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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
Please click HERE to read a synopsis of my view of the financial situation.

Wednesday, December 31, 2008

Final Fed - Bush party costing taxpayer additional 500 billion

The fed announced it will spend 500 Billion dollars to buy what is basically near worthless pieces of paper starting in January. The Fed selected investment managers BlackRock Inc (BLK.N), Goldman Sachs Asset Management (GS.N), PIMCO, and Wellington Management Co to implement the program. The Bush administration has now jumped the shark. This action is by the Fed, not the Treasury. Henry Paulson at the US Treasury was Goldmans Sachs chief operating officer until 2004 when he resigned to take his current position. Even if nothing shady is going on, GS should have been avoided to remove any issue.

I honestly don't have the energy to rant about how bad and ILLEGAL this is. Read a detailed rant at Market Ticker, All I can say is you better not stay in BONDS, but to slowly convert into resources, such as Oil, and possibly GDX (Gold miners). Gold is also good, but a little riskier in next 12 months, but should pay off amazingly in the next few years.

This administration has done everything in its power to ensure the federal government is bankrupt, and will not have the borrowing power it needs to run basic public services. Ronald Regans dream of starve the beast is finally here. If Obama can run the US Government in the next few years without cutting basic services, I'll be in awe. The TRILLIONS spent in such a short period of time should yield a great stock market rally, but its a paper rally. It's not based on fundamentals, so it cannot last. When it's done, watch out. If you are new to my blog, read this post to try to comprehend the money being spent.

Also announced today some of the 350 Billion (of 700 authorized) TARP money is being spent to support 43 banks by giving them nearly 2 billion dollars.

In some refreshing (and surprising) news, the SEC recommended to congress to NOT suspend fair-value accounting rules. The cynic in me tells me that congress wanted them to advise against it, so when they do suspend it, that the SEC doesn't lose the faith of the world, and can blame congress. We will see if Congress listens and doesn't yet further degrade the world trust.

The government has lent (given) GMAC 5 billion dollars, which will be used to LOWER their standards for selling cars, which means we now have "sub-prime" car loans. Yea, this makes sense.

Lehman brothers has asked for a 6 month extension on bankruptcy proceedings. It seems Lehman's complex financial obligations need more time to figure out.

I will try to make the time to do a year long prediction. I may dig up a previous one I did between me and a friend for historical reference.

Tuesday, December 30, 2008

News Dec 29th roundup

Washington Post has an in depth article on AIG history and how it's problems evolved. A good read, it is a part 1 of 2 to be published
My SPIN: Notice that the price tag for AIG is 152 Billion and counting, and GM wanted 15 Billion. I'd like to see if the execs at AIG are paid "on average" same as other insurance companies, if not, Congress should get up in arms and demand they take a pay cut before more money is dispensed, like the UAW debate.

Pawn Shops seeing higher income people in need of help
Congress to hold hearings on Madoff scandal - My Spin - After 30 years of outright fraud, a congressional hearing will fix this....where was the government regulators across all administrations?
GMAC having trouble meeting financial requirements to become a bank holding company - My Spin - if GMAC goes, so does GM.
UPDATE - GMAC got financing announced on 30th
Dollar falling due to concern over US recession - My Spin - Maybe, just maybe its our debt spending drawing concern, since the world is also in a recession.

Monday, December 29, 2008

News Update 12/28/08

Forecast of 10 municipal bankruptcies in 2009 in USA, adversely affecting 2.7 trillion bond market
Commercial Real Estate looking for bailout - My spin - Bail all industries with taxpayer money...except GM, those union workers are the REAL problem that needs to be punished.
Recession re-opens trade rift with China & USA : My Spin - The US is going to learn the hard way that being a debtor nation will NOT allow it to call the shots anymore.
UK banks face over 70 billion in losses from commercial real estate loans , RBS high on the failure list My Spin - stop socializing the banks, they "made" money the last 6 years, they can "afford" to lose money the next 2.
Only full disclosure of financials will get west going again My Spin - I assume the author read my blog posting earlier in the year, and only just got around to writing about it...
Hospitals facing financial crisis My Spin - After all the "important" companies are bailed out, I wonder how basic services such as municipal townships, schools, and hospitals will pay their bills...
GMAC is now a bank holding company, allowing it to get "bank" funds My Spin - If a car company can spin off a division to finance cars, AND also be a bank, I still hold out hope for Bennigan's .....
Cash strapped states to sell ROADS, PARKS, and other PUBLIC assets My Spin - The world has gone mad when the government "for the people" destroys the basic service it provides, public use, and all that is left is serving the wealthy....
Some US Meat plants lose right to sell to Mexico - My Spin - Trade wars are starting, and when it ends, it won't be pretty.
Amazon says 2008 was best year ever - My Spin - Lets wait and see if profits where best ever....
Fry's Electronics Exec is arrested for stealing 65 Million to pay for gambling debts - My Spin - If your going to do this, be smart enough to take the cash and flee to United Arab of Emirates to avoid extradition for crimes, like Halliburton Execs
Japan’s Industrial Output Falls 8.1% as Exports Drop by Record
NY Fed-Backed AIG Fund Buys Another $16 Billion CDOs - My Spin - AIG wanted 14 Billion, but once Congress determined there was no union involved, bumped it to 16 billion, insisting no strings attached for the taxpayer money, and to come back anytime for more.
Mortgage applications hit almost 5-year high: MBA - My Spin - Did ANYONE think to make sure that people wheren't applying at 5 banks in hopes of getting 1 approval?
Consumer spending declinded less than forecast - My Spin - I'll be impressed when the title reads increased more than forecast.
UK Recession will be worst since 1947 - My Spin - UK is worse off than the US, they are being optimistic, it will be WORSE than 1947, unless the financials are valued properly.

Sunday, December 28, 2008

President Bush 72% Approval Rating

If your a conservative Republican, President Bush was an excellent president, as per this Gallup Poll results.
The rest of the populous drops off considerably for supporting Mr. Bush, as the graph below shows.

To be clear, Mr. Bush had many plus and minuses under his presidency. Since I am not a fan, I'll post the minuses, feel free to post the pluses in the comment section. And better yet post in comments the "worse" things Clinton did while president vs Mr. Bush.
I could rant about education, environment, average American's standard of living, manufacturing lost, China accelerating it's one sided trading agreements, mass corruption, etc.
I'd take a president with a sex issue over bankrupting the country any day.

I post these political commentaries since, in the years ahead, the US will be MUCH worse than today, and there will be people screaming at Obama to do something to change the direction.
But Obama will NOT be able to significantly change course the US is headed after 8 years of abuse in the next 2 years.

From WebSurfinMurf's Financial Blog

Twitter

I joined Twitter, I'll try to post details on my trading on Twitter semi real time.
If your interested, you can check my updates by clicking here:
http://twitter.com/WebSurfinMurf

What is twitter?
Twitter is kinda like facebook, but much more chatty.
Anytime the poster (in this case me) wants to share ANY tidbit of information, I can post the information to twitter. The information can be a URL I want to share, a stock I just bought or sold, a picture, anything.

For now, my twitter account may be used for more than just stocks. If I find myself using it a lot, I'll make different accounts, one for stocks, other for personal. The twitter idea came from one of the blog followers, Milind Shah.

I assume it will take me a while to get into using twitter to its fullest extent, so be sure to check the blog. :)

Friday, December 26, 2008

Insurance Companies

I work in an industry that is involved with Insurance companies. For this reason, I have stayed away from commentary on the health and future of Insurance companies in the USA, and the world. Unfortunately, this has also prevented me from trading these companies.

In my particular industry, there may be some great opportunities, even though the financial industry is facing challenges.

With that said, blogger Mish has a long rant today, and it starts off with insurance companies MetLife, Prudential and Lincoln National and forks into a quick commentary of the annuity market.
My advice is to read it and decide for yourself what this industry is facing.

The Big Picture

I wanted to share another thought I had, and general gist of my mindset for where the USA was, is, and will be.

The USA circa 1950-1985 ish, basically was a place where the middle class "blue collar worker" was king. Between Unions and the USA's manufacturing capacity, the less than wealthy got a "better" wage for their work than most of the world. Many "conservatives and centrists" said it was too much, and it would make America uncompetitive. Since the "conservatives" couldn't seem to break the Union and blue collar stranglehold on corporate America using conventional means, they turned to the unconventional.

Break down trade barriers and make the US worker compete for their job from abroad. Japan may have lead the way in the 70's into the 90's, but the broader market was cracked open with Reagan and China. The Free Trade movement took off, bringing us to 2008, where US manufacturing is dead, culminating with the demise of non-government unions as symbolized with the UAW being routed as GM is brought to it's knees.

So what does this have to do with stock market and trading?

What we have been witnessing is the ever increasing acceleration of the US workforce being "brought into line" with the world workforce. Those in China making 10 cents an hour for their labor vs US at 20 bucks an hour. (example, not accurate figures)
As the US Labor force must compete, their daily expenses will become "more like" the Chinese peasant. The Chinese peasant doesn't buy 52" flat screen tv's. They spend most of their money on resources, and try to save whats left for a better tomorrow.

That means their MAIN expenses is food, energy, shelter, health care, and work related necessities. (such as a car in the USA).

Now I'm not saying the people in the USA will become on par with a Chinese peasant for life style. But what I am saying if your looking to what will "rise" in value in the next 5+ years inside the USA, it will be those items that have historically taken less cash out of the US labor's pockets. The US has been very fortunate where food and energy is NOT their main expenses, although shelter, health care and work related has played a significant role in cost.

On the macro level, as the world re-aligns itself to a global competitive marketplace, and the Chinese & Indians grow "in wealth" and as the USA "loses wealth as compared to China/India", a parity among the workers will be achieved.

China/Indian workers will have less of their income devoted to food/energy, and Americans will have more of their income devoted to these sectors.

Between US stock market problems, currency fluctuations, countries becoming insolvent, China and India providing the greatest growth, and US debt, this is why I favor resources over the long haul. In the next 1 to 18 months however, resources could go much lower before rocketing higher ahead of all other sectors.

Food for thought. (I couldn't resist!)

Seeking Alpha has a similar slant ranting on what happened to the American Dream.

1-29-11 - Added link on china view refinement from back in 2009. For all things china, click here.

Thursday, December 25, 2008

China Yuan

There is so much change going on in the world, its near impossible to track the 20 different directions the world economy is being pulled in.

One of my previous posts, I have stated that this downturn will likely end with China emerging as a world financial leader, and America's position diminished.

The USA has enjoyed since the end of WWII that the US dollar has been the defacto currency. This has helped the dollar have a relatively high value compared to other currencies. Up until a couple of years ago, ALL oil trades where done in US Dollars, for example. Now that the US has basically pissed everyone off, politically and financially, the world is questioning the status Quo.

And China, has dreams of taking over as world leader, and as I have previously blogged, has been taking pot-shots at the US at crucial times.

Almost every currency in the world can be bought and sold on the world financial markets. For example, If I wanted, I could put all my savings into Euros. However China has has a closed financial market. You can't buy Chinese stocks, you can't buy Chinese Yuans, but the Chinese can buy the free worlds financial if they want.

If China is to take over as world Financial leader, they MUST allow the world to buy their financial stuff, and the first step is their currency.

Today, China took a small, but HUGE step to opening up their currency. China will allow certain close countries to trade currencies with the Yuan.

China has huge issues, political, corruption, social, but they have three things on their side. ZERO debt, huge production capacity, and a huge market, 1.3 Billion people.
With those three things, many countries over time may become more desperate to move away from USD and onto Yuan.

Chinese representative in this move stated "the likelihood of the United States issuing more money in the near future adds to the depreciation risk in US-dollar-denominated assets and trade settlements."

Clearly China is positioning to take out the US, as the US becomes more bankrupt. Lets hope the world doesn't run from the USD to the YUAN, for the world's sake, and mine.

This is yet another reason why I like bottom-fishing for cheap resources for a long term play. There is no such thing as absolute wealth, and currency is by far not certain to keep its value over time. Gold, oil, and other resources "CHEAP" are a great long term hedge. In a deflation situation however, all resources should continue to get cheaper, unless the dollar collapses, inflation hits the US, or world events change the situation.

Wednesday, December 24, 2008

Long overdue update

I was in a routine of posting on my blog daily, but this past week has been a challenge.
I hope to ensure I get back to regular postings as my readers have expected.

On the top of my list is a level set of where my head is with the market.
Frankly, its anyone's guess which direction is next.

But I'm still a bull into Obama, why? Because Obama will announce changes, and the world doesn't want financial ruin, therefore his announcements will be spun as greatest thing since slice bread.
People WILL get their hopes up, the worst has passed.

Unfortunately for me, I once again bought a little too early for the next wave. The market has a habit of beating everyone back to the point of despair before changing direction. Most public spin has been "Santa Claus Rally", or "The Fed will save USA with ZIRP (Zero Interest Rate Policy)", or other spin. When my position aligned with mass media, I had a very bad feeling, and so far, I should have listened to my gut. When the mass media says up, we go down, when it says run for the hills, it goes up.

The market is in full "robbery" mode, that is, it will do exactly the opposite of the majority, so the minority can take from the majority. In a bull market, the majority and minority tend to align, in a bear market, its everyman for themselves.

In the future, I'll try to listen better to that inner compass that has done me so well in the past, and that is to not side with media figureheads like Jim Cramer. I don't listen to Jim, mainly so he doesn't pollute my mind with mis-direction. At the end of this post is a critique of Jim. There is plenty out there to be found, but this one is based upon the last two weeks.

In any event the last two weeks in December is all games being played. The trading is thin, many professional money managers are on vacation. Some people will "lock in" losses for tax purposes EOY, etc.

Best to stay out of the market, and buy USO as described in my previous post, add to the position slowly as it collapses. GDX has been a MONSTER, it refuses to fall below 29. I'm tempted to dump everything I have and go into GDX. Probably not a smart play, but there are gold rumblings in the media.

Russia and China have announced buying gold, as I expect other countries to eventually follow. So far, the amount of gold they are buying to "back" their governments is token amounts. It's just for spin in their country to try to give people confidence. But the amount of gold they are buying is nothing compared to their countries financial risk.

In any event, the market may go down for another week or so, and I wouldn't be surprised to see the DOW break 8,100, in an attempt to scare people into one last dump of their stock before it turns around for Obama. The positive spin people have expecting an Obama rally MUST be broken before it can turn around, just the rules of the game.

Long term, I still believe the US market will be screwed, and devalue (either lower market or inflation), until the US addresses the core issues as I previously posted. The Market Ticker Blog has an EXCELLENT rant on Quantitative Easing (borrowing cash) to pay for goods today, and effect on the economy.

Cramer 12/16-12/23 commentary

Sunday, December 21, 2008

Oil

These next two weeks are bound to be very interesting. The market is declining, but over-all sentiment is still bullish for next few months.

On any strength, I may buy some FAS, to get some quick gains. I like GDX still, but I am now waiting for a pullback to get back into the stock. I'll buy some at 28, but target for buying at any significance is 25.

As I indicated on Friday, went for OIL. Why? Mainly because the price of Oil is being beaten back to the stone ages. Oil finally broke 40 bucks a barrel, which is NOT a good sign for oil. I am NOT expecting oil to break 65 bucks a barrel in 2009, as long as inflation is kept in check.

But at 36 bucks a barrel, the "risk to reward" on up side is becoming greater than the downside. Oil MAY go to 25 bucks a barrel. But with any breaking news, Oil could quickly pop back to 60.

I don't like oil companies since Year over Year profits will be hard to beat when they report. Also Obama may put a pinch on oil companies (taxes). OIH is a good ETF for oil companies, if you like that play.

But if the US dollar at anytime becomes less than desirable by the world, commodity prices should rise as the US dollar falls.

DXO & UCO are double long stock ETF's, only buy if willing to take the higher probability of loss.

The conservative play is to buy USO , some at 33, 31, 29, 27, 25 levels and scale in at greater numbers on the way down, like 100, 200, 400, 800, 1500, etc, to ensure you get a good adveraged price. If your willing to hold for a year, I can't see how this loses, but the near term pop is a risky play.

See chart on USO to the right.
I'll try to make time to get back to basics and post a summary on the news over the holidays.

Friday, December 19, 2008

The next play - oil

Today's the day I recommend buying oil

Funds to consider
USO - represents oil price at 32.50 today
DXO - double long oil, price around 2.70
UCO - double long oil, - price around 13.50

Don't go all in, but 10-20% in not a bad play.
I'll post some cons and graphs of pro's this weekend.

Thursday, December 18, 2008

Mining Stocks Update

I am still in small individual miners in force and still have some GDX. I may have panicked out of GDX a little premature. But I would rather be premature than give back gains. With that said, if today ends down significantly, I'll be tempted to buy some GDX again, for a pop Friday or Monday.
If next two days enters rally mode, I'll probably stay on the sidelines hoping for a fall next week.

I'm still in DXO, OIH, and other oil plays, but I'm not adding to them. Read Mish's BLOG for good reasons for oil to NOT rise. GDX I'm convinced will hit higher (50-60) in the next year, but not in a straight line. Also keep in enough cash to pay taxes next year. :)
I also have 2010 puts on TLT (bond valuation) that I may buy TBT (double inverse bonds). The bond prices rally is beyond any rational level. See graph. But there is no need to rush to front-run this trade, since this could go on for a while, but keep an eye on it. When this starts to change direction, it could be a stampede. See Mish for his thoughts on bonds.

California Pension fund Calpers in trouble

Calpers is a pension fund for 1.6 Million state employees, has lost almost a quarter of its assets since July 1. Calpers in recent weeks said it expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. That's because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.

Oversight for Calper's investment decisions came from Calpers' staff and consultants. The average employer-contribution rate for public agencies, including cities and counties, is considering an increase from 13% to of 18% of payroll, which is very high for state pension funds.

Why did I decide to print this piece of bad news? With Madoff losing 50 billion of private investors money in a ponzi scheme, and Calpers losing unknown amount of money for 1.6 million employee pension fund, these are the first of a line of major private investment blow ups.

Government employee pension funds are particularly troubling, what will result is even HIGHER taxes for local, county, and state levels to cover their bad investments. This will in turn put more pressure on the taxpayer/consumer. For non-government pension funds, failures could ensue in next few years as people withdraw for retirement, unable to "pass" the extra cost required to a taxpayer.

I have talked to people who rely on pension funds, they are litterally are counting on every nickel to survive for the rest of their lives. And if inflation hits, as the fed wants, these pension funds will not be able to keep up with inflation. So fixed-income people, such as pension funds, are facing a grim future. Either the fund goes bust with deflation, or the purchasing power given will not increase to keep up with expenses.

In any event, over the long haul, gold will eventually be a great place to be, 2,000 an ounce is not irrational. I'm not a steadfast gold bug for next 6 months, but will be looking to switch with gold breaking below 600-700.

Wednesday, December 17, 2008

Selling my Miners

As a quick FYI, I sold more than 50% of my miners during lunch today, I may panic out 90%
Trying to keep my OIL play.

The Fed cuts lending rate to 0.25%

The fed cut its short term lending rate to ZERO to 0.25%, which, is basically 0%.
The Fed basically said it's goal is to lend money for free!

Reaction?
The US Dollar continues to tank, huge!
Gold continues to soar, GDX hits 32.50!
And the stock market DOW rallies 359 points to DOW 8.924!

The media hype machine is right on queue to yell buy buy buy! The Fed by cutting rates for over a year "finally" fixed everything with its last possible cut. The previous cuts didn't work, but this one will, after all, money is now free!

The key thing to remember is, this is NOT good news! The picture to the right (click on it) tells the true story, the Fed has just kicked the problem out about one more month. When Obama takes office, lowering interest rates will NOT be an option, since it is already at zero.

The fed, outside of just buying junk "illiquid assets" and transferring the debt to the US Taxpayer, is about all that it can do now. The news today in fact, was in reality horrible! The fed ammo has now been spent, if the sh*t hits the fan in the next few months, the fed can't lower rates in an attempt to make it easier on banks.

About two weeks ago I said that we will hear mainstream media say its time to buy.
I kept all my positions and added some yesterday to the penny miners. My target is to sell when DOW hits 9,500 or Friday EOD, whichever hits first. I may sell anywhere from 50% to 90% of my positions. I bought and held from DOW 7,552, and a 2,000 point run in 4 weeks is enough.
Also this Saturday is "options expiration", quite possibly we'll see some bad news and open down Monday. This will result in market makers settling trades from options expiration at a better price. Another reason for me to jump ship a little early, is I'm still a long term bear, hard to hold long positions after such a short run. I may buy back in from a pullback (possibly as early as Monday) to get more gains from Obama taking office. I will likely hold oil, unless it starts to run into Friday hard.

In any event, DOW 9,500 and GDX approaching 38 are both strong signals to sell, until we get a pullback closer to GDX 30.

Tuesday, December 16, 2008

US Dollar falling

The US dollar had a significant rise in last 4 months, about 24%, tide is turning against the USD, and has been weakening recently. This is partially to explain resource stocks strength in a weak market like Monday.

Also there are rumblings of more "reckless" spending with Obama campaign looking to have a 3 trillion dollar stimulus package, which may be giving currency traders pause for thought on USD valuation.

Assuming the USD weakens, this will help stocks rise, as well as resource costs. Check out Smart Money Blog for trend analysis of the DOW building pressure under the 50 DMA for a movement upwards.

GDX has moved higher, to close about $30.34, Oil was weak today, and retraced back.
One of the small-time gold miners broke up 95% today, that triggered Happy John to notify me about other small-time gold miners as a possible play. I had small miners, and added to them. Some of the ones I have (all under 10 buck stocks) are:
AAUK, ABX, ANO. AUY, FNARX , GG, GSS, HL, HMY, IAG, IVN, LMC, NAK, NXG, PAAS, SIL,
large miners - FCX, RGLD, NEM,
Also took some "high risk bets" on
FAS, DXO,
And what I consider low risk bets still on GDX.

Once again, there is much much bad news being released every day. Perhaps one of these day's I'll go back and make a 2 week best of. Will be one depressing post. But the news is falling on deaf ears for now.
The stock to watch will be Goldman Sachs in the morning, it could change the rally into a bear, but the expectations are low, so even meeting expectations will likely bring a decent rally.
UPDATE 2/12/9 - HL and LMC is a loser, so was FAS/DXO. Kept some of HL, only 1K. Kept some DXO (10k)
UPDATE - Dropped SIL

Monday, December 15, 2008

Mortgage defaults are just starting

Sixty minutes produced a 12 minute video that I highly recommend everyone reading this blog watch.
It goes through, what many bloggers have known for years, that there are multiple waves of the financial crunch.

The Subprime loans are ending their tail end of resets. Next up is Alt-A and adjustable rate loans will hit in the next few years. Since people cannot afford the housing today, this will only spiral into a worse condition.

Therefore this financial debacle won't likely end until 2011 at the earliest, more likely 2012 or beyond.
This, among other factors is why I am a near-term bull, but still a long term bear. This time next year the economy will look worse than it does today. And the trillions of dollars in government backed loans will turn into the US government owning more property than most communist nations.

An alternate video to watch is a pretty funny video by Fred Thomson. The sarcasm is dead on why this won't work.

Go Go Monday

Thanks for readers who read my Sunday rant. I had to get out some of the "anger" over the hypocrisy. But that really has nothing to do with making money in the market, so lets get back to the purpose of this blog.

The news last week was HORRIBLE. The big auto was rejected for government cash influx, unemployment numbers horrible. Madoff investments, a company that is also a MARKET MAKER has been uncovered as a ponzi scheme, losing over 50 billion dollars! States may be facing 100 Billion dollar budget gap in next two years! I could go on for pages of all the bad news I didn't bother to cover last week. Why didn't I mention all the bad news because......

What did the market do, Rally! This bodes extremely well for the market. Please keep in mind this Saturday is option expiration. There will be some very odd games played with the market.
If this week is one big party up, and you can't afford to lose your gains, consider selling some Thursday EOD assuming we rally into Thursday.

In any event as of 7:30 am Monday, Gold is up 7 bucks, oil is up, market is barely up.
DXO should easily pass 3.50, up about 35% since I mentioned purchasing it a week ago.
GDX should break convincingly past 28 today. As you can see on the GDX graph on the right, there may be some resistance as GDX moves towards 38. At 35, may be a good place to lighten up.

In any event when this play makes you feel like the world best trader, expect it to come down suddenly. But then again, I haven't played the bull side in 2 years, I could be experiencing abuse symptoms as a bear. But I'm still expecting Obama story as savior to keep the markets up through January.
UPDATE: A bit of a bull run potentially for resources, there is talk of additional 3 trillion dollar stimulus package. (AKA dollar devaluation)

Sunday, December 14, 2008

The war on blue collar America

On Thursday, Dec 11th, the US Senate, lead by the Republican party, declared they could not lend to GM 15 billion dollars without additional conditions. One of the leading opponents of the auto bailout, Sen. Jim DeMint (R-S.C.), said: "Year after year, union bosses have put their interests ahead of the workers they claim to represent. Congress never should have given these unions this much power, and now is the time to fix it."

One of the pet peeves by Republicans is that UAW workers cost GM and Chrysler 73 bucks an hour, and UAW workers should get paid more in line with BMW, Honda, and other manufacturers in the USA.

Lets take a closer look at the real numbers shall we? 73 dollars x 40 hours x 52 weeks = $151,840 a year.

According to the New York Times, here is the breakdown of the $73 bucks an hour:

INCLUDING Vacation, OVERTIME, sick pay, and normal pay, average pay is 40 bucks an hour.
The second category is benefits, like health insurance which equals 15 bucks an hour (remaining 18 bucks is in existing retiree benefits).

Honda’s or Toyota’s (non unionized) workers make about $45 an hour, and the difference is mostly from benefits.

So what we are talking about here is 10 bucks an hour per worker "gap" of too much pay (not including the existing retiree beneifts), and its mostly benefits such as healthcare, which is about $800 per car "too much cost".

So what is it that is "destroying" American car companies, and what should be done about UAW too much cost?
Choices:
1) Kick all retirees to the curb, get on medicare. If needed GM can go bankrupt to release from their obligations.
2) Union workers in UAW cut pay by 10 bucks an hour to match companies like Toyota. (My only beef with this is, is GM UAW workers located in similar cost areas such as Toyota in Indiana.)

That is what the "extra" UAW costs boils down to, those two solutions.
Item 1, if done, will basically ADD cost to the taxpayer (yet once again), and reduce quality of life for UAW workers. (which is OK, since we all are going to face that) And I am guessing here, but the same senators are likely AGAINST medicare. So what they really want is UAW to walk away from paying retiree's health benefits AND to eliminate Medicare.

The second, well, seems, punitive? Lets take a look at the government "cash giveaway" for white collar workers & businesses.

First, there is GM execs, why not start with capping their pay (including bonuses) to a multiplier with it's workers? say 10x the pay of its lowest full time employee pay? Where's the outrage of the Republican Senate on white collar pay and restrictions, as compared to other workers?

For example, Lehman paid 6 Billion dollars in bonuses in 2007, and bankrupt in 2008. Heck, that bonus alone is almost 1/2 what GM needs as a bridge loan.

Next there is the FACT that the US government has spent between direct debt and debt obligations over 4 trillion dollars. Now I have a hard time understanding what that means.
Lets take a look. The graph below shows government projects INFLATION ADJUSTED in the history of America compared to the cash-give away with almost NO strings attached to white collar pay.

From WebSurfinMurf's Financial Blog

WOW! Talk about expensive? Yea, that EXTRA 10 bucks an hour those UAW workers make, that's the problem!

And to put fuel on this fire, the US government REFUSES to reveal or explain who it gave 2 TRILLION dollars to, in exchange for "illiquid assets". With all this money flying around, I am not sure in the graph above if the 2 trillion is part of the graph or in addition to.

Besides the government debt spending, it is also insuring 8 Trillion dollars of debt, that theoretically, could hit the US government's bottom line.

Putting all of this into context, the Republicans rejecting a 15 billion dollar bridge loan to "ensure" the government doesn't put good money after bad, to me seems so hypocritical.
If this was the 50's through 70's, there would be huge protests and political movements.

But it isn't, and until the middle class gets more politically involved through organizations that fund influence in congress, and pays closer attention to voting for government that represents THEIR interests, then the American public "deserves" the assault on the middle class.

As Winston Churchill said “You can always count on Americans to do the right thing - after they've tried everything else.”


Check out Market Ticker for a similar rant on the wrong doings of government & business.

UPDATE 12/15/08: Wording to try to limit white collar pay who receive government funds has been circumvented, once again mainly due to Republican President, GW Bush.
UPDATE 12/17/08: Now it looks like before Bush leaves office, they will negotiate with the auto-management to enter bankruptcy, allowing these companies to walk away from their previous employee obligations. I now believe this will be the direction that happens.
I would be OK with this IF the same aggression was pursued against financial companies.

Funny Comic
Matt Bors

UPDATE: 1/29/09 - Robert Reich, US 22nd labor secretary, on Unions
UPDATE: Video 1/5/09, a tad bit melodramatic and over the top, but at its heart, it tells the message.

Saturday, December 13, 2008

US Stock market returns 1825 to 2008 compared

From WebSurfinMurf's Financial Blog


This image is old, but quite a interesting comparison chart.
This chart compares the annual returns of the stock market since it's inception to today.
And guess what? The worst annual returns we have ever seen was 1929 and 2008, in percentages.
NOTE: If in 2009, the annual return was an additional 40%, that would be considered an improvement year over year, but obviously not for those with money in the market since 2006 or adding to it currently.
I have a huge rant in me, about the government debt machine and treatment of blue collar America, but that's for another day.

Friday, December 12, 2008

Debacle Friday

The US Government after guaranteeing Trillions of debt, and giving billions away to reckless banks and financial institutions, has said no to GM for 15 Billion dollar "loan". To me, this is a real thumb in the eye to blue collar america as white collar america gets loans with minimal strings attached. If this was the 50's there would be riots in the streets for the double standard. But America has been domesticated and it will be business as usual. The stock market should react extremely bad, possibly the stock market will hit "locked down" levels and be forced to shut down (cool off) on the huge down day.

Any profits from GDX, DXO, and other stocks should evaporate instantly. Hopefully GDX will stay above 20, and DXO above $2.50.

The following Saturday is options expiration. Assuming Friday is a complete debacle, I may buy some stock option calls EOD Friday to hedge if market rallies next week as "lottery tickets".

I may also sell (just a little) GDX/DXO to lighten my positions, but in general still bullish in next 5 weeks on both. But for the near term, I am now pretty bearish.

What is more annoying for me is I was shorting the market for last two years, and each time a bailout was announced, it passed, and screwed me financially. Now that I am long, the bailout fails, screwing me financially.

No point in dwelling on the powers-that-be, best to keep calm and trade as needed.
The next 7 days will be interesting at best. Good luck.
And it can't hurt to put stop orders on positions to ensure losses are minimized.

UPDATE Friday AM: Market down, but obviously I over-reacted just a tad. In my defense the futures last night shows the DOW down 450. However today is not as bad as I feared. Today will be the classic battle of "Greed vs fear" that each of us will face. I'm still a bull next 1 to 2 months. Since next Saturday is options expiration, the market typically would not go "straight down" into options expiration. Then again, what has been typical this year? I am putting low bids in today to buy more.

Thursday, December 11, 2008

Gold, Oil, and Commodities

During a deflationary collapse the general gist is you can buy more for a buck. Prices all around you fall, as goods and services chase scarce dollars.

That is one explanation for Oil's drop from 140 a barrel to 40 in such a short period of time.
However, as my friend Happy John tells me, NOTHING moves in a straight line.
And recently, oil has pretty much moved in a straight line down. USO (etf representing price of oil) and DXO (double long oil ETF) both were bought in huge volume today.

I made a large purchase of DXO on Friday at $2.58, in anticipation of an oil bounce. The green circle shows large number of USO shares being purchased today, it seems like "big money" agrees with this sentiment now.

For DXO, if you can get it for under 3 bucks, sell 1/2 when it hits 6 bucks to cover expenses and let the rest ride. I'm less bullish on OIL, except for a counter rally play versus gold.

I have quite a bit of gold miners (etf GDX) on the long side. My original strong buy sentiment was for GDX was on 10/22/08 when GDX was between $16 and $19 dollars, Again on 10/26/08, then another strong recommendation on 11/20/08 at about the same price. Today GDX hit $28, about 3 weeks later for 55% profit. Not bad at all.
If you bought it, may want to sell, just a little, but overall I'm still a bull on GDX.
Read Mish's Blog article on Gold and Gary of Smart Money for a more complete view on why Gold is bullish in a deflationary collapse.

As for other commodities, I'm not playing, rather stick to basics, Gold/Oil.

All of this sentiment could change on a dime with significant news, but as of now, that's my view.
I would expect a DOW/S&P pullback Thursday and possibly Friday. If both days rally, I may start to sell some of my long positions in anticipation of a pullback. Resources could continue to be bullish independent of the stock market direction.

Wednesday, December 10, 2008

US Treasuries trade at NEGATIVE interest rate

On December 9th, 2008, the US federal government issues US federal treasuries (bonds) for sale. The bidding was so fierce for US bonds, that the return rate (ok not interest rate, net boils down to same thing) the US paid for issuing short-term bonds was negative. That's right, the people who bought US bonds had to "pay" for the privilege of buying US debt.

How absolutely amazing is that? And here I was concerned over the US increasing the government's debt from 5.5 trillion to over 12 trillion. If this keeps up the us creating debt could generate income!

How is this possible? The rest of countries excluding the US & China are looking at each other and realizing many of them are way way way worse than the US. Money is fleeing to us bonds as a safe haven to store wealth. Here is an example of how bad some countries are.

Iceland's top 3 banks have a combined DEBT greater than TWELVE times Iceland's GDP!
That means if Iceland stopped all debt spending, and dedicated the entire countries output to just paying the debt of only 3 of their banks, it would take decades to complete! Iceland, is obviously insolvent, and their population is starting to realize their own government has screwed them for generations to come.

Russia is yet another example, as oil depreciates, and the Russian economy gets pinched, their credit rating is depreciated, sparked in exodus from the ruble.

The bond event that occurred today is a sign we are in a DEFLATION collapse, not inflation. What I believe will eventually result is an odd hybrid between the two. A cost/material inflation, with wages and asset prices deflation. Hence why I am still in gold miners in a deflationary collapse. In any event a short read for history perspective is Japan's 10+ year economic depression with zero percent interest rate by clicking here.

Basically if you have no savings, you will get pinched by this fiscal crunch in the next two years. If you have tons-o-cash lying around, you can buy assets around the world for pennies on the dollar. And in my opinion, this deflation collapse just finished it's first act, and there is two more to go.

As for today's market action, resource stocks were strong even though the market pulled back. The long term view has not changed, DOW 10K is in the works, and then the deflation monster pulls the market into the depths of hell, DOW 6K or lower over the next two years.

Layoff conga line continues
Total layoffs for December hit 50K today and it's only December 9th!
Total job loss is over 2 million this year.

A video in honor of the panic mode some people have entered.

Tuesday, December 9, 2008

Bullish Sentiment Confirmed

On Friday, the news spun the world was going to end, worst unemployment ever, oil will hit 25 bucks a barrel, etc.
Weekend passes, now the spin is the world is doing better, plans for governments to spend into prosperity is bringing optimism back to the markets, etc. The market action, combined with the mainstream media spin changing, to me confirms we are in a bull market once again, DOW 10K here we come.

Want to do well in the stock market? Piece of advice, NEVER listen to the mainstream news, especially CNBC. Blogs & verifiable news is a better bet.

The US dollar has broken down (devalued) to under the 30 DMA.
So far, GDX is moving according to plan, stocks and gold moving higher, so will GDX. (Miners and gold). GDX was at 19-20, now at 25.xx, I'll sell 20% between 27-32, nice 50% gain.

If the market rallies hard tomorrow, I may sell a little in expectation of a pullback, and re-purchase. However 90% of my main account will remain in GDX, DXO, FAS, UWM, RJA, and other positions to ensure I capture the market rise. But I wouldn't be surprised if Tuesday was a down day.

Plenty of news again, I just don't have the patience to print it, since, it doesn't matter. The market has decided to take a vacation from reality, and start building the fantasy that Obama can turn this ship around. It is possible he can, but it would take years, not months, and therefore after the market goes above DOW 10K, I'll be changing strategies again.

If the fed buys MBS directly to force restructuring of debt, I will print "Financial Ground Zero 3", as it will be the final in the trilogy to seal the next Great Depression upon us.

I found this video pretty funny, making fun of how Obama has been handling the situation.

Monday, December 8, 2008

Market Rally Continues

On Friday, the job report was arguably the worst job report in 125 years. The official stance is worst report in 30 years, however how the job report numbers are compiled are different now than 30 years ago. If the method of tracking unemployment was constant in the last 125 years, this past Friday's report was possibly the worst.

And yet, the market rallied!

Why? Cause the market has been and continues to trade on emotion of people. At this point, if you haven't sold stock your holding, guess what? You NEVER will!

After the meltdown of Sept, Oct, and November, frankly, there really isn't anything that could come out to scare the remaining stock holders to sell. Sure hedge funds and other institutions over-leveraged may be selling, but the masses, with their 401K money, are in it for the long haul.

Those that did sell, are eager to jump in to "not miss" the boat when the market rebounds. So there aren't any sellers and people just itching to make a quick buck on a rebound.

Plus, the government announced what I consider a deathblow to ensure a Great Depression on Friday, and that is, the FED is now buying ABS (Asset Backed Securities - aka junk mortgages) from Freddie Mac & Fannie Mae. The Fed just bought a little, but I'm sure that's just an appetizer to see how well it's received by the market. And it was received well with a rocket launch on Friday.

This new trick should go on until Obama enters office, continually announcing buying worthless paper for billions to inject market rallies as needed.

As you can see on the chart, the market is still between the levels I have been discussing for a few weeks. I expect DOW 10K by the time Obama takes office. However if we rally this entire week, I will lighten my positions by Friday, in anticipation of some less than holiday cheer news may come out over the weekend.

I'm still hanging onto GDX, but starting to get concerned over Gold's valuation. Since everyone on Friday Said oil is going to continue to slide, I took the contrary position and bought DXO, a double long of OIL, and FAAS, a tripple long of financials.

I skipped the weekend news, plenty to report, but at this point, the market doesn't really care about bad news from companies it values, only good news will get full press.

As for what happens after Obama takes office, if he acts boldly and doesn't try to print paper to fix the us, but "re-invents" the US, the US can get out of this in 5 years or so. Karl at Market Ticker Blog (click here) has an excellent rant on shaking the system up, which I of course, don't believe will occur.

Sunday, December 7, 2008

Better Carrot or Bigger Stick?

I have heard and read many people blaming executives in their pursuit for huge bonuses for the world wide financial disaster everyone faces.

One of the reasons why capitalism over communism has worked well in the last 100 years is basic human nature, a carrot works better than a stick.

And capitalism's carrot is reward (money) for doing well. These executives world wide understood the rules of the game, and pursued the carrot the fullest of their abilities. Sure, many executives probably crossed the line, and should be held accountable for breaking the laws. But the SHEER size of WORLD WIDE feasting on the financial mayhem in the last 5 years should indicate that it all can't be outright fraud.

People are calling for "sticks" executives should not have gutted companies and made them vulnerable for failure. My question is why shouldn't they? Was ANY of their reward (carrot/bonus) tied to long term viability of the company? Or was the vast majority of the reward tied to showing a great annual fiscal year, with a lump sum payoff that will last a lifetime? Once paid, the company could go bankrupt the next day (aka Bear Stearns) after the decision makers involved have been fully compensated.

The reward system is at odds with what the greater majority of people expect from companies, and that is, not only to perform well in a particular fiscal year, but a business that continues to exist for decades with hopefully some profit.

If the reward system does NOT reflect expectations of the stock holders, the government, and the general populous, the answer isn't to get sharper sticks and "shame" people to doing what people think is the right thing. History has shown people will ALWAYS (on an aggregate) do the wrong thing if the carrot lures people to do so.

Simply put, the reward system is broken. When a sports game is played by the players to the point the game is broken, the rules change to improve the quality of the game, example NJ Devils "The Trap".

What I propose is a very simple change. At the end of the fiscal year, the annual compensation is computed and awarded to the executives, with 1/5th of the total paid out.
Then, over the next 5 years, each year, if the company is meeting (within an agreed reason) expectations, 1/5 more is given to the executive, and on the 5th year, the last payment is made. This would occur even if the executive leaves the corporation. This is "fair" since as an executive, it is also their responsibility to groom the next generation of leaders for the corporation.

Once the reward is tied to continued health of companies, the executives will reset their focus to not just one fiscal year, but continued stability. Taking "short-cuts" will not give the best reward, and therefore will not be pursued.

I'm not stating this is the only solution, but an example of how changing the rules of the game, can improve the quality of the game.

Friday, December 5, 2008

Unemployment Claims Jumps

Today's jobless claims report exploded to 533K for Unemployment 6.7% vs 6.5% in October.
About 422k left the labor force. (Meaning, they no longer count to unemployment numbers)

To make matters worse, the last two months were revised downward significantly.
Oct revised to -320k from -240k
Sept revised to -403k from -284k

This is a recessionary print back from 1970's. The FIFTH worse jobless claims report since 1939.

There is no way in hell it took the government 3 months to "correct" September from 284K to 403K because of lagging accounting/reporting. Its quite obvious the government is reporting what it believes is appropriate, and revising the numbers accordingly when the market can handle the news. It also makes me question is the 533k number will be revised downward in the months to come.

I'm a little torn about this, as an engineer, I want to say the government should do it's job and report the reality, and let capitalism take it's course. But if September number was reported as 403K, the stock collapse would have really gained additional speed.


What's the good news here? Not sure if this is "good news" but Europe and many other countries are facing MUCH worse situation. So relative to the world, this number isn't that bad.

Thursday, December 4, 2008

Ground Zero "exit strategy"

Still trending oh-so-slightly higher Wednesday.
Thursday, lets see if the DOW can end above 8149, that's my market for concern now, it matches the bottom of the last retest of the 8175 line area. (see yesterday's post).

Quite an amazing statement came from the FDIC head today. Under the Bush administration, I'm surprised someone broke rank on the bailout process that is occurring.

Quote from article:
The head of the FDIC said Tuesday the government needs to devise an "exit strategy" for its massive financial rescue plan to avoid artificially propping up banks and other institutions over the long term.

The very nature of giving banks trillions of dollars in direct aid and backing IS artificially propping up banks. Exit strategy? The current course exit strategy will be US Dollar collapse, THAT'S the exit strategy. The US government has taken direct responsibility of trillions of dollars of "government backed" debt. How do you exit from that? Announce one day the government is "taking back" it's promises? What message will that send?

Just Like IRAQ, America has gotten itself into a situation it had no business of getting into. And just like IRAQ, there is no exit strategy except "we will do whatever it takes to ensure financial institutions continue to operate".

The FDIC chairman would have been better off just saying "there is no exit strategy" and wait like the rest of us for events to unfold.

I'm a knucklehead blogger, and even I could see that the entrance to this mess was Ground Zero to the US decline. See Financial Ground Zero & Financial Ground Zero 2.

Wednesday, December 3, 2008

Market Mahem


The Stock Market continues to be volatile, as long as the market remains above DOW 7,552 on a closing basis, I believe the market will continue to go up through January.

See chart on right for current support/resistance lines. Notice on Monday the market stopped it's downward decent by the previous resistance line of 8,135. This is a very bullish signal. DOW 9650 is possible, and I'm banking on DOW 10K.

Latest News
Public Schools ask for bailout money - My Spin - I blogged a while ago after the US dumps its cash at the financial industry, the US will find itself strapped for cash for basic services in the future.
RIMM issues Q3 warning - My Spin - I held this stock sooo long as a short, and of course, got out just before it cracked from 95 down to 40....headed for 9
Article on Fed cutting rates risks Japanese style recession - My Spin - Japan's recession lasted 10 years due to fiscal cover-up, like the US is doing now.
Bed Bath & Beyond warns - No spin, expected by everyone but accountants at BBB
Goldman Sachs may post 2 Billion dollar loss - My Spin - No Problem! Paulson will give 5 billion to cover the loss plus a little extra for his buds.
Chrysler sales off 47%

Layoff Conga Line
US Steel to "affect" 3500 workers by idling plant

I found this video HYSTERICAL, reminds me of my rants over the last 3 months....

Tuesday, December 2, 2008

Retesting lows

Monday was a bloodbath, I expeded DOW -400, but over 600, wow.
In any event, if S&P index closes below 780, I'm concerned, and if DOW closes below 7,552, I may panic out of many positions.

But for now, I am staying long, and buying a little extra on the dip.
And to show how on-the-ball the media & financial experts are, today the US was declared in a Recession! Yes, until today, the us wasn't in a recession. BTW, this declaration is backdated to December 2007. I assume we'll know if the USA is in a depression about the time the depression is ending.......

Today the Market Ticker Blog has a particularly great rant on how the Fed, Treasury caused this mess, and have taken NO responsibility for their actions to day.

News
California declares financial emergency - My Spin - California GDP ranks 9th in the world as a COUNTRY, so this is serious stuff. but in general small potatoes, 25 billion short? Ha! Feds giving away trillions.
Credit card companies may cut 2 trillion in credit - My spin - Great depression if this happens, the fed can't print enough money to counter this level of deflation.
Hedge funds approaching lockdown on all withdrawals - My Spin - Let them rot, hedge funds with 20x leverage created this bubble, they can suffer the consequences.
Freddie Mac issues 1 Billion in debt notes at 2.8% - My Spin - Didnt the fed give these guys over 300 billion dollars?
Citibank to buy Spanish highway for 10 billion - My Spin - People give GM crap for asking for handouts without changing their bottom line? What about the banks? Buying ROADS? Yea, GM's planes are a problem, but banks buying roads, its an investment.
Manufacturing fell at fastest pace in 27 years in November - My Spin - The US has manufacturing left? I guess printing presses count as manufacturing......but then again the US doesn't need to actually print physical money, just add1,000,000,0000 to the computer account.

Monday, December 1, 2008

Where My head is

I posted a while back my "thesis change", from a bear to bullish in the near term, stated my preferred play is commodity based stocks.
Since I believe the market can tank, very hard, at anytime with significant new information, its difficult to recommend going long.

I expect ups and downs, but generally up through Obama as president. How can this happen? The economy beat down that has happened in Sept-November will be easier to beat next quarter. Gas is much cheaper, which will lead to energy-dependent companies beating earnings estimates next quarter. People will start to comment the bottom was in, get back into the market, etc.

Then at some point, Jan - March, the trend will shift down, perhaps very suddenly.
The next down leg, if it breaks our recent low of DOW 7,552, will mark the next leg down and possibly an all out collapse.

The US just had a 4 day up streak, it isn't far fetched to expect Monday to be a down day.