Bernard Thomas

Why Dick Bove Is Wrong About Citigroup

I have intimate knowledge of Citi. It is MORE dysfunctional than ever. MS s buy SB and wants to talk to C about bringing over its retail sales and trading operations to help support the incoming SB brokers. C said no. MS is now hring externally, but cannot talk to C employees as per the terms of the JV. Managers are being told to rate emoloyees no higher than a three on a one to 5 scale so as to justify no bonuses. Employees are very demoralized. They sit at their desks waiting for the next shoe to drop. Management however has been unaffected by layoffs or cost reductions. They live in their own little world dricnking Kool-Aid and sneer at those wo will not take a sip.

Fixed Income: 2009 Year-End Summary

Payback will be... well you know.


On Dec 10 08:38 AM Michael Terry wrote:

> Spot on. The credit markets have run too far as retail investors
> pour money in and "real money" guys come off the sidelines because
> you cant live on 10bps cash. People think that Greece and Spain are
> the only issues? Consumer going to spend more without a job? What
> happens when the transfer market musical chair music stops. Deals
> that are decent are 5x oversubscribed. We are going to pay for this.
> Soon.

Giving Thanks for Central Banks

Safer there.

On Floaters and the Yield Curve

I think long-dated treasuries will rise modestly throughout the coming economic cycle. fed Funds top out around 4.00%. Don't overweight either end if the curve. Weight both ends or ladder. Short-term rates will rise so gradually that your average yields over the next several years may not equal the yield of the current 10-year note and then short-term yields will fall again.


On Nov 16 04:47 PM ilc wrote:

> Hey, what would be a good way for a retail investor to short long-term
> treasuries?
>
> I don't understand options or floaters. I don't like TBT because
> it is a 2x ETF with a daily reset. TBF is a little better because
> at least the daily reset is only on a 1x fund; it gives a nicer inverse
> to TLT over time. But I still don't love it, because of the daily
> reset. That's the limit of my knowledge. Is there something better
> out there? Thanks.

On Floaters and the Yield Curve

I am saying ladder, barbell or weight the belly of the curve. I think commodities and foreign currencies are over done. One clue is the amount of retail interest in these areas. That is the kiss of death. When the Fed tightens late in 2010, the house of cards crashes down.


On Nov 16 04:21 PM Thomas MacLeod wrote:

> If you are saying that treasuries are the place to be then in essence
> you are implying that there is no risk of inflation! Perhaps the
> official stats suggest so but the commodity mkt is suggesting something
> completely different

Wall Street: Dumb as It Ever Was

The Household Survey (unemployment rate), albeith flawed, may be a better indicator than the Non-farm payrolls report because NFP leaves out small and most mid-sized businesses. These just happen to be where most jobs reside. NFP tends to understate job growth and job losses and can misrepresent the employment situation entirely when the economy is at a turning point.

As for the unemployment rate's effect on the stock market. The reason that the market was expected to go up if the number was below ten, but up it it was above ten has nothing to do with one being much better or worse than the other. This was due to pure betting. Traders need ways to make money. The place bets on the number. They will postion themselves accordingly and place trades to reflect their opinions (and usually hedge their bets). Traders are not investors. They live for the moment. If they were investors, the should wouldn't be a buyer with any kind of job loss.

FYI: It takes about 220,000 jobs per month just to keep up with the addition of new people into the work force. Even if we ADDED 100,000 jobs, the number of people eligible to work who are not working would have risen.

The Fed's Ponzi Scheme Has Run Out

Not really. A Ponzi scheme leads the last person holding bag. A zero-sum game. The feds scheme is a zero sum game. It kept lowering rates thinking it could fix the problem later. This is not unlike Bernie Madoff who thought that he could keep the scam going and make investors whole when necessary. The problem with the Fed, Madoff and Ponzi, you can never recover without paying the piper. The Fed had to admit the economy had to correct back to fundamentals (and it could not be prevented and Madoff eventually had to admit to himself and clients that he could not perpetuate his scheme.

The Fed wanted us to believe that by deftly lowering and raising inetrest rates it couldmanage the economy and reduce volatility. The problem was that the Fed could never raise rates back to where they were before. You can't lower forever. Zero is the bottom.


On Oct 01 09:38 AM TLassen wrote:

> " The Fed's Ponzi Scheme Has Run Out "
>
> slight disconnect between the headline and content of your article.
>
>
> Contributors (or SA editors) should be careful using emotionally
> laden words like Ponzi to illustrate Fed action that they either
> disagree with or do not comprehend. Ponzi schemes are criminal schemes,
> with an intent to defraud investors. Are you suggesting the Fed's
> have a 'criminal intent' in their actions?

Don't Bet Against the Bond Market

Did I say that you should invest in treasuries? No, I said that foreign central banks are investing in treasuries. Corporate bonds had been a steal, bu the are now jus "attractive". The equity market may be heading for an optimism-driven bubble (it may already be there). I am saying is that if your portfolio appreciates at 5% of the next 10 years and the economy expands at about 2.5 % over the next 10 years, be thankful.


On Sep 27 09:46 AM Tony Daltorio wrote:

> I totally disagree with the author - I do NOT invest in bubbles and
> the Treasury market is the BIGGEST bubble I have seen in nearly 30
> years in the investment industry.
>
> And I'm not a gold bug as John Galt seems to suggest that everyone
> is who disagrees with the article.

Don't Bet Against the Bond Market

I am not saying treasury yields are never going to rise. I am saying that for now, due to economic conditions, foreign investors have little choice to buy treasuries. They don't want to, but they have no choice. The own dollars, the need to keep exchange rates in their favor and no other country can give you the risk free liquidity as the U.S.


On Sep 26 04:08 PM TxTim wrote:

> Bernard
>
> I think you're a smart guy but I didn't read anything that acknowledges
> unprecedented Fed QE, unprecedented trade deficits over the last
> several years, and a staggering level of US Gov't debt on the backdrop
> of a proposed healthcare plan with an incomprehensible cost. Maybe
> not now but at some point investors will begin to evaluate what "risk
> free" really means. At this point in time it's beginning to look
> more and more like nothing more than the ability to PRINT money,
> not the ability to REPAY money with balanced budgets and taxes. The
> gov't is on the playing field and is distorting the market you are
> evaluating. At some point the piper must be paid for printing money.
> Didn't Friedman say something to the effect that everywhere and always
> inflation is a monetary phenomenon. You just can't print $ 1.75 trillion
> without having some effect.

Don't Bet Against the Bond Market

No one is saying that long-dated treasuries ase a stellar investment. The are a less poor choice. The U.S. economy is going to function with prudent credit, not loans for everyone. However, until foreign exporters can find a replacement for the U.S. market place (no foreign market place even replaces California), they will buy treasuries.

They have dollars and need to put them somewhere. They also need to manage their currencies to keep exchange rates favorable. They need the U.S. at least as much as the U.S. needs them.


On Sep 25 11:17 AM chap08 wrote:

> "What do foreign central banks know which would encourage them to
> continue to purchase large quantities of U.S. treasuries at historically
> low yields in the face of a strong stock market? The answer is that
> indirect bidders may buy treasuries, but they do not buy the V-shaped
> recovery argument."
>
> Sorry, this is the argument I just don't buy. I've recently swapped
> foreign stocks for treasuries in reasonable scale, as a hedge. But
> longer term, they're just a bad investment. They are propped up by
> foreign central banks - not for any of the reasons you discuss -
> but simply because of their trade policies. They need to do it for
> the sake of their domestic economies. It's nothing to do with a view
> on the recovery. Without support from foreign governments, the dollar
> would fall hard and yields would jump. This won't be happening any
> time soon, but I don't want to be around when it does.

Don't Bet Against the Bond Market

Bingo, you get it. No everyone does.


On Sep 25 09:19 AM Fund Insider wrote:

> Investing in the long or short end of the curve depends not just
> on economic forecasts (and who can ever predict that with certainty),
> but also on your purpose for being in Fixed Income. If you are managing
> a purely FI portfolio (maybe a retiree or institutional FI portfolio),
> then these bets are what you are paid to make. If you are an asset
> allocator (typical younger to middle age investor or balanced fund
> manager) then you need to consider other items, such as whether your
> bond portfolio truly offers diversification from your equity or other
> assets. Going with mmkt or short bonds there is no reverse (or any)
> correlation. I often consider this short/long conundrum discussed
> here, but in the end, I remind myself that the purpose of my FI portfolio
> is to offset the risk of my equity portfolio.
> There are days I make money in stocks, lose in bonds, and vice versa.
> A portion of my FI portfolio is just for this purpose. Other portions
> I use to make specific bets, such as when I loaded up on corp bonds
> during the peak of the crisis (time to start thinking about getting
> out now ???). Point is, your strategy for FI investing should be
> based on your goal(s), not just on the markets and yield curves.

What the Fed Said Yesterday

Without the GSEs there is no mortgage issuance. Without the Fed buying GSE MBS, there is no GSE mortgage issuance. The economy may be growing, but at a glacier-like pace. I think the glacier stops moving altogether in the coming months.


On Sep 24 08:40 AM enigmaman wrote:

> Its quite simply the fact that the Fed pushed back its plan to begin
> withdrawing from its MBS purchase, pushed back from Oct 09 to March
> 10. So reading between the lines is " The economy isnt doing as well
> as we had hoped" if they got out as originally planned Im sure they
> were worried the economy could double dip, so they err on the side
> of caution, delay and advise " all's well" IN the mean time they
> need to find someone else willing to buy MBS because right now the
> Fed is the only game in town, that alone should make one pause!!!

Current Market About to Lose Momentum - Gundlach

OK V-shaped people tell me this. How will consumers (responsible for 2/3s of economic activity) spend us out of this when they cannot get credit as they had during the past ten years? I am not talking about restrictive credit where one has to do more than fog a mirror to receive credit.

The truth is that demand will be far less than it has been during the past two economic expansions. That is the way it should be. The savings rate will rise, unemployment will settle in at around 6% to 7%, incomes will be below what they were during the past decade and familes will eschew the $40,000 Tahoe in favor of a $24,000 crossover, mini-van or sedan, none of which can be built profitably in a UAW plant. Bye-bye GM and Chrysler.

I am not saying that the equity markets are in for a sharp correction, only that we have already seen the sharpest rally. It is slow going from hear with periodic setbacks.

Roubini Is Right: Recovery Will Be Slow

Right the Dow will keep rising and trees grow to the sky. What happens when revenues and profits do not meet expectations. It is called a correction.

CNBC and its pundits are doing a good job talking up the markets. FYI: 100 share prints are now the most common execution size. That is a sign that things may be over done or at least trading on emotion rather than fact.

Roubini Is Right: Recovery Will Be Slow

OK, tellme why he is wrong this time? Please don't tell me it just has to be based on historical precedents. The economic contexts are very different.


On Aug 25 09:47 AM Dr. Roberts wrote:

> A broken clock is right more often than Dr. Doom. Once the media
> latches on to an academic, the masses are force fed large doses no
> matter how unpredictable the subject matter may be.