Just to drive in the point of what is really happening on the green shoots front, I present a housing starts and housing permits chart. Yes, those second derivative inflection points – they turned out to be smoke and mirrors. Just as will all other second derivatives, as the economy continues collapsing, albeit a little slower.
So the two top holders of the gold ETF are revealed as hedge funds in their first quarter regulatory filings.
Paulson & Co, whose founder was the highest paid fund manager in 2007 thanks to a well-timed bet against sub-prime mortgages, bought 31.5 million shares in GLD, the gold exchange traded fund, in Q1. Meanwhile, Lone Pine was not far behind with its purchase of 26.5 million shares.
But Paulson has also acquired stock in AngloGold Ashanti to the tune of a cool $1.3 billion. The man who called the US housing market correctly is clearly hoping to do exactly the same with the gold market, and for the record he achieved a double-digit gain in 2008, along with a few stars like George Soros while the average hedge fund loss was 19 per cent.
Follow the stars
Is this hedge fund star on to another winner, or will commodity price deflation send this good fortune into reverse? Former performance is no guarantee of future performance but it is often the best guide we have.
In 2007 few called the US housing market turn, and yet with hindsight this was a bubble that ought to have been obvious. Could we not say the same now of the bubble in US bonds? Interest rates are too low, and the inflation risk too high. Read Story Gold Seek with Peter Cooper
Total housing starts were at 458 thousand (SAAR) in April, the all time record low. The previous record low was 488 thousand in January (the lowest level since the Census Bureau began tracking housing starts in 1959).
Single-family starts were at 368 thousand (SAAR) in April; just above the revised record low in January (357 thousand).
Permits for single-family units were 373 thousand in April, suggesting single-family starts will remain at about the same level in May.
Here is the Census Bureau report on housing Permits, Starts and Completions.
Note that single-family completions of 549 thousand are still significantly higher than single-family starts (368 thousand). This is important because residential construction employment tends to follow completions, and completions will probably decline further.
It is still too early to call the bottom for single family starts in January, however I do expect housing starts to bottom sometime in 2009.
Joe Weisenthal from Clusterstock
The Wall Street Journal has run its own version of the the Fed’s stress test on 900 small and midsize institutions, and it claims they’ll see losses of about $200 billion by the end of next year.
In such a scenario, at least 600 of the banks would see their capital levels shrink to a level that would be deemed unsafe by regulators.
The biggest culprate? You guessed it, commercial real estate, which could contribute about $100 billion in losses. Continued home loan losses is next, at about $49 billion.
WSJ: “They are in just much worse shape” than the big banks, says Terry McEvoy, an Oppenheimer & Co. analyst who reviewed the Journal’s analysis. “There is a lot less earnings power at these banks.”
The Fed this month estimated that the 19 stress-tested banks could face losses of $599 billion if the agency’s gloomiest economic scenario comes true. For the 10 large companies found to need additional capital, most of the shortfalls are manageable.
Few smaller banks are likely to attract the bargain-hunting investors now expressing interest in recapitalizing the industry’s giants. Many smaller banks are trying to bolster their capital by selling assets and making fewer loans.
What’s somewhat amusing here is that throughout this crisis, there’s been a lot of trumpeting of small banks, as somehow being either a) less stupid or b) less greedy than their Wall Street counterparts, as an explanation for why there hasn’t been as much of a crisis on the smaller levels.
Well, a better answer may simply be that their portfolios are different, and haven’t been hit in the same way yet. And to the extent that small bankers are greedy and stupid, too? Well then this just means that those terms cease to have any useful meaning.
Doug McIntyre of 24/7 Wallst
A comprehensive survey by The Wall Street Journal shows that “Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy’s woes deepen.”
The paper added that “Total losses at those banks could surpass $200 billion over that period.” The Journal said that it used criteria similar to the ones used for the stress tests of the 19 largest US banks.
None of the governments programs to stabilize the banking and credit systems seems to have taken these possibilities into account.
From the WSJ: Local Banks Face Big Losses
Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy’s woes deepen, according to an analysis by The Wall Street Journal.
…
Total losses at those banks could surpass $200 billion over that period …
The WSJ analyzed 940 small and midsized banks, using the Federal Reserve’s “more adverse” stress test scenario. The WSJ analysis showed that about two-thirds of the banks, under the “more adverse” scenario, will be below the “level considered comfortable by regulators” without raising additional capital.
The FDIC will be very busy …
Note: There are about 8,300 FDIC insured institutions. The WSJ analyzed bank holding companies that filed financial reports with the Federal Reserve for the year ended Dec. 31.
Gold – it is the yellow precious metal once used as a primary form of currency for thousands of years. It is durable, liquid and almost indestructible. Historically, investors have fled unstable markets in search of reliable sources of value and stability, which can generally be achieved by investing in this precious metal. For those who want cost efficient access to the gold market,
investing in the SPDR Gold Trust Exchange Traded Fund (GLD) is one of the easiest means of doing so. It is the world’s largest gold-backed ETF that offers risk takers a chance to profit by establishing a position in an investment vehicle that has somewhat of an inverse relationship to the equity markets..Continue reading Gold looks to rallyBe sure to put in GLD below to get a FREE no strings attached analysis sent to your in-box
A bullish research note from Goldman Sachs urging clients to buy Bank of America Corp. (BAC) shares with conviction boosted the Charlotte bank’s stock 10% and helped the financial sector in general.
The Financial Select Sector SPDR exchange-traded fund (XLF) rose 40 cents, or 3.6%, to $11.94. The KBW Bank ETF (KBE) rose 96 cents, or 5.3%, to $19.26 while the KBW Regional Banking ETF (KRE) rose 80 cents, or 3.9%, to $21.36.
Full Story US Financial Stocks Up After Bank Of America Upgrade
The recent bear market has rendered many investment strategies – like “buy and hold” – obsolete, while the latest 30% rally has rekindled the hope that investors may be able to buy-and-hold their way back to profits after all. Before you make a decision, here are a few must-know facts to consider.
Are you married to your buy-and-hold strategy? If so, you may want to consider a divorce (metaphorically speaking). From October 2007 to March 2009, many got to experience firsthand the “for worse” part of buy-and-hold investing. The Dow Jones (NYSEArca: DIA) lost 7.839 points or 54.90%.
Just before being snuffed out entirely, hope returned to Wall Street. Since the March lows, the Dow has rallied as much as 2.217 points. Patiently waiting for portfolios to recover all their losses has once again become a viable option. See sobering facts below:
Despite the recent rally, which lifted the Dow by as much as 34.43% and the S&P 500 (NYSEArca: SPY) by as much as 28.31%, there is a long road ahead to reach the break-even point. Based on Dow 8,200, the stock market would have to rally another 72% just to reach October 2007 levels.
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Even at an optimistic 12% annual return, it would take nearly five years for the broad market to recover to previous bull market levels. Chances are that the Financial Select Sector SPDRs (NYSEArca: XLF) won’t even come close to their high watermark within the next 10-20 years. This may sound absurd, but we’ve seen what happened to tech stocks after the dot.com bubble.
After briefly poking above 5,000 in March 2000, the Nasdaq (Nasdaq: QQQQ) hasn’t even come within 2,000 points of its all-time high. When the S&P and Dow reached all-time highs in 2007, the Nasdaq still traded 44% below its lofty 2000 high. The same is true for the Technology Select Sector SPDRs (NYSEArca: XLK).
Full Story Buy and Hold Investing
By Tom Lydon of ETF Trends
When it comes to executing a trade with exchange traded funds (ETFs), there’s a process that everyone should follow. Do you know the steps?There are four basic steps to trading that will never leave you guessing what happened or what went wrong. Scott Kramer for Optionetics describes his steps in trading that applies no matter how complex or simple your goal is.
- Identify an opportunity: This step is hardest, because it deals with likes and differences and you have to decide what you want or do not want. Do you like to sell vertical spreads to receive a premium? If you like to ride big trends, then there is a different approach in looking for opportunities than that of a stagnant stock. Pick a name or ETF and stick with it.
- Find a low-risk opportunity: Most will simply buy a stock and hold it, but those understanding options have virtually an unlimited choice of strategies to choose from where they can literally customize their risk and reward characteristics. Base your trade on the information currently available in the market and what is actually happen, rather than on speculation or gut feeling.
- Have a plan: Almost everyone successful at trading has an entry and exit strategy prior to hitting the “send button” to initiate the trade. Know your risk tolerance, as well as the total dollar amount you are willing to lose, along with a stop loss. There are two types of traders: those who are successful and pay strict adherence to their loss exit points, and those who rationalize, hold the position and continue to lose. Stick to your discipline.
- Take action: Do not get caught up in the emotions of trading; take action! Take action when it comes time to get out because of a loss. Other times, taking no action is action. When you have the time take action and learn a little more about trading, rather than listen to everyone else.
