Rice up 30%

in one day in Thailand. Up over 100% since Janruary. The Financial Times reports that the immediate cause was Egypt's ban on rice exports. Egypt is one of the world's leading exporters.

Let's take a look at Egypt's monetary policy for last year. This comes from the 2007 IMF Report.

Monetary policy was tightened once spillover effects of administered price increases became visible in late 2006. Policy interest rates were raised twice. The nominal exchange rate appreciated by 1.1 percent against the U.S. dollar in the year to end-June, with greater flexibility since then. In
conjunction with the partial sterilization of external inflows, broad money
growth was kept in the 13-15 percent range until April 2007, but subsequently surged to 18 percent as less of the inflows were sterilized and
money market funds deposited the proceeds from maturing central bank
certificates of deposit with commercial banks.

Hmmm.... "sterilization of inflows" sounds like bankerspeak for "let's rob the entire country of a money with strong purchasing value in order to keep profits high for exporters."

That's why they have inflation. The problem with juicing GDP by printing is that the resultant time-delayed drop in national wealth is usually bigger than the temporary add-on by juicing up GDP through "sterilization of inflows."

From the Fed

we get news on their TSLF, or swap market. Now the banks will sell $75 billion in Treasuries to cover their cash needs. Then, they will be even more short Treasuries. Hmmm... can we see a problem developing here?

Of course! The TSLF goes for 28 days. At the end of that, the banks, who are always short Treasuries will have to buy Treasuries to swap back for their MBS. (Actually, the Fed will probably roll over the swaps, but let's pretend they don't.) At the same time that the banks are short Treasuries, the price of Treasuries is going sky-high. This is not a good combination for the banks.

I would not be surprised if companies were hoarding cash and even drawing down bank credit facilities to do so. Theroxylandr has made the following prediction on his blog:

What I think happened last week is a true run on the banks. The corporations are tapping the credit while they can. But while they don’t
really need those money they just put them on the money market, which goes straight to short-term treasuries.

Step two. Very soon we will have a very strong vested interest of various troubled institutions for treasuries to go down, because they are short. They are short not because they gamble the market, but because that’s how they
got money.

So, who else beside banks are short Treasuries? Hedge funds? How about dollar carry traders? Other banks? Who knows, but someone will probably get caught short.

Political Economics

Copied in its entirety from Winter Watch:

Congrats, Russ! Awesome post.
I think you’re absolutely right about inflation triggering social unrest. Here’s my theory about how it comes about. Let’s use China as a model. Why does China have 9% inflation? I would say that it’s a result of their monetary policy. This policy has consisted of printing Yuan to buy dollars. Why would they do this? Because if they didn’t buy the dollars that exporters received, then the exporters would have bought Yuan, taking money out of circulation and raising the value of the Yuan. This, in turn would have made exported goods more expensive in foreign countries, limiting the growth and profitability of the export business. So, the exporters/owners of capital/rich colluded with the government to devalue everyone’s money, rich and poor alike. The exporters never care when this happens, because they’re always ahead of the curve. The poor are always behind. They don’t realize that they’ve been robbed until it’s too late. The rich have taken their money out of the country, or are making even more off the crack-up-boom. (Nothing against the rich here, just trying to explain what happens here. It’s human nature to look out for yourself first.) But why the shortages? Price controls always cause shortages. PetroChina just lost $18 Billion on price controls, selling gasoline at a loss. Do you think they’re trying to supply the Chinese people with more or less gasoline?
It is not an accident that export driven economies with currencies pegged to the dollar have runaway inflation.
On the other hand, look at Brasil. They’ve allowed their Real to float against the dollar, and they have a healthy economy and falling inflation (currently 3-4% instead of close to 20% a few years ago, if my memory serves me well). Russ, correct me if I’m way off base with Brasil.

This summarizes my current thinking on politics and economics, and why I think the dollar has a lot further to fall. There are a lot of pegs to be broken or "revalued."

Here's a Hint!

Here's a hint from Trichet, the head of the ECB:

Meanwhile, Jean-Claude Trichet, European Central Bank president, told the European parliament that the ECB was committed to easing financial market tensions, but the rescue of banks facing solvency difficulties would be “in a different universe” and require taxpayers’ money. (Financial Times)

I think that this means that any bailouts would be done according to the German model. If Germany, the strongest player in the EU had to use its own taxpayer's money to bail out its banks, everyone else would have to follow the same model.

BS Bailout

I just calculated the per share value of the Fed's $29,000,000,000. It comes to $213/share. So, the Fed pays $213/share, and then passes it off to JP Morgan for $10.

Just tell me this is not a bailout.

Dollar Resumes Fall

The dollar resumed its recent fall, as Bloomberg reports the biggest two-day drop since 2001. This is not surprising, given the Fed's recent decision to buy MBS from Bear Stearns, and begin selling Treasuries.

Also, some thoughts about the Euro. I've been rethinking my position on the Euro.
The main problem with the Euro is that the ECB has power over interest rates and monetary policy (amount of reserves vs. Euro's). Unlike the Fed or the BofE, however, the ECB does not have regulatory oversight over the banks it lends to. This is a national issue. Also, while the Fed and the BofE attempt to balance inflation with employment, the ECB is only concerned with targeting inflation.

I was seeing an inherent and possibly fatal internal conflict in the ECB's job. On the one hand, it is beholden to Germany to keep inflation down, and interest rates up. On the other, it can ignore the economic malaise that will result from Spain and Greece's property bubbles imploding. Another cause for concern is the recent weakening of Italian bonds, with the resulting jump in interest rates. The Italian government cannot be very happy about having to pay higher interest rates because inflation is a little too high in Germany. If interest rates widen enough, then the EU could fall apart. (Now that I'm putting my thoughts on paper, I'm thinking that if any weaker players dropped out, then that would support the Euro, not devalue it.)

A second problem is that there is no lender of last resort. The ECB is not set up to bail anyone out. So, my thinking was that if there was a major bank collapse such as Northern Rock or Bear Stearns, the ECB would be in trouble. So, it would avoid any question of its authority by flooding the market with liquidity, which it has. Most of this has been temporary. If a major crisis came up, either there would be a systemic collapse from the bank's inability to do anything, or they would find a way to engineer a bailout that would upset the other nations who would threaten to leave if the strain grew too much. However, if they really have no authority to bail anyone out, then the Euro really is stronger than I thought. If there is a crisis, any required bailouts would be modeled on the German state banks, whose losses were paid for by the local governments, not by the ECB.

I'd love to short the Pound vs. the Euro right here, but FXB is overshorted already. I'm going to look for a chance to buy the Euro. I really want to move to a 50% anti US dollar position over the next few weeks. Right now, the options account is good with a position in gold, and long US Treasuries, for the deflation play. On the equity side, I have a small position in gold via OZN, commodities via PWE and IPSU, and foreign equities via PWE, and foreign currency via Yen. I also have FXP (Ultrashort FXI, the Shanghai 25 index), which is indirectly an anti-dollar play. As the dollar goes down, there will be inflationary pricing pressure on China, because of the loose peg to the dollar. As the Chinese government tries to fight inflation, they will choke off the credit that has juiced the stock and property bubbles.
All these holdings together amount to 23% of my equity positions. I think I should double them over the next month or so.

Weird Day

Dollar up, Dow up.

Commodities down, Treasuries up.

In times like these what do I look at? Does the market come roaring back with the Primary Dealer Lending Facility and the AAA/Treasury swap at the Fed? Or is the Treasury bill market correct in predicting deflation?

Let's tackle each of these one at a time.

Dollar up. The dollar was up, but strangely not against the Yen. The easy-out explanation is that the Yen was given continued support by traders who used Yen carry trade to finance commodity speculation.

Dow up. Especially financials. This is probably due to the easing of fear caused by Bear Stearns' failure last week. However, the usual correlation is dollar up, Dow down. Just look at Japan. The Yen is up 12%, and the Nikkei is down 16%. Why? When Yen go up, it takes money out of the Nikkei and into bonds. Cash and bonds are worth more.

Commodities down. This could have something to do with the huge chunk of change the Fed took out of the markets yesterday with their sale of Treasuries. Or it could have to do with the fact that MF Global and NYMEX are tightening margin requirements for commodities.

Treasuries up. You'd think that commodities selling off would cause a run to Treasuries, but this is ridiculous. The 3-month T-bill is at 0.21%. Despite the run up of stocks, Treasuries plunged again today. The 30-year bond yield fell to 4.17%. The should cause the dollar to be worth less, not more.

So, what's the important thing here? Stocks or Treasuries? Treasuries. They're the thing to watch. Stocks are just jumping around like crazy, but Treasuries are sucking up money like there's no tomorrow. It's a giant sucking sound. Expect more stories like this: CIT taps $7.3 billion credit line. Why would they need to do that? Because they're out of money. The last lines of this Bloomberg article about CIT are especially telling: "Once a company draws on the lines, banks are required to set aside capital to cushion themselves against potential losses." If the Fed swapping Treasuries for AAA's was inflationary, the increased supply of Treasuries sold by banks and the Fed would have lowered prices and driven yields up, not down. The Fed is trying to chase people out of Treasuries and failing miserably. Unfortunately, I have not played this well. While my TLT call is up, the long bond has not risen anywhere near as much as the two year.

This is NOT inflationary. Stocks jumping against the grain today were an anamoly, not a sign of things to come. While it would have been nice to take profits earlier this week and short back in again, I'm right where I want to be.

Hanging on by the Skin of My Teeth!

My trading has been terrible this month. I haven't taken large enough profits when I should have. Now when the market's up 260+, I'm out of ammo. Well, I loaded up this past week, but didn't close out any profits. What can you do with back-to-back 2-3% Dow moves? Oh, well, the propaganda about a market bottom is just a little too coordinated for me to believe it. On the other hand, I believe that the Primary Dealer Lending Facility from the Fed will help the dealers. I was thinking of closing out MER on that thought today to give myself some breathing room (I'm seriously thinking of adding some gold via GG here). However, it looks like SCA may have a case here for terminating CDS on CDO's as Yahoo! reports. It seems that SCA was given some kind of control over the CDO's, but Merrill ceded control to a third party, which lessened or voided SCA's control.

I'm just going to hang on here. Let's wait for the news. I'm especially interested to see the SOMA and the data on the Primary Dealer Lending Facility from the Fed.

What's Happening Next

How will the FCB's react to the Fed swapping Treasuries with Primary Dealers? Will they still buy agency bonds from Fannie and Freddie? Agency spreads have jumped over the past two weeks... This could be from an FCB boycott, or it could be the result of margin calls on Carlyle, Bear, etc. Most likely, the margin calls are coming as a result of the FCB's not buying.



Fannie Mae 30-year bonds dropped 20 basis points today, but 30-year Treasuries have fallen 8. I need to do some research on how to chart the spread. On top of this, the regulators just lowered capital requirements because leverage of 80 times is not enough.

Time to short Fannie. I'm also looking at buying some gold, through GG. However, I need to close a couple of positions. Probably GS, maybe MER as well.

Just thought of this one... Say you're a dealer and you have MBS you don't want. You go to the Fed and trade them in for Treasuries. Then you sell the Treasuries to xyz central bank and buy more MBS from same FCB. Go to the Fed. Repeat.

Trades, Missed Opportunities, and Intellectual Excersises

Trades.

Sold TOL at $20.96 and DECK at $ 103.98. Both of these are consumer pain from inflationary blowback trades.

Missed Opportunities

I should have cashed in GS and MER when the Fed announced that they were letting the investment banks monetize worthless paper through Treasury swaps. I believe that the Fed may have gone far enough here to actually make a difference for the broker-dealers. I will look for an opportunity to salvage what's left of my profits from GS and MER.

Intellectual Excersize on the Fed, the Banks, and What Happens Next

First, a quick recap of the credit crunch. The freeze remains. That is why the Fed has been forced to allow banks to swap frozen assets (MBS) for Treasury bonds they can sell and then lend money on. What will happen as this process continues? Obviously, the banks will offload as much crap as they can on the Fed, swapping it for Treasuries. This has increased the amount of Treasuries for sale, which should have pushed yields up. The recent panic, however, has precipitated a flight to Treasuries that has trumped the additional supply and such has been the demand for safety that yields have actually been driven down. Despite the soaring prices on Treasuries, there are a few cracks developing in the system. The recent pricing preference of German CDS favoring German bonds over Treasuries is a sign of this. First of all, the Fed now runs a serious risk of running out of Treasuries to swap with the banks. If they do, they would have no other option than to print money to buy those Treasuries back from the banks. However, if they do this, FCB's will probably protest by selling their Treasury holdings. The Fed would be unable to buy back everything without making the dollar completely worthless.

China is Battling Inflation

which reached 8.7% in February. China raised bank reserve requirements to 15.5% in an attempt to bring inflation down to its 4.8% target. The stock market hit an eight month low as the Central Bank threatened to raise interest rates. The Yuan gained against the dollar.

Chinese equities will continue to get hammered as the government shifts their focus from juicing the economy for the Olympics, and fighting inflation that threatens to eclipse economic growth and cause civil unrest. Target for FXI: $60, FXP: $200+.

Garbage In,

Garbage out!

WCI Communities Inc., a Florida homebuilder, reported its fifth straight quarterly loss on March 17. The company's cancellation rate was 110 percent in the period and new orders dropped more than 300 percent because of ``defaults'' on sales contracts. (Bloomberg)

How can new orders drop more than 100%? Because the cancellations aren't counted correctly.

With GS and LEH beating estimates, my strategy of waiting for earnings to come out has backfired. However, I do have some ammo. Homebuilders continue to have more strength than I believe they should. The fundamentals are still getting worse. I will probably short TOL later today. Also, retail is bouncing nicely. However, producer prices came in at 0.4% for February. The crack-up-boom will continue to hammer consumer spending. Time to short DECK.

Violence in China

BBC reports that there is violence in Tibet. Most likely the cause is at least partially economic. The Yuan will be under greater pressure to rise, as the dollar continues to plunge. For the time being, Treasuries are still the bubble of choice for the paniced and fear-stricken. Gold is next. In the meantime, I am holding on to FXP (Ultrashort Shanghai 25) despite the volatility of this past week (two -20% on Tuesday and +12% today). Support for the index is rapidly plunging, and news of violence cannot help. Over the next year, I believe that the index, which was at 4500 recently will retrace it's bubble gains back to under 3000.

Depression

I saw the word "Depression" four times in the main-stream news today...

Shopping

Trades:

Covered half of GS short @ $158.00

Covered half of MER short @ $43.47

I had a feeling that today would be a good day to go shopping.


As far as the Bear Stearns bailout goes, it looks to me like the Fed has just nationalized Bear Stearns by agreeing to loan J.P. Morgan the money for the bailout, and to assume risk for the transaction.

From a Bernanke speech in 2002 about deflation in Japan:

“Another option would be for the Fed to use its existing authority to operate in the markets for agency debt,'’ he said. It could offer “fixed-term loans to banks at low or zero interest, with a wide range of private assets, including, among others, corporate bonds, commercial paper, bank loans and mortgages deemed eligible as collateral.'’

“One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period,'’ Bernanke wrote. “A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt, say, bonds maturing within the next two years.'’

The central bank would pledge itself to unlimited purchases of Treasury
notes to prevent yields from rising above a preset target level, Bernanke said. “If operating in relatively short- dated Treasury debt proved insufficient, the Fed could also attempt to cap yields of Treasury securities at still longer maturities, say three to six years.'’ (Bloomberg)

Here’s why it won’t work: The PBOC, BOJ, and any other unfortunate suckers will preemptively dump their holdings on the market if the Fed prints too much. At the same time, domestic investment will flee the country for stronger currencies faster than the Fed can print. We’re already seeing a preemptive CUB + dollar carry trade.

Bernanke...

' 'It's worth noting that there have been times when exchange-rate policy has been an effective weapon against deflation,'' Bernanke said, citing the 40 percent devaluation of the dollar against gold enacted in 1933 to 1934. ``The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Monetary actions can have powerful effects on the economy.' " (Bloomberg)

Gold: $1000/oz. Need I say more? Bernanke also talks about pushing 0% rates out by buying unlimited amounts of Treasuries out a certain maturity range.

Let's watch rates closely to see if he's able to push them down.

Blowback...

Dollar falls to record low against Euro: Euro=$1.55

Oil hits new high: $110/barrel

Wheat: up 5.33% $13.28/bushel

Dow: down 46.57

10-yr.: 3.483%

30-yr.: 4.41%

The long bond sees this move for what it is: deflationary.

The primary dealers were very short Treasuries. Now, they're just short even more Treasuries.

I bought more IAR at $4.10.

Dumping the Dollar

Bernanke found a novel new way to dump the dollar today. The Fed will now swap Treasuries for MBS at banks. As always, there's no news on the all-important details: What's the haircut?

This juiced the Dow over 400 points, and understandably crushed Treasuries across the board. My account was down 12%, erasing half the gains of the past two weeks. Sold WM short near the top at $11.68.

What does this mean for the banks? How will this affect the default situation at Carlyle Capital? I will attempt to take a guess at what the ramifications may be.

This is just a tempoary fix (temporarily). This will help banks who have MBS that they can't sell. They'll take their lame-duck MBS to the Fed and trade them for a 28-day swap with Treasuries (minus the Fed's haircut). Then the banks can sell the Treasuries on the market. This will give the banks access to cash, as Treasuries are still liquid.

How might this affect Carlyle Capital? On one hand, the banks may get their capital through selling Treasuries. On the other, the banks may be even more eager to loot Carlyle, knowing that now they can take that loot to the Fed and swap it for Treasuries. In my opinion, the Fed is playing a dangerous game. They have already sold $80B out of $788B in Treasury holdings, or 10%. Their new swap facility will be up to $200B. That's another 25%. If this doesn't get the banks lending, the Fed will only have $508B left (plus their worth less MBS holdings).

The Fed is blatantly pursuing a policy of dollar devaluation. While they butchered Treasuries today (2-yr., -18%, 10-yr., -4.6%, 30-yr., -1.84%) the dollar jumped today against the Yen. Speaking of which, the Bank of Japan can't be happy about the dollar's plunge so far this year. This will not be good for Japan's economy. No wonder Japan was threatening to lower rates a couple of weeks ago. It should be interesting to see how they try to fight the Fed on this one. I guess it depends on how badly they get squeezed by commodities and lower demand for their exports due to a higher Yen.

As far as translating this into a trading and investment strategy, I don't think this changes things much. I think that the banks will just find crack-up boom plays to bet on with their Treasury-sale. I'm going to go shopping for anti-dollar plays the rest of this week. Also, I will look at more homebuilders to short. They were up more than investment banks today, even though HOV posted terrible earnings and TOl warned of additional losses from joint ventures. I will look to short TOl tomorrow. How plunging Treasuries with mushrooming yields pushing up mortgage costs helps homebuilders, I don't know. I guess some people think that the banks will start buying MBS again. Not going to happen. In the meantime, the consumer is going further underwater on their debts.

The Fed will lose this if the blowback from their dollar devaluation causes debts to be defaulted on even faster. So far, they've propped up the financial sector, preventing a major banking insolvency. However, the fundamentals of the debt market are getting worse. The Fed could win the battle against deflation if they can stop defaults and simultaneously stop the flight to safety. This requires a dollar devaluation together with an inflation of domestic assets. Their number one concern is to keep the banks from collapsing, and getting credit flowing again is a close second.

What's Happening Today

March 10 (Bloomberg) — The hedge-fund industry is reeling from its
worst crisis in a decade as banks are now demanding more money pledged to support outstanding loans even when the investment is backed by the full faith and credit of the United States. ”

Why would banks increase reserve requirements on Treasuries? Answer: they need the money. The banks are so capitally impaired that they need to loot the hedge funds even though they are all selling, and therefore won't get much. However, as Carlyle Capital showed, the banks saw their chance and pounced. Even though they drove Fannie and Freddie back mortgage securities down a couple hundred basis points, the meal must have been juicy. If this gets the banks past the next hurdle, they could rebound nicely. If it doesn't, look out below. I am shopping this week, but I refuse to buy anything that hasn't broken down on an individual basis. Bear Stearns was down 12% today on insolvency rumors. If I had shorted it, I would cover now.

Hating Bernanke

Why all the hate for Bernanke?

The argument is made that Bernanke, by “continuing to focus on a battle (saving fictitious capital) that has already been lost, [has] set the stage to lose the biggest battle of all, the destruction of money.” -Russ Winter. How is Bernanke doing this? By cutting interest rates. But is Bernanke lowering rates ARTIFICIALLY, or just lowering rates to market levels? Looking at the 2-yr Treasury hitting 1.49% today, one could argue that raising rates would be artificially trying to prop up the dollar.

Just trying to think outside the box, here.

Trade

Bought IAR at $5.24 today. It's cheap as dirt. Why, I don't know. I guess the yellow pages business always goes down during recession. On top of that, they have a lot of debt. The good news is that their revenue was only down 1% last year. So, they don't have the same problems with ads that newspapers have. Also, they pay out a 25% dividend. They have more than enough money to make debt service payments and continue their dividend. Their cushion is about $1.57 per share. On last years' earnings of $2.94, they could lose 50% of earnings and still pay out easily.

This is a no brainer.

In other news, the CMBX and ABX indexes have continued showing record losses in the commercial and residential mortgage markets. In addition, Fannie and Freddie mortgages have caught the flu as well, with spreads over Treasuries at 20+ year highs. The Fed is between a rock and a hard place. The inflationary blowback from lowering rates has sabotaged their original intention of easing liquidity. The result is that 30-yr. mortgage rates are higher than a year ago. The Fannie and Freddie bond spreads bear watching. If they gap out enough, then Fannie and Freddie will be out of business until they're bailed out.

Who knows what a can of worms that will be. I'll worry about that when we come to it. Until then, the question I ponder is, "when is it time to take some profits off the table?" Not yet, I believe, because the Fed had nothing left to prop up the markets in my opinion. Well, not exactly. They could always trot Treasury Secretary Hank Paulson out with a sad clown mask to say, "We no longer believe in a strong dollar." The problem is that no one believes them anyway. As a working strategy, I'll wait for the investment banks to announce earnings, and buy on any terrible news. Unless the VIX spikes to 30 first. Another day like today will do it.

Ambac

bailout is a bust. Nothing new here. They will raise $1.5 billion through a new equity offering. In other words, the banks are still stuck with all of their CDS exposure coming back onto their balance sheets. No wonder the bond markets are imploding. I will review the list of biggest Ambac bagholders for the possibility of shorting more:
C, UBS, WB, BCS, BAC, and WM. Already got C, and WM has been beaten silly already. I wonder who's going to take indirect damage from this.... It may yield a greater risk/reward ratio. I'll have to think about this. Who may have to sell muni's that are downgraded from AAA to ? Pension funds, ...?

Debt gets Dumped

Debt across the board was hammered today. 19 out of 20 ABX indices fell to all-time lows. All 26 CMBX indices soared to record high premiums. Investment grade debt is priced at 0.95 on the CDX index, with junk bonds priced at about 0.88. Leveraged buy-out debt is in between at 0.92. Treasuries were pummelled as well. Both the ten and thirty year bonds fell about 1.3%.

Despite this, equities continued their divergence, with the DOW initially down almost 200, but recovering to about -50. The excuse for the 3:30 bounce was another (is this the seventh or eighth time, now?) deal in the works for Ambac.

I was down a small fraction of a percent overall today. I still have my four-day, fifteen point straight runup intact.

Even if the banks can come out with a legitimate bailout of Ambac, I still believe that the market will get creamed, and soon. If they bail out Ambac, their only source of good news will have flown out the window!

Trading Strategy

The financial and homebuilding sectors plunged again today. The market was down earlier today, even in the face of even greater inflationary support, with oil hitting $104, and gold at $985. While profits are right now, I don't think they're ripe yet. So, I won't take them yet. The time to take profits will be when the dollar receives some support and the market drops below its Janruary lows.

One could argue that a risk to this strategy is that financials might find support even as the rest of the market drops. This could happen precisely because the rest of the market drops, forcing traders to take profits and seek shelter in other areas. This has happened a couple of times already. However, when we've seen the apparently irrational activity of "good" stocks dropping and "bad" stocks rising, this has usually been a short-lived phenomenon that signalled a bottom in the market, as it did around the time of the Janruary low below 12,000. Also, I'm willing to risk this kind of backdraft because I think that the risk is worth the reward.

At the same time, I may look for some bargains among "good" stocks. Barron's had an article showcasing risky "leveraged equities." They are stocks that have fallen so much that their equity is now worth much less than debt. Idearc publishes yellow pages. It has a P/E of 2 and a dividend yield of 23.8%. Carmike Cinemas is losing money, but yields 11.2%. I need to look at the summer movie schedule, but I think that the consumer is not so dead that he won't seek more entertainment over the summer to forget about his other economic woes. Also, I was in Santa Monica yesterday. I've never seen so many $175,000 Bentley's in my life. They were literally almost as common as BMW's. Cheaper alternatives (such as movies) to expensive trips should hold up well. If either of these stocks are below their prices from Barron's, I will probably decide to scoop up one or both.