Natural Light, Markets and Mark to Market Shenanigans

Friday, April 3rd
Various Times

U can see past posts on my blog : www.alvinjamur.blogspot.com
U can see some of my pictures : www.alvinjamur.com

Okie, plug done. Its been a while so I will be very desultory
here.

- My brother Vivin pinged me an observation of yesterday's
market action right after the close. As u may know, the whole
modification of Mark To Market rules were passed yesterday. The
banks performed as follows :

NWSB +9%
ZION +9%
STI +7%
WFC +7%
PNC +6%
USB +5%
C +3%
BAC +3%
KEY +2%
ISBC +1%
JPM +1%
MS -2%
NTRS -5%

Turns out that the best performers were amongst the
unhealthiest banks while the worst were the banks that
(at least to public knowledge) are the strongest.
There's Capitalism 2.0 for you. We reward the worst
perfomers.

- As crazy as it may seem, the passing of the modification
of the Mark to Market rules is not coherent with the
Geithner Plan (Public Private Partnership)!! The Financial
Accounting Standards (Rule 157e) will allow banks to use
their own models to value their assets and will allow them
to push the assets onto their Level 3 boxes. The Geithner
"Public Partnership" plan calls for "price discovery" and
the FAS157e plan circumvents this in a way. Go Figure!

- The market has rallied a LOT since my last post. Yours
truly was not able to take advantage of the rally and
stepped aside and watched. I've spent some time re-tooling
my head to be open to all possibilities and not get into
being a tunnel visioned bear. Its a constant work in
progress!

- You should spend some time staring at the chart below.
Speaks volumes about the rallies we get in bear markets :

http://www.dshort.com/charts/mega-bear-comparisons.html?mega-bear-quartet

- About a week ago, i got word that the greatest living natural
light photographer in the world (Jay Maisel) wrote a little blurb
about me on Scott Kelby's site :

http://www.scottkelby.com/blog/2009/archives/3814#more-3814

I took Jay's course about two years at the insistence of my good
friend, Seth Resnick (a Cannon Explorer of Light). Photography has
not been the same for me after taking Jay's course. I tend to delete
most of my pictures and don't even bother shooting if the light is
not good. Jay has been a great influence on me and is one of a
kind. You won't find many like him in this day and age.

- I'm away from April 12th-19th on a Tiger Shark Trip with my friend,
Jim Abernethy. So will write after I return and will send you some
pictures, too!!

That's all I have to say...

Friday, March 20th, 2009
2115 hrs

On October 29th, 2008, I opined the following and I will
simply just repeat what I wrote.

"Credit excesses have not been wrung out of the system.
All we've done by the machinations of the TAF, PDCF, TSLF,
CPFF, MMIFF, ABCPMMMFLF....er, Yes, I mean the "TAF, PDCF,
TSLF, CPFF,MMIFF, ABCPMMMFLF" is to shift the problems
onto the public balance sheets by risking taxpayer money.
These stunts will sooner or later lead to a revolt in the
fixed income markets and will likely lead to a currency
devaluation. We will be a banana republic."

This past week has been a rather interesting one. The
talking heads have declared and called the SP 666 number
a bottom. Then on Thursday, we all got word that the Federal
Reserve will now start outright purchases of longer term
debt to help out credit markets. The US dollar collapsed,
commodities rallied but NOT in other currencies. The Federal
Reserve has essentially devalued the dollar!!

YES, THE FEDERAL RESERVE HAS ESSENTIALLY DEVALUED THE US
DOLLAR.

My brother, Vivin Oberoi wrote me the following the very
evening :

"It is an unfortunate fact of our lives that B-52 Ben
controls the value of our money. I am not going to mince
any words. When one sees everything (and I mean everything)
BUT your savings account go up in price, there is only ONE
conclusion. The value of the dollar is plummeting. This is
NOT a bottom has been reached and recovery is around the
corner move. Gold is rocketing up. Commodities are but NOT
in other currencies. The Fed and the government are now
going to finance their “fight debt with more debt” economic
policy with our savings accounts.

Make no mistake about it, we have now joined ranks with the
likes of Argentina where government spending is financed by
printing money. The Fed is going to print money, buy newly
printed government bonds, transfer trillions into the treasury
which will then be spent. This is the form of looting that
marks the culmination of debt induced crises that are then
mishandled. The savers are now being shot. I am extremely
depressed about the prospect of losing my hard earned
savings. That is all I have to say."

That is all I have to say....

- aLV

Market Bottoms & Economic Lifeblood

Monday, March 9th, 2009
2155 hrs

In mathematics, maxima and minima, known collectively as extrema,
are the largest value (maximum) or smallest value (minimum), that
a function takes in a point either within a given neighbourhood
(local extremum) or on the function domain in its entirety (global
extremum).

I copied the above definition from Wikipedia to remind you that
the favorite questions/articles/opinions these days in financial
media happens to be "Where is the bottom?". The truth is that
NOBODY knows from which price the markets might rally again and
for how long that rally might sustain itself. Whether we trade
bonds or stocks or options or any of the vanilla flavored financial
instruments, technically the bottom is at ZERO. All one can do
when trading is to be extremely self serving and trade in such a
way that the probability of gains are in one's favor.

--

Here's a very very interesting link to those of you that watch
CNBC and listen diligently to the talking heads :

http://www.youtube.com/watch?v=yJObWmN-x9I#

Funny!? Indeed and I hope your opinion has now changed!

--

Forget U shaped recoveries and/or L shaped recoveries and the
like. This administration is now following the failed Japanese
model - bailing out everybody in sight. Every decent american
taxpayer should be angry at the way they're being robbed. The
money is going as bailouts to banks, who are then giving it
out the back door to funds etc., Bailouts will never work.
Japanese markets are down by slightly over 80% from where
they were 19 years ago!! Since "Depressions" are not
economically defined, I'd bet that we are probably at the
threshold of one.

--

Congress, the talking heads on TV and others in the media
believe that we need to get the credit cycle running again.
Hah! They state that Credit is the lifeblood of the economy.
Hah!

PEOPLE!!! THE LIFEBLOOD OF AN ECONOMY LIES IN SAVINGS AND
PRODUCTIVITY. IT HAS NOT, DOES NOT, AND WILL NEVER LIE IN
CREDIT (ie., DEBT) IF IT IS NOT BACKED BY REAL SAVINGS.

The idiots in Washington DC are once again asleep at the wheel.
We need to fire the Fed and the Treasury and appoint people
that are not afraid to feed the financial system bitter
medicine. And a part of that bitter medicine is to simply
force truth out ie., lock up/fire people that have lied along
the chain in our economy and/or who have abetted all this
to happen. Starting with some at AIG...which is pure
outright insurance fraud.

My Left Foot Little Toe Nail

March 3, 2009
1700 - 2100 hrs

Though the general trend of this market has been down,
know that there will be some major rallies in between.
Bear markets tend to take out Bulls and Bears. The
best traders are typically the ones that do well in
Bear markets because they trade with a very open mind.
I do know that wearing Rose Colored glasses, whether
Bull or Bear is fraught with danger.

---

"No Congress of the United States ever assembled, on
surveying the state of the Union, has met with a more
pleasing prospect than that which appears at the present
time...."

- Calvin Coolidge, Dec 4th 1928

“Profit and earning ratios are starting to get to
the point where buying stocks is a potentially good
deal...if you've got a long term perspective on it.”

- Barack Obama, March 3rd, 2009


We are going to spend $4 Trillion dollars this year.
The estimated deficit will be around $2 Trillion. And
the tax numbers are based on some absolutely ridiculous
assumptions with regard to GDP growth, employment etc.,
All this while the administration keeps concocting plans
for some grand spending. Last I heard was that its
impossible to spend one's way out of a problem, when
the problem was/is reckless spending in the first place.

As said before, when Japan had issues in the 90s, US
lawmakers advised that it would be good if there was a
recapitilization of banks. And now, we are doing what
Japan essentially did - piecemeal capital infusions
without the political will to put some into receivorship.
Yes, I do realize that the world is a much more complex
place now and there is a pronounced cascade effect
because of counter party exposure etc., But what we're
doing now is pulling off a bandage very very slowly.
What would happen if counter party risk was isolated
to geographical exposure and then countries got
together in some sort of joint receivorship deal?

There's a whole plan on the Public-Private Partnership
that's apparently in the works and that will revive the
markets. Fact is that private money is likely loath to
come here and partner up as its has gotten burned by
Corporate America's profligate ways, American consumerism,
and now an ever changing and ill-concocted plan about
plans for financial market resucitation by the Government.

America does not need new Cars, new Homes, new gadgets,
whiter teeth, or Silicon replacement parts for certain
natural parts of the human body. As long as we believe
that we can simply spend our way out of the problem,
hazard is near and replete.

--

My Economist/Macro PM friend, VO sent me a link to the
paper below :

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=227273

Note the third author of the paper is Larry Summers.

Now, there is going to be a transactions tax on traders
like myself that trade quickly. This paper is the
birthplace of that ruling. It is assinine because the
final point of the abstract pointedly states a belief
that making assets illiquid (by discouraging continuous
transacting) will no longer subject them to the whims
of the market (and micro supply/demand) and is similar
to taking a firm private -- to enhance value.

MY LEFT FOOT LITTLE TOE NAIL! I really do believe
that this is a similar foray like the one where they
abolished the "short sale" for certain companies. It is
misguided and it will blow up a whole industry.

Hyper Myopic.

How to BE HAPPY

Sunday, March 1st, 2009
0028 hrs

In the last several days/weeks/months, I have been witness to much
in the lives and times of people. In these times that are
characterized by deceit, lies, and changing fortunes I asked myself
what the essence of happiness was. And therefore, perhaps to soothe
you, I would like to take this opportunity to present what was
presented to me by a progressive Buddhist Monk when I was 22 years
old.

Please read every sentence s-l-o-w-l-y and imbibe, Its one of the
most logical pieces of emotional prose I have ever read and I have
been reading it for a long time. I hope I have imbibed a little
and have made a positive difference in my dealings with others.

--
The Desiderata of Love, Max Ehrmann, 1927

"Go placidly amid the noise and haste, and remember what peace
there may be in silence.

As far as possible, without surrender, be on good terms with all
persons. Speak your truth quietly and clearly; and listen to
others, even to the dull and the ignorant, they too have their
story. Avoid loud and aggressive persons, they are vexations
to the spirit.

If you compare yourself with others, you may become vain and
bitter; for always there will be greater and lesser persons than
yourself. Enjoy your achievements as well as your plans. Keep
interested in your own career, however humble; it is a real
possession in the changing fortunes of time.

Exercise caution in your business affairs, for the world is
full of trickery. But let this not blind you to what virtue
there is; many persons strive for high ideals, and everywhere
life is full of heroism. Be yourself. Especially, do not feign
affection. Neither be cynical about love, for in the face of
all aridity and disenchantment it is perennial as the grass.

Take kindly to the counsel of the years, gracefully surrendering
the things of youth. Nurture strength of spirit to shield you
in sudden misfortune. But do not distress yourself with
imaginings. Many fears are born of fatigue and loneliness.

Beyond a wholesome discipline, be gentle with yourself. You
are a child of the universe, no less than the trees and the
stars; you have a right to be here. And whether or not it is
clear to you, no doubt the universe is unfolding as it
should.

Therefore be at peace with God, whatever you conceive Him to
be, and whatever your labors and aspirations, in the noisy
confusion of life, keep peace in your soul.

With all its sham, drudgery and broken dreams, it is still a
beautiful world.

Be cheerful. Strive to be happy."

Good Credit by Good Faith!?

Thursday, February 26th
2215 hrs...

I've gotten quite a few emails (some of you whom I know
and some who I don't) blaming me for excessively ranting.
Once again, I'm trying to wake up people to the reality
that is. Ignoring it (just like some people ignore their
credit card bills) and not worrying about it or raising
voices against it is the reason why we are in this miss.
Here's a site you should visit :

www.right.org/welcome

All things considered, academically, I would not pass
for a rookie economist, and in that sense, have no real
proscenium to stand upon and talk Economics. All this is
simply a wake up call to many that might not get a chance
to fully realize the gravity of our current situation.

---

Creating a budget whether for a home, commmunity organization,
city, state nation is a complicated thing. The more complex
the internal interactions, the greater the variation. You
couple that with the slew of higher numbers of assumptions
you need to make and things can start to get out of hand
very quickly.

Here are some things about the new Federal budget:

- In 2009, GDP will grow by 1.2%
- Unemployment rate will be 8.1%
- Will end subsidies to people lending for student loans

Deficit of 1.75 Trillion is around 12% of GDP. That's about
an increase of 20% in National Debt. Here's a question for
our collective national fiscal conscience : How have we,
as a nation, become so presumptious to assume that we can
actually borrow more? How do we know that foreigners will
keep on with our profligate ways instead of worrying about
their own economies?

We've shown a pattern here : deficit spending, spending on
houses thanks to a slew of fraudulent practices along the
entire line, leveraging the spending on homes through
equity lines of credit..the damn truth is that it runs
right through to the Federal Government. Hell, Hillary
Clinton went to China and told them to keep buying our
paper!!

Have you ever sat back and wondered why it may be the
case that many US corporations are in the bail out lines?
Have you thought about why US corporate bond sales are
not going well?

The Fed gave low interest rates. Low interest rates gave
us cheap loans. Cheap loans made people lie abut their
income. Income that was real was hidden by Liar Loans.
Liar loans were repackaged and sold with good Credit
ratings. Credit rating agencies were in cahoots with
banks that repackaged the loans made possible by the
laxity of regulators. The regulators now sit in Washington
DC and blame the banks etc,. while promoting their own
grandstanding. The grandstanding play now is shown
all over the world as the resolution of Washington to
fix things. Things like this are not easily fixed...

Private capital is the real life-blood this economy
and it has now fled from our capital markets. The deceit
and corruption that went on while our regulators slept
has been recognized. Our government cannot fix the
economy by releasing another variant of the alphabet
soup, plans about plans, backstopping banks by
converting preferred debt into common stocks so that
they can pass the so-called "stress test".

I'm of the opinion that there is a greater probability
now that we are entering into a depression that will
be far worse than the one that the world witnessed
in the 1930s. I HOPE I AM WRONG!

Here's a scary scenario (50K feet) : Foreign investors
are wary of a lot of US domiciled debt so its very
likely that much of corporate debt will have to have
riders attached to them about being backed by the
"good faith" of the US government. The government
will start to run greater deficits (because of some
assinine assumption - look above!) and very soon
the yields required to sell debt of all varieties
will sky rocket. Higher yields required to sell
bonds combined with deteriorating quality in the
economy will act as a noose around companies that are
leveraged. At least 15% of the companies in the
SP500 will go bust. There will be widespread job
losses, unemployment goes hard through the 10-12%
number....

.....bleak picture.

Bottom!?

The Value Trap

“How low can the stock market go? It has fallen
so much, right.” I am tired of hearing how it
has gone down SO much and how it is SO CHEAP.
People are talking about single digit multiples.

What truly is the multiple on S&P?

Our friends at Standards and Poors that compile
the statistics tell us that 4Q 20008 yielded the
following numbers (with 93% reporting):

Operating Earnings: 5.00 dollars per S&P share
(Yes that is FIVE DOLLARS). At this rate, S&P makes
20 dollars in the year. What is the PE of S&P500
with Earnings = 20?

At the current 750 on the index, P/E ratio is
37.5. You read that right! No Typo. P/E is 37.5

And operating earnings are what we get after making
up numbers with all the accounting tricks.

Now, Actual Earnings: $-11.97.

Yes. This is correct as well. Open your eyes people!!

S&P500 is LOSING money as an aggregate and this has
not happened post 1950. I do not have the data before
then. And PLEASE do not think this is some outlandish
numerical aberration.

The Nikkei 225 earnings were negative for multiple
(read >10) quarters in the 90s. We are in the same
situation. According to actual earnings, the PE
is INFINITE!!

Related to this hope, is also a prevalent belief that
we are going to get ONE FINAL CATHARTIC PLUNGE to
put in a bottom. These people are

a) looking at historical patterns that do not
hold OR

b) still thinking this is a problem of liquidity.

THIS IS A PROBLEM OF SOLVENCY. And the company that
is on the brink of insolvency (witness the negative
earnings of S&P500) is AMERICA INC.,

Now, if I hear once more about how cheap the
market is…...

- vo