Now That Is Bearish

The Standard & Poor’s 500 Index will collapse below its March lows as an expected rebound in economic growth fails to materialize, according to hedge fund manager Eric Sprott.

Unfortunately he is a gold bug.

Entire Article from Bloomberg

Election Money 2010

Article from OpenSecrets.org

A View of High Frequency Trading

Trading Shares in Milliseconds

Today's stock market has become a world of automated transactions executed at lightning speed. This high-frequency trading could make the financial system more efficient, but it could also turn small mistakes into catastrophes.

By Bryant Urstadt

Entire Article

Bull Run Over ?

The bull run from Nov 21 2008 to Nov 17 2009
looked like this for six stocks;
AAPL 79.14L H207.44 +162%
BAC 10.01L H15.82 +58%
GOOG 247.3L H577.5 +133%
GS 47.41L H178.25 +275%
IBM 69.5L H128.65 +85%
MSFT 17.95L H30 +67%

The chart from Qriskvalue.com measures
general oscillating value of market strength.

Stuck

4 Big Mortgage Backers Swim in Ocean of Debt

By MARY WILLIAMS WALSH

Published: December 16, 2009

Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.

Entire NewYorkTimes Article

Paying The Top

Goldman's announcement of vesting its top 30 executives with 'at risk' stock is done in hopes of deflecting some criticism leveled at the firm over its compensation policies. The thought of the firm's top boys taking a risk on their own stock is probably making them all nauseous. How will they survive without an immediate piece of the transactional cash bonanza the firm produces each year, a large part of what the firm mistakenly calls trading profits. You see, trading is trading and charging for trading, well, is not trading. The good news for those at the top is that the stock is cheap at current levels.

The continued argument concerning the losing of top talent at investment banks if they are punished by compensation restrictions never is quite able to get traction. Pay me or I will quit is just another form of whining and Congress does not care. Everyone knows that if the last dime in the world were tossed on the ground, two hundred bankers would dive for it.

Harvard announced it was shutting down the the construction of its high-tech project which was to open in 2011. The project was initiated by previous Harvard president Lawrence Summers when the world of the upside had no end in sight. Now Harvard's endowment is down to its last $26 billion but in a larger way points to the long term problems of the ability to generate wealth for all market participants. If Harvard cannot get on track with its sea of generational connections, the greater population's adjustments may be much worse.

Geithner / Dollar / Housing

Geithner apparently is upset at the 'bonus unleashed' attitude of Wall Street executives who not so long ago prayed for cash and forgiveness. Of course the Treasury Secretary 'doth protest too much' since he basically gave the keys to Goldman and JPMorgan when he made them good at 100 cents on the dollar in many things including AIG's obligations. Geithner talks tough but winks a lot.

The dollar remains the focus of much attention even though it is a who cares trade. But given the bomb it laid in 2009, don't be short the dollar in 2010. That was easy.

Housing gains on data are a laugh since the macro simply is that the banks are not going to fund equity in homes for the foreseeable future. Real equity is what you can get to and most will not be able to get to anything there. Housing will find bottom pickers in 2010 and will wander through over supply for several years.

Each year is a stock pickers year despite the general overall lifting associated with up trends. Cult stocks such as AAPL and GOOG are overbought but they always run hot until the idiot bell rings and they all get out dripping positions until they are looking at real damage. Better to own IBM, MSFT, and yes even GS.

Deep Hole

From Washington Post

Digging out of a deep hole

Chart

Bill Gross of Pimco

Reprint of Bloomberg article:

Oct. 27 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross said the six-month rally in riskier assets is likely at its pinnacle, with U.S. economic growth to lag behind historical averages.

Gross, a founder and co-chief investment officer of the world’s biggest manager of bond funds, made the forecast in a commentary posted on Newport Beach, California-based Pimco’s Web site. Pimco has called for a “new normal” in the global economy that will include heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.

“Investors must recognize that if assets appreciate with nominal gross domestic product, a 4-5 percent return is about all they can expect even with abnormally low policy rates,” Gross wrote. “Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets -- while still continuously supported by Fed and Treasury policy makers -- is likely at its pinnacle.”

U.S. policy makers are in a predicament much like Japan faced in the last decade because they have to keep interest rates low to support asset prices in order to create growth while also worrying about the effects of excess liquidity, Gross wrote.

“The Japanese example over the past 15 years is an excellent historical reference point,” Gross wrote. “Their quantitative easing and near-zero percent short-term interest rates eventually arrested equity and property market deflation, but at much greater percentage losses, which produced an economy barely above the grass as opposed to buried six feet under.”

Gross wrote that economic growth in the U.S. will approach 4 percent in the second half of this year, although sustaining that rate of expansion is uncertain.

“The ability to sustain those levels once inventory rebalancing and fiscal pump-priming effects wear off is debatable,” Gross wrote.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

Fixing To Big To Fail

Washington getting continued heat on bank/brokerage subsidies, so legislation is going to be offered to address the" to big to fail " problem.

(NewYorkTimes) .Congress and the Obama administration are about to take up one of the most fundamental issues stemming from the near collapse of the financial system last year — how to deal with institutions that are so big that the government has no choice but to rescue them when they get in trouble.

Sideways

The monthly DJIA chart shows the current 50% retracement underway (alltime highs vs March 09 lows) with a target of about 10300. These charting basics, which most real traders use as trash, illustrate the trading pattern of the 30 stock index and the somewhat flat net overall performance of the last 10 years. The current rally off the March lows has been powerful despite massive investments in US treasuries by the entire world. Unfortunately for the bulls, money on the sidelines is obviously staying on the sidelines and probably will not find stocks quite as appealing for some time to come. So stock allocations to date and normal front running of the "sidelines" trade have little hope of escaping the continuation of the DJIA's sideways purgatory.

Trading Forcasters

We live in a world where a Supreme Court elects a President, the largest financial institutions have to be saved by tax dollars, and markets increasingly perform in rapid boom/bust fashion putting significant risk upon non professional investors. Now the first condition is the result of one party having been able to stack the highest court with partisans. The second condition is a result of the same party's trashing of regulatory oversight. The third condition is mindless chase for returns, which has up through this decade so far, has resulted in a market unable to retain gains on any significance, except for those transactional profits charged by the same folks that needed all those tax dollars.

It is often said the stock markets look out six months ahead or more and essentially forecast conditions in the future. Now having been in the trading business for nearly thirty years, traders are not that smart. They look at today, then later today, and then the close. But let us look at one of their forecasts. One thousand dollar gold. The reason given, the dollar's future value. Probably not. As the TIPS trade has shown lately by its popularity, professional and herdsman alike believe a stimulus induced tsunami of inflation is inevitable. As in most instances, they are probably wrong, but stocks are in front of the same trade of chasing unreasonable expectations about future performances of companies whose futures have been constructed, not by market share advances, but by cost reductions which ultimately prevent serious expansion.

So is this rally any good? Probably not. But another bus will be by to either run you over or pick you up.

The Dog's New Chain

Battle over projected economic growth between the fixed income folks and stock analysts has resulted in some wide variations. Choices range between the 2% "new normal" with a deflation twist, or the much stronger projections by equities folks and their vision of a new profit cycle. It is hard to fight people such as Bill Gross of Pimco, who coined "new normal", since he has probably been the best trader on the macro side over the last two years. He is buying long term treasuries and believes the economy is just not going to have the ability to muster any sustained push due to the huge inventory of bad debt and increased tendency for public savings. The stock market insiders see great performing companies, cash on the sidelines ready to roll, and M&A activity rebounding.

Now Gross is always talking his position on Bloomberg but his outlook is a bit more realistic than the stock pushers who have had proven quite dramatically their skills rely on a great underlying secular bull, which they had for so long. The buy and hold mentality of a generation will have its moments for shorter periods, but the new dog has a much shorter chain and there is not much slack left. Besides, investing will mean trading more frequently over the coming years and that is not a model used to gain the public's confidence or an eagerness to invest. In and out is hard for 41Ks but easier for the trading industry. So a much more rolling trading affair will wear on the general investing public as their long term investments stay flat as Pimco's prediction of modest growth presents few opportunities for increased employment and overall economic expansion.

Old Is New In Investing

Few new interesting ideas lately on how the post crash market will reconstruct itself. Now everyone knows how various sectors of the economy have suffered, and finding new arguments for investing is tough. The contrarian view or "climbing a wall of worry" has become the primary explanation for the equities rally since March. Investing experts have also reverted to the "lots of cash on the sidelines" reasoning which identifies the astonishing insight managers use every day in plowing under billions of dollars. More clever analysis might find other reasons for the reluctance to invest, but scared shitless does work.

The risk models, which caused so much grief for hedge funds, had a poor understanding of illiquidity in declining markets. But they have no problem with anything in rising markets. Just in case, some have now been replaced by models which employ sophisticated guessing techniques as to which way the markets will turn next. This is done by rapidly analyzing all the potential current information, positive and negative, and then throwing out the negative. So far it is working.

But the most reliable historical reasoning tool for investing in stocks must be the " where else can one go model". This reduces all analytics into a choice as the where best to apply carefully honed skills in betting. Pick a sector of the economy that is working. Of course that would exclude most banking, retail, autos, and construction. Then pick the best performing company stock in that sector and hope all the cash on the sidelines chases your position. This worked for years but can end badly.

Up Good Down Bad

Just about every Bear has brought down their flag and conceded the worst is over, that economic conditions, while still lousy overall, will probably prove the rally in stocks is valid. Repeated surges to new recovery highs has left no other apparent explanation for the weary.

Macro views of market activity are usually traveling at about half the speed of professional trade ideas, but even for larger managers, the turning of big positions, promotes directional plays, as it makes life so much easier. The hedge industry is obviously attached to the bull side because it is easier to invest trade than it is to trade trade. Their recent performance recovery this year is evidence again there are few great thinkers running the biggest of funds. Making money on the up and getting hammered on the down says it all.

The zero rate interest rate policy of the Fed has helped stocks to rally simply as a function of providing one of the few liquid investment opportunities. The lack of sellers after such a large liquidation cycle of 2008 and early 2009, has amplified price moves hinged on investment strategies chasing lower prices. Extrapolating a recovery trend and possibly much more is what the herd will always follow and has historically been the story for stocks. But zero rates may create a dilemma in the way things used to work as current successful Treasury auctions continue to show a world of risk aversion. A policy of simply saving the higher orders of banking/investment firms does not insure economic growth. Injecting cash and cutting overhead does work but with obvious limitations.

This rally is a trade first with the complications associated with rapid deceleration when it ends. The ensuing scramble with banners declaring the second round of the world is ending will be as shallow as the current victory celebrations.

US/China Juiced

US/China trade fight will certainly gain attention especially when there has been a juicing of stocks and commodities by trading operations filing behind huge speculation plays coming out of the China. The double down bets in areas such as technology stocks could become a exceptionally volatile unwinding affair if there is a trade event not foreseen by the information edge boys. This along with China's increasing threat to all financial markets as they increasingly juggle huge stimulus programs, needed to keep their economic positions afloat, next to the need to keep the masses from scaling the walls.

Murky Rally

Stock analysts' projections of the inevitable rise and run of stock prices due to their claim of an undervalued stock market has continually contributed to the rally which has battered the Bears, and a group held in such low regard, I am talking about the analysts now, that have been able to survive on unemployable murky skills, almost as murky and unemployable as economists. But there they are, pumping stocks despite all the leaking waterlines of nearly every sector of the economy. They trot out analogue and historical earnings ratios of now broken industries and place a rally sticker on anything that is below their valuations.

Of course it is crap. But crap is the fantasy which powers the very essence of the Wall Street investment community, make up a story, securitize it, only take what you can steal, and then sell useless insurance against a raid on fantasy values where there is no market, just their mark. Lifting bales of stimulus money has not been easy when also worrying about public image, and a system, now gamed forever by forceful Fed and Treasury policies which have come to prove what everyone has always known, politics and Washington, investments and information, and money, belong to the makers.

Zero Rate Stock Moves

Markets continue to show signs of being extremely overdone on the upside with technicals currently deteriorating faster than the DJIA may be able to retrace to 10,000. The Trail of Rally post of May 11, which predicted the summer rally, complemented the bottom call made in the Giant Bear Miscalculation post on Feb 20th this year. Those market conditions are a part a structure of price configurations which move like tectonic plates under trends of various dimensions and also beneath the business news noise so inaccurately labeling various items as responsible for daily price action.

Current rally conditions have perplexed the Bears with relentless late session rallies coming after solid interday breaks. As in most moves, these rallies are a result of a combination of factors but primarily a bearish complacency and a reliance on already well known macro information. The Bears had a feast but those days are gone and the Bulls have the tactical advantage of surprise now.

The most notable stock market rally from a zero interest rate base was in Japan in the nineties. Recently a Bloomberg article published a chart showing the similar contours between current market patterns and Japan's rally. Of course the comparison ask you to believe the similarities will continue and extrapolates a 40% gain in the SP500 during the remaining balance of this year. The downside however is that if you simply follow the chart, one sees an ultimate death dive in prices and a bearish rolling line into the present.

Stock rallies in zero rate environments which measure the underlying economic conditions based on the performance of stocks is a big mistake. Stocks will almost always be the initial primary beneficiary of an investment landscape which leaves few alternatives. The ultimate roll over of rallies such as these is due to the fact that all the things that did not work before the big break, still do not work very well at the recovery break. That would include autos, retail, construction, and banking.

Coming Week Will Be The Battle For Bull/Bear Title

Markets reversed the early break on the week and rallied to make new highs for the move since the March lows. Bears have had to take their lumps as market technicals have pushed into over bought configurations not seen since October of 2007. But there is no place to hide if you are short as anyone knows who bullishly road the break and eventually the oversold idiocy of late winter 2009. Now the idiots are long and some are arriving late to this rally. What might have been a healthy test of correction lows for next week, had this weeks correction continued, now looks as if it will be the an area where the bulls attain price levels which will create the Bull/Bear lines for all price action remaining this year.

Market Bruises

Problems creeping into the Spring/Summer rally as various supporting elements begin to bruise. China's stock market is cracking which brings problems for so many equity growth supporters who have had little proof from the rest of the world's economic data that anything but a slow choppy march was ahead for most investments. Yes, when the market doll was run over and the stuffing was left to be collected and reassembled by cable business news anchors and guests, a valiant effort to manufacture bull dolls began because they make better companions for the thoughtless.

Markets will plow into some correction depths as next week's lows will become the dividing line for September/October price action anxiety.

Real Opportunity Search Begins

Money funds yielding nothing is being written about these days as there seems to be some surprise to the notion of stubborn low yields despite the rise in stocks since March. It should not be a shock that most of the profits from yields are being spent on expenses by the fund managers since little profit margin is left after the returns in Treasuries, the generating instrument of the money fund investments. Further, despite the draw down in money funds over the last couple months, there is still about 500 billion more in balances than there was in 2008.

Low yields and a 'creeping out of the storm cellar' have contributed to the rally in stocks as re-investing occurs. This along with substantial foreign purchases has put a bid in the markets. However, there is clearly a reluctance to chase perceived price discount value opportunities aggressively, leaving continued large balances in money funds. Ultimately this will limit upside momentum but does not eliminate the creeping bid side necessarily.

Though money funds are just a part of the investment environment, they do reveal the problems for the bulls. How does the market move substantially higher in a dramatically altered world on attitudes of acceptable risk? One where a primary sector for leverage, real estate, has been substantially reduced and may not return as a contributor for years. What is the substitute? Job growth? No. New risk opportunities based on cheap stocks? Not likely once the major indexes claim a 50% retracement from the March 09 / Oct O7 range,(which the Nasdaq100 futures completed today). No, the low fruit has been picked since March and now the real search for opportunity will begin.

Few Reliable Measures

This one hundred plus day rally for the index markets has seen the DJIA rally over 43%, with the SP500 and NQ100 exceeding over 50% gains. The particular migration back to 10,000 DJIA will continue with enough downside bend and turn activity scary enough to make many stop looking up. But this current rally is one of investors and traders returning to purchases based in part on perceptions of bargain values, short term opportunity, and finally, top quality risk investments. The first two seem to fit the stock indexes, while the latter is a bit tough on the return side since few AAA short term investments exist that do not return near zero.

Finding bargain values in stocks is a game filled with few real reliable measures. Those actually getting paid to analyze stocks are constantly fooled by gamed data, while the upside bias of business news coverage remains a function for the simplest of minds. Buying large percentage breaks in price does work, but it usually remains a short term play. The determination of real value will have to be played out in the balance of this trading year as to whether low prices are really value opportunities. I suspect many will be disappointed and will discover that value is the price you sell at below your purchase price.

Market Weather

As we enter the last week in July, stock indexes continue the climb at a pace where Bears are finding great discomfort. The half way back retracement to 10,000 DJIA could come a bit faster than many had thought, but of coarse timing is everything. Pricing of stocks from outside the US has been a major factor as purchases are made against the belief in a Fed Put. Articles claiming revisions on earning estimates may contribute to further gains are also abundant. They are always based on revelations that analysts have once again been fooled by their corporate targets having been duped by a combination of what little analysis they actually do and the gamed numbers the corporations they cover have shown them. Like weathermen, analyst's work is not science, but a form a guessing based on conditions someone else witnessed.

So all the Bulls have to worry about is a sudden bit of news which would kick apart the somewhat fragile coalition they have with low volume rallies. Like the stock analysts, it will be a surprise.

China Schmina

A story about China but an example of a bad habit of continuing to rely on or even believe the strength of China stories. China is on a slippery slope, dancing on top of a rolling ball, injecting funds to pump an economy in order to keep the masses from turning ugly. Another prop job.

The Goldman Test

The Obama administration's economic intervention efforts unfortunately have a litmus test for gauging whether or not the world economic order is stabilising, Goldman needs to be able to continue making huge amounts of money using the old models. The Goldman test is of course Geithner's plan for using public subsidisation of trading capital for Goldman and others, resulting in wider profit margins helped by being able to look at all the stimulus cards. While the fools in the Republican party complain about the inevitable middle class becoming slaves to socialism, the financial industry, a Republican stalwart, keeps applying the old model skills. Now this test will confirm Goldman is healthy and the credit lines between the rest of the lower economic forces are moving, but ultimately will provide little life for the general population as jobs stagnate and their assets dwindle.

Obama's recent statements explaining the need for patience to allow the stimulus to work is a clear sign it is not having any effect on the larger economy. The velocity with which Goldman has recovered under direct subsidy by the G will become a greater problem as Goldman disappears over the greater wealth horizon, leaving the rest to scolded by Republicans that those rewards are not meant for us.

Economic Recovery Map

The economic recovery map pushed by most forecasters is probably a bit rosier than it should be but certainly a more realistic view than those who point to the inevitable path to economic destruction. The most bearish have impressive examples of ailings; real estate losses of five to seven trillion dollars, retirement and savings losses of close to 10 trillion dollars, and staggering losses around the globe virtually mirroring the U.S. disaster. Issuance of corporate bonds at an ever growing pace at extended maturities suggests more hunkering and less spending as such debt instruments reveal the pursuit of returns pointed towards savings rather than investing in growth.

The bulls exhibit some of the same mindless tendencies which has always been apart of the efficient market crap. And when all else fails, they always will have China saving us all of by providing market opportunities through a notion of a rapidly growing totalitarian state immune from severe downturns and social upheaval.

The love hate by conservative thinkers over the pledge of over 10 trillion dollars by the G to remedy financial disaster is entertaining when viewing swings in the underlying markets from which the have become glued. Since the recovery in March, they have almost claimed the whole economic collapse was just a bump in the road to greater market performance. Of course they will be the first to cry and extend their hands should another rout appear.

Bad Trading Strategies

Looking for driving forces in this summer's trade has been one of deciding whether to play off the 'bottom is in' strategy or rather on sideways rolling opportunities as they appear. Few think new lows are in the offing so those who love volatility explosion bets can play there.

Views of the world's economic future being saved by developing countries is getting some press, as in today's NYTimes article. China, India, and Brazil are apparently going to drag the rest to safety although there seems to be absolutely little evidence of it. Decoupling again is mentioned, but stopping the reemergence of bad trading strategies is impossible. Oil's recovery to $70 from $33 is provided as proof, but developing country demand rationale drove the price to over $140 with idiots guaranteeing $240. This type of thinking has every commodity trade strategy ultimately resting on the China's consumption of all things consumable. China, unfortunately for all of us, is a pending economic disaster. Totalitarian make-up artists can print economic data from a typewriter in Beijing and the decouplers and commodity folks would believe up is the only power. Unfortunely, when all the developed big dogs are not eating as much there are plenty of leftovers which have to be virtually given away.

Reading

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As Obama pushes health issue, new cost concerns arise

New glimpses of life's puzzeling origins

Alcohol's good for you? Some scientists doubt it

Inflating The Bull

The DJIA, SP500, and NQ100 remain in the confusing zone between price mechanics and value. They are related but can produce price patterns which may not match what various economic performance measures of the general economy. The rally from the March lows are a part of the mechanics of running out of panic selling and the natural betting on prices as a function of comparison shopping.

There is a vague uncomfortable feeling running through the markets which stem from a determination not be fooled again and the ability to identify a low risk opportunity with traction. The thought of enduring the break and missing the rally is almost to much to take, let alone watching the Fed and Treasury insure the wealth of the likes of Goldman and Morgan. The boomers know that this time they cannot simply apply rally lotion to these markets after the thundering losses suffered by investors across the board. The financial health of state and local governments have an appalling smell which can only be compared against a particularly unpleasant historical period. These real dilemmas make the notion of bull market anew difficult to inflate.

Squeezing The Bear

Markets as of this AM continue to squeeze the bear as selling remains light despite intraday sell programs. These are uncomfortable ranges for the most bearish of traders as their warnings for the' worst is yet to come' is being mowed over by cheering bullside perennials. The same technical weaknesses which led to the downside free fall of earlier this year have some of the same elements present in this rally. So for traders, it is alright to be bearish, but don't be stupid. The sell opportunities will be less prevelent, but available. This market, as pointed out in a recent post , as measured by the DJIA, is headed on the half way back trail (10,000), and parts of it may feel like it is going straight up. The jobs picture will be the overpowering force this week and in the months to come. Downdrafts will appear.

Data Reading

Determining just what we have here when reviewing the strength and weakness of the current stock index levels can lead to tricky conclusions. Is the worst over? Is this a new bull phase? New lows? The bulls and bears are raising proofs to convince themselves and everyone else.

Misreading market information, the pace of economic rise or decline is easily done. Making assumptions about today's data measures for housing, exports, and economic growth are difficult because of the magnitude of the price breaks. Foreclosure deals are getting as much attention as the flip em frenzy. An old pit adage is never buy the first rally, and foreclosure deals may fit there.

What will allow the markets to establish a long upward trend after such a large decline? China is once again being pointed to as the deliverer. Of coarse you then have to rely on a totalitarian economy pumping money to save itself and believing the economic data being generated by the Chinese government. Sounds as convincing as the AAA credit ratings of the sub-prime era.

Fixing Up

Putting the stock indexes on the upside track is a combination of public trust and a mountain of interventionist theories speculating what underlying share values may be able to support. The former remains unwilling to risk anything more than some of what is left, and the latter, financial engineers, are trying to determine how and what the post crash world order will trade. Arguments about the type of recovery, V, L, or W, all are based on the notion the markets have already bottomed. There are few who think substantial new lows are ahead. Given the headlines and analysis of the crash, the investigations and interventions, a smoke clearing vista of rebuilding has become wisdom.

These markets still remain fragile and the prices constructed so far off the lows show no particular strength. Extremely cheap price areas are usually rejected by rapid recovery rallies and the stop watch on this rally is getting close to losing in the qualifying time. While a middle of the pack recovery would suit everyone, a race down is still a possibility.

Trail Of Rally

After a decent gain last week, the indexes this week start with some rally fatigue. The weekly actions have remained supported by lack of selling and pricing from the money sloshing around from the various bailout strategies. Underlying internals remain soft and may lead to the ' eat like a bird, shit like an elephant' syndrome known to markets which chip higher weekly only to give a major portion of the entire rally back in a two or three day period. Remember, money rates essentially at zero reflect the real story about overall economic energy. That said, the indexes will still set up to recover half the losses from the 07 highs, which for the DJIA will be just over 10,000.

Buy This

Pricing continues to creep into the market as major market players apply investment dollars where sellers are few. The great bail out has provided more than enough currency for trading as historic price declines may have created buy and hold opportunities. Using the metrics for measuring value over the last 25 years this would be the case, but there may be new standard for understanding asset values which will only be born out over the next several years. Just in case, the rallies of this spring have had less punch to them when compared with the days of the bull. While there is no question the pros hope to sell these purchases higher to the same public dopes they did for years, the weary masses may let the greater fool theory be applied amongst the institutional and proprietary chumps this time.

In Bed With Fed

Markets trying to breakout of a trading range that has had the feel of a rally but simply more of a transactional spin to it. The big banks which used to be big brokerage are arbing the welfare elements from the G and those conditional opportunities that leverage brings in the forms of informational edges and transactional income. Both Goldman and JP Morgan, each having taken $10 billion and $25 billion respectively, are doing well as cousins of the Fed, their prowess as traders contingent of being wired directly to the inside and taxpayer cash.

Credit Value Adjustments

Spinning straw into gold has hit bank financial reporting. Earnings of the major banks reflected changes in income by use of Credit Value Adjustments. Believing any data from Citigroup or Goldman is much like the old Wood Allen joke. A man speaking to a doctor confesses, "Doc, my brother is crazy, he thinks he's a chicken. The doctor says " why don't you turn him in?" The man replies, "we would, but we need the eggs." Here is how Citigroup needed the eggs as reported by Eric Dash of the NYTimes;

"Citigroup posted its first profitable quarter in 18 months, in part because of unusually strong trading results. It also made progress in reducing expenses and improving its capital position.

But the long-struggling company also employed several common accounting tactics — gimmicks, critics call them — to increase its reported earnings.

One of the maneuvers, widely used since the financial crisis erupted last spring, involves the way Citigroup accounted for a decline in the value of its own debt, a move known as a credit value adjustment. The strategy added $2.7 billion to the company’s bottom line during the quarter, a figure that dwarfed Citigroup’s reported net income. Here is how it worked:

Citigroup’s debt has lost value in the bond market because of concerns about the company’s financial health. But under accounting rules, Citigroup was allowed to book a one-time gain approximately equivalent to that decline because, in theory, it could buy back its debt cheaply in the open market. Citigroup did not actually do that, however." Full Article

The banks and the markets want to believe and with the stress tests coming up on May 4th, an all out effort is being made to spin the accounting.

Pump and Dump Week

Indexes have continued to find modest pricing and short covering in sadly thin advances. While the numbers look strong in terms of percentage gains , the technical price characteristics are dismal. This week has all the elements for a 'pump and dump' top as professionals begin to liquidate, preferably on new highs, portions of trades accumulated over the last four weeks. Bulls who have successfully been fighting off repeated attempts to break these markets recently will roll over as the big dogs begin to exit.

For all the praise given to the efforts of Geithner and Bernanke, it is clear the end result will be the healing of banks/insurance with little success in tackling the economic stresses of the general population. They will still be stuck with the losses of a generation with little upside. But what is new. Whether it be Republican or Democratic power thrones, they always end of up serving the same vested interests which are in the pants of those less influential souls who are stupid enough to believe this time will be different. It is the same trickle down idiocy wrapped around the flag promoted years ago which resulted in real gains for a few and a declining standard of living, with increasing debt, for the rest.

Same As It Ever Was

Markets will try to move ahead this week in the midst of earnings reports and other data. The liquidity stew is brewing thinly traded ranges created in large part by the panic liquidations of Feb and March. As posted before, it does not take much to rally these markets as pricing appears. Collective technical price action remains bad and will result in some sharp down drafts that are scary, but probably not sustainable.

The Bernanke/Geithner plans are adding all the elements needed to enrich the wired ones, which is of no surprise. Like Greenspan before them, they ultimately dance to the crying choruses of banks, brokerage houses, and managers. While this time the Fed/Treasury intervention seemingly has greater urgency and enough massive force to kill the economic demons, all hope what is going on is not just more meaningful enrichments for the same financial fraternity whinning melodies to which Greenspan danced.

Ugly Rally

Market rally is seeing the buying of weak hands by those not willing to pick a bottom earlier in the last week of Feb and first week of March. This is exacerbated by the lack of selling environment and news of easier mark to market rules for banks. These types of rallies are ok when no selling is the market makeup, but could become a falling knife if liquidation programs appear. Price internals we watch remain horrible and have not been this bad since last August. Unemployment numbers on Friday will provide volatility enough for everyone.

Summary

Despite Friday's sell-off, bears are pressed to get traction. Not that the price action has been very sound, it has not. But as mentioned before, a market made up of fearful liquidation in early March left little selling when the bids showed up. Nasdaq has performed the best but is also consists of those stocks which find the least resistance.

The greasy crowds of Goldman and JPMorgan have benefited nicely from the Washington workings. There are some growing questions about how AIG relief and subsequent performance on its CDS's found a way to make those two 100% on the dollar. This along with other TARP funds the insiders have received clearly demonstrates the path of politics and money are paved with the same bricks.

Back To The Future

Reading

The Free In Free Markets

Market pushing off the consolidation lows and unless the bears can turn this around very hard, very quickly, the distance shall continue to increase between the lows of March 6th and the rest of the trading year. The Treasury finally caught up on the learning curve by introducing a 1 Trillion bad asset deal which before its unveiling, had all the vital ingredients needed and of course had been pre-approved by the private equity players. They will have to bid against each other with a wink and a nod, but it is better than having the pathetic hand wringing of talking heads and the absurd notions about a world wide depression. The same folks will end up with all the good cards after imploding late last year. In the real world of ' save us ', the players get the free part of the ' free market ' and everyone else gets to go to the market and pick through what is left.

Fed Never Say Die

Fed has indicated it will stop short of nothing to accommodate recovery. There is a danger in this strategy in that while it does reiterate the ' never say die ' attitude of the Fed, it is also evident just how severely the capital system is reeling. It is not a stretch to say market confidence is highly fragile and that it knows in a peculiar way the Fed is not sure what will work. Reacting to an economy where companies are clearly lowering their debt and cashing up is not a recipe of higher stock prices. The retail end of investment is dead and all that is going on, although considerable, is the massive repositioning of sector exposure. That is good for a bottom but not much for a sustained bull trend. The technical price picture for the indexes remains shaky and subject to reversals as more price work needs to be done.

Rally Roll

Indexes rose again on Tuesday continuing to recover ground from the new lows of Feb. While the technical structure of the rally is bad, do not underestimate the power of rallies such as these.
The biggest test will be avoiding reversals after new rally highs are attained in the next few days. These markets do not need news to move up despite mindless reasons given for the recent upside. Lack of selling is the main feature and that will not change until the market stalls and, if then, begins to draw in those who believed they had missed liquidation levels earlier.

Reading

Eating Crow

Bears Retreat

Bears continued to concede ground in choppy action on Friday trying to defending the absurd bearishness which had enveloped the markets. While short covering is the primary feature, it is a natural market reaction to a liquidation phase not seen for decades. Signs of an exhaustion bottom are evident by the richly deserved criticism heaped on CNBC where their content was as bearish on the bottom as it was bullish on the top. This of coarse confirming that financial news reporting is clearly the lowest in form and talent.

Populist cries against trading activity however are often misguided and mistakenly compared with valuable elements of volume created from the transactions of price discovery, with the transactional fraud created in the debt leverage business perpetrated by banks and insurance companies. Traders are not the problem. Price discovery includes at times severe devaluations. Though we all would love to have 'our' price, the reality is that prices have to move to discover value. For years, farmers have complained about the speculators in Chicago manipulating grain prices. Farmers would have simply preferred to accept a high price every year for their product. So it is with stocks and real estate. Everyone wants the top tick. Sorry, you lose.

What is amazing is just how little people know about markets and risk, economics and business, politics and government. This ignorance has led to unsustainable gains in the values of assets driven by a pseudo conservatism and by a cloudy notion of free enterprice.

Reading

Money Market Mutual Funds

The Elephant In The Room

All someone has to do is mention China's position in US Treasuries, let alone the Chinese premier, and everyone notices.

Hold and Chop

Indexes trying to hold onto gains over the last couple days with some internal price problems. While the investment side of the market continues to provide opportunities, the price constructs have not been overall friendly for another leg. This may right itself in the coming sessions but will create an obstruction to further gains if not remedied.

David Weidner's article on what is to become of the great minds of Wall Street.

More Important Than Markets

Baseball

Baseball

More Reports

Markets will look at a host of data points this week with various economic reports. The grind of working through fear and panic selling providing continued opportunities for investors. Traders on the other hand will have to keep the blue side ready since it is where the payoff rests as selling remains the treacherous ground subject to nothing for sale rallies.

Reading

Housing

Free Throws

Cheap Enough To Steal

World markets continue to give great opportunities to all the folks who would rather pay up for stocks when the DJIA is at 11,000 than at 7000. Global stocks have entered a frenzy of negativity revolving around the notion that values are now suffering because current bailout plans are supposedly not specific enough for investors to understand and, as as result, it is explained, market participants are having trouble determining value.

Now there is no doubt the process of explaining how the bailout components connect is a bit daunting, but believe me the boys at Goldman, JPM, and Morgan know the particulars. The problem is not that assets are not cheap enough, the problem is they are not cheap enough to steal. In addition, there is this glaring light shining on the terms and conditions, which may not be transparecny in its truest form, but is a lot more light than the Wall Street folks care to have illuminating their deals.

The Fed and Treasury for whatever they have done can be blamed for not being aggressive enough with handling market making as opposed to deal making. Telling the market what you want to happen is not like making it happen. Intervention carries a lot more clout than terms governing deposits. Since each day of trading represents a battle to determine value, market action influences participants immediate strategies. Winning the hearts and minds of investors, traders, or whatever you what to call the collective, can best be done with direct market intervention. Indexes represent the mother of values and is a place where the Treasury and Fed should draw a line in the sand. It would be a lot cheaper to stick a market up a Bear's ass than to continually fiddle with adjustments for the benefit of bank balance sheets. Let the resulting arb between markets create a fail safe where few would dare to cross.

Buffett Bombs

Buffett bombed last year proving there is nothing like a 25 year bull run to make you look like a genius. He claims the rest of 2009 will be bad but also admits he has no idea where stocks are going. That is clear. He also complains a bit about algorithmic trading but evidently knows little about that either. The problem with Buffett, even as well as things such as actively managed mutual funds, is that they are simply buy and hold in one case and buy and bail in the other. Those who trade buy/sell index based instruments will continue to outperform virtually everyone because of dynamic adaptive algorithms. They are continually adjusting to risk while the buy and hold crowd owns risk.

Readings

Sitting Cash

Safe Money?

Bad Guys, Bad Banks

Article

Geithner Bad Bank Alternative

Giant Bear Miscalculation

Indexes following the DJIA around on the downside as of mid session with every chart patternist drawing their line in the sand. Dow Theory folks, on the inter-connected weakness of the DJIA Transports and the DJIA itself, are declaring a new primary bear market. They should have read BaseOp2 post of October 07 to get short. Anyway, charts are photographs, not maps. The markets are at the end of process of complete capitulation as the dire forecasts make any arguments about any new comparative investment opportunitie as valuable as informational fliers being handed out on a street corner. The calls to raise cash by the sale of virtually all asset classes is starting to meet the spread leg of the G's backstops. These trades are in the process of finding homes in the inventory of wired investors laying the foundation for great wealth. While there is no question these markets will result in a landscape which will be altered for many years, never before have there been so many openings to ride guarantees against risk. A look at the corporate bond market is clear evidence the play has begun.

The remnants of things the general public had grown to love in order to keep pace with any type of wealth scenario will be somewhat altered. Unfortunately, real estate will not be the launching pad for the broader speculative elements of the economy. Speculative trading of all kind will not provide the added lift to stocks and commodities and will be weaker in form and numbers except for those with keen insight. Just like the bulls October of 2007, the bears are showing the ability to make a giant directional miscalculation.

Articles

Articles

College Grades

Money Supply

Public/Private Deals

Bailout starting to pay off for the G. That will only continue as the public/private deals start to unfold into the second quarter.

Articles: Treasury Pads Coffers In Bailout

Profit In Toxic Bank Assets

Bear Bubble

Indexes having to take it as market psychology reflecting the bear bubble. Except for some redemptions occurring, mostly a professional trade pushing prices lower. The overall trend is a flattening of the downtrend which is now over done.

Automakers Ford and Chrysler looking for more cash and to defend job losses they will get it.

Brain Loss

Indexes continued lower into Friday as the hand wringing is reaching full force. Disappointment that the stimulus package has restrictions on executive bonuses for those institutions taking governmental tax proceeds is adding to the whining. Republicans endorse the concept that compensation restrictions may cause a 'brain drain' or a 'loss of talent' on Wall Street. Well considering those are very two things the Republicans have suffered from for decades it is no surprise they are empathetic with Wall Street and its own inability to show it ever had talent.

Look for more sorry ass action as the indexes look to pound in a futile fashion the bottom of the downtrend begun in October of 2007.

Dead Bear

Traders have to size up the terrain constantly and come up with a plan of attack, whether in the pit, where I learned, or from behind the screen where so many of us now reside. In reviewing the action, I cannot help but think the red side of the card is done. There is just too little benefit to keep on pounding these indexes even given the most dire of downside predictions. Time to declare that the bear is done for awhile and maybe for a significant period of time. The bullside may not be as glamorous as the idiot markets of the past, but selling is going to pay lower wages.

Wall Street's Record

Markets did not like the Geithner plan on Tuesday, but that may be good news considering Wall Street has a great record of misreading actual market conditions. Here are some of the things the Wall Street thought were valid; Wall Street believed in the concepts such as....

(1) the shortage of stock theory, markets would continue to move higher as companies bought their own stock back leading to continually higher prices.

(2) technology would change the world and create a ' new economy '

(3) believed rating companies such as Moody and Standard and Poor's

(4) subscribed to the shills who produce the upside bias of cable business news stations

(5) that many of the impressive returns of the old Big Five were anything more than favorable marks of bad assets

(6) believed they really represented free markets.

Politically of coarse, they continued to promote vast expansion of governmental subsidisation of corporate America by slashing their taxes and ultimately accepting historic bale outs.

AIG Spells PIG

Article in Bloomberg about the trading going on at AIG.

Cash For Your Trash

The great free and efficient markets of conservative claim are all about being in position to be a part of privileged business welfare class. Bank/Brokerage, insurance companies, and other large corporate institutions have placed themselves at the front of the line for preferential treatment in nearly all realms of government subsidies decade after decade. The scope and scale of the taxpayer underwriting is described in this article in Bloomberg today.

Bank Friends

What do the boys know about Monday's Geithner announcement?

As of the close since Jan 20 lows for the Big 3

GS Jan 20th low 59.13 today's close 92.85 +57%
JPM 17.70 24.54 +27.8%
MS 13.10 23.19 +77%

Pump and dump or In before the launch?

Hang On

The markets behave as if they were at an end of a rope with the interventionist crying to just hang on, help is coming. But worries continue over just what relief will appear in the Geithner presentation next week, which the markets will listen to after Friday's jobs number. The reshuffling of the new risk parameters continues to drag on the pricing of stocks, indexes, and options. The latter of which has taken the biggest beating in all the unwinding of the make believe world of the last eight years. For example, outstanding calls and puts have fallen 46% to 153 million, the lowest total in three years. Seems the math models used to calculate option values have blown up and now made pricing much more expensive. Most have never been any good anyway as LTCM proved. Now with declining hedge fund activity, less option pricing is being implemented.

Waiting For Details

Market selling abated on Tuesday as unknown intervention stimulus details remained largely a mystery. The Obama team led by Geithner of Treasury is compiling components which will be released next week. The job's number on Friday will be over shadowed by that news unless it is expressly bullish. Not that the new folks in Washington know anything either, but there have been enough strategic intervention goof ups to provide a learning curve for what will be an enriched tactical assault on the bear. If it works, the bulls can enjoy some needed relief. If it doesn't, then new lows will appear and the base building will begin all over again.

Nationalize Bank Trade

Bank stocks on Monday morning acting more and more as if it is just a matter of time before the troubled banks are nationalized. As a trader one tries to think ahead of the news event but obviously this one is a bit tough. My first reaction is that since the move has been so powerful on the downside, avoiding the short side on big intervention news is a must. Except for the particular bank stocks, who would be essentially be drilled or become worthless, a significant amount of selling would step back from the market. Depending on the elements of the overall nationalization and details of the remaining stabilization package, voids in ranges could create extreme risk profiles.

Reading

The Risk of Life Insurance

The Pill That Navigates

Bond Fund Managers

Government participation through TARP and FDIC guarantees have created some trade adjustments which need to be followed closely. US bond fund managers are trading but also sounding out intentions and hoping the Fed and Treasury might reveal the ultimate end game.

More Rally

Further recovery on Wednesday as sellers backed off while glee attached itself to the 'save the banks' plans put forth by the new administration. Volume was decent but no rocket, as the overall price action now consists of less players than a year ago. Pricing will continue to flow into the market as long as there is no hard reversals in the next few days.

Designing Risk Strategies

The discussions about market failures over the last year and a half continues to focus on the lax risk parameters implemented by banks and brokerage institutions. The greater cause however was the type of talent involved in establishing investment strategies and how they inaccurately evaluated the risk scenarios. Proper assessments require enormous amounts of time, testing, and reviewing real-time day to day data in various sequential forms. Real dollar and opportunity costs are substantial but must be weighed against just simple risk evaluations or proper risk reviews that get it right. In order to create adaptive trading strategies scaled for success, several areas of operations must be tackled. Most importantly, they are, identifying the irreducible risks and designing performance standards the enterprise can execute. To many trades were constructed with foolish risk spread specs, which never had a chance to protect any assets in extreme markets.

Articles

For those who love coffee.

Market Keep Trying

Markets will try to build a launch pad from on top of a small island of support chiseled out over the last six sessions. Some market timers are looking for a rally from last week's lows but the ranges thus far have been too small to claim any noticeable success. With the amount of data coming forth this week along with the Fed meeting, anything is possible in an environment which is decidedly bearish.

Loads of commercial paper will be coming due this week and the results of how the market absorbs it will be closely watched. Also, there is some evidence that the relief train is starting to see increased interest from banks, brokerage, and traders who are determining what backstops will allow risk trades to work. Even the life insurance industry is seeking relief from the G which will be met with significant resistance since any deal may weaken their obligation to perform.

Articles

Here are a few articles which are of interest;

Rising Rates

Fed May Gain More Financial Oversight

Man The Pumps

A week to forget again for the DJIA, especially for GE. What a pig. GE represents the constant drip of liquidation the general markets have been unable to shake. On the tech side, some stocks such as AAPL have briefly been able to buck the trend, but if you discount how the cult is trading, even it could not take out last week's highs and thus still has to fight off the lower general trend.

Late on Friday, Freddie Mac announced it will request another bundle of cash from the Treasury. These streams of requests from the BAC, CIT, and now Freddie underscore the insolvency of these financial institutions. We now know that TARP, the first half, was originally approved because the Fed and Treasury told members of Congress the nation's banks were in essence broke or would be shortly if they were not pumped with liquidity. Now the pumps are still pumping and everyone is looking overboard to see if the ship is fixed and has stopped going down. And that just how the stock markets are trading and how the bond markets are trading. No one really can see below the waterline, but some signs, like the aggressive liquidation taking place in GE, makes traders wonder if it is possible to have a catastrophic failure during repairs.

Plowing Lower

Markets plowed lower as bank problems remained the focus of traders and certainly the underlying sore on market confidence. Word that State Street Bank Corp. is carrying fixed income problems as well as BAC needing an additional blast of cash, all created little hope despite a pep talk from the new President.

Bears will hope for a quick hard down move so they will not have to dodge any reactions from an Obama administration sending a message via some unexpected creative measures. Hard to figure what those measures might be but markets can become extremely thin when reacting to any blind side.

Decent Rally

Decent rally on Friday. Continued talk of some big job cuts across various industries with GE Capital looking to drop 11,000. Some timers look to see further bounce into next week with few economic reports due.

Rally

INDU, SP500, and NQ100 rallied sharply of their lows on Thursday with a sharp spike in volume in the Dow Jones. BAC continues to take a hit as they look to the G for relief in financing the Merrill deal.

Talk about Morgan Stanley looking to secure a supertanker to store oil at these price levels with the expectations of higher prices later this year. These guys have trouble trading in anything they cannot figure out, which is just about everything. What makes anyone think they have figured out the oil market? Their own stock is down -13% this year and -65% ytd. The only action they have succeeded in is where they get traction for transactions. Morgan will continue to be a fade.

Competing To Liquidate

Markets continue the retreat as little interest in buying is evident due to the general malaise engulfing trading. After the close, AAPL announced Jobs was taking a leave of absence and ' the cult' immediately barfed on their MacBooks. Certainly the company is more than one guy. At least it should be after the stocks breaks -56% last year and another -8% this year. Either the stuff is good right here on the product and the discount, or it is not. AAPL and other successful companies represent issues not of liquidity, but whether any of the connecting elements which feed from the financial sector back to stocks, are solvent. Either the Fed and Treasury are going to be successful right here in the first quarter or there is going to be an unbelievable drag on prospects for reclaiming any ground. Restoring national wealth will be Herculean task, leaving most unable to recover for a decade.

The reluctance of Congress to grant the second round of TARP is well founded. It is a legitimate question to ask just what has all this liquidity done. And if it has done nothing but stabilize several financial corporate institutions while the rest of the nations jobs and wealth tanks, the money should just be returned.

Winning this battle is having a plan that the geniuses in Washington and Wall Street have demonstrated is worth their over compensation. This is all about delivering financial conditions transparent enough where markets can develop trading strategies competing to take risk rather than competing to liquidate.

More Where That Came From

Bernanke in London told basically every one that 'there is more where that came from' with regards to additional stimulus. Markets are nervous and having all agree to the ' no one knows where these markets are going ' song, a trader has to take a shot on the buy side here. The Fed and Treasury are trying to monetize the long positions it would seem for at least for a 25% retracement from the lows. While they certainly do not have a target, they are going to make it increasingly hard not to place some of the liquidity into equities. With the size of the equity pool, that could be a significant position spread over players who in turn are spreading out risk with a discounted market and a long term time horizon. May not bring the bull back, but would certainly diminish bear prospects.

First Quarter Trading Really Begins

Volatility should kick up this week as the markets begin to establish first quarter battle scars. Despite the yearly romps in October, the first three months of the year are never without plenty of action. Monday saw commodity prices begin the week with sharp losses as notions of deflation were being pondered by specs. Whatever the direction, commodities will follow the stock market this quarter since equities will be the barometer for the world's efforts in defeating the pervasive dismal sentiment infecting alternative mattress strategies. Monetizing long positions requires more lifting than the Fed and Treasury have done, but the new administration's call to arms may cause the bears to think twice.

Just Move Higher

Stock indexes fell on low volume as various reasons failed to identify anything important happening today. Though bad unemployment data by ADP has put fear into Friday's number, the action is really about constructing a daily support pattern traders can build on. Today actually may help the cause of the bulls if the market can chop through a bearish number on Friday. No great runs, just move up.

Fed Panics

Well the FOMC minutes definitely showed real panic by the Fed about the dire economic conditions facing the nation. The question of coarse is whether conditions interpreted as so miserable can lead to anything but sideways action at the best for these markets. Acknowledging severe conditions does provide some honest tranparency to current financial problems. One wishes the same transparency would be used by the Treasury and Fed as to just where all the bail out money has gone. Information they both refuse to release.

Volume remains low and internals softening up as the markets wait for Friday's jobs number.

You Go First

Still no shows for trading so far this year. Lots of stimulating going on but little in the way of supreme confidence on how the next market play will assemble and become a run. The blitz of liquidity to fund the rescue of the nations banking and investment institutions, along with various other corporate entities, has created a fog hovering over the notion of zero interest rates. Hard to find data supporting big stock rallies while institutional preferences are to hoard cash. Cash given to them with little performance criteria and few incentives to do anything but invest in sure things. Which of coarse are things such as money market mutual funds guaranteed by the G. This ' you go first' lending and investment courage is typical of the talentless industries of banking and insurance. Even with every legislative advantage to conduct business long before the current mess, they still screwed it up.

New Year Action

DJIA, SP500 and NQ100 indexes all had solid rallies today as the best guesses for market direction played the odds on higher. It is hard to fade early action this year since bearish attitudes have clearly never been higher. Any redemptions aside, this market could rally substantially and still be no good in the end. Traders will follow early price action with the reasoning that it is hard to get motivated about downside potential after the death dive of last year. Trading institutions are leaning on the massive governmental rescue and putting trades on which are leveraged by excessive liquidity on the one side and the ability to purchase the best of the highest rated knocked down debt on the other. These trades have a longer time horizon but will pay well if the worst is over. The only caution today was the extremely light volume. The beginning of solid moves are built on sharp volume spikes. As today illustrated, much of the heavy lifting is being done without broad participation. Getting fund managers to deploy funds early and to flap those wings and scream like the chickens they are will take more than bull trap action this year. You cannot fool those guys all the time.