ERICOPOLY

The market is telling us that previous prices were unrealistic because the liquidity was the result of unsustainable levels of cheap money. That's part of it. Another part of it is the 17% or so unemployed (counting underemployed). What will the "normalized" unemployment be going forward? Never a job market recovery? Then there is also the falling knife in some real estate markets that drove lenders to beef up down payment requirements above the nationwide average -- when those markets stabilize the down payment requirements ought to relax a little bit, to more normal levels (reflecting the nationwide average). There was an article about this very thing beginning to occur in some markets as lenders gain confidence that markets are finding a bottom (they are making that assumption).

Additionally, I believe only 52% of PTPP is tied to the size of loans. They have other businesses (wealth management to name one).

I don't believe there will be any $100b writedown happening in a single day. But let's say for argument's sake that it will happen over the next 2 years... and that $50b per annum is PTPP (it looks to be that way). Is today's stock price adequate to discount for 2 years of zero earnings? I think so. You can take 2006 earnings for both Wells & Wachovia and add $5b to it. You get to about $20b after tax. P/E today is therefore less than 7x. Is that a good deal even though there will be no earnings for 2 years? Sure, I think so. And we should remember that there are also reserves in place to handle some of the losses. That's fine to point out that debt will shrink. So what if credit card debt shrinks? Wells has hardly any exposure to credit cars. And so what if mortgages shrink? They are gaining market share and terms are more favorable. Then Wachovia's cross-sell is far behind Wells', and there is room for growth there. Last, debt can shrink in real terms while growing in nominal terms (although for now it's shrinking in both).

Prechter thinks the dollar is going to go on a long massive rally... and Prechter seems to rely on technical analysis.

Quite a lot of FFH's investments look that way (USB, WFC). Yet people don't think FFH can earn.

This story claims that Wells Fargo is willing to cut your payment down to 2% interest if that's what it takes to keep you from walking away. I take it that solves the 'jingle mail' risk for now -- a 2% interest rate would result in payments lower than renting a home elsewhere. Meanwhile as long as interest rates are this low it is still a profitable loan for the bank even at 2%. There are even people getting 0% temporary interest rates from some lenders. That ought to completely eliminate the risk of somebody walking away from the loan! http://money.cnn.com/2009/12/16/real_estate/great_mortgage_modifications/index.htm For example, Californians Steve and Elena Servi received a 2% fixed-rate loan from Wells Fargo that replaced the 6.75% adjustable rate mortgage on their Rowland Heights house. In the case of the Servis, their house had lost perhaps 40% of its value since they purchased it five years ago. Repossessing the home would have cost Wells Fargo more than $100,000 in lost value alone, plus the legal expenses, commissions, taxes and other expenses the bank would have incurred.

I'm not sure if it's a new era, or just a repeat. I believe there was period during the early 1980s where large US banks had worthless South American loans. Rather than being forced to write them down, they were allowed to earn their way out of the hole before taking the writedown. They were allowed to hold the loans at original issue value until the day they could afford to write them down, even though everyone knew that was bogus. And somehow America survived!

The SEC had these rules about how many shares you could purchase per day, based on percentage of average trading volume. They don't have to worry about the SEC's rules any longer. What do the TSX rules look like?

I am very unhappy. This wound up being a full 10% dilution... Why did they suddenly do this after making "we will repay TARP in a shareholder friendly manner" statements lately?

Every time you put a dollar towards buying more investments vs paying down your mortgage you are implicitly saying that the cheap leverage is worth it. Those investments can go south but you are still under the mortgage debt load. Not too different from the risk involved in the proposal given here on this thread. Congratulation if you don't have a mortgage... if you do have one, don't think you're not using leverage to attain your goals.

Okay, you probably thought of this one already: 1) write the at-the-money put to collect the so called "wasted" premium 2) hedge with short SSF I'll bet there is a reason everyone doesn't just go out and do that... the problem is that you can take a loss on that SSF short position in excess of what you get from the option premium. Now the option premium doesn't look that expensive in hindsight. I think to create the same trading value from an SSF as you get with a put, you need to buy out-of-the-money calls to hedge your SSF short position from going the wrong way on you. But that requires paying some premium for the call... so it's not clear to me that the SPY puts are that expensive after all.

NYSE:FFH -> FRFHF

I don't understand why futures are better. Can you explain? I've never even looked at them so anything you give me is valuable. Even if the market doesn't pull back and instead goes up 30%, is it still cheaper? I guess I have already talked about why I like the SPY puts... something better is certainly worth knowing about.

I hold the TIPS directly -- I wanted to make sure that I didn't buy TIPS with CPI adjusted gains already priced in (deflation could knock out those gains) -- I'm all about upside without downside. The ones I hold are 10yr TIPS that were issued in July 2009. CUSIP: 912828LA6. They appreciated 2.32% thus far -- I bought them on Sept 28th. They do have some downside... but over 10 yrs the yield will easily make them whole even in the very unlikely event of zero CPI gains over 10 yrs (in a pig's ass).

It might be time for the pet rock analogy again: Government taxes everybody and has $10 to show for it. Then the Government wants to "stimulate" the economy so they buy a pet rock from me for $10. This pet rock I dug out of my garden, and it produces no utility. It just sits on Obama's desk and keeps the wind from blowing away some paper. Now, some would say that the money was spent on nothing productive, that it was a destruction of the country's wealth. Now, I'd have to disagree with that statement, because I'm happy to now hold this "destructed" wealth. Nothing was destroyed... rather, wealth was transferred from the taxed masses to... me. Now, if the money was not taxed but rather was printed, then this is inflationary because it did not produce any productivity gains. Meaning, there is more money out there now but no additional productive assets. Perhaps this is a good policy for fighting deflation, but in a neutral environment it would tend to excite inflation. The government... if it could instead buy a road or a high speed transportation network from me instead of a pet rock... well then it would be boosting the efficiency of the country. And when you boost the efficiency, you then drive productivity gains. That means that doing something meaningful with the printed dollars is less inflationary than doing something stupid like buying pet rocks. Am I wrong? Maybe, I'm not an economist and would love to hear why this is wrong.

Kindle's are different from netbooks in that you can sit outside at high noon on the beach in full sun and still be able to read the words on the screen. LCD screens are backlit and wash out in direct sunlight. To the contrary, you can't read a Kindle in the dark and they BENEFIT from full sunlight -- in this regard they are literally no different from a printed page. Yes, the battery life is a novelty but that's not what make the Kindle a far superior book substitute. I have been using my Kindle since March 2008... love it.

Nope, no margin interest. You never borrow any money. The reason why I said to sell the ETF shares and write more puts if you get assigned is that... otherwise you are paying interest. I think of deep-in-the-money puts as float (after all, puts are just insurance on equities). And float can hurt you if you investments go down. However, that's why it's not safe to be levered... but levering into TIPS I don't think is too naughty.

I bought more at-the-money SPY puts this morning (boosted the number of contracts by 50%), and yesterday I bought some SPY June 80 puts (notionally hedging 20% of my current net worth). The goal of this is to be able to buy more without fear after the pullback that I think is coming. And I'm levered anyhow, the leverage will pay for these puts if the V shaped recovery happens. My net worth is levered by 30% but at-the-money puts protect 66% of my net worth. So now I will start talking my book and acting really bearish I suppose ;D

I already do it in my taxable account, I use TIPS to back up the 2012 $40 strike WFC puts that I wrote. You see, right now the "would be" dividend is accruing to book value at WFC. But I get 5.5% annualized "dividend" from WFC puts in the form of volatility decay and TIPS yield. Maybe more if I get CPI increases from the tips. So far I'm gaining intrinsic value at an 11% annualized clip just from that alone! But that's not all, it's also a floor wax... I mean, it also has capital gains up to $40. Now, I leveraged myself with this and bought SPY puts Dec 2011 to hedge. The SPY puts cost me 8% per annum against the notional amount they hedge. So I feel clever but we'll see how it actually turns out. A tax-free account would be gravy.

a few questions. 1. why only an IRA? why not do this in a taxable account? Is it just because of the taxable events associated with TIPS? 2. I don't quite understand how low risk this is.. How far in the money would you go? The further you go, the larger the spreads, so there's slippage, plus the higher the likelihood that you get assigned the shares.. which comes to my next point.. 3. Say there's another crash and your stocks drop 50%. You're on the hook for 50K worth of stocks right? So what you're saying is that in that case you'd either use margin or sell half your TIPS and buy the stock? Is that right? 4. What about your comment regarding beating the S&P? I'm trying to wrap my head around that. How would this beat the S&P? Maybe my brain just isn't working right, but can you walk me through it... Thanks. Let's use the example of your goal being to beat the S&P500 over a 10 yr period. Okay, assume you do this today when the SPY is at 109.61. Step 0) Start with 100% cash in the account Step 1) Use 100% of the cash to buy TIPS (Fidelity allow me to margin 10:1 for TIPS, so margin risk is minimal) Step 2) Leverage the account by writing the 180 strike SPY put for 72.40, enough contracts where taking the underlying would tie up your cash 100% if you were to have just gone 100% SPY back in "Step 0" Forget about margin calls. You can margin spy at like 4:1 before getting called and you can margin TIPS 10:1. So no margin call risk to speak of. Even if you did get called in some bizarre scenario, it's not like TIPS are an illiquid security, just sell them. Amd who cares anyway if you get assigned? Just sell the assigned SPY shares and write more puts. The point isn't to make money. The point is merely to beat the S&P500. Isn't that how most money managers think? Do they care if they make you money? Some do of course, but most just brag about how much they beat the S&P500. And this strategy is guaranteed (I think) to beat the S&P500 on a going forward basis if the CPI rises as some predict it will. Should the CPI not go up at all.... well, you still get income from the TIPS and you still get a little bit of volatility decay. The S&P500 isn't yielding much anyhow.

I am in tears hearing this. Dammit, those bastards! I don't have an IRA account yet, but I was planning on doing it soon. This puts the brakes on that idea. But anyone it seems could start a hedge fund that beats the S&P500 employing this strategy. Hah hah... beating the S&P500 is such a f**king joke it seems, yet people try so hard and can't do it.

The interactive brokers IRA accounts are rather interesting -- they let you use margin. You can write deep-in-the-money index puts covered by TIPS. I think that ought to beat inflation! Eric- Can you elaborate? You're writing in the money puts on TIPs? Are you covered by shorting? I've been writing calls on the 30 year treasury bond futures (betting rates don't go back below 3.85%). The code in IB is ZB. If the contract goes above 122 or 123 I would write out of the money calls. I have been mulling over a strategy for an IRA that would provide "real" capital gains (without dilution from the nominal kind). Say you have $50k in the account 1) Write very deep in the money puts on an equity that you deem safe (maybe on an ETF like SPY, or maybe KO,PG,JNJ... whatever) with $50k of shares underlying 2) Buy $50k worth of 10 yr TIPS There are no borrowing costs. Deflation can only knock the value of TIPS down to their original issue principle value, but that principle value rises with CPI measured inflation. So you earn: 1) volatility decay (even deep-in-the-money puts have some volatility) 2) interest on TIPS 3) capital gains from rise in shares underlying the puts 4) rises in the CPI from TIPS adjustments Another advantage of writing deep-in-the-money puts is that you get a huge amount of cash that can be used to raise your margin equity percentage. TIPS require very little margin equity. Rising inflation expectations shouldn't kill TIPS bonds the way normal 10yr Treasuries would get killed. They ought to rise but maybe I don't understand it properly.

The most dangerous time for a country with 5 yr fixed rates must be when rates are near all time lows and prices have already risen to account for it. Significantly higher interest rates... can people afford the rate reset? Unlike the U.S., where the mainstay of the mortgage market is the 30-year fixed mortgage, the most common mortgage product in Canada is a five-year fixed rate mortgage (with a 25-year amortization period).

There is the matter of what you are left with. Govt stimulus dollars spent directly on necessary improvements to transit systems leave us with a lasting improvement to drive economic efficiency over the longer term. Govt stimulus dollars spent on booze/hookers/boomboxes do not.

The interactive brokers IRA accounts are rather interesting -- they let you use margin. You can write deep-in-the-money index puts covered by TIPS. I think that ought to beat inflation!