The Perplexed Investor: December 2008

Tuesday, December 23, 2008

A Modest Proposal

I have an idea, likely hairbrained, but that will not stop me from stating it.

Here are some simple facts to consider:

Anyone who bought a home in the last 3-5 years paid too much.
Some of those people who bought a home did so under false pretenses--I'd not extend these benefits to them.
Many of the those people are hard working Americans, who did not lie, who did not fully understand the egregiousness of loan resets etc, or simply believed that continually increasing home values would mitigate any concerns that they had.
Home prices are falling and LTV ratios are very unfavorable for lenders.
Payment/interest resets are putting borrowers (the good ones and the bad ones) under stress.
The recession will put more mortgage/home owners at risk.

My proposal is not to help with the last bullet or help scammers or speculative borrowers. Here's my proposal.

Objective: To find a manageable way to help both borrowers and lenders to rework loan terms; keep borrowers in their home to the extent practicable; not deal an egregious blow to lender balance sheets for principal modifications.

Example: Borrower (qualified, and no falsification) bought a home for $400K and the loan value was $400K (LTV=100%). At the time of purchase the home's fair value was not impaired. Interest rate is 6.%; term is 30 years; payment is $2,400.

The home can now has a fair value of $320K. That is an asset impairment of $80K affecting both the borrower and the bank. The bank and the borrower agree to modify the loan provisions. We bring in another party. The Fed. (Why not?). The bank records a temporary loan impairment of $80K. This impairment is guaranteed by the Fed (or through some other arrangement) so the bank creates a deferred loss that is carried on the balance sheet and shown as a contra receivable.

The loan is modified so that the principal is now $320K, the payment term is 35 (420 months) years and the interest rate is 3%. The payment is now $1,232 per month, for a reduction of 49%. Each time the borrower makes a payment, the amount of the temporary impairment is reduced by 1/420 or $190 ($80K/420). The bank will record a loss in the amount of $190 for each payment made. (One could fashion some tax consequence to the borrower in the amount of reduced tax benefit of interest payments).

Periodically, the amount of the impairment unamortized balance will be reviewed. To the extent that the impairment can be recouped (there is a recovery in home prices that would make the $80K temporary impairment now $60K, the bank will reduce the impairment prospectively. The decrease in the impairment (net of expense already recognized) would be added to the principal amount of the mortgage and the future amortized expense reduced. (Loan receivable would be increased and the deferred liability would be decreased).

I realize that is pretty complicated way of monitoring values, and perhaps there is some regional house price index that can be used--like CPI--a housing price index: HPI.

I'm sure that there are lots of problems with the above, but I see a few benefits:

Induces borrowers and lenders to work together;
Allows the lender to not recognize an immediate loan impairment (as the Fed guarantees the temporary impairment); keeps the loan from becoming a non performing asset (so the bank stabilizes their asset ratios, but interest expense is reduced); reduces foreclosures; supports housing values;
Allows the borrower to reduce their liability on the temporary impairment so long as they are making payments--so that is an inducement for them to make payments;
Pings the borrower by reduced tax benefits of mortgage interest to the extent that they have received a benefit. (Rather than having to pay income taxes on debt forgiveness).
Reduces the "freebee" perception by those who did not get themselves into the pickle.

So, that is my half-way thought through modest proposal.

News Creep

(Picture my neighbor, Ryan, took in Ecuador).

While I can think of a couple of CNBC news anchors that I could slap that description to, I'm talking about how content creeps into the news stream. Specifically, I'm seeing more commentators talk about how bad the economy will be.

It will come as no surprise that Nouriel Roubini is among the list or even Marc Faber or Peter Schiff--all three have been punishingly persistent in their view of the economy. Within the last week, I've seen Wilbur Ross, Muhammed El-Erian, the most recent FOMC statement, Stanley Fischer (Governor, Bank of Israel. B. Bernanke's thesis advisor), speak of stresses that they see in the economy. It's only been within the last week or so that we received confirmation that we were in a recession beginning December 2007. (I had predicted in August 2007 that we'd be in a global recession within a year of that date, and expected it late Spring).

Bad economic news seems to 'creep' into the the media system. First there appears to be some wild-eyed Cassandra's in their white robes and sandwich boards proclaiming the end of the world (Roubini, Schiff, Faber). These proclamations are delivered while most of the crowd is still hyperventilating , and then we see more evidential matter that confirms the worrisome news and it creeps into the system.

There were almost NO references to deflation, or Japan, or Depression. Now, we see these words mentioned daily--to include an L-bottom recovery--rather than a quick rebound. Roger Nusbaum said something on his blog that I found interesting. Specifically, he stated that with the market having dropped so far already, it had to be a very small probability that the market would fall another 30% or so.

I'm firmly in the camp that no one really knows, and Roger never (and didn't) gives predictions. Folks like to look at our current situation and compare it to other bear markets. This bear market is very different than all but two bear markets: US 1932 and Japan's bear market. If one were to narrow the population to these two for comparative purposes, then the probabilities of falling further would appear to be a bit higher.

Madoff....while there are many things that are upsetting about this story, none is more upsetting than the lazy hedge fund managers that parked a high % of their money (if not all of it) in this fund to let Madoff do the heavy lifting (rapid movement of shells!) while they did not even do a modicum of due diligence but continued to collect fees. In my view, their lack of fiduciary responsibility to their clients is no less reprehensible than Madoff's crimes.

We shrank our Christmas to people in our lives in order to give to others. Yesterday I made a donation to the Central Virginia Foodbank. I also purchased two Kuranda dog beds. These are dog beds that shelters like to get. They are both hygienic and comfortable. One went to our New Kent Animal Shelter, and the other to Lenoir County SPCA. If you are looking for a way to support your local animal shelter, you can likely see what they need on their website. Also, many are listed on PetFinder.com If you are interested in donating a bed, it is an easy process. Just click on the link and enter your local shelter's name. Most have a "donate" button for a bed or other gift.

Sunday, December 21, 2008

Life's Hard Facts

Today I had to take my 18 year old cat, Mylo, in for permanent respite from the cares of the world. He is the last of the 'old timers', the animals that we had while our kids were growing up. I couldn't find a picture of him, though I know I have one.

Mylo was hanging out at my baby sitter's home. I dropped Reade off (he was a baby) on the way to taking Hannah to preschool. I told her if he was still there when we picked Reade up, then we'd bring him home. He was still there. Literally in the same spot. He came home with us. Within the span of 24 months, we've lost Herm, Theo, Lucy, Greta, Chloe and Mylo. I don't ever recall losing so many pets in such a short time frame.

Mylo was an orange tabby cat. I've always had an orange tabby cat my entire life. My beloved Aunt Vi always had an orange cat. And no matter what orange cat she had, his/her name was Nosle. Noz-ley---I don't know how to spell it. It is an Armenian name. At 48, I've lived to be older than my Mother's older sister. In 7-8 more years, should I live so long, I will be older than my Mother. My Aunt Vi died when I was 10. I believe that she was only 44. She had battled lupus for more than 12 years. She's been dead, now, for more than 38 years. Hard to imagine. Though she was so sick all of the time (she had both the skin and blood manifestations of that dreaded disease), she enjoyed life. She was bigger than life in so many ways. She was full of light and laughter. I

The most pets we've ever had were 5 cats and 5 dogs. Mylo and Chloe were the last cat and the last dog from that group. So now we are down to 2 cats (Minnah and Wyatt) and 3 dogs (Daisey, Macy and Ella). As I write, I think that I will adopt an orange tabby cat and name him/her Nosle--to remember my Aunt Vi and to remember Mylo.I suppose you should have pet ladders like bond ladders---so that one staggers the expiration. I know it to be a fact of life. One of life's hard facts.

My Holiday Wish for You

Now is the time for happy and holy days for many. The New Year always holds great promise. Yesterday, I had particularly joyful transport. The Lenoir County SPCA helped an injured American Bulldog, Paisley. The injury required expensive surgery and amputation of her back right leg. Yesterday, we transported her to her new forever home. I have a picture of her settled into her first night below.

I generally work the front end of the transport. These dogs travel 120 miles on their first leg from the shelter to Emporia. When we are short of volunteers, the van drives another 68 miles to Richmond. It's a long trip at either stop, and the animals have often become sick or fouled their crate. Opening the door can overwhelm one's senses--and the driver(s) have that plus yapping dogs to contend with. They do it nonplussed.

The first stop, then, is one of great import because much ministrations must be made, as three out of four crates that come off the van have been cited as an EPA violation! The other 25% wait to be uncrated and take their 'leave' if you will. Getting puppies in a puppy pen (observing safe handling procedures to ensure that they are protected from the ground and the immune system evils that reside therein) is a great way to reunite puppies with their litter mates and get them cleaned up. We are surprisingly joyful to see them relieve themselves....we know that emptied systems make the drives further north more pleasant.

The older dogs also arrive in crates, but are on leash for the balance of their transport. Almost without exception, they are noticeably calmer once they are out of their crate and in the hands of a volunteer. I really do admire them for their courage and grace on their long journey.

We can learn much from these animals. First, when you have a chance to go to the bathroom you should take it! More importantly, they model the behavior that we would do well to emulate: As they face a day of uncertainty, they handle it moment by moment--embracing the best, and not worrying about their past or their future.

My wish for you, dear reader, is that you can cultivate the same perspective of embracing the blessings of each moment and to "leave them be" the worries of the past/present. And here is the picture of Miss Paisley, snuggled with her new toy and her new fur friends.

Another lesson for us all? I think so. For the New Year, I wish each of you Peace, Joy and Prosperity in all of its beneficent forms.

Friday, December 19, 2008

Not All Wild Hairs

are worthwhile. I had this idea that I would experiment with an audio recording of the book, Anatomy of the Bear: Lessons from Wall Street's Four Great Bottoms (2nd edition), by Russell Napier. As I'm 1/2 through the book with many flags, I thought that recording would be easier. So much for thinking. I had planned on doing other recordings, but I can think/write better than I can think/talk.

Nevertheless, I made a recording which you can listen to HERE. [Well, I just clicked on this and it told me I had a 1 hour download. That ain't going to work....stay tuned for the written word.

I have a very long day tomorrow on the volunteer transport. I ended up renting a small SUV as we were one driver short. I may end up having to drive from my home to EMporia all the way up to Springfield. It is an all day drive, and I have to leave early.

As you know, I have a fascination with Chinese stocks. That market has been pummeled. Some of these stocks are trading at less than the cash price per share. I'll share with you a few of my purchases. IF you click on the ticker you'll be transported to FINVIZ. If you click on the graphs, your eyes will thank you.

Here's BEST. They make food and anti-counterfeiting film. My thesis is that with the oil prices down, their COGS ought to decrease. Further, these guys would be tied into internal consumption. There is lots to like except for the stock action since I bought it.

Here is CNTF: The action in this has been very positive--it went up a ridiculous amount today. It's very extended. I'm up 30%. I have 3000 shares of this, big spender that I am!

MTE: I liked the volume patterns. It may end up being a dog, but for now the tail is wagging.

STV: This company announced today a special $1.00 dividend.

WH I've been following this stock for a while. It s a tubular steel maker. Every one of the tubular steel makers in the US was purchased. Now this tubular steel is for oil production.....though we are in a severe downturn, I believe that energy is near and dear to China's heart. I liked the spike in the volume and that hit is holding here. (Also, no debt).

Wednesday, December 17, 2008

Watchful, Skeptical Flexible!

I heard nothing in the Fed statement that sounded like anything but a dirge for our economy---with implications for all other economies. Perhaps I have a tin ear! That both the bond markets AND the stock markets rallied in an asynchronous synchronicity (if there is indeed such a thing). Can both markets be correct? Shouldn't the bond market be moving in the opposite direction? Who is the dotard?

I'm hearing lots of yapping about the appeal of high yield bonds and municipal debt. If the consumer is 70% of the GDP (they are) + the consumer as not been re-liquefied (they have not been) + the consumer is facing employment headwinds to me the balance of the equation is this: dead stocks walking and soon to be dead bonds defaulting.

The grasping at lower gas as some reason for hope for the consumer is just that--grasping. Lower interest rates are nice, but if one does not have a job there is so much more at stake. What bears watching is employment. While I would not expect to see job creation, if we can quell job losses, then we might have a fighting chance. I'm not hopeful because the consumer has not been re-liquefied; the consumer is scared, and they are trying to get their own house in order.

Treasuries are almost dead money. Is that by design to induce the private sector into wading into attractively yielding CDO's? Isn't the private sector's voracious appetite for these high yielding assets what caused so much of the problem to begin with? Will we have a credit implosion Part Deux? They bought these things and then the pricing collapsed (and crumpled the asset side of the ledger). IF, then, the CDO's are trading at an attractive enough discount, then perhaps they are the buy of the generation as the discount will more than enough make up for the real default rate. I suppose if they are not bought with 10:1 levered money, there is hope.

While some are hand wringing over inflation, deflation is what is at issue. Isn't it funny how reticent folks were to even discuss deflation? They dismissed it as an impossibility. "We could never be like Japan," they cried. But increasingly there are more discussions about it.

I'm being watchful, skeptical and flexible.

Monday, December 15, 2008

A Modest Proposal: An Idea to Help Troubled Homeowners

While simple ideas are rarely simple, I'll throw one out with respect to helping homeowners: Allow homeowners to

use self-directed IRA's to purchase the note on their own home (currently you cannot have your s-d IRA own your home, vacation residence;
take hardship withdrawals from their 401k's without having to pay the 10% penalty AND perhaps DEFERRING/REDUCING the tax rate of withdrawn funds.

In Leisa-land logic, these two items would go a long way toward helping middle-class Americans (those with savings and jobs not the scammers) caught in spiraling debt due to out of control real estate prices.

Sleepless writes of the lack of transparency in the loans to banks. You know that I have a fondness for F. W. Engdahl. He's a provocative writer and if half of what he asserts is true then I'm truly afraid (and I've been truly naive). He wrote an interesting article

Behind the Panic:
Financial Warfare over Future of Global Bank Power

By F. William Engdahl, 10 October 2008

You may be transported to it by clicking on the article.

I think that we have lack of transparency not because the truth will set us free, but rather, the truth would likely scare us into madness. But peering at the truth in all of its unseemliness is what prepares us for reflection and circumspection on how to avoid such things in the future. At the very least, it informs us of the depth of stupidity; the breadth of greed and the insatiable appetite for power. These are the three legs of the stool that provide us with all of history's indelible "Oh Shit" moments.

Speaking of stupidity (on behalf of those who should have known better): We're seeing lots of smart people hoodwinked by Madoff. His accounting firm consisted of an absentee partner, a 13 x 15 ft office and one active accountant. A firm the size of Madoff's should have had a marquee name for an accountant. The news is crawling out about sophisticated banks and hedge funds who took money from their clients, collected a fee, handed the money to Madoff, and then skimmed fees on gains. (These are the folks that should have done due diligence--I'm not suggesting that the clients were stupid--they had every reasonable right to expect that their money was being funneled to a real company.) Here are a few (with source cited--click to go to story). You can also find an old Barron's article here.

BNP Paribas said its maximum potential loss on Mr Madoff’s funds was about €350m. (Financial Times "FT")
Spain’s Banco Santander said it had exposure of €17m, while clients of its hedge funds had €2.3bn at risk in Mr Madoff’s funds. (FT)
Royal Bank of Scotland £400m (FT)
Man Group (through its RMF hedge fund) $360m(FT)
Nomura Y27.5bn (FT)
BBVA, Spain’s second biggest bank, its clients face a loss of up to €300m and its international operations were facing a €30m loss. (FT)
Bramdean Alternatives $25m (FT)
Mr. Zuckerman, the chairman of real-estate firm Boston Properties and owner of the New York Daily News and U.S. News & World Report, had significant exposure through a fund that invested substantially all of its assets with Mr. Madoff (WSJ)
The Spielberg charity, the Wunderkinder Foundation (WSJ)
Mr. Spielberg (WSJ)
Fred Wilpon, owner of New York Mets (WSJ)
Norman Braman, former owner of Philadelphia Eagles (WSJ)
Carl Shapiro, founder and former chairman of apparel company Kay Windsor Inc., and his wife (WSJ)
Sen. Frank Lautenberg and his family foundation (WSJ)
Leonard Feinstein, co-founder of retailer Bed Bath & Beyond (WSJ)
J. Ezra Merkin, GMAC chairman (WSJ)
The Elie Wiesel Foundation for Humanity (WSJ)
Yeshiva University (WSJ)
UBS AG (WSJ)
Union Bancaire Privée
Neue Privat Bank
EIM Group (WSJ)
Fairfield Greenwich Advisors Tremont Capital Management (WSJ)
Maxam Capital Management Ascot Partners (WSJ)

Sunday, December 14, 2008

Spatially Challenged

It's hard to believe that the year is just a couple of weeks from coming to a close. My daughter leaves on Christmas day to go to Brussels then Germany. She works part time (she's a full time college student) as a 'nanny' to a professional couple. They are going to Belgium to spend the holidays with their friends (who own a castle and are a count/countess).

Hannah will be helping them with their daughter (they are paying for her airfare both ways plus compensation for her time). She will then leave to visit one of her friends who is stationed in Germany. She will be staying with her friend. Essentially, she has a free trip to Europe. Not too bad!

I did manage to get a run in this a.m. on the trail with Macy/Daisey. Ella didn't make it to the trail head. Daisey flushed out 2 doe at different times. She didn't give chase. But the doe were as big as I've seen--and what is more powerful, elegant and poised as a deer? I felt invigorated seeing them and was able to huff and puff my way home. My running schedule has been a bit derailed; in the meantime I've been working out with an 8lb medicine ball. Incorporated with lunges and small + large circular movements with ones arms, torso AND using squats, it is some powerful medicine for one's muscle groups.

I had two lunch dates this week. My lunch dates noticed progress, which made me feel good. To be fair, one of my lunch dates also remarked on how much weight I've lost. However, to be fair, he did this to me some years ago. I had merely cut my hair. I was not overweight (nor had I been since he's known me), nor had I lost weight. However, for people I've not seen in a while, they seem to remark (whether true-- most recently-- or not--all times before!) that they are impressed with how much weight I've lost. I must have some fat visage that gets stored in people's memory until proved wrong when they see me again!

You'll remember that one of my goals this year (in addition to becoming fit and improving myself in a myriad of other ways) was to get my books straightened out. I've made considerable progress on it--but I've been waylaid along the course of this task largely by putting my hands on long lost books and becoming absorbed in them.

Yesterday and today I was in the re-arranging mood. As I no longer color my hair, I'm deprived of concocting various hair colors from this and that at Sally Beauty Supply. I've not looked to changed husbands nor switch out kids. Accordingly, I'm left only with moving stuff around the house. [I've scratched changing my blog theme as one of the things I could tinker with having already done that 2.5 times (the .5 time being a sizeable tune up)]

I've moved the piano out of my office and into the elephant room. The elephant room get's its name from the Ronald Redding wallpaper. It has elephants and camels in a very old looking print. I was going for a mission style look in the room, and got it. It's a large room--480 sqf. I've a mission style wood stove. Some large, old pieces of furniture: a Victorian bookcase and a late 19th century walnut/stained glass server. These two pieces of furniture are the subject of my attention. I had planned on taking the Victorian bookcase out and putting it in my office. After removing all the books, and staring at the bookcase where it was, I concluded that it was perfectly situated and should not be moved. I was able to clean the shelves! I also found my Calude Levi-Strauss book, The Jealous Potter. The picture at the top of the page is from the book. (Another book of mine that addresses mythologies of indigenous people--the Jivaro people of equador and Peru--and other myths in the European, American and Japanese domain).

From the bookcase, I also unloaded a box full of photgraphs. I found a picture of myself in full pregnancy with Hannah. Geez....maybe the people who think of me as being fat remember me from that time of my life! Mark and I enjoyed going through the pictures--many of them 1/2 a lifetime ago.

The server needs to be moved--it stays on the same wall, but it get's moved about 8 ft. It's a monstrous 3 piece item. I'm not sure how we will do it without killing ourselves or it. But two folks brought it in....we ought to be able to figure it out.

I also found my "Visual INvestor" book by Murphy (it was among several technical analysis and what not books on top of my piano. I reacquainted my self with the book and my text flags/marks. I also tried to read one of the James Tobin books. Remind me that economic lectures/reasearch are beyond my easy comprehension the next time I get such a itch that needs scratching. This book was 4 lectures on asset allocation...etc. The book is 1982--and it starts out that macroenomics facing challenges. I hate to think what would be concluded now!

I'm also planning my NY's dinner. A small group to whom I will serve a simple meal. I've still not fleshed everything out, but it believe I will have braised duck legs, a first course of roasted butternut squash with apples, blue cheese, endive and cranberries, sweet potato spoon bread, brocollini, lentils (I'm still on the fence on the starch) and a lemon tart.

But all of these activities were immensely enjoyable. I forgot the simple pleasure of reading in front of the woodstove (with a glass front) with my three dogs around me. I surely do not need to pay for any entertainment. We have a new grocery store in the property vacated by Winn Dixie. It's a Blooms which is owned by Food Lion's parent. Food Lion is the other grocery store. I rarely shop there. But you know you are getting old when you are looking forward to browsing a new store.

Friday, December 12, 2008

Wait, there is more........

It is almost unfathomable the tenor of the news barrage of late. In fact, the news out of either the markets or the government is starting to sound almost tabloid-like: so bizarre that it borders on unbelievable. Unfortunately, the stories have true meat to them rather than being founded on the miasma of innuendo and insinuation of tabloids.

The Maddoff story is very unsettling and is yet another in a series of stories of how Wall Street players have violated the trust of those who handed over their money. We have investment bankers asking for rules changes to increase their levering; create toxic products that they sell to investors looking for yield--and then bet against them for profit; have noxious terms in auction rate securities terms that penalize issuers; fail to allow investors to withdraw money even though the lockout period has passed, AND, to add insult to injury, continue to charge them a fee; write credit default swaps without havin even a slice of the capital needed to pay on such swaps in the event of default. I'm sure there are more, and perhaps more caffeine will bring some to mind. But isn't that enough already?

Any ONE of those things is story enough to rock one's confidence---a confluence of those stories almost numbs one to any further surprises. Like the infomercials, we have a "But wait there is more...." Enough already we say....but that doesn't help. Now we are told that one of the stalwarts of the industry, Maddoff--innovator, entrepreneur--is really only a trickster par excellence. Form Maddoff's website:

I suppose his name on the door will be supplanted by a number on his prison jumpsuit. You can be transported to the website by clicking on the above graphic. If you want to see Madoff's investments as of 09.30.08 you can find them here.

If hedge funds thought they had any opportunity to argue against regulation, then that has been lost. Personally, I feel that any in a fiduciary capacity should be subject to some oversight. There out to be adequate controls, REAL transactions and some accountability for funds. That's not to mean that the HF manager doesn't make bad investments. But folks ought to know how much leverage is used, and ought to be able to embrace the comfortable thought that while their investment might evaporate from haphazard investment choices and overleverage, their money is never used to fund a Ponzi scheme--large or small.

Perhaps the lesson to be learned is that the market is really nothing more than a gigantic Ponzi scheme.

Wednesday, December 10, 2008

The Q Ratio

Bloomberg has an article, Q Ratio Signals ‘Horrific’ Market Bottom, CLSA Says, that's worth reading. The Q ratio, "compares the market value of companies to the cost of their constituent parts,". This ratio was developed my Nobel Prize winning economist James Tobin. At the bottom of bear markets, this ratio is .3. We are currently at .7. That does not point to anything good.

Nevertheless, the article suggests that before the 2014 trough, we could rally in a bear market. Why? The central banker's measures will work (read: deferring deflation), but they will have bankrupted the country and the currency will crash.

Tobin is also the author of Anatomy of a Bear. I've a B&N gift card, and I'm going to get this book.

Admittedly, I'm having some trouble calibrating my own sense of risk in this market. Having been careful to preserve my capital, I don't want to head willy-nilly forward. I'm mindful that if we are to get a rally (even of the bear market kind) there will be time to catch it.

Tuesday, December 09, 2008

A. M. Post

I had a late evening last night. My Am. Bulldog mix, Macy, had a tumor under her right arm. It was removed last Thursday and required several stitches. I've been checking her stitches from the front to ensure there was no swelling/bleeding. Last evening, I asked Mark to help me look at it more fully. Well, I found a gaping hole. The stitches look intact from the front, but---looks can be deceiving.

Naturally, I performed this examination 1 minute prior to my own vet closing at 8 p.m. I had to trek down to the emergency vet. When I called, they said they were not busy. Within the 30 minute drive, it seemed like Happy Hour! Though I've been watching Macy to ensure that she was not pulling her stitches, the vet felt that she had licked them off as the skin was swollen. They had to re-cut to get a clean edge and resew. She was a very good patient.
3.5 hours and $260 later I was home. But 11:30 is far beyond my bedtime. I still rose at 5:30 a.m. Perhaps a little more caffeine jump start............

Last evening, Macy was quiet on the bed, and there was no licking. I was watching TV and watching her, and then realized that she was licking again--almost surreptitiously. She now is sporting a Virginia Tech tee shirt. It seems to be working. I'll have to watch. One definitely meets some interesting dogs and people in the emergency vet office.

Monday, December 08, 2008

Throw out the Yardsticks: Recalibration is Near

Bill Gross writes this week's "Outside The Box Missive". I'm lifting this piece of it, because it lines up with my thoughts that there is a recalibration of p/e ratios in an era of massive de-levering. It is part of my theme of conventional wisdom fails with respect to the pricing of the market and using yardsticks (p/e ratios etc) that no longer are accurate. Click on the graphic to be transported:

My transgenerational stock market outlook is this: stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past not our future. More regulation, lower leverage, higher taxes, and a lack of entrepreneurial testosterone are what we must get used to – that and a government checkbook that allows for healing, but crowds the private sector into an awkward and less productive corner.

Sunday, December 07, 2008

A Quote---Thinking v. Doing

"The so-called spirit is an all too ethereal agent, permanently in danger of being lost in the labyrinth of its own infinite possibilities. Thinking is too easy. The mind in its flight rarely meets with resistance. Hence the vital importance for the intellectual of touching concrete objects and of learning discipline in his intercourse with them. . . Without the check of visible and palpable things, the spirit in its high-flown arrogance would be sheer madness. The body is the tutor and the policeman of the spirit."

Jose Ortega y Gasset, Man the Technician (essay)

I had mentioned that I procured an armful of books when I retrieved Ella Rose. [She has become a firmly entrenched (and thoroughly charming) member of our household.] I've quite a few books by my nightstand--a fire threat to be sure, but more likely a threat of being overwhelmed by the amount of material v. the amount of time/energy.

But one of my books, Jose Ortega y Gasset's, History as a System and other essays toward a philosophy of history, contained a passage that I quote above. It is particularly appealing to me, as it is a reminder that too much thought v. too little action puts one firmly in the wool-gathering camp.

Saturday, December 06, 2008

Inflationistas v. Deflationistas

If you were to read nothing else today, I would recommend your reading the above article at John Mauldin's website. Click on the graphic above to be transported.

It seems that we are caught in a couple of battles that could leave one decidedly the cross fire of the inflationistas and the deflationistas. The recessionistas have already taken the hill and planted the flag--they watch in curious apprehension as to the winner of that battle.

While I see D-day in the offing, I do not have any clear-sighted understanding of any of this. I realized just how pygmied my mind was when I ventured to read Krugman's articles on Japanese deflation. Oh, I'll get through it sometime, but one has to muster fortitude to do so. Such articles are not accessible to laypersons such as myself without much mental work.

The second fight is that of what any of this means with respect to the stock market. Some contend the bottom is in and admonish you not to be caught on the sidelines for the greatest buying opportunity ever. You remember of course the chorus of folks warning that we will run out of oil, and it will be $200 per barrel when it was barreling toward $150. Now those same voices are saying that we could hit $25.

It is always useful to engage in a little "What do you have to believe is true?" discussion for the next bull market to be upon us. I've not formulated my thoughts on that just yet, and I'm out the door now, to visit my Dad in the hospital (stent procedure that was successful).

Thursday, December 04, 2008

WSJ Sectors for Today

No commentary....these tables say it all. Bottom callers abound. Tomorrow's job number will be an important test of the market.

All Industries

View % Change for:

Industry Name	Percent Change (over time selected)
Oil & Gas	-6.40%
Oil & Gas Producers	-5.90%
Exploration & Production	-10.87%
Integrated Oil & Gas	-4.11%
Oil Equipment, Services & Distribution	-8.95%
Oil Equipment & Services	-8.92%
Pipelines	-9.62%
Alternative Energy	16.26%
Renewable Energy Equipment	16.26%
Alternative Fuels	0.00%

Basic Materials	-3.37%
Chemicals	-2.38%
Commodity Chemicals	-1.81%
Specialty Chemicals	-3.15%
Basic Resources	-4.98%
Forestry & Paper	-5.25%
Forestry	0.00%
Paper	-5.25%
Industrial Metals & Mining	-3.07%
Aluminum	-13.03%
Nonferrous Metals	-3.18%
Iron & Steel	0.50%
Mining	-7.54%
Coal	-14.79%
Gold Mining	1.19%
Platinum & Precious Metals	-4.14%

Industrials	-3.01%
Construction & Materials	-2.55%
Building Materials & Fixtures	-1.08%
Heavy Construction	-4.95%
Industrial Goods & Services	-3.04%
Aerospace & Defense	-2.69%
Aerospace	-2.54%
Defense	-2.83%
General Industrials	-3.08%
Containers & Packaging	-3.60%
Diversified Industrials	-3.02%
Electronic & Electrical Equipment	-4.63%
Electrical Components & Equipment	-4.86%
Electronic Equipment	-4.25%
Industrial Engineering	-5.10%
Commercial Vehicles & Trucks	-6.96%
Industrial Machinery	-2.67%
Industrial Transportation	-0.98%
Delivery Services	0.38%
Marine Transportation	-1.61%
Railroads	-1.79%
Transportation Services	0.18%
Trucking	-2.70%
Support Services	-3.03%
Business Support Services	-3.34%
Business Training & Employment Agencies	-3.33%
Financial Administration	-3.63%
Industrial Suppliers	-2.13%
Waste & Disposal Services	-1.62%

Consumer Goods	-2.38%
Automobiles & Parts	-4.71%
Automobiles	-7.48%
Auto Parts	-3.48%
Tires	-2.17%
Food & Beverage	-2.76%
Beverages	-3.08%
Brewers	-2.88%
Distillers & Vintners	-0.78%
Soft Drinks	-3.17%
Food Producers	-2.41%
Food Products	-1.93%
Personal & Household Goods	-1.93%
Household Goods & Home Construction	-1.88%
Durable Household Products	-0.84%
Nondurable Household Products	-2.60%
Furnishings	0.69%
Home Construction	5.87%
Leisure Goods	-2.17%
Consumer Electronics	-0.98%
Recreational Products	-3.72%
Toys	-1.96%
Personal Goods	-1.92%
Clothing & Accessories	-0.81%
Footwear	0.06%
Personal Products	-2.80%
Tobacco	-1.97%
	-1.97%

Health Care	-2.29%
Health Care Equipment & Services	-1.96%
Health Care Providers	-1.34%
Medical Equipment	-1.65%
Medical Supplies	-3.42%
Pharmaceuticals & Biotechnology	-2.43%
Biotechnology	-1.67%
Pharmaceuticals	-2.72%

Consumer Services	0.39%
Retail	0.98%
Food & Drug Retailers	0.00%
Drug Retailers	0.93%
Food Retailers & Wholesalers	-1.82%
General Retailers	1.28%
Apparel Retailers	1.32%
Broadline Retailers	1.50%
Home Improvement Retailers	1.59%
Specialized Consumer Services	-1.50%
Specialty Retailers	2.72%
Media	-1.37%
Broadcasting & Entertainment	-0.71%
Media Agencies	-4.66%
Publishing	-4.76%
Travel & Leisure	0.70%
Airlines	1.78%
Gambling	-5.47%
Hotels	-3.38%
Recreational Services	-0.33%
Restaurants & bars	2.13%
Travel & Tourism	-4.18%

Telecommunications	-3.35%
Fixed Line Telecommunications	-3.35%
	-3.35%
Mobile Telecommunications	-3.32%
	-3.32%

Utilities	-4.64%
Electricity	-4.56%
Conventional Electricity	-4.56%
Alernative Electricity	3.76%
Gas, Water & Multiutilities	-4.86%
Gas Distribution	-6.03%
Multiutilities	-4.11%
Water	-3.63%

Financials	-2.07%
Banks	-1.62%
	-1.62%
Insurance	-2.31%
Nonlife Insurance	-2.20%
Full Line Insurance	-4.57%
Insurance Brokers	-2.91%
Property & Casualty Insurance	-1.93%
Reinsurance	-2.25%
Life Insurance	-2.66%
	-2.66%
Financial Services	-2.16%
Asset Managers	-1.99%
Consumer Finance	-3.66%
Specialty Finance	-1.22%
	-1.47%
Mortgage Finance	1.75%
Real Estate	-3.23%
Real Estate Investment & Services	-1.83%
Real Estate Holding & Development	-1.17%
Real Estate Services	-3.58%
Real Estate Investment Trusts	-3.28%
Industrial & Office REITs	-2.89%
Retail REITs	-1.98%
Residential REITs	-2.70%
Diversified REITs	-3.13%
Specialty REITs	-4.45%
Mortgage REITs	-4.91%
Hotel & Lodging REITs	-3.92%

Technology	-4.19%
Software & Computer Services	-3.99%
Computer Services	-4.31%
Internet	-2.31%
Software	-4.31%
Technology Hardware & Equipment	-4.36%
Computer Hardware	-4.15%
Electronic Office Equipment	-5.24%
Semiconductors	-6.02%
Telecommunications Equipment	-3.07%

Wednesday, December 03, 2008

The Short View

The Financial Times' John Authers presents terrific videos (they are short, but pithy!) on various 'stuff'. He has a video on the Chinese renminbi among others. They are both well done and informative. You can find them here. Take a look!

Tuesday, December 02, 2008