State of the Union: FFF

Alright, it's a poor poke at a Vin Diesel movie I never saw, but by definition it must be terrible. Who knows, maybe we would be better off taking financial advice from Samuel L. Jackson than the cast of clowns who have run us into the ground repeatedly over the last 30 years. Tonight, Obama will give his State of the Union address, and supposedly fess up to the mistakes he has made over the first year of his presidency. My guess is that he will couch these in terms of necessary evils and unprecedented financial disasters that framed his decision making. Economist Michael Hudson thinks the rhetoric will be much worse, with any talk of recovery or recession implying that we are fighting to get back to the previous normal. Why would we want that?

There is zero chance that Bernanke will not be reappointed next week. We saw briefly last week what even a hint of that possibility will do to a fragile market. Geithner will be roasted this week before Congress, but no change is imminent there either as they will find no wrongdoing with the guy who was running the NY Fed while daily crimes were committed. But perhaps a paradigm shift is in order as the "Volcker Rule" is being pushed forward. This will be a blackhole as well because the odds of GS losing their prop trading desk are also zero. C'mon! The banks that have been so lavishly bathed in our money and who are the largest campaign supporters of our congress members are going to lose one of their biggest avenues of revenue?

So I still say sit tight. Expect a brief pop next week when Bernanke is reaffirmed and laugh at CNN with me while reps like Barney Frank seek to limit the size of FNM and FRE, the very institutions he allowed to behave like hedge funds.

http://www.itulip.com/forums/showthread.php?t=14105

Happy New Year

Sitting on my book shelf amongst other financial reading, placed well below my Philip K. Dick collection, is The Man Who Beats the S&P. Bill Miller, a fund manager for Legg Mason, had an almost two-decade run where his primary fund outperformed the S&P 500. Keep in mind, this included multiple negative year returns. But like the turkey in Taleb's opening Black Swan analogy, Miller did not see the crash coming, and his performance imploded over the course of the financial crisis. People looked to Miller for comfort, for a way to outperform, even as he recommended buying AIG and Lehman brothers all the way to the bottom, costing his clients billions.

In between a hotly contested game of Chutes and Ladders with my daughter, I saw Miller barking up regional financials and stocks in general, noting that risk has passed us by because of the crisis. It was as if losing 60% of all you clients money in a single year was simply a blip in time, an "oh-well, sucks to be you" type of commentary. Momentum into the new year has carried modest stock gains but a new spike in gold and oil. Where the conviction for buying stocks comes from I have no idea.

Eric Janszen of Itulip recently pointed to 4 possible stock/gold scenarios, with 3 of them reducing the S&P ratio/gold price even more dramatically. The mainstream media has remained bullish however, and the old guard is happily sneering after market success last year. A recent consult with BBB reader HK has reaffirmed my own hazy outlook aside from gold this year, and a need to stay cautious and in cash for the time being.

Aside from the market, the impending playoff games are coming in with big lines after a weekend of blowouts except for the instant classic Pack/Cards game. If this game didn't secure Warner's HOF credentials, I don't know what will. I'm torn by my always winning strategy of betting against Manning in the playoffs/always bet Colts against Ravens worlds colliding matchup. I like the Cards much better as TD dogs, and while I foresee the Chargers winning at home, 8 points is a lot. The Boys' as underdogs seems solid, and I think a Cards/Cowboys teaser may be in order.

Gold and Google

That's about all I own, along with cash and my oil calls until 2011. Google has risen from the dead around $275 back now over $620. Gold has obviously suffered lately as oil has risen $10 in the last 2 weeks and the continued "strong dollar" optimism is about as realistic as a jobless recovery.

2009 has been a strange year. Perhaps Black Swan author Taleb had it right in March when he said the unforeseen scenario would be for the market to go up. And perhaps Abbey Joseph Cohen, who hadn't been right about a call in 3 years, was granted the reversal switch by GS when she predicted S&P 1150 by the end of the year. Pretty close.

As for me, my belief that the markets would experience a second crash cost a wild ride back up. However, having destroyed the market last year, I was not chasing a retracement of my losses, but a way to enhance those gains.

Fortunately, I was right about 2 things. One, that when gold fell below $700 after buying in at around $860, I said buy more, a lot more. Gold eventually cracked $1,200. And, the stress tests. Buying OOM calls on stress-tested banks in retrospect, may have been an even easier call than the financial collapse of last year. Fifth-Third calls yielded a 2,000% rise in 2 weeks. The mistake I made, and hopefully the rest of you to a lesser degree, was not putting a lot more into this trade. This was not a 50/50 scenario. Geithner was never going to let these results look bad.

Heading into 2010 I advise caution. I have no conviction in this market, but a continued belief that we have done something systemically horrible by allowing banks to hoard printed cash and yieldless treasuries. I believe gold will still win out this year, and perhaps several other commodities as well. Hang tight, a lot can happen in a year as the last two have proven.

Happy New Year! I will be sure to fire up a bet against Manning when it counts signal depending on who their second round opponent is.

You Don't Have a Chance

"Caus' if there's one thing I can't stand, it's standing next to my fellow man...."
About to Break, Third Eye Blind

Fresh off of eating stuffing, twice-baked potatoes, and assorted pies every meal for a week, I feel spry enough to offer up another entry. Between Thanksgiving and working on a series of essays about the joys of fatherhood (ironically as my daughters have croup again), I've been content to sit back and watch gold gather steam while the market continues to rise. This, in light of the Dubai crisis, anemic sales, and the doldrums of unemployment drying up credit faster than at any point in history.

If more collapse is waiting in the wings, we'll be the last to know, at least sudden collapse. Sixty billion dollars of debt really isn't that much to fuss about, given the monthly totals the U.S. is racking up. Given the daily demise of the dollar as a premeditated solution for keeping our goods viable. Given the grave this market has returned from. And the right to predict sudden collapse has become too expensive. Buying puts on the indices carry ridiculous premiums even at 20-25% OOM.

So, what are we left with? I still say metal and oil, and in the not-too-distant future, all commodities. But as The Mixx recently asked me when I pointed to the success of gold, why? Where is the money coming from? As Caroline Baum points out in her Bloomberg piece yesterday, it sure as hell doesn't look like new money.

"There is no sign of excess credit creation on U.S. bank balance sheets. From October 2008 through October 2009, bank credit fell 5.3 percent. That reflects an 8 percent decline in loans and leases and a 3.4 percent increase in securities. Within the securities category, Treasuries were the clear winner, with a 13 percent increase......When I hear folks like New York University Professor Nouriel Roubini talk about asset bubbles and “money chasing commodities,” I want to ask, what money? Where is all the money chasing stocks, commodities, high-yield bonds and emerging- market stocks coming from if it’s sitting in banks’ accounts at Federal Reserve banks?"

So it's sold-assets that are acquiring gold and silver, not the fresh flow of credit. And I see no reason for this paradigm to shift given the helium-high U.S. market.

http://www.bloomberg.com/apps/news?pid=20601039&sid=avARgMioihVQ

Just Wait

With bubbles on everyone's mind from Markman to Fleckenstein to former Fed officials this past week, I can only recommend sitting on your pile until this thing blows up. The Fed has been trumpeting strong dollar policy while the greenback plunges to lows on a daily basis, bolstered by Fed minutes that read, "No way in hell are we going to raise rates anytime soon." Every day the market goes up buys these guys another day of hope that our service economy will magically return to 2006.

As Fleckenstein points out, whether it's Greenspan or the current oligarchy, the false belief that jumping from one bubble to another to prevent a severe economic crash has been disastrous for our country and how our financial system is allowed to operate. While your asthmatic child was waiting to receive their H1N1 vaccination, the boys at GS were loaded up so they could continue to make trades with stop losses at $200 million.....

Thanks to The Mixx for his call on 3Com more than a year ago as a company too cash rich to go under. Now with their tender offer from HP, they've risen from just over $1 to near $8.

How low can the dollar go before someone pulls the plug on our devaluation? I don't know, but with gold over $1,130 as I write, fear the sudden stop.


Thankfully for you, I have been remiss in posting my recent picks, although Monday night has treated us well. Steelers for an easy win last week and if the Ravens can't save their season against the once again Quinn-led Browns, they are truly dreadful.

What Do We Do Now?

Sorry for the recent absence, had something ready to go but shelved it for a more appropriate time. What do we do? Nothing. Nothing than what I've already told you, gold and oil and avoid stocks that cost more than $5. Up 200 Thursday, down 200 Friday. Up and down 100 yesterday and back up again. Any stock picking at this point is pure speculation. But with gold near $1100 today, having bounced back very rapidly from a brief plunge to near $1000 again, it's far from done. Every time someone has tried to call a top in the gold market for the last 10 years they've been left for a fool by year's end. Itulip certainly thinks there's hundreds, if not thousands of dollars left to go. They also think that the dollar is being shorted against oil, not other currencies, as the most recent government incarnation for dollar destruction.

Shorting and going long look expensive to year's end. Could we crash in the next 2 months? Sure. Could we get a string of bogus Buffettisms pushing us up over that time too? Sure. Hang on tight to your cash, unless you'd like to look way long into some commodities, silver and copper included here.

Wish the crystal ball was less cloudy, but I remain unconvinced about this market in either direction near term. Long-term we will tank again, but unless we can put a 3-6 month range on it, our money will be lost.

Inside Information

Would be good to have, wouldn't it? I mean, with Wall St. profits exceeding all expectations again, or still benefiting from the "not quite as bad as it could've been" reporting, the S&P will cross 1100 today and the Dow has exceeded 10K (again). As David Weidner points out in today's Marketwatch column (sometimes he gets it right), we continue to be the suckers in the great Wall St. Ponzi scheme, "what Wall Street calls the 'dumb money' never fail to live up to our reputation as suckers, chumps and easy marks. We keep putting our money in the market, diversifying and looking at the fundamentals of the underlying investments."

Look at the arrest of hedge fund manager Raj Rajaratnam, who will be going to jail for insider trading that netted him $20 million. He is worth $1.3 billion. So, for most people in this country, that we be the equivalent of going to jail for about $300. But this is the largest arrest for insider trading in U.S. history. C'mon!
It's interesting to see people like Weidner and Dylan Ratigan, so entrenched in the MSM, voicing their disgust recently over the current financial system. Disgusted by news such as Geithner's non-appointed trustees reaping million dollar consulting bonuses. No, we truly do not have a chance in this game.

But the bubble-blowing machine has its hamsters running at full speed. Oil hit $80/barrel yesterday, gold at almost $1070, and the dollar plummeting. Einhorn, one of our favorites here who predicted the Lehman collapse, is also waiting for the impending dollar collapse. Aside from hoarding gold, he loaded up long-term Japanese interest rate options with a 4-5 year window. So that's Itulip, Paulson, and Einhorn who are now waiting for the next collapse. I'll side with these guys.

Good thing I didn't post new picks for the weekend. Suffice it to say Donovan Mcnabb's championship game-like performance would have been a bad call.

http://www.marketwatch.com/story/einhorn-bets-on-major-currency-death-spiral-2009-10-19

http://www.marketwatch.com/story/taking-the-inside-path-to-wall-street-riches-2009-10-20