Saturday, September 29, 2007

Off-Topic Saturday

As is no secret to many of you I am a Patriots fan, even though I live nowhere near New England. Yes, yes I know, make the camera jokes now. Ha ha ha.

But lemme ax you did we do against the Chargers and Bills sans camera? OK. My local high school JV team could probably beat the Bills this year (although the Broncos needed a last minute field goal to do so). Chargers? LT had what 10 yards rushing that glorious Sunday night?

I'm not in the habit of making predictions, but I will just this one time. The Patriots will win every game this year and win the SB by a score of 75-3 after beating that team with that QB from TN, what's his name Patton or something, 92-2.


More Must See TV: Realtor makes an idiot of himself against Cramer

No commentary needed.

Just watch the video and if you ever believe what a realtor says again, well there is no saving you.

If you buy a house anytime in the near future, you shouldn't be reading this blog.

Friday, September 28, 2007

Americans just can't stop spending themselves into oblivion

WASHINGTON (AP) -- Consumers shrugged off a rash of bad news to spend more than expected in August while a key measure of inflation eased to the slowest pace in 3 1/2 years.The Commerce Department reported Friday that consumer spending rose by 0.6 percent in August, the best showing in four months and better than the 0.4 percent increase that had been expected. Incomes rose by 0.3 percent last month, slightly lower than had been expected.

Excuse me? Incomes rose 0.3 yet spending rose 0.6? HUH? I'm sorry what was that again? I wasn't a math major so this is a little hard for me to understand. Oh I get it now, Americans just borrowed twice their raise and went on a shopping spree.

Is there anything more American than maxing out the Visa on a day at the mall? Anything more says USA, USA than buying that new $45K truck with $0 down? I'm getting a little misty at the thought of the red, white and blue waving through the air while you're signing your name to yet another $1,000 of 18% credit card debt.

But, but, but the economy depends on us spending. So say the experts. Sure, spending what we have less a little for savings, great. Spending by borrowing.....not so good. Horrible actually.

As for this inflation number. Yeah inflation is contained I suppose. Plasma TVs are cheaper now than a year ago. But milk is anywhere from 20-30% more. Gas is more expensive. Natural gas is through the roof. Wheat is at an all time high. So if you need to buy a new plasma, inflation is working wonders for you. If you need to eat, drive or heat your home this winter....

Jim Cramer Says: DON'T BUY A HOUSE!! Must see TV.

Actually his exact words were don't you dare buy a house, you will lose money. Hey I've been saying this for a year now. Nobody listened, nobody cared. After all real estate always goes up, Renting is throwing your money away.

Maybe now that this guy is saying it, you might start listening.

He was also asked if there are any areas he would buy a house. His reply was 1 zipcode in New York City and 1 county in Maryland.

If you think your town is special, scroll down to yesterday's post about real estate.

Here is the video:

Thursday, September 27, 2007

FXI - Can lightning strike twice?

FXI? No this has not turned into a sci-fi blog. FXI is the ticket symbol for the iShares FTSE/Xinhua China 25 Index. What the hell is that you ask? Think of it as a mutual fund of top Chinese stocks traded on the NY Stock Exchange.

This bad boy was at $130 earlier this year. I thought it was way overpriced then. I bought some puts, it fell to $110, I made a nice profit. Case closed or so I thought.

I check today and the thing is at $182!! Un-effing-real. Take a look at the charts:

I believe it is buying put time again folks. This thing is up over 100% over the past year. 300% over the past 3 years. Class,anyone else recall the last time (1990s) an index (nasdaq) climbed that fast and that high and what happened to it (down 60%)?

Now the puts aren't cheap but man alive, this thing cannot NOT fall some

Here is the counter argument: China is hosting the Olympics in 2008 and the governement there will be spending money like crazy. Govt spending will make Chinese companies very profitable for the next year and so the high prices are justified. That and the general feeling that China is "the place to be" right now. Plus the weak dollar makes foreign stocks more attractive.

Valid points to an extent. 100% gain a year though? I don't think so.

New Home Sales plunge: Prices down 7.5% YOY

Well this was obviously not a surprise to anyone who has picked up a newspaper in the past 2 months. Median price of new homes was 7.5% lower in August 2007 compared to August 2006.

So anyone who bought last year with anything less than 7.5% down is now under water. Given the fact that a majority of loans in bubble areas (Las Vegas, Los Angeles, Miami, Boston, DC) were made with less than 5% down, it is a fair assumption to say that most people in those cities are under water. Add in 2-3% closing costs and the 6-8% selling costs and, man it starts getting ugly.

Of course the spin from the NAR (National Association of Realtors) has been this is a great buying opportunity. Listen to then at your peril. The NAR is a sales organization. Their interest is in selling. Whether prices go up or down doesn't really matter. They make money on volume. Listening to them for advice on the housing market is like listening to a car salesman's advice on whether you should buy a car.

It may look bad now, it will only get worse. Below is a chart from Credit Suisse analyst Ivy Zelman showing the ARM resets over the next several years.

These are the adjustable loans people got in the go-go years of 2004, 2005, 2006. Low teaser rates of 1%. Well now they are resetting to 7%, 8%, 9%, 10% and surprise surprise people can't make the payments and are foreclosing like mad. And as you can see from the graph this is not just a "sub-prime" issue. Plenty of people making good money with good credit are resetting as well.

We are just now approaching the peak of ARM resets. So look for foreclosures to peak in about 6 months from now as it usually takes that long to foreclose. Historically speaking housing markets bottom out 18 months after foreclosures peak. Quick math would indicate 2 years from now is when the market will bottom.

But you live in ____________. And in _____________ it is different because of _______.

In Las Vegas, Phoenix, Miami, Los Angeles, Orlando, Dallas it is different because everyone wants to live in _________ because it's a booming city with lots of jobs and good weather. So there will be no crash here.

In Atlanta, Dallas, Houston it is different because there was no boom to begin with. So there will be no crash here.

In DC it is different because the government is here so there will be no crash here.

In NY it is different because Wall. St is here so there will be no crash here.

In Seattle it is different because blah blah blah..

I think you all get my point. Every city is different and yet every city is exactly the same. Yes some areas will get slammed harder than others, but if you think your area is special and won't be affected, think again.

George Washington Says: Why are you killing my money?

So now the word on the street is another rate cut is coming.

So #1 rule of investing is NEVER FIGHT THE FED. OK I don't know if that really is the #1 rule, but anyone who's seen Fight Club knows what I'm talking about. So the FED has decided - once again - to say f**k you Dollar, we will save Wall St. billionaires at all costs. Can someone point to me where in the Constitution it says stocks can never fall? Anyone? Bueller? Fry? McFly?

What is happening is the Fed is destroying he $US in order to artificially prop up stock prices. While your (Mr. and Mrs. middle class American) purchasing power is being wiped away, Goldman Sachs is making an extra $500M profit.

Now don't get me wrong, I am not saying companies should not make profits. I love profits, the more the merrier. I love capitalism and free markets, the freer the better.

However profits should come from operating a business wisely and not from a handout like a rate cut. What the Fed is doing is putting a 12th man on the field for the defence and kicking the QB in the groin on every down for the offence. It is wrong and it goes against everything the Fed is supposed to do, namely keep I-N-F-L-A-T-I-O-N under control. The Fed's mission is not to keep the Dow Jones at 14,000.

So following rule #1 this is what we do (aside from complain on blogs):

a. Buy up bank stocks. When interest rates fall, banks do well. Yes banks will have mortgage exposure. But as a % of their lending mortgages are pretty small. I like Bank of America myself.

b. Buy metals. Gold and Silver are most obvious. They will be volatile, they always are. But with another rate cut coming it's about as sure a bet as you can get. As I said before SLV and GLD are the best ways to play this. You can buy mining stocks as well, but again, riskier. SLV and GLD are like buying a gold or silver mutual fund vs. individual stocks. You can also of course buy physical gold, never done it myself, seems complicated and not needed.

c. Sell dollars. Easier said than done. Playing in the FX (foreign exchange) markets is expensive and very risky. I personally don't do it, but will look into it now.

The dollar is almost below .70 and Bernake is talking about cutting rates again. My only conclusion is he did not listen to Whitney's advice and took the crack, as whack as it is.

Wednesday, September 26, 2007

Can you see the the similarities?

First Graph: US Housing prices 1987 to 2007 (courtesy NY Times)

Second Graph: Japan Land Prices 1980 to 2005:

Japan's housing market peaked in 1990. It then slowly and painfully fell for 15 years. During this 15 years the BOJ (Bank of Japan) lowered interest rates to 0%. And still the market declined for a decade and a half.

Look at the slope of Japan 1985-1990 and US 2000 to 2005, almost identical. But we're special and different in the US. The basic laws of supply/demand don't apply to us.

So-Called Experts once again show they know nothing

Wednesday September 26, 8:39 am ET
By Martin Crutsinger, AP Economics Writer

Orders for Big-Ticket Durable Goods Plunge Bigger-Than-Expected Amount in August

WASHINGTON (AP) -- Demand for big-ticket manufactured goods plunged in August by the largest amount in seven months, with widespread weakness signaling a slowdown in the nation's industrial sector.

The Commerce Department reported Wednesday that orders for durable goods, everything from commercial jetliners to home appliances, fell by 4.9 percent in August, the biggest decline since a 6.1 percent fall in January.

Well that was to be expected right? After all housing is crashing and when people don't buy new houses they also don't buy new fridges. Makes sense. Anyone with an IQ over 80 could figure that one out right? Unfortunately no.

It was far larger than the 3.5 percent drop that economists had been expecting and resulted from across-the-board decreases in a number of categories. The concern is that the steep downturn in housing and turbulence in financial markets could start to affect the economy more broadly, raising the risks of a full-blown recession.

Say what now? It is a concern NOW that housing may cause a recession? Uhm hello, experts, where exactly were you geniuses 6 months ago or more like 18 months ago? Once again the experts show themselves to be idiots to be rather blunt.

But but but the fed lowered by 1/2 a point, we can't possibly head into recession. CNBC, Cramer and Kudlow say so. They are experts after all and experts never get it wrong.

That was fast!

Or so my wife said...rimshot!! Thank you folks I'll be here all week, tip your waitresses well.

No, about the GM strike. That was fast. Doesn't GM lose money on every car they make? Hmm. If they make no cars they will lose no money. You'd think they could last this strike for a long time, but caved in 48 hrs.

This could have been a golden opportunity for GM to hammer the unions and they blew it.

GM and Ford are both up in pre-market.

Disclosure: I own a small amount of Ford bonds; 7.3% coupon with a 2012 maturity.

Tuesday, September 25, 2007

Adios Dollar

Well it was a 50 cut after all. Quel surprise!

And what do you know? The dollar is tanking, gold went crazy,oil is over $80 and the Dow is almost at 14K. However before you get too giddy, just remember that 14K is less than 10K in 2000 dollars. Inflation has eaten away any gains you've made.

I sold out of everything the day after the cut. Took the Ben B rally money and ran. I was tempted to buy some GLD but I'm still of the mindset gold is in its own bubble, inflation and all.

So instead I bought some SLV instead. Silver is used commercially more and is not a pure speculative move. It too has gone up a lot, but more justifiably so than GLD.

So right now I am 70% cash, 10% bonds, 10% stocks and 10% SLV.

I am still very bearish on stocks for October and November. Yesterday was a sneak preview of what'scoming with a 0.5% loss in the s&p500.

It still boggles my mind how so many so called experts are bullish. These are the same so-called experts who said housing would be "contained". The same baffoons who said subprime was no biggie. The same tools who were shocked - shocked I tell you - that the MBS and CDO markets were trashed. Who woulda thunk it?

Wednesday, September 12, 2007

Benny, Benny, Benny don't hurt me.

Well wishful thinking I know to expect Ben B to do the right thing. OK so he will cut rates. Hey what's a guy to do in this situation? Save the dollar or save Goldman Sachs and Merrill? Easy answer of Wall St. Duh!

OK so as we all know you never fight the Fed. Despite the fact the dollar is in the shitter Ben B will cut rates. Only question now is 25 or 50. I'm guessing 25. This guy's not crazy.

Markets are teetering back and forth. On 9/18 when it happens we'll get our final pop and then it's time to get out.

But get into what? Anything but the $USD of course.

Friday, September 7, 2007

Harley Davidson - BOOYAH

Wow that was faster than I thought. HD is toast. I sold the puts, today made a 72% profit in a few weeks.

Next up I will do likewise with other toys bought on helocs...sea doos, boats, plasmas.

And folks, I believe we can safely say we are in a recession judging by the jobs numbers.