Checking My Scorecard

Every now and then, I make predictions in this blog. Today seemed as good a day as any to take a look at my prior predictions and see how they faired. As a life long Cassandra, I can’t really say that I hate to say I told you so. Honestly, I love saying I told you so.

Specifically, I told you:

  • In November I told my readers that the bonds of Genworth Financial seemed like a good buy. I took my own advice and bought some. They paid over the weekend, realizing me an annualized 20% or so.
  • In January, and many times since, I have repeatedly warned that Dr. Lacy Hunt’s advice to plow money into long term US Treasury obligations was a recipe for disaster. So far this year, the 30-year US Treasury bond is down 20.9%. Ouch!
  • That Barrick Gold was a screaming buy in October of 2008. I loaded up on Barrick at $20.85 a share in November. Last week I sold my Barrick stock for $35.50 a share and took the money and put it straight into GLD. Extra credit: Since that date, GLD (gold bullion) has appreciated and ABX has fallen. Sometimes I just get lucky!
    • That we had witnessed the end of deflation and that this year would see the start of a rampant inflation that would last for years.

    Now, for the longterm prediction that’s the real clincher. Continue reading Checking My Scorecard

Update: Genworth Financial Bonds

Previously, I wrote that the bonds of Genworth Financial were a tempting buy. Looks like some of you took my advice, because that bond is now trading at $.975 on the dollar rather than the $.86 it had been when I wrote about it.

That’s a tidy 13% profit on your money in less than two weeks.

I know my brother took my advice. Whether he’s going to get me a decent Christmas gift, though, remains a mystery.

What this is a greater sign of is that the money that the central banks are pumping into the financial system is bringing yields down across the board. In fact, the yield on T-bills (that’s a four-week note) has reached zero. That some of that money is finding its way into bonds that yield significantly better than zero, suggests that we may be seeing an end to the credit crisis that reared its ugly head in October.

Bill Bonner of the Daily Reckoning has described it as the start of the next great bubble: government debt. He predicts that this one will burst as all the others have, and with far worse results for Americans, since it’s likely to take our currency down with it.

Meanwhile, those Genworth bonds were a good buy. I’d suggest people take the profits from them, once matured, and invest in something that will survive the collapsing of the dollar — like gold.

Genworth Financial Wants in Under the TARP

It’s a hard time to be in the financial business. Particularly, if you’re not classified as “too big to fail.”

Pity poor Genworth Financial. They insured a lot of Mortgage Backed Securities (MBS) and have been taking on a lot of losses as the housing market turned south. Just the kind of firm that the government bailout was supposed to help, but they’ve been getting some pretty rough treatment until recently. S&P downgraded their credit rating to A-, which caused the Fed to cut off their access to the Commercial Paper Funding Facility (CPFF). This has sent its shares into a tailspin in the last couple of weeks, declining from a share price that was in the mid-teens just a couple of months ago to close at $1.30 today.

Back at the start of October when the Troubled Asset Relief Program (TARP) was first rolled out, I would have thought that Genworth was just the kind of company that would’ve benefited. After all, it seems like they have some troubled assets on their books that they’d like to get rid of. It’s a rather telling sign about who runs things in this country. Seems you need to be a bank — not an insurance company — to get in under the TARP. But it also seems like they’re in the process of fixing that. Genworth just announced that it has purchased an S&L and submitted an application to the US government to receive some of those billions of dollars Congress set aside to buy troubled assets.

Who knows how this application will go? In a couple of months it won’t be Hank Paulson’s TARP anymore, but instead Obama’s Secretary Geithner’s. In this uncertain time, while Genworth seeks relief from the brutal forces of liquidation that are at work in today’s down market, it would seem the poor company can hardly catch a break. It’s a sign of the times I suppose, but an A- credit rating is not the same as “likely to go out of business tomorrow.” And yet, that’s how the company is being treated in the market. Not only is its stock dipping under $1, but its bonds that are maturing in May and June can be bought for 86 cents on the dollar. That translates to an annualized yield of north of 39% — a yield so attractive, it seems like they can’t even resist it themselves; the company recently borrowed close to a billion dollars towards buying up a lot of them due to mature in just a few months.

I’m a big believer in the long-term prospects of gold, the death of the dollar, and of mining companies like Barrick, but a yield like that might be hard for even me to pass up.

DISCLAIMER: I don’t currently own anything from Genworth, but I might be buying some of their bonds soon. Consult with your own investment professional before you invest any of your own money. (I.E., reading this blog doesn’t count.)