Saturday, October 31, 2009

Friday, October 30, 2009

Be Careful!

I just wanted to hop on tonight and issue a warning to anyone who has participated in this rally or has a high exposure to equities.

The price action today was absolutely frightening! I guess it was perfect timing considering Halloween is tomorrow night. IMO it is time to lighten up considerably if you are on the long side.

As most of you know, this blog focuses more on the macro/long term outlook on the economy. I have remained consistently bearish because we have not fixed the problems that continue to plague the economy.

When I see nasty sell offs like we saw today, I feel compelled to at least warn everyone that IMO the market is not reflective of the economy. I really don't want to see anyone get hurt like many did in 2008. I remain convinced that we still haven't seen the final capitulation sell off that will finally end this nasty bull market.

I recently have rarely discussed trading because the market simply hasn't traded based on any fundamentals. I tend to run away from markets like this because it's easy to get slaughtered when the bottom drops out! 2000 ring a bell?

The problems remain the same: We are not doing the things that are needed to fix this economy over the long term. We continue to spend money we don't have in an attempt to stimulate the economy. This approach has been a colossal failure. Consumer spending which is 70% of our economy continues to contract as the economy tanks.

Making matters worse: Banks continue to refuse to lend, unemployment continues to soar, and the end of the housing collapse appears to be nowhere in sight.

Here is a perfect example:

Fannie Mae announced today that their 90 day delinquency rate has tripled:

"NEW YORK, Oct 30 (Reuters) - Fannie Mae (FNM.P)(FNM.N), the largest provider of funding for U.S. home mortgages, said on Friday that delinquencies on loans it guarantees accelerated in August, while its mortgage investment portfolio grew in September from the previous month.

The delinquency rate on loans in its single-family guarantee business gained 0.28 percentage point to 4.45 percent in August, the most recent data available. A year earlier it was 1.57 percent."

Quick Take:

Bbbut Wall St said the recession was over! Yeah Riiiight. Are you all tired of continually being lied to yet? Only a fool would believe that a recovery is right around the corner.

BTW, We had 9 more bank failures tonight. Here is the list in case you are worried about your deposits:

North Houston Bank Houston TX
Madisonville State Bank Madisonville TX
Citizens National Bank Teague TX
Park National Bank Chicago IL
Pacific National Bank San Francisco CA
California National Bank Los Angeles CA
San Diego National Bank San Diego CA
Community Bank of Lemont Lemont IL
Bank USA, N.A. Phoenix AZ

The Bottom Line:

Things are bad and getting worse. We have now had two 90%+ down days on the S&P in the last three days. This is a sign of panic selling folks. We also broke through the key resistance level of 1042 on the S&P after closing at 1036.

This could possibly set us up for another sell off on Monday. I am starting to believe that the market technicians may be back in control of this market. This market is folding like a tent after seeing a 50% retrace.

Many TA traders are now worried we may be seeing the beginning of the famed "cataclysmic wave C down". I am not sure we are there yet because the bulls become emboldened after this retrace. They may believe a 10% pullback will create a"buying opportunity". Yeak OK, Good luck with that one!

If wave C down has really arrived we could see a devastating collapse in the market. I have said since day one of this rally that there was no liquidity behind it. It was a government backed stimulus rally.

The stimulus is now done and there is no money left for round two. We are trillions in the hole and the dollar will get crushed if the government attempts to go on another spending binge.

If you have been long I think now might be the time to take some profits. Cash looks like the best option in the near term because there may be some buyers on this pullback.

I will be taking a long dated short position on the S&P via SPY PUTS on any rally because I believe this will be the bulls last stand. Once the Fed stops buying MBS in March it's going to get really ugly.

One last point. Take note that gold and silver held up rather well despite the sell off. Does this mean the world is continuing to lose confidence in the dollar despite it's recent rally? This is certainly something worth watching.

Disclosure: No new positions at the time of publication.

Tuesday, October 27, 2009

CNBC Ratings Plunge 50%

Kudos to Zero Hedge for catching this gem:

My Take:

I guess financial propoganda only goes so far before investors pick up the remote and click to another channel.

To be fair to CNBS, the ratings collapse seen above is exacerbated by the fact that the ratings are being compared to last October when the financial system was on the brink of collapse.

That being said, the fact that Jim Cramer's Mad Money has lost half its audience after a 50% move HIGHER is pretty pathetic. The guy is the biggest bulltard on TV. Why aren't investors flocking to his show by the millions after such a gigantic move?

Meanwhile, the blogosphere continues to grow as people look for the truth instead of listening to a bunch of self serving banksters that are constantly rolled out hour after hour on bubblevision.

I can tell you that my viewership is up considerably over the same time period despite the fact that this is a bearish site! Many other bearish blogs are also seeing large increases. If the economic recovery was here for real, wouldn't the viewer trends be the exact opposite?

Even without an economic recovery, shouldn't CNBC's ratings be up after seeing such a huge move higher in the markets? Shouldn't a bullish biased network thrive in such an environment?

The way I see it, Americans are losing faith in both Wall St and the financial media. They have burned twice by both of them in the past 10 years to the tune of 50% thanks to the bursting of the tech and housing bubbles.

Perhaps CNBC needs to re-evaluate their programming and begin reporting the TRUTH about how Wall St has robbed the taxpayers blind instead of helping them hide their skeletons in the closet!

Note to CNBC: Without ratings you have no network. It made sense for CNBC to bow to Wall St when times were good and the banks were throwing them millions of dollars in ad revenue at them every year.

Those days are now gone! The only ads I see on there today are "cash for gold" that have those cheesy phones ringing in the background.

CNBC Documentaries

Here's an idea: How about doing documenteries on the fraud instead of wasting an hour of my time giving me a behind the scenes look of Wal Mart?

Perhaps their next hour long "special report/documentary"" should focus on an investigation into how the AIG bailout put $12 billion right into Goldman's back pocket instead of doing a piece on the porn industry.

How about a "special report" showing how the TARP was illegally spent. I would find this far more interesting than their recent segment on highclass callgirls.

The Bottom Line:

This network is rapidly becoming a laughing stock. If CNBC needs to increase viewers they should just sell an hour of airtime to the makers of ShamWow. I am sure that could pull a .2 share and CNBC would get paid for airing it!

Why pay Jim Cramer a salary when you could make money selling the Snuggie blanket?(scarcasm off)

IMO, if CNBC wants to gain back any credibility they need to start thinking about lifting up the curtian and exposing the criminals on Wall St.

Instead of embracing the fraud they should be reporting about it!

The way I see it, CNBC's ratings will continue to plunge the worse this recession gets. Nobody wants to hear "The Recession is over" or "The Good Times are Back!" when they are worrying about where their next meal is coming from.

Let's hope that CNBC will begin to embrace the fact that the recovery ain't happening.

If they are smart enough to come to this obvious conclusion, they MUST begin to start exposing the fraud.

Monday, October 26, 2009

Is the Rally Toast?

The market was down for the 4th time in 5 days today as bonds sold off and the dollar strengthened.

A few folks out there have called me a "permabear" claiming that I missed the recovery. I wanted to try and explain to you why being bullish after a 50% bounce is simply silly.

Before I start:

I thought many of you might be curious as to how I have invested during this huge bounce.

Let me admit my mistakes by answering the following question and update you on where I stand with my portfolio:

Did I miss a nice move in stocks since March? Yes!(although I was hedged long(an S&P 500 fund, and a few other typical long funds) and short(BEARX) in some retirement funds).

Overall however, despite my super permabear stance(according to a few readers), my portfolio has done pretty well because the government backed equity bounce has also been very positive for bonds and metals which is where I hold some large positions. My largest individual holding is PIMCO's PTTRX which is up 12% YTD.

As a result I am up since March and pleased with my portfolio's performance. I will be reallocating some positions here in the near future as I prepare for the next storm that appears to be just over the horizon.

Also, to be fair and transparent(unlike our banks) let me also add that my trading account was repeatedly raped for a few months starting in March.

This wasn't too painful because my trading account is a small piece of my retirement. However, like all investors I made some mistakes:

Did I own some options that expired worthless? Yes. Did I get humiliated by SRS? Yes. Did I learn some valuable lessons? Of course. Did I blow up my trading account? No but it was down big at one point.

I have always stressed diversification on this blog, and I have also repeatedly advised everyone that money used for trading this type of market should be a very small piece of your nest egg. Congrats to anyone who caught this move.

Alrighty back to my post:

So why do I think this rally is toast? Because essentially the market is currently a total sham with zero liquidity.

As you can see below, the P/E ratios of stocks have now surpassed even the insane levels seen at the top of the tech mania:

P/E's close to 150? How did this happen?

In a nutshell: The market morphed into a rigged casino. The people that rigged the game of course were the major players on Wall St. They did it using HFT's(high frequency trades). Where did the liquidity come from that allowed them to begin such a trading game? The taxpayer bailouts of course! The Reuters piece below does a nice job explaining how it all worked.

So how out of control did this HF trading game get? Well It appears the SEC is about to dig in and find out because HFT's now account for up to 70% of all daily trading:

""High-frequency trading now accounts for an estimated 50 percent to 70 percent of all U.S. equity trading and is growing fast in other regions and asset classes. In it, banks, hedge funds, and independent shops use ultra-quick algorithms to make markets and capitalize on tiny spreads and market imbalances.

Some politicians and investors have raised concerns the practice, which effectively replaced traditional market-makers over the last decade, creates a two-tiered market favoring the most sophisticated players."

My Take:

Wall St has once again found a way to create another bubble. Basically what is going on here folks is the banks have taken your taxpayer money (via the TARP and other Fed bailouts) and created an equity bubble in the stock market by buying practically every stock under the sun(good or bad).

Look no further than the the P/E ratios above if you don't believe this is going on! The fundamentals are being completely ignored as the trading desks continually press the BUY button on their quants and bid up the markets.

Stocks now sit at unsustainable bubble levels as the economy continues to burn. Don't believe me? Take a look at Andrew Smithers comments in the Bloomberg article below:

"Oct. 26 (Bloomberg) -- U.S. equities are about 40 percent overvalued and headed for a decline as central banks pull back on quantitative easing that pushed up asset prices, according to economist Andrew Smithers.

“Markets are very vulnerable to an end of quantitative easing,” the economist said in an interview at Bloomberg’s Tokyo office on Oct. 23. “Central banks, they’ve got to stop some time and if that happens everything will come down.”

In “Valuing Wall Street,” his March 2000 book co-authored with economist Stephen Wright, Smithers argued that U.S. equities were grossly overvalued and should be sold. The Standard & Poor’s 500 Index plunged 49 percent over 2 1/2 years from a then-record high reached that month. Smithers said he stopped buying equities in the 1990s and began purchasing them again only for a brief period during the lows of the current crisis.

Asset purchases have doubled the size of the Federal Reserve’s balance sheet to $2.1 trillion since the start of the current financial crisis. The Bank of England has spent 175 billion pounds ($286 billion) over the last seven months to rescue the economy. Both banks are sending signals they may be ready to start winding down their programs."

The Bottom line:

As you can see above, Smithers is no slouch. He correctly predicted the tech collapse back in 2000.

I am very close to hopping back on the short bus. If the bond market continues to rumble the banks are going to get crushed.

The risk of higher yields in the bond market is increasing for a variety of reasons. Unimaginable government deficits and the threat of even higher deficits as a result of healthcare reform are at the top of the worry list in the bond pits.

Let us not also forget about the massive bond issuance's that must be sold this week.

Another concern regarding higher yields in the bond market is the risk that the economy might be beginning to recover. This sounds counterintuative but its factual.


Because if the economy recovers, inflation will become a large risk because rates are too low. The Fed may be forced to raise rates as a result which would be catastrophic for the banks and their bloated mortgage filled balance sheets.

Ironically, a bad economy with low rates is the perfect "sweet spot" for the banks. They can borrow short for next to nothing as rates sit at zero and then lend long. Even the dumbest of all bankers can make money in this environment. The spreads are to die for as long as the loans are good.

Overall folks, this rally looks to be on its last leg. As the government stimulus dries up, so will the economy and there is no money left for another one because we are trillions in the hole.

I think we are close to seeing another big rollover in equities. Please be very careful with your nest eggs at these levels.

Also, Keep an eye out for my 401K post that I am currently working on. Hint: It may be time to say goodbye to this investment tool.

More Later.

Disclosure: Short treasuries in longer term accounts via TBT. No new positions were taken at the time this article was published.

Long gold and silver via GLD and SLV. Long bonds via PIMCO's (PTTRX).