The Tasgall Group

This is a bit of a drive-by post and I’m not going to comment for now on the chart below. I haven’t really absorbed it mentally yet. I don’t know the source of this data either so take it with a grain. But discuss…what does it mean? My god, what does it mean?

Ok, people, if this thing is going to happen, that obviously sets us up for a certain future, depending on your views. So, if you had $100,000 to invest in the aftermath of a bill passing and you had total flexibility (within reason, e.g. stocks, options, futures, metals, Treasuries, FX), do you have a bead on an optimal “Living-with-the-Bailout” portfolio/asset allocation plan? I’m stumped right now (or rather more concerned with stopping the bill that dealing with the aftereffects) but wondered if any of you smart dudes had one in the works. And I obviously know that you all will be concentrating on things like debt reduction etc. but I’m interested more in your ideas for profiting from this even if you don’t plan to actually pursue that route. I’d also like to see how the plan ties into your outlook for various markets.

It is worth making an aside here. When the banks actually run out of money they can’t lend. Asset prices depend critically on the ability to borrow against them (and that includes the price of current mortgages in the secondary market). When the banks can’t lend asset prices can fall to very low – indeed insanely low levels. At the height of the crisis some 2 bedroom apartments walking distance from the centre of Oslo (one of the richest cities in the world) and with full 180 degree fjord views traded hands for USD15000. You would have easily made 30 times your money buying those properties. Property prices can fall to very low levels without any bank lending. Indeed the ability to borrow to buy assets is often crucial in maintaining their prices…

…from this article on the Norwegian financial crisis. Credit-based inflation…an idea at the same time obvious (once you are made aware) and profound. The implications of this for the idea of wealth, poverty and the understand of value are bone-chilling. Or am I making too much of it?

With oil on everyone’s mind these days (and since Jason breached the topic), I’ve had one question nagging at me. Everyone seems to think that oil and gas have nowhere to go but up. If that assumption holds, then why wouldn’t everyone just buy all the oil futures they can, hold them and become rich? Or to put it another way, why doesn’t the supposedly efficient market just spike price all the way to $200-300/barrel if that is really where we are all but destined to go. Why the steady daily grind up? It’s the basic contrarian question: if everybody thinks it’s going up, doesn’t that put it into question that it’s going to happen?

Like all speculative bulls, they have to go through the motions. Rarely does a market have an instantaneous bubble rise. It takes time. But I can’t help but wonder if the minute everyone thinks it can’t ever come down that it will. If oil were destined to go up until it is replaced, then there really isn’t any point in even wasting one second investing anywhere else, is there?

The equity markets right now are extremely volatile. The VIX has more than doubled just in the past few months, and this presents some opportunity if you’re willing to buy during the dips. Before I go further, let me be clear that I’m only considering buying broad market indexes when buying dips – not individual stocks or niche ETFs or mutual funds. I feel buying into dips is only advisable when considering a broad basket of equities. So, to simplify the discussion below, assume that we’re talking about the S&P500 only (although this should apply to any index funds, ETFs and mutual funds that focus on a large basket of equities) and that we’re discussing using market dips to augment long-term holdings only.

The 3-part question I’ve been grappling with is: (1) what constitutes an actionable dip, (2) when to exploit this dip, and (3) how much to invest in the dip. Volatility helps create really nice dip opportunities, but it requires some speed, available funds, and some previously determined strategy to effectively capitalize on volatility. (more…)

I just finished reading Why Stock Markets Crash, a book that has been on my radar a while and I finally found it at the library of all places. Have you ever heard of this place? They have tons of books you can read for free! Anyway, the basic thesis of the book says that markets, while normally holding to effcient market theory, become highly predictable when herding behavior creates bubbles. These bubbles often take a shape that can be fit to a non-linear model of log-periodic oscillations that results in a critcal point in time or singularity. Ah, there’s that crazy, kooky word again!

Ever since I was at university (that’s Euro-trash for “in college”), I’ve been reading and pondering this concept of the singularity. I first heard of the idea in The Physics Of Immortality and later in The Singularity Is Near. If you’ve read any of these books, then you know what I mean by the Singularity and, if not, then basically it is a point at which greater-than-exponential growth leads to nearly vertical growth and a paradigm shift occurs that alters the system beyond recognition. (more…)

Ok, so here’s another attempt at a discussion…  feel free to comment below or do your own post as a trackback to this one.

Almost all financial plans promote the concept of building a pool of “safe money” to cover emergencies and unexpected expenses.  This is certainly a good idea, though to think about it critically, we need to look at the real requirement behind the idea.  The idea isn’t just to have cash in a bank account, the point is to have immediate access to funds if/when you have unexpected situations crop up.

The traditional place for safe money would be a savings account or money market account.  Keeping this pool of money in such a safe place gives you many benefits — almost instant access, near zero chance of loss, etc.  You also have the benefit of knowing exactly how much you have available — maybe enough to cover expenses for 3 or 6 months were you to lose your job/income.

In many respects, you can consider your lines of credit (credit cards, home equity loans, etc.)  as part of your cash reserve.  You have nearly instant access to it — in some cases even quicker than getting money out of a money market account.  You have a near zero chance of losing the credit line — unless you sell your house (for HEL) or close your credit card account.  You also know how much you have available in the form of your credit limit (and your credit score can actually benefit from having a lot of unused credit available).  You can also potentially build a larger pool of safe money if you have good credit — in effect having a credit line that exceeds the same amount you can/would keep in cash.

So, allow me to posit a question — is there a real difference in keeping safe money in cash versus keeping the same amount in available credit?  (more…)

I just saw an ad that Investor’s Business Daily is having a “free pass” for the next week (Feb 26 to  March 4) on their online subscriber services.  I haven’t been dying to read IBD, but if it’s free I might look around a bit…

I know John has subscribed to IBD in the past…  what’s your take, what’s worth using, and does anything justify the subscription price when it stops being free?

If you’re a hippy and are interested in lowering your carbon footprint, you might find an unexpected place to do so in the stock market and be able to profit at the same time… consider investing in timber. Both Rayonier (RYN) and Plum Creek Timber (PCL) are publicly traded companies that own significant timberland, and if logic holds, the timberland absorb enough carbon dioxide to offset your own personal production. (more…)

It seems that the financial news lately has been full of stories like this (via the FT):

Oil producers shun dollar – Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

The cover of The Economist last week even taunted a falling dollar: (more…)