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!!!
Tuesday, November 10, 2009
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!!!
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
SOCIALISM, FASCISM OR JUST TOO MUCH REGULATION?
BREAKING NEWS===HOUSE PASSES HEALTHCARE BILL. 1929 MAY BE MILD COMPARED TO WHAT WE ARE ABOUT TO FACE. THE BELOW ARTICLE WAS WRITTEN THIS MORNING BEFORE THE PASSASGE OF THE HORRIFIC BILL.
MAKE YOUR COMMENTS BELOW===WE WILL NEVER RELEASE YOUR EMAIL ADDRESS
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.
MAKE YOUR COMMENTS BELOW===WE WILL NEVER RELEASE YOUR EMAIL ADDRESS
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.
Tuesday, November 3, 2009
Crisis Over===OR JUST BEGINNING
THE MONEY MULTIPLIER CONTINUES TO MAKE NEW LOWS. Take a look at the chart below.
Let me tell you what puzzles me about this chart. We have had unprecedented government borrowing and stimulus, yet the money multiplier is as Dennis Gartman would say is "Moving from the upper left to the lower right" Wouldn't conventional wisdom tell us that for the economy to get going again the money multiplier would have to increase? The shaded bars depict the recessions we have seen during the given time period. Note that as we came out of the recession period the multiplier stabilized, but never really seemed to assume a bullish pattern. Yet didn't the economy resume bullish activity?
So the question is how did the economy begin churning again with the money multiplier stagnant.
What role did credit play with respect to the money multiplier? We know that the U.S. consumer relied heavily on credit during the time period. But wouldn't overly accessible credit have increased the money multiplier?
Would the dovish monetary policy of the Greenspan era have had any impact on the multiplier? Many would argue that the dovish policy would have increased the money multiplier--but did it? So if Greenspan was truly creating a "bubble" as many have argued then wouldn't the multiplier have increased?
Take a look at the steep drop in the multiplier recently. That is the point that many pundits, including many that appeared on our show argued that the credit was destroyed and deflation set in. I believe that assessment is right, but according to the experts we have fixed the financial system. So the money multiplier should be increasing? Right? But it is not.
Many would argue that this time is no different---we came out of recessions with no increase in the money supply before and we will do it again. I DISAGREE!!!! There are those who would argue that we have always used debt and that we are intelligently utilizing debt over the short run. I DISAGREE!!!! Why is this time different you ask? Let me make this point. Companies use debt because they believe that they can earn a greater return on the debt than they will have to pay. It is that simple. So why would the government borrow money? To get the economy going again? It is that simple. BUT THE MONEY MULTIPLIER IS NOW IN NEGATIVE TERRITORY. So what happens if a company borrows money--lots of it---for say 6% and then earns a NEGATIVE RETURN? They go bankrupt. And that is exactly where we are headed with our entire economy if we don't focus on being PRODUCTIVE. There is no free lunch and you can't get a multiplier effect on giveaways because it has to be paid for. It is not just a zero sum game where one pays and one receives. The giveaways are being financed and the ones paying are paying for the gift and the interest.
More inefficient government dollars will NOT get the system going again. Many have argued that we cannot see stagflation for a sustained period of time. I will in a coming post show why I think that we can. I will give you the fact that the markets looked like they did not seem to want to go lower today.
BUT IN THE LONG RUN, OUR LACK OF PRODUCTIVITY WILL SEND THE ECONOMY INTO A TAILSPIN. I AM STICKING WITH MY SHORTS AND MY INFLATION HEDGE----SOUNDS LIKE AN OXYMORON AND I WOULD HAVE NEVER BELIEVED THAT I WOULD BE WRITING THAT IN THE SAME SENTENCE.
MORE LATER
Let me tell you what puzzles me about this chart. We have had unprecedented government borrowing and stimulus, yet the money multiplier is as Dennis Gartman would say is "Moving from the upper left to the lower right" Wouldn't conventional wisdom tell us that for the economy to get going again the money multiplier would have to increase? The shaded bars depict the recessions we have seen during the given time period. Note that as we came out of the recession period the multiplier stabilized, but never really seemed to assume a bullish pattern. Yet didn't the economy resume bullish activity?
So the question is how did the economy begin churning again with the money multiplier stagnant.
What role did credit play with respect to the money multiplier? We know that the U.S. consumer relied heavily on credit during the time period. But wouldn't overly accessible credit have increased the money multiplier?
Would the dovish monetary policy of the Greenspan era have had any impact on the multiplier? Many would argue that the dovish policy would have increased the money multiplier--but did it? So if Greenspan was truly creating a "bubble" as many have argued then wouldn't the multiplier have increased?
Take a look at the steep drop in the multiplier recently. That is the point that many pundits, including many that appeared on our show argued that the credit was destroyed and deflation set in. I believe that assessment is right, but according to the experts we have fixed the financial system. So the money multiplier should be increasing? Right? But it is not.
Many would argue that this time is no different---we came out of recessions with no increase in the money supply before and we will do it again. I DISAGREE!!!! There are those who would argue that we have always used debt and that we are intelligently utilizing debt over the short run. I DISAGREE!!!! Why is this time different you ask? Let me make this point. Companies use debt because they believe that they can earn a greater return on the debt than they will have to pay. It is that simple. So why would the government borrow money? To get the economy going again? It is that simple. BUT THE MONEY MULTIPLIER IS NOW IN NEGATIVE TERRITORY. So what happens if a company borrows money--lots of it---for say 6% and then earns a NEGATIVE RETURN? They go bankrupt. And that is exactly where we are headed with our entire economy if we don't focus on being PRODUCTIVE. There is no free lunch and you can't get a multiplier effect on giveaways because it has to be paid for. It is not just a zero sum game where one pays and one receives. The giveaways are being financed and the ones paying are paying for the gift and the interest.
More inefficient government dollars will NOT get the system going again. Many have argued that we cannot see stagflation for a sustained period of time. I will in a coming post show why I think that we can. I will give you the fact that the markets looked like they did not seem to want to go lower today.
BUT IN THE LONG RUN, OUR LACK OF PRODUCTIVITY WILL SEND THE ECONOMY INTO A TAILSPIN. I AM STICKING WITH MY SHORTS AND MY INFLATION HEDGE----SOUNDS LIKE AN OXYMORON AND I WOULD HAVE NEVER BELIEVED THAT I WOULD BE WRITING THAT IN THE SAME SENTENCE.
MORE LATER
RBS Needs $42 Billion Infusion
When I woke up this morning, I turned on Blomberg to hear them report that RBS will get a 42Billion dollar infusion. Fair to say that banking is back at the epicenter of traders minds? The futures are lower (though off the lows of the morning) and I just can't see anything positive this week.
Yesterday proved that there are both some jitters and some money ready to be deployed. The see saw action yesterday reminded me of this time last year when we started a fairly rapid descent.
Is the Euro-Yen telling us that risk is ready come off of the table? The pair is down about 1% which is just another sign to me that we are going to see a rapid decline in equities (particularly financials) in the coming days. I added to my FAZ position yesterday and even though the position moved against me by the end of the day, I was content to hang on to it and wait. With bad news out of the banking sector on a daily basis I think FAZ will be a good one for me.
It always amazes me when I get comments like "have faith in your country" after I make a negative post about the economy. First and foremost, I love this country. I am proud to be an American, but I don't think the recent actions of our government are going to be good for our ECONOMY. It takes a ridiculous individual to interpret a short play on our economy as unpatriotic. It also amazes me when I see comments like "we always rebound and have always used debt". We have never used this massive amount of debt and thing will not always stay the same. We have been prosperous because we had a system of capitalism and a system that could be trusted. If we compromise those principles, things will change for the worse in a hurry.
BREAKING NEWS: BLOOMBERG REPORTS THAT BERKSHIRE HATHAWAY IS BUYING BURLINGTON NORTHERN. The futures got a quick pop off of the news, but are still in negative territory.
QUESTION OF THE DAY: WHERE DO OUR MARKETS GO IF OUR MONEY MULTIPLIER STAYS DOWN AS JOBLESS AND SAVINGS RATES INCREASE IN TANDEM WHILE GLOBAL INFLATION SLOWLY SETS IN WITH THE EXPANSION OF OTHER ECONOMIES?
Yesterday proved that there are both some jitters and some money ready to be deployed. The see saw action yesterday reminded me of this time last year when we started a fairly rapid descent.
Is the Euro-Yen telling us that risk is ready come off of the table? The pair is down about 1% which is just another sign to me that we are going to see a rapid decline in equities (particularly financials) in the coming days. I added to my FAZ position yesterday and even though the position moved against me by the end of the day, I was content to hang on to it and wait. With bad news out of the banking sector on a daily basis I think FAZ will be a good one for me.
It always amazes me when I get comments like "have faith in your country" after I make a negative post about the economy. First and foremost, I love this country. I am proud to be an American, but I don't think the recent actions of our government are going to be good for our ECONOMY. It takes a ridiculous individual to interpret a short play on our economy as unpatriotic. It also amazes me when I see comments like "we always rebound and have always used debt". We have never used this massive amount of debt and thing will not always stay the same. We have been prosperous because we had a system of capitalism and a system that could be trusted. If we compromise those principles, things will change for the worse in a hurry.
BREAKING NEWS: BLOOMBERG REPORTS THAT BERKSHIRE HATHAWAY IS BUYING BURLINGTON NORTHERN. The futures got a quick pop off of the news, but are still in negative territory.
QUESTION OF THE DAY: WHERE DO OUR MARKETS GO IF OUR MONEY MULTIPLIER STAYS DOWN AS JOBLESS AND SAVINGS RATES INCREASE IN TANDEM WHILE GLOBAL INFLATION SLOWLY SETS IN WITH THE EXPANSION OF OTHER ECONOMIES?
Monday, November 2, 2009
Futures Point to Higher Open
At 7:15 am eastern, the futures are pointing to a higher open. Will I take criticism if the markets rally today? You bet---but part of being a successful trader is being able to accept being wrong. You just have to live to trade another day. I am not giving up on my thesis, and am still expecting us to end the week lower than we were on Friday.
Ford is out this morning with "blowout numbers" and will open much higher. While I admit that the team at Ford has done a better job than the competition during the economic downturn, I can't get excited about any numbers driven by government stimulus (Cash for Clunkers) created demand.
Why do I feel so strongly that these markets are headed down?
1. The deficit is overwhelming---enough said.
2. The falling dollar contributed to both the top line and bottom line to many companies last quarter. We are past the point of diminishing return.
3. The jobless rate is getting worse.
4. The money multiplier is in NEGATIVE TERRITORY
5. The next government stimulus (if there is one---will send the markets down as the markets have already told us that we are at the breaking point on debt)
6. Banks are failing every week.
7. Valuation got ahead of itself, money has been made and many are going to be willing to bail out of the markets with their profits.
8. The worst is yet to come for commercial real estate.
9. GDP across the globe is improving and we could find ourselves redefining stagflation.
Sound simple? If the above list seems to simple, then go take a look at how many stocks have recently violated their 200-day moving average. From a technical perspective what happens after that all important line is violated?
I will be watching volumes early this morning. Friday had some high volumes late in the day, but you have to remember that many mutual funds ended their fiscal year on Friday.
I consider the biggest risk to my thesis to be the potential that the dollar falls faster than expected. Jim Rogers has made the point on our show that if the dollar falls fast enough, the major averages can go up while you lose "real" wealth. Marc Faber has called cash a risky asset for that very reason.
I think we see 9000 before we see 10,200.
I bought FAZ on Friday (not one for the faint of heart). I am holding FCX as my inflation play. Otherwise, I am watching and waiting.
Please make your comments. We WILL NOT ever sell or otherwise release your email. I firmly believe that we learn from each other. Just keep it clean.
Ford is out this morning with "blowout numbers" and will open much higher. While I admit that the team at Ford has done a better job than the competition during the economic downturn, I can't get excited about any numbers driven by government stimulus (Cash for Clunkers) created demand.
Why do I feel so strongly that these markets are headed down?
1. The deficit is overwhelming---enough said.
2. The falling dollar contributed to both the top line and bottom line to many companies last quarter. We are past the point of diminishing return.
3. The jobless rate is getting worse.
4. The money multiplier is in NEGATIVE TERRITORY
5. The next government stimulus (if there is one---will send the markets down as the markets have already told us that we are at the breaking point on debt)
6. Banks are failing every week.
7. Valuation got ahead of itself, money has been made and many are going to be willing to bail out of the markets with their profits.
8. The worst is yet to come for commercial real estate.
9. GDP across the globe is improving and we could find ourselves redefining stagflation.
Sound simple? If the above list seems to simple, then go take a look at how many stocks have recently violated their 200-day moving average. From a technical perspective what happens after that all important line is violated?
I will be watching volumes early this morning. Friday had some high volumes late in the day, but you have to remember that many mutual funds ended their fiscal year on Friday.
I consider the biggest risk to my thesis to be the potential that the dollar falls faster than expected. Jim Rogers has made the point on our show that if the dollar falls fast enough, the major averages can go up while you lose "real" wealth. Marc Faber has called cash a risky asset for that very reason.
I think we see 9000 before we see 10,200.
I bought FAZ on Friday (not one for the faint of heart). I am holding FCX as my inflation play. Otherwise, I am watching and waiting.
Please make your comments. We WILL NOT ever sell or otherwise release your email. I firmly believe that we learn from each other. Just keep it clean.
Sunday, November 1, 2009
Eric Cantor: Small Businesses to Pay for Healthcare Overhaul
There is no doubt that any additional tax on small business will rock the stock market. Later we will have a detail about the money multiplier, the so called good GDP number and how it was worse than one of Greenspan's bubbles, and why we think the market will go below the March 2009 lows in the coming months. Stay tuned
HELP US TURN THIS INTO A GREAT FORUM FOR THE EXCHANGE OF IDEAS. HAVE YOUR VOICE HEARD.
WE WILL NEVER SELL OR RELEASE YOUR EMAIL INFORMATION!!!!!!!!!!!!
Saturday, October 31, 2009
Government Policies Taking Us Back To 1987?????
I am not a history buff at all, but sometimes it pays not to ignore the obvious. When in history have huge defecits been good for the economy in the long run? When have artificial bubbles not burst? We saw the market make a huge rally on Thursday as we "discovered" that GDP grew during the quarter. BUT a deeper look saw the artifical increase by government stimulus-THAT CAN'T OCCUR AGAIN. Can't? Well couldn't the government just heat up the ole check writing machine and pump some more stimulus into the pockets of consumers? They could, but it would not have the same effect? Why? Because everyone knows that our NATIONAL DEBT IS AT THE BREAKING POINT!!! We are on the verge of collapse if tax, spend, regulate, and fake doesn't come to a screaching stop.
Has this been a government stimulus rally? Was the smart money on the street able to take advantage of the momentum and push the markets even higher? And perhaps the biggest question WERE THE MARCH 2009 LOWS THE LOWS OF THIS RECESSION? I believe that the smart money took advantage of the change in momentum and picked up consumer confidence. I believe that the March 2009 lows will be tested and probably broken within the next 6 months.
Taking a look at charts around various industries, we find many charts close to their 200 day moving averages. If these averages are violated, will panic set in? I believe that it will----AND THIS TIME, IT WILL BE WORSE THAN BEFORE.
I bought FAZ on Friday had a nice gain. I am looking to roll out of many of my positions and be prepared to get short. The obvious play appears to be short real estate and mortgage companies---but be careful. That trade could be crowded as many well know experts brought the thesis to the forefront of attention late last week.
Is the American consumer in the tank? Is it in worse position than it was this time last year? A government stimulated jobless recovery (and the most socialistic policies of our time) tell me that the consumer is in far worse long term shape than anyone in the MAINSTREAM MEDIA IS WILLING TO ADMIT.
No the drop might not be overnight---but our standard of living is in decline. Those willing to overspend will not be able to access the levels of credit they were able to access just 18 months ago. And those with excess income, are going to tend to save rather than spend. So how far will we contract? How far socialist will our nation become? The more socialist we become===THE MORE BEARISH I WILL BECOME. AND LETS DON'T EVEN TALK ABOUT HOW INFLATION DURING THESE TIME COULD HAMMER THE ECONOMY IF IT GETS OUT OF THE BAG.
See Congressman Michelle Bachmann speak out against SPEND NOW AND LET SOMEONE ELSE PAY LATER. SHE ALSO TALKS ABOUT WHAT IS HAPPENING TO THE DOLLAR!!
MAKE COMMENTS!!!!! LETS HAVE SOME THOUGHTFUL DEBATE HERE. WE CAN ALL LEARN FROM EACH OTHER'S IDEAS!!!!! We will never release your email address.
CHECK BACK SOON!!!!
Has this been a government stimulus rally? Was the smart money on the street able to take advantage of the momentum and push the markets even higher? And perhaps the biggest question WERE THE MARCH 2009 LOWS THE LOWS OF THIS RECESSION? I believe that the smart money took advantage of the change in momentum and picked up consumer confidence. I believe that the March 2009 lows will be tested and probably broken within the next 6 months.
Taking a look at charts around various industries, we find many charts close to their 200 day moving averages. If these averages are violated, will panic set in? I believe that it will----AND THIS TIME, IT WILL BE WORSE THAN BEFORE.
I bought FAZ on Friday had a nice gain. I am looking to roll out of many of my positions and be prepared to get short. The obvious play appears to be short real estate and mortgage companies---but be careful. That trade could be crowded as many well know experts brought the thesis to the forefront of attention late last week.
Is the American consumer in the tank? Is it in worse position than it was this time last year? A government stimulated jobless recovery (and the most socialistic policies of our time) tell me that the consumer is in far worse long term shape than anyone in the MAINSTREAM MEDIA IS WILLING TO ADMIT.
No the drop might not be overnight---but our standard of living is in decline. Those willing to overspend will not be able to access the levels of credit they were able to access just 18 months ago. And those with excess income, are going to tend to save rather than spend. So how far will we contract? How far socialist will our nation become? The more socialist we become===THE MORE BEARISH I WILL BECOME. AND LETS DON'T EVEN TALK ABOUT HOW INFLATION DURING THESE TIME COULD HAMMER THE ECONOMY IF IT GETS OUT OF THE BAG.
See Congressman Michelle Bachmann speak out against SPEND NOW AND LET SOMEONE ELSE PAY LATER. SHE ALSO TALKS ABOUT WHAT IS HAPPENING TO THE DOLLAR!!
MAKE COMMENTS!!!!! LETS HAVE SOME THOUGHTFUL DEBATE HERE. WE CAN ALL LEARN FROM EACH OTHER'S IDEAS!!!!! We will never release your email address.
CHECK BACK SOON!!!!
IS IT 1987 ALL OVER AGAIN?
I have taken several months off from blogging and must say I miss the daily interaction with readers and am glad to be back. I have been telling my friends that I am reducing my holdings in stocks and believe that we could be headed for a 1987 type crash in the near future. Am I crazy? Well those of you that saw my call on UNG may think so. I lost a lot of money on that trade.
How do I recover from my losses, by analyzing what I did wrong and making another play---essentially living to play another day and by being smarter on the next trade.
I really thought we were headed for a period of massive inflation and I chose to play that through natural gas. Was I wrong on my inflation play? Was I wrong that inflation would begin with the decline in the dollar? I think I am still on the right track, but I think we are in for a very weird period first. Right now we seem to be in a quagmire whereby the strength in the dollar will hammer the markets? Wait a minute---doesn't Larry Kudlow scream for King Dollar every night? If the dollar strengthens, we lose two components that really helped earnings this quarter---exports and the boost from the exchange rates for companies earning in other currencies. If that shoe drops, we quickly find out that this market got overvalued in a hurry and the future isn't so bright. 700 on the SP by years end? Stay tuned.
I will have more this weekend and I am glad to be back. We will be bringing you interviews again in the very near future.
How do I recover from my losses, by analyzing what I did wrong and making another play---essentially living to play another day and by being smarter on the next trade.
I really thought we were headed for a period of massive inflation and I chose to play that through natural gas. Was I wrong on my inflation play? Was I wrong that inflation would begin with the decline in the dollar? I think I am still on the right track, but I think we are in for a very weird period first. Right now we seem to be in a quagmire whereby the strength in the dollar will hammer the markets? Wait a minute---doesn't Larry Kudlow scream for King Dollar every night? If the dollar strengthens, we lose two components that really helped earnings this quarter---exports and the boost from the exchange rates for companies earning in other currencies. If that shoe drops, we quickly find out that this market got overvalued in a hurry and the future isn't so bright. 700 on the SP by years end? Stay tuned.
I will have more this weekend and I am glad to be back. We will be bringing you interviews again in the very near future.
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