Sunday, May 31, 2009

The Days Ahead - Laced with Dynamite

The next two days (and it may be just Monday) will tell you more information about where the market is likely to go in the short term than any previous days in a long time. Last week the economic data was awful except for consumer confidence which in my opinion is the most unimportant data point of the week. New home sales, existing home sales, home prices were all below the hope level especially when you take into account downward revisions from the previous month. Durable good order had a good headline number but that was also massively boost by the previous downward revision. Taken together it was horrid. The worst number of the week may have actually came on Friday and that was the Chicago PMI which was well below the previous number and well well below consensus which had expected a number of 51 (came around 44). As mentioned last week in the blog ignoring all of this was sort of explainable going into the end of the month and funds still chasing the indexes. What threw the unbelievable kink into everything was the last 10 minutes on Friday.

This week is an important pivotal week. You have jobs data that should push national unemployment above 9%. You also will have auto sales, personal income, personal spending, ism numbers, and pending home sales. Basically next week is laced with explosives. What throws a kink into all this is it may not matter. The new month should show an easing of buying pressure after the funds chased it last week but my personal opinion is if we don't gap down at the open (like S&P open below 913) the momentum guys will be the new buying pressure after breaking major technical resistance in the last 10 minutes on Friday, and it will be another week where the numbers just won't matter. News will be bought instead of what is in the news to determine if it is bought or sold. If the momentum guys really get behind this, we will be at 950 before you know it.

Either way, I am not expecting Monday to be light volume day. It could be laced with dynamite.

Saturday, May 30, 2009

More on Friday's Close

A great post at Market Ticker on Friday's close. The post credits the move at the end of the day to either a forced liquidation of a short position or market manipulation. Market Ticker sides on the forced liquidation. I don't buy that. The market was no where all day and then the huge spike came in. What would have caused the margin call to start the forced liquidation if the market wasn't moving? Forced liquidation occur when the markets are moving against you. Obviously once the huge spike in volume came forcing the market up, forced liquidations added to schizo nature of the move but I can't see how it was the catalyst. It is possible that a big fund was in trouble say on Wednesday and the bank gave this fund until Friday for either a forced liquidation or supply more margin. The bank waited until the last 15 minutes before forcing the liquidation. I also don't think it had to be a conspiracy though it may be. I think there were other potential causes than just the two mentioned. A great write up. Check out the post.

Thanks goes to the comment board for bringing this to my attention.

Friday, May 29, 2009

One Add on Note

There was also a big Russell rebalance at the close. This I think validates what I said below but adds the catalyst. Either way - non fundamental, computer driven.

Schizo Market

So everyone is going to be wondering what caused the market to surge in the last 15 minutes of trading. The answer is nothing but futures buying. Going into 2:45 about 1.5 million futures contract traded. In the final 15 minutes this got up to 2.0 million. 25% of entire volume of the day traded in the last 15 minutes (most of that was in the last 10 minutes). To show how light that 1.5 million is, normal days (like the May normal which is way down from normal normal) is 2.2 million ish. Normally around 2:45 you are around that 2 million to 2.1 million mark. So BAMMMM. The futures start getting bought like mad dragging the whole market up. It is insane. The hidden buying force isn't buying stocks which pushes the market up, it is futures. It isn't some fundamental change in the market, it is futures buying. One way to tell this is to see the spread between the future contract and the S&P 500. Futures have been trading a 1 to 1.5 points lower than actual S&P 500 value (future at 910 and S&P at 911.25). When the market is getting pushed higher by the futures, this relationship becomes extremely strained. The gap closes with this huge tension as the market isn't wanting to buy stocks but is being forced to by the futures buying.

The way this permeates of course is a force into SPY buying (the etf of the S&P 500). This then trickles down to stocks. It is a sick game that computers are running at this point.

Check out this graph Look at the huge spike in volume in SPY at the end of the day.

The problem with all this, is what is reality??? This close at the end of day was absurd. Nothing drove it but we broke resistance because of it. Was that an actual break or a few computers who decided to go berserko at the end of the day. If we don't open down hard on Monday morning it won't matter. The momentum technical guys will start getting involved in the mix again. All this doesn't matter from a long term bottom up value investing perspective. Butttt, if you believe like I do the market has another massive drop ahead of it then it does matter because you can't just sit on shorts. That is why shorting is so hard. If you believed the market was undervalued and heading higher then a break to the downside in resistance matters much less. You bets become smaller as the markets drop. Assuming your right it is often times better to drink a margarita by the pool. You have a chance to dollar cost in. On shorting it is exactly the opposite. The shorts become bigger problems.

I am out. May be back on here this weekend. I don't know.

Thursday, May 28, 2009

Tick Tock, Tick Tock

I am not going to certify these numbers are correct but the US Debt Clock website is a fascinating display of numbers none the less.

You can hear the clock running.

David Einhorn - Quote of the Day

Anyone who follows the market probably saw all the headlines that David Einhorn is short Moody's (MCO). I have been short MCO since July 2007 and I think Einhorn has been short it a long time also. It is has been a very frustrating short. The Ira Sohn conference which he speaks at every year just occurred. His speech is floating around. Anyway, in it I give him the quote of the day.

"Both President Obama and Chairman Bernanke have said that the problem with AIG was that greedy people put a hedge fund on top of an insurance company. As I see it, AIG failed precisely because it was not a hedge fund, but a highly regulated, AAA rated insurance company. Call it the curse of the Triple A. The market incorrectly believed that regulators and rating agencies carefully monitored its risk profile and activities. As a result, AIG was able to abuse its access to unlimited cheap financing without its counterparties performing any additional credit analysis or demanding any collateral. Hedge funds can't abuse the system in the same way, particularly in the aftermath of Long Term Capital Management, as lenders pay much more attention to hedge fund counterparty risk and collateral requirements. Had AIG been a hedge fund as President Obama and Chairman Bernanke claim, none of this could have happened."

Absolutely correct. Those evil hedge funds are not blowing up the system. It is the "regulated", "carefully watched", financial system that our government is so wise to oversee.

In his speech, he makes a small comment about GE. I would bet alot of money he is short that also.

The Rare Graph

Oh, the rare graph. Today the bears hung on to a thread. I thought we might bust higher but not to be. As a result, I was adding short exposure right at the close. There is a great risk reward setup. The market is squeezing down to where the momentum guys are going to jump one way or another. If we break 910 tomorrow I will be out (this is my personal account which I am willing to trade a little more). Downside is back down to that 883 level. Like I said yesterday, I think if we revisit it again, we will break it.

Today's volume was once again anemic but the ES S&P 500 futures volume was heavy, especially compared to the underlying volume in the indexes. I have talked about institutional buying into the month's close. If the market doesn't break tomorrow morning higher, all the buying for the end of the month should be done and that is when you get the sell off. Like I said, for a trade (which I don't do much of) this is an easy one.

This break is still the correction I have been looking for for weeks. There are reasons I still don't think the interim top is in but it seems like a couple of weeks of correction is long overdue.


Wednesday, May 27, 2009

Oh Bernanke - How Wise You Are

It seems to have started. The market is wrestling its way out of the control of the government. The idea of controlling and manipulating the world to do exactly what you want it to do just does not always work, does it? Frankenstein's creator realized that, Bernanke eyes may be opening also.....nah, he is just going to try harder because it has to work, it just has to.

Of course what I am referring to is the MASSIVE 30yr bond and 10 yr treasury sell off. The spread between 2 year and the 10 years (the difference in yield) is now the widest ever. Historically this can mean recovery if it is occurring for the right reasons. Why it is occurring now is not the right reasons. Investors are avoiding long dated government debt out of fear and staying close to the front end of the yield curve (close to today in looking at maturity). This of course causes borrowing costs to go up, especially for things like houses. Uh Oh, Bernanke does not want this and has been doing everything in his power to manipulate rates lower so this does not happen. In the biggest paradox or irony of ironies, one of the main reasons the rate is skyrocketing higher is because Bernanke has been trying to manipulate it lower. DUH. Why does Bernanke not understand the obvious??

So the government is pumping tons of money into the system and doing it through a mix of borrowing and printing. This massive borrowing does two things. Increases the massive supply of debt so you must find demand somewhere. One way demand comes along is that yields go higher. The second thing it does is make the balance sheet weaker. This of course increases the "risk" of government debt (i.e. losing the AAA rating). Basically the risk of default goes up as the balance sheet becomes sicker. Investors demand more yield for this. In this case this part is probably small. It is not zero like many assume but I don't think it is a huge part of the yield demanded...yet.

The second aspect is printing. The Fed announced a couple of months ago they were going to start buying bonds. The purpose, to print money and push/manipulate yields lower. There is one problem with that. By printing money you are increasing future inflation. Well that causes yields to go up.

So you have 3 things converging that government debt holders all of sudden decided to notice (I think to early). Increasing supply, increasing risk, and future increasing inflation. All manufactured in some ways by the Fed's grand scheme to create the opposite (they do want inflation, just not massive inflation).

This in itself I think is still just warning shots. Shots across the bow per say. This is the scenario that I think unfolds into a death spiral 12, 24, 36, 60 months out and your seeing what it will like on a small scale. I think there is still a 50/50 shot that the 10 yr will break its 10 year yield low which was somewhere around 2.2%. I would get very strong arguments against that and I may be assigning to high a probability to that but there is no way I would be short government debt at this point other than maybe for a trade. The reason is the problems are still to big. If the yields keep going up, that in itself will cause the yields to crumble because it will choke off recovery and inflation. I still think the huge second wave of defaults coming in option arms, alt a, prime loans, commericial real estate, and corporate defaults will squelch any near term inflation concerns even with the governments massive intervention.

Here is the problem and why you should be taking notice of what is happening right now. If I am right, Bernanke will just increase the government printing and the government debt. The second wave will come with a roar and Bernanke will try the same things that haven't worked and still won't work. At some point you cross the tipping point. When that occurs government bond holders will wake up one day and say holy **** and the yields on the government debt will start a long steady climb to the moon along with inflation. That is the tipping point that terrifies me because that is when we are done and it will be to late for the government to reverse course.

A couple of things. This isn't inevitable just likely if we keep going down the current course. Also, I think it is still a long distance out. It goes with my theme that deflation will lead to massive inflation. The deflation is going to take Bernanke and walk him straight to overshooting and creating US of Zimbabwe.

What this means for stocks in the short term, I really don't know. If I had to guess, if we go down to 883 again, we will break it this time. We will not hold that level one more time.

If I also had to guess, there will be some solution in the short term to rates not going up. Maybe the 10yr breaks 4% but through a coalition of central bank intervention or some short term patch Bernanke comes up with, the 10yr will stop its climb and will eventually head lower (like I said I think there is a 50/50 chance the 10 yr in the next 12 months goes back down to 2.2%, I am not putting any money behind that thought at all, I just wouldn't be shocked).

Like I said, I think for all investors, this is the playbook with how the end could be written on a much bigger scale. Ignore at your own risk. At some point, what I have talked about for months and what I have termed, currency inflation depression will happen. The economy will continue to deteriorate but currency inflation will kick in regardless.

Why High Taxes, Regulations, and Abuse of Business Does Not Work

California is one of the bigger problems (and there are some other massive problems) that the equity market continues to ignore. The 10th largest economy in the world (yes, if you take California by itself it would be in the top 10 economies in the entire world) is hemorrhaging. The land of glitz, dreams, sunshine, beaches continues to shoot themselves in the foot. It is a great microcosm of what is going on in the bigger picture. A refusal to acknowledge how serious things are and to take the pain. Of course California got themselves in this situation through bad politics trying to squash the enemy, business.

Well one of its darlings, has had enough. DaVita (NYSE: DVA), a leading provider of kidney care services with over $6 billion in revenue has said adios and heading to Denver Colorado. The company put out a press release detailing the move. Primarily among them:

The company expects to see millions of dollars in savings over time as a result of the change.

I love California. I have always said if I fail in life that my back up plan is to move to San Diego, grow my hair long, learn how to surf, and be a bum (why in the world do bum's choose to live in NYC or Chicago when you can practice bumhood in San Diego???) But the state is being as hard headed as can be in not seeing the error of their ways in making business difficult and refusing to get their own house in order. This is one glaring example of the consequences.

Thanks goes to Jody.

Tuesday, May 26, 2009

Mediocre Buying Spree

Well today was the ying to last Thursday yang. I was not impressed with last Thursday's sell off and said so. Was not impressed with today's buying spree and am saying so. The market is in no man's land with no conviction. Everyone is just watching. Volume was non existent today. We were up on backward looking consumer confidence number that really doesn't mean anything. The arguablly more important number, housing prices came in below expectations. I was actually shorting a little at the close. Haven't done that in awhile. Was not impressed with the rally or the supposed reason for the rally. Of course that hasn't mattered for the last couple of months and we may break higher but we will see.

The bulls do have something going for them this week. The end of the month. Institutions are still trying to catch up to get exposure and we have an up month this month causing more chasing. Investors won't want to sell exposure right before the end of the month so you have some potential sellers sidelined. If we can hold over the next several days next week could be ugly especially leading into what will be another dismal jobs report.

My New Hero

I haven't been following this story all that closely but Indiana has been been throwing a fuss challenging the federal government on how it is handling the Chrysler bankruptcy. Richard Mourdock the state treasurer is leading the charge against staunch political resistance. I have a special fondness for anybody who will go against the grain in pursuit of what is good for the long term versus just the short term feel good impact. Paul Volcker was one of those people. Mario Bartiromo on CNBC did a must see interview with Mr. Mourdock. I have suddenly become much more interested in this topic. On the surface (I don't understand all the issues yet), Mr. Richard Mourdock has become my new hero.

My favorite quote. "The law is the law is the law." Amen. Laws can be wrong, but they need to follow law to change them.

Monday, May 25, 2009

Hank Paulson - A Legacy Blunder

Interesting Newsweek article that seems to attempt to make Hank Paulson a goat and Bernanke a hero. Old posts show my disgust with Paulson and thinking that he was not that intelligent. Personally I think Bernanke may be worse though his IQ is probably off the charts. I truly believe he is taking us on the road to ultimate destruction. We have not crossed that threshold yet but if just throws more money at the problem when what has been thrown doesn't work we will cross that threshold. Goes back to the Ludwig Von Mises quote I posted from several days ago.

Anyway, interesting read on the collapse of Lehamn and Hank Paulson involvement and legacy.

Hank Paulson, former master of the universe, sits in a nondescript office in northwest Washington, D.C. He is trying to work on his memoirs, but he is struggling. He doesn't seem like the onetime All-Ivy tackle at Dartmouth, the Harvard M.B.A. who ran Goldman Sachs, the prince of Wall Street who went on to be come secretary of the Treasury. He comes across more like an athlete who has lost a game and can't stop talking about the dropped pass, the missed shot. He is trying to explain the weekend last September when Lehman Brothers went down—and the financial world collapsed.

Thursday, May 21, 2009

Mediocre Sell Off

It was a pretty mediocre sell off today. The news was horrid but the sell off was mediocre. No volume with breadth that wasn't as bad as the market drop would have seemed to indicate. Improving spreads on credit all down from the huge gap open at the open. Big banks were up for the most part all day while the smaller banks got shot.

Tomorrow may be a down day (it would be encouraging if it was) but the odds of that occurring going into a long weekend are small. Prices are set by supply and demand and since shorting is more dangerous with higher potential losses ,a long weekend typically means supply to sell is less than to buy.

Bank United finally, finally croaked today. Largest bank of the year to fail. This was my first bank I shorted, ever. Back in 2006 I shorted it in my personal account and made like 30% (should have obviously never covered). A friend mentioned it to me previously. He had recognized it with another friend back in 2005 and said it was going to be a zero. Took years for that to finally come to pass.

I am not wasting typing space. Using this crossover for a reason. In general I becoming more and more bullish in the short term (next few months) even if we do sell off a little over the next few weeks and more and more bearish on the longer term. I am amazed still how many bears are out there waiting to pounce on anything bad. My guess is this still needs to be broken before we can really head lower. Over the longer term, I think America is in deep deep trouble. Investors recognized this with Bank United years ago. It took 4 or 5 years for it to finally happen. This decline could take just as long and be just as drawn out. Today sell off was partially caused by the speculation the U.S. may lose its AAA rating. The country has been AAA since WW1. The problems in front of us are massive and in my opinion the government is approaching this all wrong. WE HAVE TO LET THINGS FAIL. California is having huge budgetary problems. This is just the start of states and municipalities. Pension funds are going to be down billions. Billions more of mortgage losses not to mention commercial real estate is coming. The real big one no one is talking about may be the billions from coming corporate defaults not really hitting until 2011. In general, I see the road we are on (with full endorsement by our government) to be just as bleak as Bank United. We have to start letting things fail and we have to let bond holders take massive losses. Once the loss is taken, the overall debt load goes down, the leverage is decreased. Protecting debt holders does not help because the leverage does not decrease. It is even possible there may be growth for 12 months. Big whoop. Our government keeps managing to create bubbles and the impact is becoming smaller and smaller with the aftershocks beocming bigger and bigger. We need failure to purge the system.

Well tomorrow I am on the road. In San Antonio looking at a couple of stores. Then the long weekend. Don't know what I am doing yet so may not be on this blog until Tuesday or Monday. Everyone have a good weekend.

Fed Transparency Peition

This is on several blogs and I try not to repeat stuff from other blogs I see but this is really important to me. Ron Paul has started HR1207 or The Federal Reserve Transparaency Act which would allow the GAO to audit the Federal Reserve. There are 136 Republicans co-sponsoring the bill.

Alan Grayson, a democrat, is trying to get his party on board. He sent a letter to his colleagues urging them to support this bill. So far there are now 30 democrat co-sponsors. You need 218 total votes to pass the House.

This is very important for this nation to get the balance of power back in line. The Fed has been able in large part to sidestep the check and balances of our constitution.

What you need to do is go endorse the bill here.

Wednesday, May 20, 2009

Weirder and Weirder

The market is getting more weird by the day. Today was definitely one of those days. Big bounce at the open, once again on no news, then a big top and selloff the rest of the day. Over a 150 point swing.

That in itself is not weird. What was weird was stuff intertwined in the market. For one volume was much higher than the last couple of days (1.65 billion on the NYSE) but still not that high. What exploded was futures volume. Heavy heavy S%P 500 futures trading in the pits today. Now I have talked about futures manipulation and the high volume tied to the futures. This was different. In the manipulation (I should clarify possible manipulation) you had low volume across the board and then huge short term surge in volume hitting the ask pushing the futures up. Today's volume was heavy all day long. Yesterday we traded something like 1.8 to 1.9 million contracts. Today it was over 2.6 to 2.7. Normal in the last month it has been around 2.1. All day long, massive amount of futures were traded. This then seemed to correspond to the SPY (S&P 500 etf). The IWM (Russell 2000 etf) volume was very light most of the day but the SPY volume was much heavier than the last couple of days.

What does this all mean? I really have no idea. My gut tells me that whoever has been pushing up the market either honestly or manipulatively decided to reverse course today. From a manipulative standpoint it makes sense. They jammed the stock prices higher, got the equity capital raises (last big one completed yesterday with Bank of America) and now they will try to unwind the market. You do that by creating a pump and dump which was the big rally early on and then constant selling of your futures position.

This is all speculative, I don't really know, I just know when things don't add up on my screens that I look at all day. I have been able to recognize when something happens in the futures to drive the market higher over the past few months. At some point that has to be reversed, today made me sit back and scratch my head and wonder, maybe it began today.

Quote of the Day - This Guy Has It Right

This is what I have been saying in conversations and in my letters for months. 6 months ago I liked to ask the question, can you change the inevitable. You can change the way the inevitable looks, but can you really change the inevitable. Of course from a philosophical standpoint, if it is inevitable, you can't change it.

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Ludwig Von Mises

Ludwig was a famous Austrian economist who died in 1973.

Goldman Games

I have not really seen this reported in the news so decided to do a post on this midday. The market supposedly rolled over (don't want to say for sure that it is a direct cause and affect but likely) this morning after it looked like we were going to skyrocket on the news Whitehall is blowing up. Whitehall is a Goldman fund that specializes in office buildings, casinos, and hotels. This seems very similar to the blowups that occurred this time of year in 2007 with the Bear Stearns mortgage funds. Anyway, supposedly Goldman offered to buy out the employees in Whitehall 6 months ago but did not offer that to investors (anyone really surprised that Goldman only looking to take care of itself and its own?). Anyway, the fund is blowing up and Goldman is looking for more money to put into it from outside investors (isn't that a joke - but they will probably be able to find it, there Goldman). Could be a precursor of many more troubles in this area.

If I find a news story on it, I will post it.

Tuesday, May 19, 2009

More on Lowe's

Yesterday Lowe's got alot credit for the market rally. If so many people didn't seem to believe it, it would actually be funny. Goldman upgrading Bank of America, sparking another jam job in light volume on no news the day before Bank of America raises 8 billion of capital (occurred today and was disclosed after the bell) is all the reason you needed.

If you look at Lowe's the picture is pretty bleak. Shows consumers are still tightening and wanting to embrace the long lost frugality of those who lived in the Great Depression. For example. Sales of seeds surged 20% while big ticket items over $500 posted a 14% decline yoy. The company lowered the top end of its revenue guidance but is cutting its way to greater profitability.

Yet somehow this news was supposed to have sparked a 3% rally yesterday. Good grief.

Small Firms Inability to Raise Money

An article in the WSJ today talked about how small firms are not feeling the credit thaw like larger firms are. This brings up a couple of important points. I have said over and over again that solvency issues are never at the beginning of economic downturns but at the end. Well our solvency issues were before the economic downturn really started. This is one reason that I still think we are nowhere near the bottom. Anyway, last fall Wall St. was coming close to blowing up main street. The government did what they did to save Wall St. and hence main street. All this did was delay the decay in main street. I had a post last week about the small banks earnings getting taken up completely by FDIC insurance increases and the impact that would have on lending by the small banks. Well this article sort of bears that out but I think has a bigger point. If the small businesses continue to decline, it will lead to the decline of bigger businesses and hence Wall St. It will come full circle. You can't have cows if you destroy the grass.

Big companies are rushing to issue stocks and bonds to suddenly hungry investors. But credit is still scarce for thousands of mostly smaller companies that rely on bank lending.

U.S. corporations such as Ford Motor Co. and MGM Mirage Inc. raised more than $34 billion by selling stock in the first two weeks of May. At around the same time, Bill Mulrooney, chief financial officer of UniFoil Corp., was setting aside plans to borrow money for new equipment that the company had hoped would boost sales.

"I hear about the credit markets' freeing, but it's clearly not the case for small businesses," Mr. Mulrooney says.

UniFoil, a Fairfield, N.J., packaging maker with about $35 million a year in revenue, has been unsuccessfully shopping since January for a $2 million loan to buy equipment that would allow it to offer new features. J.P. Morgan Chase & Co. and other big banks declined.


Companies with fewer than 500 employees account for more than half the country's nonfarm private gross domestic product and about half of all private-sector employment, according to the U.S. Small Business Administration's Office of Advocacy. They also rely heavily on credit cards and bank loans for financing.

FDIC - One Time Charge to Big Banks

According to the WSJ the FDIC is considering a one time fee based on the company's asset size instead of the typical level of deposits. This would of course hit the big banks much worse. It seems all you are doing is running money from the taxpayer to the Treasury and the Fed on to the banks which in this case makes its way to the FDIC. Anybody who thought American capitalism was efficient think again. We are not talking about massive numbers, $100 million for the like of Goldman and Wells Fargo, (compare that to say a 4 to 8 billion build in provision for losses from Wells Fargo) but it is one more hit to the banks.

The Federal Deposit Insurance Corp. is considering levying a one-time fee to replenish the agency's deposit-insurance fund that would hit big banks harder than it would hit small ones, according to people familiar with the matter.

The agency fund, which protects trillions of dollars in U.S. deposits, has been depleted by 58 bank failures since January 2008. There was just $19 billion in the fund at the end of 2008, a historically low level. FDIC officials have faced a dilemma over how to rebuild the fund, which is financed by fees levied on banks, while the industry remains weak.

In a reversal from prior practice, FDIC officials want to calculate the proposed one-time assessment based on a company's asset size instead of its level of deposits. This would saddle big banks, such as Citigroup Inc., Bank of America Corp., J P. Morgan Chase & Co. and Goldman Sachs Group Inc., with a larger proportion of the cost. That is because they have a much higher proportion of assets compared with deposits, relative to smaller banks.

Several of the country's largest banks are struggling to regain their footing. While it is unclear how much the change could cost, it is likely a few banks could pay more than $100 million in additional fees each, someone familiar with the matter said.

and - I really don't have an idea which way that vote is going to go. 70 billion is a decent enough size number that it will test the Congress bailout mood.

Much depends on whether the House of Representatives passes legislation this week that would increase the amount of money the FDIC can borrow from the Treasury Department from $30 billion to $100 billion. If the bill doesn't pass, the industry fees could be much higher.

Market Manipulation

This was on the zerohedge blog. I have talked about some of the weird stuff going on in futures land and what I thought was market manipulation based on no information other than seeing very abnormal trading behavior. I watch this stuff all the time. I can tell when things don't look normal. You can see my Jam Job post from April. Well this Fox Business News video points to the same thing. At 2 minutes and 30 seconds on this video this said:

“Something strange happened during the last 7 or 8 weeks. Doreen you probably can concur on this -- there was a power underneath the market that kept holding it up and trading the futures. I watch the futures every day and every tick, and a tremendous amount of volume came in a several points during the last few weeks, when the market was just about ready to break and shot right up again. Usually toward the end of the day – it happened a week ago Friday, at 7 minutes to 4 o’clock, almost 100,000 S&P futures contracts were traded, and then in the last 5 minutes, up to 4 o’clock, another 100,000 contracts were traded, and lifted the Dow from being down 18 to up over 44 or 50 points in 7 minutes. That is 10 to 20 billion dollars to be able to move the market in such a way. Who has that kind of money to move this market?

On top of that, the market has rallied up during the stress test uncertainty and moved the bank stocks up, and the bank stocks issues secondary – they issues stock – they raised capital into this rally. It was perfect text book setup of controlling the markets – now that the stock has been issued…”

I am sure this is approved by the full health and backing of the U.S. government.

Monday, May 18, 2009

The Next Rally

Personally I still think we have lower to go before this summer rally comes that I am looking for that I have mentioned several times on this blog. I do not think the absolute lows are in over the next two years but I still think there is a high probability of us breaking 1000 on the S&P over the summer. The continued giant headfake.

I have tagged housing as the catalyst for this surge. I think housing prices have very good odds of increasing on a non seasonally adjusted basis. It means nothing but will continue to get the market in a fervor. Your already seeing this thinking. From a marketwatch article.

U.S. stock investors on Monday fixated on the housing market to gauge economic growth going forward, with better-than-anticipated earnings from a home-improvement chain helping boost sentiment.

First of all, there is no housing news today. LOW earnings were not that great and they lowered revenue guidance. Lets get excited. The builders come out at some point but not really taht great of a data point that means anything.

"Housing is a leading indicator of economic activity, and many see the sector as leading the economy in and out of recession," T.J. Marta, a fixed-income strategist for Marta on the Markets LLC, wrote in a research note.

If housing prices go up on a non seasonly adjusted basis you could hear the chatter about economic recovery turn into an absolute mouth screaming roar. With the recasts coming in various debt instruments and implosion of Alt A this fall into 2010 it will just be a headfake.

Hussman Latest - Absolutely Must Read

Hussman latest weekly piece is a must read!! Massive inflation is coming. No doubt. The question is timing. He explains why he believes prices will double (so 100% inflation) over the next decade. I basically agree. You could have 2 or 3 years of deflation before this happens. The whole thing is good but here is the money paragraph.

The bottom line is that the attempt to save bank bondholders from losses – to provide monetary compensation without economic production – is not sound economic policy but is instead a grand monetary experiment that has never been tried in the developed world except in Germany circa 1921. This policy can only have one of two effects: either it will crowd out over $1 trillion of gross domestic investment that would otherwise have occurred if the appropriate losses had been wiped off the ledger (instead of making bank bondholders whole), or it will result in a stunning and durable increase in the quantity of base money, which will ultimately be accompanied not by a year or two of 5-6% inflation, but most probably by a near-doubling of the U.S. price level over the next decade. As I've noted previously, the growth rate of government spending is better correlated with subsequent inflation than even growth in money supply itself, particularly at 4-year intervals. Regardless of near-term deflation pressures from a continued mortgage crisis, our present course is consistent with double digit inflation once any incipient recovery emerges.

Sunday, May 17, 2009

Congratulations to all the Graduates!!

I was in College Station at Texas A&M University this weekend attending various graduation events and parties. I have several graduates from A&M who follow this blog. Congratulations and best of luck to all the graduates of the class of 2009!!

Visualization of Job Losses

A great animation at the Slate showign the job gains and losses from January 2007 to March 2009. If May is as bad as the prior months the number should surpass 6 million jobs. One thing I didn't realize was how many jobs were lost in the Southeast in the Georgia and the Carolinas.

Commercial Real Estate and the Stress Test

Interesting read on why commercial real estate and industrial loans will not cause havoc on Wall St. I think alot of people don't understand this. These loans are going to cause havoc on main street much more than Wall St. because it was the mid sized regional and local banks that took over this market. It was often times less lucrative and so Wall St. wasn't interested. Many regional banks got way overexposed and that is where the problems are going to be. The one exception could be Deutsche Bank which may have more exposure to commercial real estate than some of the other big banks.

From Costar. Thanks goes to Pete.

If the current economic malaise brings down any of the largest banks in the country, commercial real estate likely WON'T be the culprit. Office, industrial and retail properties specifically are even less likely to bring down the nation's top banks.

The 19 largest U.S. banks, which account for 70% of the bank holdings of this country, were the focus of the U.S. Federal Reserve 'stress tests' results released this past week. Under the worst case scenarios envisioned for the current recession, commercial real estate losses would cost those banks $53 billion in losses this year and next.

While that is a lot of money, it still pales in comparison with residential loan losses, which still would make up the bulk of the projected losses, $185.5 billion. In fact, exposure to commercial real estate loans falls way down the line in terms of producing projected losses for banks. Trading and counterparty investments would lose $99 billion; consumer loans $83.7 billion; credit card loans $82.4 billion; business loans, $60.1 billion; only then comes commercial real estate.

Thursday, May 14, 2009

Jaw Dropper

I don't know why I am suprised but somehow I am. According to the WSJ YRC Worldwide (one of the biggest trucking companies in the nation) is going to apply for federal bailout money. WHEN DOES THIS STOP??????????? My guess is they will get rebuffed but who knows. Can't rule anything out these days. I thought this stuff was only going to be for bank holding companies. GOOD GRIEF.

YRC Worldwide Inc., one of the nation's largest trucking companies, will seek $1 billion in federal bailout money to help relieve pension obligations, the chief executive said Thursday.

The move comes as the trucking giant struggles to shore up its finances. The company's ability to weather the recession will have significant implications for the trucking industry and large customers across the country.


By applying to the U.S. Treasury for money under the Troubled Asset Relief Program, Mr. Zollars said he hopes to "get the conversation started" with federal authorities about reducing the company's pension obligations. He said YRC will submit an application to the Treasury Department as early as Friday.

Experts say the company's odds of actually getting TARP money appear to be slim. A Treasury spokesman didn't return a call seeking comment.

More Confusion (at least for me) from Great Britian

Another story, this one from Bloomberg about London's real estate market, specifically commercial real estate.

It’s another story in the City of London, where office rents in the U.K.’s main financial district are falling to 1991 levels as job losses and a mistimed building boom depress prices.


Rents will drop to 40 pounds per square foot by the end of this year, the same as 1991 when Canary Wharf got its first tenants, analysts at London-based King Sturge International LLP estimate. Prices declined to 46.50 pounds per square foot in the City during the first quarter from a high of 65 pounds in mid- 2007. Rents fell to as low as 30 pounds two years after Canary Wharf opened.

How can this be while you have consumer spending surging and residential real estate prices stabilizing? As some are predicting, how can Great Britain be out of a recession this summer? No country has more greatly befuddled me than this one.

The article mentions several examples of much more supply coming on line. This is just one.

The 445,000-square-foot Walbrook development from Minerva Plc, due to be completed this year, has no tenants. Minerva is also constructing a 560,000-square-foot office building called St. Botolphs, to be finished next year. About 84,000 square feet are leased, according to the London-based company.

At the same time, the UK Guardian is reporting big job cuts from BT (a telecommunications company).

BT is axing 15,000 jobs over the coming year, roughly 10% of its workforce, as it tries to save costs after announcing a dramatic plunge into the red and warning that revenues will drop this year.

All the same time, KBC shares were suspended in Belgium as the bank gets ready for a possible third round of bailouts. From the Guardian.

The Belgian authorities are expected to announce a third bailout for the banking and insurance group KBC tomorrow amid speculation that it has lost up to €4bn (£3.6bn) on complex financial instruments.

Anxiety about the deepening woes at KBC unsettled stockmarkets today and served as a reminder that some banks are still fragile despite improving confidence in the financial system.

Shares in KBC were suspended after "wild rumours" circulated about its losses on collateralised debt obligations (CDOs), the complex financial instruments at the heart of the credit crunch. The Belgian group said it did not want to make a statement before its first-quarter results are released tomorrow morning.

And yet - everything is somehow fine across the pond. It doesn't add up.

Wednesday, May 13, 2009

Prediction Power

I found this so amazing, I retyped it by hand (i couldn't cut and paste it). This is an email from the FOIA disclosure. How the judicial watch got this I have no idea. Anyway Bloomberg focuses on some of the big findings such as emails saying the government forced 9 banks to accept TARP money in October. (was really anyone surprised by outrage came and went along time ago concerning that issue) Anyway, the FOIA disclosure turned up an email from Camden Fine, the CEO of the Independent Community Bankers of America. Basically represents the interest of small regional and local banks. He was upset the organization didn't get to sit with the big boys at the meeting. The entire email can be found here but these two paragraphs are what is incredible.

"For example, Treasury should consider using a portion of its $700 billion authority to beef up the FDIC reserve fund so that significant insurance premium costs don't batter the bottom line of thousands of already weakened community banks. Since community banks fund their balance sheets almost entirely from core deposits, insurance premium increases (like those proposed by the FDIC to replenish the fund) hit community bank institutions disproportionately hard. It does no good to stabilize the problems on Wall Street and create a new crises on Main Street by having literally thousands of banks just stop extending credit because all of their capital resources are being used up to pay FDIC insurance premiums.

I just returned from 4 days of meetings with over 250 community bankers nationwide. In January, when the new proposed FDIC premium payment schedule kicks in, many community banks project that they will struggle to just break even next year. On top of everything else, if those banks receive just one additional shock it could drive them down - to nobody's benefit."

WOW!! If that doesn't make your jaw drop nothing will. Two major points from this. I have heard alot of chatter from local bankers about these FDIC premiums. Basically the good healthy banks capital is getting sucked out of the system to support the Zombie banks. CLASSIC JAPAN. This prevents lending and furthers deleverging and hence the depression cycle. Secondly, it puts these small banks in very precarious situation. I read about a small regional bank (11 branches) whose premiums (going from memory here) went from 45,000 to 450,000. The bank president said it will probably wipe out all profits this year. That is assuming his projections on loan losses are right which my guess is they underestimate. Even if there is no additional shock, you just wiped out the capital build through retained earnings. There will be no additional loans next years because of this as well.


Charlie Munger Interview

Very good interview with Charlie Munger by the Stanford Law School. Thanks goes to Pete.

The Federal Reserve is today buying assets that it wouldn't have even considered looking at a year ago.

I think the problem is so extreme that nothing non-extreme has any chance of working. I like the fact that it is so willing to do things that have never been done before, because we have problems that we have never seen before.

This shocked the heck out of me...not because I disagree, but because he said it.

So on a scale of 1 to 10, how big a mistake was it that they let Lehman Brothers go?

I don't think that was a mistake. You can't save everybody. That would have created unlimited revulsion in the body politic. I probably would have let Lehman go, too.

I think the money line was in response to this question. Loved it.

So in order to cure the lame leg, you would lean more toward an approach to economics that takes human nature into account?

If you totally divorce economics from psychology, you've gone a long way toward divorcing it from reality.

Undying truth

If you had to characterize a few mistakes that you see executives making, which ones jump out at you?

An extreme optimism based on an inflated self-appraisal is one. I think that many CEOs get carried away into folly. They haven't studied the past models of disaster enough and they're not risk-averse enough. One of the very interesting things about Berkshire Hathaway is how chicken it is, how cautious, how low is its leverage. But Warren and I would not have been comfortable with more risk, entrusted with other people's net worths. There was no reason for our financial institutions to stretch as much as they did, with the leverage, the shady people and the compromises.

A Little More Market Chatter

Well, as I said yesterday, I reached maximum frustration with the market. Probably a sign that we were due for a slide. I had to play every mental game available to let my portfolio run and not increase long exposure or hedge my short book over the last few days. I succeeded in that endeavor where I am sure others failed and others also succeeded. Of course that is the key to investing. It isn't IQ. It is mental health. Sometimes I succeed, sometimes I fail. The key for long term success is to succeed more than you fail. Control your brain waves.

As far the market, from a technical perspective (for whatever it is worth), you have huge support between 870 and 875. The only reason I bring it up is because if you break that, I think you will get the momentum guys really piling on. Another key sign will be how the market responds to the jobless claims number tomorrow. Previously whatever the number reported was bought. If the number tomorrow comes in a little lower or in line but is now spun, the consumer will still be weak because of it, and the market is sold, that could mean a much bigger drop. If you really break 870, there could be a long way down in a short amount of time.

In general I don't think we are going back to the lows in February in the short term. I would not be surprised to see home prices go up (using the Case Schiller Index) for a multiple of reasons. The index is non seasonally adjusted and even last year the decline almost got to zero. This year I wouldn't be surprised on a non seasonally adjusted basis if it flips over to positive. This could really get the speculative juices flowing in the markets. Also the foreclosure moratorium may cause inventory to show a false decline as it takes 4 to 6 months from the time of foreclosures to occur for a sell to occur by a bank. Foreclosures are now really picking up again since the moratorium was lifted. It will take awhile for these homes to hit the market. I think Q2 bank numbers will also surprise to the upside. My guess is more games will be played with undereserving. You also had a massive amount of refis which will drive one time fees. In general, I am not sure the top is in the for the year. We may get just enough of a down move for the bears to say, see I told you so before we have one more leg higher to really dwindle the bears out there, the final gasp before the games the banks play really catch up with them.

All this is speculative conjecture. It doesn't mean much. What it does mean though is if we get another day or two like today, I will be hedging my short book. The difference is I will be doing it when I want to do it instead of the market forcing me to do it. The first is always much much much cheaper.

More Dollar Hatred

This is the worst scenario. Currently, it is nothing to get worried about. It is just warning shots and probably political positioning in Japan but if this were to become a populist movement worldwide, it could spell disaster for the U.S. and the world (at least in the short term). BBC news is reporting that Japan's opposition party would not buy U.S. debt denominated in dollars.

Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.

The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.......But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds.


However observers say that, while the move would be a remarkable policy shift, it was unlikely that Mr Nakagawa's party will win the forthcoming election, due before mid-September, despite the unpopularity of the ruling Liberal party.

Tuesday, May 12, 2009

A Little Market Chatter

Bears had every reason to rule the day today. Instead they just said, here bulls, we are like our sleep in hibernation. We broke 900 on the S&P and stayed under for an hour and it looked like we were going to really roll over. Instead we rebound, held the trend line going back to the beginning of March, and powered higher into the close. Then, just to add insult to injury, Intel had some good comments after the bell that at least initially, set the bulls up nicely.

This may just be a frustrated investor looking for a pullback but it seems once again the bulls are in solid control. There are always little different anecdotes that one could point out. The Dow Transports and the financials were solidly down. The decliners outpaced the advancers on the NYSE. But with every reason for the market to roll over, it didn't. A run back up to 930 isn't out of the question. Like I said, as someone who has been looking for a pullback, I am about as frustrated as I could be which may mean the market is about to roll over. Interesting how that stuff works but the pattern for the last 9 weeks is to be weak at the beginning of the week and rally into the end. The bears have alot to prove after today if it isn't the case this week.

More on the GSEs

Another article from Marketwatch

Freddie Mac reported a $9.9 billion quarterly net loss late Tuesday as the government-controlled mortgage giant suffered from rising delinquencies and continued impairments on its holdings of mortgage-backed securities.

This is the money line:

Freddie set aside $8.8 billion in provisions to cover credit losses during the first quarter. That's up from $7 billion in the final three months of 2008.

Something that actually makes economic sense. Economy worsened in Q1 and so the likelihood of losses went up. Hence the provisions go up. Not rocket science but tell that to all the other banks that reported. Wells Fargo, loan loss provisions dropped alot. In the latest quarter they add $4.6 billion. In Q4 it was $5.6 billion. So a decline of $1 billion (I am not swearing by this numbers, just a quick check of my notes that I would need to verify, the point is they went down). Wells Fargo could throw several excuses. Foreclosures dropped, well um, yeah, you had a foreclosure moratorium but that could actually increase the projected losses. A weak excuse of over reserving in Q4 as a result of the combination of Wachovia could also be given. That also shouldn't pass as legitimate.

So you are left to contemplate that the with a wink and a nod from their regulators they played games to spike the numbers so they could pass the stress test and raise capital. etc. At the same time Fannie and Freddie are already controlled by the government and it doesn't matter. There is no incentive to spike the numbers so they play more by the rules.

I have never believed the market is efficient but it sure seems like it could see through some of this absolute ridiculous obvious games that are being played.

Head Scratcher

I just don't get it. I don't get this data. So many things just don't add up. Just got an email from a friend asking how Fannie and Freddie can be losing billions and the banks be profitable? Valid question. I have another question. In Great Britian how can sales be booming, housing prices be going up, and jobless claims be growing at the fastest levels since 1981? Those are paradoxes. Something can't be right. From Marketwatch:

Two U.K. economic indicators on Tuesday hit multiyear highs, registering improvements that fed into a growing perception that the British economy could end its recession as early as this summer.

Same-store sales rose 4.6% in April, the fastest rate of growth in three years, the British Retail Consortium said.


Meanwhile, the Royal Institution of Chartered Surveyors said a net balance of 41% more surveyors saw house prices rise in April, compared to 32% in March.


The April labor report showed the number of persons claiming jobless benefits rose 57,100 in April.

That pushed the total number of claimants to 1.51 million, the highest since August 1997. The rise was smaller than the 87,500 rise forecast by economists and was less than the downwardly revised increase of 65,500 seen in March.

And other labor-market figures underlined the weak state of the jobs market. When measured by International Labor Organization standards, unemployment rose by 244,000 to 2.2 million in the three months to March, bringing the unemployment rate for the period to 7.1%, up from 6.3% in the previous three months. The quarterly increases in the total number of unemployed and the unemployment rate were largest since 1981, the ONS said.

Am I just completely missing something. I don't get it. On the housing prices front I did read in the UK Guardian that there are two organizations that collect house prices. One is reporting losses one slight gains but even the losses are nowhere near say what Ireland has experienced.

The world is beyond me.

Monday, May 11, 2009

Dying Gardens

So maybe the garden of those pretty little green shoots is already dying. In April the early buzz was China export decline was slowing. Well not so again this month. I had to do a google search but I found my data.

Xinhua reports from a month ago:

China's exports fell for the fifth month in a row to 90.29 billion U.S. dollars in March, down 17.1 percent from a year earlier, the General Administration of Customs said Friday.

Imports slumped 25.1 percent year on year last month to 71.73 billion U.S. dollars, compared with a 24.1-percent decline in February.

In February the decline was 25.7% So there was a nice little increase in March from the big decline in February.

Well according to Bloomberg the decline is picking back up.

China’s export slump worsened in April, making it harder for the government to revive the world’s third-biggest economy.

Overseas sales declined 22.6 percent from a year earlier, the official Xinhua News Agency said. Imports fell 23 percent.

Ouch. And the garden of green that is out there:

“The export outlook remains highly uncertain and downbeat,” said Tao Dong, chief Asia economist at Credit Suisse in Hong Kong.

and this was really interesting:

China’s biggest trade fair, in the southern city of Guangzhou, said this month that the value of export orders at the event fell 16.9 percent to $26.23 billion from six months earlier.

Six months earlier was November. Crises was already in full blown mode. So from six months ago orders fell 16.9%???

Ouch. So maybe we have started our corrective rally with numbers like these. 900 is a good bogey. If we get below that stay below that, the momentum guys will start selling.

Microsoft Debt Sell

For the first time in Microsoft's history, Bloomberg is reporting that the company is planning to sell debt. Supposedly the debt is to help fund the repurchase of its equity. I am not sure I totally buy that argument. They have over 25 billion in cash. Now, I am sure that is not all accessible because it is spread all over the world and there would be big tax bills to move back to the U.S. but I wonder if Steve Ballmer and Bill Gates are not making another statement. If this isn't more a global macro call where they think over the next few years interest rates are going to surge and so they are locking in cheap cash now. I have no idea, it could simply be to fund stock repurchases, but Bill Gates is good friends with Warren Buffett and a large capital allocation decision like this shouldn't go unnoticed.

From the article:

Microsoft Corp., taking advantage of its top credit ratings, plans to sell 5-, 10- and 30-year debt, the world’s largest software maker said in a regulatory filing.

Eastern Europe - Problems Still Brewing

The global short squeeze in equity market has casued cds of Eastern European companies to tighten dramatically (in simple Engligh, the cost of insuring against bankruptcy of these countries has collapased). In fact, the price of Czecholoslovakia cds is approximately the same price as China cds. Absolute lunacy. Then of course you get this BBC News report about the ongoing collapse of Latvian. The weak will take down the strong.

Latvia's economy contracted 18% in the first three months of the year, compared with a year earlier, as the country's recession accelerated.


Separately on Monday, Latvia gained EU approval to shore up the country's second-largest bank JSC Parex with another state capital injection.

Sunday, May 10, 2009

Chart of the Day

This is ridiculous.

Look at consumer discretionary. Explain to me how consumer discretionary can be trading at 33 times next twelve months earnings? Does anyone out there really think the consumer is all of sudden going to surge forward in a new wave of all out buying with abandon?

That is what you call the power of a short squeeze.

Friday, May 8, 2009

Clifford Asness of AQR Capital

It is nice to see someone speak out against the destruction of contracts and age old lender principles. Clifford Agness is a found of AQR Capital Management, a 20 billion hedge fund in Greenwich. Apparently he is not part of the lender group involved with Chrysler but was "aghast" at Obama's comments attacking the funds. Deal Book has the full letter.

Unafraid In Greenwich Connecticut
Clifford S. Asness
Managing and Founding Principal
AQR Capital Management, LLC

The President has just harshly castigated hedge fund managers for being unwilling to take his administration’s bid for their Chrysler bonds. He called them “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”


Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice,” they are stealing.

and this is my favorite part

Let’s also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing.

Jeremy Grantham Letter

Jeremy Grantham over at GMO has his latest quarterly letter out. Registration is required if you haven't before but it is free and I have never received any email or communication from them. It is a must read.

It is funny to hear Jeremy try to be bullish (he is known as a long term great bear). In general I don't really disagree with him. My mistake has been thinking the market would correct in some form or fashion. Jeremy is adding to the growing chorus that thinks the market climbs between 1000 and 1100. I really don't have a problem with that forecast (in my letter I said 1000). He mentions several reasons that I have mentioned. I just keep thinking there has to be a 10% correction in the market someway somehow before we reach it. I continue to be short and wrong surrounding this thought.

Where I do differ with Jeremy is that I think once we get up there, issues will develop that will cause the market to crumble lower setting new lows in the fall or next year. He thinks the markets will be way overvalued and move back down to a more fair value (around 850).

The newest letter is a must read.

Thursday, May 7, 2009

Home - Hot and Humid

Compared to the unbelievable weather in Los Angeles and Pasadena the exit off the airplane was to be expected - it was like a damp mop hit me. Of course that is how I know I arrived back in Texas.

First and foremost - I am working through a mountain of emails that got ignored while I was traveling. If you sent me something I am supposed to respond to and you don't hear back from me in the next 24 hours, please email me again.

Outside of the business aspect, while in LA I went to an improv comedy club (it was awesome) and hung out at Hermosa Beach and Manhattan Beach (which was awesome). Very good times.

I thought this Value Investing Congress was one of the best I have ever been to (been to three in NYC before this one, never to the West Coast meeting). I felt like speakers had more diverse overall views than normal. I was also intrigued with every speakers presentation but one. I liked going to one at a hotel versus the AOL center in NYC. In general the conference had an overall bearish tone but it was offset by a couple of mild bulls. Soma Asset Management had a presentation that indicated the end of the world was coming. Passport Capital gave a presentation on serious inflation and how China plays into the next few years. M3 funds (who I had never heard of) also gave a presentation. They invest in only banks - 50% long and 50% short. Last year they made 1.3% on their long banking book. That is incredible!!! Anyway, they know banks. They agreed with alot of what Soma said and in general agreed the banking system is insolvent (regardless of what the government and/or stress tests says). There were 3 presentations and 5 ideas on P&C insurance and reinsurance. Also, three investors talked about gold.

I could talk alot more about the Congress and I may mention stuff here and there over the next few days but I recommend visiting the Manual of Ideas blog. I met Zain who was there from Manual of Ideas and they lived blog the presentations. Some good notes on what was overall discussed.

Hope everyone had a good week. In some ways mine is just starting.

Saturday, May 2, 2009


Landed in LA a coupe of hours ago. Tuesday starts the Value Investing Congress and then Wednesday afternoon is the Charlie Munger's Wesco meeting. Should be a fascinating few days. Tonight I have tickets to go to an improv comedy club. One of the shows has one of the actors from The Office.

Be interesting to see if the markets take the spike right at the close on Friday as a breakout. Friday was dead dead. One of the lightest volume days in almost two months. The bulls are firmly in control and it is up to the bears to prove something. As hard as it was, I was selling on Friday. Some of my longs have reached what I think are fair value and it is terribly hard to sell in this type of rally but over time discipline will win. Still, when long exposure is limited and the markets do not stop going up, it is hard to do.

The financials still have not broken higher. Two days in a row they have been down. Just something to watch.

Friday, May 1, 2009

Quote of the Day

April car sales came in surprisingly light (even I thought they would be better than they were). This had to be the quote of the day especially considering all the chatter about green shoots.

"Industrywide, April felt more like a dust bowl than a spring garden for new car sales." - Jim O'Donnell, president of BMW in North America, May 1, 2009