Euro Toast: Euro to Test Lows as Greece, PIIGS Default or Restructure [View article]
For a moment, assume that the IMF and Euro finance ministers agree on a bailout for Greece in exchange for a Greece austerity package this weekend (likely). Also, assume that every Euro country agrees (far less likely) - in at least 7 countries, approval must be in the form of a parliamentary vote. The Greek parliament must agree to the austerity package, and in some cases, this must happen before a parliamentary vote in other countries (ftalphaville.ft.com/bl.../ towards the bottom).
Some aspects of this package have leaked out and are described in today’s (April 30th) Financial Times (see “Greece agrees €24bn austerity package”). Some excerpts: “Abolition of ‘13th and 14th monthly salary’ for public sector workers.” “Pensioners would also lose seasonal bonuses as part of an overhaul of the underfunded state pension system.” “ The average retirement age would be raised from 53 at present to 67.” “Closure of more than 800 outdated state entities.” “Opening up of more than 60 ‘closed-shop’ professions.”
The retirement age in Germany is now 67. All of the above (plus the others in the article, e.g. VAT increase), are quite reasonable. The existing, recently approved/passed, austerity measures have resulted in huge protests, strikes, and riots. I suspect that the Greek people will not allow the parliament to pass this new austerity package. There could be blood in the streets.
Dubai's Debt Woes Could Further Unhinge U.S. Commercial Real Estate Sector [View article]
One tie-in of Dubai World with US Commercial Real Estate is the $8+B City Center project in Las Vegas. Dubai World and MGM Mirage (MGM) are partners in this project. Here is a link to an overview that I found: www.lvrevealed.com/art...
United States Natural Gas Fund: A Contrarian Perspective [View article]
On Friday UNG closed at $10.59, and its NAV was $9.12. In after hours, UNG said in an 8K filing that it would start creating new shares on September 28th. This will close the premium to NAV. In after hours trading, UNG stock was already off 50 cents.
Unfortunately, buyers of UNG think they are buying Natural Gas, but they are really buying the near term futures. Usually, this is the same thing. The exception is when there is significant contango. And, now the contango is severe. The November futures are now priced $1.05 over the October futures ($4.01 vs. $2.96). From UNG's prospectus, over the next 4 days, starting Monday (September 14th), UNG will sell its October futures and buy November Futures. If you do the math, you will see that UNG will then own 25% less natural gas. Or stated differently, for UNG's NAV to remain the same over the next 4-5 weeks, spot prices of Natural Gas have to increase by ~$1.
There are valid reasons for NatGas to get back to $5+. But the current storage situation suggests that this seems unlikely in the short term (next 1-2 months, if not a little longer). Unfortunately, neither UNG nor the futures make this easy. For example, the January futures are already priced at $5.06.
To understand the dangers of investing in UNG, when there is severe contango, you need only read page 16 of the UNG prospectus (pg 22 of the PDF download). You should read the 1/2 page on this, but here is just one sentence: "In the event of a prolonged period of contango, and absent the impact of rising or falling natural gas prices, this could have a significant negative impact on USNG’s NAV and total return."
Disclosure: I have short position in UNG, via being short uncovered calls for Sep, Oct, and Jan.
U.S. Natural Gas ETF: What You Need to Know [View article]
To Staria: 13M shares is a small short position in the context of: (1) 347M share outstanding; and, (2) and average trading volume of ~35M shares daily.
Ron2008: Agree that in the next month or 2, Nat Gas prices are likely to stay low or fall. Bloomberg article is interesting: www.bloomberg.com/apps...
U.S. Natural Gas ETF: What You Need to Know [View article]
To User55921: I don't know, some have suggested that we could see a NatGas sell-off to $2.50 in the next few months. But I suspect that even if it happens, it would be temporary.
To RalphD: I am not bearish on NatGas prices. In fact, I think that it is reasonable for the price to rise to $5 over the next 3 months. This is already priced into the December Futures contract. So, if I shorted that contract today, I would not make any money.
To NoLeafClover: If UNG actually owned NatGas, it would be a good way for the small investor to participate in this commodity, but it doesn't - it owns the futures contracts, which are priced well above the spot price, and UNG is currently priced 14% above its NAV. If the futures prices were not under severe contango, and UNG was selling at NAV, then it would be a reasonable investment.
UNG: Buying Time or Misleading Investors? [View article]
With Friday's close, the market price is now 11% above NAV - $12.49 vs. $11.22. The best source for NAV, is from the UNG site itself, www.unitedstatesnatura...
It is also interesting to look at the amount of Nat Gas in Storage vs. the last 5 years. That can be found here: www.eia.doe.gov/oil_ga...
Every month UNG has to rollover its future and swap contracts from one month to the next. This is done over 4 consecutive days - 2 weeks before contract termination. We are now 1/2 through this 4 day period.
Natural Gas ETF Fuels Regulatory Debate [View article]
I made a slight error in my calculation above, the market price is 11% over its NAV. The best source for NAV, is from the UNG site itself, www.unitedstatesnatura...
It is also interesting to look at the amount of Nat Gas in Storage vs. the last 5 years. That can be found here: www.eia.doe.gov/oil_ga...
Nvidia: Bulls See Expanding Profits [View article]
Over the next 6 to 9 months, nVidia should continue its recovery. But over the longer term there are significant problems.
In 2010, the available TAM for nVidia’s integrated graphics chipsets decreases over time (due to Intel's Arrandale, Clarksdale, Pine Trail, and Sandy Bridge). By mid-2011, if not sooner, it will be ~0. Also, the TAM for discrete graphics (starting in 2010) will decrease over time, but not as dramatically, due to significant improvement in Intel’s graphics integrated with the processor. And then starting in ~1Q2010, AMD and nVidia will have a new competitor in Intel’s Larrabee. Over the next 2 to 3 years, Intel could become the market leader in discrete graphics.
Downey Financial Longs Caught in Game of 'Chicken' [View article]
After reading DSL's 2Q07 10-Q in August, I shorted the stock.
Here are the best parts of the 2Q07 10-Q.
"Total loans and mortgage-backed securities, including those we hold for sale, declined $818 million during the current quarter to a total of $12.4 billion or 83.2% of total assets at June 30, 2007."
"As set forth in the following table, $8.9 billion or 76% of our residential one-to-four unit loans held for investment were subject to negative amortization at June 30, 2007, of which $377 million or 4.2% represented the amount of negative amortization included in the loan balance subject to negative amortization. The amount of negative amortization increased by $20 million during the current quarter, as borrowers took advantage of the flexibility of this product. During the current quarter, approximately 29% of our loan interest income represented negative amortization, down from 31% in the first quarter of 2007 but up from 26% in the year-ago second quarter. At origination, these loans had a weighted average loan-to-value ratio of 73%. In addition, $2.3 billion or 19% of our residential one-to-four unit loans held for investment represented loans requiring interest only payments over the initial terms of the loans, generally the first three to five years."
From the table on page 52 of the PDF (numbered page 34 in the 10-Q): $9.3B of their option ARMs had a balance greater than the original loan amount. Over the last year, they have increased their "fixed-rate" loans; however, these are mostly interest-only for the first 3-5 years. There are $1.6B of these.
"We have other credit risk elements within our real estate loans held for investment besides loans subject to negative amortization or loans with interest-only payments. At June 30, 2007, these other credit risks included:
89% of our real estate loans were concentrated and secured by properties located in California, principally in Los Angeles, San Diego, Orange, Santa Clara and Riverside counties;
82% of our residential one-to-four unit loans were underwritten based on borrower stated income and asset verification and an additional 8% were underwritten with no verification of either borrower income or assets; and
the loans are relatively new and unseasoned, as 11% of our residential one-to-four unit loans were originated in 2007, with an additional 28% originated in 2006 and 33% in 2005."
Their weighted average FICO score for their residential loans is 695. They break it down. 29% is below 660.
Negative Amortization and Interest Only: The Next Mortgage Bomb? [View article]
The following are some applicable excerpts from Downey Financial (DSL)'s recent 10-Q:
$8.9 billion or 76% of our residential one-to-four unit loans held for investment were subject to negative amortization at June 30, 2007, of which $377 million or 4.2% represented the amount of negative amortization included in the loan balance subject to negative amortization. The amount of negative amortization increased by $20 million during the current quarter, as borrowers took advantage of the flexibility of this product. During the current quarter, approximately 29% of our loan interest income represented negative amortization, down from 31% in the first quarter of 2007 but up from 26% in the year-ago second quarter. At origination, these loans had a weighted average loan-to-value ratio of 73%. In addition, $2.3 billion or 19% of our residential one-to-four unit loans held for investment represented loans requiring interest only payments over the initial terms of the loans, generally the first three to five years. . . . 89% of our real estate loans were concentrated and secured by properties located in California, principally in Los Angeles, San Diego, Orange, Santa Clara and Riverside counties.
Euro Toast: Euro to Test Lows as Greece, PIIGS Default or Restructure [View article]
Some aspects of this package have leaked out and are described in today’s (April 30th) Financial Times (see “Greece agrees €24bn austerity package”). Some excerpts:
“Abolition of ‘13th and 14th monthly salary’ for public sector workers.”
“Pensioners would also lose seasonal bonuses as part of an overhaul of the underfunded state pension system.”
“ The average retirement age would be raised from 53 at present to 67.”
“Closure of more than 800 outdated state entities.”
“Opening up of more than 60 ‘closed-shop’ professions.”
The retirement age in Germany is now 67. All of the above (plus the others in the article, e.g. VAT increase), are quite reasonable. The existing, recently approved/passed, austerity measures have resulted in huge protests, strikes, and riots. I suspect that the Greek people will not allow the parliament to pass this new austerity package. There could be blood in the streets.
Dubai's Debt Woes Could Further Unhinge U.S. Commercial Real Estate Sector [View article]
www.lvrevealed.com/art...
United States Natural Gas Fund: A Contrarian Perspective [View article]
Unfortunately, buyers of UNG think they are buying Natural Gas, but they are really buying the near term futures. Usually, this is the same thing. The exception is when there is significant contango. And, now the contango is severe. The November futures are now priced $1.05 over the October futures ($4.01 vs. $2.96). From UNG's prospectus, over the next 4 days, starting Monday (September 14th), UNG will sell its October futures and buy November Futures. If you do the math, you will see that UNG will then own 25% less natural gas. Or stated differently, for UNG's NAV to remain the same over the next 4-5 weeks, spot prices of Natural Gas have to increase by ~$1.
There are valid reasons for NatGas to get back to $5+. But the current storage situation suggests that this seems unlikely in the short term (next 1-2 months, if not a little longer). Unfortunately, neither UNG nor the futures make this easy. For example, the January futures are already priced at $5.06.
To understand the dangers of investing in UNG, when there is severe contango, you need only read page 16 of the UNG prospectus (pg 22 of the PDF download). You should read the 1/2 page on this, but here is just one sentence: "In the event of a prolonged period of contango, and absent the impact of rising or falling natural gas prices, this could have a significant negative impact on USNG’s NAV and total return."
Disclosure: I have short position in UNG, via being short uncovered calls for Sep, Oct, and Jan.
U.S. Natural Gas ETF: What You Need to Know [View article]
Ron2008: Agree that in the next month or 2, Nat Gas prices are likely to stay low or fall. Bloomberg article is interesting: www.bloomberg.com/apps...
U.S. Natural Gas ETF: What You Need to Know [View article]
To RalphD: I am not bearish on NatGas prices. In fact, I think that it is reasonable for the price to rise to $5 over the next 3 months. This is already priced into the December Futures contract. So, if I shorted that contract today, I would not make any money.
To NoLeafClover: If UNG actually owned NatGas, it would be a good way for the small investor to participate in this commodity, but it doesn't - it owns the futures contracts, which are priced well above the spot price, and UNG is currently priced 14% above its NAV. If the futures prices were not under severe contango, and UNG was selling at NAV, then it would be a reasonable investment.
UNG: Buying Time or Misleading Investors? [View article]
It is also interesting to look at the amount of Nat Gas in Storage vs. the last 5 years. That can be found here: www.eia.doe.gov/oil_ga...
Every month UNG has to rollover its future and swap contracts from one month to the next. This is done over 4 consecutive days - 2 weeks before contract termination. We are now 1/2 through this 4 day period.
Additional info is available in my blog entry: fredpollack.wordpress..../
Natural Gas ETF Fuels Regulatory Debate [View article]
It is also interesting to look at the amount of Nat Gas in Storage vs. the last 5 years. That can be found here: www.eia.doe.gov/oil_ga...
Natural Gas ETF Fuels Regulatory Debate [View article]
Stop Trading UNG [View instapost]
Nvidia: Bulls See Expanding Profits [View article]
In 2010, the available TAM for nVidia’s integrated graphics chipsets decreases over time (due to Intel's Arrandale, Clarksdale, Pine Trail, and Sandy Bridge). By mid-2011, if not sooner, it will be ~0. Also, the TAM for discrete graphics (starting in 2010) will decrease over time, but not as dramatically, due to significant improvement in Intel’s graphics integrated with the processor. And then starting in ~1Q2010, AMD and nVidia will have a new competitor in Intel’s Larrabee. Over the next 2 to 3 years, Intel could become the market leader in discrete graphics.
For more details, see my blog post at: fredpollack.wordpress..../
Downey Financial Longs Caught in Game of 'Chicken' [View article]
Here are the best parts of the 2Q07 10-Q.
"Total loans and mortgage-backed securities, including those we hold for sale, declined $818 million during the current quarter to a total of $12.4 billion or 83.2% of total assets at June 30, 2007."
"As set forth in the following table, $8.9 billion or 76% of our residential one-to-four unit loans held for investment were subject to negative amortization at June 30, 2007, of which $377 million or 4.2% represented the amount of negative amortization included in the loan balance subject to negative amortization. The amount of negative amortization increased by $20 million during the current quarter, as borrowers took advantage of the flexibility of this product. During the current quarter, approximately 29% of our loan interest income represented negative amortization, down from 31% in the first quarter of 2007 but up from 26% in the year-ago second quarter. At origination, these loans had a weighted average loan-to-value ratio of 73%. In addition, $2.3 billion or 19% of our residential one-to-four unit loans held for investment represented loans requiring interest only payments over the initial terms of the loans, generally the first three to five years."
From the table on page 52 of the PDF (numbered page 34 in the 10-Q): $9.3B of their option ARMs had a balance greater than the original loan amount. Over the last year, they have increased their "fixed-rate" loans; however, these are mostly interest-only for the first 3-5 years. There are $1.6B of these.
"We have other credit risk elements within our real estate loans held for investment besides loans subject to negative amortization or loans with interest-only payments. At June 30, 2007, these other credit risks included:
89% of our real estate loans were concentrated and secured by properties located in California, principally in Los Angeles, San Diego, Orange, Santa Clara and Riverside counties;
82% of our residential one-to-four unit loans were underwritten based on borrower stated income and asset verification and an additional 8% were underwritten with no verification of either borrower income or assets; and
the loans are relatively new and unseasoned, as 11% of our residential one-to-four unit loans were originated in 2007, with an additional 28% originated in 2006 and 33% in 2005."
Their weighted average FICO score for their residential loans is 695. They break it down. 29% is below 660.
Negative Amortization and Interest Only: The Next Mortgage Bomb? [View article]
$8.9 billion or 76% of our residential one-to-four unit loans held for investment were subject to negative amortization at June 30, 2007, of which $377 million or 4.2% represented the amount of negative amortization included in the loan balance subject to negative amortization. The amount of negative amortization increased by $20 million during the current quarter, as borrowers took advantage of the flexibility of this product. During the current quarter, approximately 29% of our loan interest income represented negative amortization, down from 31% in the first quarter of 2007 but up from 26% in the year-ago second quarter. At origination, these loans had a weighted average loan-to-value ratio of 73%. In addition, $2.3 billion or 19% of our residential one-to-four unit loans held for investment represented loans requiring interest only payments over the initial terms of the loans, generally the first three to five years.
. . .
89% of our real estate loans were concentrated and secured by properties located in California, principally in Los Angeles, San Diego, Orange, Santa Clara and Riverside counties.