bearfund

Where's the Bottom? Still Anybody's Guess

The bottom for equities and paper, in dollar terms, will come when people are no longer writing articles asking when the bottom will come, because they are too busy selling.

The bottom for the dollar, however, does not exist. It will continue asymptotically approaching zero until it becomes inconvenient to quote prices in it, at which time it will have zeros lopped off or otherwise be replaced by something else with indistinguishable characteristics, which will itself promptly begin its own asymptotic march toward zero.

Paulson/Bernanke: $700 Billion at 'Hold to Maturity' Pricing

Personally I don't think $700b is enough. They really need to pay full price for this paper so that the banks will be healthy again, and let's not have any questionable paper left lying on their balance sheets: take it all down. To really be sure the threat of "meltdown" is allayed, and kickstart the economy so that working families can find jobs and keep their children safe, I believe we need to give Mr. Paulson at least $3-4T as a blank check. The amount should be renewable every year until stability is achieved. Congress is harming America with its delay. We need action now!

Disclosure: long PST TBT GLD SLV gold and silver bars, short 2036 and 2038 Treasury bonds, USD/NOK.

The Greatest Short Sale in History

The best thing Paulson could do for his country is issue that $700b in debt and then repudiate every last one of the 11T+ dollars of outstanding debt. Refuse to pay anything on it and dare the world to come get their money if they want it.

Why is this good for America? Because no one would ever lend to it again. It would have no credit anywhere, ever. It would have to start over - with rich forests, productive farmland, mines, oil, gas, and 8000 tonnes of gold to use as money. Let's rebuild a state without debt, without bankers, and without politicians.

A Trading Plan for Today's Crisis

The printing presses are only getting warmed up. Cash now has no yield at all, and if you're not going to be paid you shouldn't take risks. The part of your portfolio you don't wish to put at risk should remain in gold. No one created $40b worth of gold yesterday with the push of a button, and you can bet that no one will do so tomorrow, either.

The right risk to take is in shorting the back of the curve. Yields on the long bond are near all-time lows and the chart shows a spike top, a near-term triple top, and a 5-year double top. Fundamentals are horrible (Medicare, Social Security, $430b annual deficit, interminable warfare, Barack Obama and John McCain, printing press). If you feel compelled to take a risk, shorting these instruments is the closest you'll get to a sure thing.

Is It a Time for Panic or Profit?

Amazing... JasonC and I are both long PGF. Picked up a pile in July at 14 and a bit more today. Pays me every month at a rate that compensates me for debasement, and there is some upside.

The difference between us of course is in the rest ... I increased my short position in treasuries today by buying another big chunk of TBT at 57. That's now half my holdings and I don't expect to get bigger but if I see 55 I won't be able to resist. 20 years is a long time; by then things will have gotten much better or the US will be completely bust so this is a sure thing if you have the guts to stare an 8% daily loss in the face and keep growing it.

Also, consider railroads. Like a rock the past year. I'm long CNI and BNI. They pay little but they hold up, and the business is fine.

Gold, diversified bank preferreds (fat dividends converted to more gold, naturally), and short Treasuries. Pick up on the theme yet? I'm in line for my free money. Please print some more.

Crunching Numbers: Why I'd Buy AIG

Not looking good, ace. Tomorrow's buyers might profit, but you won't, and our experience in this bust shows that once they start looking like this, it's over. Try a company that isn't crawling to the Fed to save itself. Or consider senior notes in any financial company; that's where the "systemic risk" put will save your bacon.

US Housing Inventories Reach Record Highs

mkreisel, yes, you buy if the equivalent rent is higher. While every market is different, where I live I can rent what would be a $600,000 condo as an apartment for $1700 a month. There is simply no way to finance that (and pay the taxes and insurance) for anywhere close to the same monthly payment, regardless of tax advantages. Oh, and I'm guaranteed that as long as I live here, my rent will increase no more than 60% as fast as the CPI (haha, the CPI! Ain't that great? A made-up number!). In order for owning my own residence to be attractive, prices need to fall by more than 50%. Even without rent control I wouldn't think of buying my home for more than $400k, especially if I had to borrow to do so.

My guess is that a lot of people are in the same boat. Why buy a place for $300k if you can rent it for $800? When cap rates are above the long bond yield, I'd imagine a lot of people would be buyers. But this bust has a long way to go yet.