It was Dr. Michael Burry who brought the idea to Goldman Sachs and asked them to engineer a means of shorting what we now know was the massive real estate bubble of the first decade of the 21st Century.
Dr. Burry who suffers from Asperger syndrome, a type of autism that inspires repetitive fascinations and makes social interaction difficult had pursued a passion for investing as an undergrad at UCLA and continued that pursuit as a medical student at Vanderbuilt University and later as a resident and intern of Neurology at Stanford Hospital in Connectict.
Dr. Burry left the medical business early in his career in order to form Scion Capital which he managed from 2000 until 2008. He approached Goldman in 2005. The best accounting of Dr. Burry's story can be found in Michael Lewis' fine book, The Big Short: Inside the Doomsday Machine, now on sale at Amazon for 34% off.
Cheap at twice the price.
This is Dr. Burry addressing the 2012 graduating class from UCLA's School of Economics.
Way super double highly recommended.
Chart of the Day strikes yet again with the inflation adjusted S&P 500 since 1990.
Click anywhere on the chart for a very short and worthy discussion.
I'll grab one small statistic for myself.
The annual rate of return for the S&P 500 when adjusted for inflation since 1900?
A question worth asking here has to do with what this chart would look like when dividends are figured in.
If you remember .....
Click the chart below for the amanita.at site.
We also discussed the caveat invariably issued by Bradley believers that the model is better suited for predicting turning points than for determining market direction.
To which I say rude noise (pick your favorite).
I want my models to make me rich by virtue of infallible predictive power.
Maybe I am being unreasonable, but that's what I want.
So, as disclosed earlier, I'm short of the S&P 500 (to quote Dennis Gartman) and pretty damn happy.
Long of Gold, Canadian and U.S. Cash and pretty damn happy about that as well.
Below is the S&P 500 from December 2009 to May 21, 2010.
It doesn't physically line up with the Bradley chart above, the vertical lines fall on March 1, April 1 and May 1 respectively.
So you're gonna have to line it up in your own mind's eye.
And the verdict?
3/1 turned up, as did app. 4/1.
You can figure out the rest for yourself.
You can do what you want, but with the possible exception of more Gold, I'm not buying anything much before the middle of August.
Here's the chart that makes me go all warm and fuzzy.
After yesterday's debacle it was the first thing I wanted to see this AM.
The Dow/Gold Ratio.
Up is good for Stocks, down is good for Gold.
The second simplest and most concise explanation of the newest revelation concerning Goldman Sachs, John Paulson and the toxic securities that have poisoned the investing world comes from Richard Russel's Dow Theory Letter.
(The best one is above).
Now it can be told. It started with billionaire fund manager John Paulsen. He had an idea that the wild speculation in homes was putting the price of homes into the bubbly stratosphere, and that the whole home-structure was due to collapse. Paulsen went to a few firms including Goldman and asked them to structure mortgage packages that would include some of the poorest quality mortgages. Paulsen's plan -- bet against these vehicles and these items and hope that he would be correct -- that the housing boom would go into free-fall. This is exactly what happened, and Paulsen and his investors pocketed billions in profits.
Bear Sterns turned down a deal with Paulsen. But Goldman and Deutsche Bank went along with Paulsen. Goldman, knowing the mortgage packages they had created were toxic, sold these deals to investors without telling them about Paulsen and his thesis that these mortgage packages were created to fail. What's worse, Goldman even sold these toxic packages short. Goldman sold the product to their customers and at the same time shorted the products.
But what about the agencies that were supposed to grade these packages? They were as asleep as was the SEC on the Madoff case. The toxic packages got a AAA classification from the rating agencies. All in all, a disgusting case of collusion and incompetence by Wall Street and the rating agencies and stupidity on the part of the buyers of these toxic packages.
The fact is that Paulsen had been searching for bubbles in the economy, and he correctly zeroed in on real estate and specifically home mortgages. But Paulsen never sold his toxic packages to investors, Goldman did. Which is why the SEC has focused its fraud accusations on Goldman and left Paulsen alone.
Paulsen & Co. earned $15 billion betting against the housing market in 2007. Paulsen, 54 years old, personally made nearly $4 billion that year. Today Paulsen's hedge fund has $32 billion in assets, making it one the world's largest hedge funds. Of interest is that Paulsen's most recent big investment is in gold and gold stocks and exchange traded funds tied to gold.
The Bradley Model is a chart constructed on a set of astrological parameters defined by Donald A. Bradley in his famed 1948 book, Stock Market Prediction (The Planetary Barometer and How to Use it).
The foreward, by Llewellyn George begins as follows:
"Although this text is not primarily intended to be a stock market forecaster, yet by judicious operators it is quite likely to become their most valued treasure for anticipating trends and changes which are due to mass mind activity.
It tells how to properly chart that psychological activity in compliance with well known planetary forces."
OK, now I understand fully that your first inclination here will be to laugh like hell, and go to chaneling Festus, who once famously said to the apostle Paul, "You are beside yourself! Much learning is driving you mad!"
Especially those of you who insist on picking up the telephone in order to offer a personal harangue over any mostly innocent notion I may have that doesn't correspond perfectly with your own personal world view.
YOU KNOW WHO YOU ARE !!!
Before you go there however, consider this.
If you're a Christian, and I know for a fact that a mess of you are.
On the fourth day, God himself said, and I'm quoting here,
"Let there be lights in the firmament of the heavens to divide the day from the night; and let them be for signs and seasons, and for days and years."
The word Lunacy is derived from the same root as the word Lunar, Luna the Roman moon goddess. This relationship extends to other languages, most notably Welsh where these two words are lloer and lloerig.
Regardless of you spiritual inclination, anecdotal evidence persists regarding police department and emergency rooms ramping up during full moons, although there is almost no scientific or statistical evidence of any correlation between the full moon and increased crime, emergency room visits, births or anything else.
Almost without exception, every study that has been able to demonstrate any correlation between the full moon and any studied event has been subsequently debunked. What's most interesting here is that the debunkers almost universally believe in "Global Warming" (Just Kidding)
The Chart below is that for the "Bradley Model" calculated from about 1840 through about 2040.
It is simply charting the sum (positive or negative, zero is down the middle) of a set of mathematical values Bradley attached to the angles of relationship between the Sun, the Moon, and the planets that make up our solar system.
Planets in relationship of or near 0, 60, 90, 120 and 180 degrees were considered and a value (again positive or negative) was assigned each.
The positive or negative values were assigned on the basis of the historic consensus having to do with the benefic, or malefic qualities of each planet within each angular relationship between the planets.
Don't worry about it. Here's all you gotta know.
Just look at the chart, up is good, down is bad.
It catches the "The Panic of 1873", which began "The Long Depression" which according to the National Bureau of Economic Research lasted until March 1979, a total of 65 months and longer by nearly a year and a half than "The Great Depression"
Take note of the extremely low, low point that so nicely corresponds with the "Crash of 29" stock market descent that extended from 9/3/29 until about 7/32, and the mostly continuous lows during "The Great Depression".
It catches "The Panic of 1910", the "Black Monday" crash of October 19, 1987.
And, how bout that big fat high point sitting over the middle to late 1990's.
Now, let's consider the summer of 2010.
DANGER WILL ROBINSON, DANGER!!!
(The above was a time continuum joke)
Your Uncle Roany is in Cash (Mostly Canadian) and Gold!!!
I'm just sayin.