sponger

The Fallacy of Cash on the Sidelines

Meet Dickey. He does not buy or sell stocks.

The U.S. Financial Accounting Standards Board ((FASB)) will discuss mark-to-market guidelines at a board meeting Monday. The FASB says it will focus on "additional application guidance that would clarify how mark to market is used in illiquid markets." Earlier today, FASB chairman Robert Herz told a House subcommittee that new rules could be implemented within three weeks.

All of these comments and questions are sensible. They are much the same as the issues that will be raised at the FASB meeting and at the House Financial Svc. sub Committee, and at the regulatory agencies. Warren Buffet suggested counter-cyclical reserve postings, -- more during high valuation periods, and lesser during poor valuation periods. Most likely the temporary outcome will be an easing in reserve requirements while maintaining mark to market in banking loan language. The true depth of current bank agony will probably never be revealed, either by government or by sector members, because the numbers would destroy the capital base not only of the banks but of the government's capacity to assist, especially if derivative failures are included. The trouble these days is that because of the economic crisis everyone thinks they are an armchair accountant, or banker, or regulator, or policy maker. The public appetite for this information is insatiable at this time, but the public ability to make a sensible judgment about how to react to it when presented is doubtful. To add to the fray let me say that I have learned that the counter parties to many derivatives cannot even be identified, because behind the greedy and frantic selling of those derivatives is a trail of sloppy and incomplete paper work.

DryShips: The Time to Buy Is Now

The promoter doth protest too much.

The Bank Bailout Won't Save the Truly Insolvent Banks

Unless mark to market rules are suspended. It was marking to market when real estate peaked that allowed increased equity lines of credit, and now it is mark to market causing trouble on the opposing end. Unlike other businesses, real estate should not be valued quarter by quarter but decade by decade. At any rate the banks' real estate portfolio should be evaluated not on the asset value but on the performance to maturity value, wherein the asset is the mortgage contract, itself. That would cast WFC and many other banks portfolios in a very different and more positive light.

Now's the Time for Buy-and-Hold

At age 69 I have five years, not thirty, but I still agree with you about buy and hold in that short time frame, provided investors use another discarded relic and apply it to stocks as well as mutual funds, viz
dollar cost averaging. The trick is to keep enough in reserve. Dollar cost averaging can work wonders even with bad stocks in bad markets.

Plan Orange: Killing the Mortgage Crisis Quickly

Obama has surrounded himself with authorities with recognized credentials
That makes it difficult to think outside the box, because these people are the box and focus on ideas generated within it. The real challenge is to find a way for proposals like those of Michael White to make their way to the topical agenda of those in charge. Being from Chicago, perhaps Mr. White can find a pathway to Obama's attention.

How to Profit from Goldman Sachs

Well, you gentlemen have been at it enough now, don't you think? Regardless of the intracacies of current common and strike prices, and the ins and outs of virtue as a pair trade, the notion of buying GS preferred and buying puts on the common or shorting it is not a bad idea. Even today (1/15/09) and yesterday we saw enough volatility in the finance sector to illustrate continuing turmoil owing to a failed TARP program and delayed transparency in marking to market. I agree with the writer that such turbulence will continue, so it could make sense to leg into this or a similar position. I, for one, would be more tempted to use more expensive ITM puts but save money with a somewhat shorter time frame. .

Don't Let Bulk Shippers Sink Your Portfolio... For Now

Shippers are like oil wild catters, i.e. once a shipper always a shipper. They seldom die, they just hibernate the bad cycles and primary investors have infinite patience. They thrive on debt and there's always a contract around the next corner. You have to be Greek to understand.

Oil Industry: Farewell, Good Old Days

Once again, in this chicken/egg issue, we are failing to recognize that
it is a rising dollar that has caused falling oil prices. The world's need for oil will not diminish until a satisfactory replacement is functional.

In fact, prices will reverse eventually as drilling/production is temporarily
curtailed due to lack of credit financing for those enterprises. It may also follow that exploration/drilling activity will move over to cash- rich large cap integrated companies for the time being.

The U.S. Banking System is Effectively Insolvent

Marking to market in itself is not the problem, but assigning the current value of an asset to the balance sheet without considering historical value and future projections is the problem. It is as useless to assign the lowest historical value to a property as it is to assign the highest value.

Real estate value is not a moment in time but decades of time. To drive our mortgage institutions to insolvency by this valuation method is self perpetuating and self defeating. Real property needs to be valuated based on something like a ten year average. Doing so will not only prevent premature insolvency but it will stop banks from giving out unsafe equity loans based on the highest value as well.

The criteria used for assigning real property valuation needs to be
reconsidered. The current method is fundamentally flawed, but
it is carried forward in an effort to provide transparency and honesty.
However, it is a fundamentally flawed concept to apply it as the primary
criterion for institutional health. American society allows its regulators to move from one extreme to the other -- from making decisions based
on non disclosure to making them based on full disclosure as though
financial markets can survive the transition following the same set of valuation rules. At the very least, we can say a home is not really valued until it is sold.

Nose Cut Off, Face Spited, Now What?

Marking to market in itself is not the problem, but assigning the current value of an asset to the balance sheet without considering historical value and future projections is the problem. It is as useless to assign the lowest historical value to a property as it is to assign the highest value.

Real estate value is not a moment in time but decades of time. To drive our mortgage institutions to insolvency by this valuation method is self perpetuating and self defeating. Real property needs to be valuated based on something like a ten year average. Doing so will not only prevent premature insolvency but it will stop banks from giving out unsafe equity loans based on the highest value as well.

The criteria used for assigning real property valuation needs to be
reconsidered. The current method is fundamentally flawed, but
it is carried forward in an effort to provide transparency and honesty.
However, it is a fundamentally flawed concept to apply it as the primary
criterion for institutional health. American society allows its regulators to move from one extreme to the other -- from making decisions based
on non disclosure to making them based on full disclosure as though
financial markets can survive the transition following the same set of valuation rules. At the very least, we can say a home is not really valued until it is sold.
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Why This Bailout Can't Work - And What Will

Marking to market in itself is not the problem, but assigning the current value of an asset to the balance sheet without considering historical value and future projections is the problem. It is as useless to assign the lowest historical value to a property as it is to assign the highest value.

Real estate value is not a moment in time but decades of time. To drive our mortgage institutions to insolvency by this valuation method is self perpetuating and self defeating. Real property needs to be valuated based on something like a ten year average. Doing so will not only prevent premature insolvency but it will stop banks from giving out unsafe equity loans based on the highest value as well.

The criteria used for assigning real property valuation needs to be
reconsidered. The current method is fundamentally flawed, but
it is carried forward in an effort to provide transparency and honesty.
However, it is a fundamentally flawed concept to apply it as the primary
criterion for institutional health. American society allows its regulators to move from one extreme to the other -- from making decisions based
on non disclosure to making them based on full disclosure as though
financial markets can survive the transition following the same set of valuation rules. At the very least, we can say a home is not really valued until it is sold.

Why This Bailout Can't Work - And What Will

I do not understand what you mean in Item 6 when you recommend boosting asset valuation while writing down bad assets to market. Since much of the current problem derives from poor real estate valuations and performance of related mortgages, I believe the following comment conveyed to the House Finance Committee may be pertinent:

"It is no more realistic to valuate real property at zero [or nearly zero] worth because of a frozen market than it is to assign it value at its historicaly highest price, [whether] estimated or actual. A more realistic and practical measure of worth could be obtained by figuring an average over ten years or assigning a mean figure for that term. Value of almost any asset cannot be measured solely by one moment in time.

The FASB directive to mark to market at the latest and (in this case) the lowest price should be modified. Putting accountants in charge of the economy is just as dangerous as putting attorneys in charge of medical practice.

A program to help resolve the financial crisis by allowing federal acquisition of distressed assets at premium prices in order to inject liquidity into the banking credit system is a tacit admission of the inadequacy of the traditional FASB ruling. As excess inventory in the housing market is worked off in the next few years valuations will eventually return to normal and will climb higher than the premium prices paid by the federal program for those assets. That occurence will then validate the recommended change in FASB directives for real estate.

Don't Be Fooled - Short Selling Restrictions Do Work

On the surface it appears to me that suspension of short sales for financials has provided a short covering rally, sufficient for some long investors to partially or fully recover, at which point they have or will sell.
The question is to whom do they sell? Only the market makers? How much inventory can market makers absorb? My question is what prudent fund manager would invest in finance equities if he cannot hedge his position by protective puts? A spread of long financials and short the Dow or something like that will not meet the protection requirement standards of many mutual funds, pension managers and conservative investors of a large scale. Consequently, it seems to me that suspension of short sales removes .buyers from the market, creates considerable slippage in volume, and in the long run leads to lower capitalization. In so doing it also contributes to more rather than less volatility in the finance sector. I have big gaps in my Economics and Markets 101 education, so maybe I am entirely off base on this, but if so I would like to be corrected by those who kjnow better.

Read It and Weep for the USA

While I agree with many who object to the proposed legislation and question the constitutionality of it, I doubt that most people are aware of the gravity of the situation. If banks report they are illiquid it may mean they cannot open their doors for business. If they cannot issue new loans to consumers or business or successfully call in and close the outstanding loans on their balance sheet they cannot meet the test of sufficient reserves to redeem depositor money. I am all but certain that the central bankers, Paulson and Bernanke are dealing with a condition of that gravity. Under such a circumstance all bets are off concerning the preservation of constitutional principle. The life of the global financial system is at stake and must be saved at all cost.