Recently, rating agency Moody's came around and started downgrading various sundry mortgage backed securities. As a result they are now getting shut out of rating new deals as issuers shop for the best rating. Further evidence of an extreme conflict of interest. One of many on the street.
From Bloomberg article:
Moody's has been shut out of nine of the past 13 deals as underwriters sought better ratings from rival companies, Tad Philipp, a managing director at Moody's said today in a telephone interview. The securities had a face value of more than $25 billion.
``There's no doubt in my mind that it's because of the change'' said Philipp, who included a chapter titled ``Rating Shopping is Alive and Well'' in a report released today. ``Normally, we'd rate 75 percent of the issues, not 30 percent. I guess this is sort of like, no good deed goes unpunished.''
Linkhere
Thursday, July 19, 2007
Tuesday, July 17, 2007
Beware!
Ladies and gentlemen...the shit is officially hitting the fan. Bear Stearns has announced that their (two troubled) aforementioned credit hedge funds have essentially evaporated. The equity is gone. Ouch, that's gotta hurt. Not just Bear Stearns either. "The Skeptic" wouldn't touch (go long) any US based financial company with a ten foot pole. Not even with your ten foot pole. The reality is that there is so much bad paper that we can't really be sure where it is hiding (likely it's everywhere). Don't expect any one of the holders to own up to it either. Until they are forced to. That will happen soon enough at this rate.
After hours tonight many of these financial stocks are trading down. Bear is down $5. Funny, I recall Cramer end zone dancing about the fact that BSC, after the initial revelations, had seen a bounce in it's stock price off of the lows. So surely this subprime mess is overblown and the bears are all assholes. Wrong! This debacle is in the early innings. It doesn't please me to say so but on the other hand the perma-bulls have it coming.
Another ramification to consider is the effect this mess is going to have on the dollar. The dollar index is sitting just above 80. This is a key number. I cannot stress how important the 80 level is. In fact, the dollar index has never had a sustained move below that level. We break that and there is no support for the dollar. Where it eventually stops falling is anyone's guess but it won't be pretty. Seriously, this is a BIG DEAL! This will affect every American citizen. As the dollar collapses inflation will surge. Commodities are priced in dollars and as the dollar erodes it will take more dollars to pay for things.
The way our house of cards is currently situated we rely on foreigners to finance our overconsumption. With a collapsing dollar we will need to make other arrangements. Why would foreigners want to own, much less buy, US assets during a dollar depreciation? Any positive return would be cancelled out by exchange rates.
What can be done to avoid a collapsing dollar? The Fed can start tightening. The result of which would be a severe recession but it would save the dollar and tame inflation. If we dealt with our problems we could probably emerge in one piece after some short term pain. But is that likely to happen? No. The Fed will do everything in it's power to avoid dispensing the medicine. As recent history clearly shows, the Fed will do whatever it can to bailout risk-takers.
It would be wise to consider hedging your exposure to the dollar. You need to have a plan. "The Skeptic" remains a long term buyer of gold. Good luck.
After hours tonight many of these financial stocks are trading down. Bear is down $5. Funny, I recall Cramer end zone dancing about the fact that BSC, after the initial revelations, had seen a bounce in it's stock price off of the lows. So surely this subprime mess is overblown and the bears are all assholes. Wrong! This debacle is in the early innings. It doesn't please me to say so but on the other hand the perma-bulls have it coming.
Another ramification to consider is the effect this mess is going to have on the dollar. The dollar index is sitting just above 80. This is a key number. I cannot stress how important the 80 level is. In fact, the dollar index has never had a sustained move below that level. We break that and there is no support for the dollar. Where it eventually stops falling is anyone's guess but it won't be pretty. Seriously, this is a BIG DEAL! This will affect every American citizen. As the dollar collapses inflation will surge. Commodities are priced in dollars and as the dollar erodes it will take more dollars to pay for things.
The way our house of cards is currently situated we rely on foreigners to finance our overconsumption. With a collapsing dollar we will need to make other arrangements. Why would foreigners want to own, much less buy, US assets during a dollar depreciation? Any positive return would be cancelled out by exchange rates.
What can be done to avoid a collapsing dollar? The Fed can start tightening. The result of which would be a severe recession but it would save the dollar and tame inflation. If we dealt with our problems we could probably emerge in one piece after some short term pain. But is that likely to happen? No. The Fed will do everything in it's power to avoid dispensing the medicine. As recent history clearly shows, the Fed will do whatever it can to bailout risk-takers.
It would be wise to consider hedging your exposure to the dollar. You need to have a plan. "The Skeptic" remains a long term buyer of gold. Good luck.
Thursday, July 12, 2007
And So It Begins
July 10 (Bloomberg) -- Moody's Investors Service lowered the credit ratings on $5.2 billion of bonds backed by subprime mortgages and Standard & Poor's said it may cut $12 billion of securities after criticism they waited too long to respond to rising home-loan defaults.
Moody's cut ratings on 399 bonds issued in 2006 and said it may reduce rankings on another 32. S&P is preparing to lower the ratings on 2.1 percent of the $565.3 billion of subprime bonds issued from late 2005 through 2006, citing a deepening housing slump. U.S. Treasuries rose, the dollar slumped and financial company shares led stocks lower.
Ratings changes ``are going to force a lot more people to come to Jesus,'' said Christopher Whalen, an analyst at Institutional Risk Analytics in Hawthorne, California. ``When a ratings agency puts a whole class on watch, it will force all the credit officers to get off their butts and reevaluate everything. This could be one of the triggers we've been waiting for.''
Moody's cut ratings on 399 bonds issued in 2006 and said it may reduce rankings on another 32. S&P is preparing to lower the ratings on 2.1 percent of the $565.3 billion of subprime bonds issued from late 2005 through 2006, citing a deepening housing slump. U.S. Treasuries rose, the dollar slumped and financial company shares led stocks lower.
Ratings changes ``are going to force a lot more people to come to Jesus,'' said Christopher Whalen, an analyst at Institutional Risk Analytics in Hawthorne, California. ``When a ratings agency puts a whole class on watch, it will force all the credit officers to get off their butts and reevaluate everything. This could be one of the triggers we've been waiting for.''
Tuesday, July 10, 2007
When you push a dollar over a cliff, does it flutter or crash?
Here's another article for you...click-here.
For those of you too lazy to read the gist is this: despite the steady appreciation in the yuan (China's currency) US lawmakers are threatening protectionist measures with the aim of forcing a accelerated yuan appreciation (and dollar depreciation). I especially like Chuck Schumer's comment, "We'll know appreciation is enough when we see it.''
Granted, this tough talk has been going on for a long time and nothing has resulted as of yet. The idea is to correct the imbalances that result in the US hemorrhaging jobs (outsourcing). The correction or dollar devaluation necessary to even make a dent would not be gradual or measured. Buy gold.
For those of you too lazy to read the gist is this: despite the steady appreciation in the yuan (China's currency) US lawmakers are threatening protectionist measures with the aim of forcing a accelerated yuan appreciation (and dollar depreciation). I especially like Chuck Schumer's comment, "We'll know appreciation is enough when we see it.''
Granted, this tough talk has been going on for a long time and nothing has resulted as of yet. The idea is to correct the imbalances that result in the US hemorrhaging jobs (outsourcing). The correction or dollar devaluation necessary to even make a dent would not be gradual or measured. Buy gold.
We Need Nuclear
Nuclear power is our best chance to keep the lights on long term as it's the only power generation not reliant on fossil fuels. It's not natural gas and it's not coal. Furthermore it's not dirty.
Check the articlehere. A couple points:
Check the articlehere. A couple points:
- Nuclear plants are not getting built. Prohibitive costs, mostly upfront.
- Your electric rates are going higher. We will all be paying more to plug things in.
"The Skeptic" supposes we will eventually have to come around to nuclear. Stay long uranium.
Sunday, July 8, 2007
This Week's Stock Pick
This week I'm going to pick the low-hanging fruit. Right now, that's energy stocks. MUR- Murphy Oil explores for and produces oil and gas. The company sports a $11 billion market cap versus something like $487 billion for Exxon. Obviously we are talking about a bit player here.
Better yet, and more importantly to "The Skeptic" anyway, is the $45-$60 range where it's been trading for almost two years appears as if it's about to be surmounted (currently $60.81). Hopefully in convincing fashion.
There are many other names in the energy space that look promising. Some of which I follow that look especially promising right now include SWN, DRQ, SU and VLO. There are myriad ways in which to play this game.
Disclaimer: In no way should this post or any other be considered a recommendation to buy or sell any security. Should you decide to buy this stock based on this post you may suffer from erectile dysfunction.
Better yet, and more importantly to "The Skeptic" anyway, is the $45-$60 range where it's been trading for almost two years appears as if it's about to be surmounted (currently $60.81). Hopefully in convincing fashion.
There are many other names in the energy space that look promising. Some of which I follow that look especially promising right now include SWN, DRQ, SU and VLO. There are myriad ways in which to play this game.
Disclaimer: In no way should this post or any other be considered a recommendation to buy or sell any security. Should you decide to buy this stock based on this post you may suffer from erectile dysfunction.
Random Opinion
Considering the state of the residential real estate market and the ongoing subprime debacle mortgage brokers will need to consider employment alternatives. Frankly, I just don't think there are enough used car lots to take all these guys.
Friday, July 6, 2007
Beachfront Contemplation
Back from a brief vacation and feeling refreshed, if a bit sunburned. There will be further vacationing, I hope soon.
This morning on my kayak, plodding the gulf coast, I observed an area of coastline that had probably an eight foot sand cliff due to severe beach erosion. All the mansions along this part of the island were threatened to some small degree by the menacing cliffsides in their own backyards. Some yards were losing trees and shrubbery over the ledge and it made good shade for me on my reflective rest. Where the vegetation is soon to go over you can see all the roots hanging suspended.
The benefits of living on the beach would be tremendous. For people who like that sort of thing anyway. But why would you ever buy or build a house there? Erosion is a constant threat which requires dredging, which costs money. If you can find a private insurer to cover your beach property your rates will be astronomical at best. Many states are in the insurance game as well encouraging risk taking on the part of buyers and builders with artificially low rates. In other words, taxpayers get put on the hook in a big way for risks taken by a small handful of property owners. Socialization of risk.
Worst of all for these homes is just the sand and salt themselves which persistently corrode coastal structures. These houses are literally build on shifting sands. We've erected these structures and drawn maps of our coasts and islands. Problem is we've failed to recognize that these coastal areas are constantly shifting and impermanent. It is sheer arrogance to think we can dictate our terms to nature. It's the other way around and we'd be prudent to anticipate and mitigate. Man wins today. Nature will win in the long term and from now on "The Skeptic" will only rent his beach houses.
NOTE: Actually man and nature will both lose.
NOTE II: Jet-skis are for filthy buggards only. The lame and weak.
This morning on my kayak, plodding the gulf coast, I observed an area of coastline that had probably an eight foot sand cliff due to severe beach erosion. All the mansions along this part of the island were threatened to some small degree by the menacing cliffsides in their own backyards. Some yards were losing trees and shrubbery over the ledge and it made good shade for me on my reflective rest. Where the vegetation is soon to go over you can see all the roots hanging suspended.
The benefits of living on the beach would be tremendous. For people who like that sort of thing anyway. But why would you ever buy or build a house there? Erosion is a constant threat which requires dredging, which costs money. If you can find a private insurer to cover your beach property your rates will be astronomical at best. Many states are in the insurance game as well encouraging risk taking on the part of buyers and builders with artificially low rates. In other words, taxpayers get put on the hook in a big way for risks taken by a small handful of property owners. Socialization of risk.
Worst of all for these homes is just the sand and salt themselves which persistently corrode coastal structures. These houses are literally build on shifting sands. We've erected these structures and drawn maps of our coasts and islands. Problem is we've failed to recognize that these coastal areas are constantly shifting and impermanent. It is sheer arrogance to think we can dictate our terms to nature. It's the other way around and we'd be prudent to anticipate and mitigate. Man wins today. Nature will win in the long term and from now on "The Skeptic" will only rent his beach houses.
NOTE: Actually man and nature will both lose.
NOTE II: Jet-skis are for filthy buggards only. The lame and weak.
Friday, June 29, 2007
This Week's Stock Pick
Generally speaking the stock of the week is produced through technical analysis. "The Skeptic" reads the tea leaves after every market session to predict the future. Most of the picks generated are short to intermediate term trades. This week though I bring you a fundamental analysis big picture call.
DBA- Powershares DB Agriculture Fund (current price $26.70). A straight up Ag play, this fund is 25% corn, 25% soybeans, 25% wheat and 25% sugar. A direct bet on higher agricultural commodity prices. Looking ahead a few years out, this is where you want to be. Oil, water and fertilizers- required inputs to produce these crops on an industrial scale have become more expensive. This is a secular trend that will continue for many years to come.
Disclaimer- The author owns shares in this fund. This post is not intended as a recommendation and if you buy these shares you may trigger a plague, thereby reducing demand for these commodities, making this fund a big loser.
DBA- Powershares DB Agriculture Fund (current price $26.70). A straight up Ag play, this fund is 25% corn, 25% soybeans, 25% wheat and 25% sugar. A direct bet on higher agricultural commodity prices. Looking ahead a few years out, this is where you want to be. Oil, water and fertilizers- required inputs to produce these crops on an industrial scale have become more expensive. This is a secular trend that will continue for many years to come.
Disclaimer- The author owns shares in this fund. This post is not intended as a recommendation and if you buy these shares you may trigger a plague, thereby reducing demand for these commodities, making this fund a big loser.
Thursday, June 28, 2007
Dead End
In the small corner of the world "The Skeptic" calls home the local government plans to spend $25 million, before inevitable cost overruns, to expand a nearby road. The road in question was virtually a white elephant when it was built just over twenty years ago. Now it receives significant traffic as an outlet for new communities that have sprung up everywhere on every available piece of real estate. It all just sort of sprawls out in every direction. Our closest interstate highway is planned to widen from 4 lanes to 10 in the upcoming years. More millions to be invested in our drive everywhere for everything lifestyle.
These are just plain bad investments. Every person having their own vehicle or two, that they then have to drive to accomplish nearly any errand, is just not sustainable. No way. We are going to have to find ways to drive less and stop investing in our motoring past/present. Instead we need to invest in public transportation and rezone our communities to a walkable scale through multi-use zoning. It's painful to think we might have to change our lifestyles and sacrifice some comforts but we had better start having this conversation now when we can still plan ahead. More likely though that false comfort and blissful ignorance will persist amongst the populous until we have a full blown crisis. The crisis of course is end of the cheap oil era followed by price and supply destabilization. Technology is not going to save us.
We are at an inflection point in the history of the world. We can either look forward or throw good money after bad. Most will not want to admit that we have invested our national wealth in houses close to nothing, accessible only by car, in the twilight of the cheap oil era. Our entire infrastructure is built around our motor vehicles. We are going to need a miracle to sustain this. "The Skeptic" doesn't believe in miracles or fairy tales.
These are just plain bad investments. Every person having their own vehicle or two, that they then have to drive to accomplish nearly any errand, is just not sustainable. No way. We are going to have to find ways to drive less and stop investing in our motoring past/present. Instead we need to invest in public transportation and rezone our communities to a walkable scale through multi-use zoning. It's painful to think we might have to change our lifestyles and sacrifice some comforts but we had better start having this conversation now when we can still plan ahead. More likely though that false comfort and blissful ignorance will persist amongst the populous until we have a full blown crisis. The crisis of course is end of the cheap oil era followed by price and supply destabilization. Technology is not going to save us.
We are at an inflection point in the history of the world. We can either look forward or throw good money after bad. Most will not want to admit that we have invested our national wealth in houses close to nothing, accessible only by car, in the twilight of the cheap oil era. Our entire infrastructure is built around our motor vehicles. We are going to need a miracle to sustain this. "The Skeptic" doesn't believe in miracles or fairy tales.
Wednesday, June 27, 2007
More Gross
Gross on derivatives:
You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels, and a “tramp stamp.”
Link
You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels, and a “tramp stamp.”
Link
Monday, June 25, 2007
Anything but Revalue
Check it out. Read this article.
This is a slow motion train wreck worth keeping an eye on. Financial dark matter, hidden from sight and illiquid, is deteriorating. The players in these complex transactions are levered to the hilt. The Bear Stearns fund mentioned in this article started with $600 million in equity and borrowed up to $6 Billion!
This hidden from view market is a ticking time bomb. The players are not marking to market their exposure so until a trade happens or a rating agency downgrades your exotic security of choice you can pretend everything is OK and continue to value your exposure to this mess at par. Hence the reason Bear would throw another $3 billion of good money after bad. Normally when a fund blows up they admit their suckery and liquidate. In this case liquidation would cause all other players to come to grips. So the market is frozen and waiting for the inevitable downgrades which are very slow in coming since the rating agencies get paid by the players.
This is a slow motion train wreck worth keeping an eye on. Financial dark matter, hidden from sight and illiquid, is deteriorating. The players in these complex transactions are levered to the hilt. The Bear Stearns fund mentioned in this article started with $600 million in equity and borrowed up to $6 Billion!
This hidden from view market is a ticking time bomb. The players are not marking to market their exposure so until a trade happens or a rating agency downgrades your exotic security of choice you can pretend everything is OK and continue to value your exposure to this mess at par. Hence the reason Bear would throw another $3 billion of good money after bad. Normally when a fund blows up they admit their suckery and liquidate. In this case liquidation would cause all other players to come to grips. So the market is frozen and waiting for the inevitable downgrades which are very slow in coming since the rating agencies get paid by the players.
Thursday, June 21, 2007
Wednesday, June 20, 2007
Random Skepticism
Look here. We are going to have to get our heads out of our asses in this country. We are completely out of touch with reality. Our entire way of life is unsustainable. We drive everywhere for everything and haven't invested in public transportation. We over consume and under produce. Paris Hilton is news and we are still debating evolution in the 21st century!
The sooner we acknowledge the real issues we face the better. Yet, we are clearly lacking in political leadership. We are so preoccupied with the terrorist threat but we are rotting from within.
The sooner we acknowledge the real issues we face the better. Yet, we are clearly lacking in political leadership. We are so preoccupied with the terrorist threat but we are rotting from within.
Monday, June 18, 2007
This Week's Stock Pick
OK. I have to admit something.
Last week's stock pick was suck-ass. WMT still looks good as long as the breakout is intact but it's a slow moving ship. Absolutely a play it safe pick. With the market weak it was a conservative large cap bet with a minimal defined risk.
Meanwhile there are stocks going nuts all over. Left and right. The market is a speculative orgy. More than a few oil stocks I follow went up 10% last week. Obviously it has paid to remain bullish on that sector. Many others too. Technology offers opportunities. There are so many good ideas. All with the economy at large in stagnation. Hmm.
So let's get speculative shall we. This week I'm picking a local favorite. ALCO- Alico Inc. They are a Florida agricultural company with interests in citrus, sugarcane, cattle and sod. The stock appears to be completing a long term consolidation. Friday's closing price was $60.60 . The risk in anticipating a breakout is that you're early.
Disclaimer: This is not a recommendation. If you buy this stock based on this post you should put down the bottle and seek professional help.
Last week's stock pick was suck-ass. WMT still looks good as long as the breakout is intact but it's a slow moving ship. Absolutely a play it safe pick. With the market weak it was a conservative large cap bet with a minimal defined risk.
Meanwhile there are stocks going nuts all over. Left and right. The market is a speculative orgy. More than a few oil stocks I follow went up 10% last week. Obviously it has paid to remain bullish on that sector. Many others too. Technology offers opportunities. There are so many good ideas. All with the economy at large in stagnation. Hmm.
So let's get speculative shall we. This week I'm picking a local favorite. ALCO- Alico Inc. They are a Florida agricultural company with interests in citrus, sugarcane, cattle and sod. The stock appears to be completing a long term consolidation. Friday's closing price was $60.60 . The risk in anticipating a breakout is that you're early.
Disclaimer: This is not a recommendation. If you buy this stock based on this post you should put down the bottle and seek professional help.
Monday, June 11, 2007
Gross Turns Bearish
Bill Gross, the kingshit of all bond managers, has turned bearish on bonds. In other words, he expects higher interest rates. Consider the implications.
Link
Link
This Week's Stock Pick
This one is totally counterintuitive.
Often the market does things which seemingly don't make a lot of sense. A stock will go up despite substantial headwinds and/or headline risk. Or a company that's executing successfully will have a stock that just keeps dropping in excruciating fashion. This is just one way the market takes money from the crowd.
Enter...WMT- Wal Mart. A company facing several headwinds in a world of rising gas prices. First off, those gas prices especially hurt the low-end, or value-conscious, consumers WMT thrives off. If any company relies on trucking it's WMT so they face price pressures there too. For good measure, they are widely hated and have little to no growth.
The share price of this underperformer is pretty much where it was in 1999. More recently, WMT has traded in a range between $50 and $41. For two years. The only excitement for the bulls was a false breakout in October of last year. Well, it just surmounted $50 again. This breakout seems more likely to lead to higher prices but you'll know it's another false signal if it closes much below $49.
Disclaimer: The author does own this stock and is not a broker. In no way should this be considered a recommendation. If you buy this stock, based on this post, the company will go out of business.
Often the market does things which seemingly don't make a lot of sense. A stock will go up despite substantial headwinds and/or headline risk. Or a company that's executing successfully will have a stock that just keeps dropping in excruciating fashion. This is just one way the market takes money from the crowd.
Enter...WMT- Wal Mart. A company facing several headwinds in a world of rising gas prices. First off, those gas prices especially hurt the low-end, or value-conscious, consumers WMT thrives off. If any company relies on trucking it's WMT so they face price pressures there too. For good measure, they are widely hated and have little to no growth.
The share price of this underperformer is pretty much where it was in 1999. More recently, WMT has traded in a range between $50 and $41. For two years. The only excitement for the bulls was a false breakout in October of last year. Well, it just surmounted $50 again. This breakout seems more likely to lead to higher prices but you'll know it's another false signal if it closes much below $49.
Disclaimer: The author does own this stock and is not a broker. In no way should this be considered a recommendation. If you buy this stock, based on this post, the company will go out of business.
Friday, June 8, 2007
Wednesday, June 6, 2007
Tuesday, June 5, 2007
More Statistical Manipulation
Had been intending to post something on the subject of employment statistics and their intentionally misleading nature. Fortunately, someone did the work for me. Good article- check it out.
Link
Link
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