Weekend News Round-up

I been slacking on my blogging with the long weekend.
Frankly, I needed a break from doom/gloom/stocks.

Long weekend doom & gloom news roundup:
Trump Entertainment misses interest payment - My Spin - Doesn't Trump go bankrupt every time there is a downturn?
Bank of Japan to change collateral standards for banks - My Spin - Japan's the largest purchaser of US debt, and recently had a 10+ year recession, not good......
OPEC defers cutting oil production, seeks 75 barrel oil - My Spin - Cheap gas for a while!
Microsoft back at the table to buy Yahoo for 20 Billion dollars - My Spin - It won't save MSFT from themselves.
Meltdown from Financial Crisis spreads to Hotels, Malls, and Commercial markets - My Spin - I should have held SRS when it was at 80....
FHA is the next crisis up to bat - My spin - KILL THE FHA! The US Government needs to get out of competing for us business! And if the US doesn't the FHA will commit suicide....and yet once again the Taxpayer will pay the funeral costs.
Pimco, Franklin, GM Bondholders May Lose 75% for Aid
Porsche backs out of VW takeover
Impact of global crisis on China deepening, official warns job losses could fuel instability - My Spin - Forget about decoupling in near future...
UK Automakers will need a bailout
Panasonic cuts forecast by 90% My Spin - ACK! 90%? Why the heck didn't these guys cut earlier? CEO / CFO must be eternal optimists!
PIMCO may delay November Dividend - My Spin - My 401K is in Vanguard Admiral fund, 1/2 the interest rate of PIMCO fund, there is a reason why...
Icelandic Bank files for US Bankruptcy protection - My Spin - You think USA has it bad? This quote says it all for Iceland: "The three banks together amassed debt of $61 billion, equivalent to about 12 times the size of the Icelandic economy"
Durable goods down 6.2%
Swiss National Bank To House $60 Billion UBS Asset Fund In Switzerland
Toyota credit rating cut first time in ten years
October US home sales fall 5.3%
Article: Fed risks "spitting into the wind" with more pledges
Banks reserve ratio continues to decline, according to FDIC - My Spin - Got Cash?
WAMU to layoff 19,000 under JPMorgan My Spin - Layoff Conga line continues
(image source)

Why fixed income (bonds) may not be good investment

The Federal government is suppose to "fight" inflation, but there is no mechanism to judge or enforce this goal. To the right is am image of the Consumer Price Index in the USA from the federal Government.
Clearly this shows how the government has not controlled overall CPI since the 70's. Inflation in todays terms is segmented into "Core" vs other metrics, but the image on the right when taking cost of all goods, does not show good inflation control.

In any event, the government is about to embark on US Dollar printing like we have not seen before. There is no direct evidence that the US government will resort to naked printing, but mainstream news media is picking up on the concept of "where will all this spending come from?".
NYtimes article: Fed officials have made it clear they are prepared to print as much money as needed
Washington Post: So the Fed is effectively printing money and funneling it to home buyers
CNBC Video: buy stock in an ink manufacturer, we are in effect printing money

My timing may be completely off, but the government has historically increased debt to solve all it's issues. Currently the government is increasing the money supply through new debt obligations, and hopefully the US never resorts to raw printing.

Once the deflation monster is overcome with printing, money in fixed income will "lose" value compared to the inflation.

Black Friday

I sold almost all of my high risk stock, fas Wednesday, and may sell more stock if Friday ends higher.

I put together electronic Christmas sale deals on my other blog, read here for some great sales.
Friday is a short trading day. I expect quite a bit of news by EOD Friday from Wednesday through tonight. I expect some bad news released for the extended weekend, and expect Monday may be a sell off, before rallying again.

US Printing Press

Americans want their stocks to revalue back to their levels a year ago. The world wants deflation to end. Be careful what you ask for.

The US government is creating money anyway it can. So far, it cannot "create" money quick enough to counter the deflation. However, this won't stop the government from trying.
In the history of the USA, the last deflationary collapse was in the 1930's. At that time, the US dollar was backed by gold. Now, its a "fiat" currency.

America has NEVER had hyperinflation. Some bad inflation in the 70's, but not hyperinflation.
Hyperinflation is what brings governments down, revolution.
Deflation brings economic depression, but in a reasonably controlled manner. (Those in debt fail, those with solid financials survive)

As of now, there is no hint of hyperinflation, just deflation. In any event, keeping in pure bonds or cash is a losing proposition if inflation begins. This shouldn't be even possible for 6 months or a year, but its time to start keeping an eye on this ball. I predict in the months and year to come, more disinformation will be generated to explain away any signs of inflation. Just like the market collapse in Sept-October, there will be little warning except to those of us paying close attention.

Article on how US is attempting to flood the market with US dollars
Goldman to issue 600 BILLION dollars in bonds "Backed" by the FDIC. (More US taxpayer backed debt)
Combined with no one caring how much debt the US is generating daily, this is a true recipe for disaster.

GDX rose further from Thursday/Friday of 18-19 to almost 26, closing at 24.63. I expect GDX to pullback between now and next week. If it does, take a close look at purchasing, it may be the last time you see it near 20 dollars.

It would not surprise me at all that Gold may collapse before inflation takes hold, but I have a hard time imagining the miners returning to these historic low levels.
And there is still the random element of which direction does Obama take the US in once in office, I can hope that the printing presses will get some rest.

Weekend News Round-up

Obama plans to add jobs by 2011 My Spin: A president that articulates there IS a problem, and it will take YEARS to address? How refreshing.
GM considering Bankruptcy My Spin: It's a crime that financial institutions are too big to fail by the words of the US government, but GM is OK to fail. I don't want either bailed out, but its a sham that wall street is chosen over main street.
Home Builders plead for financial aid (bailout) : My spin: LET THEM ROT!
Government has "cold feet" bailing out Citigroup: My Spin: I won't commend on companies that have interests in insurance industry.
Congress announces 700 Billion dollar stimulus package to be proposed under Obama: My Spin: GDX is looking like money in the bank.
Good article explaining current deflation, and possible risk of inflation My Spin: GDX, yawn, I'm repeating myself.
Fed Pledges in total 7.4 Trillion dollars in collateral, 25K per taxpayer of new debt. My Spin: Take a guess, come on....GDX play looks better
More state aid for UBS
Mainland China to help Hong Kong with financial crisis. My Spin: China has no debt, so they can do it!
DSL siezed, may cost FDIC 2 billion My Spin: I should have held this short to zero.
E-Trade is in trouble, needs financial aid My Spin: LET THEM ROT!
California unemployment jumps over 8% My spin: Wake me up when its 16%.
Financial service industry to lose 350K jobs by mid 2009 My Spin: Can't say it wasn't expected, at least my job is safe?!?
Bernanke: I Blew it My Spin: He's not admitting the worst part, US taking on so much debt will have unintended consequences in the next few years.
China's 2nd richest man detained for possible stock manipulation My Spin: when was the last time a top 25 wealthiest person in the USA was detained.....much less #2?
UPDATE 11/24/08 - US Dollar is devaluing, which means stocks should rise & so should gold/resources.

President Obama speaks on his plans for America's recovery, and he's realistic its years to make a recovery.

Stock call shout-outs in review

I went back and reviewed some of my calls. I stated likely end of decline Thursday, so I assume if you where in these stocks, the appropriate shift would have taken place.

PNC 8/23/08 - stated short at 72, 11/21/08 low: 40, net profit 32 bucks a share (44%)
(Naturally, I got shaken out of my own trade, and made less than 10 bucks a share).
BAC 8/23/08 - stated short at 30, 11/20/08 low: about 10.50, profit: 19.50 a share (65%)
WFC 8/23/08 - stated short at 30, 11/20/08 low: about 21, profit: 9.00 a share (30%)
GDX 10/22/08 - stated buy GDX at around 19 (went to 17) current, 23, profit: 4 (21%) (NOTE: keep for 100% profit or more before selling 1/2 of the position, keep rest for 200% or trend change)
I didn't recommend, but wrote high risk to reward August 21st for SKF @ 130 a share, assuming you sold it on Thursday at 260 a share (Went to 300 Friday), profit 100%. (I got out when shorting financials where banned, unfortunately)
I didn't have enough guts to make these full plays myself, but I did catch all of them for some profit.

NOTE: I am not a financial adviser, I'm a software developer. Therefore do your own research and I take zero responsibility for your actions. Be prepared to lose all your money without doing your own due-diligence. All stock purchases discussed are trend plays, not multi-year investments.
I do recommend any resource plays (gold minders, example) to purchase blog "Smart Money Tracker" for detailed daily research analysis.

The men won

In my morning blog post, I said and I quote "now is the time the market sorts the men from the little boys, and who can hang in there for the rebound. Or possibly the insanely stupid for staying in the market during a market collapse."

Turns out, the rebound I called for on Friday came. If you bought Thursday/Friday, your account saw anywhere from 3% to 25% appreciation, depending on the stock. GDX, my prime play, went from 18 to 23.03, a 28% gain. This is NOT to say the sky's the limit now. A one day rally doesn't make a trend change. However, it's nice to have some cushion now. As the updated chart shows, what I really want to see is DOW above 8,135 on a closing basis, and follow through for next four weeks to remain above that level to build confidence.

If a local bottom has been found, can expect 1-5 month rally. WARNING: I expect quite possibly for the market to go lower, much lower, DOW 4,000 is not impossible, but not until after Feb 09.
If you failed to sell months ago as warned, if DOW hits 10K, or its February 2009 and we are up (whatever level) I would strongly recommend considering lightening your positions. The next leg down should be a multi-year deathblow to America for 3-10 years to come. The one problem I am afraid of in this speculation is hyper-inflation. If this occurs (which I strongly doubt for the next year), the market will inflate higher, with the US dollar much lower. If you remain in bonds, you will "lose" in an inflationary environment.

In any event, GDX is safest play. On Thursday GDX hit a low of 17.67 momentarily, but it really traded around 18-19 for most of this downturn. It really didn't lose much value considering. (Can't say the same for other stocks or indexes, such as OIH!) This indicates (but doesn't gaurantee) GDX has a strong support at 18-19, so risk to reward is fantastic. GDX was a high of 50 bucks in July. Further, Gold Miners will see a huge drop in costs (fuel being dirt cheap now). Their forcasts for Q4 08, Q1 09 would have factored in fule costs 3x the current level. The combined level of gold value rising, and fuel costs falling should make gold miners have a banner profit next earnings season. And of course, if the DOW does drop to 4K a bit earlier than I expect, well, hopefully gold retains (or gains) value in the panic, helping GDX stay above 17 a share.

This week will likely be choppy, and if we can end above DOW 8,135 EOD wednesday, I'll be happy with the trend change.

I'll make a second post of my predictions for last 3 months, and results, as a recap of the latest downturn (hopefully) has ended for near term.

Moment of Truth is here

The market collapsed down to the "danger" level of DOW 7,552. I fully expect between now and Monday we may end even lower, but hopefully end 100 to 200 points lower, not another 400 point day. In any event, now is the time the market sorts the men from the little boys, and who can hang in there for the rebound. Or possibly the insanely stupid for staying in the market during a market collapse.

The market is down to April 1997 level! This means every dollar put into the market after 1997, on average lost value. Wow, 11 years of gains wiped out. As the chart above shows, if we do collapse, it will go back to 1994. Maybe this will finally dispel the myth that leaving your hard earned cash in the market for the "long term" isn't a good idea after all.

Of course, the question always is, must there be a rebound? In the history of stock market, yes, there is always a rebound. But who knows, maybe this time its different, but I doubt it.

The crux of the issue is, do we see all out collapse like never seen before. It's quite possible, but not probable. If the market stops dropping 400 points a day, to me that's a possible bottoming out. If the market does bottom, the rally will be something to see.

So it is down to fear vs greed, the US and possibly the world is on the cusp of a financial reckoning beyond imagination. Lets just hope we don't see a new event in modern history, and instead the US see's a rebound in the marketplace.

If you are still in cash, you can wait to see a big rally day and then start to get in, may be smarter than trying to catch a falling knife. But if you bought some today, set a threshold of pain and get out of dodge once crossed. It's better than watching the red flow from the screen. At this magnitude of destruction, the only news that matters is at world government level or top international companies. Other companies really don't matter, now its a general panic that is the issue.

The US government asks for financial help from oil states, to the tune of 300 billion dollars.
SEC calls meeting of world regulators on crisis, possible short ban
Citigroup considering selling itself My Spin: who the heck got the cash to buy them?
Jobless claims hit 16 year high

In any event, keep your fingers crossed and lets see what happens in the next two days.
NOTE: GDX has held up quite well through this, but OIH was crushed. I hope no one had it, except me.
(image source)

The end is near

OK, things aren't THAT bad, but they are unfortunately, right where I was hoping we didn't go.
The market closed below my warning level of 8,135 with conviction.
That means, the DOW should lose another 400 points to hit 2002-2003 lows.
That actually very close, since today we lost 400 points, it really could be one day away from lows.

IF and this is a big IF, we close below 7,500, this is very very bad from technical stock market charts. The next stop is way lower.

So the "end is near" either, the market gets stopped between DOW 7,500-7,700 or it is financial Armageddon. (see picture at bottom of blog) The good news is if the USA collapses (DOW 2,000-5,000) then once that is complete, the bear market will be over as quick as it came. But the recovery will be a different story.

What is extremely disturbing is market rumors that the US government is buying the stock market directly, to try to prop it up. If the anyone can prove this, the market will completely come apart, DOW 5K is quite reasonable to hit quickly. And I don't even want to think of what would happen to the US dollar.

As for news, Boeing lays off 800 people, Japan's exports fall most in 7 years, Kuwait stock market closed due to panic, Credit markets collapsing in parabolic formation, and I'm sure a dozen more news worth stories could be found.

If you are in cash, great. If you have companies you would like to own long term, now is a GREAT time to buy. Make sure it's a company that you have confidence can survive another Great Depression, or atleast do well in next 6 months. If the US stock market closes between DOW 7500-7750, and you want to get back into the market, its worth the risk to put 1/4 of your cash back in. If you want to gamble, maybe 33%. But in any event need to leave room for being wrong.
Best is to buy index funds of Nasdaq, down Jones, gold miners, oil companies, natural gas, etc. The dow closing this low is now becoming "worthy" of getting out of cash and getting into the market.

If you don't want to catch a falling knife, then wait to see if the DOW goes lower then closes above DOW 8k, chances are a great time to buy for next 1-5 months. Click to see blog Smart Money for more detailed analysis.

So I'm finally relenting that index prices are low enough risk to reward makes a compelling argument to start buying for a short term bounce
(1/4 cash in the market for 1-6 months).

(Click image for clearer picture)

Former Federal Reserve speaks with honesty on economy

Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasis after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.

The article quoting Paul Volcker, former Federal Reserve chairman can be found by clicking here.
The most interesting to me was this piece of honesty, which is one of my rants on why I believe America has collapsed. The abuse by company executives in pursuit to bonuses by manipulate accounting and assumptions to achieve these bonuses, which where in effect, outright FRAUD to "steal" from the taxpayer, years before the government decided to have the taxpayer fund the losses once the fraud was realized. This action was allowed by the government, who's JOB it is to ensure fraud does not occur, and protect the taxpayer and the country.

"There has been leveraging in the economy beyond imagination, and nobody was saying we need to do something," he said. "There are cycles in human nature and it is up to regulators to moderate these excesses. Alan was not a big regulator."

Even so, he said the arch-culprit was the bonus system that allowed bankers to draw forward "tremendous rewards" before the disastrous consequences of their actions became clear, as well as the new means of credit alchemy that let them slice and dice mortgage debt into packages that disguised risk.

Unfortunately, I have stated in the past, the next president the stage is set for next 2 to 10 years, the best the next president can do is set the stage by the time they are up for re-election.

I speak, the Chinese listen

Tuesday at 12:01 am I posted the following quote
"...there is NO MONEY for GM, but plenty for foreign companies, especially the Chinese, who have a 2 trillion dollar bond gun pointed at our heads if the US doesn't play nice. GM should sell themselves to the Chinese, and the US government then would bail them out in a heartbeat."

And only hours later, Chinese announce:
Chinese Automakers May Buy GM and Chrysler

Wow, that didn't take long at all.
Let me try this one:
"To ensure the Chinese will rule as leading world financial leader, the government should give 1 billion dollars to overweight, balding, middle aged, computer geeks named Mike Murphy, living in USA New Jersey as a gesture of good will to the US citizens".

Hopefully this next step in my Chinese predictions won't take hours later....wait is that the door bell, brb.

Stock Market once again on brink

The stock market is still trading in the range as discussed for last 4 weeks or so, as shown on the chart to the right. The DOW closed at 8,273, still above previous range low of 8,135. Even if the DOW goes below 8,135, I am not concerned, unless it closes below that number. Once it closes below that number, that puts the DOW in the possibility of a freefall down to 7,750 range.

If the DOW closes below DOW 7,700, at that point its good night, likely to have world sell off and an all out collapse to DOW 5,500 range.

In any event, I am still thinking, although starting to have second thoughts, that the market will hold above DOW 7,700, and looking for the market to stay above DOW 8,100 on a closing basis.

If the stock market closes below DOW 7,700, I may liquidate all my positions, take the hit, and watch from the sidelines until the market moves up with conviction.

In other news, President Bush stated the government would NOT seek the funding for the second half of the 700 Billion bailout package.

This to me is stunning, since it was presented to the US taxpayer the world would end without immediate funding of 700 billion dollars. Also, this president has known no bounds in deficit spending, and it seems odd to all of a sudden become frugal. My best guess is the US bond market is starting to show strains, and the government doesn't want to flood the market with more US bonds.

As previously discussed, once people stop buying US bonds in sufficient numbers to cover the US debt spending, interest rates must then rise to attract buyers. And rising interest rates is no one's friend. So my guess is Mr. Bush doesn't care if we deficit spend an additional 350 billion pre-approved debt on top of the existing 12 trillion dollars of US debt, but rather, his hand is being forced.

As discussed, urging everyone to contact their congressman to stop the bailout, one of the reasons for the bailout is to fund foreign banks. Today the US government gave 15 billion dollars to BAC, who in turn then bought for 7 billion dollars Chinese bank "China Construction Bank Corp". Please keep in mind, there is NO MONEY for GM, but plenty for foreign companies, especially the Chinese, who have a 2 trillion dollar bond gun pointed at our heads if the US doesn't play nice. GM should sell themselves to the Chinese, and the US government then would bail them out in a heartbeat.

Safest play is still US Government Bonds with slow diversification to resources to hedge against US currency devaluation.

More reasons to like commodities

Sunday Barack H Obama stated he was NOT worried about the American Debt.
Wow, talk about denial. If he is actually telling the truth, then you can certainly expect more debt to come under his administration. And although it can be argued is this good for the country or bad, one thing everyone should agree on, it will eventually lead to US dollar devaluation, and possibly rising interest rates.

Gerald Celente is an economist who in the past has made successful predictions including Black Monday,^[1][8] the fall of the Soviet Union,^[1] the 1997 Asian Financial Crisis,^[9][8] and the subprime mortgage crisis.^[9]. He now is predicting that American's number one concern by 2012 will be having enough money for food.

Both of these news items bolster my previous post on Thesis Change. It must be noted that the world is still in a deflationary collapse, and commodities could still move lower, but oil at 55 a barrel and gold miners crushed in value, its hard to believe some of the commodities could go much lower currently. In any event, start moving cash out of bonds and into ways to keep ahead of the future risk. I like GDX for gold Miners index, UNG for United States Natural Gas index, RJA for food companies, OIH for Oil companies, etc.

More Layoffs, More Lies, More Lousy News

Worthy financial related news since November 12th

Layoffs
Citi to announce 50,000 job layoffs, & cut 20% costs (14% global)
BT to cut 10,000 jobs (6% of workforce)
University of Texas Medical to layoff 3,800 (30% workforce)
Las Vegas Sands to layoff 11,000 workers outside of USA
Sun MicroSystems to layoff 5-6,000 employees (17% of workforce) My Spin: I love Sun as a company, I hope they pull through this stronger than ever.
Fidelity Investments to cut 1,700 jobs
JPMorgan planning to slash about 3000 jobs (worldwide)
Jobless claims rise by 35,000 to 512k for week of 11/8. My Spin: Scary chart

Lies
Market-Ticker Blog proves Paulson and CONGRESS knew 700 Billion dollars as presented to US Public was not what it would be used for
China reports very strong domestic sales growth of 22% My Spin: I trust communists for honest news. But in general, I still think China leads the world out of this years(s) from now.
China's Industrial production falls to 8% My Spin: Falls to 8%? Most of the world wishes it had 4%
CitiBank to become a bank Holding company My Spin: I'm buying Circuit City stock for pennies hoping that Circuit City will become a bank holding company. (white lie)
110 Banks ask for 170 Billion in Fed Cash My Spin: And after they get the handout, these companies will be strong for next 10 years. (the implied lie)
San Jose asks for 14 Billion from US government to bail them out My Spin: Once again, does ANYONE think pay this one time, and this city will be greate for next 10+ years? Bueler? anyone?


Lousy News
G20 Summit Agrees to clean up world economics, see Mish Blogger comments
Insurance Companies to become Savings and Loan companies My Spin: Maybe Circuit City can become a Bank Holding Company AND a S&L, my penny stock buys could be worth millions
Former AIG Chief Greenberg says AIG "Toast" if not stabalized: My Spin: I have no spin on Insurance companies, I don't want to bite the hand that feeds me.
House Prices drop for 7th Straight quarter My Spin: Expect 12+, as the NorthEast starts to finally get hit with NYC layoffs
Iceland struggles after their economy collapses My Spin: Lets hope (but not count on) we never face their level of difficulties.
US Facing major recession/depression by Bloomberg
Britain is said to be on a brink of a meltdown. My spin: Ya think? Debt per person surpasses the USA, and they don't have the luxury of US dollar being international currency. Wouldn't surprise me if Paulson guarantees Britain's debt. ;)
Hedgefunds see over 100 Billion withdrawn in October.
Goldman Sachs outlook cut by DICK Bove. My Spin: A little late to the party Mr. Bove, go back to your cheerleading job.
Intel Warns, lowers guidance on world wide weaker demand.
Germany, Italy, and Hong Kong fall into a recession, And Japan My spin: Whoever judges those countries on being in a recession should judge the USA.
Three European Creditors pull credit from GM & Ford My spin: No credit, no operation in a company that has over 70 Billion losses in 8 years.
Federal Deficit hits 237 Billion for October alone My Spin: Thats 800 bucks for every person in the USA of added debt.
Retail Sales plugne 2.8% for October
Ecuador can't make 30 Million dollar interest payment. My Spin: This won't be the last country in this boat, lets hope the USA never sees this.
Twenty banks receive injection of Federal Cash.
UBS to hold back bonuses My Spin: That those who damaged this company got their bonuses, and those left to work very hard to clean it up get nothing. It pays to be ahead of the curve.
German bank faces significant losses My spin: It's nice to see the USA was able to spread fraud on a global scale.

This video clearly shows on Fox News and other channels the hostile and belittling attitude held towards those who tried to warn ACCURATELY what was to come. It shows that news media does NOT do it's homework, and does not provide a service to protect the public. At this point, its funny to watch.


Ben Stein Did apologize in Dec 2007

Click for a great long winded rant about Ben Stein

Market Bottom is in, buy everything in sight!

That's what you will start hearing, next week, next month, heck into beginning of next year.
And they are right, for the next 1 to 5 months or so.

But the market bottom is NOT in. NOTHING has changed fundamentally, and many bloggers I read daily and I don't believe it is.
But near term, today the market went right through the bottom level Thursday, I have been warning about, and it rallied hard higher, ending much higher. This will likely result in a 1-5 month bull run. See chart on right.

Gary of the blog "Smart Money Tracker" put it best in quote below. Once again, I can't recommend highly enough fork out the cash and buy Gary's email subscription. He does best market analysis with no axe to grind or agenda. Gary's email has illustrative charts and more explaination than the email quote below:

"But have we seen the final low of the bear market? I suspect that if this reversal holds and we do move higher at some point almost everyone will think we saw the final bottom. However because of the extreme left translation of this 4 year cycle, which I've gone over numerous times, I doubt that this will be anything other than the rally that separates the first phase of the bear from the second phase.

The bear will now need to convince everyone that the worst is over if this decline is too continue, and I think it will continue. It's going to take a lot more than 1 or 2 months of gains to shake off what we just went through. As I've said before I fully expect this rally to move back above the 200 DMA and I would be really surprised if it doesn't last at least 3-5 months. It's going to take a move like that to heal the wounds the market just dealt to investors. And those wounds must be healed in order for the second phase of the bear to begin. We need to see investor confidence restored so that when the second phase does start investors will hold on to their stocks all the way down into the very bottom of what will probably be one of the worst if not the worst bear market in history.

I suspect the next phase will be characterized by two years of declines followed by bear market rally followed by more declines and more rallies. It's been said that dumb money got killed in the crash of 29. Smart money lost in the decline from Feb. 1930 till 32. The reason being is too many investors tried to call the bottom too early. It's going to happen again. Everyone is going to try to call bottom after bottom and no one is going to have any concept of just how far down this bear will ultimately go before it's over. I expect we will see the Dow at 2000-3000 before this is finally over."

Gary's gotta get some optimism, DOW 2,000? Wow, and I thought I am a pessimist (realist?).
With the exception of even thinking DOW 2,000, I am in full agreement to Gary's view. And quibling over DOW 2,000 vs DOW 6,000 misses the point, the bottom is not in for long term investing. I refer you to my link to the right on "When to Buy Stocks or get out of the market"

So if you want to roll dice, and buy back in for a few months, seek professional investment advice. I'm a computer geek with a hobby of trading, not a professional advisor.

But it is a good time to consider diversifying out of the Federal Bonds I have been advising to purchase the last year or so, now that the major storm may have passed (for now).

Items I am long are GDX, UWM, UNG, USO, GLD, OIH, & Shorting TLT (bought puts), and a dozen gold miner stocks.
Some I'll hold for a week, some I'll hold for 5 months.
For some entertainment here is Kayne West's Gold Digger, since I have turned into a gold bug big time today.

I'll create a blog summarizing all the news between Thursday through Saturday on Saturday's post. Good luck out there, and if the market pulls back tomorrow, a great chance to get long.

Desperate Thursday

Wow! What a market meltdown. Dow is at 8,282, and it looks like we may challenge the DOW 8,175 I have been pointing out for weeks. And if we do, we could see 1929 all out collapse.
The bad news from all sectors is overwhelming. After a while, only "really really bad news" is bad news. All others news is eh, yea, we'll live.
Now for the REALLY REALLY bad news. (Cheery fellow ain't I?)
( NOTE: I am stealing this story directly from market ticker, with my own spin. )

I wrote about this a few times. What IF people don't buy American bonds? What choices does America have on its binge spending? How to finance it?
This cross roads has hit today, the fed actioned 12 billion in short term loans (17 days) and the government sold LESS than 10% of the debt offering.
Why? Interest rates have gone so low, may as well keep cash under your bed.

Three simple roads.
1) Stop spending. (HA! I crack myself up)
2) Increase interest rates to attract buyers to American Bonds. Sell either longer term bonds (higher interest rates) or raise short term interest rates.
3) Go banana republic, aka Germany 1929 and just "photo copy" cash.

Item 1 is out of the question, one reason is we are so far into this shithole, hard to stop the train.

Problem with number 2 is nobody in this environment wants long term bonds. Why tie money up for 1 year, 10 years or more in this environment? If short term rates are raised, well, good night, we will have an all out business collapse (as we SHOULD) when businesses have to pay higher interest on their loans. Great Depression arrives abruptly.

Or item 3, pretend we can just photocopy cash, hand it out, and see where that takes us. That takes us to the US Dollar collapsing and the US down the drain. Revolution time.

My hope is the government takes an about face and goes with 1. If they do, I lose incredible amounts of money. But the country will be better off, and I would gladly accept my personal fiscal disaster.

But I don't believe number 1 is an option, so its 2 or 3. Raising interest rates will also hurt me hard, and the country hard in the near term, but probably the healthiest for the country. It will likely start a death spiral in housing.

Number 3 is what I fear....and I am counting on. This administration at every step has taken us further down the rabbit hole. They will do number 3 but with some "fancy twist". Not direct printing, but in the end, that is what it will be. And once the market actually understands the trickery, well, I hope you have gold coins at home.

And if you are curious why all this giving away money has not helped ONE iota, but instead has made the situation worse, read these two articles from Frank Shostak of the Ludwig von Mises Institute.

Explains the basic concept of money when it is generated by "non-productive consumption".
In a nut shell, you have to do work to "generate" money, any other way is in effect, counterfeiting money.

Why Doing Nothing Is the Best Policy to Revive the Economy

In any event, hang on, either we crack or rally to the likes we haven't seen since...two weeks ago?

Lots other news out there, but this is the main event, stocks collapse, US bond raise interest rates, and if either occur does the dollar rally or fall. Everything else is chump change.

Buzz of Another Great Depression

Today the bloggers and various news organizations are calling for another "Great Depression".
I for one, do believe this will occur, but the timing of when this happens in the market is the question.

Why do I think we will see a "Great Depression"? The world has seen a 6 year bull run based upon.....bullsh*t. Basically the bull run was financed by artificially low interest rates, no bank oversight by the Bush administration, and ridiculously high levels of leverage allowed. Now as money collapses (deflation) there will be massive causalities in the corporate world.

Merrill CEO compares 1929 to current events
Credit Markets are absurdly priced or "predict" multi-year depression
Blogger Financial Ninja declares US bankrupt (nice & scary charts from Fed government)

As the Stock market declines towards DOW 8,175, the market comes closer to possibly an all out collapse. Dow 6,000 would be very possible. Although I think this will occur, I am leaning towards a year or two long melt starting next year to that level.

Other News:
USA may lose AAA rating - This may really hurry the parties end.
Insurance company Prudential lowers annual dividend by 50%
Bail outrage as lack of transparency called a national disgrace. My spin: How DARE people question the Bush administration's method of operations, you are either for US or against us, you unpatriotic terrorist! Now go back to work (or your unemployment checks) and pay your taxes to fund the "final" blowout party!
Bonuses for Wall Street Should Go to Zero, U.S. Taxpayers Say My Spin: Funny little taxpayers, your interests where completely tossed out in 2004 once your job of electing this administration for a second term was done. Your cute when your angry.
Massive Deflation not inflation occurring (Blogger Mish)
Citi, Freddie, Fannie to cut mortgage payments My spin: If your house has more owed than it's worth, why are you paying your mortgage? Join the party and call your bank, ask for your discount coupon. And if you bought a house and paid it off, your get nothing (except higher taxes next year) for being responsible, let that be a lesson to you!
UPDATE
American Express to get "TARP" money. My spin: Bennigans & Steak and Ale corporate owner should have changed into a bank holding company to get the cash it needed to stay in business, and save 8,000 jobs!

Final Comment
At this point, if the US collapses, it will likely be from the world outside the US collapsing, bringing the USA down hard. The US citizens and companies already have been beaten down, another leg will need our neighbors to kick the legs out from under us. Let's hope the US can get another 2-3 months before that happens. I'd like to have another Christmas with a job.

Market Fear may be returning

If you have been reading my blog, I believe we are seeing a strengthening of the market in the near-term.
However, it seems like the market isn't gaining the strength being looked for.
So the jury is out until we break out of the range I quoted on October 30th. See updated graph on right.

The fed also has delayed "Backing" Money Market funds with cash, as the government promised. I have said it before, and I'll continue to repeat myself, invest in government bonds, not money markets, until a year from now and we are completely out of the woods. The extra 1-3% isn't worth the risk. And as previously discussed, start scaling into resources as a hedge if the US government can't pay for all it's promises.

Other News
Government Mortgage company, Fannie Mae says 100 Billion NOT enough from Federal Government
Fannie Mae declares 29 Billion dollar loss in 3Q (looks like more honest accounting "found" after government takes them under their wing)
Goldman Sachs urged "Bets" against California bonds it sold. (Honor among thieves is broken)
American Express to become bank holding company (more parlor tricks to help balance sheets, to get free FED cash)
General Motors target price cut to ZERO by German Ratings agency. (What I find most interesting isn't GM cut to zero, but a foreign ratings agency broke rank and set target below US targets)
National City in final throws before failing, aggressively seeking buyer.
Fed defies transparency for 2T in collateral (surprised? I'm not, I predicted in previous post, nice try bloomberg. Everyone knows the taxpayer DOESN'T have the right to know where it's money is spent. )

AIG, GM, FORD, AMBAC want taxpayer money

Updated 11-10-09 @ 8:10 am
Insurance company AIG has a "NEW" bailout plan on the table, after ripping through 120 billion dollars in less than two months.
Company AIG to receive TARP money, government to buy AIG CDS & MBS
Bond Insurer AMBAC to get a government "capital Injection"
Car Companies General Motors and Ford looking for government assistance
State of California announces tax hike....by good old Arnold.
Company Circuit City seeks Bankruptcy
Bailout Bill also created windfall for banks by eliminating taxes related to bank mergers
US Home sales down 4.6%, and Freddie/Fannie lower max mortgage size from 729K to 625K
US Unemployment climbs to 6.5%, a 14 year record.
Warren Buffet's company Berkshire Hathaway reports 1Billion dollar loss
Countries credit rating downgraded by Fitch for South Korea, Romania, Bulgaria, Kazakhstan, Mexico, Russia, South Africa, Chile and Malaysia
China announces 4 trillion yuan "stimulus" package
Russia Ruble decline predicted with Oil devaluation
Japan's machine orders fell by record 10.4% last quarter
Italy to start bank bailouts

And BIG News, a US company is taking on the government
Bloomberg suing USA for full disclosure on the "collateral" the government is taking to help companies. Nice try Bloomberg, not while Mr. Bush is around, the law doesn't apply.

The US Stock Market from 1929 to today

This web site reviews the US stock market from a general high level valuation and events.
Pretty interesting read.
http://www.generationaldynamics.com

Most startling it took 24 years to regain DJIA valuation from 1929 crash.

What is wrong with the USA?

Right now, the USA is not in jeopardy of default, or mad-max scenarios.
But the USA is NOT in any way-shape or form looking good. A 5 or 10 year recession/depression grows more likely with each government mis-step.

Why? Because the US is facing a wide array of serious financial issues, and to date, the USA's answer is: Give money. Don't force leadership & change on those businesses.
The US government mirrors a rich family enabling their son to be a loser by throwing money at him hoping he gets his act together. Pathetic.

This article turned into rant, rather than reporting facts, read at your own risk.
Give who money? The companies that are doing great? Give them the cash to take over and manage the companies insolvent? No.
Give money to companies that are in trouble, but enforce international accounting practices, and enforce the companies change core operations? No.
Or how about let companies fail, and subsidize the transition to the remaining solvent companies? No.

The companies given money are to the SAME corporate management and investors who lead the company to the point of INSOLVENCY. When you give companies hoards of cash it isn't a credit crunch, its a "Holly CR*P, we woke up and our bank told us at NO % would we ever consider loaning money to you.".

Sure, the government asks for "Strings" like stock, interest in the company under the storyline so the taxpayer would get their money back. Who the heck believes this? And where does this take us? What happens when the government OWNS 20% of fortune 500 companies? 40%? 80%?

The reality is CAPITALISM (Evolution in the business world) can work, let the weak and stupid fail, let the smarter feed from the carcasses and improve business by leveraging their successful tactics.

General Motors has lost in the last 8 years about 70 Billion dollars. (3q 2008 2.5b) GM is at it's heart the worst of the democrat old-school pandering meets the worst of republican corporate corruption. It's the poster child for the sickness in America. What does GM want? Money of course! But they are willing to give the government warrants in exchange. Ask the million+ investors if they could go back in a time machine and sold GM stock 2 years ago or get warrants? Come on! Where's the "this time we'll do good" plan? And even if they come up with a plan, why now will GM finally get it's act together?

So will America, the land of the free, and the home of the brave (timid?) allow GM fail. No way in hell. This company will turn into the USA's version of Airbus.
But of all the companies with their hand out, I'd rather see all of them not get a dime, and rather help GM. But in a way that GM gets broken up and the government preserves what it can of pensions. With the core GM company smaller, future "pieces" can fail without it being a disaster.

Whether its GM, AIG, CitiBank, CountryWide, Merril Lynch, or the dozens of companies I have lost track of, throwing money at them will not make them good companies. My blog will continue to report company after company, state after state, needing the taxpayer to foot more.

Only Death and rebirth of these companies will create fundamental change.

And without that fundamental change, this downturn (which isn't even a recession yet according to the US government) will turn to a long and deep recession, and history 20+ years will name a depression. Why?

Trading debt from private to debt to public solves NOTHING. It only weakens the US government. And that, is not good nor patriotic. If you want the US as a country to be strong, it's gotta get tough and kick that drug-addict son out, pay for rehab maybe, but he's gotta learn to walk on his own.

For Added fun, here is 30 minute video explaining how bad US debt is, a shortened version from IOUSA movie.


(image source)

Rebound Friday?

Two big down days back to back, over 450 points each day. The Smart Money Tracker, Slope of Hope, and "Happy John" (good friend with decade of stock trading experience) all predict this down leg is losing steam and be prepared to go back into rally mode. I for one believe we will see DOW 9800 before we see DOW 7800. )Dow 8695 currently. I have full faith the government will make some sort of announcement/stick save to push the market up. Could be around GM/Chrysler.
I am now significantly (80%+) long GDX, plenty of gold miners, UNG, DIG, GLD, and a sprinkling of odd balls such as VMW, EMC, and OIH.
Friday will have a market-moving number announced with the employment situation being announced at 8:30 am Eastern.

For daily dose of Cheery news:
Continuing job claims hits 25 year high. My Spin: Wow, in 1983 the job claim situation matches the US today, and according to the US government the US isn't even in a RECESSION!
Toyota slashes annual forecast by 68% for net profits My Spin: Unprecedented
Ford lost 3 Billion last fiscal quarter, used 7.7 Billion of it's cash, and has 19 Billion cash left. My Spin: At the rate of cash being burned, this could turn ugly quickly without yet another bailout by the government. See preserving wealth.
Marc Farber sees Bankruptcy for US My Spin: I'm not prepared to state I believe it, but I wouldn't rule it out either. In any case, still bolsters my post "Thesis Change" and "Preserving Wealth"
Federal Reserve's Balance sheet is over 2 Trillion My Spin: the paper valuation is 2T, the actual valuation must be significantly less, since the fed will take debt notes no one else will as collateral. Lets hope these institutions pay uncle sam back before going belly up. If they don't this Fed balance sheet will be transferred to the taxpayer debt obligations.

Hangover Wednesday

Hangover Wednesday
The market hates unknowns, now that the US knows Obama is the next president.

Wednesday had a big sell off, 486 dow points. I guess now that the big party is over, back to reality.

Back to the cheery news:
October five year high for payroll reductions in US, 113K.
Asian stocks rally on Obama win
Steel takes a significant hit, when scrap metal orders are canceled.
US Personal Bankruptcy soars 40% in October
Steepest decline in Global GDP since WW 2, down to 1% for 2009
NYC Fire & Police hit by budget crunch
US Fed balance sheet could hit 3 Trillion by EOY : My Spin, the fed "assets" taken from companies as collateral is worth at "best" 33% of face value. US better be prepared for an additional 2 trillion dollar debt above 700 Billion "Rescue package"
Bond insurer ABK took 2.3 Billion dollar hit, left with 113M cash My spin: Bond market fireworks to begin once bond insurers fail
Great article on the Massive mortgage corruption in Washington Mutual My spin: After reading this, how can the US government justify taking ownership of WaMu's debt? Why should the taxpayer take the hit for this level of recklessness?
Apple slashes Iphone production.
Wells Fargo offers 10 BILLION dollar stock offering. Yikes! Can you say implode?

General Motors says "time is very short" before it collapses. My Spin: Wow, I must be a genius! I stated with 700 Billion dollar bailout for financials that what money would be left over to actually save industry in the US?
Federal Government to offer 10B in 30 year bonds My Spin: Now we are talking! Get ready for the bond market to start showing cracks. I believe people will demand higher interest rates for 30 year bond, since, inflation is a possibility with all the loose printing. Once this genie is out of the bottle, its not going to be pretty.
(image source)

Local Market bottom

I made the case a week or so ago time to go long, for next month to 3 months.
Another blogger has a very good basic analysis making the case we did in fact have a "market bottom capitulation" moment.
Check out the Smart Money Tracker for more info.

President Obama!

Obama wins!

So what next, does this mean America is worse off? Perhaps.
But the last 8 years has been handled as poorly as can be, what the Big W has accomplished in 8 years is:
Spending America's capital among foreign nations being regarded as world leader, Politically and in World Finance
Destroying America's image as taking the high road in human rights, world conflicts.
Spending all (to the last dime) of America's borrowing ability with "low" interest rates.
Setting back environmental and energy conservation programs by decades.
Gutting America's industry for the middle class, creating a larger gap between the rich and the poor.

Frankly, the damage as been so severe it will take a generation (if possible) to regain the lost ground. So the bar has been set so low, Obama has to do 1/2 as bad as the big W to be an improvement.

Back to how this affects finance.
Obama, if his campaign speeches is to believed, is truly a tax and spender. He is under the misguided belief he can redistribute wealth. What he will do is create inflation, aka Jimmy Carter style.
What you need to brace for is this effect. I suspect the markets will be hip to this idea and the dollar will start to accelerate downward in the next 3 months.
Buying GLD (gold), GDX (gold miners), OIH (Oil index), USO (oil), Stem cell companies, health care companies, or other related sectors.
When I wrote "Preserving Wealth", GDX about 17 a share, (low 15.80), now its 24. If you got in on that, congrats, thats 40% increase in 7 trading days! and I think GDX will go to 60. (Nothing goes in a straight line, expect a pullback) If GDX does, that will be a 350% increase, and it could happen in the next 12 months easily.

Many other opportunities will arise, but I still don't advise whole-sale purchasing of stocks.
Need to roll in over time to sector plays that will do well in tax & spend economy.

UPDATE Obama acceptance speech, (Alternate video feed here)

US Debt Machine

The US is starting to "peddle" US Treasuries to other countries. Why? Without immediate panic to drive people to buy bonds, the Treasury market can't finance the massive debt machine put into motion.

If the US government can't sell debt at the interest rate published, the US will be forced to raise rates to attract buyers. See previous post on Bonds here, here, and here.

An interesting quote from this article:
"The U.S. Treasury Secretary is trying to convince other countries, including China and Japan, to buy its government bonds,'' said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., the nation's biggest stock underwriter. "This is the first time a developed country needs help from developing countries to ride out its crisis.''

This article rings of two themes, one the US debt machine will come to a screeching halt when US debt has not enough buyers, and interest rates will rise. The second is yet once again China is kicking dirt in the USA's eyes as it makes the inevitable play to take over as world leader.

As an indicator where interest rates may be headed, IBM had to pay 4 percent higher than the US government to sell it's debt in the public market. A blogger stated a total of 9 percent for Verizon debt interest rate.
With "solid" corporations paying such high interest rates, what will happen to those of us with credit quality lower than IBM? You guessed it, likely soon higher interest rates.
Hence the resource play (direct or stocks) previously discussed.

More news:
GM's auto sales plunged 45% for October
Newsweek reports what I stated (8/14/07 email, pre-blog) over a year ago, this isn't a credit crisis, its a solvency crisis.
This article lays out likely Obama vs McCain will do after elected. Either way it supports my Thesis Change.

Update 11/9/08

Monday News

For investing, see article Thesis Change and When to buy in stock market
In general for next one to 3 months, I am now a market "bull" not bear. Long term I think the market still goes down, but for now, the sky's the limit. :)
This morning the US Dollar is reported lower, which should make the markets move higher.

11/3/08 News
ECB to cut interest rates by fastest rate ever, abandoning "inflation fighting" mantra
Great NY Times article on Washington Mutual lending practices.
Questions on effectiveness of Government "lending" AIG 143 Billion dollars.
Economic "boosts" announced. Japan 260B, Germany 96B, South Korea 10B, as well as many other countries.
One in FIVE US mortgages are "underwater" (owe more than house value)
Argentina debt rating cut (my spin: yet another failure is to occur in Argentina)
China manufacturing slows by record amount in October
Rio Tinto Chief Says Slowdown in China Is Worsening
India Imports slowing