Category: investors – engimatic

Bears feeling the pressure

During manias, the pressure to conform becomes… well, unbearable.  Yesterday, CNBC reported that noted bear Doug Kass put an end to the scorn he constantly received on Twitter:

Doug Kass has had it with the haters and declared his intent Monday to leave Twitter and his 62,000 followers behind.

He has been consistently bearish during the current market rally and has taken substantial heat for his position that stocks are overvalued and headed for a fall.

But he said he’s tired of the constant procession of personal attacks and is packing it in.

This reminds us of the pressure to conform during the housing and credit bubbles from 2004-2007.  Prominent bear Fred Hickey wrote the following in the October 4, 2007 issue of his monthly newsletter, The High-Tech Strategist:

Fellow contrarians, it’s gut-check time.  As a standard bearer of the camp that believes that the Federal Reserve is not omnipotent, I can tell you that this moment is as difficult as any that we have had to endure in many years.  I speak to many of the most hard-core stock market bears (our circle is a small one) and it is clear that their confidence is on the ropes.  I’m not sure if I can characterize it as despondency, but it sure is close.  I can hear the depression over the phone.  Their tone is subdued and there’s an air of despondency.

I’d be lying if I said I wasn’t feeling the pressure.

Someone left me a message this week whining that with the housing market in a total collapse, the Fed will never allow the stock market to fall because the consequences would be so awful.  It was his conclusion, therefore, that stocks were destined to go higher.  Resistance was futile.

It is the notion that the Federal Reserve is in complete control of the markets that is propelling this latest bout of insanity.

History doesn’t always repeat, though it often rhymes.  The near extinction of the bears is perhaps the best sign that the investment winds are about to change as the Fed-induced economic storm clouds build.

Warren Buffett: World’s biggest loser

“I’ve never made money on economic forecasting. I’ve made money by staying out of trouble.”
~ Warren Buffett, in an appearance on CNBC, March 3, 2008

The updated list of the world’s ten richest persons has been released and WB has slipped from #1 to #2. In order to do that, he lost 45% of his wealth in 12 months, quite an accomplishment. Clearly the Oracle of Omaha was as befuddled and flummoxed as everybody else in the mainstream of the investment, political and media industries hereinafter known jointly as the Lemming Leadership for their role in taking us over the economic cliff. But think of this in absolute terms. The media dutifully reports the Ten Richest Persons, but do they keep a list of the 10 Biggest Losers in absolute terms? After all, we bank dollars, not percentages. Buffett appears to be #1 on the Biggest Losers List, losing a cool $37 billion. Pardon the pun, but Buffett was the most buffeted person by the economic storm. His bridge partner, Bill Gates, only lost $18 billion. Carlos Slim is a distant #2 to Buffett’s losings at $25 billion.

Worse than all of that, Buffett completely sold his soul to Devil Government in 2008 by recommending a US-unique blend of fascism and socialism as the cure to our economic ills.

This is the man who is being paraded before the rest of us as the knight on the white horse? This is the man who is supposed to save us from economic disaster? The Lemming Leadership must be really desperate to peddle this loser.

Warren Buffett on investment opportunity

Whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as on the amplitudes of stock-market folly that prevail during your investment career. The sillier the market’s behavior, the greater the opportunity for the business-like investor.
~ Warren Buffett, preface to the 4th Edition of The Intelligent Investor, by Benjamin Graham

Comment: We count ourselves very fortunate to be living in such delusional times.

Paulson’s gift to the bears

It’s official: The U.S. economy is headed for its worst recession in three decades. Henry Paulson’s scheme to keep Fannie Mae and Freddie Mac on government life support and bail out its creditors (i.e. Wall Street, Big Banks, and Bill Gross at PIMCO) removes any doubt. The only question remaining: Will this downturn rival the Big Kahuna of the 1930s?

Paulson was interviewed today on Bloomberg. Here is the money quote:

“No one likes to put the taxpayer into situations like this. No one does; I certainly don’t. Government intervention is not something I came down here wanting to espouse, but it sure is better than the alternative.”

The alternative, of course, is that Paulson’s friends are actually forced to take huge losses on their reckless, ill-fated loans to Fannie and Freddie. Unthinkable! Paulson assures the naïve interviewer that the taxpayer will come before the shareholder, forgetting to mention the shareholder has already been wiped out, putting the taxpayer last in line behind the creditors. Under Hanky Pank’s scheme, the taxpayer is simply the bagholder of last resort. Paulson was obviously a quick study under former Goldman Sachs CEO and Treasury Secretary, “Mr. Bailout” himself, Robert Rubin.

The initial reaction of the stock market was to celebrate with a 300 point rally in the DJIA. Our guess is the euphoria will fade quickly as investors realize bailout money does not grow on trees, and the cash will either be taxed, borrowed or printed. The only question: How much will the final tab run?

The more pressing concern, however, is the economy. This economy needs to break its addiction to cheap credit, remove the waste of the previous credit binge, shed its political parasites (e.g., friends of Hank), and rebuild on a solid foundation. Every intervention prolongs the process and deepens the malaise. A wholesale government takeover of the mortgage market virtually guarantees the economy will be mired in deep recession for years.

The only winners (besides whiners like Bill Gross)? Those who are short the market.

Note to self: Move those inflation hedges from the attic to the front hall closet.

Beam me up

In the annals of American-style “capitalism,” today was truly an episode from The Twilight Zone.

For starters, the country’s monetary central planner – the Bernanke Fed – dropped rates 1/4%. Investors were indignant, hoping for even more candy. As the kiddies came down from their 1,000 Dow point sugar high of the last 2 weeks, their mood was agitated and whiny. The Dow dropped 300 in less than 2 hours.

Right after the “disappointing” news came out at 2:15 pm, former reporter turned fund of funds manager Ron Insana complained,

“This is a decidedly wimpy move by the Fed.”

Perhaps Insana is showing strains from running actual money in the real world. We’d be surprised if he doesn’t return to the more forgiving world of business journalism, that is, if there is anyone left hiring in the teeth of a killer bear market.

Next up: American capitalism’s folk hero, Warren Buffet, raising funds for Hillary Clinton. According the the WSJ:

The fund-raising “Conversation with Warren Buffett” drew over 1,500 people, including a mix of Silicon Valley executives such as John Doerr, a partner at venture-capital firm Kleiner Perkins Caufield & Byers… Tickets ranged from $100 to more than $2,300, drawing in around $1 million, according to the Clinton campaign.

Bizarre: The country’s prominent venture capitalists and its best known and beloved “capitalist” raising funds for a committed welfare statist and socialist. Hillary agrees with Buffett’s position to keep the inheritance tax because, in her words, America has traditionally been a “meritocracy,” and the government should play a role in preventing generational transfers of wealth. In 1995, Buffett was quoted on the subject:

I personally think that society is responsible for a very significant percentage of what I’ve earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you find out how much this talent is going to produce in the wrong kind of soil… I work in a market system that happens to reward what I do very well—disproportionately well… I do think that when you’re treated enormously well by this market system, where in effect the market system showers the ability to buy goods and services on you because of some peculiar talent—maybe your adenoids are a certain way, so you can sing and everybody will pay you enormous sums to be on television or whatever—I think society has a big claim on that.

So on the one hand, Buffett realizes that the free market maximizes human potential, then turns around and supports Big Government, itself the greatest threat to free markets. Some capitalist.

Next up: Larry Kudlow, so-called supply-side “economist” who talks a good game when it comes to lower taxes and fewer regulations, but supports the very institutions that pump up Big Government most – the military-industrial complex and the Fed. Kudlow is truly conflicted, citing heroes such as Schumpeter and Mises, forgetting that they were fierce opponents of central banking. He supported the monetary madness of Greenspan in 2001 and now Bernanke and will be the last to admit their interventions caused an epic credit bubble which is now unwinding. Kudlow’s advice to CNBC viewers after the close?

I wouldn’t panic. Investors should stay in for the long-term. Goldilocks is alive and well.

Thanks, Larry.

Finally, this just in: Apparently, the Fed wasn’t too pleased with the tantrums of investors. Later in the day it leaked its intention to add liquidity through “alternative measures.” Wednesday morning the Dow futures are up 100 points.

Beam me up, Scotty. Still no signs of intelligent life.

Wells Fargo embraces mark to myth

An article today on Bloomberg by Jonathan Weil exposes the accounting games being played by one of Warren Buffett’s favorites, Wells Fargo. Several weeks ago the CFO of Wells appeared on CNBC claiming no exposure to subprime while commenting on a normalization of the yield curve as a positive for banks like Wells. He failed to mention rising default rates in non-prime. Specifically, one should question mortgage servicing rights valuations in an environment unlike anything we’ve ever seen. Especially when Buffett’s partner Charles Munger was questioning collateral values on bank balance sheets some 15 months ago.

Pimco’s Gross buys Goldman, Merrill, Deutsche debt

Bill Gross upgrades his financial establishment membership to silver status. Article on Bloomberg.

While publicly supporting baseball, motherhood, and “fiscal” bailouts for homebuyers on margin who bet the ranch and lost, his actions belie any thought he’d turn down a handout to Wall Street if his investments seemed in the least bit threatened.

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