Saturday, February 28, 2009

Have Investors Been Blinded by the Bubble?

Just a little commentary today folks.

I have been asking myself this question a lot lately. One of my biggest fears post fallout of this debt bubble collapse is the potential wipe out of your average Americans nest egg.

Lets be honest, probably 90% of investors don't seriously do any research before they invest their life savings with someone. Most investors just find a financial planner or stock broker and automatically trust that he knows what he is doing.

The problem here is most of them really don't know what they are doing. Buying and holding equities has worked for the last 25 years. This means that the majority of the brokers and planners in the industry that are handling the nations investments have never really seen a financial crisis. Most of them assure you that they have been through tough times like this before: They will tell you they were there for the '87 crash, the early 1990's housing bust, and the tech bubble collapse.

The truth is they never have really seen a REAL financial crisis. The events described above were all minor blips on the radar. All the central bankers had to do was push a few buttons and boom: The good times were back. Brokers have always been trained to buy equities at bargain prices in the late stages of a recession and then ride out the storm. The market would then soar to new highs 6 years later.

As a result, their clients would roar in approval after watching their 401k's double in a very short period of time. More importantly, the strategies that have been implemented over the course of this miraculous 25 year bull market in equities has allowed the financial industry to build extremely strong credibility and trust with their clients.

The concern I have here is there is a very high probability that this formula of buying and holding isn't going to work this time. In fact, it may never work again. The problem is most financial planners and stock brokers continue to stick the same game plan and have done nothing to protect J6P's portfolio's. I can't tell you how many people that I know that have lost 40-50% of their 401k's.

What scares me here is when clients get nervous and ask their advisers what they should do after taking such hits to their portfolio, they all usually get the same answer: NOTHING! They tell them over the long term stocks always come back and blah blah blah.

What amazes me here is even after a 50% drop, J6P continues to believe them! I guess why wouldn't they? Its worked for the last 25 years right? Although I understand why they continue to trust a 25 year investment approach that has always worked , I am still surprised at how apathetic people are after losing half of their life savings. I would be absolutely livid if I hadn't been lucky enough to have gotten out and lost 50% of my life savings.

So I guess the conclusion to the question that I asked in the title of this post is YES America has been blinded by the bubble. This is a very scary conclusion because the ramifications of such thinking could be potentially devastating if stocks continue spiral downward.

I say this because the risks of a total collapse are rapidly increasing in my view. An 80-90% drop in equities cannot be taken off the table at this point folks. The policy response to this debacle has been terrible. Geithner continues to let the banks hide their losses, we are spending trillions of dollars that we don't have, and the thieves that created this fraud are all still in power. This is a recipe for disaster.

Everyone just assumes that the market could never drop like it did during the depression. Well folks, we just saw an eighty percent wipe out 10 years ago as the tech bubble collapsed. Why couldn't we see the same thing again? I mean the recent economic data that has come out suggests that this collapse is actually worse than the one seen during The Great Depression. If this is the case than a 80-90% drop in equities must be considered.

If this devastating drop occurs, and most investors continue to buy and hold, the table is set for potential social chaos.

I say this because the average American has close to zero savings. If their retirement gets wiped out and they have no cash, how in the hell are they going to live? We would need social services to be set up virtually nationwide in a matter of weeks in order to keep the peace. People get desperate when they are starving, and this type of situation never ends well. I guess now I can see why gun sales have soared.

Now this is a worst case scenario here but I am just trying to make a point.

Bottom Line:

History has shown time after time that it repeats itself. The financial industry has reacted to this crisis in a very predictable manner: Buy and hold! If you have accepted this type of advice, I think you need to re-evaluate your situation. Thinking out of the box at this point is a must when it comes to your investments. This isn't your average recession however our financial advisers are treating it as such.

I think everyone needs to change their thinking around how they invest and who you trust. You need to seriously question your broker when he tells you to buy and hold. Don't get caught with your pants down as this crisis intensifies. How many times has your financial advisor told you to keep holding over the course of this collapse? How has that worked out for you if you have listened? Its time to be prepared for the worse case scenario.


Stocks don't always go up. Stocks don't always come back. Stocks can stay flat or decline for decades. Stocks can also collapse to almost nothing. If you are not diversified with a nice chunk of fixed income right now go find another broker because you are very vulnerable if this economy falls apart! The risks of an economic collapse are rising each day.

Its time to change our way of thinking when it comes to investing. Flexibility and diversification will become critical if you want your money to grow from now on over the long term.

Friday, February 27, 2009

Drip Drip Drip

Good Evening Folks

TGIF. Its been a long week(especially if you are a banker!).

Must Read

Please take a look at this excellent research note out of Citi that I picked up this week. Note that they have a long term target of 360 on the S&P if the double top is confirmed. Yikes!

Market Notes:

Stocks dropped once again today. I feel like I am beginning to sound like a broken record! Unfortunately, we didn't get a confirmation signal as to where we go from here. We broke through the key 741 S&P support level and closed at 735. This is technically a breakthrough, but I gotta admit, I am impressed how well the market held up given the news it had to fight.

We could have easily dropped 400 points on Friday. I mean the market took 3 big blows to the head:

- The 4th quarter GDP number was adjusted to a -6.2% which was the worst since 1980.

- Citigroup announced that is was "quantitatively" nationalized.

- Mighty GE announced a huge slash in their dividend.

My Take:

In any other market, stocks would have folded like a tent. The bulls somehow managed to find a way to hang in there. As I said yesterday, the next support level is down over 100 handles from here so I expected the tape to be pretty stubborn on the downside.

That being said, I never would have guessed that equities would have held up this well today given the news flow I discussed above.

One thing to take note of from this week is the rising yields on the 10 year in the bond market:

Hmmmm.....Is the bond market making a statement following Obama's planned spending binge? Its too soon to tell, but I find the action in the bond pits to be quite interesting. We can't continue to spend trillions of dollars that we don't have folks.

If you think the government spending can't be stopped you are sorely mistaken. Go see what happened to Mr. Clinton when he tried to pull the same spending stunt in the early '90's. He was stopped right in his tracks. If the bond boys have decided they have had enough and take yields higher, Obama's wallet is going to be empty in a heartbeat. Its too soon to tell for now. Keep an eye on the chart above.

Bottom Line:

No new positions for me today despite the fact we broke through 741. The resilience of the market despite the horrific news must be respected. This is a very dangerous trading level here: We could see a huge move in either direction and if you try to front run it and you are wrong you are going to get reamed badly.

I am playing small and looking for more of a confirmation. I held onto my small position in SPG PUTS.

Long term, I see nothing to like about this market folks. There has been zero evidence that the economy is bottoming. ALL of the economic data continues to WORSEN. Its hard to go long anything here until this trend is broken.

However, a bear market rally short term would not be a surprise me at all if we can hold these levels. In fact, I am very tempted to go long here with a small position if the 735 area holds on Monday morning and the news flow over the weekend quiets down.

Watch AIG over the weekend. The Treasury needs to figure out what to do with this nightmare and their $62 billion quarterly loss. This is a potential catalyst to the downside.

Stay Tuned!

Thursday, February 26, 2009

Stocks Fold as the Economic Data Worsens

Good Afternoon Folks!

What a crazy day today in the markets. The major induces all closed down between 1-2% after being up earlier in the morning.

This has become a very difficult tape to trade. The bulls are essentially fighting for their life here folks. Everyone on the street knows that the market will most likely plunge if we break decisively below 741 on the S&P. As I have said before, there is no resistance below 741 until you get down to the 500-600 area. That's a huge move to the downside.

As a result, volatility rules the day as the battle continues. The way I see it, the bulls are in some trouble here. I say this for a variety of reasons:

The number one issue they have is the economic data continues to deteriorate at a frightening pace. Lets take a look at the two big data points from today:

Jobless Claims rose to 667,000, the highest level since 1982:

"Feb. 26 (Bloomberg) -- First-time claims for U.S. unemployment benefits unexpectedly rose last week and total benefit rolls soared to a record high, a sign companies may keep shedding jobs as the recession worsens.

First-time unemployment applications increased by 36,000 to 667,000, the highest since 1982, in the week that ended on Feb. 21 from a revised 631,000 the prior week, the Labor Department said today in Washington. The number of people staying on benefit rolls rose in the previous week by 114,000 to 5.112 million."

Data point #2

Durable goods orders dropped for the 6th consecutive month. The 5.2% drop was more than twice as bad as expected:

"Feb. 26 (Bloomberg) -- Orders for U.S. durable goods fell for a record sixth consecutive month in January, signaling companies are cutting back on spending as customers worldwide retrench.

The 5.2 percent drop was more than twice as large as projected and followed a 4.6 percent decrease the prior month, the Commerce Department said today in Washington. Comparable data began in 1992. Excluding transportation equipment, orders fell 2.5 percent.

The credit freeze that pushed the U.S. and overseas economies into a tailspin will cause companies to pare output and trim investment plans. President Barack Obama, in his first month in office, has signed into law a $787 billion stimulus bill to jump start the economy and unveiled plans to boost homeowners and unfreeze lending.

“Businesses are cutting back everyplace they can in order to survive the recession,”

Quick Take:

Yikes! Quite ugly isn't it? On top of this, Dell came out with disappointing earnings today as computer sales hit a 6 year low. Folks, the economy is literally falling off a cliff. The 667,000 jobless claims # is horrifying. Anything over 400k is considered to be recessionary. We haven't seen numbers like this since the severe 1982 recession. The durable goods data is considered to be the worst on record.

This data makes it awfully hard to hold your nose and jump in and buy stocks.

The Obama Budget

This punched some more holes in the bull case going forward. If this budget gets approved there will be two big losers: Healthcare and the wealthy.

Obama is seeking a whopping $1 trillion tax increase on the highest earning Americans:

"Feb. 26 (Bloomberg) -- President Barack Obama proposed almost $1 trillion in higher taxes over the next decade on the highest-earning Americans, Wall Street financiers, U.S.-based multinational corporations and oil companies to pay for permanent tax breaks for lower earners.

Obama’s 2010 budget proposal, released today, would reinstate the top two Clinton-era tax rates of 36 percent and 39.6 percent, up from the 33 percent and 35 percent the richest Americans now pay. That would affect about 2.6 million taxpayers. The budget also would raise taxes on capital gains and dividends to 20 percent for top earners, up from the 15 percent set by former President George W. Bush in 2003.

The tax increases, which Obama vowed to impose as a presidential candidate, would take effect in 2011 and be the first on high-income earners since 1993. They also would reverse a course set by Bush of lowering the tax burden on the nation’s wealthiest people.
‘Obama Robin Hood’

“It’s a clear repudiation of Bush’s policy,” said Peter Morici, an economist at the University of Maryland in College Park. “It’s more Obama Robin Hood.”

My Take:

This is one hell of a ballsy move by Obama. In my view, this will end up being very bad for the economy because it hurts the small business owners that create most of the jobs in this country. Obama will argue that it worked for Clinton in the 1990's. The problem here folks is Clinton had the Internet! This provided a once in a lifetime growth engine that allowed the economy thrive. It literally transformed our way of life.

Clinton also came into office after the economy had began to recover from the early '90's recession. Obama is implementing these changes under a complete different set of circumstances. The economy is collapsing, housing prices are free falling, and unemployment is soaring. Adding tax increases during this fragile period is a huge mistake in my eyes.

This could end up being the straw that breaks the camels economic back. Now I must admit, there is one part of this tax increase that I like: The pigmen are going to get taken to the cleaners!

Overall, this is a bad move in my eyes. Healthcare companies are also going to be severely punished as Obama attempts to nationalize health care. This will put further pressure on the DOW because there will be billions in profits that will be lost as Medicare shrinks reimbursements. I will get into this more at a later date.

Bottom Line:

The war is on. I am going to call this The Battle of 741(S&P)! Many are calling for a retrace here because we are so oversold. I can't say that I agree. We are still in a very delicate area and nothing has been decided. We closed at 752 on the S&P. The closing low in November was 751.

We could go either way here folks. Obama's announcements around his tax increase and health care initiatives could be the trigger that sends us lower. In my eyes, the timing on this could have been better. Why add this type of economic pressure when we are already reeling from a horrific economy?

Its been hard enough as it is for the bulls to hold these levels as the economic numbers continue to deteriorate.

My guess here is we could plunge within the next week. Nothing has been decided however. We pretty much pinned the November lows on the S&P. The next week should be fascinating to watch.

As for trades, I picked up some SPG PUTS at a shade below $35. This was my first trade in a few days. I held it into the close and so far so good. This is a dangerous market here folks so I advise you to stay nimble, and keep your positions small and limited.

A violent move in either direction from these levels is possible.

Wednesday, February 25, 2009


Good Evening Folks!

Boom! Boom! Boom!.....Yup, you guessed it, that's my head slamming against my desk again. I waited 30 minutes before I started writing this post because I was afraid I was going to start ranting like a lunatic once again.

I am trying to turn over a new leaf and be a little more diplomatic here on The Housing Time Bomb, however, I am finding this task to be more difficult with each day as I listen to the same bull**** continue to flow out of Washington.

The stock market is going to plummet if Obama doesn't start leveling with the American people. These "campaign style" promises simply are not acceptable to investors anymore. Look at what the market did after he spoke late today:

Quick Take:

Ummmm....I don't think the market could have sent a more clear message. He continues to stick with his recovery plan that consists of of throwing money at the banks without accountability. Investors are increasingly questioning whether or not the plan will work because they can't see the #'s. There is no transparency. Private equity isn't coming back to the market until they know what they are buying folks. Its really that simple. Without private equity, the plan doesn't work.

Wall St knows this and are clearly calling his bluff by selling stocks when he says this plan will work. Obama is overplaying his hand here bigtime folks. The investing public obviously has zero confidence in what they are being told by Washington and Wall St.

Today's dog and pony show around the rescue plan and "serious" stress tests was a joke. Here is a summary of the details(if you can call them that) that were announced today:

"Feb. 25 (Bloomberg) -- The government set a six-month deadline for the biggest 19 U.S. banks to raise any new capital deemed necessary after a mandatory review of their balance sheets.
The regulators will complete their so-called stress tests by the end of April, which will identify how much extra cushion each bank will need, the Treasury said today in Washington. Lenders will have six months to raise private capital or accept government funds and the conditions that come with it.

“While the vast majority of U.S. banking organizations have capital in excess of the amounts required to be considered well capitalized, the uncertain economic environment has eroded confidence in the amount and quality of capital held by some,” the Treasury said, announcing guidelines for new bank reviews."

Geithner also said nationalization is “the wrong strategy for the country and I don’t think it’s the necessary strategy.”

Losses will be projected under two economic scenarios. Under the “baseline” scenario, the U.S. economy will shrink 2 percent this year and expand 2.1 percent in 2010. The “alternative more adverse” set of projections has gross domestic product dropping by 3.3 percent this year, with a 0.5 percent expansion in 2010.

Today’s statement didn’t specify any potential limit on the amount of money involved. President Barack Obama late yesterday signaled that the administration will seek more money from Congress for the effort to break the back of the credit crisis."

My Take:

I highlighted the more ridiculous statements. Banks are well capitalized? HA! How many cash transfusions have we given to Bank of America and Sh*ttybank? The economy is going to grow 2% in 2010? DOUBLE HA! Good luck. Can I take the other side of that trade please?

Some of these banks better be well capitalized after getting a $25 billion donation from the taxpayer a few months ago.

These "stress tests" are another joke:

Something tells me the banks are more stressed out about what to order for lunch than they are about the dreaded Treasury "tests".

No one gets to see the results of these "tests"of course.

Question here: If these banks are so well capitalized then why can't we see the results of the stress tests? Investors would certianly buy the good financials if these results were made available to the public.

Bernanke refuses to do this because he claims it would force many banks to go under. I say so what! God forbid some of their banking buddies would have to go bankrupt. Guess what Ben, other banks would spring up to replace the old ones. Its happened many times in the past.

If the Treasury would just provide transparency I think the market would rocket. All investors are asking for is to know where they stand. You don't buy a car without driving it first and looking under the hood.

If the DC and Wall St continue to keep everyone in the dark, we are going to see the DOW at 3000 points a year from now.

Once again, the bankers have been given another gift at our cost.

Ken Lewis

The arrogance of this guy is beyond belief. Ken Lewis was bragging about the success of his "new stars" on Bloomberg today"

"Feb. 25 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis said Merrill Lynch & Co. and Countrywide Financial Corp., the acquisitions that some analysts say helped push down the bank’s share price, have been “stars” so far this year.

Lewis, speaking today in a Bloomberg Television interview from his Charlotte, North Carolina, headquarters, said Merrill will be “a thing of beauty” over the long term. Merrill, the New York-based securities firm, lost $15.8 billion in the fourth quarter."

Quick Take:

Is this guy delusional? If they are such stars Ken than why is your stock at $5 a share? How many of BofA employee 401k's did you destroy via your plummeting stock price in the process of acquiring these "shooting stars"?

Unbelieveable, do these people have a conscience? How on earth do people like Ken Lewis have the nerve to come out and speak such nonsense? If I was a CEO and my stock price was down 70+% for the year I would not be on TV at all. I would feel embarrased, guilty, and ashamed after causing my shareholders so much pain. I guess you actually need to have have feelings in order to think like this..

Ken, perhaps an apology to shareholders might be in order versus bragging about your Countrywide "Refi boom".

Bottom Line:

Obama continues to come out and act like nothing is wrong and everything is under control. Meanwhile behind the scenes, Rome continues to burn. The arrogance of this guy is beyond belief. Obama its to show your hand. Wall St is watching you play this game of "financial poker" and they KNOW you have don't even have a pair.

Wall St is going to continue and punish you if you fail to show them your hand. You promise to deliver details before each press conference and then proceed to come onstage and shoot blanks. You are losing the confidence of the American people each time you do this. These news conferences are turning into giant "yawnfests".

Are you all bark and no bite? If you are, Wall St is going to eat you alive.

Today the market told you that they are demanding TRANSPARENCY and nothing less.

If you continue to keep them in the dark, you are going to push this country into a depression.

Tuesday, February 24, 2009

Phew! That was close

Good Evening Everyone!

What a bounce! Once again, the market leaned over the cliff and looked down but decided not to jump. Too be honest I was happy to see a bounce today. The idea of a complete stock market collapse isn't all that appealing to me. No bull or bear should cheer for such a thing.

I jumped out of the few shorts I had left in my trading account this morning. We are extremely oversold so I kinda figured we would bounce pretty violently here once we got out of the 740ish "danger zone" on the S&P. In fact I wanted to go long with a few PNC calls, but I just didn't have the guts to pull the trigger. I am now of course kicking myself because the stock soared today.

Here was the biggest shocker of the day: Ben Bernanke spoke and the markets actually liked what they heard:

"WASHINGTON (MarketWatch) -- Federal Reserve Board chairman Ben Bernanke said that restoring financial stability is the top job facing policy makers. If actions taken by the Obama administration and the Fed are successful in restoring some measure of bank stability, "there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," Bernanke said in testimony to the Senate Banking panel on monetary policy. If financial conditions improve, the stimulus package and ultra-low interest rates will support growth and low gasoline prices will support consumer spending. Bernanke said the new outline of a program to assist banks announced by Treasury Secretary Timothy Geithner should work "over time" to restore the flow of credit needed to promote growth."

Quick Take:

Ben actually got into a LITTLE detail in terms of how the bank stress tests will work. Its amazing how the markets will react when they get a little clarity.

Personally my guess is these stress tests are going to be a complete joke. It will be the equivalent of a doctor telling a patient that he passed his cardiac stress test after running 1/10th of a mile. I expect there will be no real substance behind any of these tests. It will just end up allowing the Fed to kick the can down the road a little bit further.

The market liked it though....For now. I am going to sit on my hands from a trading perspective for awhile here because this rally could have some legs. Obama's speech will be critical tonight. If he comes out and provides more clarity, and is able to create a sense of hope then the markets may breath a sigh of relief and move higher.

Don't get me wrong here guys, we're still screwed in the long run. Obama's long term problem is the recovery plan revolves around mainly saving the banks. He has yet to provide a plan that will save the consumer or the economy. That's because there is no such plan that exists because there is no answer without major pain for all of us. The stimulus is nothing a but a massive pork spending program. The banks have done so much damage that its going to take a generation or more to pay for the losses.

Lets say the Fed MIRACULOUSLY pulls off this recover plan and the banks get stabilized. My first thought here is "great job guys now what?". Its not gonna matter folks. This does nothing to solve our economic problems. There will be no one will in line to borrow money from these shiny new banks because they are already in debt up to their eyeballs.

The Treasury/Fed are not fixing the core problem which is everyone is carrying too much debt! They need to start focusing on how they plan on fixing the American people instead of the banks! This economy will never grow substantially until we take care of the massive debt bubble.

The debt bubble either has to be paid off or defaulted on before we can begin to revive the economy and start spending again. Making billions available for lending via recapitalized banks does jack if no one can afford to borrow it!

Bottom Line:

The bounce was not a surprise once we held the lows. It must be respected but it means nothing in the long run. Its not sustainable long term because we still haven't fixed the core problem of too much debt. Don't forget that on top of the debt problem we have an economy that continues to worsen along with higher unemployment.

Lets see what Obama has to say tonight.

Monday, February 23, 2009

The Housing Time Bomb Turns 1!/Market Update

Good Evening Folks!

I guess its fitting that my blog turned 1 on a day that the market collapsed! One Year ago today I wrote my first post. It was just a few paragraphs and it ended with this prediction:

"I expect housing to drop 30-40% based on the change of lending standards in combination of higher interest rates. As a result I recommend anyone that is looking for a home to wait at least another year."

Looking back now, my housing prediction on price drops appeared to be on the high side! Seriously, I want to thank all of you that have supported me since I started this voyage. I have learned so much from all of you. Your comments, emails, and support are all very much appreciated.

Hopefully all of you have come here at some point and picked up an article or two or found a nugget that has helped you with your investments.

When I started this blog a year ago, I never would have guessed that it would have grown like it has. The 60,000 visits by all of you over the past year is about 59,000 more than I would guessed when I first started.

I look forward to another great year!

Alrighty, lets get back to business



What in the hell have they been doing over the last 3 months. In case you live under a rock, CNBC reported that AIG will announce a $60 billion loss for the quarter. That's right folks: ONE QUARTER! This will be the largest quarterly loss by any company in history:

"American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.

Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.

That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn't have.

In addition, if AIG's book value falls below a certain level, as it seems certain to do, it will trigger default in certain of its debt instruments, say people familiar with the situation.

All of this adds up to a huge headache for the Federal Reserve and Treasury, which have already provided over $150 billion of assistance to AIG.

Talks between the government and AIG are focussed on how the company can swap some of the debt held by the government for equity in AIG.

AIG's board is scheduled to meet this Sunday night in hopes of hammering out an agreement with the government. But in case it can't, AIG's lawyers at Weill Gotschal are preparing for the possibility of bankruptcy."

Quick Take:

Isn't this just dandy. What a frickin nightmare. Stocks tanked on the news. The DOW now barely sits above 7000. The S&P broke through the critical 751 area and closed down at 743.

Guys and gals, confidence is totally shot. Stocks were up at the open, but immediately reversed into the red. The AIG news didn't even come out until the market had a triple digit loss. Once the AIG news hit, the market reacted like it just got punched in the stomach.

The fact that the government has kept this outfit alive without firing the whole management team is simply unacceptable. The foxes must be taken out of the hen house everyone before confidence ever gets restored on Wall St.

Remember, 80% of AIG is owned by the government. As a result, the $60 billion loss is almost completely being taken out of our pockets! What a mess.

Obama Backs the Pigmen

In another inspiring move, financial regulators pledged to pour additional capital into our insolvent banks:

"Feb. 23 (Bloomberg) -- U.S. financial regulators pledged to inject additional funds into the nation’s major banks to prevent their collapse and will this week begin examinations to determine whether they have enough capital.

Banks that cannot privately raise the additional capital they need after the so-called stress tests will get taxpayer money, regulators said in a statement in Washington. Government funds would be in the form of “mandatory convertible preferred shares” that would be exchanged into common equity “only as needed over time.” Stakes the Treasury has already bought will be eligible to be changed to convertible preferred shares.

While the new injections could leave the government with majority ownership of several lenders, Citigroup Inc., Bank of America Corp. and other banks rallied on speculation shareholders won’t be wiped out. Officials said that the move would be a temporary effort to ensure firms stay in business and keep providing credit to households and businesses."

Quick Take:

Hey great idea guys! Lets dump some more money into these financial black holes. I think its great that you allow the criminals that ran these companies into the ground to continue to stay in power. What a great formula! I mean hell, look how well its working at AIG! Hey, why fix it if it ain't broke right? I mean gosh, the original TARP capital injections worked so well the first time. Why wouldn't you do the same thing all over again too?(sarcasm off).

Is this all just a bad dream? Am I going to wake up and have to go to work in 20 minutes? The fact that they are going to continue to support these financial fraudsters is terrible policy. A few questions: Why isn't Obama angry? Why does he continue to throw money at these clowns and allow them to stay in power?

I mean I am livid about this whole fraud and I can't even see their balance sheets. You can see the losses Obama and yet you still support these cockroahes! I don't get it. Where is the CHANGE that you promised? You are following the exact same financial policies of the failed Bush administration! When are you going to say ENOUGH and remove the management teams that created this debacle?

The government brilliant takeover of AIG has now cost the taxpayer tens of billions of dollars! Do you think that we are stupid? Do you think we believe this next taxpayer donation to the banks is actually going to work?

How long do you think we are going to sit back and allow you to continue and pillage the taxpayer? The market is losing patience over this policy because they think it won't work! You may find the DOW at 3000 if you continue down this donation path.

Perhaps a change in approach is in order? Ugghh... The whole thing is just sickening.

Bottom Line:

I was mildly short today with a few small positions via SPY and SDS. I kept both of them on. We violated the closing low of 751 on the S&P but the intraday low of 741 held so there is still a possibility that we hold and perhaps bounce.

Folks, if we see another plunge tomorrow like we saw today run for the exits. As I said yesterday, 600 is likely the next stop on the S&P if we fail to hold here. I have been starting to accumulate cash at home. I have been hitting the ATM over the last two weeks. I must admit, I am pretty much scared ****less at what I am witnessing in the markets. This is not a time where you worry about trades folks. Today is a time where you need to be thinking about CASH.

I think a "bank holiday" is possible at anytime. Does that mean I think its going to happen? No. Do I think you should have cash on hand to be safe as we now stare into an unknown abyss? Yes. I advise everyone to keep enough on hand to last you for a few weeks. Better safe than sorry.

Could we be nearing a bottom and bounce from here? Its possible but its not the low for this bear market IMO. Everyone keeps telling me: It can't go lower than this! Oh Yeah? Well that's what I said ten years ago when the NASDAQ hit 4000 then 3000 then 2000 an so on.

Need another example? Take a look at stocks in the 30's when they dropped almost 90%:

Feel free to try and be a bottom caller and buy equities. As for me? No thanks, I'll pass.

Sunday, February 22, 2009

The Stock Market Sits at Critical Support Levels

Good Evening Folks!

Before the trading week begins, I wanted to share a chart explaining why its critical that the market holds the 2002 lows that we once again broke last week:

The Breakdown:

This chart only runs through 2008. We have dropped some more since this was put together so here is where we are at. We now currently sit at 770 on the S&P which means we officially are below the 2002 lows. However, we are still sitting above the S&P closing low of 751 for the current crisis that was set in November.

Luckily in November, the S&P quickly rebounded from 751 low and quickly moved up over 800 which got us out of the woods. Folks, anything under 775 means that we are in the danger zone in terms of breaking the lows. Sitting here at 770 means we are once again staring over the edge of a cliff. Its critical that we hold 751 this week.

The reason I say this is if we break sharply south below 751, there is almost no resistance in the chart until we get back to the 1995 levels on the S&P. As you can see above, the S&P was at 500 back in 1995!

That's a potential 30% move to the downside from here. Pretty frightening isn't it? Now if we break below 751 it doesn't mean we head straight down to the 1995 levels. However, a sharp move south below 751 could definitely bring us to the 600 level on the S&P in a very short period of time.

If we break right through 751 I will be adding some short positions. Ultimately, my best case scenario is 1995's 500 level on the S&P marks the bottom in equities.

This was initially my market low, but I have now taken this off the table because the government policy response to this financial crisis has been disastrous. The economy has slowed much more sharply than I had originally anticipated and economies all over the world are on the verge of collapse.

If transparency doesn't come back to the markets, I think we could head down a lot further below 500 down the road. I mean lets be honest: We dropped 90% in 1929 and many are now saying this situation is worse. As a result, how can you take this off the table?

I highly doubt a drop like this could happen, but then again, I have said that about a lot of things during this crisis only to find out later that the impossible is possible.