‘Woods returns to his winning ways with one-shot triumph at Bay Hill’
Suffice it to say that for whatever reason, we should all feel better off that he’s back. Now if he could only fix the credit markets as well as the auto companies! Say, anyone ELSE notice the ATT logo on his bag replaced his Buick one? Hmmm. Maybe he’s the reason GMs in the spot it’s IN!? But we digress. Given all the news ‘out there’ at the moment, we’ll let you get right TO our PDF. We’ll also point out David Kotok’s excellent attempt to describe the leveraged solution of the PPIP. We’d also mention Barrons article by Santoli this week – about how stocks may NOT be IT for the long run. Finally, we’d mention that we’ve UPdated our picture of 10s – essentially pointing out that technicals still lined up more bullishly, and are only now getting some run-support from the fundamentals. This continues to warrant our collective attention. Have a great start to the week. Best, Saul/Steve
Here’s a preview of OUR rant:
It’s mind-numbing once again this morning trying to get our heads around what’s going on ‘out there’ at the moment, with regards to the autos. Suffice it to say that risk trades are back OUT of vogue and rightfully so. We were told back in December that the auto companies were too big to fail and then this morning, well, we’re waking up to very different headlines this morning as it appears we’re one step closer to the inevitable. Right. We’re far from auto experts and we’re gonna cut right TO the proverbial chase. Friday, we had a look at 10yrs and we’ll UPdate that in just a moment. What strikes US is how the technicals all seem to be lining up in one direction (bullishly) and then today, all of a sudden (?), there’s something more fundamental to the bid. Suffice it to say that OUR heads hurt this morning trying to keep up with h’lines out of Geithner over the weekend and how on the one hand, rules of the game aren’t changing, yet the GMs chief is pushed out while the banking CEOs Friday were given an Oval Office pat on the back?! Huh? GM bond-holders are going to be forced to take even MORE of a haircut and Gettlefinger is essentially GettinTheFinger. Folks … as the rules of the game change, being IN risk assets and risk trades just ain’t gonna work. Here’s an updated picture of 10s from Friday’s note … We’ll stick with the more bullish premise as long as the facts support it.
Alrighty, then … we’re moving on then and came across the following from David Kotok of Cumberland Advisors … We think it NEEDS to be read.
Heads Or Tails, by David Kotok
Dear Reader: Please give me 8 minutes to explain the $1.1 trillion federal government Public-Private Investment Program (PPIP).
Start here with this simple example. It’s a coin toss. Heads you win $100; tails you get nothing. How much would you pay to play? You can play as many times as you wish. Answer: not more that $50. For less than $50, you would play as often as you can. $50 is your breakeven; only a fool would pay more.
Now add Tim Geithner as your partner. He matches what you invest but you, and only you, get to set the price to play. Answer: you put up no more than $25 as the investor and that means he matches your number. At under $25 you play as much as you can. $25 is your breakeven as the investor; $50 is still the breakeven for the coin flip.
Now let’s add some of the leverage from the FDIC.
Suppose that the FDIC will loan you $40 as a non-recourse loan. You and Geithner each put up $5 for a total of $10 and, adding in the loan money, you pay $50 to play, just as before. If you get heads, you pay off the loan of $40, and you and Geithner split the rest. That means you get $30 for your $5 and so does he. Remember, you set the price to play. If you get tails you get nothing and lose $5, Geithner loses $5, and the FDIC loses $40.
Now suppose we have an auction to decide who will play.
FINALLY, we’d also highly recommend one and all put THIS Barrons article on the top of your short list of ‘must reads’ today … STREETWISE Stocks Through a Wide-Angle Lens by Michael Santoli … Stocks vs. Bonds ONE OF THE BEDROCKS OF modern investing has been the surety that stocks outperform bonds over long periods. Stocks’ risk premium, or excess return over bonds, has become gospel for financial advisers, brokers and pension consultants, among others.