Alex Filonov

Why Felix Should Walk Away

Debt is secured. Felix by law can walk out of the mortgage if he feels like that. What's wrong with this picture? By walking out Felix doesn't break contract, bank takes collateral, everybody should be happy. Bank took this risk when it wrote the contract, bank expected home values to go up forever. Well, assumption was wrong and bank lost money.

Don't bother me with morals. Felix is no more morally obligated to continue paying this mortgage than bank was obligated to properly estimate risk and write sensible contract.

I Have a Bad Feeling About This Market

I want to thank everybody for the comments, positive or negative. It's better to get any response than no response...

The Secret Paulson-Goldman Meeting

Government of, for and by Goldman Sachs?

Climategate: Climate Science, Or Pseudoscience?

As a professional programmer, I have a very deep suspicion of any computer models. Every model has to be tested, retested, verified, checked against real data. Global warming models are very strange beasts. They are not published, they fail real data tests all the time and then we are told that some coefficient wasn't taken into account (satellite data vs ground observations), or that the event didn't take place (medieval warm period), or that event is not what it is (current global cooling). These emails just confirm that Global Warming science is total junk.

Eight Reasons Bank of America Is Going to $20

BAC may go to $20. Eventually. Unless it goes to $0, gets nationalized or taken over by FDIC and sold in parts. If you wanna play BAC, buy preferreds, they have more chance of surviving and dividend is safer (but not by much)

Don't Watch CNBC

Information sets you free. I watch CNBC. Especially Cramer. When you are getting information, it's your responsibility to evaluate it. And no one can blame anybody for personal financial decisions. It's your money, and your responsibility. You listened to Cramer and won, great. You lost, your problem.

Why Are Quant Hedge Funds Getting Crushed?

You can't beat the market if you are the market. Quants are the market if they trade more than 1/3 of daily volume of any stock. Quant models can only work if quant trading does not affect the market.

Shorting junk and buying high quality is good for relatively flat or bearish markets. In any bull phase junk is going up much faster than anything else. Rising water not only lifts all ships, it also lifts all crap.

12 Reasons to Short Gold

I'm not a gold bug. Quite an opposite. I just don't believe that gold is an investment. And half of your reasons are great. India might be a key. Traditionally India buys about 30% of gold every year. If they are buying 80% less, then 20% of buyers disappeared from the market. Godl/oil and gold/silver ratios are out of whack.

But I don't agree with another half of reasons. We are not in average recession, we are in Great Depression 2.0. If you scrap all the fluff, that's what TIme Geithner said yesterday. There is no hope for ecomonic recovery in the second half of this year. Recovery in 2010 is possible, but in doubt.

I agree that gold is overpriced. But I wouldn't short it right now.

By the way, Treasuries are not overpriced. They correctly reflect current level of deflation and risk.

Where Are We on the Roadmap?

This is not an average recession. This is Great Depression 2.0. If we see recovery in 2010, it would be a miracle. Would you invest in a miracle?

Paul Farrell: How to invest for a 10-year bear.

Interestingly enough, this 35-year cycle can completely confuse you. You'd think that after 1929 crash the best time to invest would be in 1949. Wrong! Market bottomed in July 1932. Similar picture for all the cycles. The best time to invest is when everything is down and everybody tells you to stay away from stocks, and it's usually in the middle of the bear leg of the cycle! Maybe right now.

Of course, you might make huge money with corporate bonds right now. They are so underpriced. The only problem, you don't know which companies will go bust, so the best way would be to invest in bond fund.

And stay away from treasuries! Yes, they'd made you a fortune from 1981 till now. That's because yields were so high back then, and so low right now. They can't go much lower, they can't go below 0 in any case (they can for very short term bonds and for a very short time). So if you invest in Treasuries right now, you'll get return similar to return from CD at best, with higher risk.

Fair Value for the S&P: It's Not 440

I don't understand concept of fair value as applied to anything. Current market value is fair value, period. We can argue whatever we want, five people would have twenty opinions, but only market sets prices. Where prices are moving is quite different matter, but no "fair value" calculation will ever predict it. And if it does, expect 2 things:
1. Somebody who came with the idea makes billions and publish his theory.
2. Investors swamp market trading on this theory and quickly move market some direction away from the value.

Buy American = Goodbye Global Friends

It's worse than in 1930s. Now production chains are spread between the countries and trade wars can create much worse disruption. One small example: Caterpillar, if forced to buy US made steel, will have only two options: relocate or close. Because its products will be banned from all around the world, and company sells more than half of production abroad. And the same can be said for almost every big manufacturing company in the world.

Understanding What Buy and Hold Really Means

Buy and hold is just useless talk. Maybe there were some companies 30 years ago good for 10-15 year long investment. Of all companies I invested in, only one was good for 10 years: Apple. I invested since 1998 and have positive return overall, but I would be much better off if I sold most of my investments in 2-3 years after buying them. If you are too lazy, you can invest into index fund (better yet, ETF) and hold it forever. If you go for individual stocks, you need to research every stock you want to buy and research even more every position you hold.

Of course, last 10 years were hard. We might be close to the long term bottom, and buy and hold will serve better afterwards. Doing your homework and selling in time will serve even better.

Oh, and one more thing: rebalancing without thinking will kill your portfolio. Count on it.

Depression? Recession? No, It's the Great Restructuring

Great Restructuring can also be time of the Great Depression. Actually, Great Depression was a time of the great restructuring, so why not this time?

The Rally, When It Comes, Will Be a Doozy

I like the Mardi Gras analogy. If somebody (government?) shows us something, we'll throw beads, er, money.