The last time that it really looked like the averages were going to roll over, Warren Buffett stepped up to the plate with his purchase of Burlington Northern and injected confidence that kept the rally in place. Now with the crisis in Dubai will the markets roll over or will we have some confidence booster that sends the rally higher? Before we answer that question, lets first analyze Buffett's bet.
Buffett said he was betting on America with this play. Now before I go into this analysis, let me state that I love my country and my analysis has only to do with what I SEE happening not what I WANT to happen. Was Buffett betting on the return of our economy or was he getting dual bang for his buck, by betting on coal and propping up other investments with his rally cry? I am of the opinion that Warren's bet was more a play on the fall of the dollar than anything else. Was he betting that coal was the only reliable source of energy that we will be able to afford? Was he betting that Congress is going to continue to push for protectionist measures and that coal would be a great play on those policies? Does Buffett understand that the American consumer still wants to buy, but the American voter is becoming more slanted toward entitlements? Does he know that the best place for a borrow and spend economy to get its energy will be internally? What do rails haul? A LOT OF THEIR REVENUE COMES FROM TRANSPORTING THE VERY THING THAT FIRES MANY OF THEIR ENGINES===COAL. So you get paid to haul what becomes not only the cheapest source of energy but perhaps one of two only affordable sources---with natural gas being the other.
Now one might argue that if my thesis is correct, why Buffett didn't bet on natural gas. It is cleaner, and we all know that "greener" is better, right. To that argument, I would question where the All-American bet would have been. There was no single investment that would have been as a diverse bet as the rails in the natural gas space. The old saying that "transports lead us out of a recession" may very well be seen again. I think right now after all the hype, I will let those smarter than myself chase the rails. As for Buffett's bet, I think he may have made a good one--albeit for different reasons that were hyped by the mainstream media.
I personally think that I may take a look at the natural gas transporters such as MMP as a way to play this economic environment. I clarify that statement by saying I am going to be very watchful as to the overall direction of the market before I commit any new "bullish" capital. I am currently holding FAZ, SDS, FCX. As always that is subject to change rapidly.
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View the following SLIDESHOW FROM CNBC ON THE WORLDS LARGEST DEBTOR NATIONS
Given the other nations that are far ahead of us on a percentage of GDP basis, is the debasement of the dollar overdone?
Is the fall of the dollar in anticipation that this government will push us farther up the list?
Given the other countries on the list, is a major correction for the EUR/USD eminent?
Has the last 15% rally in the major averages been attributable to the fall of the dollar and if so, how far will the correction in the averages be if the dollar rallies significantly?
Will Santa Claus deliver one of the greatest December declines in history in 2009?
LET US HEAR YOUR THOUGHTS!
We will have more tonight!!!!
Sunday, November 29, 2009
Monday, November 16, 2009
Futures Heading Higher
All I can thing of right now is the saying "The Markets can stay irrational longer than many investors can stay solvent" We are shrugging off massive debt, massive trade deficits and look to run even higher. The dollar continues to fall and the consensus seems to be that the entire world will use the lower dollar to bet the U.S. stock market. I am afraid that we are missing the boat and are in for some downside pressure. I just wonder how long I can stay solvent in the face of this "everything is wonderful" scenario.
No one seems to be worried that the farther the dollar falls, the more expensive our debt will really become (as foreign investors will require higher rates). Of course according to the markets action lately, having the Federal Reserve monetize the debt has worked really well---but we all know that is not healthy. Right now it seems like our economy is smoking cigarettes, drinking heavily, not exercising, eating pure fat, and GETTING GREAT CHECKUPS FROM DR MARKET. GO FIGURE
I do understand that the appetite for mergers is good for the markets and we have seen signs of that appetite being revived. Have you asked yourself the questions "where would we be had Buffett not decided to buy Burlington"? It seemed to me that the markets were headed down technically until the Buffett/Burlington announcement.
How can long can the Federal Reserve maintain that inflation is at bay with oil, gold, copper, corn headed much higher? We are drowning in liquidity and are choosing to look at it like "Goldilocks". The Fed should come out IMMEDIATELY AND ANNOUNCE A HALF POINT EMERGENCY RATE INCREASE. We need to curb this liquidity and curb it now. Such an announcement would strengthen the dollar and put us mentally in a much better position to combat inflation. If you read my blog about a year ago, I was arguing that the toughest thing to do would be to reign in the monetary supply while the economy was still struggling. If we don't do it now, we are headed for some massive pain on the inflation front and we all know that it is very difficult to deal with once it begins to spiral out of control. Bernanke and the Fed must believe that they can put the brakes on liquidity through open market operations at a rate faster than ever before. I don't see how, but they must have that confidence.
It shall be interesting to see where we head from here, but the futures are telling me that I will continue to be wrong at least for today.
No one seems to be worried that the farther the dollar falls, the more expensive our debt will really become (as foreign investors will require higher rates). Of course according to the markets action lately, having the Federal Reserve monetize the debt has worked really well---but we all know that is not healthy. Right now it seems like our economy is smoking cigarettes, drinking heavily, not exercising, eating pure fat, and GETTING GREAT CHECKUPS FROM DR MARKET. GO FIGURE
I do understand that the appetite for mergers is good for the markets and we have seen signs of that appetite being revived. Have you asked yourself the questions "where would we be had Buffett not decided to buy Burlington"? It seemed to me that the markets were headed down technically until the Buffett/Burlington announcement.
How can long can the Federal Reserve maintain that inflation is at bay with oil, gold, copper, corn headed much higher? We are drowning in liquidity and are choosing to look at it like "Goldilocks". The Fed should come out IMMEDIATELY AND ANNOUNCE A HALF POINT EMERGENCY RATE INCREASE. We need to curb this liquidity and curb it now. Such an announcement would strengthen the dollar and put us mentally in a much better position to combat inflation. If you read my blog about a year ago, I was arguing that the toughest thing to do would be to reign in the monetary supply while the economy was still struggling. If we don't do it now, we are headed for some massive pain on the inflation front and we all know that it is very difficult to deal with once it begins to spiral out of control. Bernanke and the Fed must believe that they can put the brakes on liquidity through open market operations at a rate faster than ever before. I don't see how, but they must have that confidence.
It shall be interesting to see where we head from here, but the futures are telling me that I will continue to be wrong at least for today.
Thursday, November 12, 2009
ALL ABOUT THE DOLLAR?
Many keep arguing that the main reason for the appreciation equities is the falling dollar. How long can that continue? Treasury Secretary Geithner said that we are committed to a strong dollar. Can it be achieved? We all know that we need the dollar to be strong but can it recover?
The futures are higher this morning on the back of the statement that the Euro Zone is officially out of the recession. Due to exports, they grew in the 3rd quarter. So is it all over? Are we back in the bull market for good? First, I don't put much stock in these numbers because of the massive worldwide stimulus. If it was this easy to come out of a recession, why don't we just print the heck out of money all of the time?
Lets take a look at what is driving the currencies. The dollar is falling because of the debt and the very low interest rates in the U.S. So if other countries grow faster and raise rates, will the dollar continue to fall? It could. So we just need to get Ben Bernanke to go ahead and raise rates now? Can we or would that send the economy back into a tailspin and prompt more stimulus and increase the deficit?
My simple point is this---I don't think that we can see the dollar's fall as good for much longer. The steps necessary to strengthen the dollar will bring more pain for our economy. SO ALL OF THE CURRENT EUPHORIA IS NOT WARRANTED AND WE WILL SEE SOME DOWNWARD PRESSURE ON STOCKS.
I have been wrong thus far, but still believe a retest of the March 2009 lows is not out of the question.
The futures are higher this morning on the back of the statement that the Euro Zone is officially out of the recession. Due to exports, they grew in the 3rd quarter. So is it all over? Are we back in the bull market for good? First, I don't put much stock in these numbers because of the massive worldwide stimulus. If it was this easy to come out of a recession, why don't we just print the heck out of money all of the time?
Lets take a look at what is driving the currencies. The dollar is falling because of the debt and the very low interest rates in the U.S. So if other countries grow faster and raise rates, will the dollar continue to fall? It could. So we just need to get Ben Bernanke to go ahead and raise rates now? Can we or would that send the economy back into a tailspin and prompt more stimulus and increase the deficit?
My simple point is this---I don't think that we can see the dollar's fall as good for much longer. The steps necessary to strengthen the dollar will bring more pain for our economy. SO ALL OF THE CURRENT EUPHORIA IS NOT WARRANTED AND WE WILL SEE SOME DOWNWARD PRESSURE ON STOCKS.
I have been wrong thus far, but still believe a retest of the March 2009 lows is not out of the question.
Tuesday, November 10, 2009
The Fall of the Dollar
Those of you that have followed my blog for a while know that I will admit when I am wrong. I have missed on the recent strength of the U.S. Markets. I believe that it has a lot to do with the constant decline of the dollar. I will have short posts over the next few days due to a death in the family.
Watch this vid on the dollar and check back soon!!!
Watch this vid on the dollar and check back soon!!!
Sunday, November 8, 2009
House of Cards 2.0
Did this market seem resilient this week or what? I must admit that I was surprised, but the lack of volume on Friday made me think I had forgotten about a holiday. At the risk of sounding redundant, lets go back and look at the GDP report and the FOMC statement. Is the FOMC in a corner? Was GDP really as good as was reported? If so, is it sustainable? Further, can the number be manipulated? How far can the GDP be moved by a small change in the deflator?
I submit that the GDP number was grossly overstated AND that the FOMC has painted itself into a corner. Now I am just a simple man, but didn't it sound like the FOMC said the economy is growing again, but inflation is off of the radar screen and we have no plans to raise rates in the near future? That was my interpretation. Isn't that like the weatherman who forecasts "Tomorrow will be clear to partly cloudy with a chance of rain"? If the GDP number is so improved, why would we not pull back on the debt purchased by the Fed? Wouldn't it be necessary to start moving toward neutral with money being injected into the economy? Aren't we monetizing our own debt when the Fed makes purchases now?
Don't most of us learn in Economics 101 that you can't create something out of thin air? Let me ask how, with unemployment over 10% and the worked hours still at the lows, we are expecting the consumer to rebound or even stabilize. Oh, I admit that it is great to hear earnings reports that "beat", but weren't expectations so low that beats should have been baked into the cake. And there is little correlation at this point between better than expected earnings. As a matter of fact, I would argue that more companies had better than expected earnings than had better than expected SALES. Better than expected earnings often come as a result of LABOR REDUCTIONS that outpace a decline in sales. But next could come the drop in sales as the consumer feels the heat of the extended unemployment.
The FOMC would have you believe that everything is fine, we have been through this before and have the road map to guarantee recover. We most certainly have NOT been here before! Never before have we seen our government take on this much debt---even to the point that we monetize it ourselves at an unbelievable pace. Two years ago, we lovingly had the term "Merger Monday" as things were great and deals went down on the weekend. Now we have shifted gears and have FAILURE FRIDAY, as we seem to have more financial institutions close every week.
How many of us expect the MAINSTREAM MEDIA to tell us the full story? Not this guy. Remember they make their money through advertisements. Their employees understand simple economics---consumer panic equals less advertising dollars which could mean the elimination of their jobs. So the MM will go out a find a number of so called "experts" to parade into our homes and tell us that "unemployment is a lagging indicator". That everything is fine and the natural progression from increased GDP is to a longer workweek and job creation. NOT THIS TIME I SAY. I wish it were that simple.
The FOMC says rates will remain low for an extended period of time. Do they have that much control? Anyone notice that the dollar has been falling? Can rates stay low if the dollar continues to fall? Doesn't a falling dollar mean inflation? So is the FOMC arguing that THIS TIME we will fight inflation with low interest rates? Is the Fed planning to quick injecting money into the system to combat inflation? Not according to their most recent statement. Have you heard the mainstream media analyze this predicament over the past few weeks or days? Should FOMC Chairman have had a "chat" with Speaker Pelosi before she passed nationalization of 18% of our economy equating to MORE FEDERAL DOLLARS being injected into the system. Is there anyone out there that REALLY believes that this healthcare bill will REDUCE THE DEFICIT? So if it increases the deficit and the FOMC is not worried about inflation, are we fighting inflation with higher deficits? If you could spend yourself to prosperity wouldn't everyone be rich?
How can we expect the creation of this nanny state to improve our economic situation. If we were really improving our economy, as the recent reports would have you believe, wouldn't productivity be increasing? Is there anyone out there that believes this nanny state will IMPROVE PRODUCTIVITY? IT WILL SLAM PRODUCTIVITY. The only shortage we will not have is people wanting something for nothing. When fewer make, yet more consume, doesn't the family's productivity decline. YOU BET.
We just thought the subprime mess was a house of cards. Remember when we first hear the term "subprime crisis" how many downplayed the effects. Remember all of those brokers and analysts that appeared on MM shows and ran through the drill that the company would be worth X even if you subtracted all subprime investments (then they assured you how "all would not be lost"). So are you willing to listen to that same endless parade of participants that told you it wasn't that bad===all over again? I am not. Are these not the same people that are out there trying to convince you that the housing market is rebounding. If it is rebounding why is the government extending the home buying credits? Wouldn't that be stupid in the face of inflation? Wait, are you telling me that we are combating inflation with homebuyer tax credits?
Subprime and the investment banking house of cards was JUST THE FIRST PART OF THIS CRISIS. Now we are faced with unemployment, continued real esate decline---both commercial and residential (with the major effects from the commercial downturn on the horizon). Instead of letting the free markets work like we did for the first couple hundred years of our existence, we have decided that we can't have normal corrections and must "intervene". You can't mess with free markets and when you "intervene" you only cause bubbles that WILL BURST IN THE FUTURE. The scary thing is that this time bubbles may not feel like bubbles. This time the bubbles that we are creating may feel like recession. And when they burst we may well get the longest depression in history. Believe me, the Greenspan era was dominated by bubbles and when subprime hit many months back many analyst said we had to quit living in "excesses". What will be the new definition of "excesses" Last time it was designer clothes, luxury vehicles, and other amenities. This time will it be household electricity, clean water, and routine medications? If we continue down this path it well could be.
I am interested to see how the futures traders view the bill that was passed last night. I think tomorrow could be a 5% or more down day for the markets, but we will reserve judgement until we see how the futures traders and those "across the pond" decide to open things in a few hours. For now, I am very happy that I entered the weekend net short!!!
I submit that the GDP number was grossly overstated AND that the FOMC has painted itself into a corner. Now I am just a simple man, but didn't it sound like the FOMC said the economy is growing again, but inflation is off of the radar screen and we have no plans to raise rates in the near future? That was my interpretation. Isn't that like the weatherman who forecasts "Tomorrow will be clear to partly cloudy with a chance of rain"? If the GDP number is so improved, why would we not pull back on the debt purchased by the Fed? Wouldn't it be necessary to start moving toward neutral with money being injected into the economy? Aren't we monetizing our own debt when the Fed makes purchases now?
Don't most of us learn in Economics 101 that you can't create something out of thin air? Let me ask how, with unemployment over 10% and the worked hours still at the lows, we are expecting the consumer to rebound or even stabilize. Oh, I admit that it is great to hear earnings reports that "beat", but weren't expectations so low that beats should have been baked into the cake. And there is little correlation at this point between better than expected earnings. As a matter of fact, I would argue that more companies had better than expected earnings than had better than expected SALES. Better than expected earnings often come as a result of LABOR REDUCTIONS that outpace a decline in sales. But next could come the drop in sales as the consumer feels the heat of the extended unemployment.
The FOMC would have you believe that everything is fine, we have been through this before and have the road map to guarantee recover. We most certainly have NOT been here before! Never before have we seen our government take on this much debt---even to the point that we monetize it ourselves at an unbelievable pace. Two years ago, we lovingly had the term "Merger Monday" as things were great and deals went down on the weekend. Now we have shifted gears and have FAILURE FRIDAY, as we seem to have more financial institutions close every week.
How many of us expect the MAINSTREAM MEDIA to tell us the full story? Not this guy. Remember they make their money through advertisements. Their employees understand simple economics---consumer panic equals less advertising dollars which could mean the elimination of their jobs. So the MM will go out a find a number of so called "experts" to parade into our homes and tell us that "unemployment is a lagging indicator". That everything is fine and the natural progression from increased GDP is to a longer workweek and job creation. NOT THIS TIME I SAY. I wish it were that simple.
The FOMC says rates will remain low for an extended period of time. Do they have that much control? Anyone notice that the dollar has been falling? Can rates stay low if the dollar continues to fall? Doesn't a falling dollar mean inflation? So is the FOMC arguing that THIS TIME we will fight inflation with low interest rates? Is the Fed planning to quick injecting money into the system to combat inflation? Not according to their most recent statement. Have you heard the mainstream media analyze this predicament over the past few weeks or days? Should FOMC Chairman have had a "chat" with Speaker Pelosi before she passed nationalization of 18% of our economy equating to MORE FEDERAL DOLLARS being injected into the system. Is there anyone out there that REALLY believes that this healthcare bill will REDUCE THE DEFICIT? So if it increases the deficit and the FOMC is not worried about inflation, are we fighting inflation with higher deficits? If you could spend yourself to prosperity wouldn't everyone be rich?
How can we expect the creation of this nanny state to improve our economic situation. If we were really improving our economy, as the recent reports would have you believe, wouldn't productivity be increasing? Is there anyone out there that believes this nanny state will IMPROVE PRODUCTIVITY? IT WILL SLAM PRODUCTIVITY. The only shortage we will not have is people wanting something for nothing. When fewer make, yet more consume, doesn't the family's productivity decline. YOU BET.
We just thought the subprime mess was a house of cards. Remember when we first hear the term "subprime crisis" how many downplayed the effects. Remember all of those brokers and analysts that appeared on MM shows and ran through the drill that the company would be worth X even if you subtracted all subprime investments (then they assured you how "all would not be lost"). So are you willing to listen to that same endless parade of participants that told you it wasn't that bad===all over again? I am not. Are these not the same people that are out there trying to convince you that the housing market is rebounding. If it is rebounding why is the government extending the home buying credits? Wouldn't that be stupid in the face of inflation? Wait, are you telling me that we are combating inflation with homebuyer tax credits?
Subprime and the investment banking house of cards was JUST THE FIRST PART OF THIS CRISIS. Now we are faced with unemployment, continued real esate decline---both commercial and residential (with the major effects from the commercial downturn on the horizon). Instead of letting the free markets work like we did for the first couple hundred years of our existence, we have decided that we can't have normal corrections and must "intervene". You can't mess with free markets and when you "intervene" you only cause bubbles that WILL BURST IN THE FUTURE. The scary thing is that this time bubbles may not feel like bubbles. This time the bubbles that we are creating may feel like recession. And when they burst we may well get the longest depression in history. Believe me, the Greenspan era was dominated by bubbles and when subprime hit many months back many analyst said we had to quit living in "excesses". What will be the new definition of "excesses" Last time it was designer clothes, luxury vehicles, and other amenities. This time will it be household electricity, clean water, and routine medications? If we continue down this path it well could be.
I am interested to see how the futures traders view the bill that was passed last night. I think tomorrow could be a 5% or more down day for the markets, but we will reserve judgement until we see how the futures traders and those "across the pond" decide to open things in a few hours. For now, I am very happy that I entered the weekend net short!!!
Saturday, November 7, 2009
SOCIALISM, FASCISM OR JUST TOO MUCH REGULATION?
BREAKING NEWS===HOUSE PASSES HEALTHCARE BILL. 1929 MAY BE MILD COMPARED TO WHAT WE ARE ABOUT TO FACE. THE BELOW ARTICLE WAS WRITTEN THIS MORNING BEFORE THE PASSASGE OF THE HORRIFIC BILL.
MAKE YOUR COMMENTS BELOW===WE WILL NEVER RELEASE YOUR EMAIL ADDRESS
I have written several articles about the recent move toward what I referred to as socialism only to have some "expert" come back and give me the technical definition of socialism, fascism, or some other "ism". Now truth be known I am an investor and could care less about the technical definitions. I am simply trying to make money in the markets, and many critics stop by to inject their political views.
Regardless of what you would like to term it, our government is increasing regulations in many industries and that is never good for the long term health of the markets. Now before you rush to send me a heated email saying how regulation could have prevented the banking crisis last year---keep reading. Consider how regulation is generally a "pendulum" that swings too far. The Community Reinvestment Act was partly at fault for the banking crisis last year. ANYTIME Government mandates that private business make loans to certain individuals it is a recipe for disaster.
The current healthcare debate from a financial perspective is many, many times worse for our economy. This bill could truly bankrupt our country. Six years ago, as the CEO of a company with over 250 employees I was faced with increasing cost of employee health insurance. Rates for my company had jumped double digits in the previous two years and I was very concerned. In exploring every option, I received advice from an expert to increase my deductible and copays on prescription medications modestly. Our plan structure before had no deductible and copays for medications of $5, $10, and $20 for a 30 day supply. Simply by adding a $150 deductible (very reasonable as the average hourly wage at our firm was around $18) we found that utilization was reduced tremendously. Why? Because at such low rates consumers have very little "personal responsibility" in the consumption decision. Did such a deductible deny anyone life-saving medication? NO WAY!
So consider the quagmire that any public option will create for the economy. If the government does not limit consumption, you can be GUARANTEED that they have underestimated utilization in the cost of the bill. If they do limit consumption THEY ARE TAKING YET ANOTHER STEP IN LIMITING FREEDOM. Now again, I know all of the counter arguments. Many will argue that private insurance companies are making life or death decisions when they make payment determinations and are in fact limiting freedoms now. But consider this, remember several years ago when HMO's were going to be the greatest money saving instrument in the healthcare arena. The basis of the HMO concept was to have the primary care physician "quarterback" the patients care by authorizing visits to specialists. HMO rates were much more favorable than traditional rates for the end consumer. What happened? Many consumers decided they wanted to pay more for traditional care and now some HMOs exist, but they do not dominate the marketplace. That is the beauty of the free market system, consumers get what they are willing to pay for.
So what happens if the government option offers lower copays and rates than private insurance? Another government monopoly. Oh it sounds great to have this fine plan available to everyone. And when the competition is gone what will happen to the government plan? It will either bankrupt the government or be able to quickly take action to LIMIT CONSUMPTION. EITHER WILL BE AWFUL IF NOT FATAL TO OUR ECONOMY---NOT TO MENTION THE PERSONAL FREEDOMS THAT OUR COUNTRY WAS FOUNDED UPON.
So I am the one sounding political you say? I am analyzing my next move in the market if this legislation passes this weekend. Will it end the rally, or will it cause the rally to ignite because of concerns over the weak dollar? GIVE US YOUR THOUGHTS IN THE COMMENTS SECTION!!!!!!!!
I submit that this rally began as a bear market rally and has extended of late as the weak dollar has made equities cheaper abroad. Yes it has made the earnings of our companies abroad much more valuable, but that can't last forever. While it will be a topic for a more detailed post---there is a point of diminishing return with a cheaper currency and believe me this "honeymoon phase" that we are in with the weaker dollar will come to a screeching halt soon.
Yes GDP technically grew and consumer confidence is up. Many will argue that when GDP begins to grow it signals that things are better and unemployment rates are naturally a laggard---so not to worry. But the pillar of that thesis HAS TO BE THAT GDP GROWS FAST ENOUGH TO CREATE MEANINGFUL, SUSTAINABLE JOBS. We have been propped up by the falling dollar, massive government stimulus (cash for clunkers, housing tax credits), ridiculous bailouts that have all but altered the safety of our system know as contract law. You tell me, how many things mentioned are realistically still in the governments arsenal if they need to be repeated? What will happen to the dollar if we come back to the GIMME TABLE AND START OVER WITH THE BAILOUTS AND HANDOUTS? The answer lies in the recent dollar movement DOWNWARD. Downward enough where we are guaranteed to hit the point of diminishing return. The point where inflation hits, jobs produce much less disposable income AND ARE HARDER TO CREATE.
Is it 1929 all over again? Honestly, I despise comparisons of that nature. They are tough to substantiate. What I do know is that we are in a very difficult spot and while many positively refer to this healthcare legislation as "historic", I am afraid that its economic impact on our future generations will be more accurately termed as "bankrupt". I am certainly not advocating wildly shorting everything, as there are many sectors that will benefit over the short run if this legislation passes. I do however think that we are going to see many volatile trading days ahead and while many of my peers are hanging in with a long bias, I have a short bias and am patiently waiting for those bets to pay off.
MAKE YOUR COMMENTS BELOW===WE WILL NEVER RELEASE YOUR EMAIL ADDRESS
I have written several articles about the recent move toward what I referred to as socialism only to have some "expert" come back and give me the technical definition of socialism, fascism, or some other "ism". Now truth be known I am an investor and could care less about the technical definitions. I am simply trying to make money in the markets, and many critics stop by to inject their political views.
Regardless of what you would like to term it, our government is increasing regulations in many industries and that is never good for the long term health of the markets. Now before you rush to send me a heated email saying how regulation could have prevented the banking crisis last year---keep reading. Consider how regulation is generally a "pendulum" that swings too far. The Community Reinvestment Act was partly at fault for the banking crisis last year. ANYTIME Government mandates that private business make loans to certain individuals it is a recipe for disaster.
The current healthcare debate from a financial perspective is many, many times worse for our economy. This bill could truly bankrupt our country. Six years ago, as the CEO of a company with over 250 employees I was faced with increasing cost of employee health insurance. Rates for my company had jumped double digits in the previous two years and I was very concerned. In exploring every option, I received advice from an expert to increase my deductible and copays on prescription medications modestly. Our plan structure before had no deductible and copays for medications of $5, $10, and $20 for a 30 day supply. Simply by adding a $150 deductible (very reasonable as the average hourly wage at our firm was around $18) we found that utilization was reduced tremendously. Why? Because at such low rates consumers have very little "personal responsibility" in the consumption decision. Did such a deductible deny anyone life-saving medication? NO WAY!
So consider the quagmire that any public option will create for the economy. If the government does not limit consumption, you can be GUARANTEED that they have underestimated utilization in the cost of the bill. If they do limit consumption THEY ARE TAKING YET ANOTHER STEP IN LIMITING FREEDOM. Now again, I know all of the counter arguments. Many will argue that private insurance companies are making life or death decisions when they make payment determinations and are in fact limiting freedoms now. But consider this, remember several years ago when HMO's were going to be the greatest money saving instrument in the healthcare arena. The basis of the HMO concept was to have the primary care physician "quarterback" the patients care by authorizing visits to specialists. HMO rates were much more favorable than traditional rates for the end consumer. What happened? Many consumers decided they wanted to pay more for traditional care and now some HMOs exist, but they do not dominate the marketplace. That is the beauty of the free market system, consumers get what they are willing to pay for.
So what happens if the government option offers lower copays and rates than private insurance? Another government monopoly. Oh it sounds great to have this fine plan available to everyone. And when the competition is gone what will happen to the government plan? It will either bankrupt the government or be able to quickly take action to LIMIT CONSUMPTION. EITHER WILL BE AWFUL IF NOT FATAL TO OUR ECONOMY---NOT TO MENTION THE PERSONAL FREEDOMS THAT OUR COUNTRY WAS FOUNDED UPON.
So I am the one sounding political you say? I am analyzing my next move in the market if this legislation passes this weekend. Will it end the rally, or will it cause the rally to ignite because of concerns over the weak dollar? GIVE US YOUR THOUGHTS IN THE COMMENTS SECTION!!!!!!!!
I submit that this rally began as a bear market rally and has extended of late as the weak dollar has made equities cheaper abroad. Yes it has made the earnings of our companies abroad much more valuable, but that can't last forever. While it will be a topic for a more detailed post---there is a point of diminishing return with a cheaper currency and believe me this "honeymoon phase" that we are in with the weaker dollar will come to a screeching halt soon.
Yes GDP technically grew and consumer confidence is up. Many will argue that when GDP begins to grow it signals that things are better and unemployment rates are naturally a laggard---so not to worry. But the pillar of that thesis HAS TO BE THAT GDP GROWS FAST ENOUGH TO CREATE MEANINGFUL, SUSTAINABLE JOBS. We have been propped up by the falling dollar, massive government stimulus (cash for clunkers, housing tax credits), ridiculous bailouts that have all but altered the safety of our system know as contract law. You tell me, how many things mentioned are realistically still in the governments arsenal if they need to be repeated? What will happen to the dollar if we come back to the GIMME TABLE AND START OVER WITH THE BAILOUTS AND HANDOUTS? The answer lies in the recent dollar movement DOWNWARD. Downward enough where we are guaranteed to hit the point of diminishing return. The point where inflation hits, jobs produce much less disposable income AND ARE HARDER TO CREATE.
Is it 1929 all over again? Honestly, I despise comparisons of that nature. They are tough to substantiate. What I do know is that we are in a very difficult spot and while many positively refer to this healthcare legislation as "historic", I am afraid that its economic impact on our future generations will be more accurately termed as "bankrupt". I am certainly not advocating wildly shorting everything, as there are many sectors that will benefit over the short run if this legislation passes. I do however think that we are going to see many volatile trading days ahead and while many of my peers are hanging in with a long bias, I have a short bias and am patiently waiting for those bets to pay off.
Tuesday, November 3, 2009
Crisis Over===OR JUST BEGINNING
THE MONEY MULTIPLIER CONTINUES TO MAKE NEW LOWS. Take a look at the chart below.
Let me tell you what puzzles me about this chart. We have had unprecedented government borrowing and stimulus, yet the money multiplier is as Dennis Gartman would say is "Moving from the upper left to the lower right" Wouldn't conventional wisdom tell us that for the economy to get going again the money multiplier would have to increase? The shaded bars depict the recessions we have seen during the given time period. Note that as we came out of the recession period the multiplier stabilized, but never really seemed to assume a bullish pattern. Yet didn't the economy resume bullish activity?
So the question is how did the economy begin churning again with the money multiplier stagnant.
What role did credit play with respect to the money multiplier? We know that the U.S. consumer relied heavily on credit during the time period. But wouldn't overly accessible credit have increased the money multiplier?
Would the dovish monetary policy of the Greenspan era have had any impact on the multiplier? Many would argue that the dovish policy would have increased the money multiplier--but did it? So if Greenspan was truly creating a "bubble" as many have argued then wouldn't the multiplier have increased?
Take a look at the steep drop in the multiplier recently. That is the point that many pundits, including many that appeared on our show argued that the credit was destroyed and deflation set in. I believe that assessment is right, but according to the experts we have fixed the financial system. So the money multiplier should be increasing? Right? But it is not.
Many would argue that this time is no different---we came out of recessions with no increase in the money supply before and we will do it again. I DISAGREE!!!! There are those who would argue that we have always used debt and that we are intelligently utilizing debt over the short run. I DISAGREE!!!! Why is this time different you ask? Let me make this point. Companies use debt because they believe that they can earn a greater return on the debt than they will have to pay. It is that simple. So why would the government borrow money? To get the economy going again? It is that simple. BUT THE MONEY MULTIPLIER IS NOW IN NEGATIVE TERRITORY. So what happens if a company borrows money--lots of it---for say 6% and then earns a NEGATIVE RETURN? They go bankrupt. And that is exactly where we are headed with our entire economy if we don't focus on being PRODUCTIVE. There is no free lunch and you can't get a multiplier effect on giveaways because it has to be paid for. It is not just a zero sum game where one pays and one receives. The giveaways are being financed and the ones paying are paying for the gift and the interest.
More inefficient government dollars will NOT get the system going again. Many have argued that we cannot see stagflation for a sustained period of time. I will in a coming post show why I think that we can. I will give you the fact that the markets looked like they did not seem to want to go lower today.
BUT IN THE LONG RUN, OUR LACK OF PRODUCTIVITY WILL SEND THE ECONOMY INTO A TAILSPIN. I AM STICKING WITH MY SHORTS AND MY INFLATION HEDGE----SOUNDS LIKE AN OXYMORON AND I WOULD HAVE NEVER BELIEVED THAT I WOULD BE WRITING THAT IN THE SAME SENTENCE.
MORE LATER
Let me tell you what puzzles me about this chart. We have had unprecedented government borrowing and stimulus, yet the money multiplier is as Dennis Gartman would say is "Moving from the upper left to the lower right" Wouldn't conventional wisdom tell us that for the economy to get going again the money multiplier would have to increase? The shaded bars depict the recessions we have seen during the given time period. Note that as we came out of the recession period the multiplier stabilized, but never really seemed to assume a bullish pattern. Yet didn't the economy resume bullish activity?
So the question is how did the economy begin churning again with the money multiplier stagnant.
What role did credit play with respect to the money multiplier? We know that the U.S. consumer relied heavily on credit during the time period. But wouldn't overly accessible credit have increased the money multiplier?
Would the dovish monetary policy of the Greenspan era have had any impact on the multiplier? Many would argue that the dovish policy would have increased the money multiplier--but did it? So if Greenspan was truly creating a "bubble" as many have argued then wouldn't the multiplier have increased?
Take a look at the steep drop in the multiplier recently. That is the point that many pundits, including many that appeared on our show argued that the credit was destroyed and deflation set in. I believe that assessment is right, but according to the experts we have fixed the financial system. So the money multiplier should be increasing? Right? But it is not.
Many would argue that this time is no different---we came out of recessions with no increase in the money supply before and we will do it again. I DISAGREE!!!! There are those who would argue that we have always used debt and that we are intelligently utilizing debt over the short run. I DISAGREE!!!! Why is this time different you ask? Let me make this point. Companies use debt because they believe that they can earn a greater return on the debt than they will have to pay. It is that simple. So why would the government borrow money? To get the economy going again? It is that simple. BUT THE MONEY MULTIPLIER IS NOW IN NEGATIVE TERRITORY. So what happens if a company borrows money--lots of it---for say 6% and then earns a NEGATIVE RETURN? They go bankrupt. And that is exactly where we are headed with our entire economy if we don't focus on being PRODUCTIVE. There is no free lunch and you can't get a multiplier effect on giveaways because it has to be paid for. It is not just a zero sum game where one pays and one receives. The giveaways are being financed and the ones paying are paying for the gift and the interest.
More inefficient government dollars will NOT get the system going again. Many have argued that we cannot see stagflation for a sustained period of time. I will in a coming post show why I think that we can. I will give you the fact that the markets looked like they did not seem to want to go lower today.
BUT IN THE LONG RUN, OUR LACK OF PRODUCTIVITY WILL SEND THE ECONOMY INTO A TAILSPIN. I AM STICKING WITH MY SHORTS AND MY INFLATION HEDGE----SOUNDS LIKE AN OXYMORON AND I WOULD HAVE NEVER BELIEVED THAT I WOULD BE WRITING THAT IN THE SAME SENTENCE.
MORE LATER
RBS Needs $42 Billion Infusion
When I woke up this morning, I turned on Blomberg to hear them report that RBS will get a 42Billion dollar infusion. Fair to say that banking is back at the epicenter of traders minds? The futures are lower (though off the lows of the morning) and I just can't see anything positive this week.
Yesterday proved that there are both some jitters and some money ready to be deployed. The see saw action yesterday reminded me of this time last year when we started a fairly rapid descent.
Is the Euro-Yen telling us that risk is ready come off of the table? The pair is down about 1% which is just another sign to me that we are going to see a rapid decline in equities (particularly financials) in the coming days. I added to my FAZ position yesterday and even though the position moved against me by the end of the day, I was content to hang on to it and wait. With bad news out of the banking sector on a daily basis I think FAZ will be a good one for me.
It always amazes me when I get comments like "have faith in your country" after I make a negative post about the economy. First and foremost, I love this country. I am proud to be an American, but I don't think the recent actions of our government are going to be good for our ECONOMY. It takes a ridiculous individual to interpret a short play on our economy as unpatriotic. It also amazes me when I see comments like "we always rebound and have always used debt". We have never used this massive amount of debt and thing will not always stay the same. We have been prosperous because we had a system of capitalism and a system that could be trusted. If we compromise those principles, things will change for the worse in a hurry.
BREAKING NEWS: BLOOMBERG REPORTS THAT BERKSHIRE HATHAWAY IS BUYING BURLINGTON NORTHERN. The futures got a quick pop off of the news, but are still in negative territory.
QUESTION OF THE DAY: WHERE DO OUR MARKETS GO IF OUR MONEY MULTIPLIER STAYS DOWN AS JOBLESS AND SAVINGS RATES INCREASE IN TANDEM WHILE GLOBAL INFLATION SLOWLY SETS IN WITH THE EXPANSION OF OTHER ECONOMIES?
Yesterday proved that there are both some jitters and some money ready to be deployed. The see saw action yesterday reminded me of this time last year when we started a fairly rapid descent.
Is the Euro-Yen telling us that risk is ready come off of the table? The pair is down about 1% which is just another sign to me that we are going to see a rapid decline in equities (particularly financials) in the coming days. I added to my FAZ position yesterday and even though the position moved against me by the end of the day, I was content to hang on to it and wait. With bad news out of the banking sector on a daily basis I think FAZ will be a good one for me.
It always amazes me when I get comments like "have faith in your country" after I make a negative post about the economy. First and foremost, I love this country. I am proud to be an American, but I don't think the recent actions of our government are going to be good for our ECONOMY. It takes a ridiculous individual to interpret a short play on our economy as unpatriotic. It also amazes me when I see comments like "we always rebound and have always used debt". We have never used this massive amount of debt and thing will not always stay the same. We have been prosperous because we had a system of capitalism and a system that could be trusted. If we compromise those principles, things will change for the worse in a hurry.
BREAKING NEWS: BLOOMBERG REPORTS THAT BERKSHIRE HATHAWAY IS BUYING BURLINGTON NORTHERN. The futures got a quick pop off of the news, but are still in negative territory.
QUESTION OF THE DAY: WHERE DO OUR MARKETS GO IF OUR MONEY MULTIPLIER STAYS DOWN AS JOBLESS AND SAVINGS RATES INCREASE IN TANDEM WHILE GLOBAL INFLATION SLOWLY SETS IN WITH THE EXPANSION OF OTHER ECONOMIES?
Monday, November 2, 2009
Futures Point to Higher Open
At 7:15 am eastern, the futures are pointing to a higher open. Will I take criticism if the markets rally today? You bet---but part of being a successful trader is being able to accept being wrong. You just have to live to trade another day. I am not giving up on my thesis, and am still expecting us to end the week lower than we were on Friday.
Ford is out this morning with "blowout numbers" and will open much higher. While I admit that the team at Ford has done a better job than the competition during the economic downturn, I can't get excited about any numbers driven by government stimulus (Cash for Clunkers) created demand.
Why do I feel so strongly that these markets are headed down?
1. The deficit is overwhelming---enough said.
2. The falling dollar contributed to both the top line and bottom line to many companies last quarter. We are past the point of diminishing return.
3. The jobless rate is getting worse.
4. The money multiplier is in NEGATIVE TERRITORY
5. The next government stimulus (if there is one---will send the markets down as the markets have already told us that we are at the breaking point on debt)
6. Banks are failing every week.
7. Valuation got ahead of itself, money has been made and many are going to be willing to bail out of the markets with their profits.
8. The worst is yet to come for commercial real estate.
9. GDP across the globe is improving and we could find ourselves redefining stagflation.
Sound simple? If the above list seems to simple, then go take a look at how many stocks have recently violated their 200-day moving average. From a technical perspective what happens after that all important line is violated?
I will be watching volumes early this morning. Friday had some high volumes late in the day, but you have to remember that many mutual funds ended their fiscal year on Friday.
I consider the biggest risk to my thesis to be the potential that the dollar falls faster than expected. Jim Rogers has made the point on our show that if the dollar falls fast enough, the major averages can go up while you lose "real" wealth. Marc Faber has called cash a risky asset for that very reason.
I think we see 9000 before we see 10,200.
I bought FAZ on Friday (not one for the faint of heart). I am holding FCX as my inflation play. Otherwise, I am watching and waiting.
Please make your comments. We WILL NOT ever sell or otherwise release your email. I firmly believe that we learn from each other. Just keep it clean.
Ford is out this morning with "blowout numbers" and will open much higher. While I admit that the team at Ford has done a better job than the competition during the economic downturn, I can't get excited about any numbers driven by government stimulus (Cash for Clunkers) created demand.
Why do I feel so strongly that these markets are headed down?
1. The deficit is overwhelming---enough said.
2. The falling dollar contributed to both the top line and bottom line to many companies last quarter. We are past the point of diminishing return.
3. The jobless rate is getting worse.
4. The money multiplier is in NEGATIVE TERRITORY
5. The next government stimulus (if there is one---will send the markets down as the markets have already told us that we are at the breaking point on debt)
6. Banks are failing every week.
7. Valuation got ahead of itself, money has been made and many are going to be willing to bail out of the markets with their profits.
8. The worst is yet to come for commercial real estate.
9. GDP across the globe is improving and we could find ourselves redefining stagflation.
Sound simple? If the above list seems to simple, then go take a look at how many stocks have recently violated their 200-day moving average. From a technical perspective what happens after that all important line is violated?
I will be watching volumes early this morning. Friday had some high volumes late in the day, but you have to remember that many mutual funds ended their fiscal year on Friday.
I consider the biggest risk to my thesis to be the potential that the dollar falls faster than expected. Jim Rogers has made the point on our show that if the dollar falls fast enough, the major averages can go up while you lose "real" wealth. Marc Faber has called cash a risky asset for that very reason.
I think we see 9000 before we see 10,200.
I bought FAZ on Friday (not one for the faint of heart). I am holding FCX as my inflation play. Otherwise, I am watching and waiting.
Please make your comments. We WILL NOT ever sell or otherwise release your email. I firmly believe that we learn from each other. Just keep it clean.
Sunday, November 1, 2009
Eric Cantor: Small Businesses to Pay for Healthcare Overhaul
There is no doubt that any additional tax on small business will rock the stock market. Later we will have a detail about the money multiplier, the so called good GDP number and how it was worse than one of Greenspan's bubbles, and why we think the market will go below the March 2009 lows in the coming months. Stay tuned
HELP US TURN THIS INTO A GREAT FORUM FOR THE EXCHANGE OF IDEAS. HAVE YOUR VOICE HEARD.
WE WILL NEVER SELL OR RELEASE YOUR EMAIL INFORMATION!!!!!!!!!!!!
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