Lifelock, Onion, GM, Murder
– Just do not get this one
– Why do they not have a regular TV gig?
– Finally….done
– This will be turned by the media into the “mainstream”….
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Category: Articles
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Hat Tip Investment Linebacker
Disclosure (“none” means no position):Long GGWPQ
The 45% drop in the US equity markets has caused even stalwarts to question the wisdom of the “buy and hold” strategy. But rule-based approaches for deciding when to buy or sell suffer the same problem. Sometimes they work and sometimes they don’t. In this presentation, Dr. Mike Bowles shows how familiar data-mining tools can be used to derive a robust algorithmic trading system.
A simple rule-based approach trend-following system serves as a starting point. He looks at that system’s characteristics and then employs a neural net to predict which of the system’s trades should be taken and which ones should be skipped.
Bowles demonstrates that this significantly improves the performance of the trading system (Sharpe’s ratio of 1.6 to Sharpe’s ratio 3.6). This example illustrates one way in which data mining tools have proven useful to practitioners of quantitative finance.
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So Extreme Left Wing Hack Paul Krugman came up with this one today in an article about those concerned with the possibility of inflation. In it he claimed “I suspect that the scare is at least partly about politics rather than economics.”
He later went on to say:
So if prices aren’t rising, why the inflation worries? Some claim that the Federal Reserve is printing lots of money, which must be inflationary, while others claim that budget deficits will eventually force the U.S. government to inflate away its debt.
The first story is just wrong. The second could be right, but isn’t.
Oh, so the Fed is not printing “lots of money”? We’ll, let’s just ask the Chairmnan of said Fed and see what he says.
For those who do not wish to watch the video, here is the applicable exchange:
Asked if it’s tax money the Fed is spending, Bernanke said, “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin to printing money than it is to borrowing.”
“You’ve been printing money?” Pelley asked.
“Well, effectively,” Bernanke said.
So, the obvious conclusions are either:
A) Paul Krugman has no idea how the Fed works or what its activities effectively do
OR
B) Krugman’s defense of the current policies are what he claimed above “politics over economics”
I’ll go with “B” because I do not think Krugman is dumb. Only a very smart person could be so obviously partisan and without a trace of moral objectivity in his ability to twist any data set to his pre-determined outcome and get away with it for years.
Now, it of course does not help that he works at the Democratic Party National HQ (errr NY Times) and preaches to the also pre-determined political predilections of its readers/editors. Nor does it hurt he won he won a Nobel Prize for his consistent trashing of anything the GOP attempted from a Noble Committee that considers him “conservative” despite his actual claim to be “liberal”.. He is also on the record trashing the Reagan legacy as though the longest period of economic expansion those policies set off were either an accident or the result of Jimmy Carter’s legacy.
The joke goes that any member of the GOP could walk out of the Capital and walk across the Potomac River and Krugman would eviscerate them in a column for “not being able to swim”.
Back to the “article”. Later in it he says:
But it’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal seems to be to bully the Obama administration into abandoning those rescue efforts.
Again Krugman simply lies. It is not the fact we have deficits that have economists up in alarms. Did you notice he declines to name names? It is easy to claim something as “fact” if you do not back it up with specifics like, oh, who is actually doing the “fear-mongering”? What has people so alarmed is that the current deficit that will exceed $2TRILLION is greater than every deficit ever run in the history of the country COMBINED.
Consier this, in 1996 Krugman wrote in an article called “First, Do No Harm”:
Still, would a more relaxed attitude toward budget deficits do any harm? Here Kapstein’s article becomes truly mischievous, by suggesting that concern about deficits is motivated entirely by ideology. Would that it were! Unfortunately, the West is past the point at which the virtues and vices of its budget deficits could be discussed in terms of uncertain macroeconomic effects. The stakes now are much cruder and more elemental: the long-term solvency of Western governments.
Debt as a percentage of national income in almost all Western nations is now comparable to the levels that historically have prevailed only at the end of major wars. But there has been no war, and instead of paying down their debts, as peacetime governments always have in the past, Western treasuries are continuing to increase their debt, for the most part faster than the increases in their tax bases. Moreover, in the current situation there are no major emergencies — no big arms races or wars in prospect, no natural disasters that require extraordinary spending. But stuff happens. If governments cannot control their budgets when it is not happening, what will they do when it does?
The demographic time bomb makes this situation particularly worrying. The budgets of advanced countries are in large part engines that transfer money from workers to retirees, a system that runs smoothly as long as the population is steadily growing, so that the workingage population is large relative to the retired population. But Western populations have not grown steadily. Baby boom was followed by baby bust, and it is therefore certain that the demands on the social insurance systems of advanced countries will greatly exceed their resources beginning only a bit more than a decade from now. Or to put it differently, to the already huge explicit debts of Western nations one should add implicit debt in the form of their unfunded promises to future retirees. In short, concern about the budget deficits of Western nations can no longer be considered a matter of ideology. These days it is a matter of straightforward accounting, and one must deliberately stick one’s head in the sand to imagine otherwise.
He finished the article with this:
There is a great deal that can be done to improve the economic situations of the ill-paid and unemployed. However, there is no reason to tie responsible, realistic proposals to raise incomes and create jobs either to irresponsible demands for bigger deficits or to unrealistic expectations about international coordination.
It is the almost unfathomable scope of current deficits that has economists up in arms (as it used to him), not that we are running one. To be sure, it would be near impossible to find an economist that declares given what has happen the last year that it would be wise for the government not to be running a deficit. Yet, Krugman insinuates this yet another “vast right wing conspiracy”.
No Paul, just people being intellectually honest about what is happening….give it try sometime.
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Latest Wall St. Media Appearance 5/28
Given today’s action in General Growth Properties (GGWPQ), this was an opportune show. Also discussed was oil (USO), natural gas (UNG) and value investing in general.
More video at Wall St. Media
Disclosure (“none” means no position):long GGWPQ, UNG, USO
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Sobering Housing News….Very Sobering
I was going to piece this in but it really needs to be read in its entirety. Any bold highlights are mine.
The Mortgage Bankers Association came out with their Q1 report today and then updated their forecast:
WASHINGTON, D.C. (May 28, 2009) — Foreclosure actions were initiated on 1.37 percent of first mortgages during the first quarter of 2009, according to the Mortgage Bankers Association. This was a 29 basis point increase over the fourth quarter of 2008 and a 36 basis point increase from one year ago. Both the level of foreclosures started and the size of the quarter over quarter increase are record highs.
According the MBA’s National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties was 8.22 percent on a non-seasonally adjusted basis, down 41 basis points from 8.63 percent in the fourth quarter of 2008. Delinquency rates always decline in the first quarter of the year due to a variety of seasonal factors. After accounting for these factors, the seasonally adjusted delinquency rate was 9.12 percent of all loans outstanding as of the end of the first quarter of 2009, up 124 basis points from the fourth quarter of 2008, and up 277 basis points from one year ago.
The seasonally adjusted rate is the highest in the MBA’s records going back to 1972 and the unadjusted rate is the highest recorded in the first quarter of any year back to 1972.
This means now that on every quantifiable level, this housing bust is far worse than the most recent one in the early 1990’s. Read more on that and its effect here.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 3.85 percent, an increase of 55 basis points from the fourth quarter of 2008 and up 138 basis points from one year ago. Both the foreclosure inventory percentage and the quarter to quarter increase are record highs.
The combined percentage of loans in foreclosure and at least one payment past due, meaning the percentage of mortgage holders not current on their mortgages, was 12.07 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.
“The increase in the foreclosure number is sobering but not unexpected. The rate of foreclosure starts remained essentially flat for the last three quarters of 2008 and we suspected that the numbers were artificially low due to various state and local moratoria, the Fannie Mae and Freddie Mac halt on foreclosures, and various company-level moratoria,” said Jay Brinkmann, MBA’s chief economist. “Now that the guidelines of the administration’s loan modification programs are known, combined with the large number of vacant homes with past due mortgages, the pace of foreclosures has stepped up considerably.”
“In looking at these numbers, it is important to focus on what has changed as well what continue to be the key drivers of foreclosures. What has changed is the shifting of the problem somewhat away from the subprime and option ARM/Alt-A loans to the prime fixed-rate loans. The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. In addition, almost half of the overall increase in foreclosure starts we saw in the first quarter was due to the increase in prime fixed-rate loans. More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults.
This means that the housing bust has cycled from a sub-prime to Alt-A to now an employment issue. Since we were already in the midst of the drop when the layoff began, those losing job had no way to sell their homes. Now even good borrowers with conforming loans are defaulting at a record rate.
“What has not changed, however, is the oversized impact of California, Florida, Arizona and Nevada in driving up the national numbers. Those states continue to account for about 46 percent of the foreclosure starts in the country, and represented 56 percent of the increase in foreclosure starts, including half of the increase in prime fixed-rate foreclosure starts.
“It is difficult to overstate the severe impact home price declines have had on mortgage performance in those four states. 10.6 percent of the mortgages in Florida are now somewhere in the process of foreclosure. In Nevada it is 7.8 percent, Arizona 5.6 percent and California 5.2 percent.
“In the first three months of this year, foreclosure actions were started on 3.4 percent of the mortgages in Nevada, 2.8 percent of the mortgages in Florida, 2.5 percent of the mortgages in Arizona and 2.2 percent of the loans in California. In comparison, the states with the highest foreclosure rates in the hard hit Midwest were Michigan and Illinois at 1.5 percent and Indiana and Ohio at 1.3 percent.
“While the national foreclosure start rate was 1.37 percent in the first quarter, in California, Florida, Nevada and Arizona it was 2.45 percent. Absent those four states, the national rate would have been 1.01 percent.
“Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve. MBA’s forecast, a view now shared by the Federal Reserve and others, is that the unemployment rate will not hit its peak until mid-2010. Since changes in mortgage performance lag changes in the level of employment, it is unlikely we will see much of an improvement until after that,” said Brinkmann.
Wanr more bad news? What could be worse? Well, we are actually in a trough for Alt-A and Option Arm resets as the following chart shows:
Simply put? It gets worse from here and here is already real bad…
So aside from the damage already done, rapidly rising mortgage rates and more folks losing their jobs, we have a wave of resets coming that dwarfs the first one that pushed housing off the cliff. Now, there is no way to know what percentage of those in 2010-11 set to reset have either a) already lost their job and will default before then, b) have already defaulted or c) have already converted into conforming loans.
But, we do know this, no matter how large the percentage of those set to reset that fit into a, b or c above, there is another serious body blow to the housing market waiting around the corner.
We also know that government programs designed to help have been abject failures as HOPE for Homeowners, designed to save 400k homes, has saved, ummm, 1 (that is 1…not a misprint). A Fannie Mae program, HomeSaver Advance (HSA) has seen 70% of the people it actually did help re-default. This isn’t an issue we can govern our way out of and too be honest, government meddling is making it worse. How many people held on to homes, wiping out savings in the HOPE a government program was going to bail them out? Only after it was too late did they find the program would not work for them and now not only were they losing their home, their saving was gone also.
It is the unintended consequence of government trying to artificially prop up a market.
The sad truth is this just has to play out and it will be a long and difficult process. Do not let anyone tell you any different…
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The Baltic Dry Index tracks the cost to ship dry bulk goods, i.e. grain, metal ores, coal and etc.(see chart 1) Baltic Capesize Index tracks the shipping costs on the largest of the dry bulk vessels, i.e. vessels that are in excess of 80,000 dwt.(see chart 2) Capesize vessels are viewed as primarily carry coal and iron ore vessels. The Baltic Capesize Index tends to fluctuate with the amount of steel being produced and reflects global economic activity. Over the last two weeks the Baltic Capesize Index has increased over 80%. The same two weeks the broader Baltic Dry Index has increased 21%. The Baltic Dry Index has increased over 470% from its low of 663 in Dec 5, 2008 to 3164 on May 27, 2009.
Most assume that speculators are not driving up the cost of vessels as the result of some speculative market activity and that these indices provide an untarnished view of world business activity. But, with the history of oil at $147bbl in 2008 still sharp in memory, it should always be considered that speculation could be playing a part in these indices. Regardless of the all the sources of these price increases, these indices are in line with the Port of LA activity regarding loaded containers which provides another reference point.(see chart 3)
That these charts reflect a substantial turn upwards in global business activity and psychology is a point that should catch the attention of all investors in my opinion.
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Friday’s Links
Socialism, Harvard, Cuban, Dasan
– Funny what the NY Times determined was socialism before today
– In financial trouble. Hat tip reader Alex
– Always fighting somebody
– Nice post on an investment thesis
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Ackman Loses Proxy Battle With Target
A classic win some/lose some scenario unfolded today at the Target (TGT) meeting for investor Bill Ackman.
Here are some past posts on the subject here, here, and here
Here is soke of the press release from Target:
“On behalf of Target’s Board of Directors and management team, we thank our shareholders for their overwhelming support throughout this process,” said Gregg Steinhafel, Target’s Chairman, President and Chief Executive Officer. “Today’s outcome demonstrates the confidence Target shareholders have in our Board’s qualifications, diversity and experience to provide effective and independent oversight and direction to the company, contributing to the creation of one of the most recognized brands in the United States. We remain dedicated to serving the interests of all shareholders by sustaining Target’s competitive advantage, driving continued profitable growth and generating substantial shareholder value over time.”
Analysis From Bloomberg:
Ackman Said:
As an aside, he does have very valid points as to the voting process involved not just at Target but in corporate America in general. It should not be more dificult to vote for a Board of Directors than the President. It also should be a secret vote and a single ballot so as to not be influenced.
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Bruce Berkowitz on Bloomberg
Note to CNBC: Watch and Learn, this is how to be prepared for an interview. First watch the muddles mess that was CBNC’s effort this am then watch this. Unlike CNBC who had no idea what Bruce has invested in, this interviewer knew and had good questions related to it.
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Berkshire’s Sokol: "No Green Shoots"
The man rumored to be taking over for Berkshire’s (BRK.a) Warren Buffett says 2011 may be the turn….not now or next year.
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This is disappointing that CNBC has one of the best and honest fund managers on and only gives him 3:50 to talk, a big whiff on their part. Meanwhile, they’ll give Kneale and Gasparino 10 minutes to call each other names. Just when I forget why I stopped watching, they remind me…
Anyway, here is Bruce
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Hat tip to Zero Hedge for this. Regular readers know we own a bunch of General Growth Properties (GGWPQ) at $.49. It currently trades at $1.60 today and if Ackman is right, it is still a stunning value.
Publish at Scribd or explore others: Creative Writing Short Stories Research Math & Engineering Magazines & Newspape Non-fiction world culture
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The Bond Boys Come Out Swinging
Now this chart is either really good news or dark storm clouds on the horizon…
Scott Grannis says of it:
Treasury yields are heading skyward, as the bond market begins to realize that a) the economy is improving, b) monetary policy is incredibly expansionary, and c) fiscal policy is creating massive financing needs. This is a perfect storm for the Treasury market, and it could send yields far higher in short order.
The silver lining to this thunderstorm cloud is that it may cause our politicians to rethink their plans to spend money like a drunken sailor. It would be great if Obama came to have the same respect for the bond market as Bill Clinton did.
“Davidson” says of it all:
This piece by Scott Grannis begs the question: “Would Bernanke reigning in stimulus boost market confidence?” There are many indications that confidence in the credit markets have improved. It is understood that if lender’s confidence levels continued to improve as has been apparent then many of the looming refinance issues for commercial real estate would ease. The effect on lender’s confidence in the auto loan and home loan market could continue to improve which would go a long way towards easing fears of the after-effects of a GM bailout or easing the fears of Alt-A mtg rollovers.
If Bernanke declares that now is the time to reduce the stimulus, would this rein in the fears of pending inflation, boost lender confidence and stimulate economic improvement?
Confidence in our financial system is crucial to our society. It is the lack of confidence which causes deep recessions as everyone retrenches at once. It is the excess confidence that produces bubbles as many over extend themselves.
A boost to confidence would be welcome.
My two cents:
Obama is learning (hopefully) that all his spending plans can be put on hold by the “Bond Boys”. Much as Clinton learned, should they not like the direction things are going, they have the ability to drive up interest rates.
Why is that a problem?
Consider a second chart, this one of 30 year mortgage rates
Look great right? What better to help spur housing except record low rates! But, look at the relationship between the 10yr. Treasury and the 30yr. mortgage. The 30 yr. on average tends to run about 1.7% greater than the 10yr.
So…….why does this matter? Well the 10yr. exploded to 3.5% today and that correlates to an appoximiate 30yr. rate of 5.2% upcoming or over 1/2 a point higher than just a week and a half ago. Nothing, and I mean nothing will throw more cold water on this housing market that rapidly rising interest rates. Folks who were sitting on the fence just a week or two ago are going to be in for quite a shock when they look at the new monthly cost of a house.
Now, here is where “Davidson’s” comment on Bernanke comes in. Should Ben decide it is time to suck some liquidity out of the economy “due to its performance”, we would see a reversal of the the rate jump. That might also have the effect of spurring those folks on the house buying fence out there the rush out and pick one up as they fear additional rate increases. This would be good news.
The huge risk is “what if there really aren’t any buyers on the fence”? Rate increases will only serve in this case to deepen the problem and Bernanke’s withdrawing of liquidity would serve to further tighten lending.
What really needs to happen? We need some responsibility out of Congress and the White House. If we cannot get it then the bond folks will force it on them and in that case, options become very limited very fast. The first volley has been tossed, let’s see what happens now..
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