Friday, May 30, 2008

Thursday, May 29, 2008

Very good article from Canada about US bubbles.

WASHINGTON–Suddenly, it seems, Americans are getting hit from all directions.
Energy and food prices are soaring. The housing market continues to collapse. Government revenue is falling, taxes are rising. Airlines jack up fares and fees while reducing service. Banks are pulling credit lines. Auto companies continue to cut production. Even investment bankers are losing their jobs.

The tendency is to see these as separate developments, each with its own causes and dynamic. Fundamentally, however, they are all part of the same story – the story of the global economy purging itself of large and unsustainable imbalances that for a time allowed many Americans to think they were richer than they really were.

Most Americans understand that an overabundance of cheap, easy credit created a housing bubble that artificially inflated the price of land and housing, produced too many homes and homeowners, and persuaded too many Americans to dip into their home equity to support a lifestyle their income could not sustain. Now that the bubble has burst, we are coming to accept the reality of lower prices, reduced production, declining home ownership rates and the wisdom that a house is not an ATM or a substitute for a retirement fund.

Tuesday, May 27, 2008

Time to get serious

with at least one of these: OSTK, WB, FED.

About DCI

I want to sell half of it and stash into Berkshire instead and forget about this little DCI experiment for a while.

The company is superbly managed, and this is your good old overachiever America with headquarters in the HeartLand. Anyway, I should be deciding soon and I hope anyone else in this too.

GS short finally starts to make money, this is getting ridiculuous. America's obsession with superstars is beyond pathetic and indicative of general lack of self respect and education. GS is a good place for its employees TAKING MONEY away from shareholders, as with any superstars do to you - TAKE YOUR MONEY. Then shareholders will find they have a very bloated balance sheet with tons of unsold CDO from 2006 and will blow up in the end with little or no equity.

But why am I telling you this? You SHOULD know yourselves.

Friday, May 23, 2008

Removing MY BRAIN and getting ready for next week TRADEs:

To try predict as accurately as I can, I use the image above and try emulate generic caucasian financial advisors who otherwise are a) lacking any economic understanding, b) cannot perform basic math, and c) not FRIENDS with Ben Bernanke.

So they will react to news, and this time I feel they may react in very straight forward manner:

  • Tuesday May 27: 9 am: Case Shiller, 10 am Consumer confidence -> More evidence home selling season is a bust: Producing a SELL.

  • Wednesday May 28: Durables good at 10 am: Will disappoint as Ben seems to hint lately, but at the same time very likely some guy from Pimco show up on TV, producing a SELL.

  • Thursday May 29: GDP will likely look soft and the engineered inflation number will look tame. Producing a BUY and this is what I call the SuckerTrapper (TM).

  • Friday May 30: Will sell regardless of news, unconditionally right now I'd say 70% chance.

  • Why does healthcare (UNH, WLP, HUM) stay sick? What is the driving factor behind these formerly high flying "safe" stocks? I am interested in going long but afraid of the SuckerTrapper (TM). Is it political? Unemployment sensitive? Or is it simply a subsidy story?

  • I decided to accumulate puts (at insane prices) of FED and OSTK instead. Beware that they are extremely "mood" sensitive and may cause poverty on your end if you are unable to withstand the possible HEAT and extreme short squeezes, however likely or unlikely at the moment.

I will try to update this call conditionally as new information comes in.

Thursday, May 22, 2008

I don't know about you, but this is REALLY troubling me.

Link from the sheeple media:

Worrisome Excerpts that made me question is my tax $ really deployed correctly:

"We look forward to the day where getting up for work is an option,” said Matthew. “We would much rather sit at home drinking coffee together with our two basset hounds ..." ( Comment: I thought soldiers are supposed to be enjoying their works, which is KILLING people ).

" They bought a Nissan Xterra in 2005 and then an Acura TL in 2006 – both new " (Comment: Huh? What of the Ford Explorer? The GMC Sierra? H2? Are they not STONED by coworkers driving these to work?)

"in their refurbished 1967 M20F Mooney airplane. But the plane also costs about $1,000 a month to maintain." - Double huh? $60k millionaires?

Wednesday, May 21, 2008

Yes, you all read the "Close call" over and over :

Here is what you need to read. And there is NEVER expected rate hike at the onset of tightening.

``The risks to growth were now thought to be more closely
balanced by the risks to inflation,'' the minutes said.
``Accordingly, the committee felt that it was no longer
appropriate for the statement to emphasize the downside risks to

and a this:

``Several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term.''

SO you will ignore the Cry-in-Goldman's-beer request for more pig food handouts, eh? It won't depend on the data coming out of Goldman? Are you afraid of pitchforks?

Proof that Money is what you TELL YOURSELF you have:

Disclaimer: To the extent there is further CASHOUT in 2008 and beyond the Debt outstanding will grow and the asset will drop more making the 35% - 40% upper range of the estimate. Since that most likely happen anyway, the truth is my personal forecast calls for $3T left at the hand of 20% homeowners who ABSOLUTELY NEVER took a mortgage. OLD money RULES. The rest, as I have said, are HOs.

Tuesday, May 20, 2008

First and Foremost, I am a COWARD.

I will pick a topic in which I knew even I don't win the debate the issue will be so dominating sooner or later I get what I want because this issue will be the giant Rat-man on everyone's back.

Of course frontrunning it by 3 days makes a bit less of a coward, as I can astutely point out. This article comes out of Bloomberg this morning, and of course Bloomberg is not endorsing its view either. Just printing it out upfront for the benefit of everyone interested in William Pesek's view, who's afraid of RETALIATION and chose to speak in "tongues". Yeah, that be the one.

Excerpts/commentaries and full article:

Commentary by William Pesek
May 21 (Bloomberg) -- Few central bankers would envy Lee Seong Tae's dilemma in Seoul. (or anywhere else for that matter wink wink)

Vice Finance Minister Choi Joong Kyung has been making the argument that inflation gains are mainly due to rising oil and grain prices and that the central bank should be supporting an economy that has ``entered a downturn.'' ( Heard that from local "guy", too - until the CORE # showed up HIGHER than HEADLINE and cricket sounds )

They are run by unelected economists who sometimes get interest-rate policies right and sometimes get them wrong. It's an imperfect arrangement, and central banks should be held accountable early and often. (Check)

Yet in their desire to keep monetary-policy makers honest, politicians risk interfering with the vital role they can play. (But politicians ARE elected :)

Policy makers have worked hard to control inflation and calm Korea's business cycles. They should resist the temptation to boost growth with easier credit. All that would do at a time of surging global prices is inflate domestic asset values, further fueling inflation. (Comment? )

If the economy truly needs more liquidity, the central bank can always act. Giving in to politicians looking for an easy way out would be a step backward for an economy that should be looking forward. (The liquidity tools are already here. Now can we "look forward"?)

Monday, May 19, 2008

This is how you run an economy.

Talk about "unexpected" rate hike. Still believe 2.what % inflation?


Vietnam Raises Its Benchmark Interest Rate to 12% (Update2)

May 17 (Bloomberg) -- Vietnam will raise its benchmark interest rate, lifting the maximum return that commercial banks can offer depositors to 18 percent a year, the Southeast Asian nation's central bank said.

The State Bank of Vietnam will increase the base rate to 12 percent from 8.75 percent on May 19, according to a statement released in Hanoi today. Under central bank regulations, banks cannot offer savers rates exceeding 150 percent of the base rate.

GREEN HOLE discovery by CNBC scientists.

a. Dont buy the lenders because borrowers WONT pay back the loans.
b. Buy sellers of BLINGS despite the way to buy is by BORROWING from lenders.

There must be an infinite source of wealth in the center of the galaxy producing greenbacks and that is exactly what CNBC scientists discovered, here's the proof courtesy of Chief Scientist Cramer.

Zero Participation Economy

One Note: LEI is NOT a leading indicator. A ratio of LEI to coincident indicator is a much better one. But do take a look at the Negative (red) and Positives (Green) and you'll see what I mean with zero participation.

What's going on today:

I am not gonna tell you GS upgraded AMZN. Not that's not interesting.

Here's what I found:

1. FRE is $2.15 under FNM from $3.50 under some days ago. Noticeable improvement, but will it FINALLY revert. Thinking yet another swap trade.

2. The splash on AMZN and continued discussion about where to spend the 'bate check (rebate, not m-bate) is driving Overstock (OSTK) up very nicely, regardless of traffic per Will it pierce $35-40 range where it was the last peak?

3. COF is finally up! Thank you pig man for listening on my suggestion on how to "convince" people that this shit is for real, dawg. Yes, there are people voting there is a way to pay for the Tiffanies and Ipods when the statement comes due. Excellent.

4. More news on how cool inflation is for basic material and food processing:
By Duane D. Stanford
May 19 (Bloomberg) -- Campbell Soup Co., the world's
largest soupmaker, fell the most in 5 1/2 years in New York
trading after it posted third-quarter profit and revenue that
trailed analysts' estimates on a decline in U.S. soup sales.
Campbell dropped $1.95, or 5.4 percent, to $34 at 10:32
a.m. in New York Stock Exchange composite trading, the biggest
decrease since November 2002. The shares gained less than 1
percent this year before today.

Condensed soups and ready-to-serve brands Chunky and
Select fell 3 percent in the U.S. as customers bought General
Mills' Progresso brand. Higher prices weren't enough to counter
what Campbell called ``dramatic cost inflation'' for wheat and energy. Chief Executive Officer Douglas Conant has added lower- sodium soups and will enhance marketing to boost sales growth.

``They are losing market share to Progresso and private
label, particularly in the ready-to-serve segment,''
Christopher Growe, an analyst with Stifel Nicolaus & Co. in St.
Louis, said today in a telephone interview. ``Campbell raised
prices, and the competitors have not yet.''
He recommends
investors hold the shares."

5. Look what I just found, as if a footnote is necessary for the Campbell soup story:

By Michael Patterson
May 19 (Bloomberg) -- Most U.S. stocks fell after SanDisk Corp. said high energy prices have hurt sales, spoiling a rally in technology shares that helped propel the market to a four-month high earlier.

SanDisk, the largest maker of digital-camera memory cards, tumbled the most since March after saying April retail sales were ``soft.'' Campbell Soup Co., the world's biggest soup company, posted its biggest drop in five years after results trailed analysts' estimates.

About four stocks retreated for every three that rose on the New York Stock Exchange. The Standard & Poor's 500 Index lost 1.23 points, or 0.1 percent, to 1,424.12 at 3:38 p.m. in New York. The Dow Jones Industrial Average increased 23.69, or 0.2 percent, to 13,010.49. The Nasdaq slipped 16.87, or 0.7 percent, to 2,511.98.

FRE is $2.00 under FNM as I wrote this last bit.

All out war in the Commodity prices

You may read the above for the complete article. (I think the hedgefunds/trade groups paying for this publication is starting to get backing in DC and elsewhere politically as things are really getting hairy for the power that be, from what I have heard)

I am 90-95% in agreement with the hedgefunds supplying this article to Bloomberg, with one small caveat in the sense that this pertains only to marginal buyers of Treasury.

If you are the oil producers and therefore hedged for the Cost of Energy by getting it for free, you are only asking for CPI-nonfood/energy for compensation, if you MUST recycle the money back into the US currency. That is also why in addition to the Chinese angle, you must think of the marginal buyers as "bulk" buyers with no current alternative. The market itself may already be 100% in agreement with the story and demand higher compensation for TIPS were it not for those guys.

Also, the article is not right to say the the Consumer Expectation of Inflation is only "tracking inflation" better than CPI. It is very dead on. CPI is a 3-month number and by definition, "averaged out" relative to the spot number (the Consumer Expectation).


TIPS Show Bonds See Bubble Burst for Commodity Prices (Update2)
By Sandra Hernandez

May 19 (Bloomberg) -- Treasury bond traders are telling Americans to stop fretting about inflation.

expect prices to rise 5.2 percent in the next 12 months, according to a monthly survey by the University of Michigan in Ann Arbor, the most pessimistic they've been since 1982. Treasury Inflation Protected Securities, or TIPS, show traders anticipate inflation of about 2.9 percent by January, in line with its average of 3.1 percent the last 20 years.
The disparity has never been wider. While consumers grapple with
gasoline above $3.70 a gallon, record rice prices and the escalating cost of wheat, TIPS say the commodities market is a bubble about to burst. A commodity slump would worsen losses in the $500 billion TIPS market, where investors lost 2.35 percent in April, the most since December 2006.

``There's a lot of people who just don't believe the economy's going to stay strong enough to keep prices of things where they are,'' said
Chris McReynolds, who trades TIPS in New York at Barclays Plc, the largest dealer of the securities. ``Part of what's going on here is a lot of people view this price rise in oil, a lot of commodities, as being somewhat bubbleish and that they'll come off again very quickly.''

`Imminent' Downturn

``What has not been going up is housing prices, what has not been going up is electronics, what has not been going up is apparel,'' said
Gang Hu, a TIPS trader at Deutsche Bank AG in New York. Consumers ``buy food everyday, they buy gas everyday. As a result, if you ask them have you seen inflation, they will say yeah, because every day they are informed there is inflation.''
Short-maturity TIPS have the most to lose from an ``imminent economic downturn,'' Hu said.
Before this year, the public and the TIPS market were most at odds in June 2007, with consumers projecting 3.4 percent inflation and TIPS forecasting a 1.48 percent rate. Consumers have been right: inflation has averaged 4.1 percent this year.
Consumers are responding to a jump in the cost of food and oil, even as prices of less-frequently purchased items like cars, plane tickets and hotel rooms fall.
$56.25 for Gas

American drivers pay a record $56.25 on average each time they fill their tanks, according to figures provided by AAA, the largest U.S. motorist organization. Meanwhile, new cars cost 1.3 percent less than a year ago, and plane tickets were 0.5 percent cheaper in April, according to the Labor Department. Energy makes up 9.7 percent of the consumer price index, and commodities as a category comprise 41 percent, behind only services such as housing and medical care.

The economy won't grow at all this quarter, marking the worst slowdown since the 2001 recession, according to a Bloomberg News survey of 80 forecasters. Inflation will slow to 2.5 percent by the first quarter of 2009, the least since August, according to a separate poll.
TIPS, first issued by the government in 1997, pay interest at lower rates than Treasuries on a principal amount that's linked to the Labor Department's consumer price index. The yield on the benchmark 1 5/8 percent security due in January 2018 rose 1 basis point last week to 1.37 percent and was little changed today.
TIPS due in January
yield 2.95 percentage points less than regular Treasuries of similar maturity, compared with an average of 2.03 percentage points the past year.

Breakeven Rate

The difference, known as the breakeven rate, is the pace of inflation traders expect over the life of the securities. The
disparity with public projections has never been wider. Because the government doesn't sell TIPS of less than five years, TIPS with one year left to maturity didn't appear until 2001.

Consumers and TIPS traders both influence Federal Reserve policy makers, who
study the two groups' inflation expectations when making interest-rate decisions, said Brian Sack, a former research manager at the central bank. He is now a senior economist with Macroeconomic Advisers LLC in Washington.

The Fed's decisions are more complicated when the two groups are ``giving different signals,'' Sack said. ``The measures carry more weight when they're all moving in the same way and telling a similar story.''

In Agreement

The last time the two groups were in agreement was April 2006. Households surveyed by the University of Michigan that month forecast 3.3 percent inflation for the year, versus traders' 3.28 percent projection. Both projections were too high, as prices rose 2.6 percent through April 2007.

``It's almost ingrained in the psyche of the market that people think ultimately inflation will recede because the economy's slowing down,'' said
George Goncalves, chief Treasury and agency debt strategist in New York at Morgan Stanley, one of the 20 primary dealers of U.S. government securities that trade with the Fed.
A weak dollar, record import prices and rising commodities will lift prices of goods besides just food and fuel, meaning traders are underestimating future inflation and TIPS are a bargain, according to
Michael Pond, an interest-rate strategist in New York at Barclays. One-year breakevens should be 1.37 percentage points wider than the current 2.94 percentage points, Pond estimated.

``The consumers are more right'' than TIPS traders, said
James Evans, who manages $4 billion of inflation-linked bonds at Brown Brothers Harriman & Co. in New York. ``TIPS breakevens have continuously underestimated inflation.'' Evans has been buying TIPS maturing in three to five years.

Regular Treasuries are also pointing to a slowdown in price gains. In the last six months, yields on
10-year notes traded below the inflation rate for the first time since 1980. Over the past two decades, yields averaged 2.87 percentage points more than inflation.

Sunday, May 18, 2008

American Psyche to explain why ...

Capital One is not yet up 100% given the great buying on retail, jewelry, and computer by people ON CREDIT during the worst consumer sentiment and perhaps depression in the US since the first Great Depression. And neiter is any financial / credit guarantee companies.

Why do people like the buying, but not like the credit used to support the buying?

Is America saying "I like to buy, but I sure don't like to pay for it"?

Sure as hell looks that way to me. It's just a matter of time before HUMAN will be used as collateral behind a loan. In the meantime, I suggest we do nothing, and continue blogging and spewing crap in the internet - we want to get an Excellent View of the grand canyon below.

Friday, May 16, 2008

Inflation primers: Pumpkins and Mice

At any point before or after reading this, please don't google "runaway inflation expectation" because you will get a bunch of people trying to sell you silver.

What you need to do is dust off your old common sense and a small macro econ book and start thinking.

1. First look at the data: What Treasury bond pays ENOUGH to cover inflation?

Hint: None.

2. So where are the bond vigilantes?

Answer: They don't wanna stand in the way of the crowd.

As Walmart pays US$ to the chinese subcontractors, the Chinese subcontractors must recycle the profit back into the currency that has the most liquid investments. Hint: What Treasury? :D

3. So will a recession fix the problem?
Not necessarily, "investment thesis" may stand in the way. Read what Warren Buffett has to say about it:

Buffett: "I don't think there's a bubble in agricultural commodities like wheat, corn and soybeans (I disagree, but let's go on). But in metals and oil there's been a terrific [price] move. It's like most trends: At the beginning, it's driven by fundamentals, then speculation takes over. As the old saying goes, what the wise man does in the beginning, fools do in the end. With any asset class that has a big move, first the fundamentals attract speculation, then the speculation becomes dominant.
Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we're seeing that in commodities and housing...Orgies tend to be wildest toward the end. It's like being Cinderella at the ball. You know that at midnight everything's going to turn back to pumpkins & mice. But you look around and say, 'one more dance,' and so does everyone else. The party does get to be more fun -- and besides, there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns back to pumpkins and mice."

and of course from yesterday, the issue of "paper/electronic commodities":

Washington, DC - The Senate today unanimously approved a measure offered by U.S. Senators Dianne Feinstein (D-Calif.), Carl Levin (D-Mich.), and Olympia Snowe (R-Maine) to close the "Enron Loophole." Since 2000, this loophole has exempted electronic energy markets for large traders from government oversight. The measure was approved as part of the reauthorization of the Commodity Futures Modernization Act.
The legislation would increase federal oversight authority to detect and prevent manipulation in U.S. electronic energy markets, create an audit trail, and increase transparency. The measure includes language to reauthorize the Commodity Futures Trading Commission (CFTC).

4. What happened if there CONTINUES to be runaway expectation of inflation, at the time when the government maintained through the CPI that inflation is very much under control?

Very tough question with and I am not willing to show my cards.

1970s spiral happened because policy could never caught up with the ways workers were frontrunning inflation by asking more money, and caused more inflation in turns. These days they say they can layoff everyone and ship the work to Chindia. Or can they?

This is where the entire confidence game is played, by various theories propagated by hedgefunds, but usually falls under the category called "Decoupling Theory".

The answer is clear to me from comparing a) GDP sizes, b) future expected growth, and c)direction of trade/imbalance. But I will let you decide for yourselves why you should go one way or the other, so that I don't deny the Devil their due when it comes to collect their well deserved human sacrifices. Good luck.

Important Announcement: Spring Selling Season OFFICIALLY FAILED.

I was announcing that in January, but hey, why listen to me? As a matter of fact, if you are primarily single family builder with lots mostly in the suburbia (far from work center/city centers) (RYL, MDC, CTX, DHI, TOL, etc.) , life IS good, eh? heee heee heeee

Now wasn't the purpose of all the Q1 money trying to front-run "recovery" in housing activity predicated upon this moment of truth?

I did offer my head ( I will hire several people to decapitate myself in front of the camera and post it to youtube ) if the next bubble was going to be HOUSING again in January. But even such promise sealed with a bloody finger print wasn't ever gonna be enough to stop some people's EGO. Now I guess they will be sending their videos to Youtube.

UPDATE: It's Official: Spring-Sales Season A Bust For Housing Market
By John Spence

BOSTON (Dow Jones) -- The hoped-for rebound in home sales failed to blossom this spring with the housing market caught in a downward spiral, as falling prices continue to sap consumer sentiment and keep would-be buyers on the sidelines.

The all-important sales season that unofficially kicks off after the Super Bowl again failed to lift the residential market out of its doldrums. Although a surprising jump in April housing tarts was reported Friday by the Commerce Department, enthusiasm was tempered by the fact that the gain reflected a jump in multifamily units. Starts of single-family homes lost nearly 2% to the lowest rate since 1991.

There are other reasons why it's not yet time to break out the champagne to celebrate a bottom in the housing market. The sagging confidence of home builders points to more pain this summer. On Thursday, the National Association of Home Builders said that its sentiment index fell close to a historical low. " The housing market has shown no evidence of improvement thus far," said David Seiders, chief economist for the builder trade group.

The final nail in the coffin for the spring-selling period came this week after luxury-home builder Toll Brothers Inc. (TOL) reported dismal sales figures for the quarter ended in April. The company's chief executive, Robert Toll, said traffic levels at its communities were "the worst that we have ever seen."

Now the monetary news for the day:

And no, the article doesn't mention such practice occurs in the United States.
Truly a most disastrous outcome simply because the policy available cannot catch up with "innovation" and legal loopholes that the "people" themselves agreed to create in the past 30 years. This is no ordinary rabbit hole, in my opinion.


ECB concern over liquidity scheme
By Paul J Davies and Norma Cohen in London and Anousha Sakoui in Vienna
Published: May 15 2008 23:37 Last updated: May 15 2008 23:41

The European Central Bank on Thursday voiced its "high concern" at growing evidence that banks are exploiting its efforts to unblock the frozen funding markets by using its liquidity scheme to offload more risky assets than it envisaged. Yves Mersch, a governing council member, said the ECB was now "looking very hard at whether there is not a specific deterioration of collateral" which the central bank is accepting in return for funds. He was speaking amid signs of some banks creating low-rated assets specifically so they can be traded for treasuries at the European Central Bank. Central banks have become important in providing funding for difficult to sell mortgages on what is intended to be a short-term basis while securitisation markets remain frozen.

The Bank of England recently created a facility for UK banks to access funding for mortgages and the Financial Times has learnt that almost £90bn ($175bn) worth of bonds are being created to be placed there - almost twice the £50bn in itially expected when the scheme was launched only three weeks ago

Similarly, Lehman Brothers recently structured a €1.1bn CLO, which it is expected to use for ECB funding. Meanwhile, Macquarie Leasing, a unit of the Australian bank, has done a securitisation of Australian motor loans, which will have a euro-denominated slice so that the investors who buy the deal can use it at the ECB. Investment bankers who work in securitisation say that their main business is structuring bonds that are eligible for ECB liquidity operations. Some analysts have concerns about whether the bonds being created will ever be saleable if markets recover. "There is moral hazard . . . and we are not in the business of taking over the market," Mr Mersch said. "That means there must be an exit strategy." The importance of central bank involvement in supporting securitisation markets has been shown again in the UK, where the Bank of England's Special Liquidity Scheme has already attracted almost twice the level of demand originally anticipated. According to debt market sources, the banks planning to use the scheme are the UK's eight largest lenders.

Economic sound bites

And some effort to try read it in more positive tone.

From housing activities:

Builders broke ground on 692,000 single-family homes at an
annual rate, down 1.7 percent from March and the fewest since
January 1991, the Commerce Department said today in Washington.
Total starts jumped 8.2 percent to a 1.032 million pace that was
higher than forecast as construction of multi-family units
increased 36 percent following a 35 percent drop in March.

Starts increased in three of four regions, led by a 24
percent jump in the Midwest. Construction rose 19 percent in the
West and 3.6 percent in the South. Starts dropped 13 percent in
the Northeast.

( Read: a bunch of condo building in the MidWest? What pricing are we talking about? $50-80k? heee heee heee okay I'll move there and get me a shack in the prairie and so will everyone else)

PM notes: I was extremely ignorant. The condo building spree may be anticipatory to living in more crowded places as to minimize commuting in the future, given the current cost of energy AND the inflation EXPECTATION that is now firmly anchored in the upside and cannot be defused with just expected rate hike. The midwest in my opinion is where "traditional" USA living is still at its best, suburbia 3 kids two SUV one minivan from early 90s and leaky windows from very large 1950s victorian, and the lowest salaries in the nation to support the whole kaboodle. This is clearly unsustainable and we may have just observed very early part of a trend. We'll keep watching.

From consumer side:

Inflation battle is most assuredly lost (the anchor is floating like garbage on yangtze river) and only unexpected rate hike can stop the train from ramming Ben in the butt at this point. Oh, the consumer? Well .........

Okay, my take: after moving to the prairie, I suddenly feel very depressed cuz I think prices still going up and I can't afford jackshit anyway. But there are plenty of rabbits to hunt and stew.

Afterthought: I am thinking of a catchy book title: "Zero-Participation Economy", which can be used to teach undergrad about the Newest New Economy.

Thursday, May 15, 2008

I am so glad I covered the FRE long

If there is anything close to ending PERMANENTLY the lending business in USA, then this is it.

Will it buy 1 year of time? Perhaps.

Is one year enough? Perhaps.

What happened after that? Doesn't matter.


Fannie Is Poised to Scrap Policy Over Down Payments
By JAMES R. HAGERTYMay 16, 2008

Fannie Mae is expected to announce Friday that it is scrapping a policy requiring higher down payments on home mortgages in areas where house prices are falling.
The change comes in response to protests from vital political allies of the government-sponsored provider of funding for mortgages, including the National Association of Realtors, the National Association of Home Builders and organizations that promote affordable housing for low-income people.

Those various groups have said the policy is hurting an already feeble housing market by shutting out too many potential buyers.
The current policy, adopted in December and now due to end June 1, limits loan amounts in areas with declining home prices, including most of the densely populated parts of the country.
For instance, if a loan program normally allows people to borrow up to 100% of the estimated property value, the maximum is cut to 95% in "declining markets."

Under the new policy that is taking effect next month, Fannie will have the same maximum loan percentages across the country for people purchasing single-family homes that they intend to occupy, according to people familiar with the plan.
For borrowers approved by Fannie's automated underwriting program, the maximum generally will be 97%. For those approved by other means, the maximum will be 95%. (Fannie also has some loan programs, typically offered through state or local housing agencies or nonprofit groups, that allow certain borrowers to make no down payment.)
Fannie is expected to continue to have variable down-payment requirements on mortgages considered riskier, such as those used to buy investment or vacation homes.
Fannie and its main rival,
Freddie Mac, own or guarantee the bulk of U.S. home mortgages and so set nationwide standards for lenders. Freddie also has a policy requiring higher down payments in declining markets. But Freddie earlier this month said it wouldn't require lenders to drop below 95% of the estimated value.

In a letter to the Realtors last week, Freddie also said that it is applying the policy flexibly. For instance, if appraisers can demonstrate that home prices in a given neighborhood are stable or rising even though values are falling in the wider metropolitan area, the declining-markets policy doesn't apply.

By softening the down-payment policies, Fannie and Freddie are taking more risks.
Borrowers who put just 3% to 5% down in many areas are likely to find within a year that they owe more than the homes are worth because prices have fallen, a situation known as being underwater.

In some cases, deeply underwater borrowers are choosing to walk away from their homes rather than trying to find a way to keep on paying, Patricia Cook, Freddie's chief business officer, told analysts this week.
But Fannie officials have argued that they have tightened lending standards in other ways -- for instance, insisting on higher credit scores for people who make small down payments -- to reduce default risk. Officials have also argued that underwater borrowers don't necessarily choose to walk away.

The concessions from Fannie and Freddie illustrate the conflicting pressures that they are facing. Many critics say they are taking far too many risks, increasing the danger that taxpayers may end up having to bail them out.
But politicians and the housing industry are pushing them to do more to prop up the housing market.

In a recent letter sent to Fannie and Freddie, the Realtors reminded the companies that the trade group in recent years helped them fend off Bush administration attempts to impose tighter regulatory constraints.
Fannie and Freddie may need the Realtors' lobbying support in the weeks ahead as Congress seeks to give final approval to long stalled legislation designed to improve regulation of the two companies.

Write to James R. Hagerty at
FED; and scary upwards tape + opex and WB didn't BUDGE.

Cannot add short under the situation, maybe a delayed fuse on WB so tomorrow check again.
The longs on DHR and DCI works entirely on clockwork I suppose :D

SMN STILL doesn't work but this is one pet project I'd like to keep. Oil did drop after the Enron loophole announcements BUT somehow they fought back (why?) for no reason as the $ is NOT sold, either. The lags on DBA vs. IYM is wider suggesting more dynamite is being stashed in the limited space under the seat.

The link for TickerForum on the affiliates section of my blog is not gonna work till Opex, I pray to the Fertility Goddess that they are alright and not cannibalize each other too much. Heee heee heee.

Wednesday, May 14, 2008

D, meet Monica Bellucci ...

She stars in the Passion of the Christ as Maria Magdalene.

(I actually have two versions of her photos you may pick one)

a. With Jesus hand

or ...

b. With MY hand ?

Either way, a fascinating actress who understood in-depth about character that will stir a lot of imaginations. I understand if you choose Jesus' because it's hard for me to compete with such trader with infinite foresight.

Cleaning up high beta stocks and ...

can't tell you.

( What are you doing D? Go get ur own heeheeehee )

IT reached.

Whose time runs out?

Sold all IF at 10.80, 1,500 shares, won't make it to $12 this time around

Sold all FRE and calls, including FRE accumulated at BSC time and beyond. 4000 shares + 20 options.

Bot more 500 SMN at 28.40, avg price $31.50, 2000 shares.

Looking for WB short entry and continued trying to find more DSL and FED again.

Now back to what I like doing most ... heee heee heee

Now studying WB ...

Subliminal messages.

Tuesday, May 13, 2008

Random truths on China decoupling

I just received a story that the whole thing is false.

China is just window dressing for the Olympics because they know everyone is watching and they want to look like they are better than Martians cuz no more chance in the next 100 years.

News has it that all the steel will be taken out of these frivoulus buildings and stadiums to be made into Tanks after the Olympics. They will need a lot of that I suspect given where things are going.

Also in lighter news, I believe when you tune in to your TV in the summer watching Olympics and cheering nameless-soon-to-be-forgotten 14yr old black prodigy (I will be jacking off so don't mind me), you will not see a single ugly fat woman in Beijing.

The chinese govt has shipped all of them out to ChengDu along with cripples, stray dogs, and vagrants. They are shipping INTO Beijing a bunch of Gong Li lookalikes from provinces, dress them with suit and put them up in cars and ask them to go in and out of newly built skyscrapers randomly for the camera. Every now and then some will shout "baby girls no throw to yangtze" and sip cokes. There will be only TALL MUSCULAR chinese men and everyone knows kungfu, which makes a nice contrast to the peaceful domestic tweety GongLi type I described previously.

After the olympics the suits will be collected and painted camouflage for PLA uniforms and these people would be ON the tanks marching to Soviet borders for the final showdown for the last bucket of potash. (I will still be jacking off, so it doesn't concern me).

TV will get very interesting and worth paying the cable bill later this year.

Tripling my original DCI positions.

$46.00 from $42.00 a couple weeks back.

Is this ...

Bull or Bear Penis?

Don't fight the Fed.

Told ya. From today Tuesday 5/13/2008:

``A central bank that is too quick to act as a liquidity
provider of last resort risks inducing moral hazard,'' Bernanke

The belief that the Fed is always standing by would give
``financial institutions and their creditors less incentive to
pursue suitable strategies for managing liquidity risk and more
incentive to take such risks.''

Monday, May 12, 2008


Let's go long the "stock-that-shall-not-be-named". Got less options than I wanted because price didn't hit but I think buying outright is fine. Good luck.
1,000 at 24.94. Will do two more batches time and price permits, but at least one more.
1,000 at 24.96 at the close.
400 shares so far AH at 25.00.
And 20 options from yesterday.
I think decent enough to play given the brutality of this beast.

Update on Indices Relative values

These are the spot and historical P/E. The white line is the level and green line is the risk premium (P/E ratio).

At the same "P" 4-5 months ago we had 30% MORE "E".

Historically, that was where it was for about 4 years.

On the upper right hand corner notice we are posting EPS at the rate of $60.51 and analysts ARE expecting SPX to post earnings at $92.09 going into next year, roughly a 50% earnings increase.

Assuming a financial leverage of say, 8x in SPX, this must translate into 6.25% growth in sales.

Can you get that from GDP of 2.6% growth (entirely from price) ?

( I suppose you could, if there is the extra 3.65% taken out of negative savings or more bluntly, home equity extraction )

Notice the various markets that look "reasonably cheap" when compared to US markets (or SPX) and think about their a) relative growth, and b) savings rate, to USA.

Finally, go here to see that the earnings was posting at the rate of $63 (vs. current rate of $60 per annum - or 5% below ) on April 21, 2008.

The price, was $139 that day. We are at $140 today.

The P/E went from 22 to 23+, or slightly less than 5%, again mostly on track with the declining rate of earnings from $63 to $60 (about 5%).

In 3 weeks, what we did was increase our tolerance of risk by 5%, with no corresponding increase in earnings. Notice in both cases we have about $92-93 earnings target for next year, unchanged.

Based on the above, every week shows $1 slower earnings clip and this has been on track for the past several (at least 6) months as the graphs has shown.

If you are not among the Living ...

and yet NOT dead, in the sense that you seem to be hobbling around with strange expressions on your face ....

``This valuation task is clearly one that stretches the ability of mere mortals,'' Brown (CEO, MBIA) said in a letter to shareholders published May 6.

Friday, May 9, 2008

Seriously. Plan for next week.

There's a ton of assumptions in this cookie and make sure you know how much radioactive materials you can take before ever contemplating this kind of move. Plan subject to change or cancellation without prompt notice. Remember always that this strategy assumes you are comfortable soaking your nuts with kerosene while you sit next to an arc welder. Sanity first, fear second, greed third.

Monday: Find as good timing as I can while MBI blew up -> FRE call option, 30 piece front end. Dont add FED or DSL.

Tuesday: Long FRE 2,000 shares. Dont add FED or DSL.

Wednesday: Add whatever DSL and FED short available. Unload AH 2,000 FRE shares.

Thursday: Add whatever DSL and FED short available. Sell 30 options FRE. Short 2,000 WB.

Friday: Short 3,000 WB. Add whatever DSL and FED short available, pray to the Opex Gods for as big a short squeeze as possible.

Have a good weekend.

The last bit of information I like to pass along to super clever fund managers of USA.

Great ideas are like Californian wild fires,

once you accidentally started when you try burning your upside-down condo, as Dr. Gono has aptly demonstrated when he led his colleagues around the world (such as Mervyn King and Dr. Bernanke).

1.15 As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.

1.16 That is precisely the path that we began over 4 years ago in pursuit of our national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification, and demonization we have endured from across the political divide.

Complete text of this gem is here:

May we never once again doubt what our Zimbabwean monetary thinkers contribution to planet earth is. Ever.

I have a can of kerosene ...

U know gas is expensive so I am debating whether to apply the kerosene to my balls all at once or just paint it little by little with a brush.

I really think a counterattack is about to be made in GSE space resulting in GSE rocket shot, but the probability of wrong and what happen if I am wrong (I will have to light my balls on fire) is not what I like to think at night about. This could seriously interfere with my reproductive capabilities.

Hmm, maybe just one ball then. These assholes are so far on the way to be the most hated companies in the world next to Halliburton, because they like to taser both the long and short. For f-ing pete sake, give signals will you?

Thursday, May 8, 2008

Start adding short again on individual names.

Bernanke invincibility cloak runs out very recently.

BSC put is the one and only Bernanke put and there is no more.

My contact in the Fed (senior economist and aide to someone voting with Ben) has confirmed this and there is no "next one".

Everyone is now allowed to fail, including PMI, MTG, RDN, MBI, ABK, WB, WM, CFC, DSL, FED, BKUNA, CORS, and a few hundred other names that I happened not to short at the moment. The time bought was utilized heavily to raise capital and it's time to start making use of them against previously unrecorded liabilities. As for the GSE I know that a separate agreements have been discussed about what form of handout will be given to them but it is clear that no debt backstopping will be made. A direct equity handout is the most likely way in the form of "third company" to dump credit exposure to the taxpayers lap. This is excellent decision as it will create yet another target to buy puts against.

Of the names I think the final assault on MTG and ABK is the most interesting for me, with very high potential in WB for extracurricular work. But first I need to contact someone who worked there to send me a spreadsheet of their book so I can estimate the forward writedown.

Once I have that I will post a summary here, but indication points to me liking the #s very much, knowing where things trade and what this guy says they have (a PM over there).

I am retracting any positive comment I have ever made ...

about WB.

I always compared them to Wamu and thought WB is heaven and earth to Wamu, but several conversations recently about what they measure as credit risk and how they do it finally convinces me that this place doesn't know what it's up to yet. I am investigating the amount of exposure and talking to people inside there and will recommend to do something after FRE earnings on 5/14.

I believe it doesn't pay to do anything super hasty ahead of potential nuclear meltdown or a massive rocket shot.

Hank, dont bite the hands that feed you.

Remember despite what you think of yourselves you are but a small pawn in the scheme of things. Don't make up rules on your own and do your civic duty. People pay taxes and it's time for you to make "money shower".

Think of the people who sacrificed in Iraq for you and when they get home and find Wamu stock worth $0.12. Are you not ashamed yet, oh unpatriotic bile? What about the lady who already calculated Stimulus V and factored that in to purchase a ranch she never got from all previous 3 husbands combined?

What about the children Hank? You love children, don't you?


WASHINGTON — The worst of the nation's credit crisis may have passed, Treasury Secretary Henry Paulson said Wednesday, though he acknowledged rising gas prices will blunt the effect of 130 million economic stimulus checks.
He ruled out a second stimulus package for now.

if u close red

after opening green 3x in a week, ....

[whistling past the graveyard]

Wednesday, May 7, 2008

Working hard contacting our Civil Servants!

I want to pen out my contribution to this nation and as such I am working on the details of a letter and very detailed proposal to Sen. Schumer and Dodd to help alleviate the home crisis.

The idea isn't that clear yet but the gist is:
  • Set up a corporation called Federal Instituted Mortgage Corp (Effin Mac)
  • The corporation then issues debt to purchase a combined of $200B mortgages total from both FRE and FNM.
  • FRE and FNM will choose which asset to sell to the corporation.
  • But FRE and FNM would be the equity stakeholder contributing a total of $20B.
  • Then the Fed simply guarantees the bond of that corporation.
  • This move, I know it will receive great sponsorship with Dodd, will 1) reduce the balance sheet consistent with deleveraging (new entity is now 1:10 leverage instead of 1:250, the original FRE/FNM however would still have about the same leverage amount because $200B is just 5% of the total portfolio) and 2) taxpayers can participate in lucrative mortgage business.
  • Optional feature: To serve the market more efficiently, Fed can choose to release some of the capital ( up to 50% of it ) in a step down fashion through "special dividend" to shareholders if at predetermined times losses do not exceed threshold. FRE and FNM will have authority to manage, mitigate, and report the losses monthly to Fed so that process will not to delay the urgency of this project.
  • The released capital can therefore be used to fund other new mortgages and serve this great nation.
I know I would be useful to society someday and this is one way I will prove it. I will work on the numbers and very academic letter to the fine gentlemen. See, I know how to be grateful [evillaughter]

Signs of time!

No investment (new/change) thoughts so far this morning so I think there's a spot to pass on some of the subliminal racist + stereotyping electrical waves that CNBC is frying my head with. (Unlike US corporation unable to pass their inflation to you, I can pass whatever bile that they try frying my frontal lobe with to you so they can fry yours, instead).

What I just saw in the cable ads in the last break:
  • a Chinese family running a booming drycleaner and got rich (even the ads are in chinese!),
  • then a black guy hugging a cheerleader pimping out hair dye (presumably he's married to anything but the cheerleader),
  • and finally a white dude and milf very happily smiled in front of the camera hawking ... get this ... credit consolidation services.

I hear and obey. Booyah.

Tuesday, May 6, 2008

Is there a good time to buy a house?

There will be!

Imho the probability is 100% we go to point #1 from here.

Then 0% probability from point #1 to point #3. It was not always that trivial. A system running into debt deflation can lead to 100% downpayment on a house, which was NOT zero probability going into 2008. (Thus the price of the house is 30% will be whatever it was at the peak!)

There shouldn't be a rush, either. 20-30% downpayment will most likely cause the likeliest future events to be from point #1 to point #2.

Earnings review today: FNM!!

Some notes:

  • Earnings etc., yes, you could take with grain of salt. That's accounting #s.
  • You shouldn't mess with capital though. At least in the short run (2-3Qtrs ahead) credit losses are much smaller than the amount of capital being thrown at it periodically.
  • This is as of 3/31. Which doesn't include the bulk of massive spread tightening (price increases) in MBS since BSC backstop details were finally understood (3/29 I think) and new purchases since then. You could be looking at net yield of 100bps+ next earnings. No I am not kidding, I see this with my own eyes.
  • Writedown on AAA bonds reflect prices in the market and not value. With 30+% credit support I expect $0 cash to materialize as loss and has 99.99% chance of being right unless everything FNM owned in Subprime AAA is manufactured trailer park homes (which is not the case, clearly).
  • In the cons, I only have objections with the amount of credit "enhancement" from people who need enhancing themselves, Mortgage Insurers. PMI is payable monthly by the borrower so that's less of a problem. However, the pool coverage is paid upfront so hopefully the insurance is good for that amount. I just checked MGIC may have about $5B equity and lines, and FNM by itself has $26B notional insured with them (so it's like 5-7B exposure assuming very severe losses) . Again while for FNM that amount of deficiency isn't too troubling, it does prove MTG/RDN/PMI operates exactly like ABK and MBI. And that's very troubling because we'd never really find out what their capacity is until it's too late.
  • Increasing prices at the time of no competition (80% of market is now FNM/FRE). Not a bad deal especially if you can lever up even more from the extra 5% surplus release this morning. The gov't is now taking the lapdog role very reminiscent of Clinton (boy) era. I expect if Clinton (girl-dude)/ Obama makes it the GSEs will actually be allowed to run with ZERO capital but that's for a debate some other time.

Conclusion: Details suggest pricing and lending may lead house prices (they basically front run house price declines and increase pricing in anticipation of more declines). Nibbling on calls and long FRE for speculation purposes that FRE beats, due to 1. later by a month reporting close date capturing lots of MBS improvement and 2. generally leading FNM in credit loss by 1 quarter so I reasonably expect the amount thrown into the pile maybe smaller than the most dire predictions.

Monday, May 5, 2008

A strange newsflash about the state of lending business:

Otherwise the american idol, beerswilling, ownership USA society would miss this particular headline.

More data point about Bear market rallies:

Then again u could still be off 10% from here and be broke and not participating in the majestic waterfall ride:

By Michael Tsang and Nick Baker
May 5 (Bloomberg) -- The biggest rally in the Standard &
Poor's 500 Index in more than four years is luring investors to
equities from cash, just as options traders are betting the
advance will evaporate.
The benchmark index for American shares rose 4.8 percent in
April, the steepest jump since December 2003, and through last
week had climbed 11 percent from a 19-month low in March. The
rebound came as Federal Reserve Chairman Ben S. Bernanke
arranged the bailout of Bear Stearns Cos., took subprime-tainted
mortgages as collateral from investment banks and cut borrowing
costs to a three-year low.
Jean-Marie Eveillard, who runs the $22 billion First Eagle
Global Fund, is skeptical the gains can last because the worst
housing slump since the Great Depression will reduce earnings.
S&P 500 companies are valued at 22.7 times profit, the most in
four years. Options traders are paying 63 percent more to
protect against a drop in the S&P 500 than to bet on a gain, the
widest difference since at least 2005.
``It may be a suckers' rally,'' said Eveillard, who is
based in New York. ``Investors want to believe. But if I'm
right, then there's truth to the argument that this is the worst
financial crisis since the end of World War II. The same kind of
reflex is the wrong reflex.''
The S&P 500 gained 1.2 percent to 1,413.90 last week,
adding to the rally that helped the measure avert a bear-market
collapse of 20 percent. The benchmark index plunged 18.6 percent
from its record 1,565.15 on Oct. 9 to its low on March 10.
Cash to Equities
Today, the S&P 500 declined 0.5 percent to 1,407.16 as of
11:21 a.m. in New York trading.
As the advance took hold last month, investors shifted more
than $100 billion out of cash held in money market funds, whose
assets had swelled to a record $3.54 trillion, according to data
compiled by Washington-based Investment Company Institute.
The climb hasn't dispelled concern among traders of U.S.
options. Implied volatility, the measure that calculates
expected price swings of an underlying asset and is used as a
barometer of options prices, shows that many investors are
betting the U.S. stock market will falter.
The implied volatility on options that lock in gains if the
S&P 500 drops at least 10 percent in three months reached 24.67
on April 30, Bloomberg data show. That compared with 15.1 for
options that pay out if the index rises at least 10 percent.
The 63 percent difference indicates the highest demand for
options insurance since at least 2005, according to data
compiled by Bloomberg. A decline of 10 percent from the S&P
500's closing price last week would take the measure down to
1,272.51, below its March 10 low of 1,273.37.
Sucker Protection
``There are pockets in the marketplace that believe this is
a sucker rally, and they're willing to pay a substantial premium
for downside protection,'' said Robert Arnott, whose Pasadena,
California-based Research Affiliates LLC oversees $26 billion.
He said in December 2006 that a bear market was probable.
Nouriel Roubini, professor of economics and international
business at New York University's Stern School of Business, says
the Fed's seven rate cuts since September -- which lowered the
benchmark lending rate to 2 percent from 5.25 percent -- aren't
enough to stave off a contraction and that earnings expectations
are unrealistic.
Investors are currently paying the highest prices relative
to earnings since March 2004 and 15 percent more than when the
S&P 500 reached its all-time high in October.
The U.S. economy expanded 0.6 percent from October through
March for the slowest six months since the 2001 recession.
Meanwhile, consumer spending rose at a 1 percent annual pace
last quarter, also the weakest since 2001.
Profit Rebound
Still, analysts estimate profits at S&P 500 companies will
rise 12.1 percent and 51.7 percent in the final two quarters of
2008, respectively. For the first quarter, 363 companies in the
S&P 500 have reported results, posting an average decline of
13.3 percent. That compares with analysts' projection at the
start of the year for a 4.7 percent gain in the quarter.
``You're going to have further losses for the financial
system and weakening of demand of employment, of earnings, of
profitability that's going to push further down the stock
market,'' said Roubini, who more than a year ago predicted a
housing slump would drag the U.S. into a recession. ``This is a
temporary, bear-market rally.''
ISI Group Inc.'s Jeffrey de Graaf, the top-ranked technical
market analyst in Institutional Investor magazine's survey the
last three years, says the decline in trading last month also
shows investors aren't confident the gains will last. De Graaf
is based in New York.
Trading Slows
An average of 1.31 billion shares changed hands each day on
the New York Stock Exchange, the least since September 2004 and
the slowest for the month of April in six years.
Quincy Krosby, chief investment strategist at the Hartford
in Hartford, Connecticut, which manages $360 billion, is more
sanguine. She says the worst may be over for the economy and the
financial markets saddled with $319 billion of bank losses.
Financial stocks in the S&P 500 have gained 11 percent
since the end of March, the biggest increase among the 10
industries in the index. Meanwhile, gains in railroads, trucking
companies and airlines signal the broader economy is growing and
bolster the case that the stock gains are justified, Krosby
`Past the Downturn'
``It's a validation of investor belief the U.S. economy
will pick up in the next six to seven months,'' she said. ``It's
a sign the market is looking ahead past the downturn. Slowly but
surely, the Fed rate cuts will be working their way into the
Gerard Minack, chief market strategist at Morgan Stanley's
unit in Australia, says that's a mistake. The global economy
will probably worsen, Fed rate cuts will be less effective than
in previous periods and profit growth will disappoint, he wrote
in a note today.
``We are in the midst of a bear market rally,'' Sydney-
based Minack said.
NYU's Roubini also expects additional pain.
There is ``complacency among investors thinking that the
worst is behind us for credit markets and for financial markets
and for the real economy,'' the New York-based Roubini said.
``This is not the year to be in risky assets like equities.''
--With reporting by Eric Martin and Elizabeth Stanton in New
York and Adam Haigh in London. Editors: Chris Nagi, Daniel

Friday, May 2, 2008

The secret of Bear market.

1.0, 1.05, 1.1, 1.15, 1.22, 1.28, 1.31, -0.7, -1.35.

That's all the data on past earnings that you have. And the share price is half what it used to be at the peak.

What do you do? :)

Now do you see?

Back to business, was there or was there not credit crisis?

According to some "experts", we have been led to believe that housing crisis / credit crisis doesn't exist and the media cooks all those up.

Also, since now it's proven that it's all made up, what we need to do is draw a straightline from Dow 14,000 (where we left off the last time) to Dow 18,000 before Christmas this year.

I have no problem with that. It's nice to be a slave and know your place in the hierarchy, and if you get tired being slave grade 5 and want to be slave grade 6 all you have to do is take more leverage. I'm cool wit dad yo (in disgustingly fake black people move that only white guy with fake sunny disposition like me can produce).

Read this before you go wit dad, yo:

MAY 2, 2008


Dollar Volume of Equity Cashed-Out Drops to $29 Billion: Lowest in 4 Years
McLEAN, VA - In the first quarter of 2008, 56 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least 5 percent higher than the original mortgage balances, according to Freddie Mac's quarterly refinance review. This was the smallest cash-out refinance percentage since the second quarter of 2004. Further, the share for the fourth quarter of 2007 was revised down to 77 percent.

"During the first quarter about $29 billion in home equity was cashed out through refinance of conventional loans made to prime borrowers, off from a downwardly revised $36 billion cashed out in the fourth quarter of 2007. This is about one-third of the amount cashed out in the same quarter a year earlier," said Amy Crews Cutts, Freddie Mac deputy chief economist. "While research has shown a limited effect in the current quarter of equity conversion into cash, the reduced equity extraction we saw in the first quarter will likely be felt in the consumption and investment decisions of households later on.

Who's your daddy again? The housing ATM is, sugar.

More on SMN

First you observe:

Then you deduce:

Next you think

More about Surgical Decoupling (as opposed to "Generic" Decoupling) Theory

Read this:

May 2 (Bloomberg) -- Orders to U.S. factories rose more than
forecast in March, indicating rising demand from overseas may be
helping American manufacturers weather a decline in sales at home.
The 1.4 percent jump followed a 0.9 percent decline in
February, ...

and this from Clorox news yesterday:

May 1 (Bloomberg) -- Clorox Co., the maker of Glad trash
bags and its namesake bleach, rose the most in eight years in
New York trading after it forecast annual sales and profit
gains that were higher than some analysts predicted.
``Beneath the input-cost rubble is a solid brand owner
investing in innovation to drive growth and expand
categories,'' William Schmitz, a New York-based analyst with
Deutsche Bank Securities Inc., said in a report today. He
recommends holding the shares.
International sales rose 14 percent, led by a 20 percent
increase from Latin America, U.S. sales were ``a bit soft,''
Knauss said.

Find other names in the space. I already have DHR (and added DCI more recently) for some weeks. There will be similar news out of JNJ soon, but I predict P&G is fully priced in if you let me use that much-misused term. But you know what I mean.

I think there is a reasonable chance the right "neutral" trade is to pair these with something like COF - local "financier" with only US exposure and no collateral behind the loan, and dependent upon securitization. Have you heard anything so far from "uncollateralized lending" folks other than "we got massive subordination, etc etc"? Right. So who owns the "massive" subordination or in fact is that not what you call earnings? :D

My thinking is more on picking the timing on the short side for the pair trade. Could COF make it to $60-65? That's forward 12x P/E+.

Thursday, May 1, 2008

Definitive Forecast of the LT-Sell signal from 20 WMA vs 50 WMA CROSSING

The complete introduction is here:

I will selectively recap what that is:

This particular indicator says:
  • Long-term Buy signal if: 20-weekly moving average on the Index goes up OVER the 50-weekly moving average by 1% from UNDERNEATH.

  • Long-term Sell signal if: 20-weekly moving average on the index goes down UNDER the 50-weekly moving average by 1% from OVERHEAD.

Now here comes the NEWS. There is GOOD news and BAD news for BEARS following this LT Signal.

I am intrigued at what point, WITHIN ONE QUARTER from May 1, 2008, does the 20 WMA crosses over the 50 WMA, and thus reversing the SELL signal into LT-BUY signal ?

There are basically several scenarios - SEE CHART BELOW - that I consider, and (please don't ask too much details for now), probability of those as implied by SPY Aug option prices. There are things that don't exactly fit any of the description but I "managed" to lump them in one category or the other (and don't ask me how, either).

I also showed:

  1. the end of period SPY prices for each scenario, and
  2. a chart showing 50WMA minus 20WMA (see that the last cross was mid January into LT-SELL, and you can see several projections: ONLY two of them (2% weekly decline and 3% weekly decline over the Qtr, resulted in a crossing).

The Good news: Within the next 3 months, it is UNLIKELY that the LT-SELL signal will change into a LT- BUY signal

The Bad news: It would, for the most part, be like chinese water torture, watching paint dry, and unprofitable expedition for inexperienced Bears.

Look at what happened to BEARS in HIGH probability EVENTS:

  • Whipsaws (the last two scenarios), and
  • FLAT (the first scenario)

Not only do you NOT make money, the signal will also be getting close to cross into LT-Buy.

You are trading $$$! Not trading Signals.

You (BEARS) could be right about the signals.

BUT - 75% of the time, as my estimate indicated, you WONT make much money or even lose.

(That's basically the same as 75% of the time the Bulls are wrong about anticipating the signal to turn into LT-BUY, but they wont lose anything or even make a bit of money!!!!)

This is the where the truest of the true and nimblest of the nimble will rise, while wannabees and emotional, political, religiously motivated people, will FAIL.

Disclosure: The predictive ability of that 20WMA/50WMA is very good, which is why I bother spending some time in looking at it in-depth. Hope you find something useful.

Another side of consumer credit: cards.

Read these two synopsis of articles coming out today; the first is news to me, the second is not really as it has been the trend the past couple of weeks as rationalization comes back when pricing "money-good" cashlows:

May 1 (Bloomberg) -- Overdue debts at the six largest U.S.
credit-card lenders held steady in March, remaining at the
highest level since November 2004, data compiled by Bloomberg
Payments late by at least 30 days averaged 4.11 percent of
loans in March, the same as in February, according to reports
filed by American Express Co., Bank of America Corp., Capital
One Financial Corp., JPMorgan Chase & Co., Citigroup Inc. and
Discover Financial Services.
``I'd be surprised if we're at the peak for late
payments,'' Nigel Gault, research director at Lexington,
Massachusetts-based Global Insight Inc., said in an interview.
``Pressures on the consumer are increasing, with employment
declining, home prices continuing to fall, and prices outpacing

By Sarah Mulholland
May 1 (Bloomberg) -- U.S. securities backed by credit card
and auto loans are lagging behind other debt
, a sign the Federal
Reserve hasn't done enough to quell concern that consumers may
fail to make monthly payments on time.
Credit-card bonds lost 0.14 percent in April and auto-loan
debt fell 0.4 percent, Merrill Lynch & Co. indexes show. By
contrast, high-yield, high-risk corporate bonds returned 4.2
percent, the best month in five years, and top-rated securities
backed by subprime or home-equity loans rose 0.77 percent.

Do you think what I am thinking or shall I say in Spanish? [evilgrin]

Spanish? Okay, "Principal Unos". There YOU have the secret now. Calculating put options and looking for risk-reward metrics now and I may take a decent sized position.

some cleanup work done at 2pm.

2PM update: enough with this game. Spread closes in to $2.81 and I am out all 1,500 shares. Beer money collected. I sold also the 400 shares I bot at 24.80s this morning. Cracker money in.

Note on the covered call portion: Now is $27.19, twenty cents above where I sold the $1.50 call four days ago, but the call option is trading $1.05-1.20. The decay is pretty good clip. One more dip to yesterday's level and we're done. I suspect everyone would want to be lightly loaded ahead of FNM 5/6 earnings day cuz anything can happen. And if the surprise is "negative", buying at $30s isn't pretty. :D

Hmm, reason tells me QQQQ went up to far and too fast for the smallish bit of news we've got in the past 2 days relevant to it. But why am I not moved after looking at AAPL's action? Too strong to fight.

SRS - on the other hand ....

5pm addon: hmm, the spread is still $3, a bit wider than 2pm, and the closing prints seem to suggest it may attempt $4 if FNM really wants to front-run earnings. Does that mean I should go long FNM and short FRE? I don't even trust my senses anymore. I'll stay out of these two UNTIL after FNM. I will only bet conditional on FRE earnings conditional on FNM (and a couple other things).

DSL short squeeze may have failed.

I went long with an average of 13.72 and dumped just now at 14.73, 2,000 shares. I think the short-squeeze I predicted just failed or for some reason I found very weak and $20 looks err, "optimistic". But you never know and do ur own due dilligence.

I still have 14,000 shorts since last year August. Maybe this is the end of Downey despite the talk talk jawbone jawbone work everyone has done for the Option Arm industry? Tsk, it used to work better than this.

More notes: B-b-b-booyah!!! heheheheh. I was wrong, squeeze is just starting as of lunch time May 1, 2008. Oh well. Panic time for short sellers. Booyah, booyah, booyah.

Update on FRE "game"

This is beginning to morph into a position albeit still small. Added at 24.89 400 shares long this morning.
(for a total of 1,000; 600 of them covered call in the past 3 days from the "top" :)

The gap is widening with FNM. Yesterday was $3.40, now $3.80, an absolute nadir in relative performance. I am thinking about 1000 shares long-short FRE-FNM I was mentioning yesterday if I see $4+ spread.

More notes: Okay F-it. I did 1,500 FRE-FNM with $3.72 initial gap. $500 if I am wrong and $3,000 if I am right sounds tempting for beer money.

Nasdaq Momo-ism back at full force!

Rally out of nowhere. Qs up 2%.
Well Symantec was doing great last quarter but is Symantec everything? :D
Great day to evaluate who in that space is most vulnerable to a pullback given this indiscriminate rally. Look for something financial in nasdaq.