stlplaceI am a big fan of CBS 60 minutes. This weekend it explains the Credit Default Swap (CDO) market, and how it backfired and brought down the Bear, Lehman, and AIG. One nice thing about this CBS video (link here), is one does not need formal finance education to understand it. The video lasts 12 min.
Think you are unlucky being US tax payer, paying $700 billion to bail out wall street. Think the poor Washington Mutual (NYSE: WM) shareholder and bond holder, they are left with almost nothing.
And yours truely, after been in the US stock market for almost 5 years, is one of the WM shareholders. Looking back, this is a mistake largely self made and I could avoid it if I used more brain a bit more. Here was my rationale and how I did it:
Ron Paul had an interesting perspective on this topic.
March 16: Bear Stearns, $29 billon
Sept. 6: Fannie/Freddie, $200 billion
Lehman Brothers: sorry baby no bail
AIG: $85 billion
Who is the next???
Essentially Fed/Treasury are transfering the downside risks from individual companies to the fed/treasury/greenbacks. Note the money pledged to support Fannie/Freddie/AIG could exceed the original number if the problem worsens.
I can only say: gold, baby, gold!
With the Lehman Brothers discussion underway in its 3rd day, and Asian market is anxious waiting for positive outcome. I am thinking otherwise. Regardless Lehman gets sold (as a piece or in several pieces), continue its business with bankrupcy in mind, this Lehman thing is just a tip of iceberger we are going to see. What? You may ask we already see Bear Stearns, Fannie and Freddie bailout, and that’s only the tip of iceberger? The problem is not only AIG, WaMu: the next two in the line; the problem is now I am afraid the dollar and the world financial market will collapse.
As we have seen from the difficulty of Lehman discussion, the key is US goverment is not going to provide any kind of finance support, as they did in the Bear, Fannie, Freddie deal (total $229 billion). For the goverment, they don’t want to do this due to two reasons: 1) Moral hazard; 2) The increasing debt on the US goverment and tax payers, and the the pressure on USD comes with it.
If the worst happens, nothing will be spared, except the gold (Wiki: ways investing in gold). Because before the 1970s un-pegging of dollar and gold happened, gold was the central banks reserve/deposit to print paper money. And if we could go back history a bit more, we know gold is the most widely used precious metal for money.
So, I am seriously thinking about the Gold ETF (GLD). Another way, if you are like my friend Sun, you can buy the gold bar from bullion direct.
I am trusting the good old gold much more than the Lehmans, the wall street, the US goverment (treasury department, the federal reserve), will you 🙂
Fannie/Freddie
Short term I think it’s a deal for fed. But long term (it seems nobody is caring about long term these days), why should China continue to buy the Fannie/Freddie debt, for some premium over the US treasuries with substantial mortgage market risk (liquidity). I agree the US treasuries and Fannie/Freddie debt are co-related. It seems the greenback will continue to be a large part of China foreign exchange holdings.
But think a minute, if the United States can not sort out this mortage thing, why should China/Japan mess with it? I think the implication of this mortage crisis will be much greater than many peoeple (convention wisdom) think. The house will NOT always go up. The housing sector and homeownership are good thing, but sometimes too much of a good thing could be a bad thing. I think the people in China state investment Cos. should seriously think about their strategy.
The Market
Original link here. Some discussions at trader1688. I don’t know even if Warren can come back from this one. Just like in soccer, when you are 0:10 and have 10 minutes left, basically even Maradona (wiki: Diego Maradona) can not help. That’s why we don’t want to “all in” (in this case, use margin) when we speculate. As Buffett and Munger did in the past, always keep some cash at hand.
发信人: failed (Failed), 信区: Stock
标 题: 紧急求救：FNM损失已经12万了，我该怎么办？谢谢您了！！！！！
发信站: BBS 未名空间站 (Tue Aug 19 12:35:30 2008), 转信
I understand investment is a personal choice and I deserve whatever I have.
However, during this critical moment,
your any comments are sincerely appreciated.
Thank you so much!!!
It’s the holiday season again, this weekend is the MO tax holiday for back-to-school season. Quote the MO state gov web site:
Section 144.049, RSMo, establishes a sales tax holiday during a three-day period beginning at 12:01 a.m. on the first Friday in August and ending at midnight on the Sunday following. Certain back-to-school purchases, such as clothing, school supplies, computers, and other items as defined by the statute, are exempt from sales tax for this time period only.
Cheseapeke Energy Hedging backfires
Last night CHK reported its 2Q 2008 earning, it incurred a big loss because of in 2Q the natural gas price went up much higher than the bets CHK put together. Here is another analysis by bullishbankers for CHK. Like many things else in life, you get the upside, and you can get the downside too. Hedging is a perfect example. One interesting thing I noticed from the earning report is in cash flow statement, CHK has one million dollars at the end of 1Q, and zero cash at the end of 2Q. They raised cash since then (again, read the bullishbankers analysis, and CHK own press release).
BTW, to my readers, always apply your independent thinking when reading other bloggers’ (including yours truely) work.
Olympics buzz at work place
As the Beijing 2008 only 8 days away, I am hearing quite a bit Olympics query from coworkers lately, mostly from curiosity and good will (wish Beijing and China will do well). As a Chinese living in America, I certain also hope things also work out well, amid all the security challenges, air quality, traffic, etc. One interesting story I read yesterday (Chinese) is some Beijing Si He Yuan (wiki: tradional Beijing house) are opening to foreign visitors. They call it 奥运家庭旅馆 Olympics Family Hotel. This is real neat, and I think it’s a better experience than staying at 3 star hotels.
At the same time, I sincerely hope my goverment can improve the living for ordinary people. I know those migrant worker worked on the BirdNest may not have oppertunities to watch the game. This is ok, as long as they get paid fairly, their kids education get taken care of, they get affordable/good health insurance, and last but not least, they don’t have to wait in lines for days to get a train ticket to go home in the Chinese New Year.
Marathon Oil
My 2 cents on Cummins CMI (a while ago)
I have watched CMI for a few months now, have not pulled the trigger yet. There was a brief chance around March 17. I dare not to buy it after it went above 50. Like commodity, short term CMI has some selling pressure because:
1) It’s an infrustructure/transportation play, with US/global economy slow down, its business should also slow;
2) At Micro level, I know Dodge Ram trucks use CMI diesel engine. Chrysler just announced the Ram production cut, so…
But I still like it because their diesel engines are very very good. I know very few manufacturers can make their quality diesel engines. A related thing, is the bio-diesel, if this becomes a reality, diesel engine will be more popular.
Today CMI got a huge lift after reported strong earning (seekingalpha: cummins engine chugs along nicely).
My energy plays
Oil, natural gas and oil services. I have Marathon Oil (intergrated oil), Chepeseake Energy (NG), Devon Ennergy (NG). And yesterday I added Smith International (oil service).