David Lentz

Looking for the Silver Lining: Predicting Our Future

More importantly, both Apple and Google (along with others that will do well in the weeks and months to come) are internally financed and are not dependent on the debt markets to fund their growth. Having little or no debt on the balance sheets is now more important than ever.

Options Trader: Friday Outlook

The thing that is most worrisome is that the powers-that-be are seemingly running helter-skelter, pulling one scheme after another out of ... in order to deal with the crisis of the moment.

I suspect that a lot of these "fixes" are simply triggering the next crisis.

In the end, we will be unable to avoid the consequences of decades of fraud and abuse, mainly in the mortgage markets, but also in the broker-dealer community, the banks, and who knows where else.

I suspect that the bottom lies ahead. There is no value in this market, only chaos.

Gold Bull Sees Huge Run for Gold

Another thought that occurs is that if foreigners effectively "own" the Treasury -- or at least the Treasury's ability to sell more debt -- that they might decide to exercise some control, and that we might see our taxes going up a lot more than politicians would be otherwise inclined to do, in order to shore of all that debt they hold.

While the Treasury can "print" all the "money" they want, since that "money" is "printed" by issuance of debt, all that has to happen to make that an undesirable strategy is to refuse to buy it. You can't push a string. Anybody know what the rate is on Zimbabwe bonds?

Friday Outlook: T.G.I.F.

Mr Fry, I found your choice of graphic to be perfect.

This will end the same way as the wicked witch did, with the government dissolving into a steaming, screaming puddle.

Of course, in America the government IS the people.

Chill out, preserve your health and sanity. Don't have a stroke over this.

And now a short commercial interlude -- I'd like to plug my new money fund, The Sasquatch Money Fund, 100% guaranteed by the US Government. Anticipated returns of 15%.

Act now and send in your cash. No checks, please -- I accept only cash.

And please be sure to print your own receipt, in the unlikely event that you need it to present to Hank Paulson, as in the interests of efficiency, and saving our clients' money, we do not supply receipts or records. I accept unmarked paper bags of US currency (they can also be sent through the mail, and there's no need to insure them), delivered to my doorstep.

Please tell your friends (and even better, your enemies) about this exciting offer.

Options Trader: Tough-Decisions Tuesday

From what I have seen, we are only about halfway through the number of existing ARMs out there. We can expect the beatings to continue until morale improves, or until somebody changes the machine that is delivering the beatings.

Options Trader: Tough-Decisions Tuesday

Let me try once more to be clear about this -- Homer Simpson is sitting at home, knocking back a brew or six, with the thought of what is he going to do when his ARM resets? He knows he can't handle the payment, and he knows his home now has a lower market value than the balance on his loan, so he cannot refinance?

What has occurred to daye, is that the Homers of America have sat on the train tracks, watching the train approach (admittedly, some have just walked away from their mortgages before going broke), closer and closer, until they are busted, without a home or assets, and their house goes to further depress the housing industry as yet more excess inventory.

Under my scheme, Homer gets a letter from his mortgage company that tells him his mortgage has been replaced -- by virtue of the new law -- with one that locks in his current interest rate (that he is able to make the payments on) for 130 years (for example). Now Homer has no choice in the matter (unless he can find a buyer, and if he could do that, he wouldn't be in the mess he is in), but he gets to keep his home, and is not driven into bankruptcy or made homeless. He still has whatever disposable income he had before to support the rest of the economy. OTOH, he is chained to that house for the rest of his life, or until home values appreciate enough to enable him to sell it.

Cost to the taxpayer? Virtually nil. The punishment is shared by homeowners and lenders alike, as the lenders do not get the revenue stream at the rate they originally planned on. The chain reaction of imploding ARM resets, mortgage failures, lender and borrow failures would be ended.

It's easy. No hand-outs or bail-outs required.

Options Trader: Tough-Decisions Tuesday

Phil and Cover -- you misunderstand me -- I do not think that ANYONE would willingly sign up for a hundred-year mortgage. But rather that the still-outstanding ARMs (which are going to continue to implode like clockwork as their rates ratchet up), be forcibly converted to fixed-rate loans, with the rates at reasonable levels so that they can maintain the payments, but that they would suffer for their foolishness, and their lenders not bear all the punishment, by having the terms of those mortgages extended until the total interest collected would be the same as it would have been under their current ARMs.

I repeat, this would only apply to existing ARMs. New mortgage seekers would be free to choose any kind of mortgage they could obtain (except ARMs, which should be barred from use by homeowners). The intent here is to stop the implosion of the existing ARMs, and stop the build-up of the housing overhang. That's all.

And this would do so, far more cheaply than any other scheme. And at this point, it appears that cheap is a major consideration, Uncle Sam having blown the family nest-egg at the local saloon.

Options Trader: Tough-Decisions Tuesday

There is an even cheaper way to stop the madness.

Simply require that all holders of ARMs convert them to fixed-rate mortgages, at the going rates that the GSEs offer.

To prevent the lenders from getting a haircut, and taking all the pain, merely extend the terms of the new mortgages such that the lenders will ultimately receive all the interest that they would have if the ARMs had continued, or some reasonable fraction of that money.

The net impact of this is that the borrowers that are in over their heads get effectively converted to renters, with mortgages of over a hundred years on houses whose value is below the amount on the mortgage.

So they can't sell the homes until housing market valuations recover, but they are also not forced out of their homes, dumping the repo'd properties onto a scrap heap that is crushing the industry.

In the end, these folks are probably toast anyhow, but at least it does not happen in just a year or three, but instead is spread out over decades, with unlucky individuals facing up to their problems as they are either forced to move or suffer economic calamities (lose their jobs, divorce, etc) that place them in the position of having to deal with their under-water mortgage.

This would immediately stop the inventory build-up in unsold housing, would allow millions of homeowners to remain in their homes (albeit saddled with a debt burden they will, in all likelihood, spend the rest of their lives paying off), and allow things to stabilize in the ravaged housing industry.

Then we can have a measure of sanity (not too much, as that wouldn't be normal) in the financial industry, and begin to lay the groundwork for a recovery. The powers that be would have the time necessary to implement a sane regulatory framework -- instead of some emergency claptrap that will be riddled with a whole new set of problems, which is where we are heading now.

It's really easy to bring all this to a responsible conclusion. Instead our collective head is on fire, and we are attempting to put it out with a hammer.

Apple: Leading the Way to a Total Tech Breakdown

People, people, people -- please remember that equity markets are part fundamentals and part emotional response. Prices are driven mostly by one or the other of these factors only at the extremes.

Anyone claiming looking at the state of the global economy and expecting ANY company that makes its money selling to the public to do well over the next 6 months to a year is looking into another universe.

We can rationally expect to see PE compression as an ongoing fact of life, so that if AAPL's earning rise by 20% and the PE compresses by about a third, it will still decline in price.

It really doesn't take a rocket surgeon to see this. What it means is that APPL will be a better buy later than it is today, which is exactly what Zach has said. You can either ride out a downturn and wait for better days (which I think everyone will agree are eventually coming), or sell now and buy back in at a lower price point.

Different strokes for different folks.

Only those buying now and expecting to reap profits over the next quarter or two are going to be disappointed -- I think there's a saying, something about fools and their money, that might apply here.

Why It's Going to Be a Long Recession

"... Kinda makes the war in Iraq seem cheap, doesn't it ..."

Nope. Not even a little bit. Even the grand gesture to bail out the Chinese, Japanese, and PIMCO is small compared to the amount we are burning in Iraq in order to ... ?

Oh yes, keep the terrorists over there.

But what about the terrorists in Washington?

GSEs Into Conservatorship: Can Housing Stabilize Now?

"What a stupid comment. Government backed is risk-free."

Tell that to the folks in Zimbabwe.

According to the pie chart on the tax forms, in 2006 we paid 6% of our national outlay merely to pay interest on the debt. Since then, the debt has expanded a LOT, and this will boost it still more.

How long until Uncle Sam has trouble making the payments on the interest?

Yes, he can always kick the monetary printing presses into high gear, but to reiterate my initial point, just ask the folks in Zimbabwe how well that has worked out.

When we have a national interest expenditure in the 15% and up range, it will be VERY DIFFICULT to get the debt under control (as if it wasn't difficult before!).

Thursday Outlook: Commodities, Emerging Markets

I like the notion of adding Canada as well -- it's a lot closer to most of use culturally and economically than a lot of the other foreign ETFs. Of course, maybe that makes the S&P or Russell indices close enough to not need it. I dunno.

Chile, Facing Challenges, Sees Stocks Stall in the Second Quarter

In addition to being a large fertilizer producer, SQM is also the world's largest supplier of lithium, making SQM (and indirectly ECH) an interesting play as 2010 approaches, with the promise of plug-in electric hybrid vehicles utilizing lithium-based batteries (there are a number of assumptions required to get here, but they seem pretty sound) with amounts of lithium FAR in excess of that used in the typical notebook computer or camera battery.

While fertilizer sales are headed lower -- temporarily, people still need to eat, and the last time I checked, they were still making people at a ridiculous rate -- this is a temporary situation that is probably best treated as an opportunity to accumulate more SQM. Hopefully, the managers of ECH will be loading up on SQM at depressed levels.

Food never goes out of favor for long, and it takes fertilizer to make food.

disclosure: yes (isn't it obvious?), I own SQM.

Options Trader: Wednesday Outlook

OK, so why can't you construct options plays (straddles, strangles, and the like) between options on ETFs of commodities, stock and/or currency indices, and capture the shift that way?

Pretty much everything is monetized in the form of ETFs today, and in many cases, there are options on those ETFs.

Or did I completely miss the point here?

Real Interest Rates Are Actually High

Let's see if I understand you here. If real interest rates actually are "high", then the Fed should be able to drop them, even into negative territory on a nominal basis, without sparking any significant inflation -- if the nominal rates really are high, that is.

Do you really believe that? It doesn't pass the smell test for me.

But I will allow that perhaps things are sufficiently damaged that the Fed should be driving rates into the subzero realm, flooding the markets with ever-more-copious amounts of shiny new debt to replace that which has gone up in smoke.

But "perhaps" does not mean "certainly". I think that something more than algebraic smoke and mirrors is required to demonstrate the reasonableness of this theory that rates are in actuality, high at the current 2% level.

The way I was raised, rates are "high" when they exceed the rate of inflation sufficiently as to dampen inflationary expectations. And that simply ain't the case.