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Thoughts on the Market July 11, 2007. By Daryl Montgomery. Take-Away from Reza’s Talk. Most Important thing said was: TAKE ACTION! Stock prices will tend toward an option strike price in direction of Market Movement in last few days before expiration.
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Thoughts on the MarketJuly 11, 2007 By Daryl Montgomery
Take-Away from Reza’s Talk • Most Important thing said was:TAKE ACTION! • Stock prices will tend toward an option strike price in direction of MarketMovement in last few days before expiration. • Short-term trends/patterns NOT that important.
Take (Intelligent) Action • More money is lost from Not making good trades than from making bad trades. Inertia and perfectionism are costly. • The market rewards you for taking (perceived) risk. Buy “inexpensive assets”. If a lot of people are buying, it’s not inexpensive. • You ultimately (not all the time) win when the probabilities are on your side. • You must do your own work, probably 95%+ of investment information is misleading.
Public Investment Advice Rarely Pays FOOL.COM Along with being the world's greatest living investor, Warren Buffett is an outstanding writer, a generous educator, and a not-unsubstantial wit. His annual letters to shareholders, replete with investing insights both timely and timeless, without fail also include a number of well-delivered jokes. In his most recent letter, Buffett writes: "We show below our common stock investments. With two exceptions, those that had a market value of more than $700 million at the end of 2006 are itemized. We don't itemize the two securities referred to, which have a market value of $1.9 billion, because we continue to buy them. I could, of course, tell you their names. But then I would have to kill you."
Public Investment Advice Rarely Pays Fool.com In that regard, a fascinating study has recently been released. It's titled " Attention and Asset Prices: The Case of Mad Money," and it examines the effects of sudden attention on stock prices, both large cap and small cap. The abstract for the report pretty much sums up the findings of the study: "We document market inefficiency in the days following the buy recommendations of Jim Cramer, host of the popular CNBC show Mad Money. The average overnight return following a first-time recommendation by Cramer is 2.86% for our entire sample and 6.76% for the smallest quartile but these gains disappear (reverse) within several trading days. We also find that trading volume and short sales volume are all significantly higher than normal on the day following Cramer's recommendations."
You Should be Watching – Real Estate • This bubble like all others will deflate.It is likely to cause a spike in Interest rates, which in turn will make the Stock Market Decline (Bear Stearns). • Sub-Prime and other iffy mortgages have been monetized and sold as multi-part bonds (RMBS). Barron’s estimates that $1 Trillion of this paper exists, most held by major financial institutions and a 7% default rate could wipe out its value. • Two million sub-prime mortgages will have theirinterest rates reset in the next several months. • Mortgage defaults are increasing rapidly even though the economy is in good shape.
The Trouble with Real Estate May 27, 2007 – New York Times Fighting Off Foreclosure By CHRISTINE HAUGHNEY SHERRI CAUGHMAN prides herself on being the kind of conscientious New Yorker who does her homework before making any major purchases. So when Ms. Caughman, 44, a supervisor in the city’s food-stamp program, decided last November to buy a two-family house in Jamaica, Queens, she took a class on buying real estate, researched the property through city records and vetted the terms of her mortgage with her former sister-in-law, a real estate broker. Ms. Caughman was also counting on help from her elderly parents, who would move into the downstairs apartment and help out with the mortgage on the $515,000 house. But three days after she closed on the house, her parents decided to move back to South Carolina. Suddenly, Ms. Caughman, who makes $40,000 a year, was left to pay a $3,699 monthly mortgage.[NOTE: Yearly Payment = $44,388]
July 9, 2007 – New York Times Increasing Rate of Foreclosures Upsets Atlanta By VIKAS BAJAJATLANTA — Despite a vibrant local economy, Atlanta homeowners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation, offering a troubling glimpse of what experts fear may be in store for other parts of the country. The real estate slump here and elsewhere is likely to worsen, given that most of the adjustable rate mortgages written in the last three years will be reset with higher interest rates, …. As a result, borrowers of an estimated $800 billion in loans will be forced in the next 12 months to 18 months to make bigger monthly payments, refinance or sell their homes. A big reason the fallout is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods.For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.
The former owner of the home, could not be reached for comment. Property records show she took out two loans to finance 100 percent of the purchase price. She borrowed the money from Ownit Mortgage Solutions, a California company that sought bankruptcy protection in December after many of its customers defaulted on their loans. Investors who bought bonds backed by Ownit loans will bear the loss on her home. While the surge in foreclosures in other big cities like Cleveland, New Orleans and Detroit can be attributed to local economic challenges, Atlanta more closely reflects the nation. Its unemployment rate, 4.9 percent in May, is low and close to the national average of 4.5 percent. And businesses here are adding jobs, albeit at a slower pace than they were last year. Like others across the country, homeowners here took out aggressive mortgages in the last few years when interest rates were low and housing prices were soaring. Many are not able to refinance because their homes are worth less than they paid for them and their credit is now too weak for them to qualify for another loan. Atlanta also serves as a microcosm for some broader national trends: wages have been stagnant for much of this decade, homeowners have taken on record amounts of debt, and mortgage fraud has been on the rise. At the end of March, 2.8 percent of all owner-occupied homes nationally were vacant and for sale, up from 1.8 percent at the start of 2005. That is the highest vacancy rate in the 51 years the Census Bureau has been tracking it.
By Alistair Barr, MarketWatch- Jul 10, 2007 SAN FRANCISCO (MarketWatch) -- Influential rating agency Standard & Poor's said on Tuesday that it may downgrade $12 billion of subprime mortgage-backed securities because losses in this low-end part of the home-loan market have increased and will probably get worse. Credit ratings on 612 classes of residential mortgage-backed securities (RMBS) backed by U.S. subprime collateral have been put on CreditWatch with negative implications, S&P said. Beginning in the next few days, the agency said most of these classes will be downgraded. That covers about $12.078 billion in rated securities, or 2.13% of the $565.3 billion in U.S. RMBS rated by S&P between the fourth quarter of 2005 and the fourth quarter of 2006, the agency noted. The agency said it's also reviewing ratings of Collateralized Debt Obligations (CDOs) that invested in the RMBS that could be downgraded. (CDOs are a bit like mutual funds that hold asset-backed securities. Many CDOs bought subprime RMBS, helping to fuel the housing boom earlier this decade.) S&P also said it's changing the way it evaluates subprime RMBS, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy initial loan data. The new approach will be applied to RMBS deals and could affect the ratings of othermortgage-backedissues.
You Should be Watching –Oil and Gas • A spike in Oil and Gas prices would derail the world economy. • Oil and Natural Gas Prices are currently priced inappropriately in relationship to each other. Oil should be 7 times the price of Natural Gas. The ratio hit 11.25 times last week (Look for regression to the mean). • Oil tends to peak between June and Sept.Natural Gas peaks between October and January.
