Friday, October 15, 2010

Thought For The Day

Bank of America is the next Enron/Refco/Amaranth/Bear Stearns.   Short of Fed intervention, I can smell this one a mile away.  If David Tepper and John Paulson are still heavily invested in this one, they are screwed.  I am buying out of the money long-dated low-strike puts to express my conviction.


  1. Enron/Refco/Amaranth/Bear Stearns

    You forgot Lehman.

    Also Titanic/Hindenburg/GreatFireofLondon/SanFranciscoEarthquake/Krakatoa/and Santorini



  2. Try BAC, C, and JPM "bundled" together in a fatal (in)securitization. The Fed itself comes later.

  3. LOL Jess...Golden Truth give BAC a golden shower...

  4. Which ones are you buying. Jan 2013 . 5 Strike. They are .48cents

  5. I have to think there is now way BAC goes down after all the efforts of the past two years to save them (and others). Still, having to raise even more capital will drop that stock I would imagine. What a mess.

  6. Former BOA Massachusetts Bank Branch Manager Charged in Mortgage Scam:

    It will be interesting to watch the bank debacle if there were straw man mortgages sold on the same properties to increase profits & bonuses at the banks either here or nationwide.

  7. Hey there Dave,

    Even though I'm inexperienced when it comes to investing (i currently have a little over 500oz of silver with bits of fractional gold), I was thinking about putting some money to miners or the likes. I wonder what are your thoughts on Hecla vs. Eurasian minerals.

    Hecla seems to be very undervalued as well as having no debt with plenty of capital. Although I'm going to put in a measly amount of money (I'm going to liquidate 2 or 3 rolls of eagles or the gold instead), part of me feels that Eurasian minerals seems to have much further upside potential than hecla.

    Again, I'm new at this and have never used on an online broker before (learning on the fly) and just wanted to get your opinion. Thx Dave.

  8. Irv, I"m away for the weekend but here's what I would say: Eurasian Minerals is the best idea I've seen in the 9 years I've been doing this. I also like the Hecla Pfd C which pays a 6.5% dividend.

  9. boogieman. right now i love the May 2011 9's. I think this thing tanks before then. i may start putting some fund money into Jan 2012 5's.

  10. And this from CNBS...
    You should probably be a buyer of Bank of America right now
    I never thought I’d find myself typing those words. I’ve been a huge critic of Bank of America for years. I'm bearish on the financial supermarket model. I don't think the acquisition of Merrill Lynch is working out. I still don't understand the logic of buying Countrywide.

    But Bank of America's recent decline—down almost 10% this week—is driven by fears that the bank could be hit with huge liabilities for faulty mortgage pools. And I’m pretty sure that is not going to happen.

  11. Broncos got ROBBED by that bullchit pass inteference call! Can't you even play the game anymore on defense?????

  12. Could you give us your thoughts on the various COT analyses which seem to cover the internet when talking about silver. As I understand it when Lehman was taken over (and it may have been true of Bear Stearns short position as well, the Fed agreed to compensate for losses on the short. Now I have never read that this guarantee was limited in time or rescinded. Indeed much of JP Morgan's short position may still be Fed loss indemnified as it has persisted to this time.

    There are three different types of analysis on the COT commercial positions and they basically tell two different stories.

    There is the short analysis and there is the net short analysis. These tell us that the commercials are maintaining their shorts and are increasing to short in the face of long strength. As Gene Arensberg says the shorts are waiting in background to pounce and JPM according to Gene is now in grudge position with four million ounces on hand (yawn) from it's position as the SLC trustee waiting for the grudge match to bring the price down.

    (Doesn't Gene know that banks always try and nick the security when they are in trustee position and the legal cases on this clutter up the Courts. In the UK they even invent new "terms" to disguise the process of putting a company into acceleration a cross default event under the bonds, the loan is "on demand" while they try to half inch the security with factoring leasing and other forms of lending that in a reasonable view consist of a disposal or the threat of disposal of a main part of the business etc. To suppose that JPM would resolutely stand by the SLV investors is no more or less likely than BAC would never violate the representations and warranties when selling an MBS. It displays a naivity that reeks of a lost age that probably may never have existed.)

    The other analysis is that the commercials long position on the COT's this tells a different story altogether. Eric De Groot uses this and deduces that a new profile has emerged because it shows the commercials short covering into strength for the first time and going increasingly long, a change in trading pattern. There is a rationale explanations for why this could be happening. Firstly, JPM may not be wholly at risk on the short position and secondly the short position may be laid down by the investment committee as banks strategy and could be allocated to other capital reserves other than the trading desk.

    If either of the two reasons given above are correct then Eric De Groot by concentrating on the long position may be looking at the actual trading desks position. The trading desk may to a small extent be betting against the house because the dealers get paid bonuses on the profits on their positions and they really couldn't give two stuffs what happens to the house.

    I would be interested in you view of the two COT analysis rationale. If you have the time.

  13. Thanks for your thoughts/comments. RE: your description of the UK court system: Charles Dickens presented a wonderful portrayal of the UK judicial process in "Bleakhouse."

    In terms of your COT question. The true answer is that we don't know what the banks are capable of doing to try and create a typical COT liquidation stop-loss trigger. We just don't have access to the full data from the CME that insiders and banks have access to (i.e. I would want to see the true amount of physical gold sitting unemcumbered in the Comex dealer inventories at the Comex depositories and I would want to see a breakdown of the composition of the large spec category and the commercial category). As you can see, since the banks do have this info and we don't, it's a great example of the lack of free markets in this country.

    Of course, Obama rode into office with one his promises being more transparency and honesty in Govt and true financial reform. He has delivered neither. In fact, if anything, the FinReform Bill actually gives the banks, in a round-a-bout way, a lot more power to hide, lie and cheat. Thanks Barack!

    I have assumed a position of "neutrality" with respect to trying to use the COT as means of forecasting the next intermediate market move. It's one of those tools that is widely examined now (vs. 5 years ago) and certainly a lot of the predictive content gets priced into the market quickly now. So to say the net commercial short is near a record high and the o/i is near an all-time high and thus we should expect a big COT liquidation trigger is to take a simplistic view of how markets function.

    I'm leaning toward the view (like De Groot's) that the physical market is too strong to allow the banks push around the price with paper like they have historically. And also the it is likely the character make-up of the large spec category is skewed more toward "stonger-handed" buyers vs. mosly technical "black box" players. But we don't know that for sure.

    I'm not arrogant enough anymore to think that I know better than the market OR that I know better than those with the access to the info I would like to have (i.e. the banks).

    As such, my partner and I have positioned the trading positions in our fund for the possibility that we will get a big manipulated COT liquidation but we also are set-up for the possibility that this current "overbought" condition might resolve itself with sideways move or even a slower continuation of the current move.

    Hope that helps.