Passion for Products = Pull the Trigger ?

Recent "doh!" moments include:

Not being long AAPL or APOL, both companies that I expressed a view on in the fall based on their product. And how could I have gotten so turned around on RIMM? I got so focused on fraud that I forgot that I am addicted to their product. I love these companies' toys (and the concept of online education), but for whatever reason I didn't bite.

And the most embarrassing of all...not buying NTDOY.PK after a friend foolishly convinced me to exit SNE because Nintendo's product was better (and impossible to get). I now have the Wii, love it, and am hesitant to jump in becaused I missed a double to this point...probably be kicking myself for missing another double in 12 months...

aaah. Growth is hard. But I love voice-recognition stuff, biotech plastics, and maps, so I guess I sometimes chase products (NUAN, MBLX and NVT).

Maybe that is why I am not a stock-picker and a student instead.

Delay in Downgrades

This article starts to shed more light on why the rating agencies may be taking so long to downgrade the $000's of B's in CDO's downstream from the subprime explosions. Because their original ratings are based on expectations of reality, it takes a change in reality (i.e. a home actually being sold through foreclosure for less than the value of the bond) for them to admit defeat. Otherwise any downgrade is just a further specualation on the future...

A weak and unconvincing argument (aren't all ratings just expectations?), but at least there is some "logic" to it. Problem is this just delays the inevitable.

S&P, Moody's Hide Rising Risk on $200 Billion of Mortgage Bonds

The one agency that seems to have acted: Fitch Ratings Downgrades 5 & Places 8 Countrywide ABS 2006-SPS1 Classes on Rating Watch Negative was also recently eliminated as a rating source for the Fed. Go figure.

An LOL Moment

Sometimes mindless humor is the best kind...

An Actual Complaint to an Airline

Bullishness Abroad

The Chinese Economy has been the topic of conversation of probably way too many cocktail stock talks...however, the upcoming Olympics suggest that if the government has anything to say about it, the boom won't stop just yet.

The growth and low cost-structure present margins across industries unseen domestically. Here is an overview of a few:

Profitability Ranking of U.S.-Listed Chinese Stocks

As with any one metric, these should be taken with a grain of salt, but even with a handful of sodium these margins look juicy. A nice respite from the credit woes in the USA...

Bridge to ???

The recent peak in the buyout boom has been funded not only with equity from the historically massive funds raised in the last few years by the behemoths at the large private equity shops but also by the credit market's willingness to absorb the high yield bonds funding up to 80% of these acquisitions.

If this headline is any indication, the troubles in the rest of the credit market may be challenging the continuing surge in this space, as at least in this deal, it sounds like the banks who agreed to bridge the acquisition debt do not have an easy exit...

Bonds Becoming Tougher Sale

One of the "catalyst" scenarios I have speculated about (probably with one of you) involves a series of bridge-loans gone bad, where banks are forced to retain loans that they previously thought would be absorbed by the market - and are forced to bear the loss when the underlying credit turns south.

Stay tuned...

Some Things Speak for Themselves

CDOs in `Hooker Heels' Fool Moody's, S&P, Gross Says

From Gross's Letter (below): "To death and taxes you can add this to your list of inevitabilities: the subprime crisis is not an isolated event and it won’t be contained by a few days of headlines in The New York Times."

Looking for Contagion in All the Wrong Places

Downgrades Downstream

The agencies have acted at the mortage-backed level, suggesting more action at the CDO level is only a matter of time.

http://biz.yahoo.com/rb/070625/goldmansachs_subprime_downgrades.html?.v=2

That this many have been downgraded this quickly by the reactionary agencies suggests momentum may be pushing things up the credit stream faster than some anticipate...time will tell.

A like-minded scenario is further explored here, where the writer summarizes the integration and coordination of the rating agencies in the CDO underwriting process.

http://biz.yahoo.com/seekingalpha/070625/39290_id.html?.v=1

This chart mentioned in the above article may point in the direction we may be headed:

http://www.markit.com/information/affiliations/abx/history

Some Like Clarity

One of my professors reacted in the same way to a study originally uncovered by a colleague, which only further supports the darker themes underlying the cracks in the system. For those who like clear explanations you might enjoy this read:

Multiplying Mortgage Trouble

And the Trend is...

Another week and another set of data on the underlying weakness in the housing market:

Home Sales Hit Slowest Pace in 4 Years

Housing sales are falling, prices are falling, and inventories are rising. This does not bode well for the holders of the CDX's and relatives down the chain from these fundamentals. Although Bear's bail-out may have bandaged the bleeding of it's former juggernaut (aka beta-rider), the no-name funds chasing the same strategy will not be as lucky.

The interesting question outstanding for me is when and how the rating agencies react to the latest mess. It seems almost unconscionable that there was not a wave of downgrades leading up to this latest crisis, but harkening back to the go-go days of the Independent Power Producers in the pre-Enron implosion era reminds one of the reactionary nature of that privately funded group of "watch dogs". It took Enron going-in for the rest of the crew to get downgraded and the after effect took years to play out (with CPN shareholders who bought in right before the filing feeling happy with the recent ~$3/share result).

Thus, it may be some time before the agencies react, holders are forced to sell and mark, and the rest of the world sees the result of over-priced and hype-driven strategies...or maybe somehow this time will be different. If so, I just hope somehow it isn't for the worse.

Rollercoaster

It is hard to know sometimes what is the cause and what is the effect. This is similar to the problem of mistaking correlation with causation, especially when the causation seems plausible. Such is an issue that I have faced of late with respect to my overall mindset, my outlook on the markets, and my professional choices. On the one hand, some suggest that I would be more optimistic and less morose if I stopped anticipating the impending doom or if I would choose to stop learning about bankruptcy and distressed debt. But I also wonder whether the latter are emergent properties of the former, or maybe whether all are independent, though correlated and similar in content. Such ponderings may be fruitless but after a week of a rollercoaster ride in the markets and my psyche, determining the root seems like a worthy venture.

On the Sunny Side of the Street

There is still plenty of opportunity globally, and as my friend has so dutifully pointed out, China has not only started to do the smart thing in diversifying away from US Treasuries, they have also kept their word in letting their currency appreciate:

http://finance.yahoo.com/q/bc?s=USDCNY=X&t=1y

So, if you believe currency appreciation will not spell doomsday to their cheap-input driven economic growth and are looking for a way to profit off an optimistic view for Chinese equities, this site lists a few of them:


http://www.tradersnarrative.com/how-to-play-the-chinese-stock-market-from-the-us-952.html


I personally am remaining cautious given the explosion in the mainland markets since January and the uncertainty surrounding the global economy...although ACH has been a beautiful ticker this spring.

Signs of Spreading

I could probably spend all day pointing out signs of the negative side of the market, but this one was too good to pass up:

http://www.latimes.com/business/la-fi-brookstreet22jun22,1,3414975.story?coll=la-headlines-business&ctrack=1&cset=true

I wonder how many small-to-mid size trading shops have been riding the wave over the last five years...

Enough is Enough

I have been watching the unfolding of the suprime industry from the sidelines (kind of) for too long, and at this point, I need to start venting in a forum where at least I have a reason to believe someone might listen.

One of the shocking things to me about the system is how the Fed and others who are responsible for our financial welfare can reassure people that the situation is contained, when it obviously is not.

Finally, one of the banks is starting to spell out the plain english for those who haven't read between the lines already:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aFoDV5gMIDUM&refer=home

To summarize: the non-performance of subprime loans that the market has seen in the last six months to a year is just the tip of a very large and melting ice-berg...and this is before the impact of China's diversification is completely expressed in the yield curve.

I just hope that the equity markets are insulated when the CDO's have to mark to market (which they eventually will...wall street only has so much balance sheet available to sweep the mess under: http://www.bloomberg.com/apps/news?pid=20601087&sid=azWqYwf2Kt.Q&refer=home)