Thursday, May 29, 2008

Next Post Won't Be Till First Week Of June

posted by TimingLogic at 7:30 AM links to this post

Friday, May 23, 2008

Moody's & Credit-Rating Firms Serve At The Pleasure Of Wall Street?

posted by TimingLogic at 8:43 AM links to this post

Thursday, May 22, 2008

Peak Oil & The Libyan Oil Minister Shokri Ghanem Comments On Speculation

I have chafed at the notion of peak oil this entire cycle. That doesn't mean I wouldn't have invested in it. As I've said, two of my favorite stocks this cycle were Valero and U.S. Steel. The key word is 'were'. Both posted exponential gains. In investing, you never fight market moving money, the trend or fundamentals. But, this isn't about investing. It's about economics. There are two reasons I discount peak oil. One, we are in a financial bubble and two, it isn't based on good science. In other words, it doesn't hold up to peer review. I could punch holes in almost every argument all day long and I'm not even conversant on the topic. Well, no more conversant than any Wall Street pumper handed a microphone. But, since most people writing about peak oil don't understand science and obviously don't understand the rigorous process of peer review, they can and do say whatever they want. And because they have the microphone it has generally been accepted as truth. Of course, those who do understand the rigorous process required for some scientific validity have been drowned out. One such person is Michael Economides, an oil expert and professor of chemical and biomolecular engineering who has repeatedly said there is plenty of oil. Maybe not readily available at this instant because of decades of underinvestment by oil producing countries but there is plenty of oil. But, we won't waste time talking about dissenting views to those of the herd. I'm not saying the theory of peak oil might not have some validity. But, I seriously doubt that is a theory we will ever need to worry about testing as we move towards a more sustainable economic model. Clarification Update: I finally realized at least one person is misinterpreting this post. Take this paragraph in the context of the opening sentence which defines the context of the paragraph. English 101. I am talking about this cycle. Now. I am talking about the prognosticators who are telling us oil is at $135 because of peak oil. I am talking about the peer review of this actually being the onset of peak oil not holding up when many scientists are telling us there is plenty of oil. Not a peer review of whether peak oil itself is plausible. Now. This cycle. As I clearly state that the concept of peak oil may have validity but there is no reason to believe we are there based on available data.

I would highly encourage you to listen to this interview with the Libyan Oil Minister interview on Bloomberg. He actually states concern for his economy. Why? Because he knows speculators could destroy economic demand for oil - even permanently - and therefore the future economic vitality for his country. Yes, oil prices at this level are not in the long term interests of OPEC. We are most surely in an oil blow off driven by too much money chasing too few assets in the financial markets. Not in the real economy. That isn't inflation. It's speculation. Just like stocks into 1929. The consequence of this speculation is indeed higher prices and economic suffering by billions around the globe. It's very disconcerting to know that unregulated capital is responsible for children without food in their stomach. It's even more disconcerting to know that officials are doing little to stop it.

Don't miss the fact that oil dropped nearly ten points, then rose nearly eight points, then fell nearly eight points and then again rose about fifteen points within the last month or so. That is wild volatility and if you know anything about financial markets, wild volatility often precedes a change in trend. It also supports my post about waining buying pressure in the energy markets while prices pushed higher. Is a change in trend a week from now or a month from now or $50 points from here? Or a year from now? It's when buying exhaustion sets in. When is that? That's a phenomenon without an answer.

Bonds and stocks hold some intrinsic value in the form of dividends or payment streams. That is unless you buy non dividend paying investments trading at valuations of 3-10x what stocks were in 1929 like RIMM, Apple, Baidu and the other ridiculous bubbles pumped by Wall Street clowns. What value does a derivative on energy hold? None. It's gambling. There are trillions of dollars in oil-related financial products held by financial institutions. Ten years ago that was basically zero. Wall Street is plowing into these products so hard that as they exceed their buying limits under U.S. regulation, they then game the system by going overseas and buy more. This entire cycle is riddled with scheme after scheme at our expense.

Commodities are always the latest cycle investments to fall in the economic cycle. Remember, the biggest pumper, Matt Simmons, in the peak oil scheme is a banker. The same clowns that created the housing mess, the private equity mess, contributed to the emerging markets mess, the mortgage mess, the SIV mess, the the the the. Just in the last few days I saw someone with no credentials remark that he started a peak oil blog. It only took only eight years to get everyone onto this scheme. Wall Street could perpetrate it, because without oversight and transparency, most people don't have any idea what they are doing. And, because they have the microphone.

Arguments like oil is hard to find - oil executives have said that for decades including when it was $10. Ain't no reason to look for more oil when it was just $10 a handful of years ago. Boone Pickens just said we are doomed because we import 60% of our oil. Doh! And, we also did so when it was $10. Economic demand is up single digits. Financial demand is up over 1,000%. When was the last time you were rationed gasoline or oil? Where is the lack of supply? Yes, a terrorist attack could disrupt supply and cause an oil crisis. Yes, oil often comes from unstable regions of the world. Yes, yes, yes. And, all of that was true when oil was $10. It is all deception and faulty logic.

I would bet my life that the world demand for oil and other carbon-based energy wains drastically well before we run out. Well, I'm not a gambler so maybe I wouldn't bet. The stone age didn't end because we ran out of stones. Remember that. A Saudi oil sheik said it. He sees the writing on the wall. He is concerned about the great technology engines of the U.S., Europe and Japan defeating demand for oil. Oil prices fell after the 1970s because of demand destruction, economic substitution and efficiency. Technology today has the ability to change the world far more drastically than the 1970s. If the U.S. had planned accordingly, our consumption of oil could easily have been 50% less than it is today. Right now. Not in fifty years. But, society is not going to agree to radical economic change when oil was $10-25 for decades. But now there are other drivers - ecological sustainability and economic independence. Cheap oil doesn't solve these problems. Technology does.

I have an amazingly interesting post on this topic that I'll get up within the next month.
posted by TimingLogic at 9:52 AM links to this post

Tuesday, May 20, 2008

S&P Update

I wrote the week before last that it was probable the S&P was near a turning point. Two potential topping points are 1410 and 1460. Market internals don't seem to support 1460 but we've also passed 1410. So, we shall see. Anticipating a possible correction the week of the 5th instead turned out to be a mild downside move. In fact, as you can see from the chart below, on the 7th the S&P held ground at the intersection of the rising wedge's bottom support and another trendline in place for the last handful of months. (The full chart isn't shown for clarity.) It's reasonable to assume upward pricing action since then was affected by last week's options expiration. In other words, the rally beyond the 7th was likely an effort to shrink the options premium as so often appears to be the case in counter-trend moves during options expiration week. Proof of that fact will mount if the market cannot rally from here.

I am reasonably confident regardless of the direction, normally this pattern should have resolved itself before now. Most often channel patterns such as this resolve themselves approximately two thirds of the way through the pattern. Or, as more technical traders might note, specifically near 61.8% of the way through these patterns. This pattern is now very old yet still hasn't broken.

I pulled this chart of the S&P near the close yesterday and the market had a reasonably strong reversal off of the upper wedge trendline that we've shown in the last few weeks. The complacency is very high right now and the animal spirits are dripping with excessive greed. Yet, for all of that the last month's return on this chart is basically zero. This is the weakest rally off of a significant correction in ages. Without looking, I would definitely say the weakest in at least ten years.

posted by TimingLogic at 7:37 AM links to this post

Monday, May 19, 2008

Stephen Roach Discusses The Current Economic Situation

I've expressed my fondness for Stephen Roach on here many times. I have a link to his commentary but I don't believe he still comments regularly since his new position as Morgan Stanley's China chief. Stephen has a long history of being above the incompetence and group think of Wall Street. For that I am always interested in what he has to say. In the last few days he spoke on Bloomberg about many current issues.

His comments about the EU are interesting. There are many who now cite the Euro as a sound currency versus the deleterious dollar. That's really quite funny. It shows much of the bias people have for current data. In other words, the Euro is strong while the dollar has been weak. Yet, there is very little intelligent discussion as to why or what future data would do to change that.

The ECB is simply another elitist institution of incompetence that has contributed to much of the mess we now see around the globe. Much more so than the Federal Reserve by its direct action. The ECB's diligence against inflation while the world craters around them validates the roomful of bureaucrats don't see the train coming down the track. While the Federal Reserve does everything in its power to prepare America, whether you agree with their approach or not, the ECB comparatively looks like a deer in the headlights. This highlights why I have a significant disdain for bureaucratic institutions in whom the people entrust their future and livelihood. History is replete with examples of such folly. Your livelihood is best served by you, best understood by you and best tendered by you. Misplaced trust in elitists is the largest single contributor to what is now unfolding.

I wouldn't be at all surprised to see an outcome to this cycle be an invalidation of a pan European central bank. Well, we'll watch and learn as the current environment unfolds.

Anyhow, the interview can be watched here.
posted by TimingLogic at 10:00 AM links to this post

Friday, May 16, 2008

Collapsing Bee Populations, Genetically Modified Foods And, Of Course, Jimmy The Scam, Er, I Mean Public Relations Artist.

Blogger Jimmy said...

There is no scientific study that I know that indicate that genetically modified crops are responsible for the so-called bee colony disorder. I have heard people say so, but this is all noise meant to portray genetically modified foods in bad light.

1:06 PM

The above is a comment that was placed on my blog today by an anonymous "Jimmy" who offers no back tracking to his identity. Or so he thinks.

Being that I am an inquisitive person and experienced a similarly suspicious post when I was critical of American auto companies resisting increased mileage requirements, I thought I would do a few minutes of digging. So, I went back and did a Google blog search on genetically modified foods and bee populations. My blog was sixth and first on the respective search results list. (I get a lot of great search result ranking even though I've been critical of Google's stock valuation. Thanks Sergey and Larry for not taking it personally.)

Anyhow, I went back and traced Jimmy's IP address to a company by the name of v-Fluence. Ah, how interesting. Googling v-Fluence yields the following result:

v-Fluence Interactive Public Relations - 9:45am Non traditional firm combining new technology with traditional public affairs and public relations to strategically manage client's message and reputation ... - 25k -
Cached - Similar pages - Note this

It appears Jimmy might be a paid pumper or whatever for a public relations
firm. No doubt they do regular Google searches or have web crawlers on particular topics. Then they likely
respond to what are perceived as public relations risk for their clients by spreading canned messages
or uncertainty.

Now guess what the next search result under v-Fluence is? Someone at a site called Political Friendster.
And, what does this site tell us? That Jimmy might be a paid scammer for genetically modified food
companies trying to spread uncertainty in the name of corporate profits over safety?
Jimmy, I think
you are deserving of some front page public relations you so eagerly want for. You are welcome back
any time your heart desires. Keep up the great work Jimmy. By the way Jimmy, your clients might
request that you get IP masking software in the future so that your attempted manipulations aren't
so blatantly obvious.

Now, if Jimmy's public relations firm has any savvy at all, they also Google or crawl their company name regularly.
And, if they do, they will now find my post about Jimmy. Hopefully, they will enjoy reading this as much
as I enjoyed learning about Jimmy. Ain't the internet grand?

Political Friendster - Rate Connection - vfluence Interactive ...The vfluence client list is the Frankenfood defence team with petrochemical pharmers and pseudo science, right wing oil money think tanks its so retro, ... - 14k -

If Jimmy was using a deceptive IP generator or somehow v-Fluence was not involved in this act, I extend my apologies. If v-Fluence would like to respond, I would gladly post any clarification.

posted by TimingLogic at 1:46 PM links to this post

Thursday, May 15, 2008

Report On Collapsing Bee Populations

I'm not going to go into detail on this post because I am not a subject matter expert on genetically modified food or bee populations. I should probably have one of my friends write this as he is an expert. But, I do have a background and experience that qualifies me as someone who might understand some of the risks society is not aware of or is discounting re this topic. Most everyone is aware we have a potential honey bee crisis in the making. We rely on bees to pollinate much of the global food supply and the AP had a story out last Tuesday that U.S. bee hive populations are down 36% year over year. That is a staggering number that, if accurate, should create serious concern.

If you have seen the movies Solyent Green, 28 Days Later, The Matrix, Planet of the Apes or I am Legend, you are aware of the potential risks of reveling in our own brilliance of scientific achievement. So far any unintended consequences of science gone awry, although horrific, are generally limited in scope. That is unless you believe humanity is a contributor to global warming. Some well known unintended consequences are biological dead zones from fertilizer runoff, cancer and birth defects caused by Agent Orange, significant cancer and birth deformities at Chernobyl, thousands dead at Bhopal and on and on and on. It would not be an exaggeration to say that uncontrolled or misunderstood technology or lack of concern of its impact on nature has killed or seriously afflicted millions of people. And, there are many things we clearly still do not understand. It has been proven many poisonous chemicals are in nearly every human being and can remain resident in the body for a lifetime.

We know about the benefits of technology but we seldom contemplate the risks. That is, until it is too late. There are many scientists that have warned humanity repeatedly that unyielding faith in our abilities to control the world through science will end in disaster. Stephen Hawking, one of the most brilliant scientists on the planet, has surmised humanity's greatest threat is an outcome similar to the movie themes above. In other words, that we will jeopardize humanity by releasing some type of man made disaster or plague upon ourselves.

We have entrepreneurs like Craig Venter who has boasted that he will create new super organisms or bugs to solve many of the world's problems, we have companies tampering with genetically modified food, genetically modified animals, DNA manipulation and all types of research that has great potential but also has a greater risk of unleashing a terminal mistake on the planet. Something that we may not realize until it is too late and millions of people have suffered the unintended consequences. Or, that all of humanity is vanquished in a worst case scenario. As many bioethicists and concerned scientists have stated, there is great promise in biotechnology but there are even greater risks.

Now that man has achieved the knowledge to unknowingly destroy humanity we must debate these issues, study possible implications and regulate this field of science for the safety of the planet. Today there is nothing but discussion amongst a concerned few. We must have an active and documented risk management strategy in the field of biotechnology. You do remember risk management? It's what I harped on for years as it pertained to Wall Street's Frankenstein creation of science-based finance. We have not yet seen the complete outcome of this disastrous faith in science. This finance induced virus or plague is spreading as rapidly as any biotechnology induced accident and the implications are equally serious. In other words, we already see what humanity is capable of creating via Wall Street's scientific experiment and it should act as a warning before similar, yet more ominous outcomes shudder through the biology industry and nature.

The honey bee article above begs a serious question. Is there is a link between the honey bee crisis and the rise of genetically modified food? Both appeared relatively simultaneously. Correlation does not mean causation but could this be an unintended consequence of Frankenstein food? Some upset of the natural order of the planet caused by humanity? We now find out there have been numerous studies that conclude genetically modified food reduces food yields by about ten percent. So, why are we even using them? And why are we allowing these Frankenstein creations to intermingle with the natural food chain where even further unintended outcomes could arise? Where our natural seed and planet biology could disappear forever without even one iota of an understanding to what those consequences are.

If you want to believe there is a food shortage, why not blame the shortage of food on the lower yields associated with the wide scale adoption of genetically modified foods? Bees forage on genetically modified plants that have insecticides and herbicides implanted in the plant's biology. Could genetically implanted insecticides be killing bees and upsetting the natural balance of nature? And, our ability to produce food? Or maybe it is the wide scale adoption of insecticides. Or insecticides genetically imprinted on food that has finally created a genetic mutation in the bee's natural defense system. The reality is we simply don't know. Because no one can figure out why bees are dying. In other words, it is something the scientists have never seen. Which, in my world increases the chance it could be caused by man. This is exactly why our unwavering faith in what we don't understand, aka biotechnology, is extremely foolish. And why risks must be clearly understood and accounted for.

If there is any fear I have about food availability, it's not because we are in a credit induced commodity bubble, it's biotechnology upsetting the natural state. I have written political representation and food companies about this issue as a concerned citizen. Many in the media and certain politicos want to paint those concerned as fringe elements. That is far from accurate. The more likely perspective is that they are not scientists, know nothing of what they are talking about and are using this red herring as a way of dumbing down the public to the real issues. That this is about money and profits before safety. The fact is that much of this Frankenstein food is pushed through the system by lawyers and politicians without any safety testing or understanding of risks.

There is a European documentary floating around the internet that involves scientists across the globe expressing concern about genetically modified food safety and potential risks. Including some whose testing has found a concern for cancer. Who knows what other unintended consequences are lurking in genetically tampering with nature. The video has been taken down from Youtube numerous times. Which likely means the companies implicated don't want anyone to see it. In the name of profits.

This is a very important topic that you might want to think about. And actively voice your concerns. Unless you have an unwavering faith in our new Gods. Man and science.

Update: Speaking of unintended consequences of insecticides, how timely is this?
posted by TimingLogic at 8:12 AM links to this post

Wednesday, May 14, 2008

Chrysler On Death Watch?

A week or so ago Chrysler announced a marketing plan to lock customers into gasoline prices of less than $3 a gallon for three years. There is a limit to the amount of gasoline one can buy so that you don't fill up all of your friend's vehicles. It seems many marketeers still believe gimmicks work on a wholesale level. Let's ask Honda. No, gimmicks aren't needed and don't work to any degree. Why can't automobile manufacturers simply price vehicles at a point that provides a fixed profit? Or, if they need to stimulate sales, as Chrysler surely does because their sales are down a staggering 30% year over year, why not simply provide a monetary discount? I'm disappointed that Jim Press, a former Toyota executive who is now the Vice Chairman of Chrysler, would approve this marketing program. Does this not smack of the stereotypical car salesperson shady deal instead of just giving you the best price?

The real problem at Chrysler is that their product mix is very unfavorable: big cars, pickups and SUVs. As some have pointed out with this plan, I could buy a car that gets 3 mpg better fuel economy, likely pass less for the car, and save the same amount of money as Chrysler's offer.

I wrote some time ago of my concern for American auto maker's ability to remain out of bankruptcy although I was long term bullish on GM and Ford. Ford, the company I wrote very favorably of when general sentiment was at its lowest is now producing results that bear favorability. Although their product mix is still unfavorable in North America that is going to change significantly over the next few years. GM still has significant issues including product mix and a large debt burden but has been the quickest to turn the corner on North American design. Unfortunately, most of the strong designs are in the wrong product mix. Each company is at different points in their recovery. But, they are becoming very capable competitors in North America for the first time in nearly half a century. Might I add, their turnarounds have nothing to do with the old ruse used by Detroit executives that wages must be cut and everything to do with finally getting some effective leadership.

Because of what I believe were many unsound financial decisions by Cerberus Capital, Chrysler's owner, coupled with a very unfavorable product mix, Chrysler is likely in the weakest position. I'm not sure if there is a Chinese wall (I'm referring to the business term not an off handed remark) or some similar form of legal barrier between Cerberus' other investments and Chrysler but as I wrote of quite a while ago, I am very bearish on private equity and the foolish investments they have made this cycle. Before this cycle is over I anticipate we will see a raft of private equity collapses, investment insolvencies or bankruptcies. Will other Cerberus messes negatively impact Chrysler's success? Their ability to access credit?

Additionally, GM and Ford also have vibrant international business with fuel efficient designs and expertise in building efficient vehicles. Much of this expertise is being used as a basis for new product launches and global design initiatives into North America. Chrysler has no such ability although they are trying to mitigate that via relationships with Nissan and Chery. Although with global nationalism and a backlash to the current form of globalization rising, I'm dubious of Chrysler's ability to convince North American customers to accept Chinese built cars en masse. If things don't improve at some point, it might be time to put Chrysler on death watch.
posted by TimingLogic at 8:21 AM links to this post

Tuesday, May 13, 2008

Libor Update And The Game Of Chicken

We wrote about Libor a short while ago when it appeared the organization responsible for setting this rate, the British Banker's Association, seemed to be admitting without admitting that banks weren't honestly reporting data used to set the rate. Or as someone quoted in today's article states, "The Libor numbers that banks reported to the BBA were a lie.". Or as the Bank for International Settlements stated, some lenders were manipulating the rates to prevent their borrowing costs from escalating. Now why would any bank do that if they were solvent? So, when the BBA threatened to kick banks out of the 'club' who weren't reporting accurate data, guess what happened? Libor rates rose the most since the start of this mess. A sign that there is still great trouble in the banking system. But, then we knew the banks couldn't be coming out of this because credit conditions are just now deteriorating for both corporations and consumers. So, the reality is there is no reason to believe conditions won't get worse over time. In other words, Wall Street still doesn't get it. Phase one was simply self inflicted pain. Banks aren't even close to being out of that phase. In addition, future phases will be market inflicted pain or economic pain. We can all talk happy and hope things will improve but hope is not a strategy.

Alot of Wall Streeters have encouraged investors to buy banks since their precipitous drop. Of course, most were encouraging investors to buy banks before their precipitous drop as well. One well known analyst even said this was the greatest opportunity in a lifetime to own financial stocks. We've heard this recycled message before. We heard it when the technology bubble was popping in 2000. Oh, and we also heard it after the market first broke in 1929. We only saw those markets drop about 80 and 90% respectively. Of course, that was for the companies which actually survived.

Now it appears changes to Libor reporting are in the process of being instituted on May 30th. I wonder how many investors want to be holding banks with new Libor reporting standards and with the SEC about to start forcing banks to disclose their true financial position? Given how irresponsible banks have been and that they are now lying to hide that fact, would you?
posted by TimingLogic at 10:17 AM links to this post

Monday, May 12, 2008

Irena Sendlerowa, An Extraordinary Person

In a world that often seems turned upside down, a woman of amazing accomplishment died today. Irena Sendlerowa saved nearly 3,000 children from their likely deaths. And she did so at risk of her own death. Great acts such as those of Irena Sendlerowa remind us that we can all make a difference. That it is up to each of us in some small way to positively change the world in which we live. It is important that we hold up such great acts of humanity and selflessness as a reminder and a beacon for all of us. Millions of small positive acts can and do change the world. May Irena Sendlerowa rest in peace.
posted by TimingLogic at 8:22 PM links to this post

Dow Jones Rail Index

In the last few weeks we've looked at the S&P 500, the Amex Oil Index, the Truckers and now the Rails. I'm showing these indices because they are all exhibiting a very peculiar distribution or lack of buying throughout this rally. Most significant are oil and the transportation. There is very little precedence for this. It has historically been a sign of a blow off with fewer and fewer bidders.

Below is a chart of the Dow Rail Index. The S&P itself hasn't really made any significant and sustained movement. Instead it has remained in a band of trendless chop over the last four months. Yet, the rails have rocketed higher. Their move over the last few months has been at an annual rate of between 150-200%. It was an easy trade but it surely isn't sustainable. What it is indicative of is Frankenstein finance's quantitative traders pushing mindlessly higher as long as earnings appear supportive.

What is most unusual about this rail rally is three fold. One, absolutely no buying pressure, two, a rising 5 wave wedge, and three a parabolic breakout of the wedge. As you can see in the chart below, prices accelerated numerous times with steeper trendlines over the last one third of the wedge. This coincides with the tremendous speculation we are seeing in the markets. Speculation that hit a level only seen once in the last eight years. That was in October of 2007. It's not a bit of coincidence that market speculation has coincided with some surveys being wildly bullish. We know what happened subsequent to October of 2007. This time the speculation is concentrated in fewer and fewer sectors meaning the speculators are losing their mojo. And participation. Now, speculation is mainly oil, a subset of oil stocks, steel, agriculture and rails. Ask yourself a question. Do these sectors represent a vibrant economy? High oil prices? High agriculture prices? The biggest user of steel in the U.S., autos, is teetering on a depression.

Is this market behavior any different than when technology kept rising in late 1999 and 2000 while other sectors hit a wall? The pumpers were out in force then and they are out in force now. Is there any conflict of interest when Goldman Sachs issues a price target of $150-200 for oil while they have become beneficiaries of its rise by captive trading and services to hedge funds trading in oil? Is this really different than the Cisco, Amazon or Sun pumps by people benefiting by drawing in more and more money in the technology bubble? Is Wall Street using the media to build as much of a frenzy as possible to ram commodities higher. At the expense of your wallet?

It's never different this time. It's the same old pig. The only thing that changes is the lipstick. And the lies perpetrated to make the pig's lipstick look more appealing.

posted by TimingLogic at 6:46 AM links to this post

Friday, May 09, 2008

HP's Hot 2133 Mini-Note Laptop

I have to put in a plug here. One of my very best friends is a semiconductor design engineer on the team that developed the CPU for HP's Mini-Note. And, believe it or not, he actually lives in the U.S. Yes, we still have good jobs here. Although, it's no irony he works for an international company. It seems many American companies want to send jobs elsewhere and many international companies want to send jobs to the U.S. Is there a paradox in how different cultures and companies value human capital?

This is a great product with HP quality behind it. It's very inexpensive for a mini. Here's a review on Bloomberg. Go out and buy yourself two or three or a thousand. Intel needs some competition. And, it outperforms similar systems powered by Intel.
posted by TimingLogic at 6:40 AM links to this post

Thursday, May 08, 2008

One Of Many

posted by TimingLogic at 10:26 AM links to this post

SEC Steps Up To The Plate

If we can move the bureaucracy off of its dime and do so without meddling by Wall Street lobbyists, we might actually get some positive action out of Washington. Yesterday, SEC chairman Cox announced much needed transparency measures for the banking sector. This doesn't solve any problems but it does take a first step towards dealing with the credit crisis. That is, it provides all of us an ability to see what the problems actually are by requiring banks to disclose capital and liquidity levels. The fear of the unknown is playing a major role in this crisis. That fear is surely greater than reality regardless of how bad the reality is. Financial institutions do not trust each other because of opacity, deception and misinformation. Enlightenment first starts with truth.

This doesn't change any of my viewpoints because they are based on models not talk. But this could be a very positive development. I'm sure this was accomplished against the wishes of many powerful lobbyists who still might kibosh this effort or make its end form useless. Restoring the nobility of public service and transparency into government is also part of a recovery process. Kudos to Chairman Cox for showing us responsible leadership. Now let's see the beef.
posted by TimingLogic at 9:10 AM links to this post

Monday, May 05, 2008

Fibonacci Data Supporting A New Wave Down In The S&P 500

Let's delve into the world of the bizarre while taking another look at the S&P chart I put up last week. The chart that showed a five wave rising wedge completing. Today, we bounced off of the upper trend line of the wedge and fell marginally. But, there was more selling hidden under a trendless market than showed in the major averages. Let's see if I can embarrass myself by stating that tomorrow I expect a bounce in the morning to take care of some unfinished business from today's open followed by a change in trend in the afternoon. Wednesday is a very key day to the future of the rally we've seen over the last month or so. Can the bulls drive the market higher?

Many traders believe there is a mysterious, if not self fulfilling, pattern of Fibonacci ratios and numbers at work in asset markets. So, let's take a look at the short term and how it relates to Fibonacci data. And why Fibonacci data supports a change in trend.

Cinco de Mayo is considered a major date by many traders because May is often a market turning point and May 5th is marked by the Fibonacci number of five in both month and day. This year is also marked by the Fibonacci number of 8. So, we have a date marked entirely by Fibonacci numbers of 05-05-08. In addition, the move off of the last bottom of the S&P has lasted 34 days. Another Fibonacci number. The S&P is at the 50% retracement or recovery level from the October high, an important Fibonacci resistance ratio. And, this week we hit a major Fibonacci time zone of 144. In addition, the time of this upward move will have lasted approximately 38% of the decline from October which is another very important Fibonacci ratio. Finally, we just completed a 5 wave count into a rising wedge. The operative point being the Fibonacci number 5.

Let's sit back and watch the mystery unfold.

Chart of the S&P 500 through Friday's close.

Update: I guess I should add the five wave pattern is comprised of 3 upward waves and 2 downward wave. Both Fibonacci numbers.
posted by TimingLogic at 10:13 PM links to this post

Dow Jones Trucking & Rail Indices

Common sense would tell us that Dow Theory is simply a logical extension of economics. That industrial stocks and transportation stocks should move in parallel, either upward or downward, in a growing or contracting economy. If industrial production is strong, the transportation required to ship goods must also be strong. Many people are taking the upward movement in transportation stocks as a sign the economy is recovering or that investors are bidding up prices in anticipation that an economic recovery is around the corner. I believe the more appropriate interpretation is the same interpretation one should take about all assets moving up this cycle. There's too much money and too much speculation in almost every global asset market. We are now seeing the outcome of that speculation as it pertains to real estate related assets and credit related assets. That virus is going to spread. It's not a matter of if but when. So, let me give you a different interpretation given where we are at this moment.

The Dow Trucking Index has hit the top of a wicked five wave rising wedge pattern similar to the S&P chart I showed last week. Taking into account the longer term since this cycle's bull market began in 2003, the picture looks a lot like a triple top. Just like the oil index I showed a few weeks ago. And, the Trucking Index is not only dealing with the problem of the rising wedge pattern but it's coincidentally hitting the lower trend line to the entire 2003-2007 bull market as shown on the chart below. For what it's worth, the Dow Transports, of which trucking and rails are a subset, fell substantially Friday before recovering. This might be pointing to price exhaustion or technically induced selling. Most importantly, while not shown on the chart, many of the characteristics of the buying pressure algorithm I showed on the oil index a few weeks ago are strikingly similar for both the truckers and the rails. And, we saw what has started to happen with oil. It fell close to $10 in a short period of time before recovering to retest what was once a support level and may now be a resistance level. In other words, I believe the markets are on extremely shaky ground. Couple that with the massive speculation I wrote a few weeks ago and we could actually see another mini crash like we saw at the start of this bear market. On the surface, the markets appear calm but the underlying currents are very disconcerting.

What usually happens in bull market tops is the big money sells into the rising top or distributes to weak hands at the top while bouncing prices. Bounce the market up, sell into a decline. Bounce, sell. Bounce, sell. That is, unless they are bubble tops where bulls are trapped in parabolic runs. Then we often see price collapse of some sort as a first move down. Why? Because any shorts and sellers have been blown out and the only traders left are on the long side of the trade. When buying exhaustion develops, markets can fall rapidly and deeply.

In many markets, including the US and Europe, we had big money get caught holding the bag and they were forced to sell into falling prices this cycle because they totally misunderstood the fundamentals. That means they were unprepared for what awaited them. Of course, this is typical of a bubble where those in it have no idea they are living in a false reality. (Big money is obviously holding a lot more bags than stocks.) So, let me speculate on what has been happening over the last few months. Big money has been given a selling reprieve by central bank liquidity in the US and Europe. Now we are seeing a buyer-less relief rally where mostly short term traders and speculators are moving prices higher. Sooner or later selling will kick in whether it is because we have hit price exhaustion, see selling triggered by technical trades, forced selling because of new problems in the credit markets or some degree of all of them.

I've had a post ready for quite a while that I believe explains other significant reasons why we haven't seen the markets decline more. Yet. It's speculation but supported by measurable data. I'll get it up sometime before the world heals itself. It's likely not a coincidence that those factors are changing exactly at this moment when I expect significant market weakness could be just around the corner.

posted by TimingLogic at 8:28 AM links to this post

Friday, May 02, 2008

Michael Greenberger Gives The Best Interview You May Ever Listen To On The State Of Financial Markets

I linked to Michael Greenberger's criticism of Hank Paulson's proposed regulatory scheme a while ago. Paulson's plan clearly looks to be a power grab for finance firms. Similar to the other power grabs that mightily contributed to this crisis in many ways including some that are far from obvious. Many are untruths that are so widely accepted they are part of most people's belief systems. So we won't go there.

I believe it is self evident these attempted consolidations of authority are clearly not in the best interests of U.S. citizens or the U.S. economy. Especially from state jurisdiction to the Federal government and from a comparatively transparent oversight agency such as the SEC to the Federal Reserve. To concentrate power yields more opportunity for corruption, bureaucratic incompetence or conflicts of interest. To concentrate power into the Federal Reserve where transparency is a foreign word is an egregious act that would only benefit bankers. It chafes against the fundamental concepts of checks and balances. Paulson must surely know this. If he doesn't, he is in the wrong job.

What is rather disheartening is this country's CFO idly sits by as many become homeless while predatory financial institutions seemingly get his full attention. All in the name of free markets. For those who argue personal responsibility, I would argue we have consumer protection laws because not every individual has a legion of attorneys and topic experts at their disposal to determine the benefits of entering into a contract with a corporation. A contract that was devised with tremendous thought as to its advantages for corporations. That is why we have consumer protection laws. Because we are often unknowing. And, surely not able to match the wits of the corporation we are entering into contract with. It is hardly just to lay equal blame on citizens. Do we no longer embrace Lady Columbia's virtue of justice? Does Mr. Paulson realize he serves at the discretion of the people? Not at the discretion of elitist bankers whose predatory actions are destroying the people? Is this what you will for your government? It is your will that shall be done.

If you wish to become an informed citizen and impact future change, I would highly encourage you to listen to this interview with Greenberger in its entirety. The interview is repulsive, forthright, maddening and educational. It will enlighten you to the truth. And, that is a good thing. Because the mainstream media doesn't seem to care about reporting truth. News programming has become another opportunity for media corporations to enhance ad revenue. Talk about conflicts of interest. What advertiser wants to be associated with programming that reports the often unsavory truth? Greenberger, on the other hand, gives us a mega dose of honesty.

Here's the link to the interview titled 'Our Confusing Economy, Explained'
posted by TimingLogic at 9:06 AM links to this post

Thursday, May 01, 2008

Warning: Wall Street Is Out Of Its Cage And Monkeys Now Run The Zoo

Is it really hard to believe anyone in a bubble would discount the first signs of distress as isolated by waxing nostalgic that the worst is over? (More commonly referred to by psychiatrists as delusions.)

Countrywide is falling ever deeper into the abyss with massive losses reported Tuesday. And because senior executives have no excuses for their rampant mismanagement, they simply refused an earnings conference calls with shareholders. I guess the company owners are mere annoyances. Of course, the call was not held under the guise of a proposed merger with Bank of America. Hey, speak of which, how about the brilliance of those Bank of America executives? Swooping in to buy Countrywide right before it imploded. Now B of A gets the choice of walking away from the merger and facing losses or merging and facing larger losses. I guess now we focus on saving face and go through with the merger at shareholder expense. A merger that would create an even larger mortgage monopoly if it survives. Free markets? We don't need no stinking free markets! The government lets us do whatever we want. Gotta hand it to Bank of America. Their actions border on incompetence that even government would be incapable of. Speaking of waxing nostalgic, this kind of reminds me of 1929 when the banking clowns stepped in to put bids under the market in an effort to restore confidence. Only to be completely wrong. Of course, Wall Street would never do anything quite so stupid again.

Oh, I almost forgot (not really), it was just a few months ago that Countrywide told us the worst was over and they would quickly return to profitability. I guess they were slightly wrong. Is this any different than the clownish belief the worst is over held by many on Wall Street?

Not to be outdone, GMAC just reported massive losses as well. Losses caused by mortgage and auto loan problems. I find it humorously ironic that Wall Street is always hammering on the U.S. automakers for their incompetence yet right before GMAC started imploding General Motors bamboozled Cerberus Capital into buying a majority in GMAC. The same Wall Street firm that bought Chrysler and soon thereafter had its CEO say Chrysler was effectively bankrupt. I'm sure that someone is feeling vindication at GM. Even if it was complete luck. Their sale of GMAC helped cripple Chrysler, one of their competitors. And they did it by dumping the bag on Wall Street, their biggest critic. Their critic that is always telling GM how to fix their business. I guess GM showed Wall Street a thing or two about business. Like, pushing money around doesn't mean you are qualified to run one.

Gotta love all of this Wall Street brilliance. Can't you feel it? Yet here's truly the ultimate in brilliance. The Wall Street mindset so pervasive in our society is that American workers losing their job to someone in a far off land, a land where workers are likely under their own duress of poverty wages, doesn't have the right skill set needed for the global economy and should therefore be retrained. And, what jobs are all of these displaced people retraining for? Wall Street jobs! Mortgage jobs. Finance jobs. Real Estate jobs. Financial advisor jobs. Right at the time when Wall Street's massive bubble is imploding due to a completely false view of reality and utter incompetence. Now what do we do? Because Wall Street isn't going to return to its recent form. Is this real or am I in some parallel Orwellian universe? Please wake me up and tell me it's all over.
posted by TimingLogic at 7:57 AM links to this post