Monday, November 30, 2009

Bookkeeping: Closing Meritage Homes (MTH)

This market is confusing; I face a swathe of quite awful charts in the small and mid cap arena, while every institutional manager on the planet rushes into (AMZN) and a handful of similar ilk.  The market leadership seems to narrow by the week, but it is almost entirely located in names represented in the well known larger cap indexes.

Meritage Homes (MTH) is another name that is breaking down; this was our proxy for exposure to the government sponsored "housing recovery"; we started the position in May.  Now that the seasonal strength in the sector is over, we can go into hibernation for some months and then begin getting ourselves into a lather when (as it does EVERY year) housing data starts 'showing signs of improvement' next spring.  I will remind myself to load up on anything housing related around next March since the green shoot crowd will be out in force and in awe (remember, we have no memories) that housing sales in June 2010 will be stronger than April 2010.  Even though it happens every year.

But for now I am more inclined to short MTH than be long, so we're expunging the last small piece (0.1% exposure) in the portfolio.  The majority of this position was expelled on October 8th at $19.22, so we missed that spike up afterwards and the ride down.   As with much of the market, another stock just churning.

Frankly I am having trouble finding good charts that don't involve a PE ratio in excess of 40+... in any sector. When I am working this hard to find long ideas, it should be telling us something.

No position

What is Goldman Sachs (GS) Price Action Telling Us?

This is one of the questions I am mulling on a sleepy Monday....

.... did anyone notify people that Thanksgiving week was over?

No position but wondering what could possibly afflict the Teflon Boys of Goldman...

Bookkeeping: Cutting Back Blackstone Group (BX) on Break of Support, Shorting iShares MSCI Japan (EWJ)

Private equity firm Blackstone Group (BX) had a rough few sessions last week, showing weakness even as the market rallied in the first 3 days of Thanksgiving week.  With some support lines broken, I am going to cut back the position 80%, take some minor losses and wait for better action.

Last week [Nov 25, 2009: Japanese Stock Market Appears to Have Rolled Over] I mentioned that Japan, represented by iShares MSCI Japan (EWJ) was rolling over but I wanted to see a bounce first before potentially shorting.

I am considering a short of this ETF, but am hoping to see a bit of a bounce as it has been "straight down" type of action for a while here.

With the Nikkei up 2%+ overnight this gives us our chance and we'll use about 2.7% of the portfolio with a short entry around $9.55. .  I will consider stopping out on any move over $9.80 or so, which would be a 2.6% loss.  This type of slow moving object won't give us huge gains even if we are correct, but it's a way to employ a hedge of some sort.

It has obviously been very difficult to use pure play shorts the past 9 months so we are trying to find some things off the beaten path ... with lower volatility, or as we did last week use synthetic shorts (long volatility, or the US dollar) which won't hurt us as much if the market continues on month 10 of rallying.

Long Blackstone Group, Short iShares MSCI Japan in fund; no personal position

India 3rd Quarter GDP Jumps 7.9%, Fastest in 6 Months. Stimulus Could be Exiting Stage Right

Notwithstanding all the issues with using GDP as the main signal of economic prosperity (not to mention the difficulty in accurate measurement) it is the end all, be all for government officials and market watchers.  India just checked in with an impressive 7.9%, which might mean game over for "extraordinary" stimulus.  No such problems domestically.  Rather than focusing on the actual figures which have many flaws, the key is relative performance among countries....

Again, I ask all those who cried to the heavens on CNBC for all of 2008 that using the FIFO accounting method (first in, first out! 1st grade analysis at its best) meant the US will recover first and lead the world out of the mess it created... to show up and say "I was obviously wrong".  Rather than admitting any such thing, most likely you will see them on the cable channel in the present saying how obvious it was that Asia would show the real growth and rebound first "as we all knew".  Ahem.

As for India, keep in mind unlike Bubble Ben / Alan - the central banker in India actually presses hard on banks to act responsibly (on a relative basis) and pushes hard on bubbles ahead of time. [Dec 28, 2008: NTY - How India Avoided the Crisis]  The same bubbles Greenanke (they are one and the same man in temrs of policy) claim they cannot even see, much less fight. 

He is also a man who understands his policies can destroy the lower economic classes in a society, something our leaders could care less about; we have the banking class to take care of (priority #1) here.
  • India’s central bank Governor Duvvuri Subbarao described inflation as a “regressive tax,” justifying his steps yesterday to start withdrawing the monetary stimulus as price pressures build. “As far as public policy is concerned, it has a commitment to insulate the poor from inflation - it’s the prime consideration for the Reserve Bank of India and the government.”

Via Bloomberg:
  • India’s economy expanded at the fastest pace in 1 1/2 years as manufacturing jumped, giving the central bank room to withdraw more stimulus measures.   Gross domestic product grew 7.9 percent in the three months to Sept. 30 from a year earlier after gaining 6.1 percent in the previous quarter, the statistics bureau said in New Delhi today. That was more than all estimates in a Bloomberg News survey of 22 economists, where the median forecast was 6.3 percent.
  • Indian shares and the rupee extended gains while bond yields rose following the GDP report, which raised expectations that Governor Duvvuri Subbarao may soon act after he spoke last week of the need to remove some “unconventional” pro-growth policies.
  • The central bank started to withdraw monetary stimulus on Oct. 27 by ordering lenders to keep more money in government bonds.
  • “This is a surprising number,” said Sonal Varma, a Mumbai-based economist at Nomura Securities Co. “It will make it easier for the Reserve Bank of India to exit from the emergency low interest rate regime adopted last year.”
  • Manufacturing rose 9.2 percent last quarter from a year earlier, the biggest advance since June 2007, according to today’s report. Trade, transport and communication services grew 8.5 percent, the fastest pace in a year. Agriculture gained 0.9 percent, the least since December 2008. (keep in mind the poor monsoon season we highlighted a few times this summer)  [Sep 30, 2009: India's Monsoon Season Driest in 3 Decades]  [Aug 7, 2009: India's Growth May Suffer Due to Weak Monsoon Season]
  • Car sales climbed at a 33.9 percent annual pace in October and cellular operators, led by Tata Teleservices Ltd., added 16.6 million new subscribers. Lodha Developers Ltd., an Indian property company planning an initial share sale, said its home sales may climb about threefold this fiscal year as low interest rates encourage spending.
  • To steer India’s $1.2 trillion economy through the worst global financial crisis since the 1930s, Subbarao kept the central bank’s key reverse repurchase rate at a record-low 3.25 percent since April. Government spending and tax cuts took the value of stimulus measures to 12 percent of GDP.  That’s helped the economy recover and the benchmark Sensitive index on the Bombay Stock Exchange to climb about 72 percent this year.

Inflation forecasts rising...
  • Inflation pressures are building as economic growth quickens and after the weakest monsoon rains since 1972 hurt farm output, pushing up food costs. The central bank forecasts inflation of 6.5 percent by March 31 from 1.34 percent in October and 0.5 percent in September. During 2008, the rate rose to almost 13 percent.
  • Food inflation, which has climbed to 15.58 percent, is a politically sensitive issue in a nation where the World Bank estimates that three-quarters of the population live on less than $2 a day. Opposition lawmakers said last week that the government is obsessed with growth, allowing prices to spiral to the detriment of the poor.  (never any such debates in the US, ironic... )
  • “We see inflation risks emerging and expect interest-rate hikes from January 2010,” said Ramya Suryanarayanan, an economist at DBS Group Holdings Ltd. in Singapore.

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 17

Year 3, Week 17 Major Position Changes

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 82.9% (v 80.5% last week)
23 long bias: 12.5% (v 18.9% last week) 
4 short bias: 4.6% (v 0.6% last week) [includes 1 option position]

27 positions (vs 25 last week)

Weekly thoughts
The traditional Thanksgiving "up, up, and away" week was going swimmingly until Dubai had to rain on the party.  No worries - we've had a weekend to forget it and recall the warm textures that is the dollar carry trade... thankfully our memories are short (sarcasm).  We pointed out a week ago Friday that Monday's have been the magical day for the past 2 months with an uncanny ability to jump quite dramatically almost every Monday as a weekend full of assurances about free or nearly free money from central banks or government's worldwide get the animal spirits running.   Again, I will ask how many times we can rally on the EXACT same news... it is as if we are "shocked" each time one of these statements is uttered but see a few sentences earlier... our memories are short.   So while some pain was inflicted Friday, it's a new week and all dips are buying opportunities.  So it will be, until it is no longer. 

It's been a while since we looked at a bevy of charts in one review so let's circle the key ones.  Looking at the major indexes (I'll replace the Russell 1000 for our normal look at the S&P 500 since they mirror each other) it has been all about large caps of late, and that continues. 

The divergence in the small cap universe should be worrisome, but terms like "worry" are so February 2009, so the non confirmation has been dismissed.  

It has now become an almost religious belief that "the S&P 500 will rally to 1200 into year end".  Monday will mark the completion of 9th straight month up; I believe about 3 months ago a reader informed me 9 months was the record when I was quite in awe of 7 months straight.  So the consensus is there will be "no problem" doing 10 months because there is nothing big enough to worry about that the Federal Reserve cannot print away.  As I have been saying until blue in the face for months on end, consensus should never be so easy to play... but it continues to be.  Until it blows up... at which time people will smack themselves in the head saying "that was so obvious".  No, it's been obvious for a very long time... but obvious is on the longest winning streak in stock market memory.

Speaking of obvious, crowded trades.... perhaps the only chart that matters anymore:

We've cut back sharply on our "weak dollar" bets in the past week... we will never catch the top, or bottom - but if we can catch enough of the "middles" we can have a very nice investing life.  This move seems a bit long in the tooth, parabolic in fact... a $50 drop in gold Friday morning most likely scared out some stop losses - but by the end of the day the most crowded trade on Earth was back on.   Dubai be damned.   

Notice gold fell almost exactly to the 20 day moving average.... technical analysis is just tea leaves, eh?  Not when almost every computer on Earth is attuned to it.  Frankly we messed this one up as I sold out 90%+ of our gold / silver Wednesday... some frantic buying Friday morning was in order, and we missed the train.  If I had executed the 2nd half of the transaction (buy Friday), I'd be looking like Nostragoldus.  

2009 to gold was 2008 to oil... the hedgies playground.  Another divergence is the lack of follow through on oil; with the 'global economic rebound' oil should be moving in lockstep or at least at a trailing distance to gold.  Instead it appears (from these eyes) to be stalled, if not beginning early stages of a roll over. 

Still carrying the badges of wars with the market over the years, these divergences continue to place coal in my heart.  I remain in "prove me" mode - even the S&P 500 for all its outperformance has gone nowhere for 3 weeks.  

However the ball remains in the bulls' court as this consolidation period has occurred over all the major moving averages.  While the past 3 weeks are fine for people with shorter time frames than I, there has been no trend move and since we're focused on smaller and mid caps we're still in wait and see mode.  Selling at S&P 500 level 1011ish has been the 'right' thing to do the last 2 weeks, so we're waiting for that break out over that level.   More nimble players can buy any and every dip and at wait for the run to S&P 1111.  With a huge year in the bag and just weeks to go to close it out, I don't see the need to risk capital on the trade. We're index buyers on the break out... not before.

With the long weekend I had time to look at a lot more charts this weekend, and aside from large caps the winners of late (aside from 'weak dollar' or anything that rhymes with gold) have been healthcare and a bevy of retail stocks.  Without any real exposure to these latter 2 groups, I see why the market feels completely stalled and why stocks that dominate my watch lists are just trading back and forth in a smallish range yet the indexes are making progress the past month+.

Turning to the economic front, I believe we are at the stage of the rally where we have to ask "is good news bad news?"  The more good news, the more the timeline of a Fed rate hike could appear in the future.  At least in the market's view... in my view there is nothing on Earth that causes the Fed to raise rates in 2010.  But this market is so sensitive to every whisper that might ruin their precious dollar carry trade  [Sep 18, 2009: US Dollar Replaces Japanese Yen as "Carry Trade" Currency]  even one word being changed in the Federal Reserve statement now has the change to cause ruin.  That's the situation as we all stand on the same side of this boat... it's listing hard, but as long as we charge ahead; no one cares that our hair is in the water. So will the word smithing change next summer? That will be the focus the next 3-4 meeting with full wall to wall CNBC coverage.

It's another very busy week on the economic front with the monthly labor report Friday.  As always, this report is extremely flawed, prone to "sunny side up" reporting (which is scary, considering how bad the "official" figures are), but it's a market mover so we must respect that.  [Nov 6, 2009: Official Unemployment Rate Hits 10.2%; Reality Far Higher] Using "official" statistics, I'd expect this figure to start showing "0" job losses sometime in late winter to early spring.  Which regular readers will know means in reality we are still losing about 200K jobs a month.  Keep in mind the US needs to generate 125K jobs a month just to compensate for population growth.  So the question (see previous paragraph) is "0" bad for markets?  Recall the unemployment rate is a whole different animal as any American not seeking work for 4 weeks is not discouraged, but apparently "employed"... at least to the government.  So when word spreads through the internets (sic) that job "growth" is back to "0", the hordes may come out of hiding and back into the job market looking for jobs.  Which could sharply push up the unemployment rate (perversely).  And that rate is what Big Ben is focused on.  That's a very long term way of saying... how can one expect rate hikes in 2010?

Aside from the main event Friday, other economic events as follows:

  • Monday: Chicago PMI (purchasing managers index)
  • Tuesday (key day):  ISM Manufacturing, Construction Spending, Pending Home Sales
  • Wednesday: ADP employment (mostly useless), Beige Book
  • Thursday: Weekly unemployment claims, ISM Services (key), Chain store sales, and Ben Bernanke tells us not to worry as speculators, and he will continue to sacrifice the savers / seniors in society who wish for savings account rates in excess of 1%. 
  • Friday: Employment report and other Fed officials repeating what Ben says.

Again, don't worry about the data anymore... it's all mindless details.  The market has become all about 1 thing; starting at the US dollar and doing the exact opposite of what it does.  Check your IQ at the door... dumb is in. 

Sunday, November 29, 2009

Simon Johnson Talks Dubai on PBS Newshour

One of our favorites, and a voice of reason, is former IMF chief economist Simon Johnson.  Aside from offering good ideas that are summarily dismissed by the political elite and special interests he writes profusely (with a few partners) at the blog Baseline Scenario (which I also believe is summarily dismissed by the political elite and special interests).  You should notice a theme here. ;)

He also posted a blog entry on the subject Friday: Does Dubai Matter? Ask Ireland

If you are not familiar with Johnson, he had an epic story in The Atlantic this spring which is a must read, titled "The Quiet Coup"

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Below we have a 8 minute video where Johnson discusses the implications of Dubai on PBS Newshour.  Of course, after viewing it - make sure to promptly ignore it and buy stocks on the open tomorrow morning, Christmas season sale! ;)  Just because you wasted the weekend shopping doesn't mean Ben B was not busy printing more US dollars ... he works 7 days a week, 24 hours... like Santa.  Instead of a sleigh he has a helicopter... and delivers bundles of joy to bankers everywhere.

If you are old school, the full transcript is here.

[Email readers will need to come to the site to view video]

[Sep 14, 2009: Baseline Scenario - Economic Donkeys]
[May 7, 2009: Simon Johnson Comments on Bank Stress Tests]
 [Apr 21, 2009: Simon Johnson on Yahoo Tech Ticker]

NYT: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps

The topic of what is happening with hunger is nothing new to regular readers of FMMF; we've been harping on it for over 2 years as mirage like stories of the "strength" of the US economy, based on government reports (2007, early 2008) and measures such as GDP dominate our ideas of how to measure prosperity.   But judging from the "comments" section in the web version of this weekend's story in the New York Times, a lot of Americans are getting their first education on what is truly happening under the surface.  I assume many foreign readers must also be shocked as they read about the dirty underbelly of the world's "richest"* country.

*excluding debt.

When I began the blog in summer 2007, 1 in 11 Americans were on food stamps.  In just a few years that had jumped to 1 in 9.  [Jun 8, 2009: 1 in 9 Americans on Food Stamps]  Now, the New York Times report says the figure has unfortunately hit new thresholds....increasing to 1 in 8 Americans, including 1 in 4 children.  Let us be clear, there is certainly fraud in the system, and people taking advantage of the largesse of the government - that cannot be disputed and if there is one place to increase government spending, it is auditing of these type of programs..  But there is no way that rate of increase happens due to just fraud... it's an indictment of the hollowing out of our economy and the increasing bifurcation of the economic fortunes in the country.   Not everyone can be a business owner or investment banker - jobs that used to fulfill the needs of the "middle" of America are disappearing and no one asks the questions of why.  Meanwhile, the cost of living remains high, in fact our central bank is trying to increase it by the minute rather than letting the market decrease them (AS IS NEEDED), while wage have been pressured for over a decade.  The house ATM filled the gap for many in the middle part of the decade but people are now out of options... 

We've warned / predicted in 2007 this was going to be a long term trend, but frankly even I am shocked at how quickly this is happening.  [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?]  I believe the woman highlighted in this short video below is more "typical" of the new face of food stamps rather than "everyone is just looking for a handout from government" or whatever explanation helps people rationalize things .

Obviously readers of this type of blog are generally not going to be affected by such a situation but I want to continue to highlight this, not only for informational purposes but to show the costs of the massive transfer of wealth from the many to the few; I've labeled it "Reverse Robin Hood" many times in 2008 and 2007.  I won't get into the morality of it, or why it is happening - we've discussed our ideas countless times.  The bottom line, regardless of where you fall on "reasons" is there is simply no denying it *is* happening.  One can worship at the alter of stock market prices or government reports as indicators of economic health all day, but I believe these measures increasingly reflect a smaller and smaller portion of the US society.  Once you leave the vacuum of Washington D.C., Manhattan, or similar enclaves it is not quite such a happy go lucky time. 

I also cannot reinforce enough how damaging inflationary policies enacted by our central bank are on the lower tranches of society... inflation is the most regressive tax there is, and one of the reasons so many are in so much trouble.  [Aug 18, 2009: Bloomberg Opinion - Deflation Theory is Lemon We've Been Sold]   This is why I get quite angry when I see the hand clapping across "The Street" as they cheer what Bernanke is doing, because it helps inflate their assets and create (nominal) "wealth" - who cares that it is concurrently helping to destroy fellow country(wo)men, right?   Or to feel better about it, we can just claim all these new Americans are "lazy" and "just want the government to hand them money"... please notice the lazy fellow shoppers at Costco for example. [Oct 30, 2009: Costco to Roll Out Food Stamps Nationwide]

So as we celebrate the "economic recovery" let me reassure you that if not for the food stamp program (to the "lazy") the soup lines of the 1930s would be back out in force, and I would expect the potential for social disorder would be extreme.  Those smirking at this type of program should most likely be thankful they exist, as hungry people are desperate people and are prone to do not whatever is necessary to feed their family.  Let us not forget, the path from hedge fund manager to pizza delivery man is not too far is it?  [Mar 24, 2009:  20/20 - From Hedge Funds to Pizza Delivery]  More than a safety net, I would call this specific program a social order net...

The New York Times piece is very long so I encourage the full read; I will just grab some snippets below:
  • With food stamp use at record highs and climbing every month, a program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children.
  • It has grown so rapidly in places so diverse that it is becoming nearly as ordinary as the groceries it buys. More than 36 million people use inconspicuous plastic cards for staples like milk, bread and cheese, swiping them at counters in blighted cities and in suburbs pocked with foreclosure signs.
  • They include single mothers and married couples, the newly jobless and the chronically poor, longtime recipients of welfare checks and workers whose reduced hours or slender wages leave pantries bare.
  • .... the program is now expanding at a pace of about 20,000 people a day.
  • There are 239 counties in the United States where at least a quarter of the population receives food stamps, according to an analysis of local data collected by The New York Times.  The counties are as big as the Bronx and Philadelphia and as small as Owsley County in Kentucky, a patch of Appalachian distress where half of the 4,600 residents receive food stamps.
  • In more than 800 counties, it helps feed one in three children.   In the Mississippi River cities of St. Louis, Memphis and New Orleans, half of the children or more receive food stamps. Even in Peoria, Ill. — Everytown, U.S.A. — nearly 40 percent of children receive aid.
  • While use is greatest where poverty runs deep, the growth has been especially swift in once-prosperous places hit by the housing bust. There are about 50 small counties and a dozen sizable ones where the rolls have doubled in the last two years. In another 205 counties, they have risen by at least two-thirds. These places with soaring rolls include populous Riverside County, Calif., most of greater Phoenix and Las Vegas, a ring of affluent Atlanta suburbs, and a 150-mile stretch of southwest Florida from Bradenton to the Everglades.
  • The richest counties are often where aid is growing fastest, although from a small base. In 2007, Forsyth County, outside Atlanta, had the highest household income in the South. (One author dubbed it “Whitopia.”) Food stamp use there has more than doubled.
  • Unemployment insurance, despite rapid growth, reaches about only half the jobless (and replaces about half their income), making food stamps the only aid many people can get — the safety net’s safety netBenefits average about $130 a month for each person in the household, but vary with shelter and child care costs.
  • While the numbers have soared during the recession, the path was cleared in better times when the Bush administration led a campaign to erase the program’s stigma, calling food stamps “nutritional aid” instead of welfare, and made it easier to apply. That bipartisan effort capped an extraordinary reversal from the 1990s, when some conservatives tried to abolish the program, Congress enacted large cuts and bureaucratic hurdles chased many needy people away.
  • The program’s growing reach can be seen in a corner of southwestern Ohio where red state politics reign and blue-collar workers have often called food stamps a sign of laziness. But unemployment has soared, and food stamp use in a six-county area outside Cincinnati has risen more than 50 percent.  (dogma has a funny way of disappearing when economic duress hits)
  • “It’s embarrassing,” said Mr. Dawson, 29, a taciturn man with a wispy goatee who is so uneasy about the monthly benefit of $300 that he has not told his parents. “I always thought it was people trying to milk the system. But we just felt like we really needed the help right now.”
  • While Mr. Dawson, the electrician, has kept his job, the drive to distant work sites has doubled his gas bill, food prices rose sharply last year and his health insurance premiums have soared. (but government reports almost no inflation - officially anyhow!)  His monthly expenses have risen by about $400, and the elimination of overtime has cost him $200 a month. Food stamps help fill the gap.
  • The program has filled the Dawsons’ home with fresh fruit, vegetables, bread and meat, and something they had not fully expected — an enormous sense of relief. “I know if I run out of milk, I could run down to the gas station,” said Mr. Dawson’s wife, Sheila.
  • Across the small towns and rolling farmland outside Cincinnati, old disdain for the program has collided with new needs. Warren County, the second-richest in Ohio, is so averse to government aid that it turned down a federal stimulus grant. But the market for its high-end suburban homes has sagged, people who build them are idle and food stamp use has doubled.
  • Sarah and Tyrone Mangold started the year on track to make $70,000 — she was selling health insurance, and he was working on a heating and air conditioning crew. She got laid off in the spring, and he a few months later.
  • “We were being really snippy, having anxiety attacks,” Ms. Mangold said. “People get irritable when they’re hungry.”  Food stamps now fortify the family income by $623 a month, and Mr. Mangold, who is still patching together odd jobs, no longer objects.
  • I always thought people on public assistance were lazy,” he said, “but it helps me know I can feed my kids.

Last interesting anecdote:
  • At the same time, the recession left Sandi Bernstein more sympathetic to the needy. After years of success in the insurance business, Ms. Bernstein, 66, had just settled into what she had expected to be a comfortable retirement when the financial crisis last year sent her brokerage accounts plummeting. Feeling newly vulnerable herself, she volunteered with an outreach program run by AARP and the Ohio Association of Second Harvest Food Banks.
  • Having assumed that poor people clamored for aid, she was surprised to find that some needed convincing to apply.“I come here and I see people who are knowledgeable, normal, well-spoken, well-dressed,” she said. “These are people I could be having lunch with.”

[Nov 10, 2009: Walmart Executive - "There are Families Not Eating at the End of the Month"]
[Jan 18, 2008: One Lonely Voice Agrees with Me on Food Inflation - Food Bank Needs Surging]
[Nov 14, 2008: Wall Street Journal - A Run on (Food) Banks]
[Feb 20, 2009: NYT - Newly Poor Swell Lines at Food Banks Nationwide]

Updated Position Sheet

Cash: 82.9% (v 80.5% last week)
Long: 12.5% (v 18.9%)
Short: 4.6% (v 0.6%)  [includes a dollar option position and volatility ETF]

data is updated weekly and can be found on 'Performance/Portfolio' menu tab on the website. As always the total gain/loss (both dollars and percentages) only apply to the open portion of the position; it is does not apply to portions of the position sold earlier.

*** Please note, I've added an options category for things I am holding longer than intraday. 

*** Currently we own both a dollar, and volatility position - while neither "long" nor "short" they have been classified as short due to market behavior

(click to enlarge)

LONG (2 photo files)



Fortune: Yacktman Fund (YACKX) - Patience & Contrarian Style Pays Off

I always enjoy reading success stories from the "little guy", especially in such a field as mutual funds which are dominated by giants.  [Sep 21, 2009: BW - The Beauty of Small Boutique Mutual Funds]  Further, I am always on the look out for fund managers who employ a completely variant strategy to myself, as (a) it is interesting to read about what they do and (b) they would offer a nice counterweight balance in a portfolio of mutual funds.  "Large cap value" is about as far in the investing spectrum from the strategy I run.  Fairholme Fund [Feb 3, 2009: Fairholme Funds (FAIRX) 2008 Report] is one such, "large cap value" yet "concentrated" mutual fund, as is Yacktman Fund (YACKX) which is the subject of this Fortune story

The father and son team is quite well known if you have been a reader of Money Magazine or Kiplinger's over the years, but I was shocked by the revelation in the story that the board actually tried to oust them in the late 90s since they were not profiting enough from Uncle Alan Greenspan's free money policies mid decade. But this short term focus on results, lost track of golden rule #1 in money management.... attempt to avoid loss of capital; the upside will take care of itself.  In fact, another story in Fortune, focusing on very successful hedge fund manager Chris Pia, reinforces this ethos.  He might have the most strict loss aversion rule I've ever heard of:
  • As a portfolio manager at Moore, Pia delivered a sevenfold return from 1996 to 2008.  In November 2008, Pia left Moore Capital to start his own fund with Joe Niciforo, a former partner of Bacon rival Paul Tudor Jones. And here, speaking publicly for the first time, Pia tells Fortune how he raised $800 million as investors fled hedge funds, the trading lessons he learned alongside Bacon.
  • Pia, now 43, credits Bacon with teaching him the most important skill in trading -- risk management. "Louis taught me to get out when the market moves against you by even a modest amount and to avoid getting emotionally attached to your positions," he says.
  • These days Pia sells any position that drops 3%, even when the fundamentals appear in his favor -- a strategy that helped his fund at Moore thrive in 2008, a year when many hedge funds collapsed.

Turning back to the Yacktman Fund, of course, Don Yacktman now looks like a genius (despite a double digit down year in 2008), with a 3 year annualized return of 6.7%, and 5 year annualized 7.6%.... and one must ask, can the board be ousted? ;)

Yacktman Fund (YACKX) has now grown to $1.3 billion in assets so investors have noticed the long term track record (10 year return in top 1% of all equity funds) [Feb 5, 2009: Mutual Funds Have Tough Decade]  The team runs a concentrated portfolio - as of last report, about 40 stocks in total with over 50% in their top 10 holdings, and has a very low annual turnover of 33%.  Cash is not trash ... the fund currently has 12% of assets in cash which is down from "normal".  While the fund was down 26% in 2008 that was 11% better than the category average and the less you drawdown in a bad year, the easier it is to get back to even. (obviously!)  As noted below, between 2004-2006 (just as in the late 90s) it lagged peers, but its outperformance comes during rough periods in the market.  2009 has been atypical as it is posting stellar returns even in a market that "only goes up".

Current top holdings as of Sep 30, 2009 are:
  1. News Corp (NWSA): 6.7%
  2. Coca Cola (KO): 6.2%
  3. PepsiCo (PEP): 6.2%
  4. Viacom (VIA.B): 5.8%
  5. Procter & Gamble (PG): 5%:  
A snooze fest of holdings?  Perhaps... it certainly would make for a boring blog to focus on such companies - the average market cap is $38 billion in the fund; but bottom line, what they do works over the long run.  There are still some fund managers out there whose idea of "long run" is something in excess of "next week".

Via Fortune:
  • When the herd of investors heads in one direction, count on Don Yacktman to steer his fund the other way.  Now a father-and-son act, the celebrated Yacktman value portfolio has racked up big returns, showing how patience and a contrarian bent can pay off.
  • Back in the late-1990s tech boom, the Yacktman Fund (YACKX) lagged because he favored nontech small-cap stocks. His board tried to oust him, and investors fled. Then the dotcom bubble burst -- and Yacktman looked like a genius, topping the S&P 500 index by 34 points in 2002.
  • When the market started roaring again in 2003, he stuck with consumer stocks and trailed his peers for a few years. But after the market tanked last year, Yacktman, 68, who runs the fund with his son Stephen, 39, triumphed again, beating the index by 11 points in 2008. "Peak to peak, we've shown our stripes," he says.
  • The fund's 10-year annualized return of 12% ranks in the top 1% of all diversified U.S. equity funds, according to Morningstar.
  • Why does the fund fly when others flail? Its managers are happy to wait -- sometimes for several years -- for bubbles to burst before scooping up what they perceive as true values. In the meantime they prefer stable, cash-generating equities, which can result in lukewarm returns when stocks are hot. 
  • Anyone who invests in the fund, he says, should be prepared to stay put for years -- and ride out periods of lagging returns. Don says his team's investing strategy is simple: "Conceptually, we think of what we do as buying bonds," meaning they focus on a company's credit quality, valuation, and future cash flows.
  • "When the market gets roaring -- that's when we have our toughest relative performance," says Don. "We're wired to buy things when they're out of favor."
  • At the beginning of 2008, when many value funds were gorging on financials and turnaround plays, Yacktman's top holdings were blue-chips Coca-Cola (KO) and Microsoft (MSFT); as of March of that year, 25% of the portfolio was in cash.
  • After the market crashed that autumn, the managers swooped in, snagging shares of entertainment company Liberty Media, retailer Williams-Sonoma (WSM), and subprime auto lender AmeriCredit (ACF) at steep discounts.

Some discussion of current top holdings:
  • Ever the contrarians, the Yacktmans are also throwing their weight behind consumer staples stocks, which have lagged during this rally. Two of their biggest positions are in Coca-Cola (KO) and Pepsi (PEP). Stephen says he likes the beverage makers' business models, which enable them to retain large chunks of their profits.  "The average company has to reinvest half of its earnings," he says. "When [Coke and Pepsi] earn a dollar, they get to keep 90¢." He also expects continued weakness in the dollar to boost their international profits.
  • The managers' riskier bets include News Corp. (NWS) and Viacom (VIA.B), both top holdings that they beefed up last year. The Yacktmans view the companies as the best names in troubled industries. Stephen says it doesn't matter whether advertising bounces back soon: Both businesses' earnings are strong enough to justify their stock prices.
  • Similarly, he thinks cable TV provider Comcast (CMCSA) is cheap, given its high free cash flow. "The primary concern there is a stupid acquisition," he says, obliquely referring to the company's anticipated buyout of NBC Universal. "But that's factored into the price."

Friday, November 27, 2009

Bookkeeping: Selling 2/3rds EnerNOC (ENOC)

The trade on EnerNOC (ENOC) worked out far more quickly than I anticipated... in no way, shape, or form is it normal for a stock to fall to its 200 day moving average and then turn on a dime and vault higher - especially a stock that has taken a beating for about 10 sessions in a row.  But much of the current market smells of not normal and we see the exact same behavior in the indexes over the past 6 months, so I guess I should not be too surprised.

As EnerNOC runs into some resistance we're going to take 2/3rds of the position we put on Monday off the table.  I had put a limit sell order out around $27.70 on Tuesday, not expecting it to hit anytime soon but here we are.

If the stock gets over $30, the chart will be in far better position and we'll most likely get back the 2/3rds we sold off.  Until otherwise proven, we assume it will falter before then.... happy to be proven wrong.

Long EnerNOC in fund; no personal position

S&P 500 Temporarily Falls to 20 Day Moving Average, Russell 2000 Back to "Broken"

Overnight, S&P futures had fallen all the way down to 1070, but as has been the case so many times the past year furious buying in premarket pushed the market higher in the 2 hours before the US markets opened.  Hence domestic markets launched far above the worse levels overnight.  The S&P has jumped as I write all the way back up to test its 20 day moving average from below (1090)... I had thought potentially last night that the "gap" at S&P 1070 would be filled (the hard way) this morning but I forgot about the "anxious buyer" - he who buys futures without regard to price in urgent manner whenever is needed.   Ironically a move to 1070 would not only of filled a gap from Nov 8/Nov 9 but this would of pushed us down exactly to the 50 day moving average, setting up for an excellent low risk bounce play opportunity... but that 'easy trade' never came.

Clearly S&P 1111(ish) has been the ceiling of late, and for now until some more folks "thankful" for any opportunity to get back into the market get us back over the 20 day, we're in the 20 to 50 day moving average band.   As I type this, buyers are already pushing the market out of this band and up, up, and away...

As for the Russell 2000 it is back in "not good" mode... once more the larger averages (NYSE, SP500) are masking a lack of follow through in the median stock.  This divergence continues week after week but has yet to "matter".

On a side note, the hedge we put on mid week betting on an increase in volatility is helping us out today... or WAS helping us out, but already giddy buyers are rushing into the market and the "what me, worry?" attitude is back.   VXX opened at its high and has sold off for 50 minutes straight... boo yah.

Long VXX in fund; no personal position

UK Telegraph: Greece Tests the Limit of Sovereign Debt As it Grinds Toward Slump

I've been reading quite a bit of handwring over Greece in the UK papers, and came upon this piece from one of my favorite writers, Ambrose Evans-Pritchard, early this week.  It was in the "to do pile" to put on the website, but I never got around to it.  It appears with events in the past 48 hours, there is no time like the present.

As you read this feel free to replace the word 'Greece' with 'America' and '2009/2010' with '2022-2025'.  If not for the fact the US still enjoys its role as the world's reserve currency, and has a central banker who has no qualms in throwing the savers of the nation under the bus to keep the mirage going, I would not be talking 2020s.  The US is playing the highest form of poker... but on current course, it only appears when, not if we're called out. [Nov 23, 2009 - NYT: Wave of Debt Payments Facing US Government]  Think it's impossible?  Tell me what you thought was impossible around April 2007.
  • Greece is disturbingly close to a debt compound spiral. It is the first developed country on either side of the Atlantic to push unfunded welfare largesse to the limits of market tolerance. Euro membership blocks every plausible way out of the crisis, other than EU beggary.
  • When the European Central Bank's Jean-Claude Trichet said last week that certain sinners on the edges of the eurozone were "very close to losing their credibility", everybody knew he meant Greece.
  • The interest spread between 10-year Greek bonds and German bunds has jumped to 178 basis points. (it's jumped yet again, just since the article was published on the 22nd)  Greek debt has decoupled from Italian debt. Athens can no longer hide behind others in EMU's soft South.
  • "As far as the bond vigilantes are concerned, the Bat-Signal is up for Greece," said Francesco Garzarelli in a Goldman Sachs client note, Tremors at the EMU Periphery.
  • The newly-elected Hellenic Socialists (PASOK) of George Papandreou confess that the budget deficit will be more than 12pc of GDP this year, four times the original claim of the last lot.  (the United States of Debtors is now up to 13% of GDP due to "emergency measures to *save* the economy"... hmm, about 4x the normal range, imagine that)  After campaigning on extra spending, it will have to do the exact opposite. "We need to save the country from bankruptcy," he said.  (So the Keynesian theory no longer can work in Greece, even as it is "saving" the US)
  • Mr Papandreou has mooted a pay freeze for state workers earning more than €2,000 a month. This has already set off an internal party revolt. "There is enormous denial," said Lars Christensen, emerging markets chief at Danske Bank. "They don't seem to understand that very serious austerity measures are needed." he said.
  • Brussels says Greece's public debt will rise from 99pc of GDP in 2008 to 135pc by 2011, without drastic cuts. (US fast approaching 100% WITHOUT taking into account unfunded liabilities of Medicare and Social Security, at current pace just the budget deficit should be 200% of GDP by the end of the 2010s... again, putting our head in the sand regarding he unfunded liabilites which DWARF the budget deficit)
  • Modern economies have reached such debt levels before, and survived, but never in the circumstances facing Greece. "They can't devalue: they can't print money," said Mr Christensen.  ("thankfully" we Americans can reduce the standard of living for our citizens by this action - all hail Ben
  • Greece has long been skating on thin ice. The current account deficit hit 14.5pc of GDP in 2008. External debt has reached 144p (IMF). Eurozone creditors – German banks? – hold €200bn of Greek debt.

Key point below... by being inside the Euro Union, Greece was able to borrow far below where it should.  Instead of taking advantage of that, and paying off debt or realigning the economy, it squandered it by doing even more fiscally irresponsible behavior.  Sound familiar?  Just switch the phrase "by being inside the Euro Union" with "by having the world's reserve currency"....
  • Athens squandered its euro windfall. For a decade, EMU let Greece borrow at almost the same cost as Germany. It was a heaven-sent chance to whittle down debt. Instead, the country dug itself deeper into a hole by running budget deficits near 5pc of GDP at the top of the boom.

And now they are in between a rock and a hard place... especially because they don't have their own central bank to "bail themselves out".
  • Austerity may prove self-defeating, without the cure of devaluation. Greece risks grinding deeper into slump.
  • .... the danger for EMU laggards is that the ECB will begin to tighten before they are out of trouble. It is German recovery that threatens to stretch the North-South divide towards breaking point.
Snap. Crackle. Pop.
  • The EU can paper over this by transfering large sums of money to Greece. (works in America) But will Berlin, Paris – and London, also on the hook – feel obliged to bail out a country that has so flagrantly violated the rules of the club, not least by holding Eastern Europe's EU entry to ransom over Cyprus? That is neither forgotten, nor forgiven.
  • During the panic last February, German finance minister Peer Steinbruck promised to rescue any eurozone state in dire trouble. He is no longer in office. The pledge was, in any case, a bounced political cheque even when he wrote it. Greece can assume nothing.

Thursday, November 26, 2009

Dubai Friday

So much for a sleepy Thanksgiving week Friday... a tiny Black Swan called Dubai reared its ugly head.  There has been some hand wringing in the UK papers about the debt situation in Greece (all of which ignored by giddy US traders who only know 1 trade anymore:. US dollar down, buy anything), so Dubai was a bit out of left field.

You might say Dubai what? Greece who? Small peanuts... but they key is contagion risk.  In the late 90s a small economy (Thailand) caused a series of currency disasters which set the world on fire.  Which ironically was the first real use of power by Alan Greenspan to flood the world with US dollars (outside Black Monday 1987)... a now knee jerk reaction to any crisis. 

I know you laugh here saying "only $60 B!" - that's nothing! Heck that'd 1/3rd of an AIG bailout, or 1/3rd of a Citigroup bailout.  Heck we committed $13 Trillion of US treasure to backstop the global economy. [Mar 31, 2009: Financial Rescue Package Now Totals $12.8 Trillion]  That's how numb we've become to the figures and how epic the use of government/central bank interventions have been in this era... when $60 billion makes many shrug their shoulders.  How far we've "advanced" in a decade.

Anyhow, the solution is easy... just have Ben print $60B and hand it to Dubai for the "betterment of the world"... and if it affects any of our financial oligarchs just print more money to give to them as well.  Problem solved.... after all US dollars are akin to toilet paper nowadays.   In fact S&P futures should be up at least 10% because this insures an even more "extended period of" super low rates.  What happened to the party everyone?

Via Bloomberg:
  • Global financial markets swooned Thursday, with London seeing its most precipitous drop in nearly nine months, a day after Dubai stunned investors with the news that it was asking banks to allow its main investment vehicle, Dubai World, to suspend its debt repayments for six months.Standard & Poor’s 500 Index futures dived 2.2 percent.
  • Dubai World, the government investment company burdened by $59 billion of liabilities, sought to delay repayment on much of its debt
  • The announcement — the global high finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments, presumably because the homeowner was out of cash — sowed fear of a contagion of instability that could roil markets that are only now recovering from the near cataclysm of the last year.
    People are worried about the contagion effect from Dubai,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which holds $75 billion in assets. “Events like this bring back all the bad memories from the global financial crisis. The market has rallied a long way and is very sensitive to any bad news.”
  • Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the first global recession since World War II. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG.
  • Like many Western consumers during the good times, Dubai gorged on debt and borrowed too much to finance a building boom that has gone bust in the downturn. When credit markets froze last year, Dubai, like Iceland, found itself overextended. But Dubai, which has no oil, was backed by its Arab emirate neighbors. At least that is what investors had assumed.
  • The cost of insuring Dubai’s debt against default quadrupled Thursday.
This was one of my 2009 Outlier Predictions [Dec 16, 2008: 13 Outlier 2009 Predictions], but I was focusing mostly on Eastern Europe

#12 Wildcard/Europe: Potential defaults on debt arise in a host of smaller countries - especially of the Eastern European variety. I don't know which ones, but they have been mini U.S.'s, borrowing over and above their head, but unlike the U.S. do not enjoy the fact the entire world rushes into their debt market when a crisis emerges. The opposite will happen - Iceland & Ecuador are just the precursor. Russia, if low oil prices persist, invades another former satellite country both as a nationalistic reason (diversion to the populace from worsening domestic conditions) and to try to light a fire under European natural gas, and/or oil prices.

Keep an eye on Greece for the next one...maybe Ireland too.
  • The cost of protecting Greek and Irish government debt against default jumped on Thursday, according to data monitor CMA DataVision, as debt problems in Dubai fuelled risk aversion.

There is one benefit from this... rather than getting the annual CNBC cheerleading about consumer spending from dark mall parking lots across America, we might actually have some useful discussion tomorrow.

Wednesday, November 25, 2009

Have a Good Thanksgiving Readers

As always thanks for your continued readership... new readers and long time veterans.  I can't believe this is our 3rd Thanksgiving on the blog...time flies.  Hope you have a good holiday.

As an aside, if you haven't noticed in the far right margin I've added a new graphic which shows a "countdown to launch" for the mutual fund.  Ironically most web counters on the internet of similar nature are for baby births, and since we're about 9 months out.... well as I said, it is ironic!  As with any birth we could be off by a few weeks either way - but for now I am setting a rough date of Independence Day 2010, and hopefully the pledges continue to come in at a steady pace in the months to come.  In the meantime, the workload behind the scenes is picking up as preparations for the nursery are causing all forms of labor pains!  I need some ice cream, immediately.

See you on the other side of Thursday.

India Potentially Considering Buying the Other Half of the IMF's 400 Tons of Gold (GLD) for Sale

Early this month it was revealed that India, not China, had surpisingly been the buyer for half of the International Montary Fund's 400 tons of gold for sale.  Not only was that event a bit of a shock, but since China missed out on the first batch, it was assumed that SURELY they would get the second 200 tons for sale.  But it appears India might want that batch as well!

India has already made a mint (pun intended) on their first IMF purchase...
  • Gold climbed to the highest price ever (nominal, not real!), capping the longest rally in 27 years, as the dollar’s slump deepened and on a report that India’s central bank may add to last month’s 200 metric-ton purchase.
  • Gold reached a record $1,189 an ounce and has rallied 13 percent since Nov. 2, after India said it bought bullion from the International Monetary Fund. The country, the world’s largest gold consumer, may buy more from the IMF, the Financial Chronicle reported. U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell to a 15-month low.
  • Gold futures for February delivery climbed $21.20, or 1.8 percent, to $1,188.60 on the New York Mercantile Exchange’s Comex division. Up for a ninth straight session, the most-active contract’s rally is the longest since August 1982.
  • The metal has climbed 14.1 percent this month, heading for the biggest monthly gain since September 1999.
  • The rally has pushed the 14-day relative strength index for futures above the level of 70 viewed by some investors and analysts who follow technical charts as a sign that prices may soon fall. Today’s reading topped 80.

I'm trying not to write story after story about gold, but it is simply dominant right now (part of the reason I am wary as things are starting to get 'parabolic'), and I believe it might be entering a phase here akin to what happened to oil in 2007-2008.  Hedge funds and other institutional money chasing after a very viable thesis (then = Chindia's new middle class is increasing the demand for oil, now = central banking policies are hammering at fiat paper currency) which while based on long term reality is being taken to short term extremes by lemming human action.  Which might be taking prices up from levels that reflect the thesis, and up... up... and away.
  • “There is a lot of central-bank buying, hedge-fund buying and gold is obviously getting to $1,200 an ounce before the end of the year,” David Lee, a trader at Heraeus Precious Metals Management in New York, said in a telephone interview. The metal has climbed 34 percent this year, heading for the sharpest annual increase since 1979.
But do I believe gold will fall at a % akin to $147 to $40 like oil did?  No.  Ben Bernanke's relentless self belief that his way is the only way should prevent that.  As with oil at $110, $120, $130 ... you can scoff but until the momentum train ends, you never know where the psychology will take the price.
  • “Funds and central banks around the world are nervous about the future of the U.S. dollar and the world economy, and that’s why they are buying gold,” Lee said by e-mail. “We’ve reached ‘irrational-exuberance’ levels on many commodities,” including gold and copper, he said.
  • The gold trade is as crowded as a Tokyo subway car at rush hour,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said by e-mail. “This has been a one-way, dollar- carry-fueled street since Sept. 1, and it has seen the market become decoupled from anything resembling its fundamentals ..."
  • “Gold is in uncharted territory as it continues to go ballistic,” Ralph Preston, a Heritage West Futures Inc. analyst in San Diego, said by e-mail.

Speaking of Ben... the dollar is down another 1% today; what a turkey. 

Long Powershares DB Gold Double Long in fund, no personal position

Barry Ritholtz on Yahoo Tech Ticker November 09: A Bad Economy Could Spell Good News on Wall Street for Years to Come

It has been a very typical Thanksgiving week thus far; remember the winning percentage on Wed & Fri around Thanksgiving Thursday is over 80% since 1950.  So the indexes have been up each day this week, and speculative fervor has hit pockets of the small cap universe - the more nonsense the stock, the better.  It's textbook action. All the computers are waiting on.... for now, is the next break over S&P 1112-1113 so we can all pile in like lemmings for the next leg up. The same trade that has been on for 6-7 months... buy the breakout, curse the dollar.  Rinse. Wash. Repeat.


Two nice videos below with Barry Ritholtz, who I always call the "grandfather of financial blogging".  Barry had been very bullish for much of this rally but the breakdown we saw in late October, including the 5-6 intraday reversals we noted had him reconsidering.  But he appears back in full bull mode.  As I keep saying, things that in the past you used as historical guides as warning signs (such as the market behavior in 2nd half October) have been tossed aside as if they don't exist.  So as of November 1st, all our yellow lights were blown to pieces and its effectively been back to (bullish) normal on the major indexes and big caps at least.  Not quite so wonderful in the small/mid cap space as a whole as many stocks are simply treading water or down a bit the past 4-8 weeks.

For those of you new(er) to the stock market, and who cannot reconcile what is happening in the market to what you might see in your everyday life (Main Street economy) I think this first video is very important to watch.  At this current moment we have the perfect Goldilocks stock market... good news means good things, and bad news means easy money forever.  Hence there is no bad news (unless the dollar rallies of course).  Yesterday's Fed statement minutes, which parallels this line of thinking, had me laughing out loud.  They offer "good news" for the future but conclude they still must offer drugs at an epic rate.  Another "have your cake and eat it too" analysis.  They conclude that the economy will grow almost at trend rate (2.5%) as we go forward.  Which sounds great!  But then why do we need record levels of interest rates, purchase programs, and stimulus?  I mean if we are going to almost be "at normal" growth rates why all the morphine?  The other thing that made me laugh is anyone believing in a forecast from these folks who completely missed the bubble, thought the housing market was indeed fine, who thought unemployment would peak below 7% as of 20+ months ago, and who generally are as wrong as the typical CNBC pundit.  I guess past performance means nothing but we still react to their every movement or utterance.

But getting back to Barry's video - we are now reaching the point where the market will not want "too much" good news.  Because the more good news we get, the closer to an end date (in theory) for all the easy money in the economy.  That's how it USED to work anyhow.  I have stated for well over a year now that the easy money will be with us for a very long time as the "real economy" is structurally damaged beyond what most will admit.... and interest rates will not be raised in the entire year of 2010.  A year ago that was laughed at but now it's becoming the consensus... even 3 months ago summer 2010 was assumed to be the first series of rate increases.  Now the first whispers of no rate increases in 2011 are being floated! (oh nirvana!)   So there is even a chance that "good news" won't push the Fed into acting on rates ... even though growth will be back to normal soon (wink wink).  Talk about a perfect world for Wall Street.

As for the second video, Barry agrees with much of what my views have been on housing as well.  Until any form of reality returns to mortgage rates, and the government begins to finally step away from subsidizing every step of the housing process we will not have a true bottom.  That said, many "temporary" government programs never cease to go away, so our new normal might be a permanently subsidized housing market.  Speaking of, as of this week, the Fed has successfully pushed mortgage rates back to their all time lows.  Rejoice.  When I see mortgage rates back over 6.25% or so, and then see the effect on housing prices - I'll be more inclined to start talking bottoms.  At this rate that may be 2013.  But from here I expect a less dramatic housing market, that begins to become more regional in nature (i.e. back to normal) and the drops in pricing less so than we saw in 07-09.  We are still above where we need to be in pricing, but affordability now is a reality as opposed to the Fed induced bubble of mid decade - prices are much closer to my targets from 2 years ago, but are still above what they would be without all the government/central bank backstopping. [Dec 2007: What Should Median Home Prices be Today?]

On to the videos:

1) A Bad Economy Could Spell Good News for Wall Street for Years to Come

The economic recovery isn't as strong as first thought. Revised GDP figures released this morning show the economy grew at a 2.8% annualized pace in the third quarter, less than the 3.5% initially reported. The revision was in-line with expectations but shows the economy didn't have as much momentum heading into the fourth quarter as previously believed.

Unlike Wall Street traders, consumers seem to know the recovery is "anemic," as Barry Ritholtz, CEO of Fusion IQ, describes it. The Conference Board's latest confident survey shows Americans feel worse about the current economic situation than they did in March, when the stock market was making new lows. (Thanks to Dan Greenhaus of Miller Tabak for pointing this out this last fact.

Yet, stocks are still near their highs of the year.

What's driving the disconnect between Wall Street and Main Street.

Ritholtz says it's a classic example of bad news being good news on Wall Street. "We're in a cycle that's not based on profitability, not based on expanding economy but based on all sorts of government supports," he says. "Bad news is going to be good news for the next couple of quarters probably."

That's because low interest rates and liquidity provided by the Federal Reserve, coupled with government stimulus are enticing traders to buy into the market. "Cash is trash," says Rithotlz, who remains bullish on stocks.

Ritholtz is confident that eventually fundamentals will prevail and thinks the market will take a hit once the economy shows signs of improvement, meaning the "extraordinary" stimuli can be removed.

But predicting the timing is anyone's guess. "You could have this disconnect that goes on for not days, weeks or months but years and years," he says.

So, in the meantime, Ritholtz – who correctly predicted the 2008 crash and told Tech Ticker's audience "the mother of all bear market rallies," was upon us in March - is still long stocks and likes commodities (thanks to a weak dollar) and emerging markets.

2) Housing Bottom? "Not Even Close" Says Ritholtz

A fifth-straight monthly gain for the Case-Shiller Index Tuesday and Monday's stronger-than-expected existing home sales report is giving renewed hope to the housing bulls.

"Disregard them," says Barry Ritholtz, CEO of Fusion IQ, who notes the existing home sales number was juiced by sales of cheap condos and various government programs. Meanwhile, the Case-Shiller results were below expectations.

We are "not even close" to a bottom in housing, says Ritholtz, who estimates national house prices remain 15-20% overvalued, based on the traditional metrics of: median income-to-median sales price, the cost of owning vs. renting, and housing stock as a percent of GDP.

"Until we start seeing a healthy housing market that can stand on its own, without government props, without distressed properties selling 60% off peak levels - that's how you know the bottom is in," says the blogger and Bailout Nation author.

The likely best-case-scenario for housing is several years of sideways action for prices, wherein population growth and a firmer economy combine to sop up the still huge inventory of homes on the market.

"And that's if we're lucky," Ritholtz says, citing the lackluster environment for jobs and wages, as well as CoreLogic's analysis that 23% of all U.S. mortgage holders are under water, as reported in The WSJ. With so many Americans owing more money than their homes are worth, the recent rise in foreclosures and so-called jingle mail is "not nearly done," he warns.

In sum, expect more homes for sale at distressed prices and more downward pressure on prices overall -- unless the "real" economy shows dramatic improvement, which Ritholtz doesn't see anytime soon

[Nov 8, 2009: Barry Ritholtz Shreds Warren Buffet]
[Aug 21, 2009: Barry Ritholtz Aug 09 Views on Yahoo Tech Ticker]
[Mar 13, 2009: Jon Najarian, Todd Harrison, Barry Ritholtz all Bullish (for now)]

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