Jade Bond

Dubai Default Risk

It appears I wasn't the only American thinking this was nothing more than a Black Friday sale on equities, as the SPX futures had recovered half their losses since Wednesday.

I was watching part 3 of Commanding Heights last night (www.pbs.org/wgbh/comma...) and was reminded of the contagion spread from the credit bubble bursting in Japan all the way through the rest of the 90's and their similarities with 2008. What was most fascinating, though, was seeing the word "contagion" used in the last few days in the press in the stories of Dubai, and the differences since 1990.

It's clear from the Dubai events that we are in the same latter stages of this financial crisis, since the reactions to this one are comparatively muted. The third part of Commanding Heights is highly recommended as a perspective on how financial crisis spread and then taper off, especially as a means to learn how we've reacted differently to the crisis of 2008 compared to then.

In spite of all the criticisms of policies (and they are certainly justified in many cases), it's clear many of the same mistakes then were not made this time.

Not Quite 1987

What's more interesting is what was not said here. Markets around the world were down 3% on Thanksgiving while we waited for them to open in New York.

While they were officially down the day after Thanksgiving relative to the last trading day two days earlier, they had recovered half their losses on Friday from a global perspective -- the SPX futures were UP between Thursday and Friday roughly 1.5%.

Thanks Bespoke, for posting the Bloomberg chart on Dubai CDS, too. Readers may want to read that story and compare to the Friday market action. I have some comments on the significance in history between the 90's, last year, and this year. (seekingalpha.com/artic...)

Gold: What Professional Futures Traders Think

Funny. It seems the commercial traders are actually speculators themselves on short term patterns, they don't understand the ruinous nature of the fiat money manipulated system infecting the global economy, or they have a strong vested interest in discrediting sound money.

I've provided a detailed explanation in my blog: stocks-bonds-currencie...

Full Disclosure: Long GLD.

PIMCO High Income Fund Cannot Support Its Share Price

I didn't see the look on his face, but if I were to speculate like Joe did on a man's motive whom I've never had the chance to ask directly (actually, I am, aren't I?), then I'd guess Bill took over this fund because it was simply the best game in town.

FD: As StockTalk reveals, I sold all my PHK in early August to lock in my gains for the year, not because of Joe's chatter, though. Economic indicators, stocks, bonds, commodities, all suggest either over-priced assets across all classes or horrible inflation right around the corner. Something has to break down soon. Having all that cash in place for another panic is the best position to be in for me. But I wouldn't short anything right now except 30-year bonds. Monetary inflation alone could make everything today a floor of support.

I don't know precisely what will happen, but a good market yield for high-risk bonds in this environment is 12-15%, suggesting PHK is not under-priced. Instead of being greedy for 100% gain, I settled for 50% and will patiently wait for some fright to spoke everyone and provide a new entry point.

I still have standing orders to buy PHK below $9.


On Sep 10 04:07 PM Jim Walsh wrote:

> Bill Gross was chomping at the bit to dive into what he called the opportunitiy
> of a Century in the fixed income realm. I saw the look on his face.
> Like a cat that just swallowed a mouse!!

PIMCO High Income Fund Cannot Support Its Share Price

You crack me up Joe. Yesterday's price by my estimation puts your short about 16% in the hole not counting yesterday's dividend charge and today's market, unless your hedging has compensated.

Readers may want to also read en.wikipedia.org/wiki/..., en.wikipedia.org/wiki/..., and "The Disciplined Trader" by Mark Douglas. I just started the section yesterday about how to change one's beliefs to reflect the reality of the marketplace, when the marketplace won't cooperate with one's certain perception of reality.

Someday you might finally be right, Joe. There's good reason to have confidence in statistics. But it's just as plausible NAV will rise and portfolio adjustments bring this fund back to the normative arrangement of high-yield instruments.

I'm sure Gross is having a good time managing this as he uses his understanding and insights in the government interventions and politics of the age to take advantage of the rare opportunities presented to this funds objectives. Something I might add few garden-variety MBAs are likely to grasp or know how to exploit as well as Gross.

S&P 1500 Stocks vs. Pre-Lehman (9/12/08) Levels

I'd like to know why pre-Lehman is considered normal. It sounds arbitrary. On a longer time-frame, pre-Lehman appears more like the end of an over-extended long mini-bubble in equities, where risk had been "banished from the earth".

The March lows are a better starting point from which to measure "normal", as it is the end of the fastest blow-off of hot air in the history of the S&P 500.

Debunking the China Growth Myth

It seems everyone is confusing politics with economics. China stinks as a bastion of free market economics. But that has nothing to do with commercial growth except in 100-year increments. It seems western cultures don't have the capacity to think beyond 12-month cycles and so we impose generational truths into seasonal economic time frames.

China IS booming economically, and doing so by manipulation. That's unquestionable. It won't be sustainable in the long run, but it took America and Russia both more than two generations to destroy their economic systems through government manipulation of banking, credit, and industry.

China will suffer the same fate if politics don't change, but it won't be soon, and it will destroy everyone else around them as they consume the world's resources and put a choke-hold on natural market prices for the rest of the world who have over-burden their productive capacity by socialist politics and fiat fiscal policy.

China will get themselves into the same hole, but the West is far ahead of them at the game of economic manipulation and currency corruption. Jake Towne here at Seeking Alpha has plenty on that theme, and one can get all kinds of historical evidence at mises.org and fee.org.

Meanwhile, there's lots of money to be made on China's growth while we wait. The alternative is to impoverish oneself in a cocoon of altruism by blindly embracing Western economic capitalist facades destined to ruin Western economies.

The epitome of hubris is to think one can layer capitalist finance over socialist policy and raise the standards of living for the poor to bring about the Utopian society. East and West are doing exactly the same thing with different methodologies. For crying out loud, there's nothing about Bernanke, Geithner, Paulson, Bush, and Obama policy that comes from capitalist theory. It's market manipulation of the highest order, different from China only in the taste it leaves in your mouth.

The fact of the matter is, all nations are corrupt, just corrupt in different ways. There is no "opt-out" alternative short of living as a hermit in a cave.

China's growth is as real as it gets, even if it's artificially produced. Smart money will win big by recognizing that fact and using one's domestic systems to take advantage of it before each of our economies fall into the ash-heap of history.

High Yield Investments in a Crummy Economic Environment

"What are your favorite income generators?"

Selling puts when the underlying is in the lower half of the Bollinger band.

Currently did this with GLD, HYG, SSO, and FCX, rolling or repeating monthly.

I also own FCX 2017 bond which I bought when it was yielding over 8%

I'm also going over PHK portfolio looking for cusips of juicy corp. bonds. Some of F looked good in June. Haven't yet decided on another in particular.

PHK: In Search of the Premium

I found out yesterday, in the car industry there are also rare events where certain cars sell at a premiums to MSRP when the product is rare and not likely to ever be available again.

In that light, I've published an article titled "When Premiums Make Sense" (source: stocks-bonds-currencie...)

PHK: In Search of the Premium

Actually, I might be. Not for one house; that would be silly.

But if I had real-estate develpment skills, the money, and opportunity to buy a controling interest in half the city of Detroit (you know, all those $100 houses sitting idle) after the Unitest States federal government had passed a bill to spend $1.3 trillion revitalizing the economy around Detroit, I might do just that, but of course I wouldn't be too eager to raise the value of the individual houses until the revitalization effort had taken a firm hold.

On Aug 14 11:19 AM Joe Eqcome wrote:

> iel76
>
> Would you buy a house for 40% more than the asking price?

PHK: In Search of the Premium

Please excuse my ignorance, but that just seems wrong. If I own one security in my fund, 1000 shares of Google (my equity base?), my growth in assets as measured in dollars (holding all other things equal) is a function of the growth of Google's stock price.

Now if I add in my ability to borrow against those 1000 shares, and buy another security on margin, I'm employing leverage and can get additional growth potential.

So applying leverage on an existing portfolio, why wouldn't that sentence read "growth in assets is a is function of their equity base, the growth of the equity market value, and the leverage which it can employ."

On Aug 12 11:02 AM Joe Eqcome wrote:

> Jade Bond
>
> A CEF's growth in assets is a is function of their equity base and
> the leverage which it can employ.

PHK: In Search of the Premium

I can't tell how net total assets (row 'O') fits into the formula and results. I can't tell how you concluded they would shrink from Avg2009. If the fund reverts to the mean, and the bond market doesn't collapse from here, why isn't NetTtlAssets shown to be up in 2010?

If you believe we are going to have an aftershock in the near future from the 2008 global financial collapse, this make sense. What if the real-estate market stabilizes, defaults stop rising, and that market normalizes, too, or even if things simply stabilize and don't get any worse than now? Your projected declining assets looks wrong on the surface.

What does your table look like if Assets and Shares revert to the mean instead of shrink? As a corollary which has nothing to do with your analysis, but is a puzzle to me, if this fund is closed-end, how is it the outstanding shares have been dropping and then going back up?

Thanks for your in depth analysis.

Buffett's Betrayal

I'm sorry, but you missed my point. But yes, I shouldn't have used hyperbole -- it distracted from my point.

The basic premise of investing is buy low, sell high. It is not a margin of safety to sell puts (an obligation to buy) at the top of a secular or cyclical bear market. It also contradicts his patience theory.

If he was patient, he would have waited to sell those puts at the proper point of the secular or cyclical cycle, and had the margin of safety from both the timing of the entry point and the time to expiration.

Having enough cash to cover a loss from a bad trade is not how I interpret his margin of safety theory. Instead it appears he bought into the same euphoria as real-estate investors and stock market speculators -- specifically, that global risk had been conquered and the boom-bust business cycle permanently destroyed. I can't see any other explanation for not having waited for the inevitable correction of an over-bought over-valued stock market.

On Aug 08 11:43 AM Dave Shafer wrote:

> In fact, if you assume the stock indexes dropped 50% over the next
> 10-20 years then he would owe less cash than he has on hand. I call
> that an pretty good margin of safety. Meanwhile he gets to invest
> the up front payment for 10-20 years.

Fractional Reserve Banking in Pictures

Good luck on your campaign. I hope it goes well. Like the article, too, no objections.

I hope you have something equally clear and easy to understand on the solution. Something that could be implemented without completely rebooting and turning economic activity on it's head. I don't want any Mad Max realities in my kids or my future.

There's gotta be a sensible solution. This is the best I've seen so far, but I think it needs some details flushed out: mises.org/story/2926

Buffett's Betrayal

Good point: "...to survive it. That often includes things they would not do otherwise or believe in otherwise."

But you have his events backward, and we aren't ignoring the context of events. Selling massive put options at the peak of the stock market contradicts Warren's philosophy for taking a position with clear margin of safety, putting his entire life fortune at risk. This took place *before* the crash. Meanwhile, management of FFH knew what was coming (as well as many others), but Warren appears to have been tripped up by hubris and the same risk-free euphoria of the evil speculators he's so quick to criticize.

So its no wonder that afterward he was put in the same position as the speculators and greedy bankers who expected the world had found the nirvana of risk management, and had to scramble to convince anyone they could to pour money into the system to keep it afloat, especially taxpayers, even if an intelligent analysis reveals the poor will pay in the future for this non-capitalist solution.

I'm not saying he should have supported the demise of the American economy so we could reboot society, but it reveals he truly is a pseudo-capitalist (modern form that rests on government privileged), who puts money ahead of morals, and a human who sometimes forgets his own standards and practical advice and gets fooled into quick easy money schemes.

Yes, it's hard to do the right thing in tough times, and that's precisely what good leaders are supposed to do -- the right thing. If the consequences are devastating, the other right thing is to fess up to the errors of one's way, re-evaluate one's involvement in immoral systems, and shake off the entanglements of associations that are at the heart of the problem.

If you want Capitalist leadership, look toward Hillsdale College, not Warren Buffett. Probably the only college left in America that puts their money where their mouth is, refuses to sleep in bed with Government, and remains a viable entity that promotes by example the virtues of *real* capitalism. Buffett is a money-making leader, which is *not* the same thing as capitalist.

Either that or his purchase of a major bank in the first place reveals he doesn't realize the inherent moral bankruptcy of the most despicable insider's club ever invented, the modern private/public government-insured banking industry. Buffett is not stupid -- one must presume he fully understands the banking system, it's prostitution of capitalism, but realizes the money making potential for which it was designed. No wonder he bought a bank -- it's about making money, not providing for the common welfare.

Buffett is a money making power house - no doubt. Hopefully American's will remember the days when virtue was measured by one's beliefs and actions, not the amount of money they acquire from them.

On Aug 06 10:10 AM Houston wrote:

> When an economic system is headed for collapse, reasonable people
> do what they have to...to survive it. That often includes things
> they would not do otherwise or believe in otherwise. A lot of that
> has happened in the last year.
>
> To criticize Buffet's action's in an economic vacuum as this article
> seems to...seems self aggrandizing, self absorbed and nauseating
> to me. Sorry, but it does.