Hello All!:
This is long but worth listening to. Investing going forward may never be the same.
Professor Robert Shiller who helped create the Case/Shiller index predicts the housing collapse could last years and years:
Part 2
Part 3
Friday, November 28, 2008
Wednesday, November 26, 2008
Stocks Rallying as Turkey Day Arrives
Good Afternoon Folks!
Before I start I want to wish everyone a Happy Thanksgiving. I hope you have a great holiday with your friends and family. I am on my way to the families house after I finish this post. I won't be back until the end of the weekend so things will be quiet around here. I might try to sneak on over the weekend and post a thing or two but I can't promise anything!
Stocks are rising today despite more disappointing news on the economy. The data on durable goods, jobless claims, and consumer spending continue to point toward a deep recession :
"Nov. 26 (Bloomberg) -- U.S. business investment weakened last month and consumers are retrenching worldwide, reports today showed, heightening pressure on policy makers to take stronger steps to combat the credit squeeze.
Americans cut spending by 1 percent in October, the biggest drop since the last recession in 2001, while British households slashed expenditures last quarter by the most in 13 years, government agencies said today. A U.S. Commerce Department report showed orders for durable goods slumped twice as much as forecast as domestic and foreign demand dried up.
``It's about as bad as the 1970s and 1980s,'' said David Hensley, director of global economic coordination for JPMorgan Chase & Co. in New York. ``We're looking at back-to-back very deep'' slump in the global economy this quarter and next.
Durable Goods
Excluding demand for transportation equipment, which tends to be volatile, orders dropped 4.4 percent, also more than anticipated and the biggest decline since January 2002. Those bookings were projected to fall 1.6 percent, according to the Bloomberg survey.
Jobless Claims
The number of Americans filing first-time claims for unemployment benefits fell to 529,000 last week, while remaining close to the highest level since 1992, Labor Department figures showed. The four-week moving average for claims reached a 26-year high."
My Take:
All of this data is obviously terrible. The fact that the market is going up despite the bad news is something to take notice of. This is not a good sign for the shorts.
If we close higher today, we will have a 4 day winning streak on the DOW. This could start giving the bulls some confidence and induce more buying. Bear market bounces should be expected after reaching such lows, and they can be sharp and violent. The market in 1929 rallied over 50% before once again heading to lower lows.
The consistently bullish bias thats almost always seen on Wall St must be respected here. The good news for the shorts is all of this buying tells you that we did not see the bottom last week. Bottoms are not seen until almost all of the bulls have capitulated. This recent buying spree tells you that we are not even close. The true bottom will come when no one ever wants to own a stock again.
The Feds promise to throw $7 trillion dollars at this problem also cannot be discounted. This could pose a big threat to the bears in the short term. We have never seen such stimulus thrown at our economy so we really don't know how the market is going to react. It would not surprise me at all if we rallied over the next several weeks.
The Bear Stearns rally in the spring was a similar setup: Massive stimulus providing hope that things will get better. The mortgage news that I discussed yesterday could also further fuel the pump as many begin to refinance their mortgages. As you can see, we are at 7 year lows on mortgage rates as the Government continues to buy the 10-year.
On the flip side, there are shoe drops everywhere that could take us much lower. If GM goes under or we have a bank failure we could crash right back to reality. Another thing to take note of: The move higher this week has been done on light volume so I don't consider it to be very credible.
Bottom Line:
This is a very dangerous time to be trading stocks in my view. There are too many unknowns out there to be confident long or short. The $7 trillion in stimulus combined with the fact that we have no leadership from Washington as we transition to Obama leaves us with a market that reminds me of a boat without a rudder.
Paulson is pretty much done IMO after his latest round of bailouts. I expect him to quietly finish out his term from here on out unless we have another Citibank fiasco that comes out of left field.
I will be mainly staying on the sidelines for the next few weeks and let this rally fun out of fuel. If the S&P runs up to the 950-1000 level I will jump back in on the short side.
Some advice: If you have some longs in stocks or funds that you have been looking to dump them in the near term. I would be a seller if we get to 1000 on the S&P. You might not get another chance to sell at these levels for a very long time.
Be careful and realize that this move higher could be for real in the short term.
Longer term you all know my view:
The market will be as cold as a winters night in Alaska.
Before I start I want to wish everyone a Happy Thanksgiving. I hope you have a great holiday with your friends and family. I am on my way to the families house after I finish this post. I won't be back until the end of the weekend so things will be quiet around here. I might try to sneak on over the weekend and post a thing or two but I can't promise anything!
Stocks are rising today despite more disappointing news on the economy. The data on durable goods, jobless claims, and consumer spending continue to point toward a deep recession :
"Nov. 26 (Bloomberg) -- U.S. business investment weakened last month and consumers are retrenching worldwide, reports today showed, heightening pressure on policy makers to take stronger steps to combat the credit squeeze.
Americans cut spending by 1 percent in October, the biggest drop since the last recession in 2001, while British households slashed expenditures last quarter by the most in 13 years, government agencies said today. A U.S. Commerce Department report showed orders for durable goods slumped twice as much as forecast as domestic and foreign demand dried up.
``It's about as bad as the 1970s and 1980s,'' said David Hensley, director of global economic coordination for JPMorgan Chase & Co. in New York. ``We're looking at back-to-back very deep'' slump in the global economy this quarter and next.
Durable Goods
Excluding demand for transportation equipment, which tends to be volatile, orders dropped 4.4 percent, also more than anticipated and the biggest decline since January 2002. Those bookings were projected to fall 1.6 percent, according to the Bloomberg survey.
Jobless Claims
The number of Americans filing first-time claims for unemployment benefits fell to 529,000 last week, while remaining close to the highest level since 1992, Labor Department figures showed. The four-week moving average for claims reached a 26-year high."
My Take:
All of this data is obviously terrible. The fact that the market is going up despite the bad news is something to take notice of. This is not a good sign for the shorts.
If we close higher today, we will have a 4 day winning streak on the DOW. This could start giving the bulls some confidence and induce more buying. Bear market bounces should be expected after reaching such lows, and they can be sharp and violent. The market in 1929 rallied over 50% before once again heading to lower lows.
The consistently bullish bias thats almost always seen on Wall St must be respected here. The good news for the shorts is all of this buying tells you that we did not see the bottom last week. Bottoms are not seen until almost all of the bulls have capitulated. This recent buying spree tells you that we are not even close. The true bottom will come when no one ever wants to own a stock again.
The Feds promise to throw $7 trillion dollars at this problem also cannot be discounted. This could pose a big threat to the bears in the short term. We have never seen such stimulus thrown at our economy so we really don't know how the market is going to react. It would not surprise me at all if we rallied over the next several weeks.
The Bear Stearns rally in the spring was a similar setup: Massive stimulus providing hope that things will get better. The mortgage news that I discussed yesterday could also further fuel the pump as many begin to refinance their mortgages. As you can see, we are at 7 year lows on mortgage rates as the Government continues to buy the 10-year.
On the flip side, there are shoe drops everywhere that could take us much lower. If GM goes under or we have a bank failure we could crash right back to reality. Another thing to take note of: The move higher this week has been done on light volume so I don't consider it to be very credible.
Bottom Line:
This is a very dangerous time to be trading stocks in my view. There are too many unknowns out there to be confident long or short. The $7 trillion in stimulus combined with the fact that we have no leadership from Washington as we transition to Obama leaves us with a market that reminds me of a boat without a rudder.
Paulson is pretty much done IMO after his latest round of bailouts. I expect him to quietly finish out his term from here on out unless we have another Citibank fiasco that comes out of left field.
I will be mainly staying on the sidelines for the next few weeks and let this rally fun out of fuel. If the S&P runs up to the 950-1000 level I will jump back in on the short side.
Some advice: If you have some longs in stocks or funds that you have been looking to dump them in the near term. I would be a seller if we get to 1000 on the S&P. You might not get another chance to sell at these levels for a very long time.
Be careful and realize that this move higher could be for real in the short term.
Longer term you all know my view:
The market will be as cold as a winters night in Alaska.
Tuesday, November 25, 2008
You Can Lead a Horse To Water.....
But you can't make him drink!
Good Afternoon Folks!
Someone needs to mail this famous saying to the Fed. They need to read it and realize that you can lead a consumer to the bank but you can't make them borrow!
We got another round of bailouts today as the Fed attempts to encourage you to go out there and spend spend spend like housing speculator on steroids. Just what we need! More liquidity from the Fed to borrow! These knuckleheads need to realize something: We can't borrow anymore because we are up to our necks in debt.
The Fed is absolutely terrified of deflation so they continue to flood the money system with money in attempt to fight off deflation and stabilize prices. Sadly, its not going to work folks. The consumer is tapped.
How are consumers supposed to go out and lend when 50% of their take home pay is going towards the mortgage? The answer is they can't!
Treasuries continue to collapse as investors continue to pile into treasuries. Rick Santelli warned today that the government could also be buying the 10-year as a way of "quantitative easing" in an attempt to get mortgage rates down.
As you can below see its working. Take a look at the yields on the 10 year:
Good Afternoon Folks!
Someone needs to mail this famous saying to the Fed. They need to read it and realize that you can lead a consumer to the bank but you can't make them borrow!
We got another round of bailouts today as the Fed attempts to encourage you to go out there and spend spend spend like housing speculator on steroids. Just what we need! More liquidity from the Fed to borrow! These knuckleheads need to realize something: We can't borrow anymore because we are up to our necks in debt.
The Fed is absolutely terrified of deflation so they continue to flood the money system with money in attempt to fight off deflation and stabilize prices. Sadly, its not going to work folks. The consumer is tapped.
How are consumers supposed to go out and lend when 50% of their take home pay is going towards the mortgage? The answer is they can't!
Treasuries continue to collapse as investors continue to pile into treasuries. Rick Santelli warned today that the government could also be buying the 10-year as a way of "quantitative easing" in an attempt to get mortgage rates down.
As you can below see its working. Take a look at the yields on the 10 year:
Quick Take:
We are now down near 3% on yields which are 50 year lows!
Some Advice:
This may be the best time in history to refinance your mortgage. I am hearing reports that mortgage rates have dropped to as low as 5-1/4%. Take advantage of this desperation and go out and refinance your mortgage if you plan on staying in your home. This is the opportunity of a lifetime and its not going to last very long. Get you butt in gear if you plan on going for it!
The sad reality here folks is the fact that yields are this low is a very bad sign. Its a giant warning signal that deflation is here and a Japan Part 2 scenario is on the way.
Take a look below at this excellent video on the bond market from an analyst in Europe:
Here is the link to the bond monster!
There isn't much else the Fed can do after buying down the 10-year. I am afraid they are just about out of bullets. The analyst in the video above explains that the same type of action was seen in the Japanese bond market as there market began to collapse. Our interest rates are rapidly approaching zero just like theirs did.
One other pressure on treasuries that's dropping yields should also be noted:
The banks are also buying treasuries as they look for safety and attempt to fix their balance sheets. So basically the banks are taking your bailout money and going and buying treasuries instead of lending it to you like they promised. How do you like that folks? Pretty crappy isn't it?
The bottom line here is there is no way the Fed can prevent deflation no matter how much liquidity(money) they throw at the system. They cannot force consumers to borrow. Most of the consumers couldn't even qualify to borrow even if they wanted to because their credit scores would be too bad after years of overspending!
The Fear of Deflation
So why is the Fed so deathly afraid of deflation? Because it feeds on itself and deflation can stop an economy in its tracks. The fear of deflation is the consumer may just stop buying and wait if they see prices continuing to drop month after month.
I mean think about it. If you want to buy a house and the one you want to buy keeps dropping $10,000 in price every couple months what are you going to do? Stay on the sidelines and wait right? I mean why buy now if you know its going to drop another 10k in a few months.
This same line of thinking can be used for any consumable item. The less people buy, the more prices drop. So what eventually ends up hapening is everyone just waits and waits and waits because they know they can get a better deal if they just stay on the sidelines.
If everyone moves to the sidelines and waits guess what happens? Presto! An economic collapse!
We are already seeing signs of massive deflation. Have you been to a mall lately? Did you see any for sale signs when you were in there? Is your mailbox starting to get filled with mailers announcing sales? Gone to a car lot lately? Hell, they are practically giving cars away right now.
Don't forget the biggest sign of all that tells you deflation is here ...HOUSING! Did you see the Case/Shiller housing index today?:
"Nov. 25 (Bloomberg) -- House prices in 20 U.S. cities declined in the year ended in September at the fastest pace on record as rising foreclosures pushed down property values.
The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier, more than forecast, after a 16.6 percent decline in August. The gauge has fallen every month since January 2007, and year-over-year records began in 2001."
I don't see any deflation in these numbers do you?Yeah right. After seeing the biggest price drops in the history, I guess you could say that deflation is here in a big way.
Bottom Line:
We traded pretty sideways today as the market begins to quiet down as turkey day approaches. This is a good thing because I think everyone is pretty worn out after the last couple of months.
I didn't add any new positions today and I probably won't until after the holiday. If anything I may sell a few longs that I have been waiting to dump if the bounce continues.
The Fed's actions the last few days should be taken very seriously folks. Ignore the positive spin from the equity markets on these developments. The bailouts and huge moves in treasuries should not be cheered.
They are major warning signs that some very tough times lie ahead.
Stay Tuned!
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