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Friday, December 12, 2008

Ponzi Schemes, Madoff and Falling For It Everytime

Greed makes you do stupid stupid things...

This story has been well covered by other bloggers so I won't get into it except to say that Ponzi schemes are so simple I'm always amazed at how people get sucked into one. Sometimes whole countries get sucked into massive Ponzi schemes.

For example, in 1997 Albanians actually rebelled when a giant Ponzi scheme imploded in The Lottery Uprising.

Now you may think to yourself, "Ha! But I'm way smarter than the smartest Albanian. I would never get sucked into a giant Ponzi scheme."

You'd be wrong off course. What did you think these were:

1) The Internet Bubble?
2) The Real Estate Bubble?
3) The Commodities / Oil Bubble?
4) The Credit Bubble?
5) The Emerging Market Bubble?

You see, these were all gigantic Ponzi schemes. The definition of a Ponzi scheme is: “A fraudulent investment operation that involves promising or paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi.[1] A Ponzi scheme has similarities with a pyramid scheme though the two types of fraud are different.”

That also pretty much describes the Anglo-Saxon way of life to me.

Madoff Securities’ Auditor Generated ‘Red Flags’ (Update1): “Aksia LLC, an adviser to hedge fund investors, warned clients not to put their money with Bernard Madoff after learning of “red flags” at his company, including that its books were audited by a three-person accounting firm.

Bernard L. Madoff Investment Securities LLC used Friehling & Horowitz, an auditor operating out of a 13-by-18 foot location in an office park in New York City’s northern suburbs. Madoff was charged by federal prosecutors yesterday with running what he said was a $50 billion Ponzi scheme. The auditor signed off on Madoff’s annual financial statement through Oct. 31, 2006, according to a copy obtained by Bloomberg News.

New York-based Aksia urged clients last year not to invest with Madoff’s firm after learning the identity of the New City, New York-based auditor, according to Jake Walthour, head of advisory services at Aksia. Friehling & Horowitz included one partner in his late 70s who lives in Florida, a secretary, and one active accountant, Aksia said.

“Our judgment was swift given the extensive list of red flags,” Aksia wrote yesterday in a letter to clients.

The copy of the four-page report, dated Dec. 18, 2006, attested that the financial statements of Madoff’s securities firm were “in conformity with accounting principles generally accepted in the United States.”


The financial analysis said Madoff Securities had $1.3 billion in assets, including $711 million in marketable securities and $67 million in U.S. debt. Member’s equity, the firm’s net worth, was $604 million, according to the document.

Aksia’s Jim Vos said he spent several months probing Madoff’s firm on behalf of clients, only to recommend against investing in it. Vos, who had an investigator stake out the New City office, said eight “feeder funds” invested about $15 billion with Madoff. Vos declined to name the clients.

“I’m shocked by how investors turned a blind eye to returns that were too good to be true, constant steady small positive monthly returns,” Vos said. “When something is too good to be true, it probably is.”

Madoff, the founder and namesake of his firm, was arrested yesterday in New York on federal charges that he defrauded investors of what he said was $50 billion. Madoff, 70, was released on $10 million bond by a judge in Manhattan federal court. Charged with one count of securities fraud, he faces as much as 10 years in prison and a $5 million fine if convicted.

Madoff’s Lawyer

Dan Horwitz, a lawyer for Madoff, didn’t return a call seeking comment. Janice Oh, a spokeswoman for Interim Manhattan U.S. Attorney Lev Dassin, declined to comment. David Friehling of the auditing firm didn’t return a call left at his office.

Many questions remain unanswered, including whether Madoff’s clients actually lost $50 billion and who audited his firm’s books. Madoff told senior employees that the firm was insolvent and “had been for years,” prosecutors said in a criminal complaint.

Among the other “red flags” cited by Aksia was the “high degree of secrecy” surrounding the trading of the feeder fund accounts, which provided capital to Madoff Securities, and its use of a trading strategy that appeared “remarkably simple,” yet “could not be nearly replicated by our quant analyst.”

Tight Pants, Tye-Dyed

Friehling & Horowitz operates from a storefront office in the Georgetown Office Plaza in New City, sandwiched between a pediatrician’s office and another medical office. An office for the Rockland County Bar Association is also in the building.

A woman who works in a nearby office, who didn’t want to be identified, said Friehling doesn’t come to the office regularly. When he does, he is the only person there.

Another woman in a nearby office, Leslie Cousar, said the man who comes to the auditor’s office does so for 10-to-15 minute periods, and wears tight pants and tie-dyed shirts. Cousar said she never saw anyone else going to the office during the day, but at about 5:30 p.m., another man would show up and use the location.

“He’s in and out of there,” Cousar said.”

The Current Economic and Political System Makes Me So Angry

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent. What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics." -Jim Rogers, Jim Rogers Calls Most Big US Banks "Bankrupt"

The current economic and political system makes me so unbelievably angry.

Chart of Pompous Prognosticators

Click here to see what all the 'Pompous Prognosticators' (aka Serial Bottom Callers) had to say all the way down between 1927 and 1933.

Lemme get you started:

1) "We will not have any more crashes in our time."- John Maynard Keynes in 1927

Astute readers may recall how I feel about the economic theories of John Maynard Keynes from the post Economic Policy Based on Failed Economic Theory: Just Stupid.

Thursday, December 11, 2008

Eight Really, Really Scary Predictions

8 really, really scary predictions: “Dow 4,000. Food shortages. A bubble in Treasury notes. Fortune spoke to eight of the market's sharpest thinkers and what they had to say about the future is frightening.”

1) Nouriel Roubini
2) Bill Gross
3) Robert Shiller
4) Sheila Bair
5) Jim Rogers
6) John Train
7) Meredith Whitney
8) Wilbur Ross

Some of these guys (gals) know what they’re talking about and called it. You know who they are. One of them makes me sick to my stomach (Bill Gross. Nothing but a sad little sophist) and another is really clueless (Sheila Bair. Waaaay too stupid.).

Russian Ruble Devaluation

In Could it Happen to the Russian Bear? I wrote:

“Capital flight is a terrible thing. It happened to Iceland in Iceland Melts, 77% Single Day Drop. In Iceland: What Happens After Imploding? the immediate consequences become apparent. They are not pretty.

Could it happen to the great Russian Bear too?”

Well, it has finally started to happen. Russia is now abandoning the insane defense of the Ruble and letting the currency devalue. Some institutions within Russia are calling for a one time, sudden 20% devaluation over the Christmas holidays when nobody’s watching…

Russians Buy Jewelry, Hoard Dollars as Ruble Plunges (Update1): “Moscow resident Tima Kulikov banked on the full faith and credit of the U.S. government, not the Kremlin, when he sold his biggest asset for cash.

The 31-year-old director of a social networking Web site initially agreed to sell his apartment for rubles, then cringed at the thought of the currency weakening as it sat in a lockbox pending settlement of the contract. It wasn’t until the buyer showed up with $250,000 stacked in old mobile-phone boxes and stuffed in his pockets that Kulikov closed the deal.

“The exchange rate we agreed on wasn’t great, but I did it because the money’s going to lie there for a month,” Kulikov said. “Put it this way, the ruble’s more likely to have problems than the dollar.”

Russians are shifting their cash into foreign currencies and buying things they don’t need as the economy stalls and the central bank weakens its defense of the ruble, signaling a larger devaluation may be on the way. The currency has fallen 16 percent against the dollar since August, when Russia’s invasion of neighboring Georgia helped spur investors to pull almost $200 billion out of the country, according to BNP Paribas SA.

The central bank today expanded the ruble’s trading band against a basket of dollars and euros, allowing it to drop 0.8 percent, said a spokesman who declined to be identified on bank policy.

With the specter of the 1998 debt default and devaluation in mind, Russians withdrew 355 billion rubles ($13 billion), or 6 percent of all savings, from their accounts in October, the most since the central bank started posting the data two years ago. Foreign-currency deposits rose 11 percent.”

Russia Devaluation Gathers Pace as Central Bank Loosens Control: “Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after reserves fell $161 billion as the central bank tried to defend the exchange rate.

Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The band was widened on both sides by 30 kopeks today, said a spokesman who declined to be identified on bank policy. The currency weakened 0.7 percent against the basket used to manage its fluctuations.

“They don’t have a choice but to let it weaken and the faster they do it the better,” said Beat Siegenthaler, head of emerging markets strategy in London at TD Securities Ltd. “Regular weekly steps are now the most likely scenario.”

Russia has drained 27 percent of its reserves since the start of August to stymie a 16 percent decline in the ruble versus the dollar as tumbling oil prices, the war in Georgia and the worst global financial crisis since the Great Depression caused investors and locals to remove about $211 billion from the country, BNP Paribas SA data shows.

The world’s biggest energy producer is suffering as the price of Urals crude, its main export blend, has dropped 71 percent from a July record to $40.32 a barrel, below the $70 average required to balance the nation’s 2009 budget.

The ruble fell 4.7 percent against the central bank’s dollar-euro basket in the past month. Goldman Sachs Group Inc. predicts the sliding price of oil will force a ruble drop of as much as 25 percent over the next 12 months. Troika Dialog, Russia’s oldest investment bank, is calling for a one-time, 20 percent devaluation in late January, when there is less risk of bank runs during the New Year’s holidays. UniCredit SpA forecasts a 15 percent decline by end-2009.”

Wednesday, December 10, 2008

Post Economic Crisis Corporate Logos

I Give You The Stupidity Trap... Errr... Liquidity Trap

“No one has ever paid above and beyond their interest income to be in a fund. But if we see another cut, we’ll likely see negative yields.” –Peter Crane

I give you the Stupidity Trap… errr… the Liquidity Trap

Treasury Bills Trade at Negative Rates as Haven Demand Surges: “Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

“It’s the year-end factor,” said Chris Ahrens, an interest-rate strategist in Greenwich, Connecticut, at UBS Securities LLC, one of the 17 primary dealers that trade directly with the Federal Reserve. “Everyone wants to be in bills going into year-end. Buy now while the opportunity is still there.”

The benchmark 10-year note’s yield tumbled 11 basis points, or 0.11 percentage point, to 2.63 percent at 4:48 p.m. in New York, according to BGCantor Market Data. The 3.75 percent security due in November 2018 gained 31/32, or $9.69 per $1,000 face amount, to 109 23/32. The yield touched 2.505 percent on Dec. 5, the lowest level since at least 1962, when the Fed’s daily records began.

The two-year note’s yield fell 10 basis points to 0.84 percent. It dropped to a record low of 0.77 percent on Dec. 5.

If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.”

Awesome. Just awesome. What could possibly go wrong in a zero rate world? Oh wait, all those under funded pension plans can’t earn the yields they need to fund the outrageous promises that were made to indignant, arrogant Baby Boomers during this Age of Entitlement.

*** Astute market watchers may recall that it was the low rate world created by Alan ‘The Maestro’ Greenspan that inspired pension plans to ‘reach for yield’ and migrate into securitized debt such as Mortgage Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs) in the first place. All aboard the failroad? Good. Giddy up! ***

Money-Market Fund Yields May Fall to Less Than Zero, Crane Says: “Investors in money-market mutual funds that focus on U.S. Treasuries may lose money for the first time if the Federal Reserve cuts interest rates next week and yields become too small to cover expenses.

Record-low yields on government debt have already led money-market funds to waive fees to keep returns positive. If the Federal Open Markets Committee, as expected, cuts its target rate, some Treasury funds may allow returns to turn negative, said Peter Crane, president of Crane Data LLC, a money-fund research firm in Westborough, Massachusetts.

“No one has ever paid above and beyond their interest income to be in a fund,” Crane said. “But if we see another cut, we’ll likely see negative yields.”

The U.S. Treasury sold $27 billion of three-month bills on Dec. 8 at a discount rate of 0.005 percent, the lowest since it started auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills yesterday at zero percent for the first time since it began selling that debt in 2001. Money- market managers could impose a system of incremental debits or charge monthly account fees, Crane said.

Institutional money-market funds that invest only in Treasuries and related repurchase agreements had an average seven-day yield of 0.12 percent, after fees, as of Dec. 8, according to iMoneyNet, a research firm also based in Westborough. The average institutional Treasury money fund charges a management fee of 0.29 percent, Crane said.

Money-market funds are considered the safest and most liquid investment after bank deposits and Treasuries.

Their shares sell and are redeemed at $1 each, and the income generated by their investments is credited daily to a shareholder’s account. At the end of every month, the credits are paid either in cash or by giving the investor more shares.

Daily Charges

According to Crane, if a fund’s expenses exceed its income, accounts could accrue daily charges instead of credits. The fund would then settle the charges at the end of the month by taking shares away.

Such charges aren’t the same as breaking the buck, which happens when investment losses cause a money fund’s net asset value to fall below $1 a share. In September, the Reserve Primary Fund fell to 97 cents a share because of losses on debt issued by the bankrupt Lehman Brothers Holdings Inc. triggering a run on U.S. money-market funds. It was the second money fund ever to break the buck.

Instead of charges, money funds could introduce a monthly account fee that is taken out in shares, Crane said. Either way, investors would lose money, he said.

No New Cash

Of the 500 largest U.S. money-market funds, 41 have daily annualized yields at or less than 0.05 percent, including four funds with zero yield. The 41 funds are probably waiving all or part of their regular fees to keep from taking money out of principle, Crane said.

Falling yields on Treasuries led some Treasury-only funds, including those run by JPMorgan Chase & Co. in New York and Boston’s Evergreen Investments, to turn away new investors. Barring new customers protects returns for investors already in the funds because managers don’t have to buy as many new Treasuries with yields lower than current holdings.

The Federal Open Markets Committee is scheduled to meet Dec. 16 in Washington. The panel is expected to halve its target rate to 0.5 percent, according to the average estimate of 72 economists surveyed by Bloomberg.”

Related Posts:
Fed Admits Quantitative Easing
Zero Rate World, The Age of Free Money: We’re Doomed
ZIRP, Zero, Nada, Free Money and a Big Mess
Money Supply, Hoarding, Gold, Deflation: Tin Foil Hats
Japan Stuck, Quantitative Easing in the US
Closer to ZIRP, Liquidity Trap, Lost Decade
Japan v2.0: GLOBAL Liquidity Trap
Japan v2.0
The Lost Decade
Stimulus Package: Does it Even Work

The Really Scary Fed Charts Series:
1) Really Scary Fed Charts, Why Bernanke Will Furiously Cut
2) Fed CHANGES Really Scary Fed Charts
3) Really Scary Fed Charts: MARCH
4) Really Scary Fed Charts: APRIL
5) Really Scary Fed Charts: MAY, False Alarm?
6) Really Scary Fed Charts: JUNE, ‘Just’ 1% of GDP Now
7) Really Scary Fed Charts: JULY, More of the Same
8) Really Scary Fed Charts About to Get Crazy Scary
9) Really Scary Fed Charts: OCT, Now Crazy Scary
10) Really Scary Fed Charts: NOV, US Bankrupt?

S&P 500: Bottom at 400! "Results Always Horrific"

“The S&P may plunge another 55 percent to a trough of 400 by 2014.” –Russell Napier

Yikes. I’m one Bearish ninja, but I thought we’d bottom out somewhere in the 600’s on the S&P 500. A bottom somewhere in the 400’s is some serious cliff diving.

Mind you, read the article carefully. One of the conditions for a low of 400, is that “deflation sets in”. While I’m in the Deflationist camp I do realize that Ben ‘Helicopter’ Bernanke will do (and already is doing) everything in his power to prevent deflation. I just don't think he's succeeding...

Q Ratio defined, including formula here.

Q Ratio Signals ‘Horrific’ Market Bottom, CLSA Says (Update1): “A global stock slump may have further to go, according to Tobin’s Q ratio, which compares the market value of companies to the cost of their constituent parts, CLSA Ltd. strategist Russell Napier said.

The ratio, developed in 1969 by Nobel Prize-winning economist James Tobin, indicates the Standard & Poor’s 500 Index is still too expensive relative to the cost of replacing assets, said Napier. While the 39 percent drop in the S&P this year pushed equity prices below replacement cost, history suggests the ratio must sink further as deflation sets in, he said. The S&P may plunge another 55 percent to a trough of 400 by 2014, the strategist said.

“Things have always looked absolutely terrible at the bottom,” said Napier, Institutional Investor’s top-ranked Asia strategist from 1997-1999. With deflation “the value of assets falls and the value of debt stays up, then equity gets crushed. The results are always horrific.”

Shares have fallen this year as the worst financial crisis since the Great Depression caused almost $1 trillion of losses at institutions around the globe and dragged the world’s largest economies into recession. The MSCI World Index has tumbled 44 percent in 2008, set for the biggest annual decline in its four- decade history.

Bear-Market Scholar

Napier, who teaches at Edinburgh Business School, based his S&P 500 forecast on the Q for U.S. equities as well as the 10- year cyclically adjusted price-to-earnings ratio, another measure of long-term value.

Before the trough in 2014, investors are likely to see a so-called bear market rally for the next two years as central bank actions delay the onset of deflation, he said.

The Q ratio on U.S. equities has dropped to 0.7 from a peak of 2.9 in 1999, and reaching 0.3 has always signaled the end of a bear market, said Napier, the author of “Anatomy of the Bear,” a study of how business cycles change course. The Q ratio for U.S. equities has fluctuated between 0.3 and 3 in the past 130 years.

When the gauge is more than one, it indicates the market is overvaluing company assets, while a Q ratio of less than one signifies shares are undervalued because it is cheaper to buy companies than to build them from the ground up.

At the end of the four largest U.S. bear markets in 1921, 1932, 1949 and 1982, the Q ratio fell to 0.3 or lower, and history is likely to repeat, said Napier. From the 1982 trough, the S&P 500 grew more than 14-fold to the middle of 2000, when Napier says the last bull market ended.

Quantitative Easing

Measures such as Tobin’s Q ratio and a 10-year price-to- earnings ratio are “valuable tools,” said Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments, which oversees about $190 billion. Milligan said he is bullish on U.S. equities for now as central bank efforts to fight deflation will push the market higher.

“For those who are worried about losing much of their investment almost overnight, very clearly you’d want to wait for those signals to give a much stronger case,” he said. The bear market will have “a painful resolution, it’s just a question of how painful, over what period of time and for what parties.”

Federal Reserve Chairman Ben S. Bernanke’s indication that he will use “quantitative easing” to prevent deflation points to a stock market rally that may last for the next two years, Napier said. With quantitative easing, a tool pioneered by the Bank of Japan, central banks can stimulate inflation by printing money and flooding the market with cash in order to encourage consumers to spend.

The government’s efforts will eventually fail as ballooning government debt devalues the dollar, causes investors to flee U.S. assets and takes the S&P 500 to its eventual bottom in 2014, Napier said.

“Bear markets always end for exactly the same reason, and that is the market begins to price in deflation,” he said. “Equities will be incredibly cheap.”

China: "The figures are horrifying."

“The figures are horrifying.” –Lu Zhengwei

While the figures may be horrifying, the charts aren’t. The first and steepest down trendline has been broken on the CBOE China Index. Prices are above the declining 20 day EMA (blue line) and up against resistance on the declining 50 day EMA (red line). For the bounce to become something a little bigger and more interesting the pivot high of 355 needs to be successfully challenged.

China’s Exports Decline for First Time in 7 Years (Update2): “China’s exports fell for the first time in seven years, more evidence that recessions in the U.S., Europe and Japan are driving the world’s fourth-largest economy into a slump.

Exports declined 2.2 percent in November from a year earlier, the customs bureau said in a statement on its Web site today. Imports plunged 17.9 percent, pushing the trade surplus to a record $40.09 billion.

China’s leaders pledged “more forceful measures” to help small companies and create jobs in statements within hours of the trade report. The export collapse intensifies pressure on the government to add to last month’s steepest interest-rate cut in 11 years, extend a 4 trillion yuan ($581 billion) spending plan and let the yuan depreciate.

“The figures are horrifying,” said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai. “Plunging imports show that on top of faltering global demand, domestic demand is also shrinking as the economy cools.”

The yuan closed at 6.8633 against the dollar at 5:30 p.m. in Shanghai, from 6.8601 before the data was released.

Imports fell by the most since at least 1995, when Bloomberg data began, as commodity prices declined and weakness in manufacturing and construction cut demand for raw materials. The previous decline was seven years ago.

Global Growth

China’s exports quadrupled after the country joined the World Trade Organization in 2001, helping to make it the fastest-expanding major economy and the biggest contributor to global growth.

In October, exports rose 19.2 percent and imports climbed 15.6 percent. None of 18 economists surveyed on exports and 17 polled on imports predicted a decline in November.

“These are absolutely dreadful numbers,” said Mark Williams, an economist with Capital Economics Ltd. in London. “It will stoke speculation that the government will force a depreciation of the yuan. Further cuts in interest rates are pretty much inevitable.”

A breakdown in global trade finance may have been as damaging as waning demand, Williams added.

The value of exports was $115 billion, the lowest in eight months and down from a peak of $136.6 billion in July.

The yuan’s biggest one-day decline in three years on Dec. 1 prompted speculation that China may allow its currency to depreciate, helping exporters by making their products cheaper in overseas markets.

‘Moderately Loose’ Policy

The central bank pledged today to maintain a “moderately loose” monetary policy and aid small businesses, in a statement after a three-day annual meeting in Beijing where China’s leaders set economic policy.

Tax cuts, a “stable” yuan and extra efforts to create jobs will be part of efforts to maintain “stable and relatively fast growth” and ensure social stability, China National Radio said after the meeting.

At stake is the nation’s contribution to global growth, forecast by Merrill Lynch to be 60 percent next year.

China’s economy grew 9 percent in the third quarter, the weakest pace in five years. Producer-price inflation was the slowest in two years last month and foreign direct investment fell 36.5 percent from a year earlier, the government said in separate statements today.

Borrowing Costs

The key one-year lending rate has fallen to 5.58 percent from 7.47 percent in September. The People’s Bank of China has also eliminated quotas limiting lending by banks.

The government will target a minimum 8 percent increase in gross domestic product next year and the creation of 10 million jobs, the state-run China Daily newspaper reported Dec. 9. Policy makers may also roll out measures to support the stock market after the CSI 300 Index fell 61 percent this year, Merrill Lynch & Co. said.

Exporters of toys, clothes and furniture are cutting production or closing down, triggering a surge in labor disputes and increasing the risk of social unrest in the world’s most populous nation.

About half of China’s toymakers have shut down this year, with 7,000 workers losing their jobs when Smart Union Group (Holdings) Ltd. closed in Guangdong province in October.

Toy Factory Riot

Sacked workers rioted at another toy factory last month and Zhang Ping, the nation’s top planner, warned of the risk of “massive unemployment” and “social instability.”

Policy makers will keep reducing rates, along with the amount of money that lenders are required to park with the central bank as reserves, said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

Gains by the yuan against the dollar will stall at least through the first half of next year, he said.

The yuan may weaken as much as 10 percent against the dollar, Morgan Stanley said last week. Commerce Minister Chen Deming denied that China would rely on the currency to help exporters, saying that “the cause of the current problem with exports is shrinking demand, not problems with currencies.”

China’s currency has gained about 20 percent since a peg to the dollar was scrapped in 2005.”

Tuesday, December 9, 2008

Rally or Just a Bounce? Update1

This is an update to Rally or Just a Bounce?

Expect a bit of a pullback this morning to work off some of the overbought readings. However, a break OUT and UP looks to be in the works.

Perma-Bears are gonna get a vicious nutshot...

Hey, it’s not just me:
Afraid To Trade: Elliott Wave 4 Rally Appears Confirmed – with targets
Corbra’s Market View: The First Higher High
Evil Speculator: Triangle Trouble

Buy Our Crap

[ HT The Big Picture ]

So true it hurts.

A real life example: My papa bought nothing but Chrysler all his life until about 1998. Since then all cars in the driveway are Hondas. My brother and sister both have their first 'new' cars now and they're both Hondas. I'm talking about vans (Odyssey), SUVs (Pilot), and cars (Civic). (The car I drive is a 2007 Honda Civic SI. (Because I need to rev and drive as fast as I trade.)

Another real life example: One of my friends has a Ford truck (F-250). He just IM'ed me to tell me he's driving his truck again. When oil was above $100 his truck sat as decoration in his driveway because he couldn't afford to fill it. No, he does not own a construction company. He's a soft as butter, suburbanite, cubicle monkey. I prefer to think of him as borderline retarded. He's also never buying a truck again.

Monday, December 8, 2008

Nassim Taleb (Black Swan): Nouriel Roubini an "Optimist"

Charlie Rose interviews Nassim Taleb, author of the Black Swan. Taleb calls Nouriel Roubini (who correctly called this economic and financial crisis) an 'optimist'. Rose has a mild heart attack, and is stunned into brief silence.

Helluva an interview. (Helluva a book.)

2008 Was So Bad, Only One Other Year Sucked More

Since 1825, the only year even comparable to this year was 1931. Simply put, in 183 years there have only been TWO years where the S&P 500 lost more than 50%.

[ HT DailyKos ]

Rally or Just a Bounce?

The S&P 500 is poised to pierce important resistance around the 895 area. On the daily chart this is a significant swing high. Note the slope of the declining 20 day EMA has flattened substantially and is now acting as support around the 875 area. The 825 and 850 areas have repeatedly and successfully acted as support last week.

On the 60 minute intraday chart the significance of the 895 area becomes even more obvious as this is also where the 200 period EMA is. Note the slope has flattened. A successful upward penetration of the 200 period EMA is now more probable.

The S&P is likely to rally to the 975 – 1000 area before the year is out. The panic months of October and November consisted of forced liquidation. The ‘rinsing’ of weak hands is plainly visible in the number of Major Distribution days (where down volume exceeds up volume by a factor of 9:1). Mutual funds and the hedgies all positioned into year end early and aggressively fearing massive redemptions (and rightly so). This means that selling has now dried up, especially as prices move off the lows. Hedges will now get triggered as this market gets hijacked by the ‘momo’ funds looking to squeeze the shorts in a low liquidity environment. Expect near parabolic moves in the really beaten up names.

A word of caution is warranted. This ‘rally’ is nothing but a ‘bounce’ until proven otherwise. The Monday after the Thanksgiving Weekend resulted in the single largest Major Distribution Day since the crisis started. Down volume exceeded up volume by a factor of 80:1. That is massive. HUGE. Until that distribution day gets answered by a massive Major Accumulation Day (or a series of lesser ones) be wary of a post holiday, early 2009 collapse in risky assets.