I have some good news and some bad news. The good news is that that market neutral strategy illustrated through the blog research is working like a charm (I will be posting some results soon). The market has been on a massive bullish tear, to the dismay of market bears. Well, the new strategy works and it allows us to profit from both bullish and bearish moves. I have transformed my personal portfolio to the market neutral strategy. The bad news is that the problems that caused those of us who know how to count to be bearish are still abound and have apparently been conspired into the bin of ignorance.

 Accounting boards, banks, media and sell side analysts in general appear content to ignore the facts, change the way we count losses (after all, losses are,,, well,,, losses. Right???!!!), and generally sweep the banking problems under the rug in anticipation of bubbling our way out of the problem or at least concealing it long enough through accounting shenanigans to allow accounting profits to somehow paper over economic losses. Good luck with that. Underlying fundamentals are still deteriorating, albeit potentially at a slower pace, as share prices are literally flying through the roof. Those who are in the market and are bullish or not market neutral are, in my opinion, playing with fire. It is gambling to buy stock just because the stocks prices are going up. I know it feels good when the prices go higher after you buy the stock, but the underlying fundamentals are atrocious and if one were to get caught in a nasty correction, one could not have said it was "impossible to see coming".  This is exactly the same scenario that played out in the dot.com bubble. Bulls were justified because share prices went higher, not because underlying values increased. When reality hit (and it always does hit, that's whey they call it reality) folks were literally wiped out.

I will anecdotally illustrate some of that fire investors are playing with in the banking sector. While I was browsing through the extremely interesting, if not controversial Zerohedge.com blog, I came across this video of Elizabeth Warren, who heads the Congressional Oversight Committee's investigation of the banks. I will like my readers to listen to it then continue reading this post.

I have some good news and some bad news. The good news is that that market neutral strategy illustrated through the blog research is working like a charm (I will be posting some results soon). The market has been on a massive bullish tear, to the dismay of market bears. Well, the new strategy works and it allows us to profit from both bullish and bearish moves. I have transformed my personal portfolio to the market neutral strategy. The bad news is that the problems that caused those of us who know how to count to be bearish are still abound and have apparently been conspired into the bin of ignorance.

 Accounting boards, banks, media and sell side analysts in general appear content to ignore the facts, change the way we count losses (after all, losses are,,, well,,, losses. Right???!!!), and generally sweep the banking problems under the rug in anticipation of bubbling our way out of the problem or at least concealing it long enough through accounting shenanigans to allow accounting profits to somehow paper over economic losses. Good luck with that. Underlying fundamentals are still deteriorating, albeit potentially at a slower pace, as share prices are literally flying through the roof. Those who are in the market and are bullish or not market neutral are, in my opinion, playing with fire. It is gambling to buy stock just because the stocks prices are going up. I know it feels good when the prices go higher after you buy the stock, but the underlying fundamentals are atrocious and if one were to get caught in a nasty correction, one could not have said it was "impossible to see coming".  This is exactly the same scenario that played out in the dot.com bubble. Bulls were justified because share prices went higher, not because underlying values increased. When reality hit (and it always does hit, that's whey they call it reality) folks were literally wiped out.

I will anecdotally illustrate some of that fire investors are playing with in the banking sector. While I was browsing through the extremely interesting, if not controversial Zerohedge.com blog, I came across this video of Elizabeth Warren, who heads the Congressional Oversight Committee's investigation of the banks. I will like my readers to listen to it then continue reading this post.

From the Real Deal:

When a report emerged that nearly half of U.S. homeowners would be underwater by 2011, market analysts were, naturally, concerned. The report, released by Deutsche Bank's Karen Weaver, has drawn widespread attention, largely because few other firms have pursued the same data. "I think in fact not a lot of folks have tried to do this analysis," Weaver said to CNBC's Erin Burnett. By taking housing price data and seeing how that would affect negative equity, Weaver said, "it ends up with a pretty shocking statistic." In the first quarter the top five cities with the highest underwater rates all had underwater percentages above 80 percent. Click here to watch the video. 

If this is anywhere near accurate, it will drag on the economy for a LONG time. It also maintains the spectre of a fall BACK into recession with just the slightest blip of a problem. Remember, the home is the average American's largest lifetime investment.

From the Real Deal:

When a report emerged that nearly half of U.S. homeowners would be underwater by 2011, market analysts were, naturally, concerned. The report, released by Deutsche Bank's Karen Weaver, has drawn widespread attention, largely because few other firms have pursued the same data. "I think in fact not a lot of folks have tried to do this analysis," Weaver said to CNBC's Erin Burnett. By taking housing price data and seeing how that would affect negative equity, Weaver said, "it ends up with a pretty shocking statistic." In the first quarter the top five cities with the highest underwater rates all had underwater percentages above 80 percent. Click here to watch the video. 

If this is anywhere near accurate, it will drag on the economy for a LONG time. It also maintains the spectre of a fall BACK into recession with just the slightest blip of a problem. Remember, the home is the average American's largest lifetime investment.

That the professional (fundamental) investor always looks for the numbers to back up the assertion while the reporter may often run with the assertion. I have caught a lot of executives lying over the last two years, and many of those lies have ended up in insolvency, bankruptcy, emergency mergers and collapse (speaking of bankruptcy, I should have preliminary previews of 2 or 3 very likely bankruptcy candidates coming on tap within a week or so for subscribers).

Case in point (in terms of lying, that is) is the recent article in the Wall Street Journal regarding PNC Bank - Jun. 29 PNC Waits to Repay TARP Funds:

That the professional (fundamental) investor always looks for the numbers to back up the assertion while the reporter may often run with the assertion. I have caught a lot of executives lying over the last two years, and many of those lies have ended up in insolvency, bankruptcy, emergency mergers and collapse (speaking of bankruptcy, I should have preliminary previews of 2 or 3 very likely bankruptcy candidates coming on tap within a week or so for subscribers).

Case in point (in terms of lying, that is) is the recent article in the Wall Street Journal regarding PNC Bank - Jun. 29 PNC Waits to Repay TARP Funds:

If one were to parse the bullshit that the government has allowed the banks to proffer in the name of earngings, one would find the banks will probably be flailing this quarter from bad loans and mortgages. Beware of the FASB authorized accounting games and peer beneath the hood.  I have included a portion of the professional level Wells Fargo analysis (click this link to subscribe) to help drive my point home, but before you peruse it as a non-subscriber, be sure to remember how this research subject twisted and manipulted their numbers to produce a bank profit out of a bank loss - Tricky Dick Bank Reporting Schemes - What record earnings are you referring to? then take a look at the hard data released by the FDIC and the NY Fed: Revised SCAP Assumptions Public Open Source Version 1.1 Revised SCAP Assumptions Public Open Source Version 1.1 2009-05-18 15:15:47 1.21 Mb) as well as an explanation as to how I tabuluated it. 

 Wells Fargo

Wells Fargo acquired home equity loans from Wachovia, which carries the highest default risk as its portfolio largely comprises second lien mortgages. The value of the home equity portfolio is US$128.9 billion.

If one were to parse the bullshit that the government has allowed the banks to proffer in the name of earngings, one would find the banks will probably be flailing this quarter from bad loans and mortgages. Beware of the FASB authorized accounting games and peer beneath the hood.  I have included a portion of the professional level Wells Fargo analysis (click this link to subscribe) to help drive my point home, but before you peruse it as a non-subscriber, be sure to remember how this research subject twisted and manipulted their numbers to produce a bank profit out of a bank loss - Tricky Dick Bank Reporting Schemes - What record earnings are you referring to? then take a look at the hard data released by the FDIC and the NY Fed: Revised SCAP Assumptions Public Open Source Version 1.1 Revised SCAP Assumptions Public Open Source Version 1.1 2009-05-18 15:15:47 1.21 Mb) as well as an explanation as to how I tabuluated it. 

 Wells Fargo

Wells Fargo acquired home equity loans from Wachovia, which carries the highest default risk as its portfolio largely comprises second lien mortgages. The value of the home equity portfolio is US$128.9 billion.

Monday, 25 May 2009 20:00

More Bank Bull Dookey?

I reckon these last 11 or so weeks as being akin to the dot.com bubble, wherein obviously overvalued companies with no (or even negative earnings),murky future revenue drivers, and impaired balance sheets were being hyped by sell side shills to levels that many purely fundamental investors, and basically those who simply know how to count, deemed damn near impossible. A lot of apparently smart people, ex. George Soros and Julian Robertson (the two biggest macro investors of that period - the Quantum and Tiger Funds), got wiped out trying to short thoe skeletal value stocks as they soared through the stratosphere. For a while, it looked like the shills were smart and the people who knew now to count weren't so smart. Well, as reality gained a foothold, the shill stocks and the entire market collapsed, never to regain those bubble highs. Unfortunately, those famous guys that knew how to count didn't stick in long enough. If I am not mistaken, Soros missed the market crash by a matter of months!!!

Well, here is a simple formula to aid those that know how to count, and may even enlighten those shill followers who don't know how to count...

 A decrease in residential real estate prices, such as that illustrated by the Case Shiller index leads to > home values = lower loan collateral = higher bank losses in event of default = higher propensity to default (walk away).

PLUS (+)

Low business activity leads to > corporate profits > employment which leads to higher defaults & lower consumer spending which leads to lower global GDP > lower banking profits = where we are right about now... And in yesterday's news...

Monday, 25 May 2009 20:00

More Bank Bull Dookey?

I reckon these last 11 or so weeks as being akin to the dot.com bubble, wherein obviously overvalued companies with no (or even negative earnings),murky future revenue drivers, and impaired balance sheets were being hyped by sell side shills to levels that many purely fundamental investors, and basically those who simply know how to count, deemed damn near impossible. A lot of apparently smart people, ex. George Soros and Julian Robertson (the two biggest macro investors of that period - the Quantum and Tiger Funds), got wiped out trying to short thoe skeletal value stocks as they soared through the stratosphere. For a while, it looked like the shills were smart and the people who knew now to count weren't so smart. Well, as reality gained a foothold, the shill stocks and the entire market collapsed, never to regain those bubble highs. Unfortunately, those famous guys that knew how to count didn't stick in long enough. If I am not mistaken, Soros missed the market crash by a matter of months!!!

Well, here is a simple formula to aid those that know how to count, and may even enlighten those shill followers who don't know how to count...

 A decrease in residential real estate prices, such as that illustrated by the Case Shiller index leads to > home values = lower loan collateral = higher bank losses in event of default = higher propensity to default (walk away).

PLUS (+)

Low business activity leads to > corporate profits > employment which leads to higher defaults & lower consumer spending which leads to lower global GDP > lower banking profits = where we are right about now... And in yesterday's news...

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