Had To: Took A Small Position In SCO

I bought a little SCO for $27.36

This oil market is just too fat to ignore. It’s a self correcting problem.

At the beginning of the year, I stated emphatically that we were no closer to a recovery than the year prior. I further added that we would see a summer selloff that rocked the markets and shattered talk of the looming “2 quarters out” growth acceleration.

Well, summer has come and is very near gone, and it has not happened.

Thus, I must say that I was wrong.

I am not apologizing to the people I ridiculed, mind you. Because these people have just been repeating that we were 2 quarters out from a recovery every quarter for four years. In fact, I would say that this is the first time I guessed a summer market fallout since 2010 and haven’t had it materialize. Ask any gambler, eventually you hit the slots; but it doesn’t make you brilliant and rarely makes you whole.

But that doesn’t excuse my being wrong about an unmistakable market selloff. Now, we’ve had a lot of turnover, and personally I’ve experienced selloffs in my holdings over the last few months, which I have graciously taken advantage of to apply cash to add to positions.

But, we all know very well that when I said “market selloff”, what I meant was “market selloff”. Not, “turn over” or “sector rotation”.

Pleasantly listening to old records on a gramophone, sprinting over the walls of my 9th floor office, I’ve been catching up on the news.

The Syria warmongering remains nonsense. Not only do we not know who set off those chemical weapons, but even if we did, it probably wouldn’t change anything.

Consider, if you will, that the Iraq invasion was initially supported by 62% of the public in 2002 according to the Pew Research Center, while 68% of the House of Representatives approved the resolution, as did 77% of the US Senate.

Today, 9% unconditionally approve moving on Syria, while 25% approve moving on Syria “if Assad uses chemical weapons”. While this has confused some pundits, who are asking around the blogosphere, “hasn’t the US already said Assad did use chemical weapons?”, there’s actually not a contradiction here. It’s just that 16-25% of Americans, depending on the polling questions and methodology, don’t trust the US government or our intelligence apparatus to throw a stone, and think our leadership is full of shit.

Meanwhile, a solid >75% of Americans don’t care about Syria.

In summary, support for a Syria intervention could be swallowed whole by the initial surge of support for Iraq, between 2-8 times over, even though Iraq was, I am told by certain reputable acquantainces, unconditionally “THE WORST THING TO HAVE EVER HAPPENED ANYWHERE EVER”.

Back to the world of business, I am encouraged by the growth of jobs and seeming resilience of the US economy. I would still recommend having a slightly larger than normal cash position, but surely not the 50/50 allocation I was pushing earlier.

Muni bonds are getting slashed, but that is to be expected. Other than that, signs are holding up that there may be favorable outlook. Michigan itself is doing great right now, as far as manufacturing and engineering are concerned, the dead wood leadership of our cities has been set on fire, and I find I’m more optimistic than I’ve been in a while.

Once again, for every-single-year in a row since 2007 (here’s a fun link courtesy the BBC), we find ourselves circle jerking over the impoverished bastards of the middle east. War! War is coming! And we are doomed.

Give it a rest already. I don’t care that we’re about to level Syria. It isn’t going to do anything to oil supplies. There’s a reason we’re positioning our military assets right on top of these misers.

Any culture or group of peoples that attempts to interrupt global oil supplies will be subjected to “extinction” levels of violence. Not that they would want to anyway, because both sides of Syria desperately needs the oil sales to finance their victory.

Oil supplies are coming out of our ears, so you’re jacking a $30 premium on the price because Syria is a ball of intolerance? Come on…

This is getting ridiculous. We’re 7 years out now, from the first time we were just months out from a global war. But it’s not coming, because no one in the developed world is actually willing to put their lives on the line for some people slogging it out in that 13th century lifestyle.

Despite oil demand being at multi-decade lows, recession literally everywhere, and the most massive energy revolution taking place in America since the 20’s, we have “blessings” of $100 oil, all because markets, in their infinite wisdom, have been shaking in fear of the same “imminent threat” for what is rapidly appraoching a decade.

Maybe it’s time we had a very real discussion about cutting back off the broader markets from being able to place bets in oil. It was better when there were only a few major players. This is just getting stupid. These moves are going to double dip us, for no reason.

Threw some more cash onto one of my favorite positions for $14.23. People hate this stock for no reason. Meanwhile, it’s pumping out cash left and right.

Multifamily is the only real estate worth owning.

Name a period, if you can, not dominated by a draft or egregious “total war” conditions, where equities were hit by our nation performing warfare. I think you would be under some effort to do so.

War is great for the US economy, which is probably why we dabble in it so frequently. Syria isn’t a trade partner with us. Back before 2011, according to Census estimates, we did about $600 million with them, gross. Private defense contractors and local economies will pull billions more in than that just in the effort to bomb Syria back to the Stone Age.

Sure, it’s all back to the US debt. But you know what? It’s a drop in the bucket. Blasting foreign nationals to pieces is nothing next to the entitlement culture we have growing under the couch here. Sure the cost of the military is huge – the cost to maintain it, that is. But using the military is cheap. A Syrian war doesn’t make that big of a difference. Unless you think we can just decomission the US armada, in which case I’d say the savings are an illusion…because we can’t do that.

Trying to argue the market should sell off because of more war in the Middle East is just a non-starter. Syria has been in civil war for two years. Have the oil markets noticed? We’re over $100 /barrel, and the latest economic numbers have gotten rough again, so oil is probably due another sharp collapse in prices, back to that $80 mark, from which it always seems to flawlessly recover. But we’ve been here so many times in the last three years, why is it relevant?

European countries have been in recession forever. Why would further Syrian turmoil hit them any harder now than it did in 2011 when the fighting started? It’s the same oil supply concern, but it’s been there for so long, it shouldn’t be a problem.

Here’s how a Syrian war will play out. We will crush Assad’s forces. Then the Muslim Brotherhood will take over, replacing hard liners with hard-er liners. Then we will act all shocked and surprised and crush the Muslim Brotherhood. Basically, we crush all of Syria, but one half at a time, so that we can pretend like we’re there to help.

We’ve been due for a market selloff for a while now. Let’s have one, I guess. But what a stupid reason to do it.

The numbers pushing out of housing this morning confirmed my worst fears. The sector is a dead end, and I don’t feel much like getting tied up in it. Mortgage rates are still remarkably low despite the big push higher. Somehow, a 1% run in treasury yields destroyed the entire recovery?

In real dollar terms from the point of view of a consumer, 1% is just not that much money. <$100 a month per $100,000 of mortgage. If that's all it took to crush the market, then what does that reveal about the market? In fact, I'd think if people were in a good position to support housing, the yield rise should be driving home sales as consumers try to lock in rates before they go up another 1%.

But that hasn't happened. Instead, housing sales have been butchered on the alter. The real problem here is that the housing recovery has been highly localized and driven by a very small number of actual sales. If you live near a hotspot of jobs, then prices are soaring. But travel out of the urban centers and land is being given away, several hundred acres at a time.

The recovery in prices is coming from a small percentage of existing inventory being turned over. Meanwhile, the housing economics remain broken. First time buyers that form the base of market pricing are inundated with offers and don't really have the wages to take up any of them.

Shadown inventory will continue to come to market to crush these pricing recoveries. JP Morgan estimates are as high as 4.3 million inventory that is looking to come to market, price permitting.

The housing recovery will hinge on a wage recovery for young Americans. Household formation needs to get back on track – but for the moment, as my multifamily REITs are signaling, renting is a favored option against homeownership among this generation. Household formation among the youngest citizens continue to opt for leases over mortgages.

Seeing these numbers, I continue to favor real estate exposure that focuses on renting residential space. Pure homebuilders and materials could offer opportunities, since neglect will continue to render much of first time/lower market inventories in need of repair or replacement. However, real estate businesses that focus on mortgage generation or sales should continue to be shunned in favor of better investments.