Saturday, August 7, 2010

Steve Wynn Nails It!


Speechless.  So refreshing to hear this from such a high profile guy. 

"It's got to stop".....I couldn't agree more Steve:

Friday, August 6, 2010

The Jobless Recovery Rolls On

I am sure you have seen this by now but I thought I would put it up anyway:

"Total nonfarm payroll employment declined by 131,000 in July, and the unem-ployment rate was unchanged at 9.5 percent, the U.S. Bureau of Labor Statis-tics reported today. Federal government employment fell, as 143,000 temporary
workers hired for the decennial census completed their work. Private-sector
payroll employment edged up by 71,000."

The last sentence on revisions from the BS...I mean BLS is a classic:

"The change in total nonfarm payroll employment for May was revised from +433,000to +432,000, and the change for June was revised from -125,000 to 

My Take:

Needless to say today's jobs report was terrible and the revisions were even worse. 

The revisions are what really frustrate me.  How in the hell can you be that far off in June?  The losses were almost double what was reported when the number initially came out last month. 

Why are they pulling this crap?  Does the government think that serving us up BS jobs numbers will make us feel better about the economy so that we spend more?

Perhaps they just wanted another 30 days to re-arrange the deck chairs on the Titanic?

Folks, whatever the reason, it's a huge negative for the markets because all this does is further erode confidence.  How can anyone believe any of the numbers when you see revisions like this. 

The economy is clearly tanking yet stocks rallied back hard late in the day.  HFT's anyone?

The bond market however wasn't buying it for a second and wanted no part of this late day pump.  Take a look at the 10 year:

As you can see yields collapsed this morning and closed down near 2.8% on the jobs news.  These are certainly historic times.  Folks, we have never seen price action like this where both stocks and bonds rally.  It's clear that the stock market is being overtaken by the HFT's. 

The news we got today should have sent the market down 300 points.  Treasuries CANNOT move up like this with stocks moving higher unless the market is being totally gamed. 

Where is the SEC?????


Alright before I throw this chart up let me admit that many of you who read me no that I am not a technical analyst and probably can do this a heck of a lot better than I can. 

However, I did put together an interesting chart today on TOS:

I thought a couple of things were interesting here.  First of all if you bought the market at the beginning of this year your money has basically done nothing other than give you a heart attack as the S&P swung in a whopping 20% range.

If you were brave enough to hold stocks throughout this volatile period you have basically been rewarded with zero returns.  So much for buy and hold.

Secondly, I wanted to point out that we are now up against the 1030 level on the S&P which is where we peaked before selling off pretty hard in June. 

This is a critical resistance level.  If we don't break through 1030 then there is a good chance that stocks could roll over again given all of the bad news the market has been forced to digest.

Keep an eye on this level over the next several trading days.  If we don't break through the resistance it could spell trouble for stocks.

The Bottom Line

Bonds are telling you one thing while stocks are telling you another.  The problem is the equity side is being gamed.  The treasuries are telling the real story of this market(like they always do). 

This is a suckers stock market IMO.  The government is gaming the numbers while the HFT's game the stock market.

Follow the treasury market and you will be just fine.  I think owning a bond fund makes a lot of sense right now.  My largest holding here is PTTRX.  Treasury and bond funds should both continue to do well as the risk of deflation increases.

One thing to also take note of is we have the Fed meeting next week.  Any talk of a QE2 could create even more distortions in the bond and equity markets. 

I continue to sit in cash for the most part.  I will not put myself in the position to be taken advantage of by the predators on Wall St that have the system set up to take advantage of the retail investor.

I suggest you read this piece around how the trading sharks are now even eating the index funds for lunch as they begin gaming the commodity markets.  This is increasing the cost of living in many poor countries which is causing mass starvation.   

A shout out to The Automatic Earth for finding this.  This article will make you want to vomit but I think it's important for everyone to realize how vile Wall St has become. 

They would sell their own mother down the river if they could make a buck off of it, and I think it's important that every retail investors understands this before they take capital and attempt to trade against them.

I will close with a little quote from the article above:

"Commodity-index ETFs are a global threat far more dangerous to the world than nuclear attacks from terrorist nations. Nuclear WMDs have the power to wipe out major urban areas killing tens of thousands instantly, like Japan in 1945, leaving massive scars across humanity for many decades.

And yet, as Funk puts it: "Heilberg's bet on chaos is beginning to play out on the streets." The toxic trail of commodity ETFs is already proving to be deadly, starving thousands worldwide, while the new Capitalists of Chaos only see incredible profit opportunities, as they make huge bets that they'll get even richer in the next round of catastrophes, disasters, poverty, starvation and wars.

Bottom line: Commodity ETF/WMDs are mutating into a toxic pandemic fueled (and protected by) the insatiable greed of banks, traders and politicians whose brains are incapable of giving up their profit machine, won't until it implodes and self-destructs. The Wall Street Banksters have no sense of morals, no ethics, no soul, no goal in life other than getting very rich, very fast. They care nothing of democracy, civilization or the planet.

They are in a race to become the richest man in the world, to control more assets, more commodities, more rights, more land, more money than Warren Buffett, Bill Gates and Carlos Slim combined. It's a contest and the other 6.3 billion humans on the planet are just profit opportunities (and collateral damage) in the dangerous high-stakes games played by the new Capitalists of Chaos ruling the world."

Please be careful out there all and have a great weekend.

Thursday, August 5, 2010

Where are the Jobs?

It's all about the jobs number tomorrow folks.

If the number looks anything like the jobless claims report today then it won't be pretty:

From Haver Analytics:

"The already weak labor market suffered an unexpected setback last week. Initial claims for jobless insurance rose to 479,000 from 460,000, revised up from 457,000, during the prior week. The latest level was the highest since early-April and just missed the highest since February. The four-week moving average of initial claims which smoothes out some of the w/w volatility also rose to 458,500, the highest level since early-July."

My Take:

Ouch.  These numbers are flat out ugly.  You gotta wonder if all of these corporate earnings beats that we have seen recently are a result of slashing jobs versus increasing sales.

Many companies are beating estimates without seeing top line revenue growth.  You have to wonder if they are sacrificing their workers in order to meet profit expectations.

The consumer data continues to point towards much slower growth so where else could the earnings be coming from?  We got more poor retail data today that provided more proof that the consumer is on strike.

The only conclusion I can draw is companies continue to slash jobs and costs as they try and survive our Great Recession/Depression. 

The problem here is you can only cut so much before it starts hurting sales and profits.

I predict that you are going to see a big drop off in earnings in the second half of the year as the consumer continues to deleverage.  Many companies are now running about as lean as they can.  You can only become so productive!  

The fact that jobless claims are once again trending higher after all of the cuts we have already seen is staggering and very alarming.

I mean look at the graph above.  At one point we were seeing jobless claims at 750k.  Anything over 400k is considered to be recessionary.  We peaked at a little above 400k during the last recession earlier this decade.

Our Great Recession/Depression has been destroying jobs for over two years now and it is showing no signs of slowing. 

Perhaps we shouldn't be surprised these days when we see news like this:

"WASHINGTON — The number of Americans who are receiving food stamps rose to a record 40.8 million in May as the jobless rate hovered near a 27-year high, the government reported yesterday.
Recipients of Supplemental Nutrition Assistance Program subsidies for food purchases jumped 19 percent from a year earlier and increased 0.9 percent from April, the US Department of Agriculture said in a statement on its website.
Participation has set records for 18 straight months."

The Bottom Line:

The disconnect between Main St and Wall St has never been larger.  The people in this country continue to suffer and things appear to be worsening. 

Investors continued to pile into treasuries today.  The 10 year yield ended the day at around 2.9%. 

The market pretty much flatlined as it prepares for the jobs number tomorrow.  It will be interesting to see how this report is spun if it's negative.  I am sure they will use the "census worker" excuse if we get a bad print.

I think tomorrow is a big day.  The volume has been anemic heading into the jobs number.  This tells me investors are very concerned about where the economy is headed.  When you see the jobless claims numbers you can see why.

I wouldn't be surprised to see some serious volatility after the jobs number tomorrow as the market begins to contemplate the idea that the economy might be heading back into a recession. 

Mr. Market is also pondering the idea that deflation might be rearing it's ugly head.

I think by Q1/2011 we will see a negative print on GDP.  The bond market is almost always right and its telling me that it sees the same thing.

Tomorrow will be interesting...Stay tuned.

Disclosure:  No new positions taken at the time of publication.

Wednesday, August 4, 2010

Market Dislocations Hit All Time Highs

No charts or videos tonight folks.  Just some thoughts.

The market we are currently witnessing really is a once in a lifetime event.  I am convinced that everyone is confused at this point.  The bulls are as insecure as the bears.

One moment we get bullish data then the next moment something comes out that makes you think the economy is collapsing such as a bad jobs report.

The retail investor is absolutely petrified at this point.  The money flows continue to fly out of stock funds and into bonds.  The 10 year remains under 3% as a result.  This tells you all you need to know if you are wondering where the big money is headed.

Many are now asking this question:  Why is the market rising at the same time treasuries are?  Great question.

I have talked to a few market makers about this over over the course of the last few days.  One of them blames the propped up equity values on the HFT's(high frequency traders).  He believes they are essentially creating false liquidity by creating massive trading orders of which only a fraction are filled. 

This essentially allows them to game the market as investors run to the sidelines.

It becomes much easier for the HFT's to game the markets(especially when the SEC is essentially asleep at the wheel) when the market volume is so pathetically weak like it has been recently.  I have read recently that the HFT's may be supplying up to 80% of daily volume seen in the markets.

This would make sense given the fact that the market hasn't dropped as money flows so powerfully into treasuries.

You can blame the SEC for this mess.  The quants are so far ahead of these guys it's not even funny.

Think about it:  How in the heck can stocks be rising with such strong money flows into bonds?  This NEVER happens.  Take a look back at history.  One market's weakness is another ones gains.

There has never been a time in history where EVERYTHING went up at the same time like this.  It is absolutely ridiculous and it should not be trusted.

Another market maker friend of mine gave me his explanation of what he thought is also going on in addition to the HFT debacle.  He suggests that market liquidity has become hugely dependent on ETF's.

He believes that speculators have taken over the markets using these new investment vehicles.  Real investors have stopped owning individual stocks for the most part in his opinion and have decided to head for the hills for the most part.. 

This is a scary thought if it is true because it means the market is filled with nothing but speculators that go massively long and short investments vehicles like the SPY.

If the specs are not indulging on options you have to assume that they are buying leveraged ETF's that go long or short various sectors in the market. 

This risky behaviour has basically turned the market into a casino that has scared away the average individual investor.

I'll be honest:  It has scared me the heck away for the most part.  I want nothing to do with this market long or short because the whole thing is a SHAM. 

I see no confidence in the markets.  Investors are panicked when you look at whre bond yields are. 

It's becoming obvious that no one knows what anything is worth anymore because the laws and regulations have essentially allowed Wall St to avoid marking anything to market.

The reason there has been ZERO price discovery is because the losses are so catastrophic.  Since these losses do not have to be recognized, the market acts as if nothing is wrong with any of the assets that are related to the credit collapse.

This gives investors a flase sense of security which is a recipe for disaster!

Denial is a Powerful Emotion

The market is as unstable as I have ever seen it in my entire life.  We have securities like MBS that are trading at 100 cents on the dollar when they are essentially worth pennies on the dollar without the Fed guarantee. 

The same goes for many other credit assets:  Commercial real estate bonds/mortgages, high yield bonds, level 3 assets etc.  Everything is ridiculously overvalued and no one holding these assets has been forced to take the majority of the losses. 

The same thing goes for housing:

Families stuck in overvalued McMansions are unable to take the losses because they are underwater on their mortgage and they cannot afford to short sell the house.

This has TOTALLY distorted housing values.  I wouldn't touch a house with a 10 foot pole at this point because the real value of these assets has not been established.  

The sellers are stuck and they have no way of getting out.  This will not end well, and the real bottom in housing will not occur until the housing market is cleared.  We are far from seeing this given the fact that most markets have about 11 months of inventory plus god knows how much shadow inventory.


Let me repeat myself and explain why buying a house now at record low interest rates is the WORST time to buy a house:

There is no way for the house to appreciate in value because rates will be going against you over the term of the loan because rates will eventually start rising.

Rates might fall from here shorter term due to deflation,  but our deficits are going to eventually push rates up over the longer term.

The only way a house appreciates(other than bubble speculation) is when interest rates drop which allows buyers to borrow more. This former rising tide now goes against you as lending rates rise after dropping to about as low as they will ever get.

You need to start looking at buying a house like you do when you buy a car and realize that as soon as you buy it you are pretty much guaranteed to lose money on it as soon as you sign the papers.

Ignore the idiot Realtors who tell you rates are at record lows so now is the time to buy! It's actually the worst time to buy!

The Bottom Line

One thing is very clear here folks:  The bond market would not be trading like this if the markets were stable! 

Bill Gross just increased his treasury holdings in PTTRX from 30% to 50%.  You don't do this unless you fear deflation or some other market event.  Many other large players have been making similar trades.

The market is preparing for deflation and this isn't going to be pretty when it happens.

The recent holding pattern seen in the markets is a result of the HFT's combined with false hope that is  based on the misrepresentation of the value of credit assets.  As I have said before this is unsustainable because the losses must eventually  be taken. 

The Fed has been trying to reflate the credit bubble for 3 years now and it has done nothing to help the situation.  The economy continues to rapidly deteriorate as our deficits begin to overwhelm our revenues which leads to more job cuts and foreclosures.

If you trade long or short this market please put tight stops on your trades and stay nimble. 

Disclosure:  No new positions at the time of publication.

Monday, August 2, 2010

Kudlow Takes a Beatdown From His Former Boss

I was happy to see another guy that gets it.  It's a shame clueless Kudlow doesn't it.  Take a look at this interview with former Reagan budget director Dave Stockton.

The fiscal math doesn't work and Dave Stockton brilliantly describes why it's impossible to grow our way out of this via tax cuts and economic growth.  AS he explains:  Our spending policy is unsustainable and it's going to fail if we don't rapidly cut spending and increase revenues.

Stockton called the last 10-15 years a "Phoney Boom".  I couldn't agree more.   

Kudlow repeatedly tried to put David on the defense and the guy didn't blink as he shut down ALL of Kudlow's attacks one by one. 

Kudlow consistently found himself speechless as he failed to come up with any logical flaws in Dave's brilliant thesis.

It should be noted that Dave Stockton was key part of the economic team that got things turned around in the early '80's via tax and budget cuts during the Reagan years. The fact that he is on the opposite side of the tax arguement is worth noting.

One by one everyone is slowly coming to the same conclusion:  Stimulus spending  has been proven to be a catastrophic failure.  Austerity and managing the budget is our only path back to prosperity. 

It's going to be a very painful road to get there  but I see no ther way out and it appears many are also starting to think we need to make some adjustments. 

Let's hope we start making the tough choices like letting the insolvent fail before this country goes down the tubes. 

We need to open up all of the balance sheets and get back to sound accounting standards.  This economy is going nowhere until we make these changes.  I don't care what the market does in the short term because its meaningless in the long run because the current system is unsustainable.

Our financial system has been run like a Ponzi scheme for the last 30 years and we have run out of suckers to sell to.