Friday, November 28, 2008
This is long but worth listening to. Investing going forward may never be the same.
Professor Robert Shiller who helped create the Case/Shiller index predicts the housing collapse could last years and years:
Wednesday, November 26, 2008
Before I start I want to wish everyone a Happy Thanksgiving. I hope you have a great holiday with your friends and family. I am on my way to the families house after I finish this post. I won't be back until the end of the weekend so things will be quiet around here. I might try to sneak on over the weekend and post a thing or two but I can't promise anything!
Stocks are rising today despite more disappointing news on the economy. The data on durable goods, jobless claims, and consumer spending continue to point toward a deep recession :
"Nov. 26 (Bloomberg) -- U.S. business investment weakened last month and consumers are retrenching worldwide, reports today showed, heightening pressure on policy makers to take stronger steps to combat the credit squeeze.
Americans cut spending by 1 percent in October, the biggest drop since the last recession in 2001, while British households slashed expenditures last quarter by the most in 13 years, government agencies said today. A U.S. Commerce Department report showed orders for durable goods slumped twice as much as forecast as domestic and foreign demand dried up.
``It's about as bad as the 1970s and 1980s,'' said David Hensley, director of global economic coordination for JPMorgan Chase & Co. in New York. ``We're looking at back-to-back very deep'' slump in the global economy this quarter and next.
Excluding demand for transportation equipment, which tends to be volatile, orders dropped 4.4 percent, also more than anticipated and the biggest decline since January 2002. Those bookings were projected to fall 1.6 percent, according to the Bloomberg survey.
The number of Americans filing first-time claims for unemployment benefits fell to 529,000 last week, while remaining close to the highest level since 1992, Labor Department figures showed. The four-week moving average for claims reached a 26-year high."
All of this data is obviously terrible. The fact that the market is going up despite the bad news is something to take notice of. This is not a good sign for the shorts.
If we close higher today, we will have a 4 day winning streak on the DOW. This could start giving the bulls some confidence and induce more buying. Bear market bounces should be expected after reaching such lows, and they can be sharp and violent. The market in 1929 rallied over 50% before once again heading to lower lows.
The consistently bullish bias thats almost always seen on Wall St must be respected here. The good news for the shorts is all of this buying tells you that we did not see the bottom last week. Bottoms are not seen until almost all of the bulls have capitulated. This recent buying spree tells you that we are not even close. The true bottom will come when no one ever wants to own a stock again.
The Feds promise to throw $7 trillion dollars at this problem also cannot be discounted. This could pose a big threat to the bears in the short term. We have never seen such stimulus thrown at our economy so we really don't know how the market is going to react. It would not surprise me at all if we rallied over the next several weeks.
The Bear Stearns rally in the spring was a similar setup: Massive stimulus providing hope that things will get better. The mortgage news that I discussed yesterday could also further fuel the pump as many begin to refinance their mortgages. As you can see, we are at 7 year lows on mortgage rates as the Government continues to buy the 10-year.
On the flip side, there are shoe drops everywhere that could take us much lower. If GM goes under or we have a bank failure we could crash right back to reality. Another thing to take note of: The move higher this week has been done on light volume so I don't consider it to be very credible.
This is a very dangerous time to be trading stocks in my view. There are too many unknowns out there to be confident long or short. The $7 trillion in stimulus combined with the fact that we have no leadership from Washington as we transition to Obama leaves us with a market that reminds me of a boat without a rudder.
Paulson is pretty much done IMO after his latest round of bailouts. I expect him to quietly finish out his term from here on out unless we have another Citibank fiasco that comes out of left field.
I will be mainly staying on the sidelines for the next few weeks and let this rally fun out of fuel. If the S&P runs up to the 950-1000 level I will jump back in on the short side.
Some advice: If you have some longs in stocks or funds that you have been looking to dump them in the near term. I would be a seller if we get to 1000 on the S&P. You might not get another chance to sell at these levels for a very long time.
Be careful and realize that this move higher could be for real in the short term.
Longer term you all know my view:
The market will be as cold as a winters night in Alaska.
Tuesday, November 25, 2008
Good Afternoon Folks!
Someone needs to mail this famous saying to the Fed. They need to read it and realize that you can lead a consumer to the bank but you can't make them borrow!
We got another round of bailouts today as the Fed attempts to encourage you to go out there and spend spend spend like housing speculator on steroids. Just what we need! More liquidity from the Fed to borrow! These knuckleheads need to realize something: We can't borrow anymore because we are up to our necks in debt.
The Fed is absolutely terrified of deflation so they continue to flood the money system with money in attempt to fight off deflation and stabilize prices. Sadly, its not going to work folks. The consumer is tapped.
How are consumers supposed to go out and lend when 50% of their take home pay is going towards the mortgage? The answer is they can't!
Treasuries continue to collapse as investors continue to pile into treasuries. Rick Santelli warned today that the government could also be buying the 10-year as a way of "quantitative easing" in an attempt to get mortgage rates down.
As you can below see its working. Take a look at the yields on the 10 year:
We are now down near 3% on yields which are 50 year lows!
This may be the best time in history to refinance your mortgage. I am hearing reports that mortgage rates have dropped to as low as 5-1/4%. Take advantage of this desperation and go out and refinance your mortgage if you plan on staying in your home. This is the opportunity of a lifetime and its not going to last very long. Get you butt in gear if you plan on going for it!
The sad reality here folks is the fact that yields are this low is a very bad sign. Its a giant warning signal that deflation is here and a Japan Part 2 scenario is on the way.
Take a look below at this excellent video on the bond market from an analyst in Europe:
There isn't much else the Fed can do after buying down the 10-year. I am afraid they are just about out of bullets. The analyst in the video above explains that the same type of action was seen in the Japanese bond market as there market began to collapse. Our interest rates are rapidly approaching zero just like theirs did.
One other pressure on treasuries that's dropping yields should also be noted:
The banks are also buying treasuries as they look for safety and attempt to fix their balance sheets. So basically the banks are taking your bailout money and going and buying treasuries instead of lending it to you like they promised. How do you like that folks? Pretty crappy isn't it?
The bottom line here is there is no way the Fed can prevent deflation no matter how much liquidity(money) they throw at the system. They cannot force consumers to borrow. Most of the consumers couldn't even qualify to borrow even if they wanted to because their credit scores would be too bad after years of overspending!
The Fear of Deflation
So why is the Fed so deathly afraid of deflation? Because it feeds on itself and deflation can stop an economy in its tracks. The fear of deflation is the consumer may just stop buying and wait if they see prices continuing to drop month after month.
I mean think about it. If you want to buy a house and the one you want to buy keeps dropping $10,000 in price every couple months what are you going to do? Stay on the sidelines and wait right? I mean why buy now if you know its going to drop another 10k in a few months.
This same line of thinking can be used for any consumable item. The less people buy, the more prices drop. So what eventually ends up hapening is everyone just waits and waits and waits because they know they can get a better deal if they just stay on the sidelines.
If everyone moves to the sidelines and waits guess what happens? Presto! An economic collapse!
We are already seeing signs of massive deflation. Have you been to a mall lately? Did you see any for sale signs when you were in there? Is your mailbox starting to get filled with mailers announcing sales? Gone to a car lot lately? Hell, they are practically giving cars away right now.
Don't forget the biggest sign of all that tells you deflation is here ...HOUSING! Did you see the Case/Shiller housing index today?:
"Nov. 25 (Bloomberg) -- House prices in 20 U.S. cities declined in the year ended in September at the fastest pace on record as rising foreclosures pushed down property values.
The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier, more than forecast, after a 16.6 percent decline in August. The gauge has fallen every month since January 2007, and year-over-year records began in 2001."
I don't see any deflation in these numbers do you?Yeah right. After seeing the biggest price drops in the history, I guess you could say that deflation is here in a big way.
We traded pretty sideways today as the market begins to quiet down as turkey day approaches. This is a good thing because I think everyone is pretty worn out after the last couple of months.
I didn't add any new positions today and I probably won't until after the holiday. If anything I may sell a few longs that I have been waiting to dump if the bounce continues.
The Fed's actions the last few days should be taken very seriously folks. Ignore the positive spin from the equity markets on these developments. The bailouts and huge moves in treasuries should not be cheered.
They are major warning signs that some very tough times lie ahead.
Monday, November 24, 2008
Peter Schiff makes them all look like fools. Whats sad is his de-coupling prognostication has also been wrong.
Ben Stein should have stayed in acting. He is a total fool when it comes to the markets: "Bueller? Anyone? Anyone? Anyone? "
Its always fun to look back in time:
What a day in the markets! Stocks soared as the government continues to take money from the taxpayers and stuff it into the bankers pockets.
The bankers at Citigroup can now sit back and enjoy Thanksgiving after receiving a whopping $306 billion bailout b the US government.:
"Nov. 24 (Bloomberg) -- Citigroup Inc. received a U.S. government rescue package that shields the bank from losses on toxic assets and injects $20 billion of capital, bolstering the stock after its 60 percent plunge last week.
The second-biggest U.S. bank by assets climbed 58 percent in New York trading after the Treasury, Federal Reserve and Federal Deposit Insurance Corp. announced the aid plan yesterday. In return for the cash and guarantees, the government gets $27 billion of preferred shares paying an 8 percent dividend and warrants equivalent to a 4.5 percent stake in the company.
The regulators stepped in to protect Citigroup from losses on $306 billion of troubled U.S. home loans, commercial mortgages, subprime bonds and low-grade corporate loans when the firm’s tumbling shares sparked concern that depositors might pull their money, destabilizing a company that operates in more than 100 countries. The $20 billion of new cash adds to a $25 billion infusion the bank, led by Chief Executive Officer Vikram Pandit, collected last month under a Congressional bailout program."
That'll buy a lot of turkeys won't it? They might as well just throw this money right out the window. At least then maybe a foreclosed homeowner might find a $20 bill on the side of the road!
Good idea Hank... Give them another $20 billion. I mean the last $25 billion injection you gave them worked so well! Yeah right... This has become a joke. All of these banks have become nothing but giant black holes that do nothing but vacuum up dollars and make them disappear.
Whats even more absurd is the stock market reaction to this insanity. Stocks at one point were up nearly 7% on this news! How could anyone with half a brain not realize how dangerous this is?
I often warn about crossing the line of "moral hazard". I say this because there are always potential unintended consequences in doing so. This is a classic example of crossing that line. Now that Hank and Ben have backstopped $300 billion of Citibanks bad debts they have set a dangerous precedent.
The danger here is every bank is going to want the same deal. The reality is the government doesn't have the funds to do this. I mean hell, one bank cost them potentially $300 billion if home prices continue to fall and these bad debts decrease in value.
The Fed has now created a mess with this bailout because they are now going to be forced to choose who gets the Citi deal and who gets left out in the cold. My first thought after seeing this deal is to go look for the weak regional banks and short the crap out of them because there will be no Thanksgiving TARP Turkey left when the Fed is done taking care of the big boys.
The Fed will be forced to do similar deals with all the big players in my opinion. I say this because housing prices continue to fall. Citi got bailed out first because they were in the worst shape. No bank will be able to handle additional losses as home prices continue to plummet.
And folks, they are plummeting. Look at the data we got today:
Prices fell a record 11% in October:
"Nov. 24 (Bloomberg) -- Home resales in the U.S. dropped in October and prices fell by the most on record, signaling a deepening housing recession going into 2009.
Purchases of existing homes declined 3.1 percent last month to an annual rate of 4.98 million units, the National Association of Realtors said today in Washington. The median price fell 11.3 percent to $183,300 from a year earlier, the largest year-over-year decrease since records started in 1968."
Gee, do you think Citi's bad loans might continue to fall in value after home prices just fell another 11% in October which was the largest drop on record going back to 1968?
You know who is going to end up eating the $300 billion in bad loans that Citi made? Go take a look in the mirror. Its you the taxpayer. When will the US government learn that backstopping crappy, bloated, unaffordable subprime/alt a loans is pure stupidity.
There is some new data from the FDIC on Indymac's loan book that shows that 50% of the loans that were modified have now gone back into foreclosure. 1 out of 2 folks! You know why? BECAUSE HOMES ARE TOO DAMN EXPENSIVE!!!!
Watching the government attempting to prop up home prices drives me insane. You want this mess to go away? Let home prices drop 50-60% in the bubble areas to 3 times income, and allow the banks who made these insane loans to fail. Its that simple. Will there be horrific repercussion's to the economy in doing so? Of course, but at least we can then move on to the recovery process versus sitting here and and continuing to throw money into an endless black hole.
Lets look at the facts here folks. None of these bailouts have worked. We continue to throw good money after bad money. How many times are we going to do this? Its time that we end this ridiculous charade and try something different. Some transparency perhaps? God forbid we attempt to bring some clarity on what the losses are on these loans and put together a plan on paying them back.
BTW, Anyone thinking this is going to help the markets long term is smoking dope. This rally will fade just like the others. We set a lower low last week, and they are always retested. Take a look at this from JP Morgan:
As the terminator would say "Ill be back". This bear isn't over folks, not by a long shot. We have a new low that must be retested. Will it take three months like it did in 2002 is any ones guess at this point. The market is very oversold. Some type of sustained rally isn't out of the question here at these levels.
My advice here is to short the heck out of the market if we get some sort of 30-40% retrace which is not uncommon in bear markets. We have now bounced about 12% the last two days. There are no good entry points for right now.
Gold continues to work as the bailouts continue. The yellow stuff soared $30 to around $820 today after moving up $50 on Friday. Consider this to be a warning sign of concerns over the dollar as the government continues to spend like an out of control housing speculator.
Sorry about the rant today! Watching the US destroy itself is very painful for me to watch.
Sunday, November 23, 2008
Just a quick note today. It appears that once again the financial world will be saved by another government bailout. CNBC is reporting that the government may buy $100 billion of bad assets from Citigroup. Here is the word from CNBC:
"Update: The government is looking to buy substantial amount of assets from Citi like a good bank, bad bank structure. The government will absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government.
The Feds could buy more than $100 billion in the bad assets if the plans go through. But that doesn't mean it will pay Citi $100 million. The deal is not finalized but could be announced tonight. Reports from Washington say the White House is unaware of any government talks with Citigroup. It also decline comment on whether President Bush would back a government rescue of Citigroup."
We could hear the details as early as tonight. It will be interesting to see how the markets absorb this tomorrow if the government goes through with this. My guess is the financials could rally.
I think at some point the bailouts are going to start triggering selling versus buying. Investors are rapidly losing confidence in the financial system and the economy as a whole. This is what happens when a stock market loses 50% of its value. Many are starting to ask themselves "when is this ever going to end".
I am asking myself the same question. Citigroup has $2 trillion dollars in assets so this one probably had to be done. Imagine Lehman Brothers x10 if they went down. What scares me is as the the Feds balance sheet grows, and their ability to fund it becomes more and more difficult, what are they going to do? There is only one answer. They must stop spending or the bond market is going to dislocate.
My hope is that they understand this versus continuing to spend in a panic as the economy falls off a cliff. Bubbles must burst and this country needs to start becoming much more fiscally responsible so thet we can pay off this massive debt. The only way we do this is by higher taxes and less government spending!
The government at some point must send a message to the corporate world by saying no to a large bailout and letting someone fail. Ben and Hank know we don't have the money to continue and do this.
When that moment arrives and a big company fails, the markets are going to head into a tailspin.
Congratulations Pigmen! You sucked another $100 billion out of the taxpayers.