Buffett

Warren Buffett has announced he has amassed a huge 5.5% piece of IBM, although it was kept from all of us under the double secret exclusion act derived through natural law, but implemented by special permission by the SEC. Normally, companies such as Bershire would have to disclose their purchases. But now we know why Buffett wants the rich to pay more in taxes. It is to pay for the special treatment and subsidization they receive from the government each year.

Warren touts the great free markets whenever possible and wants everybody to operate fairly in the market place, except when he is amassing a huge stock position. Now it may be he wanted to merely surprise us with the great news that he, much like the great JP Morgan had helped the banks and US Treasury in the Great Panic of 1907, was continuing to support the economic recovery.

Maybe we should all be thankful for Warren and his ability to possibly be illuminating a top by infusing billions at purchase prices which were initiated in March of this year after a 150% rally in the stock since 2008. Maybe he really want us to join him and help support the position he is now lugging.

Giving Them What They Demand

Since August of 2010, just after the Jackson Hole speech by Ben, and shortly before QE2 began, Nasdaq 100 stocks became the focus of an upside play where the index has gained over 34% as opposed to its neighbor the S&P500 gain of just over 20%. This of coarse on top of a massive rally in 2009. Odd price technicals, such as the QRiskValue chart shown to the left, continue to reveal unusual bloated positions where billions of dollars in share values sit on a thin perch fully expecting to be paid by the intervention strategies of the Fed and Treasury.

Given that the test of all governments these days is to placate Wall Street, all demands seem to be met. But even cash monster stocks such as AAPL are vulnerable to a large downside sell off if there is an event which triggers an unraveling by all the well laid demands of the markets

Life Support for Bankers

All the efforts of EU folks has certainly been filled with drama. Germany and France taking the lead which historically, politically, and financially has usually led to disaster in some form or another. But they slew the banker dragon by making him take a 50% hit, knowing that if the agreements fall apart, a starting point of 50% will easily become 80% . CDS fears have subsided but by the nature of the 50% deal sort of make that market unstable anyway. Why buy insurance if there is none?

Interventions can be a pump job, time out strategies in a political cycle. In the end the financial risks may be much greater than the political interests they are protecting. All these bail out measures are put on the spot and, as much as the Fed would not like to believe, there is an end game where no amount of cash held in reserve at banks can protect against the loss of confidence resulting in failed efforts. Economic expansion depends on the belief that there is a real upside, not just some sort of endless life support for bankers.

The Grand Speculation

Speculation usually leads to prices which markets will ultimately reject. We saw this with Tech Spec in 2000, Stock Spec every generation, Real Estate Spec, well, you know. Now we are seeing Intervention Spec, where governments around the world are supporting prices from fixed income, to stocks and commodities. The US Treasury and Federal Reserve are now in the mother of all strategies which is basically speculating on asset inflation as the only acceptable means to keep world economies from entering into a deflationary spiral. This of course would be bad for everyone it is reasoned and especially those at the Fed and Treasury who do not want to be lumped into history as the type of 'know it alls' who did not learn from the 'last know it alls', who let bad things happen.

And of coarse there is the lesson. Why fix something that is broken? Bad is bad and good is good. We should be able to live our lives without anything bad happening to us. No bad debts, no bad stocks, and most importantly, no bad life. Now this is especially applies to the richest of the world where all the energies and labors of the greater population are required to pay for the no bad life guarantees.

It definitely seems to working. Except for real estate, where it is hard to save people in trouble not viewed as material to saving the wealthy, stock prices have gone to the edge of bad several times of late and miraculously recovered each time. Now this is especially hard on rational thought let alone perennial market Bears. This economic crisis was their chance to gain on a whopper of a financial disaster. Instead they are repeatedly run over like road kill. Only Evangelical Bulls from cable business news are happy viewing each dunk in the markets as a cleansing of the unholy non believers of the markets true spiritual direction, up.

If we all get behind the limo and push it the hill there is no way all this intervention can fail. Somewhere along the line the gears of best economic practices will mesh with the broken parts and we shall have good. No jobs, but good.

Wall Street

From The New Yorker

Occupying Wall Street in 1967

Another Bottom Indicator?

Associated Press

30-year mortgage below 4 pct. for first time ever

By DEREK KRAVITZ

WASHINGTON -- The average rate on the 30-year fixed mortgage this week fell below 4 percent for the first time ever, to 3.94 percent...... (Entire Article)

Bears Fall Up

With reversal of the market on Tuesday, bears have been trying to find anyplace to hide as shorts are all chasing the same offer. Friday's unemployment number will provide some hope for the red side but the numbers will have to be extremely disappointing. Price configs are still bad but intervention policies are constructing world where pessimism about value is met with sand bags filled with liquidity. But as we have seen over the last months, do not get too comfortable with your position.

Price Technicals Still Bad

BaseOp2 has looked at the overall interventionist efforts by central governments to preserve and protect debt as the reason to make the 'buyside' the strategic play. However, the particular technical data mined by QRiskValue is continuing to portray a gloomy price construct where technical stocks seem particularly bloated by a blind faith that they are immune from the money problems of the world. These price technicals are awful and seem to claim a serious downside move will engulf equity markets if any hitch in the broad rescue efforts by the collective world financial players fails to materialize. Even worse, they may be saying a sell off in inevitable regardless of the current efforts to repair economies. The S&P 500 is less worrisome on the downside but only when playing a spread between the NQ 100.

Save It All

Equity markets still in a trading range with the path of least resistance on the upside. Europeans keep fumbling with debt issues but slowly seem to be dragging themselves to some kind of solution. Massive liquidity and top tier economic health leaves plenty of room for rallies given the pervasive bearish sentiment held by a large segment of the trading and non trading population.

Forty plus VIX, the great predictor of the last event, illustrates just how bearish the world has become given nearly all volatility currently represents downside bets.

The Fed and Treasury are taking no chances and have played overkill in providing anything stimulating as a prevention against Mr. Downside. Any blip lower in the Dow Jones now is a reason to plead with the rest of the world to keep on rescuing the wounded.

Things are not great out there for the many. Housing is a disaster. Job growth is nowhere in sight and creating jobs is going to be a challenge for years.

Governmental actions to stem financial trouble unfortunately has little to do creating economic growth in the US or anywhere else. Intervention is all about protecting assets. The notion that jobs will come if entities are saved is crap. If job growth happens, great, but these boys could really could care less.

Since the Lehman event, putting out every fire and saving everything but the middle class is the course of action. The best long term upside chance the latter may have is to let some it burn.

Is It Safe?

Markets are going through another round of ' is it safe?' as action has moved from steep break to sharp rally. European accommodations trying to avoid any chances for a systemic failure along with Fed and Treasury positive pronouncements of their own have helped the upside. Equity inflows have increased again as managers execute requests for more stock. Obama jobs initiative verbage, fat corporate cash reserves, and low values to alternative investments make the path of least resistance to the upside as long as markets are constantly reassured by governments of their willingness to be vigilant in arriving at a debt solution.

If all efforts allow world economies to limp to the next year, it is likely stocks will lead all returns as commodities and fixed income become less desirable. But stocks have to make it through the Fall first.