Monday, July 20, 2009

Some Random Thoughts

Well CIT which was supposedly 'well capitalized' seems to have found 3 billion in necessary funding in the 12th hour. Funny how a well capitalized outfit needs that type of infusion to stay afloat. Ah yes, I forgot not a solvency issue just some liquidity hiccups. Nice to know the $2 plus billion CIT received in Federal bailout money last year is secure. Nothing to worry about according to King Henry Paulson, the taxpayer is protected !

Some of you may or may not have heard the story making the rounds last week, and mentioned by Dennis Gartman in his daily letter, that the Comex was allowing for the delivery of ETF shares in the place of actual physical gold bullion against a futures positions. This, dear readers is smoke, and where there is smoke there is fire. I suggest you keep close eye on this situation as I will be. Of course the Comex is well capitalized, right? Of course they are.

People tend to forget that gold is a commodity but it is money. When tust is lost, when people start welshing on their end of a financial alchemy deal.... and can't deliver the agreed upon item whether it be gold, oil, a car, etc.....well I will let you fill in the blanks.

Earnings or lack thereof. What does one say when a company can report numbers that would make the hair on your neck stand up, and not in a good way. Eaton, ticker ETN, saw its earnings drop 92% with an accompanying 32% fall in revenue yet the stock gapped up and was off to the races because it beat the lowered expectations (remember the SNL dating skit).
This is what we are supposed to stand up and cheer about? Sorry if I care not to get out of my seat.

Massage the numbers down so that a toddler could get over them.
Yes, dear readers less bad is good. That is, until it isn't anymore. I have hilighted Eaton but the list goes on and on Haliburton, Johnson Controls etc.

I don't know if any of you are familiar with the story of baseball player turned financial guru Lenny Dykstra. I am and though I am not a regular watcher of the Daily Show with John Stewart, I did come across this excellent video clip from his show on said subject courtesy of Calculated Risk blog.

Please watch it as it will give you a tad more insight into the legendary Jim Cramer. Suffice to say that nothing more need ever be said about James Cramer of CNBC. Never, ever. Jury's out. Case closed. Beside, Dykstra is not bankrupt, he's not insolvent he just has a liquidity problem that a relaxation of mark to market accounting rules would fix in a jiffy.

A friend passed on to me the latest report from Richard Russell, the author of the famous Dow Theory Letters. Just in case you're not aware, it is the longest running market letter out there as he has been writing it since 1958. Mr. Russell is the senior statesman in the letter writing business with Harry Schultz right behind him. I do try to stay abreast of what Mr. Russell is thinking and saying as he has forgotten more than most on Wall St. will ever know so lets just say that he knows a wee little bit about the markets and leave it at that.

In his latest letter dated July 15, Mr. Russell had this to say after going thru a litany of underlying indicators which are flashing bearish warning signs;

"According to Dow Theory, the great primary trend of the stock market continues to be bearish. If so, on a valuation basis alone, the bottom of this bear market has NOT yet been seen. All the above suggest that the March lows in the averages will be violated somewhere ahead (there is no way of timing this). "

He goes on to say the following;

"I've given this next statement a lot of thought. I don't think most analysts understand the amazing power and tenacity of the great primary trend of the market. Most of today's analysts have had no experience with bear markets. We're now in a primary bear market. Most people believe that if the Fed does this or that, the bear market can be halted or reversed. Nothing could be further from the truth.

The fact is that in the market, nothing is more powerful or insistent than the primary trend. The primary trend can best be compared with the tide of the ocean. All man's efforts to thwart or turn the tide are like so many sand castles built on the edge of the nearest waves. The incoming tide will wash all the sand castles away, if not the first wave the with the second or the third. Thus, the incoming tide will conquer all.

This is why all of Obama's and Bernanke's and Geithner's
'sand castles' will be washed away by the bear market. All that will be left will be crippled corporations and monster debts. Obama believes that Roosevelt with spending and alphabet agencies ended the Great Depression. Sorry, President Obama, you are wrong. The Great Bear market and Depression finally ended when the bear market died of exhaustion on July 8, 1932. That was the day when the Dow Jones Industrial Average halted its decline at 41.22. At that time, the Dow provided a dividend yield of 10.2%. That's when the bear market actually ended. It ended the way all bear markets do - in utter exhaustion."

Just thought you might find his thoughts noteworthy. But hey what would he know

Housekeeping notes;

I was stopped out of the following
1 unit of SDS at $52.35 for a loss of about 2.5 pts on 1 unit.
1 unit of FXP at $10.56 for a loss of about 2 1/4 pts on 1 unit.

Good speculating and remind them to please don't ever forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Ultrashort Real Estate ticker SRS @ $18.85 stop @ $17.84
Short 2 units Wells Fargo ticker WFC @ $25.10 stop @ $26.26/27.41

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