FatPat

51.68% in 165 Days

I do not know if this is a beginning of a bull or a bear. But, certainly, at these level the US market is not a buy. Even in the positive scenario that the S&P earns its 10 year average of 50 in 2010 it would stillbe a P/E of 20. Then consider that the consumer will not return and that the government cannot forever sustain its current cost to income ratio of 180% and you will have to come to the conclusion to sell.

Gold Is the Only Long Term Bull Market

The Dow:Gold ratio is the best way to determine when gold is expensive compared to stocks.

Historically God is expensive at 1.
Stocks are expensive at 40.

Right now we are at 9. So Gold is still cheap considering the economy. We are not quite in the middle yet and momentum is on our side.


On Jan 27 08:35 AM yellowhoard wrote:

> I have held physical gold for 15 years. Having slowly accumulated
> my position, I am now wandering about an exit point. What metric
> should I use to determine the optimal price for a conversion into
> bonds or equities?

Infrastructure Spending: China Knows

Then you should have voted for Ron Paul. He could have cleaned up the American mess...

Face it, America is not competitive, your bridges even crash. You do not have any engineers, because all went to Wall Street. You cannot export stuff, because you can t even build decent fridges anymore. Look at your car industry. Even you aircraft industry is loosing big time to Airbus. This goes so far, that even the US Army wants to buy Airbus for its Service.

And the superiority of Airbus is even more incredible, if you consider the political nature of it.

every part is built in another European nation and then they are flown by AIR! to Toulouse (France) were their are assembled. This is so inefficient. But it is still godd enough to kill the best the US has to offer.

Face it, the devaluation of the USD will continue. America is finished. The only question is: Will they go down with/ or without a war!

Will Oil Traders Get Squeezed?

It is a trader´s market. There you have it: too many traders still alive and well. Hope they go bankrupt. First they played it on the upside, no they play it on the downside. These people are not only useless to society, they do actually harm. They are scum! Think about all the alternative energy products that cannot be undertaken because of these kiddies. Think about the producers who go broke. This causes serious dislocations!

$35 Oil: Steve Forbes Was Off by Two Years

Interesting claim, not out of question! They did it with Gov Bonds (long), Credit Markets (long), stock market futures (long), Gold (short) and now Oil (short)!

S&P 500 P/E Ratio: Still Above Long Term Lows

not quite, deflation kills stock prices as assets on balance sheed need to be written down earnings diminish, earning power also deteriorates

Inflation generally is better than deflation as nominal future earnings potential increases. Stock picking in inflation important as company needs to have pricing power to increase prices with costs. In inflationary scenario firms that do not have big lon-term assets fair better as inflation inflates capital expenditures.

Best scenario for stocks is small inflation.

Next to inflation the interest rate is important for p/e. That is the reason why Japan/Switzerland worldwide highest p/es. They have the lowest interest rate this translates into smaller opportunity costs for holding stocks.

Asian and Latin American Markets: Where the Economic Upswing Could Start

You are exactly right! Singapore, India are the most interesting markets righ now! No credit squeeze there. In Singapore you can find listed companies doing business 100% in China with P/E 2-3, ROE 40%, no debt, still growing, market leaders in their niches, under net cash! I am not kidding! For example china s leading backpack and luggage producer China Zaino, just sponsored the Chinese national gymnastics team at the olympics.

Baidu vs. Google: Who's the #1 Country-Specific Search Engine?

Well, I do not know. But I do know that you can make a killing here with Baidu at 100 USD!

Jim Rogers Speaks Out - Where Is He Putting His Money?

Hard to tell. Gold dropped 100 USD today, but why? Is it possible that somebody big like the FED, or JPMorgan, Goldman Sachs is shorting gold big time to reduce the panic? And to avoid people taking money out of the system by buying gold?

Goldman Says "Trust Us"

Somehow I get the feeling that Goldman is in really bad trouble, worse than Morgan Stanley. People do not notice since Goldman, due to its reputation and influence, can afford to be even less transparent than other financial instutions. They will have a reason for giving options worth USD 2 Billion to Buffett for free just to get him to lend money at 10%.

Goldman is way to expensive. Short Goldman if it will be allowed again!

Does Warren Buffett Think Goldman Is More Creditworthy Than GE?

You are all dead wrong. Its the other way around. Not Buffett wanted the USD 3 B. I am sure he wanted more. GE wanted the Buffett name tag at the cheapest price possible. If they have to overpay, they rather overpay on USD 3 B than on USD 5 B. This comes at the price of the callability.

Anybody who claims that Buffett has not done a great deal should go back to school and study Black&Scholes option pricing. Given an implied 5 year volatility on the GE stock of roughly 35% and the fact that they are in the money already by USD 2, gives these Calls a market value of almost USD 1.5 B. This means Bufett only paid 3-1.5= USD 1.5 B for a 10% dividend with the face value of 3 B. This leaves him with a real interest rate of 20% plus the capital gain of 120% on the preferred (3Billion +10%of 3B). All in all he earns 3 dividends at USD 900 M and is redeemed at 3.3B = USD 4.2 B.
This means he gains (4.2-1.5)/1.5 = 180% in 3 years = 60% p.a. under the assumption that the options have a fair value of USD 1.5 B. If a certain pay-off of 60% p.a. is not a good deal on preffered stocks that are more senior than normal stocks, then what is a good deal???

Depressionary Tales

I see it very similary. I think it is not the right choice to invest in banks right now. I think that investment banks are the most vulnerable. But also insurance companies that have unhedged equity exposure. Increasing interest rates would be a death sentence in this environment. Banks need a steep yield curve in order to make profit. The problem is that the flight to savety decrases the yield on lon-term governments thereby effectively flatening the yield curve. At the same time the real short-term borrowing rate for banks is much higher as 2%, since banks do not trust each other anymore and are afraid of collapsing banks due to highly leveraged balance sheets. The government is also worried about inflation, it said today. I think this can only be a bad joke. Inflation was high due to increasing prices for commodities and increased import prices due to a weak dollar. This period is over. I personally think there has to be action and is has to come fast:

1. Prohibit short selling. That is what leads to stock prices of financial institutions leading to zero. This in turn scares away customers and deteriorates credit rating. The revenue base of the institution fails and refinancing debt becomes more expensive. A death spiral.

2. INJECT MORE LIQUIDITY. Inflation is not a problem. Federal tendor offers are oversubsribed 4-fold. What is a 2% repo rate good for if nobody can really use it. We need a steep yield curve.

3. Prevent house prices from falling. The easiest way to do this, is by ensuring that homebuilders that DECIDE to fault on a mortage for financial reasons are not allowed to do this for poorly speculative reasons (if theay can afford to pay the loan). This will prevent many houses from getting on the supply side.

4. Grant government loans at very low interst rates and long maturity to homebuilders who really cannot afford to pay mortages any more.

By taking these steps most of the other problems (falling stock market due to banks, insurances, real estates firm writing down/collapsing) will be solved simutaneously. Many people are asking: How does this affect the real economy, it is paper money burning here. This is far from the truth. The American stock market capitalization is bigger than the entire GDP. Most people are stockowners. Retirment plans are mostly defined contribution not defined benefit any more. This means, people WILL START SPENDING LESS when they see their saving of year shrink dramatically. This will lead to less spending, sell of houses, lower prices, lower stock markets, and so forth. We NEED INTERVENTION.

And the moral?

FIRST: I think we see now how dangerous financial derivatives really are. This time it is credit derivatives. But, the same is true for equity derivatives. They allow uncontrollably high leveraged balance sheet and fuel contagion between institutions and nations.

I see this crisis as very, very dangerous.