Market Close

Along with Fed Chairman Bernanke’s speech last night, the other Fed members speaking today encouraged the markets to start debating, not whether we’ll get a rate cut, but about how large a cut they give us.  The Fed’s Poole said today that cushioning the stock market may be a byproduct of policy, but the concern is saving the economy, not necessarily saving the stock market from any decline.  At no time did any of them say anything to hint at not cutting rates. 

Secretary (of the Big Bail-out Schemes) of the Treasury Paulson said there would be more information next week about how the “subprime bailout” will work.  Wait, wasn’t he the same guy who came out a few weeks ago and said he (along with some broker/banks) had a great plan for an SIV bail-out?  That didn’t go over real well, and I have some major problems with the idea of the government being involved in any way with a bail-out of  “subprime”.  The idea of freezing interest rates is not a “moral hazard” (a term I don’t like), but a complicated legal issue, if the government has anything to do with it.  But, maybe I’m getting ahead of myself and the whole plan will be nothing more than the lenders working things out with homeowners to mutually save each other’s butts.  I’ll discuss this at more length in another post.

Just check in with us tonight and over the weekend!

Morning Update

After a huge gap up, there was a very decent pullback.  Now the markets are simply hovering.  No way to tell how the afternoon trading will go, let alone how it will close.  Remember that the frenzy on the buy side is just as dramatic as the frenzy on the sell side. 

The news of freezing subprime loan rates is interesting.  However, it should not be something orchestrated through the White House.  If ARM resets are going to cause foreclosures of epic porportions, leaving banks with a huge inventory of unwanted real estate and no incoming payments, then it is the banks and borrowers who need to hash out a deal.  It’s all right if the financial institutions say, “Ok, we messed up loaning you money even though you could barely afford the teaser rate, so let’s work out a fixed-rate mortgage to keep you in your home, and keep us in business”.  The government just needs to stay the heck out of it.  Stop lowering interests.  Stop killing the dollar.  And how dare anyone in the Federal Reserve say they understand consumers will face “headwinds” because of inflation (while they continue to cut rates), but they must save the financial markets.  The financial markets can save themselves, it may be painful and there will be losses, but they can do it.  And, this can be done without throwing the rest of us into a recession.  The more the Fed’s intervene, the worse it gets. 

I highly recommend the following article about the dollar, oil prices, and why what the Saudi’s do about them is important. 

http://www.financialsense.com/Market/wrapup.htm

Pre Market - November 30th 2007

The market loves all of the bad news that keeps coming. Economic data released this morning was yet again to the downside with regard to the health of the consumer and the economy. But in a perverse way the market love it! For every bit of bad news the market gets excited because they feel it further guarantees a rate cut from the FOMC.

To us this looks like a train wreck in the making, but as we said last night we will play along until the next bi-polar episode

New items in the watch list with more to come shortly.

The Day that Was - November 29th 2007

 

An old saying goes: when everyone is bearish… that is the time to be bullish

How true that statement is, if this were 1930. Those who still use this old contrarian indicator are fooling themselves, because they are adapting a contrarian indicator that was shown to have merit back in the days when bad news took a long time to spread. Back in the early part of the 1900’s, when a company released a terrible earnings report it took many days, or weeks for all of the investors in that stock to get word of it. And by the time the message spread throughout the country, it had sold down enough over the days to become a good time to buy in. This is why today when people use this contrarian indicator they refer to it as "the old saying goes…". But, it is not 1930 anymore, we have satellites, Internet, high speed data lines, and telephones! When a company releases bad news, in a manner of seconds the information is spread all over the globe. What would have taken many days for people to switch to a bearish view of a company, now happens in minutes. Contrarian views and sentiments are useless, to say that everybody is bearish means it is time to buy is nonsense. And to say that when everybody is bullish is the time to sell is also nonsense.

If a company has an extremely bad outlook for the future and has dire financial troubles that does not make it a good buy just because everyone is bearish. And the same applies on the flip side. I bring this up today because on numerous occasions in the past two days Lisa and I have heard various people say and have read reports which used the "as the old saying goes" contrarian indicator. Just because that worked in the early 1900’s does not mean it is still valid today. It does not matter how many people are negative on a stock, or how many are bullish. What matters is the signs of where the money is going. If everyone is bearish on a stock and the money keeps flowing out does not make it a good time to buy it. That is catching a falling knife (another old saying, but in this case the expression is timeless and valid). The charts tells us if a stock is bearish or bullish, nothing else.

Last night I provided you a chart of the DOW Industrials, and on that chart I drew a trend line which is a measure of the downtrend the market has been in since  the middle of October. A trend is valid until that trend is broken, and currently we are still in a downtrend. The markets are getting excited over the idea of more rates cuts coming down the pike. "Oh boy, I’m so excited, I just want to buy everything now". That is what you hear everywhere now, everything that got us in trouble has not vanished on the concept that the FOMC will rescue the markets and forsake the economy. A gift now, will be a curse later. When unemployment data starts going up in the next few months, and the losses from the financial institutions grow steeper, and we lose a couple of home builders to chapter 11, and foreign countries pull the peg on their tie to the US dollar, then that ‘quick fix’ rate cut won’t look so great anymore.

Although we have a pretty good idea where this economy is going to end up, we have to play along with the market, knowing full well that we may have to run for the door in an instant. So there will be additional ’setups’ added to the watch list, some long plays, and some short plays. But mind you, we will be lowering the stop loss even further, for these stock plays will be to capture other people’s irrational buying and selling. And because of the irrationality, and quick mood swings of these market participants right now, we will exit at the first sign of another bi-polar episode.

Someone left a comment to my editorial last night saying that we appeared bullish, and that he had a price target of 10,650 for the Dow. We agree with you Steve, we also see a bear market and a recession around the corner. Our adding some stock plays on the long side does NOT mean we have changed our long range view of this market, it only means we are going to milk it for what it will give us before reality kicks back in. If the market participants are all high on pot, well heck, we’ll join the fun and party with them until they fall, then we leave with our money and leave them to their own devices.

We will not be taking on any long trades with the intention of investments at this point, they are strictly swing trades. Quick in and quick out. Nothing more. Back in June and July we were warning of what was going to come, and we were correct. Now the market is heading up again on the idea of a rate cut and some are saying " the bottom is in", just like they said on August 16th when the market started ramping upwards again. From August 16th to early October everyone said that the correction was over, the market was going to rally big and fast, some said DOW 15000 would be just a short distance away. Then on October 10th the market headed back down once again, and even harder and faster. Now two days ago the market starts up again and we hear the same people saying the same exact things again. We feel as if we are watching a video tape from August. " The bottom is in", "DOW will fly to 16000", "all the bad news in known now", "the rate cuts have saved the day"… See what I mean? Same song, different day.

In 2007 our markets have now had three (3) significant pullbacks, this is significant in itself, that in one year there is that much instability in the markets to warrant so much selling to cause these down falls. For those of you that have been readers of ours for some time, you will remember the chart I posted of the major indices that showed that between February and May the amount of money flowing OUT of the market was increasing. Danger signs were evident as far back as then. Now in 4 months we have had two extremely significant events in our markets. Something just is not right  when in one year there is that much uneasiness in the markets. So now that people are claiming "the bottom is in" yet again, ask them what time frame they are referring to. I will tell you that a bottom is in, but I will say it in the context that it applies to this week only What are the time frames of others who keep saying the bottom is in? Sounds like a broken record, the bottom is in, the bottom is in, I feel they will be saying that all the way down when the economy and the markets enter recession.

Keep an eye out on the Watch List for new setups that we have evaluated for potential quick moves. and I emphasize that they are for quick moves only. To be making long term investments at this point is not advised. Not until the market either returns to a bull trend, or resumes it’s down trend.

Lisa and I are extremely proud to announce that we have been accepted as contributors to the "Financial Sense University". Financial Sense was rated by Barrons as the top financial website on the Internet.  We are most proud and most humbled to be joining the list of people who contribute to their site. If you have never heard of Financial Sense, your missing out on a wealth of information and smart insight into the markets. Financial Sense.

Market Close

The U.S. discount window borrowings averaged $55 Million per day in the week ending Nov. 28.  That’s a lot of moolah!  Hope they use it wisely and don’t just throw it down that black hole.  Dell reported earnings after hours and it was pretty much what had been expected.  Revenues were inline with consensus, but the problem seems to be that they lost market share in the consumer segment.  Dell is trading down AH.

Walid Chammah and James Gorman have been named co-presidents of Morgan Stanley.  The mess is so big, maybe two heads will be better than one. 

The Fed’s Mishkin says the path of the Fed rate policy is “highly uncertain”.  He says they are concerned about growth and can’t do anything about inflation caused by energy prices.  He says rate cuts were intended to improve market functioning.  Ok, so they really aren’t all that concerned about inflation.  They want to make the markets behave well.  I’m throwing a rate cut party, and you’re all invited.  I’ll bet we could even get Bernanke to dance on the table for us .

Markets were rather benign today, all the bad news today wasn’t an issue, after having “priced in” the rate cut yesterday.   Except the news was bad, it keeps getting worse, and the market rallies on.  We’ll see you later with a market summary!

Just a Note from the Wires

You can’t really blame them, after they found out the investment pool had $700 Million in defaulted debt:

Bloomberg reports Florida officials voted at a special meeting to suspend withdrawals from an investment pool for schools and local govts after redemptions reduced assets by 44% in the past month. The pool had $3 bln of withdrawals today alone, putting assets at $15 bln, said Coleman Stipanovich, executive director of the State Board of Administration, manager of the pool along with other short-term investments and the state’s pension fund. “If we don’t do something quickly, we’re not going to have an investment pool,” said Stipanovich at the meeting in the state capitol in Tallahassee.

Mid-day Update

The markets are trading in a sloppy range.  Some uncertainty out there again after economic data.   New homes sales were actually up 1.5%, for the quarter, but still lower than expected and inventory is growing.  Then the White House said they were raising the forecast for ‘07 GDP to 2.7% and cutting the ‘08 forecast to 2.7%.  That seems like no growth, compared to slow growth.  Secretarty Paulson is trying to set up a homeowner bail-out, of sorts.  We should just rename him the Bail-Out King.  Banks in Norway are also looking at loses from “subprime”.  It 12 o’clock, do you know where your “toxic paper” is right now?  They seem to be turning up everywhere.

Pre-Market Update

Good morning!  Futures are down a little and we should see some profit taking today, but it doesn’t tell us the trend for the day.  Economic numbers out this morning include:  Core PCE q/q 1.8% vs 1.8%;  GDP 4.9% vs 4.9%;  Intitial jobless claims 352K with prior report revised to 329K;  GDP price index 0.9%.  New home sales due at 10am ET.

There was an explosion at a Minnesota pipeline, sending oil prices up a couple of dollars.  They appear to have the problem under control.  Banks in Scotland and Germany announce write-downs from US subprime loans (those things are everywhere, aren’t they?).

Be careful out there!

The Day that Was - November 28th 2007

Wow, how about that rally. It is amazing what can happen when those holding substantial blocks of shorts have to rush and cover. Today’s huge rally was mostly a result of massive short covering, regardless of what you may think, this is the fact. When analyzing today’s market rally, the stocks that rose the greatest were those that had the greatest amount of shorts riding the stock. The sectors up the greatest today were the sectors most in trouble, and with the highest percentage of shorts on them. Biggest sector moves today were Financial (XLF) and Consumer Discretionary (XLY), both of which had very high amounts of shares being held short. The gains in the broad markets today can be traced back to the movements started in the short covering on those sectors.

Fed speak today gave indication that they ‘may’ be inclined to cut Fed Funds Rates again when they meet on December 18th. The past two rate cuts have done nothing to keep the financial system of this country from deteriorating, or the stock market from deteriorating further, so will 3 times be the charm? Just how many times will they need to cut the Fed Funds rate before the banks and brokerages are rescued? Just how much damage to the economy are the Fed’s willing to take on in order to rescue the banks and the mortgage industry? Every action has a reaction and a counter reaction. Cut the Fed Funds rate makes it easier for banks to borrow and do business with each other, but it sends inflation higher and the dollar lower, action and a counter reaction.

The recession that the United States is heading into is a "consumer induced" recession. Where in 2000, the recession was the result of a corporate bubble and the substantial losses resulting from the burst of that bubble. Now we are faced with a recession that is the result of the consumer, it is the higher cost of living, the continuing decline of their equity, and the the ever shrinking value of their paycheck (value of the US Dollar) that has started this economy’s downturn. The big sub prime problems and the substantial losses by the banking industry are not the cause of the problems, they are merely symptoms of the problem, or disease if you will. If the Fed’s cut the Fed Funds rate again they will be treating the symptoms, not the disease. And in doing so the disease will continue to go untreated and get worse.

One must remember that for each time the Fed’s cut interest rates they are reducing the value of the US Dollar and making the causes of the consumer induced recession only more intense. You will see higher prices in many of the things needed every day in order to live our lives comfortably. If you can live without being comfortable then just cut out food, heat, and transportation!

The Feds are once again bowing to the pressures of the financial institutions, and without regard for the end result of their actions, the Feds will likely give in and cut rates again. In that case Lisa and I can only say "you think we have problems now, just wait and see what comes down the road"

If we are going to have a market rally going into the end of the year, so be it. We will work on capturing some of those moves while they last, but to think that this is the end of the market sell offs and a another down ward leg still to come would be to ignore facts. So if the market perceives another Fed rate cut as it’s savior, and the markets start an upward path towards the end of the year, so be it. We will take what we can from it. But no one should be "loading the boat" for the long haul, that would be a grave mistake. We still favor safety, not aggressive investing. Today we received more factual information of the slowing economy, rapidly declining consumer confidence, and a housing market crisis that continues down with no slow down in the pace yet. This bad news is NOT already priced into the markets, it had pain killer put on it today by the Fed speak and the idea that the Feds will rescue the markets. But as a drug junkie keeps craving it’s ‘fix’, the disease of the drug addiction only gets worse with each ‘fix’. The Feds unfortunately are not working on curing the disease, they only offer the quick hit for the junkie. And the junkies are the banks and brokerages.

Ok, so if we are going to have some upward moves in the market in the coming weeks then we will play it. But we need to see the charts tell us that some upward movement is taking place on its own steam, and not being pulled up by short covering panics. The chart shown below is of the DOW Industrials, at present we are STILL in a down trend. When we see consolidation above the downtrend, then we will know that any moves up from there will be more of a buying nature and not just more shorts exiting the market. But you should know that nothing has changed, absolutely nothing! All of the economic problems facing this economy only continue to worsen and will continue to deteriorate. The markets are not out of the woods, they are simply being led astray by a a man holding a dollar bill in front of him, Ben Bernanke, and he is leading them to the cliff.

Oh, a news item that has crossed the wire tonight is a report from Goldman Sachs economist reporting that home equity losses could rise by another 50 to 100
% in 2008. Now there is something to ponder.

DOW Industrials:

Market Close

The Dow up over 300!  Now, don’t get mad at me, but I’m not excited about this.  Many things took place today that Chuck and I are going over.  We will have a pretty long summary tonight, I’m sure.   In this environment, a rally can be just as dramatic as the down days.  Panic, short or long, makes these movements so spectacular. 

More tonight!

Next Page »