Picking Up Bargains

November 13, 2012

Last night’s question from Dan led to a fairly technical and complicated answer about the current state of the mREIT sector.

Again without giving specific investment advice (since I have no idea what your specific circumstances are), I thought I’d put into words a little technical primer on picking up bargains when the market gods are slamming these stocks.

I’ll try to describe how I pick them, leaving how my emotional and financial state affects my order of choice for another time.  Just be aware that your own ability to sleep at night, or need for cash, can radically change your order of preference among these stocks.  Right now, I’d say the fear factor has driven a lot of small investors to sell, simply because they don’t like the sickening feeling of seeing red pixels on their screen full of stock prices. Read the rest of this entry »


Used Car Salesmen

October 26, 2012

Yesterday I called the reporting of some trade information for MBS bonds a “baby step” in the right direction, but didn’t try to describe exactly why it was such a small step, or why the sleazoids that hide in the shadows could still do their thing.  Quite rightly, frequent commenter and longtime friend from the business “Conscience of a Conservative” pointed out that one AA private label MBS might be so different from another that the information has truly limited value without knowing the exact bond that traded.

The reason I didn’t get “down into the weeds” in my initial post was that I hadn’t come up with the right metaphor to describe why disclosing trade prices without CUSIP numbers still leaves too much hidden.  I’m sure it doesn’t escape anyone’s notice that the SEC is a captured regulator, or that FINRA obviously won’t bite the hand that owns it directly and signs the paychecks, but that doesn’t get to the specifics.

I have to thank my friend Stephen Jencks for making a comment on Jody’s article that gave me that elusive metaphor that makes it clear to the average Joe why the new “transparency” is so little so late.  Read the rest of this entry »


A Baby Step

October 25, 2012

Transparency in the mortgage bond market just got a baby step in the right direction.

Yesterday the SEC approved FINRA’s plan to tell the world where some Agency MBS and small business loan (SBA only) bonds are trading.  FINRA is the brokerage industry’s self-regulator, so the fact that it’s only a baby step is no surprise.

I’m reminded of the scene five years ago, when short sellers and CDS “insurance” buyers used complicit or ignorant reporters and the opacity of the structured securities markets to turbo charge their profits.

In fact, they made the mortgage meltdown worse through their actions. Read the rest of this entry »


Look Away from the Pressure Point

September 18, 2012

Where will the QE3 spending make the most difference in asset prices?

As soon at the Fed announced its open-ended commitment to buy MBS at the rate of $40 billion a month, the market sold off the dollar, bought stocks and bought investment grade corporates and junk bonds, sold Treasury Long Bonds, bought non-dollar currencies, and bought just enough MBS to keep prices almost flat (up 2 basis points in yield for the day).

Think about that for a minute — the Fed says they’ll buy MBS, and the price of almost everything else moves more than the price of the MBS.

So the thing to think about is what else might happen as the Fed steps in like the Duke brothers to buy the market (and some day, to sell).

Read the rest of this entry »


Hedging Your AmREITs

December 20, 2011

Most of what I’ve written about hedging is what I know — how a bond portfolio manager hedges a book of mortgage-backed securities.

I hope it’s been helpful for my readers to recognize the styles and methods the managers of these companies use, and their relative transparency and quality of disclosure on this front.

Jon Rosenbaum asked in a comment today:

“What is the best way to protect your principle and retain dividends for amreits? What hedging instruments work best?

What about SDS for general market drops? or some other vehicle?”

Before I take a shot, let me remind everyone that there is no perfect hedge.  Back in the 80′s, the First Boston (today Credit Suisse) traders kept a small potted miniature (English) boxwood near their trading desk with the legend  “The Perfect Hedge”…. Read the rest of this entry »


E Pluribus Corporatum

October 10, 2011

I have my nomination for the highest return investment of the past three years — the hundreds of millions the financial industry spent on lobbyists who take their percentage and then pass lots of it along in heavily string-attached political contributions.

The fascinating part of this whole game is how the game itself derails any attempt to reform it.  By the way, the corruption-maintenance by the system only partially includes the nightly fund-raising cocktail parties in Washington where the standard lobbyist contribution is $5,000.  Read the rest of this entry »


Death of the Yield Curve?

August 7, 2011

When Alan Greenspan ran rates to near zero in preparation for Y2K, he kicked off a wave of financial asset speculation.

Not satisfied with that object lesson, he repeated the monetary stimulus (doubled down) after the 9/11 attacks, thus making sure we could all go shopping whether we had the income to support the new debt or not.

As much as modern economic historians would like to blame the debt overhang problem on families or government, the reality is that debt growth from the late 90′s until the collapse of 2008 was by far fastest and largest among financial companies.  Luckily for them, their position as the dominant “industry” in the S&P 500 and their position as the largest contributor to both parties in the national government pretty much set us all up to be the life preservers for the banks and brokerages.

Unfortunately, when you’re just an ordinary Joe trying to swim to shore after the ship capsizes, you are likely to drown if you are being used as a life preserver by the 240 pound bankers.

All of which brings me to the actual difference this time that may allow the yield curve recession predictor to fail.

Read the rest of this entry »


Getting the Sign Wrong

August 7, 2011

I’m going to show my age here, but that’s OK.

In my very first consulting assignment with a professional trader, I came in to rescue a project that had been started by an academic who was pursuing a PhD in Computer Science.  Unfortunately, that meant there was already a computer and a partially-completed bunch of software that didn’t quite run on that computer.

The software was written in APL (favorite of the theoretical computer science set at the time), and the computer was IBM’s earliest attempt at creating a PC.  It was the model 5100, for those who want to place this story in the context of useless technological history.

The punch line of this story is that I wrote the rest of the program exactly as specified, but when it produced the results for the commodity trader who hired me, it was telling him to buy when he should be selling, and vice-versa.

Read the rest of this entry »


Recessions and Yield Curves

August 7, 2011

NOT déjà vu.

If we are going into another round of recession, we aren’t going the same way as before.

In the late 90s, I was part of a group of cyber-buds who debated markets, economic theory and policy in a stimulating endless argument.  A few of them (George Ure, Tom Drake, Rick Ackerman) have carried the tradition to this day, adding their voices to the tree frog chorus of economic thought on the web.

Just to be clear, I love tree frogs and their nighttime racket.

I have my Tree Frog Beer T-shirt from freshman year in college, much the worse for wear, but you can still recognize the all-knowing face of the Checkered Demon.  For those who know and appreciate the greatness of the Demon and S.Clay’s other characters, you might want to stop by and donate to help him with uncovered medical expenses.

But, I digress.  What I really came to do today was to talk about yield curves predicting recessions. Read the rest of this entry »


The Tribes of Wall Street, pt. 1

October 19, 2009

Every business has its “tribes.” Those are the groups that form based on their job functions that compete for power in the company. Different companies in the same business can be very different based on the top leadership, and which “tribe” they come from.

A clear example is the advertising business. I’ve heard ad agencies described as being “account driven” or “creative driven” for decades. All that means is whether the individual company tends to be run by the marketing and client relationship management “account” people, or by the writers and art directors, the “creatives.”

Unless there is a major coup, the outgoing top management team nearly always replaces themselves with people from their own background, so the character of a given company can survive many generations of changes among the individuals filling the top roles.

On Wall Street, there are three main tribes that lay claim to the power at most shops, although a couple of smaller shops have succeeded with a member of one of the minor tribes at the helm. Those three tribes are the trading, banking and sales departments.

Read the rest of this entry »


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