Posts Tagged ‘News’

The Bear Has Passed

I simply cannot get over some of the thoughts I’m seeing posted.

Marketwatch headline “Lower prices attract buyers“. I mean come on. Firstly, lower prices? We had lower prices on Thursday too but I guess that didn’t help much. Secondly, all shares have buyers! The only way to fix this headline is to change “Lower” to “Higher” and get rid of the words “attract buyers”. Bloomberg’s headline seems far more appropriate U.S. Stocks Rebound as Brokers Advise Buying After Sell-Off”.

Get this one. “The worst way to invest is to buy when optimism fills the air like it did two weeks ago, and to sell out when everyone’s predicting the end of the world, like last week.” The end of the world?? (yes two question marks, for proper analysis of such a pompous statement see our previous post “It Doesn’t Matter).

The following note from the article above should tell you exactly where you shouldn’t be looking – the Media!If I knew that, I’d be a professional investor, not a professional writer.”

This is nothing more than an inevitable short-covering rally. It may last for a few more days and may even attract buyers (higher prices will attract them that is). After that we are due to see a lot of seemingly meaningless motion and volatility. Looking at some historical chats it is interesting to note that crashes never occur right after the exact top, but jumped around for a while in a wide two-steps-back one-step-forward scenario. (Great time to be a Day Trader!)

Honestly, I considered covering my shorts due to the excess pessimism but advised against it since (1) the bad news is still coming out and is going to hit stocks again. It’s a matter of time. And (2) the meaning of a day like today (in what seems to be a beginning of a down market) is insignificant. This is especially true for small speculators shorting in small portions. Considering fees they may even come out negative.

Just one more bone I had to pick, and its on Alexander Green from the InvestmentU. He writes

Valuations are reasonable, too. Today the S&P 500 is selling for 16 times trailing earnings. That’s well below the average p/e of 21.7 for the past 10 years. And nowhere near the 2000 peak of 28 times trailing earnings. (In fact, the average p/e for the market the last 50 years is 16 times earnings – right where we are today.)

“Reasonable” is usually defined as something that is congruently sensible. These valuations however are not. You cannot compare an object that has been in motion for a longer period of time (the earnings valuation at the conclusion of a 20 year Bull Market and four year mini-bull cycle) to one that has just begun its course (a inevitably continuing secular bear market contained so far by a mere two years of declining prices).

I’m sure that the average 50 year P/E average for 1980 was quite different, considering it would have spanned two Bear markets and one Bull as opposed to two bulls and one Bear. So much for reasonable.

Did anyone consider that Ben Graham called for a degree of increased safety at the exact top in 1965!

Investors have turned bullish again and this couldn’t possibly be more bearish.

News Bits…

Fark has launched its Business section. (This means that funny money just got funnier).

It’s All on the House
Bernanke said that the most reliable indicators show U.S. home prices have not declined nationally and that if prices did drop, consumers might trim spending by as much as 9 cents for each dollar of wealth lost.

Handing the Buck
Ben Bernanke, when queried about the one issue where his impact is unrivaled – the value of the U.S. dollar – the Chairman quickly passed the buck to the Secretary of the Treasury. Conveniently, the Secretary was nowhere in sight.

Who should know more than the man in charge of the institution that prints the currency and orients the rates thereof? As for the Secretary of Treasury, besides for signing the bills he really doesn’t do much.

News Bits…

Dow 14,000! Well, not necessarily. This is precisely the blow off I was looking for, to identify the end of this bull run. We may blow into 14K territory but I seem to doubt it. Wall Street doesn’t like rounded numbers (Think previous high 11,900). If you were waiting for just the opportunity to short this market, I’d say this is it.

In terms of gold however, the Dow went absolutely nowhere remaining within the ratio of 20.80. Similarly, almost every foreign index rose by figuratively the same amount… 1.5%.

What exactly is “indiscriminate repricing of otherwise fundamentally sound collateral”?

Could this be why we are losing in Iraq?

There are many restrictions to hedge funds in regard to getting in. Did you also know that there are now restrictions on getting out?

I wonder how many analysts would have thrown every dollar they had into the market after hearing this one?

Everyone is winning, even Vegas!

As for Bernanke’s speech this week, his notes may be read as so:

“Tell them that the Fed is not there to take care of inflation. Our job is just to make sure that they don’t recognize the inflation. Say inflation is well anchored. (They’ll know what that means). Remember, you’re a psychologist not an economist…. Oh, and if Paulson calls telling you that gold is in a hype rally, tell him to cover all the governments shorts, our game is up.”

News Bits…

People worry about China’s reserves, but how about Japan? The Japanese now hold over $650 billion of U.S. Treasury notes in reserve. In a speech Wantabe said that he doesn’t see the Carry Trade affecting the Japanese economy. No kidding! It will affect the dollars that have been bought with Yen, while the Yen by contrast will soar.

Central Banks are finally back on speaking terms with the BIS. Well with over $400 trillion in derivative speculation, for contracts that many people who call themselves investors think they understand, I would hope so.

Bonds are getting tricky. With Repos now a prime and standard in the speculating community it seems that its about time the governments get involved. May explain recent volatility.

In the Silver Market the “Major Shorts” (4 or less largest traders which Ted Butler has decided to label the T. Rex’s) continue to increase their inevitably reckoning position of short contracts to 50,000 representative of 250 million ounces (also known as $3.3 billion on the open market of silver that is not known to exist above ground).

Here are the headlines that stood out
Comments compliments of yours truly.

I’m not sure what many of you are making of the news (of course I may be coming more bearish ever since I went short the market) but what I see is a perfect storm brewing.

“Stop all the fretting: The U.S. consumer is not going to collapse anytime soon. Most likely, she never will”. They even counter with what should have been my line, “Those folks need to raise their window shades and look outside, because there is much to be optimistic about”.

Isn’t it interesting how when Hulbert sees high interest in gold its contrarily bad but when he sees optimistic views on stocks it remains good?

And besides for Americans trying to maintain their lavish lifestyles they are also led to believe they are getting richer. Now I understand.

Economy is crawling, stocks are resilient. Sound familiar?

Did anyone notice Uranium making its way onto Marketwatch… and the NYMEX?

Did you know that a study has been released in India claiming that silver is is not harmful to the human body and may be consumed?

So what will replace the unwarranted optimism in stocks? Well, this just might.

The man entrusted with Dick Cheney’s money says we are living in a worldwide bubble.

Buffett thinking about Tech Stocks?

As Bob Dylan once put it: “Freedom? Just around the corner from you. But with Truth so far off, what good will it do?”

Now, get ready for some technically sentimental analysis…

Yesterday, Friday, April 28th, marked exactly 100 years since the Panic of 1907, 75 years since the 1932 Low and the 20th Anniversary of the 1987 Crash. Its also been 10 years since the East Asian financial crisis.

Today marks 65 years since the 1942 low, on which the Dow bottomed out at 92.92 points. (Which for the record was 2.87 ounces of gold).

The Dow has now risen 19 of the last 21 trading days. This has happneded only once since 1928! The S&P 500 has also been up 18 of 20. It happened on both September 28th and 29th of 1954, again on July 8th and 11th of 1955 and it happened for 4 consecutive trading days, July 3, 5, 6, and 8 – in guess what year? 1929!


So Basically…

Everyone got freaked about the Dow, more freaked about China with the Shanghai market down more than 9%, Gold and Silver held up well initially then tumbled on selling to make up for losses, Vice president Cheney was almost assassinated in Afghanistan, Durable Goods tumbling 7.8% showing further signs of a slowing U.S. Economy, GDP was revised lower from 3.5% to 2.2%, Former Federal Reserve Chairman Alan Greenspan warned of a Recession by year end, Houses are getting cheaper, Iran’s decision to continue its uranium enrichment program… and Remember that your net worth and self-worth are mutually exclusive endeavors!

Articles You Should Be Reading

The Daily Wealth pointed out that there were too flights people took to get out of stocks.
1. The Japanese Yen ETF (FXY) – Rose almost 5% this week. The Carry Trade is unwinding due to global speculation and rising interest rates.
2. I-shares Lehman 20-year Bond Fund (TLT) – Rose 1.3% on Tuesday alone. Investors still chose bonds in times of turbulence.

Have investors forgotten about gold as an asset class? Minyanville tels us that if you “Ask individuals how much of their assets are allocated to gold and you’ll likely get blank stares”. 50 years ago people would at least relate to you.

A “system glitch” in the Dow Jones, due to an unprecedented high trading volume, intensified Tuesday’s sell off (-200 points in moments). This is due to increased computer regulated trading, programmed to execute trades immediately upon certain conditions.

Investors Gripe over Inflation Report

Core inflation rises 0.3% on biggest jump in medical care prices in 16 years. The CPI was higher than the expected 0.2%.

Wall Street didn’t seem to like the news pinching the Dow down 55 points to 12,730.


E*Trade Tests Global Trading

Reuters reports:

E*Trade Financial, an online bank and brokerage, has launched a pilot platform that offers U.S. customers electronic access to foreign stocks and currencies in international markets.

The platform, which will be widely available in the second quarter, allows E*Trade’s U.S. brokerage customers to buy and sell common stock in Canada, France, Germany, Hong Kong, Japan and the United Kingdom.

Customers will also be able to buy and sell euros, pounds, yen, and Canadian and Hong Kong dollars.

I’m still waiting for TDAmeritrade to offer this!


Amidst Feud Between Politics and Economics BOJ Raises Interest Rates from 0.25% to 0.5%

HONG KONG (MarketWatch) — The Bank of Japan’s policy board voted by an 8-to-1 majority to lift its overnight call rate by a quarter percentage point, bringing the benchmark lending rate to 0.5% Wednesday. The BOJ said the Japanese economy is likely to continue expanding moderately, noting that positive trends in production, spending and income continue.

There had seemed to be an opposition from the Government regarding Interest Rates, but as all markets eventually configure themselves I guess Japan realized too that markets just work.

Carry Traders Beware!

The famous Carry Trade [a neat mechanism for instant profits by borrowing money from low interest rate economies (namely Japan who held a Zero-Interest-Rate-Policy till last year) and investing the funds in stronger economies with higher yields (England, US)] may further come under fire as the rate margin is dwindling.

The United States has held its rates steady for almost 6 months now as economies such as the Euro Zone, Japan, England and Australia have been tightening.

Interest Rates tighten and loosen the money supply by demanding more or less interest on borrowed funds from the Central Banks. We seem to be in a secular bull market for interest rates as liquidity is rampant and easy credit has been flowing for decades now.

Even in the likely event of a recession in the short-term, as far as the long term is concerned banks and lenders alike will need to start cutting down on the liquidity they have for years been dumping into the open markets.

This inevitable “inflation” is yet to be seen on a consumer product level, but as many homeowners who bought on sub-prime loans and exotic mortgages are now finding out that Money – contrary to the current popular belief – does not grow on trees.


Where be Me Gold?

GATA Gold Anti-Trust Action Committee and Jason Hommel of The Silver Stock Report have both long been advocates of gold and silver as true money seeking to destroy the apparent manipulations in the markets and uncovering how much gold truly exists. Now the IMF may be wondering the same. The article has been edited for the sake of brevity.

GATA complains that the International Monetary Fund allows its member central banks to report their gold holdings and their gold out on loan as one item, not as separate items. As a result, the world does not know how much central bank gold has been leased into the market and how much really remains in the vault.

While the World Gold Council (WGC) says that only about 5,000 of the claimed 33,000 tonnes of central bank gold has been leased into the market, GATA claims that probably more than 15,000 tonnes has been leased into the market.

If GATA is right, then when the central bank gold is exhausted, as it must be eventually — and faster if other central banks start buying such as in Russia, China, South Korea, South Africa, Argentina, and other countries — the supply and demand dynamics of the gold market will change dramatically! …and the price will soar.

China alone has $1 trillion of foreign exchange reserves. If China diversifies a mere 5 percent of that into gold, that would be $50 billion, which, at $670/oz., is nearly 75 million ounces. At 32,152 ounces per tonne, that would be 2,300 tonnes, nearly as much gold as the world’s mines produce in just one year.

Now even the IMF seems to be wondering how much gold its member central banks have left.

The IMF’s rule change could be the biggest change in the gold market in the past 36 years, since 1971, when the United States decided to stop redeeming paper dollars for gold on world markets.

This if materialized can be a monumental stage in the bull market for gold and silver. More so, if prices rise too quickly it may cause a squeeze for those short gold and will prompt an even stronger advance that may send gold to prices that have not been seen in centuries.

Has the IMF Admitted GATA is Right?
Jason Hommel
February 17, 2007

Bernanke urges Congress to put budget on sustainable path

WASHINGTON (MarketWatch) — Fed chief Ben Bernanke urged Congress to put the federal budget on a long-term sustainable path. “If early and meaningful action is not taken [to lower the budget deficit], the U.S. economy could be seriously weakened, with future generations bearing much of the cost,” Bernanke said in testimony prepared for delivery to the Senate Budget Committee. Bernanke said that recent narrowing of the deficit was simply “the calm before the storm” as spending on entitlement programs will begin to climb quickly during the next decade.

At this point if you still don’t hear the bells ringing, your portfolio is most probably not going to do that well in the near future.


Real-estate pain, behind the stats – CNN Money

“Home sellers are crying but the data doesn’t seem to reflect their woes.”
“An Indiana man writes to say he can’t sell his house even asking less for it than he paid – four years ago.”

Articles like these are going to start showing up more over the next few months or maybe even years. USA Today (the place to go for the best laughs on the planet) just posted an article similar recently.

As Real Estate appraiser Johnathan Miller puts it “We seem to pile on the cheer leading when the market goes up and we pile on when the market falls”. Indeed. And this will get worse before it gets better. When the true numbers start coming out, sentiment will follow but with a lot more “leverage”.

Meanwhile homebuilding stocks have bounced back strongly from their lows. This is feeding the sentiment that home prices too will bottom very soon. Difference is though, stocks don’t work like houses. They’re liquid, can be sold at any moment and are usually bought with cash. Not Real Estate and not in a market that was basically offering homes for 0% down with adjustable-rate mortgages.

With home loaning organization willing to offer obscene loans with the intention of biting only the buyer in the case it defaults home buyers are beginning to realize that the stock market meltdown in 2000 wasn’t all that bad. At least you had a roof over your head.


Payday or Mayday?

Just read an article from the New York Times – Wall Street Bonuses: So Much Money, So Few Ferraris

After a year of record profits, investment houses like Goldman Sachs, Lehman Brothers and Morgan Stanley are awarding bonuses as high as $60 million.

“We love hedge funds, they are our favorite people. They don’t feel like the money is real and they don’t mind spending it — they don’t mind going up by $500,000 or $1 million increments.”

“It was a terrible year. I am going to the movies with my bonus. By myself.” (Keyword: Terrible)

Sounds like a supply and demand issue. But “So much money”. Ok, so you take home a bonus of $10 million dollars, 20… 54! What’s the fun in everyone has a Ferrari?

As we’ve mentioned many times, one of the only things that’s had a real bad year has been the Dollar. And by contrast we’ve seen an immense surge in prices for assets. Precious metals up over 20%, Real estate still very high in many places, commodities did phenomenally well. I think the only thing that is over valued is the Dollar.

What is a bubble again? “A boom in economic activity…” sounds about right. How about contrarian sentiment? Do you know anyone who would turn down a dollar? Alright, supply and demand. From what I can see the supply is mostly in the dollar and the demand is in… Ferraris!

In a day and age when the wealthiest are giving away most of their wealth, Mergers and Acquisitions are at record peaks, and Private equity is on a rampage, who you gonna trust?

Let’s backtrack to the 1970s. If you were a 30 years old investment banker on Wall Street then you’d be about 65 years old now. So we now have a whole new wave of individuals who strive on three things. The Dollar, Volatility and Risk.

The Dollar that they’ve been so successfully pursuing has lost over 84% of its purchasing power if you ask the silver it was once backed by. In the 1920, an ounce of .999 Gold and a suit would each cost you about $20. Today you could buy yourself a heck of a nice suit with that same gold, worth about $620. As for the 20 bucks, it probably wouldn’t buy you lunch.

Volatility, as the Street has come to know it is at all-time lows. It makes you wonder. With all those hundreds of trillions of dollars being circulated in derivatives and hedge funds, what small level of volatility would it take to throw so many right out of the sky like it did to say, Amaranth ? The Derivatives market is like a great round in a poker game. Everyone’s high rolling with thousands of dollars on the table until its time to turn over your cards.

Risk. This is a word that we’ve all just completely disregarded. What is Risk? A quarter century ago avoiding risk meant not to lose money. Stocks, contracts even cash were all called risky. Hard assets were king. How much gold do you own? How much real estate? Do you have a full tank of gas?

In the 70 and early 80s people wanted security. “Not to lose money” was the name of the game. Today its how to “Get rich quick” or “Double your money over the next 12 months!”.

Times have changed, but change is inevitable. What won’t change? As Jim Rohn says “After summer comes winter and after day comes night. I tell you that isn’t going to change”.

My Dad said to me “People who are into buying gold and hard assets are usually those who survived a war or a depression”. I say yes, but too bad there aren’t enough of them around to tell the tale.

A True 50-50

I would have to say that the most amazing story this week wasn’t in the financial news at all, although maybe it should be.

Senator Tim Johnson underwent successful surgery to relieve bleeding in his brain and treat a congenital malformation of his arteries. He is nevertheless in critical condition and so may Senate. The Democrats currently hold a 51-49 majority. In the case that Senator Johnson will not return, South Dakota Governor Mike Rounds, a Republican, may appoint a Republican replacement. The 50-50 vote would then be decided by Vice President Dick Cheney. (So he is necessary).

The fate of some of America’s most important decisions may shift views overnight. I bet you nobody called this one.

Full Story from Bloomberg

Marketwatch throws in the Towel

After months of numbers fiddling, careful wording and anything-but-blunt warnings, here it is in black and white from Marketwatch:

Investor concern: Recession

Does this mean that there may be a bit more time before a real recession does arrive?