Saturday, June 30, 2012

The Haiku of Finance for 06/30/12

Mandate is a tax
Okay to force purchases
Lobbyists rejoice

Friday, June 29, 2012

The Haiku of Finance for 06/29/12

Buying currency
Countries with low debt ratios
Hedging inflation

Alpha-D Updates for June 2012

This update comes a few days after I executed a few trades in my own portfolio.  There's a pretty good reason for this delay.  I spent much of June in a remote part of Monterey County, California where I had only intermittent access to the Internet and very little free time.  I had just enough time a few days ago to log into my brokerage account and make some trades.  Only now have I had the time to explain my actions.  My critics will just have to deal with it.

My short puts under GDX expired unexercised over June's options expiration weekend, but my covered calls were exercised when GDX rose in price.  I bought back all of my GDX holdings (no net change) and sold more covered calls; I did not sell any more puts.

My covered calls on FXI expired unexercised, so I renewed them for another month.

I still have my long positions in FXA and FXC with covered calls that are set to expire next month.  I also have my short put position under FXF that will expire next month.  Those currency positions are very important parts of my plan to hedge against the devaluation of the U.S. dollar from hyperinflation.  I reserve the right to go long FXF at some point.

My remaining California muni bonds will mature on July 1.  I will not buy any more fixed income instruments denominated in U.S. dollars until the possibility of hyperinflation has passed.  That could be years away, and if the U.S. actually enters hyperinflation the holders of U.S. dollar fixed income securities will wish they had never seen a bond or CD.

I'm sitting in plenty of cash, awaiting the European implosion that will get the economic crisis roaring once more.

Thursday, June 28, 2012

Brief Thought On The Supreme Court's Health Care Mandate Ruling

Today's Supreme Court ruling upholding the constitutionality of the administration's health care mandate is more than just a recognition of legal precedent.  It provides legal support for the financial repression measures the federal government can potentially take in another economic crisis.  Citizens can thus be legally compelled to invest in things the government deems important (i.e., Treasury bonds) if the normal financial markets collapse.

A mandate is a tax that must be paid, according to this development, regardless of third-party intermediation.    Penalties for non-purchase of goods the government directs citizens to buy can include criminal sanctions.

There will now be no legal appeal for citizens who may be forced to purchase government bonds at above market prices.  There will be no appeal for the forced surrender of precious metals, foreign currency, or other assets at below market prices.

Capital controls of some sort will be part of America's future.  When the gates slam shut, only assets outside the gates will survive unchanged.

Full disclosure:  Long FXA and FXC with covered calls.  Short cash-covered puts under FXF.  

The Haiku of Finance for 06/28/12

China auditor
Doubts local fiscal income
Unstable finance

Tuesday, June 26, 2012

Sunday, June 10, 2012

The Limerick of Finance for 06/10/12

It's good to have strong currency
But the Fed's run by Ben Bernanke
He wants to inflate
Waiting may be too late
Hedging cash is one trick he can't see

Alpha-D Currency Diversification for June 2012

I did it.  I contemplated this move for many months and finally executed last Friday during market hours.  I added foreign currency diversification to my Alpha-D portfolio with long positions in CurrencyShares Australian Dollar Trust (FXA) and CurrencyShares Canadian Dollar Trust (FXC).  I can explain this fairly radical departure.

I like what John T. Reed has published on the desirability of holding currencies other than the U.S. dollar as hedges against hyperinflation.  He correctly identifies several countries that rank high on Transparency International's list and low in relative debt-to-GDP ratios.  My tactical approach to holding the currencies differs from Mr. Reed's.  He advocates opening cash accounts with banks in each of his chosen countries.  I chose instead to hold ETF securities that represent cash holdings of currencies held in trust outside the U.S.

I reserve the right to add CurrencyShares Swiss Franc Trust (FXF) to my holdings but I suspect the Swiss central bank will continue its efforts to hold down that currency's value relative to the euro.  That's why I sold puts underneath FXF, as I suspect central bank action may drive its value lower relative to the dollar (as well as the euro).  I read the prospectuses on the CurrencyShares website before I made these choices.  The good news about these ETFs is that they are physically held outside the U.S., beyond the reach of confiscation and capital controls should the U.S. government enact those policies.  The potentially bad news is that JPMorgan is the depository for the currency.  In the event of JPM's bankruptcy, holders of the ETFs would be considered unsecured creditors of JPM and could suffer partial or total losses (hmm, shades of MF Global).

There is no way to mitigate the risk of JPM going bust.  The only consolation available to me is the possibility that the U.S. government will selectively backstop the balance sheets of systemically important institutions, and JPM appears to be one of the favored few.

I would like to take a position in New Zealand's currency but I can't find an ETF that represents holdings there.  I am not about to book a flight there just to open a savings account.  I may add more cash to my long positions in FXA and FXC in the near future.  Alternatively, I may not do so if I find some good hard asset stocks.  It's my money and I'll protect its value any way I like.

Full disclosure:  Long FXA and FXC with covered calls; short cash-covered puts under FXF.  No other non-U.S. currency holdings at this time.  

Friday, June 08, 2012

The Haiku of Finance for 06/08/12

Spanish bonds for sale
Only morons buy this debt
That country is broke

Tuffnell Exploration (TUFF) Has Tough Time Exploring

Digging in my old mail file from 2011 reveals a teaser from Tim Cole's Secret Gold Stocks.  This one was pumping Tuffnell Exploration (TUFF), a gold explorer in Arizona currently trading at a fraction of a cent.  You read that correctly.  It hasn't closed above a penny in months.

It doesn't surprise me that the CEO is not a geologist.  It doesn't surprise me that their primary property has a history of exploratory work from major producers who couldn't make it viable.  It doesn't surprise me that their 10-K from Jan. 2012 admits in the Risk Factors section that their auditor doubts their ability to continue as a going concern; that the probability of commercial reserves in their claims is unlikely; and that funds spent on exploration will probably be lost.  The principals have other business activities which preclude them from devoting more than a fraction of their time to Tuffnell.  It says so right there in the 10-K on page 6 if you read it.

BTW, the disclaimer from Tim Cole's teaser says Tuffnell's publicity campaign cost $600,000.  Their 10-K says they lost $769,890 in 2011.  Their media budget should have been spent on exploration.  The company's focus is obviously publicity, not exploration.

This company has no revenues, no viable ore reserves, and no experience.  I have no further comment.

Full disclosure:  No position in TUFF, ever.

Thursday, June 07, 2012

The Haiku of Finance for 06/07/12

Ben calls off QE
Comments downplay stimulus
Needs bigger bear run

Oryon Technologies (ORYN) Lights Up With ELastoLite

I got a mailing from Mike Casson's MicroCap MarketPlace newsletter touting Oryon Technologies (ORYN), maker of a fancy wearable lighted fabric called ELastoLite.  It's the stuff that lit up characters' costumes in the 2010 film Tron:  Legacy.

ELastoLite is a pretty cool technology.  My concern with exotic, boutique technologies like this is that they perform a function already performed by cheaper alternatives.  Reflective material can be coated, printed, or woven into surfaces without the added cost of drawing electric power.  LED lights already do the kinds of things this wearable light strip is supposed to do for cell phones and small lamps.  I can see the appeal of using this stuff in high-end fashion but the industrial safety market is pretty well saturated with existing materials.  Hard-core Tron fans who want to make replica costumes are willing to pay for individual orders of ELastoLite, so all the company has to do is accommodate them.

The financials are disappointing so far.  ORYN has made no money since 2009 and has negligible assets.  The good news is that the CEO has a background in sportswear merchandising, a likely market segment for ORYN's main product.  At least they have a patent portfolio for their stuff.

ORYN's Form 10-K filed in May 2012  has a couple of odd elements.  Note 4 mentions that they acquired a mineral claim in the Philippines at an impaired cost that contributes to their operational losses.  Playing odd games with things unrelated to selling light-up apparel is a distraction.  Note 9 raises questions about whether they can continue as a going concern given their lack of working capital.  

I can't say whether Oryon has glowing prospects but I'm kind of rooting for them to do something with this glowing material they've created.  The cool factor of wearable lighting is off the charts.  It just needs to piggyback on a product already accepted as cool.  Sell some Tron-inspired jackets to the crowd that attends raves, urban night clubs, and Burning Man.

Full disclosure:  No position in ORYN at this time.  

Wednesday, June 06, 2012

The Haiku of Finance for 06/06/12

Spain, Greece almost broke
Fed swap lines ready to loan
Ben wants to push "go"

Hot Summer 2012 Looks Like Economic Annihilation

Holy canole, things are starting to slide.  Spain gave the world a gentle hint today that it can no longer borrow in world bond markets and would pretty please like Germany to put its good credit behind eurobonds. You'll have to speak up, Spain, because Germany is still pretending not to hear you give notice of default.  They get that way sometimes.

Germany is also going to get an earful from Greece, again.  The Greeks are one month away from going broke, again.  The death spiral of austerity has a firm grip on Greece and cuts in government spending are generating positive feedback loops that are sinking the economy and tax revenue.  I've had personal experience drinking German beer and Greek ouzo and can attest that both are sufficiently strong for the leaders of those respective countries to self-medicate their way through tough times.

Germany should stop listening to these deadbeats anyway.  Its economy is really hurting now that its client states can't afford to buy German-made stuff after implementing their austerity measures.  Oh well, less German beer exported means more German beer available at home for volks to self-medicate.

The G-7 pledged to do something.  Their finance ministers have burned up lots of frequent flier miles and free long distance minutes this year with no progress toward getting Europe off the floor.  I'll hazard a guess that they agreed to let the Fed do the heavy lifting since Europe can't get its act together.  The only things I need to know are the size of the Fed's dollar swaps with leading European banks and whether the U.S. will push some inflationary transmission mechanism onto the U.S.'s systemically risky banks.

Speaking of systemically risky U.S. banks (and you know that turn of phrase is one of my favorite segues), the TBTF banks still don't take risk seriously.  The OCC can't figure out whether JPMorgan's risk management controls are real or imaginary.  The controls are probably as real as you can get when writing them with a stick on a wet clay tablet.  TBTFs won't have much time for controls anyway if they get busy pushing hyperinflated dollars into weird new loan programs for Americans.  All the Fed needs to do is give the banks the "go" codes.  The Fed is already thinking about whether things are bad enough to require QE3, Operation Twist, or whatever.  Helicopter Ben can't wait.  The Fed's June meeting can't come soon enough for him.  Hyperinflation is the most likely policy option with Washington too paralyzed to enact the requisite tax and spending fixes.

I really have to hand it to those hedge fund managers who were stupid enough to go long the euro, European sovereign debt, European bank shares, U.S. sovereign debt, and U.S. bank shares in 2012.  These preppies take stupidity to a whole new level.  

Monday, June 04, 2012

The Haiku of Finance for 06/04/12

Currency safety
Low debt countries won't inflate
Seek stability

Financial Sarcasm Roundup for 06/04/12

Another Monday brings another bucket load of sarcasm about business news items.  This is my first roundup using an iGoogle gadget feed to generate the news headlines instead of my previous method of culling news from emailed alerts.  Let's see what's in the bag.

MF Global's bankruptcy trustee has determined that the firm's former CEO may be liable for breach of fiduciary duty.  Well, that sure took long enough to officially figure out.  Plenty of other analysts, including yours truly, knew that from the start of the debacle.  The trustee's lawyers needed to justify their fees and provide rationale for keeping the gravy train chugging along with more lawsuits.

Chrysler doesn't want to reduce its pension obligations with buyouts.  They may regret that decision in 2013 when the full force of the trans-Atlantic Great Recession 2.0 hits their net income.  The time to prepare for trouble is before trouble hits.  Chrysler's private equity fans are in for disappointment, at some point.

S+P says Greece has about a 33.33% chance of leaving the euro.  I think the odds are a lot higher.  I won't describe the chain of posterior probabilities S&P used to estimate the chance of an anti-austerity election victory, a rejection of austerity, and a German-led expulsion of Greece.  Suffice it to say that a lot of posteriors are on the line now.

AIG appears to be on the mend.  That's good news for Goldman Sachs; they can use AIG as their cut-out once more to offload any European sovereign credit risk still stuck to their investments.  I knew people back in 2008-2009 who day traded AIG and thought they were geniuses.  I'd hate to see them try that trick again.

Some former Deutsche Bank guy says Germany will pull out all the stops to save the eurozone.  You've got to be kidding me.  Post-WWII Germans have been taught all about how the Weimar hyperinflation laid the path to hyper-nationalism, militarism, and ultimate disaster.  No way are the volks going to tolerate a German push for ECB hyperinflation just to save Greece and other deadbeats.  That's why the Fed is going to do the inflationary heavy lifting for Europe.  Angela Merkel's comments in favor of fiscal union are just rhetoric to calm the capital markets.  The train for a fiscal union left the station last year and no one boarded.

Full disclosure:  No positions in any companies mentioned.  

Friday, June 01, 2012

The Haiku of Finance for 06/01/12

JPM found loot
Find rest of MF Global
In Corzine's wallet

Fed May Use More Than Swaps To Save Europe

The European Central Bank isn't as powerful as the Fed.  Legal restraints and the absence of a true federal union mean the ECB has fewer tools to manage monetary policy and cannot facilitate inflation as a solution to sovereign indebtedness (or at least cannot do so as easily and rapidly as the Fed).  That's why the ECB's president is now urgently calling for political actors to provide policy and fiscal solutions to Europe's debt crisis.  They won't help, of course, with Greece and now Spain ready to fall into the abyss of sovereign default.

The Fed is waiting in the wings to supply the liquidity backstop that the ECB cannot provide.  Readers are welcome to do homework on the $16T worth of dollar swap lines the Fed activated during the first round of this crisis.  I would not be surprised if those swap lines have been multiplied several times over.  Hyperinflation in the U.S. and Europe has not yet occurred because all of that magic Fed juice has not leaked out into wages; it has remained locked inside commercial banks' balance sheets.  I am not sanguine enough to presume that this condition will hold throughout the remainder of this crisis.  Transmission mechanisms are all that is necessary; a politically popular push for home mortgage relief with direct six-figure gifts to bankrupt Americans or Europeans would start the boulder rolling downhill.

In other words, more gigantic dollar swaps increase the risk of the hyperinflationary genie being let out of the bottle.  Using even more creative Fed tools - like direct loans to troubled European banks to prevent them from collapsing - raises the risk even further.