Tuesday, July 31, 2007
The Ultrashort S&P 500 show a weekly bar breaking the trend line on positive diverging MacD. The caveat here is this happened back in February only to be a fake out. We need to see the lows of this move down hold and $58 taken out to the upside. Until then its advantage bulls.
Monday, July 30, 2007
Asking this biased advisor if its time to buy is just as ridiculous as asking a realtor, whose existence is commission dependent(hence biased), whether it is a good time to buy. We are watching how the housing market is turning out and given my favourite chart, remember 'chart to burn into your memory'. Don't fall victim to this biased hype.
This weekends worth of trotting out of 'experts' on television to tout this market as 'a buying opportunity' and 'a normal pullback' was nauseating. Not in and of the fact that each prior dip has been just that but that it is being done in the face of deteriorating economics whether it be housing, jobs, credit, the dollar, you name it. This whole thing reminds me of The Sting. You remember that movie set in the 1930's with Robert Redford and Paul Newman, boy did they suck in that gangster Lonnegan. It might be a good time to watch it again as this is exactly what is going on right now, one big elaborate sting ! No conspiracy either as it is being done to investors with their eyes wide open. Fascinating to the point of being worth in depth PhD study in the corridors of psychology and sociology.
Friday, July 27, 2007
Thursday, July 26, 2007
Why the focus on how far we've "bounced off the low", maybe its driven by a natural disposition to optimism, maybe it is driven by who butters their bread regarding advertising, who knows. The one thing I do know is that if you are listening to that station to get your investment posture I wish you well. You will be holding your "the fundamentals haven't changed" stocks all the way down, just like the tech bubble. You will fall in love with your stocks and the further they plummet the harder it will become to sell, you will continue to look at hte old highs as attainable and then after the relentless, grinding implosion, amidst the ruins of your positions (ie. your $80 trading for $18) the incessant babbling by dumb and dumber(Radigan and Pisani), the money dummy or was it honey?(Maria, are they acting or reporting) will have moved on to the next hot sector, like we have currently with the Dow 30 and assorted multinationals (stocks you could have bought at enormously cheaper levels).
THEY were busy hyping tech to the point where you feel intellectually bankrupt if you don't own them. As it was then with Cisco, Intel, Dell and Nortel today we have Caterpillar, U.S. Steel, Philip Morris, etc. Please learn the lessons from history so you can avoid repeating them. That being said, the one person worth listening to is the one person who gets the least amount of air time, Art Cashin.
To quote Jesse Livermore "we don't want to be on the bear side or the bull side but the right side." Good trading to you all.
A friend told me he saw Michael Jackson from Autonation on CNBC this morning and he said that "he cringes every time he sees some specialist on TV crowing about how the housing spillover is contained." Now why would someone want to listen to someone who lives on the front lines every day surveying the battlefield.
Wednesday, July 25, 2007
Tuesday, July 24, 2007
For some time now, I have been chronicling the problems in the subprime-mortgage market and what they mean. It was possible to look at what had been occurring in subprime and know that a large number of these loans shouldn't have been made, as they weren't going to be paid back. In addition, it was possible to know that the people who owned the loans were levered up, as were the people on the hook for them. Thus, it was logical to conclude that many of these mortgages would be defaulted on, creating ramifications throughout the financing and economic food chain.
Nonetheless, I am more convinced than ever that the outcome I envision is unavoidable, even as the timing remains unpredictable.
In the final analysis, analysis is best Why do I bring this up? Because folks at home trying to determine whom they'd like to listen to and what information to consider -- versus what to ignore -- need to be aware of those two components. I say that because if somebody continually gets the analysis part wrong, even if he gets the guess part right -- i.e., temporarily makes money buying stocks because he says that subprime either doesn't matter or is contained -- that incorrect analysis ultimately will see him get carried out. In the long term, correct analysis is more important than your guess about how people will react to it.
Today's bulls have all been right about their belief that stocks should go up every day, but many have been wrong in their analyses. One of these days, Mr. Market is going to exact a penalty for the guessers who've guessed right for the wrong reason. I believe that day is coming sooner rather than later and will cause far more damage than anyone expects.
"The liberating feature of Basel II is that the financial institutions to which it applies may hold more assets per dollar of equity captial than they previously could-provided a ratings agency judges the assets to be top-flight. Specifically under Basel II a broker must set aside just 56 cents in capital to hold $100 in triple A rated securitizations-but $4.80 to hold $100 of triple B rated securitizations."
Now just as mortgage brokers prodded and coerced home appraisers to make the number to get the deal done is it a stretch to believe what many have suspected that the same was going on with the ratings agencies like Moodys, Fitch, and S&P? Is it any wonder that global derivatives, or weapons of mass destruction that Warren Buffett called them, have swollen to $345 TRILLION which represents about 9X world GDP !
This months piece by Bill Gross which is always worth the read is especially so this month. He mentions the Bank of America report that $500 billion is adjustable rate mortgages set to re-set up in 2007 by an average of 200 basis points (2%) and another 700 billion in 2008. The kicker here is that 3/4 of the 700 billion are sub prime. What about all the people that won't even qualify for the mortgage under the new guidelines. If Gross is right (he is an extremely bright mind) and the Fed cuts, then gold and silver could be ready to rock and roll.
Robert Prechter, about whom you can argue with his inflexibility but not his extensive homework with which he is without peer, had a chart that outlined stock market peaks coinciding with skyscraper projects. Is the planned tallest building in the world out of Dubai a sign of the times?
I heard Amex increased loan loss reserves 85%. Wachovia tripled theirs the other day, now why would they be doing that if the housing problem is contained. Just being prudent you say, well actually the time for prudence was when they were lending the money not now after the horses are out of the barn. And to think of all the wasteful spending on a 'risk management' that seems to be there for esthetics only.
Caterpillar's gap is open now 3 days. Very bad sign. Was this not an international company that is immune to bad things.
Back on July 10th I called Home Depots stock buyback announcement a gift. It was and still is, sell it while you can as these prices will look awfully good compared to $20 which is where we are headed. We are now well below $40 which is where the Depot was prior to the announcement. Short term gain for long term pain... or was it supposed to be the other way around.
The euphoric high of J&J's announced stock buyback has worn off and the hangover is setting in, we are now below $62 which is where the stock was prior the debt laced announcement.
Streettracks Gold trust (ticker GLD) $69 and $72 that's it, gotta get thru. Just trying to keep it simple.
Dennis Gartman brought the above Yen/Euro cross (chart top) to attention which he called,
"a barometer of the world's risk appetite. That when healthy and rising the yen weakens relative to the Euro and global equities have tended to rally. When the appetite is constained the Yen gains on Euro and carry trade is imploded and global equities put under pressure."
The trend line from the low June has been broken and he is watching 166.50 so I will too. Good trading to you all.
Here are the 5 descending trend lines on the $TNX have been broke (noted in chart above).They are in order form high point:
139.90 on May 1984
102.30 on Oct 198
80.20 on Nov 1994
67.80 on Jan 2000
Monday, July 23, 2007
Saturday, July 21, 2007
It just boggles my simple mind how they (the Fed, Wall St., NAR, mainstream media) expect me to believe sub prime is contained (wait till the discussion spreads to Alt-A) and how this housing problem which is 30% of the economy is no big deal ?! Housing has accounted for, according to multiple sources, 40-45% of all new jobs in this economy the last few years. The consumer represents about 60-70% of the economy and has been using his house as an ATM. Lending standards are on the rise, and retirees have been counting on their home to help fund his/her pension years.
The ARM (adjustable rate mtg) crowd is facing the perfect storm. This perfect storm is composed of 3 variables to the mortgage scene for the average couple. His job, her job and the interest rate. I have long believed that all 3 have to be in favourable mode to keep 'the game' going and if any one of these were not, financial calamity looms. Here we are now where rates are higher with the mortgage about to re-set and in many cases 1 or both income earners are suffering. Now add in tightening lending standards which will now spread like wildfire as the pendulum swings back from overt recklessness to overt curmudgeonness (such a word?)
Hence I show you THE CHART, again, cause if you're like me you need to see it again to get it to sink in. (after much effect I found osmosis doesn't work for me) The implications of this chart is something you should be very afraid of. Forewarned is forearmed.
More evidence of trouble in consumer land. Brunswick getting wacked and stock heading much lower.
Another sign that you should fasten your seat belts. Fund of the year in 2006.
Boy is the U.S. dollar sick. Just can't seem to get out of its own way. I am sure glad I am not in Ben Bernanke's shoes. Hmmmmmm.... lets see, if he raises rates to save the dollar and contain inflation he will crush the housing/credit/derivative markets and if he lower rates to save housing/economy/Wall St. he will crush the dollar and put inflation into overdrive. Good luck and good trading to you.
Friday, July 20, 2007
B) that interest rates have had a tectonic shift from lower rates to higher, and
For those of you that may have came away from yesterdays post, The Rails, thinking, man that cat needs therapy or he's plain ol' jealous, or maybe just sour grapes. Well doggonit if I don't stumble across across this (for those that needed empirical evidence) from the always entertaining site Naked Shorts outlining how disgraced NY comptroller Alan Havesi steered state pension fund money to his sons hedge fund. Like the prefect in Casablance " I am shocked, shocked to find their is gambling going on in here!' Where the heck is Seargeant Schultz when you need him.
Could we finally be breaking thru on the Yen(top chart)? Could be. Today some acceleration along with some volume coming in. Its early but this is encouraging. We need some separation here before we can relax some. A move thru 83 would make this fella feel much better. Good luck and good trading.
Thursday, July 19, 2007
You can ignore a lot of things in life and never have to worry but I implore you to not ignore what the financials are doing right now. They are sick, very sick. They should be leading and they are not. Wait, correct that, they are leading, to the downside. It does not matter what you indicator you follow, $BKX, $DJUSFN, XLF, or IYF the story is the same. Please pay heed to this!
Rather than drone on about crude any more than I already have I will focus in on who should be a loser with this and that is the airlines. Continental (CAL 3rd chart) started the day with a gap up and is forming a nice bearish engulfing bar today. It is also being turned back by a descending trend line from it's old high about $52.50 along with the 50day(heading down) and a 200day ma which is looking ripe to roll over. I would expect a rally up todays bar so waiting for the stock to break today's low is adviseable.I came across the above cartoon today(2nd from top) and it made me think of Blackstone (BX chart top) and its IPO. Maybe it was because of this and how Zell took advantage of all those MBA's over there. As to what Blackstone does, I read this a while back had to laugh, buy undervalued companies, fix them up, and sell them for a profit !! Is this Krantz guy kidding? The guys at Blackstone target companies with fairly decent balance sheets, go out (hat in hand) begging for institutional money using very little of their own, saddle the company in question with a trainload of debt destroying the balance sheet and the existing bond holders in the process (just ask the BCE bond holders if you don't believe me), pay themselves a special dividend which consumes any and all cash on the balance sheet, and then sell the boated, debt laden pig of its former self company to the unsuspecting public. Regardless everyone, which includes participants in the IPO of $29 are now under water. Good luck and good trading to you.
Disclaimer- an attorney friend reminded me to remind you (the reader) that my comments are not to be construed as recommendations but rather my thoughts on the markets. Do your own homework and never invest money you cannot afford to lose.
Wednesday, July 18, 2007
Stocks with good earnings don't act this way. Merrill had blow out numbers yesterday and the opening trade $83 was 23 cents from the high turned down and didn't look back. This action can be put in the memory folder called how a stock should not act. Today's action on MER, gap down on the open only confirms yesterdays action. I just caught some hack sorry analyst, (on pom pom TV a.k.a CNBC) touting Merrills book value, blah blah, int'al biz, blah blah. He should come out and say the truth, " with all this liquidity, buy the dips. I have no clue as to what and how much of what they're doing but we got some heavy institutional clients that are up to their collective necks in the stock and my butt will be in a sling if we can't get them out." At least we could then appreciate his significantly compromised position to be impartial and ignore his assessment. To be fair the other cat with Punk Ziegle made some candid remarks so as Bill Fleckenstein would say he might not be a "dead fish"
Don't look now but Sears (SHLD) broke..... fasten seat belts, put trays and seats in upright position .......$135 here we come
We now get word on the 2 Bear Stearns toxic funds. Nice. You just gotta love 'professionally managed money'. Good luck and good trading to you.
They say a picture is worth a thousand words so I have included above (top 3 charts) some pictures to show you what is going on in the mortgage backed security market. I have included only AAA paper as it is considered the best. Now what will you do if this happens in any of the broader markets and don't say it can't or it won't because IT HAS and IT WILL again.
Tuesday, July 17, 2007
Wow, am I relieved. WTF was I worrying about. That these 2 pimps have given the all clear sign to investors everywhere, I should be beating a path to the local loan shark to bet my life on this market. It got to the point where I began to wonder if he was convincing himself or me of the merits of this market. I have learned through experience to bite my tongue as I have been through all of this before via the tech bubble so to say I am a battle hardened at dealing with the cocktail party market strategist would be an understatement. It lead me to the title of today's post, don't believe the hype.....its a sequel. (with credit to Public Enemy).
It truly is a sequel and I wanted to take this opportunity to send this out to all those who went through the should have, would have could have, post mortem after the tech bubble. To the same people who told me at parties why stock splits were bullish for their shares and why in the new economy standards like P/E's didn't matter. To the same folks who still own the shares since late only 8 years since the bubble was popped but their investors so that is no time at all.(all prices split adjusted)
Intel at $55 which currently stands at $26.33
Nortel at $700 which currently stands at $24.33
Microsoft at $45 which currently stands at $30.77
Sun Micro at $60 which currently stands at $5.29
Cisco at $70 which currently stands at $29.73
Dell at $50 which currently stands at $29.19
So to all those who said I wish I would have sold. If, and that's a big if, you are still involved in the markets and have positions that are evoking the same type of feelings of invincibility, names like Jim Cramer's 4 horsemen Apple, Google, Baidu, and Research in Motion. Please protect yourself. There I have done my civic duty. Remember that Gordon Gekko said a fool and his money are soon parted, assuming they are lucky enough to get together in the first place and Sir John Templeton said that "this time is different" are the 4 most expensive words ever uttered in the history of the markets. Good luck and good trading.