Thursday, August 30, 2007
Wednesday, August 29, 2007
1 a: assured reliance on the character, ability, strength, or truth of someone or something b: one in which confidence is placed.
I don't know how closely any of you have been following the growing number of stories regarding malfeasance across the financial spectrum. Whether it be the Bear Stearns hedge funds that blew up filing for bankruptcy in the Cayman Islands or the Sentinal situation which gets more intriguing by the day should we be surprised the following article out of the NY Times has emerged. This growing overseas investor discontent deserves your attention as this is no small matter here as this cuts to the integrity of our financial system which is the bedrock of the markets. Investors must feel confident that what they are reading, whether it be a ratings report or a research note, that the product actually is what it says it is. At the end of the day confidence in the financial system must be maintained or it will implode. Kyle Bass from Hayman Capital in this letter to his clients, details some disturbing details of behind the scene goings on in the debt markets. I believe this is and will be a much larger issue for the Fed and the Treasury than propping up markets or maintaining liquidity. If the perception exists, even remotely, that the game is rigged in any way, all hell could break loose. Don't lose site of the fact that these insignificant foreigners are our bankers ! I hope I am making more of a situation than it deserves, but I cannot help thinking of the phrase, it takes a lot of buying to put a market up, it takes a mere lack of buying to put a market down.
These overseas buyers are a major part of the liquidity that everyone wants so desperately to bring back. Dennis Gartman has always said capital gravitates to where it is well treated, to places where it is free to come and go as it pleases. I am trying to look at the source of the infection rather than so many others who are looking at the symptoms. Will you buy a money market fund let alone a debt instrument if you cannot trust it is what it says it is. It is often said that when the tide goes out we see who is wearing no clothes and this disappearing tide of liquidity is exposing some very unpleasant facts about our financial system. When trust disappears in the financial it takes a very long time to come back. Good trading to you all.
Monday, August 27, 2007
I came across the following quote from an ABC News article entitled "Real Estate Fool's Gold"
"It was going up so rapidly that I was fearful that if it went any higher I could not afford it anymore," she said. "So I needed to get it while it was still at a price I could afford…before it went out of my range.
"If we don't hurry up and buy something now," she said, "we're never going to be able to buy anything."
A doctoral thesis these could be conducted on the above statement alone. Read the quote again and think about what is being said. I am not trying to pick on the individual who made the statement or their IQ but it speaks to the emotionality of the issue. In broker training school they taught us that 90% of buying decisions are emotional. Hence most try to offer as much sizzle and as little steak as possible. Tops are made amidst euphoria, and exhilaration(think gold in 1980/tech in 2000 and bottoms amidst depression and despair.(think gold/oil in 2000).
The touts on television are going to start downplaying all the negatives on the economy. For example just today a commentator downplayed housing in this market as not as big a deal as the bears are making it out. Now this is an industry that according to very credible sources has been responsible for between 40-45% of all new job creation since 2000 ! Yet now that former evidence doesn't support their continued stance, they downplay the same facts that they rejoiced in previously when it suited them. These are not stupid people, though they may come across that way. Is this hypocrisy, is it bias, or is it ignorance. Whatever it is, it can be an exorbitantly high tuition to pay for learning something the hard way.
Crude Oil - This is economics 101, demand is increasing and supply is decreasing. It is really that simple. All the easy oil has been found. To those that believe that crude is in a bubble which is ready to pop and head back down to $30/barrel. Please provide me with the schematics on how we are going to ramp up production to meet the increasing demand out of the developing world. I know you are gonna tell me that 'the Arabs have it, they will just ramp up production'. Well, I don't operate like a Countrywide or Accredited Home lenders, or any of the other 136 mortgage lenders gone belly up. I need documented proof of reserves, audited proof ! I refuse to take you or especially them at their word because if the average homeowner overstated his income by 50% imagine what a monarchy desperate to maintain its tenuous hold on power would do. Suffice to say an 50% exaggeration may be mild. All that unexplored territory in Iran awash with unexplored reserves, so awash they are rationing gasoline among the citizenry. The Artic and the continental shelf you say, the easy oil has been found. Get used to these prices this is just a consolidation, and lord forbid some serious political strife globally, triple digits ASAP. Sorry, I'm just the messenger so don't shoot me.
Gold - We are getting close but just not yet. Silver the same.
The financials are an absolute joke. I keep seeing the dow up and the financials down or flat, or off their lows for the session. This market is going no where fast without the financials participating. I encourage you to look at the Ultrashort financials (ticker SKF) as a hedge to you long portfolio or an outright short. I hear about all these fund managers buying the financials on weakness. I keep hearing how fabulous these dividends are. I have a news flash for them, (remember news conforms to the tape), dividends can and do get cut when business gets bad. We'll have to see how enamored of financials these cats will be when the dividend is 1.5% Here is an advance headline from Sept 15th, 2007
"Business is go good we just had to borrow another billion or so at the discount window, of course as a show of support for the Fed !"
The breadth of this market stinks, the new high/new low list looks absolutely pathetic, these stock buybacks all done with borrowed money and with the stock price at or near all time highs, yet we are supposed to embrace this as a value market. Save me the rhetoric and give me the Charlie Prince of Citicorp line, "the music is still playing so we have to get up and dance." at least then I could give you credit for being witty. The tape still says down. good trading to you all.
I heard the news this morning regarding Acer's purchase of Gateway and I just couldn't resist. I am not trying to rub salt in the wounds of Gateway investors (there's that word again). I just thought that if a picture is worth a thousand words then this one has got to be worth at least that if not more. Do you think Pompom television (CNBC) will show you this chart ! NO ! They will tell you that Gateway(GTW) is up $0.60 to a 1.80 up a whopping 50%. Do you not love selective, tout reporting. Just like they are doing to Cisco right now. What is the lesson to be learned here from the 97.8% decline? Was it that maybe the dips were not actually buying opportunities but warnings screaming sell? Or maybe that things really were NOT different this time. Or possible that the analysts had absolutely no clue as to what was going on?
Please look at this chart of Gateway the next time some analyst is on TV touting the latest hot fad like beanie babies, hoola hoops or Crocs. (speaking of which see chart top). The minute things go south they will re-iterate their buy ratings, maintain that this is buying opportunity, blah, blah, blah only to abandon you in the end, leaving YOU holding the bag. The chart above clearly shows the perils of AVERAGING DOWN. Ask the many Gateway holders who averaged down how they feel now about this strategy even with this glorious buyout from Acer. I will repeat here again, losers average their losers. Don't fall into the myth perpetuated by sales and commission driven Wall Street, averaging down is a guaranteed ticket to the poor house. I cannot say it any clearer than that. To the doubters out there of which there are many, I suggested reading up on Nick Leeson from Barings fame for empirical evidence on this issue. Good trading to you all.
Saturday, August 25, 2007
Friday, August 24, 2007
Let me get this straight, Mozilo thinks recession, Goldberg from Thornburg thinks likely a recession. hmmm 2 guys in the field contradicting the ivory tower economists, interesting. But like Gary Shilling has often said predicting a recession is never good for your job security as an economist or analyst, something to think about when listening to these gurus on pompom television.
In many a day prior when the Dow would be up, as it is today, the yen would be down as the hedge fund valets would be playing follow the leader into the carry trade(borrowing and selling yen to buy any other asset). I note the yen is flat to off slightly with the Dow moving as I write this at 2:30 pm EST, we'll see how it closes. I find this a little curious and yes I am long and got longer yesterday. Biased? I hope not. Opposing views are welcome.
Home Depot looks to be having some trouble unloading the supply division deal. By trouble I mean 1.2 billion LESS for the unit. I wonder how this might affect it's stock buyback considering they are doing it with borrowed money. My guess is some bankers are popping Rolaids as we speak.
Someone emailed me regarding my comments on this being a light volume (bear market rally) and not to be trusted. The emailer felt that the summer holidays were to account for the volume drop. To which I say, don't be fooled. Money managers are watching this market very close and while they may indeed be on vacation they are connected via laptop, blackberry, etc. I also suggest that if they are not watching whats going on they may not have something to watch over in short order. Remember, it takes a lot of buying to put a market up, it takes a mere lack o buying to put it down. Good trading to you all.
Thursday, August 23, 2007
Coventree could not sell about $400 million in commercial paper. Does this mean the liquidity injections are not working ? Maybe they should double the dosage. But remember Hank Paulsen told us everything is okay and the global economy is fine, so go buy stocks !
I am telling you that the psychology of this market is now broken and it is not going to be repaired without a major cleansing. Wall Street made of mockery of our securities markets with the toxic CDO's and mortgage paper and The 2 handle on short term paper is a sign of MASSIVE problems. The debt guys are much smarter than the equity guys, now what do they see that the equity guys don't. DO NOT DISCOUNT THE CONCERN OF THE DEBT TRADERS. It is real and it portends major problems that sooner rather than later the equity markets will wake up to . The volume on the ride down was enormous and on this rally off the bottom very light. This is not how bull markets act but rather this is the clue that this is a bear market rally which is quickly running out of steam. Bear markets drop on volume rally on substantially less and repeat forming lower lows and lower highs all the way. The opposite of the bull.
If the story today by Bloomberg's Jonathon Weil detailing Wells Fargo accounting doesn't wake you up to what is going on out there then nothing will. The fact that it took a cat from Bloomberg and not one of the myriad number of analysts on Wall Street to uncover this shows you how little 'analysis' is occurring at the brokerage firms. Just cheerleaders for their respective investment banking departments, nothing more. Good trading to you all.
Wednesday, August 22, 2007
Above is a weekly chart of Loew's Corp. The Larry Tische and family holding company, a mutual fund of their investments to to speak. They finished a big deal with Dominion resources some time ago. Do some digging around on this one. I think you will like what you find. Chart says not yet though.
Tuesday, August 21, 2007
I mentioned the Semiconductor Index ($SOX) above a few days ago as it was testing the trend line (purple). We have broken said trend line and are now in a weak rally and testing it from underneath. The 50 day ma is toast and the 200 is putting up a fight. For more evidence have a glance at the volume, via the Semi holders (SMH), for this rally of the last 3 days. Very light which is what we would expect in a weak bear market rally.
The above daily chart is of the quad Q's (QQQQ) the tracking stock of the Nasdaq. I have noted what I believe is a head and shoulders formation which should give us a target of $43.50. (distance of neckline to head subtracted from neckline break). Also notice the current rally is taking us to the broken trend line (red) and while we could rally to the neckline to kiss it from underneath I suspect we may fail sooner rather than later. The volume on this rally is lousy and is indicative of a bear market rally rather than the start of a new leg up. I am adding to my QID position here.
The final chart of of the tracking stock for the Russell 2000 (IWM). This looks like a continuation rectangle. As I noted it is contained by 80 and approximately 73.50-74. A break below this lower lever of the rectangle would imply a move to 67.50-68. Conversely and break above $80 would indicate a move up to 86. The tape will tell us. Good trading to you all.
Monday, August 20, 2007
I am often emailed about being too critical of the hedge fund valets and private equity funds I have taken to task in this blog. The crux of which is that I am jealous and spiteful. On the contrary, nothing could be further from the truth. The are many outfits out there that are shrewd and savvy investors. The kind you and I would be lucky to have manage our money but they in the very small MINORITY and are few and far between. I am outspoken regarding the other 85% specifically due to the perception out there regarding their acumen and/or infallibility. I have listened to the institutional conference calls, the questions, oh those well thought out questions and the comments, the look at me I know something about this too comments. It is with much experience that I have come to this conclusion. Lowest common denominator ! A note to all those teachers who told us time and time again that there is no such thing as a dumb question, you never listened to those calls or you would never have made such a statement!
A rising tide lifts all boats rings so true as many of these funds employing ultra leverage make significant gains only to implode the minute things change. I went through this countless times with former customers who chased performance and confused it with acumen. I used to ask them to consider HOW the return was accomplished. My grandfather counseled me that you do not learn the worth of your skipper, physician or pilot till you are faced with adversity. Whether it be athletics, business, or life, truer words have not been spoken.
I now present further evidence, the Aegis failure and Cerberus actions of shutting down health benefits prior leaving many without Cobra. Please read the article, t is worth your time. And you will know understand why I read the last rites to Chrysler when Cerberus bought them. Good trading to you all.
Remember this chart (DIA) I posted last week? The bounce back thru the neckline looks very suspect. Let us watch this close as I think 120 is in play here.
The above chart of Wachovia Bank (WB)speaks volumes. We are getting an oversold bounce and nothing more. The bounce should be contained by the 50 as the 200 rolls over. For anyone who follows and knows moving averages this is not nice for the bulls. I believe we have a nice bear flag forming and a break below 45 (actually 44.75) would be ignition for the next leg down. Now remember, this is the outfit that bought GoldenWest Financial back in Sept of 06' (at the top?) If memory serves me still, GDW was a top 3 mortgage player in California. Do ya think they are immune to what is going on? Do I expect major 'impairment' announcements from Wachovia regarding this? Do I have a bone to pick with them? Absolutely, I was short GoldenWest Financial, just as buying mortgage brokers was in vogue, and am lucky to live to talk about it. Proof yet again that the market can remain irrational far longer than any of us can remain solvent. I would advise the cats who orchestrated the GoldenWest deal to get their resumes out ASAP if they haven't already.
Rallies in this market are to be sold not weakness bought. if you are long it is a chance to lock in gains and minimize downside risk which I view as SUBSTANTIAL. This rally is an absolute gift, take it. The television pundits continue to do segments on where to hide in this market, well I have a a novel concept, how about cash ? Oh sorry, thats boring and doesnt make any of the sponsors and advertisers any fees of consequence.
We will get our opporunity to go long the commodity bull which is in a correction. Continue to do re-con on the energy(oils/oil service/coal, etc. the precious metals. Energy is in a short term correction long term bull market as are gold and silver. Do not lose sight of this.
Does it bother anyone else that U.S. Comptroller General David Walker compared the current United States to end of the Roman empire? This is not some black helicopter whack job here talking, although he must be making the reigning cognoscenti particularly uncomfortable. Remember to cut off your losers and add to your winners. Good trading to you all.
Friday, August 17, 2007
The above chart is a monthly chart. Please note the shooting star which can be indicative of exhaustion and a reversal. Remember this is a monthly chart so it carries the greatest weight.
And lastly we have a daily view. The 50 and 200 have been clearly broken. The trend lines are under assault. We must respect the hammer bar that occurred yesterday which could lead to a rally which should be contained by 4860-4950 area, coincidentally where the 200 now resides. Be flexible, stay focused. Don't get to caught up in the very short term(intraday). Don't pick the bull or the bear side but the right(correct) side. The big money is in the big moves. Be intolerant with losers and very tolerant with winners. Good trading to you all.
I still believe rallies are to be sold here. This is going to be nothing more than a bear market rally. They are violent and painful to the over-extended. You will see big gains wiped away quickly but the tape still says down.
If you look at daily charts of the major indices and stocks you will see a lot of hammer or hanging man candle formations. These are the opposite of the shooting star. The look like at sledgehammer or a T. These often indicate reversals and again the longer the time frame the more meaningful.
Remember what the facts are. Have they changed? Has the housing debacle rectified itself overnight? Countrywide tapped 11 billion in credit lines. You don't tap these because you want to but rather because you are desperate and have too. This is a very negative sign so don't fall for the hook. This rally is a gift for you to lighten up if you had not already done so. It is an opportunity to go short if you are aggressive and have the stomach for it.
Remember if the fundamentals change we need to change as not doing so would be foolishness of the first order. Housing is responsible for 40-45% of job creation in the economy and the housing debacle WILL crush job growth. Housing represents 10% of GDP. Banks do not lend to build factories or for capital equipment anymore they are mortgage and derivative lenders. You want a crystal ball of what is unfolding you MUST look to Japan. The real estate/stock bubble in the late 90's is evidence of what happens when the banking system falls into a corner. Remember the Emperor's Gardens which is approximately 1.5 acres was valued(not worth) equal to the state of California. No amount of rate cuts (0.5%-1.0% rates) will help. The system must be purged of bad loans. Like a dead body it will rot if left unattended and disease and pollute the whole place. The Nikkei was 40,000 back then and is now sitting at16,150. 17 YEARS LATER !
Now take into account how little we save and compare that with the fact that the Japanese are professional savers(especially compared to us). Remember they own more of our treasury debt than the Chinese!
Housing appreciation has been THE driver of this economy. Remember home equity withdrawals accounted for 30% and 16% of new car purchases in California and Florida respectively. The avalanche of adjustable rate mortgages coming due is dead ahead. A leveling off of home appreciation would be enough to undercut this economy but a decline of some magnitude is the body blow. Remember it takes a lot of buying to put a market up (any market), it takes a mere lack of buying to put a market down.
Good trading to you all.
Thursday, August 16, 2007
The above chart is the semi holders. on a montly basis. Please notice the 3 shooting stars. They often represent exhaustion moves and are a precurser to a move lower. For those inclined to heed warnings, well, this is your 3rd. Consider yourself warned.
Merrill finally puts a sell (yesterday) on Countrywide. Are YOU still listening to these guys. It takes a move from 45 to 25 for them to make that call. Did you not learn anything from Henry Blodgett and the tech bubble ? When will people learn that SELL SIDE (Goldman, Merrill, Lehman, Morgan, et al) of the street investment advice cannot be trusted. They have their own proprietary book of investments and are selling those positions to you. They ALWAYS have a reason to sell or they would hold and it is most definitely not your infinitesimal commission that drives the trade. Your sales rep(yes they are sales reps nothing more) may be a very nice person but he MUST peddle what he/she is told to peddle. One visit to a morning sales meeting/conf. call and you would run, not walk from your broker. Remember this and please protect yourself.
Why is it everyone is whining and crying for help when market goes down yet when market goes up beyond reason everything is okay? Is it unpatriotic for markets to go down. Is it unpatriotic to let other citizens, who borrowed what THEY KNEW they could not afford, now default and lose their homes. Aided and abetted by unscrupulous mortgage brokers, pandering politicians promoting home ownership for everyone. I think everyone should have a Cadillac and a Rolex, why don't we promote that as well. Read the Constitution and Bill of Rights I do not see home ownership anywhere in there or maybe my copy is missing a page. The time to pay the piper may be upon us. Dennis Gartman has often said the duty of the Fed is to take away the punch bowl just when the party is getting started. Unfortunately, we had a Fed Chairman, (Greenspan) who not only did not take it away, but rather like a mischievous college frat boy, spiked it with a gallon of tequila(cut rates to 1% in the wake of the tech bubble).
My grandfather often told me that the stock market is the only business in the world where you can hang a 50% OFF sign in the window and nobody shows up. Just as the market was disconnected from fundamentals on the upside, and oh yes they most definitely were, this market will disconnect on the downside. Psychology and sociology have more to with it than economics. Mike Panzner had a great piece on his site Aug 14th by David Leonhardt about P/E ratios which I recommend you read so you are prepared when Abby Cohen tells you the market is cheap on a P/E basis. Now this is from the same woman who were P/E's were in the stratosphere they conveniently did not matter. The fact that she is still employed and worse, many still listen, is a reminder that this is the land of the opportunity and anyone, and I mean anyone can make it !
Sell your losers and add to your winners. Good trading to you all.
Wednesday, August 15, 2007
"I came across a couple of nice looking patterns you may find of interest. Union Pacific, (UNP top chart) one of the current market darlings had a beautiful shooting star yesterday on very heavy volume. I move below yesterdays low of $125.59 would be the signal to go short. Norfolk Southern (NSC 2nd chart from top) and Burlington Northern (BNI last chart) both show the same pattern with corresponding heavy volume. A move below their lows of yesterday would be the trigger. For Norfolk its $57.78 and for Burlington it's $91.87. Could be a top in the rails of some substance only time will tell. For those interested Norfolk's action today is indicating a bearish engulfing bar which is very negative."
The chart above shows the shooting star on the daily chart. Notice the massive volume. What I want you to pay attention to is what happened following the formation of the star. We jobbed around a little before commencing a not so insignificant, even to a Warren Buffett, decline.
Now I bring your attention to the Emerging Markets I-shares (EEM) which I hi lighted on Aug 6th. The focus of which was a shooting star on the monthly chart. This is a bearish formation happening on a very rare time frame(monthly). As if this is not enough, the weekly chart on EEM also shows a very negative bearish engulfing candle or bar July 27th. If the past is a prelude to the future, which it usually is contrary to what many will tell you, what has occurred following this formation on the rails does not bode well for EEM. Now some may say it fits the rails and tracking Asia and they may be but we need to concern ourselves with the charts. I know Asia and the emerging economies of the east are the place to be going forward but that does not rectify a very bearish monthly formation. Forewarned is forearmed.
The weekly (above) shows a long term trend line in green which should offer some support around $45 area. We can and should expect this to be overshot, but remember this is not perfect science.
The daily chart (above) shows 2 potential we must recognize. The first is the development of a bear flag. The leg down forms what is known as the pole and the current rally(hilighted in yellow) is the flag. This is a very reliable pattern(according to Bulkowski studies). This would imply a move down to the $36-37. Crazy huh !
Let's start with Moodys (MCO). The above chart was posted on Aug 1st. where I was looking for a rally in the 60-63 area. The top chart shows what actually happened. The top tick was $59.89. We did get the rally that we envisioned. Does it makes us wrong that $63 was not reached. NO. This is not a perfect science. What we need to do is interpret what the tape is saying and I would interpret this stock as being even weaker than I thought due to the fact was that was all it could muster after a significant drop. Remember, we learn much more about stocks on corrective rallies/pullbacks than we do on the initial move. Volume and extent of correction of the stock and compared to its peers and the market all give us clues as to its health. Nothing is perfect but this is a close as it gets.
Let's look at Sears.
Be extraordinarily impatient with losses and extraordinarily patient with winners. Good trading to you all.
Tuesday, August 14, 2007
The chart above is the tracking stock for the Dow known as the Diamonds(DIA). I have sketched out a possible head and shoulders formation that would bring 122 into play as a target(neckline to tip of head distance) The $120 level from back in March looks like solid support which is obvious which makes me think that it might not hold as it is too obvious. The 200 and the lower trend line offer some support. I am short the Dow via the Ultra short Proshares (DXD). You may say hey, wait a second the Dow has been a bulldog(some bears call it the PIG though) and I remember he said we are supposed to put our rocks in the wettest bags as they break most easily. Well you are, no question. But, I am attracted to the Dow for another reason. The hedgie herd effect.
We all know how the 'smart money' hedgie crowd follow each other like small children playing a pee wee soccer game(think swarm of bees). I have documented on that at length. They need to be in equities for fear of missing the boat. Just like they all tripped over one another borrowing yen and buying toxic CDO/mortgage crap they are now buying 'the safe blue chips'. This is the reason I believe the Dow has held up much better than the other indices and the reason it will fall precipitously, they will all be tripping over one another to get out of the same thing to meet their margin calls. Lets face facts which most conveniently prefer not to do, and the facts are is we now have conservative money market funds who cannot meet redemption's because they cannot value their holdings to determine a NAV(net asset value). What do you think is happening with the aggressive, pedal to the medal I only know bull markets hedge fund valets (see below)get their redemption's. Maybe I will be wrong but the weight of the evidence and more importantly 'THE TAPE' says otherwise. Besides, whenever everyone goes to one side of the boat, the boat tips. Simple physics for the non-physics major.
Also tomorrow is hedge fund redemption notice day, which in the larger scheme of things is small potatoes but given the many hedge fund managers(oops I meant to say money valets as most of these guys perform functions no different than the parking valet handling your automobile, the same skill set just different uniforms) out there on the 'precipice of insolvency' out there it could lead to some fireworks. The true money managers out there know what I am talking about and won't take any offence to my comments as they are brought down by this lowest common denominator dilemma
Monday, August 13, 2007
Goldman Sachs is pumping 3 billion margin call (remember what I said about meeting those) into their hedge fund. Bet the ranch they spin it as an investment that everything is okay, hey we're Goldman. How many announcements that everything is okay only a week later to hear about significant deterioration blah blah blah do you need to hear before you catch on ? Hellooo McFly !! This problem as I have repeated over and over is not going away. Just like the tech bubble before each slide down will pause, bounce and catch its breath. The pundits will pound the table, proclaim the bottom is and you should buy. This is the furthest thing from the truth, as the lows will break and another slide will ensue and the process will feed on itself, till the problem is completely cleansed from the system. I wish injecting 200 or 400 billion was the answer but it is not. It will only delay the inevitable even more painful outcome. Alan Greenspan WILL go down as the WORST CENTRAL BANKER IN HISTORY EVER, supplanting Mellon for the title. Where is Paul Volker, who wasn't perfect but he had some spine, when you need him.
I caught candidate Ron Paul on Larry Kudlow's show the other night and I have to say that Kudlow is an embarrassing piece of work. I sat there flabbergasted at Kudlow's question of whether Ron Paul was an optimist on America and the economy. Since when did it make you a pessimist to state the facts which the symptoms of which are unfolding before our very eyes. Why are painful choices for long term survival pessimistic and short term, band aid, disease accelerating quick fixes optimistic? Is Kudlow that ignorant? Is he that blind? I'll give him this, he will be correct when he says this is the greatest story never told. He just needs to quit using it on the economy and apply it to the credit, housing, CDO mess. That fraud laden, deceit driven. corruption saturated mess will surprise even the most cynical and pessimistic among us. Our grandchildren will be reading about this tragedy and laughing at how gullible and brainless we could be. No different than current generations ridiculing the Tulip Bulb mania or the South Sea bubble.
Friday, August 10, 2007
"it was never my thinking that made me the big money it was my sitting, got that !"
Now read it again and again till it sinks in, really deep. Now for those of you which if you have not read Reminiscences, please, I implore you, read this book. In the last few days I have had to ride my SRS which I own at 80 from 117 to 96, my SKF which I own from 71 from 95 to 78. Some may call it crazy and many have but as some of you may have noticed I have not put up a chart with a time frame less than daily and in fact have tried to focus equally if not more on the weekly charts. Please do not get caught up in the moment to moment hype of the machine that is Pompom TV (CNBC). One note regarding CNBC is it me or do all they say anymore is how much this or that is "off its lows", forget the facts just give me the fluff.
If that is what you need go to Cedar Point for the day, bungee jump, skydive, but do not fall victim to this with your stocks. I trust you see what I am trying to get across. I stack up with the best of them in falling victim to this. So much money left on the table it pains me more than words can say. Let your winners run, keep your losers small, and above all read Reminiscences of a Stock Operator. It will clear things up for you.
The point of this post is I want to remind you that now is the time to be drawing up plans for your shopping list. For example lets say someone loves the energy story, sees the peak oil thesis and buys into the view that nuclear could be some help. I like to watch Cameco (CCJ). Here is a stock I bought back in October last year about $36 with the Cigar Lake issues. I was stopped out only to watch it whip around and move to new highs AT $56. The recent action has taken it back to $39 right on the trend line support. I am not saying to jump in but what I am saying is to be doing your homework now with regards to what I might like to own say 6 months ago and it got away from me. Is the story the same, has it changed adversely, etc. Do not buy into the weakness but be on the lookout for a turn and its sustainability to initiate a position which you can then add to on further strength once insulated.
I read an excellent story years ago regarding General Tommy Franks and the siege of Baghdad. I will relate what I remember from memory so please forgive the omissions or errors of specificity as I am trying to illustrate a point. The city was surrounded by the 4th cavalry division and Gen. Franks sent in an armored column of approx 70 men comprised of Humvees. Bradley vehicles and some M1A1 tanks. the drove to the center of the city and fanned out in a cone to secure territory for the entire cavalry to enter. He was prepared to lose what he sent in the armored column to ambush or unknown and refused to risk his entire division. Applying this example to your trading that 70 man armored column would represent your initial exploratory position and the 4th cavalry would be your entire account. I hope you remember this example in your trading endeavors. Good trading to you all.
I want you to take a good long look at the above chart. It a 12 year picture, which is not a insignificant time frame of a significant diversified financial player, Capital One. This chart is directed at those who think the sub prime, credit fiasco is coming to an end. I wish I could agree but rather the evidence argues that it is still early in the game with much to come. This rounding top is textbook and is evidence of a market in general rolling from bull to bear ! I do not say this lightly or with any vindictiveness but rather as a statement of fact. The financials must lead, there is no other way. I read once somewhere, and I stand to be corrected if I am wrong, that the entire middle east economies a few years back were smaller than the economy of Spain.
I would attribute this to their lack of a fractional reserve banking system and its multiplier effect in permitting the economy to grow. I don't want to debate economics as I am a neophyte but the expansionary phase we have experienced uninterrupted for the better part of 25 years is reversing. The evidence is weighted via the dollar and more importantly the bond market which I have gone on at length about. Remember 5 downward trend lines have been busted. For those who would still question this I would then question their objectivity. This can get lost when the facts don't conform to your view and we can all be guilty of it.
The Fed lowering rates is expected to be a panacea to the market, again I say look to Japan, look to Wells Fargo who raised jumbo 30yr rates from 6 7/8% to 8% overnight. Sometimes risk and default (2 words that many thought didn't exist until recently) mandates higher rates and this is a novel concept to the financial engineers out there in hedgistan who follow models and formulas and are disconnected from the real world. Kinda like their mark to model CDO portfolios were disconnected but I digress.
One last point regarding the Fed lowering interest rates. I would suggest you start to think about the implications to the U.S. dollar. All I can say to these rate cut proponents is BE VERY CAREFUL WHAT YOU WISH FOR ! Good trading to you all.
I want to focus on the following due to my belief we in a a LONG TERM major bull market in energy. By that I mean oil, natural gas, coal, uranium(nuclear), geothermal, along with solar and wind to a smaller extant. The Dow Jones US. Oil and Gas index ($DJUSEN) paints a great picture. The margin clerks are working overtime. Besides its liquidity there are some mucho profits in the is sector hence the selling. I know and they know to sell your losers and keep your winners but don't underestimate the fear/panic factor here.
As I noted above the ultimate liquidity around the globe. Always a bid and very liquid. Again some profits here coupled with the liquidity equals cash for the margin call. You are never supposed to meet a margin call or at least that is what I was taught. (its the markets way of telling you that you are wrong, gee have I said that before?) but now there is NO BID for this toxic paper around the globe and to meet the call they must sell what has a bid, hence gold and oil are similar to the piano player at the house of ill repute, which when raided, get hauled off to jail like everyone else ! Good trading to you all.