Tuesday, July 27, 2010

Call Me Skeptical

A couple of email questions have been posed and I want to address them publicly this morning.

Both were along similar lines so to paraphrase them both....

'the economic news from some major companies is positive, why do you continue to be bearish given these reports from the likes of Fedex, Dupont, Caterpillar?'

Well, stubbornness could be one reason but it really isn't.

I continue to believe we have just exited the Mother of all credit/debt bubbles. This bubble pulled years and years worth of demand forward via "you can fog a mirror you get credit" lending standards. Prior generations saved up then bought a TV, saved ups some more then bought a washer, you get the picture. Today we simply lend money to people who can never pay it back and they buy everything all at once up front. Our economy has become kinda like one giant GM lease pull ahead program, just keep rolling what you owe till you can't do it anymore and blow up or if on Wall St. get bailed out.

We now live in a 3-D World one that is deflating, de-leveraging, and in depression but you can substitute any number of words like downsizing, decreasing and de-escalating as they all work here.

As for the FDX, DD, and CAT news of late. I don't buy it. Cost cutting and payroll slashing can go only so far, after that you have to have some sales. So again I don't buy it.

Just as I didn't buy the spinning of the housing start numbers yesterday which are in the toilet plain and simple or todays Case Shiller numbers which come courtesy of the tax credit. I don't buy this much the same way I didn't buy the Wall St. trading desks, Goldman, JP Morgan, Citi, and Bank America having no losing trading days in the first quarter this year. Yup 61 straight days of profits with no losses. Sure they did!

I fully realize many, many, many Larry Kudlow kool-aid drinkers and potential Brooklyn Bridge buyers out there, many whose bread gets buttered via rising markets, believe the pile after pile of garbage we are fed but this cat doesn't. Just like I didn't and continue to not believe the AAA rated NINJA and LIAR loans would ever be repaid. The banks can claim they are performing but a mortgage that hasn't had a payment submitted in 12 months is non-performing no matter how hard you try to ignore it. Just like profits that magically appear via creative accounting. Don't overlook the benefit a little 'raiding' of the loan loss provision account.

Facts like this continue to get in the way of my getting bullish.

Things like the chart below, Median Duration of Unemployment which was brought to my attention via Derek Thompson, staff editor over at TheAtlantic.com who calls it "the scariest unemployment graph I've seen yet!"

The chart which measure the time people are out of work is skyrocketing. This chart above creates this equation:

No jobs=no money=no spending=no consumption+ a debt laden consumer, which given the consumer is 70% of economy=BAD....REALLY, REALLY BAD !

Do you remember back in the housing heyday back in 2004/2005 we were getting reports that approximately 7 out of every 10 jobs created were in the housing sector. Funny how this fact is minimized, papered over or just ignored now buy the crowd on CNBC.

What else, oh yeah, volume. Volume absolutely stinks on this equity rally but that doesn't matter till it matters, kinda like a life boat on the Titanic.

What else, oh yeah, the bonds. The bond market continues to NOT buy into the equity rally.

All this may or may not make me a conspiracy theorist or a tin-foil hat wearing lunatic blogger. I feel it simply means I was born at night, just not last night! So lets just call me very skeptical.

Housekeeping Notes;

A nice breakdown in gold today equals a breakout in GLL. In yet another defensive move I want to move my stop on GLL up to break even. Lets move it up to $41.19 and be done with it.

Good speculating to you all 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 Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $60.30
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $52.60
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $22.52
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 92.15 stop @ $92.15
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 93.48 stop @ $93.48
Long 1 unit Ultrashort Gold ticker GLL @ $41.25 stop @ $41.19
Short 1 unit Apple ticker AAPL @ $275.20 stop @ $266.54

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