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Saturday, March 14, 2009

Wall Street and Dead Donkeys

[ HT Blog for Our Future ]

Young Chuck, moved to Texas and bought a donkey from a farmer for $100.

The farmer agreed to deliver the donkey the next day. The next day he drove up and said, "Sorry son, but I have some bad news. The donkey died."

Chuck replied, "Well, then just give me my money back."

The farmer said, "Can't do that. I went and spent it already."

Chuck said, "Ok, then, just bring me the dead donkey."

The farmer asked, "What ya gonna do with him?"

Chuck said, "I'm going to raffle him off."

The farmer said, "You can't raffle off a dead donkey!"

Chuck said, "Sure I can. Watch me. I just won't tell anybody he's dead."

A month later, the farmer met up with Chuck and asked, "What happened with that dead donkey?"

Chuck said, "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00."

The farmer said, "Didn't anyone complain?"

Chuck said, "Just the guy who won. So I gave him his two dollars back."

Chuck now works for Morgan Stanley in their OTC Default Derivative Department.

Friday, March 13, 2009

World Economic Growth: Revised Down, Again

Global growth forecasts are still being rapidly revised downwards…

Goldman Cuts Global Growth Forecast to 1% Contraction (Update1): “Goldman Sachs Group Inc. cut its forecast for the global economy for the second time in eight days after predicting a deeper recession in Europe.

“Following the reduction of our Euroland growth forecast to minus 3.6 percent in 2009, the world economy is now likely to contract by 1 percent this year,” said London-based Goldman economist Binit Patel. On March 5 Goldman lowered its 2009 outlook for world gross domestic product to a drop of 0.6 percent from a 0.2 percent decline.

Finance ministers from around the world are meeting near London today and tomorrow to find a way to battle the world recession. Governments have pumped billions of dollars into financial systems to prop up banks and other industries after the worldwide credit squeeze stifled growth.

European retail sales fell for an eighth month in January, a report today showed. Industrial production in Germany, the region’s largest economy, dropped 7.5 percent from December, the biggest decline since data for a reunified Germany began in 1991. Factory orders plunged 38 percent from a year earlier.”

China Fidgets Nervously, Painfully Exposed to the US Debt Behemoth

“We have lent a huge amount of money to the United States. Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried.” -Chinese Premier Wen Jiabao

More noise from the Chinese as they fidget nervously... uncomfortable with their gigantic exposure the United State debt behemoth.

1) Household Net Worth Had Record Drop Last Quarter
2) U.S. February Budget Deficit Widened as Revenue Fell (Update1)
3) Epic Fail: Baby Boomers are Broke
4) Age Wave Theory: Expect a Long Economic Winter
5) China ‘Worried’ About Safety of U.S. Investments, Wen Says: "China wants the U.S. government to “ensure the safety” of its investments in the world’s largest economy, Premier Wen Jiabao said."

Well, good thing Obama Urged Control of 'Exploding' Deficits. Hahaha!

Two Major Accumulation Days Signal Strength

The NYSE Composite (NYA) is at resistance. A pullback is in order. It looks like a cluster of Major Accumulation Days, therefore any weakness is likely to be followed by a rally to the declining 50 day EMA (red line). This is a counter trend rally and a short covering squeeze. This is the kind of Bear Market Rally that will rip your face off (before plunging to new lows).

S&P 500: Short Term Overbought at Resistance

The S&P 500 (SPX) has rallied 13% in three days off the ominous intraday low of 666. SPX is now up against resitance around the 750 area and is short term overbought. Today's action will determine if a push to 800 is in the cards or not.

Thursday, March 12, 2009

Age Wave Theory: Expect a Long Economic Winter

As if it weren't enough already that Baby Boomers are completely broke, according to Harry Dent and his Age Wave Theory they would have pulled down the economy significantly anyways.

Basically stock markets and real estate values were all primed to dump with or without a cheap credit fueled asset bubble. Because of their sheer number the very force and mass of the Baby Boomers was destined to destroy the very assets they had bid up over all these years when they inevitably had to start selling them to fund their retirements. They bid it up and they will offer it down. There is no other way.

A gigantic credit bubble just amplified the highs and now the lows.

Just ask the Japanese. They've called it The Lost Decade. They tried everything... even stimulus packages... and no, they don't work.

September 18th, 2008 in the post Japan v2.0 , as the Federal Reserve (FED), The European Central Bank (ECB) and the Bank of Japan (BOJ) all made extra funds available to money markets I wrote:

"Basically this action is like taking the defibrillator to a patient and just ‘giving her’… and declaring that this will ‘heal’ the twitching patient… Unfortunately the patient is long dead, and the twitching will stop when the current from the defibrillator stops.

You can’t bring back the dead with a defibrillator.

You can’t bring back dead banks with more liquidity.

We are heading for Japan v2.0.

Think ZERO percent interest rates and think DEFLATION. Think LOST DECADE. Think DEPRESSION. Now make all that GLOBAL.

That is what we have to look forward to."

From the blog Japan Economy Watch:

"The principle focus of the weblog is Japan's long term growth and deflation problem, and many of the posts examine the issue of the sustainability of Japanese public finance in the light of the weak domestic consumption record which appears to be related to the ageing question. Ageing produces a continuing and ongoing rise in median ages due to continuing low fertility and the rapid increases in life expectancy which Japan has been experiencing."

The same has already started to happen in Germany where the "Age Wave" is further along than in North America.

From the blog German Economy Watch:

"The big question which arose concerning the Germany economy in 2007 was whether or not the new found dynamism in German economic activity constituted some form of renaissance, and formed part of a global decoupling process whereby a sustainable recovery in domestic demand was taking place. Analysts on this blog never really accepted this view. The key question and central enigma associated with the German economy is really why domestic demand should have remained so congenitally weak over such a considerable period of time. Since this phenomenon is also to be observed in the two other societies with very high (circa 43) population median ages - Italy and Japan - we postulate that demographics and population ageing processes offer some part of the explanation here. Basically what we can observe as societies move above the 40 median age mark are a number of stylized facts. Weakness in domestic private consumption would be one of these, absence of consumer credit driven property booms would be another, growing pressure on the national debt as the elderly dependence ratio steadily rises would be another, and growing dependence on export growth for sustaining GDP growth would be the central feature of the whole edifice."

The Italians too of course.

From the blog Italian Economy Watch:

"We would like to present some charts which provide background data which we hope will help the first time reader better assess and get to grips with the argument being presented on the blog. In what follows you can find charts for Italian male life expectancy, median age, quarterly GDP growth, inflation, household demand, retail sales, and import and exports growth. Basically this data provides a summary of the argument which we are presenting on this blog, which is that in order to understand Italy's long term and ongoing economic malaise you need to understand something about Italian demography, and it's macroeconomic consequences."

More on Age Wave Theory: The Validity of Age Wave Theory: Harry Dent

Epic Fail: The Baby Boomers are Broke

The illusion of prosperity is no more...

No amount of stimulus, temporary tax cuts or humungous bailouts will save the Baby Boomers.

The Wealth of the Baby Boom Cohorts After the Collapse

Executive Summary

This paper makes projections of wealth for 2009 for the baby boom cohorts (ages 45 to 54 and ages 55-64) using data from the 2004 Survey of Consumer Finance. It updates an earlier paper on this topic from June of 2008 using projections for housing and stock values that are more plausible given the sharp downturn in both markets over the last 8 months, and creates three possible scenarios— from best- to worst-case—for baby boomers’ wealth in 2009.

The projections show:

1) The median household with a person between the ages of 45 to 54 saw its net worth fall by more than 45 percent between 2004 and 2009, from $172,400 in 2004 to just $94,200 in 2009 (all amounts are in 2009 dollars). If the median late baby boomer household took all of the wealth they had accumulated during their lifetime, they would still owe approximately 45 percent of the price of a typical house1 and have no other assets whatsoever.2

2) The situation for early baby boomers is somewhat worse. The median household with a person between the ages of 55 and 64 saw its wealth fall by almost 50 percent from $315,400 in 2004 to $159,800 in 2009. This net worth would be sufficient to allow these households, who are at the peak ages for wealth accumulation, to cover approximately 90 percent of the cost of the typical house, if they had no other assets.

3) As a result of the plunge in house prices, many baby boomers now have little or no equity in their home. According to our calculations, of those who own their primary residence, nearly 30 percent of households headed by someone between the ages of 45 to 54 will need to bring money to their closing (to cover their mortgage and transactions costs) if they were to sell their home. More than 15 percent of the early baby boomers, people between the ages of 55 and 64, will need to bring money to a closing when they sell their home.

These calculations imply that, as a result of the collapse of the housing bubble, millions of middle class homeowners still have little or no equity even after they have been homeowners for several decades. These households will be in the same situation as first-time homebuyers, forced to struggle to find the money needed to put up a down payment for a new home. This will make it especially difficult for many baby boomers to leave their current homes and buy housing that might be more suitable for their retirement.

Finally, the projections show that for both age groups, the renters within each wealth quintile in 2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and third scenarios, renters will have dramatically more wealth in 2009 than homeowners who started in the same wealth quintile. Homeownership is not everywhere and always an effective way to accumulate wealth. For those who owned a home in the last few years, the collapse of the housing bubble led to the destruction of much or all of their wealth.

Wednesday, March 11, 2009

Gold and Silver: Breakdown?

Gold looks like it has broken DOWN and OUT.
Silver is precariously sitting on support after putting in a lower high.

Something to think about: Gold.. Has It Really Stored Value?

Tuesday, March 10, 2009

You Don't Put in THE Bottom With a Spike in Libor

Remember our good friend LIBOR? Well, he's totally causing shit again. So don't get too excited about this short squeeze... errr... rally. (You don't put in THE bottom with a spike in Libor.)

Three-Month Libor for Dollars Increases for 11th Day (Update2): "The cost of borrowing in dollars for three months in London rose for an 11th day as banks sought cash to cover their commitments through the end of the first quarter.

The London interbank offered rate, or Libor, that banks say they charge each other for such loans climbed two basis points to 1.33 percent, the highest level since Jan. 8, the British Bankers’ Association said. The Libor-OIS spread, a gauge of bank reluctance to lend, increased to the most since Jan. 9.

Banks are balking at lending amid a squeeze on cash toward the end of March on concern more financial institutions will need to be rescued by governments following almost $1.2 trillion of writedowns and losses since the start of 2007. Italy’s Banco Popolare SC today became the nation’s first lender to seek state aid. Lloyds Banking Group Plc, the U.K.’s largest mortgage provider, ceded control to the government March 7 in return for state-asset guarantees.

“The liquidity will be horrible in the next couple of weeks,” said Vincent Chaigneau, head of international rates strategy at Societe Generale SA in London. “We have seen renewed stress in the Libor-OIS spread.”

The spread, the difference between the three-month Libor for dollars and the overnight indexed swap rate, widened two basis points to 107 basis points. It averaged 11 basis points from December 2001 to July 2007, and soared to 364 basis points in the weeks following the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc."

Remember how giant spikes in Libor occurred PRIOR to the absolute meltdown in equities? October 2008 resulted in panic liquidation of risky assets (translation: the stock market shit the bed). Just prior to the absolute destruction of your 401k, Libor perked up.

09/24/08: Libor, Fed Funds, Money Markets: It's All Broken
06/26/08: LIBOR Perks Up Gain...
05/27/08: LIBOR Liars: UBS, HSBC, Royal Bank of Scotland
05/20/08: ZEW Hits Record Lows, LIBOR Woes Hurting Eurodollar
05/13/08: Libor Poised For Shake-Up, Credibility GONE
04/24/08: RISE Dark Lord Libor! RISE!
04/21/08: The Race To The Bottom Accelerates
04/17/08: The South Sea Bubble and Today’s Central Banks: FRB, BOE, ECB
04/14/08: The TED Spread, LIBOR and EURIBOR = Scary Bad

So when you read about how stocks "popped" yesterday, consider that Libor is getting ready to crash your party.

Stocks Post Best Rally of 2009 on Improving Citigroup Outlook: "Stocks around the world staged the biggest rally of the year after Citigroup Inc. said it was having its best quarter since 2007, spurring speculation the worst of the banking crisis is over. Treasuries and gold fell.

Citigroup jumped 38 percent as Chief Executive Officer Vikram Pandit wrote in an internal memorandum that the bank, which reported five straight quarterly losses, was profitable in the first two months of 2009. JPMorgan Chase & Co. climbed 23 percent and Bank of America Corp. surged 28 percent as Federal Reserve Chairman Ben S. Bernanke urged an overhaul of financial regulations. General Electric Co. rose 20 percent, its steepest advance since at least 1980."

In conclusion, if you really believe Citigroup (C) has suddenly started making money (excluding mark-to-market losses) you are quite possibly border line retarded. They've had the "best quarter since 2007"! Really? They did as well NOW as during the absolute apex of the greatest credit bubble ever? HOW? HOW is that even possible? WHERE could those profits possibly come from? (These are the same clowns that quietly moved a $1 trillion SIV onto their balance sheet.)

Citigroup: Posted a Profit? Surely That Can't Be

Errr... that's odd. Citigroup (C) says they made money. Surely there's been a mistake somewhere.

Everything is massively oversold. So this kind of news should inspire a bounce that lasts longer than a few minutes. Bearish momentum has been waning. Friday Was a Sign of Indecision. Maybe, just maybe this will shift the balance of power and inspire one of those fun, "rip your face off" short covering rallies...

Citigroup Chief Pandit Says Bank Having Best Quarter Since 2007: "Citigroup Inc. Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit.

“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg. “In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.” The bank had $19 billion of revenue in January and February before disclosed writedowns, he added.

Citigroup has logged five quarters of losses totaling more than $37.5 billion since it posted a $2.2 billion profit in the third quarter of 2007. Once the world’s biggest bank by market value, the bank fell below $1 in New York trading last week for the first time as investors lost confidence that the shares can recover after losses and a government rescue.

“I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position,” Pandit wrote. The price doesn’t reflect the bank’s capital strength and earnings potential, he added.

Citigroup jumped 14 percent to $1.20 in German trading today. The stock has tumbled 95 percent in the past year, cutting the bank’s market value to about $5.8 billion, less than Japan’s Nomura Holdings Inc. and Turkey’s Akbank TAS, in which Citigroup owns a 20 percent stake. The bank is the smallest company and the worst-performing stock in the 30-member Dow Jones Industrial Average."

Commercial Real Estate: That's Enough For Now

That's enough. Bounce time. Covering shorts.

Related Posts:
Commercial Real Estate: Could Break Down Here
Commercial Real Estate:, IYR, SRS: Prepare for Despair
Commercial Real Estate: IYR, SRS, Pending Disaster

McClellan Oscillator: Oversold Bounce Time

Looks like that oversold bounce is being attempted (again) this morning...

The NYSE McClellan Oscillator (NYMO) has been a good predictor of short term oversold bottoms on spikes to -100. The spike down in NYMO results in a push higher in equities that starts 3 - 5 days later.

Monday, March 9, 2009

Short Gold and Silver: Let It Bounce

"A bet on gold is essentially a bet against all paper currencies." -Hedge Funds Turn to Gold

Yup. I'm still short Gold and Silver... and I like it. A lot.

As expected Gold fell to the rising trend line and the firs Fib from extremely oversold levels after briefly spiking above that psychologically important level of $1000. The current bounce has lasted two days and has occurred on weak volume.

The bounce should run out of steam around the $950 - $960 area. Failure to get that high before rolling over would be an encouragement to add to the short position. A move to the old high opens the 'Double Top' scenario and increases the risks dramatically of move to new highs. A tight stop just below $1000 is therefore prudent. (Never let a winner turn into a loser.)

I especially like this trade because it is a crowded trade. Oh yeah, and betting against all fiat currency regimes simultaneously as the entire globe goes into a synchronized deflationary spiral is hilariously futile.

Hedge Funds Turn to Gold: "Hedge fund investors who made money last year by betting against investment banks are now buying gold as a way of betting against central banks.

The gold bulls include David Einhorn, founder of hedge fund Greenlight Capital, who last year came under the spotlight for his short selling of shares in Lehman Brothers, after arguing that the bank did not have enough capital to offset its exposure to falling property prices. Other funds looking at gold include Eton Park and TPG-Axon, investors said.

Barrick founder sets no limits on gold price - Mar-08In depth: Hedge funds - Jan-27In depth: Global financial crisis - Sep-04Their belief in bullion is being expressed even as gold prices have retreated from last month’s break above the $1,000 an ounce level. Spot gold in London closed last Friday at $939.10, after falling last week to $900.95 an ounce.

Investors such as Mr Einhorn are turning to gold because they are worried about the response of the US Federal Reserve and other central banks to the global economic crisis. A bet on gold is essentially a bet against all paper currencies."

Related Posts:
Short Gold and Silver: It Will Only Get More Interesting
Short: Gold and Silver, Just Getting Started
Short Gold and Silver

Relax, Friday Was A Sign of Indecision: Not Yet a Bottom

Volume in general is increasing, but there was nothing special about Friday. No panic. Therefore, no capitulation.

In the last 30 minutes of Friday's trading a violent short squeeze was unleashed. The market had hit new lows and the squeeze started as the S&P 500 (ES) MAR 09 futures contract hit 666 for the second time that day and failed to push lower.

Friday's daily candle is a "Doji". This is a sign of indecision. This is NOT a sign of a bottom. So don't get all excited. The trend is still down. Wait for a break.

To put things in perspective, on Thursday the same ramp job was attempted into the close. It failed miserably the next day. The day before that, on Wednesday an actual rally was attempted. That too fizzled quickly.

Obviously the market is massively oversold. But this could go on for quite some time...

I think they've got it correct over at Cobra's Market View. A follow through day today is required before anybody can call a counter trend rally.

Eventually, Canadian Banks Will Come Out On Top

"Canada's three largest banks posted healthy profits last fiscal quarter while many of their U.S. counterparts struggled to survive. The key has been their limited exposure to toxic assets and conservative mortgage lending. The banks could yet weather the recession with a chance of staying profitable." -WSJ, O Canada: Banks Look Healthier

Brush up on your Canadian banks, because when the bottom finally is in they will come roaring south with a vengeance to fill the void left by the eventual death of Citigroup (C) and so many (17 so far for 2009) other US banks... and they will make FISTFULS of money.

TD Bank (TD), arguably the most adventurous of the Canadian banks has already commenced acquiring SOLID us banks and financial firms.

This is not an immediate endorsement of Canadian banks. To be sure they will feel pain. However, unlike their US and European counterparts, they will not only survive but prosper.

"Canada’s banks are a different beast. While the U.S. banking system is made up of thousands of banks serving certain communities, states, or regions, Canada’s banking system is made up five large chartered banks with branches in every province. In decreasing order of size by market capitalization, these are the Royal Bank (RY), TD Bank (TD), Bank of Nova Scotia (BNS), CIBC (CM), and Bank of Montreal." -Seeking Alpha, Why Canada's Big 5 Bakns Won't Go Bankrupt

The Canadian banks trade both on the TSX and the NYSE. The easiest vehicle to trade of course is the iShares CDN Financial Sector Index Fund (XFN). The index includes the five chartered banks and of course a large number of insurance and 'near bank' financial firms. There are a total of 26 holdings in the index.

The question then is when do you get long for the LONG TERM?

1) Wait for a clear break of the down trend before building a position for the long term. Patience. This bottoming process will take YEARS.

2) There will be many trend breaks on the backs of vicious short covering rallies. WAIT for the pullpack. WAIT for a higher lower. Only then can you trust that the trend has turned and BEGIN to ease into a position.

3) The consolidation along the bottom will be a long one. It will consist of a large, volatile trading range and it will last YEARS.

4) The bottom will be accompanied by several major catalysts. While it is difficult to define exactly what these will look like, you will know them when they occur. Of that, you can be certain. For example, the eventual nationalization of Citigroup (C) would be just one such catalyst. The complete destruction and dismantling of AIG would be another.

So watch and wait. Patience.