Archive - May 2011 - Blog entry

In the investment industry, information asymmetry explains why elite funds are able to consistently outperform over the long-term. If you're curious about what elite funds are actually buying and selling, not what they're saying, this is a must read comment...

And Moody's will issue a big credit warning on 14 of the UK's 18 biggest banks tomorrow ...

The Fed has done NOTHING but loosen monetary policy since the Financial Crisis began… the problems that the Fed has been battling have not gone away… and the Fed is somehow going to magically starting tightening?!?! Discussions of the Fed tightening should be up there with Elvis sightings: entertaining but worthless. The only thing the Fed knows how to do is throw money away.

HY credit reached its widest level of the year today as IG and HY intrinsics are now unch YTD! Significant decompression since mid Feb in HY spreads, increasing amounts of net selling in secondary bonds, and a clear preference for up-in-quality and up-in-capital-structure leaves equity valuations looking precarious.

Cash is not our enemy right now - cash is your friend.

What's with these tornadoes?

They're back...and sicker than ever!

When the Fed takes its foot off the money pedal starting in June, money growth momentum will slow down. The consequences of this will be falling equity prices and higher unemployment. Bernanke would rather see higher inflation than higher unemployment, especially during an election year. His only choice will be the political one: QE3.

And American plants are - in many ways - even MORE vulnerable than the Japanese reactors ...

Take the fear premium out of crude and suddenly it is worth $50 a barrel. Saudi Arabia is ramping up from 10 to 15 million barrels a day of production. What happens if Libya’s Muammar Khadafy suddenly chokes to death on a falafel? (USO), (DUG).

IF this happens, then expect stocks to take a BIG hit. So far they’re held up relatively well although as we all know by now, stocks are ALWAYS the last to “get it.” So the fact that stocks have held up while commodities (especially the economically sensitive ones like copper and oil) have taken a dive could in fact be a BAD thing as it predicts some serious pain for stocks.

Compounded interest is vital to SS. But is that fair?

Answer: Much more than you think...

LinkedIn (LNKD) went public with an absolutely unrealistic valuation that illustrates the dangers of ZIRP policy that has carried on for too long. The marketing machinations of investment banks combined with a total lack of respect for risk and the cost of capital has allowed such to happen – and we all know how this is going to end!. In 2010 LinkedIn generated $15m of PAT (profit after taxes) as quoted by the popular financial media. But that’s PAT. What the media and pop media readers are forgetting is what’s available to common share holders, you know the guys holding that stuff trading on the exchanges.

"The market now sits right on a major trendline. If it is decisively broken, a bigger decline could lie ahead after the end of POMO."