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.

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.

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.

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.'%20for%20Global%20Economy&clipSRC=mms://

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.

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

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

Part 2

Part 3

Part 4

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.

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.

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.

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.

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.

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:

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

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:

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.

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.

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.

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.

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.


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.

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.

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.


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.

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

Op-Ed Piece

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.

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.


The franc has tumbled against the dollar.