Today was weird. Not going to speculate why, but alot of things just didn't add up. For one the market was down on light volume. Previous down moves of late are typically with heavier volume. No on believe the down move now and everyone has gotten burned selling and so there is no conviction anymore? May be a good thing if your a bear.
Despite the lack of volume, breadth was fairly negative. Widespread sell off. Financials especially got spanked.
Dollar was up today, commodities were down, EXCEPT Gold. Gold was up today. Interesting divergence.
The most amazing thing may have been in debt land. The three month U.S. Government t-bill yield went negative today!!! Meaning that people were essentially paying to lend money to the government. The last time this happened was right after the Lehman bankruptcy at the peak of the panic. The move down was fairly swift and dramatic. Yet, high yield debt and investment grade debt seemed to perform fairly well.
What is going on? Things just didn't add up.
I thought about posting something on Japan yesterday and wish I would have since it seemed like every blog talked about it today but the stock market in Japan has started vastly outperforming the rest of the world even while China is approaching year highs. Not sure what that is all about.
Things just seem amiss right now. Not sure that is bearish but at the same time it might be.
Tomorrow is options expiration day and than next week is a holiday short week which should be bullish. Interesting things.
Thursday, November 19, 2009
Monday, November 16, 2009
Bernanke Clueless - No Surprise
This would be humerous if it wasn't so catclysmic for American future.
From Bloomberg
Federal Reserve Chairman Ben S. Bernanke said it’s “not obvious” that asset prices in the U.S. are out of line with underlying values after a 64 percent jump in the Standard & Poor’s 500 Index from its March low.
“It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” he said today in response to audience questions after a speech in New York. “It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system.”
Of course its not. If you could not see the housing bubble, the most glaring bubble of all time, you are hopeless seeing asset price misalignment.
The truth is, he may just be lying through his teeth or just may not care. He would rather deal with the aftermath than focus on being unpopular in attempt to prevent the party.
“The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset-price bubble bursts in the future,” Bernanke said.
From Bloomberg
Federal Reserve Chairman Ben S. Bernanke said it’s “not obvious” that asset prices in the U.S. are out of line with underlying values after a 64 percent jump in the Standard & Poor’s 500 Index from its March low.
“It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” he said today in response to audience questions after a speech in New York. “It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system.”
Of course its not. If you could not see the housing bubble, the most glaring bubble of all time, you are hopeless seeing asset price misalignment.
The truth is, he may just be lying through his teeth or just may not care. He would rather deal with the aftermath than focus on being unpopular in attempt to prevent the party.
“The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset-price bubble bursts in the future,” Bernanke said.
Merdedith Whitney on CNBC
Meredith Whitney Interview on CNBC.
Her comments attempted to cause the market to sell off but to no avail. The market skyrocketed on her comments in July. Basically ignored them this time around. No surprise. The market has ignored the bad at all costs for months building up the pressure.
Funny to watch Maria Bartiomo when Meredith starts talking about price and value. You see this glazed look of I don't understand.
Meredith says she doesn't know what is going on in the market right now because it makes no sense. She hasn't come to the realization that it is entirely a ponzi scheme. Hence it also probably makes her to bullish in regards to price.
From a CNBC article about the interview:
The US consumer was going through the biggest credit contraction ever—even bigger than that during the Great Depression. "That credit contraction is accelerating," she said. "There's nowhere to hide at this point."
The banking sector is not adequately capitalized and will need to raise more capital in the coming year.
The residential real estate market is likely to worsen and remains a much bigger threat than the commercial property market. The government's mortgage modification program won't result in any major improvement in homeowners' ability to stay above water, she added.
Her comments attempted to cause the market to sell off but to no avail. The market skyrocketed on her comments in July. Basically ignored them this time around. No surprise. The market has ignored the bad at all costs for months building up the pressure.
Funny to watch Maria Bartiomo when Meredith starts talking about price and value. You see this glazed look of I don't understand.
Meredith says she doesn't know what is going on in the market right now because it makes no sense. She hasn't come to the realization that it is entirely a ponzi scheme. Hence it also probably makes her to bullish in regards to price.
From a CNBC article about the interview:
The US consumer was going through the biggest credit contraction ever—even bigger than that during the Great Depression. "That credit contraction is accelerating," she said. "There's nowhere to hide at this point."
The banking sector is not adequately capitalized and will need to raise more capital in the coming year.
The residential real estate market is likely to worsen and remains a much bigger threat than the commercial property market. The government's mortgage modification program won't result in any major improvement in homeowners' ability to stay above water, she added.
The Ponzis End
I am becoming more and more convinced that the ending of the ponzi scheme occurs when yields on government debt goes up. This is very backwards from typical market behavior. When yields moved higher (bonds were being sold) stocks were usually bought. (I am talking about Treasury yields, not the Fed Funds rate). This is because it showed signs of economic strength as the economy was heating up.
This time will be very different. It will be because trust will dissipate from government debt. Inflation expectations will rise demanding more return for the bonds. This is regardless of economic strength.
Since Ponzis rely on liquidity, if government debt yields were to really spike higher this would be a very big impediment.
Probably does not start in the U.S. but in Europe or Japan. That is why things in Europe are so important.
From Bloomberg:
Greek bonds dropped as the nation’s deteriorating finances deterred investors from owning the government’s debt.
The difference in yield, or spread, between 10-year Greek securities and benchmark German bunds widened to 156 basis points, the most since July 16. The yield on the bond climbed 11 basis points to 4.89 percent as of 4:45 p.m. in Athens. The yield has risen 22 basis points in the past three days.
This is not glaring yet. At some point, Greece, Spain, Japan, (or some government I am not watching as closely) could start the domino affect.
This time will be very different. It will be because trust will dissipate from government debt. Inflation expectations will rise demanding more return for the bonds. This is regardless of economic strength.
Since Ponzis rely on liquidity, if government debt yields were to really spike higher this would be a very big impediment.
Probably does not start in the U.S. but in Europe or Japan. That is why things in Europe are so important.
From Bloomberg:
Greek bonds dropped as the nation’s deteriorating finances deterred investors from owning the government’s debt.
The difference in yield, or spread, between 10-year Greek securities and benchmark German bunds widened to 156 basis points, the most since July 16. The yield on the bond climbed 11 basis points to 4.89 percent as of 4:45 p.m. in Athens. The yield has risen 22 basis points in the past three days.
This is not glaring yet. At some point, Greece, Spain, Japan, (or some government I am not watching as closely) could start the domino affect.
Ponzi Continued
Big move up in the market today. We broke through major resistance I would say the odds are for another 5 to 10% move at this point UNLESS we move back under resistance in a big reversal in the next day or two.
Why is the market up? Simple, the ponzi continues. Very bad economic data today means more juice for the market. So as our country continues to head towards failure, the market continues higher.
What was the economic news. Inventories down gain. Now down 13.4% year over year but the ratio to sales is still elevated. So still no mystical inventory rebuild that has literally been touted for 8 months as a reason to buy.
After showing alot of improvement the last few months the Empire State Manufacturing General Business Conditions Index plunged 11 points to 23.5. New orders fell from 30.8 to 16.7 shipments declined from 35.1 to 13. Very bearish for the economy but oh so bullish for the stock market. (The market was expecting a number around 30).
Retail sales were heralded to dumb Americans as good but Wall St. is not fooled. They know how bad the numbers are and so adds to the reason to buy. YOY sales were down 1.7%. When you consider how bad last October was, that seems like a very bad print.
Some of these numbers are not horrendous but it definitely points to a non V shaped recovery if you can even use the word recovery. Here is the dirty little secret though. Wall St. does not really want a recovery. That would mean the equity markets would go down.
Why is the market up? Simple, the ponzi continues. Very bad economic data today means more juice for the market. So as our country continues to head towards failure, the market continues higher.
What was the economic news. Inventories down gain. Now down 13.4% year over year but the ratio to sales is still elevated. So still no mystical inventory rebuild that has literally been touted for 8 months as a reason to buy.
After showing alot of improvement the last few months the Empire State Manufacturing General Business Conditions Index plunged 11 points to 23.5. New orders fell from 30.8 to 16.7 shipments declined from 35.1 to 13. Very bearish for the economy but oh so bullish for the stock market. (The market was expecting a number around 30).
Retail sales were heralded to dumb Americans as good but Wall St. is not fooled. They know how bad the numbers are and so adds to the reason to buy. YOY sales were down 1.7%. When you consider how bad last October was, that seems like a very bad print.
Some of these numbers are not horrendous but it definitely points to a non V shaped recovery if you can even use the word recovery. Here is the dirty little secret though. Wall St. does not really want a recovery. That would mean the equity markets would go down.
Sunday, November 15, 2009
Bruce Greenwald and Structural Problems of the World Economy
Good interview with Bruce Greenwald. He is maybe the most famous value investing professor in the world. He teaches at Columbia and is involved (may even be in charge of) Columbia's MBA value investing program. He is also a person value investing gurus go to when they need advice and opinions.
Anyway he talks about the structural issues world wide and a possible solution (which I put at low odds of working. There just isn't a viable solution).
Here the interview.
Some excerpts:
To answer that, you must first understand why this situation has been so bad and so prolonged – and I think it’s going to be much more prolonged. The first evidence that you have to think about is that while this is the first occurrence of problems this severe in the US, these problems have been around in Asia, Argentina, Mexico, Russia – and Japan, of course, most obviously – for many years. This is not new.
You want to go back and think about what is going on. In a sense, you are seeing issues that are going to take a long time to fix and are similar to what happened in the Depression. Basically, in the Depression a huge sector of the economy that everyone had always regarded as central, died. And it dies for an almost virtuous reason.
That sector of course is agriculture.
and
The comparable thing that is going on today is that manufacturing is dying, and it is dying for exactly the same reason, which is productivity growth is 5% to 6% a year and demand growth is 2% to 3% a year.
a possible solution
So the actual way we could relieve the pressure is to have the IMF just print money and give it to Korea and the other countries so that they could buy Chinese and the other exporting countries’ goods without having to incur foreign debt. That is the Stiglitz plan and that’s the plan that the Chinese are talking about.
I think this is way optimistic
There is this huge structural problem taking place. The governments can offset it to some extent. I think what you are going to see in the US is what you saw in Japan for years, which is stagnant demand. We will grow a little bit, imports will flood in, purchasing power will go out of the US economy, and we will stop growing, and then the government will do something and the dollar will fall a little. All these things will happen sequentially, but ultimately you are going to have slow growth.
on unemployment
Imagine that you’ve got basically 1% or 0% GDP growth and productivity growth of 2% to 3% per year. Employment is going to be decreasing by 2% to 3% per year. That means unemployment is going from 10%, where it is now, to 12% to 14%. I don’t think there’s a natural stopping place for that much below 15%.
Anyway he talks about the structural issues world wide and a possible solution (which I put at low odds of working. There just isn't a viable solution).
Here the interview.
Some excerpts:
To answer that, you must first understand why this situation has been so bad and so prolonged – and I think it’s going to be much more prolonged. The first evidence that you have to think about is that while this is the first occurrence of problems this severe in the US, these problems have been around in Asia, Argentina, Mexico, Russia – and Japan, of course, most obviously – for many years. This is not new.
You want to go back and think about what is going on. In a sense, you are seeing issues that are going to take a long time to fix and are similar to what happened in the Depression. Basically, in the Depression a huge sector of the economy that everyone had always regarded as central, died. And it dies for an almost virtuous reason.
That sector of course is agriculture.
and
The comparable thing that is going on today is that manufacturing is dying, and it is dying for exactly the same reason, which is productivity growth is 5% to 6% a year and demand growth is 2% to 3% a year.
a possible solution
So the actual way we could relieve the pressure is to have the IMF just print money and give it to Korea and the other countries so that they could buy Chinese and the other exporting countries’ goods without having to incur foreign debt. That is the Stiglitz plan and that’s the plan that the Chinese are talking about.
I think this is way optimistic
There is this huge structural problem taking place. The governments can offset it to some extent. I think what you are going to see in the US is what you saw in Japan for years, which is stagnant demand. We will grow a little bit, imports will flood in, purchasing power will go out of the US economy, and we will stop growing, and then the government will do something and the dollar will fall a little. All these things will happen sequentially, but ultimately you are going to have slow growth.
on unemployment
Imagine that you’ve got basically 1% or 0% GDP growth and productivity growth of 2% to 3% per year. Employment is going to be decreasing by 2% to 3% per year. That means unemployment is going from 10%, where it is now, to 12% to 14%. I don’t think there’s a natural stopping place for that much below 15%.
Friday, November 13, 2009
Ron Paul on CNBC
Must see Ron Paul video in a 10 minute interview on CNBC this morning. Ron Paul has made some questionable remarks over his lifetime. When he sticks to the Fed I basically agree. The only thing I disagree with in this video is to abolish FDIC insurance. I think that serves a valid purpose in our financial system.
Thursday, November 12, 2009
Laws of Finance
Below is an email response I wrote as part of a chain of emails. It may be interesting reading to some of you. In many ways I have gone to the darkside in thinking the whole system is going to collapse or have to be dramatically altered over the next decade. How it plays out is anyone's guess.
Email
Now, why I have gone to the dark side. There are laws of finance just like there are laws of nature. Most of the laws of nature can be overcome through the right force, the right combination of other natural elements. Rocket boosters can overcome gravity. A natural force that cannot be overtaken is death. Similar to the concept of entropy. One can delay the process but one (so far) cannot reverse death. In finance, there are many laws also. Supply and demand, diminishing returns, etc. etc. For finance, that law that cannot be overcome is leverage. Centuries upon centuries of financial history is littered with economic failure because of to much debt. Not once has financial failure because of debt been reversed by adding more debt. To prevent an economic entity from leverage collapse, there is only one solution and only one solution. Deleverage!!
Let's look at the last twenty years of economic history in the U.S. Late 80s into the early 90s we had a commercial real estate and residential downturn. We had the culmination of the S&L crises and a general economic recession. We addressed it as a country head on, allowed a form of cleansing to take place and continued on. Economy got overheated and to much financial leverage got in the wrong hands and we had LTCM in 1998. What happened? We should have gone into a recession at that point. Instead the government bought the recession and it didn't occur and off to the races in a full blown equity bubble. We bought 3 years. At that point it got to overheated. We should have gone into a severe recession. The government bought the severe recession away and only entered a recession. We still not did not cleanse. We bought 3 more years (2004 to 2007). At that point we still did not cleanse and instead spread the bubble somewhere else. This time we should have gone into a depression. The government stepped in and purchased a severe recession. We still have not cleansed. In fact, despite all the money spent, we are more insolvent, more indebted, in an overall weaker state!! We are not using the only solution that works, deleveraging. Each step the economy was unbalanced and needed a natural capitalism rebalancing. Each step we did not allow a reblancing to occur and the next iteration was even a more imbalanced system. Imagine a see saw where it is off center and keeps getting more and more off center.
There is one fundamental difference between each iteration. Until the last twelve months, the risk was confined to the private sector. At this point, all risk has been transferred to the public sector. What this means is that mom and pop restaurant in po dunk Texas is bearing the risk of the of the entire financial system. The risk that was confined to Citigroup has been transferred to the government and hence transferred to mom and pop restaurant. Did they want to take this risk? No, the government decided to place this risk upon them.
Since all risk has been essentially been transferred to the public sector, the next downturn will probably cause the public sector to fail which will cause the meltdown of the entire private sector. This would cause the failure of those who have been conservative and did not take the risk that others driven by greed took.
Now the U.S. government has bought time. Possibly multiple years but the municipal crises, Europe, or Japan I think are the 3 most likely trigger mechanisms. (since we have not fixed anything, it really could come from anyway). The municipal crises I have already touched on. I have a report that details all of it if anyone is interested. Europe is ****show. I could write for hours on the problems in Spain, Greece, Italy, and Eastern Europe. Because of the way these countries are all tied together with the Euro, a collapse (think Iceland) in one or more of these countries (which I consider a very high probability event in the next five years) has at least a coin flip probability of causing the entire Euro structure to collapse. Is Germans going to suffer massive economic pain because the economy run by Spaniards collapsed? Japan may be the darkhorse. Kyle Bass has been all over this story buying up the cds (betting essentially they will default). Government debt to GDP is approaching 200%. In the next year the interest expense will be more than all government revenues. The yield on government debt has been extremely low. If the 10 year yield goes above 2%. Watch out. The shakeout globally from that occurring could be sharp and very very painful.
One other comment. China. What is going on there is unfathomable and is setting up for its own collapse regardless of everything else. They are spending $900 billion to prop up a 4.3 trillion economy!! That is unheard of by multiples of like 10. To make matters worse, 48% of GDP is going into fixed investment!!! What does that mean? That means they are building **** that has no use currently and is simply adding to capacity. This is great in the short term but considering the world already has to much capacity this is setting up for a collapse a few years down the road. Consider this. China consumer more cement than the rest of the world at 1.4 billion tons per year. Yet they have been adding to capacity at a break neck pace now having an estimated 340 million tons in excess capacity. To put that into perspective, that is more cement that the U.S. India, and Japan use combined. China's collapse would probably naturally occur years down the road. It will probably happen much quicker because of other things mentioned.
I slightly disagree with you when you said "we only come together in times of peace and optimism, not times of despair." That is normally true unless the despair is severe. It is usually then end of the process. United Nations after WWII. So you have a collapse of the system, massive human suffering, and at the end (5 years into it) a new system is introduced. A world currency may or may not come. I don't know. I just know that the odds are increasing because the world reserve currency (the U.S. dollar) won't be able to hold that status in the next two decades.
Now, why I have gone to the dark side. There are laws of finance just like there are laws of nature. Most of the laws of nature can be overcome through the right force, the right combination of other natural elements. Rocket boosters can overcome gravity. A natural force that cannot be overtaken is death. Similar to the concept of entropy. One can delay the process but one (so far) cannot reverse death. In finance, there are many laws also. Supply and demand, diminishing returns, etc. etc. For finance, that law that cannot be overcome is leverage. Centuries upon centuries of financial history is littered with economic failure because of to much debt. Not once has financial failure because of debt been reversed by adding more debt. To prevent an economic entity from leverage collapse, there is only one solution and only one solution. Deleverage!!
Let's look at the last twenty years of economic history in the U.S. Late 80s into the early 90s we had a commercial real estate and residential downturn. We had the culmination of the S&L crises and a general economic recession. We addressed it as a country head on, allowed a form of cleansing to take place and continued on. Economy got overheated and to much financial leverage got in the wrong hands and we had LTCM in 1998. What happened? We should have gone into a recession at that point. Instead the government bought the recession and it didn't occur and off to the races in a full blown equity bubble. We bought 3 years. At that point it got to overheated. We should have gone into a severe recession. The government bought the severe recession away and only entered a recession. We still not did not cleanse. We bought 3 more years (2004 to 2007). At that point we still did not cleanse and instead spread the bubble somewhere else. This time we should have gone into a depression. The government stepped in and purchased a severe recession. We still have not cleansed. In fact, despite all the money spent, we are more insolvent, more indebted, in an overall weaker state!! We are not using the only solution that works, deleveraging. Each step the economy was unbalanced and needed a natural capitalism rebalancing. Each step we did not allow a reblancing to occur and the next iteration was even a more imbalanced system. Imagine a see saw where it is off center and keeps getting more and more off center.
There is one fundamental difference between each iteration. Until the last twelve months, the risk was confined to the private sector. At this point, all risk has been transferred to the public sector. What this means is that mom and pop restaurant in po dunk Texas is bearing the risk of the of the entire financial system. The risk that was confined to Citigroup has been transferred to the government and hence transferred to mom and pop restaurant. Did they want to take this risk? No, the government decided to place this risk upon them.
Since all risk has been essentially been transferred to the public sector, the next downturn will probably cause the public sector to fail which will cause the meltdown of the entire private sector. This would cause the failure of those who have been conservative and did not take the risk that others driven by greed took.
Now the U.S. government has bought time. Possibly multiple years but the municipal crises, Europe, or Japan I think are the 3 most likely trigger mechanisms. (since we have not fixed anything, it really could come from anyway). The municipal crises I have already touched on. I have a report that details all of it if anyone is interested. Europe is ****show. I could write for hours on the problems in Spain, Greece, Italy, and Eastern Europe. Because of the way these countries are all tied together with the Euro, a collapse (think Iceland) in one or more of these countries (which I consider a very high probability event in the next five years) has at least a coin flip probability of causing the entire Euro structure to collapse. Is Germans going to suffer massive economic pain because the economy run by Spaniards collapsed? Japan may be the darkhorse. Kyle Bass has been all over this story buying up the cds (betting essentially they will default). Government debt to GDP is approaching 200%. In the next year the interest expense will be more than all government revenues. The yield on government debt has been extremely low. If the 10 year yield goes above 2%. Watch out. The shakeout globally from that occurring could be sharp and very very painful.
One other comment. China. What is going on there is unfathomable and is setting up for its own collapse regardless of everything else. They are spending $900 billion to prop up a 4.3 trillion economy!! That is unheard of by multiples of like 10. To make matters worse, 48% of GDP is going into fixed investment!!! What does that mean? That means they are building **** that has no use currently and is simply adding to capacity. This is great in the short term but considering the world already has to much capacity this is setting up for a collapse a few years down the road. Consider this. China consumer more cement than the rest of the world at 1.4 billion tons per year. Yet they have been adding to capacity at a break neck pace now having an estimated 340 million tons in excess capacity. To put that into perspective, that is more cement that the U.S. India, and Japan use combined. China's collapse would probably naturally occur years down the road. It will probably happen much quicker because of other things mentioned.
I slightly disagree with you when you said "we only come together in times of peace and optimism, not times of despair." That is normally true unless the despair is severe. It is usually then end of the process. United Nations after WWII. So you have a collapse of the system, massive human suffering, and at the end (5 years into it) a new system is introduced. A world currency may or may not come. I don't know. I just know that the odds are increasing because the world reserve currency (the U.S. dollar) won't be able to hold that status in the next two decades.
Monday, November 9, 2009
Back To Normal
Nothing much to talk about today. Seems like we are back to "normal." Mindless, low volume (close to no volume), dollar bashing, equity buying days controlled by your friendly Goldman Sachs traders and a few yapping computers. Low low volume today as more and more normal market participants throw up their hands and leave.
No real news today so you left looking at charts. The great big bear downtrend line on a S&P closing basis is 1093.07 today. We closed .01 above it. This line turned the markets lower at 1103 a few weeks ago.
On an intraday basis the downtrend line is 1103.76 tomorrow dropping about .9 points a day. These are obviously very important lines.
No real news today so you left looking at charts. The great big bear downtrend line on a S&P closing basis is 1093.07 today. We closed .01 above it. This line turned the markets lower at 1103 a few weeks ago.
On an intraday basis the downtrend line is 1103.76 tomorrow dropping about .9 points a day. These are obviously very important lines.
Saturday, November 7, 2009
Ponzi Finance
Last week more than anything displayed exactly what is going on in the stock market. The two prior weeks before this week economic data started to actually look really good. What happened? The stock market started falling. Why? Because it meant that liquidity may have to be taken out of the system by the Fed. This week, two things happened. On Wednesday the Fed did not make any aggressive moves on the language concerning interest rates and basically said, party on. On Friday, you had bad job loss number but it was about perfect for the stock market. How can over 260,000 job losses (if you count previous revisions) be good? Because, our finance system has become a ponzi system. In a ponzi scheme, fundamentals don't matter. What matters is liquidity. For Bernie Madoff, the fundamentals never mattered. What mattered was always having new money to be able to give to investors that withdraw money. When the stock market started crashing and too many people started withdrawing their money, the scheme collapsed all around him.
Same thing with the stock market. Real numbers do not matter UNLESS it interrupts the liquidity flow. Friday's job number was absolutely perfect from a stock markets viewpoint. Temp jobs (a leading indicator) was up while job losses where basically steady from previous months so it could be argued there was a slight improvement while at the same time the headline that went out to every news source was 10.2%. While 10.2% was what everyday people saw, what does Wall St see? Dollar signs. It tells them more stimulus will be coming from Washington, more liquidity from the Fed, and that interest rates will stay really low. It was a horrific number for bears. I was texting at 7:35 central time right after the number came out with bears who were all excited about how bad the number was. My text back was "the worse the number the more bullish bc fed stays easy." If the number would have come out and surprised everyone with a 30k job gain, my guess is the market would have dropped over 2%. In fact when the number came out, I groaned. Did not surprise me at all the stock market was up.
All of that screams ponzi and screams that macro liquidity issues is what matters. Where does that leave investors? I owned IMS health at the beginning of the week. It got bought at a close to a 30% premium on Thursday and I made a lot of money. Was I lucky or was that a great call by me? I am short Amazon which I have lost even more money on that trades north of 70x earnings. Am I unlucky or am I just stupid? Everyone is feeling smart or dumb right now depending what side of the trade your on but I think on many levels it is all just pixi dust. The trade is one way.
With all ponzis, they all end but there is basically no way to make money on it. The reason is because when they end, they end almost overnight. If your long the ponzi, you feel brilliant as your making money day after day, statement after statement. Until the day you wake up and it all implodes and you have lost close to everything. If your betting against the ponzi you will have one day when it pays off. You will lose money (possibly everything) as the ponzi continues and you try to bet against it. How rich were Bernie Madoff investors in 2007. Their financial statements said they were very rich. Where they? The Dow claims it is at 10,000 today. Is it?
So what are investors to do? The answer is simple. Avoid it. There were many investors who looked at Madoff's fund and said something is not right and didn't invest with Madoff. They went elsewhere. What if elsewhere does not exist? What if there is no other option? I present you the U.S. financial system. Even many bulls would not argue that the system is not solvent today. The bulls would argue that we will be able to earn our way out of it (Whitney Tilson who is not really a bull makes this argument with Wells Fargo). Whether you buy that argument or not, what that arguments implies is a basic form of ponzi. The system is insolvent, liquidity will enable to allow the firms to keep paying people who want out (to really understand that at a deep level you really need to understand the accounting framework of a liquidity transaction, maybe at some point I will do a post on it), and at some point out in the future earnings will make the system solvent again. Not a game I really want to be apart of. Why? Because maybe it works maybe it doesn't (it usually doesn't) but the U.S. government has taken over the entire system in this matter. That means that the mom and pop shop is going to be affected by this outcome. Why I get so discouraged is because it seems that studying the financial statements and business opportunities of company x on the NYSE does not really matter. Because it has gotten unwillingly trapped in the ponzi system (the government decided to place it in the ponzi system when it took the entire system in this direction) all that matters is the outcome of system. The failure of the system means failure of company x.
It is why I thought Mark Sellers nailed it in his last letter when he said: "A weak U.S. economy is required to continue the boom in the U.S. stock market. It’s nuts." The weaker we are, the more people without jobs means the more liquidity will be there to continue the ponzi game.
So the question I have been asking myself, which has been sort of depressing, is why am I playing this game? If company x was a ponzi I would avoid company x. I would look a company y or company p or company j. The fact is the government has made every company a ponzi inherently by being part of the system. My successful investment of IMS Health would have probably been a complete failure if the ponzi system would have unraveled three weeks ago. Goes back to the question again. Was that a good investment or was that luck and actually a bad investment that was putting money in part of the ponzi scheme that I happened to be able to collect on before the ponzi unraveled?
To make matters worse from an investors standpoint, there is a second aspect to this all. The deck is heavily rigged. Goldman Sachs lost money from its prop trading desk only three days in the last two quarters (this last quarter they only lost money 1 day). Statistically in the old system that would be almost impossible. Probably be like a 10 standard deviation event or something. In today's system, it is hardly a surprise. Big competition (like Lehman and Bear Stearns) has been destroyed leaving bascially only one major player on the street. They essentially have a monopoly on which way the market will go in the short day to day trading. Completely making up numbers but if they were 20% and they are now 60% they can now push the market on any given day in whichever direction they want. So in the short term, the question is not what will the fundamentals do. The question is what does Goldman want the market to do. It is asinine. I know traders who have thrown up their hands and quit in the last three months because the markets have not followed the patterns they have traded in for 20 years. Well those patterns only depend now on what side of the bed Goldman Sachs traders wake up on.
So I come full circle. Why am I participating? If the system is a ponzi I will lose money eventually when the ponzi finally pops if I am participating in it. If I am betting against it I will lose money until it pops in which case there is no telling if I will be able to be around to collect on that bet when it pops. If you could short Bernie Madoff you would have lost a fortune betting over 10 years that the ponzi would collapse. If you were enjoying the ride investing with Madoff, it was good until the day you woke up and found out your investment was a complete zero. If your shorting a stock that Goldman has a desire to see increase for some reason or another, you will lose your shirt as Goldman decides it will make sure it will not go down.
Ever since I was around 13 I loved looking at companies and getting to know what they do. I am finding it more and more a meaningless task because more and more I come to the conclusion it does not matter. As a result, more and more I question why I am participating in a rigged game. Life is short. The ending to all of this is likely to be horrific and even if I have nailed exactly what is going on, there is no guarantee I will ever collect on it. Just thoughts bouncing around in my brain.
I think the odds are growing that this market rally thing will end on a 10% down day or 25% down month type of event.
In the short term, because the job loss number was so bad, it probably means the stock market has a decent chance of making new highs. What is really freaking amazing is that the AAII weekly survey of US retail investors was the bearish it has been since February 19th 2009. This is usually a major contrary indicator. This number just collapsed after the stock market pulled back a mere 6%. What the great bear trendline from the November 2007 highs. If we break that, there will be a rocket ship higher. Correlations seemed to have started breaking down recently so it is possible we are not headed for new highs but those odds have been falling. If we don't, I think it will have to do with U.S. financials and/or Europe. Those two is what will eventually end the Ponzi game.
Same thing with the stock market. Real numbers do not matter UNLESS it interrupts the liquidity flow. Friday's job number was absolutely perfect from a stock markets viewpoint. Temp jobs (a leading indicator) was up while job losses where basically steady from previous months so it could be argued there was a slight improvement while at the same time the headline that went out to every news source was 10.2%. While 10.2% was what everyday people saw, what does Wall St see? Dollar signs. It tells them more stimulus will be coming from Washington, more liquidity from the Fed, and that interest rates will stay really low. It was a horrific number for bears. I was texting at 7:35 central time right after the number came out with bears who were all excited about how bad the number was. My text back was "the worse the number the more bullish bc fed stays easy." If the number would have come out and surprised everyone with a 30k job gain, my guess is the market would have dropped over 2%. In fact when the number came out, I groaned. Did not surprise me at all the stock market was up.
All of that screams ponzi and screams that macro liquidity issues is what matters. Where does that leave investors? I owned IMS health at the beginning of the week. It got bought at a close to a 30% premium on Thursday and I made a lot of money. Was I lucky or was that a great call by me? I am short Amazon which I have lost even more money on that trades north of 70x earnings. Am I unlucky or am I just stupid? Everyone is feeling smart or dumb right now depending what side of the trade your on but I think on many levels it is all just pixi dust. The trade is one way.
With all ponzis, they all end but there is basically no way to make money on it. The reason is because when they end, they end almost overnight. If your long the ponzi, you feel brilliant as your making money day after day, statement after statement. Until the day you wake up and it all implodes and you have lost close to everything. If your betting against the ponzi you will have one day when it pays off. You will lose money (possibly everything) as the ponzi continues and you try to bet against it. How rich were Bernie Madoff investors in 2007. Their financial statements said they were very rich. Where they? The Dow claims it is at 10,000 today. Is it?
So what are investors to do? The answer is simple. Avoid it. There were many investors who looked at Madoff's fund and said something is not right and didn't invest with Madoff. They went elsewhere. What if elsewhere does not exist? What if there is no other option? I present you the U.S. financial system. Even many bulls would not argue that the system is not solvent today. The bulls would argue that we will be able to earn our way out of it (Whitney Tilson who is not really a bull makes this argument with Wells Fargo). Whether you buy that argument or not, what that arguments implies is a basic form of ponzi. The system is insolvent, liquidity will enable to allow the firms to keep paying people who want out (to really understand that at a deep level you really need to understand the accounting framework of a liquidity transaction, maybe at some point I will do a post on it), and at some point out in the future earnings will make the system solvent again. Not a game I really want to be apart of. Why? Because maybe it works maybe it doesn't (it usually doesn't) but the U.S. government has taken over the entire system in this matter. That means that the mom and pop shop is going to be affected by this outcome. Why I get so discouraged is because it seems that studying the financial statements and business opportunities of company x on the NYSE does not really matter. Because it has gotten unwillingly trapped in the ponzi system (the government decided to place it in the ponzi system when it took the entire system in this direction) all that matters is the outcome of system. The failure of the system means failure of company x.
It is why I thought Mark Sellers nailed it in his last letter when he said: "A weak U.S. economy is required to continue the boom in the U.S. stock market. It’s nuts." The weaker we are, the more people without jobs means the more liquidity will be there to continue the ponzi game.
So the question I have been asking myself, which has been sort of depressing, is why am I playing this game? If company x was a ponzi I would avoid company x. I would look a company y or company p or company j. The fact is the government has made every company a ponzi inherently by being part of the system. My successful investment of IMS Health would have probably been a complete failure if the ponzi system would have unraveled three weeks ago. Goes back to the question again. Was that a good investment or was that luck and actually a bad investment that was putting money in part of the ponzi scheme that I happened to be able to collect on before the ponzi unraveled?
To make matters worse from an investors standpoint, there is a second aspect to this all. The deck is heavily rigged. Goldman Sachs lost money from its prop trading desk only three days in the last two quarters (this last quarter they only lost money 1 day). Statistically in the old system that would be almost impossible. Probably be like a 10 standard deviation event or something. In today's system, it is hardly a surprise. Big competition (like Lehman and Bear Stearns) has been destroyed leaving bascially only one major player on the street. They essentially have a monopoly on which way the market will go in the short day to day trading. Completely making up numbers but if they were 20% and they are now 60% they can now push the market on any given day in whichever direction they want. So in the short term, the question is not what will the fundamentals do. The question is what does Goldman want the market to do. It is asinine. I know traders who have thrown up their hands and quit in the last three months because the markets have not followed the patterns they have traded in for 20 years. Well those patterns only depend now on what side of the bed Goldman Sachs traders wake up on.
So I come full circle. Why am I participating? If the system is a ponzi I will lose money eventually when the ponzi finally pops if I am participating in it. If I am betting against it I will lose money until it pops in which case there is no telling if I will be able to be around to collect on that bet when it pops. If you could short Bernie Madoff you would have lost a fortune betting over 10 years that the ponzi would collapse. If you were enjoying the ride investing with Madoff, it was good until the day you woke up and found out your investment was a complete zero. If your shorting a stock that Goldman has a desire to see increase for some reason or another, you will lose your shirt as Goldman decides it will make sure it will not go down.
Ever since I was around 13 I loved looking at companies and getting to know what they do. I am finding it more and more a meaningless task because more and more I come to the conclusion it does not matter. As a result, more and more I question why I am participating in a rigged game. Life is short. The ending to all of this is likely to be horrific and even if I have nailed exactly what is going on, there is no guarantee I will ever collect on it. Just thoughts bouncing around in my brain.
I think the odds are growing that this market rally thing will end on a 10% down day or 25% down month type of event.
In the short term, because the job loss number was so bad, it probably means the stock market has a decent chance of making new highs. What is really freaking amazing is that the AAII weekly survey of US retail investors was the bearish it has been since February 19th 2009. This is usually a major contrary indicator. This number just collapsed after the stock market pulled back a mere 6%. What the great bear trendline from the November 2007 highs. If we break that, there will be a rocket ship higher. Correlations seemed to have started breaking down recently so it is possible we are not headed for new highs but those odds have been falling. If we don't, I think it will have to do with U.S. financials and/or Europe. Those two is what will eventually end the Ponzi game.
Subscribe to:
Posts (Atom)
