bearfund

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497 Comments

    • Mon Jul 14th 11:17 AM | Rating: 0 0
      Commented on:
      Should I Buy Fannie or Freddie Stock Today?
      No way. The market cap of these companies is quite small and owned almost exclusively by Americans (mainly mutual funds). It's not like the debt where you have Russia armed to the teeth with nukes and holding $100b of the stuff. That I would buy, if I wanted a yield below inflation. The stock... no thanks. It's a short to zero candidate if anything.
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    • Sun Jul 13th 20:59 PM | Rating: 0 0
      Commented on:
      The Great GSE Meltdown: Market Adding Fuel to Fire?
      researcher, investors aren't going to buy. No investor would ever buy debt that yields less than the rate at which the currency in which it is denominated is losing purchasing power. Speculators might buy them, possibly. More likely they'll be bought by sophisticated traders betting on spreads, but that trade will evaporate quickly once the money is made. Most of this paper, though, will end up at big foreign banks and central banks. You know, the ones Paulson's been calling all weekend. I don't know what he's told them, but I'm guessing it went something like this:

      "You know, you have $300b in Treasuries. I know it's been a tough year for those dollars, and I'm really sorry about that, but darn it, America is still the greatest country on earth and I'm sure you're thrilled to be holding them. But gee, it sure would be a shame if we had to bail out Freddie and something bad happened to those Treasuries. Well, that's all; I just wanted to get a better understanding of how tomorrow's auction is likely to go. Nice chatting with you."

      While a few central banks and SWFs have stopped throwing good money after bad, we have yet to see anyone start dumping this garbage, even slowly. One wonders if it's really Paulson making these calls and not Gates. Either way, though, there's no reason to think anyone will stop now, not over a paltry $3b rollover.
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    • Sun Jul 13th 19:48 PM | Rating: 0 0
      Commented on:
      An Open Letter to the Plunge Protection Team
      mark, you write that "If everyone moves into metals, or cash, the wheels of commerce grind to a halt". True. You know how to prevent that? Raise interest rates. If you want to use my money to build a bridge, expand a factory, or start exporting widgets to France, you need to offer me a decent return. Junk is yielding 10% right now; that's basically zero after inflation and all the risk is still there. I'll start buying dollars with my gold when 10-year Treasuries yield 10%. Until then, you're simply not offering me enough for my money. Lower interest rates spur growth? Not when the Fed is the only willing lender at those rates. All that does is kill the dollar and make existing investments less valuable. If the powers that be want to stimulate growth, they will raise interest rates into positive territory. Until then, you call can bloody well go to hell.
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    • Sun Jul 13th 17:00 PM | Rating: 0 0
      Commented on:
      Housing: Barron's Calls a Bottom
      Two words: neg-am recasts. That is all.
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    • Sun Jul 13th 15:31 PM | Rating: 0 0
      Commented on:
      The Effects of Oil Speculation
      jjason, so why exactly should pension funds be prohibited from owning oil futures? Is it because their pensioners won't be using any oil during their retirement? Hmm, no, that's not right. In fact, in order to match their holdings to their pensioners' needs, they MUST hold oil. Preventing them from doing so will force them to seek comparable yields elsewhere, which will undoubtedly lead to yet more underpricing of risk. Brilliant plan, Senator.

      Raising margins to 50% would be fine, however. Most (all?) of the long-only index funds aren't leveraged anyway. Just don't forget to raise the margins on shorts, too.
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    • Sun Jul 13th 13:13 PM | Rating: 0 0
      Commented on:
      What Kind of Government Support Will Fannie and Freddie Get?
      There's more to this than the usual moral hazard of encouraging unwise risk-taking in the future. The middle class has already been largely destroyed by expansionary monetary policy, perverse incentives to avoid saving and take on debt, and heavy taxation. More bailouts that weaken the dollar, pushing up food and fuel prices, and increase the public debt and tax burdens will probably push a lot of people over the edge.

      I'm talking about alienation: the recognition by large groups of citizens that they are no longer stakeholders in anything the government is doing "on behalf of the people". Many of us already feel disconnected from America; our wealth is not in Treasuries and shares of GM or the local grain elevator but in gold held physically or in foreign vaults. Our political sensibilities are appalled by everything we have seen from Messrs. Bush and Cheney and just as much so by Messrs. McCain and Obama. We feel no common cause with the hundreds of millions of fat, lazy, overleveraged, and undisciplined American suburbanites more concerned with last night's American Idol than with the health of their country. Now you tell us you intend raising our taxes to bail out these deadbeats and the fools who lent to them. This plays both sides against a vanishing and beleaguered middle. What incentive does it give anyone to work hard, save, and invest wisely (the traditional values that built the nation)? What incentive does it give anyone to remain an American at all? We are being squeezed from both sides and the populist government is turning its guns on us to forcibly extract what little we have left! Those of us who feel this way will respond as our wealth permits: those with the most capital will remove it from harm's way and leave the country for good; those with less will move to the mountains, stop paying taxes, and load up on weapons. This is the unraveling of America. If the policymakers really believe their task is to balance moral hazard with financial collapse, they are delusional: the greatest risk is alienation. Freddie and Fannie MUST be allowed to fail if that is what the market dictates. No more bailouts for billionaire bankers and foreign central banks. They chose to buy our garbage paper; we didn't force it on them. No more subsidies for deadbeat wannabes with 3 cents to their names and the deed to an underwater McMansion. They chose to live far beyond their means; now they can cram their Precious and Cody into a dingy 1-bedroom and teach them what it takes to survive in a world where everything must be earned. Assuming they even know. "Blood in the streets" is not just an expression. Continue this process of alienation and you'll get an up close and personal reminder of that.
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    • Sun Jul 13th 12:26 PM | Rating: 0 0
      Commented on:
      How Do We Get Out of the Mess with Fannie and Freddie?
      Sorry, no. If I had wanted exposure to MBSs, I would have bought MBSs. If I had wanted exposure to house prices, I would have bought a house. Instead I saw that these assets were radically overpriced and bought gold instead. Now you're telling me that I should pay higher taxes to bail out those who, with access to all the same data I had (probably much more, quite frankly), made the wrong decisions I avoided. I have only one response: ---- ---.
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    • Sun Jul 13th 03:30 AM | Rating: 0 0
      Commented on:
      5 Steps For Saving Fannie
      Congress needs to "help the ailing housing market"? How exactly? I don't know where you live, but around here housing is by no means cheap. Most of the price declines have been in areas that represent a 60 to 90 minute one-way commute, with no mass transit available, to any decent job. Given tighter lending standards, more expensive money, and the need to buy an automobile and fuel it with copious amounts of $5 gasoline to take advantage of these "fire sale prices", I daresay nothing has changed at all. The downtown condos people actually want to live in haven't got a penny cheaper. Throw in stagnant wages and higher prices for everything from milk to memory and that house in the 'burbs that's 30% cheaper than last year still looks like a stinker to the prudent would-be buyer. The bottom line is that most of the housing stock that's losing value today should never have been built at all and has very little real value; the only people who wanted it were those with inadequate income and capital to own real estate at all. Accordingly, the market is far too rosy in its predictions. I would not be surprised to see especially banal developments written off as worthless, depopulated, bulldozed, and sold back to farmers for the cost of cleaning them up. Many others will lose 80% of their peak values and become slums.

      There is no force in the universe that can put things back the way they were. If the market has decided that a piece of property is worth $100k but the mortgage on it is for $200k, there are only two ways out. The "owner" can lower the price of the house to $100k and, with the lender, eat the loss; or the government can lower the value of the dollar to match the market's price and force Chinese savers (Americans no longer save) to eat the loss on an investment they never benefited from. It never ceases to amaze me that even very smart people constantly fail to grasp this basic truth and eagerly look to the government to somehow put Humpty-Dumpty back together again. At most, the government can choose how long the pain lasts. How much of it there will be is out of its hands.

      Thankfully, we don't have to bother guessing which of those paths the powers that be will choose; they've already made it clear that large banks and other institutions like Fannie and Freddie will not be allowed to fail, and with leverage exceeding 50x at many of these institutions now, that means no further price decreases can be tolerated. The Fed will print more cheap money, and the Treasury will issue more notes, rather than allowing that to happen. It's an open question which will dominate; that is, how much of the increase in the money supply will be sterilised. Fortunately, that doesn't matter, either - the long gold, short Treasuries pair trade will work well at any point on that continuum. And another advantage: not having to guess which financial institutions will live and which will die. It simply doesn't matter.

      Disclosure: long gold, silver, GLD, PST, TBT; short long-dated Treasuries.
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    • Sun Jul 13th 02:31 AM | Rating: 0 0
      Commented on:
      Who's to Blame for IndyMac's Failure?
      Schumer's actions had little effect. If the bank were adequately capitalised and sufficiently transparent, no amount of rumour mongering would have any effect. The market very obviously knew the bank was in deep trouble long before the senator write his letter. At most it accelerated the inevitable by a few months.

      A word to the wise banker: if you want your bank to withstand credit crunches, rumours, and the ordinary and expected rigours of the marketplace, make low-risk loans, use leverage sparingly, and tell the market in detail about the contents of your balance sheet. If you're happy to see your equity vapourised, your career destroyed, and your debt transformed into discounted equity in the hands of the next RTC, then don't. I don't really care either way. But for God's sake stop demanding that I bail you out when things go ever so predictably to hell. I owe you nothing and I don't share your inflated view of your own importance to the rest of us. If you need to be bailed out, go back to your shareholders and demand they return those fat dividends you paid them with the cash that should have been left on your balance sheet as provision against the bad loans you were making - loans that you and the borrower both knew would never, could never, be repaid.

      If Sen. Schumer wanted to do something useful, he would introduce a new law limiting banks to the same leverage equities traders are permitted: 2x.
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    • Sat Jul 12th 21:52 PM | Rating: 0 0
      Commented on:
      Why Bother with SPDR Gold Shares Options?
      It depends what kind of risks you're worried about. The only risk in holding physical gold is that the things you want or need to buy will continue to be priced in something else and that something else will appreciate relative to your gold. Most of us don't consider that risk very serious given negative real interest rates and explosive monetary expansion, to say nothing of rising government meddling and the ever-present threat of war.

      Options are a different kettle of fish - and high on the list of risks is the risk that gold itself is so good at insuring against: counterparty risk. The two main advantages of gold are its natural scarcity and the complete lack of counterparty risk; physical gold does not in any way represent anyone's obligation to its holder. All the value in the gold was created in the past. Neither of these advantages applies to options, especially calls. The very circumstances in which the notional value of your calls would be greatest are those in which your counterparty is most likely to default. It makes little more sense to write calls against your gold: the cash they will generate is not worth the risk of losing your asset at the very time you may need it most.

      Traders in GLD options must surely be gold bears, fools, moneyed types so filled with hubris that they could never imagine their own financial system collapsing, or nihilistic speculators convinced that in extremis even the most dependable form of money will surely be worthless. I guess I don't see any point in joining any of those crowds, so I'll stick to my physical holdings. If you feel compelled to trade in these securities, I suggest writing out of the money puts to get long exposure and generate a return on whatever idle cash you don't care to convert directly into metal. I won't bother.
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    • Sat Jul 12th 20:41 PM | Rating: 0 0
      Commented on:
      Gold's Golden Run All Set to Continue
      Ant1967, "investing" in gold makes no sense. Exactly how is gold going to generate income? It doesn't make anything or do anything. You can't eat it, drink it, or build a house out of it. Therefore gold is not an investment at all, except perhaps if you own a bullion bank.

      As J. P. Morgan himself said, gold is money. When you don't want to invest in equity and real interest rates on debt are negative, you should convert most of your assets into gold and sit on it until something changes. But don't confuse sitting on a metal brick with investing; everyone holding gold (including me) is either sitting on the sidelines in our preferred form of cash or speculating. Nothing wrong with that, but it's critical that you never confuse them. There is a time to invest, a time to speculate, and a time to sit in cash. Don't fall in love with your "investment" any more than you would a $100 bill. Yes, it's better at being money than the paper, but it's no better an investment.
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    • Sat Jul 12th 17:28 PM | Rating: 0 0
      Commented on:
      Ron Paul's Investment Portfolio
      What's wrong with such a concentrated portfolio? When you're right, you're right. At various times I've hedged my bets, holding junk like C and FNM. It's instructive to look back at my performance over time: every single stretch of underperformance matches a period in which I held something I did not believe in "just in case I'm wrong". I applaud Congressman Paul for saying what he means, meaning what he says, and putting his own personal fortune on the line in a manner entirely consistent with his values. And I don't hedge any longer: my portfolio has a lot less mining than the congressman's, but a lot more physical gold - a holding he almost certainly has as well but (wisely) does not disclose. Why should he hold assets he does not believe are valuable? If you want "diversification&... go ahead and buy that crap. But this is not a time for diversification; it is a time to look at the obvious macro trends and take advantage of them. That or sit in cash and cross your fingers that that's still worth something when this is all over.
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    • Sat Jul 12th 11:36 AM | Rating: 0 0
      Commented on:
      10 Winning Stock Themes in an Obama Administration
      The winning themes for an Obama presidency are the same as for a McCain presidency: short Treasuries, long gold. The reasons are slightly different but the outcome is the same. The problem is the imbalance between government spending (enormous and growing) and GDP (stagnant in official terms, shrinking rapidly if true prices are factored in). If taxes are raised enough to balance the budget and stop the bleeding from the Treasury, or if they're raised only on the "rich" (by which I mean the people we used to call middle-class, when we had a middle class), wholesale capital flight will result and _nobody_ will want to hold dollars at all out of fear. Why would I want to hold an American cement company's shares that will earn 20% more thanks to government spending if 60% of those nominal earnings will go to taxes and the dollar is losing 25% of its purchasing power every year? But if taxes aren't raised, or raised by only a small amount, the supply of debt will balloon even further as the government makes a desperate effort to subsidise and prop up anything and everything. Fannie and Freddie are huge but nothing like the whole story; as much as $8b of the FDIC's $53b just vapourised with IndyMac and there are hundreds of bank failures yet to come. The bleeding hearts will pump ever more borrowed money into housing, fuel, you name it, pushing prices ever higher and devaluing the dollar in a vicious circle. Obama's likely socialist medicine programme will boost spending even further, as would McCain's warmongering, and as a bonus war is good for gold. There's no winning either way with dollar-denominated assets. Unless you want to gamble, be sure any equities you hold are as far from US influence as possible. But if you're smart, you'll just stick with the winning macro theme we've had for a while now and keep shorting Treasuries on irrational countertrends like we had early last week and buying more gold on all dips and corrections.

      I laugh every time I read "flight to quality" in association with Treasuries; take a step back and look objectively at what kind of quality they actually offer. Holders have no recourse in event of default; it is more or less impossible to force a sovereign to pay. They are unsecured; in the event of default, you will not obtain any asset or an equity stake in anything. They are denominated in a currency controlled by the issuer; if the issuer does not want to default but is unwilling or unable to pay, it can simply devalue the currency to whatever extent it wishes and then make the agreed-upon payments in worthless currency. Supply is unconstrained and the ratings agencies don't seem to care how overburdened or undercapitalised the US Treasury becomes. Any other government or corporation in a similar position would be looking at a speculative-grade rating but the ratings agencies don't have the balls to rate this stuff like the junk that it is. About the best that can be said for Treasuries is that the market in them is deep, global, and liquid. But the same could have been said for MBSs 2 years ago before everyone suddenly realised they were toxic. The real challenge isn't finding winning themes for the next presidential administration; it's finding a worse investment than a 30-year junk bond yielding less than the rate of inflation. Tulips, maybe?
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    • Wed Jul 9th 10:04 AM | Rating: 0 0
      Commented on:
      5 Sectors That Do Well in a Shrinking Economy
      I'm staying away from health and pharma. Yes, they're traditional recession plays, but this recession is a little different: it's a presidential election year and socialist medical programmes are a hot issue. While there are companies that could do well even under such a scheme, it's always difficult to predict what politicians will do. Political risk is probably the risk class I most seek to avoid. If you feel differently, load up.
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    • Tue Jul 8th 22:42 PM | Rating: 0 0
      Commented on:
      Market Rumors Are Inevitable
      Maybe if everyone had obviously adequate capital and was sufficiently transparent about the contents of their balance sheets these rumours would have no effect. They only matter when they're believable. Instead of blaming the rumourmongers, the I-bankers should STFU and focus on cleaning up their own house. They are in trouble not because someone started a rumour but because they overreached and overleveraged and, to be blunt, bought a boatload of garbage at Tiffany's prices. They'd be in every bit as much trouble if you locked every trader, hedge fund manager, and investor in soundproof padded rooms.
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