The Federal Reserve and Elvis Presley
Homebuyers will face a new and important “development” in the next 90 days — and anyone thinking about buying a house (and even a bank CD) should pay attention:
As part of “Quantitative Easing,” the Fed purchased $1.02 TRILLION worth of “Agency MBS securities” (aka home mortgages) in the open market. The Fed will complete their purchases within the next 90 days. As the chart above shows, they will have purchased a total of $1.72 TRILLION of securities including $1.25 TRILLION home mortgages.
Putting this in perspective:
In 2009, home buyers borrowed a total of $1.01 Trillion. ( See: http://www.sifma.org/research/pdf/Mortgage_Related_Issuance.pdf for the data.)
The Fed has purchased EVERY new home loan made in 2009, and they pegged mortgage rates at an entirely arbitary yield !
Ladies and Gentlemen: The Federal Reserve has left the building!
Once the Fed steps back from the mortgage market, the “free” market will re-price home mortgage rates…presumably at higher yields. Rocky doesn’t know if the upward move in mortgage rates will be violent or gradual, but it will happen — and it will dwarf the effect of Congress’ homebuyer tax credits. It behooves homebuyers to bear this in mind when they consider when to lock in a mortgage rate.
[Disclosure: Rocky acknowledges that the one Elvis reference in this post was weak. So he'll add a second one: Elvis said, "The only thing worse than watching a bad movie is being in one."]
Did Yale lose $57 Billion in three months?
The Yale University endowment is valued at “only” $17 Billion, yet their March and June, 2009 SEC 13F Filing reported total stock investments of $62.7 Billion.
Rocky yelled “Boola-Boola” and rubbed his eyes. The obscene leverage shocked him, as did Yale’s September filing which reported investments of “only” $5.2 Billion.
How was this possible? Was this some sort of novel high-frequency trading strategy engineered by David Swensen in the Yale Investment Office? Or had a Harvard student hacked into Yale’s computer system (again)?
Alas, no — Yale’s Associate General Counsel issued a press release stating that there was a “defect” in their reporting program — which caused the March and June SEC filings to be wrong by a factor of 1,000!
Rocky wonders:
1) What would happen if the decimal points on his 2009 Tax Return “accidentally” move three places to the left? Would the IRS notice?
2) What would happen on a Yale economics final exam if a student’s answer is wrong by a factor of 1,000?
Here are the SEC filings for the green-eyeshade crowd:
Madoff jewelry auction & Valentines Day 2010
The US Marshals Service will auction Bernie Madoff’s possessions on Saturday. Proceeds will benefit the victims of his fraud.
For the auction catalog, click on : http://www.proxibid.com/asp/Catalog.asp?aid=23422
Rocky looked through the odd collection of watches, necklaces and Lynn Swann-autographed footballs (“certificate of authenticity not included.”)
He decided that Lot #7, a heart-shaped pendant would be a perfect Valentines Day gift for Trophy Wife.
Fast forward to Valentines Day 2010….
Rocky (to Trophy Wife) : “Honey, I got you a special present for Valentines Day.”
Trophy Wife: “That’s nice. What did you get?”
Rocky: “It’s an 18KWG heart-shaped pendant set with 7 princess, 4 half-princess & 40 baguette cut diamonds, total weight 2.75 cts.”
Trophy Wife: “Why is it in a brown paper envelope? And not a nice blue Tiffany box?”
Rocky: “Because I got it special. It was a deal.”
Trophy Wife: “A deal? That’s typical. Let me see, what’s this little paper tag with a star on it? Hmmm. Marshalls??? You bought me a piece of jewelry at Marshalls????”
Rocky: “No, silly. That’s US Marshals. I always think of you as the Wyatt Earp of our family.”
(Unimpressed, Trophy Wife examines the heart under her jeweler’s loupe.)
Trophy Wife: “Rocky, these diamonds are fake.”
Rocky: “I guess I should have known better. The price was too good to be true.”
[Disclosure: Jewelry gifts purchased at the Madoff auction may contain dangerous levels of bad karma.]
World toilet day: November 19th
Rocky notes that some of his most popular posts involve “toilet humor.” Mindful of the risks of “straining too hard,” but desirous of maintaining the “flow” on this subject, Rocky notes that November 19th is World Toilet Day.
Although Trophy Wife serves on the boards of numerous charities, she refuses to become an officer of the World Toilet Organization. Her apathy towards this venerable, yet disrespected charity, is typical amongst philanthropists.
Fifty years ago, no one discussed Breast Cancer in polite company. According to the World Toilet Organization, toilet problems face the same taboo today.
Rocky urges his readers to visit the World Toilet Organization website (http://worldtoilet.org/ ) and learn about their work, including the World Toilet College, where they help train people to “help themselves and others.”
The website includes a quote from Jimmy Carter, identified as “Ex-President” (not to be confused with “ex-Lax”):
“Now instead of my being famous for negotiating peace, I’m famous for being the Number One latrine builder.”
November 19th is World Toilet Day. Consider a donation. Or even better, volunteer and “dive- in,” head-first!
Getting married in India & the price of gold
The Central Bank of India announced this morning that they purchased 200 metric tonnes of gold from the International Monetary Fund. See: http://www.imf.org/external/np/sec/pr/2009/pr09381.htm
This is ostensibly bullish for the price of gold. But is it bullish for Blue Nile stock? (NILE)
Rocky does the math:
1 Tonne = 32,151 Troy Ounces
1 Troy Ounce = 31.10 Grams
This fashionable Blue Nile wedding ring contains 1.6 grams of gold:
http://www.bluenile.com/wedding-ring-gold_6673
Rocky’s X-22 computer calculates that the Indian Central Bank just bought enough gold for “only” 125 MILLION wedding bands. Since the population of India is 1.1 BILLION, the Indian Central Bank is sensibly planning ahead.
[Disclosure: Rocky has been, is, and may continue to be, long gold bullion. But he may change his mind if he reads that scientists have finally succeeded in turning lead into gold.]
Predicting today’s stock market close
A distinguished theoretical physicist sought Rocky’s counsel for predicting today’s Dow Jones closing price. In addition to unlocking the secrets of the universe, this physicist seeks to unlock the prize in a “Guess the Dow Jones” contest. (The winner receives the actual closing price in dollars.)
Rocky usually leaves such precise speculations to Trophy Wife, as Rocky considers ”good fundamental analysis” to be successfully picking a pair of matching socks. (Or at least they seem to match in the darkness of dawn.)
Rocky realized that the physicist’s challenge was too big for his HP-45 Calculator, so he borrowed Virgil Starkwell’s X-22 computer, and fired it up for the first time in 40 years…
The X-22 generated four possible closing prices:
9507.90
9728.64
9822.52
9955.41
[Disclosure: As the price dispersion demonstrates, Rocky does not provide investment advice. However, readers are encouraged to learn more about the legendary X-22 computer by watching the YouTube video embedded below. Warren Buffett will probably enjoy this approach too.]
Not-so-good places for a nap
Northwest Airlines Flight 188 didn’t respond to radio calls and overshot it’s destination by 150 miles. Some investigators speculate that both pilots fell asleep.
Trophy Wife claims that Rocky can fall sleep anywhere. Nonetheless, here is Rocky’s list of least-favorite places for a nap:
1. Subway tracks.
2. The dotted line on the local highway.
3. An examining table at the coroner’s office.
4. Under a tree during a thunderstorm.
5. On a beach during low tide.
Rocky asks:
Is this little fellow training to be a pilot when he grows up?
A twist on French Roast coffee: “New Jersey Roast”
Coffee futures are rising this morning as news of a fire at Sara Lee’s New Jersey Coffee plant percolates through the markets.
From Bloomberg News: “Coffee prices pared losses in New York after a fire burned overnight at a Sara Lee coffee and tea plant in New Jersey that roasts millions of pounds of beans each year. Firefighters were still extinguishing hotspots from the fire, the fourth at the plant since October 2008.”
Four fires in less than a year???
Rocky believes Starbucks’ French Roast coffee already has a burnt taste. Now, competitor Sara Lee (which packages Chock Full Of Nuts) appears to have devised a new process for a darker, deeper, richer flavor….
How does one make New Jersey roast? Just burn down the building.
Hot Air Balloon Accidents.com (yes it’s real)
With the six-year-old boy on terra firma, Rocky can now “safely” ridicule this well-publicized story. According to the Centers for Disease Control, “unintentional fall deaths” account for 7.0 deaths per 100,000 population or more than 20,000 people each year.
By “fall” deaths, CDC presumably means the effects of gravity, rather than the effects of autumn. CDC does not provide a sub-category for apples dropping on one’s head during the autumn — which involves a fall in the fall.
Most importantly, this story highlights the dangers of both “hot air” and hot-air-balloons.
In the video clip below the six-year-old suggests the entire story was a stunt. (Notice both brothers look at their mother at 00:46 with a tell-tale expression after the boy “spills the beans.”) Hence, the dangers of hot air. Watch the video here: http://www.youtube.com/watch?v=wI6UONWCq7A
The website HotAirBalloonAccdents.com, debunks “Hot Air Balloon Propaganda,” and floats the idea that ballooning is four times more dangerous than fixed wing flight: http://www.hotairballoonaccidents.com/hot_air_balloon_statistics.html … Hence, the dangers of hot-air balloons.
Historians (and literary trivia addicts) note that this fear of flying dates back to 1872: Chapter 32 of the Jules Verne novel “Around the World in Eighty Days” says, “[in considering the use of a hot air balloon instead of ships and rail,] it would have been highly risky.” Balloons were never deployed by Mr. Verne, a scientific visionary!!
It took Hollywood’s 1956 movie adaptation Around the World In Eighty Days to irresponsibly fabricate the glamorous use of balloons. Perhaps the harmful and provocative images from this movie influenced the impressionable six-year-old’s behavior?
[Disclosure: Back in college, Rocky threw some hot water balloons (as distinct from hot air balloons) out of his dorm room window. The consequences of this action confirm that both hot air balloons and hot water balloons pose risks to the general population. Rocky concludes that both of these devices should be subject to government regulation. This post has NOT been reviewed by the AAAA, the Albuquerque Aerostat Ascension Association:http://www.hotairballooning.org/ ]
Amazing live herd behavior
Leave it to the Brits to capture genuine herd behavior in this remarkable video. Be sure to wait for the finale at 1:30. (The only question is why are they playing the 1812 overture? Didn’t the Yanks win that war?)
Click and enjoy!
http://video.telegraph.co.uk/services/player/bcpid1137883380?bctid=17075685001
Bank closures, oranges, and broken glass
“A day without orange juice is like a day without sunshine,” says the Florida Citrus Commission. Because of his acid stomach and acid wit, Rocky doesn’t drink much orange juice. Instead, Rocky says, ”A week without a bank failure is like a week with sunshine.”
According to the FDIC, last week marked one of the rare weeks of 2009 without a single bank failure. Folks who see their glass as “half-full” will read this statistic as a ray of economic sunshine. Folks who see their glass as “half-empty” will note that the FDIC usually closes banks on Fridays. Due to the Columbus Day holiday, FDIC employees may have just decided to take a long weekend. The FDIC bank closing list can be viewed here: http://www.fdic.gov/bank/individual/failed/banklist.html
Rocky isn’t someone who views his glass as either half-full or half-empty. Instead, he views his glass as cracked. Hence, he was not surprised when OJ prices went “limit up” (outperforming gold) yesterday. The Trading Places-esque price spike occurred after a Agriculture Department crop report showed a 16% decline in Florida orange production. See: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aC2tcKYnOSOk
Rocky sensibly concludes that any surviving banks won’t be serving free orange juice to their customers.
[Disclosure: Rocky frequently mixes metaphors, as this is part of constructing a "well-diversified" portfolio.]
More bathroom humor…
Rocky received the following letter (actual fax image below) from the Bemis Toilet Seat Manufacturing Company. As always, readers are cautioned to read the Disclaimer before making any investment (or other) decisions.
[From the Bemis Manufacturing Company, Sheboygan Falls, Wisconsin]
June 27, 2007
Dear Mr. Humbert:
Your recent faxed inquiry regarding the Model 400 and Model 450 was forwarded to me by our Director of (Toilet) Training, and as the executive responsible for the development of both the Model 400 and Model 450, I feel an urgent need to set the record straight.
(1) The Model 400 series of Comfort Receptacles were a seminal breakthrough achievement in bowel elimination technology.
While to an untrained eye, it may just be a “toilet seat,” in reality, the Model 400 incorporates more than three dozen proprietary technological advancements, 17 patents, and it includes our trade-marked Anus Sensitivity System ®.
Having carefully modeled the buttocks of more than 12,000 men, women and children of varying ethnic and religious groups, we designed the Model 400 using the latest 3-D CAD/CAM methods, and optimized for both comfort and functionality.
Perhaps you are familiar with the phenomenon of Bounce Back which occurs when a particularly large piece of feces drops into the water and causes an unpleasant splash. Well, due to our breakthrough work, for users of the Model 400, Bounce Back is just an unpleasant memory.
(2) The Model 450 takes the Model 400 to the next level. Incorporating high strength carbon fibre composite (the same material in race cars and the space shuttle), the Model 450 was originally designed for the British market, where constipation is widespread; and where the extra strength of our Comfort Receptacle is not a luxury. It’s a necessity.
I apologize if you were confused about the warranty and pricing information provided by my associate; rest assured that, the men of Bemis proudly stand behind every urinal (and toilet) that we sell.
Sincerely yours,
Robert S. Buttovsky, PhD
Vice President and Director of Research & Development
Toilet sabotage: An attack on the home throne
Rocky returned home from the office on Friday to discover his toilet voiding itself onto the floor.
Remarkably, both bolts that connect the water tank to the bowl failed simultaneously. Rocky’s water is slightly acidic, but to a sensibly paranoid observer, this WAS NO ACCIDENT.
Rocky surmises that one of his enemies planned to cut the brake lines of his car — but got tired of waiting in the rain. Hence, the evil-doer broke into Rocky’s house and cut the toilet bolts instead. This was a direct affront to Rocky’s “throne.” (A less plausible explanation is a manufacturing defect.)
Rest(room) assured, Rocky will remain especially “vigilant,” until the culprit is apprehended and/or his toilet is repaired.
[Disclosure: This was a seven-year-old Kallista Stafford Two-Piece Toilet, Model P70022. Customer service is closed on weekends.]
Carrying an umbrella during a flood
The Philippines suffered tragedy and death as heavy rains flooded the country.
Watching this BBC video, Rocky observed dozens of Philippinos carrying umbrellas amidst the flood. He asks, “If you are waist-high in flood waters, why carry an umbrella?”
Click here to watch this bizarre BBC video clip:
http://news.bbc.co.uk/1/hi/world/asia-pacific/8276299.stm
In one scene, people grasp for a safety rope with their right hand — yet keep their umbrellas erect with their left hand.
Any theories or explanations to explain this seemingly odd behavior would be greatly appreciated.
[Disclosure: Rocky is neither callous nor insensitive to the obvious human suffering in the Philippines. He simply is puzzled by this widespread, seemingly irrational behavior.]
Supply, demand and buried treasure
An amateur “metal detectorist” recently stumbled upon a trove of more than 1,500 gold and silver artifacts in a Staffordshire, England field.
The items date from the Seventh Century, and archeologists say it is the largest hoard ever found in Britain.
Click here for the full story: http://www.nationalpost.com/news/story.html?id=2028795
Rocky makes two observations:
1) While the bull market for gold is several years old, the bull market for Metal Detectors may just be starting. (Click here for a half-price sale on the “Bounty Hunter Time Ranger Metal Detector and Deluxe Gold Pan Kit.”)
2) The collection has been officially declared as a “treasure trove,” and under UK Law is the property of the State. Even in a field, the tax man is never “afield.”
Is gold expensive?
Over at Jeff Watson’s excellent blog, he’s been debating whether gold is going up or going down. Rocky asks a slightly different question, “At $1,000 per ounce, is gold expensive?”
The following graph shows the behavior of gold and the behavior of the US Consumer Price Index going back to 1947. While examining this chart, it’s important to remember that:
1. It was illegal for US citizens (anywhere in the world) to own gold from 1933 until 1974.
2. In 1944, the “Bretton Woods” agreement fixed the price of gold at $35 per ounce.
3. In 1971, President Nixon unilaterally took the USA off a gold standard, and from then to the present the value of gold (and the US Dollar) were allowed to float freely.
So, the question remains, is gold expensive at $1000 per ounce? As those annoying math textbooks like to say, “the answer is left as an exercise for the reader.”
The black line is the CPI Index. The yellow line is the price of gold. Both values were normalized to make the visual relationship easier to see.
Gold Price versus US CPI Index
Chef freezes wife: no microwave or cutlery needed
In light of the revelation that Chef Peter Wallner kept his wife’s body in a freezer in their suburban London home, guests at the Nutfield Priory Hotel & Spa Restaurant might also want to consider whether their dinner entrees were fresh or frozen.
The former Head Chef at the aptly-named Nutfield, admitted that he kept his dead wife’s body on ice for several years, but he denied killing her. For the UPI news story: http://www.upi.com/Top_News/2009/09/16/Husband-admits-keeping-dead-wife-on-ice/UPI-22831253122641/ For the BBC news story: http://news.bbc.co.uk/2/hi/uk_news/england/8258755.stm
Evidently, the Chef needed more room in his freezer, so he recently moved the body to a trash dumpster outside the couple’s home in Cobham, Surrey. Nosey neighbors noticed a foot, and became suspicious. (Mrs. Wallner had not been seen since 2006.)
In a court appearance at the Old Bailey in London, Chef Wallner pleaded guilty to “Preventing a Lawful and Decent Burial.” But he pleaded not guilty to murder.
[Disclosure: Rocky admits that elements of this story may be in "Bad Taste." Nonetheless, it helps explain Rocky's preference for fresh ingredients, as well as fastidious shredding of confidential items (which may include private parts) -- before -- placing them in the dumpster.]
Family dogs contribute to financial collapse
Economists, regulators and bankers all contributed to the financial crisis. Today, the family dog joined that list.
Rocky just learned that “man’s best friend” is being blamed for contributing to insurance giant AIG’s collapse, as well as the skyrocketing cost of health care.
The Insurance Information Institute reports that dog bites represented a third of all homeowner insurance liability claims in 2008, and cost insurers $387.2 million, up 8.7% from 2007.
“In the last year, the number of claims rose nearly 9% from 14,531 to 15,823. More than 4.5 million Americans are bitten by dogs each year, with nearly 900,000 requiring medical care, according to the Centers for Disease Control and Prevention. In 2006, more than 31,000 victims required reconstructive surgery.”
Click here for the Insurance Information Institute report entitled “Avoid Being Bitten By A Lawsuit By Being a Responsible Dog Owner:” http://www.iii.org/Press_Releases/Avoid-Being-Bitten-With-a-Lawsuit-by-Being-a-Responsible-Dog-Owner.html
[Disclosure: Rocky lives in a state where repeat Felons face a "three-strike-and-you're out," mandatory life sentence. His state also has a "One-Bite Rule"where the owner is not liable for the first bite, but is fully liable for the second. Rocky believes that the Criminal and Dog Laws should be harmonized ... so either wayward dogs get three bites or repeat felons only get two. Accordingly, Rocky hopes Congress convenes a special Committee on Canine Culpability. ]
GM takes on Hertz & Avis with FREE cars
For really great Super Bowl parties, Rocky’s neighbor would ”buy” large-screen TV’s at Circuit City on Saturday, and then return the TV’s the following Monday morning for a full refund. No questions asked. No cost. (Except that Circuit City eventually went bankrupt.)
This morning, GM announced a similar no-questions-asked, 60 day full refund on its cars. The promotion is called “May the Best Car Win,” and GM Chairman Whiteacre coyly “declined to put a price tag on the overall promotion.” That’s probably a good thing, since US Taxpayers are paying for this.
Click here for the full story from the NY Times: http://www.nytimes.com/2009/09/11/business/11gm.html
Forget about free toasters for opening new bank accounts. Forget about value meals at fast food restaurants. For consumers with a chunk of cash in their checking accounts, this is the largest giveaway in recent history. (An even better deal than “cash for clunkers.”)
Although the exact details have not been disclosed, here’s Rocky’s arbitrage analysis:
1. Money market funds are yielding approximately 0%, so there is no cost of money.
2. Buyers empty their savings accounts and purchase a new GM car. They pay cash.
3. Title and registration (non-refundable) will cost about $250. Sales tax will be refundable if the transaction constitutes a “return.”
4. After 60 days, the car gets returned to the dealer. (And GM has lost 10%-15% of the car’s value.)
A Hertz rental car for 60 days will cost about $3,000. A GM “rental car” for 60 days will cost about $250.
[Disclosure: Rocky has no position in Hertz Group (HTZ) or Avis Group (CAR). He does have a position as a citizen and taxpayer in the USA.]
Record plunge in consumer credit: so what?
Yesterday, the Federal Reserve reported that consumers reduced their debt by a remarkable $21.6 Billion during July. Click here for the story: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avvF5aNtrCfc
Bearish economists will seize upon this data to show that the consumer is retrenching; final demand will not grow; and the economy may lurch back into a sink hole.
Bullish economists will seize upon this data to show that consumers are finally behaving prudently, their balance sheets are being repaired, and the seeds are being sowed for a more-balanced, sustainable expansion.
Rocky will seize upon the data and say, “If you extrapolate the acceleration of this decline, consumers will be entirely debt free in a couple of years. That seems pretty unlikely.”
A picture is worth a thousand words:
Outstanding Consumer Credit versus Gross National Product
