Friday, July 10, 2009
A little housekeeping before I start. I am off to the shore for a few days for a little R&R so things will be a little quiet.
Stocks are lackluster once again today as the consumer confidence report came in below expectations. Things should get interesting next week when earnings season kicks into full gear. I don't expect too much heading into the close. Investor's are looking to close up shop and get home after a very frustrating week(if you are a bull that is).
I loved this video from Max. I still cannot understand why America isn't outraged at the extortion that took place last fall.
Goldman will be lining their pockets with taxpayer money via huge bonuses. Disgusting isn't it?
There was a lot of talk about this today as Russia presented a sample coin of the new "world currency".
Here is a great video from two veteran currency traders today. They do a nice job explaining why this isn't going to happen anytime soon. In time, if things spiral out of control, anything could happen but a complete currency overhaul like this would require a gargantuan effort.
One of the traders seems to think that the dollar will drop significantly lower and as a result believes metals are an excellent hedge against owning US dollars. I thought this was a well done.
Enjoy the weekend!
Thursday, July 9, 2009
The bulls seem too be backing off of the idea that we are through the worst of it. How can't they after the data we've seen recently?
We got more consumer data today that was awful. Folks, when the bulls are pumping Family Dollar stores you know the consumer(and the market overall) is toast! Consumers are shopping at these dumps because they don't have the access to credit that they have had in the past.
The economy is once again hitting the wall. When I asked a friend of mine that owns a big name restaurant how business was he explained that sales have fallen off a cliff again in June. How can they not as unemployment soars? People cannot spend when they aren't working!
Here is some more interesting anecdotal information from a friend that just spent two weeks in Spain. I asked him how the trip was and all he could talk about was the economic collapse that they are currently suffering through. He said unemployment there has surged to 17.2%. Need I say anything more?
Apparently, jobs are so scarce in Spain that the government may actually offer to pay illegals who agree to move back to their own countries. My friend also said that he saw soup lines all over the place. His friends who live over there told him that they have attempted multiple stimuli and none of them have worked or stuck. The whole experience was very sobering.
We are heading straight towards the same dark place that Spain currently finds itself. Unlike previous recessions, government stimulus cannot "fix" this recession. There is no magic bullet here or anywhere that will bring back the happy days of prosperity.
The market has been betting that the government could spend themselves right out of this recession like they always do. The bulls are about to realize they were DEAD wrong. This will take years if not decades to work through.
Once this reality hits Wall St "look out below".
Today was a quiet one. Not much news. We had a 30 year bond auction that was pretty ugly. Bid to cover was around 2.3 if I am not mistaken. Yields have dropped recently due to deflation fears, but I still continue to believe that the longer term trend will be higher not lower.
I say this because I fail to see how the government can continue to sell all of this debt as the whole world sinks into an economic depression.
Let me end today with a little humor. When the world gets so ridiculous, all you can do is laugh:
Wednesday, July 8, 2009
You need to constantly remind yourself that "It's all about housing". I say this because:
Our economic nightmare was triggered by housing and will not be over until housing stabilizes!
Folks, I can't stress this enough! Housing prices MUST completely collapse and fall back to affordable levels or this nightmare will live on. We will all sit here and suffer as long as these assets continue to be propped up by the government.
There is only one way for this housing price adjustment to occur: All of the toxic assets on the banks balance sheets must be ripped apart and sold for market value(most likely pennies on the dollar).
The problem we have here of course is the banks will not allow this inventory to clear at realistic prices because they know it will put them out of business!
I say TOUGH ****! The government needs to grow a pair and force these banks to sell their assets at market prices and take their losses! THEY ARE RISKING AN ECONOMIC COLLAPSE IF THEY DON'T DO SO! If a bank goes under as a result then so be it. The Feds can then guarantee the deposits of the insolvent banks, and allow the FDIC to do its work of merging them with stronger banks.
Once this is achieved, banks will lend again because they will not be sitting on a pile of crap that's the equivalent of a 50lb weight tied to a swimmers ankle. Housing prices will then be allowed to come down to around 3 times income which is where they NEED to be in order to sell. This is how you recover from a meltdown.
Continuing to attempt to sell homes at prices no one can afford will only guarantee failure. Creating bad lending products in an attempt to keep housing inflated(which we are doing now) does nothing but create future problems and "kick the can" a little further down the road.
Unfortunately, as you can see below, we continue to ignore the 100lb gorilla in the room.
Take a look at this short video around jumbo loans from CNBC's David Faber(one of the few guys on there who has a clue):
The numbers here are flat out frightening. Keep in mind that this massive $8 billion pool of jumbo loans that was downgraded in this piece was originated from 2002-2004 which was before the housing bubble really got going.
You need to ask yourself: If these pools of these loans are going bad, what in the hell is going to happen to the pools of loans that were guaranteed from 2004-2006 when the housing bubble turned into a TOTAL FEEDING FRENZY? Can you say nightmare?
Folks, honestly, sometimes I just wanna hide under a chair when I read this stuff.
What's even uglier are the 60+ day delinquency rates on jumbo prime and conforming prime loans. The jumbo delinquency rates have jumped a staggering 600% from 1% up to nearly 6% since 2007. Conforming loan delinquency rates have tripled from 1+% to over 3%.
PEOPLE, THESE ARE PRIME LOANS!!! These are your BEST borrowers with the HIGHEST credit scores.
Why is this happening? BECAUSE THEY CAN'T AFFORD THE HOUSE!
Its that simple! The home buyers with low incomes bought cheap houses that they couldn't afford. The richer with larger incomes bought jumbo houses that they couldn't afford.
As a result, they are defaulting at a rate that no bank could have ever imagined! Inventories for houses over 750k(which is not uncommon in the bubble areas) has now reached almost 4 years! What a joke. Ths doesn't even include the retards who took their house off the MLS thinking that the market will come back. HA! Good Luck! SOLD TO YOU!!!!!
Anyone thinking that this economy will recover without solving the housing affordability issue is smoking dope. Most ofhese jumbo houses will never sell until they collapse 50% or more in value. No one can afford a loan let alone a jumbo loan these days.
I mean Christ, landlords can't even fill rentals these days:
"July 8 (Bloomberg) -- U.S. apartment vacancies rose to their highest in 22 years in the second quarter as job losses cut tenant demand and more units came to market.Vacancies climbed to 7.5 percent from 6.1 percent a year earlier, New York-based real estate research firm Reis Inc. said today.
The last time landlords had so much empty space was in 1987, when vacancies reached 7.6 percent as the Standard & Poor’s 500 Index plummeted 23 percent in the last three months of that year."
A 22 year highs folks! Why is this occuring? Because no one is working and families are being forced to move in with one another. Who on earth do they think is going to buy these McMansions when no one even wants or can afford to rent?
Folks, watching this country be torn apart by such stupidity drives me absolutely insane!
The fraud needs to stop right now! Right this very second before its too late.
There are rumors now swirling around out there that Goldman was able to read trading data before the trades were committed. Zero Hedge, The Market Ticker, and The Daily Kos(Not a fan of radical left wing idiots but the article is important) are all over this.
If this is true then run as fast as you can from the market until it is trading with full transparency. The word is traders on the floor have completely gone to the sidelines as a result of the crazy trading we have seen over the last few months. What does that tell you if even they don't wanna play? Look at the pathetic trading volumes. It renforces whats being talked about on the trading floors.
The pricing action has made no sense to me for weeks so I am not at all surprised by the Goldman accusation. In fact, it actually makes a lot of things make sense if this is true. I find it interesting that the market has sold off violently since these allegations rose. Perhaps Goldman realized they were busted and stopped the games? Kudos to Zero Hedge for getting the ball rolling on this one.
Goldman needs go the way of Enron if there is any truth to this accusation. It appears this" rogue trader" who supposedly "stole" their trading platform may have actually been the guy that taught Goldman how to do this. If any of this turns out to be true you this will go down as the largest fraud ever seen in the history of Wall St.
Folks, just when you think there is no way this fraud can get any worse: Somehow, Someway, Wall St finds a way to outdo itself. Unbelievable.
Tuesday, July 7, 2009
Before I get started with a few comments I BEG you to listen to David Rosenberg's appearance on Bubblevision today. It was perhaps the best explanation of what happens to an economy when a credit bubble collapses.
Everything David says here is backed up by facts and history. These are the two key points that Wall St loves to forget about as they try and lure you into buying equities.
One of the most striking points that I took from this video is the fact that our government has already spent more than twice what FDR did in The Great Depression. Yikes! That's pretty darn frightening when you think about it
He also explains that this is no average "10 months and out recession" that were common in the 70's, 80's, and '90's. This is a CRITICAL point in my view because most of the street has no clue what a consumer led recession looks like. Most of these analysts weren't even born yet when we last had one here in the US back in the '70's.
As a result, almost EVERY DAMN economist/analyst that I listen to in the financial news media continues to believe that this is your average "run of the mill" recession. They all think that we will be out of this recession by the end of the year. Many are predicting growth by the 4th quarter. That may happen because things fell off a cliff Q4 last year so it's very possible.
A question here for the "recovery" boys: What fundementals are out there to sustain this "recovery" once we get past the 4th quarter comparisons where the economy basically stopped? I haven't heard one logical answer from the "recovery" bulls on this one. FOLKS, HERE IS THE BOTTOM LINE: THIS WHOLE RECOVERY TALK BY Q4 IS A CROCK AND YOU ARE A FOOL IF YOU BELIEVE THIS!
Watch the tape. David does a hell of a lot better job then I do explaining why:
Great stuff eh? I would have loved to hear his thoughts around the currency issues and the risk of hyperinflation.
David obviously sees nothing but deflation ahead. If this is right, bonds could see a a huge rally. I am still on the fence here as I continue to worry about our solvency. However, David's thesis is solid as a rock and it could very well come to pass.
Basically we are in for one hell of a long road folks. The "Buy and hold" days are long gone. David believes we have at least another 8 years of pain and suffering as we crawl through this secular bear market.
I believe that its going to take longer than 18 years total(from 2000) to work through the excesses of this bubble because we foolishly created a second bubble(housing) right in the middle of it from 2003-2007 instead of simply letting the tech bubble deflate.
As a result, I believe we will have a lost generation before this is all said and done. I say this because we basically have to recover from two bubbles all at once. One is bad enough!
Will the bull be back? Of course it will someday. I also expect a few mini bull markets along the way as we work through this big ugly bear. One thing is for sure: The investing world will never be the same.
You are going to have to be much more active with your 401k in order to grow your nest egg properly. Diversification and nimbleness will be crucial as we navigate through this disaster. I am beginning to believe that once investors are burned once again as we break the lows, they may run to fixed income for a looong time(that is if it doesn't explode).
Portfolio's in the future will probably see 50% or more of assets in fixed income IMO. Stock exposure will become a much smaller piece of the pie. I think stocks will be considered "highly speculative" moving forward as the current generation licks their wounds after being burned multiple times by the market since 2000.
As a result, many financial planners and brokers will likely be forced to reduce their clients exposure to stocks. Can you imagine what this will do to the stock market as investment portfolio's make this transition? Ugly Ugly Ugly!
Be careful who you trust with your money with folks. Choosing your financial planner is one of the most important decisions of your life. Make sure you can trust them and if they have you 100% in equities right now run for the hills!
Lets talk a little bit about the market. We clearly broke through the 200 DMA on the S&P as the market went south by 2+% today. This is extremely bearish.
We are now sitting at some pretty important support levels. There is some decent downside resistance here around 880. A big move south tomorrow could force things to get ugly real fast.
Keep an eye on Alcoa tomorrow as earnings season begins. This is the first big name to report. Their CEO was fairly bullish based on a rebound in China so who knows they may surprise to the upside. Many of the big banks report next week. That should get really interesting.
Don't forget that we continue to sell billions and billions of treasuries throughout the next few weeks. We have a long end 10 year auction later this week. Keep a close eye on this one. The $35 billion 3 year auction went ok today. The bid to cover was decent(2.6 I believe) but the interest rate was a few points higher then what was expected. This tells you that investors are demanding yield as they watch our Ponzi spending game continue.
It should be an exciting few weeks as we watch all of this unfold. Fireworks and perhaps a Black Swan would not surprise to me.
I continue to hold onto the same positions. My current plays: BEARX(long term hold), Sept. SPY PUTS, GLD, SLV, SDS, and some old SRS that I bought at $85(ouch this one still hurts). I still hold onto that SRS to remind me that being stubborn and overconfident is a great way to end up in the poor house:) I think its always good to remember your mistakes. they always remind you that Mr. Market beats to its own drum.
I also own a few long spec biotechs. The rest(80%) is in cash and bonds.
Cash will be king if Rosenberg is right.
Monday, July 6, 2009
The market was eerily quiet today. The DOW and the other major indices pretty much flat lined for most of the the session as we continue to hover around 900 on the S&P.
We are seeing quite a tug of war at these levels between the bears and the bulls. This furious rally seems to have been stopped in its tracks for the time being. The million dollar question now is the next big move up or down from here? Neither side seems too confident.
As a result, I think many investors have decided to head to the sidelines for awhile and wait for a trend. I am sure you all know where I think we are headed next. Just look down at the floor and you'll have my answer:)
The question I have here is do we have one more move up to 1000-1100 before we see the cataclysmic wave down or does it happen right here around the 900 level.
I am leaning towards thinking that this rally is pretty much toast at these levels. I mean the ISM manufacturing data report came in firmly above expectations and the market barely noticed. This was a surprise to me especially given the fact that the market plummeted on Friday. Usually we tend to see a little bounce following such sell offs.
The move down today on the positive ISM number tells me that the "green shoots" confidence seen in the markets the last 3 months has waned significantly. The market would have exploded higher if this data had come out a month ago. I think many of the big boys are getting ready to push the sell button and take profits off after a 30% move higher.
Fitch decided to throw this bomb out this afternoon:
"NEW YORK, Jul 06, 2009 (BUSINESS WIRE) -- Fitch Ratings has downgraded the state of California's (the state) long-term general obligation (GO) bond rating to 'BBB' from 'A-'. The bonds remain on Rating Watch Negative. The rating action affects the state's GOs and lease appropriation and related bonds as detailed at the end of this release.
The downgrade to 'BBB' is based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis. Since no agreement was reached by the June 30, 2009 fiscal year (FY) end, the state's controller has now begun issuing registered warrants (IOUs) for certain non-priority payments to preserve cash, and the budget gap to be addressed has increased to $26.3 billion from $24.3 billion. The use of IOUs for non-priority payments would offset cash shortfalls into September 2009 as now currently projected."
Folks, if you own California munies I suggest you bail ASAP.
When is anyone in this country going to realize that we spent way beyond our means over the last 25 years? The "kick the can down the road" band aid approach that the California state government has taken by issuing IOU's is absolutely disgusting.
What ever happened to finding long term solutions to problems?
FACE IT FELLAS: YOU NEED TO CUT YOUR DAMN SPENDING AND RAISE TAXES!
Here's an idea on where to begin:
You can start by not paying low level government workers 6 figure salaries! This is absolutely ridiculous!
These IOU's you created in an attempt to not face the music may end up takink you and your state down and out for the count! You are just asking for a bankruptcy with this nonsense! Do you realize your debt rating is now 1 level above junk?
Let me explain the ramifications of this: You will be able to use your munies as toilet paper if your debt gets cut to junk because they will be almost worthless!
Go give Iceland a call and see how they have enjoyed their economic collapse if your curious to see what it will be like.
Where's your sense of responsibility when it comes to the people in your state? There are thousands of businesses in Cali that a very dependent on the government.
The citizens of this state depend on you to pay your bills and act responsibly. The last thing any company that does business with you wants is to be paid in IOU'S! Hell, Why don't you just pay them in Monopoly money! Its worth about the same! I am sure non of the welfare recipients are too keen on the idea either.
Hey Arnold: Its time for you and legislature to stop being a bunch of cowards. You all were placed into office with the hopes that you would have the ability to make the tough choices if it came down to it.
Well guess what California? Its time to make some tough choices! Put up or resign if you don't have the character to do the right thing and piss off your lobbyists by making the right choices. We need leaders and hero's immediately before this damn country collapses.
Whats scary here is there are dozens of other states in the same predicament. Pensions funds, state munies, and the ability for a state to simply make payroll are all on the verge of imploding if states don't start cutting spending and increasing their taxes.
It sucks people, no one hates taxes more then me but we did this to ourselves and its now time to pay the piper.
Lets be honest guys and gals. At this point, this country is being held together by a bunch of band aids. The stock market would be below 5k by this point IMO if the Treasury didn't throw a few trillion of liquidity into the system.
It's time to wake up and tighten up our fiscal belts before its too late.