A nice way to stay in touch with loved ones, and a convenient way to share my opinions without having everyone just walk away...wait a minute, where are you going? I wasn't finished..

Thursday, June 28, 2007

Are you calling me a liar?

Irish65domer had this response to someone who questioned the accuracy of a post:

I realize that you believe you understand what you think you read,
but I'm not sure you know that what I wrote was not what I meant.

Monday, June 25, 2007

Dudes, this is going to hurt - a lot

I think I owe it to my loyal readers to explain what is happening in the hedge fund market, and particlarly about CDO's (Collateralized Debt Obligations), and I would if I could figure it out. There is an Alice in Wonderland quality to the financial writers' explanations of these ventures. If you sat across a table from one of these guys and had him explain it to you for half an hour, you'd be more confused at the end than at the start, and he would be so embarassed at the gobbledygook he was mouthing he could conclude in no other way than to say, "At least, that's how they explained it to me."

This would be the same guy who after the Enron collapse confessed he never really understood how Enron was supposed to be making money, but the numbers they reported were really impressive. But he wouldn't make that mistake again.

And wasn't this also the guy who, after the dot-com crash, shook his head about the way a couple of kids could come up with an idea about how to make money selling something on the internet and sell stock for a hundred million dollars when all they really had was a rented office with some rented furniture. I guess we'd all just gotten carried away in the moment.

Bullshit! These guys are whores, happy to tell the public whatever the investment bankers and brokers want them to say. They trade not only their objectivity, not only their integrity, but their humanity to become a cog in the great devouring machine that is Wall Street.

The ultimate villains are, of course, the investment bankers who put together billion dollar deals, taking their hundred million off the top knowing, albeit with "plausible deniability", that these deals are bound to fail. Maybe the rest of us should pray that New York and California both fall into the ocean on the same glorious day. Because these deals won't just hurt the people who invest (largely through their pension funds), but will wreak havoc on the economy that was meant to employ and sustain us all. I suppose these guys will be so uncomfortable in the aftermath they'll have to retire with their hundreds of millions to some middle eastern country where they've been endowed with dual citizenship.

Anyway, a CDO is a massive dog's breakfast of debt; junk bonds and substandard mortgages with a few supposedly good loans stirred into the mix, and through the magic of "tranching" - which supposedly recognizes that some portions of this debt is more likely to default than the other portions, and arranges that interest paid on that least desirable debt will be higher than the interest paid on the rest - eliminates all but the most egregious of the credit risk. Sure enough up pop Mr Moody and Messrs Standard and Poor to slap AAA or Aaa ratings on this debt package. But if you read the small print you find the disclaimer that the ratings are "purely estimates" and "should not be used in making investment decisions".

The hedge fund then takes out credit insurance on the debt in case of default by the debtors. But this insurance is so cheap relative to the risk, that the only explanation possible is that the insurer is either an incredibly stupid fellow who's happy to take money today without worrying about what might happen tomorrow, or he's another investment banker who writes a clause into the deal that says he doesn't have to pay in case of fraud by the borrower or the fund manager. There'll be enough evidence of fraud in these deals to keep the insurer from paying until the issues are settled in court, which will be never.

You and I are now among the one in a (ten?) thousand Americans to know what's going on here, but it doesn't make us feel much better, does it?

I'm attaching a post from a real estate agent in Minnesota about his experiences with the housing bubble, and what he thinks is happening to the housing market and the economy.

"scooby said...
I've been selling real estate the past 7 years and have been quite successful, that is until last June. I primarily marketed a northern suburb of Minneapolis which has experienced tremendous growth in the past 10 years.

Frankly, it's over. The housing market has officially crashed. Here are some recent sold statistics for the area I market:
March thru June 15
(2004) Sold 172 units
(2005) Sold 216 units
(2006) Sold 168 units
(2007) Sold 53 units (350 active listings)

During this same timeframe only 17 new construction listings have been sold. Of these, 6 of them were bank owned. Currently, there are approx. 130 active new construction listings.

Ok, so the housing bubble has popped; what does that mean for the average person? First, we are losing the largest manufacturing industry in the U.S. You will begin to see unemployment tick up, but many of these jobs were under the table. Meaning, the skilled workers were being paid cash. These individuals will not be able to file for unemployment. The loss of these jobs will bubble up over the next 1-2 years and will surface on the bottom lines of retailers like Home Depot and Lowes.

Second, as prices fall, home equity loans will be a thing of the past. Falling home prices are the single leading factor in the bubble burst. Prices started falling well before foreclosures were an issue. My estimation is prices began to fall in early 2005. Homes prices have now retreated to 2003-04 levels. Meaning a home that sold in 2005 for $250,000 is now selling for $220,000 (as long as it’s in perfect condition). Homeowners’ getting over their heads financially is nothing new; however; the difference now is they can’t just sell their house, because they owe more than it’s worth. I turned away 20+ listings this year due to homeowners being upside down on their mortgages. As a result, they are walking away and letting the banks foreclose on them. As more and more foreclosures (up 90% from last year) hit the market home prices will continue to be pressured downward. Before it’s over (if things don’t spin totally out of control) we will see price levels equal to the year 2000…Approximately, a 20% decrease in prices.

Now, you may say, “great, I can’t sell my house for what I owe on it. I will just stay and wait for the market to turn. I have a good job and can get use to the idea of staying in my home a little longer. This problem doesn’t really affect me.” Wrong, as more and more homeowners are unable to tap into their homes equity they will no longer be buying cars, 4 wheelers, big screen t.v.’s, computers, lawn tractors, updating kitchens, roofs or siding etc. Millions and millions of homeowners will be putting off discretionary spending out of necessity. This will result in a tremendous fallout in the retail sector of our economy, which in turn, will have a direct effect on the transportation and manufacturing industries. Many jobs will be lost and many more homes foreclosed.

Finally, as the housing market crashes, so does the tax roll of state, county and local governments. These institutions have built their budgets on the back of the housing surge during the past ten years. It will not be unheard of to see local governments going bankrupt, schools shutting down, police departments with skeleton crews and social programs slashed. You will quite literally see ghost towns, large developments with empty Mcmansions, because it made more sense to walk away than pay the exorbitant property tax.

Sounds depressing doesn’t it. Well, history shows that it will be depressing. This is exactly what happened before the stock market crash that lead to the Great Depression."

Well, folks, that's about it for today. Maybe all this negativism reflects market fatigue. The market did close lower today and we were short, but it was up so much mid-day that we were down $500 before we closed up $50. Whewww, or as Mally would say "scaaary".

Sunday, June 24, 2007

OK One more

Another 2006 highlight film, but this one's got that The Saints are Coming song as the soundttrack

I'll keep it short

My mandatory weekly market comment: "The market never bottoms on Friday"
I put it in quotes to show this wisdom didn't originate with me and so I'll be able to disclaim if the market is up tomorrow.

Bizzarro world

Isn't that where Superman had some adventures and everything was weird? Well, you may doubt my finanancial sense, or question my political judgement - but I have irrefutable proof now. SWITZERLAND is competing for the America's Cup.

Friday, June 22, 2007

ND Highlight Film

Check it out.

We'll really miss Quinn, Samardjzia, McKnight, Walker, Ndukwe et all. But it'll be fun watching Zibby and Lambert and Thomas and a lot of new guys.

Sunday, June 17, 2007


As always, you can skip this one and go to funner new stuff below.

I'm so confused. Gold (August)spent the week climbing off a 650 low with decent volume. The equity indexes are all up, testing their highs of a couple weeks ago, the NASDAQ100 actually closed over the recent high on Friday. I'll have to wait til tomorrow to see which way the wind blows.

I've been reading what the bankers are saying. They say they're not too concerned about the ten year rate being over 5%, that the housing downturn hasn't hurt the economy as badly as they'd though it might, and the Fed won't have to cut rates to give business a boost. They'd invested in a lot of bonds in case the rate was reduced and bonds got a little over-priced and are coming back down. Not too worry, everything's fine. But then, what would we expect them to say, and are they really that blase' about the money they lost on their bond holdings when the rates went up?

One interesting point was that commenting on the equity markets, they pointed out that large caps do better in volatile markets, and their profits are less sensitive to interest rate fluctuations. Also if rising interest rates worldwide reflect economic growth, large caps which have greater exposure to foreign markets will benefit.

Remember a month or so ago I mentioned hedging. The idea is to buy and sell futures you expect to react differently to the same stimulus. In this case the idea would be to buy the Dow and sell the Russell 2000. If they both go up, the Dow should go up more. If they both go down the Dow should go down less. It would be great if the Dow went up, and the Russell went down, bur that's not likely to happen. It's even less likely that the Russell would go up and the Dow down which would be worst case.

This is where options come in. If you buy a call on the Dow (getting the right but not the obligation, to buy it in the future at a little more than today's price), it costs you some cash. If you sell a call on the Russell (giving someone else the right but not the obligation to purchase the stock from you in the future at a little more than today's price) you get some cash. The cost and the proceeds net out to reduce the cost of your speculation, and you can always hope the Dow will go up enough to make it worthwhile to exercise your option but the Russell will just go up a little, and the buyer of your call won't exercise his. Then you have a profit on your Dow contract and the proceeds of the sale is your profit on the Russell contract.

I shouldn't be so careless in my wording. Above,I talk about "us or them" exercising the option. Well, that's not really going to happen on the long or short side. The market price of the option rises or falls as the price of the underlying index rises or falls. We would plan to have closed out our options at a profit at a point of our choosing well before the expiration date.

Whew, makes my head hurt just thinking about it. But some people do it all the time, and it appears to me that you have a better chance of making money with options this way than if you just go long or short one contract. I'm not going to do it, but I'm going to keep an eye on the Dow vs. the Russell to see if it would have worked out.

Corey Mays is a Patriot now

but ND has some killer linebackers coming up

Mike Hart meet Corey Mays

Saturday, June 16, 2007

And now this bit of breaking news

Oh, and in case you missed it, the Spurs won the NBA Championship. I missed it. There was a funny rerun of The Office on, and then I tried to start reading The Brothers Karamazov, and then there was a somewhat amusing rerun of Everybody Loves Raymond on, so… there ya go. The Spurs. Huh.

From the "Her Loyal Sons" blog

Friday, June 15, 2007

A Nice Man

Discussing the 60's with Janett, I spoke of a young man I'd known at Notre Dame. His name was John Garvey and he was very bright and gentle. So I googled his name and I think I found him.

He's an ordained priest of the Orthodox Church of America. Here's a sample of his writing for "Commonweal"

I suspect that another source of discomfort with the notion of evil is that it introduces us to territory we seem to have left as a society, and even as Christians. That is, we have somehow lost the idea that life really does involve a struggle for light against darkness; a series of choices between good and evil; a sense that we must ultimately choose between life and death, and that there is something that draws us toward darkness and death.

There is something that does not love humankind, and it goes deep. All religious traditions have understood this. Satan in the book of Job is part of God's court, but the way he helps out is through destruction. The Buddha is tempted by Mara, in a way not unlike the temptation of Christ in the desert. We dilute our understanding of the darkest human possibilities by reducing them to a set of psychological problems. Henri Nouwen once told me, after he read the desert fathers, that Christians should avoid importing psychological concepts into those areas of Christian thought where the traditional vocabulary served perfectly well. And the traditional vocabulary, including that used by Jesus in the Sermon on the Mount, was a lot more comfortable than most of us are with the idea of evil and hell. We have sentimentalized our understanding of God's relationship to humanity. It is curious that we should have begun doing this in such a blood-drenched century as the last one. So we try to explain the Holocaust, Hiroshima, the killing fields of Cambodia, My Lai, Jonestown, the Manson family, September 11, all without any reference to radical evil, or the power evil has to take us over, one by one, or as a society.

It goes without saying that the invocation of religion does not help us out of this dilemma, since the history of religion is so studded with evil events, done in God's name. But to deny that evil is real is to deny something we really do experience, out there--that is, in our suffering world--and in here, in our own hearts. Aleksandr Solzhenitsyn has said that the line between good and evil runs through every human heart, and it is essential for us to keep this before us every time we use the word.

He's written several books. Maybe I'll get one,

A quote I found while browsing

Being poor is picking the 10 cent ramen instead of the 12 cent ramen because that's two extra packages for every dollar.

John Scalzi , Being Poor
Whatever, 3. September 2005

Also, Mr Wizard died:

Don Herbert, Mr. Wizard: 1917-2007
From the NY Times,

Don Herbert, who unlocked the wonders of science for youngsters of the 1950s and ’60s as television’s Mr. Wizard, died yesterday at his home in the Bell Canyon section of Los Angeles. He was 89.

I guess you have to be kind of old to remember Mr Wizard. He was like a high school teacher with a class of one.

Wednesday, June 13, 2007

What's Up?

Just checking in so you'll know I'm OK.

We had a nice week-end with a birthday party for Noah at Lauren's folk's house. It was a lot of fun but we didn't get to visit with Sharon (Lauren's mom), 'cause she started chemo last week after her surgery last month, and was indisposed. I hope she didn't think we were goofy partying while she wasn't feeling well. I think Lauren wanted to have the party at home so we could all wish Noah a happy birthday and she could be close to her mom. We all wish Sharon a speedy and not too arduous recovery.

Got some quality Malachy time in with a trip to Lord's Park yesterday. We used to picnic there with the kids. Mally would have been happy just sliding on the slide and swinging on the swing, but we made him tour the little zoo, walk all the way around the lagoon, observe the fishies, ford the little creek and, walking back to the car, pass uncomfortably close to a large lawn mowing vehicle.

I got home and crashed, but then Steffo called to have me help persuade Malachy over the phone to eat his dinner. Instead he persuaded me to walk with him to the grocery store to buy fruit. Last time an apple, this time grapes. I love it when he eats something besides french fries and chicken mcnuggets. Steff's been working with him so now he'll eat the occasional piece of bread. Oh and he likes trail mix - or more accurately, he likes to pick the m&m's out of the trail mix. He's a libra like me and I'm trying to teach him to have ADD too.

Thursday, June 07, 2007


That's Jason, our oldest, with his Dee and unidentified raconteur

Their little guy, Joey, with tag along cousin, Malachy

Funny or Not so Funny

Sunday, June 03, 2007

Just so you know how i'm spending my time:

If you hate this stuff you can skip it. Two other newish (unrelated) posts below.

OK, it's the weekend. No trading opportunities. Time to scan the news. The University of Michigan Consumer Confidence Survey yielded higher numbers, important because consumers drive the economy. Also the Department of Labor reported "higher than expected" job creation. Also The Midwest Purchasing Managers' Composite Index, reflecting manufacturing activity, increasing "more than expected." All good indicators for the economy and therefore for the markets. The Fed's take on the news was that maybe things slowed down a little in the first quarter, but we're already rebounding. Of course I'm sceptical, but there it is.

All the index weekly charts continued upward trends. The Dow Jones Industrials June futures contract is up nearly 10% in two months. Reports are that there are a lot of short positions on the NYSE stocks. If the markets keep going up, the bulls say these shorts represent buying demand as the shorts have to be covered.

Another item. From October '81 through June '05 the 30 year bond interest rate declined from 14.68% to 4.29%. Now it's moved up again to 4.9%. The up move seems insignificant relative to the decline, but if long term rates keep rising it will be important. Rising long term rates are bad for the stock market because, at the same time, the higher rates slow consumption, reduce corporate profits, and provide a more attractive alternative to equity investments. Costs associated with baby-boom retirements will insure large and growing deficits, so long term rates should keep rising.

And a side note, trade relations with the Chinese are growing more complicated. When we insist the Chinese strengthen the yuan/renimbi to help American producers, we're asking the Chinese to reduce the worth of their dollar denominated investments - e.g. investments in treasury debt. We'll have to increase yields to maintain Chinese investment at current levels, and raise rates even further to coax additional funding from them. Hey guys, the time to time to cut the import flood was 5 or 6 years ago. (Stayed too late at the party, did we?) Remember that old joke? It's hard to remember you're there to drain the swamp when you're up to your ass in alligators.

Difficulties for markets to deal with in the coming months, but what about Monday? Will the markets be dealing with these issue or will they be reflecting the good news on job growth, consumer confidence and the purchasing managers index? More the latter I think, and the pot will be stirred with rumors of merger and acquisition activity.

So if I were to long an index future which one would it be? The Dow has been almost too strong, and I'm still suspicious that the S&P is struggling at this level. Remember the old low on the S&P was $768 and we wanted to see what happened at double that number. Well, It's Here: the S&P closed at $1536 Friday. The Russell 2000 had a good run last week, and closed trending up on Friday, whereas the NASD100 was weak at the close. Also the Russell is less than 2% over its February high. The Russell trades with less of a daily range, and is less likely to shock me with a quick movement down. The daily volume in this contract is about one third of the outstanding contracts, less than the other indexes. Sounds like more upside with less risk.

Also, I'm still long that mini gold, and that could be OK - I hope. The gold spot market is at 671. "It could go either way from here" As always, but more so. Where should I place my stop loss and where should I plan to double up? I'll ask Mr. Fibbonaci what he thinks.

Hmmm, if the major indexes are falling Monday I should be able to get out of the Russell with a minimal loss and short the S&P mini as alternative strategy. I could get whip-sawed. As they say in the old English movies "Too clever by half."

Friday, June 01, 2007

How to get to November undefeated

From OC Domer Blog

I like that second to last paragraph about what the Buckeye season ticket holders have to look foreward to.

"What the heck is going on here? Hey Buckeye Fan, do have any freaking pride at all? Here is the 2007 Football Schedule for THE Ohio State University Buckeyes, along with the earliest post-2006/pre-2007 rankings of their opponents from College Football News and Athlon Sports, respectively. Plus some commentary from OC Domer.

9/1 Youngstown State, in Columbus. Not ranked by either publication, since Y-Town is a Division I-AA program. But Y-Town is a Top 10 team in I-AA, according to these guys, who have them ranked at #4, behind Appalachian State, Montana, and North Dakota State.

9/8 Akron, in Columbus. #95/#93. Another nice home game for the faithful, who are no doubt happy to have camped out to get these tickets.

9/15 Washington, in Seattle. #54/#55. Week three and OSU still hasn't played a Top 50 team, although UW is in a BCS conference, which is nice.

9/22 Northwestern, in Columbus. #66/#75. The beginning of the Brutal Big Ten Schedule. I guess Northwestern is another team from a BCS conference, technically. Good thing it's at home though, as crowds in Evanston can be very hostile.

9/29 Minnesota, in Minneapolis. #46/#53. It's week 5, and hopefully the Buckeyes are finally prepared to go on the road, all the way to Minnesota, to face a team that is arguably, maybe in the Top 50.

10/6 Purdue, in East Lafayette. #53/#51. The gauntlet that is life in the Big Ten continues with another road game against a team that is almost Top 50 caliber.

10/13 Kent State, in Columbus. #88/#103. Is it fair to call this one a breather? A chance to recover from three intense weeks of conference play, including back-to-back road games versus near-Top-50 teams. I wish I could be there to feel the electricity in the air as the Buckeyes take the field against their in-state rivals.

10/20 Michigan State, in Columbus. #60/#77. Good job OSU to play these guys in your own house, as Irish fans know how tough they can be in East Lansing. But still, a normally respectable opponent who has fallen on hard times and who shouldn't cause a TOP 10 OSU team too much trouble.

10/27 Penn State, in Happy Valley. #24/#17. I know week 9 seems a little early to play a Top 25 team, but you're just going to have to man up and do the best you can. Hopefully by now you will have sorted out your quarterback depth chart. This is probably the first game on your schedule where it will matter who the QB is.

11/3 Wisconsin, in Columbus. #5/#9. Well, it is November. This should be a doozy of a game, if OSU can avoid the landmines littered throughout September and October.

11/10 Illinois, in Columbus. #61/#86. That's more like it.

11/17 Michigan, in Ann Arbor. #10/#8. There's nothing cute to say about this one. Always a great game, and it figures once again to loom large in the hunt for the National Championship.

No doubt Ohio State's schedule has a kick at the end, with three games against Top 25 teams in the final month. But the Buckeyes have the equivalent of eight straight scrimmages to open the season in order to get ready for the last month. Eight weeks to pick a quarterback and get him plenty of experience and confidence. Eight weeks to rest any bumps and bruises. Eight weeks to develop depth. Eight weeks to scout PSU, Wisconsin and Michigan.

For an "elite" program, the opening eight weeks of the 2007 season are an embarrassment. OSU's loyal fans get treated to home games against Y-Town, Akron, Northwestern, Kent State, and Michigan State during that stretch.

I don't normally devote space at OC Domer to calling out other programs - unless it's USC - but I have to make an exception in this case. Hey Ohio State: Your Brutal Big Ten Schedule is a joke. You ought to be ashamed of yourselves and your athletic director. And Coach Tressel's mom dresses him funny.

Man, I'm beat

I went long gold last night and I couldn't go to bed because I always put a stop loss order in when I'm long gold (an order to sell if the price falls to a certain level) and that darn Hong Kong market always drops down before it closes strong. So I stayed up til 3 AM and, sure enough, I had to lower my stop order price or I would have been stopped out, and missed a good move.

I may be crazy, but I'm not stupid.

True ( )
False ( )

Coming Up: I'm going to start posting some pictures of my wife, kids, gtandkids etc. to make my blog spot a warmer, happier place.

To start, here's a picture of Janett trying to keep me in my chair at a party.

I copied that in. I didn't know it was going to be little like that. Here's another:

Poor Janett, I kiss like a chimp.