Can Turtles Fly?

For a devout follower of Ayn Rand, Alan Greenspan is weird even by Randian standards. I do not hold him in high regard like many on the Street--the Maestro they call him--but I do not hate him like some others do either. However, whatever Greenspan says always seems contradictory and meaningless to me. Consider his latest view that the GSEs, Fannie and Freddie, should be nationalized: His quarrel is with the approach the Bush administration sold to Congress. "They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted -- with necessary taxpayer support to make them financially viable -- as five or 10 individual privately held units," which the government would eventually auction off to private investors, he said. Taking a page out of William Ackman's playbook--although Greenspan is no famous short seller--Greenspan implies that the GSEs should be nationalized without any material problems. Why is it that a...

Martin Whitman of Third Avenue released his thoughts of the current investment environment in his 3Q 2008 shareholder letter. There is a lot of insightful thoughts in the letter so even if you don't agree with Whitman, it's well worth reading it. In particular, he touches on some of his distress investments and likens the current environment to the 70's (in terms of attractive valuations.) So anyone that thinks you can only match Buffett in the 70's has their chance. I particularly like his explanation for the GMAC Senior Unsecured bonds (not that I have access to them or anthing.) As to be expected, he comments on MBIA and Ambac. He also raised his stake quite a bit, although it's still quite small for his fund. I was uncertain in the past about Whitman's investments in the monolines; I wasn't sure if he was just testing the waters. With his latest addition, I am pretty certain that he is making a committed bet with the bond insurers. As Whitman points out...

This probably doesn't apply to too many reading this but those blindly following so-called "gurus" need to be on top of the ball. Eric DeCloet of The Globe & Mail has a good article pointing out the shortcomings of following others . He uses Eric Sprott, a very investor, and his investing team in Canada as an example, although the example can apply to anyone. The problem is most acute with momentum investors--Sprott and his hedge funds are,--sector rotation investors, macro investors, and growth investors. If you follow a long-term investor you generally don't have as big of an issue. I have no reason to doubt the ethics of Eric Sprott so it isn't a question of anything immoral. Rather, the problem is that small investors can't stay on top of these investors. Of those reading this blog, the most vulnerable would be those following Jim Rogers, Marc Faber, or such investors. These guys move in and out so quickly that small investors can be light years behin...

WSJ MarketBeat blog has an entry quoting Duff & Phelps pointing out some benefits for the bond insurers from the ARS deals being cut by the banks: Bond insurers have helped some debt issuers convert auction-rate securities to variable-rate demand bonds or long-term fixed-rate notes, which has given some business to insurers that have seen the market for their guarantees dry up in recent months. ... There is no consensus as to how banks will manage auction-rate securities they will hold in their own portfolios, but a move toward converting the securities is one potential strategy, said Batchelor. Bond insurers could also gain if securities are redeemed by the issuers and the insurance policy is canceled. The cancellations free insurers from potential liability for the debt while allowing them to book the entire premium as income immediately. All of this is minor and it is not clear what the banks who take the ARS onto their balance sheets will want to do. However, a few million her...

No, I don't have any children; I'm still searching for love. But that doesn't stop me from viewing investors as akin to children. The little ones, as the stereotypical views portray them, are prone to asking the following during road trips: are we there yet? They do this not once, but a million times, after seemingly every change in the scenery. To say it's annoying is an understatment. Now, is it just me or are investors prone to asking 'is this the bottom?' They do this not once after some careful deliberation, but seem to constantly ask during every market turn--either up or down. Although I choose whether to read/listen or ignore someone, I nevertheless find this highly annoying. It seems an inordinate amount of ink and bytes have been expended trying to answer this question after seemingly every change in market sentiment. Is there an answer to the question of whether we have reached the bottom? Sure, there is. The correct answer, as is the case with the ki...

Bloomberg has a story quoting Societe Generale as saying that value may start to outperform growth. However, further down the article, someone from Key Private Bank says that he thinks value will continue to underperform for a few more years. Value investors have been hammered very badly over the last couple of years. I have mainly talked about Martin Whitman, Bill Miller, and the like, but Warren Buffett has also done very poorly this year, with his Berkshire Hathaway stock off almost 20% this year. Anyone buying Berkshire Hathaway shares early this year or late last year might be thinking they mistakenly invested in Bill Miller's fund ;) Bill Miller, Martin Whitman and David Dreman, mired in the worst slumps of their careers, are poised once again to trounce the stock market. If history is any guide, the value investors' emphasis on shares trading at low prices relative to cash flow and earnings will provide returns superior to the holdings of so-called growth managers. Grow...

One of the big mysteries behind the Bear Stearns collapse was the huge bearish bets being placed right before its collapse. I don't work in the industry or have much knowledge about derivatives but it is interesting for an outside investor observing the situation. The latest speculation seems to be the view that these moves may constitute insider trading. Bloomberg has a good story covering various theories on the big option bets: On March 11, the day the Federal Reserve attempted to shore up confidence in the credit markets with a $200 billion lending program that for the first time monetized Wall Street's devalued collateral, somebody else decided Bear Stearns Cos. was going to collapse. In a gambit with such low odds of success that traders question its legitimacy, someone wagered $1.7 million that Bear Stearns shares would suffer an unprecedented decline within days. Options specialists are convinced that the buyer, or buyers, made a concerted effort to drive the fifth-big...