Warning: There May Be No Cash for Junkers [View article]
JWB - - -
You have to decide if you think JNK has further to run or not. Your hedging strategy depends on that decision.
If you think JNK can still go up in 2010, the best outcome will be achieved (if you are right in your call) by using a simple trailing stop. For example, a $2 trailing stop assures that you close the position at $37.50 or higher plus any dividends received - currently $0.33 per quarter. (Price as I write is $39.50.)
If you think it is more likely that JNK will go down in 2010, selling a covered call is a good strategy. Checking a couple of brokerages and Yahoo the deepest in the money call with the longest expiration I can find is Sept. $36. Current premium is about $3.50 ($3.30 bid/$3.70 ask). Thus, for six months you will get $36 for the stock, $3.50 for the premium and $0.66 from dividends, or $40.16. This is a gain of about $0.66. In other words, it is a way to collect the dividends (ex dates 6/1 and 9/1) without losing anything on the price drop.
Another option is to buy protective puts. This produces negative returns.
If you feel that JNK might tank in the next six months, you can use the $0.66 in dividend income to buy a deep out of the money put. Currently the Sept. $34 put is near $0.66 ($0.45 bid / $0.70 ask). The Sept. $35 put is within reach at $0.60 bid and $1.00 ask. In this case you are placing a no net cost bet on a long shot outcome that could pay off big if JNK goes back toward the 12-month lows near $30.
If you want to benefit from big moves in either direction using a combination of puts and calls you will have to accept losses for moves less than 15% or $20% in either direction.
Warning: There May Be No Cash for Junkers [View article]
OT - - -
Since nothing is sure except death and taxes I chose to use if. Give me a little wiggle room on the timeline and I'll say when.
Every time I start to feel sure that inflation and higher interest rates will come soon, I get a gnawing reminder in the back of my consciousness that many spent the entire 1930s fearing that inflation was right around the corner.
Yes, many things are different now vs. the 1930s but there is one thing in common that both are credit driven contractions, the only two in the past nearly 100 years.
So I will be surprised if interest rates remain low for the next five years, but I can not say it is an impossibility.
Still Waiting for Real Economic Growth [View article]
Steve - - -
(Repeated comment from Instablog) I think the reason for the NAR price up tick in December may be due to the end of the new home buyers' tax credit at the end of November. First time home buyers tend to buy at the bottom end of prices and they have been a significant part of sales for the months leading up to and including November. With first timers becoming a smaller portion of the market, some of the lowest priced sales were not there in December.
Still Waiting for Real Economic Growth [View article]
Ted - - -
Revenues should be lower in an inventory build because the revenue from sales of inventory is missing. The question is whether or not the inventory built in 4Q will move in 1H/10. If it doesn't then we go back toward the 2% GDP growth than occurred outside of inventory growth. Some of that 2% is stimulus, so we can go back toward 0% unless consumption and exports improve.
I fear that the risk of bumping along in the 0% to 2.5-2% channel may be the best we can hope for in most of 2010. That would mean that further stock advances are not likely this year. If we can avoid going below 0% GDP growth stocks may not go down much either, although the trading channel may dip as low as 8500-9000 before coming back above 10,000.
If we go back into negative GDP growth, stocks, housing and employment will suffer significantly.
If we have a "muddle through", this will definitely be a year where the only serious money will be made by traders as prices will cycle up and down in a10-20% range.
Still Waiting for Real Economic Growth [View article]
Steve - - -
I think the reason for the NAR price up tick in December may be due to the end of the new home buyers' tax credit at the end of November. First time home buyers tend to buy at the bottom end of prices and they have been a significant part of sales for the months leading up to and including November. With first timers becoming a smaller portion of the market, some of the lowest priced sales were not there in December.
Preserving Wealth During the Global Banking Crisis [View article]
Poor proofreading in the preceding comment is corrected in the following:
"I think the author's assertion IS CORRECT that we must get these people (malfeasants or idiots) out of their postions of control of the institutions they have ruined. Bringing theM to justice (whatever that is) is a second step, not the first."
Preserving Wealth During the Global Banking Crisis [View article]
SeekingTruth - - -
If we apply the Martha Stewart standard, there are not enough prisons built or could be built in the next couple of years to hold the guilty.
But you may have proposed a stimulus package - build prisons. (PLEASE everyone, this is facetious humor.)
I wish I knew how to how these people should be dealt with. If they are thieves, it is easy. If they are simply greedy incompetents (which I am willing to believe is possible), what should be the course of action?
The question you have raised is indeed one that does not have a clear answer. I think the author's assertion that we must get these people (malfeasants or idiots) out of their postions of control of the institutions they have ruined. Bringing then to justice (whatever that is) is a second step, not the first.
Preserving Wealth During the Global Banking Crisis [View article]
Rolex18K - - -
I think your worry list is quite extreme. However, if one doesn't think about the unthinkable, it is impossible to keep all the bases covered. You can't depend on reaching extremes but woe to anyone who does not have contingencies in place in case an extreme occurs.
Preserving Wealth During the Global Banking Crisis [View article]
Gary Dorsch - - -
Wow!!! What a great description of the mechanics of the financial crisis. I especially picked up on one specific statement: "The US economy has little chance of a sustained recovery unless President Barack Obama purges the management of the elite banking cartel that has brought this great calamity upon millions of innocent American workers. "
I have been commenting elsewhere that one of the most important effects (maybe the one single most important effect) would be the replacement of executive management in the failed banks.
I have to reread this article carefully a few times to get everything I can out of it.
Many thanks to another SA reader who e-mailed a link to this article to me this morning so I got to this right away.
Warning: There May Be No Cash for Junkers [View article]
According to Yahoo Finance, it pays quarterly. I didn't go to the prospectus to verify.
Warning: There May Be No Cash for Junkers [View article]
You have to decide if you think JNK has further to run or not. Your hedging strategy depends on that decision.
If you think JNK can still go up in 2010, the best outcome will be achieved (if you are right in your call) by using a simple trailing stop. For example, a $2 trailing stop assures that you close the position at $37.50 or higher plus any dividends received - currently $0.33 per quarter. (Price as I write is $39.50.)
If you think it is more likely that JNK will go down in 2010, selling a covered call is a good strategy. Checking a couple of brokerages and Yahoo the deepest in the money call with the longest expiration I can find is Sept. $36. Current premium is about $3.50 ($3.30 bid/$3.70 ask). Thus, for six months you will get $36 for the stock, $3.50 for the premium and $0.66 from dividends, or $40.16. This is a gain of about $0.66. In other words, it is a way to collect the dividends (ex dates 6/1 and 9/1) without losing anything on the price drop.
Another option is to buy protective puts. This produces negative returns.
If you feel that JNK might tank in the next six months, you can use the $0.66 in dividend income to buy a deep out of the money put. Currently the Sept. $34 put is near $0.66 ($0.45 bid / $0.70 ask). The Sept. $35 put is within reach at $0.60 bid and $1.00 ask. In this case you are placing a no net cost bet on a long shot outcome that could pay off big if JNK goes back toward the 12-month lows near $30.
If you want to benefit from big moves in either direction using a combination of puts and calls you will have to accept losses for moves less than 15% or $20% in either direction.
Warning: There May Be No Cash for Junkers [View article]
Since nothing is sure except death and taxes I chose to use if. Give me a little wiggle room on the timeline and I'll say when.
Every time I start to feel sure that inflation and higher interest rates will come soon, I get a gnawing reminder in the back of my consciousness that many spent the entire 1930s fearing that inflation was right around the corner.
Yes, many things are different now vs. the 1930s but there is one thing in common that both are credit driven contractions, the only two in the past nearly 100 years.
So I will be surprised if interest rates remain low for the next five years, but I can not say it is an impossibility.
Warning: There May Be No Cash for Junkers [View article]
I am hoping to stumble on the numbers you mention as I grope around the internet. The comparison you suggest would be interesting indeed.
Still Waiting for Real Economic Growth [View article]
(Repeated comment from Instablog)
I think the reason for the NAR price up tick in December may be due to the end of the new home buyers' tax credit at the end of November. First time home buyers tend to buy at the bottom end of prices and they have been a significant part of sales for the months leading up to and including November. With first timers becoming a smaller portion of the market, some of the lowest priced sales were not there in December.
Still Waiting for Real Economic Growth [View article]
Revenues should be lower in an inventory build because the revenue from sales of inventory is missing. The question is whether or not the inventory built in 4Q will move in 1H/10. If it doesn't then we go back toward the 2% GDP growth than occurred outside of inventory growth. Some of that 2% is stimulus, so we can go back toward 0% unless consumption and exports improve.
I fear that the risk of bumping along in the 0% to 2.5-2% channel may be the best we can hope for in most of 2010. That would mean that further stock advances are not likely this year. If we can avoid going below 0% GDP growth stocks may not go down much either, although the trading channel may dip as low as 8500-9000 before coming back above 10,000.
If we go back into negative GDP growth, stocks, housing and employment will suffer significantly.
If we have a "muddle through", this will definitely be a year where the only serious money will be made by traders as prices will cycle up and down in a10-20% range.
Still Waiting for Real Economic Growth [View article]
I think the reason for the NAR price up tick in December may be due to the end of the new home buyers' tax credit at the end of November. First time home buyers tend to buy at the bottom end of prices and they have been a significant part of sales for the months leading up to and including November. With first timers becoming a smaller portion of the market, some of the lowest priced sales were not there in December.
Preserving Wealth During the Global Banking Crisis [View article]
"I think the author's assertion IS CORRECT that we must get these people (malfeasants or idiots) out of their postions of control of the institutions they have ruined. Bringing theM to justice (whatever that is) is a second step, not the first."
Corrections in caps. Sorry.
Preserving Wealth During the Global Banking Crisis [View article]
If we apply the Martha Stewart standard, there are not enough prisons built or could be built in the next couple of years to hold the guilty.
But you may have proposed a stimulus package - build prisons. (PLEASE everyone, this is facetious humor.)
I wish I knew how to how these people should be dealt with. If they are thieves, it is easy. If they are simply greedy incompetents (which I am willing to believe is possible), what should be the course of action?
The question you have raised is indeed one that does not have a clear answer. I think the author's assertion that we must get these people (malfeasants or idiots) out of their postions of control of the institutions they have ruined. Bringing then to justice (whatever that is) is a second step, not the first.
Preserving Wealth During the Global Banking Crisis [View article]
I think your worry list is quite extreme. However, if one doesn't think about the unthinkable, it is impossible to keep all the bases covered. You can't depend on reaching extremes but woe to anyone who does not have contingencies in place in case an extreme occurs.
We are all Boy Scouts now: "Be Prepared".
Preserving Wealth During the Global Banking Crisis [View article]
Wow!!! What a great description of the mechanics of the financial crisis. I especially picked up on one specific statement: "The US economy has little chance of a sustained recovery unless President Barack Obama purges the management of the elite banking cartel that has brought this great calamity upon millions of innocent American workers. "
I have been commenting elsewhere that one of the most important effects (maybe the one single most important effect) would be the replacement of executive management in the failed banks.
I have to reread this article carefully a few times to get everything I can out of it.
Many thanks to another SA reader who e-mailed a link to this article to me this morning so I got to this right away.