Thursday, August 30, 2007

Buy when the cannons are roaring.

I'm not a big fan of low quality bonds, otherwise known as junk bonds. When I put money in bonds (via mutual funds), I do it for safety, so I'm usually in Treasuries or something similar, which have a very high degree of credit safety. I can't remember the last time I owned a junk bond fund, actually.

So with the housing thing really starting to come home to roost, with the whole mortgage/CDO market seemingly on the brink of disaster (or already in, according to some), and with credit spreads widening and the whiff of recession in the air... I decided it's time to start dipping into the junk bond waters.

I picked a fund (Pimco High Yield), and I'm dollar cost averaging in every month, probably for the next 12-18 months. At the same time, when I hear really, really awful economic/credit market news, I'll be throwing a little bit more in via extra payments.

The logic, basically:

Try to buy what everybody else is running from. But do so carefully.

Bloomberg: H&R Block May Close Loan Business as Losses Double.


``The loan-originations market is in the midst of the most severe dislocation it has seen in years, maybe the most severe since the 1930s,'' Chief Executive Officer Mark Ernst said on a conference call with analysts. He said the credit markets are in ``turmoil.''

Bloomberg: U.S. Stock-Index Futures Retreat; Goldman, Merrill Decline.


``We don't have a perfect idea of how deep or widespread the subprime issue will be,'' said John Forelli, who helps oversee $7 billion at Independence Investment LLC in Boston. ``Investment banks are caught in the crosshairs of this financial crisis.''

Update 08/31/07:

Reuters: Moody's president sees unprecedented illiquidity.


The credit market is experiencing an unprecedented loss of confidence due to the lack of transparency over where exposures lie rather than underlying credit quality problems, Moody's Investors Service President Brian Clarkson said on Thursday.

"I've been in the marketplace for 20 years ... what we're experiencing is an extreme lack of confidence and lack of liquidity. I have never seen this before," Clarkson told Reuters in an interview. "A lot of it has to do with transparency: it's not clear who owns what."

There are also questions over valuations of illiquid securities, he said, although not necessarily from a credit standpoint. Some structured vehicles -- such as the Cheyne Finance fund run by British hedge fund Cheyne Capital Management -- have been forced to sell assets due to losses even though the securities they hold have not been downgraded.

"It's not that a lot of the things people are holding aren't money good, they are. If you hold them to maturity they will pay interest and principal on a timely basis."

Friday, August 10, 2007

Shift to neutral.

You know things are getting interesting when Erin Burnett paraphrases somebody's words from "a whole lot worse" to "a hell of a lot worse".

CNBC Video: Credit Contagion: End in Sight?

Although Ken Heebner sounds calm-ish, this thing appears to be spreading pretty quick, and the 'market neutral' funds blowing up trend has a bit of smell of the 'portfolio insurance' blowup of the crash of 1987.

Tuesday, August 07, 2007

Is the worst over in housing?

Calculated Risk raises the question of whether the worst might be over in housing based on the BusinessWeek magazine indicator.

Even more promising, Trump Mortgage (I kid you not) has got Donald Trump up in arms over something. If only we could get a headline they are filing for bankruptcy; that, I guarantee you, would mark the bottom.

CNBC Video: Trump Dumps Mortgage Co.

Monday, August 06, 2007

Jim Rogers on CNBC.

CNBC Video: Subprime Shockwave Hits Equities.

Jim Rogers on end of the debt bubble. He believes the Fed won't cut rates, but if it does, he believes inflation will get out of hand and the dollar will collapse.

Saturday, August 04, 2007

Hot or Not?

Jim Cramer had a reputation for having a seriously volatile temper and nature when he was at his hedge fund. Thankfully, he had his wife to contain his baser instincts at a couple of important moments in market history. [He refers to her as "the Trading Goddess".]

So when you watch the first video below, in which Cramer basically explodes about the current market conditions, you have to wonder if you're watching Cramer unbound or instead seeing Cramer the actor hamming it up. And while I'm sure he's wound up, I also think it's an act. If you've seen Stop Trading with Cramer and Erin before, it's kind of the Laurel and Hardy show, with the straight [wo]man and the funny guy, and here the funny guy got a little too into the act. The second video is Cramer explaining himself in a calmer manner.

Is it really this hot? Yeah. All the craziness in the housing market that culminated in the last two hyperactive years is coming to roost in one or two hot weeks in August 2007.

Next week should be very interesting.

CNBC Video: Cramer: Bernanke, Wake Up.

CNBC Video: Cramer on Bear Stearns.

PS. Erin Burnett - hot.

Friday, August 03, 2007

What's the frequency, Kenneth?

CNBC Video: Mortgage Mess.

Kenneth Heebner, manager of the CGM funds, is up 30% this year in his Focus Fund, and believes that the mortgage mess in the US is isolated, and that it, combined with other factors, might end up being bullish for the economy. His reasoning: mortgage losses are contained in hedge funds and pension funds (gee, great), the ensuing mess might park the Fed in neutral or force it to reverse, and the global economy continues to do well. [Note: He says if he hears that large financial players are under stress his position would change, but so far there are no major financial players who appear to be in trouble.]

He's bullish on oil service, selective oil companies, infrastructure plays, and global mining; i.e. companies benefiting from the global boom and the tightness in supply of various commodities.

Thursday, August 02, 2007

Jim Rogers says what everybody's thinking.

Bloomberg: U.S. Housing Is one of History's `Biggest Bubbles,' Rogers Says.


``This was one of the biggest bubbles we've ever had in credit,'' Rogers, who predicted the start of the global commodities rally in 1999, said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''


``This is only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,'' Rogers said. ``So this bubble is the worst we've had in housing and it's going to be the worst we've had cleaning it out.''


I've been meaning to read the book Bubble Man, about Alan Greenspan, but I've got a few books to go before I get to it.