Thursday, July 31, 2008

Some Data ... Finally

I found a reference to data that I've been wondering about for awhile. I no longer have direct access to it, being "semi-retired". This is the mortgage servicer data on delinquencies and defaults from the actual trusts that own those mortgage loans to homeowners. That is hard data. So yesterday I found a reference by a "controversial" bank stock analyst [ see July 29 post by Tom Brown]

"Data in the monthly mortgage services reports continues to get better. Last Friday, mortgage servicers released data regarding performance of securitized assets, through June 30th. The reports continue the trend we’ve talked about for months: a slowdown in the inflow of new problem loans, and lower roll rates into late-delinquency buckets. Fewer near-term delinquencies means lower chargeoffs down the road. Our conclusion (again): the pig (bad loans) is steadily working its way through the python.

"All this should give investors confidence that the extremely high forecasts for losses from subprime mortgage loans, second mortgage loans, even Alt-A mortgage loans are excessive."

This supports the housing bottom that I've theorized for occuring now. Time will tell.

Chief dark side oracle Meredith is still a proud bear, says more capital to be raised by many banks. I think she's just wrong now and can't change as her career depends on further disaster. I also suspect she's trying to give her beefer masters a more profitable exit. She was completely wrong last quarter about the big banks. Versus this blog, she was defeated 4-1. Even her win, a bad quarter for WB, cost the shorts money. When one can't value stocks and give clients good calls at insane prices like July 15, even saying to short more ... at the bottom ... one has to wonder what rationality is left there now.

Gosh, another guy on CNBC reads this blog: he's talking about some banks being able to make better loans at higher spreads and profits as the competition from the IndyMac's and other mortgage brokers is now gone.

Alpha Fund is now 144% long, having added DVN and CVX at great prices at yesterday's open. I still have some room for more RIG, DVN and CVX, but will wait. I also wait for further dips in AAPL and GOOG.

PS: Gasoline demand was up a bit last week vs. the prior weeks. Whether this is some pent-up demand or just gasoline retailers buying big on the dip in prices, time will tell. Year over year demand is still down a good bit.

PPS: An erudite non-posting reader disagreed with my explanation of the meaning of the usage of "Absolutely" instead of "Yes", saying it affects a California-esq perkiness. I thought it over and perhaps that is true for many users thereof, BUT I still think that Babblevision users in suits are trying to appear intelligent, when they are mostly imbeciles.

P^3S: I forgot to post that I also made modest adds to BA, IR and ITW. As mentioned befor e, I consider these stocks one "position" in an export+industrial stock. About 1/2 full now.

Word of the Day

"Nonino" - exclamation [$1000] used often in Shakespeare; see also Nonny-No, Nonne and Nonni-no and Nonny-nonny. Obsolete, archaic.
Nonino means a meaningless refrain, formerly used to cover indelicate allusions.
Sentence: When Bill Clinton gave that famous hug to Monica Lewinsky, she showed a contented smile with her lips, perhaps remembering ... nonino.

Wednesday, July 30, 2008

Two Peeves

These came to me early this morning while reading the news and listening to babblevision (aka CNBC). By the way, "blabberg" is my name for Bloomberg business news.

An interviewee perkily says, "That's a great question !" Arghhhhhhhhhh ... this buttkissing drives me crazy. Usually the question is either obvious or stupid. Almost none are thoughtful. What would we expect from questions written by some Gen X-Y-Z producer/producerette ? Morons. Imbeciles. The interviewees say that just to make the "face" looks smart in a form of buttsmooch to ensure a return call to appear on TV to pump their ideas and perhaps get more business for their firm.

An interviewee says "Absolutely" instead of a simple "Yes". Arghhhhhhhhh ... I guess it's a way some people try to appear more erudite, using a four syllable word instead of a one syllable word. But the word they choose is NOT a synonym for "Yes" or "True". It's just a cliche ... Depending on the context, correct usage would be "certainly true" or "affirmative" or "quite true" or even just a perky, "yes".


Good rally yesterday. IBD says it was a "confirm" day and the markets are in a "confirmed rally" mode. How long that might last depends on real events, of course. IFF my thinking is correct, the bottom is roughly here and the economic trajectory is now up. Time will tell. Be aware I have been "early" twice before in this mess.

I have a full load of big financials: BAC (double), JPM and C, plus a modest speculative position in WM (common stock and call options).

Yesterday Alpha Fund added to RIG, FCX and CCJ (see comments thereto). Alpha Fund is 132% long. I want to add to CVX and DVN. These miner and energy stocks must be bought on dips and with time diversification. I would buy AAPL under 150 and GOOG under 450.

Word of the Day

"Razzia" - noun and verb, intransitive [$100] (a timely reprise of this selection); plural is "razzias". This word derives from an Algerian word absorbed into French. (hehe, being multicultural can be fun.) The "a" is pronounced as in "act" and the stress is on the "raz".
Razzia means (noun) 1. a plundering raid; (verb) to razzia, hence to maraud. Imagine a band of wild Vikings raiding village or city or monastery- that's a razzia.
Sentence: The SEC's correct extension of rules to prevent illegal short selling of virtual shares will help prevent those endless razzias of the beefer bears, which are often connected to false rumors. The SEC needs to make these rules permanent and extend them to all stocks.

Tuesday, July 29, 2008


That's what Merrill Lynch provided investors a two weeks ago when it reported quarterly earnings. Last year Merrill Lynch created billions in garbage securities. And couldn't sell. So they created more. And couldn't sell those. But I suppose the employees wanted a bigger bonus pool. So they also bought "insurance" from schlock bond insurers to "guarantee" the bonds. And parked the securities on the firm's own books, no doubt booking a big "profit".

Now they sell the crappy paper for a huge loss and sell more stock. Uh ... how long has John Thain been running that firm ?

I never liked Merrill Lynch stock as an investment. That firm has some great assets and great people, but management has stunk for almost 30 years in my humble opinion. Some good people are underpaid and undersupported, while the "favored" get higher pay and support.

Investment banking is a great business - that is, doing underwriting for bonds and stock of real corporations; and doing merger and advisory business. Brokerage and asset managment is a fine business, too. But trading operations and self-dealing in creating securites that can't be sold, and compounding this by paying employees huge bonuses on paper that firm itself buys is sheer nonsense and reminiscent of the tales of Jim Fisk, Jay Gould and Daniel Drew of the Eire Railroad scandals of the post Civil War era.

Still, the housing market is bottoming now, in my humble opinion. "The Wall Street Journal's quarterly survey of housing data in 28 major metropolitan areas showed that the supply of homes listed for sale declined from a year earlier in 19 of them." The bottom might be bumpy, but I think it's here.

Survivors and long term winners are going to be the big commercial banks: BAC, JPM and C. They will gain market share as competitors die and will be able to raise prices. On a big drop, I will add to those positions as I think my thinking on the trajectory of this industry and economy is being confirmed slowly. I bought some shares in those three firms at the recent spike down, but not all I had wished.

PS: When I was trained in the securities business in investment banking, omission of material facts was a firing offense which could also have legal ramifications. How can past and present leaders of Merrill Lunch not be guilty of this ?


I'm about 15% into a very good book suggested by an erudite reader: "The Tycoons" by Charles Morris. This book has descriptions of the economic and industrial development of the US in the 19th century. The focus is on Andrew Carnegie, Jay Gould, John D. Rockefeller and J. P. Morgan. This book is not the first I've read on the subject, so I can say that the author does a fine job and it's well-researched. I was particularly appreciative of his description of the early phases of the machine tools and mechanical engineering industries. I was taught merely 40+ years ago that Eli Whitney invented "interchangeable parts" as a core modern industrial system. But that was crap - a fairy tale. Whitney had political connections and "said" he would do it, but never accomplished that fact.

Truly, a man named John Hall created the first industrial system to manufacture interchangeable parts for a complex machine, viz. a rifle at first. Corruption and political favoristism impeded him for decades. But in the end he did it. This is one of the gold nuggets of information in this fine book.

Word of the Day

"Opprobrium" - noun [$10]
Opprobrium means 1. something that brings disgrace; 2. public disgrace or ill fame that follows from conduct considered grossly wrong or vicious.
Sentence: Stan O'Neal, the other executive leadership of Merrill for 25+ years and now John Thain must bear and share great opprobrium for running a truly fine securities company into the garbage bin. I do not think the firm can survive independently now.

Monday, July 28, 2008

Let's Get Rid of "Capitalism"

I mean the word, not the system !

The word, "capitalism" has two major disadvantages in the public debate on the terms of economic life. First, "capitalism" derives from "capital" meaning invested money. So the use of "capitalism" implies a focus on money, more pejoratively, a worship of money and money values as the basis of the system. Compared to "socialism" with its suggestions of pleasant social activity (e. g. , the ice cream social) and group values, the term "capitalism" hurts our system at the very start of political debate.

Second, the word simply is inadequate. My Concise Oxford Dictionary defines "capitalism" as "1.a. an economic system in which the production and distribution of goods depend on invested private capital and profit-making; b. the possession of capital and wealth; 2. (Political) the dominance of private owners of capital and production for profit." Nowhere do I see the most important part of our economic system, viz. "freedom". Major parts of the economy are left out - a) the entire service sector, b) the free movement of labor, c) the free movement of knowledge, and d) private property whether real, tangible, or intangible other than money.

Overall, the word lets Marxist theory define the initial conditions of debate over how economic life should be structured. Marx's seminal work was "Das Kapital" so using the word, "capitalism", starts the debate in an poor place - money - instead of with freedom. This hurts our side.

So with what do we replace it ? I wish I knew Greek, so I could create a word from Greek roots as they often seem elegant. The crucial factors in our economic system are freedom and private property. Everything else follows.

For now, I am stuck with the clumsy, "free, private enterprise system".


We also need a new word to describe the current economic activity, as recession, inflation, and stagflation don't fit. There is a slowdown caused by major adjustments in the credit markets and energy markets. There are sector prices in energy and some food, but not general price rises. So we have "Adjustion" - an economy going through painful adjustments in some sectors not enough to cause recession. I like "Adjustion" as it is slightly reminiscent of the digestive system ... indigestion ... some pain caused by rich or excessive food.

"Adjustion" is it.

Word of the Day

"Mulct" - verb, transitive [$10] and noun; the "u" is short as in "cut"
Mulct means (verb) 1. extract money from by fine or taxation; 2a. (often followed by "of") deprive by fraudulent means, swindle; 2b. obtain by swindling; (noun) a fine.
Sentence: Obama's core principle seems to be to mulct people earning high incomes, regardless of whether they are young entrepreneurs starting accumulate wealth or overpaid CEOs. Of course his wealthy backers with their money invested in muncipal bonds will pay nothing extra.

Friday, July 25, 2008

Return to the 1920s

I am not writing about 1920s stock manipulation in this post. That exists now thanks to big money pools - aka hedge funds - and the knaves/fools at the SEC, but it is just one element of modern life that derives from the modern American society that was created post World War I by our grandparents and great grandparents. By that time, electricity was nationwide, as was phone service and the automobile; movies and radio existed. Modern American culture began then and in its major structures still exist in those forms. One can see this in books and movies and writings of widely read editorial writiers such as Walter Lippman and H. L. Mencken.

Here is an illustrative quote from H. L. Mencken from January 9, 1922.

"The other day a strange thing happened. I sat down to dinner in my own house without any impertinent and imbecile jackass summoning me from the table to the telephone. The thing, indeed, seemed almost miraculous; you will never convince me that it could have been possible without divine intervention. There, for the first time in years, I wallowed in the luxury of a meal eaten in peace, with no abominable shrilling of a bell to interrupt my engulfing of my victuals, and no choleric conversation with a moron to paralyze my digestion."

Amazing ... and even with the "National Do Not Call Register", 85 years later we are still pestered by those groups that were able to bribe Congress to gain exemptions, viz., pollsters, charities and marketing surveys.


Momentum beefers bailed from many financials yesterday and perhaps some beefers have secured real shares to re-short. The media says the drop was due to "disappointing" existing home sales data. With their chronic search for headlines of doom to trumpet, the media blared the year-over-year price data and the seasonally adjusted sales data. In times of major change, one must be wary of seasonal adjustment formulae.

So Bunkerman did a bit of forensic work to ferret out "real" data.

The national median existing-home price for all housing types was $215,100 in June.
For Q4 2007 in the US, that number was 205,700 on average. For Q1 2008, the number was $196,300. For March, $200,700; For April, that number was $202,300., May was 208,300.

Does anyone notice a monthly trend in median prices resembling a bottom?

There's more: Inventory: April – 4.55 million May – 4.49 million; June – 4.49 million.

That looks like a flat inventory for about three months. No increases. Isn't that a sign of a clearing market ?


Does anyone else think it odd that a US Presidential candidate draws a crowd of 200,000 people in a European nation ? Or any nation other than the US itself ? I cannot remember a similar occurence in the past. I wonder what this means ?


PS: Check out Lots of good info is there. Maybe he reads this blog ;-)

PPS: I just bought some BA, IR, ITW as I want some industrials with export exposure. Just small starter positions - I'm not sure to which of these I will add shares over time. For now I consider them one composite position.

Words of the Day

All three of these $10 words were in a single, later paragraph of the article by H. L. Mencken from which I drew the paragraph above. This article was published in a daily newspaper - the Baltimore Evening Sun. Oh, woe is the state of modern education !

"Brummagem" - adjective or noun [$10] (accent on first syllable - brum - and the "g" is prounouced as "j" as in Jim.)
Brummagem means (adjective) showy, cheap; (noun) something cheap or inferior.
Sentence: Since 1968, US political conventions have been steadily degraded into brummagem pep rallies with little intellectual content or debate.

"Puerile" - adjective [$10]
Puerile means 1. trivial, childish, immature; 2. of or llike a child.
Sentence: Nearly all modern media reporting has both puerile content and vocabulary.

"Simian" - adjective or noun[$10]
Simian means (adjective) relating to, characteristic of, or resembling an ape or a monkey; (noun) an ape or monkey.
Sentence: Some sculpture critics describe numerous Roman works as simian products derived from Greek originals.

Thursday, July 24, 2008

Bits and Trends

Amazon has good numbers ... perhaps more evidence of economic substitution of online orders for driving to the mall or store ?

Gasoline demand is still flat ... it's been flat for weeks ... no "summer driving season" is visible from the demand numbers.

So to again borrow and modify words of Ricky Ricardo of "I Love Lucy" fame, "there's a whole lotta adjustin' going on ..."

The housing and GSE reform bill seems to pass soon - a good thing, in my opinion. Despite what pundits say, to me, a lender would be a fool not to accept a 15% writedown in the loan amount to avoid a foreclosure. Foreclosure costs are large and losses typically are much more than 15%. By taking the 15% hit, the lender can get out entirely with an FHA takeout.

I also like the Democratic provision to give some money to cities and towns to buy foreclosed properties ... even though most of it will surely go to political friends.

The GSEs get a temporary credit line from Treasury of unlimited size ... but get a strong regulator finally. This is good.

I still hear pundits still talking about a US recession ... I guess they are redefining that term, as do the inflation-mongers. And the "stagflation-mongers". In my thinking, 2+2 = 4 still. Not 3.5. Logic and words and definitions matter. It's NOT different now.

All this boomer and X-er and rich man's angst is silly. The world is doing fine ... still. Hank Paulson's and Ben Bernanke's leadership in DC is preventing the panic of the rich from crushing the common man. Economic momentum continues to be positive. Many adjustments are necessary but can be made over time.


None. For Alpha Fund, I own large postions in BAC (double-sized), JPM, C, GE and CCJ. I am patient as major rotation is occuring ... I want good entries. I look to re-buy CVX, DVN, RIG and FCX when selling dries up; and in the Internet group AAPL (under 150) and GOOG (under 450).

For Krypto Fund, no actions indicated.

PS: I guess I'm not as patient as I thought. After checking the prices & charts, I will re-buy "starter" positions in CVX, DVN, FCX and RIG at today's open. These positions are about 1/5-1/4 of my planned size. I'm doing this to force myself to pay attention to these daily now.

Word of the Day

"Encyst" - verb, transitive and intransitive [$10] (Biological)
Encyst means to enclose or become enclosed in a cyst.
Sentence: The housing bill being considered and likely to be approved in Congress is expected to encyst FNMA, Freddie Mac and the Federal Home Loan Banks with an emergency, unlimited line of credit from the Treasury.

"Abysm" - noun [$100 and $1000 depending on the meanings]
Abysm means ($100) a superlative of abyss; ($1000) 1. the great deep, the bottomless gulf, believed in the old cosmogony to lie beneath the earth, and supposed to be, specifically, b. an imaginary subterranean reservoir of waters; c. hell or the 'bottomless pit', the 'infernal regions'; 2. any deep, immeasureable space, a profound chasm or gulf (literary and figurative).
Sentence: The leadership of Ben Bernanke and Hank Paulson has, so far, saved the common man's economic life from an abysm opened by the panic of the rich.

Humor: Obama's election could lead the US into the abysm of spiralling stagflation, excessive taxation and class and racial division and strife reminiscent of the 1960s and 1970. Perhaps that could be called the spectre of "Obama's Obysm". Go Big John !!!

Wednesday, July 23, 2008

A Reprise

"Of late every reflective American reader must have noticed the inaccuracy and imbecility of most of the special correspondence issuing from Washington. In it the frauds, high and low, who flourish in that town are treated with the utmost gravity, and their cheapest and most venal maneuvers are depicted as masterpieces of statecraft. Is this bilge ordered by Wall Street ? I doubt it. Is it demanded by customers of the [media] that [produce] it ? Again I have a doubt. Far easier and more plausible is the explanation that the Washington correspondents write it willingly and in good faith - that they are too stupid to penetrate the fraudulencies by which they are surrounded."

I read the above quote last evening. This paragraph from H. L. Mencken, written for the Chicago Sunday Tribune June 26, 1927, seemed so applicable now over 80 years later that I copied it for today's blog. I'm reading "The Impossible H. L. Mencken", which is a collection of his best newspaper stories published in 1991. He has a gift for the American language and words - in almost every story I find a new $10 word - or even $100 or more words, too.

Now consider this: he wrote for a daily newspaper during the years from about 1900 to about 1948. His columns were read by millions of Americans. Yet I find numerous $10 and $100 words in them. In truth, I cannot remember that last time I found a $10 word in The Wall Street Journal or any modern newspaper or heard one on the television since William F. Buckley retired years ago.

Daily discourse is depressingly dumbed down.


Oil kept falling. Banks stocks rose again. Perhaps those two bubbles - actually one up-bubble and one down-bubble - are dying.

I have very large positions in BAC, JPM and C as well as GE and CCJ. I have lots of buying power and would like to re-buy sizable postions in AAPL, GOOG, CVX, and DVN, and smaller positions in FCX and EDU, but will be very patient. Beefer rotations out of those stocks might take awhile.

WB was a painful mistake aggravated for me by its rise all day long yesterday. I suppose the statement by the new CEO that new capital wasn't expected to be needed caused the huge short position to cover as they couldn't expect get new shares to fill their borrows. But with no significant dividend anymore, I couldn't see owning it, hence sold my shares. Unfortunately I did it pre-market near the day's low prices. When I decide to sell, I just sell and move on.

PS: I forgot to post the monetary base growth on Monday from Barron's. Year over year monetary base is now growing at 2.1%. That's better. I think it needs to get to 2.5% to be neutral. The Fed is still not accomodative compared to lower range of normal economic growth bands.

Words of the Day
[All of these words are from reading articles of H. L. Mencken.]

"Dubiety" - noun [$10]
Dubiety means 1. a feeling of doubt; 2. a doubtful matter.

"Ofay" - noun [$100]
Ofay is a US slang, offensive word meaning a white person (esp. used by blacks) (20th century probably of African origin).

"Pecksniff" - noun ][$100] from "Pecksniffian"
Pecksniff means a person of Pecksniffian attitutes or behaviors: "a virtuousness that only a pecksniff could aspire to."
Pecksniffian means critically or untuously affecting benevolence or high moral principles.

A "hat trick" sentence: Exposure of Obama's Pecksniffian attitudes towards small town and rural ofay adds to their dubieties about him as a President.

Tuesday, July 22, 2008

More Deja Vu, etc.

Apple crushes estimates for this quarter, guidance low. Has anyone seen that play before ? Here is the key: "Apple, of Cupertino, Calif., said it shipped nearly 2.5 million Macs, up 41% from the year-earlier period and well above the average unit growth of 15% to 16% for the global PC sector" iPods, iPhones, etc. lead people to buy Macs ... Apple makes most money on Macs and is gaining share in a huge market.

Alpha Fund will re-buy AAPL shares after the bears pound it awhile. This company has exciting new products using technology and great people interfaces. What other established company has this growth potential ? Long term, I like AAPL even better than GOOG, which I like a lot, too, as I patiently let the bears pound it to low prices for its own re-buy.

Corruption found in Kazakhstan ... uh ... "I'm shocked to find there is gambling going on in here!"

Regarding energy stocks, I will let the demand destruction story play out awhile before re-buying CVX, DVN, RIG and DO. Big oils like CVX have political risk, too.

AMEX misses earnings forecasts on credit losses ... uh ... to whom do they loan money ? My Amex card needs to be paid in full monthly. And their loan rates are too high for anyone to accept for more than a few months. Odd ... I never liked that stock anyway. Management seems lackadaisical, overpaid and excessively focused on marketing.

"Wachovia says its Wachovia mortgage unit to discontinue wholesale mortgage lending - Reuters (13.18 +0.21) -Update- Says decision to stop offering home loans through brokers effective July 25." ... good, how can quality control be enforced when mortgage brokers are used ? BAC showed the way here, too. This trend is part of the trend to drive business to the big banks and let them raise prices and spreads, which is part of my long-term outlook for them.

Yesterday's market action shows the short covering rally in the banks is mostly over. Now the grind commences, perhaps after a pullback as some shorts are re-established by the bears. Real buyers seeing the economy as muddling along will be patient. But these stocks pay great dividends that are safe barring a major additional downturn, which I do not expect. Dip buyers should step up for these now.

PS: WB reports earnings early AM ... I have much trepidation ... ugh they cut the dividend ... I should have taken counsel of my fears there. They brought in the guy from Treasury and since Paulson had been saying banks should cut dividends, that he would do it was a worry. The new dividend is quite low. I will exit this stock, which is my worst mistake in years. I glossed over quite a few clues over the months, thinking their assets and businesses were quite good. But management seems to have been horrible. And I put too much $$$ into WB for its position as a #4 pick. Darn, I "could" have gotten out at 14 yesterday and even considered it. Very discouraging ...

PPS: Regional banks: Keycorp misses eps, Suntruct big beat eps and no dividend cut nor new capital, Fifth Third beats ...

Word of the Day

Antinomian - adjective and noun [$10]; and Antinomianism - noun [$100]; the root dervies from the Greek "nomo-" meaning law.
Antinomian means (adj.) of or relating to the view that Christians are released from the obligation of observing the moral law (thus, salvation comes from faith alone regardless of commission of crimes, etc.); (noun, historical) a person who holds this view.
Antinomianism means 1. the name of a sect in Germany (1535) alleged to hold this view; 2. a person or groups holding such views.
Sentence: Somehow decades of neglect of enforcement of short selling rules led those addicted to that activity to evince antinomianism, viz., that normal trading and settlement rules somehow don't apply to short sellers.

Monday, July 21, 2008

Some Conclusions

Last week's events and some other scattered facts permit an observer to make some conclusions about theories and behavior of the times. The media might continue to babble about these concepts and issues, but the answers are now obvious to all who will see.

1. Pundits said pension funds and speculators weren't influencing the oil markets, as they were relying on their "free market" theory. The recent spike and drop in the face of steady demand destruction data proves that those two forces were the cause of recent oil market action.

2. Pundits said that financial institutions were going to keep getting worse results, that they were all "insolvent". Last week's quarterly results proved them now wrong as major banks reported better earnings and lower losses than the annointed analysts had forecast.

3. Pundits and editorial writers said short sellers don't influence prices in a major way. One simple enforcement action to prevent short sellers from selling virtual shares - in effect printing new shares to short temporarily - caused a short covering panic that popped the prices of major banks up 30%. So bear raids and illegal short selling were pushing those stock prices down by unwaranted amounts.

4. Stock buybacks are a stupid, wrong-headed use of corporate funds. When prices were high over a year ago and earlier, companies were buying back stock with abandon. Now when prices are low, they conserve cash. The maxim is buy low, sell high. Corporations seem to do the opposite. Nearly all stock buybacks are wrong behavior and should be halted as the evidence does seem clear now that they are not in companies' long term best interests.

To be intellectually honest, one must make conclusions about theories and perceived wisdom when data and facts exist. Singular events can bring facts and relationships to clarity at some times. Last week's market responses and action make apparent the above four conclusions now.

PS: Awaiting BAC earnings with some trepidation ... whew, BAC good earnings.

PPS: My sales of CVX, DVN, GOOG and AAPL on last Tuesday were quite fortuitous, as were the adds to BAC, C and JPM on the same day. Much of timing really is just luck, but ... it's better to be lucky than not.

PPS: Here is the link for the place I went to my annual fun weekend on Friday & Saturday -> I posted a summary of the fun on Sunday.

Word of the Day

"Advert" - verb, intransitive [$10] (this is a root for "advertisement")
Advert means to 1. to pay heed or attention; 2. call attention, allude, or refer
Sentence: Serious thinking about markets and the world requires one to advert to events to educe what ideas and theories are correct and really work, versus those that are stale or wrong.

Sunday, July 20, 2008

Quickie Update

I returned late last evening after a great trip to the wilds of Vermont. All the "equipment" worked excellently. Well, that is to be expected given the skills of the armorer in cleaning and preparing it all. One firing pin broke near the end of the last session. I could have replaced it as I had brought a spare along - naturally -but since the break occurred as I was almost finished, I'll fix it at home.

My group was caught in a remarkable thunderstom late Friday afternoon. Wind gusts were reported at 60 mph and the intense rain fell in sheets. Numerous lightning strikes occurred - luckily not near us. Some hail fell, too. Our tent survived as the three of us grabbed it before it could sail away. The rain came in horizontally and we were all completely drenched. Some equipment was drenched, too, but since all of it had been thoroughly coated in "Sheath" - a fine rust prevention product - there were no problems. On Saturday some minor cleaning was necessary - that's all. Good preparation saved the day.

This morning I did a quick check of the news. From on Friday AM: "Citigroup beats by $0.17, beats on revs; reports $7.2 bln in write-downs (17.97 ) " The stock rose Friday about a point.

This season's scoreboard update: Blog 3, Meredith, 0. Two big batters come to the plate on Monday and Tuesday, though.

Thursday, July 17, 2008

More on Short Selling

I do NOT want short selling banned. Short selling is a legitimate way to profit from recognizing and finding overpriced stocks and frauds. Short sellers like the famous Jim Chanos and Ray Dirks provide a public service and must NOT be restricted. But ... you knew a "but" was coming ... just as practices and abuses creating bubbles on the upside should be eliminated, so should practices and abuses on the down side.

Selling short shares that are not actually borrowed is a ridiculous abuse. The SEC should impose these rules over every stock. And should not give exemptions to option market makers as that is just a loophole the beefers can drive a truck through. And the SEC should NOT let these rules be circumvented via ETFs or via swaps or futures. Letting beefers sell short nonexistent shares is a colossal abuse and is sheer manipulation. It's incredible that this practice was so widespread and shows how corrupted the SEC is.

And the SEC should reimpose the uptick rule. As I wrote yesterday, there IS a difference between normal buying and selling and short selling. There is a human psychological difference between gains and losses. So a rule that helps prevent bears raids is a good one and is in the public interest.

The growth of short selling has been simply colossal since 2006. Today's WSJ has a chart showing the number of shares sold short has doubled in just two years to 18 billion shares for the NYSE and 10 billion for NASDAQ. In dollars, this is about $1 trillion. If one took into account the effective short positions in options and futures, that number would be much higher. Today's Financial Times reports "Shares sold short rose four-fold to $5,000bn in the three years to 2006, according to research from the London Business School, and the price of shorting rose about 300 per cent." Incredible.

Cost of short selling are rising, according to both WSJ and FT.

Hello bubblewatchers - this short selling binge sure seems like a bubble before our eyes. Maybe the SEC and UK regulators actions might prick it before more damage is done.

Travel: I go on an annual outing this afternoon to the North Woods and return on Saturday night. So no post will made on Friday.

PS: Gasoline demand was flat vs. prior weeks. No summer driving season exists this year. That peak is now a flat plain.

PPS: Why oh why does "asking questions" and "expressing worries" nowadays pass for analysis ?

Word of the Day

"Miasma" - noun (plural) [$10] (another word card from high school days 40 years ago)
Miasma means a pervasive influence or atmosphere that tends to deplete or corrupt.
Sentence: Washington DC is ungulfed in a miasma of the lobbyists, legal profession, and power seekers. The SEC is corrupted by its staff and commisioners who want jobs at Wall Street firms, their law firms and hedge funds, so it shades rules and regulations to their benefit and not for the common man.

Wednesday, July 16, 2008

Strangeness, Short Selling and Raids


Strangeness is a property of elementary particles, usually rather rare, hence the name. But recent reports from around the world show an unusual outbreak of some kind of namesake "strangeness" worldwide in humans. With the unusual dichotomy between reality and perception and opinions, strange situations worldwide seem to be occuring often. Perhaps there is a massive quantum fluctuation in it, spreading strangeness over the world.

Some Examples

EuroZone year over year core inflation was 2.5% vs. headline inflation 4%. Gosh, that conspiracy of the bureaucrats to keep core inflation low must be worldwide. Maybe it's a secret society of gnomes ?

World economic fears pervade the press, but Intel beats earnings forecasts on revenue up 9.4% year over year. Odd that the world is ending yet more chips are demanded.

30-year Treasury bonds yield about 4.5%. Core inflation is bewteen 2 and 2.5% depending if the measure is the PCE or CPI. Strange with all the screeching about "inflation" that the "bond vigilantes" are drowsy and bored. I guess that market believes the core is correct and screechers are wrong.

Screechers say all financials are horrible. Wells Fargo reports a good quarter and raises its dividend. Strange incongruence.

Strange ... a 'recession" with no "recessing" - from
"Industrial Production Springs Back in June
Following a 0.2% decline in May, industrial production increased 0.5% in June. "

Short Selling

Risk aversion is a fundamental economic and financial concept. For a fixed $ of gain or loss, human beings do NOT equally rate the outcomes of a gain or loss. Utility curves are "curves" with convexity. This is known from consistent experimental and theoretical studies. So why is the canard put forth that "short selling" is just the same as buying ? The two actions are inherently not simple opposites. Simple "selling" is the opposite of "buying".

Short selling is a creation of "virtual" shares to sell onto the markets. The creation arises out of a "borrow" transaction. If fact the shares sold short can be re-borrowed from whomever bought them and sold short again ... and again ... the same shares. Sort of like a "bubble". There is no limit. So let's cease equating two actions.

The SEC, being in the pocket of Wall Street lawyers and hedge funds, and currently having some "libertarian" ideological infection not tempered with populism, unleashed the huge money pools to raid the markets by removing decades old restrictions on short selling. The uptick rule is a visible example which was done last year. Since then, what has happened ? A graph in the Wall Street Journal online today shows trhat shares sold short on the NYSE has almost doubled.

Bear Raids

Another article in the Wall Street Journal put some light on how the manipulators are conducting raids. They simultaneously attack the stocks with short sales and hit the credit default swaps for the companies. Then the "rumor" about the credit default swaps gets passed around directly or simply via trading screens. So fears are created and others panic to add to the selling pressure. The WSJ article provide suspicions of CEOs of Lehman and Bear, Stearns that some Goldman, Sach traders in London in concert with major hedge funds might be doing this.

The UK's FSA has already discovered that hedge funds were manipulating shares of companies with rights offerings in London. So using London as a base for these raids fits.

Credit default swaps are a derivative contract that should either not exist or be tightly regulated. They are not bonds. A firm can "short" of companies "credit" with impunity without any actual credit exposure to hedge - simply as a speculation. Why does this derivative contract and the market for it market exist ? Obviously it should be tightly regulated with massive collateral requirements, perhaps simply gutted. Finanicial markets worked fine for decades before the creation of this monster.

1920s Manipulation

Certainly anyone familiar with the culture of the 1920s in the US and Europe must be aware that human behavior has not changed. Women wore short skirts then - the flappers; avante garde art, jazz music, dancing, and women could vote. So why do some deny that Wall Street money pools would act differently now ? Are they run by persons with high moral values ? Or do they simply worship the god of money ? With no rules, of course they will raid and pillage and rape stocks. The SEC let the bears loose last year. All those short selling restrictions need re-introduced and modernized to include derivatives.

Alpha Fund Moves

As readers know, my Alpha Fund is for high risk, high reward capital. And has been hurt badly due to my incorrect "early" buys in the banks and GE. So yesterday after much thought, I restructured it as follows:

1. Put back some money I had taken out in May when I cut back on big bank exposure.
2. Sold CVX, DVN, AAPL, GOOG, EDU, HDB, ICN and FCX. Most of these seem stagnant and will not move up a lot unless the big banks recover first.
3. Bought more BAC, C and JPM. I will buy even more BAC, JPM and C after their earnings reports, if satisfactory in my opinion.

I made these moves to attempt to save my year in the Alpha Fund and hence justify my efforts and capital there. If I can't do well there, I would just put it all into my Krypto Fund which is outperforming nicely and relax. All this was noted in less detail in yesterday's blog comments.

Word of the Day

"Discursive" - adjective [$10]
Discursive means 1. rambling or digressive; 2. (philosophical) proceeding by argument or reasoning.
Sentence: Today's discursive blog post collected many related elements and observations, but really needs more explanation. (a self-review)

Tuesday, July 15, 2008

More 1920s Deja Vu

From Financial Times, July 14, 2008:
"The UK Financial Services Authority recently forced the disclosure of short positions in companies conducting rights issues. It concluded hedge funds were trying to manipulate shares."

From The Wall Street Journal, online edition, July 15, 2008:
"The Securities and Exchange Commission has sent subpoenas to more than 50 hedge-fund advisers as part of its investigation into whether individuals spread false rumors to manipulate shares of two Wall Street firms, a person familiar with the matter said."

My "opinion" is that when all this comes out, the extent of bear raiding and market manipulations is going to stun investing public and bring many regulations onto the hedge fund community. Short selling rules will be reinstated and hedge fund disclosure rules will be very strict. These restrictions will be coordinated with the UK and EU so that these huge pools of money will be regulated worldwide.

PS: A smashing seems in the offing today. Europe is way down. I guess the problem is not just American banks.

PPS: I added some money to the Alpha Fund today and might make a major readjustment to concentrate my positions to the stocks I really think will perform from here onward.

Word of the Day

"Neuralgic" - adjective [$10] from neuralgia - noun
Neuralgia (noun) means an intense, intermittant pain along the course of a nerve, especially in the head or face.
Neuralgic means 1. of or pertaining to or concerning with neuralgia; 2. of the nature of, characterized or caused by, or affected with neuralgia.
Sentence: The beefers and bears spread rumors and raid the markets in the worst neuralgic points , viz., the investment and commercial banks, to create panic selling to reward their short sales postions.

Monday, July 14, 2008

Just the Facts, Sir

Says Sgt. Joe Friday of that fine old TV cop show, Dragnet. So today I'll just stick to the facts as my "opinions" have been stated over & over and have not changed.

Apparently Barron's weekly reads this blog. As a reader commented over the weekend, that is NOT a badge of honor as having Ben Bernancke and Hank Paulson as readers, but it does reflect being such an opinion leader that the financial press takes cues from here for news stories. [ yes, that's a joke ;-) ]

The headline cover story in Barron's this week is "Home Prices Are About To Bottom". You heard that here first as a "theory" ... awaiting data confirmation, of course. So Barron's did some legwork for me and here are some data from the article.

1. Total inventories fell in May to 4.49 millin existing homes for sale, or a 10.8-month supply at the current sales pace, down from an 11.2 month supply in April.

2. Inventories of new homes are down 21% from a 2006 peak.

3. Home prices rose slightly in 8 of 20 markets from March to April. The pace of monthly declines is starting to slow in markets with declines.

4. Subprime housing is less that 10% of the total US housing stock, but accounts for a far larger share of current sales volume. Those sales are the ones that show the largest price declines, hence distorting headline indices.

5. Chip Case, a namesake of the S&P/Case-Shiller "is among those who think home prices may be near a bottom."

6. The article provides numerous examples that affordability ratios, viz., price to income ratios, have reverted normal levels.

7. "The performance of ABX indexes covering the fiour crummiest subprime vintages ... shows that the rate of early-stage, or 31- to 60-day, delinquencies has been falling for the past six to eight months."

8. Further, there is "a decline in the percentage of early delinquncies that advance to later stages."

"Both developments [ #7 and #8 ] tell him [the cited analyst] the cumulative-loss assumptions on these mortgages made by both the credit rating agencies and Wall Street could prove far too pessimistic." (OK, that's an opinion, not a "fact".)

9. "One can draw a similar conclusion from delinquency-inflow trends of other types of mortages, be they loans backed by home-equity lines of credit or second liens mortgages from the bubble years. Many have performed horribly, but the rate of inflow of new delinquencies suddenly has dropped in recent months.

10. "An ebbing tide of new delinquencies strongly hints that the worst may soon be over for the housing market, at least in terms of burdensome supply. The pig, in other words, is well along the python's alimentary canal."

"In hindsight, the housing bust hasn't been nearly as calamitous as depicted in the media, or as Wall Street's woes might suggest. Yes, people have lost their homes, but more than a few were mendacious [*see Word of the Day"] mortgage applicants and mere speculators, who eagerly sought out 100% margin loans, only to fold just as quickly when prices turned against them."

A table in the article shows that for a composite of 20 major markets, home prices are down about 17% from the peak around July 2006, but are up 72% from 2000 prices. So huge majorities of homeowners are well in the black. That "fact" is quite relevant a propos the fear-mongering about spreading defaults.

PS: Reading a newsletter my partner sent to me ... it's written by a hedge fund group that is a panic-monger. In the same sentence they fret about inflation and deflation. "While we remain concerned about the long-term inflation picture (3-5 years out), we are becoming increasingly alarmed about the near-term deflationary threat."

Words of the Day

"Mendacious" - adjective [$10] (this is a very old word of the day for me - the writing on my index card dates to high school years circa 1970).
Mendacious means 1. given to or characterized by deception or falsehood which is often not intended to genuinely mislead or delude; 2. lying, untruthful.
Sentence: See above.

"Protreptic - adjective or substantive [$1000]
Protreptic means (adjective) directive, instructive, didactic; (substantive) a book, writing or speech intended to exhort or instruct, an exhortation, instruction.
Sentence: Today's protreptic blog is a small effort to introduce some facts into a financial debate all too laden with fear-, panic- and opinion-mongering.

By the way, "protreptic and "paraenetic" [see a word of the day for last week] are closely related. Here is a sentence using both from the notes on a CD course on the Apostle Paul's writings: "2 Timothy has the form of a personal paraenetic letter ( a letter of advice) with elements of protreptic exhortation. This literary form was available to Paul."

Saturday, July 12, 2008


I thought I'd post a few relevant tidbits that I've read in the newspapers. On Saturday moring I read the "paper" newspapers from the week: Financial Times, Wall Street Journal and Investors Business Daily. I read those newpapers online everyday.

Bulgaria has a shortage of workers. After years of labor migration out of Bulgaria, now that nation is trying to bring its diaspora home. Also, Bulgaria is bringing Vietnamese labor on a contract basis. This story meshes with one a few weeks ago that Polish skilled workers were returning to Poland as better opportunities were there. Eastern Europe is really a growth area with skilled and educated people. The true basis of a nation's wealth is its people - their education, skills and culture. Natural resources are a very distant second, as is location.

FDIC takes over IndyMac bank after a run on deposits began by a letter from Sen. Schumer. Now is really not the time to politicians to toss bombs. But IndyMac was headed for the graveyard anyway. Short term, the "sky is falling" crowd will screech aramgeddon and suggest that the FDIC might not have enough resources. Even though the 1990 commercial real estate mess proved in actuality such talk is wrong, persons seeking to create panic will try to use it.

Longer term, closing IndyMac just eliminates a big competitor to Bank of America [via Countrywide] and Wachovia [via Golden West] in mortgage origination. Those two banks should be able to raise prices and make more money long term. But I expect their stocks to be pummeled again by raiders. Doing nothing in Alpha Fund. It's performance has sucked and is embarrassing for me. Some day I'll post a litany of my errors for the past year ... they are runnig through my mind. WB is my biggest error.

Saddam's Iraq did have weapons materials. Recently 550 metric tons of uranium was taken from Iraq to Canada by the US military. This uranium was found in Iraq after the invasion. Why was it there ? Since Saddam's Iraq did not have nuclear power plants, there is only one reason: weapons of mass destruction. This also physically corroborates Saddam's confession that he was maintaining the foundations of a weapons program to speedily restore his program once sanction were dropped. So Bush was correct in toppling his government. QED.

But Bush's [and Rumsfeld's ] postwar strategy and tactics were completely wrong. The fact the US is still there proves that.

I guess Barron's reads this blog. Headline reads "Homes Prices Are About to Bottom". The article has lots of hard data to support the thesis. I'll write more on this later.

Re-Balance Trade

Krypto Fund spreadsheet says that I need to sell some gold & silver and buy Emerging Markets and REIT stocks. The gold & silve rallocation is now at 5.7% vs. its canonical 5% target. Emerging Markets and REITs are a bit too small. So Monday I'll sell some gold & silver ETF shares to buy Vanguard Emerging Markets and REIT funds.

Friday, July 11, 2008

Nothing New Under the Sun

Humanity was not re-invented in 2000. Many significant events and behavior occurring now are strikingly similar to such from 80 and 100 years ago. Or even 1000 and 2000 years ago.

Some examples.

1. A fixation with apocalyptic outcomes. The fact of civilization is that barring war or political revolution or governmental error, human civilisation moves with slow meliorism. Big changes just don't occur. But human beings have become fixated on apocalyptic outcomes and visions for millenia. None foreseen has happened. Why are so many expecting a armageddon in the financial markets ? This perception existed in the 1980s and 1990s and now again. But what has happened ? A chart of US GDP shows quite a boring uptrend since ... 1933.

2. Financial markets exhibit crowd behavior. This has been so well known for decades. So why is it a surprise when the "markets" basically go nuts in fear panics or greed lust ? Books have been written about this and seers talk with furrowed brows describing it. But in the middle of one, all is forgotten. Simple trend following overwhelms all thought. Facts don't matter any more. Fearmongering and rumormongering runs amuck.

3. When fences are cut, wolves will prey. One purpose of laws and rules is to prevent the ruthless and evil from preying on the common man. This holds true in financial markets. In the 1920s and before, financial wolves manipulated stocks, conducted bear raids, and pumped stocks with impunity. When the SEC and Congress succumbed to libertarian nonsense and payoffs from Wall Street and hedge funds and gutted market regulations in the name of "reform", they just let the same pack of wolves loose again. No surprise they are back doing the same behaviors again as they did in the 1920s and before. The human behavior pattern was always lurking.

So yesterday all three were patterns were at work in the rumors and raids on FNMA and Freddie Mac. And the libertarians like Poole tossed some gas on the fire. Bear raiders spread false rumors about LEH. Sigh....

This is why I stick to Krypto Fund investing for the bulk of my investments. Broad diversification and mechanical asset allocation.

Doing nothing ...

PS: even the horrible 1929-1933 period in the financial markets, when viewed on a 100 year wall chart, are just a pronounced up and down move returning to the long term trend after a decade.

PPS: GE good numbers ... whither recession ?

Word of the Day

“Paraenetic” – adjective [$1000]
“Paraenesis” – noun [$1000]
Paraenetic means of, pertaining to, or of the nature of paranesis, advisory, hortatory.
Paraenesis means exhortation, advise, counsel; a hortatory composition.
Sentence: Thinking about events of the past few months and days, Bunkerman today wrote a paraenetic blog about human behavior in a longer term perspective.

Thursday, July 10, 2008

More Plain Speaking

More Euro-smashing.
More Beefer Ping Pong.
More Driving Cutbacks.

Wachovia gets new CEO, to book reserves for bad loans, to write-off goodwill.
BAC says no need for more capital, no dividend cut.

Germany gets reality check on nuclear power - kissing Greens might have to stop - and they'l need that power as wind, solar can't make it up and emissions from coal would be a lot.

Summer driving season is dead. Gasoline demand is flat on weekly demand chart and back to 2003 levels.

Market technicians keep making prophesies ... all that seems so much like reading the motions of birds, or spots on a liver, or the pattern of bones tossed on the ground.

Bunkerman's "prophesy" that the beefer traders would take out a logical "level" occurred yesterday, as the S&P entered bear market territory, making it unanimous. This is simply a trading rule: traders/locals always break logical levels to run stops on the public - stampede the "herd", etc. This happens on the way up, too. There were several examples of that in the past few rallies.

I am still searching for couple more of stocks to buy. Doing nothing otherwise. This weekend I'll check for any needed re-allocations in the Krypto Fund.

Word of the Day

"Controvert" - verb, transitive [$10]; the noun "controversy" is common but not the verb.
Controvert means 1. dispute, deny; 2. argue about, discuss.
Sentence: Some readers controvert Bunkerman's core thesis, viz., that big, evil funds [aka "beefers" ] dominate and manipulate market moves on the short and intermediate terms, but those believers in "efficient markets" are analogous to the theological scholaticists who denied the theories and observations of Copernicus and Galileo.

[ hehe - joking around a bit ;-) ]

Wednesday, July 9, 2008

Plain Speaking

Very little "plain speaking" occurs in public discourse now. The Bush-Clinton decades are typified by weaselly verbiage, deceptive phrasing and disingenuous talk and writing. But what else would we expect from a ruling class and their media poodles dominated by knaves ?

What prompted this rant ?

I read this morning's newspapers online. Here are some examples of how Bunkerman would describe or react to some news and issues.

Iran test fires missiles - medium and long range missiles. This is obviously a threat and further indication of Iran's warlike intentions. Iran's theocratic rulers call America the Great Satan. Let's believe them ... that they want to attack the US and or US allies or interests. Why not say this ? Why keep talking in blather to the press and Europeans and everyone else. Make it crystal clear that we believe their threats and will react with "vigor" to any implementation of them.

Russia threatens Europe if the US installs a missile defense for Europe against Iranian missiles. Russia implies this defense hurts them. Why ? It obviously has no effect on Russia. Russia helps Iran build nuclear plants and probably with weapons. So why not reply to Russia this way: Russia, you are helping Iran threaten US allies and helping Iran build offensive weapons capacity, and even to defend their nuclear installations ... which Russia is helping build. So simply say, Russia, you are part of the problem, in helping Iran threaten others. You stop helping Iran and we won't need this missile defense. Otherwise, we do.

See how this works ... plain speaking. No bureaucratic nonsense ... risk of misunderstandings are eliminated. Real problems crystalize and solutions become obvious.

Why doesn't the ruling class do this ? If I was paranoid, I'd say they just want to confuse the public and obfuscate issues for their own agenda. Which might be letting problems fester so their friends in the military-industrial complex can sell more weapons. Nahhh ...

By the way, why is the US paying for a missile defense for Europe that the European public doesn't want ?

Why not just say, plainly, "Europe, here's the technololgy. As allies, US will help you buiild it, but you're paying for it. Not the Average Joe in the US."

PS: "Steve & Barry's" to file bankruptcy petition ... what the heck is a "Steve & Barry's" ? Never heard of them nor seen a store.

PPS: I keep hearing this "raise capital" crap. Look, PROFITS attract capital, not losses. So financial institutions need to raise credit spreads, which has already happened a lot, and cut pay for Wall Street. That brings profits that attract capital.

Words of the Day

"Villein" - noun [$10] historical; "Villeinage" - noun
Villein means a feudal tenant entirely subjest to a lord or attached to a manor.
Villeinage means the tenure or status of a villein.

"Etatism" - noun [$100] from French; "Etatist" - noun
Etatism is a synonym for state socialism: a theory, doctrine and monvement advocating a planned economy controlled by the state, with state ownership of all industries and natural resources.
Etatist means a person advocating etatism.

Paragraph for both: The 20th century provides three fine examples of how etatism leads to incredible evils in practice in human societies: National Socialist Germany, Stalinist Soviet Union and Mao's China. Etatism reduces human beings to villeins in an entire nation or empire ruled by a one or a few ruthless lords. Friedrich Hayak wrote about the evolution of etatism in his seminal book, "The Road to Serfdom" and his theory operated as predicted, as the most ruthless and criminal persons came to rule in all those etatist societies after an initial phase. Why do so many "intelligentry" still belive that etatism works for humanity ? Maybe they just want the power as lords over the common villeins.

Tuesday, July 8, 2008


Up in the morning and what do I see,
Euro stocks cratering, A to Zeee.

That's a re-write of a cadence - aka a "Jody Call" - I like to run while listening to tapes of those on my elliptical machine. Running to military cadences is entertaining and fun, and helps maintain a positive spirit, which is important for a long, "boring" run.

I guess the Euro rich & powerful have a similar manic depression that the US ruling classes have. Hmmm, a bear market worldwide with no recession and minimal inflation. Wierd. I suppose these conditions happen, as human mass delusions can persist a long time. I wonder if there are any lithium stocks ? [joke]

So I read the Financial Times and Wall Street Journal online and found some interesting facts.

From FT:
[A survey of small US companies]
" More than half of the senior executives surveyed – up 10 per cent from 2007 – said globalisation had neither lowered their costs nor improved their margins, while the proportion of respondents moving production or services offshore had declined by 20 per cent during the past year.
" 'The global playing field is different today than it was even a year ago,” said Tom Murphy, the report’s main author. “The savings you generate by producing products with lower labour costs are more than eaten up by the higher energy costs to transport it back to the US.'
" Nevertheless, those companies with a global strategy reported on average a 4 per cent higher gross margin."

Is this not good for jobs in the US ? Less transferrence of jobs overseas ? Hence good for the common man ?

From FT:
"The biggest hedge funds are on a hiring binge, taking advantage of cutbacks at investment banks to recruit star traders, senior executives and whole teams to help them expand."

So they blow up the big investment banks, losing everything "made" in several years, and now go on to hedge funds. I guess the next "leg" will be hedge fund blow-ups next year. Why does anyone pay a "trader" anything? " In the "old" days, trading was simply a necessary service to help distribute new issues. It's become a "profit center", which is a mistake. "Trading" is truly a zero sum game.

From WSJ:
" Production at Mexico’s Cantarell oil complex, one of the world’s largest, has plummeted by a third in the past year, an indication the country could lose self-sufficiency in oil in the medium term.
" Average daily production dropped to slightly more than 1m barrels a day in May compared with more than 1.6m b/d in the same month last year, according to the energy ministry."

That is a fact to buttress the conspectus on oil prices in yesterday's blog.

From WSJ:
" Home buyers are having a tougher time getting mortgages as lenders feel the squeeze from defaults. IndyMac Bancorp Inc., a big mortgage lender during the housing boom, said Monday it will stop making most types of home loans.
" IndyMac specialized in loans for borrowers who didn't fully document their income or assets.

Another competitor of my big commercial banks bites the dust.

From WSJ:

" Many small banks launched just a few years ago are struggling to become profitable and could be forced to sell themselves."

Ditto above comment.

From WSJ:

" The derivatives arm of NYSE Euronext, Liffe, will offer to provide centralized clearing for dealers that trade European credit-default-swap indexes, a move that could help insulate individual firms from losses."

I guess they read this blog, too.

From WSJ:
" The European Central Bank's decision to raise its key interest rate was a signal to wage negotiators that it will keep inflation under control, Luxembourg Finance Minister and Prime Minister Jean-Claude Juncker said."

That's the best explanation I've read for why the ECB raised rates, viz. to keep the wages of the Euro-common man under control.

From WSJ:
" On Monday, a Lehman Brothers report said accounting rule changes could force Fannie and Freddie to raise tens of billions of dollars in new capital. Few expect Washington officials to let that happen, because the changes would make it difficult for the companies to buoy the housing market. The Lehman analyst agreed, saying, 'We cannot imagine such an outcome occurring.' But the report served as a fresh reminder of the thin layer of protection the two companies have against new losses, and helped send the shares downward."

Hmmm, the analyst can't imagine his conclusion is correct but writes it anyway ? Why ? I wopnder if LEH was short those two companies securities in any manner ? Nahhh ... there's a Chinese Wall. Suuuuuuuurrrrrrrrrreee there is. Not!

Word of the Day

"Cacogenics" - noun [$100] (used with a singular verb)
Cacogenics is a synomym for dysgenics, meaning the study of the operation of factors that cause degeneration in offsrping.
Sentence: I wonder if there are books about intellectual cacogenics that might explain why the level of American public discourse has fallen so much since the 1970s.

Monday, July 7, 2008

Causes of High OIl Prices in 21st Century

The recent run-up of the price of oil to first $100 / bbl and now to over $140 / bbl has been caused by a correlation of forces. Most of these forces are nothing new and have been around for over 30 years. The oil markets were studied quite intensively in the mid and late 1970s after the first oil price shock. Books were written; Ph. D. dissertations were produced; numerous academic and industry studies were done. Your author read some of those and even took a class at a ... gasp ... Harvard graduate school mostly devoted to the world's energy future. Not much has changed.

Here are the facts and forces.

1. The short term elasticity of demand for oil is very, very small, a FACT known for decades.
2. Major oil fields are in decline. All oil fields eventually produce less per year and eventually run out. This applies to all major fields developed in the 1960s, 1970s, and realy 1980s, viz. the North Sea, Mexico, Russia, and some in the MidEast. US oil fields are nearly depleted, except off-shore. [By the way, the US was the #1 oil producer for many decades up to the 1960s].
3. All new production such as from Angola merely goes to replace lost annual production from item #2.
4. Oil supply is a flow problem - the key number is the number of barrels produced PER YEAR, not the total still in the ground or accessble at high cost.
5. Demand is also a flow problem - The world economies have demand for a growing number of barrels of oil PER YEAR. Once the Soviet Union broke up and eastern Europe was permitted to develop normally, demand from there increased substantially. Demand from India and China has grown enormously.
6. Oil supply is approximately at its practical limit - about 85 million barrels per day.
7. Oil demand recently approached and hit that number. Barring price rises, demand would be over that number.
8. So under free market economics, price must rise to ration that last available barrel per day.
9. How much ? See item #1. A lot. Oil prices rose from the low double digits to $80 and then $100 / barrel. At those levels, modest declines in demand from the US were measured. This is a fact. Until prices rose to $80-100 / barrel, the American consumer did not cut back. At $100, they did.
10. Most oil traded on commodity markets is a fairly high grade of oil, not the heavy, sour grades that are the marginal barrels produced by Saudi Arabia.
11. There is really little truly "free" high quality oil on the markets - that is, not under contract or owned by governments. Financial Times recently put that number at about 5 million barrels per day out of total production of 85 million barrels per day.
12. For a few years, massive amounts of money - hundreds of billions - from pension funds has flowed into long only positions in the commodity markets. About 50% of that goes to oil and related products. The pension fund money is long-only. Massive flows into energy hedge funds occured, too. Whether made directly in the futures markets or via swaps, all these eventually cause massive long positions in enegry derivatives. These are DERIVATIVES - not actual barrels in the ground. This is differrent than investment in timber or gold where physical trees or bars of gold are owned. Fro a derivative, for every buyer there must be a seller.
13. There are really few natural sellers of oil futures. Who can do this ? Oil companies. That's it. governements don't sell oil in the futures markets. OPEC doesn't. And oil companies limit the amount they will sell forward.
14. So the pension funds have overwhelmed the natural sellers of oil futures and driven the prices up from a natural range around $100 / barrel to over $140 / barrel.
15. US consumer and industrial demand is dropping quite a lot now. The summer driving season that usually would cause a peak in gasoline demand seems to have vaporized. Demand is down about 3-5% year over year. Since the US is the largest consumer in the world, that's a lot of oil demand destruction.
16. Many nations in Asia subsidize the price of oil. That prevents market forces from rationing demand there. China recently raised gasoline prices, so in some places that distortion is lessening.

What next ?

Price will remain elevated. That is simple. No new supply and a continual flow of people and industries in growing economies thinking they'd like a bit more. Some marginal demand must be rationed by the high price. How high ? Very high until Congress kicks the pension funds out of the oil derivative markets (where they were in fact prohibited from being until a few years ago). If pension funds want to invest in oil, let them buy it in the ground or drill for it. Position size for hedge funds must be limited, too. And all-encompassing regulation on derivates is needed to prevent these beefers from getting around the limits with the help of Wall Street firms.

My guess from demand response that I've noticed over the years is that about $100 is a natural price balance. Demand was indeed being rationed at that level. The rest is the pension funds and beefers.

Other issues:
A. Most refineries have problems using heavy, sour grades of crude oil to make gasoline or diesel fuels - using it requires technical changes and costs more.
B. The spread between the prices of grades of oil has grown to record amounts - viz, the high quality price less the low quality price.
C. Congress, in its perpetual stupidity, mandated use on only very low sulfur diesel fuel in US trucks. This is hard and costly to make from cheaper, sour grades of crude oil.
D. Over time, new refineries can be built to use lower grades of oil. This is being done now - not in the US, of course - as US Congress and environmentalists want to grind the common man down and limit his freedom.

PS: Unless drilling is permitted and large amounts of money is invested in hard-to-recovery fields, such as in deep water or the Arctic, oil prices will rise as far as the eye can see. Why ? Because more oil must come into production to replace the production to be lost in near future years from declining fields.

PPS: I made a large add to my CCJ position this morning. This is the largest uranium mine in the world. Being a mine, there are always production risks. But long term, uranium must be the growth energy source of the 21st century. From Barron's quoting Nicholas Sarkozy, President of France, "The era of cheap oil is over. [The world] will end the 21st century without oil." said as he unveiled plans to expand France's nuclear plants. The monthly chart shows a solid two year base. The PE is a reasonable 22-23x with a five year compound earnings growth rate of 32%. I intend to make this one of my top ten stocks by position size.

Word of the Day

"Conspectus" - noun [$10]
Conspectus means 1. a general or comprehensive survey; 2. a summary or synopsis.
Sentence: Today Bunkerman wrote a conspectus in his blog on the causes of the increasing oil price in the last few years.

Sunday, July 6, 2008

Combating Hesperocentrism

"Hesperian" and the words formed with "Hespero-" are today's Words of the Day. Simply, "hespero-" is a Greek form meaning western. Thus, hesperocentrism is a mental state or world view dominated by western history and culture that disregards the influences of the non-western world. Principally, a hesperocentric thinks that all that has mattered in creating most of the modern world's structure is Britain, France, Spain and America, and ancient Rome and Greece. Now there is an element of truth in that, "but" it misses and distorts a lot.

Below I list six books that I have read or am now reading which have been excellent in mapping out some truly important historical and cultural patterns that one needs to know to understand where the world is now and where it might be going. These books are focused on eastern Europe and the Near East, as those areas are now quite crucial in the world's trajectory in the "phase space of humanity", viz., that's what I call the state and evolution of human history in time and space.

1. History of the Byzantine State, by George Ostrogorsky. The Roman Empire did not fall in 476 AD; it continued as a force in history and the world until 1204 AD in the east, finally being extinguished in 1453 AD. The East Roman Empire, aka, the Byzantine Empire, was truly enormously significant in Europe and the Near East for centuries.

2. The Arabs in History, by Bernard Lewis. Understanding the creation of the Arab and later Islamic empires of course matters for the entire Near East from about 650 AD to the present. This short book does a fine job providing the principle historical, cultural and religious events and issues.

3. The Mongols, by David Morgan. The Mongol invasions and empire both broke up old structures and created new ones. All Asia was impacted from about 1200 AD to mid 1300 AD and later in Russia. This force needs to be understood to see what influenced early Russia and the Near East, as well as China and India.

4. Soldiers of Fortune, by Sir John Glubb. The Mamluke Empire in Syria and Egypt from 1250 to 1500 cements the Arab and Byzantine world together with the later Ottoman Empire. This book provides a fine history and also emphasizes the structure of the warrior caste of Turkish soldiers who ran it.

5. The Ottoman Centuries: The Rise and Fall of the Turkish Empire, by Lord Kinross. This culture and empire is crucial for understanding the Near East and eastern Europe from about 1200 AD to World War I.

6. God's Playground: A History of Poland, by Norman Davies. Poland was a world power from around 1200 AD until 1700 AD and had much influence on Europe until it was temporarily extinguished as a nation in the third partition in 1795. At one period Poland was the largest nation in Europe and perhaps the most powerful. One fact brought out by this book is that "freedom" was NOT invented in the west. The freedom of the Polish "szlachty", which was an unusually broad class of nobility representing about 10% of the population, was nearly perfect. perhaps unduly perfect, as one learns in the history.

Words of the Day

"Hespero-" - see above, first paragraph. [$10,000]

"Hesperian" - noun [$10]
Hesperian means 1. western; 2. (in Greek mythology) of or concerning the Hesperides (nymphs who guarded the garden of the golden apples as the western extremity of the Earth).

"Hesperophobe" - noun [$10,000]
Hesperophobe means one who fears the west.
Sentence: "Another phase much sneered at by hesperophoes was 'the Free World' " - from "Reflections on a Ravaged Century" by Robert Conquest, pg. 165.

"Hesperophile" - noun [$10,000]
Hesperophile means one whose outlook is dominated by the west and western culture, primary that of America, Britain, France, Spain and ancient Rome and Greece.

Sentence for both: Since World War II, intellectual hesperophiles and hesperphobes, primarily conservatives for the former and liberals for the latter, have overlooked much important history and culture in eastern Europe and the Near East vital to understanding the modern world.

Thursday, July 3, 2008

TGI ... T ?

Yes, since Friday is Independence Day and a major holiday in the US. I'm thinking about my BBQ plans: steaks (2" thick filets), Bunker beans, garlic bread, salad, apple pie, ale.

I have to take the Kelpies to a sheep herding class this morning. Sky continues to amaze his trainers - both say he's the best dog for his age they have every seen. He is now learning to respond to whistle commands, which is quite important since voices don't carry well in the wind and rain over 400 yards that can occur in a sheep herding trial. Sky has great "power" over the sheep - that is the ability to move even tough, hard sheep that have never seen dogs. Krypto continues to improve, too.


Yesterday afternoon was a fine example of beefer manipulations. On the day prior, stocks rose on real data about GM sales being better than expected. So the beefers get an analyst to pan GM late afternnon and simultaneously pump up oil prices while selling stock futures. And the computerized traders pile on. Sigh ...

Actually I think "they" were trolling for sell stops below the Dow "bear market" territory levels. One rule from my commodity trading days is that obvious levels for stops are almost always violated as local traders and trading funds seeking easy money from running the public's stop orders. Since the stock market is now dominated by trading funds, this behavior should not be surprising.

I am still working on my buy list. I made the money transfer this morning for a part of the new $$$, but the big new flow will be later in July. I have a few tentative buys in mind for Monday.


Has anyone noticed that European stocks are being pummelled ? This morning - early - that is happening, too. This is a fine example of the effects of the ECB fighting the wrong war. They are expected to raise rates today to "fight inflation". Hmmm ... so they raise rates, which depresses the dollar, which in turn raises oil prices, which in turn raises headline Inflation ! D'uh !

I wonder why they think ECB interest rates can affect price increases in oil or food ? Of course, the ECB has no accountability to anyone, and even the EU itself is in tatters as the new treaty seems to be collapsing from a lack of public support.

PS: With existing economic weakness in southern Europe, I suspect major political crisis might occur if the ECB continues to be foolish and causes a recession in Europe ? With the EU already on the ropes, this is a concern.

Word of the Day

"Syncretism" - noun [$10]; "syncretize" - verb [$10]
Syncretism means 1. the combination of two different forms of belief or practice; 2. the fusion of two or more original different inflectionist forms.
Syncretize means to attempt to write and harmonize esp. without critical examination or logical unity.
Sentences: Bunkerman's political philosophy - populist libertarianism - is a practical syncretism of libertarianism, where freedom is maximized, with populism, where the ruling classes (aka rich and powerful) are restricted. Bunkerman syncretizes these two divergent philosophies into a whole by letting the populist component have just enough weight to prevent the ruling classes from creating a new aristocracy and harming the common man with their antics.

Wednesday, July 2, 2008

Whither Wednesday ?

Deutsche Bank says it will have profitable Q2, no sizeable write-offs, no new capital needed.

Uhhh ... I would like to hear that from BAC, WB, C CEOs. Maugre* their silence, I am thinking of going from a double up on BAC to a triple up even now. I read another bearish story on BAC, so the beefers must be trying very hard to push it lower. They do plant those stories to create selling pressure in the same manner as they coordinate with analysts for sell recommendations. This is part of the Jesse Livermore, 1920s stock manipulation playbook that the idealists / knaves at the SEC now permit.

*Maugre is a word of the day today.

Stilling thinking about the buy list ...

I have to wait a couple days for big checks to clear to get the new money to my brokers, so no hurry here.

Thinking about a July 4th BBQ, too. Bunker beans will certainly be part of that.

PS: I wonder how many shares of bank stocks were bought back by the banks at high prices in 2005-2007 ? Share buy-backs are such a scam and foolish.

Words of the Day

"Maugre" - preposition [$100] - archaic now, from the letters of George Washington
Maugre means in spite of, notwithstanding
Sentence: see * above.

"Synecdoche" - noun [$10]
Synecdoche means a figure of speech in which a part is made to represent the whole or vice-versa (for example "new faces at a meeting").
Sentence: In this US presidential campaign "Obama" is used by the press as a synecdoche to represent the Democratic candidate, Barack Hussein Obama, in a similar manner that "Hillary" represented Hillary Rodham Clinton.

Tuesday, July 1, 2008

A New Quarter


Does the new quarter bring change ? So far, no. More heavy European selling is now occuring as can often lead to a big down day. Many recent big down days begin with heavy selling in the DAX and in Europe and shifts to the US around 5AM ET. So it's obviously Europe-source telic selling.

Year to date:
Krypto Fund -3.72% ... outperforming by far. [contains about 85% of investments]
Alpha Fund -28.1% ... ugly, underperforming by far. [contains about 15% of investments]

The Alpha Fund losses are all in my "early / stinking" buys of the big banks. Ugh! Other holdings are in the green or show quite small losses. Interestingly, after this Q2 drop, my Krypto Fund model shows no need to re-balance ... so the declines are really broad around the world and across asset classes. I rebalance when a class is 5% from target allocation. That means for an asset class targeted to be 20% of the fund, I re-balance when it goes over 21% or under 19%.

World History

I just finished the interesting book, "Soldiers of Fortune" by Sir John Glubb, which is a history of the Mamluke empire which ruled Syria and Egypt via an unusual ruling warrior caste from about 1250 AD to 1517 AD. The greater point the author makes in the book is that empires tend to last only about 250 to 350 years. Some kind of sociological decline seems to be immanent in them regardless of the historical era or ruling structure. His examples are the British Empire (1700 to 1950), the Mamluke empire (1250 to 1517), the Greek Selucid empire (332 BC to 63 BC), and the Spanish American empire (1500 AD to 1800 AD).

Other examples from my memory are the Manchurian dynasty in China (1644 AD to 1912 AD), the Ming dynasty (AD 1368 to AD 1644), and the Russian Romanov dynasty (1613 AD to 1917 AD). The Roman republic lasted a bit longer, but it's phase as an "empire" beyond Italy ran from about 280 BC to 31 BC. The Roman Principate ran from about 31 BC to about 285 AD. The Austrian Empire ran from about 1650 AD to 1918 AD as a solidified state. The Ottoman Empire ran from about 1450 AD to 1918 AD - quite long - although the first 50+ years was somewhat confined geographically and the last 50+ years were decrepit. All these dates are rough and many empires such as Rome were able to mutate to survive with some modifications.

So where is the American "empire" in this time line ? I suppose that it dates to about 1900. Adding the range 250 to 350 years gives 2150 AD to 2250 AD for its lifetime and dominance. I guess the doomsayers might be a bit premature, at least per historical analogs.

Word of the Day

"Synoecism" - noun [$1000] rom Greek Antiquity
Synoecism means the union of several towns or villages into or under one capital city.
Sentence: (A) The modern New York City was formed in 1898 as a synoecism of Brooklyn, the county of New York (Manhattan and parts of the Bronx), the county of Richmond (Staten Island) and western parts of the county of Queens. (B) The Krypto Fund is a synoecism of independent investment funds with periodic rebalancing under an overall plan.