Thursday, July 23, 2009
What a crazy day. I don't have much time so just a few notes around today. The market soared as investor's continue to increase their appetite for risk. The dollar traded all over the place as rumors swirled around the usage of the US dollar as a carry trade currency.
On the downside, treasuries COLLAPSED as the Fed announced a whopping $200 billion in new debt sales over the next week or so! Yields soared as a result. The 10-year closed with yields a hair below 3.70 which is up about 15 basis points from yesterday.
After hours we saw a bear trifecta. Microsoft, American Express, and Amazon all disappointed on the earnings front. This is the danger of buying into this market after such a huge moves folks. Stocks become priced for perfection, and the companies tend to sell off if they just meet expectations or beat by a penny like Amex and Amazon did today.
The parabolic move up in the market has been quite a thing to watch.
The NASDAQ has traded higher a whopping 12 straight days. The last time we saw a move like this was 1992. This is unbelievable considering the health of the economy. Something tells me a lot of this was short covering. I think many bears have been starting to hop in short at these levels only to get burned and quickly cover.
I expect a pretty sharp correction tomorrow after such poor earnings after hours. The market is ripe for a pullback. Microsoft missed badly. Business and consumer sales were very slow. Top line revenue missed by over a billion dollars.
Should we be surprised considering the health of the consumer?
It's all about the treasury sales next week. The stock market could get overwhlemed if we can't find buyers for all of this treasury debt. There is only so much money folks. We can't expect equities and bonds to rise at the same time when we have $200 billion in paper to sell in the credit markets.
Something has to give. Will it be stocks or treasury yields? Possibly both?
The plot thickens.
Wednesday, July 22, 2009
The one thing I wanted to take a look at today is the dollar since the market collapsed back in October:
As you can see above, the dollar has pretty much collapsed since the market started rallying in March. I find this to be an interesting phenomenon.
Traditional thinking would tell you that this makes no sense:
Back when the world made sense, a strong currency was the base of any country with a strong economy. This makes the recent rise in equities even more suspect in terms of fundamentals in my view. If things are so rosy then why isn't the dollar strengthening?
Supposedly Europe is in much worse shape then we are. If this is the case then why the COLLAPSE in the dollar versus the Euro?
What does this all mean? The way I see it, the world is slowly getting away from the dollar and diversifying into other assets like gold, oil, and other commodities.
The deflationist's have been calling for $800 gold for months now and it hasn't happened. Gold continues to rally on any pullback.
In my view, the reason this keep happening is the Fed's policies are hell bent on destroying the dollar. In fact, I think the Fed behind closed doors is praying that the dollar gets devalued because it allows us to inflate out of our debts more easily. They would never admit this of course.
The Bottom Line
No economy ever flourishes with a collapsing currency. The Fed continues to spend like a drunken sailor as they bail out anything and everything that's about to fail. This continues to put relentless pressure on the US Dollar.
Until the "bezzle and the bailouts" are cleared from the system, I expect the dollar to continue to trend downward. Let's be honest here, no sane FCB wants to own the currency of a country that has both a weak economy and is trillions of dollars in debt.
The only thing that's saved the dollar thus far is the FCB's have continued to store the majority of their reserves into treasury holdings . They essentially blow themselves up if they bail on the dollar because of their treasury exposure.
What we need to start realizing is this doesn't HAVE to be the case. China appears to be gobbling up hard assets all over the place. Other FCB's continue to demand alternatives to the US dollar. I am not sure we will ever find one, but that doesn't mean the dollar can't collapse as the world diversifies its assets.
You need to ask yourself the following:
Why is oil rallying when there are tankers upon tankers filled with oil with nowhere to go as a result of no demand? Why is gold not collapsing in price like other hard assets like housing?
Lets take it a little further: Why is the DOW rallying like mad as the economy continues to struggle?
Could the market possibly be starting to price in inflation or possible hyperinflation in the near future? Three months ago I would have thought this idea was crazy.
However, after seeing the report on the $24 trillion in potential debt that the Fed's spending programs could cost us, I am not so sure anymore. Anything is possible at this point.
Historical P/E ratio's and technical analysis have become less and less relevant as we enter this new economic reality IMO.
The global financial system is morphing into something very different that I don't think anyone really understands, and I don't think anyone can predict how this all plays out.
The world is a changing folks, and traditional investing will most likely not be the answer.
Tuesday, July 21, 2009
The market was up once again today as the feeding frenzy in stocks continued. The NASDAQ was up for the 10th consecutive day today which is the longest streak since the bubble days of the late '90's. What a remarkable run.
Apple reported a blowout 3rd quarter after hours but guided lower for the rest of the year. The lower guidance didn't stop the bulls as Apple's shares soared in after hours trading. I'll tell you what, once these bull feeding frenzies get roaring they really are amazing to watch.
Remember folks, looking forward, I see nothing to sustain this rally long term. I believe that what we are witnessing today are companies that executed well and have done an outstanding job in terms of controlling costs when the economy collapsed in the 4th quarter. Kudos to the management teams at companies Like Apple that managed their inventories and continued to grow earnings.
You need to begin to ask yourself: Did companies overreact and cut back way too far in the 4th and 1st quarters when it looked like the financial world was about to end? When you look at the huge GDP contraction in both quarters you gotta wonder if that is what happened.
Perhaps what we are witnessing is companies benefiting from average demand versus the Armageddon demand that companies prepared for in Q4 '08 & Q1 '09 as they slashed their inventories and shredded their workforce.
Lets remember, the S&P dropped to 666 by the end of the 1st quarter. Every company thought that the 1930's scenario was firmly on the table for the balance of 2009. This fear forced companies to drop production to a standstill. Many refused to even give guidance for the rest of the year and only produced what was ordered by their customers.
Since the death drop to 666, we have also seen the government and its balance sheet step in and provide massive amounts of stimulus to the financial system.
I am starting to wonder if this huge move up in the market is a reflection of both the government intervention and the combination of both corporations and Wall St overreacting to the financial gloom and doom that appeared imminent in 2009.
Estimates were slashed and inventories collapsed as a result as both Wall St and corporations prepared for the worst. When things turned out to be just be "really bad" it became much easier to produce profits because companies had fiscally prepared for the Armegeddon scenario.
When you combine this with the huge influx of money into the banks that I discussed in my last post, it set the stage for the massive rally that we are now witnessing.
This is how I see it folks. I am sure all of you have drawn your own conclusions. Please feel free to share them in the comments section.
Reasons for Concern
As all of you know, I don't believe we are entering into a long term bull market. This is still just a large bear market rally IMO. The fundamentals still stink. The fuel that provided this bounce came as a result of nothing but temporary fixes. Cost cutting and government stimulus can only go so far.
Let us not forget:
We still have the $24 trillion Fed spending binge hanging over our heads. Here is a nice breakdown of the Fed's financial system support:
Yikes! How in the hell do we ever pay this off with an annual GDP of only $14 trillion? The only way I see it ever happening is if we are all whacked with a 60-70% tax rate. Think that can't happen? Just watch. It's happened before(see WWII).
Oh and uh by the way, I have one more question: How do we fix our social security and medicare problems(both of which dwarf this bailout disaster in size) at the same time we attempt to fix this debt bubble dilemma?
HA! Good luck answering that one. This is what keeps me up late at night folks.
Lets take a look at the bond auction today:
As you can see, we saw a very strong treasury auction on the short end of the yield curve. What was interesting here is the fact that the primary dealers(Goldman Sachs etc.) bought about half of the auction.
Why was this the case if the auction had such strong demand? Also, why did yields COLLAPSE on a day where the market moved higher?
I mean take a look at the 10 year today:
You need to ask yourself: Is the smart money diving into treasuries? Usually huge moves in treasury yields like this are a result of investors running for cover after 400 point sell offs.
My point here is nothing in the market makes any sense right now. The usual correlations seen during long term bull markets are simply not there.
Gold should be selling off and treasury yields should be soaring if the market had a lot of confidence in this rally.
I continue to believe that this move is just temporary. I see nothing but deficits, foreclosures, and job losses when I look at the economy.
Until this changes, consider me a skeptic.
Monday, July 20, 2009
I know I was surprisingly quiet today. I gotta admit, the $24 trillion TARP failure really bummed me out today.
The market continues to climb the wall of worry as Wall St cheers the earnings beats announced by many corporations in the 2nd quarter. Most of these beats are hogwash because they have been revised down so sharply. Lets also keep in mind that most of the companies are beating on the bottom line not the top line.
All this means is companies are job cutting their way to prosperity. How else do you think u6 unemployment has soared to over 16% in the span of a year? We all know that you can only cut costs for so long. You can't bring expenditures down to ZERO for Christ sake.
As the consumer continues to suffocate as a result of massive debt loads and job losses, earnings at our corporations will once again begin to sag.
I have to give the pigmen credit:
Wall St has somehow successfully turned the stock market into a feeding frenzy once again with all of their spin and lies. The problem here is we all know this all ends folks. Remember the last two feeding frenzies on Wall St? The tech bubble and the housing bubble? Stock holders ended up in tears by the time fundamentals came back to each of these markets.
I am going to call this current mania the "Recovery Bubble". I mean in reality that's what this is. I mean think about it: What is a bubble? Its an unsustainable Ponzi style feeding frenzy that's dominated by massive speculating and eventually ends with prices that are both unafforable and unsustainable.
We all know this is the case right now. The P/E's ratios are more insane today then they were during the tech bubble. Many companies don't even have any earnings in this current cycle.
Eventually, when the fundamentals come back like they always do, Wall St and the rest of the investors that bid these worthless stocks up to Ponzi style levels will end up getting their asses handed to them once again.
The stock market has become nothing more than a speculative bubble making machine. The "Recovery Bubble" will end the way all bubbles do: It will come crashing down slaughtering anything that gets in its path.
The Bottom Line:
Bubbles can sometimes last a lot longer then you think. Especially when the government has doled out hundreds of billions in free money to the banks. This financial firepower has allowed them to wreak havoc in a lightly traded market using computer trading programs.
I mean think about what the banks have going for them right now:
The banks are stuffed to the gills with cash. How? Well for starters, they have been stuffed with tens of billions in taxpayer dollars.
They are also able to make a killing on any new loans as a result of the steep yield curve. Any banker can make money with these types of favorable lending terms.
Finally, the pigmen have the benefit of a fed funds rate at near 0% which means they can rape the savers of this country by paying them almost 0% interest on their deposits.
This gives them a lot of financial bullets to fire at the S&P in the form of buy orders. Lets also not forget that their cash positions have been even further strengthened by the fact that they don't have to set aside as much money for their toxic assets anymore because there is basically is no more mark to market accounting.
In a nutshell folks: THE BANKS ARE LOADED WITH CASH at our expense. I wouldn't be surprised to see the S&P climb over 1000 before this thing all comes tumbling down.
I guess what saddens me most here is I am slowly beginning to realize that its not the banks that have failed this nation. We are the ones that have failed. Yes they created the mess, but we as a country never stopped them once we knew what was going on. I think perhaps we all need to look in the mirror when we are looking for someone to blame.
In fact, not only did we not stop them, we actually reinforced their terrible actions by giving them billions of dollars in TARP funds that allowed them to make even more money at our expense.
I will never understand why we reinforced such fraudelent actions. The TARP will go down as being one of the worst pieces of legislation in history.
Sadly, we only have ourselves to blame. We are the real failures because we sat here and let the banks rob us all blind without doing anything to stop them.
With $24 trillion in debt I don't think it even matters anymore. There is no way we can ever pay this back. Our total GDP is only $14 trillion annually. The debt numbers are only going to get worse as the economy continues to deteriorate.
I am starting to think its too late to save ourselves from total destruction when I see such staggering numbers.
Sorry I couldn't be a little more cheerier tonight. Its time to start making different arrangements in order to survive this nightmare. More on that later.
Sunday, July 19, 2009
Goldman Sachs makes me want to throw the hell up. I despise them. I continually ask myself "How does Goldman have the nerve to report record profits after being saved by the taxpayer".
Lets get one thing straight: Goldman was SAVED by the taxpayer. IT FAILED! Without a taxpayer bailout, this firm would be out of business.
In fact, they still have enough level 3 assets on their books to still possibly wipe them out. However, with no mark to market accounting rules, the firm is allowed to mark their worthless securitization assets at 100 cents on the dollar. Meanwhile back here on earth, we all know these assets are worth far less, perhaps pennies on the dollar.
IMO, any profits made by these parasites should be sent directly to the taxpayer until they pay back the AIG gift that they received from us. I mean yes they paid back the TARP, but WHAT ABOUT THE $13 BILLION DOLLAR TAXPAYER DONATION THAT WAS MADE TO GOLDMAN IN THE FORM OF COVERING AIG'S BAD BETS VIA CDS SWAPS?
How are these cockroaches allowed to pay themselves disgusting bonuses after stealing so much money from the taxpayers? The arrogance of this firm is BEYOND BELIEF!
The fact that Goldman lavished themselves with million dollar bonuses within a year of being saved by the taxpayer as the rest of America suffers in a depression is unfathonable in my opinion.
I want this firm to die. Parasites are no good in any form. This firm would have failed if it wasn't for their connections in Washington.
Goldman needs to be humble as the rest of America suffers. The fact that they are out gloating about their earnings says a lot about them as people.
As far as I am concerned they can rot in hell. PAYBACK YOUR AIG GIFT AND SHOW SOME REMORSE YOU SLIME!
Enjoy this Guardian article from the UK. The pathetic US press would never have the balls to write such a piece criticizing the kings of Wall St. Goldman was a bankrupt firm that saved themselves via their connections in the government. They were toast without them. Goldman is a joke and anyone with a brain knows it.
Enjoy the piece:
"It ought to have been a moment of triumph for Goldman Sachs, the most feared, revered and envied of Wall Street's investment banks. Long synonymous with power and wealth, the firm delivered the biggest, healthiest profit since it was established in a one-room Manhattan office by a German immigrant, Marcus Goldman, in 1869. But hunched over their computer screens from dawn until late at night, Goldman's elite bankers were unprepared for the ferocity of the looming backlash.
Over the three months to June, Goldman clocked up $3.44bn of profits, amounting to $38m a day or $1.58m an hour. Making money has suddenly become easier. Under Goldman's policy of dedicating half its revenue to staff pay, the firm's 29,400 employees can expect average take-home packages of between $700,000 and $900,000 for the year if the present level of prosperity continues.
Not everybody is impressed - far from it. In Congress, senators fulminated against the divide between two Americas: Wall Street trumpeting its return to prosperity while citizens on the high street lose jobs and homes. A leading US union, the Service Employees International Union, accused Goldman of emerging from the credit crunch "unrepentant and unreformed".
An article by writer Matt Taibbi in Rolling Stone magazine compared Goldman Sachs to a parasitic vampire squid squeezing the life out of humanity. The New York Times said that Goldman employees were known in New York as the "bandits of Broad Street".
The rightwing television host Bill O'Reilly referred to Goldman as "swine". And the Nobel Prize-winning economist Paul Krugman weighed in, declaring that what the bank does is "bad for America". "Goldman made profits by playing the rest of us for suckers," wrote Krugman, pointing out that the firm made a fortune in the run-up to the financial crisis by betting on a collapse in the sub-prime mortgage market.
In Westminster, 33 MPs have signed an early day motion demanding a 90% tax on bankers' bonuses that are worth more than 15% of salary. Across the English Channel, President Nicolas Sarkozy's top adviser, Henri Guaino, declared that the bank had posed a "gigantic" moral problem: "Goldman Sachs wouldn't exist had American taxpayers not come to its aid. To be drowning in dollars and bonus money today is utterly scandalous."
Goldman's critics fall into two camps. There are those who object to the sheer scale of its profits, on the grounds that such sums can only be made by taking irresponsible risks bound to end in financial disaster. And there are those who, while welcoming its return to fiscal health, are disgusted that Goldman still insists on giving 49% of its revenue to already well-off staff. This, after all, was the bank that handed pay packets of more than $20m to 50 of its employees before the credit crunch began to bite three years ago. Why, asked former New York governor Eliot Spitzer, could Goldman not reinvest the proceeds in job-creating industries such as green energy or biotechnology?
Most galling of all is that, in the eyes of many, the money has been made with the help of the US government. In the dying days of the Bush administration, Goldman was one of nine top banks ordered by the US Treasury to accept bailout money whether they needed it or not.
Robert Borosage, president of the left-leaning Campaign for America's Future, says Goldman has been crucially bolstered by the US government's implicit message that it is too big to fail: "These guys are going back to their old games with a new sense of empowerment thanks to the Federal Reserve ultimately back-stopping them."
Within Goldman, there is disbelief at the avalanche of hatred. A spokesman describes many of the attacks on Goldman as "unjustified and hideously distorted". The bank points out that it pays a US tax rate of 31% on its earnings - so the public get a third of its profits. Its success, argues the firm, helps stimulate economic activity.
"The government and other banks want us to engage fully and provide liquidity into the markets," says Goldman's spokesman. "It seems perverse to criticise firms that have done what they're asked to do for doing what they've been asked to do."
As far as remuneration is concerned, Goldman does not consider itself a typical Wall Street employer. It recruits bright people at a young age - and it does not rely on Ivy League or Oxbridge graduates. On average, Goldman staff become partners by the age of 35 and they are quietly encouraged to leave a decade later. Many go into public office, a fact which further enrages critics, who view the succession of senior US government roles held by former Goldman staff as evidence of the bank's powerful tentacles.
Goldman sources cite another sector popular among its former employees - or "alumni", as it calls them - as evidence of the need for top-dollar bonuses. Many hedge funds and private equity firms have been established by alumni, so it is not so much the prospect of poaching by competitors that worries the bank but the allure for its employees of going it alone.
Goldman insiders feel that, perversely, the bank has been discriminated against by encouraging its staff to enter public service. It wanted to buy Bear Stearns and Washington Mutual but lost out both times to JP Morgan - partly, sources allege, because of nervousness in the Bush administration about the appearance of a deal with a bank that used to employ both the then treasury secretary Henry Paulson and President Bush's chief of staff, Josh Bolten. Just this week, Goldman acolytes wondered whether fear of a backlash prevented the Obama administration from working with Goldman on a mooted joint rescue of the struggling lender CIT Group.
Reacting to Rolling Stone's evisceration of the company, one Goldman executive jokingly pointed out this week that real vampire squid were harmless to humans. Nevertheless, the bank is caught at the trickiest of moments: its earnings have recovered, but at a grassroots level much of Europe and the US remains in recessionary misery.
The fury and disbelief at Goldman's seemingly untouchable fortunes was captured this week by Elijah Cummings, a Democratic congressman for inner-city Baltimore. At a Congressional hearing on the financial crisis, he explained: "People in my district, you know what they ask me? They say, 'Cummings, is that money that folks are getting on Wall Street, those millions and billions, is that our money? Because our money went somewhere. What about us? What about us, who can't send our kids to college in September? What about us, who don't have a house? What about us?'"