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To: Spekulatius who wrote (48303)6/11/2012 10:31:01 PM
From: E_K_S
1 Recommendation   of 54357
 
Hi Clownbuck - (Even your alias denotes the worthlessness of the $U.S. "buck", so you may find the information posted relevant).

Maybe Off Topic but still relevant IMO. What is the asset worth holding during these unprecedented times - interest rates near or at 0%; a strong U.S. dollar, The EU Community Banks insolvent ?. . . . Cash or Cash equivalents or Equities that own undervalued productive "real" assets?

Madharry raised the issue of derivative products and their potential impact on the economy. It's something that has been in the back of my mind since he discussed it early this year.

I was alerted today about this article by Paul Craig Roberts. He paints a picture that knits together the unusual historical low interest rates and the long term effect on the World's economy. Is their an Exit Strategy that minimizes the pain. Maybe, it's owning undervalued equites but only bought with $US at the right time (ie. before the implosion).

Collapse At Hand
June 5, 2012
By Paul Craig Roberts (about the author)
opednews.com

However, the $230,000,000,000,000 in derivative bets by US banks might bring its own surprises. JPMorgan Chase has had to admit that its recently announced derivative loss of $2 billion is more than that. How much more remains to be seen. According to the Comptroller of the Currency, the five largest banks hold 95.7% of all derivatives. The five banks holding $226 trillion in derivative bets are highly leveraged gamblers. For example, JPMorgan Chase has total assets of $1.8 trillion but holds $70 trillion in derivative bets, a ratio of $39 in derivative bets for every dollar of assets. Such a bank doesn't have to lose very many bets before it is busted.Assets, of course, are not risk-based capital. According to the Comptroller of the Currency report, as of December 31, 2011, JPMorgan Chase held $70.2 trillion in derivatives and only $136 billion in risk-based capital. In other words, the bank's derivative bets are 516 times larger than the capital that covers the bets.It is difficult to imagine a more reckless and unstable position for a bank to place itself in, but Goldman Sachs takes the cake. That bank's $44 trillion in derivative bets is covered by only $19 billion in risk-based capital, resulting in bets 2,295 times larger than the capital that covers them.

Bets on interest rates comprise 81% of all derivatives. These are the derivatives that support high US Treasury bond prices despite massive increases in US debt and its monetization.US banks' derivative bets of $230 trillion, concentrated in five banks, are 15.3 times larger than the US GDP. A failed political system that allows unregulated banks to place uncovered bets 15 times larger than the US economy is a system that is headed for catastrophic failure. As the word spreads of the fantastic lack of judgment in the American political and financial systems, the catastrophe in waiting will become a reality.

I really do not want to be around for the end game. I do want to gobble up those under valued equities with my $US while it still has some purchasing power. What I want to avoid is buying too early.


It's all speculation but still it's reality. At some time to revert back to normal, interest rates must increase. However, with trillions in "naked" interest rate derivative products, it's different this time.


I just do not think it will be a happy ending.


EKS

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To: E_K_S who wrote (48305)6/11/2012 10:57:53 PM
From: Spekulatius
1 Recommendation   of 54357
 
I don't think the interest rate swaps (which are derivatives, but serve a real business purpose in most cases) have anything to do with where the interest rates will be in the future.

I don't quite buy in the bleak scenery- form e, the potential danger lies much more in inflation than in deflation. Part of this is my upbringing in Germany. Most Germans are hard wired to fear inflation much more so than deflation and so am I. Also from past inflationary episodes, I know that you can have a recession and high inflation at the same time, it is certainly not true that swamping the economy with printed currency will keep it going no matter what; in fact the risk doing just that is that citizens will loose all the confidence in the currency, at which point the game is over ad hyperinflation is unstoppable.

If you believe that your scenario comes to pass, you should short the market aggressively and the only stocks to hold would be consumer staples with pricing power, which would probably benefit from lower input costs.

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To: Dennis 3 who wrote (47544)6/11/2012 11:47:06 PM
From: Paul Senior
   of 54357
 
Insurer Genworth (GNW): I've upped my small position today as stock dropped.

finance.yahoo.com

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From: Paul Senior6/12/2012 3:52:23 AM
2 Recommendations   of 54357
 
I bought a starting position in Kronos Worldwide (KRO) and will add if/as stock continues to fall. KRO produces and markets titanium dioxide pigments. Apparently there's no substantial new titanium oxide production coming on line until maybe 2014(not sure of this info), so with current good demand, raw material prices are high and KRO has been able to raise its prices to its customers. (Which gives the stock a low p/e and high roe, for now)
seekingalpha.com


The Simmons Family (Harold and brother Glen) are controlling company insiders. I'm not a fan of Harold Simmons for a number of reasons: regarding stocks, primarily because his interest never seems to me to be aligned with those of the smaller, outside shareholders. Overriding my concern though, the brothers and others have been persistent buyers of KRO stock in the open market, at prices higher than currently: finance.yahoo.com.

There's a 60c dividend (yield about 3.6%), and last year I believe there was a special $1 dividend.

With all this, I'm willing to tag along behind the insiders.

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To: Spekulatius who wrote (48303)6/12/2012 7:40:32 AM
From: Mr.Gogo
1 Recommendation   of 54357
 
Clownbuck,

What is your opinion on Canadian housing bubble? Vancouver and Toronto? Do you have any idea how this can be shorted? You cannot short the banks (the drop has to be way beyond 20%) in order for them to loose money. No point to short a bank, REITs pay a dividend, will be painful. And in Vancouver it will crush, because the market has reached worse levels than in the USA. I am researching the Condo market in Toronto in the moment and looking for a leveraged builder. More condos are in construction in Toronto than in the 5 biggest US cities combined. Canadians have the highest debt to income ration in history so far.

Georgi

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To: Paul Senior who wrote (48307)6/12/2012 7:57:59 AM
From: Mr.Gogo
   of 54357
 
I think it will be dropping further.

theglobeandmail.com

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To: Paul Senior who wrote (48308)6/12/2012 8:56:48 AM
From: whenitgoesup
   of 54357
 
Nice one. Even a run up to the 40wk MA would take it over $20

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To: Dan Meleney who wrote (37805)6/12/2012 11:15:50 AM
From: Dan Meleney
   of 54357
 
GLUX...I closed out today for a 21% gain. I got more concerned that government subsidies will continue to be reduced.

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To: Dan Meleney who wrote (48312)6/12/2012 11:50:36 AM
From: Paul Senior
   of 54357
 
I put airline GLUX on my watch list after your earlier post. I got interested (but never bought shares) when I saw their route map:

greatlakesav.com

Since the company flies close to where shale oil is being produced, I was suspecting GLUX might be a beneficiary of oil execs and oil crews, and maybe oil equipment, going in/out of the area.

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To: Paul Senior who wrote (48308)6/12/2012 12:33:34 PM
From: gizwick
   of 54357
 
Bought shares in KRO and followed you in after researching the company. I now have a good balance of value companies in my portfolio and won't buy any more unless there is a huge bargain in a name value stock. Holding a lot of cash these days.

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