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Old 08-06-2007, 04:06 PM   #41
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Been buying the crap out of banks, insurers, shipping companies. Best entry prices on these I have seen in years.

For all the hand-wringers about ARM resets, bear in mind that about ~$2 trillion a year in mortgage originations is done every year, so a slight uptick in ARM resets is a drop in the bucket.
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Old 08-06-2007, 04:30 PM   #42
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i think the i banks are dropping like a rock for a reason. investors don't believe what they say and won't buy anything they sell. Bear Stearns CFO said that June was profitable, July should be profitable, but nothing on August.

i think it's something to worry about when there are questions about the ibanks profitablity instead of growth. and the latest figures i read were that 20% to 30% of buyers of the last few years are now locked out of the mortgage market due to the new standards

in the case of insurers, i've been reading rumors for years now that they bought a bunch of the credit default swaps on mortgages and will now have to pay up for all the foreclosures
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Old 08-06-2007, 04:40 PM   #43
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i think the i banks are dropping like a rock for a reason. investors don't believe what they say and won't buy anything they sell. Bear Stearns CFO said that June was profitable, July should be profitable, but nothing on August.

i think it's something to worry about when there are questions about the ibanks profitablity instead of growth. and the latest figures i read were that 20% to 30% of buyers of the last few years are now locked out of the mortgage market due to the new standards

in the case of insurers, i've been reading rumors for years now that they bought a bunch of the credit default swaps on mortgages and will now have to pay up for all the foreclosures
Heh, is that what passes for your analysis?

Its a pleasure to take your money.
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Old 08-06-2007, 05:15 PM   #44
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actually i took your money late last month before the big drop

my wife knows people who work on wall street, i'll have to ask her how they are doing
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Old 08-06-2007, 10:52 PM   #45
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Bought 20 S&P 500 index call options before the big run up today. They expire in DEC. Up about $2K so far. Time will tell whether my gamble was right or not

Also bought some AAPL options as they are announcing some new products tomorrow, figure they'll get a pop. Again, time will tell.

Wait, this isn't the Stock Pickers Forum....
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Old 08-06-2007, 11:26 PM   #46
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I lost about 10% from the peak. Just love these opportunities, and I bought more cheap RE stocks in HK that trade below 1/3 of NAT.
Who the hell is so stupid to sell 1 dollar for 30 cents :confused:
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Old 08-07-2007, 07:14 AM   #47
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in the case of insurers, i've been reading rumors for years now that they bought a bunch of the credit default swaps on mortgages and will now have to pay up for all the foreclosures
Why did my insurance co. (State Farm) sent me a dividend check last
month, is that all part of the illusion too?
TJ
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Old 08-07-2007, 07:25 AM   #48
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when they buy credit swaps they get paid depending on the amount they insure so there is cash flow and foreclosures have been pretty low lately. they are higher than the models predicted which is the reason for the volatility, but the big ARM resets don't start till October and foreclosures probably won't pick up until next year

they could have sold the swaps, they could have never bought them. no one really knows for sure. but someone owns them now and in the end someone is going to come calling to get paid on a defaulted loan

these credit things happen almost on cue every decade and every single time it's a surprise to people because they thought they hedged against it or some new computer model said it would never happen. in the end investors get mad, withhold money, rates go north, prices go south, some time passes and investors need returns again so they come back to wall street and the people that ripped them off in the first place, the first ones make money in some new investment, people copy it, leverage themselves, and after a few years it comes apart again and the cycle repeats

this time over $2 trillion in mortgage debt is going to reset and most of the people who took it out put nothing or very little down and in a lot of cases walked away from the closing with cash in hand. does anyone really believe they are going to pay 75% of their earnings to their mortgage once it resets? they will probably walk away, rent for half the price and keep on buying nice cars, ipods, $80 Juicy sweatpants and whatever and leave investors with the house. you can find plenty of stories of people walking away from $40,000 deposits on florida condos with no second thoughts. pretty sure people will walk away from their no down payment loans with no second thoughts either

go visit creditboards.com and read the mortgage forum for the last few years to see what kind of people were getting mortgages and what the standards were for privately funded mortgages. my only regret is that i stuck with this IT thing instead of making $30,000 a month as a LO writing loans. not like i would have cared if they went bad
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Old 08-07-2007, 08:21 AM   #49
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From Mauldin's latest newsletter:

"Pay attention to the numbers I highlight in red for January through June of 2008. The largest portion of mortgage resets is not until next year.



We have just seen $197 billion of mortgage resets so far this year. That is less than we will see in two months (February and March) of next year."
I find this table somewhat encouraging. By the time we hit the period of heavy mortgage resets, the Fed will likely have cut rates a time or two. Since most of the resets are tied to short rates, this will probably help many borrowers with ARMs.
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Old 08-07-2007, 08:38 AM   #50
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why do you think the fed is going to cut rates just because people lose their homes? 1987 and 1998 the Fed cut .25% just to avoid a meltdown at two minutes to midnight and then went on to raise rates after that.

a lot of people foreclosed last decade and the Fed's official policy is that if people bite off more than they can chew, let them choke. i wouldn't be expecting the Fed to come to the rescue

.25% cut will mean .25% less LIBOR and instead of paying 8%, ARM people will pay 7.75%
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Old 08-07-2007, 08:48 AM   #51
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why do you think the fed is going to cut rates just because people lose their homes?
I don't think this will be the reason the Fed will lower rates. I think the Fed will lower rates because it will have become apparent that the US economy is slowing. The fact that it will help folks with ARMs will be a by-product not a reason.
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Old 08-07-2007, 08:52 AM   #52
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Fed's primary mission is to fight inflation. Economy slowed 1987 to 1990 and the Fed raised rates to 10% I think it was because inflation was a problem. Ever since the late 1970's they go by the Paul Volker playbook which is fight inflation even if it means recession

even the market is playing off oil prices lately since that is a big inflation driver

In John Woodward's book about Alan Greenspan, the former Fed president had very strong opinions about keeping the Fed out of the market and letting people hang themselves with their own ropes. the reason is he didn't want people to forget about risk and expect the Fed to rescue them every time

edit: according to their statement, looks like bernanke agrees with me
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Old 08-07-2007, 05:20 PM   #53
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going to have to read a few more articles to confirm, but Cramer on his commentary said that the reason the market went up was that they paid lip service to the mortgage crisis and hinted that they will cut rates if need be. by his estimate, in october.

he also said that the real help will come from treasury or another branch of government, and there was a story a few days ago about Fannie asking regulators to increase the size of their portfolio. so it's possible there is going to be a stealth bailout to give some liquidity into the system and avoid a crisis like 1987 and 1998.

he did say stay away from homebuilders, financials and insurers
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Old 08-07-2007, 05:29 PM   #54
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going to have to read a few more articles to confirm, but Cramer on his commentary said that the reason the market went up was that they paid lip service to the mortgage crisis and hinted that they will cut rates if need be. by his estimate, in october.

he also said that the real help will come from treasury or another branch of government, and there was a story a few days ago about Fannie asking regulators to increase the size of their portfolio. so it's possible there is going to be a stealth bailout to give some liquidity into the system and avoid a crisis like 1987 and 1998.

he did say stay away from homebuilders, financials and insurers
I just can't get into Cramer. He may be correct on the above, but I can't stand the guy.
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Old 08-07-2007, 05:33 PM   #55
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Article in the WSJ today includes a bit about how Greenspan knew that lowering the fed funds rate was potentially dangerous:

How Credit Got So Easy And Why It's Tightening - WSJ.com

I believe Bernanke has a much stronger reticence to blow another bubble. He'll keep the brakes on for a while, and then lower to "neutral," but I wouldn't expect another super-low rate anytime soon.
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Old 08-07-2007, 05:41 PM   #56
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going to have to read a few more articles to confirm, but Cramer on his commentary said that the reason the market went up was that they paid lip service to the mortgage crisis and hinted that they will cut rates if need be. by his estimate, in october.

he also said that the real help will come from treasury or another branch of government, and there was a story a few days ago about Fannie asking regulators to increase the size of their portfolio. so it's possible there is going to be a stealth bailout to give some liquidity into the system and avoid a crisis like 1987 and 1998.

he did say stay away from homebuilders, financials and insurers
Oh well in that case, do the opposite.
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Old 08-07-2007, 06:04 PM   #57
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I'm definitely not worried, as I'm a young accumulator like WildCat and Brewer, but as a curious side note, this market correction (or whatever) was the first time I lost 5 figures on my portfolio ( or at least close, I'll have to do the math). It's a weird feeling, but its for the right reason. Just plugging another $300 a paycheck into the market and taking it easy. On the plus side, put $4,000 into DW's IRA and have had it sitting in cash for some months now, talk about accidental market timing!
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Old 08-07-2007, 07:06 PM   #58
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I feel pretty good, so far at least I am down only 2%. If it keeps going my puts will be more supportive, so I think I should approach a limit somewhere around 3% but I 'll have to see to be sure.

I finally finished Nassim Taleb's Book The Black Swan. Essentially the same message as Fooled By Randomness, but IMO more interesting to read. I also saw him on Consuelo Mack's show. He was on with a Blackstone guy named Doll and Jonathan Clements. Before seeing Taleb I tended to dislike his personality, but actually he is quite polite. It's just that his message is so far outside the box of what is accepted today in financial planning that he really can't be integrated into anything else.

Has anyone ever seen Jonathan Clements? He looks like a really weird owl, with his tiny face and body and a large prominent forehead and shock of white hair. He was sitting next to Taleb and he would crane his head around with this look of "what am I going to do with this maniac?, all the while bugging out his eyes to signify his total bewilderment.

Excellent entertainment!

Re the book. He sure does not think highly of asset allocation or diversification or asset classes or bell curves or history as a predictor of the present or future.

I don’t think he is going to get many followers anytime soon, though I may move more toward his barbell strategy of having most assets in rock solid government securities- he suggest T-bills, of the US and major Western European countries and presumably anyway, Canada.

As compared to his suggestions I would take more risk and use TIPS whenever I liked the rates- as in the last auction. Then a much smaller portion (he suggests 10%) should be invested in highly volatile equities or options which could go ballistic but may do nothing or even crap out. Right now I have only 1% in options, but I am not really clear on the best way to look at this. If all these positions were to lose, over the course of a year I might burn 2-3% of my asset value if nothing else worked out. In reality it would be more than covered by interest, but I need some of that to live too.

I have more faith than he does in the ability of Wall Street to flog its merchandise, so whenever values seem OK to me I am likely to buy some inventory, or even some possible permanent holdings. Gradually I might see to it that my equity holdings are only in the area of energy, energy service and alternate energy – and keep them to a limit of 40-45 % of total portfolio. Even if they got whacked hard, as in a world recession I shouldn’t go down any more than 50 or 60% on these stocks at worst and thus less than 25% over all.

Ha
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Old 08-07-2007, 07:18 PM   #59
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Ha -

So you are saying Taleb is more or less a Boglehead no? Could you go into his recommendations a bit more or is the book mostly about theory.
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Old 08-07-2007, 07:33 PM   #60
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So you are saying Taleb is more or less a Boglehead no? Could you go into his recommendations a bit more or is the book mostly about theory.
Wildcat, I must not understand what a Boglehead is. I would have thought that Taleb is the Anti-Boglehead.

The Black Swan is not really an investment book at all. I would call it philosophy or epistemology or history of thought. He is quite an erudite person.

What I said about his investment stance is based more on what he said on Mack's show. He believes that you should not take any risk with money that you may need. Not in 3 years, or 5 years, or an eternity. He does not include inflation risk in this. He just wants to avoid devastating nominal loss.

It is not a message that can by its nature translate to an ER audience- other than to suggest that we all go back to work!

Another thing from the TV show that I would like to mention is something Clements said. He said if this recent drop scared you, get the hell out of the market now. (Well, he isn't a coarse person like me so he didn't say hell.) He said leave now, because should the market continue down you will almost certainly leave, only with much bigger losses.

Ha

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