Monday, May 25, 2009

The Economy and the Environment

President Obama has linked the environment to economic recovery. He is concurrently taking action to correct the economy and address environmental concerns.

I am writing this blog while sitting in my home in Mallorca, Spain with the tallest mountain on the east end of the island rising directly behind me and the Mediterranean 50 meters in front of me. The house is surrounded by a "Nature Park" or nature preserve. The setting and the views are spectacular in all directions.

I recall about 20 years ago the Spanish government being worried by pollution in the Mediterranean ruining their tourism industry, you see Spain's coasts are the main seaside resorts for Europeans. I am giving to calling it the "Florida" of Europe. Spain's concern was echoed by other Mediterranean countries and the concern led to joint action to clean up the Mediterranean.

My initial reaction to an attempt to clean up a whole sea was total skepticism, how can you clean up thousands of square miles of sea? Well the effort was not to clean up the whole sea, but to clean up the coastal waters. I am happy to report that the effort worked. Twenty years ago I would find lots of flotsom and jetsom when walking along the water's edge. At times the sea itself was clogged with sea nettles who are a sure sign of sewer tainted water. Now the water's edge is clear of all trash and the sea nettles are a rare sight.

My thoughts about the environment also brought to mind another instance in which I was a direct participant. While running a public relations company in Turkey two of my people, an American expert in public relations provided by the US side of the joint venture and a young Turkish woman recently graduated from Ankara's Middle East Technical Institute, came to me to present a proposal for clients. They explained that a group of Turkish companies was worried by threatned new government plans to impose high taxes on plastic bottles that were causing a "solid waste problem."

My immediate reply was to say that Turkey was too poor to have enough such bottles to be of major concern and that there were plenty of sink holes throughout the country where they could be disposed.

I then looked at the details of the situation. I found that the problem was specific to one town in Turkey, Bodrum, a seaside town known in ancient times as Halicarnassus, the home of Herodotus, the universally acclaimed "Father of History." The town was also the site of one of the Seven Wonders of the Ancient World, the tomb of King Mausolus which gave the world the word, Mausoleum. The Mausoleum is long gone but you can see a full scale reproduction in New York City, General Grant's Tomb looking over the Hudson River. It is also the largest tomb in the USA.

But I digress. By 1990 Bodrum had become a popular seaside resort for foreign visitors and Turks with the foreigners staying in the newly built hotels and the Turks spending the summers at their phalanxes of new cookie cutter "villas." In season the town was chock a block with tourists.

Bodrum has a climate like that of Southern California, it never rains but when it does, "it pours, man it pours." These periodic floods served to sweep the town clean of all debris and trash carrying it out to the Mediterranean Sea. This should have been the end of the story but a popular treat for visitors to Bodrum was to take trips in glass bottom boats from which they could see the remains of sunken ancient Greek ships that were the backbone of Greece's commerce based economy.

Imagine looking through a boat bottom to see 2500 year old wrecks resting on the sea floor. And see those ancient amphoras that held wine and olive oil. And see those plastic bottles emblazoned with Hassan's Bleach, Hikmet's Detergent and Coca Cola. What, how did these modern bottles wind up among the amphoras of the sunken wrecked ships? Well the rains washed the bottles out to sea where they filled with water and sunk to the bottom with many falling among the wrecks.

Eureka I said, we are not dealing with trash pollution but "visual pollution." All that had to be done was to keep the bottles from being washed out to sea and spoiling the sight of ancient ships on the sea floor. We devised a PR campaign featuring bottle collection centers where people could bring their plastic bottles to be properly disposed of. The centers also took in glass bottles and other refuse since all was subsequently dumped into the sink holes. It worked.

These personal experiences with enviornmental concern led me to a clear realization, action to save the environment comes when problems threaten your pocketbook. I fear that President Obama will not have much luck with his environmental plans until he can show clear damage being done to our economy. It is no accident that he has linked the two. But he must make the link clear and urgent.

Leo Cecchini
May 2009

Sunday, May 17, 2009


Yes, the title is what I say is Italian for that famliar expletive for false information. Of course it is only this Italian-American's invention.

In his last item one of my colleagues writing in another blog site lays bare the truth of the "Financial Crisis of 2008" and "Great Recession of 2009." He writes that the largest US banks are not undercapitalized. More importantly, he notes that 97% of their loans are fully performing and thus only a small percentage of their securitized assets are "toxic," which is contrary to the conventional wisdom.

I have repeatedly stated for the last eight months that there was no real reason for the meltdown. The error came about when the "Wunderkinder," who created the securitized asset boom, got nervous about stagnant property sales. They translated the slump in the property market into destruction of the securitized assets built on mortgages and other loans. I kept saying that this was an error, foreclosures were never above 3% of the mortgages and that the assets built on these were being grossly undervalued. I should have used my colleagues number and stated that the glass was 97% full instead of 3% short.

Of course even a 3% default rate is cause for concern, but not sufficient to cause the massive panic that led to our current sorry state of affairs. To put it succinctly, we overreacted and in the process sunk our economy.

Fortunately some steady hands at the main tiller, Paulson, Bernanke, Geithner and others, steered the economy back to stability. We now see that our banks are sound and never did have the level of threat that was feared by many.

While the financial system is sound, the panic did ruin the economy in general. Securitized assets were erroneously marked to a non-existent market that resulted in massive devaluations that in turn ruined bank balance sheets and forced credit to dry up. Credit dried up, consumption went down. Consumption went down, unemployment went up.

While a sound financial system is necessary for economic recovery, it cannot do the job itself. We have to get people back to work and that is the aim of President Obama's stimulus package.

We were fed alot of "bullasheet" and it wrecked the economy.

Leo Cecchini
May 2009

Saturday, May 16, 2009


I read an interesting article about how Norway has survived the current recession by saving and not spending. I had the chance to observe and learn about all of the Nordic peoples while at our embassy in Finland. I came to some short descriptions of each: Swedes viewed themselves as the leaders and trendsetters of the group, Danes saw themselves as fun lovers, far removed from their status as the most savage and barbaric people 1000 years ago - the Vikings, Finns wanted nothing more than to top the Swedes, and the Norwegians lived the motto of Gold´s Gym, “No pain, no gain.”

To understand how Norwegians came to this state, one has to remember that the country became independent only at the start of the 20th Century and at that time was one of the poorest of the countries in Europe. This nation of fishermen, lumbermen and farmers expended much blood, sweat and toil in building one of the highest standards of living in the world.

But a funny thing came in the 1970s, Norway found great reserves of oil and gas in its territorial waters. By now the country had already achieved one of the highest income levels in the world. Finding petroleum was the icing on the cake.

Fearing that the easy money from oil and gas exports would undermine their carefully built stolid pursuit of the good life, Norway chose to husband much of its petroleum income. The practice paid off. While all the world is desperately going deeper into debt to overcome the recession, Norway is simply dipping into its reserve funds.

Perhaps the Norwegians will now be able to lighten up a bit and be more like their fun loving cousins the Danes, who also enjoy a high standard of living, but spend less time at Gold´s Gym.

Leo Cecchini
May 2009

Tuesday, May 12, 2009


Well the report is in, the 19 banks given a “stress” test by the Feds are all able to survive and continue as key financial institutions. Ten need to build up their asset bases and nine have adequate funds. The result was seen even before the report was released, financial shares on the stock exchanges rose like rockets at lift-off.

One thing not revealed in the public information about the tests was the role played by lifting the “mark-to’market” rules. While nothing was specifically said about this, clearly the banks would not have been able to perform so well if they had not been able to revise valuations of assets to “long-term” or “maturity” values, instead of marking them to notional markets.

Proof of how fast the banks have recovered enough to lend again, I am in Spain where its largest bank just issued a new Euro 1.5 billion securitized debt bond based on mortgages. Say what, aren’t these the “toxic assets” that caused the recession? Well yes, they are, but, as I have said all along, we now know that traditional sources of credit are not sufficient for our “New Economy.” We need securitized debt to regain where we were in 2007 and go beyond, even in Spain.

A major hurdle has been crossed. Now to the Obama stimulus plan.

Leo Cecchini
May 2009

Wednesday, May 6, 2009


Well no sooner did I write the last blog titled "Time to Invest" the mavens came out of the woodwork to confirm my notes. One guru on CNBC even pointed to my own portfolio as the best way to go, i.e. Bank of America, Citibank, Freddie Mac and such.

But none was as impressive as the coments from Jimmy Buffet's dad Warren at his annual meeting of his investment firm. He too spoke about investing in financial stocks. His most memorable line, however, was that, "if it takes a computer or calculator to determine how good a stock is, then I don't buy it."

For all of this last year I have been constantly hammering at the "wunderkind" with their electronic Ouija boards givine erroneous values to securitized debt and other derivatives, structured products and so on. People kept saying how could they be wrong, they are highly educated financial professionals. Well Buffet has called them out and they are now exposed as glib charlatans hiding behind the "smoke and mirors" of their trade.

By the way the stock market is rocking and rolling.

Leo Cecchini
May 2009

Monday, May 4, 2009

Time to Invest?

There are signs that the economic recovery plans are kicking in. Credit is once more available for housing and other purchases. The Obama stimulus plan is coming on stream. Banks seem to be back on the hale and hearty list. For many now seems to be the time to strike and get in early on rebounding investments. So what do I advise?

PROPERTY. I have been flogging "short sale" and foreclosure low priced rental units. "Short sale" is a term invented to describe properties sold for less than the value of their mortgage balance with the bank taking the loss. I can sell you one of these for as little as $40,000 for a unit that has a gross monthly income of $800. That means $9600 for the year less taxes and insurance of maybe $3500 or a net of $6100 or 15%.

SECURITIZED DEBT. The bad boys of the recession are back and selling very well. The easiest way to get in on the action here is to buy Fannie Mae and Freddie Mac. You should also look for products from the TAFL program of the Federal Reserve Bank.

SILVER. Funny, lots of people like to hold gold in their investment portfolio. And commodities should do well over the balance of the year. I prefer silver. While gold doubled in value over the last five years, silver trebled in value.

STOCKS. Put your money in financial shares - banks, lenders, investment groups. They took the biggest hit during the recession and promise the biggest gains in the come back.

ANYTHING GREEN. The corporate world has glommed onto the environmental movement and sees "green" to be made in being "green." Check energy technologies, no matter how far fetched, since all will get development funds. Recycling companies loom large. Another good choice is transportation that provides more efficient use of fuel, e.g. railways.

BIOTECHNOLOGY. With stem cell research now open for Federal funding and waiting cloning in the wings any group engaged in this research should see a renewal of interest.

EDUCATION. Private education led by online universities is booming. Start your own school or put your money into one.

Maybe a bit early for the faint of heart but definitely the time for the steely nerved investor.

Leo Cecchini
May 2009