Well it looks like a bounce. When will it fail? Maybe S&P 1380 to 1430 or so. It could go all the way up to ~1500 and then fail. We will just have to see.
OverHedged has a good post with comments on a NYTimes article today:
http://overhedged.blogspot.com/2008/01/seems.html
I thought the same thing when I read the Times this morning. The credit bubble is huge and the 75 basis point cut is a panic move by the Fed.
I'll try and post more soon.
Wednesday, January 23, 2008
Monday, January 21, 2008
No Bounce? Crash?
It seems as though we may not get a bounce and that the markets may, in fact, just crash and burn. The psychology may be that instead of waiting for a bounce, the big money chose to just sell (Panic) before others.
Most people were not expecting a crash so crash may well be what we get.
My guess is that most investors are, like dear in the headlights, frozen mentally while they watch their "investments" go down the toilet.
This is a beautiful process if you think about it. When the crowd gets it wrong they really get it wrong and there is a lot of money to be made from this.
-stealth
Most people were not expecting a crash so crash may well be what we get.
My guess is that most investors are, like dear in the headlights, frozen mentally while they watch their "investments" go down the toilet.
This is a beautiful process if you think about it. When the crowd gets it wrong they really get it wrong and there is a lot of money to be made from this.
-stealth
Friday, January 18, 2008
$107.8 Billion In Losses and Counting
http://bigpicture.typepad.com/comments/2008/01/wheeee.html
I've seen projections of losses up to $500 Billion. This does not include potential Credit Default Swap losses of ~$250 Billion or more. These projections also don't factor in a 30% decline, nationally, in housing.
Here's a quote from Bill Gross of PIMCO:
"The unfairly "Ben Stein pilloried" Jan Hatzius of Goldman Sachs estimates that mortgage related losses of $200-400 billion alone might lead to a pullback of $2 trillion of aggregate lending. Even if this occurs gradually, he writes, "The drag on economic activity could be substantial." Add to that my $250 billion loss estimate from CDS, as well as prospective losses in commercial real estate and credit cards in 2008 and you have a recipe for a contraction in credit leading to a recession."
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+January+2008.htm
-stealth
I've seen projections of losses up to $500 Billion. This does not include potential Credit Default Swap losses of ~$250 Billion or more. These projections also don't factor in a 30% decline, nationally, in housing.
Here's a quote from Bill Gross of PIMCO:
"The unfairly "Ben Stein pilloried" Jan Hatzius of Goldman Sachs estimates that mortgage related losses of $200-400 billion alone might lead to a pullback of $2 trillion of aggregate lending. Even if this occurs gradually, he writes, "The drag on economic activity could be substantial." Add to that my $250 billion loss estimate from CDS, as well as prospective losses in commercial real estate and credit cards in 2008 and you have a recipe for a contraction in credit leading to a recession."
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+January+2008.htm
-stealth
Bespoke Investment Group Re: Nasdaq
Bespoke Investment Group has this to say about the Nasdaq today:
"The Nasdaq is now down 18.37% from highs reached on 10/31/07. A bear market occurs when the price declines by 20% or more after previously rallying by 20% or more. While it's not yet a foregone conclusion that the Nasdaq will turn into a bear, it's getting very close, and investors should be prepared for what the typical bear looks like. Since the Nasdaq index was created back in 1971, it has suffered 13 bear markets. The average bear has been 216 days long for an average decline of 36.51%. Only 4 out of the 13 bears saw declines of less than 30%, and 4 bears saw losses of more than 40%." (Emphasis is mine)
http://bespokeinvest.typepad.com/bespoke/2008/01/nasdaq-historic.html
I think it's a little late to talk about preparing investors for a bear market. If your advisor has not warned you about this, he's an idiot.
-stealth
"The Nasdaq is now down 18.37% from highs reached on 10/31/07. A bear market occurs when the price declines by 20% or more after previously rallying by 20% or more. While it's not yet a foregone conclusion that the Nasdaq will turn into a bear, it's getting very close, and investors should be prepared for what the typical bear looks like. Since the Nasdaq index was created back in 1971, it has suffered 13 bear markets. The average bear has been 216 days long for an average decline of 36.51%. Only 4 out of the 13 bears saw declines of less than 30%, and 4 bears saw losses of more than 40%." (Emphasis is mine)
http://bespokeinvest.typepad.com/bespoke/2008/01/nasdaq-historic.html
I think it's a little late to talk about preparing investors for a bear market. If your advisor has not warned you about this, he's an idiot.
-stealth
Thursday, January 10, 2008
The Problem With Most Financial Advisers and Brokers
Quick history lesson:
In the past there were only brokers and they worked on commission. The problem with this is that they might "churn" the client's account, which means that they would buy and sell primarily to generate commissions. Anyway, these were also stock guys in that they were mainly buying and selling stocks for customers.
You can still find these brokers, not that you would want to hire one.
Now the industry has Financial Advisers, which work on a annual fee basis and are at least somewhat trained to have a more holistic view of the client.
Here are the problems with advisers:
1. Most are incompetent and/or unethical
2. Most will hold their interests above the client's
3. Advisers are trained purely to "sell" and are judged by their peers and firms. They are not judged on investment performance but buy revenues produced.
4. Most buy investment products from wholesalers rather than doing their own research.
5. They will always tell you it's a good time to buy. Always! They will act as though you are stupid not to buy.
6. They will show research/charts to prove point #5. This research/charts will have 20 to 50 year time horizons. Most investors don't have 20 to 50 years to invest.
Here's how it works when you walk into an office of, or call, any of the big firms:
You will be put in front of the most inexperienced people/person in the firm. Now, I think that the only offices that really get this kind of business are the ones that are visible from the street. This person is highly likely to be completely incompetent and just wants to sell you anything that they can. This is what the big firms think of you the client - nothing! They could care less. They just want to sell you something and move on to the next "customer."
How would one go about finding an advisor that is truly competent and ethical? This can be quite difficult as my rough guess is that they are about 2 or 3 out of 100 at best. You could ask an attorney or a CPA for a referral but the problem with this is that most of these professionals have trouble figuring out which advisers are good and which ones they can trust. Many have been burned and just don't give referrals. Some will take years to develop relationships before referring clients.
I think the only way to find an advisor is to know just enough yourself about investing and then interview a lot of advisers.
Hopefully this blog can help you by pointing to all of the best information on the internet on investing. I will also try to boil things down for you so that you don't have to read everything.
-stealth
In the past there were only brokers and they worked on commission. The problem with this is that they might "churn" the client's account, which means that they would buy and sell primarily to generate commissions. Anyway, these were also stock guys in that they were mainly buying and selling stocks for customers.
You can still find these brokers, not that you would want to hire one.
Now the industry has Financial Advisers, which work on a annual fee basis and are at least somewhat trained to have a more holistic view of the client.
Here are the problems with advisers:
1. Most are incompetent and/or unethical
2. Most will hold their interests above the client's
3. Advisers are trained purely to "sell" and are judged by their peers and firms. They are not judged on investment performance but buy revenues produced.
4. Most buy investment products from wholesalers rather than doing their own research.
5. They will always tell you it's a good time to buy. Always! They will act as though you are stupid not to buy.
6. They will show research/charts to prove point #5. This research/charts will have 20 to 50 year time horizons. Most investors don't have 20 to 50 years to invest.
Here's how it works when you walk into an office of, or call, any of the big firms:
You will be put in front of the most inexperienced people/person in the firm. Now, I think that the only offices that really get this kind of business are the ones that are visible from the street. This person is highly likely to be completely incompetent and just wants to sell you anything that they can. This is what the big firms think of you the client - nothing! They could care less. They just want to sell you something and move on to the next "customer."
How would one go about finding an advisor that is truly competent and ethical? This can be quite difficult as my rough guess is that they are about 2 or 3 out of 100 at best. You could ask an attorney or a CPA for a referral but the problem with this is that most of these professionals have trouble figuring out which advisers are good and which ones they can trust. Many have been burned and just don't give referrals. Some will take years to develop relationships before referring clients.
I think the only way to find an advisor is to know just enough yourself about investing and then interview a lot of advisers.
Hopefully this blog can help you by pointing to all of the best information on the internet on investing. I will also try to boil things down for you so that you don't have to read everything.
-stealth
Friday, December 21, 2007
Credit Default Swaps: Tick, Tick, Tick, Tick . . . .
This entry is from http://overhedged.blogspot.com via http://www.hedgefolios.com/read/. CDSs are a key thing to watch in the days ahead.
-Stealth
December 19, 2007
Credit Default Swaps: Tick, Tick, Tick, Tick . . . .
The evaporation of the collateralized loan obligation market (see post below) may be the other shoe dropping. The risks posed by credit default swaps (CDSs) may be not just the other shoe, but the neutron bomb. The rating cut by S&P of ACA Financial Guaranty Corporation (from A to CCC), discussed in this article in today's NY Times, may portend deep trouble.
Credit default swaps originated as a form of credit protection that the holder of a credit risk could purchase as a hedge against a borrower's default. A holder of General Motors bonds, for example, can effectively insure against a default by GM by purchasing protection in the form of a CDS from a willing counterparty. Many holders of collateralized debt obligations that have recently plummeted in value had hedged their positions through CDSs, and ACA Financial has been a major seller of such protection. An accompanying article in the Times describes possible efforts by some of ACA's insureds, including Merrill Lynch, CIBC and Bear Stearns, to help bail out ACA in order to avoid a write-down of billions of dollars of insured securities.
As with so many other types of innovative financial products, CDSs have exploded in the past few years. They have become a simple way for investors to take long or short positions on particular companies or industries without having to buy or sell the actual underlying bank debt or securities. The notional amount of underlying obligations covered by CDSs now exceeds $40 trillion, up from less than $2 trillion in 2002.
In a low default environment, selling default protection through CDSs presented huge revenue opportunities. ACA more than doubled its CDS business over the past 12 months, and others have undoubtedly done likewise. However, if the events of the past several months have proven one thing, it is that investors have done a very poor job recently of accurately assessing and pricing risk. It is more likely than not that many CDS sellers have not properly gauged their exposure, or set aside sufficient reserves against it.
The potential ramifications are difficult to overstate. S&P contends that ACA is facing close to $3 billion of losses on its CDS exposures, for which it has only $650 million of reserved capital. There is no way to tell right now how many other banks, funds, and other insurers are similarly exposed. Of equal concern are the exposures of the CDS purchasers who believe themselves to be properly hedged against losses, but who may instead find their protection to be worthless because of their counterparty's inability to pay.
Sphere: Related Content
Email this • Subscribe to this feed • Save to del.icio.us • Digg This! • Share on Facebook • Stumble It!
Posted by Ben Feder at 3:50 PM
http://overhedged.blogspot.com/2007/12/credit-default-swaps-tick-tick-tick.html
-Stealth
December 19, 2007
Credit Default Swaps: Tick, Tick, Tick, Tick . . . .
The evaporation of the collateralized loan obligation market (see post below) may be the other shoe dropping. The risks posed by credit default swaps (CDSs) may be not just the other shoe, but the neutron bomb. The rating cut by S&P of ACA Financial Guaranty Corporation (from A to CCC), discussed in this article in today's NY Times, may portend deep trouble.
Credit default swaps originated as a form of credit protection that the holder of a credit risk could purchase as a hedge against a borrower's default. A holder of General Motors bonds, for example, can effectively insure against a default by GM by purchasing protection in the form of a CDS from a willing counterparty. Many holders of collateralized debt obligations that have recently plummeted in value had hedged their positions through CDSs, and ACA Financial has been a major seller of such protection. An accompanying article in the Times describes possible efforts by some of ACA's insureds, including Merrill Lynch, CIBC and Bear Stearns, to help bail out ACA in order to avoid a write-down of billions of dollars of insured securities.
As with so many other types of innovative financial products, CDSs have exploded in the past few years. They have become a simple way for investors to take long or short positions on particular companies or industries without having to buy or sell the actual underlying bank debt or securities. The notional amount of underlying obligations covered by CDSs now exceeds $40 trillion, up from less than $2 trillion in 2002.
In a low default environment, selling default protection through CDSs presented huge revenue opportunities. ACA more than doubled its CDS business over the past 12 months, and others have undoubtedly done likewise. However, if the events of the past several months have proven one thing, it is that investors have done a very poor job recently of accurately assessing and pricing risk. It is more likely than not that many CDS sellers have not properly gauged their exposure, or set aside sufficient reserves against it.
The potential ramifications are difficult to overstate. S&P contends that ACA is facing close to $3 billion of losses on its CDS exposures, for which it has only $650 million of reserved capital. There is no way to tell right now how many other banks, funds, and other insurers are similarly exposed. Of equal concern are the exposures of the CDS purchasers who believe themselves to be properly hedged against losses, but who may instead find their protection to be worthless because of their counterparty's inability to pay.
Sphere: Related Content
Email this • Subscribe to this feed • Save to del.icio.us • Digg This! • Share on Facebook • Stumble It!
Posted by Ben Feder at 3:50 PM
http://overhedged.blogspot.com/2007/12/credit-default-swaps-tick-tick-tick.html
Ashraf Laidi and Frank Barbera on the Credit Crisis
I think both of these posts from http://www.hamzeianalytics.net/ are important to read. Barbera is very negative but one should be aware of this scenario.
-Stealth
Thursday, December 20, 2007
Currencies, SWFs and our Stock Market
Ashraf Laidi
I pretty much agree with Frank Barbera's outlook but not necessarily as bearish on the US Dollar in 2008. I think the Greenback will continue showing resiliency vs the British Pound, Kiwi and Aussie into mid Q2 before it starts to weaken again. Euro should start recovering after Q2.
As for our Stock Market, when you consider that the main catalysts to the recent gains were 1) Abu Dhabi buying part of Citi 2) rumors/hopes of aggressive Fed cuts 3) Bush rewriting legal contracts on mortgages, all of these factors fall under the "extraordinary items" category on which the ailing market cannot always count on. Unless of course, Arab Gulf SWFs, will alternate with Far Eastern SWFs every other week to announce new buyouts. The 2002 lows in stocks should come around by next summer.
Editors' Note: Ashraf Laidi will publish his 2008 outlook very soon.
Posted by Hamzei Analytics, LLC at 3:09 AM
Wednesday, December 19, 2007
http://www.hamzeianalytics.net/2007/12/currencies-swfs-and-our-stock-market.html
Housing, US Dollar, Gold, PPI and Inflation
Frank Barbera
The current downturn in Housing, the worst since the Great Depression has along way to run, with home prices likely to experience downside pressure well into 2009. Overall, a 30% to 40% price decline in high end homes is needed to bring prices back into line with incomes and clear the market. At the same time, the mortgage loan problem, goes far beyond Sub-Prime and will likely end up running into the Trillions of dollars, with the best estimates between2 to 3 Trillion dollars of defaulting bad paper.
That's more than enough downside risk in the credit market to bring the US Financial System to the tip of a very deep solvency crisis, where several large institutions will probably fold. As a result, we continue to see the large scale credit contraction now underway deepening throughout 2008 with the Federal Reserve likely forced to continue to lower ratings despite a stagflationary economic condition, one in which yr/yr PPI is now running at the highest levels seen since 1981.
The US Dollar is likely heading for a major currency crisis, with a devaluation likely in the year ahead. Gulf State PetroDollar currencies have now moved well off their pegs, as has the Chinese Yuan and HK Dollar. A currency crisis of epic proportions lies ahead, and with it will come soaring long term rates and crashing US Stock Market. For the S&P, a collapse back down toward the 2002-2003 lows near 800 is very likely the next primary direction, with all sectors of the equity market including Gold Stocks vulnerable to this decline. Post a crash type outcome, Gold Stocks are very likely to become the next great capital market mania, as broad scale monetization will be needed to reinflate both the capital markets and the US economy, which is already in a recession.
The final outcome, over the next few years,will be more money printing, more currency debasement and in the end, most likely runaway inflation which will help Uncle Sam eliminated his bad debts. Gold and Precious Metals will be one of the few investments able to protect valuable savings and hard earned capital during this time, and we see the price of Gold heading for $10,000 or higher in the next 5 to 7 years, with price of Silver likely to move toward $500 to $1,000 per ounce.
The upside explosion in Precious Metals following a serious banking collapse will leave onlookers with a truly once in a lifetime, -- jaw dropping experience, once the metals go higher, they will be going, going gone, right out of the park, as all central banks will also need to print money to keep currency relationships in some degree of balance and protect export advantages. Today, the world is confronted with a camouflaged 'fixed' global currency system masquerading as thematically free floating currency system, held together by currency derivatives and unchecked financial leveraging.
The current death of high end Wall Street Finance signals the end of the leveraged speculating era and financial engineering.As the world lurches toward a truly floating exchange rate mechanism, currency volatility will infect consumer prices for basic manufactured goods which in time, will morbidly begin moving around as if tradeable using RSI and MACD....in that climate, the only asset one will want to truly own, will be precious metals. It is very regrettable that the excess of the last decade is likely to create these kinds of extreme economic conditions, and probably at no time in decades, has the average individual been at greater economic risk.
The entire universe of paper money is sure to continue debasing against the universe of scarce and depleting commodities in a theme that will likely continue to play out over the next 10 to 15 years, while I hope I am dead wrong,I fear we are heading into very trying times...
http://www.hamzeianalytics.net/2007/12/housing-us-dollar-gold-ppi-and.html
-Stealth
Thursday, December 20, 2007
Currencies, SWFs and our Stock Market
Ashraf Laidi
I pretty much agree with Frank Barbera's outlook but not necessarily as bearish on the US Dollar in 2008. I think the Greenback will continue showing resiliency vs the British Pound, Kiwi and Aussie into mid Q2 before it starts to weaken again. Euro should start recovering after Q2.
As for our Stock Market, when you consider that the main catalysts to the recent gains were 1) Abu Dhabi buying part of Citi 2) rumors/hopes of aggressive Fed cuts 3) Bush rewriting legal contracts on mortgages, all of these factors fall under the "extraordinary items" category on which the ailing market cannot always count on. Unless of course, Arab Gulf SWFs, will alternate with Far Eastern SWFs every other week to announce new buyouts. The 2002 lows in stocks should come around by next summer.
Editors' Note: Ashraf Laidi will publish his 2008 outlook very soon.
Posted by Hamzei Analytics, LLC at 3:09 AM
Wednesday, December 19, 2007
http://www.hamzeianalytics.net/2007/12/currencies-swfs-and-our-stock-market.html
Housing, US Dollar, Gold, PPI and Inflation
Frank Barbera
The current downturn in Housing, the worst since the Great Depression has along way to run, with home prices likely to experience downside pressure well into 2009. Overall, a 30% to 40% price decline in high end homes is needed to bring prices back into line with incomes and clear the market. At the same time, the mortgage loan problem, goes far beyond Sub-Prime and will likely end up running into the Trillions of dollars, with the best estimates between2 to 3 Trillion dollars of defaulting bad paper.
That's more than enough downside risk in the credit market to bring the US Financial System to the tip of a very deep solvency crisis, where several large institutions will probably fold. As a result, we continue to see the large scale credit contraction now underway deepening throughout 2008 with the Federal Reserve likely forced to continue to lower ratings despite a stagflationary economic condition, one in which yr/yr PPI is now running at the highest levels seen since 1981.
The US Dollar is likely heading for a major currency crisis, with a devaluation likely in the year ahead. Gulf State PetroDollar currencies have now moved well off their pegs, as has the Chinese Yuan and HK Dollar. A currency crisis of epic proportions lies ahead, and with it will come soaring long term rates and crashing US Stock Market. For the S&P, a collapse back down toward the 2002-2003 lows near 800 is very likely the next primary direction, with all sectors of the equity market including Gold Stocks vulnerable to this decline. Post a crash type outcome, Gold Stocks are very likely to become the next great capital market mania, as broad scale monetization will be needed to reinflate both the capital markets and the US economy, which is already in a recession.
The final outcome, over the next few years,will be more money printing, more currency debasement and in the end, most likely runaway inflation which will help Uncle Sam eliminated his bad debts. Gold and Precious Metals will be one of the few investments able to protect valuable savings and hard earned capital during this time, and we see the price of Gold heading for $10,000 or higher in the next 5 to 7 years, with price of Silver likely to move toward $500 to $1,000 per ounce.
The upside explosion in Precious Metals following a serious banking collapse will leave onlookers with a truly once in a lifetime, -- jaw dropping experience, once the metals go higher, they will be going, going gone, right out of the park, as all central banks will also need to print money to keep currency relationships in some degree of balance and protect export advantages. Today, the world is confronted with a camouflaged 'fixed' global currency system masquerading as thematically free floating currency system, held together by currency derivatives and unchecked financial leveraging.
The current death of high end Wall Street Finance signals the end of the leveraged speculating era and financial engineering.As the world lurches toward a truly floating exchange rate mechanism, currency volatility will infect consumer prices for basic manufactured goods which in time, will morbidly begin moving around as if tradeable using RSI and MACD....in that climate, the only asset one will want to truly own, will be precious metals. It is very regrettable that the excess of the last decade is likely to create these kinds of extreme economic conditions, and probably at no time in decades, has the average individual been at greater economic risk.
The entire universe of paper money is sure to continue debasing against the universe of scarce and depleting commodities in a theme that will likely continue to play out over the next 10 to 15 years, while I hope I am dead wrong,I fear we are heading into very trying times...
http://www.hamzeianalytics.net/2007/12/housing-us-dollar-gold-ppi-and.html
Subscribe to:
Posts (Atom)
