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Tuesday, March 31, 2009

Best Investment Newsletter

Did your current investment newsletter tell you to raise cash by taking profits near the market top in 2007?

Mine did! I took profits to increase the cash position of my most aggressive "explore portfolio" to 30%.
Did your current investment newsletter tell you to use cash raised when the markets were near their highs to buy a blue chip DOW stock when the markets were at their lowest levels in 13 years?

Mine did! When the markets made a 13 year low, I had cash in the portfolio and told my subscribers to use some of it to buy some General Electric (GE Charts) shares at $6.76.
Click to view full size GE chart courtesy of stockcharts.com

HURRY! Subscribe NOW and get the April 2009 Issue of "Kirk Lindstrom's Investment Newsletter" for FREE! !

Did your current investment newsletter tell you to use cash raised from when the markets were near their highs to buy a speculative, very high growth telecom growth stock when the markets were at their lowest levels in 13 years and that telecom stock was making an all time low?

Mine did! I had cash in the portfolio and told my subscribers to use it to buy some some Finisar (FNSR Charts) shares at $0.24. Today at 43¢, Finisar is up 79%!
Click to view full size chart courtesy of stockcharts.com

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 99% vs. S&P500 DOWN 19% vs. NASDAQ down 25% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 30% (All through 4/14/09) (More Info)

As of April 14, 2009, "Kirk's Newsletter Explore Portfolio" is up 2.6% YTD vs. DJIA DOWN 9.1% vs. S&P500 DOWN 5.2% => FREE Sample

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Sunday, March 29, 2009

Why is Dylan Ratigan Gone from CNBC's Fast Money?

Dylan Ratigan is no longer listed at host of CNBC's "Fast Money" nor is his picture on the Fast Money web page.

Dylan hosted the show Thursday March 26th and was gone on Friday March 27th with Melissa Lee as the fill-in host.

From TVNewser:
"More details are emerging about the abrupt departure of Dylan Ratigan from CNBC. We just got off the phone with CNBC spokesperson Brian Steel who says, "Dylan has told us he is leaving effective today."

In what was a mutual decision, Steel tells TVNewser, "Due to the serious economic times in which we live, we made a decision that it would be a distraction for Dylan to host 'Fast Money' today."
My Theory why Dylan left without a goodbye to his audience

Dylan Ratigan may have gotten too close to the truth with
this radio interview
where he compared the people making money at the major investment banks to the crooks at Enron. He gives very clear details how "people" sold insurance for faulty investment products, kept the fees for the policies but had insufficient reserves to pay the claims most anyone with a brain should have expected given they were making loans to people who we knew could not pay them back once rates adjusted up or housing prices fell.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 99% (nearly a double!) vs. the S&P500 DOWN 19% vs. NASDAQ down 25% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 30% (All through 4/14/09) (More Info)

What do you think? Why would he vanish without a word or a farewell party?

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 99% (nearly a double!) vs. the S&P500 DOWN 19% vs. NASDAQ down 25% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 30% (All through 4/14/09) (More Info) FREE SAMPLE

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Saturday, March 28, 2009

Average Gains in First Year of a Bull Market

With gains this week, we are officially in a new bull market. I hope you all did some buying near or at the bottom and are like me, looking for an opportunity to take profits. We won't know if this is another cyclical bull market in a long-term secular bear or the start of a new secular bull market until it ends.

click chart courtesy of stockcharts.com for full size image

It does not really matter as I added to positions very close to the absolute bottom and plan to take profits as the market goes up. That will give me funds to buy any major "corrections" or bear market declines from the current level.

If this is a major new bull market, what sort of gains can we expect?

In the Fidelity article titled "How Will the Bear Market End? Historical patterns of stock market reversals" certified financial advisor Dirk Hofschire says the average gain in the first month of a new bull market is 12% of its entire gain. In the first year, we usually get 40% of the total price gain and 45% after counting for dividends.
"evaluating all the bull markets since 1930, the first month of a new bull market on average has provided more than 12% of an entire bull market's gains, with an average return of 14% during these initial months (see Exhibit 3, below). Within six months, more than one quarter (27%) of an entire bull market's performance (on average) was already in the books. The first 12 months of the average bull market has provided more than 40% of an entire bull market's price appreciation, yielding on average 45% for investors -- well above the category's long-term average annual return of 10%. So while bull markets typically last an average of three years and have even spanned an entire decade, the biggest bang for the buck has typically come in the initial months of the rebound."


What gains have we seen for this new bull market?

click chart courtesy of stockcharts.com for full size image

This chart above shows the S&P500 (charts) is already up 20.6% from its low on a closing basis. The DJIA and NASDAQ100 indexes are up 18.77% and 19.93%, respectively.

Major US Index Charts:

Friday, March 27, 2009

Jim Cramer Rant Blasting NY Attorney General Andrew Cuomo Over Housing Bubble

This video shows Jim Cramer [Jim Cramer Fan Club] attacking NY Attorney General Cuomo as a communist for wanting to make it harder to get a loan. The beautiful woman is Erin Burnett [Erin Burnett Fan Club].

Cramer said Cuomo’s decision to question the housing bubble and the proliferation of no-interest, nothing down, tell-me-any-story-you-like mortgages was positively anti-American.

Jim says doing this will shut down Washington Mutual, Fannie Mae and Freddie Mac... three companies that were not able to remain solvent on their own due to the housing collapse.

March 27, 2009: Single Family Home Prices, Adjusted for Inflation, Down 1.6% Since 1979

Note the ticker on the screen shows the S&P500 was at 1495 when Jim want on this rant.

==========================================

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Jim Cramer quotes:
  • “Cuomo’s about confiscation — genuine communist”

  • “The Chinese are capitalist, we got a communist.”

  • "Cuomo says 'Lets make it harder to get a mortgage'"

  • "Cuomo says Lets make it harder to lend"

  • "Cuomo says 'I am going to shut down the mortgage market'"

  • "Cuomo says 'I am going to make it harder to get a loan.'"

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 94% vs. S&P500 DOWN 14% vs. NASDAQ down 28% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 37% (All through 12/31/08) (More Info & Best Investment Letter)

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Saturday, March 21, 2009

Doug Kass Bottom - Bear Turns Bull

I saw Doug say on CNBC TV that the market would make a generational bottom sometime in the next few days just two days before the S&P500 (S&P500 charts) hit 666.76 then rebound to 803.24, up 20.5%.

In the video below, Jim Cramer & Debra Borchardt discuss the "Doug Kass Bottom Call" on RealMoney TV. Cramer said listening to Kass is not the same as betting on the guy who got two blackjacks in a row in a card game. In the interview, Cramer said
"A guy who saw things coming when no one else did is a guy who may see things coming that no one else does."
Cramer says he has known Doug for 15 years and Doug has "always been short" so to have Doug say it is a "a generational bottom" is "shocking" and worth paying attention to.
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I prefer to leave market timing to the soothsayers while I beat the markets using "core and explore" investing.

After the markets bottomed in 1998, "Kirk's Newsletter Explore Portfolio" gained 117% in 1999.

After the markets bottomed in 2002, "Kirk's Newsletter Explore Portfolio" gained 77% in 2003.

I look for similar gains after this bear market bottoms . The gains have already started since my portfolio, though down from the peak since I don't pretend to time the markets, is ahead of the S&P500 for both 2008 and 2009.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 94% vs. S&P500 DOWN 14% vs. NASDAQ down 28% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 37% (All through 12/31/08) (More Info)

HURRY! Subscribe NOW and get the March 2009 Issue for FREE! !
(Your 1 year, 12 issue subscription will start with next month's issue.)
More Info - FREE SAMPLE

Wednesday, March 18, 2009

CNBC's Mark Haines Calls "The Haines Bottom"

Mark Haines, CNBC's "Squak on the Street" co anchor with Erin Burnett (Erin Burnett Fan Club) called the March 10, 2009 market low the "Haines Bottom."

Haines has been highly skeptical of prior bottom calls including the "Hogan's Bottom," the November 21, 2008 low, prior to the "Haines Bottom."

At our "Investing for the Long Term" facebook discussion group, we are looking for an "IBD follow-through day" defined by Investors Business Daily here to confirm the rally.


From "IBD Follow-Through Day":
Any up day then counts as Day 1 of an attempted rally.

For a follow-through to occur, you want it to land between Day 4 and Day 7 of the attempted rally. On any one of those days, you're looking for one or more of the major indexes -- the Nasdaq, S&P 500 or Dow -- to rise 1.7% or more in higher volume than the previous day.

Though a follow-through in that span gives the strongest signal for a new rally, one that hits anywhere between Day 4 and Day 10 can work. Follow-throughs that occur after Day 10 yield lower success rates.
Using closing data, Day #1 was Tuesday March 10.

More information:

Tuesday, March 17, 2009

Point and Figure Rally Targets

Yesterday, Nouriel Roubini, fondly known as Dr Doom, said this rally was a "dead cat bounce. On March 9, Roubini said in the best case he saw the S&P500 increasing to 720 before falling as low as 500 to 600. With the S&P currently at 756, Roubini was overly pessimistic. Could he be wrong about the dead cat bounce too?


See our article "Nouriel Roubini, Dr Doom, Thinks DOW 5,000 is Possible"

Using "point and figure charting," the S&P500 target is 975, a gain of 46% from the bottom at 666.
Click chart, courtesy of Stockcharts.com, for full size image

The NASDAQ Composite PnF target is 1790:
Click chart, courtesy of Stockcharts.com, for full size image

The NASDAQ 100 PnF target is 1420:

Saturday, March 14, 2009

Jon Stewart & Jim Cramer Video: Cramer vs. Stewart

If this was a fight, they would have stopped it in the first round.

I think Stewart was 100% dead on target. He has no problem with Cramer selling himself as entertainment or a news reporter if he reports news, but he said the idea Cramer knows what will happen and you will profit if you watch, is a fraud and CNBC needs to change so Jon can go back to making fart sounds and funny faces.

Hulu - The Daily Show with Jon Stewart: Thu, Mar 12, 2009 - Watch the full episode Below
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Video description: Jon Stewart and CNBC’s Jim Cramer
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If anyone feels sorry for Jim Cramer, then consider this:

I've tried to find out how the "Action Alerts Plus" portfolio has done that Jim Cramer mentions many times a day on CNBC. My guess is he works for next to nothing on CNBC compared to the salary he draws from TheStreet.com for "advertising and promotion" which is spelled out in the SEC filings. The idea is spout so many buys and sells with impossible to follow speed so viewers are left with paying for his recommended portfolio via a subscription.

How many are smart enough to ask for 1,3, 5 and 10 year returns for Cramer's "Action Alerts Plus" portfolio he touts daily on CNBC?

I emailed TheStreet.com and asked for returns before I'd consider subscribing and the reply was to call a phone number they sent. Do you think they'd make it so hard to get Cramer's record for a MANAGED portfolio if it was a good record?

I am proud of my investment record and make it public HERE for all to see. Why won't Cramer do the same for his "Action Alerts Plus" portfolio? I think you know the answer.

I don't think Stewart went far enough.

Why not ask Cramer how many of the stocks he recommended as the keynote speaker at the "6th Annual Internet and Electronic Commerce Conference and Exposition" are still in business or if any are selling for half the price he recommended them for.
The Winners of the New World
Jim Cramer: 02/29/00 - 09:42 AM EST

You want winners? You want me to put my Cramer Berkowitz hedge fund hat on and just discuss what my fund is buying today to try to make money tomorrow and the next day and the next? You want my top 10 stocks for who is going to make it in the New World? You know what? I am going to give them to you. Right here. Right now.

OK. Here goes. Write them down -- no handouts here!: 724 Solutions (SVNX), Ariba (ARBA), Digital Island (ISLD), Exodus (EXDS), InfoSpace.com (INSP), Inktomi (INKT), Mercury Interactive (MERQ), Sonera (SNRA), VeriSign (VRSN and Veritas Software (VRTS).

We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over -- and it is very far from ending.

[Kirk Comment: "It" ended less than a month later when the internet bubble burst.]

Heck, people are just learning these stories on Wall Street, and the more they come to learn, the more they love and own! Most of these companies don't even have earnings per share, so we won't have to be constrained by that methodology for quarters to come.
Read the full article and then check to see how those 10 stocks did.

Yahoo says (Click for Quotes) 3 of the 10 are gone! (one ticker, VRTS,i s being used by a new company)

Keynote speakers are not chosen to give short term trading advice.

I am proud of my investment record and make it public HERE for all to see. Why won't Cramer do the same for his "Action Alerts Plus" portfolio? I think you know the answer.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 144% (a double plus another 44% !) vs. the S&P500 UP at tiny 2.5% vs. NASDAQ down 3.2% (All through 9/30/09)

As of September 30, 2009, "Kirk's Newsletter Explore Portfolio" is up 25.8% YTD vs. DJIA up 10.7% YTD

Subscribe NOW and get the October 2009 Issue (or current month) for FREE! !
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Monday, March 09, 2009

Nouriel Roubini, Dr Doom, Thinks DOW 5,000 is Possible

How low can the stock markets go? Nouriel Roubini, called "Dr. Doom" by many who didn't like his message last year before the markets crashed over 50%, says they can go much lower.

In the best case, Roubini sees the S&P500 (closed today at 676.53 - Charts) at 720, a gain of 6.4%. In the worst case, Roubini thinks there could be another 20% left in the decline with the S&P500 falling as low as 500 to 600 with the DOW down to 5,000 or 6,000.

The good news is he thinks liquidity measures instituted around the world have lessened the chances for a meltdown into a full depression, but there is a rising risk of an L-shaped "near depression" recovery. This means he thinks it will be many years for the economy to recover, not the one year for a recovery as many like Abby Cohen and Bob Brinker believe.

Roubini has argued that, in spite of the sharp fall in US and global equities significant downside risks to stock markets remain. He keeps saying that "repeated bear market rallies would fizzle out under the onslaught of worse than expected macro news, earnings news and financial markets/firms shocks." Today he wrote
"If you take a macro approach earnings per share (EPS) of S&P 500 firms will be – quite realistically in 2009 - in the $ 50 to 60 range (I say realistically as some may even argue that in a severe recession they could fall to $40). Then, the question is what the multiple, i.e. the price earnings (P/E) ratio will be on such earnings. It is realistic to expect that the multiple may fall in the 10 to 12 range in a U-shaped recession. Then, even in the best scenario (earnings at 60 and P/E at 12) the S&P index would be at 720. If either earnings are closer to 50 or the P/E ratio is lower at 10 then the S&P could fall to 600 (12 x 50 or 10 x 60) or even to 500 (10 x 50). Equivalently the Dow (DJIA) would be at least as low as 7000 and possibly as low as 6000 or 5000. And using a similar logic we argued that global equities – following the US - had another 20% plus downside risk."
He thinks any rally in 2009 would be a "bear market sucker's rally" driven by temporary improvements in the rate of change (second derivative) in economic growth from stimulis in China and the United States:
Of course you cannot rule out another bear market sucker’s rally in 2009, most likely in Q2 or Q3: the drivers of this rally will be the improvement in second derivatives of economic growth and activity in US and China that the policy stimulus will provide on a temporary basis: but after the effects of tax cut will fizzle out in late summer and after the shovel-ready infrastructure projects are done the policy stimulus will slack by Q4 as most infrastructure projects take year to be started let alone finished; similarly in China the fiscal stimulus will provide a fake boost to non-tradeable productive activities while the traded sector and manufacturing continues to contract. But given the severity of macro, household, financial firms and corporate imbalances in the US and around the world this Q2 or Q3 sucker’s market rally will fizzle out later in the year like the previous 5 ones in the last 12 months.
Roubini thinks US and Global equities could fall anouther 40 to 50%:
On the downside we have argued here that there is at least a third probability of a L-shaped global near depression rather than the mere current severe U-shaped recession. If a near depression were to take hold globally a 40% to 50% further fall in US and global equities from current levels could not be ruled out. But in this L-shaped near depression the last thing one would have to worry about would be stock markets as more severe issues would have to be addressed (unemployment rates in the mid-double digits – 15% or above - and multi-year stagnation and deflation).
Roubini thinks Abby Joseph Cohen is too bullish in her belief that investors will give the market a PE as high as 17 or more as they discount earnings getting better:

Earlier this year – at the peak of the latest bear market rally - I met Abby Cohen – the ever bullish equity markets expert at Goldman Sachs who predicted a 25% equity rally for 2008 and is making again a similarly bullish call for 2009. I asked her if we disagreed on earnings or on the multiple (P/E). It turns out that our forecast for earning per share for S&P 500 firms are similar: 50-60 range for me, 55-60 range for her. But she argued that a P/E in the 10 (to) 12 range was too low as investors would ignore the bad earnings numbers for 2009: if a rapid recovery of earnings were to occur in 2010 and beyond investors would discount the 2009 bad number and assign to them a much higher multiple of 17 or even more.

Roubini thinks Cohen is wrong. He does not believe we will have a significant economic recovery in 2010.

The trouble with that argument is that, with the US and global economy in a massive slump and with deflationary forces at work it is hard to believe that a massive economic recovery will occur in 2010 thus lifting sharply earnings: even in a U-shaped scenario US growth in 2010 would be 1% or lower and Eurozone and Japanese growth would be close to 0%. Thus, with weak growth deflationary pressure would be still lingering thus putting pressure on profits, pricing power of firms and thus profit margins. Thus, even in a U-shaped scenario a rapid rally of equities is highly unlikely.

Bob Brinker (Brinker Fan Club), like Abby Cohen, has said the same thing about PE ratios and he too was bullish in 2008 for an up year that did not happen. Roubini remains bearish and thinks the markets will bottom in the next 12 to 18 months. He cites how the last recession ended in 2001 and the markets did not bottom until 2002:

Also the “6-9 months ahead forward looking stock market view” is not always borne in the data. During the last recession the economic bottomed out in November 2001 and GDP growth was robust in 2002 but the US stock markets kept on falling all the way through the first quarter of 2003. So not only the stock market were not “forward looking”: they actually lagged the economic recovery by 18 months rather than lead it by 6-9 months. A similar scenario could occur this time around: the real economy sort of exits the recession some time in 2010 but growth is so weak and anemic while deflationary forces keep an additional lid on pricing power of corporations and their profit margins that US equities may – like in 2002 - move sideways for most of 2010 – with a number of false starts of a real bull market – as economic recovery signals remain mixed.

Thus, most likely we can brace ourselves for new lows on US and global equities in the next 12 to 18 months. Eventually a more sustained recovery will occur once we are closer to clear signals that this ugly global U-shaped recession is not turning into a L-shaped near depression and that the global economic recovery is clear and sustained. Until then expect very volatile and choppy US and global equity markets with new lows reached in the next months and the year ahead.

Roubini was correct as the "bear voice" on Larry Kudlow's show during most of 2008 when he argued Larry and the rest of the bulls were too optimistic. I hope he is wrong and the markets recover soon with the Obama and Chinese stimulus efforts. I don't believe anyone can time the markets, but those who are correct in the recent past sure get a lot of press.


Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 94% vs. S&P500 DOWN 14% vs. NASDAQ down 28% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 37% (All through 12/31/08) (More Info)

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More information:

Becky Quick Warren Buffett Interview on CNBC

Today CNBC's Rebbecca (Becky) Quick (Anchor Women of CNBC) spent three hours with Billionaire investor Warren Buffett, Chairman and CEO of Berkshire Hathaway (BRKA Charts).

Key Points:

Mark-to-Market Accounting: Buffett said he was not in favor of eliminating "market to market" accounting. He says too many took advantage of accounting tricks in the past so this is needed to keep companies honest. He suggested a great idea that we change the rules that require companies to raise capital on mark-to-market triggers.

Uptick Rule: Buffett is in favor or reinstating the uptick rule.

Market timing: Buffett said nobody can time the market, including him. Sure he would have done better to have waited but he still likes good stocks for the long term.

On President Obama's Administration: Washington's message about the economy has been "muddled." He has not spoken to president Obama in many months but he has spoken to key people in his administration. He thinks they are making mistakes:
  • We've had an economic Pearl Harbor. "You have got to win the economic war, that is the only priority."
  • Doing too much too fast on other things like carbon emissions and health care. They are not as important for the moment.
  • A lot of things attached to the "stimulus" plan were not what he would like to see right now.
  • "you are not going to get people behind you if you try and cram things down their throat" in reference to the "Cram down" rule forcing banks to break legal contracts called mortgages.
  • When you went back to Pearl Harbor, you did not have 535 Congress people criticizing every move FDR made.
  • Speed of turnaround depends on wisdom of government policies.
I will be updating this article during the day so check back tomorrow.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 94% vs. S&P500 DOWN 14% vs. NASDAQ down 28% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 37% (All through 12/31/08) (More Info)

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Friday, March 06, 2009

John Stewart Blasts CNBC for Terrible Advice and Reporting

John Stewart of "The Daily Show" took exception to the populist rant of CNBC commentator Rick Santelli. Santelli complained about President Obama wanted to use some of the tax payer money to help people stay in their homes rather than give more of it to Wall Street crooks and liars. Stewart makes a point with this video that Wall Street "experts" were just as responsible for the problem as the people who lied about their incomes to buy homes they could not afford. They were ALL CLUELESS!
To make his point, Stewart showed this video on March 4, 2009. The video summarizes the CNBC advice and interviews of key people during the financial meltdown.

Video titled "CNBC Gives Financial Advice"
====================

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They all look like fools and nobody is spared. Examples:
  • Jim Cramer says Bear Stearns is fine days before it goes under.
  • Charlie Gasparino
  • Merrill Lynch Will not need to raise additional capital... now they are owned by Bank of America
  • Jim Cramer says Bank of America is going to $60 in a heartbeat and now it trades at$4
  • Charlie Gasparino: Obviously AIG is not going to go bankrupt... They did!
  • The CEO of AIG says AIG doesn't need capital.
  • October 31, 2007 Jim Cramer says "You should be buying things and accept that they are over valued... I know that sounds irresponsible, but that is how you make money." The DOW closed at 13,930 that day but today it is 6,627
  • Larry Kudlow, April 16, 2008 DOW at 12,619: "The worst of this subprime business is over."
  • Jim Cramer, June 13, 2008: "Very simply, I believe that it means it is time to BUY, BUY, BUY!"


See Rick Santelli's "Chicago Tea Party in July" Rant of the Year

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 94% vs. S&P500 DOWN 14% vs. NASDAQ down 28% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 37% (All through 12/31/08) (More Info)

Subscribe NOW and get the March 2009 Issue for FREE! !
(Your 1 year, 12 issue subscription will start with the May 2009 issue.)


Thursday, March 05, 2009

The Financial Crisis & Bailout Explained in Drinking Terms

A friend sent me this via email.
Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans). [Kirk: In the US we call this running a tab at the bar. Bartenders allow this as long as their alcoholic customers pay the tab on payday before they buy their groceries.]

Word gets around and as a result increasing numbers of customers flood into Heidi's bar.

Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively. [Kirk: The start of the "Alcohol Bubble."]

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit.

He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar.

However they cannot pay back the debts.

Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%.

The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.

The funds required for this purpose are obtained by a tax levied on the non-drinkers.

Finally an explanation I understand ......
That story almost makes me want to take up drinking again!

Wednesday, March 04, 2009

Jim Rogers Bearish, Likes Land on Larry Kudlow's "The Kudlow Report"

Jim Rogers, the investor who had co-founded the Quantum Fund with George Soros, said on Larry Kudlow's CNBC show "The Kudlow Report" that U.S. stocks have yet to hit their bottom in this bear market. Rogers said there could be no lasting rally until the economy recovers.

Rogers told Larry Kudlow that he is still solvent and he believes the fundamentals for commodities are getting better.

Rogers said the firm he is a director of is buying farm land in Canada and Brazil.

Rogers says Geithner and Bernanke "don't get it."

Kudlow asked about the dollar. Rogers said this is an "artificial rally in the dollar" due to short covering.

Rogers mentioned President Obama raising taxes on energy and capital. He made fun of the "Geniuses in Washington" who are going to raise taxes on capital and energy, something he says there is a shortage of.

Earlier today Rogers told Reuters he was unsure where to invest but he thought the US dollar was "terribly flawed" and we would not have a lasting recovery the government is not allowing failing businesses to go bankrupt.
  • "I don't think the bottom is here, maybe 'a' bottom, but not 'the' bottom. The economy is going to get worse. You can't have a good stock market without a good economy."
  • "I want to get out of the U.S. dollar sometime this year, at least I plan to, because it's a terribly flawed currency."
  • "I don't know where I'm going to wind up putting my money. But at the moment I'm doing nothing but watching. I may just have to wind up putting it all in commodities because commodities are the only thing (whose) fundamentals are being enhanced."
I recommend a "core and explore" approach to investing. This means you place 80 to 95% of your assets in one of my core portfolios made up of index funds from Vanguard (or Fidelity). Then you invest the remaining 5 to 20% in my explore portfolio which is mostly invested in volatile, individual stocks. My newsletter stocks are volatile by design to add to overall returns via rebalancing (taking profits when the stocks are up and buying the stocks back when prices are down, but you need a good core portfolio to sleep well at night.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 94% vs. S&P500 DOWN 14% vs. NASDAQ down 28% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 37% (All through 12/31/08) (More Info)

Subscribe NOW and get the March 2009 Issue for FREE! !
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Tuesday, March 03, 2009

Definition of TALF - Term Asset-Backed Securities Loan Facility

Today the Federal Reserve and the US Treasury announced the launch of the "Term Asset-Backed Securities Loan Facility" or "TALF" for short. The purpose of TALF is to help "Main Street" get access to credit so consumers and small businesses can once again buy goods and services on credit. This is expected to significantly stimulate the economy.

From the joint press release:

In carrying out the Financial Stability Plan, the Department of the Treasury and the Federal Reserve Board are announcing the launch of the Term Asset-Backed Securities Loan Facility (TALF), a component of the Consumer and Business Lending Initiative (CBLI). The TALF has the potential to generate up to $1 trillion of lending for businesses and households.

The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities (ABS). These markets have historically been a critical component of lending in our financial system, but they have been virtually shuttered since the worsening of the financial crisis in October. By reopening these markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy.

Under today's announcement, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans. Issuers and investors in the private sector are expected to begin arranging and marketing new securitizations of recently generated loans, and subscriptions for funding in March will be accepted on March 17, 2009. On March 25, 2009, those new securitizations will be funded by the program, creating new lending capacity for additional future loans.

The program will hold monthly fundings through December 2009 or longer if the Federal Reserve Board chooses to extend the facility.

Today the Board also released revised terms and conditions for the facility and a revised set of frequently asked questions. The revisions include a reduction in the interest rates and collateral haircuts for loans secured by asset-backed securities guaranteed by the Small Business Administration or backed by government-guaranteed student loans. The modifications are warranted by the minimal credit risk on these assets owing to the government guarantees, and, by making the terms of the TALF loans more attractive, they should encourage greater flows of credit to small businesses and students.

Additional details of the TALF and the CBLI can be found at http://www.financialstability.gov/. Further information on the Federal Reserve's credit and liquidity programs is available at http://www.federalreserve.gov/monetarypolicy/bst.htm. The Treasury Department also released a new white paper outlining efforts to unlock credit markets. On February 10, 2009, the Board and Treasury announced an expansion of TALF to include new asset categories that could generate up to $1 trillion in new lending. Teams from the Treasury Department and Federal Reserve are analyzing the appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and are evaluating a number of other types of AAA-rated newly issued ABS for possible acceptance under the expanded program. The expanded program will remain focused on securities that will have the greatest macroeconomic impact and can most efficiently be added to the TALF at a low and manageable risk to the government.

The Federal Reserve and Treasury currently anticipate that ABS backed by rental, commercial, and government vehicle fleet leases, and ABS backed by small ticket equipment, heavy equipment, and agricultural equipment loans and leases will be eligible for the April funding of the TALF. Other types of securities under consideration include private-label residential mortgage-backed securities, collateralized loan and debt obligations, and other ABS not included in the initial rollout such as ABS backed by non-auto floorplan loans and ABS backed by mortgage-servicer advances. As is the case for the current categories of newly originated loans, the TALF will combine public financing with private capital to encourage the private securitization of loans in the asset classes eligible in the expanded program.

Increased TALF lending and other actions to stabilize the financial system have the potential to greatly expand the Federal Reserve's balance sheet. In order for the Federal Reserve to conduct monetary policy over time in a way consistent with maximum sustainable employment and price stability, it must be able to manage its balance sheet, and in particular, to control the amount of reserves that the Federal Reserve provides to the banking system. The amount of reserves is the key determinant of the interest rate that the Federal Reserve uses to pursue its monetary policy objectives. Treasury and the Federal Reserve will seek legislation to give the Federal Reserve the additional tools it will need to enable it to manage the level of reserves while providing the funding necessary for the TALF and for other key credit-easing programs.

Key Dates for the TALF
Schedule for First Funding with Initial Eligible Assets

Date Announcement/Event
March 3, 2009 Launch of the TALF. Publication of the details for the first funding
March 3-17, 2009 Marketing first funding to investors
March 17, 2009 Subscriptions for first funding for TALF recorded
March 25, 2009 First funds from the TALF disbursed

Schedule for Second Funding

Date Announcement/Event
March 24, 2009 Announcement of details of second funding
March 24-April 7, 2009 Marketing second funding to investors
April 7, 2009 Subscriptions for second funding for TALF recorded
April 14, 2009 Second funds from the TALF disbursed

Related Press Release

Federal Reserve Bank of New York announces March 17 TALF Operation


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Investor Sentiment Has Sy Harding Optimistic

Yesterday Sy Harding, president of Asset Management Research Corp. and editor of Sy Harding’s Street Smart Report, wrote an article at Stockhouse called "Investor sentiment suggests stocks may see better days soon." He says the six straight months of declines is worse than the 1930s! Harding's key reasons to be optimistic for a rally are the major sentiment indicators are near record lows, giving perhaps a "buy when there is blood in the streets" signal.

University of Michigan Consumer Confidence:
The University of Michigan reported this week that its Consumer Confidence Index declined from its extremely low level of 61.2 in January, to 56.0 in February. That’s almost at its record low, which was recorded in 1980, when the economy was struggling to come out of the deplorable 1970’s plunging economy and spiraling inflation (stagflation). The confidence index dates back to 1952, so if it’s almost at its record low, consumer confidence is currently lower than it was in the severe recessions of 1981-82 and 1973-74.
AAII: American Association of Individual Investors:
... the poll of its members by the American Association of Individual Investors is considered to be at extreme pessimism whenever the poll shows bearishness has risen to more than 55%, and bullishness has dropped below 25%. In last week’s poll bearishness had risen to 56.7% bearish, and bullishness had dropped to only 21.7%, and in this week’s poll 55.1% were bearish, only 24.3% bullish.
VIX: CBOE Volatility Index:
"...the VIX Index, also known as the Fear Index, is currently showing a considerably higher level of investor fear than at the bottom of any of the legs down in the 2000-2002 bear market."
The Media:
So far the media is laughing at the new attempts to insert some optimism into the mix.
Harding concludes:
But, these are ‘blood in the streets times’, when historically extremes of pessimism do reverse, at least temporarily. And after a record six straight months down investors deserve a respite.

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