CaptainJJack's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/214003/comments http://seekingalpha.com/article/177790-how-buying-a-home-is-gambling?source=feed#comment-802737 802737
You cannot compare buying a house to simply not owning a house. You have to compare to a number that represents the capitalized cost of the stream of rents you would have to pay if you rented.

Further, you have to do this AFTER taking into account the ENORMOUS subsidies involved in buying a house, including the tax breaks for the real estate taxes, the tax breaks for the interest payments and the subsidized interest rates on a loan often backed by the government.

Finally, the "investment return" is virtually all after tax since there are no capital gains taxes for most sellers.

The major risks are the liquidity risk and the loss of diversification, but both risks are related to your ability to handle volatility, and with a 30 year mortgage (something you cannot get with anything else you buy or invest in) and an appropriate down payment, those risks can be substantially mitigated.

At the end of the day, the true risk is permanent loss of value, and that WILL happen when you pay too much.

On the other hand, like all markets that have tanked, the best time to buy is when nobody else wants to buy, and when there are a THOUSAND reasons you should not buy.

Like now.]]> Sat, 12 Dec 2009 08:49:59 -0500
You cannot compare buying a house to simply not owning a house. You have to compare to a number that represents the capitalized cost of the stream of rents you would have to pay if you rented.

Further, you have to do this AFTER taking into account the ENORMOUS subsidies involved in buying a house, including the tax breaks for the real estate taxes, the tax breaks for the interest payments and the subsidized interest rates on a loan often backed by the government.

Finally, the "investment return" is virtually all after tax since there are no capital gains taxes for most sellers.

The major risks are the liquidity risk and the loss of diversification, but both risks are related to your ability to handle volatility, and with a 30 year mortgage (something you cannot get with anything else you buy or invest in) and an appropriate down payment, those risks can be substantially mitigated.

At the end of the day, the true risk is permanent loss of value, and that WILL happen when you pay too much.

On the other hand, like all markets that have tanked, the best time to buy is when nobody else wants to buy, and when there are a THOUSAND reasons you should not buy.

Like now.]]> http://seekingalpha.com/article/177078-10-reasons-the-equity-rally-is-over?source=feed#comment-796071 796071
When you consider secular Bear markets, the key thing to watch, IMHO, is the P/E. If you see stocks rise exclusively due to P/E multiples, you will almost certainly be coming off a market bottom.

With these high multiples ANY improvement in projected earnings (whether from margins or revenue growth) gets a huge boost

But, long term the stock prices can only follow a company's prospects, and in order to do well, they either have to sell more to a growing economy or take market share.

They all cannot take share, so in order for the MARKET to rise, the MARKET has to follow the prospects of the economy.

What I expect will happen is that we will see MANY reversals until the market has caused the most pain to the most people, and THEN we will see stocks as a hated category, like 1978 -1982, and P/Es come down (actually earnings rising and the price going nowhere) until they are a screaming buy.]]> Tue, 08 Dec 2009 09:38:52 -0500
When you consider secular Bear markets, the key thing to watch, IMHO, is the P/E. If you see stocks rise exclusively due to P/E multiples, you will almost certainly be coming off a market bottom.

With these high multiples ANY improvement in projected earnings (whether from margins or revenue growth) gets a huge boost

But, long term the stock prices can only follow a company's prospects, and in order to do well, they either have to sell more to a growing economy or take market share.

They all cannot take share, so in order for the MARKET to rise, the MARKET has to follow the prospects of the economy.

What I expect will happen is that we will see MANY reversals until the market has caused the most pain to the most people, and THEN we will see stocks as a hated category, like 1978 -1982, and P/Es come down (actually earnings rising and the price going nowhere) until they are a screaming buy.]]> http://seekingalpha.com/article/176664-the-costs-of-not-fixing-a-broken-financial-system?source=feed#comment-792706 792706

On Dec 05 10:52 PM j-dub wrote:

> The costs of a SA reader membership = 0 dollars
> The costs of 2 bleacher tickets to a Tampa Bay Rays game = 28 dollars
>
> The costs of bailing out upcoming state deficits = 170 billion dollars
>
> The costs of bailing out Wall Street = 1+ trillion dollars
> The (real) costs of health care reform = 2-3 trillion dollars
> The costs of not fixing a broken financial system = the end of the
> dollar]]> Sun, 06 Dec 2009 13:07:03 -0500

On Dec 05 10:52 PM j-dub wrote:

> The costs of a SA reader membership = 0 dollars
> The costs of 2 bleacher tickets to a Tampa Bay Rays game = 28 dollars
>
> The costs of bailing out upcoming state deficits = 170 billion dollars
>
> The costs of bailing out Wall Street = 1+ trillion dollars
> The (real) costs of health care reform = 2-3 trillion dollars
> The costs of not fixing a broken financial system = the end of the
> dollar]]> http://seekingalpha.com/article/175576-roger-wiegand-2-960-gold-on-the-horizon?source=feed#comment-780725 780725
I know -- I will buy now, and then sell when it reaches $2,959.

I will get this letter, and it will tell me when it bottoms, again, and then I will buy.

And, there is still time, since the market crash he had predicted would have happened a month ago isn't happening until after next week.

I will be rich!!!]]> Sat, 28 Nov 2009 13:46:43 -0500
I know -- I will buy now, and then sell when it reaches $2,959.

I will get this letter, and it will tell me when it bottoms, again, and then I will buy.

And, there is still time, since the market crash he had predicted would have happened a month ago isn't happening until after next week.

I will be rich!!!]]> http://seekingalpha.com/article/175062-berkshire-hathaway-stock-portfolio-at-risk-of-resembling-an-index-fund?source=feed#comment-776858 776858
Yes, he paid a lot. But, in my opinion, you get a lot when you become an insider.

But, by far, the overriding dynamic is that railroads are now clear monopolies in most of the areas they operate. Just look at a railroad map of the US, and you find little overlap.

The main competition is trucking, and if you look at the economics of that business, you find it turns on finding and holding on to truck drivers.

Their key constraint is capital: They have to find a way to fund the initial costs of a trucker getting into the business. I haven't seen much on this lately, but I am guessing that banks are reluctant to loan person enough money to buy a rig and finance their first years in operation.

So, I think the railroads will be very profitable in the future, and I am willing to bet rates will rise even if other prices are falling.]]> Wed, 25 Nov 2009 08:59:24 -0500
Yes, he paid a lot. But, in my opinion, you get a lot when you become an insider.

But, by far, the overriding dynamic is that railroads are now clear monopolies in most of the areas they operate. Just look at a railroad map of the US, and you find little overlap.

The main competition is trucking, and if you look at the economics of that business, you find it turns on finding and holding on to truck drivers.

Their key constraint is capital: They have to find a way to fund the initial costs of a trucker getting into the business. I haven't seen much on this lately, but I am guessing that banks are reluctant to loan person enough money to buy a rig and finance their first years in operation.

So, I think the railroads will be very profitable in the future, and I am willing to bet rates will rise even if other prices are falling.]]> http://seekingalpha.com/article/174633-where-the-wild-things-are-portfolio-edition?source=feed#comment-771577 771577
I thought I understood this in 2006 and 2007 when banks were lending to hedge funds and investment banks at 40 to 1 in what was, either explicitly or implicitly, yen denominated loans.

This made all kinds of sense to me since the loan was at a low interest rate in a currency that was expected to stay stable or fall.

I understand that the transaction can be structured so that the bank holds the securities the hedge fund has invested in as collateral, but I find it impossible to believe the banks didn't learn anything from last fall: things happen (e.g. the AAA collateral you are holding has dropped 20% in value) and 40 to 1 (or even 20 to 1) is a spooky place to be when they do.

But without a LOT of leverage I cannot see how the hedge fund plays can generate the 25%+ ROEs that they need to justify their fees.]]> Sun, 22 Nov 2009 08:30:50 -0500
I thought I understood this in 2006 and 2007 when banks were lending to hedge funds and investment banks at 40 to 1 in what was, either explicitly or implicitly, yen denominated loans.

This made all kinds of sense to me since the loan was at a low interest rate in a currency that was expected to stay stable or fall.

I understand that the transaction can be structured so that the bank holds the securities the hedge fund has invested in as collateral, but I find it impossible to believe the banks didn't learn anything from last fall: things happen (e.g. the AAA collateral you are holding has dropped 20% in value) and 40 to 1 (or even 20 to 1) is a spooky place to be when they do.

But without a LOT of leverage I cannot see how the hedge fund plays can generate the 25%+ ROEs that they need to justify their fees.]]> http://seekingalpha.com/article/174575-the-oil-casino-sec-heading-for-monte-carlo-part-i?source=feed#comment-770400 770400
The way I understand the efficacy of the Monte Carlo method is that it makes no predictions about the future other than it will unfold in a random way.

While there is usually a model and model parameters, the nice thing about Monte Carlo is that the model itself does not have to do any predicting.

But, it is not quite random, and here is the rub: You DO have to make assumptions about the volatility, and, in some cases, the "drift".

After all, you are trying to replicate what you think the real world looks like, and natural occurring things usually follow some type of distribution.

If assume a parameter that is wrong, or you pick the wrong distribution, you get bad results.

But, you can deal with a lot of this by including what Graham calls "a margin of error" e.g. you might assume a lot higher volatility.]]> Sat, 21 Nov 2009 09:33:32 -0500
The way I understand the efficacy of the Monte Carlo method is that it makes no predictions about the future other than it will unfold in a random way.

While there is usually a model and model parameters, the nice thing about Monte Carlo is that the model itself does not have to do any predicting.

But, it is not quite random, and here is the rub: You DO have to make assumptions about the volatility, and, in some cases, the "drift".

After all, you are trying to replicate what you think the real world looks like, and natural occurring things usually follow some type of distribution.

If assume a parameter that is wrong, or you pick the wrong distribution, you get bad results.

But, you can deal with a lot of this by including what Graham calls "a margin of error" e.g. you might assume a lot higher volatility.]]> http://seekingalpha.com/article/174220-ethanol-vs-natural-gas-or-coal-comparison-not-even-close?source=feed#comment-767116 767116
Methanol for fuel is an idea that is 100 years old. The original process was developed by the Germans using coal, and it is what drove their war machines in the world wars.

Methanol is usually made from natural gas, today, but it is also being used in recycling wood products

I became interested after reading a book by George Olah: THE METHANOL ECONOMY. Olah was awarded the Nobel prize in Chemistry in 1994.

Olah is currently working on making methanol by adding hydrogen atoms to carbon dioxide, using pure hydrogen developed from cracking water at very high temperatures thereby addressing the cost issues with hydrogen production, and addressing global warming.

As a by product, he is solving the ultimate storage and transportation problems involved in a transportation fuel.

Essentially, all fuels are mechanisms for transporting hydrogen. Oil, gasoline, and natural gas are far superior as carriers to alternatives, especially ethanol and hydrogen.

But, methanol isn't bad both in terms of energy in versus energy out, and in ease of storage and transportation.

The hydrogen process Olah is looking at produces hydrogen as a by product in a nuclear reactor (i.e. the reactor produces HEAT for both electrical generation and for hydrogen generation --electrolysis is NOT used)]]> Thu, 19 Nov 2009 09:26:56 -0500
Methanol for fuel is an idea that is 100 years old. The original process was developed by the Germans using coal, and it is what drove their war machines in the world wars.

Methanol is usually made from natural gas, today, but it is also being used in recycling wood products

I became interested after reading a book by George Olah: THE METHANOL ECONOMY. Olah was awarded the Nobel prize in Chemistry in 1994.

Olah is currently working on making methanol by adding hydrogen atoms to carbon dioxide, using pure hydrogen developed from cracking water at very high temperatures thereby addressing the cost issues with hydrogen production, and addressing global warming.

As a by product, he is solving the ultimate storage and transportation problems involved in a transportation fuel.

Essentially, all fuels are mechanisms for transporting hydrogen. Oil, gasoline, and natural gas are far superior as carriers to alternatives, especially ethanol and hydrogen.

But, methanol isn't bad both in terms of energy in versus energy out, and in ease of storage and transportation.

The hydrogen process Olah is looking at produces hydrogen as a by product in a nuclear reactor (i.e. the reactor produces HEAT for both electrical generation and for hydrogen generation --electrolysis is NOT used)]]> http://seekingalpha.com/article/173857-buffett-s-holdings-outperforming-in-q4?source=feed#comment-766220 766220
But, for me, there is a difference between market fluctuation and risk. Real risk is actually losing money, and the ONLY way you deal with this is not to overpay.

For example, anyone who bought at the 1999 top ACTUALLY lost money.

I deal will market fluctuations differently. Here the issue is psychology and the fact that humans are hard wired to sell when the market bottoms and buy at market tops. The issue is not the value of my portfolio, it is how disciplined I am.

Most investors due far worse than either the pros or the overall market because they tend to buy at market tops and sell at market bottoms. Even a little of this kind of trading will KILL your overall returns.

As Graham pointed out often, it is relatively easy for a disciplined individual investor to consistently achieve adequate (i.e. market plus some nominal amount) returns, but it is very, very difficult to achieve superior (defined as > market + 5%, annually) returns.


On Nov 18 12:17 PM Crude Oil Trader wrote:

> I admit, even though I am a day trader I am sitting on some BRK.B
> in my Roth IRA and have been surprised it has held up as well as
> it has. My concern is the collapse of Wells Fargo and Bank of America
> taking the fund down. SP 500 @ 1130 is an area of great concern for
> all of these names.]]> Wed, 18 Nov 2009 18:47:30 -0500
But, for me, there is a difference between market fluctuation and risk. Real risk is actually losing money, and the ONLY way you deal with this is not to overpay.

For example, anyone who bought at the 1999 top ACTUALLY lost money.

I deal will market fluctuations differently. Here the issue is psychology and the fact that humans are hard wired to sell when the market bottoms and buy at market tops. The issue is not the value of my portfolio, it is how disciplined I am.

Most investors due far worse than either the pros or the overall market because they tend to buy at market tops and sell at market bottoms. Even a little of this kind of trading will KILL your overall returns.

As Graham pointed out often, it is relatively easy for a disciplined individual investor to consistently achieve adequate (i.e. market plus some nominal amount) returns, but it is very, very difficult to achieve superior (defined as > market + 5%, annually) returns.


On Nov 18 12:17 PM Crude Oil Trader wrote:

> I admit, even though I am a day trader I am sitting on some BRK.B
> in my Roth IRA and have been surprised it has held up as well as
> it has. My concern is the collapse of Wells Fargo and Bank of America
> taking the fund down. SP 500 @ 1130 is an area of great concern for
> all of these names.]]> http://seekingalpha.com/article/173857-buffett-s-holdings-outperforming-in-q4?source=feed#comment-765201 765201
Many, many years ago, conglomerates were all the rage. The sale was that you got "top managers" to oversee the business and allocate capital. Since "management skills" were guided more by the financial results than process results, you did not need to have industry experts, the argument went, you just needed people with discipline.

The reality was much different. They performed well, initially, as management skills and discipline really do make a difference, but it wasn't long before things fell apart.

First, there was a tendency to centralize, and this created massive bureaucracy and decisions often became political more than analytical, especially since the founder was usually charismatic and tended toward empire building.

Secondly, and related, overhead and "home office" staffs and costs skyrocketed.

Third, in order to keep the party going, they had to keep buying at ever higher prices.

Wall Street started to figure out, that the investor could do his/her own capital allocation without all this, and that conglomerates were adding nothing. They were, in effect closed end mutual funds with far higher costs.

But. what if you could hire one of the world's greatest capital allocators for $100,000/year, and he was so sure of his own skills, he put virtually ever dime he had into the deal.

What if, instead of having a huge bureaucracy, you had a "home office" consisting of 18 people.

What if the person almost never over paid for a business or a CEO to run the business ( the main exception being Conoco).

What if the person managed the businesses with far more discipline than any other manager you know -- again for $100,000/year, e.g. sitting on $50 Billion in very low yielding cash even when it clearly hurt.

I own Buffet's stock because it is by far the lowest cost mutual fund I can buy, and that he manages businesses as though he personally owns them.

For the most part, he does.]]> Wed, 18 Nov 2009 09:09:45 -0500
Many, many years ago, conglomerates were all the rage. The sale was that you got "top managers" to oversee the business and allocate capital. Since "management skills" were guided more by the financial results than process results, you did not need to have industry experts, the argument went, you just needed people with discipline.

The reality was much different. They performed well, initially, as management skills and discipline really do make a difference, but it wasn't long before things fell apart.

First, there was a tendency to centralize, and this created massive bureaucracy and decisions often became political more than analytical, especially since the founder was usually charismatic and tended toward empire building.

Secondly, and related, overhead and "home office" staffs and costs skyrocketed.

Third, in order to keep the party going, they had to keep buying at ever higher prices.

Wall Street started to figure out, that the investor could do his/her own capital allocation without all this, and that conglomerates were adding nothing. They were, in effect closed end mutual funds with far higher costs.

But. what if you could hire one of the world's greatest capital allocators for $100,000/year, and he was so sure of his own skills, he put virtually ever dime he had into the deal.

What if, instead of having a huge bureaucracy, you had a "home office" consisting of 18 people.

What if the person almost never over paid for a business or a CEO to run the business ( the main exception being Conoco).

What if the person managed the businesses with far more discipline than any other manager you know -- again for $100,000/year, e.g. sitting on $50 Billion in very low yielding cash even when it clearly hurt.

I own Buffet's stock because it is by far the lowest cost mutual fund I can buy, and that he manages businesses as though he personally owns them.

For the most part, he does.]]> http://seekingalpha.com/article/173921-whitney-gets-bearish-will-she-be-right-again?source=feed#comment-765102 765102 When was Meredith Whitney ever bullish?]]> Wed, 18 Nov 2009 08:34:22 -0500 When was Meredith Whitney ever bullish?]]> http://seekingalpha.com/article/173684-meredith-whitney-i-haven-t-been-this-bearish-in-a-year?source=feed#comment-763454 763454
Meredith Whitney has NEVER been bullish.

After the market ran up 40% she came out with a "gutsy" call -- buy Goldman -- which she retracted about 2 months later.

What galls me about her is that she adds nothing. There is no research or data that she brings to the table that hasn't already been discussed on CNBC thousands of times before.

She and Roubini keep calling for clouds and storms ahead, and damn, sooner or later, we get one.

Frankly, I do not know who pays her for this stuff. She is clearly useless for determining an investment strategy -- unless you think the market will always go down.


On Nov 17 08:47 AM Ferdinand E. Banks wrote:

> Great article. Complete nonsense, but served up in only 5 lines.]]> Tue, 17 Nov 2009 08:59:45 -0500
Meredith Whitney has NEVER been bullish.

After the market ran up 40% she came out with a "gutsy" call -- buy Goldman -- which she retracted about 2 months later.

What galls me about her is that she adds nothing. There is no research or data that she brings to the table that hasn't already been discussed on CNBC thousands of times before.

She and Roubini keep calling for clouds and storms ahead, and damn, sooner or later, we get one.

Frankly, I do not know who pays her for this stuff. She is clearly useless for determining an investment strategy -- unless you think the market will always go down.


On Nov 17 08:47 AM Ferdinand E. Banks wrote:

> Great article. Complete nonsense, but served up in only 5 lines.]]> http://seekingalpha.com/article/173410-why-warren-buffett-loves-wells-fargo?source=feed#comment-762795 762795
The dollar was worthless, given 12%+ annual inflation

Gold was going to $1500/once

The US debt was skyrocketing, and the US was becoming the largest debtor in the world.

The US trade balance was the worst in history, and getting even worse

The US was no longer making anything

The major banks were going to go under because of their enormous holdings of Latin American debt.

Japan was going to rule the world

Diamonds were clearly the best investment because the prices were controlled by DeBeers, and they were the perfect hedge against a worthless dollar.

Oil will rise to at least $50/barrel by the end of the decade.

Stocks were dead money investments -- only a fool would invest in US stocks.


I am SURE there will be a crisis of some kind in our future. I do not know when or how.

But, I do know that it will almost certainly not play out the way all the doom and gloom gold bugs think it will.


On Nov 16 02:03 PM Mark Anthony wrote:

> But let me make it clear:
>
> I do not advocate shorting banking stocks. I do not advocate shorting
> anything at all. To short any position also means to hold a long
> position in US dollars (long cash), which is not right. The only
> thing that needs to be shorted is the US dollar.
>
> At some point when more people see the coming of hyper-inflation.
> There WILL be chaotic bank runs. Such bank runs are not due to worry
> about health of individual banks, but due to worry about the health
> of the US dollar itself. When you are losing purchase power fast,
> it makes no sense to leave cash in a bank.
>
> Will the government impose daily cash withdraw limit? You bet. It
> is better to get your cash out while you still can and while there
> is still not a significant limitation. Put into real assets like
> precious metals.]]> Mon, 16 Nov 2009 18:41:40 -0500
The dollar was worthless, given 12%+ annual inflation

Gold was going to $1500/once

The US debt was skyrocketing, and the US was becoming the largest debtor in the world.

The US trade balance was the worst in history, and getting even worse

The US was no longer making anything

The major banks were going to go under because of their enormous holdings of Latin American debt.

Japan was going to rule the world

Diamonds were clearly the best investment because the prices were controlled by DeBeers, and they were the perfect hedge against a worthless dollar.

Oil will rise to at least $50/barrel by the end of the decade.

Stocks were dead money investments -- only a fool would invest in US stocks.


I am SURE there will be a crisis of some kind in our future. I do not know when or how.

But, I do know that it will almost certainly not play out the way all the doom and gloom gold bugs think it will.


On Nov 16 02:03 PM Mark Anthony wrote:

> But let me make it clear:
>
> I do not advocate shorting banking stocks. I do not advocate shorting
> anything at all. To short any position also means to hold a long
> position in US dollars (long cash), which is not right. The only
> thing that needs to be shorted is the US dollar.
>
> At some point when more people see the coming of hyper-inflation.
> There WILL be chaotic bank runs. Such bank runs are not due to worry
> about health of individual banks, but due to worry about the health
> of the US dollar itself. When you are losing purchase power fast,
> it makes no sense to leave cash in a bank.
>
> Will the government impose daily cash withdraw limit? You bet. It
> is better to get your cash out while you still can and while there
> is still not a significant limitation. Put into real assets like
> precious metals.]]> http://seekingalpha.com/article/173343-stock-market-still-riding-a-thermal-wave?source=feed#comment-760944 760944
The issue is not the STOCK of money, which we all know is VERY high, it is the FLOW of money, which has been very, very low.

Contrary to all the gold bugs, just because Treasury floats a lot of debt, and the Fed buys that debt, does NOT mean there is excess liquidity in the system. All that means is that the banks have a lot of money to lend, but if they do not lend it, the system liquidity is unchanged.

When the banks start ACTUALLY lending money, THAT'S when there will be excess liquidity in the system, and every thing I read says they are not lending to the private sector.

As I see it, there are two problems: people quit buying things, and banks are worried about the loans they hold now -- they are worried about capital adequacy.

If you want to worry about something, worry about this: by implicit agreement with the Fed, the banks are borrowing (deposits) from the Fed (I.e. the excess money supply), and they are buying long US government bonds. This is a common strategy employed by the Fed to recapitalize the banks.

It is also providing a convenient back door way the monetize the debt, temporarily, as the banks buy what the Fed would have had to buy if it wanted to monetize the debt, as the gold bugs fear. Treasury is happy, too, because it has a buyer to fund the US deficits (i.e. banks ARE lending, but only to the US government)

BUT, this is a very dangerous game. The Fed has little real control over the long end of the curve, and if the long rates start to increase, the banks could face HUGE losses in their long bond portfolio.

And THESE losses are marked to market immediately.

Finally, I have to admit, I do not understand the carry trade. I used to think that it was a way to get LEVERAGE in a country whose interest rates are low and whose currency is expected to remain stable or weak.

While the dollar debt would make sense, GIVEN the ability to borrow against your capital, I cannot imagine why a bank would want to lend to a hedge fund on this basis without requiring so much overcapitalization that the trade makes no sense.]]> Sun, 15 Nov 2009 11:53:03 -0500
The issue is not the STOCK of money, which we all know is VERY high, it is the FLOW of money, which has been very, very low.

Contrary to all the gold bugs, just because Treasury floats a lot of debt, and the Fed buys that debt, does NOT mean there is excess liquidity in the system. All that means is that the banks have a lot of money to lend, but if they do not lend it, the system liquidity is unchanged.

When the banks start ACTUALLY lending money, THAT'S when there will be excess liquidity in the system, and every thing I read says they are not lending to the private sector.

As I see it, there are two problems: people quit buying things, and banks are worried about the loans they hold now -- they are worried about capital adequacy.

If you want to worry about something, worry about this: by implicit agreement with the Fed, the banks are borrowing (deposits) from the Fed (I.e. the excess money supply), and they are buying long US government bonds. This is a common strategy employed by the Fed to recapitalize the banks.

It is also providing a convenient back door way the monetize the debt, temporarily, as the banks buy what the Fed would have had to buy if it wanted to monetize the debt, as the gold bugs fear. Treasury is happy, too, because it has a buyer to fund the US deficits (i.e. banks ARE lending, but only to the US government)

BUT, this is a very dangerous game. The Fed has little real control over the long end of the curve, and if the long rates start to increase, the banks could face HUGE losses in their long bond portfolio.

And THESE losses are marked to market immediately.

Finally, I have to admit, I do not understand the carry trade. I used to think that it was a way to get LEVERAGE in a country whose interest rates are low and whose currency is expected to remain stable or weak.

While the dollar debt would make sense, GIVEN the ability to borrow against your capital, I cannot imagine why a bank would want to lend to a hedge fund on this basis without requiring so much overcapitalization that the trade makes no sense.]]> http://seekingalpha.com/article/172536-erosion-in-the-m2-m1-relationship-and-the-burgeoning-eurodollar-bubble?source=feed#comment-756015 756015
If I take a $1million of treasury bond and use it as collateral for overnight borrowing, I haven't increased my leverage.

As I understood the Japanese Carry Trade, a hedge fund would BORROW at 35 to1, AND THEN take the money and use it as collateral to borrow in Japanese Yen and Japanese interest rates.

Without the initial leverage, the transaction doesn't make much sense to me.

The question I have, then, is who is lending to the hedge fund at 35 to 1?

Or do I have this wrong?]]> Wed, 11 Nov 2009 16:30:15 -0500
If I take a $1million of treasury bond and use it as collateral for overnight borrowing, I haven't increased my leverage.

As I understood the Japanese Carry Trade, a hedge fund would BORROW at 35 to1, AND THEN take the money and use it as collateral to borrow in Japanese Yen and Japanese interest rates.

Without the initial leverage, the transaction doesn't make much sense to me.

The question I have, then, is who is lending to the hedge fund at 35 to 1?

Or do I have this wrong?]]> http://seekingalpha.com/article/172499-too-big-to-fail-banks-a-simple-solution?source=feed#comment-755148 755148
Glass Steagall should be reinstated.

Regulation should focus on leverage.

In general, leverage ratios should be set with a view, not of risk, which gets confused with market fluctuation, but the CONSEQUENCES of failure; i.e. not IF this deal goes bad, but what if this deal DOES go really bad?

The more that there is ANY implicit or explicit government support, the lower the leverage ratio.

So, any bank offering FDIC insurance should have very low leverage ratios. Any financial institution that has had any access to the Fed lending facilities should have low leverage ratios.

Goldman and Morgan Stanley have commercial banking subsidiaries.

They should be divested immediately. However, higher leverage ratios should be allowed, and the primary regulation should be that the I-Banks are required to mark to market daily.


On Nov 11 01:49 AM bob adamson wrote:

> Mr. Lindmark, there are two significant factors that your article
> does not fully address:
> 1. The US and UK are pre-eminent global investment banking centre
> and Australia and Canada are not, and
> 2. The role of risk in investment banking is different than in other
> banking roles.
> Arguably in the modern world the pre-eminent global investment banking
> centres are comprised of banks, hedged funds and other ‘near banks’
> and insurance bodies to back-stop investment banking. The focus of
> investment banking is properly on accepting and managing risk of
> a nature and extent that is very different than what is acceptable
> for the other, properly ‘boring, banking functions.
>
> Can’t a good case not therefore be made that the following needs
> to be done?
> 1. The first need is to decide to segregate ‘boring banking’ from
> investment banking by creating a modern version of Glass-Steagall.
>
> 2. A regulatory and governance framework analogous to those in Canada
> and Australia should be created for boring banks.
> 3. The US and UK (and other significant global investment centres)
> should in consultation devise a regulatory and governance framework
> for the banks, hedged funds and other ‘near banks’ dedicated to investment
> banking and for insurance bodies that back-stop investment banking.
> This framework needs to encompass the facts that (a) globalization
> and information technology have both increased the possibility that
> unforeseen risk will arise and the means for its better management,
> (b) it is often difficult and unnecessary to distinguish banks, hedged
> funds and other ‘near banks’ dedicated to investment banking from
> each other by role or function and therefore the new framework needs
> to cover them all, and (c) given the nature and extent of risk involved,
> the fact that a banks hedged fund or other near bank dedicated to
> investment banking or one of their insurers becomes insolvent can
> not be allowed to endanger the solvency or ongoing functioning of
> the system generally.
>
> It might be argued that the demarcation line between investment banking
> and boring banking isn’t as clear as the forgoing implies. This is
> true and it follows that the modern version of Glass-Steagall alluded
> to above should therefore forbid banks that assume specified classes
> of investment risk to engage in boring banking and require that they
> be registered within the investment banking regime described above.
>
>
> No doubt you and other commentators can improve on the forgoing suggestions
> but my basic point is that investment banking is unique and requires
> segregation and unique forms of regulation and governance.]]> Wed, 11 Nov 2009 08:51:59 -0500
Glass Steagall should be reinstated.

Regulation should focus on leverage.

In general, leverage ratios should be set with a view, not of risk, which gets confused with market fluctuation, but the CONSEQUENCES of failure; i.e. not IF this deal goes bad, but what if this deal DOES go really bad?

The more that there is ANY implicit or explicit government support, the lower the leverage ratio.

So, any bank offering FDIC insurance should have very low leverage ratios. Any financial institution that has had any access to the Fed lending facilities should have low leverage ratios.

Goldman and Morgan Stanley have commercial banking subsidiaries.

They should be divested immediately. However, higher leverage ratios should be allowed, and the primary regulation should be that the I-Banks are required to mark to market daily.


On Nov 11 01:49 AM bob adamson wrote:

> Mr. Lindmark, there are two significant factors that your article
> does not fully address:
> 1. The US and UK are pre-eminent global investment banking centre
> and Australia and Canada are not, and
> 2. The role of risk in investment banking is different than in other
> banking roles.
> Arguably in the modern world the pre-eminent global investment banking
> centres are comprised of banks, hedged funds and other ‘near banks’
> and insurance bodies to back-stop investment banking. The focus of
> investment banking is properly on accepting and managing risk of
> a nature and extent that is very different than what is acceptable
> for the other, properly ‘boring, banking functions.
>
> Can’t a good case not therefore be made that the following needs
> to be done?
> 1. The first need is to decide to segregate ‘boring banking’ from
> investment banking by creating a modern version of Glass-Steagall.
>
> 2. A regulatory and governance framework analogous to those in Canada
> and Australia should be created for boring banks.
> 3. The US and UK (and other significant global investment centres)
> should in consultation devise a regulatory and governance framework
> for the banks, hedged funds and other ‘near banks’ dedicated to investment
> banking and for insurance bodies that back-stop investment banking.
> This framework needs to encompass the facts that (a) globalization
> and information technology have both increased the possibility that
> unforeseen risk will arise and the means for its better management,
> (b) it is often difficult and unnecessary to distinguish banks, hedged
> funds and other ‘near banks’ dedicated to investment banking from
> each other by role or function and therefore the new framework needs
> to cover them all, and (c) given the nature and extent of risk involved,
> the fact that a banks hedged fund or other near bank dedicated to
> investment banking or one of their insurers becomes insolvent can
> not be allowed to endanger the solvency or ongoing functioning of
> the system generally.
>
> It might be argued that the demarcation line between investment banking
> and boring banking isn’t as clear as the forgoing implies. This is
> true and it follows that the modern version of Glass-Steagall alluded
> to above should therefore forbid banks that assume specified classes
> of investment risk to engage in boring banking and require that they
> be registered within the investment banking regime described above.
>
>
> No doubt you and other commentators can improve on the forgoing suggestions
> but my basic point is that investment banking is unique and requires
> segregation and unique forms of regulation and governance.]]> http://seekingalpha.com/article/172240-reinstituting-glass-steagall-not-as-easy-as-it-sounds?source=feed#comment-753894 753894
If you do not allow investment banks to lever up, they cannot make an ROE sufficient enough to stay in business. It is risky, the margins are thin, given the risk, and the good ones mark to market their entire portfolios every day, but if the ROEs are there, they do not need retail charters.

On the other hand, Commercial Banks had generally been in higher risk loans, concentrated regionally, using retail deposits. Their margins are much higher, there is much more book value accounting, versus mark to market, and prudence dictates that they keep low leverage ratios.

The beauty of Glass Steagall was that it established clear boundaries between the two, and I believe it was tossed out as part of a larger effort to allow banks to operate in more than one state.

The other argument that G-S makes the US less competitive is nonsense. Anybody who has followed Investment Banking knows that it is a business of celebrities, and Commercial Banks have not been very effective competitors. And, the only foreign banks that have done well in the investment banking area are those that focus on investment banking.

Finally, allowing Investment Banks to accept retail deposits is setting us up for disaster. The Goldman and Morgan Stanley Commercial bank charters should cease to exist ---like tomorrow.]]> Tue, 10 Nov 2009 11:24:54 -0500
If you do not allow investment banks to lever up, they cannot make an ROE sufficient enough to stay in business. It is risky, the margins are thin, given the risk, and the good ones mark to market their entire portfolios every day, but if the ROEs are there, they do not need retail charters.

On the other hand, Commercial Banks had generally been in higher risk loans, concentrated regionally, using retail deposits. Their margins are much higher, there is much more book value accounting, versus mark to market, and prudence dictates that they keep low leverage ratios.

The beauty of Glass Steagall was that it established clear boundaries between the two, and I believe it was tossed out as part of a larger effort to allow banks to operate in more than one state.

The other argument that G-S makes the US less competitive is nonsense. Anybody who has followed Investment Banking knows that it is a business of celebrities, and Commercial Banks have not been very effective competitors. And, the only foreign banks that have done well in the investment banking area are those that focus on investment banking.

Finally, allowing Investment Banks to accept retail deposits is setting us up for disaster. The Goldman and Morgan Stanley Commercial bank charters should cease to exist ---like tomorrow.]]> http://seekingalpha.com/article/172045-and-bernanke-didn-t-think-unemployment-would-reach-10?source=feed#comment-750967 750967
You must be very rich. After all, since these waves come around so often, you must have been in short term Treasuries before this last crisis, and since it was a wave, you must have bought around the bottom knowing it will eventually turn up.

In 1982, Barrons ran story showing that if you bought a single interest rate futures contract in 1975, and ALL YOU DID was call the right DIRECTION of interest rates in each of the successive three months, and kept rolling over your gains, you would have been worth $3 BILLION.

They went on to say that since they didn't see a lot of 3 billionaires walking around Wall Street, it might have been harder than it looked.

By the way, when are we going to get the next wave?


On Nov 08 11:48 AM Michael Clark wrote:

> Check back in 2019 and we'll see if they really avoided the Depression.
> These things come in waves.
>
> In the 1930's:
> 1929-1932: depression wave.
> 1932-1935: recovery wave.
> 1936-7: depression wave.
> 1937-38: recovery wave.
> 1939-45: world war depression wave.
> 1944-46: recovery wave.
> 1946-47: depression wave.
>
> Don't be surprised when the next wave hits: 2010.
>
> Don't give any Nobel Prizes out just yet to Bernanke and Hank Paulson
> (Paulson will go down in history as the greatest Plunder Artist in
> the history of the world). He has his own place in Hell reserved
> for him, next to Crassus and Plutus.]]> Sun, 08 Nov 2009 13:16:10 -0500
You must be very rich. After all, since these waves come around so often, you must have been in short term Treasuries before this last crisis, and since it was a wave, you must have bought around the bottom knowing it will eventually turn up.

In 1982, Barrons ran story showing that if you bought a single interest rate futures contract in 1975, and ALL YOU DID was call the right DIRECTION of interest rates in each of the successive three months, and kept rolling over your gains, you would have been worth $3 BILLION.

They went on to say that since they didn't see a lot of 3 billionaires walking around Wall Street, it might have been harder than it looked.

By the way, when are we going to get the next wave?


On Nov 08 11:48 AM Michael Clark wrote:

> Check back in 2019 and we'll see if they really avoided the Depression.
> These things come in waves.
>
> In the 1930's:
> 1929-1932: depression wave.
> 1932-1935: recovery wave.
> 1936-7: depression wave.
> 1937-38: recovery wave.
> 1939-45: world war depression wave.
> 1944-46: recovery wave.
> 1946-47: depression wave.
>
> Don't be surprised when the next wave hits: 2010.
>
> Don't give any Nobel Prizes out just yet to Bernanke and Hank Paulson
> (Paulson will go down in history as the greatest Plunder Artist in
> the history of the world). He has his own place in Hell reserved
> for him, next to Crassus and Plutus.]]> http://seekingalpha.com/article/172045-and-bernanke-didn-t-think-unemployment-would-reach-10?source=feed#comment-750635 750635
The alternative plan promoted by the Republican house was a tax cut bill that amounted to $400 billion split between individuals (2/3) and business (1/3).

The current stimulus has about $250 billion in individual tax cuts and very little business tax cuts.

However, since businesses lost money, last year, and since over 90% of small business file as individuals anyway, the effect would be about what we are seeing now.

Further, since most investments are in qualified plans, Capital gains taxes no longer have any significant effect, it is hard to argue that ANY cut in capital gains taxes would do much.

SO, I conclude that Obama administration underestimated the mess we were in, but they did a FAR better job than Bush and Republicans would have done.

If we would have followed the Republican plan, we would have decimated our capital stock FAR worse than we have already done. Creative destruction is one thing, but allowing whole industries to disappear, together with all the skills involved, is quite another.

As for the deficit, Bush was racking up trillion dollar deficits, but like all good politicians, he hid a third of it in Off Balance Sheet items.

While Bernanke and Paulson should have done more to prevent this mess, I would give them both Presidential Medals for avoiding a Depression.

By the way, when you compare today with the Depression, remember to include the fact that the unemployment numbers in the Depression INCLUDED unemployed farm workers.

Finally, I could find THOUSANDS of quotes that could embarrass either side of this debate.

Your analysis adds very little.]]> Sun, 08 Nov 2009 09:29:08 -0500
The alternative plan promoted by the Republican house was a tax cut bill that amounted to $400 billion split between individuals (2/3) and business (1/3).

The current stimulus has about $250 billion in individual tax cuts and very little business tax cuts.

However, since businesses lost money, last year, and since over 90% of small business file as individuals anyway, the effect would be about what we are seeing now.

Further, since most investments are in qualified plans, Capital gains taxes no longer have any significant effect, it is hard to argue that ANY cut in capital gains taxes would do much.

SO, I conclude that Obama administration underestimated the mess we were in, but they did a FAR better job than Bush and Republicans would have done.

If we would have followed the Republican plan, we would have decimated our capital stock FAR worse than we have already done. Creative destruction is one thing, but allowing whole industries to disappear, together with all the skills involved, is quite another.

As for the deficit, Bush was racking up trillion dollar deficits, but like all good politicians, he hid a third of it in Off Balance Sheet items.

While Bernanke and Paulson should have done more to prevent this mess, I would give them both Presidential Medals for avoiding a Depression.

By the way, when you compare today with the Depression, remember to include the fact that the unemployment numbers in the Depression INCLUDED unemployed farm workers.

Finally, I could find THOUSANDS of quotes that could embarrass either side of this debate.

Your analysis adds very little.]]> http://seekingalpha.com/article/172015-what-buffett-s-burlington-northern-buy-really-means?source=feed#comment-750602 750602
He owned 22,5% ( thought he owned a lot more), before the bid.

So, I am now guessing his basis is in the mid 90/share.]]> Sun, 08 Nov 2009 09:03:32 -0500
He owned 22,5% ( thought he owned a lot more), before the bid.

So, I am now guessing his basis is in the mid 90/share.]]> http://seekingalpha.com/article/172015-what-buffett-s-burlington-northern-buy-really-means?source=feed#comment-750548 750548
While the deal was valued at $44 Billion, Buffet's cost was less than $100/share. He already owned a substantial block of BNI. I am guessing his cost basis in the mid $80s.

I think this is a bet on the West, including Mexico, more than a bet on the US, and it is clearly a bet on efficiency

I like it when someone with Warren's skill set owns the whole company. He runs his companies for the benefit of the shareholder, and he is especially careful when it comes to capital expenditures, requiring managements to show how they make sense in light of future CASH earnings.

And, he never allows them to take on inordinate debt when times are good.]]> Sun, 08 Nov 2009 08:16:27 -0500
While the deal was valued at $44 Billion, Buffet's cost was less than $100/share. He already owned a substantial block of BNI. I am guessing his cost basis in the mid $80s.

I think this is a bet on the West, including Mexico, more than a bet on the US, and it is clearly a bet on efficiency

I like it when someone with Warren's skill set owns the whole company. He runs his companies for the benefit of the shareholder, and he is especially careful when it comes to capital expenditures, requiring managements to show how they make sense in light of future CASH earnings.

And, he never allows them to take on inordinate debt when times are good.]]> http://seekingalpha.com/article/171866-intrinsic-value-and-warren-buffett-s-bnsf-purchase?source=feed#comment-749712 749712
For that he gets to own the whole company. Paying a premium to control the whole deal is VERY common.

I own BRK and BNI, and I think this was a very, very good deal long term.

In the short run, I see it as okay, but not great. Since I've owned both BNI and BRK for years, I can wait]]> Sat, 07 Nov 2009 09:01:30 -0500
For that he gets to own the whole company. Paying a premium to control the whole deal is VERY common.

I own BRK and BNI, and I think this was a very, very good deal long term.

In the short run, I see it as okay, but not great. Since I've owned both BNI and BRK for years, I can wait]]> http://seekingalpha.com/article/171115-where-is-the-competitive-advantage-for-it-companies?source=feed#comment-746137 746137
I bought in at $30 primarily because I have a discipline that requires my to buy when my Stock/Bond ratios get too low. Things were spooky at the time, and ACN had a strong balance sheet.

While I agree with your analysis on competitive advantage, (I personally think that the relationships are the key source of profitable advantage because it keeps the customers you have) the issue for me has never been with the company as much as the stock.

How do you possibly value a company with a price to book greater 8 times? What kind of metrics, other than P/E, are meaningful?

I got out of ACN even though I have no issues with the company, per se. I just feel like I got what I wanted (downside protection), and I got a 20% gain to boot.

And I had no way to know whether it was still a good deal, or not.

I wish there were more info on Book-to-Bill ratios. The only hard guidance management seemed to give were sales numbers; there was not much concerning new orders.

So, I sold.]]> Thu, 05 Nov 2009 09:23:47 -0500
I bought in at $30 primarily because I have a discipline that requires my to buy when my Stock/Bond ratios get too low. Things were spooky at the time, and ACN had a strong balance sheet.

While I agree with your analysis on competitive advantage, (I personally think that the relationships are the key source of profitable advantage because it keeps the customers you have) the issue for me has never been with the company as much as the stock.

How do you possibly value a company with a price to book greater 8 times? What kind of metrics, other than P/E, are meaningful?

I got out of ACN even though I have no issues with the company, per se. I just feel like I got what I wanted (downside protection), and I got a 20% gain to boot.

And I had no way to know whether it was still a good deal, or not.

I wish there were more info on Book-to-Bill ratios. The only hard guidance management seemed to give were sales numbers; there was not much concerning new orders.

So, I sold.]]> http://seekingalpha.com/article/170927-riding-the-rails-why-bni-was-berkshire-s-best-bet-and-vintage-buffett?source=feed#comment-744035 744035
I own BNI, and while I bought it at $74 - 80, I sure looked at it when it was over $100, and oil was at $130.

BNI has a relatively high P/B, at around 2.5, but the Chinese railroads have P/B north of 30! And, I would argue there is more than a little political risk involved.

As for Buffet being too old and past his prime, let's see, there are the Goldman warrants, the Preferreds he did with GE and Harley. There is the Wrigley deal, the Mars deal, and the rail car deal (I forgot the name of the family that sold to him) -- all in the last year.

I also own BRK. I don't think he's lost it.


On Nov 04 12:10 AM Mark Anthony wrote:

> My comment is Warren Buffet has good big picture view, bad timing
> and bad pricing. Every one in the world has known for two years that
> Warren Buffett loves railways. He openly talked about it more than
> two years ago. So why why he picks a time to pay nearly the higest
> price? Way over-paid.
>
> If he likes railway, Chinese railways are way much better play. The
> capacity of China's railways transportation is stretched tot he extreme.
> Whole America's railway system has excessive capacity that is idled.
>
>
> If he likes commodity and transportation play, he should be buying
> coal mines, and he should be buying dry bulk shippers. Both sectors
> are dirt cheap compare with railways.
>
> seekingalpha.com/autho...
>
> I am afraid Warren Buffett is getting too old to calculate relative
> valuations correctly. There are so many good under-valued assets
> around at dirt cheap price. Railway will be the last thing I will
> pick up. It's going to be good, but just not as good as other things.]]> Wed, 04 Nov 2009 08:48:44 -0500
I own BNI, and while I bought it at $74 - 80, I sure looked at it when it was over $100, and oil was at $130.

BNI has a relatively high P/B, at around 2.5, but the Chinese railroads have P/B north of 30! And, I would argue there is more than a little political risk involved.

As for Buffet being too old and past his prime, let's see, there are the Goldman warrants, the Preferreds he did with GE and Harley. There is the Wrigley deal, the Mars deal, and the rail car deal (I forgot the name of the family that sold to him) -- all in the last year.

I also own BRK. I don't think he's lost it.


On Nov 04 12:10 AM Mark Anthony wrote:

> My comment is Warren Buffet has good big picture view, bad timing
> and bad pricing. Every one in the world has known for two years that
> Warren Buffett loves railways. He openly talked about it more than
> two years ago. So why why he picks a time to pay nearly the higest
> price? Way over-paid.
>
> If he likes railway, Chinese railways are way much better play. The
> capacity of China's railways transportation is stretched tot he extreme.
> Whole America's railway system has excessive capacity that is idled.
>
>
> If he likes commodity and transportation play, he should be buying
> coal mines, and he should be buying dry bulk shippers. Both sectors
> are dirt cheap compare with railways.
>
> seekingalpha.com/autho...
>
> I am afraid Warren Buffett is getting too old to calculate relative
> valuations correctly. There are so many good under-valued assets
> around at dirt cheap price. Railway will be the last thing I will
> pick up. It's going to be good, but just not as good as other things.]]> http://seekingalpha.com/article/168696-dinallo-has-common-sense-solutions-on-cds-and-regulatory-issues?source=feed#comment-730694 730694
It is a risk transfer product, just like a futures contract or an interest rate swap contract.

The issue is "contagion" , and it is why you do not see insurance contracts written on investment risk, generally. The environment that creates a problem for one creates the problem in many.

The correct way to regulate these is in an exchange, like other investment derivatives. They should be subject to the standard rules on market manipulation and clearing, in cash, everyday, at market.

There is no need for an insurable interest anymore than there is a need for an insurable interest in an interest rate swap or a grain futures contract.

Finally, I could not agree more that the repeal of Glass Steagall was the single biggest cause of this crisis. The Fed and the FDIC were formed in recognition that commercial banks were historically not regionally diversified, and often when a town or region went down, so did the banks.

However, the Fed requires that these banks hold much greater capital, with leverage at roughly 10 times, and the FDIC requires that the commercial banks fund the losses. Given the margins in this business, these banks achieve high ROEs even with the low leverage.

The Fed And FDIC were never designed to backstop an investment bank. The investment banks primary strategy is to borrow money and trade, and there is almost no way they can survive long term without 30+ leverage, the margins are far to thin.

As long as the one type of bank can own the other, we will see bad outcomes.]]> Mon, 26 Oct 2009 11:21:11 -0400
It is a risk transfer product, just like a futures contract or an interest rate swap contract.

The issue is "contagion" , and it is why you do not see insurance contracts written on investment risk, generally. The environment that creates a problem for one creates the problem in many.

The correct way to regulate these is in an exchange, like other investment derivatives. They should be subject to the standard rules on market manipulation and clearing, in cash, everyday, at market.

There is no need for an insurable interest anymore than there is a need for an insurable interest in an interest rate swap or a grain futures contract.

Finally, I could not agree more that the repeal of Glass Steagall was the single biggest cause of this crisis. The Fed and the FDIC were formed in recognition that commercial banks were historically not regionally diversified, and often when a town or region went down, so did the banks.

However, the Fed requires that these banks hold much greater capital, with leverage at roughly 10 times, and the FDIC requires that the commercial banks fund the losses. Given the margins in this business, these banks achieve high ROEs even with the low leverage.

The Fed And FDIC were never designed to backstop an investment bank. The investment banks primary strategy is to borrow money and trade, and there is almost no way they can survive long term without 30+ leverage, the margins are far to thin.

As long as the one type of bank can own the other, we will see bad outcomes.]]> http://seekingalpha.com/article/168622-cramer-s-mad-money-when-the-facts-change-10-23-09?source=feed#comment-729057 729057
That said, Cramer is a trader, not an investor. He will talk about missing the opportunity one day, and then tell you to sell a week later.

As far as bad calls, in February, 2000, Cramer declared that the ONLY companies worth owning were internet companies.

Still, even after all that, I do listen to his predictions or his calls, I listen to his analysis.

He is a good thinker, and I respect that.]]> Sun, 25 Oct 2009 09:43:36 -0400
That said, Cramer is a trader, not an investor. He will talk about missing the opportunity one day, and then tell you to sell a week later.

As far as bad calls, in February, 2000, Cramer declared that the ONLY companies worth owning were internet companies.

Still, even after all that, I do listen to his predictions or his calls, I listen to his analysis.

He is a good thinker, and I respect that.]]> http://seekingalpha.com/article/167617-david-einhorn-increasingly-concerned-about-dollar-crisis-hoarding-gold?source=feed#comment-724943 724943
There is a fundamental difference between an insurable risk and a speculative risk. It is pooling of risk versus transfer of risk.

The CDS market is a risk transfer market, not an insurance market because the underlying risk is an investment risk, and all the markets dealing with investment risk are transfer markets, including the stock exchanges, the options exchanges, and the futures market.

While I understand there have been abuses, I do not think the solution lies in identifying an insurable interest anymore than it would be to require that only the holders of a stock should trade the option on a stock, or that only grain farmers trade grain futures.

YES, there will be bubbles, but that is the nature of a speculative market.

But, I do not think the existence of the CDS market was the main problem here.

The way I assessed the Lehman downfall is that hedge fund managers took huge positions in the CDS market betting on the failure of Lehman AND THEN started "asking questions" about Lehman's solvency AND THEN started a concentrated program of shorting the stock.

THAT was the abuse, in my opinion.

As Warren Buffet has said many times, financial stocks trade on trust, and there are laws about starting false rumors, causing a run on the bank.

By putting the CDS market in an exchange, you get at a lot of these abuses because you force transparency.

At least a regulator can find out if the guy "asking questions" (i.e. promoting the rumor) is the same guy who stands to make a lot of money if it is true.


On Oct 21 09:07 AM CaptainJJack wrote:

> For the life of me, I do not see where a regulated market, similar
> to the markets for options and futures, would not solve 95%+ of the
> problem.
>
> I understand that there are some situations where the standard contract
> would not work well, but that often happens in futures markets, and
> most of the time, the basis risk is far less than the risk you are
> trying to hedge.
>
> With a regulated market, the contracts "settle" each day, in cash,
> and leverage, while high, is controlled by contract.
>
> I can see why many do not want to have even the margin money tied
> up, and that, I think, is the primary appeal of the current CDS market.
>
>
> But, that is what got us into trouble in the first place, and anyone
> doing a large transaction today almost always has to have some escrow
> to back up the guarantees, anyway.
>
> Am I missing something?]]> Thu, 22 Oct 2009 08:50:40 -0400
There is a fundamental difference between an insurable risk and a speculative risk. It is pooling of risk versus transfer of risk.

The CDS market is a risk transfer market, not an insurance market because the underlying risk is an investment risk, and all the markets dealing with investment risk are transfer markets, including the stock exchanges, the options exchanges, and the futures market.

While I understand there have been abuses, I do not think the solution lies in identifying an insurable interest anymore than it would be to require that only the holders of a stock should trade the option on a stock, or that only grain farmers trade grain futures.

YES, there will be bubbles, but that is the nature of a speculative market.

But, I do not think the existence of the CDS market was the main problem here.

The way I assessed the Lehman downfall is that hedge fund managers took huge positions in the CDS market betting on the failure of Lehman AND THEN started "asking questions" about Lehman's solvency AND THEN started a concentrated program of shorting the stock.

THAT was the abuse, in my opinion.

As Warren Buffet has said many times, financial stocks trade on trust, and there are laws about starting false rumors, causing a run on the bank.

By putting the CDS market in an exchange, you get at a lot of these abuses because you force transparency.

At least a regulator can find out if the guy "asking questions" (i.e. promoting the rumor) is the same guy who stands to make a lot of money if it is true.


On Oct 21 09:07 AM CaptainJJack wrote:

> For the life of me, I do not see where a regulated market, similar
> to the markets for options and futures, would not solve 95%+ of the
> problem.
>
> I understand that there are some situations where the standard contract
> would not work well, but that often happens in futures markets, and
> most of the time, the basis risk is far less than the risk you are
> trying to hedge.
>
> With a regulated market, the contracts "settle" each day, in cash,
> and leverage, while high, is controlled by contract.
>
> I can see why many do not want to have even the margin money tied
> up, and that, I think, is the primary appeal of the current CDS market.
>
>
> But, that is what got us into trouble in the first place, and anyone
> doing a large transaction today almost always has to have some escrow
> to back up the guarantees, anyway.
>
> Am I missing something?]]> http://seekingalpha.com/article/167617-david-einhorn-increasingly-concerned-about-dollar-crisis-hoarding-gold?source=feed#comment-723253 723253
I understand that there are some situations where the standard contract would not work well, but that often happens in futures markets, and most of the time, the basis risk is far less than the risk you are trying to hedge.

With a regulated market, the contracts "settle" each day, in cash, and leverage, while high, is controlled by contract.

I can see why many do not want to have even the margin money tied up, and that, I think, is the primary appeal of the current CDS market.

But, that is what got us into trouble in the first place, and anyone doing a large transaction today almost always has to have some escrow to back up the guarantees, anyway.

Am I missing something?]]> Wed, 21 Oct 2009 09:07:50 -0400
I understand that there are some situations where the standard contract would not work well, but that often happens in futures markets, and most of the time, the basis risk is far less than the risk you are trying to hedge.

With a regulated market, the contracts "settle" each day, in cash, and leverage, while high, is controlled by contract.

I can see why many do not want to have even the margin money tied up, and that, I think, is the primary appeal of the current CDS market.

But, that is what got us into trouble in the first place, and anyone doing a large transaction today almost always has to have some escrow to back up the guarantees, anyway.

Am I missing something?]]> http://seekingalpha.com/article/167065-large-caps-could-lead-the-market-much-higher?source=feed#comment-719226 719226
Anybody who has been in this market over the last year knows how notoriously bad the forward earnings numbers are -- just take a look at forward estimates at the start of this year for THIS year.

While there is a lot of manufacturing leverage now that companies have cut so much payroll, the current fixed infrastructure is currently being supported by large government (both US and Abroad) stimulus.

The key question is: What happens when the stimulus is withdrawn?

The key metric is the top line, not the bottom line: Those forward earnings are only as good as the sales projections.

As an aside, there has been a significant tax cut which, if I remember the numbers right, amounted to 2/3 of the tax stimulus proposed by some Republicans ( there never was a unified Republican stimulus alternative, but the number $400 billion was often used as the tax cut required --- and the only stimulus needed).

We should have seen the top line numbers rising by now if the tax cuts were as powerful as they were being promoted, and I for one, do not see it.

As far as I can see, the $250 Billion tax cuts have had almost zero effect, and this is similar to the tax rebates of last year--coming into effect in at the end of the 2nd quarter, after the recession was 2 quarters old, and just before the economy tanked.]]> Sun, 18 Oct 2009 09:11:54 -0400
Anybody who has been in this market over the last year knows how notoriously bad the forward earnings numbers are -- just take a look at forward estimates at the start of this year for THIS year.

While there is a lot of manufacturing leverage now that companies have cut so much payroll, the current fixed infrastructure is currently being supported by large government (both US and Abroad) stimulus.

The key question is: What happens when the stimulus is withdrawn?

The key metric is the top line, not the bottom line: Those forward earnings are only as good as the sales projections.

As an aside, there has been a significant tax cut which, if I remember the numbers right, amounted to 2/3 of the tax stimulus proposed by some Republicans ( there never was a unified Republican stimulus alternative, but the number $400 billion was often used as the tax cut required --- and the only stimulus needed).

We should have seen the top line numbers rising by now if the tax cuts were as powerful as they were being promoted, and I for one, do not see it.

As far as I can see, the $250 Billion tax cuts have had almost zero effect, and this is similar to the tax rebates of last year--coming into effect in at the end of the 2nd quarter, after the recession was 2 quarters old, and just before the economy tanked.]]> http://seekingalpha.com/article/166265-toward-an-economic-model-for-gas-to-liquid-fuels?source=feed#comment-714964 714964
His ultimate proposed transportation fuel is methanol that comes from getting hydrogen by cracking H2O using very high temperatures, then combing the hydrogen produced with CO2 to form methanol, CH3OH.

Olah proposes this as an alternative to hydrogen as a transportation fuel. Methanol is FAR easier to transport and store than hydrogen.

And even though the burning process releases CO2, when you consider the whole cycle, it is CO2 neutral, as long as the cracking is done in a nuclear power plant.]]> Wed, 14 Oct 2009 10:48:10 -0400
His ultimate proposed transportation fuel is methanol that comes from getting hydrogen by cracking H2O using very high temperatures, then combing the hydrogen produced with CO2 to form methanol, CH3OH.

Olah proposes this as an alternative to hydrogen as a transportation fuel. Methanol is FAR easier to transport and store than hydrogen.

And even though the burning process releases CO2, when you consider the whole cycle, it is CO2 neutral, as long as the cracking is done in a nuclear power plant.]]>