Mark Hinton and Duncan Johnstone may have disagreed with the All Black training squad, but their reaction of pulling the plug on Rugby Heaven seems a little ridiculous to me:
:-)
Or is the power is off in Wellington?
Showing Shorting Success – for now
Following on from the last post – I mentioned that my portfolio has been going pretty well recently:
It is up 35% YT while the S&P500 is down 5.6% for the year.
You can tell from the sudden drop in the green bar when I went heavily into shorting EQR – over half the value of my portfolio is making that bet. That means I’m vulnerable to a takeover announcement or great
macroeconomic housing news, but I also stand to make a healthy percentage if EQR falls. So that green line could dip under that blue line in a day or two.
Here’s the recent performance of EQR:
Intellectually I believe the stock should be under $35, and actually much lower, along with the rest of the sector. However I’m not playing an overly-intellectual game – this is the market, and the market decides where the stock will go. I do see more bad housing news in the future, and believe that the market will react to that by sending the stock price down. I also see the potential for a major flame-out of this stock, but I am not betting on it, though it would be nice.
Jason asked how I am shorting these stocks. I have a US based etrade account that allows me to buy stocks, to short stocks, and, more recently, to buy and sell options. You can open the same sort of account, or use any one of the other online brokers out there. I find it easier to deal with US brokerages than Australia and NZ ones, which have tiny markets, with relatively little transparency on what is going on inside the companies. etrade faced some recent trouble by holding rather too many CDOs, but they have restructured and are now focusing on their excellent trading platform.
Note that there really isn’t a lot of money at stake here – just enough to make it interesting but not critical.
Making (more) money from the falling housing market
US housing prices fell 14% March 2008 on March 2007.
14% is larger than the downpayment component of many US mortgages. Would your mortgage be greater than your house value if the house fell by 14%? How about in your first year of ownership? Mortgages like this are in negative equity, and owners should, ceteris paribus, walk away from the house. This is even more true if mortgage payments are now crippling to pay due to higher interest rates.
When people walk away, or if you cannot make those payments, then the banks will often foreclose on you – forcing the sale of the house. This is happening a lot in the USA, and increasingly in NZ. The implications are very serious – we are talking potential great depression stuff here.
That scares me – and has scared the market
Indeed the price of the mortgage backers Freddie Mac and Fannie Mae has dropped a bunch over the last week:
while over the last year both GSE’s (Government Sponsored Enterprises – called that because of their implied Government backing) have fallen – here’s Freddie: – sister to Fannie, which looks much the same.
So what are these Freddie and Fannie companies? Basically they buy individual mortgages, and either sell them as groups or keep them for themselves.
So here’s what a friend of mine wrote the other day:
Please explain to me how Fannie/Freddie can avoid going into the tank. $5.3 trillion of mortgages & guarantees against $80 billion in capital, so a 2% default rate in their portfolio wipes them out.
Foreclosures are currently close to 2% of all mortgages, and while these have been concentrated in subprime loans (not a big part of the Fannie/Freddie mix), the next wave will be in ARMs, [floating rate mortgages] where they have a huge portfolio. And let’s keep in mind that they recently changed the threshold definition of a non-performing loan from 90 days to two years, so they are already carrying a sizeable unrealized loss load.
Yes, Treasury will bail them out, but I would be stunned if there were not an interim period while the Feds get their act together. During that period, Fannie/Freddie would not be able effectively process transactions, which would produce a pretty good credit market lock-up.
Not to mention that if it isn’t handled cleanly, that $5.3 trillion could be viewed as US Government liabilities, effectively doubling the national debt in one stroke. What’s that going todo the Treasuries market?
He’s not crazy – the situation is unsustainable.
So I bought some put options on Fannie Mae (the bigger of the two) and have made a very healthy return over the last week.
Meanwhile over the last few weeks I massively (for me) geared up on shorting residential housing company EQR, and after a hiccup one day I’m seeing a great return from that as well.
There is still plenty of value to disappear from the housing market in the USA, so get on the shorting bandwagon to capture the value. My portfolio is looking spectacular, although volatile.
US recession and Australian resurgence
A recession has a defined meaning, from the USA’s NBER, via Wikipedia
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.
Most define it as two quarters of declining GDP, but I’ve always preferred to be less analytical and more anaecdotal. Besides – the statistics tends to get revised a few months later, and you can find out too late that you’ve just lived through a recession.
So I’ve just been in the USA – and yes, there is a recession underway there. People are losing jobs, the general feeling is pessimistic (Obamarama notwithstanding) and the economic fundamentals are shocking.
Meanwhile the feeling in Perth is boom town – it feels like the USA did in 1999. Anything is possible and there is plenty of money for great ideas. Even housing prices are still high here, while the mining industry continues to frantically search for people. The Australian dollar is reaching for USA dollar parity:
and the major companies are rising on the markets. Here’s BHP Billiton (a client right now) on the US market:
All this is feeding into my future plans. Of course – is it better to be in a market where everything is doom and gloom, or where everything is rosy? I actually prefer to enter when everything is hard, because the ride u is so much better. So while I believe there is some weakness in the US economy yet, the underlying strength is astonishing.
Meanwhile Perth fails to take advantage of immediate prosperity, investing in dubious real estate options rather than focusing on how to outlast the resources boom. It often feels, here in Perth, like New Zealand before David Lange’s quiet revolution. e.g. Taxis and supermarket hours are still regulated, which means that you cannot get a cab nor shop when you want to. So post boom I can imagine the Perth will empty out pretty quickly, a nice climate does not compensate for a city stuck in the past, which is incredibly geographically isolated, a cultural wasteland, and wildly expensive.
NZX.com relaunches
Up goes NZX.com – a collaboration between Fairfax Digital and NZX. This has been a while in the making, so it is great to see the result.
Well done everybody.
(still some work to do though – it’s super slow from here in Perth)
BNZ Sucks: Verified by Visa sucks
Nigel from Netconcepts pointed out the ludicrous BNZ “verified by Visa” program, which he encountered recently on a NZ retailer. Netconcepts are a NZ/Wisconsin success story – developing websites among other things from their Auckland base. They know their stuff.
Nigel was shocked to see the following appear after entering his credit card details in DPS:
In his words:
Freaked me out – as it looks like a phishing attack – asking me to enter my details into a URL that is non-BNZ and non-Visa and that appears unrelated to my purchase in anyway. I have checked with the bank and this is a legitimate BNZ/Visa page. It is apparently a “new” security provision. And provided independently of the DPS card processing – so that the merchant is unaware that this is happening.
This was earlier today. But of course, as this is me and BNZ, there is more.
Later I was setting up my Skype account for Skype in, and had to pay some money. I grabbed my Visa card, and was confronted with a Verified by Visa brick wall, asking for a password. It seems I’ve used it before and have entered a password. I won’t show that screen as there are a few too many details, but suffice to say after entering a password I got this:
I entered another password (I really have no clue what it is) and got this:
2 passwords attempts and I was done. Pricks.
So I used another payment method (Paypal) and am now locked out from all “participating retailers”. Whoever they are.
I tried calling the 0800 number, but got a “number does not exist” on Skype. And yes – I’m overseas so I am really stuck calling a NZ based 800 number.
Wake up BNZ wake up!. …and please reset my password and take me off that lousy verified by visa program.
Bacon Chocolate – what were they thinking?
Following on from Natalie’s canned Chicken – yesterday here in Washington, DC I had the dubious priviledge of trying Bacon Chocolate. Note that this wasn’t bacon flovoured chocolate, but a chocolate bar with real bacon bits inside.
My smart friend pointed out that it addresses both the male and female markets.
Colombia
It’s been quiet around here for a reason – I’ve been in Colombia, visiting a BHP Billiton Mine – Cerro Matoso, which is near Montelíbano, between Bogota and Panama, in the state of Cordoba.
Colombia is the missing link for me between Panama and Ecuador. It has the vegetation of Panama and the mountains of Ecuador. It also has amazingly good beef – which is something I didn’t think existed North of Argentina in South America. The people that I’ve meet have been magnificent – I really want to come back some time and travel properly.
I wished I was on a Moto though
x
Reminds me of NZ
Grill Strip Tease
Peublo
Reminds me of FLW
means dip your lights
mattress on bike
Jungle
Fence
x
Beautiful
Stuff wins again
Well done Stuffies – winning again at the Netguide awards. Best Home PAge, Best Media site and Supreme Winner – a fantastic haul. Meanwhile Trade Me captured Best Trading Site (shock, horror) and best Real Estate Site.
Interestingly Facebook went over the top of Bebo for best social netwokring site. Are Bebo’s days numbered, or do teenage girls not vote in the Net guide awards – the second I’d say.
Funny how I can’t find any other reference to the awards – NZHerald? Netguide??
Property BS
It’s a certified Real Estate bust market, and you are a “successful property investor”. Do you:
A: do nothing – you got out long ago, when the signs were there.
B: frantically sell out of the remaining “investment” properties you own
C: What there’s a bust?
D: Start a property magazine and website.
Since this is a blog post, the answer is of course D: Start a Property magazine and website.
Dumb move or inspired genius? Stick around for 10 years and we’ll know.
In the short term the 3 page “cool and convenient” website, early PR, and promised advertising campaign smells a little of reek of big money being directed against the proverbial wall.
Meanwhile giants Fairfax, NZHerald and Property Press are not exactly sitting on their hands, while online Trade Me Property and RealEstate.co.nz have carved up the market nicely.
Good luck chaps
BurgerFuel BS
Dubai and Burger Fuel
No they have not conquered New Zealand yet
No they have not successfully demonstrated that they can enter Australia
No there is not conceivable explanation why they are choosing Dubai, which is not a sleepy market.
But enter Dubai they have. I guess someone had money to burn.
Crazy or Ballsy? Ben has more .
Microsoft and Yahoo: bugger
Bugger – Microsoft has withdrawn from the Yahoo takeover offer. Microsoft upped the price to $33 per share (from $29 odd), which was a $5 billion increase. Yahoo said “no thanks – we want $37 per share” and so Mirosfot walked away.
On Monday, US time, expect:
Yahoo’s shares to fall – and pretty far
Microsoft’s shares to rise, if not immediately, then over time..
In the next weeks we can expect some aggressive lawsuits from lawyers representing Yahoo shareholders, and some relieved Yahoo employees and executives.
After that it would not be surprising to see round 2.0 – with Microsoft coming back with another offer.
It was always a bad combination in business terms, but in financial terms the Yahoo board has just committed a cardinal sin – walking away from an offer that valued the company at substantially more than it is worth. They really have opened them and their insurers up for a mammoth lawsuit from shareholders, and it is hard to see a plausible defense.
Why “bugger” when the deal made no sense to customers? Because I’m short Microsoft shares – betting that they will fall. I thought that Ballmer would stick it out. However we should remember that Ballmer is a pretty good game theory practitioner, and so much more could happen.
Where in the blogosphere is Michael Carney?
Michael has seemingly abandoned the Trade Me success Secrets blog, which was looking to be a really promising place to discuss and see all things Trade Me.
He also seems to have left the Grey Group – where he was also writing an interesting blog. If you want to see what an untended blog looks like, check out the comments to this post.
Meanwhile Michael’s Linked-in profile is still showing the G2/Grey Group connection.
So – what gives? Where are you now Michael? If you are out there we’d love to keep hearing your views..
A sweet deal – is Buffet going to Mars?
As Jim mentions, Buffet’s Berkshire Hathaway is involved in a $23bn deal where Mars is buying Wrigley. Mars is $22bn and Wrigley $5bn in annual sales, so while big this isn’t a huge swallow for Mars, and both companies are well run and run on a brand basis, so merging should be ok.
There are two other things interesting about this deal.
Firstly, while it is no surprise that Wrigley is a classic Buffet company – a massive recession proof brand, we also know that privately held Mars is another. The proposal is for Wrigley to be a subsidiary of Mars while Buffet takes a minority shareholding – $2.1bn worth at a discounted price. Is this a way for Buffet to start playing with Mars? Where could this lead?
Secondly Berkshire Hathaway’s role is to bring (2nd tier) subordinated debt to the table – which is a nice way to raise money in an environment where the traditional funders are running scared. The WSJ mentions that Goldman and JP Morgan are also involved in the financing, but are we going to see more Buffet cash floating around as debt?
Lance Wiggs 