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Latest Comments38 Comments
Is There Predictive Power in the Option-Implied Volatility Smirk?
What Kind of Government Support Will Fannie and Freddie Get?
I'm sure most of you own financial puts (as do I) and the GSE's have certainly been foolish, but as the author points out, it is the government's job to prevent the American economy from collapsing and costing millions of innocent people their jobs.
It is unfortunate when a side-effect of that action benefits incompetent managers but don't let your greed overwhelm your common sense. The GSE's will likely be penny stocks in time but letting them collapse is NOT in your best interest as an American even if you think it would be good for your short-term portfolio...
More on Technical Analysis
I would never put my 401k with a short-term trader. Give me Buffett. However, I have a smaller percentage of my investments that I trade short-term because unlike Buffett and Lynch, I like playing the market a lot more than "buy and forget." It's just my personality.
For years, I knew nothing about technical analysis and thought it was bullshit too. And to answer your question on who are the "under-performing traders," I was for about 4 years. I lost a LOT of money following the crowd.
But then I discovered that there were technical analysts who were reasonably good at predicting which way the crowd was about to go before they went there. Not precisely, mind you and they're occasionally wrong, but they're right enough that I now make a LOT of money investing in ETFs and index funds for a couple of months following my own "crowd indicators" as well as theirs.
Most of the technical analysts I follow advised their clients to go short between the middle of May and the first week of June (I went short May 15th) and they're still advising short but a potential turn is coming this week or next.
That was awesome advice Felix and it flies in the face of yours. How did they do that? How did they know to advise me to go long the day after Bear Stearns? I asked myself that same question 5 years ago and it's been a very profitable revelation...
Don’t Worry About a Return to ‘70s Stagflation
The author does make one point that is pertinent: today's economy is not like 1975's economy. That means tomorrow's problems will be totally unlike yesterday's problems. We're about to find out if that is a good thing...
Adventures in Technical Analysis, Jim Cramer Edition
Since technical analysis is based on the study of human crowd behavior, I suppose that it's good for writers to tell the crowd it's nonsense so that it will continue to work. Technical analysis is also based on probabilities and approximations which is where Cramer - a fundamental investor by nature and not a technical trader - screwed up. You NEVER, NEVER, NEVER rely on just one technical indicator no matter how reliable it has been in the past.
I've been short this market since May 15th and neither I nor any of the technicians I follow were expecting a huge market bounce last week so I don't know where Cramer got this mysterious "slam-dunk oscillator" he was using.
And congrats on the video - that was funny!
Consumer Confidence Plunges - A Buy Signal
Now consumer confidence is reaching the same lows after a 6 year bull market that is only down 9.7% from its all-time high. I think I'll pass on rushing into the market on this "great news"...
Why Is Insider Trading Illegal?
You can't find a "compelling reason?" Holy cow. I wouldn't know where to start. And I don't think many industrialized nations are tripping over themselves to emulate the vast level of corruption that is Brazil.
Yes, their stock market may be a good investment because with vast resources in an emerging market country, how could it not be? However, when their market has reached maturity and double-digit growth becomes a struggle for companies rather than an expectation, the corruption and inside dealing will intensify and their market will collapse (assuming no regulatory changes).
The WSJ likely removed that article from its database due to the ridicule it was receiving...
Sell in May and Go Away?
Don't know if that's worked the last 5 years or not but over the long-term I'm pretty certain it has....
Wells Fargo Downgraded: Oppenheimer's Whitney Goes Too Far
What she's doing isn't rocket science. It's simply looking at the plummeting home values and skyrocketing default rates on first sub-prime, then alt-A and now HELOC's and projecting the coming writedowns.
I have no short position in WFC and don't intend to take one because these banks can hide their problems for months. And I'll offer a warning for bank investors - that's exactly what they're doing. Ignore Ms. Whitney at your peril...
How Much Are Goldman's Level 3 Assets Worth?
However, the Fed IS taking steps to prevent GS and the other banks it's lending to from going under. drmalaka is correct that the Fed is buying time for these banks to write down the loans gradually against future profits and also to raise new capital.
That is why I have long-term puts against them. The Fed will keep them from collapsing which could send the financial markets into a tailspin, but the Fed CANNOT keep their stock from gradually dropping to a price more reflective of their true market value in a changed world...
How Much Are Goldman's Level 3 Assets Worth?
There is not a ready market for mortgages right now because none of the banks trust each other's valuation. In other words, Goldman's mortgage valuations could be just fine, but the market is "frozen" from mistrust. That doesn't happen in real estate markets.
Goldman also is not "giving" level 3 assets to the Fed. The Fed is allowing financial firms to use them as collateral in order to help "unfreeze" the market and rebuild trust. The level 3 assets are still on Goldman's books and any ultimate writedown will have to be absorbed by Goldman's capital.
In the interest of full disclosure, I have long-term puts on Goldman and the other investment banks, but it is not a big part of my portfolio. The Fed is buying time for the banks to raise capital and get their affairs in order so I think you'll see a gradual deterioration in their stock prices as they slowly come to grips with the real value of their level 3 assets and with the reality that they'll no longer be allowed to operate at a very profitable - but exceedingly risky - 30 and 40 to 1 leverage ratio going forward.
Combine those 2 factors with a recession their risky loan behavior has helped to create and you have a recipe for future stock declines...
Regional Bank Failures: The Next Shoe to Drop
Bear Stearns was a bank failure. Having Chase take over their accounts doesn't mean it wasn't a failure and yes, there will be more including some of the top 15. The Fed has gotten a LOT of criticism over the fact that BSC likely has negative equity yet BSC's shareholders are walking away with $10 per share (to try and prevent lawsuits) so it's unlikely that shareholders of the next failure will get anything other than condolences.
When you have banks operating at 35 to 1 leverage, all it takes is a couple of percentage points loss on their total assets and they're insolvent. Guess what? Most of the banks that dealt in sub-prime mortgages (like Bear) are experiencing default rates of up to 30% and are now insolvent.
The Fed has ordered them to either raise capital to replace their lost capital or die. Those that can (GS, UBS, Citi) are scrambling to raise capital. Those that can't (NCC, SOV, and many others) are already in the process of dying.
Meredith Whitney has been the true voice of reason. Loaning billions of dollars to people with sub-700 credit scores and no equity at a 35 to 1 leverage ratio was an exercise in gross negligence that is about to bring down a LOT of banks over the next 24 months...
Could Citi's Deal Signal a Turnaround?
Yes, it increases their liquidity but at what cost? Not many borrowers will have the resources of those equity firms to buy back their debt at a discount so I see this as more a move of quiet desperation than a meaningful turnaround model for other banks...
UBS Plan Could Be the Road Map for Financials
If my $150 million of mortgage loans have a probable write-down of $50 million, then my IPO is only going to bring in $100 million unless you're assuming the public is a bunch of uninformed fools. In 2007, they (we) probably were. In 2008, we're not.
With all the horrible publicity they're getting, their IPO would probably be a disaster and bring in even less than the mortgages are really worth which is why the government will end up buying these bad mortgages.
Then at some point down the road, when workouts have been determined and the bad publicity has settled down, I agree that Newco could go public as a long-term mortgage company...
UBS Plan Could Be the Road Map for Financials
The total estimated writedown of sub-prime loans is $460 billion. That number comes from Goldman Sachs which one would think would have no incentive to drive down their own stock price.
The total estimated writedown of ALL consumer and commercial debt assuming a recession (which is no longer an assumption) is around $1 trillion. The banks are NOT writing down perfectly good paper to zero. They use sophisticated mathematical models based on the current default rate of a group of mortgages to project the future default rate and their writedown is based on that.
I agree with you that the Fed acted to avoid a panic. It was a good move on their part. I disagree that "Joe" is playing into anyone's hands by selling his stock. Joe NEEDS to sell his investment bank stock. The banks and hedge funds have been shorting their own stock (along with homebuilders) for a year now because they knew the housing bubble was collapsing.
That is why you're seeing investment bank and homebuilders surging now because the banks and hedge funds are having to buy that stock back to close out their positions and raise cash. As soon as their positions are closed and their buying has ended, it won't be pretty...