Wednesday, December 2, 2009


Have you ever seen a more PERFECT TIME to invest? Isn't Goldilocks beautiful? Is now the time to borrow a pile of money and invest in the stock market? Can you just throw a dart at a chart and buy the stock that it hits? This is pure insanity in the Mainstream Media. They would have you believe that everything is OK--or better than OK.

Did anyone notice that the price of copper is headed up at a rapid pace while the Bank of Japan is arranging for more short term financing, while the Dubai credit woes are fresh off the press? Does that bother anyone on the street other than me? My portfolio is telling me that I am the lone dumbass on the street.

I ask you the following:

1) If this is a great time to invest in US equities, why didn't we crank up the printing presses YEARS AGO? LOOK AT HOW PROSPEROUS WE COULD HAVE BEEN IF WE HAD BEEN PRINTING LONGER.

2) If the correlation between the fall of the dollar and the rise of the domestic equity markets can continue forever, how do I go about getting adopted by someone from Zimbabwe? There must be some rich jokers there.

3) If the smart money is "all in" equities, why is gold soaring and the bond market not getting smacked?

4) Did the banks really need all of the TARP money if they are repaying it so quickly? If they didn't really need it OR if things are so great and their balance sheets are totally repaired WHY ISN'T INFLATION NOT AN IMMEDIATE CONCERN?

5) If all of this liquidity is really so great over the long haul, wouldn't SOCIALISM BE MORE PROSPEROUS THAN CAPITALISM.

I argue that the phenomenons that we are seeing in the markets are PURELY SHORT TERM AND THE MEDICINE WE HAVE TO TAKE WHEN THEY CORRECT IS GOING TO BE BITTER.

Sunday, November 29, 2009

Where's Warren?

The last time that it really looked like the averages were going to roll over, Warren Buffett stepped up to the plate with his purchase of Burlington Northern and injected confidence that kept the rally in place. Now with the crisis in Dubai will the markets roll over or will we have some confidence booster that sends the rally higher? Before we answer that question, lets first analyze Buffett's bet.

Buffett said he was betting on America with this play. Now before I go into this analysis, let me state that I love my country and my analysis has only to do with what I SEE happening not what I WANT to happen. Was Buffett betting on the return of our economy or was he getting dual bang for his buck, by betting on coal and propping up other investments with his rally cry? I am of the opinion that Warren's bet was more a play on the fall of the dollar than anything else. Was he betting that coal was the only reliable source of energy that we will be able to afford? Was he betting that Congress is going to continue to push for protectionist measures and that coal would be a great play on those policies? Does Buffett understand that the American consumer still wants to buy, but the American voter is becoming more slanted toward entitlements? Does he know that the best place for a borrow and spend economy to get its energy will be internally? What do rails haul? A LOT OF THEIR REVENUE COMES FROM TRANSPORTING THE VERY THING THAT FIRES MANY OF THEIR ENGINES===COAL. So you get paid to haul what becomes not only the cheapest source of energy but perhaps one of two only affordable sources---with natural gas being the other.

Now one might argue that if my thesis is correct, why Buffett didn't bet on natural gas. It is cleaner, and we all know that "greener" is better, right. To that argument, I would question where the All-American bet would have been. There was no single investment that would have been as a diverse bet as the rails in the natural gas space. The old saying that "transports lead us out of a recession" may very well be seen again. I think right now after all the hype, I will let those smarter than myself chase the rails. As for Buffett's bet, I think he may have made a good one--albeit for different reasons that were hyped by the mainstream media.

I personally think that I may take a look at the natural gas transporters such as MMP as a way to play this economic environment. I clarify that statement by saying I am going to be very watchful as to the overall direction of the market before I commit any new "bullish" capital. I am currently holding FAZ, SDS, FCX. As always that is subject to change rapidly.

We have plugged disqus into our comment section to allow for multiple comments in a user friendly format. I challenge you to comment on the following questions as we think they are important to the overall picture. We believe that we learn from the thoughts of others and value reader input. We will NEVER sell or otherwise release your email address.


Given the other nations that are far ahead of us on a percentage of GDP basis, is the debasement of the dollar overdone?

Is the fall of the dollar in anticipation that this government will push us farther up the list?

Given the other countries on the list, is a major correction for the EUR/USD eminent?

Has the last 15% rally in the major averages been attributable to the fall of the dollar and if so, how far will the correction in the averages be if the dollar rallies significantly?

Will Santa Claus deliver one of the greatest December declines in history in 2009?


We will have more tonight!!!!

Monday, November 16, 2009

Futures Heading Higher

All I can thing of right now is the saying "The Markets can stay irrational longer than many investors can stay solvent" We are shrugging off massive debt, massive trade deficits and look to run even higher. The dollar continues to fall and the consensus seems to be that the entire world will use the lower dollar to bet the U.S. stock market. I am afraid that we are missing the boat and are in for some downside pressure. I just wonder how long I can stay solvent in the face of this "everything is wonderful" scenario.

No one seems to be worried that the farther the dollar falls, the more expensive our debt will really become (as foreign investors will require higher rates). Of course according to the markets action lately, having the Federal Reserve monetize the debt has worked really well---but we all know that is not healthy. Right now it seems like our economy is smoking cigarettes, drinking heavily, not exercising, eating pure fat, and GETTING GREAT CHECKUPS FROM DR MARKET. GO FIGURE

I do understand that the appetite for mergers is good for the markets and we have seen signs of that appetite being revived. Have you asked yourself the questions "where would we be had Buffett not decided to buy Burlington"? It seemed to me that the markets were headed down technically until the Buffett/Burlington announcement.

How can long can the Federal Reserve maintain that inflation is at bay with oil, gold, copper, corn headed much higher? We are drowning in liquidity and are choosing to look at it like "Goldilocks". The Fed should come out IMMEDIATELY AND ANNOUNCE A HALF POINT EMERGENCY RATE INCREASE. We need to curb this liquidity and curb it now. Such an announcement would strengthen the dollar and put us mentally in a much better position to combat inflation. If you read my blog about a year ago, I was arguing that the toughest thing to do would be to reign in the monetary supply while the economy was still struggling. If we don't do it now, we are headed for some massive pain on the inflation front and we all know that it is very difficult to deal with once it begins to spiral out of control. Bernanke and the Fed must believe that they can put the brakes on liquidity through open market operations at a rate faster than ever before. I don't see how, but they must have that confidence.

It shall be interesting to see where we head from here, but the futures are telling me that I will continue to be wrong at least for today.

Thursday, November 12, 2009


Many keep arguing that the main reason for the appreciation equities is the falling dollar. How long can that continue? Treasury Secretary Geithner said that we are committed to a strong dollar. Can it be achieved? We all know that we need the dollar to be strong but can it recover?

The futures are higher this morning on the back of the statement that the Euro Zone is officially out of the recession. Due to exports, they grew in the 3rd quarter. So is it all over? Are we back in the bull market for good? First, I don't put much stock in these numbers because of the massive worldwide stimulus. If it was this easy to come out of a recession, why don't we just print the heck out of money all of the time?

Lets take a look at what is driving the currencies. The dollar is falling because of the debt and the very low interest rates in the U.S. So if other countries grow faster and raise rates, will the dollar continue to fall? It could. So we just need to get Ben Bernanke to go ahead and raise rates now? Can we or would that send the economy back into a tailspin and prompt more stimulus and increase the deficit?

My simple point is this---I don't think that we can see the dollar's fall as good for much longer. The steps necessary to strengthen the dollar will bring more pain for our economy. SO ALL OF THE CURRENT EUPHORIA IS NOT WARRANTED AND WE WILL SEE SOME DOWNWARD PRESSURE ON STOCKS.

I have been wrong thus far, but still believe a retest of the March 2009 lows is not out of the question.

Tuesday, November 10, 2009

The Fall of the Dollar

Those of you that have followed my blog for a while know that I will admit when I am wrong. I have missed on the recent strength of the U.S. Markets. I believe that it has a lot to do with the constant decline of the dollar. I will have short posts over the next few days due to a death in the family.

Watch this vid on the dollar and check back soon!!!

Sunday, November 8, 2009

House of Cards 2.0

Did this market seem resilient this week or what? I must admit that I was surprised, but the lack of volume on Friday made me think I had forgotten about a holiday. At the risk of sounding redundant, lets go back and look at the GDP report and the FOMC statement. Is the FOMC in a corner? Was GDP really as good as was reported? If so, is it sustainable? Further, can the number be manipulated? How far can the GDP be moved by a small change in the deflator?

I submit that the GDP number was grossly overstated AND that the FOMC has painted itself into a corner. Now I am just a simple man, but didn't it sound like the FOMC said the economy is growing again, but inflation is off of the radar screen and we have no plans to raise rates in the near future? That was my interpretation. Isn't that like the weatherman who forecasts "Tomorrow will be clear to partly cloudy with a chance of rain"? If the GDP number is so improved, why would we not pull back on the debt purchased by the Fed? Wouldn't it be necessary to start moving toward neutral with money being injected into the economy? Aren't we monetizing our own debt when the Fed makes purchases now?

Don't most of us learn in Economics 101 that you can't create something out of thin air? Let me ask how, with unemployment over 10% and the worked hours still at the lows, we are expecting the consumer to rebound or even stabilize. Oh, I admit that it is great to hear earnings reports that "beat", but weren't expectations so low that beats should have been baked into the cake. And there is little correlation at this point between better than expected earnings. As a matter of fact, I would argue that more companies had better than expected earnings than had better than expected SALES. Better than expected earnings often come as a result of LABOR REDUCTIONS that outpace a decline in sales. But next could come the drop in sales as the consumer feels the heat of the extended unemployment.

The FOMC would have you believe that everything is fine, we have been through this before and have the road map to guarantee recover. We most certainly have NOT been here before! Never before have we seen our government take on this much debt---even to the point that we monetize it ourselves at an unbelievable pace. Two years ago, we lovingly had the term "Merger Monday" as things were great and deals went down on the weekend. Now we have shifted gears and have FAILURE FRIDAY, as we seem to have more financial institutions close every week.

How many of us expect the MAINSTREAM MEDIA to tell us the full story? Not this guy. Remember they make their money through advertisements. Their employees understand simple economics---consumer panic equals less advertising dollars which could mean the elimination of their jobs. So the MM will go out a find a number of so called "experts" to parade into our homes and tell us that "unemployment is a lagging indicator". That everything is fine and the natural progression from increased GDP is to a longer workweek and job creation. NOT THIS TIME I SAY. I wish it were that simple.

The FOMC says rates will remain low for an extended period of time. Do they have that much control? Anyone notice that the dollar has been falling? Can rates stay low if the dollar continues to fall? Doesn't a falling dollar mean inflation? So is the FOMC arguing that THIS TIME we will fight inflation with low interest rates? Is the Fed planning to quick injecting money into the system to combat inflation? Not according to their most recent statement. Have you heard the mainstream media analyze this predicament over the past few weeks or days? Should FOMC Chairman have had a "chat" with Speaker Pelosi before she passed nationalization of 18% of our economy equating to MORE FEDERAL DOLLARS being injected into the system. Is there anyone out there that REALLY believes that this healthcare bill will REDUCE THE DEFICIT? So if it increases the deficit and the FOMC is not worried about inflation, are we fighting inflation with higher deficits? If you could spend yourself to prosperity wouldn't everyone be rich?

How can we expect the creation of this nanny state to improve our economic situation. If we were really improving our economy, as the recent reports would have you believe, wouldn't productivity be increasing? Is there anyone out there that believes this nanny state will IMPROVE PRODUCTIVITY? IT WILL SLAM PRODUCTIVITY. The only shortage we will not have is people wanting something for nothing. When fewer make, yet more consume, doesn't the family's productivity decline. YOU BET.

We just thought the subprime mess was a house of cards. Remember when we first hear the term "subprime crisis" how many downplayed the effects. Remember all of those brokers and analysts that appeared on MM shows and ran through the drill that the company would be worth X even if you subtracted all subprime investments (then they assured you how "all would not be lost"). So are you willing to listen to that same endless parade of participants that told you it wasn't that bad===all over again? I am not. Are these not the same people that are out there trying to convince you that the housing market is rebounding. If it is rebounding why is the government extending the home buying credits? Wouldn't that be stupid in the face of inflation? Wait, are you telling me that we are combating inflation with homebuyer tax credits?

Subprime and the investment banking house of cards was JUST THE FIRST PART OF THIS CRISIS. Now we are faced with unemployment, continued real esate decline---both commercial and residential (with the major effects from the commercial downturn on the horizon). Instead of letting the free markets work like we did for the first couple hundred years of our existence, we have decided that we can't have normal corrections and must "intervene". You can't mess with free markets and when you "intervene" you only cause bubbles that WILL BURST IN THE FUTURE. The scary thing is that this time bubbles may not feel like bubbles. This time the bubbles that we are creating may feel like recession. And when they burst we may well get the longest depression in history. Believe me, the Greenspan era was dominated by bubbles and when subprime hit many months back many analyst said we had to quit living in "excesses". What will be the new definition of "excesses" Last time it was designer clothes, luxury vehicles, and other amenities. This time will it be household electricity, clean water, and routine medications? If we continue down this path it well could be.

I am interested to see how the futures traders view the bill that was passed last night. I think tomorrow could be a 5% or more down day for the markets, but we will reserve judgement until we see how the futures traders and those "across the pond" decide to open things in a few hours. For now, I am very happy that I entered the weekend net short!!!

Saturday, November 7, 2009




I have written several articles about the recent move toward what I referred to as socialism only to have some "expert" come back and give me the technical definition of socialism, fascism, or some other "ism". Now truth be known I am an investor and could care less about the technical definitions. I am simply trying to make money in the markets, and many critics stop by to inject their political views.

Regardless of what you would like to term it, our government is increasing regulations in many industries and that is never good for the long term health of the markets. Now before you rush to send me a heated email saying how regulation could have prevented the banking crisis last year---keep reading. Consider how regulation is generally a "pendulum" that swings too far. The Community Reinvestment Act was partly at fault for the banking crisis last year. ANYTIME Government mandates that private business make loans to certain individuals it is a recipe for disaster.

The current healthcare debate from a financial perspective is many, many times worse for our economy. This bill could truly bankrupt our country. Six years ago, as the CEO of a company with over 250 employees I was faced with increasing cost of employee health insurance. Rates for my company had jumped double digits in the previous two years and I was very concerned. In exploring every option, I received advice from an expert to increase my deductible and copays on prescription medications modestly. Our plan structure before had no deductible and copays for medications of $5, $10, and $20 for a 30 day supply. Simply by adding a $150 deductible (very reasonable as the average hourly wage at our firm was around $18) we found that utilization was reduced tremendously. Why? Because at such low rates consumers have very little "personal responsibility" in the consumption decision. Did such a deductible deny anyone life-saving medication? NO WAY!

So consider the quagmire that any public option will create for the economy. If the government does not limit consumption, you can be GUARANTEED that they have underestimated utilization in the cost of the bill. If they do limit consumption THEY ARE TAKING YET ANOTHER STEP IN LIMITING FREEDOM. Now again, I know all of the counter arguments. Many will argue that private insurance companies are making life or death decisions when they make payment determinations and are in fact limiting freedoms now. But consider this, remember several years ago when HMO's were going to be the greatest money saving instrument in the healthcare arena. The basis of the HMO concept was to have the primary care physician "quarterback" the patients care by authorizing visits to specialists. HMO rates were much more favorable than traditional rates for the end consumer. What happened? Many consumers decided they wanted to pay more for traditional care and now some HMOs exist, but they do not dominate the marketplace. That is the beauty of the free market system, consumers get what they are willing to pay for.

So what happens if the government option offers lower copays and rates than private insurance? Another government monopoly. Oh it sounds great to have this fine plan available to everyone. And when the competition is gone what will happen to the government plan? It will either bankrupt the government or be able to quickly take action to LIMIT CONSUMPTION. EITHER WILL BE AWFUL IF NOT FATAL TO OUR ECONOMY---NOT TO MENTION THE PERSONAL FREEDOMS THAT OUR COUNTRY WAS FOUNDED UPON.

So I am the one sounding political you say? I am analyzing my next move in the market if this legislation passes this weekend. Will it end the rally, or will it cause the rally to ignite because of concerns over the weak dollar? GIVE US YOUR THOUGHTS IN THE COMMENTS SECTION!!!!!!!!

I submit that this rally began as a bear market rally and has extended of late as the weak dollar has made equities cheaper abroad. Yes it has made the earnings of our companies abroad much more valuable, but that can't last forever. While it will be a topic for a more detailed post---there is a point of diminishing return with a cheaper currency and believe me this "honeymoon phase" that we are in with the weaker dollar will come to a screeching halt soon.

Yes GDP technically grew and consumer confidence is up. Many will argue that when GDP begins to grow it signals that things are better and unemployment rates are naturally a laggard---so not to worry. But the pillar of that thesis HAS TO BE THAT GDP GROWS FAST ENOUGH TO CREATE MEANINGFUL, SUSTAINABLE JOBS. We have been propped up by the falling dollar, massive government stimulus (cash for clunkers, housing tax credits), ridiculous bailouts that have all but altered the safety of our system know as contract law. You tell me, how many things mentioned are realistically still in the governments arsenal if they need to be repeated? What will happen to the dollar if we come back to the GIMME TABLE AND START OVER WITH THE BAILOUTS AND HANDOUTS? The answer lies in the recent dollar movement DOWNWARD. Downward enough where we are guaranteed to hit the point of diminishing return. The point where inflation hits, jobs produce much less disposable income AND ARE HARDER TO CREATE.

Is it 1929 all over again? Honestly, I despise comparisons of that nature. They are tough to substantiate. What I do know is that we are in a very difficult spot and while many positively refer to this healthcare legislation as "historic", I am afraid that its economic impact on our future generations will be more accurately termed as "bankrupt". I am certainly not advocating wildly shorting everything, as there are many sectors that will benefit over the short run if this legislation passes. I do however think that we are going to see many volatile trading days ahead and while many of my peers are hanging in with a long bias, I have a short bias and am patiently waiting for those bets to pay off.