Hello Everyone! I've changed the blog address to the one Leslie set up some time ago.
Now go to www.wadecook.blogspot.com to get the latest posts. (No more 22 in the url)
Thanks for reading and following this blog. We look forward to your comments.
Wade and family
Sunday, September 11, 2011
Friday, September 9, 2011
STOCK MARKET, IS THE TIMING RIGHT NOW?
I've done a lot of reading and thinking lately. I think I can explain why the market hasn't moved up a lot in the last ten years. In fact, Microsoft might be a microcosm of the "why" behind this schlerotic market. I've stated repeatedly the observation that Microsoft (MSFT) is flat. It's been between $24 and $28 steadily for over this ten year stretch. Why?
So I'm reading everything I can get on this topic. I'm interested because the main focus of my endeavors is to write covered calls to generate income. If a stock is flat--perceived as going nowhere--the options are weak. To sell them you generate very little in premium. For example, a robust stock at $25 might have an October premium at $1.80. Even some stocks have option premiums near 10% of the stock price. Microsoft's option is 25 cents or 40 cents. That says no one thinks the stock is going anywhere. And for the time being, they're right. What would drive Microsoft up? It's one of the best run companies in the country. They make millions. I mean tens of millions---everyday. More on this after I make a macro case for the market.
One could look at the market in general---either the Dow 30 or even the S & P 500---over the last 5 years and it looks like one of my rolling stocks.
Right now there are 22 of the S & P 500 with stocks at a lower price than where they were ten years ago. Look at just a few of them:
This is amazing group of stocks. Let me weigh in on a few possible reasons for this and a few possible plays:
1) These are huge companies. They are worth billions of dollars. They have billions of shares outstanding. For example, anyone who wants to own Microsoft already owns it. What could they do to make more people want to buy their stock? Could they make another deal, say with some Chinese companies? That they are doing. Could they make more profits? That they are doing, quite robustly. Stocks are subject to rules, one being the law of supply and demand. They have a lot of supply, but right now the demand is not there.
2) One reason these stocks have not gone up is that they were too high ten years ago. We were at the end of the dot-com bubble. P/E ratios back then were 37 times, 68 times and 124 times earnings. I remember one stock at 2200 times earnings. Some were at N/A. There were no earnings. P/E is a division formula. You can't divide by zero. In a way E-Commerce took the E out of P/E. We've come a long way, but the stock prices lag.
3) Speaking of high and low P/Es. Look at the right hand column. Traditional P/Es, even for these high rollers is around 20 to 30 times earnings. A quick one sentence lesson on P/Es. The P/E number states how much money it costs to buy one dollar of earnings. If a company today has a P/E of 9.3, like Microsoft, it means you're paying $9.30 to get at $1 of profits. I remember when MSFT had a P/E of 35. And that was considered okay.
4) Everything returns to the NORM---meaning normal. If stocks typically trade at 19.2 times earnings, then sooner or later that ratio will return. Earnings will either go up to match up and justify the high ratio (making it normal) or the stock price will come down (making it normal). If you have $100,000 in the bank and earn a 3% interest, or $3,000 for the year, you have a P/E of 33 plus. It costs $33 to get at one dollar of earnings. If you get 5% interest, your P/E is 20 ($100,000 divided by $5,000 equals 20). See how simple it is. This bank example is important, because in some ways it's a good measuring stick. The hope of stock investing is not always to capture the income, but to have the stock increase in value.
5) Scan your eyeballs down the right column and you'll see some tremendously low P/Es. These stocks still may take years to go up substantially, but they are making money---lots of it---and even today a higher price is justified. For example, Microsoft could have a P/E of 27 (Three times nine) and the stock would be at three times its current $25, or $75. If it were there it would seem natural.
6) I think there are some good prospects. Now I'm going to look at book value, and see if any of these have a negative book value, making them even more tempting. Whirlpool, Gap and Computer Sciences look like good takeover candidates.
7) I like covered calls, in the 6% to 10% monthly cash flow range. Most of these are in the 5% range, and though good, there might be better cash flow stocks. Dell was at $14.02 today. The September $14 calls were 39 X 40 cents, 39 cents to sell. The October $14 calls were 88 cents to sell, or $880 if you had 1,000 shares. The $15 calls were 44 cents to sell.
8) Many of these stocks have a 2% plus dividend yield. They also have stong balance sheets, with most holding $4 to $6 per share in cash.
Years ago these stocks were firmly in the growth sector. Today they are defined as value stocks. I like the future of these companies, and I love the future of America, no matter the Liberal machinations to devalue our country and economy.
So I'm reading everything I can get on this topic. I'm interested because the main focus of my endeavors is to write covered calls to generate income. If a stock is flat--perceived as going nowhere--the options are weak. To sell them you generate very little in premium. For example, a robust stock at $25 might have an October premium at $1.80. Even some stocks have option premiums near 10% of the stock price. Microsoft's option is 25 cents or 40 cents. That says no one thinks the stock is going anywhere. And for the time being, they're right. What would drive Microsoft up? It's one of the best run companies in the country. They make millions. I mean tens of millions---everyday. More on this after I make a macro case for the market.
One could look at the market in general---either the Dow 30 or even the S & P 500---over the last 5 years and it looks like one of my rolling stocks.
Right now there are 22 of the S & P 500 with stocks at a lower price than where they were ten years ago. Look at just a few of them:
STOCK/TCKER PRICE 8-29-01 PRICE 8-29-11 RECENT P/E
BestBuy/BBY $26.86 $25.43 7.3
Nvidia/NVDA 14.05 13.36 13.3
Cisco Systems/CSCO 17.08 15.74 9.2
Texas Inst/TXN 34.05 26.16 11.2
Capital One/COF 56.68 45.39 6.3
MIcrosoft/MSFT 27.11 25.84 9.3
Xilinx/XLNX 37.95 31.21 14.5
Kla-Tencor/KLAC 49.75 36.86 9.0
JPMorgan Chase/JPM 39.57 37.64 7.5
Dell/DELL 21.80 14.97 7.4
H & R Block/HRB 19.45 14.95 9.1
Gap/GPS 19.70 16.74 11.0
Intel/INTC 28.1 20.30 8.5
Others include: FRX, AMGN, KSS, MDT, DOW, TSS, WHR, PAYX. (Source: Bespoke Investment Group)Nvidia/NVDA 14.05 13.36 13.3
Cisco Systems/CSCO 17.08 15.74 9.2
Texas Inst/TXN 34.05 26.16 11.2
Capital One/COF 56.68 45.39 6.3
MIcrosoft/MSFT 27.11 25.84 9.3
Xilinx/XLNX 37.95 31.21 14.5
Kla-Tencor/KLAC 49.75 36.86 9.0
JPMorgan Chase/JPM 39.57 37.64 7.5
Dell/DELL 21.80 14.97 7.4
H & R Block/HRB 19.45 14.95 9.1
Gap/GPS 19.70 16.74 11.0
Intel/INTC 28.1 20.30 8.5
This is amazing group of stocks. Let me weigh in on a few possible reasons for this and a few possible plays:
1) These are huge companies. They are worth billions of dollars. They have billions of shares outstanding. For example, anyone who wants to own Microsoft already owns it. What could they do to make more people want to buy their stock? Could they make another deal, say with some Chinese companies? That they are doing. Could they make more profits? That they are doing, quite robustly. Stocks are subject to rules, one being the law of supply and demand. They have a lot of supply, but right now the demand is not there.
2) One reason these stocks have not gone up is that they were too high ten years ago. We were at the end of the dot-com bubble. P/E ratios back then were 37 times, 68 times and 124 times earnings. I remember one stock at 2200 times earnings. Some were at N/A. There were no earnings. P/E is a division formula. You can't divide by zero. In a way E-Commerce took the E out of P/E. We've come a long way, but the stock prices lag.
3) Speaking of high and low P/Es. Look at the right hand column. Traditional P/Es, even for these high rollers is around 20 to 30 times earnings. A quick one sentence lesson on P/Es. The P/E number states how much money it costs to buy one dollar of earnings. If a company today has a P/E of 9.3, like Microsoft, it means you're paying $9.30 to get at $1 of profits. I remember when MSFT had a P/E of 35. And that was considered okay.
4) Everything returns to the NORM---meaning normal. If stocks typically trade at 19.2 times earnings, then sooner or later that ratio will return. Earnings will either go up to match up and justify the high ratio (making it normal) or the stock price will come down (making it normal). If you have $100,000 in the bank and earn a 3% interest, or $3,000 for the year, you have a P/E of 33 plus. It costs $33 to get at one dollar of earnings. If you get 5% interest, your P/E is 20 ($100,000 divided by $5,000 equals 20). See how simple it is. This bank example is important, because in some ways it's a good measuring stick. The hope of stock investing is not always to capture the income, but to have the stock increase in value.
5) Scan your eyeballs down the right column and you'll see some tremendously low P/Es. These stocks still may take years to go up substantially, but they are making money---lots of it---and even today a higher price is justified. For example, Microsoft could have a P/E of 27 (Three times nine) and the stock would be at three times its current $25, or $75. If it were there it would seem natural.
6) I think there are some good prospects. Now I'm going to look at book value, and see if any of these have a negative book value, making them even more tempting. Whirlpool, Gap and Computer Sciences look like good takeover candidates.
7) I like covered calls, in the 6% to 10% monthly cash flow range. Most of these are in the 5% range, and though good, there might be better cash flow stocks. Dell was at $14.02 today. The September $14 calls were 39 X 40 cents, 39 cents to sell. The October $14 calls were 88 cents to sell, or $880 if you had 1,000 shares. The $15 calls were 44 cents to sell.
8) Many of these stocks have a 2% plus dividend yield. They also have stong balance sheets, with most holding $4 to $6 per share in cash.
Years ago these stocks were firmly in the growth sector. Today they are defined as value stocks. I like the future of these companies, and I love the future of America, no matter the Liberal machinations to devalue our country and economy.
Thursday, September 8, 2011
October Options and Monthly Income
Fellow Weary Travelers,
I'm just about excited as can be. We sit around, we Happy Campers, and talk and plan and think about our futures. Then we come across a grouping of stocks, that if used in the right way, just might provide the income to let us and you retire.
In my last blog, I started by sharing a little information on writing covered calls. It is a workhorse strategy. Picking up where that left off, I offer the following:
What could $20,000 do for generating cash flow for the month of October? First, ask yourself a side question, which may become the main question if you really think about it: What would you like this money to do? What amount of income/cash flow would you want it to produce? What would you need to retire on, or at least let a mother or father retire and stay home with the kids? Would $2,000 do it? How about $3,000? Oh, do you need more?
The market closed since I wrote the last posting. FAS closed at $13.20 and the Sept $13 calls were $1.08 X $1.13. But look at the October's. They were/are $2.18 X $2.25.
EK was $2.99 (We'll round off to $3 for this discussion). The Sept $3 calls were 22 X 26 cents and the October $3 calls were 54 X 57 cents.
RENN was about the same, and Bank of America was about the same as RENN. So, here we go.
We'll start with $20,000. Let's keep it simple. We'll buy 1,000 shares of FAS and 2,000 shares of EK. I like both of these, but you should do your own research.
The shares of FAS will cost $13,200. By selling 10 contracts of the Oct $13 calls for $2.18, we take in $2,180. Okay so far?
Now, let's spend $6,000 on the 2,000 shares of EK, and then sell the October $3 calls for 54 cents times 2,000 and take in $1,080.
TOTALS: We've spent $19,200, meaning we could keep the extra money in reserve, or even use it to buy a few more hundred shares of EK. We take in $3,260 for selling the options. I'll wait for you to absorb that number.
Okay, are you back with me? Could you live on $3,000 plus per month? How much time did this take? About 20 to 30 minutes. Could you make more if you watched and used the buy-back on dips and double-dipped for extra cash flow? Indubitably. Should you still employ protective strategies, like the stop-loss? Yes.
But what am I not writing is just as important as all of this. This cash flow is created with two trades. You could do this as well with other stocks. This exercise also assumes that you need to take out the money to pay the bills. What if you did not need to do so, right now? Think, you have $3,260 in profit. You could, with those profits, buy another 1,000 shares of EK (or another stock) and simultaneously sell another ten contracts, generating another $540. The net cash flow popped up to $3,800.
And now for the BIGGIE. What if you used margin. You've heard my caveats about margin, but let's think big right now, and take a little extra risk. If you used margin, you could have doubled up on all of this. Your $20,000 could have purchased $40,000 (In this case about $38,000) worth of stock, and your income would be double the $3,260 (plus another $540, maybe) and be around $6,480. Now can you live on that? This is all based on your original $20,000. You can start with less.
These are good questions. From my first days teaching seminars and writing books, my meme has been to help people get together a grouping of assets that produce monthly income. I still contend, $20,000 to $30,000 used the right way, will do the retirement trick. Think what you can do with all that free time and extra money!
I remain, your humble friend, Wade
I'm just about excited as can be. We sit around, we Happy Campers, and talk and plan and think about our futures. Then we come across a grouping of stocks, that if used in the right way, just might provide the income to let us and you retire.
In my last blog, I started by sharing a little information on writing covered calls. It is a workhorse strategy. Picking up where that left off, I offer the following:
What could $20,000 do for generating cash flow for the month of October? First, ask yourself a side question, which may become the main question if you really think about it: What would you like this money to do? What amount of income/cash flow would you want it to produce? What would you need to retire on, or at least let a mother or father retire and stay home with the kids? Would $2,000 do it? How about $3,000? Oh, do you need more?
The market closed since I wrote the last posting. FAS closed at $13.20 and the Sept $13 calls were $1.08 X $1.13. But look at the October's. They were/are $2.18 X $2.25.
EK was $2.99 (We'll round off to $3 for this discussion). The Sept $3 calls were 22 X 26 cents and the October $3 calls were 54 X 57 cents.
RENN was about the same, and Bank of America was about the same as RENN. So, here we go.
We'll start with $20,000. Let's keep it simple. We'll buy 1,000 shares of FAS and 2,000 shares of EK. I like both of these, but you should do your own research.
The shares of FAS will cost $13,200. By selling 10 contracts of the Oct $13 calls for $2.18, we take in $2,180. Okay so far?
Now, let's spend $6,000 on the 2,000 shares of EK, and then sell the October $3 calls for 54 cents times 2,000 and take in $1,080.
TOTALS: We've spent $19,200, meaning we could keep the extra money in reserve, or even use it to buy a few more hundred shares of EK. We take in $3,260 for selling the options. I'll wait for you to absorb that number.
Okay, are you back with me? Could you live on $3,000 plus per month? How much time did this take? About 20 to 30 minutes. Could you make more if you watched and used the buy-back on dips and double-dipped for extra cash flow? Indubitably. Should you still employ protective strategies, like the stop-loss? Yes.
But what am I not writing is just as important as all of this. This cash flow is created with two trades. You could do this as well with other stocks. This exercise also assumes that you need to take out the money to pay the bills. What if you did not need to do so, right now? Think, you have $3,260 in profit. You could, with those profits, buy another 1,000 shares of EK (or another stock) and simultaneously sell another ten contracts, generating another $540. The net cash flow popped up to $3,800.
And now for the BIGGIE. What if you used margin. You've heard my caveats about margin, but let's think big right now, and take a little extra risk. If you used margin, you could have doubled up on all of this. Your $20,000 could have purchased $40,000 (In this case about $38,000) worth of stock, and your income would be double the $3,260 (plus another $540, maybe) and be around $6,480. Now can you live on that? This is all based on your original $20,000. You can start with less.
These are good questions. From my first days teaching seminars and writing books, my meme has been to help people get together a grouping of assets that produce monthly income. I still contend, $20,000 to $30,000 used the right way, will do the retirement trick. Think what you can do with all that free time and extra money!
I remain, your humble friend, Wade
Writing Covered Calls
I hope you are well. I'm very limited on the speed and timely accuracy of the news I get and the prices of stock and options on the stock, so you will have to check out the current prices yourself.
A blog or two ago, I mentioned I wanted to see how much oomph September Options had left. So, I set out this AM to work with a paper-trade amount of $20,000 and write covered calls. The attempt is to try to pick up 10% cash on the $20,000. Let's see what shakes out.
Simply put, Writing Covered Calls means you own stock (or buy it for this purpose) and then sell the fluff of options, giving someone the right to buy your stock at a price you pre-determine.
By selling an option you take on an obligation to sell (deliver) the stock anytime, on or before the expiration date, usually the third Friday of the month. It should be noted that there are now two or three expiration dates a month, especially in bigger traded stocks. Again, you sell and take in the cash now, and then whether you actually sell the stock or not, you get to keep the money.
For this exercise we will not do margin. For those of you who want to pick this up a little, remember you only have to put up half of the money if trading on margin, and your broker will loan you the other half, using the stock as collateral. It is a form of debt, and should be used sparingly. If you want those calculations, just double everything you read here---the cost of the stock and the option prices.
Here goes. We'll start with RenRen (RENN). The stock is at $7.25, and I think there is every indication the stock will settle in near the strike price of $7 around next Friday, the expiration date. The $7 call option was at 50 X 60 cents. We sell at the first (or lower) number.
RENN: 1,000 shares at $7.25 is $7,250 and we sell the calls for 50 cents, taking in $500.
ACCUMULATED TOTALS: $7,250, $500 in.
Next we'll do 2,000 shares of Eastman Kodak (EK) for $3.24, or $6,480 and sell the $3.50 call for 37 cents, taking in $740.
ACCUMULATED TOTALS: $13,730, $1,240.
Last we'll do 500 shares of FAS, an ETF (Exchange Traded Fund, in the Banking Sector), at $12.10. That's $5,060 and then sell the $12 call for 90 cents, taking in $450.
ACCUMULATED TOTALS: $18,790 into the stocks, with $1,690 in.
Well, with this batch of stocks we didn't make it to the 10%, or $2,000, but only $1,690. And just think, it's for 8 days.
I ignored getting called out and giving back the 25 cents in RENN or the 10 cents in FAS, but I also ignored the 26 cent gain in EK times 2000, or $520. With all of that we're very close to the $2,000.
And you should see the October numbers on these. I'll write more later. Also, margin investing, even for part of this, would put you way over the top.
I suggest you start thinking of retiring. For years, I've been teaching "Cash to Asset to Cash." My books and seminars have been about getting assets to produce income---the only way to fly.
If you need help on this, order my book, STOCK MARKET MONEY MACHINE. You can email me at cabdriver22@msn.com if you're interested in getting this book on covered calls.
A blog or two ago, I mentioned I wanted to see how much oomph September Options had left. So, I set out this AM to work with a paper-trade amount of $20,000 and write covered calls. The attempt is to try to pick up 10% cash on the $20,000. Let's see what shakes out.
Simply put, Writing Covered Calls means you own stock (or buy it for this purpose) and then sell the fluff of options, giving someone the right to buy your stock at a price you pre-determine.
By selling an option you take on an obligation to sell (deliver) the stock anytime, on or before the expiration date, usually the third Friday of the month. It should be noted that there are now two or three expiration dates a month, especially in bigger traded stocks. Again, you sell and take in the cash now, and then whether you actually sell the stock or not, you get to keep the money.
For this exercise we will not do margin. For those of you who want to pick this up a little, remember you only have to put up half of the money if trading on margin, and your broker will loan you the other half, using the stock as collateral. It is a form of debt, and should be used sparingly. If you want those calculations, just double everything you read here---the cost of the stock and the option prices.
Here goes. We'll start with RenRen (RENN). The stock is at $7.25, and I think there is every indication the stock will settle in near the strike price of $7 around next Friday, the expiration date. The $7 call option was at 50 X 60 cents. We sell at the first (or lower) number.
RENN: 1,000 shares at $7.25 is $7,250 and we sell the calls for 50 cents, taking in $500.
ACCUMULATED TOTALS: $7,250, $500 in.
Next we'll do 2,000 shares of Eastman Kodak (EK) for $3.24, or $6,480 and sell the $3.50 call for 37 cents, taking in $740.
ACCUMULATED TOTALS: $13,730, $1,240.
Last we'll do 500 shares of FAS, an ETF (Exchange Traded Fund, in the Banking Sector), at $12.10. That's $5,060 and then sell the $12 call for 90 cents, taking in $450.
ACCUMULATED TOTALS: $18,790 into the stocks, with $1,690 in.
Well, with this batch of stocks we didn't make it to the 10%, or $2,000, but only $1,690. And just think, it's for 8 days.
I ignored getting called out and giving back the 25 cents in RENN or the 10 cents in FAS, but I also ignored the 26 cent gain in EK times 2000, or $520. With all of that we're very close to the $2,000.
And you should see the October numbers on these. I'll write more later. Also, margin investing, even for part of this, would put you way over the top.
I suggest you start thinking of retiring. For years, I've been teaching "Cash to Asset to Cash." My books and seminars have been about getting assets to produce income---the only way to fly.
If you need help on this, order my book, STOCK MARKET MONEY MACHINE. You can email me at cabdriver22@msn.com if you're interested in getting this book on covered calls.
Wednesday's Market
We've had another great day in the market. The Dow was up 250 points. And if you look at the information/news it's almost all outside of corporate earnings---again, a classical red-light period. In fact, it's educational what a global economy we live in. Most of the increase was due to an easing of the European debt crisis. I still think the next two weeks will be tough.
But for now, we'll take good news where we can find it. Bank of America was up nicely. Check out FAS. I think it bears study.
I'll be back with you when I get more prices. I'll be writing a blog, attempting to make about $2,200 to $2,500 on $20,000 put up---FOR SEPTEMBER. No sweat for October.
Let me give one quick example. I don't know what RenRen (RENN) did today, but yesterday's closing prices showed the following: the stock was at $7.03. The October $7 calls were 90 cents to sell. Say, we buy 1,000 shares, costing $7,030. Now sell a covered call for 90 cents times 1000 (10 contracts of 100 each contract). Take in $900 cash now. You are selling to someone the right to buy your stock for $7 per share. You sell away the upside---everything above $7---but you're getting paid handsomely to take on this obligation. We're not buying options but selling them to the crazies who like to buy them.
This is an awesome cash flow. If you get called out you have to give back 3 cents per share or $30, but you get to keep the other $870. If the stock stays right around $7 and you don't get called out (sell), then you get to keep the whole $900, and you can then sell the November options, pocketing more cash.
You'll see similar numbers with BAC, MU, and others.
If the average family had three or four positions like this they could retire. 4 times $900 equals $3,600. That would be $28,000 straight up, or $14,000 on margin. It's a cash flow machine. When will you retire?
But for now, we'll take good news where we can find it. Bank of America was up nicely. Check out FAS. I think it bears study.
I'll be back with you when I get more prices. I'll be writing a blog, attempting to make about $2,200 to $2,500 on $20,000 put up---FOR SEPTEMBER. No sweat for October.
Let me give one quick example. I don't know what RenRen (RENN) did today, but yesterday's closing prices showed the following: the stock was at $7.03. The October $7 calls were 90 cents to sell. Say, we buy 1,000 shares, costing $7,030. Now sell a covered call for 90 cents times 1000 (10 contracts of 100 each contract). Take in $900 cash now. You are selling to someone the right to buy your stock for $7 per share. You sell away the upside---everything above $7---but you're getting paid handsomely to take on this obligation. We're not buying options but selling them to the crazies who like to buy them.
This is an awesome cash flow. If you get called out you have to give back 3 cents per share or $30, but you get to keep the other $870. If the stock stays right around $7 and you don't get called out (sell), then you get to keep the whole $900, and you can then sell the November options, pocketing more cash.
You'll see similar numbers with BAC, MU, and others.
If the average family had three or four positions like this they could retire. 4 times $900 equals $3,600. That would be $28,000 straight up, or $14,000 on margin. It's a cash flow machine. When will you retire?
Sunday, September 4, 2011
MILLIONAIRES AND BILLIONAIRES
Tell me why a very important segment of our population is being so demeaned, picked upon and looked down on by Washington Bureaucrats. This administration is amazing. I think they should give back the millions of dollars in political contributions given to them generously by these great achievers.
The IRS has released some very interesting numbers. When writing books, teaching seminars, and now in these blogs it's a cardinal rule to not use numbers---as in arithmatic. But one just has to if one wants to make sense out of the wonderful world of mathematics. Lately I coined the phrase, basicly given to Mr. Obama, "Mathemagician." He has a very elastic version of reality.
Let's talk about all of the recent attacks on our achievers. These are the people who create jobs, start businesses, invest money so others may do so---in short, the risk takers. Is this number growing or contracting? Let's get to the numbers.
From the dollar amounts provided by the President's IRS for the year 2007 and then 2009 an interesting tale unfolds before our very eyes. Oh I know you can see the dismal economy all around, probably on your way to work everyday. I know you've heard the rhetoric against the free enterprise system.
This first graph is the number of filers.While you read this ask yourself, does America need more or less successful people?
INCOME LEVEL 2007 2009 CHANGE
$200,000 and up 4,531,000 3,924,000 (-) 13%
$1,000,000 and up 390,000 237,000 (-) 39%
$10,000,000 and up 18,394 8,274 (-) 55%
TAXES PAID: The following numbers represent the taxes paid.
$200,000 and up $610 Billion $434 Billion (-) 29%
$1,000,000 and up $309 Billion $178 Billion (-) 57%
$10,000,000 and up $111 Billion $54 Billion (-) 51%
LIVID? One would think the Democrats/Liberals/Progressives would be livid with the President and the Democrats in Congress. They implement their policies and less taxes are taken in. Tax more, create uncertainty by imposing thousands of pages of new regulations plus hundreds of more felonies, and you have an economy on the track to nowhere.
Think of this: Millionaires are vanishing. Where are they going? They are staying home, or moving their money elsewhere. If only Liberals would quit using static models to make projections. Life is not static but very dynamic. Words, attacks, regulations have consequences. When will they ever learn?
The people who made $1,000,000 and up represent two-tenths of one percent (0.02%) but account for 20.4% of the income taxes paid. The next tier: Those making over $200,000 represent 3% of filers but paid 50.1% of the $866 Billion paid in taxes. Extrapolate that out: THE TOP 3% PAID MORE THAN THE BOTTOM 97%.
So we have a current gang in charge that have it all wrong. It was succinctly stated in the Wall Street Journal, sarcastically calling "Obamanomics" a raging success. "The best way to produce equality (Distribute Wealth) is to destroy Trillions of Dollars of wealth."
The IRS has released some very interesting numbers. When writing books, teaching seminars, and now in these blogs it's a cardinal rule to not use numbers---as in arithmatic. But one just has to if one wants to make sense out of the wonderful world of mathematics. Lately I coined the phrase, basicly given to Mr. Obama, "Mathemagician." He has a very elastic version of reality.
Let's talk about all of the recent attacks on our achievers. These are the people who create jobs, start businesses, invest money so others may do so---in short, the risk takers. Is this number growing or contracting? Let's get to the numbers.
From the dollar amounts provided by the President's IRS for the year 2007 and then 2009 an interesting tale unfolds before our very eyes. Oh I know you can see the dismal economy all around, probably on your way to work everyday. I know you've heard the rhetoric against the free enterprise system.
This first graph is the number of filers.While you read this ask yourself, does America need more or less successful people?
INCOME LEVEL 2007 2009 CHANGE
$200,000 and up 4,531,000 3,924,000 (-) 13%
$1,000,000 and up 390,000 237,000 (-) 39%
$10,000,000 and up 18,394 8,274 (-) 55%
TAXES PAID: The following numbers represent the taxes paid.
$200,000 and up $610 Billion $434 Billion (-) 29%
$1,000,000 and up $309 Billion $178 Billion (-) 57%
$10,000,000 and up $111 Billion $54 Billion (-) 51%
LIVID? One would think the Democrats/Liberals/Progressives would be livid with the President and the Democrats in Congress. They implement their policies and less taxes are taken in. Tax more, create uncertainty by imposing thousands of pages of new regulations plus hundreds of more felonies, and you have an economy on the track to nowhere.
Think of this: Millionaires are vanishing. Where are they going? They are staying home, or moving their money elsewhere. If only Liberals would quit using static models to make projections. Life is not static but very dynamic. Words, attacks, regulations have consequences. When will they ever learn?
The people who made $1,000,000 and up represent two-tenths of one percent (0.02%) but account for 20.4% of the income taxes paid. The next tier: Those making over $200,000 represent 3% of filers but paid 50.1% of the $866 Billion paid in taxes. Extrapolate that out: THE TOP 3% PAID MORE THAN THE BOTTOM 97%.
So we have a current gang in charge that have it all wrong. It was succinctly stated in the Wall Street Journal, sarcastically calling "Obamanomics" a raging success. "The best way to produce equality (Distribute Wealth) is to destroy Trillions of Dollars of wealth."
Saturday, September 3, 2011
FATHER KNOWS BEST
A lot of people mix money and politics. I do too. These two aspects of life seem to go hand-in-hand in so many handy ways. Lately I've been writing and commenting here about Warren Buffett and his company's investment in Bank of America. He's in the news.
I was reading other reports and came across the following copy of a speech given by Howard Buffett, Warren's father. This is from 1956 and it's like he's talking to us today.
"The last 40 years have seen a gigantic expansion of political power over economic affairs by the federal government. This change is linked by many scholars to the passage of the income tax law in 1913. This law revolutionized the taxing system in two ways:
1. It gave the government new powers over the economic status of the individual. This change has curtailed the ability of the individual to achieve economic independence.
2. The part of this production taken from the producer cumulatively increases the power of the federal government proportionately with the increase in its income. This power is not created; it is simply taken from the people. . . .
"George Sokolsky, noted columnist, says it this way: 'When human beings become dependent upon the political power of the state for their livelihood, the independence of person must disappear. It is the identification of economic with police power that destroys the right of individual liberty.'
The transfer of economic power into political hands takes many forms. In 1932 about 2.5 million people received a check from the government every month. Today (1956) about 20 million receive a government check every month. What is the effect on the freedom of this great segment of our people being more or less dependent on the political authorities for their daily bread? . . .
"Any discussion of the status of the economic foundation of freedom is incomplete without some attention to a historic human urge---the desire for security. This intense human desire is reflected in the so-called social legislation politicians have placed on our statute books.
"Will this legislation fulfill its promises? If you think so, consider this rarely mentioned fine print clause. If the government is to guarantee you the consequences of your actions will be in this case, security, then the government must take control of your activities. For with responsibility---even self-arrogated responsibility---must go authority. This means that if politicians are to supply your security, they must control your work, your spending, and your saving."
WARREN, LISTEN TO YOUR FATHER.
Please, you've made yours now be quiet and let the rest of us make ours. Your father had it right. You have chosen to buddy-up with the President in his devastating march toward socialism. Your recent comments about taxes are wrong (factually) and wrong-headed. Proverbs 23 is full of advice. A few chosen morsels. Verse 22: "hearken unto thy father that begat thee." Verse 23: " Buy the truth, and sell it not (nor do any truth-splits, my add); also wisdom, and instruction, and understanding."
____________________________________
More coming up after the Wall Street Journal comments on WARREN BUFFET'S TAX DODGE. The plot thickens.
I was reading other reports and came across the following copy of a speech given by Howard Buffett, Warren's father. This is from 1956 and it's like he's talking to us today.
"The last 40 years have seen a gigantic expansion of political power over economic affairs by the federal government. This change is linked by many scholars to the passage of the income tax law in 1913. This law revolutionized the taxing system in two ways:
1. It gave the government new powers over the economic status of the individual. This change has curtailed the ability of the individual to achieve economic independence.
2. The part of this production taken from the producer cumulatively increases the power of the federal government proportionately with the increase in its income. This power is not created; it is simply taken from the people. . . .
"George Sokolsky, noted columnist, says it this way: 'When human beings become dependent upon the political power of the state for their livelihood, the independence of person must disappear. It is the identification of economic with police power that destroys the right of individual liberty.'
The transfer of economic power into political hands takes many forms. In 1932 about 2.5 million people received a check from the government every month. Today (1956) about 20 million receive a government check every month. What is the effect on the freedom of this great segment of our people being more or less dependent on the political authorities for their daily bread? . . .
"Any discussion of the status of the economic foundation of freedom is incomplete without some attention to a historic human urge---the desire for security. This intense human desire is reflected in the so-called social legislation politicians have placed on our statute books.
"Will this legislation fulfill its promises? If you think so, consider this rarely mentioned fine print clause. If the government is to guarantee you the consequences of your actions will be in this case, security, then the government must take control of your activities. For with responsibility---even self-arrogated responsibility---must go authority. This means that if politicians are to supply your security, they must control your work, your spending, and your saving."
WARREN, LISTEN TO YOUR FATHER.
Please, you've made yours now be quiet and let the rest of us make ours. Your father had it right. You have chosen to buddy-up with the President in his devastating march toward socialism. Your recent comments about taxes are wrong (factually) and wrong-headed. Proverbs 23 is full of advice. A few chosen morsels. Verse 22: "hearken unto thy father that begat thee." Verse 23: " Buy the truth, and sell it not (nor do any truth-splits, my add); also wisdom, and instruction, and understanding."
____________________________________
More coming up after the Wall Street Journal comments on WARREN BUFFET'S TAX DODGE. The plot thickens.
Thursday, September 1, 2011
Market Performance
It's now Thursday. The market performed this week pretty much like my experiences told me it would. What about next week?
I think it will be a down market for the following reasons.
1) There's no good reason for it to go up. Where's the forklift to move the boxes? I don't see one.
2) We're in the summer doldrums, classically important red-light period. This means relatively low levels of news. We need to get to the next earnings season. That will happen as we move toward October.
3) Politics has the market a bit fearful. Never have we had such an anti-business administration, even worse than in the mid-1930s.
4) The tenth year anniversary is just around the corner, and so might be our next terror threat. I surely hope not but there have been statements which need to be taken seriously. After 9/11, and nothing has happened, we'll all breathe a sigh of relief.
5) If you are a bullish option player, these scenarios won't play out until after the September expiration date of the 16th.
6) The economy is not going anywhere quickly. I think this negative sentiment is already built into the market prices.
There's more, but this hits the highlights.
HOW TO PLAY?
1) If you are selling covered calls, sell in-the-money calls. Sell everything above the strike price you think the stock will move to---usually the strike price with the most open interest.
2) If you're trying to accumulate a few shares here and there, look for bargains. Read again my blogs on Bank of America/Buffett and see if that knowledge applies to your efforts.
I think it will be a down market for the following reasons.
1) There's no good reason for it to go up. Where's the forklift to move the boxes? I don't see one.
2) We're in the summer doldrums, classically important red-light period. This means relatively low levels of news. We need to get to the next earnings season. That will happen as we move toward October.
3) Politics has the market a bit fearful. Never have we had such an anti-business administration, even worse than in the mid-1930s.
4) The tenth year anniversary is just around the corner, and so might be our next terror threat. I surely hope not but there have been statements which need to be taken seriously. After 9/11, and nothing has happened, we'll all breathe a sigh of relief.
5) If you are a bullish option player, these scenarios won't play out until after the September expiration date of the 16th.
6) The economy is not going anywhere quickly. I think this negative sentiment is already built into the market prices.
There's more, but this hits the highlights.
HOW TO PLAY?
1) If you are selling covered calls, sell in-the-money calls. Sell everything above the strike price you think the stock will move to---usually the strike price with the most open interest.
2) If you're trying to accumulate a few shares here and there, look for bargains. Read again my blogs on Bank of America/Buffett and see if that knowledge applies to your efforts.
B of A/Buffett #5
Hello, my worthies,
I have some to add to the Buffett discussion. First let me state I admire Mr. Buffett's business acumen. I applaud his insights and strategic moves.
I first became aware of Berkshire Hathaway many years ago. One share back then was around $3,000. I bought a few shares. That was a weird phone call to my broker: "Can I buy two shares of BRK. I sold it at around $6,000, thinking it could not possibly go higher. I got back in at $12,000 and sold for $22,000. When it hit $30,000, they did a new IPO for a second class of stock, now called the B shares, as in BRK.B. These shares were pegged to the A shares (BRK.A) in a 30:1 ratio. As the A shares moved up to $36,000, the B shares would go for $1,200 plus change.
I bought some B shares, and sold them later at $2,200. They kept going up. The A shares hit about $130,000 per share recently. Yes, you read that right. Now, they've back off a bit, but they're still high. And the B Shares? Well first, they did a 50:1 stock split on the B shares. So they now trade at a 1,500:1 ratio in tandem with the A shares. I like these. You would own a piece of Americana---they own the Gecko, Burlington Northern Railroad, and dozens of other companies and hundreds of investments. It's like a Mutual Fund without all the fees. I think sometime in the future they may do a "Cram Down," and send everyone with the A shares, 1,500 of the B shares, effectively doing a 1,500 to 1 Stock Split. This probably won't happen until Warren is in the ground. I hear he doesn't like stock splits.
Okay, now to the point of this Blog. This is the week of their investment of $5,000,000,000 into Bank of America. I wrote previously about the Book Value of B of A. Remember that the Book Value, or Break-Up Value is based on GAAP, an accounting way of placing lower values on real assets. Berkshire Hathaway has billions of dollars of assets that are carried on their financial statements at a value way lower than their true value on the street. The book value is currently $98,700. When this was written last week, the stock was at $105,000 per share.
Now, in a Barron's article we learn that the A shares are trading at a 1.1 times book value. This is very low., and again, the book value stated is much lower than real life. For years the book value of BRK has been at 1.5 times. This means their stock, recently trading at $105,000, could have a stock price at near $150,000 and that would not be unusual.
My point, is that many companies trade at three times book value. I'm not saying anything about the direction of this stock, but a $200,000 to $250,000 share price would not be unreasonable. Obviously there are numerous other factors, P/E ratios, cash availability, expansion, etc., but this is one factor that should be taken seriously. I think this is a good move. Right now I think the play is on Bank of America, either as a hold, or a covered call candidate. Run it passed you advisors.
One more blog coming up on Mr. Buffet, unless something else comes up.
Thanks for participating.
Wade
I have some to add to the Buffett discussion. First let me state I admire Mr. Buffett's business acumen. I applaud his insights and strategic moves.
I first became aware of Berkshire Hathaway many years ago. One share back then was around $3,000. I bought a few shares. That was a weird phone call to my broker: "Can I buy two shares of BRK. I sold it at around $6,000, thinking it could not possibly go higher. I got back in at $12,000 and sold for $22,000. When it hit $30,000, they did a new IPO for a second class of stock, now called the B shares, as in BRK.B. These shares were pegged to the A shares (BRK.A) in a 30:1 ratio. As the A shares moved up to $36,000, the B shares would go for $1,200 plus change.
I bought some B shares, and sold them later at $2,200. They kept going up. The A shares hit about $130,000 per share recently. Yes, you read that right. Now, they've back off a bit, but they're still high. And the B Shares? Well first, they did a 50:1 stock split on the B shares. So they now trade at a 1,500:1 ratio in tandem with the A shares. I like these. You would own a piece of Americana---they own the Gecko, Burlington Northern Railroad, and dozens of other companies and hundreds of investments. It's like a Mutual Fund without all the fees. I think sometime in the future they may do a "Cram Down," and send everyone with the A shares, 1,500 of the B shares, effectively doing a 1,500 to 1 Stock Split. This probably won't happen until Warren is in the ground. I hear he doesn't like stock splits.
Okay, now to the point of this Blog. This is the week of their investment of $5,000,000,000 into Bank of America. I wrote previously about the Book Value of B of A. Remember that the Book Value, or Break-Up Value is based on GAAP, an accounting way of placing lower values on real assets. Berkshire Hathaway has billions of dollars of assets that are carried on their financial statements at a value way lower than their true value on the street. The book value is currently $98,700. When this was written last week, the stock was at $105,000 per share.
Now, in a Barron's article we learn that the A shares are trading at a 1.1 times book value. This is very low., and again, the book value stated is much lower than real life. For years the book value of BRK has been at 1.5 times. This means their stock, recently trading at $105,000, could have a stock price at near $150,000 and that would not be unusual.
My point, is that many companies trade at three times book value. I'm not saying anything about the direction of this stock, but a $200,000 to $250,000 share price would not be unreasonable. Obviously there are numerous other factors, P/E ratios, cash availability, expansion, etc., but this is one factor that should be taken seriously. I think this is a good move. Right now I think the play is on Bank of America, either as a hold, or a covered call candidate. Run it passed you advisors.
One more blog coming up on Mr. Buffet, unless something else comes up.
Thanks for participating.
Wade
Wednesday, August 31, 2011
THE BANKING INDUSTRY
STOCK MARKET, BofA AND WARREN BUFFET.
In keeping with the theme of many recent posts by me, I want to weigh in again with a commentary on the government's sickening attempt to ride banks. Any quotes are from the Wall Street Journal.
The WSJ asked a good question: "How much cost and uncertainty can the government impose on a U.S. Bank before it buckles under the strain?"
Here are some points to bolster the need to get to the bottom of this pain in the Banking Industry.
$$$ Bank of America (under the new Dodd-Frank fiasco) are being stress-tested.
$$$ The government wants BofA to pick up the tab (for the ruin they {The U.S.}) have caused. Then once they ruin Bank of America they will have the taxpayers pick up the tab for this failure.
$$$ But Bank of America is doing better. They have $400 Billion in cash. They can fund their problems without much difficulty.
$$$ Warren Buffett's Berkshire Hathaway takes a stand. They're trying to change the discussion. "Washington flirting with bank nationalization."
$$$ The mortgage problem that Bank of America has primarily stems from the acquisition of CountryWide Financial, which the government cheered at the time. Funny, how the government turns on people.
$$$ A lot of the current problems also stem from "Robo-Signing" foreclosure paperwork, but the government has failed to uncover any actual victims. But the government has demanded billions from these banks.
$$$ New York's Attorney General, Eric Scheiderman, is driving a swath of destruction because he's so bone-headed. Get this: he was kicked off the negotiating committee by the Attorneys General of the other states. He wanted to interrupt the settlement between Bank of America and Mellon Bank.
$$$ The new financial bill, dubbed Dodd-Frank should be repealed. It's almost as bad for America as ObamaCare.
$$$ Speaking of which, all these banks from Main Street to Wall Street are having and will continue to have problems fighting "Obamanomics."
CONCLUSION: Since I started writing these blogs about the Buffett/BofA deal, the stock is up over a dollar, a 12% move. The stock looks like it wants to go up, the only thing holding it back are two forces that have come together to cripple American Free Enterprise---GOVERNMENT GRAVITY. The new G-Men.
Stay tuned. I have more comments to make about this. I'll try to do so tomorrow.
WADE
In keeping with the theme of many recent posts by me, I want to weigh in again with a commentary on the government's sickening attempt to ride banks. Any quotes are from the Wall Street Journal.
The WSJ asked a good question: "How much cost and uncertainty can the government impose on a U.S. Bank before it buckles under the strain?"
Here are some points to bolster the need to get to the bottom of this pain in the Banking Industry.
$$$ Bank of America (under the new Dodd-Frank fiasco) are being stress-tested.
$$$ The government wants BofA to pick up the tab (for the ruin they {The U.S.}) have caused. Then once they ruin Bank of America they will have the taxpayers pick up the tab for this failure.
$$$ But Bank of America is doing better. They have $400 Billion in cash. They can fund their problems without much difficulty.
$$$ Warren Buffett's Berkshire Hathaway takes a stand. They're trying to change the discussion. "Washington flirting with bank nationalization."
$$$ The mortgage problem that Bank of America has primarily stems from the acquisition of CountryWide Financial, which the government cheered at the time. Funny, how the government turns on people.
$$$ A lot of the current problems also stem from "Robo-Signing" foreclosure paperwork, but the government has failed to uncover any actual victims. But the government has demanded billions from these banks.
$$$ New York's Attorney General, Eric Scheiderman, is driving a swath of destruction because he's so bone-headed. Get this: he was kicked off the negotiating committee by the Attorneys General of the other states. He wanted to interrupt the settlement between Bank of America and Mellon Bank.
$$$ The new financial bill, dubbed Dodd-Frank should be repealed. It's almost as bad for America as ObamaCare.
$$$ Speaking of which, all these banks from Main Street to Wall Street are having and will continue to have problems fighting "Obamanomics."
CONCLUSION: Since I started writing these blogs about the Buffett/BofA deal, the stock is up over a dollar, a 12% move. The stock looks like it wants to go up, the only thing holding it back are two forces that have come together to cripple American Free Enterprise---GOVERNMENT GRAVITY. The new G-Men.
Stay tuned. I have more comments to make about this. I'll try to do so tomorrow.
WADE
Tuesday, August 30, 2011
Horses and Memories
Life here is not that much fun. It's very boring. But once in awhile I see something, read something, or with my vast memory---almost photogenic in nature---I remember something that once made me happy..
We are a horse family. My daughters and wife, and now my grand-daughters have grown up loving these equine miracles.
So, here I am reading a book on a crime investigation called FREE FALL by Robert Crais, and on page 237 I find this paragraph: "The park was crowded, and most of the trail riders were families and kids, but most of the pen riders were serious young women with tight riding pants and heavy leather riding boots and their hair up in buns. We bought diet Cokes and watched them ride."
Those of you know my family and my caffeine proclivities should get a kick out of this. Hopefully not a horse kick. They hurt.
That's all for now.
I sure miss my kids and those fun times.
Wade
We are a horse family. My daughters and wife, and now my grand-daughters have grown up loving these equine miracles.
So, here I am reading a book on a crime investigation called FREE FALL by Robert Crais, and on page 237 I find this paragraph: "The park was crowded, and most of the trail riders were families and kids, but most of the pen riders were serious young women with tight riding pants and heavy leather riding boots and their hair up in buns. We bought diet Cokes and watched them ride."
Those of you know my family and my caffeine proclivities should get a kick out of this. Hopefully not a horse kick. They hurt.
That's all for now.
I sure miss my kids and those fun times.
Wade
OPTION PRICING BAC
I want to follow up on the Warren Buffett/Bank of America trade. The announcement came as the market was about to open. Within seconds the stock shot up, but very quickly it backed off. But very quickly after this open, the options seemed stuck. In fact, later, with the stock at the mid $7.50 range, there were some crazy prices coming out of the option guys. That is what I'd like to comment on.
In general, when there is a gap up or down, meaning the stock (especially at the open) trades significantly higher or lower, it takes awhile for the option market makers to settle in. It's called going through rotation. In fact, the option market opens a few minutes after the stock market opens, giving the market makers time to adjust, catch their breath, and adjust their prices, coming from their computer models.
Just think of the complexity of this. Bank of America for example: It has $1 incremental strike prices---say the 3, 4, 5, 6, 7, 8 dollar calls and many more----for September. It has puts to adjust as well. Now go to the October option strike prices and all other months out for about nine months. Add in two years of the January Leaps (R), and you have a computer running fast and hard. In three more seconds, the stock is up 10 cents, and all of those prices have to adjust again. This goes on all day. Now imagine doing this, even with the fastest computers, while trading---rapid and heavy---is also occuring. It can boggle the mind, especially a mind so finite as mine.
So what would you do? If I were a market maker I'd stop trading for awhile. Let it go through its rotation and settle down.
Here's an example: Bank of America stock was at $7.67. The $7 call would be 75 cents to $1 or so. The $8 call would be 30 or 40 cents. Now the price includes the in-the-money portion, time to expiration, but other components of their formulas. Not so this time. The $7 calls were going for 57 X 60 cents. That's not even representative of the in-the-money portion of 67 cents. It tells me the market is locked, meaning not active.
And what about the $8 calls? I thought you'd never ask. They were trading (NOT) at 0 X .01 cents. That confirmend to me that the trading was stopped.
Later in the day, when the big runoff was over, the stock was still at $7.76. The $7 calls were $1.03 X $1.05. The $8 calls were going for 44 X 45 cents. The spread between the bid and ask also tightened up, showing more confidence by the option market makers.
So, in closing, let's look at this stock as a covered call possibility:
1) We'll buy 1,000 shares of stock at $7.76, or $7,760---or half of that on margin. Now sell 10 contracts (representing our 1,000 shares) for $1.03. That's $1,030. Yes we'd have to give back 76 cents, or $760 if called out, but that is not bad.
2) Now, let's look at the $8 call. If you bought the stock and sold this strike price, it would look like this, You would have the same cash into the stock. Now, sell the $8 call for 44 cents, and take in $440. Someone now has the right to buy your stock, anytime on or before the third Friday of September for $8. If they were to do so, you would take in $8,000. That's $240 more than you paid for it and you also get to keep the option premium of $440.
A couple of quick points: a. make sure you protect the downside movement of the stock. Maybe put in a stop-loss at $6.90 to $7.20---whatever makes you happy and secure. b. By selling the out-of-the money (actually either of them) you can always buy-back the option, meaning you would end the obligation to deliver the stock at one of the two prices. On the next rise in the stock price, you could sell it again, or even sell the October's. This way, you're selling more time, and putting more cash into your account. You can pull out this received option premium anytime you want to.
Tomorrow and this week, I think we'll see some good movements in the market. August is one of the three most down months in the market, but the last week has been kind for many years. It's funny, because so many brokers go on vacation, but oftentimes (like the day after Thanksgiving, the day before Christmas, or even Friday before Easter and others), the market rises on light volume. It doesn't make sense, but there you go.
As we get ready to post this blog entry, BAC stock is at $8.19. The $8 calls are going for .56 x .57. These prices are all snapshots in time. Be sure to do your own homework and consult your financial professionals before entering into any trades.
Have a great week. Watch and learn to connect the dots.I standby ready to help.
Wade
Saturday, August 27, 2011
STOCK MARKET VALUATIONS
STOCK MARKET VALUATIONS---AND THE WARREN BUFFETT MOVE INTO BANK OF AMERICA
That day, I learned a valuable lesson in accounting. Let me introduce you to GAAP -- or Generally Accepted Accounting Principles. There is not enough time here to mouth off about all of it, suffice it to say, the valuations they wanted to use were not what I thought.
For example. One property, which I had purchased for $60,000 was listed at about $60,000, even after some depreciation expense and some capital investments. It was worth $120,000, easily. "Not according to GAAP," he stated. "You have to list your assets at cost (meaning the adjusted cost basis) or the market value, whichever is less." I thought I misheard him. "You meant to say more, not less, right?" "No, it's whichever is less." "But that means on some properties I would have a negative basis, as I owe more in mortgages than this lower valuation." I started to get the picture. The only thing he would do is let me footnote the numbers, and explain in subsequent pages the real street values.
Let me give two examples from today. First, a publicly traded company buys a $10,000,000 property. It depreciates it down to $9,500,000 over the years. They've taken good care of it, and the real street value is $12,000,000. They just refinanced the mortgage for $10,000,000. Now do the financial statement. Assets? Liabilities? The asset is listed at $9,500,000. Remember, cost or market whichever is less. Liabilities, $10,000,000, the mortgage. Yep, you added right. This property shows up as a net ($500,000) in equity, whereas in real life there's a $2,500,000 net equity.
Example two: Your company has a chance to buy some private stock in a technical company to help it go public. The stock sold for $1, and you bought 10,000,000 shares. You list it on your books at $10,000,000. In six months they need more money and go out for a new round of financing at $2 per share. You're excited. Your stock value just doubled. Your balance sheet is going to look great. You're thinking your investment has turned into $20,000,000. It may have, but you must list it at $1, or the original $10,000,000, as your cost basis is lower than the new $2 per share. Then, a year later, they still haven't gone public and they need a little more money, but no one wants to get involved. They lower the price to 50 cents, and now guess what? That's right, your value is cut in half. Your 10,000,000 shares times 50 cents, the new market value, equals $5,000,000. Hopefully it will go public soon and you can list the stock at a public market value.
QUESTION OF IMPORTANCE
Do you see that a company can have assets on its books that are worth far more in the real world than how they're characterized on their financials? And we can't go out and kick the tires all the time. The point is that many companies have huge values that are worth so much more than depicted.
Okay, let's get back to banks and how their financial statements are different. Everything is backwards with banks. Let's just deal with real estate loans, as this type of loan, and Bank of America's purchase of Countrywide Financial is a big problem.
Where we would list the property as an asset, banks list the outstanding (and performing) loan as the asset. They list the house as a liability. The property is their negative. If they take back too many properties (called REOs, or Real Estate Owned), they may not be able to make new loans, until they clean up their books. That's why banks will do almost anything to get rid of REOs. In fact, this is the reason why banks are forestalling the foreclosure process on hundreds of thousands of delinquent mortgages.
And it gets worse. Our benevolent government has now imposed new accounting rules, under the dubious title. "STRESS TEST." Here's how it goes with one mortgage. Imagine how bad their books would look with 10,000 of these foreclosed properties or non-performing loans. A bank loans $300,000 of a $350,000 home. Everything looks good. Real estate prices were stable but now their squishy. The test is this: How much would that loan be worth if you had to sell it now for cash? What? They don't have to do that. It's a stupid scenario, but it's government. Take it from someone who has seen government in action, up close and personal. It makes no sense.
That's like asking this: You buy a car and two days later, you have to sell it now. I mean now. Your $25,000 is worth how much, especially if the buyers smell blood in the water? What can you get, 70%, 60%, or even less.
The government test comes in around 30 cents on the dollar. I've heard of some at even 10 cents on the dollar. Who could stand such scrutiny? By the way, everyday you hear of banks closing their doors, or trying to become a different institution other than a bank. ABC $300,000 mortgage, (performing or not) is now valued at $90,000 on a good day. That's their asset. Their liability is the real estate. Are you starting to get the picture?
DOUBLE DOWN
Now, let's even look deeper into this government mess. A bank could be perfectly healthy. Billions in reserve---enough to meet any normal contingency. But their balance sheet shows them running in the red. It could look bleak. Pardon me while I put in a little political commentary. I honestly believe this administration did this to take over certain banks (Like AIG, GM, etc) and to possibly nationalize the whole banking system. They started by nationalizing the student loan program, which took an important and vital money-making service away from banks. They have taken over others, and shut down others. It is quite sickening.
Okay, back to the numbers, and then we'll get back to the Bank of America deal with Warren Buffet. Remember the loans? Tens of thousands of loans, underwater houses. Loans foreclosed on. Loans not performing quite right. The books look bad. Think it through. The bank created this $300,000 loan. The government poison makes them stress test it down to market, at say $90,000. The loan is in default so it's written down further, and the liability---the house (which in the real world could be close to $300,000 or more if the government would get their hands off of things)---which to everyone else is a positive asset shows up as a liability, skewing the whole picture. Now take this times hundreds of thousands. Aren't you glad we have a kind government that is willing to step in and save the day?
It's all bogus. Now, take some shrewd investors and/or attorneys and sic them on this situation. They know the real value. They position themselves to take advantage of the system. Bankruptcy judges are oblivious to GAAP, and the unsettling valuations the attorneys rip off.
WHAT'S THE TRUE VALUE?
Let's speak to Book Value, or Break-Up Value. As the assets are listed on their financials, filed every quarter, so is the company valued and evaluated. Here's a rule-of-thumb number. Say a company has a book value of $8, which is what Microsoft used to be. Their stock will typically trade at 3 times this amount. If the book value is $50 (the current evaluation of all their assets---at the lesser value) the stock might trade at close to $150.
What if you could find a company with a negative book value compared to their stock price. Say you have a company with a Book Value of $14 or $15, and the stock is going for $7? If this were a piece of real estate, valued at $250,000 and you could buy it for $125,000, wouldn't you jump at the chance?
So, just what did Warren Buffett see in Bank of America? Barron's listed the stock at trading at 57% of book value. And, (I know I've crossed the line of redundancy and circumlocution), this book value is way under the real value, but it is according to GAAP. What would you do? He saw the opportunity and he took it.
He made the loan, getting preferred stock. He's getting 6% per year while he waits to convert the stock into shares locked in at $7.14. He's got unlimited upside potential with virtually no downside risk. So how do we tag along? Jump in the game, because the game is afoot.
BANK OF AMERICA AND P/E RATIOS.
This won't take long. It's important to look at the P/E (Stock Price divided by the Earnings Per Share [EPS]---either past tense, future estimates of the P/E or a blend of both). Simply put, the P/E tells you how many dollars it takes to buy $1 worth of earnings. If the share price is $30 and the EPS is $1, the P/E is 30. If the EPS were $2, the P/E would be 15---stated as 15 times earnings. This is a simple, cabdriver's explanation.
You want to find companies with a low P/E. The historical P/E, across the board, and through history, is 15.5. Today it is common to talk of stocks on the NYSE at 20 times earnings. NASDAQ at 30 to 40 times earnings. You can use this in a way to judge the stock you are thinking of buying. Say your target stock is trading at 18 Xs earnings. In that sector (banks, food, airlines, computer chips, etc.) the average P/E is 12. You would be paying a premium for your stock. If the average P/E is 25, then you would be getting your stock at a discount. This ratio applies to all prices of stocks. You could have a stock at 50 cents, $50, or $500. The ratio works out. You can also look at the earnings and see if they're growing from quarter to quarter, or year to year. I will write more on this in future blogs.
Let's look at BofA. Barron's reported that the current P/E ratio was 4.9 times the estimated future year's earnings. That is really low. Yes, it could change, but often when the company makes a projection, or gives "guidance," the new word dujour, such guidance is on the low side. Companies love to give low numbers, reduce expectations, and then work like crazy to beat their numbers.
CONCLUSION
4.9 times earnings. It's a bargain. The book value is upside down, in a positive way, even though we call it Negative Book Value. Like the jargon of the day---"BAD" means "GOOD." They have plenty of cash, and I still do not think they had to do this deal with Warren Buffet. It was to look good, and maybe get the FEDS to back off a little, with Warren and Barack being buddies like they are.
Add all of this information to information in the previous blog and again I think you will see the game is afoot.
NOTE: Right now the option premiums say the stock is going nowhere. That will change very shortly. I like this as a covered call candidate, using the buy-back as I explained in my covered call book, STOCK MARKET MONEY MACHINE. Check out the book at Amazon.com---Create Space. It's available as an eBook or as a softbound book.
I have two more blogs on this topic. One is on government stress-tests, and the other is on the pricing of options. Stay tuned.
Abundantly Yours,
Wade
I hope in this blog to share some vitally important information on how companies value their assets, and how you might be able to find bargain stocks and build your wealth.
Years ago, as a new real estate investor, I had acquired about a dozen properties. I got some really good deals, and I spent quite a bit of money fixing them up. I needed to do a financial statement and took all of my paperwork to a big accounting firm, at least for Tacoma, it was big. The CPA took all of my forms, paperwork and verifications and went to work. A week later I went in and looked at this beautifully bound Financial Statement. I was shocked. My net worth was nowhere near what I thought it would be. That day, I learned a valuable lesson in accounting. Let me introduce you to GAAP -- or Generally Accepted Accounting Principles. There is not enough time here to mouth off about all of it, suffice it to say, the valuations they wanted to use were not what I thought.
For example. One property, which I had purchased for $60,000 was listed at about $60,000, even after some depreciation expense and some capital investments. It was worth $120,000, easily. "Not according to GAAP," he stated. "You have to list your assets at cost (meaning the adjusted cost basis) or the market value, whichever is less." I thought I misheard him. "You meant to say more, not less, right?" "No, it's whichever is less." "But that means on some properties I would have a negative basis, as I owe more in mortgages than this lower valuation." I started to get the picture. The only thing he would do is let me footnote the numbers, and explain in subsequent pages the real street values.
Let me give two examples from today. First, a publicly traded company buys a $10,000,000 property. It depreciates it down to $9,500,000 over the years. They've taken good care of it, and the real street value is $12,000,000. They just refinanced the mortgage for $10,000,000. Now do the financial statement. Assets? Liabilities? The asset is listed at $9,500,000. Remember, cost or market whichever is less. Liabilities, $10,000,000, the mortgage. Yep, you added right. This property shows up as a net ($500,000) in equity, whereas in real life there's a $2,500,000 net equity.
Example two: Your company has a chance to buy some private stock in a technical company to help it go public. The stock sold for $1, and you bought 10,000,000 shares. You list it on your books at $10,000,000. In six months they need more money and go out for a new round of financing at $2 per share. You're excited. Your stock value just doubled. Your balance sheet is going to look great. You're thinking your investment has turned into $20,000,000. It may have, but you must list it at $1, or the original $10,000,000, as your cost basis is lower than the new $2 per share. Then, a year later, they still haven't gone public and they need a little more money, but no one wants to get involved. They lower the price to 50 cents, and now guess what? That's right, your value is cut in half. Your 10,000,000 shares times 50 cents, the new market value, equals $5,000,000. Hopefully it will go public soon and you can list the stock at a public market value.
QUESTION OF IMPORTANCE
Do you see that a company can have assets on its books that are worth far more in the real world than how they're characterized on their financials? And we can't go out and kick the tires all the time. The point is that many companies have huge values that are worth so much more than depicted.
Okay, let's get back to banks and how their financial statements are different. Everything is backwards with banks. Let's just deal with real estate loans, as this type of loan, and Bank of America's purchase of Countrywide Financial is a big problem.
Where we would list the property as an asset, banks list the outstanding (and performing) loan as the asset. They list the house as a liability. The property is their negative. If they take back too many properties (called REOs, or Real Estate Owned), they may not be able to make new loans, until they clean up their books. That's why banks will do almost anything to get rid of REOs. In fact, this is the reason why banks are forestalling the foreclosure process on hundreds of thousands of delinquent mortgages.
And it gets worse. Our benevolent government has now imposed new accounting rules, under the dubious title. "STRESS TEST." Here's how it goes with one mortgage. Imagine how bad their books would look with 10,000 of these foreclosed properties or non-performing loans. A bank loans $300,000 of a $350,000 home. Everything looks good. Real estate prices were stable but now their squishy. The test is this: How much would that loan be worth if you had to sell it now for cash? What? They don't have to do that. It's a stupid scenario, but it's government. Take it from someone who has seen government in action, up close and personal. It makes no sense.
That's like asking this: You buy a car and two days later, you have to sell it now. I mean now. Your $25,000 is worth how much, especially if the buyers smell blood in the water? What can you get, 70%, 60%, or even less.
The government test comes in around 30 cents on the dollar. I've heard of some at even 10 cents on the dollar. Who could stand such scrutiny? By the way, everyday you hear of banks closing their doors, or trying to become a different institution other than a bank. ABC $300,000 mortgage, (performing or not) is now valued at $90,000 on a good day. That's their asset. Their liability is the real estate. Are you starting to get the picture?
DOUBLE DOWN
Now, let's even look deeper into this government mess. A bank could be perfectly healthy. Billions in reserve---enough to meet any normal contingency. But their balance sheet shows them running in the red. It could look bleak. Pardon me while I put in a little political commentary. I honestly believe this administration did this to take over certain banks (Like AIG, GM, etc) and to possibly nationalize the whole banking system. They started by nationalizing the student loan program, which took an important and vital money-making service away from banks. They have taken over others, and shut down others. It is quite sickening.
Okay, back to the numbers, and then we'll get back to the Bank of America deal with Warren Buffet. Remember the loans? Tens of thousands of loans, underwater houses. Loans foreclosed on. Loans not performing quite right. The books look bad. Think it through. The bank created this $300,000 loan. The government poison makes them stress test it down to market, at say $90,000. The loan is in default so it's written down further, and the liability---the house (which in the real world could be close to $300,000 or more if the government would get their hands off of things)---which to everyone else is a positive asset shows up as a liability, skewing the whole picture. Now take this times hundreds of thousands. Aren't you glad we have a kind government that is willing to step in and save the day?
It's all bogus. Now, take some shrewd investors and/or attorneys and sic them on this situation. They know the real value. They position themselves to take advantage of the system. Bankruptcy judges are oblivious to GAAP, and the unsettling valuations the attorneys rip off.
WHAT'S THE TRUE VALUE?
Let's speak to Book Value, or Break-Up Value. As the assets are listed on their financials, filed every quarter, so is the company valued and evaluated. Here's a rule-of-thumb number. Say a company has a book value of $8, which is what Microsoft used to be. Their stock will typically trade at 3 times this amount. If the book value is $50 (the current evaluation of all their assets---at the lesser value) the stock might trade at close to $150.
What if you could find a company with a negative book value compared to their stock price. Say you have a company with a Book Value of $14 or $15, and the stock is going for $7? If this were a piece of real estate, valued at $250,000 and you could buy it for $125,000, wouldn't you jump at the chance?
So, just what did Warren Buffett see in Bank of America? Barron's listed the stock at trading at 57% of book value. And, (I know I've crossed the line of redundancy and circumlocution), this book value is way under the real value, but it is according to GAAP. What would you do? He saw the opportunity and he took it.
He made the loan, getting preferred stock. He's getting 6% per year while he waits to convert the stock into shares locked in at $7.14. He's got unlimited upside potential with virtually no downside risk. So how do we tag along? Jump in the game, because the game is afoot.
BANK OF AMERICA AND P/E RATIOS.
This won't take long. It's important to look at the P/E (Stock Price divided by the Earnings Per Share [EPS]---either past tense, future estimates of the P/E or a blend of both). Simply put, the P/E tells you how many dollars it takes to buy $1 worth of earnings. If the share price is $30 and the EPS is $1, the P/E is 30. If the EPS were $2, the P/E would be 15---stated as 15 times earnings. This is a simple, cabdriver's explanation.
You want to find companies with a low P/E. The historical P/E, across the board, and through history, is 15.5. Today it is common to talk of stocks on the NYSE at 20 times earnings. NASDAQ at 30 to 40 times earnings. You can use this in a way to judge the stock you are thinking of buying. Say your target stock is trading at 18 Xs earnings. In that sector (banks, food, airlines, computer chips, etc.) the average P/E is 12. You would be paying a premium for your stock. If the average P/E is 25, then you would be getting your stock at a discount. This ratio applies to all prices of stocks. You could have a stock at 50 cents, $50, or $500. The ratio works out. You can also look at the earnings and see if they're growing from quarter to quarter, or year to year. I will write more on this in future blogs.
Let's look at BofA. Barron's reported that the current P/E ratio was 4.9 times the estimated future year's earnings. That is really low. Yes, it could change, but often when the company makes a projection, or gives "guidance," the new word dujour, such guidance is on the low side. Companies love to give low numbers, reduce expectations, and then work like crazy to beat their numbers.
CONCLUSION
4.9 times earnings. It's a bargain. The book value is upside down, in a positive way, even though we call it Negative Book Value. Like the jargon of the day---"BAD" means "GOOD." They have plenty of cash, and I still do not think they had to do this deal with Warren Buffet. It was to look good, and maybe get the FEDS to back off a little, with Warren and Barack being buddies like they are.
Add all of this information to information in the previous blog and again I think you will see the game is afoot.
I have two more blogs on this topic. One is on government stress-tests, and the other is on the pricing of options. Stay tuned.
Abundantly Yours,
Wade
CONNECT THE DOTS--THE WIZARD OF OMAHA STRIKES AGAIN
STOCK MARKET---CONNECT THE DOTS---#1 (THE WIZARD OF OMAHA STRIKES AGAIN)
I had occasion last night to sit out at the picnic tables with a bunch of curmudgeons. The big news of the day was Warren Buffett (Berkshire-Hathaway [BRK.A]) investing $5,000,000,000, yes as in B for Billion, into Bank of America. Upon the announcement and shortly after the market opened, the stock went up to over $8.50 from around $7.01, and then settled for the day around $7.50. This caused me to think long and hard about this stock, the foundation of the company, and this news announcement. As always, it never is what meets the eye. I love these moves, and I love figuring things out. You will read here my analysis of this transaction, broken into two parts. One is my initial take, and then today when I was e-mailed more news about this new deal.
The reason this is important to me right now, is two-fold:
1) I've been writing about the stock as a covered call candidate. The options were really good, about 10% for the September calls. Example, the stock was $7.01 and the $7 calls were going for about 70 cents. You could buy the stock, and then sell to someone the risky option for 70 cents. If you owned 1,000 shares, and then sell 10 contracts of the options, you'd take in $700. Now the stock will rise, stay the same, or go down. Whatever, you get to keep the $700. If you sell the stock at $7 you would lose $10, that's the one cent. This scenario is not that important to this discussion, but it proves a mighty powerful point about option pricing, which I'll share as one punchline at the end of this blog.
2) This is a piece of Americana---both Bank of America and Warren Buffett---and add to that the deal that was made, you too will say, "Only in America." It's brilliant or it's crazy, you decide.
To summarize: The first announcement just said that Warren Buffett is buying $5 Billion of Bank of America stock. What would you think if you owned this stock? It's going to go up, right? It's a bullish sign for American Banks. Other bank stocks might also go up. $5 Billion dollars in the market place will do a lot of good. You would have been mostly wrong.
I've noticed that so many people just read the Headlines. Everything on TV is condensed to sound-bites, headlines flashing across the screen. OnE constant in the stock market is that everybody over-reacts. They over-react when the news is good, and buy. They over-react when the news is bad, and sell. It all works out after people read the whole article, get more news, and delve into the details.
BACK TO LAST NIGHT
I said to everyone last night, that the news was not what it seemed. This was not an open-market purchase. The only way a deal like this (a guaranteed 6% return, and the right to buy the stock at $7.14) would go down, is if there was a new SEC filing, new stock created, etc. This type of trade will be like the Oil Sheiks buying stock when banks were in need of cash ten plus years ago. Everyone asked what it means. I tried to explain preferred stock, and warrents, and then book value and negative book value. I tried to shed some light on GAAP (Generally Accepted Accounting Principles), and how America works at the Billion Dollar level. It made sense to me and I hope I can help you see this. The effort is worth it. Believe me, this type of knowledge is very powerful.
NOTE TO READERS: This is where I'd like to explain how some of the accounting principles work, and how the banking accounting is different. I need to explain, "Marked to Market," and the like. The deal is powerful because this is a purchase of an under-valued stock, as you will see. In the next blog I will share some very powerful information that will help a lot of this make more sense. Usually I interrupt an article and wind along a winding road to get to the destination, but this information is supplemental, though interesting and casually important to this topic. If you like connecting the dots, go there, read it and come back here and pick up this story.
Moving On: Here was the infomation gleaned from the first pass at the news. Warren Buffet is investing $5 Billion in Bank of America. He will receive a guarenteed 6% each year, or $300,000,000. He will be able to buy the stock at $7.14. The market reacted, the stock shot up. Later in the day the details became apparent and the stock backed off.
My thoughts were that this had to be a new class of stock. Also, Bank of America was getting the money. Why, you might ask? They have $400 Billion cash on hand, and they're sitting on deposits of over $1 Trillion dollars. Out of a Barron's article (Jacqueline Doherty) we learn that they made $6 Billion last quarter. Within the article is the statement that banks stocks are near the cheapest they've been in history, based on Book Value and P/E ratios. Why do they need $5 Billion from Mr. Buffett? The truth from my perspective---THEY DON'T. So why the deal? To bolster the stock price. PR. To show Mr. Buffet is the investor of last resort. More PR.
To summarize part of the information of Book Value and P/E ratios, look at this. BAC is trading at 57% of tangible book value (Ibid. Doherty) and at 4.9 times next years estimated earnings. Remember 20 times earnings is about average for a New York Stock Exchange stock. Yes, banks stocks are down, but this is way down. Look at the Book Value. A little over 50 percent. That means this company has assets (based on their last earnings filing) where their stock is trading at a percentage of their listed assets (57%). In reality that means that the stock could and should be trading at a $12 to $14 price. Think of this. If you wanted to buy real estate or a company and could get it for 50% or so of its value, would that not be a heck of a bargain? And remember, these asset values ("Cost Basis or Market Value, whichever is less) are much lower than their worth in the real world.
So, from Mr. Buffett's point of view, he's getting the company for 50% or realistically 20% to 30% of the real value. Now let me share a paragraph from a news article. Then I'll do my best to parse the words so it makes sense.
"The terms of the deal were favorable to Buffett. He received 50,000 shares of cumulative perpetual preferred shares costing $100,000 each that will pay a 6% annual dividend, which is a good return in a low-return world in which the Treasury note yields 2.23%. Buffett's Berkshire Hathaway will net $300 Million in dividends per year."
"Buffett also got warrants, or the right over the next 10 years to purchase shares of BofA common stock at a price of $7.14 per share."
MY EXPLANATION
Here's how I see it. Mr. Buffett loans (invests) $5,000,000,000. He buys 50,000 shares of a type of preferred stock for $100,000 each. Everyone here who read the article missed the word "each." He gets 6% or $300,000,000 a year in interest (OOPS---in dividends). He has 10 years to convert these shares into 700,000,000 shares of common stock at $7.14 per share. $7.14 times 700,000,000 is $5,000,000,000, minus a little change for arbitrage.
He gets paid every year for the investment/loan. If the stock goes up, to say $15 to $20 (I think it can easily go to $30 over the next year or so, especially if Mr. O goes packing, back to the streets of Chicago). The stock is undervalued. If the Banking Authorities wise up, and get rid of the ridicules stress-test, and let banks run on good, solid banking principles, they will recover quite nicely.
He's taken a small fraction of the cash reserve of Berkshire Hathaway and added it to the huge cash reserve of Bank of America, and everybody benefits.
Yeah, the only conclusion is the PROMO trick and if they're successful, then everyone wins. I sure hope so.
I had occasion last night to sit out at the picnic tables with a bunch of curmudgeons. The big news of the day was Warren Buffett (Berkshire-Hathaway [BRK.A]) investing $5,000,000,000, yes as in B for Billion, into Bank of America. Upon the announcement and shortly after the market opened, the stock went up to over $8.50 from around $7.01, and then settled for the day around $7.50. This caused me to think long and hard about this stock, the foundation of the company, and this news announcement. As always, it never is what meets the eye. I love these moves, and I love figuring things out. You will read here my analysis of this transaction, broken into two parts. One is my initial take, and then today when I was e-mailed more news about this new deal.
The reason this is important to me right now, is two-fold:
1) I've been writing about the stock as a covered call candidate. The options were really good, about 10% for the September calls. Example, the stock was $7.01 and the $7 calls were going for about 70 cents. You could buy the stock, and then sell to someone the risky option for 70 cents. If you owned 1,000 shares, and then sell 10 contracts of the options, you'd take in $700. Now the stock will rise, stay the same, or go down. Whatever, you get to keep the $700. If you sell the stock at $7 you would lose $10, that's the one cent. This scenario is not that important to this discussion, but it proves a mighty powerful point about option pricing, which I'll share as one punchline at the end of this blog.
2) This is a piece of Americana---both Bank of America and Warren Buffett---and add to that the deal that was made, you too will say, "Only in America." It's brilliant or it's crazy, you decide.
To summarize: The first announcement just said that Warren Buffett is buying $5 Billion of Bank of America stock. What would you think if you owned this stock? It's going to go up, right? It's a bullish sign for American Banks. Other bank stocks might also go up. $5 Billion dollars in the market place will do a lot of good. You would have been mostly wrong.
I've noticed that so many people just read the Headlines. Everything on TV is condensed to sound-bites, headlines flashing across the screen. OnE constant in the stock market is that everybody over-reacts. They over-react when the news is good, and buy. They over-react when the news is bad, and sell. It all works out after people read the whole article, get more news, and delve into the details.
BACK TO LAST NIGHT
I said to everyone last night, that the news was not what it seemed. This was not an open-market purchase. The only way a deal like this (a guaranteed 6% return, and the right to buy the stock at $7.14) would go down, is if there was a new SEC filing, new stock created, etc. This type of trade will be like the Oil Sheiks buying stock when banks were in need of cash ten plus years ago. Everyone asked what it means. I tried to explain preferred stock, and warrents, and then book value and negative book value. I tried to shed some light on GAAP (Generally Accepted Accounting Principles), and how America works at the Billion Dollar level. It made sense to me and I hope I can help you see this. The effort is worth it. Believe me, this type of knowledge is very powerful.
NOTE TO READERS: This is where I'd like to explain how some of the accounting principles work, and how the banking accounting is different. I need to explain, "Marked to Market," and the like. The deal is powerful because this is a purchase of an under-valued stock, as you will see. In the next blog I will share some very powerful information that will help a lot of this make more sense. Usually I interrupt an article and wind along a winding road to get to the destination, but this information is supplemental, though interesting and casually important to this topic. If you like connecting the dots, go there, read it and come back here and pick up this story.
Moving On: Here was the infomation gleaned from the first pass at the news. Warren Buffet is investing $5 Billion in Bank of America. He will receive a guarenteed 6% each year, or $300,000,000. He will be able to buy the stock at $7.14. The market reacted, the stock shot up. Later in the day the details became apparent and the stock backed off.
My thoughts were that this had to be a new class of stock. Also, Bank of America was getting the money. Why, you might ask? They have $400 Billion cash on hand, and they're sitting on deposits of over $1 Trillion dollars. Out of a Barron's article (Jacqueline Doherty) we learn that they made $6 Billion last quarter. Within the article is the statement that banks stocks are near the cheapest they've been in history, based on Book Value and P/E ratios. Why do they need $5 Billion from Mr. Buffett? The truth from my perspective---THEY DON'T. So why the deal? To bolster the stock price. PR. To show Mr. Buffet is the investor of last resort. More PR.
To summarize part of the information of Book Value and P/E ratios, look at this. BAC is trading at 57% of tangible book value (Ibid. Doherty) and at 4.9 times next years estimated earnings. Remember 20 times earnings is about average for a New York Stock Exchange stock. Yes, banks stocks are down, but this is way down. Look at the Book Value. A little over 50 percent. That means this company has assets (based on their last earnings filing) where their stock is trading at a percentage of their listed assets (57%). In reality that means that the stock could and should be trading at a $12 to $14 price. Think of this. If you wanted to buy real estate or a company and could get it for 50% or so of its value, would that not be a heck of a bargain? And remember, these asset values ("Cost Basis or Market Value, whichever is less) are much lower than their worth in the real world.
So, from Mr. Buffett's point of view, he's getting the company for 50% or realistically 20% to 30% of the real value. Now let me share a paragraph from a news article. Then I'll do my best to parse the words so it makes sense.
"The terms of the deal were favorable to Buffett. He received 50,000 shares of cumulative perpetual preferred shares costing $100,000 each that will pay a 6% annual dividend, which is a good return in a low-return world in which the Treasury note yields 2.23%. Buffett's Berkshire Hathaway will net $300 Million in dividends per year."
"Buffett also got warrants, or the right over the next 10 years to purchase shares of BofA common stock at a price of $7.14 per share."
MY EXPLANATION
- Preferred Shares are a special breed. They act like debt in some ways. If the company liquidates, for example, preferred shareholders would be paid in advance of creditors. Notice that this 6% is called a dividend, not interest. This avoids double-taxation (one of my pet peeves, which we'll save for another day); and keeps the transaction off the books as debt, or a loan, unless Mr. Buffett has a special arrangement with Mr. Obama's IRS. They have become pretty chummy lately.
- This transaction looks more like a convertible debenture. But does it quack like a duck?
- The stock did not go into the market and buy shares like the rest of us have to. This deal came from a cigar-filled backroom. It has a smell to it.
- The money goes to B of A. They have $5 Billion to add to their balance sheet.
Here's how I see it. Mr. Buffett loans (invests) $5,000,000,000. He buys 50,000 shares of a type of preferred stock for $100,000 each. Everyone here who read the article missed the word "each." He gets 6% or $300,000,000 a year in interest (OOPS---in dividends). He has 10 years to convert these shares into 700,000,000 shares of common stock at $7.14 per share. $7.14 times 700,000,000 is $5,000,000,000, minus a little change for arbitrage.
He gets paid every year for the investment/loan. If the stock goes up, to say $15 to $20 (I think it can easily go to $30 over the next year or so, especially if Mr. O goes packing, back to the streets of Chicago). The stock is undervalued. If the Banking Authorities wise up, and get rid of the ridicules stress-test, and let banks run on good, solid banking principles, they will recover quite nicely.
He's taken a small fraction of the cash reserve of Berkshire Hathaway and added it to the huge cash reserve of Bank of America, and everybody benefits.
Yeah, the only conclusion is the PROMO trick and if they're successful, then everyone wins. I sure hope so.
Wednesday, August 24, 2011
A Little Political Humor
My wife got this on her Facebook Feed from the page "Government Gone Wild". I thought it was pretty good:
"The President has just confirmed that the D.C. earthquake occurred on a rare and obscure fault-line, apparently known as "Bush's Fault". The President also announced that the Secret Service and Maxine Waters continues an investigation of the quakes's suspicious ties to the Tea Party. Conservatives however have proven that it was caused by the founding fathers rolling over in their graves."
"The President has just confirmed that the D.C. earthquake occurred on a rare and obscure fault-line, apparently known as "Bush's Fault". The President also announced that the Secret Service and Maxine Waters continues an investigation of the quakes's suspicious ties to the Tea Party. Conservatives however have proven that it was caused by the founding fathers rolling over in their graves."
Tuesday, August 23, 2011
Red Light - Green Light
I've been watching the stock market a lot lately. This sell-off is weird. Companies are making millions but afraid to expand and grow---meaning hiring new people. But in a market like this it's important to keep things in perspective. Years ago I isolated what I think is the most important discovery I or anyone has ever made in the market. Understanding this and mastering the simple mechanics is very important to wise trading.
I am speaking of my "Red-Light, Green-Light" phenomenon. Basically it deals with the quarterly news cycles. As the CEO of a publicly traded company there were times when I could talk about earnings and such and times when I had to be quiet. These dealt with the times throughout the year when a company comes up on earnings but hasn't released the numbers yet. I thought what if I and 25,000 other CEOs, CFOs, COOs and other insiders had to be quiet all at the same time? No news, except that issued by analysts, pundits, and lay citizens? What would happen to the market in general and to that particular stock? News to stocks is like gas to a car. You need it to get to the next station. The news could also be bad, but let's just categorize it as news. You've heard, "No news is good news?" Not to the stock market. "NO news is bad news."
Without going into detail here, let me summarize. The market goes down in February, May, August into September, and often the first few weeks of December, then rallies into the year end---called the Santa Clause Rally. If you can get my book RED-LIGHT, GREEN-LIGHT, and read the first two chapters, you'll see how this works. In fact I show the charts of a 40 year study in the market, which shows this quite clearly. In fact it's quite remarkable.
You've all heard things like this: We're entering the earnings season." We're in the earnings reporting season." This week (say, mid-July) 190 of the S & P 500 companies will give their earnings. What you never hear is this: Hey everyone, we're leaving the earnings season. Get your money out of harms way." And for option traders this can be devastating, because they own a fixed time investment and it expires. Time becomes the enemy for option investors.
Now, to this year. We've had a double whammy. We' had the typical summer rally, but it was stepped on by the talk of the Debt Ceiling. Now we're in the August red-light period and it's tough. It will come back.
Also, note that everyone is talking about the DOW selling off 10%. It seems like the media is trying to run cover for this administration. They use the figure from August 1st to the present. Go back four weeks before that and you'll see the DOW at 12,800. It's now at 10,700 (and it's been lower). That's about 20% in anyone's book (except Liberal Commentators). Oh, and 20% down in any given time period signals a bear market. That's the technical definition.
Have heart though. In 1987, we had the largest sell-off in my history. However, if you had $100,000 invested it would have gone do to $60,000. That's bad, but if you did not panic, within 13 months you would have been back up to $120,000. That's $20,000 ahead. So keep you head and don't panic.
To see all of this in chart format go to YahooFinance.com, or Bigcharts.com or Stockcharts.com and look at the whole market for this year. You will be amazed how these months play out.
Happy investing.
I'll have some more political commentary and some covered calls later.
I am speaking of my "Red-Light, Green-Light" phenomenon. Basically it deals with the quarterly news cycles. As the CEO of a publicly traded company there were times when I could talk about earnings and such and times when I had to be quiet. These dealt with the times throughout the year when a company comes up on earnings but hasn't released the numbers yet. I thought what if I and 25,000 other CEOs, CFOs, COOs and other insiders had to be quiet all at the same time? No news, except that issued by analysts, pundits, and lay citizens? What would happen to the market in general and to that particular stock? News to stocks is like gas to a car. You need it to get to the next station. The news could also be bad, but let's just categorize it as news. You've heard, "No news is good news?" Not to the stock market. "NO news is bad news."
Without going into detail here, let me summarize. The market goes down in February, May, August into September, and often the first few weeks of December, then rallies into the year end---called the Santa Clause Rally. If you can get my book RED-LIGHT, GREEN-LIGHT, and read the first two chapters, you'll see how this works. In fact I show the charts of a 40 year study in the market, which shows this quite clearly. In fact it's quite remarkable.
You've all heard things like this: We're entering the earnings season." We're in the earnings reporting season." This week (say, mid-July) 190 of the S & P 500 companies will give their earnings. What you never hear is this: Hey everyone, we're leaving the earnings season. Get your money out of harms way." And for option traders this can be devastating, because they own a fixed time investment and it expires. Time becomes the enemy for option investors.
Now, to this year. We've had a double whammy. We' had the typical summer rally, but it was stepped on by the talk of the Debt Ceiling. Now we're in the August red-light period and it's tough. It will come back.
Also, note that everyone is talking about the DOW selling off 10%. It seems like the media is trying to run cover for this administration. They use the figure from August 1st to the present. Go back four weeks before that and you'll see the DOW at 12,800. It's now at 10,700 (and it's been lower). That's about 20% in anyone's book (except Liberal Commentators). Oh, and 20% down in any given time period signals a bear market. That's the technical definition.
Have heart though. In 1987, we had the largest sell-off in my history. However, if you had $100,000 invested it would have gone do to $60,000. That's bad, but if you did not panic, within 13 months you would have been back up to $120,000. That's $20,000 ahead. So keep you head and don't panic.
To see all of this in chart format go to YahooFinance.com, or Bigcharts.com or Stockcharts.com and look at the whole market for this year. You will be amazed how these months play out.
Happy investing.
I'll have some more political commentary and some covered calls later.
Thursday, August 18, 2011
Confidence in the Business Community
Hello my friends.
I heard a good quote today by President Obama. I think it's the first thing he's said that I agree with.
Here goes: "What the business community needs is confidence."
The question is how do they grow their confidence? I suggest their confidence has to increase before they grow their businesses.
My answer is to cut taxes and stablize them. Cut regulations, not adding hundreds of new pages EVERYDAY. Get rid of the uncertainty of the unconstitutional ObamaCare. Repeal Dodd-Frank (Another batch of onerous and harmful regulations), and cut spending.
He says we can't cut our way to prosperity. Another falsehood. We sure can. We surely cannot tax our way to prosperity.
We cannot spend our way to prosperity---especially with bogus Green Energy boondoggles and Union enforcing machinations. We cannot borrow our way to prosperity. We cannot regulate our way to prosperity.
We need to: GROW OUT OF OUR PROBLEMS. The only way to do this is to employ Reagan-Like tax cuts, austerity measures and fiscally sane economic expansion strategies.
It's simple, get the government out of the way and let the free enterprise system work like is has for centuries. The real choice in things Government/Financial comes down to two philosophies: Capitalism Versus Socialism. Freedom Versus Tyranny. And we need to choose wisely.
I have a lot more on this that I will write later.
I heard a good quote today by President Obama. I think it's the first thing he's said that I agree with.
Here goes: "What the business community needs is confidence."
The question is how do they grow their confidence? I suggest their confidence has to increase before they grow their businesses.
My answer is to cut taxes and stablize them. Cut regulations, not adding hundreds of new pages EVERYDAY. Get rid of the uncertainty of the unconstitutional ObamaCare. Repeal Dodd-Frank (Another batch of onerous and harmful regulations), and cut spending.
He says we can't cut our way to prosperity. Another falsehood. We sure can. We surely cannot tax our way to prosperity.
We cannot spend our way to prosperity---especially with bogus Green Energy boondoggles and Union enforcing machinations. We cannot borrow our way to prosperity. We cannot regulate our way to prosperity.
We need to: GROW OUT OF OUR PROBLEMS. The only way to do this is to employ Reagan-Like tax cuts, austerity measures and fiscally sane economic expansion strategies.
It's simple, get the government out of the way and let the free enterprise system work like is has for centuries. The real choice in things Government/Financial comes down to two philosophies: Capitalism Versus Socialism. Freedom Versus Tyranny. And we need to choose wisely.
I have a lot more on this that I will write later.
Wednesday, August 17, 2011
COVERED CALL PREMIUMS
CASH FLOWING THE STOCK MARKET.
Here's what I'm looking for in covered calls:
If the stock is around $8 right now, and if the $8 calls out a month, say Sept are about 10% of the same $8 that would be really good. 6% to 10% is good. The $9 call should be around 4-5%, say 40 to 50 cents.
If the option is going for $2, everyone gets excited. The cash flow would be awesome, but the stock is too risky. One just like this awhile ago, looked great from a cash flow point of view, but the stock went down to $1.75 in two days. This was the problem a few years ago. Everyone got mesmerized by these high option premiums.
If the option is going for 20 to 50 cents, it signals a more stable stock, but it's boring. It's not worth doing the trade.
There has to be balance, figuring out the risk and reward. And then don't forget about stop losses on the stock (at say $7.20 on an $8 stock) or just under a good support level.
I would welcome any questions or comments!
Here's what I'm looking for in covered calls:
If the stock is around $8 right now, and if the $8 calls out a month, say Sept are about 10% of the same $8 that would be really good. 6% to 10% is good. The $9 call should be around 4-5%, say 40 to 50 cents.
If the option is going for $2, everyone gets excited. The cash flow would be awesome, but the stock is too risky. One just like this awhile ago, looked great from a cash flow point of view, but the stock went down to $1.75 in two days. This was the problem a few years ago. Everyone got mesmerized by these high option premiums.
If the option is going for 20 to 50 cents, it signals a more stable stock, but it's boring. It's not worth doing the trade.
There has to be balance, figuring out the risk and reward. And then don't forget about stop losses on the stock (at say $7.20 on an $8 stock) or just under a good support level.
I would welcome any questions or comments!
Monday, August 15, 2011
STOCK MARKET UPDATE
I have a quick observation. I think the market will settle down now as people get used to our Obama-Downgraded economy.
Barring some unforeseen crisis, the market should move up and down 30 to 100 points a day. The huge gyrations are not over, but are surely toned down for now.
Also, remember we are in a classic red-light---August---period. Choose wisely. Watch and learn.
I'll be following up on RENN and LULU when I hear what my friends are doing.
Barring some unforeseen crisis, the market should move up and down 30 to 100 points a day. The huge gyrations are not over, but are surely toned down for now.
Also, remember we are in a classic red-light---August---period. Choose wisely. Watch and learn.
I'll be following up on RENN and LULU when I hear what my friends are doing.
Friday, August 12, 2011
Earnings on RENN
Hello my friends,
I really do not have too much to report. The market has been up or down more than 400 points in each of the last four days. It's a wild ride. One commentator said, "the market is a porpoise." Another cliche, but a good one.
There will be more of the same as the scrutiny is high. Everyone is watching and looking for any type of good or bad news at all. One thing you can do is keep your powder dry. There will be really good buying opportunities. These situations always produce such.
About RENN. Again this is the Facebook of China. Maybe there are more companies over, even private ones. After all, The American Facebook is still private, trying to go public at the end of September or the first part of October. Anyway, RenRen came out with great numbers after the market closed today. Sales were up. Advertising revenue was up. Gross profits and net profits were substantially better than last year (when it was still private). Activity, meaning subscriptions/users were up and increasing.
I thought this spelled a solid increase, but remember the old stock market maxim: "Buy on rumor, sell on fact (news)." And then the inevitable happened. The CEO, or some mucky-muck (I don't know how to say that in Chinese), said that they had a lot of competition. So, down it went. It was off about $1, to around $6.80. It closed in regular trading at $7.77. This morning is is up to around $8.08.
I don't like after hour trading. Many people lose money. The stocks are thinly traded, usually, and I don't think it's a fair reflection of pricing. So tomorrow will be important. Also note that our Friday here is China's Saturday, and their market is closed. Expiration is next Friday and it should be a good ride.
More later, Wade
I really do not have too much to report. The market has been up or down more than 400 points in each of the last four days. It's a wild ride. One commentator said, "the market is a porpoise." Another cliche, but a good one.
There will be more of the same as the scrutiny is high. Everyone is watching and looking for any type of good or bad news at all. One thing you can do is keep your powder dry. There will be really good buying opportunities. These situations always produce such.
About RENN. Again this is the Facebook of China. Maybe there are more companies over, even private ones. After all, The American Facebook is still private, trying to go public at the end of September or the first part of October. Anyway, RenRen came out with great numbers after the market closed today. Sales were up. Advertising revenue was up. Gross profits and net profits were substantially better than last year (when it was still private). Activity, meaning subscriptions/users were up and increasing.
I thought this spelled a solid increase, but remember the old stock market maxim: "Buy on rumor, sell on fact (news)." And then the inevitable happened. The CEO, or some mucky-muck (I don't know how to say that in Chinese), said that they had a lot of competition. So, down it went. It was off about $1, to around $6.80. It closed in regular trading at $7.77. This morning is is up to around $8.08.
I don't like after hour trading. Many people lose money. The stocks are thinly traded, usually, and I don't think it's a fair reflection of pricing. So tomorrow will be important. Also note that our Friday here is China's Saturday, and their market is closed. Expiration is next Friday and it should be a good ride.
More later, Wade
"HEY, CLICHES . . . YOU'RE UP TO BAT!"
So what cliches would you like to affix to this latest market? How about: "Roller Coaster," or, "Yo-Yo," of even, "Rubber Ball (I come bouncing back to you)?"
There is no certainty right now. Some will play the intra-day, and even the inter-day swings, but it is way to uncertain for me. It's like trying to guess which way the wind will blow. Sorry, too many cliches. I went back to the well too many times. Oops, there I go again.
The President could end this malaise in fifteen minutes. If you want to know how, I can write it later. I'd love to hear from you. These blogs are supposed to be a conversation.
Please let me know what you think.
Share this blog with others, and let's pick up our own economy.
There is no certainty right now. Some will play the intra-day, and even the inter-day swings, but it is way to uncertain for me. It's like trying to guess which way the wind will blow. Sorry, too many cliches. I went back to the well too many times. Oops, there I go again.
The President could end this malaise in fifteen minutes. If you want to know how, I can write it later. I'd love to hear from you. These blogs are supposed to be a conversation.
Please let me know what you think.
Share this blog with others, and let's pick up our own economy.
Tuesday, August 9, 2011
MORE ON THE ECONOMY
Hello my friends,
It has been quite a time for the economy and the stock market. Most of you know of my passion for all things financial. I love business, both big and small. I have plenty of opportunities to share ideas here. There is a ready audience.
I've written recently about the stock market and the so-called Debt Ceiling Crisis, and then the S & P credit downgrade over the weekend. I nailed the market reaction and thought it best to sit out the uncertainty, unless you wanted to play puts, betting that the market would go down. Well, down it went. The Dow is down 2,000 points in the last month. It was at 12,800 and hit 10,700 yesterday. It has a lot of work to do to climb back up, but it will---inspire of the Liberals in Washington.
I thought I'd take a day off, it being a burden to be right so often. However I told others here (just ask them---Slice, Crosshairs, Speedy and Lefty) that I thought the market would settle in as it found a good bottom, a good support level.
So for today, Tuesday, and for the next several days I think the market will be very erratic. It will have 100 and 200 point swings. It will be in positive territory and then negative and then back to positive again. The market always does this as it tests new highs and lows.
______________________________________________
Second Note: This sell-off presents many bargain buying opportunities. Look at BIDU, even GOOG. I have a friend from Fairbanks who just bought RenRen (RENN), the new Facebook of China, for $7.25. He was willing to buy it last week for $10 to $11. With the uncertainty, he decided to wait. RENN is doing earnings on Thursday. High or low, the most important thing is how many new users, new subscribers they have. Many companies like this are in a growth mode.
Now, He will wait and then on a rise, sell the $9 or $10 covered call. One great strategy is to sell the last run-up. Often when a stock is coming up on earnings, the rumors abound, but then on earnings, the stock goes down, again, even if the numbers are good. It not so much about the actual numbers, but about the commentary on the numbers.
"A STOCK PRICE TODAY IS BASED ON THE ANTICIPATION OF FUTURE EARNINGS."
That's all for now. We'll keep you posted. Keep those cards and letters (posts and emails) coming. Thanks.
Wade
It has been quite a time for the economy and the stock market. Most of you know of my passion for all things financial. I love business, both big and small. I have plenty of opportunities to share ideas here. There is a ready audience.
I've written recently about the stock market and the so-called Debt Ceiling Crisis, and then the S & P credit downgrade over the weekend. I nailed the market reaction and thought it best to sit out the uncertainty, unless you wanted to play puts, betting that the market would go down. Well, down it went. The Dow is down 2,000 points in the last month. It was at 12,800 and hit 10,700 yesterday. It has a lot of work to do to climb back up, but it will---inspire of the Liberals in Washington.
I thought I'd take a day off, it being a burden to be right so often. However I told others here (just ask them---Slice, Crosshairs, Speedy and Lefty) that I thought the market would settle in as it found a good bottom, a good support level.
So for today, Tuesday, and for the next several days I think the market will be very erratic. It will have 100 and 200 point swings. It will be in positive territory and then negative and then back to positive again. The market always does this as it tests new highs and lows.
______________________________________________
Second Note: This sell-off presents many bargain buying opportunities. Look at BIDU, even GOOG. I have a friend from Fairbanks who just bought RenRen (RENN), the new Facebook of China, for $7.25. He was willing to buy it last week for $10 to $11. With the uncertainty, he decided to wait. RENN is doing earnings on Thursday. High or low, the most important thing is how many new users, new subscribers they have. Many companies like this are in a growth mode.
Now, He will wait and then on a rise, sell the $9 or $10 covered call. One great strategy is to sell the last run-up. Often when a stock is coming up on earnings, the rumors abound, but then on earnings, the stock goes down, again, even if the numbers are good. It not so much about the actual numbers, but about the commentary on the numbers.
"A STOCK PRICE TODAY IS BASED ON THE ANTICIPATION OF FUTURE EARNINGS."
That's all for now. We'll keep you posted. Keep those cards and letters (posts and emails) coming. Thanks.
Wade
STOCK MARKET/DEBT DOWNGRADE
It is really difficult to be right all of the time. Just kidding. I remain your cabdriver friend who sits here and tries to connect the dots.
Again, where the last blog left off. After I wrote it I kept watching the news, and felt the Dow could sell off, 800 to a 1000.
I didn't really think so, as it has really good support here somewhere. So, if it had done so, that would present a great buying opportunity, but not so fast.
Now I think the market will bounce around quite erratically, with 100 to 200 point swings, even intraday. It is very volatile.
The vix---or volatility index is around 35, even 40. I've never seen it so high. Let me shed some light on this index. It is a measure of volatility/movement, more particularly price instability. If a stock has a volatility of 15, that is translated as 15%. What the speculators are saying is that the stock can move up 15% or down 15% in the next year. A $50 stock, according to this could go to $65 or down to $35.
The whole market presents a snapshot in time. The vix (ticker symbol is often .vix) is usually around 15. Lately it's been climbing to 25, now today up to 35+. That is an amazing high point. Yes, this means some speculators are saying the Dow could go up 35-40% from here, or down 35-40% from here. What a swing that would be.
With the Down just under 11,000 that would be someone's guess that it could go up to 15,000 or down to . . . well, I hate to write it, because I don't want to be the bearer of bad news. I don't think it will go down that far. In fact, maybe only a bit lower then it will bottom out and start to recover. This market needs to get back to solid pro-market, pro-growth and anti-tax sentiment. I just don't see that coming out of the White House.
Quick point in closing. In the market there are several maxims that we live by. One is this: "When stocks go up, implied volatility goes down." Stocks climb a wall of worry, curtailing further increases, at least making them harder. Option market makers suck all of the "fluffiness" out of the premiums, as reality sets in. The second part of this maxim is this: "When stocks go down, especially when they tank, implied volatility goes up."---Sometime way up as we've seen today.
It will settle down. The sun will rise. Get ready to find some bargains.
I'll keep looking and reporting.
REQUEST: Will you share these thoughts and messages with your friends? Feel free to cut and paste or include a link. If you know any of my old students or employees please share with them. I'd love to hear from you.
Again, where the last blog left off. After I wrote it I kept watching the news, and felt the Dow could sell off, 800 to a 1000.
I didn't really think so, as it has really good support here somewhere. So, if it had done so, that would present a great buying opportunity, but not so fast.
Now I think the market will bounce around quite erratically, with 100 to 200 point swings, even intraday. It is very volatile.
The vix---or volatility index is around 35, even 40. I've never seen it so high. Let me shed some light on this index. It is a measure of volatility/movement, more particularly price instability. If a stock has a volatility of 15, that is translated as 15%. What the speculators are saying is that the stock can move up 15% or down 15% in the next year. A $50 stock, according to this could go to $65 or down to $35.
The whole market presents a snapshot in time. The vix (ticker symbol is often .vix) is usually around 15. Lately it's been climbing to 25, now today up to 35+. That is an amazing high point. Yes, this means some speculators are saying the Dow could go up 35-40% from here, or down 35-40% from here. What a swing that would be.
With the Down just under 11,000 that would be someone's guess that it could go up to 15,000 or down to . . . well, I hate to write it, because I don't want to be the bearer of bad news. I don't think it will go down that far. In fact, maybe only a bit lower then it will bottom out and start to recover. This market needs to get back to solid pro-market, pro-growth and anti-tax sentiment. I just don't see that coming out of the White House.
Quick point in closing. In the market there are several maxims that we live by. One is this: "When stocks go up, implied volatility goes down." Stocks climb a wall of worry, curtailing further increases, at least making them harder. Option market makers suck all of the "fluffiness" out of the premiums, as reality sets in. The second part of this maxim is this: "When stocks go down, especially when they tank, implied volatility goes up."---Sometime way up as we've seen today.
It will settle down. The sun will rise. Get ready to find some bargains.
I'll keep looking and reporting.
REQUEST: Will you share these thoughts and messages with your friends? Feel free to cut and paste or include a link. If you know any of my old students or employees please share with them. I'd love to hear from you.
Sunday, August 7, 2011
MORE DEBT INFORMATION
Picking up where the last blog left off, let me try to make some sense of the Downgrade of the Debt Status of America.
Much of this talk and the response is purely psychological. The market always over-reacts. It will happen again this week. It is the sign of the times.
I mentioned in the last blog that if the talking heads this weekend continue to parse, comment on, and try to explain away that which is about to happen, it will make the matters worse. That has happened. Every show I turn on, every radio program I listen to, it's all about the S & P Downgrade. One twist is the Democrats fabricating the truth and saying the stupidest things. It is their fault. Imagine the bragging they would be doing if the Stock Market went up 700 points in two days instead of down 700 points.
There are several things to think about:
1) The interest rates of the current debt has been higher in the past. No one wants to see the credit status changed, but it is what it is. We need to deal with it. Teleprompters will not come to the rescue.
2) It won't happen right away. Current debt will not be changed. This is very important. There are people saying even a 1% rise in the interest rates will cost billions more---even trillions more over a longer period. This is a statement that is not entirely based on the truth. The current debt (All $14.3 Trillion) has interest rates in place. The new rates will apply to new debt.
3) Another point on existing debt. It is not "callable." This means China or the Bank of England, or The Maltese government cannot call our debt in and make us pay it off. It's like a mortgage. If you make the payments, you're just fine. You can pay the debt off early, but China can't force us to pay off the principle.
4) And speaking of that: Why is there no talk of using current rates (they're much lower than 6 to 8 years ago) and creating new debt at say 2 1/2 Percent and paying off the higher rate debt? It's like refinancing your mortgage. We could save billions in annual interest. Yes, this is from the mind of a cabdriver. Democrats don't like this because they want to borrow to spend more on their wasteful programs.
5) We don't have to borrow at the higher rates. What say, we cut spending immediately. Just say no. Don't borrow, or do so at a rate that is still right. S & P and Moody's do not control the world.
WHAT TO DO
I say sit this one out. Confusion and uncertainty mean "NO." It will be a rocky road for the next few weeks. I think the market will sell off tomorrow, and by this I mean the Dow. It may go down about 200 to 400 points. Try practicing on a put. Look at the DJX $114 Puts, representing the DJIA at 11,400. As the Dow goes down, these puts should increase in value. Try to get a double. Practice trade this before you ever put real money in harms way.
Next, the market, the Dow and the broader market will be looking for a bottom, a support level. It may take a few days, but it will happen. If the liberals are not replaced this will be a tough row to hoe---for several years. We need fiscal sanity, by true conservatives, true believers in free markets, small and limited govrnment and individual freedom.
"THE BIGGER THE GOVERNMENT THE SMALLER THE ECONOMY,
THE SMALLER THE GOVERNMENT THE BIGGER THE ECONOMY."
By Wade Cook
Much of this talk and the response is purely psychological. The market always over-reacts. It will happen again this week. It is the sign of the times.
I mentioned in the last blog that if the talking heads this weekend continue to parse, comment on, and try to explain away that which is about to happen, it will make the matters worse. That has happened. Every show I turn on, every radio program I listen to, it's all about the S & P Downgrade. One twist is the Democrats fabricating the truth and saying the stupidest things. It is their fault. Imagine the bragging they would be doing if the Stock Market went up 700 points in two days instead of down 700 points.
There are several things to think about:
1) The interest rates of the current debt has been higher in the past. No one wants to see the credit status changed, but it is what it is. We need to deal with it. Teleprompters will not come to the rescue.
2) It won't happen right away. Current debt will not be changed. This is very important. There are people saying even a 1% rise in the interest rates will cost billions more---even trillions more over a longer period. This is a statement that is not entirely based on the truth. The current debt (All $14.3 Trillion) has interest rates in place. The new rates will apply to new debt.
3) Another point on existing debt. It is not "callable." This means China or the Bank of England, or The Maltese government cannot call our debt in and make us pay it off. It's like a mortgage. If you make the payments, you're just fine. You can pay the debt off early, but China can't force us to pay off the principle.
4) And speaking of that: Why is there no talk of using current rates (they're much lower than 6 to 8 years ago) and creating new debt at say 2 1/2 Percent and paying off the higher rate debt? It's like refinancing your mortgage. We could save billions in annual interest. Yes, this is from the mind of a cabdriver. Democrats don't like this because they want to borrow to spend more on their wasteful programs.
5) We don't have to borrow at the higher rates. What say, we cut spending immediately. Just say no. Don't borrow, or do so at a rate that is still right. S & P and Moody's do not control the world.
WHAT TO DO
I say sit this one out. Confusion and uncertainty mean "NO." It will be a rocky road for the next few weeks. I think the market will sell off tomorrow, and by this I mean the Dow. It may go down about 200 to 400 points. Try practicing on a put. Look at the DJX $114 Puts, representing the DJIA at 11,400. As the Dow goes down, these puts should increase in value. Try to get a double. Practice trade this before you ever put real money in harms way.
Next, the market, the Dow and the broader market will be looking for a bottom, a support level. It may take a few days, but it will happen. If the liberals are not replaced this will be a tough row to hoe---for several years. We need fiscal sanity, by true conservatives, true believers in free markets, small and limited govrnment and individual freedom.
"THE BIGGER THE GOVERNMENT THE SMALLER THE ECONOMY,
THE SMALLER THE GOVERNMENT THE BIGGER THE ECONOMY."
By Wade Cook
CREDIT RATING and the STOCK MARKET
Well, it seems like another crisis has surfaced to the top. Thank you mis-managed government. Starting Friday, the rumors turned to solid speculation that certain bond rating services---namely Standard and Poor's, but soon to follow, Moody's and Fitch---will change the rating on U.S. sovereign debt, meaning our Treasury Bills, Bonds and Notes. I think the perception is worse than what the consequences will actually be, but perception becomes reality. More on this in a few paragraphs.
We have had a Triple A, AAA, rating since ratings began. What this means is a perfect score. We can raise money, by selling bonds, at the best prices going. Just like your own personal credit score, the higher the better. If you have a tough patch and your score goes down, your ability to get loans, credit, and mortgages is diminished. You may be able to get the credit, but it may cost you more money down, or a higher interest rate.
We cherish our national rating---remember the old (I write this nostalgically) adage, "the full faith and pledge of the United States Government?" Now thanks to the Commie-Pinko-Bedwetting Liberals, our debt has skyrocketed and it's now virtually in dangerous territory. It is unsustainable. Yes, we've raised the debt limit before, but nothing like today. The Republicans, which are historically as guilty as any politician, have seen the error of their ways, and are trying to bring sanity and a curtailment model to Washington. It will take awhile. We need deep spending cuts, we don't need tax increases. I've written on this extensively. Write cabdriver22@msn.com and ask for a report on Whether Raising Tax Rates Actually Raises More Revenue. You'll be surprised at the answer.
Okay, back to the issue at hand. I love trading in the stock market. No one wants to see it go down. This last week, with the debt deal signed by the President, the market tanked. It had gone down 10 days in a row. Wall Street, much to my pleasure, felt the same way that I do. Yes, it's the best the Republicans can do until they get control of the Senate and make Mr. Obama a one term President. But the real problem did not get addressed in this go-round.
Then Friday came and the rumors went wild. Watch the market on Monday. I said to others on Friday night that if the topic continues this weekend on all the news/talk shows, than watch out Monday. No one knows for sure. Maybe this next crisis is already built in to the current Dow---DJIA--- which you can buy calls and puts on under Ticker Symbol: DJX. The market could easily go down 200 to 400 more points. It has good support at this level, but it could break support. Remember, "Buy on Rumor, Sell on Fact." This is really bad, and it all depends on the speculators. It will settle down in a day or so, or a week or so. But, in short, this market isn't going anywhere until the cancer is eradicated and that means voting the President out of office---along with a bunch of Anti-American Liberals.
I will write more on the actual workings of the debt-limit change in the next blog. Any comments, send them along.
We have had a Triple A, AAA, rating since ratings began. What this means is a perfect score. We can raise money, by selling bonds, at the best prices going. Just like your own personal credit score, the higher the better. If you have a tough patch and your score goes down, your ability to get loans, credit, and mortgages is diminished. You may be able to get the credit, but it may cost you more money down, or a higher interest rate.
We cherish our national rating---remember the old (I write this nostalgically) adage, "the full faith and pledge of the United States Government?" Now thanks to the Commie-Pinko-Bedwetting Liberals, our debt has skyrocketed and it's now virtually in dangerous territory. It is unsustainable. Yes, we've raised the debt limit before, but nothing like today. The Republicans, which are historically as guilty as any politician, have seen the error of their ways, and are trying to bring sanity and a curtailment model to Washington. It will take awhile. We need deep spending cuts, we don't need tax increases. I've written on this extensively. Write cabdriver22@msn.com and ask for a report on Whether Raising Tax Rates Actually Raises More Revenue. You'll be surprised at the answer.
Okay, back to the issue at hand. I love trading in the stock market. No one wants to see it go down. This last week, with the debt deal signed by the President, the market tanked. It had gone down 10 days in a row. Wall Street, much to my pleasure, felt the same way that I do. Yes, it's the best the Republicans can do until they get control of the Senate and make Mr. Obama a one term President. But the real problem did not get addressed in this go-round.
Then Friday came and the rumors went wild. Watch the market on Monday. I said to others on Friday night that if the topic continues this weekend on all the news/talk shows, than watch out Monday. No one knows for sure. Maybe this next crisis is already built in to the current Dow---DJIA--- which you can buy calls and puts on under Ticker Symbol: DJX. The market could easily go down 200 to 400 more points. It has good support at this level, but it could break support. Remember, "Buy on Rumor, Sell on Fact." This is really bad, and it all depends on the speculators. It will settle down in a day or so, or a week or so. But, in short, this market isn't going anywhere until the cancer is eradicated and that means voting the President out of office---along with a bunch of Anti-American Liberals.
I will write more on the actual workings of the debt-limit change in the next blog. Any comments, send them along.
Thursday, August 4, 2011
WHO KNEW?
What a day in the market. Who would ever have guessed that the Dow would sell off by 512 points. Funny thing: you could lay this whole thing at the feet of the uncertainty created by the politicians, especially the liberals. They live for crisis.
Now what? The market will receive the news about jobs and unemployment tomorrow, I think before the market opens.
It could sell off more, or recover a bit here. I think the negatives about the bad numbers is built into the markets, but the Asian markets are way down, this fine Thursday evening. They're open and falling.
Remember: A stock price today is based on the anticipation of future earnings. We're in the middle of earnings season and many companies are doing really well. But the uncertainty and fear surrounding this political class is stifling. Look for another rocky day.
If you want to learn how to trade the market as a whole, or the Dow in particular, try buying puts or calls on the DJX. The 114 puts, for example, represent the Dow at 11,400. Say they're going for $1.20, ten contracts would cost $1,200. Now put an order in to sell for double, or whatever you think you want to make. Yes, you're just paper trading, so what the hey? If you think it's going to go up, buy the calls.
To learn twice as much, paper trade both of them and do a straddle. I don't normally like straddles because you have the cost of two trades to overcome to make a profit, but we're in the learning mode, right?
Now what? The market will receive the news about jobs and unemployment tomorrow, I think before the market opens.
It could sell off more, or recover a bit here. I think the negatives about the bad numbers is built into the markets, but the Asian markets are way down, this fine Thursday evening. They're open and falling.
Remember: A stock price today is based on the anticipation of future earnings. We're in the middle of earnings season and many companies are doing really well. But the uncertainty and fear surrounding this political class is stifling. Look for another rocky day.
If you want to learn how to trade the market as a whole, or the Dow in particular, try buying puts or calls on the DJX. The 114 puts, for example, represent the Dow at 11,400. Say they're going for $1.20, ten contracts would cost $1,200. Now put an order in to sell for double, or whatever you think you want to make. Yes, you're just paper trading, so what the hey? If you think it's going to go up, buy the calls.
To learn twice as much, paper trade both of them and do a straddle. I don't normally like straddles because you have the cost of two trades to overcome to make a profit, but we're in the learning mode, right?
The Stock Market and the Economy
Bob Dylan once said: "Everything is Broken." Was he talking about now? I sit here and watch the political games being played and setting this Country up for failure. It is discouraging, but as Jim Cramer says" "There's always a bull market somewhere." I have so much faith in the soundness and values of the American people, that it's a wait and "throw the Bums out" moment for me. The next year should be very enlightening. We have before our eyes the effects of Liberalism. Soon, smelling the petri dish will stink to high heavens. No one will be able to deny the negative consequences of the left way of thinking and acting.
The stock market (DJIA) was today, at one time, down about 400 points. It has shed 1,100 points in the last eleven days. It has given back all the gains of 2011. Is the slide over? I'm not sure. The market anticipates, then over reacts. Some of this slide is in advance of the jobs report tomorrow---expected to be not so favorable. This however is indicative of the larger response in the economy to:
1) Negative business and economic comments by this administration. Never, at least since the hatred espoused by the FDR administration, has the vitriol been so vile. The President should be ashamed.
2) The talk of more taxation, and the imposition of huge government regulatory agencies and all their destruction.
My solution: Cut taxes, not raise them. Repeal ObamaCare and the insidious Dodd-Frank Bill. Have the President stay home and be quiet. He is not the solution. He is the problem. I know it won't happen, so the electorate will have to shut him up at the ballot box. And they will.
On last point on the Dow. I've looked hard at the charts. There is good support at 11,800 and better (more solid) support at 11,600. The news could be really bad, but I think most of the bad news (Jobs) has been already calculated in. We still need our summer rally. I hope it comes.
In the meantime, because uncertainty means "no," I like getting back to cash. This market turmoil needs to end, before it's safe to go back in the water.
More to come after the market close today...
The stock market (DJIA) was today, at one time, down about 400 points. It has shed 1,100 points in the last eleven days. It has given back all the gains of 2011. Is the slide over? I'm not sure. The market anticipates, then over reacts. Some of this slide is in advance of the jobs report tomorrow---expected to be not so favorable. This however is indicative of the larger response in the economy to:
1) Negative business and economic comments by this administration. Never, at least since the hatred espoused by the FDR administration, has the vitriol been so vile. The President should be ashamed.
2) The talk of more taxation, and the imposition of huge government regulatory agencies and all their destruction.
My solution: Cut taxes, not raise them. Repeal ObamaCare and the insidious Dodd-Frank Bill. Have the President stay home and be quiet. He is not the solution. He is the problem. I know it won't happen, so the electorate will have to shut him up at the ballot box. And they will.
On last point on the Dow. I've looked hard at the charts. There is good support at 11,800 and better (more solid) support at 11,600. The news could be really bad, but I think most of the bad news (Jobs) has been already calculated in. We still need our summer rally. I hope it comes.
In the meantime, because uncertainty means "no," I like getting back to cash. This market turmoil needs to end, before it's safe to go back in the water.
More to come after the market close today...
Tuesday, August 2, 2011
How to look for Rolling Stocks
Hello again, my friends,
There are several stocks to look at for rolling possibilities. This is given here as a way to help you spot good looking charts.
Run six month charts on these (and other ticker symbols), symbols. Look for a wave pattern that rises at least 50 cents, and then goes back down the same or close to it. Now look for a pattern that goes up and down every 3 to 5 weeks. Faster is better, but the pattern is more important.
While you're there, check and see if the stock has options. There may be some covered call possibilities.
Here are the symbols, after a quick perusal of a few stock pages, plus a few from memory:
BRCD, COOL, RENN (See notes below), ZX, RF, CIS, MBI (Check it out as a covered call possibility), BORN (Another roller {?} or covered call candidate), and EK, see below.
EK (Note the Eastman Kodak is way down. It's in a lawsuit they may win. They have a Billion $$$$$$ in the bank. A few days ago the stock was at $2.40, and the Sept calls were 35 cents to sell. That would be $2,400 for 1000 shares, and then take in $350 for selling the option. You keep this no matter what happens. If you get called out {Sell} the stock you make another 10 cents, or $100. A little longer than I normally like but not bad.) Check this info for currency and accuracy.
Let's look at RENN---the supposed new FaceBook of China. The stock was $10.50 the other day. The August $10 call were $1.35. That's $10,500 to make $1,350, of which you'd have to give back $500 is you were called out. Don't forget the buyback on this trade. While looking at it's pattern, consider it as a roller and as a covered call candidate. Also, think about this one as hold, or even a straight option play. If this company comes through it could take off. It's growing rapidly (adding users), but I don't think it's profitable yet. It just went public a few months ago.
More Later,
Wade
There are several stocks to look at for rolling possibilities. This is given here as a way to help you spot good looking charts.
Run six month charts on these (and other ticker symbols), symbols. Look for a wave pattern that rises at least 50 cents, and then goes back down the same or close to it. Now look for a pattern that goes up and down every 3 to 5 weeks. Faster is better, but the pattern is more important.
While you're there, check and see if the stock has options. There may be some covered call possibilities.
Here are the symbols, after a quick perusal of a few stock pages, plus a few from memory:
BRCD, COOL, RENN (See notes below), ZX, RF, CIS, MBI (Check it out as a covered call possibility), BORN (Another roller {?} or covered call candidate), and EK, see below.
EK (Note the Eastman Kodak is way down. It's in a lawsuit they may win. They have a Billion $$$$$$ in the bank. A few days ago the stock was at $2.40, and the Sept calls were 35 cents to sell. That would be $2,400 for 1000 shares, and then take in $350 for selling the option. You keep this no matter what happens. If you get called out {Sell} the stock you make another 10 cents, or $100. A little longer than I normally like but not bad.) Check this info for currency and accuracy.
Let's look at RENN---the supposed new FaceBook of China. The stock was $10.50 the other day. The August $10 call were $1.35. That's $10,500 to make $1,350, of which you'd have to give back $500 is you were called out. Don't forget the buyback on this trade. While looking at it's pattern, consider it as a roller and as a covered call candidate. Also, think about this one as hold, or even a straight option play. If this company comes through it could take off. It's growing rapidly (adding users), but I don't think it's profitable yet. It just went public a few months ago.
More Later,
Wade
Saturday, July 23, 2011
Stocks, IPOs and China
I'm putting out a request. Does anyone know anything about RenRen (RENN)? It's supposed to be the new Face Book of China. I know the Two characters for the REN and the REN. They are the characters for People. As in PeoplePeople. Good name for facebook of China. It has a negative earnings report currently, but that is last quarter. What will the new earnings be.
I just read a status report on RENN. It was negative. It has no P/E, but that's okay as it's a new IPO. It's supposed to announce earnings on August 11th. They could be awesome, or negative. That is my request. I think it will do okay, if they really do come alive and meet up with their potential.
In fact, one report said it had a twelve month projected P/E of 387. That's high, even too high, but at least their projecting some earnings. Currently the ratio says N/A, or not applicable, because, if you'll remember from math class, you can't divide by zero. No earnings divided into $10 is still N/A.
In fact, whoever wrote the report, has a price target of $9. That's scary, but the options are very good. I've been looking at this one as a covered call stock, and the numbers are good. Maybe because there is so much speculation.
So, I'll ask you my friends, does anyone have info on this company?
Send your friends to wadecook22.blogspot.com
I just read a status report on RENN. It was negative. It has no P/E, but that's okay as it's a new IPO. It's supposed to announce earnings on August 11th. They could be awesome, or negative. That is my request. I think it will do okay, if they really do come alive and meet up with their potential.
In fact, one report said it had a twelve month projected P/E of 387. That's high, even too high, but at least their projecting some earnings. Currently the ratio says N/A, or not applicable, because, if you'll remember from math class, you can't divide by zero. No earnings divided into $10 is still N/A.
In fact, whoever wrote the report, has a price target of $9. That's scary, but the options are very good. I've been looking at this one as a covered call stock, and the numbers are good. Maybe because there is so much speculation.
So, I'll ask you my friends, does anyone have info on this company?
Send your friends to wadecook22.blogspot.com
Wednesday, July 20, 2011
MONEY - POLITICS - REAL ESTATE
This is a bit longer than I originally intended. I get a case of circumlocution and it's hard to stop. However, this is very important as we need to know who we're dealing with.
I was so astonished. Really. The headline in a Wall Street Journal article read: GOVERNMENT-SPONSORED MELTDOWN.
I've said to my friends and on FaceBook, etc., that I'm on a GSS, or Government Sponsored Sabbatical. And since this has happened, I feel like I've been in a meltdown, so the use of the word meltdown is not too much of a stretch applied to my situation. But lo and behold, the Wall Street Journal was not writing about me, though my story is much more interesting than the one I read. I'll try to take the gist of the article and distill it into a readable expose on the government.
Ever since 2008 I've read and studied everything I can get my hands on about the financial downturn, especially as it redounds to real estate. I love investing, but I dislike the government. They ruin everything they touch. It is constantly a funny situation when I see the blame be foisted on evil "Wall Street Bankers," or even on the free-markets in general. Always the blame game, usually propagated by the very culprits who committed the crimes.
Now comes more of the same, government agencies and government people, blaming anyone and everyone but themselves for the financial castrophe they caused. I'm speaking of TARP and the Billions of Dollars the government had to rush into the "crisis du jour." Remember John McCain setting aside his campaign to return to Washington to prevent the sky from falling?
The article was written by Peter Wallison, a Senior Fellow at the American Enterprise Institute. All quotations for the balance of this article are from him, unless otherwise noted. The theme at almost all junctions is that the banks led us into this financial crisis. Even the FCIC Democratic majority sort of laid the blame at the feet of The Department of Housing and Urban Development and the GSEs (Here's a take off on the same word as in the title---Government-Sponsored Enterprises. This time a legitimate acronym), Fannie Mae and Freddie Mac.
Gretchen Morgenson, no conservative and writer for the New York Times, and Josh Rosner, wrote a withering expose on the government cause and effect of the meltdown. The book is "Reckless Endangerment." "Government housing policies, pursued and exploited brought the financial system to a halt in 2008."
The blame can even come down to one man. A man who is a "Katrina level destructive force," who has avoided blame and having to answer for his actions. He even avoided being one of 700 people interviewed in numerous House, Senate and other investigations. His name is James A. Johnson, A Democratic operative and former aide to Walter Mondale. Need I say more? He . . . "became a chairman of Fannie Mae in 1991, they note, it became a political powerhouse, intimidating and suborning Congress and tying itself closely to the Clinton administration's support for the low-became lending program called
'affordable housing.'"
"The authors are correct. Far from being a marginal player, Fannie Mae was the source of the decline in mortgaged underwriting standards that eventually brought down the financial system. It led rather than followed Wall Street into risky lending. This history does not appear in the FCIC majority report"
In 2008 50% of these loans were sub-prime. That's 27 million loans and 12 million were held by GSEs. These loans and the supporting government requirements were on the books of these GSEs but were left out of the report.
So, now we have a new dilemma. Government, not Wall Street, is responsible for this awful mess. Explain how we have moved into the new Dodd-Frank monstrosity, the new financial regulations that will negatively effect every one of us in countless harmful ways. Yes, these two gentlemen caused the problem and then became the protectors of the government wrong doing. I'm sure as more facts and news comes to light, we will see more evidence that government is the problem, not the solution.
I don't want to write anything like this without throwing in my solutions. They are simple. Repeal Dodd-Frank. Replace it with less regulation. We do not need more government. We need more freedom and a concerned and watchful citizenry. The simple code should be: BE HONEST. I think that's too hard of concept for politicians to follow. I also wrote in the new preface and forward for "How To PIck Up Foreclosures," that the heavy restrictions on assuming loans should be repealed. Do away with the "Due on Sale Clause." The market will self-correct if government gets out of the way.
Publisher's Note. We agree. Wade's comments in his book mentioned above are timely and powerful. Order his books, either e-books or soft-bound at Amazon.com (Create Space). We'll get your comments to Wade. So if you have questions or thoughts, please write. We love our blogging community.
I was so astonished. Really. The headline in a Wall Street Journal article read: GOVERNMENT-SPONSORED MELTDOWN.
I've said to my friends and on FaceBook, etc., that I'm on a GSS, or Government Sponsored Sabbatical. And since this has happened, I feel like I've been in a meltdown, so the use of the word meltdown is not too much of a stretch applied to my situation. But lo and behold, the Wall Street Journal was not writing about me, though my story is much more interesting than the one I read. I'll try to take the gist of the article and distill it into a readable expose on the government.
Ever since 2008 I've read and studied everything I can get my hands on about the financial downturn, especially as it redounds to real estate. I love investing, but I dislike the government. They ruin everything they touch. It is constantly a funny situation when I see the blame be foisted on evil "Wall Street Bankers," or even on the free-markets in general. Always the blame game, usually propagated by the very culprits who committed the crimes.
Now comes more of the same, government agencies and government people, blaming anyone and everyone but themselves for the financial castrophe they caused. I'm speaking of TARP and the Billions of Dollars the government had to rush into the "crisis du jour." Remember John McCain setting aside his campaign to return to Washington to prevent the sky from falling?
The article was written by Peter Wallison, a Senior Fellow at the American Enterprise Institute. All quotations for the balance of this article are from him, unless otherwise noted. The theme at almost all junctions is that the banks led us into this financial crisis. Even the FCIC Democratic majority sort of laid the blame at the feet of The Department of Housing and Urban Development and the GSEs (Here's a take off on the same word as in the title---Government-Sponsored Enterprises. This time a legitimate acronym), Fannie Mae and Freddie Mac.
Gretchen Morgenson, no conservative and writer for the New York Times, and Josh Rosner, wrote a withering expose on the government cause and effect of the meltdown. The book is "Reckless Endangerment." "Government housing policies, pursued and exploited brought the financial system to a halt in 2008."
The blame can even come down to one man. A man who is a "Katrina level destructive force," who has avoided blame and having to answer for his actions. He even avoided being one of 700 people interviewed in numerous House, Senate and other investigations. His name is James A. Johnson, A Democratic operative and former aide to Walter Mondale. Need I say more? He . . . "became a chairman of Fannie Mae in 1991, they note, it became a political powerhouse, intimidating and suborning Congress and tying itself closely to the Clinton administration's support for the low-became lending program called
'affordable housing.'"
"The authors are correct. Far from being a marginal player, Fannie Mae was the source of the decline in mortgaged underwriting standards that eventually brought down the financial system. It led rather than followed Wall Street into risky lending. This history does not appear in the FCIC majority report"
In 2008 50% of these loans were sub-prime. That's 27 million loans and 12 million were held by GSEs. These loans and the supporting government requirements were on the books of these GSEs but were left out of the report.
So, now we have a new dilemma. Government, not Wall Street, is responsible for this awful mess. Explain how we have moved into the new Dodd-Frank monstrosity, the new financial regulations that will negatively effect every one of us in countless harmful ways. Yes, these two gentlemen caused the problem and then became the protectors of the government wrong doing. I'm sure as more facts and news comes to light, we will see more evidence that government is the problem, not the solution.
I don't want to write anything like this without throwing in my solutions. They are simple. Repeal Dodd-Frank. Replace it with less regulation. We do not need more government. We need more freedom and a concerned and watchful citizenry. The simple code should be: BE HONEST. I think that's too hard of concept for politicians to follow. I also wrote in the new preface and forward for "How To PIck Up Foreclosures," that the heavy restrictions on assuming loans should be repealed. Do away with the "Due on Sale Clause." The market will self-correct if government gets out of the way.
Publisher's Note. We agree. Wade's comments in his book mentioned above are timely and powerful. Order his books, either e-books or soft-bound at Amazon.com (Create Space). We'll get your comments to Wade. So if you have questions or thoughts, please write. We love our blogging community.
Sunday, July 17, 2011
A Quality Life
This topic could have as easily gone under MONEY and POLITICS, as it is important for all of us. When someone sees the light and turns from Liberalism, Progressivism, or any other tyrannical way of thinking, it is a milestone and should be made mention of.
David Mamet, author, playright and movie mogul (GlenGary Glenross, Wag the Dog, etc.), was a dyed in the wool Liberal. He was raised by Jewish parents in New York. He never even talked to a conservative until he was sixty years old. Over the years that followed, after reading F.A. Hayak(Road to Serfdom), Milton Friedman, Thomas Sowell, he gradually became aware of the decaying of America caused by Liberals. He has now written a book, THE SECRET KNOWLEDGE, and I highly recommend it, especially if you have liberal friends. To me, liberalism is a intellectual cul-de-sac. His insights are powerful. In the next several blogs, I'll share some of his quotes. He has been interviewed in numerous places, and he definitely has a message for America.
Some of his thoughts:
"It is not the absence of government but the rejection of culture which leads to anarchy."
"That all human beings possess both a conscience and that free will necessary to allow them to either reject its dictates or to formulate them into habit." He goes on to say: "Man is accountable."
Rush LImbaugh interviewed David Mamet in the July edition of his newsletter.
__________________________
I love Thomas Sowell. I suggest you read everything you can read by him. He has commentaries in Investor's Business Daily, about 2 or 3 times a week.
David Mamet, author, playright and movie mogul (GlenGary Glenross, Wag the Dog, etc.), was a dyed in the wool Liberal. He was raised by Jewish parents in New York. He never even talked to a conservative until he was sixty years old. Over the years that followed, after reading F.A. Hayak(Road to Serfdom), Milton Friedman, Thomas Sowell, he gradually became aware of the decaying of America caused by Liberals. He has now written a book, THE SECRET KNOWLEDGE, and I highly recommend it, especially if you have liberal friends. To me, liberalism is a intellectual cul-de-sac. His insights are powerful. In the next several blogs, I'll share some of his quotes. He has been interviewed in numerous places, and he definitely has a message for America.
Some of his thoughts:
"It is not the absence of government but the rejection of culture which leads to anarchy."
"That all human beings possess both a conscience and that free will necessary to allow them to either reject its dictates or to formulate them into habit." He goes on to say: "Man is accountable."
Rush LImbaugh interviewed David Mamet in the July edition of his newsletter.
__________________________
I love Thomas Sowell. I suggest you read everything you can read by him. He has commentaries in Investor's Business Daily, about 2 or 3 times a week.
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