There is absolutely nothing in here that should be a surprise if you understand what AIG does and how broken the banking system is. However, if you don't, and you assume that this wasn't an academic document prepared to educate the uninformed, then it is gruesomely scary:
http://www.scribd.com/doc/13112282/Aig-Systemic-090309
Joe
Monday, March 9, 2009
News sentiment starting to shift
Since Friday night, I've noticed a change in tone in the news. It's subtle, but it's there. Here are a few examples:
Ron Insana (CNBC Analyst) talking on the Friday nightly news (I think), was asked if part of the reason the stock market is going down so dreadfully is that Obama needs to be a better job of being more positive. This has been all over the news the last few weeks as a missing part of the recovery elixir. Ron's response was the first time I heard anyone basically dismiss the premise altogether and say that the market is going down because things are so darn awful. The media has given up on the "don't worry, but happy" story at last. (n.b. for the record, it wasn't Jim Cramer that they asked to go on the show that day, another indication that somber tones are being favored over sensationalism.)
Tonight's NBC Nightly News did a story "faith in america" reporting that religious affiliation in the US has decreased dramatically since 1990. The story ran right after a story about tent cities, and it seemed to me that they were trying to suggest to people where they should go for help. [I'm long religion for the next 25 years btw, see prior post.]
Another story tonight on NBC Nightly News - they started asking for folks to send in stories about people performing random acts of kindness and have expanded the query to become a regular part of the nightly news. I guess sex, sensationalism and stardom are not as newsworthy as they were...last week?
These guys are starting to see that their annointed president isn't so infallable, and now they're exiting the fan club and heading the the front of the "help your neighbor, help your friend" herd. I don't mean any judgment, they are probably not doing it consciously at all. It's just an observation that the tone has changed...
which means, we are near the mid-term bottom.
Joe
Ron Insana (CNBC Analyst) talking on the Friday nightly news (I think), was asked if part of the reason the stock market is going down so dreadfully is that Obama needs to be a better job of being more positive. This has been all over the news the last few weeks as a missing part of the recovery elixir. Ron's response was the first time I heard anyone basically dismiss the premise altogether and say that the market is going down because things are so darn awful. The media has given up on the "don't worry, but happy" story at last. (n.b. for the record, it wasn't Jim Cramer that they asked to go on the show that day, another indication that somber tones are being favored over sensationalism.)
Tonight's NBC Nightly News did a story "faith in america" reporting that religious affiliation in the US has decreased dramatically since 1990. The story ran right after a story about tent cities, and it seemed to me that they were trying to suggest to people where they should go for help. [I'm long religion for the next 25 years btw, see prior post.]
Another story tonight on NBC Nightly News - they started asking for folks to send in stories about people performing random acts of kindness and have expanded the query to become a regular part of the nightly news. I guess sex, sensationalism and stardom are not as newsworthy as they were...last week?
These guys are starting to see that their annointed president isn't so infallable, and now they're exiting the fan club and heading the the front of the "help your neighbor, help your friend" herd. I don't mean any judgment, they are probably not doing it consciously at all. It's just an observation that the tone has changed...
which means, we are near the mid-term bottom.
Joe
Friday, March 6, 2009
Getting real close to mid-term bullish
There was something about the market today that felt like a slow drip. At the same time, it also felt like when the dripping stopped, the budget would finally be out of water. I went double-long the S&P a couple of times expecting this run-up to occur, but I just couldn't catch it. Instead, I bailed on almost all my shorts and all of my puts. I'm officially mid-term neutral going mid-term bullish soon.
If not today, then within 1 day to a few weeks we'll have put in the mid-term bottom, and I want to get positioned to ride it up for a while. My guess is that the congressional hearing on mark-to-market on March 12 and the completion of the charade known as the stress tests in mid/late March will bring some money back into the market. I think we'll enjoy a nice rally until maybe September or longer. Eventually, some bank will blow-up and the whole house of cards will come down, and that is when we'll start a new vicious leg down in the market. But there's 25-40% upside from here before that happens.
I am double-short silver in the ETF "ZSL." The metals have topped and it won't matter if you play the miners or the metals, they are going down bigtime. I'd expect 35% pullbacks on gold to under $700 and an even greater pullback in silver. This plays nicely with the bank house of cards scenario - folks will get confident in the banks, that will put downward pressure on the metals, and then the actual house of cards falling will take everyone by surprise. That will cause a swift swing out of the markets and into gold & silver.
Not sure if today was the day, but we should at least have a few/several day countertrend rally.
Joe
If not today, then within 1 day to a few weeks we'll have put in the mid-term bottom, and I want to get positioned to ride it up for a while. My guess is that the congressional hearing on mark-to-market on March 12 and the completion of the charade known as the stress tests in mid/late March will bring some money back into the market. I think we'll enjoy a nice rally until maybe September or longer. Eventually, some bank will blow-up and the whole house of cards will come down, and that is when we'll start a new vicious leg down in the market. But there's 25-40% upside from here before that happens.
I am double-short silver in the ETF "ZSL." The metals have topped and it won't matter if you play the miners or the metals, they are going down bigtime. I'd expect 35% pullbacks on gold to under $700 and an even greater pullback in silver. This plays nicely with the bank house of cards scenario - folks will get confident in the banks, that will put downward pressure on the metals, and then the actual house of cards falling will take everyone by surprise. That will cause a swift swing out of the markets and into gold & silver.
Not sure if today was the day, but we should at least have a few/several day countertrend rally.
Joe
Sunday, March 1, 2009
Just a quick one
If you didn't hear, a week or two ago American Express announced a program to certain cardholders whereby the cardholder will receive $300 from Amex if they close their accounts by April. Membership has its priviledges. A lot of banks apparently are clawing back unused credit lines and otherwise generally tightening potential exposure to the less creditworthy.
Did you know that 1/3rd of your credit score is based on your total credit outstanding as a percent of total credit available? With that in mind, each time the banks claw back credit, they are lowering credit scores. The only thing a person can do to counter this credit score degradation would be to add more credit. However, that creates an inquiry which, if there are too many, also lowers credit scores.
Now we have downward pressure on credit scores while we are trying to get people to refinance. You following me on this? All the new credit in the world can be provided, at the lowest interest rates ever, and that won't change the undertow of the decline in home values dragging the economy down.
This is another case of folks not thinking about the unintended consequences. [Not that I don't support reducing people's credit lines.] It is also another case of focusing on numerators when we should be focusing on denominators (or vice versa). For example:
The S&P is cheap based on price coming down therefore P/E ratios are going up? Sorry, E's are falling faster than P's these days.
The S&P is cheap based on the dividend yield because prices are coming down? I don't know if you've noticed, but dividends are being cut at a record pace.
GE lowered it's dividend Friday. Just before it did, it had a dividend yield of something like 15%. Still think high dividend yields are a signal to buy stocks? Now they've cut it to be a yield of 3-4% I guess. Whether it is a company setting earnings or revenue guidance or a company evaluating its dividend, the current price of the stock goes into their thinking. "Wall Street isn't giving us credit for what we're doing (because the price is so low in management's mind), so we should just lower expectations now while the stock is so depressed." This makes all the sense in the world in a bull market. But, in a bear market, the lowering of expectations perpetuates the concern over the stock and, in effect, you get a virtual "run" on the stock because the lowering of expectations implies that management doesn't know what they are doing. All anyone is looking for these days is for somebody to do what they say for longer than about 4 weeks. And nobody can live up to the challenge.
All of this is exactly what happens in a deflationary depression.
Joe
Did you know that 1/3rd of your credit score is based on your total credit outstanding as a percent of total credit available? With that in mind, each time the banks claw back credit, they are lowering credit scores. The only thing a person can do to counter this credit score degradation would be to add more credit. However, that creates an inquiry which, if there are too many, also lowers credit scores.
Now we have downward pressure on credit scores while we are trying to get people to refinance. You following me on this? All the new credit in the world can be provided, at the lowest interest rates ever, and that won't change the undertow of the decline in home values dragging the economy down.
This is another case of folks not thinking about the unintended consequences. [Not that I don't support reducing people's credit lines.] It is also another case of focusing on numerators when we should be focusing on denominators (or vice versa). For example:
The S&P is cheap based on price coming down therefore P/E ratios are going up? Sorry, E's are falling faster than P's these days.
The S&P is cheap based on the dividend yield because prices are coming down? I don't know if you've noticed, but dividends are being cut at a record pace.
GE lowered it's dividend Friday. Just before it did, it had a dividend yield of something like 15%. Still think high dividend yields are a signal to buy stocks? Now they've cut it to be a yield of 3-4% I guess. Whether it is a company setting earnings or revenue guidance or a company evaluating its dividend, the current price of the stock goes into their thinking. "Wall Street isn't giving us credit for what we're doing (because the price is so low in management's mind), so we should just lower expectations now while the stock is so depressed." This makes all the sense in the world in a bull market. But, in a bear market, the lowering of expectations perpetuates the concern over the stock and, in effect, you get a virtual "run" on the stock because the lowering of expectations implies that management doesn't know what they are doing. All anyone is looking for these days is for somebody to do what they say for longer than about 4 weeks. And nobody can live up to the challenge.
All of this is exactly what happens in a deflationary depression.
Joe
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