Tamahagane Class – continued

Had the first workshop class on Tuesday night – very cool. Mesa Arts Center has a pretty cool setup for the welding/blacksmithing lab – with a workshop and a balcony area for the forges, etc. Had a couple forges setup and pretty much got right to it. Used the black sand, some borax glass […]

Tamahagane Class

Mesa Arts Center here in the Phoenix area has a 8 week course running this summer that aims to cover making steel from black sand that you see in the desert washes around the area. Sounded like fun and something I have a bit of interst in, so Isigned up.

We’ll be covering two […]

Getting a grip…

New grips for my Sig P229 and Spyderco Leafstorm anyway.

New camp knife – Vox Ripley XL

After coming home empty handed from knife show in Montana, I recently picked up a new camp knife for use on camping/backpacking trips. It’s a custom Vox¬†Knives Ripley XL – as far as I can tell only a couple Ripley models have been made, and only one of this larger version. This one appears […]

Montana, June 2009

Got back recently from a fun week in Montana with our friend Warren & Jen. We decided to drive up in order to escape the high prices for airfare and so we could take our hiking & camping gear with us. Warren & Jen had just purchased a nice, almost-new Airstream trailer they wanted […]

Artisans of Cutlery Show

This past weeekend I attended the Artisans of Cutlery Event at Tom Ferry’s shop near Seattle. The show was setup as private invite show, with four makers showing and approximately 20 collectors attending. I was really excited to get an invite to the show, as Tom had lined up some really great makers – […]

Bruce Bump’s Deadwood – finished

It’s finally done. Well, almost. The cut n’ shoot that Bruce has been working on for about a year now is finished. The accessories are still being pulled together, but the pistol itself is finally finished. And it looks gorgeous. The attention to detail by Bruce, and Jere Davidson (who did the engraving) and […]

Be your own hedge fund?

There was a small implosion on Wall Street on Tuesday, February 20th. It didn’t make the front page of most the finance and investing news websites. But there is a fascinating story around this implosion that I think is worth reviewing.
First though, a little background.

arbitrage \AR-buh-trahzh\, noun:
The nearly simultaneous purchase of a good or asset in one market where the price is low, and sale of the same good or asset in another market where the price is higher.

Hedge funds frequently make money by engaging in all kinds of arbitrage trades – mergers, convertibles, bonds, etc.
In order to cool an overheating economy the Fed began tightening the belt and raising interest rates a couple years ago. As a result an imbalance in interest rate markets occurred – one that retail investors, as opposed to hedge funds, were uniquely positioned to take advantage of. While interest rates rose Internet banks began offering high-yield FDIC insured savings accounts, offering rates of up to 5.5% in order to attract money to back mortgages. At the same time, credit card companies were offering up 0% balance transfer offers. These offers were designed to generate new customers who, presumably, would transfer balances away from other credit cards and after their promo rate expired would begin paying interest in the balances to the new company.
A funny thing happened though. The proliferation of both the 0% offers (and very loose lending standards) and the high-yield savings accounts created the opportunity for consumers to act like a hedge fund. And they have. Entire message boards are filled with people engaging in ‘App-o-Ramas’ where they apply for 10, 20, 30 different credit cards with 0% offers. Many people have been able to achieve aggregate credit lines of over $250,000. They then take the 0% money from the credit card company, drop it into a savings account and make ~5%. Simple, and relatively safe actually.
The story doesn’t end there though. People get greedy, which usually results in people getting stupid.
One enterprising guy decided that 5% wasn’t nearly enough return, and figured inflation would eat up all his profits. So, he decided that putting the money into the stock market was a better idea. And not just any stocks, but stocks with ultra high-yield dividends – Canadian Royalty Trusts. And when those stocks tanked due to tax of new regulations, he moved a lot of money into the sub-prime mortgage stocks.
And even dropping $200k of credit card money into the stocks wasn’t enough – he took out a loan, secured with the stock of the sub-prime mortgage company he was invested in, to buy more of the stock. Talk about being leveraged to the hilt.
Well, anyone that’s been reading the newspapers had to know that the sub-prime industry was in for a hit. And then, HSBC announced some bad news in early February related to the sub-prime portion of their business. At this point all signs were pointing to the exit. But money makes people stupid and a 30% dividend is hard for some people to pass up.
And then the bottom fell out. After market close on the 20th, Novastar Financial – a REIT structured sub-prime lender announced some bad news. Very bad news. In addition to having to buy back a lot of bad debt from banks, they didn’t expect to earn any taxable income until 2011 and are seriously looking at moving away from the REIT structure due to those reasons. A stock that had already fallen almost 50% since December dropped another 30% overnight.
Obviously, the gentleman in question took a big hit (I don’t believe he was 100% in Novastar, but had significant leveraged exposure). Novastar may recover eventually but he likely wont have the luxury of just waiting it out since his investment was so highly leveraged. Furthermore, he still has potential downside since he can’t afford to liquidate his full position as it’s backing the stock secured loan. Talk about a bad day.
The whole gory story plays out here – it gets interesting on page 8 of the thread.
If you want the real in-depth view on how it played out beginning to end the guy’s website is located here, where you can dig through the archives to see his thinking.
Moral to the story? Understand the difference between engaging in arbitrage and making highly leveraged high-risk investments, and definitely understand the value of a well diversified portfolio.
For a completely tangential connection – read on…

Continue reading Be your own hedge fund?

Deadwood – Reno Show Update

The cut ‘n shoot that Bruce Bump is building for me is getting closer to completion – when I last posted¬†about it, the fabrication was pretty much done. At the annual ABS Reno show this past January, Bruce had Deadwood on-hand to show off. The ivory scales have been added and it’s ready for […]

A new species of Sawfish

Triton Logging 'Sawfish' ROV - copyright Triton Loggin
Triton Logging has one of the most interesting business models I’ve heard of. They’re in the salvage business. They salvage wood.
In early 2004 I started looking for some exposure to timber stocks in my portfolio. Despite the fact that I thought housing would be heading into a downturn, I still thought it represented a good sector. Besides the nice dividends – in the 3-4% range, most of these companies sit on considerable tracts of undeveloped rural land – potentially a reasonable hedge against inflation. In addition, some of them (PCL, RYN) are structured as REITs, providing some nice tax advantages.
Now, along comes Triton, with an fascinating idea, and some cool technology to make it work. Triton aims to salvage forgotten, or inaccessible timber. Apparently there are a number of underwater forests in the world – valleys flooded by dams for example. It wouldn’t have occurred to me that the trees left behind would still be viable sources of timber, or that there would be an economically viable way or harvesting them.
But Triton has developed a reasonably cheap, submersible ROV (remotely operated vehicle), called a Sawfish, that can go down the depths, attach an airbag to the trees and fell them. Once they are floated to the surface they’re much easier to maneuver on the water than on land. The end result being, that Triton’s operation may be cheaper than a land based one.
By at least one estimate, there may be $50 billion dollars of timber trapped underwater. If privately held Triton can get access to just a small portion of that, it’ll mean serious dollars for a small startup.
Wired magazine has a great article about the company here.

Continue reading A new species of Sawfish