Saturday, February 28, 2009

Ding Dong, Stocks are Dead

Oh, that's not me. That's Bill Gross, PIMCO's chief. "Stocks are dead for the rest of your life. That's the gist of my exclusive interview with the head of PIMCO Total Return -- the biggest bond fund you've never heard of," says Peter Cohan. Seller and buyer of bonds and consultant to the Fed on, uh, buying bonds. So it should come as little surprise that Gross declared last week with the specter of corporate defaults so high, that being a common shareholder puts you at the bottom of a long list to get paid. What might surprise you, is that Gross seems completely disconnected from his multi-bullish calls on the market during the bailout events of the last year. Now that we're near 7K, those calls don't look so good, right Mr. Buffett? I mean, Mr. Gross. As I've said many times, listening to any of these guys is poison.

I found it humorous this week (as every week) to watch some of CNBC's coverage of the Senate hearings with Mr. Bernanke. Following a sycophantic and softball questioning session by one of his fellow senators, Ron Paul immediately started throwing body blows. He essentially asked Bernanke that if he's been wrong on everything up until now, what makes him think that 5 years from now he won't look back at massive policy failures and have to apologize for them. Before he could really get nasty, CNBC cut to some breaking news which turned out to be a commercial pod. Nice coverage.

As much gloom as I bring, I was taken aback this week by Itulip's Eric Janzsen saying things are deteriorating even faster than his aggressive projections. He notes that the Dow/Gold ratio has fallen from around 15:1 in Sept. to 7:1 recently and thinks the ratio will hit 2:1 sooner than later. What does this mean? Dow 5K, Gold $2500.

After looking dead for months, our MCRI puts are showing what a late finisher can do. Dropping from $12 to near $7 yesterday, the race is on, 3 weeks to go.

Saks took an unexpected ride up this week when, despite a 60% decline in profits, their CEO bolstered shareholders by saying, "We're not going bankrupt." Thanks Dick Fuld....

Reports that USO might be involved with price manipulation kept me from adding more calls on the drop yesterday. Turns out USO buys about 20% of all forward-month contracts, so they may have some say in pricing. I'll keep you updated, but we had a nice run with our calls this week, with 1/11 $48s up 40%.

Saturday, February 21, 2009

You, You, and You Panic, We'll Stay Calm

Did you know that Meredith Whitney is married to a professional wrestler? Surprising yes, but maybe part of the willingness to look outside the norm when analyzing banks that are a senator's breath away from nationalization....

One of my co-workers asked me this week if S&P were initials for 2 names of doodee. While that may seem to be the case, S&P just retrumped Obama yesterday after he attempted to retrump Dodd after the White House already tried to retrump Rick Santelli. First, Santelli went apenuts and essentially called the housing plan insane. Then Dodd said we might need a "temporary" nationalization of our banks. Obama and Geithner cringed, then put out a statement saying banks are better left in private hands. This quickly negated a 200-point Dow loss. But that rebound quickly faded and after the bell, S&P said, oh by the way, this may only be the beginning of this credit mess. Owweee.

But again, don't be fooled by this mild triple digit drop. The Dow as I mentioned before, is now stuffed with stocks under $10. This limits the downside to the Dow even if those stocks get hammered percentage wise.

Gold. Do I like it at $1K? Yep, still like it. I won't be alarmed if we return into the $800s, but I think as the financial and political carnage continue (we're now seeing entire governments resign), there will be a flight to non-fiat safety.

Oil. How long can Russia and Venezuela stay in business if oil remains below $40 a barrel? Not indefinitely, not even a few years. After a 75% plunge in their stock market last year, Russia has lost another 10% (of course, so have we). Concerns about their ability to stay solvent may evolve into political catastrophe, forcing gas and oil tariffs on their Eastern European neighbors. That's why I like it and I think 2 years is a good time frame to see some major volatility to the upside.

As my brother wrote to me this week, what the hell happened to Jim Jubak? While not quite as dire as fellow MSN Money columnist John Markman, Jubak usually shows critical analysis of the market and our politicians. Recently, he's become strangely bullish and that has me concerned that sales of his book are slow, prompting a Cramer like pumping of stocks. Sad.

We'll continue to monitor some of the European ETFs, but I fear one more death surge in the form of large stimulus packages across the world. Saks is fighting sudden death as well. Sold my BBW March contracts and will roll them into later dated ones. Jan. 10 contracts are up 25%.

Tuesday, February 17, 2009

Race to the Bottom

WalMart aside, the rest of the world and its companies are competing to see who can blow up first. Will it be Ireland and their failing bonds? Perhaps Japan, on pace for about a 15% reduction in GDP this year. England's not looking too good, and they are an anytime announcement away from nationalization and massive layoffs. California will have to cut 20K jobs and Kansas will not be giving income tax refunds while they struggle to balance their budget with massive cuts.

New administration, same game. It was interesting to watch Taleb and Roubini roast the CNBC lunchtime chefs over questions of an improving global economy. Taleb suggested Roubini should be president if we want any real change, otherwise, prepare for more catastrophe. David Carr of the NYT even wrote about how ridiculous the CNBC crew looked as they battered the panel with sticky sweet suggestions of optimism. It was some of the most pathetic "journalism" you'll ever see:

So, is it too late to short now that we've taken another 1,400 point swoon? For the most part, I say yes. Bets not already in place a few months ago may not find great footing now. I'm still amazed that homebuilders are trading above $1, let alone in the teens. Retailers have been punished an rightfully so, and I would not fault an aggressive investor for shorting these overlapping purveyors of credit and fads to zero.

I continue to like USO as it drops again today. Gold is almost to $1K. But our markets aren't the only ones. What if England doesn't make it, or Ireland. Does it hurt to hedge against this? I'm looking at the EWU ETF, English stocks only, as a possible replacement for my VGK suggestion (recommended shorting at $64, now $31). If the FTSE fails, why not gain from England's demise. Puts only go out to July, and while I'd like the rest of the year for disaster to strike, the $9s or $10s might do just fine.

Saturday, February 14, 2009

Please Answer the Following

Ushering in a new era of change by supporting a bunch of delinquents, lobbyists, and criminals for cabinet positions, our president is off to a horrible start. Combine that with his belief in Friedman economics and the architects of our current banking system, and we are left wondering, what the hell is going to happen to us?

1. Why Geithner? As Jim Rogers points out, isn't he the co-author of TARP? Wasn't he the chief of the NY Fed the last 5 years while Wall St. was committing its most egregious crimes? The following quote from Eric Janszen of Itulip casts an even dimmer light on this turd:

"All of the Geithners’ mortgages - from big banks including Nationsbanc, which is now Bank of America; Chase Manhattan, which is now J.P. Morgan Chase; and Wells Fargo - carried adjustable-rate mortgages with the risk that annual rate increases could raise their interest payments to as much as 11.25 percent, though the couple tended to refinance or sell their homes before they faced a rate adjustment. They also took out second mortgages, now known as home equity lines of credit, borrowing a total of nearly $1 million in 2002 on their second Bethesda home, which they bought a year earlier for $1,085,000.

Don’t know about you, but I want my Treasury Secretary to either own his house outright or if he is going to hold a mortgage at least show that he knows a lot more about household finance than Gary Coleman."

2. Why not nationalize these zombies? Alan Grayson, a Florida Rep. who is seemingly in touch with financial lingo, grilled Citi CEO, Vikram Pandit this week. Where in the world could someone other than these clowns get $250 billion in insurance for $7 billion? Please watch the amusing show:

3. Why didn't USO go up yesterday? Ahh, glad you asked. As I've been recommending these futures and buying them, I was alarmed yesterday as well as oil went up 10% and USO went down. Then I read this:

Turns out that USO represents the price of oil in Cushing, Oklahoma. As inventories have risen there recently, the spot price has not managed its usual correlation with London crude. Until OPEC or the NYMEX steps in, this discrepancy may continue to widen. But, we've got 23 months for that to happen, so I'm not concerned.

4. Why are our leaders a bunch of morons doomed to repeat all of the same mistakes Japan made except that we don't have the intelligence or savings of the Japanese? Great question. This stimulus package is clearly not enough money to stimulate anything. On the other end, why are we encouraging more spending and more debt? Isn't that what brought us to this mess? Yes, but Geithner and company will not write this down and cripple our banks so that we can reset. This will send the market down and put his buddies out of business, in the same way that Paulson refused to do it. So we are destined for a series of meaningless policy changes and money printing that will make things worse. Consumer spending is 70% of GDP. Do you really think that we have any chance for growth this year?

Gold was up 3% this week. Saks under $2. Gannett under $4.50. Not too late to short newspapers to 0, just give yourself a little time. I requested that ask Jim Rogers how we can replicate his commodity index through ETF investing when they interview him next month. I will let you know if I get an answer.

And finally, congrats to Dr. Mike who has not only had the balls to buy double-inverse ETFs, but to leverage them with calls on forward month contracts! Now that's playing for the homerun!

Tuesday, February 10, 2009

Flu Season

Sorry for the 10 day absence, but it seems the combination of having 2 little kids and taking care of 40 sick people a day eventually gets to you. But as the pink crustees leaves my eye and I'm actually allowed to use my computer again, it seems fitting that I return to you on a day where Geithner scared the poop out of the world's pants and came across as an intern, not a specialist, leaving the market down almost 400 points and gold back on its march to 4-figures.

Despite assurances from the likes of Rogers, Soros, Hudson, and Janzsen that printing a trillion dollars may actually make things worse, Obama's crew rampaged over the last week to stir up the necessary stimulus votes. We must do something. That thing, apparently, is never to write down the debt of our crippled banks and force them to swallow the sour pill. No, that thing is to make more credit available to our debt-demised consumers and homeowners in a last gasp to spur spending and grow the economy. I'm reminded of a Philip K. Dick story about a creature in a small town that could reproduce any object on demand, until so overused, by the end it could only churn out sludge. The townspeople became enraged and destroyed it, never taking responsibility for their own selfishness.....

The debt on Bear Stearns has already cost Americans $4 billion dollars and projections are now that their assets will always be worthless, possibly raising the bill to $30 billion. But don't worry, JPM is on the hook for the first billion, so we'll be ok.

Japan's GDP is shrinking 10% a month, and England, already having admitted to being hours away from nationalizing their entire financial system a few months ago, is perhaps in much worse shape than we are (is that possible?). China is grinding down faster than anyone would like to admit, and yet people are still buying stocks amidst the optimism that the government can somehow make this all ok. I thought we'd be under 7K on the Dow by now, but I may be proven right sooner than later.

The bad bank plan has been scrapped for the moment and a plan to stem foreclosures is impending according to Geithner. Well, I won't be holding my breath. Neither should you. Call your bank and inform them that you'd like to pay them, but that you might need their help. No bank wants additional delinquencies or foreclosures right now. They just can't afford it. Ask Wells Fargo, down to $16 today....

Don't feel an urge to buy anything right now, except maybe oil or gold. All of those people rushing into BAC or JPM the last week ahead of this announcement just got shot.