Wednesday, April 16, 2008

Financial Industry Socialism

Congress Creates More Socialist Sewage

“ We see no intelligent effort from our congress, or the New York money boys to solve severe housing credit problems, which are at the root of this mess. Congress is building additional turmoil with no tax cut renewal while piling on a massive $35 Billion of new pork. Nothing of value to save the taxpayers is being implemented; only more damage. We shouldn’t be surprised to see New York’s global investment banks already in crash and burn mode actually taking more crazy chances trading derivatives short.
Apparently we are supposed to bail them out IN BOTH DIRECTIONS while they aggravate their previous disasters. This gang is writing more derivatives on the short side. We cannot stop it and the authorities will not. There is only one conclusion; faster inflation followed by hyperinflation and then depression. Are they intentionally trying to implode this system? What nefarious plan lies in wait for the American Sheeple? We’ve heard of disastrous serious ideas pushing our situation over the edge on purpose. Would they do that? Why not if it furthers their personal agendas. - Traderrog
We will not discuss politics in our work as it only starts unfinished fights. Rather we prefer to stick to our markets’ commentary knitting and throw verbal rocks at those economic freaks that deserve it. That crowd grows thicker by the minute and when we toss a verbal boulder or two, we don’t even have to aim any more. This is a really sad and pathetic turn of events. Why does the Federal Reserve, U.S. Treasury and other housing welfare providers persist in catching a falling knife? These ridiculous efforts to band aid on-going disaster will only encourage more of the same.
Tom Donlan and Alan Abelson in Barron’s tell us the truth each week but no one in New York or Washington with any authority listens, or gives a hoot. Mr. Donlan some weeks ago suggested a correct answer to the housing mess. He told us to just let ‘em all fail and walk with ensuing foreclosures. The loans were bad and so were the buyers. By flushing the bowl and purging our housing-lending-system of these problems, banks would instantly re-price their seized properties to reality. New, qualified buyers would show up to apply for real loans using proper terms not the Greenspan inspired garbage. Donlan’s plan would clean it up in 18 months. The status quo takes four more years with infinitely more extensive damage.
Instead, these controlling minions run around like rabid rabbits throwing cash at each and every idiot band aid idea in hopes of placating congress and their complaining Sheeple. We’ve seen this game before in the middle 1980’s when failing banks and S&L’s were either killed-off quickly, or repaired by the government’s Resolution Trust program designed to immediately fix a nasty spreading problem. It worked.
We also saw those results of long delays in Japan as they suffered years of no-fix-em permitting brain-dead zombie corporations to continue marching through years of existence melting precious propping capital like snow in July. This method destroyed any hopes of Japan’s exit to prosperity. Rather, this polite, non-complaining culture was forced to endure a years of “a thousand cuts” episode and never quite recovered. Some years ago, long after the 1989 implosion in Japan, the U.S. sent some New York smash-up repair teams who made a valiant effort copying this Resolution Trust idea. It was too late. The patient, Japanese economy was too sick to fully recover. Now we just received news Japan has fallen below important economic support lines and has sunk once again into recession.
After all of those years of suffering the Japanese are about to jump into the frying pan again not even once allowed to enjoy a recovery from post 1989 to the present. Keep in mind this nation has been primarily responsible for propping up America buying over a trillion in our crappy paper. Sometimes it seems so unfair with little or no justice. Japan and its people deserve better.
More Situations Leading to Depression
This weekend the G-7 meeting is scheduled and several traders are waiting for the outcome before making any serious moves. The U.S. Dollar, some analysts say, will move depending upon news from these meetings. We say they will do nothing of consequence and any news from those meetings is designed to prop shares. We get the same old stuff. They fly to the meeting site in private jets, have a fun-filled weekend and eat high on the hog at tax-payers expense then go home.
The Federal Reserve staff is preparing for “conditioning the markets” for more rate cuts (50 basis expected) as they blathered on about financial stress and troubles with housing. No kidding. That’s years’ old news. What do they do, read two year old newspapers?
Crops are moving into dire straits with some forecasting famine within three years, or less while our Agriculture Department pays more farmers not to grow crops on subsidy. All this while grain prices are setting new records and the National Weather Bureau forecasts increased chances of a long hot summer and potential drought. For now, the farmers struggle with a cold wet spring preventing a decent start for corn planting.
Look for food prices to double in some sectors and rise strongly in others. The amount of available global land for grain is shrinking while the U.S. and other nations find less growing room and much less water so badly needed to grow this food. Watch for radically higher prices and shortages to the extent rationing could be possible. We have seen several foreign national governments either reduce, or eliminate crop import taxes to encourage more grain deliveries. They are short to plumb out. Do not believe otherwise.
Washington Mutual shares rose on the news they are reducing staff and loan center offices. They just received a $7 Billion cash injection from a hedge fund straining to place it somewhere. Would you put this kind of cash into a company offering home loans? Nothing makes sense any more.
We earlier reported in Trader Tracks that the IMF told us over $1 Trillion in lending losses is possible. We now think that’s way too low. Now, in a flash of brilliance they want to sell their gold.
Those bottom feeders buying distressed debt, failed housing properties and other dead meat financial trash with supposed value are way too early in our view. If this idea is implemented properly and at the correct time those buyers can earn a fortune. Should their timing be off to the extent they’re too early, higher paid prices destroy these deals.
We think they are all too early. What is fooling these markets is a recent dead cat bounce in the HGX (Housing Index) and a few other financial index indicators. Things never move straight line up or down. A recent tiny pop induced them to buy, which in our view is just a suckers rally. Lumber had a similar pop creating another head-fake, which we see as pure inflation from commercial lumber supplier operating costs. Sales were allegedly up and so are prices. This does not constitute a rally in our view. Who needs lumber when new home starts are a joke?
This dead cat bounce in financials and housing (small and brief) resembles the 1934-1937 events. In 1934 traders re-entered the stock market thinking the bottom was made and things were ready to roll again. They were crushed the second time in 1937 when markets skidded -45% nearly as bad as the first early 1930’s events. When times are very rough and markets super sick, prices over-shoot on the downside. Do not forget those with cash and any other liquid tradable assets are the ultimate winners. The can buy the great hard asset stuff for 90% off. The rest suffer, or are destroyed.
Meanwhile our stupid congress and the president are attempting to outdo each other in presentation of a new housing recovery plan. The end game is Fannie Mae and Freddie Mac along with Farmers Home Loan and primarily FHA shall raise loan caps and give-away more easy credit and cash to dumb unqualified buyers. Some of these folks have already failed on mortgages and shall return to do it again. This is a re-run of derivative banks selling their own trash short after it failed long. Only in America!
Retail is on its knees with sales results very weak and growing weaker. We shopped for new jeans recently in a middle-priced popular department store. An array of observed mark-downs and sales prices were shocking to say the least. It appears they were selling most store inventory at small losses or break-even to raise cash and dump the load of unsold winter goods. Strip malls in our area are stripped out of tenants, or have many empty holes in them. The smell of retail death is everywhere.
Autos continue to fail with the impending demise of Ford and Chrysler only months away. GM might be split-up as they sell-off, or write-off failed divisions of this once mighty corporation. The key indicator here was Toyota’s -10% performance in the last quarter. They are the best at making money in a very difficult industry. When they are down the rest are in much worse shape. You can take that one to the bank. Auto sales in recent better times were 16.5mm annually for the U.S. They are at 11.1mm on the last report for March. With over 1500 models available from so many manufacturers this is a disaster.
New York real estate is the last bastion of good markets. Now, they too, are feeling the pinch as thousands of higher pay Wall Street jobs are eliminated and local properties take longer to sell at mildly lower prices. The New York real estate markets are similar to Toyota. They are the best in their field at holding-up and now they aren’t.
Merrill Lynch’s David Rosenberg tells us consumer optimism is down, home sales keep skidding and bank reserves have sunk to nearby flash points scaring bank managers and those who control them.
Here is one where probably everyone disagrees with us. We think Dow Theory no longer works very well as the PPT Plunge Protection Team refuse to allow the Dow to have free rein and operate normally. Every time it acts like a failure they prop it up. The Dow in gold adjusted and inflationary terms is a major disappointment.
Now the BLS (please drop the L) Bureau of Labor Statistics says the number of unemployed Americans jumped by 634,000 since last December 1st of 2007. Next they say the number of employed dropped another 678,000 since December 1, 2007 up until the last report. Their latest report tells us their jobs index has gone below zero. The last time this occurred was 2001 preceded by the 1987-1989 troubles.
In Trader Tracks this week we discuss how fictional statistics reduce most government media and private economist stats to a bowl of quivering lies. By going backwards with restated numbers you can avoid making yourself crazy. We find it’s easier to estimate reality by doubling to the negative side.
An example would be Michigan unemployment. Officially, the jobless claim in now above 7% more, or less. We just take the last report and double it. Our most recent Michigan unemployment estimate was 16% out of work and this does not count the under-employed, a massively large number. When Michigan jobless use up their 26 weeks of unemployment compensation they are left with nothing but USDA food stamps. How many Michiganders are in this tragic boat?-hundreds of thousands. Look for major increases in crime by non-criminals to feed children and families. Significant job losses for years lay ahead. The only job increases are in government. More waste, more make-work jobs and more taxes to pay for them created by politicians to purchase votes.
The University of Michigan Consumer Confidence Index fell beneath two chart support lines. The primary support was broken from 1979 and through a more recent one, covering the last five years. Consumers are toast and they know it. Only those with large savings living way below their paycheck means are in good condition.
Traders should watch the dates of April 11-April 14 for turns and pivot points in several markets. We have a feeling of foreboding for this spring.
Big Picture for April, 2008
Spring Selling Cycle is Delayed
Watch for new rallies in most all markets until the end of this month. Sometime between April 14, and April 30, 2008, the bloom goes off the rose and the nasty “Sell-in-May-And-Go-Away” arrives. We forecast a -24% haircut in most stock shares including precious metals. In this instance, the baby gets tossed with the gray water. Traders should prepare and act appropriately selling into strength those shares they prefer to be out of and wait for a later summer bottom to buy in again. Some smart traders are all in cash right now planning to buy heavily after the next lower base has been secured. Others will simply hold and ride out the storm clearly understanding what lies ahead. Still others will sell half and keep half. In our newsletter, Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management.
Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of preferred shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan and squirreled away. Big traders are always ready to buy on the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy. - Traderrog

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