Warren calls bottom
Says recession won't get worse
I say he's way wrong
Wednesday, September 16, 2009
Uncle Warren Gets Bottom Call Wrong
Sorry, Mr. Buffett, but you're premature in calling the bottom of this Depression:
The Sage of Omaha is getting slow in his old age, as evidenced by the languishing performance of his railroad stocks and ConocoPhillips. The railroads he owns violate his preference for avoiding investments in companies with small debt loads.
Come on, Warren. You're smart enough to check rail car loading data. Have your staff look up container traffic from Asian ports and make note of the decline from last year. The Christmas shopping season will be a disaster for retailers and we'll be right back into a credit crunch for a not-so-happy new year.
Warren Buffett has been buying stocks, and I've been shorting the U.S. indexes. I've made a little money this year and Warren has lost a lot. I've also missed the big S&P rally because I'm convinced it's a prelude to a very large decline.
Warren Buffett, the billionaire investor who last year called the financial crisis an “economic Pearl Harbor,” said the U.S. economy has “hit a plateau at bottom.”
The Sage of Omaha is getting slow in his old age, as evidenced by the languishing performance of his railroad stocks and ConocoPhillips. The railroads he owns violate his preference for avoiding investments in companies with small debt loads.
Come on, Warren. You're smart enough to check rail car loading data. Have your staff look up container traffic from Asian ports and make note of the decline from last year. The Christmas shopping season will be a disaster for retailers and we'll be right back into a credit crunch for a not-so-happy new year.
Warren Buffett has been buying stocks, and I've been shorting the U.S. indexes. I've made a little money this year and Warren has lost a lot. I've also missed the big S&P rally because I'm convinced it's a prelude to a very large decline.
Monday, September 14, 2009
Sunday, September 13, 2009
Alfidi Capital Special Report: IPO Filing Price Range Valuations
I've been busy for quite some time working on a very large project, but I have made time to publish a special report on valuation methodologies for IPOs. Check it out at Alfidi Capital.
Commercial Property Woes Reveal Bank Insolvency
Reading between the lines in this Bloomberg article tells us everything we need to know about why the economy is in a phantom recovery and why this bear market rally is built on nothing. Let's take a look at commercial real estate:
Okay, this isn't much of a surprise, although CRE industry veterans quoted in the article are aghast that they've never seen a buyer's drought of this magnitude in their careers. The lesson for investors is farther down:
Banks are nowhere near healthy, depsite all of the happy talk you hear on CNBC. Bankers are happily paying themselves huge bonuses again, and I suspect they're doing so out of fear that they may never see such income levels again if the banking system heads over a cliff soon. Three more snips from the article will show us where we're headed:
FDIC regulators who should know better are not forcing banks to write off bad loans and seize properties, so technically insolvent banks continue to function.
Leaders at the Fed know banks' true conditions and are maintaining a ZIRP funds target to forestall the second phase of our systemic crisis.
I bolded part of that final quote to show how the continuing insolvency of our banking system keeps the real estate market frozen. This is why REITs and ETFS like $IYR have rebounded recently. Investors are attracted to the false hope that commercial real estate will remain attractive because of the inability of insolvent banks to foreclose on defaulted loans.
Note that IYR is up almost 100% and XLF is up almost 140% from their March lows. These price levels are unsustainable given the slow-motion crash in CRE disguised with the full complicity of bank regulators.
Disclosure: Anthony J. Alfidi has no position in XLF or IYR at this time.
Commercial-property sales in the U.S. this year are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s.
Okay, this isn't much of a surprise, although CRE industry veterans quoted in the article are aghast that they've never seen a buyer's drought of this magnitude in their careers. The lesson for investors is farther down:
The default rate on commercial mortgages held by U.S. banks more than doubled in the second quarter to 2.88 percent, according to New York-based Real Estate Econometrics. It may reach 4.1 percent by year end, the highest since 1993.
That may mean more pain for banks that hold the mortgages and signal that this year’s gain in real estate investment shares may be overdone.
Banks are nowhere near healthy, depsite all of the happy talk you hear on CNBC. Bankers are happily paying themselves huge bonuses again, and I suspect they're doing so out of fear that they may never see such income levels again if the banking system heads over a cliff soon. Three more snips from the article will show us where we're headed:
“We’re not forcing the banks to disgorge” distressed properties, said Susan Wachter, professor of real estate at the University of Pennsylvania’s Wharton School in Philadelphia. “It’s a different crisis, a far worse crisis.”
FDIC regulators who should know better are not forcing banks to write off bad loans and seize properties, so technically insolvent banks continue to function.
Maturing commercial property loans are high on the “worry list” of San Francisco Federal Reserve President Janet Yellen, she said in a July 28 speech to the Oregon Bankers Association.
Leaders at the Fed know banks' true conditions and are maintaining a ZIRP funds target to forestall the second phase of our systemic crisis.
The entire real estate dynamic has shifted, said Frank Liantonio, executive vice president of Cushman’s capital markets group. Liantonio, 60, with a career that goes back to the early 1970s, said he’s been through six down cycles from the mid-1970s to the dot-com bust of the early 2000s. This is the worst, he said.
“Property is no longer controlled by the owner,” he said. “It’s controlled by the lender, and the lender in most instances doesn’t have the ability to take the charge to earnings and sell the property. That’s one reason why you’re not seeing any transactions.”
I bolded part of that final quote to show how the continuing insolvency of our banking system keeps the real estate market frozen. This is why REITs and ETFS like $IYR have rebounded recently. Investors are attracted to the false hope that commercial real estate will remain attractive because of the inability of insolvent banks to foreclose on defaulted loans.
Note that IYR is up almost 100% and XLF is up almost 140% from their March lows. These price levels are unsustainable given the slow-motion crash in CRE disguised with the full complicity of bank regulators.
Disclosure: Anthony J. Alfidi has no position in XLF or IYR at this time.
Friday, September 11, 2009
Thursday, September 10, 2009
I'll Believe This When I See It
The Treasury Department is trying out its latest sleight-of-hand move on the investing public:
Withdrawing "other, unused programs" doesn't count for jack squat when the Treasury intends to keep buying banks' toxic assets. Furthermore, hopes for repayment of another $50B in TARP money are blithely ignorant of the stats on souring credit card loans and commercial real estate mortgages. Treasury's pronouncements depend heavily on the business media's gullibility and inability to perform real analysis.
Time will tell whether Treasury is serious about kicking the props out from under the financial markets. My bet is that they're not serious, which is why I'm hanging onto the gold hedges (IAU and GDX) in my portfolio.
U.S. Treasury Secretary Timothy Geithner said the government is moving to withdraw some of its support for financial markets and cautioned that the recovery will have “more than the usual ups and downs.”
(snip)
Other, unused programs will be allowed to expire, including a program guaranteeing money-market mutual funds and the Capital Assistance Program, which was established earlier this year to provide extra money to banks that needed it and couldn’t access private markets.
Withdrawing "other, unused programs" doesn't count for jack squat when the Treasury intends to keep buying banks' toxic assets. Furthermore, hopes for repayment of another $50B in TARP money are blithely ignorant of the stats on souring credit card loans and commercial real estate mortgages. Treasury's pronouncements depend heavily on the business media's gullibility and inability to perform real analysis.
Time will tell whether Treasury is serious about kicking the props out from under the financial markets. My bet is that they're not serious, which is why I'm hanging onto the gold hedges (IAU and GDX) in my portfolio.
Wednesday, September 09, 2009
The Haiku of Finance for 09/09/09 (what a date!)
Wealthy trading down
Mansions getting too costly
Hey, let's make a deal
Mansions getting too costly
Hey, let's make a deal
Wealthy Trading Down While I Look to Trade Up
I've discussed in the past how some wealthy people I've met have expressed distaste for my non-privileged background. That's why articles like this one make me sit up and take notice:
The nation's real estate explosion is not limited to subprime borrowers who bit off more McMansion than they could chew. It now touches the real mansions of bona fide multimillionaires who never thought they'd have to trade down. I'm guessing that these distressed properties will start to hurt the loan books of luxury lenders like First Republic pretty soon . . . which in that case means more trouble for Bank of America and Merrill Lynch (First Republic's parent).
I don't engage in schadenfreude because I wouldn't want it done to me. Watching people get poorer is no fun. That's why this is a reminder for me to live within my means and stay out of debt. My net worth at this moment is somewhat higher than it was at the beginning of this year, thanks to my frugality, investing discipline, avoidance of debt, and some really good luck. That luck is sometimes what separates a downwardly-mobile wealthy dude from an upwardly-mobile striver like yours truly.
On the other hand, some foreclosed mansions will soon be on the market. There's always hope that I could pick up something nice in San Francisco on the cheap.
Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California.
(snip)
Falling U.S. home prices leave them unable to refinance or sell properties when they drop below the value of the mortgage, said Chicago bankruptcy attorney Joseph Baldi.
(snip)
“Real-estate is an incredible thing on the downside,” said Jason Green, a bankruptcy attorney based in Washington. “Equities can only go to zero. Property can go well below zero,” because of ongoing expenses such as property taxes, insurance and maintenance on primary residences, vacation homes and investment properties.
The nation's real estate explosion is not limited to subprime borrowers who bit off more McMansion than they could chew. It now touches the real mansions of bona fide multimillionaires who never thought they'd have to trade down. I'm guessing that these distressed properties will start to hurt the loan books of luxury lenders like First Republic pretty soon . . . which in that case means more trouble for Bank of America and Merrill Lynch (First Republic's parent).
I don't engage in schadenfreude because I wouldn't want it done to me. Watching people get poorer is no fun. That's why this is a reminder for me to live within my means and stay out of debt. My net worth at this moment is somewhat higher than it was at the beginning of this year, thanks to my frugality, investing discipline, avoidance of debt, and some really good luck. That luck is sometimes what separates a downwardly-mobile wealthy dude from an upwardly-mobile striver like yours truly.
On the other hand, some foreclosed mansions will soon be on the market. There's always hope that I could pick up something nice in San Francisco on the cheap.
Tuesday, September 08, 2009
Gold Breaking $1000
The spot price of gold is flirting with breaking $1000/ounce today:
Go gold! My faithful readers (all three of them) know that I am long IAU and GDX. I wrote covered calls on GDX (plus a few extra uncovered ones) and some covered calls on IAU to generate a little bit of yield. I figured why not, as gold had stayed in the $900-980 range for several months. If my holdings are called away, I'll buy them back in a wash sale. I'm just glad to see my patience with gold finally pay off. :-)
The gold contract for December delivery traded up $6.50, or 0.7 percent, at $1,003.20 per troy ounce on the New York Mercantile Exchange. It had gone as high as $1,009.70; that is the highest since it hit a record of $1,033.90 on March 17 last year.
Go gold! My faithful readers (all three of them) know that I am long IAU and GDX. I wrote covered calls on GDX (plus a few extra uncovered ones) and some covered calls on IAU to generate a little bit of yield. I figured why not, as gold had stayed in the $900-980 range for several months. If my holdings are called away, I'll buy them back in a wash sale. I'm just glad to see my patience with gold finally pay off. :-)
Monday, September 07, 2009
Saturday, September 05, 2009
The Haiku of Finance for 09/05/09
Business real estate
Defaults will bust banks again
Bad loans all over
Defaults will bust banks again
Bad loans all over
Friday, September 04, 2009
Unemployment Doesn't Faze Stock Market
Equity markets aren't blinking so far today even though joblessness in the U.S. shows no sign of abatement:
We're more than two-thirds of the way through the third quarter. Back to school spending has been a disappointment. The recovery that optimists have forecast for the second half of 2009 has a ton of catching up to do, so we'll have to see a blowout Christmas shopping season. That will be tough to deliver with homeowners defaulting on their prime mortgages.
I'm still short the U.S.
The pace of U.S. job losses slowed in August while the unemployment rate reached a 26-year high, signaling the recovery from recession will be slow to develop.
We're more than two-thirds of the way through the third quarter. Back to school spending has been a disappointment. The recovery that optimists have forecast for the second half of 2009 has a ton of catching up to do, so we'll have to see a blowout Christmas shopping season. That will be tough to deliver with homeowners defaulting on their prime mortgages.
I'm still short the U.S.
Thursday, September 03, 2009
Tuesday, September 01, 2009
Bubble Lending Drives Chinese Manufacturing
Okay, now I'll finally admit that Chinese equities have probably formed a bubble. Here's some hard evidence:
That second snippet goes to show that Chinese data is just as subject to puffery and political manipulation as U.S. data. This unfortunate tendency is something that investors all over the world will just have to accept. Chinese investors may be nervous but I'm not. Any bursting of this bubble makes it cheaper for me to add to my FXI holdings, on the premise that China's pursuit of natural resources lays a foundation for long-term growth.
Nota bene: Anthony J. Alfidi is long FXI with a short straddle.
China’s manufacturing expanded at the fastest pace in 16 months in August, driven by record lending in the first half of the year, two surveys showed.
(snip)
Gains in output, orders and jobs added to evidence that Premier Wen Jiabao can meet his 8 percent growth target for the year as a stimulus package counters
falling exports.
That second snippet goes to show that Chinese data is just as subject to puffery and political manipulation as U.S. data. This unfortunate tendency is something that investors all over the world will just have to accept. Chinese investors may be nervous but I'm not. Any bursting of this bubble makes it cheaper for me to add to my FXI holdings, on the premise that China's pursuit of natural resources lays a foundation for long-term growth.
Nota bene: Anthony J. Alfidi is long FXI with a short straddle.
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