bmichaud

http://finance.yahoo.com/news/homebuilder-stocks-surge-sales-50-230103030.html Encouraging article here about housing picking up. Would be interesting to know how much say 1MM starts contributes to GDP...a full 1%?

I'm greedy - I like the BB in the short run for AIG and I think the banks are going to underwhelm in 2013/2014 as the credit cycle turns (inevitably)... Sanjeev - I'm surprised at your doubling down given your view of Europe's inability to deal with Spain is playing out to a T and will cause some serious volatility...

Yup! They are further along than I expected at this point after reading the 2nd Q report. But the stock is doing laps like it's still going to go under, and the market perceives it as the worst capitalized out of all major and regional banks. If Bank of America goes down from some cataclysmic event in the world, then Wells Fargo & JP Morgan won't be far behind...probably days at best...and I doubt if Citigroup would last as long as BAC. The markets are counting the broken branches on the tree, but not examining exactly how strong the trunk is and all of the other branches where leaves will still sprout. Cheers! Interesting, thanks!

Sanjeev, What's the reason for this thread out of curiosity? Just commenting in general or did you just boost your position in a major way?

The author of that post references the low gas rig counts which is likely a mistake. You have to differentiate between dry gas rigs and then also rigs in liquids rich and oily plays. Liquids rich plays will still produce a ton of gas, oily plays do as well -- and worst of all, the economics of the associated products make it so you can dump the gas at ultra low prices (say $0.50 per mcf in the Permian) and still earn your required rate of return from the well. True, but the storage numbers are quite interesting:

Nat gas at $8 soon? http://www.forbes.com/sites/richardfinger/2012/07/22/were-headed-to-8-00-natural-gas/

As I learned ever so painfully late last year, the market doesn't care about recessions - all it cares about are profits and sentiment. Last year profits held up and sentiment became far too negative, hence the market rallied (Hussman et al can attribute it to QE umpteenmillion all they want, but that was merely coincidental with sentiment rebalancing). These same factors appear to be driving the current environment..... The latest GAAP earnings for the SPX are about $86 per share according to Schiller's latest spreadsheet (see here: http://www.econ.yale.edu/~shiller/data.htm) - so at 1350, the market currently trades for 15.70 times. On an unadjusted basis, this appears reasonable if one does not take into account profit margin mean reversion. James Montier has a wonderful paper out on profit margins and how the massive government deficit is what is currently propping it up (see attached) - I'd say this is the biggest risk to profits, but as my father likes to say, Washington has a remarkable ability to kick the can down the road.... Again, as I so painfully learned, this is a sign of a healthy market - in other words, the bad news is priced in at least for the intermediate term. Montier_Profit_Margins.pdf

As the author points out, if the banks are truly manipulating, they are doing a horrendous job, as it is almost 100% correlated with the Fed Funds Rate. Given that it has remained highly correlated with the FFR, where is the liability? Did those borrowing at LIBOR + X% lose money? We just went through the biggest financial crisis since the Great Depression that involved untold numbers of "sketchy" transactions by the big banks that led to untold numbers of losses by MBS holders....yet liabilities have been minimal in the grand scheme of things.

Some good comments here on why this LIBOR scandal is a touch excessive.... http://pragcap.com/why-is-no-one-freaking-out-about-the-libor-scandal

http://www.ritholtz.com/blog/2012/06/bulls-eye-investing-almost-ten-years-later/ John Mauldin has a really good note out on the current secular bear market and how much is left. Interesting stuff.

http://consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131359.pdf IMO, the last paragraph of the EU statement is phenomenally bullish. The Europeans just set up a very vague mechanism that allows the ECB to act as an "agent" in a "flexible" manner alongside the bailout funds. Is this not the German's turning their cheek to the ECB doing whatever it takes to stabilise the system in a voter-friendly manner via the previosly-approved bailout funds? All of the bankrupt euro coutries back the bailout funds, thus it is not possible to bail each other out via circular lending.....the ECB has to print, and this is just one step closer to Euro bonds via the backdoor.

So broke that we can borrow for 30 years at less than 3% 8) I'll go a step further and suggest that the Federal Government should implement a massive infrastructure project.....go out and borrow $1 trillion from those crazy bond vigiliantes at 3% then turn around and rebuild our crumbling infrastructure. We could probably take half of the current unemployed population and put them to work via such a program.

Cullen Roche over at pragcap.com makes a good case for why we are currently not in a recession, citing the fact that private fixed investment is up +10% YOY versus severely rolling over prior to each of the last 7 recessions. http://pragcap.com/12-reasons-recession-is-upon-us

I dug up this old post I made back in late 2010 comparing current tax rates with those in 1974: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/poll-percentage-of-cash-in-your-portfolio/msg30239/#msg30239) Bottom line, a 9X PE ratio back in 1974 is equivalent to a 14.78X PE today after adjusting for the difference in tax rates. I just have a tough time seeing today's market getting back to single-digit PE ratios barring an utter collapse in economic activity such as what transpired post-Lehman. Here is the post:

Valuation-wise we are not even close to where secular bulls begin. 10y median Schiller eps is about $70 - to Watsa's point, the headline schiller eps number is dragged down by 2008/2009, so I use median - so at current levels, the market is 19 times earnings. Secular bulls begin at under 10 times. Even if this secular bear doesn't end for another three years, the market would still have to fall under 850 for this bear to end. That said, other times in history when the market has fallen below ten times were in the 1940s/1950s and 1970/1980s - in the former, we were on the gold standard and there was not nearly the amount of fiscal and monetary stimulus as we have now, and in the latter, interest rates were SKY high. Plus tax rates are currently at record lows. Given the extreme, on-the-precipice-of-depression nature of the environment that took us down to March 2009 lows, I have a hard time seeing the market get down to 850 without an extreme European collapse and/or us balancing the budget here in the US.

1. The American consumer has deleveraged phenomenally well as a result of government deficits (unlike the wallowing European consumer) and only has a few years to go to get back to historical norms - let's hope we do not get a "market friendly" president that believes immediately balancing the budget is the best prescription.... 2. Commodities are plummeting, which should provide a tailwind for those companies that raised prices in response to input cost gains and have the ability to keep those price hikes. 3. US intermodal rail data continues to indicate a muddle-through economy. 4. The US stock market has held up unbelievably well in the face of European implosion and softening US headline data.... 5. Merkel can talk tough all she wants, but she let LTRO in through the backdoor.....not for one second should someone believe she will let the Euro project break up and/or the German economy to continue its decline....too much is at stake, particularly the 40% of German exports that find their way to European peers. 6. EVERYONE is talking about "Lehman 2.0"

This, , implied so IMO..... Yes - it was a clever way of making the interviewees/viewer consider that a fetus may be a life no different than those taken during the holocaust.

Lol, I didn't make any statement about my beliefs. All I said is that it got me thinking. I've never thought about the issue from such a perspective.

.....someone just showed me this video this morning. Very, very interesting, and certainly got me thinking....

At the time of their original call they believed we were headed into a recession beginning perhaps in the fourth quarter of last year, now that call has been pushed back to the second quarter of this year.... If you look at the coincident indicator graph here, http://www.businesscycle.com/news_events/news_details/5065, you can see how it pops back up late last year/early this year. ECRI claims government intervention cannot alter the business cycle, so this graph either means central banks can alter it or ECRI is wrong. My guess is that massive global monetary stimulus has been a boost to global confidence, which is so vital to such a globalized economy, and at the giant US fiscal deficit is keeping things afloat here, as evidenced by these "muddle-through" transport stats.

http://pragcap.com/trucking-the-economy-is-still-expanding http://pragcap.com/rail-traffic-still-expanding-modestly-2 Amazing how well the US economy is holding up. ECRI lookin pretty bad.....

Here is another potentially wildishly bullish development... http://www.cnbc.com/id/47755009

$125B is well in excess of $50B expectations - barring other negative news, the market is going to rip.

Moore, you beat me to it - just came on to post about the unbelievable volume on BAC today!!! Unreal!!

That's all well and good - don't get effing married if you can't keep it in your pants. I've heard stories about Tiger cheating on Elin at his bachelor party - WTF???