Jobs

Where are the jobs? Overseas, of course

Article from Salon. Complete Article

Corporate profits are up. Stock prices are up. So why isn't anyone hiring?

Actually, many American companies are -- just maybe not in your town. They're hiring overseas, where sales are surging and the pipeline of orders is fat.

More than half of the 15,000 people that Caterpillar Inc. has hired this year were outside the U.S. UPS is also hiring at a faster clip overseas. For both companies, sales in international markets are growing at least twice as fast as domestically.

Buy vs. Rent: An Update

The health of the real estate market remains a disaster, but there remains some expensive deals depending on location, location, location. Here is a New York Times article on buy vs rent ratio.

Below is an updated list of rent ratios — the price of a typical home divided by the annual cost of renting that home — for 55 metropolitan areas across the country.

We last covered this subject about eight months ago, and you’ll notice that most ratios have not changed much since then. A good rule of thumb is that you should often buy when the ratio is below 15 and rent when the ratio is above 20. If it’s between 15 and 20, lean toward renting — unless you find a home you really like and expect to stay there for many years.

Metro area	Ratio
East Bay, Calif.	35.9
Honolulu	34.4
San Jose, Calif.	32.7
San Francisco	27.9
Seattle	27.3

more....

Bernanke Double Down

The market year of 2010 started in a edgy mode hoping to avoid complications over the uncertainty of whether the potential problems in banking and business might multiply. Because of the veiled intervention and ludicrous mark to mark values of an enormous amount of assets held on bank's balance sheets, no one knew what might happen if one great failures appeared. It became clear to the Fed there was virtually no hope in a normal recovery and that if fact the world banking system was at risk of another event which would possibly shut down normal lending functions again. Persistent high unemployment with no prospects for any recovery led the Fed to make a tactical decision to further facilitate a rise in the value of assets based on the performance of one of the few markets which were recovering appreciably, equities.

As of this post, the DJIA is 74% off its lows of March 2009 with the SP500 and NQ100, 88% and 119% respectively. Individual stocks such as AAPL are over 300% higher while Goldman Sachs has seen a gain of 385%. The Fed is not digging deep to scratch out a rally, it is hoping to further perpetuate a resilient asset class in the hopes that all will somehow benefit.

Bernanke is definitely playing poker and one might wonder why he wasted a lot money going to Harvard when anybody can learn the basics of double down on the streets. For all his great supposed knowledge of the Great Depression, endorsing social programs to build America are so yesterday. Why not take a shot and be somebody.

What Brand Is This?

The steepening yield curve is a bet by players that all forms of stimulus already implemented, along with those planned, will spark the top while providing enough anemic growth in the middle to grow the economy. The real estate market is a large unknown and so to is whether tickle down will increase borrowing at all levels. Profits for business and any spending by consumers have come so far from adjustments made by reducing expenditures in their overall operations. Not a growth dynamic. The Feds absolute belief in the inability to attain normal growth without massive subsidisation is clearly derived from a vision where once normal business opportunities are being cleavered by the hoarding of capital.

Stocks rallies to date have been a brand name affair which is not so much a vote of confidence in the economy as it is from a lack of perceived broad investment opportunities. Apple, IBM, and Ford are examples of where distorted premiums result from a reluctance to buy beaten brands as if the chosen live in a world outside of this one. So both the Fed's reasoning and brand name strategies have at their very nature an implied risk resulting from an extreme lack of confidence in future growth. Failure to develop a recovery would leave the Fed willing to target other ways to stimulate the economy and would leave favored brands as just a target.

Right Stuffing

President Obama, Mr. Cave-In? He may be right that the best thing for the economy or market psychology is to cut this particular deal. But many of his supporters across the nation who have seen their upside probably diminished forever could give a rat's ass about current practicality. Real negotiations would fight against the future implications of policies promoted by a Republican party which now and historically has had the interests of an elite business class as their narrow trickle down vision for America.

Ben Greenanke, Little General, Father Christmas

Ben Greenanke, the Little General, father of QE2, and possibly 3 and 4, has decided it is now or never it terms of fighting any impediments to asset malaise. While real economic growth would be nice, why wait and possibly have real economic price discovery screw up any chances to pull the economy out of a downturn, now three years old. What with gold, oil, and other commodities showing no lack of money supply velocity, in the name all things liquid, why not give equities a blast to remember. While Republicans are spinning tax chants and cursing extending unemployment subsidies, Greenanke has joined the mob turning their collective outrage against those with little political influence in favor of the great business class of Wall Street whom the Republicans have championed for decades and who collectively produced a worldwide economic meltdown. There is no greater friend than Mr. Greenanke, father Christmas. Ben is spraying money like a snow machine hoping it will cover us all in this, last chance, do or die, price asset rally. Bend over bears, Ben is driven.

Jobs Number TV

Watch cable financial new stations as the jobs number released. Usually have on Bloomberg but today watching Joe Kernen and the group on CNBC with Alan Greenspan. Number comes out.

Market shocked at lousy jobs number. Rick Santelli says market will rally because data so bad. Greenspan says market will rally because.... well because he says it will and talks about some ratio where you take a big number and divide by a made up number. Remember this the guy who basically made up uninterpretable testimony year after year when reporting to Congress. We now know he is as goofy as ever and he will never shut up. As for Santelli, talking is easier than trading and obviously more profitable for him.

What is clear from listening to the panel, beyond the obvious upside shilling, is that they want a recovery, a rally, something that will balance the hopeful elements of rebound with the truly scary realities about current global economic mechanics. Of course, the whole point of QE2 is to fight scary because real economic growth is not an option.

Mortgage Problems

On October 19th of this year, BaseOp2 posted an article about the particular legal question of having a mortgage without a note attached. Here is the latest facing BAC.

From Bloomberg:

Testimony by a Bank of America Corp. employee in a New Jersey personal bankruptcy case may give more ammunition to homeowners and investors in their legal battles over defaulted mortgages.

Linda DeMartini, a team leader in the company’s mortgage- litigation management division, said during a U.S. Bankruptcy Court hearing in Camden last year that it was routine for the lender to keep mortgage promissory notes even after loans were bundled by the thousands into bonds and sold to investors, according to a transcript. Contracts for such securitizations usually require the documents to be transferred to the trustee for mortgage bondholders.

In the case, U.S. Bankruptcy Judge Judith H. Wizmur on Nov. 16 rejected a claim on the home of John T. Kemp, ruling his mortgage company, now owned by Bank of America, had failed to deliver the note to the trustee. That could leave the trustee with no standing to take the property, and raises the question of whether other foreclosures could similarly be blocked.

Economics

General market participants believe the broader indexes will move higher given signs of slow but positive economic activity. Heavy stimulative Fed intervention has rarely failed to deliver gains in equities though the QE2 comes late into this particular bull phase. Bernanke has demonstrated his uneasiness with the current recovery and his promotion of QE2 is more of a pep rally where good intentions are cheers but the outcome is unknown.

What opportunities for growth remain to the nation are weighted by massive real estate equity losses carried by lender and borrower, though the latter has benefit of position and influence. Economic prosperity's only salvation seems to be funneling of all bailouts to large corporate entities where the leverage to squeeze the public is left intact.

International tensions created by North Korea put the markets on notice that few things are simple these days. Those relying on China to save the day are the same fools who believe in the emerging markets sure thing.

The only bulls who are truly happy these days are the gold nuts since every world event, according to them, is a reason to buy. Their investment is where dumb lives these days but we all know dumb moves around like a Carney.

U.S. nearing end of major Wall Street insider-trading probe

Federal prosecutors in New York are in the advanced stages of an extensive insider-trading investigation that could lead to criminal charges against Wall Street traders and executives, federal law enforcement officials said Saturday.

Authorities had been preparing to file charges in the probe within weeks, but that timetable could be accelerated after an article about the investigation appeared in the Wall Street Journal on Saturday......... From Washington Post

QRiskValue

Latest from articles on QRiskValue.com

US/China Market

Index markets trying to achieve a successful defense of the recent QE2. Rising dollar and interest rates since the Fed announcement may indicate a trading view QE2 will ultimately work in growing the economy. The question is whether markets got out in front of any good news and now must wander through a period of correction or something worse. The fact US/China relations are seemingly entering the line in the sand phase is part of a struggle which might be with the markets for years. China's entire political stability requires aggressive export policies. The US however must now balance economic and political redesigns as a part of demographic and new regulatory mandates. Any real clouding of potential growth as a result of trade battles would put a major dent in equity markets.

Bear Markets Begin Like This

Given the slapping Bernanke has received and the absolute conviction that QE2 is unnecessary and will deliver unprecedented runs in every speculative market, something is clear, when everyone is convinced the markets are going up, it will never happen. One thing for sure however, stimulus is over forever. Now with stimulus over, markets will swing without a net and will be left on their own, which will be interesting, especially after such huge spec runs as we have witnessed.

When you look at the QE2 event, it is nothing more than the backside of the intervention trade where the Fed knew at some point it would be required to soak up treasury supplies or the front end of intervention would be all for naught. The other implicit notion that the QE2 is an automatic on all specs rising may be a late call. Markets have a great tendency to front run implied future economic policies, thus setting early market responses for rallies or breaks. One could argue the greatest bullish scenario for rally took place from the March of 2009 until spring 2010. That would leave the runs in stock and commodities now in the price areas where all depends on the kindness of others, not on any economic justification.

This Bull Phase Getting Toppy

Getting a bit tired on this run?

Bernanke Looks Desperate

Looking over the vast data landscape which the Fed has access to, Chairman Bernanke clearly sees either a darker Bradburian threat as in something evil this way comes, or possibly, a milder threat to which the US economy, in his view, still cannot handle. What is considered timely analytical economic advice, as it is delivered daily and nightly over the TV and the Web, has for some time lamented about just how and when the economy might recover to old form. Stimulus, QE2, and none of the above have been debated endlessly while staring at the available data. But Bernanke has consistently been nervous, almost haunted by the prospects that relevant media advise types have continually missed the dark spot. After all, how relevant is bad advise.

Now maybe it is a case where the Chairman just does not want his picture appearing in history books under the heading, Just Like Hoover, but either way, he looks uncomfortable. Certainly the Fed's actions have increasingly gone from an image of Volcker like strength to a weaker Greenspan to Bernanke picture of weakness as every accommodation has been made to preserve stable equity market conditions supposedly to guarantee future economic strength. But what material difference will QE2 treasury purchases have on employment, consumption, and investments? Feeding the market's psyche and relying on the the greater fool theory to increase general economic health is putting yourself in the hands of equity players, almost two years off the bottom. Nice idea, bad timing. Something is just not right here and Bernanke appears desperate. Again.

Dow Jones Greenanke Boom Bust Event

Since the game of converting real estate wealth into cash is over, the idea of stimulating prices of various assets so they might be able to be converted to cash is now in play. The announcement by the Fed yesterday of its intention to purchase treasuries along the yield curve to inject further stimulus into the economy is explained as another way to drive down rates but is really aimed at the only play the Fed has left, pumping asset prices. As stated before in posts here at BaseOp2, the Fed is using the Dow Jones Industrial Index as one of their key guides to gauge economic stability. The problem of course is that this particular strategy has its limitations as far as direct economic stimulus and has and will become more of a generator of a speculative play for assets. A sort of Greenanke boom bust event. Let the race begin.


The great thing about real estate and a housing market boom is that it employs so many people and the resulting growth creates a wonderful cycle of lending and transacting. This direct impact on economic growth is without peer, but without it, what possibly can have the same impact. Well, nothing. Certainly not speculating on gold. But the choices are limited to the Fed and now they are forced to stimulate assets such as equities which makeup a dramatically smaller portion of American household wealth.

When one looks back at the great inflation battles of the past, it is interesting to see just how nervous the Fed is about the black hole deflationary possibilities facing the US and world economies. This is an indirect job stimulus plan by the Fed since the recent election has all but ended any future stimulus by the elected ones. But asset plays being stimulated by the Fed also reflect the an odd balancing act by market players since they know that plays such as these are always a kind of musical chair pump and dump opportunity game where timing is everything.

There is an old saying on the trading floor. You get one good look at a bad trade. Meaning, the market gives you one chance to get out of a bad trade. The Fed may be giving asset players that chance.

Election Will Change Nothing

Election, Fed, and unemployment numbers on Friday will draw attention from all participants as to where the markets will land on Friday's close, especially as an indicator to market direction for balance of the year. While there may be some folks believing Tuesday's results will have some structural market significance, they will be disappointed and the market knows better. This bull phase is part of a uniquely bizarre economic re balancing process stemming from the great financial crisis. One thing for certain, the payments in bailouts, interventions, and other more exotic methodologies needed to pump the system will end up being paid for by leveraging against the financial interests of the middle. Despite claims by political factions to the contrary, this election will resolve nothing that has not already been decided because the biggest part of the economic pie will be left with bad real estate, no return on savings rate, and with an unfair save top and let the bottom rot re financing which cannot wait.

AAPL Run

Hard to argue with the upside success of AAPL, shown here vs S&P500, despite a rally with the same bubble profile as past tech wonders. Data from Wolfram.com

No Note, No Mortgage

Banks looking to foreclose running up against case law which states , assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity”); ... US Supreme Court 1872.

Article New York Times

No Risk

(New York Times) Watch an animated explanation of how banks use securities lending to make a profit at no risk to themselves, while their customers cover the losses.

By LOUISE STORY

Published: October 17, 2010

Money Mechanics, Intervention, and the World of Up

Price discovery and resulting values are now made up of an ethereal composite designed to resist poor economic conditions while absorbing the benefits of an unprecedented top down liquidity drive whose success is ultimately measure by Dow Jones Industrial Average. Daily grinds of true economic darkness oddly help provide rapid turn around times for all things connected to the Fed/Treasury intervention.

After the October 2007 highs, the violent move down into the March 2009 lows consisted of liquidation, re balancing, and the unknown. Now however, price action reflects the market's readjustments to the Fed's constructive re-liquefying and the use of various financial supports as a part of this evolving organic intervention period. Part of it has to do with the very nature of stock market action. Some things are designed to trade, and others are designed to trade up. Stocks have always had an upside bias as a buy side vehicle without much hedge function, unlike commodities and fixed income markets. What else could account for the performances of such great money managers over the years. They are not traders, they are just longs and up works.

It is natural to have a downside ear to the ground given all the economic difficulties of the largest financial institutions. There is no end to scary in these economic times. But for investors, traders, no matter how bearish, if the Fed has its way, up is going through you.

The Over/Under Value In Stocks

Daily	Bnch	Bch$Chg	Bnch YTD	O/U%
AAPL	300.20	89.20	42%	8.25%
BAC	13.39	-1.61	-11%	-12.38%
GOOG	545.01	-74.99	-12%	0.13%
GS	155.05	-13.95	-8%	0.06%
IBM	140.99	9.99	8%	-2.16%
MSFT	25.37	-4.63	-15%	-6.79%

As of this afternoon early trade, QRiskValue.com's Over/Under % value view of these six stocks.
I guess the trade is buy msft sell aapl, buy bac , sell gs.

Bull/Bear Status

A chart from QRiskValue.com showing the Bull/Bear status as of Friday's close.

Wonder Why AAPL IS Over Valued?

Ten Biggest ETF Holders Of Apple Stock

Posted by ETFChannel.com

According to ETFChannel.com’s Top ETF Components list, Apple (AAPL) is the single largest U.S. equity position of exchange-traded funds in the aggregate. ETFs hold approximately $9.7 billion of Apple stock, or about 3.7% of Apple’s market capitalization.

To put this in perspective, ETFs own about $4.5 billion of IBM (IBM), or only 2.6% of IBM’s market cap.

The PowerShares QQQ (QQQQ) is the largest ETF holder of Apple at about $4.3 billion, or nearly 20% of the total holdings of the ETF. The SPDR S&P 500 ETF (SPY) is next in line at about $2 billion of Apple.

Ten ETFs with the largest Apple holdings:

ETF	Ticker	AAPL Weight	AAPL Amount
PowerShares QQQ	QQQQ	19.86%	$4,434,713,483
S&P 500 SPDR ETF	SPY	2.51%	$2,035,363,452
iShares S&P 500 Index	IVV	2.51%	$579,985,161
Technology Select Sector SPDR	XLK	11.75%	$509,605,382
iShares Russell 1000 Growth Index	IWF	4.38%	$479,374,141
Vanguard Total Stock Market ETF	VTI	2.12%	$315,406,889
iShares S&P 500 Growth Index	IVW	5.01%	$257,232,748
Vanguard Growth ETF	VUG	4.58%	$200,791,091
iShares D.J. U.S. Technology Sector	IYW	13.09%	$161,920,325
Vanguard Information Technology	VGT	10.44%	$132,265,227

Last Week This Week

S&P index futures made a new weekly high since putting in July lows. April highs over 1200 still casting a shadow on current trade however as quiet trade prevails.

Commodities have had all the happy money, which is not necessarily a sign of anything important other than the art of buying what is rising is still the fundamental proof of great money managers. Gold, oil, and grains are the next death dive, but timing is everything.

Chinese Premier Wen still prone to hyperbole with last week crying about the ills of protectionism and over the weekend acknowledging inflation is just possibly a problem. He and the guys down the hall from his office that type up the positive economic data are running out of China Engine stories.

Range bound markets will continue to frustrate the directional players even with jobs numbers.

Out Of Funds

Monthly domestic outflow trend from long term mutual funds starting 1/31/07 through 9/8/10. Last point -290 billion.

Real Estate Is A Drag

Markets stuck between the yes it is no it isn't double dip action. No one can underestimate the power and adaptability of trading markets over the last 30 years, but the markets may have finally run up against a bridge to far when considering the ongoing massive equity losses in real estate against most of the proclaimed opportunities provided by the overall correction. Revised lending rules and current corrections in equity balances on virtually all real estate sectors leave little room for any economic expansion. Muscling past property problems to this point has been difficult since interventions, such as the Fed's, applies its heavy lifting capabilities only to the lenders load.

If time can sort and correct the housing mess with sideways action, that would be grand. However, if the markets continue to decline through the fall and actually do double dip, all asset classes will turn negative. Even the wonders of gold will collapse as redemptions in all investment sectors meet growing cash demand sparked by deflation fears.

Creeping Me Out Man

Q UPP Index correcting as compared to the July posting Hopefuls Force Rally. Bulls are clearly on the run but one cannot help to notice the complete despair of every news outlet and their now constant coverage of each housing report. Too many bummers man.

The Bulls are insufferable during the good times and the Bears are such deep dark 'your mother hates you' folk that it is hard to enjoy a break in the market.

We are closer to value now but flash crash and other useless information creeping confidence.

Hedged Expectations

What will create a bubble in Treasuries? A hint is in an article from Market Watch about how hedge funds have been and are increasingly piling into the Treasury market. Those supposedly most adapt at determining opportunity in higher risk markets are settling for some degree of certainty do mainly to the horrible job they have done over the last three years and their clients insistence on no lock ups and some kind of a return.

New York Times has a piece regarding the continued difficulty in the mortgage market especially delinquencies in home equity loans. Apparently 11.1 billion in home equity loans has been written off and an additional 19.9 bill in home equity lines of credit has been swallowed by the banks. Wall Street continually pushes the notion the worst is over and share prices have already considered the bad news. But the need to have a reason to construct a bull scenario however is tough if general public obligations restrict sustained consumption in virtually all areas.

Two Treasury Secretaries Visionless

Previous Treasury Secretaries Rubin and O'Neill both stated in an interview broadcast today that another round of stimulus was unnecessary and ultimately the troubled economy would gradually become stronger on its own. Now this is not surprising since both have been proponents in the past of financial deregulation and a blind faith in the market's ability to figure things out, as it did when it figured out assets of almost every class were no good after deregulation allowed leveraging of worthless bundles of debt. Prudent financial stewardship will work, according to the two Secretaries, though neither could quite see the recovery horizon, or for that matter, see now much current market equity prices are supported by notions of future stimulus.

Without an additional dole, the road to recovery will be much longer than the two are predicting, especially if market players figure that being ahead of the investment curve is a sell and not a buy.

Hopefuls Force Rally

Updating the Upward Price Propensity Chart. The blue line measures the 2010 combined performance of the S&P and Nasdaq eminis as of today. The green line measure the validity of the rally.

Markets and economy need a rally badly to keep things together, but this looks like a bunch of forceful hopefuls.

Gaming Earnings

The largest gaming system on earth, earnings data, is being released for second quarter performances and once again analysts seem to be shy of reported results. Hard to believe these guys love being viewed as fools constantly but whip me must be their mantra.

INTC the other day and JPM today, have beat estimates. Now for the tech guys it really does not matter because as we know from stocks such as AAPL, another thirty ways to send your picture and download anything is supposed to be innovation. As for JPM, they are a classic example of how bad things really are when writing down bad debt and implementing weird accounting rules makes you a winner. They even have said they will buy back their own stock, which despite what any bull may tell you, is never bullish.

Now there may be some opportunities out there but think what got us here. Banks and investment firms went after the weakest, yet largest portion of the economy to offer cheap financing in order to reap huge transactional profits. Some firms such as Goldman even flipped on their clients by taking the other side of the debt structured products. Legal but not well played.

So the opportunities to create jobs by fostering investments in businesses had already taken a backseat to consumer and mortgage lending because the trade was quick. No one had to sit around waiting to see if the business investment worked, just lend the money and take the fee. Ultimately the debt loads imploded as did the trades connected to them and here we are, left with a soft economy where altered lending standards have dried up potential job creation and any peripheral growth, such as trading, is suffering.

Now there is always China. But you have to have faith that the spin on their story has more sucker time and that the real bad banking in a totalitarian country will not result in a headline one morning which drives the market into new lows.

Ignore Prechter and Economic History

I noticed today that the top two most emailed articles from the New York Times were, number one, an article about Robert Prechter, the Elliott Wave guy, and two, an article about a book titled This Time Is Different, written by two economic experts covering 800 hundred years of global booms and busts.

It is easy to gather from the popularity of these two articles just how preoccupied folks are with current market conditions, but more importantly, an attempt here by readers to learn if there is anything about current market conditions which might forecast what is ahead. The answer is no.

First of all, Robert Prechter has been around forever rolling his cycle map out in front of traders always predicting extremes, whether up or down, and rarely being right especially when factoring in any notions of timing. Now Bob is calling for the greatest of all market dives which will, and if any one survives, result in the greatest bottom in the history of, well, big bottoms. According to Bob, everyone should sell just about everything they own and run with only a can of tuna to the woods and wait for his signal. But since timing has never been one of Bob's big strengths, better just skip the nature part and rent a movie.

The other article is about a Harvard economist named Ken Rogoff and University of Maryland economist Carmen Reinhart who together have written a history covering 800 years of economic disasters where, some how, unbelievably to the two professors, each previous economic disaster was generally ignored by the next blow up participants and so on so on. That is insight. It may be news to these two authors that they have offered little in the way of any useful material to combat present economic woes and according to their own analysis, everyone will ignore their advise in the future anyway.

So do not listen to Prechter and ignore the history lesson. This market will be different and no one will know just when a solid bottom is in or when the next boom will bust. If you are a buy and hold investor, that model is broken and new investment alternatives will be delivered from Wall Street which will be just a lethal. Individuals and groups will now have a challenge to find investment management which utilises adaptive risk methodologies. Good luck.

Working On Correction

SP500/NQ100 working through overbought conditions based on QRiskValue.com oscillator.

Bears Push

Sovereign debt is certainly the Bears friend these days. In 2009, the Bears were continually run over each time a headline expressed doubts about the overall US economic recovery. After a quick dip, the Bears were crushed by the resumptive upside march. Now that headlines over US unemployment and world finances are being flagged each day, a new desperation over the health of the entire world economic plumbing has become the energy for the Bears big push.

But some structural elements are a problem for these markets and its participants. Traditional investment approaches, (anyone who has a 401K), have proven to be broken models and ineffectual vehicles for building equity. Investors have apparently resigned themselves to being hosed by the great transactional circus emanating from Wall Street as they pile into sector crap. But do not underestimate human blindness. One could put adaptive alternative alpha performing models right under the noses of just about everyone and they would still choose the join the legion of dopes haplessly sliding into poor performing investments. Misery loves, well misery, and nothing gives more grief than being upside down in your investments. Like, owning a home which is worth as much or less than it was ten years ago or holding the largest portion of your retirement in a 401K.

UPP INDEX

QRiskValue's Upward Price Propensity chart looks at what QRV's price internals are saying about the strength of the underlying benches.

Ordering Chinese

This blog has written several times about the China hype and the downside to great expectations. China has been presented as an endless source of demand and labor, but here is a story about Japan's current dilemma.

Hemorrhaging Oil and Economic Confidence

This oil eruption in the Gulf represents another example of how corporations of great wealth can lead us into disaster. This seemingly unstoppable oil hemorrhaging seems very similar to the confidence bleeding occurring as a result of the current economic crisis.

The great trading houses are now revealed to have no real insight into anything other than the ability to be a huge dating sight for large money changing which is about keeping the money running in order to keep transactions churning. The model is everyone involved gets a piece of the transaction of a bad trade. It has nothing to do with price discovery and everything to do with investment managers herding vast sums of money into pathetic returns.

A thousand point dinger in May was in part about two trading worlds, one rapid, one chicken, colliding at just the right time. But it was also about the underlying confidence that has been ebbing out of the markets. When I walked onto the trading floor in the early eighties, the seventies inflation fires were being battled and would become the single great struggle of the Fed as it ultimately became the great enabler of giant value distortions because of its dependence on a view that every economic downturn could be avoided by continually easing rates to accommodate bad judgment. Now we stand at the absurdity of zero rates and twelve hundred dollar gold. The first representing the ultimate battle against deflation, the latter a classic example of how mass investment plays become driven by fools.

Regulate The Talentless

Trading can be scary at times. Price discovery is not just for the upside as Fox Business and CNBC have delivered it. For an extended period of time leading up to the correction phase beginning after the 2007 highs, bulls ran around with flag waving zeal talking about new economies and hot over concepts about free enterprise and the beauty an American economic miracle spreading through out the world. Free enterprise is code for corporate welfare where government subsidies have now found their way into financial institutions whose pursuit of unprecedented compensation resulted in the need to create a pubic lending tree for those most private, if not most irresponsible, legions of talentless financiers populating Wall Street.

Now new rules will be implemented by the SEC around S&P 500 stocks which will result in the installation of circuit breakers to halt trading on any stock which moves10% in 5 minutes. This may work, but may need some tweaking. The futures markets, born in Chicago, have done an exemplary job for decades. Mark to market, here is the money. But that has always been too transparent for Wall Street because they need to transact in a world profit margins were greater because of the very nature of the cloudy product or deal.

The biggest problem for the markets is letting financial institutions remain virtually unregulated to trade mystery financial concoctions.

Down Is Out

The great outrage and now search into the reasons for last Thursday's stock plunge is all about a correction long overdue and the collision of two trading architectures. Placed side by side, electronic trading systems are able to take advantage of legacy trading structures left in place for the benefit of specialist and floor traders who are the primary owners of traditional exchanges. As for volatility, veteran traders have all been witnesses and or participants in the past when particular markets had quick violent down drafts. They are unavoidable but apparently harsher when trading structures cross and allow, in this case, the speed of electronic trading to hit all available bids and offers.

The other element of the of Thursday's death dive was about a thirteen month rally where bears for months repeatedly tried to work their angle only to be mowed over my countless late session rallies. Then, in a series of events magnified by the rumors of a sovereign debt contagion, a small tear turned into a breached levee.

Blaming computer black boxes for breaks and never understanding their upside contributions, as in the recovery from the lows on Thursday, is an argument delivered by floor trading types like specialist, who found themselves in a position of not being able to react fast enough because the electronic market moved faster than their ability to screw someone. Yes, different models employ various strategies which may at times exacerbate both upside and downside moves, but competing directional and value algorithms contribute trades which benefit price discovery.

Oddly the resulting concerns of price action in these markets will spawn another coordinated intervention among governments and regulators which will inherently buoy and distort the upside values. As we have seen, getting too bearish about macro conditions is a sure way to miss the fact that interventions have been great for the bulls.

Big Investment Banks Need Another 250 Billion: Bloomberg

April 29 (Bloomberg) -- JPMorgan Chase & Co. and Goldman Sachs Group Inc. are among U.S. investment banks that may be forced to raise an additional $250 billion in capital, cut executive pay and divest some of their most lucrative assets under a bill on the U.S. Senate floor today, analysts say. (By Dawn Kopecki) Entire Story

Goldman's Defense

Goldman definitely designed products which took the other side of the bull market in real estate, but that is the way markets work. If you are a market maker, whether in the pits of Chicago, or in the offices of Goldman Sachs, you are at risk each time you put on a position. In defense of Goldman, they positioned themselves to profit from a potential break in the real estate market, the fact that they sold CDOs to anyone, including their clients, may be greasy, but well within their right to trade a given market. Their unique position to profit from the transaction as well as the trade grinds on all of us a bit, but they were ultimately at the mercy of the direction of the markets. In trading you are always a hero or a goat. Could the real estate market have continued or even accelerated its rally? Unlikely, but none of us knew the timing of the break and certainly Goldman, despite the hype, is not as smart as they would have all of us believe. Collectively it is a company of transactors, not traders, but their opportunity to profit from macro moves in the economy is a part of the financial factory they have built and our economy promotes. The fact that the market was the final arbiter of their actual trading positions is their defense.

Goldman, What A Shock

Goldman, what a shock. I guess if a Republican had been in the White House they would have seen this coming, but one would think Goldman has enough friends even in the current Administration not to have been cold cocked by the SEC announcement on Friday. The smokey intentions of possibly setting up clients to take the downside of a trade is almost inevitable when you are in the financial transaction business as Goldman is and so the great outrage displayed in the media is once again part of the performance art of today's business news industry. Goldman did what Goldman does, hiding in the middle allowing the big dogs eat while collecting fees often times when market conditions are exceptionally dangerous. They have that right. But the long tail of structured products linked from investment firms to rating agencies and finally to wake up stupid clients will certainly reveal a culpability that will be shared by all those who were seeking to stretch financial performance ultimately at the expense of taxpayers.

Greater transparency is clearly an issue which easy to talk about and hard to create. Investment firms do not want it, the Fed and Treasury have told the courts not to reveal their intervention actions, and the banks have recently stated they will take the fight to hide to what extent any of them received bail out funds all the way to the Supreme Court.

This Goldman event will guarantee passage of financial reform but with enough loop holes to allow the creative shadows to hide the next financial disaster.

Greenanke

Listening to Greenspan's testimony today provided clear evidence that the guy is clueless of how markets actually work. The Peter Principal, that people tend to rise to the level of their own incompetence, certainly can be said about the Fed. Likewise for Bernanke, who like Greenspan, has never seen an economic event that did not need economic intervention simply on the grounds that all equity market slides should be avoided. The current financial dilemma has occurred on his watch which is bad timing for him but good for all the hand outs to his genius banking buddies. Fixing this current economic mess is going to be a bit trickier than when Greenspan was running the emergency cash spuing machine each time any event looked like it might impede climbing stock markets. Greenspan is a dope and his successor is proving there is only one way to go, keep on making the same mistakes by relying on the same players to profit from the interventions while changing nothing.

Dooming Real Growth

After all is said and done, asset speculation is the only driver in fostering positive market perceptions about this recovery. The Fed, having to find some means to stem deflationary pressures, chose to provide massive liquidity to hopefully inflate asset prices which in turn would imitate real growth. While asset classes such as stocks and commodity prices have recovered, higher prices do not in themselves create enough impetus for job creation. Like Greenspan before him, Bernanke thinks whatever it takes to inflate stocks prices is the ultimate answer to economic recovery and expansion. It must be a part of the limitations of the job and the preoccupation by the Fed to create a policy which appears to be striking a balance fostering growth and fighting inflation, but is really dooming real growth and inflating assets. If there is no real job growth, nothing gets fixed and higher asset prices end up being lousy trades.

Greenspan II

Bernanke, or Greenspan II, restated in a prepared statement for the House his belief that the Fed needs to remain accommodative because of the overall weakness of the economy. This is all quite bullish of course to the market carnies who claim zero interest rates will provide all the energy necessary to unleash the true nature of the markets, up. Now without being able to identify any of the exact characteristics which will signal when the up turn in the economy will mean Wall Street needs less stealing, the Fed, made up of people who have no particular skills, bankers, claim there is a sense that current rising markets along with historically high unemployment is proof the stimulus is working. Well the unemployment part is a problem but why not take a little satisfaction in the fact that Wall Street is doing better. Why do others always have to bring everyone else down by being negative about the majority of the economy. Sure, people across the country are tapped out and would not be in as bad of shape if they had received anything near the deals of Goldman, JP Morgan, and others. The Fed would love to help out everyone but those people just do not work on Wall Street.

AAPL Risk to Value

On this chart, you want the numbers to be on the top half if you are a bull, and on the bottom half if you are a bear. In June of 2008, the bulls risked about $130 bucks being long. In December of the same year the bears risked about $80 being short. Right now a very slight edge for the bulls, still a bit of risk to the bears, but obviously much less at these levels.

Lower Lows A Trend?

Bloomberg poll states, " Among those who own stocks, bonds or mutual funds, only three of 10 people say the value of their portfolio has risen since a year ago." Now the author of the article, restates the media mantra declaring a bull market is underway.

Are we sure? From its high the DJIA declined over -54% in a 17 month fall. We now are experiencing a twelve month rally but remain over -23% off the all time highs set in October of 2007. More will follow on the Nasdaq 100 and S&P 500 but here is a chart of the DJIA lows made after rally roll overs since 1974. A rally roll over low is a low made after declines from higher highs.

It Takes Ten Years

Expertise takes time, lots of time. Nothing could be more true than designing market applications which provide trading solutions and analytic content focused on understanding risk. For those who skip around from one venture to the next, there is little hope. For those who have never committed themselves to a goal of product and application design, they must settle on being mediocre. Whether investor or high end high frequency trader, a commitment to process and design takes enormous sacrifice and a huge amount of time. The search for alpha clearly puts at peril the performance of not only large fund operations due to popular investments
which breed huge bets with processes which do no fully understand risk parameters, but even the performance of operations with smaller trading goals. The 10 year rule applies to all software and application design. If your models failed in 2008, well, it was a great test of your expertise on risk.

UPP Index

Monetizing the SP500 and NQ100 futures against our own UPP (underlying price propensity) Index suggests the year long action may be part of a bear market rally. The big break in the UPP Index begins at the end of summer 2008 where market participants were still believing the bull was still alive. However that soon changed as massive liquidations began and continued up to the spring of 2009. The Index measures price behavior conducive to prolonged upside action. For more information click.

Upsiders

FedEx (FDX), like so many stocks, bottomed around March 9th of 2008 ($34) after an 86% decline from its 2007 highs ($121). It is currently trading around $87 or about 150% off its lows. News coverage today claims its earnings beat is proof of global economic recovery and merits an even higher stock price. Maybe, but even considering this Blog pointed out in Feb of 2008 the lunacy of the declines of the overall market, prices represent a move in position from opportunity to liability. Fixed point values which analysts are famous for are useless. Agreeing that price is where it is trading and value is where it should be, only gets into endless discussions as to value methodology. FDX's earnings numbers may have something to do with global and domestic economic recovery, but probably more to do with a business plan adjusting to promote the bottom line and a natural technical recovery of the stock which has already been captured by those willing to risk ownership at low prices.

Like so many stocks currently, the strong hands have made their money and now want the others to take it higher. They always have, but will they this time? Years of trading have taught me never try to underestimate the stupidity of upside traders, and certainly the greatest upsiders, fund managers. Long term investors do not have much to show for the last ten years and to think Fed and Treasury intervention has realigned the stars to make everything good again is an unreasonable assumption.

Same Game

Greenspan helped put the disaster together along with the great deregulators from the Bush and Clinton administration. The current Fed and Treasury are an exact extension of the same policies. Same attitudes and allegiances operating the same game. While Congress scolds them for poor vision, it cannot get beyond the same spheres of influence from lobbying interests so set against any financial reform. Having all but abandoned any real help for homeowners facing growing delinquencies, generous bailouts have been selectively reserved for only the grievous of financial institutional sinners. The same all will be well with cheap money crystal ball Greenspan scanned is being used to look into the future and declare all will improve with time. As a result, values of everything from equities and junk bonds are being propped up, convinced the healing has begun, without honestly appraising the permanency of the underlying damage.

China, Housing, Stocks

China sounds a bit testy over suggestions by the U.S. that it should realign the yuan. The edginess stems from a nervousness by governmental heads as they realize it is hard to control their own invention, a super heated economy where speculation is mistaken for growth.

Housing market in the U.S. has an underlying problem of accelerating prime mortgage delinquency. Foreclosures have been put off and seem to be a part of a growing hope or plan that a slow recovery might occur over time if inventories are absorbed by a recovering economy. Lots of liquidity in the banks under tighter loan standards unfortunately does not create enough lending to save the sector. Lack of significant job growth means dull real estate for the foreseeable future.

Stocks continue to have a bid as low volume and small ranges dominate daily trade. Zero interest rates however are proof of a sketchy recovery where 'eat like a bird, ___t like an elephant' market action keeps the bulls nervous and the bears weary.

Get In Or Get Out

The troubling part of an upside scenario is who is going to carry the water. While the DJIA has had a rebound from an approximate 50% drop in value, assembling the usual suspects for buying is more problematic. But there are optimist. According to Barron's last weekend, it is time to position oneself for the second half upside run.

Surely there must be some new insight into the coming rally?

Not really.

The impetus for this rally according to the Barron's author, Andrew Bary, will be because "the S&P 500 is trading at about 15 times estimated '10 profits of $75, based on Wall Street strategists' forecasts. That's not expensive, given today's low bond yields. Besides, the profit picture could brighten as the year unfolds, as strategists often underestimate earnings. A year ago they were projecting 2010 profits of only $66." He continues, " ..Even after the past year's rally, the S&P 500 is no higher than it stood in 1998, and profits then were running at just $45. The index still is 27% below its 2007 high of 1565."

Dangling the same old bait as a rationale for investing is really coming out of the same guide book that got pension funds and other cheerleaders in deep red. Unfortunately for promoters of such logic, the earnings formulas may not have the magic they used to, and may be as lame as reasons for buying gold, you know, because it is going to double. Further, pension funds, up till now, the great buyers driven by these historical extrapolations, seem to be dumping stock in favor of long term bonds. Its not that the great crowd does not want to be bullish, they just don't trust the story.

New Fools Wanted

There was little information in today's unemployment numbers other than business talk shows analysing the impact of snow storms and census workers on the overall job picture. What lies ahead are years of structural high unemployed levels ultimately resulting in modest GDP growth. That is good news on inflation which is bad news for most markets, since most strategies, even in equities, are relying on a jump. Markets will continually have to rely on declining governmental stimulus for trade opportunities such as the odd but understandable developing demand for weak corporate and sovereign debt, since they are the only markets with perpetual guarantees, thanks to a new world of governmental economic intervention.

The markets are gearing up for disappointment as it becomes evident there will be few areas to mine for growth. In the 90's we had the "I want to be a tech investor" fool. In the 0's we had "I want to be a borrowing" fool. And while some will argue that the Green Revolution will be the spark, it just does not seem that an 'I want to be a wind and solar fool' will work .

Now with low job growth ahead, the horizon is flatter than ever. Polarized social discontent will deliver fitful governmental commitments as political forces lean back to the right. Stagnant real estate prices will not recapture lost asset wealth and China will turn out to be more of a danger than an opportunity.

Upside For All

Market Bulls want to project Buffett's recent earnings success as proof of current overall upside opportunities in the market. His opportunity play however was ultimately made successful by the taxpayers giant stabilization check. The big picture Buffett promotes has done little for investors over the last ten years and his current strength could be a result more closely resembling a pick pocket than a stock picker.

Marketing the continuation of a generational upside swing of post Great Depression Wall Street is rooted in market concepts that depend on abundant resources, both materially and financially. That may be a problem. But that is another post.

Despite what long term gurus would have the public believe, the market's usual day to day price action has, in large part, always been less about investing, and more about what price opportunities market players can get away with. Legions of willing buy side enthusiasts are part of the success of marketing one of Wall Street's products, the next great run.

In a world where opportunities only present themselves to buyers, there is no downside. But if markets were rational, efficient, and always reflecting value opportunities for buy side investors, Wall Street would not be doing as well.

So while the Bull will tell you the market has a lot of catching up to do, it is reality that is always catching up to bad investing concepts. Upside for all does not work. Something people inside Wall Street have always known.

Modified Trading Restrictions

Bernanke speaking today will surely be another 'read between the lines' delivery with markets hoping he will not drop negative vibes on a trading environment suspicious of the current economic outlook. There are plenty of 'dead cat bounces' between housing and earnings which could give way to negative price action given any impetus from the Fed.

The 'Volcker Rule' is being somewhat watered down despite the White House's comments to the contrary. With the Illinois contingent in Washington sympathetic to enormous Cmegroup influence, it is unlikely a forceful restriction of banking proprietary trading will ever happen. Trading is trading and the Cmegroup will want to see as much grey area as possible in the final regulations.

Other elements of trading oversight will be the SEC's recommendation for a modified uptick rule which will be applied once a stock has dropped 10% or more. This is a temporary rule but will probably survive the beta since it has wide public support.

Lobbying Data

Opensecrets.org

Lobbying Database

In addition to campaign contributions to elected officials and candidates, companies, labor unions, and other organizations spend billions of dollars each year to lobby Congress and federal agencies. Some special interests retain lobbying firms, many of them located along Washington's legendary K Street; others have lobbyists working in-house. We've got totals spent on lobbying, beginning in 1998, for everyone from AAI Corp. to Zurich Financial.

You can use the options below to search through our database in several ways: search by name for a company, lobbying firm or individual lobbyist; search for the total spending by a particular industry; view the interests that lobbied a particular government agency; or search for lobbying on a general issue or specific piece of legislation.

Total Lobbying Spending
1998 $1.43 Billion 1999 $1.43 Billion 2000 $1.55 Billion 2001 $1.63 Billion 2002 $1.81 Billion 2003 $2.04 Billion 2004 $2.17 Billion 2005 $2.42 Billion 2006 $2.61 Billion 2007 $2.86 Billion 2008 $3.30 Billion 2009 $3.47 Billion

Number of Lobbyists*
1998 10,403 1999 12,950 2000 12,449 2001 11,755 2002 12,075 2003 12,838 2004 13,096 2005 14,030 2006 14,451 2007 14,826 2008 14,446 2009 13,741

NOTE: Figures are on this page are calculations by the Center for Responsive Politics based on data from the Senate Office of Public Records. Data for the most recent year was downloaded on February 01, 2010.

*The number of unique, registered lobbyists who have actively lobbied.

Feel free to distribute or cite this material, but please credit the Center for Responsive Politics. For permission to reprint for commercial uses, such as textbooks, contact the Center.

Industries

Inflate or Deflate

Fed raised the discount rate a quarter point and has begun what will be a pattern of rate increases to extend over the next several years. The dollar will benefit with this change in policy direction although the initial impact of the current move is primarily a psychological one. The curve between the 2 and 10 year, at a record yesterday, was not necessarily the issue for the Fed since it was responding to the structural elimination of some liquidity guarantees for banks which have already been closed down. The steepening yield curve move reflects a natural reaction to an almost organic insisting, that over time, inflation will be a problem. There is almost no other way the curve to go, it is reasoned, but as we know that does it make it a sure thing.

So many of the old trade tendencies may be tested as we deal with systemic complications created by the most recent collapse. Easy money during boom times historically leads to inflation. Easy money in an economic collapse limits but does not eliminate deflation. What is left is a trading industry trying to catch the next move, and since the last big war was against inflation, traders just cannot put there arms around a deflationary strategy. Not after all that stimulus. But if the velocity of money in the system is limited to providing liquidity to financial institutions and not to finance economic expansion through broad public use, jobs and asset growth will be limited. Inflation trades will implode.

Data Please

Barclays showed what asset sales and transaction revenue, (they call it proprietary trading), can do to in an environment where expectations are so low, down is up. They are quick to fire up the strategies which will go directly to the bottom line, and of coarse, selling things will always work. The trading side however is one where the game clock is running. Being able to continue to capture the latency factor on order and price data where opportunities exist in part by bank/brokerages own customers willingness to be hosed by the firm's proprietary trading desk.

"A technology arms race is under way in the equities and derivatives trading markets as traders – especially high-frequency traders – seek to get trades done as fast as possible. Colocation has emerged as a popular way to do this, with exchanges offering colocation and specialist data centre operators ......" Full Article

We must be near a top of sorts in this arms race since it is all one reads about. But this race is not new however and the chase to the data drough ramped up big time as far back as 2003. What is different now is reliance on it as a front running tool for brokerage/banks to generate transaction fees. As to whether it increases volatility is not quite clear. Last year the markets rallied continually in an orderly fashion with all the high frequency trading necessary to execute underlying demand and price change.

What is more important to volatility is the anticipation of higher prices and the eagerness to participate in the pursuit of what is perceived as real profitable opportunities. For 2010, you need, if possible, a clearer picture of the overall direction, which is somewhat cloudy considering the current price action of financial stocks. If it is the real deal, they will lead.

Gold Southbound

The current rationale to buy gold continues to be fueled in large part by an investment cycle where notions of value become intertwined with a macro view of trends. Gold unfortunately shares the bubble characteristics made possible by the enabling of an investment super highway funnelling dollars from the greater population into dubious upside expectations. While there is no doubt certain world events could raise the price of gold, most of them have not been thought of and the most feared would probably be a selling opportunity.

Gold's attractiveness as an alternative safe haven for economic preservation has some major problems. If it is merely a substitute for dollars, then a substantial rise in the value of the dollar, which I believe is underway, will be craps for the shiny stuff. But if it is more than a substitute for US currency and rather is a fundamental demand/scarcity play, good luck. Those notions have been played and there is not a commodity market on earth which, from its all time highs, has not suffered a retracement of at least 50%. The declines retrace a winding road and run over all those convinced of its investment power. Gold has started down that road.

Bernanke/CMEGroup/Debt

Bernanke clearly wants to get going on raising the discount rate to bring about the' beginning of the end' for intervention. Stimulus will remain but the controlling aspects of a hike will be the first time in a while the Fed can say it is leading and not reacting. Rates will rise ever so slowly even in the face of a sluggish economy.

CMEGroup worked out a deal with News Corp for the Dow Jones Index as a move to gain control of an important piece of trading content. Other than reducing license costs, controlling the underlying product is a strategic move to drive and protect the index and its derivatives from any and all competitors. All exchanges fear substitute possibilities, never knowing what may replace any of the current high volume derivatives in the future.

Sovereign debt will be a news game for the year with little chance of any real default but certainly enough bumbling among governments to make trading interesting.

Numbers

The unemployment rate fell to 9.7% but the announcement left confusion since January is the month to do the reset for many of the data components. Regardless, once the number came out the Bears had much of their day's anticipated thunder removed despite an intraday decline of about 150 in the DJIA.

Sovereign debt issue during the week was part of the debt is bad mantra with many concerned ultimately about the U.S. and Britain. The result will be zero rates to avoid defaults, modest economic gains for a long time, and eventual commodity melt downs as the big bets on inflation and China fizzle.

Financial reform has become a joke as there seems to be a Washington thing for big money. What a shock. Since the country seems about evenly divided on party loyalty, there is no one to sway. The Tea Party folks are simply the same end of the universe aliens who have been walking in the desert since Goldwater. They are convinced their meetings will make a difference. Better chance of a large volcano erupting in central Illinois.

Markets will continue volatile trade between false hope and over stated disasters, so the numbers will fly around, but here are a few numbers that do not matter;

1. The DJIA 10,000
2 Any 200 day moving average
3. Any appraised value of any home in the last 5 years.
4. Any economic data produced by the Chinese government.
5. The number of times anyone says 'it is not about the money.'

Volcker Rules

As President Obama announced the Volcker Rules last week, thousands of bank/hedge/equity linked individuals spit their coffee across office suites and began gagging. The V Rule or rules are two fold. One. If you are an institution that take federally insured deposits, you cannot speculate. Two. You will be limited to the amount of risk you can take and you will not be able to own, advise, or invest in hedge funds or private equity.

If you take deposits and cannot speculate, and you can speculate but cannot take deposits, how will these poor institutions survive?

Well the first V Rule can be taken care of simply giving up the Fed window deal. The second rule however is a bit trickier when trying to figure out how to get proprietary trading into the bottom line. Goldman and JP Morgan can go back to being strictly investment institutions but will have to scale back their business models that had recently included deposit nirvana. Growth will be a problem and growth by exponential dimensions has allowed them the ability to intertwine transactional volume together with speculative venues. Trading services is a wonderful thing since charging, not really trading is the game.

Volcker will testify on Tuesday in front of the Senate Banking Committee and then will be followed by Goldman and JPMorgan of Thursday as they try to modify the Volcker Rule with the Weasel Adjustments.

Save Us, Never Mind

Nervousness about the reappointment of Bernanke a bit over done on Friday. Democrats in the Senate got the red growing when several announced they would not vote for reconfirmation of Mr. B. This may have been a direct response to the election results in Massachusetts as Democrats came to realize they can play hardball too if all their health care efforts are to be undone. Being obstructionist, they reason, works both ways. Of coarse the Fed and especially Treasury have few friends as the tired public views the treatment of the same 'good old boys' and their financial workouts as only for those who are guilty of the greatest errors in fiduciary responsibility. Crying save us and then saying never mind after their rescue has the general public annoyed.

The 'worst is over' cheers suddenly got quiet as selling appeared late last week and may have made a dent into those who truly believe the market will gain in 2010 and their current long position. Those folks do not want to sell but do not want to leave all on the table again.

All this may be tied to a general realization that the nation's job creation engine will only idle in the coming years as everyone discovers the manufacturing of ring tones is not the lift the economy needs. No, a world of shrinking leverage opportunities will make it hard to employ those who came to rely on the broad uplifting effects of a climbing real estate market. Maybe congress should consider tax credits for families who take in lawyers, real estate agents, and mortgage dealers.

The paradox of is that there is plenty of money supply, but not enough supply of money to go around to the ever growing ranks of jobless Americans.

Mystery China Trade

Market's decline today partly blamed on China credit restrictions, but regardless, as mentioned here in September, the whole China story is going to end badly. The Google internet dilemma is hardly a surprise. Totalitarian forces will ultimately harm the entire China fantasy along with trades pushed by commodity and stock traders long on China but short on original thought. The China demand theory evolves from the same level of excitement which delivered trades based on bundles of weak scrutinized debt which the rating agencies stamped AAA. The design flaw in the China trade is not because there are not enough Chinese to lift demand, but because the underlying economic conditions and data are a mystery and lack transparency. Mysteries always lead to bad trades, always.

Why Up?

Markets on the defensive heading into the three day weekend. Even with today's decline, the usual chant for higher prices emanating from business news channels has reached an elevated level of confidence mainly as a result of the repeated bid side momentum carried forth from 2009. Puzzled financial blogs have written about the invisible hand behind the rally in stocks. Foreign purchases, Fed/Treasury manipulation, and other forces have been mentioned as suspects. But the answer is not so mysterious.

Back in the panic of late 2008 and early 2009, participants all became linked in a kind of financial Coriolis Effect, you know, the direction toilet water spins. Normal value schemes were diverted by the force of plunging asset prices including stocks, commodities, and real estate. Massive liquidations to offset remaining risk was gaining velocity and was quite unfriendly to any rational market theory, now known as the useless theory. As prices for broad based assets fell, the otherwise normal attitudes regarding purchase opportunities were replaced by a reluctance to place any bids which had the potential of becoming targets for liquidators. In March, the combination of Treasury and Fed intervention along with declining selling needs, put in place a price level not seen in twelve years and having wiped out generational asset growth. After such a decline, prices naturally began to retrace some of the ranges penetrated during the panic. This in itself provided enough energy to rally based on repricing against diminished selling.

So now what? An up January by some bullish thinkers is the indicator month for all those other months because, well, they really need to have an indicator early to rationalize January purchases. Waiting for February will not work. However, if January is a down month, the bulls use other indicators such as the Chinese Demand Indicator. This is done by counting all the Chinese and dividing by one, the answer or quotient is the number of IPhones that will be sold in the near future. Bullish.

Now this renewed confidence that the worst of all asset declines is over and that the long term bull trend started after the Great Depression has been put back on track, comes from the same basic understanding behind mood modification drugs, that even bad things can look good if you just think they are. But more importantly, good profit seeking efficient stewards of corporate banking and business have adjusted to the cleansed market place. Your cleansing not theirs naturally. Further, increased vigilance by congressional investigations, Federal Reserve preparedness, and Treasury oversight, will be sufficient for a new bull phase.

Well, that is the plan anyway.