dirtyharry

The Next Crisis: Spiralling Inflation, Part II

If you think that just because some of seekingalpha's readership is talking about gold that means "everyone on the street" you are jumping the gun. People in forums such as this one are usually ahead of the curve and better informed. The adage is true, but it has yet to be fullfilled. Talk to your neighbors or coworkers about their gold acquisitions recently and they'll probably look at you like you started happy hour a little early. Only when THOSE types of people are talking about gold/silver does the adage actually apply.


On Nov 28 08:27 AM Jordan Lindsey wrote:

> You know the old Wall Street adage; once everyone on the street starts
> talking about it - it's time to get out.
>
> Thanks Nick, this is now my sell signal holding since the 2003 breakout.

Why the Stock Market Should Crash

Last time I checked, unemployment is still rising, foreclosures are sitll increasing, home prices are still falling, and companyies top line revenues are still falling. Some companies have reported decent earnings only because they were able to sell of assets (a one-time event) or fire thousands of workers (a one-time event). They will not be able to keep repeating these types of events that juice the bottom line. Therefore, the forward news - at least in the near term - is still bleak.

You may criticize the data for being backward-looking, but since all of these trends are continuing and there has been no real fundamental correction, the problems presented are in fact forward-looking as well. There will be a day where some of these numbers turn around, and that could be as early as sometime in 2010. But for the moment, investors ought to proceed with extreme caution.


>
> So, I don't know what rock you have been hiding under, but everything
> you wrote is yesterday's news. The markets don't trade on past news,
> but on forward news. Understand that, and you have the secret to
> financial success.

Why the Stock Market Should Crash

Frankly, I'm tired of someone who is bearish being labeled a "permabear." Think about what it means: You're labeling someone that they are 'permanently' of a single opinion just because they expressed that opinion today. There is a reasonable case to be made here for the market to cease it's upward momentum - and sooner rather than later. Facts and data have been presented. Not only do I agree with them, but there are a host of other reasons why we're probably close to the end of this rally off of the March 9 bottom. Those reasons include, but are not limited to, historical precedent, insider selling/buying ratios, and movement of smart/dumb money.

I am bearish for all of these reasons combined. If conditions change (ie, stock prices fall, unemployment falls, earnings rise, etc), I am apt to become more bullish in opinion. Labeling someone a "permabear" simply because they are bearish at the moment (and for good reasons I will add) is nothing more than a weak attempt at belittlement. Name-calling while simultaneously providing substantial contrary data is not going to enhance the dialog.

Is the Hated U.S. Dollar About to Rally?

As someone else has already mentioned, you have overrated the ability of the Fed or the government at large to control the markets. Think back to 2008 when they passed a ban on shorting certain stocks. Surely, that would slow or even end the decline, right? In fact, the market crashed. It was a complete failure. Fundamentally, the dollar should fall - and it will. But in the very short term, a surprise dollar rally is exactly the kind of event Mr. Market likes to pull on unsuspecting masses.


On Nov 06 03:02 PM Mr. Big wrote:

> There is certainly pressure for the dollar to rally. But the Fed
> keeps it at bay with its zero interest rate policy and it's VERY
> PUBLIC pledge to hold rates there for an extended period (whatever
> that is).
>
> As long as the Fed continues to sing this tune, the US dollar will
> likely to stay weak or continue on a weakening trend as the dollar
> shorts gain more momentum. In tandem, the stock markets will continue
> to be ever-so-overvalued....... the Fed hints at the end of its easy
> money policy.
>
> When that happens, the selling in the stock markets will be intense
> and the rally in the USD will be very strong. I wouldn't want to
> be caught short in USD, that's for sure....

Cramer Does It Again with CIT Call

It seems like most people commenting already know this.... but for those that don't I'll help clarify: Cramer is what's known as a counter indicator. He leads his sheeple in the wrong direction and ultimately they get slaughtered. He might be right on occasion, since even a broken clock is right twice a day. However, entrusting your money to this man's opinions without doing your own research is foolhardy. You'd be better off doing the opposite of what he suggests.

U.S. Bank Failures: Nine in One Day

Loved the ending! Like parents in denial over a misbehaving child, I have found Obama supporters to be equally obstinate. Instead of "my child can do now wrong" it has become "my candidate can do no wrong."

The real problem here is that most people just don't understand what's actually happening. They don't understand that printing money creates inflation, or what credit expansion/contraction means, etc.etc. In the case of Obama supporters, their first reaction is to defend their candidate and blame Bush.

The Case Against Leveraged ETFs

Here's an idea: Since the bias is DOWN for both long and short leveraged ETFs, why not go with the flow? When the market hits interim highs, sell short the leveraged LONG version of the ETF and never go long (buy) on either the leveraged long OR short version of th ETF. By only trading these at perceived market tops and only shorting the levereaged longs, the long term bias down is always working in your favor when you execute this trade.

The March Rally May Indeed Have Legs

A warning to both bears and bulls: A lot of the recent "good news" is hollow in nature and needs to be taken with a grain of salt. First, we have the age-old game of analysts coming in with low estimates, and companies beating those estimates and "surprising." Generally speaking, when we dive into the numbers, we find that often the TOP LINE decreased. That is, gross revenues were down but expenses were cut to produce an increased profit. A company can only lay off 5,000 employees once to juice the profits. Next quarter, they can't do it again. This is a one-time shot in the arm. To make matters worse, those people now get added to the unemployment pool. Maybe it's some other source of expenses they are cutting as well, but once the big cuts are in, they're done. The company is now streamlined which should help position it for the future.

Next, we have government subsidies such as cash for clunkers and an $8000 tax credit for new home buyers. The cash for clunkers program encouraged people to spend and take on increased debt, and the rest of the taxpayers subsidized the behavior - brilliant! It pulled demand forward and gave the auto industry better numbers than expected. What about next quarter? The same goes for the housing credit.

Banks also have millions of homes in their inventories that they have not yet even released to the open market. My point here is simple: The quality of the "good news" should be understood. The news is multi-dimentional. Just saying that car sales or home sales increased is single dimentional and fails to deliver true understanding.

While the aforementioned text may have a bearish bias, I am not suggesting the market is going one way or the other. We all have seen how good news, whether it's quality good news or not, can drive the market up. At the same time, how long can faux good news keep the market climbing? I certainly do not pretend to know, but I do know that I will read deeper than the soundbites the media choses to spoon feed me.

Fantasy Housing Numbers a Prelude to the Next U.S. Crash

Jeff -

So far from what I have seen the unemployment, while it has increased in all areas, is not evenly distributed:

en.wikipedia.org/wiki/...

These numbers are supposedly from BLS, and obviously as we know and have discussed are skewed lower than "real" unemployment figures.

But to address your first comment: I would certainly agree that the disparity of average housing prices has been reduced. As you stated, those bubble markets that rose the most have fallen the hardest. However, just stating that because houses have less price disparity from state to state doesn't address the negative equity situation that has been created. In the wake of bubble markets collapsing, said markets have left homeowners severely upside down on their equity. In some cases, this could be several hundreds of thousands of dollars.

I know you are aware of this. Ultimately while the pricing disparity may have diminished, those in the bubble markets are much more likely to walk away from their properties and add to their houses to the regional inventory pool. Homeowners in the more linear markets may be upside down on their equity, but on orders of magnitude lower.

These states also tend to have lower unemployment than the bubble states.


On Oct 26 04:02 PM Jeff Nielson wrote:


> First, the huge regional disparity in average housing prices has
> been greatly reduced - since the areas that went up the furthest/fastest
> have already fallen the hardest.
>
> Secondly, a greater percentage of "distressed" sellers will be "distressed"
> because of unemployment - and job-losses will also likely be more
> evenly distributed in the future for some of the same reasons>
> But, yes, certainly not all states will suffer equally.

Fantasy Housing Numbers a Prelude to the Next U.S. Crash

I certainly agree with the essence of this article, but regional and state dynamics have been overlooked. Jeff touched on this in a couple of his comments, but there's more. About half of all Option ARM loans were written in California, and a great majority of the balance of these loans were written in other "bubble states" like Florida, Arizona, and Nevada. Even though these states have already suffered a greater decline in property values than the non-bubble states, because of this Option ARM reset issue they are still MORE susceptible to large declines relative to those non-bubble states.

Not only does California have 50%+ of the Option ARM loans, but it also has arguably almost the highest unemployment in the nation (behind Michigan) at around 17% (depending on how you calculate it). When you take this combination and compare it to a state like Missouri that has more like 9% unemployment and less than 1% residential loans being Option ARMs, it's clear to see that the pain will continue to be spread unevenly throughout the country.

I am definitely not suggesting that some areas will be pain-free. However, I contend that the truths of this article will continue to be pronounced in the bubble markets and rather mild in linear markets that have less of an employment problem (or Option ARM reset issue).

Jobless Claims Rising: Employment Missing Link to Economic Recovery

The high number of unemployed for each job opening is quite troubling. Employment truly is the missing link to an economic recovery. Those that talk about "jobless recovery" fail to understand the very thing they're hoping for. There is no such thing as a jobless recovery. The term itself is an oxymoron. In the past this term was used to describe increased economic activity without true job recovery (especially in manufacturing).

So the next logical question should be: How was there increased economic activity without having real job growth? The answer: Loose credit policies. Buy now, pay later. This gave the impression that people actually had money to spending and that there was real growth. All it really did was pull demand forward, not unlike the recent "cash for clunkers" automobile program/subsidy.

Unfortunately for us, we currently in the "pay later" portion of the equation....and boy are we paying.......

If Housing Were Priced in Gold

"Unless you rent it out" ????

That's the whole purpose of any long term real estate investment program - rental income. Your comment is like saying that cars are really no good without gas. But if you have gas to fill up the tank, then their good and they should work.

I'm pretty sure your comment is addressing the buyers of the past that were flippers - trying to make a quick gain from price appreciation. I assure you - if you own real estate free and clear in even a halfway decent area, you will receive rents that far exceed the property taxes and upkeep.

Furthermore, the reason why financial consultants "beg" people not to buy real estate is because they want the people to invest in their mutual funds and other financial vehicles. If they are not real estate agents, they would lose out on commissions. Real estate as an investment is generally misunderstood. Assuming an individual is not buying some overvalued Miami condo and they actually know what they're doing, it's actually quite EASY to make 20%-35% annually in real estate.

Why? Because real estate provides growth via: 1) appreciation 2) rental income 3) tax write-offs. Furthermore, even today investment properties can be purchased with 20% down giving 5 to 1 leverage. The leverage is really key to making the returns superlative.

Despite markets like Los Angeles, Miami, Las Vegas, Phoenix etc etc all blowing up, there are many staple markets around the country that saw values drop LESS than 10%, and are currently increasing in value. Areas like Kansas City, Charlotte, and Austin were down 3% to 7%. Austin is now up, and the other two cities are almost even.

So please, don't try to convince me and others that real estate is a bad investment. It's only bad if you don't know what you're doing.....and if you're not collecting rent (you made it as if the rent was an afterthought), you don't know what you're doing.


On Sep 24 10:42 AM Moon Kil Woong wrote:

> Isn't the graph bad enough as is. The biggest issue about owning
> property is if you own it free and clear you still pay property tax
> and costs to maintain it, meaning if it doesn't go up that amount
> you loose even if it doesn't drop in value. Furthermore if you pay
> mortgage you loses interest payments as well. That's why real financial
> consultants beg you not to look at it as an investment. Perhaps a
> forced savings program but not as an investment unless you rent it
> out.

If Housing Were Priced in Gold

Ummm.... Earth to chap08 - developing more rational thinking / valuation models was the whole point of this article. Also, I had to laugh when you wrote with such presumption that that gold is the more "volatile investment." Perhaps you've lived in a cave for the last three years so I'm happy to enlighten you: some housing markets have seen price declines of greater than 60% (and that's using the "stable" dollar as the yardstick). That's some serious volatility!

Talking about how people are "anchored" to the dollar defines why the comparison to gold was being made in the first place. The whole purpose of this comparison seems to have just flown right over your head..... and calling this an interesting exercise with no predicitive capabilities also misses the point. If you use a historical yardstick like gold to measure and compare valuations to a long-term mean, you will almost certainly be able to determine if a market is relatively undervalued or overvalued.

One final note - it's not the gold that's volatile anyway. Gold is gold. It's stable and is stationary. In biblical times 1 oz of gold bought 300 loaves of bread (like today). In Napolean's age 1 oz of gold bought a fine man's suit (like today). You see - gold is virtually unchanged. It's EVERYTHING ELSE that is volatile and moving RELATIVE to gold.


On Sep 24 07:46 AM chap08 wrote:

> When you compare two investments in this way, the outcome always
> says more about the more volatile investment (gold) than the less
> volatile (housing). It's an interesting exercise but it doesn't really
> tell you anything about the future.
>
> In looking at housing values, nominal dollar values still make the
> most sense. That's because people are anchored on the dollar value
> they paid, they get wages in dollars, rents are paid in dollars and,
> most importantly, people think in dollars. Perhaps the world would
> be a more rational place if people thought in terms of gold, but
> they don't.

Consumer Credit Sees Record Plunge: Need Another Indicator?

If enough people get tired of a whiner, he can be booted out. Call it what you want.

Back in 2006 I was auditioning to become a member of an association for professional networking. It included real estate people (like me), attorneys, insurance people, and other various professions. At one point several people were asked their opinion on housing prices. Two real estate people answered in front of me, explaining how everything is fine, and that we might see prices level out for awhile.

I then spoke out. I was more in the mortgage side of the business at that time. I explained the subprime problems (remember, this is 3 years ago before the big collapse), the portfolio product issues, and the Option ARMs that are only now about to start resetting en masse. I then explained that places like Los Angeles (my location), Florida, Las Vegas, and Phoenix were going to experience price declines that could be "greater than 30%".

Not only did the entire group bark me down for such blasphemous statements, but afterwards the two heads of the group told me that I was a "bad fit" for their association. In the end, sadly, my predictions were TOO CONSERVATIVE and the damage was even worse than I had thought it would be.

It's not "America" that's being bashed here - it's the policies of the Federal Government. First they create big messes, second they gloss it over and lie about them being the culprits, and finally they create new messes with their new programs (bailouts, cash for clunkers, etc). Really now, is this what you're defending?

If we don't criticize these bad policies and blindly accept them, there will be no chance of ever seeing them corrected. As it is it's tough getting things to actually change - for the better. Imagine if we were totally silent. The Federal Government has earned every ounce of criticism they are currently receiving, and some.

The Disconnect Between Oil and Natural Gas Prices

One way to get into natural gas in through the ETF trading under UNG. However, this is not a perfect substitute for the underlying commodity. As the author as stated, when prices will normalize is unknown, but when a commodity gets close to its cost of production, it tends to stop falling because production ceases to add more inventory.

Because of the unknown time frame, one of the best ways to play natural gas with with covered calls: Going long (buying) UNG, and then selling slightly OTM (out of the money) calls to collect a premium.