Tuesday, December 15, 2009

Bond Market Makes It's Presence Felt

As the administration pushes its spending proposals, the bond market has been speaking quite loudly the past few days and just broke through its trading ranges of the past six months.

Technically speaking, we have a clear inverse H&S pattern possibility on a 60 min and a much larger daily scale.

These technical setups equate with fundamentals and it is difficult to say when the vigilantes make life difficult for the various government entities. But this much is clear.  While equity markets can be controlled and manipulated even for a time, the bond market is far bigger than any government entity.

While some are calling for the markets to go higher, and it is highly likely, the preponderance of news today has to be considered negative between the Empire State survey, the PPI, the rise in yields.

Eventually insitutional money will realize that this time really is not different, ie, not different than past credit crises which are usually followed by fiscal crises. 

That being said, the markets will likely break through resistance and head higher anyways I guess.  

The Same Old Story with Real Estate

Realtors are again putting out the same old story, are these guys ever bearish?

Prices are on sale and if you do not get in now, you'll miss out.... the same old story of greed and fear.

Having been a landlord for many years myself, let me tell you that a vacant apartment can be death to your finances.  If you're an investor buying on financing, it is a risky business. We're still clearly in a deflationary path on rents.

One very simple way to determine demand and supply is looking at the craigslist listings for rentals.  Search craigslist las vegas or craigslist palm beach or any other location and if you've been tracking this data over the past years you'll see that where listings used to average about 100 a day during the peak we are now up to over 500 listings each day! Care to compete with that kind of competition?

Here is what is happening in the Palm Beach market based on my personal conversations with agents and investors

Lenders like Option One that own defaulted inventory are not foreclosing on that inventory.  I know of property that owners have walked away from over 18 months ago and is still not foreclosed.  Why? Because lenders know if they foreclose they'll be responsible for taxes and maintenance and liens.  So lenders are opting to let the foreclosed owner keep the property until they find a willing buyer.

Option One recently offered a tenant at a local community $3000 to move out so that they could start showing the property without actually owning it.  This kind of illegal activity is underway in Florida and I am guessing other parts of the country.

All it does is confirm the huge amount of shadown inventory that continues to sit on lenders books.

Rising Rates Coming
Now if you're an investor that has the cohones to buy in this market, granted there are a few good deals if you know how to land a renter.  Hats off to you.

But if you're an investor, you need to consider what will happen to prices when rates go up.  It does not take a rocket scientist to figure out that prices will continue to stay under pressure for a long time to come as rates are most definitely headed higher over the longer term.  And if you don't get that, then you really have no business being an investor.

Regardless of how you spin it, investing in real estate is an unattractive opportunity unless you have a 20 or 30 year horizon and are willing to deal with the headaches of being a landlord during that time.

Thursday, December 10, 2009

Time Symetry

EW normally requires Wave 5 to be 100% of the time spent in Wave 1.  That requirement was satisfied to the T in the chart below.  No idea if the count is right but it does offer hope to us bears. If this is indeed the count, this may be the confirmation that Wave C is finally complete.  And if that is true, time for the fireworks to begin on Wave 3 down.

As an aside, added small position at 1105 earlier today.

The Real Story on Bonuses & Value Provided

Me Likey.  However this news will only contrast how powerful the finance lobby is in U.S. as it will never happen here.

Bankers furious at UK bonus supertax

Bankers in the City of London reacted with fury to UK government plans to levy an immediate 50 per cent supertax on’ bonus pay-outs, saying the move played into the hands of rival financial centres.

France to impose tax on bank bonuses

President Nicolas Sarkozy is to follow Britain’s lead and impose a one-off tax on bonus pay-outs by banks operating in France.
The French government is still working out the details, but intends to bring Paris in line with London by forcing banks to pay 50 per cent in tax on bonus pay-outs for 2009 above €27,000.

As a former worker on Wall Street let me provide some details on how the bonus structure on Wall Street works.

I was a Senior Analyst at a top 5 investment bank.   Total compensation was a combination of a base salary, and a bonus.  Bonuses were usually a combination of cash and restricted stock.

Base salaries today range from $120k to $150k for senior analysts, possibly higher as i have been out of the industry a few years.  In addition, bonuses ranged from 100% to 200% of the base.  Managing Directors and VPs have base salaries in the $200s and bonuses multiples of that.

The question though is this - does the Wall Street employee provide a corresponding value to the salaries? No.  In my opinion, my job and those of most analysts and senior analysts could be performed by an average finance graduate and unfortunately, even better by a finance graduate coming out of India.

And that is the reason for the outrage amongst Americans.  Wall Street salaries have no connection with performance.

Monday, December 7, 2009

Adding to Shorts - S&P 1107

I could talk about fundamentals, but why bother.  This is a technically driven market rally and this trade is based on technicals weakening.