Just some things worth remembering:

Long the underlying+long a put=long a call (insurance put)
Long the underlying+short a call=short a put (a covered call is the same as a naked put)
Short the underlying+long a call=long a put (insurance call)
Short the underlying+short a put=short a call

“Business Conditions In the Doldrums” says Morgan Stanley, “The Morgan Stanley Business Conditions Index (MSBCI), based on a monthly canvass of our US analysts, posted its eighth consecutive sub-50% reading in early January, declining six points to 38%”,  while ECRI says “The rise in WLI growth to a 47-week high suggests that the U.S. economic growth outlook has been improving slowly but steadily”.

Somebody’s wrong.

Novastar’s September 2006 reporting on 2004-vintage subprime loans. From 13 to 21 months the vintage showed 4-6% 60+ day delinquencies. Many of these loans are 2/28 and so they reset at 24 months. Oops.

And just think, the subprime feeding frenzy was just getting started then. A taste of things to come.

A Forbes piece by Gary Shilling, with which I pretty much agree. His investment themes for 2007:

• Housing prices will collapse
• The Fed will ease when house prices collapse; meanwhile, the yield curve will remain inverted
• U.S. stock prices will fall, perhaps below the 2002 lows, in the midst of a major recession
• China will suffer a hard landing due to domestic cooling measures and U.S. recession
• Weakness in U.S. and China will spread globally, dragging down economies and stocks universally
• Treasury bonds will rally
• The dollar will rally, but only after the recession becomes global
• Commodity prices will nosedive.
• Maybe global and chronic deflation will commence in 2007
• Maybe U.S. consumers will start a saving spree, replacing their 25-year borrowing and spending binge<
• Maybe deflationary expectations will become widespread and robust
• Speculative areas beyond housing may suffer in 2007

“The huge gap between speculative financial markets and economic reality has persisted for a decade. It will probably be closed with many tears in the next recession, only adding to its depth.”

Apparently Decision One closed its Ohio offices today. I heard that most non-FDIC insured subprime lenders were expected to leave the state, because of liability issues.

The Cincinnati Post: “COLUMBUS - Ohio again leads the nation in home foreclosures, an indicator of how the state’s lag in adding jobs is leading people to have trouble paying their bills, economists say…..

Housing activists also have blamed Ohio’s high foreclosure rates on predatory lending practices, such as inflating an appraisal to dupe a consumer into taking out a loan that’s higher than the home is worth.

A new law takes effect this year to control such practices, aimed mainly at people with poor credit trying to buy homes. It tightens regulations on sub-prime loans and, for the first time, allows borrowers to use Ohio’s consumer protection law to sue lenders that aren’t covered by federal lending regulations. The attorney general can sue lenders to stop fraudulent practices.”