Weekend Reading

We did very little on Friday to change Thursday's Virtual Portfolio Review so no need to go over them here.

After taking a long drive this weekend and catching up on my reading, I'm still more bullish than most and still on my premise that the US economy may suck, but it sucks less than other global economies and that's enough to drive investment dollars back to US equities, which are still dirt-cheap when priced in foreign currencies.

First Priorty Bank in Florida closed on Friday and it's the 8th bank this year to go under and I thought it was amusing to see the panic this was causing as I Googled for the total number of banks under review (90) and found this 1992 NYTimes article about the $33Bn that was projected to be needed that year from the FDIC for bank closings (this year they have spent less than $6Bn insuring bailouts and, back then $33Bn was a lot of money!) yet our country survived (also an election year when we got rid of a Bush). 

It's not the news that changes, it's the sentiment and it's the lack of leadership that has set this country adrift.  The reason the hyenas in the media can run hog wild with doom and gloom scenarios is no one in the administration makes any strong statements to the contrary (here's one from DB, who says the crisis is about over).  Here's a nice, boring article from Bankrate.com where the FDIC clearly states that even IndyMac's $32Bn is in no danger of not being returned to insured depositors and even the $1Bn of uninsured deposits are getting 50 cents on the dollar.  This seems at odds with claims that taxpayers will have to kick in $8Bn to "save" IndyMac…. 

There are no ratings in telling you this and even less ratings in explaining to people how the banking system really works and how a lender like IndyMac could go so wrong.  The reason a lender like IndyMac gets shut down is BECAUSE the regulations do work and there is very little tolerance for fraud.  Banks are not supposed to be taking risks with your money and CDO's and sub-prime loans can easily break the back of institutions that only have a 5% margin of error in their investment virtual portfolios.

If you remember "It's A Wonderful Life" the Baily Savings and Loan was going under because $7,000 went missing.  That's not far off in banking, it takes very little for a bank to run into trouble and they can often recover UNLESS people start stampeding in to get their money out (it's not in the bank, it's on loan to others) or unless regulators step up inspections while they are vulnerable – both of which are happening now as hyenas direct the government to "look into" troubled institutions while forcing liquidity crises by stampeding investors in to demand their money.  It's not even creative, we watch it happen every Chrismas yet investors fall for it every time…

Speaking of investors, nice article from Business Pundit about 25 businessmen who got rich breaking the rules.  Think about this if you find yourself falling into the follower category!  Here's 10 skills that will help you succeed at almost anything.

I'm going to lose a fortune in Zimbabwe dollars as my Billionaire status in yet another country will be revoked.  I collect crazy inflated currencies and Zimbabwe only recently issued a $100Bn bill, worth about $1.70 US but they just announced a "devaluation" of the currency that chops off 10 (TEN) zeros so that $100,000,000,000 bill is now worth just $10 new Zimbabwe dollars.  Just a few day's later, the new money is already inflating out of control and it now costs $25 (was $250Bn) to buy a loaf of bread that was "only" $150Bn last week.  Bad timing for Zimbabwe as our dollar is just starting to gather strength…

It looks like the next bubble is forming in "green" technology.  $148Bn was invested in clean energy technologies, companies and projects in 2007 and interestingly, as much money was moved into UK green energy hedge funds this quarter as was moved OUT of Asian hedge funds during the same time – that's one way to follow the money…  Another way to follow money is to see who's bribing who and bank officials connected to the UBS tax-shelter scandal have dropped $2M into Congressional and Presidential campaigns this year!  According to the Washington Post: "Campaign finance records show that expanded political giving is an approach shared by UBS and other key figures in the Senate's probe of offshore tax shelters that are costing the government $100 billion a year."

Commodities other than oil keep dropping like corn, soybeans, platinum (cars) and orange juice (expensive luxury) but oil looks like it's up at $126 over Iran nonsense and the media never, ever, ever mentions that Ahmadinejab pumps 4M barrels of oil a day and takes in (at $125) $500M a day which can go up $10M a day every time he says the word "missile."  The CRB dropped almost 15% in July and oil did it's share, dropping 13.8% off the $145 high.  On the 5% rule, $145-$120 = 17.5%(ish) and a 20% retrace is $5 so we expect a bounce to $125.  The breakout from $80 to $120 is 50% up so $120 is hyper-critical to hold for oil and SHOULD be significant resistance.  While we'd love to see oil fail $125, it would be fine with us to see $132.50 (the 50 dma) fail and then we can short expecting sub-$120 on the next roll down.   No change in downside target of $110 for this run down.

When commodity prices rise corporations hope for gains in productivity to offset and that's exactly what US corps are getting with 2.5% growth in productivity.  "It's a bit of a two-edged sword," said Chris Varvares of Macroeconomic Advisers, since efficiency gains could mean that companies can get by with fewer workers, exacerbating unemployment in the short run.  Some economists say the current healthy growth in productivity reflects a shift in the economy from less productive domestic sectors like home building and into exporting industries, which tend to be highly efficient. That shift has been aided by the weak dollar, which has made U.S. exports more competitive.

Hedge funds of all stripes are getting killed this year.  This is great for me as several hedge funds have expressed interest in investing in my fund, which (hopefully) could not be starting at a better time.  There will be more on this shortly for people who have expressed interest to admin@philstockworld.com as we're finally getting all the legal BS out of the way and moving forward with the incorporations! 

Barry found an excellent article from Investopedia (good place to bookmark) about "Seven Forehead-Slapping Stock Blunders" – very good reading for fledgling analysts!  Also from Barry, Nouriel Roubine predicts in Barron's $2 TRILLION in bank losses saying: "We are in the second inning of a severe, protracted recession, which started in the first quarter of this year and is going to last at least 18 months, through the middle of next year. A systemic banking crisis will go on for awhile, with hundreds of banks going belly up." 

So happy Monday to you!