In continuing the rant on the possibility of the US entering a stagflationary environment, as was hinted by Alcoa's quarterly report (see "Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?"), I have decided to graphically illustrate the historically most successful inflation hedges as well as demonstrate where North America and Western Europe currently stand.
A year ago I stated that if I had to pick a scenario, the most likely would be stagflation wherein high input costs would co-exist with a deflationary drop in asset values, creating a "worst of both worlds" style environment. Well, Alcoa has given us some anecdotal evidence of the likelihood of such an occurrence approaching.
Following the empirical evidence that banks share price moves are outstripping their fundamental performance, I have decided to run the same analysis with REITs that have beat the S&P 500.
It's going to be pretty hard extracting your metatarsus from your anus this time around. I mean, everyone makes mistakes with taxes, but the multi-billion dollar back door bailout that you tried to hide via EMAIL???!!! Come on, guys. If you're not smarter than that then you definitely won't be able to solve this financial situation thingy... Unless he knew absolutely nothing about the biggest bailout in the history of his country - under his watch, that is.
Just the other day I stated "Why does everyone confuse a bubble with economic progress" in a post about a very probable bubble in China (see "It Doesn't Take a Genius to Figure Out How This Will End" then get your chuckles on with "Goldman Seems to Trust the Chinese Economic Reporting a Tad Bit More Than I Do!"). Well, as if on cue, Stocks, Metals Decline Around World After China Curbs Lending; Yen Weakens...
The motto for last year will probably end up being, "You really don't get what you paid for!". In reviewing the banks that were originally included in the Doo Doo 32 (a list of likely doomed banks created in the spring of 2008), I decided to take the devil's advocate perspective (an exercise that we normally pursue) and attempt to build a bullish case for the sectors that I viewed bearishly yet have outperformed the S&P and escaped profitable shorting during the last three quarters. The results are illuminating.
Morgan Stanley, appears to have reacquired the title of the "Riskiest Bank on the Street" with increasing VaR and declining risk adjusted returns that reflect growing risk in its investment portfolio, which is rife with assets that I am quite bearish on.
I will be the first to admit that 2009 was a disappointing year for my investment results. Although the first quarter of the year was the strongest that I ever had during the Asset Securitization Crisis, and I clearly saw the trend reversal coming at the end of the quarter, I significantly underestimated the length, breadth and depth of the trend reversal. With that being said, I do want to put things into perspective...
For all of those who feel China is going to take over the free world, just remember that when you blow a bubble (particularly a balance sheet bubble) it is bound to pop. The damage from the pop invariably does more harm than the boost from the bubble. It has always been the case, particularly when leverage is involved - which makes the impact that much more devastating. If anybody can attest to this, it should be us Americans (British, Spanish, Irish, those from Dubai, Japanese...).
My Spanish bank and real estate thesis looks to be panning out, disrupted by that hellish bear market rally. We shall see how accurate it is as the Spanish banks start to liquidate inventory.
So, what does it mean if we get another significant downturn? Well, not only are the 2003 to 2007 vintage mortgages in trouble, but those 2008 and 2009 mortgages are at risk as well. What are the chances of this happening? Fairly significant. For all of those guys who swear we are on the brink of a booming economic recovery, recall that it was housing depreciation that set all of this off to begin with.
Wall Street real estate fund investors have essentially given an implicit, cost free "call option" on the real estate market to the big banks. This cost free call incentivized the banks to do as many big deals as fast they could during the CRE bubble, and allowed them to profit even when the deals went bad (as many of them have and inevitably will due to the bubble prices, leverage, expanding cap rates and a negative fundamental/macro outlook). Most observers will be shocked to see the disparity in the returns between the bank, as the fund manager, and their investors. Well, I present to you, "shock" in the form of a blog post!
So, now the buy side becomes the sell side?!?!?!
I am here to weigh in on the increasingly popular marketing battle over GGP's (General Growth Properties) value in, and out of bankruptcy. The players in question are Ackman/Pershing square - long the company's stock, Hovde Capital Advisors - short the stock, and Reggie Middleton - the original player! [and the first guy to call GGP's downfall two years ago at $55 with an investment grade rating and multiple sell side buy recos!] Being an early mover who was right, and having no position in the stock now gives me a position of credibility to pick a winner in this fight. And the winner is...
I am here to weigh in on the marketing battle over GGP's value in, and out of bankruptcy. The players in question: Ackman/Pershing Square - long the stock, Hovde Capital Advisors - short the stock, and Reggie Middleton's BoomBustBlog. I currently have no position in GGP, but received many requests to weigh in on who is right on this rush to recreate the propaganda power of the sell side banks. And the winner is...
