Monday, October 12, 2009

Weekend Thoughts

The recent rally, which I continue to believe is simply a cyclical bounce in the context of a larger secular bear market. It has made mince meat of all who contradict or doubt it. I recall an interview with the noted technician Louise Yamada recently, where she commented that the current trading environment was one of the more difficult and challenging she had ever experienced. Take that for what it's worth.

I bring her remarks up, not to defend myself and excuse my errors, but rather to remind you that it is not just 'you' who is frustrated with this market. There are many crosscurrents in this market and as such it is a violent state of flux. There is a massive battle being waged currently by the bullish forces, who see nothing but
sunshine and roses ahead, and bearish forces who see the opposite. Both sides believe they are correct.

Then there are also those funds out there simply scalping the fractions that are available to them via high frequency trading (HFT). The major investment banks no longer may money from, investment banking fees, IPO's and secondaries, etc, etc are left to their own devices trading and speculating in the capital markets. Backstopped of course by you and I, the taxpayer.

Technical patterns both bullish and bearish are failing with regularity in both directions. Rules that used to apply seem to be failing. The reality on main street seems to be at a complete disconnect from what is transpiring on Wall St. What I do know is that all of this cannot go on indefinitely. One side will prevail.

Did you catch the recent interviews (on CNBC of all places!) with Ken Langone and Carl Icahn. If not I strongly urge you to did them up on the net as they are worth your time. You may not agree with what they have to say but you must pay attention to what they are saying. The close your eyes, hold your nose and buy crowd are really telling you stop thinking, stop analysing, stop using logic. When was the last time this strategy was in place. Hmm..... dot com 1999-2000? Yes, I do think so!

The quantitative easing and monetization of debt by the Fed and the rise in the S&P500 seem to be moving in lock step with one another. Do you think this might have something to do with so many false signals and breakouts/downs we have witnessed recently? It can only go on so long.

I will not close my eyes and hold my nose and buy because I will not know when to get out. Anyone with any respect for history in the markets knows the door can slam shut hard and fast leaving participants awestruck and devastated.

Here are some things I have noted as plain as the nose on my face;

  • Unemployment continues to rise.
  • Mortgage delinquencies and foreclosures continue to rise.
  • Income growth is non-existent.
  • The FDIC is basically broke.
  • The government is the ONLY lender now.
  • FHA continues to make risk laden garbage loans. An 8,000 tax credit that serves as your down payment seems to me as simply more of what IndyMac was doing .
  • The too big to fail banks are insolvent period, supported only via accountant gimmickry and a willful suspension of all reason and logic by fund managers.
  • Corporate Insiders are selling stocks at a furious pace.
  • Spreads between corporate and government debt paper are at minimal spreads as fear has subsided and fund managers have gotten aggressive yet again.
  • Consumer credit is contracting.
  • Banks are not lending but rather speculating in markets.
  • Tax receipts by state and municipalities are falling
  • Pensions, in significantly shortfalls are pressing their bets basically doubling down.
  • Househeld net worth numbers are falling and bankruptcies are rising.
Now it you can buy, buy, buy in the face of items like those noted above, with YOUR OWN MONEY that is, then you are a better man/trader than I.

An inflation concerned reader asked me why commodity prices have been rising if we are in a deflationary environment. First of all, many of the commodity price rises have been mixed with some falling so it must be taken in totality. Also, one must remember that short term supply disruptions can present a field day for the high frequency traders and investment banks with price spikes(both up and down). But boiling this issue down to basics and remembering we live in an environment of mistrust where solvency is a concern everywhere commodities can and I believe do serve as money or a medium of exchange if you will.

Think of a barter system. you trade me grain or rice for diesel fuel or heating oil. I know what grain and rice look like and you know what diesel and heating oil look like. The ivy league created financial Dr. Frankensteins cannot alchemize rice and grain and heating oil like they can a mortgage or a CD. The rice will always be an asset on your books and will never turn into a toxic mushroom cloud. We don't have to live in a barter system for people to think that way, especially when trust has been lost. Just something to think about.

Housekeeping notes;

I was stopped out of my TLT position Friday at $96.74 for a loss of just over a pt on 1 unit long.

Good speculating and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Ultrashort Russell 2K ticker TWM @ $27.50 stop @ $26.40
Long 1 unit Ultrashort Financials ticker SKF @ $24.55 stop @ $23.49
Long 1 unit US$ Index bullish ticker UUP @ $22.75 stop @ $22.44
Short 1 unit i-shares Russell 2K ticker IWM @ $61.70 stop @ $63.80
Short 1 unit Vornado ticker VNO @ $68.30 stop @ $70.71
Short 1 unit Bed Bath ticker BBBY @ $37.75 stop @ $38.41

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