BullRunner, following the Market

Deposit Rates Could Turn Negative in This Bizarro World

2011-08-28T15:37:00.001-04:00

Bank’s don’t want your money. They have the benefit of cheaper wholesale money vs. retail money, and just like a self-storage locker it costs them to secure, insure and heat your money. If it’s cheaper to buy wholesale vs. used, then why buy used?

This article makes some mentions about the 80/20 rule, and currently we’re in the 80% fear, 20% greed mode. Retirees are joining their friends at staggering levels, and pretty soon there might be more capital sitting in banks than there is deployed to real assets, and companies are cash-rich.

Watch the next few years as the adult demographic segment moves to the elderly demographic segment, and 20% of the US population is adult, 80% is elderly or child.

From Wolfram Alpha, some info on the US population.

Distribution:

The 30-year bond has surpassed commodities as the investment of choice, signaling great fear in the markets as investors park their Ferraris and drive their winter-beater BMWs. When it flips around, watch for money to fall into things like food, precious metals, and energy. Until we get another boom of tweens and teens and twenty-somethings, consumer and discretionary will continue to fall by the wayside.

For those retirees having more than $50 million in the bank, watch for your bank manager to treat you like Tony Montana. We just can’t handle that much money Tony, our investors are asking questions!

Back in November, Geller predicted that a major bank would begin to charge depositors for deposit accounts of over a certain size and earlier in August, the Bank of New York Mellon sent a letter to institutional depositors informing them that the bank would begin to charge fees on deposits above $50 million.

Deposit Rates Could Turn Negative in This Bizarro World

US Downgrade

2011-08-08T23:26:00.000-04:00

How is it that the City of Peterborough, Ontario gets the same rating (actually, better) than the US Government? Nikola Swann was the secondary analyst on the Peterborough rating, and the primary analyst on the US Government downgrade.

Truly a Black Swann day today on the markets.

Top Canadian Stock Screeners | Million Dollar Journey

2011-05-09T14:31:00.001-04:00

Bunch of Canadian stock screeners.

Top Canadian Stock Screeners

Top Canadian Stock Screeners | Million Dollar Journey

Looking to the Future with Options

2011-04-03T10:28:00.000-04:00

As time progresses, options become riskier and riskier to hold. Good Traders, like good drivers, look as far ahead as possible.

But what a lot of option traders don’t appreciate is that time decay kind of gums up the works for this calculation. Options lose value by the amount of their theta each day. But theta doesn’t come out of the option price on the closing bell each day. Professional traders have been around the block. They know theta is coming. So they move the day in their models ahead sometime during the trading day (i.e., before the end of the day) to get ahead of the game. In fact, towards the end of the week, they generally start taking time out of their models more aggressively because they need to take out a total of three days of decay to account for the weekend. Often, by the end of the day Friday, they have moved
their models ahead three full days to reflect Monday’s theoretical prices

So is the secret to winning in the stock market to not look at yesterday's close but to look at the next 3 days of potential opens and what the futures/options markets are doing?

Volatility Index Alternatives

2011-04-01T10:26:00.000-04:00

Using VIX in combination with CDS premiums (how much a company has to pay to borrow) indicates to me volatility in the market and risk of owning an individual stock (along with Beta). There's a more accurate/up-to-date way of doing things with VIF and VIN.

Now, here is the fun part. It is a little known fact that the CBOE actually maintains separate indices for the near-term month VIX (VIN) and the far-term month VIX (VIF). Just pop those tickers into your streaming quotes and you too can watch not just the VIX, but the two components used in the VIX constant maturity blend. Right now, for instance, I show a VIX of 17.88, a VIN of 16.98 and a VIF or 18.23. Just be sure to keep track of the SPX options series roll eight trading days before the VIX options expiration.

There are even some ties to individual stock prices.

http://vixandmore.blogspot.com/2011/01/cboe-to-publish-vix-style-volatility.html

Amazon (AMZN): volatility ticker: VXAZN
Apple (AAPL): volatility ticker: VXAPL
Google (GOOG): volatility ticker: VXGOG
Goldman Sachs (GS): volatility ticker: VXGS
IBM (IBM): volatility ticker: VXIBM

Financial blog wars » Investment Postcards from Cape Town

2010-12-31T09:29:00.001-05:00

Top of 2010

Josh Brown, writer of The Reformed Broker blog, this year again compiled a table of financial bloggers. Investment Postcards received the honor of being included in the Big Picture category.

Josh commented as follows: “First, some caveats – I tried to include all the blogs I keep up with at least semi-regularly. There may be some newer or less frequently updated blogs that aren’t here – please no hard feelings if we missed you, there’s always next year. I also didn’t include all the tweeters and video bloggers, many of whom I consider to be great in their own right.”

Here’s the 2010 list.

Financial blog wars » Investment Postcards from Cape Town

BERKSHIRE HATHAWAY INC.

2009-03-07T10:20:00.001-05:00

Warren's letter to investors was released last month. My 1 share of Berkshire Class B stock has taken a big hit since September, primarily due to lack of confidence in the markets and adjustments to valuations across the board. Ticket to the annual meeting is getting cheaper...

Warren has an excuse for this - the bad guys are getting the handouts while the good guys are suffering, with no end in sight. He admits to making some stupid mistakes, and also inadvertently avoiding even stupider ones by having his "lowball" offers rejected.

Perhaps if Warren bought a new home it would set an example for the rest of America... since he has been living in the same one for the last 50 years. If not a new home, perhaps a car company?

Warren & Co. still beat the S&P by 27% last year... not a bad deal until you consider they also lost 9%, and much more as of this year.

I don't take yearly gain/losses #'s too seriously. Unless you bought the stock at the Jan 2 price and sold at the Dec 23 price, your losses and gains are something different. In addition, currency exchange also has a dramatic effect if you do not live in the US and are dealing in USD.

Some further insight into what I have figured is the primary reason why companies are failing:

Now, imagine that all of the city’s bonds had instead been insured by Berkshire. Would similar belt-
tightening, tax increases, labor concessions, etc. have been forthcoming? Of course not. At a minimum, Berkshire would have been asked to “share” in the required sacrifices. And, considering our deep pockets, the required contribution would most certainly have been substantial.

I believe insurance on debt and recent risk management practices have caused this spiral, as speculators of this insurance and increasing spread values force their "names" to default after being unable to borrow. Why else would some of the largest companies in the world get dragged into the quagmire of bankruptcy?

The type of fallacy involved in projecting loss experience from a universe of non-insured bonds onto a
deceptively-similar universe in which many bonds are insured pops up in other areas of finance. “Back-tested” models of many kinds are susceptible to this sort of error. Nevertheless, they are frequently touted in financial markets as guides to future action. (If merely looking up past financial data would tell you what the future holds, the Forbes 400 would consist of librarians.)

99 years of historical data can't be wrong Warren! :)

Another reason for the economic downward spiral is the loss of confidence in the entire system, due to a number of Ponzi schemes. It is ironic that Charles Ponzi's company was called the Securities and Exchange Company. It's no surprise that people will look the other way while they are making money, and then as soon as there is some government intervention and scrutiny about shady deals that money will go running for the hills.

Another cause for the downfall? Megatrends... baby boomers harvesting their retirement pensions before they disappear. The root cause, however, has been explained very clearly.

Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood
using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols.

Our advice: Beware of geeks bearing formulas.

BERKSHIRE HATHAWAY INC.

Stocks Bear Market How Low Could it Go? :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

2008-11-20T15:10:00.001-05:00

How Low Can It Go?

Stocks Bear Market How Low Could it Go? :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

Paris 2008: Lamborghini Estoque LIVE - Autoblog

2008-10-25T21:43:00.001-04:00

For the billionaire who's stock portfolio now compels him or her to car-pool, comes a new 4-door Lambo sedan.

Baby seat optional.

Paris 2008: Lamborghini Estoque LIVE - Autoblog

$XAU:GLD - SharpCharts from StockCharts.com

2008-10-15T20:32:00.001-04:00

Ugly chart.

$XAU:GLD - SharpCharts from StockCharts.com

Techdirt: Apparently The Financial Crisis Is The Fault Of Flickering Computer Screens

2008-10-08T09:55:00.001-04:00

How many of you as investors have requested paper copies of annual reports?

So the 3 of you that have, how many got beyond the glossy photos?

You must be the one holding cash right now.

It's all the fault of the OK button.

The whole thing, starting with the subprime, is the fault of the computer. I was just talking to a banker the other day, and not that long ago, 20 years ago, an investment banking house, let's say, Lehman Brothers, when it got a package of mortgages, they would go through every mortgage, every single one, and they'd throw out the ones that just seemed absurd, they just wouldn't accept them. Things used to arrive on paper. Today things arrive on a screen, and a screen is back lit, and one of the biggest pains in the neck is trying to read something dully written and complicated on a computer screen. It will drive you nuts -- I mean, try it sometime. Now they say, "Oh, to hell with it," and they just accept the whole package. And if it hadn't been for that, they'd be going over each loan. What's happened is the backward march of technology.

Techdirt: Apparently The Financial Crisis Is The Fault Of Flickering Computer Screens

YouTube - Strong bad - important rap song

2008-10-08T00:19:00.001-04:00

Kidz don't play wit 2 many knives

Wish I listened to this before buying into the markets last week.

naked capitalism: Credit Default Swap Worries Go Mainstream

2008-09-08T22:10:00.001-04:00

This article is from February, 2008. It applies now more than ever after the FRE/FNM bailout.

Strange that the 2 entities weren't halted after the news of their impending bailout.

naked capitalism: Credit Default Swap Worries Go Mainstream

Bloomberg.com: LSE Trading Crash

2008-09-08T11:33:00.001-04:00

The breakdown left traders in Europe's financial capital in limbo as equities around the world rallied on the U.S. government's takeover of mortgage lenders Fannie Mae and Freddie Mac. The LSE, Europe's oldest independent exchange, said attempts to fix its biggest computer failure in more than eight years was ``taking longer than expected.''

``The LSE will come out of this very, very badly,'' said Omer Bhatti, head sales trader at WorldSpreads Group Plc in London. ``People will begin to think seriously about having alternatives.''

Bloomberg.com: Worldwide

Hewlett-Packard: Hewlett-Packard Crowned Head Of The Stupid Shipping Gang After Packing 32 Sheets Of Paper In 17 Boxes

2008-07-19T20:41:00.001-04:00

This is a good reason not to buy HP stock. Unless they charge for shipping!

Leading the stupid shipping gang takes creative incompetence, and Hewlett-Packard is clearly up to the task. Other companies might have turned to email when faced with the challenge of shipping sixteen software licenses. Not Hewlett-Packard! HP went looking for a box. A really big box, which they filled with sixteen smaller boxes, each containing two precious pieces of paper ensconced in a layer of protective foam.

Hewlett-Packard: Hewlett-Packard Crowned Head Of The Stupid Shipping Gang After Packing 32 Sheets Of Paper In 17 Boxes

ING DIRECT Canada: The Tax-Free Savings Account

2008-07-12T21:57:00.001-04:00

ING has started marketing a tax free account for Canadians... whenever the budget for 2008 gets approved.

So what does this really mean? Soon you will have all the features that you have come to expect from ING DIRECT – like high interest, no fees, no minimums – PLUS the added benefit of no taxes on the interest earned in your Tax-Free Savings Account. Your hard earned money has already been taxed – now the interest it earns won't get taxed again.

ING DIRECT Canada: The Tax-Free Savings Account

FDIC Bank Closing Information for IndyMac Bank, F.S.B., Pasadena, CA

2008-07-11T22:52:00.001-04:00

Another one bites the dust - to the tune of $1 billion in uninsured deposits.

On July 11, 2008, IndyMac Bank, F.S.B., Pasadena, CA was closed by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. All non-brokered insured deposit accounts have been transferred to IndyMac Federal Bank, F.S.B., Pasadena, CA ("assuming institution") a new FDIC-insured Federal Mutual Savings Bank. No advance notice is given to the public when a financial institution is closed.

FDIC Bank Closing Information for IndyMac Bank, F.S.B., Pasadena, CA

Investors see higher risk of GM default: Financial News - Yahoo! Finance

2008-06-26T22:24:00.001-04:00

Things are getting messy out there. It used to be that $33k or $66k would have been okay for swap insurance. Then it was $100k. Risk-free borrowing was virtually, well, free.

Now it costs over $3 million to borrow $10 million?

Not gonna happen. Money no longer grows with CDS. How does it work?

The cost to insure GM's debt with credit default swaps rose to 33.5 percent upfront, or $3.35 million per year for five years to insure $10 million in debt, plus annual payments of 500 basis points, according to Markit.

Investors see higher risk of GM default: Financial News - Yahoo! Finance

The Fed Overnight rate has gone from an average of 3.94% in January to it's current rate of 1.98%... or free money... however it's not going to last. The hold on Fed funds caused a plunge in the markets that could cause another "cry wolf" scenario over the weekend and someone to bail.

Will it be GM? GE? Boeing? Oshkosh B'gosh?

Libor spike could be the cause of this too... or the opposite?

Some large caps with low P/E's

Altria - smoking will probably go up after today.
Barclays - Nobody wants a bank stock in this day and age... even if it yields 14%. Down by half 52wk.
ING Groep - Your money?
Lloyds TSB - Nobody wants insurance... Even if it yields 14%? Down just below half 52wk.
National Grid - What's wrong with UNG & electricity in the UK & US?

Interesting to note that ADRs are the lowest P/E.... probably due to the premium in holding them.

Other low P/E - high Yield stocks... according to Google Stock Screener.

Company Name	Symbol	Market Cap	P/E Ratio	Dividend Yield (%)	52w Price Change (%)
Aircastle Limited	AYR	622.98M	4.13	11.42	-79.40
Anthracite Capital Inc.	AHR	501.18M	4.64	15.29	-37.61
Arbor Realty Trust, Inc.	ABR	203.16M	2.36	24.08	-61.48
Bank of Ireland (ADR)	IRE	9.44B	3.45	12.54	-53.92
Barclays PLC (ADR)	BCS	40.19B	4.65	14.72	-58.42
Capital Trust, Inc.	CT	415.33M	3.96	12.74	-41.69
Gramercy Capital Corp.	GKK	624.75M	2.22	18.78	-56.45
KeyCorp	KEY	5.51B	5.72	13.01	-68.56
Lloyds TSB Group plc (ADR)	LYG	35.28B	5.40	14.82	-44.49
MCG Capital Corporation	MCGC	317.60M	4.59	25.47	-74.31
Northstar Realty Finance Corp.	NRF	529.59M	2.66	16.25	-30.64
Universal Insurance Holdings, Inc.	UVE	140.26M	2.63	12.38	-55.06

Aircastle - +Gas price = -AYR

Anthracite - Dividend increased, along with going to the market? Sounds fishy...

Arbor - Structured finance??? Who does that anymore?

Bank of Ireland - On strike.

I could go on... there's nothing that's of interest here though... except maybe Gramercy?

Keycorp raising 1.5B and halving dividend.

Lloyds buying a bank?

MCG Capital? Too small to worry about.

How about Colonial BancGroup? Last year? $22/shr. This year? $4/shr.

Raises $333 million in the markets.

Robert Lowder has been CEO since 1981. He's 65? Time to retire?

He probably wishes he did last year.

The second-largest bank in Alabama isn't doing so well, according to the share price.

Might be worth a look.

Save a drowning victim...

2008-05-13T21:59:00.001-04:00

Berkshire's philosophy for financial metrics.

CM: One metric catches people. We prefer businesses that drown in cash. An example of a different business is construction equipment. You work hard all year and there is your profit sitting in the yard. We avoid businesses like that.

Reflections on Value Investing: 2008 Berkshire Hathaway Shareholder Meeting: Detailed Notes

Some publicly listed companies that are "drowning in cash" at the moment.

Heidrick & Struggles International Inc. (HSII) - down 40% Y/Y

Cryo-Cell International Inc. (CCEL.OB) - down 68% Y/Y

Apparently swimming in cash is a bit different than drowning in it, as these 0 debt companies seem to indicate. It's not 0 debt, it's Cash Flow that's King.

Microsoft Corporation (MSFT) - down 3.6% Y/Y

Berkshire Hathaway Inc. (BRK-A) - up 13.5% Y/Y

Reflections on Value Investing: 2008 Berkshire Hathaway Shareholder Meeting: Detailed Notes

2008-05-13T21:40:00.001-04:00

Financial investment advice for small amounts of money.

For someone with $50+ billion dollars in the bank, I wonder what a small amount really is?

Q23: With small sums of money, what strategies would you pursue?
WB: If I were working with small sums of money, it would open up thousands of possibilities. We found very mispriced bonds. We found them in Korea a few years ago. You made big returns but had to be small size. I wouldn’t be in currencies with small amount of money. I had a friend who used to buy tax liens. I’d look in small stocks or specialized bonds. Wouldn’t you say that Charlie?
CM: Sure.

Reflections on Value Investing: 2008 Berkshire Hathaway Shareholder Meeting: Detailed Notes

Charlie Don't Surf - Reflections on Value Investing: 2008 Berkshire Hathaway Shareholder Meeting: Detailed Notes

2008-05-13T16:17:00.001-04:00

Charlie Munger is one of my mentors. Here's a good tidbit from the latest AGM for Berkshire that pretty much sums up the subprime crisis, and the "risk management" field when it comes to complex investments like CDOs and SIVs.

CM: You can see how risk averse Berkshire is. We try to behave in a way so that no rational person will worry about our credit. We also try to behave in a way that if people don’t like our credit we wouldn’t notice for months. That double layering of protection against risk is like breathing. The alternative culture is you call a man a Chief Risk Officer, but often he is man who makes you feel good while you do dumb things. Like the Delphic oracle, a dumb soothsayer, and how can he do dumb things if he has a PHD and can do all the advanced math! You crave a system such that you torture reality to fit a structure that doesn’t match with extreme situations in reality, you feel confident because you compute the risks, but you haven’t -- you have just clobbered up your own head.

Reflections on Value Investing: 2008 Berkshire Hathaway Shareholder Meeting: Detailed Notes

Boo-yah

2008-05-08T21:43:00.001-04:00

I always enjoy a good conspiracy story. This one takes the cake. Put on your tinfoil hat... cause there's lots of it in this one.

But Cramer don’t know nothin’ about nothin’. And Herb thinks the SEC investigation is an outrage. So Herb and Cramer have commandeered CNBC. They are live on CNBC. Herb has jabbered something about a conspiracy - a conspiracy to get Herb. And now Cramer is going to show us something.

Deep Capture Blog

And the moral of the story? There's no morals on Wall Street.

In Play ® - Yahoo! Finance - The basics of investing.

2008-04-30T11:06:00.001-04:00

Crystallex has been a speculative stock for years... the permit has always been "one month away".

No longer...

10:39AM Crystallex announces the Director General of the Administrative Office of Permits has denied request for the authorization to affect natural resources (KRY) 1.65 -0.03 : Co announces it has become aware that the Director General of the Administrative Office of Permits at the Ministry of the Environment and Natural Resources of Venezuela has issued a communication to the Corporacion Venezolana de Guayana, the owner of the Las Cristinas concessions, denying a request for the authorization to affect natural resources to carry out exploration activities in the mining area of Las Cristinas in Sifontes, Bolivar State. In issuing the communication, the Director General cites sensitivities surrounding indigenous peoples, the small miners and the environment in the area generally known as the Imataca Forest Reserve, which contains a number of mining projects, which like those of Crystallex, are seeking the required permits to continue their development and exploitation. The communication by the Director General appears to be in conflict with the Las Cristinas EIS approval, Construction Compliance Bond Request and Environmental Tax request issued by the MinAmb (that Crystallex posted and satisfied last summer) and the communication appears to be in opposition to all mineral mining in the Imataca Region. (stock is halted)

In Play ® - Yahoo! Finance - The basics of investing.

Why Things Cost $19.95: Scientific American

2008-04-28T08:15:00.001-04:00

People following price in stock investments will appreciate this.

University of Florida marketing professors Chris Janiszewski and Dan Uy suspected that something fundamental might be going on, that some characteristic of the opening bid itself might influence the way the brain thinks about value and shapes bidding behavior. In particular, they wanted to see if the degree of precision of the opening bid might be important to how the brain acts at an auction. Or, to put it in more familiar terms: Are we really fooled when storekeepers price something at $19.95 instead of a round 20 bucks?

Why Things Cost $19.95: Scientific American

Holiday Patterns/FinancialCalendar.Com - Thousands of Holidays, No Vacations

2008-04-11T14:30:00.001-04:00

FinancialCalendar.com is the source of worldwide calendar data.

There are similar year-to-year variations in the number of weekends, with the result that the number of working days can also be very variable (see chart below). The different weighing methods produce different numbers (an average of 259.1 days on a population-weighted basis, 251.4 for GNP and 251.6 for stock market capitalization) because many countries with below-average GNP work a six day week.

This gives rise to an interesting economic question: Should GNP be higher in years when there are more working days? Not being economists, we're not qualified to answer that question. However, we can point out that the effect is very significant in some years. For example, in 2032 there will be 0.9% more working days than in 2031 (see chart below).

Holiday Patterns/FinancialCalendar.Com - Thousands of Holidays, No Vacations

Computational Finance - Using your Nvidia card to perform risk analysis with Cuda

2008-04-10T15:23:00.001-04:00

High-end graphics card GPUs like Nvidia's 8800 are hundreds of times more powerful than Intel Duo-Core CPUs. So why not use them for something other than graphics?

A great way to justify purchasing a couple of these for your home/work PC for something other than just gaming.

Monte-Carlo Option Pricing with Multi-GPU support
This sample evaluates fair call price for a given set of European options using Monte-Carlo approach, taking advantage of all CUDA-capable GPUs installed in the system.
GeForce® 8 Series
Quadro® FX 5600 or later
Tesla™
Download - Windows
Download - Linux

Monte-Carlo Option Pricing
This sample evaluates fair call price for a given set of European options using Monte-Carlo approach.
GeForce® 8 Series
Quadro® FX 5600 or later
Tesla™
Whitepaper
Download - Windows
Download - Linux

Black-Scholes Option Pricing
This sample evaluates fair call and put prices for a given set of European options by Black-Scholes formula.
GeForce® 8 Series
Quadro® FX 5600 or later
Tesla™
Whitepaper
Download - Windows
Download - Linux

Binomial Option Pricing
This sample evaluates fair call price for a given set of European options under binomial model.
GeForce® 8 Series
Quadro® FX 5600 or later
Tesla™
Whitepaper
Download - Windows
Download - Linux

Computational Finance

Credit Rating Agencies: (the full global list)

2008-03-25T13:40:00.001-04:00

Large list of credit rating agencies. According to Moody's site, the Chicago Fed index reveals a recession may end by Q3. What did I say about predicting the future???

At 64 credit rating agencies worldwide (Mar-2008), this list is only one more than our previous tally, see the historical list. Listing all the world's credit rating agencies is a hopeless task, but several kind people have written to me so this compilation represents significant turnover, see the nine names dropped from prior list.
Interestingly, mechanical credit scoring continues to gain acceptance and application. This trend is fueled by: a) increased uniformity and electronic reporting of financial information, 2) decreased "name recognition" of borrowers by investor/lenders, as 3) credit becomes more global, 4) an increased ability to make use of a quantitative value within the growing tide of Credit Value-at-Risk models/systems, and 5) regulator incentives for some to adopt an Internal Models Approach.

Credit Rating Agencies: (the full global list)

Top 10 of the TSX

2008-03-21T00:22:00.001-04:00

Suncor's looking like it's hit some downward resistance from it's big drop and bigger recovery today. Looks like a $92-$100 trading range, with a nice bounce going forward. Currently sitting at $95 so the pendulum could tilt either way.

SU
http://tinyurl.com/33cxmb

Manulife looks a bit frightening... if the bottom drops out of $34 support level it's hard to say where it goes. It did recover a bit from the insurance sector drop last week. Upside is $38-$40. Probably going to stay range-bound for a bit.

MFC
http://tinyurl.com/3a8w5p

Royal Bank is another one with a long way to go down if the bottom drops out. A fairly decent recovery today up to $46.68 is much better than a couple days ago, where the low was $42.82. Looks to be stable around the $43 range. Upside could be $51.

RY
http://tinyurl.com/2l95ht

RIMM looks strong. Upside to $112. Downside to $94. Closed in strength at $104.94. Watch for weakness Monday.

RIMM
http://tinyurl.com/2o7o5l

Encana was fairly flat today and probably hit some resistance against the resources/energy selloff. With a floor of $70 and a close of $75.71, there appears to still be some upside. Perhaps back up to $78 or above? Or did it peak last week and it's all downhill from here.

Hoping it is, only because the resources and commodities sector is too hot to maintain a stable global economic environment. Something needs to give.

ECA
http://tinyurl.com/34uwqk

Looking for more downside in TD, $56 - $58 range, appears to be resistance at $58. Currently $61.29. Upside potential could be much greater than downside, especially if something happens with the CBH deal. Upside could be anywhere from $70-$75.

TD
http://tinyurl.com/388djw

BNS has an ugly chart. 'nuff said. Head and shoulders on a P&F chart? It is at lows, so popping back up to the $48 mark would give some decent upside potential. Currently $44.18.

BNS
http://tinyurl.com/33cupa

Potash is at resistance levels around $138. Still kicking myself for not buying it at $86 a couple of years ago before the split. Could bounce to $162. $147.57 current. Down 6.68%.

POT
http://tinyurl.com/3czll8

CNR is above bottom resistance at $48.67, resistance around $46, upside around $52-$53. I'm in Monday on CNR I think. Need someplace to park cash for a bit.

CNR
http://tinyurl.com/2kc2zt

Barrick, blech. Down 20% today. I'm a buyer Monday... not. Seriously though, short covering Monday will probably bring it back to the $46-$48 range if things don't continue to deteriorate with the price of gold. When it rains it pours in commodities, so the downside for gold has got to be the $820/oz range.

ABX
http://tinyurl.com/3dm48y

Ugly day today in stocks

2008-03-20T08:23:00.001-04:00

"We live in a world in which we need to share responsibility. It's easy to say 'It's not my child, not my community, not my world, not my problem.' Then there are those who see the need and respond. I consider those people my heroes." - Fred Rogers

It's Mr. Rogers birthday today. The banks, financials and stock markets need a hero.

It will be a full moon in the UK this weekend. Overseas markets are none too happy today with the margin requirements on CFDs being moved from 25% to 90%. Oddly enough the FTSE is fairly flat.

"You are going to see a lot of forced selling," said one leading London stockbroker.

- no foreign travel for easter holidays by senior bank of england staff, supposedly means UK clearer in trouble.

- LLOY LN IR actually denied fundings probs.

- HBOS denied prob to Merril’s , but as yet, not to the mkt, still being sold.

- RBS annual report which was released last night apparently shows massive funding requirements.

- ARE UK BANKS THE SUB PRIME OF WORLD BANKING CONSIDERING THAT NONE HAVE CONFESSED TO ANY CREDIT PROBS YET, IS BARC MADE OF TEFLON ?

- UBS, Swiss Govt apparently asked CSGN to put togther rescue package for UBS in case that the crisis worsens.

- Soc Gen, BNP says no merger interest, spec thats because they have more horrors

MF Global warning adds to market worries - Telegraph

http://ftalphaville.ft.com/blog/2008/03/19/11714/panicky-banks/

And then there's the plummeting gold price. I see a bottom forming today... or perhaps on Monday. Something about an election overseas is causing some tensions...

Two U.S. aircraft carriers, including the USS Kitty Hawk, have been sent to the Taiwan region for training exercises during this weekend's Taiwanese election, a U.S. defense official said on Wednesday.

http://news.yahoo.com/s/nm/usa_taiwan_carriers_dc;_ylt=Av2Uoji3qkE2UlCECsHrB_sDW7oF

Who suffers in a bear market? The bears...

2008-03-14T22:48:00.001-04:00

``There is a good analogy to Long-Term Capital,'' said Anthony Sanders, a former director of mortgage-bond research at Deutsche Bank AG who starts next month as a professor of finance and real estate at Arizona State University's W.P. Carey School of Business in Tempe, Arizona. ``They were all friends with Bear Stearns when they thought the spreads were huge. Now that the market has turned, Bear's standing there like the lone grizzly.''

Bloomberg.com: Worldwide

Chart of the Day: Debt Tranche Correlation - Finance Blog - Felix Salmon - Market Movers - Portfolio.com

2008-03-14T22:05:00.001-04:00

So what happens when all spreads become equal? Fire sale...

High correlation is one of those weird things which pops out of the financial markets when you get strange bedfellows such as a credit crisis combined with a very low corporate default rate. Just as currency futures don't predict the future movement of currencies (they're entirely a function of interest rates), the correlation figure doesn't really measure how likely a massively-correlated simultaneous wave of defaults is. Instead, it just kind of pops out when you get forced liquidations, like we're seeing in the CLO and CDO markets, where Everything Must Go.

Chart of the Day: Debt Tranche Correlation - Finance Blog - Felix Salmon - Market Movers - Portfolio.com

Yuck...

2008-03-14T19:29:00.001-04:00

I wonder what would happen if you click HELP for explanation? What do the red lines mean? Can't be good.

Mish has the scoop here.

I'm surprised that Washington, DC, doesn't show up in this grid. A 2000% increase in taxes could really cause trouble.

wm-alta-pool.png (image)

Big pimpin: How an information system helped nail Eliot Spitzer and a prostitution ring | Between the Lines | ZDNet.com

2008-03-12T17:56:00.001-04:00

So whether you transfer $100,000 once or 10 transactions of $9,999, the Feds will have no trouble picking you out of a line up.

According to the Associated Press, this investigation began with a suspicious activity report on Spitzer. The Wall Street Journal reported that Spitzer’s transactions looked like they were kept below $10,000 to avoid federal reporting rules. This behavior to avoid the $10,000 threshold also helps the Feds find strange behavior, say 150 transactions between $7,000 and $9,000. The Journal notes:

How an information system helped nail Eliot Spitzer and a prostitution ring | Between the Lines | ZDNet.com

I wonder how many other high-level government officials are waiting for something to come out of this... This kind of stuff has been going on for thousands of years.

The Credit Market tanks, the Fed releases $200 billion dollars in a TAF, and a more permanent auction "loan" against illiquid debts, the markets still struggle, and the news is focused on politics as usual.

Moving bad balance sheets to the US Government

2008-03-11T12:56:00.001-04:00

The Fed's offering 28-day term lending with bad mortgages as collateral, in a $200 billion dollar temporary bailout.

Today's steps indicate the Fed is increasingly concerned about the investor exodus from mortgage debt, which threatens to deepen the housing contraction and the economic slowdown. While they fall short of the calls by some analysts for the Fed to make outright purchases of mortgage debt, the central bank left the door open to expanding the effort.

Bloomberg.com: Worldwide

If the banks juggle this properly, doesn't it mean that treasuries show up in the balance sheet as opposed to bad debts?

US corporate bond spreads approach widest on record | Funds | News | Reuters

2008-03-07T21:42:00.001-05:00

Once upon a time, CDS premiums were in the $30k to $50k range.

That was a long time ago...

Credit default swaps on Lehman Brothers'(LEH.N: Quote, Profile, Research) debt traded near 300 basis points, or $300,000 a year for five years to protect $10 million of debt, while Goldman Sachs'(GS.N: Quote, Profile, Research) swaps were around 215 basis points, the analyst said.

US corporate bond spreads approach widest on record | Funds | News | Reuters

Another bubble - Commodity funds?

2008-03-04T16:40:00.001-05:00

Ever since GLD, USO, MOO, PBW, PHO, etc. have come on the market, I have noticed an increase in the prices of underlying commodities. Chicago Futures were the original market to play the commodities game, and because of the complexity of getting into the market the average investor didn't bother.

Getting into an ETF is as simple as point and click. It's easier than going to a coin dealer and buying gold. It's easier than trading futures on an exchange, even though some of the products do just that for you.

It is a proxy for speculation, and speculation can be quite different from reality.

So other than Ethanol artificially inflating prices, ETFs and commodity index funds appear to be doing the same.

The "culprit" is the new breed of commodity index funds. Each week over the last two months, between $5bn and $10bn of fresh money has been pouring into the Goldman Sachs Commodity Index, the Dow Jones-AIG Commodity Index, and other funds, according to a UBS study. Together, the indexes now hold $200bn.

Fears of a commodity crash grow - Telegraph

Let's just hope they get the double-short ETFs out fast enough to get the price of bread back down to a normal level.

The price of gold plummeted today. Perhaps $975 rounded is $900? Since you can't cut a bar of gold in half without losing some of its value, maybe this is the case.

BullRunner, following the Market

2008-03-03T23:04:00.001-05:00

Gold hit $990/oz today before dropping back to $983... still on it's way to $1000?

Gold, sitting at $975/oz is getting dangerously close to my "1 month or so" $1000/oz call.

BullRunner, following the Market

I seem to remember bailing on gold at $700 in May of 2006, after getting in at $580. At the time I thought it was a good call, since the price of the metal plunged back to $590 before recovering. The metal became range-bound between $620 - $680 for almost 6 months in 2007, before the credit crisis boogeyman and the Bernanke put brought it up past the $800 mark.

Right now there's not a long way to go to $1000/oz... but my guess is that we round up just past $1k and then drop back to low $800 by May.

Based on the 1 year RSI we're way overbought here, for GLD anyway. Unless we see some more serious writedowns, that is...

But are investors too shellshocked to care about writedowns?

Hurt by the deepening credit crisis, Bank of America Corp. said Tuesday its fourth-quarter earnings fell 95 per cent, and Wachovia Corp. reported that profit tumbled 98 per cent.

http://money.aol.ca/article/us-banks-bgt/131728/

And of course, Buffett is bottom-feeding.

"We were getting calls on large portfolios," Mr Buffett said in an interview on CNBC yesterday. "People who were out on a limb financially are getting that limb sawed off."

I wonder if this relates to the news about all the size 12 feet surfacing on Canada's coastlines.

If it was the right hand or left foot, the US could blame it on Iran.

But really, is the USD weakening, or is it just that the Yuan is tightening?

The PBOC has let the yuan rise much more quickly in recent weeks. The currency climbed as high as 7.1122 per dollar on Thursday, the highest level since it was depegged from the dollar in July 2005 and allowed to float within managed bands.

http://www.guardian.co.uk/feedarticle?id=7343736

Exchange rates probably have a lot to do with what's going on in world markets, and what's going on with the economy. Things are tough for Canadian manufacturers, especially the paper mills who have seen profits plummet.

"The dollar is by far the worst of all our problems," he told the committee Thursday

http://money.aol.ca/article/bank-economy-2nd-writethru-bgt/132524/

Amero, anyone? One solution to the strong Canadian dollar would be to place it in the same basket with Mexico & the USD, and maybe throw in Zimbabwe dollars.

Ameroz for all...

BullRunner, following the Market

2008-03-01T23:35:00.001-05:00

Gold, sitting at $975/oz is getting dangerously close to my "1 month or so" $1000/oz call.

We can see this with the price of gold, which is up $21.60/oz today. 10 year gold since June '07 has gone vertical. 60 day gold shows 3 distinct peaks, with a 4th peak forming. Point and Figure chart doesn't indicate any bottom. Are we on our way to $1000 gold in the next month or so?

BullRunner, following the Market

There's 20 days until the Taiwan UN referendum. Airstrikes in Gaza have buried the peace process. Iran meets Iraq for the first time. My thoughts are that market volatility and world politics will keep the price of gold at all-time highs.

Not to mention the abuse the USD has been receiving lately.

Here's JPYUSD=X. Looks like the YEN is getting stronger as the carry trade unwinds and oil sales are done in Japanese currency and Euros.

Here's EURUSD=X. Seems to be a pattern here.

Of course, the EUR isn't getting off too easy. Even though it's strengthened against the USD, the YEN is still beating it up recently.

Here's JPYEUR=X.

In other news, it looks like The Donald isn't getting his golf course any time soon.

The Scottish Government announced yesterday that the issue will be decided by a public local inquiry.
Finance Secretary John Swinney claimed the move will give all parties for and against the proposals for the Menie Estate near Balmedie in Aberdeenshire the opportunity to state their case.

But the US tycoon last night expressed surprise over the inquiry, and warned: "Nobody is going to invest in Scotland." Mr Trump also revealed he knew of companies that had already been put off by the controversy.
Announcing his decision, Mr Swinney said: "This application raises issues of importance that require consideration at a national level.

They are even taking the Trump coat of arms into question.

The Court of the Lord Lyon invoked a law dating from 1672 which means Mr Trump must register a coat of arms.

A spokeswoman for Mr Trump said they were working with the court to register the coat of arms.

The businessman has been using the banner on promotional material and official clothing while mounting his bid to create the resort at the Menie Estate in Aberdeenshire.

Lyon clerk Elizabeth Roads said the use of the Trump International Golf Link Scotland design, which bears the Trump family name below a spear-wielding fist and a shield, was being investigated.

The person responsible for the current political fiasco is supposed to be Councillor Martin Ford, who voted against the deal due to environmental issues. He is apparently now a "non-person" and has lost any positions on committees he served.

That vote was annulled by the Scottish Government, a move which was unthinkable until last month.

Daily Dose of Excel & Dollar-Cost Averaging

2008-02-28T22:18:00.001-05:00

Volatility isn't always a bad thing.

In the volatile market, I have about $700 more in my account than if the market was steady. Either way the stock is $1.24, I was just able to buy more of it in the volatile market. It’s the underlying fundamentals of a company that determine its stock price over time, but the utter wackiness of investors that determine it in the short term.

I believe investment folk call it dollar-cost averaging when you invest the same amount of money periodically. What do you think? Should I rejoice at each downturn?

Daily Dose of Excel

Subprime in pictures

2008-02-25T21:22:00.001-05:00

DANGEROUS VISUALIZATIONS

In other cases, there may be good ways to visualize something but it is not clear that they should be visualized. The danger comes from the power of images to confuse the viewer or to distort data.

Provisional Theories

A scientist who is just beginning to work out a theory might create pictures simply to test out some ideas. The problem comes in when the quality of the graphics is better than the quality of the theory. Since it is so easy to construct flashy computer graphics, even half baked ideas are endowed with a believability beyond that which even the originator intends. Perhaps researchers should be encouraged to make low quality graphics on purpose for theories that are not yet well supported.

After reading Jim Blinn's (MS Research) paper on Visualization, I asked myself... what does subprime look like?

A major factor in the growth of CDOs was 2001 introduction by David X. Li of Gaussian copula models, which allowed for the rapid pricing of CDOs.

Of course! It's a pyramid! In the "before" photo, the green indicates the happy folks at the top. Red indicates some serious problems at the bottom.

The bottom seems to have fallen out of the "after" photo. Happy times?

Miller Center of Public Affairs - Gerald Ford Speeches

2008-02-21T23:00:00.001-05:00

This speech resonates today's economic woes. "We must Whip Inflation Right Now." from Gerald Ford, 1974.

"A stable American economy cannot be sustained if the world's economy is in chaos. International cooperation is absolutely essential and vital. But while we seek agreements with other nations, let us put our own economic house in order. Today, I have identified 10 areas for our joint action, the executive and the legislative branches of our Government.
Number one: food. America is the world's champion producer of food. Food prices and petroleum prices in the United States are primary inflationary factors. America today partially depends on foreign sources for petroleum, but we can grow more than enough food for ourselves.
To halt higher food prices, we must produce more food, and I call upon every farmer to produce to full capacity. And I say to you and to the farmers, they have done a magnificent job in the past, and we should be eternally grateful.
This Government, however, will do all in its power to assure him--that farmer--he can sell his entire yield at reasonable prices. Accordingly, I ask the Congress to remove all remaining acreage limitations on rice, peanuts, and cotton.
I also assure America's farmers here and now that I will allocate all the fuel and ask authority to allocate all the fertilizer they need to do this essential job.
Agricultural marketing orders and other Federal regulations are being reviewed to eliminate or modify those responsible for inflated prices."

Miller Center of Public Affairs - Gerald Ford Speeches

So what is the US doing to "Whip Inflation" today? Farmers are hoarding food speculating that higher prices will be coming soon. Higher prices are coming due to scarcity of foods. And the US, as the world's "champion producer of food" is turning that food into petroleum.

It has been over 34 years since this speech, and the cycle has returned in spades. Even the players are the same.

$60 billion in closed funds are left hanging

2008-02-21T08:33:00.001-05:00

As banks are unwilling to take risks or leave capital on the table, investors in 'cash-equivalent' preferred shares receive no bids for their shares.

``You've got $60 billion in which the holders believed until recently they could liquidate on par on demand and suddenly that $60 billion is frozen,'' said David Kotok, chief investment officer of Cumberland Advisors Inc. in Vineland, New Jersey, which manages $900 million in assets.

Bloomberg.com: Worldwide

If the ABCP market was $30 billion, then this is it's bigger brother.

Why I'm not trading right now... and why charts sometimes lie.

2008-02-19T22:09:00.001-05:00

I have turned into somewhat of a technical analyst, though I still have a lot to learn about when to sell and how to control losses. Back in January of 2007 I bought USO at a dip low of around $42 that could have ended up being a $75+ gainer. At a financial conference, I pointed it out to the Metastock rep there, who called it one of the best calls he had seen.

I sold out at 14% so I wouldn't get greedy. Could have been almost 50%.

Along with stop gains, I believe in stop losses. Right before the crash in January, I put a couple of "stink stop" bids on a few of the stocks I owned. All of them were grabbed from me at the low of the day (all at losses), and by the next day they were all above what I had paid for them.

Intervention by the Fed at it's finest. Technical analysis of the charts would have told me we were in for a long ride down. Realistically I should have known that government intervention will skew results beyond what a chart can predict.

After that, I became a bit more disillusioned with the whole market itself. And this is the main reason why I don't feel like touching stocks any more. Because the market isn't acting right.

"If a stock doesn't act right don't touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit. It is a very old thing, this of noting the behavior of a stock and studying its past performances." - Jesse Livermore

Bill Cara: Cara's Commentary & Community Chat, Tues., Feb. 19, 2008, 7:57am ET

Of course, in this case, we know what is wrong. The loss of faith in global markets and financial institutions.

We can see this with the price of gold, which is up $21.60/oz today. 10 year gold since June '07 has gone vertical. 60 day gold shows 3 distinct peaks, with a 4th peak forming. Point and Figure chart doesn't indicate any bottom. Are we on our way to $1000 gold in the next month or so?

Oil also hit $100/barrel today, after various issues with Texan oil refineries and Venezuela.

BMO didn't do too well today after announcing writeoffs.

"Part of the problem is that they're just writing this off, writing that off,"said Chyanne Fyckes, chief investment manager at Stone Asset Management.

"I think if they had any idea about how bad it was, they would just go ahead and write it off and be done with it. But they're not doing that this time because they don't know what's going on and that's what I find very disconcerting."

I'm not sure that anyone knows exactly what's going on and how bad the current financial situation is with the banks. How do you value illiquid assets? What risks are you taking on if your risk models aren't accurate?

Financial Alchemist: Importing Financial Web Data into Excel, part 2

2008-02-16T14:54:00.001-05:00

For the technical analyst, Excel is the #1 tool in the toolbox.

A particular model I want to highlight is the EPS_Estimates_MultiSource_v5 that you can download from the files section.
Following trends in analysts’ EPS estimates can be a valuable tool. Research suggests that companies experiencing downward revisions will likely receive more in the future. This spreadsheet shows the trends in EPS revisions. In addition, the model tracks historical EPS announcements. This can be valuable information too, especially if the company has been surprising on the upside and estimates have just started to be revised upward. This may depict a situation where The Street hasn’t fully grasped the potential earnings growth. This may lead to an undervalued situation if there is evidence that growth is underestimated and not priced into the stock.

Financial Alchemist: Importing Financial Web Data into Excel, part 2

Credit card rates for the bond markets?

2008-02-14T22:49:00.001-05:00

I wonder if they will offer job loss insurance for $2 per month, or Air Miles on their bonds if they end up paying 14% credit card-style interest? We'll see in 2 weeks what this brings... but it doesn't look good.

Investors set prices for bonds by bidding for them at bond auctions approximately every month. If the bonds are perceived as risky, investors can demand a higher interest rate to buy them, and the interest rate rises. If they are perceived as so risky that no one wants to buy them and the auction fails, the bonds automatically rise to the maximum rate allowed for the person who previously bought them and is now stuck with them until the next month's auction.
In Citizens' case, that maximum rate is 14 percent.

Source: Bond troubles may dog Citizens - New Orleans Louisiana Local & Small Business News – Economics & Finance News Articles - NOLA.com

Apparently nobody wants bonds due to the amount of risk involved if any of the insurance companies default. Over $10 billion worth of bonds failed to auction this week, which, according to the article, could cause rates to rise anywhere from 8-14% during the next auction.

It doesn't help that they lost their data during the last storm.

"For any of these, we're going to have financial data," she said.
Citizens has been unable to produce an audited financial statement since the 2005 storms because of problems with its computer system, and the group has been working for most of the past year on extracting the data and reconstructing it so that it can be audited.

Wednesday March 5, 2008 is the next full moon if you're superstitious. With the stock market (and now the bond market) the way it is, throwing dice, reading palms or dealing tarot cards are about the best ways to predict future prices.

Smoot-Hawley Tariff Act - Wikipedia, the free encyclopedia

2008-02-13T18:23:00.001-05:00

Potentially one of the worst laws to pass in the US, extending the Great Depression, ticking off their trade partners (including Canada) and causing a general feeling of disgust at the protectionist measures being enacted.

This would be equivalent to a Great Leap Forward in terms of its effect on the population and the economy, or perhaps an injection of subprime and fraud into otherwise marketable securities.

The Hawley-Smoot Tariff (or Smoot-Hawley Tariff Act)^[1] was signed into law on June 17, 1930, and raised U.S. tariffs on over 20,000 imported goods to record levels, and, in the opinion of most economists, worsened the Great Depression. Economists have now generally regarded this Tariff Act (i.e., tax increase on imported goods) as the greatest policy blunder in American economic history, coming as it did after the 1929-30 recession and preventing the economy from a full, natural recovery which had already started by the Spring, 1930. Many countries retaliated with their own increased tariffs on U.S. goods, and American exports and imports plunged by more than half.

Source: Smoot-Hawley Tariff Act - Wikipedia, the free encyclopedia

Plus Ben Stein's performance made Ferris Bueller's Day off...

... Bueller? ... Bueller?

The Bermuda Copper of 1793 - Introduction

2008-02-13T17:32:00.001-05:00

Just like prison, you used to be able to barter with tobacco in Bermuda, due to the lack of currency.

Following the brief episode with "Hogge money" in 1615-1616 (see the Sommer Island section), Bermuda returned to the barter system with tobacco serving as the standard currency. During the 18th century, the tobacco standard was supplemented with Spanish silver and gold, and after 1761 some paper certificates were issued.

The Bermuda Copper of 1793 - Introduction

Hogge money were coins with a hog on the front and a sailboat on the back. Later, a low-grade, brassy copper coin was introduced, with a wash of silver that didn't mix with the salty climate and wore off. This reminds me of the red wash on some of the new quarters here in Canada.

What's so important about the first coins made in Bermuda? They were destined to go to the Americas, to be used as the first British coins for the New World.

Bespoke Investment Group: Correlation Ticking Higher in Current Market Environment

2008-02-12T16:17:00.001-05:00

I threw up my hands a couple of weeks ago. Looks like others are doing the same.

So what's there to buy in markets like these besides the ultra short ETFs?

These figures confirm the basic idea that in bear markets everything becomes correlated because market participants end up selling all of it. Traders facing margin calls are end up forced to sell-off "quality" things, and others just throw up their hands and dump everything.

Source: Bespoke Investment Group: Correlation Ticking Higher in Current Market Environment

Stock screeners

2008-02-12T15:26:00.001-05:00

No surprises here, but a good overview of some free stock screening tools.

Caveats
No free screener does the best job for every conceivable search. MSN Deluxe might offer the best chance over all but some of the others may do a better job depending on the search parameters specified. And it is quite possible for the same search criteria inputted into different screeners to return dissimilar lists of companies.
“Screeners seem like great tools for finding errors in databases,” quips Michael James Weiner, who writes the Michael James on Investing blog. While this may be a lesser problem for subscription-based screeners and the better free screeners, Mr. Weiner’s reservations do highlight the issue of data quality and timeliness. Another caveat, as Investopedia.com notes, is the inability of screeners to sort on the basis of intangible variables (e.g. the value of a brand name).

Source: globeandmail.com: Globe Investor Magazine

stocktickr blog » Blog Archive » Replay the Trading Day Using Automatic Screenshots

2008-02-12T14:43:00.001-05:00

Here's how to monitor your trading day using IrfanView and some automated screen shots.

Compile these with Windows Movie Maker and you have a run through of your daily activities.

It's not just for trading....

IrfanView Software
You might be surprised to learn that there is a free software package that can do almost everything you need from automatically taking the screenshots of your desktop to replaying them. It is called IrfanView and it’s available as a free download for Windows. Once you’ve installed it, just start IrfanView from the windows start menu. From the Options menu, choose Capture/Screenshot. Here’s the screen that appears.

Source: stocktickr blog » Blog Archive » Replay the Trading Day Using Automatic Screenshots

Panic strikes the wheat market

2008-02-12T13:13:00.001-05:00

Liquidity is a two-way street. Lack of sellers is just as bad as a lack of buyers... especially when you're selling short and need to close out a position.

This should have an interesting effect on food prices in the next few months.

Matt Pierce, Futures International Inc. says there is an absolute run on spreads right now. "It's the scariest thing I've ever seen on this floor," Pierce says.

Source: Panic strikes the wheat market

As inflation grows, product packaging shrinks, and gas mileage goes down

2008-02-10T22:51:00.001-05:00

This sounds like a recipe for disaster... a machine that you need to feed with land, seeds, fertilizer, hay, water, electricity, steel, building materials, food, food-byproducts, natural gas, oil, gasoline, trucks, electricity, and pumps, not to mention the printing costs for all the currency required to sustain this endless cycle of consumption. All this will drive a steady influx of jobs back into the farming industries, while driving existing farmers to increase yields and burn out their lands. It will increase drivers to adopt "eco-friendly" cars due to tax breaks and marketing, while causing many to adopt more frugal lifestyles or face financial ruin due to skyrocketing food costs.

Will it create the next dustbowl effect, as Australia is currently experiencing?

"This energy loss leads to a 2% - 3% decrease in miles-per-gallon vehicle fuel economy with 10% [ethanol]."[7] Essentially, drivers will not be able to go as far on each gallon of ethanol as they currently do on gasoline.

Source: Ethanol: Bumper Crop for Agribusiness, Bitter Harvest for Taxpayers

This sounds like a problem invented by governments and the so-called "renewable energy" associations, or lobbyists. Will it be solved by them too?

What could go up in price?

Cereal
Wine
Ethanol and Washer fluid
Gas
Alcohol
Tobacco
Corn
Water
Fertilizer
Anything made with wheat
Anything requiring animal feed (cows, pigs, sheep)
Sugar and anything made with it
Milk and anything made with it

This really starts at the bottom of the food chain and works its way up into the global economy very quickly. Farmers will sit on their harvests as long as possible, in order to capture the skyrocketing costs of their commodities. The real estate (shelter) bubble burst - Is the food and water bubble upon us?

EU Economic Forecasts in a couple weeks

2008-02-10T19:57:00.001-05:00

Watch for these to affect world markets. The last forecast?

"Autumn economic forecast 2007-2009: growth moderating"

Thursday 21 February: Interim Economic Forecasts
The news:
The Commission will publish its interim economic forecasts updating the outlook for GDP growth and inflation in 2008 for Germany, United Kingdom, France, Italy, Spain, the Netherlands and Poland as well as the EU and Euro area aggregates.
The background:
Interim forecasts are published in February and September between the major spring and autumn forecasts for all Member States and all variables, including national debts and budget deficits.
The next fully-fledged forecast comes out on 28 April 2008.

Source: EUROPA - Rapid - Press Releases

More ways of holding energy - Aluminum foil?

2008-02-01T17:51:00.001-05:00

My wife thought I was a bit crazy to be grabbing a couple Costco-sized boxes of aluminum foil last time we went. I figured the price of food is going up more over the next few months, so starting with something that preserves food would work out well. Looks like following and trading stock charts can apply to the real world.

``Aluminum is the one to watch at the moment,'' said David Thurtell, an analyst at BNP Paribas SA in London. ``Aluminum is often referred to as solid electricity'' because it requires so much power for production, he said.

Aluminum production consumes 15.5 megawatt hours of power per ton compared with about 4 megawatt hours for a ton of copper, said Goldman Sachs analyst James Gutman in London.

Source: Bloomberg.com: Commodities

I noticed AA when reviewing P/E for the large DOW stocks... theirs has steadily declined up until the Jan '08 crash.

Realistically it is probably 40% of costs that are electricity, less tax benefits and such. That's still not bad if you want some solid electricity... and it's a conductor if you want to give it a charge.

But watch out for recycled Aluminum foil... it only takes 5% of the energy from it's parent.

"Aluminum for delivery in three months fell $15 to $2,695 a metric ton as of 3:17 p.m. on the London Metal Exchange. The 6.7 percent gain this week would be the biggest since November 2001.

Copper declined $85 to $7,265 a ton. "

Forget Gold, I'm going to go find a ton of copper someplace...

Safe Haven | The Double Whammy of Geopolitical Gold Games

2008-02-01T08:09:00.001-05:00

One way to earn income with a fluctuating gold and silver. Hold and short.

Lending money necessarily involves risks: the borrower may default. But if you don't give up physical control, then you will escape the monetary debacle unscathed. Because of the imbecility of the managers of the paper dollar standard there exist durable risk-free profit opportunities in holding monetary metals in the balance sheet. The trick is: covered selling. That's possible because the price of monetary metals has been allowed to fluctuate. The price fluctuation of a monetary metal, like the flow-and-ebb of the oceans, represents energy. Energy that can be harnessed. Energy that can be harnessed only by those who understand monetary economics.

Source: Safe Haven | The Double Whammy of Geopolitical Gold Games

Shocked Investor: The Illusion of the DJIA - Updated

2008-01-30T19:27:00.001-05:00

Interesting stats on how the skyrocketing price of Gold could really be just an illusion for people in Canada. Any gains realized in USD translated to CAD could be quickly lost.

Sounds like CAD is a hedge against US-based inflation, the common reason for buying gold as a hedge? So instead of buying gold, you should stock up on cash? I'm a bit confused... that's not how it's supposed to work.

Consider also the appreciation of gold in 2007. While the price of an ounce of gold has gone up by 18% in USD and by 11% in Euros in 2007, it has not appreciated at all for those investors in Canada and Brazil

Source: Shocked Investor: The Illusion of the DJIA - Updated

When Money Market funds are paying out more than a 1 year GIC you know there are issues with the markets... and it's going to get worse before it gets better. Today's MM rate - 4.21%... and the spread should go higher when Canada's central bank follows it's US masters and chops rates a bit more.

I was expecting the Fed to disappoint with a .25 cut, but as soon as they chopped .5 off the rate I ditched my short holdings, which have been ticking me off ever since the last emergency cut. Basically the Fed, now sitting at 3%, seems to be determined to chop until they either hit zero or positive market sentiment returns. Somehow I think 0 is in the cards...

With China revaluation of the Yuan, (currently at 7.19 per USD according to Yahoo, give or take the bank spreads) it appears that this could be a contributing factor to US inflation. As China fights inflation with an increasing Yuan, this would deflate the value of their USD holdings and increase the costs of exports. Wal-Mart is going to have a tough time trying to put smiley faces on increasing import costs, though it could be good for export businesses in the US (think manufacturing?)

It seems as though the middle of the teeter-totter could break at any moment, with 2 - 500 lb gorrilas sitting on each side. According to some articles, this decrease, if it hits 6, could pose a danger to China's staggering economic growth, though it's a lucky number in Chinese.

"The number six, liù, is considered to be a very auspicious number because it is a homonym of the word for "flowing" or "smooth," liū. This is the reason why the Western ominous number combination 666 does not get the hairs on the back of Chinese people to stand up. The "devil's number" is a particularly lucky one in the Chinese language, as it sounds close to the words meaning "things are going smoothly." People often pay extra to have this string appear in their telephone number. Basically, it seems that the more times a lucky number is repeated one after another, the more potent will its fortune-bringing effect be."

This can't be good for offshore companies...

In other news, or in more of the same news... more downgrades.

Bond insurers' possible downgrade spurs market angst seems to indicate that another wave of writedowns are going to hit the market next month. However, after reading more about mining stocks and various concerns about South African stakes, plus the skyrocketing price of gold, I see that there could still be some upside to the gold miners in Canada.

Though short term, it doesn't look that anything's got upside, except for some highly-manipulated small caps.

Somebody was on the right side of the trade with Kelly Services.... 200 shares traded, up 31% today. Damn market orders...

Of course, if you are on the Ultrashort side, you had a 9% gain in FXP today... but the word "ultra" is probably just another way to say "weapon of mass destruction" in your portfolio, unless you're a day trader with a good eye for trends and a good ear to the ground for emergency rate cuts...

Microsoft Massage v1.0

2008-01-26T11:18:00.001-05:00

Microsoft Massage v1.0 is the latest entry to their financial product line. Run against a balance sheet, and it will point out the best way to move the numbers to please investors and analysts, causing stock prices to increase.

With respect to the earnings bump reported on Friday by Microsoft, Honeywell and Caterpillar, traders are not fooled by results that are boosted as a result of huge share buy-backs.
To show how earnings are increased via financial balance sheet restructuring rather than from operations, look to the number of outstanding shares as reported by Value Line:
MSFT
2005: 10700 mil shs
2006: 10062
2007: 9380
2008: 9000e
HON
2005: 829.48 mil shs
2006: 800.59
2007: 745.00
2008: 745.00e
CAT
2005: 670.87 mil shs
2006: 645.81
2007: 635.00
2008: 615.00e
Despite higher internal rate of return from operations, these corporations were buying back treasury stock in the open market at cycle-high prices. As I see it, these companies seek to boost their per share profit in order to derive higher management bonuses and/or to rationalize extreme compensation.
It’s a case of everybody has to get theirs as soon as they can get it.

Source: Bill Cara: Daily Report for Sat, Jan 26, 2008

Note: There is no such thing as Microsoft Massage, though it could be a good idea. Contracting the money supply (or in this case, the share supply) increases the value of the stock, even though corporate assets are being used to buyback shares at top value. This is probably not the best way to deploy capital, but when you're a cash cow like Microsoft it probably doesn't matter a whole lot what you do... especially when you now have a profitable gaming system, and a bigger bonus to spend on cheap games from the Microsoft store.

Minyanville - NEWS & VIEWS-Article

2008-01-23T16:35:00.001-05:00

Five Things You Need to Know: President Bush, Congress Weigh Economic Stimulus Package Targeting Economic Stimulus Package

Minyanville - NEWS & VIEWS-Article

Pam Martens: How Wall Street Blew Itself Up

2008-01-23T00:22:00.001-05:00

Interesting peek behind how the current financial crisis may have been started... and by whom.

The private company that would become Wall Street's ticker tape for pricing exotic credit instruments (derivatives on subprime mortgages and credit default swaps) started out as Mark-it Partners in 2001, the brain child of Lance Uggla while he was working for a division of Toronto Dominion Bank, TD Securities.

Pam Martens: How Wall Street Blew Itself Up

A Wile. E. Coyote moment... Super Genius no more?

2008-01-22T07:59:00.001-05:00

Yes, there are problems with the markets. Yes they are big problems. Is the media milking this? Probably. The media likes big problems. Is it an opportunity? Nobody will know for probably 2-3 years at least.

It's the Wile. E. Coyote moment. The ha-ha point at which the cartoon character runs off the edge of the cliff, looks down and realises there's nothing there.
Except it's not so funny when it's your savings in freefall. Since the beginning of the year, equity markets have looked and decided they didn't like what they saw down there. Having run in mid-air for months, convincing themselves that the stock market could shrug off the credit crunch, they've had a rethink.

Source: Not selling in October is no reason to sell shares now - Telegraph

Downgrade will hurt CDO markets

2008-01-20T23:21:00.001-05:00

The $450 trillion CDO market seems to include a lot of double-triple-quadruple counted numbers. $27 trillion is still a lot of money. If we're talking about this being the worst recession since the Great Depression, we're looking at defaults of at least 12.7% or $3.43 trillion?
Or will the swaps end up cancelling each other out?

This has grown to be a huge market: The total value of all CDS contracts is something like $450 trillion. Because buyers and sellers of insurance usually create multiple "policies" as they attempt to control risk, that number includes a lot of duplication. Real exposure, says the Bank for International Settlements, may be only 20% of that, or $90 trillion. Some studies have put the real credit risk at just 6% of the total, or about $27 trillion. That puts the CDS market at somewhere between two and six times the size of the U.S. economy.
The CDS market has been a good place to make money in the past few years because default rates in the junk-bond market have been historically low. The default rate for all junk bonds declined to 1.7% in 2006. That's the lowest rate since 1996. With defaults that low, sellers were paid insurance premiums but didn't have to cough up much in return.
But that default rate started to rise in 2007, climbing to 2.6%. And Standard & Poor's projects the rate will climb to 3.4% by October. At that rate, 56 bonds would go into default in 2008, compared with 14 in 2007.
That level of default isn't likely to inflict too much damage on the CDS market. The historical rate for defaults by corporate junk bonds has averaged 5% a year since 1980. But the default rate has run as high as 12.7% in previous recessions.
Source: The next banking crisis on the way - MSN Money

The economy slows down with its ships

2008-01-20T14:41:00.001-05:00

As the price of oil goes up, so does the cost of shipping. Reductions in shipping speeds mean a slower time to market, which should ultimately cause shortages for products and hence increase the cost of goods. With a 1 1/2 day lag in receiving goods, just-in-time manufacturing companies could have a harder time.

"Slowing down by 10 percent can lead to a 25 percent reduction in fuel use. Just last week a big Japanese container liner gave notice of its intention to slow down," he added.

Source: Slower boats to China as ship owners save fuel - Yahoo! News

Stock Market Trading & Investing Analysis

2008-01-19T12:12:00.001-05:00

Are we in a bear market yet? Naaaa... it's way worse than that.

We're going to need to start talking in marine terms pretty soon. This one's a whale.

The possibility of an up close this week certainly did not come into being. Weekly price charts of major US Stock Market Indexes show major devastation from last weeks trading and overall breadth for the week was as bad as it’s ever been in any of the last downside week’s over the past few months. Only 10 of the 273 sectors we tracked had better than 0% breadth, that’s just nasty! This suggests lower lows to come or at least serious testing of the lows made this week.

Source: Stock Market Trading & Investing Analysis

Ambac downgraded, cities seen at risk

2008-01-18T21:49:00.001-05:00

Dominoes are falling...

Since late last year, when the agencies first raised the prospect, analysts have suggested any move to cut Ambac or MBIA below "AAA" could be disastrous. The concern is that downgrades will lead to a reduction in the value of portfolios at dozens of financial institutions, said Donald Light, a senior analyst at Celent LLC.
"Bond insurers are the lynchpin holding together valuations of portfolios of all kinds of financial institutions," Light said.

Source: Ambac downgraded, cities seen at risk

Could be a time to pick up another few shares of Berkshire Hathaway.

Ugly Chart Sector Charts

2008-01-16T23:38:00.001-05:00

Ugly's got some good charts for sector rotation analysis.

Link to Ugly Chart Sector Charts

Capital Link Shipping | Baltic Exchange (Baltic Dry Index: BDI) Charts

2008-01-15T23:56:00.001-05:00

If this was a depth finder I would say that we hit the bottom in October and are taking on some serious water.

So the is price of moving things getting cheaper, or is demand just drying up?

Baltic Dry Index
Stock Charts

Capital Link Shipping Baltic Exchange (Baltic Dry Index: BDI) Charts

Robbing Peter to pay... Peter?

2008-01-05T21:11:00.001-05:00

I'm having a hard time understanding the results of the 'Slosh Report' URL link to the right under the Links list. According to this, the Fed injected 124.8 billion into the markets on Friday, where only 12.25 billion was accepted. A similar situation happened on Thursday, where $101 billion was injected and $10.5 billion accepted. Things feel much different than they did on January 4, 2007, though there is only $4 billion more sloshing around than last January 4.

This article tries to explain what the mysterious Fed really does with short-term liquidity, and what it is really doing... namely Jaw Boning.

The Fed – “Hocus Pocus – it's the same money!”
Last week, the Fed executed the first of its highly publicized “term auction” transactions. As I noted in A Little Acid Test for Fed “Liquidity” last week, the Fed had $53 billion in repos outstanding on Friday December 14, fully $39 billion of which were due to expire last week. This ensured that the Fed would initiate new repos of a similar amount. The acid test was whether the term auction repos would represent a) new liquidity, or b) just a different way of rolling over the same money. Last week, we learned the answer to that question is b.
You can follow along using the Fed's actual data using this link:
http://www.ny.frb.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE

Source: Hussman Funds - Weekly Market Comment: Vanishing Act - Are the Fed and the ECB Misleading Investors About Liquidity? - December 24, 2007

What is the saying, "the US sneezes, the world catches a cold?" I will be a bit more concerned when China happens to sneeze. There are a lot more people in China. Perhaps true liquidity is coming from non-domestic sources.

Kenya: Tribal Rage Over Disputed Election - washingtonpost.com

2008-01-03T16:55:00.001-05:00

Sudan's regime of terror
After watching "The Devil Came on Horseback" about the killings and mass exodus of people in Western Sudan & Darfur, it really got me thinking again about situations that are happening today in the Eastern hemisphere. Many people in the West really don't know how isolated we are from the daily atrocities and staggering poverty that is overseas. The US media is focused on an election where candidates are focused on Iraq, save a few who are proposing some ideas that all troops could be pulled out of Iraq and redeployed to Sudan. With a March 2008 timeline, this probably isn't going to happen any longer, though the UN should at least send in a few helicopters & Rambo to get some order and protect the refugee camps.

The current US administration is doing something to Sudan. They are cutting economic ties.

Investment Funds and Human Rights

President Bush signed legislation on Monday that makes it easier for mutual funds and private pension funds to sell their investments in companies doing business with Sudan.

No mention of how this will affect jobs and the people over in Sudan. However China holds large stakes in Sudan. Specifically PetroChina, a company formerly owned by Warren Buffett, who got into some serious hot water over the holding. Berkshire made $3.5 billion selling its shares in October... coincidentally when the Darfur bill was going through the house. Maybe this bill will affect China a bit?

Poor Warren (and Poor Charlie) seem to get hit regularly with organizations that disagree with their investments, like opponents of Planned Parenthood. In the case of that investment, they shut down their shareholder donor program. This would have cut out a lot of funding for the 3,500 or so organizations that were affected by the program.

Berkshire class B stock was up around $5000/share in December. It's revenue was $98 billion dollars. That put it at #53 in the list of GDP by country, ahead of Kuwait. It will probably be much larger this year. 2008 could be a value investors dream year if things keep going the way they have been since last August.

Berkshire doesn't show up in the Sudan Divestment Stock Screener any more, though there are over 500 funds with ties to Sudan. Realistically, any funds on the stock markets of the world will have things in their closets that they don't want you to see. Some more than others...

Even Warren's friends Bill & Melinda are having troubles investing all their capital without hitting regimes with poor track records for human rights. A "miniscule" $22 million, or around 6% of their $38 billion endowment was invested in companies related to the Sudanese government, which they dropped like a hot potato after a New York Times article.

Think Different

Bill steps down this year from Microsoft to focus his efforts on the foundation.

A charity close to me is Room To Read. I am a book fanatic, and probably have about 5 books on the go right now. I am regulated to a quota of no more than 10 book purchases a week by my better half.

The statistics below are almost as mind-boggling as Berkshire's revenues, and it all started from a single ex-MSFT'ie who was upset over how stupid it is that children don't have access to books.

Since our inception in 2000, Room to Read has impacted the lives of over 1.3 million children by:

Constructing 287 schools
Establishing over 3,870 libraries
Publishing 146 new local language children's titles representing over 1.3 million books
Donating over 1.4 million English language children's books
Funding 3,448 long-term girls' scholarships
Establishing 136 computer and language labs

They focus mainly on Asian countries, though they have started moving towards Africa.

Books or Guns

It seems almost that a campaign is being put in place to bring disorder to countries outside of the West, and therefore bring the emerging market funds back into domestic hands, at the expense of the people. Hopefully the policies of governments and world organizations will somehow take into account that human capital is worth a thousand times more than venture capital, and these funds should be put to work maintaining social and economic benefits for the people who need it the most.

Toronto, Canada: I am African and I love Kenya dearly. I pray and hope that it survives intact the current unrest. Do you think Kenya will survive this? What will happen to the bouyant economy after the violent upheaval? Will Kenyans continue to enjoy the good economy that is one of Africa's best?

Kenya: Tribal Rage Over Disputed Election - washingtonpost.com

Do you think that roving blackouts in Iraq could cause the situation there to continue to destabilize? How about bombings in Afghanistan? During the great blackout the Eastern Seaboard experienced a few years ago, even homeless people directed traffic, and people ate ice cream and drank beer in the dark. Something tells me we don't understand how isolated we really are from the "real world".

In 3 days of 2008, 42 people have died in Afghanistan. Over 300 people have died in Kenya. Last year 84 people were murdered in Toronto. This was a record. It should not be that scary for the general public though, since 80% of all the victims knew their killers. Of course 20% is not a number to sneeze at, though with 5 million people you're odds are probably greater to win the lottery. Not that any of these people should have become statistics in the first place...

Unfortunately 100% of the people in Darfur know who their killers are too, though perhaps not the indirect ones.

The list of travel warnings continues to grow.

Bingo! You can buy this overpriced house!

2008-01-01T20:50:00.001-05:00

This reminds me of a certain speaker that I saw a couple of months ago at a real estate convention, who promised a "free" cruise ship vacation for everyone who signed up for his seminar. What's the catch? There's always a catch...

Faced with crowds of a hundred buyers, bank loans in hand, all chasing the 20 houses he might have on offer, he organised bingo-style lotteries.
"We had ping-pong balls with numbers, just like you'd see on a TV show", Mr Trawick recalls.
"Everybody would have a number. We'd put the ping-pong balls in, spin it and, you know 'Number 22! Yoo-hoo!' They'd jump up and yell, come on up and pick which home they wanted, and leave a deposit cheque".

Source: BBC NEWS | Business | City of debt shows US housing woe

Someone captured some videos of a Trump wealth event in Vancouver that should give you an idea of the mania of crowds... the opposite of the book I'm reading right now, Wisdom of Crowds.

Especially when the event involves money.

Opportunity Amid the Ruins - Barron's Online

2008-01-01T17:17:00.001-05:00

One fund manager thinks that all this noise about writeoffs is really just a psychological thing - no money is changing hands here and losses aren't "real."

Hopefully his stock PZN is of the same opinion - it is down by almost 50%.

But they're still reporting losses.
They are taking accounting losses. They haven't taken real losses. The situation was exacerbated by changes in accounting rules. Since the last banking crisis almost 20 years ago, two things have changed dramatically. Banks don't lend money anymore so much as arrange loans and then sell them through securities transactions and derivatives to other investors. Thus, they tend to have less on their balance sheets. And, they have to mark their portfolios to market based on psychological perceptions of the loans' value. If banks had to do this in prior cycles, there isn't one of them that would have survived. And yet they all survived, because they don't lose the money everybody thinks they lose. Some of these losses will turn into real losses, but the provisions the banks have taken against their earnings, which are a function of widening credit spreads and interest-rate changes, cause them to mark down their portfolios. Look at it this way: If you were a corporation that invested $100 in a U.S. Treasury bond that paid 5% interest, you'd get $5 a year. If interest rates go to 6% you have to mark down the value of the bond, even though you're still going to earn the same $5 a year.

Source: Opportunity Amid the Ruins - Barron's Online

So what if the losses aren't real? In terms of accounting rule changes, one rule caused a mass exit of the USD. Nixon's abolishment of the gold standard. This wasn't real until it happened 17 months later. But the mere idea and shock of this proclamation caused a big stir in world markets. Things don't have to be real in capital markets... heresay is enough to move prices.

Similar echoes happened two years ago, when the Great Halloween Income Trust Proclamation was released by the Canadian Finance Minister. Immediately a massive drop in paper values translated into a real value decline of the investments of many trusts.

Another rule that moved markets and destroyed value? Immediate criminalization of online poker. That didn't work so well for companies dedicated to online gaming... but it probably will when the brick and mortar casinos & big media players get into the game.

Perhaps the most important way to invest in the stock market is to watch what is happening in international politics, particularly with the ongoing currency and liquidity wars. And perhaps inflation can be monitored by watching the minimum wage scale...

But watch out... Some countries are more effective than others at enforcing these regulations, so that the effective minimum wage may be lower than the official one.

Capital markets are all about regulations and the movement of money into "self"-regulating countries.

Crisis may make 1929 look a 'walk in the park' - Telegraph

2007-12-23T14:12:00.001-05:00

What happens when the global bond markets decide to shut down for a protracted period?

Banks and financial organizations still hold their assets, though nobody wants to buy them or even trade for something else. This leaves the organization with a valueless asset, until the market can bear it again.

With all of these assets supporting capital requirements, revaluating them has some important implications. Banks are required to hold a certain amount of capital according to Basel regulations, and if this doesn't happen, liquidations occur.

But what if there is still no market for the liquidated assets?

Managers and execs will probably decide to go on holidays for awhile...

Glance at the more or less healthy stock markets in New York, London, and Frankfurt, and you might never know that this debate is raging. Hopes that Middle Eastern and Asian wealth funds will plug every hole lifts spirits.

Glance at the debt markets and you hear a different tale. Not a single junk bond has been issued in Europe since August. Every attempt failed.

Europe's corporate bond issuance fell 66pc in the third quarter to $396bn (BIS data). Emerging market bonds plummeted 75pc.

"The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history," says Thomas Jordan, a Swiss central bank governor.

Crisis may make 1929 look a 'walk in the park' - Telegraph

Another scary graph... the music stopped in August and it has been eerily silent ever since.

RGE Monitor - Brad Setser's scary graph

2007-12-21T18:36:00.001-05:00

Doesn't this look like something a bunch of lemmings would walk off of?

Basically a drought in US bond purchases is posing a problem with liquidity.

A big drought. A really, really big drought.

The fall in demand for US corporate debt (especially from the UK) has been especially sharp.

The sharp fall in total bond inflows line from the preceding two graphs is, of course, a reflection of the fall in total inflows to the US in my scary graph. It is based on the same underlying data. The higher frequency graph – updated for October – isn’t quite as scary as before, but it doesn’t suggest rude health either.

RGE Monitor

Finally Woken: Donald Trump's Scotland Golf Plan Rejected.... and then the council was fired.

2007-12-20T00:06:00.001-05:00

Trump was talking this one up at the Wealth conference I went to last month. Seems he bought 2000 acres of pristine Scottish waterfront years ago, and some 'loonie' farmer dressed in a kilt was stirring up a ruckus because he wanted to develop it.

Looks like the farmer had his way with ye! Gosh and Begorrah! With heart, faith and steel. In the end there can be only one.

Donald Trump's Scotland Golf Plan Rejected
It's not everyday Donal Trump faces a rejection. But his plan to build a £1 billions (that's Rp 20 trillions or about one-third of Indonesia State Budget of Revenues and Expenditures!) golf complex and housing development at the Menie Estate in Aberdeenshire was rejected last weekend by Aberdeenshire Council's infrastructure committee.

Source: Finally Woken: Donald Trump's Scotland Golf Plan Rejected

I got a really bad taste in my mouth when he mentioned this project at the conference, and it wasn't from the crappy overpriced food I ate in the Jacob Javitts Centre. In my opinion it was disgusting that something of such beauty and natural heritage could be turned into a golf course & housing complex. Golf courses are notorious for their water consumption and effects on the environment, not to mention high-density housing & recreational development.

I do appreciate Trump's view that golf courses are beautiful things and he's going to put a bunch of money into the country and revitalize the economy. However, there has got to be a better way to appreciate your heritage without affecting the environment drastically. Why not build a Trump eco-university with a mini-putt course? The world's largest roadside attraction? Or just buy St. Andrews?

Of course I'm biased because I suck at golf.

Now if they made the ball 1 foot around and played golf in an undeveloped field maybe it would be more fun, and perhaps I could get it in the net. It could be friendly to the environment too... or at least friendlier than a water-sucking golf course.

A place I went to in the summer really showed me how one teacher and a few students with very little money can restore an area and turn it into one of the Seven Best Views in Canada.

Cape Enrage is next to Alma, New Brunswick. I stayed in Alma in the summer of 2007, at the only hotel, next to the only gas station. There wasn't a whole lot to do in Alma. I asked the hotel clerk what he did for fun there.

The clerk, in his late 30s, said to me,

"There's a nice golf course up the hill. I try and go there twice a week when the weather is nice."

Needless to say, I didn't go golfing. I did, however, go to Cape Enrage and Fundy National Park. The whole area is probably one of the quietest and most serene places in the world (except for the constant sound of surf crashing on the rocks).

The main thing to do in the area was to watch the tides come in.... 30 feet per day!

According to one of Trump's associates in the video, "I think it was the people in Aberdeen, the Shire, that were really let down today."

Hopefully the people of Scotland and the council of Aberdeenshire will learn a lesson from Costa Rica, turtles are way more important than golf courses.

They haven't learned quite yet. The project is still a go.

Council Leader Anne Robertson welcomed the decision, saying: "What is important in all this is securing the economic future of the north-east of Scotland.

The application by Trump International Golf Links Scotland was recently rejected by the Council’s Infrastructure Services Committee (ISC) and was called-in by the Scottish Government.

Support for the plans will be put forward by the council as an enhanced consultee as it is now no longer the planning authority, a role now fulfilled by the Scottish Government.

This explains why the hotel we stayed at in Costa Rica ran out of water during my friend's wedding.

If you get a chance, go see New Brunswick's Cape Enrage. You can even play a round at the nine-hole they have down the road. There's no traffic, but watch for bears & moose.
And the Canadian Dollar is still below par right now... at $0.9978 per Amero.

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Update: Apparently the people of Aberdeenshire are 93% in favour of the development. Of course, they did interview a window washer in the news clip. What's he going to do? Turn down a billion pounds to develop some craggy rocks? You'd have to be nuts to do something like that! Maybe dance around in a field wearing a kilt? :)
There's no way this course will get vetoed now.... Trump threatened to send it to Ireland and sic'ed his lawyers on the council, and frequently brings up his mother in talking about the deal. And he's only going to build one course in Europe anyway... because, according to him, "it's too far away."
Yeah, eeecht hoors frae new york is aways Ah guess. It is aw abit scottish heritage thocht.
http://www.youtube.com/watch?v=uV3OtNzkasU
Th' comments fur thes video bonnie much sum up th' varioos opinions. reality is funnier than fiction.
Sorry, foond th' Scottie Translator. Aw future postings will noo be in scottish.
Update: they fired th' guy fa was glaikit enaw tae vote against trump an' turn Scootlund intae a potential Venezuela fur business.
Update: Here's a thread from Aberdeen locals with seemingly close connections to the project.
Update: McConnell 'broke rules' on £300m Trump golf deal
Salmond to appear at Trump probe
Scotland's name globally besmirched over the Trump nonsense
Something tells me Michael Forbes the farmer and his 83 year-old mother are going to become tourist attraction all by themselves. He would be well advised to start building his mini putt course and put up some road signs.
Trump and .... Conrad Black's email?

Mish's Global Economic Trend Analysis: Fitch Discloses Its Fatally Flawed Rating Model

2007-12-19T16:00:00.001-05:00

Good article that predicted the subprime failure.. and shows the dependency of banks on their models.

Questions To Ponder

How many billions of dollars will be lost because of absurd pricing models?
How can it be that an entire system of investment decisions are based on ratings that the ratings companies tell everyone not to use for investment purposes?
Were the ratings companies grossly incompetent or just foolish?

Mish's Global Economic Trend Analysis: Fitch Discloses Its Fatally Flawed Rating Model

CADUSD=X Chart - Yahoo! Finance

2007-12-18T09:43:00.001-05:00

Looks like we may be in for a pop in the Canadian Dollar again.... an uptick in RSI along with a spike yesterday seems to indicate moves above par for the next little bit.

Link to CADUSD=X Chart - Yahoo! Finance

FT.com / Home UK / UK - Can managers reduce the risks of lean production?

2007-12-12T12:03:00.001-05:00

I wonder if the same goes for the production of credit & the money supply?

Accepting the relationship between risk and stock levels is key, but reducing stock levels without first reducing risk is tantamount to commercial suicide.

FT.com / Home UK / UK - Can managers reduce the risks of lean production?

Another article from Roger Martin, Dean of Rotman School of Management, that provides a contrarian view to portfolio management theory. Michael Lee Chin bets the farm on 1 stock & wins.

http://www.rotman.utoronto.ca/rogermartin/OM_Excerpt1.pdf

The part I like the best is the comment that "The Chinese character for 'crisis' combines the characters for 'danger' and 'opportunity'". I wonder how you write Fear & Greed in Mandarin?

Organization of Debt into Currency by Charles Holt Carroll

2007-12-12T08:17:00.001-05:00

Sounds like a dry book to me, but it's strikingly similar to the current situation with CDOs, SIVs, and other derivative products.

But the difference is that it was first brought up around 1858.

Although both borrower and lender cannot have the same dollar at the same time, both are privileged to check upon it, and may offer it for purchases; thus it produces the same effect upon market prices, by degrading the exchange value of money, as double the amount of gold and silver in the hands of individuals. A sum thus available at sight by a check on the bank is as much currency as the bank note deposited in one's pocket.

Source: Organization of Debt into Currency by Charles Holt Carroll

Ever wonder why it takes a day to get your savings transferred to your chequing? Perhaps it's because savings accounts don't really have any money in there. You are loaning the bank money, which it "sweeps" out of your account on a regular basis, lends out, bundles into derivative products, gambles on the markets, or pays its employees & shareholders. Your bank balance is just a computer printout until you sweep the money back into your hand from an ATM. It duplicates, triplicates, fabricates the currency until it is many times leveraged.

A similar thing happens to your chequing account, though on a smaller scale, since some reserves are sometimes required.

What if the money you're depositing isn't really anything either?

"The term "deposit," as applied to the amount at the credit of a borrower, is in truth a misnomer, for the borrower deposits nothing—there is no money in the transaction; it is simply an exchange of debt. Yet it is effectually currency to be used as equivalent to coin at any moment. In event of a bank contraction, however, it is apt to become a most embarrassing claim upon both bank and borrower, for real dollars that are nowhere—that never existed."

This is another situation currently happening in the markets. Lack of liquidity in derivative instruments has forced some financial institutions to write off their "mark to model" assets at a heavy discount. Because they need a certain amount of capital or assets to maintain their credit worthiness or to stay within loan limits, this is causing some serious crunches.

"But the effect upon the general commerce and the individual prosperity and happiness of the people of this country is our concern in this matter. Nothing will prevent the precious metals from going where there is an effective demand for them, and nothing will prevent them from leaving the country where such demand does not exist. If we do not use them for currency they will go where they have that use in addition to other uses; for, like all other commodities, where they possess the highest utility they possess the highest value, and under the keen instincts of commerce they are as obedient to the law of value as matter to the law of gravitation. They only are money; a promise to pay them is debt, and that debt is not equivalent to money, unless coin is exchanged for or remains deposited and pledged to meet it."

This is a bit antiquated, as currency has really become a psychological gold. Because so many instruments, assets, and debt are traded with currency, gold is forgotten in many circles. It is only when there is a crisis in the markets that the gold factor is really hyped. The key reason? Maybe it's to sell more debt to dig for more gold... and use the debt and assets raised to purchase other things. Really it's all in your head, as is the concept of money.

The other thing that was found when analyzing these complex financial instruments, was that the bundles they had of debt were sometimes duplicated or triplicated, or worse. Your mortgage was sold to one party, then bundled and sold to another. They both paid for the same virtual good, and will expect to hold title to that good. When things will get interesting is when they decide to pick up their purchase, or audit their books to figure out what the heck it was they actually paid for.

The auditing is what happened in August. Inventory didn't go so well that month.

"We cannot eat our cake and have it too; this truth was settled to the satisfaction of each one of us in the nursery; nevertheless, we try the same absurdity in principle in our currency, and the consequences are demonstrated in financial revulsions, such as that which befell the country last fall. We must accept money or debt for currency; we cannot have them both for the same sum at the same time."

Again, this was the 1850s.

List of Canadian Securities Dealers

2007-12-09T00:57:00.001-05:00

Here is a list of Canadian Securities Dealers.

Some facts about Canadian Securities taken from this list.

Ontario has the bulk of securities dealers with 126 firms. If you want to corner the market and be a deep thought in a shallow pond, go to Saskatchewan, Manitoba, or Nova Scotia.

There are around 27 cities in Canada with securities dealers.

The largest? Toronto of course... nothing's got Bay St. beat.

A suprise? Westmount Quebec has 3 dealers. Quebec City has 2. There's a dealer in Uxbridge, Ontario (First Leaside Securities Inc) and Red Deer Alberta (Retire First Ltd).

There are a few Americans on the list, some with Canadian company names, others with Canadian company addresses (but American head offices).

Liquidnet Canada is stationed in New York.

optionsXpress Canada, which I just printed out my application for, is in Chicago. I never did finish my e*Trade application, even though I attempted it 3 times.

If you're looking for a security dealer and you're not happy with your bank, one of these should do.

The Global Financial Market's play the Telephone Game

2007-12-08T19:33:00.001-05:00

Ummm.... does this work in real life? It never worked when we played the telephone game in school. By the time the conversation got to the end of the line it would be a mangled mess.

The so-called ''originate-to-distribute'' business model involves a chain of stages with different counterparties transferring risks between them. At the outset of the chain, a mortgage company provides a housing loan to a borrower, categorised as ''sub-prime'' due to their less creditworthiness. Then, the lender, or the originator of the mortgage loan, sells it to commercial banks and investment banks, which then bundle different loans together to form securitised products such as mortgage-backed securities (MBS) and collaterised loan obligations (CDOs). In this process, these arrangers of securitised products deal with credit rating agencies to obtain ratings from them. In the final phase of the process, these securitised products are sold to end-investors through distributors, typically large investment banks. At each stage of this process, credit risk is transferred from one party to its counterparty. Supposedly, accurate information on the risk should also be transferred from one party to another in due manner in this process.

Source: The Global Financial Market... : FSA

The Japanese Commissioner to Japan's Financial Services Agency (FSA), Takafumi Sato agrees.

In reality, however, this may not have been the case. Rather, there is a possibility that in many cases information was transmitted in a distorted manner and accurate information was not transmitted between counterparties. For a party who was going to transfer credit risk by selling its claims to the counterparty, there might have been little incentive to carefully examine the quality of the credit due to be sold. Moreover, there may have been disincentives for the party in question to disclose accurate information to its counterparty. Thus in many cases, end-investors, and probably arrangers and distributors as well, may not have been adequately informed of, and may not have fully understood, the true nature of the risks they were bearing.

Could your home foreclosure cause a hedge fund to fail overseas? This is the Butterfly Effect taken to a new level.

CXOAG Trading Calendar - December

2007-12-05T12:15:00.001-05:00

Looks like vacation days are good trading days in December...

Trading Calendar - December
The following chart shows the average month-to-date percentage change in the S&P 500 index by trading day during December from 1990 through 2006. Day 0 represents the November close. The index during December tends to be quite positive, with the gains coming mostly at the beginning of the month and toward the end of the month (Santa Claus rally). We have not used data for trading day 22, because most Decembers do not have 22 trading days. Also, sample size is only 12-17 for specific trading days, so these results are only weakly suggestive rather than predictive. For 1990-2006, 14 Decembers have been winners and only three losers.

Source: CXOAG Trading Calendar - December

Financial Consumer Agency of Canada - Money Tools

2007-12-05T08:31:00.001-05:00

This service allows you to compare bank fees and credit cards in Canada.

Cost of Banking Guide - For quick and direct access to information on current banking account packages available in Canada. Find out which one works best for you.

Credit Cards and You - Find the credit cards that best suit your spending habits. Compare cards in detail — side-by-side, feature-by-feature.

Source: Financial Consumer Agency of Canada - Money Tools

Innocent bystanders and government bailouts

2007-12-03T23:23:00.001-05:00

Don Kohn, Vice Chair of the Fed, talks about justifications for the bailout of lenders and borrowers in a November 28, 2007 meeting with the Council on Foreign Relations.

Are these innocent bystanders (lenders) really that innocent? Didn't they know that a resetting ARM mortgage is a risky way to lend money, and instead of just keeping hands in the pockets of their customers they were pulling off their clothes? Are the banks planning on getting in the business of selling used clothing?

How about the borrowers? To a lesser extent, they should have understood that there's no such thing as a free lunch, and that debt is usually a bad thing, especially when there's a time-delay bomb attached to the loan. But free money is hard to refuse. And being able to borrow free money and make payments on a house you can't affort is a great thing while it lasts. Especially if you don't need to justify why you need to borrow the money.

The FOMC vice-chair speaks on morals...

The first issue I want to discuss is moral hazard. Central banks seek to promote financial stability while avoiding the creation of moral hazard. People should bear the consequences of their decisions about lending, borrowing, managing their portfolios, both when those decisions turn out to be wise and when they turn out to be ill-advised. At the same time, however, in my view, when the decisions go poorly, innocent bystanders should not have to bear the cost.
And then goes into repricing assets for liquidity
In general, I think those dual objectives -- promoting financial stability and avoiding the creation of moral hazard -- are best reconciled by central banks focusing on the macroeconomic objectives of price stability and maximum employment. Asset prices will eventually find levels consistent with the economy producing at its potential, consumer prices remaining stable, and interest rates reflecting productivity and thrift.
And then he compares the tech bubble to the housing bubble
Such a strategy would not forestall the correction of asset prices that are out of line with fundamentals, nor would it prevent investors from sustaining significant losses. Losses were evident early in this decade in the case of many high-tech stocks, and they are in store for houses purchases at unsustainable prices and for mortgages made on the assumption that house prices would rise indefinitely.
Does this mean they're going to pay me back the money I lost on bid.com & Nortel? Whohoo!

Then he goes on to Joe Economy, and how he is currently being held hostage.

To be sure, lowering interest rates to keep the economy on an even keel when adverse financial-market developments occur will reduce the penalty incurred by some people who exercise poor judgment. But these people are still bearing the cost of their decisions, and we should not hold the economy hostage to teach a small segment of the population a lesson.

The solution? Bail out the greater fool!

Third topic: Liquidity provision in bank funding markets. Central banks have been confronting several issues in the provision of liquidity in bank funding. When the turbulence deepened in early August, demand for liquidity in reserve pushed overnight rates in interbank markets above monetary policy targets. The aggressive provision of reserves by a number of central banks met those demands, and rates returned to targeted levels.

In the United States, strong bids by foreign banks and dollar-funding markets early in the day have complicated our management of this rate. And demands for reserves have been more variable and less flexible in an environment of heightened uncertainty, adding to volatility in the overnight rate.

In addition, the Federal Reserve is limited in its ability to restrict the actual federal funds rate to within a narrow band because we cannot, by law, pay interest on reserves for another four years.

That statement caught my eye. Paying interest on reserves? Does that mean that bank reserves are now loans to the government rather than insurance against defaults? That's got to be a substantial drain on taxpayers dollars to pay for the security of the banking system. Maybe the money's coming from somewhere else? Peter or Paul? I hope I'm going to get some interest paid to me when my auto insurance comes up for renewal, instead of having to pay them monthly interest for something I don't really want anyway, but I'm legislated to have for my own protection.

Of course, if I wasnt legislated to have insurance, I probably wouldn't have had it when my car was stolen or broken into, which caused me to keep buying more expensive car stereos, which caused them to keep getting stolen, which caused my premiums to go up, which caused my personal reserves to go down. Note to self: next time, don't buy the most stolen car of the year and don't drive around with the stereo blaring.

Most Stolen Autos.

Reminds me of the story one of my former co-workers told me about his first job working for the government out of college. He found out his starting salary was $28,000 per year. First thing he did? Bought a $27,000 Camaro.

His dad was driving around the car by the next year.

Ultimately the banks wouldn't be paying much interest anyway, since they may eliminate reserve requirements altogether.

MR. MEYER: Okay. Well, I hope you appreciate that that was an absolutely brilliant speech. It was incredibly forthcoming. It sounded nothing like anything you've heard since the last meeting from other FOMC members. That's not a surprise, because the only FOMC members that can change the message are the vice chairman and the chairman. And that was an absolutely brilliant speech. I'm breathless. This has answered all the questions I had, so I don't know what I'm doing up here. (Laughter.)

Source: C. Peter McColough Series on International Economics (Transcript) - Council on Foreign Relations

I'm out of breath here too... More on Financial Services Regulatory Relief from the minutes of October 25, 2006 Fed meeting.

The Chairman noted that the President had recently signed the Financial Services Regulatory Relief Act of 2006, which among its provisions gave the Federal Reserve discretion, beginning October 2011, both to pay interest on reserve balances and to reduce further or eliminate reserve requirements. The Act potentially has important implications for many aspects of the Federal Reserve's operations and the Chairman asked Vincent Reinhart, Director of the Division of Monetary Affairs, to form a committee of Federal Reserve System staff to consider these issues.

http://www.federalreserve.gov/fomc/minutes/20061025.htm

Ignorance is bliss, and recent Fed transparency & bank transparency changes are the opposite of ignorance. Not sure if it is a good thing or not. The Vice Chair isn't sure either...

But I do think the -- and expected some year-end pressures, but I have to admit -- speaking for myself and certainly not for the committee -- the degree of deteriorating that's happened over the last couple of weeks is not something that I personally anticipated. I think the losses that have been announced that seem entrain and have been announced were greater than people expected. This raised questions about financial institutions, how much capital they had, how vigorous they would be in pursuing new loans. Financial institutions became more cautious. And I think this process is one that we're going to have to take a look at when we meet in a couple weeks.

And my favourite question.

MR. MEYER: Okay. My last substantive question: Do you believe there was a Greenspan put?

Let me answer that with what he is obviously going to say anyway... You so crazy!

The questions after the interview are even more forthcoming. US Dollar valuation, inflation, central bank intervention. Basel II implementation, etc.

Read the full transcript here. C. Peter McColough Series on International Economics (Transcript) - Council on Foreign Relations

Pink Sheets: Disaster Preparedness Systems (DPSY)

2007-12-03T08:43:00.001-05:00

This just proves that it makes sense to go public if you're crappy with your finances.

Let's look at the balance sheet where we see forty-four dollars in cash and $1,090 due from a related party.
During the nine month period ended August 31, 2007, the Company advanced $1,077 (2006 - $Nil) to a relative of a director. The amount is unsecured, non-interest bearing and due on demand. [Note 7 c]
Dude, pay the damn loan back!

Pink Sheets: Disaster Preparedness Systems (DPSY)

How to lose $9 trillion in a bull market - Nov. 29, 2007

2007-11-30T18:04:00.001-05:00

Paper gains or no gains at all... between commissions, taxes, and market timing, the average market gain is only 4.3%/year. Take any information on gains with a grain of salt.

In reality, because investors pumped $1.1 trillion into Nasdaq stock offerings between 1998 and 2000 - just before the worst crash in modern history - the typical dollar invested in the Nasdaq earned only 4.3 percent a year, less than half the historical return.

Source: How to lose $9 trillion in a bull market - Nov. 29, 2007

Why Invest?

2007-11-28T13:41:00.001-05:00

We invest for an emotional return that more important even then the financial return. In fact, money is never the goal of investing. It is the means to the end, a currency that buys us emotional states (e.g., feeling safe, feeling proud, feeling free).

Source: Stock Market Psychology Blog: Behavioral finance and beyond

Don't be a Footsie neurotic - Fear and Greed

2007-11-28T11:18:00.001-05:00

The reason why the stock market has been around for so long? Same reason that any activity involving fear or greed has been - receptors in the brain. The more they fire, the more you need them to fire to feel at least as good as last time.

Plunging stock prices ignite the same circuits in your brain that respond to the snarl of a lion. Just a flash of the red colour that symbolises a downtick is enough to excite the circuitry in your brain - and to make reflective thinking more difficult.
Merely reading the words "stock market plunges" in this sentence will raise your pulse, quicken your breathing, increase your blood pressure and tense your muscles.
If you needed to make a snap decision about a stock immediately after reading those frightening words, you would involuntarily have been propelled toward selling. Yet, because emotions can often be unconscious, you might well believe that you had made a reasoned decision at the very moment you were in the grip of a primordial fear.

Source: Don't be a Footsie neurotic - Telegraph

I think there will be a lot of Neuro-Economicists in the future.

And the best reason to ditch your Blackberry and become a techno-idiot like Warren Buffett?

Psychologist Paul Andreasen found that investors who received frequent updates on their holdings earned half the returns of those who got no news at all.

Ignorance is bliss.

SSRN-Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula (third version) by Espen Haug, Nassim Taleb

2007-11-24T21:17:00.001-05:00

So the option pricing formula everyone is using isn't really Black-Scholes, and all they really did was market a well-known formula that already existed.

Similar to the lightbulb, which Edison didn't invent, or the car, which Ford didn't create, Black-Scholes-Merton have apparently created a mask of illusion that they derived the magic formula for pricing options.

And did they fool the Nobel committee? How many other Nobel prize winners were actually just good marketers? The guy who invented the lobotomy? Prize decisions are irreversible so their medals should be safe.

I wonder if Haug and Taleb have a vendetta against these guys - they sure aren't pulling any punches in this essay. I'm surprised they didn't put any yo mamma insults in there...

Abstract:
Options traders use a pricing formula which they adapt by fudging and changing the tails and skewness by varying one parameter, the standard deviation of a Gaussian. Such formula is popularly called “Black-Scholes-Merton” owing to an attributed eponymous discovery (though changing the standard deviation parameter is in contradiction with it). However we have historical evidence that 1) Black, Scholes and Merton did not invent any formula, just found an argument to make a well known (and used) formula compatible with the economics establishment, by removing the “risk” parameter through “dynamic hedging”, 2) Option traders use (and evidently have used since 1902) heuristics and tricks more compatible with the previous versions of the formula of Louis Bachelier and Edward O. Thorp (that allow a broad choice of probability distributions) and removed the risk parameter by using put-call parity. The Bachelier-Thorp approach is more robust (among other things) to the high impact rare event. The paper draws on historical trading methods and 19th and early 20th century references ignored by the finance literature. It is time to stop calling the formula by the wrong name.

Source: SSRN-Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula (third version) by Espen Haug, Nassim Taleb

Guts, Long Term Capital Management, and Doubling Down your losses

2007-11-23T22:08:00.001-05:00

LTCM was a hedge fund that failed in the late '90s after betting enormous amounts of money and losing to a few 'Black Swans', mainly an event overseas that they couldn't predict (Russian Ruble collapse) along with a loss of liquidity, massive declines in assets, and an increase in their leveraged investments. Apparently their competition got access to their positions too, which couldn't have helped them.

Since LTCM had an almost unlimited bankroll, they could easily put their funds 'all in' and scare off any competition. They could move markets, and even create new ones. Manipulation? Definately possible.

However, they couldn't win if there was no market left, and the loss of liquidity and value of the Ruble killed their Russian bets and ultimately the fund. Being large meant that they could not easily exit their positions without major losses. The very fact that they were selling some of their smaller positions caused the value to decrease. Plus their competition could snipe them as they went down.

This article talks about the Kelly criterion, which is really a way of position sizing your bets based on a given expectation of positive value, while keeping some money left in your bankroll. Perhaps LTCM used this type of formula in their quant-based system, along with some time-decay math?

It didn't work for them, because "the market can stay irrational longer than you can stay solvent."

The cold hard fact is that all progressive betting systems are nothing more than modified versions of the Martingale system. In the Martingale, you risk one unit, and if you win you keep risking one unit. If you lose, you double your bet, and if you lose again you re-double and keep re-doubling until you finally do win. Then you go back to risking one unit.
As any fool can plainly see, the Martingale can’t miss, so long as you win one more bet before you die you’re going to be a winner.
Well, yeah, if you lose12 bets in a row you’d have to risk $409,600 to win $100, but how often is that going to happen?
As it turns out, plenty.

Source: Debunking the Kelly Criterion - Sports betting picks, sports betting 'how-to' material, sports betting books, audio tapes, research material, sports betting computer programs on disks, gambling info, football, basketball, baseball picks, gambling money management, team stats, 'Professional Gambler' newsletter, tools for serious gamblers

One of the guys I used to work with bet on ProLine. His sports gambling habit one year paid off to the tune of $27,000 in just a couple of tickets. He went out and bought a brand new truck.

Less than a year later he hit a Black Swan - not literally, but he had the truck stolen from a parking lot near work. Along with his golf clubs.

Do you think he went out and bet $60k on Proline tickets? Could have, he was a pretty big gambler... but I doubt it.

At least he didn't somehow manage to borrow $7,950,000 against the truck like LTCM did.

If he did, I think the bank would have been willing to loan him another $60k to get their money back.

Ritual dating from 1919 sets price of gold - washingtonpost.com

2007-11-21T12:55:00.001-05:00

How is the price of gold determined?

In addition to Barclays and Deutsche Bank, the other banks who take part in the fixing are HSBC Bank, Societe Generale and Bank of Nova Scotia's bullion division, Scotia Mocatta.

Ritual dating from 1919 sets price of gold - washingtonpost.com

Fear and Greed - The Risk of a U.S. Hard Landing and Implications for the Global Economy and Financial Markets

2007-11-20T23:40:00.001-05:00

This speech from NOURIEL ROUBINI, Stern School of Business, New York University on September 13th is the best summary of the current capital market mess and its implications for the world that I have seen. If you're an optimist or realist, I would suggest not reading this as it could get you down. If you're a pessimist don't read it either - it will just make you worse.

So we have created essentially in part a little bit of a monster. Of course we all know the benefits of financial globalization and securitization and all those things, I am not saying that I am against them. But you've created a financial system in which if you take out mortgages, the mortgage originator does not care: he or she maximizes volume and [gets higher] income. Then the bank originates the stuff and packages it in MBSs and then they get the fee and they shove it to the investment banks. And the investment banks tranch it in all the different tranches of CDO and then shove it to their final investors and the rating agencies give their blessings. You would think that the final investor is the one who has to provide the market discipline but after four stages you do not even know what it is, and after CDOs you have CDOs of CDOs, and CDOs of CDOs of CDOs
(Laughter.)
and then how you price this stuff. Of course there is an element of greed. At some point people were searching for yields or they should have known better, so I cannot just blame the rating agencies. But you have a whole system in which essentially people were making income not from bearing the credit risk but essentially transferring it somewhere else and getting the fees, and in most of the financial system that is how it gets its profit these days, so there is a fundamental kind of problem. On top of that the regulators [were] asleep at the wheel and let this stuff occur without any kind of constraint.

Source: Transcript of IMF Seminar -- The Risk of a U.S. Hard Landing and Implications for the Global Economy and Financial Markets

And then he goes into speaking about a possible hard landing in the US Economy, and whether the world will be affected.

The final thing I want to just briefly just speak about is this question of will the world decouple from the U.S. or not.

A little bit less than briefly, this is the longest paragraph in the speech.

The first victim of a hard-landing in the US economy? China? Who would benefit the most from a hard landing in the US economy? Russia? Other parties affected? Emerging markets due to risk aversion. Commodity-rich countries. Anyone and everyone, though not on the scale of the US. The bigger they are....

The question and answer session has even more tidbits of information.

MS. SANTOS: That was quite a disturbing lecture. I am Barbara Santos, retired from the World Bank. Let me ask you, professor, if you were in Mr. Greenspan's shoes a year ago or 18 months ago, what measures would you have taken to avoid this terrible scenario?

Mr. Roubini speaks about the last few years of "laissez-faire" regulation, and summarizes the current financial woes in the simplest manner possible.

So essentially you have the element that private markets want to make money, they are greedy, and you have to have good, sound public policy and there were failures of the credit ratings of the financial institutions and the regulators. So that was an element of the problem.

The other element of the problem is right now: I think there is going to be a renewed debate about this issue of how you deal with asset bubbles.

He suggests that the Fed should have popped the bubble long ago, but that it is the belief of Greenspan, Kohn, and Bernake that you should let the market do it's thing in good times, and only be there to provide a cushion in bad times. (The cushion being the US taxpayer eventually.)

The Canadian finance minister's view on bubbles seems to contradict our neighbours to the south. BCE, one of Canada's largest taxpayers, decided to go the Income Trust route and save $800 million a year. Last October, the minister promptly and efficiently put a pin into the Income Trust bubble, calling it "a growing trend towards corporate tax avoidance" that would hurt Canada. However, he left REITs alone, and the housing bubble has kept growing since, with the best year ever for Toronto markets. The average house price is almost $400k. By contrast, homes in the US are expected to decline in price by 10%-20% between the peak of 2007 to the low of 2009.

His comments on 'Chindia'—China giving us all the cheap goods and India all the cheap services really make sense when it comes to inflation control on goods and services, while increasing the prices of assets and commodities. By outsourcing inflation to China & India, it causes the CPI number to go down.

What happens when the Fed intervenes in a bubble? It breaks, but when a bubble breaks it can sometimes form many smaller bubbles.

MR. ROUBINI: It could be the next housing crisis or maybe the next bubble. Some people say the Fed created first the tech bubble and then the housing bubble, and if they now ease they are going to create another bubble, even if we are running out of asset markets in to create bubbles.

(Laughter.)

For a while people thought it was private equity; now that has reached its peak and so on. But we can find other things.

There is already a post-mortem being done by the Financial Stability Forum (FSF) on the financial situation that came to a head in August, and the patient isn't even dead yet. They recommend a quick adoption of the Basel II capital guidelines, a set of requirements for managing risk to a portfolio of instruments. This report won't come out until next Spring at the earliest, so don't expect any fast solutions to the problem, and don't expect the US to spend more CAPEX on adopting Basel II.

According to Mr. Roubini, "(t)here will be changes. After LTCM I remember—in 1998 I was in the U.S. Treasury and the White House—there were lots of proposals and then when calm came back and nothing was done, and 10 years later we are still discussing whether we should regulate hedge funds or not, directly or indirectly, and I am not saying that we should. But changes in financial regulation, even when there are big crises, occur only slowly, incrementally at the margin."

The largest bubble mentioned in Mr. Roubini's speech? "Credit derivatives 10 years ago were zero, today they are a notional value of $26 trillion". That's $26,000,000,000,000.00 in US dollars.

Even with a systemic breakdown in these instruments, he doesn't see a Great Depression or anything of that sort.

More on Nouriel Roubini on his home page at NYU, his Wikipedia entry, his blog on Global EconoMonitor.

Notes from Alan Greenspan's 2008 Forecast @ The Learning Annex

2007-11-19T00:14:00.000-05:00

Notes from Alan Greenspan's 2008 Forecast @ The Learning Annex

I recently attended the Wealth Expo organized by The Learning Annex. Bill Zanker has signed Trump on to a 3-year deal, and he was the headliner of the show along with Tony Robbins and Alan Greenspan.

Alan Greenspan came on the satellite feed shortly after 8am on Sunday morning. It was an interview-style presentation, with NBC's Michael Corbett leading with the questions. Some of the ones that stood out for me. Based on my notes, the wording could be slightly modified ** means more than slightly. I tried to recap the message Greenspan was trying to convey, though there could be a bit of misinterpretation based on my memory.

MC - Who was your favourite president to work with?
AG - Gerald Ford, he will be missed greatly by me.

Reagan was great as well, and his policy advisors complemented the policy of the Fed.

MC - *Why is there a housing crisis?*
AG - In 2003, lower rates in Japan caused problems with deflation. The US does not want this to happen here. The housing bubble and condo bubbles are coming to an end. Long term rates ultimately affect the market. Housing bubbles are due to decreases in short term interest rates.

The difference between this bubble and many in the past is that the real estate bubble is the same everywhere. There needs to be a global solution to the problem.

The core reason why the bubble happened is due to consequences of the end of the Cold War, the rise of Market Capitalism, and production growth inflation.

There was an obvious amount of liquidity permeating the markets, and the low rate was creating problems, with a 5% growth in money supply year over year.

MC - How long will the softening of the real estate market continue?
AG - New homebuilders need smaller inventories. Vacant homes cause many problems for builders, including vandalism and exposure to inclement weather. Builders are creating fire sales to move inventory.

How low will prices fall before consolidating? We haven't even started.

(AG cellphone rings off camera. A warning from the Plunge Protection Team? )

If liquidation is fast, there is a possibility of prices flattening out in spring. (AG pauses, somehow I think he believes it is worse than that)

MC - With regards to the dollar decline & economy, why did the USD weaken?
AG - It was not necessarily a weakening of the US dollar as it was an increase in demand for the Canadian dollar. The last several years have gradually seen an improvement of the value of the Canadian dollar compared to the USD. The main reason is the huge demand for commodities in China and emerging markets. Spot exchange rates fluctuate with interest rates, and are cyclical. There is currently a major inflation concern. However, the weakening USD has no real economic consequences for Americans. (Huh?)

A large share of the US national income goes to the finance sector. Savings and capital investments are key spending trends. The US wastes almost no savings. (Wha?!?) China wastes much more.

New York is exporting finance to other markets, including deals in Canada, and Europeans are investing in the United States.

MC - What will be the effect of a new president on the economy?
AG - With the extent that globalization is taking over individual economies, the economic policies of the president and government are mainly relevant to internal problems and not the world economy. The cost of medicare will double in 25 years. With the current demographic trends, society cannot afford Medicare. There appears to be a 50% shortfall in the medicare system. The usual role of the president in foreign affairs has also changed.

MC - Should we invest rather than let our government handle our retirement?
AG - It is essential. The amount of retirement income must be increasingly private. With current social security funding, it is expected that supplements will be 40% less income than pre-retirement. Medicare is declining as the demographic population grows older. With economics and politics, there doesn't appear to be a solution to the medicare problem.

In 25 years, the US will still be a world economy leader. The world depends on the US. We are by far the current leader. The US must continue opening new markets, and maintain these open markets. It must avoid protectionism at all costs, as it erodes the systems and standards of a country. Medicare and protectionism are 2 major problems now and in the next 25 years.

MC - Who was the most interesting world leader you have met?
AG - Zhu Rongji - the retired premier of China. Quoting Deng Xiaoping, he said he practiced "Socialism with Chinese influences" which in my opinion was wrong. He practiced some of the purest forms of capitalism possible, even more so than in the US.

Rongji and Gorbachev were perhaps the two most significant economic personalities of the last 30 years.

MC - Social Security and Medicare - are they in trouble?
AG - Medicare has a huge shortfall. If there are no tax increases, there will be half the benefits that should be available.

Social Security is cash defined and not increasing. The 2% gap in funding could be closed and there are 5 to 10 proposals out to fix this. There are absolutely no suggestions for Medicare, and both Democrats and Republicans appear to be avoiding the issue altogether.

MC - With all of the stock market scandals, do we have policy changes to implement?
AG - We already have Sarbanes Oxley. Scandals and fraud, however, are human nature. Legislation will target individuals and individual situations, however there is no hope of keeping up with scandals or fraud.

MC - Is real estate one of the best investments?
AG - Over the long run, yes. There will be a testing period for real estate immediately ahead. It is difficult to get investment right now. In the short term, it is a bad investment. I am not sure how long this current market will last.

MC - In 2008, what do we have to look forward to?
AG - Buy my book to find out.

Later on in the evening, Donald Trump came on. I will try and recap his speech later, but these points really stuck out:

Trump's opinion is that we're in a recession. He thinks that could be a good thing for real estate investors, as it allows them to go in and offer money to the banks for discounted foreclosure mortgages.

The best investments are outside of the United States. Trump has 2000 acres of oceanfront in Aberdeen, Scotland. His friends keep calling him asking about investing there.

The banks are out of business - use Other Peoples Money (OPM) for real estate deals.

Green buildings are too costly and technology is not there yet to implement properly.

Banks are gone.

The residential market has dried up, and commercial will follow shortly. If you are being foreclosed due to an exploding mortgage, negotiate with your lenders, or sue the pants off them for improper financing.

Never give up. Always get even.

Microsoft Show How Banks Can Differentiate with Technology at BAI Retail Delivery Conference & Expo

2007-11-14T15:00:00.001-05:00

How about a 99% growth rate in your employee base in 5 years?

PressPass: How committed is Microsoft to the banking industry?
Issel: We’re very committed to serving this industry. In the past five years, Microsoft has grown from six to 600 people supporting the financial services business.

Microsoft Show How Banks Can Differentiate with Technology at BAI Retail Delivery Conference & Expo

Marketocracy Funds Masters 100 Fund (MOFQX): Stock Quote & Company Information

2007-11-14T14:56:00.001-05:00

A fund for the masses...

Marketocracy Funds Masters 100 Fund (MOFQX): Stock Quote & Company Information

The Fed - Housing & Monetary Transmission Mechanism

2007-11-13T22:36:00.001-05:00

Huge document with some interesting items to note with the housing market, including lots of charts around international housing prices, the effects of Fed rates on real estate,

Page 28 has a mortgage delinquency rate chart that is slightly scary... 14% subprime defaults? Worse than September, 2001 @ 10%?

Another fact to note - fixed-rate prime is now less than variable rate prime for the first time since mid 2002.

The last few paragraphs contain the best Fed nuggets though...

One objection to an easing of monetary policy following the collapse of an asset bubble is that it might lead market participants to believe that the central bank will always act to prop up asset prices, a belief that can make a bubble more likely. The central bank can mitigate such an interpretation, however, if it publicly emphasizes that its monetary policy is not directed at stabilizing any particular asset price but is rather
focused on achieving price stability and maximum sustainable employment. Making sure that a house-price collapse does not do serious harm to the aggregate economy in no way eliminates sharp declines in house prices and so does not provide insurance against such declines. The same reasoning holds true for stock prices. Indeed, we have seen substantial declines in housing and other asset prices in many countries even when monetary policy has been eased substantially.

http://www.federalreserve.gov/Pubs/feds/2007/200740/200740pap.pdf

E-Trade Shave & A Haircut...

2007-11-12T14:19:00.001-05:00

The Citigroup analyst Prashant Bhatia likes giving haircuts..
http://tinyurl.com/yscv89
Posted by: wavesmash at November 12, 2007 1:51 PM

Bill Cara: Cara's Commentary & Community Chat, Mon., Nov. 12, 2007, 7:25am ET

BullRunner, following the Market

2007-11-10T14:38:00.001-05:00

On Monday I posted the following:

"Taking a look at the USDCAD=X pair chart, the USD is heavily oversold and has been on a downward ski slope since mid-September. "
At the time I was looking at the fact that Relative Strength indicated that the USD was weaker than a little girlie man and needed to pump up a bit.
Then I predicted:
Today the USD should recover slightly, and for the rest of this week either pull back some more or reverse dramatically upwards.

I should have said today the USD should sell off dramatically, and for the rest of the week plummet to record-breaking lows and then reverse dramatically with a market selloff on Friday.
The way things are looking, people are going to cash after the Fed's statements, and all of the bad news companies and the media are pushing out on them are instilling a sense of fear and dread.

It used to be that you had to use PIPs and Forex trading systems to trade the USD. I went to the bank Monday and Wednesday, and they were ready to trade the currency realtime with me, and I could have made money buying Wednesday morning and selling Friday. When the currency should move no more than 25 basis points during a day, and it ends up moving 3-4% something is seriously wrong.

MNTA - P&F Charts from StockCharts.com

2007-11-07T06:11:00.001-05:00

Here's an ugly chart... what's with not getting FDA approval = stock crushing.

MNTA

Source: MNTA - P&F Charts from StockCharts.com

Vietnam latest news - Thanh Nien Daily

2007-11-06T14:05:00.001-05:00

The Vietnam State Securities Commission (SSC) has announced it would help Cambodian officials open the country's first stock exchange by 2009.

Vietnam latest news - Thanh Nien Daily

Contrarian Currency Trade: The Canadian Dollar - Seeking Alpha

2007-11-05T09:11:00.001-05:00

Taking a look at the USDCAD=X pair chart, the USD is heavily oversold and has been on a downward ski slope since mid-September.

http://finance.yahoo.com/charts#chart3:symbol=usdcad=x;range=1y;indicator=volume+rsi+volumema;charttype=line;crosshair=on;logscale=on;source=undefined

Today the USD should recover slightly, and for the rest of this week either pull back some more or reverse dramatically upwards.

The obvious question is of course how far will the bulls take it? Perhaps $100 crude and 1.10 CAD, but the upside of a potential reversal and resulting long liquidation (and not enough short interest to keep covering as price supportive) makes it worth shorting both. I am short at 1.07 CADZ07 (December 07 futures), and think a move back to parity is likely. I may exit and re-enter intermediately to manage this entry, but its a trade I intend to press when it starts working.

Contrarian Currency Trade: The Canadian Dollar - Seeking Alpha

Looking at TLT, or TLH, supposed proxies for VIX (Volatility Index), we can see that volatility is at numbing highs and have most likely hit a barrier. This should result in a decrease in volatility, some cooling of the economy-crushing gold and oil prices, and a higher USD.

Let's see if my theory is correct by the end of the week. Interesting times... I won't be shorting the CAD anytime soon, but I will be going long USD... since I'm going to New York next week to see Alan Greenspan, Trump & his buddies again.

The Daily, Tuesday, October 30, 2007. Computer and peripherals price indexes

2007-11-01T11:32:00.001-04:00

Statscan has some useful info on the price of computers and hardware in Canada....

More prices on all goods should be dropping dramatically, to compensate for the huge gains in the Canadian dollar. Everything's for sale on eBay and Amazon in USD right now.

In August, the index for commercial computers decreased 1.4% from July to 34.2 (2001=100). The index for consumer computers also declined, down 1.4% to 14.1.
In the case of computer peripherals, monitor prices decreased 1.0% to 50.8, while printer prices fell, down 0.6% to 47.3.
These indexes are available at the Canada level only.

The Daily, Tuesday, October 30, 2007. Computer and peripherals price indexes