Wednesday, October 15, 2008

Stocks Collapse/10-Year Rises

Good Afternoon Folks!

Take a bow Mr. Paulson. The market just loved your bailout: For 1 Day! Stocks are plunging today as retail sales fell off a cliff, and long term treasury yields continue to rise. The Fed's beige book should be out before I finish this so I will update it if its out before I finish this post.

Ok, lets start with retail sales:

"Oct. 15 (Bloomberg) -- The eroding U.S. economy drove retail sales into their longest slump in at least 16 years, even before this month's market collapse signaled a deepening recession.

Consumer purchases fell 1.2 percent in September, extending the decline to three straight months, the first time that's happened since comparable records began in 1992, Commerce Department figures showed today. In another sign of weakening demand, prices paid to U.S.
producers fell last month on lower fuel costs.

The median forecast of 75 economists surveyed projected purchases would drop 0.7 percent following a previously reported 0.3 percent decline the prior month.

``I don't think things can get much worse,'' said Brian Bethune, chief financial economist at Global Insight Inc. in Lexington, Massachusetts. ``September was a terrible month in terms of the overall situation, in both sales and production. The fourth quarter is guaranteed to be a terrible quarter.''

Quick Take:

Welcome to the 2008 recession ladies and gentleman. These numbers are terrible. It looks like there will be a lot of Scrooges this Christmas as the consumer goes down the toilet. Expect the 4th quarter to be even worse as the consumer folds like a tent. All indications so far in October show that things are continuing to slow.

Shipping

The shipping industry reported that world trade is slowing as the credit market remains locked. The shipping industry reports traders are seeing letters of credit dry up and are afraid to let ships leave port according to Bloomberg:

"Oct. 15 (Bloomberg) -- Pacific Basin Shipping Ltd., Hong Kong's biggest dry-bulk carrier, and Precious Shipping Pcl. said demand for moving coal, iron ore and other commodities will fall because banks are guaranteeing fewer loads.

``Letters of credit and the credit lines for trade currently are frozen,'' Khalid Hashim, managing director of Precious Shipping, Thailand's second-largest shipping company, said in Singapore yesterday. ``Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay.''

The lack of letters of credit, in which banks guarantee payment for merchandise, could become a ``big issue'' for world trade, according to Klaus Nyborg, Deputy Chief Executive Officer at Pacific Basin. Tighter credit has contributed to this year's 80 percent drop in the Baltic Dry Index, a measure of commodity-shipping costs. About 90 percent of world trade moves by sea."

Quick Take:

I thought banks were going to start lending again after getting hundreds of billions in bailouts from the worlds central bankers? Word is the banks are hoarding this money and stuffing it in treasuries and fixing their balance sheets instead of using it for lending.

This is bad news folks. If world trade slows considerably, all hell is going to break loose. The repercussions would be devastating to countries all over the world. Trading is imperitave to keeping the world economies going. 90% of trade moves by sea folks!

10-year Note

I may make this a permanent part of my blog. The 10-year is basically flat today which is bad considering we are down almost 6% in equities today. Money should be flying into these bonds as a flight to safety trade. Not today! Demand continues to be weak here despite the selloff because of the The Treasury's out of control spending via bailouts.

This is bad folks! If the credit markets don't loosen up, ships filled with worldwide goods are going to end up stuck in ports around the world. The Libor rate continues to stay elevated despite the massive stimulus injected by the worlds central bankers. Credit remains harder to find than a guy in LA that hasn't slept with Brittany Spears!

Bottom Line:

It looks like we may retest the lows set last week in the near future. We are halfway there so far in the last two trading sessions. I sold my TWM(no sense in trying to be a pig) that I picked up yesterday.

I am going to buy some Puts on TLT(long term treasuries) as soon as the VIX drops back down. I think treasuries eventually will turn into toilet paper down the road. We have spent way beyond our means as a government, and its going to take trillions more in spending to get us out of this mess. This is very bearish for treasuries. This is a long term trade that will take months to play out.

I plan on staying in cash for awhile at these levels. I still have my bearish long term hedges on. The next question we need to ask ourselves is how much of the recession is priced in here? For now I will be a spectator. Expect the volatility to continue.

BTW, there was nothing earth shattering in the beige book. The Fed basically said the economy sucks. Tell me something I don't know!

If treasuries continue to fight the Fed and take rates higher, the shorts will go back on. More confirmation is needed before taking any additional positions.

Stay tuned!

10 comments:

Jeff said...

Geez

This is getting ridiculous. What a selloff in the last hour. We gave that whole Monday rally back in the last 2 days.

What a mess. I am seriously concerned folks. What a disaster. This is turning into a deflationary death spiral.

Everything is blowing up at once.

S&P dropped this bomb after hours:

"Oct. 15 (Bloomberg) -- Standard & Poor's said it may downgrade $280.1 billion of Alt-A mortgage securities, the most that the ratings company has identified in a single announcement for bonds backed by the loans.

The debt may be cut in part because S&P has boosted estimates for losses on each foreclosure on Alt-A loans with at least five years of fixed rates to 40 percent, from 35 percent, the New York-based company said today in a statement."

http://www.bloomberg.com/apps/news?pid=20601087&sid=aC8iPTs8ui4s&refer=home

Avl Guy said...

Who...Who..Who had no idea a mere 48-hours ago during a 900+ bolt upwards that the US was entering/in a recession and hedge funds faced big redemptions?
For crying-out-loud, IF that's what this is all about, then what's going to happen when all these brilliant fund managers find out the Yankees arent in the playoffs and Hillary & Rudy aren't running for Prez?
Geez.

growler said...

Jeff,

Don't know what to say other than

Keep up the good work.

BTW, love the anger. So great to hear others just as pissed off.

Jeff said...

avl

How do all of these Harvard grad hedge fund managers miss this when it was so clear to all of us in here?

Their stupidity is beyond belief!

How ironic would it be if the Tampa Bay Rays in the middle of the housing bubble capital of America make it to the World Series?

What a mess!

Jeff said...

Growler

Thanks a lot. I'm tryin to keep up with all of this. Its hard when the ship is springing leaks all over the place!

I am so pissed about this its hard to sleep at night. Watching those pompous asses walking by the cameras all smiling last night after they got their $250 billion bailout really bothered me.

I felt this compulsion to want to tar them and cover them in feathers!

Avl Guy said...

Jeff, I like that Tampa copnnection.
Do you remember the quiet care-free days of this past summer when our biggest news story was that Tampa had an unsold inventory of homes/condos that would take 70+ years to work thru at the current rate of closings?
U remember that?...it was ur post. Ahhh, those were the good ole days; guess thats why they say you never appreciate what ya got til ya lose it.

Jeff said...

Avl

Ahh ...So true!

I can remember blogging on just one company!

Now that the financial system hangs in the balance things have changed.

I miss the days where the DOW would rise or fall 200 points based on the news.

Nowadays a 1% day up or down move is considered flat!

Its hard to have an opinion when the market is on the verge of collapse.

I miss those days avl!

Perhaps I am finally witnessing "The Housing Time Bomb!". I have called for it for a long time.

Maybe I need to change the name of my blog?..j/k

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