High Yield Spreads Trying To Turn

A slight turn south in the high yield bond spreads is a small but hopeful sign of easing credit conditions. The Fed has stomped treasury yields to miniscule levels in an attempt to encourage investors to move out on the risk curve get the credit markets functioning again. Too early to tell if it is really working but a positive sign. Also a good reason to tip toe into corporate and high yield bond funds. i have been using closed end funds trading at a discount and I don't yet have any gains from price movement but I am collecting in excess of 11% percent current return.
Bespoke provided the chart.

Madoff and the "Bezzle"

Jeff Saut at Raymond James gives us some history with Keynes and some sound ETF and fund choices for this environment. Click on the link above.

Merry Christmas

I hope everyone has a Merry Christmas this year. I am out visiting my daughter and son in law and the 2 grandchildren ( soon to be 3). Spending time with family washes away thoughts of bear markets and depressions brings out deeper feelings and meaningful times. May you all have the same.
I am very lucky in my family, my friends and my business associates. Thanks to you all.

A Liberal Is Someone Who Likes To Give Away Other People"s Money

NY Times: Bleeding Heart Tightwads

This holiday season is a time to examine who’s been naughty and who’s
been nice, but I’m unhappy with my findings. The problem is this: We
liberals are personally stingy.

Liberals show tremendous compassion in pushing for generous
government spending to help the neediest people at home and abroad. Yet
when it comes to individual contributions to charitable causes,
liberals are cheapskates.

Arthur Brooks, the author of a book
on donors to charity, “Who Really Cares,” cites data that households
headed by conservatives give 30 percent more to charity than households
headed by liberals. A study by Google found an even greater
disproportion: average annual contributions reported by conservatives
were almost double those of liberals.

Just as I suspected.

China ETF Choices

Index Universe has an article listing the various types of etf with exposure to China and a  list of examples. i am trading China from the long side now expecting positive moves in 2009 so I found the list interesting. Here is a sampling.

Looking at the universe of U.S.-domiciled ETFs, let's break down funds
investing in Chinese stocks into these general categories:

• Direct exposure: These include five ETFs:
  Claymore/AlphaShares China Real Estate ETF (NYSE: TAO);
  Claymore/AlphaShares China Small Cap Index (NYSE: HAO); PowerShares
  Golden Dragon Halter USX China (NYSE: PGJ); iShares FTSE/Xinhua China
  (NYSE: FXI) and the SPDR S&P China (NYSE: GXC).
• BRICs exposure:
  These include: First Trust ISE Chindia (NYSE: FNI); Claymore BNY BRIC
  (NYSE: EEB); iShares MSCI BRIC (NYSE: BKF) and the SPDR S&P BRIC 40
  (NYSE: BIK).
• Mixed exposure: Using an even
  broader mix, you can invest in China through at least five different
  ETFs: PowerShares FTSE RAFI Emerging Markets (NYSE: PXH); iShares MSCI
  Emerging Markets (NYSE: EEM); SPDR S&P Emerging Markets (NYSE:
  GMM); Vanguard Emerging Markets ETF (NYSE: VWO) and the WisdomTree
  Emerging Markets High Yielding Index (NYSE: DEM).

Of course, you can also gain even greater indirect exposure through a
variety of Asia Pacific funds. More than 10 separate ETFs are focused
on that part of the world and hold small doses of Chinese
representation.

China had a horrendous bear market move bottoming in October at attractive fundamental valuations and should be supported by a massive stimulus plan to be initiated in 2009. i am a buyer and will add on  pullbacks. The easily identified risk is that western markets accelerate to the downside or that this trade is already too crowded. So use stops.

Bespoke: Vix Sliding Fast

From Bespoke

Nouriel Roubini comments on the latest fed moves

From RGE Monitor:

The Fed decision yesterday to cut the Fed Funds range to 0-0.25%
formalized the fact that, over the last month, the Fed had already
moved to a ZIRP (zero-interest-rate-policy) - as the effective Fed
Funds rate was already close to zero -and started a policy of QE
(quantitative easing) as its balance sheet has surged over the last few
months from $800 billion to over $2 trillion. And – as discussed below
– the Fed is now undertaking even more unorthodox policy actions.  Here to read article

Global Warming or Global Waffling?

From TEXASINSIDER.org

650+ International Scientists Dissent Man-Made Global Warming Claims

Published: 12-16-08 Scientists Continue to Debunk “Consensus” in 2008

Over 650 dissenting scientists from around the globe challenged man-made global warming claims made by the United Nations Intergovernemntal Panel on Climate Change (IPCC) and former Vice President Al Gore.

This new 231-page U.S. Senate Minority Report -- updated from 2007’s groundbreaking report of over 400 scientists who voiced skepticism about the so-called global warming “consensus” -- features the skeptical voices of over 650 prominent international scientists, including many current and former UN IPCC scientists, who have now turned against the UN IPCC.

This new report, issued by the Senate Environment and Public Works Committee's Ranking Member, is the latest evidence of the growing groundswell of scientific opposition challenging significant aspects of the claims of the UN IPCC and Al Gore. Scientific meetings are now being dominated by a growing number of skeptical scientists

Go read the whole article by clicking link above.
I believe in environmentalist efforts to be eco friendly. I also believe until we can forecast next wednesday's weather we need to be a little cautious about the certainty of climate forecast.

Megan McCardle Nails The Auto Bailout

The death of a bailout

I am in receipt of an email yesterday, asking that conservatives and libertarians recognize that the unions have, indeed, made concessions in order to make the bailout work. Sadly, I had not had time to write a post about this before the UAW tanked the Senate bailout.

The concessions that the UAW has made, as far as I am aware, are to accept some equity instead of cash for VEBA, the fund set aside to pay retiree costs. Since if a bankruptcy occurs, those same workers are going to get told by a bankruptcy judge to get some damn Medicare like everyone else, or get in line with the other creditors, color me less than impressed

read it all at Atlantic

My Suggestion For A Housing Stimulus Program

I have a suggestion for stimulus to housing. Utilize the existing Veteran's home loan program. Alter the terms of the program by providing extremely low rates to an otherwise unchanged program. This would have the advantage of using legislation that is already in place and of rewarding Veterans who have risked their lives and given time to serve the nation. These are people who deserve thanks and are not receiving undeserved welfare assistance.
The program would stimulate demand for housing helping reduce inventories, at the same time it shows the nation's support and gratitude to the men and women of the armed forces. A program like this should have strong support from both Republican and Democrats and offers the new Obama administration to demonstrate it is not anti- military personnel though it may be anti current military policy.

Auto Bailout: Bankruptcy Is Best

A very cogent argument for bankruptcy based solutions to the auto bailout.

Bankruptcy Is Best: Responding to Automakers’ Arguments against Chapter 11 Restructuring

by Andrew M. Grossman

This article is not long but it is compelling. ( Thanks to my sister for pointing it out to me)

Fortune: 8 Scary Predictions

from Fortune magazine:  8 Really scary predictions

Bespoke looks at world markets and anemic bounce

thanks to Bespoke who have a short article explaining the chart.

Russell Napier and Tobin's Q Ratio

from Bloomberg:

By Patrick Rial

Dec. 10 (Bloomberg) -- The 2008 slump in global equities
has further to go if Tobin’s Q ratio is any guide, according to
CLSA Ltd. strategist Russell Napier.

The ratio, a method of valuing U.S. companies developed by
Nobel Prize laureate economist James Tobin, indicates that the
Standard & Poor’s 500 Index, set for its worst year since 1931,
may sink by another 55 percent to 400 when the market bottoms
around 2014, London-based Napier said. The ratio divides total
market capitalization by the cost of replacing assets.

click here for the rest of the article.

Update:
Henry Blodgett references the same article but he has a chart! I won't steal it so you better click through.

Bloomberg: Three Month Bill Goes Negative

bloomberg

Dec. 9 (Bloomberg) -- Treasuries rose, pushing yields on
the three-month bill to minus 0.01 percent, as U.S. stocks
declined amid concern that the recession will deepen.

Some more astute investment decisions by bankers as they pay to have the treasury hold their money rather than lend it out.

The Underfunded Pension Shoe Dropping?

from BusinessWeek:

The Hidden Pension Threat

New rules are hitting companies that are already down, and could make a painful recession worse

John Moore is fighting to keep his company afloat. People no longer
want to buy the gas-guzzlers sitting on his auto lot in Los Gatos,
Calif., an upscale town that's home to several Silicon Valley pioneers.
His sole supplier, General Motors (GM),
is begging the government for aid. With sales down 35% over the past 12
months, the 59-year-old Moore, who as a teenager worked at the
family-owned dealership, wonders if there will be a business to pass on
to his son, Bret. Already, the recession has claimed 115 dealerships in
the state, roughly 1 in 10.

But Moore's most pressing problem might be one that's hidden from
plain sight: his employee pension plan. Moore's dealership is among the
300 or so companies that participate in the Automotive Industries
Pension Fund, a so-called multi-employer plan that covers 27,000
retired and working mechanics in the Bay Area, including two dozen at
his shop. The plan has $1.2 billion or so in assets, but needs $2.1
billion to pay pension benefits for current employees and retirees. To
erase that shortfall, the plan's operators are debating whether to
raise annual company contributions by 7.5%—a move that would further
squeeze Moore's profitability. He has no way of escaping: If he were to
sell or shut down the business, federal rules would require him to fork
over $1.7 million to cover his company's share of the plan's deficit—a
sum equal to the dealership's profits for the past decade. "I pray that
the managers hit the lottery or their investments pay off," says Moore.

This is another area where regulators have failed miserably for years. Allowing accountants to make super optimistic assumptions about pension fund return on investment helps boost company earnings by reducing contributions to the fund. The hue and cry for more financcial regulation seems to be ignoring the fact that inept regulation is worse than none. We have had sufficient regulation on the books but they have not been effectively enforced.

The Final Solution For CDS?

A fascinating article from The International Risk Analyst. Thanks to Fullermoney for pointing out this article and how scary this could be. I have traded derivatives for over 20 years and CDS are the scariest thing I have seen. No one in his right mind should make a habit of selling these things.
This article is very interesting and discusses a possible looming implosion in the CDS market triggered in Europe. Plus I love this quote:

"I believe that banking institutions are more dangerous than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."

Thomas Jefferson
Letter to the Secretary of the Treasury Albert Gallatin
(1802)

Jim Grant on Bonds

Grant is always worth reading and after years of skepticism about the lofty equity valuations, he is in his element. Click the FT link below as he describes the mispricing in the bond market due to credit distortions and default fears.

Jim Grant writing in the FT:

Little logic to bond world amid current risk phobias

"There are no bad bonds, only bad prices," the traders used to say. They should say it again, only louder. In the spring of 1984, long-dated Treasuries went begging at yields of nearly 14 per cent in the context of an inflation rate of just 4 per cent. Those, too, were fearful times, the recollected horror being the great inflation of the 1970s. Inflation was ineradicable, the bondphobes said. Now a new generation of creditors espouses the opposite proposition. Deflation is baked in the cake, they say.

West Texas Crude Can It Pull Out Of The Dive?

The Chinese Currency To Weaken?

Fullermoney is really full of good information today. A highly recommended site. I am only going to mention one of the articles which takes its beginning from a Bloomberg article about the move in the Chinese currency yesterday.

Dec. 2 (Bloomberg) -- China’s yuan traded near a five-month low on speculation the central bank favors a weaker currency to support exporters, two days before U.S. Treasury Secretary Henry Paulson visits Beijing to push for further appreciation.

The People’s Bank of China set the reference rate at 6.8527 per dollar in Shanghai, compared with the previous fixing of 6.8505. The currency slid 0.7 percent yesterday, the biggest loss since the central bank ended a fixed exchange rate in 2005.

I believe the Chinese have a real problem. They have been allowing the Yuan to appreciate slowly against the dollar but, the rapid move of the dollar to the upside against practically all currencies other than the Yen means the Yuan too has gone up very strongly against Europe (almost 30%). I suspect they want to find a middle ground between the dollar rate and the European currency rate to aid the Chinese Exporters.

Australia cuts rate by 1% Yippee Ay Kai Yo

From Bloomberg:

Dec. 2 (Bloomberg) -- Australia’s central bank cut its benchmark interest rate by one percentage point, extending the biggest round of reductions since the nation was last in a recession in 1991.

This is good news for me (i am long and doubled up earlier today) and for the Aussies. Let's hope the BOE and ECB do the same thing Thursday. The Central Banks need to press ahead aggresively and not in a pansy ass way. Historically money added to the system has an emotional impact for a day or so but the real impact takes 6 to 12 months to actually begin to have broad effects in the economy. Thus the earliest we should see any effects from all the money injections and easy credit moves is late February to March of 09. Until then all these banks need to press forward. Once some sign that money is starting to move through the economy again they can begin to plan for dealing with the inflationary impact of all the credit stimulus. What they must not do is be tentative. They keep firing till asset prices stabilize and the fear goes away.

update: My position didn't make a nickel. Must be that efficient market thing the academics are always going on about.

john Hussman a tad more optimistic

Hussman's weekly

Great Technical Commentary by Jeff Saut

The Raymond James commentary by Jeff Saut

Doctors shocked at hostages's torture