Boo!!! Will Halloween Scare the Market into Respecting the Fundamentals?

by Zero Hedge - October 31st, 2009 12:21 pm

Boo!!! Will Halloween Scare the Market into Respecting the Fundamentals?

Courtesy of Reggie Middleton at the BoomBustBlog, article posted at Zero Hedge

I’ll admit it to everyone, I am absolutely disgusted with my investment performance over the past two quarters. I came into the second quarter up nearly 500% for the two years running thanks to top notch research across myriad sectors (see Research_Samples 11/17/2008 for examples) and loss about half of that profit fighting the bull rally that I easily saw coming but severely underestimated the length, depth and breadth of. Having switched over to market neutral in the third quarter (see Recent strategy analysis sample available to the public) caused me to simply hover with a few percentage point gains here and there, since by then most of the drastic moves were over, but I was biding my time in mostly cash waiting for the fundamentals to kick back in. You see I am a fundamental investor, and I kill it when 2+2=4, and I do even better when it equals something else. The caveat is when it does equal something else, I have to wait until it starts moving back towards that number 4 for me to realize my meal. This severe boom/bust market is basically custom tailored to my investment style (see "The Great Global Macro Experiment, Revisited", and realize why I call it BoomBustBlog!) just to an aggravated extreme! 

Hey, y’all! It appears as if we may be approaching that time where 2+2 may again equal 4.

By now I’m sure we have soaked in the head-fake that was the "better than expected" GDP number. Well, the gross number was only marginally better than expected, and if one bothers to taken even the most cursory glance beneath the surface…. Whoa! Stimulus was quoted as the reason the economy expanded, but this is just not true. Stimulus is something that stimulates. That just didn’t happen in this case. The main drivers reported for the GDP pop came from automobiles (the cash for clunkers so-called stimulus plan) and residential investment (the government tax break, more so-called stimulus). This is how I see it. Automobile sales are already down since the clunker plan ended, so there is no speculation as to whether or not this government effort stimulated anything, It didn’t. All the government did was to…

No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Boo!!! Will Halloween Scare the Market into Respecting the Fundamentals?

by ilene - October 31st, 2009 7:26 am

Boo!!! Will Halloween Scare the Market into Respecting the Fundamentals?

Courtesy of Reggie Middleton at the BoomBustBlog, article posted at Zero Hedge

I’ll admit it to everyone, I am absolutely disgusted with my investment performance over the past two quarters. I came into the second quarter up nearly 500% for the two years running thanks to top notch research across myriad sectors (see Research_Samples 11/17/2008 for examples) and loss about half of that profit fighting the bull rally that I easily saw coming but severely underestimated the length, depth and breadth of. Having switched over to market neutral in the third quarter (see Recent strategy analysis sample available to the public) caused me to simply hover with a few percentage point gains here and there, since by then most of the drastic moves were over, but I was biding my time in mostly cash waiting for the fundamentals to kick back in. You see I am a fundamental investor, and I kill it when 2+2=4, and I do even better when it equals something else. The caveat is when it does equal something else, I have to wait until it starts moving back towards that number 4 for me to realize my meal. This severe boom/bust market is basically custom tailored to my investment style (see "The Great Global Macro Experiment, Revisited", and realize why I call it BoomBustBlog!) just to an aggravated extreme! 

Hey, y’all! It appears as if we may be approaching that time where 2+2 may again equal 4.

By now I’m sure we have soaked in the head-fake that was the "better than expected" GDP number. Well, the gross number was only marginally better than expected, and if one bothers to taken even the most cursory glance beneath the surface…. Whoa! Stimulus was quoted as the reason the economy expanded, but this is just not true. Stimulus is something that stimulates. That just didn’t happen in this case. The main drivers reported for the GDP pop came from automobiles (the cash for clunkers so-called stimulus plan) and residential investment (the government tax break, more so-called stimulus). This is how I see it. Automobile sales are already down since the clunker plan ended, so there is no speculation as to whether or not this government effort stimulated anything, It didn’t. All the government did was to…

Posted in Immediately available to public, Phil's Favorites | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Puke: Don’t Invest In The Familar

by ilene - October 31st, 2009 1:17 am

Sauce-Bearnaise Syndrome. So there’s a name for my aversion to seafood and anything on the same plate.  And organ meats, and fake cheese. And cool whip. – Ilene

Puke: Don’t Invest In The Familar

Courtesy of Tim at The Psy-Fi Blog

Sauce-Bearnaise Syndrome

If you’re unfortunate enough to eat something that violently disagrees with you, so much so that you end up vomiting, you’ll likely find yourself suffering from Sauce-Bearnaise Syndrome. Otherwise known as taste aversion, it causes us to associate the taste of the food we’ve puked up with the illness that caused it to such an extent we’re unable to face eating it again.

As I can personally attest, this effect is incredibly strong even when the food in question has nothing to do with the illness. Even knowing this doesn’t help because the primacy we place on personal experience over all others is so strong. However, while this may be of great survival value when grazing forest floors it’s less helpful in investing, where personal experience is often the worst possible guide to the best strategy.

Adaptive, Involuntary and Subjective Investors

The adaptive value of Sauce-Bearnaise Syndrome is pretty obvious. If you’re a hungry semi-evolved simian wandering around a primeval forest and you happen upon a tasty looking mushroom then eating it may make you extremely sick. Assuming you survive the experience it’s a darn good evolutionary trick to find a way of stopping the stupid ape from making the same mistake again – so automatically triggering an aversion to the taste is nature’s way of keeping us alive. Of course, if we ate the other sort of mushroom we’d probably spend a day dreaming of kaleidoscopic antelopes and evolve to become an investment analyst.

However, when I became sick after eating my favourite Indian curry it was nothing to do with the food, but a bug I’d picked up on a skiing trip with a host of plague ridden kids. It took a year and a lot of red wine to overcome the aversion, despite knowing exactly what the problem was. The S-B effect is involuntary and powerful and entirely subjective.

Pavlov’s Investors

The persistence of effects like this is a warning that we’re controlled by all sorts of evolutionary contrivances that we’re not really aware of most of the time. These…

Tags: Investing, psychology, Sauce-Bearnaise Syndrome, taste aversion

Posted in Phil's Favorites | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Paranormal Activity to Another Black Monday?

by ilene - October 31st, 2009 1:09 am

Paranormal Activity to Another Black Monday?

Courtesy of Leo Kolivakis, publisher of Pension Pulse, h/t Zero Hedge

Simon Maierhofer of ETFguide.com writes Whats Next – Minor Correction or Major Collapse?:

Over the past few months, every attempt by the bears to depress prices has been met with renewed buying pressure, resulting in even higher prices. What goes up, however, has to come down and some subtle signs are indicating that this decline might be more than a simple correction, much more.

It was after midnight on April 15th, 1912 when the unsinkable did the unthinkable. Built and labeled as unsinkable, the Titanic was the most advanced and largest passenger steamship of its time.

Even though the Titanic’s crew was aware of the fact that the waters were iceberg-infested, the ship was heading full-steam for a destination it would never reach.

Being aware of danger is one thing; acting prudently for protection is another.

Today, investors find themselves in an environment that is infested with symbolic icebergs. For savvy investors willing to pay attention and heed warnings, this doesn’t necessarily translate into a financial shipwreck, while others might soon be reminded of the Titanic when they look at their account balance.

Iceberg cluster #1: Lack of leadership

Throughout the financial meltdown financials, real estate, and homebuilders fell harder and faster than broad market indexes a la S&P 500 and Dow Jones. Beginning with the miraculous March revival (more about that in a moment), the broad market rose while financials, real estate, and homebuilders soared.

Those three sectors led the decline and led the subsequent (mock) recovery. Since it is reasonable to assume that those sectors will continue to lead the market throughout this economic cycle, it behooves investors to watch such leading sectors closely.

The S&P 500 recorded a closing high on October 19th at 1,097. The Financial Select Sector SPDRs reached their closing high a few days earlier on October 15th. Since their respective closing highs, the S&P 500 has dropped 2.82%, while XLF has already shed 5.64%.

A more pronounced performance slump is visible in the home builders sector. The SPDR S&P Homebuilders ETF peaked on September 16th and has fallen 9.97% since. Keep in mind that XHB’s lackluster performance comes on the heels of the biggest monthly increase in total

…

Tags: Black Monday, Crashes, Depression, Economy, overvaluation, P/E, Recovery, risk

Posted in Appears on main page, Immediately available to public, Permissions, Phil's Favorites | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Nine More Banks Fail with CIT on Deck for a Packaged Bankruptcy While Gold Shines

by ilene - October 31st, 2009 12:26 am

Nine More Banks Fail with CIT on Deck for a Packaged Bankruptcy While Gold Shines

Courtesy of Jesse’s Café Américain

There was a tension in the markets today despite the ‘good news’ in the headline economic numbers. The markets are also on edge ahead of the ADP and BLS jobs numbers next week. The much touted theory of a ‘jobless recovery’ is started to show some big holes in credibility, as well it should.

A jobless recovery is nothing more than a euphemism for a monetary asset bubble. 

Trader confidence was shaken by more indications that CIT will declared a preplanned bankruptcy next week, and the observations by billionaire Wilbur Ross of an approaching meltdown in the Commercial Real Estate market which has been widely anticipated among the non-shill market analysts.

Gold showed a remarkable resilience today against determined short selling in the paper Comex markets. Here is a decent summary of the case that the gold bulls have been making, in addition to the standard observations about dollar weakness.

Gold Market Reaching the Breaking Point

Meanwhile, nine more commercial banks rolled over this week.

North Houston Bank, Houston, TX, with approximately $326.2 million in assets and approximately $308.0 million in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Madisonville State Bank, Madisonville, TX, with approximately $256.7 million in assets and approximately $225.2 million in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Citizens National Bank, Teague, TX, with approximately $118.2 million in assets and approximately $97.7 million in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Park National Bank, Chicago, IL, with approximately $4.7 billion in assets and approximately $3.7 billion in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Pacific National Bank, San Francisco, CA, with approximately $2.3 billion in assets and approximately $1.8 billion in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

California National Bank, Los Angeles, CA, with approximately $7.8 billion in assets and approximately $6.2 billion in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

San Diego National Bank, San Diego, CA,

…

Tags: Gold, jobless recovery, meltdown in commercial real estate, Wilbur Ross

Posted in Phil's Favorites | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Launching CDS Heatmaps

by Zero Hedge - October 31st, 2009 12:01 am

Courtesy of Tyler Durden

Equity heat maps are a dime a dozen. And for all intents and purposes, worthless, so long as only algo-sutffed computers (and ScottTrade retail analysts) are the driving marginal purchasers. As Zero Hedge has long contended the real action is and increasingly will be in credit (we will be shortly expanding on this conviction), especially once the “even bigger one” happens, and all those who have gotten burned trading equities under the wise advice of Jim Cramer or Goldman Sachs for the n^th time, finally decide that methadone is better than an n^th+1 recurrence.

Zero Hedge is starting a presentation of credit heatmaps, specifically CDS: easily the most liquid product in the market currently (unfortunately still not for retail consumption but give it 12 months…)

Our first such heatmap just so happens to coincide with a month in which it may as well be called a redmap. We hope to make this a daily feature on Zero Hedge (the heatmap, not the bloodbath).

Legend: each block consists of 4 distinct sublocks, which represent the activity of the 10,7,5 and 3 year maturities, starting in the top left and going clockwise. The size of any given block is in proportion to that particular name’s weighted beta. Also, don’t forget: red is tighter, blue is wider

North American Index Heatmap (Month to Date Change)

North American Index Heatmap (Daily Change)

And a simpler representation: all 5 year on the runs in IG and ITRAXX, once again sorted by beta weighted bucket (this can alternatively be presented even simpler on an equal weighted basis: happy to consider reader feedback on this).

Posted in Immediately available to public | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

The FDIC Must Be Indicted

by ilene - October 30th, 2009 11:54 pm

The FDIC Must Be Indicted

Courtesy of Karl Denninger at The Market Ticker

Yeah, ok, the title is dramatic and will never happen.

Nonetheless, if we were truly a nation of laws, it would happen.

The LA Times notes regarding IndyMac depositors over the insurance limit:

The head of the Federal Deposit Insurance Corp. delivered some bad news personally to uninsured depositors who lost money last year when IndyMac Bank crashed and burned, saying an act of Congress is their only hope for recovering their funds.

“When a bank fails, we have to do what’s least-cost to our deposit insurance fund,” FDIC Chairman Sheila Bair said during a public appearance Wednesday in Los Angeles.

Sheila is correct as far as she goes, but like most government employees, it is what she didn’t say that is the problem, not what she did.

The problem lies with the willful and intentional refusal to enforce black-letter law, in this case Title 12, Chapter 16, Section 1831o which says in part:

Each appropriate Federal banking agency and the Corporation (acting in the Corporation’s capacity as the insurer of depository institutions under this chapter) shall carry out the purpose of this section by taking prompt corrective action to resolve the problems of insured depository institutions.

"Shall" is a specific term of art in legislation.  It allows no discretion and mandates action.  "May" and "Can" are two other words of course, and mean what they say – as does "shall."

This section of the law goes on to define capitalization "buckets," each of which represents a level above water, or above zero, of the excess of assets .vs. liabilities for depository institutions.

It also contains plenty of other "shall" directives such as:

Each appropriate Federal banking agency shall—

(A) closely monitor the condition of any undercapitalized insured depository institution;

(B) closely monitor compliance with capital restoration plans, restrictions, and requirements imposed under this section; and

(C) periodically review the plan, restrictions, and requirements applicable to any undercapitalized insured depository institution to determine whether the plan, restrictions, and requirements are achieving the purpose of this section.

and plenty more.

Everyone should go read…

Tags: FDIC, government, IndyMac Bank, Sheila Bair

Posted in Phil's Favorites | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Paranormal Activity to Another Black Monday?

by Zero Hedge - October 30th, 2009 11:35 pm

Paranormal Activity to Another Black Monday?

Courtesy of Leo Kolivakis, publisher of Pension Pulse, h/t Zero Hedge

Simon Maierhofer of ETFguide.com writes Whats Next – Minor Correction or Major Collapse?:

Over the past few months, every attempt by the bears to depress prices has been met with renewed buying pressure, resulting in even higher prices. What goes up, however, has to come down and some subtle signs are indicating that this decline might be more than a simple correction, much more.

It was after midnight on April 15th, 1912 when the unsinkable did the unthinkable. Built and labeled as unsinkable, the Titanic was the most advanced and largest passenger steamship of its time.

Even though the Titanic’s crew was aware of the fact that the waters were iceberg-infested, the ship was heading full-steam for a destination it would never reach.

Being aware of danger is one thing; acting prudently for protection is another.

Today, investors find themselves in an environment that is infested with symbolic icebergs. For savvy investors willing to pay attention and heed warnings, this doesn’t necessarily translate into a financial shipwreck, while others might soon be reminded of the Titanic when they look at their account balance.

Iceberg cluster #1: Lack of leadership

Throughout the financial meltdown financials, real estate, and homebuilders fell harder and faster than broad market indexes a la S&P 500 and Dow Jones. Beginning with the miraculous March revival (more about that in a moment), the broad market rose while financials, real estate, and homebuilders soared.

Those three sectors led the decline and led the subsequent (mock) recovery. Since it is reasonable to assume that those sectors will continue to lead the market throughout this economic cycle, it behooves investors to watch such leading sectors closely.

The S&P 500 recorded a closing high on October 19th at 1,097. The Financial Select Sector SPDRs reached their closing high a few days earlier on October 15th. Since their respective closing highs, the S&P 500 has dropped 2.82%, while XLF has already shed 5.64%.

A more pronounced performance slump is visible in the home builders sector. The SPDR S&P Homebuilders ETF peaked on September 16th and has fallen 9.97% since. Keep in mind that XHB’s lackluster performance comes on the heels of the biggest monthly increase in total home sales in ten years.

Even

…

Tags: demand, leadership, P/E, risk, Stock Market, valuation

Posted in Immediately available to public | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

FDIC Failure Friday: The Lucky Number 9

by Zero Hedge - October 30th, 2009 10:08 pm

Courtesy of Marla Singer

Forget our babble. Here’s the data.

Won’t you please give to UNICEF the FDIC fund this Halloween?

Posted in Immediately available to public | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Business Cycle, Debt Cycle… And Now Printing Cycle

by Chart School - October 30th, 2009 10:08 pm

Nic Lenoir of ICAP discusses his thoughts on the market at Zero Hedge. – Ilene

Business Cycle, Debt Cycle… And Now Printing Cycle

Courtesy of Tyler Durden at Zero Hedge

Submitted by Nic Lenoir of ICAP

Today’s PMI data was very strong. There are experts in econometrics much more knowledgeable than I will ever be calling for further strength in production numbers that will lead to a turn in unemployment into Q1 2010. I don’t dispute their models or the indicators they look at. However I can’t come to terms with it. I think this is in great part because the business cycle which is supposed to lead us out of this recession is at odds with a much longer and bigger cycle: the debt cycle. I know this flies in the face of 50 years of econometrics that has made people a lot of money trading, but this is mainly due to the fact that the debt cycle is so long and stretched over time that we don’t really have data to measure its impact on previous cycles. It coincides in a sense with the Kondratieff cycle, but transposed into today’s financial markets, the burst of the debt bubble is a lot more pronounced. Basically modern technology and financial engineering has made it very easy to securitize credit and source funding or financing globally, so that the extent of the debt bubble has been allowed to grow far beyond what could have happened 50 years ago. There is also obviously the global aspect of it. Because financial markets are more and more global, so is the crisis.

Albert Edwards had a great piece the other day discussing the renewed importance in a post-bubble environment of the business cycle. This line of thought has also been outlined by the Global Macro Investor in the past. It relies a lot on the example given by Japan, or the 70s. One could argue that unlike the case of Japan which benefitted of the strong economy of the 90s to have a more robust business cycle due to exports, our current global economy will lack an engine to drive the cycle. The risk is that the consumer has retrenched enough in the US and in Europe that the business cycles becomes a restocking of shelves carrying products there is not necessarily much demand for. I…

Tags: ALBERT EDWARDS, CHINA, debt cycle, investments, liquidity, PMI data, Stock Market

Posted in Chart School | No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg