"Production depends upon people, not only in the actual process, but because of the final demand that justifies its existence. The more and more consumers, the more and more need for things to be produced. I will go so far as to say that not only growth but capitalism itself may be in part dependent on a growing population."
Bill Gross, PIMCO, August Investment Newsletter
Turkcell is a company that has great prospects from being the #1 wireless provider in Turkey. Turkey has a median age of 27.2 and 25% of the population is under the age of 14. This means that there are huge demographic forces that will increase overall demand for wireless services in the Turkish domestic market.
Add a great balance sheet, significant growth prospects in Eastern Europe, and solid customer satisfaction ratings, and Turkcell is a great long term holding.
Long TKC at $15.
Thursday, July 29, 2010
Riding Gold again
Until the Fed looks to begin raising interest rates, the price of gold will not fall.
Sell $115 Sept GLD put at $3.5
Buy $112 Sept GLD put at $2.6
Sell $115 Sept GLD put at $3.5
Buy $112 Sept GLD put at $2.6
Friday, July 9, 2010
ECB sends out more propaganda
The recent news regarding the sovereign debt crisis is not passing the smell test. It seems that the ECB bought right up to their spending limit ($60B euros) and then called the damage control a success. It has been mentioned that Greece has possibly met most of their funding needs for this year. But it is wreeks of a PR campaign to claim victory and hope no one looks as the medicine starts to really take hold and show if it works. Growth is fleeting across the Euro zone, deposits are fleeing Greek private banks. The real test has not even started.
Buy VXX any time it falls below $24. Sell the next time one of the PIIGS needs to refinance when the VXX is above $30 again.
"ECB Signals an End to Aid Program
FRANKFURT—European Central Bank President Jean-Claude Trichet said strains in European financial markets are starting to ease, suggesting the ECB will continue to pare a program to help the region's most-vulnerable countries get back on their financial feet.
The ECB left its key rate unchanged, but all eyes remained fixed on Trichet's press briefing, where the central bank president is expected to soothe concerns over bank liquidity. Dave Kansas, David Weidner and Bob Davis discuss. Also, Ianthe Jeanne Dugan discusses the pain that impacted many hospitals after their derivative bets went bad.
Under the program, which was designed to jump-start dysfunctional segments of the financial markets, the ECB began purchasing government debt in May.
"What is needed in terms of interventions [in government-bond markets] has been progressively diminishing," Mr. Trichet said Thursday after the ECB's monthly meeting.
He rejected concerns that a weaker global economy, and fiscal belt-tightening in Europe, might push the region into another recession, saying investors have been too pessimistic on the currency bloc's economic prospects.
ECB President Trichet dismissed the chances of a double-dip recession.
Mr. Trichet said he is happy with the central bank's monetary stance, suggesting the ECB may keep its main lending rate at a low of 1% for many more months. He said that markets are showing increasing confidence in European officials' ability to manage the crisis.
The ECB has purchased nearly €60 billion ($75.6 billion) in government debt of Greece and other vulnerable countries such as Portugal since the program started on May 10. But the amounts have dwindled after a brisk start, averaging only about €4 billion a week since mid-June. The ECB bought more than €16 billion in bonds in the first week of the program.
"He sort of showed his hand a little bit that they are in the exit" phase, said Erik Nielsen, chief European economist at Goldman Sachs.
Government-debt purchases by central banks had been taboo in Europe, particularly Germany, where the practice stokes fears of a loss of central-bank independence and increases in the money supply, which could lead to inflation. Germany's central-bank chief Axel Weber, a member of the ECB's governing council, has been a vocal opponent of the plan, exposing a rift between the ECB and its largest member country.
Mr. Trichet declined to offer an end date for the program or to specify conditions in markets under which officials would terminate it, suggesting the ECB will continue to buy bonds in small installments for at least a few more weeks, analysts said.
"They may be trying to buy some time" until a €750 billion EU-IMF stabilization fund is operational, said Nick Matthews, an economist at Royal Bank of Scotland. European leaders agreed to set up the fund on May 10,the same day the ECB started buying bonds, in order to prevent Greece's debt crisis from spreading to other countries in Europe's periphery such as Portugal and Spain.
Also Thursday, the Bank of England's Monetary Policy Committee left its key interest rate unchanged at a low of 0.5% to help cushion the economy against the effect of deep cuts in government spending.
The decision was broadly expected, with many economists also predicting the Monetary Policy Committee would maintain its bond purchases, made through its quantitative easing policy, at £200 billion ($303 billion).
Mr. Trichet declined to provide fresh details on bank stress tests, but gave the exercise a nod of support, saying, "We expect that the tests will be confidence-building." The Committee of European Banking Supervision, a London-based body that groups national authorities, said Wednesday that 91 European banks will undergo stress teststo see how their balance sheets would withstand shocks including a double-dip recession and a sovereign shock that generates losses on government bond portfolios.
The ECB president on Thursday continued to warn, as he has for manymonths, that the region's economic recovery will be "uneven." Europe's recovery from the worst recession in decades has been modest so far in comparison with stronger rebounds in the U.S. and in developing countries like China and India.
Rate changes since 2004 in dozens of countries.
Still, after expanding less than 1%, at an annualized rate, in the first quarter, the euro-zone economy should grow around 3% in the April-June period, said Greg Fuzesi, economist at JPMorgan Chase. That's due in large part to a strong pickup in Germany, which accounts for about 30% of the region's gross domestic product. Reports Thursday on exports and factory output point to second-quarter growth of around 6%, at an annualized rate, says Ralph Solveen, economist at Commerzbank.
In a departure from his practice of speaking of the euro zone only in its totality, Mr. Trichet specifically highlighted the German figures Thursday. For the euro zone as a whole, "the second quarter is likely to be much better than the first quarter," Mr. Trichet said. He dismissed the chances of renewed stagnation or a double-dip recession.
Write to Brian Blackstone at brian.blackstone@dowjones.com"
Buy VXX any time it falls below $24. Sell the next time one of the PIIGS needs to refinance when the VXX is above $30 again.
"ECB Signals an End to Aid Program
FRANKFURT—European Central Bank President Jean-Claude Trichet said strains in European financial markets are starting to ease, suggesting the ECB will continue to pare a program to help the region's most-vulnerable countries get back on their financial feet.
The ECB left its key rate unchanged, but all eyes remained fixed on Trichet's press briefing, where the central bank president is expected to soothe concerns over bank liquidity. Dave Kansas, David Weidner and Bob Davis discuss. Also, Ianthe Jeanne Dugan discusses the pain that impacted many hospitals after their derivative bets went bad.
Under the program, which was designed to jump-start dysfunctional segments of the financial markets, the ECB began purchasing government debt in May.
"What is needed in terms of interventions [in government-bond markets] has been progressively diminishing," Mr. Trichet said Thursday after the ECB's monthly meeting.
He rejected concerns that a weaker global economy, and fiscal belt-tightening in Europe, might push the region into another recession, saying investors have been too pessimistic on the currency bloc's economic prospects.
ECB President Trichet dismissed the chances of a double-dip recession.
Mr. Trichet said he is happy with the central bank's monetary stance, suggesting the ECB may keep its main lending rate at a low of 1% for many more months. He said that markets are showing increasing confidence in European officials' ability to manage the crisis.
The ECB has purchased nearly €60 billion ($75.6 billion) in government debt of Greece and other vulnerable countries such as Portugal since the program started on May 10. But the amounts have dwindled after a brisk start, averaging only about €4 billion a week since mid-June. The ECB bought more than €16 billion in bonds in the first week of the program.
"He sort of showed his hand a little bit that they are in the exit" phase, said Erik Nielsen, chief European economist at Goldman Sachs.
Government-debt purchases by central banks had been taboo in Europe, particularly Germany, where the practice stokes fears of a loss of central-bank independence and increases in the money supply, which could lead to inflation. Germany's central-bank chief Axel Weber, a member of the ECB's governing council, has been a vocal opponent of the plan, exposing a rift between the ECB and its largest member country.
Mr. Trichet declined to offer an end date for the program or to specify conditions in markets under which officials would terminate it, suggesting the ECB will continue to buy bonds in small installments for at least a few more weeks, analysts said.
"They may be trying to buy some time" until a €750 billion EU-IMF stabilization fund is operational, said Nick Matthews, an economist at Royal Bank of Scotland. European leaders agreed to set up the fund on May 10,the same day the ECB started buying bonds, in order to prevent Greece's debt crisis from spreading to other countries in Europe's periphery such as Portugal and Spain.
Also Thursday, the Bank of England's Monetary Policy Committee left its key interest rate unchanged at a low of 0.5% to help cushion the economy against the effect of deep cuts in government spending.
The decision was broadly expected, with many economists also predicting the Monetary Policy Committee would maintain its bond purchases, made through its quantitative easing policy, at £200 billion ($303 billion).
Mr. Trichet declined to provide fresh details on bank stress tests, but gave the exercise a nod of support, saying, "We expect that the tests will be confidence-building." The Committee of European Banking Supervision, a London-based body that groups national authorities, said Wednesday that 91 European banks will undergo stress teststo see how their balance sheets would withstand shocks including a double-dip recession and a sovereign shock that generates losses on government bond portfolios.
The ECB president on Thursday continued to warn, as he has for manymonths, that the region's economic recovery will be "uneven." Europe's recovery from the worst recession in decades has been modest so far in comparison with stronger rebounds in the U.S. and in developing countries like China and India.
Rate changes since 2004 in dozens of countries.
Still, after expanding less than 1%, at an annualized rate, in the first quarter, the euro-zone economy should grow around 3% in the April-June period, said Greg Fuzesi, economist at JPMorgan Chase. That's due in large part to a strong pickup in Germany, which accounts for about 30% of the region's gross domestic product. Reports Thursday on exports and factory output point to second-quarter growth of around 6%, at an annualized rate, says Ralph Solveen, economist at Commerzbank.
In a departure from his practice of speaking of the euro zone only in its totality, Mr. Trichet specifically highlighted the German figures Thursday. For the euro zone as a whole, "the second quarter is likely to be much better than the first quarter," Mr. Trichet said. He dismissed the chances of renewed stagnation or a double-dip recession.
Write to Brian Blackstone at brian.blackstone@dowjones.com"
Sunday, June 27, 2010
Why you should go long BP - carefully
The Deepwater Horizon tragedy has been a fiasco. BP will owe billions and will continue to pay materially and in creditibility for many years. But despite all of this, BP will still exist when the noise dies down.
1) Energy security depends on it
BP owns well developed and yet to be developed strategic oil interests all over the world. BP owns interests in Azerbaijian, Angola, Brazil, and Norway. BP has also strategic rights to potential deepwater sites that could hold vast fortunes of oil resources. In bankruptcy, foreign governments may lose faith in US and Britain organization may lose these assets to major competitors from China and Russia. This is much more threatening to the administration than even the clean up effort.
2) BP is as much an American company as it is British
The current form of BP is the result of a merger between legacy BP, and Aramco, the legacy Standard Oil, in 1998, and a purchaser of ARCO, the Atlantic Richfield Co. in 2000, another major American oil producer, and Burmah Oil, PLC. The resulting company is the largest oil producer in the world. But the legacy of the company makes over 40% of the existing shareholders attributable to the Standard Oil and ARCO firms, and thus American interests. Moreover, over 23,000 of 80,000 BP employees are in the US.
So often in the debate about BP there has been accusations that the US government should punish foreign interests for their irresponsibility. Instead, the history of the firm points to a long history of American shareholder interest in BP. The US government has no interest in penalizing the firm to the detriment of US shareholders unless absolutely necessary
What to do?
Although the US government has had blistering criticism and threats to the BP organization, Bloomberg has reported that Obama said on June 16th "BP is a strong and viable company, and it is in all of our interests that it remains so." Thus if the US government has no interest in bankrupting the company through punitive measures, then someone needs to tell that to the bond market. BP bonds are selling at a 10%+ discount to previous prices. This offers a significant opportunity to the prudent speculator. Bill Gross, the founder of PIMCO, has already taken the leap and currently owns millions of subordinated issues.
Long BP Senior Debt "E" Series and Long BP Subordinated Debt
1) Energy security depends on it
BP owns well developed and yet to be developed strategic oil interests all over the world. BP owns interests in Azerbaijian, Angola, Brazil, and Norway. BP has also strategic rights to potential deepwater sites that could hold vast fortunes of oil resources. In bankruptcy, foreign governments may lose faith in US and Britain organization may lose these assets to major competitors from China and Russia. This is much more threatening to the administration than even the clean up effort.
2) BP is as much an American company as it is British
The current form of BP is the result of a merger between legacy BP, and Aramco, the legacy Standard Oil, in 1998, and a purchaser of ARCO, the Atlantic Richfield Co. in 2000, another major American oil producer, and Burmah Oil, PLC. The resulting company is the largest oil producer in the world. But the legacy of the company makes over 40% of the existing shareholders attributable to the Standard Oil and ARCO firms, and thus American interests. Moreover, over 23,000 of 80,000 BP employees are in the US.
So often in the debate about BP there has been accusations that the US government should punish foreign interests for their irresponsibility. Instead, the history of the firm points to a long history of American shareholder interest in BP. The US government has no interest in penalizing the firm to the detriment of US shareholders unless absolutely necessary
What to do?
Although the US government has had blistering criticism and threats to the BP organization, Bloomberg has reported that Obama said on June 16th "BP is a strong and viable company, and it is in all of our interests that it remains so." Thus if the US government has no interest in bankrupting the company through punitive measures, then someone needs to tell that to the bond market. BP bonds are selling at a 10%+ discount to previous prices. This offers a significant opportunity to the prudent speculator. Bill Gross, the founder of PIMCO, has already taken the leap and currently owns millions of subordinated issues.
Long BP Senior Debt "E" Series and Long BP Subordinated Debt
Thursday, June 24, 2010
Ally Financial: Fighting the tide
GMAC Financial, now Ally Financial, is a wonderful example of a company who is making it's best effort to stabilize after a large US bailout.
Ally Financial, with liabilities of over $200B and a significant portion with dubious quality at the time of reckoning, received a total $20B infusion from the US Treasury in March of 2010 through the conversion preferred shares into common equity. With that, the Treasury essentially recapitalized the whole company and at the end of Q1 2010 had $14.8B in cash and cash equivalents. With stimulus across the world, Ally has been able to write up assets and unload risky assets from their balance sheet.
To that end, Ally Financial sold off it's European mortgage assets (1) but has continued exposure to Europe in auto loans and other areas.
This month, Ally Financial has attempted to securitize mortgage securities again by offering a senior not on a $166m mortgage pool with %25 credit enhancement.(2) This means that the pool of low LTV loans and prime borrowers can withstand 25% losses before the senior bond is at risk. The senior note was graded A by Moody's. The auction will not occur until next month.
Overall, Ally Financial is making great strides to reduce risk and return tradtional banking practices. It is still yet to be determined whether the company can stand on it's own. But due to the critical function the company performs in supporting the American auto industry, the implicit support from the US government will provide significant credit protection for all investors.
The author is long GKM until maturity.
(1)"Residential Capital (ResCap), the mortgage subsidiary of GMAC Financial Services, is selling its European mortgage assets and businesses to affiliates of alternative asset manager Fortress Investment Group (FIG: 3.37 -3.44%).
The transaction moves 10% of ResCap's total assets as of year-end 2009 — and 40% of total assets when adjusted for the required Financial Accounting Standard (FAS) 167 treatment of off-balance-sheet securitization — into Fortress ownership.
ResCap said the assets in the transaction are valued at levels established in Q4 2009, and it expects no material gain or loss from the transaction. With this deal, GMAC is essential out of the European market."
(2) "Moody's Investors Service assigned provisional ratings to a senior note issued by GMACM Mortgage Loan Trust Series 2010-1, a new residential mortgage-backed deal.
The securitization is sponsored by General Motors Acceptance Corp. Mortgage (GMACM). According to a source close to the deal, GMACM Mortgage Loan Trust 2010-1 priced on Tuesday.
Moody's has assigned a provisional single-A 2 status to one senior note with an original stated value of $166.35m. This note is supported by a subordinate certificate with an original stated value of $55.45m, which Moody's did not rate.
The transaction is backed by 1,981 loans with a combined unpaid principal balance of $222m originated and serviced by GMAC. Loans insured by the Federal Housing Administration (FHA) make up 97% of the pool, with the remainder insured by the US Department of Veterans Affairs (VA)."
Ally Financial, with liabilities of over $200B and a significant portion with dubious quality at the time of reckoning, received a total $20B infusion from the US Treasury in March of 2010 through the conversion preferred shares into common equity. With that, the Treasury essentially recapitalized the whole company and at the end of Q1 2010 had $14.8B in cash and cash equivalents. With stimulus across the world, Ally has been able to write up assets and unload risky assets from their balance sheet.
To that end, Ally Financial sold off it's European mortgage assets (1) but has continued exposure to Europe in auto loans and other areas.
This month, Ally Financial has attempted to securitize mortgage securities again by offering a senior not on a $166m mortgage pool with %25 credit enhancement.(2) This means that the pool of low LTV loans and prime borrowers can withstand 25% losses before the senior bond is at risk. The senior note was graded A by Moody's. The auction will not occur until next month.
Overall, Ally Financial is making great strides to reduce risk and return tradtional banking practices. It is still yet to be determined whether the company can stand on it's own. But due to the critical function the company performs in supporting the American auto industry, the implicit support from the US government will provide significant credit protection for all investors.
The author is long GKM until maturity.
(1)"Residential Capital (ResCap), the mortgage subsidiary of GMAC Financial Services, is selling its European mortgage assets and businesses to affiliates of alternative asset manager Fortress Investment Group (FIG: 3.37 -3.44%).
The transaction moves 10% of ResCap's total assets as of year-end 2009 — and 40% of total assets when adjusted for the required Financial Accounting Standard (FAS) 167 treatment of off-balance-sheet securitization — into Fortress ownership.
ResCap said the assets in the transaction are valued at levels established in Q4 2009, and it expects no material gain or loss from the transaction. With this deal, GMAC is essential out of the European market."
(2) "Moody's Investors Service assigned provisional ratings to a senior note issued by GMACM Mortgage Loan Trust Series 2010-1, a new residential mortgage-backed deal.
The securitization is sponsored by General Motors Acceptance Corp. Mortgage (GMACM). According to a source close to the deal, GMACM Mortgage Loan Trust 2010-1 priced on Tuesday.
Moody's has assigned a provisional single-A 2 status to one senior note with an original stated value of $166.35m. This note is supported by a subordinate certificate with an original stated value of $55.45m, which Moody's did not rate.
The transaction is backed by 1,981 loans with a combined unpaid principal balance of $222m originated and serviced by GMAC. Loans insured by the Federal Housing Administration (FHA) make up 97% of the pool, with the remainder insured by the US Department of Veterans Affairs (VA)."
Monday, June 21, 2010
Reiterating - Gold is going higher
I have taken great interest in the gold debate. Here is what I have found...
There are two major laws to investing in gold.
(1) Gold tracks neither inflation or deflation as a rule, instead gold tracks financial instability
In periods of financial instability, there is a rush to safety to buy treasury bonds and the like. Investors also become skeptical of paper currency. That is a strong bullish case for gold.
(2) Gold consistently increases when short term interest rates are at nominal zero
When the Fed is pumping money into the system to fight whatever financial ill is in the system, this is also a bullish scenario for gold. Right now, the Fed is trying to unemployment and financial instability. Both drivers warrant an extended period of low interest rates. So when will the Fed raise interest rates?
(1 + 2) The Fed historically has only raised rates six months after unemployment starts to fall from peak levels
Based on the current reports regarding the dwindling stimulus and the temporary census jobs boost, unemployment should decline from current levels for the rest of 2010 and early 2011. Thus with the instability in Europe, and these structural problems in the US, the Fed will keep interest rates low as a safe strategy. This is an "all clear" bullish sign for gold for the rest of the year.
There are two major laws to investing in gold.
(1) Gold tracks neither inflation or deflation as a rule, instead gold tracks financial instability
In periods of financial instability, there is a rush to safety to buy treasury bonds and the like. Investors also become skeptical of paper currency. That is a strong bullish case for gold.
(2) Gold consistently increases when short term interest rates are at nominal zero
When the Fed is pumping money into the system to fight whatever financial ill is in the system, this is also a bullish scenario for gold. Right now, the Fed is trying to unemployment and financial instability. Both drivers warrant an extended period of low interest rates. So when will the Fed raise interest rates?
(1 + 2) The Fed historically has only raised rates six months after unemployment starts to fall from peak levels
Based on the current reports regarding the dwindling stimulus and the temporary census jobs boost, unemployment should decline from current levels for the rest of 2010 and early 2011. Thus with the instability in Europe, and these structural problems in the US, the Fed will keep interest rates low as a safe strategy. This is an "all clear" bullish sign for gold for the rest of the year.
Wednesday, May 12, 2010
Gold is on the rise
No confidence that more loans will resolve the issue of too many loans in the Euro Zone.
Gold is the play of social instability.
Selling GLD Jul 10 $118 puts for $4.5 and buying $115 GLD Jul 10 puts for $2.9
Gold is the play of social instability.
Selling GLD Jul 10 $118 puts for $4.5 and buying $115 GLD Jul 10 puts for $2.9
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