Friday, September 10, 2010

I'ts Time To Get Real!

A little housekeeping before the videos.  This site will be down for the next week because I will be away.

Please feel free to chat amongst yourselves in the comments section.

I will chime in when I get a free moment, and I might try and put up a post at some point.   No promises though...

Scott Bleier

We actually heard the truth from someone on Wall St yesterday.  Scott Bleier of Create Capital came out and basically told it like it is.

If we continue down this economic path we will most assuredly loook like Japan when it's all said and done.

There will be no recovery until the "digital debt" that we created with various credit Ponzi schemes is either defaulted on or marked to market.

Great stuff here...

Enjoy and have a safe week in the markets.  I'll be back next Friday.


Part 2

Thursday, September 9, 2010

Bondzilla Returns!

What an interesting day today.

There are lots of things to talk about so let's get right to it.  Let's start with the ugly 30 year treasury auction today.  Here was the recap from the link above:

"This week's government debt sale ended on a sour note, with investors unfriendly toward a sale of long bonds.

The $13 billion sale of 30-year bonds fetched a high yield of 3.82 percent, 0.042 percentage points above the "when issued" expectations. Bidders put up 2.73 times the amount bid, a measure known as the bid-to-cover ratio.

Foreign demand also was soft, with indirect bidders making up just 36 percent of total buyers."

Needless to say the bond market didn't like the news.  Notice the sharp spike in 30 year yields at 1:00 when the auction results were released:

My Take:

This afternoons bond sale was very disappointing considering the flight to safety we are currently seeing into bonds.  The fact that only about a third of the auction was bought by foreigners is also pretty disturbing.

When you really think about it:  Should we really be surprised at these results? 

I mean investors are scared to death right now.  The idea of holding a bond that doesn't mature for 30 years must sound daunting when we can't even predict how the economy will look 6 months from now.

Foreigners have to be concerned about our ability to keep rates this low as our deficits continue to soar.    There is also the risk of inflation that could be triggered if we saw the dollar collapse or a devaluation of the currency by the Fed.

I think there is another developing threat to the bond market that is starting to get a lot of press.  This is the emergence of corporate debt.  Take a close look at the video below:

My Take:

Buying corporate debt is beginning to look like a much better bet moving forward.

Think about it:

Why buy treasuries that pay nothing and expose you to the serious threats of the USA's deficits when you can invest in a corporate bond of a company that has a stronger balance sheet and pays a higher yield?

Sounds like a no brainer idea to me.  There are plenty of solid companies that will survive our depression.   I agree with the bond trader above:  If you are comfortable with the duration of the bond and the yield then go for it!

You can see why companies are swarming to the bond market with debt offerings.  They know they will likely never see today's perfect combination of strong demand for corporate debt and low borrowing costs ever again in their lifetime.

Market Volume

I wanted to end with a little piece on the market volumes and sentiment before I get to the bottom line.

Bob Pisani had another interesting statistic today on the trading volume in early September:

"In the first 5 trading days, September consolidated trading volume at the NYSE was down 31 percent compared to the same period last year. August volume was also 31 percent below the same period last year."

Quick Take:

Where are all of the bulls?  I thought this was recovery summer?

Basically the volume tells you that you can hear the crickets chirping on the trading floors of the stock market.  This doesn't bode well for equities. 

The video above that began with a hedge fund trader who called for the death of  "cult of equity had a good take on it:

Here is the link to the article that the CNBC referred to.

Some tidbits from the piece:

"The “cult of equity” is dead as dividend yields in most of the west have risen above bond yields, according to one of Europe’s leading equity fund managers.

Alister Hibbert, a fund manager in European equities at BlackRock, told the Financial Times in a video interview that the cult started when dividend yields fell below bond yields about 60 years ago.

“We have now moved decisively the other way ... and that seems to be in relatively normal market times. So I think the cult of equity is dead,” he said.

They suggest that many equity professionals are admitting defeat after a poor decade for share prices has seen investors move away from equities and into bonds.

The cult of equity is widely regarded as starting in the 1950s as institutional investors piled into shares, pushing the dividend yield below the bond yield."

Quick Take

This was actually a bit too bullish for me at the end.  I think he is right but way early.  Nonetheless, he does make a good point about the psychology of investors who have taken a beating in equities over the past 10+ years.

The Bottom Line

Keep an eye on this huge shift into corporate bonds.  This will not bode well for stocks or treasuries in my opinion. 

I say this because the massive flight into corporate bonds suggests that there are now three viable competitors for investors.

Corporate bonds have always been around. 

However,they were never really a real threat to government bonds because they were considered "risky" versus investing in a treasuries that were backed by the full faith and credit of the United States Government.

This investor sentiment has now changed because investors are now questioning the solvency of the US.  They are then questioning treasuries as a result.

It will be interesting to see how stocks and treasuries react to their new corporate competition.  

Remember, there is only so much money that can be spread around so both stocks and treasuries could suffer as money finds safer places to hide.

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

Wednesday, September 8, 2010

Why doesn't our media get it?

Long day so I will be brief tonight.

The Fed released its Beige Book today.  The whole report was pretty much a snooze fest.

Here is the one statement from the report that the traders focused on:

"The overall U.S. economy was still growing in late summer, but there were "widespread signs of deceleration," the Fed said."

The balance of the report was filled with the usual Fed spin on the economy as they discussed "pockets of strength" in various areas of the country.

"Pockets of strength"....Please...Spare me the details....It's such a joke.  I am sure there were pockets of Rome that didn't burn when the Empire collapsed.

The bottom line here folks is nothing has changed.  The market looked directionless today as it wobbled around in slightly green territory.

I will close today with a CNBC commentary followed by another soundbite I picked up from the RT on the US housing crash. 

FYI, expect to see more reports from other parts of the world on this blog because it's becoming increasingly more difficult to find anything that even resembles the truth from our own financial media.

Who would of thought 25 years ago during the peak of the Reagan era Cold War that Americans would have to read the Russian media in 2010 in order to get accurate financial reporting on Wall St.

I searched CNBC today and what I found was a joke.

For example:

Cramer was out with his "Four signs that the bull could prevail".

He rattled on:

"The bears need to spread these negative stories to stop the bullish advance and they do it because it works," said Cramer. "The bears have been incredibly effective at spreading innuendo and fear."

"Things are still looking better for the bulls," said Cramer. "Today's action could be merely the death throes of a bearish defense that’s on its last legs."

Quick Take:

Surely you jest JC.  Your first comment is the exact opposite of what is really going on.  For Cramer to suggest this is ludicrous. 

How many "green shoots" pieces are seen on CNBC every day versus "gloom and doom"?

How many bulltard talking heads do you see on this network every hour telling you to buy stocks?

The reality here is CNBC viewers are baited into buying stocks 90% of the time the network is live on the air.

If CNBC wanted to be fair and balanced then why don't they give Dr. Noriel Roubini a time slot after Cramer and let him interview the ever growing list of bears that now reside on Wall St?

Investors have had stocks shoved down their throats by this network ever since the late 1990's and they now have NOTHING to show for it. 

Why hasn's CNBC changed with the times and realized that the smartest guys on the street no longer are in stocks?

The only ones left playing in stocks are the HFT's and the hedge funds.  The institutional guys are only there because they are forced to put money to work, and trsut me, they are not happy about being forced to play in the sandbox.

In fact, they have recently started to complain because they find themselves getting fleeced by the predatory traders who sit in the shark tank waiting for them as they put bids in for stocks.

Anyone network that's telling you to jump into this tank must be ignored at this point.

If you are must watch some TV during the day then I suggest you change the channel over to "Judge Judy".

At least there you will be able to find something that represents truth and justice.

Here is the RT blip I promised above:


Tuesday, September 7, 2010

European Debt Worries Resurface

Stocks sold off today as European debt concerns rattled Wall St.

A lot of this concern was triggered by today's Wall St Journal article that showed the disparities between the sovereign debt holdings of the European banks that were reported in the European Stress Tests versus the data that came out of the BIS:

The differences are startling:

The markets are essentially telling us that they believe the stress tests were a complete joke.  From the Journal:

"LONDON—Europe's recent "stress tests" of the strength of major banks understated some lenders' holdings of potentially risky government debt, a Wall Street Journal analysis shows.

The stress tests' upbeat results—only seven banks flunked, and were deemed short of just €3.5 billion ($4.51 billion) of capital—initially soothed markets. But fears have flared up again as heavily indebted countries like Ireland and Greece continue to struggle. Among other warning signs, the costs of insuring many bank and government bonds against default in countries such as Portugal, Ireland, Greece and Italy have jumped above their pre-stress-test levels."

My Take:
I just have to chuckle when I read this stuff.  Just when you thought it was safe to walk outside and invest the boat springs another leak.
Always follow the credit markets when you are trying to figure out who is lying.  The fact that spreads have soared above their pre-crisis levels tell you all you need to know.
Investors Continue to Bail on the Market
I hope the central bankers of the world are beginning to question their "extend and pretend" strategy.  No one is buying it anymore.  Fundemental investors have completely bailed out of the stock market.
Bob Pisani quoted some interesting data from Tabb Group today:
"Who's trading stocks these days?
I get asked this question constantly; last Friday Larry Tabb, who runs Tabb Group, and I had a fascinating discussion about high frequency trading and the Flash Crash. Here's Larry's estimates on who is trading as a percentage of total volume on all the equity exchanges.

Who's trading?

(% of daily volume)

- High frequency trading 56%
(includes proprietary trading shops, market makers, and high-frequency trading hedge funds)

- Institutional 17%
(mutual funds, pensions, asset managers)

- Hedge funds 15%

- Retail 11%

- Other 1%"

Quick Take

Let's do a little math here folks.  The HFT's and hedge fund traders now make up 73% of the market volume.  Add in the institutional fund managers and you are now up to 90%.

The retail investor has essentially pulled an Elvis and "left the building".

The way I see it this makes the market extremely illiquid.  How can anyone be comfortable when 73% of the market trading is being done by predatory traders that are taking short term positions in an attempt to make a quick buck?

The market is going to continue and trade like a casino as long as this is the case. 

As Jim Rickards brilliantly said yesterday:

"The markets are not reflecting fundamentals, because there are no more fundamental traders. It is an accident waiting to happen."

Essentially, there is no way to consistently analyze the market when it's filled with traders that are looking to make a quick buck in a matter of seconds or hours. 

Markets are liquid when people are fundementally buying stocks for the longer term.  The flash crash proved that the current market is not liquid.  It showed us that the robots all head for the exits as soon as the market rolls over.

What happens next time when there are no individual investors left in the market to help soften the blow when the next flash crash hits?

Can you blame investors for running away from the stock market as fast as they can?

The Bottom Line

Keep an eye on the European debt crisis.  There are a lot of rumors circulating out there that a European bank might seriously be in trouble.  Bonds soared and gold closed in on new highs as fear among investors continues to rise.

Eventually something has to give here folks.  The door can no longer be shut because there are so many skeletons in the banks closets at this point.

You have to wonder if the central banks are beginning to realize that they can no longer keep this market propped up. 

The New York Times actually suggested that we let the housing market crash:

"Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash."

When you start seeing articles like this from the Times you can assume we are closing in on the ending.

What that looks like is anyones guess.  One thing can be assured:  It won't be pretty. 

A few "hopes" before I end it today:

Let's hope all of the insanity finally ends with real price discovery in all areas of the markets no matter how bad they are. 

Let's hope we can take our market back from the trading robots.

Let's hope the government stops propping up housing and allows them to drop to prices where buyers can actually afford them.

Let's all just say enough is enough.

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

Monday, September 6, 2010

College Ponzi Scam Exposed

I guess you have to live in Russia in order to hear the truth about our economy.

It's a shame that college students have to destroy themselves financially in order to get an education.

Twenty years from now we will be asking ourselves how we got so less competitive in the world as younger generations decide to start taking a pass on college.

Our credit bubble is becoming more and more exposed as our economic "boat" continues to take on water.

It's only a matter of time before it sinks.

Sunday, September 5, 2010

Inflation/Deflation: Does it Really Matter?

I hope everyone is having a great holiday.

I wanted to start with a little advice today.  Take 45 minutes out of your life and listen to an interview with Stoneleigh from The Automatic Earth Blog.

The most important thing that a person can do is to look at the macro economic environment when one is trying to protect their finances.  This is an issue that is stressed by Stoneleigh and it's something that I try to do as well.

What happens in the short run in the markets is essentially meaningless in today's financial world that's filled with fraud and trading robots. 

I was amazed last week at the bashing of the bears after a three day rally that was pulled off during a week where we saw incredibly light volumes due to the fact that: 

1.  Many of the big players being on vacation.
2.  Investors are petrified to get involved in stocks because they have no confidence in the market.

I saw negative press on the so called "permabears" all over the Internet on Friday as the bulls rejoiced their little run.

Folks, the reality here is we saw a 3 day 400 point rally that in the long run that means nothing in the scheme of things.  We still find ourselves a tad lower for the year on the S&P 500 despite this recent rally:

My Take:

Despite the fact that stocks have gone nowhere for the past year, the bearish camp continuously gets attacked.  I really don't get it.  I guess perhaps many Americans buy into the biased financial media that continue to pump the "recovery" story.

Day after day as the economic data gets released the media immediately focuses on the "silver linings" if the data point is bad.  Why can't they just stick to the facts and tell us theeconomic data just flat out stunk?

If the data is bad then report it.  Don't try and spin it positive.  News reporters are supposed to stick to the facts.  Our press for whatever reason doesn't see it that way.  CNBC feels they have a duty to paint a "smiley face" on every data point.  Anyone with a brain has lost all respect for networks like this.

A great example of this is the jobs report.  The focus from the media was on the 67,000 jobs created by the private sector versus the overall net losses that we saw in jobs. 

This of course is a joke:

As I have said previously, anything under 150k job growth is a total failure because that's how many jobs are needed in order to show lower unemployment.

Permabears or Realists?

In my opinion the word "permabear" needs to go away.  People with bearish views are realists at this point when you see where the economy is.  The permabulls are trying to hang on to a way of life that is financially unsustainable.

I expect to see continued attacks on the bears because the elite in this country have no desire to accept the collapse of their Ponzi scheme.  I am frightened by what they plan on doing to the sheeple as the Ponzi scheme begins to fall apart.

You can expect to see higher taxes, tougher BK laws, and less public services as the elite attempt to prevent the unraveling of this bubble.  They will fail of course but that doesn't mean they won't try.  They will make our lives miserable in the process.

Deflation/Inflation Debate

I wanted to add one point before I finish.

Stoneleigh made some great points around deflation.  She called the "printing money" inflation theory basically a form of accelerated deflation versus a classic Japanese deflationary 20 year death spiral.  In her eyes the end result is the same:  An economic collapse.

Therefore, we need to ask ourselves if the inflation/deflation debate even matters anymore.

This is an excellent piece of analysis.  The endpoint is the same in either scenario.  As Stoneleigh explains:  The only difference is the collapse happens much faster during a "hyperinflation/inflation" type event.  Perhaps hyperinflation should be renamed hyperdeflation?

I mean let's play out the hyperinflationary scenario:

The price increases that would be seen during a hyperinflationary event would be unsustainable because people would not have the money to afford anything.  Demand would therefore collapse which would then send prices lower as the economy unwinds.  So essentially this then puts us right back on the deflationary train.

The Bottom Line

The bottom line here folks is the stock market has going nowhere since the beginning of the year.

The economic data continues to accelerate to the downside.  Rallying based on "better than expected" numbers that continue to tell us that  the economy is detiorating is a fools game. 

The government is using every resource they have as they attempt to pump the markets with confidence around the so called "recovery".

All I can say is don't believe the hype:  The economy continues to be in a  freefall.  Unemployment rose on Friday and home sales remain near an all time low despite historically low mortgage rates.  U6 unemployment is now close to 17% according to Friday's number.

I hope you all continue and prepare yourselves for the financial collapse that cannot be avoided at this point.

Let's discuss how you can prepare yourself for this before I finish up:

-  Pay down as much debt as you can.
-  Raise cash.
-  Avoid large purchases that will increase your debtload.
-  Diversify your portfolios for both inflation and deflation.
-  Do not buy a house...Period.

I will end it there.

Let me close by advising you to avoid the short term moves in the market.  The pigmen on Wall St will always use any rally as a marketing tool to suck even more of the sheeple into buying stocks.

What usually happens in such scenarios is Wall St uses this opportunity to sell their stock holdings on these artificial rallies to the retail investor who is then left holding the bag.

Remember:  The rallies are artificial because the economy is not recovering.  How many times have we seen this game before in the past 10 months or so.

Look back at the last 10 years and see how buying equities has worked out for you if you had followed their advice.

You will find that you would have significantly crushed Wall St's performance if you simply bought CD's and stayed in cash.

This is why I always preach preservation of capital in a market like this.  Getting sucked into stocks has been  losers game over the past 10 years if you bought and hold. 

If you decide  to try and "trade" the markets during this period on a daily basis you also likely lost money.  The data that's available shows that 99% of people that try and daytrade the market lose money.  You never hear that side of day trading when you read the comments section of trading sites.

I know it's boring but the best option in times like these is to sit in cash and wait for the opportunities that will develop once the Ponzi scheme falls apart.

This is where the real money will be made.  Assets will be available at pennies on the dollar once the Ponzi scheme collapses ,and good stocks will offer ridiculous dividends in order to get you to invest in their companies.

Patience grasshopper patience.

Have a great holiday!