Friday, November 30, 2007

Taking it easy in returning to Arizona

The stock market decided it had reached a 10% correction (based on fedspeak - market hackers - and the usual suspects of deceit) So, there was an open of 13,300 and this morning actually hit 13,450 breaking thru 13,300 resistance - the day is not over and I believe it will close near the 13,300 area (plus or minus 40.)

I left Arizona before Thanksgiving when it was 86-88 degrees - full sunshine - no rain in 2+ months and I have returned to 60 degree weather, full clouds and just beginning to rain and promised to deliver a much needed downpour.

As we move into December a promised Christmas Rally has been pronounced by the pundits of "whoever." (Is it whomever?.....whatever!)

Need to buy a new calendar, do my laundry, stop at Trader Joe's, check my mailbox - not worry about the impending economic turmoil - and get some wine....that's it.

Thursday, November 29, 2007

Returning to Arizona

Interesting what has happened after the weekend and the "buzz words" Black Friday, something Monday, Market Recovery Wednesday, sales up 4% on much lower margins - lots of Spin!"

"Denial" - Now there is a concept that has not been discussed, spoken, projected, etc. Part of the Country is in Economic Recession (Stagflation) - California is in a full Recession, Wall Street is in a Boom which will lead to a bust as they look west and see that everyone else have entered into the "fear" mode.

The Market returned to 13,300 yesterday, after a two-day upward move from 12,700. You'll remember in a previous post that 13,300 was to be a bottom to bounce up from. Now it is a top to bounce off of.

The "Plunge Protection Team (PPT)" has been working in the background options market in elevating the market.
Quoted from Wikipedia: "Founded in 1988 after the 1987 stock market crash, it theoretically ensures the stability of the financial markets, prevents liquidity problems, and ensures that stock market hiccups do not cause bank runs. Some Wall Street bears believe that it buys stock index futures or uses other methods to help keep the American stock markets afloat."
(more information:

Interesting - This morning an explosion of a major Canadian Pipeline - should add to the mix of fear related economic conditions. Is it time to run for cover? - unfortunately, even looking for cover will be quite a task.

Friday, November 16, 2007

Options Expiration Day

The Securities Markets - will use OED to cleanse past "influences" on market trading. New and later expiration options have replaced these "effectors." Some realities coming in the future.

1. Winter energy costs arriving, while credit card statements are currently shocking consumers of recent past purchases mostly of motor fuel.

2. ARM's - Adjustable Rate Mortgages coming into effect beginning less than 90 days from now.

3. Holiday sales approaches while consumer confidence reaches new lows

4. Margins to business decreasing requiring price increases held off to begin after January.

5. Full employment has been kept by employer to circumvent "downturn" reversal - the real results of employment numbers will begin with layoff numbers beginning after Xmas.

6. Lies and deceptive practices have a way of coming out - sooner or later - later is just around the corner.

"The Sky is Falling" - Chicken Little

"I must be cruel only to be kind.
This bad begins and worse remains behind." - Shakespeare

Tuesday, November 13, 2007

After the Fall - Now Where? - Dr. RonSen

  • Bull markets don't let you in, bear markets don't let you out.
  • Bull markets have end of week and end of day strength, bear markets have the reverse.
  • Best bull markets occur with large numbers of breakouts from good bases
  • Bull markets tend to show better dynamics like breadth, tick strength, and low TRIN
  • Price makes news
  • Analyze the market's opening range (first thirty to sixty minutes). Is there strength through the range or selling at range resistance and buying at support.
  • Does the market make a high or low for the day first.

Might over Right - Who Runs the Show

"I will end with some fodder for conspiracy theorists. Let's recall that our Treasury Secretary was the Chairman and Chief Executive Officer of Goldman Sachs and had a storied career there for 32 years. Goldman Sachs was the only major brokerage to recover from August's swoon to hit all-time highs. Our President was a former oil man, and oil is effectively at record highs a year before his Presidency comes to a crashing end. you think our Treasury will just sit back and let our banks and brokers crumble into dust? It's not just bad for the economy, it's bad for the friends of the government! Do you think that the White House (and Republicans in particular) will just sit back and let the economy crumble and reduce America's ability to afford ever higher oil prices? It's not just bad for the economy, it's bad for the 2008 elections and bad for the oil business...and bad for the friends of the (former) ruling party! I only mention these to remind us that even as darkness appears to descend on the bullish thesis, you have to keep in mind what MIGHT go RIGHT. For example, somehow, we might manage to postpone the day of debt reckoning yet one more time. We have bounced twice already this year from rampant credit fears, and if the August lows hold, you have to prepare for another bull run - even if relatively short-lived. The market has chosen to ignore the on-going credit crisis longer than it has chosen to care about it. To this end, I am still expecting a strong finish to the year, just from lower levels than I first thought. Yes, I know that provides little comfort after the market has suffered such serious technical damage. 2008 will be a whole new ball game, and I am definitely not hazarding a guess (yet) as to what fun awaits us around THAT corner." - Dr. Duru -

P.S. When I was growing up - my father used the expression "Might over Right" when discussing something we were observing - knowing that a "wrong" was being committed -
he related - "Might over Right" - don't react to that which is "bigger" than you are. - 50 years ago. ("Train up a child in the way he should go...") It is a father's responsibility to "raise" a son to the obstacles of life - I still get pissed off! We were raised watching movies of Flash Gordon, Superman, Batman, The Lone Ranger, Hop-a-long Cassidy - believing there were individuals "greater" than the evil power - Why do they sell such fantasy to children - once in awhile, real people like Teddy Roosevelt, Winston Chirchill and Harry Truman - approached the fantasy.

I guess after the discussion of power, might, fantasy, etc - I honestly believe "mass emotion of the population" overrules all. I believe we are almost at that stage. The Major Indicator that makes me feel this way- is the "lack of effect" that the Federal Reserve Board's corrective adjustments, to interest rates, have had in the overall change to the intended direction of the markets and the economy. There is a powerful negative "tide" which is fueled by good (?) intentions, being applied to benefit "power, greed and selfishness."

Sunday, November 11, 2007

The Turn - just a midnight fantasy......

Well, we finally have arrived at the "Time" which will go down as "what happened during the first Decade of the 21st Century" - The Beginning -Recognition - the New Moon, November 9, 2007 - A Major Recession in the United States of is hard to believe what is about to happen - as they say..."In this day and age!"

In the next few weeks the Banking and Finance Sector will be forced to relate that they have revalued their holdings. They will relate that they were too optimistic in their "Mark to Market" appraisals - in the past, banking bad times, they could contain (hide) their losses and let them out ratably over several accounting periods (years) and "none would be the wiser..."

The First Shoe dropped several months ago, the second shoe in the last few weeks - and their pants will drop in the next several weeks. Real Estate Values will plummet - maybe to 40% of last years value - maybe more - actually, Real Estate will hardly be moving. $100 Oil will be at $60 by next spring maybe less. Ford or Chrysler will go out of business - or be purchased at $.10 on the dollar.

On Wednesday, we were somewhere between Denial and Fear. If the Dow Jones Industrial Average moves below 13,000 we will have moved clearly into the Fear Stage - 12,000 will happen much faster than 14,000 to 13,000 - that's what fear does - the lemmings move faster toward the cliff....

Just so hard to believe......

Just a midnight fantasy...everything will be fine in the morning........

Stranger from a Strange Land - Texas

Rep. Ron Paul, R-Texas: "The best way I could describe the problems that we face here in this country, as well as the problem the Federal Reserve faces, is that we are indeed between a rock and a hard place because we have a serious problem but we don't talk about how we got here. We talk about how we're going to "patch it up". The bubble has been burst - we saw what happened after the Nasdaq bubble burst and we don't ask how it was created and then we had a housing bubble and it's deflating and it's spreading.

Yet nobody says, "Where does it come from?" and what is the advice that you generally get? Inflate the currency. They don't say "inflate the currency", they don't say "debase the currency", they don't say "devalue the currency", they don't say "cheat the people who have saved", they say "lower the interest rates". But they never ask you and I never hear you say, "the only way I can lower interest rates is I have to create more money".
Unless we get down to the bottom of it and define what inflation is and not look at only prices... this was taught by the free market economists all through the 20th century, they said, "Beware, they will increase the money supply but they will make you concentrate on prices and they will give you CPIs and PPIs and they'll fudge those figures and they'll talk about wage and price controls to solve our problems".

We ignore the fundamental flaw and that is that not only have we had a subprime market in housing, the whole economic system is subprime in that we have artificially low interest rates. And it wasn't under your tenure in office - it's been going on for ten years or longer and now we're bearing the fruits of that policy. A one percent interest rate and that's not a distortion? Instead of looking at consumer prices, that nobody in this country really believes, we need to talk about the distortion, the malinvestment, the misdirection, the bad information that is gotten from artificially low interest rates."

Saturday, November 10, 2007

Norman Mailer - rest in peace

Writer - Naked and the Dead, among many others
Harvard Graduate - Aeronautical Engineering
Life and Social: 9 children, 6 wives - Stabbed and almost killed 2nd wife at drunken party
Co-founder: The Village Voice
Violent, Liberal, Conceited, Outrageous, Celebrity
Ran for Mayor of NY
Winner: Pulitzer Prize (twice) among other awards
When asked "When will you know when life has passed you by?"
His answer - "I hope to be the last to know"
Obviously a very conflicted person - rest in peace - finally

Friday, November 9, 2007

Wednesday, November 7, 2007

A New Beginning

Having no expertise here - and professing none - I believe we were in Anxiety stage of this chart and have moved somewhere between Denial and Fear - no guessing - Let's Watch!
1. The Dow Jones Industrial Average broke and then settled at 13,300 - signaling a major change.
2. The S & P 500 broke 1500 to close at 1490
3. The Plunge Protection Team - (search Google with quotes "Plunge Protection Team") lost their effectiveness. Maybe Tomorrow they will try to recover some of their power.
4. A Bear Market has begun - yes there will be actions and reactions that a moment will change, it's called volatility - but at the end of the day, or the week or the month - a Bear Market will prevail.
5. One of our great Recessions will begin and penetrate everything by the end of the first Quarter in 2008. It will spread like a virus around the world - no country will be spared.
6. This along with the Iraq war will be a Bush Legacy - and he will become a pariah in "OJ" glory!

It's hard to believe that there will be despair in this day and age - where some expected miracle will appear to untangle this web.

"The people come and go..." filling up their gas tanks with refined crude oil that has approached $100 per barrel, accepting what it is not unlike getting a cup of coffee in the morning - only to find that the cup is now half its size - at twice its be it - they think.

In a few months hundreds of thousands of ARM's (adjustable rate mortgages) will begin with new payment schedules - substantially increasing monthly payments - many people who live from paycheck to paycheck - fully allocated - will come up short - with no home equity to borrow against - maybe they will cash in their 401K's, pay the penalty and the tax, and do some short-term covering of their cash short positions. Inflation, not really, Stagflation - YES (Stagnation + Inflation =Sluggish economic growth coupled with a high rate of inflation and unemployment.)

Surely, our leaders will find a solution - and (it) will just miss us like a bad storm.

Sunday, November 4, 2007

Which way from here? Alice to the Cheshire Cat

The Cat only grinned when it saw Alice. It looked good-natured, she thought...'Cheshire Puss,' she began, rather timidly... `Would you tell me, please, which way I ought to go from here?' `That depends a good deal on where you want to get to,' said the Cat.
`I don't much care where--' said Alice.
`Then it doesn't matter which way you go,' said the Cat.
`--so long as I get somewhere,' Alice added as an explanation.
`Oh, you're sure to do that,' said the Cat, `if you only walk long enough.'
Alice felt that this could not be denied, so she tried another question. `What sort of people live about here?'
`In that direction,' the Cat said, waving its right paw round,
`lives a Hatter: and in that direction,' waving the other paw,
`lives a March Hare. Visit either you like: they're both mad.'
`But I don't want to go among mad people,' Alice remarked.
`Oh, you can't help that,' said the Cat: `we're all mad here.
`How do you know I'm mad?' said Alice.
`You must be,' said the Cat, `or you wouldn't have come here.'

Conor Sen works in the investment industry and is coauthor of "How Markets Really Work"
From Conor Sen:

"I was about to write that in a the least 'normal' economic system risky asset is cash parked in short term government paper or cash on deposit. Low risk and high liquidity also means that the return on cash tends to be lower than the returns on equities, bonds, and real estate. However, since I am no longer sure what 'normal' is, I decided to amend the above truism to 'in a balanced and non-inflationary economic system' cash is the safest asset. Clearly, this does no longer seem to be the case. Cash is losing its purchasing power -- it would seem -- at an accelerating rate against other assets because of the Fed's expansionary monetary policies."
During a deflationary period/economic downturn/credit contraction the natural response for most people is to sell longer-term and risky assets, cut back on consumption, and shift to short-term assets with high liquidity and low risk. The Fed knows this, so what they do is lower interest rates to create less incentive for this behavior. How safe is your money market account if its yield keeps falling, and if the value of the dollars in the account fall as well?
The sad answer is not very safe at all. The market, smarty pants that it is, is coming to the realization that the dollar is no longer going to be the world's currency. As liquidity in other assets has grown, they have become currencies of sorts as well. The dollar, the yen, the euro, gold, oil, FXI, GOOG, energy stocks -- they're all currencies now, and they're all appreciating and depreciating at different rates. The simple fact is there's no such thing as a safe haven anymore. Even those of us who love gold know that in the deflationary bust sure to come gold will decline with everything else (I must note, however, that when gold does deflate, it will represent the best investment opportunity that we are likely to see in our lifetime). In the short-term the safest assets in the world are the currencies that stand to benefit from the carry trade unwind, namely the yen and Swiss franc, plus the renminbi which is going to appreciate over the next 5-10 years and won't suffer in an economic bust.
In the meantime, the tug of war between the handful of assets still appreciating and the growing credit contraction forces continues. Watch gold, oil, FXI, BIDU, GOOG, AAPL, etc. If those deflate, run for the exits. We're in a blow off top that can last for a lot longer than people think, but the bust is coming.

Saturday, November 3, 2007

Mark to Market

An individual who has a loss - has to realize it - You buy something and it is reduced in value and you have an unrealized loss. When you sell the item, your loss is realized.

In The financial industry, prior to posting financial statements, the Corporations have to "Mark to Market" the "unrealized loss" as though it had been realized - and post that loss to their profit and loss statements. If there is no market for the intended financial holding - they usually leave it where it was, as last determined - or "set-up" a variation to their benefit. They will find some obscure method to value the asset when it is worthless. It will be interesting when the "Genius Corporation" - Goldman Sachs - finally deals with the spider in the web they have spun. Also, interesting will be the Grand Bonuses that will be announced this late fall to their most prized employees - based upon "Profits" for the year.

Take this to the bank: There are going to be more write-downs as more and more mortgages go into foreclosure, forcing more downgrades of mortgage asset-backed paper. Foreclosures are up over 200% in a number of states, and 800-900-1000% in some. Scary. Look at this list of the rise in foreclosures over the last year, from Greg Weldon (

Arizona up + 201.7%, Arkansas up + 254.2%, Connecticut up + 920.7%, Delaware up + 389.4%, Florida up + 130.6%, Iowa up + 180.5%, Maryland up + 491.0%, Massachusetts up + 1,127.7%, Minnesota up + 124.9%, Nevada up + 212.2%, Ohio up + 136.0%, Vermont up + 400.0%, Virginia up + 516.4%, Wisconsin up +155.6%, Georgia up +84.5%, Michigan up + 78.6%, New Jersey up + 56.7%, New York up + 66.7%, North Carolina up + 99.0%, North Dakota up + 85.7%, Tennessee up + 57.3%. And on and on.

A Congressional report suggests that over 2,000,000 homes financed by subprime loans will go into foreclosure in the next 18 months. This means that more and more of the mortgage-backed assets on the books of banks, CDOs (Collateralized Debt Obligations), and SIVs (Structured Investment Vehicles) are going to become losses.

I think we should be getting ready for a second round of the credit crisis. And I would certainly be uncomfortable with owning any financial stock with exposure to the mortgage markets. We may not know the full exposure of many banks until the middle of next year.

The asset-backed commercial paper market declined another $9 billion last week, down for the 12th straight week. It has dropped 26% since August 8, and there is no reason to think that trend will not continue for several months, as commercial paper linked to mortgage assets is simply not being rolled over. The Financial Times talks of one banker who is bartering his mortgage assets to avoid setting a price. (A way around setting the value at Mark to Market)

Bottom line? With rising unemployment, a credit crisis, and a housing bubble imploding, this is not a market or an economy where the Fed will be able to sit tight. We are going to see a Fed funds rate below 4% in two more meetings, at a minimum.

(Some of this material has be paraphrased from John Mauldin's newsletter)

Sooner or later, the Government will run out of ways to spin negative facts into positive ones.

According to the household survey, there was no growth in jobs last month. "The labor force contracted by 211,000, total household employment fell by 250,000, and employment adjusted to match the payroll concept was off by 55,000. The year-to-year gain in adjusted household employment is 0.7%, compared to 1.2% for the establishment survey, a gap of 0.5 point; just six months ago, the household measure was 0.6 point ahead of the payroll number." (The Liscio Report)

Let's put aside the fact that 166,000 jobs is not enough to keep up with growth in the population, and certainly well below the average for the past four years. Let's look at how the establishment survey found 166,000 jobs when the household survey says we lost 211,000. To do that we need to go to the birth-death ratio.

In October, the BLS added 103,000 jobs as an estimate of the BD ratio. They added 14,000 jobs in the construction industry. Does anyone really think that we saw an increase in construction jobs last month? Supposedly we saw an increase of 25,000 jobs in the financial industry. The reality is that financial jobs, especially in the mortgage industry, are being shed left and right.

The BD ratio estimate is based upon past history. While estimating the most recent month's employment picture is quite difficult, you can do a fairly accurate job when you go back a few years, using other government data, tax information, etc. And so you can create a trend for how many jobs you miss due to the birth and death of jobs in the small business area. Now, remember, that number is an average of many years of history.

But there is one flaw in this methodology: it will tend to underestimate new jobs when the economy is recovering from recession and overestimate them when the economy is slowing down. Thus, in 2003-4, the Democrats were beating up Bush about the jobless recovery. As it turns out, those employment numbers were massively revised upward a few years later. There was in fact a powerful recovery going on, just not in the statistics. However, nobody but a few economic geeks paid attention, as it was last year's news. - From My 2nd most favorite Texan - John Mauldin


Point: Water boarding as it is currently described involves strapping a person to an inclined board, with his feet raised and his head lowered. The interrogators bind the person's arms and legs so he can't move at all, and they cover his face. In some descriptions, the person is gagged, and some sort of cloth covers his nose and mouth; in others, his face is wrapped in cellophane. The interrogator then repeatedly pours water onto the person's face. Depending on the exact setup, the water may or may not actually get into the person's mouth and nose; but the physical experience of being underneath a wave of water seems to be secondary to the psychological experience. The person's mind believes he is drowning, and his gag reflex kicks in as if he were choking on all that water falling on his face.
Counterpoint: When the CIA used the water-boarding technique on al-Qaeda operative and supposed "9/11 mastermind" Khalid Sheik Mohammed, he reportedly lasted more than two minutes before confessing to everything of which he was accused. Anonymous CIA sources report that Mohammed's interrogators were impressed.

Thursday, November 1, 2007

Yesterday, Today and Tomorrow

Yesterday. We discussed unexpected change

Today. We watched - unexpected change - the Dow Jones Industrial Average closed at 13,568, down 362. It was expected to stay even or go up based on the Fed rate cut.

Tomorrow - and the upcoming weeks - we will see the Dow Jones Industrial Average either exceed 14,300 which will become a base from which the Bull Market will continue OR, we will see it penetrate 13,300 which will become a ceiling to what possibly will become one of the great Recessions. (there will be lots of activity between 13,400 and 13,300 - the quicker the fall thru 13,300 - the quicker...the quicker!)
What will it be. I guess more and more we are being encouraged by less than half truths - poor speculation, etc. to the points that the "Dogs are Howling."

No public official will ever forecast gloom and doom - so everything they are saying - is an attempt to wish away their greatest fear.

It's very simple: Money talks and bullshit walks.