Anonymous Asks

Despite the change in presidency, it appears as if Obama and company are following through with his predecessors mistakes, and may just make them on a grander scale. The "bad bank" idea has failed in the past (Japan), and numerous economists have repeatedly pointed at how all of this won't work. One of those economists, Michael Hudson, had this to say of the plan:

"How many families would like a “give-back” on every bad investment they’ve ever made? It’s like a parent coming to a child who has just broken a toy, saying “That’s all right. We’ll just go out and buy you a new one.... There is a simple way to think about what has happened – and why it won’t help the economy, but will hurt it. Suppose the new $4 trillion “bad bank” works. The government shell will give away Treasury bonds for bad bank loans and derivatives gambles, without the government “marking to market.”

"The government’s solution, placed in its hands by the financial lobbyists, is to bail out the bankers and Wall Street while leaving the “real” economy even more highly indebted."

Also pending, and this will lead to Anon's question, is a bill that will allow bankruptcy court judges to reduce principle on a mortgage to avoid foreclosures for the small penalty of paying any capital gains to the lender in the first 2 years if the house is sold. So Anon asks, "Why not just reduce capital on any mortgage of a primary residence house (no flippers) bought between 2002/3-2006/7 to its current market value, kind of a like a housing mark-to market?" There would be no credit score penalties for those homes not already in delinquency or foreclosure.

I say it's a much better idea than letting bankruptcy court judges reward those who bought houses they couldn't afford. I also say the 2 ideas may have the same net effect. Why should I pay my mortgage if my neighbor, who bought the same house as me with no money down, hasn't paid, and is now rewarded with $100K reduction in principle? Two things would happen. I would take a huge credit hit, yes. But, it may take 12-18 months for my home to go into foreclosure. It may take another 18 months for my case to make it to court. Then I might get a reduction anyway. If I go 3 years without paying my mortgage, I might be able to buy my own house (or the equivalent size, community) for half of what I originally paid, and be able to put closer to 40%-50% down, leaving my new mortgage at a pittance of what I currently pay. I don't know, I'm beginning to see why people have pulled a dine-and-dash on their own homes and rolled into a new one before their credit had a chance to implode.

By the way, kudos to CNBC, Blackrock, Pimco, and all of the other market pimps who told their clients we're poised for a huge rally. Memo morons, it already came and went, and you just lost your clients another 9% in January. Nice work.

http://counterpunch.org/hudson01302009.html

Christ, It's Getting Bad Out There and The SSPX

McDonald's sales are down 23%, companies announced 72K layoffs today, and Catholic school girls are running up the score on mentally challenged opponents 100-0 (we'll get back to this in a bit). Gold is at a 4-month high and nobody can get a loan anywhere near the rates that CNBC or Lawrence Yun would have you believe, and yet the market seems content to stay afloat above 8K.

As I write this after 4 p.m., my blog, like the day's headlines, are outdated by the time I finish a paragraph. Texas Instruments just announced a 12% workforce cut and AmEx earnings were down 80%. Combine this with the layoffs announced today by Caterpillar, Home Depot, and Phillips, and I have no idea why there is any demand for stocks right now.

Analyst favorites like US Bancorp and Corning have been blasted. Blue Chips have earned a lifetime of poor earnings. The TARP has failed miserably and applications that have flooded in to refinance mortgages are quickly becoming trashketballs because of low credit scores and zero ability to put down a payment of 10% or more. In fairness, the Mickey Dees results were pretty good, but in my mind, further proof of just how terrible the economy is when only they and WalMart are able to sell anything at the expense of everyone else.

Perhaps lost in this financial wreckage was the Pope's "rehabilitation" this week of of 4 excommunicated bishops, all members of the Society of Saint Pius X, apparently a far-right wing sect that promotes pedophilia and anti-Semitism. One of those rehabbed bishops is Richard Williamson, who had this to say to a Swedish TV station. "I believe there were no gas chambers and that only 300K Jews perished in Nazi concentration camps....I believe that the historical evidence is hugely against 6 million Jews having been deliberately gassed in gas chambers as a deliberate policy of Adolf Hitler."

On a lighter note, Covenant Christian school rolled over Christian Dallas Academy 100-0 in girls basketball by shooting 3s and trapping until the end. Dallas Academy, with just 8 players and a school that "boasts of its small class sizes and specializes in teaching students struggling with "learning differences," such as short attention spans or dyslexia," is winless in 4 years.

Jesus.

http://www.comcast.net/articles/news-general/20090125/NEWS-US-POPE-JEWS/

http://highschool.rivals.com/content.asp?CID=904726

http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2009/01/24/business/24refi.html&OQ=_rQ3D1Q26emQ3DQ26pagewantedQ3Dprint&OP=31557daaQ2FQ278KBQ27(mU@-mmJvQ27v99Q2BQ279Q25Q27vbQ27Bf@auK@@Q27vb-KMaV,JQ5DY

Junk Status

The Banks, the U.S., the U.K., you name it. Just when you thought it couldn't get much worse, the next layer down was worse than you ever thought it could be. Anyone who believed there were managers out there who were above it all were as naive as those who have believed the market truisms throughout time.

Ken Lewis of BAC was supposed to have expertly navigated his company through the Countrywide purchase and swooped in to force Merrill into submission with government backing. With its stock at 15-year lows and impending nationalization, maybe it's John Thain (who resigned today) who has the last laugh. Merril's $15/share loss has forced BAC into uncharted loss territory.

Black Rock posted horrific earnings last quarter. While going on air to pump stocks everyday, management must have believed themselves and continued to dollar-cost-average their clients to death, literally.

State Street was supposed to be immune to CDS pain and had been praised for its stellar management. The same management that led to an 88% decline in profits. Capital One, a credit card company, just lost $1.4 billion dollars last quarter.

Seriously, who is still listening to these people? When the best companies in the world (and I define those as companies that actually make money like Microsoft) are telling you it's god awful, you better believe it, not the court jesters on CNBC. When each headline on the Marketwatch ticker is an announcement of layoffs, don't read between those lines that the market has priced in this type of unemployment. It hasn't. Retailer Williams-Sonoma, who I told you was a dead dog months ago, just laid off 1,400 people. Sony may lay off 16K people. GE may lay off 11K people just from its Capital division and is at risk of losing its AAA rating.

And what happens when those retailers continue to lay off 10%, 20% of their workforce? They close stores. Anchor stores that bring people to malls. Still think commercial real estate has found it's bottom? "The 1,120,000 lost US retail jobs in 2008 are a signal that the second stage of the real estate bust is about to hit the economy. This time it will be commercial real estate--shopping malls, strip malls, warehouses, and office buildings. As businesses close and rents decline, the ability to service the mortgages on the over-built commercial real estate disappears.The over-building was helped along by the irresponsibly low interest rates, but the main impetus came from the slide of the US saving rate to zero and the rise in household indebtedness. The shrinkage of savings and the increase in debt raised consumer spending to 72% of GDP. The proliferation of malls and the warehouses that service them reflect the rise in consumer spending as a share of GDP."

Mark McGwire's brother just ran over his head with a large yellow bus. But we've known for awhile now that he was on the juice. But when watching the Cardinals game the other day (Warner just locked up the HOF by the way, bringing the Rams and the Cards to the SB), there was an old Bulls game on at the bar. I noticed that Michael Jordan's headsize was about half of what it is today in recent commercials. Is it possible that #23 was juicing too?

http://itulip.com/forums/showthread.php?t=7532

Boesky is Back

And Milken was no Madoff. These guys are looking like amateurs compared to today's Wall St. villains and the SEC looked competent compared to today's Cox and company. When the gubmint (thanks to Grape Jelly of Itulip fame) cut a deal to allow Boesky to dump his positions and the market later discovered it, the SEC was torched in the media. Today, the government is not only telling us about the dumping, but sponsoring it via the TARP. Merrill Lynch lost $15 billion dollars last quarter and BAC supposedly had no idea it was going to be that bad. As I wrote at the end of my last blog, glad we didn't rush in below $11 because immediately after the closing bell, BAC plummeted to $9 and finished the week at $7.

All bets are now off in my book as Citi already stands to get nationalized. I can only hope that they create a spinoff structure and I get shares in both the "good" and "bad" banks. BAC may not be far behind.

In the meantime, Circuit City will be liquidated, more banks went under yesterday, and retail continues to get slaughtered. A Bloomberg article today laments 21K worldwide job losses yesterday based on announcements. That would be horrible if we weren't already losing at least that many per day just in this country if you follow any real non-govt. stats for unemployment. Those predicting a second half turnaround are out of their minds.

Gannett may shut down their operations in Tucson if they can't sell the paper. Debt continues to mount for both them and the NY Times. While the NY Times may be in financially more desperate shape, their brand carries more weight. However, it seems only a matter of time before they both go the way of the Tribune.....

I'm beginning to research Radio Shack for shorting purposes of course. Can anyone tell me how they mangage to make money? I'll let you know what I find next week....Have a nice holiday weekend.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJA3rhYFkThw&refer=home

Who Do You Trust?

Bill Gross? Bill Miller? What about Warren Buffett?

We have not only been deceived by our government (the Treasury) and the Fed (Greenspan, Bernanke), but as I mentioned previously, by the whole Wall St. enchilada (401Ks, financial advisors, analysts, quants, and economists). Please look at some of the picks below from Barron's Roundtable for 2008.

Scott Black (whoever that is)-Elron Electronics -88%
Perhaps he thought it was Enron.

Abbey Joseph Cohen-Ibiden (Japanese stock) -75%

Mario Gabelli-picked 3 stocks that lost over 65%

Bill Gross (Bond Guru)-Ford and GM bonds both lost over 50%

Archie MacAllister-none of his picks lost less than 22%

The list was thoroughly ugly. In fairness, Marc Faber (AKA Dr. Doom), predicted a bunch of successful shorts including China, and Fred Hickey recommended shorting RIMM when it was over $100. But these are supposed to be the people who know best? They literally could not have done worse if they spent the same amount of time looking for companies they thought would go to zero. And yet magically, Barron's has invited most of them back to use their crystal balls to take what's left of your retirement accounts. Are you serious? If I lost my employer 40% of his revenue, I'm pretty sure I'd be fired, not cranked up to see if I could recoup his losses. Yet the media treats these guys with sympathy, like they had no chance last year.

Hedge Funds lost over $350 billion last year. That's half a TARP! And these guys are taking 20% of profits in a good year. Nice work Madoff and company, you are the biggest criminals the world has ever seen.

Corporate earnings have not been the panacea they were over the summer. We are expecting the worst and are being abysmally disappointed daily. Nortel, once a $200 billion market cap phonemaker, is bankrupt. The Chicago Tribune will now look more like the New York Post. Citi may yet be nationalized and HSBC may need another $30 billion to stay afloat. What's the point?

BAC did drop below $11 yesterday and USO nearly hit $30. Still no rush as things can always get worse, like tomorrow for example, when JPM pre-announces it's horrible quarter. Dimon already admitted that the first half of the quarter was a nightmare, so don't look for great news. The return of the VIX will be a boon to us as increased volatility should reinflate our put prices.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayk5zzO8QL5U&refer=home

http://online.barrons.com/public/article/SB123156273219070849.html?mod=article-outset-box

We Need a Z-Pak

Many times when I ask my patients what brings them in or how they're feeling, they simply answer me by saying, "I need a Z-pak." Runny nose, sore throat, ear pain, doesn't really matter. Give me a Z-pak. This is usually followed by "How long before I'm feeling better, a day or two?" This analogy is very reflective of our current financial crisis. Give me the magic pill and fix me quick. I don't know who has done better marketing over the last 20 years, pharmaceutical companies or Wall St.

But as we're finding out, there is no quick fix for the excesses of years of living poorly. Like the chronic smoker who never expects to get a respiratory infection, Americans are quickly finding out what it's like to be really sick. And we don't want to take the real medicine of time and a decreased standard of living. We want it all back. Take for example, real estate speculators. They're back. Scooping us foreclosed homes in hopes that the market will return in a year or two and they can go back to their flipping glory. “We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve,” said Stiglitz, a Columbia University professor of economics. “We could see a double-dip in the housing recession if that happens.”

Look at the TARP. Banks simply aren't lending any of the money Paulson convinced us they needed to survive. Their Tier 1 ratios are through the roof while 25K people a day are losing their jobs (many more if you use any standard of workers who have given up hope). But that was supposed to juice our economy, even as LIBOR has essentially dropped to zero.

We may have found our Dick Bove of 2009. Bob Doll, BlackRock's global chief investment officer, predicts double-digit returns this year and is calling a market bottom. That's great, Bob, now let's review some recos from last year. On August 11 on CNBC he recommended Express Scripts, then at $72, today at $52 and McKesson, then at $57, today at $40. On May 27, he told CNBC viewers, "Strategic M&A should be alive and well. Stock prices relative to interest rates are fairly low, in our opinion, and therefore companies will be looking down the street to say, 'Who can help us do a better job at addressing our marketplace?' and that will spur further consolidation and M&A activity." Great call, Bob, worst year for M&A ever.

But that's what we should expect when we have fund managers and investment banks offering us advice. Even Bill Gross has become disingenuous as his performance continues to suffer and he now recommends the very bonds the government has asked him to consult about. Just when it seemed like there was a glimmer of hope, the market got rocked this week. But be wary, even if 4th quarter numbers are even worse than imaginable (and that's pretty bad given the retail numbers that even WalMart couldn't sustain), a fool's rally is never far away.

On a separate note, anybody think either of those teams could've scored a point on USC the other night? Those teams looked awful. If TBow can't throw to his first option, he shouldn't throw because it takes him about 8 minutes to get off of his first read. And why didn't Stoops throw a pass from the 1 yd line to the TE? He's like 8 feet tall and wasn't covered all night. Alas, we'll never know. Over/under on round TBow is drafted? 3rd. Place your bets.

Still following simply USO and BAC. USO has been destroyed over the last week, waiting for it to crash back through $30.

http://www.bloomberg.com/apps/news?pid=20601087&sid=apFMheiIZtPo&refer=home

http://www.cnbc.com/id/24794349/site/14081545

http://www.cnbc.com/id/26134224/site/14081545

But The Rally Already Came

If you take the intra-day low of around 740 for the S&P on 11/20 and use yesterday's high in the 940s, we've already seen a 27% rally. 27%! That seems like a lot. Did S&P earnings get 27% in the last 6 weeks? Did something in the economy or employment picture get a lot better during that time? As a matter of fact, it didn't. Even ADP, albeit with their "new" formula (i.e. a lot more accurate) for estimating job losses, put December's total around 700k. Combine this with warnings from Alcoa (along with huge job cuts), Intel, and Time Warner, and it's hard to fight reality. Sales of durable goods fell off a cliff. Oil went back over $50 a barrel (briefly). There's war in the Middle East and Russia turned off the gas to all of Europe. These don't ring of bullish events to me.

Paul Farrell pointed out yesterday that we shouldn't be lured in by the new year, new bull sentiment. We've seen this precedent before. Right in the midst of a market swoon, the goons/pundits are paraded out to tell us it's almost over. Quoting market geniuses Crammer, Kudlow and "Sooze" Orman, these are the same people who told you to buy all the way down during the NASDAQ's 80% demise during the tech bust. Like Cronos said, who would listen to these people?

Meanwhile, despite a $700 billion infusion, or is it $2 trillion (we don't know, the Fed isn't telling us anymore who's getting money), banks refuse to lend to each other. Caught in a stalemate, they're each playing a game of last man standing, hoping the other banks will lend to each other while they sit on a pile of cash and wait this recession/depression out. "As the new owner of $172.5 billion of preferred shares and warrants in 208 U.S. financial institutions, the Treasury Department hasn’t succeeded in thawing frozen credit markets, leaving taxpayers propping up an industry that won’t lend to them." Nice work as usual by Paulson and Bernanke. And, going by the records of Obama's appointments, the only change we have to look forward to is the bullet-proof Caddy he'll be escorted in, not new economic thinking.

Earnings kick off next week, or they're supposed to. Seems like companies are lining up to throw up their poor 4th quarter results ahead of schedule and fall on the mercy of the market. They should fall into a canyon. Alcoa had been on a 30% run prior to today, Time Warner 40%. Are you kidding me?

And, kudos to Jason Whitlock, perhaps the only sports writer who has any courage. He concurred with my assessment of Manning and LT, saying that Manning "choked" and that the Chargers are better off with Sproles.

"Manning did nothing on Saturday. Well, he enhanced his reputation as the big-time QB mostly likely to choke in the clutch. His postseason numbers don't lie. His record is 7-8. He's tossed 22 TDs and 17 INTs in January. His completion percentage falls to 56 percent (eight points lower than his career percentage). And in his eight playoff losses, the Colts average 13 points per game... His postseason play is indefensible."

http://www.bloomberg.com/apps/news?pid=20601109&sid=aqLT6v88t.Jo&refer=home

http://www.marketwatch.com/news/story/15-reminders-wall-streets-con/story.aspx?guid=%7B1983C24D%2D6988%2D4645%2DA2F0%2D9422397777F7%7D

http://msn.foxsports.com/nfl/story/9033410/NFL-Truths:-Peyton's-a-choker,-LT-is-done-in-S.D.

MVP?

The new year has started with great optimism. First, the market rallies for 250 points on Friday. Then, Peyton Manning is gifted his 3rd MVP for leading the Colts to a wild card berth after a 3-4 start. Colts fans were promptly rewarded with Manning's uncanny ability to stink at the absolute worst time. But don't say you weren't warned. I wrote about this the other day and for more of my true feelings on this dude, reference one of my earliest blogs:

http://bigbigbet.blogspot.com/2008/01/manning.html

I think Peyton Manning solidified his position as the 2nd most overrated player of all-time behind only Emmitt Smith. Really impressive losing to an 8-8 team after a 9-game win streak over great opponents like Cincinnati, Cleveland (without scoring an offensive td), and Detroit. Unable to make one first down all night from inside his own 20 and taking a sack on 3rd-and-2, Manning, like always, failed to get it done. He somehow managed to not see the blitzer from his right side. He also failed to convert on a 4th-and-inches early in the 3rd quarter. If Manning wasn't such an egomaniac, Dungy might have tried to kick a 49 yard field goal which would've proved to be the game winner. But no way, Manning was gonna get it!

His only touchdown came on a play where SD inexplicably tried to substitute players against the no-huddle and Manning threw a free play pass to Wayne for a run and score. His inability to lead the Colts from their own end of the field left the Chargers with field position for all of their scores except their last. All of this against the NFL's worst pass defense. How quickly the writers seemed to forget it was Manning's atrocious play (10 tds, 9 picks) that led to their awful start. Instead, the let the last few weeks of the season cloud their voting for the man who should've won his 3rd MVP, Kurt Warner.

That's right, Kurt Warner. Where in the world would the Cards be without him? The Colts have been winning 12 games a year forever behind a team of 8-10 pro-bowlers. Manning has an all-pro WR, TE, and RB, not to mention Gonzalez, with an admittedly now washed up Harrison as his 5th option. Warner? No doubt Fitzgerald and Boldin are studs, but he's also playing with a high school line and a has-been RB who was discarded from the Colts. Granted, they also play in a stinky division, but if anyone thinks this is better than a 4-12 team with Leinart at QB, they're nuts. And oh, yeah, Warner doesn't choke under pressure. He managed to lead his team to a playoff win yesterday against a better 11-5 team after he had thrown 2 perfect TD passes and Boldin left for the entire 2nd half.

We'll see what surprises today brings, and back to the market on Monday.

P.S. My confidence picks were as awful as Manning. I apologize. Alabama and Texas Tech, nice job.

Happy New Year!

A few observations, including some going back to our initial sports roots.

1. The coach of Cincinnati, Brian Kelly, looks just like Sam Kinison. When he yells at his players all I can imagine is "Say it, Say it!"

2. LaDainian Tomlinson is overrated for 2 reasons:
a. His former backup, Michael Turner, went to a crappy Falcons team and ran for 1,700 yards and 50 TDs.
b. Darren Sproles, his current backup who is 5'4" and weighs 150 pounds, scored on a line plunge from the 4 yard line the other day. That means your line is pretty good.

3. Pete Carroll obviously has some respect for Paterno because USC could have won that game by 100 points. Big 10 bad.

4. Chargers always play the Colts tough. Be careful with all road favs this weekend. But not too careful. I'll be shocked if the Ravens or Eagles lose.

5. When you blow people up and then run away, those people will in turn look to blow you up. Even if you are hiding in an apartment building basement (a little off topic, I'll admit).

Things we'll be watching for the next few weeks or months:

1. Even if you think there will a bounce this year (crazy talk), crappy businesses will continue to nosedive. I don't see how newspapers can make it. As Bloomberg outlined this week, Gannett and the NY Times managed to issue loads of debt to buy back shares at astronomical prices the last few years and now the bill is due. Only National City was as egregious in their buybacks....

2. Once the rockets in the Middle East quiet down, oil will take another plunge. Time to buy for the long-term. USO out to 2011, will add more ways to play shortly.

3. Retail won't make it. Too many overlapping stores and no credit to burn anymore. A bunch of malls and stores will just have to shut down.

4. Gold cracking $1k again this year.

Bueno Suerte!

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atrl.3afAcWA