Tuesday, September 16, 2008

Holly Molly

Stuff like this always happens when I try to take a few days off...

Anyway... I went long some Oil (futures) today!  I plan to add over time and own contracts up and down the curve.  I don't give specific advice in this forum (although I speak very directly about commodities as I am not registered in this area), so I won't say where I bought, but it was not in size anyway.  But I figured oil cannot go down $5 per day forever, and that at some point we are going to bounce, and I want to be long when we do - even if just a little.

I grew up on a Wall Street dominated by Goldman Sachs, Bear Stearns, Lehman Brothers, Morgan Stanley & Merrill Lynch.  It is hard from me to grasp what has happened.   The power shift has been overwhelming.  I know I have been saying for some time now that Lehman was "doomed", but I still felt that they would avoid bankruptcy in a shotgun wedding.  They REALLY screwed up.

On the positive side, I got a couple of calls today from people who avoided significant losses by, they say, listening to my rants.  I was thrilled.  One of my motivations in writing this blog was to communicate the disaster I saw coming for the banks as a result of the real estate melt down.


I seem to attract to my blog folks that want to blame a lack of "regulation" for the housing/mortgage crisis.  Always amazes me to hear super educated folks come to a belief/blame based far more on their political beliefs than the facts.

The housing crisis has at its roots the Community Reinvestment Act, and in particular its amendments of 1995 and 2005.  No CRA, no housing/mortgage crisis.  Simple like that.  No amount of "regulation" would make people who put nothing down on their home from walking away from that home during a recession, layoff, price decline - whatever.

The good news is that with the demise of Lehman, Bear, etc... the business of making home loans will migrate back to the local bank.  You know, the guy you coach little league with, attend church/temple with, his wife knows your wife, your kids go to school together.  The bad news for New York City and State is that the mortgage money pipeline has been shut down. Kaput.  Taxes that New York was able to extract from its populace as a result of this largess to fund silly and unsustainable programs are no longer there to collect.

Speaking of "sustainable"... Why is it that smart folks on the left can easily see the realities of the country's oil addiction, but cannot see the same in the country's addiction to social programs?  The exponential function applies to all things growing and expanding: energy, pollution, Medicare, Social Security, etc...  Our politics are getting in the way of real solutions. 


The unwinding continues in the financial sector.  There is nothing left to unwind in the commodity sector.  That is one of the reasons I went long Oil.  No one is leveraged to Oil, or Silver, or Gold from what I can see.  If you disagree, please email me and show me what I am missing in my interpretation of the CFTC commitment of traders report.

The problem is that the financial markets have great effect on the commodity markets and the economy.  But that is the risk you take.

Back soon.

Mentatt (at) yahoo (dot) com


Bureaucrat said...

I've made a personal bet on commodities last week as I've mentioned, but anyway .... AIG was nationalized tonight, so it joins the new Federal departments of FNM and FRE. Gee, all these new government employees! You Republicans who have been screaming about what Fidel Castro did must be kicking yourselves. We just did the exact same thing! :) Turning privately-owned corporations into Federal agencies. But you knew that this was all going to unwind this way. It has happened for centuries: the addition of too much cheap credit for too long, resulting in a massive uncollectable debt problem and a huge deflation to follow. I'd think anyone following economics and the markets could have seen this coming a mile away. It is just that no one wanted to see it. And now, all of your children and grandchildren are going to pay for it. I have none. Lucky me. :)

Donal Lang said...

S'funny, I always thought of George W. as a dyed-in-the-wool, free-trader, dog-eat-dog capitalist kinda guy. But as his Administration nationalises the banks, 70% of the mortgages, and the biggest insurance company, and dumps the biggest couple of investment houses down the pan, I wonder if maybe I read him wrong!

About the only thing America produces nowadays is dollars. Wasn't it Marx who said that eventually capitalism would collapse and The People would take over the means of production, and so the new communist world would begin?

So maybe George W. and his croneys are the first REAL communists??!!!

Anonymous said...

"The housing crisis has at its roots the Community Reinvestment Act..."

No, the issue was redlining by banks. If banks didn't refuse to make loans to people of color then the government would not need to get involved. Capitalism is incapable of regulating itself. There is no invisible hand. We see it time and time again.

wkwillis said...

Funny thing about the CRA. Redlining is about the banks not lending money on worthless inner city housing, but the CRA let banks lend money to people buying expensive houses in far distant exurbs.
The houses with defaulted mortgages are not in the poverty stricken inner cities, but in the high end condo neighborhoods and the exurbs.
Bet the banks are wishing now that they had lent money on inner city housing.