Tomatoes from Aruba

August 30, 2011

I live at an altitude that never floods – fifty feet or so above the nearest stream, and hundreds of feet above the nearest river.  That said, the flooding in the area exceeded even the March meltdown and runoff that washed out roads and isolated some of my neighbors.

I want to share this picture of the “damage” in my kitchen garden.  Yes, the wind did blow.  It didn’t knock down any trees on my property, but I lost communication when a tree fell just down the road (amazingly enough, the electrical line was strong enough to hold the leaning tree without breaking).

I found out how addicted I am to communication.  It took less than 48 hours after losing touch with the outside world for me to go searching for a place to read my e-mail.  That’s how I found out just how much flooding there was in the area surrounding me, as I had to turn back and find another route four times traveling the few miles to the center of town.

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Earthquake Felt in NYC

August 23, 2011

A friend on a trading desk sent the following photos that are making the rounds.  First is a picture of the quake damage in the Hamptons, followed by the scene as Goldman evacuated their HQ.

Hamptons expected to recover from quake damage.

Goldman employees hurry home to their families after earthquake.

Vol Junkies’ Delight

August 23, 2011

I’ve been thinking about how to hedge out some of my exposure to junior miners and developmental pharma companies.

I can’t afford to buy a member of the FDA review board, and my ability to change margin requirements at the CME or to convince Hugo Chavez to arrange and insure a few hundred air freight shipments from London to Venezuela is similarly limited.

In other words, I’ve got no special pull, sources of information, or any of the things the really big players can use.

What I do have is the ability to see a wildly careening ball on the market pinball machine, and a spare few hundred dollars to try to take out some of the variance in my daily net worth.

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Spoiler Alert

August 21, 2011

This seems to be the weekend of currency collapse discussions.

Many of the comments and links have been well-thought cases for a cascading collapse of the US Dollar as global reserve, with arguments for its replacement with gold and/or silver.

One poster even suggested that digital ownership and transfer of bullion can overcome the perennial problem of weight, cost of transfer, and the concentration issue that arises from trade imbalances.

Let me throw my nominee into the ring, and explain why I think there won’t be the spectacular “break” so many are predicting, followed by a post-apocalyptic financial landscape.

Before I forget, the reason I call this a “spoiler alert” is that it floats one of the dozen or two ideas George Ure and I are kicking around in our upcoming book of economic and investment ideas for sentient adults who see that things aren’t going according to plan.

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A Matter of Faith

August 20, 2011

As my cyber-bud Bob Moriarity’s readers from123gold have been quick to point out, those who hold US Dollars are relying on faith in the US Government.  They also point out that gold does not rely on faith in any government for its value.

But the value in gold does rely on faith.  Faith that someone will give you what you really need when you really need it in exchange for your gold, and that they won’t demand so much gold that you’re going to starve or freeze next week instead of this one.

We can blather all we want about exchanging gold or “useless” paper, or .22 long cartridges or toilet paper, for food and heating oil.  More than half of humanity lives in cities now, and human beings as a group won’t choose to turn half the world’s population into bipedal locusts without trying at least a few alternatives to complete anarchy and starvation.

In other words, I believe that no matter how screwed up fiscal or monetary policy becomes, there will be an economic system that manages to let food producers deliver to food consumers without those consumers becoming hordes of foragers.  I also believe that any “successor” system will have money.

More later this weekend as my co-author George Ure and I put out just one of the radical ideas we argue about in our forthcoming book.  It will be in Sunday’s edition of Peoplenomics, George’s unconventional guide to all things economic for the outside-the-lines set.  Kind of a teaser/spoiler, guaranteed to irritate gold bugs, preppers, liberals, conservatives, Austrian school economists, Keynesians, and maybe even you.


Can You Hear It?

August 18, 2011

The bond market is shouting at you this morning.

The benchmark ten-year Treasury Note just traded below a 2% yield. If you were alive the last time that happened, you qualify for Medicare.

Throughout the liquidity crisis of 2008, rates on that benchmark bond didn’t get that low.  Not when Lehman collapsed, not when the US economy was losing 800,000 jobs a month, not when the Treasury was “forced” to guarantee even commercial paper issued by corporations for money market fund holders.

From that Bloomberg article:

“Ten-year note yields dropped 16 basis points, or 0.16 percentage point, to 2.01 percent at 10:09 a.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities due in August 2021 rose 1 14/32, or $14.38 per $1,000 face amount, to 101 2/32. The yields touched the record low of 1.9735 percent, dropping below 2 percent for the first time. “

If you heard it, did you know what it was trying to tell you?

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Pixel Power

August 17, 2011

A friend called last week, and just from the tone of my voice saying “Hello?,” she knew something was wrong.

I tried to deny it, but then admitted that I had lost a lot of money in the market that day, and it brought me down.  The next day, she called again, and again from the way I answered the phone she could tell I was in a better mood.  Naturally, that was one of the big rally days in this yoyo market.

It occurred to me that my emotions are being manipulated (quite effectively) by pixels on a screen.  If there are lots of green pixels, I feel good.  Red, bad.

I know I”m not alone in this.  In fact, there are millions of us.

Even though we think of ourselves as mature, rational people (considering the demographic of people who pay attention to their portfolios on a daily basis), we are among the most easily manipulated people on the planet.

Today I got to feel both ways without even leaving the house or doing any trades.  Who needs a roller coaster when we have the stock market?


S&P Story Follow-Up

August 12, 2011

Mike raised an excellent and common point in the comment section on the last post.

He objected to my “free pass”, so to speak, for the rating agencies on the MBS mess.  He felt, as many do, that they had an obligation to identify the bubble, and warn the public.

Maybe so.

What Mike and others are demanding is that S+P abandon their tradition of using statistics and balance sheets, and base their ratings on subjective opinion instead.  In a sense, that’s what they did by lowering the long-term rating for the United States’ debt to AA+.  As they said in their commentary when they issued that rating downgrade, they do not doubt the ability to pay, just the willingness.

With a bubble like the housing market experienced, the problem was more one of future ability to pay, especially for the class of loans called “alt-A”.  Those loans to people with FICO scores north of 700 (definitely NOT subprime) have turned out to be worse than subprime on hundreds of deals. Those alt-A deal losses were initially modeled to be less than a quarter the severity and frequency of subprimes.

That said, my response to Mike’s comment follows the break.

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S&P Story

August 11, 2011

You probably think I’m going to write the umpteenth story about the recent downgrade of long-term US Treasuries.  If that’s what you want, I’m sorry to disappoint.

Instead, I’m going to tell you about the danger of being blinded by your own cleverness, especially when your smartest people fall in love with a model.

Back in 2002, I had a large holding of Corning stock, or glass works, as I had called it since first buying stock in it back in the 1970’s.  In 2002, the yammering crowd called it an Internet stock, or a fiber optic company.

I knew it was much more than that.

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amREIT NIrvana !!

August 9, 2011

It doesn’t get any better than this.

The long end of the curve is rallying like crazy, so new capital (and reinvested mortgage principal) won’t get quite as fat a spread, but low repo rates for the next eight quarters is simply amazing.

The FOMC sez:

The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013

On top of that, the bond market rally will result in surprise increases in book value this quarter.  That should make the nervous nellies that have been dumping amREITs feel safe getting back into the pool.

The only cloud that could ruin this silver lining is a liquidity crisis.  That won’t come from mortgage land, but could come from CDS land.  If it does happen, we could experience a disruption in the repo market.

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