Thursday, May 28, 2009

The World Grinds Further Down The Road Of Disaster While Wall Street Enthusiam Rockets Higher

The fact that fund managers were nearly an unheard of 87% bearish on China in November and now 61% are bullish shows a complete lack of appreciation for reality. To see such a startling schizophrenic yo-yo in survey numbers in a handful of months tells me that there is a near universal herd behavior and lack of critical thought about what is going on in the global economy. In other words, way too little appreciation for risk. We would expect this on some level as those in a bubble seldom realize it. Ironically, as we have written, Wall Street and China are the two largest bubbles in the world today. And this survey encapsulates the lunacy of both in one measurement - foolish bubble fund managers enamored with the biggest bubble economy on earth.

These wild mood swings in fund manager surveys are driven by the most silly of economic data points - the Shanghai Index has risen 70% since November. Unfortunately, the casino managers on Wall Street seem to generally believe the stock market is the economy. Something we clearly understand is not so. The government shoveling liquidity into the markets has simply afforded interim fuel for asset market stabilization. How does that translate into new capital in the economy to create jobs and pay bills be they government or business or individuals? It doesn't.

Below is a graphic representation of Federal Reserve monetary policy. There are many methods of determining monetary conditions and this is simply a proprietary representation of public policy that I use. The overlapping blue line is a short term moving average to help visually determine directional trend.

While many were chattering about rally after rally in 2008 and none materialized, we wrote often that there was no such sign of any tradable bottom. That was not only validated by market data but because liquidity was being withdrawn from the economy at an incredible rate as shown on the graphic. And, when everyone became very bearish late in 2008, we wrote quite a few times that the seeds of a rally were building. Within days of the above graphic rising above its short term moving average in early December, copper and oil bottomed. Both have rallied about 70%. And, we finally got a monster stock market rally. The first real rally since the bear market started.

Now we see liquidity is waning again. Just as Wall Street has driven most critical credit market instruments to nonsensical levels once again. And, as Wall Street is extremely bullish on China once again. None too coincidentally 10 year Treasury rates shot up ten percent in the last two trading days of last week. Most assuredly many bond traders are looking at similar data to the graphic above and seeing that the cost of capital must rise in concert with reduced liquidity.

The market seldom moves appreciably higher when liquidity is turning negative as it has today. But seldom is just that. This is a highly unusual time when liquidity has been withdrawn from economic activity yet Wall Street has ample liquidity. For now. So the market could be driven higher due to this anomaly. Frankly, as we have discussed before, this is why Wall Street is able to front run credit and has gained an ill-warranted mystique where stocks lead the economy. Everyone buys this baloney including the Conference Board, ECRI and many other highly regarded firms which use substantially faulty data in some of their economic analysis.

The reality is Wall Street is a monopoly. When free markets aren't at work as in monopolies, incompetence is the rule rather than the exception. And Wall Street as an entity is most definitely unbelievably incompetent as we see today. $12 trillion of incompetence and counting.

I have a mild bias that the above data point will turn constructive at some time in the next few months but let me be honest. I simply don't have a good handle on whether that will happen as the immediate world has become quite unpredictable. Put another way, shorter term forecasting has now turned from mathematical probabilities to a spin of the roulette wheel - another reason to hate stocks. Financial markets are obviously very vulnerable over coming months. Not because of historical claims of sell in May and go away but because today's data tells us to be cautious.

Let's close on a few remarks about our beloved dollar as it starting to gain press given the ten year Treasury yield is moving re the comments above. I remain constructive on the greenback regardless of the ever increasing chatter that the dollar is going to collapse. I'm not sure what many are thinking when they talk about a dollar collapsing. In fact, the U.S. government's policy is actually an attempt to create a falling dollar. Monetizing debt, quantitative easing, low interest rates - these are tools meant to induce a substantially weaker currency. It's part of the race to the bottom of the barrel we have written of so often. So people parroting a falling dollar seemingly are buying into government policy objectives. On that note, don't believe the Federal Reserve, government or traders can control the dollar any more than they can control the economy or the stock market. There are both intermediate term and long term factors playing into a stronger dollar. Factors no government can control. Longer term factors aren't even being discussed yet the seeds are being planted. We'll talk specifically about these seeds later. The dollar is not likely to rise like a moon shot as it did since this crisis started and as we have written it could easily retest or even marginally break prior lows but we would need to see macro factors substantially different than anything seen to date for the dollar to crash.

We have already said the world is moving to a self-funding economic model and that China is going broke hence won't have the capital to continue to fund the U.S. government spending spree. Yet dollar bears continually use China's waining appetite for Treasuries as support for a dollar crash. Even though they don't realize it is indeed China that has the short end of the stick and their waining appetite will be driven by their own economic calamity. Regardless how exactly is a waning demand for Treasuries bearish for the dollar? It is bearish for Treasuries. And, we have said for the last few years Treasury rates are going higher due to waining demand. In other words, everything continues to unfold as we anticipated. Frankly, to some extent I believe a dollar crash is a near impossibility. But, rather than back myself into a completely inflexible statement I will simply say that it is not impossible but highly improbable without substantial changes in macro factors. As we said before this crisis unfolded, the dollar and yen remain two of the most constructive places to park money regardless of increasing chatter.
posted by TimingLogic at 7:17 AM links to this post

Wednesday, May 27, 2009

Pimco Chatters About Government Debt Downgrade

This is my Twitter-ish comment for the day since I don't Twitter and never will. I see El-Erian and Gross from Pimco are on the game show circuit recently prattling about the U.S. debt potentially being downgraded because of profligate management of the people's money.

So tell me this. What type of firm begs the government to buy assets to bail themselves out then turns around and bad mouths the government policy of bailing them out once they have the money in hand? Why, that would be Pimco.

Save your own extravagant lifestyle then criticize the people for saving you as you sit at home in your multi-million dollar home paid for by the government. I'm sorry. Everyone I talk to holds these two in very high regards but Pimco would probably be bankrupt right now without the government bailing them out. And they didn't see this crisis coming. And I don't see that they have any real indication of what needs to happen in the economy to turn it around. (One thing would be not to bail out Pimpco.)

To me, these guys seem no different than pimps. So, I have a better idea. Since Pimco is on an altruistic mission to save the world, let them publicly state the government should not be backstopping the assets Pimco owns so that the government can reclaim its credit rating. In other words, get off the public dole Pimco. Yeah right.
posted by TimingLogic at 8:42 AM links to this post

Tuesday, May 26, 2009

Lowest Libor Hides Bank Turmoil

Lowest Libor Hides Bank Turmoil. I don't have a lot of time for this post or to explain Libor-OIS spreads but you can look it up if you wish. A favorite data point the bulls love to cite as proof this crisis has passed is Libor and the Libor-OIS spread. This is very foolish. Neither Libor nor Libor-OIS reflected the crisis building beneath the markets before this crisis so why would one expect them to reflect future crises?

My perspective is the Libor and the Libor-OIS spread are returning to the same ridiculousness we saw when spreads were so tight before the credit crunch. And, because of that, expect more liquidity shocks and credit crises. I'm sorry but the world has permanently changed and I don't know how often I can say that. I guess until I go insane or until economic policy acknowledges it. The only question at this point is if I will go insane before policy changes. The countdown begins.
posted by TimingLogic at 2:31 PM links to this post

Quick Remark About This Rally

Program trading - buying and selling a broad basket of stocks at a proverbial push of a button bears no resemblance to investing. It's another of the ridiculously ridiculous or double ridiculous schemes on Wall Street driven by an ever increasing liquidity bubble.

If anyone has any question of the types of buyers in this market, one only has to look at GM. GM shareholders are headed for the scrap heap and the market has known that for quite some time. Yet, on major up days during this rally GM's stock goes up 20 or 30%. Why? Program trading.

GM is going to declare bankruptcy within day(s) yet from this morning's low to it's price peak GM's stock rose 20%. Why? Program trading. What reflection does this have on the underlying economy? None. What reflection does this rally have on the underlying economy? ..................
posted by TimingLogic at 12:20 PM links to this post

The Implosion Of High-End Golf Communities - Implications For The Entertainment & Leisure Business

Obviously, this is happening everywhere. In fact, it is an utter disaster from where I sit. I am familiar with quite a few golf clubs and communities that have waived membership fees of $30,000 or more and are now offering minimal per-month membership fees or even opening to the public. Many are going bankrupt. Local to me is a Georgian-style residential and golf development with dozens of million dollar plus homes sitting empty. Homes that were once filled unlike some of the newer communities where overbuilding has led to properties that have never been occupied. Even if prices drop substantially in many of these high end developments, property taxes are off the charts so buyers are likely to steer clear. That means municipalities are going to have to re-appraise homes lower at some point for tax purposes. This is happening everywhere but it is really at crisis levels in high-end communities. The high-end residential municipalities, often shielded from economic downturns, are obviously fraught with incredible risk.

The implications for the leisure lifestyle go well beyond golf communities to auto racing, professional golf, major league sports, vacation communities, gambling, tourism, the film industry, etc. While it is not evident today, we could easily see salaries drop very, very substantially for the entertainment business. And I do mean very substantially. Before we had this runaway train, professional athletes made a great living but it wasn't at the obscene levels we see today. As an example, many of the best paid athletes in the NBA were making a few hundred thousand dollars a year in the seventies. That was a lot of money at the time but nothing compared to the insanity today. Today the Yankees paid about $160 million for pitcher CC Sabathia. Given our writings anticipating the ad bubble will pop (major source of sponsorship and funding for entertainment events.) and the erasure of cheap credit in the economy, we are almost surely on the cusp of salaries at the high end of society imploding. Forever. In fact to return to trend, while it may seem like a wild impossibility today, salaries could drop 90% in some extreme cases.

By the way, as an aside, we have harped incessantly about ridiculous executive pay going from 25 times to about 525 times the average American's salary over the last 30 years. You might construe the same outcomes above developing around future compensation for business executives. Executives have been unwilling to address this issue so the market is now doing it for them. These incredibly rich compensation packages are going away even though know one yet seems to realize it.

When companies are no longer minting bubble profits, CEOs aren't going to be getting money for nothing as they are today. The market is going to punish society's leaders for their insidious behavior. And I do mean insidious. For what we have witnessed with executive pay is a transfer of wealth that has contributed to the destabilization of the economy.

For this reason, you should eschew the insider-selling data as we have pointed to. Many are citing insider selling today as bearish for stocks. There are dozens of reasons to be bearish on stocks but insiders will still be selling when I become bullish on stocks. The reality is the most successful people in this country are headed for a major unwinding as they witness their wealth and compensation collapse. The rich always don't get richer. And, that is one data point that is different this time.
posted by TimingLogic at 10:35 AM links to this post

Monday, May 25, 2009

Happy Memorial Day

We often become so absorbed in our lives that we lose the true meaning of holidays. Memorial Day is a very special holiday where we honor the men and women who have died serving this country.

Serving in the armed forces is often a thankless job with dangers and sacrifices unimaginable to most of us. And they do so for a meager salary and benefits.

A special thanks to all of the men and women who sacrifice so much to serve our country.
posted by TimingLogic at 7:26 AM links to this post

Sunday, May 24, 2009

Lost Vegas

A friend sent me this video and I contemplated whether to post it. It is so disturbing on so many levels that I almost didn't. But people need to see this type of news and it simply is not being reported by the mainstream press. I am so upset that I can't even see straight. These crooked sonofabitches on Wall Street have stolen trillions of our money and continue to pay themselves massive bonuses for bankrupting the economy while millions of Americans literally rot. Americans paying Wall Street bonuses. This will truly go down in history as the greatest of crimes against humanity.

The politicians have it wrong. It is not that our future requires a healthy Wall Street. It is that Wall Street's future requires a healthy main street. The politicians should be repudiating economic ideology and Wall Street's crooked schemes that created this crisis to save the economy.
posted by TimingLogic at 6:14 PM links to this post

The Government Doesn't Want To Run The Auto Industry?

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

Saturday, May 23, 2009

Antitrust - More Empty Political Rhetoric Instead Of True Reform. Washington Does Not Realize The Ground Is Permanently Shifting Beneath It.

This type of silliness easily convinces me there is absolutely no serious concern for transformational policy in Washington. Instead more rhetoric. Live Nation and Ticketmaster? You have got to be kidding me. The world wouldn't skip a beat if these two firms fell from the face of the earth. If the government is serious about enforcing antitrust laws that have been on the books for over one hundred years, break up the large banks. Oh, but why would that happen? The pig men serve at the pleasure of the state. To the tune of nearly $4 billion in gifts over the last ten years. And countless lobbyist and private sector jobs for retired officials of the state. The revolving door of corruption. Including plenty in the current administration and Congress such as the Clinton's daughter working at a hedge fund, the former head of the Senate banking committee as now vice chairman of UBS and the current White House chief of staff minting millions as an investment banker with absolutely no qualifications or experience but lots of political connections. It's good to be the king. Not much longer though.

Big budget deficits weren't possible until Washington destroyed interstate banking laws in the 1970s - usurping powers of the states. We now have an environment where the federal government is bailing out the mega banks and the mega banks are in return bailing out the government by buying their debt. It has got to be the biggest Ponzi scheme in this country's history. We wrote of this before but for some reason, it isn't getting any press anywhere. I remain very surprised no one is writing about this.

There is no way to reduce risk without repudiating current economic ideology. Bureaucrats and banksters are simply transferring risk back and forth in a game of monetary badminton. The state bails out banks. The banks bail out the state. The state bails out banks. The banks bail out the state. Washington and Wall Street malfeasance and moral bankruptcy has destroyed the economy. And, now politicians responsible for said behavior are to the rescue? That is hilarious if it weren't so frightening.

So let's follow last weekend's post on interstate banking laws and go a step further. Do you think the government could play such fiscally irresponsible games with our money if we had free markets in the banking sector? Can you imagine if interstate banking laws were again passed to encourage banking competition and to remove systemic risk? That means only small and medium-sized banks would compete in the market. A distributed financial sector we have talked about as a better solution to distribute capital at the point of need. There would be no need to bail out mega banks because there wouldn't be any. Would a local community banker be funding Washington's meddling power games around the world or would they finance trade that moved a local manufacturing plant in that community to some far off land? Hardly. These are the games of the pig men and politicians. A local banker would never support such an endeavor because a) propping up Washington malfeasance would not benefit his or her business or society and b) sending a factory to a far off land would negatively impact his or her business and likely impact local friends and relatives in the community. It would be economic suicide.

What is truly amazing is that the government believes handing out other people's money as favors is going to solve a problem caused by too much handing out of other people's money for favors. A substantial root cause of the problem is Washington malfeasance. More of Washington surely isn't the answer. At least not more of Washington in its current form. More of a Washington that serves the people might be a step in the right direction. That isn't even close to a reality today. A return to State's Rights are part of an economic solution to unchecked Washington power which has led to this crisis. Yet now we have the Department of Homeland Security issuing terrorist alerts citing people espousing views of State's Rights are possible right wing extremists. Please spare me the absurdity. I guess our government no longer embraces freedom of thought or speech or timeless Jeffersonian ideals. Are we ready to tear down the Jefferson Memorial and instead embrace a memorial to fear mongering and attacks on civil liberties? I am surely not right wing or left wing or any wing by any stretch of the imagination and surely not an extremist. But then this really isn't about right wing or left wing or freedom. It's about power and control. And labels such as right wing or fanatic are used as a form of attack to marginalize dissent and intellectual thought so critical to democracy. It's a form of modern day book-burning. Something that seems to be in vogue with many politicians. In a democracy, dissent is embraced by its leadership. It is how we resolve crises, hone the blade of peer review and embrace intellectual thought. Progressive ideals seeking to empower the people have always been attacked by the status quo as were Susan B. Anthony, Martin Luther King, Thomas Jefferson, Mahatma Gandhi, Nelson Mandela and countless others who agitated for change. No. Anyone who has studied the history of the state realizes that controlling dissent is about power and fear not morality or liberty.

Washington and their pig men are unaccountable to the sovereign. All one needs to see this is the economic policy of the last generation and the utterly corrupt responses to this crisis. We need new leaders, substantially greater transparency into Wall Street and Washington to know what seamy games are being played with our government, a return to State's Rights to check power in Washington and a return to the rule of law. Our rule of law has often been dismantled by those seeking power and personal gain over the betterment of this country's citizens. Washington is the last and greatest monopoly and the awakening to this fact has begun. All things will pass in due time.

For those viewing in a reader, the title link is here.
posted by TimingLogic at 9:57 AM links to this post

The Collapse In IT Spending Is On Its Way

We wrote on here two years ago that IT spending in the U.S. economy was highly concentrated in the finance sector and technology capex was going to suffer significantly when the Wall Street bubble collapsed. So far profits have held up reasonably well. But they won't. As an example, we have cited IBM's downside price target to be in the mid $50s or high $20s from a cycle peak of $130.

We could easily see profits at IT-related firms literally collapse. In fact, upwards of 50-70% of IT profits are finance industry related. And much of the IT investment was used to build bubble businesses where future IT investment will likely disappear. That means forever. Yesterday, Citigroup announced it is slashing technology capex. This will not be an isolated incident as the entire finance industry heads for a very hard landing.
posted by TimingLogic at 7:06 AM links to this post

Friday, May 22, 2009

AIG's CEO Steps Down

I'm not sure how much abuse one person can take but it appears AIG's CEO has had enough. Liddy came in after AIG's criminal fiasco in an attempt to help clean the company up but was under endless scrutiny and haranguing by politicians. The reality is it is the politicians are to blame not Liddy. The Federal Reserve used AIG as a conduit to basically steal money from the American people and give it to corrupt financial firms. And the Congress allowed it.
posted by TimingLogic at 8:44 AM links to this post

But The Market Is So Cheap

I think I must have read or heard the title of this post a thousand times over the last four years or so. The social conditioning of this nontruth was very intense.

One of the things we talked about while Wall Street was telling us how cheap stocks were is that we were in a massive earnings bubble. So how can there be two totally different perspectives on the same topic? There aren't. There is only one. It is called reality. The data doesn't lie. Only people do. Or, only people are uninformed or prone to misinterpreting reality, better known as delusional. And we are all prone to it.

The earnings bubble is obviously popping. (Not done.) And make no mistake about it, future earnings aren't going to be anywhere near this cycle's peak for a long time. So while S&P will tell you the market's price to earnings ratio is about 13 today, the reality is quite different. Why this isn't talked about in the mainstream press is beyond me. Maybe the press or Wall Street doesn't want to incite horror in the general public. (This is also why I don't use S&P earnings calculations. And, their book valuation metrics are waaaaay different than what I would use.)

I'll put a plug in here for ChartOfTheDay.com I have been on their free chart list for quite a few years. I would encourage you to go to their web site and sign up.

posted by TimingLogic at 7:58 AM links to this post

Thursday, May 21, 2009

posted by TimingLogic at 12:49 PM links to this post

Hitachi Sets Largest Loss Ever For Japanese Manufacturer

I first became aware of Hitachi in college. As an engineering co-op I worked with Hitachi engineers as they deployed much of the new manufacturing technology in General Motors' facilities. This at a time when the Japanese government and industry was jointly targeting the global machine tool industry for dominance. They succeeded. In about a decade they completely decimated an entire industry that was foundational to the success of the American economic miracle. But, that's okay. We replaced wealth-creating industries with new industries. That would be more people pushing around money to finance our economic destruction. As I have said on here repeatedly, there is no such thing as free trade. We should seek generally fair or mutually beneficial trade. Mutually beneficial to society. Not to just Wall Street.

Who can blame Japan? They sought to create wealth for their economy and embraced the noble pursuit of innovation, invention and competition to do it. Ironically, Japan learned the concept of economic dominance from the greatest example in history - the United States. What did we learn? Apparently nothing. We seemingly understand economics less than we did two hundred years ago. Timeless stupidity of politicians was a major contributor to this nonsense. But, they shall save us all now.

Make no mistake, economics has more in common with war than just about any other analogy. And wars are only won with successful strategies. In my career I have come to appreciate the laser-like focus on strategy ever present in Japanese business culture. Something that used to be part of the American business culture as well. Yet today, business strategy teams have become dinosaurs - nearly completely extinct. Instead, we have finance managers who have replaced these key resources. And now we focus on manipulating next quarter's earnings instead of strategy. Or should I say that is the strategy.

Lies and fools don't win wars. That's also why economists sitting in tenured ivory towers shielded from the war don't generally have a clue about how the real world works. There are exceptions. Some brilliant minds in economics. But generally economists are a major reason why the U.S. economy is in what could be its greatest crisis ever. That would be Democratic economists and Republican economists.

This past week Hitachi, a monstrous global manufacturing powerhouse, has reported the largest loss ever for a manufacturing company in Japan. Ever. Their announcement was just days after our post on coming economic shocks to Germany's industrial base. And, our endless posts over the last four years on the coming depression in China and emerging markets. Of which over-industrialization will be a major contributor.

It's all good though. The crisis is averted. How do I know? Because politicians, the Federal Reserve and Jim Cramer have all told me so.

Title link is also here for those viewing in a reader.
posted by TimingLogic at 12:44 PM links to this post

posted by TimingLogic at 12:33 PM links to this post

Wednesday, May 20, 2009

I don't have a Twitter account but as I watch Geithner speak before Congress, I feel compelled to remark that he is a complete and utter sham. His mouth moves but nothing of value ever comes out. Can a politician ever tell the goddamn truth or is it against the law?
posted by TimingLogic at 11:00 AM links to this post

California Politicians Run Amok - The Sovereign Vote No Confidence

The great people of the state of California have voted no confidence to the fiscally profligate political hacks running their state into the dirt while paying themselves handsome salaries to do it. And, to top it off, the people have voted to limit politician pay.

But never fear, the politicians have gone begging to Washington for another bailout. And, if Washington obliges without substantial reform to California's government, the people will likely not forget.

Remember that California often sets the tone for the country. Hopefully this will be an emboldening step for the citizens of this country.
posted by TimingLogic at 10:25 AM links to this post

I'm From The Government And I'm Here To Help

Well, if nothing else, Ronald Reagan had unrivaled wit for a politician. That includes his quote above. I have harped incessantly on here that there is no such thing as great government. And great government does not define the American experience. The only greatness when it comes to government is one that recognizes the greatness of its people. Something that has always been lost by the majority of the political elite in this country. Always. Since its founding. For that very reason alone, government should never be trusted without full accountability to the people.

I actually like Barack Obama. That doesn't mean I support his policy. Because in his short time in office he has clearly shown me his core competency is not economics. That is obviously a reflection of his economic advisors who are simply rehashed left overs from the same school of economic ideology that has blown up the economy over a period of decades. Now, in a normal economic environment this fact wouldn't really be a big deal. But now that the federal government has become the economy, we are now presenteed with incredible, almost limitless risks because of this gap in competency. We are in fact allowing the blind to lead our economy. And they are likely to lead it right off of a cliff.

This article in the WSJ sums up a pretty good argument why government shouldn't be trying to run the econony as it is today. Frankly, as it has for the last thirty plus years. In fact, it has been government policy that has destroyed the economy over the last handful of decades and now the government is coming to the rescue? The absurdity of this is beyond words. Only logic such as this could only be found in the minds of politicians.

Since the government has become the market, business and the economy and this blog is about markets, business and the economy, we'll be talking more of this in the future.
posted by TimingLogic at 9:56 AM links to this post

Fight Thought Crimes - Spy For Homeland Security

posted by TimingLogic at 7:27 AM links to this post

Tuesday, May 19, 2009

The Municipal Bond Market - A Disaster Waiting To Happen

I first put this post together back in 2007. I never posted it but started to rewrite it again in February of 2008. That is where it sat for various reasons. I have reswizzled the post for relevancy but the substance behind the post still exists.

Since 2007 I have gone back to this link to San Fransisco real estate from time to time. In 2007 there were 700-odd residential listings of foreclosure. Then in February of 2008 there were nearly 1,000 and today that number has been floating between 1,200 and 1,400. The data is likely dirty to some degree but regardless, it's likely to be consistently inconsistent. In other words, the accuracy is likely to be consistent in its error but the trend is likely to be more accurate.

Let's say the average property price in the link above is $500,000 just for argument's sake. That is $700 million in defaulted residential real estate in eight zip codes of one city. At real estate property tax rates of 2%, that's $14 million in lost property tax revenue. That's for 1,400 properties. Remember folks, 14 million homes are sitting empty right now. And, there are millions more either late or not paying their taxes. Washington is financially backstopping municipalities and states right now. To a certain degree there is obviously an ability to do so. Albeit temporarily. But, if this country's economic policies aren't changed, Washington is simply burying itself in debt.

What originally led me to dust this post off back in February of 2008 was a Wall Street Journal article citing historically low default rates for municipal bonds. ie, By implication municipal bonds represented a safe haven. Something that the yapping pundits are always quick to point out yet what we have highlighted as a fallacy. Remember, how often have we had such a mounting strain on municipal finances in the form of commercial & residential real estate tax receipts, lost jobs, personal & corporate bankruptcies, profligate municipal mismanagement & fiscal irresponsibility and a less than favorable debt market? In a post war economy, the answer is never. Not even close. The strain placed on municipalities today has absolutely no modern day context. So, pumping municipal bonds is nothing more than uninformed rhetoric.

Let's look at municipal bond performance when we had macro factors most comparable to today. Not the same. But more comparable than at any time in the last one hundred years. That would be the Great Depression. Because regardless of what cheerleaders say, this crisis is still metastasizing and worsening as I type this. So the calls for this not being a depression are very premature and again simply rhetoric. Emerging markets are already in a depression regardless of the rhetoric to the contrary. The U.S. has the wherewithal to avert catastrophe but seems unable or unwilling to acknowledge the changes necessary to do so. So, it too drifts down the road of inevitability as time runs out.

In the last one hundred and seventy years, there appears to have been approximately six thousand municipal bond defaults in the U.S. About five thousand occurred during the Great Depression.

So, what prompted me to dust this off and finally post it? Simple. Swap spreads in the municipal bond market have become utterly stupid. Never in their twenty year existence have they been this tight. Not even close. (Swap spreads are simply a fancy measurement that tells us there is no risk premium left in the municipal bond market. Just like the stock market before its collapse. ) These spreads aren't sustainable in a good economy, let alone a crisis with no modern day context. Not only is the municipal bond market a probable disaster waiting to happen, but so is the lucrative municipal derivatives market Wall Street crooks have created to prey on unsuspecting municipalities. Derivatives that, as this crisis hit, didn't work as billed. Municipal derivatives therefore represent a major risk as well. What a surprise. More Frankenstein finance. And what an unholy mess.

The behavior of markets has been text book. As investors play out their standard procedures in times of risk. Rush to certain asset classes in anticipation of safety. Whether that is value stocks, dividend paying stocks, municipal bonds, high quality corporate bonds or even Treasuries. It is therefore no surprise that the investor class would run to the safety of markets backstopped by the Federal Reserve and Treasury. It's part of the same delusional confidence mindset that led these same people to believe the Federal Reserve was going to save the economy from recession back in 2007 and even 2008.

And, if the municipal bond market cracks, one can almost imagine what impact it will have on equities. Needless to say, it won't be constructive.

The added strain on the municipal bond market caused by bankster shenanigans outlined in the linked text below only makes matters worse. It is still quite apparent very few actually understand the definition of risk. Or the monster Wall Street and Washington has created. Yet. They will. When it's well beyond too late and they have lost more of society's savings and wealth in the process. In other words, while this crisis has destroyed tremendous wealth to date, there is still an opportunity to start rebuilding a new economic model based on sound fundamentals. And, to save much of society's remaining wealth. Instead, it appears we will witness conscious and completely wrong actions of Wall Street professionals and politicians (called policy) on a go forward basis that will very likely make this crisis an unholy hell by the time it has passed. Time is running out and we still have no semblance of economic policy leadership in this country.

Graphic of current municipal bond swap spreads

Because they are private agreements, no comprehensive data exist on how many municipalities are involved in the almost $400 trillion interest-rate derivatives (swaps) market or the total paid to exit the contracts.

JPMorgan said in September it would stop selling derivatives to states and local governments amid federal probes into financial advisers and investment bankers paying public officials for a role in swap agreements.

Borrowers “never put a value on the risks associated with the swaps,” said Joseph Fichera, president of New York-based Saber Partners LLC, a financial adviser to corporate and public sector borrowers. They only estimated the savings investment bankers and advisers were telling them they would get, he said. (What a surprise. The Wall Street banksters have left no stone unturned in their efforts to steal everything from society.)

The use of swaps began faltering in February when the market for auction-rate securities collapsed. States, local governments and nonprofits sold about $166 billion of the debt, and as much as 85 percent of that was then swapped to fixed rates, according to Fichera.

posted by TimingLogic at 7:27 AM links to this post

Monday, May 18, 2009

S&P Update

Traders have shoved the S&P back into its channel. Amazing that we have such a low volatility pattern for so long.
posted by TimingLogic at 5:06 PM links to this post

Sunday, May 17, 2009

Bank Regulation Case Pits Feds Against States

I wanted to get this up while it is still relatively timely. There is a little known court case going on right now that has potentially huge implications in the economy. I can assure you while main street probably isn't aware of this case, that money for this case is flowing in from every major special interest in the finance industry. This is how special interests dismantle our economy while the country seemingly is unaware of the consequences.

The Office of the Comptroller of the Currency and other federal regulators argue a position of more power of regulation to them. The states argue they should regulate banks. Banksters argue that having to deal with 51 regulators would be a near impossibility. And, so did Hank Paulson as Treasury Secretary. These clowns were asleep at the switch for the last thirty plus years. Literally. We have written numerous times that the last thing we should see is the oversight put together at the federal level for the very reason that the banks prefer this. There are countless reasons why but none of them virtuous.

We used to have interstate banking laws in this country which promoted competition and limited banking to the local level. Monied interests in this country have completely dismantled these laws by corrupting the law making process of our federal government.

In 1927 the McFadden Act prohibited branch banking across state lines. It was pro-competitive legislation (Unlike the anti-competitive, anti-capitalist system we have morphed into due to corruption) meant to put small or local banks on equal footing with national banks. Simply reinforcing the McFadden Act would help dismantle all of these systemic risks presented by mega banks.

You might think about something as it pertains to the productivity and efficiency in the economy that is always touted by Federal Reserve idgits and generally unthinking economists. A role of the government should be to instill inefficiencies into the market place. Or to prevent efficiencies on some level. This for the economy to operate most effectively. Think about this and we'll talk about it in a later post.

The title link is also here for those viewing in a reader.
posted by TimingLogic at 10:29 AM links to this post

Putin Backs Protectionism

We have talked about entering an environment of rising nationalism for the last four years. The seeds have been very stealthy to date but they are taking root quite on a global scale. Quantitative easing, tax breaks for exporters, dumping exports on international markets, massive budget deficits, etc. Every major nation is in a race to the bottom of the barrel that will eventually set off reprisals. Russia has been slapping tariffs on imports for quite some time.

It is erroneously believed that tariffs caused the Great Depression. A myth perpetuated by special interest groups and historical revisionists.

What isn't a myth is that we are doing a very nice job of repeating history. Don't worry. You ain't seen nothin yet. The macro environment nearly guarantees there is no other outcome.
posted by TimingLogic at 7:48 AM links to this post

Friday, May 15, 2009

Is The Market Being Manipulated In An Attempt To Sway Public Confidence?

Quite a few times we have shown the low volatility pattern the S&P 500 has traced out since the the March low. That very tight pattern has contained itself for months now. In fact, it still has not broken although it is close. Honestly, I have never seen this type of market behavior. The closest analogy I can see is early summer of 2007 when the market developed a mind of its own. Obviously we have seen rallies of 30+% but not without some type of breakage of a very short term pattern. Even a decline of a handful of percent is normal in a rally of any sorts. To me this very low volatility clearly points to market manipulation. Whether that is the traditional Wall Street manipulation or the Federal Reserve or Treasury is buying stocks, I don't know. I don't believe there is a plunge protection team as cited by conspiracy theorists. There is a President's working group on financial markets but there is no conspiracy in that organization. It is simply one of many advisory committees to a President. Their policies may often be dubious but that is not conspiratorial.

That said, I do believe it is plausible in times of severe distress that the government could step into financial markets because they have. The Federal Reserve stepped in when LTCM imploded in 1998 and at times before and since. In fact, the Japanese government actually announced they were going to buy stocks some time ago. I would assume our government would announce any policy publicly but one never knows with politicians. Transparency in Washington has become a farce.

A most plausible reason is that Wall Street is trying to trade its way to balance sheet repair and the Fed has armed them with enough liquidity to distort the markets temporarily. In other words, a liquidity-driven rally as we have written. This is also the reason why oil is again rising even though we have oil gushing out of our ears. That's what we get when the Fed pumps the market with liquidity and there is no financial reform. Wall Street goes right back to what it was doing before. That is, stealing from society. And, that is really what has been happening. There is no reason for Goldman or Morgan Stanley or others to be trading in commodity markets. Pushing commodity prices higher only takes money out of the pockets of the citizens of this country and others around the world and puts it in the pockets of a very few distorting prices. As we have said repeatedly, rising commodity prices is not inflation. It is a distortion of financial markets.

Whatever the reason for the strange action in the S&P, this market has an air of levitation that goes beyond just a liquidity-driven rally to hand over fist buying day after day after day without pause. I would guess this is an attempt to incite emotions of being left behind and a conscious effort to draw buyers into the market. It's a timeless Wall Street trick. To distribute shares at much higher levels to unsuspecting buyers. Mostly you and me. Amazingly, I haven't received a single short signal intraday since this rally started until the last few days. The odds of that not happening in a market where millions of buyers and sellers meet is a near impossibility. That is, unless the market is being distorted or manipulated.

The general populace may be happy with a rising equity market and I'm sure that's the point. But they won't be happy with the long term consequences which involves an even greater long term mess. Instant gratification seldom has beneficial long term effects. Regardless, this is a market that is substantially too large to manipulate long term. Just like the general economy is. And, that means if such an effort is underway, it will fail and anyone who has piled back in will likely be decimated at some point thus taking even more wealth out of the economy. You might think about the applicability of this statement to the bond markets as well where we are also seeing substantially ridiculous price moves in many cases. Moves that are surely going to be punished.

Assuming the government is not buying securities and it is simply more Wall Street games, there is a limit to temporary liquidity available to push the markets. In other words, a substantial amount of short term price movements are driven by what one would classify as hot or transient money. Short term moves are likely limited by the amount of transient money available to deploy into the markets. So, without longer term buyers, the market will hit a wall at some point. Most likely when traders begin to take more money off the table than is flowing into the markets. Or the transient money supply has been exhausted. Then we see how many are actually selling or if we are simply waiting for more transient money to flow into the market for higher prices. In order for this to happen, the underlying economy needs to be creating more capital. That is not happening on a sustainable level but it may yet develop into some temporary sustainability yet this year with so much stimulus being deployed. In the short term, I remain concerned but would be very surprised were we to see substantial new stock market lows in 2009. But, when I see people historically predisposed to buffoonish behavior saying things like this, I realize the world is suffering from a bout of temporary insanity.

I remain leery of short term market behavior given the manipulative feel. So, I did a little investigation. I backed Wall Street bank stocks out of a very simple analysis of cumulative volume and laid it against the S&P so one could gain an appreciation for context. Below is what we see. Additionally in blue I have placed a best fits linear regression line against the volume analysis. Pretty much since a week after this rally started, volume has been waning and its trend is negative while pricing is substantially positive. Off of the March low, we now have only a net of two days of cumulative positive volume as of Wednesday. This after a two month rally. This leads me to believe someone is attempting to manipulate the banking stocks because when I add them back into the analysis, the story is substantially more constructive. In other words, short term money is flowing into large finance stocks but really nothing else. That wouldn't be hedge funds because they are generally getting taken to the wood shed by this rally. To me this means there is a high probability Wall Street is buying its own company stocks in an act of desperation or the government is buying financial stocks or some possible concerted effort between the two. That would also lend credence to the President's remarks right before the rally started that now may be a good time to buy stocks. What does he know? Seriously? Why would a President be so confident to make an off-handed remark about a topic he likely knows nothing about? Maybe because the government is levitating the market?

The below data point doesn't mean the market is going to crash. It's simply that the amount of buyers in the market has clearly not been reported accurately. Ultimately more buyers could step in and support prices in this general level or any number of other possibilities. But there is no denying unusual market activity. And after seeing preposterous behavior out of Washington, nothing would surprise me.

Party on Garth!

posted by TimingLogic at 8:57 AM links to this post

Thursday, May 14, 2009

Legalized Tyranny In Return For Political Favors - Senate Embraces Al Capone-Type Extortion While Constituents Hang From The Bankster's Rope

There used to be a time in America where it was illegal to charge 20-41% interest rates. Rates that would make even gangster Al Capone blush. This really infuriates me because these morally bankrupt tactics are most prevalent amongst underprivileged adding to a repressive policy that thwarts economic opportunity for many in society. This is truly criminal regardless of its legality. Many states are taking legal action on these gangster tactics but in reality they are fighting the federal government. Since Washington politicians embraced their own personal gain at the expense of protecting its citizens, the rightful owners of this country, consumer protection has become a joke. But, we hear many argue that it is the personal responsibility of the individual to understand what they are getting in to. A truly hilarious lie.

Ironically, extortion-type mobster lending rates have been illegal in societies since the time of the ancient Greeks and Romans. Every major religion has explicitly decried these extortion schemes including ancient biblical text comparing it to rape and murder. Ancient interest rates were most often capped around 8%.

Thousands of years later, what have we learned? Quite simply concentrated power is never to be trusted and must always be accountable to the sovereign. Because human behavior has not changed one iota. And now we have legalized stealing from those least able to afford it. And that money is lining bankster executive pockets while American citizens hang from the end of a bankster rope.

Ironically, there are ancient cases when lending rates were deregulated and citizens were sold into slavery. Is 20-41% interest really any different than modern day slavery? Crooks are too heavily influencing policy decisions in Washington. Who works for the American people? Who will stand to account? Is your representative truly fighting with all of their energy to stop the banksters and their influence-peddling?
posted by TimingLogic at 9:43 AM links to this post

Institutionalization

We highlighted Professor Siegel's bizarre remarks on here before. He was ecstatic about the valuation of equities using very bizarre valuation techniques and bullish about the underlying economy right before the biggest equity collapse and economic slow down since the Great Depression. Nothing like being one of the most well-respected economists at one of the most well-respected universities and being completely wrong in the worst economic crisis in modern history. Maybe all of American history.

The problem with economists sitting in tenured ivory towers is that those towers tend to institutionalize them. Professor Siegel should get out into the real world every so often. Breathe the air. Mingle with the little people. Compete in the real economy. If the good professor actually had to compete for a paycheck, he might have eschewed much of the false ideology afforded those in well-padded facilities.

Now we have the good professor talking about the markets basking in the results of the sham bank stress tests. Right after the interview the banking index dropped 20%. So much for basking.

It seems many of today's institutionalized cheerleaders simply enjoy the taste of foot.
posted by TimingLogic at 8:19 AM links to this post

Wednesday, May 13, 2009

NASA Pre-Dawn Shuttle Shot

For any space jockeys out there, a NASA nerd sent me the link to this high resolution picture of the Shuttle. Once you get click on the title link, click again on the picture. Then a magnifying glass should replace your mouse. Click again for an impressive full-sized graphic. And, because it is NASA, you should be able to right click on the picture and download the full-sized image. ie, Because the Shuttle and all government pictures of it are our personal property. :) On that note, I'm scheduled to take it out for a spin some time in the coming year.

The link in the title is used to post unique NASA space pictures on a regular basis if you would like to bookmark it.
posted by TimingLogic at 11:50 AM links to this post

There appears to be something wrong with Blogger's timer and something was posted that wasn't scheduled to post.

In case may have seen it and are wondering, I have removed it.
posted by TimingLogic at 9:39 AM links to this post

Tuesday, May 12, 2009

Harvard Flunks Economics

A validation of our theme that our institutions of knowledge are often anything but. Instead often pumping useless ideology and thoughtless drones into the market place. Students are not just vanishing because of tuition fees. They are also vanishing for other reasons such as lack of economic opportunity. Lack of economic opportunity that is a result of failed economic ideology taught at these fine institutions.

This crisis is also a validation of our position that every asset class would bust thus repudiating this senseless concept of investment portfolio diworsification that became a religion in search of a god. That god was hedging and it has turned out to be a false god. A religion that people like El-Erian, a prophet of dupe, and former chief investment officer at Harvard perpetrated. He is still pushing substantially false religion in his new position as false prophet at PIMCO. He and many others on the fringes of Wall Street are guilty of the same failed compensation scheme that we see at Wall Street's mega banks. Their investment ideologies were wrong yet they were paid enormous sums of money before their ideas were proven to be useless. Thus eschewing pay for performance, a substantial driver of successful capitalism. Not so popular in the field of cronynomics.

Portfolio diversification is a concept made popular by people who don't know what they are doing. Spreading risks hoping and praying some investment will stabilize if something else craters is a fallacy indeed as we now see. It only worked temporarily not because it was valid but because we were in a sea of money that convinced foolish people of its value.

There are a lot of incredibly talented people in this world. But, there are very few people who truly embrace the path of the Buddha. The path of truth and enlightenment. Free thinkers of the world are once again proving the greatest ability isn't that of doublespeak, newspeak or finishing at the top of Harvard's indoctrination program. It's an ability to conceptualize and create from within. The path of free thought. It's only the path of the free mind that ever leads to truth, human advancement and human achievement be it sports, art, literature, culture, science or even, in this case, finance.

I have used this video before to make a point and I must say that it is a favorite of mine. As the masses embrace indoctrination and ideology, free thinkers and those embracing freedom eventually ruin the party of falsification. The party is over. Period. Now we must repudiate falsification to move forward.

Hurl the figurative sledge hammer into current ideology and falsification. Embrace truth.

posted by TimingLogic at 11:57 AM links to this post

Federal Reserve Inspector General = Deer In The Headlights = I Have Zero Confidence Anyone Has Any Idea What They Are Doing Let Alone Has A Plan

posted by TimingLogic at 9:57 AM links to this post

Blackstone Defends Pension Shysters

Shyster - The word is derived from the German verb scheissen, "to defecate" and the English suffix -ster, "one who does". Shyster is an alteration of the German scheißer, which literally means "defecator" or an "incompetent worthless person"

The rationalizations in this article sounds like more bullshit from some of the world's biggest bullshitters. Or, should I say defecators. Or more politely, shysters. We don't need no stinking regulation. The market will clean out the corrupt and crooked. If this isn't the biggest line of bullshit I have ever heard coming from firms with massive conflicts of interest. That someone would actually be quoted using this logic is completely preposterous.

Why not apply this logic to all criminals including murderers. Using Blackstone's logic, if we were to allow the market to act on its own, it would cull murderers. Therefore we would need no prisons. Because eventually, we could assume all murderers will either themselves be murdered by other murderers or their victims as a form of retribution. The market would indeed take care of itself. And, in fact in a lawless society, this is exactly what would happen. We used to call this the Wild West. Indeed Wall Street has created its own modern day Wild West by buying political influence to deregulate the economy so we could have figurative gun fights in the streets. That is exactly what we are witnessing. Mad Max would be right at home in today's financial economy.

What Blackstone is advocating is indeed lawlessness. You can't make this stuff up. These clowns are really that stupid? Or could we infer something else?
posted by TimingLogic at 9:52 AM links to this post

Monday, May 11, 2009

BB&T Plans 68% Dividend Cut And Shareholder Dilution To Pay Back Tarp Money

Let's see if I can figure this one out. The company has rallied over 100% in the last two months. No dividend. Management disregard for the owners of the company or their future prospects. Increasingly distressed assets. Hmm. Can't wait to buy more of that company's stock. I bet it's going to double again. Twenty or thirty times in the next year.
posted by TimingLogic at 3:10 PM links to this post

Toyota's Problems And Remarks On The Industry In General

We have been negative on Toyota's stock for years. Product mix is very unfavorable and the company has overextended its expansion. Within days of the stock's peak we wrote a post stating we did not like the company's stock. And, then when the carnival barkers were telling us that GM should fail if Toyota could make a better product, we wrote that Toyota was likely in trouble and that by the time this crisis ended all global automakers would likely be bailed out.

The best managed mega-industrial company on earth inches closer to bankruptcy. Of course, they have already received bailouts from the Japanese government. But will it be enough? Toyota is now losing more money than GM and our remarks were completely accurate. As we have noted, this is not a normal time and GM's current problems are not primarily because of failed management. Although there is no doubt we have seen forty years of it.

Carnival barkers are free and liberal with their uninformed analysis. As we wrote on here years ago when the global economy was steaming ahead, I am absolutely bullish on the American auto industry regardless of whether they end up in bankruptcy in the interim. And, we wrote that we were very bullish on Ford in particular. Ford is now outselling Toyota again in the US and has the most favorable product mix of any major auto manufacturer in the US starting in 2010 - the best selling vehicle in the U.S. for the last forty years in its pickup line, a substantially revamped lower-cost fuel-efficient auto lineup and a transformed business and business processes led by one of the best management teams in the world. Regardless of intermediate term concerns, I remain firmly bullish on American auto company's long term prospects. And, this is from someone who has been bearish on the auto industry since my days of co-oping at GM in college.
posted by TimingLogic at 8:42 AM links to this post

Sunday, May 10, 2009

First Quarter GDP - More Comedy Disguised As A Recovery

Same chart and same explanation as we have posted before. Anything above the zero line contributed positively to GDP. Below subtracted. Imports and consumption. That's rich.

posted by TimingLogic at 11:45 AM links to this post

Thursday, May 07, 2009

Is It Good To Be The King? - Growing Fissures In Germany And The European Union

I didn't post the chart of the Euro a few weeks ago by coincidence. Today the European Central Bank joins the world in the new phase of race to the bottom of the barrel by announcing the new purchase of debt instruments. It's apparent that we actually have to watch the world economy stimulate itself to death with money it doesn't have and quite possibly can't repay before we see fundamentals return. It's a little like watching a bad adult-entertainment movie and spending your life savings to do it. All while being unemployed. (Get it? Stimulate itself to death.........a little bad monetary policy humor.)

The continued rhetoric out of EU leadership is that they have the tools necessary to deal with any systemic shocks. Rhetoric, better known in America as Big Hat, No Cattle is a fine quality mastered by all bureaucrats and politicians. In other words, bureaucrats and politicians have little, if any, control over crises such as this. Don't worry though. You have a problem? A politician will have an answer for it. The only answer politicians have always involves other people's money. That might be acceptable when it has to do with social issues but that's not really what is going on now is it?

The end of this cycle perplexed most everyone with its voracity. Remember, those watching for traditional signs of a recession unexpectedly saw the world collapse around them while signs of an economic slowdown were generally very muted. Now, those same people are anticipating a recovery using senseless metrics such as housing and consumer spending. That includes many bears. This misunderstanding of how the world works is a major reason why so many prognosticators kept remarking that the global economy was fine as the bottom continued to fall out of global asset prices. Only realizing the size of the crisis when it was too late to react. The main reason for this? Typically a business cycle slow down causes a credit crunch. This cycle the credit crunch caused the cycle slow down. Something our models anticipated and we warned of before there were signs of trouble on the horizon.

In the last few months the world has just started to see a rise in the substantial economic consequences associated with a normal cycle slow down. Although this is a permanent economic shift rather than anything normal per se. As we have stated repeatedly, there is zero chance we will return to the economic environment of the last ten or twenty years. Absolutely zero. A very few are now starting to ponder a different outcome and its consequences. But global politicians and their economic ideologists are still attempting to serve last week's leftovers to the world's populace. That being gruel with a nice tall glass of ditch water. How's that working for you? (In other words, attempting to restart the economic policies of the last few decades.) This will only make the outcome that much more painful.

As we leave the initial financial shock wave and enter the economic shock wave of this cycle, we can start to gain an appreciation for the scope of this crisis by now looking at traditional measurements of economic activity. One such measurement is the demand for industrial investment. Germany is the largest exporter of industrial equipment in the world. It has been a key beneficiary of the global over-industrialization we have talked about for the last four calendar years.

As we look at Germany's foreign orders for industrial goods, we can see that its decline in output substantially lagged the initial shocks of this cycle. This would be anticipated in this type of environment as we highlighted above. In fact, global assets had already collapsed by the time measurements were signaling a substantial economic crisis had developed in Germany's foreign orders for industrial goods. Yet new orders have now literally collapsed. The last five months have seen orders decline at a -30 to -40% rate for the first three months then the last two being close to -50%. This was well after the collapse in the stock market confirming the credit crunch led the economic cycle slow down. Yet, this measurement now tells of a far more ominous future. A future not appreciated by rhetoraticians.

Don't let the politicians and bureaucrats fool you. We can expect the global economy's downturn to be lengthy and deep based on the collapse in demand for Germany's industrial goods - a major determinant of future wealth creation.

While Germany is a fundamentally sound economy, other than China, it is possibly the highest risk developed economy due to its extremely unbalanced domestic demand and an over-reliance on exports. A reliance that is triple the rate comparative to GDP of even the industrial exporting powerhouse, Japan. In other words, the Japanese economy is substantially more sustainable than Germany's. And, since China's propaganda machine is often good at passing along statistics they want the world to believe as opposed to reality, Germany's investment goods export statistics provide an unvarnished perspective of what is really going on around the globe.

Germany's reliance on industrial exports will cause substantially more economic pain than is being discussed today. Amongst many other reasons, Germany's relative position on the global supply chain guarantees it will experience very substantial impacts of the global crisis well after the initial credit effects are felt. Possibly semi-permanent effects. It will also experience greater negative consequences because of the Bullwhip Effect - a term coined in the last decade or so but an effect well understood by those in the supply-chain business for most of the twentieth century. Just not understood and appreciated by the money changers on Wall Street - one of many reason Wall Street has been completely caught off guard by the impacts of this cycle and remains in the dark about future prospects. It's also one reason why this liquidity-driven rally is not based in any form of economic reality. We have written of supply-chain shocks before but remember these effects applies not only to countries but to industrial companies, their equities & bonds and their suppliers. Two such suppliers that remains a Wall Street favorite are the energy business and the commodities bubble. Needless to say, I remain highly negative on both and expect a complete bust is very likely. Remember, many of these investments, including industrial commodities and energy, are being purchased and even propped up by excess liquidity in anticipation of a re-ignition of globalization. Most will have to witness the bust that will occur in order to believe it. All in due time.

Germany has the wherewithal to weather a substantial economic decline were that the only issue before it. But at some point in time the demands placed on the people of Germany by the European Union and German bureaucrats will cross paths with the substantial collapse in global demand for Germany's economic output, its substantial ongoing costs of reunification and its highly leveraged social safety nets. This has not yet developed. It will. And, that means any calls for EU bailouts to be backed primarily by the balance sheets of France and Germany will clash against the sovereign needs of domestic economies. Therein lies a serious risk and future tipping point in the making.

The EU and German bureaucrats pushing EU unification are elitists who wish to return the people's sovereignty to the Europe of old where cronyism - lords - determine the fate of a feudal society through knuckle-dragging policies of rhetoric and tyranny. Maybe not consciously so in today's environment. But by implementing policies crafted to benefit a very few rather than by or for the sovereign of Germany or any other EU country. Unfortunately, this inbred elitism has never been vanquished from European culture. Oddly enough, this elitism remains a primary driver for the success of America as it has for the past three hundred years. Though now we also see this same level of cronyism building to a systemic level in Washington over the last handful of decades. Regardless, I'm quite confident the American people are going to take care business. And, I'm actually becoming more confident many in Europe are finally going to do the same.

Throw in the political concerns of sovereign countries yielding to demands by France or Germany or the EU in exchange for possible financial aid and you have a healthy brewing cauldron of future volatility. One that the European Central Bank and European Union arrogantly believes it has under control. Of course, they also thought they had the situation well under control in, say, 1789. At that time it was also generally believed that it was good to be the king. As we enter the depths of a brave new world, is it once again good to be the king? Let's ask the EU leaders as this crisis gathers momentum. I suspect the answer is it "was" good to be the king.
posted by TimingLogic at 7:57 AM links to this post

Tuesday, May 05, 2009

S&P 500 - Pin The Tail On The Donkey

We said there were no signs of a rally all throughout 2008's decline. Even as trader and Wall Street personality time after time called for one. And, there wasn't one. There were small pulses of counter trend moves but that's it. This is a rally in both price and time. And, we said one was likely coming. It is upon us. The fact that this is such a low volatility move and price has therefore been contained in such a tight technical channel tells us this move is purely driven by traders manipulating the market courtesy of the Federal Reserve reliquifying financial markets. But, then that's what we said was happening.

With a reliquification we should expect more of the same behavior that got us into this mess. An attempt to restart securitization, Wall Street banks gambling in financial and commodity markets, more home loans to people that shouldn't be receiving them, more private equity stupidity and more mergers and acquisitions souring the balance sheets of the acquiring firms and saddling businesses with debts that will either hamper future earnings or even lead to bankruptcy. And many of other generally asinine Ponzinomics that put us in this mess. And, the end result will also be the same. Because the government and Federal Reserve refuse to acknowledge that this isn't a liquidity crisis, we will see future liquidity shocks and more financial crises. The government is making the mess worse. But, then we sound like a parrot on this point as well. Maybe the Wall Street savants cited in the earlier post today might consider these points when they start gloating that Wall Street is returning to pre-crisis form. I truly despise incompetence masking as brilliance. If you don't know what the hell you are talking about, be smart enough to acknowledge it. Blabbering bullshit about Wall Street returning to its prior form is just plain incompetence. And ignorance.

Liquidity-driven rallies can last a long time. We saw one from 2003 to 2007. This one won't last that long and it won't rise that high. But, until we see the pool of money thrown at markets starting to recede again, we'll have a reasonably bouyant financial market. How long is that? It's a pure guess but there are ways to fence it. But, that's too complicated for a free blog.

I'm going to stick my foot in my mouth and state that this pattern has been violated and a new micro pattern shown in red has developed. This pattern is an even lower volatility pattern that is pointing to potential price exhaustion. Traders want to pin the tail on the donkey at S&P 920-ish where there remains an open gap in the S&P so we'll see if we get there. Yes, it's all a game. A very serious one but still a game being played with your money.

Regardless, the calls of this being an economic turning point are beyond ridiculous.

posted by TimingLogic at 11:44 AM links to this post

Happy Cinco De Mayo

Nothing better than to celebrate the defeat of tyranny with some original folk music from Mexico. It looks like we might be on the verge of a new Cinco De Mayo of sorts south of the border.

posted by TimingLogic at 10:19 AM links to this post

Wall Street To Revert To Pre-Crisis Model?

This is a prime example of clueless journalism. It's also a prime reason why the press is going bankrupt left and right.

Listed in this article are some of the most well-respected names on Wall Street. The remarks in this article are completely laughable. Wall Street is still deluded by a false reality that shows they clearly don't understand economics or business. We knew that. Wall Street destroyed itself and the economy. Wall Street has never had to actually compete in the economy because they get monopoly access to capital. Now the economy is going to determine their future. Not monopoly access to capital. Because there isn't any. And, I can assure you I would bet every nickel that has ever passed through my hands that these clowns are completely clueless as to what the future of Wall Street or the global economy will look like. Welcome to the real world.
posted by TimingLogic at 9:40 AM links to this post

Monday, May 04, 2009

Potential Dates Of The Next Major Bottom In Stocks

So, did anyone think about what I said about market rhythms and cyclicality in the last post? Because I was giving you a tool to do some further analysis.

At least over the last handful of years, the market's rhythm led to substantial new exhaustion lows a regularly timed intervals. Using this as a guide, we might expect to see a new exhaustion low to be in May-ish or October-ish of 2010 - two months of traditional weakness. That doesn't mean the market is going to rise for another eighteen months. It simply means that is the next potential for a substantial exhaustion low using the rhythm of the market on the weekly chart.

This is purely an educated hypothesis using rather esoteric data but that said it is far better than any guess given by an economist or talking head pulling rabbits out of their hat.

posted by TimingLogic at 3:21 PM links to this post

Sunday, May 03, 2009

A Better Market Exhaustion Tool

I remarked a handful of days ago about hitting a Demark Combo and Sequential sell signal on the S&P. Demark counts rising or falling prices in stocks that meet certain criteria. The premise of his work is based on price exhaustion. Although I would argue there is no substantiation of his work beyond anecdotal analysis. Most of that anecdotal analysis has been since quantitative trading became very popular over the last decade.

As we remarked similarly with volatility, volume is one of the least understood and analyzed tools in quantitative analysis. And, it is almost always completely discounted by chartists and other forms of technical analysis. Over the years I developed a count-based algorithm that is substantially based on market activity rather than made-up rules using counts to measure exhaustion in the market. ie, Demark's tools. Behind the visual representation below is a count-based algorithm of specific volume characteristics on the New York Stock Exchange. But the market is the determinant of counts in my work as opposed to Demark's work which uses rules that really don't reflect market reality.

On that note, certain patterns or rhythms exist within markets. These patters are very similar regardless of time frame. In other words, whether it be a monthly, weekly, daily or intraday view there are certain rhythms to the market that are common across all time frames. Below we have the same count-based volume algorithm overlaid on an intraday, daily, weekly and monthly chart of the S&P 500. I use the S&P simply because it is most representative of the overall U.S. and global economy.

As you can see, the same exhaustion patterns clearly exist in all time frames. And we clearly see exhaustion often sets in at the same counts: 10-11 with price peaks and 0 at price troughs. The data is not curve-fitted rather I have let the market determine its own cyclicality. In other words, there is nothing that would keep counts from achieving levels of 20, 40 or any other arbitrary number other than natural market rhythms. And that same natural rhythm ironically appears across all time frames.

So based on its construction, a low count reading can be interpreted two ways. One is that we have reached a price exhaustion point and are ready for a few rally (readings of zero are nearly a surety) or that the upward price movement has characteristics of temporary exhaustion. A high count reading implies temporary market exhaustion. In decades of analysis and years of analysis on intraday data, market exhaustion has never reached over 11.5 on any time frame. And, the most powerful seldom exceed 10.5 On an intraday view, exhaustion may last days. On a daily view it may last weeks. On a weekly or monthly view, it may last substantially longer.

Notice on the first intraday chart, that price was still declining into the early March low as the volume count started increasing. This was signalling a coming rally of some sort. Notice we also see a chronically low count reading over the past two weeks. I attribute this to temporary exhaustion setting in as the market has made very little progress during that time. But we shall see.

On the second chart, a daily view, notice how the count did not advance when there were so many calling a bottom again and again in September, October and November. And notice how the price count started upward before the March 2009 low confirming a possibly imminent rally. Also, notice how the price count appears to have peaked a few weeks ago. This is potential confirmation of the intraday chart where price has continued higher without the count increasing. This is lending credence to the potential for a short term price top developing. That doesn't mean the market has to go down. It just means the market may be close to price exhaustion. I would be very surprised to see significantly new price lows in the stock market any time soon given the cyclicality and rhythm of this analysis tool. In other words, as I wrote last week, we could easily have seen the market low for 2009. We shall see because intermediate term moves six to twelve months out are just about impossible for anyone to forecast.

Now on the weekly chart, look at how upward exhaustion was reached back in October of 2007 with the second highest weekly count reading in the last twenty years. This was when the bullishness of Wall Street professionals was substantially positive as we noted at the time. Wall Street was basking in its glory just when the market rhythm was telling us a very different and potentially ominous story. And, we see downward exhaustion occurred in the last weeks of 2008 and has been rising ever since. Hence, one of the rationales for my remarks into the end of 2008 and early 2009 that a rally was building under the market but would take some time to develop. This dovetails with some monetary analysis I also do, which was drawing the same conclusions and supplements quantitative analysis quite nicely.

And, finally, let's look at the monthly chart. Market exhaustion was clearly reached in 1999 well before the price peak in 2000 and just so happened to reach zero or downside exhaustion in 2002. The market rallied substantially off of late 2002 but then collapsed again into 2003 when the ultimate bottom was set. We then saw a substantial monthly count in the October 2007 market peak. The same count reading we saw in 2000. Frankly, I never thought the market could again reach the same levels as were achieved in 2000. And as I have said before, were this a normal cycle, I am confident the May 2006 peak would have been the market peak. But the data doesn't lie. I will say in hindsight that there is substantial data pointing to inflows into the U.S. from China and other emerging markets that fueled the run from the July 2006 lows to the peak in 2007. Is that really a surprise? These countries have absolutely no experience handling excess reserves or investing. So, they ended up being bag holders buying American stocks at what will likely be a multi-decade peak.

So, here's the way to interpret this data. Monthly trumps weekly which trumps daily which trumps intraday. In other words, a daily extreme reading could work itself off while a monthly count is marginally impacted just as we saw from the March low. So, as an example, when Nouriel Roubini, a bearish economist called Jim Cramer a dunce or whatever it was, for calling the market low in early March, yet he was doing so as we were clearly seeing a rising count on the weekly readings and the daily count was moving higher. In other words, Roubini relied on rhetoric rather than analysis so he spoke at exactly the wrong time. Cramer now gains confidence that he is right yet his call was also nothing more than rhetoric because again Cramer was very bullish when stocks were at their peak in 2007 when the data was pointing to imminent price exhaustion. My point is that banter is completely useless as an investing tool. Being lucky doesn't involve a lot of critical thinking and has no basis in truth. Markets don't care what Roubini, Cramer, Jesus Christ, you, me or anyone else thinks.

Realize there is no magic that states a market has to reach an oversold level of 0 or 10. It's simply a natural rhythm that seems to occur across all time frames. And, in fact, we saw counts substantially lower at short term peaks since the 2007 top. But regardless of count number, the counts often started lower before a price drop and started higher before a price rise, forewarning of potential price exhaustion points. That's sort of nice now isn't it. :)

Extreme readings occur weekly on an intraday analysis, they may occur a handful of times a year on a daily analysis but may occur every few years or even decades on weekly or monthly analysis. This obviously makes sense because of the macro factors at work in markets that are very different over the decades. It just so happened that we saw very extreme readings in 1999 and 2007. But, "just so happens" is really indicative of a far more substantial reality. That Wall Street was able to shove monthly readings to such extremes on the up side is a sign of the power of these advances. Power that I believe macro factors will mitigate for decades to come. In other words, It could be ten or twenty years before we ever see monthly counts of 10 or more.

If one is to consider we could eventually reach an exhaustion level of zero on the month data as this cycle winds down, and there are ample fundamental reasons to believe we may reach some absurdly low level, and even hit zero months before a price bottom, we will likely have more large price drops at some point in the future. But, from a weekly perspective, it would also be possible to see price advance substantially higher into the 1000-1100 region of the S&P before we take any such plunge. An upside price band I do believe we highlighted early in the year at a time no one thought such a move possible. That may or may not happen. But, the possibility does exist were we to see the market reach count extremes of 10-ish on the weekly data.

It's a mad, mad, mad world.
posted by TimingLogic at 7:57 AM links to this post

Saturday, May 02, 2009

Washington Corruption Direct From The Mouth Of A Senator - The Bankster Lobbyists Own Your Government

posted by TimingLogic at 9:17 AM links to this post

Friday, May 01, 2009

This Is Rich. The Congressional House Finance Committee Chair's Former Staffer Is Now Goldman Sach's Top Lobbyist

You might find it interesting that Goldman's top lobbyist under Bush was a Republican and now it's a Democrat. Obviously with a direct door into Washington.

Gotta love the audacity of these pigs.
posted by TimingLogic at 3:16 PM links to this post

Center For Responsive Politics - Top Washington Lobbyists Destroying Our Country

I added a blog link to the Center for Responsive Politics, a mainstream political watchdog group, some time ago. It might be quite telling that a blog dedicated to financial markets, economics and business is writing so much about Washington and lobbyists. I don't do so because it is some passion of mine. I do so because lobbyists and associated Washington policy have become the main driver of markets, economics and business. A sign of the corruption in Washington today.

So, let's take a look at what money will buy someone in Washington with the CRP's top lobbyist list. This list is of the big spenders over the last ten years. A tidy sum. Might someone gain insight into economic policy based on the political actions of these organizations, be they right or wrong or beneficial or destructive to the American people?

Where is your well-connected millionaire lobbyist? I wrote on here quite some time ago about the concept of corporate personhood based on some obscure court decision giving corporations the same rights as people under our constitutional republic. A completely corrupt ruling that should be overturned. Constitutionally. Period. Such a ruling would restore our republic to the sovereignty of the people and we wouldn't witness this never ending morally bankrupt, yet legal, transfers of money in Washington. To make a point about the legality of what is going on, again, slavery was legal to. And so was lynching.

Laws not serving the sovereign of this country serve someone else. Given the finite resources in the economy, those laws are at your expense. The U.S. Chamber of Commerce is a real gem on the second list. But, the big monster is...what a surprise - $3.4 billion by the finance industry. Is it any wonder our economy has become a financial casino that marginalizes productive work while Wall Street crooks use our savings to steal our money right from under our noses? Legally of course. Have you been dealt into the game?

See anything else on these lists that interest you? That might play some role in why our economy is structured the way it is? Let's see. Defense. Tanks makers lobbying Washington? Is that a joke? I appreciate a strong defense but how many nuclear weapons can we build? At the expense of Social Security or your pension that is likely gone or soon will be. The reeking rot is unbearable.

Here's hoping you are enjoying that gruel you had for lunch while billions are pumped into the last bubble on earth. Most often not in your best interests. That bubble would be the Washington bubble. When that pops, life will really be a joy ride. And it will.



Click on the graphics to be taken to CRP's site.
posted by TimingLogic at 7:57 AM links to this post