Friday, March 13, 2009
I just wanted to let everyone know that I am away over the weekend. I had to put this up today before I left.
Stewart really lets Cramer have it in this interview.
Its about time CNBC and Cramer took some heat. You gotta wonder how many portfolio's have been destroyed by the constant pumping by CNBC over the the past 2 years as stocks dropped 50%.
Kudos to Jon Stewart for exposing this network for what it is: A sham thats in bed with Wall St. Hopefully more networks will begin to focus on the shennanigans that continually occur on CNBC.
Thursday, March 12, 2009
This was the message that the DC sent to Wall St. today:
"Kanjorski Convenes Hearing to Address Problems Facing Mark-to-Market AccountingWashington, DC – Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, today announced that the Subcommittee will hold a hearing to examine the mark-to-market accounting rules that many contend have exacerbated the current troubles in the financial industry and in the broader economy. The standard requires companies to value assets they hold at current market values. For assets that are frozen and have a diminished current market value but may recover value in the future, the standard has proven problematic. Companies are then forced to write-down billions in assets, which can lead to further write-downs elsewhere.
“Illiquid markets have resulted in great difficulty in valuing sizable assets. Some have therefore complained about fair value accounting and sought to eliminate it. While companies need stability, investors still need accurate information. We therefore cannot allow for fantasy accounting that wishes away bad assets by merely concealing them,” said Chairman Kanjorski. “As a result, we will seek at this hearing to engage in a constructive, thoughtful conversation with a diverse range of viewpoints aimed at identifying fair-minded, incremental, and achievable fixes to this problem. In short, I want to find a way – within the existing independent standard-setting structure – to still provide investors with the information needed to make effective decisions without continuing to impose undue burdens on financial institutions. Each of our anticipated witnesses will have the opportunity to contribute as we all pursue consensus solutions together to this thorny, contentious issue.”
This is all you need to know in terms of what happened in the markets. I watched this hearing today, and I must admit that I was pretty sickened at the display that I saw. My take here is the pressure is mounting on the politicians to fix this disaster. They are beginning to panic because they have no clue in terms of what they need to do in order to resolve it.
Its obvious that our government is leaning towards hiding more sausages via bad accounting versus taking the pain and fixing the problem. The way I see it. this economic fraud will be taken to another level if they suspend mark to market accounting. This will all end very badly in the long run as I will explain below. In the short term however, the market may very well skyrocket on this news.
And why wouldn't the market jump? I mean if you don't have to mark your books and record losses how can you lose? This is why you saw another parabolic move in the markets today. The politicians sent a clear message that our accounting standards will be changed so that Wall St doesn't have to mark down assets in which there is no market for.
Now, I admit that something does have to be done with assets here from a relief standpoint. Its not fair to force companies to write an asset down to zero because there is no market for them if they have some value. The easiest answer here if you actually wanted to actually fix this mess is to create a market for these assets by dropping the price until they are sold. Once you establish a price by selling an asset: Presto! You've created a market!
This isn't rocket science here folks! We have all seen how this process works. If you have ever bought a house you know exactly how it works. You made an offer on your house based on previous sales. This is how you establish what something is worth.
The problem here is the pigmen think these assets will be worth more down the road so they don't want to sell them now. I mean why would they? Selling any asset during a severe recession is a bad time to sell. Personally, I believe that some of these assets like MBS are worthless but that's besides the point.
So what do we do to fix this dilemma?
If we were ACTUALLY a free market country, we would force the banks to sell assets to buyers at prices in which they are willing to pay. If they decided not to sell them, You wouldforce them to open their books and provide transparency to investors and prove that they are legit. If the math doesn't work between assets and obligations after opening the book? Its time to call the bankruptcy attorney!
Of course this isn't DC's answer: Since we are now all socialists in this country, we have decided against using transparency in order to find a solution. I mean why do that when you can create fraud and hide everything? In a nutshell here is their solution: You put your head in the sand, let the fraudsters hide their losses, and you say to yourself "this will all work out!
Bzzzt: Wrong answer Washington.
It all works out until a company can't pay their bills anymore. Anyone remember a company called Enron? This is what you end up with down the road folks when you start messing with the books. The market loves to hear this M2M news NOW because its DESPERATE to find an answer to this mess. It appears that neither Washington or Wall St is ready to face the reality that we need an economic "reset".
Reality is coming whether you like it or not folks because this solution is not sustainable. Nothing will be fixed and the market will still be broken if we suspend honest accounting. This just kicks the can down the road a little bit further. As far as I am concerned, consider this to be just another reshuffling of the chairs on the deck of this economic Titanic!
We could see a massive rally on this news folks. Step out of the way and let this moonshot run its course because this move has the potential to fly. The risk here if you are short at these levels is you see another wave of buying as investors start piling back in to equities thinking that they are "missing the big move". Three straight up days will bring many bulls back into the party.
This "we are well capitalized" message coming out of the big banks seems a little too well coordinated. Usually the more they scream about how well their doing, the more I get concerned that the reality is the exact opposite.
Need cash? Sell the rally
This big move gives you a great opportunity to sell any dog stocks that have dragged down your portfolio. It also offers a great oportunity to raise cash.
I wish I could tell you that its time to buy stocks because this disaster has been avoided. Feel free to believe and do it. As for me? No thanks, I will stay in fixed income because we aren't fixing the problem.
Ignoring the problem is not a solution. This crisis isn't gonna just "go away". It must be dealt with! Ignoring this fact sets up a scenario in which companies are allowed to stay solvent when they are in fact broke. This means that "everything is fine" until they run out of cash. Once this happens the stock heads straight to zero folks.
Watch out once these blowups begin to inevitably occur as a result of accounting changes. Investors will immediately start flying out of equities when somebody blows because no one will know the solvency of any company because they can't see the books!
Don't think that it can't happen folks: Another Enron WILL inevitably appear as a result of this deadly recession. WHEN this happens, expect every investor to bail and sell sell sell. They won't ever come back until everything is marked to market. Bottom line here is you end up with transparency no matter which path you take.
If this is the case then lets mark to market already and get this over with! This massive "denial" stage is just going to take longer and make it even more painful then it has to be.
I wish I could ask Congress this question: How does more "smoke and mirrors" games instill long term confidence and credibility back into the system? Let me take a stab at this answer: It doesn't! This is why this solution won't work.
I understand that we need to give our corporate critters a little room on the books so that they aren't forced to mark assets to zero when they do have real value because there are no buyers. How much is a "little"? God if I know, but anything more than a "little" puts the financial system at risk via an Enron type collapse.
Hold on tight folks! The panic that I saw among our politicians faces today was really remarkable. Long term the risks to the financial system just increased significantly. Be nimble if you play the long side because everything is still extremely fragile. When the new accounting methods are explained you may see a "sell the news" type scenario.
The markets are now nearly impossible to trade as a result of these massive government interventions. The new accounting standards will make it even HARDER to trade because no one will be able to value anything. In other words: The markets have become a frickin casino thats now moved by DC interventions instead of earnings.
I will say it again. Raise cash!
Wednesday, March 11, 2009
I will get to my headline after an after hours update: The hits just keep on coming. Freddie Mac dropped a bomb after hours:
"March 11 (Bloomberg) -- Freddie Mac, the mortgage-finance company thrust into a leading role in President Barack Obama’s homeowner rescue plans, said it will tap $30.8 billion in federal aid as its loan holdings and other assets deteriorated.
The company, which owns or guarantees more than 20 percent of U.S. home loans, today posted a wider fourth-quarter net loss of $23.9 billion, or $7.37 a share. The results pushed the value of Freddie’s assets below its liabilities, the McLean, Virginia- based company said in a statement, and come as Chief Executive Officer David Moffett leaves after six months on the job.
“These numbers are so mind-boggling,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, who stopped giving estimates for Freddie after the company was seized by regulators on Sept. 6. “You can’t even begin to analyze it.”
Freddie’s ability to return to profitability depends on how long the government keeps using the company to push its housing agendas, Miller said. Freddie and larger competitor Fannie Mae have been pressured to carry out policy initiatives, including offering low-cost mortgage refinancings, since the government takeover. The often conflicting demands of appeasing regulators and pursuing profit may have led Moffett to resign, Miller said.
“They want these guys to refi mortgages without new appraisals and to keep mortgage rates very low; those are not sound business decisions,” Miller said. “They are being used as a public policy tool to save the housing market. That is just going to make it more difficult for them to be floated out as public companies down the road.”
The last paragraph of this is the most important piece of the article. This "rescue plan" via cheap lending is doing nothing but digging a deeper hole for ourselves in the long run.
Everyone take out their wallets because as a taxpayer, you will be paying for this housing mess until the day you die.
$30 billion Folks! These numbers are simply staggering and they are going to get worse if we continue to try and reflate the housing bubble via cheap lending and more bad loans. That's all this housing recovery plan is. We are repeating the exact same mistakes that we made as we blew up this housing bubble! The only difference this time is the losses are taken by the taxpayer instead of private capital.
How can they call this housing plan a solution? Making loans with low interest rates without new appraisals is just asking for trouble! Why do they think repeating the same bad behaviour will result in a different outcome?
The bottom line here folks is a $250,000 house is worth $250,000. The fact that you were able to dress it up all pretty as a $500,000 house via fraudulent lending practices for a few years back in 2004 is irrelevant because it was a mirage. Trying to recreate this scheme all over again via a government housing recovery plan makes no sense!
The public policy fix to this problem is doomed folks: Trying to throw some lipstick on a $250,000 pig by refinancing it for $500,000 via bad lending is a band aid not a solution..
Who do they think they are going to fool here? EVERYONE knows that the house is worth $250,000. Why can't we just face the reality of this and reset the loan down to the real value of the house. This is the REAL fix to the problem. The government's solution is to try and recreate the bubblemania of 2003-2004 all over again. Guess what guys? Its not gonna happen.
Obama, please drink a big tall glass of reality juice and scrap this pathetic plan. Look at the losses that we are taking as a result of this mess. As Americans, we cannot afford to have government entities lose $30 billion a quarter. These losses at Freddie will only get worse as long as we continue with your cheap lending recovery plan.
We now have several black holes that are bleeding this country dry: AIG, Citi, BofA, GM, Fannie, Freddie.....Where does it all end Mr. President? As a nation, we can't fiscally afford to continue to follow down this dangerous path.
The taxpayers do not deserve to be forced to continually pay for this fiasco. I am willing to pay my share for the sake of the financial survival of this country, but I am outraged that you and the government continue to keep spending money that we don't have. I am even more outraged that you are actually enabling the fraudsters to continue their games instead of throwing them all in jail where they belong!
Is the music about to stop?
I am beginning to think so after reading this piece from Marketwatch:
"WASHINGTON (MarketWatch) - The U.S. federal government budget widened to $192.8 billion in February as tax receipts plunged to the lowest level in 14 years, the Treasury Department reported Wednesday. It's the second largest monthly deficit on record, exceeded only by $237.2 billion gap in October. For the first five months of the fiscal year, the deficit has increased by a half trillion dollars to a record $764.5 billion. Outlays were flat compared with a year earlier at $280.1 billion, while receipts dropped 17% to $87.3 billion, the lowest since February 1995. In February, individual income taxes fell 64% to just $8.7 billion. That's the lowest monthly total for individual income taxes since May 1985."
Its hard to keep spending money when you don't have money coming in! I am not surprised that tax revenues are dwindling as the economy sinks into a deep recession. The fact that we are hitting 14 year lows this quickly is a surprise to me. The fact that February individual income taxes shrunk by 64% to 1985 levels is flat out shocking.
We are sinking fast folks. The math is quite frightening here. As you all know, things are much more expensive today than they were in 1985. Fiscally, it won't take long for us to bankrupt ourselves as we use 1985 level tax income to finance our bloated, Ponzi style 2009 budgets.
Again, let me ask the same question: Where in the hell is the money going to come from? We now have 1985 tax revenues to pay our 2009 bills. How in the hell can we afford to pay for trillions of dollars in bailouts on top of this? I about fell over when I read this Marketwatch piece. Here we are facing our deepest financial crisis with tax revenues that date back to when Boy George was churning out #1 hits. God help us!
We can't keep selling treasuries folks. There is going to a point in which the world realizes we don't have the money to pay it back. Its starting to happen already in other parts of the world. Parts of Europe have had failed bond auctions. Why can't it happen here?
I've said it before and I'll say it again: Raise cash and raise it as fast as you can.
Tuesday, March 10, 2009
All I can say about today is WOW! What a bounce! Stocks soared over 5% today as the "smoke and mirror" games continued on both Wall St and in Washington.
The bounce wasn't much of a surprise because we are so way oversold. I must say, I was not impressed by the move at all. It was just another "manufactured" rally that was fueled by more lies and government manipulation. The fundementals remain terrible, and the market continues to look very sick in my view.
Lets take a look what caused the moonshot today:
I had to laugh at this one:
"March 10 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit said he’s “disappointed” at the bank’s stock price, saying it doesn’t reflect the bank’s capital strength or earnings potential.
The bank has had its best start to a quarter in more than a year, Pandit wrote in an internal memorandum obtained today by Bloomberg. New York-based Citigroup was profitable in both January and February, and had $19 billion in revenue before disclosed writedowns, he added."
Yippee! We made money for two months! Gimme a break. If you can't make money as a bank when you are borrowing at zero interest rates and lending at 5% then you will never be profitable! Lets not forget they are also charging all of our debt filled consumers 30% annually on their credit card balances that they are unable to pay.
The problem here is not around the ability to make money. Its all about the bad assets that Citi has on its books that make it insolvent. Its easy to make money in banking when the FED lets you have a layup with zero borrowing rates. If this company is so profitable then why is the stock at $1 a share?
Citi continues to hold billions and billions of worthless assets on their balance sheet folks. Don't be fooled by this PR stunt.
The SEC announced it may bring back the uptick rule that was created during The Great Depression:
"March 10 (Bloomberg) -- The U.S. Securities and Exchange Commission may propose within a month that the so-called uptick rule be reinstated, as regulators aim to bolster markets roiled by the worst financial crisis since the Great Depression.
The SEC staff may advise the agency’s five commissioners to vote on the proposal at a public meeting, SEC spokesman John Nester said today in a statement. The agency will solicit public comment before deciding whether to bring back the rule, which bars investors from betting against a stock until it sells at a higher price than the preceding trade.
Lawmakers and companies including Charles Schwab Corp. pressed the SEC to bring back the short-selling restriction after the Standard & Poor’s 500 Index plunged 53 percent since it was scrapped in July 2007. House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd today said they support reinstatement.
“Short-selling has a value but it can be abused as well,” Dodd, a Connecticut Democrat, told reporters after a hearing in Washington. “In my view, that’s been contributing to some of the problem” in the financial markets."
I am not opposed to this one. I don't think its going to change much in the long run. A crappy stock is a crappy stock and it will eventually be valued as such. This just slows down the process in terms of getting there. This will however prevent the short sellers from piling onto a company and driving it out of business. We need regulations that restore confidence, and this one could help.
Mark to Market/Accounting Changes
This was the third piece of the puzzle that helped take stocks to the moon. Congress announced that they plan ob reviewing various accounting methods including mark to market:
"WASHINGTON (Reuters) - A U.S. House financial services subcommittee plans a hearing on mark-to-market accounting rules, which have been blamed for forcing banks to report billions of dollars in write-downs, a source briefed on the matter told Reuters on Wednesday.
The subcommittee on capital markets has tentatively scheduled the hearing for March 12, the source said.
The U.S. Securities and Exchange Commission's chief accountant and the chairman of the Financial Accounting Standards Board, will be asked to testify, the source said.
U.S. industry groups have urged the SEC and FASB to significantly alter or suspend the accounting rule, saying it is undermining the government's multibillion-dollar effort to stabilize the financial sector.
Mark-to-market accounting requires assets to be valued at current market prices. Some banks say it forces them to mark down assets to artificially low prices in the current financial crisis, even when banks intend to hold the assets past the current reporting period."
OK Folks, this one makes me blow a gasket. Suspending mark to market would be the worse possible thing they could do. We need transparency in order to restore trust into our financial system. Eliminating mark to market accounting and allowing the "hide the sausage" games to continue does nothing but allow bad companies to hide potentially worthless assets.
This will make the market considerably less transparent and will further destroy confidence. Investors won't buy stocks unless they can properly value them. Remember Enron? This is why this rule was established. I don't think the suspension of mark to market is gonna happen anytime soon folks. Bernanke is firmly against lifting this.
This doesn't mean it can't help ignite a rally on Wall St tho!
Today's rally was explosive however I remain unimpressed. The rally was purely based on speculation and "promises" of better earnings by a large financial institution. How many "promises" have we heard out of Wall St. folks? How many companies said they were "very well capitalized" weeks before they went bust. Remember the Thain, Fuld, and the Bear Stearn promises days before they all collapsed?
Wall St has ZERO credibility as far as I am concerned so I take these profit announcements with a grain of salt. Prove it to me with a nice quaterly report and perhaps you can make me a believer!
As far as the babble coming out of Washington goes, they need to all shut the hell up. Stop telling us what you are going to do and JUST DO IT! This constant manipulation of the market is going to kill what liquidity is left on Wall St!
Both the bears and bulls are losing money because they can't make trades based off of fundamentals. They are forced to trade by what comes out of DC, and there is no consistency here. They all just love to banter and then do nothing. Stop talking and starting taking action! Turbo Timmy is the worst when it comes to being all bark and no bite.
The politicians have made it virtually impossible to trade this market. I am very close to saying the hell with it and calling it quits until all of this crap stops.
The hysteria coming out of DC is creating total chaos on Wall St. If their intention is to try and settle the markets then they need to get the hell out of the way and leave them alone!
The politicians continue to create chaos in all areas of the market: Every bailout rocks the credit market because they need to fund them, every rule change rocks the stock market because traders must adjust to the new rules of the game, and your everyday investor is now clueless as a result of both!
I really can't give you a take on the markets short term because the "noise" level is simply too high right now. I am going to pull back on my trading. I got burned shorting a little today as a result of all the craziness coming out of Washington mainly because I wasn't home to react.
Unless you are able to be at your computer at all times when you trade, I suggest you close out your positions at the end of the day unless they are long term holds.
I miss the old days where fundamentals actually mattered!
Until next time!
Monday, March 9, 2009
Stocks closed in the red once again today as concerns around the global economy continue to hold the world's markets hostage. There was no real news today folks. In the past, these type of days usually resulted in moves to the upside. Not today! I hate to say it but...Perhaps investor's are losing interest?
This is one of the big worries that I have had as we attempt to work our way out of this mess. It was actually discussed on CNBC today. The streets biggest fear is investors will simply get tired of losing money and begin to lose interest in the stock market. WIthout buyers, Its hard to take the markets higher!
Its happened before:
Take a look at the DOW from 1969-1982. Can you say flatline? This chart reminds me of looking at a heart monitor of someone who just died from a massive heart attack. This scenario is definitely on the table folks. My best case scenario thesis for the next decade(2010-2020) is a do over of the '70's.
Like the '70's, I predict we are going to get hit with a major inflation problem as we head into the early years of the next decade. Its almost impossible to avoid because we have simply created too much money in order to fund these bailouts. This will all come home to roost a few years from now. Inflation will soar and we will need to raise interest rates in order to quell it.
This will be the final nail in the housing coffin. Housing should already be on its knees by then as the asset deflation destroys home prices over the next year or two. The final leg of the housing crash will be the higher lending rates via skyrocketing inflation. I am guessing this hits around 2011-2012.
Hopefully by this time, our banks will have been reformed and will have the balance sheets to handle this final leg down in housing. Let me be clear here folks, I am HOPEFULL we will have reformed our banks by then. This is still very much up in the air. I am not sure we have the ability(money) to actually fix the mess that the fraudsters on Wall St have put us in. Like I said, the 1970's scenario is my best case!
Can we handle this next bout of inflation?
Folks, this is one of the things that keeps me up late at night. In the 1970's, we were able to handle the huge inflation spikes because wages rose dramatically. One of the key drivers of wage inflation was the unions rise to power. I can remember the stories of steelworkers in Pittsburgh in the 1970's that made $70,000 a year including overtime. That's a hell of a wage even today!
Unfortunately, this go around we have no such driver to increase wages. The unions are a shell of what they used to be. Take a look at GM's current manhandling of the UAW which at its peak was one of the most powerful unions in the country. This tells you all you need to know.
As a result, our next tango with inflation is going to be extremely painful. Go back to early last year when oil was at $4 a gallon if you are wondering what its going to feel like. We will be facing soaring prices in an era in which our wages will be decreasing(that is if you even have a job!). There will be no wage increases this go around because the corporations in this country will be crippled from the devastating effects of the debt bubble collapse.
This is why everyone must focus on saving and digging out of debt. Don't get suckered into these low interest rate bailout home loans unless you have no other choice. This is a lose lose situation folks! If you refi into one of these loans you better plan on living there for 30 years! These low interest rates cannot be sustained once inflation grabs us by the throat.
Its time that we all accept this collapse and realize that prosperity isn't coming back anytime soon. The complete devastation that we have seen in the stock market will take a decade or more to fix. More than half of the wealth that was created during the bubble has now been wiped out. The leverage that enabled us to create these unprecedented riches has also been completely wiped out.
The money is gone and its not coming back. The DOW will not be back to 14000 for a generation or more. Just look at the NASDAQ 10 years post bubble burst. We are 80% down from the highs.
Its time to start preparing for the future versus hanging on to the past. Our lifestyles will never be the same, and we need to start realizing that the stock market may flat line for years and years. When inflation hits, fixed income will be the place to be. This is why its time to get frugal and conservative!
I am not ready to invest for the inflation trade just yet because we are currently being swallowed up by a deflationary black hole of the likes that I have never seen before. The risk of a 20-30 year Japan style deflationary collapse is still very much on the table. This is my worst case scenario other than Financial Armegeddon where the financial system collapses.
I am sure I sound ultra bearish tonight folks but I call them like I see em. The market is acting absolutely horrible. The low volume tells me that many investors have given up and refuse to invest in this cesspool that's filled with fraud and government intervention.
I recently had a long fascinating conversation with a 50 year Wall St veteran in my family. He described the 1970's on Wall St. About half way through the decade, he explained that the equity brokers all jumped over to fixed income from the stock market because the equity market was dead as a doornail. Bonds was where all of the action was because they was outperforming equities. I can see a similar scenario setting up right now.
I mean why wouldn't investors be starting to bail? Can you blame them? Anyone that bought the S&P in the late '90's has now lost 50% of their money TWICE within a 10 year period. If that doesn't destroy confidence in an investment vehicle then I don't know what will.
If the corruption on Wall St isn't fixed, Investor's may never come back.
Sunday, March 8, 2009
I thought I would start off with a great clip from Saturday Night Live. I have found some great videos the last few days. I hope everyone is enjoying them. I thought this one was a classic:
California Taxpayer Revolt
This one was an eye opener for me. They expected a crowd of about 300 to show up for a taxpayer revolt that was organized by the John and Ken show. A crowd of 15,000 showed up!
Traders Note: If you are free tonight
You might want to hop onto this Webinar tonight that's being hosted by Brian Shannon from Alpha Trends at 8PM tonight. The chart below is going to be the key talking point. I posted a similar one this week and its been haunting me ever since because it looks like there is no real resistance on the DOW until 1000.
I am interested to hear his take because my take frankly scares the hell out of me if we don't hold here pretty soon: