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U.S. Supreme Court to review accounting board’s legality A legal challenge to the constitutionality of the Public Company Accounting Oversight Board, set up by Congress in 2002, was accepted for review by the U.S. Supreme Court. A Nevada accounting firm and several advocacy groups said the appointment of board members by the full Securities and Exchange Commission is unconstitutional and that such appointments must be made either by the president or the SEC chief. The Wall Street Journal (19 ...

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Bonds indicate economy on mend after Lehman collapse The collapse of Lehman Brothers in September sent shock waves through financial markets, but bond traders worldwide said the bankruptcy and its fallout are fading away. Indicators, including falling money-market rates, reduced mortgage costs and more corporate-bond sales, all point to an economic recovery. Bloomberg (04 May.)

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The virus responsible for this outbreak of swine flu belongs to the type A, which comprises four main strains: H1N1, H1N2, H3N2 e H3N1. Most of the cases detected so far have been affected by the H1N1 type. H1N1 is the same strain that causes seasonal flu outbreaks in humans but the newly detected version contains genetic material from pigs and birds influenza. Some experts believe that we are not in the presence of a completely new virus, but rather a mutation of an H1N1 virus first isolated in 1933. Since then, the virus may have changed about 60-70% of its genetic code, but it’s unlikely to have mutated completely, which makes it potentially less lethal than otherwise.

SWINE FLU: PREVIOUS PANDEMICS AND THEIR ECONOMIC IMPLICATIONS

The swine flu has infected more than 1600 people in Mexico, of whom more than 100 have died. • It’s too early to

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Banks might find fundraising difficult after stress tests Federal Reserve officials are giving preliminary results of the stress tests to banks Friday, and the Fed is also releasing the tests’ methodology to the public. The banks might find it hard to raise funds because their troubled assets have soared during the past year. “We’re really hesitant to put money into financials,” said Douglas Ciocca, a managing director at Renaissance Financial. “The ambiguity is still engulfing the opportunity.” Bloomberg (24 ...

While we maintain that the overall strategic threat posed by the transnational jihadist movement continues to wane, the U.S.-jihadist war, which stretches from Iraq to the Indian subcontinent, remains a dominant theme for 2009.

The United States has no choice but to wrap up the war in Iraq so that it can devote more resources to the war in Afghanistan, but the transition from the Middle East to South Asia will not be easy. A fragile power-sharing deal among the Shiite, Sunni and Kurdish power groups remains intact, and violence levels are still low. Yet, as we expected, the United States is facing difficulties ensuring that the Shiite-dominated Iraqi government is integrating into the security apparatus members of the Sunni militia forces that split off from al Qaeda and allied with the United States. Shiite-Sunni tensions will continue to simmer. Al Qaeda in Iraq (AQI), while a much-weakened force, may still appeal

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Sources: Treasury considers more mortgage-modification incentives Providing cash payments to holders of second-mortgage liens is among the options being considered by the U.S. Treasury to encourage lenders to modify mortgages as an alternative to foreclosure, sources said. Incentives for “short sales,” in which the lender gets some money but less than the full amount due under the loan, are also being discussed, the sources said. Reuters (21 Apr.)

European, U.S. banks face steep funding needs, IMF says To return to capital levels similar to those immediately before the financial crisis, banks in Europe and the U.S. must raise $875 billion in equity, the International Monetary Fund said. The IMF’s Global Financial Stability Report delves ...

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Businesses worry U.S. money to bring rules, regulations Companies in the U.S. are concerned that the government’s push for improved accountability and transparency in stimulus spending will bring with it additional rules and regulations, a study by auditing and consulting firm Deloitte found. Of the executives responding, 58% said they do not think it is possible to make a link between stimulus spending improved transparency. Reuters (20 Apr.)

Watchdog: Chrysler rejected loan to dodge executive-pay rules: The U.S. Treasury’s special inspector general for the bailout of Chrysler and General Motors said Chrysler Financial, which loans to Chrysler dealers and car buyers, turned down a $750 million federal loan to avoid limits on executive pay. Chrysler Financial said in a ...

Over the next decade, the critical element in any investment portfolio will be the correct call regarding inflation or its antipode, deflation. Despite near term deflation risks, the overwhelming consensus view is that “sooner or later” inflation will inevitably return, probably with great momentum. This inflationist view of the world seems to rely on two general propositions. First, the unprecedented increases in the Fed’s balance sheet are, by definition, inflationary. The Fed has to print money to restore health to the economy, but ultimately this process will result in a substantially higher general price level. Second, an unparalleled surge in federal government spending and massive deficits will stimulate economic activity. This will serve to reinforce the reflationary efforts of the Fed and lead to inflation.

These propositions are intuitively attractive. However, they are beguiling and do not stand the test of history or economic theory. As a consequence, betting on

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Occasionally a bored business publication, goes to the zoo, rents a monkey and pits him or her against a mutual fund manager.  Lo and behold the monkey who doesn’t know a beta from a bunghole beats a significant majority of the active managers.  Barron’s should probably create a yearly Monkey Roundtable.

These Journalists must be pretty good monkey pickers and should probably start a MFoF (Monkey Fund of Funds) charging 2% and 20%.  We are the Third Chimpanzee and it seems as if evolution must have robbed us of our stock picking skills, but boy can we pick monkeys.

So what is going on?  Charlie Munger and Warren Buffett both hint at it in various writings and books, my favorite is Charlie’s Poor Charlie’s Almanack.  Warren calls it de-worsification, or the fact that many portfolios get worse as more components are added to them.  The theory

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Let’s talk about what money is. For some people it’s M-1 or M-2, and they worry that the money supply is growing too much. For some people it’s gold; gold is the only real currency. I think those ideas each have their place, and there’s some truths to them, but they focus us on the wrong thing.

It’s a bit misleading to talk about money supply, because what money really is is roughly $2 trillion of cash and then $50 trillion in credit. Because what do the banks do? They take deposits in and then they borrow money to leverage them up. I take my credit card and I spend with it. I borrow against a house. I have an asset that rises, and I borrow against it.

We have two trillion dollars of actual cash propping up $50 trillion in credit. If we all

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