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  • AIG Now Fed's Vehicle for Buying Toxic Assets
    This is a GREAT article. While I hadn't thought about it like the author has, I think he's "bang on" (my wife's British).

    But unlike the author, I don't own AIG stock, and here-in lies the rub; I think the Fed is "bang on" too. (Please read-on before voting me down!)

    I use to cover insurance companies for the institutional buy-side. AIG was simply the ONE stock that EVERY investment/fund manager HAD TO OWN. As recently as a year ago, 900 funds owned AIG stock.

    Today that number is STILL (amazingly) 473. I looked at all the other big insurance companies in Investor's Business Daily's database, and even more amazingly, it IS STILL the widest held insurance company by my count (nudging out Met by 10). And FYI, looking back at Dec '07, no other insurance company came even close to AIG's 900 funds (HIG had 519 fund owners).

    The author seems critical of the FED's manuvering within AIG, but the Fed didn't run AIG into the ground. Regrettably, I can't answer who did, but while "Hank" Greenberg is complaining about AIG's current management, he was at the helm when the ship was turned toward land (ergo, before "running aground").

    Why did AIG veer toward land? It was where many of the other "must own insurance stocks" lived, such as MGIC, Ambac, MBIA, etc. All the mortgage insurers and municipal bond insurers "printed money" when I was a buy-side analyst, so investment firms also had to own them (if they could; collectively the market caps were often too small). Municipals essentially "never" defaulted (ok, "Woops"?) and mortgage insurers rarely lost money when borrowers were still required to put down 5% and home prices "never declined".

    I don't think that AIG invented CDOs, but they became the Titanic ship sunk by them. Perhaps AIG would simply have been better off buying MBIA, Ambac, etc.?

    So I've been worried that the Fed said the purpose of the TARP was to buy distressed assets. Then the Fed seemed to say there was no way to place a value on those distressed assets so it was going to "invest" the money directly in the troubled banks. Meanwhile, the government's investment in/loan to AIG reached levels that are essentially one-quarter of the TARP.

    I was outraged, thinking that the Fed was bailing out this single company while letting Lehman fail and "wasting" the TARP money on banks that weren't lending the money (except that they are lending it back to the Fed by buying bonds or, worse, buying other troubled banks so that they become "even too bigger to fail").

    Thus I want to thank the author for pointing out to me that the Fed is using TARP funds in the originally stated manner, albiet it is cloaked in the veil of AIG. The Fed IS BUYING distressed assets, just not directly.

    Perhaps it could have done a better job, as the author notes about Ambac and MBIA, but I think the real problem is the Fed didn't feel it had the luxury of time because, apparently, AIG really is too big to fail (and perhaps this is a "Lehman lesson"). And valuing these extremely complex (CDO) assets really would take a lot of time.

    When the author says "... the Fed may lose it's 79.9% investment", it sounds disingenuous, more like the author is worried about losing his investment in AIG. From my perspecitve, AIG is dead and gone, and it is a shame (and was a sham!). AIG WAS a "must own" stock in my day, but now, in my humble opinion, it is a "must avoid" stock.

    As for THIS Fed, it didn't cause the problem (it was Greenspan's Fed that let the credit bubble get out of hand). From this article, I now surmise that THIS Fed is doing a better job than I figured, which is ironic: I've essentially moved to all cash and for the first time ever, I've been considering buying gold. This article actually reassures me a (small) bit.

    Now if the Fed would just say it... "We ARE buying distressed assets, it's just we're using AIG to do it."
    Dec 28 00:16 am |Rating: 0 0 |Link to Comment |View article
  • The Economic Meltdown: Dismantling, Yes; Doom, No
    "...after a largely household-related bubble burst.

    But to answer the question “why” the answer is plain and simple: the war."
    ======================...
    War is generally the culmination of larger, multi-generational cycle(s) that occur(s) over a very long span. War is NOT Chap 1 as the author believes, it's Chap 4:

    The author picked the wrong Russian, he should have picked Stalin's "1st economist", Nikolai Kondratieff, who pointed out these long cycles based on "accumulation and consumption": From the site below: "...what the Kondratieff wave is about is a study of long cycles of debt buildup and repudiation."

    www.kwaves.com/kond_ov...

    The "K-wave" explained, "succinctly"...

    "Chap 1": Post WW2 we had a huge period of wealth building in America, based on the "accumulation&quo... of wealth (savings).
    Chap 2: This expansion leads to higher prices (inflation) and then stagflation (collectively the "70's"). This results in...
    Chap 3: Society shifts from savings to consumption (80's and 90's), until the consumption results in an unsustainable level of debt.
    Chap 4: Then the corresponding debt-related bubbles burst, starting with tech-bubble and then the housing bubble, but in essense, it is the credit/consumption bubble that it bursting.

    Wars often occur in this last stage (Chap 4), but thankfully, the "bubble-phase&quo... (Chap 3) often brings the innovation that leads to the next boom (the new Chap 1).

    This article had ONE redeeming aspect: It pointed me to Fred Wilson's (and Tom Friedman's articles). Whether Fred Wilson knows it or not, he is describing the K-wave "Chap 4 + Chap 1", which (economist) Joseph Schumpeter rightly described as "Creative Destruction". The Internet IS changing the world, just as railroads/phones/autom... did at the ending and starting of the last K-wave.

    I do fear there will be further downside (economic and market) to this "Chap 4", but as Friedman hopes, there will be a lot of creation out of this destruction. I just hope Obama helps it start sooner rather than hinder it to make it start later.
    Dec 27 14:26 pm |Rating: +1 0 |Link to Comment |View article
  • Enlightening the Gold Bugs
    On Dec 24 11:03 AM huangjin wrote:
    > Time. Unless you give me a time frame, I cannot assess your argument.
    > I think gold and the dollar could rally for several months and even
    > years, but once the economy recovers, inflation will return and gold
    > will pull away.

    FYI:
    from John Murphy, the "one who wrote the books on technical analysis":
    (p. 419m "TA of Fin Mkts" 1999 and elsewhere)
    "... the prices of gold and the U.S. dollar usually trend in opposite directions."
    Dec 24 12:05 pm |Rating: +1 0 |Link to Comment |View article
  • Enlightening the Gold Bugs
    On Dec 24 09:05 AM unwired wrote:
    > LOL. Love it. So the dollar was 'devalued' in the 30's by fixing
    > it to gold at $35? Good thing we did that....otherwise gold may have
    > gone to zero!

    I might be wrong, but your attitude implies you think this is not devaluing?

    If you can take $21 in "paper" and buy an once of gold, but the next day the government says it will cost you $35, you HAVE DEVALUED the paper money because it now takes more of it to buy gold.

    The reason the government does this is because, typically, it has a lot of "paper" debt. If the paper is devalued, the debt is devalued. What is the government doing now? Issuing a lot of paper debt!

    MORE IMPORTANTLY, the author is essentially saying "we're having deflation" so why is gold going to go up. Here's an excellent "deflation 101" article that will educate him (is short, gvt tries to stop deflation by printing money, which makes people lose confidence in paper money so they rapidly spend it buying hard assets):

    How Deflation Creates Hyperinflation
    By Eric deCarbonnel...

    www.dollardaze.org/blo...
    Dec 24 11:57 am |Rating: +4 -1 |Link to Comment |View article
  • Hedge Fund Redemptions May Crash Q1 Markets
    "I told you so" (follow up to earlier comment)...

    Today Cerberus Partners announced that it was returning ONLY 20% of the amount of investor redemptions (it has the right to limit redemptions)and is suspending redemptions for up to one year.

    So, as I said, some gates are up to two years - Cerberus just lowered it's one-year gate.

    Also, like I said, Cerberus does not want to liquidate at what it believes are "unusually depressed prices". It had, in fact, just made a big bet on mortgages in Sept and while it admits it is wrong, it still believes the prices are too cheap to sell.

    One thing I did NOT know: it doesn't even have to meet the redemption requests - ergo, it's giving 20% of the request and locking up the rest.

    So I seriously doubt hedge fund requests will crash the market.

    Note: I am worried that the Dow could hit the one or both of the next support zones, which I gauge around 6,000 and then 4,000, but I have no idea what might cause it (and I'm sticking by the logic in an old economist joke - "If you give 'em a number, don't give 'em a date; if you give 'em a date, don't give 'em a number."),
    Dec 23 14:11 pm |Rating: 0 0 |Link to Comment |View article
  • Hedge Fund Redemptions May Crash Q1 Markets
    On Dec 22 10:33 AM RCA wrote:

    > I'm not up to speed on hedge funds, so excuse me if this is a silly
    > question.
    >
    > When hedge funds receive redemption requests, does that obligate
    > them to sell holdings immediately? Or can they cover the redemptions
    > with cash on hand and sell when the timing is more beneficial to
    > them?
    >
    > I'm just wondering if all of the YE selling is done, even though
    > all of the YE redemptions are done.

    1) While hedge funds could cover with cash if they had it, most don't normally sit on a lot of cash, so with 45-90 day advance notice required, most of the selling should have been done.
    2) Someone mentioned gates prevented selling and therefore selling would resume in Q1. It depends upon the "gate: I've read where some funds have "two year" gates, so look for those funds to resume selling in Oct 2010, if they need to sell then.
    3) There is apparently more than one aspect to the "safe haven" angle of the T-Bills/short T-Bonds. Some hedge fund managers have said they've liquidated what they could (ie, more than needed) and invested the rest in US Bills/bonds so that if they get additional re"dump"tion... they can sell the T-Bills rather than liquidate illiquid assets at what they view as unusually depressed prices.
    4) There is "cash on the sidelines" (see 3). Even if the hedge funds don't have it, customers do. Sooner or later the fear (or recession or depression) will be over and whatever cash is out there will flow back to assets. This is especially true if the dire predictions of future inflation become true, although the assets being bought will be "hard assets".

    There may be other reasons for a crash, but I'm afraid Mr. Copper's horse hasn't just left the barn, it died of old age, because in the speed of this market, hedge fund redemptions isn't "yesterday's news", it's last years.
    Dec 22 17:28 pm |Rating: +3 0 |Link to Comment |View article
  • Constellation Energy Group: Reasons Behind the Sell-Off
    "Me thinks you think too much." The deal with EDF was obviously NOT very appealing because the stock never really moved on it (and I'm not a bear on it; I was long and bought more).

    I think CEG dropped because

    1) Moody's/S&P downgraded the company.
    2) CEG is looking to cut the 8% dividend 50-60%.

    So what you're left with is a company with a management that screwed up in the first place. I don't know what it's worth, I don't know what to do with my stock, and this uncertainty is certainly another factor in the stock's drop (Wall Street hates uncertainty).
    Dec 19 11:25 am |Rating: 0 0 |Link to Comment |View article
  • SPDR Gold Shares ETF Hits Record High Inventory
    What inventory?

    Read the article below to reach your own conclusion, but in short, the Bank of England is a central keeper of gold bullion; however, the BoE does NOT let auditors into the vault. So... "trust me" :-)

    www.safehaven.com/arti...
    Dec 18 11:13 am |Rating: +1 0 |Link to Comment |View article
  • CEG Parts with Buffett without Shareholder Approval
    "Shareholders were nevertheless likely to be overall positive on the deal given previous opposition to the MidAmerican $26.5 bid as being too low."

    That's what I thought but the stock sold off hard, an expensive lesson. What I did not anticipate is that as part of this deal, the rating agencies would downgrade the company and CEG would cut it's dividend.
    Dec 18 09:08 am |Rating: 0 0 |Link to Comment |View article
  • Ratio of Oil to Natural Gas Falls
    The well-known commodity newsletter writer Dennis Gartman also recommended a long natural gas, short oil position (implied by Bespoke). There's only one problem: UNG and USO are both hard-to-borrow and there are not any decent alternatives that I can find (let me know if you have them). So unless you're trading commodity futures, the article doesn't help make me any money.
    Dec 15 10:37 am |Rating: 0 -1 |Link to Comment |View article
  • Put Your Money Where Gold Might Be
    Great chart Brad. Is there somewhere I can see a longer term one?

    You'll also need a couple and a half more charts - a picture tells a thousand words - to match this 3500 word "thesis" on gold and why it should explode:

    seekingalpha.com/artic...
    Dec 10 01:21 am |Rating: 0 0 |Link to Comment |View article
  • Comparing China and the Dry Baltic Index
    Good point "Tom" (Dec 08 11:28 AM huangthomas wrote...)

    Conversely, Richard said "The number of cargo ships can and does fluctuate to moderate swings in the index, but not rapidly..."

    KEY POINTS: "MODERATE SWING" and "BUT NOT RAPIDLY."
    Ships take years to plan and build, therefore they cannot respond rapidly as Richard points out; however, Richard fails to consider that the current supply of ships, or more aptly, the current "ships in the pipeline" are due to the extreme high in the BDI of the prior two years (before the "NOT-MODERATE&quo... crash).

    Over the last 2 years, around 50-million tons have been added to a fleet capacity of about 400-mm tons, BUT IN 09-10 almost 200-mm tons are due to come into service. This represents an almost 50% increase in capacity. I found it hard to believe these figures, which come from a paid stock service, so I did a search and found a presentation from Maersk, the worlds largest shipper. .

    www.temsb.com/assets/j...

    So Maersk confirms an almost 50% increase in capacity vs growth in demand of about 9% for container ships (slide 11). Bulk or not, high BDI begots high capacity expansion. And high shipping capacity expansion with a slight slowing in demand has begot a huge cratering in the BDI.

    Thus I think it's a leap to attempt to correlate the FXI with the BDI, perhaps as a big a leap as off the BDI high!
    Dec 08 19:26 pm |Rating: +2 0 |Link to Comment |View article
  • Answering Readers' Questions: Shorting the 5-10-20 Trading Strategy
    "I only trade leveraged funds from ProFunds, Rydex, and Direxion, where there are no transactions costs or slippage"...

    So you BUY at the bid and SELL at the ask? You must be a market maker. I'm not.

    If you simply put out a limit order, say a buy at the current bid (or vice versa), this is still NOT frictionless. It's simply the prudent use of limit orders. The ONLY WAY THERE IS NO SLIPPAGE IS IF THE BID-ASK SPREAD IS ALWAYS ZERO. It's not!
    Dec 05 16:15 pm |Rating: 0 0 |Link to Comment |View article
  • Earnings Quality: Why It's So Important Now and Which Stocks Are Suspect
    Is PWND reference suppose to be NDAQ!!!!!!!!!!!!!!!!!!...
    Dec 03 12:24 pm |Rating: 0 0 |Link to Comment |View article
  • Testing the 5-10-20 Trend-Following Strategy
    BEWARE?

    If you've never worked with mechanical trading strategies, something like this analysis looks great.... on paper. A lot can depend on what you ASS-U-ME: How much capital is required? What is the commission rate? What the slippage (difference between model "buy" and "actual buy", which can depend on both the bid-ask spread and timming differences between the model and actual)?... etc. Also, how are the returns distributed (which impacts the Sharpe Ratio)?

    I attempted to produce the "equity curve" chart using this methodology in TradeStation, one of the best known software packages capable of programming mechanical trading strategies. My equity curve was not "as pretty".

    In essence, my results showed a profit since 1971 of ~$3500, but importantly, 2 trades in the late 1990's generated $2,100 of the $3,500. Consequently, the equity curve I produced was "unimpressive&quo... EXCEPT the POP due to these 2 trades.

    The "annual rate of return" depends on the capital you say is required. I said $110 (Ndx composite in 1971) and the return was about 9.2%, better than the ~7% buy and hold, but not much better considering trading costs (commission, slippage). Notably, the Sharpe Ratio TradeStation produced was barely positive (0.14).

    In the end, perhaps the "best measure" of this strategy is this: They have ETFs fro EVERYTHING these days. Anybody know a 5-10-20 ETF?

    (PS: I did a long AND SHORT also, the shorts generated an additonal $1,300, raising the rate of return to 10%, still not that impressive).

    ======================...
    On Dec 02 10:29 AM jlounsbury59 wrote:

    > I much appreciate top technical analysis like this. Some other ideas
    > to investigate....
    Dec 02 13:52 pm |Rating: +2 0 |Link to Comment |View article

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