Well mainstreet may well get what they have asked for with the government/proposal/handout/bailout/fakeout. I saw a picture of a guy holding a sign that said bailout Winners not Losers. This dude was out marching in the streets while I was at work. His point was not to bailout Wall Street, the bailout should give relief to homeowners. Where I come from if you are losing your house (barring a sickness in the family) you are a loser for financing more than you could afford. Naomi Klein is blaming it all on Wall Street for creating this mess by making all of those loans. I didn't notice any bankers sneaking around at night signing unsuspecting victims up for loan without their knowledge. Yep this problem (like it or not) was started by greed---not by Wall Street but by the folks on Main Street for taking loans that they knew they could not pay back.
So what to do now? I am not trying to catch a falling knife--no more buying of anything for me until we see some stability. If these idiots that we call a Congress do not act soon, we could see DOW 7500. Now the most bullish sign I saw all day was that Jim Cramer was calling DOW 8000. If that clown (that called the bottom in both the housing and financials quite a bit higher) is bearish, then I have to take a closer look because there might be a bullish case. I see no bullish case here though.
Congress is so stupid, while they were debating a $700 Billion bailout, the market lost a total market value of $1.4 trillion. I must give credit to the guys buying gold---and making comments here about buying gold. You made a very good decision and beat me in that regard. Gold is so volatile, I kept thinking that the fear premium was far too high and I WAS WRONG.
THE TRUTH FOR THE NEXT DAY OR SO IS THAT NOBODY KNOWS!!!!!!!!!!!!!!
Our Congress spends money on ignorant ventures each and every day and they need to complete this bailout package soon. If for no other reason they should do it to help confidence. Now all of you MAIN STREET WHINERS get this. The genesis of this problem is (pardon the language), people want free shit!!! Welfare, food stamps and now people want HOUSING STAMPS. Why? Because they DESERVE a good house for free.
Why are the automakers and the airlines historically awful businesses to invest in? Because they are held hostage by the unions. Over time they have demanded more pay, ridiculous healthcare benefits, and more. During that same period did the workers productivity go up by an amount commensurate with their salary/benefit increases? Just good ole country boy logic tells me that it didn't. All the while, some folks in other countries were out there improving their productivity and their product and helped the bottom line of their companies. So now we have been left behind and what is our answer? MORE GOVERNMENT HANDOUTS----THE SAME ANSWER THAT CREATED THE DAMN PROBLEM IN THE FIRST PLACE.
We are in trouble because our wonderful lawmakers will be off for the next couple of days and will not be able to vote before Thursday. We needed to have a recession and now we have one. We don't need to have total calamity in our banking system and we are on the verge of it. We have to allocate the governement funds necessary to fix the banking system. If I seem as though I am talking out of both sides of my mouth, my position is simple. Fix the banking system and forget the mortgage relief for homeowner. Lets get back to personal accountability. If the homeowner gets his butt burned and does not get bailed out, he will be more careful next time he goes to sign on the dotted line to borrow money. That in and of itself will do its part to stabilize the banking system.
Now for what I think about the markets. I think that this is one of those times where millionaires are going to be made in a hurry. A lot of good stocks are getting killed right here and there will be tremendous value in some stocks. I just am not ready to get in right here---I thought we had found the bottom and I got more heavily invested a couple of weeks ago. Fear is at a fever-pitch right here and I am looking for stability.
We are working to bring you some first class interviews in the very near future.
Make comments here!!!!!
Monday, September 29, 2008
Saturday, September 27, 2008
THE COUNTDOWN
Do you hear the clock ticking on the rescue/bailout/restructuring? It is ticking and I don't think this market can sustain another week with no clearly defined solution. I have been very clear, bailouts are the wrong thing but this situation is extraordinary and requires government intervention. It most certainly will cause inflation and we must deal with that, but we are on the brink of the ruin of our banking system.
I hate the mere idea of a bailout and think we should start a grassroots effort to demand that Congress examine the REAL reasons behind this collapse. So much attention is being placed on bailing out the rich on Wall Street. I am by no means discounting the role that the greedy on the Street played in this mess. I am however shocked, amazed, and angered by the fact that the idiots that overextended themselves by borrowing money to flip houses that they could not afford are getting sympathy instead of blame. Ask yourself this question "If Obama believes in a bottom up fix with his economic plan, why does he not place blame on the hard working middle class member that got out there and borrowed too rich for his means?" Obama placed blame on lack of regulation for the subprime mess. All of those greedy companies got out there and tricked those poor hard working Americans that did not have sense enough to look at their own balance sheets and see that they obviously could not afford the house they were borrowing the money for. Was that hard working middle classer using "leverage"? Yes he was and that was irresponsible. If we give these people a bailout/handout/freebie will they get their credit cards out and repeat the mistake? Most will. Don't dare tell me that only the rich are addicted to leverage. Obama is simply playing CLASS WARFARE by blaming Wall Street and allowing Main Street to get a free pass.
We need a grassroots effort to request that Congress cut their own pay in half for the next two years. Why should they continue to make their current salaries when they have been asleep at the wheel and spending like a hoard of drunken rat bastards? We need accountability and it needs to start at the top. We need to get good common sense back to Congress.
I am amazed at what I am seeing on television today. One firm acutally had a commercial stating that they are committed to being one of the best capitalized banks. Can you say "DON'T PANIC" Fox is not showing their normal "Cost of Freedom" business block. They have Cavuto on during that time slot examining the crisis. Anxiety is at an all time high. I have never seen anything like this in my lifetime, but we are going to get through this. I believe that we can get over this economic "sickness" without it leading to the death of life as we know it.
Lets talk about what happens if we get the $700 Billion infusion. It will cause inflation, but will not be the end of the world.
I hate the mere idea of a bailout and think we should start a grassroots effort to demand that Congress examine the REAL reasons behind this collapse. So much attention is being placed on bailing out the rich on Wall Street. I am by no means discounting the role that the greedy on the Street played in this mess. I am however shocked, amazed, and angered by the fact that the idiots that overextended themselves by borrowing money to flip houses that they could not afford are getting sympathy instead of blame. Ask yourself this question "If Obama believes in a bottom up fix with his economic plan, why does he not place blame on the hard working middle class member that got out there and borrowed too rich for his means?" Obama placed blame on lack of regulation for the subprime mess. All of those greedy companies got out there and tricked those poor hard working Americans that did not have sense enough to look at their own balance sheets and see that they obviously could not afford the house they were borrowing the money for. Was that hard working middle classer using "leverage"? Yes he was and that was irresponsible. If we give these people a bailout/handout/freebie will they get their credit cards out and repeat the mistake? Most will. Don't dare tell me that only the rich are addicted to leverage. Obama is simply playing CLASS WARFARE by blaming Wall Street and allowing Main Street to get a free pass.
We need a grassroots effort to request that Congress cut their own pay in half for the next two years. Why should they continue to make their current salaries when they have been asleep at the wheel and spending like a hoard of drunken rat bastards? We need accountability and it needs to start at the top. We need to get good common sense back to Congress.
I am amazed at what I am seeing on television today. One firm acutally had a commercial stating that they are committed to being one of the best capitalized banks. Can you say "DON'T PANIC" Fox is not showing their normal "Cost of Freedom" business block. They have Cavuto on during that time slot examining the crisis. Anxiety is at an all time high. I have never seen anything like this in my lifetime, but we are going to get through this. I believe that we can get over this economic "sickness" without it leading to the death of life as we know it.
Lets talk about what happens if we get the $700 Billion infusion. It will cause inflation, but will not be the end of the world.
Friday, September 26, 2008
DOW 7500?
This market is going to be survival of the fittest. We don't appear to be getting anywhere in Washington. This economy is like a patient with a cancer diagnosis and the surgeon keeps putting off removal of the tumor. There is a chance with every passing minute that it will spread. The markets are going to sell off this morning and oil is headed down as well. The theme seems to be focus on the global slowdown with a mixture of the panic trade. If conditions continue to deteriorate and we get no help in the credit markets---we could see the Dow touch 7500 during the month of October. LIBOR rates are headed up rapidly and I promise that is going to hit MAIN STREET hard--very hard if no resloution is reached soon. So many investors watch the stock market without having a clue what is happening in the credit market. That may be OK during normal times, but these are not normal times. The credit situation is nothing short of a CRISIS.
I am basically sitting on the sidelines until we get some resolution to this crisis or we see a huge downward move. We will get back to our in depth daily analysis when the environment improves.
I am basically sitting on the sidelines until we get some resolution to this crisis or we see a huge downward move. We will get back to our in depth daily analysis when the environment improves.
Thursday, September 25, 2008
Jack Welch on CNBC
Jack Welch is on CNBC right now and his comments are making me want to puke!! He is basically saying anyone who stares at a screen all day (traders) caused this mess. No talk of the dumbasses that got out there and financed way more house than they could afford. I resent this being blamed all on traders. I understand that Jack might be a little upset because his precious GE announced that they were suspending their stock buyback. They are blaming it on the financial arm and Joe Kernen is saying that it is just the "global financial backdrop".
Wednesday, September 24, 2008
IS THE CRISIS CONTAINED TO CREDIT???
WE HAVE AN ENERGY CRISIS ON OUR HANDS. Last night LARRY KUDLOW was declaring victory for his DRILL DRILL DRILL effort as he announced that Congress was going to let the ban on offshore drilling expire. If you listened to his tone you would think that we are going to see oil collapse and that in itself would save our economy. I will admit that I thought the announcement of more offshore drilling would have pushed prices downward.
Oil is up a couple of bucks in the premarket this morning. I go back to the words of Jim Rogers----there has not been a significant find of oil in the past years that can compare to the increase in demand. I think we are headed much higher on oil and that will bode well for my favorites that I mentioned in last nights post.
As CNBC interviewed Senators this morning, it is becoming evident that this bailout/handout/welfare plan still has more debate to go and could get changed drastically before it gets passed. I remain in neutral for the most part until we can hear details.
We had some healthy debate in the comment section of yesterdays post. Keep up the comments as we believe that we can learn from debate.
Oil is up a couple of bucks in the premarket this morning. I go back to the words of Jim Rogers----there has not been a significant find of oil in the past years that can compare to the increase in demand. I think we are headed much higher on oil and that will bode well for my favorites that I mentioned in last nights post.
As CNBC interviewed Senators this morning, it is becoming evident that this bailout/handout/welfare plan still has more debate to go and could get changed drastically before it gets passed. I remain in neutral for the most part until we can hear details.
We had some healthy debate in the comment section of yesterdays post. Keep up the comments as we believe that we can learn from debate.
Tuesday, September 23, 2008
Wait Mode
I think the markets are going to sit in wait mode. I am not doing any active trading until I can see what this government is going to do. I may use rallies to unload certain positions if I get a chance to do so.
I am not a fan of gold here. I don't see it going much higher unless we get some terrible news.
Berkshire Hathaway did a deal late today to purchase some of Goldman Sachs. It was looked upon very favorably in the after hours, and the other buzz is that Congress is not going to renew the ban on offshore drilling. This will be good for some of my favorites RIG, NOV, and DO. They were all being helped in the after hours by this news.
Make no mistake, this is one risky market and we will have more to say when things are a little more stable.
I am not a fan of gold here. I don't see it going much higher unless we get some terrible news.
Berkshire Hathaway did a deal late today to purchase some of Goldman Sachs. It was looked upon very favorably in the after hours, and the other buzz is that Congress is not going to renew the ban on offshore drilling. This will be good for some of my favorites RIG, NOV, and DO. They were all being helped in the after hours by this news.
Make no mistake, this is one risky market and we will have more to say when things are a little more stable.
Sunday, September 21, 2008
LOOK OUT BELOW
There was much relief on Friday with the announcement of the government's plans. I think reality is going to set in tomorrow and we will see things head back down. The economy is still going to contract. Even with the Fed Funds rate at 2%, LIBOR is up and going to hit many domestic businesses that have their notes tied to that variable rate. Money is cheap, but nobody (other than the government) wants make loans. Many are calling saying the current economic crisis is going to be the worst since The Great Depression, and I think it all hinges on liquidity. If we can give the credit markets successful bypass surgery, things won't be that bad--but if we see continued freezing in these markets---we are in a huge mess.
I don't want to personally go out and buy gold right now and I will tell you why. Fear is high and I believe that gold is the fear play, not the inflation hedge. I think there is a fear premium right now.
At the time of this writing 9:30 pm eastern time, the futures are under pressure and gold is down about $8.00 in the overseas markets. I don't expect these markets to act rational tomorrow. Our reationary Securities and Exchange Commission has halted short selling in many stocks and that is going to hurt liquidity more than people believe if they continue it for very long. Many of you know that I like pairs trades. I favor a long WRI and short LTM play. Now make no mistake about it, LTM has been heavily shorted and there is a risk of a short squeeze. At any rate, over the long haul WRI should outperform LTM in my estimation.
My posture right at the moment is to be patient and try to position myself to take advantage of inefficiencies that will be created around the recent PANIC. I am not in the camp that thinks life as we know it is on the verge of being over. I think we have more bank failures, but we lost alot of financial institutions during the 1980s and lived to tell about it. The governement is creating inflation and is on touch moral ground---I am sick of seeing the bailouts personally. But I do not think it is going to totally wipe out our economy. As a matter of fact, budget defecits do not bother me nearly as much as they do many. We are going to have to prepare to fight inflation, but it can be done. We will see some recessionary times, but that is OK. Recessions are a part of the normal economic cycle. We need to experience recessions every few years--they keep things healthy. Inefficient companies need to fail and inefficient consumers need to go bankrupt. I have a lot of cash, but am not converting it all to gold. I am not selling the farm and betting on our economy going down.
I will finish by saying that the kind of reform we need is to destroy the 2 party system in our current political system. We need to DEMAND that these political parties NOT RECEIVE TAXPAYER MONEY. Most people have to affiliate with one of the parties in order to raise enough money to run an effective campaign. We need to have a system where ordinary citizens can run for office and make a difference without having to sell out to a party to get elected. Corruption destroys and we need to return the power to the people----NOT THE PARTIES.
I don't want to personally go out and buy gold right now and I will tell you why. Fear is high and I believe that gold is the fear play, not the inflation hedge. I think there is a fear premium right now.
At the time of this writing 9:30 pm eastern time, the futures are under pressure and gold is down about $8.00 in the overseas markets. I don't expect these markets to act rational tomorrow. Our reationary Securities and Exchange Commission has halted short selling in many stocks and that is going to hurt liquidity more than people believe if they continue it for very long. Many of you know that I like pairs trades. I favor a long WRI and short LTM play. Now make no mistake about it, LTM has been heavily shorted and there is a risk of a short squeeze. At any rate, over the long haul WRI should outperform LTM in my estimation.
My posture right at the moment is to be patient and try to position myself to take advantage of inefficiencies that will be created around the recent PANIC. I am not in the camp that thinks life as we know it is on the verge of being over. I think we have more bank failures, but we lost alot of financial institutions during the 1980s and lived to tell about it. The governement is creating inflation and is on touch moral ground---I am sick of seeing the bailouts personally. But I do not think it is going to totally wipe out our economy. As a matter of fact, budget defecits do not bother me nearly as much as they do many. We are going to have to prepare to fight inflation, but it can be done. We will see some recessionary times, but that is OK. Recessions are a part of the normal economic cycle. We need to experience recessions every few years--they keep things healthy. Inefficient companies need to fail and inefficient consumers need to go bankrupt. I have a lot of cash, but am not converting it all to gold. I am not selling the farm and betting on our economy going down.
I will finish by saying that the kind of reform we need is to destroy the 2 party system in our current political system. We need to DEMAND that these political parties NOT RECEIVE TAXPAYER MONEY. Most people have to affiliate with one of the parties in order to raise enough money to run an effective campaign. We need to have a system where ordinary citizens can run for office and make a difference without having to sell out to a party to get elected. Corruption destroys and we need to return the power to the people----NOT THE PARTIES.
Saturday, September 20, 2008
More Pain and More Politics
I'll admit that I was pleased to see the markets rally yesterday---I used that opportunity to sell some equities. Today's Fox Headlines are FACT vs. FEARS. Charles Payne made a great point by saying (to all those arguing that the government shouldn't be involved) that the government was already involved. Fannie and Freddie are major parts of the current crisis so therefore the government had to do something about the problem. I agree for the short term, but the bottom line is we have to have LESS GOVERNMENT.
To all of those Democrats that are using this opportunity as a to criticize the current administration---guys this problem with Fannie and Freddie started a long time ago and did exist during the Clinton Administration. It seems to me that so many in the mainstream media are AFRAID to state the real underlying problem. The underlying problem is that this country is catering to the lazy people that want to overborrow and have the government bail them out. Why should the government guarantee any home loan? If the government was focused on really creating the proper opportunities for the economy---through less taxes and better corporate environment---then we would see better jobs and people could afford to purchase their own homes without these government guarantees. Now granted they might have to buy a little smaller home and live within their means---but I have been living within my means my entire life so I have no sympathy for the "overextenders". As a matter of fact, for those that think I (through paying higher taxes) should bail them out when they over spend---I say KISS MY &*@.
I was shocked at Joe Bidens comments that the rich have a Patriotic duty to pay more taxes. Why isn't he talking about the lazy having an obligation to get up and work? Why isn't he talking about those already on welfare needing to stop having unprotected sex to get a larger check from the government? Don't tell me it doesn't happen because it does. Why isn't Biden understanding that we are losing jobs in this country because we are in a global economy and people overseas are willing to work their butts off for less pay. Our answer to global competition absolutely has to be increased productivity and it begins with less government handouts, which leads to less taxes and better corporate environments.
Lets think about Obama's tax plan. They are now saying that a retired person making $50,000 will pay no taxes, rather they will receive money back. Now with all of the baby boomers retiring that is a master plan---for failure. More redistribution of wealth.
I am not defending the spending habits of either party---both of their spending policies have been horrific. LESS GOVERNMENT is where we need to go.
To all of those Democrats that are using this opportunity as a to criticize the current administration---guys this problem with Fannie and Freddie started a long time ago and did exist during the Clinton Administration. It seems to me that so many in the mainstream media are AFRAID to state the real underlying problem. The underlying problem is that this country is catering to the lazy people that want to overborrow and have the government bail them out. Why should the government guarantee any home loan? If the government was focused on really creating the proper opportunities for the economy---through less taxes and better corporate environment---then we would see better jobs and people could afford to purchase their own homes without these government guarantees. Now granted they might have to buy a little smaller home and live within their means---but I have been living within my means my entire life so I have no sympathy for the "overextenders". As a matter of fact, for those that think I (through paying higher taxes) should bail them out when they over spend---I say KISS MY &*@.
I was shocked at Joe Bidens comments that the rich have a Patriotic duty to pay more taxes. Why isn't he talking about the lazy having an obligation to get up and work? Why isn't he talking about those already on welfare needing to stop having unprotected sex to get a larger check from the government? Don't tell me it doesn't happen because it does. Why isn't Biden understanding that we are losing jobs in this country because we are in a global economy and people overseas are willing to work their butts off for less pay. Our answer to global competition absolutely has to be increased productivity and it begins with less government handouts, which leads to less taxes and better corporate environments.
Lets think about Obama's tax plan. They are now saying that a retired person making $50,000 will pay no taxes, rather they will receive money back. Now with all of the baby boomers retiring that is a master plan---for failure. More redistribution of wealth.
I am not defending the spending habits of either party---both of their spending policies have been horrific. LESS GOVERNMENT is where we need to go.
Thursday, September 18, 2008
Relief Rally or CAPITULATION
Have we found a bottom? About the only guarantee that you can find in this market is volatility. I am not really excited about being long over the weekend. I will tell you that I think the bull rally in energy is back. I asked Peter Schiff about the oil services sector and he said he thought that I would be fine in that sector. I can't believe that FLR is still below $60 after this rally. This stock should be closer to $80 in my opinion. I can tell you that there is still alot of oil and gas leasing activity in our area. I have seen no sign of a slowdown even in the face of the recently declining prices. I think this complex is going to continue to keep making money hand over fist----unless Obama gets elected and hits them with one of his windfall profits taxes.
The one huge winner this rally day was the REIT area. I mentioned WRI several posts ago and they moved up about 25% today. I was shocked at that move. I am thinking about gambling on GS at some point, but right now I think I'd rather head to the nearest casino.
Shame on Cox of the SEC for his reactionary action. He should keep his hands off now. Short sellers provide liquidity and we need to leave them alone. The real problem started with Elliot Spitzer--friend buddy pal of Jim Cramer---and more.
BE CAREFUL TOMORROW---IT SHOULD BE WILD!!!!!
The one huge winner this rally day was the REIT area. I mentioned WRI several posts ago and they moved up about 25% today. I was shocked at that move. I am thinking about gambling on GS at some point, but right now I think I'd rather head to the nearest casino.
Shame on Cox of the SEC for his reactionary action. He should keep his hands off now. Short sellers provide liquidity and we need to leave them alone. The real problem started with Elliot Spitzer--friend buddy pal of Jim Cramer---and more.
BE CAREFUL TOMORROW---IT SHOULD BE WILD!!!!!
Wednesday, September 17, 2008
Will Wall Street be Changed to Government Street??
All of this government takeover/bailout/handout/ whatever you want to call it is making things worse. You can hear what Peter Sciff says about all of this government intervention in the post directly below. Today was an absolutely dreadful day on the street. I am now asking myself the question "What will bring the bulls back? What reason will someone have to buy stocks in this environment?"
I can't find an answer and that is scary.
Be sure to hear the Peter Schiff interview below. We have more great interviews coming soon!!!!
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I can't find an answer and that is scary.
Be sure to hear the Peter Schiff interview below. We have more great interviews coming soon!!!!
Please subscribe to our videos on youtube and through our feedburner icon on the top left. The more subscribers we have---the more big name interviews we will be able to bring to you.
Peter Schiff Interview
I interviewed Mr. Schiff this morning and will have the interview posted late tonight. I will tell you that he is very concerned (as am I) that the government is taking over private companies by running their printing presses. Hear his takes inflation, the dollar and more tonight.
The AIG deal is done and bankruptcy was avoided. We will still see a very nervous market today in my opinion. Oil is headed up this morning----8:00 am eastern it is up about $3.50. I think the energy bull run will begin again soon as we saw so much forced liquidation in these positions. I own FLR and have had some pain since I bought it---but if oil returns like I think it will, these guys look to be very cheap on a valuation basis.
According to Charlie Gasparino, Morgan Stanley is looking at whether or not they will remain independent down the road. I think they will remain independent, I believe they have to say they are considering all options to keep the short sellers at bay.
We have got to start writing our Congressmen and Congresswomen to tell them the government takeover of America MUST STOP. WE HAVE TO RETURN TO CAPITALISM.
WRITE YOUR CONGRESS MEMBERS AND TELL THEM TO ABOLISH THE CORPORATE TAX RATE!!!!!!
The AIG deal is done and bankruptcy was avoided. We will still see a very nervous market today in my opinion. Oil is headed up this morning----8:00 am eastern it is up about $3.50. I think the energy bull run will begin again soon as we saw so much forced liquidation in these positions. I own FLR and have had some pain since I bought it---but if oil returns like I think it will, these guys look to be very cheap on a valuation basis.
According to Charlie Gasparino, Morgan Stanley is looking at whether or not they will remain independent down the road. I think they will remain independent, I believe they have to say they are considering all options to keep the short sellers at bay.
We have got to start writing our Congressmen and Congresswomen to tell them the government takeover of America MUST STOP. WE HAVE TO RETURN TO CAPITALISM.
WRITE YOUR CONGRESS MEMBERS AND TELL THEM TO ABOLISH THE CORPORATE TAX RATE!!!!!!
Monday, September 15, 2008
Economic Collapse?
The futures are continuing to get weaker tonight and as much as I hate to say it, we may be on the verge of collapse. I have been an advocate of letting the weak fail without government assistance, but I hope they bail AIG out. If AIG goes down, I think we could be looking at a 50% down move on the major averages. Retirement wealth is evaporating and our country could be in real trouble. Now I know my next few statements are going to get a lot of criticism---and that is OK. I think the best way to hedge over the long haul is going to be oil---not gold. I believe the selling in oil today is a function of hedge funds raising capital and margin calls for investors who were late to the party. Here is the issue that I have with gold--I am not sure we are going to see a falling dollar. What we have heard from Jim Rogers and Peter Schiff about the problems with the U.S. economy have been right on the money. No doubt about it----these guys not only know their stuff---they did their best to warn people long before things really got bad. The part of their theory that hasn't played out totally is rampant inflation and the collapse of the dollar (even though the dollar has been in a steady significant decline).
I am wondering if the collapse of so many assets is going to stave off inflation. I really believe that the tight credit markets are having more impact on inflation than are the lower interest rates. Money might be cheap, but if it isn't available, then it can't contribute to inflation. I doubt we are going to see wage price increases in the next few months. If we don't see wage pressure, we aren't going to see that much inflation near term.
Now as to why I think oil will be better than gold. First, the reson that I believe oil was under pressure today is that it had become more popular as a hedge than many gave it credit for. Could it be that the commodity that got hit hard today was truly the inflation hedge (and it was just being sold off because there had been a lot of capital allocated to it)? I am sure I will receive tons of emails accusing me of being everything from drunk to downright crazy for this thought process, but I think it is accurate. Gold has "real" useage than does oil in this environment. For the gold theory to hold, I think we had to see foreign markets hold up much better than the domestic market. That certainly IS NOT THE CASE RIGHT NOW. If you don't believe me, go take a look at the foreign averages. They are getting absolutely hammered. Are we going to see more FORCED LIQUIDATION tomorrow? Most likely. After things settle down I believe that we will see oil outperform of the next few months. I talked to a friend tonight who owns a local oil service firm. I asked him if they had seen any decline in demand for their services with oil falling from $140 to below $100. He literally laughed in my face. He finished by saying that anyone in our area that was unemployed just didn't want to work because the work is there. Oil over time will have more demand than will gold. Over the term of this immediate crisis you may see gold continue to climb, but I believe there will be a changing of the guard to OIL AS THE BEST HEDGE FOR INFLATION.
Now I shouldn't have bought any stock today, but I bought FLR at $60. I am going to hold this one for the long term and think it will see $100 in a couple of years as oil demand continues to grow. I expect to endure pain in the short term. I am using a flat value for my account as a stop. When my account reaches a certain value, I will liquidate everything. If our economy collapses, I want to have CASH.
I hope we don't get there, but if AIG goes----we are in trouble.
I am wondering if the collapse of so many assets is going to stave off inflation. I really believe that the tight credit markets are having more impact on inflation than are the lower interest rates. Money might be cheap, but if it isn't available, then it can't contribute to inflation. I doubt we are going to see wage price increases in the next few months. If we don't see wage pressure, we aren't going to see that much inflation near term.
Now as to why I think oil will be better than gold. First, the reson that I believe oil was under pressure today is that it had become more popular as a hedge than many gave it credit for. Could it be that the commodity that got hit hard today was truly the inflation hedge (and it was just being sold off because there had been a lot of capital allocated to it)? I am sure I will receive tons of emails accusing me of being everything from drunk to downright crazy for this thought process, but I think it is accurate. Gold has "real" useage than does oil in this environment. For the gold theory to hold, I think we had to see foreign markets hold up much better than the domestic market. That certainly IS NOT THE CASE RIGHT NOW. If you don't believe me, go take a look at the foreign averages. They are getting absolutely hammered. Are we going to see more FORCED LIQUIDATION tomorrow? Most likely. After things settle down I believe that we will see oil outperform of the next few months. I talked to a friend tonight who owns a local oil service firm. I asked him if they had seen any decline in demand for their services with oil falling from $140 to below $100. He literally laughed in my face. He finished by saying that anyone in our area that was unemployed just didn't want to work because the work is there. Oil over time will have more demand than will gold. Over the term of this immediate crisis you may see gold continue to climb, but I believe there will be a changing of the guard to OIL AS THE BEST HEDGE FOR INFLATION.
Now I shouldn't have bought any stock today, but I bought FLR at $60. I am going to hold this one for the long term and think it will see $100 in a couple of years as oil demand continues to grow. I expect to endure pain in the short term. I am using a flat value for my account as a stop. When my account reaches a certain value, I will liquidate everything. If our economy collapses, I want to have CASH.
I hope we don't get there, but if AIG goes----we are in trouble.
Sunday, September 14, 2008
FINANCIAL MELTDOWN??????
It 10:00 p.m. eastern and we are seeing special reports all over the news that Lehman Brothers didn't find a buyer and they are headed for bankruptcy. To create liquidity, a group of ten banks has set up a $70 Billion credit facility. The Federal Reserve is also expanding its lending facilities. Bank of America is reportedly buying Merrill Lynch for $44 Billion. The futures are getting hammered obviously. I have to tell you that I think we are going to see some shock and the certain selloff in the financial sector. I am sorry for all of the employees and their families. I do think that systemically this needed to happen and we will be getting closer to "starting over from the sound base" that Jim Rogers described in his interviews.
Charlie Gasparino is sitting on CNBC saying that this is not the unwind that we need. He makes the point that the "bad assets" are not being sold. I don't know that I agree from a trading perspective. I think that it is being factored in by the traders now. Tomorrow may offer a good buying opportunity for some---I like SCHW and if it gets hammered tomorrow. David Faber is also saying that things are going to keep getting worse. They are even asking if the trading in the market will be "orderly". I have lost a lot of money, and may lose a lot more---but I don't see tomorrow being the end of the world. I am a fan of the BAC takeover of Merrill. I think it not only makes a good combination going into the future, I think it offers stability to the financial situation. I think we could see Goldman Sachs going shopping for a bank soon.
There are many "talking heads" on TV right now talking about how the Fed has stretched its balance sheet and how it will affect the dollar. Should the Fed cut interest rates this week. YES!!!! You have heard me say that credit is tight even with the Fed Funds rate at 2%. I think the Fed should and will cut rates this week---perhaps as early as tomorrow. If you have your list of shorts ready---you might make some early trades into the panic. I really believe that we are going to capitulate soon. I am getting more bullish right now. Many will say that I am crazy, but our system is not going away and this too shall pass. How many talking heads have you heard talk about the falling dollar being bullish for oil prices. If you listen to the same "channels" that I do you have heard that over and over the past 6 months. Tomorrow is almost certain to be a day where those correlations are non existant. Oil is going to get hammered tomorrow and so is the dollar. Now gold is headed up so watch FCX. If it slams down again, it will present a nice opportunity to buy. The futures are now at their lowest levels since I have been looking at the television.
I hate to hear the MAINSTREAM MEDIA try to instill fear in the general public. Yes tonight is a historic night and true enough things have changed on Wall Street, but it is not the end of the world. I can tell you that I am going to look for companies with strong balance sheets for some longer term buy and hold investment.
While it may be contrary to what the PhD types will tell you, I believe that this credit crunch has served to contract the economy. Further, I believe that the plans by both the private sector banks and the Fed are going to begin to solve some of the liquidity problems---though the process will be slow.
It seems that AIG is the next target of the short sellers with Merrill out of the way. I wouldn't touch that stock with my worst enemies money. If AIG learned anything from Lehman, they will start the fire sale soon and if done properly it could help the stock and burn some shorts---this stock could go either way and it will go hard and fast in some direction.
I will not give a pick until we see some stability. I hopefully will have several updates as things unfold.
PETER SCHIFF RETURNS TO OUR SHOW THIS WEEK!!!!!!! STAY TUNED
Charlie Gasparino is sitting on CNBC saying that this is not the unwind that we need. He makes the point that the "bad assets" are not being sold. I don't know that I agree from a trading perspective. I think that it is being factored in by the traders now. Tomorrow may offer a good buying opportunity for some---I like SCHW and if it gets hammered tomorrow. David Faber is also saying that things are going to keep getting worse. They are even asking if the trading in the market will be "orderly". I have lost a lot of money, and may lose a lot more---but I don't see tomorrow being the end of the world. I am a fan of the BAC takeover of Merrill. I think it not only makes a good combination going into the future, I think it offers stability to the financial situation. I think we could see Goldman Sachs going shopping for a bank soon.
There are many "talking heads" on TV right now talking about how the Fed has stretched its balance sheet and how it will affect the dollar. Should the Fed cut interest rates this week. YES!!!! You have heard me say that credit is tight even with the Fed Funds rate at 2%. I think the Fed should and will cut rates this week---perhaps as early as tomorrow. If you have your list of shorts ready---you might make some early trades into the panic. I really believe that we are going to capitulate soon. I am getting more bullish right now. Many will say that I am crazy, but our system is not going away and this too shall pass. How many talking heads have you heard talk about the falling dollar being bullish for oil prices. If you listen to the same "channels" that I do you have heard that over and over the past 6 months. Tomorrow is almost certain to be a day where those correlations are non existant. Oil is going to get hammered tomorrow and so is the dollar. Now gold is headed up so watch FCX. If it slams down again, it will present a nice opportunity to buy. The futures are now at their lowest levels since I have been looking at the television.
I hate to hear the MAINSTREAM MEDIA try to instill fear in the general public. Yes tonight is a historic night and true enough things have changed on Wall Street, but it is not the end of the world. I can tell you that I am going to look for companies with strong balance sheets for some longer term buy and hold investment.
While it may be contrary to what the PhD types will tell you, I believe that this credit crunch has served to contract the economy. Further, I believe that the plans by both the private sector banks and the Fed are going to begin to solve some of the liquidity problems---though the process will be slow.
It seems that AIG is the next target of the short sellers with Merrill out of the way. I wouldn't touch that stock with my worst enemies money. If AIG learned anything from Lehman, they will start the fire sale soon and if done properly it could help the stock and burn some shorts---this stock could go either way and it will go hard and fast in some direction.
I will not give a pick until we see some stability. I hopefully will have several updates as things unfold.
PETER SCHIFF RETURNS TO OUR SHOW THIS WEEK!!!!!!! STAY TUNED
HURRICANE IKE
Ike was more destructive than Gustav and I haven't had an update simply because we have been out of power. I will have a longer update later tonight.
Thursday, September 11, 2008
Transports and Financials
This market is enough to make your head spin. When the futures were getting hammered this morning, I was giving in to the bears. Then the bulls came out this afternoon---although volume wasn't exciting. I was especially pleased that the market rallied this afternoon in the face of LEH losing another 40%. Is the market over its obsession with LEH's plight. I think we have accepted worse case scenerio with LEH. There is talk in the after hours that they are negotiating another takeover of LEH. Now I got pissed off this morning and said that it looked like we were headed to DOW 10,000. Good news on the financials could serve to change that call. We are seeing some really good things, transports are strong---oil is declining. The one thing that concerns me for headline risk in the short term is the fact that the stronger dollar is going to hurt the trade deficit and also hit the earnings of the multinationals. We have been able to hang our hat so to speak on the earnings growth of the multinationals as our goods became cheaper abroad. I think we are going to lose that prop BEFORE we see earnings growth domestically. This could serve to cause some fear and hence another leg down. The other side of that equation is that the FORCED LIQUIDATION may have taken many companies down below the area that the headline risk would cause.
The list of companies that I highlighted in my post last night did well today. I must say that I am totally confused at the action in Seagate Technologies STX. This one closed below 14 today and that was less than a 6 P/E. It pays a good dividend at these levels and has good cash flow. I am lost on this one---in my opinion it should double. I have been wrong for a while on this one.
Did you see the action in NTRS today? It was awesome. I still like SCHW at these levels.
Everybody is saying to own the refiners here. I tend to agree and my favorite in the space is Valero VLO. I would be very disciplined but I think this one definitely has potential. Just a little common sense application---Have the prices per gallon of gas dropped at the same rate as oil since it hit its peak around $140? Not in my neighborhood. This means that the refiners have been making higher margins since the oil decline began and so they have a couple of months under their belt. Many like SUN in this space, but I prefer VLO.
For sophisticated traders, I like a pairs trade selling COF short and buying SCHW. I think there will be more headline risk for the companies that have large amounts of credit card debt on their balance sheets. If receivables have been tough to collect in the mortgage arena, you can bet that they are going to be tough to collect in the credit card space.
One of my older picks ICOC stands to do well as the economy rebounds. I would not be surprised to see that one double in the next 18 months. It has been a very well run company.
There is much focus on the dollar play right here. I am watching my tape of Fast Money and they have guru Dennis Gartman of the Gartman Letter talking about the dollar trade. Before I comment on the dollar play let me tell you a little about my experience with Dennis Gartman. We have tried to contact many investors on our show and most are nice enough to speak with us. GARTMAN DOESN'T RESPOND. His assistants won't even respond to emails. He does make a good point about the dollar. His call tonight was that he was on the sidelines and that is exactly where I would be with respect to the dollar. It has gone a long way in a short period of time---not where I want to initiate my trade. I have learned that it pays to not trade at times.
The action in FCX was nothing short of amazing today. It got hammered hard early and then recovered nicely. Unless we see some kind of weird down move in gold, this one is cheap. For those that read our blog on a daily basis, you know that I think we are going to see demand for commodities start to turn up again---when it does FCX is going up sharply.
I must stop and reflect on the terrible events that occurred 7 years ago today. I am proud of my country hope that we never see anything like 9/11/01 again. I AM PROUD TO BE AN AMERICAN AND AM THANKFUL TO ALL OF THOSE MEN AND WOMEN THAT HAVE FOUGHT FOR OUR FREEDOM. THANK YOU, THANK YOU, THANK YOU
The list of companies that I highlighted in my post last night did well today. I must say that I am totally confused at the action in Seagate Technologies STX. This one closed below 14 today and that was less than a 6 P/E. It pays a good dividend at these levels and has good cash flow. I am lost on this one---in my opinion it should double. I have been wrong for a while on this one.
Did you see the action in NTRS today? It was awesome. I still like SCHW at these levels.
Everybody is saying to own the refiners here. I tend to agree and my favorite in the space is Valero VLO. I would be very disciplined but I think this one definitely has potential. Just a little common sense application---Have the prices per gallon of gas dropped at the same rate as oil since it hit its peak around $140? Not in my neighborhood. This means that the refiners have been making higher margins since the oil decline began and so they have a couple of months under their belt. Many like SUN in this space, but I prefer VLO.
For sophisticated traders, I like a pairs trade selling COF short and buying SCHW. I think there will be more headline risk for the companies that have large amounts of credit card debt on their balance sheets. If receivables have been tough to collect in the mortgage arena, you can bet that they are going to be tough to collect in the credit card space.
One of my older picks ICOC stands to do well as the economy rebounds. I would not be surprised to see that one double in the next 18 months. It has been a very well run company.
There is much focus on the dollar play right here. I am watching my tape of Fast Money and they have guru Dennis Gartman of the Gartman Letter talking about the dollar trade. Before I comment on the dollar play let me tell you a little about my experience with Dennis Gartman. We have tried to contact many investors on our show and most are nice enough to speak with us. GARTMAN DOESN'T RESPOND. His assistants won't even respond to emails. He does make a good point about the dollar. His call tonight was that he was on the sidelines and that is exactly where I would be with respect to the dollar. It has gone a long way in a short period of time---not where I want to initiate my trade. I have learned that it pays to not trade at times.
The action in FCX was nothing short of amazing today. It got hammered hard early and then recovered nicely. Unless we see some kind of weird down move in gold, this one is cheap. For those that read our blog on a daily basis, you know that I think we are going to see demand for commodities start to turn up again---when it does FCX is going up sharply.
I must stop and reflect on the terrible events that occurred 7 years ago today. I am proud of my country hope that we never see anything like 9/11/01 again. I AM PROUD TO BE AN AMERICAN AND AM THANKFUL TO ALL OF THOSE MEN AND WOMEN THAT HAVE FOUGHT FOR OUR FREEDOM. THANK YOU, THANK YOU, THANK YOU
FUTURES UNDER PRESSURE
It looks like we will have a nasty open today. LEH is under fire again this morning in the premarket. It looks like we are going to have another irrational day of FORCED LIQUIDATION. I may have underestimated the trouble that some of these hedge funds are in at this point. I intend to raise cash today if we open down---then I will sit back and pick my points. I am already over 50% cash and I may raise to 80-85%. I said a couple of nights ago that if we didn't hold the gains of Monday, I thought we would see DOW 10,000 and I think right now that is the most likely scenerio.
See my post from last night for an updated list of stocks to watch. I am watching for natural gas to stabilize and help XTO and CHK.
See my post from last night for an updated list of stocks to watch. I am watching for natural gas to stabilize and help XTO and CHK.
Wednesday, September 10, 2008
THE WILDCARD-----RUSSIA
Just when we think that oil is headed down, Russia is sending bombers to Venezuela for exercises. I wrote in my blog a couple of weeks ago that I thought Russia was going to do what they could to keep oil prices high. They must have oil prices to sustain their otherwise crappy economy. Putin's party remained in power solely because of the growth of their economy during his tenure. We don't need oil going up right now. With the U.S. taxpayer now on the hook for the Freddie/Fannie bailout--we don't need the dollar having to fight rising oil. And the taxpayers obligations for the FDIC might not a small amount by the time this crisis is over.
We say a good bounce in the energy and ag names--the ones that I blogged about last night did well today. At the time of this post gold is a little higher as is oil in the overseas markets. U.S Futures are down. I think the construction names are going to do well as they have just gotten obliterated. EME (which I own), FWLT, JEC are good value plays at these levels. I think you can start to buy these names at these levels.
Now for those who love to gamble, and I mean literally---I like Las Vegas Sands (LVS) right here. Now I will not argue that this stock had gotten to lofty levels, but in my opinion this correction has been overdone. When the economy turns, this stock will see multiple expansion and could be a double. This stock can take high percentage moves in a short period, so know your risk tolerance and goals if you decide to trade this one.
My friend Ryan Krueger mentioned 2 names when he was on our show last time that really look to have some appeal. Northern Trust and Schwab SCHW. If you like the financial space---these look to be attractive plays within the space.
I have to brag a little---Sanofi SNY jumped on high volume the last two days. I think this one goes to $45. They have a strong pipeline and have good cash flows. I particulary like their position with vaccines---an ounce of prevention is worth a pound of cures in todays insurance environment. In other words, they will have pricing power with these vaccines. I really like this one and you get a fair dividend while you wait.
Many have sent emails asking what we think about the overall economy and the inflation outlook. What I will tell you is rooted in common sense---not any economic textbook. I think that demand destruction definitely caught many "experts" by surprise. That said, I think that we are going to see growth accelerate once again. For one thing the Chinese still have the Olympic Pollution restrictions on. When those are lifted, look out again. The global demand story was and is very real, but as with any story---it can get ahead of reality. I think the pendelum swung too far and now we will see the growth begin again. Ask yourself this question "Even if demand destruction continues to surprise---is oil really going below $80 with the Russians, Iranians, and Venezuelan's acting like nutjobs? My answer is no. This group of 3 will resort to desperate measures to keep the price of oil up. That is why I still like watching RIG,DO,FLR,EME,JEC,NOV. I certainly don't think what is happening with these names can be fairly equated to the internet bubble of 2000. Many have been trading it like the bubble was bigger than the internet bubble---it just isn't.
I don't think the strong dollar is a slam dunk like most of the pundits. We should get more clarity over the next few months as the election unfolds. Make comments below.
We say a good bounce in the energy and ag names--the ones that I blogged about last night did well today. At the time of this post gold is a little higher as is oil in the overseas markets. U.S Futures are down. I think the construction names are going to do well as they have just gotten obliterated. EME (which I own), FWLT, JEC are good value plays at these levels. I think you can start to buy these names at these levels.
Now for those who love to gamble, and I mean literally---I like Las Vegas Sands (LVS) right here. Now I will not argue that this stock had gotten to lofty levels, but in my opinion this correction has been overdone. When the economy turns, this stock will see multiple expansion and could be a double. This stock can take high percentage moves in a short period, so know your risk tolerance and goals if you decide to trade this one.
My friend Ryan Krueger mentioned 2 names when he was on our show last time that really look to have some appeal. Northern Trust and Schwab SCHW. If you like the financial space---these look to be attractive plays within the space.
I have to brag a little---Sanofi SNY jumped on high volume the last two days. I think this one goes to $45. They have a strong pipeline and have good cash flows. I particulary like their position with vaccines---an ounce of prevention is worth a pound of cures in todays insurance environment. In other words, they will have pricing power with these vaccines. I really like this one and you get a fair dividend while you wait.
Many have sent emails asking what we think about the overall economy and the inflation outlook. What I will tell you is rooted in common sense---not any economic textbook. I think that demand destruction definitely caught many "experts" by surprise. That said, I think that we are going to see growth accelerate once again. For one thing the Chinese still have the Olympic Pollution restrictions on. When those are lifted, look out again. The global demand story was and is very real, but as with any story---it can get ahead of reality. I think the pendelum swung too far and now we will see the growth begin again. Ask yourself this question "Even if demand destruction continues to surprise---is oil really going below $80 with the Russians, Iranians, and Venezuelan's acting like nutjobs? My answer is no. This group of 3 will resort to desperate measures to keep the price of oil up. That is why I still like watching RIG,DO,FLR,EME,JEC,NOV. I certainly don't think what is happening with these names can be fairly equated to the internet bubble of 2000. Many have been trading it like the bubble was bigger than the internet bubble---it just isn't.
I don't think the strong dollar is a slam dunk like most of the pundits. We should get more clarity over the next few months as the election unfolds. Make comments below.
Tuesday, September 9, 2008
FORCED LIQUIDATION
Forced liquidation is the latest excuse for the sea of red that engulfed my screen today. Thanks for all of the emails about my recent bullishness. I can't believe that oil is just rolling over. We are now hearing more talk of $80 oil than we are $120. Federal Express was out after hours with positive comments based on the falling price of oil.
Some idiots in the blogosphere were trying to attribute all of today's negative action to the events with Lehman LEH. I don' buy that for a second. We are seeing a massive exodus of hedge funds and mutual funds. Oil is down over 30% in the past couple of months, as are other commodities and the market is still heading down. Not your normal correlations in the marketplace.
I am getting my shopping list ready. I gave you several stocks that I was watching in the energy space last night. I was content to let them fall again today. It was easy to see that today was not the time to buy. I am still watching those stocks and am going to add a few to the list, most notably Freeport McMoran FCX. I am adding CMP to the list as well. I started trading CMP back in the spring when Pat Dorsey was on our show. He liked them then because of their ability to generate excellent cash flows. I made good money trading this stock and I am certainly not calling the bottom, but when the FORCED LIQUIDATION is over---this one should start to climb. Look at the percentages down in some of the companies today and you will see that the selling has to be irrational. Nothing that drastic has happened on any front to justify the stocks of a cash cow like CMP falling this far this fast. I sure won't fight the market though. I will sit and wait an hope that it gets cheaper. I have said OVER AND OVER that I am willing to miss the first part of a move upward to try to make sure the bottom is in before I start spending my money.
I am going to be looking at some smaller stocks in the beaten up sectors--as they fall they might get gobbled up. My grandfather would tell me in times of market descents---find the piss ant company with the healthy balance sheet (these companies are very hard to find) and you will do well. This market action has created some new "Piss Ants" that should still have good balance sheets. I saw several stocks get ten percent haircuts today.
I have heard much speculation that all of this downward action in the energy space is due to the fact that America has finally realized that it must break its dependence on foreign oil and now our government will act. It might happen, but the energy companies will have time to spend their cash and diversify. No matter how we replace oil--with nat gas, solar, nuclear or some other unknown source--there will be money to be made and the current energy companies will be players.
LET THE SELLOFF CONTINUE!!!!
Some idiots in the blogosphere were trying to attribute all of today's negative action to the events with Lehman LEH. I don' buy that for a second. We are seeing a massive exodus of hedge funds and mutual funds. Oil is down over 30% in the past couple of months, as are other commodities and the market is still heading down. Not your normal correlations in the marketplace.
I am getting my shopping list ready. I gave you several stocks that I was watching in the energy space last night. I was content to let them fall again today. It was easy to see that today was not the time to buy. I am still watching those stocks and am going to add a few to the list, most notably Freeport McMoran FCX. I am adding CMP to the list as well. I started trading CMP back in the spring when Pat Dorsey was on our show. He liked them then because of their ability to generate excellent cash flows. I made good money trading this stock and I am certainly not calling the bottom, but when the FORCED LIQUIDATION is over---this one should start to climb. Look at the percentages down in some of the companies today and you will see that the selling has to be irrational. Nothing that drastic has happened on any front to justify the stocks of a cash cow like CMP falling this far this fast. I sure won't fight the market though. I will sit and wait an hope that it gets cheaper. I have said OVER AND OVER that I am willing to miss the first part of a move upward to try to make sure the bottom is in before I start spending my money.
I am going to be looking at some smaller stocks in the beaten up sectors--as they fall they might get gobbled up. My grandfather would tell me in times of market descents---find the piss ant company with the healthy balance sheet (these companies are very hard to find) and you will do well. This market action has created some new "Piss Ants" that should still have good balance sheets. I saw several stocks get ten percent haircuts today.
I have heard much speculation that all of this downward action in the energy space is due to the fact that America has finally realized that it must break its dependence on foreign oil and now our government will act. It might happen, but the energy companies will have time to spend their cash and diversify. No matter how we replace oil--with nat gas, solar, nuclear or some other unknown source--there will be money to be made and the current energy companies will be players.
LET THE SELLOFF CONTINUE!!!!
Monday, September 8, 2008
Dead Cat Bounce????
I am becoming increasingly more bullish. I think we are beginning to see several signs that we are close to the bottom. I have said on several occassions that we will see the financials and the transports lead us out from the bottom. I think today was more than a dead cat bounce. When we cut the early morning rally in half---it seemed as though we were having the self-fulfilling prophecy that this rally could not last. I can't tell you how many traders made comments over the weekend that they were ready to sell back into any rally. I think the end of day action surprised a lot of so called experts. It doesn't mean that we can't go lower, but it is a better sign that there are better days ahead---I think!
So what is the best way to play the transports and the financials? Is it Goldman, JP Morgan??? I am acutally favoring a strategy of playing the REITS. As the credit conditions improve, the REITS should have an easier time finding attractive financing. One of my favorites in the space is WRI. DRE is another very attractive play. Neither are sexy---but they pay a nice dividend while you wait. I still like SWS for a financial play. I think you are going to see the combination of a very well run company in an environment where multiples are expanding in their industry.
Speaking of a change in multiples---the energy trade couldn't look more dead. I am shocked at the action in FLR and NOV today. Both were hammered, but FLR is the most difficult to understand. This one had record backlogs when they reported their last quarterly earnings about a month ago. I SAID RECORD BACKLOGS. We are seeing real multiple contraction in the industry and I just don't understand it. I know the market is a leading indicator, but the way they are treating the energy stocks and the ags(particulary the fertilizer names) you would think that we are headed for the worst decline in commodity prices---EVER. I just don't see it. I can't beleive that NOV traded under $60 today. At these levels, some investors must be valuing oil at less than $80 in the near term. I guess we will finally see how short the consumer's memory really is. If demand destruction continues after oil slips below $100 (assuming it does) then we will know that the consumer got a real scare this time and the lesson sunk in. I just don't believe that will be the case. The daily declines in these stocks and others such as XTO and CHK are certainly worth watching. When they turn, I think there will be some fast money to be made. I hope to be in on that trade.
I think tomorrow is going to be a pivotal day. If we can build on todays rally, we may see the tide turn. If we don't---we could be headed for DOW 10,000. Yes, I think tomorrow is that important. We are hearing more and more from the "we have seen the worst" crowd. I will post an article from former guest Jerry Bowyer later tonight. Keep an eye on Hurrican IKE brewing in the gulf. It appears to be headed to Texas, but the levees in New Orleans don't appear to be ready to withstand another surge. This could have an impact on oil and natural gas prices.
ONE THING IS FOR SURE----UP OR DOWN----IT WILL CONTINUE TO BE VOLATILE.
BE CAUTIOUS
So what is the best way to play the transports and the financials? Is it Goldman, JP Morgan??? I am acutally favoring a strategy of playing the REITS. As the credit conditions improve, the REITS should have an easier time finding attractive financing. One of my favorites in the space is WRI. DRE is another very attractive play. Neither are sexy---but they pay a nice dividend while you wait. I still like SWS for a financial play. I think you are going to see the combination of a very well run company in an environment where multiples are expanding in their industry.
Speaking of a change in multiples---the energy trade couldn't look more dead. I am shocked at the action in FLR and NOV today. Both were hammered, but FLR is the most difficult to understand. This one had record backlogs when they reported their last quarterly earnings about a month ago. I SAID RECORD BACKLOGS. We are seeing real multiple contraction in the industry and I just don't understand it. I know the market is a leading indicator, but the way they are treating the energy stocks and the ags(particulary the fertilizer names) you would think that we are headed for the worst decline in commodity prices---EVER. I just don't see it. I can't beleive that NOV traded under $60 today. At these levels, some investors must be valuing oil at less than $80 in the near term. I guess we will finally see how short the consumer's memory really is. If demand destruction continues after oil slips below $100 (assuming it does) then we will know that the consumer got a real scare this time and the lesson sunk in. I just don't believe that will be the case. The daily declines in these stocks and others such as XTO and CHK are certainly worth watching. When they turn, I think there will be some fast money to be made. I hope to be in on that trade.
I think tomorrow is going to be a pivotal day. If we can build on todays rally, we may see the tide turn. If we don't---we could be headed for DOW 10,000. Yes, I think tomorrow is that important. We are hearing more and more from the "we have seen the worst" crowd. I will post an article from former guest Jerry Bowyer later tonight. Keep an eye on Hurrican IKE brewing in the gulf. It appears to be headed to Texas, but the levees in New Orleans don't appear to be ready to withstand another surge. This could have an impact on oil and natural gas prices.
ONE THING IS FOR SURE----UP OR DOWN----IT WILL CONTINUE TO BE VOLATILE.
BE CAUTIOUS
Sunday, September 7, 2008
Rule #1 Make Up Your Own Mind
I am actively constructing a set of rules to make my personal trading better. I will be sharing these rules over the next few days.
Make up your own mind!! Do your in depth research or don't take a position. I can't count the times in my early trading days that I heard some trader/investor or talking head mention a stock (and make it sound like it was almost can't miss) and made a quick decision to buy it. You then go through all of the emotional excuse making and always find a way to blame someone else. Far too little is made of how important emotions are to being successful in this business. I guarantee that emotions are a huge part of this game. The great thing about the market is that you do control your own destiny. You are in complete control and all the decisions are yours to make. Don't try to take shortcuts by listening to the "hot tip" it simply doesn't work.
If you do your own research, you will understand why you believe that this position is worthy of your capital. It sounds silly, but WHY is a huge question that you need to answer for many reasons. Most importantly, it will give you the ability to analyze your trade and refine your style. While analyzing a loser may not be the most fun thing, it is important. Analyzing winners is important also. There have been times that I made money on a trade and upon further review found out that my analysis was flawed and I was just lucky.
Doing your own research also enables you to differentiate yourself from the masses. If you are following a tip from an investor or mainstream media pundit, you may be headed down fools hill. To be successful over time, you have to be different. If you really study like you should before taking a position---you should also eliminate the "gotta be in the game" mentality. I have been the worlds worst about having to make a trade if the market is open. The best traders are waiting to make the right trade at the right time----so if you are just trying to force a trade you are most certain to get eaten by the sharks. I should know---I have done it over and over again.
Win or lose, you have only to look into the mirror to find the responsible party. STUDY HARD---REVIEW YOUR TRADES.
Make up your own mind!! Do your in depth research or don't take a position. I can't count the times in my early trading days that I heard some trader/investor or talking head mention a stock (and make it sound like it was almost can't miss) and made a quick decision to buy it. You then go through all of the emotional excuse making and always find a way to blame someone else. Far too little is made of how important emotions are to being successful in this business. I guarantee that emotions are a huge part of this game. The great thing about the market is that you do control your own destiny. You are in complete control and all the decisions are yours to make. Don't try to take shortcuts by listening to the "hot tip" it simply doesn't work.
If you do your own research, you will understand why you believe that this position is worthy of your capital. It sounds silly, but WHY is a huge question that you need to answer for many reasons. Most importantly, it will give you the ability to analyze your trade and refine your style. While analyzing a loser may not be the most fun thing, it is important. Analyzing winners is important also. There have been times that I made money on a trade and upon further review found out that my analysis was flawed and I was just lucky.
Doing your own research also enables you to differentiate yourself from the masses. If you are following a tip from an investor or mainstream media pundit, you may be headed down fools hill. To be successful over time, you have to be different. If you really study like you should before taking a position---you should also eliminate the "gotta be in the game" mentality. I have been the worlds worst about having to make a trade if the market is open. The best traders are waiting to make the right trade at the right time----so if you are just trying to force a trade you are most certain to get eaten by the sharks. I should know---I have done it over and over again.
Win or lose, you have only to look into the mirror to find the responsible party. STUDY HARD---REVIEW YOUR TRADES.
Saturday, September 6, 2008
WIPEOUT: FANNIE AND FREDDIE
If the government bails out FANNIE and FREDDIE they MUST let the stock go to zero. We can't keep using government money and allowing shareholders to not lose everything. We have absolutely got to get back to allowing FREE MARKETS TO WORK. When you buy stock in a free market system---you know that you might lose all of your investment. If you don't you should not be investing. I think that Paulson made this bailout inevitable when he asked for the money---some such as PIMCO's Bill Gross wisely refused to invest their capital knowing that the government was most likely to step in shortly. I say lets hear the details so we can move forward---but BAILOUTS HAVE TO STOP AFTER THIS ONE.
I TAKE RISKS EVERY SINGLE DAY. I LOST A LOT OF MONEY MAKING RISKY INVESTMENTS THIS WEEK!!!! HEY HANK---COULD YOU SEND ME A CHECK? I REALLY DIDN'T MEAN TO LOSE THE MONEY. WHY ARE FANNIE AND FREDDIE SHAREHOLDERS ENTITLED TO MY TAX MONEY AND I AM NOT ENTITLED TO A CHECK????
So here is the deal. I must be stupid. I bought a car and a house I could afford. I only charge things on my credit cards that I have the money for. I pay off my cards every month and use them to get the cash back and for convenience. My family knows if we don't have the money---we don't make the purchase. We comparison shop and buy as many of the non-name brand products that we can find. And the sad thing is we pay our taxes and then go to the store and wait in line behind some lazy asses that are using their welfare card to buy NAME BRAND ITEMS. It is time for us to say ENOUGH IS ENOUGH. MORE LATER WHEN MY BLOOD PRESSURE GOES DOWN!!!
I TAKE RISKS EVERY SINGLE DAY. I LOST A LOT OF MONEY MAKING RISKY INVESTMENTS THIS WEEK!!!! HEY HANK---COULD YOU SEND ME A CHECK? I REALLY DIDN'T MEAN TO LOSE THE MONEY. WHY ARE FANNIE AND FREDDIE SHAREHOLDERS ENTITLED TO MY TAX MONEY AND I AM NOT ENTITLED TO A CHECK????
So here is the deal. I must be stupid. I bought a car and a house I could afford. I only charge things on my credit cards that I have the money for. I pay off my cards every month and use them to get the cash back and for convenience. My family knows if we don't have the money---we don't make the purchase. We comparison shop and buy as many of the non-name brand products that we can find. And the sad thing is we pay our taxes and then go to the store and wait in line behind some lazy asses that are using their welfare card to buy NAME BRAND ITEMS. It is time for us to say ENOUGH IS ENOUGH. MORE LATER WHEN MY BLOOD PRESSURE GOES DOWN!!!
Thursday, September 4, 2008
Its The Credit Baby!!!
I don't buy that today's action was all because of the unemployment number. I believe that this is about the credit spreads. About this time last year, all we heard about was the inverted yield curve being bad---and I wish that I had listened more. We have got to see some normalcy return to the credit markets before we get any better. PIMCO's Bill Gross sure didn't help the market today when he announced that he had no interest in participating in investing capital into any of the big banks. Gross is considered to be a wiz and his comments had a big impact on the markets.
Here is the question that I am trying to answer today. Was todays action factoring in awful numbers tomorrow or are we going to get more shock value to the downside if tomorrows numbers are bad? I think we factored in some bad today, but I am not really excited about buying much on a Friday. I honestly got hammered so bad today I don't know what calls I will make tomorrow. I can tell you that I am constucting a set of rules for my trading that will hopefully make me a better capital preserver.
I will share my rules this weekend. We are trying to work out a time for economist John Williams to come back on the show. John has been screaming inflation---even hyperinflation for quite some time now. Last time John was on the show he argued, quite convincingly, that we are just beginning to see the effects of inflation. Many are arguing that the Fed can take an easier breath because of the decline in commodity prices. John would argue that inflation is a monetary phenomenon and there is no real relief on the horizon. We hope to have a time worked out soon.
I made a rule a short time ago to quit trying to call a bottom in the financials. I did the same thing with the energy stocks last week----but the decline in FLR, NOV, DO, XTO, and others is really tough to ignore. I am looking seriously at XTO which bucked the trend today. I will see what happens, but these are definitely on my radar screen.
Now lets talk about the positives that I see in the market right now. First and foremost, I see a little more stability in the REITS. The one I mentioned last night, WRI was down about a dollar today, but well off of its lows of the year---now granted dividend payers will fare a little better in a panic situation. Volume was not scarily high today and I think that is a positive. Some retailers bucked the trend--BKE was up over 2 points today. Now Jim Cramer will tell you that this economy is all about housing. I say it is all about the SHOPPER. I am always encouraged to see decent retail numbers. This economy is 70% driven by the consumer and I like for the consumer to be out shopping---I don't care if they are shopping at SAKS or at Wal Mart---I just want to know they are shopping. Looking at the reports over the last month I think we are holding our own in the retail world.
We are going to be doing interviews again each week. Use the comment section below to tell us who you would most like to see back on the show.
Here is the question that I am trying to answer today. Was todays action factoring in awful numbers tomorrow or are we going to get more shock value to the downside if tomorrows numbers are bad? I think we factored in some bad today, but I am not really excited about buying much on a Friday. I honestly got hammered so bad today I don't know what calls I will make tomorrow. I can tell you that I am constucting a set of rules for my trading that will hopefully make me a better capital preserver.
I will share my rules this weekend. We are trying to work out a time for economist John Williams to come back on the show. John has been screaming inflation---even hyperinflation for quite some time now. Last time John was on the show he argued, quite convincingly, that we are just beginning to see the effects of inflation. Many are arguing that the Fed can take an easier breath because of the decline in commodity prices. John would argue that inflation is a monetary phenomenon and there is no real relief on the horizon. We hope to have a time worked out soon.
I made a rule a short time ago to quit trying to call a bottom in the financials. I did the same thing with the energy stocks last week----but the decline in FLR, NOV, DO, XTO, and others is really tough to ignore. I am looking seriously at XTO which bucked the trend today. I will see what happens, but these are definitely on my radar screen.
Now lets talk about the positives that I see in the market right now. First and foremost, I see a little more stability in the REITS. The one I mentioned last night, WRI was down about a dollar today, but well off of its lows of the year---now granted dividend payers will fare a little better in a panic situation. Volume was not scarily high today and I think that is a positive. Some retailers bucked the trend--BKE was up over 2 points today. Now Jim Cramer will tell you that this economy is all about housing. I say it is all about the SHOPPER. I am always encouraged to see decent retail numbers. This economy is 70% driven by the consumer and I like for the consumer to be out shopping---I don't care if they are shopping at SAKS or at Wal Mart---I just want to know they are shopping. Looking at the reports over the last month I think we are holding our own in the retail world.
We are going to be doing interviews again each week. Use the comment section below to tell us who you would most like to see back on the show.
Wednesday, September 3, 2008
More Bullish??
I am actually getting a little more bullish after today's action. I think that the BEARS had every opportunity to take the market down today. I must admit that I was worried when we got down early, but I was very encouraged by the late afternoon action. So many people are talking about going down and retesting the July lows on the S&P, and I am about to believe that it is NOT going to happen. Obviously we could get some data that could take us down, but right now I don't think we are going to get it.
Many are wondering why the falling price of oil is not serving as a catalyst to move us higher. I have a couple of thoughts on the issue. First, the rising price of oil did not crush the market as it was going up rapidly. It was cause for concern, but it never really single handedly slammed the market day in and day out like one would have expected. Now I usually ask myself the question "What does the market know that I don't?" when I don't think the market is acting as it should. The second thought that I have on this issue is wondering if many of the pros are letting oil fall as the speculators hold a fire sale (we know there have been several hedge funds in serious trouble). Could the professional traders believe that the oil trend is up, and just not be buying until support is established? I think this is the case, and I think we may test $100. I think we are in the bottoming process, but I am not ready to put money back into the trade. Just as I have said over and over again about the financials, I am willing to miss the first part of the trade to ensure that there is in fact a bottom in place.
Yesterday, I said that now is the time to find new leadership. Select retailers such as BKE have really been doing well. If the retailers are doing well, I am going to look to the REITS for the next leg of the move. One of my favorite plays in that space is WRI. This company is very well run, pays a healthy dividend, and is rebounding nicely off of its lows. I will be watching this one over the next few days. It ain't sexy, but it could hand you 25% over the next year if you get it at the right time.
I can't believe that I am looking at Seagate STX as a dividend value play, but I am. When tech recovers this stock is going to head much higher. When you use a common sense approach to the marketplace, you have to know that there is a need for storage. Now I understand that this is a commodity business, but these guys have been working to reduce costs and it is going to really pay off. Nice dividend while you wait.
For those of you that are wondering about my AMAT pick, I still think it has potential. Solar is NOT dead and AMAT is going to be enhanced by the solar demand---but the solar demand isn't their only act.
Now I get some critical emails and comments every time that I inject my political opinions into my market forecast, but I think after Palin's speech tonight, the market could bounce. She did an excellent job with her speech and I think the question as to whether or not she will remain in the race has been answered. She will. Like it or not, I think the market bounces if we see McCain/Palin pull ahead--we know that the free markets do better in times of LESS TAXATION.
I still own and like EME and SWS. I am working on a system of position sizing and strict exit points. Hopefully, I will have excellent results with the new system and share them here---but I have to be successful first. I did close out my SPY short today and am adopting a cautious bullish bias. I have several new stocks that I am researching, and will have some new names shortly.
BE SURE TO READ MY DISCLAIMER. DON'T EMAIL ME WHINING ABOUT LOSING YOUR MONEY. CONSULT YOUR INVESTMENT ADVISOR BEFORE MAKING ANY TRADES. INVESTING IS RISKY!!!
Many are wondering why the falling price of oil is not serving as a catalyst to move us higher. I have a couple of thoughts on the issue. First, the rising price of oil did not crush the market as it was going up rapidly. It was cause for concern, but it never really single handedly slammed the market day in and day out like one would have expected. Now I usually ask myself the question "What does the market know that I don't?" when I don't think the market is acting as it should. The second thought that I have on this issue is wondering if many of the pros are letting oil fall as the speculators hold a fire sale (we know there have been several hedge funds in serious trouble). Could the professional traders believe that the oil trend is up, and just not be buying until support is established? I think this is the case, and I think we may test $100. I think we are in the bottoming process, but I am not ready to put money back into the trade. Just as I have said over and over again about the financials, I am willing to miss the first part of the trade to ensure that there is in fact a bottom in place.
Yesterday, I said that now is the time to find new leadership. Select retailers such as BKE have really been doing well. If the retailers are doing well, I am going to look to the REITS for the next leg of the move. One of my favorite plays in that space is WRI. This company is very well run, pays a healthy dividend, and is rebounding nicely off of its lows. I will be watching this one over the next few days. It ain't sexy, but it could hand you 25% over the next year if you get it at the right time.
I can't believe that I am looking at Seagate STX as a dividend value play, but I am. When tech recovers this stock is going to head much higher. When you use a common sense approach to the marketplace, you have to know that there is a need for storage. Now I understand that this is a commodity business, but these guys have been working to reduce costs and it is going to really pay off. Nice dividend while you wait.
For those of you that are wondering about my AMAT pick, I still think it has potential. Solar is NOT dead and AMAT is going to be enhanced by the solar demand---but the solar demand isn't their only act.
Now I get some critical emails and comments every time that I inject my political opinions into my market forecast, but I think after Palin's speech tonight, the market could bounce. She did an excellent job with her speech and I think the question as to whether or not she will remain in the race has been answered. She will. Like it or not, I think the market bounces if we see McCain/Palin pull ahead--we know that the free markets do better in times of LESS TAXATION.
I still own and like EME and SWS. I am working on a system of position sizing and strict exit points. Hopefully, I will have excellent results with the new system and share them here---but I have to be successful first. I did close out my SPY short today and am adopting a cautious bullish bias. I have several new stocks that I am researching, and will have some new names shortly.
BE SURE TO READ MY DISCLAIMER. DON'T EMAIL ME WHINING ABOUT LOSING YOUR MONEY. CONSULT YOUR INVESTMENT ADVISOR BEFORE MAKING ANY TRADES. INVESTING IS RISKY!!!
Tuesday, September 2, 2008
They Are Back-----But Did They Trade????
I thought certainly that the traders would be back today and we would see higher volumes. I was wrong. Now according to Jim Cramer, the rally was real this morning and the selloff later was the headfake. Now before my regular readers start calling to find out what hospital I am in if I am listening to Cramer---I fell asleep with the TV on CNBC and woke up with him trying to make it so simple. If you are watching that guy---you must be bored. It is not as simple as he made it sound, but we might get a rally this week. I am interested to see where oil settles. It jumped the last hour of trading today and looks like it might bounce off of $110.
I bought HUBG today and am upside down in the trade. I wasn't paying attention and got it at just about the peak of the day. I like the stock, but I overpaid. At any rate, this is a great company and I held the stock. My SWS call started the day off in the wrong direction, but ended on a great note. I think this stock might go to $25 in the near term. I did get short the SPY when I saw things beginning to cave in. I held that trade overnight as well. I used it as overnight insurance and will assess things again in the morning. EME went up again today, but I am very concerned that the stock may have reversed. It started the day very strong and hit $36.05 and then settled at $34.50. I didn't like the way the stock looked during the day. I will keep a close eye on it and might exit the trade if it breaks below $33.90.
Everyone seems to like the rails, and while I don't disagree, I am not ready to buy yet. I think CSX is a good stock, but it went down hard today. Long story short, I think there is time to pick and choose your spots.
I think you have to take a look at IBM here. I have been wrong on the techs for the last month, but this one looks cheap right here.
I bought HUBG today and am upside down in the trade. I wasn't paying attention and got it at just about the peak of the day. I like the stock, but I overpaid. At any rate, this is a great company and I held the stock. My SWS call started the day off in the wrong direction, but ended on a great note. I think this stock might go to $25 in the near term. I did get short the SPY when I saw things beginning to cave in. I held that trade overnight as well. I used it as overnight insurance and will assess things again in the morning. EME went up again today, but I am very concerned that the stock may have reversed. It started the day very strong and hit $36.05 and then settled at $34.50. I didn't like the way the stock looked during the day. I will keep a close eye on it and might exit the trade if it breaks below $33.90.
Everyone seems to like the rails, and while I don't disagree, I am not ready to buy yet. I think CSX is a good stock, but it went down hard today. Long story short, I think there is time to pick and choose your spots.
I think you have to take a look at IBM here. I have been wrong on the techs for the last month, but this one looks cheap right here.
OIL GETS CRUSHED
Oil is getting crushed right now. When you are wrong, like I have been----you have to learn to cut your losses. I am looking to exit my positions in the energy sector (after the market settles in this morning). I can't fight the market. Watch and see what happens in the first 30 minutes of trading. It is IMPERATIVE THAT WE HOLD THESE GAINS. IF WE DON'T THIS MARKET IS HEADED DOWN IN A HUGE WAY!!!
If we do hold these gains, we could be in for a nice rally. I will keep an eye on a couple of my new favorites EME and SWS. I like both of these stocks and think they should do really well in a sustained rally. LOOK FOR YOUR NEW LEADERS TODAY. IF YOU CAN FIND THE LEADERSHIP----YOU CAN REALLY GET AHEAD.
ENERGY AS THE LEADERS IS OVER-----FIND THE NEW LEADERS.
STAY TUNED.
If we do hold these gains, we could be in for a nice rally. I will keep an eye on a couple of my new favorites EME and SWS. I like both of these stocks and think they should do really well in a sustained rally. LOOK FOR YOUR NEW LEADERS TODAY. IF YOU CAN FIND THE LEADERSHIP----YOU CAN REALLY GET AHEAD.
ENERGY AS THE LEADERS IS OVER-----FIND THE NEW LEADERS.
STAY TUNED.
Monday, September 1, 2008
3.3 % GDP Growth Good, Bad , or Temporary?
What is the real story with the economy? Is it growing again, or is the growth that we saw this quarter going to dry up as the dollar strengthens? If it does are we really going to see a recession or even a depression. Many of my regular readers know that I want to know what others are thinking. See the article from the National Review Online by Jerry Bowyer. Make comments and let me know what you think. We will have another post later today!!
The Recessionistas Were Decisively Wrong
The story behind 3.3 percent second-quarter GDP growth.
By Jerry Bowyer
I’ve spent much of the past year both on Kudlow & Co. and in columns arguing with Jared Bernstein, Robert Reich, Barry Ritholz, Jonathan Chait, and others about whether or not we’re in a recession. These folks (some of whome are members of the “Kudlow Caucus”) were certain we were, while I, along with Larry and other supply-siders, thought we were not. As of this week, and a revised GDP-growth number of 3.3 percent for the second quarter, we now know most authoritatively that the recessionistas were wrong.
Bernstein and Reich, in particular, were flatly wrong. They argued that tax cuts favoring the rich worsened income inequality; that this inequality, coupled with the excessive volatility of free-market capitalism, led to plunging home prices that not only made people feel poorer, but in a reverse “wealth effect” caused a plunge in consumer confidence; and that all this presaged a plunge in consumer spending, which ultimately drove the economy into recession.
The way out of this spiral, they said, can only be a combination of massive government spending and some form of consumer-rebate “stimulus package” to restore spending and, through spending, economic growth. This scenario was, and is, nonsense on stilts.
The housing crisis wasn’t created by free-market capitalism, but by government meddling. In particular, the crisis is rooted in a raft of government regulations that forced banks to ignore traditional lending standards — such as credit history, income, and neighborhood economic conditions — and instead embrace non-culturally “discriminatory” lending practices based on racial-identity politics. Once the banks were forced to make loans based on political, rather than financial, criteria, and once Fannie and Freddie were forced to buy these loans in the secondary mortgage market, collapse was inevitable.
In addition, there is no wealth effect from falling home prices. People generally don’t spend based on the value of their homes, partly because people almost never know the value of their homes. Furthermore, for every seller taking a bath during a down market there is a buyer getting the deal of a lifetime. Predictions about consumer attrition simply have not materialized because, as Milton Freedman taught us, spending patterns are based on long-term income expectations. For this and many other reasons the much-heralded consumer collapse has yet to appear.
Now let’s look at what did happen. The 2003 tax cuts increased wealth in every segment of the economy, sparking a multi-year boom. But these tax cuts were passed with expiration dates, and the first Bush-tax-cut expiration occurred at the end of last year when small businesses lost some of their ability to take a tax deduction on purchases of business equipment. As the chart shows, this event coincided with a trough in the economic cycle. This past winter, congressional Republicans successfully fought to add the small-business tax breaks to what otherwise was a useless stimulus package, and the market for business equipment recovered in the spring. Voilà — the economy snaps back to 3.3 percent GDP growth.
Will the New York Times and the rest of the media storm-crows who spent most of the spring and summer cackling the “recession” word admit their error and reverse course? I think you already know the answer to that question.
— Jerry Bowyer is the chief economist of Benchmark Financial Network.
The Recessionistas Were Decisively Wrong
The story behind 3.3 percent second-quarter GDP growth.
By Jerry Bowyer
I’ve spent much of the past year both on Kudlow & Co. and in columns arguing with Jared Bernstein, Robert Reich, Barry Ritholz, Jonathan Chait, and others about whether or not we’re in a recession. These folks (some of whome are members of the “Kudlow Caucus”) were certain we were, while I, along with Larry and other supply-siders, thought we were not. As of this week, and a revised GDP-growth number of 3.3 percent for the second quarter, we now know most authoritatively that the recessionistas were wrong.
Bernstein and Reich, in particular, were flatly wrong. They argued that tax cuts favoring the rich worsened income inequality; that this inequality, coupled with the excessive volatility of free-market capitalism, led to plunging home prices that not only made people feel poorer, but in a reverse “wealth effect” caused a plunge in consumer confidence; and that all this presaged a plunge in consumer spending, which ultimately drove the economy into recession.
The way out of this spiral, they said, can only be a combination of massive government spending and some form of consumer-rebate “stimulus package” to restore spending and, through spending, economic growth. This scenario was, and is, nonsense on stilts.
The housing crisis wasn’t created by free-market capitalism, but by government meddling. In particular, the crisis is rooted in a raft of government regulations that forced banks to ignore traditional lending standards — such as credit history, income, and neighborhood economic conditions — and instead embrace non-culturally “discriminatory” lending practices based on racial-identity politics. Once the banks were forced to make loans based on political, rather than financial, criteria, and once Fannie and Freddie were forced to buy these loans in the secondary mortgage market, collapse was inevitable.
In addition, there is no wealth effect from falling home prices. People generally don’t spend based on the value of their homes, partly because people almost never know the value of their homes. Furthermore, for every seller taking a bath during a down market there is a buyer getting the deal of a lifetime. Predictions about consumer attrition simply have not materialized because, as Milton Freedman taught us, spending patterns are based on long-term income expectations. For this and many other reasons the much-heralded consumer collapse has yet to appear.
Now let’s look at what did happen. The 2003 tax cuts increased wealth in every segment of the economy, sparking a multi-year boom. But these tax cuts were passed with expiration dates, and the first Bush-tax-cut expiration occurred at the end of last year when small businesses lost some of their ability to take a tax deduction on purchases of business equipment. As the chart shows, this event coincided with a trough in the economic cycle. This past winter, congressional Republicans successfully fought to add the small-business tax breaks to what otherwise was a useless stimulus package, and the market for business equipment recovered in the spring. Voilà — the economy snaps back to 3.3 percent GDP growth.
Will the New York Times and the rest of the media storm-crows who spent most of the spring and summer cackling the “recession” word admit their error and reverse course? I think you already know the answer to that question.
— Jerry Bowyer is the chief economist of Benchmark Financial Network.
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