Chris Lau - Seeking Alpha

Sunday, April 26, 2009

Actions Speak Louder than Words

Reasons This is a Bear Market Rally:

Insiders know more than we do. It's simple. They are on the front-lines of the business. Actions speak louder than words. Much louder. Look at April Insider trading activity:
  • Insider purchases of $42.5 million are on track to make April the skimpiest month for such buying since July 1992
  • “We’re quite aware that insiders are not infallible. But they are, after all, in the front lines of commerce and industry and so presumably have a better fix on the economy and the prospects for recovery than analysts and economists, whether of macro or micro persuasion.
  • And just as they wouldn’t be laying off people in such extraordinary numbers if they thought their business was about to rebound soon, they’d be loath to liquidate their holdings in such an emphatic way if they espied a turnaround in the offing.”
Highlights from:

When Microsoft reported earnings, the company did not give any forecasts for the next quarter. If Microsoft does not give forecasts, how are any of us qualified to do so?

In the stock market, the value of uncertainty is usually a negative one.

Notable: Commercial Real Estate
Based on the U.S. "Stress Tests" coming to a market near you: 240B bank losses.

On Commercial Real Estate:
The One Trillion Commercial Real Estate Bomb

In this article, $700B in commercial loan defaults sounds irrelevant. But "Banks have $1.1 trillion in core commercial real estate loans on their books according to the FDIC, another $590 billion in construction loans, $205 billion in multifamily loans and $63 billion in farm loans."

"Total maturities by 2018 are approximately $2 trillion, with $1.4 trillion maturing through 2013."

Author's conclusion:

"And, at last, there is the view that the refi problem could fix itself, based on the argument that CRE cash flows are likely to rebound quickly as the economy begins to improve due to pent-up demand.

This argument is nonsense: even if cash flows recover to their peak 2007 levels, values would still be down 30% as a result of the shift in financing terms. Ironically, it would require cash flows rebounding far beyond their peak levels to push values up sufficiently to overcome the steep declines. This is equivalent to predicting (as the administration is implicity doing) that the market will be saved by the next rent and real estate bubble, which the U.S. government is currently attempting to generate."

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