Saturday, October 25, 2008

Dow 6000 Next Week

Relax, no reason to panic. In today’s WSJ everything is just rosy. There is a years worth of bad news in just one issue! CALPERS lost 21% of it fund since June (48 billion dollars). They even mentioned that 63% of their stocks were in the global market (talk about dumber than a sack of rocks). They might have to ask California employers for a 4% increase in contributions on top of the current 13%.

Then on the same page there is an article projecting state budget shortfalls for next year ranging from 2 to 10 percent depending on the state. Let’s just triple that to be more reasonable 6 to 30 percent. California was projecting 5% so we will figure 15%. What part of the state budget gets cut first? CALPERS employees: Teachers, Police, Fire, Highways and all sorts of government services. This is going to be fun for everyone!

Page 3: Chrysler will slash 5,000 white collar jobs. GE is going to cut their budget by 500 million. Christmas is just around the corner and Santa is at a hock shop pawning his sleigh. Talk about putting an "X" in Xmas!

Then on one of the back pages was a list of the top Mutual Funds. Notice the figures are as of 9/30/2008. The last 24 days didn’t do much for this years returns. (Double click on picture for a more irritating image)

Some stock analyst on one of the networks stated that there was 6 trillion dollars on the sideline waiting to get into the market. In order for that money to be absorbed by the market, they have to overpay for the stocks purchased by 6 trillion. Every stock has an owner even if money is on the sideline waiting to buy.

Denninger called for a collapse last Friday and it looked like a sure thing. The surprise was the massive buy programs that kicked in after the market dropped about 550. This had to be a coordinated group effort. Ben and Hank have been awful quiet the last 4 days, they probably had a hand in Friday’s outcome. I would bet that most of the hedge funds have redemptions of at least 50% to unwind in the next 65 days. Look for the Hedgies and Mutual Funds to sell into any rally with a vengeance to raise cash.

Examine the age of those commentators on the business news channels; there hasn’t been a bear market in 33 years. These people haven’t been alive long enough to experience one.

World markets are dropping. There is no "up" from here, only how far down are we going. Of course if you listen to "Damage Control," now is the time to buy. I foresee the Dow at 6,000 or less by November 5.

Copyright 2008 All rights reserved

Wednesday, October 22, 2008

A Dollar Down Moves You In

It's a great deal. For one dollar, you can buy a California foreclosure (here is some paperwork forwarded to me by a friend).

This is a 3 bedroom 1.75 bath 1250 square feet and built in 1961. Zillow states that the previous tax assesment was $1765 for 2007. Indicating that it was valued at/or purchased for about $175,000. This REO was sold for $125,000, no down payment.

I could be wrong but it looks like Christmas came early this year.

So looking at the docs, it was purchased for one dollar. And the bank is going to kick in 25k for closing costs and repairs. Can you believe this? This beats the hell out of renting; you don't even have to come up with a deposit.

So if you want to buy a house in California no money down, have we got a deal for you! Isn't that how we got into this mess in the first place? Nah, it must be my imagination acting up again.

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Monday, October 20, 2008

Invisible Taxation

Everyone is saving their earnings or paying off debt. People have stopped consuming new product. How do you get people to spend to stimulate the economy? The government can’t very well tax us more. The US taxpayer is stretched out already.

Here is the way it is done. Picture a pecan pie sliced into fifths, 5 pieces, one for each member of the family and one for the government. If the government consumes that piece, it is considered taxation. Just suppose the family members don’t want to eat their share of pie, they want to save it. 4/5ths of the pie is left. Now the government takes one slice of the pie and divides it up into 4 pieces for the family members to eat (a check from the government to spend as you choose). Now there are only 3 pieces of pie left but the family members believe that there are still 4 they trust the government. By giving the family members a piece of a piece of pie, they(the government) got some of the pie eaten.

This is what the government is doing. The pie represents our collective savings. The government can give us a slice of our own pie back to us and this is inflation. We didn’t get anything real; it was already ours. The number of slices left have to be re divided to reflect the amount each person is entitled to.

When the government decides to spend tremendous sums of nonexistent money, they are actually spending our savings by taxing them by way of inflation. People are scared to death that they will lose their savings and are willing to take zero percent interest in T-Bills. In essence, they are being eaten alive by inflation that is now probably close to 25%. Your dollars are safe; your purchasing power is shot.

This dichotomy of printing money and declaring our savings fully intact is kind of like a snake feeding on its tail. There comes a point to where the absurdity of the reality has to set in.

I think that people are starting to wonder if Paulson and Bernanke are incompetent. I believe they are. That won't stop them from doing what they are doing. They are going to write some history at our expense.

Copyright 2008 All rights reserved

Saturday, October 18, 2008

Buffett " The Financial World is a Mess"

In today's world, wealth is considered a measure of a person’s intelligence. Thus, when Warren Buffett speaks everyone listens. Here is a condensed version of his October 16th investment advice from the NY Times. Click on this Link for the full report.

The financial world is a mess . . . . Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise; business activity will falter . . . . .

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. . . . . But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. . . . . But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. .. . What is likely, however, is that the market will move higher . . .

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent.

I like the guy, but I think he’s off in left field. After the crash of 1929 and the fall to July 1932 the market didn’t come back for 25 years. That’s not much comfort if you are 60 years old already. Your retirement vacation plans could become just dreams. What happens to your portfolio of investments presently, will determine your lifestyle for the rest of your life. Retirement is not a time to invest in the future.

Warren mentioned the fact that the Dow advanced 30 percent by the time FDR took office, that’s about 12 points (a real barn burner). The market dropped from 381.17 September 3, 1929 to 41 on July 8, 1932. The Dow dropped 90 percent never to get back to that 1929 high until 1954.----25 years to break even, gee whiz I'll be 87 hoping that I don't need day care!

What's everyone is saying? “Don’t panic!” I emphasize, there has been no panic--- YET! People have figured out that things will get worse and are willing to settle for far less that the full amount. The panic starts after the first 20% in line get their money (80-50% less than anticipated). At that point you have 80% of the remaining investors fighting over the 20% that is left; now that's a panic.

The government angle, if everyone stays in the game, the game can continue. But the question arises “Who lost all of this money?” If you can take your funds out and put it in a shoe box, you can answer “Not me.” Step one, get a shoe box.

John D. Rockefeller, after the market crash in 1929, announced that stocks were undervalued and he was buying more. It was joked that, he was the only one that had any money left to buy stocks.

Buffett is suggesting that we invest in America. It sounds nice. But when a government starts "investing" in banks, it's time to realize that the game is almost over. To get to where we are today, took a lot of "common sense" and the desire to get rich. The normal reward for stupidity, greed and incompetence in business is bankruptcy. Paulson and Bernanke are trying to keep that from becoming a financial reality.

Warren's right, the market will recover (after it tanks)--just not in my lifetime.

Copyright 2008 All rights reserved

Monday, October 13, 2008

Doom and Gloom

The Dow goes up 1,000 points. Sounds a little steep for one day doesn’t it? I was at the supermarket today and was looking for the cottage cheese. The real cheap stuff that I buy was $2.29 a pound. It was $1.69 one month ago. Boneless chicken breast is now $6 dollars a pound. I went to a dollar or less store and they were busy ripping the 60 cent stickers off of the cans and putting 80 cent stickers on them. I bought a few that still had the 60 cent stickers.

Inflation is appearing in the food chain. Everybody has to eat. From shopping over the years, I have noticed an awful lot of people don’t look at prices when they shop. They just put it on their credit card and go on their merry way.

Bernanke and Paulson are going to get the system working again with massive loans to the banks. The trouble is, the people that want the credit can’t even pay their present credit card bills. It’s kind of hard to figure out how this will work out for them.

Did you notice that the Fed has now bought into several large banks? Another 250 billion dollars was borrowed using the “Good Faith and Credit of The United States.” Real investors might demand some REAL money and gold comes to mind.

Printing money on this scale is “Taxation without representation.” We fought a war to stop that and became a country in the process. Now we are doing it to ourselves, go figure.

The Fed is throwing money around in extreme fashion more and more frequently. Look for a cataclysmic collapse of the Bond and Stock market within the next 15 days. That would put an end to their spending fictitious dollars and could stop those two nuts from hyper inflating us into ruin. If not, we are toast.

Copyright 2008 All rights reserved

Saturday, October 11, 2008

The Crisis is Over???

Yesterday someone declared that the stock market has hit a bottom “It’s going to be up from here.” The guy probably didn’t get his life boat seating assignment yet.

In the 1929 and 1987 stock crashes, there were tremendous surges in stock volume (there is nothing hard about picking them out on the following two graphs).

Double click for a larger image.
Friday saw close to 11.5 billion shares traded on the NYSE. It was high volume but not a triple of the normal volume. That’s what you need for a body count in a real panic (the far right side of the graph below is Friday's close).

The way the market gyrated within a range of 1,000 points leads one to conclude that the stock market is on life support. The day traders probably got creamed. At the market close, it looks as if “unknown market makers” bought everything that would have hit the fan. That means that the Fed gave some humongous loans to cover the "surplus purchased inventory." Everyone expected a sell off at the close. Friday's market makers wouldn’t normally want to carry a large amount of stock forward into next week. The Fed is renowned for its banking shenanigans and rule changes made on the weekends.

What we are looking at is a loss of faith in the economy. There is a lack of credibility. Our leaders claim everything is under control. The irritating thing is that they keep repeating it, after each new disaster. The graph below more or less shows a stock feeding frenzy that has gone hyperbolic on volume. There is nothing to worry about, Bernanke and Paulson have it under control. How come that doesn't calm my mind?

Let's face it, these graphs ought give a hedge fund manager spasms of the lower colon. Next week, look for a dramatic drop in the stock market. A tremendous surge in daily volume will indicate a temporary bottom. The only way to raise capital right now is to sell stock. The banks are not loaning money period. The mutual funds and IRA’s will be selling because of redemptions. The fund managers are in a catch 22. They want to buy into this panic, but they are forced to sell to raise cash for share holder demands.

After the volume surge, then comes a steady decline in trading and the slow slide down hill for 2 to 3 years. I think I’ll mosey on down to Wal-Mart and pick up a job application; there is no line--yet.

Copyright 2008 All rights reserved

Thursday, October 09, 2008

Call It a Disaster

The Pundits suggest that there is still a chance of avoiding a recession. Institutions are dropping dead everywhere. Our government is spending 700 billion that it doesn't have. Banks are not lending money. Home owners are walking away from their homes. The Governor of Kalifornia is begging for an 8 billion dollar loan to keep the State operating. Maybe it's my imagination, but aren't we a little past the word recession?

If you don't like the word recession or depression, how about the word DISASTER. That way, we don't have to worry about whether or not we are "Politically Correct."

Common sense suggests that this whole ball of wax is in meltdown mode. There is a very good possibility that several European banks may fail in the near future (like this weekend). The Euro cannot survive unless it can be inflated. That isn't going to happening. Do you give the "Spend thrift Italians" 100 billion Euros and the "Frugal Germans" nothing --I think not. Nationalism will kill the Euro. The Euro is based on principles that don't allow for politicians to inflate the currency. No Paulson type bailout for them, look for a collapse.

Has the world ever experienced a financial crisis of this magnitude anywhere in history? Not to my knowledge. The real certainty is that no one knows what will happen next. It's not hard to figure, what ever is next, won't be something pleasant that will leave you with a warm and fuzzy feeling.

Asian markets are taking a beating. It looks like the Dow is about ready for a blindfold and a cigarette. It's a little like Christmas in reverse. What you wanted, you didn't get. What you got, you didn't want.

Copyright 2008 All rights reserved

Wednesday, October 08, 2008

Today's Program Guide

This could give you some idea what may happen today with the stock market.

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Tuesday, October 07, 2008

Where To From Here?

Right now we are beginning to see the effects of the economy grinding to a halt. It is controlled by the financial interaction of the markets. The real estate industry is unemployed as are the homebuilder and it is spreading throughout the country.

Don’t for a minute think that government can fix this mess. It doesn’t work that way. Picture your wife paying the monthly bills year in and year out. That’s our government in action. Now when the husband tells the wife he has lost the house, don’t expect her to come up with some plan to save the family home. That’s just not the role of government.

There is no problem starting over if you are young, but that may not be the case for a lot of us. Today the government said that retirement funds have lost over two trillion dollars already. The stock market is getting a little bit green behind the gills. I hear pundits say “Don’t panic and sell and get out of the market you’ll lose money when it goes up.” It makes me think; maybe these guys were selling real estate two years ago. Greed will get you every time ("Stay in there, you’re going to get rich").

What happens from here? Things are going to get a lot worse. If you have expensive toys, unload them now, prices are going to drop fast on items like big boats ("yachts" if you paid more than a $1,000 a foot). Try to keep living in the home you occupy even if you are upside down, the banks will probably welcome you as a renter while they go through the foreclosure process (that could be two years of low rent). The schools offer free lunch programs for your kids.

Sadly you can’t believe anything that the government tells you. We know that we are about to lose a lot of our saving. So if we diversify into different things, we have a chance of limiting our losses. The trouble is, we have an awful lot of people with nothing to lose already (they’re already broke). That is the scary thing that we are facing.

Where to from here? Congress will finally "grow up" and rewrite Social Security and Health Care benefits. It ain't going to be more, but less. The silver foxes will get a free walker and a life time bus pass. Life is funny, it seems like just yesterday that I could hardly wait until I turned 18 to buy beer. Now I can cry in it with sincerity.

Copyright 2008 All rights reserved

Sunday, October 05, 2008

Congress Creates New Religious Order

Congress just passed a 700 billion dollar funded religious organization bill called “The Church of the FDIC.” Paulson is to be ordained Pope with Bernanke as head priest. Their Wall Street Bible will be published shortly, by Goldman Sucks Inc. Their motto “Hand basket to Hell or Do It My Way!” They have a great supply of hand baskets to choose from (for slackers).

This new religious order is going to cure the sick, and raise the dead. We are not talking souls; we are talking non living institutions.

Our retirement accounts are on their way to hell anyways, why do we have to buy their hand baskets?

Double Click for a larger picture.

Where to from here? Dow 2000! It won't happen right away, you can buy the dips all the way down, but by 2010 you will have learned a financial lesson that will last a life time. If you are like me, age 62 is not the time to be looking for a good paying job.

Copyright 2008 All rights reserved

Friday, October 03, 2008

Interest Rates Will Jump to the Sky

The government claims that the small businessman can’t borrow money and consumers can’t purchase new cars. Bernanke needs 700 Billion to fix this liquidity crisis. Interest rates rose a bit yesterday, 3 month T Bills are paying a little better than 1% per year (not per month). New car loans are under 7%. Do you get the feeling that just maybe the consumer stopped buying?

What happens when there is a shortage of funds for borrowing? Interest rates rise. They sure don’t seem to be rising. Inflation is roaring in at 10% and everyone is hunkered down with a bank deposit just under 100K. If I didn’t know better, you would think that the banks were flush with cash and nobody wants to borrow money.

If banks were to pay a decent interest rate, money would become available. 12% interest on cash might be better than holding on to the yellow metal which pays nothing. Of course if a banana republic printed up 700 Billion Pesos, gold might be the currency of choice. The wisdom of owning gold boils down to one thing, you can mine it, but you can’t print it. The government is out of the loop on Gold.

Remember back to the last housing slump from 1992 to 1998? It was 6 to 8 years in length depending on where you lived. Here we are into one year and one month of this crisis that started with the implosion of Bear Stearns and we need 800 billion. What will we need next year? You kind of have to wonder about year six, using year one as a measure. If we were to do that, it looks rather grim.

The one thing that really keeps a market going is confidence, there is none. The opportunity to make money with borrowed funds is pretty much gone. We can’t borrow a dime from the banks unless we can prove we don’t need it. Whereas the lenders that are broke, are given unlimited loans on bad debt.

This bailout mess is kind of like having flatulence contest in a crowed elevator with the winner getting a government cash award. It takes a real "Stinker" to win.

This could be the last part of the “Perfect Storm.” We the people ( AKA government) have 10 trillion in debt. If the interest rates climb to 10%, that’s one trillion a year of the budget for interest only. If interest rates go higher, the game could be over. If Paulson injects the new found funds, institutions will fight for the cash by offering higher rates for real money deposits.

Next week Bernanke and Paulson will be sponsoring the "Wall Street Iron Man Enema Competition." You don’t have to participate in the event to be “Cleaned Out.”

As a post note:

This was written before the Bail Out was passed. In my humble opinion, Congress raised no funds to pay for this from their tax base. The fact that Congress said they must do something to fix this crisis is a joke and a travesty. They did nothing. No real money was added to the system. The Fed could give counterfeiters a bad name.The fact that they spend 800 billion (that they didn't have) sounds impressive. Don't be fooled by the smoke and mirrors--I feel disappointed and let down by what has happened.

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