Beranke & Co.'s Decision

What do the 1980's and today have in common? Both had economic climates that dealt with low interest rates in an attempt to kick the can down the road and hope to instill trust back into the banking system.  The idea results in a desire to not have banks officially declare their losses, but instead "extend and pretend" while keeping low interest rates in place to help them give off the illusion of billion dollar profits.  The idea in theory allows the banking system to rebound and continue to be profitable while giving off the illusion of a healthy financial system.  Nobody wants to invest, or is willing to invest in a failing financial insitution.

The other idea is to create inflation by weakening the nation's currency.  Inflation is not a bad thing.  It is a symptom of a growing economy.  In a healthy economy inflation is created by the increase in people spending money, therefore the price of goods increases as demand increases.  Then due to a rise in the price of every day items, individuals ask to get paid more-which puts more money into the economy, which once again makes prices go up.  Inflation ideally should not be caused by currency manipulation.  That is now water under the bridge.  The Fed has pushed the dollar to near-historical lows, and has caused investors to seek commodities, such as gold and oil, which have a fundamental value.

The Fed is stuck.  Do they keep interest low and allow oil to jump back to its 2008 highs of $140/barrel? Do they raise interest rates and signal to the market that they feel they've done enough to stabilize the markets?

Tomorrow at 12:15pm we will find out if Bernanke and Co. opted for a sharp increase in U.S. interest rates, or keep rates low and have American families paying $4.50 a gallon this summer.

Chart of the U.S. Dollar

Market Overvalued? Using Tobin's Q to figure it out:

Is the market overvalued, undervalued, or just right?

Where is the market going?  When attempting to chose individual equities I first like to decide on which sectors I believe will significantly outperform the S&P 500 over the next 12-24 months.  After speaking to experts in the industry who attempt to pinpoint the current value of the market, I have come to the conclusion that the best way to value the economy is to use forward Price to earnings, Shiller’s Price to Earnings, and Tobin’s Q.  In this post I am going to talk about Tobin’s Q, which is not a widely used tool in figuring out current market valuations.  For those not familiar with the ratio, it was devised by James Tobin of Yale University in 1969.  The ratio is calculated as the market value of a company divided by the replacement value of a firms assets.  

Q Ratio= Total market value of a firm/total asset value  

A low Q (between 0-1) indicates the replacement of a firm’s assets is much larger than it’s current stock value.  If the Q ratio is high, it indicates the stock itself is more expensive than replacing the cost of its assets.  Historically the markets Q ratio has ranged from .30 in 1923, 1930, and 1982 to a high of 1.82 in 2000 before the dot come bubble burst.  Greg Mankiw, a professor of economics at Harvard University, has graphed the markets Q ratio since 1900.  See the interesting chart below:

Currently Tobin’s Q is at 1.22 with momentum pushing it higher.  Noting Tobin’s Q I believe the market is somewhat overvalued at these points and citing fundamental political issues in Europe and in the United States, I would begin to start taking money off the table and hedging myself by buying commodities and hard assets.  Not sovereign debt. 

Raise the debt ceiling Congress....or else:

The United States of America faces fundamental issues when it comes to controlling their debt.  The recent warning issued by credit-rating agency S&P about U.S. debt was not a surprise to anybody.  It only echoed a move taken by PIMCO in February, in which PIMCO announced they were selling their United States treasuries due to the “risk factor” that they believed did not properly reflect the return on investment they were getting by holding U.S. debt.   The negative outlook on the rating of U.S. sovereign debt is a sign that long-term fiscal challenges still remain and must be taken care of if America wants to continue to lead the world.

The nation’s debt totaled $9.67 trillion, while the federal government owes $4.6 trillion.  Public debt is $14.3 trillion. The deficit is currently projected to be about $1.6 trillion for the fiscal year that ends Sept. 30.  Republicans were elected to cut the size of government and make the government more liable for actions they take.  That does not mean not raising the debt ceiling, but I think it is a strong possibility we enter a period of political stagflation in which no agreement can come.

JP Morgan CEO, Jamie Dimon, spoke about what would happen if the government did not raise the debt ceiling.  In an interview with CBS, Dimon said: 

Every single company with treasuries, every insurance fund, every -- every-requirement that -- it will start snowballing.  Automatic, you don't pay your debt, there will be default by ratings agencies. All short-term financing will disappear. I would have hundreds of work streams working around the world protecting our company for that kind of event.

The day the United States can not finance their debt and decides to not raise the debt ceiling, is the day we need to run out to the stores and buy enough guns, bread, and water for a long civil disturbance. 

Balance in my Life

I understand the idea of giving back to a community that has given you so much in return.  In my junior year of high school my brother's 1st grade soccer team ran into a problem, they did not have a coach.  As the season quickly approached, the coachless team became worried.  I have played soccer since I could walk and have always had coaches who devoted countless hours to helping me learn and get better.  I asked my brother Ben if he thought it would a good idea for me to coach.  He responded with a "Yes!" and without hesitation I sent an email to the coordinator telling her to sign me as a coach.

For the next two years I coached the Gremlins.  Parents were so grateful I was doing it, but in reality it was my pleasure.  It made me feel good to give back to my community and help out.  When I came out to Amherst, coaching my brother's team was probably one of the biggest things I missed.  I decided I missed it so much that I wanted to participate in the youth basketball league in Northampton by becoming a 5th-6th basketball coach.  With games Saturday morning at 8am and practices on Monday nights, it was a true commitment, but I enjoyed about 95% of it.

Gremlins 2nd grade Brookline Youth Soccer team

Summer 2010 & What this Industry is all About

Summer 2010


Last summer I had the opportunity to intern with Cowen and Company. Interning in Sales and Equity trading gave me the opportunity to get my foot in the financial service’s door. The summer I spent with Cowen and Company taught me the importance of having a positive and open relationship between the buy-side and the sell-side. Above all, I was able to learn first hand the complex workings of broker relationship and at times how negative broker selection can hurt a deal. I have a desire to learn about all facets of the financial industry, specifically wealth management.

What is this industry all about? 


What is this industry really all about it? The industry is about relationships.  There are two many parts of any successful relationship: 1) Trust and 2) Communication.  In order to be successful in any industry that deals with relationships, you must understand what you are selling.  In wealth management you are selling a dream.  What you are selling is tough to quantify and in order to help lead them to their goal they must trust you and the credit you are selling.  The root word of credit is credo, which means trust.  You are essentially selling a commodity that individuals can get anywhere for nearly the same price.  Why should they choose you? Your firm? It comes down to being social and being liked.  Successful individuals in wealth management understand this and are able to develop the client relationship into a friendships relationship.  

Who am I? What makes me different?

Andrew Gordon and I visiting the NYSE this summer

My name is Ozi Sander and everyday my knowledge and experience increases. I love learning about who I am, where I see myself in ten years, and what my life goals.  I like reading the Wall Street Journal as well as watching Sportscenter.  I value loyalty, trust and honestly.  I treat others the way I would like them to be treated and enjoy making new friends.

There are not many certainties in life, except of course death and taxes, but one thing I can make certain is that when I am given an opportunity I take full advantage it.  I am never embarrassed to ask for help or ask for clarification.  I attempt to incorporate the idea of being a "mensch", which is a Yiddish word for a good man, into the way I go about my day to day activities.

I am different than most because I understand our obligation to give back, balance, prioritize, and not take things for granted.  I love equities, finance and the markets in general.  It is more than just a hobby for me and I am willing to work harder than anybody for a chance to join this industry.