Perhaps the credit crisis is ending. LIBOR is falling. The Fed seems as focused as a laser on easing the shortage of dollars around the world. The new dollar swap lines with Brazil, Mexico, Korea and Singapore were cheered in those areas and emerging market stock prices rose explosively. Time will tell, but the pattern of steady improvement now seems positive.
Now we all know that the "moral hazard" gripe is truly a canard of the pharisaic libertarians who want to let the beefers and ruling classes turn the common man of the world into serfs to be ruled.
Battleship Ben is truly showing fine mettle and is using his ammunition - an endless supply - with great effect now. His grade last year - 2007 - was about "D". He started out this year with a "C" and has been acing exam after exam, so it's now perhaps even a B+. I guess he reads this blog as the parsimonious growth of the monetary base prior to September has been replaced with a massive increase since then. That's needed to make up for a few years' of slow growth in that crucial measure that probably created part of this mess. Those errors were caused by that silly infatuation with "fighting" non-existent inflation.
Actions
None. I was jocularly accused of being a perma-bear in yesterday's comments. Sheesh ... my Alpha Fund is long about 150% with a number of extremely economically sensitive stocks, viz., CVX, DVN, RIG, FCX, BHP and smaller positions in EXM, DRYS, GNK, JOYG and MBI. As soon as this wave of beefer liquidations and misguided public selling of mutual funds runs its course, a grand new bull market should commence. Perhaps it has already begun.
Word of the Day
"Apropos" - adjective, preposition and adverb [$10]; this word we use a lot but not might know its precise meaning; also, the final 's' is silent.
Apropos means (adjective) to the point or purpose; appropriate; (preposition, often followed by 'of' colloquial) in respect of, concerning; (adverb) 1. appropriately, 2. by the way, incidentally.
Sentence: Apropos suggestions that Bunkerman is a perma-bear, he was bearish for about two weeks after the idiotic libertarian Republicans first defeated the Paulson plan. Going to cash in the Alpha Fund on that event did, however, him quite a bit of money, though.
Friday, October 31, 2008
Thursday, October 30, 2008
Zzzzz ...
I overslept, so will write something later.
Philadelphia Phillies win the World Series ! A loquacious poster of comments should now be happy after a lifetime of frustrations.
Words of the Day
"Somniferous" - adjective [$10] an old one from the card file
Somniferous means inducing sleep, soporific.
"Soporific" - adjective and noun [$10] another old one from the distant past
Soporific means (adjective) tending to produce sleep; (noun) a soporific drug or influence.
Sentences: Watching CSPAN has a somniferous influence on Bunkerman. Nothing is more soporific than a large meal of roast turkey and stuffing.
Philadelphia Phillies win the World Series ! A loquacious poster of comments should now be happy after a lifetime of frustrations.
Words of the Day
"Somniferous" - adjective [$10] an old one from the card file
Somniferous means inducing sleep, soporific.
"Soporific" - adjective and noun [$10] another old one from the distant past
Soporific means (adjective) tending to produce sleep; (noun) a soporific drug or influence.
Sentences: Watching CSPAN has a somniferous influence on Bunkerman. Nothing is more soporific than a large meal of roast turkey and stuffing.
Wednesday, October 29, 2008
Gangocracy, Oil and Pericles
Gangocracy
Newspaper reports say Russia is using its rescue fund to rescue some billionaires who margined their stock in big Russian companies. Whether Russia "saves" the billionaires or just uses the opportunity to re-take the valuable holdings looted by those same billionaires in the 1990s, time will tell. Does the Boss of the gang save the Capo when he gets into trouble, or does he liquidate him and take his territory back ? The Russia = Gangocracy model suggests the billionaires will soon be outcasts and economic power in Russia will become even more centralized.
Oil
From FT: "Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows. Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.
"The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as prices fall and investment decisions are delayed."
This is why I like the oil stocks with major exploration and production opportunities in good deep water sites like the US Gulf of Mexico. CVX and DVN have major finds there. RIG supplies equipment to them and to other majors like Petrobras.
Pericles
The panicking rich are cutting back spending on luxury good, per FT story. Hmmm ... let's see. They are so dumb they invest trillions in hedge funds and also spend idiotic amounts on simple items like purses. Perhaps the quote from Pericles should be required reading:
"We cultivate refinement without extravagance and knowledge without effeminacy; wealth we employ more for use than for show ..."
Perhaps a change in behavior is in order: from endless striving to become richer than Croesus and showy spending to doing something to improve humanity, such as providing a young scientist or mathematician or artist with a stipend to create something enduring for the human race would be a better use of such wealth.
Newspaper reports say Russia is using its rescue fund to rescue some billionaires who margined their stock in big Russian companies. Whether Russia "saves" the billionaires or just uses the opportunity to re-take the valuable holdings looted by those same billionaires in the 1990s, time will tell. Does the Boss of the gang save the Capo when he gets into trouble, or does he liquidate him and take his territory back ? The Russia = Gangocracy model suggests the billionaires will soon be outcasts and economic power in Russia will become even more centralized.
Oil
From FT: "Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows. Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.
"The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as prices fall and investment decisions are delayed."
This is why I like the oil stocks with major exploration and production opportunities in good deep water sites like the US Gulf of Mexico. CVX and DVN have major finds there. RIG supplies equipment to them and to other majors like Petrobras.
Pericles
The panicking rich are cutting back spending on luxury good, per FT story. Hmmm ... let's see. They are so dumb they invest trillions in hedge funds and also spend idiotic amounts on simple items like purses. Perhaps the quote from Pericles should be required reading:
"We cultivate refinement without extravagance and knowledge without effeminacy; wealth we employ more for use than for show ..."
Perhaps a change in behavior is in order: from endless striving to become richer than Croesus and showy spending to doing something to improve humanity, such as providing a young scientist or mathematician or artist with a stipend to create something enduring for the human race would be a better use of such wealth.
Other News
GM and Cerberus seem to be working on deals together to merge GM and Chrysler and separately to restructure GMAC into a bank. Government help to come. I support this, as said yesterday, as the auto industry with its myriad parts suppliers and dealers really is an important part of the real economy. Management change is a necessary condition, however.
Porsche smartly offers to sell some VW shares to help reduce the short squeeze it created ... at a huge profit. Smart move, as it helps stave off government intervention. Still, the short beefers are doomed.
Actions
Nothing. Holding Alpha Fund stocks with modest margin: CVX, DVN, RIG, FCX, BHP are largest; DRYS, EXM, GNK, JOYG and MBI are smaller. The shippers particularly stink now. Obviously my chronic "buyearlyitis" hurt me. I really have to learn more patience. Mrs. B has a lot, I should follow her style more.
Word of the Day
"Agnate" - adjective & noun [$10]
Agnate means (adjective) 1. descended esp. by male line to another male ancestor; 2. descended from the same forefather, of a clan or nation; 3. of the same nature, akin; (noun) a person who is descended esp. by male line from the same male ancestor.
Sentence: As the line of the Bush-Cheney Republican ruling class seems soon to be extinguished, the practice of the Republican party to select leaders from its agnate line must be changed. Big John McCain could be a fine regent for his sidekick from the distaff side*, Sarah Palin, to breathe some fresh ideas into that moribund party.
["distaff side" means the maternal branch or female side of a family]
Did you notice the subliminal message in the title to this post ?
Tuesday, October 28, 2008
Gold
First …
An unusual short squeeze is occurring on the German stock market. Porsche wants to acquire Volkswagen and the smart beefers thought they had an easy profit on shorting Volkswagen shares. Wrong!
From FT:
"Volkswagen's shares more than doubled on Monday after Porsche moved to cement its control of Europe’s biggest carmaker and hedge funds, rushing to cover short positions, were forced to buy stock from a shrinking pool of shares in free float.
"VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts. … Porsche revealed on Sunday that it held 31.5 per cent in derivatives in VW. Bafin, Germany’s financial regulator, recently ruled that companies were not obliged to disclose such positions where the derivatives were settled into cash rather than shares.
"But the sudden disclosure meant there was a free float of only 5.8 per cent – the state of Lower Saxony owns 20.1 per cent – sparking panic among hedge funds."
Volkswagen stock price is up 100% this morning. And the beefers ... a house of pain. Shucks. I suppose those paragons of “free markets” will want government intervention now.
Gold
As we watch the herd of beefers slowly disappear in this storm, let’s consider some value analysis for that ultimate store of value – gold. I still subscribe to some commodity research sites, as I might someday want to play in that sandbox again. So I'll look at the long term monthly chart for gold. First, my thinking.
Acquaintances know I loaded up on physical gold coins - American Eagles, please - and silver bars in the period around 2002-3. [The EFTs for gold & silver did not exist then.] I'm a long-term bull on gold and silver as over the decades, the growth of demand in India and China will slowly overwhelm European central bank sales; plus emerging market central banks will buy some gold; plus mine production in South Africa is declining. Those are primal among other reasons to be bullish on gold long term. But long term is ... a long time. What now ?
The recent pop to $1000 for gold and $20 for silver were screaming sells, being due to beefer momentum moves well beyond the long term trends.
What about those trends ?
The trend from the bottom in 2000 until 2005 was more determined by real, physical trends. After 2005 the beefers took over with their antics and the price got ahead of fundamentals. So where does the old monthly trend line project ? The $550-600 area in 2009. So that's good value for long term holding periods. The current drop might not get there, but at that area, I will again overweight gold in Krypto Fund via ETFs and mutual funds and might even buy more physical gold.
Actions
None.
Politics
I favor a rescue plan for the auto industry provided "real" changes in management occurs. My memories of B-school discussion sessions about 30 years ago wondering about how the auto industry cold cope keep coming back to me. Decades of opportunities were squandered by unimaginative managements.
Word of the Day
"Pharisaic - adjective [$10] used in upper case "P" for definition 1. and lower case "p" for 2.
Pharisaic means 1. a member of an ancient Jewish sect, distinguished by strict observance of the traditional and written law, and commonly held to have pretensions of superior sanctity; 2. a self-righteous person; a hypocrite.
Sentence: Events of the past few months might consign Pharisaic libertarianism to its condign place in the dustbin of history along with Marxism. The colossal error of permitting the financial vikings [aka beefers] to grow to gigantic size and to raid and pillage and generally wreck market economies surely is now obvious to all.
An unusual short squeeze is occurring on the German stock market. Porsche wants to acquire Volkswagen and the smart beefers thought they had an easy profit on shorting Volkswagen shares. Wrong!
From FT:
"Volkswagen's shares more than doubled on Monday after Porsche moved to cement its control of Europe’s biggest carmaker and hedge funds, rushing to cover short positions, were forced to buy stock from a shrinking pool of shares in free float.
"VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts. … Porsche revealed on Sunday that it held 31.5 per cent in derivatives in VW. Bafin, Germany’s financial regulator, recently ruled that companies were not obliged to disclose such positions where the derivatives were settled into cash rather than shares.
"But the sudden disclosure meant there was a free float of only 5.8 per cent – the state of Lower Saxony owns 20.1 per cent – sparking panic among hedge funds."
Volkswagen stock price is up 100% this morning. And the beefers ... a house of pain. Shucks. I suppose those paragons of “free markets” will want government intervention now.
Gold
As we watch the herd of beefers slowly disappear in this storm, let’s consider some value analysis for that ultimate store of value – gold. I still subscribe to some commodity research sites, as I might someday want to play in that sandbox again. So I'll look at the long term monthly chart for gold. First, my thinking.
Acquaintances know I loaded up on physical gold coins - American Eagles, please - and silver bars in the period around 2002-3. [The EFTs for gold & silver did not exist then.] I'm a long-term bull on gold and silver as over the decades, the growth of demand in India and China will slowly overwhelm European central bank sales; plus emerging market central banks will buy some gold; plus mine production in South Africa is declining. Those are primal among other reasons to be bullish on gold long term. But long term is ... a long time. What now ?
The recent pop to $1000 for gold and $20 for silver were screaming sells, being due to beefer momentum moves well beyond the long term trends.
What about those trends ?
The trend from the bottom in 2000 until 2005 was more determined by real, physical trends. After 2005 the beefers took over with their antics and the price got ahead of fundamentals. So where does the old monthly trend line project ? The $550-600 area in 2009. So that's good value for long term holding periods. The current drop might not get there, but at that area, I will again overweight gold in Krypto Fund via ETFs and mutual funds and might even buy more physical gold.
Actions
None.
Politics
I favor a rescue plan for the auto industry provided "real" changes in management occurs. My memories of B-school discussion sessions about 30 years ago wondering about how the auto industry cold cope keep coming back to me. Decades of opportunities were squandered by unimaginative managements.
Word of the Day
"Pharisaic - adjective [$10] used in upper case "P" for definition 1. and lower case "p" for 2.
Pharisaic means 1. a member of an ancient Jewish sect, distinguished by strict observance of the traditional and written law, and commonly held to have pretensions of superior sanctity; 2. a self-righteous person; a hypocrite.
Sentence: Events of the past few months might consign Pharisaic libertarianism to its condign place in the dustbin of history along with Marxism. The colossal error of permitting the financial vikings [aka beefers] to grow to gigantic size and to raid and pillage and generally wreck market economies surely is now obvious to all.
Monday, October 27, 2008
Fried Eggs and Spam
This weekend I made what is probably the finest breakfast: fried eggs and spam.
The eggs were, of course, from happy cage-free, organically fed chickens who have sunlit porches. I fried them with a bit of pepper in olive oil to the over-medium phase, which required 35 seconds on the flip side. To eat them, I mash them with my fork and eat each bite with a bit of spam.
The spam is fried in olive oil until each side is a bit crusty.
I also have 1/2 of a bagel toasted a bit with pumpkin butter, and some fruit.
This food is soooooooo good - I had it both days this weekend. The only improvement I'm pondering is adding a slice of Valveeta cheese on top of the eggs. Thinking ...
Markets
More Euro-beefer liquidation and some Asia selling. And some more US-beefer selling. And the public is selling its mutual funds. And we even hear of some public pensions fund being forced to sell a bit ... to fund commitments to "alternative investments".
Perhaps a bit of recapitulation of what we know now is in order.
1. Big, evil funds - aka beefers - exist and were grossly oversized and very dangerous to the world financial markets and we now know they are dangerous to the common man and the real economy, too.
2. A bit of inflation is good. It helps people have some confidence in their asset values and businesses. Trying to grind out 2%-3% core inflation is nuts.
3. Core inflation measures are correct. Trying to cut nominal inflation caused buy oil prices is stupid and destructive.
4. The monetary base should grow at 2-3% per year. The Fed was too tight until September.
5. Hedge funds are not an another asset class; most are not even "investments", but are just speculations or trading operations.
6. Commodity futures are not another asset class, either. Money in those contracts are just speculations, too.
It's rather obvious now to all, and to this writer for years, that excess money that flowed into hedge funds and commodity futures or related derivatives was a speculative bubble fueled by the rich and some pension funds.
That's enough for now.
The Federal money finally begins flowing today. I'll watch. This cure will work, but will take some time.
I suspect the continued weakness in oil is due to endless liquidation of beefers adn pension fund positions, plus the liquidation of inventories that some such speculators held to masquerade as "commercials". Traffic was heavy this weekend here as I drove to sheep herding classes for Sky.
Actions
I circled the wagons a la the Hussites on Friday to defend CVX, DVN, RIG, BHP and FCX. I was a bit long and concerned about being away from my screen during that museum trip. So I sold JPM, AAPL, GOOG and EDU and used just a portion of the cash to buy a bit more CVX, DVN, RIG and BHP. I am also holding EXM, DRYS, GNK, JOYG and MBI. I'm not expecting a lot, but figure my upside on these are rather good compared to those I sold.
My Krypto Fund spreadsheet wants me to buy emerging markets. But I'll wait a few days to let this settle more.
Politics
Big John McCain drew 4,000 people to an enthusiastic rally in Zanesville, Ohio, which is not far from my home town in Ohio. That's a lot for this sparely populated area. Comments about his reception was quite positive. So I wonder if he has more strength among the common man than the media credits for him.
Word of the Day
"Cosmogony" - noun [$10]
Cosmogony means 1. the origin of the universe; 2. a theory about this.
Sentence: What will Bunkerman use for building blocks for a cosmogony of understanding the behavior of future financial markets if beefers become extinct?
The eggs were, of course, from happy cage-free, organically fed chickens who have sunlit porches. I fried them with a bit of pepper in olive oil to the over-medium phase, which required 35 seconds on the flip side. To eat them, I mash them with my fork and eat each bite with a bit of spam.
The spam is fried in olive oil until each side is a bit crusty.
I also have 1/2 of a bagel toasted a bit with pumpkin butter, and some fruit.
This food is soooooooo good - I had it both days this weekend. The only improvement I'm pondering is adding a slice of Valveeta cheese on top of the eggs. Thinking ...
Markets
More Euro-beefer liquidation and some Asia selling. And some more US-beefer selling. And the public is selling its mutual funds. And we even hear of some public pensions fund being forced to sell a bit ... to fund commitments to "alternative investments".
Perhaps a bit of recapitulation of what we know now is in order.
1. Big, evil funds - aka beefers - exist and were grossly oversized and very dangerous to the world financial markets and we now know they are dangerous to the common man and the real economy, too.
2. A bit of inflation is good. It helps people have some confidence in their asset values and businesses. Trying to grind out 2%-3% core inflation is nuts.
3. Core inflation measures are correct. Trying to cut nominal inflation caused buy oil prices is stupid and destructive.
4. The monetary base should grow at 2-3% per year. The Fed was too tight until September.
5. Hedge funds are not an another asset class; most are not even "investments", but are just speculations or trading operations.
6. Commodity futures are not another asset class, either. Money in those contracts are just speculations, too.
It's rather obvious now to all, and to this writer for years, that excess money that flowed into hedge funds and commodity futures or related derivatives was a speculative bubble fueled by the rich and some pension funds.
That's enough for now.
The Federal money finally begins flowing today. I'll watch. This cure will work, but will take some time.
I suspect the continued weakness in oil is due to endless liquidation of beefers adn pension fund positions, plus the liquidation of inventories that some such speculators held to masquerade as "commercials". Traffic was heavy this weekend here as I drove to sheep herding classes for Sky.
Actions
I circled the wagons a la the Hussites on Friday to defend CVX, DVN, RIG, BHP and FCX. I was a bit long and concerned about being away from my screen during that museum trip. So I sold JPM, AAPL, GOOG and EDU and used just a portion of the cash to buy a bit more CVX, DVN, RIG and BHP. I am also holding EXM, DRYS, GNK, JOYG and MBI. I'm not expecting a lot, but figure my upside on these are rather good compared to those I sold.
My Krypto Fund spreadsheet wants me to buy emerging markets. But I'll wait a few days to let this settle more.
Politics
Big John McCain drew 4,000 people to an enthusiastic rally in Zanesville, Ohio, which is not far from my home town in Ohio. That's a lot for this sparely populated area. Comments about his reception was quite positive. So I wonder if he has more strength among the common man than the media credits for him.
Word of the Day
"Cosmogony" - noun [$10]
Cosmogony means 1. the origin of the universe; 2. a theory about this.
Sentence: What will Bunkerman use for building blocks for a cosmogony of understanding the behavior of future financial markets if beefers become extinct?
Friday, October 24, 2008
TGIF
Financial Times today has a fine article on the fantasy world of credit default swaps. Obviously that is a “market” that should not exist, or if it does, should require 100% cash collateral for any writers of such “insurance”. See “Fantasy and Credit Insurance” under the “Markets” section in FT online - http://www.ft.com/home/us
There are two fundamental problems with such “insurance”, viz. (I) that there are really no natural writers and (II) any premium really involves two risks, the insured credit and the writer’s credit risk. These derivatives need to be regulated by the insurance regulators and real collateral put behind them, or they should be banned.
For now, persons looking at that “market” for “market” pricing are looking through grossly distorted lenses.
Another article in FT shows how derivatives are completely out of contact with markets. “The turmoil in financial markets has taken hold of the strategically important trade in long-term interest rate derivatives, pushing rates to levels once thought to be a “mathematical impossibility”.” … “On Thursday, the 30-year swap spread turned negative after briefly flirting with such levels earlier in the month. This implies investors are somehow reckoning that they are more likely to be paid back by a private counterparty than by the government, which can print money.”
“Negative swap spreads have been considered by many to be a mathematical impossibility, just like negative probabilities or negative interest rates,” said Fidelio Tata, head of interest rate derivatives strategy at RBS Greenwich Capital Markets.
So insurers and “investors who once bought bonds based on spread over Treasuries – i. e. a true, real risk premium - over time became dependent on “swap spread” for pricing. Of course, that was stupid since a swap is between two private parties and involves the credit risk of each. What a fantasy world created by people who probably never experienced a bankruptcy, or a panic or even read a book about the history of money & credit.
Some of these derivatives reminds me of the archaic “bills of exchange” that were the source of credit in early market economies of the industrial age. Those involved several endorsements, re-endorsements and counterparties, so were rather complex. A collapse of a major merchant or commercial lender would break the chains of endoresements and could create a cascade of trouble as many, many bills of exchange suddenly could have problems and trade at great discounts. Sound familiar ? Eventually were mostly replaced by modern commercial codes with standardized lending terms. “Wall Street” and the banking industry recreated such beasts with their inherent multiparty risks in the over-the-counter derivatives market … and proceeded to ignore those extra entanglements. This gets more & more like “Lord of the Flies” every week, as we see how the “Whiz Kids” created a cesspool as they had no adult supervision or understanding of history or reality.
This will eventually work its way out as people return to the old ways … old being 20-25 years ago. So far at least, despite the turmoil & shock, huge losses from derivatives settlements has not occurred. Most of the colossal notional amounts seem to be offset.
This mess can also be laid at the feet of Elmer, aka Alan Greenspan, as his “pro-derivative” testimony helped derail regulatory efforts in the late 1990s or early 2000s – I forget the exact dates but remember the event. Of course he also helped derail regulation of hedge funds. Like his predecessor, Paul Volker – the economic neutron bomber of the 1980s – both are true cluster FUBARs if one ever existed.
Markets
Today looks like an Asian selloff led by a Sony warning that has caused more Euro-beefer and US beefer liquidations. European markets and futures are down a lot, but I am getting acclimatized to these giant swings daily and intra-day. Fear continues to rule. And I presume the public continues to sell at the bottom. Over time, the baby boomers are really going to be hurt by these “Buy High, Sell Low", greed & fear tactics.
I continue to buy some of my favorite stocks on large dips. I still have quite a bit of buying power and safety net in my Alpha Fund.
I see the UK GDP fell in Q3. Can anyone explain why the Bank of England base rate is so high ? Ditto for the ECB ?
Word of the Day
“Comptoir” - noun [$1000] from French
Comptoir means a commercial agency or factory (in foreign country).
Sentence: When one reads histories of trade and credit in Europe in the early industrial age, the comptoirs of major trading nations such as the French or Dutch appear in places like Gdansk as they were active in the Baltic grain trade.
There are two fundamental problems with such “insurance”, viz. (I) that there are really no natural writers and (II) any premium really involves two risks, the insured credit and the writer’s credit risk. These derivatives need to be regulated by the insurance regulators and real collateral put behind them, or they should be banned.
For now, persons looking at that “market” for “market” pricing are looking through grossly distorted lenses.
Another article in FT shows how derivatives are completely out of contact with markets. “The turmoil in financial markets has taken hold of the strategically important trade in long-term interest rate derivatives, pushing rates to levels once thought to be a “mathematical impossibility”.” … “On Thursday, the 30-year swap spread turned negative after briefly flirting with such levels earlier in the month. This implies investors are somehow reckoning that they are more likely to be paid back by a private counterparty than by the government, which can print money.”
“Negative swap spreads have been considered by many to be a mathematical impossibility, just like negative probabilities or negative interest rates,” said Fidelio Tata, head of interest rate derivatives strategy at RBS Greenwich Capital Markets.
So insurers and “investors who once bought bonds based on spread over Treasuries – i. e. a true, real risk premium - over time became dependent on “swap spread” for pricing. Of course, that was stupid since a swap is between two private parties and involves the credit risk of each. What a fantasy world created by people who probably never experienced a bankruptcy, or a panic or even read a book about the history of money & credit.
Some of these derivatives reminds me of the archaic “bills of exchange” that were the source of credit in early market economies of the industrial age. Those involved several endorsements, re-endorsements and counterparties, so were rather complex. A collapse of a major merchant or commercial lender would break the chains of endoresements and could create a cascade of trouble as many, many bills of exchange suddenly could have problems and trade at great discounts. Sound familiar ? Eventually were mostly replaced by modern commercial codes with standardized lending terms. “Wall Street” and the banking industry recreated such beasts with their inherent multiparty risks in the over-the-counter derivatives market … and proceeded to ignore those extra entanglements. This gets more & more like “Lord of the Flies” every week, as we see how the “Whiz Kids” created a cesspool as they had no adult supervision or understanding of history or reality.
This will eventually work its way out as people return to the old ways … old being 20-25 years ago. So far at least, despite the turmoil & shock, huge losses from derivatives settlements has not occurred. Most of the colossal notional amounts seem to be offset.
This mess can also be laid at the feet of Elmer, aka Alan Greenspan, as his “pro-derivative” testimony helped derail regulatory efforts in the late 1990s or early 2000s – I forget the exact dates but remember the event. Of course he also helped derail regulation of hedge funds. Like his predecessor, Paul Volker – the economic neutron bomber of the 1980s – both are true cluster FUBARs if one ever existed.
Markets
Today looks like an Asian selloff led by a Sony warning that has caused more Euro-beefer and US beefer liquidations. European markets and futures are down a lot, but I am getting acclimatized to these giant swings daily and intra-day. Fear continues to rule. And I presume the public continues to sell at the bottom. Over time, the baby boomers are really going to be hurt by these “Buy High, Sell Low", greed & fear tactics.
I continue to buy some of my favorite stocks on large dips. I still have quite a bit of buying power and safety net in my Alpha Fund.
I see the UK GDP fell in Q3. Can anyone explain why the Bank of England base rate is so high ? Ditto for the ECB ?
Word of the Day
“Comptoir” - noun [$1000] from French
Comptoir means a commercial agency or factory (in foreign country).
Sentence: When one reads histories of trade and credit in Europe in the early industrial age, the comptoirs of major trading nations such as the French or Dutch appear in places like Gdansk as they were active in the Baltic grain trade.
Thursday, October 23, 2008
On and On ...
I just heard an oxymoron on Blabberg ... the fellow mentioned "investors continuing to trade" certain markets. Since when is "trading" part of "investing ? That's symptomatic of the beefer* mentality. Those huge funds aren't investors at all - just colossal trading funds spreading their foul wastes everywhere. [* beefer = big, evil funds]
The "West" did the predictably smug "tut-tut" when the beefers attacked minor, far-away nations like Thailand ten years ago. Now the piratical attacks are closer to home, viz. Hungary. Even nations with strong reserves like South Korea are attacked.
Why are those beefers permitted to slash & burn these places with their currency trading ? What is the economic gain from that hot money sloshing around ? Zero. Sure, foolish ideologues like Elmer ( aka Alan Greenspan ) talked about the "wonderful" liquidity they provided. Sure ... a 100 year flood provides "wonderful" liquidity to a common man in his home !
Markets
More beefer liquidations yesterday ... or maybe the trading beefers who bought at the recent lows flipped the shares to "try" to lock in a profit. Who knows ? The public is probably still pulling money out of stocks.
Meanwhile LIBOR is falling. And homes are selling at a rapid pace in those places like CA where the housing bubble was worst. Borrowers of home equity loans and floating rate mortgages are seeing substantial cash flow improvement. As is every person driving a vehicle. So the curative medicine is flowing in the veins of the patient.
Lender standards return to .. gasp ... those of the early 1980s. I bought my first home in 1984 and my initial mortgage interest rate was 13.875% on a one year floater with a 30 year amortization schedule. Lolol I think the "teaser" rate was around 11%. Yes, I put 20% down, also. And I did rather well over the years ... as did the economy.
Hmmm ... on my 100 year wall chart, the world did rather well after that period of retrenchment, which in fact included a huge financial crisis of the S&L industry ( disintermediation) and banking industry (those huge third world loan losses ... remember ?)
Governmental money will actually go into the commercial paper markets next Monday. Equity infusions to banks soon follow.
The dollar is rising. Uh ... I thought the pundits said the dollar was doomed to oblivion ?
Actions
Doing nothing. Please don't go too long on margin. I am long margin, BUT as I've said many times before, my Alpha Fund is really a small part of my total investments.
I might add to FCX in the low 20s if it gets there.
Word of the Day
"Tatterdemalion" - noun & adjective [$100] a Mencken word
Tatterdemalion means 1. (noun) a person in tattered clothing; a shabby person; 2. (adjective) ragged; unkempt or dilapidated.
Sentence: As the disaster-mongers say, the world will soon be filled with wandering tatterdemalions looking into garbage cans for a few scraps of food. But barring a big war or trade war or other governmental idiocy as Argentina has shown the path, the innate desire and capability of free people to improve their lives proves an irresistible tail wind for strong economic growth over time.
The "West" did the predictably smug "tut-tut" when the beefers attacked minor, far-away nations like Thailand ten years ago. Now the piratical attacks are closer to home, viz. Hungary. Even nations with strong reserves like South Korea are attacked.
Why are those beefers permitted to slash & burn these places with their currency trading ? What is the economic gain from that hot money sloshing around ? Zero. Sure, foolish ideologues like Elmer ( aka Alan Greenspan ) talked about the "wonderful" liquidity they provided. Sure ... a 100 year flood provides "wonderful" liquidity to a common man in his home !
Markets
More beefer liquidations yesterday ... or maybe the trading beefers who bought at the recent lows flipped the shares to "try" to lock in a profit. Who knows ? The public is probably still pulling money out of stocks.
Meanwhile LIBOR is falling. And homes are selling at a rapid pace in those places like CA where the housing bubble was worst. Borrowers of home equity loans and floating rate mortgages are seeing substantial cash flow improvement. As is every person driving a vehicle. So the curative medicine is flowing in the veins of the patient.
Lender standards return to .. gasp ... those of the early 1980s. I bought my first home in 1984 and my initial mortgage interest rate was 13.875% on a one year floater with a 30 year amortization schedule. Lolol I think the "teaser" rate was around 11%. Yes, I put 20% down, also. And I did rather well over the years ... as did the economy.
Hmmm ... on my 100 year wall chart, the world did rather well after that period of retrenchment, which in fact included a huge financial crisis of the S&L industry ( disintermediation) and banking industry (those huge third world loan losses ... remember ?)
Governmental money will actually go into the commercial paper markets next Monday. Equity infusions to banks soon follow.
The dollar is rising. Uh ... I thought the pundits said the dollar was doomed to oblivion ?
Actions
Doing nothing. Please don't go too long on margin. I am long margin, BUT as I've said many times before, my Alpha Fund is really a small part of my total investments.
I might add to FCX in the low 20s if it gets there.
Word of the Day
"Tatterdemalion" - noun & adjective [$100] a Mencken word
Tatterdemalion means 1. (noun) a person in tattered clothing; a shabby person; 2. (adjective) ragged; unkempt or dilapidated.
Sentence: As the disaster-mongers say, the world will soon be filled with wandering tatterdemalions looking into garbage cans for a few scraps of food. But barring a big war or trade war or other governmental idiocy as Argentina has shown the path, the innate desire and capability of free people to improve their lives proves an irresistible tail wind for strong economic growth over time.
Wednesday, October 22, 2008
More Bugs ...
I’ve always jocularly used a metaphor about how during a corporate or financial or a mess of almost any type, that every time one picked up a rock, one would find an ugly bug under it. As lending tightens even a bit, all those junk investments and speculation and peculation*[today’s Word of the Day] comes out. As does sheer knavery. Today’s newspapers have plenty of examples.
WSJ: Currency Bets Backfire – “Latin American companies have suffered huge losses due to foreign-exchange gambles that, in some cases, had little to do with their core businesses.” These companies entered into currency swaps that were unrelated to their legitimate business hedging needs.
WSJ: “Yahoo Inc. announced plans to lay off at least 10% of its work force, as the struggling Internet company posted a 64% drop in profit and eked out a slight revenue increase in its third quarter.” Thanks Jerry Yang, for rejecting the MSFT bid at $33/share as the stock is now about $13 and jobs losses are now coming. Entrenched management leads to corporate destruction usually.
WSJ: “Argentina makes Grab for Pensions” – amazing knavery – now that ludicrous government is robbing the private pensions of millions of citizens to pay for more graft and pork and vote buying.
FT: Investors Suffer as US Ethanol Boom Dries Up – Oh well, that industry was a foolish contraption from the beginning, being dependent on government subsidies.
Meanwhile
WSJ has a story today that home sales are reviving in California as prices have fallen enough in some places to bring in “real buyers”.
And settlement of the LEH occurred without a pop. I guess most participants in that market had a mostly balanced book. That's quite good news - no bug under that rock.
AAPL had fine earnings, but that won't stop the beefers and bears from hitting its stock.
Screaming Buys
As gold and silver was a screaming sell in early Spring 2008 – and I did sell a very large amount of physical gold then – today’s markets have a few screaming buys
WSJ: Currency Bets Backfire – “Latin American companies have suffered huge losses due to foreign-exchange gambles that, in some cases, had little to do with their core businesses.” These companies entered into currency swaps that were unrelated to their legitimate business hedging needs.
WSJ: “Yahoo Inc. announced plans to lay off at least 10% of its work force, as the struggling Internet company posted a 64% drop in profit and eked out a slight revenue increase in its third quarter.” Thanks Jerry Yang, for rejecting the MSFT bid at $33/share as the stock is now about $13 and jobs losses are now coming. Entrenched management leads to corporate destruction usually.
WSJ: “Argentina makes Grab for Pensions” – amazing knavery – now that ludicrous government is robbing the private pensions of millions of citizens to pay for more graft and pork and vote buying.
FT: Investors Suffer as US Ethanol Boom Dries Up – Oh well, that industry was a foolish contraption from the beginning, being dependent on government subsidies.
Meanwhile
WSJ has a story today that home sales are reviving in California as prices have fallen enough in some places to bring in “real buyers”.
And settlement of the LEH occurred without a pop. I guess most participants in that market had a mostly balanced book. That's quite good news - no bug under that rock.
AAPL had fine earnings, but that won't stop the beefers and bears from hitting its stock.
Screaming Buys
As gold and silver was a screaming sell in early Spring 2008 – and I did sell a very large amount of physical gold then – today’s markets have a few screaming buys
- Municipal bonds offer fine long term yields and the relative yields (compared to US Treasuries) are better than any time in my memory. Mrs. B & I recently invested a large sum of new cash in them and continue to nibble at attractive bonds. Just make sure the call provisions are fair. For a par bond, be sure to get five years of call protection for a 20 year bonds and ten years for a 30 year bond. But for bonds offered at a substantial discount, call protection is less important as they must buy your bonds at par, giving you a nice premium over a discounted price.
- US Treasury Inflation Protected Securities now offer fine real returns that are priced at very low – foolish, in my humble opinion – levels which imply long term inflation of about 1%. That’s not going to happen as government printing presses will at full speed to stop it. Asset bubbles being burst don’t affect consumer prices that much. Also, the long term chart of TIP, the ETF that tracks an index of all US Treasury Inflation Protected Securities, shows a panic bottom in the low to mid 90s after its own unreasonable rip up to almost 109 in the Spring of 2008. Again, Mrs. B and I recently purchased a large amount of those in a retirement account. That’s an important detail – these bonds produce phantom taxable income from the inflation adjustment. The Treasury gives you more bonds, not cash, for the inflation protection and that amount is taxable IFF you hold the bonds in a taxable account. So don’t.
- US Stocks. I won’t go into details here, which conclusions are contested by almost the entire world of financial pundits today, it seems. Perhaps Warren Buffet, Mrs. B and I are the only “real buyers” left in the world. That’s almost like one of those New Zealand science fiction stories, about being the last people on earth after a catastrophe. Oh well, why do you think my nom de plume is “Bunkerman”.
Actions
The check cleared so with that new cash in Krypto Fund I bought some VTI, the ETF for the Vanguard Total market Index Fund, yesterday during the lunch time lull that often brings a dip as buyers go to lunch and beefers try their antics.
PS: I do practice time diversification - this new cash is less than 1/2 of the total to be invested. I'll wait a few months to see what develops.
Word of the Day
“Peculation” – noun [$10] from "peculate"
"Peculate" - verb, transitive and intransitive [$10]
Peculate means to embezzle (money).
Sentence: The government of Argentina is committing peculation on a monstrous, national scale as it grabs the private pension funds of its citizens to fund its budget and current account deficits. As one writer said in the WSJ story, the move was "just another step in Argentina's 100-year 'road to underdevelopment."
Tuesday, October 21, 2008
Waiting ...
So we wait for the various government plans for aid the credit markets to take effect. You do know that NONE of those has actually funded yet, right ? The Fed has not bought any commercial paper and the governments have not put any money in banks equity yet either. BUT the Fed has FINALLY been quite reasonable in adding to the monetary base. This writer has been complaining about that for months.
So the recovery to date is ALL due to better psychology and the Fed increasing the monetary base. And why should that be true as the entire "crash" was due to a panic of the rich.
Today we find out who was stupid in writing a net open position in LEH credit default swaps and what they must pay. This will be quite interesting. Here is my position: any financial firm that shows a net loss to those shall have its CEO fired after a severe horsewhipping. No one should have ever done that. Sure, hedge funds could gamble like that with their gullible investors' money. But no actual firm - bank, investment bank, insurance company, etc. -should have done that.
Actions
I am still waiting for Vanguard to clear that check so I can buy more US stocks in Krypto Fund. I suppose part of the delay is that the size was large. But it's annoying to me. Ameritrade always gave me trading & buying power instantly.
Word of the Day
"Estop" - verb, transitive [$10] (estopped, estopping)
Estop means (Law) bar or preclude, especially by estoppel.
"Estoppel" - noun [$10]
Estoppel means (Law) the principle which precludes a person from asserting something contrary to what is implied by a previous action or statement of that person or by previous judicial determination.
Sentence: One would think that if W [aka George W. Bush] had any principles he would consider himself estopped from opposing a second economic stimulus plan and merely want it spent effectively, perhaps to help the common man better. After all, he and his Republican cronies spent money as prodigiously as Ronald Reagan's "drunken sailor" metaphor.
So the recovery to date is ALL due to better psychology and the Fed increasing the monetary base. And why should that be true as the entire "crash" was due to a panic of the rich.
Today we find out who was stupid in writing a net open position in LEH credit default swaps and what they must pay. This will be quite interesting. Here is my position: any financial firm that shows a net loss to those shall have its CEO fired after a severe horsewhipping. No one should have ever done that. Sure, hedge funds could gamble like that with their gullible investors' money. But no actual firm - bank, investment bank, insurance company, etc. -should have done that.
Actions
I am still waiting for Vanguard to clear that check so I can buy more US stocks in Krypto Fund. I suppose part of the delay is that the size was large. But it's annoying to me. Ameritrade always gave me trading & buying power instantly.
Word of the Day
"Estop" - verb, transitive [$10] (estopped, estopping)
Estop means (Law) bar or preclude, especially by estoppel.
"Estoppel" - noun [$10]
Estoppel means (Law) the principle which precludes a person from asserting something contrary to what is implied by a previous action or statement of that person or by previous judicial determination.
Sentence: One would think that if W [aka George W. Bush] had any principles he would consider himself estopped from opposing a second economic stimulus plan and merely want it spent effectively, perhaps to help the common man better. After all, he and his Republican cronies spent money as prodigiously as Ronald Reagan's "drunken sailor" metaphor.
Monday, October 20, 2008
Monday Morning Ramblings
21 years ago yesterday the Great Crash occurred - the Dow Jones Industrial Average dropped 22% in one day, culminating a 33% drop in six weeks. Why did that occur ?
This crash was spread over a couple of weeks. Stocks were not overvalued. The Fed was somewhat accomodative, having lowered interest rates. Oil prices had been falling. The ultimate crash was triggered by Congress failing to act on the Paulson plan. But financial innovation was there again: hedge funds and credit default swaps. Those two "innovations" have almost no connection to the "real economy" of real buyers, manufacturers, lenders, and borrowers.
Perhaps this Crash was triggered by the oil market bubble of the Spring and Summer bleeding more purchasing power from strained consumers, hence analogies with the 1973-75 bear market are proper. But that was caused by hedge funds, oil swaps and pension fund speculation in commodities.
Well, I suppose the "ultimate" root cause was speculation in residential housing, cheered on by Elmer (aka Alan Greenspan), but hedge funds played an important, unnoticed role there, too, by funding the subordinated classes of those subprime mortgages securities. And credit default swaps, did, too.
Now we all know that "liquidity" is a double-edged sword. Let's just turn the clock on financial innovations back to about 1981 when lenders were lenders, and equity was equity.
Historically, the market makes major bottoms in October more often than not.
China industrial production grew 11% in Q3 despite the Olympics slowdown. China GDP grew 9%.
Actions
Today I hope to buy more stocks with new cash in Krypto Fund, IFF they clear the check. Vanguard seems rather slow in doing this - I might have to call them. I'll be buying the Vanguard Total Market Index Fund probably after the first hour, or I might wait until the usual lunch pullback.
Word of the Day
"Babbit" - noun [$10] a Mencken word.
Babbit means a materialistic, complacent businessman [from George Babbitt, a character in the novel, "Babbitt (1922) by. S. Lewis]. Mencken says the term properly fits those who also blather and preach about "service" cf. Rotary, Kiwanis, etc.
Also - babbitt - short for babbitt metal - 1. any of a group of soft alloys of tin, antimony, copper, and usu. lead used for lining bearings, etc. to diminish friction; 2. a bearing lining made of this.
Sentence: The Babbitts of America might be shocked by a lurch to the left if Obama wins and gains a filibuster-proof Senate to ram socialism into the American system.
- Stocks were greatly overvalued.
- The prior weeks had major news events - all bad - dollar dropping, Congress intervening in takeovers, Fed raising rates, Reagan shelled a Persian Gulf Iranian oil rig, and another I can't remember now.
- A financial innovation - portfolio insurance - was rampant, but not tested.
This crash was spread over a couple of weeks. Stocks were not overvalued. The Fed was somewhat accomodative, having lowered interest rates. Oil prices had been falling. The ultimate crash was triggered by Congress failing to act on the Paulson plan. But financial innovation was there again: hedge funds and credit default swaps. Those two "innovations" have almost no connection to the "real economy" of real buyers, manufacturers, lenders, and borrowers.
Perhaps this Crash was triggered by the oil market bubble of the Spring and Summer bleeding more purchasing power from strained consumers, hence analogies with the 1973-75 bear market are proper. But that was caused by hedge funds, oil swaps and pension fund speculation in commodities.
Well, I suppose the "ultimate" root cause was speculation in residential housing, cheered on by Elmer (aka Alan Greenspan), but hedge funds played an important, unnoticed role there, too, by funding the subordinated classes of those subprime mortgages securities. And credit default swaps, did, too.
Now we all know that "liquidity" is a double-edged sword. Let's just turn the clock on financial innovations back to about 1981 when lenders were lenders, and equity was equity.
Historically, the market makes major bottoms in October more often than not.
China industrial production grew 11% in Q3 despite the Olympics slowdown. China GDP grew 9%.
Actions
Today I hope to buy more stocks with new cash in Krypto Fund, IFF they clear the check. Vanguard seems rather slow in doing this - I might have to call them. I'll be buying the Vanguard Total Market Index Fund probably after the first hour, or I might wait until the usual lunch pullback.
Word of the Day
"Babbit" - noun [$10] a Mencken word.
Babbit means a materialistic, complacent businessman [from George Babbitt, a character in the novel, "Babbitt (1922) by. S. Lewis]. Mencken says the term properly fits those who also blather and preach about "service" cf. Rotary, Kiwanis, etc.
Also - babbitt - short for babbitt metal - 1. any of a group of soft alloys of tin, antimony, copper, and usu. lead used for lining bearings, etc. to diminish friction; 2. a bearing lining made of this.
Sentence: The Babbitts of America might be shocked by a lurch to the left if Obama wins and gains a filibuster-proof Senate to ram socialism into the American system.
Friday, October 17, 2008
Once Upon A Time ....
... there were few hedge funds. The public bought stocks on their own ideas or from good, thoughtful brokers and provided plenty of order flow for the NYSE or NASDAQ. Mutual funds tended to hold stocks awhile, perhaps a year or two or much longer. The uptick rule prevented bear raids. New companies raised equity capital via IPOs that were reasonably structured and underwritten. Companies borrowed long term loans or issued long term bonds to fund long term assets. Pension fund and insurance companies invested in permanent capital - long term debt - that was often placed privately, secured and with convenants.
Then the "innovations" began. First the SEC gutted the underwriting rules. Then derivatives were created. Long-standing separation of banking from securities was vaporised. Rules for distribution of hedge funds - private investment partnerships - were loosened, letting them begin to raise huge amounts of funds. Short sale rules were violated in principle via options and derivatives. The uptick rule was eliminated.
Accounting "innovations" were made - financial assets were subject to "mark-to-market" valuation even if that investment was made for a long term investment, perhaps even to match a long term liability. So all "investment" was turned into speculation and evaluated as such. Long term investment was thus gutted in the debt markets. Debt investors began to want securities that could be "traded", even if that institution's liabilities were fixed, such as retirement or insurance liabilities.
"Credit default swaps" began to rule the bond and debt markets. Instead of prices being determined by "real" investors in debt investing real $$$ to actually buy the bonds & hold them, prices of credit are now determined purely by speculators - hedge funds and "The Street" who might never actually make the loan.
Can you believe such insanity as has been created for the past 27 years ? The connection to the underpinnings of the real economy were steadily eroded by the desires of speculators to trade. But perhaps this will save the real economy now. IFF the government programs are and were in place in time. IFF the Hank & Ben show started in time. Was the damage just temporary ?
Time will tell.
Meanwhile, the long-needed liquidation of excessive speculation by the rich in hedge funds is being washed out. This will take awhile, so be patient. Wait for the big dips to buy or add.
Note: IFF means "If and only if" - the precedent clause being a necessary and sufficient condition for the consequent.
Actions
Alpha Fund added a bit to the usual suspects - CVX, DVN, RIG, FCX, BHP, JOYG, EXM, DRYS, GNK. Earnings from GOOG were OK and that stock was up considerably in after hours trading.
Krypto Fund gets more cash today. Once the check clears, the spreadsheet says to buy some US stocks. So I will buy more VTI, the Vanguard Total Market Index ETF. I paid Krypto a dog biscuit for pushing the button. That's a lot cheaper than hedge fund management and since Krypto Fund is outperforming most, that is a good deal.
Word of the Day
"Nonce" - noun [$10] pronounced "nons" with the "o" as in "not". This is a word seen often in Shakespeare.
Nonce means the present or particular occasion. "For the nonce" means for the time being, or for the present occasion.
Sentence: For the nonce, let's stop thinking about the past and wondering about more problems, and look to the future and what good opportunities exist now.
Then the "innovations" began. First the SEC gutted the underwriting rules. Then derivatives were created. Long-standing separation of banking from securities was vaporised. Rules for distribution of hedge funds - private investment partnerships - were loosened, letting them begin to raise huge amounts of funds. Short sale rules were violated in principle via options and derivatives. The uptick rule was eliminated.
Accounting "innovations" were made - financial assets were subject to "mark-to-market" valuation even if that investment was made for a long term investment, perhaps even to match a long term liability. So all "investment" was turned into speculation and evaluated as such. Long term investment was thus gutted in the debt markets. Debt investors began to want securities that could be "traded", even if that institution's liabilities were fixed, such as retirement or insurance liabilities.
"Credit default swaps" began to rule the bond and debt markets. Instead of prices being determined by "real" investors in debt investing real $$$ to actually buy the bonds & hold them, prices of credit are now determined purely by speculators - hedge funds and "The Street" who might never actually make the loan.
Can you believe such insanity as has been created for the past 27 years ? The connection to the underpinnings of the real economy were steadily eroded by the desires of speculators to trade. But perhaps this will save the real economy now. IFF the government programs are and were in place in time. IFF the Hank & Ben show started in time. Was the damage just temporary ?
Time will tell.
Meanwhile, the long-needed liquidation of excessive speculation by the rich in hedge funds is being washed out. This will take awhile, so be patient. Wait for the big dips to buy or add.
Note: IFF means "If and only if" - the precedent clause being a necessary and sufficient condition for the consequent.
Actions
Alpha Fund added a bit to the usual suspects - CVX, DVN, RIG, FCX, BHP, JOYG, EXM, DRYS, GNK. Earnings from GOOG were OK and that stock was up considerably in after hours trading.
Krypto Fund gets more cash today. Once the check clears, the spreadsheet says to buy some US stocks. So I will buy more VTI, the Vanguard Total Market Index ETF. I paid Krypto a dog biscuit for pushing the button. That's a lot cheaper than hedge fund management and since Krypto Fund is outperforming most, that is a good deal.
Word of the Day
"Nonce" - noun [$10] pronounced "nons" with the "o" as in "not". This is a word seen often in Shakespeare.
Nonce means the present or particular occasion. "For the nonce" means for the time being, or for the present occasion.
Sentence: For the nonce, let's stop thinking about the past and wondering about more problems, and look to the future and what good opportunities exist now.
Thursday, October 16, 2008
Panic of the Rich Rolls On ...
That wonderful investment innovation, the hedge fund, continues to leave its scat all over the investment Universe. I suppose we can call them, "Sons of Portfolio Insurance", as their "professional" managers were supposed to provide steady, reasonable returns in any market. Such claims were sheer quacksalvery, as that is impossible in the size for which they were paid colossal sums. And now that they have predictably failed "in the crunch", the rich are panicking. I suppose they are afraid they will have to give up that art collection ... or the helicopter to the Hamptons ... or ... gasp ... have to go back to work.
Certainly the mega-genius hedge fund managers and traders and derivative gurus fear they might have to learn a new profession. So they are panicking in a pulsing stampede which reappears whenever some fear can be conjured ... or re-conjured ... or re-re-conjured.
Such happened yesterday, as fears of a "Recession" were touted as causing selling. Uh ... have not the pundits been saying the US recession began in the first days of 2008 ? So are they wrong now or wrong then or ? They cannot be right in both instances, as that is a "disjunctive" [aka either - or] syllogism.
FT: "Investors pulled at least $43bn from US hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by a leading research house shows. The data from TrimTabs Investment Research – which was to be sent to clients late on Wednesday – come as hedge funds are working to prevent far bigger redemptions by the end of the year, when many funds give investors a chance to take out money." ...
"The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses." ...
"JPMorgan Chase has estimated that hedge fund outflows could total up to $150bn over the coming year. As investors take their money out of hedge funds, the funds have to sell assets.
But because they use so much borrowed money, the amount of potential asset sales is far larger. For example, JPMorgan expects that an outflow of $150bn will lead to sales of about $400bn. "
So we should expect the wild rides to continue. Beware of excessive margin.
Hmmm ... I see the President of France reads this blog. I see he has called for regulation and supervision of hedge funds.
Books
Civil War Soldiers by Reid Mitchell provides a huge collection and synthesis of actual opinions, views and fears that Union and Confederate soldiers included in their letters home. These are first hand accounts of that war, which was the first industrialized, modern war in the world. I finished reading this book in my home town last week and rate this book 5 stars.
Word of the Day
"Transvalue" - verb, transitive [$10]; and "Transvaluation" - noun.
Transvalue means to re-estimate the value of, esp. on a basis differing from accepted standards; reappraise; reevaluate.
Sentence: Transvaluation of mortgage securities to a long term, hold to maturity basis determined from actual losses and cash flows from the current panic sale pricing should help lenders begin to make new loans to home buyers by preventing instant "mark-to-market" losses on performing loan pools.
Certainly the mega-genius hedge fund managers and traders and derivative gurus fear they might have to learn a new profession. So they are panicking in a pulsing stampede which reappears whenever some fear can be conjured ... or re-conjured ... or re-re-conjured.
Such happened yesterday, as fears of a "Recession" were touted as causing selling. Uh ... have not the pundits been saying the US recession began in the first days of 2008 ? So are they wrong now or wrong then or ? They cannot be right in both instances, as that is a "disjunctive" [aka either - or] syllogism.
FT: "Investors pulled at least $43bn from US hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by a leading research house shows. The data from TrimTabs Investment Research – which was to be sent to clients late on Wednesday – come as hedge funds are working to prevent far bigger redemptions by the end of the year, when many funds give investors a chance to take out money." ...
"The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses." ...
"JPMorgan Chase has estimated that hedge fund outflows could total up to $150bn over the coming year. As investors take their money out of hedge funds, the funds have to sell assets.
But because they use so much borrowed money, the amount of potential asset sales is far larger. For example, JPMorgan expects that an outflow of $150bn will lead to sales of about $400bn. "
So we should expect the wild rides to continue. Beware of excessive margin.
Hmmm ... I see the President of France reads this blog. I see he has called for regulation and supervision of hedge funds.
Books
Civil War Soldiers by Reid Mitchell provides a huge collection and synthesis of actual opinions, views and fears that Union and Confederate soldiers included in their letters home. These are first hand accounts of that war, which was the first industrialized, modern war in the world. I finished reading this book in my home town last week and rate this book 5 stars.
Word of the Day
"Transvalue" - verb, transitive [$10]; and "Transvaluation" - noun.
Transvalue means to re-estimate the value of, esp. on a basis differing from accepted standards; reappraise; reevaluate.
Sentence: Transvaluation of mortgage securities to a long term, hold to maturity basis determined from actual losses and cash flows from the current panic sale pricing should help lenders begin to make new loans to home buyers by preventing instant "mark-to-market" losses on performing loan pools.
Wednesday, October 15, 2008
Time to Look Forward
Looking around for more problems seems wrong now, as the major world governments finally seem to have done their duty to maintain a modern financial system. The Panic of the Rich seems almost played out, based on the evidence for huge hedge fund redemptions. One should not forget that the trillions in hedge funds are the "root cause" of all the froth and bubble of the past five years. So their liquidation is the "reactionary destruction" needed to clean the stables and restore normality.
Maybe it's time to take a breather and just wait a few months to see what damage has been done and how well the world economies can move forward. Naturally I'm optimistic as the free peoples of the world will tend to work freely to improve their individual lives. Collectively this provides a tail wind of about 3% growth or better. Government malfeasance can ruin that, so "constant vigilance" is necessary.
Fall is a beautiful season here in New England. I plan to try to enjoy it more and spend less time in front of the computer monitors.
I read that The Ostrich aka Trichet of the ECB talks about a new "Bretton Woods" agreement. Uhhhhh .... that was a US dollar based gold standard. Is he abdicating or delusional seeking more power ? The most glaring instance of governmental failure in this crisis has been the ECB.
I think my recent blog posts have been too long, so will try to be more succinct. But sometimes the words just flow out so easily.
Word of the Day
"Dystopia" - noun [$10]
Dystopia means a nightmare vision of society , often as one dominated by a totalitarian state. (Opposite of "utopia")
Sentence: The libertarian purists who worship the gods of the "free market" are now ranting about a market dystopia due to the governmental interventions that have solved the crisis. Are they delusional ? Or simply blinded by ideology ?
Maybe it's time to take a breather and just wait a few months to see what damage has been done and how well the world economies can move forward. Naturally I'm optimistic as the free peoples of the world will tend to work freely to improve their individual lives. Collectively this provides a tail wind of about 3% growth or better. Government malfeasance can ruin that, so "constant vigilance" is necessary.
Fall is a beautiful season here in New England. I plan to try to enjoy it more and spend less time in front of the computer monitors.
I read that The Ostrich aka Trichet of the ECB talks about a new "Bretton Woods" agreement. Uhhhhh .... that was a US dollar based gold standard. Is he abdicating or delusional seeking more power ? The most glaring instance of governmental failure in this crisis has been the ECB.
I think my recent blog posts have been too long, so will try to be more succinct. But sometimes the words just flow out so easily.
Word of the Day
"Dystopia" - noun [$10]
Dystopia means a nightmare vision of society , often as one dominated by a totalitarian state. (Opposite of "utopia")
Sentence: The libertarian purists who worship the gods of the "free market" are now ranting about a market dystopia due to the governmental interventions that have solved the crisis. Are they delusional ? Or simply blinded by ideology ?
Tuesday, October 14, 2008
Bounce-a-roo
Yesterday's US stock market bounce-a-roo was more like a superball bouncing, not merely the plain tennis ball bounce. Since last week's drop was a panic of the hedge funds of the rich, likely there were no real sellers left at low prices, so real buyers were able to move prices much higher readily. And I presume those surviving hedge funds with the ability to think rationally bought, too.
Among the real buyers was my Alpha Fund and Mrs. B's Sky Fund. Once the morning highs held and were broken upwards, I added to the Alpha Fund holdings that were still at good prices, moving to 150% long. Adds were to CVX, DVN, RIG, FCX, BHP, JOYG, EXM, DRYS, GNK, EDU. I did not add to AAPL, GOOG, and JPM as those were either no longer cheap or about flat with my last buy. I did not add to MBI as I have enough of that high risk, high reward speculation.
Mrs. B added to many stocks in her Sky Fund: a few consumer stables, some industrials, HBC, and a few other of her eclectic stocks. Stocks that appeared cheap on the weekly charts with good dividends and low PEs were selected for additional funds - this is all new cash being deployed. We together remarked on how many quality companies offered dividends over 3% and PEs around 10x, which are screaming buys in our thinking.
So now we wait. The details of the Treasury's plan are to be announced this morning. Since this whole mess is a "simple" panic of the rich, the principal problems can be cured rather quickly. What we do not know is the damage these huge pools of money have caused in their stampede. That will take some time.
But stocks prices are very low. In my humble opinion, too low. Home prices have bottomed except in the sun & surf areas and second home areas of the US, viz. mostly CA, NV, AZ and FL. Some McMansion areas suffer, too.
I have no problem with a second Federal stimulus which provides real stimulus, but not a pork bill with lard. Why not just give homeowners a break somehow, or small business, or provide some cash for Christmas ?
Treasury inflation protected securities ["TIPs"] are at very low prices, as the public flops from psychotic fear of inflation to deflation talk. I intend to re-build this long term holding in my Krypto Fund over time. It's remarkable that those prices moved about 20% in just about eight months. In the past the charts of TIPs looked like flatlines. I do not fear inflation for the next few years, but pricing 0% inflation for a decade is too extreme and demands a long term buy with new cash.
PS: So far I like what Paulson is doing with the TARP. More later. I like his flexibility.
Word of the Day
"Ineffable" - adjective [$10]
Ineffable means 1. unutterable; too great for description in words; 2. that must not be uttered.
Sentence: After being ineffable for decades, talk of possible Depression and comparisons to the Great Depression are now commonplace.
Among the real buyers was my Alpha Fund and Mrs. B's Sky Fund. Once the morning highs held and were broken upwards, I added to the Alpha Fund holdings that were still at good prices, moving to 150% long. Adds were to CVX, DVN, RIG, FCX, BHP, JOYG, EXM, DRYS, GNK, EDU. I did not add to AAPL, GOOG, and JPM as those were either no longer cheap or about flat with my last buy. I did not add to MBI as I have enough of that high risk, high reward speculation.
Mrs. B added to many stocks in her Sky Fund: a few consumer stables, some industrials, HBC, and a few other of her eclectic stocks. Stocks that appeared cheap on the weekly charts with good dividends and low PEs were selected for additional funds - this is all new cash being deployed. We together remarked on how many quality companies offered dividends over 3% and PEs around 10x, which are screaming buys in our thinking.
So now we wait. The details of the Treasury's plan are to be announced this morning. Since this whole mess is a "simple" panic of the rich, the principal problems can be cured rather quickly. What we do not know is the damage these huge pools of money have caused in their stampede. That will take some time.
But stocks prices are very low. In my humble opinion, too low. Home prices have bottomed except in the sun & surf areas and second home areas of the US, viz. mostly CA, NV, AZ and FL. Some McMansion areas suffer, too.
I have no problem with a second Federal stimulus which provides real stimulus, but not a pork bill with lard. Why not just give homeowners a break somehow, or small business, or provide some cash for Christmas ?
Treasury inflation protected securities ["TIPs"] are at very low prices, as the public flops from psychotic fear of inflation to deflation talk. I intend to re-build this long term holding in my Krypto Fund over time. It's remarkable that those prices moved about 20% in just about eight months. In the past the charts of TIPs looked like flatlines. I do not fear inflation for the next few years, but pricing 0% inflation for a decade is too extreme and demands a long term buy with new cash.
PS: So far I like what Paulson is doing with the TARP. More later. I like his flexibility.
Word of the Day
"Ineffable" - adjective [$10]
Ineffable means 1. unutterable; too great for description in words; 2. that must not be uttered.
Sentence: After being ineffable for decades, talk of possible Depression and comparisons to the Great Depression are now commonplace.
Monday, October 13, 2008
Back from the Heartland
I have returned Sunday afternoon from my hometown in SE Ohio, enduring typically shabby treatment from an airline. My hometown is quite a delightful place to visit and, in fact, to have grown up in as a child and young person. I stayed in a pleasant cabin in the woods - naturally feeling quite at home. Partaking of the local food establishments instead of McDonald's for this trip, I enjoyed fine meals including a particularly good New York Strip steak and accompanying wine at a restaurant. More fine local fare included several chocolate milk shakes, homemade, beer-battered onion rings, a fine pizza at my childhood favorite establishment and a huge breakfast for $4. "Inflation" was nonexistent, as usual.
Since I had no Internet service during the trip and quite limited news exposure, I missed the "fun" of the last half of last week. Ugh ! However, perhaps the ague peaked on Friday.
Of course much colossal foolishness is being slowly exposed by this turmoil. Iceland is a fine example. Apparently billion of Pounds were deposited into its banks by British "investors" - uh ... I guess they were really speculators. Iceland has 300,000 people, fewer than Columbus, Ohio. Who in any rational frame of mind would "invest" billions in banks in such a tiny place ?
The Euro-nations seems to be working together now - that is good.
In case you are wondering why banks and markets need to be supported and preserved by government, I suggest you consider that direct cause and effect relationships exist for about 1,500 years or perhaps even 2,000 years or more connecting prosperity of communities and towns and cities and nations to their having working markets for people to exchange goods and services. Credit is essential for this activity to be extended beyond face-to-face contact.
Why do pundits pontificate on matters on which they clearly have never read a scholarly work ? I heard a fellow on Bloomberg early this morning citing the Panic of 1873 as an analogy. I have read books about every panic of the 19th century and there is no doubt that 1873 bears almost no connection to today.
The Fed has made its dollar swap lines unlimited in size to provide dollars to the BOE, ECB and Swiss National Banks. So this should get the Eurodollar market moving . I have wondered why there has been a shortage of dollars in Europe. Perhaps US banks and money market funds cut back lending there. Or perhaps the Arab and Russian pulled back. Over time perhaps we will learn the cause of this problem, which is really in the center of this maelstrom.
I read in the WSJ and FT that all those "wonderful" over-the-counter derivative contracts in both commodities and credit default swaps are now being moved to central clearing exchanges. I remember that fool, Alan Greenspan aka Elmer, saying how "wonderful" all the liquidity those derivative markets provided. Sheesh.
This morning electronics giant Phillips said it was seeing lower demand and was dropping its stock buyback programs. Sigh ... another example of stupidity and greed - they only do stock buybacks at high prices.
Internet Idiotcy
I have seem now twice an example of false information propagated over the Internet, from completely unconnected people. An email being sent around the world says that a better use of the $85 billion being used to support AIG would be to give it to the US taxpayers and that $425,000 per person could result. Uh ... the writer made a math error ... three too many zeros. The correct math gives $425, being $85 billion divided by 200 million persons. Of course, Bunkerman knows his math and checked the facts.
I wonder if this type of stupid, false commentary is a cause of public antipathy to the Paulson plan ?
Markets
Time to buy. I will be buying stocks today and all week as long as the governments keep working hard and together .. and not bickering.
As far as banks, ... and now there was one .. viz. JPM. And perhaps HBC. It appears these are the last two banks that are well run and do not need government or Warren Buffet's help and are not cutting dividends. So those two will be the ones that will emerge untrammeled by government restriction and not massively diluted. BAC's head cad, Ken Lewis, blew it by overpaying for Merrill Lynch. And C's Victor Pandit similarly blew it on cutting the dividend in bidding for WB. I'd consider investing in WFC, but after it raises the capital that it says it will raise to pay for WB. But one wonders if WFC is overpaying, too.
JPM showed discipline by buying WM for zero. I wonder if it will buy MS ?
Hmmm CHK's CEO got a multibillion margin call and had to dump billions in stock. I read that Sumner Redstone also got a margin call. Interesting.
The Root Causes
Well, I suppose all last week beefers and the rich were panicking and selling all they had. That was the source of all that selling - the deluge. Perhaps it's over now ... or will be soon over.
The "root cause" of all this pain is the collective beefer community - the trillions put into speculative hedge funds and or run by aggressive advisors for the rich who wanted a "free lunch" of "steady returns in good or bad markets. That is and was known to be impossible in such size. So a huge bubble was created by the rich and their quacksalver advisers in their greed. That is why the credit derivative market was created ... why the subprime market could grow so large ... and is why the over-the-counter trading in commodities could grow so large to cause an oil bubble.
The massive leverage that pundits cite which must be cut back resides in hedge funds as the counterparty to the banks. And it's being liquidated.
Gigantic pools of money simply need to be massive restricted. Period.
The stock market could never become a grand new, bull market without the breaking of those pools, whose trading nonsense weighed on markets and diverted massive sums from production investment. Now they are dying and perhaps, as the death of the dinosaurs freed the world for mammalian development, a new wave of diverse growth led by the free peoples of the world can now be develop and persist.
Word of the Day
"Ideocratic" - adjective [$10,000 ???] this word appears in no dictionaries. But its related word, "ideocracy", does appear in Dictionary.com in Webster's New Millenium dictionary.
Ideocracy means rule or government based on an idea or theory.
Ideocratic means of, or related to, or derived from ideocracy. Compare to theocratic, democratic, timocratic, etc.
Sentences:
Original usage - [from Reflections on a Ravaged century, by R. Conquest, pg. 89] "The full pathology of an Idea is to be seen in pure form in, for example, the whole lethal activity of the Khmer Rouge. ... We shall consider the content, and the history, of these ideocratic movements and States in later chapters."
Current Usage: The untrammeled ability of huge pools of money to be created and run rampant around the world's financial markets further facilitated creation of dangerous derivative markets. All this occurred because governments and regulators were smitten by, and run according to ideocratic notions of pure libertarianism and "free" markets.
Since I had no Internet service during the trip and quite limited news exposure, I missed the "fun" of the last half of last week. Ugh ! However, perhaps the ague peaked on Friday.
Of course much colossal foolishness is being slowly exposed by this turmoil. Iceland is a fine example. Apparently billion of Pounds were deposited into its banks by British "investors" - uh ... I guess they were really speculators. Iceland has 300,000 people, fewer than Columbus, Ohio. Who in any rational frame of mind would "invest" billions in banks in such a tiny place ?
The Euro-nations seems to be working together now - that is good.
In case you are wondering why banks and markets need to be supported and preserved by government, I suggest you consider that direct cause and effect relationships exist for about 1,500 years or perhaps even 2,000 years or more connecting prosperity of communities and towns and cities and nations to their having working markets for people to exchange goods and services. Credit is essential for this activity to be extended beyond face-to-face contact.
Why do pundits pontificate on matters on which they clearly have never read a scholarly work ? I heard a fellow on Bloomberg early this morning citing the Panic of 1873 as an analogy. I have read books about every panic of the 19th century and there is no doubt that 1873 bears almost no connection to today.
The Fed has made its dollar swap lines unlimited in size to provide dollars to the BOE, ECB and Swiss National Banks. So this should get the Eurodollar market moving . I have wondered why there has been a shortage of dollars in Europe. Perhaps US banks and money market funds cut back lending there. Or perhaps the Arab and Russian pulled back. Over time perhaps we will learn the cause of this problem, which is really in the center of this maelstrom.
I read in the WSJ and FT that all those "wonderful" over-the-counter derivative contracts in both commodities and credit default swaps are now being moved to central clearing exchanges. I remember that fool, Alan Greenspan aka Elmer, saying how "wonderful" all the liquidity those derivative markets provided. Sheesh.
This morning electronics giant Phillips said it was seeing lower demand and was dropping its stock buyback programs. Sigh ... another example of stupidity and greed - they only do stock buybacks at high prices.
Internet Idiotcy
I have seem now twice an example of false information propagated over the Internet, from completely unconnected people. An email being sent around the world says that a better use of the $85 billion being used to support AIG would be to give it to the US taxpayers and that $425,000 per person could result. Uh ... the writer made a math error ... three too many zeros. The correct math gives $425, being $85 billion divided by 200 million persons. Of course, Bunkerman knows his math and checked the facts.
I wonder if this type of stupid, false commentary is a cause of public antipathy to the Paulson plan ?
Markets
Time to buy. I will be buying stocks today and all week as long as the governments keep working hard and together .. and not bickering.
As far as banks, ... and now there was one .. viz. JPM. And perhaps HBC. It appears these are the last two banks that are well run and do not need government or Warren Buffet's help and are not cutting dividends. So those two will be the ones that will emerge untrammeled by government restriction and not massively diluted. BAC's head cad, Ken Lewis, blew it by overpaying for Merrill Lynch. And C's Victor Pandit similarly blew it on cutting the dividend in bidding for WB. I'd consider investing in WFC, but after it raises the capital that it says it will raise to pay for WB. But one wonders if WFC is overpaying, too.
JPM showed discipline by buying WM for zero. I wonder if it will buy MS ?
Hmmm CHK's CEO got a multibillion margin call and had to dump billions in stock. I read that Sumner Redstone also got a margin call. Interesting.
The Root Causes
Well, I suppose all last week beefers and the rich were panicking and selling all they had. That was the source of all that selling - the deluge. Perhaps it's over now ... or will be soon over.
The "root cause" of all this pain is the collective beefer community - the trillions put into speculative hedge funds and or run by aggressive advisors for the rich who wanted a "free lunch" of "steady returns in good or bad markets. That is and was known to be impossible in such size. So a huge bubble was created by the rich and their quacksalver advisers in their greed. That is why the credit derivative market was created ... why the subprime market could grow so large ... and is why the over-the-counter trading in commodities could grow so large to cause an oil bubble.
The massive leverage that pundits cite which must be cut back resides in hedge funds as the counterparty to the banks. And it's being liquidated.
Gigantic pools of money simply need to be massive restricted. Period.
The stock market could never become a grand new, bull market without the breaking of those pools, whose trading nonsense weighed on markets and diverted massive sums from production investment. Now they are dying and perhaps, as the death of the dinosaurs freed the world for mammalian development, a new wave of diverse growth led by the free peoples of the world can now be develop and persist.
Word of the Day
"Ideocratic" - adjective [$10,000 ???] this word appears in no dictionaries. But its related word, "ideocracy", does appear in Dictionary.com in Webster's New Millenium dictionary.
Ideocracy means rule or government based on an idea or theory.
Ideocratic means of, or related to, or derived from ideocracy. Compare to theocratic, democratic, timocratic, etc.
Sentences:
Original usage - [from Reflections on a Ravaged century, by R. Conquest, pg. 89] "The full pathology of an Idea is to be seen in pure form in, for example, the whole lethal activity of the Khmer Rouge. ... We shall consider the content, and the history, of these ideocratic movements and States in later chapters."
Current Usage: The untrammeled ability of huge pools of money to be created and run rampant around the world's financial markets further facilitated creation of dangerous derivative markets. All this occurred because governments and regulators were smitten by, and run according to ideocratic notions of pure libertarianism and "free" markets.
Wednesday, October 8, 2008
Traveling to the Heartland ...
Around midday today I will travel to Ohio to my hometown and expect not to have Internet access there. So I will be unable to make new posts to this blog until Monday.
Here’s an interesting story:
Central banks have all but stopped lending gold to commercial and investment banks and other participants in the precious metals market, in a move that on Tuesday sent the cost of borrowing bullion for one-month to more than twenty times its usual level. …
Demand for physical gold and small and medium-sized bars had been strong, removing supplies from the market that otherwise could have been lent, traders added. … The US Mint on Tuesday said it had run out of half-ounce and quarter-ounce American Eagle gold coins following “unprecedented” demand.
Investors are seeking refuge in actual gold coins and bars as fears about the safety of their savings increase. Some have even been selling their positions in gold futures, as this is a less tangible form of the metal.
Despite the recent move up, gold is still well below its price this Spring when gold sold for over $1,000 per ounces, which is when I sold the bulk of the physical gold in my Krypto Fund. But I still have a good bit – enough for a real crisis of civilization.
Cad of the Week, Ken Lewis of BAC gutted his own shareholders as he funded his construction of his monumental edifice: clearly the purchase of MER has shaved 1/3 to 1/2 off the value of BAC. Cad Ken sells $10 billion of BAC stock at $22, a 1/3 haircut off its recent trading range.
Battleship Ben continues heavy shelling and no doubt the cure is pulsing through the veins of the patient. But what is happening now is the deluge of a trillion $$$ of hedge funds liquidations as the rich continue to panic. The rich “invested” over a trillion $ since the mid 1990s in hedge funds that were no more than speculative trading shops. No long term "real" investments were made with all this money. No new mines … buildings …. factories … or even venture capital was funded. And most of this money went into “trades” in similar investment strategies. The managers extracted colossal fees – billions - for merely being cow in the herd.
Hank the Tank continues to build his offensive resources and refine his plans. Soon the financial version of Bradley’s Operation Cobra offensive will be launched. Once the bears line is crushed, Patton’s tanks will roll up the bears. He’s got to get this right and not squander his resources.
Using the medical analogy, the fever is now peaking and will soon subside. Then the recovery.
The UK is recapitalizing its banks. And requiring the banks to lend. Seems OK to me. Note that HSBC [ticker HBC] says it does not need the money and will not participate.
I wonder when the ECB and BOE will cut interests rates ? The silence is remarkably deafening.
I hate to mention a longer term drag, but all those homeowners who took out balloon mortgages for 5-7 years might have serious problems refinancing. That is a lesson to be re-learned after first learnignit in the 1920s. I ranted about that practice here and in other forums over the past few years. But as usual, greed ruled over sense.
PS: Isn't it odd that many/most anecdotes about people in trouble with home morgtages include a cash out re-financing or home equity loan spent on vacations, etc. A home is a home is a home; it's not an investment or a piggy bank.
Markets
Asia got crushed last night. My chronic infection of “buyearlyitis” continues. I bought a bit of JOYG yesterday and some JPM. So far I have not shown symptoms of “addearlyitis” .. whew !
For now I will wait until the storm subsides, then go to 150% long in Alpha Fund.
Mrs. B continues to show incredible restraint in shopping for bargains in investing a substantial amount of cash. Amazing … a master at work.
Some Memories
I remember orientation sessions in 1981 as I started work fresh out of business school at a major Wall Street firm. A US Treasury bond trade came to speak one afternoon. His eyes were wide open in fear, and he spoke quietly and slowly as if in shock. At the time I think US Treasury bonds were priced to yield about 14% and the Prime Rate was over 20%. He just said there was no liquidity and no bids for bonds. And then he repeated himself. After a few minutes of desultory talk, he left.
I remember that black Monday in 1987 when the stock market fell 22% in one day, due to that great financial innovation called "portfolio" insurance.. The market had fallen a total of 33% from its prior high in mid August.
I have memories of massive unemployment in 1974 and gas lines as the first oil price "adjustion" caused a massive recession in all the world's economies. Stocks fell about 40% in that period.
This seems so much like those periods, but differs in details. And unfortunately it did not have to happen. Just like 1981 and 1987 events. As for 1974, perhaps that need not have happened either except for OPEC greed and desire to use oil as a weapon.
But one can look at the 100 year wall charts to see that a grand new time of prosperity will eventually occur as long as governments don't start fighting each other either with trade wars or militarily.
Word of the Day
"Ague" - noun [$10]
Ague means 1. (historical) a malarial fever with cold, hot and sweating stages; 2. a shivering fit.
Sentence: As the markets' ague continues, the Fed & Treasury cures are being fed intravenously now. Will the fever peak & break soon and how low will the recovery take ?
Here’s an interesting story:
Central banks have all but stopped lending gold to commercial and investment banks and other participants in the precious metals market, in a move that on Tuesday sent the cost of borrowing bullion for one-month to more than twenty times its usual level. …
Demand for physical gold and small and medium-sized bars had been strong, removing supplies from the market that otherwise could have been lent, traders added. … The US Mint on Tuesday said it had run out of half-ounce and quarter-ounce American Eagle gold coins following “unprecedented” demand.
Investors are seeking refuge in actual gold coins and bars as fears about the safety of their savings increase. Some have even been selling their positions in gold futures, as this is a less tangible form of the metal.
Despite the recent move up, gold is still well below its price this Spring when gold sold for over $1,000 per ounces, which is when I sold the bulk of the physical gold in my Krypto Fund. But I still have a good bit – enough for a real crisis of civilization.
Cad of the Week, Ken Lewis of BAC gutted his own shareholders as he funded his construction of his monumental edifice: clearly the purchase of MER has shaved 1/3 to 1/2 off the value of BAC. Cad Ken sells $10 billion of BAC stock at $22, a 1/3 haircut off its recent trading range.
Battleship Ben continues heavy shelling and no doubt the cure is pulsing through the veins of the patient. But what is happening now is the deluge of a trillion $$$ of hedge funds liquidations as the rich continue to panic. The rich “invested” over a trillion $ since the mid 1990s in hedge funds that were no more than speculative trading shops. No long term "real" investments were made with all this money. No new mines … buildings …. factories … or even venture capital was funded. And most of this money went into “trades” in similar investment strategies. The managers extracted colossal fees – billions - for merely being cow in the herd.
Hank the Tank continues to build his offensive resources and refine his plans. Soon the financial version of Bradley’s Operation Cobra offensive will be launched. Once the bears line is crushed, Patton’s tanks will roll up the bears. He’s got to get this right and not squander his resources.
Using the medical analogy, the fever is now peaking and will soon subside. Then the recovery.
The UK is recapitalizing its banks. And requiring the banks to lend. Seems OK to me. Note that HSBC [ticker HBC] says it does not need the money and will not participate.
I wonder when the ECB and BOE will cut interests rates ? The silence is remarkably deafening.
I hate to mention a longer term drag, but all those homeowners who took out balloon mortgages for 5-7 years might have serious problems refinancing. That is a lesson to be re-learned after first learnignit in the 1920s. I ranted about that practice here and in other forums over the past few years. But as usual, greed ruled over sense.
PS: Isn't it odd that many/most anecdotes about people in trouble with home morgtages include a cash out re-financing or home equity loan spent on vacations, etc. A home is a home is a home; it's not an investment or a piggy bank.
Markets
Asia got crushed last night. My chronic infection of “buyearlyitis” continues. I bought a bit of JOYG yesterday and some JPM. So far I have not shown symptoms of “addearlyitis” .. whew !
For now I will wait until the storm subsides, then go to 150% long in Alpha Fund.
Mrs. B continues to show incredible restraint in shopping for bargains in investing a substantial amount of cash. Amazing … a master at work.
Some Memories
I remember orientation sessions in 1981 as I started work fresh out of business school at a major Wall Street firm. A US Treasury bond trade came to speak one afternoon. His eyes were wide open in fear, and he spoke quietly and slowly as if in shock. At the time I think US Treasury bonds were priced to yield about 14% and the Prime Rate was over 20%. He just said there was no liquidity and no bids for bonds. And then he repeated himself. After a few minutes of desultory talk, he left.
I remember that black Monday in 1987 when the stock market fell 22% in one day, due to that great financial innovation called "portfolio" insurance.. The market had fallen a total of 33% from its prior high in mid August.
I have memories of massive unemployment in 1974 and gas lines as the first oil price "adjustion" caused a massive recession in all the world's economies. Stocks fell about 40% in that period.
This seems so much like those periods, but differs in details. And unfortunately it did not have to happen. Just like 1981 and 1987 events. As for 1974, perhaps that need not have happened either except for OPEC greed and desire to use oil as a weapon.
But one can look at the 100 year wall charts to see that a grand new time of prosperity will eventually occur as long as governments don't start fighting each other either with trade wars or militarily.
Word of the Day
"Ague" - noun [$10]
Ague means 1. (historical) a malarial fever with cold, hot and sweating stages; 2. a shivering fit.
Sentence: As the markets' ague continues, the Fed & Treasury cures are being fed intravenously now. Will the fever peak & break soon and how low will the recovery take ?
Tuesday, October 7, 2008
A "United States of Europe" is needed
WSJ: "EU Fights Irrelevance in Crunch"
Perhaps the nations and people of Europe will now learn the lesson that the leaders of the American States did in 1787. A unified national government with a moderately strong executive is essential for actions in times of crisis. Perhaps Europe will finally just copy the Constitution of the United States, make a few modifications for their inherent multilingual nature and implement it.
The unelected, unaccountable - even unappointed and unconfirmed - Trichet the Ostrich continues to say he's done everything and it's now a political problem. What a fool ! His delusion of fighting the phantom of inflation perhaps reaches back to Don Quixote jousting with windmills thinking they were giants in his clouded mind.
Russia lends Iceland $5 billion to stave off bankruptcy. That is a geopolitical loan. Iceland is strategically located in the North Atlantic at a critical point for Russia's fleet to break into the Atlantic. I presume KGB thinker Putin is plotting something.
Australian central bank cuts rates. Good. A start.
The Bank of England needs to lower rates buy a large amount - to 2% The ECB needs to cut rates to 2%.
The Fed will now pay interest on reserves at 75 bps under the overnight Fed funds rate. Good. So the banks will no longer just invest in T-bills, which now yield less. And banks obviously will earn more money.
Speaking of banks, BAC greatly disappointed me yesterday. But at least I had taken counsel of my fears after the MER acquisition when Ken Lewis said that all ways to raise capital were on the table. And he proceeds to cut the dividend by 50% to fund part of the MER purchase. What a jerk ! He builds his edifice now with the pain of his shareholders. At least I had sold. Whew !
Here are two lessons - one already learned and one just learned -
1. In a bull market do NOT take counsel of your fears. Hold good stocks for big gains.
2. In a bear market DO take counsel of your fears. Many bugs appear when the one picks up the rocks. And that bullet being "bitten" can become well-chewed.
WB taught me #2 - a painful lesson. But that learning saved me a lot of $$$ when a fear was conjured in my mind about BAC after the MER acquisition.
What is it with these banks like BAC and C who want to make big acquisitions while cutting dividends ? Do their leaders think the shareholders are mere serfs who cannot leave the manor after a pay cut ?
So now JPM is my sole bank of choice to re-buy at a good price. WFC seems a bit expensive and is now mud wrestling C over WB. I'll stay out of that mess.
Markets
The Dow Jones Industrial Average had fallen about 800 pts when I put my Bunker buy program in place and got some good prices on my stocks. Alpha Fund is now 100% long again.
My list: CVX, DVN, RIG, FCX, BHP, AAPL, GOOG, DRYS, EXM, GNK, and a bit of MBI. At a good price after the short sale rules are lifted, I'd like to buy some JPM. I figure the beefers will knock the banks down and give me JPM at a good price.
Word of the Day
"Cad" - noun [$10]
Cad means a person (esp. a man) who behaves dishonorably.
Sentence: Ken Lewis, the CEO of BAC, has become Cad of the Week, by making his shareholders pay to satisfy his "Edifice Complex" as he buys MER and then cuts the dividend by 50%.
Note: "Edifice Complex" is a pun on Oedipus Complex, a Freudian diagnosis drawing on the character Oedipus in the plays of Aeschylus who fulfilled a prophesy to kill his father and marry his mother.
Perhaps the nations and people of Europe will now learn the lesson that the leaders of the American States did in 1787. A unified national government with a moderately strong executive is essential for actions in times of crisis. Perhaps Europe will finally just copy the Constitution of the United States, make a few modifications for their inherent multilingual nature and implement it.
The unelected, unaccountable - even unappointed and unconfirmed - Trichet the Ostrich continues to say he's done everything and it's now a political problem. What a fool ! His delusion of fighting the phantom of inflation perhaps reaches back to Don Quixote jousting with windmills thinking they were giants in his clouded mind.
Russia lends Iceland $5 billion to stave off bankruptcy. That is a geopolitical loan. Iceland is strategically located in the North Atlantic at a critical point for Russia's fleet to break into the Atlantic. I presume KGB thinker Putin is plotting something.
Australian central bank cuts rates. Good. A start.
The Bank of England needs to lower rates buy a large amount - to 2% The ECB needs to cut rates to 2%.
The Fed will now pay interest on reserves at 75 bps under the overnight Fed funds rate. Good. So the banks will no longer just invest in T-bills, which now yield less. And banks obviously will earn more money.
Speaking of banks, BAC greatly disappointed me yesterday. But at least I had taken counsel of my fears after the MER acquisition when Ken Lewis said that all ways to raise capital were on the table. And he proceeds to cut the dividend by 50% to fund part of the MER purchase. What a jerk ! He builds his edifice now with the pain of his shareholders. At least I had sold. Whew !
Here are two lessons - one already learned and one just learned -
1. In a bull market do NOT take counsel of your fears. Hold good stocks for big gains.
2. In a bear market DO take counsel of your fears. Many bugs appear when the one picks up the rocks. And that bullet being "bitten" can become well-chewed.
WB taught me #2 - a painful lesson. But that learning saved me a lot of $$$ when a fear was conjured in my mind about BAC after the MER acquisition.
What is it with these banks like BAC and C who want to make big acquisitions while cutting dividends ? Do their leaders think the shareholders are mere serfs who cannot leave the manor after a pay cut ?
So now JPM is my sole bank of choice to re-buy at a good price. WFC seems a bit expensive and is now mud wrestling C over WB. I'll stay out of that mess.
Markets
The Dow Jones Industrial Average had fallen about 800 pts when I put my Bunker buy program in place and got some good prices on my stocks. Alpha Fund is now 100% long again.
My list: CVX, DVN, RIG, FCX, BHP, AAPL, GOOG, DRYS, EXM, GNK, and a bit of MBI. At a good price after the short sale rules are lifted, I'd like to buy some JPM. I figure the beefers will knock the banks down and give me JPM at a good price.
Word of the Day
"Cad" - noun [$10]
Cad means a person (esp. a man) who behaves dishonorably.
Sentence: Ken Lewis, the CEO of BAC, has become Cad of the Week, by making his shareholders pay to satisfy his "Edifice Complex" as he buys MER and then cuts the dividend by 50%.
Note: "Edifice Complex" is a pun on Oedipus Complex, a Freudian diagnosis drawing on the character Oedipus in the plays of Aeschylus who fulfilled a prophesy to kill his father and marry his mother.
Monday, October 6, 2008
Panic of the Rich Continues ...
A huge positive development occurred Friday as Congress finally moved into the "real" part of our Universe out of their usual "imaginary" Universe to pass the Paulson Plan. Why the drop ? Easy ... traders had bid up stocks figuring to flip them to "real" buyers on the news ... but real buyers don't buy on the rips, so the traders bailed out.
Aside: I listened to Speaker Nancy Pelosi of the winery & pearls crowd while driving to the dog event - what an airhead !!
Germany's schadenfreude [* today's Word of the Day ] lasted about a week, as Germany, after arrogant talk for awhile about US problems and problems with US style free markets, found a rotten apple in its own barrel. Germany had to bail out Hypo Real estate and cover 100% [!!!] of deposits of German private banks. By the way, Hypo Real Estate did NOT have US subprime investments: from FT - "HRE’s main businesses are lending to commercial property developers and, through Depfa, to the public sector. It is not a retail bank."
Germany stupidly torpedoed the leadership of French President Sarkozy who wanted to create a European version of the Paulson Plan. Ohh EU, can you survive conflict and crisis? The Euro is falling rapidly this morning.
Denmark also covered its public depositors.
And Iceland has serious problems: a falling currency is hurting its public who borrowed in "low rate" foreign currencies to by cars, etc. Of course hedge funds who sent money to Iceland for high interest rates are now fleeing as its currency drops rapidly. Volatility induced by hedge funds hurts Iceland.
And the ECB still fiddles ... amazing. The official name for Trichet & ECB is now "The Ostrich" to [sort of] rhyme with Maastricht.
One would think that all can now see that a little "inflation" is really not so bad ? But still this morning an "market commentor" in London saying that the UK should not cut rates.
Meanwhile ...
The fine restaurant was full on Friday and Saturday in southeast Connecticut and the food was outstanding. The dog agility event was quite busy and the homemade bacon, egg and cheese sandwiches, cheeseburgers, jumbo hot dogs were tasty. Traffic was quite heavy driving late home Sunday afternoon. I guess that $3.35 gas seemed cheap.
US corporations have good balance sheets. Yes, some are drawing on commercial paper lines, but heck, those are backed by bank lines and the banks can fund them from borrowing at the discount window as a fine profit as LIBOR is quite high. So fund them.
Buyers line up for parts of AIG.
A wrestling match is occurring between C and WFC for WB, which two weeks ago was a pariah.
The credit derivatives market - which should not exist - gets a test today as the FNM and FRE credit default swaps get settled.
Hedge funds and the rich continue to panic. The rich pull money out of these "great" hedge funds, which were leveraged hugely with swaps and loans. Why are large hedge funds permitted to borrow money anyway ? They can't pay it back when the investors pull their money out. I guess that's another reform needed in the regulation of hedge funds.
These huge beefers sloshing money all over the world are the "root cause" of the problems over the entire world from Iceland to the US to India.
Markets
Big drop early this AM in stocks in Europe and US futures. Alpha Fund will likely be a buyer today on a big down day. I might go from 0% stocks to 100% stocks. No margin.
Look, let me reiterate that my Alpha Fund is purely SPECULATIVE MONEY. This represents only about 1/6 of my total financial investments which in turn are less than 1/3 of my net worth.
For my long term investments, I simply do a broadly diversified asset allocation across many asset classes on a purely mechanical basis. This has worked well for me for over 25 years, through other recessions and financial crises. I have tweaked it over time as new asset classes became available. But the core strategy is unchanged.
In fact, I have observed that my efforts to improve it by adjusting class allocations to reflect my views on the future prospects of a class have not helped, on average. Success in some moves are offset by errors in others. So I no longer try. My dog, Krypto, runs it for dog biscuits and just pushes a button as needed to maintain balance.
PS: By the way, in case it's not obvious, other than the banks and housing, the weak spot in the economy is the auto industry and its suppliers.
World of the Day
"Schadenfreude" - noun [$10] (originally German, now in use in English)
Schadenfreude means the malicious enjoyment of another's misfortunes.
Sentence: The German Finance Minister was able to savor his schadenfreude for only about one week until a homegrown mess as Hype Real Estate began to smell and Germany had to go beyond the US and guarantee all private deposits at its banks.
Aside: I listened to Speaker Nancy Pelosi of the winery & pearls crowd while driving to the dog event - what an airhead !!
Germany's schadenfreude [* today's Word of the Day ] lasted about a week, as Germany, after arrogant talk for awhile about US problems and problems with US style free markets, found a rotten apple in its own barrel. Germany had to bail out Hypo Real estate and cover 100% [!!!] of deposits of German private banks. By the way, Hypo Real Estate did NOT have US subprime investments: from FT - "HRE’s main businesses are lending to commercial property developers and, through Depfa, to the public sector. It is not a retail bank."
Germany stupidly torpedoed the leadership of French President Sarkozy who wanted to create a European version of the Paulson Plan. Ohh EU, can you survive conflict and crisis? The Euro is falling rapidly this morning.
Denmark also covered its public depositors.
And Iceland has serious problems: a falling currency is hurting its public who borrowed in "low rate" foreign currencies to by cars, etc. Of course hedge funds who sent money to Iceland for high interest rates are now fleeing as its currency drops rapidly. Volatility induced by hedge funds hurts Iceland.
And the ECB still fiddles ... amazing. The official name for Trichet & ECB is now "The Ostrich" to [sort of] rhyme with Maastricht.
One would think that all can now see that a little "inflation" is really not so bad ? But still this morning an "market commentor" in London saying that the UK should not cut rates.
Meanwhile ...
The fine restaurant was full on Friday and Saturday in southeast Connecticut and the food was outstanding. The dog agility event was quite busy and the homemade bacon, egg and cheese sandwiches, cheeseburgers, jumbo hot dogs were tasty. Traffic was quite heavy driving late home Sunday afternoon. I guess that $3.35 gas seemed cheap.
US corporations have good balance sheets. Yes, some are drawing on commercial paper lines, but heck, those are backed by bank lines and the banks can fund them from borrowing at the discount window as a fine profit as LIBOR is quite high. So fund them.
Buyers line up for parts of AIG.
A wrestling match is occurring between C and WFC for WB, which two weeks ago was a pariah.
The credit derivatives market - which should not exist - gets a test today as the FNM and FRE credit default swaps get settled.
Hedge funds and the rich continue to panic. The rich pull money out of these "great" hedge funds, which were leveraged hugely with swaps and loans. Why are large hedge funds permitted to borrow money anyway ? They can't pay it back when the investors pull their money out. I guess that's another reform needed in the regulation of hedge funds.
These huge beefers sloshing money all over the world are the "root cause" of the problems over the entire world from Iceland to the US to India.
Markets
Big drop early this AM in stocks in Europe and US futures. Alpha Fund will likely be a buyer today on a big down day. I might go from 0% stocks to 100% stocks. No margin.
Look, let me reiterate that my Alpha Fund is purely SPECULATIVE MONEY. This represents only about 1/6 of my total financial investments which in turn are less than 1/3 of my net worth.
For my long term investments, I simply do a broadly diversified asset allocation across many asset classes on a purely mechanical basis. This has worked well for me for over 25 years, through other recessions and financial crises. I have tweaked it over time as new asset classes became available. But the core strategy is unchanged.
In fact, I have observed that my efforts to improve it by adjusting class allocations to reflect my views on the future prospects of a class have not helped, on average. Success in some moves are offset by errors in others. So I no longer try. My dog, Krypto, runs it for dog biscuits and just pushes a button as needed to maintain balance.
PS: By the way, in case it's not obvious, other than the banks and housing, the weak spot in the economy is the auto industry and its suppliers.
World of the Day
"Schadenfreude" - noun [$10] (originally German, now in use in English)
Schadenfreude means the malicious enjoyment of another's misfortunes.
Sentence: The German Finance Minister was able to savor his schadenfreude for only about one week until a homegrown mess as Hype Real Estate began to smell and Germany had to go beyond the US and guarantee all private deposits at its banks.
Friday, October 3, 2008
TGIF and more
FT: “Hedge Funds Prey on Rivals”
“Hedge funds are embracing trading strategies designed to profit from the unwinding of large positions by their competitors, market participants say. The increasingly cannibalistic activity stems from the wave of redemptions hitting hedge funds. Because so many firms hold similar positions, forced selling by one in response to redemptions can have ripple effects, forcing other funds to sell. More nimble hedge funds have sought to profit from the dynamic by taking short positions in securities known to be widely held by rivals. Goldman Sachs publishes a list of 50 “very important” hedge fund positions. “
Pundits and old fools like Elmer say hedge funds create “liquidity” and “reduce volatility”. That is now proven painfully and clearly wrong. Excessive monies speculating in hedge funds, aggressive mutual funds and aggressive investment advisors – collectively, the “big, evil funds” aka “beefers” – are a serious risk to normal economic activity. These beefers need strict regulations and hard limits on many activities.
FT: Investors Pull Out of US Commercial Paper
“The amount invested in the US commercial paper market fell by $95bn during the past week, increasing concerns about the availability of money for banks and companies from this vital source of short-term funding.”
The problems here arise from a syndrome of CFOs: using commercial paper for long term funding needs instead of funding that via long term bonds. The simple reality is that a company’s outstanding commercial paper should fall to near zero at least some time during a year. Any long term needs should be funded with permanent debt. But corporate CFOs were greedy for short term profits so have taken unnecessary funding risk. And now they will pay for that foolish strategy. GE's stockholders have paid hugely for those errors, having to raise expensive equity to replace commercial paper that is now difficult to sell in large amounts.
So why is not the CFO of GE being fired ? Or even its CEO if he is culpable, too. ?
There is a reason for the old ways of doing business and finance. Those “god-like” markets, assumed to be omnipresent and enduring for all time – are now seen as potentially ephemeral places that can disappear with alacrity.
"There is Nothing New Under the Sun"
A loquacious and frequent poster of comments here used to say often that “creative destruction” was necessary to cleanse the economy occasionally. I guess I’d re-write that: “reactionary destruction” is needed to wipe out the foolish and inane activity of those who say, “it’s different this time”. As a confirmed anachronist, I know it’s an overstatement, but I again say that there is nothing new under the sun for about 100 years. Modern society was mostly created by 1920 and “new” ideas (other than technologies) are mostly foolish and naive or are the tempting promotions of quacksalvers and mountebanks.
World Affairs
This crisis is making obvious serious problems in the EU. The ECB is still delusional and in denial. Today Trichet says rates cuts are possible next month. What a fool ! By fighting a false inflation that was really just an oil & resource bubble caused by beefers and pensions funds, he’s hurting the common man in Europe. Disarray among European states over a European-wide effort to supports its banks show the need for a “United States of Europe” I am teasing a bit, but Europe should mostly just copy the US constitution to create a stronger, unified Europe that can act.
Economics
So we all now know that the “Core” measure of inflation is correct. It wasn’t “different this time”. The recent rise in nominal inflation was a false signal caused by the oil & resource bubble. Inflation hawks were simply wrong. And luckily Battleship Ben was able to defeat them in the FOMC deliberations. The reality is that until the past few weeks, the monetary base was growing at too low a rate. So that has caused the credit crisis to be worse than necessary. The Fed is catching up finally.
Markets
I am still all cash in the Alpha Fund. But if the Troubled Asset Relief Program is approved, I will begin to prepare a list of stocks to buy – or re-buy. Krypto Fund remains on the normal asset allocation program. I mostly check its holdings on weekends.
Word of the Day
"Confute" - verb, transitive [$10]
Confute means 1. prove (a person) to be in error; 2. prove (an argument) to be false.
Sentence: Events of the past few months have confuted claims that "core inflation" excluding food & energy costs were the wrong measure for the Fed to use for monetary policy. But the ECB still clings to its old mistakes.
“Hedge funds are embracing trading strategies designed to profit from the unwinding of large positions by their competitors, market participants say. The increasingly cannibalistic activity stems from the wave of redemptions hitting hedge funds. Because so many firms hold similar positions, forced selling by one in response to redemptions can have ripple effects, forcing other funds to sell. More nimble hedge funds have sought to profit from the dynamic by taking short positions in securities known to be widely held by rivals. Goldman Sachs publishes a list of 50 “very important” hedge fund positions. “
Pundits and old fools like Elmer say hedge funds create “liquidity” and “reduce volatility”. That is now proven painfully and clearly wrong. Excessive monies speculating in hedge funds, aggressive mutual funds and aggressive investment advisors – collectively, the “big, evil funds” aka “beefers” – are a serious risk to normal economic activity. These beefers need strict regulations and hard limits on many activities.
FT: Investors Pull Out of US Commercial Paper
“The amount invested in the US commercial paper market fell by $95bn during the past week, increasing concerns about the availability of money for banks and companies from this vital source of short-term funding.”
The problems here arise from a syndrome of CFOs: using commercial paper for long term funding needs instead of funding that via long term bonds. The simple reality is that a company’s outstanding commercial paper should fall to near zero at least some time during a year. Any long term needs should be funded with permanent debt. But corporate CFOs were greedy for short term profits so have taken unnecessary funding risk. And now they will pay for that foolish strategy. GE's stockholders have paid hugely for those errors, having to raise expensive equity to replace commercial paper that is now difficult to sell in large amounts.
So why is not the CFO of GE being fired ? Or even its CEO if he is culpable, too. ?
There is a reason for the old ways of doing business and finance. Those “god-like” markets, assumed to be omnipresent and enduring for all time – are now seen as potentially ephemeral places that can disappear with alacrity.
"There is Nothing New Under the Sun"
A loquacious and frequent poster of comments here used to say often that “creative destruction” was necessary to cleanse the economy occasionally. I guess I’d re-write that: “reactionary destruction” is needed to wipe out the foolish and inane activity of those who say, “it’s different this time”. As a confirmed anachronist, I know it’s an overstatement, but I again say that there is nothing new under the sun for about 100 years. Modern society was mostly created by 1920 and “new” ideas (other than technologies) are mostly foolish and naive or are the tempting promotions of quacksalvers and mountebanks.
World Affairs
This crisis is making obvious serious problems in the EU. The ECB is still delusional and in denial. Today Trichet says rates cuts are possible next month. What a fool ! By fighting a false inflation that was really just an oil & resource bubble caused by beefers and pensions funds, he’s hurting the common man in Europe. Disarray among European states over a European-wide effort to supports its banks show the need for a “United States of Europe” I am teasing a bit, but Europe should mostly just copy the US constitution to create a stronger, unified Europe that can act.
Economics
So we all now know that the “Core” measure of inflation is correct. It wasn’t “different this time”. The recent rise in nominal inflation was a false signal caused by the oil & resource bubble. Inflation hawks were simply wrong. And luckily Battleship Ben was able to defeat them in the FOMC deliberations. The reality is that until the past few weeks, the monetary base was growing at too low a rate. So that has caused the credit crisis to be worse than necessary. The Fed is catching up finally.
Markets
I am still all cash in the Alpha Fund. But if the Troubled Asset Relief Program is approved, I will begin to prepare a list of stocks to buy – or re-buy. Krypto Fund remains on the normal asset allocation program. I mostly check its holdings on weekends.
Word of the Day
"Confute" - verb, transitive [$10]
Confute means 1. prove (a person) to be in error; 2. prove (an argument) to be false.
Sentence: Events of the past few months have confuted claims that "core inflation" excluding food & energy costs were the wrong measure for the Fed to use for monetary policy. But the ECB still clings to its old mistakes.
Thursday, October 2, 2008
Stock Buybacks are BS
This statement is now proven. For some time I had pointed out how corporate executives use stock buybacks to raise artificially the prices of their stocks so thus to increase the value of their stock options. A dividend doesn't do that, except indirectly by giving long term investors a reason to own the stock. Stock buybacks gives institutions and hedge funds a bid for their sales. So the price of the stock is propped up, financially benefiting the corporate CEO and other top executive.
If those arguments are not sufficient to prove the claim, we now have evidence that stock buybacks are a disaster financially.
GE has announced that it will sell preferred stock to Warren Buffet at a usurious 10% dividend rate. And it will sell over $12 billion of new common stock. Just last week GE suspended its stock buyback program. How much stock did GE buy back as higher prices than it is now issuing new stock ? Billions.
How much stock did WB and other banks buy back at high prices in the past few years - billions that could have forestalled collapse that destroyed the investments of long term shareholders.
From the FT of last Friday:
LEH bought back more that $5 billion in 2006-7
C bought back about $7 billion in 2006-7, but had to sell $7.5 billion in high priced equity to Abu Dhabi in November 2007.
MER bought back almost $14 billion in 2006-2007; it sold itself to BAC for far lower prices.
MS did $7 billion in buybacks in 2006-7 at high prices.
And on and on.
Some pharmaceutical spend more $ on buybacks than on R&D companies.
Oil companies buy back billions, but are rather miserly in raising dividends for long term shareholders.
For all the talk about wanting a long term focus, stock buybacks are just the ultimate short term fix, aiding only short term traders and hedge funds and corporate CEOs with fat packages of stock options.
What to do ?
Be wary of companies that buy back large amounts of stock. The only stock purchases that one can justify perhaps would be buybacks in panics or in bear raids at very low prices, provided the company's financials are truly solid. Even then, perhaps buying back or defeasing debt makes more sense.
Markets
ECB lunacy continues - keeping rates high for fear of phantom inflation. I wonder if the EU can survive if this recession bcomes very severe ? I hope so, but some nations like Germany are remarkably arrogant in their unwillingness to help members with weaker economies or banks. Little unity is apparent.
US Senate passes a funding bill for troubled assets. Maybe R's are getting a bit of pushback now. I am skeptical, but verily have no idea what Congress will do.
I note that for two weeks, Congress has done nothing after Hank & Ben hit the alarm buttons. The fire has spread very far now. Analogies are always just analogies, but we know that putting out a fire is far easier when one gets the water hoses on it early when the fire is small. At some point, the fire cannot be extinguished until the fuel runs out. I don't know where this credit fire is now, but no doubt durable goods sales are being crushed and small businesses are being hurt. Funding for Christmas inventories might be hurt, too. Budgets for 2009 are being considered. And the latest economic data are troubling.
I am very disappointed in DC, but I suppose I should not have been surprised. The extent of both knavery and foolishness there cannot be underestimated.
I continue to focus on Krypto Fund asset allocations and deployments of new cash there. As I have written many times before, the bulk - about 85% - of my investments are there in patient, long term asset classes.
Colossal sums still are "invested" in beefers, but some money is being withdrawn by the foolish rich. I suppose they are dumping it into T-bills now.
The screaming buy in fixed income markets is in municipal bonds. Those are very illiquid, so one must only put very long term money there. Some of my new cash must be invested in fixed incomes classes to maintain my class allocations. I can't bear buying Treasury securities [except TIPs which are now fairly priced] at price levels which are guaranteed to be long term money-losers. So I am buying some municipal bonds. I bought one chuck a couple days ago and perhaps in a month I'll buy more if prices are still good.
Since Obama is likely to be elected and raise income taxes by a large amount, I guess putting some money in municipal bonds is rational now. I don't think he'll tax them [as I advocate] since his friends run those municipalities and his rich supporters own trillions.
Word of the Day
"Palimpsest" - noun [$10]; accent is on the "pal" syllable.
Palimpsest means 1. a piece of writing material or manuscript on which later writing has been written over the effaced original writing; 2. a monumental brass turned and re-engraved on the reverse side.
Sentence: The US Senate last evening approved a palimpsest for its spending bill to regain the initiative in the Troubled Asset Relief Program by massively re-writing an existing spending bill the House had previously passed , which tactic was necessary as the US Constitution requires all spending bill to being in the House of Representatives.
Bonus Quote of the Week
This quote uses today's Word of the Day; is from "The Tycoons" by Charles Morris, pg. 231; and seems particularly appropriate now.
"A troubled company's balance sheet is a palimpsest of past business reverses and managerial misjudgments - the layers of debt and preferred stock pile up like scar tissue ..."
If those arguments are not sufficient to prove the claim, we now have evidence that stock buybacks are a disaster financially.
GE has announced that it will sell preferred stock to Warren Buffet at a usurious 10% dividend rate. And it will sell over $12 billion of new common stock. Just last week GE suspended its stock buyback program. How much stock did GE buy back as higher prices than it is now issuing new stock ? Billions.
How much stock did WB and other banks buy back at high prices in the past few years - billions that could have forestalled collapse that destroyed the investments of long term shareholders.
From the FT of last Friday:
LEH bought back more that $5 billion in 2006-7
C bought back about $7 billion in 2006-7, but had to sell $7.5 billion in high priced equity to Abu Dhabi in November 2007.
MER bought back almost $14 billion in 2006-2007; it sold itself to BAC for far lower prices.
MS did $7 billion in buybacks in 2006-7 at high prices.
And on and on.
Some pharmaceutical spend more $ on buybacks than on R&D companies.
Oil companies buy back billions, but are rather miserly in raising dividends for long term shareholders.
For all the talk about wanting a long term focus, stock buybacks are just the ultimate short term fix, aiding only short term traders and hedge funds and corporate CEOs with fat packages of stock options.
What to do ?
Be wary of companies that buy back large amounts of stock. The only stock purchases that one can justify perhaps would be buybacks in panics or in bear raids at very low prices, provided the company's financials are truly solid. Even then, perhaps buying back or defeasing debt makes more sense.
Markets
ECB lunacy continues - keeping rates high for fear of phantom inflation. I wonder if the EU can survive if this recession bcomes very severe ? I hope so, but some nations like Germany are remarkably arrogant in their unwillingness to help members with weaker economies or banks. Little unity is apparent.
US Senate passes a funding bill for troubled assets. Maybe R's are getting a bit of pushback now. I am skeptical, but verily have no idea what Congress will do.
I note that for two weeks, Congress has done nothing after Hank & Ben hit the alarm buttons. The fire has spread very far now. Analogies are always just analogies, but we know that putting out a fire is far easier when one gets the water hoses on it early when the fire is small. At some point, the fire cannot be extinguished until the fuel runs out. I don't know where this credit fire is now, but no doubt durable goods sales are being crushed and small businesses are being hurt. Funding for Christmas inventories might be hurt, too. Budgets for 2009 are being considered. And the latest economic data are troubling.
I am very disappointed in DC, but I suppose I should not have been surprised. The extent of both knavery and foolishness there cannot be underestimated.
I continue to focus on Krypto Fund asset allocations and deployments of new cash there. As I have written many times before, the bulk - about 85% - of my investments are there in patient, long term asset classes.
Colossal sums still are "invested" in beefers, but some money is being withdrawn by the foolish rich. I suppose they are dumping it into T-bills now.
The screaming buy in fixed income markets is in municipal bonds. Those are very illiquid, so one must only put very long term money there. Some of my new cash must be invested in fixed incomes classes to maintain my class allocations. I can't bear buying Treasury securities [except TIPs which are now fairly priced] at price levels which are guaranteed to be long term money-losers. So I am buying some municipal bonds. I bought one chuck a couple days ago and perhaps in a month I'll buy more if prices are still good.
Since Obama is likely to be elected and raise income taxes by a large amount, I guess putting some money in municipal bonds is rational now. I don't think he'll tax them [as I advocate] since his friends run those municipalities and his rich supporters own trillions.
Word of the Day
"Palimpsest" - noun [$10]; accent is on the "pal" syllable.
Palimpsest means 1. a piece of writing material or manuscript on which later writing has been written over the effaced original writing; 2. a monumental brass turned and re-engraved on the reverse side.
Sentence: The US Senate last evening approved a palimpsest for its spending bill to regain the initiative in the Troubled Asset Relief Program by massively re-writing an existing spending bill the House had previously passed , which tactic was necessary as the US Constitution requires all spending bill to being in the House of Representatives.
Bonus Quote of the Week
This quote uses today's Word of the Day; is from "The Tycoons" by Charles Morris, pg. 231; and seems particularly appropriate now.
"A troubled company's balance sheet is a palimpsest of past business reverses and managerial misjudgments - the layers of debt and preferred stock pile up like scar tissue ..."
Wednesday, October 1, 2008
California Dreamin' ...
Or is that a nightmare that won't end ?
WSJ: “California has more at stake in congressional efforts to ease the credit crisis than many states. Its housing market -- the largest in the country -- is still in a deep slump. In August, the median price of an existing home in the state fell 40.5% to $350,140, from $588,670 a year earlier, the latest in months of consecutive declines, according to the California Association of Realtors.
"California foreclosures, meanwhile, continue to soar. In August, foreclosure filings in the Golden State jumped 41% from the previous month, compared with a national increase of 12%, according to RealtyTrac Inc., a real-estate tracking firm based in Irvine, Calif.
Yet : “Nearly half of California's congressional delegation -- 24 of 53 members -- voted against the bailout plan backed by congressional leaders and President George W. Bush. "No" votes came from an unlikely mix of left-leaning Democrats and conservative Republicans.”
Let's do a bit of exegesis on this. The median two income family income in California is about $60,000. Standard norms for the share of that income allocated to housing is 28%, for principal, interest and taxes ("PIT"). So that means $16,800 can go to PIT. Now real estate taxes there are 1% of value for new purchases. A buyer of the median house will have to pay $3,500 per year, leaving $13,300 for the mortgage. For a conventional 30 year amortizing mortgage at 6%, the debt service constant (P&I) as a % of the original loan amount is 7.19% per year.
So therefore the median income family in California can afford a mortgage loan of $184,861. This is far, far, far below the value of the median sales price for homes in California - just 53% of the median sales price even at today's depressed prices. By the way, the national median sales price is about $200,000, hence a California person CAN afford a house in the rest of the US with a mere 10% down payment.
And if you live in the sprawl of California, your gasoline bills will be huge. And your income taxes are huge. And your sales taxes are huge. Overall, that state is a disaster in progress for the common man. Of course the rich radicals in Hollywood and the winery & pearls crowd of Nancy Pelosi don't feel the pain.
Why do I bring this up now ? I was buying a bunch of municipal bonds for Mrs. B yesterday morning and summarily rejected all bonds from California, which is the future "Jefferson County" in my verily humble opinion.
Markets
FT: “… overnight interbank lending rates reached painfully high levels in the main currencies, with overnight dollar Libor leaping 4.3 percentage points to a seven-year high of 6.88 per cent.”
FT: “Investors in gold are demanding “unprecedented” amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.”
The ECB is living in a fantasy world, maintaining interest rates at 4.25%.
WSJ: “The tightening of funds to auto dealers underscores another way the credit crunch is affecting large companies and small business owners. In a similar move, lenders are shrinking credit to restaurant franchisees, making it harder for owners to remodel existing locations and buy new restaurants. General Electric Co.'s (GE) GE Capital and Bank of America Corp. (BAC), large commercial lenders, are becoming more stringent in pricing and issuing loans for new franchisees.
“Most recently, Bill Heard Enterprises Inc., one of the largest Chevrolet dealers in the U.S., filed for Chapter 11 bankruptcy protection Sunday after shutting down last week. “The company, which operated 14 Chevy dealerships in seven states, sought Chapter 11 protection in the U.S. Bankruptcy Court in Decatur, Ala., listing assets and debts of between $500 million and $1 billion each. The company, which opened its first dealership 89 years ago, put nearly 3,200 people out of work when it shut down Wednesday.
“ In court papers, Bill Heard said high gas prices, the downturn of the U.S. economy and the reluctance of some auto lenders to extend credit to customers have caused new car sales to plummet, prompting a "financial liquidity crisis" at Bill Heard dealerships.
Congress fiddles while Rome burns.
WSJ: “The Securities and Exchange Commission and the U.S. accounting-standard setter issued guidance that will allow companies to use more flexibility when valuing securities in a market that has dried up, a move the banking industry hopes will relieve pressure on company balance sheets. … “
“The clarifications allow executives to use their own financial models and judgment if no market exists or if assets are being sold only at fire-sale prices. They were welcomed by banking and financial-services groups that have lobbied the SEC and FASB to change the rules. Those efforts were ramped up in recent days as Congress was drafting a rescue bill.
Too late. The fear was felt and exists. Tossing a sheet over it won't help now. People aren't horses.
Doing nothing. Alpha Fund is in cash. For Krypto Fund, I put some new cash to work in TIPs - Treasury Inflation Protected Bonds, as their prices have come back to Earth. Plus bought the municipal bonds aforementioned for Mrs. B. By the way, those were yield-to-maturity at least 5%, no ATM bonds, non-call 5 years for 20 year bonds and non-call 10 years for 30 year bonds, rated at least "A" by two rating agencies - no "A-", broad diversification by type and location. By the way, I had no trouble finding these bonds on a visit to her broker's office.
PS: Interesting, yesterday I deposited some large checks at my bank ... they are holding the funds a couple days longer than a larger amount about a few weeks ago ... and a couple years ago, much larger sums had no hold. No change in my average balances. So I asked the telling in a friendly manner. She said with all the problems, they were being more cautious.
Word of the Day
"Recreant" - adjective and noun [$10] literary
Recreant means (adjective) 1. craven, cowardly; 2. apostate; (noun) 1. a coward; 2. an apostate.
Sentence: Recreant Congressmen continue to do nothing as the economy comes to a slow grinding halt as credit bleeds from the businesses of the common man. The new Senate effort is being festooned with pet programs like wind power. Arghhhhhhhhh. The cupidity of Congress shows no bound.
WSJ: “California has more at stake in congressional efforts to ease the credit crisis than many states. Its housing market -- the largest in the country -- is still in a deep slump. In August, the median price of an existing home in the state fell 40.5% to $350,140, from $588,670 a year earlier, the latest in months of consecutive declines, according to the California Association of Realtors.
"California foreclosures, meanwhile, continue to soar. In August, foreclosure filings in the Golden State jumped 41% from the previous month, compared with a national increase of 12%, according to RealtyTrac Inc., a real-estate tracking firm based in Irvine, Calif.
Yet : “Nearly half of California's congressional delegation -- 24 of 53 members -- voted against the bailout plan backed by congressional leaders and President George W. Bush. "No" votes came from an unlikely mix of left-leaning Democrats and conservative Republicans.”
Let's do a bit of exegesis on this. The median two income family income in California is about $60,000. Standard norms for the share of that income allocated to housing is 28%, for principal, interest and taxes ("PIT"). So that means $16,800 can go to PIT. Now real estate taxes there are 1% of value for new purchases. A buyer of the median house will have to pay $3,500 per year, leaving $13,300 for the mortgage. For a conventional 30 year amortizing mortgage at 6%, the debt service constant (P&I) as a % of the original loan amount is 7.19% per year.
So therefore the median income family in California can afford a mortgage loan of $184,861. This is far, far, far below the value of the median sales price for homes in California - just 53% of the median sales price even at today's depressed prices. By the way, the national median sales price is about $200,000, hence a California person CAN afford a house in the rest of the US with a mere 10% down payment.
And if you live in the sprawl of California, your gasoline bills will be huge. And your income taxes are huge. And your sales taxes are huge. Overall, that state is a disaster in progress for the common man. Of course the rich radicals in Hollywood and the winery & pearls crowd of Nancy Pelosi don't feel the pain.
Why do I bring this up now ? I was buying a bunch of municipal bonds for Mrs. B yesterday morning and summarily rejected all bonds from California, which is the future "Jefferson County" in my verily humble opinion.
Markets
FT: “… overnight interbank lending rates reached painfully high levels in the main currencies, with overnight dollar Libor leaping 4.3 percentage points to a seven-year high of 6.88 per cent.”
FT: “Investors in gold are demanding “unprecedented” amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.”
The ECB is living in a fantasy world, maintaining interest rates at 4.25%.
WSJ: “The tightening of funds to auto dealers underscores another way the credit crunch is affecting large companies and small business owners. In a similar move, lenders are shrinking credit to restaurant franchisees, making it harder for owners to remodel existing locations and buy new restaurants. General Electric Co.'s (GE) GE Capital and Bank of America Corp. (BAC), large commercial lenders, are becoming more stringent in pricing and issuing loans for new franchisees.
“Most recently, Bill Heard Enterprises Inc., one of the largest Chevrolet dealers in the U.S., filed for Chapter 11 bankruptcy protection Sunday after shutting down last week. “The company, which operated 14 Chevy dealerships in seven states, sought Chapter 11 protection in the U.S. Bankruptcy Court in Decatur, Ala., listing assets and debts of between $500 million and $1 billion each. The company, which opened its first dealership 89 years ago, put nearly 3,200 people out of work when it shut down Wednesday.
“ In court papers, Bill Heard said high gas prices, the downturn of the U.S. economy and the reluctance of some auto lenders to extend credit to customers have caused new car sales to plummet, prompting a "financial liquidity crisis" at Bill Heard dealerships.
Congress fiddles while Rome burns.
WSJ: “The Securities and Exchange Commission and the U.S. accounting-standard setter issued guidance that will allow companies to use more flexibility when valuing securities in a market that has dried up, a move the banking industry hopes will relieve pressure on company balance sheets. … “
“The clarifications allow executives to use their own financial models and judgment if no market exists or if assets are being sold only at fire-sale prices. They were welcomed by banking and financial-services groups that have lobbied the SEC and FASB to change the rules. Those efforts were ramped up in recent days as Congress was drafting a rescue bill.
Too late. The fear was felt and exists. Tossing a sheet over it won't help now. People aren't horses.
Doing nothing. Alpha Fund is in cash. For Krypto Fund, I put some new cash to work in TIPs - Treasury Inflation Protected Bonds, as their prices have come back to Earth. Plus bought the municipal bonds aforementioned for Mrs. B. By the way, those were yield-to-maturity at least 5%, no ATM bonds, non-call 5 years for 20 year bonds and non-call 10 years for 30 year bonds, rated at least "A" by two rating agencies - no "A-", broad diversification by type and location. By the way, I had no trouble finding these bonds on a visit to her broker's office.
PS: Interesting, yesterday I deposited some large checks at my bank ... they are holding the funds a couple days longer than a larger amount about a few weeks ago ... and a couple years ago, much larger sums had no hold. No change in my average balances. So I asked the telling in a friendly manner. She said with all the problems, they were being more cautious.
Word of the Day
"Recreant" - adjective and noun [$10] literary
Recreant means (adjective) 1. craven, cowardly; 2. apostate; (noun) 1. a coward; 2. an apostate.
Sentence: Recreant Congressmen continue to do nothing as the economy comes to a slow grinding halt as credit bleeds from the businesses of the common man. The new Senate effort is being festooned with pet programs like wind power. Arghhhhhhhhh. The cupidity of Congress shows no bound.
Subscribe to:
Posts (Atom)
