Monday Madness

Well, what can I say, the stock market is clearly in bull mode territory. I can't bring myself to go long, nor short with any heavy hand. Cash is king. The SPX has clearly made a bull trend line from the SPX 666, and if this trend line is ever broken, the market will be in for a rough one.

For now, it's watch & learn, everyone is watching the US dollar valuation. That will determine our fate. Dollar hits new lows, market hits new highs, along with gold. Dollar strengthen, market falls, and gold may not collapse, but not likely to rise either.

Two charts for consumption today, enjoy.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Credit Default Swap Video

Excellent 60 minutes video explaining how the Weapons of Financial Destruction was created.


Watch CBS Videos Online

Demotivators

I ran across a web site called "Despair.com", that features demotivator posters. I assembled a select few that to me represent various angles of the US stock market investing environment. (Or should I call it casino environment) The posters "Overconfidence" and "Pressure" apply directly to me. :) Enjoy

And one that applies to this blog :)

From WebSurfinMurf's Financial Blog

Economic Crash Course

I ran across a blogger named Chris Martenson. He is new to me, but so far, he seems pretty darn good. He created a video series to help people understand the Financial Crisis. I haven't watched the entire series (yet), but from what I have seen of it, it looks good.

Try watching it, learning is always good, and question everyone's "facts", but especially those on CNBC and mainstream media.

Nerve Wrecked Friday

Some of the bloggers I read are expecting significant changes in the market Friday/Monday. The market has been moving in a reasonable range for a couple of weeks now. (SPX 1000-1040).

I updated my "welcome new visitors" link above on this blog with this information:


Video View *** A MUST For Everyone **

This video series gives a great synopsis of many global and US economic issues. It is a MUST for anyone new to this blog. This video was created by Chris Martenson, a pay-for-blogger. CLICK HERE TO WATCH THIS GREAT VIDEO SERIES.

This video so far (I am up to chapter 13 of 20) seems excellent video for everyone. I'll be featuring the video in my Saturday Video post.

Good luck, and have a good Friday/Weekend.

Worlds Largest Ponzi Scheme - The FED & US Treasury

I ran across an EXCELLENT article I strongly recommend everyone who reads this blog to read in full. ChrisMartenson was a successful VP of a company with a good living, who turned away from his lifestyle to pursue a more independent, direct approach to life, which includes following the financial world.

The blog entry, "The Shell Game - How the Federal Reserve is Monetizing Debt" is a very detailed explaination of a very complicated ponzi scheme, the US financial system. For those with attention spans of 1 minute, I will reprint the article's conclusions below in italics. I find it interesting one of the reasons I like "natural resources" was to ensure value can be kept over the next 10 years.

UPDATE: For a more mainstream view of the economy, see Mish's blog entry Creative Destruction.

Conclusion

The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt. This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.

This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves.

When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world as they endeavor to meet the vast borrowing desires of the US government.

One possible result of the abandonment of these efforts is a wholesale flight out of the dollar and into other assets. To US residents, this will be experienced as rapidly rising import costs and increasing costs for all internationally-traded basic commodities, especially food items. For the rest of the world, the results will range from discomforting to disastrous, depending on their degree of dollar linkage.

Under these circumstances, "inflation vs. deflation" is not the right frame of reference for understanding the potential impacts. For example, it would be possible for most of the world to experience falling prices, even as the US experiences rapidly rising prices (and hikes in interest rates) as a consequence of a falling dollar. Is this inflation or deflation? Both, or neither? Instead, we might properly view it as a currency crisis, with prices along for the ride.

Further, all efforts to supplant private debt creation with public debts should be met with skepticism, because gigantic programs are no substitute for the collective decisions of tens of millions of individuals and cannot realistically meet millions of individual needs in a timely or appropriate manner.

The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt.

My advice is to keep these potential issues and insights in sharp focus, make what moves you can to diversify out of dollars, and be ready to move rapidly with the rest. This game is far from over.

Geithner answers tough questions

To my surprise, the DIGG community was able to vote on questions to ask US Treasury secretary Tim Geithner. These are some of the tougher questions ever asked of him.

Tim Geithner is AGAINST the Federal Reserve is not audited. A good video to watch

Parabolic Market Orgasm

On Friday, I finally capitulated and covered positions I held for waay to long. Monday the market opened significantly higher only to close lower. Today may have been the top, but I am no longer in (with size) highly leveraged ETF stocks.

But I did put right back on straight stock shorts today. If today was the high and the market is about to turn, it is quite amazing how the market did exactly what was required to get me out of the market just in time to turn. Really great work.

But there is hope for the USA all over the long term, but much higher risk in the short term. A federal judge has ruled the fed MUST disclose information about how taxpayer money is being used! This is fantastic to start to rid the corruption from the system, but may have the unfortunate side effect of triggering a panic stock sell on financial companies.

Goldman Sachs is being pursued by regulatory agencies after the WSJ prints an article about GS and questionable practices. The public acknowledgment of shady operations forced the US government to initiate actions to ENFORCE THE LAW. Time will tell if they actually do, or only give lip service when there is publicized news. For a great, long, rant on corruption see a recent Karl post.

The market isn't valued highly right now based on fundamentals, it is high because it is based on lies, fraud, and lack of law enforcement. As the corruption is addressed, the market reality will come into focus. These small but significant steps to start addressing the corruption, along with the soon-to-end practices of "order flashing" and "high frequency trading" will start to rid the system of market manipulation.

Why I find it hard to go long stocks

I have minimal shorts, and may ADD to my gold miners (we will see).
Just wanted to orate/document why I am having a hard time going long this market.

1) Latest US asset bubble was Real Estate, and I find it hard to believe the real estate bubble can return to 2006 highs. Banks won't give out 700K loans with zero proof of employment (that's good), but that means the over-extension of real estate can't surpass previous one in the near future. Further, Commercial Real estate is about to face a cliff dive, and home valuations are FAR from the historical mean. Home foreclosures is about to skyrocket, not retreat. (click)

2) The Stock Market's purpose is to reflect the valuation of companies. It has been distorted by politicians as the proof the US economy is doing well. Billions (if not trillions) has been spent to inflate the market, and very little spent to change fundamentals of financial businesses. This is just yet another asset bubble waiting to burst. (54% gain in 6 months)

3) Unemployment is over 12%, if you include people on unemployment AND federal extended unemployment benefits. The US economy is 70% consumption.

4) Energy costs are rising, not falling, as oil hits 74 a barrel. With new Obama "carbon trading" adding costs to energy, as basic costs go up, this will hurt business and employment.

5) REAL losses have been taken in the real estate sector. Banks have not recognized these losses. If the US government "absorbs" the losses, the losses must manifest someplace. It is not possible to just "avoid" losses. These losses can manifest in other areas such as USD devaluation, higher interest rates, etc. All of which will hurt business.

6) Look at the Fundamentals of businesses. In "good times" your financial advisor will say buy a stock based on fundamentals. In times like this, the reason to buy is "get in while cheap". If you look at business fundamentals, they are horrible. The market is over-valued for the current economy.

7) The government has spent YTD 2.5 Trillion dollars, with 1.2 Trillion deficit spending. You read that right, and we have another 4 months to go. At some point the US can't deficit spend at this level, and when it stops, the economy will get much worse. You can't create propserity through debt! (click)

Think about that a second, the US spendign 2.5 trillion dollars YTD, that is part of the reason why the stock market is rising. This isn't on fundamental strength.

Market Bull is on, closing shorts

On Friday, I closed almost all lottery ticket/high risk positions, and I'm gathering thoughts. There are several reasons to "give up" on shorting the market. The most important one is the world banks are printing money, banks are NOT increasing lending, so the extra money is going into financial stocks, creating yet another artificial bubble. Many of these financial companies stocks are not worth ANYWHERE close to what they are trading at. BUT you have to know when to walk away, and Friday blew through many stops as well as signals.

If you want to go long here, I have a hard time creating an argument on not going long. The only advice I have is look at the chart of the stock you want to buy, and pick a place where if it "falls to" you will sell. Basically put a stop-loss on.

Keep in mind that stocks could one day open over-night down significantly, not giving you a a good price/exit point.

This blog has highlighted the reality of the economy and this bull will die. A day? A week? A month? A year? who knows, but it doesn't pay to get infront of this bull. So lets cover the reasons why the market bull is on.

Also, I am swearing off buying the leveraged ETF's, they are the devil incarnate. That is FAZ, FAS, SRS, etc. I still have some smaller positions, likely to close them out by Tuesday. If I play them, they will be long out-of-the-money puts/calls on the cheap.

Back to basics, straight stocks long/short.

In any event, a case for the Bull market, using charts

From WebSurfinMurf's Financial Blog

On the right, I have a link to long term trading signal, for 401k, etc (click). It shows the market is a BUY.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Another funny video, this time missing the market rally

Saturdays video post....posted monday backdated. :)

Options Expiration Friday

August 21st is options expiration, where the hardest games are played. Frankly, this market refuses to die, and I can't hold my positions much longer. I already lightened up as previously blogged a week ago.

But I am holding out hope, just a little bit longer until Tuesday, to see if the options expiration games surprise to the downside.

In any event, aside from "vodoo" of options expiration, that is going on here is a battle of many stock market indicators, but the primary three that seem to be a focus. (John Chinnock & bloggers)

1) BKX - The Banking Index, it seems as long as this index levitates defying reality, so will the market
2) TNX - As long as interest rates are kept under control, the US government can continue to print debt to subsidize the private sector
3) USD - As long as the USD currency weakens, the market rallies as "cheap money" enters into the market. Long term, if USD weakens substantially, it is HORRIBLE for the US citizens and the economy. Commodities will start to rise, companies expenses rise, and people's daily expenses rise (as discussed in china vs usa post)

The SPX and overallmarket trends seem to be focused on these three basic factors. If the market focused on reality of business, it would be much, much lower. But as long as paper shuffling by US Gov makes it clear it will spend unlimited cash to hold up the banks, and the world continues to supply the US with unlimited credit, the market will remain afloat.

At this point, god help us all if the world say "enough" of debt spending and interest rates rise OR a major bank fails (like citibank) then BKX will tank quickly.

Also, for everyone who reads this blog who is starting to think I am completely wrong, that the market rally proves we are in a new bull market, think back to October 2007 when DOW was over 14,000, was the market right?

Two charts I am focused on, the SPX and the USD, see below.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Mish Roundup

I have mentioned many times, Mish, of the blog "Mish's Global Economic Trend Analysis" to me is by far the best financial blogger on the internet hands down. His blog is a must read for everyone. If you don't have enough time to read Mish and this blog, just read Mish.

Some highlights in recent weeks.

Hussman on Post-Crash Dynamics - Great analysis on Hussman (another blogger) summarized by Mish. This shows through history of bubbles bursting, there the stock market is likely headed.

The largest Pension Fund, Calpers, walks away from it's ownership of Koen Center, in Oregon.
This is part of a much larger series by Mish, where he explains it is best to walk away from real estate you are underwater in. (owe more than worth). At the bottom of the article above, see the 3 links to read about Mish's thoughts.

Manhattan Commercial Real Estate Sales Plunges by 91% - ouch!
"Rep. Bachus: Social Security Could Face Default Within Two Years" - After reading these two articles, ask yourself, where in main stream media is this being discussed? Manhattan Real Estate plunge 91%? SS nearing default soon? Granted the SS story is just a politician pontificating, but I have to imagine the public thinks SS is fine until +20 years from now. That is plain wrong. Thankfully we now have the internet to get around the public media for information and discussion of issues.

Structurally High Unemployment For A Decade - I believe Mish, but I hope he is wrong.

Brace for a Wave of Foreclosures, the Dam is About to Break - Nearly ONE THIRD OF ALL MORTGAGES ARE UNDERWATER - My god. Green shoots? You got to be kidding me. The US banks are walking insolvent zombies.

Too Early For Housing Price Stabilization - Any new home buyers thinking of buying a house should read this.

As of Friday August 14, 2009, FDIC is Bankrupt - But the US government can just "print money" to back banks. That won't have ANY bad consequences......trust Ben Bernanke.

Mish on why inflation is not a threat - My spin is I agree EXCEPT with loose money from the government will cause inflation in certain sectors, like resources Oil, Gold, etc. However, at this time, I agree, deflation across the board....for now.

Government Bailouts and the Stock Market - The Seen and the Unseen - EXCELLENT article explaining why there IS NO SUCH THING AS A FREE BAILOUT!

Collapse Of The "Ownership Society" - Obama has come to the realization, for the banks to "sell" the properties they have, they will recognize losses and fail. The solution? Have the banks own the houses and RENT to the public. Ahhh, the American Dream, have the Banks own land, and the citizens rent from them.

Or just MAYBE The Founding Father, Thomas Jefferson was very wise when he said "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." -- Thomas Jefferson, Letter 1802 to Secretary of the Treasury, Albert Gallatin

Wouldn't be great if the US media would trumpet warning signs from our Founding Fathers about current events? Oh well, back to the Today Show........

Chart Crazy

The market is of course, having issues choosing a direction with conviction. I am still hanging on by a thread to my shorts. A break of SPX above 995 indicates up, and break of SPX 979 indicates down, according to "Karl of the market ticker". (pay for his service to hear why)

At the heart of the current direction is the USD. If it falls significantly lower, the USD will be in crash territory, and oil, gold, food will go up. The USD if it gains strength, will make Oil, Gold, food, etc cheaper, and also bring the US stock market to a lower value.

Many points of decision right now, the graphs for your viewing pleasure.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Shorts back on

Short are back on....actually, I never left my shorts, but came seriously close on Friday. Well, the stock DIN was hit out through my stop-loss level, but I will be looking to put it back on on a market rally. And as for John Chinnock, the friend I mentioned last Thursday/Friday, as a professional trader he is, he ADDED at the close Friday. In this market to win as a bear trader, you must take risks to win, and he did.

This market is teetering on a very nasty fall, well, at this point I am the little boy that says "the sky is falling". :) But to be fair, the initial end of my "Bull" mode from 666 was at SPX 930, we are now at 979, and the high was 1018. If the 1018 high stays, and the market heads lower as anticipated, then the switch to bull to bear was off by about 9.5%. Considering the market is anticipated to hit SPX 800, and potentially 666 or lower, the % off in the up isn't bad.

In any event, enough pontificating, lets get to the nuts and bolts on where things stand.
First, my positions where never off, but this past Friday as blogged, I was on the brink of getting out. Talk about timing! That is called CAPITULATION. I did, in fact, cover some of my shorts "at the very top". See what a great trader I am?

Well, as you probably saw and felt like I did, the shorting was getting brutal. And unfortunately, 2 days hardly marks a trend change. This market could be about to blow above SPX 1018 this week.

So I will be trying to not add to shorts too quickly, for many reasons. First, this week is options expiration this Saturday. And that ALWAYS brings games. The games could be every day the market tanks right into Saturday. Or there is some rally/tank action between now and Saturday.

The game plan is for me to add SLOWLY back some of the sort, but in general sit on my hands and add to the positions if we rally into Friday. The key line for me to watch is does the market stay below the long term trend bear line as depicted?

As for precious metals/gold miners, LOOK OUT, I have said don't go long and I maintain that position. I have most of my positions countered by selling calls.

For people in long, for years, today and every day since SPX hit 930+ has been and will be a great day to sell your positions. +50% from the low in 5 months or less is EXCELLENT. Chart below:

From WebSurfinMurf's Financial Blog

Manic Monday

My Friday post was a bit panicky, but I kept most of my positions in spite of my nervousness. The market ended lower, and that completed a week over week decline in the markets.

So although I remain cautions, my positions I moved from "current stock plays" to "completed" is not accurate. I'll fix my spread sheeet and blog with more detail Monday night.

I am on vacation, typing this from the hotel room. The market is still in a danger zone, and I still think down is the direction, but after being so abused by the market, I am still cautious.

I am still nervous on gold miners.

Ten rules to remember about investing in the stock market

Bob Farrell worked at brokerage giant Merrill Lynch & Co., and had a front-row seat to the rising markets of the late 1960s, mid-1980s and late 1990s. He also experienced bear markets of 1973-74, and October 1987's crash. (thanks to Eric for the email)

Out of those and other experiences came Farrell's 10 "Market Rules to Remember." Reprint of list from Marketwatch, with my spin added.

1. Markets tend to return to the mean over time

This is why you will see chartists often use 50, 100, and 200 day moving averages (DMA) to figure out how far from the mean is the market. In March 2009, when SPX hit 666, the charts showed the market hyper-extended below the mean. This is one of the reasons John Chinnock called for the market to return to 200 DMA.

2. Excesses in one direction will lead to an opposite excess in the other direction

This is my biggest fear for the rally since March 2009, the market rising over 52% in 5 months seems excessive.

3. There are no new eras -- excesses are never permanent

Back in .com bust of 2000, the media and various analysts called for a new era in computer business models. Profit wasn't needed, "eyes" where. In the real estate bubble from 2002 to 2007, the media and bankers said it was OK to over-leverage, the investment would pay off.

Basically there is NO FREE LUNCH. And excesses in debt being incurred by the government by transferring from private will hit a wall. when is the magic question.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

Case in point, posting at SPX 930 a good time to sell AND get short. Much better time was SPX 1018 to sell/get short.

5. The public buys the most at the top and the least at the bottom

When I posted time to buy lottery tickets when the market was at SPX 666, how many readers thought that was a good idea? And how many thought it is a good time to sell after the market rallied 47% in 7 weeks? The problem is people look at the short past history for future results. The extremes are not the time to follow direction, but to take opposite stance. Of course, the extremes can go even MORE extreme than expected. Near impossible to state how extreme things will get.

6. Fear and greed are stronger than long-term resolve

Amen to that. I know long term the markets head lower, but the fear/greed of the market roller coaster shakes me from those positions.

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names

(marketwatch comment) Markets and individual sectors can move in powerful waves that take all boats up or down in their wake. There's strength in numbers, and such broad momentum is hard to stop, Farrell observes. In these conditions you either lead, follow or get out of the way.

When momentum channels into a small number of stocks, it means that many worthy companies are being overlooked and investors essentially are crowding one side of the boat. That's what happened with the "Nifty 50" stocks of the early 1970s, when much of the U.S. market's gains came from the 50 biggest companies on the New York Stock Exchange. As their price-to-earnings ratios climbed to unsustainable levels, these "one-decision" stocks eventually sunk.

8. Bear markets have three stages -- sharp down, reflexive rebound and a drawn-out fundamental downtrend

We are definitely in a bear market, sharp down from August 2008 to March 2009, reflexive rebound from March 2009. Now what remains to be seen is long downtrend.

9. When all the experts and forecasts agree -- something else is going to happen

The experts align at the same time as the public opinion, hence they are typically just as wrong as the public when in agreement. This is one of the reasons why I was nervous on the Obama rally in January, and I should have listened to that little voice, the markets tanked to a low in march of SPX 666. THEN came the Obama rally after everyone was no longer talking about it.

10. Bull markets are more fun than bear markets

2009 will be a textbook example of this statement.

Norbert Walter - Chief Economist at Deutsche Bank

On Thursday, Norbert Walker spoke on CNBC, and called for "triple u" recovery. It seems no one expects a full recovery. I can't embed the video, but click this link to watch.
Past video from Nobert Walker on economic outlook.

Time to Cover shorts

UPDATE: 8/14/09 @ 8:45 am: Markets are basically neutral. Will hold out through 10:00 am, the 10 am number is big. will keep stops in, including restaurants to cover with some room. My negative view below is still a focus, but willing to see direction Friday.

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I was originally going to write how my friend John Chinnock is very close to hitting out of positions and but that indicates to me to take opposite view as a "top". However, three other bloggers I pay for also say we are about to break higher. That is Karl of the Market Ticker, Gary of Smart Money Tracker, and McHugh.

All statistics/charting is being violated. The world printing will have an effect, and it seems we are going to pump the stocks straight up. Will I buy into this? No. I would rather sit in cash than be caught as the market plunges. This is a world ponzi scheme, that may work, even for years, but just like Madoff, this ponzi scheme will collapse either through a market fall or hyper inflation. If I decide to go long, it will be back in the gold miners. For now I won't invest in anything.

Today, I covered 1/2 of all my recommended shorts, almost all on a profit. Tomorrow if we open up, I'll cover all my recommended shorts.

Tomorrow, I will hit out of 1/2 of my lottery tickets/high risk plays if we open positive and stay positive past 9:30 am. I also have stops on my high risk/lottery tickets.

I'll mark my positions closed across the board as of tonight's prices.

What is happening here is the world is printing money, giving it to the banks. The banks are plowing the money back into financial stocks. At some point, this will fail, and fail worse than even I can imagine. But I can't hang on for that turning point any longer.

If we gap down Monday or anytime in the following weeks, I'll miss the boat. I recommend if you are short the market, pick your spots and get out between now and Monday.

Walmart earnings and beyond

I am tired of dealing with the stock market, and the collective act of trying to prop up equity values without providing real change/value to the underlying companies.

I am putting stops in for 1/2 of FAZ (24.75), SRS (10.45), TZA (11.20), and all my DXD (37.25).

Thursday AM will be walmart earnings, that will be the spin of the day. Who knows what the market reaction will be, a wild guess is up no matter what the news.

News
Liz Claiborne loss widens; more cost cuts planned
ING profit slumps 96% on real-estate losses
Mortgage Apps fall 3.5% for week ending 8/9 (real estate slows in mid july through august normally)
Bankruptcies up 36% yoy, 1.45-1.5M pace vs 1.1M in 2008
White House divides CDS regulatory jurisdiction
JPMorgan looking to sell 23 office properties - $1 billion <-- Prime example why cash is king.

And for "Opinion" news (OpNews)
Harry Markopolos: CDS Fraud Will Make Madoff Look "Small-Time"
US economy has bottomed: George Soros

Federal Open Market Committee (FOMC)

Wednesday is an important day for the market. The Federal Open Market Committee (FOMC), aka "The Fed", with chairman Ben Bernanke will announce the intention of the FED for the next few months.

The big announcement for decades was the NEW artificially held low interest rate. That created created the world's largest credit bubble. However, now that the interest rates can't be held lower, announcements are now for "emergency actions", such as quantitative easing (aka, printing money in an irresponsible way), taking debt notes at over-valued prices as collateral for US treasury notes, and paying interest to banks for their reserves. (A backdoor way for the government to in essence have NEGATIVE interest rates to help banks).

Granted, all of this probably is being done with best intentions, the FED with their power granted by the US government with it's banking system, is trying to fix a problem with the tools it has. The problem is, the fix should be made with different tools, such as government enforcing laws, and cleaning up the system.

But since that isn't the Fed's tools, it uses paper money games to try to fix the system. This Wednesday will be very critical. The USD is near the lower trading range, if the Fed does something to shake faith in the USD, the USD could fall to new lows, which brings on the possibility of USD collapse.

If the Fed acts to strongly, the fragile market will immediately tank, while the USD soars, likely hastening the demise of the insolvent financial companies that currently are barely getting by.

I expect they announce next to nothing and hold their breath for the next beat of the market.

No one knows that the Fed will announce, except Goldman Sachs. (in all likelihood). So 2pm to 2:30pm will have fireworks. Wednesday will be everyman for themselves, you get no advice from me, except have a plan going into Wednesday and act by EOD if needed.

Natural Resources, long term bonds
As already blogged, I am out of the natural resource trade. Oil, Gold, Food are all very very dangerous bets for Wednesday. Best to be in cash and jump in Friday or Monday once the direction is solid. Any long term debt notes are at high risk, if interest rates rise, existing long term bonds will fall in value immediately. I of course can't stay in cash due to my need to play in this game, and I am in short from the top of this market (as blogged, added to positions)

Below is news lineup for the week, highlighting Wednesday afternoon.

From WebSurfinMurf's Financial Blog

Market Crash Signal?

Seeking Alpha has an article (click) that explains how every time the market reaches a "strength" reading of 75. (rsi), it has always been followed by a market crash. Always.

October 19, 1997, 76, -16%
July 20, 1998, 78, -33%
March 10, 200, 75, -40%
October 11, 2007, 75, -21%
August 10, 2009, 75, -???%

Americas choice, corruption or law

When reading the links below, there is a theme, everywhere there is the smell...the stench...of entrenched corruption, or just plain old incompetence. I am actually pleased to see all of this, since it is finally getting SOME public attention. I'll be mildly optimistic when the rule of law is enforced, corruption is chased out of the system (well, 70% of it). Talk is cheap, we need ACTION, need rule of law. The choice is ours.

For companies that report earnings WITHOUT taking into account billions of money given to them, is outright misrepresenting the health of their companies. All of these companies should report ZERO earnings, until the taxpayer is 100% paid back. It's a farce that a company can have a reported profit after given 87 billion dollars. Heck, I'll open a hot dog stand, give me 1 million, I'll show a profit.

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It is refreshing to hear a law enforcement official state the obvious, and that is the US government is not doing their job. Click for full video talking to Elliot Spitzer, quote:

Spitzer said "Instead of having lunch with investment bankers, the SEC should start investigating them. The SEC and other regulators should not be given new tools to make the markets safe, they should begin using the tools they have."

Maybe Goldman Sachs Really Is a Giant Vampire Squid (video click), basically Paulson looked for guidance from GS CEO during 2008 crisis. There is no conflict of interest, so stop investigating, trust them already!

Of course, Jim Cramer believes that the US government looking for guidance from Goldman Sachs is good for the western world. (video click)

Forbes story on "Why You Can't Trust Those Jobs Figures", my spin, FINALLY some media attention on the magic behind the numbers. It is easier to cheat than to work on fixing root cause.

AIG logs first quarterly profit since 2007 - My spin, keep in mind AIG owes the US taxpayer over 87 BILLION (and that isn't counting the paper the FED has as "collateral" for loans...I suspect the collateral may be overstated by a tiny bit)

Freddie Mac announces 11 cents a share loss - My spin - US government has already sank 50 billion into Freddie in direct losses, once again, not counting collateral for loans given by the fed on paper I suspect has values over stated. The US government has 150 billion more lined up.

The Senate Ethics Committee said Senate Banking Committee Chairman Chris Dodd of Connecticut and fellow Democrat Kent Conrad of North Dakota didn’t violate ethics rules in refinancing their home mortgages with Countrywide Financial Corp. - My Spin - having special considerations for loans while representing the taxpayer to me is a conflict of interests, but what do I know?

Nasdaq, Bats to Stop Allowing Flash Orders for Stocks Sept 1st - My spin - if Flash orders are bad (ILLEGAL!) why not stop immediately?

Judge weighs in on BOA settlement with SEC on Merrill Lynch bonuses
A federal judge criticized on Monday a proposed settlement between the U.S. Securities and Exchange Commission and Bank of America Corp (BAC.N) over the payment of bonuses to Merrill Lynch & Co executives.

The largest U.S. bank agreed on August 3 to pay $33 million to resolve an SEC civil lawsuit accusing it of misleading shareholders by not disclosing it authorized the payment of up to $5.8 billion of bonuses to Merrill employees. About $3.6 billion was ultimately awarded and the bank did not admit wrongdoing.

Judge Jed Rakoff of the federal court in Manhattan put the settlement on hold, wanting to determine if it was fair to the public. - My spin, I'd be shocked if anything comes of this.


Other (non corrupt) News
Bank of England warns UK may face lost decade, similar to Japan - My spin , if England is lucky!
Japan's Future: "It's Going to Be Scary" - My Spin - Japan has had 2 "lost decades" in their financial institutions and stock markets. Japan refused to write down losses, which the US is following in footsteps. It is a pretty interesting future for Japan.......

Market target in 5 months

For the heck of it, I figured, lets project if the market continues on the streak of 52% every five months, where will the stock market be? Below is one possibility, assuming once the market breaks the "bear" trend line I stated, that it's off to the races. For those with life savings int he market, take a good look at this projection? Which is more likely as 10 million people are on unemployment ? The graph below, or a market that moves lower?

From WebSurfinMurf's Financial Blog

Crossroads

On Jan 2nd 2009, I pontificated some market predictions that there would be a bear trap, a mega rally, and after most people bought into a rally, the market would crash. It seems I got my bear trap and mega rally, and I got caught.

But now, I am finding myself questioning the near-term crash part. I have NO DOUBT the markets will never see the late 2008 stock market highs, adjusted for inflation, for a decade. I have NO DOUBT that the us will not see market highs of 2000 for over a decade. This blog is dedicated for me to orate the multitude of reasons why the US and the world economy is facing trouble.

But I am starting to have doubts of crash-timing. I am in the market deep on the short side, mainly because I believe in the next week to 6 months or so the market will be significantly lower. However, it has become apparent that the US government no longer enforces laws regarding security fraud, and the government is in direct cohoots with the likes of Goldman Sachs. Playing in a crooked casino is probably not the brightest of ideas.

Further, I need to have cash on-hand to place bets appropriately when the market does turn. Catching the exact top is folly. I do fear the day the market turns with any sort of conviction, the market will open down by an obnoxious amount, making playing the bear side only good if already in the market.

But for now, I have to face the fact that, I may be off significantly on market turn around. Friday felt like to me to be an obnoxious over-the-top blowout to the upside. That usually is followed by a market decline, maybe not a crash, but a "Retracement".

I also have to face the fact that the lies, fraudulent manipulation, and one-sided news reporting may produce an SPX 1200 before 700. To prevent my account to becoming a disaster, I will set some lines in the sand to start dumping 25, up to 50% of my highest risk positions. The SPX I consider is up against a very long down trend level, and up against the "Rally highs" in October 2008.

I will set lines in the sand to start covering positions on any day where SPX is ending at or over 1020. Friday's high was 1018, I want to leave a little room for some games on Monday/Tuesday. I will keep my shorts (which are doing OK), but start to lighten on my lottery tickets and high risk shorts if SPX breaks 1020 on a closing basis.

This is EXACTLY the wrong thing to do after the market rallied 52.8% straight up in 4 months, the market is bound to turn hard core down. But I just can't take the pressure of the markets going to SPX 1150 then turning, if that is in the cards.

From WebSurfinMurf's Financial Blog

This ties back to a chart I made on April 20th, 2009, showing the target upside for the SPX back then. How many readers believed back then that it was possible for SPX to hit the long term bear trend line? All has come to pass as foreseen, just not exactly in the way as I expected on a week by week basis. My lack of discipline of getting ahead of the market is my main problem. Bbelow I took the 4/20/09 graph and over-layed current market valuations, notice the trend line now has been hit as pontificated, but much quicker than expected.

From WebSurfinMurf's Financial Blog

How the US plans to pay it's debts

I have two videos, the first one is a "joke" and the second I WISH was a joke.
Unfortunately, the joke is a better solution than the reality.

U.S. Government Stages Fake Coup To Wipe Out National Debt

Karl of the Market Ticker lays out the "printing of money" to pay for debt, monetizing debt. This unchecked will lead to the collapse of the US dollar, and eventually the US government, as per banana republics.

Unemployment is out of control

This is a brief entry to highlight the excellent work of Mish disecting the sad state of unemployment in the USA.

The US Government has been directly misleading with unemployment statistics, which currently reside about 6 million officially. The real unemployment rate is about 10 million. Read Mish's article to understand the data manipulation and how truly bad this unemployment as compared to recent history. This economy won't turn around by Q4 2009, or for that matter Q1,2,3 of 2010.

Mish' also highlights how the US has been losing jobs since 2001. Not a cheery article to say the least.

Mish also has an article showing how wages are retreating, currently at 4.7% annually.
Interesting excerpt:
One of every 10 American workers will be without a job by early 2010, economists project, shaking the confidence of those still on payrolls and discouraging spending. It may take as long as 15 years for consumers to fully repair finances battered by the decline in home values, stocks and employment, said Edmund Phelps, winner of the Nobel prize in economics in 2006.

Monetizing debt

First, it is important to understand the term, Monetizing debt. Lets look at Wikipedia definition:

In the United States, and in many other countries, the government does not have the right to issue currency to pay its bills. In this case the government must finance its deficit by issuing bonds to the public to acquire the additional funds to pay its bills. However, if these bonds do not end up in the hands of the public, the only alternative is for them to be purchased by the central bank. For the bonds not to end up in the public hands the central bank must conduct an open market purchase. This action by the central bank increases the monetary base, through the money creation process. This process of financing government spending is called monetizing the debt.^[1] Monetizing debt is a two step process where the government issues debt to finance its spending, the central bank purchases the debt from the public, and the public is left with high powered money. When government deficits are financed through this method of debt monetization the outcome is an increase in the monetary base, or the money supply. If a budget deficit persists for a substantial period of time, then the monetary base will also increase, shifting the aggregate demand curve to the right leading to a rise in the price level.^[2]

To summarize: a deficit can be the source of sustained inflation only if it is persistent rather than temporary and if the government finances it by creating money, {through monetizing the debt}, rather than leaving bonds in the hands of the public.

In a nutshell, "real" governments don't print up cash to pay for it's debts. That results in hyperinflation and destabilization of governments and societies.

OK, so what does this have to do with US economy and the stock market? The blogs Zero Hedge and The Market Ticker have blog entries discussing recent discovery that the US Federal Reserve, working in concert with the US Treasury and a "third party" are basically printing money to pay off debts. (Monetization of debt) Click on the name of each blog to read up on this topic.

The result of this, if left unchecked, is destabilization of US dollar. One thing the US economy has for it, is any "cheating" like this doesn't result in the dollar collapsing overnight like Iceland. But it can destabilize and start a panic collapse over the course of weeks.

This and other practices is why I like natural resource based investments as a hedge. Everyone should have a minimum 20% invested in some sort of long term resource hedge. I for one trade in/out of resource stocks foolishly trying to make more money rather than buy and hold.

But for now the jury is out, this may be a complete misunderstanding by Zerohedge. Naked Capitalism posted a blog entry critiquing Zerohedge on why he is wrong in his analysis. Frankly, I wouldn't put it past the Fed/Treasury in doing such things. And since their operations are under a cloud with only pieces of information released, there is no real way to tell......until it is obvious to everyone.

However, if true, this would likely lead to interest rates to skyrocket, along with resources, and force houses to collapse completely, if left unchecked. For now, its worth watching, not time yet to run for the boarder. This gets an honorable mention as a "Ground Zero" event, but will be truly a ground zero event only if this is true and the Fed continues these actions.

Twitter down - Quick update

Twitter is down. I doubled up on FAZ this morning at about 26.50.

Market rumblings

The market behaved very....odd today. The indexes where down, slightly. But the banking index was on FIRE. Many banks that are well known to have financial issues went PARABOLIC up today, below are the winners for 1 day gains, with market overall down.

AIG (+62%), Fannie Mae (+29%), Bank of America BAC (+6.5%), JP Morgan (+3.9%), and others.
The US Treasury interest rates rose VERY fast, reaching back near the recent top in the TNX (+2.31% in TNX today alone!)
The value of GOLD was down most of the day, ending basically flat.

The blog rumor via to Karl of the Market Ticker blog is a very large hedge fund that was too heavy short blew up and forced them to close their positions. Makes sense, a very bearish hedge fund would own gold, us treasuries and be short the weak (bankrupt) financial companies. Today may have been an excellent day to get short some of these stocks, but on the other hand perhaps more short hedge funds are going to fall, driving a parabolic blow off. As previously blogged, once the shorts are pinched, the market will fall with velocity.

Also, in the Great Depression, there was two market crashes, one in 1929, and in 1930. The 1930 crash was WORSE than the 1929. Back then, the US government and media said the markets where stabilized, and the markets rallied +50%. The markets crashed after the +50% rally, about 5 months after the low. We are now in the same window to repeat history.

However, there is one VERY disturbing problem, the USD is continue to fall. If the USD hits the recent low, we could see an economic collapse of the USD, which should bring everything to a crash, with possible exception resources. If the USD falls, ironically, its best to be in cash or natural resources, not stocks. A USD collapse is not good for companies, but natural resources (like gold) should hold value.

As of now, its a day by day watching the train wreck unfold.

Shorting stocks in parabolic stock market rally

It's no secret to those reading this blog that I have been bearish (negative) on the stock market since SPX hit 930. Here we are with SPX at 1,005 and climbing. Further, the market has rallied over 50% since SPX low of 666 only 5 months ago, one of the hugest rallies in years.

Only an idiot would short the stock market in this environment, right? Well yes and no. Only an idiot (me) would short High Risk and Lottery ticket plays in such a market. The losses from these are mind numbing.

But shorting lower risk stocks have actually done quite well considering. Almost all of the stocks I quoted to short back on APRIL 29th are doing relatively well, considering such a huge rally. Lets take a look:

From WebSurfinMurf's Financial Blog

Now consider this, since 4/16/09, the S&P rose 16%! Once this market tanks ... and it will tank tomorrow, next week, next month, certainly in 2 more months... what will happen to these short plays?
Will these stocks rally to new highs as the market falls? Possibly, but odds are against it. And these stocks could gap down in a big way.

So even though my stock plays in high risk/lottery tickets are utter debacles, lower risk shorts are doing pretty good considering. Now, if I could only control my own greed and short only the lower risk stocks to reap gains when the market turns around, I would be a a great investor. As it stands, I need a little work.

For the "Record", these are the losses as of Tuesday, 8/4/09 in high risk/lottery tickets.

From WebSurfinMurf's Financial Blog

I'll be sure to refer back to this article when these numbers are all green +33% or much higher. I may no longer hold them, since I may not be able to withstand the pressure. The long haul is what counts, not guessing the exact turn point.

What is needed is the US to defend the dollar. If this doesn't occur real soon, I may retreat from these debacles in short order, even though over the long term I believe I am right. There is a point where you just can't take the risk anymore. If the US chooses hyperinflation, best to stand aside, retake big positions in resources, and ride this to its utter disastrous conclusion.

From WebSurfinMurf's Financial Blog

New Bull Market

Back on June 1st, 2009, I proclaimed the market was on track to hit SPX 1,000 or higher. Here we are 2 months later and it has finally come to pass. Problem is, I keep letting reality get in the way of trading the market, and I didn't believe it would come to pass.

The news is so bad, so horrible, that the fundamentals mean the market should trade much much lower. The GDP -1% on Friday was really -5.5%, for example. But the reality isn't the trade, its the lie. So today, of course, must be the top, since I started to finally reduce my risk.

The main issue right now is the USD, it is breaking down, and if it continues, the USD will hit new lows. Once that happens, it is possible for a free fall for the USD. The market will rally, as "cheap" dollar means the US is cheaper compared to the world. Also commodities will explode as the USD devalues. Problem is, so will Oil, ensuring companies that do not have in international presence to be under pressure by expenses. Of course a collapsing USD is horrible for US citizens, as their wealth compared to the world evaporates.

The question is, will this be allowed to happen? I am banking the US defends the dollar at some point, and the markets will retreat. But who knows besides Goldman Sachs and the Fed?

News such as SEC sues BOA over false statements on Merrill deal, FBI agents raid Colonial Bank (6th largest bank in US history to fail), Federal Tax revenues plummeting, Chrysler July sales fall 9%, GM buyout offers falls short of goal, layoffs loom, 3 Georgia banks get cease and desist orders, Wall Street reaps huge profits from easy money from Federal Reserve (and by extension, the taxpayer), Worldwide chip sales fell 20% year-over-year in the second quarter, is meaningless to the market direction. That is why I gave up reporting the real news, since it doesn't matter for market direction in the short term. In the long term, it means this rally is BS.

So , mantra is ignore the reality and watch the charts for now. As for my spin/advice: Each investor is on their own, I am holding my shorts, but lightening positions where possible, and adding to others. I have added to GMCR as a short, and added some October 70 FAZ calls at 0.80 each for some long shots. The higher this market goes, the harder it will fall, as we mirror the 1929-1930 crash.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Cash

How far can this bull run? I can't imagine this lasting into next week without a definitive answer. I see risk on both sides, a market move up higher or much lower. All investing to me is risk. Cash is safest play right now. I of course, am not listening to my own advice. I reserve the right to lighten positions without warning, but I'll try to summarize in the blog at night.

Until SPX 1K is broken, with a market CLOSE above that level, I am still banking on market reversal. It must happen, but if that is 1 day away or 3 weeks, is the question. And I can't take holding positions if SPX runs to 1100.

Good luck out there, and let's hope I am wrong, and this is a new 10 year bull market. High employment, low inflation, and rising real estate. But I can't bet on that yet. The current reality on the economy get in the way of me investing in a market bull.

Dazed and Confused

Last week, I blogged about caution about gold and gold miners. I would like to explain my recent bi-polar episode on natural resources. First, lets talk about the US Economy, and actions being taken to "improve" the economy.

The US Economy entered into a tailspin after 5 years of easy credit and massive debt spending from US citizen, to financial corporations, to the US government itself. The US Economy is based on 70% consumption. Once the inflation pyramid scheme built on housing valuations came apart, the US financial system was injured in fall of 2008.

What needs to be done to get the US back on track to become a strong economic leader is simple. Enforce existing laws, enact stricter laws (specifically around accounting tricks), bankrupt appropriate companies, and start to rebuild confidence the USA runs a tight ship. This of course would cause a market collapse during the transition, but in the end, the US system would be trustworthy and allow investing to return.

Instead what we have is politicians and Keynsian economists trying to throw FREE (taxpayer) money at Financial companies (TARP, lending programs, government backing debt), individuals (in form of housing refinancing, extended unemployment, etc), and putting all of this onto the bottom line of the US government's own solvency through debt notes. (US Treasury notes).

OK, great, now what does this mean to buying stocks, shorting stocks, or investing in natural resources?

Well, since the fundamentals of the US economy are NOT being addressed, the US government can't indefinately spend into a recovery. When the US spends TRILLIONS into debt, money must come from over-sea's to cover the debt notes US citizens don't buy. And here lies the problem.

What the government doesn't seem to realize is there is a FINITE amount of ways to move trillions of dollars around to influence financial markets. There is real estate (land), equities (stocks), debt (bonds), future contracts (commodities), and currency (Forex). There are many derivatives based upon these fundamental instruments, such as Credit Derivatives, options, etc, but basically money flows through the above investment vehicles.

So we have a basic problem that trillions of losses are still in the pipeline as overinflated real estate is deflated. Instead of the government taking these losses, there is a massive manipulation game to hide/avoid losses. This has the effect of DISPLACING the pressure off of equities onto other areas.


Forex
Right now we are seeing the USD fall, and if it breaks down, the best thing to own would be natural resources such as gold or gold miners. Also international companies should do well as the USD falls. However, if the USD gains strength, the markets should retreat and natural resources retreat. Click here for FOREX charts for USD.

Bonds
Also, we have interest rates for borrowing. If the rates go too high, we could increase housing and business failures. Interest rates can't (contrary to Ben Bernanke) held indefinitely low. As the US borrows trillions of debt, the rates will climb higher as our creditors want more for their co-operation. Historically, as interest rates rise, so does the value of natural resources. However if there is sufficient demand for US debt, due to other markets having fear or the US market having fear, then rates will remain low, and gold shouldn't appreciate as the "alternate" investment hedge.

Land
It is highly doubtful land will significantly appreciate by US driven demand for real estate. At job losses topping 500K per month, and a substantial backlog of available real estate, land I doubt will make an appreciable comeback to help markets. If fear subsides as real state rises, gold should fall in value, and vice-versa.

Commodities
As the US deficit spends, the number of paper debt notes it takes to buy physical gold should increase. However, in a massive recession/depression, ALL COMMODITIES should fell downward price pressure as demand for new production (and thereby need resources) drops. As economics destabilizes, powers that have commodities may see prices rise as protectionism rises, or as people move to commodities as a safe haven for wealth.

As you can see, all (except land) has possible scenarios to go in either direction. Each one makes a valid argument for resources or not. I for one have a hard time believing that the country will see new stock market highs. But who knows! At the flip of a switch, gold may be the best investment as panic returns to ther marketplace.

Who cases about reality....recession is OVER

I was stunned to see that on CNBC that Dennis Kneale, who has his own show, doesn't seem to care about the reality of the economy. His proof that the economy is recovering is the market is at a higher value?

I highly recommend watching this video, with a skeptic eye on how Dennis doesn't engage on details, and just wants to talk about BUZZ. What kind of media does the US have? Facts don't matter, only spin does. Karl has an in depth explanation of why GDP wasn't -1%, but more like -5.5%, click for video and graphs. EVERY US investor should click on to see how perverted the US government has become at presenting facts.



From Karl's post, I found these two graphs to speak loudest on the "health" of the US Economy.

From WebSurfinMurf's Financial Blog

Max Kaiser

Max Kaiser runs a video blog. The facts contained in the video reflect many of the points in my blog. However, Max's videos do seem a bit fringe even for me. However, since the mainstream media avoids almost all of these topics, I find Max a nice counterbalance to CNBC spin.