Raging Bull Trader

Mark-to-Market: A Rule That Begs to Be Broken

noreply@blogger.com (Unknown) — Thu, 12 Mar 2009 21:22:00 +0000

Interesting Read.

The Investment U e-Letter: Issue #954
Thursday, March 12, 2009

Mark-to-Market: A Rule That Begs to Be Broken
by Louis Basenese, Advisory Panelist
Senior Analyst, The Oxford Club

In this issue:

More fallout from Enron.
Where mark-to-market fails.
How this impacts your investments.

Dear Investment U Reader,

Today a House Financial Services subcommittee will examine the hot-button accounting issue of mark-to-market, formally known as FASB 157.

The SEC's already asserted its stubbornness. An anonymous source told Reuters this week, and I'm editorializing slightly, "There ain't no way we're suspending mark to market!"

But there are a lot of good reasons why they need to do exactly that. Unfortunately, the SEC doesn't have a great history of proactive regulation. Here's why we better hope our elected representatives see the situation differently.

Mark-to-Make Believe

Proponents of mark-to-market contend, and rightfully so, that the rule increases transparency. It requires banks to "mark" or price assets based on the current market price. In other words, it forces banks to tell us what their assets would sell for in the current environment.

On paper, that's a great principle. Who wouldn't want to know what their investments are worth on a daily basis? If you're like me, you probably mark your stocks to market every day - checking their prices after the closing bell.

However, doing the same for mortgage-backed securities - the assets at the center of this debate - is not as simple as punching in a symbol on Yahoo! Finance. You see, while stocks trade daily and by the hundreds of thousands of shares, these mortgage-backed securities might not trade for weeks or months at a time.

And when thousands of these investments exist, and only one trades in a month, can we really say a market exists? Not at all. So under the current conditions, mark-to-market is more like mark-to-make believe. Especially since the prices banks are forced to use are completely out of whack with reality.

Let me provide some examples to illustrate what I mean...

When FASB 157 Misses the Mark

In the fourth quarter, The Bank of New York Mellon (NYSE: BK) was forced to write down a $5 billion portfolio of Alt-A mortgages by $1.24 billion or (25%). Yet, based on the performance of the underlying loans - the principal and interest payments the bank was receiving - they only expected to lose about $208 million.

Granted the bank's estimates of losses could be wrong. But the difference between the two methods - net realizable value and mark-to-market - is gargantuan. And it proves mark-to-market fails to do its job when virtually no market exists for these assets.

For good measure, here's another example of its shortcomings...

The Federal Home Loan Bank of Atlanta (http://www.google.com/finance?cid=87557) holds three private mortgage-backed securities. But, it has no intention of selling any of them. Again, based on the actual performance of the loans, the bank estimates it will lose $44,000, beginning in 2025.

That's not a typo. It will be another 16 years before any losses are incurred on these loans. Yet because of mark-to-market accounting, the bank was forced to write off a loss of $87.3 million - a figure almost 2,000 times greater than the actual losses.

Good in Principle, Bad in Practice

One could argue that over time - as a market returns for these assets - the huge price differences would correct themselves. That's true. But banks can't simply wait it out.

The write-downs required by mark-to-market put many banks out of compliance with capital requirements - the amount of cash and easily liquidated assets they need to hold to offset their liabilities (i.e. - loans to others). And the only way to become compliant again is to raise capital by either issuing more stock or selling off assets.

Bottom line - the current application of mark-to-market forces banks to raise billions upon billions in real capital to offset losses that are never going to occur. And that makes absolutely no sense.

As for questioning the authority of the Financial Accounting Standards Board, their track record warrants it. Remember, their rules on special purpose entities allowed Enron to pull-off its accounting shenanigans and later required revisions to adjust for the deficiencies.

Mark-to-market rules were supposed to fix problems from Enron. Unfortunately, they created a large batch of new problems.

Mark-to-market is simply another one of FASB's rules that's good in principle, bad in practice, in desperate need of a revision.

Good investing,

Louis Basenese

Today's Investment U Crib Sheet

Another regulatory item of note for market watchers this week was talk from the SEC that they might re-instate the "uptick rule." The uptick rule was originally created by the SEC in 1938 to limit the amount of influence large institutions had to purposefully push the price of a stock down.

Specifically...

The Uptick Rule requires that in order to sell a security short, the price must be higher than the preceding sale. This had the impact of limiting the influence of "shorts" - those selling a security short to profit from the difference.

Amongst the other benefits, it was reported that the uptick rule reduced volatility and decreased manipulation.

The SEC eliminated the uptick rule in 2007, based on market tests they did during a bull market. No one had seen the effects of a bear market without the uptick rule since 1938.

As we know, extreme bull and bear markets are ruled by emotion, and little financial discipline. Rules like the uptick rule were designed to reduce the effect of this irrationality on the market.

Bringing the uptick rule back will be as welcome as adjusting the mark-to-market accounting rule.

If you're looking for another way to profit from the market's mispricing, take a look at real estate investment trusts (REITs). It was one of the sectors hit hardest from the mark-to-market rule. Hundreds of REITs have seen share prices plummet. But we've found a few that haven't been affected at all. In fact, you can Get Paid, the Next Time you go to the Doctor because of it.

http://www.oxfonline.com/HealthPlan/HC309.html?pub=OXF&code=EOXFK319

Recipe for Disaster: The Formula That Killed Wall Street

noreply@blogger.com (Unknown) — Wed, 11 Mar 2009 22:20:00 +0000

A year ago, it was hardly unthinkable that a math wizard like David X. Li might someday earn a Nobel Prize. After all, financial economists—even Wall Street quants—have received the Nobel in economics before, and Li's work on measuring risk has had more impact, more quickly, than previous Nobel Prize-winning contributions to the field. Today, though, as dazed bankers, politicians, regulators, and investors survey the wreckage of the biggest financial meltdown since the Great Depression, Li is probably thankful he still has a job in finance at all. Not that his achievement should be dismissed. He took a notoriously tough nut—determining correlation, or how seemingly disparate events are related—and cracked it wide open with a simple and elegant mathematical formula, one that would become ubiquitous in finance worldwide.

For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

David X. Li, it's safe to say, won't be getting that Nobel anytime soon. One result of the collapse has been the end of financial economics as something to be celebrated rather than feared. And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.

How could one formula pack such a devastating punch? The answer lies in the bond market, the multitrillion-dollar system that allows pension funds, insurance companies, and hedge funds to lend trillions of dollars to companies, countries, and home buyers.

A bond, of course, is just an IOU, a promise to pay back money with interest by certain dates. If a company—say, IBM—borrows money by issuing a bond, investors will look very closely over its accounts to make sure it has the wherewithal to repay them. The higher the perceived risk—and there's always some risk—the higher the interest rate the bond must carry.

Bond investors are very comfortable with the concept of probability. If there's a 1 percent chance of default but they get an extra two percentage points in interest, they're ahead of the game overall—like a casino, which is happy to lose big sums every so often in return for profits most of the time.

Bond investors also invest in pools of hundreds or even thousands of mortgages. The potential sums involved are staggering: Americans now owe more than $11 trillion on their homes. But mortgage pools are messier than most bonds. There's no guaranteed interest rate, since the amount of money homeowners collectively pay back every month is a function of how many have refinanced and how many have defaulted. There's certainly no fixed maturity date: Money shows up in irregular chunks as people pay down their mortgages at unpredictable times—for instance, when they decide to sell their house. And most problematic, there's no easy way to assign a single probability to the chance of default.

Wall Street solved many of these problems through a process called tranching, which divides a pool and allows for the creation of safe bonds with a risk-free triple-A credit rating. Investors in the first tranche, or slice, are first in line to be paid off. Those next in line might get only a double-A credit rating on their tranche of bonds but will be able to charge a higher interest rate for bearing the slightly higher chance of default. And so on.

Henry Ford

noreply@blogger.com (Unknown) — Wed, 18 Feb 2009 18:29:00 +0000

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Henry Ford

Second Financial Economic Crash Coming - Huge & Soon

noreply@blogger.com (Unknown) — Tue, 03 Feb 2009 18:42:00 +0000

Sign of Things to Come

noreply@blogger.com (Unknown) — Wed, 21 Jan 2009 22:55:00 +0000

World Agenda: riots in Iceland, Latvia and Bulgaria are a sign of things to come
Our third global political column explores the start of an age of rebellion over the financial crisis - beginning in Iceland

(Halldor Kolbeins/AFP/Getty Images)
Icelanders vented their fury at the political class's handling of the financial crisis by staging angry protests in Reykjavik
Image :1 of 2

Roger Boyes
Icelanders all but stormed their Parliament last night. It was the first session of the chamber after what might appear to be an unusually long Christmas break.

Ordinary islanders were determined to vent their fury at the way that the political class had allowed the country to slip towards bankruptcy. The building was splattered with paint and yoghurt, the crowd yelled and banged pans, fired rockets at the windows and lit a bonfire in front of the main door. Riot police moved in.

Now in the grand sweep of the current crisis, a riot on a piece of volcanic rock in the north Atlantic may not seem to add up to much. But it is a sign of things to come: a new age of rebellion.

The financial meltdown has become part of the real economy and is now beginning to shape real politics. More and more citizens on the edge of the global crisis are taking to the streets. Bulgaria has been gripped this month by its worst riots since 1997 when street power helped to topple a Socialist government. Now Socialists are at the helm again and are having to fend off popular protests about government incompetence and corruption.

In Latvia – where growth has been in double-digit figures for years – anger is bubbling over at official mismanagement. GDP is expected to contract by 5 per cent this year; salaries will be cut; unemployment will rise. Last week, in a country where demonstrators usually just sing and then go home, 10,000 people besieged parliament.

Iceland, Bulgaria, Latvia: these are not natural protest cultures. Something is going amiss.

The LSE economist Robert Wade – addressing a protest meeting in Reykjavik’s cinema – recently warned that the world was approaching a new tipping point. Starting from March-May 2009, we can expect large-scale civil unrest, he said. “It will be caused by the rise of general awareness throughout Europe, America and Asia that hundreds of millions of people in rich and poor countries are experiencing rapidly falling consumption standards; that the crisis is getting worse not better; and that it has escaped the control of public authorities, national and international.”

Ukraine could be the next to go. The gas pricing deal agreed with Moscow could propel the country towards a serious financial crisis. Russia, too, is looking wobbly. A riot in Vladivostok may have been an omen for things to come. What will happen when the wider economic crisis translates into higher food prices? Or if Gazprom has no choice but to increase domestic gas prices?

Governments have so far managed to deflect attention from their role in the crash, their slipshod monitoring, by declaring themselves to be indispensible to the solution. This may save the skins of politicians in wealthier countries who can credibly and expensively try to prop up banks and sickly industries. But it does not work in countries that are heavily indebted, with bloated and exposed financial sectors. There, the irate crowds are already beginning to demand: why hasn’t a single politician resigned? What has happened to ministerial responsibility? Who will investigate government failure?

Good questions, it seems to me, in these unquiet times.

source: World Agenda: riots in Iceland, Latvia and Bulgaria are a sign of things to come
http://www.timesonline.co.uk/tol/news/world/europe/article5559773.ece

SMILE !!! :-)

noreply@blogger.com (Unknown) — Tue, 20 Jan 2009 23:33:00 +0000

Fear is Back in the Market

noreply@blogger.com (Unknown) — Wed, 14 Jan 2009 22:20:00 +0000

Welcome 2009.

Getting right to the point.

In my opinion I beleive there is still some shake downs to come. Nortel just filed for bankruptcy protection but it ws doomed to go anyways. However, there are still many companies loaded with debt and burning cash fast. I still think there is one more big shock left to unfold. That is bullion certificate scheme. Yes, this where you buy gold on paper only. The looming currecy crisis is going to sweep the carpet below this monster.

Highly encourage you all to watch "The Ascent of Money " on PBS TV channel.

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Supreme Court Says No to Mortgage Interest Deduction

noreply@blogger.com (Unknown) — Fri, 09 Jan 2009 17:20:00 +0000

Link to court case:

Source: http://scc.lexum.umontreal.ca/en/2009/2009scc1/2009scc1.html

The Supreme Court of Canada has ruled against a couple that used a complex set of arrangements to make the interest paid on their mortgage tax-deductible.

The so-called Lipson case has been widely followed by tax professionals looking for guidance on how to advise clients to limit the amount of income tax they pay. One of the concerns was that the court would rule in such a way that would limit the ability of people to follow a strategy where they borrow against the value of their homes and invest the money in the markets, thereby making the interest they pay tax-deductible.

There's no clear indication yet on if/how this may affect the popular Smith Manoeuvre. The Smith Manoeuvre is different in many key respects but there is at least some overlap in principle

Buyer Beware!!

noreply@blogger.com (Unknown) — Mon, 22 Dec 2008 19:44:00 +0000

2008-12-22

Title: Investor Watch: B.C. securities regulator cautions investors about investment pitches

The British Columbia Securities Commission is publishing an Investment Caution List to warn investors about unregistered companies that have contacted B.C. residents to open brokerage accounts, or buy unqualified investments that may not comply with securities laws.

“The BCSC helps protect investors from unsuitable and potentially fraudulent investments through investor education and warnings,” said Brenda Leong, BCSC executive director. “Investors should always know who they are dealing with and research an investment, before they invest. We encourage investors to immediately report any suspicious investment activity to the BCSC.”

Investors need to be particularly careful when dealing with companies located in offshore jurisdictions. Investigating offshore companies can be complicated and can delay enforcement action. In addition, when money is sent offshore, recovery of investor funds is often difficult or impossible.

The Investment Caution List does not identify all unregistered activity or unqualified securities being promoted in the province. In compiling the Investment Caution List, the BCSC relies on information it receives from the public or other agencies.

The $50-billion BMIS debacle: How a Ponzi scheme works

noreply@blogger.com (Unknown) — Tue, 16 Dec 2008 18:42:00 +0000

Article from: http://www.cbc.ca/money/story/2008/12/15/f-langan-bmis.html

It looks as if the smart money on Wall Street was pretty dumb.

They were the ones who invested with Bernard Madoff, who is alleged to have run a huge Ponzi scheme. It is said to be one of the biggest frauds in the history of Wall Street.

"Our complaint alleges a stunning fraud that appears to be of epic proportions," said Andrew Calamari, the associate director of enforcement at the New York office of the Securities and Exchange Commission, the watchdog for securities fraud in the U.S.

Last Thursday police arrested Madoff saying the scheme he ran on a separate floor of his New York office could end up costing investors as much as $50 billion US. Madoff is out on $10-million bail.

His lawyer says it's all a terrible misunderstanding. "Bernard Madoff is a longstanding leader in the financial services industry and we are co-operating fully with the government and regulators investigations into this unfortunate set of events."

But prosecutors say Madoff told the people who arrested him, "There is no innocent explanation."

The 24 pages of charges by the SEC say that, "Madoff admitted to one or more employees of BMIS [Bernard Madoff Investment Securities] that for many years he has been conducting a Ponzi-scheme through the investment adviser activities of BMIS and that BMIS has liabilities of approximately $50 billion."

Bernard Madoff
The man behind the alleged scam, 70-year-old Bernard Madoff, is described as having been a fixture on Wall Street for almost 50 years. He was once chairman of the board of the NASDAQ exchange. This is like a bishop being arrested and accused of stealing from the poor box.

Madoff and his wife were big-time philanthropists and split their time between a $5-million apartment on New York's Upper East Side and Palm Beach, Fla. Madoff was a member of the Palm Beach Country Club, where he found many of his new clients.

Some super-rich people are said to be potential victims of the fund run by Madoff. According to the Wall Street Journal, they include the chairman of GMAC (General Motors Acceptance Corporation), and the owners of the New York Mets and the Philadelphia Eagles. Hedge funds in the United States and banks in France, Switzerland and Japan were also said to be taken in.

"I'm wiped out," hedge fund manager Sandra Manzke told the Wall Street Journal. Her losses are estimated at $280 million.

The charges
The SEC charges say the operation was run on a separate floor of Bernard L Madoff Investment Securities, its "cryptic" financial statements kept "under lock and key."

Bernard L. Madoff, now facing fraud charges as a result of an alleged Ponzi scheme that might amount to $50 billion US, is shown in his firm's New York office in 1999. (Ruby Washington/New York Times/Associated Press)According to the SEC charges, Madoff took in investors' money and said it was for investments that used options to guarantee a safe return. His investors reported he returned eight to 12 per cent a year, pretty spectacular in these markets. But Madoff never really earned the money, says the SEC — it's alleged he paid the first investors with money from the new investors, building up debt, not assets.

Many people just reinvested their money, so Madoff was alleged to be able to churn over the cash. The SEC charges say when investors short of cash asked for about $7 billion, the scheme fell apart.

Throughout its charges the SEC uses the term "Ponzi scheme," and even quotes Madoff as admitting last week: "It's all just one big lie … basically a giant Ponzi scheme."

So what exactly is a Ponzi scheme?

Well, it's a kind of pyramid sales scam, where the original investors are paid off by the new investors. It is named after Charles Ponzi, who immigrated to the United States in 1903, moving to Montreal in 1907. He worked for a bank in Montreal, it failed, and then he forged cheques to make a living. He served a jail term in Quebec before moving back to Boston.

The scam that made Ponzi immortal started in early 1920. He offered depositors a 50 per cent return in 45 days. Within weeks money was pouring in. He paid off some early investors with money from the later investors. By July of 1920 Ponzi was making $250,000 a day.

Of course it couldn't last. By November he was in jail, serving a five-year sentence. But Ponzi's name lives on to describe his type of fraud.

What is amazing about the alleged Ponzi scheme at Madoff Securities is how long it's said to have lasted.

"The cops can't catch every crook, but a sophisticated financial system should be able to spot a multibillion-dollar Ponzi scheme operating in its midst for years," said the Wall Street Journal.

Visit the firm's website and a short note tells you a law firm has been appointed as "… receiver over the assets and accounts of Bernard L. Madoff Investment Securities LLC ("BMIS")."

The blunt message tells them to call a number with a Texas area code. Ring the number and a recording asks investors to be patient — but it looks like the end of the line for Madoff's unfortunate clients, who range from schoolteachers, with as little as $50,000 invested, to billionaires.

Fred Langan is host of Newsworld Business News.

Capital Market Field Day

noreply@blogger.com (Unknown) — Tue, 02 Dec 2008 17:34:00 +0000

This article sums my thoughts nicely.

Daytraders' Field Day

By Rev Shark

About this article:
What makes this market so tough is how quickly the mood shifts. In the final hour yesterday sellers wanted out and buyers had absolutely no interest in bottom-fishing. Today the attitude is maybe things really aren't that bad. GE is actually going to earn what it thinks it will and banks are shrugging off more estimate cuts and finding buyers. Oil is very weak once again but other commodities are holding up OK. When things are this random day to day, you really have to be clear on what sort of trader or investor you are. If you are daytrading, which seems to be the best approach at the moment, you can deal with the changes in personality on a daily basis. However, if you are trying to hold positions for a while, you are going to get whipsawed and have stops triggered....

Canadian Mortgage Trends

noreply@blogger.com (Unknown) — Thu, 20 Nov 2008 17:32:00 +0000

source:Canadianmortgagetrends.com

CAAMP has released its annual mortgage report and it's chock full of mortgage stats. Here's a rundown on the more notable ones:

5,250,000: The number of Canadian home owners with mortgages.
29%: The percentage of Canadian homeowners who got a new mortgage in the last 12 months.
86%: The percentage of people renewing or refinancing that stayed with their existing lender.
$136,000: The average mortgagor's equity. This equity equals 51.7% of their home value on average.
22%: The percentage of mortgagors who took equity out of their homes in the past 12 months. People are spending more because last year it was 17%.
$41,000: The average equity that borrowers took out of their homes this year. That's up 16% from last year. The most common reason for borrowing this equity? Debt consolidation.
50%: The ratio of new mortgages taken out in the last year with amortizations greater than 25 years.
5.41%: The average Canadian's mortgage rate. Last year it was 5.56%.
0.40%: The average interest rate improvement realized by people who refinanced in the past year.
1.59%: The average discount off of bank-posted rates.
1.96: The average number of quotes people get when shopping for a mortgage.
0.28%: The percentage of Canadians who are 90 days or more past due on their mortgage. That's up just slightly from last year.
10%: The approximate decline in mortgage approvals that CAAMP foresees in 2009.
36%: The percentage of Canadians who are aware that insured 40-year and 100% LTV mortgages have disappeared.
Peoples' favourite mortgage terms:

1-3 years: 29% of borrowers
4-5 year: 61% of borrowers
Over 5 years: 10% of borrowers
CAAMP says there's a noticeable trend in borrowers taking shorter terms when compared to last year.

There's also a big trend towards variable rates. 40% of mortgages were variable in the past year. In CAAMP's 2007 report the number was just 21%. CAAMP says that's because "consumers may be expecting interest rate reductions." We'd also like to think they're becoming more educated about the long-term advantage of variable rates.

Where did people get their new mortgages this year?

Major banks: 47%
Mortgage brokers: 35%
Credit Unions: 11%
Other: 6%
Thanks to CAAMP economist Will Dunning for putting together this wealth of data.

Baltic Dry Index

noreply@blogger.com (Unknown) — Wed, 12 Nov 2008 22:38:00 +0000

The leading economic indicators—which serve as the foundation of massively important political and economic decisions—can frustrate even the wisest economists. They quibble over whether the payroll or establishment employment numbers make more sense and wonder whether consumer confidence figures measure anything more than sentiment. The figures of the gross national product are consistently revised. Pay attention Baltic Dry Index

Article from Investment U:

Forget unemployment. Inflation. Consumer confidence. Personal Incomes...

You can even ignore the ever-popular gross domestic product (GDP).

Most of the indicators that the market relies on to forecast the future are worthless in this type of environment. The truth is the data coming out of the traditional economic indicators isn't current. By the time it's being reported, the information is already weeks or even months old.

If you want to know when the global slowdown that's erased $28 trillion in wealth (so far) will finally reverse course, pay attention to the obscure Baltic Dry Index (BDI). And nothing else. Here's why...

To Build it, You Need Raw Materials

Despite the name, the index has nothing to do with markets in Lithuania, Latvia or Estonia. Instead, it's all about the cost of shipping major raw materials. Like iron ore, coal, grain, cement, copper, sand and gravel, fertilizer, even plastic granules.

The value for the index is determined by the London-based Baltic Exchange, which traces its origins back to 1744. Each day, the exchange canvasses hundreds of brokers around the world for price quotes on moving goods. For instance: Shipping 100,000 tons of coal from South Africa to Japan, or 50,000 tons of iron ore from Australia to China. It then aggregates the quotes to form the BDI.

Basic economic principles of supply and demand explain the significance of the index...

The supply of cargo ships is tight and inelastic. It takes roughly two years to build a new cargo ship. And the high cost of each prohibits docking ships during slow periods. In other words, a change in cargo rates does not change the number of ships in operation. So even the slightest changes in demand for shipping raw materials results in a change in the index.

And because the index tracks the cost of shipping raw materials - the precursors of economic output - instead of intermediate or finished goods, it provides a precise and rare measurement of the volume of global trade at the earliest possible stage.

A sharp move up, means global trade is increasing. Conversely, a sharp move down, means it's decreasing. Since global economic activity ultimately influences the equity markets, sharp moves in the BDI often predict and precede similar moves in the equity markets.

Of course, there are other reasons to favor the BDI over other leading indicators, including:

No room for speculation. The index is not tradable, which means the only people booking cargo ships are those with actual cargo to ship. That makes the BDI, as economist Howard Simons put it, "totally devoid of speculative content."
Not subject to revisions. Unlike almost every other piece of economic data, the BDI is not revised on a monthly or quarterly basis. The price is the price. And it's completely reliable.
An inability to be manipulated. Governments, both here and abroad, love to "massage" economic data, especially inflation figures. Obviously, it's difficult to base investment decisions off incomplete or "mostly" accurate data. But because of the way the BDI is measured, that's simply not possible. Again, the price is the price. And it's completely reliable.
Real-time, daily updates. We all know markets shift fast. And in turn, we need indicators able to reflect those sudden movements. At best, we only get weekly updates for other leading indicators. And all are backward looking. The BDI represents the only indicator with "real-time" updates. And such frequency dramatically increases its relevancy and value.

In light of the above, it doesn't take a market maven to predict what direction the BDI's been heading lately - practically straight down. Here's the thing. The BDI started plummeting in early June, before the global equity markets went into a tailspin, proving its predictive abilities.

So if you're looking for a clear indication of a market bottom, forget about any other leading indicator or popular convention. Just look for the BDI to start trending noticeably higher.

Good investing,

Lou Basenese

Show me the light not Heat!!

noreply@blogger.com (Unknown) — Thu, 06 Nov 2008 23:25:00 +0000

As predicted the market did tumble right as election polls started closing. This in my mind was traders feeding on election rally.

So what are in for next. My fear is mutual fund liquidations, 401k sales to cover seller's positions may drive this market even lower. Tax loss selling compounded drop in US exports due to strong dollar will keep the Richter scale shaking.

This market is beyond many analyst. The looming currency crisis, unproductive government intervention. It's all a big mess and is going take time to wane out.

It is still best to stay on sidelines and not get tricked by short lived rallies.

CASH IS KING!

noreply@blogger.com (Unknown) — Mon, 20 Oct 2008 18:16:00 +0000

Warren Buffet comes out and says its time to buy and the herd follows.I have been following a few analysts and they all claim that it is time to back up the truck. But this is what they all have been saying since August 17th, 2007. The troubles in Canada has just begun. Last week I travelled to Oregon Coast and talked to some interesting locals. Most felt we are not out of the woodworks yet. Then off to Kelowna to a controllers meet and wallah! "business is slowed down", "we are cutting back", "hiring freeze", "diffculty getting finance", "m&a on hold", "shifts cut back", "all temp labors gone", "5 trucks still parked for a while".- Hell I don't see these in the press. So folks wait for the wild round of shock and awe in Canada before going on stock shopping spree.

You see all the text book style market trading is passe. The Feds intervention in the market has made this trading business a bit tricky and treacherous. You don't know what you don't know.

For now I believe it is safe to stay on the sidelines and catch the next wave with buy high, sell higher strategy.

Life is a Sucking Despair

noreply@blogger.com (Unknown) — Wed, 08 Oct 2008 19:51:00 +0000

BoC joins world bankers and cuts rate by 1/2% but CIBC and TD only cut their prime by 1/4%. Prime minus mortgage disappears, Credit scores raised for new loans, falling commodity prices.

Something is about to hit the fan in Canada. Can someone define infression!

Bond Yields - Biggest Drop in a Decade

noreply@blogger.com (Unknown) — Tue, 16 Sep 2008 17:01:00 +0000

Canada's 5-year bond soared on Monday. In turn, its yield plummeted a stunning 27 basis points (0.27%). Bonds yields haven't had a one-day plunge that big in over 10 years (as far back as the Bank of Canada has public data).
The powerful move was prompted, of course, by the Lehman bankruptcy in the U.S., Merrill Lynch's surprise takeover (savior), and AIG's enormous liquidity crisis. Traders ran for cover in the safest securities available, Canadian and U.S. treasuries.

BMO economist Sherry Cooper says this financial crisis is "the worst" she's ever seen. It will therefore be interesting to see how things play out in Canada's mortgage market this week. Usually, big dips in bond yields are good for mortgage rates, but we'll have to wait and see where all the dust settles.

Data source: Bank of Canada & Mortgage Architects.

I Smell a Nice Rally !!!

noreply@blogger.com (Unknown) — Fri, 12 Sep 2008 20:18:00 +0000

Record oversold situation. Nice Rally Ahead. This is the time to position your portfolio with Gold, Silver and Uranium. I am leaning towards selling American dollar.

Also take a look at BAJA MINING CORP.

Baja Mining Corp. owns a majority interest in El Boleo Project, an advanced polymetallic (copper, cobalt, zinc, manganese) property located in Baja California Sur, Mexico. Baja has assembled an exceptional management team and finance to develop Mexico’s largest copper-cobalt deposit.

A BLEAK WINTER !!!!

noreply@blogger.com (Unknown) — Tue, 09 Sep 2008 17:07:00 +0000

GlobeinvestorGOLD (TORONTO) - If the stock market continues to hold to its historic pattern as a leading economic indicator, it's going to be a long, bleak winter for Canadians. No wonder Stephen Harper is so anxious to get to the polls!
In the space of less than three months, the Toronto Stock Exchange has gone from being the number one performer in the world to the global "Worst Ten" list. It seems like a decade ago but in fact it was only in mid-June that the S&P/TSX Composite Index hit an all-time high of 15,154.77 as we rode the commodities boom.

Today we stand on threshold of an official bear market. As of Friday, the Composite Index was down more than 15 per cent from that lofty June peak. A retreat of 20 per cent or more is considered to be a bear market.

If you want a little good news, the TSX still has the best record on the planet in 2008, with a year-to-date loss of 7.3 per cent as of Friday's close. Every other market of any significance shows double-digit declines and in many cases (e.g. Germany, France, and Hong Kong) the losses exceed 20 per cent. But that's small consolation in the context of what's been happening in Toronto recently.

How long can this go on? To be honest, there's no way to predict that. What we do know based on past experience is that severe market corrections are usually followed by a recession within about six months. If that holds true once again, the first half of 2009 will not be a happy time. Here's what we might expect.

Job losses. Despite the mildly cheering August employment news from Statistics Canada, the winter will likely bring more layoffs and plant closures especially in eastern Canada. If the price of oil continues to tumble, we might also see a reduction in labour demand in Western Canada, over and above the usual seasonality in the energy sector.

A decline in house prices. We have already had indications that the Canadian housing market is softening. This trend could accelerate as we move through the fall and winter although it won't be anywhere near as bad as in the United States because of our stricter lending standards. Based on historical precedent, the greatest impact is likely to be felt in regions that have experienced unusually high increases in property values in the past few years. Condos in overbuilt markets are especially vulnerable.

Lower interest rates. As unemployment rises and housing prices drop, the Bank of Canada will finally get off its backside and start cutting rates again. Governor Mark Carney and company should have started the process on Tuesday but instead held steady at 3 per cent, in part because of lingering inflation concerns.

Lower energy prices. We have not yet seen the full impact of falling oil prices at the gas pumps and on our home heating bills. But if the price slips below $100 (U.S.) a barrel and stays there, we should see gasoline back at around $1.10 to $1.15 a litre by late fall. That would have a ripple effect right through the economy which could result in deflation replacing inflation as the Bank of Canada's primary concern.

A government deficit. The probability of this happening is low but it is a concern if the economy hits the skids over the winter. Remember, the government's accounts were in deficit in the first two months of the 2008-2009 fiscal year, which began on April 1. Although Ottawa moved back to a surplus in June, the overall economy appears to have deteriorated since.

A stock market rally. Just when things couldn't seem worse, the stock market will take off and a new bull will be born. At the time, the economy will still be weak but investors will be looking ahead to the recovery stage and will be snapping up bargains everywhere. That's the way it's always been. It won't be any different this time.

written by Gordon Pape

Fannie Mae and Freddie Mac Bailout

noreply@blogger.com (Unknown) — Tue, 09 Sep 2008 16:35:00 +0000

Fannie and Freddie provide back about $5 trillion of US mortgages. This is significant liquidity to about 80% of the US mortgage market. The US Government (Feds) took control of these two companies. The implosion that most of us have been betting on is no more.

What does this mean for us? Liquidity in housing market will improve and the fear mongering in the press will likely turn bullish. This should also help Canadians as the stability in US means increased business for Canadians.

Muddy Market !!!!!

noreply@blogger.com (Unknown) — Fri, 05 Sep 2008 19:49:00 +0000

Most traders and Investors look forward to September for financial markets to stabilize and see progressive trends but I cringe to see market turmoil continue.
Just hope that another brokerage, real estate shock or dollar implosion doesn't happen . The Feds are caught in a conundrum - The FEDS have flooded the market with so much money that rubbing fingers on interest rate hike trigger switch is all they can do. Well it ain't over yet.

Paris Hilton for President! she gets it right

noreply@blogger.com (Unknown) — Thu, 07 Aug 2008 22:05:00 +0000

Paris Hilton Responds to McCain Adfunny videosFunnyOrDie.com

See more funny videos at Funny or Die

GENERAL ELECTRIC GE $27.90

noreply@blogger.com (Unknown) — Fri, 18 Jul 2008 18:19:00 +0000

General Electric - a diversified stock play for every portfolio. This star has been beaten so much with credit woes that it is a must have for attractive energy play.

INFRESSION !!!!!!!!

noreply@blogger.com (Unknown) — Fri, 18 Jul 2008 17:49:00 +0000

US Dollar making new lows, Market’s lower with more scary news from bankers. Chinese stocks in bear market, Lay-offs at factories and continuing real estate crash headlines.
People we are at crossroads to INFLATIONARY DEPRESSION.
It means that inflation will not only make prices for everything rise faster and faster, which is the inflation part, the depression means that people won’t buy or sell anything. They won’t be able to.
We are going to see this in many parts of North America. Even Garage Sales will sell almost nothing. You may want that used electronics, but you don’t dare buy it- your utility bills and gasoline expenses are going up at such rates that you may need the extra money just to keep afloat. You may want to sell that Coffee Table because you’ve lost your house, and are hoping to raise the cash for a move elsewhere, but nobody wants it for a price. You have to nearly give it away.

Starbucks (SBUX) $15.56

noreply@blogger.com (Unknown) — Thu, 03 Jul 2008 21:04:00 +0000

Not too long ago a friend suggested I get in on Starbucks. At that time it was trading at around $25.50 on average. I kept pushing back saying nah!! I think the Cinderella is losing steam etc. etc. Well, Today the announcement comes 600 stores closing and 12,000 people losing jobs. You can call it bad market conditions or changing demographics. But in my opinion I couldn't justify paying for $5.00 for a cup of coffee. Closing stores is like cutting your fingers. Looking at your competitors coming with better and relatively well priced similar products with cost effective operation . Ah ah! shit that's where my sales is going.