Friday, July 31, 2009


Leaving for the coast soon for a little rest and relaxation. Plan on sleeping for the next 36 hours. Won't have internet access which will be nice.

It has gotten to the point that it seems so worthless to talk about economic news. It just doesn't matter. The news / earnings can be bad and the market is digesting it. It is becoming a game of just trying to figure out the signs, the signals, for when the rally is over with. When the last liquidity pump is complete. As I have mentioned before, I believe the probabilities are really high that we are in the last sixty days but very unconfident if we have another 10% or more to go or not.

The cash for clunkers thing is getting alot of attention. I actually think this is one of the best ideas the government has come up with. Capitalism needs creation and destruction. You have to have both. You have to have destruction and the government has tried stopping destruction for years. You need financial destruction also which the government still isn't allowing but at least this is a start. The government is scrapping that what is old to make way for that what is new. About a year ago, I was asked to make suggestions on how to fix the problem. I had a whole list (this went to Paulson, a very well connected person who was on a panel asked me to create this) but one of the most important suggestions was to have the government buy defaulted homes from the banks. Bulldoze them. Create a law that those plots of land would be sold back to the public over 5 years starting in year 10. This would have accomplished several major things. Put a huge dent into the housing inventory which would have stabilized the biggest collateral in the banking system. Would have helped the banks shrink their books. Would have ended up bailing out consumers along with the banks though the consumers would not be walking away with a check. They would have still would have lost their house. As a result it would have also helped deleveraged the system. Finally it would have almost guaranteed to cost the government very little bc they are actually getting back plots of land that should appreciate over 10 years. 500 billion investment by the treasury (really small compared to the numbers that have already been done).

Do the math:
250k per house (average loan the bank has would probable be less).

You could buy 2,000,000 houses. Total housing inventory for sale. 3.82 million or 9.8 months supply. You need to get down to 6 months for housing prices to stabilize. Presto. You just accomplished it.

Yes your using the government's balance sheet but it is alot less than the money your spending and the gov gets real estate that it could sell back in 10 years.

This wasn't political feasible than and probably not now but it would sure solve alot of problems. It would allow the destruction size of the equation.

Back to the cash for clunkers thing. It may be suspended but if it isn't, buyer beware. Saw this article in the Guardian. England has been doing something very similar. As the Guardian points out, the benefit to consumer may be negligible.

Consumers were today warned that buying a new car under the government's car scrappage scheme could be a false economy because some manufacturers have raised list prices by up to 14% since last year.

The scrappage scheme offers buyers £2,000 off a new vehicle if they trade in one that is at least 10 years old, but they might get a better deal buying a car that is already a year old, even though those vehicles do not qualify for the scheme according to the magazine

Surprise surprise. I am sure it is going on in the U.S. also.

Thursday, July 30, 2009

Six Observations

I am about to hit the road again heading back to San Antonio but a few thoughts before I do.

First - the General Electric upgrade is ridiculous. Upgraded on the fact that the political pressure is decreasing to break apart GE Industrial and GE Capital. Maybe it increases the option value of the stock, I don't know, but it doesn't impact the future income streams of GE industrial or improve the credit quality of GE Capital. A hallow upgrade that is just absurd.

Second - XLF (the financials etf) is right at $13. This is back to the early May price. Financials did not set a higher price in June and have so far not set a higher price in July even as the S&P 500 has. To the extent that financials break $13 in a meaningful way, it would signal more bullishness ahead. Check out this graph. I am to much in a hurry and to lazy currently to place it in the blog. It is a six month chart of XLF. Notice volume peaked in early July around 11 and has been decreasing ever since even as the the etf has rallied. I don't consider that particularly bullish. Keep an eye on the 13 level.

Third - Today seems to be the normal end of the month ramp. Decently heavy futures volume so far with incredible breadth but very average to low cash market volume.

Fourth - So far commodities have not completely reveresed yesterday's drop. To the extent this holds, it will also be telling.

Fifth - Once we broke 945 in the S&P 500 it was almost guaranteed that we would challenge 1,000. Once again it is interesting we are coming up against this resistance point even as financials are coming up against its resistance point which is not a new high but simply back to the early May highs. There is probably a test, a failure, and then another test coming. That second test is what is important.

Sixth - Lastly, the sentiment is finally starting to change it seems to being uber bullish. CNBC this morning had Steve Liesman and others were barely able to talk out of prospects of the potential for a very strong economic recovery versus a tepid economic recovery. They were falling over themselves. The investor intelligence poll came out and bulls are 42.2% versus 36.7% the prior week. Bears are down to 31.1%. This is shifting rapidly though not at extremes just yet.

Wednesday, July 29, 2009

Chinks In The Armor

Been very busy the last couple of days. Was in San Antonio all day today and may be in San Antonio tomorrow. Working on taking a company into bankruptcy and then acquiring it as it comes out. Learning alot and get the normal adrenaline rush with such deals.

The last couple of days was very interesting. Some chinks in market armor may finally be showing. China has been the leading indicator. It broke down almost six months before the U.S. markets broke down back in 2007 and it set a November bottom never making the March bottom the U.S. made. Last night China was down 7.5% at one point before finishing down 5% (anyone remember the February 2007 drop). Then you have the dollar. Could not break resistance and has been a little stronger the last couple of days. To the extent this continues, this should mean weakness for the equity markets. The 5 year treasury auction was horrific. So much supply hitting the market that it is starting to flatten the yield curve. This supply will just keep coming. Higher yields means more problems. Commodities - oil was obliterated today. If copper and oil continue on this path it will be telling you something also. Early indications of June foreclosures is that they surged massively. I have been warning about this headfake in housing. I believe strongly there is another big wave down for housing prices coming.

Not saying the market is done going up. I said in my post a few days ago, let the market declare that all good news is priced in or if you want to go short average in. I think we are in the last sixty days of the market topping (i could be very wrong and the market will continue to rally) as the government stimulus hitting the markets subside, housing problems start to reemerge, and global activity slows down. The last couple of days we may have just started to see the chinks. The market could very easily continue higher over the next month or two but be watching Asia, the dollar, and commodities.

Tuesday, July 28, 2009

Jeremy Grantham's 2nd Quarter Letter

As always, Jeremey Grantham's letter is a must read.

Registration is free if your not registered.

Monday, July 27, 2009

Up and Up and More Up

Another day, another push higher. The indexes really haven't been telling the story the last several days. Even on slightly down days like Friday the breadth was very positive. Tomorrow will be very interesting with the home price index which I would not be surprised to see as positive on a non seasonality adjusted basis. It feels like the market is consolidating getting ready to push to 1000 on the S&P. The financials were up all day today which may be in anticipation of the housing number. It may be priced in this point. Day after day it would seem like the market is ready to roll over and day after day the market powers higher. So to guess it is priced in seems like a fools errand. Let the market show it is priced in. Until then better to just have your head in the sand.

The new home sales numbers came out today which was supposedly a great number. It increased from 33k sold in May to 36k in June. 3k. That many properties either got a notice of default or were foreclosed upon in CA today alone. This stuff is just stupid on how it gets twisted.

Anyway, it will be very interesting to see how homebuilding stocks and financials perform after the housing price number comes out. Be watching it.

Thursday, July 23, 2009

You Can Run But You Can't Hide

More thinking - I am a glutton for punishment.

Amazon reported after the bell. Down over 6% now. No worries, just need to over pay for another company.

Anyway - lets look at some more math.

In the press release they lead with free cash flow (you know they are in trouble if a "growth" company leads their press release with free cash flow) proudly proclaiming they produced 1.54 billion in free cash flow. That would mean 22X free cash flow. Expensive in anyone's book but especially expensive for what comes next.

Net sales grew 14% yoy but down 4.9% from Q1!!! This for a company that is trading 60X trailing earnings and 45X supposed "forward" earnings.

Oh it gets better. Operating earnings down 27% yoy. There is some noise in the operating earnings but it is a wash. $51 million one time loss but also a $53 million one time gain. Also some currency issues. You also had the earnings down 34% from Q1.

Then you have other "highlights" - Reduction of price for the Kindle, Customers saved $900 million on free shipping offers, and something about some new MP3 service in France (boy that sounds promising).

Then you get to guidance. Net sales between $4.75 billion and $5.25 billion. Talk about a wide range. Then the question has to be asked, does that include Zappos? Operating income between $120 million and $210 million. So will we see headlines, "Amazon raises guidance to $210 million?" Then three months later when they report earnings of $150 million the new headline reads "Amazon beats guidance of $110 million."

Other stuff is going on also. Microsoft, ugly earnings. Down 8%. American Express down 4% and now as I wrap up this post, Amazon down 9.5%.

I am willing to guess, though who knows, that the winning streak for the NASDAQ will finish at 11 days. Tomorrow we actually may see red.

I am about to hit the road. Houston tonight and then wedding dinner rehearsal tomorrow and wedding on Saturday (not my own just to be clear). I may post I may not. If not, have a great weekend.

The Fruitless Excercise of Thinking

I am not exactly sure what the point of blogging anymore is. Logical thinking need not apply right now and to the extent that anything written is actually logical, the current value is next to zero.

Let's take Amazon, shall we. They announce last night they are buying Zappos, an online retailer of shoes. Usually, when a company acquires another company, the acquiring company stocks price goes down and the acquired company goes up. Alot of things that can go wrong in an acquisition not to mention the potential for acquirer to be overpaying. Not so with Amazon. Up 5.5% today. Wow must be a great deal right? Umm, nope. My understanding is it values the company at over 30x earnings (remember we are talking about an online shoe retailer, not the cure for cancer). So really driving shareholder value there. Oh but not only that. It is almost 100% stock deal with total value of $847 million (probably a 500 million impairment charge coming in 3 years). Let's take the math a little further shall we? Amazon at the beginning of today had a market cap of approximately $38 billion. After the announcement of this superb deal the market cap is now $40 billion. WOW!! $2 billion in market cap added. Wait a minute. The entire deal was only worth $850 million. So is the market saying Zappos is such an incredible deal that it automatically created $2 billion in value for Amazon? Basically just the fact that the company is now part of Amazon it is now worth 2.850 billion?

Dang it!! See here I go again trying to think logically. No no no. Worthless exercises. The truth is in today's market the very act of making a press release means you will get buyers.

Hypothetical Trader Exchange:

Trader - Ewww Company x just issued press release. Put an order to buy 100,000 shares at market. Buy buy buy.

Passing cleaning lady (confusion clouds face) - The press release from the company says "Blood sucking Amoeba enters headquarters and kills every salesman at company x." How is that good?

Trader (with look of disgust at someone obviously below him) - And that is why you are cleaning toilets and I am making a fortune on company x. Guaranteed millions and if something goes wrong Bernanke got my back.

If your laughing you would be mistaken. It isn't that far off right now.

Email from a friend today:

Press release: We destroyed $1B of shareholder value today.
Market response: Up 10%

Press release: We destroyed $10B of shareholder value today.
Market response: Up 20%

Wednesday, July 22, 2009

2nd Quarter Letter

My 2nd quarter letter has been sent out. If you are reader of this blog and would like a copy, post your email address in the comments section and I will send it your way (sorry for any previous requests where I sent it but failed to add you to the distribution list).

As a side note when I printed from Microsoft Word to Adobe for some reason the graphs became all blurry. My apologies. If anyone would like the charts used please let me know.

Tuesday, July 21, 2009

More Truth Disseminated

Yesterday it was one eyed Moody's calling the banks out for under reserving for future losses. Today Barclays actually takes a stab at the truth pointing out that GE Capital has inadequate reserves. Of course if this was believed widely on the street, General Electric would not be alive. This is the primary reason I actually believe it is a zero. Of course they have more flexibility to play accounting games than most because of their unqiue setup. They could, like others are trying to do, grow their way out of a negative net worth. Time is their friend.

From Bloomberg

General Electric Capital Corp. bonds were cut to “underweight” because the finance company’s $6.6 billion of reserves to protect against losses on its loans are “inadequate” compared with large banks such as JPMorgan Chase & Co. and Citigroup Inc, Barclays Capital said.


GE Capital’s loan-loss reserves as a percentage of finance receivables is 1.8 percent, among the worst in the financial-services industry, Glionna wrote.

Caterpillar...Typical Story

You have to wonder what spot in NYC the head dogs of all the firms meet to decide what will be the company / news item that everyone is going to pump to send the stock market soaring the next day.

What ever location was selected last night, the stock today was Caterpillar.

Typical story. Revenue miss, earnings beat.

Revenue expected by analysts were $8.7 billion with earnings of 19 cents. Caterpillar manages only $7.98 billion in revenue (that is a hefty 10% miss) but beat earnings expectations coming in at 60 cents a share.

For some comparison purposes revenue is down 41% from last year this quarter. Revenue came in at 13.62 billion last year for Q2 and earnings is down from $1.1 billion or $1.74 a share to $371 million or $.60 a share.

Okay, fair enough, maybe the stock is cheap?? Umm at $40 a share let's just annualize the $.60. That isn't being fair I realize but if you were to do that you would be paying 16.7X earnings. This for a very cyclical name.

In actuality for 2009 Caterpillar said it now expects 2009 profit of $1.15 to $2.25 a share excluding severance costs.

This is being touted as by Wall St. as raised guidance. It seems they just massively raised the range. Previously they had targeted $1.25. Now it is $1.15 (that is lower that $1.25 if my first grade math is still correct) to $2.25.

Hopefully we can all be fooled together.

Monday, July 20, 2009

One Eyed Moody's Even Seeing the Games

When a rating agency like Moody's can see the games that are being played by the financial stocks, you know the gamers must be hardcore.

From Bloomberg

Banks have failed to make adequate provision for the losses on loans and securities they face before the end of next year, Moody’s Investors Service said.

U.S. banks may incur about $470 billion of losses and writedowns by the end of 2010, which may cause the banks to be unprofitable in the period, the ratings company said in a report published today.

“Large loan losses have yet to be recognized in the banking system,” Moody’s said. “We expect to see rising provisioning needs well into 2010.”

No really. You mean in Q1 the dramatic decrease in loan loss provisions for banks was not tied to economic reality? I have been saying for months that Q1 and Q2 for banks would look awesome and Q3 and Q4 should look horrible. As you get closer to an acutal audit the fewer games you can play. Underreserving for losses. Obvious that even Moody's can recongize it.

Friday, July 17, 2009

This Past Week

As mentioned I have been busy with my quarterly letter and now I am battling some kind of cold. Unfortunately for me, when I am sick, it is usually not physical symptoms that plague me but my mind goes. I don't know how to describe it but I can't think crystal clear thoughts and to read something takes considerable effort (I corrected 7 typos in this paragraph by itself so be ready for more).

Starting with last Friday we closed at 879.13. The previous two days had been weak. Bounced off of 870 twice but no real bounce. I went to bed Sunday night with Asia selling off over 2% across the board. Dollar was rising as was the Yen and it seemed certain that the market would roll over come Monday morning. Then comes Meredith Whitney on Squawk Box on CNBC. She upgrades one stock, Goldman, which she called a "bearish call." The reason was because Goldman would be in position to benefit from the weakening economy with all the debt issuance that would be necessary. She then proceeds to say she thinks unemployment will go to 13%. The market bounces hard on this before selling off to an intraday low to 875.32 before starting to move up and never looking back. Like I said on Monday, the spark last March was Pandit saying Citigroup was going to be profitable. Meredith has that type of clout. From Monday's intrday low to the close today (so less than 5 trading days) the S&P 500 took a moonshot up 7.4%!! I am still not exactly sure on what. Yes Goldman's earnings were unbelievable as was Intel. Other than that there wasn't much to get excited about. IBM had good earnings numbers yes, but their revenue numbers once again came in light. So they were able to cut their way to profitability. I said last April that I thought the second quarter numbers for banks were going to be pretty good and I thought for sure this was already priced in. I was wrong. Bank of America CEO Ken Lewis said some one time gains really helped them this quarter and not to expect the same the rest of the year. Jamie Dimon said commerical real estate and consumer debt will cause big problems in the months to come. General Electrics numbers downright stunk and looking at some of their assumptions you have to wonder what mysterious planet they think they are living on (yes, over time I actually think GE is still a zero or will be diluted to death if the government doesn't let the equity go to zero). Google had worse growth year over year since becoming an IPO with very weak add spending.

And all this was worth 7.4%? Obviously the market was pricing in worse numbers even after this monstrous run up but I can't help but feel that the traders also just got caught up and on the wrong side of all of this and started the panic buying I referenced before.

Then you had CIT. It was going bankrupt, then it wasn't, then it was, then it wasn't, and now finally it seems like it will. This is being totally ignored by the market and while I don't think it is as big a deal as some people think, the question should be asked, if CIT was not an issue would the market be up 10% or still only 7.4%. If the answer is still only 7.4% then the market is completely ignoring something that shouldn't be completely ignored. I don't think it has a monstrous impact but it does have impact.

Next week is the biggest week for Q2 earnings with alot of tech heavyweights. If the story continues as it has been (not counting Intel), it will be better than expected earnings with lower than expected revenue. Not sure how long the market can rally on that. If we break 955 though there would be a very high possibility that we will go to 1000. If you rally up to 955 there and then fail, you will have traders start talking about a double top.

Anyway, interesting week.

Wednesday, July 15, 2009

Buying Panic

Been very busy the last couple of days working on my quarterly letter. Hoping it will be complete by the end of the weekend.

We have not seen this type of buying panic since April. The shorts were obviously taken off guard and anything and everything was bought. Many traders were talking about the head and shoulders pattern and when that failed with supposed great visibility now into the third quarter because of Intel, it was off to the races.

Intel's numbers seem way overblown but I am not going to dissect them. The Market Ticker Blog did a good enough job for those who are interested.

So you have blow out Goldman numbers and blow out Intel numbers. Just the tip of the tip of earnings season but the other few companies who have reported have not reacted very strongly in the market. With Intel last night, Abbot Labs and Yum Brands both reported earnings. Both managed to finish down today!! Xilinx and Cintas both reported after the bell today. Both were down strongly (though admittedly after being up strongly) after the earnings release.

I would expect JP Morgan's earnings to be strong, though at this point I would think it would have to be priced in, but after that I am not sure we will continue to see the upside surprises. In otherwords I am not sure that Goldman and Intel are not just head fakes.

At this point, it very well may not matter since buying panic and under performance fears are back with every major technical level being slaughtered today. We may be back just to the mindless buying that has occurred for months.

Tuesday, July 14, 2009

California Downgraged

This is what should be getting the attention tomorrow instead of the Intel numbers (I won't hold my breadth) because of how explosive the situation could become. After Fitch lowered California's rating a week ago, Moody's has followed suit cutting two notches from A2 to Baa1.

From Bloomberg

California’s credit rating, the lowest of all U.S. states, was cut for the second time in as many weeks amid lawmakers’ failure to close a $26 billion deficit that left the most-populous state issuing IOUs to creditors.

Moody’s Investors Service said it lowered California’s credit rating two steps to Baa1 from A2 and said it could be reduced further if legislators don’t quickly address the state’s cash problem. The new grade is three levels above non-investment grade.

I don't have a clue how this could all play out. Not an area that I understand or that I could potentially handicap. My guess is eventually it will mean alot more debt at the Federal level.

Government to Pay Some Mortgage Payments

If this goes through I think I will be moving overseas.

From Reuters:

Officials are also considering whether the government should make mortgage payments on behalf of borrowers who cannot keep up with their home loans, tapping an unused portion of a $50 billion housing aid kitty.

Monday, July 13, 2009

Last Thursday's Bounce

Today we had the bounce I was expecting last Thursday. It occurring today makes it more complicated from a trading perspective than if it had occurred last Thursday. I had been expecting a bounce and forced myself to short a little bit today though there was plenty of fear attached to that trade (in timing only, longer term I am comfortable). In the short term, the numbers out of Goldman tomorrow really don't matter that much. What matters is the reaction to the numbers. A very bearish reaction would be for Goldman to smoke the numbers, Goldman and the financials open strongly up before rolling over after 9:30. A very bullish reaction is similar volume, similar breadth, and strengthening throughout the day just like we had today. If that occurs, the testing of 870 may be complete. After the bell today Dell came out with negative comments and CSX came out with positive comments. Tomorrow morning you also have retail sales. The next two days will tell you alot.

Meredith Whitney on CNBC

As I said in my post last night, breaking 870 today seemed way to easy. Today we have a Meredith bounce, arguably the best analyst on financials on Wall St. who predicted most of what has occurred including the big bounce in financials in Q1. She echoed alot of my thoughts. The earnings for financials should be amazing in Q2 even though longer term she remains bearish. Like I said, the key is how they react after earnings. If the bounce extends on decent volume like it is today, the test of 870 held. Last quarter the market turned on Bank of America and Citigroup CEOs comments in early March that the banks made money in Q1. Meredith is big enough she could be the same type of catalyst. She is bearish longer term and so whether we hold the 895 to 902 level in the S&P will be determined how far Wall St is looking ahead past these numbers (assuming she is right overall). A few weeks or 3 to six months?

"Nothing improves on a core basis but you got so many things moving around that from a tactical basis basis if tangible book is moving up you don't want to be short these names going into it." - Meredith Whitney

Don't take this as being bullish outside of a trading call (the traders are taking full advantage today). She thinks unemployment is likely to rise to 13% or higher. Most bears are around 11 to 12%.

Video 1

Video 2

Video 3

Sunday, July 12, 2009

The Breaking Point??

Another weak day on Friday with sorry consumer sentiment data. I didn't think that the consumer sentiment numbers really meant anything when it was improving a couple of months ago and I don't think it means much now. The market feels like it is moving towards a breakdown but volume was really really light on Friday. It seems to easy that it would do it tomorrow or play out like you would think it would but who knows. CIT is preparing for bankruptcy with the U.S. government saying it is small enough to fail. That may be the case but it appears like it would be the biggest bankruptcy since Lehman (in terms of importance and interconnectedness in the financial system). Also Llyods is supposedly preparing for a $21 billion dollar writedown which means losses are accelerating (or they couldn't keep up the game from Q1). Which leads to another big event this week. Bank earnings!!! Goldman Sachs reports Tuesday, I think JP Morgan Wednesday. Government Sachs should be awesome. They should blow away the numbers. JP Morgan means much more and the question with them and others will be how aggressive they are with loss provisions. Q1 was like the stressless government tests when it came to the banks estimates on loss provisions making the earnings appear good. It was a joke. The rest of the banking business should have done really well. Also, a big rally in debt during Q2 could have some substantial gains in trading revenue. They may use that opportunity to increase there loss provisions. So net net a push. Then the question becomes how the market reacts. I have been expecting good Q2 numbers and poor Q3 numbers. That may mean the market will ignore these Q2 numbers (already pricing it in over the last several months) and sell any spike on good numbers.

You also have June retail sales numbers coming out which should be awful. General Electric numbers on Friday and host of big blue chip tech stocks. This week could be a big breaking point in the markets. A break of 870 almost certainly will cause the markets to go down to 840. The key will be to see how the equities of companies react to earnings. Alcoa had better than expected numbers and sold off anyway. If Goldman does the same on Tuesday it will tell you all you need to know.

Wells Fargo Sues...Wells Fargo?

This has been picked up on by a few other blogs but I just couldn't resist commenting on it. Just when I think we have reached the lowest level of stupidity, something comes up that makes the case for evolution towards a more stupid state. I seem to never ceased to be amazed. From FoxBusiness:

In this particular case, Wells Fargo holds the first and second mortgages on a condominium, according to Sarasota, Fla., attorney Dan McKillop, who represents the condo owner.

As holder of the first, Wells Fargo is suing all other lien holders, including the holder of the second, which is itself.

Wells Fargo tries to save face...umm not so much:

"The primary reason is to clear title and ownership interest in a property to prepare it for sale," Waetke said in an email exchange. "So it really is not Wells Fargo vs. Wells Fargo."

Yet court documents clearly label "Wells Fargo Bank NA" as the plaintiff and "Wells Fargo Bank NA" as a defendant.

Wells Fargo hired Florida Default Law Group., P.L., of Tampa, Fla., to file the lawsuit against itself.

Of course the lawyers are the ones who are actually coming out ahead. This is of course funded with the TARP dollar and those of us who are still making money paying taxes. Brilliant!!

Friday, July 10, 2009

Department Stores Sales Down Because of Heat???

I found this hilarious. Yesterday there was alot of moaning about same store sales in the U.S. One of the major excuses was the cool and wet Northeast. Well the Guardian in the U.K. had a front page article on it website with the headline "UK's John Lewis sales hit by heatwave, Wimbledon." Say what?? So the U.S. can blame its retail woes on rain and cool weather and the U.K. can blame it on to much sun and the distraction (which is an annual event last time I checked) of Wimbledon??? Hilarious.

John Lewis Partnership, the employee-owned group seen as a barometer of UK retail spending, said department store sales in the week to July 4 were held back by sunny weather and the distraction of Wimbledon. The firm said sales at its 27 department stores fell 2.3 percent to 60.1 million pounds ($97.7 million).
"Our first full week of Clearance (Sale) saw an excellent result given the distractions of sustained sunny weather and (British tennis player) Andy Murray's progress at Wimbledon,"

Thursday, July 9, 2009

Weird Day

More comments on the trading day today. I didn't do anything today. The financials never rolled over and in my post this morning I said that was the key to watch. With that said, I thought the action was very bearish. We may still bounce tomorrow, not sure but the market doesn't feel or look like it wants to go up. After we tried to go lower on heavy heavy volume, volume alomst completely disapeared in the afternoon as we drifted higher and then lower. Heavy buyers holding key levels but no buyers following the market higher. The dollar got POUNDED today. Down between 1% to 1.25% today. Normally that would have been very bullish for stocks. Not only did stocks not really respond, neither did oil. Oil was down most of the day even dropping below 60 before finally squeaking out a small gain. This was after being down 6 days in a row and while the dollar was getting slaughtered. Same with gold which was up less than 1%. Finally you have Alcoa which finished down 2.43% at $9.23. Yesterday at this time it was above $10 after reporting better than expected numbers. Obviously the "good" news was priced in. You have to wander what the means for other stocks who will be reporting earnings in the next few weeks.

Anyway, the trading was abnormal today and whether tomorrow or next week I thought was very bearish. On any bounce the market would have to hold 890 to 905 for the bears to maintain control.

Few Beginning Morning Observations

When I was on my way to work this morning S&P 500 futures were up over 1%. You had a large improvement of jobless claims numbers and Europe was doing okay. The actual market never came close to the futures. The Dow is now down and the S&P went negative briefly. This seems very bearish to me (if not today, in the near future).

What may be even more bearish is Alcoa. The company that is known for always missing estimates actually beat yesterday. Revenue and earnings came in better than expected (though abysmal). In after hours trading yesterday Alcoa was up over 7%. Once again, today it never came close to that. It is now actually down .5%. This could be very telling as "good news" may be priced in and being sold now which could carry into other companies in earnings season. This is vastly different than the last three months.

Volume is running very heavy. Watch financials. Up 1% currently. If they roll over the market probably will also.

So far, a very very weak bounce

Wednesday, July 8, 2009

Market Corner

Big reversal today exactly where you would expect it to happen. 870 on the S&P 500. Heavy volume today as you would also expect around big technical levels. Tomorrow sets up very interestingly. Tomorrow morning you have same store sales by all the retailers. I am expecting June same store retail numbers to be horrible. You had bad weather, high gasoline prices, higher interest rates, more job losses, and comparison year over year that goes up against the stimulus checks that hit the consumer about this time last year. The problem is, naturally I think the market would have a big up day tomorrow. Big reversal bounce off resistance setting up for a move back to 890 before turning lower would be expected. My guess is if the numbers are anything less than absolutely horrid the path of least resistance will be up. I also think that bounce will be the opening to add to short exposure if you have been waiting to do so. I would bet very strongly that even if we hold 870 that was not the final test. My guess is even if we bounce we will test it one more time. So makes sense to add to short exposure if you get that bounce.

Financial History - The Backbone of all History

Tonight is the first episode of a four hour documentary on PBS called "The Ascent of Money." You can actually watch the first hour episode online. I have watched the first 10 minutes. It looks awesome. History doesn't repeat but it rhymes. Knowing financial history is very very important. Thanks goes to Jody.

Jean-Marie's Views on the Economic Crises

Jean-Marie Eveillard is a legendary investor who is now semi retired. In June he wrote about his views on the economic crises. I disagee with alot of them but I found the read very interesting. He talks about different schools of economics. I definitely lean towards the Austrian school which is you must prevent credit bubbles but if they exist you must purge and go through the pain. Highly recommend reading it. Thanks goes to Nathan.

To the Austrian School, the original sin, something that Friedman did not emphasize at all, was committed in the 1920s by the monetary authorities letting the credit boom go on too long and be too strong. The conclusion of the Austrians was, “Hey, you have to be very careful about credit booms because a credit bust follows a credit boom just as night follows day.” And nobody listened to them in the '30s when they made that observation, apropos the Great Depression, after the original sin had been committed in the '20s. In a sense, the idea that after the credit boom you get a credit bust is something of a hopeless message. Indeed, the attitude of the Austrians was, don't try to get the economy back again quickly. You have to purge, let most of the excesses be purged from the system; which is not a very encouraging message.

I disagree that inflation is bad but deflation is worse.

Once the authorities could see that it was a major financial crisis, they have three ways to go. The first possibility was immediately discarded. That's what the Austrians were talking about, “Hey, there are major excesses in the system. They have to be purged.” To purge the excesses at that stage would have resulted in a return to the Great Depression. It's not just a matter of the politicians liking the idea of being re-elected, but they would not like their name in the history books saying they were responsible for a return to the Great Depression. Inflation is bad but deflation is worse. So, there was no consideration whatsoever given to the idea of purging the excesses.

The second possibility was similar to what happened in Japan in the '90s after their gigantic credit bubble. The Japanese managed to avoid, after a gigantic credit bubble, a real estate credit bubble, which resulted in almost unimaginable real estate prices and abusively high stock prices. Then the double bubble burst in late 1989 and the Japanese managed to avoid a return to the Great Depression, but had economic stagnation for 10 years. American economists, including Mr. Bernanke, heavily criticized the Japanese, saying the Japanese government and central bank really botched it and their policies were miserable. My own impression is that there were policy mistakes. Everybody makes mistakes, but if the Japanese policymakers did not make mistakes, they would have had to settle for five years of economic stagnation instead of ten. In essence, there is always a price to be paid, in life as well as in finance, for the mistakes one makes.

The third way to go was full speed ahead, “Damn the torpedoes,” what the French call, the flight forward. Both Mr. Obama and Mr. Bernanke used the expression, "We will do whatever it takes," to get the economy going again as soon as possible. Let's fight the deleveraging process every step of the way, let's get credit expansion going again, let's have the banks lend. It was a combination of monetary and fiscal steps, some of them unorthodox. The monetary steps taken by the Fed had never been taken before since the Fed was created in 1913. Not only did the Fed take short-term interest rates down to practically zero very quickly, but they also engaged in quantitative easing, which is code for printing new money as quickly as possible. On the fiscal side, we're talking about a budget deficit of close to $2 trillion. Mr. Obama has already indicated that it is not just this year that the budget deficit would be gigantic, but also for several years afterwards.

Tuesday, July 7, 2009

Back in the Saddle

After what will most likely end up being the best weekend of 2009 (I can't imagine how I could have a better weekend with the laughter, hanging out with friends, enjoying the outdoors) I am trying desperately to catch up. I have been absolutely slammed the last two days. I work very hard not to be busy because being busy means you aren't thinking and the world rushes by you as you can miss several important subtle hints of where we are going.

The market is sitting very precariously on all kinds of support. We broke 880 today for a little while which was very important. The market seems to be headed lower in the short term. However, I would not be suprised either tomorrow or the next day to see a pretty severe bounce. Often times it seems these bounces come right after we break important technical levels which throws everybody off. Either way it seems like we will be seeing 840 before 940.

To me the big news today which hasn't gotten that much media exposure was a WSJ article that big banks (i.e. Citigroup, BOA, etc.) was going to stop accepting California IOUs. Basically because California does not have the cash they have started issuing IOUs to contractors and other service providers. Then these guys take the IOUs to say Citigroup in exchange for cash. Fewer vendors will be willing to accepts these if they can't quickly transfer them to cash. The pounding hammer on California's cofin is getting louder.

I am seeing alot of interesting stuff to blog on. Just haven't had time. Hopefully things will slow down a little bit but we shall see.

Below had to be the picture of the weekend!!!

Thursday, July 2, 2009

4th oh July Weekend!!!

Well I guess the speculation was true. Horrible jobs numbers but they sneak it in on a Thursday when no one is around and hope it will get forgotten. Flurry of activity early on and now the NYSE is hearing crickets. That probably means we don't break 900 and the bias may be to drift higher into the close. Who knows but regardless the move the rest of the day shouldn't mean anything.

Which is why I said the first three trading days will tell you alot about this month. It will be interesting to see how Monday reacts.

I am about to head off to the annual trip to the frio near Garner State Park. Meeting up with a bunch of friends to float the river, maybe fish, tell stories, and have fun. Have a great 4th!!!!!!

Comparisons to the South Sea Bubble

I love financial history. There is absolutely nothing new or different in the way people think, process information, and respond. As a result, history continually repeats and the same mistakes are made. A top Bank of England official compared the banking system to the infamous South Seas bubble. The South Sea Bubble occurred in the early 1700s and caused financial ruin for many. Isacc Newton lost a fortune. Was was the cause? The New World of course and the fortunes that were going to be made by 1000s. Hmmm, let's see that rhymes with the railrods in the 1900s, tech stocks, in the 1990s, and housing over the last decade. For more on the South Sea Bubble you can check out Wikipedia. To the article from the UK Guardian.

A senior Bank of England official today compared the banking system over the last 20 years to the South Sea bubble of the early 18th century and said bankers had merely "resorted to the roulette wheel" to keep up with each other.


"Banking became the goose laying the golden eggs. There is no period in recent UK financial history which bears comparison," he said.


"One of the South Sea stocks was memorably 'a company for carrying out an undertaking of great advantage, but nobody to know what it is'. Banking became the 21st-century equivalent."


He said that in future there would have to be a greater distinction between management skill, which improves return on assets, and luck, when return on equity can be magnified by leverage.

"Good luck and good management need to be better distinguished. Put differently, returns to investors and managers need to be more accurately risk-adjusted if the right balance between risk and return is to be struck for individual firms and for the financial system as a whole."

A second lesson, he added, was that there would have to be much stricter system-wide limits on leverage, particularly among big banks whose stability is crucial to the whole financial system.