1. Yehuda Fruchter July 10, 2009 8:33 am

   Interestingly, just as I finished writing this article I saw this piece of news: $18 million Being Spent to Redesign Recovery.Gov Website

   Since, I know a thing or two about web development, I can assure you that it doesn’t take anywhere near $18 million to redesign or manage Recovery.gov. Even during the first Internet bubble, spending $18 million on a website would be comical. And today with cheap web development labor overseas, and inexpensive hosting, $18 million is simply absurd.

   Proof again that stimulus equals fraud.

2. Thomas J. Costagliola July 10, 2009 1:33 pm

   Yehuda,

   You are too jaded. Yes, the government is printing money and giving it to the banks to recapitalize them. In my view the bank recapitalization gives people who can see around the corner the opportunity to collect a lot of money by investing in a basket of banks and other financials. This worked exceedingly well for me in 1990. $20,000 in 1990 in 5 big banks turned into $200,000 in 2000 at which point I got out.

   Personally, if I were in charge I would send every citizen, until employment picked up, a $2,000 per month check as a 0% interest loan with a 20% per year payback. Give it away then take it back. Let Citizens earn the spread rather than the banks. On the tax side, having run a small business, I would try making the first $20,000 of income exempt from Social Security tax. More radically, I would try Milton Friedman’s suggestion that we eliminate all taxes based on income and just print the money we need to run the government.

   As you can see, I love good fantasies.

   Re the banks, I am trading the UYG with a long bias.

   Thanks for DITC alert, it had been on my radar for several years but I had stopped following it. I built a small position in it after your recommendation.

   I will buy back FTGX if the takeover vote fails. Fortunately, I got out of half my position just above the takeover price and the other half after the RCN story.
   I am 75% in cash right now.

   Best wishes,

   Thomas

3. Yehuda Fruchter July 10, 2009 5:23 pm

   Hi Thomas,

   Thanks for your comments. I like your idea about checks to citizens, I’ve had similar fantasies in the past.

   As for banks, not my cup of tea. Absolutely no transparency and the earnings are mostly fabricated, in my opinion. It’s absolutely impossible for any outside investor to really understand what’s going on at banks from a financial perspective. Heck even the bank regulators at the Fed don’t have a clue. Also, I strongly believe that this time is very different than 1990. All this CDS, CDO, derivative garbage was basically non-existent then. The business was much simpler then.

   You really have to be comfortable investing with complete crooks, if you buy the banks. Sometimes that works out well, but usually outside investors are left out in the cold.

   Anyway, if banks do somehow do return 10-fold over the next decade (and assign a very small probability of that this time around), many deep value micro cap stocks will go up more. So you’ll undoubtedly still do much better with deep value micro caps than with banks.

   I guess I just feel more comfortable investing in small tech companies with clean balance sheets. I’ve lost the most money in the past, by investing in complicated balance sheet stories, of which the banks are the prime example.

   Best regards,
   Yehuda

4. Yehuda Fruchter July 10, 2009 5:42 pm

   By the way, if CDS is banned, and/or the vast majority of derivatives are moved to exchanges as some are proposing, banks are toast, as far as major profits. These derivatives were the secret sauce for bank “profits” for the last decade (and of course the subsequent economic collapse). I recommend reading the book “Traders, Guns and Money” by Satyajit Das.

5. Yehuda Fruchter July 11, 2009 8:46 am

   Here’s a good article on the proposed changes for derivatives.

   http://finance.yahoo.com/news/Geithner-seeks-more-control-rb-2881692854.html?x=0&.v=7

Leave a Comment

If you would like to make a comment, please fill out the form below. Please note that we only require an email for editing purposes. We will NEVER publish your email or use it in any way.