bearfund

Total Rating:
+5 / -1

497 Comments

    • Sat Oct 25th 11:09 AM | Rating: 0 0
      Commented on:
      The Recession Is Already Priced Into Stocks
      Because it's very difficult to estimate forward earnings in a volatile and pressured environment, my rule of thumb when doing fundamental analysis has been that unless I can come up with a compelling contradictory scenario, to assume a 50% decline in unit sales (of whatever a company sells) and a 500bp decline in margins. In most cases this will put the company in the red. Obviously there are sectors where this will not apply; e.g., foodstuffs and consumer staples. But if one looks at Volvo's order book one can see how even this might be far too optimistic.

      The winners in this environment will be those who cut fixed costs early and deeply. I want to see large-scale layoffs and I want to see them now (preferably without severance if contracts so permit - that cash is going to be needed later). Because the reality is that the S&P 500 might not have much at all in the way of 2009 earnings. Most of what earnings there are will likely come from banks, and those "earnings" will be the result of government handouts and inflationary policies only. My earnings targets are $25 in 2009 and $35 in 2010. P/Es will rise all the way to the October 2009 panic bottom, at which they'll probably be around 25, then fall as earnings stage a recovery on the back of inflationary pressures. At this point things could go one of two ways.

      In the best case, things slowly return to normal as the Fed takes trillions of dollars out of circulation in a matter of weeks. CPI increases top out around 10% and then slowly drop. Earnings rise rapidly and then taper off as companies with weak balance sheets are caught off guard by rising input costs.

      In the worst case, as euphoria over the end of the deflationary environment gives way to a second round of panic over runaway prices in 2011, P/Es will drop to their 1970s lows and perhaps further to around 5. We'll finally get our bull-market collapse in Treasuries - it'll make RSX's chart look like a gentle decline - and we'll see the dollar fall against gold to levels that price housing and real estate near historical norms (median SFH around 150 oz +/- 30%, implying that the dollar needs to fall around 60% from present levels). A real recovery will begin only after the 2012 election sees a desperate nation realize its earlier mistake and turn to Ron Paul. Or not, in which case Zimbabwe here we come and earnings mean nothing.
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    • Fri Oct 24th 02:30 AM | Rating: 0 0
      Commented on:
      U.S. Recessions: 1900 - 2008
      Nope. Cheap money has simply "stored up" recessionary pressures. That trend line is about to be blasted to hell and the average recession length will revert to the mean.
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    • Fri Oct 24th 02:13 AM | Rating: 0 0
      Commented on:
      Circuit City Doesn't Have Enough Cash to Declare Bankruptcy
      To thepoordude, take a long hard look at the balance sheet. Yeah, book value is $1b. But look at the assets. No cash at all (and negative cash flow as well; things are certainly much worse now than they were in August). $1.5b in inventory and another $1b in property. Another $500m, give or take, in receivables. Now - if we assume the receivables are all good (I don't have enough information to guess) and haven't fallen off with business (which they likely have), we might suppose the company has $3b in real assets, against $2.3b in liabilities. But do you really believe that inventory, at least some of which will have to be sold off at fire sale prices just to keep operating, is really worth that much? I hope not; if you do, stick to either gold or CDs as your faith in government dictates.

      Their other assets need to take haircuts, too. A sober assessment of a liquidation scenario as of today pays the noteholders 80 cents and gives the shareholders a boot to the face. When they finally get around to liquidating it will probably be worse. If you buy this stock here, you're either gung ho on some kind of turnaround plan (there isn't one) or you're hoping for a quick profit on a random bounce.

      Summary: there are more exciting penny stocks - and table games - to gamble on if that's your thing, there are better retailers to lose money on if you're the sort of masochist who buys retailers, and there are better sectors to invest in (automakers? aviation? flushing your money down a toilet?) if the concept of profit appeals to you. The only reason to buy CC is to get the certificate and frame it for the hall of shame.
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    • Fri Oct 24th 00:13 AM | Rating: 0 0
      Commented on:
      For a Fork in the Road, a Barbell Portfolio
      Instead of buying yield-free T-bills, buy senior bank debt. You can get US Bank notes yielding around 5% (they'll be the ones turning out the lights on the banking system if it goes) or take a little more risk and buy a diversified bundle of A to AA rated paper yielding in the 6-8% range for 5 years. There is absolutely no reason to own government debt when the government is backing the banking system to whatever extent it deems necessary. If you're holding paper from 20 or 25 big names, your risk of default is realistically limited to a couple of them, and even then you are likely to recover a substantial portion of your investment.

      If you want a little more risk than that, buy something like PGF, which holds around 30 major financial preferreds and yields over 10%. The governments and central banks aren't likely to backstop this paper, but they're certainly doing all they can to help these companies make money.

      Bottom line: don't be the sheep that's paying, be the shark that's getting paid. Or, if you look at it as I do, try to recover some of those tax payments you're always sending off. The right barbell portfolio for the committed cynic consists of bank paper and preferreds, gold, a nice fat short position in the back half of the Treasury curve, and the cash to cover it. It's well-hedged and will serve you well no matter the outcome. If there's serious deflation, the bank preferreds are going to be worthless, but so will the Treasuries (there is simply no way America can pay its debts in a deflationary environment, so as you suggest some kind of restructuring will be required); you'll end up with the same amount of cash you'd have had if you'd just bought T-bills, but you'll also have the income from that paper along the way. The bank debt will probably be at least partially backed by the government, if the foreign bondholders allow it. If there's hyperinflation, you'll make out like a bandit: again, the bank paper is worthless, as is the cash, but so are the Treasuries. Convert more of the cash to gold as the Treasuries decline in value.

      This portfolio sacrifices some of the security of gold (gold's purchasing power is broadly constant) for an opportunity to profit modestly (gold never turns anyone a profit, it only stores value) from the extreme moral hazards that policymakers have allowed into the system. It's vastly better than a portfolio consisting of T-bills and gold, which will basically lose half its value in a bout of hyperinflation and in any case will pay less than nothing while you await the outcome.
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    • Thu Oct 23rd 11:13 AM | Rating: 0 0
      Commented on:
      Response to Bloomberg's 'Gold May Pay Only in Case of Maximum Despair'
      I don't really find her commentary that objectionable, other than the "gold is for rich guys" snark. What too many gold bugs forget is that gold is not an investment. It's simply a store of value; its purchasing power in real goods and services changes little or not at all over the long haul. Therefore it is where you put money you cannot afford to lose, or for which you cannot find an investment where the rewards outweigh the risks. Right now the risks of holding paper currency (dramatic printing, losses in money market funds, default by longstanding solid companies) outweigh the rewards (1-2% yields). The risks of stocks, bonds, commodities, and exotics exceed their respective potential rewards as well.

      In other words, there are no assets that offer a risk-adjusted return. So gold is attractive. Not sure what everyone is getting so worked up over, really; at some point we'll start to see rock solid companies with strong balance sheets and great businesses trading at 4x forward earnings (finally estimated in despair rather than hope), and A-rated paper issued by same yielding 18%. When that happens, gold will no longer be attractive. Not because it's any less shiny or any worse a store of value, but because the opportunity cost of holding it will become positive. The important question is whether, we we finally get there, any of those companies will be American, or whether the US dollar will have any value at all. One could ask the same question about other paper currencies. All the more reason to sit out the crisis holding universal money. There is no reason to pick winners right now, not when governments are trying to outdo one another in their race to thoroughly devastate their economies and currencies.
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    • Thu Oct 23rd 10:14 AM | Rating: 0 0
      Commented on:
      Gold ETF Reaches One Dollar Per Tonne
      freefall, the prospectus describes the process perfectly well. Redemption (and creation) is a shares-for-gold process and can be initiated at any time by any of the large brokers willing to pay a fee and deal in whole baskets. This is the arb mechanism by which the price of the shares theoretically tracks the inverse of the value of the dollar. There's no "trigger" other than a dealer's desire to turn a quick profit selling the shares into the market and giving the trust gold in exchange. In other words, issuance of new shares actually means the trust's holdings are growing.

      Whether the amount of gold physically located in the trust's vaults would buy the number of dollars represented by the trust's market cap is a fine question to ask, but if the answer is no then, beyond small premiums/discounts, the reason is fraud. The design of the trust seems quite reasonable and if all the players are acting properly there should be no problem.

      But the prospectus and common sense say one thing and the market is saying another. GLD is "paper gold" and it's trading like paper gold. A year ago one could obtain about 103 ounces of paper gold (or about 1042 shares of GLD) for 100 ounces of physical gold. Now, one can obtain about 115 ounces of paper gold for 100 ounces of physical. And no one wants to make that trade so the spread continues to widen. Most if not all buyers of paper gold today are paying not in physical but in dollars, and are doing so because their efforts to sell those dollars for physical gold have been frustrated by nonexistent supply.
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    • Wed Oct 22nd 00:13 AM | Rating: 0 0
      Commented on:
      Will OPEC Cut Production to Prevent Producer Deficits?
      CLH, we all know you have no appetite for anything other than the US dollar, but really, claiming that cartels can't work? This is really Econ 101 material... cartels can't work in a free market but the presence of a cartel by definition precludes a free market. It's open for debate how well OPEC has resisted the temptation to cheat that is inevitable when cartels are on the scene, but I'd say history disagrees with your assertion of its impotence.
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    • Tue Oct 21st 10:06 AM | Rating: 0 0
      Commented on:
      Are You Ready to Stop Whining and Put Your Money to Work?
      This is true every time, until it isn't. You can be right 2,766 straight times and then lose everything being wrong once.

      The United States is deeply broken: politically, socially, economically. Its citizens do not save, do not invest in assets that improve their competitive position or productive capacity, and have repeatedly opted for more paper wealth over sound money and long-term strength. Their government is completely unresponsive to both their interests and common sense, and their answer is to continue electing more of the same. They view government borrowing and handouts as part of the solution, not part of the problem. They all want something for nothing, and when things go bad, they expect their government to make them whole. They never question where that money comes from or whether it's really worth anything.

      For these reasons, Americans are now more indebted - at every level - than ever before. There are people who will point out that "household assets" top "household debt" by at least $40T. It is unclear what those assets are or how they are valued. It's safe to assume much of that is in residential real estate and could never be realized as cash. Perhaps more still is in stocks. Knock another 20-50% off. The stark reality is that Americans are not deleveraging at all; leverage is increasing as asset prices fall and marginal participants are forced to borrow to keep their heads above water. And we haven't even started on the public debt, an $11T giant sucking sound, most of it financed by short-term bills and notes. The world's willingness to lend to a weak economy with a bad balance sheet, in its own currency that is being printed like it's going out of style, at 2.7% for 5 years cannot be infinite. Only the sleepy complicity of the central bankers' club in keeping global rates at rock bottom has anyone interested in such paltry returns at such great risk. This game, too, will end some day. When it does, there will be no way an America with decrepit infrastructure, horrible individual balance sheets, and decades of malinvestment behind it will be able to finance a $12-15T debt at the double digit rates the world will then demand.

      I do not know what will happen then. Perhaps Americans will repudiate the debt, return to their forefathers' frugal ways, and begin investing in themselves again. Perhaps they will simply tax their economy to death. Perhaps they will hyperinflate, destroying both their creditors and their own economy in a scorpionesque fit of devastation. Whatever happens, it won't be profitable for holders of US equities. Which means buyers are betting that the reckoning is well off in the future. It may be. Or we could already be committed to it in the next year. No one can say, because it depends primarily on the actions of secretive foreign central bankers, notably in China. So when you buy those underpriced stocks, understand that you're really investing not in paragons of transparency but in the shadowy halls of the Forbidden City.

      Good luck with that. I'll stick with gold.
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    • Mon Oct 20th 10:45 AM | Rating: 0 0
      Commented on:
      Will Low Satisfaction Rate Affect U.S. Election?
      I doubt this is going to have much effect on the election. If people were genuinely as dissatisfied as the polls suggest, Ron Paul would be the Republican candidate and would have a 60 point lead over Barack Obama. That he captured only a dozen primary delegates suggests that, as you hinted, satisfaction with the status quo is very high and demand for change all but nonexistent. As with any other psychological indicator, it's usually wiser to watch the tape. What people say and what they mean are often very different.
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    • Sun Oct 19th 11:09 AM | Rating: 0 0
      Commented on:
      The Death of Stocks
      Don't buy into the idea that paper money issued by central banks is suddenly a good store of value. It isn't. More and more of it will be printed and, if necessary, handed out for free by the Treasury, until prices and spending return to boom levels. Then, maybe, the central bankers will try to "drain" that "excess liquidity". But no one will want to lend it back to them unless they raise interest rates dramatically - and why should they if they can get an 8% yield on their money elsewhere with little risk? This is not unlike the situation in the late 70s, but with a huge difference: at that time, long-term rates were sky-high because no one wanted Treasuries after a long stretch of serious inflation. Today, long-term yields are extremely low. Any effort to raise rates and drain excess cash would invert the yield curve and set up the banks for more trouble. There is no way out of this. The money supply is expanding, and even if you aren't seeing that money circulate yet, by the time you do it will be too late to rein it in. Hyperinflation is baked into our future economic life.

      The best way to avoid being caught up in it is to avoid the use of central bank paper as a store of value. The only real store of value is gold. The bankers' banker himself, J. P. Morgan, even said so, and Alan Greenspan agreed before his conversion to the dark side. About the only worse place to be than cash right now is Treasuries, and the more duration you have the worse off you will be.

      I recommend that anyone who is not interested in stocks and corporate bonds today maintain a conservative portfolio consisting of 50% gold, 20% silver, 20% CHF, 5% AAA Munis, 25% dollars, and -20% Treasuries 2015 and later. This will give you plentiful liquidity, a modest yield, no meaningful risk of a margin call, and minimal exposure to the printing binge.

      Once the collapse gets under way (it hasn't even begun), you will want to selectively invest your dollars before they become completely worthless. Start covering your shorts when yields reach 10%; I do not expect a default but it's difficult to guess how large players like the Chinese will react when they begin to understand the scope and scale of the printing, so you could easily hang onto half that position to see what happens. Remember, though, you aren't trying to create wealth with this strategy but preserve it, and a 10% profit is pretty small, so don't get greedy. I would suggest buying non-US gold miners with the remaining dollars. Do not under any circumstances buy US companies as their assets are likely to be nationalised and you will receive nothing of value for your investment. Above all else, be sure that your gold and silver holdings are well beyond the reach - preferably even the knowledge - of the gang of thugs known as the US government. This will also be a good time to dump the CHF; it will hold up better than dollars but is sure to take a fearful beating just the same. Unload the Munis if you can (recall that your losses were hedged out by gains shorting the lower-yielding Treasuries), then get out of Dodge. You should at this point have your wealth largely intact and consisting of 60% gold, 25% silver, 15% non-US miners. Find a nice place to retire, sell some the gold and silver for real estate, and invest some in companies well-positioned at the time to grow their business in the aftermath of the greatest economic collapse the world has ever known: the total destruction of the US dollar. Congratulations; you are a survivor.

      Or you could be 90% in "cash" and queue up with everyone else in the bread line when the fiction of paper money crumbles. Your choice.
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    • Sat Oct 18th 18:21 PM | Rating: 0 0
      Commented on:
      Watching the Malls: As Goes Retail, So Go Communities Across America
      It boggles the mind that people continue to invest in retail. The only business that might be worse is the airline business. Virtually all medium and large format retailers offer the same goods, from the same manufacturers, using the same basic format. Prices vary by how efficient the supply chain is and by how good a deal the retailer got on real estate (the other major input is minimum wage workers, mostly young people with no better opportunity, and they are fungible). Since there is no reason to pay higher prices for the same goods, the winners in retail are simply those whose cost of goods delivered is lowest. Margins are crap, leverage tends to be high, and the slightest downturn always kills off about half the crowd.

      Why bother? If you're not Wal-Mart or Amazon, close your doors, pay off your debts - if you can - and give the shareholders back whatever money you have left. This is insane.
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    • Sat Oct 18th 17:49 PM | Rating: 0 0
      Commented on:
      Fundamental Valuation: How Low Could We Go?
      E Nuff Said,

      What if it's not the market that's cheap but Treasuries that are expensive?
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    • Sat Oct 18th 12:37 PM | Rating: 0 0
      Commented on:
      Learning from Japan
      Maybe in a broader sense the lesson here is that no one is going to "drive the global economy" in the way the US has unless they are doing so with a torrent of debt fueled by lax monetary policy. If we imagine for a moment that paper currency and fractional reserve banking did not exist in any country and gold and silver were circulating as the only form of money worldwide, who would be the leaders? Which corporations, countries, political systems, etc. are really best positioned to deliver sustainable long-term growth? It's every bit as hard to filter out the effects of a credit collapse as it is to filter out the effects of the monetary binge that led up to it. And in the absence of all that paper, real growth rates are so small that you might hold something for 10 years before you realise that your return in that time is only half - or double - that of the market as a whole. This has always been true: real growth of 5% is astonishing; 2% is typical. Virtually all returns on equities come from dividends. Your challenge as an investor is to find those circumstances that will allow large dividends to continue to be paid for the next 20 years.

      That, or guess correctly as to who will next flood the market with paper money and where that paper will end up, raking in a nice 1000% return in 5 years. To hell with sustainable growth, dividends, and investing; where's the next bubble? I don't think it's in Japan.
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    • Fri Oct 17th 00:55 AM | Rating: 0 0
      Commented on:
      Our Monetary Policy: Not an Asset
      I don't want gold-backed paper. I want gold, the real thing, circulating. That cannot be manipulated. If they said tomorrow that they were backing every dollar in circulation with 1/1000 oz gold, I would take the 1/1000 oz gold every time instead of the dollar. In fact I'd gladly give you 2 dollars for 1/1000 oz gold. Probably even $20. Because no sane person trusts these people.
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    • Fri Oct 17th 00:22 AM | Rating: 0 0
      Commented on:
      How Lax Is Monetary Policy?
      I agree, it is sobering that monetary policy has been so lax for so long, and that the central banks appear determined to ensure that real interest rates remain negative for as long as possible.

      Oh, that's not what you meant, is it? It's what I meant, though.
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