The Amateur Investor

Jon Stewart is my f**king hero!!!

2009-03-05T09:14:00.000-08:00

He put CNBC in its place last night...rightfully so

The Daily Show With Jon StewartM - Th 11p / 10c

Daily Show Full Episodes
Important Things With Demetri Martin

You already know my thoughts

http://theamateurinvestor.blogspot.com/2008/09/why-have-i-stopped-watching-cnbc-just.html

Note to Santelli: never back out, or "bail out," of an interview with professionals like Stewart otherwise they will fuck you up.

Afternoon thought....China is a smooth operator

2009-02-20T08:40:00.000-08:00

These oil deals with Russia, Brazil, Venezuala aren't just really smart, but they are cheap too.

Take the Russian deal for example:

The International Energy Agency (IEA), an energy watchdog group set up by the OECD countries, projects that oil prices will rise above $110 a barrel in real terms (more than $200 a barrel nominal) by 2030. The US's own Energy Information Administration (EIA) believes oil prices will rise above $60 a barrel in real terms by 2030. So what does China pay Russia until 2030? Less than $30 a barrel! That's dirt cheap any way you look at it.

P.S. Trying not to confuse the IEA with the EIA can be confusing at times :-)

Afternoon music..."Day n Night"

2009-02-17T12:21:00.000-08:00

When you're 60% cash, investing gets really boring...so you gotta do something to keep yourself busy.

I am still sitting with my huge cash position, but since we just broke the bottom of our range (800 on the SP500)..I'll start to short the SP500 a little more...I plan on covering once we near the 750 area on the SP500. As of 2 minutes ago I am now 45% cash, 35% short and 20% long.

Late night thought....

2009-02-12T00:02:00.001-08:00

China will keep buying our debt. Why? Because they are the sh*tiest stock pickers I have ever seen...just look at their investments in Blackstone and other financials?

So China's stock losses are effectively the U.S.'s gain as T-Bills (with their paltry 3% yields) be will sufficient for the risk averse Chinese. Besides if China doesn't buy up US debt to finance our recovery then they will be cutting off their largest export market...that's not gonna happen. Xie xie China, we know "you just can't quit US."

This revelation effectively nullifies my bullish position on TBT

Oh yeah and "IF" China does decide to pull out of Treasuries and walkaway from the debt table....

Hat tip to The FLY...he's a wise man.

David Cook - Light On

2009-02-10T22:44:00.000-08:00

Still 60% cash and...

2009-02-10T12:15:00.000-08:00

I'm lovin' it :-)

Off to go order every item on the dollar menu (aka $7 bucks worth at McDonalds)

Lesson: in this complex financial world you should always keep a sizeable cash position (15%-20%) going forward (I am talking about the next 3 years mind you). Of course, when investors are fixated on Washington, you should think about doubling your cash reserves to at least 35% given the fear political fools instill when speaking on TV.

A trip down memory lane: Cramer pre-crisis (June 2007)

2009-02-07T22:52:00.000-08:00

I give Cramer credit for his Stop Trading Fed Rant (aka the "Rant heard around the world", but one good deed is not enough to save the man for all his other bone headed calls. The problem: Cramer is just too talkative of a guy. He wrote at The Harvard Crimson, so he clearly is opinionated, likes being the center of attention, and likes getting his thoughts heard. That's all fine and good, but Jim constantly feels the need to make predictions and forecasts (seriously does Mad Money need to be on TV everynight?) Jim's sporadic "shoot from the hip" financial analysis doesn't fly in today's complex socio-economic world. Of course, his Wall Street career certainly gave him a bit of god complex (ironically Jim admits his wifey's TA skills saved his fund from the 87 crash...surprisingly he panicked).

Anyway, here are Jim's thoughts on subprime in June 2007:

"No more than $500 billion [in suprime losses]"

"Only 10%-15% are corrupted [defaults]"

"I couldn't believe how few defaults there were. Only 150,000 defaults? We are a big country."

"The [housing] fallout has only been with New Century Financial"

"WE ARE BLOWING AN ISSUE OUT OF PROPORTION"

The lesson to Jim (and anyone else that likes to talk a little too much):

If you don't have anything meaningful to say, don't say anything at all.

Good morning....

2009-02-06T02:18:00.000-08:00

Given all the Republican fuckery over this stimulus bill (FYI, I am a Keynesian liberal) I am very content being in cash...there is no edge in this market.

Remember that the market is irrational...

2009-02-05T13:48:00.000-08:00

That's why I've been 60% in cash, 20% long and 20% short for a while now.

On this side we have very dire economic news:

New jobless claims jumped far more than expected last week in an already dismal labor market, and there's no relief in sight for workers as mass layoffs persist. The Labor Department reported Thursday that the number of newly jobless workers seeking benefits rose last week to a seasonally adjusted 626,000, from the previous week's upwardly revised figure of 591,000. The latest total is far more than analysts' expectations of 583,000.

Economists expect the government to issue a grim report Friday that will show the unemployment rate rose to 7.5 percent in January, up from 7.2 percent in December. That would be the highest rate in 17 years.

Yet the market is rallying because the stimulus will likely be passed.

A group of 16 senators was meeting today behind closed doors to hammer out a package of cuts. According to Collins, R-Maine, the group achieved an "in-depth scrubbing of the bill, going line by line item by item."
Emerging from the meeting for a midday break, Sen. Joe Lieberman said the group of Democrats and five Republicans were at a "breakthrough" moment.
Ohio Sen. George Voinovich, one of the moderate Republicans who participated in the closed-door meeting, told ABC News he expects the group to get behind lowering the overall size of the bill to $750 billion.

Stay patient and wait for the TA action to confirm a market breakout above SPY 850...but don't chase. Wait for the inevitable pullback to the support point (remember resistance [850 on SPY] becomes potential support for a continued uptrend).

I love Claire McCaskill

2009-01-31T16:04:00.000-08:00

"These people are idiots."

The closer we get to actually punishing the banks, the closer we get to healing the system and finding a bottom. This is a crisis of confidence, we need the rule of law and common sense returned to our financial system.

More hedging against the perma bulls....

2009-01-28T08:14:00.001-08:00

Used my massive cash position and bought some AKNS at 2.00 to further protect myself against the impending short squeeze. I fully expect that the bulls will ignorantly bid us up to 920 on the the SPY by next week (they are pricing in the $825 billion stimulus and a 2nd half 2009 recovery). All I can say is "the market doesn't care what you think about all this." Just roll with the punches and patiently wait for your shot.

“Cry 'Havoc', and let slip the dogs of war!"

2009-01-27T22:43:00.000-08:00

Upon hearing of Obama's "bad bank" bailout AH, I immediately hedged my bearish DUG position with some DXO (2x long crude) @ 2.60.

This does NOT mean I have changed my mind on the oil sector. The fundamentals indicate a prolonged period of oversupply in 2009, which will depress prices much to Wall Street's chagrin (most analysts still expect $70 crude by the EOY). However, XOM and CVX aren't currently trading off fundamentals, rather they are trading parallel with the S&P500 completely ignoring the underlying commodity they depend on.

This discrepancy makes for a monstrous shorting opportunity down the road, but in the near term we have to deal with idiot hedge funds and institutions bidding up shares of XOM because of another bank bailout (the correlation between the two beats me, but this market is irrational). Anyway I hedged my position, but I fully intend to be net short for big oil's reports on Friday.

Friday will be glorious...

2009-01-27T08:47:00.001-08:00

In the mean time enjoy

Letting go of some long exposure...raising cash

2009-01-26T08:03:00.000-08:00

Selling WFC at $16.45 (caught the falling knife this time)

Selling some APWR at $5.35

Selling some DUG at $23.00 (hoping to buyback a boat load at the $20-$21 range before CVX and XOM report later this week)

Now at 60% cash, 20% long and 20% short

Saturday Night Music - "Da Baddest"

2009-01-24T21:20:00.000-08:00

Current asset allocation...

2009-01-22T20:40:00.001-08:00

30% cash

30% long (mostly alt energy names that will likely bounce the highest with any Obama rally. Also have some bank exposure via WFC)

40% short (mostly short Oil and Gas names through the DUG)

My oil thesis continues to be confirmed. Did you see the inventory build this week? Enormous. More than 3x the expectations! Oil below $50 for at least the 1st half of year, no doubt. The lack of available credit is really preventing the speculators from pushing oil up and that's good for the oil bears long term....not to mention American drivers :-)

Position: F**k OPEC & XOM

UPDATED POSITIONS: Fuck John Thain

Damn I'm good....

2009-01-21T20:51:00.001-08:00

my call for a Geithner rally was pretty on the spot (not to be self-aggrandizing :-)

The only thing that kept me positive for the day was my WFC scalp trade. I have kept the trade on even though we blew past my TP.

P.S. I will no longer speak to people named Doug, Douglass, or any derivation of the word "DUG."

Is another Geithner rally brewing?

2009-01-21T08:38:00.000-08:00

Although the TA action clearly shows we will retest the November lows soon, nothing goes down in a straight line. Essentially the market will give itself some bullsh*t reason to bounce higher....I think Tim Geithner's confirmation as Treasury Sec. will be that reason (remember we rallied hard when Geithner was nominated...another bullshit reason in hindsight).

So why hasn't wall street already priced in the confirmation? Because of some bullsh*t tax evasion excuse...puhhhlease, every motherf**ker in Congress evades taxes in some form or another (Charly Rangel? etc.). Nevertheless, the idiot talking heads at CNBC keep yapping about this tax issue...so I figure wall street is buying into it as a serious "hangup" because: "If CNBC reports on it, then it must be pertinent information."

And yes I do believe wall street is stupid enough to watch and believe CNBC.

P.S. Confirmation Vote is set for Thursday.

Bought some WFC @ $14.44

2009-01-21T08:25:00.000-08:00

Probably the stupidest things I've ever done, since ALL BANKS are f**ked long term. But this is a scalp trade with a tight stop at $13.75.....my TP is $16.50

Remember that the 2nd round of TARP was passed, so Obama can begin showering these zombie banks with cash immediately...if he wanted to.

Dollar Menu Millionaire Time

2009-01-20T22:25:00.000-08:00

I took $7.50 of my gains from today (no losses suffered, despite the down tape :-) and went to Mickey D's for a celebratory meal...twas good

Fun Fact for the day...

2009-01-20T12:09:00.000-08:00

With storage tight on land, there are an estimated 80 million barrels of oil being held in large tankers offshore, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"We're filling up every crevice of storage that anybody can find," he said. "The pipelines are filled up, the terminals are filled up. Refiners are amply supplied. This is a market that definitely has a surplus."

If crude at sea has reached 80 million barrels, it could supply nearly the entire globe for a day.

Despite my bearishness on crude, I will concede that Exxon might not be the greatest of shorting opportunities since it has more than $35 billion in cold hard cash just sitting on its B.S. (perfectly timed for a shopping spree), but I do think XOM should be trading below $65.

Obama can't fix this...

2009-01-20T10:55:00.000-08:00

Wall Streeters used to think they were the "Masters of the Universe," now they are reduced to nothing. Biggest lesson of this debacle:

TRUST YOURSELF. NO ONE ELSE!

I'm up 2% today, and that's with DUG refusing to explode higher. Don't worry Exxon's days of mastering the universe will end in due time.

Hat tip to RC for the chart...he and Brian Shannon have nailed this TA action perfectly lately.

Oil Debate: The Amateur Investor vs. Cramer

2009-01-17T12:20:00.000-08:00

My 2009 trading thesis on the integrated oil companies is clear:

Why Exxon is overvalued

A potential oil pair trade developing

Synopsis: as long as oil stays below $60 a barrel, companies like Exxon, Chevron and Conoco aren't breaking even on their current projects and are struggling to maintain their historical ROE & ROIC. Consequently, these oil players are substantially overvalued going forward. As an aside, OPEC says it needs oil actually closer to $75 to bring supply into the market.

Disagree with my thesis? Just look at Conoco Phillips' (COP) $34 billion writedown of its goodwill from its balance sheet (goodwill is the amount COP paid above the book value of its acquisition and is the firm's largest portion of intangible assets - basically anything that is not PPE).

The company plans to reduce the value of its equity investment in Russia’s Lukoil by $7.3 billion, Houston-based ConocoPhillips said today in a statement. Other asset writedowns totaling $1.3 billion will be recorded.

The biggest writedown, a $25.4 billion impairment charge in the oil and gas business, amounts to 87 percent of all the goodwill the company had on its balance sheet as of Sept. 30, according to Bloomberg data (Almost all of COP's good will is gone...wow!). The company plans to report its actual fourth-quarter results Jan. 28.

ConocoPhillips said it will have a 2009 capital expenditure budget of $12.5 billion, 18 percent less than the $15.3 billion authorized for 2008.

ConocoPhillips also said today that the drop in commodity prices will affect its reporting of reserves. Some reserves, primarily in North America and Lukoil’s, will be removed from proved reserves based on prices at the end of the year.

Forgot to mention that COP will also lay off 1,300 employees (4% of its workforce). Now ask yourself: Does COP think oil will rise 100% in 2009?

Oh yeah, let's not forget that with Democrats coming into power corporate taxes for these oil companies will probably increase further impairing their fundamentals. Alternative energy initiatives are also coming down the pike sooner rather than later with the impending stimulus.

Not to worry though Cramer is buying Chevron and Conoco for his charitable trust (the one that was down more than 40% last year ;-)

If you want to short Exxon, Chevron and Conoco then grab some DUG. Because of the severe tracking error with these shity ETFs, make sure you buy the dips and sell the rips. The first rip of DUG I'll sell is when Exxon prints $70 (currently $78).

I "HOPE" they're right about TARP II...

2009-01-15T16:45:00.000-08:00

I will vote for this [TARP II] and I will do it because of the assurances I got from the president-elect himself that it will be different, that he will use these funds judiciously," said Sen. Barbara Boxer, D-Calif.

"I felt a little bit like after the last one, like Charlie Brown and Lucy," said Sen. Tom Harkin, D-Iowa. "You know she's always pulling the football from under Charlie Brown. Well, Lucy's 's not holding that ball any more. We have someone new holding that ball. Somebody named Barack Obama.

I just "HOPE" that the rate of foreclosures goes down (we saw an 81% jump in 2008). If we can get the foreclosure rate down to 30%-40% in 2009 and avoid the "Pay Option Arm implosion" in 2010 and 2011 (when I say "AVOID" I mean only 25% default rate)then:

- writedowns will slow by second half of 2010

- confidence will return

-unemployment won't reach 20%

-America will ultimately survive (of course this new country won't be the same gluttonous "America" we've known for the past several decades...that's a good thing).

FYI I know I just made a lot of "Kudlow'esque" statements just now, however, Kudlow probably thinks that foreclosures in 2009 will only grow by 1%-5% in 2009 vs. 2008 (so cut me some slack, ok).

Listen!!! I know "HOPE" is a four letter word, but if you don't have "HOPE" for America in the long run (I am talking 10-15 years out) then go f**k yourself and move to France.

Position: long humanity, but still hate politicians and CNBC.

It was 85 degrees today in beautiful sunny California

2009-01-14T23:49:00.000-08:00

It will be this way for the rest of the week:
http://www.weather.com/weather/tenday/93401?from=36hr_topnav_undeclared

I made some serious coin today using technical analysis...

2009-01-14T09:11:00.000-08:00

Here's my prescient post from earlier this week: "Rollover baby"

Get it through your head that fundamentals don't work in this market! The hedge funds control all the velocity of money (the "day to day" volume) and they are about as disciplined as Michael Jackson at a summer camp for 4th graders.

You need to use technical analysis (TA) to keep your discipline and conviction. Set stops and limits and let the market swings come to you. Watch for clear break outs and break downs (NO DIRECTIONAL BETS, unless you're willing to average down many times on the fake outs you'll encounter). Use multiple time frames when using TA, you must look at the long terms support and resistance you will likely encounter on the shorter time frames.

One day fundamentals will matter again, but not right now. Besides the overall macro fundamentals are so skewed in favor of the bears that EVERY rally must ultimately be sold when we hit a "frothy" top (see SPY at 920). I will only start "investing" again off fundamentals once we've stabilized the 20, 50 and 100 day moving averages.

As Brian says: "The market doesn't care what you think. Listen to the message of the market."

Late night drunken post....

2009-01-14T00:47:00.000-08:00

Why am I doing this? Fuck you! That's why. Barely have enough soberness to type thoughts...fucks this is hard. Anyway....passout

This market has driven most traders insane...

2009-01-13T08:40:00.000-08:00

Feel a little bit like Charlie?

Late Night Thought: These guys are bald a$$holes

2009-01-12T20:34:00.001-08:00

I wouldn't be surprised if there was a "Brokeback Mountain" thing between the two of them...haven't you wondered why Paulson travels so much?

In the most scathing criticism yet of Treasury's implementation of the $700 billion financial-rescue package, a draft report being issued by a five-member congressional oversight panel said there appear to be "significant gaps" in Treasury's ability to track hundreds of billions of dollars of taxpayer money.

The report faults Treasury on a variety of fronts: having no ability to ensure banks lend the money they have received from the government; having no standards for measuring the success of the program; and for ignoring or offering incomplete answers to panel questions.

The draft report noted that Treasury hasn't used any of TARP's $700 billion to help borrowers refinance or deal with mortgages that are worth more than the market value of the homes they are tied to.

Game plan for tomorrow...

2009-01-12T15:13:00.000-08:00

We are still range bound on the SP500 (855-920) so I will begin to cut my short positions into tomorrow's session as we near the bottom of the range. Of course, this sell off could be "THE MOMENT" we break 855 (which has already been tested 4 times before) but I continue to believe that Obama entering (even better Bush exiting) + $350 billion in additional TARP funds will give this market enough "kool aid" to stave off execution (aka a trading range breakdown). Besides my portfolio was UP 3.5% today, so I can afford to be more conservative.

For FAZ:

If the XLF hits $10.40 (currently $10.90) then I will sell 50% of my position. I will only cover entire FAZ if the XLF creeps back above $11.35.

For SRS:

If VNO hits 49.75 then I will sell 100% of my SRS position. If VNO gets back above $56 then I will cover.

For DUG:

Unless XOM jumps to $80 I will continue ADDING to my DUG position (THAT HOW MUCH I THINK XOM IS OVERVALUED). However, I will sell 100% of DUG if it hits $30 (currently $26) or when XOM hits $71 (the tracking error on these proshares ETF's are egregiously stupid!)

Rollover baby...

2009-01-12T11:57:00.000-08:00

LONG SRS

LONG FAZ

Long DUG.

XOM and CVX will need a little more coaxing, but they will be mine SHORTly (get it :-)

60% short
30% long
10% cash

Using my cash and buying a sh*t load of DUG...

2009-01-12T07:41:00.000-08:00

XOM, CVX, RIG, SLB, COP are all overvalued pieces of paper. Oil won't climb back to $60 until late 2009 (I believe 2010).

DUG @ $25.05 is 15% of my portfolio, it will become 25%-20% once XOM rolls over, which I expect soon.

Presto!!! I can make up to 4 million jobs....

2009-01-10T11:40:00.000-08:00

First Obama promised to make 2.5 million jobs (that was in November)

Then he upped it to 3 million jobs (December)

As of yesterday Obama can make 4 million jobs and most importantly give my little sister that unicorn she always wanted!

Watch out David Blaine...

Disclaimer: The 14-page analysis, which was posted online, says estimates are "subject to significant margins of error" — because of the assumptions that went into the economic models and because it is not known what might pass Congress.

Calvin and Hobbes on the money...

2009-01-09T13:14:00.000-08:00

Why Exxon is overvalued...

2009-01-09T09:24:00.000-08:00

If you were to take off the religious veil from Exxon and look under the surface, you'll find quite a different story. The incredible double-digit revenue and earnings growth came completely from the big rise in oil and natural gas prices. XOM spent close to $90 billion finding new oil and natural gas, but oil reserves have not increased at all. Gas reserves are up 25% since 2003, but gas production increased very little.

Because XOM has not made many major acquisitions since the late 1990s and its reserves and production are the same, it is basically the same company today that it was in the early part of this decade. Earnings per share may be higher, but that comes courtesy of massive stock buybacks. Also, costs have increased substantially. The cost of finding new oil doubled from 2003, and getting oil out of the ground is up 40% from 2003. These two factors cancel out each other.

To estimate XOM's earning power at today's prices, let's look what it made when oil prices were in the 30s and 40s. In 2003 and 2004, when oil prices averaged $28 and $38, XOM made about $3 and $4 a share, respectively. Since XOM's reserves are not growing, it is reasonable to expect no growth of production in the future. Don't deceive yourself: XOM is just an operationally leveraged proxy for oil (and natural gas).
If oil stays where it is today XOM's earnings will be around $3 or $4. It is trading at 20 to 25 times these earnings. This is a very high valuation for today's environment, where companies with similarly strong balance sheets, with pricing power (XOM is a price taker), and whose cash flows are increasingly independent of what commodities are doing (non-cyclical) pay higher dividend yields and trade 10 or 12 times true earnings. Yes, there is a 50% downside in XOM's stock.

Let's call today's $30-$40 oil the seminormal case, though it could get worse. But what if oil prices go to $150? It is an unlikely scenario, at least while the global economy is in a recession, but in this case XOM has an upside of about 20%, as this summer it traded in the 90s when oil went to $147.

Investors who own Exxon are gambling on oil and natural gas prices, and the odds are stacked against them: tails (high probability) you are down 50%, heads (low probability) you are up 20%.

Grabbing some DUG....

2009-01-09T08:51:00.000-08:00

This is not a play on oil continuing to go lower, but rather crude staying below $60, which will screw the integrated/drilling companies.

F**k your buyback Exxon! You're going lower in 2009....much lower :-)

Still neutral position: 50% cash, 25% long (AKNS, GFA, GU) and 25% short (SRS, DUG, sold out of FAZ).

Good morning...

2009-01-08T03:24:00.000-08:00

Wake and bake prohibited, says this pusherman.

With crude tanking I sold 1/3 of my DUG position

2009-01-07T11:28:00.000-08:00

The post right below this one seems quite prescient...no?

FYI, oil and gasoline inventories rose +5x the expectations. Yeah, I'd say crude is f**ked here.

Short oil here?

2009-01-06T09:34:00.001-08:00

Resistance on the USO is at $40, and we're at $37.80

POSITION: Moving half of FAZ short position into DUG (very short term trade though)

Forbes Magazine actually has a good quote...

2009-01-06T09:27:00.000-08:00

Perhaps a less popular question investors must consider is, "Why buy stocks after a near 25% rally in six weeks?" In other words, if selling after a 40% decline in 12 months does not make sense, does buying into a 25% rally in six weeks make sense?

I was just thinking the same thing, so I am neutral: 20% long, 20% short, 60% cash.

My longs are risky as f**k stocks including: AKNS, APWR, GU and GFA

My shorts are the pathetic ETF's: FAZ and SRS (at least they are not the FXP)

40% of Obama's stimulus is tax breaks???

2009-01-05T23:55:00.000-08:00

Mr. Nobel Prize himself explains why this is not the best solution:

Let’s lay out the basics here. Other things equal, public investment is a much better way to provide economic stimulus than tax cuts, for two reasons. First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.

That said, there’s a problem with a public-investment-only stimulus plan, namely timing. We need stimulus fast, and there’s a limited supply of “shovel-ready” projects that can be started soon enough to deliver an economic boost any time soon. You can bulk up stimulus through other forms of spending, mainly aid to Americans in distress — unemployment benefits, food stamps, etc.. And you can also provide aid to state and local governments so that they don’t have to cut spending — avoiding anti-stimulus is a fast way to achieve net stimulus. But everything I’ve heard says that even with all these things it’s hard to come up with enough spending to provide all the aid the economy needs in 2009.

What this says is that there’s a reasonable economic case for including a significant amount of tax cuts in the package, mainly in year one.

But the numbers being reported — 40 percent of the whole, two-year plan — sound high.

I like tax cuts as much as the next token Republican, but we need to invest in this country's infrastructure and develop alternative energy to save us from OPEC and Global Warming. That won't happen with consumer tax cuts, which probably won't even get spent. NOBAMA :-(

Late night comedy....

2009-01-05T19:05:00.000-08:00

The occasion? I was up 4% today :-)

Letting go some of my Gafisa and A-power here...

2009-01-05T16:56:00.001-08:00

got to raise more cash (I'm shooting for a 75% cash position)

It's Friday night, so be cool and don't do nothing crazy

2009-01-02T21:47:00.000-08:00

Take a guess

2009-01-02T11:48:00.001-08:00

So the market has broken out of its trading range (granted it is on thin-volume bullsh*t action), the VIX is crashing, and the Obama inauguration is coming up (so is that juicy $1 trillion stimulus for Wall Street). Given all the News Year's optimism and HOPE (THAT IS FOUR LETTER WORD WHEN IT COMES TO INVESTING!!!), this rally might last throughout January. Of course, the BSD's (aka Hedge Funds/Institutions) will be back to work on Monday, so we shall see if THEY CHOOSE to bid up stocks and promote the "OBAMA BUBBLE," which will ultimately prove to be just another Bear Market Rally.

To ride this likely rally I will get long Solar, Building/Construction stocks, and maybe....just maybe...Real Estate, ewwww :-(

If Obama is smart then he will tackle the "Pay Option Arm" crisis emerging in housing...

2009-01-01T22:48:00.000-08:00

He needs to make these mortgages fixed rate in order to avoid millions of impending foreclosures. If he doesn't then the U.S. housing market will NOT STABILIZE UNTIL 2012 at the earliest, which would guaranty a repeat of the 1930's. You can call it "another move to socialism" but I don't give a f**k...we can't have another +2 million Americans lose their homes to poorly designed pay option mortgages, just because we want to preserve the illusion of free markets (an illusion which disappeared long ago).

Job searching

2009-01-01T11:46:00.000-08:00

Aside from partying New Year's Eve, I have spent nearly all my free time looking for a job. I am graduating in 6 months with a degree in Finance and Accounting (perfect timing huh?). Clearly the job market for both fields is very dry right now and I expect it will only get worse in 2009 - we will hit 9%-10% unemployment this year. Consequently, I must prioritize my time accordingly and that means this blog will occasionally go through some "dead air" phases. Nobody likes making excuses but I gotta make some changes in 2009.

More Madoff Victims: Kevin Bacon and Kyra Sedgwik

2008-12-30T10:11:00.000-08:00

I know it sounds like a funny headline but I am not trying to be facetious here. It is a tragedy anytime someone loses most of their life savings to a lying con artist, and this situation with Bacon and Madoff is no exception.

We'd heard that along with Hollywood boldfacers Jeffrey Katzenberg and Steven Spielberg, Bacon and his wife, Kyra Sedgwick, lost money in Madoff's devastating $50 billion Ponzi scheme, and Bacon's rep, Allen Eichorn, confirmed it for us. "Unfortunately, your report is true," he wrote. He wouldn't elaborate on whether, as we'd heard, they'd lost everything except for their checking accounts and the land they own. "I can confirm that they had investments with Mr. Madoff — no further specifics or comment beyond that," he said, adding: "Please, let's not speculate or rely on hearsay."

But we can't help but speculate! Just think about it: Footloose money: gone. Wild Things residuals: gone. The Singles stash: obliterated. If there's anyone in Hollywood who didn't deserve this, it's Kevin Bacon and Kyra Sedgwick. Those two have worked. It sincerely pains us. At least they have The Closer to fall back on.

Trading idea for oil: a weird kinda pair trade

2008-12-29T12:00:00.000-08:00

It's clear that OPEC, geo-political risk, loose Fed and a resulting sh*ty US dollar will not let oil stay below $40 a barrel for all of 2009. However, given the global recession underway, it is clear that WTIC will not exceed $60 a barrel in 2009 (fyi Brazil and OPEC say they need about $75 a barrel for additional investment/supply...good luck with that).

The point is that crude will rise in 2009 but not enough to help oil producers/drillers who's business models require much higher prices. So how will I play this anticipated situation of rising crude but suffering oil producers?

*I will buy and hold the DXO (The 2x long oil ETN) and swing trade the DUG (2x short oil ETF) *

At first glance this trade might look pointless since the two trades would just cancel eachother out, but here's why that won't happen:

1) The DXO is an ETN (exchange traded note), which does not suffer from the same daily resets and time decay issues as the options in the DUG and all the other Proshares leveraged ETF's. A simple look a the DXO and DUG charts shows that the DXO is safe to "buy and hold" if you expect crude to stabilize somewhere higher between $40 and $60 (ie there is no need to market time this ETN).

2) The DUG is a play on the oil producers/drillers and not directly on crude oil spot prices like the DXO. The DUG tracks the Dow Jone U.S. Oil and Gas Index so it is more correlated to the daily stock movements of Exxon, Chevron and Conoco Phillips (those three combined make up more than 45% of the NAV of the index). Granted those three producers are linked to oil prices, but recently there has been a notable divergence in price action between oil prices as seen in the graph below (note the USO is an index that tracks WTIC prices):

The chart shows that despite crude oil's crash, the producer stocks have held up relatively well (aside from COP). Nevertheless, EVEN IF CRUDE OIL RISES TO $45, $55 or even $60 a barrel, XOM and its peers cannot be viable investments (OPEC, Brazil, Russia, etc. have said that $70 is support for them).

So the way I will play the inevitable demise of oil producer stocks in 2009 is with the DUG and I will hedge myself with any rise in oil prices by going long the DXO. Please note that because of the time decay issues associated with the options in the DUG, I must swing trade the ETF and market time the SOB, but the DXO is a pure buy and hold. Now I haven't implemented the trade yet, but when I do I will certainly let you know.

Israel Palestine Conflict added to the "Wall of Worry"

2008-12-29T08:22:00.000-08:00

The carnage in the Middle East is absolutely horrific. If this continues, the current conflict might begin to rival the Six Days War(let's pray it doesn't for both sides sake).

Nevertheless, this war is just another problem Obama will inherit from Bush (ironic considering Bush expected therewould be peace in the Middle East by 2005...whoops). Now, putting aside my political bias, as Obama's "to do list" grows by the hour it will become clear to Wall Street that Obama cannot save them from the graves they have dug themselves (economically, environmentally, socially, politically, etc.)

I am optimistic that Obama can restore global confidence over two terms, but certainly not in the next 12 months. I say 12 months because that is what Wall Street and Main Street is currently expecting (2nd half 09 recovery)...they assume the cavalry will show up just in time to save the day...big mistake!

Conclusion: Black Swan events like these will certainly accelerate an end to the "Obama honeymoon."

Late night thought...

2008-12-26T23:30:00.000-08:00

The Fed's attempts to lower the cost of capital for American consumers and banks won't work in 2009. THE PROBLEM ISN'T that we can't get access to cheap credit. If you have a good credit history and solid personal balance sheet then you can get a sub 6% mortgage (super cheap). Of course, you're probably saying: "But given our cultural proclivity for debt most of us can't get this loan because most don't have solid personal balance sheets."- AH-HA! There's the rub my friends.

THE PROBLEM IS REALLY that we already have too much debt and CAN'T AFFORD to add any more, even if the Fed drives interest rates down to 0%. America has hit its debt ceiling and is now in the process of paying it off, not taking on more. Besides, who will borrow $300k to buy a house or borrow $20k for a business venture when more than 30% of Americans polled are worried about losing their jobs and the housing market it not stabilizing? Rather than encouraging Americans to "fatten" up and eat more from the debt trough, the government should use the money to provide debt/principal reductions and lowering interest payments on existing loans (not new ones).

So regarding credit in 2009, the Fed will find itself in the same position it has been in since 2007: Pushing on a string.

Time for some music. Have a good night.

Future credit cycle scenarios: Ayers Rock or Matterhorn?

2008-12-26T04:00:00.000-08:00

Put simply, Bank of America is debating the depth — and structure — of the credit cycle. Specifically, whether we’ll see a ‘classical’ version of accelerating defaults followed by rapid improvement (the Matterhorn) or an Ayers Rock scenario, in which government intervention to stave off bankruptcy ends up prolonging the credit adjustment.
Despite its headline figure of 30% cumulative default rates across 09-11, the “Matterhorn” scenario should be hoped for as the economic implication of “Ayers Rock” increases cumulative defaults to 50%.

The historical perspective suggests that Matterhorns are much more likely than Ayers Rocks — but, then again, we’ve never seen government intervention on this scale before. We’d also note that a prime criticism of quantitative easing in Japan was that it ended up postponing the structural change that many argued was necessary for the country’s banking system. That the US is embarking on something similar could end up tilting the balance in favour of an Ayers Rock situation.

Given the government's efforts to prop up an overleveraged financial system (a system that will inevitably succumb to massive defaults and consumer retrenchment) I believe we are in store for an Ayers rock credit cycle. Thx Greenspan, Paulson, Bernanke, and Bush!!!

Hat tip to FT Alphaville for the find.

2009: The Fallout

2008-12-24T12:46:00.000-08:00

2008 saw the collapse of Wall Street and Global Financial Markets at the hands of the deflating international real estate bubble (with the largest bubble obviously residing in the US). The failure of world renowned institutions like Bear Sterns, Lehman Brothers, Fannie Mae, Freddie Mac, and others destroyed all confidence in the financial credit and equity markets. Slow and ineffective action from governments and central banks precipitated the "crisis of confidence" amongst investors. The level of fear, anxiety, and volatility witnessed in 2008 reached comparable levels seen only during the 1930's with the Great Depression. After everything that has transpired in 2008, it is safe to assume that modern capital markets will NEVER be the same again (much needed rules and updated regulations will ensure that).

With that said, if 2008 was about Wall Street's crisis and subsequent collapse, then 2009 will be about the collapse of "Main Street" and the International Economy. The evaporation of trillions of dollars in imaginary wealth and credit lines will destroy any chance of economic growth in the next 12-18 months. Over the long run, governments and central banks will work around the clock to re-inflate the financial system by lowering the cost of capital for banks and consumers, but in 2009 the level of capital destruction from defaults and bankruptcies (individual, corporate, and governmental) will overwhelm policy makers. Furthermore, the psyche of credit markets, banks, and consumers heading into the new year is far too fragile and uncertain meaning an "L" shaped economic recovery (much like Japan's lost decade) is the best case scenario investors (not to mention human beings) can hope for in 2009.

In a few days, I will post some specific forecasts and predictions for 2009 regarding unemployment, real estate, credit writedowns, government intervention, alternative energy, and a few other subjects I deeply care about.

Children avert your eyes!

2008-12-24T12:29:00.000-08:00

Roubini's 2009 forecast

How much has Harvard's endowment really lost?

2008-12-24T00:49:00.001-08:00

And we thought Madoff was the only liar on Wall Street..puhlease ;-)

Harvard University's admission that it lost $8 billion from its $36 billion endowment fund, as staggering as it sounds, may grossly underestimate the true magnitude of the loss between from July 1 through Oct. 31 2008. According to a source close the Harvard Management Corporation (HMC), which runs the fund for Harvard, the loss is closer to $18 billion if the losses on the fund's illiquid investment are realistically appraised. (Harvard's PR team is very smooth for convincing us it was "only" $8 billion)

From 2000 to 2008, the notional value of Harvard's wealth quadrupled through a strategy that involved shifting the lion's share of Harvard's money from American stocks, bonds and cash to to highly esoteric investment...by the time the bubble burst in the fall of 2008, less than a fifth of Harvard's endowment fund was invested in exchange-listed stocks and bonds. (WHAT??? Less than 20% of porfolio was in stocks and bonds?)

Where was the rest of Harvard's money?

-Nearly 28% of Harvard Endowment fund was in what the fund manager's called "real assets," a category comprised of timber forest and arable land in remote areas, commercial real estate participators, and huge stockpiles of oil and other physical commodities (NOTICE HOW MUCH ALL THESE "REAL ASSETS" HAVE DECLINED IN VALUE).
-Another huge chunk of the endowment was in private equity placements and hedge funds (UH-OH!) which imposed restrictions on withdrawals.
-Another 11 percent of Harvard's money had been sunk in volatile emerging markets. Here the investments took a double hit: First, the local stock markets collapsed in most of these countries, with, for example, Russian stocks, losing 80%, of their value. Second, on top of these losses. the local currencies lost much of their value against the dollar, with the Brazilian Real, for example losing 40% of its value.

My knowledgeable source finds the claim by Harvard's money managers that the fund only lost 22 percent not only "purely pollyannaish" but self-serving (they got increased bonuses for 2008).

Harvard University, relies on the interest from its endowment fund for one-third its budget, needs to be more realistic. As its President, Drew Faust, noted in letter to the Harvard faculty, "We need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constrain,"
(This "thrifty/conservative mindset" should be prevailing in America right now! But we are all too busy shopping.)

The collateral damage goes far beyond the ivy-covered walls of Harvard. Money managers at other non-profit institutions plunged their funds into the murky get-rich-fast universe of illiquid investments.

California Public Employees' Retirement System, heavily invested in the same sort of "real assets" as Harvard. Leveraging its own funds, It bought so much undeveloped real acreage, that by 2008 it became the largest private land owner in America. (FUBAR....this is retirement money...FUBAR!)

Then came the subprime debacle, and the real estate bubble imploded, leaving Calpers with unsalable land and, because of its borrowed funds, a 103% loss. Together with other losses in hedge fund and conventional investments, Calpers found that it had lost nearly 40% of the value of its entire pension fund.

Speechless

An Xmas postcard from a friend...

2008-12-24T00:03:00.000-08:00

Thx Brian.

My gift to my readers (all 5 of you): scenes from the best Christmas Movie EVER!

I wish everyone Happy Holidays and a kickass New Year!!!

California is f*d....

2008-12-23T23:49:00.000-08:00

Full disclosure: I work part time on campus at a CSU (Cal Poly San Luis Obispo), so I am a little anxious about all the budget cuts. I know it sounds stupid to fret over a part time job on campus, but life is expensive (this job helps with that); besides you never know what stupid politicians and state university boards will decide to do.

The point of these excerpts from an article I read, is to show how much municipal governments (like CA) are"in over their heads." If our states are already f'd, I don't want to see them in 8-12 months from now.

A loss of nearly 42,000 jobs last month pushed California's unemployment rate to 8.4%, a 14-year high and the third-highest jobless rate in the country.

California's November unemployment figure lagged behind only Michigan with its crippled automobile industry at 9.6% and Rhode Island at 9.3% after job cuts this year in retail, manufacturing and services.

Even once-strong hiring in healthcare and government is showing signs of weakening next year. A projected $41.2-billion state budget deficit could lead to involuntary furloughs and wholesale firings of workers at state and local government agencies, school districts, community colleges and public universities.

California's real unemployment picture is darker than the state's 8.4% unemployment rate indicates, economists caution. "People believe there are no jobs to be had, and they are simply dropping out of the labor force and don't get counted," said economist Sung Won Sohn of Cal State Channel Islands. California's real or "effective" unemployment rate is probably twice the official number, Sohn said, meaning "the pain in the marketplace is much greater than 8.4% would show."

The city of Vallejo, Calif., gained national attention earlier this year by filing for Chapter 9 bankruptcy protection. Now, two neighbors are fighting to avoid the same fate, as the state's economic crisis spreads.Isleton and Rio Vista, small towns roughly 50 miles northeast of San Francisco, say they have begun consulting with bankruptcy lawyers as they draw up plans to deal with their mounting budget crises. The towns' leaders say they hope to avoid bankruptcy, but concede the move may eventually be their only option.Vallejo instantly became the nightmare scenario for towns across the state facing a similar toxic mix of foreclosures, debts, pension obligations and the inability to raise money on bond markets.

I've been super busy with Xmas shopping. I've also been doing a lotta soul searching lately on account of this Global Economic Meltdown. This is largely on account of my impending graduation in 6 months (arguably the worst time ever to be entering the job market) so I need to lock up work ASAP. Hint, hint...my blogging responsibilities might have to take a back seat for the next few months. Doesn't mean I will stop blogging altogether, but I gotta prioritize.

Private Equity 101...

2008-12-21T21:08:00.000-08:00

a very interesting Money Morning article about how Private Equity firms (aka Leveraged Buyout Firms) operate. The part about "covenant-lite" and "reverse convenants" is especially eye-opening since it means controlling PE firms don't have to answer to stakeholders or act in the company's best interest (two seemingly antiquated notions nowadays).

PE's current push into assisting (aka purchasing) distressed banks is also very disturbing since they would then be playing with our bank accounts/deposits and would also be backed by the bailout machine known as the U.S. government...moral hazard anyone?

The once booming business of private equity faces an uncertain future. What’s not uncertain, however, is that many private equity deals are imploding from the weight of leveraged debt and greed. Inevitable bankruptcies will result in higher unemployment and a deeper recession.

Private equity firms are the debutante sisters of hedge funds. They raise huge pools of capital from pension funds, endowment funds, sovereign wealth funds, institutional investors and wealthy entrepreneurs. But while hedge funds buy and sell the stocks of companies they hope to profit from, private equity shops buy whole companies.

The trick of the deal is to pay for the target by using as little equity capital as possible, and raising the remainder by actually having the target company borrow the required funds. (I assume the author is referring to the use of tax shields here to maximize overall firm CF's) Except for the private equity firm’s initial equity investment, the target company is essentially buying itself (More likely burdening itself with massive, crippling debt).

And if that isn’t enough of a trick, very often when the target is privatized, their new masters have the company borrow even more money so they can then pay themselves a dividend as a bonus for the good job they did in leveraging the company to the hilt so they can streamline it.

There are two elements that made massive borrowing possible.

The first was a ready supply of capital courtesy of the U.S. Federal Reserve’s easy money policy and low interest rates. The second was the ability of banks that lend money to acquired companies to pool those loans into securities called collateralized loan obligations, or CLOs, and sell them off to investors. Banks and investors refer to this asset class as “leveraged loans.”

Banks and non-bank lenders attach covenants to the loans they make. Typically, covenants dictate to borrowers what specific balance sheet requirements must be met and include debt-to-cash flow leverage ratios, limitations on the total amount of debt a company can carry, minimum equity provisions and other dictates that serve to secure collateral that is relied upon by lenders.
But, banks were so flush with money and so eager to lend that privately acquired companies, driven by their new private equity masters, proposed that the money they borrowed should not be encumbered by the protective covenants lenders are used to demanding. Hence the birth of “covenant-lite” loans.

Covenant-lite loans included insane “reverse covenants” that benefited the borrowers not the lenders. (unbe-f**king-lievable! How backwards is that?)

Among other things, some borrowers demanded and got rights to:
-Increase debt-to-EBITDA levels to 10:1.
-Freely substitute collateral.
-Issue unsecured debt equal to the total amount of existing debt (if they hedged or effected swaps.
-Employ PIK (payment-in-kind) options, where instead of paying interest in cash they could substitute more debt.
-Employ PIK toggles**, sometimes called “extendibles.”
**PIK toggles...like an option ARM mortgage, where borrowers can choose whether to pay the interest due, some part of it, or none of it, and roll unpaid interest into principal.

Eventually, investors simply stopped buying leveraged loans. And the net result is that banks may be sitting on over $150 billion of junk leveraged loans that they can’t place. They are taking hits to their balance sheets as they have to mark down these loans....they are terrified that the recession will drive more of these leveraged companies into bankruptcy.

Thomson Reuters recently reported that 40 private equity companies have sought bankruptcy this year. According to Standard & Poor’s, of 86 S&P rated companies that defaulted this year, 53 of them were private equity related transactions. Linens ‘n Things which was taken private by Apollo Group Inc. went bankrupt. Sharper Image, Wickes Furniture and catalogue company Lillian Vernon, were all taken private by Sun Capital Partners Inc., all of them are bankrupt. Mervyn’s which was taken private by Sun Capital and Cerberus Capital Management LP. is bankrupt.

Then, of course, there’s the pure genius of PE firms coming to the rescue of troubled banks. But, TPG Capital (formerly Texas Pacific Group) doesn’t look so genius with its $7 billion investment in Washington Mutual Inc. (OTC: WAMUQ) which was wiped out in a matter of five months. ($7 billion lost in 5 months...lmao...what a bunch of idiots).

There’s a lot of pressure on banks to raise capital and there’s a lot of pressure being exerted by the private equity guys to lean on the Fed and U.S. Treasury to bend the rules to let them play in that sandbox. (I AM NOT EASILY FRIGHTENED BUT THIS SCARES THE SH*T OUT OF ME!) Pushing hard from the private equity camp are Randall Quarles, Managing Director of Carlyle Group Ltd. and a former senior Treasury official and none other than the former Treasury Secretary himself, Chairman of Cerberus Capital Management, John Snow.

What the private equity guys want is the ability to buy into banks and control them. If they get their hands on the low cost deposit-based capital at commercial banks, they’ll be unstoppable. How about having the piggy-bank, backed by taxpayers to leverage at will?

Right now there’s a limitation imposed on investors in Federal Deposit Insurance Company insured commercial banks. Once an investment exceeds 9.9% there must be an agreement with regulators to not “control or influence” management. If an investment exceeds 24.9% the investing entity must register as a Bank Holding Company, and subject itself to all necessary transparencies called for by regulators and the Fed. Private equity guys do not want any part of either of those restrictions. They don’t want their business looked through nor do they want their capital encumbered. (Not surpised...only 28 days until Hank Paulson and Bush Co. are gone! They are the only ones who would be stupid enough to let this go PE "assistance" go through).

Some good news, but more bad news

2008-12-21T18:25:00.000-08:00

Diane Garnick, investment strategist at Invesco says "I'm more bullish short-term — valuations have been knocked down."

The strategist also cited falling commodity prices, which reduces companies' input costs (and she's not worried about deflation), as well as mass layoffs, which can boost the bottom line. (yeah, but higher unemployment means fewer potential customers and lower future sales).

Having said that, Garnick is restrained in her enthusiasm for stocks in the short term because of still elevated levels of volatility (as measured by the VIX) and in the longer term because of what she calls "the next two crises":

1) Municipalities facing budget shortfalls because of reduced tax revenues.
2) Social Security funds being depleted even before Baby Boomers start to retire en masse.

Regarding volatility, Garnick notes that if the S&P is at 900 and the VIX at 50 (current levels are 899 and 54, respectively), the market is pricing in a two-thirds chance the index will trade between 770-1,029 over the next 30 days.

"Now is one of the most difficult times to make a commitment" to stocks, but "it's a good time for active managers who can handpick the winners and losers," she said. (I agree...you can't be a long term investor in this market when you have 10% intraday market swings. You have to take profits and cut losses when you can.)

Not very auspicious for Real Estate...

2008-12-21T18:15:00.000-08:00

"Those who do not learn from history are doomed to repeat it."

The doomed:

VNO
BXP
KIM
PLD
DLR
GGP

Gary Schilling has been right and will be right in 2009.

2008-12-20T19:17:00.000-08:00

The S&P 500 could fall to as low as 600 in 2009 and "alternative assets" like commodities and currencies will provide no shelter for investors, says Gary Shilling, president of A. Gary Shilling & Co.

Having been appropriately bearish heading into this year, Shilling sees "few good places to hide" in 2009. Currently, Shilling is long Treasuries and the dollar, but notes the bond market's rally is getting long in the tooth.

Other than defensive plays like utilities and consumer staples, Shilling is short stocks. His "S&P 600" prediction, a 33% drop from current levels, is based on a view that S&P earnings will be $40 per share next year (vs. the consensus of $83) and the index will trade with a P/E multiple of 15. (Here's the math: $40 EPS x 15 P/E = 600.)

Shilling is also commodities and remains bearish on emerging markets, most notably China. The theory China, most notably, could "decouple" from the U.S. doesn't hold up to scrutiny, Shilling says, as evinced by the slowdown of China's economy and the fact their middle class isn't large enough to sustain growth internally.

Against that backdrop, Shilling isn't only bearish on China as an investment, he sees the potential for major social upheaval in the world's most populous nation.

The "Pooring of America"

2008-12-20T00:20:00.000-08:00

A graphical illustration of America's de-leveraging (I am talking about consumers not banks). You remember the American consumer....right?

Hat tip to Calculated Risk for this stunning visual.

Notice how slow debt is decreasing, whereas value is plummeting. Kinda reminds me of going to Vegas, it's really hard to earn/win your money but it's really easy to lose it. The problem here is that you can't walk away from the "debt table" like you can the blackjack table.

Stung by the loss of more than $2.8 trillion in their net wealth, the nation's households paid down their debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday.

As of Sept. 30, households' total outstanding debt shrank at an annualized rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report.
...
With the stock market plunging and home prices falling rapidly, American households lost a total of $2.81 trillion in wealth during the third quarter, the most ever. Wealth fell at an 18% annual rate during the quarter.

VIX says don't get too comfy with your longs here...

2008-12-19T10:13:00.000-08:00

The dramatic sell off in the VIX these past few weeks suggests that a lot of complacency and comfort is returning to the market very quickly (consistent with Larry Kudlow - perma bull behavior). IMO this VIX selloff and subsequent stock rally is because all the big institutions have closed up shop for 2008.

We have key support and a rising 200 day MA that will likely act as support for "fear and uncertainty". I know it seems stupid to apply TA to the VIX, which is tracks emotion/sentiment, but it's important to juxtapose how much people's emotions/sentiments are changing relative to their feelings a few weeks/months back.

Macro-wise, things have not gotten better in this market, yet the graph says stocks are comfortable with that news. I willing to believe and "bet" my money that this market is wrong and is clinging to false hopes (like "Barack the builder" or "2nd half 09 recovery") and will be gravely disappointed. Remember this market is irrational, short-sided and will be proven wrong (yet again) by a massive VIX rally in early 2009 that will retest the 80 level at least.

Bush's Economic legacy in...

2008-12-19T02:01:00.000-08:00

one chart:

And one quote:

Thanks to our policies, homeownership in America is at an all-time high. (Applause.) Tonight we set a new goal: seven million more affordable homes in the next 10 years so more American families will be able to open the door and say: Welcome to my home

"The road to hell is paved with good intentions."

No bond bubble here...

2008-12-18T14:16:00.000-08:00

Do yourself a favor and start nibbling at TBT...buy in small increments only (say 1/5 of a position today).

POSITION: Sold some NOV and bought some TBT @ $37 today. Oil's bubble has popped, treasuries are the next big game kill.

Some items I came across...

2008-12-18T13:05:00.000-08:00

Scouring the interwebs I found these VERY IMPORTANT pieces of data that should color your perceptions about this market because they have certainly not been "priced in" yet (Hat tip to 24/7 Wall Street):

On bank stocks and writedowns

Analyst Staite of Atlantic Equities downgraded Bank of America to "underweight" from "neutral" and Wells Fargo to "neutral" from "overweight." He believes that each firm will have to raise $10 billion to $15 billion. Having to come up with that kind of money could be remarkably expensive for current shareholders. Bank of America's market cap is $77 billion with a stock price of $17. Bringing in a huge sum of capital may have to be done below market and with warrant coverage. That would drive dilution of over 20% making BAC a $12 stock.

On Unemployment:

The Conference Board Employment Trends Index notes that the U.S. economy lost 1.9 million jobs, but more importantly the data suggests that job losses could pass 3 million jobs by mid-2009. And to add insult to injury, the report also notes that "the continued deterioration in the labor market will exert significant downward pressure on wages. But this data would also put unemployment well under the 8% hurdle (HENCE IT IS OPTIMISTIC IMO).

On "what inning we're in?"

Goldman Sachs (GS) said that the issues within the credit system were far from resolved. According to the AP, these analysts believe that "Now, about 18 months into the current crisis, the industry's reserves have doubled to 2 percent, and banks have taken half of the estimated $1.8 trillion in losses related to U.S. credit, the analysts said. This implies that we are now roughly half way through the credit crisis without including the impact of a new de-leveraged financial world. Goldman Sachs also expects government intervention and government "assistance" to continue into 2009.

What is interesting here, albeit something we have expected for some time, is that the crisis will migrate away from residential mortgages. Goldman Sachs believes that the next waves of trouble spots will come from consumer loans and corporate loans.

On a "Detroit Bailout" and it's affect on thos financial WMD's known as Credit Default Swaps.

Bailout or No bailout, the CDS's will likely be triggered. Banc of America Securities analyst Glen Taksler noted that the International Swaps and Derivatives Association, the trade group that acts as a standard-setter for credit-derivatives trading, says one trigger for a bankruptcy credit event is the appointment of an administrator, trustee or similar official to oversee all or most of an entity's assets

Between GM (GM) and Ford (F) there are almost $6 billion in net swaps outstanding.

Pfft! WHO CARES ABOUT ANOTHER $6 BILLION DOLLARS? PUHHHLEASE, NOT EVEN WORTH MY TIME.

On who gets hurt by new credit card regulation (of which I am IN favor of!)

Citigroup, Bank of America and JPMorgan Chase enjoyed almost 70 percent of the credit card market at the end of 2007, according to the Card Industry Directory.

Nobel Prize Winner Paul Krugman's fears may become a reality:

"A scenario I fear is that we'll see, for the whole world, an equivalent of Japan's lost decade, the 1990s -- that we'll see a world of zero interest rates,
deflation, no sign of recovery, and it will just go on for a very extended period."

UCLA Research backs Krugman's fears

The UCLA Anderson Forecast unit expects real GDP to shrink another 3.4 percent and 0.8percent in the first and second quarters of next year, respectively, as consumer and business spending weaken and as the foreign trade that had propped up growth much of this year sags.

"Because Europe and Japan are already in recession and China and India are suffering from a significant slowdown in growth, the export boom of the past few years will wane," the report said. "Make no mistake the global economy is in its first synchronized recession since the early 1990s."

By late 2009 the U.S. unemployment rate will hit 8.5 percent, as employers shed an additional two million jobs over the next year.

The Price is Right!!!

2008-12-18T10:54:00.000-08:00

The only thing more amazing than the guy's guess, is Drew Carey's complete lack of emotion.

Before I graduate I totally plan on taking a trip down to SoCal to see a taping of the Price is Right! My only regret is that Bob Barker is no longer hosting....he was a chiller!!!

Current asset allocation...

2008-12-17T23:02:00.000-08:00

FAZ (15% of portfolio)
SRS (15%)
APWR (20%)
GU (15%)
NOV (15%)
Cash (20%)

*Pretty neutral overall position, with slight long bias.

*I have a larger emphasis on China (via APWR and GU positions) because the FXI ETF (proxy indicator for China) is acting stronger technically than other indices like the SPY or IWM. Besides both stocks have very little debt, lots of cash, and very promising futures for the next 5 years.

*FYI, tomorrow we have some more jobs data. Also the VIX is nearing 45 (an important level of support - if emotions can be quantified with support/resistance line :-) This 45 support line makes me wary of getting too long this market. We also have some more bad news from the Big Three, as Chrysler just told all its employees not to come back to work until January 19th.

*Also GGP just announced that it received another debt extension until February 12th 2009....LMFAO!!! An extra 3 months doesn't change the reality that GGP owes $22 billion dollars in debt over the next 4 years. GGP needs a 3 year credit extension, not 3 months. WTF? Ultimately, this isn't a "game changer" I am still content with my SRS position.

P.S. I will never mention FXP ever again on this blog...it is now the ETF "that shall not be named."

Interesting late day selloff in GGP...

2008-12-17T14:32:00.001-08:00

I bought some SRS @ $57 at the close after seeing this stock action in General Growth Properties (GGP)

GGP is the second largest mall REIT in the U.S. (owns more than 200 malls) and is on the verge of bankruptcy anyday. When that day comes it will rock the CRE market to its core and send SRS flying higher. I am sure Zuckerman over at Boston Properties (BXP) will sh*t a brick when he sees GGP go under...just another nail in the coffin for real estate and investor confidence.

Neutral + Heavy cash position didn't pay off today...

2008-12-16T13:35:00.000-08:00

I lost a mere .25% today but I didn't get to participate in this rally. Boo hoo :-(

Frankly, I don't care because I knew coming in today that I had NO EDGE WHATSOEVER! Remember this game is rigged (very much like a casino) and I am not about to waste my money at a goddamn casino!

Disagree? Ok, let me ask you...Who the f**k knew that the market would shake off Goldman's terrible miss and bid it up 10 points today? Also, do you think this will be Goldman's only bad quarter? Given growing unemployment, lack of stabilization in credit, global growth slowdown, etc., aren't there more bad quarters to come from GS? Of course GS is VERY WELL connected to the government, so maybe they will survive...but once again, that's because the game is rigged.

Or what about the Fed meeting today. Everyone knew the Fed would do something "dramatic" with a massive cut so wasn't it already priced in? Apparently not. Of course, an important question is how is libor looking? Not good at all, last time I checked libor mattered a whole lot to the credit markets.

The biggest fear every investor on the sideline has is: "Oh no I missed the bottom."

I used to think that way all the time and that mindset will get you killed because picking a bottom is a fools game (albeit very enticing and lucrative).

Rather than looking in hindsight, you should care about the future events that will drive this market higher/lower. I have been and will continue to compile a list of events that I believe this market will "eventually" care about. I say eventually because I don't know when the "casino bosses and players" will wake up and decide that $2 trillion in credit card lines matter, or that 9% unemployment matters, or that the demise of the extravagant American way of life matters.

But I have gone out and educated myself on all these issues, and have made my decisions. Here they are: In the short term, I will continue to be mostly neutral, with an occasional long or short bias in my overall asset allocation. But my long term position is to short this motherf**king market down to the ground because I believe the FUTURE EVENTS that will arise will warrant it. There is no doubt that this type of transition will be difficult to pull off but I have enough confidence to say that "This was not the bottom" and that we shall see more pain ahead.

Cramer still thinks housing will bottom in 2009...sheesh

2008-12-15T11:36:00.000-08:00

and he wants a house in the Hamptons.

Until we get millions of mortgage modifications, a stabilization in credit markets, and a stabilization in jobless claims, Cramer can go f**k himself and his dream of a Hampton's home.

Until those criterion are met, I will trust Credit Suisse's call on the deteriorating housing market (8.1 million foreclosures by 2013).

For this economy the plug gets pulled...

2008-12-15T10:47:00.000-08:00

on Thursday

And as bad as it is, a revered, and feared, bank analyst, Oppenheimer’s Meredith Whitney, has now lobbed another bombshell: Credit card issuers will withdraw more than $2 trillion in available credit over the next 18 months.

Banks’ aversion to risk has obviously risen. So they’ve been closing accounts, raising rates and lowering limits. A reader sent us a letter from American Express announcing it was lowering his limit. Being late with a payment was not one of the reasons listed, but he was popped for using his card where other customers with poor payment histories shopped.

Thursday, the Federal
Reserve is expected to announce dramatic reforms in its credit card regulations. These are expected to prohibit increasing interest rates on existing balances, except in extreme cases.

(THIS MEANS BANKS WILL CHARGE HIGHER RATES UP FRONT - THUS REDUCING THE AVAILABILITY OF CREDIT...)

While reform is clearly warranted, the new regulations, according to the Fed, will result in credit card issuers reducing credit lines by $931 billion.

(HMMM...THE FED KNOWS IT'S ABOUT TO PULL $931 BILLION IN CREDIT OUT OF THE FINANCIAL SYSTEM. STRANGE CONSIDERING THEY ARE SIMULTANEOUSLY POURING IN THE $700 BILLION TARP FUNDS)

Whitney, who predicted the financial meltdown back in October 2007, doubles down on that number.

(I TRUST MEREDITH WHITNEY MORE THAN THE FED/TREASURY RIGHT NOW....SO $2 TRILLION DOLLARS IS THE CORRECT ESTIMATE ON CREDIT REDUCTION...NOT $931 BILLION)

That would be the modern-day equivalent of what most say caused the Great Depression.

Many economists believe the central bank’s restrictive monetary policy turned a market crash and recession into the Great Depression.

Fed Chairman Ben Bernanke has been pulling every lever in sight to avoid No. 2.

But until home prices stabilize, the market recovers and consumers start spending, recovery has as much chance as the yield on that T-bill auctioned last week.

Death by 1000 shoes.....R.I.P. AMERICA

2008-12-14T23:12:00.000-08:00

"Credit Suisse's fixed-income research team forecast 8.1 million mortgages will be in foreclosure over the next four years representing 16% of all mortgages."

Given these numbers no wonder guys are throwing shoes at our motherf*ing "idiot in chief:"

P.S. We should also be throwing shoes at every banking, auto, retail, and construction CEO is this country. Better yet, we should be throwing pink slips at them right now [Bush gets his in January...not soon enough :-(

Frankly alot of my crazy/revolutionary friends would prefer throwing more lethal objects at all their sorry asses for the pain they've inflicted.

In case you didn't watch Pulp Fiction this weekend...

2008-12-14T10:13:00.000-08:00

Another neutral day for the portfolio and surprisingly for the market...

2008-12-12T13:15:00.000-08:00

There was soooo much bad news for the markets today (stalled bailout plans for Detroit and Maddow defrauding investors out of billions) but amazingly the bulls fought their way back.

Essentially anyone who claims the have an edge in this market is full of sh*t (or they have Hank Paulson on speed dail). This market is being driven by so many factors its hard to keep track of them all, hence you cannot possibly know what to expect.

One thing is for sure, the news coming out is getting worse (eg: CA is bankrupt, Ecuador is bankrupt, unemployment surging nationally, BOA job cuts, credit card lines getting pulled, China/India slowdown, etc.) which means the "Wall of Worry" will eventually grow too large for the bulls to climb.

Considering the bulls' burden of proof is growing by the hour, I continue to remain overall bearish (we will remain in this primary downtrend, although our rate of descent may slow now). However, short term I will start liquidating my current neutral 50% long/50% short strategy in order to raise more cash (around 40%). That way when we stop churning in this range, I can pounce on the next big move (either up or down) because then I will have an edge.

Neutral market position pays off.

2008-12-11T14:16:00.000-08:00

This market continues to tease both the longs and shorts. IMO today's drop was because of the stalled GM/Ford bailouts (Congress will drag their feet, but they will ultimately pass the damn bill). All I know right now is that we have sliced through alot of support points on the XLF, SPY and IWM (the USO interestingly is still in tact but I am not optimistic).

I continue to remain market nuetral (50% long and 50% short)...fyi my portfolio was up .34% today so I feel good about my current allocation. Of course I will not become complacent...that got me into trouble last time.

Oil might be temporarily bottoming out here for the holidays...

2008-12-11T06:56:00.001-08:00

The USO (Oil ETF) just broke through overhead resistance @ $37.50. If it can close above it then I would say the short term downtrend is now broken and that oil prices will stabilize for the next several trading sessions (likely the rest of the year). Of course if $37.50 is not broken, the downtrend remains intact.

By the way, hat tip to Brian Shannon over at AlphaTrends for his enlightening posts on key technical support/resistance levels. Listen to Brian talk for 2 minutes and you can tell that he has "ice in his veins" when he trades (a real objective student of the markets). He's a very cool customer, kinda like these guys:

Positions: Long NOV, ATW, FWLT

Goldman betting against States and Muni's...

2008-12-11T00:59:00.000-08:00

Remember when Erin Burnett over at CNBC made the asinine suggestion that shorting financials (like Goldman, Citi, JP Morgan, etc.) was "Unpatriotic."

Well after reading what Goldman's been up to recently (advising its clients to buy CDS exposure against Municipalities...ie bet that states will go bankrupt) I wonder if Erin still stands by her very childish "unpatriotic" statement? Methinks not, but these CNBC personalities are truly shameless, that's why I came up with the logo:

I'll discuss this article and others in more detail, but I gotta go to sleep.

Memo to John Thain: Don't drop the soap!

2008-12-10T18:24:00.001-08:00

Luckily Thain came to his senses, realized that he didn't "deserve" a $10 million bonus, and most importantly STFU! Now if I were him, I'd get on a plane right now and head to a non-extradition country because he can and SHOULD be investigated for lying to MER shareholders (remember that 20% dilution back in July after telling shareholders MER didn't need $$$...whoops). I sure as hell remember, CRAMER REMEMBERS, and I am sure the SEC remembers!

Trade Mark over @ Fund My Fund just crushed my infra dreams...

2008-12-10T18:02:00.001-08:00

Here I was thinking FWLT/JEC/SGR/FLR/CBI/ABB would all triple in market cap in 2009 under an Obama Administration (he appears to be a big proponent of Keynesian economics). However, Trader Mark rudely pointed out that infra's future isn't as bright as my "Amateur" mind would believe. Nevertheless, I'll settle for a return to the old highs; looking at all the infra company charts, that would still be a 2x in one year ;-) Besides where else am I gonna park my long-bias money? Banks? Homebuilders? Retailers?

Hey Mark! Why you gotta focus on facts all the time??? Just drink some kool aid and take a nap

Asset allocation: neutral on this market

2008-12-10T08:23:00.000-08:00

we appear range bound with a slight upside bias (on account of the Holiday season, and optimism surrounding the new Obama administration). So with that said I will continue to balance out my longs (NOV, GFA, APWR, GU, FWLT, ATW) with my shorts (SRS, FAZ, and of course that bitch of an ETF known as FXP). So I am basically 50/50

When I say "range bound" I mean the bracket support/resistance levels are between
$82 - $93 on the SPY.

I wanna to be greedy this x-mas with FXP...

2008-12-08T06:53:00.000-08:00

I won't buy any more FXP until I see it hit sub $30. China will burn to the ground soon enough.

This is an Obama rally...last time I checked he ain't President for another 40 days. At least this market knows the cavalry is coming and that the Bush f&kups will be leaving office soon (but not fast enough to save this b.s. economy).

FINALS WEEK @ COLLEGE....

2008-12-08T01:05:00.000-08:00

I've got exams on Monday and Tuesday.

so no blogging.

Bulls=Spartans / Bears=Persians

2008-12-06T12:15:00.000-08:00

The outnumbered bulls are putting up a good fight

But they will meet their fate soon enough

In the VERY VERY LONG RUN the bulls will win this

No FXP x-mas present but it looks like this rally will BTFD...

2008-12-04T12:35:00.001-08:00

Added 10% of portfolio to SRS on account of GGP's impending bankruptcy. That will rock the commerical REIT market and send SRS soaring into the holidays with a 2 handle.

Now 45% short, 25% cash and 30% long.

An early X-mas present would be....

2008-12-03T12:46:00.000-08:00

FXP under $40.

If that happens I will put 50% of my portfolio into that ETF (currently 25%).

To those who ask "diversification?" I reply "Global Recession."

Asset allocation...

2008-12-02T08:08:00.000-08:00

Now I am:

50% long

25% Short (FXP trades so poorly, but I will buy the next bucket at $45 - will then become a 35% position as cash gets drawn down)

25% Cash

The final support leg holding up this market is at around $80.25 on the SPY. Should we break it we will retest the lows.

Off to class. Very busy day ahead so no more posts today, but here's an interesting/enlightening read.

Will take it very slow with TBT because of this guy...

2008-12-01T22:37:00.000-08:00

I mentioned earlier today that I am starting to nibble at TBT. Looking at these headlines, I will continue to be very cautious with building my position in this investment.

“This sets the stage for the Federal Reserve to be more formal in its adoption of quantitative easing,” said Vincent Reinhart, the Fed’s director of monetary affairs until last year and now a scholar at the American Enterprise Institute in Washington.

The Bank of Japan is the only major central bank in modern times to rely on quantitative easing -- the strategy of injecting more reserves into the banking system than needed to keep the target interest rate at zero.

Bank of Japan Governor Masaaki Shirakawa said in May that while the strategy “was very effective in stabilizing financial markets,” it had “limited impact” in remedying Japan’s economic stagnation because banks wouldn’t lend and companies wouldn’t borrow.

One option is for the Fed to buy “longer-term Treasury or agency securities on the open market in substantial quantities,” Bernanke said. “This approach might influence the yields on these securities, thus helping to spur aggregate demand.”

Looking at these headlines I am positive that Bernanke will bring 20-30 year bond yields down to 3.00% if not much lower. Hence I will likely add to TBT when it hits $35, $30 and $25. Of course, by the time TBT hits $25 Bernanke will likely be out as Fed Chairman. I mean why the f*ck would Obama keep this idiot around? Bernanke wrote a book about the Great Depression and yet he still couldn't see this sh*t coming even in 2007! Pathetic.

What inning is housing in? Looks like the 6th...

2008-12-01T19:27:00.000-08:00

With all this talk about rising unemployment, Citi's bailout, Detroit's potential bailout, China's massive economic slowdown, Black Friday, and the dwindling credit card securitization market, it appears we have forgotten about THE root cause for our financial system meltdown: Housing.

Now I am not an economist and I can't run dozens of regression, time series and stochastic models. However, I can discern and listen to the really smart economists who want to enlighten and share their knowledge with the world (ie the economists that don't regularly go on CNBC/FOX ;-). My careful screening (or "leaching" if you want to be affectionate about it) has led me to some research courtesy of Calculated Risk that sheds light on where we stand in the current housing cycle. The report uses historical price to rent and price to income levels to identify exactly what inning we are in:

Looking at the price-to-rent ratio based on the Case-Shiller index, the adjustment in the price-to-rent ratio is probably 60% to 70% complete as of Q3 2008 on a national basis. This ratio will probably continue to decline with some combination of falling prices, and perhaps, rising rents. The ratio may overshoot too.

Here is Calculated Risk's price to income metric:

Using national median income and house prices provides a gross overview of price-to-income (it would be better to do this analysis on a local area). However this does shows that the price-to-income is still too high, and that this ratio needs to fall another 15% or so. The further decline in this ratio could be a combination of falling house prices and/or rising nominal incomes (Note: this uses nominal incomes, and even if real incomes are stagnant or declining, nominal incomes usually are rising).
Last quarter this index was over 1.25. Now it is close to 1.2. At this pace the index will hit 1.0 in Q3 2009. However, during a recession, nominal household median incomes are usually stagnate - so it might take even longer.

Here is additional housing deterioration information from Mish's Global Economic Trend Analysis (via Case Schiller data)
regarding where we stand and how much further is left to go:

The Case-Shiller numbers are for September 2008 which do not reflect any of the market meltdown. Price declines in excess of 10% are now occurring nearly everywhere, although the median dollar declines are only above $100,000 in those markets that experienced extreme price appreciation (CA, AZ, NV, FL). The trading in the futures markets continues to reflect nominal price declines for the next 2-3 years with prices plateauing afterwards (they only price out 60 months forward.

Great quote...

2008-12-01T19:07:00.000-08:00

Journalist: "Given the amount of energy Americans consume per capita, how much it exceeds any other citizen in any other country in the world, do we need to correct our lifestyle?"

Ari Fleischer: "That's a big no. The president believes that's an American way of life."

I am sorry if I offended any one's political sensibilities just now.

TBT is getting crushed....

2008-12-01T12:10:00.000-08:00

It's down almost 5 days in a row (even though we saw [emphasis on past tense] a huge rally this past week...strange, no?). I will initiate a larger position in TBT (5%) with the ultimate goal of reaching 20% by end of December - who the hell would be stupid enough to lend their money to the U.S. Government for 20 years at 3% (that's where I expect this bubble to top out at and pop). We are currently at 3.35'ish.

Current Asset Allocation....

2008-12-01T09:00:00.001-08:00

45% long (half of this 45% are my long term value picks like GFA - so I will never go below 25% long in my portfolio)

20% short (Mainly FXP, which is acting like a total b*tch today...weak spike)

35% cash (we are stuck in a range on the SPY, IWM, and QQQQ's so I must wait for confirmation of the trend before I invest these funds), here's the game plan for my cash:

If we break $84.50 on the SPY ETF and hold below there for more than 30 minutes, I will move my cash into shorting this market (probably add more to FXP).

If you like the IWM more than the SPY than use $44 as your "Maginot" line of support for this market right now.

Peter Schiff on CNBC

2008-11-30T12:09:00.000-08:00

"We [US] blew all the [borrowed] money on consumption"

"We need to go back to a sane economy"

"I'd be buying dips in commodities"

These aren't merely "dips" but I agree with the sentiment

"A major run on the dollar" is coming

We have to pay for our imports. We like all these consumer products but how do we pay for them? We can't expect the world to produce this stuff and give them nothing in return

A good question. I frankly have no idea what America's largest exports are (I would guess ag). Of course, we used to be admired for our financial creativity and expertise but that's history.

"We manufactured our way into becoming the wealthiest economy in the world and now we've consumed our way into bankruptcy"

Early Sunday muzic....

2008-11-30T00:43:00.000-08:00

I need to go to fu**ing bed already.

Still a bear market but this rally could have legs...

2008-11-28T19:42:00.000-08:00

I am still expecting some resistance at the SPY 91.5-92.0 region and a pullback that will snap this rally's winning streak. With that said, the market is still down more than 35% YTD so I wouldn't be surprised to see this rally continue throughout the holiday season. Even some notable short sellers are getting exposure to the long side:

Well-regarded short-seller James Montier has "Never Been More Bullish" according to Bloomberg. So what is he buying? Let's review his shopping list.

S&P 500 stocks that Montier characterizes as “deep value opportunities” based on profit and dividend yields, debt levels and price relative to earnings, here is the list:

Allegheny Technologies Inc. (ATI)
Carnival Corp. (CCL)
Chevron Corp. (CVX)
ConocoPhillips (COP)
Cummins Inc. (CMI)
Dow Chemical Co. (DOW)
Gap Inc. (GPS)
Illinois Tool Works Inc. (ITW)
Ingersoll-Rand Co. (IR)
KLA-Tencor Corp. (KLAC)
Marathon Oil Corp. (MRO)
Molex Inc. (MOLX)
Nucor Corp. (NUE)
Tesoro Corp. (TSO)
Valero Energy Corp. (VLO)

Those tickers listed alone:
ATI,CCL, CVX, COP, CMI, DOW, GPS, ITW, IR, KLAC, MRO, MOLX, NUE, TSO, VLO

The Standard & Poor’s 500 Index is “distinctly cheap” because it trades for 15.4 times the 10-year moving average of its companies’ profits, compared with an average of 18 for the U.S. market since 1881, London-based Montier wrote in a research note today. Fifteen stocks in the U.S. index, from Chevron Corp. to Gap Inc., pass his test for “deep value,” while a tenth of shares in Europe and a fifth in Asia qualify.

What does $315 billion dollars look like?

2008-11-28T19:21:00.000-08:00

I was curious...

Hat Tip to designverb

Friday is Judgement day for GGP and Bill Ackman...

2008-11-28T00:03:00.000-08:00

I was kinda shocked when I read that Bill Ackman (a smart guy who's been on the right side of this financial debacle) took a position (albeit a tiny one) in GGP. In case you're unaware, GGP is a really crappy REIT, which also happens to be the 2nd largest mall owner in the country (not an auspicious sign for the country as a whole)

After the close yesterday, Bill Ackman's Pershing Square Capital hedge fund disclosed a 7.5% stake (20,080,690 shares) in embattled REIT General Growth Properties Inc. (NYSE: GGP).

Pershing Square purchased the subject shares and the swaps, for a total consideration of $9,261,789. Trading data reveled with the filing, showed the firm was buying common stock in the $0.35-$0.51 range in November. Shares of GGP closed at $1.00 yesterday, with a 52-week low recently set at $0.24.

Now the reason why I am shocked Ackman took any position in GGP was because of how crappy the company's prospects are. In fact Friday will determine whether GGP will get taken off life-support by its creditors:

General Growth, the No. 2 mall owner in the United States, has been in talks with lenders to extend $900 million in secured mortgages on two Las Vegas shopping centers, Fashion Show mall and Shoppes at the Palazzo. It also has another $58 million due Dec. 1 on a corporate debt for Rouse, a mall company General Growth bought in 2004.

In total, the company faces $1.035 billion in debt coming due before the end of the year. Failure to refinance or extend the $900 million by Friday would trigger an event of default under the company's senior credit facility and secured portfolio facility, General Growth said in the SEC filing.

Wait. It gets better for GGP....

Next year, the Chicago-based real estate investment trust, which has over 200 malls in 45 states, faces another $3.07 billion in debt maturing. All told, General Growth is staring at $21.9 billion of debt maturing by the end of 2012.

Of course if GGP goes down tomorrow the commercial real estate market will be scared sh*tless...maybe I should pick up some SRS...hmmmmm

Anything that happens with General Growth may send jitters through the $800 billion CMBS market, said Alan Todd, head of JP Morgan CMBS research.

If GGP gets a stay of execution and rallies hard then I will totally pick up some SRS because there is no way this company will make good on $21 billion of debt obligations by 2012.

P.S. DOES ANYONE FIND IT IRONIC THAT THE 2ND LARGEST MALL OWNER IN THE U.S. MIGHT DECLARE BANKRUPTCY ON BLACK FRIDAY (THE LARGEST SHOPPING DAY OF THE YEAR)????

More evidence that treasuries are becoming overvalued....

2008-11-27T21:25:00.000-08:00

Hat Tip to The Big Picture/Bloomberg for illustrating where we are at in terms of treasuries and stocks.

These are Barry's thoughts not mine (but I concur with most of them)
1) After a 47% freefall, Stocks have gotten relatively cheap, at least on the basis of this one metric;
2) Yields are unusually low, thanks to Fed rate cutting and a flight to safety (i.e., US Treasuries);
3) Despite the earnings carnage in the financial sector, there are many well run companies selling goods and services profitibly.
4) You can fake earnings through accounting hankypanky — but you cannot fake dividends.
5) My only caveat — if the recession is far deeper and more prolonged than even the most pessimistic forecast is for, some dividends may end up getting cut.

I am going to start nibbling at TBT but I still think 10 & 20 year yields will get pushed down some more on account of the ongoing "flight to safety" but in 2009 TBT will be a home run pick.

Happy Thanksgiving Everyone!!!

2008-11-27T13:50:00.000-08:00

Times are tough for everyone but we (ie the human race) can accomplish amazing things when faced with adversity. So enjoy tonight and be thankful for the people you currently have in your life. Be thankful for the risks that you have taken in life. I personally believe that in hindsight you will rarely regret the times you took a chance but you will always regret the times you did nothing. Make sure you do all this reflecting now because come next week the social-political-economical news will be still be depressing as hell and people will be going crazy

Hopefully these words will help you "keep your head when all others are losing theirs."

Methinks Nouriel Roubini would like TBT as a long term investment

2008-11-27T00:14:00.000-08:00

Just a hunch ;-)

Policies will lead to "much higher real interest rates on public debt:"

[T]he Fed, together with the Treasury, started to implement some of the “crazier” policy actions that we discussed last week: a) outright purchases of agency debt and MBS to the tune of a whopping $600 billion; b) another $200 billion of loans to backstop the consumer and small business credit markets (credit cards, auto loans, student loans, small business loans); c) an effective policy of aggressive quantitative easing as the balance sheet of the Fed – already grown from $800 billion to over $2 trillion.

Effectively the Fed Funds rate has been abandoned as a tool of monetary policy ... the Fed is now relying on massive quantitative easing and direct purchases of private sector short term and long term debts to try to aggressively push down short term and long term market rates.

Desperate times and desperate economic news require desperate policy actions ... The Treasury will be issuing in the next two years about $2 trillion of additional debt ... These policies – however partially necessary – will eventually leads to much higher real interest rates on the public debt and weaken the US dollar once this tsunami of implicit and explicit public liabilities and monetary debt driven by rising twin fiscal and current account deficits will hit a world where the global supply of savings is shrinking – as most countries moves to fiscal deficits thus reducing global savings – and foreign investors start to ponder the long term sustainability of the US domestic and external liabilities.

To continue to attract massive inflows of capital, the U.S. might have to start paying higher interest rates on the public debt. This is one of the concerns that Volcker (previous post) expressed in early 2005.

Trader Mark over at Fund My Mutual Fund has also been touting TBT as a compelling long term bet on the crumbling U.S. financial system (ie foreigners no longer willing to give the U.S. a "free ride" financially speaking)

This market is acting poorly and unless we regain S&P 770 in short order I can more downside, which could lead this trade to continue to work against those are in it. So I'm not going to begin a moderate position [in TBT] and then if the stock market recovers, the demand for bonds should ease. But if we have another crash upon a crash this will move against us.

There are also some very good reasons to own this for the very long run if you agree with some of our long term thesis - they span the same reasons that eventually the US dollar will crumble. As the US government layers on more debt, the risk to said government increases.

To compensate for said risk, creditors will demand higher yields - and prices shall fall. And we shall be creating many many treasuries in the US to pay for all the bailouts we still have to work through (I see at least a half a trillion "New Deal 2.0" stimulus plan coming in early 2009 on top of all the other measures we are doing)

So this has both short term and long term catalysts - however in the very short term as people avoid all risk, they are going to what they deem the safest thing on the planet, which they feel are US Treasuries.