Tuesday, September 30, 2008

The Answer was Yes.

That is, the answer to the question that was used of yesterday's Word of the Day.

"Purblind" - adjective [$10]
Purblind means lacking in vision, insight or understanding.
Sentence: Will the purblind public scare enough pusillanimous Congressmen to defeat the Paulson plan ?


Homo Boobus won with as screeches of the puerile public drowned out reason.

The banking system is bleeding as millions of the public are defaulting on their home mortgages - hence are the "root" cause - and partial relief for the banks to continue lending to "the public" aka the booboises - is defeated by the public in its hatred for evil banks and "Wall Street".

The people and firms and institutions who loaned the money to the public and are losing untold billions are the "bad guys" the public wants to punish. It's almost oxymoronic.

Equity markets dropped as the vote occurred.

After the vote failed, I sold all my Alpha Fund stocks and am now in cash. I don't have a vision of the likely economic trajectory now, so will wait and watch and think.

For the Krypto Fund, I continue to practice my standard asset allocation system. I'll check the values later this week. Substantial new cash is in that fund, which Mrs. B and I will put to work using time diversification.

Perhaps the ECB will cut rates. Much of the pressure has been coming from Europe. Maybe Congress will strip out the change to permit the Fed to pay interest on reserves and pass it separately. That would help immensely as the Fed could then flood the banking system with reserves.

But the current danger is that some companies will not be able to roll over commercial paper lines and thus fail. Plus more large banks might fail. There are fewer buyers now for those institutions. Deposits over $100,000 might not thus be protected. That would cause firms to miss payrolls, etc.

I think the rich will continue to panic. Many small mammals are likely to be hurt in the stampede. I've climbed into the tree of cash to wait.

I no longer think a true recession is unavoidable. So I will wait.

October looms. Ugh ... a scary month.

Word of the Day

"Canaille" - noun [$10] (pronounced Ka-nai)
Canaille means the rabble, the mob, the populace
Sentence: The canaille caused the defeat of the Paulson plan. Can they bear the consequences?

Monday, September 29, 2008

Better Than Expected

The Paulson plan emerged from Congress better than I expected, and certainly much better than the plan as announced on Thursday by the Democrats. Maybe McCain and the R revolt helped. I don't know, but it's a far better plan now than Thursday. [My commentary is based on this morning's WSJ summary as of about 4AM.]

The $700 billion survived. $250 billion at once, then $100 billion on request and then last $350 billion is approved on request and can only be blocked with a vote of Congress, which could be vetoed by the President. So a real revolt in Congress will be needed to block the last $350 billion. No delay until May for it. And the fact that it will take Treasury a bit of time to get going, and conduct the auctions, the phasing seems OK.

The warrants are minimal for assets the Treasury buys in auction. For direct buys, the warrants are a lot, but that's what Treasury got in AIG, etc. The requirement for recovery of losses is just a requirement for a plan to be submitted. SEC is required to review mark-to-market accounting. Good.

And the Fed gets authority to pay interest on reserves. Very good. The Fed can now push money into the monetary base without causing the Fed Funds rate to collapse.

And no mortgage cramdown provision. Very good, too.

So overall, I like it.

As implemented, this should really help stop disintermediation from pushing more banks into insolvency. But of course a bank has to survive until the plan gets going.

From recent events, WB might not make it. C and WFC are looking over buying it. But I suspect a WM-style purchase is needed to give the buyers enough cushion on the option ARM writedowns.

Huge Belgian bank, Fortis, was 50% nationalized. Mid-sized lender Bradford & Bingley in the UK failed and was sold to Banco Santander.

MS says the Mitsuibishi investment is perking along.

So what other banks are on the hit list ? Right now, interestingly, none come to mind. I suppose NCC and a few other regionals are problems, but rather manageable as long as runs or walks on the bank don't occur.

So let's wait & see. Congress needs to pass the bill, though. I just heard a vote is expected around Noon.


From Barron's I see the Fed finally increased the monetary base substantially - $70 billion in the last two weeks. Very good.

Share buybacks are now more widely recognized as very poor uses of corporate cash. One can see that financial firms wasted huge sums buying shares at high prices, but now issue new stock at low prices. And GE made a similar mistake, buying high and now cutting the buybacks when prices are low. An article in FT shows that buybacks are really just used to prop up sock prices so executives can cash in options at higher prices. Really, they are a fraud on the stockholders. Maybe FT reads this blog, as I've written to that effect often.

Share buybacks encourage short term investing and thinking. Regular dividends encourage long term thinking and investing.


A mini-euro panic seems occurring this morning, likely due to a realization that their schadenfreude of last week was wrong, as their banks have big problems, too, which are not solely due to investments in the US mortgage markets.

On Friday I bought small, starter positions in three dry bulk shipping companies (DRYS, GNK and EXM). This is a speculation on the world NOT ending. The Baltic Dry Freight index has been collapsing and beefers have been crushing these stocks. But they have over 50% of their charters locked in for a couple years. And some of the drop in he Baltic Dry Index is due to a stand-off between China and RIO over iron ore prices. Financial Times had an illuminating article. So I will give them some time and add slowly to avoid large losses on my usual "early" positioning.

PS: I am stunned that Congress did not pass the bill. I am very worried for first time in awhile. My partner, who lived through Penn Central debacle, expressed concern to me about firms failing due to inability to roll over commercial paper. So I figured it wasn't worth the risk to stick with even my excellent stocks.

Word of the Day

"Purblind" - adjective [$10]
Purblind means lacking in vision, insight or understanding.
Sentence: Will the purblind public scare enough pusillanimous Congressmen to defeat the Paulson plan ?

[btw, pusillanimous means cowardly]

Quote of the Week - a new feature of this blog.

From "The Impossible H. L. Mencken", pg. 595 in an article written to cover the Scopes "monkey" trial in 1925 on teaching Darwin's theory of evolution in high schools. The event provoking the quote was an inane speech by William Jennings Bryan, a famous populist politician and religious fundamentalist.

"As Bryan said that learning is dangerous, that nothing is true that is not in the Bible, that a yokel who goes to church regularly knows more than any scientist ever heard of. The thing went to fantastic lengths. It became a farrago of puerilities without coherence or sense."

Ferrago means a hodge-podge, a confused mixture. [An old $10 word of the day]
Puerile means immature, childish. [ a recent $10 word of the day]

Friday, September 26, 2008

TGIF ???

I can say that but Hank the Tank gets to work another long weekend.

So you thought I was joking when I said that the assets of investment banking units went up and down the elevator every day. WSJ: “TOKYO -- Nomura Holdings Inc. paid a nominal sum of $2 for the rump of bankrupt Lehman Brothers Holdings Inc. in Europe and the Middle East, a person familiar with the situation said. Earlier this week, Nomura said it had acquired Lehman's equities and investment banking franchises in Europe, which employs about 2,500 bankers, for a nominal sum that it didn't disclose. "

$2 for the entire operations. Seems fair to me. After all, they have to pay the employees and they are paid in arrears, not in advance.

JPMorgan buys assets of WM. Oh well, thank goodness I did take counsel of my fears last week when I sold my WM speculation for near breakeven. That is something I should have done in May with WB. Live & learn. In bull markets I had learned to not take counsel of fears in very successful investments in oils and miners. But I guess in bear markets one needs to consider them. And in this case, when I realized that buyers were probably waiting to buy the bank clean as an asset purchase, I realized the stock might go to zero and got out. Fear is still ruling the day.

JPM gets a huge branch network and hundreds of billions in deposits for a song. The strong are getting stronger and the weak are being bled. Morgan Stanley reveals it has suffered a loss of many, many customers in its profitable prime brokerage business. I wonder if JPM will buy Morgan Stanley and unify the Morgan name worldwide ? A purchase of MS for its book value with stock would be a good one for JPM, in my verily humble opinion.

Congress appears to be mucking the “Invest in America” plan of Hank the Tank Paulson. Paraphrasing what I wrote to a non-posting friend last evening, “… never underestimate the stupidity or greed or lust for power of an American Congressman.” These knaves are completely without experience in the private sector and mostly know only how to act as mafia bosses in doling out favors and grabbing power. Tammany Hall exists in the 21st century and it is located in the US Capitol building.

In my “gut”, I really did not like the “plan” as it emerged from Congress yesterday afternoon. The force was diluted through the staging of the loans and the need for a vote by Congress for the last ½.

If the Democrats add the power for judges to modify mortgages in bankruptcy, that would destroy the entire mortgage market. Who would ever lend money in a mortgage market - and particularly who would be mortgage securities in the capital markets - knowing a judge can write the loan down with impunity ?

The plan of Hank the Tank would make a huge profit for the government as they could buy assets for 15% yields with funding costs of 3%. At $700 billion of assets with 12% profit margin, the first year profits would be $84 billion. And the prices paid would be below that expected even with conservative – too conservative – default and loss severity assumptions. Remember that about ½ of the nation is seeing stable house prices. Most losses are now in CA, FL, AZ, and NV. But most mortgage CDOs are geographically diversified. So the panic in the markets is pricing these at ludicrous levels. Bill Gross of PIMCO wrote about this a few days ago in the WSJ and also spoke about this on Babblevision.

Honestly, I wish these were available in retail sized amounts. But these securities are typically sold in $1 million blocks.

By the way, this analysis does not apply to CDO squared securities, which are pools of subordinated classes of other CDOs. The loss on subordinated classes can easily be 100%. The government could stick to buying super-senior and senior classes.

The alternative of the "conservative" GOP is stupid and will not work - insuring the mortgage securities does not make a market in them. They still must be sold to liquify the bank balance sheets. And who can buy them in the hundreds of billions to hold to maturity?

The possibility that the Paulson plan will collapse is not zero. See above. “Protect yourself at all times”. If you have some cash available next week, you “might” see some prices of a lifetime for quality companies. Do not go “all in” on the “certainty” of a plan emerging and passing.

PS: How can the market miss-price so many billions of assets ? Disintermediation. This is what happened in the late 1970s to the S&L industry. Funding of long dated assets like CDO classes with short term deposits is a recipe for disaster and many banks, investment banks and hedge funds did that. And then the short term funding dries up. The institutions have to sell the long dated assets to someone at any price. But there are not enough patient buyers who can hold to maturity to realize the underlying value.

PS: When the rich panic, small mammals can be trampled in the stampede.

PPS: I have not and do not plan to sell my stocks. They are either 2 or the 3 the strongest banks or oils and miners with superlative cash flow.

P^3S: By the way, swaps - whether interest rate or credit - do not protect against disintermediation.

P^4S: And for these pundits talking about "guarantees" being a solution, how does that solve disintermediation ? I guess they are blinded by ideology.

Word of the Day

"Abreaction" - noun [$10]; "abreact" - verb, transitive [$10]
Abreaction mens (Psychology) the free expression and consequent release of a previously repressed emotion.
Abreact means release (an emotion) by abreaction.
Sentence: If the Paulson plan collapses or is fatally corrupted by the knaves in Congress, the screeches of fear and panic as the market abreacts will be lifetime memories of the survivors. Bunkerman's memories of the crash on Black Monday in 1987 were seared into his brain and emotions. He survived then and will survive now. "Protect Yourself at All Times" is the watchword.

Thursday, September 25, 2008

Progress ...

No, I did not watch W's speech. From the clips, it was poor as usual. Saying he's no Ronald Reagan is like saying a Little League kid is no Babe Ruth. His explanations to Homo Boobus don't really work well, as he's Lord of the Boobs himself. I should be wearing a bag over my head for supporting him in 2000 vs. Big John. Ugh !

But Barney Frank seems to be pushing this through with Hank the Tank. Although he's a liberal, at least Barney Frank has a brain. Unlike the current Democratic nominee. Or Nancy of the Nanny State. Big John McCain shows some leadership in getting to DC - he needs to knuckle some of the foolish Republicans. Gosh, I am sickened more and more by them and their antics.

By the way, I wish some of those distressed mortgage securities were available in retail size lots. I'd buy some at 15%. Pricing is ridiculously low even with overestimated default and loss rates.

Some more news ...

I see that SEC Chairman Cox reads this blog … a little of it.
“Christopher Cox, chairman of the Securities and Exchange Commission, told the Senate banking committee that “significant opportunities” for manipulation existed in the market for credit default swaps, which offers a kind of insurance against companies defaulting on their debt” – Financial Times

And: Mr Cox said: “This potential for unfettered naked shorting and the lack of regulation . . . are cause for great concern.”

And finally Elmer is getting the raspberry he so deserves: In 2000, Alan Greenspan, the former Federal Reserve chairman, said explicit regulation of OTC derivatives transactions was “unnecessary”.

And: Mr Cox’s call follows moves by New York state to bring parts of the CDS sector under the control of its insurance supervisors from January.

Since the ARE insurance contracts, why not ?

Here’s an example a non-posting friend sent me: “In one notorious case, a small hedge fund agreed to insure UBS AG … the Swiss banking giant, from losses related to defaults on $1.3 billion of sub prime mortgages for an annual premium of about $2 million. The trouble was, the hedge fund set up a subsidiary to stand behind the guarantee -- and capitalized it with just $4.6 million. As long as the loans performed, the fund made a killing, raking in an annualized return of nearly 44 percent.” [quoted from a Reuters article]. Is that example not fraud ?


Data for the national median existing-home price for all housing types:
For Q4 2007, 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.
June was $215,100;
July $212,400;
August, $203,100.

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;
July 4.67 million;
August – 4.26 million.

Data really seem to show the problem is being resolved.


Doing nothing. Alpha Fund is about 125% long with 1/2 in CVX, DVN, RIG and FCX and 1/2 in BAC and JPM, plus a smidge of MBI for a speculation.

Word of the Day

"Tessera" - noun [$10, $1000 depending on meaning]; plural "tesserae"
Tessera means 1a. (Ancient History) A small quadrilateral tablet of wood, bone, ivory or the like, used for various purposes, as a token, tally, ticket, label, etc.; 1b. a distinguishing sign or token; a watchword or password (the earliest use in English); 2a. each of a small square (usually cubical) pieces of marble, glass, tile, etc. of which a mosaic pavement or the like is composed; 2b. any one of the quadrilateral divisions into which a surface is divided by intersecting lines, e. g. by lines of latitude and longitude; 2c. (Zoological) each of the paltes of which the carapace of an armadillo is composed.
Sentence: Congress and the Executive are sorting through various tesserae to arrive at a complete mosaic for the refinancing of the illiquid mortgage securities on the books of the nation's banks.

Bonus Word

Here's an interesting "derivative" word from the OED:
"Tesseract" - noun [$1000]
Tesseract means a four dimensional hypercube
Sentence: Bunkerman is such a square in so many dimensions that he's a tesseract.

Wednesday, September 24, 2008

Out of the Beast

I arrived home last evening after 1.5 days in the belly of the Beast ... aka New York City, Manhattan. The Gold Kryptonite martinis at the "club" bar were perfectly made by my friendly bartenders. Then on Tuesday, lunch at the Harvard Club was very fine - poached salmon, fine vegetables and the berries with coffee. The Grill Room was packed with people ... ugh, I wish they had not relaxed the dress code - so many slobs eating in a finely paneled room decorated with paintings is depressing.

People in suits seemed worried about the markets and many were quite bearish. But the common man seemed more interested in the Mets and the playoffs and the Giants and Jets. This is still a rich man's panic.

My special ties again received compliments from strangers of both sexes.

The stupidity of Congressmen and women continues to astonish me.

Buffet buys sweetheart deal from GS. Next time one hears him talk about taxes, remember that his preferred stock dividends are 80% tax-free to Berkshire Hathaway. And when people gush about following his ideas, that might be hard as I didn't notice a public offering of that preferred stock and warrants deal.

A giant beefer reveals huge short positions against some UK banks after the UK's FSA requires disclosure. What a surprise !

The oil market was wild - and oils stocks, too. The signs of beefer liquidation seem strong.

Alpha Fund owns BAC, JPM, CVX, DVN, RIG and FCX in reasonably sized positions, and has a smaller speculative position in MBI, too. BAC is about 1.3x normal size still after the partial sale posted Monday AM. Alpha Fund is roughly 1/2 in the big two fins and 1/2 in the oils+miners. Alpha Fund is on slight margin, about 125%.

Doing nothing. Might buy heavily if more signs of a bottom in home prices emerge. I expect this soon as mortgage rates are low again and anecdotes of real buyers are more frequent.

PS: Hmm I guess I'm being baited - "what do Libertarians think about the Paulson 'plan' ?"

A purist, unthinking libertarian would be against it, I suppose. However one that thinks and has read "Anarchy, State and Utopia" by Robert Nozick might connect the philosophical justification for using the State to protect against violence from persons and catastrophic events with violence against the common man by big money pools and frightened rich & powerful people. And support some parts of it. Uniting resources to avoid catastrophe from being trampled by their stampede makes sense for the common "protective association".

This is why Bunkerman, as a populist libertarian, supports it as it has so far been disclosed. Just as government protects the common man from pirates and gangsters - or should - so should the common man unite and use government to protect themsleves against both the gluttonous Dukes and the Viking raiders in the financial world.

Word of the Day

"Recrudescense" - noun [$10]
Recrudescence means a new outbreak after a period of abatement or inactivity; renewal.
Sentence: Will October 3 bring a recrudescense of rumors about financial firms once the beefer Viking raiders can again profit from short selling raids ?

Monday, September 22, 2008

The Morning After ...

MS and GS to become bank holding companies and submit to regulation by the Federal Reserve.. The WB+MS merger is off. I suspect both will try to buy high quality banks over time. That's the end of an era - now there are none. No independent full service investment banks - just boutique firms doing pure M&A, advisory, etc., and perhaps some small players.

Australia, Taiwan and Netherlands ban short selling.

Remarkably, the SEC staff still acts as if it's in the pocket of Wall Street and the beefers. I saw a Financial Times story over the weekend that they recommend exempting market makers from the short selling rule. Sheesh … what a huge loophole they want to create ! A beefer could bid for a huge position in “in the money” put options on bank stock B which the market maker could short to fill the order, hence completely circumventing the “no short sales” temporary rule. Such incredible open knavery or stupidity boggles the mind.

A fact for comparison: in the RTC crisis of the early 1990s, about 1000 S&L failed. So far in this crisis, 12 banks or S&Ls have failed. And it’s rather far along for that number to be off by more than an order of magnitude. [For Gen X-Y-Zers, that a multiple of 10]. So all should take comfort that the increased regulation created then really has helped a lot.

But since then the hedge fund industry exploded in size and its tentacles have wound through the large banks and brokerage firms. That is the source of this mess. That is the cause of and the location of much of the excess leverage about which pundits screech. That plus credit default swaps, a “market” that should be tightly regulated, too.

You might think, "OK, Bunkerman, what would you do to regulate those markets and firms ?" So here's my rough thinking.


As pointed out last Wednesday, no credit default market can “insure” against systematic risk in the entire economy. And writers of those policies actually have committed effective fraud if they do not have rock solid collateral against any “net” CDS positions. By rock solid collateral, I mean T-bills. By net positions, I mean any net exposure when swaps are binned into subgroups by insured credit and counterparty – long and short exposure in each individual bin can be netted within the bin only. That’s all. Any net short exposure of any individual bin must have T-bill backup for the full notional amount. Anything less is not enough and is effective fraud. Calendar spreads of CDS in any bin will require scaled collateral. New CDS regulation should require this.

Equity derivatives and other derivatives shall require margin posted in the same amount as the underlying security. No second tier derivatives (a derivative on a derivative) shall be permitted except for designated broad based indices such as the S&P 500. A broad based equity index shall has at least 100 stocks with suitable anti-concentration limits. Hence kiss your “VIX” derivatives goodbye.

Hedge Funds

Any hedge fund with assets over $1 billion and which is leveraged should be regulated as a bank. Any hedge fund without leverage with assets over $1 billion should be required to submit to the Investment Company Act. Appropriate rules should apply to anyone managing actively assets for separate accounts which assets exceed $1 billion. The antics of these whales must be stopped.

Proprietary trading books of any broker-dealer or bank shall be segregated from its other activities and regulated as a hedge fund.

This damage cause by these financial Vikings must be stopped forever.

Short Selling

The uptick rule on short sales should be reinstated and applied to ETFs, also. Short selling shall be permitted otherwise but the SEC shall be given express power to ban or otherwise restrict it for any or all securities in times of any market stress. This power shall apply to any derivative also. Market circuit breakers on program trading shall be reviewed for appropriate ranges.


CFTC shall regulate energy swaps and any swap connected to or related to any product traded on commodity futures markets. Swap positions shall be disclosed as are futures positions and require similar collateral. The only persons considered "hedgers" or "commercials" shall be true business hedgers such as oil companies, farmers and airlines, for examples. Trading companies shall not be deemed "hedgers" or "commercials". Position limits shall be tightened and aggregated across all related commodities and strictly enforces.

Pension funds shall be prohibited from taking positions in futures or swaps in commodities.

Congress should include some support for GM and the US auto industry as part of this market support plan. And I have no problem with some money to help homeowners stay in their homes by buying down their mortgage balances and re-writing the loans to affordable levels. In fact, if Treasury can buy those loans directly, then part of the plan could be to do that, and them refinance those loans with FHA loans. I proposed that before.

By the way, it is a good thing this crisis occurred in the US and not the EU. There is no ability for the EU to move this fast as no EU really exists as a unified government.


I checked my Krypto Fund allocations and the model wants me to sell some of the real estate class and buy foreign stocks – mostly emerging markets and a bit in Europe. I will defer this as when Mrs. B deploys her substantial cash in her Sky Fund ( a subset of Krypto Fund ), those adjustments might be nullified. Rather than bounce money around excessively, I will be patient. I know she plans to make investments in foreign stocks / mutual funds and municipal bonds, and also cannot effectively buy real estate in her fund. So her investments when made might solve the imbalance.

Travel: I go to NYC this mornings and return Tuesday evening. No blog post tomorrow.

Word of the Day

"Recondite" - adjective [$10]
Recondite means 1. hidden from sight; concealed; 2. incomprehensible to one of ordinary understanding or knowledge; deep; 3. of, relating to, or dealing with something little known or obscure.
Sentence: The recondite swaps markets in everything - all swaps of any kind - need to be regulated and forced into a futures market strcuture where offsets are automatic, contract terms in time and size are fixed and collateral requiremements are clear and mandatory.

Friday, September 19, 2008

A Failure of Ideology

This financial crisis provides a clear example of critical flaws in pure economic libertarianism.

First, economic libertarianism fails to account for rapid dynamics of financial markets. Rapid changes can be so fast that theoretical counter feedbacks cannot even begin to reverse the excess.

Second, it fails to treat zero point problems, namely, that when a firm goes bankrupt, it collapses to near nothing. Reversal – recovery - cannot occur.

Third, the human emotion of fear is ignored in economic libertarianism. While even political libertarians recognize fear of violence as creating a legitimate governmental role, economic libertarians ignore this in financial markets.

Fourth, economic libertarianism assumes many small players acting in free markets, while financial markets often have huge pools of money that can directly influence prices with their own actions.

For these four reasons – rapid dynamics, zero point error, fear and big money pools – economic libertarian simply does not to provide a “Square Deal” for the common man without a central power to ensure fairness.

Here is an example:

A congeries of beefers use instant messages to pass false rumors that Bank X has huge hidden losses or has lost key customers. They start buying put options on Bank X stock and then all place large orders for credit default swaps of Bank X. Without securing real borrows on the stock, they sell short huge blocks of Bank X common stock, pressing it lower and lower with any uptick respite. Without natural writers, the credit default swap market in Bank X is overwhelmed and its spread blows out, increasing funding costs hugely. Fear for the credit of Bank X is inferred from this huge increase. Little cash is needed to buy these derivative and cause this fear.

More rumors appear in the financial press as the stock price fall is noted and people wonder why. The rating agencies, in search of credibility, put the firm onto credit watch because of its stock price, not for any fundamental reason. Fear grows and spreads.

Bank X soon cannot borrow funds are reasonable rates and begins to bleed cash and customers. The stock falls furthers. There is no time for management to get facts out, which are hard to present and understand by sophomoric financial press anyway. Soon the firm’s losses of customers and cash withdrawals become critical and …

All this could occur as beefers with trillions of funds can and do overwhelm normal market activity. Economic libertarianism permits these huge pools of money to act like raiding Vikings, plundering staid, defenseless monasteries with impunity. In 9th century Europe, no central government existed with powers to stop them. A century of havoc ensued across Europe from France to deep Russia to Sicily to Ireland.

And without some central power to hold back these raiders, massive economic turmoil can hurt the common man for decades.

The US SEC has completely failed in its core mission, viz., to regulate the markets. The SEC seems to have become the sandbox of economic libertarians to build castles in sand. Or perhaps they – the commissioners and staff – are simply corrupt, wanting to be loved by the beefers and law firms where they expect high paying jobs next year.

From news reports overnight, the US SEC may finally be acting. Certainly the new rules on short selling fraud will help. The resistance to this is almost ludicrous. Can you imagine how high stocks would go if buyers could “buy” stocks, not deliver their cash, and yet maintain the position? Yet until today, short sellers could do the analogous: sell short shares, never deliver the stock and keep the position. Incredible. That shows the power of the beefers over the SEC and its staff. Only a crisis is breaking this tangle of corruption and foolish ideology. Fools or knaves … knaves or fools ... or both ?

Actions by the UK FSA has led the way on short selling. Early this AM, the banks in the UK are having huge rallies in their stock prices. And there are reports the US SEC might finally do something to stop the raids of beefers.

Can anyone imagine how much the common man has been hurt by this SEC foolishness and / or knavery ? Honest John McCain is completely correct. The SEC Chairman should be fired.


Huge rally yesterday. I have no regrets on those sales on Tuesday, by the way. Without those, perhaps I would have sold all my stock on that huge fall on Wednesday. As happened, I protected my most important positions and was clear minded to make a quite profitable trade in MS. And if Hank the Tank had not acted to create a 21st century Reconstruction Finance Corp., that rally yesterday would not have occurred. One really must "Protect Yourself At All Times" in an aggressive fund like my Alpha Fund.

I closed out the MS trade with a fine profit. I suppose hindsight would say I should have held it as the stock will likely rise a lot more today, but ... a 25% one day profit is OK.

I will watch today and think. I want to keep my Alpha Fund size down as it was quite distracting for me recently. I didn't like having to watch it so much for the past few months - it has greatly interfered with my semi-retirement.

PS: “Free Trade” is another failure of economic libertarianism. The problems of rapid dynamics, zero point, and big money (in that case, other nations) cause its failure to provide promised benefits to the common man.

PPS: Babblevision reports that the SEC has prohibited short selling in 799 financial stocks until October 2. Beefers use of this tool to create fear now in abeyance.

Word of the Day

"Moloch" - noun [$10]
Moloch means 1a. (Moloch) a Canaanite idol to whom children were sacrificed; 1b. a tyrannical object of sacrifices; 2. a grotesque spiny slow moving Australian lizard.
Sentence: How many good paying jobs and savings of the common man have been fed to the moloch of pure economic libertarianism ? Honest John McCain understands this as he called for the firing of SEC Chairman Cox. Obama ... nope.

Thursday, September 18, 2008

The Day After ...

This blog will ramble a bit as I note various "lessons" learned and forgotten.

UK retail sales surprise significantly to the upside. Uh ... I thought there was a global slowdown ?

Seers using "the market" to forecast the real economy should be chastened by that one huge data point of August-October 1987. "The market" then dropped about 35% in two months including 22% in one day. So many pundits predicted a recession and huge effects on Main Street. Nothing happened. It was a Rich Man's Panic caused by that precursor of huge beefers, viz., "portfolio insurance".

Additionally, that event should have forever wiped out any thought of "insuring" correlated events in the financial markets. [cf: see yesterday's post on credit default swaps] Obviously the greed and / or stupidity in Wall Street boardrooms and executive suites either did not learn that lesson's principles or forgot that lesson.

The Russian "market" is still suspended. Look - I'll make it simple. That government is analogous to Mussolini's regime or the "Organization" in 1950s New York or Al Capone's Chicago. The economy is dominated by a gangocracy of thieves of various levels. The Mafia - real or as fictionalized - is a good analogy. "The Commission" (the government) rules and resolves disputes and eliminates troublesome members. The Bosses - aka oligarchs - rule their fiefdoms. The nation's resources are being looted by the gangocracy. The people get some crumbs, which might seem better than in Soviet or Tsarist days, but that is mostly bread for the masses. If one "invests" there, be prepared to get wiped out.

The rich are panicking and probably pulling money out of their wonderful hedge funds - the beefers aka "big, evil funds." Those beefers are the principal problem and the cause of this entire mess. Instead of investing in the real economy in growing companies, trade, new ideas, etc., the rich have invested trillions in "trading" hedge funds. The big Wall Street firms encouraged this as they got huge commissions, management fees and trading order flow. Nothing was created by these "investments".

Even the subprime CDO market was created with hedge fund equity buying the subordinated tranches of those trusts full of junk. That was the essential piece necessary to create that junk. And the beefers provided it. One cannot created a "AAA" class in a subprime CDO without a substantial amount of subordinated classes. And who bought that ? The beefers. Maybe they "hedged" with a credit default swap on the classes. See above for how well that works in a major credit squeeze. So the beefers and all their trillions are the "root" cause of the credit crisis.

The beefers need serious regulation - a full body exam.

Events also prove that gold & silver are an essential part of a diversified portfolio. Gold was up 10% yesterday while stocks were down 4%. That's a 14% swing.

Also, I will point out these events proves that Treasury bonds and T-bills are an important part of the fixed income classes of a balanced portfolios such as the Krypto Fund. David Swensen's book makes this point, too. Corporate bonds just don't provide as much diversification. Using Treasury bonds permits one to maintain a higher long term equity allocation, because in a major credit crisis, the Treasury bills, notes and bonds will hugely outperform.

I heard that even bankers are watching CNBC to "learn" what is going on. Scary. CNBC - aka Babblevision - is a fountain of misinformation and fear mongers. They are really being disgraceful. I had to change the channel this morning as someone touted an RTC-style solution, but he had no idea what the old 1990s RTC actually was and did. Look, in that crisis caused by commercial real estate overbuilding, almost 1000 S&Ls failed. The RTC took those assets and sold them. Interestingly, the RTC used CDOs to sell the loans taken from the failed S&Ls. How many banks have failed in this period ? Uh ... about 10. Sheesh.

How the heck would an RTC style structure clean up a credit default swap mess ? Or a CDO mess. CDOs were the solution then. This utter stupidity and non-thinking blabbing really infuriates me. The problem is the hedge funds. Period.

The SEC finally puts on serious regulation on short selling. Since the uptick rule was eliminated, those beefers were able to emulate Jay Gould, Jim Fisk and Daniel Drew and effectively print new shares to dump on the markets in bear raids. Naked short selling is printing new shares fraudulently. And until now the SEC permitted it. What knaves ! I guess Hank the Tank gave them an earful and that fool, Chris Cox, finally moved. His staff is a bunch of knaves wanting jobs in the funds and their law firms so they were in their pocket. The new rules seem fair. But they still haven't reimposed the uptick rule. So bear raids that are "well-organized" can still be done.

Remember that going into this mess, the balance sheets of non-financial corporations were flush with cash and very strong on balance. So huge swaths of corporate sector are relatively immune to credit shortages.

Asian central banks are injecting more liquidity. As pointed out before this is good and necessary are the lower US trade deficit means fewer dollars going abroad. For decades those dollars became the monetary base of many nations. With a reduced flow of dollars, those central banks need to step up and provide money. And the ECB really needs to do this. They are a problem with their foolish single minded focus on "inflation".

One of the more disturbing facets of modern public discourse is the strident use of false precedents to form claims and conclusions. Three current examples are the suggestions of using an RTC-style agency to lean up this credit crises, the credit crisis itself and claims on effects on "Main Street". The quacksalvers show ignorance of facts behind their precedents, but try to sell the public on their solutions. Disturbing ...

The price of oil is back to its then elevated trading range of the last half of 2007. So it that signalling a "slowdown" or merely the pricking of a bubble ? Facts matter.


The sales on Tuesday saved Alpha Fund quite a bit. I bought some MS. That stock was hammered yesterday, but its earnings were great. MS was knocked down to around book value, which is all the trading and investment banking businesses are verily worth, but its asset management business is worth a lot more. So this is a trade, like my MBI trade. I'll give is a few months ... weeks ... days. A trade is a trade.

Otherwise, I am doing nothing. This weekend I'll check the Krypto Fund asset allocations to see what might need re-adjustment.

Word of the Day

"Retroduction" - noun [$1000]
Retroduction means 1. (in Philosophy) a type of logical reasoning that develops from some commonly accepted proposition until reasons are found that may alter the acceptance or understanding of the original proposition; 2. a provisional adoption of a hypothesis.

More: (from OED) "There are in science three fundamentally different kinds of reasoning, Deduction ..., Induction ..., and Retroduction ... . Retroduction is the provisional adoption of a hypothesis, because every possible consequence of it is capable of experimental verification, so that the persevering application of the same method may be expected to reveal its disagreement with facts."

More: Retroduction is using reasoning from conclusions to find reasons for conclusions.

Sentence: The modern financial market pundit suffers from both a massive lack of understanding of historical facts and a seeming incapability of using retroductive reasoning to understand events or argue for policies.

Wednesday, September 17, 2008

More Mass Delusions

The entire credit default swap market is a form of mass delusion. Or simply is a gambling casino for beefers (aka big, evil hedge funds) and their Wall Street equivalents. And seems to encompass some regulatory fraud, too. AIG was a huge writer of credit default swaps, we learn. But it doesn't have the money to make good on its contract obligations. AIG gets a Federal reserve loan to survive as it liquidates in an orderly manner. The government gets 80% of the company via warrants.

A principle of insurance is that one must insure a pool of uncorrelated risks so the variance of expected losses is small compared to the mean. In other words, the gains and losses mostly average out. But the credit market is NOT uncorrelated risks. All the risks are related to the economy and availability for credit. When a major event occurs, all the risks occur at once and hence the insure cannot pay the obligations. So "insurance" of credit risk in inherently vacuous.

We learn that hedge funds wrote credit defaults swaps, too. Were the buyers insane, or just speculators, or perhaps connivers ? A bond buyer effectively can be viewed as buying a riskless bond and writing a credit default swap. BUT the bond buyer has put up CASH to bear the risk of the default. What does a writer of credit default swaps put up ? Now we know it's not even close to 100% cash collateral. So the credit default swap "market" is just a leveraged casino of effectively fraudulent "insurance" policies.

And now we know that many banks bought this "insurance" to permit them to lower regulatory capital requirements. Were the regulators stupid ? Or paid off with the lure of high paying jobs on the Street or in law firms.

Sheesh. Anyone with an MIT Sloan School of Management (B-School) education should have been able to see through this nonsense. My classes there with Fischer Black and Robert Merton covered the principles of behind this almost 30 years ago. Once one knows the facts, it's obvious that "market" is a garbage dump of lies and bets.

Most credit default swaps probably offset in effect, but not in their legal terms. But some participants might have significant net postions, as we now know AIG did. Sheesh. Utter fraud, in my verily humble opinion.

I guess I'll have to write another blog naming new to-be residents of the lower levels of Perdition where those committing false counsel reside in endless torment.

Maybe people should read Dante more to try to understand human moral errors. And governance issues.


Major league ping pong yesterday, and more early this AM. Yesterday it was AIG. This morning early it is HBOS aka Halifax Bank of Scotland. Sheesh, the successor to the Bank of Scotland has problems ? Mephistopheles sure had no trouble enticing so many formerly staid, reliable bankers to sip from his cup of greed.

This morning, HBOS was attacked by the usual school of piranhas (aka beefers) in a bear raid. Then rumors of talks for its acquisition by Lloyds Bank reversed that big drop into a big gain. Ping pong par excellent

WSJ says that the lending pullbacks will cause many oil market players to exit. That's a good thing, as we all now know the run up to almost $150 was purely speculation by beefers and pension funds overwhelming all natural hedgers. I wrote in this blog early this year that in my verily humble opinion the natural range for oil now is the $90-110 range with seasonal swings in that range. I still think that is true, barring speculative binges.

Why have regulators sanctioned what is now seen as gigantic casinos for these "Masters of the Universe" who are now seen as more like Eric Cartman (of South Park fame) playing video games endlessly ? I guess it's libertarianism run amok.

I sold quite a few stocks in Alpha Fund that I had collected in recent weeks - they seemed like barnacles hindering my Alpha Fund in these rough waters. I had been rather long coming into Monday's debacle and needed to protect my core holdings of BAC, JPM, CVX, DVN, FCX and RIG. So I practiced what I preach: "Protect yourself at all times." I am keeping only the stocks I really like and will add to those as favorable prices occur. I even sold GE, CCJ, AAPL, GOOG and C as being distractions from my favorites. I like those stocks especially at these prices, but they are secondary for me. I am circling the wagons while the savages attack.

I was asked after these sales by a sage commentor, "What will it take to become a buyer again?" I thought this over and what I want to see is proof that my thesis that house prices roughly bottomed this summer is correct, or at least roughly correct. Some signs show that it is correct. But to me, until this becomes more clear, the beefers will be able to make Ms. Market dance to any tune they wish. And their tune is a dirge now.

Alpha Fund is still quite long, about 125%. Mrs. B is still patient - sitting on a mountain of cash.

Word of the Day

"Chimera" - noun [$10]
Chimera means 1. (Greek mythology) a fire-breathing female monster with a lion's head, a goat's body and a serpent's tail; 2. a fantastic or grotesque product of the imagination; 3. any fabulous beast with parts taken from various animals.
Sentence: As the credit default swap market is dissected, we see it's verily a chimera of pseudo-insurance, gambling, speculation and regulatory fraud.

Tuesday, September 16, 2008

The Seven Deadly CEOs

Another remarkable mass delusion has occurred in modern times ! A group of well-educated, experienced CEOs followed the same path of lust & greed for money to lead their firms to colossal losses. And have thus caused enormous pain for their common workers and investors.

I am listening to a course on Dante's Divine Comedy, which is an incredible classic of literature written 700 years ago. Of course, after some background about Florence and Dante himself, the lectures begin with Perdition - the Inferno - that is, Hell. So far, the insight its allegories provides into human failures are quite enlightening to this modern reader. Yesterday these thoughts occurred to me, which I posted in rough form in the comments. But I decided to write a full allegorical blog with this thought.

Perdition - The Inferno - Hell has nine levels in Dante's Comedy. Now this is really Hell - eternal torment of some kind or level - and not Purgatory, which is sort of a place where people do penance before being admitted to paradise - Heaven. So even Level One Perdition is not a pleasant place. Dante's Hell is divided into three major categories: incontinence, violence and fraud. By "incontinence" is meant the subjection of reason to desire. That is, letting one's desires such as lust or greed drive one's free will to bad decisions.

Abandon Every Hope, All you Who Enter

Those are some of the words "greeting" those who enter Perdition. Here are the Seven Deadly CEOs who have committed the sin of "incontinence" and thus caused massive suffering for the common men and women who worked for their firms and invested savings in the stocks of their firms, listed in no special order.

  1. Chuck Prince - Citicorp
  2. Stan O'Neal - Merrill Lynch
  3. Lanty Smith (and Ken Thompson), Wachovia
  4. Dick Fuld, Lehman Brothers
  5. Kerry Killinger - Washington Mutual
  6. The CEOs of AIG
  7. Angelo Mozillo - Countrywide Finance

A Verily Ugly Day. If I was really paranoid, I'd think the beefers read this blog and especially targeted the stocks of the Alpha Fund. I bought a bit of AAPL when a low GTC order was hit.

Don't be surprised if AIG "buys the farm". Remember the "three strikes rule".

Central banks in Asia are injecting liquidity. Actually this is important as the lower flow of dollars overseas as the US trade deficit falls is really a lessening of the "world monetary base". Other central banks need to make up for this, particularly the ECB. The recent drop began when ECB intransigence was reiterated.

Mrs. B continues to be a smart shopper for stocks. Her patience in deploying new Sky Fund cash reminds me of her Filene's Basement shopping strategy, viz. not snapping up the 20% discount, but waiting for a 30% discount or better. She will certainly get fine prices when she spends her money.

If one is aggresive, the boxing maxim "protect yourself at all times" really means what it says "... at all times".

PS: Sheesh I left out Jimmy Cayne of BSC from teh Seven Deadly CEOs. Of course the FNM and FRE CEOS for the past decade should be there. And a posting reader said in the comments that Alan Greenspan belows there, too. Hmmm ... maybe a "top ten" knaves needs written ?

Word of the Day

"Condign" - adjective [$10]
Condign means deserved, adequate.
Sentence: The condign punishment for the "seven deadly CEOs" must be at least consignment to "Upper Hell" for greed, but perhaps a place in "Lower Hell" for the fraud of false counsel.

Monday, September 15, 2008

Compression of Time

Crisis makes much natural evolution occur rather quickly. Darwin knew this and the evolution of man in the ice ages showed this too. Weak species are quickly wiped out and the strong survive to propagate. This metaphor applies to the events of the past six months in the US financial markets, too. Glass-Steagal was eliminated years ago, but many relics of the past lived on. Until now.

And then there were two ... independent investment banks. Three major bracket firms will have disappeared when this weekend's actions are closed. In March, Bear, Stearns was swallowed by JPMorgan. Lehman Brothers will be liquidated. And Merrill Lynch will become part of Bank of America. Morgan Stanly and Goldman, Sachs are the final two.

Many good people at LEH will their jobs, thanks to the foolishness of its leaders. Very sad. This also is a reminder to anyone considering having a significant investment in one's employer. Don't do it. If the firm fails, you lose both your job and your life savings at the same time. Never, ever take that risk.

Where is the SEC ? The school of piranhas shorting stocks is ridiculous again. Here's a proposal: fine anyone not delivering shorted shares on time 100% of the value of the stock. That would stop shorting of virtual shares. Honest snafus could be excepted.

Dear Hank: call up the major trust companies and "urge" them to call in all outstanding stock loans. Other large brokers should to the same. Also, good job on the Nancy Reagan policy on LEH getting taxpayer money. One has to draw the line somewhere and this was as good as place as any.

I don't see how AIG can survive. The "three strikes rule" applies - three huge losses in a row.

The BAC price for MER seems fair to me. $29 is about the level of its stock price before last week.

Oil is trading at $98. Gold is up a bit. In my verily humble opinion, the oil should move seasonally in the range of $90 to $110.

From Barron's this weekend, I noticed that 30 year conventional home mortgages from FNM or FRE was around 5.6% - a fine rate for the common man. Also, I saw the intermediate grade bond index had improved quite a bit week to week. Not all is bad.

I expect to do nothing today, except urge Mrs. B to deploy some of her cash hoard in the Sky Fund. I may buy some stocks if verily good prices appear.

PS: Estimated taxes for Q3 are due today. Ughhhhh.

Word of the Day

"Traduce" - verb, transitive [$10]
Traduce means to speak ill of, misrepresent.
Sentence: Since Obama has no record of experience nor expressed policies other than seizing more of the nation's wealth, his "one word" campaign now reverts to traducing the record and experience of John McCain as a true reformer.

Friday, September 12, 2008

Dear Hank:

I read in the WSJ that you and other officials are wondering what is causing all this turmoil even after you've done important supportive actions. "Federal officials and market players are struggling with the same issues: Why haven't the steps taken so far calmed the system? What can policy makers do next?" The answer is simple: huge pools of unregulated money are sloshing around the financial system. These big money pools are commonly known as hedge funds. Unnatural derivative securities give them unprecedented leverage to attack firms and create bubbles in commodities that then must eventually burst. Here are two examples - LEH and the oil markets.

First - LEH

The assault on the credit default swaps of LEH are being used in conjunction with shorting its stock to create fear and panic in its survivability. There is no limit on the amount of credit default swaps that a hedge fund can attempt to buy. No natural sellers exist for such swaps. So my placing orders for huge amounts of swaps in a weak market, while shorting its shares aggressively - even with virtual shares with no uptick rule - thanks to SEC timidity or stupidity or knavery. And the hedge fund can place huge orders for puts on LEH shares, too.

The press picks up the weakness, reports it and then endlessly and breathlessly speculates on why the firm's credit is under stress. And after the near extinguishment of the stock of FNM and FRE, and BSC, stockholders panic and sell. Lenders worry. Counterparties worry.

In the past, there were only so many bonds that existed for a firm like LEH. And most were held by "real buyers". Selling bonds short was very hard or impossible. Now, credit default swaps can be printed with impunity by speculative pools seeking to create weakness for a financial firm. No position limits exist. No short selling rules. The government's silly infatuation with "unregulated markets" and "unregulated capital" has permitted this to be done.

Second - oil markets

The oil price bubble of this spring was entirely due to these huge, unregulated pools of money, strongly supported by pension fund speculation in commodities. Demand data already showed weakness, while price rose to wild levels. And data has been flowing out how mislabeled speculative groups had huge positions hidden under the guise of "commercials" creating an illusion of real demand. Now the CFTC is slowly recognizing part of the problem.

From the FT: "The Commodity Futures Trading Commission, the main regulator of commodity markets, told the US Congress on Thursday it was imposing “enhanced control” on dealing by Wall Street banks and forcing them to publish new data on their positions. The CFTC’s measures will focus on swaps – private contracts between investment banks and clients such as hedge funds ... "

And more: The CFTC said that of the 550 clients of swap dealer it has identified through an unprecedented special survey, at least 18 were above the exchange limits thanks to the use of on-exchange and swap trading.

Again, in the oil market, there are a limited number of natural sellers of oil futures, viz, the oil companies. OPEC and governments who hold most oil in the ground for future delivery do not hedge in large amounts. So the natural sellers, like for credit default swaps, can be easily overwhelmed by the huge pools of unregulated money.


Permanent elimination of this credit turmoil requires strict regulations of the huge big money pools. And the SEC and CFTC and even Congress, if necessary, must enact strict rules on short selling, position limits and credit derivatives to detect and prevent such wild market manipulations and distortions.




Interesting day, yesterday. The strong did well - WFC, BAC, JPM - and the weak suffered - MER, LEH, WB. Perhaps this is a sign of the end, as distinctions are now being made instead of total panic. Doing nothing, awaiting AAPL to hit around 145 to add.


It's remarkable how one can know the intent and action of Putin simply by listening to him and applying the rule that whatever he accuses the US of doing is in fact what he is doing. Read: "Commenting on the Georgian crisis, he [Putin] said Moscow was ready for political and economic co-operation with the west but not if it was going to be “pushed around” by the US. "Even one country with strong forces should not solve all the problems of the world by itself. It should attract allies and partners. It must not behave like some kind of Roman Empire,” Mr Putin said. :

So now we know that Putin is trying to create a new Russian empire. QED.

Word of the Day

"Verily" - adverb [$10]
Verily means really, truly.
Sentence: Verily, the ultimate permanent solution to the credit "crisis" is a combination of strict regulation of huge hedge funds, short selling and derivatives.

"Veriest" - adjective [$10] archaic
Veriest means so called in the fullest sense, complete, absolute (the veriest fool knows that). Superlative of "very".
Sentence: The veriest permanent solution to the credit crisis will require the panoply of strict regulation of huge hedge funds, short selling and derivatives.

Thursday, September 11, 2008

Is There Anything Knew Under the Sun (cont.) ?

I guess if one is over 50 and has paid attention all one's life, a person can be jaded as almost everything in world events seems to be a repeat of past performance. Here are three items that brought that thought to mind this morning as we suffer from poor leaders, knavery and corruption in government.


Today is the 7th anniversary of the 9/11 terrorist attack. To quote from the BBC news site: "The top US commander calls for a new strategy to fight Taleban militants in their safe havens inside Pakistan". Uh ... did not W say that the terrorists would not be safe anywhere and that nations offering sanctuaries would be considered enemies ? So why hasn't W ordered attacks on these "safe havens" " After all this is seven years later. Is W lying or stupid - the old "fool or knave" choice ? Obviously he should attack them. Let Pakistan scream. They are doing nothing to crush the terrorists. Maybe they'll send troops there to root out that band of killers. Of course permitting "safe havens" was part of the Johnson-McNamara's losing strategy in Vietnam. And the team of Bush-Rumfeld repeated it. Seven years is a long time. Clearly a real leader like Honest John McCain would not repeat old errors.


Obama screeches after being called out on sexist comments about Palin. I refer to the "lipstick on a pig" quote. He says his remark was an innocent expression. Uh ... this is a Harvard Law School graduate who was on the Law Review. He knew what he was saying and to what it alluded. Now he's whining. What a knave !


"Federal investigators alleged that Interior Department officials handling oil royalties broke government rules by accepting gifts from and having sex with industry representatives." Hmmm "having sex with industry representatives. That should be an interesting case. But what's the surprise - corruption in government contracts is an old story. This is one reason why governmental economic power is to be feared. The other is government's insidious growth in its power over the people.


Gold has fallen more and silver is under $11. I'll be a buyer as Mrs. B deploys her new funds in the Sky Fund, as I'll make asset class balancing investments to keep the entire Krypto Fund in balance (Sky Fund is part of Krypto Fund for asset management purposes).

Good News

I suppose I could call this section the "Gospel of Bunkerman", but that might seem blasphemous. But I think since business news seems unable to mentions anything but fear and gloom, I will occasionally mention good news.

Today's WSJ article on how exports are helping hundreds of small communities in the US provides many examples on the good that the US improving balance of trade is doing. For decades the US dollar was overvalued and the common man working in a manufacturing plant suffered loss of income and jobs. Now that is changing. This is good. The dollar finally reached a fair value range.

On a related matter, for decades pundits will have screamed about the trade deficit. Although today's trade numbers might show a pause of slight reversal, the trade deficit has been closing for months. And once the fall in the price of imported oil flows into the numbers, the trade balance will be even smaller. This is good news.

And why is Bunkerman an optimist ? The pundits say the sky is falling. Babblevision had a fellow on TV early this morning saying a depression was coming. What crap ! (I've been hearing that crap for thirty years -but I guess it sells.) With the growth of freedom in the world, the 21st century should be a time of peace and prosperity as long as Russia or some other rogue nation doesn't caused trouble. Human beings naturally strive to improve their lives. Given freedom, they will do that. That basic human action provides a powerful current of growth for the world economies. The bears are swimming against this current. Soon they will tire and drown. And the Bulls will take charge and a new bull market will emerge.

Word of the Day

"Peruna" - noun [$ incalculable]; a Mencken word.
Peruna means 1. an idea or policy designed to, or which will fool or pacify the masses; 2. (Finnish) potato. 3. (capitalized) the name of a famous elixir in Texas that had a reputation for a cure-all. (The popularity of Peruna soared during Prohibition due to its alcohol content.)
This word is not in any English language dictionary. I discovered its likely meaning through online research into prior uses. Hence, like "quodliteral" this definition is first provided on this "incalculably" valuable site [joke].
Sentences -
A. [from "The Impossible H. L. Mencken" ed. by Marion Rogers, page 83. The quote is excerpted from an article that pondered why Americans did not fall for communism in the 1920s and 1930.] "... the plain people had been vaccinated against it. For years they had been following such quacksalvers as Bryan and Roosevelt, and so they had acquired a certain amount of immunity to social and economic perunas."
B. Does Obama think his speechmaking ability and shills in the sycophantic press can sell his perunas to the public ? This is the 21st century. If the public in the Mencken era didn't buy communism, I doubt they will buy Obama's perunas of high taxes and big government as the cure-all of their problems.

Wednesday, September 10, 2008


No doubt that Tuesday was an ugly day in the stock market. The selling seemed like another of those selling stampedes by the trading beefers, triggered this time by a plunge in the stock price of LEH. Whether there were any facts behind the plunge is unknown. The SEC seems to be back in the beefers' pocket, having issued no permanent rules prohibiting short selling of virtual shares. With no uptick rule for short selling and beefers being about effectively to print shares of LEH from nothing for considerable time periods, mere rumors can be used to create a plunge in a sensitive stock like LEH. Of course, the weekend evisceration of FNM and FRE caused much trepidation for those weaker financial institutions. AIG and WM were smashed, too.

Oil traded under $100 on the Brent market for North Sea crude oil in the nearby months. I believe US WTI traded under $102. Oil stocks were under pressure, although they never really went up much as oil went from $100 to nearly $150. But that's how beefers cause stocks to act strangely. Very few real investors are in the markets - it's all trading.

OPEC says it will cut output. More significantly, Russia sent a large delegation to the OPEC meeting, saying it will now cooperate closely with OPEC. Uh ... aren't those Russian oil companies mostly "private" ? So this further makes it clearer that Russia is not a market economy. Why are they in the G8 ? Russia's presence simply corrupts the organization.

The 3-2-1 crack spread has risen from around 7 in August to over 12 now. So refiners should be quite profitable again. This move will help integrated oil company's Q3 earnings.

Fedex reported good earnings. Sigh ... reality vs. perception.

Oh well, I guess I should be used to it. But I suspect this wild action is preventing the common man from making sound, long term investments.

Alpha Fund bought a bit of AAPL as bait for Mr. Market to knock the stock under $50 where I'll buy a lot more. Otherwise I've done little. Mrs. B is being patient with the large amount of new cash in her Sky Fund.


Obama is trying to obfuscate reality regarding Sarah Palin's gutting of the "bridge to nowhere", saying she at first supported it. But isn't the fact that she later cancelled it and spent the money on Alaska' priorities despositive ? Often earmark money is simply other Federal diverted by a Congressman to pay off his backers. So it drains money from a state's real needs. Well, what else should be expected from a mountebank like Obama ?

Word of the Day

"Collocation" = noun [$10]
Collocation means 1a. (Linguistics) the juxtaposition or association of a particular word with another particular word or words; 1b. the words so juxtaposed or associated; 2. the action of collocating, the state of being collocated.
Sentence: The persistent collocation of "Change" and Obama" is tiring and probably quite stale now for the public, who will want some meat to go with that "change" bun to pick the Obamaburger in November.

Tuesday, September 9, 2008

Tidbit Tuesday

Big gain yesterday that was challenged midday by the beefer trading funds, but perhaps some real buyers emerged from their bunkers to take advantage of the dip. The US stock market closed quite strongly.

"Hedge funds are offering to cut fees if investors agree to stay put, in another sign of the changing power dynamics between funds and investors" - WSJ. Will the gullible rich continue to pay for the beefer shell game of "heads I win, tails you lose" to thousands of worthless hedge fund managers ? A fundamental problem for the market is the trillions of dollars being put into speculative, trading funds by the greedy rich, instead of into real investments.

Yesterday's WSJ had a story that European countries recognize that manufacturing in the US is very, very cheap when state incentives are taken into account. Also, I remember another story about how higher fuel costs are affecting "just-in-time" manufacturing tactics. This is part of the "adjustion" process that I wrote about a few weeks ago. High fuel prices will require many changes in standard operating procedures of the past decades. The smart and nimble will do well. The slow and dumb will probably go under or be taken over.

Polls now show Big John ahead of Obama. That's good news. Perhaps the American public is looking closer at the mountebank and recognizing his only skill is speechmaking?

My long term thesis for the big commercial banks gaining profitable market share is working out slowly. Over time, the FNM and FRE conservatorship will shift business to the big banks who will be able to raise prices as discredited competitors such as mortgage brokers have disappeared. Also, the big banks have stable, quality funding. I have large positions in BAC, C and JPM. The BAC and JPM positions now show fine profits. I was early on C, but it is closing in on the green, too.

I'll buy some AAPL if it goes under 150. I was early on GOOG in my 1/2 position and will be patient on topping it off. Otherwise, I expect to hold all positions for awhile

Word of the Day

"Chary" - adjective [$10]
Chary means 1. cautious, wary (chary of employing such people); 2. sparing, ungenerous (chary of giving praise).
Sentence: The common man and woman have regained their natural chary attitude to a politician that is all talk and no action, viz., Obama.

Monday, September 8, 2008

A Meaningful Monday

Hammerin' Hank decided to put FNM and FRE into the penalty box - aka a conservatorship - indefinitely. Management gets fired, Treasury buys senior preferred stock, greates a facility to buy mortgage securities directly using its account at the Fed, and warrants to increase its capital in FNM and FRE over time as needed. This is a pretty good plan. I like it. Another home run for Hank.

Equity markets are up substantially worldwide.

Sheesh, just hearing a pundit - money manager - comment on Babblevision. He says its a short term fix, but "we don't know" endlessly about other matters. Why the heck is a non-thinking dolt like him put on TV ? Can he not use his small amount of brains to think about how the changes might unfold and what will happen ? Ohhh, TV "news" is so worthless.

Arghhh ... and then Babblevision puts on Sutty - what an imbecile !

Other News

Physical demand for gold in India and the Middle East increased enormously as the price of gold fell. We also know that US consumer demand for gold and silver coins exploded as their prices fell. I like gold & silver long term and maintain at least 5% of the value of the Krypto Fund invested in gold & silver via physical holdings, ETFs and a precious metals fund at Vanguard.

World Affairs

Putin really looks like a fool or knave in his waving that US passport of "Michael Lee White" - "US Army veteran" - around as proof the US fomented the war in Georgia. The WSJ of September 3, 2008 interviews Mr. White and has a photo of him. That passport was reported lost in 2005 on a US-Moscow flight and cancelled. Mr. White is an "itinerant 41-year old English language teacher in China." His US Army experience was driving an oil truck. Lots of details and interviews of independent persons confirm all this.

So now we know what ? Remember the MO of the KGB: falsely accuse the US of doing what the KGB in fact is doing. So likely Russia had infiltrated Georgia and South Ossetia with agents to provoke Georgia into attacking and to thus give Russia a cover story for its invasion.

Word of the Day

"Wafture" - noun [$100]; this word is used in Shakespeare's "Julius Caesar" as "... angry wafture of your hand"
Wafture means 1. the act of wafting; 2. something wafted.
"Waft" - verb and noun- is not really a $10 word except for some meanings.
Waft means (verb, transitive) 1. to carry lightly and smoothly through the air or over water; 2. to send or convey lightly as if in flight; 3. (obsolete) to signal, summon or direct by waving; (verb, intransitive) to float or be carried (as in 'an odor wafted into the room ... ' ); (noun) a sound, odor, etc. faintly perceived.
Sentence: The wafture of stench and slime keeps increasing from Vladimir Putin's actions in the Georgia affair.

Friday, September 5, 2008

Time to Stop Being a Wimp

That is, about the oppression of women in many cultures. The year is 2008, not 1008. The Republicans just nominated an assertive, accomplished lady to be Vice President of the US. Why does the US and the "West" stay silent when some cultures oppress their women as near slaves ? I read a BBC online news story about oppression of women in Egypt. Here is the link => http://news.bbc.co.uk/2/hi/middle_east/7593765.stm

Men assault women on the streets of Cairo and nothing is done. In my "primitive" thinking, those Egyptian guys need a 1-2 double knuckle sandwich and a left hook to the jaw. If the men leading those nations and cultures treat their women like slaves, we need to treat them like the jerks they are. The US gives Egypt billions in aid every year. Time to tell them to grow up and "Get thee into the 21st century."


The news was fine, but all the beefers who were tentatively trying some longs got scared by a rattlesnake or something and bailed all at once in a selling stampede. Or like some no-chin stuffed shirts caught in a speakeasy when the cops hit the door, they were climbing out the windows to save there "name", which in this case means the few profits they've grabbed in the recent rally. I think the spark was the ECB and BOE stupidity in not cutting rates. The selling began early and started in Europe.

The problem with markets is the trillions the dumb rich have stuffed into "trading" hedge funds seeking a free lunch of riskless profits. That money have to be ground out and invested in "real" investments. This will happen over time. Patience.

I am adding a lot to Mrs. B's Sky Fund - her performance is rather good - she is kicking my Alpha Funds butt. ... ugh. Her style is stocks like PG, MCD, XOM, AAPL, etc., plus some mutual funds plus some municipal bonds - steady, long term "real" investments. So she will be buying a lot in the next few weeks and getting great prices. And so she will probably continue to kick my butt this year.

Krypto Fund in total is doing better than her Sky Fund in isolation, by the way, so its not all bad for me. For overall consistent management, I incorporate her Sky Fund into Krypto Fund for its asset class allocations

Word of the Day

"Cognate" - adjective [$10] and noun [$10]
Cognate means (adjective) 1. related to or descended from a common ancestor; 2. (Philology, of a word) having the same linguistic family or derivation (as another) representing the same original word or root; (noun) a relative, 2. (philology) a cognate word.
Sentence: As a reformer and maverick, Big John McCain seems to be a political cognate to the great Teddy Roosevelt. His heroic military background fits TR, too.

Bonus Word

"Philology" - noun [$10]
Philology means 1. historical linguistics; 2. literary or classical scholarship.
Sentence: Having some interest in philology helps one connect disparate European historical cultures as many terms and words are borrowed in interesting ways. The word, "latifundium" is a perfect example.

Thursday, September 4, 2008

"R" Turn

The Republicans had their turn at bat last evening with some fine speakers to make their case for a return to power in DC. As readers know, I retire for the evening at about 8 PM as did George Washington, so I read the quotes and some speeches this morning, beginning at 4AM. And there were some good ones.

Ruddy Guiliani: "Giuliani pegged Obama as “a gifted man with an Ivy League education” but said his voting record in the Illinois state house did not show leadership. “Then he ran for the state legislature - where nearly 130 times he was unable to make a decision yes or no,” he said, “He simply voted ‘present.’ As mayor of New York City, I never got a chance to vote ‘present.’ And you know, when you’re president of the United States, you can’t just vote ‘present.’ You must make decisions.” [from WSJ]

Mitt Romney: “Just like you, there has never been a day when I was not proud to be an American,” Romney told the cheering crowd gathered at the Xcel center. Mrs. Obama has been the target of conservative criticism since remarking in February that for “the first time in my adult life” she was proud of America. [from WSJ]

Sarah Palin: In another apparent allusion to Mr Obama, she added: “In politics there are some candidates who use change to promote their careers. And then there are those, like John McCain, who use their careers to promote change.” [from BBC].

Good stuff.

And I liked how Palin focussed on reform as a main campaign issue. Plus she has proven a willingness to cut spending by veto. And has performed well in negotiating with Big Oil in getting that natural gas pipeline to the lower 48 states moving finally.

I taped the speech and will watch it later this morning. But from the excepts and what I read, I like it. McCain chose well.


More mud stomping ... drunken brawling. I bought a bit of RIG to top off that tank. If the beefers knock the miners & oils down further, I'll buy more.

Word of the Day

"Chiastic - adjective [$100]; and "Chiasmus" - noun [$100] (plural "chiasmi")
Chiastic means characterized by chiasmus.
Chiasmus means a reversal in the order of words in two otherwise parallel phrases, as in "he went to the country, to the town went she".
Sentence: Sarah Palin showed considerable rhetorical talent last evening in her acceptance speech in delivery and style, to the extent of even using chiasmus in her allusion to Obama quoted above.

Wednesday, September 3, 2008


I am listening to an audio CD course titled "Argumentation: The Study of Effective Reasoning", which is quite interesting and instructive. It's available at The Teaching Company along with many other fine courses on DVDs or CDs: see http://www.teach12.com/ aka www.thegreatcourses.com/ The course covers how arguments are structured and can be made effective for the audience with better rhetoric, logic and reasoning. On element of an argument are the "claims" made in the course thereof.

Claims need facts to be effective. But today's modern dialog suffers from a woeful lack of facts. Most pundits and polemical writers don't seem able to marshall "real" facts to support their claims. By "real" I mean something beyond poll results and "the market" - something more substantial than the vicissitudes of ... the mob ... the herd.

Reading a newsletter sent to me for comment by a non-poster on its writings about "Fannie and Freddie", I see charts of their stock prices and credit default swaps, questions about future refinancings, questions about a possible Treasury infusion of capital, questions about the notional amounts of the derivative contracts written on its debt, but ... not one single "fact" about the source of its problems, viz., actual losses on the mortgage loans that underlie its mortgage backed securities. There was also not one single fact about its current income and debt service coverage, and of course not one single fact about the recent trend in home prices.

The article is quite well-written and raises lots of questions, but ends there. No "real" research into the "facts" of the situation. Some important, relevant facts are quite easy to find. Data for the national median existing-home price for all housing types: 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. June was $215,100, for July $212,400. Does anyone notice a monthly trend in median prices resembling a bottom?

That "fact" is crucially relevant to prospects for FNMA and Freddie Mac. If house prices are at or near their bottom, actual losses for FNMA and Freddie Mac will not increase. The current marginal income on its mortgage securites is very large. If that income is larger than the flow rate of real losses on defaults, then FNMA and Freddie Mac will NOT fail.

It's beyond me how such crucial data can be ignored in any thinking process about these important financial institutions.


Is it not remarkable that the Democratic Vice Presidential nominee of merely eight years ago spoke with considerable puissance for Big John McCain last evening, saying a record proving ability is more important for a Presidential nominee than being a "good speaker" ?


Yesterday's action was all beefers all the time stomping in the mud at the water hole. Perhaps the metaphor of drunken sailors brawling in a sleazy bar fits better ?

The news was bullish. The password is "Patience".

PS: I see another big hedge fund cratered. Shucks. We need about 3,000 more of those to get greased. Maybe it's happening. I hope so.

PPS: Amazing what garbage is showing up on Lehman's books ! Hedge fund investments. Sheesh. How to ruin a fine firm via greed.

Word of the Day

"Petulant" - adjective [$10]
Petulant means 1. unreasonably irritable or ill-tempered; peevish; 2. contemptuous in speech or behavior.
Sentence: Today's WSJ article about Obama's petulant whining about Fox News not worshiping him as CNN does shows him to be quite weak in character.

Tuesday, September 2, 2008

India Idiocy

No major news for the markets. Hurricane Gustav swung at a wide pitch and missed. Oil is down big from Friday and other unconnected commodities are down, too. I suspect some monthly asset re-allocation in the big pension funds. I am doing nothing.

Rumors of Kremlin lack of control over generals appears. Interesting development. Also, they seem to believe their own propaganda.

See yesterday's blog post for more world events of significance.

Here are excerpts from the story from India that needs some notice, The Wall Street Journal online of September 2, 2008, with emphasis added:

***Start of Quote***
Hindu Mobs Burn Four Churches In Eastern State

NEW DELHI -- In some of the worst anti-Christian violence in India in years, rioting continued over the weekend and sporadically on Monday in the eastern state of Orissa, shattering hopes that a week-long spate of violence had been contained.

Hindu mobs burned at least four churches Saturday and Sunday and intermittent violence was reported Monday, according to police. Orissa officials said 13 people had been killed over the past week. The Asian Centre for Human Rights said as many as 50 people died.

More than 7,000 people have entered government-run refugee camps, according to a state government spokesman. "It's a breakdown of the state law-and-order machinery," said Joseph D'Souza, president of the All India Christian Council, which maintains a chapter in Orissa. "The violence has not yet been completely brought under control. Thousands are homeless. People, at nights, are still disappearing into the forests" to avoid roving mobs.

Armed with torches, Hindu rioters burned Christian homes and churches in the southern part of the state last week. Christians have fled to refugee camps or taken to hiding in the forests in the region, eyewitnesses reported.

"The violence is so much that people are afraid to talk to each other," says Padma Sahu, a doctor at Christian Hospital, in an area where some of the violence has taken place. However, Christian hospitals and schools have mostly remained untouched, she added.

The weekend's attacks were the latest on Christians, most of whom are Catholic, in a series that flared up after a Hindu religious leader was found killed in a temple along with four disciples Aug. 23. Police officials said they suspect Maoist rebels, who have long plagued the area, for the death of Swami Laxmanananda Saraswati.

Mr. Saraswati was a leading member of Hindu fundamentalist group Vishwa Hindu Parishad, which publicly blamed the state's Christian minority following his death. A spokesman for the group declined to comment on the violence when reached by phone Monday.

Christians make up roughly 2% of India's 1.1 billion population. Many were originally lower-caste Hindus, who converted to try to escape the strictures of Hinduism's strict caste system and the poverty that accompanied their status. People convert "because they are neglected by the state government," said Jagannath Lenka, a professor of economics at North Orissa University. "Now the problem is that Hindus say Christians are converting their people."

The current spate of violence has centered on the district of Kandhamal, an impoverished area mostly populated by two tribal groups -- one that has largely converted to Christianity and another that has joined ranks with Hindu fundamentalist groups.

The conservative alliance governing the state, which includes the Hindu fundamentalist Bharatiya Janata Party, has made clamping down on Christian conversions a key part of its electoral platform in polls expected next year. So far, the national government, while condemning the violence, hasn't directly intervened, saying it is a matter for the state to handle.
***End of Quote***

So in simple terms, the ruling classes in this state in India want to continue to oppress the poor via forcing them to remain in the lower casts of the Hindu religion. The poor want to lead their own lives and convert to Christianity to escape the oppression. I think India has a problem to deal with. Do human rights and freedom exist there for the poor ?

Word of the Day

"Distaff" - adjective and noun [$10]
Distaff means (adjective) maternal; female; (noun) 1. a woman's work or domain; 2. the female branch or side of the family.
Sentence: Will Big John McCain's move to select a distaff running mate help put more women voters into his column ? I think that depends on her ability to project honesty, competence and willingness to oppose corruption and the selling of political indulgences in DC.

Monday, September 1, 2008

Constant Vigilance

Today is a holiday, but Bunkerman is always observant of the world and his surroundings. Constant vigilance is the watchword that I learned in my course on Celestial Navigation at Harvard. That is essential to survive in sailing, and it applies to much of life as well. So reading the news this morning I found four interesting items.

Financial Times September 1, 2008 online
“Russia’s president Dmitry Medvedev on Sunday announced Moscow’s intention to preserve geographical spheres 'of privileged interest' on or near its borders as part of a five point foreign policy statement in a television interview. ... He said that Russia would defend 'the life and dignity' of Russian citizens 'no matter where they are located'. "

Does anyone else find this eerily reminiscent of Hitler’s claims regarding Germans and wanting them to be part of the greater Germany ?

The Wall Street Journal, September 1, 2008 online
"Russian troops remaining in Georgian territory are effectively preventing Georgians from returning to their homes, a U.N. representative said Saturday. Melita Sunjic, spokeswoman for the U.N. High Commissioner of Refugees in Georgia, said that although it was not clear if Russian soldiers were actually preventing refugees from returning, the warnings by the troops effectively block them. 'If they say 'we can't guarantee your safety,' you don't go,' "

Uh … if the Russian troops aren’t doing their purported jobs as “peacekeepers” why are the Russian troops in Georgia? Obviously as occupation forces. Russian-Muscovite imperialism of the past 500 years revives and continues to the new millennium.

The Wall Street Journal, Sepember 1, 2008
"MOSCOW -- Police arrested and shot to death Sunday the head of an Internet news service who had been critical of authorities in the volatile Caucasus province of Ingushetia. ... Mr. Yevloyev had been a vociferous critic of Ingushetia's governor, a former security-service agent who has been backed by Prime Minister Vladimir Putin. Mr. Yevloyev had charged that regional and federal agents were brutalizing the locals, and kidnapping and assassinating political enemies. ... Mr. Yevloyev was in police custody for 20 minutes at most."

Nothing knew there for KGB-style thugs. Perhaps worse - not even a show trial.

Various News Stories about Hurricane Gustav
New Orleans evacuated. Why is this city there ? Obviously it should be moved inland – maybe just to Baton Rouge. When Galveston was destroyed around the turn of the century by a hurricane, the major industries of the city were moved to Houston. New Orleans and the entire delta should be abandoned, with only the French quarter remaining as a resort area and the key port operations left in place. The delta should become a wildlife reserve, reverting to its natural state.

I suspect this decision would have been made already barring political desires of the ruling classes.

Word of the Day

"Confect" - verb, transitive [$10] literary (a Mencken word)
Confect means make by putting together ingredients.
Sentence: Will Obama be able to confect a plausible propaganda program by combining his principle platitude - "change" - with enough other vacuous and misleading promises to fool enough people to win the election ? Time will tell.