naked capitalism Sun 2010-02-28 13:13 EST

Das: Mark to Make Believe -- Still Toxic After All These Years!

Satyajit Das

n 2007, as the credit crisis commenced, paradoxically, nobody actually defaulted. Outside of sub-prime delinquencies, corporate defaults were at a record low. Instead, investors in high quality (AAA or AA) rated securities, that are unlikely to suffer real losses if held to maturity, faced paper -- mark-to-market (``MtM'') -- losses. In modern financial markets, market values drive asset values, profits and losses, risk calculations and the value of collateral supporting loans. Accounting standards, both in the U.S.A. and internationally, are now based on theoretically sound market values that are problematic in practice. The standards emerged from the past financial crisis where the use of ``historic cost'' accounting meant that losses on loans remained undisclosed because they continued to be carried at face value. The standards also reflect the fact that many modern financial instruments (such as derivatives) can only be accounted for in MtM framework. MtM accounting itself is flawed. There are difficulties in establishing real values of many instruments. It creates volatility in earnings attributable to inefficiencies in markets rather than real changes in financial position...

Das; Make-Believe; marked; naked capitalism; toxic; years.

THE PRAGMATIC CAPITALIST Sat 2010-02-27 23:06 EST

THE MANY MYTHS OF WARREN BUFFETT

TPC

Warren Buffett is the most glorified and respected investor of all time. And rightfully so. After all, he became the world's wealthiest man by essentially picking stocks. But Warren Buffett...formed one of the original hedge funds (The Buffett Partnership Ltd) and used his gains to one day purchase Berkshire Hathaway. His evolution into the value investor we now think of today has been long in the making. Make no mistake, Buffett is a hedge fund manager. Yes, he comes from the ilk of the oft vilified and awful hedge fund clan. Today, he hides behind the curtain of incorporation, but in many ways Buffett hasn't changed one bit since his Partnership days...

myth; pragmatic capitalists; Warren Buffett.

Fri 2010-02-26 16:47 EST

'Buy farmland and gold,' advises Dr Doom - Times Online

The world's most powerful investors have been advised to buy farmland, stock up on gold and prepare for a ``dirty war'' by Marc Faber, the notoriously bearish market pundit, who predicted the 1987 stock market crash.

advises Dr Doom; Buys farmland; gold; time online.

Fri 2010-02-26 10:45 EST

Saudi Central Banker Confirms that US Dollar is on its Deathbed | The Underground Investor

In Hong Kong, Mohammed al-Jasser, the head of the Saudi Arabian Monetary Authority affirmed that the US dollar's role as the world's reserve currency is coming to an end when he stated, ``The dollar is still preeminent in its role as a reserve currency.'' We should recall former US Federal Reserve Chairman Alan Blinder's statement, ``The last duty of a central banker is to tell the public the truth'' (PBS's Nightly Business Report, 1994) and thus be astute enough to realize that the often hollow words of Central Bankers serve as a contrary indicator of the truth...

deathbed; Dollar; Saudi Central Banker Confirms; Underground Investor.

The Money Game Tue 2010-02-16 16:49 EST

Inflation Protected Bonds Murdered As PIMCO And BlackRock's Hyperinflation Fears Flounder

Investors are increasingly giving up on hyperinflation bets. For example, investors are willing to buy standard U.S. treasury bonds that pay just 3.69% yield. That doesn't leave room for much inflation...The niche market of Treasury Inflation Protected Securities (TIPS, bonds that adjust their yield to inflation) is giving up on its inflation concerns as well. As this market is too small for major central bank investment, it's far harder to argue away the lack of inflation it forecasts.

BlackRock's Hyperinflation Fears Flounder; Inflation Protected Bonds Murdered; Money game; PIMCO.

naked capitalism Fri 2010-02-05 11:06 EST

FDIC Proposes Tough-Minded Securitization Reforms; Industry Howls

...the FDIC presented a cogent and tough-minded plan for securtization reform at the American Securitization Forum...The driving element is that the FDIC is proposing to change the requirements for a securitization to be treated as a true sale, meaning that when the originator sells the mortgages to a securitization vehicle (say a trust), the investors in that vehicle cannot go back to the originator for recourse...The FDIC included various proposals to insure transparency for investors, including a requirement that all deals be arms length, to third party investors (no affiliates or insiders). They would exclude derivatives (excluding interest rate swaps) and would not permit re-securitizations...a clever effect of this proposal was that it solved the problem of ``what to do with rating agencies'' by making them irrelevant

FDIC Proposes Tough-Minded Securitization Reforms; Industry Howls; naked capitalism.

Sun 2010-01-31 11:43 EST

Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009

In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we've observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980...the peak of the furious advance in S&P 500 driven by enthusiasm over "less bad" economic news, though with little proven economic strength. It was the last day of the 1980 bull market. The economy later proved to have been in a short lull within a double-dip recession, taking stocks to their final lows in 1982...One of the notable features of extreme overbought conditions is that investors rarely have much opportunity to get out...

2009; Hussman Funds; intermediate term; October 19; Overbought; stock market; weekly market comments.

zero hedge Fri 2010-01-15 17:46 EST

Is The Mysterious "Direct Bidder" Simply China Executing 'Quantitative Easing' On Behalf Of The Federal Reserve?

...we make the claim that the Fed has now informally offloaded the Treasury portion of Quantitative Easing to China, which does so via the elusive Direct Bid. It also explains why the Fed has generically been much less worried about TSY purchases under Q.E. (a mere $300 billion out of a total $1.7 trillion in monetization). It does beg the question of just how much Chinese holdings of US Debt truly are, as this number is likely hundreds of billions higher than the disclosed $799 billion...if there is indeed an implicit understanding between Bernanke and his Chinese colleagues, it means that not only the housing market (via Agency and MBS security purchases), but the Treasury market as well, are both manipulated beyond recognition and implies that broad securities are massively overvalued due to the stealth purchasing of core "riskless" assets by the US and China, as investors look higher in the cap structure for yield. Lastly, implications for world trade are great, as Asian countries will have to deal not only with the Chinese behemoth, which will constantly seek to keep its currency as low as possible, thus exacerbating the rest of Asia's foreign trade balances, but that of the US itself. The immediate implication is that China (or the US for that matter) will likely not reflate their currencies out of their own volition any time in the foreseeable future. Look for a much weaker dollar in the coming months.

behalf; Direct bidders; Federal Reserve; mysteriously; Quantitative Easing; Simply China Executing; Zero Hedge.

naked capitalism Tue 2009-12-29 09:03 EST

Guest Post: Investor Psychology ... Fear Turns People Into Sheep

George Washington

Investors are basically rational, right? In fact, as many studies have demonstrated, the answer is no...Rather than search rationally for information that either confirms or disconfirms a particular belief, people actually seek out information that confirms what they already believe. For the most part people completely ignore contrary information...

Fear Turns People; Guest Post; Investor psychology; naked capitalism; sheep.

Jesse's Café Américain Mon 2009-12-28 18:59 EST

The US Bull Market in Smoke, Mirrors and Gullible Investors

Jesse

We have given quite a bit of coverage to the somewhat 'thin' veneer of recovery being spun by misleading government econmic statistics in the US. And we have certainly noted the almost blatant manipulation in many US markets, including stocks and commodities where the banks and hedge funds have been pushing prices around, sometimes with the help of the government, in a disgraceful repudiation of any notion of reform. Thanks to the Tylers at ZeroHedge we have two very nice charts to present the case that the recent continuation of the US stock market rally is attributable to price manipulation largely in the after hours markets when trading is thin.

Bull Markets; gullible investors; Jesse's Café Américain; mirror; Smoke.

zero hedge Wed 2009-11-25 11:40 EST

Neil Barofski's AIG Counterparty Payment Report Released; Demands Federal Reserve Transparency

The full SIGTARP report on AIG and its counterparty payments has been released. It contains all you need to know about the NYFED's bailout of Goldman Sachs. We are currently going through the report, and will post our findings as we have them...the most critical conclusion presented by Neil Barofsky: The SIGTARP blasts the Fed's ongoing desire to keep everything hidden and under a layer of opacity, as it keeps on lying to taxpayers that all is fine with the US economy, and urges investors to part with their hard-earned dollars and "invest" in toxic husks of zombie companies, when it knows full well that the entire financial system is constantly on the cusp of yet another collapse, and the market ponzi scheme could collapse at any minute.

Demands Federal Reserve Transparency; Neil Barofski's AIG Counterparty Payment Report Released; Zero Hedge.

Thu 2009-11-19 10:26 EST

How Goldman secretly bet on the U.S. housing crash | McClatchy

Greg Gordon

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting. Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies. Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk...

Goldman Secretly Bet; McClatchy; U.S. housing crash.

Thu 2009-11-19 10:26 EST

Goldman left foreign investors holding the subprime bag | McClatchy

Greg Gordon

Goldman sold more than $57 billion in risky mortgage-backed securities during a 14-month period in 2006 and 2007, including nearly $39 billion issued from mortgages it purchased. Meanwhile, the firm peddled billions of dollars in complex deals, many of them tied to subprime mortgages, in the Caymans and other offshore locations...Goldman's traders also made huge bets that those securities would lose value by buying insurance-like contracts, called credit-default swaps, with private parties. Beginning early in 2007, they bought swaps on a London-based exchange.

Goldman left foreign investors holding; McClatchy; subprime bag.

zero hedge Thu 2009-11-19 10:23 EST

Guest Post: Dear Prudence, Won't You Come Out To Play?

Contrary Investor

...consumers appear to have for now taken a vow of frugality. Whether by necessity or choice, prudence seems the order of the day. Does that mean consumers are not going to come out to play in the land of increased personal consumption any time soon? We think that's the theme, along with continued household balance sheet reconciliation that must come. Is monetary policy now impotent in an environment where consumers choose not to borrow and spend? If so, that leaves increased fiscal policy as the lever ahead for the government, with all the consequences that come along with that...it is critical to at least be open to the thinking that economic and financial market relationships we have grown to know and love over the past three to four decades are in the midst of meaningful change, perhaps secular change.

comes; Guest Post; play; prudence; Zero Hedge.

zero hedge Fri 2009-10-23 09:05 EDT

Fitch Expects CMBS Loss Severity To Rise Markedly Next Year

As anyone who has spent even a day looking at securitization tranching or CDS trading will tell you, there are two critical components to any investment that involves risky fixed income: cumulative loss probability and loss severity...artificial delays in bringing the CRE market to fair value in terms of delinquencies and REOs going to foreclosures will simply result in much lower eventual recoveries...the temporary reprieves granted to many leveraged securities will come back to bite investors when defaults eventually pick up again, however with the result being loss rates which will be much higher than default expectations.

Fitch Expects CMBS Loss Severity; Rise Markedly; years; Zero Hedge.

Fri 2009-10-23 08:30 EDT

How Moody's sold its ratings - and sold out investors | McClatchy

Kevin G. Hall

As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression. A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings. Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

Investors; McClatchy; Moody's Sold; rate; SOLD.