New Rule

August 31, 2010

I’ve been basically doing this, but now I’m going to formally announce it as policy.

A couple of times I’ve described a stock by its sector or subsector, and I’ve been asked for the name.  I didn’t feel comfortable mentioning them when they were very small caps, illiquid, or both.

Now I’ve hit on an easy formulation.  If my personal holdings in a stock I’ve invested in amounts to more than half the average daily volume, I won’t mention the name of the stock.

I shouldn’t punish myself by pre-announcing an exit if decide to sell, nor should I put any reader at big unexplained risk if they are in the stock and see it declining in price as I lighten up, or whatever.


Fiat Money

August 31, 2010

No, I’m not talking about the $15K you’ll shell out at your Chrysler dealer to buy a Mexican-made Son of Mini.

[The Cinquecento is designed by the same guy that did the 2002 Mini re-introduction, so I’m not kidding when I say it’s the “Son of.”]

I’m talking about a reader comment on the Correlation Curse post.  Trent wrote the following:

It could be helpful to express the article in terms of purchasing power of bullion vs fiat money; Fiat dollars will lose purchasing power as they are created without limit by government.  Bullion may lose some purchasing power relative to things you want to get, but it’s likely to be the ‘cash’ demanded preferentially over fiat for exchange for goods and services– Unless you are talking about returning to a barter economy.  All bets off in that case!

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It’s Still Analog

August 30, 2010

The comments on the last post, already one of the all-time most viewed, have been intriguing.

It seems most people who commented have a binary view of the future.

While I was talking about a financial panic and forced de-levering, a lot of my readers jumped right into TEOTWAWKI (Apocalypse Right Now).  See my post on Pet Peeves to see why there won’t be plentiful 55-gallon drums with nice pieces of wood planking burning in them.

Read on to see why I only have a few percentage points of my investment money in gold, and that’s in stock in development-stage companies that will have big leverage to the price of gold once in production.  For comparison purposes, I have more than three times that much in development pharma companies that are in human testing stages.  (Have you thought about pharamceuticals as a potential store of portable wealth for the post-collapse?)

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Correlation Curse

August 28, 2010

You often hear about investing for diversity.  You also hear that precious metals, soft commodities, emerging market stocks, US Treasuries (or rare stamps, timber lands, or whatever) are good investments because they rally in different markets than ordinary stocks.

During the good times, that’s true, for all those alternatives.  During bad times, it’s mostly true.

During really bad times, it’s not true.

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Calling a Top

August 23, 2010

I’m calling a top in bonds in the 10-year and higher maturities.

In too soon, of course, but I did buy some inverse T-bond ETFs today.  Not convinced at all that the rates will start climbing from here (my commitment almost guarantees they keep the bullish trend a bit longer).

Still, I bought some TBT and a bit of TMV today.  I wrote September 32 calls against the TBT, which proceeded down soon after I bought.


PS after the break

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Meaningless Statistic

August 20, 2010

Forget housing starts.  Unless you’re a homebuilder or lumber supplier, they can’t mean much about the economy these days.

I suppose there is some small fraction of people who will pay twice as much to get that new house smell, though I think it’s probably VOC’s gassing out and not very healthy.  Or is it having just the right faucets in the master bath?  Really?

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Charlie Brown

August 19, 2010

I just tried to kick an attractive amREIT football, and whiffed.

I was away from my desk when a very minor player (NYMT) was whacked down by a hefty 17 cents from a $6.28 price yesterday.  That was the price my friend and Board Member Dan Osborne paid for 10K shares last week.  It’s also near the price where I added recently.  I hadn’t mentioned it here because of illiquidity and low market cap, so I didn’t feel right about talking about it if you can’t easily buy or sell at a reasonable piece.

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Trading Update

August 18, 2010

As I said last week, nerves moved me to the sideline with some cash.

The Fed announcement that they would reinvest MBS principal paydown in Treasuries finally broke the merciless downward grind of MBS spreads over Treasuries.

But it also drove Treasury yields to new lows.  After all, the amount is not peanuts –$200 to $300 billion this year on the monstrous portfolio they had by March 31.

There’s even talk of letting responsible mortgage borrowers refi.  Imagine that!  I won’t be holding my breath.

Still, I didn’t like the tenor of the market, and raised some cash.

One way was closing out most of my short options strangle on FAZ.  It was a nice run while it lasted, and simple time decay made five out of six of the various “legs” of the trade profitable.

I also lightened up on ANH, though it’s still my largest holding.

Added some HTS for the first time in a long time, but my guess is that the dividend holds, and in this environment, 20% yield is unusual and not likely to last.    Let’s hope it drops below 20% due to price increase in the stock, and not decline in the dividend.

more later


Mythical Economic Man

August 17, 2010

Last weekend I went a few rounds with my favorite philosophical sparring partner about the way we got into this financial mess.  It’s a discussion that has gone on for decades, and I heard (for the first time) that my wild-eyed tree-hugging self of the 1970’s had something right.

To summarize our relative positions 30+ years ago, I was of the opinion that the best policies would build from the bottom of the economic pyramid upward, while my debate partner felt that we should set policies that reward success at the top, creating more wealth for all.

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Treasuries Say Stocks Vulnerable

August 17, 2010

The drop in yield Monday of the 10 yr Treasury note and the 30 yr bond was truly stunning. Stunning for the size of the drop in both and even more stunning considering the low absolute levels of each already. The 30 yr dropped 14 basis points and the 10 yr 11 BPs to 2.56%.

The significance of the drop though were the reasons for it. While the true reasons are somewhat elusive it is hard to think of a reason that is either positive for the economy or the stock market.

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