bearfund

286 Comments

    • The Crazy Lehman Share Price [view article]
      icandoitdon writes: "'m not sure that's what bush and his cronys quite meant when they talked about the importance of having an 'ownership society.'"

      I can tell you. They're worried about alienation. Alienation is what happens when substantial numbers of citizens start feeling that they have nothing invested in their society, that it needs them more than they need it. Alienation destroys confidence, breeds disorder, and leads to the total and permanent collapse of governments. They believe, correctly or not, that people who hold a mortgaged title to their residence will not be alienated by the government's various actions. Personally, I think they are wrong - by encouraging people to own their homes at artificially high prices and artificially low rates, backed up by a guarantee only as good as the money taken from me at gunpoint, they are actually increasing alienation. But what do I know?       Aug 20 01:12 AM
    • Is Dollar-Based Salvation Coming? [view article]
      There is absolutely no possibility that the Fed will raise rates. None. If you're buying dollars against forex because you expect US short-term rates to rise, you're in for a big disappointment. If you're buying them because you don't want to hold euros and yen (probably a smart move), let me remind you that gold is dirt cheap and cannot be printed to bail out Fannie and Freddie or drop from helicopters (dropping gold from helicopters would be a minor disaster in any case). The Fed does not care about prices of the goods and services that people and businesses need to live and operate. They care about the prices of the assets on their member banks' and now their own books. As long as those are falling, so will overnight rates.

      I expect the Fed to cut rates again soon, possibly even before the end of the year, and my fed funds rate target bottom is 0.5%. My target for the 10-year Treasury note yield remains 10%. With each passing day, the disconnects and dislocations in the markets are growing more severe. Do not forget that the bear eventually hits everything. As the financial rot has worked its way toward the core, from hedge funds and SIVs to regional banks to investment banks to the Fed (whose balance sheet quality has declined perilously), the bear has ravaged homebuilders, mortgages, financials, telecom, energy, agency paper, and consumer discretionary. The rot is now knocking on the door of the heart of the system, the Treasury itself. Congress has given Paulson the legal ability to let it in, and when he does, the bear will enter as well.       Aug 19 10:09 AM
    • 4 Qualities of the Best Dividend Stocks [view article]
      "Everyone cares about the stock's potential to decline in price."

      Not really. If I'm trading it, that's kind of central to the whole thing. If I'm investing, though, who cares? After all, if it pays a nice dividend, that dividend is safe, and that dividend is growing, what difference does it make what the market price is? Frankly, lower is better; you can buy more. Obviously, if the stock price falls because the dividend is cut, that's a whole different kettle of fish - but the problem is the cut, not the price drop.       Aug 18 12:00 AM
    • Forget $100 a Barrel - Oil Will Plummet to $30 [view article]
      If you think the run-up to $147 was analogous to the early 1980s spike, your downside overshoot target should be $46 and your long-term uptrend (recovery) line sits near $80. And yes, for those of you arguing that the recession will lend further downside pressure, there was a recession in the early 1980s, too (two of them, actually). A target price much below $50 at any date is highly suspect, and any long-term forecast that has oil falling is even moreso.

      My personal expectations are for a 10-year average (2007-2016) in the $100-120 area; we may see $60-70 along the way but anything much lower than that would require outright global collapse. Worth noting is that many of the major oil producers are already priced as though oil is at $60-70. I sold most of my position in STO at 40 but will consider any move below 25 an opportunity to accumulate. There are other healthy producers starting to look very cheap as well and further deterioration in oil shares will present long-term investors with solid long opportunities.

      I'm curious about one thing, though. The author claims to be short USO. Are you really, or are those fictitious shares? USO has been on the reg SHO threshold list for 289 days and in my experience has been impossible to borrow. It was quite interesting to watch the SEC vigorously attack hypothetical naked Fannie shorts (despite the issue never appearing on the reg SHO list) while ignoring the longstanding USO fails. I'd be outraged but frankly who is surprised? Official manipulation is the name of the game these days. Wouldn't surprise me if the USO fails were coming from the US Treasury itself.       Aug 17 01:24 PM
    • Market Outlook: It's Still All About Housing [view article]
      JasonC, normally I just ignore your permabull cheerleading, but for whatever reason I accidentally read your comment today. When you say:

      "Next, pick one please. Either debt is a crushing load that can't possible be paid, or rates are tiny and inflation rampant so borrowing is stealing from the lender. Pretending it is both at once is just plain pretending."

      Let me introduce you to the concept of rate spreads. The Fed lends to its member banks and a select few other big boys at some rate r. They in turn lend to hedge funds, retail investors, traders, corporations, mortgagors, and credit card users at some other rates r plus delta. While delta varies widely based on the perceived credit risk of the borrower, the collateral offered, and the bank's desired margins, it is always positive. Right now, the spread between the Fed Funds rate and the rate at which most individual borrowers have taken on debt is very high.

      Next, not every borrower has an equally strong balance sheet. I may owe next to nothing and have millions in good quality assets, while the man living in a suburb a few miles away may have negative net worth, shaky income, and an asset book dominated by a highly leveraged house that is rapidly losing market value. It may well be "stealing" for a bank to borrow at 3% from the Fed or from me at the same time that someone else does indeed have a crushing load of debt that probably will never be repaid. Both at once? Not exactly - it's all about the who. For some it's one, for others it's the other. The problem is that the number of distressed borrowers doesn't have to be very large to create trouble for banks and prod the Fed into opening the cash spigots. The result is that those with crushing debt loads gain little; their debt is inflated away, yes, but not rapidly enough to help them and in any case their incomes are not rising anyway. And instead of "reflating" prices in the bubble-damaged sector, the Fed's cheap money always fuels a bubble in some other sector instead. So there is really no reason to believe that more cheap money helps anyone except perhaps the banks. It certainly does, however, discourage saving; most banks have little incentive to pay much interest.

      "Nobody is putting a gun to your head forcing you to keep a pile in a money market account, so no, nobody is being robbed by low Fed-set rates."

      So what advice would you give that vanishing specimen, the young employed middle-class saver who has a 5-figure net worth, no debt, and a decent retirement plan in place? These are the ordinary sort of people who were once plentiful in America, and the wealth they built prior to the 1970s was a primary national strength. Today, of course, there are few such people; most have given up building wealth and instead buy garbage they don't need on credit. But back to our hypothetical case study. Presumably he could borrow cheaply, but what would he buy, either with his own cash or a bank's? The S&P 500 has a P/E of 26. Investment-grade bonds in intermediate maturities yield 5-6%. Even junk yields only 9% and who believes defaults will not continue rising? Perhaps he should take the NAR's advice and try to catch the falling knife in real estate despite prices still well above historical norms. Sure, no one is forcing him to stay in cash, but the alternatives aren't attractive either. Cheap money has forced yields down across all asset classes while credit market trouble has increased the cost of living and made most financial assets riskier. He is most definitely being robbed - of opportunity to create wealth by investing in productive assets at fair-market prices, and of ability to secure his own financial future by saving his earnings at a non-negative real interest rate. Your refusal to acknowledge that shows that you are either ignorant of basic finance or deliberately blind to the possibility that situations other than your own exist.

      As for my advice to our young man? Quit working. Withdraw your savings, convert them to gold, and put it in your backpack. Now go see the world. Enjoy yourself for a while. Learn about people and the markets they make. Learn about the venality of government and the craft of business. When you find a place that offers a decent risk/reward calculus, open up that special pouch in your pack and invest directly in your own venture. The game you're playing now is for suckers. In America you may get rich and you may get poor, but there's no tolerance for the honest working man in the middle who wants to build modest wealth. The poor are too numerous and have the power of the ballot, to take from you by force. The rich have the power of debasement, to take from you by stealth. This country plays both sides against the middle. Get out while you can.       Aug 16 12:25 PM
    • Inflation or Deflation? [view article]
      My positions look like yours, as do my returns. I have absolutely no doubt that we will end up winners. Well argued. Aug 16 03:49 AM
    • Runaway Inflation: Do TIPS Really Help? [view article]
      The biggest problem with TIPS isn't the CPI. Don't get me wrong, the CPI is completely broken and useless as a measure of the cost of living. But some goods and services are actually tied to the CPI; for example, some cities with rent control limit rent increases to the CPI increase or some fraction thereof. As an asset to match against that sort of liability, then, TIPS would seem ideal.

      Unfortunately, the real crime of inflationary policy becomes apparent when one contemplates such a move. The nominal increase in principal value of a TIPS - the portion that the government agrees does not represent any real gain whatsoever - is taxed at the time it accrues! This is not only unconscionable, it also renders these instruments essentially useless for producing income to be matched with CPI-indexed liabilities.

      Let us take the example of a retiree in a 30% combined tax bracket living in a rent-controlled apartment with a current rent of $1000 a month and a control indexed to the CPI. Let us assume for the moment that the market's expectations are correct and a 233bp breakeven turns out to be in line with future reported CPI and that one intends holding to maturity. One would need to buy $723000 worth of TIPS to generate enough income to cover the rent. Already we have a problem - if one has that much cash, a better way to guarantee a residence would be to buy the place. But it gets worse - the tax bill on the interest income is $3600 - and the tax bill on the accretion is another $5054! The net after-tax income on this investment is a mere $3347, a far cry from the $12000 we need. In reality, we will need $2.592m in TIPS to provide a CPI-protected income stream of $1000 a month: a real after-tax return of 0.46%.

      Even in situations that would seem to favour TIPS, they simply don't work. To make matters worse, TIPS, like all Treasuries, are absurdly overpriced today. Those looking for income with protection from rising prices are advised to consider large-cap telecom equity, "too big to fail" bank preferreds, gold (cheap at any price, insanely cheap at $788) or dividend-paying miners, and oil&gas trusts. The risk-averse might consider this mix as 20-40% of a portfolio with the balance in CDs. It's far from perfect, but almost anything is better than TIPS.       Aug 15 12:04 PM
    • Implications of the Slowing Global Economy [view article]
      You see recession looming and conclude that the ECB, RBA, BOE, and RBNZ will cut rates. Seems likely enough, and one can hardly disagree that this is what's supporting the dollar rally. But why should Treasury yields fall? There will be no deflation; if contraction accelerates, Helicopter Ben will rev up his printing press to match. Except possibly for the ECB, the world's central banks fear deflation far more than they fear inflation or even hyperinflation. If they all conclude, as you (perhaps correctly) have that deflationary forces are operating and continuing to gather strength, they will join the race to zero. And don't forget all the "fiscal stimulus" that will follow, all of it borrowed of course. In short, the central bankers and politicians will flood the system with borrowed money at the very time there are fewer goods and services available to purchase. One might, just possibly, expect currency-denominated prices of most products to rise under such circumstances. To look out one's window and see falling output, rising prices, expanding money supplies, and higher Treasury supply and conclude that yields should fall implies a sort of insanity.

      Just as there is nothing supporting the dollar beyond the weakness in other economies, there is nothing to support bond prices. The market is reacting correctly to interest rate differentials but is acting as though the supply of money itself is fixed and completely ignoring the central bankers. When reality hits, everyone who rushed into dollars and bonds is going to suffer.       Aug 15 10:27 AM
    • Following Buffett's Railroad Tracks [view article]
      irisatrx has it just about right. Or rather, I don't believe this is what Buffett intends to do, but it's what happens anyway. I agree with RightinSanFrancisco that CNI has an excellent business and is undervalued. I keep wanting to buy BNI but CNI is so much cheaper by just about any metric that I can never bring myself to do it. It's a good company, it's just too damned expensive. I blame Buffett for that 100%. Aug 12 11:39 PM
    • Ranting About Risk [view article]
      Let's start with the fundamental assumption that everyone forgets: the maximum possible loss on any instrument is 100%. Not 20%. Not 45%. 100%. Always and without exception. Therefore, the greatest risks are disproportionately those that involve the greatest leverage, not those that involve the greatest likelihood of loss or likehood of total loss. People talk about black swans and fat tails; the real problem is not that these events happen more often than people think but the simple fact that they happen at all. Therefore if you want to manage risk, you have to manage leverage. Risk wasn't underpriced, leverage was. Why? Because money was cheap. The market has lost the power to price money; the laughably incompetent Fed does that now. Then when things go wrong, they bail you out. Why banks even bother employing risk managers is beyond me; there's no point. As long as your only risk is gross overuse of leverage, there is no risk, so gear up, baby. Gear up. In a free market, the company geared up 2x on a mix of investment-grade paper, equity, and a dash of speculative opportunism with a hefty chunk of gold sitting in the basement is infinitely less risky than one geared up 50x on Treasury-backed paper. And, curiously, the former has more upside and contributes far more to the real economy. But why take those risks when you can take risks that aren't with free money? Aug 12 11:30 PM
    • Market Outlook: It's Still All About Housing [view article]
      So, now that everyone finally agrees that the Fed isn't going to raise interest rates, the question has to be: where's the next bubble? After all, the way one makes money these days isn't by investing, it's by getting real long real early with cheap money, then getting out before everyone else gets slaughtered. But what to buy? Aug 12 11:09 PM
    • Contrarian Trading Tips: Gold, the Dollar, Energy and Financials [view article]
      Attention fiat currency lovers: gold is worthless. Please sell me yours. Do not hesitate to get short regardless of price; you will be able to cover at zero. I am stupid and will happily give you good solid patriotic American currency for your useless metal. No need to feel bad; I like being a sucker. Do I hear $600? $275? Surely you will rush to get short even at $51, just above the face value of a gold eagle coin minted in the good old US of A by our beloved Treasury Department. Takers? Takers? I'm buying! Aug 12 02:22 AM
    • Who Is Really Printing Money? [view article]
      I'm happy to buy a little at today's price. I'd be even happier to buy more at 730. Your long-term trend line is at 600 - that would make me giddy as a schoolgirl. If the Fed isn't happy with the pace of money creation, they'll find ways to make even more. They are determined to "reflate" (i.e., blow more bubbles) and where there's a will, there's a way! Aug 12 02:04 AM
    • The Evolution of the Bear [view article]
      The only deflation is in bubblicious asset values and low-grade electronics from the Far East. Anything people actually care about is still far more expensive than it was a year ago or five years ago. Any hint that second-order effects are moving deflationary pressure into any sector other than the hated commodities will bring swift and certain interest rate cuts up to and including "quantitative easing" aka unlimited money printing.

      The powers that be are absolutely determined not to allow a major deflationary slowdown to occur. The bear evolution into energy and infrastructure is largely over, though there may be a little money left to be made there. The nascent dollar rally is also tradeable. The bear will move on to other sectors in the future, and those moves too will be tradeable. But don't get caught betting long-term against the Fed and its policy of easy money. I expect another big leg up in hard assets when they decide that 2% isn't getting the job done and the "commodities bubble" appears to be safely in the past. Traders will have to stay nimble to react to extra-market activity. Bear markets just aren't what they used to be.       Aug 10 11:11 AM
    • Don't Just Do Something, Stand There [view article]
      To the commenter who writes "Neocon Libertarian ..." - where can I learn more about these people? And perhaps about the Lutheran Pope and the honest politicians as well.

      As for whether there's anything worse than the fiat money and central banking system, you're right; there is. Take the same system and add the death penalty for anyone bartering or possessing in quantities beyond their immediate needs gold, silver, food, oil, or anything else that could possibly function as a store of value. That would be worse. No need to tell your central banker friends, though; I'm sure they've got such a law drafted and ready to go and are just waiting for the right crisi-tunity to stuff it down our throats.       Aug 09 11:40 PM
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