December 29, 2011

One friend and reader remarked that my recent post (Good Intentions) seemed to imply that I was going to publish the weekly e-mails from my time managing a subprime bond and equity hedge fund.

Au contraire.

Those e-mails will remain my virtual diary of the runup and meltdown.

Still, they do make interesting reading, especially during the time in mid to late 2007 when Washington and the media establishment decided that “subprime” was as likely to boost ratings as Lindsey Lohan’s latest DUI.

After the break, I’ll post a couple of weekly missives (appropriately scrubbed of portfolio performance, specific trades, or other proprietary information).  They dated to late summer, 2007, and showed that the political and financial world was definitely, positively going mad and looking to find scapegoats.

Now that I think about it, not much has changed these past four plus years, has it? Read the rest of this entry »

Mad as Hell

December 27, 2011

Joe Nocera had one of those excellent moments last week — what I call an “I’m as mad as hell, and I’m not going to take this anymore” moments.

While not as universally applicable as the disgust and anger the 1976 cult classic movie portrayed, Nocera was pointing out how outright propaganda machines masquerading as tax-exempt and subsidized think tanks can create an alternate reality out of whole cloth, and how our main stream media and Congress adopt and spread that propaganda.  In this case, his target was one of the more dishonest Resident Scholars at the American Enterprise Institute, and his widely repeated lies. Read the rest of this entry »

Good Intentions

December 23, 2011

When I joined the ranks of Wall Street’s investment bankers, I was what they called a “rocket scientist.”  I never worked on spacecraft, but I did hire real rocket scientists along the way, along with software engineers, an Air Force test pilot, finance professors, and more than a few freshly-minted MBA’s.

I called what I was doing “financial engineering” when my friends outside the business asked for stock tips. Even though I paid attention to the stock market before I worked on Wall Street and after, I actually had no time for stocks when I worked there, so I never had any tips for my friends.

But back to Financial Engineering.  As far as I know, I was the first person to refer to my vocation by that phrase, though since that time I’ve seen universities award degrees in it.

During those early years of my career, I was lucky enough to love what I did, to get paid well (though not nearly as well as the more effective political operators around me), and to perform a service that I could see was helping a huge swath of my fellow Americans.

So why did structured mortgage finance turn into a “force of evil” that nearly drove the world economy into a second great depression? 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 »

Merrill Ross Commentary

December 19, 2011

Good summary of the current state of affairs from Ms. Ross at Wunderlich this morning.

“So far, AGNC, TWO and MFA were able to maintain dividends, while CYS, IVR, HTS, and CMO cut. We think the difference in performance can be attributed to asset selection, but there is no doubt the flatter curve will put pressure on spreads. Read the rest of this entry »

mREIT Year-End Review

December 16, 2011

One of my cyber-buddies (screen name maxx) has taken the time to really get to know the mortgage REIT sector. His views are, IMO, better than just about any of the analysts out there, because he risks his own money on them. And what is more interesting to me, he looks at these stocks as both income and trading vehicles. Without further ado, here is maxx telling us how his year in mREITs worked out, and how he looks at some of the names we all know and love (or hate, on occasion). Read the rest of this entry »

Predicting amREIT Doom?

December 6, 2011

In a recent post, I provided a link to a TA (Technical Analysis) service that made a bear call on amREITs.  I mentioned that the TA folks don’t adjust their mathematical models for dividends, a flaw that guarantees followers of pure TA will not be comparing actual investor returns when they choose stocks to buy and stocks to sell.

I will give props to StockTwits for at least mentioning the current yields of Anworth (ANH), Annaly(NLY) and American Agency (AGNC).

They did not, however mention the relationship between the stock prices and the book values.  I can understand why book values get ignored for banks with questionable assets held at par, or for tech companies or brand name behemoths whose real value is intangible and not listed as part of book value. Read the rest of this entry »


December 6, 2011

Why is it that “performance” car drivers can’t seem to drive in their own lane?

I was just out on a short errand, driving on our local two-lane country roads.  As I came into a curve (with no visibility of oncoming traffic) I was nearly hit head-on by a BMW that wasn’t just over the center yellow line, but fully in my lane.

I understand that the road is more fun if you cut to the inside of every curve.  I understand that if you spend that kind of money for your sport suspension that it’s a gas to take the curves at the maximum speed possible.

But why in the world do you think it’s OK to drive in the other guy’s lane on the inside of a blind curve?

Strangely enough, it seems that the more money a person spends on superior handling capabilities, the less likely they are to be able to handle their steering wheels competently.


Biggest Loser and Biggest Winner

December 6, 2011

As promised, I will describe my biggest mistake of the year.  As a balance, I’ll include the biggest winner.

First the bad news.

This is bad mostly because it was supposed to be a safe place to “park” some bucks for a couple of months until I needed them later in the year.  Instead, it morphed into a position that will take a year or more to climb back into the black, if ever.

It was also a harsh reminder that the game is often rigged against the unwashed retail investors. Read the rest of this entry »

Lost a Few

December 3, 2011

Today I have fewer subscribers than I had yesterday.  I must have said something that was so upsetting that they decided to stop up their ears.

For those who were tempted to unsubscribe because they didn’t like the “politics” of my observations on the economic reality we face, let me assure you that I’ll be veering back into the unending seminar on mortgage investments before too much longer.

The TA types have begun their bearish chorus on the amREITs, though I suspect most of them still haven’t figured out how to adjust their price charts for dividends (a fatal flaw, in my mathematical opinion).  They probably deserve an answer over the next few days.

For those who came over to check out the blog after reading my article in Financial Planning, welcome.  You might enjoy checking out the Best Of page, which features the posts that got the most “eyeballs,” along with a few I liked, even if the readership fell below the levels the others on that page enjoyed.

In the next few weeks, I’ll also describe my worst investment ideas of the year, just to underscore the fact that I am NOT giving investment advice.  You can make your own mistakes and triumphs, and if you borrow some from me, I sincerely hope the successes outweigh the failures.

hh Read the rest of this entry »