

The Federal Reserve is one of the the most influential financial institutions. Its mandates are to maintain price stability, ensure the smooth flow of money, and act as lender of last resort in face of severe financial crisis. In order to understand the financial markets, it is important to understand the tendencies of this institution. It seems that the the Federal Reserve has an inflationary bias although not always a large one. If it were not for the integration of the global economy and the use of the dollar as the worlds reserve currency, inflation would be a much bigger problem. With the growing support for protectionism and dollar weakness, it seems that some of our saving graces may be coming to an end and we must question how we can protect our wealth. The fact that U.S. government does not seem to have any real desire to balance the budget does not make the Fed’s job any easier. (more…)

Slippery Slope

Gustaf Rounick — Tue, 14 Aug 2007 22:24:07 +0000

Clearly, we are at the early stages of a very significant credit crunch that will need to naturally work itself out if we are to emerge on more stable economic footing. Despite the Federal Reserve and the ECB having significant ammunition to help improve liquidity, such measures will be rather superficial in light of how pervasive the problems are. It would be unfortunate if central banks and federal governments extend the current credit bubble because the repercussions would be even greater in the future. Instead, would be better to save the big guns for when things get worse. (more…)

Drunk on Liquidity

Gustaf Rounick — Mon, 04 Jun 2007 20:24:12 +0000

Where are we at now? We are enjoying unprecedented global economic growth and the world is still flush with liquidity. There is a lot of cash out there looking for a home and enormous assets are being traded like baseball cards in 4th grade homeroom. The liquidity has been fueled primarily by low interest rates. Low interest rates have kept a lot of money on the sidelines ready to be invested and have also enabled powerful tools of leverage used to acquire huge assets. Quite a rosy picture but as economic history has taught us all good things come to an end, at least for a while. (more…)