A Yacht, Greenspan and Uranium Stocks
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Have You Seen This?

Have You Seen This?

                        

On Monday, in a CNBC Europe interview, Jim Rogers wondered if the US was “…more communist than China.” He was referring to the Fed’s bailout of Freddie Mac and Fannie Mae, and to a lesser extent, the bailout of Bear Stearns back in March. “Socialism for the rich” he called it.

 

“This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents," Rogers said. "I’m not quite sure why I or anybody else should be paying for this.”

 

That’s great stuff. And when you consider that the Treasury is on the hook for something like $50 billion (assuming the entire portfolio of mortgages doesn’t go non-performing), it does seem a bit like the taxpayer is, to quote the license plate of my home city, experiencing taxation without representation.

 

As a counterpoint, Warren Buffett applauded the move as the best deal available. But even Buffett admits that this outcome was made somewhat inevitable when Freddie Mac and Fannie Mae were chartered as quasi-government entities.

 

There’s a lot of “coulda, shoulda” going on these days.

 

But to get to the best of them, we need to throw a couple more names into the discussion: Bill Miller and Alan Greenspan.

 

                                            The Line Up

 

Bill Miller is the once-legendary manager of a few Legg Mason mutual funds. Miller beat the S&P 500 16 years running. It should be noted that the same year his streak was stopped, 2006, was the year he bought the 9th biggest yacht in the U.S, the Utopia.

 

Many wondered at the time if this purchase was the ultimate “sell” signal. Well if that wasn’t, Miller’s early-summer admission that he doubled down on Freddie Mac should have been.

 

As of July 31, he owned 80 million shares of Freddie Mac. Ouch. So certain was Miller that he was sitting on a value goldmine, he added 30 million shares this summer, even as Freddie’s stock was getting pummeled.

 

You have to look at Miller as some kind of tragic hero. King Lear perhaps, who thought he was “…more sinned against than sinning.”

 

Miller apparently took Bernanke and Paulson’s pledge to keep Freddie Mac “in its current form” as gospel. And so it was either greed or ego that made him think averaging down on Freddie Mac was a good idea.

 

I’m guessing Miller was the only one who took Bernanke at his word. Now he’s found out how much sharper than a serpent's tooth it is to have a thankless Fed!

 

(I’ll certainly never forget my senior analyst Benson George’s warning to stay away from any mortgage-related stocks, but that’s a different article.)

 

                                  Heads on a Platter

 

Bill Miller may be the sacrificial lamb, albeit of the same species as the homeowners who bought more house than they could afford. But what of the “crooks and incompetents” that Rogers spoke of?

 

It’s not as if Freddie Mac CEO Richard Synor and Fannie Mae CEO Daniel Mudd (could that name be more ironic) had no idea what was going on.

 

Freddie Mac’s chief risk officer David Andrukonis told Synor in 2004 that the bad loans it was buying “would likely pose an enormous financial and reputational risk to the company and the country.”

 

Syron got the warning in writing that “shoddy” underwriting standards were exposing the company to losses, according to Andrukonis. Demands to raise its capital cushion went mostly unmet. Even when they came directly from Paulson and Bernanke.

 

Well Syron’s out of a job now. But of course, he was paid $38 million in the last five years -- $38 million to make $80 billion in shareholder equity disappear.

 

Freddie Mac’s bond holders will get paid. That’s what Rogers means by “socialism for the rich.” Syron’s mess will get cleaned up. Eventually. It remains to be seen what happens to homeowners in over their heads and Bill Miller. I expect they won’t be the beneficiaries of any socialism.

 

                              Playing for the History Books 

 

I remember thinking back in 2005, after Greenspan had announced his retirement, that he was playing for the history books. Using low interest rates to prop up a weak economy so he could go out in style. (Sort of like how gas prices have dropped as we head into the election.)

 

And even now, Greenspan seems to be trying to re-write the books.   

 

"Much as we might wish otherwise, policymakers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances," Greenspan recently said.

 

He went on to say that governments and central banks probably could not have altered the course of the once high-flying housing market.

 

Oh man. This is just too easy. I don’t even need a narrative. These comments speak for themselves:

 

·        ''history has not dealt kindly with the aftermath of protracted periods of low-risk premiums (interest rates).'' 2005 Greenspan

 

·        ''American consumers might benefit if lenders provided greater mortgage product alternatives (read: no interest loans and adjustable rates) to the traditional fixed-rate mortgage.'' Greenspan 2004

 

·        "There do appear to be, at a minimum, signs of froth in some local markets," Alan Greenspan said. June 10 2005

 

·        "…the apparent froth in housing markets may have spilled over into the mortgage markets." June 10, 2005

 

On July 19, 2005 chief economist for Standards & Poor's, David Wyss offered up some solutions to Greenspan. He said that the Fed could control mortgage rates by increasing interest rates, and could also place restrictions on banks to get them to stop providing mortgages with no money down.

 

Wyss said these types of loans place risks on the economy by providing owners with houses "that they can't afford." "What do you do when [the owner] mails the key back to the bank?"

 

Well, we’re finding that out right now. And it’s not good.

 

On August 29, 2005 Paul Krugman wrote in a New York Times editorial what Greenspan apparently couldn’t see “…we're going to have an economic slowdown, and possibly a recession.”

 

Wyss could see it. Krugman could see it. Benson could see it. Why not Greenspan or Miller?

 

                                     Uranium Stocks

 

Now, on a completely different note, I hosted a forum chat here at Investor’s Insight last Friday. It went really well and I’d like to thank all the readers who came out to ask questions and leave comments.

 

You really helped that chat with informed questions and insightful comments. Thanks.

 

The transcript of the discussion is still available under Discussion Forums.

 

One person inquired about a couple uranium stocks. Here’s my response:

 

Uranium prices peaked in Spring of 2007 and have been pretty much downhill ever since. There appears to be plenty of supply and little increase in demand.  

 

With a rising dollar, commodities in general have been headed lower. Until there is some stability in the dollar, price pressure will remain on commodities in general.

 

Uranium is a bit of a special case, as its price started falling well before most other commodities. That’s probably not a good sign. Though it may be worth noting that sentiment on uranium couldn’t get much worse at the moment.

 

There doesn’t seem to be much talk about new nuclear plants coming on line here in the U.S., and that makes me think that uranium prices may stay low for a while.

 

However, if you don’t mind waiting for a while, uranium stocks may be OK. But you must buy big companies, with plenty of cash, and, preferably, other sources of income, like gold mining.

 

For the record, I can’t believe Bancroft Resources (BCFT:OTC:BB) isn’t “bankrupt resources.” Granted, it’s only in the exploration stage, but with virtually no cash, I don’t see how this company stays afloat.

 

At least Uranium Resources (Nasdaq:URRE) has revenue and a decent cash position. But institutions are dumping and no insiders are buying, despite the stock price sitting at nearly all-time lows. In fact, the stock’s down 17% today on no news. That’s usually not a good sign.

 

I always advocate waiting for signs of buying before taking a position in a stock. That’s what my stock-picking machine TRIGR is engineered to do, and that’s the way I like it. I don’t want my money sitting around for months or years waiting for a stock to move.

 

There are plenty of trends moving stocks higher right now that you can profit from. Opportunity cost, while not an outright loss on your capital, is still a cost.

 

Best Regards,

 

Ian Wyatt

Chief Investment Strategist

Growth Report

 





Posted 09-09-2008 9:51 PM by Ian Wyatt
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Comments

mgvvmsrg wrote re: A Yacht, Greenspan and Uranium Stocks
on 10-05-2017 12:46 AM

1

mgvvmsrg wrote re: A Yacht, Greenspan and Uranium Stocks
on 10-05-2017 12:46 AM

1