10th Sunday of Matt. (Matt. 17:14-23)

The Disciples Lack Faith

(Parallels Mk. 9:14-29; Lk 9:37-42)

On August 11th, 2010 we acquired shares of Western Digital Corp. for others accounts at $24.15 a share in the midst of tremendous pessimism about the storage industry.  On September 17th, 2010 we outlined a few simple views that brought about this decision and published our article “640K ought to be enough for anybody…” WDC vs. STX (we used prices as of Sept. 10th, 2010 for the purposes of the article, although the shares were actually purchased on August 11th, as noted in the article itself in reference to “early August”).  On October 1st, 2010 Seekingalpha also published the article here.

Is it ethical for the American homeowner whose mortgage has been securitized to default, even If they are not financially distressed?  

First, consider it is unlikely that marketable, fee simple, insurable title can be obtained as a result of fulfilling the obligations of the related promissory note.  On the contrary the titles to some 60 million homes in America are badly clouded.  Secondly, encouraging investment in an asset class that has been artificially inflated, then deliberately destroying the price of the asset, as part of a separate profit making scheme is unethical, and any agreement based on this type of fraud is grounds to consider the original debt instrument used in the agreement null and void.  Fortunately these grounds are unnecessary, as increasingly US courts are ruling that these mortgages are already invalid for numerous other reasons.

Losing other people’s money isn’t as much fun as it sounds.  We either bought, or gave directions to buy shares of CSCO on December 3^rd, 2010 at $19.09 to folks who trust us enough to let us make some investing decisions for them; they’ve now lost 1.89% on their investment in just about two months.  We have no intentions of selling; on Monday we'll be buying for their accounts.

Up until last Wednesday, February 9^th, 2011 these folks were making about 15% on the same investment, since it had only been about two months, as we just pointed out, we were feeling pretty smart, and getting ready to do some bragging about our track record, when Thursday rolled around. Let’s just say it was “a day that will live in infamy” (hopefully nobody has used that line already).

Since we do a great deal of explaining how we make money for others, we thought this would be a good chance, actually the first, to explain how we also lose it.

The recent decision by the Massachusetts Supreme Judicial court helped focus a few important questions on the foreclosure crisis in America, but it is also being used as a Red Herring, amongst other things, by the American Securitization Forum and their Bank owners.   The Massachusetts land court decision, which was affirmed by the Supreme Judicial Court were correct, but only addressed a narrow specter of the foreclosure crisis in our country and the underlying violations of long standing property law.   The case does point however to much more fundamental issues.  

Our modern marketplace for investment in the formation and growth of public enterprises is imperfect, but it still works.  It is a mechanism to transfer the wealth of the public to the companies we formulate to produce things; they are a reflection of our country and our people as a whole.  The market can go mildly wrong or it can go terribly wrong.  When it is mildly wrong, it present buying opportunities to shrewd investors, when it goes terribly wrong, it can become a machine of economic injustice.

SKX fell almost 8 percent on Tuesday after an analyst said it may have overestimated demand for its toning shoes. He downgraded the stock to "Sell."  From Bloomberg:

“Sterne Agee analyst Sam Poser said Skechers has more toning shoes inventory than it can sell as sales of the specialty shoes slow. Poser said he has seen the shoes at discounters Ross Stores Inc., TJX stores, which include T.J. Maxx and Marshall's, and Costco, selling for $39 to $52.99. That puts pressure on Skechers partners like Famous Footwear, where the shoes sell for $59.99, Poser said.”