Friday, September 24, 2010

Tepper Speaks and the Market Listens

Stocks rallied fiercly today after the durable goods number came in better than expected:


Another trigger today weas famed hedge fund manager David Tepper's comments on CNBC today:

My Take:

David has a lot of "street cred" after averaging 40% returns annually over the course of 17 years including a whopping 130% return in 2009.  Tepper earned over $4 billion alone in 2009.

He also does very few interviews so needless to say when he does come out of hiding people listen.

Here is his basic thesis as heard above:

""Either the economy is going to get better by itself in the next three months...What assets are going to do well? Stocks are going to do well, bonds won't do so well, gold won't do as well," he said. "Or the economy is not going to pick up in the next three months and the Fed is going to come in with QE.

"Then what's going to do well? Everything, in the near term (though) not bonds...So let's see what I got—I got two different situations: One, the economy gets better by itself, stocks are better, bonds are worse, gold is probably worse. The other situation is the fed comes in with money."

Take Continued:

Tepper's case is a very compelling one for the short term in my eyes.  I had one problem with his comments and it appears many traders voiced similiar concerns on the street:
Bob Pisani explained it nicely in his blog:
"Tepper bullish...but what does it say about moral hazard?
Hedge fund manager David Tepper, on CNBC, has sparked an interesting debate among traders.

Tepper is bullish on stocks and feel the risk reward is on the upside. Why? Because the Fed is your friend. Quantitative easing (QE) is going to trigger a move out of bonds and into stocks.

But a number of traders say this is exactly the problem:

"If Tepper on CNBC didnt just wake up the Fed to the moral hazard of QE I dont know what will," what trader said. "Is this the creation of expected inflation or are they generating stagflation through their communique?"

The Bottom Line:

I share the same concerns. 

Here is another concern that I thought about today:

By threatening another QE, the Fed has forced the market to chase risk because they believe the Fed has their back via QE2.

This "perception of safety" is forcing money to get out of bonds and chase stocks.  We saw this today as the 10 year dropped and yields rose:

The question I have is how do we continue funding ourselves via selling treasuries if the Fed and their QE2 talk is causing investors to bail on bonds and pile into stocks?

The way I see it:  The Fed's QE2 jawboning may have very well backfired on them.  We cannot afford a large rise in interest rates due to the massive amount of treasury issuance that this country has done over the past several years.

The Fed knows this and if a stock pile on continues,  it may be forced to back off of their QE2 idea EVEN if the economy continues to drag.

For the short term I expect the Ponzifest to continue.  Longer term I think the Fed may have well just painted themselves into a corner.

Dosclosure:  Now new positions taken at the time of publication.

Thursday, September 23, 2010

European Debt Worries Resurface

The Fed must be all smiles today as the dollar stabilized thanks to today's news out of Europe:

"The cost to insure Ireland’s debt climbed to a record, leading a surge in European sovereign credit-default swaps, on concern Anglo Irish Bank Corp. won’t pay back bondholders in full.

Contracts on Ireland jumped 23 basis points to 487 basis points at 12:50 p.m. in London, according to data provider CMA. Swaps on subordinated debt of Anglo Irish, which was nationalized last year, now cost 5 million euros ($6.7 million) in advance and 500,000 euros annually to insure 10 million euros of debt for five years.

 Investors are fleeing Irish bonds on concern bank bailout costs and a shrinking economy will hurt efforts to tame the European Union’s biggest budget deficit. Government guarantees covering some of the subordinated debt sold by the nation’s banks come to an end next week, while Irish Central Bank Governor Patrick Honohan said in June he didn’t know if junior bondholders in Anglo Irish will be “made whole.”

My Take:

Where's Baghdad Bob when you need him:

"There is no need to worry.  Ireland and Greece are fine.  They have plenty of money.  There is no debt crisis!"
I am joking of course but when you really look at the numbers it's hard not to think of this guy anytime you hear any central banker ftrom the west speak about their countries economy.
I had promised on an earlier post that I planned on heading oversees to see if I can find some analysts in finance that are not bought and paid for by Wall St who could give us a more realistic view on what's going on in the world.
I found a couple today:

Both of them nailed it.  What we are witnessing in Europe is unsustainable.  The rise in debt spreads are telling you the real story.  These countries are looking straight down the barrell of a debt restructuring.
Stocks in the US didn't like the Ireland news at all.  This is what sunk the markets in the afternoon.
This all got started when Ireland's GDP for the quarter came in at -1.2% versus the consensus estimate of +.3.  That's a huge miss and the credit traders proceeded to punch Ireland right in the face shortly after these numbers were released.
The global financial boat continues to take on water as leaks continue to spring up everywhere.
I expect to see a debt restructuring in Europe sooner rather then later.  It's becoming obvious that even with severe austerity(which Ireland has), countries cannot dig out from their deficits when they are paying 10% interest rates on their debts.
Paycheck to Paycheck
Let me switch gears quickly here.
I thought this article was particularly disturbing:
"CHICAGO, September 1, 2010 - As the effects of the recession linger on, one place it continues to have a tight grip is on workers’ wallets. Nearly eight-in-ten (77 percent) workers report that they live paycheck to paycheck to make ends meet. Sixty-one percent of workers said that they felt they lived paycheck to paycheck to make ends meet in 2009. Workers went on to say that sometimes they are unable to make ends meet at all, with one-in-five (22 percent) saying they have missed payments on bills in the last year. This is according to a new nationwide survey of more than 4,400 workers by CareerBuilder that was conducted from May 18 to June 3, 2010.

Workers report they have made a variety of changes to their living and spending habits to help get by. When asked what tactics they have used since the start of the recession to make ends meet, workers said the following:

  • Cut back on leisure activities - 54 percent
  • Used coupons or shopped at discount stores - 48 percent
  • Drove less to save on gas - 37 percent
  • Cancelled cable and other subscriptions - 12 percent
  • Used public transportation - 5 percent"

Quick Take:

Recovery summer baby!  You gotta love it!

God help us if we have an inflation crisis. 

Americans could find themselves penniless in a hurry as unemployment continues to rise.  What in the hell are all of these people going to do once their unemployment benefits run out?  They obviously have no savings.

You can be sure of one thing:

Be prepared to hear a lot more about this type of news very soon because the peak unemployment levels were seen about two years ago.  This means the government checks are coming to an end for a hell of a lot of people.

I expect this to be the big news come this fall heading into the elections.  I think we are going to see some election shockers as the masses become desperate as they struggle to survive our depression.

In a strange way the European Debt Crisis actually helps the US in the shorter term.

I say this because the one thing that is holding the dollar together right now is the fact that many other countries are in far worse shape.

As my credit trader friend always tells me:  "Jeff, risk is relative"  meaning that we might be screwed but if someone else is screwed worse than there will be buyers for the place that's the least screwed.

This is a simple investing rule but it's an important one that I consistently have had to remind myself of.  

The Bottom Line

Keep your eyes on what's going on across the pond.  One explosion like an Ireland debt restructuring could trigger a domino effect that could be catastrophic.

A Wall Street friend told me about this today when we discussed Ireland:  He read that saving both of Ireland's two largest banks would cost Ireland about 60% of it's GDP.   They are toast if that's accurate.  It's just a matter of when not if.

Let me end with a quick thought on stocks.

I am not liking how the stock market has behaved the last few days.  Tech looks extremely overvalued.  Apple is closing in on $300.  I see lots of new 52 week highs in this space.

I won't short the Apple juggernaut but I am thinking about taking a short position on tech.  QID is a nice "short" tech  ETF for a short term trading position.

I'll let you know if I pick some up tomorrow.  Futes are looking pretty sluggish.

Wednesday, September 22, 2010

Inflation Risks Soar as Investors React to Yesterday's FOMC Meeting

Today was all about the US dollar.  Here is a chart of bucky over the last couple days:

Gold reacted accordingly as it soared almost $20.  Here is GLD today:

Gold wasn't alone.  Pretty much all commodities are up sharply as a result of our crumbling currency.  Hat tip to The Fly at Icoin for the commodity charts below:




There are other commodity charts over at Icoin but you catch my drift.

Folks, the Fed is essentially throwing every middle class American under the bus with their QE/bailout policies.  The Fed is easing in every way possible in order to help out the banking cartel.

As a result, our currency is starting to get it's teeth kicked in.  The rising costs as a result of the falling dollar won't hurt the banksters because they can afford some inflation.  The problem is that 90% of us cannot AFFORD it.  In fact, many of you who are just getting by could starve if the Fed's policies don't change.

Just think what the dollar will look like if we announce a QE2?  Imagine what it will do to the cost of living in this country.

We are already seeing signs that the middle class is unravelling.  This article from The New York Times is particularly disturbing:

"The country’s continued economic doldrums have stores scrambling for the once-ignored low-end customer, as people make fewer costly shopping trips to stock their pantries, and increasingly, can only afford inexpensive items in small quantities like those sold at dollar stores.

Dollar stores have shown the biggest gain in shopper visits over the last year out of all the retailers that sell basic consumer goods, according to market research data.

Wal-Mart, the world’s largest retailer, is adding thousands of items to its shelves, including inexpensive ones, and is asking dollar-store suppliers to create small, under-a-dollar packages for its stores, too. In areas with high unemployment, Wal-Mart is grouping together its less than $1 items in a clear challenge to the dollar stores.

Some customers at Wal-Mart and the major dollar chains — Dollar General, Family Dollar and Dollar Tree — have such modest budgets that the retailers report upticks in spending at the beginning of the month, when government benefit checks and many paychecks come through. Late in the month, sales drop as even multiroll packs of paper towels are ditched for a single roll.

“People are literally running out of cash on hand as the month goes on and they’re looking for smaller package sizes,” said Craig Johnson, president of the retail consulting and research firm Customer Growth Partners. “They may have $10, $20, $30 to spend getting toward the end of the month, and they have to be able to still feed the family and get diapers and so forth.”

Take Continued
What are these people going to do if the currency keeps dropping and they only have $20 to spend by the end of the month? 

Whats going to happen when that $20 can only buy them 1 of the 4 items that they need in order to get through the end of month as we see further depreciation?

I don't wanna scare anyone but this is how social chaos gets started.  Everything is fine in America as long as they can watch American Idol and find a way to eek out a living.

If they no longer have the ability to pay their cable bill and eat it turns into a whole different ballgame.  We are the most armed country in the world and if Joe6pack can't afford a meal he is going to find someone who does.  They will then proceed to take it by force.

This happened all the time in Argentina during their inflationary crisis. 

The Bottom Line

I am as serious as a heart attack today.  The Fed is destroying this country with their policies.  They are IGNORING the majority in an attempt to save the minority who are mainly the banking elites. 

This is the polar opposite of what they should be doing. 

Their policies are going to make it more and more difficult for you to put food on the table every night.  Our way of living is being destroyed right before our very eyes.

Larry Summers just resigned last night and announced that he is headed back to Harvard.  Geithner is now the only person left from Obama's original economic team 

This shouldn't be a surprise.

I mean heck: Why would Summers or anyone else want to take the fall for economic catastrophe that's about to take place.

The only hope I have left is that the currency and bond markets continue to throw a tantrum which eventually forces the Fed to reconsider another QE2.

The scary thing here is without the QE2 I don't think the Fed can hide this monstrosity much longer.  Without the ability of the Fed to buy our treasuries I think the bond market collapses.

This leaves us with a hell of a choice: 

Do we QE2 and trigger a massive inflationary/hyperinflationary event?


Do we not QE2 and allow the whole house of cards to come tumbling down via a deflationary collapse.

In a nutshell this is what the Fed faces when it's all said and done.

The sad thing here is it didn't have to be this way.  If the Fed had said no to the bankers from the start we would have had the ability to afford the losses in the banking system.  It would have been painful as many banks would have failed but we would have survived.

Instead, the Fed decided to load their balance sheet up with trillions of toxic assets as they attempted to play "hide the sausage".

The results of this decision are catastrophic.

Papering over the losses by giving bailout after bailout to the people(bankers) who created this whole nightmare in the first place is the most disgusting thing I have ever witnessed as a human being.

Their plan failed miserably and it has left us bankrupt.  If this insanity continues we will also all be starving if they continue to destroy the dollar.

I'll end with three conclusions:

We are now left driving on a road to nowhere that will end in a very dark place. 

The arrogance and greed that has been exhibited throughout this crisis by the Fed and the bankers will be talked about in the history books forever.

I'll say it again:  It didn't have to end this way.

Tuesday, September 21, 2010

The Fed Takes One Step Closer to the QE2 Cliff

I think this best describes the Fed's policy after today:

The Fed today came within and hair of announcing a QE2 as they predicted a serious drop off in economic activity.

Bonds soared on the news as the market prepares for another Treasuries spending binge by the Fed.  Take a look at the 10 year on the news:

Gold soared on the news as the dollar plunged following the Fed's statement.  Here is a chart of the gold ETF GLD:

Folks, these moves are VIOLENT.  Look at the volume on the GLD move.  Gold moved almost $20 in a matter of minutes as the market digested the news.

I wanted to put up the US dollar chart but I can't get TOS to download it.  Perhaps since it's so ugly they decided to take it down...Just joking BTW...No tin allowed in here!

Fed Statement

Here is the FOMC statement in case you missed it.

The Bottom Line

Unfortunately I don't have much time today so I need to keep it fairly short. 

Folks, the Fed basically all but said they plan on doing a QE2.  This is why you saw the dollar plunge to 80.45 at the moment.

The stock market is even for the day but who really cares what the market does at this point.  I am serious when I say that.  Right now stocks are the worst leading indicator out there.  It's been taken over by trading robots and their various algo's.

When you need to read how the economy is doing you MUST look at the credit markets now instead of stocks.  Look at the dollar.  Look at gold.  Look at bonds.  Stocks tell you absolutely nothing at this point.

When the Fed pulls the QE2 button be prepared folks.  The "unintended consequences" of such actions will be violent.  Just look at how the market reacted when they simply hinted towards heading down the QE2 route this afternoon.

The Fed is rapidly heading down the QE2 path and they appear to not have the discipline to stop themselves from destroying the dollar.

If you haven't yet diversified into hard assets I suggest that you do so because if the fed pulls the QE2 button you may wake up one morning and learn that your 30 years of savings that are priced in US dollars are worthless.

I am not suggesting you turn into a gold bug and go "all in" on the metals.   All I am saying is that you might want to put some of your portfolio into items diversifies you out of the dollar.  There are many options:  Gold, silver, commodities, and other world currencies(CHF or CAD work for me). 

Let me be clear:  This is not investment advice.  It's just something that you need to consider.

If the Fed decides to blow it's brains out via a QE2 then you must be prepared for the consequences.

Disclosure:  Now new positions taken at the time of publication.

Housing Starts up 10%...Party On!

I just had to comment on this idiocy this morning.  CNBC has been jumping for joy all moring after the numbers below were announced:

"U.S. residential construction rose more than expected in August to a four-month high, suggesting the embattled housing market was starting to stabilize following the end of a homebuyer tax credit.

The Commerce Department said Tuesday housing starts rose 10.5 percent, the largest increase since November, to a seasonally adjusted annual rate of 598,000 units.

July's residential construction was revised down to show a 0.4 percent gain, which was previously reported as a 1.7 percent increase.

Analysts polled by Reuters had expected housing starts to rise to a 550,000-unit rate. Compared to August last year, housing starts were up 2.2 percent.

"Housing starts are at very low levels but we're clearly seeing a solid bottom in the housing market. It's too early though to call it a housing market recovery," said Matthew Strauss, a senior currency strategist at RBC Capital in Toronto"

My Take:

Give me a second here so I can stop laughing at the highlighted quote above.

Are these people frickin insane????  We already have 12.5 months of inventory plus god knows how much shadow inventory.  Why in the hell are we building more houses given these facts?

Also, why is this number viewed as being bullish?  CNBC paraded this number around this morning like it was the holy grail that had just saved the economy.

I am amazed at how delusional people have become.  The media has become a total joke at this point.  Reporters should be calling the CEO's of these builders and asking them why in the hell they are building when inventories are at all time highs?

All they are doing is making a bad problem 10 times worse by adding to the insane backlog of homes that we already have.

This number should be ridiculed not heralded.

God, I wish I had the money to start up a network that reported the truth.  Bonds are up once again today as more and more people continue to walk away from the stock market.

Should it be any surprise when BS news like this is praised?

Ahhhhh...Feel better now after getting that off my chest.  I just heard one of the pumpers on CNBC ask why the market was down following the "great news" on the housing starts.

Ummmm...Let me take a stab at that one:  Because anyone with half a brain understands that this is very bad news and only exacerbates the troubles we have in housing.

Focus on the Fed later today.  If we get no additional QE outta the Fed(which is what I expect), then the market could sell off a bit because we are pretty oversold.  Many in the markets are looking for some additional QE juice in order to keep the rally going.

Monday, September 20, 2010

It's Official: The Recession is Over!

Put on your party hats folks!  It's time to celebrate!!!!  This recession is soooo OVER!


Damn!  I feel so much better now.  I think it's time to buy a house!  Anyone know a good broker out there?

I don't have a down payment for it though but that's OK right?(sarcasm off)

In case you missed the great news here it is:

"The U.S. recession ended in June 2009, making it the longest downturn since the Great Depression of the 1930s, the National Bureau of Economic Research said Monday.

In Monday's announcement, the NBER said any fresh downturn would mark a new recession, not a continuation of the one that began in December 2007."

Quick Take:

Uhhhh...When did we get out of the last recession?  In fact, now that I think about it, did we ever leave the one that "ended" in 2002?  Anyone that's looked at their 401k since then would tell you no.

The stock market of course loved today's news as we rallied up triple digits.

The bond market however sang a totally different tune when you look at the 10 year:

My Take:

As you can see above, investors started flying into the safety of bonds right around 11:00.

You need to seriously ask yourself why bonds were up on a day the stock market rallied 145 points after getting the great news that the recession was over.

How on earth does this make sense?  The answer is it doesn't.  The market distortions continue and I haven't seen anyone that can explain this type of price action.

The way I see it the signal from the market is very clear: Many investors are still scared to death.  Gold hit new all time highs again last night.    If the risk trade is on then why in the hell are bonds and gold rallying?

More importantly, how is the hell are all three rallying(stocks, gold, and bonds) at the same time?  The market is acting completely irrational right now. 

Where is all the money coming to pump virtually every asset higher?  I smell a rat and I wish I knew what the answer was.  Soon enough we will learn why.  The market always gives us the answers. 

The problem is a lot of the times you get the answers until after its too late. 

The Bottom Line

I'll keep it fairly brief tonight because there is really nothing to analyze here.  All I can say is BUYER BEWARE.

I don't like how the market is acting one bit.  I would still remain very cautious.  If I had to guess I believe stocks rallied based on technicals.

A lot of technicians were looking at the 1130 level because it's the high end of the recent trading range we've been in.  Once we convincingly broke through here I believe the HFT algos kicked in with buy orders which forced some short covering.

The problem here folks is we can't continually trade based on technicals that are being set by computers.  Eventually the fundamentals always matter and right now they totally stink.

Unemployment is soaring, housing prices are plummeting, and the consumer is rapidly running out of credit. 

The market is flashing you a gigantic "warning" sign as safe havens like bonds and gold soar to new highs.

I wouldn't be surprised to see some more upside action after breaking through 1130.  Longer term however I just don't see how any of this is sustainable.

Please be careful out there and don't believe the hype about the recession being over.  If anything the recession is over because we have now sunk into a depression.

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

Sunday, September 19, 2010

Condo Owners Beware!

During my travels last week in Florida I had a chance to see the housing collapse first hand.  The stories that I heard from some retirees I talked to down there about real estate are catastrophic.

I wanted to focus on one story that I heard from a older retired fellow from Orlando.  I will finish with another story that a broker told me about a housing developement in Arizona.

One of my fears post collapse was figuring out  how the HOA's(Home Owners Associations) of various 1/2 empty condo complexes would survive without nailing their tenants with massive increases in HOA fees.

HOA fees are set assuming that the building will be fully occupied.  At the peak of the bubble the HOA fees were relatively low based on this assumption.

The problem here of course is the cost of maintaining the building does not drop. 

So just do the math if the complexes remain say 50% empty:  If you have a 100 unit condo complex that has only 50 occupants the HOA fees eventually must double in oreder to pay the bills.

From what I heard in Florida the rising fees were actually worse.  The retiree that I spoke to generously explained his dire situation to me:

This gentleman bought 2 condo units at the peak of the bubble for $300,000 each.  The HOA fees at the time of purchase were paid quarterly and the cost in 2006 was $600 per unit. 

My how things have changed:

He went on to explain to me that the value of each unit in 2010 has now dropped from $300,000 down to $120,000.  

If this isn't bad enough wait until you hear his 2010 HOA fees.  They have now risen from $600 per unit per quarter up to a whopping $1600 per quarter.

He is now in a panic because he can't afford to take the loss on the properties and the $13,000 in HOA fees are starting to cripple him.

I asked him if he had spoke to an attorney and he said that he hadn't but was getting ready to do so. 

He also explained that there are actually laws in Florida that are more strict than other states when it comes to regualting HOA's.  The problem is(according to this guy) they can easily be bypassed with a few accounting gimmicks.

Bottom Line:

If you own a condo in a building that is not filled please be aware that your HOA will eventually rise.  The electric bill has to be paid and the builder has no desire or ability to cover the costs. 

They are all bankrupt as a result of holding onto homes/condos that they cannot sell.   It will be up to the tenants to carry the costs of the building.


I went over to Disney during my stay and it was a total ghost town.  The locals say things are only busy now when a convention is in town.


Believe it or not this story is WORSE then the one above.  I spoke to a mortgage broker friend of mine who just did a loan for a school principal that moved to the Northeast from Arizona.

The broker was almost unable to get the deal done even though the persons salary was 130k per year.

I of course asked him why and he explained that the guy had taken a huge hit on his house in Arizona.  He then gave me the details and folks they were flat out shocking.

The development where this principal moved from contained 300 housing units.  At the peak they were selling from $500,000-700,000.

The broker's client of course bought at the peak.  I then asked "well what are they worth now?"

His client explained to him that his house is now worth about $150,000.  I don't know what he actually paid but it was somewhere between the range above.

Now get this:

The client also explained that 180 of the 300 units in the development in Arizona are now in foreclosure.  There were an additional 90 units that were pending and about to head into foreclosure. 

When this guy left Arizona there were only 2 people left living in the homes on his street.

So essentially 270 of of the 300 units will be in foreclosure within the next few months.  People apparently started walking away in droves as the value of the houses dropped over 70% in value.

The broker then asked his client what he could now rent his home for.  His client  was told by a Realtor that he could get about $850 a month.

I said to my friend..." $850 dollars!!!!!!!  Are you frickin kidding me?  4 years ago these joints were selling at 700k."  He said "Yup that's right....Those are the numbers."

I am amazed my broker friend was able to get the guys loan done.  With a six figure salary I guess you can make it work.

The Bottom Line

Folks, anyone telling you we are now in a recovery are smoking crack.  I talk to people all the time in the housing industry and the bubble areas are getting slaughtered and nothing is coming back in value.

I did a little math on the housing developement above.  Let's be conservative and assume that the bank has to take a $200,000 loss on the 270 units above.   The total loss using these numbers is a whopping $54 million and this is only 1 housing developement!

Imagine how many others that are out there that we don't know about.

The take home message here folks is stay the hell away from housing.  Don't buy one for several more years.

Once all of this inventory hits the MLS houses will be selling a fraction of where they are today.

The last housing inventory data was 12.5 months which is more than double the historical norms of 6 months.  The problem here is this does not include the shadow inventory which has to be mind boggling high when you hear stories like the ones I just shared with you.

I don't know how the banks are ever going to be able to afford to take these losses. 

Needless to say:  The housing market from everything I have gathered is going to completely meltdown in the very near future. 

The Fed might be able to hide this mess more a few more months.  Maybe a year at the most. 

The problem is the word is getting out about how bad it is.  This is why you are seeing the lowest home sales on record despite the lowest interest rates in history.

Have a great night and stay the hell away from real estate.