Bearish News

These are the only long positions I feel are good values right now. There will come a time when the overall U.S. market is a great place to invest in. But we’re not there yet.

There’s a lot of bad business models and practices we need to kill first. The financial system needs to be demolished and rebuilt. There’s tons of necessary reform to be done. But will it get done right? I’m optimistic, but will mostly be on the sidelines until the picture is clearer.

I’ll keep holding decent-sized short/put positions in CRE (mostly SPG) and banks (JPM). But government intervention is the big nasty unknown. And I need to figure out how this flation issue is gonna play out, ASAP. Cause right now I’m torn about precious metals, like a lot of others.

How baffling is it that Analysts didn’t see the huge drop in consumer-spending coming? Are these guys idiots? Possible. There’s another theory floating around: Ratings are directly influenced by the analysts’ mutual-fund-managing colleagues.

Hypothetical situation: Bob manages a $30 billion mutual fund at Example Corp. Example also has hundreds of equity analysts that issue/sell their research/advice to clients. As everyone knows, a big firms’ recommendations can really move the markets.

Let’s say Bob’s funds are not performing well. But Bob has brought in billions in revenue for the company, so he’s got major power and influence. It’s easy to imagine a situation where Bob has enough power to influence analysts.

Jim Cramer was the first to educate me on this old fraud. He ain’t perfect, but I love the guy. I realize this is probably old news to market veterans.

An important question is: Is the interaction/influence between managers and analysts regulated or monitored? I have no idea. I despise excess regulation and bureucracy, but this seems like an area that could really harm market effieciency.

Editor’s note – I originally had a bunch of F-bombs in this post, but decided to remove them. I got excited when Clusterstock published a post with the F-bomb in it, and ran with it. But I think it might cause your site to get filtered by Google. And I’m vain, and want this site to be read. So I removed the F-bombs.

Update on an earlier post. I don’t think this has hit major media outlets yet. I can’t find it anywhere other than Etrade’s news feed (have to be logged in, and it’s not on the ticker page yet). State Street should be applauded for their timing on this one, the story has so far avoided major news wires. So I’m posting the whole thing here (source: Dow Jones):

State Street Corp. (STT) on Friday reported that it faces liquidity risks and potential financial losses as a result of issues related to its long-term securities portfolio, its commercial paper dealings, and the unregistered cash collateral pools it operates.

The Boston-based financial services company said that at the end of 2008, it had $5.5 billion in unrealized after-tax losses in its long-term portfolio of investment securities classified as available for sale and held to maturity.

The company said it must periodically determine if those losses are “other-than-temporary,” and said for the fourth quarter it will report $78 million in other-than-temporary losses.

A significant future charge could damage the company’s capital ratios, lead to credit ratings downgrades and “might adversely impact our ability to access the capital markets,” the company said in a filing made with the Securities and Exchange Commission. In the filing, State Street also detailed how the asset-backed commercial paper conduits it administers could expose the company to liquidity and interest-rate risks. State Street said that as of Dec. 31, it held $230 million in commercial paper issued by the conduits on its consolidated balance sheet – but said that figure doesn’t include $5.7 billion issued by the conduits under the Federal Reserve’s Commercial Paper Funding Facility.

At the end of 2008, State Street said, “there were $3.6 billion of after-tax net unrealized losses associated with portfolio holdings of the conduits.”

State Street said that because it may have to buy assets from the conduits under some circumstances, the company is exposed to the credit risks in the conduits’ portfolios.

State Street also identified a source of risk in the unregistered cash collateral pools underlying its securities lending program.

State Street said that it has transacted purchases and redemptions in those pools at a net asset value of $1 a unit, even though the portfolios underlying the pools often had lower values.

State Street said that as a result of those transactions it could be “exposed to customer claims, financial loss, reputational damage and regulatory scrutiny.”

Based on a net asset value of $1 a unit, State Street said, the value of its unregistered cash collateral pools was about $113 billion at the end of 2008.

State Street, however, said that the market values in those pools ranged from about 90.8 cents a unit to $1 a unit – with a weighted average net asset value of 95.5 cents a unit.

State Street said that its practice of continuing to conduct transactions at $1 a unit is consistent with industry practices and in compliance with the terms of the pools.

But the company also warned that if unregistered cash collateral pools are ultimately insufficient to support redemptions at $1 a unit, investors “may seek to hold us responsible for any shortfall” caused by prior redemptions above the market value.

I’ll post a real source when I find one.

Disclosure: No position in STT. I own JPM puts, and am short various indexes. I own two short mutual funds. But I am an amateur, so don’t take anything I say too seriously.

The FDIC dropped another ninja press release tonight, this one is about their takeover of The Bank of Clark County. Looks like this one will cost the FDIC (and taxpayers) $97 million, according to CNN Business. They’ve already dropped one after-hours bomb about a failed bank tonight.

Gosh… why would the FDIC choose tonight to release such negative stuff? We’re heading into a 3-day weekend, followed by the most-watched inauguration hoopla ever. Limited press-coverage, closed markets. This is prime-time when it comes to releasing horrific data. Only obsessed losers such as myself are scanning news feeds at that time. (see State Street’s earlier disclosure).

Or maybe the secrecy and deception is for our own good? The less we know about the situation, the better. Commoners don’t have the mental capacity to digest the type of data being hid from us. It’s clear that only elite investment minds like Paulson, Bernanke, and Greenspan are “on the level” to grok this stuff.

To be honest, I envy them. Oh, to be a fly on the wall during those bailout meetings. So many rational, unbiased, intelligent, open-minded, and ultimately accountable people in one room. It probably would have been too much, like staring at the sun. Sheer brilliance.

Yeah, it’s our tax dollars they’re playing with. But won’t it benefit all of us (excluding taxpayers and shorts) to adhere to the financial world’s “don’t ask, don’t tell” policy?

Remember: Capitalism is all about free and efficient markets. To achieve that, we need government intervention that meets three key criteria:

1. Be Inconsistent – Pick favorites, give sweetheart deals, and always remember to bail out friends, family, and political contributors first. This will ensure the demise of that troublesome “invisible hand”.
2. Bail Big – Massiver = betterer. Print money, discourage savings, encourage reckless capital investment. Don’t forget to destroy the middle class and any savvy investors who think the market’s overvalued.
3. Delay, delay, delay! – Passing the buck is the rule. It’s hard to over emphasize this one. Only ensure viability for as long as it matters to the average idiot voter. If we’re lucky, another bubble will form soon. Then we can have our way with the taxpayer again. Yay.

Meet the new guys, same as the old guys?

I do believe that Obama is an incalcuable improvment over Bush. But his financial appointments don’t look great in terms of change. I don’t see any outsiders at all being brought on, or many economists with good track records. Shouldn’t that be part of the criteria for hiring? Knowing what’s going on?

State Street (STT) just put out some gnarly news. It’s new, so I can’t find a linkable copy. Only seeing it on on Etrade when logged in, which is odd. The source is Dow Jones. Here’s a snippet of tonight’s release:

The Boston-based financial services company said that at the end of 2008, it had $5.5 billion in unrealized after-tax losses in its long-term portfolio of investment securities classified as available for sale and held to maturity.

They made the following statement at the end of 2008, which estimated a much smaller loss:

At the end of 2008, State Street said, “there were $3.6 billion of after-tax net unrealized losses associated with portfolio holdings of the conduits.”

Note the timing of this release. A Friday night, on a holiday weekend, after the close of after-hours trading, when only true losers like myself are obsessively analyzing the market and scanning for nasty pre-holday weekend news.

Looks like the loss was related to “stable value” type funds. I’m looking for more info and will post an update.

Note – The FDIC also chose this prime-time to announce the takeover of National Bank. Ugly, ugly, ugly. Releasing negative news before a long holiday weekend sucks all-around. It makes the whole system look dishonest and like they’re hiding something. A lot of something.

It appears that Circuit City has 10 stores at SPG-owned properties. I added to my Simon Properties short today at $44.20. Circuit City’s bankruptcy will have a real impact on SPG’s revenue, and it’s just the beginning of corporate bankruptcies that could crush Simon.

When a store like Circuit City closes it’s doors, it affects ALL the stores around it and in the mall. Less traffic, less revenue, less rent, more defaults. I think SPG has a lot farther to fall (A LOT).

Side note – I also bought some AAPL at $81.86. This thing is dirt cheap.