bearfund

Total Rating:
+5 / -1

497 Comments

    • Sun Nov 2nd 13:24 PM | Rating: +1 0
      Commented on:
      Reverse Carry Trade Borrowing Proves Deadly
      I don't understand why so many people are characterising lenders as "afraid to lend" or saying there's "no money available". The problem is that borrowers are either out of capacity to borrow or unwilling to offer a fair rate. In both cases, that is a sign not of malfunctioning credit markets but of a marginal business that has reached the end of its rope and needs to fold.

      In a world that has enjoyed interest rates of much less than 5% for most of the past decade, most businesses are marginal. It's very easy to load up on debt that costs nothing and eke out a modest ROE, no matter how bad the business model or how poor the management. Now that money is being repriced toward reasonable levels those businesses will have to do one of: increase prices for their products, cut costs, improve their products, positioning, or model, accept a much lower return on equity, or fail. Most of them are beyond salvaging and need to fail.

      This is why cheap money is the worst possible curse than can be placed on an economy. It is far better to let the market set rates and use sound money that does not distort the market by losing some large but arbitrary and hard to guess part of its value every year. As an example of this, I would be happy to lend gold to highly creditworthy companies at 12% for 10 years. But there are few such creditworthy companies and none willing to pay 12% on money that will not depreciate. They can't; it would eliminate all profits. So the deleveraging continues...
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    • Sat Nov 1st 19:43 PM | Rating: 0 -1
      Commented on:
      Gold's Fundamentals: 'Extremely Appealing'
      Last I checked, the price of gold was unchanged at 1.0000000 ounces of gold per ounce. That's the same closing price as every single trading day for the last 5000 years. If you're "buying gold" in the hope that it will "go up" you are sure to be disappointed. It's the value of fiat paper that changes, not the value of gold. Gold stores value, nothing more. The only way to profit in gold is to use leverage; e.g. borrow dollars and sell them for gold, then cover later and keep the balance of the gold. Whether you will actually profit from such a trade depends on your cost of borrowing and the strength of your balance sheet to meet margin calls along the way. The short-term movements of fiat paper are random but as we have seen can be quite large, so shorting it is quite risky even though in the long run it is probably the only trade that cannot possibly fail to turn a profit.
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    • Sat Nov 1st 19:26 PM | Rating: 0 0
      Commented on:
      Shorting the Long Bond: The Obama Solution Meets China
      buyitcheap, UDN? Why? The only reason to own euros or pounds instead of dollars is that there is a bit of yield to be had in those currencies, and you don't get that in UDN anyway. You've seen that other central bankers are now revving up their own presses in an effort to keep up with the Fed's debasement of the dollar. I find no compelling value in any fiat paper at these prices.
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    • Sat Nov 1st 19:05 PM | Rating: 0 0
      Commented on:
      Buffett's Buying More Burlington; Should You?
      At $78? Sure, that's a bargain; Buffett knows a good deal when he sees one. Up 12% from there? That's a lot to give up. I think I'll wait to buy more; we're probably going to revisit the lows at some point in the next 6 months.
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    • Sat Nov 1st 12:46 PM | Rating: 0 0
      Commented on:
      The 50bp Lower Bound on Interest Rates
      We were already seeing most of that happening at 1.5% and it's only getting worse. The other thing you fail to mention is that both money market funds and bank deposits pay virtually no interest, discouraging people from holding dollars at all. These effects have been masked by the unwinding of the carry trade by large banks and hedge funds, but overlooked in that maelstrom is the real money flight out of the dollar altogether. Expect this to accelerate as it becomes obvious to individuals now saving some of their money for the first time ever that saving in dollars doesn't pay. Since central banks all seem to be racing to the bottom, I can only assume that these new savers will eventually do what those of us who have always been savers did over the past several years and move largely into precious metals. This will only exacerbate the downward pressure on demand as the government does not allow PMs to circulate so they are effectively as dead as the trillions of yen sitting on Japanese banks' balance sheets.

      None of this is good. If the central banks want to prevent a serious collapse they must raise interest rates significantly, and soon.
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    • Sat Nov 1st 12:36 PM | Rating: 0 0
      Commented on:
      Platinum: Now You See It, Now You Don't
      I am also monitoring the true spot price of gold via eBay (the only place one normally finds anything on offer at any price) and noticed over the past week that although the COMEX 400 oz price fell, the 1 oz price actually rose by about $20 and supply continued to tighten. The market for survival gold is now completely decoupled from the speculators' market as the arbitrage mechanisms (the mints) refuse to increase production. The eBay prices are of course distorted by the live.com promotion but the relative day-to-day movement of the premium is not.

      It is somewhat surprising that one of the large banks has not stepped in to profit from this opportunity. I would expect that if an impeccable bank like USB contracted with a top-notch refiner to strike 22kt 1 oz coins bearing the bank's mark and a reasonably attractive design that they would likely sell in the wholesale market for at least $25-30 over spot and possibly more. I base this on the fact that CNI is offering spot + $20 for PAMP Suisse bars and has none of that product in stock; Krugerrands, normally the lowest-premium government-guaranteed coins, are bid at spot + $40 with occasional limited stock on hand offered at spot + $80. A run of 100,000 coins should sell out quickly and would basically be a free $1m in profit and a bunch of free positive publicity and advertising to the bank for doing nothing but financing the run (which would cost them virtually nothing). Surely even big banks ought to be interested in a free million bucks.
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    • Fri Oct 31st 10:56 AM | Rating: 0 0
      Commented on:
      Nationalizing Detroit? It's a Good Idea
      Nearly everything you said is correct, but your high-level principles are wrong. The purpose of markets and corporations is not to keep people employed in make-work jobs so that they can have money to spend on stuff they don't need and thereby keep the cycle going, young men employed, and the threat of war at bay. Those objectives could as well be achieved by putting everyone alive in manacles and forcing them to work in the fields producing food.

      The function of a market economy, you will recall if you think back to high school, is to employ price signals to encourage the production of things people want or need and discourage the production of things they don't. In the long run, if price signals are clean, the economy will invest more in things that are more productive and less in things that are inefficient or produce things that are not desired.

      In this context, it is clear that we have too many cars, too much capacity for making more cars, and that making, maintaining, and buying cars are not productive activities. Therefore what we need is fewer cars on the roads, less capacity for making new cars, and therefore fewer people working in the automotive industry as a whole. You bemoan the loss of jobs and subsequent personal and economic pain this would cause. I instead bemoan the trillions of dollars that have been squandered on automobiles over the past 6 decades and hold out great hope that this market collapse will eventually free up that capital to be invested in something more useful, something that makes America more competitive rather than draining away its wealth for the benefit of soccer moms who want another minivan and unionized line workers who are damned good at making cars but apparently won't be able to find work for years if their employers shut down.

      Enough malinvestment. Housing and automobiles aren't productive. The market has spoken; heed its call. Shut this crap down and focus the money where it can actually do good.
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    • Fri Oct 31st 10:44 AM | Rating: 0 0
      Commented on:
      Ignore the Hype - Gold as Currency is Dead
      Forgeries are easily detected using the simplest and oldest test in the book. And before you even suggest it, have you ever actually tried to work tungsten? Making believable forgeries would take serious metallurgical knowledge and capabilities and would need to be done on a fairly large scale to be profitable. I would have an easier time believing that the US Mint is producing such coins than that independent private operations are doing so. Unless you can provide some evidence that such coins are being found on the market, I will continue to doubt this theory. And as a reminder, the last major gold forgery story involved an African central bank and some very bad forged bars that would not stand up to even the most trivial inspection. Hardly something to be worried about.
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    • Fri Oct 31st 10:25 AM | Rating: 0 0
      Commented on:
      Shorting the Long Bond: The Obama Solution Meets China
      Agree completely, this is a great macro no-brainer. 7% is very tame; 10% is a reasonable target for conservative traders. My experience forecasting previous macro moves has been that even the most breathtaking predictions usually fall well short of eventual reality; when macro pressures let go, they really let go. My gut feeling is that we could in time see Treasury yields at levels we would expect for emerging market sovereigns in crisis.
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    • Thu Oct 30th 11:32 AM | Rating: 0 0
      Commented on:
      Can the Fed Really Just Print Money?
      thedozer, parts of the credit market apparently agree with you. 30-year swap spreads have been negative recently, implying that a private party's promise to pay interest for 30 years is worth more than the government's. Whether participants actually believe this or the market is just suffering a momentary distortion is unclear.
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    • Thu Oct 30th 10:59 AM | Rating: 0 0
      Commented on:
      The Last Fed Rate Cut?
      Looks to me more like a 6-9 month reprieve before the Option ARM recasts kick in. Those are vastly worse than any others because their LTVs at recast are typically going to be north of 150% and in some cases probably over 200%. The possibility of a near-total loss of the bank's original investments in this space is very real. That leads to the fairly obvious conclusion that the Fed and Treasury are trying to fatten up banks' balance sheets as much in preparation for the next round of disasters as in reaction to the previous one. True, option ARM exposure is likely to be more limited than subprime was, but we've seen that contagion is likely nonetheless. The failure of a large number of smaller, less prudent banks is sure to have some systemic effect. Just what that effect will be and whether another year of negative real interest rates will offset it remain to be seen.
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    • Thu Oct 30th 10:34 AM | Rating: 0 0
      Commented on:
      Next Investment Opportunity? Citigroup Analyst Says Healthcare Stocks
      You guys may be right but I'm not going to bet any money on it either way. When politicians get involved in an issue with a high degree of public outrage and self-entitlement, anything can and does happen. They do silly things like picking winners and distorting markets, often as unintended consequences of high-minded schemes. If you feel you must invest in this area, I would be looking at large device makers with no US presence; they stand to profit from any increase in demand and may have the pricing power to tell Lenin to take it or leave it. But I'd still rather have the bridge.
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    • Thu Oct 30th 10:27 AM | Rating: 0 0
      Commented on:
      Premiums Paid for 100 Ounce Silver Bars
      The premiums on 100 oz bars frankly make no sense to me. 100 oz bars are not particularly convenient either for storing wealth or for use as a medium of exchange. One ounce gold coins and bars have comparable purchasing power but are much more convenient. 1000 oz silver bars trade at much lower prices. I can only assume that the people buying the 10 and 100 oz products are simply looking for whatever's available.

      There's another very important factor at work here, however. Because you are looking at eBay, you must extract the live.com 25% discount. When Microsoft began offering cash back on purchases at certain merchants to boost their search engine's market share, eBay was, and remains as far as I can tell, part of the program. At that time, canny sellers of metals products immediately added a similar amount to their prices. In effect, 2500bp of that premium is being paid by Microsoft. But this still does not explain the 20-25% premiums on 100 oz silver products.

      The real reason to buy silver is to have a convenient medium of exchange for ordinary goods in a scenario in which the dollar or other fiat money is no longer valued or accepted at anything like its current price. Gold has too much purchasing power for this purpose, so one needs somewhere between a few dozen and a few hundred one ounce silver coins, or perhaps a similar amount of old coin of the realm containing silver. 100 ounce bars do not serve this purpose at all, so the premium is inexplicable.
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    • Thu Oct 30th 01:15 AM | Rating: 0 0
      Commented on:
      Three Areas of Opportunity for the Bold
      Real estate in gold terms (the only terms that matter) is still quite expensive. I wouldn't bother.

      As for the yen/dollar cross, I wouldn't touch it on either side; what is this, the race to the bottom trade? Dollars most certainly are NOT cheap. There is tremendous printing on both sides and no yield whatsoever. Both have done well lately on deleveraging and the unwinding of carry trades. In other words, they are both acting contrary to the fundamentals. The dollar is the absolute last place I would want to be right now. In order, I prefer gold, silver, senior bank debt, and CHF. All are vastly better than being long USD/JPY.
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    • Thu Oct 30th 01:05 AM | Rating: 0 0
      Commented on:
      Next Investment Opportunity? Citigroup Analyst Says Healthcare Stocks
      Let's see, regulation of financials will make them less attractive, so we should all buy... HEALTH CARE. Um, yeah. Barack Obama + 60 Democrats in the Senate sounds like a great time to buy health care stocks. I guess the thesis is that suddenly this gang of socialists will want to simply pay for everyone to get care under all the existing rules, eh? Indeed, that would be highly profitable. If you believe that, though, no need to buy health care; I've got a bridge I'll sell you for fifty bucks.
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