Back when he worked for Goldman Sachs, he testified before Congress that getting rid of the 12:1 leverage laws for financial institutions would be a good thing. This law had been in place for a long time to protect from overleveraging. Essentially the more leverage a person or business is, the smaller cushion there is for a downturn. Sure in good times, it ramps up profits, but if things turn sour you have a bankruptcy in the making. After the law was passed to get rid of limits on leverage. Many of the financial institutions that you see everyday in the news ramped up their leverage to 40 and 50:1. This meant that even a miniscule 2 to 2.5% move to the negative would jeopardize the financial staility of these companies. Thus, when defaults started to roll in on mortgages that never should have been lended, the companies were in deep %#&*! Especially given the fact that they were heavy into unregulated financial deritives (that were once again mainly used by firms like ......Goldman Sachs and the other big investment brokerage houses).
So what does Paulson do? He rides in to save them by lying to the American public with the infamous bailout bill. The $700 million bill was supposed to be used to buy up toxic securities to clear out the bad debt. How has it been used? Well $125 billion has gone to large banks with basically no strings attached. In fact, many of these same banks are still paying out large bonuses to their employees. More has been used to set up lines of credit with many emerging market countries. However, not one penny has been used as Paulson sold it to CONgress and America. He's used most so far to bailout his former coworkers so they can keep their nice lifestyles. Most people would consider this a crime worthy of a long time in jail. America needs to rise up and demand culpability for everyone involved in this lynching of the future of America. Hopefully, the damage will be limited to what we've seen so far (which is massive), but it likely is just the start.
For what it's worth, Bernanke, Congress, Bush, and Wall Street are all largely to blame also, but Paulson is the posterchild.
Friday, October 31, 2008
Friday, October 24, 2008
Here We Go!
Last Wednesday, I wrote within the next couple weeks we could easily see 7000-7500 on the Dow Jones. If things continue to go as I think are possible based on my best guess, we should end today somwhere near the lows and then hit a short term low sometime next Monday or Tuesday at the aforementioned level. At that point, I would look for a 3-5 month rally into the 10000-11000 range. At that point I would put a bunch of limit sell orders under many of my positions because if things continue to go as I see, that could be the point where things go down for a while.
Once again, this is just my best guess. However, for the last couple weeks things have been going almost exactly as I thought would happen. While this is confirming my beliefs of the extreme danger our economy faces, what lies ahead is still to be determined. Nothing has been fixed yet, and if this is still the case a few months out, be very very careful. Hopefully, the economy will start to become stronger over the winter. If it does, the 7000's may be far into the rearview mirror, but don't count on it.
Besides the strong cash heavy stocks with good dividends, I am currently very bullish on gold/gold stocks, and very bearish on the US dollar and US Treasury Bonds. Gold may not have hit a near-term bottom yet, but I think is a very good play over the next 3 year time frame. In the same respect the Dollar and Treasuries have rallied hard recently. This may continue for the near-term, but I see them much lower in value a few years out. All of this is based on my best guess belief that things will not get better soon. For what it's worth, I would put this at about 30-40% likelihood of happening (I'm not talking exact numbers, but rather a low hit early next week followed by a strong rally, followed by a sell-off to even lower lows sometime next year).
Once again, this is just my best guess. However, for the last couple weeks things have been going almost exactly as I thought would happen. While this is confirming my beliefs of the extreme danger our economy faces, what lies ahead is still to be determined. Nothing has been fixed yet, and if this is still the case a few months out, be very very careful. Hopefully, the economy will start to become stronger over the winter. If it does, the 7000's may be far into the rearview mirror, but don't count on it.
Besides the strong cash heavy stocks with good dividends, I am currently very bullish on gold/gold stocks, and very bearish on the US dollar and US Treasury Bonds. Gold may not have hit a near-term bottom yet, but I think is a very good play over the next 3 year time frame. In the same respect the Dollar and Treasuries have rallied hard recently. This may continue for the near-term, but I see them much lower in value a few years out. All of this is based on my best guess belief that things will not get better soon. For what it's worth, I would put this at about 30-40% likelihood of happening (I'm not talking exact numbers, but rather a low hit early next week followed by a strong rally, followed by a sell-off to even lower lows sometime next year).
Tuesday, October 21, 2008
Hollywood Studios
This was easily my favorite place even though it had the fewest attractions. However, most of the attractions are good. We saw two different stunt shows: one based on Indiana Jones and the other on car chases. Other top-notch attractions were the Star Wars flight simulator and the Toy Story ride. The Toy Story "interactive experience" is the most popular attraction, and it's easy to see why: Joe actually liked it (and it involved a tunnel ride)!! It's a 3-d shooting game. They keep your score and we rode it 3 times during the day.
We come home today, and despite the fun, I am ready. Joe is getting sick and my back is very sore (this is not unusual lately, but it's getting worse).
We come home today, and despite the fun, I am ready. Joe is getting sick and my back is very sore (this is not unusual lately, but it's getting worse).
Saturday, October 18, 2008
Animal Kingdom/Epcot
Today went much smoother than yesterday despite not obeying rule number one. In fact, not obeying it may have been the only problem as Joe got grumpy as dinner time approached. Extremely grumpy! However, once we got some food in him and the various princesses came around for photos, he got rather happy:)
At Animal Kingdom, Ellie found her favorite ride: essentially a white water rapid ride similar to Thunder River at Six Flags. She went on it twice, once with me and once with Julie. We also went on a fairly cool Safari adventure attraction where you ride among many African animals in an open air vehicle. Ellie once again surprised me by riding the Expedition Everest roller coaster and enjoying it, but "not as much as Space Mountain." Joe once again surprised me by being afraid of anything and everything loud, dark, or having sharp teeth.
At Epcot, one of the coolest attractions (even though designed mainly for kids) is the Turtle Talk(?) with Crush from Finding Nemo. It uses a fairly new technology that recognizes speech so that the animals on the large computer screen can actually interact with the audience. It does so flawlessly, and is designed with a decent amount of humor. Joe almost enjoyed it, if it wasn't for the whale that comes on at the end of the show. Oh well.
Tomorrow, will be a far less busy day. We have an early dinner at the Coral Reef in Epcot. We may stay there late to see the show at the end of the day or go over to Hollywood Studios to see its nightly show.
At Animal Kingdom, Ellie found her favorite ride: essentially a white water rapid ride similar to Thunder River at Six Flags. She went on it twice, once with me and once with Julie. We also went on a fairly cool Safari adventure attraction where you ride among many African animals in an open air vehicle. Ellie once again surprised me by riding the Expedition Everest roller coaster and enjoying it, but "not as much as Space Mountain." Joe once again surprised me by being afraid of anything and everything loud, dark, or having sharp teeth.
At Epcot, one of the coolest attractions (even though designed mainly for kids) is the Turtle Talk(?) with Crush from Finding Nemo. It uses a fairly new technology that recognizes speech so that the animals on the large computer screen can actually interact with the audience. It does so flawlessly, and is designed with a decent amount of humor. Joe almost enjoyed it, if it wasn't for the whale that comes on at the end of the show. Oh well.
Tomorrow, will be a far less busy day. We have an early dinner at the Coral Reef in Epcot. We may stay there late to see the show at the end of the day or go over to Hollywood Studios to see its nightly show.
Friday, October 17, 2008
The Magic Kingdom
Our first day down here was spent at the Magic Kingdom (which for those who don't know is the main park with the well known castle). My favorite ride/attraction was the 3-d movie (I can't recall the name of it). It was short but I have always been a sucker for the attractions like 3-d and ones where it feels like you are moving despite just sitting in your seat. This combined both, and is good for all ages except 2 year old boys who think they are tough, but are really not. In fact, my son liked the tamer roller coaster which was still pretty fast, but when it comes to anything involving the dark or loud noises, he becomes an instant scaredy-cat. I'm sure he will grow out of it, but between Six Flags and here we may have ruined him for life on anything involving a dark tunnel.
Ellie enjoyed pretty much everything. This even included Space Mountain which I thought would test her limits. I remember coming here as a kid probably about her age and pissing in my pants as I was about to get on the ride. To be honest it was so long ago, I can't recall if I actually did it or bailed at the last second. I do recall looking up into the blackness and hearing the screams though. Ironically as I rode it this time I was thinking, "if it wasn't almost dark in here, this would just be a middle of the road coaster." The pitch black idea though makes it fun.
Tomorrow will likely consist of Epcot and the Animal Kingdom or Hollywood Studios.
Day 1 lesson learned: Limit yourself to 6 hours at the park at a time when dealing with a 2 year old!
Ellie enjoyed pretty much everything. This even included Space Mountain which I thought would test her limits. I remember coming here as a kid probably about her age and pissing in my pants as I was about to get on the ride. To be honest it was so long ago, I can't recall if I actually did it or bailed at the last second. I do recall looking up into the blackness and hearing the screams though. Ironically as I rode it this time I was thinking, "if it wasn't almost dark in here, this would just be a middle of the road coaster." The pitch black idea though makes it fun.
Tomorrow will likely consist of Epcot and the Animal Kingdom or Hollywood Studios.
Day 1 lesson learned: Limit yourself to 6 hours at the park at a time when dealing with a 2 year old!
Wednesday, October 15, 2008
I Stand Corrected
After reading and hearing ALOT of different opinions on the bailout bill, and then seeing how the government is already using it, I have realized that it will probably be a big mistake. This is mainly because the government has chosen to use it (at least initially) in a way that likely won't help. It is also in a way that is different from which they insinuated when trying to get the bill passsed.
Essentially over 25% of it has simply been used to fund 8 different huge banks in the US ($250 Million). Now the government is getting preferred stock to hopefully get our money back, but it hasn't addressed the problem at all which is visability. By this I mean, banks still don't trust each other. Many companies are still loaded with crazy swaps and derivatives that know one knows the potential downside of. No one knows who has what, and therefore, who is the next to fall. And the companies that don't have them, they are being thrown in with everyone else.
Here is how Karl Denniger (a noted economist) describes it:
So you stole $250 billion that you allegedly were going to buy mortgages with (we knew that was a scam up front, as I said, but heh, you had to keep up the appearances until the ink was dry right?) and blew it on preferred stock in the banks - directly.
Sounds kinda Swedish. Except its not, because the Swedes, when they had this same sort of problem with their banks, did two things you didn't:
1) Forced shareholders to take all loss before taxpayer money was used.
2) Forced full, complete balance sheet transparency.
The second is the critical item and the one that you and Bernanke have continually refused to address. Yet this is the root of the problem with trust, when you get down to it. Nobody trusts the banks to lend to them because they have been shown repeatedly, over the last year, to be lying about their exposures and the state of their balance sheets, to the point of their CEOs showing up on national television days before they filed bankruptcy (as in the case of Bear Stearns)!
You have repeatedly thrown tens or even hundreds of billions of dollars at these institutions and it has, in each and every instance, disappeared into a black hole.
There is still time to get the situation fixed, but our "leaders" continue to baffle. However, time is of the essence. If things don't get corrected, you do not want to see the consequences.
I pray I am being overdramatic, and I pray the moves will start to get credit flowing, but each day I am becoming less and less confident. The kicker is that our economy was already in or about to be in a recession.
For a bit of levity, what am I going to do: I'm going to Disneyworld!!!! I really am. Julie and I have had this trip planned for many months now for our kids. It's not the best time for me to go, but hopefully it will help me get my mind off these things somewhat for a bit.
Essentially over 25% of it has simply been used to fund 8 different huge banks in the US ($250 Million). Now the government is getting preferred stock to hopefully get our money back, but it hasn't addressed the problem at all which is visability. By this I mean, banks still don't trust each other. Many companies are still loaded with crazy swaps and derivatives that know one knows the potential downside of. No one knows who has what, and therefore, who is the next to fall. And the companies that don't have them, they are being thrown in with everyone else.
Here is how Karl Denniger (a noted economist) describes it:
So you stole $250 billion that you allegedly were going to buy mortgages with (we knew that was a scam up front, as I said, but heh, you had to keep up the appearances until the ink was dry right?) and blew it on preferred stock in the banks - directly.
Sounds kinda Swedish. Except its not, because the Swedes, when they had this same sort of problem with their banks, did two things you didn't:
1) Forced shareholders to take all loss before taxpayer money was used.
2) Forced full, complete balance sheet transparency.
The second is the critical item and the one that you and Bernanke have continually refused to address. Yet this is the root of the problem with trust, when you get down to it. Nobody trusts the banks to lend to them because they have been shown repeatedly, over the last year, to be lying about their exposures and the state of their balance sheets, to the point of their CEOs showing up on national television days before they filed bankruptcy (as in the case of Bear Stearns)!
You have repeatedly thrown tens or even hundreds of billions of dollars at these institutions and it has, in each and every instance, disappeared into a black hole.
There is still time to get the situation fixed, but our "leaders" continue to baffle. However, time is of the essence. If things don't get corrected, you do not want to see the consequences.
I pray I am being overdramatic, and I pray the moves will start to get credit flowing, but each day I am becoming less and less confident. The kicker is that our economy was already in or about to be in a recession.
For a bit of levity, what am I going to do: I'm going to Disneyworld!!!! I really am. Julie and I have had this trip planned for many months now for our kids. It's not the best time for me to go, but hopefully it will help me get my mind off these things somewhat for a bit.
Monday, October 13, 2008
The Current Market
I know most of my recent blogs have been about the economy, but we are in the midst of one of the most critical times in world history. I fully feel we are going to rally from Friday's lows (the Dow hit 7800 intraday). My best guess is a rally into the 10000 to 10700 range. This would be just a natural bounce-back rally after a dramatic plummet over the course of the previous couple weeks. If and when we hit this level, I would need to reassess the situation. However, there are many scary issues underlying the world and in particular the US economy. If these remain, it will be time to go defensive because we will go lower than we did on Friday. If the issues start to clear up, then we will likely have hit a long-term low Friday. Right now though, I can't give a good opinion on if all these moves by the governments worldwide will work or not.
Wednesday, October 8, 2008
So Now What?
As most of you know, my second profession is as a portfolio manager, and I have one question for anyone interested: Will someone sub in for me for at least the next month?!?!
The market right now is truly like watching a 50 car pileup in a toxic waste pool. You want to do something, but you don't know what or how. The statistics piling up seem make believe: 6 straight down days with a total drop in the neighborhood of 18%, down 35% or so on the year. Both of these numbers haven't been seen since the Great Depression. A stock that has only dropped 20% in the last year is in the top quartile.
Why is this happening despite everything Congress, the fed, and other countries have done in the past couple weeks? The answer is surprisingly simple....no one trusts anyone. There are other reasons, but this is by far the most important. Banks are afraid to loan companies money because no one knows what may be hidden in the finanacials of that company. Just when you think a company is fine, you find out they're not. While most companies are more than secure, everyone is getting clumped in one big pile of s&%t. Bonds have also been selling off dramatically. There literally has not been any safe place to go. Until we get clarity on public companies, the market will be hanging by a thread.
There are a few scenarios that can happen from here. One, these moves start to work, and we rally hard (30% or more) over the next couple years after finding a bottom sometime in the next month (odds 25%). Two, these moves don't do a damn thing because the financial statements are too murky and consumers have put their tails between their legs. The market plummets another 30-50% for a total of 55-70% overall (odds 10%). Three, the moves help reduce the pain and we stay in a very volatile up and down scary market for a while (odds 65%). This scenario is most likely, but still would have to be updated as new info comes into play and still could result in either of the two aforementioned scenarios. No matter what scenario takes place I would expect a huge (10-15%) rally to start within the next week because we have sold off so much so fast. This would probably be a good spot to sell some positions to get some extra cash on the side.
To be honest, I'm not sure what to do, and I don't think anyone is. Every "expert" I listen to seems to have a different opinion, but the problem is no one has ever been in a situation like this. Therefore, answers are based purely on opinion and not historical data. I do know, I would love to have alot of cash right now that I could put to work once I get a better grip of the situation. At the same time, I'm not selling right now because the market is so oversold, I would be shocked if we don't have the major relief rally I mentioned before.
The market right now is truly like watching a 50 car pileup in a toxic waste pool. You want to do something, but you don't know what or how. The statistics piling up seem make believe: 6 straight down days with a total drop in the neighborhood of 18%, down 35% or so on the year. Both of these numbers haven't been seen since the Great Depression. A stock that has only dropped 20% in the last year is in the top quartile.
Why is this happening despite everything Congress, the fed, and other countries have done in the past couple weeks? The answer is surprisingly simple....no one trusts anyone. There are other reasons, but this is by far the most important. Banks are afraid to loan companies money because no one knows what may be hidden in the finanacials of that company. Just when you think a company is fine, you find out they're not. While most companies are more than secure, everyone is getting clumped in one big pile of s&%t. Bonds have also been selling off dramatically. There literally has not been any safe place to go. Until we get clarity on public companies, the market will be hanging by a thread.
There are a few scenarios that can happen from here. One, these moves start to work, and we rally hard (30% or more) over the next couple years after finding a bottom sometime in the next month (odds 25%). Two, these moves don't do a damn thing because the financial statements are too murky and consumers have put their tails between their legs. The market plummets another 30-50% for a total of 55-70% overall (odds 10%). Three, the moves help reduce the pain and we stay in a very volatile up and down scary market for a while (odds 65%). This scenario is most likely, but still would have to be updated as new info comes into play and still could result in either of the two aforementioned scenarios. No matter what scenario takes place I would expect a huge (10-15%) rally to start within the next week because we have sold off so much so fast. This would probably be a good spot to sell some positions to get some extra cash on the side.
To be honest, I'm not sure what to do, and I don't think anyone is. Every "expert" I listen to seems to have a different opinion, but the problem is no one has ever been in a situation like this. Therefore, answers are based purely on opinion and not historical data. I do know, I would love to have alot of cash right now that I could put to work once I get a better grip of the situation. At the same time, I'm not selling right now because the market is so oversold, I would be shocked if we don't have the major relief rally I mentioned before.
Sunday, October 5, 2008
The Lovable Losers
100 YEARS!!!!! After last night's loss to complete a 3 game sweep at the hands of an inferior LA Dodgers club, the Chicago Cubs have once again disappointed all their faithful fans, and brought a smile to every Cardinal fan. 100 YEARS!!!!! And who can they blame this year? Well, it can't be Steve Bartman: maybe the first three batters in their order who couldn't even bat an Olsen twin's weight, or maybe their vaunted starting pitchers who acted like they were back in rookie ball. 100 YEARS!!!!! In any case, to quote many a Cubs fan: "Wait 'til next year!"
100 YEARS!!!!!
Subscribe to:
Posts (Atom)