Sunday, September 28, 2008

wild animal kingdom: chirp chirp


No mopeds allowed on the bike trails in my neighbourhood. Lund, Sweden. (2008). The colours of the broadleaf aspens are finally starting to turn in this last week of September.

(Cue National Geographic theme music here).

The other morning, I was busy working on a paper (read: surfing the internet), when I heard a loud thump on my living room picture window. (It sounded like this: "thump!") I thought for a second that maybe someone had thrown a baseball, but what had actually happened was that a bird had flown into my window.

I found the poor little guy was lying on his side, breathing heavily. When his eyelids sort of shuttered closed, I thought he was going to die.

I didn't know what to do and sort of just froze.

Then, after a few minutes, without warning, he opened his eyes and got up onto his feet. I asked him if he was ok. He didn't answer; he sort of just looked like he wanted to catch his breath. That seemed fair.

I reached for my camera and started taking a couple of snapshots from close range. The bird seemed fine with this. When I was satisfied I got the picture I wanted, he hopped away as if on cue, out of sight from the mean, prowling neighbourhood cats.

I hope he made it.


This poor Song Thrush (Turdus philomelos) inadvertently flew into my living room window. Lund, Sweden. (2008). A good sport, he agreed to stick around and pose for a few pictures before hopping off.


A file photo of my (apparently much too clean) living room picture window with a green view of the backyard. Lund, Sweden. (2008).

Thursday, September 18, 2008

fixed income

The closing bell marks the end of another tumultuous day on the markets. I check my computer screen. As a welcome change, there's actually a smattering of green instead of the usual sea of red I have become far too accustomed with in the last several months. Still, the volatility is stomach-churning. An example of some tickers I'm following ... TCM: +1.22% ... QUA: +18.76% ... POT: -2.20% ... OIL: -3.47% ... G: -6.68% ... RY: +7.24%.


In these times of economic distress, maybe it's best to just focus your mind on other things. Like going to the greenhouse and photographing the tiny, one centimetre flowers of a Portuguese Squill. Lund, Sweden. (2008).

In the three-and-a-half years starfish and waffles has been online, I've never had much desire to write about the financial markets. Part of it was refusing to mix work with life. Most of it was not wanting to bore you to tears.

But these are extraordinary times. In the twelve years I've been embroiled in the markets, I've never seen anything like this. The undulating intra-day gyrations. The household names - Lehman, Merrill, AIG - vanishing virtually overnight. The unprecedented government and central bank intervention. The outright panic selling.

***
In essence, this is the economic crisis which started on Main Street. Too many US homeowners, who never had the wherewithal to be buying homes in the first place, figured out the hard way that the culture of "consume now, pay later" - meant that they actually did have to pay later. Imagine that. When they couldn't come up with the money, the greedy bankers - who were driven by their short-term, quarterly cycle of reporting and annual bonuses - were forced to foreclose, leaving these lenders with heavy financial losses and collateral with rapidly shrinking value. With such non-performing assets (loans), the banks had no choice but to call in loans and curb lending in other businesses, putting a freeze on the industrial, manufacturing and service sectors, which already were struggling to compete effectively with lower cost, offshore competitors. To cut costs, these companies announced layoffs affecting the very homeowners who just lost their houses. With no job and no home, no money was spent, further plunging the economy to greater depths.

Further up the chain, investment banks who bought up the questionable mortgages from the banks, collateralized them, and sold them (with fees, of course) to institutional investors acting on behalf of their respective clients (who were greedy in their own right, always pushing for that extra bit of return without a real understanding of risks) were getting sideswiped by the credit crunch as well. A seize-up in the liquidity required to run their everyday operations meant they, too, were in danger of violating the terms of their obligations and commitments. The problem was, there were a lot of such commitments, especially in large derivitative contracts - with notional value in the trillions of dollars - and suddenly, all of their counterparties were at risk.

With good reason, the authorities couldn't risk having the entire financial system collapse. Knowing full well that the troubled lending and investment banks needed equity capital to keep liquidity in the system from freezing, there had to be a way to prop up the share prices of these struggling financial firms so they had a hope of raising the necessary capital with minimal dilution to existing shareholders. And, as such, two things happened. First, the US government would announce a massive bailout package for the quasi-public Fannie Mae and Freddie Mac, who had their fingers on at least 50% of the outstanding mortgages in the United States. Second, the powerful Securities and Exchange Commission made it illegal to short sell the very financial firms that were in trouble.

The next morning, the hedge funds - those secretive, investment funds for the rich that so effectively circumvented normal securities regulations - were sent in a tizzy. See, being as clever as they were, the hedge funds had known for awhile that the lending and investment banks were in trouble, and they ruthlessly sought to profit from it. The winning trade: short the banks (borrow the bank shares, and sell them on the open market, hoping to buy them back at a lower price) and go long (buy) into commodities such as oil and metals and agricultural products, whose prices, reflecting normal supply and demand, had been heading up steadily since the turn of the millennium. However, the actions of the US authorities meant that the hedge funds were forced to unwind the winning trade and buy back the bank shares they had shorted. To finance that this, they had to sell the commodities they had previously invested in, sending commodity prices tumbling.

For awhile, the authorities' plan worked like a charm. The hedge funds unwound their trade, and the share prices of the banks went up as summer progressed. Unfortunately, the US lending and investment banks were having trouble finding anyone who wanted invest additional equity capital into their tenuous balance sheets.

And, finally, this month, time had run out for some of the financials who had been in the most precarious situations. Fannie Mae and Freddie Mac were completely nationalized by the US government. Independent investment bank Lehman Brothers declared Chapter 11 bankruptcy. The American Insurance Group, the world's largest insurance company, required and $85 billion emergency lifeline to stay afloat, leaving the US taxpayer owning 80% of the company. As I type, investment bank Morgan Stanley and savings and loan bank Washington Mutual are frantically searching for investor to provide them capital for mere survival ...

***
Ok, so the above was an outrageous oversimplification based on some of the stuff I've been reading the last little while. But you can sort of see why the situation is looking bleak, and the sensationalist financial press is wasting no time in calling it the worst financial crisis since the Great Depression. I don't really know whether or not this is true, but I do know for the individual investor who has worked to scrape together some hard-earned savings, the last little while has been a rough, humbling experience.

There's an old adage in the business which goes something like this: "markets can stay irrational longer than you can stay solvent." In times like these, fundamental valuation and rational thinking tend to go out the window. Someone in the theatre has screamed "fire!" ... and now everyone is rushing for the exits. And the results - all of those red, negative numbers - aren't pretty for those left holding the bag.

Speaking personally, I suppose I've been at this gig long enough that I should've known better while it was all happening. But, as they say, retrospect is always 20-20. You live, learn, and see another day to live again.

So, at this point, is it worth holding on, or is it time to just throw in the towel? This is a good question. But my inclination is that this storm, too, shall pass. Even though the US housing market is in shambles and Europe is mired in recessionary conditions, something tells me that the upwardly mobile - i.e., the growing middle class - in populous places such as China, India and Brazil will be the counterbalancing saving grace. To state the obvious, those who are new to the middle class buy things like cars, appliances, and houses - and, this, will be good for the world economy.

Eventually, markets should act rationally once again. And, just maybe, this is something you can take to the bank.

Monday, September 15, 2008

punch front, punch back

Do you remember when, once upon a time, My Simulated Reality TV Life - the world's most popular simulated reality series - used to air exclusively here on starfish and waffles? And do you also remember that third season we promised, which never came to fruition?

Well, we don't. And, in accordance with the advice of our legal counsel, we still don't. It must have all been a figment of your wild, crazy imagination. You should be ashamed of yourself! It's people like you who make Baby Jesus cry.


Felicia's teddy bear explains past relationships to Bridgette: "... and that's how I married my third wife. And second husband."

Saturday, September 13, 2008

string theory


In my old age, I can't even take pictures right anymore. The above photo was a badly underexposed mistake: it was supposed to have been a nice, orange sunset over the calm waters of the Öresund at Lomma Beach, Sweden. Instead, it turned out looking like the end of the universe thanks to my selection of a shutter speed about three stops too fast. Oops. (2008).

I admit it. Years ago, I tried reading (the back cover of) Stephen Hawking's A Brief History of Time - supposedly a book about black holes, light cones and string theory - and, quite frankly, I didn't get it. You see, me understand physics no.

Still, I maintain that one need not be a Nobel-laureate physicist to understand the universe's critical dimensions of time and space. You just need to be old enough to comprehend that there never seems to be enough of either ... and smart enough to respect that this just is the way it is.

(Now pontificate that, Einstein!)

***
It's been another grueling week. I walk slightly comatose out of a four-hour (not physics) class and head for home by foot against the elongated shadows of the late afternoon light. This year, September has come too soon.

These days, I worry partly about the things I know but mostly about the things I don't. It might have something to do with this time and space, and wondering if maybe, by now, I should be somewhere else.

As I walk, I hear the pitter-patter of footsteps behind me, accelerating to a sudden stop. Kajsa, a Swedish girl I study with, tilts her head into the peripheral vision of my universe, and smiles.

"Hi," she says.

"Hi," I reply.

And sometimes, that's all it takes to throw everything into balance again, if only for a little while.

Monday, September 01, 2008

the fish fry

After the shortest long summer there ever was ... just like that, it became September. With a mind on all worth remembering, it's onto new fish to fry.

Thanks for continuing to log in, wherever you are.


Sunset at summer's end. Värpinge By, Sweden. (2008).


Those smiling Scandinavian girls. Annica ...


... and Josefine. Malmö, Sweden. (2008).


Literally half a lifetime ago, my high school basketball team got out of our bus in the middle of a December blizzard to pose for a picture with the world's largest Easter egg (or "pysanka", in Ukrainian), while en route to a tournament in Edmonton. The egg is exactly as how I remember it (sans the foot of snow at its base). Vegreville, Alberta, Canada. (2008).


Banff Train Station. Banff, Alberta, Canada. (2008).


Black-and-white Banff. (2008).


One more year of Lund, Sweden. (2008).