bearfund

J&J vs. 10-Year T-Bonds: The Power of Rising Dividends

You've overlooked the fact that 3.2% has not always been, and will not always be, considered an attractive or even an acceptable yield. In 10 years when Treasuries yield 10%, JNJ might yield 6%. If you're expecting both appreciation and dividend growth, there's going to have to be some very potent earnings growth along the way. I'm not seeing it, personally. This is the kind of stock I like, but like virtually every security in the world right now, it's egregiously overpriced.

Treasury: No Inflation Worries Here

But the Treasury is NOT "short inflation". Every market participant with a clue knows this. When they issue TIPS, they are shorting the CPI, an index they conveniently happen to control completely. It's like buying a note issued by Citigroup indexed to Citigroup's Our Desire To Hand Out Money Index. I can't believe people actually buy these things!

FHA Commissioner David Stevens once again downplays recent reports the federal mortgage insurer is on the brink of a bailout, adding, "Without FHA there would be no (housing) market, and this economy's recovery would be significantly slower." Still, we seem to have heard this song before.

So I guess before the FHA existed everyone lived either in caves or communes?

Oracle: EC Has 'Profound Misunderstanding' of Database Market

Exactly how is Sun "financially troubled"? They have $2.4b in cash and even at a burn rate greatly increased by the acquisition that is enough to operate for many years. Rumours of its demise are greatly exaggerated.

How the U.S. Government Is Swallowing the Economy

On Nov 09 10:51 PM MarkitWacha wrote:

> Long: TBT, DBC
>
> I intend to try and make a few billion dollars from shorting the
> US 30-yr bond, and then I'll buy a few politicians.

Every time you execute a winning trade, someone at Goldman executed the same trade, 10000 times larger. How exactly do you plan to compete with them in the market for politicians? Moreover, if you really do make billions shorting Treasuries, those billions might buy you the steak and egg special at a Vegas casino, but not much more because the dollar will be worthless.

IBGYBG - "I'll be gone. You'll be gone." From a great interview of economist James Galbraith, a little known mortgage-industry acronym that exemplifies the 'make a quick buck tomorrow be damned' attitude of the bubble years.

Yes, it's broken. So to fix it we rewind the clock to 1917 and put on the garb of Lenin? "Because people forget". Indeed they do.

McClatchy's Greg Gordon goes to great lengths to document how Goldman Sachs (GS) peddled over $40B in new mortgage-backed securities even as it secretly placed bets on a collapse.

So what? Caveat emptor.

Why Apple Is Worth $80

Can we please use realistic values for long-term growth and discount rates? You're talking 3-6% for the former and 8% for the latter. How about 1% for the former and 15% for the latter? We are in an era of zero or slow growth and rapid unbridled monetary expansion. The estimates people are using for these values are way too optimistic. For example, your DDM figures use 3.39% for the 10-year note rate. Oops; it's already 3.55% and is headed to 10% over the next few years as inflationary policies devalue the dollar. GDP growth? WHAT GDP growth?! There hasn't been any for the last 10 years if you acknowledge the true rate of price growth over that time, and even if you use the government's figures there's been very little.

Time to get hard-headed. Most stocks are 5x overvalued, and AAPL is no exception.

Strong Recovery Signal from Chicago Fed

"Real GDP" suggests a proper adjustment for the declining value of the dollar. You're not going to get that from these guys. GDP growth is much overstated and will continue to be so.

The Arithmetic of Gold: Why Its Price Has No Ceiling

Dollar hasn't yet found a floor in 96 years. I see no reason to think it will find one now.


On Oct 07 03:27 PM mb2 wrote:

> I'd say it was the "bugs" that got sucked in. I, too, like gold.
> However, the panic buying that is taking place above $1,000 will
> turn into panic selling when the dollar finds its floor (and it surely
> will). Talk about the mother of all short squeezes - the dollar snap
> back is going to be violent. All it takes is one geopolitical event
> to trigger a flight to the greenback.
>
> Remember Warren Buffet's adage; "...buy when everyone else is selling
> and sell when everyone else is buying..."

The Dogma of Low Interest Rates Is Wrong

chap08, the money that went into JGBs was something of a remnant. I don't think the author meant to suggest that ALL the borrowed cheap money leaves the country, only that most of it does and that most of what remains does little or nothing to generate real growth. The Treasury and JGB markets feature tremendous leverage. The value of the currency - relative to other currencies, to gold, or in purchasing power terms - does not affect the directional outcome of a highly leveraged government bond position. Since there is also no credit risk, the only variable that affects the directional outcome is the change in interest rates over time. If you own JGBs purchased with free short-term yen, the only way you can lose money is if overnight yen interest rates rise above your yield on cost. The same is true of Treasuries purchased with the flood of cheap dollars.

That is why we have lately been seeing Treasuries, US stocks, and commodities moving together in dollar terms. Normally we would expect Treasuries to fall in value during a real recovery as investors looked for better returns elsewhere. The reality is that there are no returns of any kind anywhere; there is no yield. It is all speculation fueled by free dollars and leverage. Under those circumstances, it doesn't much matter what you buy; anything is better than holding those declining dollars. Many will indeed look to higher-yielding currencies and foreign assets. Others seek value in commodities. And some - those whose privileged position allows them to do so - will gear up big time and purchase Treasuries. These trades are all likely to be winners as long as overnight rates never rise. Which happens to be exactly what the Fed keeps telling everyone each time the FOMC issues a statement.

The behaviour of these markets right now is an extreme danger signal for the FOMC. There is no possible way that any unleveraged participant can increase or even maintain his purchasing power over the lifetime of a 30-year Treasury bond he purchases at a yield of 4%. Not when the dollar is losing several percent of its value each month. That fact that anyone is willing to pay so much for that bond is a clear signal about the kind of participant that does so, and therefore about the amount of dollar liquidity in the system. And when you see that coupled with universally-rising dollar asset prices, you should be terrified. This is not a recovery trade, it's a dollar debasement trade. When you price these assets in anything else you see the truth. No one who sees these charts should feel anything but cold, naked fear.

When Morgan Stanley Almost Died

I have no love for any of these guys but anyone who tells Geithner to get fucked can't be a completely terrible human being.

In 2009, roughly 47% of households (71M) will not owe any federal income tax - up from an earlier estimate of 38%.

Once you're past 50% getting representation without taxation, there will be no further restraint (even in name only) on voting yourselves payments from the public treasury. Expect the number of people subject to taxes to continue to decline at an accelerating rate, while payments to those not subject to taxes will rise ever more rapidly. We're entering the endgame now.

FDIC's Creative Financing Ideas Are a Red Flag

Let's just get the whole thing over with quickly. Tell the FDIC it's on its own with no help from the Treasury (spin it off into a private corporation and cancel its government charter). Let the bad banks suffer runs and fail immediately; the new PDIC can cover what it can and then go under. A few very bad months would be far better than 20 or 50 years spent slowly bleeding away our productive capital, which is how this is shaping up. The size of the bad banks and the amount of leverage they employ ensures that they will need decades to "earn their way out" (read: have the Fed force savers to subsidise their yield curve out) of trouble. It's not worth it. Let them die.

It's them or us.

SPDR, Wells Fargo Team Up to Launch New Preferred Stock ETF

If risk is lower, it's not because of government policies. It's been made very clear that while megabanks' bondholders will be protected from catastrophic loss, shareholders enjoy no such protection. Banks are so highly leveraged that the liquidation preference in these issues is worthless; if one of these issuers gets into real trouble you should expect to recover nothing, even if a government takes it over and guarantees its debt.

Remember, preferred is the new common. You should think of the risks and rewards of these shares similarly to how you would think of the common stock of a non-financial company. That anyone owns bank common is something of a mystery; the reason to own common instead of preferred is to take advantage of share appreciation as earnings and dividends grow. But with most financial common yielding less than 1% with high payout ratios and rich valuations relative to book, where's the upside there? Those shares are already priced to reflect years of improving balance sheets and dividend increases, neither of which is a certainty. The preferreds are priced in a way that reflects most of the risks. The wild card? Interest rate risk. When interest rates start rising, watch out. That 8.4% yield is only about 500bp cheap to the 10-year T-note. While that will tighten considerably if a real recovery does ever get underway, it would be very surprising not to see the 10-year note yield 8% at some point in the next 5 years (this is near historical norms). When that happens the prices of these preferreds will fall, no matter how healthy their issuers.