I expect that Lehman will fall just like Bear Sterns did, with a Fed bailout taking the 'liquidity issue off the table' for them, but still roiling their stock values. Buy and hold the LEH Jan 40 Put. You might lose money, sure, but so far I haven't. With their 1x30 leverage, poor Tier III asset pricing, and exposure to the commercial mortgages & stated-income loans, it looks like a good target!
Of course, I could be wrong!?
Wednesday, May 21, 2008
Tuesday, May 20, 2008
Consumer Confidence lowest since the 80's
On May 16th, the numbers came out. Sure enough, consumer confidence is the lowest seen in years, more than 20 years to be exact. ``These are terrible readings,'' Richard Dekaser, chief economist at National City Corp. in Cleveland, said in a Bloomberg Television interview. ``The popular sentiment right now is that the economy is in deep distress and it's looking towards dim prospects going forward.'' Dekaser also called the results "puzzling" as the core inflation registered a mere 0.2 advancement in the month of April according to the Bureau of Labor Statistics here.
This is why the chief economist for National City Corp. called the results "puzzling".
Could it be that the guys at Washington are simply not reporting uncredible numbers? The Bureau of Labor Statistics said "petroleum-based energy fell 1.6 percent" in the month of April. Did you see the cost of gas go down in April, folks? I didn't think so.
Do you really think that we have only experienced the usual 2.3% inflation over the past 12 months? Me neither....but that's what the guv'mint says in its Consumer Price Index report (this reports inflation data month-to-month).
On other (better) news, due to the "low inflation numbers", bonds were snapped up, and as a result home loan mortgage interest rates fell approximately 0.25% on the CPI news.
Could it be that we should be watching what the consumer thinks over what goverment economists tell us what to think? Could it be that the government is simply not telling us the whole story? (They'd never do that!)
We may come to a time, in a short while, where government statistics are loudly contradicted by more objective, third party numbers. And, when that happens, you will wish you owned commodities!
This is why the chief economist for National City Corp. called the results "puzzling".
Could it be that the guys at Washington are simply not reporting uncredible numbers? The Bureau of Labor Statistics said "petroleum-based energy fell 1.6 percent" in the month of April. Did you see the cost of gas go down in April, folks? I didn't think so.
Do you really think that we have only experienced the usual 2.3% inflation over the past 12 months? Me neither....but that's what the guv'mint says in its Consumer Price Index report (this reports inflation data month-to-month).
On other (better) news, due to the "low inflation numbers", bonds were snapped up, and as a result home loan mortgage interest rates fell approximately 0.25% on the CPI news.
Could it be that we should be watching what the consumer thinks over what goverment economists tell us what to think? Could it be that the government is simply not telling us the whole story? (They'd never do that!)
We may come to a time, in a short while, where government statistics are loudly contradicted by more objective, third party numbers. And, when that happens, you will wish you owned commodities!
Monday, May 12, 2008
Where is ROI? (Technical Analysis & Fundamental Analysis: finding ROI in difficult times)
Where is ROI? Where can he be? Has anyone seen him?
I swear I saw him when I was reviewing my investment's last year's performance! But now, all's quiet on the front and ROI is AWOL...hmm.
Have you been feeling a little stressed lately because your Retirement Fund just hasn't passed muster in the last quarter? Do you feel like the price of everything is going up, except for your investments?
Frankly, I'm right there with you and totally understand. I believe that's because there exists a wide misconception among Americans on what is a viable investment. That misconception exists in overanalysis. We love information, we live in an age of free information. And, I believe, that too much information can swing what would be an otherwise credible investment decision into a poorly chosen investment decision.
We believe that the best investments are those that had mutliple technical factors to back them up. For instance, this means that I should be investing in stocks that have bullish Fibonacci indicators; stocks that are not testing any ceilings of resistance but have just bounced off floors of support based upon 25, 50, and even 200 moving day averages; and stocks that conform to a whole set of bullish indicators.
We rely on mounds and mounds of data in order to make an investment decision. Yet, isn't it odd that the S&P 500 Index outperforms over 70% of all mutual fund managers? We rely on computers to calculate all these recent trends, and believe that past performance is an indicator of future performance. (Right! Tell that to people who were bullish on US Financial Stocks in 2008 due t 2006 & 7 performance!)
Is it because we don't really know how to conduct fundamental analysis? We don't really understand how to read a financial statement, and essentially underwrite a company's short-term and long-term debts, assets & liabilities, cashflow, and overall condition?
Is it because we live in an Internet age of immediate gratification, are largely educated off the public dollar at the lowest-cost denominator, and simply either don't know how to analyze fundamentals out of lack of knowledge or just because we're lazy?
Warren Buffet said it best at the Berkshire Hathaway meeting just a couple weeks ago, "We like [investment] ideas you don't have to carry to three decimal places" He goes on to jokingly add, "If someone walked in here and weighed 350 pounds, I might not know he weighed 350 pounds, but I would know he was fat." (thanks to the guys at Agora Financial for this quote)
While I believe that technical analysis defintely does serve a purpose, I also believe that's it's somewhat like removing a mosquito with a rocket-launcher. I vie for a more minimalistic approach, for who's to say which technical tool is the most useful?
Ultimately, I prefer fundamental analysis over technical analysis because it's not so showy, less sexy, has a beergut, and grey hair.
I swear I saw him when I was reviewing my investment's last year's performance! But now, all's quiet on the front and ROI is AWOL...hmm.
Have you been feeling a little stressed lately because your Retirement Fund just hasn't passed muster in the last quarter? Do you feel like the price of everything is going up, except for your investments?
Frankly, I'm right there with you and totally understand. I believe that's because there exists a wide misconception among Americans on what is a viable investment. That misconception exists in overanalysis. We love information, we live in an age of free information. And, I believe, that too much information can swing what would be an otherwise credible investment decision into a poorly chosen investment decision.
We believe that the best investments are those that had mutliple technical factors to back them up. For instance, this means that I should be investing in stocks that have bullish Fibonacci indicators; stocks that are not testing any ceilings of resistance but have just bounced off floors of support based upon 25, 50, and even 200 moving day averages; and stocks that conform to a whole set of bullish indicators.
We rely on mounds and mounds of data in order to make an investment decision. Yet, isn't it odd that the S&P 500 Index outperforms over 70% of all mutual fund managers? We rely on computers to calculate all these recent trends, and believe that past performance is an indicator of future performance. (Right! Tell that to people who were bullish on US Financial Stocks in 2008 due t 2006 & 7 performance!)
Is it because we don't really know how to conduct fundamental analysis? We don't really understand how to read a financial statement, and essentially underwrite a company's short-term and long-term debts, assets & liabilities, cashflow, and overall condition?
Is it because we live in an Internet age of immediate gratification, are largely educated off the public dollar at the lowest-cost denominator, and simply either don't know how to analyze fundamentals out of lack of knowledge or just because we're lazy?
Warren Buffet said it best at the Berkshire Hathaway meeting just a couple weeks ago, "We like [investment] ideas you don't have to carry to three decimal places" He goes on to jokingly add, "If someone walked in here and weighed 350 pounds, I might not know he weighed 350 pounds, but I would know he was fat." (thanks to the guys at Agora Financial for this quote)
While I believe that technical analysis defintely does serve a purpose, I also believe that's it's somewhat like removing a mosquito with a rocket-launcher. I vie for a more minimalistic approach, for who's to say which technical tool is the most useful?
Ultimately, I prefer fundamental analysis over technical analysis because it's not so showy, less sexy, has a beergut, and grey hair.
Saturday, May 10, 2008
Paying at the Pump
Recently, the president of Shell Oil had an interview with CNN where he advocated the US drilling more oil. You can read that interview here.
I don't know how realistic people would have taken someone who were to quip, "$125 barrel oil in 1 year!" back in 2007, but it's here and due to supply and demand, it shows no sign of letting down. The average cost of fuel in the US is 3.62/gallon. I remember when it was 0.79/gallon in 1990's....can it get back to those days? Why not?
The US simply needs to bite the bullet, and drill it's on oil reserves, regardless of where these reserves lie. But, in order to do that, it needs a fundamental shift of idealogy that says you can tap the environment for commodity use. Right now, we dare not tap the Anwar reserves lest it harm the native flora and fauna.
Remember folks, there's two sides to this argument, and both are the extremists. There are those who don't want to use our reserves at all....and we know what that does to a forrest that's not cruised and cleared properly (forrest fires will take care of the forrest if we don't utilize it). The other side are those who wish to clear cut everything and strip the land of all her resources, without thought of the future. Both are wrong, and both mindsets have contributed to where we're at currently.
We need to tap our own oil, not our reserves because that's only a short-term solution. We need a long-term answer to this long-term problem. Granted, it will take about 8 years+ even if we decide today to tap US oil, before we see a reduction at the pump, but at least that's movement in the right direction.
If we keep the same policy we've had for the last 30 years, other nations will surpass America as they use the resources they have in the ground. While this is not a license to use our resources wantonly, it is, however, a desire for wisdom in addressing how we should use the resources God has given us.
I don't know how realistic people would have taken someone who were to quip, "$125 barrel oil in 1 year!" back in 2007, but it's here and due to supply and demand, it shows no sign of letting down. The average cost of fuel in the US is 3.62/gallon. I remember when it was 0.79/gallon in 1990's....can it get back to those days? Why not?
The US simply needs to bite the bullet, and drill it's on oil reserves, regardless of where these reserves lie. But, in order to do that, it needs a fundamental shift of idealogy that says you can tap the environment for commodity use. Right now, we dare not tap the Anwar reserves lest it harm the native flora and fauna.
Remember folks, there's two sides to this argument, and both are the extremists. There are those who don't want to use our reserves at all....and we know what that does to a forrest that's not cruised and cleared properly (forrest fires will take care of the forrest if we don't utilize it). The other side are those who wish to clear cut everything and strip the land of all her resources, without thought of the future. Both are wrong, and both mindsets have contributed to where we're at currently.
We need to tap our own oil, not our reserves because that's only a short-term solution. We need a long-term answer to this long-term problem. Granted, it will take about 8 years+ even if we decide today to tap US oil, before we see a reduction at the pump, but at least that's movement in the right direction.
If we keep the same policy we've had for the last 30 years, other nations will surpass America as they use the resources they have in the ground. While this is not a license to use our resources wantonly, it is, however, a desire for wisdom in addressing how we should use the resources God has given us.
Tuesday, May 6, 2008
Stock Pick "CSX"
I recommend buying CSX Corporation stock due to increasing fuel costs, dollar devaluation, and burgeoning city transit. The fuel costs have manufacturers turning towards rail as the method of choice over trucking for transportation of goods. See here. The devaluation of the dollar means increased exportation, which means increased demand for transportation. And, lastly, cities are looking for ways to cut not only their emissions but also to provide more effective commuter transit. This may offer insight on CSX and commuter transit. And this should help seal the case.
If you have a more bullish appetite, you may want to try purchasing call option contracts on CSX. Just put your stop loss in there sometime, to ensure a profit.
If you have a more bullish appetite, you may want to try purchasing call option contracts on CSX. Just put your stop loss in there sometime, to ensure a profit.
"The Fed" and recent actions
There are very few of us who are not aware that we are in the midst of a full-fledged housing crises, commodity prices are inflating at record paces, and a recession is looming on the horizon. Some of this is arguably caused by the Fed's recent actions, and these actions were taken to avoid a recession and/or repair the housing crises. What have these actions been? Let's look at that.
1. The Federal Reserve has lowered short-term interest rates drastically in the past six months. This has reduced the cost of credit to banks, but they've pocketed the reduced cost as additional profits. See more here.
2. The Fed has reduced reserve requirements for large mortgage buyers Fannie Mae and Freddie Mac. This will increase the money supply by about 200 Billion. See more here.
3. The Fed has accepted illiquid bad debt (mortgage, auto, and credit card) in exchange for liquid Treasury Bills. See more here.
4. The Fed provided the financing for the recent bailout of Bear Stearns to J.P. Morgan. Countrywide is next, I believe, when Bank of America walks away. See more here.
5. The Fed Chairman, Ben Bernanke, has recently acknoledged legislation proposed by House Financial Services Committee Chairman Barney Frank, D-Mass. This legislation will provide 300 Billion in FHA financing for distressed homeowners. See more here.
Given these five items, it's clear to see that the mortgage crises is real and being addressed on all fronts by the Federal Reserve with not only the help of investment banks in the business sector but also Congress in legislative reforms as well as new FHA funding.
These actions, arguably, will not only lead to inflation, but could also give banks the wrong idea that should they mistep in funding poorly structured debt obligations, then they can always get a government bailout, and throw it back on the taxpayer, and pocket the short-term profits. I am pleased, however, to see that Chairman Barney Frank has encouraged these banks (who issued asinine mortgage products in the first place) to write down principal or else....and he means it.
(For those of you who think that executives in these investment banks that issued the debt in the first place are not partially to blame, see here, or try here, or this one is definitely tabletalk, and here's one that'll surely get you going!)
Ultimately, this will be one for the history books. People can blame the Fed all they want, and I myself find quite a few bones to pick. But, it's hard to be proactive in such a situation that Chairman Ben Bernanke has been handed. Sure, there are things that (hindsight will prove) could have been done better. And, there are other things that (again, thanks to hindsight) should be done but won't...but hindsight is always 20/20 and we just don't have that luxury.
History will prove that many of these greedy and selfish bank executives produced these debt obligations only to line their own pockets with a cadre of legal teams backing them.
History will prove that the more complex something is, the less you should invest in it....chances are, the ones who created the debts did so in order to personally profit without thought of the ones buying the debt in the end.
History will prove that the American Executive Board needs to read Proverbs, Ecclesiastes, and the part in Nehemiah where the "banks" were charging usurious interest rates to the locals...and then, reread it all over again.
Lastly, if you feel any anymosity towards the creators of these debt vehicle, remember, whatever you could wish for them pales in comparison with what God has in store.
Cheers, friends.
1. The Federal Reserve has lowered short-term interest rates drastically in the past six months. This has reduced the cost of credit to banks, but they've pocketed the reduced cost as additional profits. See more here.
2. The Fed has reduced reserve requirements for large mortgage buyers Fannie Mae and Freddie Mac. This will increase the money supply by about 200 Billion. See more here.
3. The Fed has accepted illiquid bad debt (mortgage, auto, and credit card) in exchange for liquid Treasury Bills. See more here.
4. The Fed provided the financing for the recent bailout of Bear Stearns to J.P. Morgan. Countrywide is next, I believe, when Bank of America walks away. See more here.
5. The Fed Chairman, Ben Bernanke, has recently acknoledged legislation proposed by House Financial Services Committee Chairman Barney Frank, D-Mass. This legislation will provide 300 Billion in FHA financing for distressed homeowners. See more here.
Given these five items, it's clear to see that the mortgage crises is real and being addressed on all fronts by the Federal Reserve with not only the help of investment banks in the business sector but also Congress in legislative reforms as well as new FHA funding.
These actions, arguably, will not only lead to inflation, but could also give banks the wrong idea that should they mistep in funding poorly structured debt obligations, then they can always get a government bailout, and throw it back on the taxpayer, and pocket the short-term profits. I am pleased, however, to see that Chairman Barney Frank has encouraged these banks (who issued asinine mortgage products in the first place) to write down principal or else....and he means it.
(For those of you who think that executives in these investment banks that issued the debt in the first place are not partially to blame, see here, or try here, or this one is definitely tabletalk, and here's one that'll surely get you going!)
Ultimately, this will be one for the history books. People can blame the Fed all they want, and I myself find quite a few bones to pick. But, it's hard to be proactive in such a situation that Chairman Ben Bernanke has been handed. Sure, there are things that (hindsight will prove) could have been done better. And, there are other things that (again, thanks to hindsight) should be done but won't...but hindsight is always 20/20 and we just don't have that luxury.
History will prove that many of these greedy and selfish bank executives produced these debt obligations only to line their own pockets with a cadre of legal teams backing them.
History will prove that the more complex something is, the less you should invest in it....chances are, the ones who created the debts did so in order to personally profit without thought of the ones buying the debt in the end.
History will prove that the American Executive Board needs to read Proverbs, Ecclesiastes, and the part in Nehemiah where the "banks" were charging usurious interest rates to the locals...and then, reread it all over again.
Lastly, if you feel any anymosity towards the creators of these debt vehicle, remember, whatever you could wish for them pales in comparison with what God has in store.
Cheers, friends.
Saturday, May 3, 2008
The Short Refinance
I want to take a moment to detail, what I believe, is the next "boom" in the industry.
In 2003 - 2004, we had the refinance boom, where everyone was taking advantage of the lowest interest rates seen in 30 years, refinancing into 5/1 ARMs at 3.875% or 30 year fixeds at 5.125%.
Then, in 2005 - 2006, we had the purchase boom, where everyone was selling their home, and buying the new one. House prices screamed 50%, doubling in many cases. Homeowners took out equity in record rates, going to 100% loan to value, and even 125% loan to value, as mortgage lenders like Countrywide and Irwin Home Equity saw no end of the increasing appreciation in sight.
Now, the market has turned. Appreciation becomes depreciation, and the S&P finds itself stating that prices will likely decrease 20% across the board. Some believe prices will go back to their 2004 or 2005 levels, a likely scenario in many places. Homeowners are now faced owing more than their house is worth, and even if they had enough equity to sell in the first place (10% rule of thumb) due to increased supply, homes aren't even selling at their truly appraised value. Many are simply walking away from their homes, figuring that they're saving 50 - 200K in many places (CA, AZ, FL). Others have their subprime mortgage going up to 8% or even 9% in some cases, and find that they can't refinance due to constricting lender guidelines. Credit is simply much, much harder to get than it was even 6 months ago, much more so when they bought their home 2 - 3 years ago.
But, what are homeowners to do?
This is where the short refinance comes in.
There are some out there that know how to negotiate the principal balance of a mortgage down. Banks oftentimes accept this because it costs less than a foreclosure (normally a 40% loss). Typically, these short refinances (akin to short sales) cost the bank 20%, thus saving them 20% in the case of a foreclosure.
What happens is that the homeowner proposes that the bank reduce the amount of the overall liens by 10 - 20%, in some cases 30% where advantageous. Working with a third party negotiator is often best, because it adds a sense of objectivity and professionalism in the transaction. I, myself, act as a negotiator and charge a $500 upfront fee for each property negotiated, regardless of outcome.
Many people do not believe that this is even possible. This is likely because it's such a new concept, and not many people have heard about it. Well, if you'd have told me that your house values would double from 2003 - 2006, I would've thought that was crazy....so I guess it goes both ways. The fact that there is even bailout legislation in the House currently underscores the fact that not only is this possible, but plausible, and is even being done as I write.
Ultimately, it's all about negotiating. If you're the bank, looking to lose 40% due to a possible foreclosure, losing 20% all of a sudden doesn't look to bad.
In 2003 - 2004, we had the refinance boom, where everyone was taking advantage of the lowest interest rates seen in 30 years, refinancing into 5/1 ARMs at 3.875% or 30 year fixeds at 5.125%.
Then, in 2005 - 2006, we had the purchase boom, where everyone was selling their home, and buying the new one. House prices screamed 50%, doubling in many cases. Homeowners took out equity in record rates, going to 100% loan to value, and even 125% loan to value, as mortgage lenders like Countrywide and Irwin Home Equity saw no end of the increasing appreciation in sight.
Now, the market has turned. Appreciation becomes depreciation, and the S&P finds itself stating that prices will likely decrease 20% across the board. Some believe prices will go back to their 2004 or 2005 levels, a likely scenario in many places. Homeowners are now faced owing more than their house is worth, and even if they had enough equity to sell in the first place (10% rule of thumb) due to increased supply, homes aren't even selling at their truly appraised value. Many are simply walking away from their homes, figuring that they're saving 50 - 200K in many places (CA, AZ, FL). Others have their subprime mortgage going up to 8% or even 9% in some cases, and find that they can't refinance due to constricting lender guidelines. Credit is simply much, much harder to get than it was even 6 months ago, much more so when they bought their home 2 - 3 years ago.
But, what are homeowners to do?
This is where the short refinance comes in.
There are some out there that know how to negotiate the principal balance of a mortgage down. Banks oftentimes accept this because it costs less than a foreclosure (normally a 40% loss). Typically, these short refinances (akin to short sales) cost the bank 20%, thus saving them 20% in the case of a foreclosure.
What happens is that the homeowner proposes that the bank reduce the amount of the overall liens by 10 - 20%, in some cases 30% where advantageous. Working with a third party negotiator is often best, because it adds a sense of objectivity and professionalism in the transaction. I, myself, act as a negotiator and charge a $500 upfront fee for each property negotiated, regardless of outcome.
Many people do not believe that this is even possible. This is likely because it's such a new concept, and not many people have heard about it. Well, if you'd have told me that your house values would double from 2003 - 2006, I would've thought that was crazy....so I guess it goes both ways. The fact that there is even bailout legislation in the House currently underscores the fact that not only is this possible, but plausible, and is even being done as I write.
Ultimately, it's all about negotiating. If you're the bank, looking to lose 40% due to a possible foreclosure, losing 20% all of a sudden doesn't look to bad.
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