Saturday, October 31, 2009
Friday, October 30, 2009
Americans cut spending for the first time in five months and a gauge of confidence weakened, signaling consumers will make a limited contribution to the recovery without government incentives.
Here's our first inkling of a weak Christmas shopping season. I'm trying to avoid confirmation bias, but that's hard when I see stories like this one. It's even harder when federal lawmakers scramble to extend the first-time homebuyer tax credit.
Wednesday, October 28, 2009
Bankers who gathered for the American Bankers Association annual meeting were hesitant to dismiss the administration's efforts, but said the government's programs have largely been unappealing for smaller banks.
They won't come out and say what I'm about to say because they don't want to be the victims of liquidity freezes and forced mergers. Lack of creditworthy borrowers and tons of paperwork aren't going to stop politically-driven loans from being made. Washington isn't happy that liquidity injections are tied up on bank balance sheets. They need that liquidity to circulate through the economy so that Americans won't notice their purchasing power disappearing or their middle-class entitlements becoming less of a liability. Inflation has a way of working that kind of magic and right now the mojo just isn't there. That will all change with the right political levers pushing loans to business owners in the ruling elite's favorite demographics. The conduit doesn't matter, although existing SBA-affiliated lenders are the most likely candidates.
Has there ever been such a thing as a bubble in small-medium enterprise (SME) lending? We'll find out soon enough. Here's a thought: Maybe some aspiring mendicants could assemble a REIT that would qualify for government-sponsored lending. That would kill two birds with one stone. It would scratch the government's lending itch and open a new category of liquidity recipient for Treasury's "Plan C" to bail out the commercial real estate sector.
Voila! All problems solved! They don't call me "Supreme Super-Genius" for nothing. Well, okay, that's what I call myself, but you get the picture.
Tuesday, October 27, 2009
Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.
Roubini said the dollar will eventually “bottom out” as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and “rush to the exit,” he said.
So is anyone paying attention? Especially serious investors? Some are, but most apparently are not. The bond market swallowed the Treasury's latest issuance without even blinking. Delusional homebuyers are paying premiums for a new housing mini-bubble driven by an expiring tax credit. At least institutional investors are starting to get nervous about an overvalued stock market.
As for me . . . I'm just waiting for a cheap entry point on some ETFs and stocks I've been watching.
Monday, October 26, 2009
The housing market isn't faring much better and has yet to return to a realistic historical norm specifically because of government intervention.
All of this nervousness afflicting big asset classes should be good news for gold. I'm seriously considering unwinding some of my gold holdings to have more cash available if these other asset classes crash. Only time will tell whether that's a wise move on my part.
Sunday, October 25, 2009
Saturday, October 24, 2009
The White House said the US Overseas Private Investment Corporation (OPIC) had issued a call for proposals for the fund, which will provide financing of between 25 and 150 million dollars for selected projects and funds.
The Global Technology and Innovation Fund will "catalyze and facilitate private sector investments" throughout Asia, the Middle East and Africa, the White House said in a statement.
Anyone who thinks this is solely a foreign policy outreach to give disillusioned Muslim youth an alternative to becoming suicide bombers is welcome to make me an offer on the bridge I own in Brooklyn. The real backstory is more complicated, and like an iceberg we can only see what's on the surface. Uncle Sam's creditors are beginning to flex their muscles. Sovereign wealth funds in Asia and the Middle East have probably begun to demand assurances from Uncle Sam that they won't be left out in the cold in the event he defaults on his sovereign debt. U.S. willingness to fund technology transfer is one such assurance, with the expectation that foreign creditors will continue to buy U.S. government debt (or least not sell their current debt holdings in a panic).
Civilization's center of gravity is gradually moving eastward.
Friday, October 23, 2009
Initial public offerings in the U.S. are suffering the worst returns since at least 1995 at the same time that the stock-market rally is spurring the most new listings in almost two years.
Investors need to be absolutely certain that they have iron-clad reasons to buy equities given current valuations. Articles like this can reinforce confirmation bias for bears like me, so of course I've also noted that this week's earnings announcements have given the market some positive earnings surprises.
Thursday, October 22, 2009
“If you learn your lesson from the Japanese experience, you don’t remove your fiscal stimulus until private sector de-leveraging is over,” Koo, 55, chief economist at the research arm of Japan’s biggest brokerage, said in an interview at his Tokyo office last week. “When we see the private sector coming to borrow again, I’ll be the loudest person on earth arguing for fiscal reform. That’s the exit.”
The quickest way to get to that private sector de-leveraging is to let highly leveraged firms go bankrupt. American leaders think this is too painful to contemplate. China thinks otherwise, and is signalling its readiness to endure some pain in the short term:
Chinese officials may be preparing to reduce monetary stimulus that propelled growth to 8.9 percent in the third quarter and led the world out of recession.
I disagree with the article's contention that the world is heading out of recession. Most of the G-20, at a minimum, is still very much in recession but you wouldn't know that from the way governments dress up their economic statistics. Granted, the Japan article addresses fiscal stimulus while the China article addresses monetary stimulus, but the effects of either on GDP are comparable.
Nota bene: Anthony J. Alfidi is long FXI with (covered call options) and is short cash-covered put options on SPY.
Tuesday, October 20, 2009
A 40 percent jump in Wall Street bonuses this year may bring relief to New York City and Albany as the state and its biggest metropolis struggle with a combined $14 billion in budget deficits this fiscal year and next.
There's a larger lesson here besides the need for NYC to diversify its economy away from such a heavy reliance on the financial sector. The "masters of the universe" have learned absolutely nothing about the limits of their knowledge and the amount of damage their hubris can cause. Hopefully the next dip in the market (after Christmas?!) will drive this point home.
Monday, October 19, 2009
The covered calls I had on IAU and GDX in my IRA were exercised. I bought back the GDX and refreshed the OTM calls but I let the IAU go. I'm making room in my IRA for the long positions I will eventually establish for IWM, VWO, and IYR.
BTW, you can expect to see my first research reports on individual stocks I will cover by the end of the year. You won't see a report on ANV since I won't hold it for the long term, but other stocks will appear in the Alpha-D soon.
Friday, October 16, 2009
The results, released Friday, worsened to a $2.24 billion loss after the bank paid dividends to preferred shareholders, including the federal government, which gave Bank of America $45 billion in taxpayer lifelines during the financial crisis.
It doesn't get any better than this for an observer like me who's been crowing about an insanely overvalued market. It can and probably will get worse for investors who've bought into the hype about a nascent recovery.
Nota bene: Anthony J. Alfidi has no position in BAC at the time this commentary was published.
Thursday, October 15, 2009
Goldman Sachs Group Inc. reported a surge in third-quarter profit driven by trading and investments with the firm’s own money. The shares declined as earnings fell short of the bank’s record.
GS is a roulette wheel disguised as a bank holding company; it is one big moral hazard. Other banks are also successfully disguising their problems:
Citigroup Inc., the lender 34 percent owned by the U.S. government, posted a $101 million profit, defying expectations for a loss as the company added the smallest amount to loan-loss reserves in two years.
Watch out, Citi, those pitiful loan loss reserves aren't going to help much when CRE really starts cratering in 2010. And in a surprise development, the market responds rationally to this news:
U.S. stocks dropped, dragging benchmark indexes down from their highest levels in a year, as Goldman Sachs Group Inc. and Citigroup Inc. fell on earnings that disappointed some investors.
If the banking sector's health is peaking, a renewed downturn in the larger economy may not be far away. That's why I continue to add to my cash pile.
Tuesday, October 13, 2009
Problems at the Federal Housing Administration, which guarantees mortgages with low down payments, are becoming so acute that some experts warn the agency might need a federal bailout.
That says it all. I don't think I have to quote any more from the NYT for you to get the picture. I'm so glad I went on record last year with my opposition to the housing bailout. I knew that if America started down that path it would spell the end of our status as a great power. A second mortgage bailout will cement our national decline and ensure that any hope of reversing it will be monumentally difficult within the remaining lifetime of Generation X.
I'm gradually building cash that I can use after the market tanks to buy equities. I don't think I'll have to wait very long for another real estate-related implosion to bring that on. If both FDIC and FHA need simultaneous bailouts . . . hello 1932 all over again.
Sunday, October 11, 2009
Saturday, October 10, 2009
Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August.
The Golden State is seriously tarnished due to the lingering effects of the housing bubble. It will prove increasingly unable to meet its fiscal obligations, including interest on its muni bonds. The article above mentions the state's inability to sell all of the G.O. bonds it needed, and I suspect we'll see more partial bond sale failures in the months ahead. Why any investor would want to buy debt from this state is beyond my ability to understand. I will not take a position in Cal munis until I am convinced the state is NOT a bankruptcy risk.
Thursday, October 08, 2009
Tuesday, October 06, 2009
Some of the same U.S. lenders that helped drive the real estate boom with loans to home buyers who couldn’t afford the payments are now targeting seniors, the center said. Brokers, who are given financial incentives to sell the loans, may be making misleading claims to potential customers, according to a report titled "Subprime Revisited,’’ that was released today by the Boston-based NCLC.
It sure looks like tapped-out Baby Boomers who have no liquid savings for retirement are easy pickings for reverse mortgages. It will only take one big hiccup in the bond market to send rates skyrocketing and home values plunging, and then these seniors and their lenders will be wiped out.
No way would I go for this if I were a homeowner. I'll take the slow and steady approach to wealth building, thank you very much, and that requires little to no debt.
Monday, October 05, 2009
Federal Reserve efforts to unlock credit and government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers are reviving demand and likely helped the economy grow last quarter. Nonetheless, last week’s report showing job cuts accelerated in September is a reminder that gains in purchases may not be sustained as incentives expire.
Come on, folks. Take away the stimulus and you take away the rosy economic results. I can't short the market while these stimulus measures are in place because average investors are piling into what they think is another great bull market. Scared to be left behind, reader? Here are some investment voices who aren't worried about being left behind:
New York University Professor Nouriel Roubini said stock markets may drop and billionaire George Soros warned the “bankrupt” U.S. banking system will hamper its economy, highlighting doubts about the sustainability of the global recovery.
If you don't believe them, believe this guy:
Nobel Prize-winning economist Joseph Stiglitz said unemployment is going to keep rising and should be the main focus for policy makers, and that gains in the stock market indicate investors have been “irrationally exuberant” about a recovery.
These guys are all on the same sheet of music. I'll add my voice to the same choir. IMHO this market is overvalued and headed for a decline, but I'm not going to bankrupt myself by shorting into an overbought rally.
Saturday, October 03, 2009
Treasury Secretary Timothy Geithner said signs of economic recovery are “stronger” and have appeared “sooner” than expected, while reiterating it’s not yet time to roll back stimulus programs.
They know that deviating from ZIRP will pull the plug on this non-recovery:
“Deflation is definitely a threat right now,” Nobel laureate Joseph Stiglitz, 66, a professor at Columbia University in New York, said in a Sept. 22 interview. “The combination of the deflation threat and the sluggish recovery should keep the Fed on hold for quite a while.”
This week's disappointing economic news is going to get worse and these experts know it. They know job losses will head skyward in 2010:
U.S. job losses unexpectedly accelerated last month and the unemployment rate reached the highest level since 1983, signaling any recovery in consumer spending and economic growth will be slow to develop.
Are you prepared for economic annihilation in 2010? I certainly am, thanks to my gold holdings and cash reserves.
Friday, October 02, 2009
U.S. employers cut a deeper-than-expected 263,000 jobs in September, lifting the unemployment rate to 9.8 percent, according to a government report on Friday that fueled fears the weak labor market could undermine economic recovery.
If you buy stocks or indexes now for the long term, you're probably overpaying. I'm increasing my cash pile and waiting for bargains.
Thursday, October 01, 2009
The Institute for Supply Management said its index of manufacturing activity in September slipped to 52.6 from 52.9 in August, well below analysts' expectations of 54. It was the second month in a row the reading came in above 50, which indicates growth, after contracting for 18 months.
That's not much of a drop but it's certainly indicative that orders aren't picking up in advance of an expected recovery. The stock market is headed down right now. I have renewed hope of being able to obtain SPY and EFA at decent prices by the end of the year.