sidney

Homebuyer Tax Credit: Update

I think the economic concept that housing prices increase by the amount of the subsidy is way off base in this scenario. My experience in applying the first time home buyer credit was to sit back and watch the housing price of the house I was considering fall about 10k every 2 weeks before I pulled the trigger... the house cost 290K to build and I bought it for 177.5 and was sent a check for 8K+interest by the gov't. There was no evidence that the housing price increased due to this credit. What DOES HAPPEN is that after I bought the home I spent money. I hired a gardener to touch up the lawn(weeding, mulching, etc), I bought shades, I bought kitchen stuff. Hunter Douglas loves me. Bed Bath and Beyond loves me. Home Depot Loves me. Never mind whether the home buyer credit will simply adjust prices up by the credit... this bill is designed to kick people off their lazy renting butts and spend money like mad like every other home buying fool and at least temporarily revive the economy with real demand. The supply of too many homes is the problem for home prices and to probably the home buyer credit won't solve that so I don't expect prices to rise instantly upon the credit being extented. What does seem strange though is if it is extended to move-up's then maybe it becomes a bewildering mess of musical chairs.... at the very least folks might switch homes to get the $ to pay for the refinancing at these crazy low FHA rates... The winners might end up being Uhaul and other movers in the great move-up of 2010...

China's Huge Property Bubble

I've been following this story as well for a few months at least and I thank you for your contributions to the historically significant bubble forming. However, what I would like to see is a list of executable actions that can be taken by a US based investor who wants to bet against this bubble. This list should enforce risk management techniques ala the hedge fund manager Paulson's bet against the US housing bubble using by only putting part of the portfolio down at a time leaving room to be wrong longer...(bubbles have a tendency to outlast shorts...). While there may be no CDO market to short like Paulson did, what other means might be available to the average investor to invest in such a bubble bursting theme. What ADR's might have out of the money put options that could be bet on a little at a time that would offer a huge pay out if the theme turns out correct. This theme suggests that a "black swan" type strategy is appropriate. It is not enough to lay out the theme... we need to offer a plan... We should be able to look at the domino effect that played out in the US and European bubbles bursting to further strengthen the plan. It seems the crisis rippled through industries slowly in US and Europe. Plenty of time to act as long as you plan out the different stages in the ripples. Look to the early Roubini work prior to the bubble crashing for his ~20 steps and apply them to China. How many still fit... can you lay out a case that China would see the same ripples and lay out the black swan bet across the calender...

Romance Stocks: No Matter What, Don't Fall in Love

Surprised you didn't pick up on Tencent or Alibaba in addition to BIDU if you were looking into the Chinese tech space...

Romance Stocks: No Matter What, Don't Fall in Love

One of the near future "romance stocks" will no doubt be PANL The Fool's already picked up on it in their Rulebreaker's portfolio.
I wonder if that is what they are attempting to do with Rulebreakers. Do they have a better articulated criteria for finding the next Romance stock? And do you have to wait for them to be a romance stock or try to catch them before they become a romance stock?

Bogle: Investors 'Getting Killed' in ETFs

Some investors do struggle to defy human instinct and buy when everyone panics and sell when everyone is euphoric. Taking that approach(and it is indeed very difficult to fight the crowd pressure emotionally). Within my Vanguard 403B(having only ~90 mutual funds to choose from) I was able to achieve(as of 5/31/09) a 1 YR 40% ,3 YR 21.6%, 5YR 22.8 % annual rates or return. By paddling against the crowd behavior I managed to outperform the entire universe of mutual fund managers on a 1 YR and 3 YR basis(14K, 12K) and all but 5 mutual fund managers on a 5 YR basis. This was using Vanguard funds but allocating them against the herd grain. If I picked the long term treasury fund to park my assets instead of the money market fund I could have done even better.
Bottom line is that the mutual fund managers are not going to reallocate to cash when things get overheated and buy when they get oversold. Neither individual investors as a group or professional money managers have much success in "market timing". Mutual fund managers simply don't do it. They are so concerned with following their benchmark that when they get to much cash coming in that they can't invest fast enough they close their funds instead of letting the cash position build up for the rainy day where they could go on a parade buying stocks when their cheap or using that extra cash to meet the redemption from shareholders so they don't have to add additional price pressure by liquidating even more of the stocks that are down in price. The fear of under performance drives mutual fund managers from the long term asset allocation decisions to protect capital. When the crowd panics, individuals sell stocks, ETFs, hedge funds, and mutual funds. Prices collapse. This is THE time to buy and when markets are down 50% its a John Templeton generational moment to step up and buy as much as you can and borrow as much as you can to buy more.
The only vehicle I know of that might allow a manager to reallocate to cash might be a Closed End Fund. By being protected from the flows of Investors the CEF manager can go to cash and back without fear of under performance. Paramount is retaining the NAV of the fund so their fees go up. Consider Russian CEF that Mobius managed, I remember him once saying the risks are too high I've gone mostly into Cash, by doing so he avoided a big crash and could readily buy up bargains after the crash. I doubt an open end manager could have done this. I tend to think an ETF couldn't have done this either.
THE CEF provides the manager room to flex. CEFs also provide valuable financial behavior data(premium/discount) about how investors are willing to pay for a basket of assets relative to their worth.

What Use Is Economic History?

It is important to understand that academically speaking there is a civil war within the community divided across the Atlantic. The English variation of the theme is to house the economic historians in the history department thus freeing them from the shackles of the prevailing preferred economic models that would be imposed if housed within an economics department. Whereas in the USA the economic historians are typically housed within the economics departments and have had to force their students to back up such models as EMH, CAPM, Modern portfolio theory etc. based on rational behavior, perfect information, and normal behavior in markets etc. Within the USA there were a few excpeptions to this split betwee England and USA. Yale's history department stood out most as one that continued to house the economic historians within. Occasionally students of the Yale school such as Dennis M. P. McCarthy(Iowa State University) would land tenure in history departments outside of Yale and thus the Yale model would germinate outside occasionally. Dr. McCarthy is now emerits so no doubt Iowa State University opted to bring the next economic historians back into the economics department. THE MOST important classes I have EVER taken with respect to my appreciation of the big picture understanding of finance in economics were in fact tought by Dr. McCarthy; no offense to my economcs professors at ISU but DMPM was not limited in respect to reviewing real events by the models I was being tought in my economics classes. Instead he typically used multi-factor models discussing the signficance of the various fators on the economic growth(or decline) and comparing and contrasting the various economic history of cultures over time and places. I was somewhat naive in thinking I would be able to pursue economic history within a history department beyond the towers of ISU but much to my surprise I found the EH shackled by the economics department in the USA. I did not want to become a pseudo math PHD spouting out endless papers applying calculus to the review of economic data. Calculus has ruined economics in the sense that it could not handle the fractal relationships that an economic historian is free to observe, describe, and draw conclusions from. Instead Chaos theory, complexity theory, fuzzy logic should have been the basis upon which economics departments should have drawn upon thus linking up a typical qualitative approach of economic historians with the quantitative approach of economic study.

GlaxoSmithKline: Witty's Management Is Reason for Optimism

you neglect the impact of SIRT based products in GSK's pipeline?

China's Latest Hunting Trip

Lets set the story straight on China and its so called Silver standard. China didn't avoid the great depression because it repeated the mistakes of the Europeans in the 1920's IE it hyper inflated instead of acting in fear of repeated hyperinflation due to unsound money policies of the 20's.
The Republic of China went through the worst inflation 1948-49. In 1947, the highest denomination was 50,000 yuan. By mid-1948, the highest denomination was 180,000,000 yuan. The 1948 currency reform replaced the yuan by the gold yuan at an exchange rate of 1 gold yuan = 3,000,000 yuan. In less than 1 year, the highest denomination was 10,000,000 gold yuan. In the final days of the civil war, the Silver Yuan was briefly introduced at the rate of 500,000,000 Gold Yuan. Meanwhile the highest denomination issued by a regional bank was 6,000,000,000 yuan (issued by XinJiang Provincial Bank in 1949). After the renminbi was instituted by the new communist government, hyperinflation ceased with a revaluation of 1:10,000 old Renminbi in 1955.
Which Silver standard were you referring to? And how is hyper inflation any better than a great depression?

Is a Hard Landing in Store for China's Economy?

Another question might be to what extent the market sentiment has already priced in a hard landing. I might suggest that the negative sentiment already reached an extreme that factored in a worst case hard landing...

Strong RMB, Yen Not Good for the World

The problem isn't too much appreciation in the RMB but rather its not enough; not even close. There is no way the RMB has appreciated enough for the Chinese middle class to replace the USA middle class in purchasing power. Clearly China can force the US to default at anytime by no longer purchasing US treasuries and floating(that is where gov't doesn't intervene) the RMB. Once the RMB explodes up the Chinese consumer can buy their own goods(this is where stuff is produced); they can import raw goods into China just like the USA did for decades while they produced the finished products. By delaying the appreciation of the RMB they are just assuring a more crushing defeat later for the USA. Enough already. The game is over. China won. Now stop making everyone suffer longer while you think you can move every last ounce of manufacturing to China. Haven't you gained enough capacity and US$ reserves? Is 2 trillion not enough? Aside from floating the currency China should allow its citizens to invest anywhere and travel anywhere. By letting the RMB float the Chinese citizens will want to come back to China thus you can drop the stupid ransom paid by every Chinese traveler abroad. The Chinese middle class needs to be able go visit the USA and rub their new found wealth around a bit. The Chinese investor needs to be able to choose where they put their money. Who are the old Japanese, European, or American's supposed to sell their assets to if the Chinese investor is locked behind the curtain. The WTO people should be fired for letting such imbalances exist with currency,travel, and investment restrictions in place. "Free travel" and "Free investing" should have been rock solid requirements for WTO's "Free trade". China will win WWIII without firing a shot as a result of the world going along with its "Free Trade/Locked RMB/Locked investment" strategy. Without a way for the Chinese consumer to get access to the surplus and send it back in some form(spending(imports or travel) or investment) China essentially is a vampire sucking the life blood of the world. Now that the US is so clearly "printing" money how long will the Chinese consumer tolerate the inflation that results from China printing RMB to give to the exporters in exchange for US$? Right now USA gets to export inflation to China. Of course right now deflation is rampant around the world so while that is true US should just kick 5-10 trillion US$ China's way and see how much we can buy before someone in China realizes we took them to the cleaners with funny money.

Hard Times in Hong Kong?

China to Tibet: "All your base are belong to us"

Chart of the Day: Anatomy of a Bear Market

i would suggest you pull up japan's bear market crash info as a type 3 for what it looks like to see an real estate/stock market combined crash... bet its not pretty

Lessons from the Best-Ever Hedge Fund Manager

Its not just one of the best articles on seekingalpha its one of the best investment historical examples period. Bravo!

Signs That Foreclosures May Be Peaking

If prices were held constant as well as employment (a typical economist perspective) I could understand that a reduction in arm resets would contribute to a decline in foreclosures. I would also grant that if reseting arm's were pegged at the same rate(are they allowed to go lower?) then it wouldn't matter how many are reseting there shouldn't be a foreclosure problem at all and again you would expect to see a decline in foreclosures. Yet the two assumptions are not holding up and may be in their own downward spirial. If job growth is slowing or in decline than a new source of foreclosures are people not being able to make their payments regardless of any resets(at higher or same rates). If the value of the homes are droping then again the likelihood of investors in negative equity situations higly increases the odds of them simply walking away. If we are indeed in a downward spiral pluging up the arm reset hole may not be sufficient to stop the negative feedback loop from continuing on its course. It reminds me more like a phsyics equation where the initial push to get the ball rolling may have been the arm reseting but as prices fall and jobs dry up due to less equity/borrowing/spend... feedbacks then the ball is continuing to roll down an ever steeper slope and more likely may accelerate as the slope continues to steepin with or without any more push from the arms reset.

Buying Yahoo Ahead of the Alibaba IPO

why not by 9984: jp instead? it controls ~30% of alibaba's parent company... not to mention a highly leveraged bet on private wireless vs public(ntt)