Thinking Like a Bull

After today's big rally in share prices, maybe it's time to start looking at things a little differently.

Let's start with this morning's report on November housing starts. Some might say the data isn't as good as it looks because a 25 percent jump in multifamily construction accounted for most of the gain. Individuals, in other words, are still very hesitant to wade in and buy their own homes.

Bullish take: renters need less money to live on, so that means they have more to invest in stocks.

Then there's the news that the eurozone debt crisis is spilling over into other arenas, including the U.S. mortgage market. Some might say that heightens uncertainty, increases the prospect of portfolio margin calls, and potentially sets the stage for a mass exodus from risky assets of all kinds.

Bullish take: it's not affecting share prices [editor's note: "yet"], so that must mean stocks are the new safe haven -- that is, an unabashed "buy."

And finally, we have confirmation from the Chinese government that its economy, the world's second largest, is slowing down. Some might say that's a worrying sign because the Asian nation has been the primary locomotive driving global growth in the wake of the 2007-2009 financial crisis.

Bullish take: who needs China -- McDonald's and Walmart are hiring. That must mean things are looking up.

Hmm, that wasn't so hard, was it? Bulls rule!

Comments

[Think Bull****]

Obama and Geithner: Government, Enron-Style
December 20, 10:06 AM ET
Jeff is one of the smartest guys on the Hill and is particularly strong on issues surrounding Wall Street and the regulatory system. In this piece, he takes apart the oft-stated mantra that what Wall Street firms did during and after the crisis was maybe unethical, but not illegal.

He takes particular aim at Barack Obama, who recently tossed that line out on 60 Minutes in what I thought was one of the real low moments of his presidency.

The notion that what Wall Street firms did was merely unethical and not illegal is not just mistaken but preposterous: most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic, with many of the biggest banks committing entire departments to the routine commission of fraud and perjury – every single one of the major banks, for instance, devotes significant manpower to robosigning affidavits for foreclosures and credit card judgments, acts which are openly and inarguably criminal.

Banks and hedge funds routinely withhold derogatory information about the instruments they sell, they routinely trade on insider information or ahead of their own clients’ orders, and corrupt accounting is so rampant now that industry analysts have begun to figure in estimated levels of fraud in their examinations of the public disclosures of major financial companies.

Read more: http://www.rollingstone.com/politics/blogs/taibblog/obama-and-geithner-government-enron-style-20111220#ixzz1h8Ftlzva

[Doug]

Here's the simpler bullish case for stocks: everything else sucks worse.

Let's face it, the yields on bonds crummy, on cash non-existent. Europe looks shaky, developing countries are slowing. The fed seems to be maintaining ZIRP indefinitely, and hasn't ruled out more QE. The prior two rounds of QE are also still sitting around on balance sheets - should velocity ever pick back up, the effects on the inflation rate are uncertain.

So savers have a choice - accept yields that are less than the rate of inflation and lock themselves in to near-certain destruction of their purchasing power, or take a flyer on stocks and hope they can at least break even over 10 years or so.

[This is Bull..wake up]

Top Legal Expert: “President Obama … Says That He Can Kill [Any American Citizen Without Any Charge and] On His Own Discretion. He Can Jail You Indefinitely On His Own Discretion”

Turley said yesterday on C-Span (starting at 15:50):

President Obama has just stated a policy that he can have any American citizen killed without any charge, without any review, except his own. If he’s satisfied that you are a terrorist, he says that he can kill you anywhere in the world including in the United States.

Two of his aides just … reaffirmed they believe that American citizens can be killed on the order of the President anywhere including the United States.

You’ve now got a president who says that he can kill you on his own discretion. He can jail you indefinitely on his own discretion

***

I don’t think the the Framers ever anticipated that [the American people would be so apathetic]. They assumed that people would hold their liberties close, and that they wouldn’t relax …

http://www.washingtonsblog.com/2011/12/constitutional-expert-president-obama-says-that-he-can-kill-you-on-his-own-discretion-he-can-jail-you-indefinitely-on-his-own-discretion.html

[Don Levit]

Doug:
There is at least one other option: fixed-indexed annuities.
I pulled everything out of stocks and bonds and invested in these annuities.
Your return varies with several indexes - I chose the S&P. If the value goes down on your anniversary, you lose nothing.
If the value goes up, you capture part of the gain.
Ina addition, you're guaranteed a 2% return.
While the S&P has remained relatively stable the last 10 years, one of these annuities could have earned you 6% a year.
Don Levit

[Doug]

Thanks Don, but aren't you looking backward here re. the 6% yield? I mean, you coulda earned 5-10% just holding 30-year bonds the last 5 years. Question is whether either strategy still looks good going forward. Most likely outcome from one of those vehicles is you get 2%, about what you'd get in the 10-year. To do better, you're in effect making the same bet as a stock investor, i.e. that the stock market will, on average, do better than 2%. Under the covers, the insurance company needs to have a position in equities backing your index. So even though you aren't "bullish" on stocks per se, the net effect of your investment is to (indirectly) take a bullish position. In exchange for laying the risk off on the insurance company, you're at risk if the company itself runs into financial trouble. Ask an AIG policyholder about that! True, they got bailed out - but can we count on more bailouts in the future for insurer XYZ? Your position in the annuity could be synthesized with treasury bonds and a small position in LEAP call options on the S&P 500. These days I suspect the net yield on that to be 0%, because you have to use the NPV of the bond interest to purchase the call. If the stock market goes nowhere, there's no net return. I suppose you could use TIPS instead of nominal bonds and hope to at least get the rate of inflation.

[Return on capital or return of capital...well that depends]

I’m Calling for a General Financial Market Strike

I have received a few emails asking if I was still content with my
decision to shut down my brokerage. Not only am I content, but after
seeing the news that broke over the weekend, I am of the considered
opinion that the entire financial blogging community should formally
call for a general financial market strike.And I’m not kidding. A
couple of things have happened regarding the MF Global mess that I
don’t think got the attention they should have because they broke over
the weekend. So let me fill you all in.

First, all notions of personal property rights were essentially
destroyed when the MF Global “trustee” began seizing customers’ gold
and silver bullion held in storage if that bullion was purchased
through contracts brokered by MF Global. In case you’re not following,
let me restate. MF Global customers who traded in precious metals and
actually took delivery and OWNED bullion, as in outright, free and
clear OWNERSHIP, complete with a warehouse receipt (aka title) with
SERIAL NUMBERS designating exactly which physical bars they OWNED, and
were PAYING RENT to STORE their own property in a “secure” VAULT,
complete with statements indicating that these storage fees were paid
in full, are having THEIR PROPERTY THAT THEY OWN AND ARE PAYING RENT
TO STORE CONFISCATED by the MF Global trustee in order to feed the
gaping maw that is the MF Global “estate”.

http://www.swarmusa.com/vb4/showthread.php/7492-Barnhardt-General-Market-Strike-MF-Global-Is-An-Illegal-Chapter-7-Securities-Dealer

[After they take what they want, what's left?]

Bank chased out
MF Global victims start boycott of JPMorgan

Read more: http://www.nypost.com/p/news/business/bank_chased_out_v6R6yqNUI88AXqXur1w5vN#ixzz1hCQ2XdVK

[Don Levit]

Doug:
Thanks for your comments.
I am not bullish on stocks,but I do believe they will be very volatile for a long time.
It is that very volatility I am trying to use to my advantage.
As I said, those annuities earned about 6% a year the last 10 years, where a buy and hold strategy may have earned you 2%, total.
The insurance company solvency is, of course, a concern.
They can change the terms each year, which I believe is a good thing - helps keep them solvent.
Of course, if the terms are "unfair," I can switch 10% out, with no penalty or taxes, or more, once I have been in the plans more years.
Don Levit

[Rocky]

Don Levit: Be aware that insurance annuities tend to have high fees built in to their structure, and that is especially the case for variable annuities. If you are guaranteed two percent on the downside and a little bit more if the market goes up, these are not very good odds for the investor. During the peak of the financial scare, you could have locked in yields of 5-6% from high quality, tax backed or essential service "Build America" bonds. In some states the interest was even exempt from state income taxes. If inflation really does get bad and you try to cash in your annuity, you may find that the insurance company will only give you back the original principal invested less early withdrawal penalties less any previously unearned payments that got you to the 2% guarantee. Check the fine print on your annuity contracts.

[Don Levit]

Rocky:
Thanks for your concern.
This annuity is not a variable annuity but is a FIXED-indexed annuity.
It is not a security, but an insurance product.
At this time, I have more trust in insurance companies than I do the full faith and credit of the U.S. Government.
Don Levit

[creditors not willing to forget a debt to creditors]

if there was confiscation, that is unacceptable. tell me more about that? sounds like the trustee will not let the debtors forgetadebt to their creditors. but i want to hear more.

[Doable Finance]

The Bull is the bully. We all know it when it starts getting bearish and not a moment sooner. We lose.