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Yes dear reader DJI 9000 is not a typo. It is meant to say 9,000. How can that be after having repeated, like a broken record, again and again that we are in a bear market and that we will see much lower stock prices? Well dear reader the truth is that I still believe that we will see much lower prices and that within the next 5 years we will see the price of one DJI being equal to the price of one ounce of gold. But dear reader, any move be it down in a bear market or up in a bull market does not mean that it is a one way street. There are and will be some corrections from time to time. Said this, I would not be surprised at all to see the market or the DJI rally from somewhere around 6,000 (there is still some down potential in that move) back to 9,000. As now one can hear mega bulls becoming bears, I believe that we are getting closer to this intermediate low. What does that mean dear reader? It means, that one should be able to make a couple of Dollars going long at around 6,000. However I would be careful and only put a small percentage of my assets into this investment or bet. Furthermore it means that everybody still holding stocks might get one last chance to unload. So if you still hold stocks please be aware that at some point reducing positions might be advisable.
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Well dear reader after move up on today on Tuesday, I thought it does not make sense to post my above comment. However trying to figure out why the market has moved up so much on today, I decided to let you know what my opinion is. So now the question is, do I still believe what I wrote before? Well yes, at least in general terms. Yes we will see a bear market rally which can go up 50% and yes it possibly will be the last chance to get out of equities (and I am convinced that very few will do so because everybody will turn optimistic). Well what I am not so sure is if we really have bottomed out now. Well in fact I doubt it. Why? Well let’s see what the trigger of this up move was and let’s see if there is really a justification for this reaction. The reason was the news of Citigroup Chief Pandit saying: Bank Having Best Quarter Since 2007. Well dear reader according to Bloomberg, the CEO Pandit said “In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007." The bank had $19 billion of revenue in January and February before disclosed writedowns, he added. So dear reader do we know what the writedowns are? Well on www.lemetropolecafe.com a very savvy writer wrote
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they're not profitable. that's a bunch of mumbo jumbo hype from Pandit. they have interest income coming and they're not accruing write-downs because of the Govt guarantees. Pure GAAP crap.
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I guess you know already dear reader that I do agree with this opinion.
So we have Citi apparently giving us some good news and the investors believe that we finally are at the bottom. Sorry folks, I am afraid that this is only pure wishful thinking and possibly nothing else. I do not believe these guys at all (by the way such I thought that such a statement is illegal and therefore to me it only shows how desperate they really are). Secondly look at other companies like AIG and others. Does that tell you that we are close to the end of the crisis?
Well as mentioned, we possibly will see soon a bear market rally but I am not sure if we are already there. Of course I might be wrong. Let’s see what happens the next couple of days.
Although a bit late let’s have last weeks overview
For the week, the Dow sank 6.1% (down 24.5% y-t-d) that the S&P500 was hammered for 7.0% (down 24.3%). The Transports sank 12.2% (down 37.9%), and the Morgan Stanley Cyclicals tanked 13.7% (down 39.8%). The Utilities declined 8.3% (down 20.8%), and the Morgan Stanley Consumer index fell 5.0% (down 21.5%). The S&P 400 Mid-Caps sank 9.1% (down 24.2%), and the small cap Russell 2000 dropped 9.8% (down 29.7%). The Nasdaq100 lost 4.7% (down 12.1%), and the Morgan Stanley High Tech index fell 3.7% (down 9.8%). The Semiconductors declined 2.0% (down 8.1%), and the InteractiveWeek Internet index fell 3.9% (down 4.9%). The Biotechs dropped 5.5% (down 12.9%). The Broker/Dealers sank 11.6% (down 26.5%), and the Banks were drilled for 22.9% (down 58%). With Bullion down about $4, the HUI Gold index declined 1.7% (down 5.8%
Gold
Goverments do not like gold!
the ONLY function of gold is to store wealth, the price of gold reflects the comparative attraction of having reserves in gold or in the national currency.
This is why governments hate gold. Gold is the arbiter of their dismal lack of self-discipline with regards to over-issuance of fiat currency. A price rise in any other commodity can be explained away. For example, a rise in crude oil can be spun positively saying this is due to rising demand because the economy is doing so well, as opposed to more paper dollars chasing fewer barrels. i.e. inflation!
A rising gold price means that it is less and less attractive to hold the currency. It is as simple as that.
Following information from one of the most savvy analysts:
ANOTHER GOOD MONTH FOR GOLD
James Turk
http://goldmoney.com/en/commentary/2009-03-01.html
Anybody seen our gold?
http://www.gata.org/node/wallstreetjournal
Economy
Dailyreckoning writes
We’ve explained the difference between a recession and a depression before. But we’ll do it again. A recession is a pause in an otherwise healthy, growing economy. A depression is when the economy drops dead. And when it drops dead, the assets that people owned – stocks, bonds, houses, derivatives, debt – are called into question. What are they worth, now that the economy that created them no longer exists? That’s the big question. The U.S. economy has been expanding for the last 60 years – largely by increasing consumer spending and debt. Now, neither consumer spending nor debt is increasing. In the last 6 months, consumers have suddenly reversed their free-spending ways. Borrowers and lenders have repented too. But if it is no longer an economy that grows by increasing consumption and debt...how does it grow at all? And what about all those businesses that are set up to provide products and services to the consumer economy? A nd what about all the debts and obligations that the consumer economy produced; what are they worth?
Private American companies shed 697,000 jobs in February, ADP claims today. The payroll management company’s gauge of monthly employment registered 83,000 more schlubs kicked to the curb than the Street expected... and marks the 14th straight month of decline.
The Bureau of Labor Statistics (BLS) is expected to announce 650,000 job losses in February. If ADP’s report is any indicator (and that’s a big “if”), Friday’s BLS report will be worse than expected as well.
Well dear reader knowing that even these figures are much better than the reality thanks to the wonderful statistics of the BLS my question is how do some still expect to see consumers spending?
Europe
Europe is plagued by debt too - just like the United States. Individual households are generally in better shape than those in America, but governments tend to have more debt than the United States. And in the fringe countries of Europe - Ireland, Spain, Greece, Italy, Poland, and the Ukraine - consumers borrowed far too much money to buy houses. Unemployment is soaring to 15% of the workforce in Spain. Irish banks are going under. And in Eastern Europe, the problems are worse. Typically, a man who wanted to buy a house found that he got a better interest rate if he took out a mortgage in euros than in his home currency. In Poland, for example, many homeowners must now make their mortgage payments in euros, while they earn their money in zlotys. As the financial crisis developed, the zloty fell against the stronger euro, by half. This leaves the Polish householder paying twice as much on his mortgage
Banks and Banksters
Beware of weekends. Two more banks failed over the weekend a week ago. The 15th and 16th failure of 2009 will nick another $100 million notch in the FDIC’s belt. Well dear reader isn’t interesting that these failures happen almost always on weekends?
Change of wording: Well dear reader, the debate isn’t about nationalization anymore. The real discussion is whether banks should be wholly or partially nationalized.” Doesn’t that tell us something?
HSBC was forced to raise over $17 billion today after announcing its 2008 income crashed 68%. The bank will issue over 5 billion new shares, Britain’s biggest ever rights issue. The mega bank also announced a 29% dividend cut.
Well HSBC has a huge derivate book and some people believe that many of these positions are already more than sour.
JPMorgan Chase is another financial institution with an enormous derivative book that, according to some savvy commentators is more than toxic. Well to me it seems that JPM and Goldman are allowed to use accounting gimmicks in order to make the reality look better than it is. The government must be happy that not everything pops to the surface. It would not be convenient at all to see bad news about these 2. Of course this is just a guess but my gut feeling tells me that possibly it is closer to the truth than many believe.
AIG
Well dear reader now we know that AIG broke a record. Yes they lost more than 60 billion last quarter 2008, which is the biggest quarterly loss ever reported in history. Incredible isn’t it? With other words the lost 500,000 USD every minute. Wow is what comes into my mind. Well and what worries me more is not the news as such but the fact that we possibly will hear more of the same.
GE credit defaulty swap is 17% bid 19% offered Good morning Jack Welch! http://acrossthecurve.com/?p=3577 This bond trader heard that CDS buyers want 20% up front, but as he points out, he has not seen a trade like that actually "print." Let's look at the quoted "bid" side of 17%. That essentially means the market is saying that GE debt should be rated triple-C. It also implies a very high probability of bankruptcy. GE is so complex and has so much off-balance-sheet crapola, that we might not get so see until GE is in receivership, that I would just as soon stay away from GE as an investment altogether. There's probably some value left to shorting the stock… more later…
Even crooks and criminals are flummoxed. A guy walks into a big downtown bank. He points a gun at the teller and says: "Give me all your money."
The teller replies calmly: "You don't understand. This is a bank. We don't have any money."
Subprime Eastern Europe to Bankrupt Western European Banks
http://www.marketoracle.co.uk/Article9241.html
Orlandini mentioned in his last monthly newsletter the following
I am just guessing, but I suspect that AIG has lost more money than all the banana republics in Latin America put together throughout history
My guess is that he is right on this
Further he opines
Yet the United States still considers itself the moral compass for the rest of the world. Something tells me that we’ve really lost our bearings.
Once again it seems he is right
A.I.G., Where Taxpayers’ Dollars Go to Die
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.
http://www.nytimes.com/2009/03/08/business/08gret.html?_r=1
Who else needs a bailout?
Detroit...California...student loans...commercial loans...the banks...the homeowners...the unemployed...the sick...the halt...the lame...the blind...the plain stupid?
Where is the waiting line? Hey maybe you qualify too. Who does not?
The Wall Street Journal: “Bad Bank” funding plan starts to get fleshed out “The Obama administration, filling in some of the blanks in its bank bailout, is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis, according to people familiar with the matter.
“The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. It’s central to the administration’s efforts to unglue credit markets, alongside a Federal Reserve program aimed at spurring consumer lending in areas such as credit cards and home loans that will be officially launched Tuesday.
“No decision has been made on the final structure of what the administration is calling a private-public financing partnership, but one leading idea is to establish separate funds to be run by private investment managers. The managers would have to put up a certain amount of capital. Additional financing would come from the government, which would share in any profit or loss.
“These private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.
“… the government wants to encourage private investors to buy up the assets in a way that would come closer to setting a market price where no market currently exists. Some within the administration believe establishing multiple funds could help with that goal. The funds would most likely target all types of assets, such as mortgage-backed securities, rather than focusing on one specific type of distressed security.”
Source: Deborah Solomon and Jon Hilsenrath, The New York Times, March 3, 2009.
Well dear reader I ask myself why create bad banks? We have already a lot of them. Practically all the biggies are already in that category. Why should the taxpayers take the risk and losses while those holding risk capital would become stockholder of a new clean good bank? Well unless you want to bailout important stockholders it does not make sense at all. All the arguments that these institutions have to be saved in order to save the economy is with simple words complete nonsense. Keeping all those banks that in fact are already bankrupt alive, will cost the economy a lot more then letting them fail. Of course not many do agree with my opinion but I am convinced that in a couple of years I will be proven right.
Doom
More bubbles ready to burst. In the United States, public pension systems are under-funded by about $1 trillion. Firemen, teachers, policemen, municipal workers...state bureaucrats. Every one of them is looking to the feds for a bailout.
US will collapse next year
The president will order martial law this year, the U.S. will split into six rump-states before 2011,
http://www.google.com/hostednews/ap/article/ALeqM5iGM8kWMV6Kd2LoM80UvPXeeBJkqAD96N3GCG0
More Than 8.3 Million U.S. Mortgages Underwater as Values Sink
March 4 (Bloomberg) -- More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.
An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders.
Celente: U.S. Has Entered “The Greatest Depression”
“Expect massive bank failures, runs on banks, and bank holidays,” writes Celente. “Even if deposits are FDIC insured, quick access to money is by no means assured. At minimum, have reserves on hand for emergencies,” he forecasts
http://www.prisonplanet.com/celente-us-has-entered-the-greatest-depression.html
The U.S. Financial System Is Effectively Insolvent
Nouriel Roubini
For those who argue that the rate of growth of economic activity is turning positive--that economies are contracting but at a slower rate than in the fourth quarter of 2008--the latest data don't confirm this relative optimism. In 2008's fourth quarter, gross domestic product fell by about 6% in the U.S., 6% in the euro zone, 8% in Germany, 12% in Japan, 16% in Singapore and 20% in South Korea. So things are even more awful in Europe and Asia than in the U.S.
http://www.forbes.com/2009/03/04/global-recession-insolvent-opinions-columnists-roubini-economy.html
Equity
The Shanghai Composite climbed last week. Rumor has it the Chinese government is considering doubling its own economic “stimulus” package, from around $580 billion to $1 trillion… maybe more.
There are a couple data points being published lately that have traders excited. The Chinese purchasing managers’ index, for example, rose to 49 in February, just a hair short of the contraction/growth score of 50 and an improvement from November’s record-low score of 38.
The Chinese sovereign wealth fund has been pumping money into its biggest banks, too. And with the fall of financial giants here in the U.S., those Chinese banks are becoming, umn, relevant. Middle-class demand for goods and housing, while slowed, is still growing.
Corporate America's Icons Crumbling Under Global Recession
The truisms have been familiar to generations of Americans: As General Motors goes, so goes the nation; Citigroup is too big to fail; General Electric, one of the 12 original companies in the Dow Jones industrial average in 1896, brings good things to life.
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/05/AR2009030503798.html
Commodities
Oil
Well dear reader for many low oil prices is a relief but as I mentioned a couple of times low oil prices will have a very negative impact already in the near future. Following some information confirming my believe.
OPEC: World will pay for low oil prices by 2013
OPEC, the supplier of 40 percent of the world’s crude oil, said low prices may lead to a supply crunch by 2013 and rejected consumers’ arguments that cheap oil will help the world economy to recover.
“If the current low-price environment persists, this short- term relief may not translate into long-term gains,” OPEC Secretary Abdalla el-Badri said in an e-mailed statement today. “The failure of the industry to invest will result in a supply crunch by 2013 and beyond.
http://www.chron.com/disp/story.mpl/business/6297238.html
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