Perhaps the credit crisis is ending. LIBOR is falling. The Fed seems as focused as a laser on easing the shortage of dollars around the world. The new dollar swap lines with Brazil, Mexico, Korea and Singapore were cheered in those areas and emerging market stock prices rose explosively. Time will tell, but the pattern of steady improvement now seems positive.
Now we all know that the "moral hazard" gripe is truly a canard of the pharisaic libertarians who want to let the beefers and ruling classes turn the common man of the world into serfs to be ruled.
Battleship Ben is truly showing fine mettle and is using his ammunition - an endless supply - with great effect now. His grade last year - 2007 - was about "D". He started out this year with a "C" and has been acing exam after exam, so it's now perhaps even a B+. I guess he reads this blog as the parsimonious growth of the monetary base prior to September has been replaced with a massive increase since then. That's needed to make up for a few years' of slow growth in that crucial measure that probably created part of this mess. Those errors were caused by that silly infatuation with "fighting" non-existent inflation.
Actions
None. I was jocularly accused of being a perma-bear in yesterday's comments. Sheesh ... my Alpha Fund is long about 150% with a number of extremely economically sensitive stocks, viz., CVX, DVN, RIG, FCX, BHP and smaller positions in EXM, DRYS, GNK, JOYG and MBI. As soon as this wave of beefer liquidations and misguided public selling of mutual funds runs its course, a grand new bull market should commence. Perhaps it has already begun.
Word of the Day
"Apropos" - adjective, preposition and adverb [$10]; this word we use a lot but not might know its precise meaning; also, the final 's' is silent.
Apropos means (adjective) to the point or purpose; appropriate; (preposition, often followed by 'of' colloquial) in respect of, concerning; (adverb) 1. appropriately, 2. by the way, incidentally.
Sentence: Apropos suggestions that Bunkerman is a perma-bear, he was bearish for about two weeks after the idiotic libertarian Republicans first defeated the Paulson plan. Going to cash in the Alpha Fund on that event did, however, him quite a bit of money, though.
Friday, October 31, 2008
Thursday, October 30, 2008
Zzzzz ...
I overslept, so will write something later.
Philadelphia Phillies win the World Series ! A loquacious poster of comments should now be happy after a lifetime of frustrations.
Words of the Day
"Somniferous" - adjective [$10] an old one from the card file
Somniferous means inducing sleep, soporific.
"Soporific" - adjective and noun [$10] another old one from the distant past
Soporific means (adjective) tending to produce sleep; (noun) a soporific drug or influence.
Sentences: Watching CSPAN has a somniferous influence on Bunkerman. Nothing is more soporific than a large meal of roast turkey and stuffing.
Philadelphia Phillies win the World Series ! A loquacious poster of comments should now be happy after a lifetime of frustrations.
Words of the Day
"Somniferous" - adjective [$10] an old one from the card file
Somniferous means inducing sleep, soporific.
"Soporific" - adjective and noun [$10] another old one from the distant past
Soporific means (adjective) tending to produce sleep; (noun) a soporific drug or influence.
Sentences: Watching CSPAN has a somniferous influence on Bunkerman. Nothing is more soporific than a large meal of roast turkey and stuffing.
Wednesday, October 29, 2008
Gangocracy, Oil and Pericles
Gangocracy
Newspaper reports say Russia is using its rescue fund to rescue some billionaires who margined their stock in big Russian companies. Whether Russia "saves" the billionaires or just uses the opportunity to re-take the valuable holdings looted by those same billionaires in the 1990s, time will tell. Does the Boss of the gang save the Capo when he gets into trouble, or does he liquidate him and take his territory back ? The Russia = Gangocracy model suggests the billionaires will soon be outcasts and economic power in Russia will become even more centralized.
Oil
From FT: "Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows. Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.
"The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as prices fall and investment decisions are delayed."
This is why I like the oil stocks with major exploration and production opportunities in good deep water sites like the US Gulf of Mexico. CVX and DVN have major finds there. RIG supplies equipment to them and to other majors like Petrobras.
Pericles
The panicking rich are cutting back spending on luxury good, per FT story. Hmmm ... let's see. They are so dumb they invest trillions in hedge funds and also spend idiotic amounts on simple items like purses. Perhaps the quote from Pericles should be required reading:
"We cultivate refinement without extravagance and knowledge without effeminacy; wealth we employ more for use than for show ..."
Perhaps a change in behavior is in order: from endless striving to become richer than Croesus and showy spending to doing something to improve humanity, such as providing a young scientist or mathematician or artist with a stipend to create something enduring for the human race would be a better use of such wealth.
Newspaper reports say Russia is using its rescue fund to rescue some billionaires who margined their stock in big Russian companies. Whether Russia "saves" the billionaires or just uses the opportunity to re-take the valuable holdings looted by those same billionaires in the 1990s, time will tell. Does the Boss of the gang save the Capo when he gets into trouble, or does he liquidate him and take his territory back ? The Russia = Gangocracy model suggests the billionaires will soon be outcasts and economic power in Russia will become even more centralized.
Oil
From FT: "Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows. Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.
"The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as prices fall and investment decisions are delayed."
This is why I like the oil stocks with major exploration and production opportunities in good deep water sites like the US Gulf of Mexico. CVX and DVN have major finds there. RIG supplies equipment to them and to other majors like Petrobras.
Pericles
The panicking rich are cutting back spending on luxury good, per FT story. Hmmm ... let's see. They are so dumb they invest trillions in hedge funds and also spend idiotic amounts on simple items like purses. Perhaps the quote from Pericles should be required reading:
"We cultivate refinement without extravagance and knowledge without effeminacy; wealth we employ more for use than for show ..."
Perhaps a change in behavior is in order: from endless striving to become richer than Croesus and showy spending to doing something to improve humanity, such as providing a young scientist or mathematician or artist with a stipend to create something enduring for the human race would be a better use of such wealth.
Other News
GM and Cerberus seem to be working on deals together to merge GM and Chrysler and separately to restructure GMAC into a bank. Government help to come. I support this, as said yesterday, as the auto industry with its myriad parts suppliers and dealers really is an important part of the real economy. Management change is a necessary condition, however.
Porsche smartly offers to sell some VW shares to help reduce the short squeeze it created ... at a huge profit. Smart move, as it helps stave off government intervention. Still, the short beefers are doomed.
Actions
Nothing. Holding Alpha Fund stocks with modest margin: CVX, DVN, RIG, FCX, BHP are largest; DRYS, EXM, GNK, JOYG and MBI are smaller. The shippers particularly stink now. Obviously my chronic "buyearlyitis" hurt me. I really have to learn more patience. Mrs. B has a lot, I should follow her style more.
Word of the Day
"Agnate" - adjective & noun [$10]
Agnate means (adjective) 1. descended esp. by male line to another male ancestor; 2. descended from the same forefather, of a clan or nation; 3. of the same nature, akin; (noun) a person who is descended esp. by male line from the same male ancestor.
Sentence: As the line of the Bush-Cheney Republican ruling class seems soon to be extinguished, the practice of the Republican party to select leaders from its agnate line must be changed. Big John McCain could be a fine regent for his sidekick from the distaff side*, Sarah Palin, to breathe some fresh ideas into that moribund party.
["distaff side" means the maternal branch or female side of a family]
Did you notice the subliminal message in the title to this post ?
Tuesday, October 28, 2008
Gold
First …
An unusual short squeeze is occurring on the German stock market. Porsche wants to acquire Volkswagen and the smart beefers thought they had an easy profit on shorting Volkswagen shares. Wrong!
From FT:
"Volkswagen's shares more than doubled on Monday after Porsche moved to cement its control of Europe’s biggest carmaker and hedge funds, rushing to cover short positions, were forced to buy stock from a shrinking pool of shares in free float.
"VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts. … Porsche revealed on Sunday that it held 31.5 per cent in derivatives in VW. Bafin, Germany’s financial regulator, recently ruled that companies were not obliged to disclose such positions where the derivatives were settled into cash rather than shares.
"But the sudden disclosure meant there was a free float of only 5.8 per cent – the state of Lower Saxony owns 20.1 per cent – sparking panic among hedge funds."
Volkswagen stock price is up 100% this morning. And the beefers ... a house of pain. Shucks. I suppose those paragons of “free markets” will want government intervention now.
Gold
As we watch the herd of beefers slowly disappear in this storm, let’s consider some value analysis for that ultimate store of value – gold. I still subscribe to some commodity research sites, as I might someday want to play in that sandbox again. So I'll look at the long term monthly chart for gold. First, my thinking.
Acquaintances know I loaded up on physical gold coins - American Eagles, please - and silver bars in the period around 2002-3. [The EFTs for gold & silver did not exist then.] I'm a long-term bull on gold and silver as over the decades, the growth of demand in India and China will slowly overwhelm European central bank sales; plus emerging market central banks will buy some gold; plus mine production in South Africa is declining. Those are primal among other reasons to be bullish on gold long term. But long term is ... a long time. What now ?
The recent pop to $1000 for gold and $20 for silver were screaming sells, being due to beefer momentum moves well beyond the long term trends.
What about those trends ?
The trend from the bottom in 2000 until 2005 was more determined by real, physical trends. After 2005 the beefers took over with their antics and the price got ahead of fundamentals. So where does the old monthly trend line project ? The $550-600 area in 2009. So that's good value for long term holding periods. The current drop might not get there, but at that area, I will again overweight gold in Krypto Fund via ETFs and mutual funds and might even buy more physical gold.
Actions
None.
Politics
I favor a rescue plan for the auto industry provided "real" changes in management occurs. My memories of B-school discussion sessions about 30 years ago wondering about how the auto industry cold cope keep coming back to me. Decades of opportunities were squandered by unimaginative managements.
Word of the Day
"Pharisaic - adjective [$10] used in upper case "P" for definition 1. and lower case "p" for 2.
Pharisaic means 1. a member of an ancient Jewish sect, distinguished by strict observance of the traditional and written law, and commonly held to have pretensions of superior sanctity; 2. a self-righteous person; a hypocrite.
Sentence: Events of the past few months might consign Pharisaic libertarianism to its condign place in the dustbin of history along with Marxism. The colossal error of permitting the financial vikings [aka beefers] to grow to gigantic size and to raid and pillage and generally wreck market economies surely is now obvious to all.
An unusual short squeeze is occurring on the German stock market. Porsche wants to acquire Volkswagen and the smart beefers thought they had an easy profit on shorting Volkswagen shares. Wrong!
From FT:
"Volkswagen's shares more than doubled on Monday after Porsche moved to cement its control of Europe’s biggest carmaker and hedge funds, rushing to cover short positions, were forced to buy stock from a shrinking pool of shares in free float.
"VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts. … Porsche revealed on Sunday that it held 31.5 per cent in derivatives in VW. Bafin, Germany’s financial regulator, recently ruled that companies were not obliged to disclose such positions where the derivatives were settled into cash rather than shares.
"But the sudden disclosure meant there was a free float of only 5.8 per cent – the state of Lower Saxony owns 20.1 per cent – sparking panic among hedge funds."
Volkswagen stock price is up 100% this morning. And the beefers ... a house of pain. Shucks. I suppose those paragons of “free markets” will want government intervention now.
Gold
As we watch the herd of beefers slowly disappear in this storm, let’s consider some value analysis for that ultimate store of value – gold. I still subscribe to some commodity research sites, as I might someday want to play in that sandbox again. So I'll look at the long term monthly chart for gold. First, my thinking.
Acquaintances know I loaded up on physical gold coins - American Eagles, please - and silver bars in the period around 2002-3. [The EFTs for gold & silver did not exist then.] I'm a long-term bull on gold and silver as over the decades, the growth of demand in India and China will slowly overwhelm European central bank sales; plus emerging market central banks will buy some gold; plus mine production in South Africa is declining. Those are primal among other reasons to be bullish on gold long term. But long term is ... a long time. What now ?
The recent pop to $1000 for gold and $20 for silver were screaming sells, being due to beefer momentum moves well beyond the long term trends.
What about those trends ?
The trend from the bottom in 2000 until 2005 was more determined by real, physical trends. After 2005 the beefers took over with their antics and the price got ahead of fundamentals. So where does the old monthly trend line project ? The $550-600 area in 2009. So that's good value for long term holding periods. The current drop might not get there, but at that area, I will again overweight gold in Krypto Fund via ETFs and mutual funds and might even buy more physical gold.
Actions
None.
Politics
I favor a rescue plan for the auto industry provided "real" changes in management occurs. My memories of B-school discussion sessions about 30 years ago wondering about how the auto industry cold cope keep coming back to me. Decades of opportunities were squandered by unimaginative managements.
Word of the Day
"Pharisaic - adjective [$10] used in upper case "P" for definition 1. and lower case "p" for 2.
Pharisaic means 1. a member of an ancient Jewish sect, distinguished by strict observance of the traditional and written law, and commonly held to have pretensions of superior sanctity; 2. a self-righteous person; a hypocrite.
Sentence: Events of the past few months might consign Pharisaic libertarianism to its condign place in the dustbin of history along with Marxism. The colossal error of permitting the financial vikings [aka beefers] to grow to gigantic size and to raid and pillage and generally wreck market economies surely is now obvious to all.
Monday, October 27, 2008
Fried Eggs and Spam
This weekend I made what is probably the finest breakfast: fried eggs and spam.
The eggs were, of course, from happy cage-free, organically fed chickens who have sunlit porches. I fried them with a bit of pepper in olive oil to the over-medium phase, which required 35 seconds on the flip side. To eat them, I mash them with my fork and eat each bite with a bit of spam.
The spam is fried in olive oil until each side is a bit crusty.
I also have 1/2 of a bagel toasted a bit with pumpkin butter, and some fruit.
This food is soooooooo good - I had it both days this weekend. The only improvement I'm pondering is adding a slice of Valveeta cheese on top of the eggs. Thinking ...
Markets
More Euro-beefer liquidation and some Asia selling. And some more US-beefer selling. And the public is selling its mutual funds. And we even hear of some public pensions fund being forced to sell a bit ... to fund commitments to "alternative investments".
Perhaps a bit of recapitulation of what we know now is in order.
1. Big, evil funds - aka beefers - exist and were grossly oversized and very dangerous to the world financial markets and we now know they are dangerous to the common man and the real economy, too.
2. A bit of inflation is good. It helps people have some confidence in their asset values and businesses. Trying to grind out 2%-3% core inflation is nuts.
3. Core inflation measures are correct. Trying to cut nominal inflation caused buy oil prices is stupid and destructive.
4. The monetary base should grow at 2-3% per year. The Fed was too tight until September.
5. Hedge funds are not an another asset class; most are not even "investments", but are just speculations or trading operations.
6. Commodity futures are not another asset class, either. Money in those contracts are just speculations, too.
It's rather obvious now to all, and to this writer for years, that excess money that flowed into hedge funds and commodity futures or related derivatives was a speculative bubble fueled by the rich and some pension funds.
That's enough for now.
The Federal money finally begins flowing today. I'll watch. This cure will work, but will take some time.
I suspect the continued weakness in oil is due to endless liquidation of beefers adn pension fund positions, plus the liquidation of inventories that some such speculators held to masquerade as "commercials". Traffic was heavy this weekend here as I drove to sheep herding classes for Sky.
Actions
I circled the wagons a la the Hussites on Friday to defend CVX, DVN, RIG, BHP and FCX. I was a bit long and concerned about being away from my screen during that museum trip. So I sold JPM, AAPL, GOOG and EDU and used just a portion of the cash to buy a bit more CVX, DVN, RIG and BHP. I am also holding EXM, DRYS, GNK, JOYG and MBI. I'm not expecting a lot, but figure my upside on these are rather good compared to those I sold.
My Krypto Fund spreadsheet wants me to buy emerging markets. But I'll wait a few days to let this settle more.
Politics
Big John McCain drew 4,000 people to an enthusiastic rally in Zanesville, Ohio, which is not far from my home town in Ohio. That's a lot for this sparely populated area. Comments about his reception was quite positive. So I wonder if he has more strength among the common man than the media credits for him.
Word of the Day
"Cosmogony" - noun [$10]
Cosmogony means 1. the origin of the universe; 2. a theory about this.
Sentence: What will Bunkerman use for building blocks for a cosmogony of understanding the behavior of future financial markets if beefers become extinct?
The eggs were, of course, from happy cage-free, organically fed chickens who have sunlit porches. I fried them with a bit of pepper in olive oil to the over-medium phase, which required 35 seconds on the flip side. To eat them, I mash them with my fork and eat each bite with a bit of spam.
The spam is fried in olive oil until each side is a bit crusty.
I also have 1/2 of a bagel toasted a bit with pumpkin butter, and some fruit.
This food is soooooooo good - I had it both days this weekend. The only improvement I'm pondering is adding a slice of Valveeta cheese on top of the eggs. Thinking ...
Markets
More Euro-beefer liquidation and some Asia selling. And some more US-beefer selling. And the public is selling its mutual funds. And we even hear of some public pensions fund being forced to sell a bit ... to fund commitments to "alternative investments".
Perhaps a bit of recapitulation of what we know now is in order.
1. Big, evil funds - aka beefers - exist and were grossly oversized and very dangerous to the world financial markets and we now know they are dangerous to the common man and the real economy, too.
2. A bit of inflation is good. It helps people have some confidence in their asset values and businesses. Trying to grind out 2%-3% core inflation is nuts.
3. Core inflation measures are correct. Trying to cut nominal inflation caused buy oil prices is stupid and destructive.
4. The monetary base should grow at 2-3% per year. The Fed was too tight until September.
5. Hedge funds are not an another asset class; most are not even "investments", but are just speculations or trading operations.
6. Commodity futures are not another asset class, either. Money in those contracts are just speculations, too.
It's rather obvious now to all, and to this writer for years, that excess money that flowed into hedge funds and commodity futures or related derivatives was a speculative bubble fueled by the rich and some pension funds.
That's enough for now.
The Federal money finally begins flowing today. I'll watch. This cure will work, but will take some time.
I suspect the continued weakness in oil is due to endless liquidation of beefers adn pension fund positions, plus the liquidation of inventories that some such speculators held to masquerade as "commercials". Traffic was heavy this weekend here as I drove to sheep herding classes for Sky.
Actions
I circled the wagons a la the Hussites on Friday to defend CVX, DVN, RIG, BHP and FCX. I was a bit long and concerned about being away from my screen during that museum trip. So I sold JPM, AAPL, GOOG and EDU and used just a portion of the cash to buy a bit more CVX, DVN, RIG and BHP. I am also holding EXM, DRYS, GNK, JOYG and MBI. I'm not expecting a lot, but figure my upside on these are rather good compared to those I sold.
My Krypto Fund spreadsheet wants me to buy emerging markets. But I'll wait a few days to let this settle more.
Politics
Big John McCain drew 4,000 people to an enthusiastic rally in Zanesville, Ohio, which is not far from my home town in Ohio. That's a lot for this sparely populated area. Comments about his reception was quite positive. So I wonder if he has more strength among the common man than the media credits for him.
Word of the Day
"Cosmogony" - noun [$10]
Cosmogony means 1. the origin of the universe; 2. a theory about this.
Sentence: What will Bunkerman use for building blocks for a cosmogony of understanding the behavior of future financial markets if beefers become extinct?
Friday, October 24, 2008
TGIF
Financial Times today has a fine article on the fantasy world of credit default swaps. Obviously that is a “market” that should not exist, or if it does, should require 100% cash collateral for any writers of such “insurance”. See “Fantasy and Credit Insurance” under the “Markets” section in FT online - http://www.ft.com/home/us
There are two fundamental problems with such “insurance”, viz. (I) that there are really no natural writers and (II) any premium really involves two risks, the insured credit and the writer’s credit risk. These derivatives need to be regulated by the insurance regulators and real collateral put behind them, or they should be banned.
For now, persons looking at that “market” for “market” pricing are looking through grossly distorted lenses.
Another article in FT shows how derivatives are completely out of contact with markets. “The turmoil in financial markets has taken hold of the strategically important trade in long-term interest rate derivatives, pushing rates to levels once thought to be a “mathematical impossibility”.” … “On Thursday, the 30-year swap spread turned negative after briefly flirting with such levels earlier in the month. This implies investors are somehow reckoning that they are more likely to be paid back by a private counterparty than by the government, which can print money.”
“Negative swap spreads have been considered by many to be a mathematical impossibility, just like negative probabilities or negative interest rates,” said Fidelio Tata, head of interest rate derivatives strategy at RBS Greenwich Capital Markets.
So insurers and “investors who once bought bonds based on spread over Treasuries – i. e. a true, real risk premium - over time became dependent on “swap spread” for pricing. Of course, that was stupid since a swap is between two private parties and involves the credit risk of each. What a fantasy world created by people who probably never experienced a bankruptcy, or a panic or even read a book about the history of money & credit.
Some of these derivatives reminds me of the archaic “bills of exchange” that were the source of credit in early market economies of the industrial age. Those involved several endorsements, re-endorsements and counterparties, so were rather complex. A collapse of a major merchant or commercial lender would break the chains of endoresements and could create a cascade of trouble as many, many bills of exchange suddenly could have problems and trade at great discounts. Sound familiar ? Eventually were mostly replaced by modern commercial codes with standardized lending terms. “Wall Street” and the banking industry recreated such beasts with their inherent multiparty risks in the over-the-counter derivatives market … and proceeded to ignore those extra entanglements. This gets more & more like “Lord of the Flies” every week, as we see how the “Whiz Kids” created a cesspool as they had no adult supervision or understanding of history or reality.
This will eventually work its way out as people return to the old ways … old being 20-25 years ago. So far at least, despite the turmoil & shock, huge losses from derivatives settlements has not occurred. Most of the colossal notional amounts seem to be offset.
This mess can also be laid at the feet of Elmer, aka Alan Greenspan, as his “pro-derivative” testimony helped derail regulatory efforts in the late 1990s or early 2000s – I forget the exact dates but remember the event. Of course he also helped derail regulation of hedge funds. Like his predecessor, Paul Volker – the economic neutron bomber of the 1980s – both are true cluster FUBARs if one ever existed.
Markets
Today looks like an Asian selloff led by a Sony warning that has caused more Euro-beefer and US beefer liquidations. European markets and futures are down a lot, but I am getting acclimatized to these giant swings daily and intra-day. Fear continues to rule. And I presume the public continues to sell at the bottom. Over time, the baby boomers are really going to be hurt by these “Buy High, Sell Low", greed & fear tactics.
I continue to buy some of my favorite stocks on large dips. I still have quite a bit of buying power and safety net in my Alpha Fund.
I see the UK GDP fell in Q3. Can anyone explain why the Bank of England base rate is so high ? Ditto for the ECB ?
Word of the Day
“Comptoir” - noun [$1000] from French
Comptoir means a commercial agency or factory (in foreign country).
Sentence: When one reads histories of trade and credit in Europe in the early industrial age, the comptoirs of major trading nations such as the French or Dutch appear in places like Gdansk as they were active in the Baltic grain trade.
There are two fundamental problems with such “insurance”, viz. (I) that there are really no natural writers and (II) any premium really involves two risks, the insured credit and the writer’s credit risk. These derivatives need to be regulated by the insurance regulators and real collateral put behind them, or they should be banned.
For now, persons looking at that “market” for “market” pricing are looking through grossly distorted lenses.
Another article in FT shows how derivatives are completely out of contact with markets. “The turmoil in financial markets has taken hold of the strategically important trade in long-term interest rate derivatives, pushing rates to levels once thought to be a “mathematical impossibility”.” … “On Thursday, the 30-year swap spread turned negative after briefly flirting with such levels earlier in the month. This implies investors are somehow reckoning that they are more likely to be paid back by a private counterparty than by the government, which can print money.”
“Negative swap spreads have been considered by many to be a mathematical impossibility, just like negative probabilities or negative interest rates,” said Fidelio Tata, head of interest rate derivatives strategy at RBS Greenwich Capital Markets.
So insurers and “investors who once bought bonds based on spread over Treasuries – i. e. a true, real risk premium - over time became dependent on “swap spread” for pricing. Of course, that was stupid since a swap is between two private parties and involves the credit risk of each. What a fantasy world created by people who probably never experienced a bankruptcy, or a panic or even read a book about the history of money & credit.
Some of these derivatives reminds me of the archaic “bills of exchange” that were the source of credit in early market economies of the industrial age. Those involved several endorsements, re-endorsements and counterparties, so were rather complex. A collapse of a major merchant or commercial lender would break the chains of endoresements and could create a cascade of trouble as many, many bills of exchange suddenly could have problems and trade at great discounts. Sound familiar ? Eventually were mostly replaced by modern commercial codes with standardized lending terms. “Wall Street” and the banking industry recreated such beasts with their inherent multiparty risks in the over-the-counter derivatives market … and proceeded to ignore those extra entanglements. This gets more & more like “Lord of the Flies” every week, as we see how the “Whiz Kids” created a cesspool as they had no adult supervision or understanding of history or reality.
This will eventually work its way out as people return to the old ways … old being 20-25 years ago. So far at least, despite the turmoil & shock, huge losses from derivatives settlements has not occurred. Most of the colossal notional amounts seem to be offset.
This mess can also be laid at the feet of Elmer, aka Alan Greenspan, as his “pro-derivative” testimony helped derail regulatory efforts in the late 1990s or early 2000s – I forget the exact dates but remember the event. Of course he also helped derail regulation of hedge funds. Like his predecessor, Paul Volker – the economic neutron bomber of the 1980s – both are true cluster FUBARs if one ever existed.
Markets
Today looks like an Asian selloff led by a Sony warning that has caused more Euro-beefer and US beefer liquidations. European markets and futures are down a lot, but I am getting acclimatized to these giant swings daily and intra-day. Fear continues to rule. And I presume the public continues to sell at the bottom. Over time, the baby boomers are really going to be hurt by these “Buy High, Sell Low", greed & fear tactics.
I continue to buy some of my favorite stocks on large dips. I still have quite a bit of buying power and safety net in my Alpha Fund.
I see the UK GDP fell in Q3. Can anyone explain why the Bank of England base rate is so high ? Ditto for the ECB ?
Word of the Day
“Comptoir” - noun [$1000] from French
Comptoir means a commercial agency or factory (in foreign country).
Sentence: When one reads histories of trade and credit in Europe in the early industrial age, the comptoirs of major trading nations such as the French or Dutch appear in places like Gdansk as they were active in the Baltic grain trade.
Thursday, October 23, 2008
On and On ...
I just heard an oxymoron on Blabberg ... the fellow mentioned "investors continuing to trade" certain markets. Since when is "trading" part of "investing ? That's symptomatic of the beefer* mentality. Those huge funds aren't investors at all - just colossal trading funds spreading their foul wastes everywhere. [* beefer = big, evil funds]
The "West" did the predictably smug "tut-tut" when the beefers attacked minor, far-away nations like Thailand ten years ago. Now the piratical attacks are closer to home, viz. Hungary. Even nations with strong reserves like South Korea are attacked.
Why are those beefers permitted to slash & burn these places with their currency trading ? What is the economic gain from that hot money sloshing around ? Zero. Sure, foolish ideologues like Elmer ( aka Alan Greenspan ) talked about the "wonderful" liquidity they provided. Sure ... a 100 year flood provides "wonderful" liquidity to a common man in his home !
Markets
More beefer liquidations yesterday ... or maybe the trading beefers who bought at the recent lows flipped the shares to "try" to lock in a profit. Who knows ? The public is probably still pulling money out of stocks.
Meanwhile LIBOR is falling. And homes are selling at a rapid pace in those places like CA where the housing bubble was worst. Borrowers of home equity loans and floating rate mortgages are seeing substantial cash flow improvement. As is every person driving a vehicle. So the curative medicine is flowing in the veins of the patient.
Lender standards return to .. gasp ... those of the early 1980s. I bought my first home in 1984 and my initial mortgage interest rate was 13.875% on a one year floater with a 30 year amortization schedule. Lolol I think the "teaser" rate was around 11%. Yes, I put 20% down, also. And I did rather well over the years ... as did the economy.
Hmmm ... on my 100 year wall chart, the world did rather well after that period of retrenchment, which in fact included a huge financial crisis of the S&L industry ( disintermediation) and banking industry (those huge third world loan losses ... remember ?)
Governmental money will actually go into the commercial paper markets next Monday. Equity infusions to banks soon follow.
The dollar is rising. Uh ... I thought the pundits said the dollar was doomed to oblivion ?
Actions
Doing nothing. Please don't go too long on margin. I am long margin, BUT as I've said many times before, my Alpha Fund is really a small part of my total investments.
I might add to FCX in the low 20s if it gets there.
Word of the Day
"Tatterdemalion" - noun & adjective [$100] a Mencken word
Tatterdemalion means 1. (noun) a person in tattered clothing; a shabby person; 2. (adjective) ragged; unkempt or dilapidated.
Sentence: As the disaster-mongers say, the world will soon be filled with wandering tatterdemalions looking into garbage cans for a few scraps of food. But barring a big war or trade war or other governmental idiocy as Argentina has shown the path, the innate desire and capability of free people to improve their lives proves an irresistible tail wind for strong economic growth over time.
The "West" did the predictably smug "tut-tut" when the beefers attacked minor, far-away nations like Thailand ten years ago. Now the piratical attacks are closer to home, viz. Hungary. Even nations with strong reserves like South Korea are attacked.
Why are those beefers permitted to slash & burn these places with their currency trading ? What is the economic gain from that hot money sloshing around ? Zero. Sure, foolish ideologues like Elmer ( aka Alan Greenspan ) talked about the "wonderful" liquidity they provided. Sure ... a 100 year flood provides "wonderful" liquidity to a common man in his home !
Markets
More beefer liquidations yesterday ... or maybe the trading beefers who bought at the recent lows flipped the shares to "try" to lock in a profit. Who knows ? The public is probably still pulling money out of stocks.
Meanwhile LIBOR is falling. And homes are selling at a rapid pace in those places like CA where the housing bubble was worst. Borrowers of home equity loans and floating rate mortgages are seeing substantial cash flow improvement. As is every person driving a vehicle. So the curative medicine is flowing in the veins of the patient.
Lender standards return to .. gasp ... those of the early 1980s. I bought my first home in 1984 and my initial mortgage interest rate was 13.875% on a one year floater with a 30 year amortization schedule. Lolol I think the "teaser" rate was around 11%. Yes, I put 20% down, also. And I did rather well over the years ... as did the economy.
Hmmm ... on my 100 year wall chart, the world did rather well after that period of retrenchment, which in fact included a huge financial crisis of the S&L industry ( disintermediation) and banking industry (those huge third world loan losses ... remember ?)
Governmental money will actually go into the commercial paper markets next Monday. Equity infusions to banks soon follow.
The dollar is rising. Uh ... I thought the pundits said the dollar was doomed to oblivion ?
Actions
Doing nothing. Please don't go too long on margin. I am long margin, BUT as I've said many times before, my Alpha Fund is really a small part of my total investments.
I might add to FCX in the low 20s if it gets there.
Word of the Day
"Tatterdemalion" - noun & adjective [$100] a Mencken word
Tatterdemalion means 1. (noun) a person in tattered clothing; a shabby person; 2. (adjective) ragged; unkempt or dilapidated.
Sentence: As the disaster-mongers say, the world will soon be filled with wandering tatterdemalions looking into garbage cans for a few scraps of food. But barring a big war or trade war or other governmental idiocy as Argentina has shown the path, the innate desire and capability of free people to improve their lives proves an irresistible tail wind for strong economic growth over time.
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