Friday, October 31, 2008

As We Anticipated, Russia Is Collapsing.



From time to time you've seen me repost points from prior remarks made over the years. Many of my posts leading up to this unfolding environment were anticipated outcomes developed from my quantitative work. Therefore, some topics were seemingly irrelevant at the time. Now these themes are developing into major realities as this cycle enters its down turn. So far all of our themes are developing quite nicely. Obviously, not nicely from a quality of life standpoint but from a quantitative standpoint.

I have to laugh at those on Wall Street who are now remarking that emerging markets represent great risk. Of course, master-of-the-obvious is an easy game to play after witnessing the greatest global equity market collapse in history. Where were those voices with actionable research in advance of emerging market implosions? Well, of course, they were telling us to buy, buy, buy. It was all a lie, lie, lie.

Just as with the Chinese economy and banking system repost, we first started singling out Russia as source of crisis early in the life of this blog. Here are quotes from two of my prior posts put up when the media and Wall Street were gleefully extolling the virtues of the global economic boom and Russia's new economic leadership role:

"The latest potential catastrophe is now building in Russia. And, it appears to be gaining momentum. Let me stick my foot in my mouth and say I would put the potential for a blow up in Russia near the top of a "next" shoe to drop list. If this comes to pass, isn't it ironic that Time magazine just named Putin "Person of the Year"? What does that make Time magazine?".

And, then a few months later I wrote:

With very significant inflation in the Russian economy, it is imperative Russian bankers continue to extend credit or risk a significant economic meltdown and deflation. Guess where those Russian foreign exchange reserves are going before this is all said and done? Now what are Russians going to be voraciously attempting to acquire? Maybe dollars? As we've said time and again, most simply do not understand the gravity of what has developed over the last business cycle. I just cringe when I hear statements like what are you buying today in anticipation of a Fed rate cut. The financial world has become a casino. Those telling us to buy the dips or that stocks are cheap have no concept of risk. Let alone rudimentary skills on how to manage it.

It appears I can take my foot out of my mouth because the environment is unfolding exactly as we thought it could. And even earlier concerns about the Russian banking system all now appear to be coming to the center stage.

Since the above remarks, made at the peak of the Russian stock market ascent, the Russian stock market has completely collapsed, the market has seen single day declines of twenty percent and the Russian government has shut down their stock exchange half a dozen times due to its disorderly implosion. I believe they actually shut down the exchange three times in one particular day due to an inability to restore order. Finally, they simply shut the market until further notice. I haven't checked to see if that decree was lifted but I would suppose it has been.

There was an interesting article earlier this month that Russian oligarchs had lost $230 billion due to the collapse of their stock exchange. Now, if they had only followed my blog, they could have saved themselves $230 billion. And, if I had charged typical hedge fund fees for that advice, I would be the second richest person on earth. Literally. What's the point? Russian oligarchs didn't gain all of that wealth because they were brilliant or because of hard work. They did so because they were ruthless and well connected to the power elite. Does that sound vaguely familiar to other circumstances around the globe?

I saw a Moscow Times article a few weeks ago that said their stock market problem was all about oil. No, it's all about your economy. And, might I add, the situation continues to worsen. Russia's banking system is in shambles and its crisis will very likely dwarf that of the U.S. comparatively. And just as we discussed with China, the Russians will need access to capital Likely U.S. capital. Don't expect them to be able to generate it from their economy. Say bye bye to those accumulated dollars held as foreign exchange reserves. (Again, as I wrote with China, there is a substantial probability Russia too will no longer be able to fund U.S. Treasury purchases. I would anticipate a first outcome to be many countries following the banks by hoarding cash as they begin to realize the scope of their domestic crises.)

How ironic Moody's just upgraded Russian sovereign debt a handful of months ago. Actually, they upgraded Russia's debt at the very peak of its stock market bubble. Now Russia plunges untold sums into its banking system to deal with its crisis. I wonder what Moody's would say now? How about nostrovia! Have another vodka. You'll need it. In fact, just a week or so ago, S&P downgraded Russia. Is there any end to the ratings agency incompetence? How does a global ratings agency with all of the resources imaginable make a major mistake of upgrading Russian sovereign ratings when some hick in the middle of nowhere (me) was writing at the same time that Russia could be the next global crisis? This is truly a mad, mad, mad world of systemic incompetence.

As it pertains to Russia, China and other emerging markets, it is time for a short rant. A friend sent me a commentary about a month ago by a well known fund of funds advisor (A career path that is soon to be kaput. I mean that literally. The demise of this position is almost a surety.) that this crisis will soon pass and the world will be a better place for most people. I'd like to know what this is based on? Happy talk? There is absolutely no quantitative data that supports such a perspective. As I wrote with regards to Friedman's The World Is Flat, fairy tales are better left to children and writers of fiction. A position that the world will soon be a better place for most people is a fairy tale based on rationalizations of the hopeful mind. If you have been with me since this blog started, you know that I expect to see the vast majority of the world suffer significant economic consequences in the outcome of this cycle. I've said time and again I am long term bullish on the U.S. and nothing has changed in that perspective. It's emotionally healthy to be optimistic but it's even more emotionally healthy to pragmatically embrace reality. In fact, that is exactly what the U.S. is adjusting to as I write this. And, just like everything else, the U.S. is leading the world in the adoption of this emotionally healthy state. Or put another way, while Rome burns, the world fiddles. Do you know why? There are many reasons but here are two - the rest of the world (a) has no idea what is going on and (b) their leadership is so used to the U.S. solving everyone else's problems that they have no idea what to do in a crisis.

Finally, I'll leave you with a timely remark I made on here back in late 2006.

"Anyone who bought Russian equities in 2000 has a lot of moxie. I'd like to shake your hand. Right after you buy me a yacht because you made a killing of a life time. Anyone who is buying Russian equities today? Well, I might be buying you lunch at the poor house."

Would you like fries with your Happy Meal?
posted by TimingLogic at 6:57 AM links to this post

Thursday, October 30, 2008

Cerberus Looks To Government Bailout As It Also Lobbies To Dump Chrysler?

The more light that is shed on the Chrysler-GM talks, the more it seems obvious this has nothing to do with anything other than a perpetuation of cronyism and self-interest. Personally, I believe the government should be looking at what is in the best interests of taxpayers and the long term economy. In my mind, the lesser of many evils would be to provide guaranteed loans to both GM and Chrysler but only after bankruptcy is imminent. And, to not play that hand so GM and Chrysler continue down a path of fixing their businesses right up until the last minute. And, government should keep these two corporations from merging by enforcing existing regulation. But, just like the Paulson bank bailout, it appears the perpetuation of fear mongering is winning out. Now, we even have the governor of Michigan lobbying for a merger. This is surely based on fear as opposed to sound management decisions or the long term health of the economy. And, what does Cerberus want out of this other than to extract themselves from major mistakes they made? Why, of course, as majority shareholder of GMAC, a government bailout would be appropriate. Unbelievable.
posted by TimingLogic at 1:19 PM links to this post

Wednesday, October 29, 2008

The Market Is Lulling People Into A False Sense Of Security

Recently we have had a spate of people come out with bullish statements about stocks. I have a much different perspective.

Today, we saw two moves in the Dow of greater than four percent, one being up and one being down. The last being in the final five minutes heading into the 4:00 close. The long term return for the Dow is five percent a year not five percent in five minutes.

I'm going to show you a chart that most people would never look at. This is a one minute chart of the Dow from 2:30 today until the 4:00 close. In other words, each minute a new price is printed as opposed to a daily chart where a new price is obviously printed once daily. Notice on the chart how the market was unable to discover consistent pricing and there were two major gaps where the market moved very rapidly in less than a minute. This type of behavior is unprecedented and is very disconcerting. And, it has happened quite often recently. There is no person alive who has ever witnessed this type of behavior in markets. I believe it is a fool's game not to respect what the market is telling us. And, what it is telling us is how extremely dangerous it is.

posted by TimingLogic at 4:22 PM links to this post

Tuesday, October 28, 2008

T Boone Pickens Interview

posted by TimingLogic at 7:06 AM links to this post

Monday, October 27, 2008

Japan's Deflation Never Ended

Those who wish to see their future as it pertains to the inflation or deflation debate, regardless of where they live, should look to Japan. That's not a statement of time or economic outcome but of the fact that Japan's deflation never ended after significant government attempts to the contrary. Many of the policies being instituted around the globe today are similar to those tried in Japan. But, as it pertains to the U.S., they are being instituted at a feverish pace. As an example, the Federal Reserve pounded down interest rates and took less than a year from the stock market making all time highs until it flooded the banking system with money. It took Japan about twelve years to do so. Now the Japanese stock market is hitting nearly three decade lows.

For those who really understand deflation, and it has now become apparent that not a single mainstream economist fits that bill, Japan was a warning to the U.S. of its own imminent deflation as was oil at $10 a barrel and gold at $250 an ounce in the late 1990s. And, contrary to popular belief, debt is not the driver either. Japan has always had one of the highest savings rates in the world. That included during the onset of deflation. This deer-in-the-headlights state of denial is a main reason why the elitist incompetents who created this environment never saw it coming and will severely underestimate its consequences.
posted by TimingLogic at 8:25 AM links to this post

Further Evidence Goldman Sachs Knew It Was Going To Fail While Paying Out Billions In Bonuses?

The Financial Times is reporting that Goldman Sachs sought merger talks with Citigroup. Goldman is a fiercely independent, some say arrogant, culture that would most assuredly never consider being bought unless it was near failure or concluded the end state was bankruptcy. It appears quite obvious to conclude Goldman would have failed were it not for the government's bailout. That is, unless I am missing the obvious. I'm not particularly upset by that as I am by the structure of the bailout plan. But, what is really upsetting is that its CEO made something on the order of $80 million last year as I recall. And, Goldman still continues to pay out astronomical sums to its executives. In other words, Goldman executives continue to make billions for destroying not only its shareholder value but also for playing a major role in destroying the American economy and burdening American citizens with its bailout. For that I am mad as hell.
posted by TimingLogic at 8:15 AM links to this post

Banks To Use Bailout Money For Personal Gain

I was generally supportive of the government's effort to stabilize banks until this $700 billion scheme announced by Paulson and passed by a Congress. Congress may have added measures to the plan that included some modicum of oversight but their supposed victory is a little like Neville Chamberlain's policies of appeasement. In other words, their claim of victory for Americans is pathetic.

Now we have an executive finally stating the obvious - banks don't plan to use that money to help the economy. They plan to help themselves. And, to do so partly by increasing the systemic risks in the economy by trying to grow even larger. In other words, this money was given to banks that were completely incompetent. And, that has given them a reprieve to further cripple stronger banks that used proper risk management. That will further erode the health of the entire banking system. As I wrote a week or two ago, the government is weakening the entire industry with its actions. These large institutions need to be nationalized and broken up or allowed to fail.
posted by TimingLogic at 7:50 AM links to this post

Sunday, October 26, 2008

Comedian Wanda Sykes On The Wall Street Bailout

posted by TimingLogic at 4:29 PM links to this post

Do Corporations Unduly Influence American Foreign Policy? Do They Play A Vital Role In Setting Foreign Policy?

I am talking about foreign policy, foreign relations, trade, trade agreements and the like. If you don't consider this to be a major factor influencing the world today, you might wish to expand your thought processes. Not only for the U.S. but around the globe. Not all of the influence is necessarily negative but with a lack of transparency into lobbying efforts and many governmental actions, we really don't know the extent of any influence. I could write extensively on this topic but maybe some other time.

Instead, let's look at a ProPublica article that explores the deep tentacles of Wall Street's grip on our government in this astonishing expose that AIG was actually meddling in nuclear technology and trade negotiations between the U.S. and India. The world is obviously a very different place than what we've been told by politicians of both parties for this is surely not an isolated incident.

It's interesting to note the original Federal Reserve investment in AIG has increased by 50% in the last month as well. AIG originally said it needed $20 billion then $50 billion and now we are up to approximately $125 billion. Is Hank Greenberg still attempting to gather investors to buy the company back? Yeah right. For its investment, the U.S. citizens should own 100% of AIG until it is repaired or dismantled. And, it's employees should be civil servants pledging the same ethics oaths that all civil servants take instead of pissing away taxpayer dollars on drunken junkets.

It might be of interest to note that $125 billion would provide $10,000 in annual unemployment assistance for over six million Americans for a period of two years. Or provide shelter or access to health care or whatever. Yet, while AIG executives continued to lobby the government after its bailout and continues to get cash injections, unemployment benefits are running out for Americans without employment.

Are we going to watch the world pass by or are we going to pledge to change it?
posted by TimingLogic at 1:27 PM links to this post

Saturday, October 25, 2008

T Boone Pickens On 60 Minutes Sunday Night

I added a link to T Boone Pickens' energy plan on the blog a few months ago. And, I have signed the petition on his site. Not because I think his plan is a great plan. But, because he is forcing a dialog into the mainstream that is meant to create economic opportunity and energy independence. The best energy plan is one created by market forces but society and government can and will play a role in any investment including incentives. There comes a time when we need less talk and more action.

Pickens is spending hundreds of millions of his own money to further a dialog into the energy space and to push towards real action while politicians play the blame game on a wide variety of topics and spend time winning their elections or re-elections. Pickens is scheduled to be on 60 Minutes this Sunday evening and it may be worth watching.

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

Friday, October 24, 2008

Today In 1929

was Black Thursday. For those who are historians, Black Tuesday was October 29th. The market was decimated with some stocks down 90% in a single day.

For those who believe it's safer to buy assets in a market that has already fallen substantially, I'll remind you of a prior remark - it's just as easy to lose 90% of your money after the market has already fallen 90%. And, we have a substantial amount of proof points in the last year in support of this fact.
posted by TimingLogic at 7:37 PM links to this post

Management Destroys Another American Institution - National City Bank

Today, National City effectively fails with its takeover by PNC - likely facilitated by the FDIC and the Federal Reserve. In a few short years management has again 'managed' to destroy one of the largest banks in the U.S. and a one hundred and seventy year old institution. National City survived the Civil War, two world wars, a depression, bank runs and every sort of economic environment imaginable. But it could not survive complete management incompetence. And, for that the CEO will talk away with millions.
posted by TimingLogic at 9:54 AM links to this post

Thursday, October 23, 2008

Anecdotal Evidence Wall Street Was Attempting Extortion Of The Federal Government?

posted by TimingLogic at 9:46 PM links to this post

Nassim Taleb & Benoit Mandelbrot Speak Regarding The State Of Markets


I have added quite a few different links to the blog over the last year. Mostly with regards to news sources that I believe represent fair value or better. I don't play the link game - you add my link to your blog and I'll add you to mine. I participate in enough popularity contests in the game of life. One of the links I added was public television or PBS, which is a last bastion of truth seeking in a corporate owned media.

If you have a strong stomach and don't have trouble sleeping at night, I would recommend you listen to this new PBS interview with Nassim Taleb and Benoit Mandelbrot. Taleb has been a staunch critic of Frankenstein finance and he wrote a few books recently criticizing the new math used by Wall Street. What really perturbed me was when a well known financial advisor wrote a commentary a few years ago interpreting one of Taleb's concerns. That commentary included remarks that rare events cannot be anticipated and therefore one should just hold their nose with an investment strategy and pray you have something left coming out the other end. More commonly called buy-and-hold investing. A self-serving and clearly deceitful position.

Mandelbrot is unequivocally one of the most brilliant minds on earth as it pertains to the concerns over the state of global markets. In other words, what these two gentlemen have to say should be considered with great respect. The general line of thinking with their remarks is why I posted my Disaster remarks before the market started its cascading collapse. People toying with this market don't know what they don't know. More aptly put, ignorance is bliss. Or, a fool and his money soon part ways.

Click on the picture above to be taken to the PBS video page. The video can be watched by clicking in the link at the center of the page titled "Streaming Video".
posted by TimingLogic at 12:29 PM links to this post

Gold Stocks Implode. Is Gold Next? And, What Happens After That?



A few months ago, I wrote about gold junior stocks imploding. Most are down 70-90%. Now, the gold majors have imploded as well. The above chart is of the gold miners exchange traded fund, GDX, that contains most of the major gold producers. These stocks are finally getting to a level where they are becoming attractive. A few more shoves lower would be nice. As I have written more than once, I don't like gold as an investment. I definitely don't like gold miners as an investment. But, as part of a well devised hedging strategy, the underlying stocks are obviously much more attractively priced from a fundamentals standpoint.

It wasn't too long ago that we were bombarded with messages that the dollar was going to implode and gold was going to upwards of $5,000 an ounce. And, that buying gold stocks was a great strategy. Some even said the only strategy. It indeed was a great strategy - to go bankrupt.

First gold juniors imploded. Then gold majors. Is gold next? At some point in this cycle I expect gold to drop significantly as I wrote long ago. The pressing question if gold should drop is what happens after a plunge. As I have written on a few occasions, there is a scenario that could develop where gold rises in unison with the dollar. We saw a glimpse of something similar to this in the last month. Gold didn't truly rise in conjunction with the dollar but it didn't go down appreciably either. In other words, it showed glimpses of breaking its inverse relationship with the dollar as we said it might. The key word is might. If there was ever a time in the last one hundred years to pay attention to gold, it would be from this point forward.

Should gold and the dollar become positively correlated, global volatility will likely reach crisis levels. Should that happen, I might just become a gold bull.
posted by TimingLogic at 6:19 AM links to this post

Tuesday, October 21, 2008

Update On The Dollar



Avoid dollar at all costs -- Jim Rogers, June 2008

It seems a more lucrative position would be to avoid Jim Rogers at all cost.

Let's take a few minutes for a dollar update. I first wrote while global stock markets were making new highs that my favorite investments were U.S. dollars and yen. A position that was completely laughable at the time. Or was it?

Above is a chart of five major currencies since the beginning of 2008. That includes the dollar, the Canadian dollar, the British pound, the euro, the yen, the Mexican peso and the Australian dollar. Why lookie, lookie, lookie. And, what are the two best investments of 2008? Chinese stocks? Oil? Corporate bonds? High yield bonds? Hedge funds? the Indian stock market? It would just so happen to be that durtie durtie durtie U.S. dollar and the Japanese yen. On a comparative basis, the yen and dollar are doing even better. As an example, the yen has made a recent move of thirty percent against the Australian dollar and even more against the Brazilian Real. The implications for corporate earnings are also substantial. That would be #24 on the Top 41 Untruths list - Global companies get more than half of their earnings overseas and that makes them a great investment. Uh, don't think so. Quantitative analysis actually matters more than emotional analysis. And, I don't even know what I'm doing as it pertains to foreign exchange markets. At least I didn't until I started incorporating the it into my analysis.

There is nothing more representative of Modern Finance than the massive speculation in the foreign exchange market. That includes Wall Street firms betting against the dollar for personal profit at the expense of the American people. I have heard many remarks that traders will dump the dollar if the U.S. policy doesn't change. Traders can dump the dollar all day long for all I care. Just as you now see with equities, commodities and bonds, traders can't control markets for anything other than short cycles of time. I think people might acknowledge that given all markets are now shredding traders left and right, they are simply along for whatever ride develops. The level of arrogance in traders today takes a life time of self-deceit to develop. And, as I have said often, quantitative or technical analysis is a function of fundamentals. In other words, traders will take what is given to them as their models erode or they will ultimately fail. Trying to trade counter to a move one didn't anticipate or continue to trade models that erode over time is a deadly game that has only one end - ruin. Just ask the hundreds, if not thousands of hedge funds that are(will) blowing up.

Let's digress a bit into a secondary discussion. I wrote many moons ago that forms of exchange between countries have consistently changed over time. We may be nearing a point in time where the dollar comes under pressure as the world's reserve currency. I am not talking about price pressure. I am referring to pressure from other states (countries) as global finance is shaken off of its foundation. Many European countries, Russia, China and others have most recently called for a new summit to discuss this very topic. Personally, I would whole-heartedly embrace a new medium of exchange other than the dollar as long as it does not create an even larger bureaucratic entity. Or create some international governing body. We don't need an incompetent European Central Bank type of governing model for currencies. A major source of this mess is government meddling in markets. And, that statement goes back decades and well beyond the bounds of the Federal Reserve and well beyond the U.S.. If you are unhappy with government today, and polls suggest 91% of Americans fit into that category on some level, wait till you get a whiff of a global governing body where corrupt cronies in China or Russia determine your economic vitality. It will be interesting to watch these discussions. That is, if there is any transparency into the process. The elitists who created this environment would surely rather have the sovereign be uninformed so they can do what they will. With all eyes focused on the economy, I don't think that is going to happen. There are times we can all quibble over whether the Constitution is to be interpreted literally, but now isn't one of them. Now is a time for strict interpretations of the Constitution. And, part of that includes any attempt by global elitist cronies who don't espouse any Constitutional ideals similar to our own attempting to usurp our rights for their personal agenda.

On that note, a very common theme exists amongst many that the U.S. had abused its power as the world's reserve currency. And, it's easy for many to blame the U.S. for so many problems around the globe right now. A valid position exists that the U.S. has often not been very neighborly for some time. And, that one country should not dominate global exchange. The euro has had moderate success over the past cycle. But, there are many positions out there, including those of some smart but very misguided people, that the U.S. is the source of nearly everything wrong with the global economy. It's time to shift that perspective back from the extreme. That position is preposterous. As I have written numerous times, including one of the first posts I put up on here, the opposite is a more appropriate position - many countries refuse to undertake significant political and economic reform to stimulate their own economies and would rather attempt to suck the U.S. economy dry. And, the U.S. has made it far too easy for that to happen. That fact has been a major contributing factor in the globalization of this crisis.

Sharing and coordinating regulatory frameworks for business transparency and investor safety across borders is something I support. An example might be accounting principles. Any form of internationalizing regulation over forms of exchange or otherwise is something I clearly do not support. The distinction being a body of international pinheads making and enforcing sovereign regulatory decisions. Such a move, seemingly being considered by those who created this mess, would put our economic future into the hands of those that managed to screw their countries up even more than these same pinheads have managed to screw up ours. It is no coincidence our government seems in crisis. It is indeed by design - to allow it to accomplish nearly nothing of significance. That is, until there is crisis, where unanimity coalesces. And, while it may therefore appear the U.S. form of government is outdated, nothing could not be further from the truth. It is not our government that makes us great, it is the lack thereof that makes us great. Yet, as Thomas Paine told us, the only thing worse than government is no government. And, in many regards, that is where we are today. With respect to many issues, there is no government of the people, by the people, for the people. To perpetuate this onto a global regulatory scale that would, in any way restrict the self determination or rights of American citizens, would be an act of high crimes against this great country. Let's make sure there is no attempt to go there.

Regardless, the global redistribution of wealth is over. That redistribution went from the U.S. to emerging markets and from the middle class to those who consider themselves the ruling elite as defined in my populist post. As I wrote back in 2006, we could eventually see all of the global wealth created since 2000 be destroyed. And, it appears we are well on our way to validating that statement. Or worse.

Finally, these are very unnerving times. The ferociousness of this environment has and will continue to be underestimated. Or, maybe more appropriately, the status quo will do anything to try to convince the world that all is well in hopes of rekindling Goldilocks. Not necessarily as some perspective of conspiracy but because it is the only environment the status quo knows. And, change creates great fear.

It is not so much what I see that is unnerving, it's what I know is lurking beneath the surface. For many, it may therefore be intuitive to believe the dollar should collapse but until I see something to invalidate my thesis, regardless of very unnerving economic distress in the U.S. (And, we were talking about systemic risk in our banking system when no one was. ie, This environment is not foreign to my dollar position.) my consistent view of a strong dollar is still intact. As I wrote in the 41 Untruths, strong re the dollar is comparative. I surely don't expect to see the dollar return to its bubble days of 1999 and 2000.

Intermediate term the dollar remains very overbought and most likely has come too far too fast. A pull back is going to happen at some point. Any pullback should not be confused with news of the moment as is always the case with the financial press. In other words, "Dollar falls due to Federal Reserve moves." or any other similar reporting is just hooey to fill the empty newspaper space or internet headlines. (Twenty four hour news feeds need to fill your head with something. And, little of it includes useful facts.) Just as were the original headlines as to why the dollar was falling in the first place. The dollar's bottom might be $72, $68, $78 or something else, but we are likely putting in a substantially major bottom in this range.
posted by TimingLogic at 11:18 AM links to this post

Monday, October 20, 2008

Is GM's Goal To Loot Chrysler's Cash And Lay Off 40,000 Employees?

GM needs cash and Chrysler has it. They surely don't need any of Chrysler's overlapping product line. This is, in effect, a raid on the Chrysler balance sheet. The side benefit is that it removes one of only two remaining domestic competitors. It appears the major problem is that this deal needs financing. And, today's environment is the most rotten time in nearly a century to get it.

It's ironic that a driving reason why American auto companies became so uncompetitive was because of protection by the government. Part of that protection was the allowance of anti-competitive oligopolies to develop in the auto industry. Were we to truly embrace free markets, GM and Ford would have been split up fifty years ago. Instead they grew to become greater and greater risks on the economy thanks to lack of government initiative. Now Cerberus and GM are rushing to remove even more competition from the market place by trying to make a deal happen before the elections. Why? Possibly that a new President might enforce anti-trust regulations? You remember those old relics?

Frankly, a better bet would be to allow both companies to remain exposed to market forces and fail if necessary. Then restructure under a plan that would surely force needed change. If nothing else, taxpayer-backed employee ownership of Chrysler until the economy turned around would guarantee some modicum of competition and employment across the existing supply chains.
posted by TimingLogic at 10:30 PM links to this post

Hedge Fund Manager Thanks Idiots For Success And Promptly Quits

Can't say that I disagree with much of what Mr. Lahde has to say in a hilarious Bloomberg article.
posted by TimingLogic at 6:28 AM links to this post

Sunday, October 19, 2008

One Year Anniversary Of The 41 Untruths Perpetrated By Wall Street

Today is the one year anniversary of a post highlighting many of the themes talked of on this blog since its inception - The Top 41 Untruths listed below. The anticipated outcomes and themes we have discussed over the years have never changed. If the data changes, the themes will change. But, that hasn't happened. When you read the 41 Untruths, or for many, re-read them, remember over this past cycle almost every single economist, financial pundit and Wall Street talking head, be it bull or bear, were hyping some or all of these untruths at one time or another. In fact, on many of these untruths the hype was so overwhelming that it was nearly impossible to find a single person with a microphone to dispute them.

It is easy to look back a year ago and question who was saying what. In fact, it is easy for one's mind to play tricks and believe the environment was already very dour a year ago. But remember, the original posting of the 41 Untruths was posted just days after the U.S. and most global stock markets had reached all time highs. Wall Street was living large and politicians & business leaders around the globe gloated of how their brilliant policies created economic vibrancy that would last for years to come. At that time anyone espousing counter positions to many of these points was considered negative, a goof or even a fool. Yet once again the prevailing beliefs were completely wrong. And, because society cumulatively believed them, it will be society that pays the price.


Top 41 Untruths Perpetrated by Wall Street
  1. We will get a healthy and much needed 10% correction and restart the second phase of a multi-year bull market
  2. Buy this dip because because earnings were great
  3. There is too much global liquidity for the markets to go down
  4. Interest rates must go up to kill the commodity run, inflation and the global equity markets
  5. China is an economic miracle
  6. The 21st century is the Asian century
  7. The U.S. (and I guess by implication all democracies) has lost its economic leadership
  8. The stock market is cheap
  9. Risk management.....Well, need I say more
  10. Continued globalization is a foregone conclusion
  11. Emerging markets and (Brazil, Russia, India, China) are a safe havens while the U.S. economy and dollar craters
  12. American manufacturers cannot compete and offshoring or doom is inevitable
  13. The dollar is doomed because America is a land of spend happy dunces
  14. Capital equipment spending will rise from the ashes and drive us to a new bull run
  15. The Federal Reserve will save the economy and by implication the stock market when they cut rates
  16. Financials are defensive stocks because they pay a dividend
  17. Defensive stocks are a great investment in any coming market decline
  18. Inflation is out of control and interest rates must go higher
  19. This has been the best global growth story ever and it's unstoppable
  20. The American consumer and the housing market are the major concerns behind a recession. (They are symptoms.)
  21. Oil is at a permanently high plateau
  22. Commodities are in a twenty year bull market (Maybe many years of yo-yo action)
  23. The rest of the world will pull the global economy through US weakness
  24. Global companies get more than half of their earnings overseas and that makes them a great investment
  25. There is always a bull market somewhere. (Yeah, and it will likely be in the U.S. dollar comparatively)
  26. Sentiment is too bearish for the market to sell off
  27. The U.S. doesn't drive the global economy any more
  28. Markets must exhibit mania and blow off to have a peak (That's double speak for people who don't know what's going on and they need a sign from God to see a market topping)
  29. The Federal Reserve is printing money (Total baloney)
  30. Alan Greenspan caused all of this (Although he didn't help)
  31. Goldman Sachs is a great investment
  32. This can't be a top because Goldman is levered to the hilt
  33. Wall Street is smart money
  34. It is different this time
  35. The real estate slow down will be contained
  36. The US is a service economy and manufacturing doesn't matter anymore
  37. The consumer loves high gasoline prices (or more eloquently spoken by Wall Street as high oil prices haven't hurt the consumer)
  38. Unemployment is at 4.5% and by implication the economy is great
  39. Apple and Google are the next great thing and deserve their stratospheric valuations (As I said before, I'd rather own all of the equities in Thailand than Google for the same sum of money.)
  40. The Fed equity valuation model tells us the market is very undervalued
  41. This final one is for emphasis and has actually been discussed above: the dollar will crater if the Fed cuts rates.
posted by TimingLogic at 5:45 AM links to this post

Saturday, October 18, 2008

401-Keg Investment Plan

I'm sensitive to incredible losses people are taking but laughter is often some of tbe best medicine. So, take a few minutes to laugh at a timely joke.

Based on the current financial crisis, perhaps everyone needs to reconsider their investment strategies. Retirement plans compared...

If you had purchased $1000.00 of Nortel stock one year ago, it would now be worth $49.00. With Enron, you would have $16.50 left of the original $1000. With WorldCom, you would have less than $5.00 left. If you had purchased $1000.00 of Delta Airlines stock, you would have $49.00 left. If you had purchased United Airlines, you would have nothing left.

But, if you had purchased $1000.00 worth of beer one year ago, drank all the beer, then turned in the cans for recycling, you would have $214! Based on the above, the best current investment advice is to drink heavily and recycle.

This is called the 401-Keg Plan. (If you live outside of the US, a 401-K is an employer sponsored investment vehicle.)
posted by TimingLogic at 10:27 AM links to this post

Friday, October 17, 2008

Wall Streets Gets $700 Billion Government Bailout And Executives Promptly Get $70 Billion In Bonuses

I'm beating father time. I'm posting a Saturday article on Friday night. Isn't technology wonderful?

If I weren't a civilized person who abhors all violence, I might actually advocate violent protest at the disgust I feel when reading this. People are homeless because of the vile and loathsome actions perpetrated by Wall Street. Notice the signs in the picture? 'Class War Crimes'. Well, I couldn't agree more. These sonofabitches need to go if taxpayer money is to bail out their fraud. And, I believe all of the bonuses over a certain dollar amount in the last five years need to be given back. Including for anyone who has since left Wall Street. That includes the bonuses given to Secretary Paulson while he was at Goldman Sachs. And, I want the government to actively retrieve it.
posted by TimingLogic at 11:38 PM links to this post

AIG Uses $120 Billion Government Bailout To Lobby Government For Less Regulation.

The old phrase 'Real life is stranger than fiction' surely holds true in these times. Can we get any more bizarre or wrong than this? Here's the story at the Journal.
posted by TimingLogic at 6:28 PM links to this post

Is The Federal Reserve Weakening The Banking System?

A few days ago in my Ramblings..... post, I wrote of some unintended consequences and negative impacts of the current reasoning out of Washington. One was... Of course, why (would banks) lend or trade with other banks if you can go to the Fed? An unintended consequence of the Fed's significant credit facilities available to banks? Reuters is reporting today that bank lending through the Federal Reserve has hit another record confirming that very point.

I don't have a lot of time to right a lengthy post right now but I believe the market is clearly telling regulators what the end state should be. And, instead of embracing the market, the Federal Reserve is fighting it. I believe the Federal Reserve and other regulators should think about one point and devise solutions with this as one of the baselines - The U.S. has the most dynamic banking system in the world. We have twenty five thousand banking institutions. We also have a handful of Wall Street firms and major banks that have, through monopoly status, created chronic systemic risk. The Federal Reserve's policies are focused on saving these sources of risk at the expense of the world's most dynamic banking system. Officials should be focused on removing risk and restoring free markets.

How does one keep the banking system from collapsing while also enhancing the competitiveness of the healthy free market "distributed" model of banking that exists? I say healthy because we must let all unhealthy banks fail in an orderly fashion to return to economic vibrancy. Even if that number is in the thousands of institutions. Most importantly we need to kill the large bureaucratic, systemically risky model of European banking that has crept into our economy.

I suspect the FDIC should be administering a fair voluntary plan for all banks to access guaranteed loans instead of the Federal Reserve's monopoly bailout plan. And, banks would need to meet minimum safety requirements for participation. Weak banks are forced to fail while the government also removes the monopoly forces from the market. We have taken these approaches before so it's not a mystery. Failure can be accomplished without inciting a panic or run using proper crisis management, policy and leadership tools.

Instead of freeing capital movement and fixing the major problem of hoarding money, many of the Fed's policies are quite substantially contributing to it. In the process, it is weakening heretofore generally strong institutions at the expense of trying to save what should be killed. Regulators should embrace the transformation the market is begging for. That being kill these oversized banking messes and return to a free-market-driven local banking model.
posted by TimingLogic at 6:59 AM links to this post

Thursday, October 16, 2008

FDIC Chairwoman Criticizes Bailout Of Banks Over Homeowners

Sheila Bair has emerged as a major power broker during this crisis. And, someone one independent mind willing to stand against political correctness. She has been increasingly vocal about what she believes is misguided policy applied to this crisis. In today's Wall Street Journal, she again publicy voices concern over the focus of bailing out banks at the expense of homeowners.

As someone who believes Wall Street and other financial institutions have preyed on many American citizens while many consumer protection laws have been thrown out the window, I tend to believe many of her points have merit. This does not excuse the speculators but I suspect a very small percentage of those who are now being kicked out of their homes by banks are speculators.

Were Bair the Treasury Secretary, there might have been an opportunity to deal with some of these crises years earlier and mitigate many outcomes. Bair first voiced concern for many of the problems now facing our banking system as a Treasury executive in 2001.
posted by TimingLogic at 6:25 PM links to this post

New York Manufacturing Index Drops To Lowest Level On Record - What Are The Implications For New York Real Estate?

The outlook section of the survey fell to what I would term as depressionary levels should this trend continue.

With finance and now manufacturing taking a serious hit in New York, this is adding confirmation to a point I made while New York City real estate values were still rising. That being, before this cycle is over, I expect some of the worst real estate problems to be centered in New York City and places like The Hamptons. We are likely still in the beginning stages of a New York real estate decline versus other parts of the country. This is logical given the epicenter of the U.S. bubble resides on Wall Street. Until Wall Street's bubble started to collapse, real estate would continue to do comparatively well.

I lived in New York during its last real estate crisis and I remember reading of high end real estate properties literally dropping 30% in value overnight. New York could see its real estate markets catch up to the remainder of the country quite rapidly. Remember, as in every other market this cycle, illiquidity plays a major role in proper price discovery. In real estate, this means the possibility exists that a $5 Manhattan loft could be worth $2.5 million a week later. Whether sellers want to acknowledge this fact is irrelevant.
posted by TimingLogic at 2:38 PM links to this post

Wednesday, October 15, 2008

The Gilded Age Of Political And Wall Street Cronyism - ""There'd Be Nothing Better Than Being A Banking Lobbyist""

posted by TimingLogic at 7:14 PM links to this post

Ramblings On The Treasury Bailout Plan And The Market

The government finally announced its plan for $250 bilion of the $700 billion bailout money yesterday morning. The money is to be invested in banks rather than used to buy toxic assets. I don't know if any attempt to buy toxic debt is officially dead, but it should be. My initial thoughts are that this is obviously much more palatable solution but I don't see any protection for the taxpayer. How is a 5% dividend going to benefit taxpayers when the interest rate the government had to pay to raise the money is about 5%? Is this money that will hypothetically flowing back into the government kept separate from the overall budget so it can be directly applied to this massive $700 billion loan? Or, will Congress spend it as part of general funds and we'll let someone else worry about the $700 billion in ten or twenty years?

While I support a plan to save the banking system, this is no doubt, first and foremost, a plan to save Wall Street - those that made the most foolish mistakes. A handful of banks that have achieved monopoly status in the markets get half of the $250 billion. There may be no other choice temporarily but the reality remains that these organizations represent systemic risk and the government should nationalize these firms and slowly remove them from the market place under a multi-year dismantling plan. That might be death or breaking them up. That still might happen at some point after this crisis has passed but I wouldn't hold my breath. A perspective that bigger is better is reinforced by the mindset that only size can compete globally. This is completely ludicrous. Additionally, on this note, there are over twenty thousand banks and credit institutions in the U.S. The government is endorsing favorites in the market place by giving a chosen few access to taxpayer funds. This approach will have an unintended consequence of weakening the strong banks that made every attempt to follow sound risk management practices unless every single bank in the U.S. receives comparably equal injections. And, how many of you believe that is going to happen under this crony plan?

Another glaring point to this plan that I find problematic is a guarantee of future debt issuance for a period of three years. I understand the reasoning. In fact, I was the only voice I am aware of that wrote long before this crisis developed that an environment could develop where banks wouldn't lend. This guarantee of future debt is simply to encourage banks to loan the money they now have instead of hoarding it as they have been. Of course, why lend or trade with other banks if you can go to the Fed? An unintended consequence of the Fed's significant credit facilities available to banks? Regardless, this incentive to lend government injected funds will also harm well managed banks - should it work. I'm dubious of such a plan having any impact. It's based on a faulty perspective of this economic environment. If it does work on some level, two additional issues jump out at me. One, these banks are global. Are we going to guarantee foreign loans or is this for domestic loans? If this is not mean as an infusion for the American economy, this will create even more problems down the road and do nothing to stimulate the economy. Of course, that is unless you believe it will stimulate global trade with the U.S. A position I find to be a fantasy. And secondly, is this truly for new loans or is it for new loans under existing covenants as well? The latter will produce significantly more future risk and will do significantly less to to stimulate the economy. Finally, there still has been nothing done to deal with the accountability of these corporate misfits. They appear to be getting bailed out with no stipulation. Are they to walk out of this scott free? Are they to receive taxpayer money and still recklessly manipulate compensation for their personal benefit? To continue the same ruse of governance that created this mess? It appears as though the current administration is committed to doing nothing. Personally, I believe the lack of accountability and government action in this arena will erode economics far more than any $700 billion bailout plan could ever offset. Another brick removed from the wall of confidence. Another reason why I believe Henry Paulson should recuse himself.

Finally, a remark about the stock market's blow upward on Monday. Were I to guess what happened, I would probably attempt to assign it to two points. One, the move was precipitated by a move of very poor breadth - focused in banking - this past Friday most likely because insiders knew the bailout plan was going to be announced this week. Actually, the plan was announced Monday but formalized on Tuesday. So, Wall Street insiders were surely informed of Monday's summons to the Treasury last week. What better opportunity to take advantage of information no one else has? So much for transparency. That coupled with the counter trend moves we have oft mentioned that occur during witching week, especially when markets have made major moves leading up to it, is also likely to have played a roll in Monday's rally. A runaway move to the downside has significant financial implications for many major market players. If this turns out to be the case, those fueling this rally have likely readjusted their positions and shorted the market. In other words, we would be going back down and likely very hard. This position makes some sense because Monday and Tuesday were futures driven while the cash market participation was nearly nonexistent.

In closing, I heard quite a few professionals talking about capitulation and selling exhaustion as the driver for this - so far - one day rally. That sellers had been washed out. This is complete nonsense. Anyone talking this game is talking trash. Much of the selling this cycle is forced selling. The concept of capitulation is that everyone who wants out, gets out. They reach a point of panic and dump everything they own because of overwhelming fear. How does that apply to a market where institutions and hedge funds are forced to sell even if they don't want to sell? These organizations aren't experiencing panic. They are forced to sell because of exogenous factors that can change at any point in time. (Re the prior posts on The Game.) Forget about this capitulation nonsense. People applying this notion of capitulation are the same ones calling bottom after bottom and losing more and more money. These seemingly exhaustive downside days used to happen once every year or decade or somewhere in between. In market dynamics of yore such a signal may have lent some type of anecdotal confirmation that a rally might develop for months or even years. Those days are long gone. In the last fourteen months we have had dozens of these capitulation-type days. What used to occur once every decade is now occurring up to five times a week. This is another prime example of fallacious logic. And there are some very smart people subscribing to it. It sure sounds plausible but it is more ignoratio elenchi.
posted by TimingLogic at 9:17 AM links to this post

Tuesday, October 14, 2008

Washington Mutual Executives Took The Brakes Off And Drove Over A Cliff

posted by TimingLogic at 6:35 PM links to this post

Daniel Howes On Cerberus

I believe Daniel Howes is one of the best automotive journalists anywhere. Today he has a story at the Detroit News about Cerberus and their effort to dump Chrysler at any cost - including at the expense of Chrysler's employees. Interesting perspective. We shall see if Cerberus management adopts the same old Wall Street "me-first" mentality as the pressure of their various investment mistakes builds.
posted by TimingLogic at 2:17 PM links to this post

Chaiten Volcanic Storm


I'm intrigued by the potential for electrical and electromagnetic disturbances of extraterrestrial origin interacting with forces on earth as a root cause of volatility. That includes human behavior and tectonic activity amongst other symptoms. Maybe some day I will post more on the topic. Today let's just look at some amazing pictures. Above is a picture from the Chaiten volcanic eruption in Chile earlier this year. There is an electrical storm over the Chaiten volcano occurring during an eruption. The visual effects are amazing.

You can click on this link to see more Chaiten electrical storm pictures. About two thirds down the page are about a dozen similar graphic images.
posted by TimingLogic at 7:26 AM links to this post

Monday, October 13, 2008

GM Chrysler Update

The Detroit News has an update to the comical GM & Chrysler merger discussions. Along with all of the other doofuses willing to share an opinion as to why this merger might be beneficial, a voice of reason is finally quoted - Maryann Keller is probably the only auto analyst who can walk and chew gum at the same time. She has been around a long, long time. Hell, she's older than me. Her quoted perspectives are pragmatic and correct.

If GM wants to whittle away competititon and overcapacity by buying Chrysler instead of focusing on their core business, then I personally don't believe they should get any relief when they declare bankruptcy. And, if they pursue this merger, they most certainly will.
posted by TimingLogic at 4:11 PM links to this post

Who Will Be The Greater Fool? Governments Move To Guarantee All Bank Debt.

One could easily anticipate a tremendous amount of foolishness as this cycle enters the economic phase but nothing is more foolish than the recent announcement that European countries are going to guarantee all bank debt.

So, who is the greater fool? You are if you let any politician in your country actually pass this ridiculous notion. Regardless of whether most economists have embraced delusional beliefs over the last half century, one thing they can surely agree to is that economic vibrancy cannot be achieved by guaranteeing all debt. Especially when there is so much of it. There is no free lunch. Politicians are setting the seeds of a worst case outcome by too much meddling.

I guess it's time to present my business plan to the ECB for a Jack Nicklaus-designed golf course in Barrow, Alaska.
posted by TimingLogic at 11:16 AM links to this post

Hank Paulson's Goldman Sachs - The Consumate Cronies?

Hank Paulson is part of a generation that has come to believe the crown jewels of American capitalism are Wall Street. As I have commented repeatedly, this is completely erroneous. Paulson is simply trying to save what he knows. Yet, he's looking in the rear view mirror. He needs to embrace the new environment unfolding. But, it is very apparent that is something he is unable to do. Were Paulson able to embrace change, his economic principals would be drastically different. And, we would most assuredly be better equipped to deal with the economic shocks forthcoming. Paulson is simply cementing more problems by his misguided policies. But, then so are all global leaders supporting a continuation of an environment that cannot be saved. A few appropriate perspectives come to mind as it pertains to today. I've been in the change business most of my life by helping executives and companies transform their businesses. And, I can tell you almost everyone hates change and many will resist it to the point of subverting it. And, secondly, youth almost always lead a revolution of ideas or ideals be it business or otherwise. Youth doesn't need to take the shape of a thirty year old person. It could also be youth of the mind. It is truly so that you are only as old as you feel. I am not aware of any major social transformation that has taken place without the inclusion and willingness of youth. That includes very destructive social transformations.

Key areas where Paulson has failed the people are failed trade negotiations and intellectual property rights discussions with China, instead of addressing confidence with transparency and regulatory enforcement eighteen months ago he has continually tried to use lip service to restore confidence, he tried to create this super SIV to bail out Wall Street when that crisis was front and center and now he wants to use $700 billion to bail out Wall Street. All, while main street gets what? Paulson may, through misguided beliefs, think he is helping the average American but what he is actually doing with each and every action is taking another brick our of the wall of confidence. At least it finally appears the pressure from main stream experts and from the public has become so severe that he has abandoned an overt bailout in lieu of a plan similar to what we originally discussed where the sovereign would benefit from any upside on government investment, but only after his efforts at convincing us otherwise failed miserably.

Now, we have an interesting article highlighting Hank's career and the extent of political interconnectedness at Goldman Sachs. Free markets? Competing based on merit? We don't need no stinking competition. Have political connections kept Goldman above the fray of competition? How interesting the article is on a socialist web site. Hank Paulson is assuredly the most socialist leaning Treasury Secretary in our history. But, instead of socialism for the people, still misguided, it is socialism for the banking industry at the expense of the people. What do they call corporate socialism at the expense of the people?
posted by TimingLogic at 9:22 AM links to this post

Sunday, October 12, 2008

Italian Government Forbids Any Bank From Failing. Future Steps Forbid Children From Crying, People From Dying and Bankers From Lying

Well, two out of three ain't bad. They'll never pull off the banker piece.

This new development announced by Italy's Prime Minister decreeing no failures is not unexpected. We are starting to see politicians across Europe attempt to trump one another in offering higher and higher levels of banking protection. Offers that aren't based on any type of financial ability to back their statements. A race to the bottom of the barrel compounded by unregulated capital. Berlusconi must have graduated from the Stalin School of Economics. Of course, after the G7 summit yesterday, we can conclude all politicians graduated from the same school. And, now we are about to see the consequences.

We have already said quite a few times that globalization has peaked, but if every major country across the globe moves down this path of guaranteeing no failures, the unintended outcome will be an even further muting of economic growth. It will have the exact same effect that tariffs had in the 1930s. There is no free lunch. If we are headed down this path, I would rather see a political decree that no citizens see any outright failures in lieu of no bank failures. In other words, that some type of marginal social safety net be provided so people aren't living on a street corner begging for food.

If life were only so simple. If politicians could wave their magic wands and make all of their promises come true. They endlessly promise us these notions and most of us endlessly believe them. Or, want to believe them. Or, hope to believe them. Politicians would have us believe stock markets go up forever, everyone on earth will be rich beyond our wildest imaginations, there will never again be world hunger and global conflict will be vanquished. Remember, it was just a year ago when most everyone in G7 nations came close to believing this. Maybe even you. And, at the root of that belief system were the same political lies. We'll see if it works on the way down as well as it worked on the way up.
posted by TimingLogic at 9:42 AM links to this post

Saturday, October 11, 2008

Cerberus Tries To Dump Chrysler - Will GM Cement Its Own Bankruptcy?

First off, it appears events over the past few weeks have possibly circumvented these talks. But, I'm going to comment regardless because the pickle is getting bigger rather than going away.

We have written often of the mess Cerberus Chrysler is in. The private equity firm Cerberus top ticked the economic cycle, the auto cycle and the credit cycle when it acquired Chrysler from Daimler. Now, they are in a mess and apparently ready to throw in the towel. That is, if the market will let them.

The auto business is unlike any other as we have discussed. The fixed costs and financial burdens are massive. Cerberus most assuredly had no idea what it was getting in to when it bought Chrysler. Hubris. GM and Ford will survive this crisis regardless of whether there is an ultimate bankruptcy. Chrysler has many headwinds we have talked about. The most immediate is the worst product mix of any major auto maker. Without some type of potential intervention, they may not be so lucky. That said, I hope Cerberus is successful at keeping the company afloat.

The framework of some type of merger is hazy because the talks are obviously private. But, the Detroit News, as usual tells us Cerberus is proposing a swap - the rest of GMAC in exchange for Chrysler. As a reminder, Cerberus also bought half of GMAC from GM. And, that acquisition has also done so well. GMAC has closed all of their retail mortgage offices as it continues to swim in an ocean of losses. (In 2005 GMAC had 250 0ffices). Why not take the rest? I don't know the financial position of Cerberus but ultimately these investments in cash heavy businesses have the potential to be extremely harmful without a return to economic growth.

Let me re-center the real proposal. The proposal is more likely centered around whether GM cements its own bankruptcy. GM is not in a position to be taking on a cash draining operation and attempting to integrate a very weak product line that has tremendous overlap into it's operations. GM gains nothing by buying Chrysler. No technology, no complementary product mix, nothing. The costs are potentially life threatening. Mergers of substantially similar equals almost never provides the yield promised. And, that is a gracious statement. At a time when GM should be maniacally focused on improving its operations and saving the company, the last thing it needs to be doing is spending years integrating a different culture and different company into its own.

The only question left is if GM is foolish enough to bite. Even though GM has lost market share for forty years, there has been an unwavering arrogance within its culture. Will that arrogance prevail? Or will prudence and focus on turning around the company? This will be a barometer of the mindset of GM management.
posted by TimingLogic at 7:09 PM links to this post

Friday, October 10, 2008

Dignity

My writings on here regarding politics are restricted to the issues surrounding this economic crisis, sociology or other relevant topics. I would not even foray into politics at all were it not that government is so deeply complicit in this economic environment. Not just re lack of regulation either. Human rights? Individual liberties? Well, I have written of them often. They have nothing to do with politics. They are grounded in a concept of basic dignity that all people around the world should stand witness to.

My blog is often an outlet for my conscience. My writings are often ramblings, based on facts or professional remarks surrounding my experience or much of my quantitative work. But, they are often a reflection of my passions.

As a matter of principle, I feel compelled to make a statement regarding politics of the moment. Something has been upsetting me deeply. I have great admiration for both John McCain and Barack Obama. I believe(d) both were great men who truly have a desire to serve their country. Do they both have strong egos? Of course. Different beliefs? Yes. Neither makes either candidate either right or wrong. Their ideals are simply a reflection of their experiences.

The system is broken in Washington. It has been for a long time. It matters not because the future of America will not be determined by politicians. But, the future of politicians will most certainly be determined by the future of America. The petty political behavior we see is a result of multiple factors. One of the most important is that the times allow it. In other words, the U.S. has benefited from unprecedented economic vibrancy. With no real issues or challenges before the country, politicians exhibit their most basal and petty behavior. It is a generational problem that will truly only be vanquished when those who benefited from and created this petty behavior retire or are replaced in the leadership structure.

Recently, the Republican party has latched on to labeling Obama as associating with terrorists, intimating he is a terrorist and elements within the party even claiming he is a terrorist. This strategy has incited the most ugly of human behavior including jeers from McCain and Palin rallies that Obama should be killed. I believe the behavior of the Republican party borders on sedition and this misinformation is setting the seeds of hatred and violence. For a Presidential candidate or political party to even intimate smears of this magnitude against an opponent leaves me breathless. It's disgusting. It's vile. It appeals to the most basic of human emotions - fear. And, it provides cover for fringe elements in society to consider unconscionable acts. It's the worst of crimes against our way of life, the ideals of a free people and I feel compelled to express this because I am completely disgusted by it. And, until and unless people stand up for values we have no values. How often in history have we seen seemingly great societies show no value for human life? All because the voices of liberty, reason, compassion or dignity were never heard.
posted by TimingLogic at 4:38 PM links to this post

Confirmed "Virgin Birth" Of Shark

One of the key themes on this blog has been rising volatility. And, we have talked about that extending well beyond financial markets. More appropriately, that volatility in financial markets is simply representative of rising volatility in the real world. What could be more representative of volatility than a virgin birth confirmed by scientists? Here's the story.
posted by TimingLogic at 11:38 AM links to this post

Fundamental-less Fundamentals And The Supposed Panic Of 2007 -- Repost For 2008

For those who may not have read the post bearing this title back in August of 2007, I'm going to repost part of it as I believe it is again relevant today as now we hear of the Panic of 2008. Since I penned a post on here less than a month ago that we had the true potential for some type of disaster, an orderly correction has turned into a collapse and the market is down more than 25%. Still, there is no one in control of this market. The market is repricing risk at a dizzying pace. Some of it is unregulated capital unwinding, some of it is not. But, don't assume it is not acting rationally. If one were to wake up and realize the future we have been talking about since starting this blog, they would immediately reprice assets substantially lower. Historically, that has taken a substantial period of time. Today, we have near instantaneous markets. Those who don't appreciate that fact, and that includes most professionals, aren't being given a chance to enter or exit this market at a price they would like. That does not mean the market is acting irrationally. In fact, the market is acting rationally. The future is going to be a very different place. And, it has nothing to do with mortgages either. If you are one of the those still blaming this on Alan Greenspan's low rates in 2001 and subprime mortgages in the U.S., you need to wake up. That dog doesn't hunt anymore. Of course, it never hunted on here. Because it is completely wrong. We don't see the events unfolding globally, all of which were anticipated on here, because Alan Greenspan lowered rates in 2001. In fact, that is completely preposterous. Here are some very timely remarks from that the 2007 post.

The Panic of 2007 is being discussed in nearly every form of media. So, is the recent market action based on panic? Was it a panic in 2000 when the same use of terminology was so prevalent? Is this correction purely technical as leveraged funds unwind? Or is it also based on a rational response to fundamentals? How about a simple "panic" quiz. Do you want to invest in a hedge fund right now? Or buy stock in the nation's largest mortgage company, Countrywide? Is one acting irrationally if the answer is no? Are you logical or panicked by saying no? How about taking a different perspective than I've read anywhere else? Have you ever thought that the market was acting irrationally for much of the past five years with nearly no measurable regard for risk management and now the market is simply starting to act rationally to fundamentals? The media keeps telling us the markets aren't acting rationally to the great global fundamentals. Did all of that money and leverage used to abnormally ram global asset markets like never before really reflect fundamentals? The undisputed facts are some significant number of hedge funds and trading desks at major financial institutions have no clue what they are doing as we are finding out. Because someone can borrow money at an attractive rate and use it to artificially push equities higher with manufactured money does not mean it is either justified or based on fundamentals. Is this really any different than speculation in the real estate markets using borrowed capital? Is Wall Street's patronizing behavior any different that that of the individual real estate speculator? They'd like us to believe they are too sophisticated for such action. Do we need another history lesson as a reminder? And what of emerging markets? Do emerging markets, which typically have little transparency, crude financial infrastructures, weak regulatory controls and immature capitalist and democratic structures really deserve to be fundamentally valued at a premium, comparative or absolute, to U.S., Japanese and European equities, real estate, bonds, debt, currencies and other assets? (Remember those posts as well?)

Is this really about subprime debt instruments? Or is that simply the exogenous shock which wakes the world to very heightened risks across a multitude of areas? Are the global fundamentals really supportive of what is the most expensive market in history by many measurements? And, is a ten percent correction enough to bring valuations back in line so that we can start another bull market? For those of you who have been with me since I started this blog, you know the answer. If fundamentals and quantitative analysis are any indication, and in my world they are the only things that matter, the answer is clearly and emphatically no.
posted by TimingLogic at 9:21 AM links to this post

Thursday, October 09, 2008

Iceland To Declare National Bankruptcy? Not Likely Because Someone Will Bail Them Out.

posted by TimingLogic at 10:18 AM links to this post

Is The Great European Central Bank (ECB) Experiment Unraveling?

When the Fed was cutting rates and aggressively attempting to deal with the issues in the U.S. banking system, a near universal position was that the U.S. was in serious trouble while the Euro represented a save haven. That Trichet, the head of the ECB, was moving the right direction by keeping rates high for fear of great inflation threats.

Below is text taken from a post on here in May when dollar bears were roaring and some of the top investment minds were bullish on the Euro. And, applauded the ECB policy. Mind you, that was every one on Wall Street who could grab a microphone be it bears or bulls. I believe it was on Bloomberg that Marc Faber cited the Euro as a "sound currency" versus "Printing Press" Bernanke.

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.

Indeed Trichet was a deer in the headlights. How ironic that the shoe is now on the other foot. Trichet now looks like a fool. A bigger fool for jabbing a stick in Bernanke's solar plexus when he should have been cooperating. Europe's banking system is in dire trouble. In fact, likely in much more serious trouble than the U.S. The ECB has been completely and foolishly chasing its tail. And, who has been proven to be right again? Ben Bernanke. (Most bloggers, media and Wall Street criticizing Bernanke's every move are deer in the headlights as well. Bernanke will make mistakes as anyone in this environment would but he is qualified.) Not the first time I have written that sentence. The U.S. is attempting to hammer through problems left and right while the rest of the world remains in chaos. We aren't getting through this without taking our medicine but that doesn't mean we can't attempt to mitigate many solvable problems and creatively try solutions to others. Some moves will be second guessed and there will be more than one unintended consequence but I'm not ready to jump down the 'do nothing' rabbit hole and find out how deep it goes. It's pretty doggone deep because I can't even begin to see the bottom if we do nothing. (The $700 billion bailout is still a massive mistake.) If you are, hey, that's great. I'll see you in the post-cataclysmic Hooverville foraging for sticks and grubs if this fails on every level. But, I'd rather try something before guaranteeing a complete economic bust by doing nothing.

The ECB is in serious trouble as an institution. Could the ECB's future be in jeopardy? Might you see how its mandate and ability to deal with crisis is severely restricted? Even comical? More than a dozen economies and no mandate from any of them. The finest bureaucracy money can buy. Crises in the banking system and bickering amongst its members as to how to deal with the problems. Serious leverage and gargantuan monopoly banks with deep financial problems. Government complicity through banks with government ownership. And, how is the ECB going to deal with this? Who knows. Is France going to pay for a bailout in Spain? Is Germany going to pay for a bailout in Greece? And, the structural problems don't end with this crisis but may be even more difficult when trying to set the seeds of any recovery.

If the European economic or banking environment reaches a level of criticality, it would be most logical that member states will move on their own to protect sovereign interests. Possibly even dissolving the ECB charter. We are already seeing country-based moves today. What is the mindset of leaders in Europe that would lead to another layer of incompetence? Well, it's funny you would ask. Just as I typed last week - elitism. Interesting how the critical European commentary directed at the U.S. looks like dullards blowing donuts now, eh? (That's how us common folk like to express ourselves in America.) A little bit of schadenfreude mixed in with a dash of elitism makes a mighty tasty shit sandwich. Britain looks comparatively brilliant for refusing to join in this charade. Let's watch and learn as this mess unfolds.
posted by TimingLogic at 8:01 AM links to this post

Wednesday, October 08, 2008

Lehman Executives Arranged Millions For Executives While Seeking Taxpayer Bailouts

Another story to warm the cockles of your heart.

Of course, if you have missed the news lately, not to be outdone, AIG executives pissed away almost $500,000 on a boondoggle after the company was bailed out by taxpayers.

There is so much more but this ought to be enough to raise your blood pressure.
posted by TimingLogic at 5:44 PM links to this post

Treasury Secretary Hank Paulson Opposed Financial Regulation In His Treasury Secretary Confirmation Hearings

It appears we have a little bit of amnesia in the political community recently. Both Democrats and Republicans are blaming the other for this crisis of government. The reality is they are the flip side of the same coin. In other words, both are severely responsible. Might we all be lucky enough to see every one of them resign?

ProPublica tells us that Hank Paulson claims to have supposedly informed the President of the need for financial regulation early in his appointment. But, in a written request made by a Senator as part of his Treasury Secretary confirmation hearings, Paulson noted he was wary of financial regulation.
posted by TimingLogic at 11:00 AM links to this post

Federal Reserve Cuts Rates. It's About Time.

They should have done this at their meeting. The market was gagging on itself at the time and failure to do so was a big mistake. I don't know if there was some administrative delay to gaining the ability to pay interest on bank reserves or what. Now that they are going to buy commercial paper, this was pretty much a certainty. In fact, this data has likely been discounted by the markets. The lower Federal Funds rate may help the frozen commercial paper market. May. As I said before, I would have ratcheted it down to half a percent. Even if it is temporary. While officials fiddled with this massive bailout scheme in Congress, this issue was left to rot. This should have been taken back on the 16th. No excuses for this three week delay.

Update: I didn't realize the global central bankers united in this move. Let's all join the Soviets to celebrate central planning once again. It works so well. Wait till the communists in China really crank it up in an attempt to save their economy. It will be a glorious day for central planners.

posted by TimingLogic at 8:56 AM links to this post

Tuesday, October 07, 2008

Where Does The Market Go From Here?

As I have said before, I really do not like oscillators as technical trading tools. I don't use any for trading. Especially the most commonly used tools such as MACD and stochastics. Both are very oversold right now. They may provide anecdotal data but one can't make money consistently using them. Were oscillators back tested over the last one hundred years, users would be bankrupted in a very short period as measured by a handful of years.

I have stripped all references to what this is and have only included a short time frame because I jealously guard my core work. In simple terms, I feel comfortable initiating a long position when the blue line is above the red line. Often that actually happens before a bottom is formed. If nothing else, we often see the blue line start to bounce along a channel showing weakening pressure to the downside. Not here. At least, not yet.

Remember, what we have witnessed is a crash. I've warned of this more than once in 2008. And, more than once we have seen different sectors crash. Now, it's the broader markets. This is not an orderly or controlled decline. No one is in control of these markets. Remember, near stock market peaks, money is transferred from strong to weak hands. That is usually Wall Street passing the bag to main street. Not in this market. Wall Street is holding the bag. Not to appreciate that fact has made fools of many. To hold overnight in this type of environment is incredibly risky. How bad the crash gets or whether the markets can gain a footing somewhere close to here has yet to reveal itself. Needless to say, it is impossible for a bottom to form without this particular metric confirming it.

posted by TimingLogic at 12:45 PM links to this post

Monday, October 06, 2008

A Few More Populist Jabs At The Ruling Elite

"This is the most orderly crash I've ever seen" -- Maria Bartiromo, CNBC today

I think I got that right as I wasn't paying close attention. But, when I hear something incredibly ridiculous, my ears usually perk up. Is this what it comes down to? This is what twenty four hour news has been debased to? I learned long ago that he who speaks last loses. That's the second cousin in the "power of silence's" main message of he who speaks first loses. In other words, silence can be a strategy when used effectively. Obviously, this is not a strategy often used in the media. And definitely not on CNBC. How do you fill the air with incessant babble when everything is going badly? That's my only comment about the markets or the economy today. Now onto the post.

Before I get back to posts more in line with the theme of this blog, I'm going to pander to the populist movement a little bit more. Mostly because I'm part of that movement. And, because like any good capitalist in today's world, I know how to pile it on when I have the advantage. The system taught me well.

While I have no public opinion of Vice Presidential candidate Sarah Palin, it's very interesting to watch the media and political elite attempt to tear her down. There is surely reason and right for the media to question her abilities as I do. But, what we see goes well beyond that. Politicians are elitists at heart and they despise populists. And, the media is their favorite tool of public opinion manipulation. Infrequently, we find leadership that is populist in nature. Today, we have two populists running for President in McCain and Obama. They may have differing views but make no mistake, both are feared by the existing apparatus. But, the elite is still trying to play their hand in this campaign. They are attempting to convince you of the lesser of two evils - for them. Someone they think they might have more control over. Or someone who will inflict the least amount of damage to them.

Regardless of how it is portrayed, a fair amount the elitist disdain for Palin is that she isn't one of them. (Off topic, but many of the attacks not based on substance are a major mistake in human psychology and clearly show the elite and their handlers don't understand the depth of this populist movement.) That is why Obama, while a populist, is still palatable to the elite. At least he's Harvard educated. Obviously some people believe a person of certain etiquette, class, education or social standing should rule. Historically, that has also included blood line. They effectively believe in a class-based society and therefore, by conclusion, a ruling class. This is nothing new. In fact, this perspective is as old as humankind. Quite frankly, the rejection of Europe's elitist culture was a foundation for America's creation. And, mind you, two hundred years later, Europe's underlying caste culture remains very similar to that which fueled the creation of the United States. We would never see a Barack Obama or Sarah Palin as candidates in any country of Europe. Never. Europe's general socialism is deeply steeped in a belief system that I know what is best for you. And, don't confuse Obama's populist message of affordable health care with socialism. If you do, you don't really understand socialism and you are simply regurgitating elitist media manipulation. Anyhooo, our society has generally bought this elitist mentality for some time. It has contributed substantially to an environment of corruption and self-serving greed in our democracy.

A significant argument I hear often is that Palin's lack of experience would severely impact the United States in discussions with the likes of Russia's Putin. Or, that she could not be trusted with access to nuclear weapons. Again, without any presumption of her capabilities, I can surely find more than a handful of us common folk that might be able to hold their own against Putin or, for that matter, Bush. In fact, it often seems more than obvious that this is not a difficult task. And, might I add, the Bush family, whether you are a supporter or not, has become a major benefactor of the ruling-class mindset that has become pervasive. There are three hundred million Americans and the only ones qualified to be governor or President have the last name of Bush? Mind you, so too is executive pay a benefactor. Over the last thirty years, CEO pay has gone from twenty five times the average salary to five hundred and twenty five times. Literally. How did that happen? It's simple. Someone convinced you that CEO's deserved it. Who did that? Was that the local farmer? Your mom? Your neighbor? Or the ruling elite?

I guess it comes down to a single question for me. Do you want government to represent the interests of society? And, who determines what values are most attributable to great leadership? Maybe someone who values education, diversity of opinion, diversity of people, trust, honesty, compassion. That's a good start. Maybe for government it should include the will of the people, ideals following our Constitution, a desire not to impose one's personal will into politics and a few more. Don't most people you know share these values? At least as often as politicians? I'm just rambling so this surely isn't all inclusive. But, do you really believe in democracy? Or just democracy for those who deserve it? And deserves it according to whom? Because I'm not sure what we have seen for at least a generation is working for you. Maybe I should ask. How's that working for you at this moment?

Could life really be worse if we elected the local farmer or businessperson or mom or people with absolutely no experience in politics? Isn't that really the basis for much of the political attacks we see? Would our economy implode? Our society soon follow? To the contrary, we might actually have policies that work for most people and would, more than likely, not have the environment we have today. How many of your friends or family would have sold you down the river as today's politicians have? Interesting how much of this article, written over two years ago, is so relevant to today's world.

I actually like(d) John McCain as much as I could like any politician until the spinmeisters convinced him he needed to become Gollum to get elected. So, this video is not an indictment of John McCain. It's meant to make you laugh and think about a very serious topic by employing witty sarcasm and humor. To think about those in Washington who seemingly care little of your plight but, of more, being re-elected. Jon Stewart's team is brilliant. They use humor and sardonic entertainment to engage a younger generation in typically dry but very serious issues of the day including politics. This video is of the pathetic efforts by Congress in the bailout plan and the slimy mess they globbed onto it to gain passage.

Stewart is surely a populist. And, so am I. Quite frankly, the United States is very different than most any other nation. For, our country was actually built on a populist message. And, within lies its unsurpassed greatness. At this point, we have two options - embrace the mob or embrace the status quo. I, for one, embrace the mob. And, regardless of who wins this Presidential election, the generational elitist view of America is over. That's a good thing for everyone. Even the elitists.

Update: Youtube pulled my video so here's the original from the Jon Stewart Daily Show web site. It's longer and funnier than the Youtube clip.

posted by TimingLogic at 2:38 PM links to this post