After offering a fairly pessimistic viewpoint on what might occur should Fannie Mae and Freddie Mac become the de facto landlords of much of America, my thoughts continued to race on the topic. Being that the two troubled mortgage insurers are soon to embark upon buying up billions of dollars worth of defaulted residential mortgages by prepaying investors of packaged mortgage-backed securities (MBS), my research led to a couple of interesting observations.
First, whatever becomes of millions of defaulted mortgages, it appears that Fannie and Freddie won't be actually be issuing new mortgages - at least that's how the system is functioning at present. Fannie Mae's very own REO listings appear at a friendly-looking site called HomePath.com, where foreclosed-upon homes are listed for all parts of the country. In all instances, home are offered by local realtors and financing by banks, not the agency itself.
While this may be the case now, the future might be different. Fannie and Freddie, as unofficial branches of the federal government, might be able - in instances in which the current homeowner is offered a restructured payment regime and allowed to stay put - to forego the foreclosure process altogether by working with the affected parties through intermediaries or at their own pleasure.
This appears to be the prevailing direction of the feds, through programs such as Making Home Affordable and the Home Affordable Modification Program (HAMP). Through these programs, the banks which are servicing the loans work with the defaulted homeowner toward a solution, though the programs - celebrating their one-year anniversary today - have not, to date, been very successful.
Eventually, what would be a workable situation should Fannie and Freddie find themselves burdened with defaulted mortgages, would be to hire (Yes, I'm actually advocating the creation of more government jobs.) their own team of specialists to accelerate the process or, as suggested by the eminent economist and forecaster Jim Willie's December 30, 2009 article, Fannie Debt Merger Monetization, become landlords themselves.
The latter seems less likely, though one can hardly argue the logic of Willie's argument that rental income would be a vast new source of revenue for the feds and actually help to stabilize some conditions, not the least of which being the negative effects on neighborhoods resulting from neglected, vacant properties. That the two mortgage insurers are deeply indebted and soon to be much further in the red is a concern for another discussion, but in terms of laying the groundwork for more normalized economic conditions, the F&Fs have the potential to do some good.
So, my assumption in yesterday's post that the feds would be quick to evict might not be all that accurate. At least the current climate seems to suggest quite the opposite. In any case, the prepayments to investors will make more money available to investors (they're getting their principal back) and markets. What they do with the re-found wealth remains to be seen. Whether they might be willing to slide right back into the MBS market or invest elsewhere definitely is up to the investor, though with the now-implicit guarantee from F&F, they might well do that.
Generally, what's happening is more kicking the can down the road a bit further, although the new securities should actually be improved, with better lending standards in place to prevent defaults. The whole securitization process is still at the root of what caused much of the economic woes of recent years, and eventually there are liabilities galore for all parties, especially the US taxpayer, who has to bear the burden of more and more debt.
In a scenario in the F&F become the actual investors, the returns to the taxpayer might be even greater over time, though that argument is debatable as well. The long and short of it is that the government obviously needs to step in to relieve the Federal Reserve of its MBS holdings and the current plan seems aimed directly at that result.
While that's good for the Fed and the dollar, how it plays out in the real estate market remains to be seen. The government surely has the intention of keeping real estate prices at some realistic or sustainable level, but the intervention of Fannie and Freddie can only add to the weight of deflation in the market. Sapped homeowners and smart investors may catch sizable breaks.
The two mega-insurers are soon to be deploying billions, so there's likely to be a noticeable change all along the real estate food chain.
As far as investors in equities were concerned, today was a day for nibbling and rounding out positions. Stocks barely budged after a small, quick opening jump. The carry-through from Tuesday's big leap was moderate. Many doubts still remain for investors of all stripes.
Dow 10,309.24, +40.43 (0.39%)
NASDAQ 2,226.29, +12.10 (0.55%)
S&P 500 1,099.51, +4.64 (0.42%)
NYSE Composite 7,035.20, +21.85 (0.31%)
Advancing issues outpaced decliners, 4136-2326; new highs reached 154. There were just 20 new lows. Volume was a little better than yesterday, which brings up the possibility of repositioning on today's trade. The downtrend short term is still in play and short-timers could be readying for an early exit, as in this week, which seems to be the currently favored play.
NYSE Volume 4,887,593,500
NASDAQ Volume 2,069,575,625
Commodities barely budged. Crude oil gained 19 cents, to $77.33. Gold dropped 20 cents, to $1120.00, and silver slipped 8 cents, to $16.07. Interest in the metals seems to have waned a bit, but, as we well know, that could change overnight. Much of the current weakness is due to the strengthening US dollar, which was higher again today.
While my outlook for the housing sector may have been softened a bit concerning Fannie and Freddie, my general conclusion is that complete debt default by nations is only a matter of time. Though Greece and other Euro-zone nations may have slid off front pages, their horrific fiscal conditions remain and are a proxy for a wide swath of national economies and central banks worldwide, including the United States.
Wednesday, February 17, 2010
Tuesday, February 16, 2010
Tough to be a Bear
Days like today, when one feels like a lonely whisper in the wilderness, test the courage of one's convictions.
After carefully weighing all the evidence, poring over tracts and texts from sources far-flung across the internet and the spheres of influence in global economics, one cannot escape the thinking that the entire structure of capitalism, the integrity of institutions so revered as the Federal Reserve and market disciplines such as balanced budgets have been flung out the window by nefarious forces which seek only to obfuscate and delay the inevitability of mass defaults on everything from sovereign debt to credit cards in the coming months and years.
On Wall Street, ready for business after a three-day holiday, everything was bright and cheery and on the way up. Market participants acted as though stocks were difficult to find and hold at decent prices. Right off the opening bell, the Dow gapped up roughly 70 points and continued on a day-long trek to higher ground.
Unease over credit issues in Greece, Portugal and Ireland were treated as though they were old news, even though nothing but words have passed between the Euro nations. Unemployment, forecast by the Obama administration to be officially above 8% though 2012 (though unofficial, and probably closer-to-the-truth estimates say it's currently about 18%) only received passing glances. The ungodly mess that is the US housing market continues to crater into a morass of default, foreclosure, clouded titles and ruined families. None of this made one bit of difference to the titans of finance who lord over the markets. Stocks would rise; the economy be damned!
It's tough to keep a smile or a straight face through days like today. All anyone can effuse over are a couple of corporate earnings reports from some marginal players and one or two major ones, Kraft and Merck, both of which released 4th quarter earnings befor the bell. Merck did better, Kraft about the same. Meanwhile, the fates of millions of Americans are blowing in the wind, as corporations show not the least bit of interest in creating new jobs by expanding their businesses. No, the status quo will have to suffice for what we are forced into believing is a recovery.
Meanwhile, banks continue hoarding vast sums of money instead of lending it, congress bickers, stalls and does nothing, and middle America is supposed to sit back, watch the olympics and be content. Welcome to the fascist oligarchy.
Almost completely unnoticed was the announcement last week that Fannie Mae and Freddie Mac are going to buy back delinquent mortgages from investors, in effect, making the note-holders whole. This should come as no surprise - and even less surprise that it's not being widely reported - as the entire real estate boom and bust runs full circle. The banks got their TARP money, now the investors in all that worthless paper known as mortgage-backed securities (MBS) are getting theirs, and a whole lot sooner than anticipated. Though the investors will not reap the benefits of compound interest over many years has the mortgages been maintained, they will get their principal back, and probably some small gain, thanks to the friendly folks at Fannie and Freddie, two wholly-owned branches of the federal government, financed by taxpayer debt.
It will likely take a decade for the government to work out all the details of foreclosing on millions of homeowners, or they will claim the homes under eminent domain or through some other underhanded scheme that only the most corrupt government in the history of the world can devise. Clouding the picture further for homeowners in default is the risk of foreclosure by the wrong party, namely the mortgage servicer - the Bank of Americas, Chases and Citigroups of the world. Since the investors have been paid, the servicing banks are essentially out of the loop, having no standing in a foreclosure proceeding.
The important point is that, for the majority of mortgages in default, the only proper party to entertain a foreclosure proceeding would be Fannie or Freddie. The two have underwritten - or insured and subsequently paid for - about 9 out of 10 mortgages in the United States over the past thirty years. When Fannie or Freddie come calling, homeowners should expect to be out of their homes in record time. The government will probably have little patience with loiterers. They'll also likely not forgive the balances, either, especially in states which allow for deficiency judgments. It should prove to be a lovely decade for housing in America.
Dow 10,268.81, +169.67 (1.68%)
NASDAQ 2,214.19, +30.66 (1.40%)
S&P 500 1,094.87, +19.36 (1.80%)
NYSE Composite 7,013.35, +138.79 (2.02%)
Advancing issued trampled decliners, 4994-1564. There were 250 new highs to 54 new lows, a gap that's likely to widen in coming days as we approach the one-year anniversary of the market bottom on March 9. Expect the new lows to take away the edge by June at the latest as the market gyrates up and down. Volume was about as pathetic as ever. There's no impetus for this rally and it is probably going to be a one or two-day event. Economic reality will make an appearance before the week is out, though it should be mentioned that the same pattern has been playing out fairly steadily for weeks: On Monday, the dollar drops, free money is put into stocks and then gradually withdrawn - at a profit - as the week unfold and the dollar gains. That's the current game: week-to-week, day-to-day, hand-to-mouth.
NYSE Volume 4,737,764,500
NASDAQ Volume 1,954,910,875
Commodities rose without any compelling stimulus. Crude oil shot up to $77.01. Gold struck $1,120.00, a gain of $30. Silver rose 64 cents, to $16.09.
Sell the rally. It won't last.
After carefully weighing all the evidence, poring over tracts and texts from sources far-flung across the internet and the spheres of influence in global economics, one cannot escape the thinking that the entire structure of capitalism, the integrity of institutions so revered as the Federal Reserve and market disciplines such as balanced budgets have been flung out the window by nefarious forces which seek only to obfuscate and delay the inevitability of mass defaults on everything from sovereign debt to credit cards in the coming months and years.
On Wall Street, ready for business after a three-day holiday, everything was bright and cheery and on the way up. Market participants acted as though stocks were difficult to find and hold at decent prices. Right off the opening bell, the Dow gapped up roughly 70 points and continued on a day-long trek to higher ground.
Unease over credit issues in Greece, Portugal and Ireland were treated as though they were old news, even though nothing but words have passed between the Euro nations. Unemployment, forecast by the Obama administration to be officially above 8% though 2012 (though unofficial, and probably closer-to-the-truth estimates say it's currently about 18%) only received passing glances. The ungodly mess that is the US housing market continues to crater into a morass of default, foreclosure, clouded titles and ruined families. None of this made one bit of difference to the titans of finance who lord over the markets. Stocks would rise; the economy be damned!
It's tough to keep a smile or a straight face through days like today. All anyone can effuse over are a couple of corporate earnings reports from some marginal players and one or two major ones, Kraft and Merck, both of which released 4th quarter earnings befor the bell. Merck did better, Kraft about the same. Meanwhile, the fates of millions of Americans are blowing in the wind, as corporations show not the least bit of interest in creating new jobs by expanding their businesses. No, the status quo will have to suffice for what we are forced into believing is a recovery.
Meanwhile, banks continue hoarding vast sums of money instead of lending it, congress bickers, stalls and does nothing, and middle America is supposed to sit back, watch the olympics and be content. Welcome to the fascist oligarchy.
Almost completely unnoticed was the announcement last week that Fannie Mae and Freddie Mac are going to buy back delinquent mortgages from investors, in effect, making the note-holders whole. This should come as no surprise - and even less surprise that it's not being widely reported - as the entire real estate boom and bust runs full circle. The banks got their TARP money, now the investors in all that worthless paper known as mortgage-backed securities (MBS) are getting theirs, and a whole lot sooner than anticipated. Though the investors will not reap the benefits of compound interest over many years has the mortgages been maintained, they will get their principal back, and probably some small gain, thanks to the friendly folks at Fannie and Freddie, two wholly-owned branches of the federal government, financed by taxpayer debt.
It will likely take a decade for the government to work out all the details of foreclosing on millions of homeowners, or they will claim the homes under eminent domain or through some other underhanded scheme that only the most corrupt government in the history of the world can devise. Clouding the picture further for homeowners in default is the risk of foreclosure by the wrong party, namely the mortgage servicer - the Bank of Americas, Chases and Citigroups of the world. Since the investors have been paid, the servicing banks are essentially out of the loop, having no standing in a foreclosure proceeding.
The important point is that, for the majority of mortgages in default, the only proper party to entertain a foreclosure proceeding would be Fannie or Freddie. The two have underwritten - or insured and subsequently paid for - about 9 out of 10 mortgages in the United States over the past thirty years. When Fannie or Freddie come calling, homeowners should expect to be out of their homes in record time. The government will probably have little patience with loiterers. They'll also likely not forgive the balances, either, especially in states which allow for deficiency judgments. It should prove to be a lovely decade for housing in America.
Dow 10,268.81, +169.67 (1.68%)
NASDAQ 2,214.19, +30.66 (1.40%)
S&P 500 1,094.87, +19.36 (1.80%)
NYSE Composite 7,013.35, +138.79 (2.02%)
Advancing issued trampled decliners, 4994-1564. There were 250 new highs to 54 new lows, a gap that's likely to widen in coming days as we approach the one-year anniversary of the market bottom on March 9. Expect the new lows to take away the edge by June at the latest as the market gyrates up and down. Volume was about as pathetic as ever. There's no impetus for this rally and it is probably going to be a one or two-day event. Economic reality will make an appearance before the week is out, though it should be mentioned that the same pattern has been playing out fairly steadily for weeks: On Monday, the dollar drops, free money is put into stocks and then gradually withdrawn - at a profit - as the week unfold and the dollar gains. That's the current game: week-to-week, day-to-day, hand-to-mouth.
NYSE Volume 4,737,764,500
NASDAQ Volume 1,954,910,875
Commodities rose without any compelling stimulus. Crude oil shot up to $77.01. Gold struck $1,120.00, a gain of $30. Silver rose 64 cents, to $16.09.
Sell the rally. It won't last.
Friday, February 12, 2010
Your Money Is Being Yanked by Insiders
When CNBC's Maria Bartiroma blurts out, "It's four o'clock on Wall Street; do you know where your money is?" the resounding chorus from average Americans (people who work and make between $12,000 and $75,000 a year - about 65% of the population) should be "NO!" because, in reality, you don't.
Think about it. Your money, or what you believe to be your money, is all over the place. You've got some in your pocket, wallet or purse, in a drawer, a piggy bank, maybe buried in the ground in your back yard or stuffed inside a wall in your house. Some of it may be in a coin or stamp collection, or any other kind of collection. some of it is in the bank, some of it is reflected as credit on credit cards, or a home equity loan. Then there's investments, individual stocks, mutual funds, 401ks, Keogh funds, college funds, retirement funds, and so on.
Add to that the promised or held money, as in pension plans, social security, medicare, payroll withholding taxes, money in health care plans, etc., and you can easily understand that most Americans have no idea where their money really is, and, what's worse, who's using it, for what purposes and when. This is what makes investing absolutely the greatest gamble of your life. Playing roulette with real money you depend upon for anything other than fun is simply foolish. If you're a winning investor (about 12% of individual investors over the past 10 years), you may scoff at the tone of this post, but you have to admit that you sometimes have had doubts.
Watching the foolery on Wall Street this week was a real eye-opener. After Monday's sharp sell-off, there were two major gaps of more than 100 points apiece - on Tuesday's open and today's open - Tuesday up and today down, and six separate "pumping" events (three today) which managed to keep stocks in a fairly tight range and close slightly positive for the week. The scorecard still reads: 2 up weeks and 4 down for the year so far, a discouraging sign.
The various gaps and pumps (typified by large advances over a period of usually less than an hour) were all insider-driven, indicating quite clearly that the individual investor was at the mercy of the insiders and professionals. Anybody who made a dime trading this week who isn't wired directly into the Wall Street elite or a broker or trader, is either a genius or extremely lucky. The deck was so severely stacked against the little guy, he didn't stand a chance. while that's usually the case, this week was particularly volatile, a friendly partner of the pros, forcing more trades and more brokerage commissions while the investor is left holding a bag, suitably deflated.
Dow 10,099.14, -45.05 (0.44%)
NASDAQ 2,183.53, +6.12 (0.28%)
S&P 500 1,075.51, -2.96 (0.27%)
NYSE Composite 6,875.18, -23.54 (0.34%)
As if to throw cold water in the face of the market, advancers managed to finish ahead of decliners, 3398-2998, in opposition to the headline numbers and following an early-session trade which saw declining issues beating gainers by a 6-1 ratio. Truly, on the low volume reading, the market was yanked around by inside elements and manipulators. There is absolutely no doubt about it. There were 154 new highs to 59 new lows. Even though the gap continued to expand this week, the high-low indicator is becoming less and less meaningful as the calendar draws closer to March 9, the one year anniversary of the bottom. Stocks making new lows in comparison to last year have to be real stinkers. The high-low indicator may not make much sense as a trend indicator until maybe June or July.
NYSE Volume 5,202,259,500
NASDAQ Volume 2,168,768,250
Commodities did not participate in the rigged equity rally, and suffered nearly across-the-board losses. Crude oil dipped $1.08, to $74.20. Gold slipped $4.50, to $1,090.20. Silver fell 18 cents, to $15.41.
Besides commodities being stuck in a range, stocks, outside stellar performers and outright losers, haven't budged in 4-5 months. The top was really around Dow 10,300, back in early December. The rest of it on the high side was froth, or waste. The key numbers now are 10,050 and 9900 on the Dow, both of which should be tested within days. With all the turmoil in world markets - Greece, China, Dubai, elsewhere - the major indices are being held together by raw nerve. The inside game is still playing the "recovery" card until they're good and ready to dump out of all positions in a radical race lower.
They may all exit at once or continue the slow, Chinese water torture treatment of two days up and three days down for weeks and weeks, but, unless there's clear resolution on jobs (there aren't any new ones being created) and foreclosures (they continue to rise, year over year), the trend remains down. That's the bad news.
The good news is that there are only 36 days until Spring, baseball players report to Spring training next week and there are exceptional bargains in arable land, tools of trade and certain transportation devices (bicycles are cheap and riding them is very health-promoting). Seeds are - pardon the pun - dirt cheap.
Stop investing and start growing.
Think about it. Your money, or what you believe to be your money, is all over the place. You've got some in your pocket, wallet or purse, in a drawer, a piggy bank, maybe buried in the ground in your back yard or stuffed inside a wall in your house. Some of it may be in a coin or stamp collection, or any other kind of collection. some of it is in the bank, some of it is reflected as credit on credit cards, or a home equity loan. Then there's investments, individual stocks, mutual funds, 401ks, Keogh funds, college funds, retirement funds, and so on.
Add to that the promised or held money, as in pension plans, social security, medicare, payroll withholding taxes, money in health care plans, etc., and you can easily understand that most Americans have no idea where their money really is, and, what's worse, who's using it, for what purposes and when. This is what makes investing absolutely the greatest gamble of your life. Playing roulette with real money you depend upon for anything other than fun is simply foolish. If you're a winning investor (about 12% of individual investors over the past 10 years), you may scoff at the tone of this post, but you have to admit that you sometimes have had doubts.
Watching the foolery on Wall Street this week was a real eye-opener. After Monday's sharp sell-off, there were two major gaps of more than 100 points apiece - on Tuesday's open and today's open - Tuesday up and today down, and six separate "pumping" events (three today) which managed to keep stocks in a fairly tight range and close slightly positive for the week. The scorecard still reads: 2 up weeks and 4 down for the year so far, a discouraging sign.
The various gaps and pumps (typified by large advances over a period of usually less than an hour) were all insider-driven, indicating quite clearly that the individual investor was at the mercy of the insiders and professionals. Anybody who made a dime trading this week who isn't wired directly into the Wall Street elite or a broker or trader, is either a genius or extremely lucky. The deck was so severely stacked against the little guy, he didn't stand a chance. while that's usually the case, this week was particularly volatile, a friendly partner of the pros, forcing more trades and more brokerage commissions while the investor is left holding a bag, suitably deflated.
Dow 10,099.14, -45.05 (0.44%)
NASDAQ 2,183.53, +6.12 (0.28%)
S&P 500 1,075.51, -2.96 (0.27%)
NYSE Composite 6,875.18, -23.54 (0.34%)
As if to throw cold water in the face of the market, advancers managed to finish ahead of decliners, 3398-2998, in opposition to the headline numbers and following an early-session trade which saw declining issues beating gainers by a 6-1 ratio. Truly, on the low volume reading, the market was yanked around by inside elements and manipulators. There is absolutely no doubt about it. There were 154 new highs to 59 new lows. Even though the gap continued to expand this week, the high-low indicator is becoming less and less meaningful as the calendar draws closer to March 9, the one year anniversary of the bottom. Stocks making new lows in comparison to last year have to be real stinkers. The high-low indicator may not make much sense as a trend indicator until maybe June or July.
NYSE Volume 5,202,259,500
NASDAQ Volume 2,168,768,250
Commodities did not participate in the rigged equity rally, and suffered nearly across-the-board losses. Crude oil dipped $1.08, to $74.20. Gold slipped $4.50, to $1,090.20. Silver fell 18 cents, to $15.41.
Besides commodities being stuck in a range, stocks, outside stellar performers and outright losers, haven't budged in 4-5 months. The top was really around Dow 10,300, back in early December. The rest of it on the high side was froth, or waste. The key numbers now are 10,050 and 9900 on the Dow, both of which should be tested within days. With all the turmoil in world markets - Greece, China, Dubai, elsewhere - the major indices are being held together by raw nerve. The inside game is still playing the "recovery" card until they're good and ready to dump out of all positions in a radical race lower.
They may all exit at once or continue the slow, Chinese water torture treatment of two days up and three days down for weeks and weeks, but, unless there's clear resolution on jobs (there aren't any new ones being created) and foreclosures (they continue to rise, year over year), the trend remains down. That's the bad news.
The good news is that there are only 36 days until Spring, baseball players report to Spring training next week and there are exceptional bargains in arable land, tools of trade and certain transportation devices (bicycles are cheap and riding them is very health-promoting). Seeds are - pardon the pun - dirt cheap.
Stop investing and start growing.
Thursday, February 11, 2010
The Diversification Lie
Whenever and wherever investment strategies are the topic of discussion, sure as the sun sets in the West, somebody will open their yap about the need to be diversified, of not having all of your eggs in one basket, of segmenting your portfolio to match your investment style and other such sage advice, all of which serves to increase trading activity, market liquidity, but mostly, the size of your broker's monthly commission check.
Unless you are sufficiently wealthy (in which case, you'd probably be in TIPS or Treasuries or another high-yielding asset class), diversifying your portfolio usually means spreading out your risk over a number of different stocks or a combination of stocks, bonds, mutual funds and money markets. All of this results in a higher transaction rate, good for the financial services industry and bad for you. It's just plain money out of your pocket, and diversification, as has been proven in bear markets and bulls, isn't a safeguard against risk, nor does it help maximize profits. At best, diversified portfolios amplify losses and reduce profitability.
What we'd all like is a couple of dead-nuts winners and no losers. Diversifying, spreading out and trading frequently only reinforces the desire to trade - or, gamble, which is exactly what it always has been and always will be - while virtually guaranteeing mediocre results. The normal result of spreading, if you're lucky, is a couple of winners, a couple of losers and an overall performance that will be somewhere close to the averages. You might as well just buy index funds or play index futures or options, forget everything about charts and fundamentals and timing and just bet one way or the other. Like any other wager, you'll win some and lose some and probably come out a loser, which is how most people doing their own trading end up.
Mediocrity is what keeps brokerages and professionals in business. Sooner or later, all those day-trading wizards burn out because, just like in Las Vegas, they can't beat the house, which on Wall Street is better known as the inside money - the very brokers who use your money to gamble and hedge against. Individual investors surely don't stand a snowball's chance in hell in today's trading environment, when stocks turn on a rumor, phrase or the whim of the inside money, so diversification only accelerates the losing process, all to the great satisfaction of the Fat Cats.
The only way to win in stocks, just like gambling, is to make large, smart moves and make them as infrequently as possible. Buy and hold is still a viable strategy, but the trick is knowing not only what to buy, but when, and when to get out. A single big winner is still the best strategy. All the diversification talk is pure bunk, made for fools who think they're actually "investing."
Get real. Save your money. In a sock. When you've got $100,000, think about how badly you'd feel losing 10 or 20% of it, or more. You'll forget investing and go back to saving. Believe me, I spent years analyzing stocks, markets, investments, the economy and more, and I WON'T PUT A PLUGGED NICKEL INTO STOCKS, mostly because I know the pros still have a huge edge.
Think it over. Do you have 8 to 10 hours a day to plot your moves and act upon them? Do you have other people backing you who will support your trades with trades of their own? Do you have huge sums of money to hedge and cause market runs and momentum shifts? Obviously not.
A case in point is today's rally, yesterday's decline, the rally the day before, the sharp drop the day before that. do you have the stomach for that kind of volatility? Up one minute and down the next? I didn't think so.
Dow 10,144.19, +105.81 (1.05%)
NASDAQ 2,177.41, +29.54 (1.38%)
S&P 500 1,078.47, +10.34 (0.97%)
NYSE Composite 6,898.72, +79.60 (1.17%
Advancing issues beat back decliners, 4874-1598 (3-1); 140 new highs, 65 new lows, still not enough of a spread to call any change in direction. Volume was average.
NYSE Volume 5,165,277,500
NASDAQ Volume 2,149,687,500
Stocks remain in a consolidation phase around Dow 10,000, which could last a few more weeks before a breakdown occurs. Upside potential remains weak due to current economic conditions.
Commodities caught some fire on Thursday, though oil was down 2 cents, to $75.28. Gold added $18.90, to $1,095.20. Silver ended 29 cents higher, at $15.59.
Unless tomorrow is a huge day to the downside, stocks are on track for a winning week, which would end a string of four straight losers. That's a bet worth taking. The only other week stocks finished higher in 2010 was the first week of the year.
Unless you are sufficiently wealthy (in which case, you'd probably be in TIPS or Treasuries or another high-yielding asset class), diversifying your portfolio usually means spreading out your risk over a number of different stocks or a combination of stocks, bonds, mutual funds and money markets. All of this results in a higher transaction rate, good for the financial services industry and bad for you. It's just plain money out of your pocket, and diversification, as has been proven in bear markets and bulls, isn't a safeguard against risk, nor does it help maximize profits. At best, diversified portfolios amplify losses and reduce profitability.
What we'd all like is a couple of dead-nuts winners and no losers. Diversifying, spreading out and trading frequently only reinforces the desire to trade - or, gamble, which is exactly what it always has been and always will be - while virtually guaranteeing mediocre results. The normal result of spreading, if you're lucky, is a couple of winners, a couple of losers and an overall performance that will be somewhere close to the averages. You might as well just buy index funds or play index futures or options, forget everything about charts and fundamentals and timing and just bet one way or the other. Like any other wager, you'll win some and lose some and probably come out a loser, which is how most people doing their own trading end up.
Mediocrity is what keeps brokerages and professionals in business. Sooner or later, all those day-trading wizards burn out because, just like in Las Vegas, they can't beat the house, which on Wall Street is better known as the inside money - the very brokers who use your money to gamble and hedge against. Individual investors surely don't stand a snowball's chance in hell in today's trading environment, when stocks turn on a rumor, phrase or the whim of the inside money, so diversification only accelerates the losing process, all to the great satisfaction of the Fat Cats.
The only way to win in stocks, just like gambling, is to make large, smart moves and make them as infrequently as possible. Buy and hold is still a viable strategy, but the trick is knowing not only what to buy, but when, and when to get out. A single big winner is still the best strategy. All the diversification talk is pure bunk, made for fools who think they're actually "investing."
Get real. Save your money. In a sock. When you've got $100,000, think about how badly you'd feel losing 10 or 20% of it, or more. You'll forget investing and go back to saving. Believe me, I spent years analyzing stocks, markets, investments, the economy and more, and I WON'T PUT A PLUGGED NICKEL INTO STOCKS, mostly because I know the pros still have a huge edge.
Think it over. Do you have 8 to 10 hours a day to plot your moves and act upon them? Do you have other people backing you who will support your trades with trades of their own? Do you have huge sums of money to hedge and cause market runs and momentum shifts? Obviously not.
A case in point is today's rally, yesterday's decline, the rally the day before, the sharp drop the day before that. do you have the stomach for that kind of volatility? Up one minute and down the next? I didn't think so.
Dow 10,144.19, +105.81 (1.05%)
NASDAQ 2,177.41, +29.54 (1.38%)
S&P 500 1,078.47, +10.34 (0.97%)
NYSE Composite 6,898.72, +79.60 (1.17%
Advancing issues beat back decliners, 4874-1598 (3-1); 140 new highs, 65 new lows, still not enough of a spread to call any change in direction. Volume was average.
NYSE Volume 5,165,277,500
NASDAQ Volume 2,149,687,500
Stocks remain in a consolidation phase around Dow 10,000, which could last a few more weeks before a breakdown occurs. Upside potential remains weak due to current economic conditions.
Commodities caught some fire on Thursday, though oil was down 2 cents, to $75.28. Gold added $18.90, to $1,095.20. Silver ended 29 cents higher, at $15.59.
Unless tomorrow is a huge day to the downside, stocks are on track for a winning week, which would end a string of four straight losers. That's a bet worth taking. The only other week stocks finished higher in 2010 was the first week of the year.
Wednesday, February 10, 2010
Bernanke's Naked Put Signals End of Fed
Once upon a time, I owned a fairly successful, profitable newspaper publishing business. Due to events mostly beyond my control the business declined and eventually was bankrupted. During the phase of decline, my father, knowing the challenges and tribulations I faced on a daily basis, used to say, "I don't know how you keep going."
Being a resourceful and resolute sort, I usually replied that the alternative would be to ball up in a corner and cry.
Nowadays, I laugh. I laugh quite a bit. And, what keeps me laughing the most is the outright insanity of the global economy and the people who are supposed to be running it. That idea alone, that a few people, like Fed Chairman Ben Bernanke and heads of foreign central banks, are supposed to keep the global machinery of commerce well-maintained and regulated.
HAHAHAHAHAHAHAHA!!!!! Financial mismanagement of far-flung enterprises, like nations, began with the creation of money, but didn't really gather momentum until the Fed was created in 1913 (just before the Great Depression, I should add) and John Maynard Keynes began commenting and writing on economics. The art was nearly perfected by the expansionist Maestro himself, Alan Greenspan, and is today being expanded to the nth degree of absurdity by Chairman Bernanke.
Today was a literal laugh riot. Bernanke released a transcript of his remarks prepared for testimony before the Committee on Financial Services, U.S. House of Representatives. His actual appearance was postponed since the nation's capitol is currently under two to three feet of snow (this is a probably a good thing that won't last), but Chairman Ben decided to unveil it today, since he probably wanted to get the blueprint outlining the devastation of a nation's finances out for inspection by his central banker buddies around the world.
The text of his remarks, lined above, reads like a fantasy. It is almost all fiction and represents the hopes and prayers of the fed Chariman, because, technically, with the federal funds rate essentially at zero and there being no economic conditions which would cause the FOMC to change its policy stance, i.e., raising the rate, the Fed has NO WAY TO INFLUENCE INTEREST RATES.
What our ingenious Chairman has suggested in this little piece of fiction, is that interest rate policy will be tied to interest paid on member bank reserves. In other words, Bernanke has suggested a game-changer because the usual federal funds rate is going to stay at ZERO for much longer than he or anyone else in the banking industry ever imagined it would.
Essentially, he's saying - despite his claims that the economy is improving - that conditions continue to deteriorate and will continue to deteriorate for as far as the eye can see. Inside his veiled statement of "change" (we've heard that one before) is the seed of truth: the Fed has failed in its responsibility to promote a sound economy and stable prices. They have been unable to shake loose from their accommodative posture because the debt burden is still too severe and getting worse.
The only way out for them is to pay interest on their money they themselves hold and hope that credit markets respond in kind to yet another inflationary gesture. In all probability, it won't work, for two good reasons. First, the entire structure of the Fed is based on lending out money at interest, not paying interest on money held in reserve. Their plan is entirely a chimera, a sham, a puppet show. Second, the private markets will not adjust to the "new, improved" interest-on-reserves-as-the-basis-for-all-lending program. Markets, regional and local, have their own priorities and standards and will shake free from the Fed umbrella. Growing markets will encourage higher interest rates. Slowing or stagnant markets, that being most of the nation, will not be able to raise rates with any success.
Bernanke's plan is as boneheaded as most of the ideas spawned by the minds of these Lilliputian thinkers. More than anything else, the Chairman has issued the first statement signaling the end of the Federal Reserve. He admits that the economy's problems began in August of 2007, as I have repeatedly stated at various times on this blog and elsewhere. His highly-fictionalized account of the proceeding events fail to hide the fact that the Fed and his counterparts at the US Treasury have been entirely unable to correct the prevailing conditions of decline.
He is admitting defeat, The US economic system, as it has been engineered by the Federal Reserve, is broken beyond repair. The fed funds rate is ZERO, and will remain at ZERO forever, or, until the Federal Reserve Act is either amended or revoked. Since the Federal Reserve Act did not include a charter or set term for the operation of the Fed, there is no renewal or expiration. They operate in perpetuity, thus, the only way to dispose of or abolish this abominable creation is by an act of congress, so don't hold your breath. By the time the numbskulls in DC come to the realization that the Fed has bankrupted the nation, it will be too late. Besides, the federal government has done their own demolition job with entitlements, deficits and the burgeoning national debt.
In 2007, I suggested taking all money out of the stock market and putting it into cash. This new twist on the entire structure of money reinforces my ideas from yesterday that the only place to put money now is in foodstocks that can be stored, reliable transportation, clothing, arable land and tools of trade. Obviously, an investment in a sewing machine or any kind of gardening instrument would be a worthwhile use of your money in light of today's developments.
The Fed's failure may result in very unusual movements in currency markets. An absolute breakdown of global trade is not out of the question as more and more individuals and countries question the viability of fiat currencies as a whole. The alternatives to our busted system of credit are gold, silver and barter. However, since gold and silver have been highly commoditized and traded as investments, they may be less reliable as stores of wealth as their values should fall along with all other asset classes, albeit to a lesser degree. Add to the list, seeds, for vegetables. They're cheap, and everybody needs to eat more veggies.
The market reaction to Bernanke's comments, released about 10:00 am, was complete horror. Stocks immediately sold off on the very thought that the fed would even consider ending their free-money regime. Cooler heads prevailed, however, sending stocks back up and into a stable area for much of the remaining session. Overhanging everything was the snowstorm ravaging the East coast, which kept Washington shut down and many traders away from their desks. Volume was a dribble and the major indices ended the day without much change, though all were down.
Dow 10,038.38, -20.26 (0.20%)
NASDAQ 2,147.87, -3.00 (0.14%)
S&P 500 1,068.13, -2.39 (0.22%)
NYSE Composite 6,819.12, -16.04 (0.23%)
Declining issues beat advancers, 3271-3086. New highs: 113; New lows: 53. Still no perceptible break in these indicators. Volume was on the low side.
NYSE Volume 4,982,940,500
NASDAQ Volume 2,039,927,875
Commodities were split. Crude oil gained 17 cents, to $74.69. That's about to change. Look for crude at $65 within months, possibly sooner and possibly lower. Gold lost $1.10, to $1,076.10. Silver edged down 11 cents, to $15.33.
Just to reinforce how grossly mismanaged the US economy is, I cite this mainstream article, called, Is America about to go broke?, a brief, yet exceptional insight to the unfunded liabilities of Social Security and Medicare by Scott Burns.
Having previously written on this topic just a few days or weeks ago, I discovered that the unfunded liabilities were an amorphous blob, with estimates ranging from $69 to $99 trillion. Burns pegs it at a "mere" $42.9 trillion, citing the actual 2008 Trustee's Report as his source. Burns makes more claims in his article, the most compelling being that the total expense for SS and Medicare will outstrip revenue sometime between 2010 and 2015. Previous estimates had this date pegged as 2037, quite a few years off. Burns also pegs Alan Greenspan as the architect for the detonation of the entitlement time bomb, a point on which he is probably correct.
But then Burns makes the leap to inflation, purporting that in order to keep the payments system going, the Fed will have to print more money. That's where he and I part company. The Fed has been printing money as fast as it can for years. Inflation has not occurred because the banks are hoarding it, keeping an ungodly amount as reserves within the Federal Reserve. Just printing money doesn't cause inflation. It has to be put into circulation, and currently, its not. And, as we learned today, the Fed is going to pay interest on all this money the banks have stored within the Fed as reserves. There's the final solution. The US economy is kaput, forcibly being thrown down a deflationist hole by the Federal Reserve and its member banks.
The plan by the Fed is ingenious, yet utterly transparent. They'll inflate when they see fit. When they have every mortgage in America underwater, when real estate values have plummeted to 30-40% of what they are today, that's when they'll release a torrent of previously-reserved money as they buy up every depressed property in America, converting the nation's most valuable assets from the hands of homeowners, Fannie Mae and Freddie Mac, to their own. Oh, yes, and then, once Americans already have been forced out of their homes, the prices of everything - from food, to fuel to every imported good - will rise out of their buying range.
Yes, we will have inflation, but not before we encounter years and years of crushing deflation.
I'm not laughing as hard as I was earlier, because the conditions are dire indeed. However, the proposed solutions and what passes today for economic analysis are absolutely side-splitting.
Being a resourceful and resolute sort, I usually replied that the alternative would be to ball up in a corner and cry.
Nowadays, I laugh. I laugh quite a bit. And, what keeps me laughing the most is the outright insanity of the global economy and the people who are supposed to be running it. That idea alone, that a few people, like Fed Chairman Ben Bernanke and heads of foreign central banks, are supposed to keep the global machinery of commerce well-maintained and regulated.
HAHAHAHAHAHAHAHA!!!!! Financial mismanagement of far-flung enterprises, like nations, began with the creation of money, but didn't really gather momentum until the Fed was created in 1913 (just before the Great Depression, I should add) and John Maynard Keynes began commenting and writing on economics. The art was nearly perfected by the expansionist Maestro himself, Alan Greenspan, and is today being expanded to the nth degree of absurdity by Chairman Bernanke.
Today was a literal laugh riot. Bernanke released a transcript of his remarks prepared for testimony before the Committee on Financial Services, U.S. House of Representatives. His actual appearance was postponed since the nation's capitol is currently under two to three feet of snow (this is a probably a good thing that won't last), but Chairman Ben decided to unveil it today, since he probably wanted to get the blueprint outlining the devastation of a nation's finances out for inspection by his central banker buddies around the world.
The text of his remarks, lined above, reads like a fantasy. It is almost all fiction and represents the hopes and prayers of the fed Chariman, because, technically, with the federal funds rate essentially at zero and there being no economic conditions which would cause the FOMC to change its policy stance, i.e., raising the rate, the Fed has NO WAY TO INFLUENCE INTEREST RATES.
What our ingenious Chairman has suggested in this little piece of fiction, is that interest rate policy will be tied to interest paid on member bank reserves. In other words, Bernanke has suggested a game-changer because the usual federal funds rate is going to stay at ZERO for much longer than he or anyone else in the banking industry ever imagined it would.
Essentially, he's saying - despite his claims that the economy is improving - that conditions continue to deteriorate and will continue to deteriorate for as far as the eye can see. Inside his veiled statement of "change" (we've heard that one before) is the seed of truth: the Fed has failed in its responsibility to promote a sound economy and stable prices. They have been unable to shake loose from their accommodative posture because the debt burden is still too severe and getting worse.
The only way out for them is to pay interest on their money they themselves hold and hope that credit markets respond in kind to yet another inflationary gesture. In all probability, it won't work, for two good reasons. First, the entire structure of the Fed is based on lending out money at interest, not paying interest on money held in reserve. Their plan is entirely a chimera, a sham, a puppet show. Second, the private markets will not adjust to the "new, improved" interest-on-reserves-as-the-basis-for-all-lending program. Markets, regional and local, have their own priorities and standards and will shake free from the Fed umbrella. Growing markets will encourage higher interest rates. Slowing or stagnant markets, that being most of the nation, will not be able to raise rates with any success.
Bernanke's plan is as boneheaded as most of the ideas spawned by the minds of these Lilliputian thinkers. More than anything else, the Chairman has issued the first statement signaling the end of the Federal Reserve. He admits that the economy's problems began in August of 2007, as I have repeatedly stated at various times on this blog and elsewhere. His highly-fictionalized account of the proceeding events fail to hide the fact that the Fed and his counterparts at the US Treasury have been entirely unable to correct the prevailing conditions of decline.
He is admitting defeat, The US economic system, as it has been engineered by the Federal Reserve, is broken beyond repair. The fed funds rate is ZERO, and will remain at ZERO forever, or, until the Federal Reserve Act is either amended or revoked. Since the Federal Reserve Act did not include a charter or set term for the operation of the Fed, there is no renewal or expiration. They operate in perpetuity, thus, the only way to dispose of or abolish this abominable creation is by an act of congress, so don't hold your breath. By the time the numbskulls in DC come to the realization that the Fed has bankrupted the nation, it will be too late. Besides, the federal government has done their own demolition job with entitlements, deficits and the burgeoning national debt.
In 2007, I suggested taking all money out of the stock market and putting it into cash. This new twist on the entire structure of money reinforces my ideas from yesterday that the only place to put money now is in foodstocks that can be stored, reliable transportation, clothing, arable land and tools of trade. Obviously, an investment in a sewing machine or any kind of gardening instrument would be a worthwhile use of your money in light of today's developments.
The Fed's failure may result in very unusual movements in currency markets. An absolute breakdown of global trade is not out of the question as more and more individuals and countries question the viability of fiat currencies as a whole. The alternatives to our busted system of credit are gold, silver and barter. However, since gold and silver have been highly commoditized and traded as investments, they may be less reliable as stores of wealth as their values should fall along with all other asset classes, albeit to a lesser degree. Add to the list, seeds, for vegetables. They're cheap, and everybody needs to eat more veggies.
The market reaction to Bernanke's comments, released about 10:00 am, was complete horror. Stocks immediately sold off on the very thought that the fed would even consider ending their free-money regime. Cooler heads prevailed, however, sending stocks back up and into a stable area for much of the remaining session. Overhanging everything was the snowstorm ravaging the East coast, which kept Washington shut down and many traders away from their desks. Volume was a dribble and the major indices ended the day without much change, though all were down.
Dow 10,038.38, -20.26 (0.20%)
NASDAQ 2,147.87, -3.00 (0.14%)
S&P 500 1,068.13, -2.39 (0.22%)
NYSE Composite 6,819.12, -16.04 (0.23%)
Declining issues beat advancers, 3271-3086. New highs: 113; New lows: 53. Still no perceptible break in these indicators. Volume was on the low side.
NYSE Volume 4,982,940,500
NASDAQ Volume 2,039,927,875
Commodities were split. Crude oil gained 17 cents, to $74.69. That's about to change. Look for crude at $65 within months, possibly sooner and possibly lower. Gold lost $1.10, to $1,076.10. Silver edged down 11 cents, to $15.33.
Just to reinforce how grossly mismanaged the US economy is, I cite this mainstream article, called, Is America about to go broke?, a brief, yet exceptional insight to the unfunded liabilities of Social Security and Medicare by Scott Burns.
Having previously written on this topic just a few days or weeks ago, I discovered that the unfunded liabilities were an amorphous blob, with estimates ranging from $69 to $99 trillion. Burns pegs it at a "mere" $42.9 trillion, citing the actual 2008 Trustee's Report as his source. Burns makes more claims in his article, the most compelling being that the total expense for SS and Medicare will outstrip revenue sometime between 2010 and 2015. Previous estimates had this date pegged as 2037, quite a few years off. Burns also pegs Alan Greenspan as the architect for the detonation of the entitlement time bomb, a point on which he is probably correct.
But then Burns makes the leap to inflation, purporting that in order to keep the payments system going, the Fed will have to print more money. That's where he and I part company. The Fed has been printing money as fast as it can for years. Inflation has not occurred because the banks are hoarding it, keeping an ungodly amount as reserves within the Federal Reserve. Just printing money doesn't cause inflation. It has to be put into circulation, and currently, its not. And, as we learned today, the Fed is going to pay interest on all this money the banks have stored within the Fed as reserves. There's the final solution. The US economy is kaput, forcibly being thrown down a deflationist hole by the Federal Reserve and its member banks.
The plan by the Fed is ingenious, yet utterly transparent. They'll inflate when they see fit. When they have every mortgage in America underwater, when real estate values have plummeted to 30-40% of what they are today, that's when they'll release a torrent of previously-reserved money as they buy up every depressed property in America, converting the nation's most valuable assets from the hands of homeowners, Fannie Mae and Freddie Mac, to their own. Oh, yes, and then, once Americans already have been forced out of their homes, the prices of everything - from food, to fuel to every imported good - will rise out of their buying range.
Yes, we will have inflation, but not before we encounter years and years of crushing deflation.
I'm not laughing as hard as I was earlier, because the conditions are dire indeed. However, the proposed solutions and what passes today for economic analysis are absolutely side-splitting.
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