Monday, August 31, 2009

Barney Frank, Federal Reserve, and undermining the world confidence is the US Financial Markets

The below article is from Reuters. There is nothing good about this at all. During this time of fragile markets, the last thing we need to do is make public the frailties of our government. Somebody better start talking to Barney Frank. These are the types of investigations you do AFTER the economy has recovered and is on solid ground. And to think WE elected these folks.

WASHINGTON - By Tim Ahmann

Rep. Barney Frank, the chairman of the U.S. House of Representatives Financial Services Committee, said he plans legislation to restrict the Federal Reserve's emergency lending powers and subject the central bank to a "complete audit."

At a recent town hall meeting, Frank said the House would pass a bill to use an audit to crack open the central bank's books more widely, but in a way that will not encroach on the central bank's monetary policy independence.

In addition, he said the House would move to rein in the authority that allows the Fed to lend to a wide range of non-bank firms in "unusual and exigent circumstances."

A bill sponsored by Texas Republican Rep. Ron Paul that would allow the Government Accountability Office, a federal watchdog agency, to audit Fed interest-rate decisions has won the co-sponsorship of more than half of the House.

Fed Chairman Ben Bernanke has warned that the bill would compromise the U.S. central bank's policy-making independence and could undermine financial markets and the economy.

Frank said he has been working with Paul on compromise language. "He agrees that we don't want to have the audit appear as if it is influencing monetary policy because that would be inflationary," Frank told constituents. A video of his remarks was posted on the popular video file-sharing website YouTube at .

Steven Adamske, a spokesman for Frank, told Reuters compromise language had not yet been written. He provided no further details. A spokesman for Paul could not be reached.


Frank said the audit and emergency lending provisions would be incorporated in broader legislation to revamp U.S. financial regulation that would likely pass the House in October. By seeking a compromise with Paul, Frank could strengthen the broader legislation's chance at passage.

As chairman of the House Financial Services Committee, Frank is a key player in the effort to overhaul U.S. financial regulation.

The Obama administration has proposed giving the Fed responsibility for overseeing firms whose collapse could endanger the entire financial system. At the same time, it wants to strip the central bank of its consumer protection function, and invest that authority in a new agency.

Frank expressed unease at what he called the Fed's power to "lend money to anybody they want" in emergency circumstances. "We are going to curtail that lending power. We are going to put some restraints on it," he said.

Since the financial crisis struck two years, the Fed has used this emergency authority to prop up a number of non-bank financial firms with billions of dollars in loans, including insurer American International Group.

The Fed's actions have angered many lawmakers who are concerned the central bank has put taxpayer money at risk. Fed officials have defended their actions as necessary to prevent a deeper credit crisis and widespread damage to the economy.

Bernanke, who President Barack Obama nominated this week to serve a second four-year term at the helm of the central bank, told lawmakers in July that the Fed understands the need to be accountable to taxpayers but that monetary policy decisions needed to be shielded from political interference.

In congressional testimony on July 22, he signaled a willingness to work toward a middle ground. "We are quite willing to work with Congress to try to figure out exactly where the line should be," he said.

Frank said the House legislation would pave the way for an audit to look into what the central bank "buys and sells," but he said the data would be released after a period of several months to avoid impacting financial markets.

Bernanke is widely expected to win needed Senate backing for a new term as Fed chairman, but the central bank's aggressive efforts to stem the financial crisis have stirred controversy that is likely to color his re-nomination hearing.

His current term expires on January 31, 2010.

Copyright 2009 Reuters

Sunday, August 30, 2009

Weekend Update for August 29th, 2009

With the current state of the economy we have to wonder why our business leaders had their yearly get together at Jackson Hole, WY. Wouldn't it have made much better since to have their meeting to discuss the economy in one of our small mid western all American towns that have been hit the hardest by the latest recession? But no, they have to go to Jackson Hole where the typical room costs $600 per night.

Fannie Mae and Freddie Mac are soaring while at the time mortgage delinquencies are on the rise, deficit spending is out of control, income is falling, GDP is shrinking but yet the market is rising. Obama's own accounting office said to expect 2.3 million people to lose their jobs next year. The post office is cutting 30,000 jobs, people are having trouble paying their utility bills, the whole world is depending on the American consumer, but yet the American consumer is not spending. This doesn't make sense, but it doesn't mean we can't money on this fraudulent rally by simply following the money flows. There is a record number of empty houses in this nation, but CNBC has you to think everything is fine.

The cash for clunkers program will be used to rig the GDP numbers to come in positive for the third quarter. Every time somebody trades in a clunker, our deficit goes up even more. We are spending 2 trillion more than we are taking in. This will kill the stock market, but not at first. In the beginning the stock market goes up because the government is putting money in the economy. You get this false rally, not a true rally and eventually when they stop, the market crashes. This is called creating a bubble. Remember the .com bubble, remember the real estate bubble. These rallies are good, but you have to know when to get out. You are working in our third bubble right now. The market continues it's stellar rally as volume is coming down. This is a negative divergence.

Here is an example. Suppose a store is selling red dresses that are selling very well. The store will raise the price on the red dresses. As the number of people buying red dresses begins to slow down, what do you expect to happen to the prices of the dresses? Logically, they would decline in price, but this isn't what is happening in the stock market right now, they are continuing to drive the prices up on declining volume.

The housing numbers are only increasing on the houses under $250,000. People buying houses in the $250,000+ range are the "step-up" buyers. Until those numbers get better housing isn't going to get better.

Thursday, August 27, 2009

Dow Log 8th straight up day

The market opened flat for the day and then turned down with heavy volume emboldening the bears. At the one point, the Dow was down 72 points. However, by noon, the Dow had turned positive and the bulls had taken control. The turnaround rally was on light volume and indications are showing that it was on short covering in the financial stocks. The Dow has had it's strongest rally in 2.5 years and this is in the midst of a recession. GDP numbers released today show the economy is contracting.

However, market breadth was negative. On the New York Stock Exchange, losers beat winners eight to seven on volume of 1.16 billion shares. On the Nasdaq, decliners beat advancers by a narrow margin on volume of 2.16 billion shares.
We got that better than expected number for thr GDP this morning.

Wednesday, August 26, 2009


The government is borrowing money to give to people to buy cars from a company the government owns, General Motors. The government is also giving money to people to buy houses and then when the GDP report comes out CNBC will be cheerleading that the GDP came in better than expected!

Will GM because the next Amtrak?

Tuesday, August 25, 2009

Plunge Protection Team Unleases it's Nuclear Weapons to Rescue Wall Street

From Phil's

Dow Logs 6th straight day gain & Vonage???

Once again the DOW goes up! For the sixth straight day since the shake out day last Monday which fooled many investors including the editors of Investor's Business Daily when they switched to 'Market in Correction'.

One stock I noticed at the end of the day was Vonage Holdings. Now this stock is the classic stock of a company you don't want to own. They entered the VoIP (Voice Over Internet Protocol) craze at the end of the cycle offering free long distance AFTER the cell phone companies had already offered the same. They charge for phone service at the same rate most cable companies do. Although, many folks feel the cable company is evil, who would you rather carry your phone service, the cable company down the street or some company you never heard of across the nation... Hmm, that's a easy choice.

Excellent article on Vonage at:

Their stock rose 6 fold today on very little news. I wouldn't be surprised if the SEC puts a trading halt on the stock tomorrow demanding more information for the abnormal trading. The stock has been a disaster since the first day they started trading and is the only stock I've ever seen Jim Cramer literally 'dog out', but rightly so. How does a company offering it's product for free, the international calling plan, warrant an increase in share price. That makes about as much sense as borrowing your way out of debt.

Consumer Spending

Do we really believe the consumer will start spending in the third quarter of this year?

With the new credit card legislation coming out, a lot of credit card companies are increasing monthly payments, increasing interest rate charges, and reducing credit lines. Add to this increasing unemployment, and it is hard to understand how the consumer will increase their spending. Sure, the $8,000 housing credit and the Cash for Clunkers program will provide a little boost to spending, but that is artificial growth. Not organic growth. With these 2 programs we are paying people to spend money...and you call that a good economy?

Consumers are busy right now paying for things they have already bought! And consumer spending accounts for 2/3 of all economic activity.

Monday, August 24, 2009

Housing Sales - Recovery Postponed.

We keep hearing all the good news about the housing recovery. Here's the real news you don't get on CNBC. Let's put this in perspective.

The first time home buyers credit coupled with bargain basement prices have really driven home sales. Sales of homes below $100,000 surged 39%!, bump up to $200,000 and we are up 9%. When you cross $250,000, it all goes south and the higher the price, the more sales drop off. Over a million and sales are down 23%. Over 2 million, down 32%. Sales are sluggish on the high end real estate agents say if the home buyers tax credit isn't extended, we can see the surge in sales turn the other direction.
If you are going to have a real estate market that is good, it is measured by 'step up sales'. Not the first time home buyer buying $100,000 houses. We are looking for people stepping up to their 2nd or 3rd house. The press should have said

Since the surge in new home purchases is localized to the $250,000 under market, the recovery will be postponed.
If you are underwater with your house, you can't afford to sell your house to buy a larger house because you'll have to come to the closing table of both transactions with a lot of money.

Put Option Short Position

I wanted to share with a Twitter friend a strategy he said was too sophisticated for him. I mentioned that I purchased a put option on the $TNA. It is an 3x inverse ETF. I chose to go with the short side instead of going long his cousin the $TZA because I've noticed that these ETFs seem to have a propensity to go down faster than they go up. Look at FAS and FAZ (when one goes up the other is suppose to go down), both of them are lower today than they were when they came public. It have something to do with a tracking error, but that's a whole other story. Well, for about a dollar a contract, I was able to buy a put on the $TNA with a strike price of $41. Since the TNA closed under $41 a share, when it exercised my broker sold 100 shares of TNA at $41/share. But there is a problem.... I don't own TNA, so my broker goes out and borrows 100 shares from somebody with a margin account and give them to me so I can sell them! Now I'm short TNA. Here were my risks:
  1. If TNA were to close above $41 a share on Friday, my losses would have been limited to the premium I paid for TNA
  2. If TNA were to close below $41 a share on Friday, I get my exercise and short the stock. Then last weekend, let's say news comes out which causes the market to rally hard, I would end up in bad shape because TNA would have opened much higher, but I would be sitting in a short position. (this is the real risk, it happened a few months ago when I tried something similar with Bank of America, luckily I had an offsetting position in Citibank which saved me)
Here is something interesting that I just had to find out for myself. Since you cannot short stocks in an IRA account, what happens if our put option expires in the money and you don't own the stock? You still get the sale and depending on your broker, he gives you a chance to buy it back in 3 days T-3 rule (E*Trades style) OR they auto execute a buy order to settle your account (Fidelity's style) and you take a 90 day free riding trading restriction.

Now for my history lesson:
Years ago, my friend and I were trading stocks with a hot shot stock broker in town. He was all into the high octane stocks. Trade after trade, we were making money (didn't have the good sense to realize we were in the midst of a market rally and everything was going up). Then one day, our broker told us we could make 10 times the money we were making with options. To this day, I'm not sure if I curse that day or not! Our eyes got big and instead of doing the same research we did before we got into stock investing, we took the 30 minute short course and dove into the deep end and we got burned bad. Really bad. I swore off options for years. Before you get into options realize this:

With stocks time works with you. With options time works against you. With options, you can lose your shirt with no rags left, with stocks at least you have the rags!
Our problem was not that we chose the wrong stocks, our timing was off.

Sunday, August 23, 2009

Income Tax Voluntary

I was listening to an interview with Senator Harry Reid. He was explaining to a journalist that our income tax system was voluntary. When the reporter continually pressed him on the issue, he told him that in other countries, you cannot go out and buy a house to deduct the interest against your taxes and you don't have to file an income tax return (therefore taxes are mandatory), but because in America we have tax deductions and have to file an income tax return our taxes were voluntary. I wonder if I can write a letter to the IRS explaining to them that since taxes are voluntary and in these economic times things are hard if I can forgo my voluntary contribution this year.

Can you believe these are the people we have representing us in Congress?

I still can't get over our Senator, Sessions, who told us that he was part of the executive branch of government! What is even more surprising, we keep sending him back up there. I have taken the time write to both of my senators and congressman. I've always received a response from Senator Shelby, but our congressman and Mr. Sessions, I've never heard back from them.

IBD - back in uptrend!

IBD admits they were wrong

"In Tuesday's Big Picture, IBD judged the market to be in a correction based on five distribution days in the S&P 500 and negative action in leading stocks.

In most cases, this precedent leads to a worsening in the market. Yet, the indexes have rebounded and climbed to new highs, proving us wrong. It is pointless to argue with the market, which is why today's Market Pulse reflects the fact that the uptrend has indeed resumed.

With the market in an uptrend, purchases of fundamentally strong stocks can be made as they break out of sound bases or other bullish chart action.

Keep in mind, though, that there's reason to be cautious. As The Big Picture noted last week, past bull markets that followed major bear markets often faced bigger intermediate-term corrections than what we have seen so far in the current uptrend."

In the past,it has never paid to argue with Investor's Business Daily. It has always proved financially painful to do so. However, it is good to see that they admit when they are wrong unlike other market pundits who shall remain nameless, but we all know who I'm am referring to.

The S&P 500 is 52% up from it's March 9 low. It appears the market is really over extended and overstretched at this point, but that doesn't mean it can't become even more over extended and more overstretched.

Health Reform and the Public Option

I am beginning to change my opinion on Health Care Reform. I agree that it is necessary, but I'm not sure if the public option, as it is written, is the way to go. In 1995, I had an interview with a local company. I was told during the interview that as long as my spouse had a job and her employer offered health care, I could not add her onto my health care plan with the company. However, if we was not employed or her employer didn't offer health care, she could be covered under mine. This was shocking news for me.

Recently, I was inquiring about my wife's health care insurance and she informed me that they changed the policy where she works. She cannot add me onto her health care insurance because my employer offers health care to their employees. This makes 2 companies with the same policy. I wonder how many more there are?

This leads to the government plan. Why would an employer pay for health care benefits if his employees can get it through the government? It also leads to the question...When did we get the idea that employees should expect health care from their employers?

Back during World War II, as the U.S. became involved in the war, with the goal of ensuring that production of weapons and supplies for our soldiers would not be disrupted by labor disputes or cause economic problems such as increased inflation and war profiteering. The War Board decided that it is was in our country's best interests to freeze wages and establish price controls, at least for the duration of the war. Unfortunately, the wage freeze made it much more difficult for employers to attract employees from a workforce that diminished as more and more workers were sent overseas for battle. In order to attract employees, company decided to offer fringe benefits and health care was one of the major attractions. At the time health care was relatively cheap and the benefits were tax deductible. Now we have become accustomed to employer offered health care.

One of the major problems with employer offered health care is that the public doesn't understand how much health care cost. People are aware how much they pay for their health care, but don't realize how much their employer subsidizes their premium payment. When my left my last job, I was informed that I could go on Cobra. The health care premium was $1,002 per month! I only paid $300 per month when I was working there! I'm sure the $1,002 was the group rate. I wonder what the individual rate would be? The dental premium was $80 per month. I chose to keep the dental since I our dentist told us our son would need extensive dental work soon and my new employer wouldn't cover major dental work until we had been in the plan for at least one year.

So for dental and health care, I would have been looking at premiums of $13,000 per year. For many that exceeds the cost of their rent or mortgage payment. Should we pay more for health care than we do housing?

Sure health care reform is needed and there are a lot positive things in the bill, but should we invoke the law of unintended consequences where employers decide to drop health care coverage since we can get it from the government?

Another issue is non-American citizens. Should they be covered? Aren't they covered now? When people go to the emergency room, they have to be seen. Who do we think pays the bill? We all do through higher health care costs. If the patient is unable to pay, the hospital has to aborsb the loss. When the hospital absorbs the loss, they have the charge higher fees to recoup the loss from their paying customers. An E.R. visit runs me $300 with insurance, I don't know what the regular cost is. This is one of the main reasons, we go to the 'doc in the box' for emergencies on the weekend. It's a regular doctors visit there and then visit our regular physisian if needed.

I have two more issues that have really bothered me. When my son had his oral surgery (this was when I was with my previous employer when their insurance company actually paid for the pain killers that go with the fillings), the total bill was $3,000. The first insurance paid about $1,000, but the secondary insurance paid $1. They said that since he was a preferred dentist, he agreed to accept $1,001 was total payment for his services. So this means, that non-insurance holders and non-MetLife insurance holders get stuck paying more for the same services we received.

When my son had with ear tubes put in, we got a bill for $7,000. The insurance company only paid about $3,000 and said that the hospital has accepted their payment as payment in full. Which means if we didn't have insurance we would have had to pay $7,000. These are practices I wonder about.

Mr. Illegal Immigrant is going to have more than a $3,000 dentist bill and a $7,000 hospital bill because he doesn't have insurance and lets things get really out of control and the public is left with more cost when he finally rolls into the E.R.

Friday, August 21, 2009

Options expiration stragedy

I noticed a pattern that has worked out well for the past 18 months. I have noticed that on the third Friday of each month, a pattern has developed with the Russell 2000 index. If a person purchases the Russell 2000 call option on the Thursday afternoon preceding the third Friday of the month (options expiration), 5 out of 6 times, the call option will close a few points higher in the money. The Russell 2000 options are European style options which mean their cash value is determined by the opening price of each individual security in the index on the first trade of that morning. Many times, it is possible your cash settlement value is higher than any price the index itself traded that day since all securities don't start trading at the same time.

I thought for sure the pattern would be broken today. The index traded lower after hours, and was looking pretty sad overnight, but just like several times last year, something happens late in the night or early in the morning to reverse those indices. Is this market manipulation, I don't know, but it is a way to make money.

Treasury Paulson was particularly good at doing this. He always timed with Fed announcements of cash infusions in the markets on these days. Maybe he was helping his buddies out at Goldmach Sachs.

Market Still in Correction

We are still in a market correction according to Investor's Business Daily. Lately, the up days we have been have been on low volume. Options expiration is tomorrow so look for increased volitaility and wild price swings throughout the day. These low volume days tell us money is not coming into the market and as always, in America, you must follow the money.

I have no opinion on the market in general. Partly because the action I am seeing in the market doesn't make sense. The economy isn't in the best shape, earnings are coming in very poor, especially in retail, the jobless claims numbers are coming in higher than expected, bankruptcies are up. The Federal Reserve chairperson is lowering the public's expectations of a rebound, but yet the market continues to hold up. The one issue that really has me scratching my head is: PMI was up big today, while at the same time foreclosures are hitting all time highs. If someone can leave a comment solving that riddle for me, I would really appreciate it.

Insiders are dumping 300 shares for every 1 share they are buying. They are using this rally to get rid of their shares. This can be seen in the secondary offerings that we are seeing. I worry that the pattern we are seeing is the same pattern we say in 1929. They had a big rally and then 2 years later, the real crash came. Retail sales are still falling despite this 'cash for clunkers'. There is one dealer in New Hampshire that had to file for bankruptcy because he could not get paid by the government.

Tuesday, August 18, 2009

Low volume up day, not a bullish sign

I'm pressed for time, but IBD had a some great information. I've noted it below:

Source: Investor's Business Daily, August 19th, 2009. Page A-1.

After the Nasdaq surged 59% in just 24 weeks, a correction is not shocking.

Indeed, a consolidation may be healthy for the market. Remember, the best stocks often build new bases during weak markets.

For some perspective, let's look at the bull markets that followed bear raids in modern history that cost the averages at least 50% — situations that were similar to today's.

There were four such rallies: The Dow Jones Industrials from July 8, 1932, to July 21, 1933; the Dow again from April 1 to Nov. 11, 1933; The S&P 500 from Oct. 4, 1974, to July 18, 1975; and the Nasdaq from Oct. 11, 2002, to Jan. 30, 2004.

Each of these bull periods sat through just one or two moderate corrections until the next major downturn.

The worst was the 1932-33 Dow's 39% retreat, but the others ran just in the midteens. These corrections lasted four to 15 weeks, except for a 25-week fall for the 1932-33 Dow.

When stocks do return to an uptrend, how much more can we expect? Let's gauge where these other bulls stood after 24 weeks, which is where the current correction began.

The 1932-33 Dow had already climbed 49%. It would ultimately rise 173%. So, after 24 weeks, that uptrend was at 28% of its course. The 1938 Dow had traversed 60% of its eventual run in the first 24 weeks of its run.

The 1973-74 S&P 500 found itself 64% along the way, and the 2002-04 Nasdaq just 26%.

So, if history is any gauge, the bull run has more room to go. After 24 weeks, the prior four post-meltdown bull markets had notched, on average, just 44.5% of their eventual gains.

Monday, August 17, 2009

Rally officially over (IBD reports)

The market is now officially in a correction according to Investor's Business Daily. It's now a time to raise cash. It's more probable the market has experienced a key reversal. We have had a string of higher volume down days which indicates the 'big money', the money that actually moves the market, is pulling their money out. Once again, after CNBC and everybody else has been telling people to get into the market (entering the market during the bubble), the big money/smart money has been pulling their money out.

It's almost like the big money crowd wants CNBC to pump up the market so they can dump their shares on the unsuspecting public and leave them holding the bag. Then we hear the same old song. It goes....

Why is it every time I get into the market it goes down, and every time I get out it goes up?
It's because CNBC gets everybody excited and thinking, the rally is real, we got to get in. We can't miss it this time. Jim Cramer comes on the TV telling everybody, they have to get in. They pull out the pom poms, you see the market reaching new recent highs everyday. You hear about your friend, neighbor, etc. talk about the big money they recently made so you get in. There is nothing wrong with chasing the market, just make sure you aren't the last one in. And if a trade starts to turn against you...
Don't sit there like you are on the stupid bench and do nothing. And please don't sit there saying, "I'll wait until it comes back." It may never come back.
Just as soon as you sell that stock, you may see it go back up, but don't worry about that one. Worry about the ones that continued to go down. Also, when you sell a stock, you can always buy it back. Your broker may tell you, "What! You are going to get out now? You are down." That thinking is a recipe for disaster.

How do you prevent a small loss from becoming a big loss? Keep your loses small. Consider your small loss an insurance policy premium. Remember, you can always buy a stock back.

Once you are out of stock, you can think more clearly before repurchasing. It's hard to think clearly when you are sitting there watching the stock go down hoping it comes back up. If hope worked in the market, a lot of stocks would never go down.

Another rule, don't sit there and let a large gain turn into a loss!!! You may feel stupid watching your stock go from $50/share to $60/share and back to $50. You'll feel even worse if you let it drop down to $40/share so sell it if it drops back down. Nobody has ever gone broke selling a stock at a small profit.

We are in a correction. We are a minimum of 4 days away from another confirmed rally or uptrend. Raise cash, keep your eyes on your current winners and for those of you who must buy stocks because of the recent dip, keep your stops tight. I favor a more diversified approach. Diversify by shorting or for those with IRAs, consider an inverse ETF. For those who cannot sell their shares due to the tax consequences, they should really consider an inverse ETF to hedge against a downturn, but then again, if the market goes low enough, you want have to worry about any profits to be taxed against.

The Healthcare Debate

I know this is not directly related to the market, but health care will affect the economy so I'll comment on the bill.

The republicans tell us how they are very much upset at how fast Obama wants to move this health care bill. They are really upset the democrats want to push this bill right through and that they are hiding the cost of the bill. Guess what...They should know... They are experts at that. Isn't it funny how we soon forget that the Bush administration did the same thing in 2004 with the Medicaid Prescription bill. In fact, they enacted the same rule for the 15 minute rule vote. That's right. No copy of the legislation, nothing to read, they put in a vote in 15 minutes. That's exactly what the Bush administration did for the Medicaid Prescription bill. In fact 41 of the republicans asked could they please get 3 days to read the bill and Bush said, "No, apply the 15 minute rule." And now they criticize the democrats? Also, the republicans talk about the democrats lying about the cost of the health care bill, what about the Medicaid Drug bill? After it was safely signed on January 31, 2004, the Washington Post came out finally with the truth. The real cost for the first 10 years was not $400 billion, it was $580 billion. In fact the entire bill they said would only be $2 trillion dollars, but it was really $21.9 trillion!!! And 16 trillion was unfunded and now they are getting grumpy about the democrats?

Rally over?

Recently, this market has had every reason to go down, but has continued its upward momentum. Since March 9th, the market is up 50%. That is a historically big climb. We have seen stocks in the financial sector go up over 200% and 300% in months. These are the old stoggy companies where a 15% yearly gain is generally great news. What has fundamentally changed since March 9th? Not much. It's been only 5 months. Credit card defaults are still rising and Americans are still losing jobs.

Historically, 'V' shaped rallies always turn into 'W''s before a good rally. Expect a pullback to at least S&P 950 before jumping in if you believe the market is bullish. This morning, the market will pull back sharply. If it recovers by the end of the day, that will be an extremely bullish sign that the market uptrend should continue, however, all three recent levels of support have been broken this morning.

Sunday, August 9, 2009

1929 vs 2009 stock market patterns

I'm posting 2 charts. One from 1929 and the other from 2009. I'll let you draw on own conclusions. These are from

247,000 Americans lose jobs ... CNBC celebrates

Getting kind of frothy!!! CNBC is celebrating.

The stock market is getting kind of frothy. It is very overextended, overbought, and every other type of over you can think of. With the news Friday from Freddie Mac that they actually turned a profit, it may continue it's upward march Monday morning.

Friday, CNBC was celebrating the fact that another 247,000 Americans lost their jobs. We are still in a period of job loss. The employment numbers rose, but we must consider how many people fell of the jobless roles. Once your unemployment benefits run out, you aren't considered unemployed anymore.

The crooks on Wall Street will most likely take this market to 10,000, but if you aren't in the market, you don't want to chase it. It may be wise to wait for a pullback to the 950 range for the S&P if you are looking for an entry point.

Friday, August 7, 2009

This is a must read. Is the big bad bear coming?

I can't take any credit for this thoughtful insight, but feel it is a must read.

Bear Market Coming
-or -

Thursday, August 6, 2009

$FUQI, BZH (Twitter was down too!)

I found it interest that IBD didn't mention the FUQI news in it's Big Picture, but they made the following statement on page 2 of the paper.
Fuqi tops views, guides above
The Chinese jewelry maker’s Q2
EPS jumped 80% to 45 cents, 45%
over views. Sales grew 51% to $101
mil, above views. Fuqi Int’lFUQI credited
demand for luxury goods in
China, which has 1.3 bil consumers
and a growing middle class. It sees
Q3 EPS of 40-44 cents vs. views for
37 cents, andQ4EPSof 52-59 cents,
above views. Shares gained 12%.
BZH also reported after hours. Even though they last money, they beat expectations on earnings by 81 cents! But still fell shy on revenue expectations. It's up 6% in the after hours.

I had to live a day without Twitter. I felt somewhat lost without the opportunity to hear the daily noise from StockTwits all day long. I was unable to get a feeling for the market so I had to resort to the 'old way' of doing things and just analyze the volume patterns of the market today. Actually, I choose to wait to see what the government has in store for us in the morning with the jobs data.

The jobs data should set the tone for the market tomorrow and let me know if I need to diversify my portfolio by going short a few of the weaker issues. It isn't wise taking a huge short position given the fact that the market is in a confirmed uptrend, albeit extended and stretched.

Wednesday, August 5, 2009

Obama and the bailouts

There are many people who are against President Barack Obama. We hear that he is a socialist. We hear that he wants to take over the all private entities among other things.

There is a passage in the Bible that states that the borrower is slave to the lender. When you finance a house or car, you don’t actually own the house or car, the lender does. Nobody has a problem with this understanding. When companies ran into trouble and the government stepped in to bail them out, shouldn’t the government own a portion of the company? It’s the same deal. If you don’t want government help, then don’t take the government funds and file for bankruptcy or whatever else you must do.

The companies that needed a government bailout were probably expecting a bailout from the government with no consequence. Obama is a neophyte, he doesn’t know what he is doing was the thought. He’ll do probably what McCain would have done. Give the companies our money, with no strings attached and no collateral. Continue to let them operate as a private entity. Let the companies give the money back when they get around to it. It’s quite amazing how fast these companies wanted to pay back the money, when they found out it wasn’t free money. It’s quite amazing that a few months ago, these companies were on the brink of collapse and needed the money and now (nothing in the economy has fundamentally changed) they have rushed to give the money back. Makes one wonder if they really needed the money in the first place. This was actually a smart move by our President. It gave the companies an incentive to pay the taxpayers back.

A word on Goldman Sachs

Let’s talk about Goldman Sachs. As a young man in college, I had the opportunity to co-op with this company, but turned it down because I had no interest in living in New York City. At that time in my life, I didn’t know a stock from a money market account. I was studying for my Master’s Degree in Computer Science and that’s all I knew. I remember talking to a very attractive lady who was telling me all about the company. She then mentioned moving to New York. I told her, “Your sign here says you have opportunities worldwide.” She responded, “But our opportunities for you are in New York.” I lost interest after hearing that. If I knew then what I know about Goldman Sachs now, I would have jumped at the opportunity. The company is incredible.

However, the company has some very questionable practices. How is it that less than a year ago, the company was in such dire straights that it had to borrow money from the government? Now, the company has just reported robust net earnings of $3.4 billion for the second quarter, soon after repaying a $10 billion bailout received from the U.S. Treasury's Troubled Asset Relief Program. Hmm……. And it gets even better….

The firm set aside $6.65 billion in the quarter for compensation expenses, adding to a firestorm of criticism about pay practices on Wall Street. So far this year Goldman has set aside $11.3 billion for compensation. This is a lot of money for a company that just needed a bailout of us, the taxpayers. Hmm….. and there’s more….

“The turnaround for Goldman, though, largely resulted from its trading desks, which produced 46 days of more than $100 million in trading revenue during the second quarter, according to the filing. Trading losses were reported on only two days.” Guys, nobody is this good. This brings me back to the following story that appeared a few weeks ago. It was about a guy who copied Goldman’s Sachs proprietary trading software to some other computer systems overseas.

Goldman wants to "put away" a criminal that has certainly eroded its trading advantage, and worse, made a fool of it. Goldman is even willing to have the prosecutor allege that the stolen advantage would be "unfair" in the wrong hands. In doing so, it acknowledged the possession and creation of an advantage that presumably would be unfair in the "right" hands. In seeking to condemn a THIEF, Goldman basically condemned ITSELF.

Maybe this is how they produced a 96% positive trading streak with their trades. Nobody is right on their trades 96% of the time and if they are, how did they ever get in a situation where they needed a government bailout.

A strange thing happened in the market; major stock indexes declined in higher volume

IBD says: “A strange thing happened in the market Wednesday; major stock indexes declined in higher volume.”

Although today created a distribution day for the Nasdaq and Dow, the market could have done very much worse today. We started the day with a bout of bad news.
• Private job losses were more than the expected 345,000 as ADP reported 371,000 shed in July
• The Institute for Supply Management's services index declined, also worse than views

With this news, we could have expected a deep sell off in the market, but it didn’t happen. The market closed well off of its lows. One thing I did notice today was that the financials were very strong today. The XLF, the index that I use to track the performance of the Dow Jones Financial Index was up a big 3.45% today. Considering all 3 major indexes were down today, this is quite impressive. Most market rallies are lead by the financials. Although most of us believe this rally in a fraudulent rally, it doesn’t mean we can’t make money on it and as long of the financials are performing, stay long stocks. If the financials start to crack, get the heck out of the way. We are up 50% over the past 5 months; we are way overdue for a significant pullback. A few financials of note today:
• Bank of America up 6.52%
• Citigroup up 10.15%
• CIT group (on the brink of bankruptcy a few weeks ago) up 37.62%
• PMI group up 19.03%
• Wells Fargo up 5.74%

These are defiantly not the type of earnings you expect when people are still losing jobs. But then again, the market is a forecaster of the future.

There is really no take-away for today. Looking at the very big picture, it is a distribution day, a bearish sign, but it’s the first one we have had in weeks, so it is of no consequence unless we start to get more of this. I believe there are still a lot of shorts in the market who are very frustrated at this point, but the market may not go down until every last short has covered.

Monday, August 3, 2009

Jim Cramer curse hits again!

The Jim Cramer curse hits again! The victim this time is Starent. I was trying to figure out why STAR was down when the market was rallying. I knew the cause of GMCRs demise, but couldn't figure out STAR until I discovered that on Friday, Mr. Cramer makes the following statement: "I think Starent is terrific. I think it's pulled back and this is a great level to get in." If you got in based on that statement, you are now down 4%. I suspect the stock popped up in the aftermarket after that statement was made which would mean you are down much more than that if you just 'had to listen' to Cramer.

GMCR investors rewarded?

After investors sat through GMCRs earning debacle, they were rewarded this morning with dilution. The company announces this morning, they are going to add 4 million more shares to the pot. After a glowing earnings report, this action leaves me scratching my head.

Saturday, August 1, 2009

The Jim Cramer curse - SYNA gets smacked!

I'm not a fan of CNBC's Mad Money program. This is because Jim Cramer is consistently wrong about his stock picks. He is correct on fundamentals, the reason why an investor should buy a stock, but is almost always wrong on the technicals which tell investors when they should buy a stock and he almost never tell investors when they should sell a stock. The problem with most investors is that they stay in a stock to long never knowing when to get out.

This brings up Synaptics (ticker: SYNA). Up until a few weeks ago SYNA was acting well. It was a leading stock with good fundamentals and a great growth rate. I turn on CNBC and there he is ... Jim Cramer telling all of his listeners they should go out and purchase the stock. At that point, I thought, this isn't good. For those of you who follow my twitter posts, I mentioned it the next next day. I got a response back from a user stating that he didn't understand why one would sell SYNA. Jim Cramer had the CEO on his show telling us how rosy things were.

I don't know the reason why, but I know the pattern. Anytime Jim Cramer pushes a stock or has the CEO of the company on his show, the company's share price almost always goes down. It doesn't matter how well the company may seem to be doing. It's almost like a curse OR maybe these CEOs get on his show to tout their company so they can sell their shares and get out while telling investors how great things are going. I don't know.

SYNA was no exception. Within a week, notable weakness in SYNA started to show up. A clear sell signal for those following technical analysis. The stock was acting very weak. While the market was rallying hard, SYNA was barely moving. Those holding on and waiting for the earnings report were rewarded with a 30% whack on the opening the next morning along with the following news:
  • SYNA missed their earnings numbers
  • SYNA is guiding lower
  • SYNA CEO is retiring
I would not be surpised to see some shareholder lawsuits over this. At the time the CEO was on Mad Money, he should have known they would be having trouble meeting thier own expectations they feed to the analyst. He also knew he would be leaving. Both of these put pressure on shares prices.

I choose not to listen to Cramer because he makes sense and he starts to take 'parking space in my brian' and investors start making bad decisions because what he says makes sense. A friend of mine came up with a great suggestion. There should be a mutual fund that short sells all of Jim Cramer's recommendations. It would do well.