Moronic QE - QED

IndyMac Offering 3.125% Fixed Rate Mortgages!

I know someone who, like millions of others, had the misfortune to borrow too much against *their* home during the recent housing bubble.

Owing over $500,000 on what's now worth, supposedly, $350,000 he did the rational, best-interests-of-his-family thing and strategically defaulted on the mortgage (400k) and HELOC(150k).

His first mortgage, 395k, was issued by the long-since-bankrupted IndyMac bank. So now the note is held by Goldman Sachs cronies....er, I mean it's owned by us taxpayers and it's being *managed* by and to the financial benefit of Goldman Sachs cronies!

Seven months after deliberately missing his first mortgage payment, *IndyMac Federal Bank* - as it's been reincarnated as - offered him one of those so-called loan mods.

They, speaking for taxpayers and future generations, are offering him a deal:

They will transform his 395k adjustable (to LIBOR + 2.25%) loan to a fixed rate loan of 426k (includes late fees, taxes, etc.) at 3 1/8%.

3 1/8% for 30 years? Are you freakin' kidding me???!!!

The way he figured it, it came to $1,950 per month ("1556+395 for taxes and insurance").

BUT that wasn't precisely the loan *IndyMac Federal Bank* offered him via FedEx today. The numbers seemed off, too low.

Closer inspection revealed that IndyMac was actually offering him a fixed 3.125% mortgage for FORTY YEARS!!!

I have a question - can any of you Morons out there land such generous mortgage terms today?

Can any of y'all get a 426k, 3.125% 40-year loan on a house that, at the fleeting moment anyway, has manifest market value of $350,000???!!!

Realize that money, cheap as it is these days for those with access to the printing press, still isn't that cheap. So the government/taxpayers/IndyMac Federal Bank is offering a deal that's a guaranteed loser for itself.

Sure they can presently borrow short-term at less than 1% to fund these *mods* but that won't last forever - at least not for forty years. Once interest rates spike, not only will IndyMac become insolvent yet again, it will unleash another whole round of strategic mortgage defaults.

This guy asked me to calculate for him his net savings over the next ten years should he accept the loan mod versus, I guess, buying another place at today's market mortgage rate of 5.125%. I'll need some more clarity on the question/scenario to calculate anything at all.

But my hunch is that these hypotheticals are all quite beside the point. Since he'll always retain the capacity to simply re-default, I think he needs only to compare the $1,950 monthly number with what he'd be able to rent for that same monthly nut.

I told him that my hunch is still that the 40 year loan reset is a sucker's play. It's better to default now, and get one's good credit restored within 5 years than to prolong the agony. A loan mod, IMO, would merely delay the inevitable foreclosure as interest rates are all but guaranteed to rise significantly within the next 40 years. In other words, another leg down in the housing market will just, as I mentioned above, force him into another strategic default down the road.

Long-time readers well know my I'm probably not the person to ask about 40 year debt slavery sentences. I'm the one who thinks people should only buy/mortgage what they can afford on a 15 year term.

I'll have more on this one later on, for sure.

See also:

More On Goldman's IndyMac Thievery

The Cheapest Rent

Super-Size That Junk Argument, Please

Not too long ago I was just thinking how McDonald's successful and highly transparent sales strategy, i.e. marketing to kids, ought to be outlawed. And I say this only in the context, or from the perspective of a socialist nanny state - not because I agree with such an action.

If they (our elected fascists) are going to ban animated cigarette ads, then it's not much of a stretch to imagine them banning inorganic Happy Meals and the like. After all, McDonalds sells complete crap, and attacking them can easily be marketed by dissembling power-hungry statists as yet another attack on Big Business and Corporate America. And not long thereafter, lo and behold, I heard recently that someone, somewhere in California had banned Happy Meals - or the toys or something.

In my ignorant rants of yesteryear I used to intellectually defend Big Business but now I'm a whole lot wiser. Large monopolistic companies like McDonalds aren't a proxy for *the free market*; in fact, they are more accurately described as creations of Big Government. Mom-and-Pop restaurants can't compete with McDonalds, hence it grew, because of government regulation NOT because McDonald's is able to buy and turn around food much cheaper. Again, McDonald's buying power is a consequence rather than the origin of its size.

The same goes for Wall Street. Morons, like the self-unconscious plutocrats at Forbes, think that defending Goldman Sachs and the banks against agitating statists is a just front on the battlefield of freedom. But it's most certainly not. Wall Street in nothing more than a giant skimming entity. Income taxes are so prohibitive that folks just blindly dump money into their 401k's each month. So, again, Wall Street is also a creation of Big Government and free market apologists would be on stronger ground if they simply attacked the income tax which is the real culprit.

I'm working on an analogy...

Some enlightened Morons go and start a forest fire. Then they turn around and start cursing the spreading flames for the damage they are causing!!!

Then their political adversaries come by and assert that the raging blaze is completely natural....and to let it burn freely.

Does that tale sound familiar?

I'm no marketing guru or child psychologist but I think if Happy Meals were ever banned....the shares of McDonald's would, if not collapse, they'd suffer a healthy haircut. I think that particular *restaurant* is dying anyway. All I ever see there are grandparents and their grandkids and construction workers ordering off the Dollar Menu. Most young parents that I know steer clear of that junk.

Gasoline - A Forgotten Scapegoat

So I paid $2.70 a gallon for gas the other day. Whatever, right? Nobody cares about the price of gas these days at that level anyway.

But that wasn't the case for $2.70 gasoline 4.5 years ago when it first hit that threshold.

No, in the summer of 2005 people were going ape$hit over such an exorbitant price. One couldn't go anywhere, read any *news* paper, or watch the local news on color television without hearing the deafening outcry.

Why's that? Well, because gas had just shot up a whole dollar per gallon from 2004.



As you can see from the chart, gas was roughly only $1.61 a gallon six years ago. So even though we've seen $4.00 costs briefly, and even though the complaining has simmered down, the jump to $2.70 today still represents an hefty inflation of 67%.

But there is somewhat of a moralizing economic lesson in this.

Financial pain heals quickly. Those same people who thought the world was going to end with $2.70 gasoline are all of a sudden resigned to the new reality. They've adapted, perhaps changed driving habits or cars, and moved on.

This is precisely my counterargument against those, particularly politicians but also against the plutogogues like Steve Forbes and Goldman Sachs, who think that if housing prices (or Treasury prices) fall significantly, that the world as we know it will come to an end.

They need to just rip the band-aid off and quit their blubbering!

Alright, here's a nice little blast from my Marginalizing past...

Back in 2005, Steve Forbes not only said this:

There is no U.S.-wide housing bubble like the bubble that occurred in high tech in the late 1990s.

Oops!

But he also delivered this ridiculous assertion:

The real bubble is one that has, so far, gone unexamined: the price of oil. There is absolutely no fundamental reason for petroleum to be hovering around $70 a barrel.

Note oil is still $74 a barrel today.

For that one, see - What Real Estate Bubble?.

Yoda And Boba Fett

Poster-child Moron Alan Greenspan and poster-child crook Hank Paulson were recently on Meet the Press:

MR. GREGORY: We're back and joined now by Henry Paulson, the former Treasury secretary, and Alan Greenspan, the former chairman of the Federal Reserve.

Welcome, both of you, back to MEET THE PRESS.

Dr. Greenspan, here was the headline in The New York Times yesterday after that Friday jobs report, and it was this: "Jobless rate falls to 9.7 percent, giving hope that the worst is over." Does this jobs report signal a turnaround?

MR. ALAN GREENSPAN: It doesn't signal a turnaround, but what it does say is that the turnaround which has already occurred is moving but not in any aggressive manner.

MR. GREGORY: And Secretary Paulson, if you look at the jobs loss since the recession began, 8.4 million jobs over that time horizon, the question is, what's going to cause a turnaround? When do you see this, this jobless rate actually stay in the single digits?

MR. HENRY PAULSON: Well, the economy is clearly recovering,...

MR. PAULSON: But it always does come. And it will come. We have stable financial markets and a recovering economy. It's going to take some time, though.

MR. GREGORY: When is the recession over then?

MR. GREENSPAN: The recession is over. It bottomed back in the middle of last year...

MR. PAULSON: Well, what I, what, what I say is this. The--I take a real comfort in the fact that the programs that were put in place to stabilize the economy were continued and much of, of what has been done has been a continuation or a logical extension of those programs. I believe the, the financial markets are stable. I believe the programs have worked. They prevented the collapse of a--the financial markets, prevented a real catastrophe. I think we could have had 25 percent unemployment if, if, if, if the system had collapsed. And I believe that we're going to see that every penny that's been put in the banks is going to come back with interest. So I think the money's coming back. So--and that was what I was, what was talking about on election eve, because both presidential candidates had supported the TARP legislation, and I think that was critical. If they hadn't, we would have been defenseless.

MR. GREGORY: Dr. Greenspan, one more question about jobs. So you think that unemployment rate goes up again before it comes down?

MR. GREENSPAN: I'm not sure.

MR. GREENSPAN: And that's [hiring Census workers!] going to have some positive effect. But it's very difficult to make the case that unemployment is coming down anytime soon.

MR. GREGORY: Secretary Paulson, what happens if housing prices go down again when you've already got this kind of precarious situation?

MR. PAULSON: It clearly wouldn't be good. I'm not predicting that. But what I, I, I think this issue is, is a, a critically important one because it's very difficult for governments to design a program that is going to be effective and going to be fair to taxpayers, a program to keep people in their homes if they don't want to stay in their homes. And so a, a big part of what we focused on was bringing the private sector together to keep those into their homes that could afford to stay in the homes and wanted to stay there. Now, when you look at the crisis, I think part of the reason that so many experts and so many people didn't foresee housing as being the cause--and, and, and count me among those--was that if you look at our country since World War II, residential housing prices have generally gone up.

MR. GREENSPAN: Well, I am very much concerned if home prices decline from here. I don't think they're going to. In other words, they seem to be bottoming out.

MR. GREGORY: In our remaining moment here, Secretary Paulson, I have to ask you about financial regulation, about bonuses on Wall Street. Do you see real changes happening on Wall Street? Are you frustrated by the level of bonuses we're seeing?

MR. PAULSON: Well, you, you ask two questions, and so firstly, there's no doubt that, that compensation on Wall Street, I think, is out of whack and has been out of whack for some time. And I understand why the American people are unhappy because, you know, in our system we, we expect those that take risk to, to, to, to really bear their own losses. But I would like to see that, that frustration, that anger channeled toward regulatory reform. And I just think that's very, very critical. And to me, one thing that is absolutely essential is that we, we, we get strong resolution authority so that, in the future, any type of financial institution, when it faces failure, that, that, that it is liquidated and liquidated in a way in which the taxpayer is not going to have to come up in again and prop up or bail out a financial institution.

Hah!

There you have it. Both clowns assert the (mere) *recession* is over!

Though Greenspan is a little more explicit. "The recession is over IF the stock market and housing don't fall." Gee, thanks, Yoda.

And Hank admits he didn't see the housing bubble - the Treasury Secretary did not see the LARGEST financial bubble in world history as it blew up in his face. So consider that track record alongside his current *recession is over* proclamation.

More erroneous forecasts from these buffoons:

MR. PAULSON: Well, I'm going to go with the Indiana and Peyton Manning.

MR. GREGORY: OK.

MR. GREENSPAN: It's very difficult to go against Peyton Manning.

MR. GREGORY: My view as well. We'll make that the last word. Thank you both very much.

*The Indiana*???

More On Goldman's IndyMac Thievery

First, see - Goldman Jerks - Still Stealing Hand over Fist.

As I promised, that post/video got everyone's blood boiling.

But then Big Government came out and said it was *blatantly false*.

Calculated Risk agrees with the politicians.

But ZeroHedge does not.

Read them both, particularly the comments on ZeroHedge, and decide for yourselves.

My bias is to always look askance upon the self-serving BS emanating from Big Government - and upon those simpletons who parrot it.

Goldman Jerks - Still Stealing Hand Over Fist

Click here and watch the video. Your mind will be blown, your jaw dropped, and your blood boiled over.

Wall Street Scalping

The public desperately wants a Wall Street scalp, or twenty...

So an incumbent Big Government will eventually toss the plebs a bone.

And it looks like that bone, to start with, is Ken Lewis - the rube who was gullible and Moronic enough to do Hank Paulson and Ben Bernanke's (read: Goldman Sachs'!) dirty work.

I know Ken, probably better than he knows himself, and Ken probably thinks he's got the *goods* on those two shysters - that if he's going down, he'll bring them down as well. Or at least that he has enough to save his own a$$.

Except that's probably not going to happen. He's most certainly going down. He may seem like an unfortunate scapegoat, but he's more than sufficiently culpable.

Tyler Durden of Zerohedge nails it:

To be sure, he is guilty of not simply stepping down when he was put in the position of having to decide between his job and lying to shareholders, which is precisely what happened in those fateful days in December of 2008. For his choice to proceed with the government's plan and to betray his fiduciary responsibility, he should be punished...

I'd advise all would-be on-pilers to get a head start. Because once the market, and BAC stock, starts to collapse anew....everyone is going to jump on Ken - not only because it's warranted, but also because it'll serve as yet more timely smokescreen for the bigger criminals, i.e. Goldman Sachs and their government apparatchiks.



For my master Ken Lewis link - click here.

And thanks to West Coast Tom for sending me the link!

Selling Out

From the Wall Street Journal last week:

Investment bankers in the U.S. have begun using equity derivatives to convert restricted shares paid as bonuses into cash, side-stepping new guidelines on remuneration which were designed to prevent bankers cashing out for at least three years, according to a headhunter.

The bankers are using over-the-counter equity derivatives strategies such as call options, put options and collars to monetise their shares now, albeit at a discount to what they would receive if they waited for the restrictions to lift.

The revelation comes as global regulators seek to put an end to large cash bonuses in favour of deferred awards which tie bankers' compensation to long-term performance.

Gustavo Dolfino, senior managing director of U.S. business services firm Accretive Solutions, said some top earners at investment banks have negotiated to receive the shares component of their bonuses in restricted stock that is already vested or soon to vest. The stock is still subject to restrictions, for example on when it can be sold in the open market. However, because it is vested, they are able to turn it into cash by trading derivatives.

It is not clear how many bankers have used this mechanism, but Dolfino said: "The vesting provision allows these executives to take advantage of a financially engineered legal loophole which lets corporate insiders with concentrated equity positions and holders of control, restricted and M&A stock to monetise that stock.

"Rather than wait three or five years for the restrictions to pass, bankers would rather take a discount of up to 50% now just to get out and do something else."

Okay, first of all, ignore that last line. There AIN'T NO bankers taking *50% discounts* on their bonuses in order to reap them today. That's ludicrous on its face.

Now, getting to the crux of this story...

It's obviously meant as a swipe at *fat cats*, at those high level executives who are making an *end around* the attempts to align their compensation with long-term stock performance. Fair enough.

But there are thousands of mid-level employees who are forced to take substantial amounts of their annual pay in the form of vesting, restricted stock.

For those of you unaware, restricted stock is usually given at the current market price. So every tick upward leading up to your bonus day is bad - it results in you getting fewer shares of stock.

And then once you get the stock, you are theoretically powerless to do anything until it vests - usually over 3-5 years, I believe 7 used to be more common. In other words, one whole year after getting the *bonus*, you can only sell, say, one-third of your allotment. Obviously, the stock can be much, much lower by the time all the shares have vested. Imagine getting 50-100k restricted stock awards every year in say Bank of America? Only to see it plumb $2.50 a share last March?



or, even worse, in Citigroup?!



What about Fannie Mae, AIG, Bear Stearns, or Lehman????!!!! All equity stakes in those have been reduced to ZERO. For wound-salt...people paid income tax (even possibly capital gains) on shares as they vested to boot!

But here's the deal....

In general, most companies would never allow an employee (esp. a high level one) to short their own company stock; they see it as a red flag for possible insider trading. But there is, I believe, a special case. Workers ARE PERMITTED to short up to an amount equal to their unvested, restricted stock. Let's just say I've executed the trade for people before.

I don't know about you Morons, but if I was a Goldman crook, and I was handed $5,000,000 in restricted stock as part of my compensation, at today's elevated price of $157(!)....I'd sure as heck try to *hedge* the risk of my vesting period!

I'd short directly against the unvested shares if possible; I'd find some OTC bookie to collar (short call, long put) my stake; or I'd try to lay off some of the risk through ETFs or other index products.

Very rarely is there *nothing one can do* in these situations. Everything can somehow be hedged. Behold the alchemy of this parlor game!

Thieves By Nature

Yesterday, in - EVERYONE Should Quit Trading! - I briefly discussed Goldman Sachs and their so-called *proprietary trading*.

For more on that subject, read this insightful piece:

The frog, the scorpion and Goldman Sachs.

EVERYONE Should Quit Trading!

Obama Rips Banks, Proposes Ban On Proprietary Trading

President Obama stepped up the heat on big banks Thursday, saying he would fight to ensure that their "binge of irresponsibility" never happens again.

He proposed limits on banks' size and proprietary trading and said he would work to "rein in excessive abuse that brought down our system."

He said banks "backed by the American people" shouldn't be allowed to own or sponsor hedge funds and private equity funds for their own profit, while putting customers at risk.

About the new proposed rule that'd limit the proprietary trading of banks, the head of the New York Stock Exchange, Duncan Niederaurer said,

....implementation is challenging. As a student of the market I can tell you that it all blurs together...

But he's also a *Former Managing Director of Goldman Sachs*!!!

Supposedly, Goldman trades 20 times as many shares for their own account than they do for their customers.

I have no problem with Goldman gambling its own money; but they shouldn't be brokering trades as well. Doing both entails almost the biggest conflict of interest imaginable.

Look, I'm against most regulation of markets. The fund managers (and their investors) who willingly give their trades to Goldman and get ripped off....they deserve the bad fills and whatnot.

But within a regulated market, it's not hard at all to segregate trading and brokering. Any and all arguments against doing so are specious and fall flat.

I got sidetracked here.

Look, it's not *proprietary trading* that got all these banks in trouble.

It was the gambling implicit in no-money-down, high-priced mortgages in residential AND commercial real estate. And credit cards too!

So yes, FDIC-insured banks probably shouldn't be rolling the dice like Sol.

But selling 20 or 50-1 leveraged homes to José Sixpack has proven far riskier.

Getting back to Obama for a minute. He's right to be slamming the banks - even it he's clueless at the to extent of Big Government culpability in their behavior. They were born of leverage for crying out loud, with their fractional-reserve sanction, FDIC insurance, and whatnot.

You see while Obama inveighs against banker's "binge of irresponsibility"....

Not only will this anti-trading rhetoric do nothing to lower the risk profile of Bank of America, JP Morgan, Wells Fargo, Citigroup, et al,....we're still left with very little to combat the *binge of irresponsibility* from politicians. Consider the hypocritical irony of Barney Frank, serial apologist for Fannie, Freddie, and subprime lending, up there next to the podium. What a farce!

Hank Paulson - Alarmist, Scapegoating POS Thief

Paulson Says Russia Urged China to Dump Fannie, Freddie Bonds

Jan. 29 (Bloomberg) -- Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies, former Treasury Secretary Henry Paulson said.

Paulson learned of the "disruptive scheme" while attending the Beijing Summer Olympics, according to his new memoir, "On The Brink."

The Russians made a "top-level approach" to the Chinese "that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies," Paulson said, referring to the acronym for government sponsored entities. The Chinese declined, he said.

"The report was deeply troubling -- heavy selling could create a sudden loss of confidence in the GSEs and shake the capital markets," Paulson wrote. "I waited till I was back home and in a secure environment to inform the president."

Russia sold all of its Fannie and Freddie debt in 2008, after holding $65.6 billion of the notes at the start of that year, according to central bank data. Fannie and Freddie were seized by regulators on Sept. 6, 2008, amid the worst U.S. housing slump since the Great Depression.

Paulson said he was surprised not to have been asked about the Fannie and Freddie bonds during a trip to Moscow in June. "I was soon to learn, though, that the Russians had been doing a lot of thinking about our GSE securities," he said of his meeting with Dmitry Medvedev, who succeeded Putin in the Kremlin the previous month.

So there, we've got them!

Russia is guilty of *thinking about our GSE securities*!!!

If I owned them, I'd certainly dump those bonds as well. Who with an iota of brains wouldn't?

This is just another pathetic, deflective ruse on the part of Goldman's secret-agent crook. Does Paulson really think people are going to read this and re-direct their blame to Russia - a Third World country?

First of all, the hypothetical *dumping* of Fannie and Freddie bonds by investors WOULD NOT force the U.S. to prop up any companies. Bond prices all over the world, for centuries, have fluctuated to find new market values. Nobody forced Congress, Bush, Obama, or the Fed to *monetize*, (i.e. print money) to artificially prop up the debt of the GSEs. If their extant bonds fell, that would only effect NEW FUNDING for GSE debt. It'd become harder for Fannie and Freddie (and FHA) to issue any more mortgages....AND THAT WOULD BE A WONDROUS THING!

Secondly, it's not the trading of Fannie and Freddie debt that got these *companies* in trouble. It was their ill-conceived mandate, their flouting of lending standards, and their typical unbusiness-like operation that did them in. For crying out loud, Freddie Mac wasn't even listing a loan as *delinquent* until the mortgage had been unpaid for 2 FREAKIN' YEARS!!!





Mr. Mortgage reports:

The approval process was for the underwriter to run the loan through DU/LP and if the system did not issue an approval (or an approval the borrower and the loan officer were happy with) to go back into the input file and edit the income, assets, retirement (or all three) until the system approved it. Some loans were edited 30 or 40 times until the system issued an approval.

I believe Big Government has already dumped a staggering $85 billion into these entities which should never have existed in the first place.

Only a Moron could possibly believe any of this is Russia's (or China's) fault!

Paulson's book is well-titled, "On The Brink"...

A lying thievery of this magnitude certainly put him on the *brink* - of going to hell!

Seriously, this is how wars break out. Paulson gets mad at Russia, and then threatens China, "If you dump our bonds, we'll tax your imports..." China gets pissed and threatens to monkey with their dollar peg....And who knows what one of our clueless Presidents ends up doing in the heat of this needless provocation - in the fog of this alarmist smokescreen designed so Paulson could funnel taxpayer monies to his Goldman cronies.

This isn't to make Paulson's case of Russia as an antagonist. If a country wants to float bonds to international buyers and perhaps make itself somewhat dependent on their funding....then that country can't or SHOULDN'T tell its investors what to do with the bonds THEY PURCHASED. Is our *capitalist* nation selling with strings attached or what?

See also - Wall Street Alarmism.

Taxing Issues

Normally, a year of losses following a year of sizable *unrealized* gains would be easy to tax manage.

Except this year, I made a bunch of dough through March. See - Knocking The Ball Coverless! and An Aggressive Flattening - for *nostalgia*.

So this year was poised to turn out with a lot of realized capital gains and unrealized losses, again - at least until this past week when I rejiggered my portfolio.

I had to decide which losing positions to kill, and whether or not to re-build them in like instruments.

So last week, I took sizable losses on GS(short), EEV, QID, and FXP to offset my sizable realized gains on SRS, FAZ, WFC, etc. from last winter.

And, I bought Jan 2011 100-strike puts on Goldman Sachs and 30-strike puts on Wells Fargo, and a few more Jan 20 FAZ calls.

I've thought a lot about those levered ETFs over the past year and I still maintain that mathematically illiterate people have somewhat over-rated their decay. The problem wasn't decay so much as it was Bank of America going from 2.50 to near 20.00, Wells Fargo tripling, Goldman more than doubling, etc. Simple math said a 3X levered short would spiral to zero, and it did.

But for the moment, I am only shorting banks and REITs via long-dated puts. The high stock prices combined with relatively low premiums make this a no-brainer - at least versus dealing with the imperfection of leveraged ETFs. There's plenty of leverage in these bets, and I don't have to worry about path-dependency and some of the political risk of the ETFs. Click the first link above to see the outsized gains I made with out-month puts on Wells Fargo last year. And then contemplate the risk/reward profiles of today's banks' option prices for yourselves.

Here are my significant current positions in descending order of magnitude:

FAZ shares and Jan 20 calls

SRS shares

GE shares, short

SPG puts Jan(2011) 65-strike and Jan(2011) 50-strike

SWC shares

CDE shares

WFC Apr 24-strike puts, Jan(2011) 20-strike puts

JPM Jan(2011) 30-strike puts

GS Jan(2011) 100-strike puts

I've had some real extended trading woes over my 14 year career - but the past nine months rank up there with the worst of them.

Meanwhile, everything else in my life is blazing on all cylinders. So who the eff am I to complain? Life is darn good; and there's far more to it than money - even if I spent almost all of my life thinking(?) otherwise.



Though obviously, I am still hoping, and betting(!), that the *magazine jinx* is still regnant!

Click graphic to enlarge.

Goldman Arrogance

With all that's transpired in the past year:

• Lehman Brothers, one of the few remaining Goldman rivals, being *not-bailed* out by a Big Government dominated by Goldman alums.
• Goldman Sachs converting to a bank for a bailout; then converting back to an i-bank for bonus time.
• Goldman Sachs getting a whopping $13 billion or so from bankrupt, taxpayer-owned AIG.
• Goldman Sachs eliminating December 2008 from their earnings results!
  
• A furious, *technical* bear market rally that saw a near 50% retracement from March 2009 lows that can only be explained by *quant trading* - which is dominated by Goldman.
• The curious case of Goldman's former programmer - see Bloomberg for that one. And Ritholtz.
• And while the rest of the economic world crumbles, Goldman Sachs is poised to hand out record bonuses.
• Etc. Etc. Etc.

Everyone is piling on Goldman Sachs at the moment - and most deservedly so.

The article du jour that's spreading like wildfire over the internet is Rolling Stone's article subtitled - "How Goldman Sachs has engineered every major market manipulation since the Great Depression."

Note Goldman has also targeted and harassed critical bloggers like Mike Morgan and Tyler Durden.

While I may long to have the stature of those other bloggers....on second thought, when it comes to the omnipotent Goldman thugs, I think I'll cower in fear of retribution.

But I do have one anecdote from this past weekend.

At a social gathering of just 5 couples, I met a guy who worked for Goldman.

He was on the equity side so I asked him what he thought the market was going to do.

GoldmanDude - Flat on the year....it'll sell off a bit in the summer and then rally back.

[S&P at roughly 900 at the time; sharply up from the March low of 666.]

Okay. Fair enough.

Then I joked that I was more of a "permabear". He instantly snapped back:

GoldmanDude - Well, that's an intellectually s-u-p-e-r-i-o-r position.

Say what? Did this guy just call me a Moron to my face?

To cap it off, he scoffed at me in his foreign accent, while turning his head away.

Now I just met him but 30 minutes ago. This was a laid-back, holiday cookout. I was speaking sardonically. But, even if I wasn't, who the eff is he to make such a crack?

The guy was about 135 pounds for crying out loud. How about I jump up, break him in half, and throw his poorly-marbled frame on the grill!

That was what I was thinking for a split-second anyway.

Instead, I calmly retorted in my same jesting tone, "Well, it worked last year."

[Future readers note that 2008 saw stock markets worldwide plunge 40-50%. So it was hardly the time to be mocking *perma-bears*!]

But I was livid on the inside for a multitude of reasons.

Here's a guy who traffics in other-people's-money, who doesn't risk a penny of his own taking a know-it-all, haughty posture. Unlike him, my money and mouth are always in the same place. Furthermore, he works for the most depraved, criminal organization on this over-heated planet - Goldman Sachs. And he's in a position to condescend on me?

I don't think so.

Now normally, any other person acting this way wouldn't bother me. But this guy was just teeming with arrogance. Over three hours and much conversation Mssr. Goldman didn't ask me one single question about myself. This neighbor of mine wasn't interested in where I was from, what I did for work, how old my kids were, or any other informational tidbit that's normally exchanged at very small dinner parties.

We'll surely cross paths again. And next time, the S&P will hardly be 900 and neither my diction nor my tone will be hamstrung by my wife.

You see, these are her friends - a couple of whom I've already severely offended in the past. On the way over to these coed affairs, I have to really coach myself up to be extremely polite and avoid, well, just about every interesting subject: politics, religion, education, weather,....in their midst.

I do my best to just sit there, tongue bleeding from bite marks, whilst they discuss *how cheap homes are*, *how the market will bounce back any day now*, and *the benefits of windmills*.

It is great that I have this outlet here; before I started Marginalizing Morons, I simply could not keep my mouth shut.

Mark My Words - They'll Be Back At The Trough

And why the heck wouldn't they repay the Federal government the billions they borrowed?

This way, management can go back to compensating themselves *unencumbered*!

AND, if and when they get into financial trouble again, it's been proven that Big Government taxpayers will simply throw them another lifeline.

Is this a good development for equity shareholders?

Maybe. It may signify that these investment houses are a whole lot healthier.

Or perhaps not. If you're a shareholder of Goldman Sachs, Morgan Stanley, and JP Morgan, do you really want them to have carte blanche to continue to pay out-sized bonuses? Do you really want them to *not have to substantially change* the way they run their businesses?

Do you really want the banks' revenue producers to resume sky-is-the-limit incentive plans?

This is precisely the moral hazard of bailouts - that insuring risky behavior only encourages more of it.

Now, if indeed the banks are in better, sustainable shape....it begs the question of whether or not that's *priced-into* their stock prices.

I'm hoping, and betting that whatever glimmer of good news there is, has already been discounted and then some in share prices.

On the SRS

The SRS is the Ultrashort Real Estate ETF. It's currently my largest position on the equity side and although I'm underwater on it (started buying at $128 or so) I'm pretty comfortable holding, and perhaps adding to it.

The SRS provides a leveraged short of the Dow Jones Real Estate Index - a composite of 82 REITS. Here are its 20 largest components and their current percentage weighting:

SPG      6.51%
NLY      6.18%
PSA      5.66%
VNO      4.72%
EQR      4.37%
PCL      3.93%
HCP      3.88%
BXP      3.76%
VTR      2.61%
AVB      2.61%
HCN      2.56%
FRT      2.08%
KIM      1.84%
RYN      1.76%
HST      1.75%
NHP      1.74%
JOE      1.65%
DLR      1.60%
REG      1.55%
PLD      1.54%

Adding them up, in my head, they total 62.3% of the entire index value. Let's look at the biggies:

SPG is Simon Malls. I made $$$ shorting that turd in 2008 so many of you should remember that ticker. It stands at $38 a share today; can you believe it was $100 in September? They just decided to reduce their dividend. Technically, they decided to change a *cash* dividend to a mix of *90% stock* plus *10% cash*. This is highly dilutive and, worse, it might be suggesting that the company has decided to wipe out its equity holders, IMO. It seems Simon has chosen to hoard cash (like me!) and perhaps use it to buy bargains and whatnot. Bondholders are in good shape - AND may even be advising the company to reduce the dividend, conserve cash, and wipe out shareholders. I'll bet the big boys on Wall Street scooped up a ton of SPG debt, shorted the stock, and then started to exert pressure on Simon.

Then, after they fleece shareholders to enrich bondholders, expect another IPO a few years down the road!

Next up is NLY, Annaly Capital. I just spent a good hour reading up on the company via Yahoo's message board. Essentially, the company borrows short and lends long - BUT only on Agency debt. In other words, Annaly buys up Fannie and Freddie Mac mortgages with 1% or so short term loans that they have to keep rolling over. Everyone assumes that short term rates can't rise and that Big Government will never default on Agency debt. Ergo the stock is a dividend machine, yielding about $2 per share on a $15 number. That's a pretty nice 13.3% return - especially with the current 15% tax rate on dividends. NLY has negligible short interest which testifies to investor confidence. I believe they are levered something like 7-1. If the government ever said - as they most certainly should - *Fannie and Freddie bondholders need to take a 10% haircut*....this company would probably be wiped out.

This stock appears to be a problem for SRS holders, who should ideally sell put premium in NLY as a hedge.

Next up is PSA - Public Storage. They own self-storage facilities across the country. Depending on whom you ask, they are either in good shape or bad shape. Here's a primer on how they are supposedly doing now. They don't have near the debt load as Simon ($646 million vs. $18 billion) so it's more unlikely that their equity would be wiped out.



VNO - Vornado Realty is another interesting story. They own office and retail space in the big cities: Washington DC, New York City, Boston(?), and San Francisco. They also just decided to change its cash dividend to a mixture of cash and stock.- 60 percent is going to be stock now.

While Mrs. C-Nut and I were enjoying a drink at Tommy Bahamas in Naples last month, some jabroni leaned over us to pick up his take-out order. We got to talking and were informed that he worked for Vornado. Of course I picked his brain, and provoked him by telling him I was (at least by proxy) short his company. He laughed. And said they had *$3 billion in cash* and only made investments in the big cities....and that big cities, particularly DC, were immune to economic downdrafts because everyone worked for *expanding* government.

Of course I laughed. (By the way, VNO only has $1.5 billion in cash)

In the four weeks since then, his stock is down from 53.49 to 42.79 - a full 20%!

Do y'all know how many times in the past year I have heard someone tell me that the company they work for is in good shape....and I told them I was short their employer, explained why, and each time I was proven correct???

Without mentioning any specific tickers, there has to have been at least 5 different instances that I can think of off the top of my head.

If you work at a company, if your livelihood already depends on its health, a non-Moron really ought to lean skeptical of its finances, of its future.

Okay that's enough. Taylor is going to do the next 16 tickers for y'all.

The major story for REITs today is the slashing of dividends. In fact, in the last nine months, 41 REITS have cut and/or diluted payouts. Some are doing it because they need to, others because they want to protect against *debt rollovers*, and still others so they can perhaps go on a distressed acquisition spree.

It doesn't really matter.

Now it'd be bad enough if the REITs simply lowered payouts but what they've done, this Ponzi dilution with stock dividends, could spell disaster for shareholders.

Today, institutional bondholders are asserting control and reminding all investors the forgotten truth about the hierarchy of corporate ownership.

AND, they had help from their cronies in Big Government:

The IRS is helping commercial real estate owners out with a new rule that allows REITs [real estate investment trusts] to pay up to 90% of their dividends in stock. After what we assume was much lobbying, the IRS changed the rule to help REITs conserve cash in a liquidity constrained environment.

Why did they change the rule? Because Goldman Sachs, Bill Gross, and the other plutocrats own a whole lot of CRE debt.

Basically, the pols changed the law, and the big investors took money from the little ones, yet again.

Arctic Trading

So yesterday I flipped the Nasdaq-100, the QQQQ nicely for 1.05.

Today I shorted it again, into the rally. I sold at 30.07 and stand down .50 to its closing price.

Now, as for this Goldman Sachs debacle. I'm down 20 points in, what, a mere 2 weeks?

This small position is doing its best to burn a hole in my BIG account!

Volatility (option) is sky high but I bought some puts regardless. I added a few Feb 90 puts at an average cost of 5.20 apiece.

When premium is this expensive it's advisable to just short the stock. But this ticker scares me; it always has. I wouldn't be surprised if it gapped up 25 points. So, with the puts, I am paying up for a little less risk.

TODAY is a far more typical trading day - riding out and doubling up losers - than yesterday's anomaly.

I think it was 3 degrees this morning. I wonder what the low was today in Naples....

By the way, it's a cruel thing to walk around Boston with a tan in February, bragging to all within earshot that you've just spent a month in Florida.

Not Trading Update

So the market, particularly financials, rallied today on Obamian optimism - on the idea that printing money for pork and shifting bankruptcy from banks to the Federal government is bullish for equity holders.

Yawn.

I admit I barely know what happened today as I am too busy managing my brood and packing for the 1,600 mile drive back north. There was a Fed meeting?

Not only shouldn't I have shorted Goldman Sachs a few days ago near 67.00 - it was most definitely a mistake to whack it again recently at 77.00! [It bounced from 59.00 to 87.70 in six days.]

But look at the SKF....at least I dumped it near $200. Today I started buying again at 120.90, after the close.

If time permitted I could have a whole lot of fun talking about the liars at Wells Fargo. Look at how it popped today (above graphic) after reporting admitting a $2.6 billion quarterly loss. Thankfully I covered my short close to $14. I would love, JUST LOVE for it to pop again - the higher the better - just so long as I don't whack it too early, a la Goldman. For some Wells background see my prior post - Wells Fargo Number Fudging.

Back to the suitcases....

Driving out in the AM.

Shorted The Effete Thugs - Goldman Sachs

Shorted a little Goldman Sachs at 67.07 today. The stock was down 13.85 yesterday - from 73.05 to 59.20.

I figure it may be good for a 5 pt or so scalp after today's bounce.

Being Right Doesn't Guarantee A Paycheck

William Tanona was Goldman's banking/investment banking analyst. He burst onto the scene about a year ago with a very bearish report on Citigroup. The market sold off December 27, 2007 a couple hundred points. Many bubbleheads blamed Mr. Tanona. His over-the-top bearish report proved to be 100% accurate shortly thereafter. Instantly, William Tanona vaulted to the top as a *credible analyst*.

I didn't blame Tanona for that little sell-off - I praised him. I was short that day and made a bundle.

So why did Goldman Sachs layoff a star analyst? All we can muster for a reason is conjecture. He could have just been caught up in the firm-wide layoffs. He could have been *overpaid*. Who knows what really happened?

One possibility, could be the firm's perception Tanona got lucky with his short calls on the investment banks. He did wax bullish on Morgan Stanley around May(?). Or he could have just not been *in* with the higher-ups. It wouldn't be the first time Billy got screwed. Despite being 6'8 he got cut from our high school basketball team I believe sophomore and junior years. The coach felt compelled to put him on the team senior year but that's it; he got no run. Billy then walked on the team at Villanova. How many guys can walk on a Big East basketball team but couldn't play in high school?

Another possible reason Billy got the axe is that with the demise of Lehman and Bear Stearns, THERE ARE NO INVESTMENT BANKS LEFT TO ANALYZE.

Yes, you read that right, Billy went to my high school. Haven't seen him in a few years but when I do, I'll buy him a beer - a premium beer - for all the dough he made me last December.

I wouldn't worry for a minute about him finding another lucrative position. Goldman guys land on their feet, every time.



Goldman Sachs traded down to 47.41 this week - a nadir below its 1999 IPO price of $53 a share.