Citibank

Well it’s been a rough ride recently if you bought Citibank. Pretty choppy waters although if you did it right you may have come out with some substantial gains. The past week to 10 days have been largely good news but my investments started a bit earlier on the down. Happy to say that overall my investments are now on the plus side. Just barely. That’s ok since I was planning on looking a these investments on the 18-24 month time horizon. I still think, given that timeframe, there is a lot more upside to be had. But, as has been clearly shown recently, I’m no profit. :^)

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Morgan Stanley in Trouble?

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Rumours have it Morgan Stanley may be the next victim of the recent market madness. Thank god I didn’t buy their stock. I was very close to it several weeks ago when they beat all analysts expectations and then plunged 30% on the same day. This is amazing (in the not good sense) … Morgan Stanley? Next to Goldman, they were the gold standard.

Sparks and Flames

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Last week I went to the annual Sparks and Flames conference in Amsterdam. During the conference the most dominant theme was emissions. Almost all talks were either directly about the carbon problem or — more commonly — how to adjust today’s fuel mix to best take advantage of the volatile future prices of carbon over the next several decades. Topics such as Carbon Capture and Storage (CCS), nuclear’s role in tomorrows fuel mix, the rebirth of coal demand, moving from the spark spread to a “clean spark spread”, how environmental issues effect further liberalisation or markets, the effect of a slowing American economy on energy policy, etc.

This year’s environmental focus wasn’t totally unexpected but was a noticeable shift from last year where (apparently) the big theme was security of supply. Overall I found it very interesting and encouraging that there was near universal agreement on the need to make a substantial shift in how to produce the worlds need for energy. Equally I was left wondering if people were thinking creatively enough to really achieve the goals everyone agreed were important.

Moral Hazard

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3 weeks ago I had never heard the term “moral hazard” but now it seems to be bouncing around everywhere in financial discussions. What is moral hazard? Wikipedia defines it as:

The chance, or hazard, that a party in a transaction with more information about his intentions or actions behaves in a way that a party with less information would consider inappropriate or in the extreme “immoral”. It arises because an individual or institution in a transaction does not bear the full consequences of its actions.

The last sentence helps to describe the term’s recent popularity where the “institution” being referred to is the capital markets community and the reason that they might not “bear the full consequences of their actions” is due to the potential of central banks bailing out the financial markets. Obviously reducing the likelihood of a localized US Sub-Prime problem from becoming a major international financial crises is a desirable goal for any central bank but also runs the risk of benefiting the institutions that were largely at fault.

In Capital Markets the business revolves heavily around buying and selling risk; if one party in the transaction can expect not to have to pay full value for risk it will push these companies toward riskier and riskier investments and larger and larger problems in the long run.

Not an easy problem for the Fed but at least now we have a catchy name to refer to the problem. That is probably a benefit actually. With a catchy name it makes it easier to talk about, get onto media outlets, and ultimately increase the consideration it gets in how to solve our recent credit crunch.