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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
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Friday, January 30, 2009

Fickle Friday

Quick entry today.

Obama administration is setting the market up for some pretty high expectations.
Next week they plan to announce a "menu" of changes to help the banks and the economy (click).
Once again, the market teeters on total fiscal disaster. The next couple of weeks will be interesting.
I will lighten my positions that are of highest risk for next week. I'll be selling 50% of my TBT tomorrow. The Treasury notes have moved substantially recently, and they could move much more.
Leading into the announcements, if FAS goes up a bit, say 15 buck range, I will lighten up the positions a little.
My fear is the expectations aren't met, and the market all-out collapse I thought would happen 2nd half of 2009 happens soon.

In any event GDX has always, been a ROCK. If I just played GDX the last 3 weeks, I'd be much better off financially. For those who are true gamblers, buying FAS between 10 and 8, may have a double or triple in the next few weeks, if the Obama plan give financials a big boost.
(image source)

Thursday, January 29, 2009

Trading Ideas

I have talked to a couple of different people who read my blog recently, and some of the questions have been where to put money into the stock market. If your not interested in my 2 cents on trading, skip this article. If you read on, READ MY DISCLAIMER by clicking here, or read on right side of page

The first order of business is to determine your own time horizon for the trade. (Click links in article for definitions)

Time horizon - Years
With a goal to secure a nest egg from another 40% collapse, I continue to recommend looking at "cheap" resources, such as Oil, Food, and gold (if/when its below 600 an ounce). Related plays, but riskier, are Oil companies (OIH) , Gold miners (GDX, article), food commodities (RJA, click here for others). The goal here isn't to make "millions" but to preserve wealth through the turmoil ahead. And for all commodities, more so for gold or oil, if the world enters into some REAL chaos, they should soar. See my 2009 predictions on why I don't like going into mutual funds or other financial instruments long. See "how to trade" later in this post.

Time horizon days to 2 months
For 2 week/2 month perspective, NOT day trading, the goal is to pick something that you believe will occur. For example, during the Obama Rally, that MAY be starting right now, do you think the market will rally back to DOW 9,000 or higher?

If you believe this is likely, then you want to buy an index fund of US stock markets. Specifically, an Exchange Traded Fund, (ETF), that represents the sector you believe will move in a direction. (We'll assume up for simplicity).

You have choices, but an ETF that "mirrors" the % change (not 1 to 1 dollar) of the sector or index you wish to purchase. For example, if you believe the DOW will hit 9k, then you want to buy DIA. If you are REAL confident this will occur, then there are leveraged funds, that represent 2x the percentage of the DJIA move, such as DDM. So if DIA goes up 1%, DDM should go up 2% of the NAV for the ETF. If you are REALLY REALLY sure the financial sector will rally in the next weeks/month, then you can buy a 3x ETF FAS. (I couldn't find a 3x ETF for DOW)

Read above, understand it, now wrap your head around this, there are the exact same type of ETF's but for "shorting" or betting the reverse. if the DOW goes from 8K down to 4K (50%), you can buy and ETF that goes up as the DOW goes down, 1x, 2x, etc.

Below are links to references to some of the ETF's available to purchase.
1x ETF (Qqqq, dia, spy, there are others)
2x ETFs (long or short)
3x ETFs (long or short)

WARNING, 2x and 3x etfs "over time" all degrade in value. The leverage has a cost, that takes its toll on the NAV of the ETFs. I would not recommend any 2x or 3x ETFs beyond a 2-3 month time horizon. They are best for 1 hour/1 day/1 week/1 month time horizon.

Time horizon 15 seconds to 1 day
True day traders typically trade the MOST volatile stocks or financial instruments. The goal is to have decent % changes in short periods of time. Basically you throw dice, buy & sell based upon your gut, or by looking at charts and talking yourself into believing the charts will guarantee an outcome, giving you confidence to set entry and exit point. One of the main reasons, in my opinion, on why stock charting works is so many people follow stock charting. With so many people looking at the same "palm reading" guidelines, charting almost becomes self-fulfilling. Charting is a very important tool in trading that must be paid attention to.

The 2x and 3x ETFs move dramatically, the most volatile recently have been FAS, SRS, SKF, which are basically all related to finance or real estate.
There are tons of books selling systems or knowledge of palm..er I mean chart reading. From what I gather, Fibonacci seems to be regarded as the most reliable measurements from charts. At this level, can trade options, futures, currency, etc, also to get the % changes in volatility. I stay away from TRUE day trading, mainly, since I can't spend the day watching! I have a job, so I am "stuck" with the previous time horizon to work with.

What about Cash?
Cash is still #1 safest place to be, to insure against losses. But sometime between now and 2012 this will likely be the wrong place to be. If the USD undergoes a confidence issue, your cash will be worth significantly less at a blinding speed. Iceland, for example, had their currency cut by 25-50% in days. Hence my first recommendation for 1-10 year horizon.

How to trade? (method)
There are ridiculous number of "methods" to trade. But here is what I find the most reliable.
Say, we think the market is going up, and my risk level I want to work with is ETF DDM, currently valued at 29.

Lets say, I have, for simple maths sake, $60K to play with, target at most 1/2 for playing with. First, you typically want to buy in after the market was CRUSHED, and DDM was destroyed. As an example, DDM went to 26 on Jan 20th, that would be a great day to get in. So in the face of a falling market, you get brave and buy 200 shares of DDM at 26. Now you wait. Assume in the next week or so, it DOESN'T go straight up, is goes up and down, and falls down to 25. Buy another 100. Make sure the levels are far enough out you can never run out of cash. ADD SLOWLY don't try to "make" the move you want, wait for the moves to unfold. If we are doing 1 buck increments, we are talking around 18 bucks is the cut off. Calculate how much money you will be down if DDM hits 17 bucks, and decide if you can take that kind of a loss. If not, be less aggressive in purchasing levels. Make sure there is plenty of room. Also calculate the level to "cut your losses". So if DDM hits say 18, instead of spending your last money to yet buy more shares, maybe set that as the sell level and take the loss. Be sure not to set this level too close, or you will always hit the sell level.

So you "average down" when wrong on the "bottom" timing. So when to sell? When you bought at 26, look at a chart and see where the stock/etf likes to "hover" around. Looking at the chart, DDM seems in last few months to favor hovering at the "top" around 30-33. Lets say your AGGRESSIVE. try to sell around 33. If/when DDM hits 33, you can sell the stock OR put in a stop-loss of selling DDM, say around 30.85, or something like that. If you bought it at 26, you will make 4 bucks if triggered. If DDM keeps going, just keep moving the stop loss up until the market turns and you must sell. Or just start selling some shares at 33, and more if it goes up until you sold all shares. Try not to go 100% in and 100% out at very specific levels. There is no room for error if you do!

The trick here is you will NEVER buy stock at the bottom and NEVER sell at the top. Goal is to get a good chunk of the move. If DDM goes from 26 to 40, but you get knocked out at 36 by the stop-loss being triggered, its very hard not to look at the last 4 bucks as "missed". But in reality, 26 to 36 is over 35% move! That is a great return in a few months.

There are tons of much more sophisticated indicators, etc. But the basic method I outlined above is to allow you to be wrong on the timing, give plenty of space to "average down" costs when buying into a stock, and a place to sell above.

And the #1 place I recommend for wide variety of trading is Interactive Brokers. The next best, for very light trading, I like Fidelity Investments. IB allows trading financial instruments from around the globe. Fidelity is pretty much is for trading stocks/options in the USA.

This article is a brain dump, and should be taken as food for thought, not gospel turn-key way to trade. Trade to be right by allowing room for entry and exit, avoid exacting big trades. Keep the size and risk small enough to endure the wiggles, and set thresholds to change your mind when you are wrong, but leave plenty of room for that level to avoid being pushed in and out when it isn't required.

USA Draft Law alters Credit-Default Swaps

Credit Default Swaps are financial contracts that trade are NOT regulated, unlike Stocks, Bonds, Options, Futures, etc. CDS contracts are the "wild west" of finance.

CDS has been blamed for the AIG issues, and other financial institutions. Like any financial instrument that is unregulated, it gets abused, severely. The government bringing CDS into regulation is a HUGE step to actually avoiding world wide implosion.

I won't represent what is the correct answer, except that near zero regulation is not the answer. CDS contracts for example, do not trigger companies that create CDS contracts need to secure a % of financials. Translation: Financial companies can take on RISK with near Zero "reserves" if they are wrong in the "bet" made. When the economy took a u turn, companies over exposed crumbled.

CDS contracts have been blamed to be written "naked" (no counter party interest), like a "naked short". A naked short is illegal, as it "unfairly" punishes companies. Naked CDS contracts argueable are the EXACT same abuse, but since these instruments are not regulated, its permitted. If CDS contracts where regulated like other instruments, the current situtation would not be as bad.

The Obama government, as expected is ramping up the announcements on all fronts on how to avoid world wide financial disaster.

There exists a US Draft law to outlaw much of CDS contracts as they are created currently. I really don't have an opinion how bad or good the proposed changes are. I'll assume that par for the course, its probably over-reactionary by individuals with agendas. I don't expect the market to soar because of the bill being proposed. However its definately worth paying attention to the evolution of the bill and what it looks like the day it passes into law. That day could be a great reactionary day.

The series of news events will hopefully yield the expected upward movement of the market. Thursday may be a pullback, however I would expect by next Wednesday, the market will be higher.

Gold is at an extremely high risk for continued downward pressure. These changes could demolish Gold as fear subsides and hope springs. Gold miners will get hurt also, but hopefully not as bad.

Wednesday, January 28, 2009

Bad Bank

Today it was leaked that the US Federal Government is seriously considering (up from whisper gossip) on creating a world class "Bad Bank". What does "Bad Bank" mean you may be thinking. Its pretty simple really. Lets consider the current problem with US Banks.

US banks and other financial institutions have "assets" (Really they are debts, that supposedly pay a return, which they don't) called Mortgage Backed Securities and other similar financial products, that have a specified paper value. This "estimated" or computer-model generated value was good enough to trust until companies and countries realized, that an artificial value placed on a financial asset may not translate into a true, actual value. Historically, since the Great Depression, value was assessed by how much similar "assets" where paid for. This is called Mark-to-Market. When the revelation that a made-up value isn't as reliable as Mark-to-Market, confidence caved among companies.

This seems rather absurd. As an example, if I told you my used car is worth 30K, but I tell you to not ask anyone else what they PAID for a similar car, just trust me on my value model, you would think I'm crazy.

So now banks have assets on their books, with paper values, that no one believes are real. Hence its impossible to "trust" each other to lend money. Whats the solution?

The TRUE solution is to mark-to-market all assets and let the weak fail. Of course this will not occur until all other options are tried, and the US stock market has fallen to S&P 500 or lower.

No one wants mass-failure of banks, least the banks that are insolvent, so the government and the industry has come up with a different solution. Take all the assets we don't want to know the true value and put it into one "Bad Bank". How do we get assets out of US institutions and put it into the "Bad Bank"?

Simple, have the US Taxpayer BUY the assets at what the government and the company agree (not mark to market) value and have the government put the asset into the "Bad Bank". Then the US Government and the taxpayer can enjoy their return on investment from this purchase for the next decade to come.

What happens if after the "Bad Bank" buys the asset, it is rudely discovered to have been over-valued? The government will be on the hook for the difference. The companies that sold the asset have the cash from the sale, and are safe from more losses.

This, my friends, is yet another step into the Great Depression II. If this event passes, I'll write another entry, and add it to my line up of "Financial Ground Zero" series of posts marking the epic decisions that may lead the US into financial ruin. If the US implodes, it will take many bad decisions, not one, to bring it to it's knees. It will take years. So, this story has not ended, and there can still be a script re-write to make it a happier ending. But this latest twist is not a turn for the better. See WSJ for similiar spin.

For trading, its GREAT news! The market, assuming it looks only skin deep, should SOAR. Banks, which have finished reporting its hellish earnings, now have no more bad news to report. This coupled with "the final solution" for the US problems should catipult the market upwards in the next days, if not weeks to come. It won't be a straight line, of course, but trend up not down. The Bad Bank has not been approved, but the "serious" nature of the intent, without details should scare the short-sellers of financials.

There is the possibility that people see this as yet, another ploy to avoid facing reality, and therefore prolong the pain and drag on the US government and therefore it's people. But I suspect the news media and politicians will be in full spin. This will be compared to the 80's Resolution Trust Corporation that helped clear problems with S&Ls, to the tune of 400 Billion dollars.

This event is in-line with why I changed from a 2+ year shorting the market to holding the market long, for now. An Obama save-the-world multi-month rally may occur, and I want to be on the correct side for that.

The worst case scenerio, and, lets hope it never happens, is at somepoint the US government after taking on all this debt has it's credit rating cut, eventually into junk status. At that time, the party is truely over, and why I still like "cheap" resources as a long term play. The risk of failure for all these efforts is too great to ignore.

As a warning, this may tank gold, hard core. And gold miners. The gold play is somewhat out of fear, and if the world reduces it's fear, so should gold. But gold could spike as people expect the USD to devalue or "cheapen" by being wreckless. It is pretty much impossible to say for the near future, a coin toss really.

There is NO CERTAINTY in any of this rant, and I reserve the right to change my view as things develop. Anything short of my previous rant of full disclosure of all bad debt, and returning to true accounting, will result in failure. Honest (accounting) IS the best policy.

For gambling plays, take a look on FAS, I was waaaay to early for it, and paid heavily for being wrong in my timing.

Update 1/29/09: Bad Bank estimated at 2 Trillion. When has ANY estimate to financials in USA been accurate? See 2 trillion expect 3-6.

Tuesday, January 27, 2009

Short update - California & WallStreet

Hopefully tonight I can spend a few hours keeping up with the blog, for now a small update.

California is "out of money" and will now pay bills with IOUs. The Federal government steps in to pay unemployment benefits. Before panic sets in, this has happened to many states before, just not recently. As I previously blogged many states will face financial shortfall that will "stop" the states in their tracks. As the state of CA is out of cash, some CA towns are bailing out Auto-dealerships? Insanity. What I find odd about this situation now is, the Federal Government is dumping hordes of cash to the private sector. There just won't be enough money for basic government services eventually, whether it be states of federal in the years to come.
Government services will be cut back. There is no choice. The only other choice is to raise taxes. In this environment, raising taxes will get a more severe reaction by the media and public than debt spending TRILLIONS of dollars by the federal government.

Funny how the government is mirroring people. No one "freaks out" for over spending on credit cards, buying houses over-valued. But everyone gets upset when the bills pile up and the creditors demand payments. In this aspect, the government truely represents the people.

And to show how dis-jointed the US society is, and how the US still needs a stark reality check, Wallstreet is unhappy with their bonuses! I am sure, that there are legitimate people on wallstreet that deserved every dime they get, and more. But as an aggregate industry, in a year like 2008, one of the worst EVER, take your bonuses and be quiet already! The US and the world is on the brink of FINANCIAL failure.

The point of this blog entry is to illustrate the USA cannot be near a bottom. A bottom in the markets will be marked by everyone giving up hope and having realistic expectations (or even overly pessimistic ones). States expecting to not cut back or raise taxes is not realistic. Wall street expecting huge bonuses in one of the worst years on record is not in line with reality.

For now, still looking to buy GDX as it weakens, getting tempted at 33-34, trying to hold out for 31-30. USO watching not buying, seeing where it goes. Wondering if the market can truely rally with the onslaught of news. From the articles above, seems like we are still in denial, so anything is possible.

UPDATE 1/29/09: Wallstreet bonuses SIXTH largest bonuses given EVER! Come on! Should be like 8th largest, maybe 10th....ok, how about 100th to match the performance?

Sunday, January 25, 2009

Gold, Gold Miners, and Resources

I am very short on time Sunday night, I hope to create more content Monday.

Friday was an amazing run for gold. The gold miners(GDX) had a great week, and great Friday. It was such an amazing run, I'm curious to see if the market pulls back Monday, Tuesday, Wednesday time frame. If GDX pulls back, I plan to load the boat, with stop-loss around 27-30, depending how far it pulls back.

Oil (USO) also had a GREAT run. I have plenty, but did lighten up a little in the downturn. UPDATE 2/9 - Read USO vs USL

In any event, it was nice to see a huge up day even when the market was down, and I was long positions. First time I saw that in force, and a sign, that maybe resources are ready to move.

Read Gary of the Smart Money tracker, who is once again a gold miner bull. Welcome back Gary, I never left. Gary called the top pretty accurately , and just flipped back to a bull. Huge credit that he avoided (and profited) from the pain I endured. BTW, for detailed real insight, pay for Gary's service, tell him I sent you.

Mish had a HUGE post ranting against Mr. Schiff. However buried in the rant is Mish's view of resources, being somewhat bullish. I also recommend the read.

Slope of Hope is a bull....but holding his breath for one more push down to have a nice panic to layup for the pending rally.

Like anything, scale in, scale out, so your never 100% wrong or right. See my disclaimer.

As for Monday, the most interesting thing will be to see how the markets react to the "leaking" that the British banking system was "hours" away from faulting in October. Read Market Ticker Blog for more.

Friday, January 23, 2009

Chinese Massage with an unhappy ending

I have wrote previously of the relationship with China and the USA that has helped get the US and in effect the world to where it is today.
Quick synopsis, America gives US dollars to Chinese for goods and services. Chinese government buys US bonds, giving the "cash" to American government and basically sits on US bonds. The cash is in effect returned in the USA to repeat the process.

America is a debtor nation. It could not get to where it is today without a "sponsor" of debt. The world has been enabling our debt habit. Once the cracks starting to appear in the USA, back in 2007-08 there was calls for "decoupling" and that the US may hit a recession, but the world won't. Fast forward today, and the world is hurting as bad if not worse than the USA. Further, China is hurting. It is theorized in Q4 of 2008, China had ZERO growth. That seems unheard of, and further sets up for negative growth?

Through this whole process, China has rattled the cage, to set itself up as possibly new world financial leader. Several reasons why this isn't a crazy proposal. First, China isn't a debtor nation. Second, lets face it, China makes the "stuff" the world uses. That means everyone gives them their money for goods. And lastly, China has about 2 trillion of US bonds it can try to use as a weapon to "hurt" the US if the US crosses them. Obama administration, to their credit, is already providing an alternative to a Chinese financial land-grab, by proposing "international" sharing of power.

So US-China relationship has helped contribute to the long term "prosperity" of the world economy through spending. The relations have been getting a little more tense as the world economy shifts. Obama enters office and starts trying to set the tone with China that the USA won't be pushed around by China. Treasury Secretary Appointee Geithner states "China Is ‘Manipulating’ Yuan"

China in turn is a net seller of US Long Term T-bills in Fear of USA Capital Outflow and Deficits. I find it real interesting that Bernanke said that the Fed may start to buy "the long end of the curve" (longer term bonds) from the treasury at the same time when China is looking to sell those same bonds. Reminds me when corporations "buy back stock" just as major stock holders are dumping.

For now, the US and China continue to posture with each other to see who damages the relationship severely first. Hopefully life as usual continues, with little impact. But the backdrop story of the world economic recession is these two players in this 20 year long dance. The US obviously wants the Chinese to finance the American debt way of life, while China wants to "get what it wants" in exchange for funding US efforts.

Once again, this is yet another reason why I am looking at and playing with (cheap) resources to hedge storage of wealth. Barron's cover says "get out of bonds NOW!", I wouldn't go that far, but keeping in bonds needs to be questioned and slowly shuffle for the door. Then again, Barron's record has been so horrific in the last year, maybe bonds are the best place to be for quite a while to come.

TLT has been dropping, as Obama spending speech winds up, and the bond market usually is credited with seeing the horizon before the equity markets.

Lets just hope as the American's continue pay for Chinese services with debt notes, this all ends happily.

Old video, very funny


Thursday, January 22, 2009

Explosive Wednesday, local bottom?

I'm going to skip my normal news coverage and spin today, mainly since its 12:40 am.
Wednesday's action may be a local bottom, but I would be surprised if Thursday didn't bring some sort of a pullback.

The big buzz from what I can tell is that Obama is giving indicators to end the "cone of silence" that has ruled the Bush administration. The idea is to open up government to the people. Time will tell how true this is. If it is true, it should help tremendously with confidence and the market should soar for a few week/months as Obama changes signal new direction.

There is still unbelievable amount of bad news to be had. but at this point, the market is trading on emotion and trying to look forward. We get it, currently we are all doomed. Now lets trade for next month!

One particular piece of bad news/opinions, is that England may actually end up defaulting on debt. Basically bankrupt! Read more from Mish here. Not over night of course, but looking bad for the Brits "across the pond".

I started looking at a new service called "http://technicalindicatorindex.com". I have only looked at my first report today (hence why I am up so late), and the service looks outstanding. They have a free 30 day trial. I highly recommend it. Once again a shout out to Happy John for the idea. I'll share a little information, they indicate up through mid feb (not in a straight line). Sign up & read.

Buying USO at 28.50 was a good entry this past few days. (ERROR FIXED, thanks Swan) I'll repeat myself until people listen, but purchasing GDX "on the cheap" and USO (oil) are good plays as the printing machines rev up for another 2 trillion in spending. A little late to the party, but well worth watching is TLT/TBT. I have been playing TLT puts for 8+ months, done well. TBT has made some recent high moves.

Basically, GDX still remains my favorite long-term play, when it was 27 great day to buy back in. GDX has held up strong through all of this. If I had put all my cash there, the last 2 weeks would have been a breeze.

Good luck, and remember to look at my disclaimer concerning financial "advice"

Wednesday, January 21, 2009

Market at critical turning point

Yet once again, the market is through another critical level. The market fell below the lower band I have been watching. Next support level is 7,552. If the market breaks that level with conviction on a closing basis (7.450?), the next stop is much much lower.

IBM reported good earnings, the futures for Wednesday are pointed up by a small amount. If a rally can be started, this should be a rocket shot once it gains steam. GDX has held up great through all this. Gold has risen. Oil crushed, DXO modestly taking hits. The US Dollar is rising against many currencies. The British pound is getting destroyed as Britain is starting to understand its hurting way worse than the USA.
USD to British pound was almost 2 to 1 last year, now 1.4 to 1. We may see parity in the next year, which is hard to comprehend with how bad the US is also.

If the market breaks below DOW 7552 with conviction, next support level is back to 1992-1993 levels, about DOW 3000-4000 range.

What else is there to say? The market is on the ropes, beaten and bruised and setup to hit the mat hard with the ref counting. I still , although losing hope rapidly, think the market has to gain SOME optimism with Obama now in office. I would expect Obama to make some announcements that could move the markets.

The odd thing to me is, the "right" thing for Obama to do is to stop preventing banks from failing, and let the weak fall and the strong take over. Of course, the market would plunge immediately if this intention was announced. But the recovery would be much quicker. I'm still on the side the politicians will pull more tricks out of the hat to try to prevent further financial destruction in the near term.

Also on a Positive? Note about 50% of all stock market losses in the last month came from financial stocks. Positive? Well, I guess the rest of the market is not that bad off in comparison. Click for source.

Then there is the spin. It seems the "Bears" are getting more press, which I'm sure isn't helping the markets trying to recover. Economist Roubini announces banks insolvent, anither 2.5 Trillion losses coming. Yawn. Tell me something new Roubini.
From WebSurfinMurf's Financial Blog

Tuesday, January 20, 2009

Passing the Torch from Bush to Obama


Eight years ago, "The Onion", a web site that publishes tongue in cheek fake news articles, had a hilarious - and extremely accurate - prediction of what Mr. Bush would bring onto the nation.
Some highlights:

During the 40-minute speech, Bush also promised to bring an end to the severe war drought that plagued the nation under Clinton, assuring citizens that the U.S. will engage in at least one Gulf War-level armed conflict in the next four years.

"Under Bush, we can all look forward to military aggression, deregulation of dangerous, greedy industries, and the defunding of vital domestic social-service programs upon which millions depend. Mercifully, we can now say goodbye to the awful nightmare that was Clinton's America."

"Much work lies ahead of us: The gap between the rich and the poor may be wide, be there's much more widening left to do. We must squander our nation's hard-won budget surplus on tax breaks for the wealthiest 15 percent. And, on the foreign front, we must find an enemy and defeat it."

On the economic side, Bush vowed to bring back economic stagnation by implementing substantial tax cuts, which would lead to a recession, which would necessitate a tax hike, which would lead to a drop in consumer spending, which would lead to layoffs, which would deepen the recession even further.

The onion got the last one wrong, not a recession, but a depression. And Obama will be hard pressed to not increase taxes as this nation faces spending over 2 trillion of debt in 2009 alone. The US total outstanding debt from the start of the nation to 2000 was 5.5 trillion. That's a striking change.

I hope the Onion publishes a spoof article on Obama, so we can gain some insight of what we all face in 2009.

Unfortunately, I do not believe in Obama's massive debt plans. But to his credit, after 8 years of corruption and fraud, he is going to try to soften the blow of the worst economic depression this nation and the world will since WWII.

I can't see how reality of math can be avoided, and Obama will take the hit for what Americans willfully decided twice create this situation. I for one will continue to prepare for what looks like the inevitable bankruptcy of the US government and world banks.

Monday, January 19, 2009

Weekend News Roundup

New York to lead US cities in job losses - My key reason why I believe real estate in tri-state area will continue to decline for years to come. North East is behind the curve but catching up with other areas.
Prime Minister Gordon Brown urges banks to come clean over bad assets - Echos what I previously blogged, the urgent need for world finance adopting complete economic transparency to restore trust.
Societe Generale said on Thursday that the United States' economy looks likely to enter a depression and China's could implode. - People will sell their stocks at the bottom.....
Zimbabwe unveils $100 trillion banknote - Gotta love it! Pure currency printing at its finest. Zero trust currency gone to the greatest extremes possible.
Prime Minister Gordon Brown has said he will announce a new banks rescue package on Monday aimed at encouraging them to restart lending. - Britain is following the US's lead of digging a bigger hole. Britain to guarantee loans made by banks, where is the sanity?
California controller to suspend tax refunds, welfare checks, student grants - Nothing to see here, move along. Focus on the banks, not government and state solvency.
Obama team weighs government bank to ease crisis - Basically the plan is to take the "worst" losses from banks, pretend they have higher value than reality, and have the taxpayer cover the losses. Great plan, pay private debt with public debt. Now if I can only get the government to cover my Amex bill.....
Link to FDIC Bank failures web site - Another one bites the dust, small Bank in Washington
ConocoPhillips writes off $34B in noncash assets
- Yikes! One of the reasons I don't like buying oil companies.
S&P strips Spain of its AAA credit rating - Wonder when the USA will face this?
Ukraine Bonds Indicate possible Default
The price investors pay to insure themselves against the U.S. government defaulting on its debt jumped to a record high on Monday - Apparently its not just me concerned the US Government will stumble from high debt.
New Zealand inflation fall in Q4 biggest in 10 years
Royal Bank of Scotland expected to be nationalized
Fiat to take 35% stake in Chrysler
Bank of England to buy private securities - When the government starts taking ownership of private corporations, this can't be good.
Huge natural gas field off Israel’s coast found - ug, UNG cant go well.....
Asia computer sales drop for first time in 10 years
State Street: $9 Billion in potential Losses - Ugh, I had these guys shorted a while back, got shaken out.
Time to Sell US Treasuries, Biggest Korean Fund Says - I agree with this sentiment, see previous posts. However I don't think it needs to be an urgent sell, over next 6 months to a year.
Pressure on HSBC to let US sub-prime unit go bankrupt
Over 8 in 10 corporations have tax havens - Yea, the US doesn't have basic issues. Companies get profits, and avoid taxes. I want a tax haven for individuals.
Irish government plans to take steps to fully nationalize Anglo Irish Banks
Bank of America's Secret Backroom Bailout - Public media outraged? Come on, its "unlimited" taxpayer money...didn't anyone tell Yahoo that giving money away will save us all? No damage done!

I stopped at news back to the 15th, there is just too much to go through. One theme, this is a death spiral.

Sunday, January 18, 2009

Best of Blogging Week ending 1-19-2008

Mish was on FIRE this past week. His blogging is always top-notch, but he really went to town this past week. All of his posting are well worth the read, I tried to cut out the lesser posts.

MISH'S Global Economic Trend Analysis
Social Mood Will Define The Future
Excellent summary of a long history of Mish's thoughts on what will it take to put in a "bottom", and start to rebuild the economy.
Bernanke Hints Banks, Economy In Much Worse Shape Than Previously Admitted
Excellent dissection of Ben Bernanke speech this past Tuesday, basically Mr. Bernanke hinted things are very dangerous in the world economy, and the USA.
Massive Taxpayer Backlash Over Pension Crisis Is Coming
Pensions have lost massive amounts of money, and unless the market rebounds, which I suspect it won't, millions of people will have a pinch in either pension benefits or tax payer increases to cover losses.
CRE Loan Distress Levels Escalating Rapidly
Commercial Real Estate is the next domino to fall, now that the subprime crisis has past the hump.
CPI at .1% Annually, Smallest Increase Since 1954
Good look at why inflation is not likely in the near future (1-2 years). This is also one of the reasons why I am scared to buy gold as an investment/hedge, but not gold miners.
Fed and BOE Shell Games to Bailout Insolvent Banks
Great recap of Mish's statements back from July 2008, and why it still applies to today. World finance shell games do not fix the issue, but do prolong and exasperiate the situation.
Ohio Governor Asks For Across The Board Union Pay Cuts
An unfortuneate reality middleclass America will face. Unions are dead, middleclass wages will remain under assault for years to come. At the end I suspect a greater divide between have's and have nots to the likes America hasn't seen since the 1800's.
Three Ideas that should scare the hell out of you
Frightening Global Downturn


The Smart Money Tracker
Possible 1-2-3 reversal
Basically echo's Mish's and some other bloggers on how we are set up for a rally. Glad I got out of those longs Thursday........
The most important chart
Gary's view is of a very strong dollar for months if not year to come. If this is correct, resources will get even cheaper, as the dollar becomes worth more. Hence why I am recommending slowly over the year, move into resources when cheaper, no need to jump in. What Gary is NOT considering is a possible (though not highly probable) crisis event to cliff dive the dollar down.
Gold
Gary's thoughts on Gold, which, I lend high credance to. Where I differ is the fear of gold miners collapsing. So far, they have been extremely strong since DOW 7.552.

The Market Ticker
Hey CONgress wake up!
Another classic "on the money" rant by Karl, this time, on congress waking up to the fact that hiding Trillion + dollar in taxpayer money being "spent" in secrecy is not proper nor legal.
On Hyperinflation
Yet another rant by Karl on why inflation is impossible, and why gold is a bad investment. No arguement here.
And your Excuse is?
Long, repeating rant by Karl on why everyone must be active in contacting their congress to regain sanity and fiscal responsibility. What Karl fails to realize is its human nature to wait until all other options are tried before the correct one is, since the correct one is always the harder path in the near term. I do fax my congress periodically, and I encourage everyone to do so too, its the least you can do.

The Slope of Hope
Finesse and foibles
Good video summarizing Tim Knights market views. Good watch.
It pays to be nimble!, USO & UNG , Sheer Energy, Increasing energy exposure
Interesting that Tim is bullish on resources such as oil at these levels. Nice to see someone else with same view, doesn't mean its right. :)
Support at 8000
Pretty much mirrors my "bottom" line I keep quoting in my blog
List of all of Tims posts for this week
Tim is a chartist, quite a bit of posting this past week. Worth scrolling to see what catches your eye.

Robert Reich's Blog
One thing I can say for Mr. Reich, he can't seem to make a title shorter than 15 words!
How the Ensure that an Aggregator (or Bad) Bank Isn't Another Taxpayer-Financed Boondoggle for the Banks That Got Us Into This Mess
Yet another commentary on how the government "should" handle creating "bad bank". Frankly, there is no good way without setting up the taxpayer to eat the costs, while the companies that created the situation keep the past bonuses/profits from bad behavior.
What Should Be Done With The Next $350 Billion of Taxpayer Bailout Money: Criteria for TARP II
Great comments on how to use TARP II, now lets hope he has some influence with democrats...
I very much like this statement, but it shows Mr. Reich opinions are not based on a likely reality... Require that any bank getting TARP II funds be reimbursed by its executives, traders, and directors 50 percent of whatever amounts they were compensated in 2005, 2006, 2007, and 2008. This compensation was, after all, based on false premises and fraudulent assertions, and on balance sheets that hid the true extent of these banks' risks and liabilities.

Mises Institute
Filling the Holes in Krugman's Analysis and Does "Depression Economics" Change the Rules?
Two Great dissection on Economic Nobel Laurette Krugman is just plain wrong on his analysis.
Does Capitalism Need Adjustment?
Review of some books, and great rant on how issues today are caused by government not capitalism
How This Happened?
A sharp critique of the "New Deal" and the parallels of today.

And the winner of the week is:
Mish's comments on Most Galling Statement Of The Week.
To top off Mish's comments, my own "outrage" with how this administration is perceived I wrote here. This isn't financial commentary on the future, but how we got here.

What went wrong with my trading

My long term "safe play" for preserving wealth (months-years) by placing money into assets such as "cheap resources", "cheap land", or "cheap food" and diversify away from bonds this year is a correct long term play. Time will tell in the months and years to follow. There may be investments that do better, however, I am trying to blog the "safe" play that has greatest potential to weather the financial storm the world is facing.

In the recent past, I blogged about DOW 10,000 as a target. This is still to me a high possibility in the next few months, but in the recent past weeks, the market plummeted off of an upper boundary down to lower boundary I have been watching. (see graph on right) My long term belief is the DOW will break below 6,000, and I truly believe this is a bankable event. This isn't based upon a religious conviction, but over significant issues the world faces, and is not being addressed. Please refer back to my previous posts for rants. :)

From 2006 to October 2008, I "shorted" the market, bet the market was going down. During that time, I had the mass media, friends and family state I'm pretty much off my rocker. My trading account at its worst lost 50% of its value in less than 10 trading hours, mainly due to what I believe was corrupt actions by the government. In any event, during all of these events I had an easier time trading vs the last two weeks.

Why? Because I KNOW the global economy and stock markets cannot overcome 8 years of fiscal fraud in a matter of months. The market must play out, the economy must work through its issues, and this will take time. Over that time, the market will not enter a long term bull mode, but will continue to move up and down, but make no mistake in a long term trend down.

So when I was "wrong" on timing trades, I had the faith that if I could make it past the hump being faced, the market would come back in my direction. Sure, during 2006-2008, there where plenty of times I was REALLY right, but I covered some of my shorts out of fear from the red numbers across my entire screen, only to see the market reverse downward sometimes within hours. But over-all, I did good. As a matter of fact, EVERY trade I made from 2006 to 2008 shorting should NOT have been covered. All shorts where right.

In the recent trend trading, I reversed my thesis, that the market would rally, and it did from 7.552 up to 9034 in a matter of 5 weeks, a 20% rise. Quite a force! But I got greedy, and fixated on DOW 10K. Hindsight being 20/20, I should have lightened up after such a great run. So this past week, I got "shaken out" of some of my long positions. Why? Because my main trades that hurt me was betting that the market will rally, a direct violation of my long term thesis. Therefore such bets are high risk, since at any moment, the long term trend could become an instant reality, and therefore I could not have faith to keep the trades on the table. I would not be surprised that this week sees a great rally, one that I will profit from, but not nearly enough as I would have if I didn't get shaken out.

So why am I writing this? Because it was my cone to Jesus moment. I realized that I cannot and should not try to hit a home run in trading. I need to preserve my own wealth, and follow my own general theme. And I will try hard in 2009 to stick to the basics and that is:

1) Buy "cheap" resource stocks, be it Oil, Gold Miners, Food Companies, Silver Miners, and other cheap depression resistant trades. Do NOT chase resource valuations up, wait for them to fall hard. As an example, I will not buy gold at 850 an ounce, it is historically high.
2) Do not trade more than 50% of my cash position into these plays, and "add" to them when moments like this past Thursday happen.
3) When I feel like king of the world, as I did two weeks ago, lighten up more. Take the cash when you have it.
4) Listen to bloggers such as Gary of Smart Money and Mish with respect. I don't have to go 100% in their direction, but their blogging of "Trend change" needs some respect, in short-term observations.

In 2006-2008, I did items 1-3 the entire time, however at the "bottoms" (market rallies since I was shorting) Item 2 I went over 100% of my entire savings short. It paid off, but past results don't indicate future return. :)

With changing my strategy, I am hoping to minimize my losses and give me the faith and confidence to trade correctly with what looks to be an incredible volatile year. This faith will only be shaken when steps are taken to completely and honestly fix accounting standards and restore mark to market valuations for all asset classes.

As a "bonus", if at any time, the world economy does flirt with disaster, I'll be positioned well to ensure my family's financial security. As another bonus, this follows closer to my own advice for those who don't trade frequently, aligning with my own long term advice.

As for how badly I was hurt, basically all of my gains from 7552 to 9035 was wiped out, but not a nickel lower than my net worth at DOW 7552, so really I can't complain on keeping 2 years of gains during a market collapse.

Back to my regularly scheduled blog postings. I have a lot to say, and I better get cracking at laying out the facts, as I see it, and hope that I help everyone out there with a better fiscal security. As always before trading on any bloggers dribble, consider this disclaimer.

I do take solace that my trades far exceeded Barron's advice, enjoy the video below.

Friday, January 16, 2009

Options Expiration Friday

Thursday's market plummeted about 200 points, rebounded positive +12 points. So what prevented the market from falling? possibly 6+ days in a row down, the market needed a breather.

I need to blog where I went wrong, and my new direction for the future trading. For 2006-2008, my trading wasn't perfect, but it was easier to some extent than this past week. The major problem with the last 8 days is I was "betting" a higher market, but I didn't have conviction over the long haul, as my 2009 predictions show. I will return back to my basics, and that is trade in the direction of the longer term conviction, but trade in/out of stocks depending on the extreme levels.

I am of the opinion some of the news today may in fact stemmed the decline to turn into a rally. Its good to see that the Obama administration is following the Bush administration by coordinating announcements to benefit wall-street market makers by turning the market a day before options expiration. For once, this benefited my account, although 2 hours earlier would have made a huge difference. If the market rockets higher Friday, I'll miss somewhat out, I panicked out somewhat at the bottom Thursday.


"Good" News today (it is bad news in actuality...)
Senate Approves 2nd Half of Tarp (350 Billion)
House Democrats unveil $825 billion stimulus bill
Obama to Use Up to $100 Billion of TARP on Foreclosure
Obama Adviser Urges Global Financial Overhaul <--- MAJOR news if Obama includes globe for Financial system vs US domination. May advert the "China" scenario for taking lead of world finance
US Government to back 100 Billion more for Bank Of America (This I believe is in ADDITION to TARP, see Mish's Blog entry)


More "bad" News
California faces insolvency within weeks
Foreclosures soar 81 percent in 2008
Intel reports huge fourth quarter loss
2008 worst for European car sales in 15 years
European Central Bank President Jean-Claude Trichet comments after ECB 50 BPS cut
Moody's cuts JPMorgan ratings one notch to "Aa3"
GM to forecast 1.5 Million less car units for 2009

Bizarre News
Indiana State Legislature proposed currency for state "backed" by gold <--- Absolutely bizzarre, and I thought illegal. I am pessimistic of US dollar long term, and for a state to propose backing by gold is unreal Video to congress about how spending 1.2 Trillion dollars of Taxpayer money to support wall street in secrecy is not appropriate. This is $4,000 for every man, woman, and child in the USA. I wonder, if Clinton has spent 1.2 Trillion "in secret" to lend money to various companies his administration saw fit, if it would have been tolerated.

Thursday, January 15, 2009

Brutal

The market collapse has been brutal and with force. The graph I keep bringing up shows that when the blue trend line was broken, it was really time to get out. And now, we are on another historic support level, and the after hour news has been horrible.
Oil & GDX hasn't been hit that bad, but many other stocks where destroyed. Gary of Smart Money Tracker was right...again.

Earnings reports where bad, and to throw fuel on the fire, some other news. I'm running for the hills, hit out of some positions today, probably hit out of more Thursday. If we close below DOW 8,100 tomorrow, look out, we could collapse.

Retail sales down 2.7%, more than expected (start of crumble today)
Steve Jobs of Apple taking extended leave through June.
Bank of America needs funds ASAP
US report warns sudden collapse of Mexico is possible
HSBC needs 10-20 Billion dollars in cash and to half its dividend
PMI mortgage insurance co states housing to continue decline into 2010

Wednesday, January 14, 2009

News Roundup Wednesday

The market is basically flat for Tuesday, there is a strong case for the market to collapse or rally in the next 3 days. Leading up to options expiration, (Saturday) the games being played is very different. To really make the games interesting, JPMorgan moved their earnings report to Thursday.

The long haul, no matter what doesn't change, read my 2009 view.

News Roundup
Citi to split into a "good bank" and a "bad bank" - Psst, don't buy shares of the bad bank.
Citi announces possible brokerage venture with Morgan Stanley - Citi seems to be re-inventing itself, and fast.
US declares former US banker Weil a fugitive - I'm actually pleasantly surprised that the US is pursuing prosecution, there is hope yet.
JPM Chase Stops Funding Mortgages Through Brokers - Tad bit late
Obama Treasury appointee Geithner failed to pay self-employment taxes - The illegal immigrant worker issue needs to be addressed already.
Federal Treasury debt hits 485 Billion in first 3 months. - Some quick math - 485 x 4 = 1.94 trillion. Yikes!
State Pensions’ $865 Billion Loss Affects New Hires - I could post a ranting entry on this topic alone. First all pensions should be halted, no new entries. Second, I feel terrible for those who believe their pensions are safe because its "guaranteed". There will be a wake up call in the next year. For Example, NJ State pension fund will be insolvent (click)
Bush asked for second half of TARP, 350 Billion, for Obama - From Obama speak, 350B is just a start.
Talk of taxing the transactions on wall street, not just prof - Normally I would entertain the idea. Until the market firms up, the government has to be insane to even think of this.
Germany to ban excessive public lending - Those Germans are crazy! Everyone knows how you fix a problem caused by excessive private debt is by excessive public debt! And the US is poised to lead the pack for the "win".
GE may face downgrade by Moody's
China's export decline most in a decade - As stated a year ago, China will not save the world from a depression....it may pull the world out of one.
Ohio's unemployment fund runs out - The conga line of states running out of funding is starting.
England to print money "in secret" - This one news piece deserves a blog entry by itself. If this occurs, kiss the Pound goodbye.
GM expects to lose 500 dealers in 2009 - next year, I would expect GM cars to be pretty cheap. The inventory has to go somewhere.
The bond bubble is an accident waiting to happen - Hold on here, I blogged this recently.


Ben Bernanke of the US Federal Treasury gave a speech today, which I recommend watching.
The speech was much longer than the video below, but the one thing Mr. Bernanke stressed, is that it's CRITICAL for the US to stabilize the banking system. I am impressed that Mr. Bernanke mentioned companies "too big the fail" makes an unlevel playing field for companies, and it needs to be addressed.
Blogger Mish provides a dissection of the speech.

Tuesday, January 13, 2009

Turn around Tuesday?

Alcoa reported, their report wasn't great, but could have been worse.
Looking for a turn around Tuesday. This weekend is options expiration, expect high volatility into Monday.
If Tuesday ends lower, I will be dumping some of my loser positions by 25% of size.
As I go to bed, futures are looking higher, by nominal amounts.
Assuming the market turns up through Thursday, will lighten up into option expiration.

Monday, January 12, 2009

Blog Round Up

On a twist of my news round up, this week I am doing a blog round up.
The best of the best articles "as I see it" recently posted.

MISH'S Global Economic Trend Analysis
Obama Calls For Sacrifices, Scales Back Campaign Promises, Ups Jobs Program To 4M
Short version: Obama's plan cannot live up to the rhetoric, and further the plan is NOT a solution.
S&P 500 Crash Count - Wave Four Triangle
Short version: The S&P 500 is about to fall, then recover to about this level, then collapse.
Is the stock market Cheap?
Short version: The market is NOT cheap, and has room to fall (surprised?)

The Smart Money Tracker
Sell Treasuries
Gary predicts the Dollar remains strong for the near term, interest rates depress, treasury values rise.

The Market Ticker
Obama's Prescription: FAIL
Karl's rants are entertaining and usually spot on "in the spirit" of reality. Obama's promises can't live up to the reality.
The Price of Capitalism
Karl explains why mathematically market crashes and resets MUST occur in capitalism.

The Slope of Hope
Those who can't trade advise
Tim Knight took the time to report on Barron's Roundtable results for 2008, since Barron's didn't want to go back and review the results, since the "upper crust" of wall street advisers did so badly.

Robert Reich's Blog
Stimulate the Economy by Mending Our Safety Nets
The government should be focusing on spending it's capital on the saftey nets, not the top of the chain.
The Stimulus: How to Create Jobs Without Them All Going to Skilled Professionals and White Male Construction Workers
Nice thought, but won't happen.


And the winner of the week is:
Mish's entry on Larry Flynt Seeks Porn Industry Bailout
I still contend that Bennigans should become a bank and seek a bailout!

Sunday, January 11, 2009

Earnings Season Week

Unfortunately the market has decisively broke down on Friday. Looking at the chart to the right the market clearly has broken down outside of the trend I was watching. Most of my market plays are in resources, which is affected, but not as much as other sectors. I still have hope for a rally, but it better come by Tuesday or I need to wise up and take my losses & get out of my losing positions.

The big news this week will be corporate earnings. At the close today Alcoa (AA) reports. In my twitter I announced I put some option bets that AA runs higher.
On Monday, if the options rally, I'll sell 1/2 to cover my expenses and let the rest ride. If AA options fall, at close Monday I may add to my bet.

The "Market Ticker Guy" Karl has a pay video service that I watch. I do recommend paying for Karl's video service. In his service he calls for ending the optimism if the S&P falls below 870.
In addition to The Smart Money Tracker, also has a pay service that I recommend, he has warned for weeks that the market rally will not occur, and will trade down or "sideways" for a while. This week we'll know if Gary is right (again).

So Monday and Tuesday will be interesting for me, and I suspect I'll have to make some decisions on Tuesday. In any event for long term investing, slowly buying in the next 6 months basic resources when "cheap" such as oil, and if gold gets cheap, hasn't changed, and will not change even if the market collapses.

Friday, January 9, 2009

Critical Friday

The big news on Friday will be the government's job report at 8:30 am.
The spin from what I read is basically reaction of this news compared to the ADP report. The trend lines I have been posting are at a critical juncture. Can the trend hold?

As you can see on the picture, we are trading in a triangle range, pictured in light blue. If the market breaks above the upper line, much more likely we are in for a good rally.

A major break below the lower light blue line indicates I'm flat out wrong and tighter stops need to be put into place to prevent losses.

Even if the market breaks down a little more on Friday, I will hold out hope that next week will start really bringing in the news for Obama as president, and help the market situation.

Link here to a different more detailed blogger on his trend analysis.

The long term pending US disaster - Bonds

I had a discussion today with a friend (well, maybe he doesn't consider me a friend, but an entertaining crackpot) about cash, resources, stocks, bonds, real estate and other investment vehicles.

I have been repeating a theme in person, and now I'll repeat it to you. :)

I view now there is no such thing as absolute "wealth". Most people look at cash as "absolute" wealth, others defer to gold as a definition. So what is the creation/storage of "wealth"?
In simple terms in every day life:

We work and receive X pay for our efforts. At the end of the day the costs to "live" costs Y, the net left over (or borrowed if negative) is Z. X-Y=Z
Z can then be stored in cash, or some other asset. An asset could be a baseball card (assuming it appreciates or maintains value), gold, stock, or cash. When needed we exchange some of Z to answer a need (such as buy a house).

The problem is, most people DO NOT look at cash as a "risky play" like the other assets. People look at stock as "risky" now that it fell substantially. Why do I say cash (could) be a risky play? Well, what is CASH?

CASH is NOT backed by gold, a common misconception. During the the Great Depression almost all currencies left the Gold standard. "Tricky Dick" Nixon finished off any remaining ties in the USA currencies tied to gold. What backs CASH? Well nothing. Its basically in essence the "stock" of the USA. As an example, the Peso vs Cash vs Zimbabwe dollars trade among each other. Kinda like gold, silver, copper trade at different values "per ounce" for each other, or for dollars.

So what makes the USD more or less valuable than others? There are whole books written to explain it. But at it's heart is the faith by people that it is a safe storage for value.

As an example, do you believe GOLD is safe? Gold went from 1,000 an ounce down to about 750 in 2 months in 2008, now back up to 825 range. OIL? OIL went from about $140 a barrel down to $36 in a few months. Same for food, real estate, bonds, etc.

Even the US DOLLAR has had its ups and downs, some of it pretty severe recently, which is part explanation for some commodity moves.

What else represents the US Government's credit worthiness? US Bonds. When US dollars are created, they are NOT just printed, like a photo copy machine.(in Zimbabwe it is) For every USD printed, an EQUAL number of US Bonds are created. These bonds are printed by the US treasury and sold on the open market. The bonds are used to create/leverage generation of US Cash. The interest on the bonds more or less represents the credit worthiness of the US to pay back the bond and to cover some of the expected inflation during that period of time.

For example, if you where to buy a Zimbabwe bond(which doesn't exist), and I have no idea what the actual interest rate would be, but probably 1 million %, as compared to USD of 2%.

Which brings me back to the point of the USD as a play, like any other play. When you keep your life savings in "cash", you are making a play that the value of the USD will remain about the same or rise. In Zimbabwe, the moment you are paid, people run out and buy 100% of their cash for goods. Why? Because the inflation is high and faith in the Zimbabwe currency is low.

Now, I am NOT suggesting the USD will ever be like the Zimbabwe currency. But it paints a stark picture that maybe, just maybe, in the next 1 month to 3 years the US Dollar may not be as "valuable" as it is now. And that the US Bond rates will not remain at sub 2%. That at some point, as the US Government prints trillions of debt, our creditors will say enough.

They will ask for, 2.5% interest, maybe even 3%. And heaven forbid we return to 1980 of 20% interest for bonds. Do I think the US Dollar is facing immediate problems. No, not at all. Do I believe every month that goes by the US edges, ever so slightly more towards an issue? As long as the only answer in the US for "stimulus" is creating more debt and covering all insolvent companies with "free" money? Yes.

This leads me up to my article of the day, where China once again is having rumblings that they don't want to buy as much US Debt as they do now. In reality, they are the dope dealer and we are the addict. The US Dollar is addicted to debt, and China can't help itself but continue to give the US it's fix. I don't see this ending soon.

The video below, while a bit out there as a media source, does quote some disdain for the US dollar as the default currency for the world. I have blogged (or was it emailed) before how the US Dollar was the only currency to buy oil since WWII, but a year or so ago Euro's and other currencies are now trading.

This long rant, ties to a previous post, which you can read by clicking here. In addition to another post on why resources over the long haul will cost more for Americans.
This post supports for the common (not day-trader) why I still support "cheap" resource of OIL as a long term investment, and if/when gold hits under 600 an ounce as a way to "store" wealth, in a safer manner than cash for the long haul.

The question you have to ask yourself is, assuming Obama debt spends over 1 Trillion per year, and the US government spends 1 trillion per year covering the losses of financial companies each year for the next two years, do you believe the USD will be worth more, less, or the same as it does today? The answer isn't simple, since it has to be asked as compared to WHAT?
Other currencies have issues worse than the USD, some a little better. But at the end of the day, some things transcend currency valuations and are more absolute (but all are still RELATIVE, there is no absolute wealth). Buying cheap Real Estate (like an acre for $5K) , Gold (if cheaper), or Oil in 5 years in my opinion can't be worth significantly less than today, and maybe even more in USD.

And this is the point, what is the SAFEST play to store wealth for the next 5 years? Stock market? Click for my 2009 view. Real estate? Click for my 2009-2011 view. Cash? You now have an exhaustive explanation of my view.

CHEAP Oil as an investment has the added advantage of it is always needed (although demand level changes) and if there is world instability, it will spike up, not down. As always GDX is still my favorite long term play. UPDATE 2/9 - Read USO vs USL Check out USO , possibly GDX (click) , food EFT (RJA) or a broad resource fund and consult your financial adviser. Never put all your eggs in one basket, including cash/bonds.

Thursday, January 8, 2009

Is the market rally over?

It is possible that Wednesday marked the end of the market rally, and its time to dive to much lower levels. But I don't believe it is time yet. To the right is an updated version of the graph I drew the other day. Basically if the market moves "below" the light blue line, I'll start getting concerned, and may lighten (but not close) my long positions. If the DOW moves below 8,175, I'll admit I'm wrong, close all long positions, and go mega short.

If you read my "twitter" messages (click to see) I lightened up on my index longs. I *should* have bought them at EOD Wednesday back. However I'd rather get even a cheaper price. I will put bids in for a few things.

OIL took a massive hit. In Hindsight, my twitter post that I was considering selling some DXO would have been the smart play Tuesday. For now, I am holding. If it cracks below 2.35, I may dump out. Otherwise around 2.50, I may buy quite a bit more.

So what caused the fall Wednesday? How about this news. ADP Says U.S. Companies Cut 693,000 Jobs in December and U.S. December Job Cuts Quadruple From Year Ago.
So how can I be betting the market is going up with such horrific news? First off, if this was 3 months ago with such horrible job news, the DOW would be down 600 points, 400 EASILY. Down 245? HA! Thats a punk move. I suspect Friday's governments "official" job claims report will be bad, but not as bad as ADP, and that will be seen as good, allowing us to move materially higher.

In reality, it IS bad. State systems are failing because they cannot take the claims load. But I am not trading reality, I am trading the market. :)

Someone was buying to keep the DOW from being 600 down. And my bet is, its the smart money.

I'll post another news round up either Thursday or on the weekend, quite a bit of other news out. But none of it matters. The market is deaf and dumb, and knows one thing, up. But NOTHING goes in a straight line. We needed this to continue the advance.

If the market ends down on Thursday, EOD I'll load up a bit more.

If you think I go off the deep end sometimes (like my war on blue collar America post), check this video out, from European news station. Funny thing is, at principle (NOT the fatwa part) I agree with this guy. I just wonder if I sound like this to people around me. ;)