by ilene - December 26th, 2009 12:39 pm
Excellent audio interview with Mish discussing his thoughts for 2010. - Ilene
For a 2010 forecast from Mike Hampton and myself in a half-hour audio format please see Dominic Frisby’s Predictions for 2010, Number 3: Mish and Dr Bubb
Dominic Frisby also recently interviewed
and others
See Frisby’s Bulls and Bears for more audio links.
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by ilene - December 11th, 2009 12:45 pm
Courtesy of Adam Sharp at Bearish News
The smart money is betting on moral hazard. From Reuters:
He highlighted the attractive yields on credit issued by GMAC due in Sept 2011, the former General Motors automotive financing company that the U.S. government propped up at the end of 2008.
By Paulson’s thinking, the government involvement is equivalent to an explicit guarantee on GMAC’s finances.
‘So instead of buying (a) Treasury bond which yields 84 basis points, I can buy GMAC which is almost, I consider equivalent to a government bond and I can get 11 percent. That is why we have allocated so much money to this particular security,’ he said.
John Paulson knows the deal. The government has made a policy of bailing out bondholders, and not forcing them to take losses.
He knows this policy is a long-term disaster (hence the gold bet). But if you can’t change it, why not profit from it? A great example of why it’s dangerous to be short (for now). Back in April I warned bears about this problem in More Bailouts and Inflation Loom.
Paulson: Gold is the best currency
Everybody knows Paulson likes gold. In the same article he he offers some interesting insight as to exactly why he’s so bullish.
Even as credit and equity markets looked attractive, he did reiterate his concerns that over the long-term inflation will be a problem because the government’s mountain of stimulus cash will be difficult, politically, to withdraw from the economy.
‘Therefore we are concerned about high rates of inflation in the future. As an investor I became very concerned about having my assets denominated in U.S. dollars,’ he said.
‘So I looked for another currency in which to denominate my assets in. I feel that gold is the best currency.’
hat tip TraderMark
(Green Chip Stocks, 12/21/09)
(Investment U, 3/10/10)
(naked capitalism, 11/23/09)
General Motors,
United States Department of the Treasury
at Wikinvest
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by ilene - December 10th, 2009 11:29 pm
Courtesy of Karl Denninger at The Market Ticker
I’d give the 30 year auction today a big fat stinking "F"…
The so-called yield curve touched 373 basis points, the most in at least 29 years, as the bonds drew a yield of 4.52 percent, compared with an average forecast of 4.483 percent in a Bloomberg News survey of five of the Federal Reserve’s 18 primary dealers.
Mediocre demand Bloomberg goes on to say…..
Uhhhhh… no.
That might have something to with this from Politico:
In a bold but risky year-end strategy, Democrats are preparing to raise the federal debt ceiling by as much as $1.8 trillion before New Year’s rather than have to face the issue again prior to the 2010 elections.
“We’ve incurred this debt. We have to pay our bills,” House Majority Leader Steny Hoyer told POLITICO Wednesday. And the Maryland Democrat confirmed that the anticipated increase could be as high as $1.8 trillion — nearly twice what had been assumed in last spring’s budget resolution for the 2010 fiscal year.
America the subprime borrower.
Make no mistake - this is pushback. "We" didn’t incur this debt Steny, you and your pals did. Remember, Steny, America said by a more than 100:1 margin NO to TARP. You passed it anyway.
You dished out over $1.4 trillion in trash last year, and are $300 billion in the hole in two months this year - already. For the math-challenged that’s $1.8 trillion for this fiscal year, if your profligacy continues.
Go ahead, boyz, try to bail everyone out that’s a Wall Street bigwig. Keep it up - the bond market will take care of you soon enough, and America will go "bang" - literally.
Oh, I’m not the only one saying it either. Nor is it just "bears" like Roubini. Try Australia’s opposition finance spokesman Barnaby Joyce:
THE OPPOSITION finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ”economic Armageddon” which will make the recent global financial crisis pale into insignificance.
Senator Joyce told the Herald yesterday he did not mean to alarm the public but there needed to be a debate about Australia’s ”contingency plan” for a sovereign debt default by the US or even by a local state government.
They’re already making contingency plans down under….. is it time to short the US government - and should we go long baskets?
Just curious.
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by Phil - November 22nd, 2009 5:21 am
By Marshall Auerback of New Deal 2.0
Do the Chinese really fund our deficit? Or is this more Neo-classical money mythology?
Another Presidential junket to Asia and another one of the usual lectures from China, decrying our “profligate ways”. Today’s Wall Street Journal reports:, “China’s top banking regulator issued a sharp critique of U.S. financial management only hours before President Barack Obama commenced his first visit to the Asian giant, highlighting economic and trade tensions that threaten to overshadow the trip.”
According to Liu Mingkang, chairman of the China Banking Regulatory Commission, a weak U.S. dollar and low U.S. interest rates had led to “massive speculation” that was inflating asset bubbles around the world. It has created “unavoidable risks for the recovery of the global economy, especially emerging economies,” Mr. Liu said. The situation is “seriously impacting global asset prices and encouraging speculation in stock and property markets.”
Well, “them’s fightin’ words”, as we say over here. And of course, the President and his advisors are supposed to accept this criticism mildly because in the words of the NY Times, the US has assumed “the role of profligate spender coming to pay his respects to his banker.”
The Times actually does believe this to be true. They refer to China’s role as America’s largest “creditor” as a “stark fact”. They do not seem to understand that simply because a country issuing debt which it creates, it does not depend on bond holders to “fund” anything. Bonds are simply a savings alternative to cash offered by the monetary authorities, as we shall seek to illustrate below.
It is less clear to us whether the Chinese actually believe this guff, or simply articulate it for public consumption. China has made a choice: for a variety of reasons, it has adopted an export-oriented growth strategy, and largely achieved this through closely managing its currency, the remnimbi, against the dollar.
One can query the choice, as many would argue that it is more economically and socially desirable for China to consume its own economic output. According to Professor Bill Mitchell, for example, “once the Chinese citizens rise up and demand more access to their own resources instead of flogging them off to the rest of the world…then the game will be up. They will stop accumulating financial assets in our currencies and we will find it harder to run [current account deficits] against them.”
But there have undoubtedly been certain benefits that have accrued…
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by ilene - October 28th, 2009 4:14 pm
Courtesy of George at Washington’s Blog
Forget the permabears, even Pimco’s Bill Gross is now saying a V-shaped recovery is unlikely:
The total bond market yields only 3.5%. To get more than that, high yield, distressed mortgages, and stocks beckon the investor increasingly beguiled by hopes of a V-shaped recovery and “old normal” market standards. Not likely, and the risks outweigh the rewards at this point. Investors must recognize that if assets appreciate with nominal GDP, a 4–5% return is about all they can expect even with abnormally low policy rates. Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets – while still continuously supported by Fed and Treasury policymakers – is likely at its pinnacle. Out, out, brief candle.
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by ilene - October 19th, 2009 2:10 pm
Courtesy of Market Folly
On his recent media escapade, Tiger Management founder and hedge fund legend Julian Robertson stopped off to chat with the Financial Times about many topics. He has been out talking a lot about his curve caps play lately where he essentially is buying puts on long-term treasuries as he expects prices to fall and yields to rise. Julian again touched on this position in this interview but we want to turn the focus to other topics that he hasn’t previously discussed in his other recent media appearances. Here are some notable excerpts from the Tiger Management founder and hedge fund legend’s interview with the FT:
"Julian Robertson on market cycles and hedge funds
FT: You were famously bearish about technology stocks ahead of, during the tech bubble; did that experience influence you in predicting 2007, 2008?
JR: No, I don’t think so. What really caused me to predict the problems we had in 2007 and 2008 was the fact that we were spending so much more and no one was balancing the budget; no family can keep doing that forever, no corporation can keep doing that forever, and no nation can continue doing that forever. I think that’s, we did it on all three fronts; as individuals we did it, as corporations we did it, and as a nation we did it - and it blew up in our face.
FT: Why do you think corporations and in particular financial institutions were so bad at seeing that; why did they keep on dancing too long?
JR: Well, I think it goes back to greed and bad judgement, I mean that’s the thing I see. A lot of people were trying to get more risk in their balance sheets, they really were during that period, and once the risks caused their problems they then rushed out and blamed hedge funds - and that was ridiculous. These people were responsible for their own problems because they had levered up too much and made some very bad investments.
FT: One of the fascinating things about your own performance as a fund manager, particularly around the tech bubble is, you were right, but being right wasn’t such a great thing to be. How can people use that experience in the decisions that they make in their investments?
JR: Well, you’ve hit on something that I think is worthy of comment. I don’t believe people can…
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by ilene - October 8th, 2009 2:39 pm
Courtesy of The Pragmatic Capitalist
Stocks have surged 11% since June 10th. At the same time, the 10 year treasury yield has declined almost 70 basis points to close at 3.18% yesterday. What is curious here is that the stock market is telling a very different story from the bond market. Bond investors (who tend to have a longer time horizon) are forecasting a long battle with deflation. Equity investors (who tend not to think much farther than one quarter into the future), on the other hand, are putting their money on the line in the hopes that the reflation trade is alive and well.
Unfortunately for equity investors, they have a poor record of forecasting the future when compared to bond investors. There have been 4 famous cases of such bond and stock divergences in the last 20 years. The most famous is the summer of 1987. We all know what occurred then. The other three cases were fall ‘94, summer ‘98 and winter 2000. All three preceded declines in the market. Of all 4 instances, three of them preceded 15% declines in the S&P 500.
The real crux of the issue here is not terribly complex. In order for corporations to tack on to the $80 in operating earnings that the equity market is currently pricing in for 2010, they will need pricing power. The cost cutting and resulting margin expansion we are seeing is great in the near-term, but we’re unlikely to see pricing power and hence real revenue expansion without at least some inflation. The bond market, however, is pricing in little to no inflation. The bond market’s message is clear – we are in a deflationary world. That doesn’t bode well for the prospect of corporate earnings and that likely means stocks are getting a bit frothy here. Investors would be wise to take a step back and reconsider the risk/reward of owning equities once the euphoria surrounding Q3 earnings wears off….
Related -
John Paulson’s Huge Reflation Bet
Are 20 Years of Deflation Ahead of Us?
Photo: Goddesses of Inflation and Deflation, courtesy of Elaine Supkis.
(Investment U, 11/19/09)
(THE PRAGMATIC CAPITALIST, 2/28/10)
(THE PRAGMATIC CAPITALIST, 2/10/10)
…
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by ilene - October 6th, 2009 2:48 pm
October 5, 2009
SPECIAL “I TOLD YOU SO” ISSUE
Featured Trades: (TBT), (BRAZIL), (EWZ)
1) For the last six months there has been a great big whopping contradiction in the markets. The stock market has been discounting a return to the “Roaring Twenties,” while the bond market has been anticipating another “Great Depression.” After yesterday’s publication of the Labor Department’s September nonfarm payroll number showing the loss of another 263,000 jobs, it looks like the bond market now has the upper hand. This takes the unemployment rate up 0.1% to 9.8%, and total job losses for this recession to 7 million. The really disturbing aspect of this number is that 57,000 teachers were fired, as states chop budgets to the bone. This is really eating our seed corn by the bushel full. Of course, I have been banging pots and pans, setting off distress flares, and yanking the fire alarm, trying to alert readers that this kind of disappointment was coming (click here for “Risk Reversals Can Be Such a Bitch” and here for “Stocks Offer No Value”). Shares have dropped 5% from last week’s peak, as the bond market soared, the ten year yield reaching nosebleed territory of 3.05%. The dollar maintained its flight to safety status, which to me is one of the great ironies of all time. It’s like that reprobate, alcoholic uncle with the bad teeth, who, when your car breaks down in the middle of a downpour in a bad neighborhood, will always let you crash on his sofa. Let’s call him your Uncle Sam. You have to hand it to PIMCO’s inveterate card counter, Bill Gross, who says this is all about transitioning to a “new” normal of 1%-2% real GDP growth. That’s why he was loading the boat with bond yields at 4%, a “ballsey” move at the time, which now smells like roses. I guess that’s why they call him the “Bond King.”
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by ilene - September 29th, 2009 8:07 pm
Courtesy of The Pragmatic Capitalist
Bill Gross, the world’s largest bond manager, sat down with Tom Keene and Ken Prewitt on Bloomberg Surveillance this morning. Gross continues to expect subdued inflation and a weak recovery.
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by ilene - September 25th, 2009 11:41 am
Courtesy of Rick Bookstaber
I appeared last Friday on a the PBS program WealthTrack, where the topic was asset allocation, in particular, as host Consuelo Mack put it, how to build an all weather portfolio. I was the skeptic of the group. I don’t think there is some magic asset allocation that protects you from the buffetings of financial storms without it also trimming your sails during fair weather. Here is an encapsulation of my views from the program.
Asset allocation and risk appetite
One of the participants, asset allocation guru David Darst of Morgan Stanley, proposed various portfolios to protect against a 100-year flood, 30 to 70-year flood, a 25-year flood, etc. Those portfolios boiled down to putting less in risky assets and more in bonds; the more severe the flood you anticipate, the less risk you take. Of course, that will do the trick. If by asset allocation you mean determining where to set your risk tolerance dial, we’re all on board.
Asset allocation is like clapping with one hand
But the discussion of risk tolerance highlights that we can only go so far with asset allocation if we only look at assets. What matters is assets versus liabilities, because the liabilities determine our risk tolerance and, related to that, our demand for liquidity. It is impossible to formulate an ideal asset allocation strategy without knowing the liability stream those assets are intended to meet. There is no one-size-fits-all for asset allocation. This reminds me of an FAJ article I did back in the 1980s with pension actuary Jeremy Gold entitled “In Search of the Liability Asset”.
Diversification works well, except when it really matters
We all know the argument from Finance 101: If you hold 16 uncorrelated assets, your risk will drop by a factor of four. Well good luck with that.
During a crisis, when diversification really matters, correlations aren’t near zero (as if they ever are). All that people care about is risk and liquidity. All assets that are highly risky drop, all assets that are less liquid drop. No one cares about the subtlety of earnings streams. It is like high energy physics. When the heat gets turned up high enough, matter is just matter, the distinctions between the elements is blurred away.
This is not to say that one should not try to diversify, but rather that one should not think diversification will work magic. It is a given that…
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March 20th, 2010 1:32 pm
High Tech Research Moves From U.S. To ChinaCourtesy of Mish
Goodbye Silicon Valley, hello Xi’an China. Applied Materials will do new cutting edge research on solar panels in Xi’an.
Please consider China Drawing High-Tech Research From U.S.
XI’AN, China — For years, many of China’s best and brightest left for the United States, where high-tech industry was more cutting-edge. But Mark R. Pinto is moving in the opposite direction.
Mr. Pinto is the first chief...
March 20th, 2010 11:08 am
Courtesy of Tyler Durden
Key points:
S&P Earnings:
Our top-down EPS forecasts of $76 and $90 for 2010 and 2011 reflect +33% and +20% growth, respectively. Our pre-provision and write-down EPS forecasts are $81 for 2010 and $91 for 2011. Bottom-up consensus forecasts a 38% increase in 2010 to $79, and a 20% increase in 2011 to $95.
Valuation:
Top-down the S&P 500 trades at an NTM P/E of 15.2X (14.2X on pre-provision EPS). Bottom-up, it trades at NTM P/E of 14.8X and LTM P/B of 2.4X.
...
March 19th, 2010 12:05 pm
Quad Witching Expiration and a Pullback from the Long Term TrendCourtesy of JESSE'S CAFÉ AMÉRICAIN
The front month on the SP futures has now switched from March to June as a part of the Quad Witching Expiration. (Technically it switched last week, but for charting purposes I made the switch last night.) The June Futures have essentially the same formations as did March, it's just that the earlier months have few trades to mark them. This is the first serious test for US equities since mid-February, as it has been on a spectacular rally streak, no doubt fueled by excess liquidity applied to a selling exhaustion in the funds. Curiously not among corporate...
more from Chart SchoolMarch 19th, 2010 9:29am
Well now we're officially cashed out!
As I always do before options expiration I reviewed our Buy List, which, this quarter, is a list of 37 stocks we've been playing since late December and, sadly, after reviewing 37 of our favorite investments very carefully this week - I could only conclude that cashing them out was the only decision I could be comfortable with this week. Of 66 trades we had on our 37 stocks, 64 are winners with an average return since 2/8 of 28% - since most of the trades were designed to make 40% for the year - it just seems silly not to take the money and run now, on March 19th.
You are not supposed to have 64 out of 66 winners in 6 weeks, you are not supposed to make 3/4 of what you anticipate for the year in 6 weeks - that is NOT how the markets are supposed to work! When the ma...
March 19th, 2010 11:05 am
Identifying the Fundamentals
Stocks move under the influence various factors that we can use to identify stocks that are likely to move 3-5% in a single day. Even t...
March 19th, 2010 4:41 pm
Today’s tickers: BBY, DNDN, GLD, BAC, AET, BA & NBR
BBY - Best Buy Co., Inc. – Shares of the world’s largest electronics retailer rallied 2% to $41.25 during the trading session after receiving an upgrade to ‘buy’ from ‘neutral’ at Goldman Sachs Group where analysts increased BBY’s target share price to $47.00 from $44.00. Options traders employed a few different bullish tactics to position for continued upward movement in the price of the underlying stock through expiration in April. Plain-vanilla call buyers targeted the April $44 strike to purchase 5,100 calls for an average premium of $0.55 apiece. These investors stand ready to accrue profits if Best Buy’s share price increases 8% from the current value to exceed the effective breakeven point on the calls at $44.55 by expirati...
more from Andrew
March 15th, 2010 6:49 pm
By Ilene
Let's take a look at Insider Buying and Selling over the last week or so. These are screen shots from Finviz - the significant buys against a green background first and significant sells against the pink background second. All the buys fit into my screen shot but the sells did not. Click here to see all the sells.
Note that the largest buy in the group, for KITD was at a price of 9.73 (KITD is currently at 11.54). The buy was part of an Equity Offering rather than an open market purchase. Tuzman Kaleil Isaza's (KITD's Chairman and Chief Exec. Officer) history of buys is http://www.insidercow.com/ more from Insider
March 15th, 2010 8:55 am
This post is for live trades and daily comments.
To learn more about the swing trading portfolio (strategy, membership etc.), please click here
- Optrader
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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