Friday, January 29, 2010

Despite Solid GDP, Stocks Slide Again

As goes January, so goes the year...

If that old adage - the basis for the January Barometer, correct 90% of the time - rings true in 2010, we're in for a very tough year in the stock market, so, like I've been repeating over and over, CASH will be king, CASH is king, and CASH almost always has been and will be king. Even the perceived safety of commodities is no safe haven. We've seen them behave in volatile manners, and, for the past two weeks, steadily decline in price. Gold, silver, oil, all returned lower this week.

As for stocks, nothing, it seems, can break them out of their current funk, not even the robust 4th quarter 2009 GDP numbers released this morning. The advance reading came in at +5.7%, about in the middle of expectations, but, transposed against the horrible figures of 2008, it really didn't help investors' confidence very much. Following a spirited morning rally, stocks soon went back to their favorite posture of late, and sold off into the close.

The Dow dropped another 100 points for the week, with the other averages following suit. For the month, stocks were losers. Though they began with steady gains, economic realities and price pressure took over in the final two weeks of the month.

Dow 10,079.80, -40.66 (0.40%)
NASDAQ 2,149.15, -29.85 (1.37%)
S&P 500 1,075.16, -9.37 (0.86%)
NYSE Composite 6,890.53, -66.46 (0.96%)

Declining issues overwhelmed advancers once again, 4465-2021, with new highs and new lows continuing to converge. The highs held sway, but barely, 120-80. The market, and the high-low indicator, continue to appear ready to roll over. Volume was moderate.

NYSE Volume 5,431,270,500
NASDAQ Volume 2,685,607,500

Deflating prices continue to show up in the commodity markets. Oil finally sold off substantially, down $1.00, to $72.89, it's lowest price in over a month. Last year at this time, oil was trading for less than $60, and, considering the economic climate pervading the globe, there's no good reason other than naked speculation for crude to be at these elevated levels.

Gold drifted down $1.60, to $1,083.20, though silver finally managed a gain of 6 cents, to finish the week at $16.27. Less than two weeks ago, silver appeared headed for $19.00. Some people surely were burned badly by over-estimating the appeal of both gold and silver.

US dollars continued their 6-week rebound, strengthening against a basket of currencies, but mostly solid against the Yen, Pound and Euro. Cash, cash, cash. You've either got it or you don't.

Thursday, January 28, 2010

Stocks Continue Taking It on the Chin

Today's market - no, check that, the past two weeks - have been similar to watching an overmatched heavyweight slogging through the late rounds of a fight. The stumbling, grasping hulk is doing everything he can to stay on his feet, but his opponent, peppering him with body shots and head blows, is wearing him down, and eventually, that's where he's going: down to the mat for a long rest.

After a stirring speech by President Obama in the State of the Union Wednesday night, there were ample amounts of optimism, though not enough to lift stocks off the break even mark at the open. Jobless claims once again disappointed, and durable goods orders, which were expected to grow by as much as 2% in December, came in at a feeble 0.3%, giving even more credence to the thinking that the nascent recovery is giving way to larger pressures.

The deflationary cycle will not relent. Consumers aren't spending, which means companies won't hire, which will eventually be reflected in slower sales, weaker earnings and potentially even more job losses. Unemployment continues to be the weight on the economy, though housing isn't far behind.

Just an anecdotal reference from my vantage point bears reflection on where housing prices are headed. Three months ago, here in an upstate New York suburb, I searched the local multiple listing service site for homes under $90,000, and found four. Now, this is a relatively modest area, which wasn't damaged by the ups and downs of the housing boom and subsequent bust. Prices remained fairly stable throughout the years from 2003-2009. However, when I checked the same reference with the same parameters, my search showed 49 properties under $90,000, a 10-fold increase since late October, with the lowest price coming in at $36,500.

I was absolutely stunned to see so many properties around me at such low prices. In many cases, the property taxes would exceed the monthly mortgage payment on a 30-year fixed rate loan at 5.5%. I can only imagine the number of bank-owned properties that are being kept off the market (the so-called "shadow inventory") and the heartache and pain many of my neighbors are suffering.

With real estate in such a dreadful condition, if the stock market takes an extended dive - which it appears to be doing - many more families are going to be hurt, especially those with kids in college or nearing retirement. Their two great stores of value - their home and their retirement savings - are both losing value simultaneously, an unsustainable condition.

America sits on the precipice of a grand collapse and there aren't many people offering solutions, especially in Washington, where the fight is mostly political. It's almost comical to watch the daily panorama of posturing from a detached position; who in their right mind would want to be in a political position of power at this juncture? Maybe politicians are all just closet masochists, waiting to be flogged by an angry populace.

Wall Street seems to have noticed. Over the last seven sessions, the Dow has dropped 605 points, or nearly 5%. If the downdraft turns into a full-blown correction - a likely scenario - another 8-15% could be shaved off in short order, bringing the Dow not only back below the 10,000 mark, but even below 9000, a place where fear and panic both reside. It just doesn't look very pretty right now.

Dow 10,120.46, -115.70 (1.13%)
NASDAQ 2,179.00, -42.41 (1.91%)
S&P 500 1,084.53, -12.97 (1.18%)
NYSE Composite 6,956.99, -78.62 (1.12%)

Declining issues easily outdistanced gainers, 4690-1826. New highs remained modestly ahead of new lows, 131-79. Volume was strong.

NYSE Volume 6,385,494,500
NASDAQ Volume 2,906,497,750

Commodities were steady, after a few weeks of declines. Oil gained 11 cents, to $73.75; gold lost $1.20, to $1,084.50; silver finished at 16.21, down 23 cents on the day.

Friday offers the first government estimate on 4th quarter GDP, at 8:30 am, prior the the opening bell. experts are looking for gains of 4.7% to 6.8% over last year. The projects may appear overly optimistic, and may well be, but, then again, the final quarter of 2008 was one of the worst in years. Some improvement is surely there in the economy, the larger question is whether it will last.

Wednesday, January 27, 2010

How To Create Your Own Currency

I promised to divulge information on creating your own currency a couple of days ago, and am now prepared to take a shot at it.

First, however, a quick look at today's financial market action.

Stocks were bounding around in negative territory for most of the session, until the FOMC rate policy decision came out at 2:00 pm. As this was the least hyped Fed meeting in many months, little was expected to change in either the rates or the language. The economy is clearly slip-sliding along, and fears that the recovery is more myth than meat have recently come to the surface.

Nevertheless, stocks staged a little bit of a rally, mostly on news that the Fed would continue doling out scads of free money, at nearly a zero interest rate. Banks which have rights to the discount window are making out like bandits, as they can now pick and choose with whom they desire to do business, which means that Mr. Average Joe with a sound business idea is more likely to get laughed out of the bank rather than be treated with respect. Either that, or the bank will offer him a loan at some ungodly, usurious rate of 25% interest, or more.

The major banks which feed at the trough of the Federal Reserve are lending plenty to people who are buying real estate at distressed levels and/or have businesses the banks want to be a part of. Lending is going primarily to huge corporations in a final push for the perceived goal of Nazi-style fascism, in which the government and big business are in cahoots and the middle and lower classes foot the bill and struggle for existence.

That's good for Wall Street, as today's numbers reinforce the argument that bigger is better and may be all that matters.

Dow 10,236.16, +41.87 (0.41%)
NASDAQ 2,221.41, +17.68 (0.80%)
S&P 500 1,097.50, +5.33 (0.49%)
NYSE Composite 7,035.61, +7.29 (0.10%)

Advancing issued edged decliners, 3391-3082. New highs were 128, to 87 new lows, the closest gap between the two since June, 2009. The market is about to turn over completely in a new downturn which could be severe. Stocks are already off 4-6% from their highs and another 5% drop could easily occur within the next month. Volume was good, though shaky.

NYSE Volume 6,175,805,500
NASDAQ Volume 2,492,886,750

Oil gained 33 cents, to $74.00, a ridiculous number considering not only supply and demand issues, but general trends in the global economy. Expect to see oil under $70/barrel soon, despite the howls from the oil hawks. Gold fell another $13.00, to $1,086.50. Silver slid 44 cents, to $16.43. The drop in the prices of precious metals is quite foreboding, indicating that even holders of wealth fear deflation and another downturn in many of the major economies. A real tip-off that gold had reached its zenith were the number of ads on TV, in newspapers and on the internet looking to exchange cash for gold. It should have been obvious that gold was overvalued when vultures appeared. The irony is that these cash-for-gold bugs will be squashed when the price bottoms. Another industry hitting the skids.

How To Create Your Own Currency

First a definition, from

1. something that is used as a medium of exchange; money.
2. general acceptance; prevalence; vogue.
3. a time or period during which something is widely accepted and circulated.
4. the fact or quality of being widely accepted and circulated from person to person.
5. circulation, as of coin.

Obviously, your currency must be something that people will use in exchange, barter, trade or for payment. It should be widely accepted and have value, and, though this is not a part of the definition - it applies - it should be in ample, ready supply.

The easiest way to explain how to create your own currency, for me, is to relate the story of how I did it, inadvertently, and without knowing I was doing it.

Back in 1982, I started up a free newspaper in downtown Rochester, New York. Appropriately, it was called, Downtown, the Unbound Magazine, later, it became known as the more common, Downtown Magazine.

My currency, though I did not know it at the time, was blank space on the pages of my fledgling newspaper. The paper carried stories of interest to locals and advertisements appealing to the same. I quickly found that writing favorable articles about people, or articles that appealed to large numbers of people (anti-government populism, mostly) won me praise, notoriety and more, including the company of beautiful women, free drinks at local pubs and other assorted niceties from merchants and the general public alike.

Once the paper became widely circulated, my living expenses dropped dramatically. I had too much to eat, drink and be merry. The blank space in my weekly newspaper, filled with appealing stories, was my first currency. I could trade it for favors, food, and much more.

Even more powerful was the advertising space. That was the currency that really clicked. I could go to virtually any merchant in my market and work a deal for cash and/or goods and services. I traded advertising for a monthly allotment of fine men's clothing. I traded restaurant reviews for cash and meals. Anything I wanted, I could get without money, because i had my own currency, which was, after all, a useful means of exchange of ideas, goods, services and good will.

My little newspaper expanded to a point at which I was able to purchase (this with real money) a chain of rural weeklies, printing presses, and a building in which my entire operation was housed. Trading ad space for everything from clothes to event tickets to transportation was available to me because my ad space had value and was widely accepted.

That's it. Get yourself into a business at which you can deliver quality goods or services at a reasonable price to a wide swath of customers and you'll never want for much of anything ever again.

All it takes is a little neediness, desire, persistence and plenty of hard work. Sound familiar? It should. It's how our great nation was built.

Geithner's Incredible AIG Testimony

Looking back on the financial panic of fall 2008, a House Committee today grilled Treasury Secretary Timothy Giethner on his recollections and his role - as President of the NY Federal Reserve, and, later, as Treasury Secretary - in the bailout of American international Group (AIG).

AIG, which received enormous sums of taxpayer money via TARP (Troubled Asset Relief Program) has been a lightning rod for all manner of political posturing by some of the very same legislators who passed the bailout bill at the height of the extraordinary events of 2008. The mega-insurer, which had engaged in the risky credit default swaps business and was in danger of default, received assistance of upwards of $180 billion, much of which was funneled back to counter-parties such as Goldman Sachs, Bank of America, and other TARP recipients to make them whole.

Geither's testimony today often included the phrase "working in the public interest" when questioned on his decisions regarding AIG. While in Tim Geithner's mind, he may believe that he works - or worked - in the public interest as NY Fed President or as Secretary of the Treasury, but, in the former, at the very least, he worked to protect the interests of the NY Federal Reserve, a private baking system.

While representatives in the house queried and posed for the cameras with what sounded like tough questions for the Secretary today, Geithner's answers continued in the same vein as all who have gone before him, making the deals by which some of the nation's largest financial firms were recipients of congress' largesse sound like there was no other choice available.

Whether Geithner, former Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke, the trokia who worked out the various aspects of the TARP and doled out the money, were correct in their assumptions concerning the bailouts - that the entire financial system would collapse - probably will never be known, but at least this much is: the collapse of Goldman Sachs, AIG, Bank of America, Citigroup and other large banks which took inordinate risks with money entrusted to them by shareholders, investors and depositors would have affected the CEOs and top executives of those firms in far greater degree than any single American taxpayer.

Geithner worked for banks, continues to work for banks and will always work in the interest of banks, bankers and friends of bankers, like the very people questioning him now on Capitol Hill. The idea that he, or any Fed president, works for the people, in the "public interest," is laughable and deserves condemnation, though not much in the way of criticism has effused from the collective mouths of the Washington babblers.

That's probably because, when the history books years from now look back on this episode, it will be recorded as one of the great and grandest swindles of all time, and will likely be regarded by future generations (if any happen to exist) as one of the key elements which took down the greatest democracy ever invented. Crooks and criminals generally, when they are caught, are tried, convicted and jailed. That is, unless they are bankers and wall Streeters wearing pin-striped suits and draped gloriously in patriotism and self-importance. Not only did the wall Street banks pull off the greatest heist ever, but they were aided and abetted every step of the way by high officials of the government, from congressmen and senators all the way up to both presidents who served during the time of this swindle, George W. Bush and Barack Obama.

Instead of the parade of toothless hearings which congress continues to hold, trials for treason should have already been well underway, though it stretches credulity to believe there would be enough innocent parties in our nation's capitol to even impanel a 12-member jury for such an event.

Geithner was at the heart of the swindle, which eventually had its roots at the Fed, Fannie Mae and Freddie Mac, where lax regulation or the absence of such created toxic financial instruments from mortgage-backed securities (MBS) to collateralized debt obligations (CDOs) to Credit Default Swaps (CDS). The truly sad and frightening chapter of this saga is that these very same instruments are still being actively promoted, traded, bought and sold, all with the implicit consent and nodding approval of the Federal Reserve and the federal government.

Apparently, $700 trillion was not enough to cripple the nation irrevocably. The captains of finance are prepared to make matters even worse with another round of theft, obfuscation and sincere lies, and, no doubt, they will, just as sure as they will make sure that they are handsomely rewarded for their work in the "public interest."

Tuesday, January 26, 2010

The January Barometer Is Sending Sell Signals

I know that yesterday I said I'd write about creating your own currency, but, having spent the bulk of the day poring over New york State Surrogate's Court Procedure (in my case, this is an exercise in learning how to get a house for nothing from Bank of America, but that's another matter), I haven't had time to crystalize my thinking on the topic. Suffice it to be said that anyone can create their own currency, the trick being getting others to accept it. I will make every effort to cover this enticing topic tomorrow.

As for today, the stock players didn't do well. Markets were decidedly higher in the AM, but began to unravel in pretty distinctive fashion around 2:00 pm EST. In other words, the nascent rally tanked into oblivion, leaving investors and fund managers holding a little bit less than they did yesterday. All averages were lower on the day, though the Dow performed better than the others.

As of Friday, the major indices had fallen below where they closed 2009, bring us to the first 2010 mention of the "January Barometer," which invokes the old saw, "as goes January, so goes the rest of the year." The theory, which holds true 90% of the time, is based upon the movement of the S&P 500. It was dead wrong last year as stocks sulked in January and February, but made up the lost ground and then some beginning in March.

So far this year, the S&P is down, from 1115.10 on December 31, 2009, to today's close, so, unless the market decides not to continue to scare the bejesus out of everyone, the tone will be set for a losing year on Wall Street. Hogwash! Balderdash! The nerve of some people to suggest that one could lose money investing in stocks. Unheard of!

Well, since the predictive value of this "barometer" is 90%, and it was off last year (I know, I know, that doesn't change the odds), I'd be looking for some downside movement over the next month to six months, for starters.

Dow 10,194.29, -2.57 (0.03%)
NASDAQ 2,203.73, -7.07 (0.32%)
S&P 500 1,092.17, -4.61 (0.42%)
NYSE Composite 7,028.32, -44.81 (0.63%)

Declining issues danced on the heads of advancers, 4283-2220, belying the soft headline numbers. It's just this kind of stealth movement that sets up investors for a nasty roller coaster ride. The gap between new highs and new lows narrowed to 161-78, with the lows rising to their highest level in at least a month. The turn is upon us. The market appears to have done everything but roll over, but there's every indication that it will. Volume was better than yesterday, though nowhere near as robust as the selling days of the past week, another indicator pointing towards the floor.

NYSE Volume 5,477,897,000
NASDAQ Volume 2,406,876,000

Like stocks, commodities didn't move much. Oil fell 3 cents, to $74.68. Gold was up $3.20, to close at an even $1,100.00. Silver continues to take the brunt of the selling, off another 31 cents, to $16.84. The selling in gold and silver seems to be based upon speculation that the dollar's decline is over. For much more on that topic, from a person with eminently more knowledge than myself, I direct you to commentary from Kitko's John Nadler.

Considering the massive move in gold - less so in silver - over the past decade, a correction on the back of a rising dollar makes plenty of sense. If, as I've been saying for years, and the Fed has been fighting for an even longer time, deflation continues to be the crazy aunt in the attic which nobody particularly cares to have roaming about the house in free fashion.

All one has to do these days is go food shopping at the neighborhood market to see deflation in progress. Or, head to a dollar store or witness the fast food chains pushing not prices lower, but portions higher - for the same price, a la Burger King's larger-than-McDonald's double cheeseburger (it is bigger and, yes, better) to understand the dynamics of deflation, which begs the question, if people are willing to pay to lose weight (Weight Watchers, Jenny Craig, etc.), shouldn't restaurants pay us to eat?

It may come to that.

Monday, January 25, 2010

Dead Cats Don't Bounce, At Least, Not Very High

All those guys in their pinstriped suits went down to lower Manhattan today wondering if the market would recover from its worst week in 9 months. A few minutes into the trading session, there were probably more sighs of relief than pictures of Brad Pitt and Angelina Jolie in today's newspapers, as stocks took off right out of the gate and posted healthy, though uninspired gains early on.

The Brangelina episode notwithstanding, the stocksters were to be found mostly standing around, wondering still. Somewhere in the deep recesses of the collective brains of these Harvard whiz kids who populate the trading desks and exchange floors must be thoughts of rebellion. Thoughts that somehow tick up in the night and are pushed back into dreams, only to resurface just under the consciousness during the daytime speak of cashing out and buying a farm, or opening a franchise business out West, or maybe just dumping it all into a sailboat in the Florida keys.

Certainly, we all have these thoughts, about the day our annual investment income becomes greater than our yearly take-home pay, about retirement and lingering, lounging and Early Bird specials with the wife. But the market is cruel, or lately, has been. We've just endured the worst decade of returns on equities since the Great Depression, and some say the 2000s weren't even as good as the 1930s. Being that you'd have to have a pretty good memory and generally be over 90 today to accurately recall what the stock market was like during the depression, there aren't many opinions like that, though charts and history offer clues.

The last ten years were by no means anything even closely resembling a depression, though we did burst two bubbles - dotcom and housing - and suffer the downdraft afterwards on both. 2010 ought to be better, we believe, but we're still unsure. Besides, there are other ways to save and invest outside of stocks, aren't there?

Coin collectors have been having field days of late, such with the prices of gold and silver up so much. Art seems to still be appreciating in certain circles, and for the rest of us, there are always baseball cards, Barbie dolls and eBay. The answer is a resounding "yes," and more and more people are discovering a world outside of IBM, Apple and Microsoft.

Certainly, some people make money in stocks. Many small investors, lacking in patience, experience and wisdom, do, however, end up with losses, sometimes larger than they'd like. It is because of those who have tried and failed that I write about money, stocks, cash, commodities and such. There are other options. You just have to know the rules, and which of those can be broken or bent enough for you to make a small - or maybe sizable - fortune.

More on that tomorrow, when I discuss the creation of your own currency, but for today, stocks were slightly higher. Everybody's indexed portfolios show a profit. Good thing, too, because they've been losing for the past few days, but they didn't make much in the end, and participation (volume) was light, so cash still looks really, really good.

Dow 10,196.86, +23.88 (0.23%)
NASDAQ 2,210.80, +5.51 (0.25%)
S&P 500 1,096.78, +5.02 (0.46%)
NYSE Composite 7,073.13, +42.52 (0.60%)

Advancers were barely ahead of decliners, 3586-2954, with new highs surpassing new lows, 145-51.

NYSE Volume 5,164,265,500
NASDAQ Volume 2,148,828,000

Commodities rebounded, with oil up 72 cents, to $75.26, gold higher by $6.70, to $1,096.40, and silver gaining 19 cents per ounce, to close at $17.12. Commodities were the place to be on Monday. While stocks gave up most of their gains late in the day, precious metals held well, and could be setting up for some spirited buying, since souring on stocks is all the fashion this Winter.

Getting yourself away from stocks isn't a bad idea. Somebody reminded me of the old rule that says to subtract your age from 110, and the result will be the percentage of your investments that should be in stocks. The concept sounds reasonable enough, until you start asking questions.

Does that include my home? Let's say you have $100,000 equity built up and you're 55, and have another $100,000 in cash. Since your number would be 55% (110-55), you'd have to take out some of your home's equity to get your stock percentage up to the proper speed, so, I say, exclude your home from your investment ideas. The equity you have in your home, you earned, and you're going to keep it. Besides, we all need a place to live, so why put it at risk?

So, adding our caveat, you've got $100,000 in equity in your home, $100,000 in cash, $55,000 of it which should be in stocks, according to the formula. The rest, I suppose, would go into CDs or bonds or both. Still, 12 years from retirement (yes, it's 67 for this age group, thank you, congress), do you really want to put $55K into stocks, and which ones? Especially after the decade from hell we've just gone through, it sounds pretty risky.

But, hey, says your broker, it's only money.

Friday, January 22, 2010

Dude, Where's My Money?

Stock investors suddenly found themselves in head-scratching mode once again, as the stock market finished up with a fickle Friday, sending the Dow down another 216 points, with other major indices in line with those losses. It was the worst overall week since the first week of March 2009, when the stock market was bottoming out.

So, is this the beginning of the "double-dip" that skeptics of the recovery have been warning about since June?

Count on it, and here's why: First, stocks had risen by an unprecedented amount - more then 50% in the major indices - over the past nine months, making stocks pricey, even in the best of times. Second, the government's threats to stamp further regulations on the banks has spread fear far and wide. Third, the re-confirmation of Ben Bernanke as Fed Chairman is less than two weeks away and there's growing concern that he will not have the votes due almost entirely to politics. Fourth, Unemployment is still extremely high and government stimulus hasn't done a thing to create new jobs, nor have the publicly-traded corporations.

There are a multitude of reasons to sell stocks, and you can bet your bottom dollar that the big money has already jumped the shark. And, by the way, I'm betting that bottom dollar, down there in your pocket, is looking pretty good right about now.

Dow 10,172.98, -216.90 (2.09%)
NASDAQ 2,205.29, -60.41 (2.67%)
S&P 500 1,091.76, -24.72 (2.21%)
NYSE Composite 7,030.61, -143.85 (2.01%)

Declining issues led advancers, 5116-1480. There were 160 new highs, the lowest number in months, and 67 new lows. Volume was strong for the second straight day, a sure sign that money in stocks is running scared. A bear is loose and is not likely to be sated until stocks drop another 8-10%, short term.

NYSE Volume 7,244,262,000
NASDAQ Volume 2,838,065,000

Commodities were also not spared. Oil was down again, for the fifth straight day, losing $1.54, to $74.54. Gold fell $11.80, to $1,092.00. Silver, which earlier this week was approaching 15-month highs, was down another 58 cents, to $16.94, a drop of more than 10% from the earlier-in-the-week highs.

If you were holding cash, cash and only cash, you had a banner week in relation to everyone else. If you were putting that cash to work in your own business, you're now taking victory laps. Money in your pocket can turn into more money in your pocket through smart purchases, small investments in your own business and strategic use.

Keep it up.

Thursday, January 21, 2010

Government Greases Skids for Wall Street Sell-Off

Onerous new regulations (Actually, they're only onerous if you're a rich banker. Otherwise, they're actually sensible) limiting the kinds of risks banks may take with federally-insured deposits gave the rich and powerful the perfect opportunity to take profits and blame any market and economic fallout on the Obama administration and congress.

The 213-point slide on the Dow was probably less related to banking than it was tied to initial unemployment claims, which rocketed to 482,000 for the most recent reporting period, from a previous reading of 446,000. Continuing claims held steady at 4,599,000 slackers still collecting unemployment insurance and keeping the fragile economy from falling off a cliff. While Wall Street may deride these individuals, the companies represented by stocks traded on the various exchanges have yet to even whisper about new hiring.

It's a scenario that many have predicted and is about to come true. Without new jobs for those millions of unemployed, underemployed and discouraged workers, major companies have squeezed themselves into a box without a box cutter. As earnings for the 4th quarter of 2009 roll out, investors will be seeking top-line (revenue) growth, but are likely to get more of the same cost-cutting, belt-tightening by which companies have produced profits for the past 9 months. The economy is just churning, not growing, and the natives are getting restless.

Today's losses in the major indices erased the gains thus far in 2010. Only the S&P 500 closed above where it ended 2009, but only by a point and change.

To get an idea of the kind of mood that is just beginning to pervade Wall Street, consider the knockout numbers reported by Google (GOOG), just after the close. The search giant beat revenue and profit estimates handily. The initial reaction was a 22-point sell-off just after these dazzling results were announced. This kind of behavior was easily predictable. With stocks at nose-bleed levels, earnings will not matter to holders of stock. They've already determined to sell, either just prior to or just after a company announces, so unless the numbers are simply out-of-this-world, expect all stocks to get roughly the same treatment.

Now that Wall Street has gotten over the giddiness of a new year, the hard, cold reality of an economy unmoved by stimulus and bailouts is knocking stocks for a loop.

Overnight, China released 4th quarter GDP numbers, showing a stunning annualized growth rate of 10.7%. Investors in America are concerned that China may begin reining in its own growth in order to stave off inflation, which is a major concern. While America and Europe wallow in the aftermath of the 2008 financial meltdown, the Chinese are eating their lunch, and they're not using chop-sticks.

Dow 10,389.88, -213.27 (2.01%)
NASDAQ 2,265.70, -25.55 (1.12%)
S&P 500 1,116.48, -21.56 (1.89%)
NYSE Composite 7,174.46, -155.37 (2.12%)

Losers beat winners, 5027-1539, and new highs outnumbered new lows, 284-55. Volume was off-the-charts to the high side, an indication that the rout has just begun. Selling should continue nearly unabated through the next 3-5 weeks, unless economic data indicates the economy is growing well beyond tepid expectations. It's not, so don't get your hopes up. Bears are becoming more emboldened every day.

NYSE Volume 7,747,543,000
NASDAQ Volume 2,819,241,250

Losses were not limited to stocks. Commodities also took widespread hits as another wave of deflation distress wafts through the markets. Oil dropped $1.66, to $76.08. Gold lost $9.60, to $1,103.00. Silver followed it down, losing 29 cents, to $17.60.

Lately, I've taken to offer up alternatives to the usual Wall Street fare, the ups and downs of daily life in the dithering world of stocks, but today just seemed to legitimize my thinking, that stocks are not for everyone, especially those without the cushion necessary to take sustained losses and ride out long positions. The market was overbought and due for a turn-back, so I'm not taking any credit for soothsaying. It was pretty easy to see.

Cash in your pocket today was the big winner. Just like it was yesterday and probably will be in coming days, weeks and months because the economic drop dead party is just getting going. The system, built on bad loans and bailouts, is barely sustainable under current conditions.

Relax. Have a drink. Have a smoke. America is still a pretty good country.

On CNBC, Robert Weissman Proposes that "Under Water" Mortgages Stop Paying!

Stemming originally from loose lending standards that sent property values soaring from 2000-2007, a strategic default strategy for people with "under water" mortgages - the mortgage is for more than the fair market value of the home - is beginning to go mainstream.

Exacerbated by the $700 billion TARP bailout of the major banks which caused most of the problems in the first place, and now, executive bonuses to the same banks' top people, more and more Americans are seeking relief by just "walking away" or simply not paying their mortgages.

Here, in this video clip aired around 10:00 am EST on CNBC, Robert Weissman, President of the consumer advocacy group, Public Citizen, advocates that people who are "upside down" or "under water" should stop paying their mortgages. The comment comes at about the 4 minute mark in this discussion of executive bonuses, but despite the shock and awe - especially by Wall Street shill Mark Haines - Weissman doesn't retract or relent.

Pretty amazing.

As unbelievable as not paying your mortgage may sound, it gets even more interesting. Having researched this topic extensively, it appears that the banks which made all of the sub-prime, 20/80, interest-only, balloon payment, ARM, and prime loans - especially between 2003 and 2007 - were the same ones which, a. sliced and diced and "securitized" the notes, and, b. received TARP bailout funds.

While those two magnificent events are separate, they are conjoined. Because the banks went about the unthinkable business of separating the mortgage from the note (the common practice for hundreds of years had been for the bank to hold both the mortgage and the promissory note (promise to repay)), and then packaging these notes for sale to private investors, when the first big wave of defaults hit in 2007 and accelerated in 2008, the banks were caught with significant egg on their collective faces, as the SDOs (Securitzed Debt Obligations) began to default, eventually prompting the bailout, now better known as TARP, the $700 billion swindle which kept the banks solvent - for now.

However, because the mortgage and note on many mortgages (some sources say as many as 60 million of them) were separated, when homeowners stop paying, the normal route for the bank is to foreclose, except that the mortgage holder, or loan servicer, has no standing in a foreclosure, only the note-holder does. Those notes have been sold, traded, lost or are otherwise missing in action, the actual holder of the note unknown or is some obscure trust set up to sell interest in the note to investors in exchange for regular payments.

The financial and legal boondoggle this situation has created generally leaves homeowners with some good options: if the servicer brings a foreclosure action, they are in violation of federal and in most locales, state law, and, widely interpreted, also have no standing to foreclose. The mortgagor (homeowner) can then choose between filing a motion for dismissal on grounds that the servicing bank has no standing, or demand that the bank produce the note. In either instance, the foreclosure process is delayed and/or halted, sometimes permanently.

Recent decisions have ruled in favor of homeowners and against the banks. The media generally doesn't want this idea to gain traction, and the general public doesn't understand the issues, especially the key one that if the note and note-holder cannot be determined, or if the note-holder doesn't initiate foreclosure, the homeowner may be sitting on property, free and clear, even though title to the property will be clouded, at best.

It's difficult to believe that the banks who devised the entire scheme of mortgage fraud and securitzation didn't know exactly what they were doing. Once property values fall so dramatically that mortgagors stop paying en masse, the game is over. Bank income will fall so dramatically they'll be forced to close their doors. The government will have to step in again, though this time, not with money, but with guns and tanks to protect the banks' remaining assets (buildings and property), employees, and especially, executives.

The calamitous situation that would occur - clogging the judicial system (which is largely broken anyway) with far too many cases than it can handle - with homeowner, landowner, title and lien disputes rampant, no reliable banking system, and virtually no laws governing property ownership, conditions would deteriorate quickly. Municipalities, whose entire existence depends on property tax revenues, would be in line to fail, as would, naturally, the usurious issuers of credit cards, which debt is unsecured.

In such a scenario, the financial system would completely break down, along with the judiciary. Law enforcement would be overwhelmed, the likely outcome being the imposition of martial law in the hardest-hit areas, probably most of California, Florida, Nevada, Arizona and most major cities. Naturally, the stock market would implode, as bloated as it already is.

If you think the financial meltdown of 2008 was close to the edge, imagine just 10 million mortgages going unpaid and the resultant calamity. The bright side may be that you get to own your home free and clear, the downside being that you may have to arm yourself to defend it, and, in the end, you probably couldn't transfer clean title, so you couldn't sell it or take out a home equity mortgage against it.

The choice is there. Personally, I have no respect for anyone who knowingly purchased a home at inflated prices over the past 5 or 6 years and now wants to screw the bank because property values have fallen. Stop paying, and they'll fall some more. At least most people will have a place to live.

America is now sailing in uncharted waters. The chance of the system breaking down to a point of widespread civil unrest is probably greater now than it has ever been, even moreso than during the financial breakdown. Middle and lower class Americans have watched banks being bailed out (with taxpayer money), bankers hauling down huge bonuses and Wall Street partying like it's New Year's Eve, while most of their neighbors are losing their jobs, their homes, their families and their self-respect. The unfairness of the nation's financial condition (to say nothing of the welfare state) has reached a boiling point at which more than just a few people are considering the option of strategic default, hoarding cash and letting the chips fall where they may.

We certainly do live in interesting times.

(I'll be editing this later to include some links)

Wednesday, January 20, 2010

Amid Confusion, Sweat the Small Stuff

Did I mention that CASH IS KING? Only about 1000 times, and today's market action - not only in stocks, but in commodities too - confirmed that sometimes the best thing you can do with your money is to simply keep it in your pocket. Not only were stocks, gold, silver and oil all lower today, but the dollar gained against most other major currencies, so those greenbacks are actually doing better today around the world than yesterday.

Economics is not rocket science. In fact, it's not even regarded as a science, probably because the rules are different everywhere and, like these days, when the rules don't exactly suit those in power, they change them. How anyone is expected to make predictions on directions of entire economies is an open question. So-called "experts" are often widely off the mark in their predictions of everything from GDP to unemployment to the price of soybeans, making it advisable to just ignore most of the market "noise" and focus on what's really important: Your hoard of green.

If you own stocks, today was probably not a particularly pleasing event, but, that's how it goes - up and down - keeping you and your financial future in a perpetual yo-yo state. Did you ever stop to think that maybe that's because the big-time players like Goldman Sachs, Bank of America, the Federal Reserve and the US Treasury want you to be in such a condition?

You, as an individual taxpayer and person, aren't supposed to be able to game the system. In fact, the major forces in the market don't even want you to be a player. That's why they want your money in 401k plans, retirement funds, annuities and bonds, all overseen, managed and mishandled by somebody else. They play with your money, even though they say it's yours... when you're 59, or 65, or after you've paid the penalties and taxes.

A couple of years ago, I suggested on this blog that it might not be a bad time to dump your entire portfolio, even those sacred "retirement" funds, pay the penalty and whatever taxes might accrue and convert it all to cash. Put it all in a bank account, maybe in money market funds or CDs, and just keep it that way. That was 2007. We were at the all-time height of the longest bull market since World War II. Sounds like pretty good advice. I'd say that even if one took a 25% hit between penalties and taxes, one would still be ahead today after all the carnage and even after the spectacular rebound. Heck, if you were smarter than me and put some of it into gold or silver, you'd be even further ahead.

So, while the markets churn along with your stomach and you watch your retirement fade into the distance, you have probably overlooked the obvious fault points of your "plan." You're not watching your own consumption. Now, I'm not saying that you should pinch every last penny, but Americans have, over the last 30 years, become the ultimate consumption machine, quaffing down $4.00 lattes, spending $3 a gallon on vehicles which only get 12 miles per and generally living for today, assuming that Social Security will be there for all of us down the road.

Basically, if you are basing your retirement planning inclusive of pension plans and Social Security, you are as blind as the fabled three mice. Baby Boomers are only now beginning to retire, with the bulk of them hitting the golden years of 65-67, not now, but in 2013-2017. Why do you think the government is so hell-bent on passing health care "reform?" The more they and their friends in the insurance/hospital/funeral/cemetery business consortium can kill off over the next 3-5 years, the less they'll have to pay out. That's why they keep pushing the pills along with the other nonsense instead of promoting healthier lifestyles. Sadly, most Americans are pill-popping fools to the extent that real drug addicts glaze over with jealousy.

So, if you insist on Starbucks, SUVs and porterhouse steaks, at least ride a bike once in a while, put a dollar away in savings every time you buy a latte or expensive coffee and have a salad once in a while. Your colon, in addition to your heart, will thank you in many ways. Examine your lifestyle and your planning. Chances are very good you're working with unsustainable assumptions, Social Security at the top of the list, followed closely by mutual funds, retirement promises and stock market analysts.

Dow 10,603.15, -122.28 (1.14%)
NASDAQ 2,291.25, -29.15 (1.26%)
S&P 500 1,138.04, -12.19 (1.06%)
NYSE Composite 7,329.83, -113.85 (1.53%)

Declining issues wrestled down advancers, 4784-1744. New Highs: 275; New Lows: 47. Volume was strong. The market was down. Go figure. Maybe those loan losses reported by Wells Fargo and Bank of America have people just a little bit nervous. The slowdown in new home construction couldn't have helped. Sure, the stock market is up, but who's getting raises? Who's creating jobs? Nobody, pretty much. And, if you're one of those people buying a new home, good luck with that. You're just giving yourself a big fat minus sign next to your net worth. Home values may decline another 20-30% in some areas of the country. Elsewhere, they'll remain flat for the next five years, at least.

NYSE Volume 5,436,784,000
NASDAQ Volume 2,393,919,500

Oil dipped $1.87, to $77.62. Gold fell $27.00, to $1,113.00. Silver lost 92 cents, to $17.88. All wins for those who believe in deflation.

When the real problems occur, when banks actually fail instead of being bailed out, when the piper must be paid for all the federal government deficits, cash will not only be king, it will buy everything and anything it wants.

Tuesday, January 19, 2010

The Three C's of Business

A long time ago, I used to own a number of weekly newspapers, one of which I started from scratch, and with the success of that enterprise was able to parlay into purchasing a building, my own presses, a complete print shop, four other weeklies and a world of headaches.

Nonetheless, when I was in my entrepreneurial heyday, I was often asked what had gotten me to my level of success. There really were a variety of correct answers, but mostly my drive, desire and commitment to become a viable media player were the factors which got me from nowhere to somewhere better.

At one point, I came up with the idea of the Three Cs for business success. They actually relate to just about any field of business endeavor, and I rediscovered them deep in my subconscious just last night over a couple of beers.

The Three Cs for Business Success:

Confidence - This is probably the most important and frequently overlooked factor in one's business life. A confident person is one who walks with his or her head high, beaming with enthusiasm about what they are doing. Confidence can wane or rise, depending on a wide number of factors. Everything from your sex life to cloudy weather contributes to your overall psychological makeup, and it's important to keep an eye on one's own confidence level because in life, as in business, others can sense desperation, apathy and all the other malevolent emotions which can lower one's self-esteem.

Oddly enough, we may not even know when our own confidence is lacking, but, sure enough, others can sense it. Some ways to keep your confidence high is to take on tough tasks at work or even in your own sphere. I actually build my confidence by doing crossword puzzles and Sudoku, those oriental numbers puzzles that have become all the rage of the latte and newspaper crowd. Just recently, I began doing Sudoku because I thought I couldn't. After struggling with the first medium level puzzle over a number of failed attempts, I finally set my mind to it and got it. Now I scream through Sudoku and crossword puzzles. Every time I successfully complete one, my confidence - that I can do anything if I set my mind to it - grows. Yours can too.

Competence - With every task in life, one must be prepared and have the proper tools with which to complete the task. A plumber without wrenches or a carpenter without a saw could not do a professional job, thus, the need for the right tools in the hands of a competent craftsman. Business is no different. The mor one knows about a particular line of work, the better he or she can become at it. You wouldn't go into a real estate negotiation if you were a product line manager for soft drinks, would you? Knowing your field of endeavor and working at it until you become highly skilled is an invaluable asset in business. Competent workers, managers or executives are difficult to find, and, usually, because they are often bright and have entrepreneurial instincts, are equally difficult to please and/or keep as employees.

Cash - You can't do much of anything without money. You could have the greatest ideas on the planet, but without the means to market them - meaning mostly money - those ideas will wither and die on the vine like overripe grapes in the sun. The saying, "cash is king" is almost always true. Cash gets better deals, better terms, and is respected the world over. A person with a sizable cash position can accomplish almost anything, especially the means by which to acquire more cash. Having a strong cash position cannot be understated. Cash does not have to deal with flat-headed bankers, testy suppliers or drawn-out negotiations. Cash, when it is used as a means to obtain credit, proves itself even more valuable. A person with $100,000 need not spend it on what he or she wants, but can use it as collateral on a loan of the same amount, and once creditworthiness is established, even more and at lower interest rates.

People with substantial amounts of cash generally don't bother with credit unless there's a definite advantage to keeping one's cash in hand, which often there is, especially on larger deals. If you want respect in the business community, pay with cash, have a large amount of cash on hand at all times and deals and offers will find you.


In the markets today, stocks were all the rage, as the major indices bounced back from Friday's down day. Investors looked right past Citigroup's horrifyingly large loan losses toward the health care sector, where the Massachusetts senate seat formerly held by Ted Kennedy was trending toward the Republican in the race, Scott Brown, who held a narrow lead in the polls over Democrat Martha Coakley. Voting ends at 8:00 pm ET. The significance is that if Brown wins, the democrats will no longer have a super-majority (60 seats) in the senate, and the year-long battle to push through health care reform - which is hated from almost all sides - may go up in smoke and signal a strong victory for not just the Republican party, but for democracy in general.

Dow 10,725.43, +115.78 (1.09%)
NASDAQ 2,320.40, +32.41 (1.42%)
S&P 500 1,150.23, +14.20 (1.25%)
NYSE Composite 7,443.68, +86.89 (1.18%)

Advancing issues beat down decliners, 4847-1550, a better-than 3:1 ratio. There were 573 new highs to just 62 new lows, though volume was moderate.

NYSE Volume 5,194,738,000
NASDAQ Volume 2,079,933,000

Oil managed a gain of just 5 cents, to $78.05, while natural gas fell 11 cents, to $5.54. Milder weather and a glut of energy supplies are beginning to kick in as Winter progresses. Without anything upon which to slap up higher prices besides the idea that certain large energy conglomerates want to make more money, energy prices should continue to decline into Spring.

Not so with the metals, though, as they had another banner day. Gold gained $10.00, to $1,140.50. Silver was up 37 cents to $18.80, the highest closing price since December 4, 2009, and close to the 21-month high of $19.18.

Friday, January 15, 2010

Got Bank Stocks? Sell Them on Monday.

Ever since the financial meltdown - which actually began in August of 2007 (Trust me, I'm a doctor.) when the Primary Trend in the Down Jones Industrials turned from a bull to a bear - the banks have gotten a lot of attention. Many of us do our banking at either a locally-owned bank or a friendly Credit Union. If you're smart enough to have made the decision to keep your money out of major national banks, good or you.

The too-big-to-fail national banks - Bank of America, Wells Fargo, Citigroup and JP Morgan Chase - also known as money center banks, are the main reason for the economic calamity which still grips this country, and to a lesser extent, the rest of the world. These were the ones engaged in all that risky behavior with sub-prime mortgages, credit default swaps and, more recently, the bailouts. Add to them Goldman Sachs and Morgan Stanley and you have the gang of six which nearly brought down Western capitalism as we know it.

Two of their brethren - Bear Stearns and Lehman Bros. - could not be saved, and were more than likely swallowed up more or less whole to hide the extent of the fraud, inside dealings, manipulations and other horse-trading that was so widespread during the late 90s and though the first years of the new millennium. What's troubling is that they are nowhere near out of the woods. The four big banks mentioned above are nearly insolvent. Only free money from the Federal Reserve, in the form of overnight loans at just about ZERO percent, has kept them from complete collapse. They are still poring though the toxic assets on their books, hiding and keeping off market millions of foreclosed homes and struggling to stay in business.

In case you're unaware of the ongoing problems with the big banks, just consider: JP Morgan's provision for credit losses totaled $7.28 billion during the fourth quarter.

That's about all you have to know... well, and that the other banks will report similar losses. Somehow, through financial alchemy which only the banks can perform, JP Morgan Chase posted a 4th quarter profit. Let's face it, They're full of brown stuff. Credit card delinquencies were at 8.64% in the 4th quarter. People are defaulting on credit cards at an historic rate. They're also walking away from homes in droves, many of them because they are upside-down, in other words, the amount of the mortgage exceeds the fair market price of the home.

Without work and with mortgages higher than the value of their homes, the latest trend is to make a strategic default, either through bankruptcy or by just failing to make mortgage payments, leading to the eventual foreclosure. This is what's known as a self-reinforcing feedback loop. The more home prices fall, the more people default, leading to more foreclosures and lower prices again. Soon enough, it's going to become cheaper to rent than to own as vulture landlords scoop up the foreclosed properties at a fraction of their value and rent them out to strapped, credit-less former homeowners.

The banks will never survive the onslaught of foreclosures that are due to escalate once again this Spring. Common practices by the banks now are to offer buy-downs, short sales, loan modifications and extensions in order to avoid foreclosure. Once a property is foreclosed upon, the banks are on the hook for the upkeep of the property and the taxes. With homes in some areas sitting on the market for a year to two years, eventually selling for much less than the foreclosed value, the banks are in a tough spot and doing all they can to prevent foreclosure, a lengthy, expensive process which seldom produces a positive result.

Eventually, in a foreclosure, the bank gets the property, the homeowner is put out and the vacant property deteriorates, leading to further losses. There are numerous reports, especially in the Northeastern "rust belt" of banks starting foreclosures but never finishing the process. Homeowners, thinking they have to bail, leave the property, only to receive tax bills later on, because the bank did not proceed with the sheriff's sale.

The whole mess is not going to end soon or well. It's going to take 6-10 years for the banks to work off the excesses of the sub-prime credit expansion. In The meantime, property values and interest rates will remain at historically low levels. If you own shares of any of the aforementioned banks, you should dump them if you haven't already. In fact, with the market close to highs, today could have been a warning shot for further declines to come. The economy continues to stumble along and eventually, the stock wizards will get out of the way, Government bailouts and stimulus have only paved the way for another round of declines in the stock market and in prices generally.

Dow 10,609.65, -100.90 (0.94%)
NASDAQ 2,287.99, -28.75 (1.24%)
S&P 500 1,136.03, -12.43 (1.08%)
NYSE Composite 7,356.79, -91.73 (1.23%)

Losers beat winners by a wide margin, 4664-1864; there were still 340 new highs, to just 44 new lows. Volume was substantially better than it has been all week. Uh, oh.

NYSE Volume 5,426,332,500
NASDAQ Volume 2,662,195,750

With the dollar stronger, oil took a nosedive, losing $1.44, to $78.00 (still too high). Gold lost $12.00, to $1,131.00. Silver was down 22 cents, to $18.44. The pause in the rise of the precious metals may be signaling a buy. If the economy worsens, the dollar should weaken (though as gauged against other currencies, some of which aren't doing very well themselves, the dollar may just waffle around), sending gold and silver higher. Even if the dollar doesn't lose value, the metals may still be the play as more and more people look for their perceived safety.

Tip for the day: Go to a coin dealer and buy a common silver dollar, or, as many as you can reasonably afford to put away for a couple of years. It's a near-certainty they'll be worth just as much or more in 2012. You can't say that about any other asset class, except maybe bonds.

Thursday, January 14, 2010

On Getting What You Want, Part 1

Wall Street and the financial markets are odd and unpredictable. That's why some people win and some lose, and why the individual investor is at a disadvantage compared to those wizened professionals who ply their trade daily in stocks, bonds, et. al..

Because the whims of the market are so unpredictable and can turn on a dime on a news item, a press release, an event - economic, social or political - the average Jane and/or Joe is likely to suffer losses when pros have already gotten out ahead of the pack. The law of the jungle applies, and always has. The fittest get fatter; the weak are thrown to the wolves.

Noting that, the marketeers have finally gotten some news upon which they can act. Reported after the closing bell, Intel (INTC, 21.48) reported a fourth-quarter profit of $2.3 billion, or 40 cents a share, compared with a profit of $234 million, or 4 cents a share, for the year-earlier period. These numbers were well ahead of expectations. In fact the company delivered a 33% earnings surprise, good as gold in anybody's book.

Tomorrow ought to be a red-letter day for tech stocks, as one of the firebrands, Intel, has set some heat under upcoming earnings for the rest of the sector. Trouble is, as great a company as Intel is - and it's definitely top-shelf - the stocks was a loser for the entire 00s decade and seems to be permanently stuck in a range just above its historic lows, because it is already overvalued, by just about any measure.

Intel's price/earnings ratio, using trailing figures, is about 28. Even if the company has quarters equal to this one for the next three running and the stock doesn't go up, it will still be trading at more than 13 times earnings, meaning it would take 13 years of similar profitability just to get your money back. It does carry a dividend of 53 cents per share, but at the current price, that's a yield of less than 3%. It's a great company, all right, and it would be a buy at any price below 15. 12 would be a good starting point, but it will likely never go there. Since Intel isn't going to ever move, tech traders will begin looking elsewhere tomorrow. Don't be surprised if Intel trends lower over the coming weeks. It's a dog and the pros know it, even though it's a part of just about every fund portfolio.

Before that after-the-bell experience, stocks did what they've generally been doing for the past month. They rose slightly.

Dow 10,710.55, +29.78 (0.28%)
NASDAQ 2,316.74, +8.84 (0.38%)
S&P 500 1,148.46, +2.78 (0.24%)
NYSE Composite 7,448.52, +18.38 (0.25%)

Advancing issues were all over decliners, again, 3792-2662. New highs came in at a whopping 554; there were just 53 new lows. Volume remains subdued, which has become acceptable, but the only people trading are funds and pros. It's kind of a closed loop, but as long as nobody sell, stocks will just keep going up. That cannot happen indefinitely, however, and the longer the rise, usually the steeper the fall. The rally is now in its 11th month without a meaningful correction, a great time to SELL.

NYSE Volume 4,470,046,000
NASDAQ Volume 2,301,493,500

Hooray! Oil dipped 30 cents, to $79.35, and natural gas, after a big buildup on CNBC, saw its price shaved by 11 cents, to $5.57. Seems demand for the #1 energy product just hasn't been as great as those speculating for higher prices had hoped. Its already nearly doubled since just 8 months ago, and the US supply is still at 100 years or more. If supply and demand economics were truly in play (they're not, the price is manipulated by big energy firms - you know who they are), natural gas would be selling at wholesale for about $2/1000 btu, and your heating bill would be half of what it is now.

Unfortunately, most Americans who heat with natural gas are stuck with the absurdly high prices charged by local monopoly utilities. Thus, we overpay, and have been for years, especially since deregulation (thanks again, Ronald Reagan).

The stable commodities, the ones you should own, gold and silver, each registered solid gains. Gold added $7.10, to $1,144.00, while silver was up 9 cents, to $18.64. Both are on the verge of major breakouts, especially silver, but Wall Street hates these commodities because they compete with the electrons and protons and pieces of paper they like to peddle, stocks.

Were gold and silver allowed to rise to their actual inflation-adjusted levels, they might be double or triple where they are now. Even if the Wall Street shorts don't cover, they still should return better than stocks for years to come.

Getting What You Want, part 1

One often has to go to extreme measures in order to achieve goals. There are forces working against you, like headwinds keeping a kite grounded or a plane slowed. Sometimes, these headwinds are being blown by your trading partner, or, in layman's terms, your buyer, if you're a seller.

I recently completed a successful negotiation for some items priced about 3 times what I had originally expected to get for them. The negotiations consisted of me asking the prospect for an offer. When he refused and asked me to name my price, I used the first rule of haggling: go high and then add 20%. To my surprise, the prospect was agreeable to my price and terms, but, as I found out, was a chronic payment-delayer, continually adding a day and an excuse for when the transaction would be completed.

This activity continued over the course of 6 days, until I finally took action and laid it out in the simplest of terms, that the deal had to be done, or he should walk. After an abrupt retort, at which point the prospect was willing to walk away, I was forced to detail his abhorrent behavior in quite unsavory terms (in other words, I swore at him up and down, called him names and shamed him). I thought the deal was then kaput, but, to my surprise, the prospect actually was swayed and contacted me, explaining that he thought I was right. A few hours later, the deal was done, even though I called him names and told him I would have had sold to him for less had he made a reasonable offer in the first place, but instead decided to let me set the price (and, by that, the agenda).

So, the moral is that if a deal is breaking down, and you believe that the other party is stalling - for whatever reason, it's not important - put him or her on the spot very aggressively. Be the lion and you'll find many lambs upon which to feast.

That's one way of getting what you want, or, in this case, even more.

Wednesday, January 13, 2010

For those suckers in stocks, today was a good day. all of the major indices posted gains, with the Dow jones Industrials close to 52-week highs.

Gold and silver were also higher, but, if you had money in your pocket, your investment was safe and not exposed to any risk except that of somebody robbing you.

You must learn to love cash. It has no equal as far as liquidity is concerned, it takes up very little space, and can buy more things, especially things by which you can make more cash. It's tax-free once in your possession and nobody has to know how much or how little you have of it. With a little, you can buy a decent meal. With a lot, the world's your oyster.

Every minute of every waking day should be an effort to raise more cash. Even as I write this, tiny increments of cash are headed my way, in a never-ending flow (well, as long as the advertising market remains intact). I have various web sites and blogs which generate cash all day and all night. Over the past 5 years, it's been the most remarkable, reliable source of cash I have found. The best part of it is that I incrementally improve my earnings with more traffic. More eyeballs = more page views = more $$ for me and my partners.

If you don't have a stream of income like mine, you're going to be left to find other ways to make money, probably a job, the most degrading, insecure, life-cheating device ever invented. The job has enslaved millions and millions of people who could be otherwise leading normal, productive lives. If you have a job, I'm sorry. I your boss is an absolute ass, too bad. I've been there, many years ago. Didn't like it. Moved on.

Having a regular job is about the absolute worst way I can imagine going through life. The alarm clock, the traffic, the meetings, the BS, the commute home, are all so conducive to wasting one's life that I chose to avoid that path completely. Now, there are the benefits of a regular check, until you get laid off, that is, or fired, but how many of us use that money wisely to free ourselves from the mordant, the mundane, the mortal blows of employment?

You need to find a way out of the rat race. Here's my simple tip for the day: Sell something on ebay. Anything, one item a week at least. You can find something around the house that you don't use, want or need. Somebody will buy it. Put the money you make into a tin or bank or bottle, and leave it there. Keep adding every week. Just keep adding to it. You'll find the habit addictive and maybe, in 2 years or 10 years, you'll have enough to do whatever you want with your life. You'll have enough to quit your job and become a surfer, or a guitarist or something that doesn't involve checking in on a daily basis with a boss, who, by the way, could give a sh-t about you or your life.

Dow 10,680.77, +53.51 (0.50%)
NASDAQ 2,307.90, +25.59 (1.12%)
S&P 500 1,145.68, +9.46 (0.83%)
NYSE Composite 7,430.14, +59.69 (0.81%)

Advancers beat decliners, 4581-1924. New Highs: 405; New Lows: 55.

NYSE Volume 4,821,581,000
NASDAQ Volume 2,348,554,000

Oil, -$1.14, $79.65. Gold, +$8.60, $1,138.00. Silver, +$0.15, $18.40.

See ya.

Tuesday, January 12, 2010

Two-Cent Pennies

How did your stocks do today? Did they follow the general path lower, or were you one of the enlightened who was smart enough - or lucky enough - to buy the right stocks at the right time. From an investment point-of-view, today was a good day to buy. Always buy on down days and sell on up days, if you can.

That's how the stock market works - in reverse. You almost have to be counter-counter intuitive to make money trading stocks, although, if you have enough dough, like Warren Buffett, for instance, you buy whole companies, or at least significant enough stakes in those companies that you get a seat on the board and have a say in how the company is actually run.

Buffett's management style is pretty hands-off, unless the man wants something specific. He's a smart, seasoned buyer of companies, putting his money to work at firms which meet his strict criteria. Low profit margins? Out. Unproven technology? Out. Inexperienced management team? Out. We should all be so disciplined and successful, but we're not, mostly because we require more bang for our bucks. Trying to make money with a billion dollars is a lot easier than making good lettuce with $100,000.

Most people have some money in speculative ventures, more in "safe" investments, and probably very little in dividend-producing companies, which are usually the best of breed, by the way. Buffett's companies all return dividends. That used to be the mantra. Now it's "trading, playing and going all in." Wall Street has the little guy by the short hairs, but not old, wise Warren. That's why he's rich and you're not.

Anyway, stocks were off their gains today, putting to rest a swell winning streak on the S&P (5 days? 6? Who cares?)

Dow 10,626.43, -37.56 (0.35%)
NASDAQ 2,282.31, -30.10 (1.30%)
S&P 500 1,136.18, -10.80 (0.94%)
NYSE Composite 7,370.48, -78.57 (1.05%)

Losers beat winners, 4795-1728, almost 3:1, so if you're one of the regular folk, you probably got beaten down today. Doesn't feel very good, does it? If that money was in cash, you'd still have it all. But, you want to play the market, so speculate away and watch your kid's college fund or your own retirement saunter off further into the distance.

There were 299 new highs and just 36 new lows. I've been saying that the highs were close to topping out, and yesterday, they did, with over 900 issues making new tops. Looks like we're in for a downhill ride from here. Watch what happens this earnings season. Money will be heading out of stocks either just before they release their 4th quarter and full year data, or directly afterwards. Whether their reports are good or bad, big money will be looking to lock in profits. Stocks, over the next three weeks in particular, are not going to be good investments.

NYSE Volume 5,231,147,500
NASDAQ Volume 2,268,025,250

This is a great time to be in gold or silver, as is any time. Here's a question? How much of your portfolio is in actual gold or silver? Not an EFT - those are for suckers - but actual phycial gold and/or silver coins, bars, high-end jewelry that can be easily converted to cash at a moment's notice. 25%, 15%, 10%, none? Most people have less than 1% in physical precious metals, and that's a real shame, because, well, gold's up something like 400% in the past 6 years and silver has appreciated nicely as well.

There's a reason for that. It's because paper money and stocks are sometimes worth less today than yesterday. As far as commodities are concerned, gold fell $22.00, to $1,129.30, while silver dropped 34 cents, to $18.36. Oil slipped $1.73, to $80.79. It's still overpriced. But gold and silver just seem to keep going higher. If investors ever get a whiff of inflation (there isn't any, right now), silver is likely to double in two year's time. Gold will probably do as well if not better. People love gold, and there isn't much of it around.

Getting to the title of this post, when is a penny worth 2 cents?

The answer is pretty simple: When the penny in question was minted between 1909 and 1982 (with the exception of 1943, when steel was used in place of copper) and copper is priced above $3.10/pound (rough estimate). Right now, pennies from those dates (95% copper) are worth 2.2 cents in melt value. So, if you can find somebody who will pay you fair value, you can double your money on your old pennies. You can check on how much old pennies are worth here. And if your pennies happen to be from prior to 1959, they're called "wheaties" after the wheat stamping on the backs, before we started putting an image of the Lincoln Memorial on the back of pennies. They're worth even more, because people like and collect them.

You can get an idea of what "wheaties" are worth, here. Expect those prices to rise.

So, if somebody mentions the old adage, a penny saved is a penny earned, you can smile wryly, knowing that it's now 2 cents, and maybe more.

Monday, January 11, 2010

This is getting a little bit old, isn't it?

Stocks were generally up today, though the NASDAQ was down. So what? Are you richer, poorer, or just think you are?

I've been posting here almost every business day for more than 3 years and stocks have gone up, down and sideways without much to do with underlying fundamentals, or charts, or anything other than buyer and seller sentiment. I've come to some conclusions, most of which point up the futility of trading in stocks. After all, you are buying into something over which you have no control - unless you're on the BOD - and subject to the whims of the market, general sentiment, the perception of analysts and all sorts of other outside influences.

What are stocks, really? Just pieces of paper, as the renowned Jim Cramer might say. It's worse than that, really. They are electonic bits and bytes. The little numbers you see in your investment accounts are electrons, protons, neutrons. You really don't own anything. You just think you do.

From my perspective, there really isn't anything you should want to own other than hard assets - real estate, gold, silver, art, rarities, currency, automobiles, articles of known value and clothing. Everything else, unless it is being put to use as a business, is pretty much without much value.

Most people these days don't know a thing about money and how to use it properly. Many people actually believe in a system that works, with a government that cares about our well-being and proper values for everything. If the events of the past 24 months or thereabout have taught anybody anything, it should have been a lesson how the federal government and Wall Street are in cahoots to preserve each other's wealth and best interests, not those of the ordinary citizen, and, as such, neither should be trusted, and further, the stocks they are selling are not to be trusted as reliable investments, either.

The current economies of the nations - great and small - are such that they could be whisked away in an instant and entire peoples thrust into despair. Currencies fluctuate; stocks and bonds go up and down. Is this as it should be? I think not. There should be more stability in our economy, though despite the efforts of the investment world, the mainstream media and the federal government to have us believe that our system is sound, and stable, it is far from it.

I may go on posting every day, maybe even more often than just once a day, but I am not going to talk about stocks to any great extent in the future. Instead, I'll be focusing this blog on more practical applications of what to do with your money other than to buy and sell electronic representations of shares of company X, Y or Z. Your (and mine) financial future is at risk. It is up to all of us to devise a better system.

Dow 10,663.99, +45.80 (0.43%)
NASDAQ 2,312.41, -4.76 (0.21%)
S&P 500 1,146.98, +2.00 (0.17%)
NYSE Composite 7,449.05, +23.70 (0.32%)

Gold gained $12.80, to $1,151.70. Silver was up another 23 cents, to $18.70. Gold and silver are actual commodities you can own and keep. Their prices, and the way they've been rising over the past 10 years, is telling you something. Listen carefully and you can here them say, "we are safe. We are real money, not fiat paper."

NYSE Volume 4,741,295,500
NASDAQ Volume 2,088,954,250

Tomorrow, and in days ahead, we'll focus more on actual wealth and how to build it, rather than on the nuanced reproductions of it which Wall Street sells.

One last thought: Stock gains are taxable, and at varying rates. Ask yourself if that's right. When you make money with your money, you pay taxes on the gains. Should not the government give back when you lose?

It's a grand scam and ordinary people need not be involved in it.

Friday, January 8, 2010

Poor Employment Picture Doesn't Faze Wall Street

The highly-anticipated December Non-farms payroll report, issued by the Commerce Department prior to the opening bell, didn't have much of an effect on the overall tone of trading in the final day of the first week of 2010. The report showed a loss of 85,000 jobs for the month, far worse than expected, but traders seemed unmoved and the major indices, while trending lower most of the session, still managed to post small gains, primarily due to the weaker dollar.

As has been the case for the past 10 months, stocks just keep going up, no matter the news. Analysts and professionals seem to be able to twist any data into positive signs of recovery, just the kind of attitude tha leads to bubble-like markets, over-bought conditions and stock which have multiples that are based more on fiction than the reality of fundamental analysis.

Using the stock indices as yardsticks, one would believe that we're 60% better than we were a year ago. At the very least, that stocks are worth 60% more, or will be. One can only imagine the short positions being taken up by the truly savvy players in anticipation of what are likely to be shaky 4th quarter reports from a slew of companies over the next two to three weeks.

It should be a spectacle worth witnessing.

Dow 10,618.19, +11.33 (0.11%)
NASDAQ 2,317.17, +17.12 (0.74%)
S&P 500 1,144.98, +3.29 (0.29%)
NYSE Composite 7,425.35, +31.42 (0.42%)

Advancing issues led decliners, 4059-2409, the margin building through the week to its best level on Friday. New highs were achieved by 697 stocks, with only 80 making new lows. Volume moderated a bit from the previous two sessions, but remained solid. Those chasing performance may have taken a wait-and-see approach and an early exit for the weekend.

NYSE Volume 4,872,173,500
NASDAQ Volume 2,163,779,500

The commodity markets lollygagged through the day. Crude oil gained all of 9 cents, to $82.75 per barrel. With the weaker dollar underpinning trades, gold rose $5.50, to $1,139.20. Silver continued its ascent, gaining 12 cents, to $18.46. The speculation in natural gas seems to have gone to its limit, near term, with that commodity losing 5 cents, to $5.71/mmbtu.

For the week, stocks trended higher, though Friday's finish was suspect, with almost all of the action commencing in a frantic final half hour. Most of the progress for the week was made on Monday, when traders kicked off 2010 with the best gains.

Alcoa kicks off earnings season on Monday, though one company's results are unlikely to move markets dramatically.

Thursday, January 7, 2010

Payrolls on the Mind

Stocks traded sideways most of the session, though the NASDAQ spent the entire day in negative territory, finishing lower y a point. Once again, there was little to no motivation to buy stocks, though the majors all posted gains. Investors are still awaiting Friday's non-farm payroll data.

Initial unemployment claims came in 484,000, which was one thousand more than last week, so there's no movement in that department. Jobs may be more scarce in some areas and for different ethnic and age strata, but there's no lack of money anywhere. Cash, currencies and currency equivalents are circulating at a steady pace, thanks to government stimulus efforts, but mostly to easy interest rates. That's why there is so much worry over rates and when the Fed decides to start raising them, because once they begin, they usually don't stop until they're around 5% on a 10-year note, or higher, depending on how much pent-up demand surfaces in real spending.

Dow 10,606.86, +33.18 (0.31%)
Nasdaq 2,300.05, -1.04 (0.05%)
S&P 500 1,141.69, +4.55 (0.40%)
NYSE Composite 7,393.93, +16.23 (0.22%)

Advancing issues finished far ahead of decliners, 3864-2684, and new highs beat new lows, 584-68. Volume was again on on the high side of moderate. From the volume today and the preceding two, it's become apparent that some strong positions are being filled. Tomorrow's employment number may have almost no net effect on stocks at this level, unless, of course, it's a disappointing one.

NYSE Volume 5,869,563,500
Nasdaq Volume 2,302,742,000

Commodities took a breather from their breakneck gains, except for silver, which continues to be on fire. Copper prices have also been on the rise, though lower today. Oil was off 52 cents, to $82.66. Gold lost $2.90, to $1,133.60. The aforementioned silver: up 18 cents, to $18.35. Silver is close to 18-month highs, though considering the 2009 move in gold, has some catching up to do.

Tomorrow, the wait is over. The government can announce a loss of 45,000 or so jobs and we'll go back to work, or sleep. The market has been very quiet of late, which may be the best thing that could happen.

Wednesday, January 6, 2010

Investors Awaiting Friday Jobs Data; Markets Churn

Another day passed on Wall Street with little or no movement in the major indices. Topping the outlook was anticipation of December Non-farm Payroll data, due out Friday morning, January 8, prior to the opening bell. A glimpse of what the numbers may look like was provided by the monthly private payroll report by ADP, which showed employers shedding another 84,000 jobs during December, a figure much improved over November's -145,000.

Considering that November Non-farm payrolls came in at the best levels in 16 months, showing a loss of only 11,000 jobs, the ADP report should have been reassuring to anyone looking for a better employment picture on Friday. Expectations are that the government will show a loss of between 25,000 and 45,000 jobs, though estimates are ranging even into positive territory. Much depends on prior month revisions, and also the method by which the december figures are compiled.

Some private sources contend that the government figures are fudged for political purposes, which would not be beyond imagination, while others point out that the raw numbers do not include the hordes of workers who have exhausted unemployment benefits and are no longer counted. True unemployment, including distressed workers, is estimated to be closer to 18% than the 10% with which the government has been flirting.

In any case, traders seemed tenuous with stocks trading in narrow ranges for the second straight day. While the NASDAQ finished in the red, the other major indices all posted positive numbers, though their gains were marginal, at best.

Dow 10,573.68, +1.66 (0.02%)
Nasdaq 2,301.09, -7.62 (0.33%)
S&P 500 1,137.14, +0.62 (0.05%)
NYSE Composite 7,377.70, +22.83 (0.31%)

Gainers edged out losers on the day, by roughly the same margin as Tuesday, 3548-2965. Once more, new highs seemed to be topping out, with 798 stocks reaching 52-week highs, while only 73 made new lows. Volume was solid again, though considering how little movement there was, churning was the operative word to describe the session. People are still waiting for unemployment data and further out, earnings reports.

NYSE Volume 5,517,178,000
Nasdaq Volume 2,269,902,500

Commodity prices were sharply higher, as oil reached another 15-month peak, gaining $1.41, to $83.18 per barrel. Gold soared another $18.30, to $1,137.00, while silver bounded ahead another 38 cents, to $18.18.

The signal coming from commodity traders is that of recovery and inflation, though equity participants are being cautious on the same news, figuring that those two economic elements will force the Fed to raise rates sooner, rather than later. The widespread consensus is that any rate hikes before June will kill off the rally, now in it's 10th month.

Tuesday, January 5, 2010

Factory Orders Up; Pending Hone Sales Down

The headline explains quite a bit. The manufacturing sector continues to churn, though at unimpressive levels, and the housing market continues to slump. Factory orders were up 1.1% in November, after posting a gain of 0.8% in October. Pending hone sales were down 16% in November, as compared to October. While that may be seen as the result of the expiring of the new buyer tax credit, that excuse has begun to wear thin. Foreclosures are still at or near record highs, and, with unemployment hovering around 10%, aren't expected to drop off any time soon.

The housing market in the United states is still a shambles and any efforts to revive it, other than plain, ordinary waiting it out, are likely to fail. There are more than enough residential properties on the market for the scarce number of available buyers. Simple supply and demand math are all one needs to know about real estate from now until 2012. If you're thinking of buying, offer less, or buy something reasonable, to live in, not as an investment.

Stocks zig-zagged all day with the Dow remaining underwater for the entire session. The range was very narrow as investors showed a bit of caution after yesterday's blow-off, start-of-the-year rally. Stocks don't appear to be cheap anymore, and some of them don't look like solid investments, either. Cash remains king and when put to its proper use, can produce solid assets. In the current low-inflation (some dare call it deflation) environment, actual money is a rather useful, fluid thing, and Americans are finding out that there are bargains both to be had and sold. It's a good time to be frugal, or so it seems, and that would imply that it's not a good time to be in stocks, which are, by their nature, speculative.

Dow 10,572.02, -11.94 (0.11%)
Nasdaq 2,308.71. +0.29 (0.01%)
S&P 500 1,136.52. +3.53 (0.31%)
NYSE Composite 7,354.87, +28.13 (0.38%)

Interestingly enough, today's market moves were broad-based and on solid volume. Advancers outnumbered decliners, 3575-2976, wit the bulk of the gains on the NYSE. New highs appear to be peaking, at 754 today, as compared to 76 new lows.

NYSE Volume 5,687,644,500
Nasdaq Volume 2,395,510,250

Commodities were almost universally higher, with the notable exception of natural gas (somebody must have taken my post from yesterday to heart), down 25 cents. Oil priced at a 15-month high for the second straight day, reaching $81.77 on a gain of 26 cents. Gold continued to rebound, though up just 20 cents, to $1,118.50. Silver was the big winner on the day, gaining 34 cents to reach $17.80.

Stock remain in a very measured upward range, and while many commentators are expecting the rally to run out of steam (self included), it hasn't happened yet. The next likely move should occur during the hullabaloo over earnings, which will commence earnestly next week. Those not wishing to wait for Alcoa (AA) to officially kick off earnings season on Monday might get a clue from Monsanto (MON), which reports tomorrow.

Monday, January 4, 2010

Galloping Out of the Gate, Stocks Make New Highs

Investors were eager to put their money into equities on the first trading day of the new year, though the overall gains were compromised by two factors: first, the closing figures were only fractionally higher (on a percentage basis) than that of December 30 of last year, prior to the sell-off which occurred on the 31st; second, volume was moderate, on the low side, significant of marginal participation. There is still a ton of money (literally and figuratively) sitting out this rally. Something on the order of $4 Trillion is still nesting in money market funds, t-bills or other low-yielding assets.

Not everyone has bought into the story which Wall Street is currently spinning: that stocks are safe - and sound - investments upon which one can rest his or her fortunes. Quite simply, there were too many people burned in the Fall of 2008 through the Spring of 2009. Many smaller investors were wiped out, never to return. Others have trimmed their holdings and curtailed all but the most basic trading activity.

Lower volume levels, as compared to the go-go years of the mid-00 decade, have become the new normal, and rightfully so. Stocks, like it or not, generally do not go up 50-60% in the course of 9 months, as they did from march of '09 to the present. Anyone buying in at these levels is certainly chasing, and bound to be burned.

Even though earnings reports for the 4th quarter are due out within days, nobody is expecting miracles. Corporations have trimmed expenses to the bone, spurring profits over the past two or three quarters, but investors seek top-line growth, revenue improvements, higher margins and expansion. They're not going to get them in this current round of reports, at least not to the extent which analysts are proposing.

Unemployment and housing remain the two sticking points for the US economy. Labor markets remain the tightest in decades. Home prices are still dropping in many areas of the country as more foreclosures hit the market. Those trends see no ends, and until they are resolved - unemployment below 8% and housing prices averaging up by 2-3% per year - the recovery in the USA is going to be muted at best. Add to the woes the mess federal government has created with the continuation of tax-and-spend-and-borrow policies and you get a common recipe for stagnation.

Dow 10,583.96, +155.91 (1.50%)
Nasdaq 2,308.42, +39.27 (1.73%)
S&P 500 1,132.99, +17.89 (1.60%)
NYSE Composite 7,326.74, +141.78 (1.97%)

Advancing issues soared past decliners, 5271-1356. New highs outpaced new lows, 693-83, not surprising, and a trend that will continue due to easy comparable highs from last year. As stated at the outset, volume was sluggish, or, for lack of a better term, normal.

NYSE Volume 4,526,077,000
Nasdaq Volume 1,955,813,625

Everything else in the universe was higher on the day, including just about all commodities. Oil gained a ridiculous $2.15, closing at $81.51, it's highest price in over a month. Gold rallied an astonishing $23.30, reaching $1,119.50. Silver soared by 60 cents, to $17.45.

Possibly the most absurd trade of the day, if not the year, is in natural gas, a commodity over which the US sits a 100-year supply. The odorous stuff, which can fuel anything from entire energy plants to kiddie cars, was up a whopping 31 cents, to $5.84, it's highest price in well over a year. six months ago, natural gas was trading under $3.00 per mmbtu. Considering the extraordinary amount of proven supplies, the price should be stable, near its bottom. As usual, however, the energy moguls have captured the market and control the price as they see fit, and, like oil, yesterday's price always seems too low to them.

American consumers have been squeezed dry by escalating prices in three areas: energy, health care and taxation. The government runs one of those areas, and has its hands firmly in the pockets of the other two. If anything can bring this country's economy to its knees, it just so happens to be our very own, greedy, inept, monstrously overgrown federal government. They are strangling the middle class into third-world status.

And they'll continue to do it tomorrow and the next day and the next...