Wednesday, December 31, 2008

The Closing of 2008

I am off and traveling. Most people couldn't see the close of 2008 happen fast enough. Hopefully 2009 will come with better gifts to bring. The markets put together the normal end of the year rally. Will be interesting to see if we are able to follow through going into 2009 leading up to the Obama inaguration.

One thing 2008 I think showed all was the stupidty of our national leaders and the various government branches. I am not very hopeful that the change of a calendar year or presedential adiministration will change that much if at all.

Monday, December 29, 2008

Peter Schiff Video - Cussing and Angry Words

I wasn't going to post this video because I have posted several similar videos of Peter Schiff recently. Then, when around minute 7 one of the talking head commentators blood vessels started bursting out and got visually and audibally got very angry I felt like it was a winner. Maybe I just have a wierd sense of humor. I disagree with Peter that the government should not have done anything this year but agree with his overall points.

http://www.cnbc.com/id/15840232?video=978838886&play=1

Jim Rogers First Word For 2009

Interview with Jim Rogers about his 2009 thoughts. If you follow Jim Rogers he does not say to much knew here. I would say I am not nearly as bullish as he is on China and that I agree with him agriculture.

http://www.youtube.com/watch?v=M3WhlddSBbw&eurl=http://www.ritholtz.com/blog/2008/12/rogers-prepared-for-the-worst/

Additional 2009 Thoughts

Below is an email I sent talking about a few things that I am worried about in 2009. These are less predictions but more things I am just worried about though I do have a few predictions embedded in there.

I feel like I have almost turned into a professor studying the history of monetary policy and inflation going back to the Egyptians in 4000 B.C. (something that i have already had an interest in) The timing of/if the inflation hits I thinks determines almost everything from an investment perspective except for the most undervalued individual securities. I will be the first to say I don't know and think your are being intellectually dishonest honest with yourself if you think you know. I will have much more thoughts better written out in my next letter in mid to late January.

The quick and dirty:

1) Biggest danger is the failure of England or Switzerland. I put it at at a 20% chance in 2009 that one of the countries will fail and a 50% chance that it would happen in 2009 or 2010.

2) Hence regardless the pound and swiz franc continues to decline (to me this is the absolute biggest duh out there)

3) Oil continues lower and will be below 25 by July 1st4) All currencies move down with regards to non industrial commodities (crops, livestock, precious metals - this move could be explosive - if that is the case (the explosive move) it will drag the industrial commodities higher in dollar terms but in real terms they will continue to fall - this ties in to my number 8 below). Hence gold in the next three years crosses $2000 an ounce. I am very unclear what happens in the next 6 to 12 months though I would guess higher.

5) I still expect a strong market rally out of the gate in 2009 into early February. In the end the market will break November lows in 2009.

6) Debt trounces equities (though not saying debt will have a spectacular return in 2009)

7) The coming storms of corporate bankruptcy will continue to mount and this will cause unemployment to go up much higher and much faster than anyone imagines.

8) I am still very unclear whether we have to worry about inflation in the next 36 months (I know that statement is thought of as lunacy). I think if we get inflation in the next 12 to 24 months it will be almost strictly as a result of a panic of trust on government currencies as a whole. It will have nothing to do with pushing individuals into taking risk or spending or supply constraints (what could be argued as good inflation). This is the biggest danger of all and the government is playing chicken by saying we will cause inflation at all costs.

Doug Kass 20 Surprises for 2009

Every year Doug Kass publishes his top 20 potential surprises for the coming year. Here it is for 2009. Thanks goes to Jody.

http://www.thestreet.com/story/10455209/1/_msnh/kass-20-surprises-for-2009.html?cm_ven=MSNH&cm_cat=FREE&cm_ite=NA&industry=IND_HEALTH_SERVICES&isub

Doug Kass first 2:

1. The Russian mafia and Russian oligarchs are found to be large investors with Madoff. During the next few weeks, a well-known CNBC investigative reporter documents that the Russian oligarchs, certain members of the Russian mafia and several Colombian drug cartel families have invested and laundered more than $2 billion in Madoff's strategy through offshore master feeders and through several fund of funds. There are several unsuccessful attempts made on Madoff and/or his family's lives. With the large Russian investments in Madoff having gone sour and in light of the subsequent acts of violence against his family, U.S./Russian relations, which already were at a low point, are threatened. Madoff's lawyers disclose that he has cancer, and his trial is delayed indefinitely as he undergoes chemotherapy.

2. Housing stabilizes sooner than expected. President Obama, under the aegis of Larry Summers, initiates a massive and unprecedented Marshall Plan to turn the housing market around. His plan includes several unconventional measures: Among other items is a $25,000 tax credit on all home purchases as well as a large tax credit and other subsidies to the financial intermediaries that provide the mortgage loans and commitments. This, combined with a lowering in mortgage rates (and a boom in refinancing), the bankruptcy/financial restructuring of three public homebuilders (which serves to lessen new home supply) and a flip-flop in the benefits of ownership vs. the merits of renting, trigger a second-quarter 2009 improvement in national housing activity, but the rebound is uneven. While the middle market rebounds, the high-end coastal housing markets remain moribund, as they impacted adversely by the Wall Street layoffs and the carnage in the hedge fund industry.

Thursday, December 25, 2008

Happy Holidays

Merry Christmas to all!! I hope everyone finds something special in their stocking this Christmas!!

Monday, December 22, 2008

Santa Claus? Did he also lose his way in 2008??

Today's market action caught alot of talking heads off balance today as they were expecting the start of a Santa Clause rally that would take us into the new year. Really light volume which typically favors bulls ended up being a dud as prices moved down most of the day until right at the close. Toyota's warning of world economic slowdown combined with rumors of a big commercial real estate bankruptcy to start off the new year were blamed. I think you could also have some tax selling going on and that the normal window dressing for year end may be as much about showing that you have alot of cash on your balance sheet than anything else. We seemed to be continued to be caught in this trading range though I still think the show term move (next four weeks) will be higher. Time will tell though. For now the Grinch seems to really have stolen Christmas.

Marc Faber on Bloomberg - 2009 Economy Catastrophic

Decent interview by Marc Faber on Bloomberg. It has been awhile since I have posted anything on here by him. He is not sure of much, which I think applies to anyone who is intellectually honest right now, but thinks the world economy in 2009 is going to be disastrous and that volatility is going to be high. He doesn't really have an opinion on whether stocks will be up or down in 2009.

http://www.bloomberg.com/avp/avp.htm?N=av&T=Faber%20Says%202009%20to%20Be%20%60Catastrophic'%20for%20Global%20Economy&clipSRC=mms://media2.bloomberg.com/cache/vh4CZyP0iSKg.asf

Sunday, December 21, 2008

Peter Schiff and Ron Paul

I have been going back and forth on whether to post this video. It is a video of various clips and quotes from Ron Paul, Peter Schiff, and a few others predicting what is happening and how will it play out. I have been reluctant to post the video because it is sensationalist and meant to engender fear. However, if you can avoid an emotional reaction, it contains alot of truth and is a pretty good video. The problem is the average American and individual investor will react, most likely incorrectly, fear. Fear is nobodies friend unless you find yourself in safari Africa faced on foot with a lion. Fear is an investment destroyer because it makes you do irrational things with money. So anyway watch the video but take away the nuggets of truth, not a tsunami of fear.

http://www.youtube.com/watch?v=0w9j_t4AaH0

James Grant WSJ Op-Ed Piece

This is a must read op-ed piece in the Wall St Journal by James Grant writer of the Interest Rate Observor. It is brilliantly written and I agree with basically everything, the only question from an investing perspective is timing. He is in the inflation camp and rides my contention that if we do get inflation it will be of the devasting kind. That the medicine may truly be worse than the Illness

http://online.wsj.com/article/SB122973431525523215.html

The world ran out of trust in 2008 -- but there is no shortage of money because the Fed is printing like mad. It's the wrong approach, with potentially dire consequences, says James Grant.

Saturday, December 20, 2008

Peter Schiff

One voice I am starting to listen to more and more is Peter Schiff. He previously nailed the housing bubble (though very early) and I think there is a decent possibility he may be nailing the current situation (though once again probably way early). A friend told me he was on Kudlow on Tuesday and though a few to many talking heads for me, Peter Shciff makes some very good points.

Part 1
http://www.youtube.com/watch?v=tw_Y3bQPm3g

Part 2
http://www.youtube.com/watch?v=jJOpYsvbAXs&feature=related

Part 3
http://www.youtube.com/watch?v=WmXHeAM4Mg4&feature=related

Part 4
http://www.youtube.com/watch?v=08teBvWOBEM&feature=related

Thursday, December 18, 2008

Market Action

Another interesting day today with things just not adding up quite right. Oil once again seemed to be the story of the day. With the dollar stabilizing today oil was just shredded. Still seems to me that mass liquidation is occurring in that market. It kept the market at bay and then the market really started heading south when S&P put GE on negative outlook saying there was a 1 in 3 chance in the next two years that GE would lose its investment rating. The market saw this as an excuse to sell off even though I am not really sure it is news. I think today gave you a great opportunity to buy on the dip. The cattle prod by the FED is working. For the third day in a row corporate bonds from investment grade to junk were up. Not only were they up but they surged. Small cap stocks for the third day in a row vastly outperformed the overall markets. Financials performed fairly strongly with several finishing strongly higher despite the 2% + sell off. Risk appetite seems to be definitely returning even when the market is selling off.

Friday is going to be very confusing and potentially violent with major options expiration occurring. This probably added to the sell off at the end of the day. Heard some rumors in the market that some firms with major hedges that would be naturally rolled over are having trouble securing credit to roll them over. I don't know but I would expect a plus or minus day tomorrow of over 2%. I think the odds slightly favor a major positive day tomorrow.

Discussing the Markets with Jeremy Grantham and Bob Rodriguez

Interesting roundtable discussion that included Jeremy Grantham and Bob Rodriguez. You can get the gist from the article interview but the videos on the right of the screen are much better in my opinion. Thanks goes to Pete.

http://money.cnn.com/2008/12/12/magazines/fortune/Stockpicks_Colvin.fortune/index.htm


The stakes are high whenever you invest, but they're extra high when you're managing your money amid a historic financial mess and record volatility.

For advice equal to the task - in a setting chosen to inspire thoughts of security - we invited five champion fund managers to sit down inside a massive underground vault that's now part of a restaurant a block from Wall Street: Bob Rodriguez of First Pacific Advisors, who manages the FPA Capital and New Income funds; Susan Byrne, who heads Westwood Holdings Group; Leslie Christian, president and chief investment officer of Portfolio 21 Investments; Tom Forester, manager of the Forester Value fund; and Jeremy Grantham, chairman of asset manager GMO

Nicole Buffett - Princess and Pauper

A very interesting article about Nicole Buffett, granddaughter of Warren Buffett. Before you become judgmental in one form or another it is important to realize that is how many of the super rich are wired. John D. Rockefeller, Sam Walton, Benjamin Franklin (who was one of the richest men in the world later in his life) all have similar stories. Those of you who follow my blog know that I find fascination in these biographical type sketches. This is no different. Fascinating writeup. I dug a little more and found Nicole's Buffett website (link at the bottom). If you click on press you can see the Oprah interview that caused part of the uproar. Thanks goes to Jody.

http://www.marieclaire.com/world/news/warren-buffett-granddaughter-nicole-buffett

What's it like when your grandpa is the richest man in the world? For Nicole Buffett, it means forgoing cable TV and health insurance and making do on $40,000 a year. Here, she dishes on her upbringing and why her grandfather Warren Buffett disowned her.

http://www.nicolebuffett.com/

Wednesday, December 17, 2008

James Grant from Grant's Interest Rate Observer

I always enjoy reading and hearing anything James Grant has to say. Interesting 12 minute interview he did on Bloomberg. Talks about the SEC, the FED, and the credit opportunities.

http://www.bloomberg.com/avp/avp.htm?N=av&T=Grant%20Says%20SEC%20Irrelevant%3B%20Fed%20Moves%20to%20Retard%20Recovery&clipSRC=mms://media2.bloomberg.com/cache/vjtDLTHoTLsA.asf

Something Smells Fishy

Been watching the markets all day long a little more intensely than usual after yesterday's FED action and something is not seeming to add up. Markets have been in rally mode all day until recently grinding there way higher from the morning lows. Dollar has been getting slaughtered with gold and most commodities rallying but oil. Now oil has been acting funny all day and has just gotten slaughtered down over 4.5% as has natural gas. Its not adding up. Now besides the recent trading relation of the dollar and oil, over the long term the direct correlation is actually not that high. Oil's price correlation is much more related to economic activity and its impact on supply and demand. So the fact that oil is down (alot) while the dollar is down is not that big a deal but for oil to be getting slaughtered while other commodities are moving up, fixed income is moving up, equities were tacking onto their gains, and the dollar is moving down? The ways it has traded today with any buying interest getting slammed? Something smells fishy. I have no idea and may never know (I don't have any oil position) but I would not be surprised if some energy fund is blowing up. I thought I saw some headline about Pickens fund allowing redemptions now with 65% of the money looking to be redeemed. The markets are pulling at the reins but so far the energy pits seems to be keeping the market at bay. Let's hope it is not some massive fund that could cause systemic issues.

I even heard some fears that the FED may know something we don't yet about some fund blowing up which is why they moved as aggressively as they did. I have no idea but you always have to consider such a possibility.

Taking the Santa Out of Christmas

Several articles talking about the current Christmas season.

http://www.reuters.com/article/ousiv/idUSTRE4BD20P20081214

So far this year's holiday retail sales are shaping up to be the weakest since the early 1990s as consumers are cutting back in the face of a worldwide economic slowdown.

Since Black Friday kicked off the critical holiday shopping season on November 28, sales at specialty apparel retailers are down 22.9 percent from a year earlier through December 6, according to SpendingPulse, the retail data service of MasterCard Inc's MasterCard Advisors unit.

That is slightly worse than the 19.5 percent decline seen in the period that began November 1, SpendingPulse said.

Of course spending on luxury goods is on the way out:

http://online.wsj.com/article/SB122929576878105125.html

Double-digit declines in holiday spending continued in the first week of December in key categories, with luxury posting a startling 34.5% drop from year-earlier levels, according to new numbers from MasterCard Inc.'s SpendingPulse unit.

Is consumer tastes really changing? Not necessarily. Instead of living without, individuals turn to the other side of the law

http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20081210/FREE/812109983/1061/INFORMATION

According to the nationwide study, 84% of retailers, including department stores, specialty apparel companies, electronic stores and drugstores, have seen an increase in theft and amateur shoplifting over the last three months. More than 75% of stores report a rise in financial fraud, and 80% cite intensified organized retail crime. RILA would not disclose the names of stores that have seen increases in crime.

Tuesday, December 16, 2008

The Crossroads - Bernanke's Carpet Bomber

Here I was thinking the FED had become irrelevant and today was the first FED meeting in awhile that I didn't even care about. Well today may have been the been the biggest FED announcement ever and was truly historic. The ramifications, the potential consequences, and unintended consequences are mind blowing. As everyone should know by now the FED lowered its FED target rate to a range of 0% to .25% (first time the FED has ever given a range). This was the bomb shell in the FED statement:

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.....The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level.

There has never in the history of FED statement's been wording about the duration of federal funds rate. The words of using all available tools is also significant as is the reference to open market operations. If your a FED follower these statements are jaw dropping. It is the taking the kitchen sink and not only throwing it at the problem but taking a kitchen sink launcher supercharged with jet propulsion and using that to send the kitchen sink hurling in the air.

Will it work? The FED has essentially used its last bullet, after today it is "click, click, click" if they pull the trigger. It becomes a fiscal stimulus game now. So will it work? I don't know. Exactly the answer you wanted to hear right? At the bottom of this post is a link to an interview of Mohamed El-Erian, Bill Gross's right hand man and co-CEO of Pimco. He echoed my thought (or my thoughts echoed his thoughts) that whether it will work or not will be determined by the mass psychology of Americans. What does that mean? Essentially the FED is taking a gun, placing it to the temple of conservative American's who would be savers and saying borrow, spend, stimulate the economy. Your money is going to get nothing sitting in savings so take risk buying riskier assets. It is a failed cattle drive and the cowboys are making one last effort to prod the cattle in the direction they want to go. If American's get on bored, this will work. Investors and individuals will start grasping for risk and our next fear will be inflation twelve to twenty four months from now. If American's say "f you," I want to stay tightly bound in my bunker then this will be the beginning of the end. I don't know and would be a moron if currently I thought I did.

The real danger is unintended consequences. You could see the dollar start going into full crash mode (I personally don't think is going to happen). You could have the W economy I referenced in another post which would wipe out everybody who was short as the market rallied and inflation picked up for months or even longer before once again wiping out all the long investors once you rolled over. You could have our international lenders say enough is enough and stop lending us money (that goes with the dollar collapse above). You could start another large spike in commodities, especially gold, as investor flee to hard assets. You could have foreign countries take action trying to destroy the U.S. actions. Look at the YEN today. It surged. Is Japan going to sit by while they become more uncompetitive as the U.S. government devalues their currency? Many unknowns.

One thing I think is fairly certain is this will cause the current rally to continue for the foreseeable future. I have been saying buy on dips for several weeks and think this reconfirms it. I now think you will see 1000 on the S&P before you see 850 again. Think of all the bad news in the last two weeks that could not drive the markets down. The markets want to rally and this will add to the excuse needed to rally. MOST IMPORTANTLY I think you must remain small. There is no need to be a hero with so many ways this can play out. There is the possibility that the investors will step back and say oh ****, the FED can't do anything more, we are screwed, sell sell sell.

I don't think you will have an idea of whether this FED missile did its deed until later January to mid February at the earliest. Six months to a year ago my response to the bulls clamoring to buy stocks was that credit tightening doesn't show up for nine months just like credit easing doesn't show up for nine months. Bulls like to forget this when it is working against them. As a bear I don't want to forget it on the other side of the coin. The action of the Treasury and the FED in the last 3 months has been unprecedented. It is being combated with further tightening in the private market but regardless this is alot money the government is throwing into the financial system and it will take 6 to 9 months for it to work if it were to work. This is the W economy I have been referring to.

Once again I don't know the outcome of all this. My personal opinion is that you can't change the inevitable. You can change the way inevitable looks, you can postpone, but in the end you will end up at the exact same spot. What I mean by that is the world is headed for a once in 50 to 100 year slowdown and the FED can change the way the inevitable looks but in the end can't change the inevitable. People will still crawl into their bunkers as more jobs are lost and excess capacity in all industries is taken out through the capitalism destruction process. You may have massive inflation in the interim but if the system is broken and needs to be purged it will purge itself (Germany after WWI) What is less clear to me is what it looks like in the interim. Stubborn bears could be wiped out in the next few several months if the FED causes a return to risk taking.

The interview I referenced above. I highly recommend it:

http://www.cnbc.com/id/15840232?video=967808841&play=1

2009 - European Corporate Debt Nightmare

The current financial crises has been coming in waves. I have thought that the last wave will be corporate defaults on billions of poorly underwritten loans during the buyout and recapitlization boom. In the U.S. this starts to pick up next year but doesn't really start peaking until late 2010 into 2011. I am not sure what the distribution of debt coming due in Europe will be but as this article points out, 2009 is going to be a very cold year for corporations looking for refinancing in Europe. Thanks goes to Ron.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/12/2009_is_pay_back_year.html

What it shows is that next year, 2009, there will be a massive bulge in the value of bonds issued by European companies that have to be repaid.

Or, to put it another way, about $1000bn of "old world" companies' borrowings in the form of tradable debt has to be paid back during the next 12 months - with something like $800bn of this owed by financial companies and $200bn by non-financial companies.

Monday, December 15, 2008

Richard Feynman - The Pleasure of Finding Things Out

People often ask me what my typical day looks like and how much time I spend studying the markets expecting some profound answer or to be blown away by how hard I work. The truth is I look at things I find interesting. Probably less than 50% of my time is directed directly at the market. Yet because of my love for the market, almost everything I do comes back to the market.

I looked at a random blog that I never looked at before and it had some random videos of an interview from many years ago of the late Richard Feynman, a famous physicist and Nobel Laureate. I started watching the videos and found them fascinating. Has nothing to do about investing but at the same time I find they have everything to do about investing. The production is called "The Pleasure of Finding Things Out." It is split up into 6 videos. The first three I found much more insightful than the second three. He talks about how his father taught him things and how he learned algebra which was much more different than the way most kids learned algebra. That he understood the ultimate goal of algebra was to figure out what x was not the process of figuring out what x was which is what the schools taught. In the videos he talks about doing things for the fun of it and the prize is not honors (he despises honors) but rather the pleasure of finding things out.

Anyway I recommend these videos.

http://manualofideas.com/blog/2008/12/learning_from_the_late_richard.html

Below is a paragraph on who Richard Feynman was from Wikipedia.

Richard Phillips Feynman (IPA: /ˈfaɪnmən/; May 11, 1918 – February 15, 1988) was an American physicist known for the path integral formulation of quantum mechanics, the theory of quantum electrodynamics and the physics of the superfluidity of supercooled liquid helium, as well as work in particle physics (he proposed the parton model). For his contributions to the development of quantum electrodynamics, Feynman was a joint recipient of the Nobel Prize in Physics in 1965, together with Julian Schwinger and Sin-Itiro Tomonaga. Feynman developed a widely used pictorial representation scheme for the mathematical expressions governing the behavior of subatomic particles, which later became known as Feynman diagrams. During his lifetime and after his death, Feynman became one of the most publicly known scientists in the world.

China - Free Falling

The U.S. government and the Chinese government have been playing a game of who can be most successful at hiding the man behind the curtain. Both have worked exceptionally hard at various manipulation. Well at some point private sector measurements reveal the truth. China's electricity usage tanked in November. If your not using electricity, I would venture to guess you aren't producing and that GDP isn't growing. Overall output according to the government did increase. Not sure how considering the other data points. Even this output showed an alarming slowdown and was massively below economist forecasts.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ.iVg8IcUJ4&refer=home

Industrial production is plunging around the world as demand dries up. China’s electricity output fell by 9.6 percent in November from a year earlier, today’s figures showed. Pig- iron production fell 16.2 percent. Raw steel declined 12.4 percent. Steel products tumbled 11 percent.

Saturday, December 13, 2008

Jim Chanos Feature in the New Yorker

A really fascinating read about Jim Chanos. I have always been fascinated and had a decent amount of respect for his investment prowless. It is a lengthy article but if your enjoy profiles like I do it is really good. Thanks goes to Jody and Pete.

http://nymag.com/news/business/52754/

In the bleakest stock market of the past 70 years, when hedge funds and 401(k)s alike have cratered, few people are smiling. But short-seller Jim Chanos, whose fund is up 50 percent, is having the time of his life.

Back

I am finally back at a computer. I thought at some point during the week I would be able to blog but elctricity and computer problems hindered that. I just woke up from 13 hours of sleep (I don't know if I have ever slept that long) and still feel like I could sleep another 8. It was a fun week.

Was able to do some hunting with a couple of buddies. Bagged a giant hog, quail, and a good management buck. Combine that with a little "Band od Brothers", two stepping, and some fun fellowship and it was a fun few days.

I followed the markets sporadically throughout the week but what has amazed me more than anything getting back was the depth of bad news compared to the market action. Wow, just flipping through normal web sites I monitor it looks like a few bombers dropped a few major explosives on the economy. Yet, the NASDAQ was up over 1% during the week and the DOW and S&P were close to break even. We continue to be in rally mode and pyschological framework needed for these bear market rallies. I don't know if I have seen so much bearisness in my life. I am also very bearish but just think we still have several weeks or months for the markets to grind higher. Friday was a perfect example. What could have looked more bleak? At midnight Thursday night futures were down hundreds of points. All day we grinded higher and finished higher on the day. It is incredible market action and points in my mind to continued rally mode. 850 is your mark on the S&P. Markets weren't able to break down below it on Friday. I have been saying for several weeks that buying on dips or hedging your short book has been the way to go. Not seeing anything that changes that.

I have many emails to go over which I am about to get working on. If you sent me something that I am supposed to respond to and don't respond in the next 24 hours please email it again.

Sunday, December 7, 2008

A W Market

I am on the road again this week. Will be on here sporadically at best. It is becoming more and more clear to me that we are going to see this massive rally I have been alluding to. The market action from a bullish perspective was tremendous on Friday. Horrific news that was bought with vigor. Combine the mortgage rates going down and investors hoping that will save the banking system with Obama's new infrastructure plan combined with the huge bearishness of investors and I think you are set for a massive explosive move higher. I am moving into the camp that we are going to see a W economy. The government is creating gigantic superficial demand. Those who think it won't help I don't think realize the size of the numbers being around. My issue is what happens once it is gone? Once the government is forced to pull back. You have the second down move in the W and it will be worst then the first. Market economic manipulation can work, for a time. I don't where in history it actually worked to solve the problem. The hope is we will grow ourselves out of this mess and the government intervention gives us time. Maybe, I am skeptical. From an investing standpoint I don't know anything harder than to be betting on the government's investment size, duration, and ultimate success. It continues to be prudent to stay small.

Friday, December 5, 2008

More on European Trouble

I am on the road but saw this video on CNBC. It is a good quick video summary of the European sovereign nations problems (three in a half minute video). First time I have seen this in a public mainstream forum. It has been mostly just my private fears and a few things gathered from various articles, research papers, and in talking to a few other worriers are out there.

http://www.cnbc.com/id/15840232?video=951927309&play=1

Wednesday, December 3, 2008

France Not Very Happy

I think 2009 could be the year a major country collapses, i.e. England or Switerzland or even the EU has trouble keeping on the same page. All of those would be disastrous and we better hope that such a scenario remains only a thought. However tempers are flaring as a result of the crises.

http://www.ft.com/cms/s/0/e81013f0-bdb6-11dd-bba1-0000779fd18c.html?nclick_check=1

The French government's plan to shore up the capital position of France's six main retail banks is being blocked by the European Commission, which insists they must reduce their lending in return for state support.

and

The French government reacted furiously to the Commission's argument. One senior official described it as "ridiculous" and "stupid" because it would exacerbate the credit crunch - the very thing Paris said it was trying to avert when it decided last month to inject capital into all its large high-street banks.

Another Roller Coaster

Crazy day in the markets. Nothing new right. Up, down, up, down, up. The market continues to shake off bad news and move higher which still fits my thesis that we have seen a good short term (multi month) bottom. There was no reason the market should have gone up today except bad news is priced in. The tape continues to have that feel of wanting to go higher.

Tomorrow and Friday may be the two most important days for the markets for the month of December and will go along way to confirm whether we have seen the 2008 lows. Tomorrow is huge for Europe which has some major economic data coming out and central bank rate cuts forthcoming. How big those cuts will be nobody knows. Friday is the U.S. jobs report of course. We get through both and the GM hearings with the markets above 800, especially above 850, and you might be able to tie a ribbon on 2008. Of course things have constantly been coming from left field so who knows.

During the day there was a stupid leak by the National Association of Realtors concerning a supposed plan for pushing down 30 year fixed rate mortgages to 4% to 4.5%. The reason it is stupid is because apparently it is a long way from happening (it was a leak to put pressure on the Treasury). Secondly, it once again doesn't address the true problem in housing, which is foreclosures. I think eventually we will get to 4.5% and if you are not concerned about job security, house appreciation, but just looking for a good home it will be a great time to lock in 30 year mortgage rates.

Tuesday, December 2, 2008

Bill Gross December Investment Outlook

Rather strange but Bill Gross talks about stocks in his monthly outlook. Always a good read.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+Dow+5000+Gross+Dec+08.htm

Basic conclusion from above:

My transgenerational stock market outlook is this: stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past not our future. More regulation, lower leverage, higher taxes, and a lack of entrepreneurial testosterone are what we must get used to – that and a government checkbook that allows for healing, but crowds the private sector into an awkward and less productive corner. Dow 5,000? We don’t have to go there if current domestic and global policies are focused on asset price support and eventual recapitalization of lending institutions. But 14,000 is a stretch as well.

Monday, December 1, 2008

Market Meltdown

Wow, what a meltdown in the markets today. Funny how a 9% down move in the S&P doesn't spark panic anymore. It was combination of alot of things that came together today to spark this massive sell off. Of course the massive rally prior to this sell off had something to do with it. The China news that showed Chinese manufacturing just utterly collapsing had something to do with as did the U.S. manufacturing data, Meredith Whitney's words, black Friday retail sales, poor construction data, coming jobs report this Friday to name just a few. You also had the start of December which often is tax selling season (there is alot that can be sold to lock in tax losses) and then one theory I had last week that I kept forgetting to write about, pension fund rebalancing. Everyone talked about it at the end of October and we had a large rally but no one talked about it in November. Supposedly because it was all done in October but in October I was talking to the head of a state pension fund and he said the problem was so massive that he thought alot of players would not do it all in one month. So last week buying could have also been sparked by some residual rebalancing.

800 is still my number. This pullback was natural, though dramatic and not something I expected in one day. If we break 800 all bets are off. Goes back to something I said on Wednesday (maybe Tuesday) that if your buying at the close you got it backwards. You could not be buying last week Wednesday or Friday. You had to be selling or sitting tight. Today I bought a little of a name I like on the long side. Do opposite what you emotionally want to do.

Tomorrow is going to be interesting. This pullback if even violent was natural. Below 800 and I think the game starts changing. I am not trading. My purchase today as small as it was, is intended for the long term. We are in no man's land in good risk reward trades.

Meredith Whitney on Financials

Meredith Whitney, executive director of equity research at Oppenheimer and really the only sell side analyst to get this whole thing right, was everywhere today. There was an op-ed piece in the financial times and a nine minute interview on CNBC. Both helped contribute to the market meltdown today.

CNBC Interview
http://www.cnbc.com/id/15840232?video=946475488&play=1

Op-Ed Piece
http://us.ft.com/ftgateway/superpage.ft?news_id=fto113020081356435217

As an analyst, it is my job to do fundamental research and call it as I see it, and my bailiwick is financials. My outlook has been negative for over a year and, technically, I have been "right" on my calls. Seeing massive capital destruction has brought me no pleasure, but unfortunately I see little on the horizon that would change my outlook. In fact, after observing the US economy so derailed, I feel that I must act as a citizen of this great country to attempt to offer solutions to this economic train wreck we are all involved in.

First, I am more bearish today than I have been in the past 18 months. In so far as the market has impacted on the economy, capital destruction has been so intense that multi-trillions in capital raised by institutions through both private and public capital has gone to plug holes and not stabilise the effects of shrinking liquidity to corporations and consumers.

She goes on and gives four recommendations on how to help the situation.

Switzerland - Potential Financial Nuclear Bomb

In my previous blog I mentioned a sovereign country defaulting. I was not blowing hubris. I was specifically referring to England or Switzerland. This used to be unthinkable but has quickly becoming possible and something that I added to my worry list about a month ago after reading the Centre Economic Policy Research Policy Insight - October 2008. The title of this piece was The Icelandic banking crises and what to do about it: The lender of last resort theory of optimal currency areas. It was a paper done by William H. Buiter and Anne Slbert of the Birbank, University of London back in April 2008 for Iceland. They were asked to keep it secret because of the damaging nature of the paper. Once Iceland collapsed it didn't matter anymore so they were allowed to release it. Anyway, England and especially Switzerland have the same structural problems as Iceland. If such a thing would occur it would be a depression and a gold event (in other words you would want to own gold). All these talking heads running around saying we have seen financial Armageddon would actually get to see financial Armageddon. We are along way from this but it is possible.

Below is a bloomberg article that came out today mentioning some concerns about Switzerland.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aqMuAUNshxj0&refer=home

An isolated European country with an economy geared toward finance and winter sports is no longer a monetary bastion as credit evaporates around the globe. Banks teeter, the once-impregnable currency depreciates and a proudly independent people question whether a centuries-old go-it-alone strategy can survive.

Even Switzerland is wondering if it’s immune to the forces ravaging Iceland.

and

The franc has tumbled against the dollar.

Sunday, November 30, 2008

The Week Ahead

Last week the shorts got killed. Consider these numbers. Following the close Wednesday you had the biggest 4 day gain in the history of the U.S. markets going back to 1932 (in the middle of the Great Depression). That is before the Friday rally. It underscores something I have been saying for awhile, it is okay to be very small or not participate at all. The market continues to be very sick. The ultra short financial etf was down 44% last week!!! Wow!! For those following my short trade I put on at the close on Monday I exited at the open on Wednesday at breakeven (actually made a very small amount). I thought it was a great risk reward setup that did not pan out and was able to get out when the market opened down over 100 points on Wednesday. That is one key that many investors have trouble with. If your make a long term investment based off many hours of research, don't become a trader with that position and if you place a trade but typically are a long term investor don't get sucked into holding your position for the long term if your thesis as a trade breaks down.

The early indications are mixed but I get the sense from reading several articles that Black Friday was not as bad for retailers as many feared. I am not really surprised considering the level of investor expectations. Considering the rally last week most of this will be priced in though. You have alot of bad economic news coming out this week. Front and center will be job numbers released on Friday. You also have chatter starting up again concerning the GM and Ford bailout. A pullback to 850 would be natural and even a big pullback back to 800 would not be necessarily out of the ordinary. I would be shocked if we break 800 anytime soon. I am going to go out on a limb and say that we will not be breaking 800 before January 20, 2009 and that the S&P will break 1000 before we break 800. I could be very wrong but why do I think this?

Last week marked a potential major shift in mortgage rates as they tumbled with the FED's latest rescue plan. There is this built up psychology of investors that if housing prices would stabilize everything would be okay. That housing is the problem. This is very closely coupled with mortgage rates and investors bemoaning the fact that mortgage rates haven't come down with the FED Target rate. Well last week mortgage rates tumbled and I think you are going to start seeing more and more chatter on this being the panacea for housing. Then you have more and more chatter about the coming Obama administration and plans to save the world. January 20th, 2009 is the inauguration date. I think both of these will keep the November bottom in and over the next couple of months feed this powerful rally. I think this is another bear market rally full of false hope. Why?

First, investor are right that if housing prices stabilize everything would be okay, twelve months ago. We are long past that. The feedback loop has moved well beyond housing prices. It is a problem but only one of the problems. Even if housing stabilized, though this would be huge, it wouldn't fix everything. The economic tumble is going to cause corporate defaults and job losses out of this world. Concerning housing prices, even if the mortgage rates stay low, housing prices still need to decline to get back to normal long term averages. Secondly, it is well established that your brain receives more pleasure anticipating pleasure than the actual event of pleasure. You receive more emotional excitement anticipating food, sex, money than the actual event. This is well established in investing as well. That is why a stock will rise in anticipation of an earnings beat, then the company beats and the stock sells off. So the mass psychology is going to buy ahead of the Obama inauguration and I think start selling afterwards. Finally, I think you are going to see a huge spike in unemployment starting with the February numbers. January I think you will see mass layoffs as corporations start out the new year and this will show up in numbers released February 6th and March 6th. The natural dopamine letdown after the Obama inauguration combined with continued poor economic numbers I think will start the next sell off downward.

I could easily be wrong especially if something like General Motors files for Chapter 11 or the Thailand riots create instability or a sovereign country defaults. We may never see 1000. Those are my thoughts of what I think is natural. Of course that tells you nothing of how to make money. It is never easy to make money in bear markets because of the rip your face rally that occurred last week that occasionally occur and because fundamentals are marginalized. That is why it is best to play small and focus on wealth preservation. If you have preserved wealth it does not really matter if you have caught the absolute bottom.

Paul Volcker - Hammer Bearer

A very good article on Paul Volcker. As I have said before on this blog, I consider him a true American hero. This article brings out how he was willing to be hated to accomplish the better good for America. Very few people in history can do that. Contrast that with Alan Greenspan who only wanted to be loved and coddled.

This article tries to infer that Paul Volcker will be able to play the same role again. I am doubtful. Remember as Fed Chairmen he was politically isolated. That will not be case in hos new position as head of the New Economic Recovery Advisory Board. Warren Buffett has already been called an idiot after a month of the stock market not immediately rebounding after his NYT editorial. You think Paul Volcker will be given any more respect if what he recommends doesn't work within 4 weeks? I doubt it.

http://www.politico.com/news/stories/1108/16033.html

Volcker’s decisions were not easy ones. His actions touched off the worst recession since the Great Depression. There were unprecedented protests against the central bank. Fed officials were picketed and received two-by-fours in the mail with notes from workers in the hard-hit housing sector, saying “I can’t do anything with these, so you can keep them,” Reinhardt said. Volcker also had to withstand criticisms from politicians on Capitol Hill and in the White House under both Democrat Jimmy Carter and Republican Ronald Reagan.

Through it all, Volcker was tough and resolute.

Saturday, November 29, 2008

Alice Schroeder Speech on Warren Buffett

This is a speech given at the University of Virginia by Alice Schroeder author of Snowball, the most extensive biography written and just released about Warren Buffett. I found this to be an intriguing speech. It starts getting good about minute 10 and found it really interesting around minute 18 containing several insights on how Buffett looks at companies. The question and answer session is subpar. Main takeaway is that he does zero forecasting and looks at everything like a horse handicapper. I highly recommend taking the time to watch this. Thanks goes to Pete.


http://www.youtube.com/watch?v=PnTm2F6kiRQ&NR=1

Tuesday, November 25, 2008

George Soros Interview

Don't agree with everything he says but always interesting to hear his perspecitive.

http://www.spiegel.de/international/business/0,1518,592268,00.html

Soros: If Obama is wise, he will find common ground with China to solve this crisis. If he wants to do it alone, we will go into a worldwide depression because America is not in a position by itself to clean up the mess it created.

Mother of all Bear Market Rallies?

Has a massive rally started? For someone who put on some short exposure right at the close yesterday, it was a frustrating day. First three day rally in the Dow since August. I looked like a genius until about 7 a.m. when the Fed announced their new TALF program. (This one also may actually have some teeth) The futures were down over 100 points and it looked like a quick flip for a profit when the FED announced a huge new program on Tuesday. On Tuesday?? When has that happened? Just when you think things are becoming to easy the market will always throw a curveball. So you spend a day watching the tape trying to decide what to do. From a short exposure trading perspective, we held the resistance which is around the 865 to 872 level but the market looked like it wanted to go up all day. It felt like it wanted to go up. In fact if oil hadn't just crumbled the market would have been up alot. So for this trade the probabilities came down but I still felt they were in my favor to keep it another day. If we break that area, watch out, the market will be moving much higher. I would not be surprised if we move lower before making another run at them.

The Elliot Wave guys are not clamoring for a massive rally at least back to 1080. This is based on wave patterns. It is very complicated if you have never have heard of it so google it if you want to learn more. It is something that I don't really follow but am aware of and think has legitimacy, just not sure it is applicable enough to actually make money on. Alot of it is after the fact.

Another guy who is talking of a massive rally is Barton Biggs of Traxis Partners. He wrote a piece in the financial times. Alot of his basic points I agree with. I thought this rally was coming off the Oct 10th lows. It may be coming of the latest lows. Article is below.

It continues to be the bifurcated nature of the problem that makes fundamentals exceedingly difficult. I would much rather be reading a 10-k than reading what Barton Biggs has to say about a massive rally but never in my life has investing been more of an art than a science than it is currently. The next big fundamental play will be buying companies selling for less than net working capital. I have come to the conclusion though that you do not want to buy companies who meet this criteria at the beginning of the downturn but those at the end. Those at the beginning probably have a reason to be there. Those at the end set up for good risk reward scenarios. So until then, it seems best to nickle and dime with a small portion of the portfolio. Remember doing nothing is a completely viable option as well.

http://www.ft.com/cms/s/0/1ef9847e-ba41-11dd-92c9-0000779fd18c.html?nclick_check=1

First, let me point out that by definition the bottom of a bear market has to be the point of maximum bearishness. Thus sentiment becomes a crucial indicator...... Furthermore there is compelling evidence that investors, hedge funds, pension and mutual funds, and the public are not just talking bearish, they have raised astounding amounts of cash.

and

Second, valuations are cheap.......stocks around the world are very cheap, but not as cheap in absolute terms or versus interest rates as they were in the 1930s or at the 1974 bottom.

and

Third, stock markets have been obliterated and are deeply oversold. Even dead cats bounce. The Dow has had the steepest decline since the 1930s, and the spread between the price and the 200 day moving average at 34 per cent is the greatest since July 19, 1932.

and

At the bottom of a panic, the news doesn’t have to be good for stocks to rally, it just has to be less bad than what has already been discounted. I want the markets to stop going down on bad corporate and macro-economic news. The fact that it still does shows the bad news has not yet been fully discounted. I have no idea when the next bull market starts, but I do think we are setting up for the mother of all bear market rallies.

I have been thinking that for about a month though I also firmly think the ultimate low is not in.

Jeremy Grantham TV Interview

One of the best giving his first tv interview. A must watch. Thanks goes to Pete.

http://www.wealthtrack.com/exclusive_video.php

Monday, November 24, 2008

Citigroup -Your an Owner and Your Paying for this Privilege

If you pay taxes, you are now a partial owner of Citigroup. It was one of the most awful purchases you ever made. What is going on is just insane. It makes you want to throw up your hands and just give up. Does this deal somehow help the system by screwing the tax payers? If it did that than maybe it would be worth it. The problem is I don't think it does. Not only are we now bailing out debt holders but we are working on bailing out (with taxpayer money) common equity holders. How is the Citigroup management still have their jobs with huge salaries and massive previous bonuses? Why does the government act like they are negotiating when their counterparts do not hold any of the cards. The government has pocket aces and Citigroup has 2 and a 7 off suit. On the flop another ace comes out. The government is acting like Citigroup also has two aces. It is asinine. It is just going to cost us that much more and prolong the problem. (I have never had a position long or short in Citigroup)

The markets rallied and set up for a great risk reward short at the close. The S&P rallied back to major resistance around 850. You also have the Case Schiller index numbers coming out tomorrow and more importantly the FDIC banking and troubled bank report. Friday I passed on doing anything. Today I shorted right at the close. Your basically doing nothing (which is a great option) or trading occasionally when it sets up right. I am doing both. Trading with about 5 to 10% of the portfolio and nothing with the rest. It's not what I am used to but when you have companies like Berkshire trading in 10% ranges daily something like the entire financial sector up 15% in one day, I think your a fool if your not taking advantage of craziness. Playing small makes sure you don't get killed in the insanity. If your buying or covering shorts at the close today you got it backwards. Outcomes are so bifurcated right now, for everything, that unless you have a balance sheet play, I see very little to long term invest in. Earnings are still as about as predictable as the eventual date of the end of the earth.

Speaking of bifurcation (which has become my word for 2008), my biggest fear continues to be massive inflation. That the dollar eventually starts to tumble as the price of bailout America and the equity holders skyrockets and faith in currency itself disapears. This is not something I am predicting, just something I worry about. One of the most interesting things the last couple of days has been gold's strong move higher. Since last week Thursday, you are up by over $80 an ounce. Despite all the deflation talk gold is at the same price it was on January 1st of this year. Talk about an outperforming asset class. I watch gold daily along with treasury yields. That will be the canary in the mines telling you if inflation is going to become a major concern in the not to distant future. Gold's action in the last three trading days raised one of my eyebrows.

We shall see what kind of insanity occurs tomorrow.

Sunday, November 23, 2008

Short Selling Once Again in the Crosshairs...Incorrectly

Shorts are getting blamed again. Mr. Pandit of Citigroup is screaming that is the problem with his firm.

http://www.nytimes.com/2008/11/22/business/22bank.html?_r=1&ref=business&oref=slogin

One maneuver that Mr. Pandit has championed is for the Securities and Exchange Commission to reinstate the “uptick rule,” which prevents short-sellers from betting against companies whose stock price is falling. Mr. Pandit has been lobbying the S.E.C. for the past week, as have other Wall Street chiefs.

Mr. Pandit and others have suggested that Citigroup is a victim of short-sellers, which some have blamed for speeding the demise of other financial companies this year.

In actuality the facts show something much different. Short selling has gone down in financials.

Financial Sector (933 Companies) – Short Interest as a percentage of Shares Outstanding

07/10/08 6.29
07/28/08 6.12
08/12/08 5.90
08/26/08 5.83
09/10/08 5.72
09/25/08 5.01
10/09/08 4.26
10/28/08 4.08

A decrease of 35.1% in the short position from 7/10/08 to 10/28/08. Net buying every single period. Total current value of short position: $64.8 Bil.

Investment Banking Brokerage Sub-industry (33 Companies) – Short Interest as a percentage of Shares Outstanding

07/10/08 9.42
07/28/08 8.62
08/12/08 7.80
08/26/08 7.55
09/10/08 7.63
09/25/08 6.28
10/09/08 5.34
10/28/08 5.49

A decrease of 41.7% in the short position from 7/10/08 to 10/28/08. Net buying in 5 of last 7 periods.

Source : Short Alert Research - Square One Analytics

Friday, November 21, 2008

Tim Geithner Rally

I had been expecting that the next rally would be on the Treasury Secretary announcement. We got it today. Combine that with the normal madness on options expiration day and you have moonshot higher.

I am personally really disappointed. I was hoping that Paul Volcker would be announced as the new Treasury Secretary. I have heard from good sources and read elsewhere that he was offered the job.

I really don't know much about Tim Geithner. So I don't really have an opinion. I just don't know. CNBC is all positive on him but you would not expect anything different. One thing that sort of worries me is that he is coming from the Fed. The Fed is supposed to be politically isolated from the whole situation. This has almost completely disappeared and tapping a Fed official as Treasury Secretary can only make it worse.

How long this rally lasts, who knows. I was tempted to short at the close but felt the probability set up wasn't good enough in my favor. If you have a Citigroup resolution over the weekend or Geithner unveils some plan the rally could have legs. Doubt it but not easy enough money for me.

Paul Volcker Dire Warnings

I consider Paul Volcker one of America's greatest hero. I would put him at the same table as George Washington and Abraham Lincoln. Special people do what they need to do even if they know they will be hated. That is what Paul Volcker did in the 70s even though he had death threats and was essentially fired from the Fed. Now he is considered one of the greatest Fed Chairmans. He was in London talking not sounding so rosy. Thanks goes to Pete.

http://www.telegraph.co.uk/finance/economics/3474683/Volcker-issues-dire-warning-on-slump.html

"What this crisis reveals is a broken financial system like no other in my lifetime," he told a conference at Lombard Street Research in London.

"Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."

and

He advised Mr Obama to tread a fine line, embarking on bold action with a "compelling economic logic" rather than scattering fiscal stimulus or resorting to a wholesale bail-out of Detroit. "He can't just throw money at the auto industry."

Thursday, November 20, 2008

Hedge Funds Leaving Stocks and Looking at....Baseball?

The title is misleading because the article is very dated but still interesting. The Lion Fund out of San Antonio finding value in minor league baseball. Before you throw it out as another fund manager doing dumb things with money, the Lion Fund is legitimate. I have met one of their key money managers and they have a very successful deep value track record. I need to figure out how it turned out. Thanks goes to Nathan for the article.

http://www.allbusiness.com/company-activities-management/company-structures/10576146-1.html

A San Antonio-based hedge fund's public solicitation of Indianapolis Indians stock is akin to a hostile takeover attempt, industry observers said.

While officials for The Lion Fund LP said they aren't looking to take majority control of the city's AAA baseball franchise, they're willing to pay a substantial premium over the Indians' last buyback offer of $9,200 per share, and even more for large blocks of stock.

The Four Bear Markets

We have now caught up to the bear market / crash of the Great Depression. Time will tell whether we track the same path. FYI, its funny how math works. If we were to go down 89.2% from top to bottom we would go down another 75% plus from current levels. So though we are down 48.5% to get the negative 89% return would require a decline from these levels of 75%. Ouch.

The link is to the graph below. It was originally on over at calculatedrisk.com

http://1.bp.blogspot.com/_pMscxxELHEg/SSSevkxwNtI/AAAAAAAADzE/V_BMgbRML4E/s1600-h/four-bears-large.gif






Taken Out Back and Shot - Execution Style

That is a decent description of what happened in the stock market yesterday. Every major index but the DOW went through their lows like a hot knife through butter. What continues to hold the DOW up is Exxon and Chevron. I have no idea why. The liquidity these two names provide must be getting a premium. All other oil and gas stocks are getting murdered as well. Because the DOW Jones is a price weighted index, Exxon and Chevron have the most influence of any two stocks in the index.

So what to today. If the market opens flat to up you think about adding to your short positions. If it opens flat to modestly down you do nothing. If it opens down 150 + or moves there very quickly you think about buying (short covering). The markets finished hideously yesterday both in price action and where they finished. The Dow finished at 7997. That is in the middle of nowhere considering major support was 8000 to 8100. Futures have been all over the place. Down over 100 points around 3 am and then close to flat about an hour ago. Jobless claims numbers just came out, and it wasn't pretty with the 4 week average initial jobless claims up to 506,500, futures are back to tanking mode. The market will be volatile today.

We are getting to the area, another 5% to 10% or so, where even I will start dipping my toe in the murky water. Right now, another bottom, and the associated bottom callers, are a long forgotten memory.

Wednesday, November 19, 2008

Plunge Protection Team

There is some growing debate about the PPT or the government's plunge protection team meant to manipulate, I mean calm down, the markets in a situation where the market is crashing. This group was supposedly created after the crash of 1987. This is a video where it is actually discussed on CNBC. Scott Nations, President of Fortress Trading, had the the audacity to suggest the government was buying futures on October 10th and 24th. CNBC about freaked when this was brought up.

My 2 cents. I think it is naive to automatically assume it does not exist. The market are inherently random but there are certain ways that a market trades. October 10th and 24th are good examples of where these normal relationships did not exist. I would add November 13th and 14th to the list (last Thursday and Friday). Last Thursday it looked like death to equities as the the S&P 500 broke new lows. The amazing thing is how fast it happened dropping 20 point in about ten minutes. The government wanted to hold the October lows and steps in (a little slow) and starts buying S&P futures when no one in there right mind would buy them. You have a billion dollars of cash flood the market every couple of minutes which then gets real money working and short covering and you are off to an 11% rally in two hours. So the theory goes. What really looked even more weird to me was Friday the next day. The market is once again moving down strong, down over 3% and all of a sudden the market reverses again. What was really amazing though is it was only the major indexes. The Dow was up almost 100 points while the Russell 2000 (small cap index) was down over 4%!! That doesn't happen. So there was buying interest only in the big names which seems very questionable considering the massive gap in performance. If your trying to manipulate the market it is the big names you mess with, not the Russell 2000 which has companies with market caps of say $50 million.

Anyway, I have definitely seen abnormal trading action that on the surface makes the most sense if big money is at work trying to stop the market from going down. I have considered the PPT the worst kept secret on Wall St that doesn't really exist except when things are bad and something the general public is not allowed to know about. Who knows what really goes on. I definitely am not anymore informed than the next guy and I hold the opinion that the government's manipulation, if it occurs, only buys time. It doesn't really change anything. To think we are this great capitalistic nation is being an idealistic. At best we are closet socialist with capitalism thrown around to make everyone smile.

Here is the actual video
http://www.cnbc.com/id/15840232?video=931599105

Below is more comments from Big Picture
http://www.ritholtz.com/blog/2008/11/debate-on-the-existence-of-plunge-protection-team/

Well, well, well … it’s early morning and a guest on CNBC’s Squawk Box blurted out in vociferous fashion about how The Working Group on Financial Markets, or the Plunge Protection Team, has been active in the S&P futures markets … most notably on October 10 and 24. He mentioned that late market action in which the S&P rose 100 points from low to high for no apparent reason, and that the US Government was in no mood to let the markets close for the weekend(s) in a near state of panic.

Well, you can imagine the horror on the faces of The Muppets, especially as this guest, Scott Nations, President of Fortress Trading, refused to back down and kept right on despite protests from the Planet Wall Street apologist hosts. Some reactions and observations…

*Economist Steve Leisman said he had heard from others about the PPT, but that this was the FIRST time it had been mentioned on the show, perhaps even on CNBC. Leisman wanted more specifics, proof. Scott Nations mentioned the George Stephanopoulos ABC public comment regarding the activities of the PPT during the Clinton Administration.

*Becky Bimbo, the one who goes around the world sucking up to Warren Buffet, almost went apoplectic, saying this PPT comment in no way represented the views of CNBC in any way. She was taken aback and acted like this guy had no right to an opinion such as that in America.

*Bank of America economist, Mickey Levy, was immediately praised, especially after he said the PPT notion was silly, while he frowned disdainfully.

*Scott Nations came back with the government is in the bond market, why not the stock market?

*To his credit host Joe Kernan mentioned that with all the money thrown around by Washington these days, that a billion here and a billion there could really move the S&P around in a short period of time.

For some reason Kernan would not let up, questioning floor trader Art Cashin next, who got his Irish dander up …. decrying it was Black Helicopter stuff and “conspiracy crap.”
Kernan pressed him further about others saying the same thing regarding a PP and Cashin began to stutter, becoming madder and madder. Cashin came across as an ole goat of a man, whose 40 year commentary from the floor and dealings in the market had been threatened.

*The net, net from The Muppets was the talk of a PPT was just internet conspiracy talk. Yet, Kernan and Leisman obviously have been bombarded with such talk, and NOT from the internet.

*Most of the Muppets/Planet Wall Street, like Becky the “B” and Cashin can’t handle the truth.

*And finally, and I can say this from personal experience, “Scott” has made his last appearance on CNBC.

Tuesday, November 18, 2008

More Cracks in the Glass

Today was really a miserable day in the stock market. Yes the the markets ended up but if you peel back the onion there is not much to get excited about. Part of the end of the day rally was technical. You had Budweiser leaving the S&P 500 after the merger with InBev and replaced by a much smaller company. What this means is that all the index funds tracking the S&P 500 take alot of money from the old Budweiser investment and buy other S&P 500 companies in the last hour. I think you can see this in the Dow and the S&P 500. Both finished at or above up 1% on the day while the NASDAQ and the Russell 2000 was flat to down. You have alot of overlap between the S&P 500 and the Dow, not much with the NASDAQ. The rally was also very short in breadth lead mostly by Home Depot and Exxon. On the NYSE there were 1100 advancers while you had 1900 decliners. 350 companies set new 52 lows compared to 27 new highs. Financials were also down over 1% even though the markets rallied. So all in all I would say the glass cracked a little more and in a dangerous situation all the way around.

One thing that could get the market moving higher would be Obama's annoucement of some of his cabinent, especially the Treasury Secretary. That could be worth a several hundred point rally in itself.

Glass Shattering?

Are we breaking today? We are right at the October lows. It doesn't look like we are going to hold. 850 is very important on the S&P 500 and we finished on top of it. 8000 is the number on the DOW. Hewlet Packard had some decent numbers but it doesn't matter. Not now anyway. Wall St. is in a furver on the plummeting economy and the power vacuum that has been created with President Bush as a lame duck and President Elect Obama not president yet. I would love to see the S&P drop all the way into the 600s. Not sure if we are going to get it but even I would be buying then.

I was shopping this weekend and man, if you can preserve or create wealth, deflation is a marvelous thing. First time I have really been shopping in months and the deals are amazing. It of course means that margins are coming way down, we all knew that anyway, but how far nobody knows. I am thinking about buying a flat screen tv, never owned one, and waiting for the best deal at Circuit City. No way I would go to Best Buy now with Circuit City in bankruptcy and for sure some great deals. This plays out everywhere and all of sudden you have plummeting prices and earnings. Only the strongest are going to survive.

Friday, November 14, 2008

Out and About

I am out for the weekend. Everyone have a good weekend. Just to follow up since I mentioned it yesterday, I covered my index short right at the open. It was a 2x ultra index so received about 4% in 1 minute of open trading (30 seconds at the close yesterday and 30 seconds at the open this morning) and decided to get out. Don't do many trades like that (especially in the fund) but I thought it was a great probability bet that was just asking to be taken. Sure the market has since rebounded and fallen further but trading is different from investing. I don't consider myself a great trader but even I can see Everest among hills.

Buy Erin Burnett

This is awesome though inherrently useless. Erin Burnett is smoking so logicaly it makes since even if correlation and causation may be confused here.

http://adamsoptions.blogspot.com/2008/11/does-erin-burnett-cause-bull-markets.html

CNBC just had Justin Walters from Bespoke on, and he looked at the cummulative returns of buying the market during each hour of the day.

And found the only positive return was in the 2PM to 3PM hour. Erin Burnett Time!

The New Global Dow Index

If you have looked at cbs.marketwatch.com recently, you have noticed a new index called Global Dow. I expect that over time it may become a fairly important knew index. Below describes exactly what it is.

http://www.marketwatch.com/news/story/New-global-index-takes-pulse/story.aspx?guid={C57CB27C-177A-4491-84DF-19AC8C3A195B}

The Global Dow launched on Tuesday -- the first addition to the Dow Jones Averages family of indexes in 75 years.

and

The Global Dow is much bigger -- 150 stocks rather than 30 -- and its components are weighted equally rather than by price. All 30 Dow industrial stocks are included in The Global Dow, as well as some from the Dow Jones Transportation and Utility averages.

and

But The Global Dow isn't an exact mirror of the DJ Wilshire Global. The Global Dow is a bit underweight in the Americas (the U.S. is at 42% instead of 46%) and puts greater emphasis on Europe at 32% versus 27% for the DJ Wilshire Global. Asia/Pacific is a smidgen heavier in The Global Dow at 21% rather than 20%.

Thursday, November 13, 2008

Panic for Everyone - Buyers and Sellers

Well like I said, sell at the open. It was the right call, you just had to be at a computer to buy at noon. The open told you it was something to sell because of the news combined with the apathy attached to it. About 11:00 central time we finally had the crunch that would have been the open I was looking for to buy. You were down from the open to low point over 400 points on the DOW in about 3.5 hours. You had the capitulation selling that had to come. So you had panic on the downside and the short coverers came in at those huge technical levels. I know this because the stocks that started moving higher first in the stocks I follow on my ticker screen were the most heavily shorted stocks. After the short coverers came in, the buyers took it as a successful retest of the lows and they started buying and all panic broke out with a stampede to the upside. Unless your a hard core trader you probably saw all this and just got a dazed look. There is nothing really rational about any of it. In fact it shows how sick the patient is. It is like seizures on the operating table. The market isn't healthy when it trades like this even if the movement is up. GE added over 22 billion dollars of market cap from 1 o'clock. Are you kidding? I am not a trader and didn't really do anything except right at the close (literally the last 30 seconds). I put on a "trade" bet going short an index. I usually don't "trade" but this is a true trade based on probabilities. If the market starts moving up substantially tomorrow I am out. I just like the probabilities that after a 900 point rally in 2 hours or 11.25% on the biggest exchange in the world that I will get a chance to cover my short at least a little lower.

The bigger question is where from here? After this 900, 11.25% rally in 2 hours we are dramatically back to where we were at 2:30 p.m. on Tuesday. Wow, talk about volatility. The stock market guys are pounding this as a successful retest throwing terms out there like triples bottoms and reverse head and shoulders. At some point the market is going to get ahead of the bad news and we will rally hard for many months even as more bad news pounds us. As I have said I thought the October lows was it. Now I don't really know. This is still either a digestion of the October lows setting a base or that trading range that I felt was verified on Monday with the first lower low of the rally from October. All that is a bumbled mess of I really don't know. I was very vocal on Tuesday that I thought we were going to retest the October lows and it could happen very quickly (it happened quicker than even I thought). If we break through 940 to 950 (which is my stop loss on my index short I put on right at the close) I think you can forget about the October lows for awhile, at least like a week. lol The patient is just sick.

Oh one other point. The rally started about the time President George Bush started speaking. Now I am not crediting the rally to that, it is probably more coincidence but it was the first speech from him or anyone in government that I have heard that was motivating, instilling confidence, gave me hope. It was all about capitalism and other great crises and America going to get through it. It was about the market working things through and working things out. Where was this 3 months ago, 6 months ago? Every time I have heard George Bush speak in the last 6 months it was like deer in the headlights. In fact it was playing in the background and ignored the first half of it until it just started drawing me in. It almost made me want to buy. That probably had no impact on the market rally but it was curious of the timing. Unfortunately, especially since he will be seeing the exit door very soon, it is to little to late.

More Videos

In my world there was an event of high importance on capitol hill. The hedge funds testimony. Watching the questioning by some of individuals on the committee in Congress made me sick. They are so clueless and it is very concerning to know these jokers are the ones controlling our country trying to find solutions for this current mess. There is a reason that billionaires were answering the questions versus asking the question. The politicians are often times the ones who can't make it elsewhere.

All the hedge fund managers gave opening statements. Some of them fascinating. Below are videos if you missed it and would like to watch. These guys are a whose who of the industry.

George Soros
http://www.cnbc.com/id/15840232?video=927424255&play=1

James Simons of Renaissance - I thought an important point he made was that hedge funds leverage is controlled by their lenders unlike the investment banks.
http://www.cnbc.com/id/15840232?video=927435607&play=1

John Paulson of Paulson & Co.
http://www.cnbc.com/id/15840232?video=927447220&play=1

Philip Falcone of Harbinger Capital
http://www.cnbc.com/id/15840232?video=927453513&play=1

Kenneth Griffin of Citadel Investments Group
http://www.cnbc.com/id/15840232?video=927435625&play=1

Interviews With Wisdom

One of the key's of successful investing is listening to the right people. Jim Cramer, not so much. James Chanos, your head should snap to hear what he is saying. CNBC occasionally some great guest hosts on. This morning was one of those mornings. Below are links to several very good videos.

Famed short seller James Chanos
Paraphrased quote from the video - true value players are in the debt markets, not the equity markets.
http://www.cnbc.com/id/15840232?video=927292895&play=1

More of James Chanos
Adding to his infrastructure shorts even currently after they have gotten slaughtered.
http://www.cnbc.com/id/15840232?video=927293850&play=1

More of James Chanos
Focus on healthcare area for shorts -service area and device area
http://www.cnbc.com/id/15840232?video=927295744&play=1

If you have more time:

James Grant of Grant's Interest Rate Observer
http://www.cnbc.com/id/15840232?video=927270192&play=1

James Grant of Grant's Interest Rate Observer and Dennis Gartman
http://www.cnbc.com/id/15840232?video=927263191&play=1