Manic Market Musings

Goodbye 2011 - A Wild & Crazy Year

2011-12-31T11:45:00.008-05:00

Oh, and a nicely profitable year as well !

Here is what I will remember about 2011

S$P 500 closes at 1257.60 --- 0.0% flat (actually down by 0.04 points, or 0.0032%, while trading in a wild & wide range of 1074 - 1370)

My trading accounts did substantially better ... if I posted the number, you probably would not believe me (hint: think John Paulson in reverse ...).

Despite my good fortune in the markets, I still made too many mistakes, some very costly.

This needs to improve.

Important events of 2011 included:

- Osama bin Laden killed by US Special Forces ... putting in a market top.

- QE 2 ending, taking away the crack cocaine that drove the market relentlessly higher since Sept. 2010 thru the bin Laden top & until it ended in June 2011.

- The ongoing Democrat/Republican/Obama skirmishes regarding out of control government spending & debt, culminating in the debt ceiling summer drama, which led to ...

- S&P downgrading the United States Credit rating in August, which precipitated ...

- A massive stock market correction in August & September and market volatility through year end, which was exacerbated by ...

- Europe ... which, as hard as it is to believe, is actually worse off than we are, with all sorts of sovereign and bank problems, a troubled currency union, a recession, austerity, etc. etc.

Which takes us to 2012, a presidential election year (and also the year that the Mayan calendar apparently ends, along with the world according to some).

What will be in 2012 ? Nobody knows, but it is likely that the European drama will continue to play out, there will be more sovereign debt rating excitement and market volatility.

In the U.S., the political gridlock will only intensify as the election cycle kicks in to high gear.

We should also keep an eye on the BRIC countries, as India is slowing, China is probably slowing, Brazil too. And Russia is a mess. Finally, will the US stabilize and grow, or will we slip back into recession.

My goal is to remain extremely flexible regarding my overall approach to markets and market conditions, and continue to try to be well hedged, while focusing on short and medium term profit opportunities.

If you care to learn more about my 2011 trading performance and the strategies that helped achieve them, feel free to get in touch.

Finally, here is what I will remember most about 2011:

My Green Bay Packers winning Super Bowl XLV !

Followed by a 14-1 start heading into 2012, the final week and the playoffs, and hopefully back-to-back titles !

Happy New Year & Good Luck in 2012.

A Broken System ?

2011-12-12T21:04:00.006-05:00

Although I trade the markets every day, I can not escape the feeling that our financial system is fundamentally damaged, if not broken, due to an accumulation of factors.

Simply put, our markets, despite Dow 12,000 or S&P 1,235 are very unhealthy.

The markets are sick, just like our political system is. The President is MIA on a golf course somewhere or campaigning (maybe its better with him out of the way) and Congress only makes things worse by whatever it is that they do (think Dodd Frank) and that they don't do (think MF Global and Congressional Insider Trading).

Rather than go chapter & verse, here are a few well thought out summaries:

Peter L. Brandt on MF Global & Congress:

What Really Happened @ MF Global: http://peterlbrandt.com/what-really-happened-at-mf-global/

MF Global: The Contagion is Knocking at your Door: http://peterlbrandt.com/mf-global-–-the-contagion-is-at-your-door-knocking/

How You Can Get Involved to Stop Insider Trading by Congress

http://peterlbrandt.com/how-you-can-get-involved-to-stop-insider-trading-abuses-by-congress/

ETF Digest: Slow Motion Crash Developing http://www.etfdigest.com/index.php

Bill Fleckenstein comments on MF Global: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/12/12_Fleckenstein_-_His_Concerns_About_MF_Global%2C_Gold_%26_More.html

FLECK: “Corzine appears to have been able to have lobbied the regulators to get away with what appears to be some sort of an in house repo. That looks like it might have been what happened to customer funds. I should say we don’t really know what they did exactly and we don’t know how much has been lost.

But I think they have certainly undermined confidence as it pertains to people feeling like brokerage firms are creditworthy. Now there is all of this angst over hypothecation, rehypothecation. I don’t know that it will change the credibility of the stock market, that’s been a slow leaking boat for some time, but I think they are going to have to pass some laws about what these financial entities can do.

Congress is completely incompetent. What needs to happen is financial institutions, whether they are banks or brokerage firms or whatever, they need to make the directors and officers personally responsible for losses. Directors in Switzerland face that, they now face it in Brazil and it used to be that way in our country.

If these financial institutions, if the directors and officers faced personal losses, do you think anyone would have been leveraged up 40 to 1 in the last go around? You think any of this crap could happen? There’s not a chance. Congress is so stupid, they pass Sarbanes-Oxley, did that prevent anything in the last real estate bubble, any of these financial entities from blowing up? No.

Now they’ve passed this Dodd-Frank Bill. It’s just garbage. There are so many intelligent solutions to a lot of our problems and yet all they do is make the situation worse. It’s pathetic.

I’ve been rather vocal, as have others, about how useless financial statements are for financial entities for over a decade and nothing ever changes.”

The Bernanke Song: Don't Stop Me Now

2011-12-05T11:33:00.002-05:00

(apologies to Freddie Mercury & Queen)

The Helicopter Ben Song

Tonight I'm gonna have myself a real good time

I feel alive and the world it's blowing up Yeah!

I'm floating around in ecstasy

So don't stop me now don't stop me

'Cause I'm having a good time having a good time

I'm a shooting star leaping through the skies

With Timmy Geithner, defying the laws of gravity

I'm a racing car telling lies to the Congress

I'm gonna print print print

There's no stopping me

I'm burning through the skies Yeah!

Two hundred degrees

That's why they call me Helicopter Ben

I'm trav'ling at the speed of light

I wanna make a Euro man of Sarkozy

Don't stop me now I'm having such a good time

I'm having a ball. Don't stop me now

If you wanna get a Bail Out just give me a call

Don't stop me now (I'm wrecking the Economy, its a good time)

Don't stop me now (I'm debasing the Dollar)

I don't want to stop at all

I'm a rocket ship on my way to Mars

On a collision course

I am a maniac I'm out of control

I run the printing press, ready to reload

Before all the Banks

Oh oh oh oh oh explode

I'm burning through the skies Yeah!

Two hundred degrees

That's why they call me Helicopter Ben

I'm trav'ling at the speed of light

I wanna make a supersonic woman out of Merkel

Don't stop me don't stop me don't stop me

Hey hey hey!

Don't stop me don't stop me

Ooh ooh ooh (I like it)

Don't stop me print more dollars, what a good time good time

Don't stop me don't stop me

Ooh ooh Alright

I'm burning through the skies Yeah!

Two hundred degrees

That's why they call me Helicopter Ben

I'm trav'ling at the speed of light

I wanna make a supersonic woman of Merkel

Don't stop me now I'm having such a good time

I'm having a ball don't stop me now

If you wanna get a Bail Out

Just give me a call

Don't stop me now ('Cause I'm killing the Dollar)

Don't stop me now (Yes I'm causing Inflation)

I don't wanna stop at all

La la la la laaaa

La la la la

La la laa laa laa laaa

La la laa la la la la la laaa hey!!....

Europe - Political Union ? or Killing Democracy to limit Bank Losses ?

2011-12-04T23:18:00.003-05:00

Below are some important & interesting reads assessing the situation:

Lowry: European Union Killing Democracy http://www.nypost.com/p/news/opinion/opedcolumnists/adieu_democracy_VD4kzHpnzUC0JWNQwkrAJL

The Euro - What Next ? http://www.nationalreview.com/corner/284850/eurowhat-next-andrew-stuttaford

Contagion Catastrophe: http://nationaljournal.com/magazine/the-eurozone-s-contagion-catastrophe-20111201

Jacques Delors - father of the Euro ...

http://www.telegraph.co.uk/finance/financialcrisis/8932647/Euro-doomed-from-start-says-Jacques-Delors.html

Lowry Excerpt

There is a European Parliament, but not one with the powers or role of a proper democratic parliament. It can’t initiate legislation. It has no governing or opposition party. It can’t topple the government with a vote of no confidence. It is the unelected European Commission that initiates legislation and issues regulations. By some estimates, about half the new laws in EU states are drafted in Brussels.

This diminution in national sovereignty has been accomplished without worrying over-much what the peoples of EU countries want. Referenda on big further steps toward integration have generally been avoided. As Teddy Roosevelt shot back when an aide recommended he inform the Senate of a secret agreement with Japan, “Why invite the expression of views with which we may not agree?” Although there are elections to the European Parliament, no one pays attention to them, and their results reflect the standing of national political parties that fight on the basis of national, not EU, issues.

The recent cashiering of the prime ministers of Greece and Italy, who were replaced by a former vice president of the European Central Bank and a former EU commissioner, respectively, captured the undemocratic thrust of the European project. It was a technocratic coup forecasting how the laggards of the EU will come to be governed by Brussels — and essentially Germany and France — in a new fiscal union.

If Germany is paying the bills, shouldn’t it call the shots? But it shouldn’t be paying the bills for the follies of foreign countries or calling the shots. Greeks should be governed by Athens, no matter how dreary and dysfunctional this time-tested arrangement might strike Berlin.

The European elite claims that a reinvigoration of the nation-state will again risk war. Nonsense. Democratic nation-states didn’t precipitate World War II, the totalitarian ideology of Nazi Germany did. Are we supposed to believe that without the glue of the euro, Angela Merkel’s Germany would again roll Panzers across Nicolas Sarkozy’s France? Even without the EU, Europe would still be bound by trade, NATO and a mutual commitment to international norms.

DeLors excerpt:

Mr Delors claims that the current crisis stems from “a fault in execution” by the political leaders who oversaw the euro in its early days. Leaders chose to turn a blind eye to the fundamental weaknesses and imbalances of member states’ economies, he says.

“The finance ministers did not want to see anything disagreeable which they would be forced to deal with,” he says.

The euro came into existence without strong central powers to stop members running up unsustainable debts, an omission that led to the current crisis. Now that the excessive borrowing of countries such as Greece and Italy has brought the eurozone to the brink of disaster, Mr Delors insists that all European countries must share the blame for the crisis. “Everyone must examine their consciences,” he says.

However, he singles out Germany for its strict insistence that the European Central Bank must not support debt-stricken members for fear of fuelling inflation. The euro’s troubles spring from “a combination of the stubbornness of the Germanic idea of monetary control and the absence of a clear vision from all the other countries”.

Famous in Britain for his public clashes with Baroness Thatcher in the 1980s over closer European integration, Mr Delors says that he shares some of the concerns that were expressed by British politicians and economists about the euro before its creation.

When “Anglo-Saxons” said that a single central bank and currency without a single state would be inherently unstable, “they had a point”, he admits.

Because Britain is not in the euro, it is not “sharing the burden”, Mr Delors says. However, he claims that the UK is “just as embarrassed as the Europeans by the financial crisis”, not least because some of the measures put in place to deal with the crisis pose a threat to British interests.

For example, he says, the creation of a common “Eurobond” underwritten by all eurozone governments and traded in Paris and Frankfurt would be a “big worry” for the City of London. “I can see Mr Cameron’s worries,” he says.

Such is the scale of the crisis, he warns, that “even Germany” will struggle to find a solution. “Markets are markets. They are now bedevilled by uncertainty.”

October is Here

2011-10-02T20:05:00.004-04:00

August & September were brutal, many are expecting October to be worse.

The following links have good analysis & commentary that are worth pondering as October begins:

http://www.robertsinn.com/2011/10/01/reaching-for-yield/

http://www.alphatrends.net/2011/09/30/stock-market-video-analysis-93011/

http://peterlbrandt.com/lessons-from-seven-weeks-of-stock-market-chop/

http://tradingwithtechnicals.com/deflationary-pressures-mount/

http://dragonflycap.com/2011/10/02/shades-of-pale-sector-review-1022011/

http://www.marketanthropology.com/2011/10/trilogy.html

http://highchartpatterns.net/miscellaneous-thoughts-including-market-talk-strategies-and-a-defense-of-dip-buyers-who-didnt-get-their-heads-bashed-in/

http://www.upsidetrader.com/2011/10/01/the-next-90-days/

There are other good analyses that I could link to, but those above provide more than enough color on the state of the markets, sentiment, and possible outcomes.

Let me simply point out, however, that with so many expecting a big flush, or "the final flush" any day now, it could be that too many bears are currently on board, so its also possible for an unexpected rally, or just more up and down gyrations that will drive everyone nuts.

AIG sells stock at $29, Ouch to Gov't, Fairholme

2011-05-25T09:21:00.003-04:00

AIG is now down 31% from where I suggested to Bruce Berkowitz that he at least hedge, if not sell, his huge exposure. That's over 3 1/2 months !

JOE is down 21% in the same period.

MBI is down about 29% in the same period.

That's a huge ouch.

If BB were a hedge fund, as opposed to a mutual fund, his investors would have bailed by now.

I know this sounds like I think BB deserves criticism, or I don't like him, or something. That is just not the case. I only met him briefly that one time and I think he's a smart guy w/ a very good track record.

I am just mystified by the strategy of loading up on these dogs; riding them to huge gains; NOT CASHING OUT, and not hedging them ! His initial strategy, however counter-intuitive worked. But he didn't ring the register and is now paying the price.

Good luck Bruce. I would be interested in your thoughts on what happens next for your holdings in these names.

Bruce Berkowitz & AIG:I told him he should hedge his positions (MBI & JOE also); why didn't he listen ?

2011-05-09T21:45:00.004-04:00

Over the weekend, I was thinking about writing a little piece here about a very smart and well regarded fund manager, Bruce Berkowitz, who runs the Fairholme Funds.

During 2010, Mr. Berkowitz had taken concentrated positions in several controversial stocks, notably AIG, JOE (St. Joe Corp), MBI (MBIA) and others. In my view, all of these companies were train wrecks, and I had on occasion played them to the short side.

News of Berkowitz' investments, along with his discussion of them in various media appearances, helped to rocket the stocks higher. In AIG's case, the stock went from around $30 to over $60. JOE went from around $18 to over $30, and Berkowitz faced off with David Einhorn, who had a well publicized short position in the stock.

Coincidentally, with AIG now $29 / share (again, down from $60 3 months ago), I noticed this on Twitter tonight.

Bruce Berkowitz Says He Was Wrong About AIG http://read.bi/lRyCuF

Yes he was wrong. Big time. Many Twitter and StockTwits traders & momentum chasers didn't believe me when I told them that these stocks were train wrecks, basing their views simply on chart patterns and Berkowitz' bullishness.

But I am writing this piece not to crow about being right.

What troubled me about Berkowitz' positions was not that he was long; it was that he did not protect himself through cheap hedging techniques from being wrong.

I don't know Berkowitz personally, although I did get to meet him briefly earlier this year at an investment conference in New York that he spoke at. He has a great track record, he is smart, and he seems like a likeable, honest, no BS kind of guy.

But he doesn't hedge.

How do I know this ? I asked him.

While I was confounded as to why he would take huge positions in stocks like AIG and MBI that were not only train wrecks, but black boxes that are almost impossible to understand, I didn't challenge him about that.

I just wanted to know if he hedged his positions, as I thought that he should protect himself and his fund. AIG for example, was going to be faced with the US government trying to sell its ginormous stake, representing 92% ownership of the company. That's a lot of selling pressure that hadn't even begun, and everyone knew about it.

Berkowitz should have sold down his stake during the run up, or at least hedged.

He told me that his positions were too large to hedge, and that is why he did not.

I thought that was ridiculous, but I didn't say so to him. I mentioned that I could show him how to hedge these stakes effectively and cheaply with options, but he didn't take me up on my offer, and I didn't push it.

I don't get how most long only investors that either can't, don't or won't hedge. Its nonsense and irresponsible in my opinion.

Anyway, I wish Bruce Berkowitz well, I had been meaning to touch on this subject.

Here are some charts of AIG, MBI and JOE ... the conference took place in late January or early February ... see what's transpired.

The Federal Reserve For Dummies - aka Bernanke Glasnost

2011-04-28T20:53:00.002-04:00

Omid Malekan is back w/ another searing takedown of Uncle Ben:

"Since He Has A History of Being Wrong About Everything, And Has a Tendency To Lie ..."

Japan - How Bad Is It Really ?

2011-03-15T22:42:00.002-04:00

While it is still too early too assess the damage to Japan & the Global Economy from the triple whammy of a 9.0 catastrophic earthquake, the follow-on tsunami, and multiple nuclear plants in full or partial meltdown, consider the following:

http://www.zerohedge.com/article/japan-update-it’s-much-worse-it-looks

Also, I read today that "Reactor # 3 used MOX fuels, that is recycled stuff (often military material). This contains plutonium and is a lot more toxic. that is true. a big problem is that such plants also keep all the spent fuel rods there in water pools in the reactor buildings. These are still very dangerous and can start to burn once they are not surrounded by air. Since this is quite an old plant I read that up to 600.000 spent fuel rods might be on the plant. So you can add these to the risk calculation. I just can’t see any positive thing there. It’s really a disaster and we will have to deal with that for decades or hundreds of years (or more)."

Is the USA Broke ? Can our debt & deficits actually be dealt with ?

2011-03-03T19:57:00.005-05:00

Every day I see overwhelming evidence that the USA is in fact broke, the country's debt cannot be repaid, and the politicians and economic policy makers are recklessly exacerbating the situation through their actions.

Today's examples include the following:

Democrats -- no cuts, more taxes, more spending ! http://www.nationalreview.com/corner/261268/ahead-biden-visit-dems-call-higher-taxes-andrew-stiles

Uncle Ben "the Bernank" Bernanke -- full speed ahead over the cliff

http://www.zerohedge.com/article/guest-post-bernanke’s-unstoppable-self-reinforcing-feedback-loop

Uncle Ben dissembles in congressional testimony; distorts Taylor rule (intentionally)

http://www.zerohedge.com/article/when-even-john-taylor-says-bernankes-interpretation-taylor-rule-wrong

Michael Moore (y'know, big fat rich communist film maker)

Michael Moore Thinks Wealthy People's Money Is A 'Natural Resource' And Should Be Shared by @GlynnMacN http://read.bi/ehRzgm

Can It Be ? Tom DeMark says big Correction Coming

2011-01-26T22:10:00.003-05:00

In these days of Fed Induced POMO ramps, DeMark calls for 11% correction .... we'll see

http://lemoyne-mappingthemarket.blogspot.com/2011/01/tom-demark-predicts-11-correction.html

Quantitative Easing Explained; and trashed

2010-11-12T16:58:00.001-05:00

http://www.businessinsider.com/quantitative-easing-cartoon-2010-11

In hilarious fashion, this must see video trashes QE, Ben Bernake, the Fed, the Treasury and the Primary Dealers ...

October's Jobs Report

2010-11-05T22:38:00.001-04:00

some comments:

October Jobs Report a Mixed Bag

November 5, 2010 11:07 A.M.

By Rea Hederman

This morning’s jobs report is confusing because the two different surveys are saying two different things. The payroll survey shows an increase of 151,000 workers and revises upwards by 100,000 the number of jobs created in the last two months. However, the household survey, which determines the unemployment rate, shows a decline in jobs and the number of workers in the labor force. Diverging reports like this are not uncommon during changes in the business cycle.

If you’re a glass-half-full person, the payroll survey is welcome news. The private sector increased hiring by 159,000 jobs and government hiring fell by 8,000, almost all at the local level. The federal government increased hiring if the 5,000 temporary census jobs are excluded. Most of the private sector hiring was in the service sector as temporary hiring continued to increase as well in the health-care industry. While manufacturing fell slightly, the construction industry added jobs for the second time in three months. Hours and pay both ticked up in October.

Overall, the payroll survey shows the steady growth that we need for a real recovery. It paints a much better picture of the labor market than the reports during “recovery summer.”

Glass-half-empty folks will look at the household survey and be concerned. The unemployment rate stayed flat at 9.6 percent only because of a sharp drop in the labor force participation rate to 64.5 percent, the lowest since 1984. Most of the workers who exited were adult males, while teenagers were the only group that increased their presence in the workforce. Adult males reached the lowest labor force participation rate of the modern, post-World War II era.

The unemployment rate for adult women and teenagers increased, but this was offset by a slight decline in the adult male unemployment rate. This drop in the rate was not due to found jobs, but rather to the fact that so many men are no longer in the labor market.

So October has a trick and a treat from the two different labor reports. The household survey is the more volatile of the two, which gives a bit more weight to the optimistic story from the payroll survey. The labor market may no longer be in its summer stall, but it is still growing far too slowly to help many Americans. Congress’s failure so far to prevent the impending tax hikes is one of the many reasons the recovery is sluggish. Hopefully, that factor will change for the better soon.

– Rea Hederman is assistant director of the Center for Data Analysis and senior policy analyst at the Heritage Foundation.

Jobs

November 5, 2010 9:18 A.M.

By Samuel R. Staley

The October jobs numbers are very troubling and a sign that the economy has a long way to go before it begins to see a meaningful turnaround. While the recession technically bottomed out in June 2009, according to the National Bureau of Economic Research, anemic private-sector job growth shows that private investors and employers are still skittish about bringing employees back on board full time. The next 12 months will be crucial for determining whether the U.S. economy remains on a sluggish growth path — an ongoing march through a “lost decade” of income and growth — or picks up steam toward a real recovery. I see three keys to unlocking the nation’s growth potential: a move back toward predictable, rules-based monetary policy, a retrenchment in federal spending and entitlement reform to thwart even a hint of future tax increases, and regulatory policy that lets the private sector sort out the investment complexities embedded in recovering from the financial-services meltdown and stabilizing commercial and real-estate markets.

– Samuel R. Staley is Robert W. Galvin Fellow and Director of Urban & Land Use Policy at the Reason Foundation.

What is the Fed Buying Today ?

2010-11-05T22:00:00.001-04:00

Inflation ? What Inflation ?

2010-11-03T22:29:00.004-04:00

What is the Fed & the US Gov't smoking when it comes to lying about inflation ?

AMZN today (10-25-2010)

2010-10-25T14:53:00.002-04:00

1st of all, earnings were not so hot, nor were margins or guidance & AMZN has had a massive run.

2nd, buried in AMZN earnings was "disclosure" 2 months late about a huge tax bill from the State of Texas http://www.dailyfinance.com/story/taxes/texas-bills-amazon-269-million-sales-taxes/19687338/

Finally, here is today's price action so far:

TNA --- check out the channel !

2010-06-28T14:13:00.002-04:00

EMIS - Daily Chart - Emisphere Technologies

2010-05-08T15:42:00.003-04:00

Interesting support level at 2.75 ?

(btw, only 1,000 shares traded at that level to paint the close).

Fundamentally, some are expecting big things out of Emisphere - B12, Novatis, and more.

Questioning China's Economy

2010-02-04T20:30:00.004-05:00

Short China? [John Derbyshire]

For those still following the echoes from Tom Friedman's January 12 "Is China the Next Enron?" column (Tom answered No, because China is a spiffy MODERN nation under ENLIGHTENED LEADERSHIP with a DISCIPLINED population), here is China-finance expert Michael Pettis firing a broadside at Friedman.

"First," [Friedman] warned, "a simple rule of investing that has always served me well: Never short a country with US$2 trillion in foreign currency reserves."

Really? Friedman proposed the rule sarcastically — as both untestable and too obvious to need testing. It is so obvious that no country has ever had such high levels of reserves, so you can’t really test the hypothesis, but it’s also pretty obvious that a country with $2 trillion in reserves is in great shape. Anyone who wanted to short it must be pretty stupid right ?

But [these reserves] are not unprecedented. Twice before in history a country has, under similar circumstances, run up foreign reserves of the same magnitude.

The first time occurred in the late 1920s when, after a decade of record-beating trade and capital account surpluses, the United States had accumulated what John Maynard Keynes worriedly described as "all the bullion in the world." . . . The second time occurred in the late 1980s, when it was Japan’s turn to combine huge trade surpluses, along with more moderate surpluses on the capital account, to accumulate a stockpile of foreign reserves only a little less than the equivalent of 5-6% of global GDP …

Notice, by the way, how Pettis describes himself there at top right, brazenly refusing to do the Onomastic Cringe:

Michael Pettis is a professor at Peking University’s Guanghua School of Management . . .

Re: Short China [Stephen Spruiell]

John, there's a video of investor Jim Chanos, mentioned by name in Friedman's column, that's making the rounds, in which Chanos lays out his case for why China's economy is due for a reversal. It's 57 minutes long but worth watching.

Shorting China [Jonah Goldberg]

Since there's a lot of chatter about it, I thought I'd cough up this old column of mine from late 2008.

An excerpt:

Ask yourself this: Why are we in this financial crisis?Any short list of reasons would include a lack of transparency in markets and regulatory rule-making; collusion between business and government; the politicization of lending practices (including the socialization of risk and the privatization of profit through giant governmental entities like Fannie Mae); and, of course, simple greed.

Does anyone honestly think China doesn’t have these problems ten times over? It has no free press, no democratic accountability, and no truly independent regulators.After every Chinese earthquake, we discover that safety inspectors couldn’t be trusted to oversee the construction of schools and hospitals. And we’re supposed to believe that China’s corrupt model produces toxic baby formula but spic-and-span finances? There’s an honest debate about how much blame institutions like Fannie Mae and laws like the Community Reinvestment Act deserve for the financial crisis, but few honest observers dispute that they played some kind of deleterious role. Well, China’s entire economy is one big Fannie Mae, its laws one big Community Reinvestment Act.I’m willing to bet that the bill for that comes due long, long, long before China catches up with the United States of America.

China's Property Boom [John Derbyshire]

A reader reminds me of the realities behind the development boom in Friedmanistan, and wonders: "Does Friedman even read his own newspaper?"

UPDATE:

Simon Property CEO David Simon on Feb 5 earnings conference call:

At year end we also sold our joint venture interest in the development and operations of our shopping centers in China. The interests were sold to affiliates of our Chinese partner for approximately $29 million, resulting in a loss of approximately $20 million. We built a good product there but the middle class consumer is just beginning to spend discretionary income. It will take a long time for them to fully emerge to shop and spend at moderate to better stores. Remaining in these joint ventures in China would have required additional SPG time and resources, as well as the need to fund operating losses. We believe that we have better opportunities to deploy that capital elsewhere.

Market Break Down - follow up & commentary

2010-01-31T19:45:00.005-05:00

Last week my post was headlined "Has the Market Changed Character ? More Downside Ahead ?" and linked to some interesting reads on the topic.

Well, it looks like the market has indeed changed character vs. the relentless up move since the March 2009 lows. It seems to have broken down (Dow below 10250, S&P below 1100 & 1080, Naz below 2200).

Where from here ? Who knows, it could be a bounce up; it could be more downside; but its probably not back to the races.

Here are some links to some really good commentary and webinars:

http://stockguy22.com/2010/01/30/saturday-charts-chat-with-stockguy22/

https://www.hamzeianalytics.com/Educational_Webinars.asp (download the Jan 28 and Jan 20 webinars)

http://blog.afraidtotrade.com/apple-aapl-update-daily-support-but-monthly-bearish-engulfing/

http://www.madhedgefundtrader.com/January_25__2010.html

from the mad hedge fund trader:

1) At the Friday (Jan 22) close, technical analyst to the hedge fund stars, Charles Nenner, put out his long awaited sell signal on the S&P 500, with the market’s definitive break of the crucial 1,125 support level. From here you sell into the rallies. The SPX is going to plunge 10-20%, Treasury bond interest rates are going to soar (TBT), and gold (GLD) has peaked out. There are tradable shorts setting up in all three of these markets that will run for the first half of 2010.

These calls are the product of Nenner’s proprietary Cycle Analysis System, which he has spent three decades developing, and generates calls of tops and bottoms for every major market in the world. I have diligently analyzed Nenner’s approach for a couple of years now. It appears to consist of multiple overlays’ of traditional technical analysis, some mathematically derived time and momentum indicators, and a dash of Elliot Wave for good measure. The result is reliable enough to make a living, as long as you learn how to read him and don’t bet the ranch (or the windmill?) on any single trade. Nenner sees a trading rally in the dollar setting up which could deliver a strong greenback until May, when we should then re-establish shorts, especially in his favorite, the Australian dollar (FXA). The scientist turned technical analyst argues that major bull markets in wheat, corn, and soybeans will begin this year, sectors for which I am also hugely bullish long term. He sees natural gas (UNG) retesting the old lows at $2.40.

Farther out, Nenner sees a new major bear market beginning in 2013 that will take both stocks and bonds to new lows. Nenner has a long career that includes stints at medical school, Merrill Lynch, Rabobank, and ten years as a technical analyst at the noted vampire squid, Goldman Sachs. To learn more about the approach of his firm, the Charles Nenner Research Center in Amsterdam, please visit his site at www.charlesnenner.com. To hear my in depth, extended interview with Nenner where he outlines all of his views for 2010, please go to my website by clicking here .

Same guy on Jan 29:

News Flash: As I write, the S&P 500 has broken the 50 day moving average, an event that usually presages larger falls to come. Of course, you already knew this was going to happen when Charles Nenner warned you in his December 12 interview with me on Hedge Fund Radio, when he gave an exact date of January 7 for the market peak. He predicted that the market would fall 10%-20% from there. I reminded you again in my December 16 summary of the radio interview (click here ).

I gave you a heads up one more time with my January 4 Annual Asset Allocation Review with my piece entitled I’d Rather Get a Poke in the Eye With a Sharp Stick Than Buy Equities. As it turned out, the S&P 500 peaked on January 11, which is close enough for government work. The Euro has also broken through to the $1.39 handle, and the dollar surrogates of crude, gold, and copper are also weak, as they should be in the face of a carry trade unwind. Commentators are blaming Obama’s State of the Union speech. The reality is that stocks were just too damn expensive, can’t be justified by the economy’s weak fundamentals, and only got this high because of the free money given speculators by the Fed. Since everything else Charles forecast is coming true, you better listen to his interview on Hedge Fund Radio one more time by clicking here

-------------

I am posting these links b/c I think they contain good, thoughtful analysis of market conditions and possible near term scenario's. Keep in mind that they can be wrong; however, these are the views of some very successful traders and technicians, each of whom has a different approach, yet a similar macro view (but are open minded enough to not be wedded to their most likely outcomes).

Food for thought for the active trader / investor.

Good luck in your trading.

Has the Market Changed Character ? More Downside Ahead ?

2010-01-24T18:01:00.001-05:00

Some good reads and analysis here:

http://decisionpoint.com/ChartSpotliteFiles/100122_cspot.html

http://www.hamzeianalytics.net/2010/01/significant-inflection-point-may-be-at.html

http://blog.chart.ly/2010/01/24/if-you-are-looking-for-a-bounce/

http://twitpic.com/z99q8

http://www.twitlonger.com/show/4q85g

Forecasts for 2010

2010-01-10T23:03:00.001-05:00

Some good links here if you wanted to research various market forecasts for 2010...

http://www.zerohedge.com/article/more-predictions-2010

2010 is here: Will the Fed Come Clean ?

2010-01-05T22:25:00.002-05:00

Zero Hedge Asks:

http://www.zerohedge.com/article/marketwatch-calls-out-fed-disprove-it-manipulating-index-futures

Also:

http://www.zerohedge.com/article/rosenberg-points-out-stock-market-now-lagging-indicator-discusses-byron-wiens-beliefs-tooth-

Here are David's thoughts:

No doubt that the global economy appears to be on a firm footing, but much of this has reflected dramatic fiscal stimulus, overbuilding and credit extension in China. Only the future knows how sustainable this is.

We do know that just about all the growth in the U.S.A. in Q4 is coming from inventory restocking; and that every basis point of growth in Q3 came from government stimulus, directly and indirectly. The same stock market that couldn’t see a recession coming in late 2007 even though it was two months away, doesn’t see how low-quality this “recovery” is since there is nothing organic about it. The market is relying continuously on government support, so much so that nearly 20% — by far a record — of U.S. personal income is now coming from Uncle Sam’s generosity in the form of transfers. This deserves a lower-than-normal price-earnings multiple, but it may take time for Mr. Market to figure this out, just as it took several quarters for it to see the effects of a housing recession and credit collapse two years ago. The stock market, in other words, has managed to become a classic lagging indicator.

This is obviously a bold claim, as it means that the traditional phrase "The market is always right" is now completely wrong. With no volume, and various predatory algos determining daily market direction, it was only a matter of time.

Rosenberg, proceeds to destroy the optimistic groupthink:

We ran some simulations back to 1955 and found that historically, what is normal is that every basis point of nominal GDP growth typically generates 2.5 percentage points of corporate earnings growth. The consensus sees $76 of operating EPS for the S&P 500 next year, which compares to a likely $56 stream in 2009. In other words, that would imply an expected 36% profits boost this year. That in turn would require a 14% increase in nominal GDP, which is basically impossible. Okay — a spurt that strong was last posted in 1951, so let’s be fair. It’s a 1-in-58 event. In the past 75 years, there were a grand total of six when profit growth topped 30%, and guess what? That pace of profits required, on average, 10% growth in nominal GDP. And that last happened 25 years ago. Either way you slice it or dice it, achieving the consensus profit forecast is an extremely low-odds scenario.

The consensus sees $76 operating EPS for the S&P 500 in 2010, which would be a 36% increase from 2009

Meanwhile, the consensus basically sees 4% nominal GDP growth for 2010, which would suggest a 10% profit rise in 2010, which would imply a solid but somewhat less exuberant $62 EPS call for the year. Remember that this time last year the consensus was at $77 operating EPS for 2009 and we got $56 — what saved the market was the Geithner & Bernanke show. What do they do for an encore this year?

Keep that last point in the back of your mind. At the end of 2008, the consensus was at $77 for S&P 500 operating EPS for 2009. Even by the end of January, when it was so obvious that the bear market and recession were far from over, the bottom-up consensus was calling for operating earnings to come in at just under $70 per share. What did we end up with for 2009 when all was said and done? Try $56 EPS or 27% below what “market participants” were predicting when the year began.
Forget all the calculations off the “artificial” March lows. Forget the 25% slide in the first 10 weeks of the year to that awful trough. Here is the reality. The S&P 500, from point to point, rallied 23% in 2009 even though earnings for the year as whole came in a whopping $22 a share or 27% below what was being priced in at the start of the year. Now that is remarkable. It almost wants to make you believe in the tooth fairy.
What does this mean? A 22% overvaluation.
We are sure that if we told you on December 31, 2008, that the market was looking for $77 on operating EPS for 2009, but $56 is all we would muster, you wouldn’t have told us that your price forecast for year-end would be 1,115. And here we are today, and the same consensus crew is calling for just about the same level of earnings again — this time for 2010. If the consensus is correct, then the market is sitting very close to fair-value with a 15x forward P/E multiple. If we are right on earnings, then we are looking at over an 18x forward multiple or a market that is overvalued by 22%.

Yet this whole valuation aberration is the product of an overbullish groupthink crowd, headed by none other than Byron Wien, for whom Rosie shares the following kind words:
We’ve known Byron Wien for a long time — he was a formidable competitor while we were both on the sell side and in later years, a valued client and friend while he was on the buy side. He had a pretty good year in 2009, of that there is little doubt. But his just-released list again totally epitomized the consensus view — and it is useful to know this because as Bob Farrell told us in his Ten Commandments of investing, “When all the experts and forecasts agree, something else is going to happen” (the 9th commandment).

We won’t reprint Byron’s list here, though we were inundated with our views on it yesterday, but all the ‘surprises’ are on the upside as far as the economy, profits and interest rates are concerned. His whole piece involves world peace, a huge equity rally, massive bond selloff, Fed tightening, a dollar bull market, successful policy action on energy and financial sector reform. Nothing on double dip, deflation, renewed equity slide, Israeli military strike, 10% home price decline, sovereign default risk, Euro-area discord, or a Chinese relapse. These don’t seem to worry Byron — but then again, with the VIX index at 20 … the market seems unperturbed about downside risks as well.

And some simply hilarious observations from Rosie on the New Normal:

In the post-bubble credit collapse economy, what was previously unthinkable suddenly becomes the “new normal”. From March 1983 (when the Reagan-led economic expansion took hold) through to September 2008 (when Lehman collapsed) we never once had a month where U.S. vehicle sales came in as low as 11 million units at an annual rate. That is a span of 25 years.
In yesterday’s WSJ, page B1, there is a huge article titled Late Surge in Car Sales Raises Hopes for 2009. This “surge” seems to have taken sales up to 11 million units in December (data out later today), which would be up from 10.9 million in November. So here we are today, and it is apparently good news that we had virtually no growth in sales towards the end of the year even with dramatic incentives (according to the article, GM gave its dealers $7,000 for some of its models) and that we had 11 million units when the ‘old normal’ was 16 million units (not to mention that 12 million is the cutoff for replacement demand — autos are still being taken off the highways and driveways of America).

SPY today ... bizarre

2009-11-23T14:14:00.003-05:00

just in case you thought the market action is normal, I give you this:

(today's action is the 1/4 of the chart on the RHS)

Beware the FHA

2009-11-13T20:47:00.000-05:00

The FHA Is the New Subprime [Kevin D. Williamson]

An interesting piece in the New York Times today:

The Federal Housing Administration said Thursday that its cash reserves had dwindled significantly in the last year as housing prices slumped and many of its borrowers defaulted on their mortgages.

Still, government housing officials stressed that the agency, which insures loans made by private lenders, would not need a direct bailout.

“Even if we were to go below zero, if the reserves were to become negative, there is no extraordinary action that Congress or anyone else needs to take,” the secretary of Housing and Urban Development, Shaun Donovan, said at a Washington press conference.

Setting aside the metaphysical question of whether a "reserve" with a negative number in front of it still is a reserve, the most interesting words here are "direct bailout." That leaves the door wide open for all sorts of other action.

Who could have seen this coming? Oh, yeah — I did, in May:

But really, who’s backing million-dollar mortgages any more? Oddly enough, the FHA – meaning taxpayers — is getting close. W. C. Varones, a San Diego–based investment manager who blogs at agoravox.com, reports that generous FHA down-payment terms mean that an investor could pick up a $700,000 house, finance $697,000 through the FHA for 5 percent on a 30-year mortgage, and only pay a 1.75 percent FHA fee in exchange. Paying 3.5 percent down under FHA terms, rather than 20 percent down through a conventional bank mortgage, “translates into a $12,000 fee and $300/month in exchange for keeping your extra $115,000 in cash,” he writes. “Plus, you can roll the fee and the points into the loan, so it’s not cash out of pocket.” His conclusion: “FHA is the new subprime. … And the sucker is not a sleazy outfit like Countrywide. It’s the FHA. That means you, the taxpayer.”

If there’s any doubt that the FHA is staggering in Fannie and Freddie’s footsteps into the subprime woods, take a look at their default rates: One in ten FHA-backed mortgages written in the first quarter of 2008 have gone bad already, with borrowers missing at least two consecutive monthly payments, the Wall Street Journal reports. Some 12.3 percent of the 2007 FHA loans were “seriously delinquent” by February of 2009, with 4 percent going to foreclosure or bankruptcy. It gets ugly when you drill down to particular FHA lenders. Strategic Mortgage of Columbus, Mo., has a 12.1 percent FHA default rate, and the president of the firm sounds like the Rev. Jeremiah Wright when he defends his practices, explaining to the Columbus Post -Dispatch that his competitors “made FHA loans to rich, white people in the suburbs; they’re not servicing the same communities I’m servicing.” One has to wonder what sort of community Great Country Mortgage Bankers of Florida was servicing: Their default rate hit nearly 70 percent before the FHA was embarrassed enough to shut them down.

And FHA has been bringing these eccentric business practices to an ever-larger market: With default rates rising, FHA’s loan volume has grown 400 percent since 2007, and its market share is now more than 30 percent. And FHA has expanded beyond housing; in April, the agency put together a three-quarters-of-a-billion-dollar deal to build a hospital in Trenton, N.J., the largest single transaction in FHA history. They’ve also gotten into the “reverse mortgage” business, writing loans against the value of elderly people’s houses and taking the property in lieu of payment after the borrowers die. The stimulus bill cleared the way for FHA to greatly expand its portfolio of reverse mortgages of up to $625,500 in most of the country, and even higher in Hawaii, Alaska, and the Virgin Islands.

Matt Taibbi - Wall Street's Naked Swindle

2009-11-08T19:25:00.001-05:00

http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle/1

Taibbi takes on Naked Short Selling; the collapse of BSC and LEH, Hank Paulson, Ben Bernanke, Timmy Geithner and more.

HK - Petrohawk - interesting observations

2009-11-05T22:10:00.005-05:00

Actual close was around $24.55 today, right at the 50 day EMA.

Interesting trade today; tested 200 day EMA support; then rallied to test 50 day EMA resistance. Still in a downtrend; but could be changing trend.

AMZN's Burgeoning Accounts Payable - Exposed

2009-10-30T19:35:00.001-04:00

AMZN longs are playing with fire.

Good company; stupid valuation / market cap.

http://online.wsj.com/article/SB125682780621816085.html?mod=WSJ_hpp_LEFTTopStories#articleTabs%3Dcomments

How Can You Not Love This ? "Dead Cat Bounce"

2009-10-28T09:04:00.000-04:00

A couple of good reads for today:

2009-10-27T22:16:00.005-04:00

Jeremy Grantham on the market's over-valuation and possibility of severe correction:

http://www.creditwritedowns.com/2009/10/jeremy-grantham-the-market-is-25-overvalued-15-correction-coming.html

Karl Denninger rants on about AIG / Fed / NY Fed / Geithner / Paulson:

http://market-ticker.denninger.net/archives/1547-More-Arrogation-Of-Power.html

I recommend that you read both as you contemplate the silliness of AMZN at $124.

AMZN -- $124 = Crazy; Stupid Price

2009-10-27T08:26:00.000-04:00

http://seekingalpha.com/article/169020-short-amazon-risky-investment-at-current-price

AMZN for some reason gets away with reporting a mythical Free Cash Flow number, that treats not paying its bills (carrying huge accounts payable for inventory) as Free Cash Flow.

This, of course, is ridiculous.

No matter how you slice it, even reporting good numbers and decent growth, AMZN has something like an 80 PE.

For a retailer !

It may be the bubble pump flavor of the day; but at $124, it is way too high.

BIDU -- what to look for

2009-10-09T13:42:00.000-04:00

Here is what I am looking at w/ BIDU which obviously is very strong on an upgrade and infested w/ momo traders.

Looking for:

1. R2 to hold (about $424); and then

2. A break below the 20 min and 50 min MAs (red and green lines).

3. Some market weakness would help !

Strategic Options for the Economy

2009-09-26T11:13:00.000-04:00

source: dilbert.com

Notice Any Similarity Here ?? DIA vs SPG

2009-09-09T16:20:00.000-04:00

Last 4 days.

Programmed trading at its finest.

SWN charts -- Weekly & Daily

2009-09-02T13:40:00.000-04:00

Support on weekly chart at 33.96

Support on daily chart @ 34.65

fwiw....

SPG Today -- C R A Z Y Y Y !!

2009-08-04T12:46:00.001-04:00

Great short entry IMO ...

Another Rangebound Day

2009-07-29T15:53:00.000-04:00

as the AutoBot (HFT) Olympics continue ....

(another "victory for the bulls", Pisani ? -- feh)

DIA Today .... rangebound between PP and S2

2009-07-28T14:15:00.000-04:00

possible afternoon short opportunity at Pivot Point (90.91 DIA)

High Frequency Trading "Autobots" Rule The Market - see chart

2009-07-24T12:49:00.000-04:00

Just more evidence that program trading algos dominate the volume today.

Do little guys like us even matter any more ? This chart suggests not.

AMZN - Final for July 1

2009-07-01T21:58:00.000-04:00

Quick follow up to earlier post on AMZN.

Weak rally attempt after 2:30 low; retraced about 45-50 cents; but retested lows for the day several times, before turning up modestly at the close.

Notice how AMZN trended downwards from 10:30 am; and only into the close did it break above the downtrend lines (weakly).

Whether this means anything for tomorrow or not I don't know. It would not surprise me to see AMZN retrace 50% of the $3 drop (high to low) tomorrow; so let's look to see if it can go to +/- 83

AMZN could just as easily keep going down.

AMZN - intraday - July 1

2009-07-01T14:42:00.000-04:00

Looks like a 2:30 bottom and reversal trade.....

Another Public Service Message .... Market Manipulation

2009-06-30T23:34:00.001-04:00

Watching this video you can almost here Jeff Immelt yelling "Go To Commercial !"

http://zerohedge.blogspot.com/2009/06/cnbc-this-market-continues-to-be.html

I interrupt my charts for a public service message ...

2009-06-26T22:26:00.000-04:00

http://market-ticker.denninger.net/archives/1162-More-Front-Running-Where-Are-The-Cops.html

DIA today June 12 -- Flatline Friday (for now !)

2009-06-12T13:15:00.000-04:00

Ridiculous flatline around 87.80 since about 10 am.

Notice the support right there.

Also, look at support at 87.67.

S1 tested early at 87.43. PP 88.23.

Last hour ? 1/2 hour ? 5 minutes ? will be where all the action is today.

June 10 - Beige Book - Market Shenanigins !!

2009-06-10T16:08:00.000-04:00

Today's charts -- DIA SPG OIH POT

SPG -- June 9

2009-06-09T10:40:00.001-04:00

SPG - being supported at 50 MA on intraday chart (green line around 53.45).

Needs to break below for further downside.

SPG -- short opportunity to 51 or lower ?

2009-06-05T20:35:00.000-04:00

SPG like many REITs has been a good, volatile trading vehicle.

Looking at Daily and Weekly charts, daily seems to suggest failure at 200 MA, with a downside target of 51.58 the 20 MA.

The Weekly 50 MA at $61 + seems out of reach; the 5 MA at 51.26 had been touched every week since early March, but not this week. I think maybe next week we will see SPG at least re-test that area. The 20 MA at 42.82 seems out of reach for now as well.

Conclusion: A test of the low 50's; upper 40's seems likely, particularly if we get any sort of pullback in the market.

DIA -- End of Day review & comment

2009-06-05T17:52:00.000-04:00

Recall that earlier we were looking for possible breakdown below 87.95 - see A - around noon.

Well, it took almost all day, but maybe - just maybe, we got it at the close - see B - with a close just below several trendlines at 87.89; and after hours sitting at 87.70.

We'll see what Monday Brings .... F U Stick !! LOL.

DIA .... watch the chart for breakdown ... or not

2009-06-05T11:32:00.000-04:00

Watching to see break below 88.00 - 87.95 with some volume

DIA - 3 pm update

2009-06-04T15:01:00.000-04:00

Just look at this chart to see how ridiculous the Dow has been this week.

Will this roll over today ? Or will the jam it into the close ?

Watch what happens here at 87.42

AMZN update ....

2009-06-04T11:38:00.000-04:00

Will AMZN break up or down from green trend line (85.04) ?

If down, should go to next line (84.46) support.

AMZN --- Rolling over ?

2009-06-04T10:05:00.000-04:00

Watch the trend lines ...

DIA & AMZN today - "Stick Save" ? or Manipulation ?

2009-06-03T21:30:00.000-04:00

An all too uncommon occurrence in the markets these past few months has been violent, end of day, pump action of the major indexes and specific stocks. Typically without any market moving news.

Witness AMZN (post 3:30 pm)

and DIA (also post 3:30 pm).

Some refer to this violent action as a "stick save". Others call it "manipulation".