BlueSky&Sunshine

The Bank of America Bug

I for one don't believe BAC Management is ignoring "asbestos." I suspect CFC has spent the last 6 months frantically refinancing their problem mortgages into new loans that qualify either for purchase by GSE's or FHA insurance. As mentioned above, BAC has largely avoided credit crisis thus far. At the end of the day, BAC will be the come back kid of the financial sector. I would not be surprised if today is the bottom.

Time To Start Buying Some Dogs?

I agree with BlueDog's opinion of BAC above. BAC didn't get into subprime or structured finance to anywhere near the degree that other big banks did. It's investment bank division never amounted to much. For the most part BAC has always been a plain vanilla CB catering to the middle class in a relatively conservative way. They've weathered the crisis well so far. They've already raised some additional capital, taken some large write-off's, and a vast abundance of bad news is priced in. And NO ONE will touch this thing right now - you'd think it was radioactive. Yes, the impact of CFC is unknown. But BAC has had months to perform due diligence. I suspect that CFC has spent the last several months refinancing every problem mortgage they could into mortgages either FHA insurable or eligible for purchase by GSE's - they've socialized many of their problems. I have a long position (as of 6/27) and expect at least 20% cap appreciation in the next year.

1,238 Billion Barrels of Oil Reserves: Is This an Oil Price Bubble?

If you're a believer in peak oil than year 2006 may be your special year. Check the BP 2008 Survey's "Oil Production" page. Global production of oil actually decreased slightly in 2007. 2006 was the highest year ever. The issue isn't how many reserves there are or even how much oil is produced - it's how much is available for export and what the last desperate buyer is willing to pay. Even as global production is declining, consumption by exporting countries is increasing, very rapidly in some cases (BP Survey 2008 page on "Oil Consumption"). Oil available for export is declining. Looking at the chart at the top of the article, note where most of the reserves are - the Middle East - surrounded by China, Russia, and others who have and will compete with the US for all types of advantage, long into the future. Check this link for an alternative view of the future:

www.prudentbear.com/in...

I don't disagree with anything the BP Chairman said. But I think his comments are completely irrelevent.

Preparing for the Fall

I agree with this author's general view of things. Long US equities are the last place a retail investor needs to be. I'm interested in why there's no discussion of shorting the market. I have a decent position in RRZ (2x inverse Russel 2K) - got in too early and have a small paper loss as of Thursday, but fully expect to recoup that and more. The key is to learn to make money in up AND down markets. For those to advocate gold/silver instead of cash - many IMO very credible commentators feel we're entering a deflationary spiral where precious metals won't hold up well. The inflationary case looks strong too. Stagflation looks like the most likely outcome to me. But gold in particular has been closely correlated with oil the last few months. Many people feel oil is well into bubble territory and due for a hard fall. Until oil prices stabilize or take a sharp correction, gold looks risky. Cash is returning negative real returns now - but that might just be the price we have to pay for safety for the next few months.

It's Either Inflation or Deflation - Not Much in Between

Mr. Bradley: Very well written and illuminating article. In particular: "The U.S. Government may be close enough to a funding crisis that investors should consider the future tipping point" is not exactly new information, but explained in a way that brings the issue much closer to the top of the list of concerns. Is it safe to say that the effect on the economy of a US Gov't funding crisis would be equivalent to extreme high interest rates? Would this be severely deflationary, both in the US and worldwide? If 'yes' then how can investors protect themselves (stashing cash in a safe box has its limits)? This sounds like a prescription for capital flight out of the US - well BEFORE trouble strikes!

Where are Precious Metals Headed in 2008?

The bottom line seems to be that gold's recent rise to $1000+ is sustainable and in fact it will remain in a strong primary uptrend. But other writers are warning that a sharp if only short/mid-term correction is likely. Then again there's also talk of a deflationary spiral that could see gold sink from it's current high for several years. The question then is: How strong a stomach to gold bugs need to have? Do we hold our gold and ride out the correction? Or do we try to trade it - with all the timing errors, tax consequences, and other headaches that this entails? Or do we bail out at what we hope is a peak? My 2 cents worth: Given: The increasing demand for gold (new exchange opened in China recently along with recent poor performance of Chinese equities, long-term aversion to USD and US equities by foreigners, the apparent start of an inflationary cycle), The unstable and gradually diminishing supply of gold, and Potential for geopolitical events, especially involving crude oil or the US current account deficit (e.g. sharp devaluation of USD), it seems to me that IF you can afford an unrealized 15 - 20% loss on gold for perhaps 2 years, then holding long positions now, and either opening them (if you aren't already long) or adding to them at the bottom of the nearterm correction, is the least risky course of action. Any better ideas?

Did the Fed's Move Prevent a Stock Market Panic?

rdial54's comment makes sense. As the Fed said a few days ago, they will do "whatever it takes" to avoid a sharp recession. They will probably fail in the end but their delaying actions will result in a slow motion trainwreck. There will be no sudden implosion of the financial sector or "real" economy.

Is Oil Overpriced at $105/Barrel?

The combined comments of Paultaut, S-O-Confusion (sounds pretty level headed to me) and iThinkBig tell the real tale. The US has become hopelessly addicted to crude oil and cheap foreign goods bought on easy foreign credit. We've nearly exhausted many of our own natural resources (Arctic Ocean? Get real P. Sterling!) while allowing our manufacturing sector to be outsouced to workers making one tenth of what we call a living wage. Now the party may well be over. The subprime mess (and subsequent fallout) is just the last act. What's really unfortunate is that many of our biggest problems could be solved with ridiculous ease; If every driver of a full sized sedan, pickup, or SUV traded down to the equivalent of Honda Civic and reduced their miles driven by, say, one third, their fuel consumption would be reduced nearly 70%. The other 30% is tougher, but commercially practical (e.g. plug-in hybrids) cars are on the near horizon that would reduce consumption half again - especially if people practice even basic conservation. There is no downside to this and no real long-term alternative. Yet it's treated like a 3rd rail by all of our so called leaders. Regarding our trade deficit: How much domestic economic activity would be required to extend the life of, reuse, or recycle every durable and most non-durable manufactured goods used in this country, especially including packaging? I suspect more than enough to return our labor force to full time, meaningful, long term employment while putting a huge dent in our balance of payments problems and our consumption of all the "hard commodities" that've recently rocketed into orbit. A transformation like this would take many years. We could've started many years ago. It would probably take less investment than our current trade deficit. And it requires no new geopolitical risk or gee whiz technology, just good, determined leadership. And yet here we are. Sliding slowly and not so gracefully into ruin - like the Roman Empire in 21st century fast-forward.

Commodities Bubble Needs to Burst

One of the big reasons for the recent run up is basic supply and demand (not mentioned in the article). Easily produced crude oil is becoming more scarce while global demand keeps increasing. All the while the world's best reserves are becoming more concentrated in countries with inept, unstable, or even malevolent governments. Geopolitical risk, reserve mismanagement, and increasing consumption by exporting countries have become huge issues. Several very credible oil industry veterans have recently predicted oil price shocks of up to $300/bbl sometime in the next 10 years. "Peak Oil" is becoming a progressively more believable and near-term scenario. Agricultural commodities are bound to increase for the same reasons - there's a limited supply of farmland and steadily increasing if not unlimited demand. I agree that many commodities are in an unsustainable bubble TODAY. But beware. Just because something's overbought doesn't mean it can't go higher. I suspect the longterm trend for most commodities is up, especially oil, nat gas, and ag. Many "speculators" may actually be true investors just trying to get in front of that trend.

Too Much Money Chasing Too Few Commodities

Brucepile: The "guys" in DC don't take stupid pills. They take political contributions. If you want to understand why our government has pushed the ethanol thing so fervently, just look to the disproportionate influence corn belt senators have over the federal government. Then look at the dollar value and destination of political contributions of Archer Daniels Midlands and a few other well healed special interests who were in on the ground floor of ethanol. It's not stupidity so much as callous greed. This kind of corruption won't be rooted out in a generation.