1) A new wrinkle has developed in the housing crisis. Loans have been sold so many times that banks are unable to foreclose because they can't find the original loan documentation. This could affect up to 40% of the anticipated 1.5 million foreclosures in 2008. New businesses like youwalkaway.com have sprung up to help borrowers head off foreclosures by finding deficiencies in the?? disclosures in the original loan documentation. Some 19% of home mortgages in the US, or $2.1 trillion, have been securitized.
2) Another economic indicator: MGM Mirage says that middle market gamblers have been drying up because of the high price of gas to get to Las Vegas and economic worries. High end gambling and foreign gamblers continue strong, as is the management of foreign casinos like in Dubai. Yet another industry that sees all of its future growth in the overseas markets.
3) Here is another extreme anomaly in the market. Crocs, the maker of the world's ugliest shoes, has seen earnings rise 147% in the past year. But the stock has fallen from $75 to $26 since June because investors are shunning all high end discretionary consumer stocks and is now at eight times next year's earnings. Put it on your watch list.
4) Another one of these is Garmin, maker of navigational devices. Earnings are up 65% but the stock is down 50%. The company has spent $350 million on R & D in the last three years so there are many highly profitable products in the pipeline.
5) Merrill Lynch put out a report predicting that the residential real estate market will fall another 25% by the end of 2009. Freddie Mac, Fannie Mae, and the home builders got slammed.
6) Rumors of a bailout of mortgage insurer Ambac in the last 30 minutes of the day. The market rallied 250 points in 30 minutes.
THOUGHT FOR THE DAY
With commodity prices as high as they are now, inflation will rocket when the economy comes out of the recession next year. The best way to play this is to short long bonds. If the 30 year goes from a 4% yield to an 8% yield, which they may do over the next three years, the underlying price of the bond will drop by half. Zero coupon bonds could drop by up to 80%. We are already seeing the beginnings of this trade now. Last June the yield curve was virtually flat with two year and 30 year paper yielding close to 5%. Now two year paper is at 1.9% with the 30 year at 4.4%. This curve steepening trade is now a major trade for hedge funds.
1) A new wrinkle has developed in the housing crisis. Loans have been sold so many times that banks are unable to foreclose because they can't find the original loan documentation. This could affect up to 40% of the anticipated 1.5 million foreclosures in 2008. New businesses like youwalkaway.com have sprung up to help borrowers head off foreclosures by finding deficiencies in the?? disclosures in the original loan documentation. Some 19% of home mortgages in the US, or $2.1 trillion, have been securitized.
2) Another economic indicator: MGM Mirage says that middle market gamblers have been drying up because of the high price of gas to get to Las Vegas and economic worries. High end gambling and foreign gamblers continue strong, as is the management of foreign casinos like in Dubai. Yet another industry that sees all of its future growth in the overseas markets.
3) Here is another extreme anomaly in the market. Crocs, the maker of the world's ugliest shoes, has seen earnings rise 147% in the past year. But the stock has fallen from $75 to $26 since June because investors are shunning all high end discretionary consumer stocks and is now at eight times next year's earnings. Put it on your watch list.
4) Another one of these is Garmin, maker of navigational devices. Earnings are up 65% but the stock is down 50%. The company has spent $350 million on R & D in the last three years so there are many highly profitable products in the pipeline.
5) Merrill Lynch put out a report predicting that the residential real estate market will fall another 25% by the end of 2009. Freddie Mac, Fannie Mae, and the home builders got slammed.
6) Rumors of a bailout of mortgage insurer Ambac in the last 30 minutes of the day. The market rallied 250 points in 30 minutes.
THOUGHT FOR THE DAY
With commodity prices as high as they are now, inflation will rocket when the economy comes out of the recession next year. The best way to play this is to short long bonds. If the 30 year goes from a 4% yield to an 8% yield, which they may do over the next three years, the underlying price of the bond will drop by half. Zero coupon bonds could drop by up to 80%. We are already seeing the beginnings of this trade now. Last June the yield curve was virtually flat with two year and 30 year paper yielding close to 5%. Now two year paper is at 1.9% with the 30 year at 4.4%. This curve steepening trade is now a major trade for hedge funds.
1) The Architectural Design Services index fell sharply in January from 55 to 50. The boom, bust level is 50. Below 50 means that more business is being completed than there is new business coming in. This is the second consecutive quarterly decline. A drop in architectural services is followed by a decline in commercial construction activity nine months later. Overall, commercial real estate construction grew by 13.2% in 2007, but no growth at all is expected in 2008. There especially has been a fall off in spec properties as financing for these has dried up. Time to renegotiate the presidio winery construction contract?
2) Whenever oil hits a benchmark a bunch of interesting data spews out. The US has 5% of the world's population but is using 25% of the world's oil. Global oil production is 85 million barrels a day and is not expected to rise much from there. At $100 a barrel the US is paying $500 billion a year to foreigners to buy oil, most of whom hate us.
3) Boone Pickens said he is shorting oil over $100 with a Q2 target of $85. I have been following this guy since the early eighties when I met him while working at Morgan Stanley on an oil company merger. I have never known him to be wrong about oil. (Remember the Pacman mergers when it was cheaper to prospect for oil on the floor of the NY stock exchange than in the field?)
4) Oil has become the safe haven asset. Instead of a flight to the dollar in times of uncertainty, you are now getting a flight to oil. There is great reluctance by foreigners to go into dollar denominated assets now.
4) All time highs today in oil, gold, palladium, platinum, coal, iron ore, and bulk shipping. Stocks and bonds are dead.
5) The CEO of Hovnanian, a major home builder,?? came out and said that the housing market will recover at the end of 2008. Wishful thinking.
1) The Architectural Design Services index fell sharply in January from 55 to 50. The boom, bust level is 50. Below 50 means that more business is being completed than there is new business coming in. This is the second consecutive quarterly decline. A drop in architectural services is followed by a decline in commercial construction activity nine months later. Overall, commercial real estate construction grew by 13.2% in 2007, but no growth at all is expected in 2008. There especially has been a fall off in spec properties as financing for these has dried up. Time to renegotiate the presidio winery construction contract?
2) Whenever oil hits a benchmark a bunch of interesting data spews out. The US has 5% of the world's population but is using 25% of the world's oil. Global oil production is 85 million barrels a day and is not expected to rise much from there. At $100 a barrel the US is paying $500 billion a year to foreigners to buy oil, most of whom hate us.
3) Boone Pickens said he is shorting oil over $100 with a Q2 target of $85. I have been following this guy since the early eighties when I met him while working at Morgan Stanley on an oil company merger. I have never known him to be wrong about oil. (Remember the Pacman mergers when it was cheaper to prospect for oil on the floor of the NY stock exchange than in the field?)
4) Oil has become the safe haven asset. Instead of a flight to the dollar in times of uncertainty, you are now getting a flight to oil. There is great reluctance by foreigners to go into dollar denominated assets now.
4) All time highs today in oil, gold, palladium, platinum, coal, iron ore, and bulk shipping. Stocks and bonds are dead.
5) The CEO of Hovnanian, a major home builder,?? came out and said that the housing market will recover at the end of 2008. Wishful thinking.
1) In the last bear market we had six false rallies of 5% over an 18 month period. Then the market was discounting both the dot com bust and 9/11. We are four months into this bear market and so far we have had two false rallies. The main driver has only been changing accounting standards. Actual defaults on sub prime loans are not enough to give this bear market legs. We need a completely new, out of the blue crisis if this bear market is going to be as long lived as the last one.
2) China is losing an average of $4 billion a month on its treasury holdings because of the weak dollar. The next big leg down in the dollar will be triggered by China's move to diversify away from the US currency as a reserve asset, possibly sometime after the Beijing Olympics. Euro could go to $1.60 on this.
3) Goldman Sachs has fallen from $250 to $170 and is now selling for seven times earnings and is getting tempting. This is the only major firm that made a profit off of the sub prime crisis.
4) Commercial real estate prices have dropped about 15% from last year's peak. They are not expected to drop further as long as income streams are maintained at current levels which they will as long as the recession remains a short one.
5) Natural Gas over $9 today, my home run recommendation of the month. It is up 20% from my entry point 4 weeks ago.
6) Harry Macklowe is selling the GM Building on 5th avenue in Manhattan which he bought in 2003 for $1.4 billion. A bidding war has broken out with three players coming in with bids over $3 billion, or more than $1,500 a square foot. While this is far in excess of the market for this type of property, it shows the degree to which trophy properties are commanding premiums to the market.
THOUGHT OF THE DAY
There is a massive flight to liquidity going on. Hedge funds are dumping every kind of bond, afraid that market will close and trap them, and pouring the cash into all commodities. Oil is being dragged up by gold, palladium, copper and the grains. This is all being financed by the Fed rate cuts, which in trying to deal with one bubble (Housing) they are merely creating another (Commodities).
1) In the last bear market we had six false rallies of 5% over an 18 month period. Then the market was discounting both the dot com bust and 9/11. We are four months into this bear market and so far we have had two false rallies. The main driver has only been changing accounting standards. Actual defaults on sub prime loans are not enough to give this bear market legs. We need a completely new, out of the blue crisis if this bear market is going to be as long lived as the last one.
2) China is losing an average of $4 billion a month on its treasury holdings because of the weak dollar. The next big leg down in the dollar will be triggered by China's move to diversify away from the US currency as a reserve asset, possibly sometime after the Beijing Olympics. Euro could go to $1.60 on this.
3) Goldman Sachs has fallen from $250 to $170 and is now selling for seven times earnings and is getting tempting. This is the only major firm that made a profit off of the sub prime crisis.
4) Commercial real estate prices have dropped about 15% from last year's peak. They are not expected to drop further as long as income streams are maintained at current levels which they will as long as the recession remains a short one.
5) Natural Gas over $9 today, my home run recommendation of the month. It is up 20% from my entry point 4 weeks ago.
6) Harry Macklowe is selling the GM Building on 5th avenue in Manhattan which he bought in 2003 for $1.4 billion. A bidding war has broken out with three players coming in with bids over $3 billion, or more than $1,500 a square foot. While this is far in excess of the market for this type of property, it shows the degree to which trophy properties are commanding premiums to the market.
THOUGHT OF THE DAY
There is a massive flight to liquidity going on. Hedge funds are dumping every kind of bond, afraid that market will close and trap them, and pouring the cash into all commodities. Oil is being dragged up by gold, palladium, copper and the grains. This is all being financed by the Fed rate cuts, which in trying to deal with one bubble (Housing) they are merely creating another (Commodities).
1) Sony won the format war with its blue ray DVD's. The final nail in the coffin was Walmart's announcement last week that it will no longer carry Toshiba's rival HD-DVD format machines. This is the first time that Sony has won one of these wars. Remember Betamax?
2) Credit Suisse announced $2.8 billion in write downs because of 'mispricing' by traders. 'Mispricing' is Swiss German dialect for ?rogue trading?. The market has become inured to these announcements so no sell off today.
3) Under the Fed's TAF program it has loaned $50 billion directly to European banks in February so far, and $200 billion since the program started in December. The Fed has morphed into the de facto European central bank. This will eventually be highly inflationary.
5) The crisis in the Auction Rate Securities market spilled over into every corner of the corporate debt market at the end of last week, from triple 'A' corporates to junk. More credit spread repricing which in the long term can only be good for investors, especially those with new money. Stocks are being supported by a flight to quality bid as investors shun any kind of debt instrument as fallout from sub prime.
6) Treasury bond prices fell off a cliff today. I recommended you sell all bonds when the 10 year yield was 3.22% in January. It is now 3.85%. If you have any bonds left anywhere please, please sell them. They will go down a lot more when real inflation hits next year.
7) If you remember my S & P 500 1200-1450 short strangle recommendation in January, it expired out of the money on Friday with the index at 1,352 for a total profit of 5% plus. You could put the same trade on now and take in another 5% over the next four weeks. The total profit on this would be $200,000 on $2 million in capital over two months.
8) There are rumors that Lehman Brothers is about to announce large losses in real estate lending. A rogue commercial real estate department??? 'Lehman lied' isn't exactly something they'd like to read in the papers these days.
THOUGHT OF THE DAY
The US is setting itself up for a serious bout of stagflation from next year. We will be coming out of this recession with oil in the $60s-$70s and most other commodities at all time highs, so imagine what inflation will do when the economy recovers. Yet housing will still be a major drag on the market for a couple of years. The last time this happened was during the seventies, which no so coincidentally was the last time the US lost a war.
1) Sony won the format war with its blue ray DVD's. The final nail in the coffin was Walmart's announcement last week that it will no longer carry Toshiba's rival HD-DVD format machines. This is the first time that Sony has won one of these wars. Remember Betamax?
2) Credit Suisse announced $2.8 billion in write downs because of 'mispricing' by traders. 'Mispricing' is Swiss German dialect for ?rogue trading?. The market has become inured to these announcements so no sell off today.
3) Under the Fed's TAF program it has loaned $50 billion directly to European banks in February so far, and $200 billion since the program started in December. The Fed has morphed into the de facto European central bank. This will eventually be highly inflationary.
5) The crisis in the Auction Rate Securities market spilled over into every corner of the corporate debt market at the end of last week, from triple 'A' corporates to junk. More credit spread repricing which in the long term can only be good for investors, especially those with new money. Stocks are being supported by a flight to quality bid as investors shun any kind of debt instrument as fallout from sub prime.
6) Treasury bond prices fell off a cliff today. I recommended you sell all bonds when the 10 year yield was 3.22% in January. It is now 3.85%. If you have any bonds left anywhere please, please sell them. They will go down a lot more when real inflation hits next year.
7) If you remember my S & P 500 1200-1450 short strangle recommendation in January, it expired out of the money on Friday with the index at 1,352 for a total profit of 5% plus. You could put the same trade on now and take in another 5% over the next four weeks. The total profit on this would be $200,000 on $2 million in capital over two months.
8) There are rumors that Lehman Brothers is about to announce large losses in real estate lending. A rogue commercial real estate department??? 'Lehman lied' isn't exactly something they'd like to read in the papers these days.
THOUGHT OF THE DAY
The US is setting itself up for a serious bout of stagflation from next year. We will be coming out of this recession with oil in the $60s-$70s and most other commodities at all time highs, so imagine what inflation will do when the economy recovers. Yet housing will still be a major drag on the market for a couple of years. The last time this happened was during the seventies, which no so coincidentally was the last time the US lost a war.
1) Target (TGT) is now looking like a potential takeover candidate. When I have time I troll through 13-F filings looking for recent share accumulations. These are public disclosures filed with the SEC by hedge funds with over $100 million in assets. Five major hedge funds have started building large stakes in Target, including Eddie Lampert who took over Sears a few years ago. The stock was already on my 'buy' list as a cheap, early cyclical retailer. The stock has fallen from $70 to $45 since June. Earnings have fallen by 2/3 in a year, but will triple in any recovery. Look for the share price to double in two years. Home Depot is another one of these.
2) Sub prime interest rate resets, now running at $40 billion a month will go to zero by the end of the year. Outstanding loans will either refi in the current low interest environment or go into default this year. After that the problem will be gone.
3) The US?? population is growing by 3 million a year, or 1.2 households. Housing starts can't fall below a 1.2 million annual rate for very long or people will have to start living in cardboard boxes under freeway overpasses.
4) Consumer confidence came in this morning at the lowest level since 1992.
5) Money is now cheap but unavailable. The Fed has cut interest rates by 2.25% since August, but triple 'A' rated State of California tax free bond yields have risen from 4% to 10% as of yesterday.
6) China is building a new electric power plant every 4 days. The recession for them means growth slowing from 11% to 8%.
7) Oil is above $96 this morning, not exactly anticipating a recession. OPEC is meeting in early March and many are expecting production cutbacks. They are clearly trying to manipulate the price higher. Sell oil, buy natural gas and coal!
8) 50% of all new venture capital spending is going into start ups creating clean energy sources, a radical change since the nineties. If even just one out of ten of these companies becomes successful the US could become energy independent within 20 years.
9) Financial markets closing early today. The rush to get out of Dodge has started.
1) Target (TGT) is now looking like a potential takeover candidate. When I have time I troll through 13-F filings looking for recent share accumulations. These are public disclosures filed with the SEC by hedge funds with over $100 million in assets. Five major hedge funds have started building large stakes in Target, including Eddie Lampert who took over Sears a few years ago. The stock was already on my 'buy' list as a cheap, early cyclical retailer. The stock has fallen from $70 to $45 since June. Earnings have fallen by 2/3 in a year, but will triple in any recovery. Look for the share price to double in two years. Home Depot is another one of these.
2) Sub prime interest rate resets, now running at $40 billion a month will go to zero by the end of the year. Outstanding loans will either refi in the current low interest environment or go into default this year. After that the problem will be gone.
3) The US?? population is growing by 3 million a year, or 1.2 households. Housing starts can't fall below a 1.2 million annual rate for very long or people will have to start living in cardboard boxes under freeway overpasses.
4) Consumer confidence came in this morning at the lowest level since 1992.
5) Money is now cheap but unavailable. The Fed has cut interest rates by 2.25% since August, but triple 'A' rated State of California tax free bond yields have risen from 4% to 10% as of yesterday.
6) China is building a new electric power plant every 4 days. The recession for them means growth slowing from 11% to 8%.
7) Oil is above $96 this morning, not exactly anticipating a recession. OPEC is meeting in early March and many are expecting production cutbacks. They are clearly trying to manipulate the price higher. Sell oil, buy natural gas and coal!
8) 50% of all new venture capital spending is going into start ups creating clean energy sources, a radical change since the nineties. If even just one out of ten of these companies becomes successful the US could become energy independent within 20 years.
9) Financial markets closing early today. The rush to get out of Dodge has started.