Spain has been in the doldrums economically since their property bubble burst a few years ago, followed by the Great Global Financial Crisis. Deflation has taken hold there, and the downgrade of the creditworthiness of the Spanish government will raise external borrowing costs and therefore help create more deflation. Meanwhile, the need for certain over-leveraged economies that in some cases have citizens who hate to pay taxes to increase taxes or cut benefits while in general consuming less will subtract from world growth. Remember that Western Europe is aging and thus intrinsically slow-growing.
The U. S. is not really a safe haven. It just is quiescent. And, one never knows about a true bombshell coming out of somewhere (such as SIGTARP's investigations) or nowhere. This blog last year darkly summoned up the ghost of Watergate, a low-level burglary. It left the newspapers for quite some time and then-- poof!-- revelations started appearing and a President was gone, and a stock market low was made. The current probes are not at the Presidential level, but an action against Mr. Geithner would be quite disconcerting.
Thinking truly safe haven, one has to think gold mining stocks, even though their difficulties in producing enough gold are helping to power the bullion bull. Barrick was ahead of the curve years ago in hedging its output. Though late to the party, it is now unhedged. Today it reported fine earnings and great control of costs. It won't take much for it to have a truly strong chart; right now it is not as strong as gold bullion's chart. For those who think through to a true U. S. train wreck and recall the 1930s, gold mining shares were not affected though bullion was confiscated. So the gold in the ground story may start working again.
Gold is playing its contrarian role again, as it did through most of the 2007-8 crisis. If we come to a climactic liquidation phase of assets as occurred in the fall of 2008, all financial assets including gold will be involved, and gold stocks will almost certainly fare worse than the metal, but the markets are not acting that way at all.
The gold bull market looks to be stronger than the aging Treasury bull market.
Copyright (C) Long Lake LLC 2010
Wednesday, April 28, 2010
Tuesday, April 27, 2010
Domestic Ramifications of the Greek Tragedy
Gold but not silver up. Treasuries and the dollar up. But there will be no speculative attacks against gold, though there may be a squeeze on unallocated gold a la Hunt Bros circa 3 decades ago. Treasuries, though, are vulnerable, as the U. S. has moved to limit interest expense by going very, very short term on its debt issuance. It would only be fitting for the crisis that was made in America to end here.
Gold has moved above the technical barrier of $1160/ounce. It far outperformed the gold miners (GDX). This is more evidence of a move to safety.
This period now resembles the rolling crises of 1997-8. Ultimately the U. S. benefited from importing the Asian deflation (or so it seemed in 1999), but the average stock peaked then even though the averages had much farther to go.
This same dynamic may already have occurred. DuPont had a strong earnings report but succumbed to Greece et al. Steady Eddies such as WMT and MCD did fine.
The next days and weeks should be quite interesting and dangerous. Leveraged late-to-the-party stock bulls might be at risk.
Copyright (C) Long Lake LLC 2010
Gold has moved above the technical barrier of $1160/ounce. It far outperformed the gold miners (GDX). This is more evidence of a move to safety.
This period now resembles the rolling crises of 1997-8. Ultimately the U. S. benefited from importing the Asian deflation (or so it seemed in 1999), but the average stock peaked then even though the averages had much farther to go.
This same dynamic may already have occurred. DuPont had a strong earnings report but succumbed to Greece et al. Steady Eddies such as WMT and MCD did fine.
The next days and weeks should be quite interesting and dangerous. Leveraged late-to-the-party stock bulls might be at risk.
Copyright (C) Long Lake LLC 2010
Monday, April 26, 2010
Evans-Pritchard Opines
The columnist Ambrose Evans-Pritchard banged the gong often last year about dangers to Europe from the periphery of the European Monetary Union. Rising asset prices and staving off of a reply of the rapid downward spiral seen in the early 1930's led him to look like an alarmist. The rapid downward spiral seen in Greece this year, with worsening even today, makes him look better. His latest piece is titled Maastricht madhouse fuels EMU-wide contagion from Greece
His points are several and varied. The article is bite-sized and worth a read in its entirety and thus will not be excerpted here.
Gold is well into record price territory in Euro and British pound terms. Reflexively the USD relative strength has prevented that here. And if America were pursuing sound money policies, that currency strength would be well-deserved. Yet such is not the case. Wheels are turning.
Copyright (C) Long Lake LLC 2010
His points are several and varied. The article is bite-sized and worth a read in its entirety and thus will not be excerpted here.
Gold is well into record price territory in Euro and British pound terms. Reflexively the USD relative strength has prevented that here. And if America were pursuing sound money policies, that currency strength would be well-deserved. Yet such is not the case. Wheels are turning.
Copyright (C) Long Lake LLC 2010
Bloomberg Having no Trouble Finding Bulls. What a Difference a Year Makes!
In a piece of financial pornography masquerading as news rather than opinion, Bloomberg.com "reports" U.S. Stocks Cheapest Since 1990 on Analyst Estimates. It begins:
Even after the biggest rally since the 1930s, U.S. stocks remain the cheapest in two decades as the economy improves.
It ends:
“The earnings story is very supportive of the market even after the rally over the last year,” said Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., which oversees $1.4 trillion in client assets from San Francisco. “The recovery is real, it’s V-shaped and it’s got legs.”
(But what happens when the record combined monetary/fiscal stimuli end or merely diminish?)
In between one gets amazing sections as follows:
Concerns Are Past
“We’re in a time period where the concerns we had in 2007 and 2008 have been taken care of or are past,” Kenneth Fisher, who oversees about $40 billion as chairman of Fisher Investments in Woodside, California, said in a April 20 Bloomberg Television interview. “If you’re waiting for a market pullback or individual stock pullbacks, you could be waiting a long time.”
Or you get this straw man argument:
“The stock market is incredibly inexpensive,” said Kevin Rendino, who manages $11 billion in Plainsboro, New Jersey, for BlackRock, the world’s largest asset manager. “I don’t know how the bears can argue against how well corporations are doing.”
Obviously if Mr. Rendino manages the same assets and their market price simply rises 20%, his pay will rise even though the main driver is the traditional one - - price inflation.
There is a brief nod or two to what the reader is supposed to recognize as a blind bear, with no quote nearly as bearish as the rip-snortingly bullish comments scattered throughout. A reductio ad absurdum of the bullish tone is that it implies that anyone who is decreasing allocation stocks who does not need cash is obviously misquided.
I may have missed it in the article, which is not worth many rereads, but it emphasizes rapid earning gains. The fact that accounting changes for Big Finance plus multi-trillion dollar Fed and governmental support for said banks is responsible for most of said profit change is not mentioned. That Dr. Bernanke and a number of other Fed officials are less bullish than "V" advocate Ms. Sonders may be worth considering. Also not mentioned are the repeated findings from otherwise upbeat reports such as are emanating from the Empire State Manufacturing Survey that businesses are seeing input costs rise a good deal more noticeably than are selling prices; thus profit margins are being squeezed as oil and the like rise in price.
In another piece cut from the same cloth, Bloomberg announces the obvious in Big Banks Are Back as JPMorgan, Citigroup Turn Corner on Crisis. An example of the cheerleading and general idiocy of the piece comes in the third paragraph:
“This quarter is confirmation that credit has turned a corner,” said Charles Peabody, an analyst at New York-based Portales Partners LLC who assigns “buy” ratings to Bank of America and JPMorgan, and a “hold” to Citigroup. Peabody doesn’t cover Wells Fargo. “You’ve heard every CEO say credit has turned, and there is nothing to be gained for them by being overly optimistic.”
Well, no. There is much to be gained by CEOs gaming the system. What about rising stock prices as something to be gained? What about the strategy to have tapped-out consumers draw down savings once again? Etc.
The very title is laughable. There is a survivorship bias here. The banks that are "back" are not "back". They never left. They have been the recipients of unbelievable gifts from the authorities at the expense of massive money-printing, unfairly low rates paid to savers (who have issued no stocks to be pumped up by the Street), immense governmental deficits, etc.
Instead the article ascribes the business cycle to this success and minimizes the ongoing crisis in banks that didn't receive this sort of help and in fact were penalized by FDIC assessments:
While smaller U.S. lenders keep failing, pushing the Federal Deposit Insurance Corp.’s list of “problem” banks to a 17-year high, the largest are getting a lift from economic growth that’s helping consumers and businesses stay current on loan payments.
Whoop-de-doo! They are staying current. Well, sort of. Actually the numbers defaulting have stopped growing. Defaults are still plentiful. But you already see companies such as Wells and Goldman Sachs trading well above book value despite having unknown amounts of dodgy assets on their books as Level 3 assets.
The article ends with the same rah-rah quote with which the other article ends:
“A year ago we were in the middle of a financial panic, but these banks are looking forward,” said Gary Townsend, president of Hill-Townsend Capital, a Chevy Chase, Maryland- based investment firm with $50 million of holdings in financial companies. “The improvement is becoming quite pronounced.”
The powers that be should be discussing openly how the epidemic of mortgage and other fraud in the 1980s that brought down the S&L's worsened after a healing phase in the 1990s. By 2001 the FBI was already investigating this epidemic, but its priorities changed after 9/11. It probably was much more the alt-A ("liar's loans) modality that fueled the real estate boom, which became self-sustaining after a while and then needed the explosion of subprime lending to push the boom into the bubble phase.
As small investors see theis sort of headlines, it will be time for the smart money that has been accumulating or holding stocks while the individual investor has been gobbling up bond funds to start the distribution process.
Right now all financial instruments are expensive.
I continue to believe that a winning contrarian view is a healthy skepticism about the cheerleading while being in alignment with the Fed or the tape.
Two asset classes that remain in unbroken well-defined uptrends over the intermediate term are gold (and almost silver and platinum) and Treasuries. The latter looks extended and has massive supply; but as per Japan, who knows?
Gold's chart remains impeccable, and the more the Establishment flogs stocks and how wonderful and resilient the U. S. economy is even though there was a stock "panic", the more we are farther from all the Depression-era food line pictures of late 2008 and into a go-go time.
Caveat (and holder) emptor. They are feeding the quacking ducks with thin gruel. As the business cycle moves along toward the next peak, companies and industries with real assets and real staying power that have not been the recipients of extraordinary aid may be the best. Chubb (CB) is on the verge of a technical breakout, has 20% or so upside per conservative valuators of stocks, and yields almost 3% while retiring lots of stock and reporting rising book value; other insurers and reinsurers suffered no more than collateral damage during the downturn and represent some of the little reamaining fundamentally inexpensive stock groups remaining in this market that according to Andrew Smithers' version of q trades at a near-record high valuation.
Copyright (C) Long Lake LLC 2010
Even after the biggest rally since the 1930s, U.S. stocks remain the cheapest in two decades as the economy improves.
It ends:
“The earnings story is very supportive of the market even after the rally over the last year,” said Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., which oversees $1.4 trillion in client assets from San Francisco. “The recovery is real, it’s V-shaped and it’s got legs.”
(But what happens when the record combined monetary/fiscal stimuli end or merely diminish?)
In between one gets amazing sections as follows:
Concerns Are Past
“We’re in a time period where the concerns we had in 2007 and 2008 have been taken care of or are past,” Kenneth Fisher, who oversees about $40 billion as chairman of Fisher Investments in Woodside, California, said in a April 20 Bloomberg Television interview. “If you’re waiting for a market pullback or individual stock pullbacks, you could be waiting a long time.”
Or you get this straw man argument:
“The stock market is incredibly inexpensive,” said Kevin Rendino, who manages $11 billion in Plainsboro, New Jersey, for BlackRock, the world’s largest asset manager. “I don’t know how the bears can argue against how well corporations are doing.”
Obviously if Mr. Rendino manages the same assets and their market price simply rises 20%, his pay will rise even though the main driver is the traditional one - - price inflation.
There is a brief nod or two to what the reader is supposed to recognize as a blind bear, with no quote nearly as bearish as the rip-snortingly bullish comments scattered throughout. A reductio ad absurdum of the bullish tone is that it implies that anyone who is decreasing allocation stocks who does not need cash is obviously misquided.
I may have missed it in the article, which is not worth many rereads, but it emphasizes rapid earning gains. The fact that accounting changes for Big Finance plus multi-trillion dollar Fed and governmental support for said banks is responsible for most of said profit change is not mentioned. That Dr. Bernanke and a number of other Fed officials are less bullish than "V" advocate Ms. Sonders may be worth considering. Also not mentioned are the repeated findings from otherwise upbeat reports such as are emanating from the Empire State Manufacturing Survey that businesses are seeing input costs rise a good deal more noticeably than are selling prices; thus profit margins are being squeezed as oil and the like rise in price.
In another piece cut from the same cloth, Bloomberg announces the obvious in Big Banks Are Back as JPMorgan, Citigroup Turn Corner on Crisis. An example of the cheerleading and general idiocy of the piece comes in the third paragraph:
“This quarter is confirmation that credit has turned a corner,” said Charles Peabody, an analyst at New York-based Portales Partners LLC who assigns “buy” ratings to Bank of America and JPMorgan, and a “hold” to Citigroup. Peabody doesn’t cover Wells Fargo. “You’ve heard every CEO say credit has turned, and there is nothing to be gained for them by being overly optimistic.”
Well, no. There is much to be gained by CEOs gaming the system. What about rising stock prices as something to be gained? What about the strategy to have tapped-out consumers draw down savings once again? Etc.
The very title is laughable. There is a survivorship bias here. The banks that are "back" are not "back". They never left. They have been the recipients of unbelievable gifts from the authorities at the expense of massive money-printing, unfairly low rates paid to savers (who have issued no stocks to be pumped up by the Street), immense governmental deficits, etc.
Instead the article ascribes the business cycle to this success and minimizes the ongoing crisis in banks that didn't receive this sort of help and in fact were penalized by FDIC assessments:
While smaller U.S. lenders keep failing, pushing the Federal Deposit Insurance Corp.’s list of “problem” banks to a 17-year high, the largest are getting a lift from economic growth that’s helping consumers and businesses stay current on loan payments.
Whoop-de-doo! They are staying current. Well, sort of. Actually the numbers defaulting have stopped growing. Defaults are still plentiful. But you already see companies such as Wells and Goldman Sachs trading well above book value despite having unknown amounts of dodgy assets on their books as Level 3 assets.
The article ends with the same rah-rah quote with which the other article ends:
“A year ago we were in the middle of a financial panic, but these banks are looking forward,” said Gary Townsend, president of Hill-Townsend Capital, a Chevy Chase, Maryland- based investment firm with $50 million of holdings in financial companies. “The improvement is becoming quite pronounced.”
The powers that be should be discussing openly how the epidemic of mortgage and other fraud in the 1980s that brought down the S&L's worsened after a healing phase in the 1990s. By 2001 the FBI was already investigating this epidemic, but its priorities changed after 9/11. It probably was much more the alt-A ("liar's loans) modality that fueled the real estate boom, which became self-sustaining after a while and then needed the explosion of subprime lending to push the boom into the bubble phase.
As small investors see theis sort of headlines, it will be time for the smart money that has been accumulating or holding stocks while the individual investor has been gobbling up bond funds to start the distribution process.
Right now all financial instruments are expensive.
I continue to believe that a winning contrarian view is a healthy skepticism about the cheerleading while being in alignment with the Fed or the tape.
Two asset classes that remain in unbroken well-defined uptrends over the intermediate term are gold (and almost silver and platinum) and Treasuries. The latter looks extended and has massive supply; but as per Japan, who knows?
Gold's chart remains impeccable, and the more the Establishment flogs stocks and how wonderful and resilient the U. S. economy is even though there was a stock "panic", the more we are farther from all the Depression-era food line pictures of late 2008 and into a go-go time.
Caveat (and holder) emptor. They are feeding the quacking ducks with thin gruel. As the business cycle moves along toward the next peak, companies and industries with real assets and real staying power that have not been the recipients of extraordinary aid may be the best. Chubb (CB) is on the verge of a technical breakout, has 20% or so upside per conservative valuators of stocks, and yields almost 3% while retiring lots of stock and reporting rising book value; other insurers and reinsurers suffered no more than collateral damage during the downturn and represent some of the little reamaining fundamentally inexpensive stock groups remaining in this market that according to Andrew Smithers' version of q trades at a near-record high valuation.
Copyright (C) Long Lake LLC 2010
Sunday, April 25, 2010
Marc Faber Accuses the Obama Administration of Anti-Semitism
In an interview with Kitco News titled Gold Run Not Over, the Swiss economist Marc Faber (whose business base is, I believe, Hong Kong) states about the Goldman Sachs case in specific and Barack Obama in general that politics rules the roost now in a very substantial way:
Faber does not think the SEC charges against Goldman Sachs will have a very significant impact on the markets since the accusations are “purely politically motivated.”
“Obama has lost the trust of the people; his approval rating is worse than Bush at this stage in the presidency. When people are dissatisfied in a democracy - you go after a minority to target – in the case of America you go after Goldman Sachs because it is the symbol of Wall Street and excessive money creation and there is also a tone of anti-Semitism there.”
He implicitly compares the president to Hugo Chavez or a corrupt ruler of old:
“Mr. Obama will do everything he can to get re-elected and that may involve some very bad decisions. He is like a roman emperor; he just gives out bread to the mob and produces games and circuses.”
Faber has made some great calls. These include being bearish before the bursting of the Japan and NASDAQ bubble peaks, and the 2007-8 collapse; being bullish on gold for quite some time, and near the bottom of the bear market in 2008-9 for a substantial stock market rally within the confines of a longer-term bear market.
He remains bearish on paper currencies. He is contemptuous of the Fed:
Faber said that "as far as the eye can see, interest rates under Bernanke will stay at zero and below." He noted that the current Vice Chairman of the Fed , "Janet Yellen, another totally, ignorant economist, removed from any reality, said herself six months ago, ‘if I could implement interest rates below zero, I would do it.’ So now you know what the policy in the US will be,” Faber said.
Finally, he points out that as in FDR's administration, ownership of gold may not get an individual anywhere:
He also said that if gold prices substantially rise one day, there could be expropriation. “The Americans could force the Europeans to do the same – once they have all the gold in the world they would re-value it at $10,000 an ounce," Faber said.
It took about four decades after FDR stole the people's gold and defaulted on the U. S. government's WW I gold bonds for gold ownership to become legal in the U. S. (Ownership of numismatic gold coins and gold-related stocks remained legal.)
There's a lot to think about in this interview.
Copyright (C) Long Lake LLC 2010
Faber does not think the SEC charges against Goldman Sachs will have a very significant impact on the markets since the accusations are “purely politically motivated.”
“Obama has lost the trust of the people; his approval rating is worse than Bush at this stage in the presidency. When people are dissatisfied in a democracy - you go after a minority to target – in the case of America you go after Goldman Sachs because it is the symbol of Wall Street and excessive money creation and there is also a tone of anti-Semitism there.”
He implicitly compares the president to Hugo Chavez or a corrupt ruler of old:
“Mr. Obama will do everything he can to get re-elected and that may involve some very bad decisions. He is like a roman emperor; he just gives out bread to the mob and produces games and circuses.”
Faber has made some great calls. These include being bearish before the bursting of the Japan and NASDAQ bubble peaks, and the 2007-8 collapse; being bullish on gold for quite some time, and near the bottom of the bear market in 2008-9 for a substantial stock market rally within the confines of a longer-term bear market.
He remains bearish on paper currencies. He is contemptuous of the Fed:
Faber said that "as far as the eye can see, interest rates under Bernanke will stay at zero and below." He noted that the current Vice Chairman of the Fed , "Janet Yellen, another totally, ignorant economist, removed from any reality, said herself six months ago, ‘if I could implement interest rates below zero, I would do it.’ So now you know what the policy in the US will be,” Faber said.
Finally, he points out that as in FDR's administration, ownership of gold may not get an individual anywhere:
He also said that if gold prices substantially rise one day, there could be expropriation. “The Americans could force the Europeans to do the same – once they have all the gold in the world they would re-value it at $10,000 an ounce," Faber said.
It took about four decades after FDR stole the people's gold and defaulted on the U. S. government's WW I gold bonds for gold ownership to become legal in the U. S. (Ownership of numismatic gold coins and gold-related stocks remained legal.)
There's a lot to think about in this interview.
Copyright (C) Long Lake LLC 2010
Saturday, April 24, 2010
Snow Business
Deep in Fantasyland: White House touts GM loan repayment:
. . . the White House is trumpeting the news. Here's a blog post by chief White House economic adviser Larry Summers:
What a difference a year makes. Just about a year ago, the American auto industry was on the brink of collapse. Today, General Motors announced that it has repaid its $6.7 billion loan to the U.S. government in full five years ahead of schedule . . .
However, a more independent opinion comes from the man the Democrats appointed to oversee TARP, Neil Barofsky. A Google search of the topic brought me to Grassley Slams GM, Administration Over Loans Repaid With Bailout Money. Leaving the politics out of it, here is the meat:
But Barofsky told Fox News that while it's "somewhat good news," there's a big catch.
"I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn't from earnings. ... It's actually from another pool of TARP money that they've already received," he said Wednesday. "I don't think we should exaggerate it too much. Remember that the source of this money is just other TARP money."
Barofsky told the Senate Finance Committee the same thing Tuesday, and said the main way for the federal government to earn money out of GM would be through "a liquidation of its ownership interest."
A financial adviser named Nick Massey has a long, more thorough shredding of the Summers point of view in Don’t believe the hype on GM’s loan. repayment.
As with the heroic takeover of the alleged "city" of Marja, Afghanistan (really a collection of mud compounds), the shell game with Fannie/Freddie losses magically being transmuted like lead into gold of economic recovery, and the almost uncountable number of false statements made attendant to health care "reform", so with GM. As Hitler sings in "The Producers", with this administration (and a number of predecessors):
All you need to know is,
Everything is show biz.
But to paraphrase an even greater American than Melvin Kaminsky (AKA Mel Brooks), you can't snow all of the people all of the time.
After the disgraceful misdeeds and non-deeds of the Bush administration and the Fed attendant to the Great Financial Crisis, the public expected that the sober-sounding Barack Obama would immediately institute sound financial policies and make the perps pay. Instead we got the Bushbama Continuity of bailouts and money-printing and over a year after inauguration, a speculative stock market fueled by zero interest rates to savers, the return of leverage and omigosh, a sop to the peasants- a civil action against the whipping boy du jour by the Sex and Exchange Commission. Said civil action coincidentally announced on an options expiration Friday at the same time the news that the SEC under Presidents Clinton and Bush had ignored the Allen Stanford matter until post-Madoff it could ignore it no longer.
Don't believe anything anymore unless you read it in an independent blog.
Copyright (C) Long Lake LLC 2010
. . . the White House is trumpeting the news. Here's a blog post by chief White House economic adviser Larry Summers:
What a difference a year makes. Just about a year ago, the American auto industry was on the brink of collapse. Today, General Motors announced that it has repaid its $6.7 billion loan to the U.S. government in full five years ahead of schedule . . .
However, a more independent opinion comes from the man the Democrats appointed to oversee TARP, Neil Barofsky. A Google search of the topic brought me to Grassley Slams GM, Administration Over Loans Repaid With Bailout Money. Leaving the politics out of it, here is the meat:
But Barofsky told Fox News that while it's "somewhat good news," there's a big catch.
"I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn't from earnings. ... It's actually from another pool of TARP money that they've already received," he said Wednesday. "I don't think we should exaggerate it too much. Remember that the source of this money is just other TARP money."
Barofsky told the Senate Finance Committee the same thing Tuesday, and said the main way for the federal government to earn money out of GM would be through "a liquidation of its ownership interest."
A financial adviser named Nick Massey has a long, more thorough shredding of the Summers point of view in Don’t believe the hype on GM’s loan. repayment.
As with the heroic takeover of the alleged "city" of Marja, Afghanistan (really a collection of mud compounds), the shell game with Fannie/Freddie losses magically being transmuted like lead into gold of economic recovery, and the almost uncountable number of false statements made attendant to health care "reform", so with GM. As Hitler sings in "The Producers", with this administration (and a number of predecessors):
All you need to know is,
Everything is show biz.
But to paraphrase an even greater American than Melvin Kaminsky (AKA Mel Brooks), you can't snow all of the people all of the time.
After the disgraceful misdeeds and non-deeds of the Bush administration and the Fed attendant to the Great Financial Crisis, the public expected that the sober-sounding Barack Obama would immediately institute sound financial policies and make the perps pay. Instead we got the Bushbama Continuity of bailouts and money-printing and over a year after inauguration, a speculative stock market fueled by zero interest rates to savers, the return of leverage and omigosh, a sop to the peasants- a civil action against the whipping boy du jour by the Sex and Exchange Commission. Said civil action coincidentally announced on an options expiration Friday at the same time the news that the SEC under Presidents Clinton and Bush had ignored the Allen Stanford matter until post-Madoff it could ignore it no longer.
Don't believe anything anymore unless you read it in an independent blog.
Copyright (C) Long Lake LLC 2010
Thursday, April 22, 2010
Beware! Greeks Are not Alone
From Eurointelligence today, THE CRISIS IS SPREADING TO PORTUGAL:
Investors are beginning to doubt whether the Greek rescue will be sufficient, according to the Financial Times, amid doubts that another package stands any political chance, given the uproar in Germany over the current package. The paper quotes Thomas Mayer of Deutsche Bank as saying: “I hope that I am wrong, but I fear that by the end of the year, they will find out that Greece needs a lot more money for 2011 and 2012, and that we will have serious problems getting another package through.”
These and similar fears were reflected on the financial markets yesterday, where Greek 10 year bond yields exceeded 8%, which makes a trigger of the EU/IMF package imminent.
In the meantime, the crisis is starting to spread to Portugal, the next weakest part of the eurozone’s house of cards. The finance minister, George Papaconstantinou, said yesterday that the formal request for aid might occur even before the end of negotiations with the EU/IMF delegation, which began yesterday, and is expect to take two weeks.
Portguese bond yields have been coming under additional pressure, with 10 year yields up to 4.77%, about 1.7pp high than Germany’s. El Pais picks on the IMF’s latest forecasts, in the Global Economic Outlook (more below) for Portugal, which show a strong downward revision for 2010 (to 0.3%). The report also mentioned that Portugal will miss the targets set out in its stability report. At the end of this year, the IMF calculated, Portugal will have a deficit-to-GDP ratio of 8.7%, while the deficit reduction will then proceed only at snail’s pace. In other words, the IMF believes that the stability programme of PM Jose Sokrates is a joke. (The Commission believes the same, and has recently asked Sokrates to make bigger efforts).
Media Conspiracies
Incidently, the Portguese business press, is full of stories this morning telling us that this contagion is not justified, citing anybody who defends up Portugal (Commerzbank for example, which says that contagion has no fundamental justification), while severely criticising those who say a negative word about their country. We observed the same phenomenon in the early stages of the Greek crisis, which was regarded initially as some foreign, or rather anglo-saxon plot against the country.
This is sounding like 1997-98, with rolling currency/debt crises. Then, the NATO countries were impregnable and imported deflation, helping to keep the boom alive. The same is happening now in the U. S., but then we were running governmental cash surpluses and had just won the Cold War and the Iraq War.
Yesterday in the markets, it appeared as if it were that era as well. The average stock per the Value Line Index peaked in 1997-8; a narrowing group of favored stocks led the averages higher into the 2000 ultimate peak. The same thing may be happening now; retailers were strong, drugs and financials weak. Gold rose along with the dollar and the long Treasury. This is getting interesting.
Meanwhile, the first stock I chose to re-enter the stock market with in spring 2009, McDonald's, traded horribly for months, basically tracking the long bond. Now, however, it looks like a star. It is by my count the only Dow Industrial at an all-time high. It beat earnings and sales expectations in reporting Q1 yesterday. It is neither cheap nor expensive, has enough skepticism to convert lots of non-holders to be stockholders, and appears to be gaining share in its market segment, which itself has been pressured the past 2 years and thus may see its own rebound.
The pattern is that MCD, DLTR, TJX and ROST are market leaders with strong but not overextended charts and rising earnings estimates. They are subject to bouts of profit-taking at any time, but every stockholder is happy and will tend either to dump high-flyers or underperformers during feared or ongoing market corrections rather than what for now are good actors reading from an upbeat script.
Bigger picture: What is different between the policies of the Greek government from that of the U. S.? And thus why does not the U. S. end up like Greece?
Thus we have the Scylla of the Japan scenario and the Charybdis of the Greek scenario. It's all about mise-en-scene.
This reality show bears watching.
Copyright (C) Long Lake LLC 2010
Investors are beginning to doubt whether the Greek rescue will be sufficient, according to the Financial Times, amid doubts that another package stands any political chance, given the uproar in Germany over the current package. The paper quotes Thomas Mayer of Deutsche Bank as saying: “I hope that I am wrong, but I fear that by the end of the year, they will find out that Greece needs a lot more money for 2011 and 2012, and that we will have serious problems getting another package through.”
These and similar fears were reflected on the financial markets yesterday, where Greek 10 year bond yields exceeded 8%, which makes a trigger of the EU/IMF package imminent.
In the meantime, the crisis is starting to spread to Portugal, the next weakest part of the eurozone’s house of cards. The finance minister, George Papaconstantinou, said yesterday that the formal request for aid might occur even before the end of negotiations with the EU/IMF delegation, which began yesterday, and is expect to take two weeks.
Portguese bond yields have been coming under additional pressure, with 10 year yields up to 4.77%, about 1.7pp high than Germany’s. El Pais picks on the IMF’s latest forecasts, in the Global Economic Outlook (more below) for Portugal, which show a strong downward revision for 2010 (to 0.3%). The report also mentioned that Portugal will miss the targets set out in its stability report. At the end of this year, the IMF calculated, Portugal will have a deficit-to-GDP ratio of 8.7%, while the deficit reduction will then proceed only at snail’s pace. In other words, the IMF believes that the stability programme of PM Jose Sokrates is a joke. (The Commission believes the same, and has recently asked Sokrates to make bigger efforts).
Media Conspiracies
Incidently, the Portguese business press, is full of stories this morning telling us that this contagion is not justified, citing anybody who defends up Portugal (Commerzbank for example, which says that contagion has no fundamental justification), while severely criticising those who say a negative word about their country. We observed the same phenomenon in the early stages of the Greek crisis, which was regarded initially as some foreign, or rather anglo-saxon plot against the country.
This is sounding like 1997-98, with rolling currency/debt crises. Then, the NATO countries were impregnable and imported deflation, helping to keep the boom alive. The same is happening now in the U. S., but then we were running governmental cash surpluses and had just won the Cold War and the Iraq War.
Yesterday in the markets, it appeared as if it were that era as well. The average stock per the Value Line Index peaked in 1997-8; a narrowing group of favored stocks led the averages higher into the 2000 ultimate peak. The same thing may be happening now; retailers were strong, drugs and financials weak. Gold rose along with the dollar and the long Treasury. This is getting interesting.
Meanwhile, the first stock I chose to re-enter the stock market with in spring 2009, McDonald's, traded horribly for months, basically tracking the long bond. Now, however, it looks like a star. It is by my count the only Dow Industrial at an all-time high. It beat earnings and sales expectations in reporting Q1 yesterday. It is neither cheap nor expensive, has enough skepticism to convert lots of non-holders to be stockholders, and appears to be gaining share in its market segment, which itself has been pressured the past 2 years and thus may see its own rebound.
The pattern is that MCD, DLTR, TJX and ROST are market leaders with strong but not overextended charts and rising earnings estimates. They are subject to bouts of profit-taking at any time, but every stockholder is happy and will tend either to dump high-flyers or underperformers during feared or ongoing market corrections rather than what for now are good actors reading from an upbeat script.
Bigger picture: What is different between the policies of the Greek government from that of the U. S.? And thus why does not the U. S. end up like Greece?
Thus we have the Scylla of the Japan scenario and the Charybdis of the Greek scenario. It's all about mise-en-scene.
This reality show bears watching.
Copyright (C) Long Lake LLC 2010
Wednesday, April 21, 2010
Don't Cry for Me, A-Me-Ri-Ca
Richard Rahn is questioning, Could the U.S. become Argentina?
Well, literally, not really. That name is taken.
But please read the article anyway. Please read it in conjunction with Mish's post today devoted to Wm Black's testimony to Congress, Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman's Bad Assets by Senior Regulator During the S&L Crisis.
A take-home message for me in the Mish post, enhanced by reading the entire Black testimony (linked to in the post), is that the Lehman fraud began in the late 1990s. It began well before any price bubble had occurred in housing and long before subprime mortgages were consequential in number. Thus if one were aware of that problem, one would have looked more and more askance at the boom of the 2000s.
What early warning for the next bust do we have?
The obvious culprit is cascading Federal debt and other promises as the U. S. morphs more and more into a command and control economy. The Federal assumption of Fannie and Freddie liabilities and the general increase in the stated deficit is now done with absolutely no pretense that this debt will ever be paid down. The question is rollover capability.
This is not promising, as the Obama administration continues to go very short term in debt issuance.
There is no way to know what inflation and deflation outcomes there will be, however, but if one invested in Argentine debt during upturns in the economy, one still ended up with an unserious borrower. The same goes for Greece.
If Argentina can survive and issue more debt while stiffing its creditors and ruining its savers with massive devaluation(s), why would a far more powerful country such as the U. S. not ultimately take those same actions?
Copyright (C) Long Lake LLC 2010
Well, literally, not really. That name is taken.
But please read the article anyway. Please read it in conjunction with Mish's post today devoted to Wm Black's testimony to Congress, Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman's Bad Assets by Senior Regulator During the S&L Crisis.
A take-home message for me in the Mish post, enhanced by reading the entire Black testimony (linked to in the post), is that the Lehman fraud began in the late 1990s. It began well before any price bubble had occurred in housing and long before subprime mortgages were consequential in number. Thus if one were aware of that problem, one would have looked more and more askance at the boom of the 2000s.
What early warning for the next bust do we have?
The obvious culprit is cascading Federal debt and other promises as the U. S. morphs more and more into a command and control economy. The Federal assumption of Fannie and Freddie liabilities and the general increase in the stated deficit is now done with absolutely no pretense that this debt will ever be paid down. The question is rollover capability.
This is not promising, as the Obama administration continues to go very short term in debt issuance.
There is no way to know what inflation and deflation outcomes there will be, however, but if one invested in Argentine debt during upturns in the economy, one still ended up with an unserious borrower. The same goes for Greece.
If Argentina can survive and issue more debt while stiffing its creditors and ruining its savers with massive devaluation(s), why would a far more powerful country such as the U. S. not ultimately take those same actions?
Copyright (C) Long Lake LLC 2010
Tuesday, April 20, 2010
SIGTARP on Housing: Exposing the "One-Off" Shell Game
The special inspector general for TARP, appointed by Democrats, is reported in "The Hill" as saying:
The administration program, "risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results," the report said.
Last month, "The Hill" also reported that Mr. Barofsky said:
The Obama administration's $75 billion program to help homeowners risks failure by, "merely spreading out the foreclosure crisis," a top government watchdog said Tuesday.
The profits and economic recovery is happening in part simply from the government bailouts of Fannie and Freddie, abetted to an unmeasurable degree by people walking away from debts in favor of spending money elsewhere. Just as corporations claim "one-time" non-recurring expenses that nonetheless hit the assets statement, the government wants us to believe that these socialized housing expenses are one-off expenses, but the private sector's performance is the real deal. A "sustainable" recovery is the MSM's current buzzword. Believe all this one-time stuff if it you will. I don't.
Copyright (C) Long Lake LLC 2010
The administration program, "risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results," the report said.
Last month, "The Hill" also reported that Mr. Barofsky said:
The Obama administration's $75 billion program to help homeowners risks failure by, "merely spreading out the foreclosure crisis," a top government watchdog said Tuesday.
The profits and economic recovery is happening in part simply from the government bailouts of Fannie and Freddie, abetted to an unmeasurable degree by people walking away from debts in favor of spending money elsewhere. Just as corporations claim "one-time" non-recurring expenses that nonetheless hit the assets statement, the government wants us to believe that these socialized housing expenses are one-off expenses, but the private sector's performance is the real deal. A "sustainable" recovery is the MSM's current buzzword. Believe all this one-time stuff if it you will. I don't.
Copyright (C) Long Lake LLC 2010
Prices Surging in Britain Likely Foreshadow the Same in the U. S.
Bloomberg.com reports that U.K. March Inflation Accelerates More Than Forecast. Here are some details:
Consumer prices climbed 3.4 percent from a year earlier, compared with a 3 percent increase in February, the Office for National Statistics said in London today. . . On the month, prices increased 0.6 percent. . .
“We have upward pressures from commodity prices and we have yet to see full impact of past weakness of sterling filtering through,” Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam and a former U.K. Treasury official, said in a telephone interview. “We’re going to see above target inflation persisting in coming months and our base case is for the Bank of England to raise its rate in August.” . . .
Inflation accelerated due to higher prices for gas, fuel, air transport and food, the statistics office said. Transport costs rose 11.3 percent in March from a year earlier, the most since the series began in 1997. Overall inflation has exceeded the central bank’s 2 percent target for the last four months. . .
Core inflation, which excludes costs of energy, food, alcohol and tobacco, unexpectedly accelerated to 3 percent in March from 2.9 percent in February.
The U. S. has been following the same policies following the same sort of housing-centric financial bust as the U. K. The U. S. leading economic indicators were reported yesterday to be at a record, and up more than anticipated. Fed and Federal economic policies remain pro-growth. Why should we not expect the same sort of price increases here that Britain is now seeing?
To that end, gold is rebounding on schedule from its options expiration swan dive two trading days ago. Growth precious metals such as silver and platinum are up more than gold on a percentage basis. Over a full boom-bust cycle, structurally gold is signaling that it will end up stronger than those metals, which are already up much more from their 2008 lows than is gold. Short-to-intermediate term, however, gold:silver and gold:platinum ratios on a 5-10 years trading basis favor silver and gold.
In the 2009 book "Animal Spirits" by Akerlof and Shiller (Democrats), these noted economists continue to promote the benefits of price illusion in keeping the proletariat content. In other words, a wage increase of 2% with general price increases of 4% is supposed to be better accepted by the great unwashed than a wage decrease of 1% and a general price increase of 1%.
This is of course absolutely true for debtors when the principal is unadjusted for inflation. The problem of course is the floating interest rate and the general need of U. S. debtors to stay in debt; thus in effect the principal tends to float as well.
The main point though is that government policy is favoring inflation from a variety of directions. Interest rate increases are coming. The longer they are delayed, the more the precious metals have a tailwind.
Copyright (C) Long Lake LLC 2010
Consumer prices climbed 3.4 percent from a year earlier, compared with a 3 percent increase in February, the Office for National Statistics said in London today. . . On the month, prices increased 0.6 percent. . .
“We have upward pressures from commodity prices and we have yet to see full impact of past weakness of sterling filtering through,” Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam and a former U.K. Treasury official, said in a telephone interview. “We’re going to see above target inflation persisting in coming months and our base case is for the Bank of England to raise its rate in August.” . . .
Inflation accelerated due to higher prices for gas, fuel, air transport and food, the statistics office said. Transport costs rose 11.3 percent in March from a year earlier, the most since the series began in 1997. Overall inflation has exceeded the central bank’s 2 percent target for the last four months. . .
Core inflation, which excludes costs of energy, food, alcohol and tobacco, unexpectedly accelerated to 3 percent in March from 2.9 percent in February.
The U. S. has been following the same policies following the same sort of housing-centric financial bust as the U. K. The U. S. leading economic indicators were reported yesterday to be at a record, and up more than anticipated. Fed and Federal economic policies remain pro-growth. Why should we not expect the same sort of price increases here that Britain is now seeing?
To that end, gold is rebounding on schedule from its options expiration swan dive two trading days ago. Growth precious metals such as silver and platinum are up more than gold on a percentage basis. Over a full boom-bust cycle, structurally gold is signaling that it will end up stronger than those metals, which are already up much more from their 2008 lows than is gold. Short-to-intermediate term, however, gold:silver and gold:platinum ratios on a 5-10 years trading basis favor silver and gold.
In the 2009 book "Animal Spirits" by Akerlof and Shiller (Democrats), these noted economists continue to promote the benefits of price illusion in keeping the proletariat content. In other words, a wage increase of 2% with general price increases of 4% is supposed to be better accepted by the great unwashed than a wage decrease of 1% and a general price increase of 1%.
This is of course absolutely true for debtors when the principal is unadjusted for inflation. The problem of course is the floating interest rate and the general need of U. S. debtors to stay in debt; thus in effect the principal tends to float as well.
The main point though is that government policy is favoring inflation from a variety of directions. Interest rate increases are coming. The longer they are delayed, the more the precious metals have a tailwind.
Copyright (C) Long Lake LLC 2010
Monday, April 19, 2010
Chartology
Look at the one and two year charts that are chosen as examples of companies that at first appear to have similar charts but that are truly different, wherein the longer-term chart shows which company is doing well and which is merely snapping back after a multi-year decline (not shown). Ignore the moving averages lines. Not so different, correct?Consider the same charts on a 2-year basis, and you will see where money has been attracted. I suspect that this trend is your friend.
The market likes TJX, which has rising sales and earnings in this difficult economic time. The market does not like Pfizer (PFE), which is seeing declining earnings estimates, cut the dividend it pumped up a few years earlier and needed a large acquisition of Wyeth to keep earnings as high as they are (by stripping massive operating costs from the WYE operations).
PFE was down last week. TJX was up. Even the politics favors TJX. Tax and transfer payment policy in the US favors its value-conscious customer. Pfizer got in bed with Team Obama re healthcare reform, but does anyone think brand drug companies are going to be beloved by the powers that be for long?
When looking at stocks, look at charts of various duration. Reasonably valued companies with strong chart patterns make sense most of the time. After massive trending moves as occurred by late 2008/early 2009, whipsaws do occur. Most of the time, bodies in motion tend to stay in motion in the same direction.
Copyright (C) Long Lake LLC 2010
Sunday, April 18, 2010
Why Are We in Afghanistan?
Ninety-Four Percent of Kandaharis Want Peace Talks, Not War is the title of a piece that makes a strong case that Barack Obama is a deliberate war-monger in Afghanistan. Even only polling non-Taliban-controlled areas proved a few months ago that the people prefer the Taliban to the Karzai government, and they likely prefer the Karzai crowd to us. So much for the Peace Prize.
The U. S. have lived for years in a world with a lot of enemies and even more "bad guys". But until now, we haven't gone after them. The latest Iraq war at least had the virtue of overthrowing a hated leader who had engaged in an unprovoked war several years earlier on some of our allies. So far as we can tell, though, the Taliban are now an indigenous force in Afghanistan. It looks as though the "foreigners" are in Pakistan.
Sometimes you just have to suck it up. Let's rebuild Detroit rather than destroy and then rebuild Kandahar or bring "progress" to Marja--such as roads and electricity.
When you have no one in the country you are fighting for, either you have little reason to engage in a protracted war or you have to plan to take control for a long time. Mr. Obama perhaps believes that his popularity in certain parts of the world is enough to make the Afghans turn against the Taliban and toward us and our favored group. Quite a gamble. And meanwhile the deficits keep mounting.
Copyright (C) Long Lake 2010
The U. S. have lived for years in a world with a lot of enemies and even more "bad guys". But until now, we haven't gone after them. The latest Iraq war at least had the virtue of overthrowing a hated leader who had engaged in an unprovoked war several years earlier on some of our allies. So far as we can tell, though, the Taliban are now an indigenous force in Afghanistan. It looks as though the "foreigners" are in Pakistan.
Sometimes you just have to suck it up. Let's rebuild Detroit rather than destroy and then rebuild Kandahar or bring "progress" to Marja--such as roads and electricity.
When you have no one in the country you are fighting for, either you have little reason to engage in a protracted war or you have to plan to take control for a long time. Mr. Obama perhaps believes that his popularity in certain parts of the world is enough to make the Afghans turn against the Taliban and toward us and our favored group. Quite a gamble. And meanwhile the deficits keep mounting.
Copyright (C) Long Lake 2010
Too Much Debt, Too Much Trading
Transitory matters such as an SEC wrist-slap civil action against a bank or a volcanic explosion in Iceland can lead to reflection on larger matters. The Goldman Sachs complaint by the SEC involves a credit default swap (CDS) on mortgage-related products. As Paul Volcker has opined, this sort of "innovation" or "technology" may be useless.
I am thinking that we would all be better off with the financial products equivalent of the FDA. Let a product be demonstrated to be both safe and effective before being marketed interstate or internationally. The simplest solution is to ban CDS and let insurance companies prepare such a product as an insurance product per se, with identical regulation and reserve requirements as any other insurance product.
Other, older "innovations" are harmful. Most oil should be marketed under long-term fixed-price contracts, though shipping costs would be subject to the free market, and of course inflation/deflation clauses could be involved. After all, pumping costs of discovered oil fields are known and stable. Instead we saw in 2008 the price of oil soaring to $145 per bbl and in half a year plunging below $35. How can it be a good thing that this could occur? How is it even possible, absent supply disruptions such as from war that would send the price skyrocketing? There was no force majeure, though. Year after year, the oil traders in essence take a vigorish that belongs in the pockets of producers and consumers alike.
Who has benefited from the debt explosion the past decades? The first and greatest beneficiaries are the purveyors and traders/repackagers of the debt. Thus Japan keeps selling more and more government bonds, beyond any comprehension given that doing so has not led to any obvious benefit for their economy. Yet it keeps doing so. The US public is suggested that it does so to "fight deflation". As if lower prices are not good things for a trading country.
In the US post-Civil War, the advent of industrial processes applied to farming and manufacturing, plus cheap rail access to the mineral and other wealth of the West, deflation was the order of the day, as was a general trend toward much higher living standards.
As went Japan, so went the US and the UK. It is the bankers who benefit from all the government debt. And if the debt ultimately needs restructuring, they benefit from that as well. Those who purchase the debt may or may not benefit. If the purchaser is an insurance company, it purchases the debt simply so that it can sell an insurance product at a spread profit. If the purchaser is a central bank, then the purchase may well be for political reasons. But those who sell and endlessly resell the swelling amount of debt-- whether it be on houses (mortgages) or direct claims on the Treasury-- continue to benefit from the Bushbama Continuity on bailouts and the like.
We need more equity and less debt in society. Ultimately, traders' pricing and mispricing of securities notwithstanding, investors should be in honest situations where those who price securities actually own them for real rather than acting as middlemen or, even worse, "analysts" who cleverly are forced to disclose they have no ownership of what they recommend. Far better that a bullish analyst own the security recommended and be prohibited from selling for the time frame of the recommendation. And the opposite for a bear.
Fundamentally, the allure of alternative investments ranging from precious metals to lumber is that they are what they are. You don't need an analyst to evaluate whether Oracle is going to make money from the Sun Microsystems purchase. Thus the sell-off in gold on Friday concomitant with the Goldman news appears misplaced. Was the Friday announcement on options expiration day part of market manipulation on the SEC's part, the same SEC that is now known to have sat on the Allen Stanford scam for many, many years? (Not to mention Madoff.) Considering that the pros very recently added numerous short positions in gold futures recently, one has to take this possibility seriously. It is becoming less and less of a fringe position, I believe, considering the growing evidence of governmental involvement in the bubble and cover-up.
Copyright (C) Long Lake LLC 2010
I am thinking that we would all be better off with the financial products equivalent of the FDA. Let a product be demonstrated to be both safe and effective before being marketed interstate or internationally. The simplest solution is to ban CDS and let insurance companies prepare such a product as an insurance product per se, with identical regulation and reserve requirements as any other insurance product.
Other, older "innovations" are harmful. Most oil should be marketed under long-term fixed-price contracts, though shipping costs would be subject to the free market, and of course inflation/deflation clauses could be involved. After all, pumping costs of discovered oil fields are known and stable. Instead we saw in 2008 the price of oil soaring to $145 per bbl and in half a year plunging below $35. How can it be a good thing that this could occur? How is it even possible, absent supply disruptions such as from war that would send the price skyrocketing? There was no force majeure, though. Year after year, the oil traders in essence take a vigorish that belongs in the pockets of producers and consumers alike.
Who has benefited from the debt explosion the past decades? The first and greatest beneficiaries are the purveyors and traders/repackagers of the debt. Thus Japan keeps selling more and more government bonds, beyond any comprehension given that doing so has not led to any obvious benefit for their economy. Yet it keeps doing so. The US public is suggested that it does so to "fight deflation". As if lower prices are not good things for a trading country.
In the US post-Civil War, the advent of industrial processes applied to farming and manufacturing, plus cheap rail access to the mineral and other wealth of the West, deflation was the order of the day, as was a general trend toward much higher living standards.
As went Japan, so went the US and the UK. It is the bankers who benefit from all the government debt. And if the debt ultimately needs restructuring, they benefit from that as well. Those who purchase the debt may or may not benefit. If the purchaser is an insurance company, it purchases the debt simply so that it can sell an insurance product at a spread profit. If the purchaser is a central bank, then the purchase may well be for political reasons. But those who sell and endlessly resell the swelling amount of debt-- whether it be on houses (mortgages) or direct claims on the Treasury-- continue to benefit from the Bushbama Continuity on bailouts and the like.
We need more equity and less debt in society. Ultimately, traders' pricing and mispricing of securities notwithstanding, investors should be in honest situations where those who price securities actually own them for real rather than acting as middlemen or, even worse, "analysts" who cleverly are forced to disclose they have no ownership of what they recommend. Far better that a bullish analyst own the security recommended and be prohibited from selling for the time frame of the recommendation. And the opposite for a bear.
Fundamentally, the allure of alternative investments ranging from precious metals to lumber is that they are what they are. You don't need an analyst to evaluate whether Oracle is going to make money from the Sun Microsystems purchase. Thus the sell-off in gold on Friday concomitant with the Goldman news appears misplaced. Was the Friday announcement on options expiration day part of market manipulation on the SEC's part, the same SEC that is now known to have sat on the Allen Stanford scam for many, many years? (Not to mention Madoff.) Considering that the pros very recently added numerous short positions in gold futures recently, one has to take this possibility seriously. It is becoming less and less of a fringe position, I believe, considering the growing evidence of governmental involvement in the bubble and cover-up.
Copyright (C) Long Lake LLC 2010
Saturday, April 17, 2010
Mortgage-Backed Securites Continue to Underperform
One would think that 5 years after the housing stocks peaked, it is past time for objective trends in mortgages to be well into the healing phase. Not so. "Default Servicing News" = DSnews.com has an article out today titled Moody's Downgrades $42.2 Billion of Subprime RMBS. Here are quotes from the article:
The performance of subprime loans made during the real estate boom continues to worsen, putting investors on an even bigger hook. This week, Moody’s Investors Service downgraded its ratings on a total of $42.2 billion of residential mortgage-backed securities (RMBS) made up of subprime home loans.
The agency said the downgrades are a result of “continued performance deterioration in subprime pools,” which is likely to worsen further as still-falling home prices and high unemployment trigger more defaults. The ratings actions reflect Moody’s updated loss expectations on subprime securities issued between 2005 and 2007. . .
Moody’s also alerted investors this week that it has downgraded $7 billion of RMBS backed by Alt-A residential mortgage loans made in 2005, again citing “rapid performance deterioration.” Alt-A is considered to be mid-grade risk, falling somewhere in between prime and subprime. . .
Last week, the New-York based ratings agency said it is also looking at possible downgrades on $50 billion in subprime RMBS issued before 2005, which would represent more than 80 percent of all subprime residential mortgage bonds from pre-2005 vintages.
Moody’s has also put $48 billion in Alt-A RMBS and $43 billion in prime jumbo RMBS issued before 2005 on watch for possible downgrade, signaling that deterioration among earlier loans has spread beyond risky subprimes.
I guess Moody's doesn't read the stock quotes.
The truth is that if the stock market were a real leading indicator, VerticalNet never would have been a hot stock, BofA stock would never have hit $3 only about a year ago, and Ambac and Fannie Mae would never have been priced to drop 99% or so in a short time from prices that had limited upside.
So despite a strong recent rally in Markit's listing of many commercial real estate-backed securities, Moody's comments on the much larger residential mortgage-backed securities bear watching.
How much longer will the Fed print money (if at all anymore) or the Feds borrow money to bail out bad residential loans? How much are the apparent yet worsening losses already reserved for by financial institutions? Why does David Rosenberg think that financials have the worst value to price rating of the industry groups he monitors?
After a huge rally in the stocks of the companies that caused the bubble, caution remains advised. Many are now trading well above tangible book value, which itself may be greatly overstated due to the extend and pretend status of their accounting.
Copyright (C) Long Lake LLC 2010
The performance of subprime loans made during the real estate boom continues to worsen, putting investors on an even bigger hook. This week, Moody’s Investors Service downgraded its ratings on a total of $42.2 billion of residential mortgage-backed securities (RMBS) made up of subprime home loans.
The agency said the downgrades are a result of “continued performance deterioration in subprime pools,” which is likely to worsen further as still-falling home prices and high unemployment trigger more defaults. The ratings actions reflect Moody’s updated loss expectations on subprime securities issued between 2005 and 2007. . .
Moody’s also alerted investors this week that it has downgraded $7 billion of RMBS backed by Alt-A residential mortgage loans made in 2005, again citing “rapid performance deterioration.” Alt-A is considered to be mid-grade risk, falling somewhere in between prime and subprime. . .
Last week, the New-York based ratings agency said it is also looking at possible downgrades on $50 billion in subprime RMBS issued before 2005, which would represent more than 80 percent of all subprime residential mortgage bonds from pre-2005 vintages.
Moody’s has also put $48 billion in Alt-A RMBS and $43 billion in prime jumbo RMBS issued before 2005 on watch for possible downgrade, signaling that deterioration among earlier loans has spread beyond risky subprimes.
I guess Moody's doesn't read the stock quotes.
The truth is that if the stock market were a real leading indicator, VerticalNet never would have been a hot stock, BofA stock would never have hit $3 only about a year ago, and Ambac and Fannie Mae would never have been priced to drop 99% or so in a short time from prices that had limited upside.
So despite a strong recent rally in Markit's listing of many commercial real estate-backed securities, Moody's comments on the much larger residential mortgage-backed securities bear watching.
How much longer will the Fed print money (if at all anymore) or the Feds borrow money to bail out bad residential loans? How much are the apparent yet worsening losses already reserved for by financial institutions? Why does David Rosenberg think that financials have the worst value to price rating of the industry groups he monitors?
After a huge rally in the stocks of the companies that caused the bubble, caution remains advised. Many are now trading well above tangible book value, which itself may be greatly overstated due to the extend and pretend status of their accounting.
Copyright (C) Long Lake LLC 2010
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