It’s no coincidence that gold began its enormous climb (and the dollar began its terrible fall) shortly after Zhlubya issued this (obviously unconstitutional) Military Order. The invasion of Iraq and everything that followed: warrantless wiretapping, rendition flights (”torture taxis”), secret prisons, etc. ad nauseum … all of these illegal acts have weakened my motherland (and the dollar) and helped gold.

Be interesting to see how gold reacts when Obama is elected President in November.

I got several emails asking me to explain what I meant by shorting Merrill (MER) on smaller time frames every time the trend flips up and then back down, so I quickly made up this little animation. Ignore the time scale on the x-axis (it’s screwed up because I’m on China time). Let me know if this clears things up, or as usual, further muddies the waters.

“Once in a while we will talk if we have anything to say,” a short interview with Prem Watsa:

[Emphasis mine]

“… in 2003 we started worrying. We were concerned about asset-backed paper. We saw the moral hazard in all this credit that we saw was being blended and blown out. This was because interest rates were dropped to 1% to bail out the technology companies after the bubble burst in 1999 and we saw that this would lead to the real estate and auto loans and credit card problem. We saw that half of consumer spending was from home equity loans. So we protected ourselves.

… We did swaps but results were not immediate. By 2006 we were down by 75% in that portfolio, but we are long term investors so we took a deep breath and bought more to average down. In July 2007, two of Bear Stearns’s hedge funds failed and in August the crisis occurred. Then our results turned.”

Averaging down is a cardinal sin for traders, but it’s fine if you’re a long-term investor who knows what he’s doing (and has a lot of cash).

- via ControlledGreed.com -

Merrill Has $5.7 Billion of Writedowns, Sells Shares

“The firm said it sold $30.6 billion of CDOs to an affiliate of the Dallas-based investment firm Lone Star Funds for $6.7 billion, resulting in a pretax writedown of $4.4 billion. Merrill will provide financing for about 75 percent of the purchase price, according to the statement. The sale values the CDOs at about 22 cents on the dollar.”

Yowza. Good thing the SEC is foiling short sellers of financial stocks — it’s too easy a trade. Every time the trend flips up on the shorter time frames (like the 15-min. chart below), you could hit it hard when it reverses back down. “Coulda” caught nearly ten points these last few days doing just that (assuming you can locate shares).

Have any of you guys tried shorting any of the stocks on the SEC no-no list (PDF) since it came out?

Related: Bloomberg a Buyer as Merrill Sheds Assets

Two different takes on preservation of courtyard homes in Beijing:

“… the growing historical awareness among intellectuals and the wealthy has unleashed a … set of destructive capitalist forces. The courtyard houses’ sudden architectural cachet has made them coveted status symbols for people with seemingly unlimited resources. As affluent foreigners and China’s new rich buy the houses, they are embarking on multimillion-dollar renovations that are robbing the neighborhoods of their souls.

When two or three generations were packed into a single house, family life spilled out into the courtyards and narrow alleyways. Streets were lined with tiny shops and food stands; elderly people sat on folding chairs playing card games as bicycles streamed by.

Today a well-off couple may live with a single well-behaved child in a courtyard home that once housed more than a dozen people. Instead of cooking outdoors or walking to the corner to use a toilet, the nuclear family installs a state-of-the-art kitchen and bathroom with sauna and spa and parks a car in a new underground garage. One Chinese magnate recently added an underground pool. Streets that once teemed with life are as silent as churchyards — and as banal as some American subdivisions.” — Nicolai Ouroussoff

…

“… a growing number of foreigners [and rich Chinese] have invested in the [courtyard] houses in recent years, refurbishing them with the mix of modern sensibility and respect for original detail one expects of a high-end renovation in Brooklyn or East London. At a time when the siheyuans, some of them centuries old, have been disappearing at an alarming rate, these renovators, along with some newly moneyed Chinese ones, are emerging as the city’s best hope for holding on to what’s left of the old hutongs, even as they transform dwellings that once housed dozens of people into private homes for their own small families, and provoke many of the same anxieties that gentrifiers do in the West.” — Dan Levin

I side with Levin more than Ouroussoff (Mr. O. comes across as the worst kind of presumptuous snob with his comment about Nanluoguxiang: “Foreigners walk aimlessly up and down the street, guidebooks in hand, soaking up the phony cultural atmosphere.”) You don’t want to romanticize the old hutong life (and its central toilets) too much. I frequently bike through some old neighborhoods near my (soulless, anonymous, newly-built) apartment building, and they’re generally awful, squalid places.

Michael Meyer is quoted in the Levin article: “In a hutong… people look out for one another.” Maybe, but more importantly, people (mainly old ladies) spy on and gossip about you and your family. The ugliness of communal life can outweigh the good.

Yoga Bears: It’s No Stretch to Say Traders Are Taking Deep Breaths

“In recent months, as markets have gone wild, [a yoga instuctor] has noticed increased tension in the neck and back of her clients … Luciano Cortese, a broad-shouldered 48-year-old hedge-fund manager, says he used to bang his desk, throw things or yell at someone when his job became particularly stressful. But since starting yoga in January, he has been taking the stock market’s jolts in stride, he says. ‘I just say to myself tomorrow is another day.’”

I think the benefits of a two-hour full-body massage are even greater than a two-hour yoga session.

Ford Has $8.7 Billion Loss, Shifts Away From Trucks

“The company’s European auto unit saw its profit more than double to $582 million. Net income at the South American unit increased 52 percent to $388 million. The automaker lost $15.3 billion in the past two years, mostly because of deficits in North America.”

A friend in Beijing just bought a new Ford Mondeo and is very happy with it. The Chinese are generally against buying Japanese cars, and prefer to buy European (Volkswagen, Audi, BMW, etc.) and American (Buick (GM), Ford, Chrysler, etc.) makes.

Here’s a longer-term view of Ford (F). Stock price is back to 1984 levels and is down a wee 93% off the 1999 high.

I wouldn’t stick a fork in the Crude bull yet. I don’t know if a major change of trend is underway, but based on the bumper to bumper traffic I face every day in Beijing, I’d say no — this is just a “correction” (I hate that term) in an ongoing bull market. I’d still be looking to get long off reversals on the daily (and lower time frame) charts.

Wachovia Has Record $8.9 Billion Loss, Cuts Dividend

“Wachovia lowered the dividend to 5 cents a share from 37.5 cents … The second quarter loss included a $6.1 billion charge tied to declining asset values … Wachovia’s goodwill impairment charge didn’t include its Golden West business ‘due to the value of the retail banking franchise,’ the company said. The impairment included $4.5 billion in reduced value of commercial loans, plus $597 million in investment-banking assets.”

So what did the stock do given this terrible news on Tuesday? It gapped down (expected) and then reversed and ripped higher, moving up over 30% from the open (unexpected). It seems to be a good time to be day trading given the double-digit intraday percentage moves.