February 2008 Stock Talk I

Vermeer,

At this price and time I would rather be long the dollar than short.

Being LONG the dollar to me almost means inversely being short the US markets. If the US dollar appreciates, it will slow the foreign demand and if other countries start slowing economically, it will slow demand for foreign investment.

On CRDC, I consider this one a 3 yr hold..they WILL penetrate the market, I believe in their product and am comfortable holding until sales start picking up.

Vermeer,

If ABK and MBI go to zero, this market is going to 9k and fast..and the financials are going to get a 30-50% haircut..

If there are no insurers of these instruments, think of the implications it has on the credit/debt market..it would be a HUGE disaster..so I think the guy is wrong and both companies survive.

  I think he has to be wrong as well...simply put, they cannot allow them to fail, the consequences as you state are too enormous to contemplate. Were it not for that enormous fact, they would fail...

  I think rather than bet on the dollar per se (and I think you are right as Europe has huger problems than people realize) I would short the Euro. To wit:

Over in Europe there is a disturbing set of circumstances. The European Central Bank is (properly) lending massive amounts of money to banks to maintain liquidity, making the Fed look miserly in comparison. They are allowing the banks to post asset-backed paper (including presumably some mortgage paper that is still rated subprime) as collateral. This amount has risen to a massive EUR430 billion, or about $623 billion. There are estimates that as much as $500 billion in asset-backed paper is on European bank balance sheets, and much of that is being used as collateral at the ECB. This means that European banks may still have several hundred billion in paper to write down.

No wonder European banks are not lending to each other. No one knows who is in serious trouble. As I reported a few weeks ago, there are serious rumors from credible (and off-the-record) sources that one of the largest European banks is technically in a condition of negative equity due to the massive amount of asset-backed (mostly mortgage) paper on its books, which it has not yet written down, since it has not yet been downgraded.

 PS:

 I have not down the numbers but what would the P/E of the market be at Dow 9K...if it is around 8 or 9, I would jump and jump in hard.

 From the department of unintended consequences...

Together the two studies offer sweeping conclusions: It does not matter if it is rain forest or scrubland that is cleared, the greenhouse gas contribution is significant. More important, they discovered that, taken globally, the production of almost all biofuels resulted, directly or indirectly, intentionally or not, in new lands being cleared, either for food or fuel.

“When you take this into account, most of the biofuel that people are using or planning to use would probably increase greenhouse gasses substantially,” said Timothy Searchinger, lead author of one of the studies and a researcher in environment and economics at Princeton University. “Previously there’s been an accounting error: land use change has been left out of prior analysis.”

These plant-based fuels were originally billed as better than fossil fuels because the carbon released when they were burned was balanced by the carbon absorbed when the plants grew. But even that equation proved overly simplistic because the process of turning plants into fuels causes its own emissions — for refining and transport, for example.

The clearance of grassland releases 93 times the amount of greenhouse gas that would be saved by the fuel made annually on that land, said Joseph Fargione, lead author of the second paper, and a scientist at the Nature Conservancy. “So for the next 93 years you’re making climate change worse, just at the time when we need to be bringing down carbon emissions.”

 Not to monopolize Saturday (I should get out more often!!)...

Finally, let's look at what is the spear point of the current credit crisis: the monoline insurance companies like Ambac and MBIA. I have been warning for months that they are either insolvent or on their way to insolvency. If they are downgraded, they are essentially forced into bankruptcy. Let's look at what Professor Nouriel Roubini wrote this week:

"Next, the downgrade of the monolines will lead to another $150 of write downs on ABS portfolios for financial institutions that have already massive losses. It will also lead to additional losses on their portfolio of muni bonds. The downgrade of the monolines will also lead to large losses - and potential runs - on the money market funds that invested in some of these toxic products. The money market funds that are backed by banks or that bought liquidity protection from banks against the risk of a fall in the NAV may avoid a run but such a rescue will exacerbate the capital and liquidity problems of their underwriters. The monolines' downgrade will then also lead to another sharp drop in US equity markets that are already shaken by the risk of a severe recession and large losses in the financial system."

In talking with friends in the credit markets, in order to return to more normal credit markets, the thing that has to happen first is that the monoline insurance problem MUST be resolved. I agree with Nouriel that $15 billion being written about in the papers will not be enough. I have no idea what the correct number is, but it needs to happen soon, before the rating agencies are forced to downgrade the monolines.

Vermeer,

Shorting currencies is so time consuming and capital consuming, but I would definately short the Euro here..but on no margin. Not as much fun but it could take a few yrs to unwind with the Federal Reserve pumping cash every day..until that stops, it is unlikely a short Euro trade will pan out as it should.

Think of what that message above me is saying..it would be like saying no more homeowners insurance..who would buy a house without homeowners insurance? It would CRUSH the financial markets and it would cripple the US for years. It cannot happen. So even if the theory is correct and of course MBI and ABK are so over margined it is a joke, they cannot be allowed to go into BK. The consequences for the security/insrument HOLDERS is probably 50X more severe than the loss in market cap from both companies going under.

As for the 9k PE multiple..if the credit/debt market goes haywire, FORGET current earnings estimates, cut them in half or more, they are going in the sh!tter..so a 9 PE based on the current economy is true, but if these gloom and doom theories develop, at 9k the market would have a 15 or higher PE..and it would not be a buying opportunity.

The solution to the problem is regulation and enforcement of the insurers business..they were allowed to margin way too much and that is what caused this mess...greed as usual.

 I agree Wall...fear has trumped greed temporarily, and that fear should be there in fact. But I ask myself, if they do bail out those insurers, is it not somewhat like me insuring myself? 

 You are right as far as the P/E and forecasts, but I still would be very tempted to buy excellent companies (only) whose valuations have also gone into the shitter. Histoically, 9 is a reasonable (almost the norm) number isn't it? I need to get to the source where I hit that as a long term basis of PEs...

 I am afraid we are going to witness the law of unintended consequences in this matter as well as the energy area. Basically, they are going to enact regulations tht will in fact compound the problem.  Regulating too late is as bad as noregulation in the first place. The oddity is, by tightening up after the dmage has been done will only make the road to recovery more difficult. Kind of ironic, but entirely in keeping with the way the US government operates.

 

 

Gunners,

Since I bot down I am actually up overall now..amazing.

Good volume, havent seen the reason on the move today.

So much for IDMI, they sold it off all day, big volume and a ton of selling.

DRYS has a good day going though.

Hmm… “Prices are rising in Europe as in America. Bread is up 12% in Germany over the last 12 months. Butter has gone up 45%. Milk 25%.”

Higher prices often stem from printing more dollars. “Force-feeding the rest of the world $2 billion a day (more consumption),” Warren Buffett reminded us last week, “is inconsistent with a stable dollar (more inflation).”

We share Mr. Buffet’s concern. Bernanke keeps printing. Politicians keep promising. Bridges keep crumbling. Wars keep spending. We read this week that the projected total cost of Medical care for U.S. veterans of the Iraq and Afghanistan wars will top $500,000,000,000, a figure on par with the total military spending to wage these wars to date.

 Que pasa regarding BR??????

He imploded with some verbage he shouldnt have said in the box.

I love the thought of OPEC switching to the Euro...hurray for us.

So do you think the EU is printing as well? I know we are and of course they are doing it to stave off the recession, which makes no sense.

Market ended decent for once..usually they have been selling it off into the close..maybe we are in for a few up days.

help me understand: (rhetorical)

Wall Street finished higher in an uneasy session Monday as retail and homebuilders stocks rose on expectations for more interest rate cuts, but banks and insurers fell on worries about further mortgage debt troubles.

arent these two intertwined?

 The longer I have observed post facto explanations of a market's single day, the more they seem comprised of sheer baloney.

  Interst rate cuts, I suppose, might alleviate to some quite small degree the housing build up, but  who the hell is rushing out to buy a house? If you can quallify for a loan, you qualify to buy better investments anyway.

  This market reminds me of intermittent periods of calm in a hurricane.It will be interesting if all the suual suspects can use all the usual triks to get out of an unusually huge problem.



 

re: buffett this morning

he is willing to back the muni's at mbi, abk, etc

but willing to let the CDO's go to shit...amazing that these stocks are bid up given that the oracle thinks that a good portion of these comapniy's portfolio's are crap

great.  thanks

  His interview on CNBC was interesting and very funny.I wish I had a tape of it...