Saturday, January 17, 2009
I am getting increasingly concerned about our dollar as I watch our government bailout the whole country. The banking bailout this week combined with the oncoming Obama economic stimulus will further weaken the perception of our currency around the world.
Some wise words here from Rep. Ron Paul:
Friday, January 16, 2009
I wanted to share an article with you today. The cesspool that we like to call our banking system is out of control. This type of fraud must be stopped or we will start we are going to start seeing a run on the bank:
Darrel Dochow May Not Be the Only Official Who Helped Banks Hide Financial Problems
A brewing fraud scandal at the Treasury Department may be worse than officials originally thought.
Investigators probing how Treasury regulators allowed a bank to falsify financial records hiding its ill health have found at least three other instances of similar apparent fraud, sources tell ABC News.
In at least one instance, investigators say, banking regulators actually approached the bank with the suggestion of falsifying deposit dates to satisfy banking rules -- even if it disguised the bank's health to the public.
Treasury Department Inspector General Eric Thorson announced in November his office would probe how a Savings and Loan overseer allowed the IndyMac bank to essentially cook its books, making it appear in government filings that the bank had more deposits than it really did. But Thorson's aides now say IndyMac wasn't the only institution to get such cozy assistance from the official who should have been the cop on the beat.
The federal government took over IndyMac in July, after the bank's stock price plummeted to just pennies a share when it was revealed the bank had financial troubles due to defaulted mortgages and subprime loans, costing taxpayers over $9 billion.
Darrel Dochow, the West Coast regional director at the Office of Thrift Supervision who allowed IndyMac to backdate its deposits, has been removed from his position but he remains on the government payroll while the Inspector General's Office investigates the allegations against him. Investigators say Dochow, who reportedly earns $230,000 a year, allowed IndyMac to register an $18 million capital injection it received in May in a report describing the bank's financial condition in the end of March.
"They [IndyMac] were able to maintain their well-capitalized threshold and continue to use broker deposits to make loans," said Marla Freedman, an assistant Inspector General at Treasury. "Basically, while the institution was having financial difficulty, it kept the public from knowing earlier than it otherwise should have or would have."
When will everyone realize that our banking system is a total sham? Bof A's Lewis should be canned after this week. Only one month ago he claimed that Bank of America didn't need any of the TARP funds. He was forced to take the funds, and yesterday it was revealed that this crook needed to come back for another $20 billion from the TARP II last night.
This is a complete joke. The fact that folks from the Treasury are possibly involved in creating this "smoke and mirror" sham is even more frightening. They are supposed to be the cops! If we can't trust them then who can we trust? The guy above in the Indy Mac article should not only be fired, he needs to then go straight to prison!
How long are the citizens of this country going to put up with this banking debacle before saying "enough is enough" and pulling their money out? Moral hazard Hankie! Keep pushing it there buddy. One day this is all going to come home to roost.
Time is running out. The bank stocks continued to drop like a rock even after getting bailed out once again this week. We can't even get a one day "bailout" rally anymore! The reason for this is investors are realizing that the systems a fraud.
Transparency and trust must be restored immediately before our banks are destroyed. I stayed short on the financials over the weekend. In fact, I shorted the XLF today. I don't see a reversal here until everything gets cleaned up. If the financials couldn't rally today from severely oversold conditions on a day when when the rest of the market was up than when can they rally?
I think the jig is up here folks. I may be a tad early, but something drastic must be done before anyone buys and holds a financial stock long term again. This will result in lower stock prices.
Thursday, January 15, 2009
I hope everyone had a good day. Just a quick note. As you can see, the "AAA" credit spreads are once again nearing their highs:
Its becoming quite clear that that the financial sector is unravelling once again. Bank of America just moved up their earnings announcement up to tomorrow. Citi earnings are out on Friday as well. Expect some financial fireworks! I smell something really fishy here considering its options expiration.
Nevertheless, I continue to think Citi is dead. I closed out half of my short position near the close. 100% return in 24 hours. No sense in being a pig.
The rise in AAA credit spreads is extremely troubling folks. Expect another "Lehman/AIG" like weekend IMO. The second half of the TARP was released tonight. These are certianly extrordinary times. Expect the Treasury to work long hours over the weekend as they try to figure out what to do with our deteriorating insolvent banks.
Today played out pretty much like I anticipated. We dropped sharply at the open and then reversed once we neared the 2002 lows. I wish I was home to jump in long today after the selloff. Oddswise it was a very lucrative play.
I think tomorrow is an absolute crapshoot. Options expiration combined with the earnings reports of our two largest banks should make for some serious fireworks tomorrow. I went long on tech near the close and held. I put a tight stop on, and I think we will open green tomorrow. Intel hit lowered expectations after hours. I am still short the financials via FAZ. We will see how this works out.
More importantly, I see a potential long term sector rotation. No one appears to want to touch financials anymore and I don't blame them! I can see mutual funds rotating out of financials and into other sectors. There is simply too much risk here for a fund manager so expect them to start reducing their exposure in this area.
IMO, the "nationalization" of our banks is not out of the question. A rumor floated around Wall St. today that this could happen to Citi over the weekend. Citi denied the rumors of course.
Watch the credit markets. The fact that spreads are almost back up to their highs means its "lights out" in the very near future.
The TARP can't stop the debt bubble from bursting.
All it does is delay the inevitable.
Wednesday, January 14, 2009
Ouch! Retail and the financials took center stage on Wall St today as stocks closed down over 3%. The wheels are falling off the wagon folks. I could write 5 pages today based on the amount of news that came out today.
However, I need to keep it brief today because I have started working on a few new projects that will last throughout the year. I will continue to post when I have a chance, but I may miss a day or two each week. Sorry in advance folks, I gotta pay the bills!
Lets start with the retail numbers. December retail sales fell more than twice as much as forecast:
"Jan. 14 (Bloomberg) -- Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the lack of credit led Americans to cut back on everything from car purchases to eating out.
The 2.7 percent slump marked the sixth straight month of declines, the longest string since comparable records began in 1992, the Commerce Department said today in Washington. Labor Department data showed the global collapse in commodities caused prices of goods imported by the U.S. to fall for a fifth month.
Retail sales were projected to fall 1.2 percent after an originally reported 1.8 percent drop the prior month, according to the median estimate of 78 economists in a Bloomberg News survey. Forecasts ranged from declines of 3.5 percent to 0.3 percent."
All of these analysts are such fools. How can they be this far off on estimates? The consumer has fallen off a cliff. haven't they read a newspaper in the past 6 months? Imagine how bad 4th quarter corporate earnings are going to be if retail was sales were this bad. This is the holiday season folks. Some retailers and companies live and die based on the holiday season. I guess we better start planning the funerals.
Citigroup plummeted 23% today amid fears of solvency and massive 4th quarter losses:
"Jan. 14 (Bloomberg) -- Vikram Pandit is unraveling his empire to save his bank.
Citigroup Inc.’s chief executive officer said yesterday he would cede control of the Smith Barney brokerage to Morgan Stanley. Pandit may also dump the CitiFinancial consumer-lending unit, tag Tokyo-based Nikko Asset Management Co. for eventual sale and rein in trading with the bank’s own capital, people familiar with the matter said. Citigroup shares fell 23 percent in New York.
The bank, which today said it will report fourth-quarter results on Jan. 16 instead of Jan. 22, will probably say it lost $5.3 billion, according to the average estimate of six analysts surveyed by Bloomberg. Oppenheimer & Co. analyst Meredith Whitney estimated in a Nov. 24 note to clients that Citigroup may have a $12.4 billion net loss in 2009."
In my eyes Citigroup is dead. If it wasn't for the government Citi would have been gone months ago in my view.
One reporter's quote said it all today: " Citi may be too big to fail but they sure are trying hard to do it!"
I think Citi will be nationalized before this is all said and done. That would of course zero out the equity holders. The above forced breakup of this massive bank is only the first step. They have no business model and they are bleeding cash like a trauma patient.
I have been warning on here the last few weeks that I think this whole sector is dead. None of the large banks are solvent, and their assets that they hold continue to drop in value.
Things continue to spiral downward folks. The market has been down 6 straight days. I still have yet to cover my shorts. I still own FAZ and SRS. Both were up big today. I also made a speculative play today. I bought some cheap Feb. $4 PUTS on Citi today when the stock was at $5. This is very risky play, but I am betting the stocks a zero. Even if it survives in its current form, C was down to $3 earlier in the year. I see no reason why it won't at least retest those levels if it isn't nationalized down to a zero.
Tomorrow should start off very rocky based on the after hours Steve Jobs news:
"Jan. 14 (Bloomberg) -- Apple Inc. Chief Executive Officer Steve Jobs, who said this month that he is being treated for a nutritional ailment, will take a medical leave of absence through the end of June. The shares fell 10 percent."
I feel very bad for Steve. My heart goes out to Steve and his family. The NASDAQ will most likely have another rough day tomorrow.
The other big news to pay attention to tomorrow is JP Morgan earnings report. The financial sector may swoon once again if they puke up massive losses. Traders are starting to think there is a solvency crisis developing in this sector. Previously they were only worried about a liquidity crisis. This is a big developement in my view. We last saw this psychology when AIG and Lehman went bust.
I believe traders are starting to think that some of the large banks are in such trouble that the government will be forced to come in and nationalize them. This risk here is that the government will issue themselves preferred shares or warrants which then wipes out the common shareholders or at least dilutes them to close to zero. Go take a look at Fannie and Freddie if you want a preview.
I think pretty much every bank will be in the single digits before this crisis is over.
I wonder how the bottom callers are feeling today? They have been screaming louder than usual over the past few weeks on CNBC. Their favorite line is "the stimulus should push the economy higher in the second half of the year so now is the time to buy equities". I heard this several times a day on "bubblevision" when stocks rallied 20% from the lows. Oooops! Guess that theory didn't work! Fools!
With all this being said, we are again approaching the 2002 lows. The Steve Jobs news could take us down close to these levels tomorrow morning. A nice play might be to try a long position after the drop. Don't hesitate to take profits on any big bounce back up. Remember, Options expiration is often charecterized by strong reversals. Huge down days followed by huge up days and visa versa are not uncommon..
Shorting the whole here is very risky at these levels.
I just want to close buy saying I am very concerned about what I am seeing out there. I see nothing but massive carnage in all sectors. Earnings are dropping like a rock, the consumer has vanished, and our financial system appears to be broke. Oil and commodities continue to drop like a rock. Treasury yields continue to fall as investors run for cover.
On top of that, China's growth has been cut in half, Israel continues to stir it up in the middle east, and Russia appears to be at risk of defaulting with oil at $30-40.
My advice? Stick your head in the sand for now and hide in fixed income and treasuries. Trading at these levels should be done with money that you can afford to lose. I trade about 5% of my total portfolio right now.
I have never seen so many risks at once like this folks. My previous call was tha we will get one more push higher as Obama gets into office. I am now starting to question this thesis as I watch the economic Titanic taking on water from leaks that have sprung up virtually everywhere throughout the economy. I have not walked away from the Obama thesis...Yet. However, if we firmly break through the 2002 lows, all bets are off.
I think eventually we will retrace back to the 1995 levels on the DOW which puts us at around 4-5,000. There is strong resistance here and I think it holds.
We are headed straight towards a depression everyone. Buckle up and hold on.
I wish I saw it differently.
Tuesday, January 13, 2009
The markets traded sideways today as the interventions, fraud, and confusion continue to paralyze Wall St.
Volume was on the light side as the "casino" like trading continues on Wall St. We are pretty much in uncharted waters here when it comes to the markets folks.
Madoff's fraud continues to make headlines, earnings continue to be dreadful, and Bernanke continues to confuse the markets as he tries to throw everything but the kitchen sink at the market in an attempt to prevent the most serious economic downturn in the US since the '30's.
This all adds up to confusion and uncertianty in the stock market. Bernanke's speech today over in the UK is a perfect example:
"Jan. 13 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke warned that a fiscal stimulus won’t be enough to spur an economic recovery and that the government may need to buy or guarantee banks’ tainted assets to revive growth.
“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” Bernanke said in a speech today at the London School of Economics. “More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.”
Bernanke’s remarks indicate he may be seeking to influence deliberations among lawmakers and President-elect Barack Obama’s economic aides on how to deploy the next $350 billion of the financial-rescue fund approved in October. While some Democrats have focused on offering aid to troubled homeowners, the Fed chief’s comments show he’s more concerned about a continued choking off of credit to companies and households.
Bernanke reiterated his call for a regulatory procedure for resolving a large, failing nonbank institution. The absence of such a process hampered policy makers during the failures of Bear Stearns Cos. and Lehman Brothers Holdings Inc. last year.
“A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions’ balance sheets,” Bernanke said. “The presence of these assets significantly increases uncertainty about the underlying value of these institutions and may inhibit both new private investment and new lending.”
Please take a minute to read that whole peace. My god, I am as confused as ever in terms of what the Fed plans to do after reading that speech. This dude needs to make up his mind and stick to one thesis!
I have some TARP questions Ben:
So what option is it going to be Mr. Bernanke?
What black hole are we throwing this $350 billion into?
Is it going to be all of the above?
Are we going to form bad banks so that we can take the financial trash out to the dumpster?
Are you going to buy these troubled assets(aka Sh*t sandwiches) yourself and hold them directly?
Do you plan on using the TARP money to bailout homeowners who were slayed by the housing Ponzi scheme?
Are you planning on giving the banks more capital injections?
Here is the most important question that I have for you Ben:
How in the hell are you going to do all of this with a measly $350 billion?
The answer to that is easy. He can't do all of this and his plan is going to fail because the losses are far too great for the Fed to absorb unless he attepts to print out of it. Lets all just pray he doesn't pull the trigger on this option.
It appears this $350 billion will be pissed away just like the last $350 billion. He will try to stimulate lending that doesn't exist because know one has any credit left anymore. He will throw more money at worthless companies. I hope Congress shoves this proposal up his you know what.
Mr Bernanke, how does this idea sound?
How about we use the TARP to create good banks versus creating bad banks?
Healthy banks would actually have the assets to lend. Once you got them established, why don't you then run off the current banks that created the greatest financial fraud in economic history via our housing bubble?
You would then have the option to hold onto these near worthless assets until they are more valuable. The other option you would have is to let private equity set a market price, and you could then sell them off and take the hit without risking our banking system in the process.
I say lock away the current banks along with the fraudsters that ran them and throw away the key.
The bottom line here is there is no need to work on creating bad banks! You already have them!!! Just take a walk down Wall St and you will see more bad banks than you know what to do with!!
Rant off. Speeches like the one above do more harm than good. How are you supposed to invest or buy a house when the Fed keeps changing the rules? Wall St. needs to be punished for what they did and the fact that they have gotten a virtual free pass infuriates me!!!
At least the UK fired all of their bank CEO's and took large stakes in their banks when they nationalized their banking system. They also destroyed the compensation packages for the pigmen going forward.
Why didn't we do the same thing? If they want to try to work out of this economic crisis using the current banks then they should rip them apart and exterminate all of the roaches that have infested our financial system. The fraud needs to be cleansed before its too late.
I can't believe how soft this country has become. Our lack of coping skills when it comes to our ability to take pain is what will end up being the downfall of our economy. The Fed is going to end up having its hands in too many cookie jars trying to save everyone. I see this as inevitable now. When the money we use to finance this monstrosity stops flowing into the US via othercountries, the music is going to immediately stop.
When it stops, find a nice strong chair to hide under.
For the time being the trading section will have a new name. That's because the government interventions have made investing or trading in our stock markets virtually impossible. I am sitting on my hands right now because we sit at very dangerous levels heading into options expiration on Friday. I don't plan to do much throughout the end of the week.
We should see a sharp move on Friday but I can see it going either way. The S&P closed at 871. There is pretty strong support at 850. If we breakthrough 850m, it is entirely possible that we are headed back to the November lows.
Warning: TA has not been very accurate over the past several weeks folks. Anyone using such analysis needs to realize that we are in a market that is unlike any other thats been seen before. I read many top notch TA newsletters and they have not been very consistent. In fact, I would have to say that many of the best newsletters have been flat out wrong lately.
Just something to think about when it comes to using TA. Remember, how did the Wall St. quants TA strategy workout last year? Uhhh...not very well. Most of them were slaughtered throughout this downturn. TA is important but it can also empty your trading account. Play small in a market like this folks.
If we somehow break through the November lows this week, Lucifer may pay us a visit. My best guess is we won't test the lows quite yet. Expect high volatility throughout the rest of the week. An Obama bounce has to be on the table for next week as we head into inaugeration. One item to note. The last 3 or 4 options expiration weeks were extremely volatile. The fact that we sit near the middle of the trading range heading into expiration makes this a difficult entry point.
Enter at your own risk.
Monday, January 12, 2009
I hope everyone had a great Monday. Stocks once again closed in the red today as deflationary fears and worries around 4th quarter earnings continue to worry Wall St.
There really was no trigger that sent stocks lower today. Deflation continues to rule the day. Gold and oil were absolutely pummeled. All of you gold bugs out there need to reconsider your strategy over the next year or two IMO. The $30 drop in gold today was a sign that deflation is here, and may stay for a couple years as Rosenberg suggested yesterday. The fact that gold has pulled back after that big move in the past couple months is a bearish sign in my view.
I am not saying the thesis is wrong. I am just suggesting that you might be early. Gold may very well end up at $2,000 an ounce before this is all said and done as we eventually get whacked by inflation. However, bonds and commodity prices are telling you that deflation is a huge force rigth now. This does not bode well for any assets.
Gold should used be a hedge right now folks. If its a core holding, I suggest you think twice about it in this type of deflationary environment.
A deflation spiral could send gold into the $400-500 range in the short term if the Fed cannot create inflation. Why do I say this? Lets once again take a look at Merrill's debt to GDP ratio chart:
As you can see, the debt load that's currently being carried in this nation is almost twice what it usually is during normal times.
This simply cannot be maintained! Consumers will be forced to pullback on spending as they attempt to pay down debt. This is an extremely overpowering deflationary force. Its almost impossible to see inflation in this environment. Consumers have no purchasing power because their debt levels are twice what they usually are. Making matters worse is their wages continue to stay flat(that is if they don't get laid off).
You must have rising wages in order to see the sustained inflation like we did in the 1970's. Unions were able to increase wages during that period. Companies today are doing the exact opposite. They are decreasing wages in order to survive the most brutal recession seen since the 1930's.
Now inflation is still a risk down the road. I say this because inflation can also be caused by a serious cutback in production which results in less supply. However, we could be years away from seeing this. The excesses that have been built up by 25 years of over consumption are staggering and may take years to correct.
Housing is a perfect example. We have 11 months of inventory which is twice the historical average. The same is true for almost everything else. Have you driven down the main drag in your town lately? There is a mall and a Home Depot on practically every street corner in this country which results in a huge glut of inventories in areas like clothing, building supplies, furniture, electronics etc.
We will need to see many BK's before we can begin to ruduce the massive glut of supplies in this country. Massive deflationary forces will be in play in order to accomplish this. Remember folks, we spent two decades spending like a drunken sailor! These inventories won't go away overnight!
The fact the consumer is filled to the gills in debt will force this process to take even longer to play out because they can't even afford to buy things on sale.
This is why you need to be careful if you own gold or are long oil here. No one has enough buying power to sustain asset prices right now. If you want to own gold as a geopolitical play or as a play against a failed currency then keep your stash. I think the odds of this bet ever paying off anytime soon are against you, but that's your choice!
If our currency fails and its Mad Max time, I don't see what a gold bar is going to do for me other than make for a nice doorstop. I can't eat gold. I don't see how you can realistically use it to pay for something. If its Mad Max time I would much rather have a farm where I can grow food.
Like I said before, gold may get up to 2k an ounce down the road as a result of some sort of panic, but I see a lot of short term pain before it possibly ever gets there.
Tomorrow will be an interesting day. I still held onto SRS and FAZ. Both were up big today. I think someone is in trouble in the banking world. Citigroup and Bank of America were both down over 10%. I guess its time for the Treasury to throw some more money into these black holes. I have a bad feeling in my gut around the financials right now. However, they are too cheap at these levels to add short postions in my opinion considering they are backstopped by the government.
I have been saying for weeks that the financials companies are DEAD. Nothing today told me otherwise. I will continue to short financials with my FAZ. I think tomorrow might be a green day. AA earnings came out and the market moved higher even though they were awful. They already pre-announced this though last week and so I think the market priced it in.
I actually put a long on late today. I bought some QQQQ calls when the NASDAQ was getting creamed at the end of the day. Tech has gotten destroyed over the past few sessions, and it looks a little overdone to me in the short term.
Its earnings time folks. Lets see how bad they are. This will dictate where we go from here. Be careful this week. Its options expiration and things can get very volatile.