Subprime Insight

One of the reason’s I’ve been paying close attention to the market is because a close study of them can tell you exactly what the smart money is betting on. Two months ago I came to a horrible realization that the smart money has been betting on truly catastrophic events happening for quite sometime now. We have a couple of choices, but neither are good. We could go through stagflation, which we’ve been through before, no problem. However, it’s looking like we will be going through deflation if every step is not taken to prevent it, but, again, we’ve been through that during the Great Depression. Yet, the worst of all economic outcomes is an inflationary depression. We have not been through that and the outcomes of such economic times are horrific. Here is a visualization of that possibility from MTV.

If you looked at my original crash portfolio weighting, I had TSCM at 5%. I took the stock off the portfolio this week but I didn’t explain why. After all, why would I buy a tech share when I’m so convinced the market is going down?

I’m a tech guy. I made all the money I ever have in tech. Until the beginning of this year, I was up 150% in 1 and a half years. I’ll eventually put up my returns for all to see. I didn’t give a crap about “subprime” or financial losses. I thought it was well contained, but, boy, was I proven wrong.

I started writing this blog after I noticed trading patterns fundamentally changing in the tech sector. How did I know? Intuition. The price fluctuation I was seeing in tech shares were way too big and counter previous stock market behavior. I’ve become weary of this phenomenon called “cashing out” and it’s effect after January 2nd, the start of the new tax year. Basically, investors wait until Jan 2nd to place trades after siting on them for a month or so to stall tax payments for a whole year. It’s really smart but common sense stuff.

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Although Ron Paul is running for President very few people actually know of him. His policies are about as free market as free market can get. Support from Wall Street is raining in from those who understand the perilous position that we are in. These are two videos that every informed American should watch. However, for those that understand economics: his stance is too little too late (I’ll explain that later).

Ron Paul on the Inflationary “Depression” that is coming:
Ron Paul video on his stance for a strong dollar:

This video just got posted on youTube, but I could not agree more with Peter Schiff. I was going to write a post on the topic but it helps to have a CFA agree with your points. Why are stocks up during the horrible news we’ve had this week? Like I’ve been saying for the past month: the weak dollar. To understand the dynamic it is important to understand dynamics from an international perspective. The same argument for gold and oil, I’ve been proposing is the same one I’m proposing for stocks:

• A weak dollar with unchanged stocks means cheaper stocks for foreigners and their $2 trillion in cash.
• When stocks go up slower than the change in currency, the spread, or the difference between the currency devaluation and stock rise, is how much cheaper stocks are to foreigners.
• Fake catalysts are used as buying or selling excuses for foreigners to hide this effect, aka the IBM stock buyback program (I’ve studied buyback programs in depth: they are scams to longterm investors, pure robbery).
• Remember: to foreign investors there are two general components of investment return (the third is dividend yield but not important right now):

1. Capital gains, which applies to US investors also.
2. Exchange Rate, which only applies to foreign investors. Although paradoxical, if a stock declines by 5% but the currency appreciates by 10% you still get a 5.55% return, excluding transaction costs. Read the rest of this entry »

I don’t necessarily believe wave theory is as good as technical analysis, but he has some very interesting points people need to consider.

Added on January 22th, 2008:

Added February 7th on YouTube:

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Here is the end of Apple’s keynote by Randy Newman.

I have been following Apple stock for about two years now. For example, have you heard of the iPhone nano? It was speculated by JP Morgan analysts last summer shortly after the iPhone was released. I’m one of the few fools out there that hasn’t made a dime on Apple because of the way I invest. I like putting my money in before big announcements that I know are going to be positive in expectation of a sharp rise in the stock price the next day. However, that has not happened with Apple for the last two years. After every major announcement, not release, the stock has never closed higher on the next day due to sell-offs. Go look up the closing price before every Apple announcement and compare it to the next days closing price. For example, the day before the iPhone was announced the stock closed at $99 and the day after closed at $90. For those that didn’t know that going into Apple’s last keynote, sorry.

Although the article is long, if you stick with it there is an interesting surprise at the end. This article has been slightly edited for illustrative purposes.

An Article on Real Estate Speculation

A wise prophet observed many years ago that “when the blind lead the blind, both fall into the ditch” - a maxim which accurately describes our situation in both business and government today. In this respect the real estate field is no exception, unless it be in the extent of its mishaps and the number of people affected by them. It behooves us, therefore, to give some serious thought to the manner in which we have arrived in our present unhappy situation.

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Jim Chanos, who called the ongoing situation with the bond insurers, argues that the government should stop the coming forced sales of securities by managers. He calls the current situation a result of, “people working hard to get the square peg in the round hole. Now that it’s jammed in there, no one wants to figure out how to get it out and make it fit better.” Why start selling now that ratings have caught up with reality if the problem had been present all along? The sellers will be taking advantage of and their shareholders robbed. It is in the best interest of the shareholders to keep the papers in this type of market.

I hope more people like Jim Chanos keep popping up: right now we need every smart idea we can get. No idea is too far fetched to stave off the massacre going on in the market place. If the problem gets too bad it will drag the entire economy down.

Watch the video.

Shares of YHOO rose past the $30 mark shortly in late afternoon trading. Bloomberg broke an article at 2:26pm that Microsoft was either considering a revised big for Yahoo! or a hostile takeover. Unreliable sources and volume indicate that speculation of a new bid could have been leaked. The new bidders? Apple, AAPL, who has $18 billion in cash, and News Corp, NWS. It is still unconfirmed if either will really bid for Yahoo! Apple Insider is also suggesting the same. They broke the news around 12:00.

UPDATE: It looks like Microsoft will continue its pursuit of YHOO. Bloomberg is reporting it could extend the buyout offer directly to shareholders.

Feb. 4 (Bloomberg) — Dawn Bennett, who oversees $1 billion as chief executive officer of Bennett Group Financial Services, talks with Bloomberg’s Rhonda Schaffler in New York about the U.S. economy, fiscal and monetary policy, the U.S. credit market and her equity and commodity investment strategy. President George W. Bush sent Congress a $3.1 trillion federal budget today that trims Medicare and health care programs, boosts military spending and projects the deficit this year and next will hit near-record levels. (Source: Bloomberg)

Dawn Bennett recommends some common sense economic solutions: Like a sound currency.

Watch the video by clicking the link on the left.