Saturday, January 22, 2011

A Smell of Fear in the Air

Sorry I haven't had much time to post.  Last week and this week are very crazy so don't expect much over the next few days.
I wanted to put up two charts tonight that I thought were interesting.  First let's start with the dollar trade over the last few weeks:

Ouch!  Surprisingly, treasuries(which are priced in USD) have been catching a bid despite the violent sell off we have seen in the dollar:

My Take:

What this tells me is that there is a lot of fear out there.  Investors continue to gobble up bonds on the long end of the curve despite huge increases in inflation combined with a weaker dollar.

This makes no logical sense of course. That being said, nothing really has in the few weeks!

As we continue to print money via QE, the hopes and dreams of a strong USD continue to disintegrate. 

The way I see it:  The only reason treasuries are catching a bid is because people basically have no clue what to do in this choppy/crazy market.  This market is tough right now folks.  All you have to do is look at the huge drops in trading revenues on Wall St in Q4 if you want to see how tough it is out there.

The Fed has created total financial chaos with their "funny money" policies.  Investors are taking enormous risk as they speculate on everything from commodities to junk bonds as Ben's "cheap money" continues to slosh around the system.

This is not going to end well folks.  In fact, if the market continues to stall here things could get rather ugly in a hurry.

I see no confidence among investors right now.  The fact that rates are steady tells me people are so scared right now that they are willing to buy 10/30 year treasuries at a 3% yield despite huge inflationary risks.

If inflation rises to just 5% annually this paper will be guaranteed annual losers and let's face it folks:  Inflation is already here.  Just look at food and gasoline prices.

Things are starting to look very grim.  I am expecting a pullback here shortly and I plan on buying some resource stocks after a nice correction.  Everything is still too expensive right now after the recent rally we have seen.

Folks IMO,It's time to start investing against the dollar and placing all of your bets on gold is not a smart way to do it after it's recent run.  Gold looks very sick to me right now and I wouldn't be surprised to see a pullback.  I still plan on holding what I have left.. 

I think you need to spread your risk around in a variety of hard assets via resource stocks and other metals. I am working on a list of ideas.  More on this later.

Have a great weekend.

Let's go Steelers!

Thursday, January 20, 2011

Read This

Make sure you read this incredible article from former banking regulator Bill Black before you run to the bars and start chasing the ladies this weekend.

This explains exactly why everything in our financial system has turned into a total cluster****.

Fraud is now legal in this country folks, and we are never going to get out of this nightmare until the people that created this Ponzi scheme are prosecuted and go to jail.

The sad reality here is our financial system is BROKEN and it has not been fixed.  Washington refuses to address the problem and things will never get worked out until they do.  You simply cannot create a REAL economic recovery on a foundation that's built out of sand. 

It's time to throw out the trash and make things right.  Being a banking billionaire should not allow you to commit crimes against the people of America.  These banksters are worse than the frickin mafia.  Al Capone once told the police to head down to Wall St if you want to arrest the real criminals.

He was right.

In fact, at this point we might as well bring back John Gotti from the dead and put him in charge of a TBTF insolvent bank. 

Let's face it:  There is absolutely no moral difference between Gotti and these banking CEO's.  I can't believe something like this was allowed to happen in this country.

We have lost our way folks.

Rant off.  Time for bed.

Uh oh

Be careful:

The bond market is not happy today and the metals trade is unwinding. 

Be safe.....

Wednesday, January 19, 2011

Inflation+Unemployment= Trouble

It was another interesting day on Wall St.  Stocks continue to churn and burn as the market figures out where to go next.  When the market looks confused like this I always like to go back to the fundamentals.

The bottom line here folks is we are currently seeing a nasty combination of inflation and high unemployment.  A hat tip to I-Tulip for the chart:

My Take:

As you can see above, we are starting to enter the "danger zone" from an inflationary standpoint.  The last time we saw inflation this high was early 2008 and we all know what happened next.

What's scary about our current bout of inflation it's hitting at a time in which the unemployment rate is much higher.  Making matters even worse is the fact that the mean duration of unemployment is also rising which makes rising prices that much more brutal.

So what does this mean?  The way I see it, the consumer will fold like a cheap tent much faster this go around:  Savings are more depleted, a much higher percentage of people are unemployed and can't find work, and millions more sit in underwater McMansions versus the last time we saw this a few years ago.

Folks, I don't see how this all bodes well for our economy moving forward.  It's pretty much the nightmare scenario.  

You would prefarably like to see a nice bout of deflation during times like these.  The price drops that accompany this scenario would help "soften" the blow as peoplecontinue to lose their jobs and see their wages plummet.

You can thank the Fed for throwing the deflation scenario right out the window.  As you can see in the chart above, our inflation started to rise just after the Fed dropped interest rates to zero. 

Our current bout with inflation became even more exacerbated when Ben "the beard" Bernanke started printing money via his famous QE machine.  

As you can see below, the dollar has now resumed it's path to zero after a receiving a recent reprieve thanks to the European Debt crisis:

Take Continued:

It appears the dollar is ready to race right back down to the November lows in the near term as long as Europe stays in one piece. 

All I can say is the US needs to thank their lucky stars for Europe's debt nightmare.  It's the only reason the dollar has any value IMO.  As my friend "the credit trader" likes to say:  Risk is relative so the dollar looks darn pretty when you compare it to the Euro.

I don't know how any of this ends well for any of the fiat currencies.  I guess I will keep using bucky as long as people continue to accept it! 

The Bottom Line

Extend and pretend is still in control for now.  Things are awfully quiet on the news front which I find bizarre given all of our problems.  It almost appears as if Wall St has muzzled anyone involved with the markets. 

I mean think about it:  Why is there no news????

Have the PIIGS suddenly become solvent?  Are people once again buying houses in droves?  Did Illinois miraculously cure their debt problems after finding $15 billion in Al Capone's vault?

The answer of course is NO!  I thought Goldman's earnings were a good barometer as to how slow things are out there:

"Goldman Sachs Group Inc (GS.N) fell 2.6 percent to $170.07 after it posted a 53 percent decline in profit as trading revenue tumbled, spoiling hopes that Wall Street's most influential bank might buck a volatile climate that has hurt rivals such as Citigroup Inc (C.N). "

Many were expecting much better numbers.  Their earnings showed very flat to negative growth in areas like M&A and other investment bank activity.  This tells me that Wall St is very slow.

All I can say folks is don't believe the hype.  The "silence is deafening" on Wall St and the fundamentals stink.  Its only a matter of time before the combination of rising unemployment and high inflation takes down the consumer.

It's beginning to smell a lot like early 2008 out there except this go around both the consumer and our government are broke. 

Stocks made it to September during our 2008 inflationary crisis before falling off a cliff.  I can't see us making it that far this go around because the economic fundamentals are materially worse.


Tuesday, January 18, 2011

Are the Days of "Investing" Gone Forever?

I can't help but ask myself this question.  The market now slowly rises on a daily basis as the "bearded one" continues to print Monopoly money and give it to the banks who then turn around and pump it into stocks.

Now that we know how the "QE" game is played, I can't help but wonder why stocks aren't rising at a faster rate.   During the tech and housing booms the stock market would rise hundreds of points on any given day.

We have seen nothing of the sort during our current boom.  It's becoming increasingly obvious that the average investor wants no part of this market when you look at the pathetic trading volumes.  If they did, we would be soaring to new highs because the Fed is literally pumping billions into the markets via the TBTF banks.

The rallies of the past never had the opportunity to enjoy a tailwind like this! As a result, one must hesitate and ask why so many people don't want to join the party.

In fact, you must dig deeper and ask yourself:  Why is no one other than the HFT's participating in this glorious rally?

It's becoming pretty clear that no one outside of Wall St is interested in touching stocks.  The HFT's are loving this of course because it makes the market easier to game.  Just look at the price action on a daily basis. The tape just wonders around aimlessly as it reacts to various algo trades.

Rallies are almost immediately sold into and sell offs are almost immediately bought.  I have to admit, it's boring as hell to watch.  There is no conviction at all right now when I look at the markets.

Have Investors Lost Interest?

I can't help but wonder if the average investor just doesn't understand stocks anymore and refuses to buy them as a result.

Can you blame them?  It seems like nobody makes money these days unless they own a sophisticated trading robot.

The trend for stocks might be higher but individual stocks are increasingly trading with higher volatility.  It seems like we see a mini flash crash in a any given stock at least once a month these days.

The Bottom Line

Wall St better be careful because I think they risk losing the average investor as they play their "computer war games".

Americans are scared, frustrated, and confused when it comes to how they should be handling their investments.  Nothing looks safe to them and so many sit paralyzed in cash as a result.  A few brave souls are out there chasing yield but that game seems like it's nearing as end as they watch various munis begin to blow up.

The only people that have confidence in how stocks are trading these days are the computer nerds from Harvard and Yale that created all of this computer BS.

When QE ends(or should I say "if"), the markets are in for one hell of a ride.  Without the "magic" of QE the trading robots may decide that selling and taking profits is their best option. 

If this is what happens when the end of QE occurs then you must ask yourself this question:  Who is going to be left to buy the stocks? 

Answer:  "crickets chirping".

If you are in equities please be careful.  You are one of a brave "few" who have decided to swim with the HFT sharks in the shark tank that we like to call the stock market.

Sunday, January 16, 2011

The Next Crisis

The next leg down is going to be political chaos in Europe.  It looks like Ireland is the first one to step up to the plate:
"DUBLIN – Irish Prime Minister Brian Cowen faced a fight for political survival Sunday as he rebuffed pressure to resign and a senior Cabinet colleague announced he would challenge him for the party leadership.

Foreign Minister Micheal Martin said he had "reluctantly concluded" that Cowen would have to be forced from office since he refused to go voluntarily. The two face a showdown Tuesday when lawmakers of the long-ruling Fianna Fail party gather to vote whether to keep Cowen or promote Martin.

At stake is the course of Ireland's fightback from a European-record deficit amid a euro67.5 billion ($90 billion) international bailout. The leadership tussle within Fianna Fail — "Soldiers of Destiny" in Gaelic — raised new doubt over whether lawmakers would be able to pass a deficit-slashing bill without a national election first.

Hours later Martin — one of three Cabinet ministers who have signaled their desire to succeed Cowen — became the first to declare a challenge. Martin said he had tendered his resignation as foreign minister because he no longer supported Cowen and would ask lawmakers to back him instead Tuesday.
"The longer (the Irish government) stays in power, the greater the damage that is being done to the economy and to our international reputation. This government should go," said Gerry Adams, leader of the Irish nationalist Sinn Fein party."

My Take:

This is serious stuff folks.  We just saw a mini version of political chaos in Tunisia last week.  We also saw it in Iceland last year.

The next huge debate(which I predict will trigger a financial panic) will be the people of various nations rising up against government and the banks. 

You see, the politicians of these various PIIGS are all making a huge mistake as they accept these bailouts.  The money is great but it comes at a steel price. 

Essentially when they sign these deals, the politicians of these various nations have decided to bail out the banks at the expense of the people.  The reason I say this is the loans come with certain "terms".

The terms of course are to slash spending and agree to start paying off debt.  In other words,  they force the governments to make catastrophic job and spending cuts in exchange for the money.   The problem is the money never trickles down to Main St.  It's used to clean up the trillions of dollars of losses that the bankers made on bad bets like housing.

The problem for the politicians who have taken these bailouts is the people are starting to wisen up.  The people are starting to understand that it's their jobs(not the banks) that will disappear as the government is forced to slash spending.

The Bottom Line

As you can see above, the people of Ireland want to toss out their government who sold them down the river.  If they are successful then I expect the new regime to tell the ECB to "take their bailout and shove it where the sun doesn't shine". 

The arrogant ass that's in power and signed the bailout is toast at this point.  His tight associations with the bankers pretty much seal his fate IMO.  Time will tell if the people will successfully throw him out of office.  I would guess that they will be.  The fact that someone from his own party has already agreed to challenge him in an election tells you all you need to know.

The markets are going to panic if Ireland is able overthrow the government and then decides to tell the ECB to "shove it".  The US banking exposure to Ireland is estimated to be around $200 billion.  The European banks are much more heavily exposed.

All I can say is Go Irish!  Take down the bums that got you into this mess.  This financial nightmare is not your fault.   YOu should NOT be forced to pay for the mistakes of greedy bankers.

This whole thing just infuriates me.  The idea that the banking cartel actually thought they could force the taxpayers to pay off their losses is beyond insane. 

Expect more and more anger in Europe as the recovery fails to materialize and living conditions become worse due to extreme austerity measures.

Whats scary to me here are the ramifications if Ireland is successful in it's attempt to reject the bailout.  You can be sure Greece will right behind them demanding the same.  Hell they almost burnt the country down a few months ago.

Countries like Portugal and Spain will also eagerly be watching.  

The people of the world are realizing they are selling their souls to the devil by agreeing to the brutally fiscal terms of these government bailouts.

The people know that there are far better deals to be made which will include the bankers taking large haircuts. 

The banks are about to learn there is no free lunch.  All I can say is it couldn't have happened to a nicer group of people.