Now that it appears that we have finally begun the long-awaited mega-bull run in Gold and mining stocks, it's a great time to revisit the best sources of information to make investment decisions.
Quality information comes in many forms. Some cost money,such as newsletters. Some are free, such as websites, chat forums and the media.
In terms of newsletters, I've subscribed to or have been familiar with at least a dozen. In fact, many months ago, I wrote a piece on 7 of them which can be reviewed by clicking here: http://markostake.blogspot.com/2010/01/looking-for-great-gold-newsletter.html.
In general, the opinions I expressed then I would maintain now, but I'd like to elaborate with some qualitative comments. For the purposes of full disclosure, I currently subscribe to two newsletters: LeMetropole Cafe (http://www.lemetropolecafe.com/) and Clive Maund (http://www.clivemaund.com/). Each is different and serves a different audience. Each does so, in my opinion, excellently.
Le Metropole is by far the very best value out there. It is written daily, and full of invaluable information. Head guru Bill Murphy is not only among the most knowledgeable and best connected people out there in Gold land, but his organization, GATA (http://www.gata.org/), is on the front lines of protecting investors from the shady back-room operators who routinely intervene in what should be free markets. I could write an entire essay on his efforts alone, but history will undoubtedly judge him as the most potent force in this market today.
Clive Maund writes a newsletter that is primarily technically oriented. While his technical analysis is often scorned by Gold's perma-bulls, who hate it when he gets bearish, he has, in my experience stayed intellectually honest and has been very willing to acknowledge his bad calls. Hey, even Marko's Take blows it!
Clive Maund also gives specific buy and sell recommendations and timing, which for most investors is what they need to make money. Unless you understand things like On Balance Volume and Candlestick charting, Clive's newsletter should be part of your information set.
In addition to these subscriber newsletters, there are a myriad of fine blogs out there. Of particular note are Jesse's Cafe Americain (http://jessescrossroadscafe.blogspot.com/) and Harvey Organ's The Daily Gold (http://harveyorgan.blogspot.com/). Other must reading includes Jim Sinclair's MineSet (http://jsmineset.com/) and a great site called Gold Tent: Poster's Paradise (http://goldtent.net/wp_gold/).
Sinclair is a legend in the Gold community and it amazes me that his site is still free. In Gold Tent, you'll find a large number of well-informed traders and investors with whom you can exchange ideas and thoughts in a mutually supportive environment. Unlike some other chat rooms, the decorum is kept very civil and participants politely exchange information rather than insults with whom they may not entirely agree.
In terms of Gold-Oriented web sites, the three that come to mind are Kitco (http://www.kitco.com/), 321Gold (http://www.321gold.com/) and GoldSeek (http://www.goldseek.com/). They serve as excellent clearinghouses of information and feature various news reports and newsletter writers.
The only information that investors should be truly wary of are the various reports of the major brokerage houses and credit rating agencies such as those that are issued by our friends at firms like Government Sachs (GS), Moody's and Standard & Poors. Study after study has shown that these firms are so full of conflicts of interest that the information they spread is anything but credible. You can be pretty-well assured that these reports are used to propagandize the firms' narrow self interests and NOT to provide a service to investors.
The other sites mentioned above have NO conflicts of interests and only prosper based on the quality of the information they provide. The major brokerage and credit firms, on the other hand, make money whether they're right or wrong.
As Labor Day weekend ends, the traditional summer vacation is over and markets will begin to get more active and, in all likelihood, we have a very interesting fall ahead of us. You know where we stand: stock market meltdown is uncomfortably likely and gold market meltup is dead ahead.
Before making any major investment decisions, consider all the sources of information that you have. The next several weeks are likely to be historically significant, and a chance to make a lot or lose a lot. Never underestimate the value of information. Toward that end, thanks for reading.
Marko's Take
In
Showing posts with label Moody's. Show all posts
Showing posts with label Moody's. Show all posts
Sunday, September 5, 2010
Wednesday, June 9, 2010
Ambac: Another Triple A To Bite The Dust
As the global financial authorities wrestle with the incredible mess known as the world economy, credit rating agencies Standard & Poors, Moody's and Fitch have come increasingly under fire. Of particular interest is the sheer volume of over-rated issuers who have subsequently defaulted http://markostake.blogspot.com/2010/05/bond-rating-agencies-yield-junky.html.
Now, we're NOT talking about junk-rated paper. Investors, who made the mistake of paying attention to ratings, have been stung by buying Triple A-rated paper which then was either downgraded to junk status or defaulted, resulting in massive capital losses.
To re-iterate, the Triple A designation means that the issuer has an infinitesimal probability of default for the forseeable future. Only 4 U.S.-based corporate issuers carry that rating: Johnson & Johnson (JNJ), Microsoft (MSFT), Automatic Data Processing (ADP) and ExxonMobil (XOM). Even Uncle Sam, who owns a printing press, is in danger of losing this elite status.
ABK was itself rated Triple A until 2008. The company is now facing bankruptcy, according to a recent filing with the Securities and Exchange Commission (SEC).
Ambac (ABK), however, takes this ratings lunacy to an entirely different level. At issue is MUCH more than ABK's own $1.2 billion in outstanding debt. The company, known as a "mono-line insurer", provides credit insurance for hundreds of billions of outstanding bonds. ABK, along with rival MBIA (MBI), are the two key companies providing this "service".
Issuers, who would NOT qualify for a Triple A, but would wish to carry that rating, pay a premium to the mono-line insurers to provide a guarantee to establish the soundness of their debt. In effect, ABK and MBI act as additional security to prospective investors who insist on purchasing only the very safest of bonds.
If the mono-line insurers default, their insurance becomes worthless and affects huge swaths of debt, including municipalities and mortgage-backed, collateralized obligations. If this insurance becomes unavailable, or is perceived to have no value, many prospective issuers will have to access the capital markets at a complete disadvantage. Not to mention the fact that the outstanding issues already insured will become far less liquid, resulting in extreme price pressure.
To be fair, the affairs of the operating company will be separated from that of its insurance unit, Ambac Assurance. However, a bankruptcy of a mono-line insurer would be un-precedented and, at the very least, throw its customers into disarray during what may be a highly contested process.
The big three rating agencies, whose self-serving methods have been completely exposed as fraudulent, continue to maintain that their business models are viable. What's wrong with having issuers shop for a rating that is to their satisfaction? Everything!
What investors are learning from the credit fiasco of the last 3 years is that the rating agencies provide ZERO information. In so doing, they have sown the seeds of their own demise. As investors learn to place no value on a credit rating, issuers will stop paying for these ratings and the problem will take care of itself. Any financial regulatory policy will be purely window dressing for public consumption and to curry political favor.
Washington, where WERE you? Oh, yes. Our friends at the SEC were too busy preventing the Bernie Madoff scam from duping investors. Or, preventing the investment banks from creating misleading derivatives, that led to massive financial system dislocations.
The irony of the financial meltdown is that there are so many villians, that each of them can easily point the finger at someone else. It was the investment banks' fault. It was the credit rating agencies' fault. It was the regulators' fault. It was the Senate Finance Committee's fault. It was the Federal Reserve's fault. It was George Bush's fault. On and on.
Systemic financial crises are not created without the participation of MULTIPLE parties, each of which is acting in their own interest. The only common thread is that, while all the villains cashed in, the investment world lost. America lost. The global financial community lost. At least the villians got their bonuses!
Marko's Take
Other links we like: http://www.lemetropolecafe.com/, http://www.shadowstats.com/, http://www.goldpennystocks.com/, http://harveyorgan.blogspot.com/ and http://www.youtube.com/markostaketv.
Now, we're NOT talking about junk-rated paper. Investors, who made the mistake of paying attention to ratings, have been stung by buying Triple A-rated paper which then was either downgraded to junk status or defaulted, resulting in massive capital losses.
To re-iterate, the Triple A designation means that the issuer has an infinitesimal probability of default for the forseeable future. Only 4 U.S.-based corporate issuers carry that rating: Johnson & Johnson (JNJ), Microsoft (MSFT), Automatic Data Processing (ADP) and ExxonMobil (XOM). Even Uncle Sam, who owns a printing press, is in danger of losing this elite status.
ABK was itself rated Triple A until 2008. The company is now facing bankruptcy, according to a recent filing with the Securities and Exchange Commission (SEC).
Ambac (ABK), however, takes this ratings lunacy to an entirely different level. At issue is MUCH more than ABK's own $1.2 billion in outstanding debt. The company, known as a "mono-line insurer", provides credit insurance for hundreds of billions of outstanding bonds. ABK, along with rival MBIA (MBI), are the two key companies providing this "service".
Issuers, who would NOT qualify for a Triple A, but would wish to carry that rating, pay a premium to the mono-line insurers to provide a guarantee to establish the soundness of their debt. In effect, ABK and MBI act as additional security to prospective investors who insist on purchasing only the very safest of bonds.
If the mono-line insurers default, their insurance becomes worthless and affects huge swaths of debt, including municipalities and mortgage-backed, collateralized obligations. If this insurance becomes unavailable, or is perceived to have no value, many prospective issuers will have to access the capital markets at a complete disadvantage. Not to mention the fact that the outstanding issues already insured will become far less liquid, resulting in extreme price pressure.
To be fair, the affairs of the operating company will be separated from that of its insurance unit, Ambac Assurance. However, a bankruptcy of a mono-line insurer would be un-precedented and, at the very least, throw its customers into disarray during what may be a highly contested process.
The big three rating agencies, whose self-serving methods have been completely exposed as fraudulent, continue to maintain that their business models are viable. What's wrong with having issuers shop for a rating that is to their satisfaction? Everything!
What investors are learning from the credit fiasco of the last 3 years is that the rating agencies provide ZERO information. In so doing, they have sown the seeds of their own demise. As investors learn to place no value on a credit rating, issuers will stop paying for these ratings and the problem will take care of itself. Any financial regulatory policy will be purely window dressing for public consumption and to curry political favor.
Washington, where WERE you? Oh, yes. Our friends at the SEC were too busy preventing the Bernie Madoff scam from duping investors. Or, preventing the investment banks from creating misleading derivatives, that led to massive financial system dislocations.
The irony of the financial meltdown is that there are so many villians, that each of them can easily point the finger at someone else. It was the investment banks' fault. It was the credit rating agencies' fault. It was the regulators' fault. It was the Senate Finance Committee's fault. It was the Federal Reserve's fault. It was George Bush's fault. On and on.
Systemic financial crises are not created without the participation of MULTIPLE parties, each of which is acting in their own interest. The only common thread is that, while all the villains cashed in, the investment world lost. America lost. The global financial community lost. At least the villians got their bonuses!
Marko's Take
Other links we like: http://www.lemetropolecafe.com/, http://www.shadowstats.com/, http://www.goldpennystocks.com/, http://harveyorgan.blogspot.com/ and http://www.youtube.com/markostaketv.
Monday, May 31, 2010
Bond Rating Agencies Yield Junky Results
Think a certain credit rating means something? Think again!
Amid the financial crisis which enveloped the global financial system in 2008-2009, Standard & Poors (S & P) and Moody's played a central role. So much paper with sub-prime mortgages defaulted that were originally given Triple A ratings, that any scintilla of crediblity these agencies had has vanished.
The meaning of an AAA rating is that the likelihood of default is virtually nil. Yet, in the 2008-2009 period, thousands of Collateralized Debt Obligations (CDOs) not only defaulted, but suffered principal losses of up to 90% of face.
The problem with the entire business of rating credit has been that issuers "pay" to have their bonds rated to make them marketable to institutional investors, who often base their asset allocations on how highly rated an issuer is. Since S & P and Moody's are paid by the issuers, they're beholden to their customers and not the investors that will ultimately rely on the ratings themselves.
Another side-effect is that the rating agencies are incredibly slow to issue downgrades. A recent example is Spain, which was just downgraded by Fitch to AA+ from AAA. Spain's bonds already trade at levels more akin to comparable issuers rated either A or BBB with yield spreads in excess of 150 basis points. When issuers ARE about to be downgraded, they often fight the downgrade, delaying it further.
Credit ratings have ZERO informational content. Studies performed by my own firm, Helix Investment Partners, indicated that the yield spreads needed to compensate investors for the probability of default were highly correlated with 3 market driven variables: a company's market capitalization (share prices times shares outstanding), its market-adjusted DEBT/EQUITY ratio (debt divided by market capitalization) and the volatility of the issuer's common stock.
Once these variables were considered appropriately, a company's credit rating was absolutely meaningless statistically, In all likelihood, the 3 aforementioned variable captured imputed information much more accurately since money is on the line. A credit rating imperfectly captures these market indicators and is, therefore, nothing but a poor cousin.
Last week, in a Senate hearing, former Moody’s and S&P employees admitted that the agencies tried to please investment banks that were paying big fees to get high ratings. The three largest ratings companies, Moody's, S&P and Fitch (a unit of France's Fimalac SA), generated combined revenues of $3.6 billion on bond ratings last year.
Nowhere has the failure of the rating agencies been more prounced than in the mortgage securities market. Of all the issues assigned Triple A ratings in both 2006 and 2007, a full 90% have been downgraded to junk or defaulted!
On the corporate side, there are now only 4 issuers carrying Triple A ratings: Automatic Data Processing (ADP), Johnson & Johnson (JNJ), ExxonMobil (XOM) and Microsoft (MSFT). Even Berkshire Hathaway, whose bond yields are LOWER than Uncle Sam's, does not qualify for this very small club.
Yet, Triple A ratings on collateralized mortage paper was given out freely.
There is no need to even have this industry. The bond market, including the Credit Default Swap (CDS) market, is much more accurate in pricing in true credit risk at NO cost to the issuer. CDSs reflect the cost of "insuring" debt against default and have an excellent record of reflecting the latest information. By comparison, credit ratings are adjusted very infrequently and only "rubber-stamp" what the market already knows and has already priced in.
If the financial system is truly to be restructured to eliminate the unbridled greed and conflicts of interest which imperil investors, one component of reform should be to eliminate any requirements that bonds be rated and paid for by the issuers. A better system would be to have the rating agencies provide information to the investor community and get paid if their information proves valuable. It isn't. No sophisticated investor would pay to know what S & P, Moody's or Fitch thinks. Therefore, the problem will eliminate itself.
Marko's Take
Want to know you to fix the ponzi-scheme/FRAUD known as Social Security? Tune in to our new video, entitled "Social In-Security: The Solution", which will be posted shortly on You Tube. To get more background on this heinous, unconstitutional and immoral program, click here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Amid the financial crisis which enveloped the global financial system in 2008-2009, Standard & Poors (S & P) and Moody's played a central role. So much paper with sub-prime mortgages defaulted that were originally given Triple A ratings, that any scintilla of crediblity these agencies had has vanished.
The meaning of an AAA rating is that the likelihood of default is virtually nil. Yet, in the 2008-2009 period, thousands of Collateralized Debt Obligations (CDOs) not only defaulted, but suffered principal losses of up to 90% of face.
The problem with the entire business of rating credit has been that issuers "pay" to have their bonds rated to make them marketable to institutional investors, who often base their asset allocations on how highly rated an issuer is. Since S & P and Moody's are paid by the issuers, they're beholden to their customers and not the investors that will ultimately rely on the ratings themselves.
Another side-effect is that the rating agencies are incredibly slow to issue downgrades. A recent example is Spain, which was just downgraded by Fitch to AA+ from AAA. Spain's bonds already trade at levels more akin to comparable issuers rated either A or BBB with yield spreads in excess of 150 basis points. When issuers ARE about to be downgraded, they often fight the downgrade, delaying it further.
Credit ratings have ZERO informational content. Studies performed by my own firm, Helix Investment Partners, indicated that the yield spreads needed to compensate investors for the probability of default were highly correlated with 3 market driven variables: a company's market capitalization (share prices times shares outstanding), its market-adjusted DEBT/EQUITY ratio (debt divided by market capitalization) and the volatility of the issuer's common stock.
Once these variables were considered appropriately, a company's credit rating was absolutely meaningless statistically, In all likelihood, the 3 aforementioned variable captured imputed information much more accurately since money is on the line. A credit rating imperfectly captures these market indicators and is, therefore, nothing but a poor cousin.
Last week, in a Senate hearing, former Moody’s and S&P employees admitted that the agencies tried to please investment banks that were paying big fees to get high ratings. The three largest ratings companies, Moody's, S&P and Fitch (a unit of France's Fimalac SA), generated combined revenues of $3.6 billion on bond ratings last year.
Nowhere has the failure of the rating agencies been more prounced than in the mortgage securities market. Of all the issues assigned Triple A ratings in both 2006 and 2007, a full 90% have been downgraded to junk or defaulted!
On the corporate side, there are now only 4 issuers carrying Triple A ratings: Automatic Data Processing (ADP), Johnson & Johnson (JNJ), ExxonMobil (XOM) and Microsoft (MSFT). Even Berkshire Hathaway, whose bond yields are LOWER than Uncle Sam's, does not qualify for this very small club.
Yet, Triple A ratings on collateralized mortage paper was given out freely.
There is no need to even have this industry. The bond market, including the Credit Default Swap (CDS) market, is much more accurate in pricing in true credit risk at NO cost to the issuer. CDSs reflect the cost of "insuring" debt against default and have an excellent record of reflecting the latest information. By comparison, credit ratings are adjusted very infrequently and only "rubber-stamp" what the market already knows and has already priced in.
If the financial system is truly to be restructured to eliminate the unbridled greed and conflicts of interest which imperil investors, one component of reform should be to eliminate any requirements that bonds be rated and paid for by the issuers. A better system would be to have the rating agencies provide information to the investor community and get paid if their information proves valuable. It isn't. No sophisticated investor would pay to know what S & P, Moody's or Fitch thinks. Therefore, the problem will eliminate itself.
Marko's Take
Want to know you to fix the ponzi-scheme/FRAUD known as Social Security? Tune in to our new video, entitled "Social In-Security: The Solution", which will be posted shortly on You Tube. To get more background on this heinous, unconstitutional and immoral program, click here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Monday, February 15, 2010
What Exactly Is A Junk Bond?
"Junk" bonds are defined as those which carry a credit rating of BA+ and below by Moody's, or BB+ and below by Standard & Poors. This definition is somewhat arbitrary and both of these rating agencies have been tarnished in the last couple of years. Both gave out AAA ratings, the highest possible, to a number of issuers only to have them default.
The list of idiotic ratings includes many Collateralized Bond Obligations (CBOs), which were insured by "mono-line" insurers AMBAC and MBIA - all of which either defaulted or underwent significant restructurings.
Having traded junk bonds in a former lifetime, I used to bristle at the term junk for several reasons. One, the term is quite perjorative and tars the entire group with the same brush. Second, junk status does NOT speak to VALUE. A very low rated company could be a steal, while a high rated company could be tremendously overvalued, as holders of AMBAC and MBIA debt found out in 2008.
Junk bonds are merely part of a continuum of risk in the entire arena of corporate bonds, all of which should be viewed on the basis of risk and return. At the "high quality" end of the risk spectrum are "investment grade" bonds - those which carry a credit rating of BBB- and above by Standard & Poor's, or BAA- and above by Moody's. An investment grade rating is incredibly difficult to get - less than HALF of the Fortune 1000 would qualify!
Valuation of any corporate bond is viewed by comparing its "spread over treasuries" to its risk. The spread is measured as the difference between the yield on the corporate bond and the yield on treasuries corresponding to the same maturity. A high spread is indicative of attractive potential returns, while a low spread indicates the opposite.
For most investors, buying individual junk bonds, or any corporate bonds for that matter, is very difficult. Corporate bonds are typically sold in lots of $1 million face value, therefore, one needs at least $20 million to properly diversify that asset class alone!
An interesting Exchange Traded Fund (ETF) exists to allow smaller investors to take a postion in junk bonds. The ticker is JNK and it's comprised of approximately 100 issuers carrying a combined yield of just over 11%. It's impossible to assess it's value based on this information alone, since we'd have to analyze the entire basket as to risk and return.
Concerns about the credit worthiness of the "PIGS" countries (http://markostake.blogspot.com/2010/02/sovereign-debt-crisis-threatens-to-take.html) has weighed heavily on all segments of the corporate bond market, especially junk. Year-to-date, junk bonds have returned MINUS 1.58%.
Prospectively, given the massive economic problems that lie directly ahead, I would, for the time being AVOID this sector. Once the economic damage has been done and yields shoot higher, this sector might be worth a look.
Junk bonds are a very poorly understood asset class, so it made sense to do a little primer of just what makes them tick.
If you have any questions or comments feel free to TAKE ME ON!
Marko's Take
The list of idiotic ratings includes many Collateralized Bond Obligations (CBOs), which were insured by "mono-line" insurers AMBAC and MBIA - all of which either defaulted or underwent significant restructurings.
Having traded junk bonds in a former lifetime, I used to bristle at the term junk for several reasons. One, the term is quite perjorative and tars the entire group with the same brush. Second, junk status does NOT speak to VALUE. A very low rated company could be a steal, while a high rated company could be tremendously overvalued, as holders of AMBAC and MBIA debt found out in 2008.
Junk bonds are merely part of a continuum of risk in the entire arena of corporate bonds, all of which should be viewed on the basis of risk and return. At the "high quality" end of the risk spectrum are "investment grade" bonds - those which carry a credit rating of BBB- and above by Standard & Poor's, or BAA- and above by Moody's. An investment grade rating is incredibly difficult to get - less than HALF of the Fortune 1000 would qualify!
Valuation of any corporate bond is viewed by comparing its "spread over treasuries" to its risk. The spread is measured as the difference between the yield on the corporate bond and the yield on treasuries corresponding to the same maturity. A high spread is indicative of attractive potential returns, while a low spread indicates the opposite.
For most investors, buying individual junk bonds, or any corporate bonds for that matter, is very difficult. Corporate bonds are typically sold in lots of $1 million face value, therefore, one needs at least $20 million to properly diversify that asset class alone!
An interesting Exchange Traded Fund (ETF) exists to allow smaller investors to take a postion in junk bonds. The ticker is JNK and it's comprised of approximately 100 issuers carrying a combined yield of just over 11%. It's impossible to assess it's value based on this information alone, since we'd have to analyze the entire basket as to risk and return.
Concerns about the credit worthiness of the "PIGS" countries (http://markostake.blogspot.com/2010/02/sovereign-debt-crisis-threatens-to-take.html) has weighed heavily on all segments of the corporate bond market, especially junk. Year-to-date, junk bonds have returned MINUS 1.58%.
Prospectively, given the massive economic problems that lie directly ahead, I would, for the time being AVOID this sector. Once the economic damage has been done and yields shoot higher, this sector might be worth a look.
Junk bonds are a very poorly understood asset class, so it made sense to do a little primer of just what makes them tick.
If you have any questions or comments feel free to TAKE ME ON!
Marko's Take
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