Archive for 2009

Up Next: The Obama Bounce?

Michael Panzner shares his views on the market in the context of previous bear markets.

My Latest Huffington Post Column: "Up Next: The Obama Bounce?"

Courtesy of Michael Panzner, at Financial Armageddon and When Giants Fall

Below is my latest column for the Huffington Post, entitled "Up Next: The Obama Bounce?":

All of a sudden, our president is being blamed for the selloff in share prices.

Yesterday, for example, the Wall Street Journal published an editorial by Michael Boskin, former chairman of the Council of Economic Advisers under George H.W. Bush, claiming that "Obama’s Radicalism Is Killing the Dow." In a Bloomberg News report, "Obama Bear Market’ Punishes Investors as Dow Slumps," a money manager attributed the slump to uncertainty stemming from the Administration’s efforts to turn things around.

As usual, the alleged experts don’t have any idea what they are talking about.

For one thing, the current bear market began long before Barack Obama assumed the reins of power. Since hitting its all-time high in October 2007, the S&P 500 index has fallen by more than half, with 80 percent of those losses occurring before the January inauguration.

More important, still, are the real reasons behind the sell-off. These include the bursting of history’s biggest housing bubble, which triggered a shockwave of wealth destruction that has wreaked widespread havoc throughout the economy, as well as the unraveling of a multi-trillion-dollar financial house of cards built on greed, ignorance, and fraud.

Throw in the fact that stock prices had been supported by earnings and expectations about the future that had little basis in reality and it’s not hard to see why the bears have been in control during the past year-and-a-half or so.

Indeed, on valuations alone, it is easy to make the case that there is plenty more downside to come. During the similarly turbulent times of the past, including the Great Depression, World War II, the late-1970s era of stagflation, and the twin-recessions of the early-1980s, the ratio of share prices to the aggregate earnings of companies included in the S&P 500 during the prior 12-months fell to the mid-to-upper single digits before another bull market began.

Right now, in contrast, the P/E ratio of the bellwether index is


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Can The Market Bottom On Light Volume?

Rob Hanna asks and answers:

Can The Market Bottom On Light Volume?

Courtesy of Rob Hanna at Quantifiable Edges

One common misconception about steep selloffs is that they need to be accompanied by high volume in order to mark a bottom. October 10th and (to a lesser degree) November 20th, 2008 are two examples of big down days that came on big volume that soon led to a reversal. While this pattern can precede a bounce, you’d much rather see your new low accompanied by very low volume than very high volume.

Let’s look at some studies to illustrate this claim. First let’s look at performance following a 50-day low that has neither very high nor very low volume:

 
(click to enlarge)

So this is the base case and as you can see there is a slight upside edge over the next 1-20 days.

Now let’s look at the ever-popular high volume selloff:

(click to enlarge)

Results here are nearly indistinguishable from the base case. The high volume, while not a deterrent, does not seem to provide an additional edge.

Now let’s look at the less common case of a 50-day low occurring on light volume:
 

(click to enlarge)

While the number of instances is less than desired, these results are clearly superior to the other scenarios. Over 90% winners after both 4 days and once you get out over 3 weeks. The average trade over the next week and over the next 4 weeks is about 4 times the size of the base case. While they didn’t all mark the exact low, some success stories included 10/7/02, 3/10/03, and 1/24/05.

There are plenty of technical reasons we should see a strong rebound soon. Thursday’s light volume can be added to the list. Now let’s just hope the market stops ignoring these reasons.

 

 





The Real Winners From The AIG Bailout

So in case you’re wondering, here’s the list of who’s at the other end collecting your tax dollars as they get flushed down the AIG bailout black hole.

The Real Winners From The AIG Bailoutblackhole-tbi.jpg

Right from the start we’ve been told that AIG had to be bailed out to stem the systemic risk that would be created by its failure. Supposedly, if AIG went down it would set off a domino like reaction through the financial system.

Strangely, however, the public has never been able to learn who the beneficiaries of the government’s bailout of AIG. The company claims the information is private, and so far the government has been going along with that line. But this morning the Wall Street Journal has heroically identified dozens of US and foreign financial insitutions that have been paid $50 billion through the bailout of AIG.

Two of the biggest winners were Goldman Sachs and Deutsche Bank, who each received upwards of $6 billion from AIG after it was bailed out. Here is the list.

  • Goldman Sachs
  • Deutsche Bank
  • Merrill Lynch
  • Société Générale
  • Calyon
  • Barclays
  • Rabobank
  • Danske
  • HSBC
  • Royal Bank of Scotland
  • Banco Santander
  • Morgan Stanley
  • Wachovia
  • Bank of America
  • Lloyds Banking Group

See Also:

 





The Market Is Already Solving The Housing And Banking Crises

As Henry Blodget says here, it really does sound simple.  So why is the government forcing tax-payers to finance the "Shitigroups" of the system? – Ilene

NEWS FLASH: The Market Is Already Solving The Housing And Banking Crisesobamageithner.jpg

Courtesy of Henry Blodget at ClusterStock

While Obama’s team desperately cooks up one flawed plan after another to save the banking and housing systems, it’s worth noting that the private market is already doing it.

The private market’s solution does all the things the government wants its bailouts to do:

  • It keeps homeowners in their homes
  • It gets crap assets off bank balance sheets
  • It gets money flowing through the economy again.

The private market’s solution also has several advantages that the government’s bailouts do not:

  • It is morally fair
  • It doesn’t blow hundreds of billions of taxpayer dollars
  • It recognizes and accepts the banks’ massive losses
  • It removes the need for the government to micromanage zombie banks
  • It places the responsibility and pain of those losses on the ones who should bear them: The people who made the dumb-ass loans in the first place.
  • It doesn’t so infuriate the Great Unbailed-Out Majority that everyone hates everybody.

What is this miraculous solution that has so far eluded the best and the brightest in two presidential administrations? 

  • The government does what it is supposed to do: Seize, restructure, and sell off insolvent banks.
  • The private sector does what it is supposed to do: Direct capital toward promising opportunities.

stanford-kurland.jpgToday’s example: PennyMac. 

PennyMac was started by Stanford Kurland, the No. 2 at Countrywide. (Leave that irony aside for a moment).  PennyMac buys up mortgages that were previously held by failed banks like IndyMac.  It buys them at, say, 30 cents on the dollar.

PennyMac then calls up the homeowner paying the mortgage who is about to be evicted, "How would you like a 50% cut in your mortgage payment?"  The overjoyed homeowner gets to keep his house.  PennyMac and its shareholders feast on the spread between 30 cents and 50 cents.

And who gets hosed?

The shareholders and bondholders of IndyMac.  As they should.  Because they were the ones who made the dumb decisions to invest in and lend money to IndyMac in the


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“The Bezzle” Defined

Karl Denninger, at The Market Ticker, clarifies his use of the term "the Bezzle" and how it’s propelling our economic system to ruin.

"The Bezzle" Defined


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A.I.G., Where Taxpayers’ Dollars Go to Die

Here’s an informative article on the AIG credit default swap disaster which helps illustrate how these derivative trades are so devasting.

A.I.G., Where Taxpayers’ Dollars Go to Die

By GRETCHEN MORGENSON, in the NY Times

DERIVATIVES are dangerous.”

That simple sentence, written by Warren Buffett, begins an enlightening discussion in Berkshire Hathaway’s most recent annual report. Mr. Buffett’s views on derivatives, gleaned from his own unhappy encounters with them, should be required reading for all United States taxpayers.

Why? Because we own almost 80 percent of the American International Group, the giant insurer whose collapse was a direct result of derivatives it sold during the late, great credit boom.

A.I.G. nearly barreled off the cliff last September, when it couldn’t meet its obligations to customers who had bought a version of derivatives called credit default swaps. Such swaps are like insurance policies; bondholders buy them to protect themselves from default on various forms of debt… i.e., unidentified danger

…the sheer volume of derivatives engineered by a small London unit of A.I.G. suggests that taxpayers haven’t seen the bottom of this money pit.

…Because of the way A.I.G. wrote its swaps, and because the company had a double-A credit rating at the time, it did not have to put up collateral to assure its customers that it would be able to pay on the insurance if necessary. Collateral would be required only if A.I.G.’s credit rating were cut or if the debt underlying the swaps declined.

Both of these “unthinkable” events occurred in 2008. Suddenly, A.I.G. had to cough up collateral it didn’t have.

SO, you see, the rescue of A.I.G. also involved a bailout of its many customers, none of whom the insurer or the government is willing to identify.

…On Wall Street, those customers are known as “counterparties,” and Mr. Liddy wouldn’t provide details on who the counterparties were or how much they received. But a person briefed on the deals said A.I.G.’s former customers include Goldman Sachs, …
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Weekly Whipping – How to Profit from Chaos!

Finlindu306

8,285 on February 9th to 6,485 at 3pm on March 6th.

That's 1,800 points down in 19 market sessions, a 22% drop with a "stick save" at the end that took us back to 6,626 – almost exactly, to the point, 20% below where we started!  These are not coincidences, we just discussed the 5% rule in detail during member chat the other day and, sadly, finishing right at the 20% line on a 4-week dip is not really encouraging.  As I mentioned during the video-cast on Friday, we went into the weekend 55% bearish – a decision I had to make before I left for the day at 10:30

We did not buy into the "rally" in the morning, other than our usual stab at FAS and SKF puts, neither of which went well on the day but, as I said during the live show, we aren't really too worried until Wednesday when we'll have to roll the SKF puts to April or possibly a hedged July/April spread (we'll decided next week).  As I said to members at 9:45: "This is why we need to take those bullish chances on the bad days, things get away from you fast once they get moving."  We do not buy into sudden market moves at PSW, we were buying on Thursday, when everyone thought the world was ending and, had I been around Friday afternoon, we would have been buying there too!

A good example of how we offset our exuberance is my 9:17 comment to members as the futures began running up ahead of the open: "Watch 1.25% and 2.5% levels to decide when/if to stop out at least 1/2 of the covers.  I would certainly roll up long puts into this rally (.50 or less per $1 higher strike)."  So, what are we doing when the market is flying up nearly 200 points in the first 15 minutes – WE ARE IMPROVING OUR DOWNSIDE COVERAGE!  We already have longs, those we can let run but we have an opportunity to move our long index puts up to higher strikes, which: 1) Gives us better leverage on the way down, 2) Improves our net delta to any puts we have sold as a hedge and 3) Puts us in a position to…
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Kass Digs In While Bears Continue to Feast

StockJockey at 1440 Wall Street shares his thoughts on the market.  In contrast to Doug Kass, the only bull market he sees is in videos predicting continual market carnage.  

Kass Digs In While Bears Continue to Feast

Doug Kass is not afraid of the spotlight, and that is what he has at the moment thanks to his high profile calls that it is time to get more constructive on this market. But with consensus S&P 500 earnings estimates a little north of $45, many proprietary econometric models pointing to even lower earnings for the index and technicians like Louise Yamada warning the charts point lower, can the market be really be bought here?

I continue to expect we will get the cathartic event as Bernanke panics – he has a lot of heavy lifting to do given the Treasury Department is a shambles. And while a few wildcards remain, such as mark-to-market accounting and perhaps even an expanded role for Paul Volcker (a pipe dream?), hanging your hat on valuation, sentiment etc seems to be just more of the same stuff that has not worked for 18 months now.

Before we write off Mr. Kass, keep in mind he put together a check list – which might still leave you cold given very few of the conditions have been met.

But he is standing by his call, crossing a few off his list, and apparently is all-in, even if he was buying in scales. A brave stand, indeed:

On Monday night, I suggested on “The Kudlow Report” that the stock market could be within three days of making a 2009 bottom.

As yesterday was the third day, my forecast is now on the line.

I am not hiding from my bottom call. If anything, I feel even better today than I did on Monday evening with Sir Larry Kudlow that my expectation might prove to be accurate, particularly in the current backdrop of attractive valuations and an extremely negative sentiment reading, or, as I describe, “Irrational Non-Exuberance.” Most important, there are initial signs that several elements on my checklist are turning more positive. The Street.com

Personally I find it hard to find anything to like here…Wall Street woke up when President Obama released his Budget, and the Wall Street professionals that helped Obama get elected have now realized that they are…
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Weekend Look at the SP 500 Index

Looking ahead, some signs that the brutal beginning to 2009 is approaching a conclusion.

March 7 Weekend Look at the SP 500 Index

Courtesy of Corey Rosenbloom at Afraid to Trade

What a week we just endured in the markets.  Let’s take a step back now that the weekend is upon us to look at the Weekly and Daily Structure of the S&P 500:

It’s been an absolutely brutal and devastating past four weeks for investors – I cannot underscore this point enough.  The S&P has fallen 22% in the last four weeks which classifies for its own definition of a “Bear Market.”  There’s some good news though.

Within the (Elliott) Wave Structure, it appears that price is coming to the end of the final 5th Wave and that a rally may be expected to take place from here.  Also, we see a positive momentum divergence forming as price hits new lows not seen since 1996.  Fifth Waves often form on positive momentum divergences, so we are seeing this behavior conform to expectations.  Volume is also at relatively high levels into these price lows.

For a full image of the proposed Elliott Wave Count on the S&P 500, see this chart (link) or the blog post entitled Similarities in 1937 and Today.

Let’s drop down to the Daily Chart to see if we can get any insights there.

S&P 500 Daily:

Well, let’s start with the positive.  Price reached a new low beneath 700 on a Triple-Swing Positive Momentum Divergence (new low in October; new low in November; new low in March) which could arguably be classified as a “Three Push” pattern which is a type of reversal pattern.

Price also rallied sharply into Friday’s close which formed a Doji which is often seen as a short-term reversal pattern (technically, a doji represents “indecision” between buyers and sellers).  Also, we are at the bottom of the Bollinger Band… but have been so since mid-February.  In strong moves, price has a tendency to “Ride the Bollingers” up or down.

Volume is higher than average and certainly volume has been increasing as the year progressed… though that’s not necessarily a good sign, as we would see this as a ‘confirmation’ of lower prices through higher (trending) volume.  There does not seem to be a “blow-off” or capitulation volume spike that is


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Today vs 1929

Braunie at The Market Guardian compares the 1929 crash to this crash.

Wall Street

Today vs 1929

This market has fallen farther and faster than 1929 crash. The New York Times points out that the S&P 500 is down 56% since it peaked on Oct. 9, 2007, 513 calendar days ago. In the identical number of days from the 1929 market peak, the market was down 49%. So we have fallen farther, faster in this market crash than the mother of all crashes. Following the 1929 crash, the Dow finally bottomed out in 1932 after a 90% slide.

The burning question is the fundamental soundness of current price levels. I refer you to Leonhardt’s excellent columns.

P/E is now 14, after falling from its bubble-highs. Leonhardt points out that in past crashes it hit 7 or so. Stocks have another 50% to go. (P is stock price, E is 10 year trailing earnings). 14 is a normal P/E, but not a bargain level, particularly in a recession. So far the crash has brought us back to normal, nothing more. A 4000 Dow might just happen.

This may be a particularly ugly crash simply because stocks were more overpriced.

Here is a link to a great NY Times Article.

1929crash

 





 
 
 

ValueWalk

#1 Performing Global Macro Hedge Fund Sees More Shorts Opportunities Ahead As China Bursts

By Jacob Wolinsky. Originally published at ValueWalk.

Crescat Global Macro Fund update to investors on 1/19/2019

Crescat Global Macro Fund and Crescat Long/Short fund delivered strong returns for both December and full year 2018 in a difficult market. Based on ...



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Zero Hedge

Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

Courtesy of ZeroHedge. View original post here.

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins an...



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Phil's Favorites

Divisive economics

 

Guest author David Brin — scientist, technology consultant, best-selling author and futurist — explores the records of Democrats and Republicans on the US economy in the following post. For David's latest posts, visit the CONTRARY BRIN blog. For his books and short stories, visit his web...



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Kimble Charting Solutions

Stock declines did not break 9-year support, says Joe Friday

Courtesy of Chris Kimble.

We often hear “Stocks take an escalator up and an elevator down!” No doubt stocks did experience a swift decline from the September highs to the Christmas eve lows. Looks like the “elevator” part of the phrase came true as 2018 was coming to an end.

The first part of the “stocks take an escalator up” seems to still be in play as well despite the swift decline of late.

Joe Friday Just The Facts Ma’am- All of these indices hit long-term rising support on Christmas Eve at each (1), where support held and rallies have followed.

If you find long-term perspectives helpf...



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Digital Currencies

Transparency and privacy: Empowering people through blockchain

 

Transparency and privacy: Empowering people through blockchain

Blockchain technologies can empower people by allowing them more control over their user data. Shutterstock

Courtesy of Ajay Kumar Shrestha, University of Saskatchewan

Blockchain has already proven its huge influence on the financial world with its first application in the form of cryptocurrencies such as Bitcoin. It might not be long before its impact is felt everywhere.

Blockchain is a secure chain of digital records that exist on multiple computers simultaneously so no record can be erased or falsified. The...



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Insider Scoop

Cars.com Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ...

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Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...



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Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Biotech

Opening Pandora's Box: Gene editing and its consequences

Reminder: We are available to chat with Members, comments are found below each post.

 

Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from www.shutterstock.com

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.

...

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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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