This post will be brief due to other obligations.
There is a worthwhile gold-related post at Jesse's Cafe Americain. It describes a new gold fund with physical gold held in Canada. The innovation with this fund is the ability of shareholders to convert shares to physical gold. If interested, please click HERE for Jesse's post. You can also check out the stock with the symbol PHYS or go to the fund's website HERE.
For a different view, please see the Seeking Alpha negative article on this fund HERE.
I have not yet investigated the fund in any detail and may comment further. My first reaction is that the Seeking Alpha article is a bit too harsh, though its points are likely valid.
Gold has set all-time price highs against the British pound and the euro.
While no powers-that-be have clued me in, my guess is that we see new highs in the U. S. dollar this year. My major concern is timing, given the profusion of gold ads on certain cable TV channels and the fact that the small "GTU" ETF has been trading at a 7+% premium to NAV lately. This should reflect optimism/pessimism by small investors, as the big players are too big to play in this one. I am happier to see a 2-5% premium.
PHYS is currently at about a 5% premium to NAV and if it has adequate liquidity, it might be a better play than GTU right now.
Copyright (C) Long Lake LLC 2010
Showing posts with label Jesse's Cafe Americain. Show all posts
Showing posts with label Jesse's Cafe Americain. Show all posts
Wednesday, March 3, 2010
Monday, March 16, 2009
The Honeymoon Is Ending
We're back to financial news being made on Sundays. The latest was an attempt to bury the news, meaning the disclosure by AIG yesterday of the largest recipients of government largesse.
Please read Jesse for a withering critique at his post today, "AIG: A Scandal of Epic Proportion." While your humble blogger has read numerous online criticisms of the bailouts from bloggers, including from Jesse, this is the first that has explicitly joined EBR in placing responsibility where by law and common sense it has to be placed, which is at the desk of the President. George Bush was no less responsible for Henry Paulson than Barack Obama is for Tim Geithner.
Here are Jesse's introductory comments:
"Goldman Sachs had said in the past that its exposure to A.I.G.’s financial trouble was 'immaterial'."
Well, it appears it was immaterial because they had set things up so they could not lose. It seems fairly obviously that a relatively small department within AIG, the Financial Products division, was operating under the regulatory radar and was used as a patsy by a number of the Wall Street banks, who had no worries about losses because of their power to obtain the US government as a backstop to losses.
This is a scandal of epic proportion. 'Outrage' barely manages to express the appropriate reaction.Obama is an educated, intelligent President, and can hardly retreat behind the clueless buffoon defense used by so many CEO's and officials. He is directly responsible for this outcome now.
The honeymoon for the Obama Administration is over. Geithner and Summers should resign over their handling of AIG, and there should be no question that the Fed has no business regulating anything more complex than a checking account.
The difficulty with which we are faced is that despite their mugging for the camera and emotional words the Republicans are owned body and soul by Wall Street and Big Business.
Getting behind a third party for president is symbolic but ineffective. Giving a significant number of congressional seats to a third party will send a chilling and practical message to both the President and the Congress that enough is enough.
You may click over to Jesse's site to then read the NY Times article on this topic, into which Jesse's comments are interpolated. It is worth the read. EBR readers know that the thesis here is that the Establishment has engaged over the past year in the greatest financial wealth transfer from a citizenry to corporations in modern times.
Here's what's probably enough for most people from the Times article and Jesse's commentary in boldface, for those who don't want to link to the full article with all of Jesse's comments.
A.I.G. Lists the Banks to Which It Paid Rescue Funds
By MARY WILLIAMS WALSH
March 16, 2009
Amid rising pressure from Congress and taxpayers, the American International Group on Sunday released the names of dozens of financial institutions that benefited from the Federal Reserve’s decision last fall to save the giant insurer from collapse with a huge rescue loan.
Financial companies that received multibillion-dollar payments owed by A.I.G. include Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).
Big foreign banks also received large sums from the rescue, including Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion; Barclays of Britain ($8.5 billion); and UBS of Switzerland ($5 billion).
A.I.G. also named the 20 largest states, starting with California, that stood to lose billions last fall because A.I.G. was holding money they had raised with bond sales.
In total, A.I.G. named nearly 80 companies and municipalities that benefited most from the Fed rescue, though many more that received smaller payments were left out.
The list, long sought by lawmakers, was released a day after the disclosure that A.I.G. was paying out hundreds of millions of dollars in bonuses to executives at the A.I.G. division where the company’s crisis originated. That drew anger from Democratic and Republican lawmakers alike on Sunday and left the Obama administration scrambling to distance itself from A.I.G.
“There are a lot of terrible things that have happened in the last 18 months, but what’s happened at A.I.G. is the most outrageous,” Lawrence H. Summers, an economic adviser to President Obama who was Treasury secretary in the Clinton administration, said Sunday on “This Week” on ABC. He said the administration had determined that it could not stop the bonuses.
(Among the outrages was the appointment of that sly old fox Larry Summers and his sidekick Tim Geithner by President Obama, and their continued tenure in any so-called reform government. - Jesse) . . .
He (Ben Bernanke on '60 Minutes' last night) went on: “Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a — we had a situation where the failure of that company would have brought down the financial system.” (AIG was a setup with the very banks, Goldman Sachs and crew, that you are bending our economy over backwards to save, Ben - Jesse) . . .
“A.I.G.’s trading partners were not innocent victims here,” said Senator Christopher J. Dodd, the Connecticut Democrat who presided over one recent hearing. “They were sophisticated investors who took enormous, irresponsible risks.” (Do something about it then you windbag - Jesse) . . .
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, implicitly questioned the Treasury Department’s judgment about the whether the bonuses were binding. (I would question if Barney Frank is competent to hold office since he has also been a key player - Jesse) . . .
In some ways, the best part of the article comes at the end:
Among the beneficiaries of the government rescue were Wall Street firms, like Goldman Sachs, JPMorgan and Merrill Lynch that had argued in the past that derivatives were valuable risk-management tools that skilled investors could use wisely without any intervention from federal regulators. Initiatives to regulate financial derivatives were beaten back during the administrations of Presidents Bill Clinton and George W. Bush.
Goldman Sachs had said in the past that its exposure to A.I.G.’s financial trouble was “immaterial.” . . .
Until last fall’s liquidity squeeze, A.I.G. officials also dismissed those who questioned its derivatives operation, saying losses were out of the question.
In other words, the incompetence, greed and outright lying that has gone in the financial sector is staggering.
The recent mid-decade boom was perhaps the greatest synchronized global boom ever.
The current bust may be equally epic. We are witnessing the lowest synchronized global government interest rates ever. This only happens in deflationary times. Such times are devastating for stocks, especially when prices of public companies are well above their working capital and even above their tangible book value.
Those stock market analysts who look to the few major market bottoms dating from 1932 as a guide to future stock market behavior have as much predictive power behind them as those who pointed out, after George Bush became President in 2000 after losing the popular vote, that the two prior elected Presidents who lost the popular vote to their opponents went on to be one-term Presidents.
We can only hope that we have seen the all-time bottom for the stock market.
In the face of the public's gradual recognition of the prior and ongoing thefts as described above, and the almost certain significant economic deterioration coming in the months ahead, the case to put new money into stocks appears weak, short-term trading strategies aside.
Fundamentally much more important is whether Eastern Europe will bring down Western European banks, whether the British Government will default on its debts, and even whether the U.S. Government will finally get a comeuppance in the debt markets.
(P.S.: John Quincy Adams and Rutherford B. Hayes were the one-term Presidents whose defeated opponent beat them in popular vote count.)
Copyright (C) Long Lake LLC 2009
Please read Jesse for a withering critique at his post today, "AIG: A Scandal of Epic Proportion." While your humble blogger has read numerous online criticisms of the bailouts from bloggers, including from Jesse, this is the first that has explicitly joined EBR in placing responsibility where by law and common sense it has to be placed, which is at the desk of the President. George Bush was no less responsible for Henry Paulson than Barack Obama is for Tim Geithner.
Here are Jesse's introductory comments:
"Goldman Sachs had said in the past that its exposure to A.I.G.’s financial trouble was 'immaterial'."
Well, it appears it was immaterial because they had set things up so they could not lose. It seems fairly obviously that a relatively small department within AIG, the Financial Products division, was operating under the regulatory radar and was used as a patsy by a number of the Wall Street banks, who had no worries about losses because of their power to obtain the US government as a backstop to losses.
This is a scandal of epic proportion. 'Outrage' barely manages to express the appropriate reaction.Obama is an educated, intelligent President, and can hardly retreat behind the clueless buffoon defense used by so many CEO's and officials. He is directly responsible for this outcome now.
The honeymoon for the Obama Administration is over. Geithner and Summers should resign over their handling of AIG, and there should be no question that the Fed has no business regulating anything more complex than a checking account.
The difficulty with which we are faced is that despite their mugging for the camera and emotional words the Republicans are owned body and soul by Wall Street and Big Business.
Getting behind a third party for president is symbolic but ineffective. Giving a significant number of congressional seats to a third party will send a chilling and practical message to both the President and the Congress that enough is enough.
You may click over to Jesse's site to then read the NY Times article on this topic, into which Jesse's comments are interpolated. It is worth the read. EBR readers know that the thesis here is that the Establishment has engaged over the past year in the greatest financial wealth transfer from a citizenry to corporations in modern times.
Here's what's probably enough for most people from the Times article and Jesse's commentary in boldface, for those who don't want to link to the full article with all of Jesse's comments.
A.I.G. Lists the Banks to Which It Paid Rescue Funds
By MARY WILLIAMS WALSH
March 16, 2009
Amid rising pressure from Congress and taxpayers, the American International Group on Sunday released the names of dozens of financial institutions that benefited from the Federal Reserve’s decision last fall to save the giant insurer from collapse with a huge rescue loan.
Financial companies that received multibillion-dollar payments owed by A.I.G. include Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).
Big foreign banks also received large sums from the rescue, including Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion; Barclays of Britain ($8.5 billion); and UBS of Switzerland ($5 billion).
A.I.G. also named the 20 largest states, starting with California, that stood to lose billions last fall because A.I.G. was holding money they had raised with bond sales.
In total, A.I.G. named nearly 80 companies and municipalities that benefited most from the Fed rescue, though many more that received smaller payments were left out.
The list, long sought by lawmakers, was released a day after the disclosure that A.I.G. was paying out hundreds of millions of dollars in bonuses to executives at the A.I.G. division where the company’s crisis originated. That drew anger from Democratic and Republican lawmakers alike on Sunday and left the Obama administration scrambling to distance itself from A.I.G.
“There are a lot of terrible things that have happened in the last 18 months, but what’s happened at A.I.G. is the most outrageous,” Lawrence H. Summers, an economic adviser to President Obama who was Treasury secretary in the Clinton administration, said Sunday on “This Week” on ABC. He said the administration had determined that it could not stop the bonuses.
(Among the outrages was the appointment of that sly old fox Larry Summers and his sidekick Tim Geithner by President Obama, and their continued tenure in any so-called reform government. - Jesse) . . .
He (Ben Bernanke on '60 Minutes' last night) went on: “Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a — we had a situation where the failure of that company would have brought down the financial system.” (AIG was a setup with the very banks, Goldman Sachs and crew, that you are bending our economy over backwards to save, Ben - Jesse) . . .
“A.I.G.’s trading partners were not innocent victims here,” said Senator Christopher J. Dodd, the Connecticut Democrat who presided over one recent hearing. “They were sophisticated investors who took enormous, irresponsible risks.” (Do something about it then you windbag - Jesse) . . .
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, implicitly questioned the Treasury Department’s judgment about the whether the bonuses were binding. (I would question if Barney Frank is competent to hold office since he has also been a key player - Jesse) . . .
In some ways, the best part of the article comes at the end:
Among the beneficiaries of the government rescue were Wall Street firms, like Goldman Sachs, JPMorgan and Merrill Lynch that had argued in the past that derivatives were valuable risk-management tools that skilled investors could use wisely without any intervention from federal regulators. Initiatives to regulate financial derivatives were beaten back during the administrations of Presidents Bill Clinton and George W. Bush.
Goldman Sachs had said in the past that its exposure to A.I.G.’s financial trouble was “immaterial.” . . .
Until last fall’s liquidity squeeze, A.I.G. officials also dismissed those who questioned its derivatives operation, saying losses were out of the question.
In other words, the incompetence, greed and outright lying that has gone in the financial sector is staggering.
The recent mid-decade boom was perhaps the greatest synchronized global boom ever.
The current bust may be equally epic. We are witnessing the lowest synchronized global government interest rates ever. This only happens in deflationary times. Such times are devastating for stocks, especially when prices of public companies are well above their working capital and even above their tangible book value.
Those stock market analysts who look to the few major market bottoms dating from 1932 as a guide to future stock market behavior have as much predictive power behind them as those who pointed out, after George Bush became President in 2000 after losing the popular vote, that the two prior elected Presidents who lost the popular vote to their opponents went on to be one-term Presidents.
We can only hope that we have seen the all-time bottom for the stock market.
In the face of the public's gradual recognition of the prior and ongoing thefts as described above, and the almost certain significant economic deterioration coming in the months ahead, the case to put new money into stocks appears weak, short-term trading strategies aside.
Fundamentally much more important is whether Eastern Europe will bring down Western European banks, whether the British Government will default on its debts, and even whether the U.S. Government will finally get a comeuppance in the debt markets.
(P.S.: John Quincy Adams and Rutherford B. Hayes were the one-term Presidents whose defeated opponent beat them in popular vote count.)
Copyright (C) Long Lake LLC 2009
Wednesday, January 21, 2009
The Economy as Predicted by Stocks and Inflation as Predicted by Gold
The following graph was taken from Jesse's Cafe Americain.
What is of special note is not only that CEO Business Confidence, per the Conference Board's Jan. 16 writeup, is at its lowest level ever (it began in 1976), but that a cursory review of the worst bear markets shown, the ones ending in 1982 and 2002/3, show CEO confidence rebounding significantly before the ultimate stock market bottom. In this case, I fully expect to see the equivalent of the perp walks seen at the end of the most recent bear market or the Pecora Commission of FDR's time.
To save you clicking on the report from the Conference Board, it's grim: basically no CEO saw improvement in his industry or general economic conditions. What is most disconcerting to me is that they still predicted price increases, though only 1% for the year ahead. This may be over-optimistic, however.
Next, please review the most stalwart of all Dow Industrials. McDonald's (MCD) has broken down. I take this to be big and bad news. "Mickey D" made a lower high recently below the September high. Its 50 day moving average is below its 200 day ma for the first time in a long time, and both look to be in danger of turning down. In terms of its own long-term valuation metrics, it is neither cheap nor expensive, and it appears to have a secure yield far above competing short-term money rates. Its products are almost necessities in a world where people are trying to work two jobs if they can find them. It is highly international. Despite today's up-move in the markets, all it could do was to rally to what is now chart resistance. What this may portend for the economy scares me. If the market has seen its bottom, it should have been holding up better and then should be poised to break out to new all-time highs. Perhaps it will, but it's acting opposite to that currently.
The best
Dow performer of 2008 was Wal-Mart. It is farther along the stock breakdown stage than MCD. Here is its chart. It moved down today. Perhaps Target is sharpening its pricing; I wouldn't know, but something appears amiss here. You would have been better off buying a Treasury security of any duration from 1 to 30 years than Wal-Mart one year ago, despite its nicely positive 2008 return. This, with MCD, is classic big bear market action. Bears wear out the bulls. In fact, one additional point relates to some uber-bears, such as Bill Fleckenstein.Last year, I read his book on Greenspan's bubbles. Mr. Fleckenstein publicly converted to the more-bull-than-bear camp late last year. I believe that the conversion that he announced and that of some other bears helped fuel the rally off the November lows. He announced that being bearish had simply become wearing on him. This is again, to me, classic big bear action. We generally get interested in markets because we are bullish on this or that. It is tough to be bearish; it's against a healthy emotional state.
But that's why quants use computers. Here at Econblog Review, we find it emotionally easier to basically ignore investing in the stock market when we don't like its looks, while following its twists and turns. Trying to make money on the downside is tough to do and tough on the spirit. We wish Mr. Fleckenstein very, very well, having admired his work and iconoclastic spirit for some time, but worry that his mini-conversion from the short-only camp was premature.
We all know that T-bonds have sold off lately, but the canary in the coal mine of inflation is gold. Gold, in the form of the GLD exchange-traded fund, looks to be in a critical technical position.The first thing to notice, though the image is a bit obscured, is that GLD has provided a negative total return over the past 12 months. You can't eat relative strength. The second is that there are four (4) price peaks, and each one is below the prior peak. So far, each price peak has been followed by a lower low. The price peaks are out of phase with the stock market price peaks, but interestingly the price lows are in phase.
Most recently, GLD bounced off its upsloping 50 day ma and rebounded near its downsloping 200 day ma. With T-bonds selling off today, if there were true inflation fears, GLD should have been up in follow-through to its recent significant short-term rally. That it was down slightly may mean something.
Every stock and every market of importance over the past year of which I am aware that has had this sort of pattern of lower highs and lower lows has failed to break out to the upside. If Dr. Roubini is correct along with the TIPS market, and the Roubini "stag-deflation" is in the cards, then the fundamentals for gold are poor and those for 2-5 year Treasuries are OK. Most gold is purchased for jewelry use, though much of that is in Asia where people where jewelry that is not highly engineered and therefore sells close to the bullion price and therefore serves as money as well as adornment. Nonetheless, I know NO ONE who is spending on fripperies lately, and I know people both with good jobs such as doctors and people with serious money.
Every stock and bond professional I know who "called" this stock bear and Treasury bull at least one year ago doesn't trust today's stock market bounce. They are divided on the prospects for inflation vs. deflation over the short and medium term, though there is no interest in betting on low inflation over the long term. They all believe that the stock market is headed for new lows.
Also, some long-term wealthy investors I know who have bought and held stocks individually or through non-Madoff truly high-quality managers have been selling stocks over the past year and have now decided to get further out of the market. These people were truly in the market for decades. They are dismayed by what they see happening. They may well have voted for Barack Obama, but nonetheless they are moving definitively away from stocks. It is certain that a short-term bounce in the stock market will not tempt these serious investors back to the stock market any time soon. Unless the collapse of the large financial institutions worldwide is miraculously revealed to have been a big joke, they are getting out and staying out for some time.
The stock market remains too risky for most people. It is OK to miss the bottom of the market should we have seen it last November. If the stock market were a stock, and it were ranked by a standard earnings and price momentum screen such as the one Value Line pioneered and that has been widely imitated, the stock market would scream "sell". Gold would be more of a "Neutral", but we remain both viscerally attracted to it as a concept but skeptical of its price prospects over the short term due both to fundamental and technical factors. Treasury bonds would be more like NASDAQ stocks of the late 1990s, which is to say glamor, but the fundamentals and basic chart patterns are both OK to bullish. Just as the stock bubble, including the large-cap S&P stocks of the late 1990s, sent sensible hugely successful investors into retirement because the were too sensible too early and too long, so might this Treasury bull destroy short-seller after short-seller before rolling over, finally having sucked in the public at large, which may finally come to believe in bonds for the long run just when the dawn of a long-term Treasury bear market is born.
Anyway, it's time to support the local economy and support our favorite local eatery. You can't eat either relative performance or computer pixels.
Copyright (C) Long Lake LLC 2009
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