Monday, June 30, 2008
Update to previous Posts
How much money could you have made? Well as of today 6/30/08, (since only Trailrunnings actually reads this blog HAPPY ANNIVERSARY Love HBOO) SKF is trading at $153.96 and MBIA is at $3.80. If you had bought SKF individual shares when I originally blogged about it on 11/8/07 LINK you would have made $57.15 for a return of approx 59%. For MBIA, if you had shorted the shares on 2/8/08 LINK (my post date) you would have made $10.80 with an undetermined % return because of leverage. Why yes I'm that good and I'm still living in my condo, so you can see I didn't whole heartily invest my life savings into these two schemes. ;)
Wednesday, June 25, 2008
Those darm speculators!!!!
As "speculators" are now the scapegoat for the run-up in oil prices I find it funny how the gov. (do they even deserve to be capitalized now) specifically the senate (again, the respect that capitalizing a letter in the name of an organization is very undeserved in this case in my opinion. And after all this is my forum for my opinions ;) ) drags "Hedge Fund" operators to testify in front of a panel of POLITICIANS! If my memory serves me right, politicians are failed lawyers who in turn failed math in school :). Do they even know how markets really work? Speculators grease the wheels of the markets by taking risks others don't want to take. These same "speculators" built American markets from scratch and will continue to make and lose vast sums of money (whether in formal markets or ????) long after the politician has moved onto the next new thing that gets their face on camera. While markets behave irrationally at times, this is what they do. Sometime in the future the oil market, baring any unforeseen calamities (again, politicians and administrations can force a "calamity"), will right itself and fall below its intrinsic value. When this happens (I predict after the Nov. elections) a politician will be there to take credit. Can you tell I have a chip on my shoulder with respect to politicians.
Instead of dragging speculators in front of know nothing panels, what the representatives of the people should be doing is balancing the federal budget by eliminating PORK!!! My views have lately been influenced by reading Alan Greenspans book "The Age of Turbulence" specifically his years as Fed Chairman. He experienced Presidents from Richard Nixon to george II and found the bush's (again notice the lack of capitalization. Wow, I'm mean today) to be the most politicized of them all. This means instead of focusing on what would make the American economy strong, robust and flexible, and in turn those same citizens, they chose to do the politically expedient and "friendly" thing (do you know that george II didn't veto any of the first 60 bills that crossed his desk. The power of the veto is one of the BASIC checks and balances of our governmental system. To not use this as a check on congress, opened the floodgates to new and creative ways of wasting YOUR money). This has lead to record deficits that have decreased the value of the dollar and thus increased our costs of most raw materials (as most commodities are priced in U.S. Dollars). This is what the senate should be investigating, but they are a smart bunch and know if they throw out the word "speculator", they will deflect the real blame away from them and onto the age old evil doer, the Speculator.
PS The President, from Nixon to georg II, with the best economic record when it came to doing the right thing for the American economy most of the time (they can't be perfect all the time with respect to economic issues. They after all, are politicians) according to his record and the accompanying results from those policies, is................... drum roll please ........................................................................................................................................................................................................................................................................ Bill Clinton, a tax and spend Democrat who put programs and policies in place to retire the debt of the US by the mid to late 2000's. george II, a fiscally conservative republican, has taken that legacy and turned a possible zero debt balance into 9 Trillion dollars of crushing debt. For a few hastily figured figures, that equates to 360 Billion dollars in INTEREST per year (at 4% anum.), 986 Million per day, 41 Million per hour, 684 K per minute, 11 K per second. See you later.
Instead of dragging speculators in front of know nothing panels, what the representatives of the people should be doing is balancing the federal budget by eliminating PORK!!! My views have lately been influenced by reading Alan Greenspans book "The Age of Turbulence" specifically his years as Fed Chairman. He experienced Presidents from Richard Nixon to george II and found the bush's (again notice the lack of capitalization. Wow, I'm mean today) to be the most politicized of them all. This means instead of focusing on what would make the American economy strong, robust and flexible, and in turn those same citizens, they chose to do the politically expedient and "friendly" thing (do you know that george II didn't veto any of the first 60 bills that crossed his desk. The power of the veto is one of the BASIC checks and balances of our governmental system. To not use this as a check on congress, opened the floodgates to new and creative ways of wasting YOUR money). This has lead to record deficits that have decreased the value of the dollar and thus increased our costs of most raw materials (as most commodities are priced in U.S. Dollars). This is what the senate should be investigating, but they are a smart bunch and know if they throw out the word "speculator", they will deflect the real blame away from them and onto the age old evil doer, the Speculator.
PS The President, from Nixon to georg II, with the best economic record when it came to doing the right thing for the American economy most of the time (they can't be perfect all the time with respect to economic issues. They after all, are politicians) according to his record and the accompanying results from those policies, is................... drum roll please ........................................................................................................................................................................................................................................................................ Bill Clinton, a tax and spend Democrat who put programs and policies in place to retire the debt of the US by the mid to late 2000's. george II, a fiscally conservative republican, has taken that legacy and turned a possible zero debt balance into 9 Trillion dollars of crushing debt. For a few hastily figured figures, that equates to 360 Billion dollars in INTEREST per year (at 4% anum.), 986 Million per day, 41 Million per hour, 684 K per minute, 11 K per second. See you later.
Monday, June 2, 2008
AH!!!!! The magic of MtM accounting.
How would you like it if as you spent more on your credit card, the higher your net worth would climb? Well thats the case if you are marking to market (MtM) your debt value. According to this article, the Wall Street Banks are able to do just that.
Banks and other institutions are able to mark to market the value of their outstanding debt and then "book" the difference between the notational value and the market value as REVENUE. The amount of debt owed doesn't change, just the value. As the article states, the banks also use MtM to value assets such as securities, derivatives, etc. and this type of accounting does have merit, but I just can't see the truth through the increased fog this brings to balance sheets, income statements, etc.
For an example of how this works suppose I had $15,000 of credit card debt, a $30,000 savings bond, and I'm paid $20,000 per year. Assuming the simplest scenario my net worth equals my savings bond amount minus my outstanding debt, or in this case 15K. If my yearly expenses matched my yearly income I have a net zero cash flow statement and don't add anything to my net worth. Now lets say I add $1,000 to my debt. This should decrease my net worth by $1,000, correct? But according to MtM, I have increased my annual income (Revenue) by $2,000. What???? Yep that's right I GOT A RAISE by buying that new flat panel TV at Costco. How is this possible you say, well let me tell ya!
Again lets assume a simplified scenario. Your previous debt had a market value of $15,000 because you had an excellent credit record and you had always made good on your debts. People were willing to "buy" you debt for 15K. You weren't risky. But once you bought that TV alarm bells went off in some credit card issuers basement and now you were RISKY. Now no one will touch your 16k of debt for more than 14k. The MARKET VALUE of your debt has decreased 2K (from 16K to 14K). Well according to FASB Statement 159 you can book the decrease in the MtM debt value to revenue. Thats right you "made" 2K more this year. You now show a positive net income of 2K (no other expenses changed throughout the year) and now look good to your investors oh I mean family. If I account for this increase correctly then my "increase" in revenue of 2K minus my increase in debt of 1K adds $1,000 to my net worth. Of course none of these revenue increases adds cash to the bank account but it sure looks good when getting more loans or trying to increase my "stock price".
Banks and other institutions are able to mark to market the value of their outstanding debt and then "book" the difference between the notational value and the market value as REVENUE. The amount of debt owed doesn't change, just the value. As the article states, the banks also use MtM to value assets such as securities, derivatives, etc. and this type of accounting does have merit, but I just can't see the truth through the increased fog this brings to balance sheets, income statements, etc.
For an example of how this works suppose I had $15,000 of credit card debt, a $30,000 savings bond, and I'm paid $20,000 per year. Assuming the simplest scenario my net worth equals my savings bond amount minus my outstanding debt, or in this case 15K. If my yearly expenses matched my yearly income I have a net zero cash flow statement and don't add anything to my net worth. Now lets say I add $1,000 to my debt. This should decrease my net worth by $1,000, correct? But according to MtM, I have increased my annual income (Revenue) by $2,000. What???? Yep that's right I GOT A RAISE by buying that new flat panel TV at Costco. How is this possible you say, well let me tell ya!
Again lets assume a simplified scenario. Your previous debt had a market value of $15,000 because you had an excellent credit record and you had always made good on your debts. People were willing to "buy" you debt for 15K. You weren't risky. But once you bought that TV alarm bells went off in some credit card issuers basement and now you were RISKY. Now no one will touch your 16k of debt for more than 14k. The MARKET VALUE of your debt has decreased 2K (from 16K to 14K). Well according to FASB Statement 159 you can book the decrease in the MtM debt value to revenue. Thats right you "made" 2K more this year. You now show a positive net income of 2K (no other expenses changed throughout the year) and now look good to your investors oh I mean family. If I account for this increase correctly then my "increase" in revenue of 2K minus my increase in debt of 1K adds $1,000 to my net worth. Of course none of these revenue increases adds cash to the bank account but it sure looks good when getting more loans or trying to increase my "stock price".
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