Thursday, January 28, 2010

Update/Comments 1/28

Well copper crumbled into the ruins again today, finishing at $3.11, and so I'm now "short" one copper from $3.25 and another from $3.12. This will more than make up for the recent string of losses for sure.

None other than Bill Gross today sounded the alarm on British bonds (called gilts); saying that they are "sitting on nitroglycerine". Thats quite a statement from Bill, who is the CEO of a massive financial firm called PIMCO. He's recognized as a financial genius; when Bill speaks, Wall Street stops sipping their mochas and listens.

The end is nearing in Greece; today a newspaper came out with a story (which the Greeks deny) about serious EU talks to bail out Greece.. shortly to be followed by Portugal and/or Spain. This is going to put Germany front and center.. either a formal bailout or an Euro Central Bank bailout (with printed money, and a strongly lower Euro). My guess.. the German Chancellor Angela Merkl knows very well what her people would think of a formal bailout, therefore I predict it'll be an ECB bailout. Look for interest rates on all EU debt to go up as a result, and here's why: Lets say you loaned France 100,000 Euros a year ago on a five year bond and you expect to get 112,000 Euros back in five years. Problem is, those 112,000 Euros will buy only 3/4 of what they used to, therefore you have in actuality lost money. Bond buyers will thusly factor this into future EU purchases of not only Govt bonds, but all manner of bonds and stocks. Unless... deflation takes hold. Neither is a good scenario. Nouriel Roubini – the economist known as 'Dr Doom' – said Spain is too big to contain. "If Greece goes under that's a problem for the eurozone. If Spain goes under it's a disaster," he said. There is good news on Spain, however.. their national debt is relatively small; they might still be able to borrow a lot of money. But their banks are in abysmal shape. Their unemployment rate is above 20%; youth unemployment is 44%. Ya gotta wonder how much longer the people will peacefully tolerate this one.

Update 1/30: After looking into the Greek mess a tad deeper, it appears likely that the ECB will not be part of the bailout; it will either be a German/French affair or an IMF bailout.. and I see the IMF bailout as more likely. One blogger of note, however, feels that Germany might be willing to do it.. for a political price, namely the naming of a German, Axel Weber, as ECB chief. Either way, the ECB is unlikely to be a part of the answer here. Further, it appears that Bulgaria and a couple of others deeply connected to Greece economically could be affected, though these nations are also small and unlikely to cause any major problem. Portugal and Spain are not in immediate danger, though they might be down the road if the Greek tragedy is midhandled. Next week will be crucial; if CDS's and interest rates on Greek bonds continue drastically northward as they did in January, the bailout plan is going to have to be implemented sooner rather than later. An IMF bailout will impose stiff and unpopular cuts in Greek spending and wages, and this is a nation who's people have no problem with strikes, marches and riots as answers to problems. It also appears that Italy, Portugal and Spain have all instituted austerity measures to curb spending as a result of the problems in Greece; it's an attempt to head off the bond vigilantes.

Wednesday, January 27, 2010

Update/Comments 1/27

After a few weeks of a strengthening dollar and (another) terrible new housing report, copper finally collapsed like I thought it would, and boy did it ever.. today it lost eleven cents/oz, closing at $3.2225. My "sell" order was for $3.25 with a five cent trailing stop. I'm putting in another order to "sell" a second copper contract at $3.12

I will also be keeping an eye on corn.. I'm thinking that we will have a nice bull market this year; I'll start nibbling at this when corn sinks near or below $3.00/bu.

Today the Greek problem got worse; word was that the Chinese were getting cold feet in negotiating the purchase of $35 billion in Greek debt. Worse (and this is what scares me) is that other Mediterranean nations with problems are also beginning to slide; Portugal, Spain and even Italy saw increases in Bond rates today. CDS rates for these nations are headed north on a daily basis. My fear is that by the time Greece needs to be bailed, confidence in others will collapse and they, too, will need bailouts in short order. This will play hell with the Euro. Ultimately, however, I do see them all getting a bailout.

Friday, January 22, 2010

Update/Comments 1/22

Decided to bail out of IBM.. so generous of me to pick the three worst stock market days of the year to start believing in the stock market. Serves me right I guess.. loss isnt too bad.. $180, but still not how I wanted to start my stock picking career. I've always been a commodities guy.. perhaps I'll just stick to what I know.

Obama announced a new set of meaningful banking reforms.. one of which is essentially Glass Steagall 2.0, which would separate common banks (and limit their activities) from investment banks (who's assets are not federally guaranteed, but these banks can do whatever they please more or less). This will hurt Goldman Sachs, which last winter which went from an investment bank to a common bank to get the federal guarantees.. and then Goldman went on trading whatever they liked wherever they liked as usual. This announcement caused a market selloff the last few days, especially in financial firms who might lose income from these changes.. Goldman stock took a stiff broadside. But this is a long overdue and needed reform.. if you're gonna do risky sh!t, don't expect the taxpayers to backstop your losses. He did'nt go nearly far enough (Obama needs to put an immediate halt to any additional derivitaves being written, enforce a 10-1 bank leverage ratio, and enact a rule that prohibits mortgages from being written unless the applicant has a debt-income ratio of 3 to 1 or less) but this is a brave and good start. The other proposal seeks to break apart the "too big to fails", which might prove to be a complex task. Lets hope he's serious about getting these passed.

In other news, the proposal of these new rules was the brainchild of Paul Volker.. and against the advice of Larry Summers and Tim Geithner. At the news conference announcing these, Volker was next to Obama; Tim & Larry were not there. I smell a changing of the financial guard coming soon... I'd wager that Geithner at least is gone, Summers possibly as well, and today a few more senators came out against Bernanke, and his reappointment might not make it past the Senate. These changes (and policy changes thereof) could have profound effects. As for me, I'm with Volker.. it's time to enact some meaningful oversight for these banksters. Ultimately, Obama is a smart guy; this was a really good move in the right direction. Lets hope he continues on this path; he'll need to apply these smarts come 2011 as I think deflation will begin to bite hard. By mid 2011, things like healthcare and cap/trade will be long forgotten, as will everything else except the economy. Obama started a year late, but I now have some hope we'll get it right.

The USD has risen nicely this week vs the Euro; some of this was from troubles in Greece and Spain. I can easily see the euro going into the 120's sometime this year.. and this would be good for them but bad for us in some ways (it makes our exports more expensive). Part of it is that deflation might be creeping back into the US as available credit to businesses and citizens alike continues to contract. Why would a bank risk loaning money to a small business (nevermind the hassle of it all) when they can simply borrow money from The Fed at 0% and then use it to purchase US Bonds and get 3% ?? Free, easy money. {and charge outrageous rates on credit cards and burn people mercilessly who bounce checks}. Whats not to like ??

Life out here in Hooverville continues to get tougher and tougher despite Wall St and the banks having record profits. At least it lifts people's 401K's.. assuming they're still working. Loans are harder and harder to come by for small businesses and consumers, limiting production as well as consumption. Classic deflation, folks. Today a new report came out with 45 of the 50 states losing jobs. Me thinks the election in Mass has struck fear into the Democrats, and so the changing of the guard is in the works. Problem is, unless tough reforms and balanced budgets are the answer, putting a few heads on the bloc won't get it done.

That or Bernanke will simply "purchase" yet more bonds and/or MBS.
This is my bet.. look for it in March or April.

Sunday, January 17, 2010

Update/Comments 1/16

Upon the advice of one of the best there is, I've decided to put $4000 into IBM, which today is at $131.78; this represents 30 shares; they are at a very low p/e and most of their earnings are abroad, which seems to be doing quite nicely. I'll put a stop loss @ $120 and a goal of $147.

Meanwhile back here in Hooverville, the misery continues, The latest unemployment report listed a loss of only 85,000 jobs, which actually would be better news.. if it were true:

"The reason why unemployment, as per the Household survey, stayed at 10% and "only" 85,000 jobs are reported MIA in the Payroll survey can be found in the labor force numbers. From November to December 2009, the "persons not in the labor force" category went up by 843,000 (over 1 million when not seasonally adjusted), and now stands at 83,865,000. The vast majority of those singing off, i.e. not actively looking for work, are people who can't see any jobs anywhere in their environment. The worse the economy gets, the fewer people are counted as unemployed. It’s a lovely invention, but it's also an awfully perverted one"

Reporting the true unemployment in the US used to be accurate; it was called the "U6" measurement. The Gov't does'nt officially report this anymore since the Clinton Administration changed the rules, but a few websites still calculate it, and the real unemployment rate is 17.3%.. ie.. a "Depression Lite" as I like to think.

In other news, Venezuela debased their currency by half last week. Locals went on a shopping spree of epic porportions in response. Soon enough, with their price controls, long lines will be formed for the basics of life. This is a nation that was once prosperous. It used to have about $40 billion in reserves; this number is down to at least $6 billion; this currency move is likely because (at least in part) because the reserves are now non-existant. Oil production has dropped by a third in the last few years. This is the picture of a banana republic imploding. But it gets worse; according to the BIS, Spain's banks are knee deep in loans to Venezuela.. and Spain is already in terrible shape. This is called contagion:

"We see from this that the problems in Venezuela are soon to be the problems in Spain. Not only are their banks exposed to the trade credits outstanding but the exporters must have been making a fair buck in selling the stuff to Venezuela that are behind these credits. So the sovereign risk story in Venezuela is soon to become a sovereign risk story in Spain. The great sucking noise of credit contraction is continuing. Today it is Viet Nam and Venezuela; tomorrow it will be with those that trade with the weak ones. Sooner or later there will be no strong ones left. As this process progresses it will rise to the top"

Thursday, January 7, 2010

Update 1/7

Will put in an order to buy one copper at $3.61 with a five cent trailing stop; will also put in an order to sell one copper at $3.25, again with a five cent stop. I have a very hard time believing copper is at these high levels, especially given that new housing starts continue to tank and the USD is slowly rising in value. Nevertheless, the clear direction is up; if it breaks resistance at $3.61 we might even see $4.00 soon enough.. don't ask me how or why.. mostly I simply refuse to believe that all is well with the economy and that the recovery has arrived.

Sorry have not posted in a while; the holidays were long, this winter is a bad one, and my niece was in a car accident and so time has been hard to come by, but going forward I should be much better about tending to the blog.