…when are we going to realize that the daily gyrations of the stock market are meaningless drivel? Not until the cheerleaders start talking sensibly. Yesterday was a case in point: you would have thought we were in a 200 point rally…the worst is behind us…the best is yet to come…cash will cost you money…borrow and buy…you name it…and for what? Doesn’t the economy mean anything?
The problem is that they continue to rely on averages. Such as, historically it is time to buy, based on what?…and what is this crisis historically? William Isaac, who was Chairman of the FDIC from 1981 to 1985 was quoted on Bloomberg saying, “This is a nightmare for the country.” Banks need to “raise what capital they can then they’ll slow down their growth and stop lending, and what should be a mild recession becomes a much more serious one.” It’s all about ratios and their capital adequacy ratios have taken a huge hit. Think about this as the banks report earnings…Citi of course will take a hit but Bloomberg asserts that Wells will also and reject more loan applications. It isn’t as if they are at risk of going under but their Tier One capital ratios are suffering by as much as 2% from a year ago. It is inconceivable to TB that we cannot see this. How can consumers who have just had much of their savings and in all cases more wiped out…those savings being in the form of home appreciation. Note TB did not say home ‘equity’ as that was already wiped out in many cases thru sometimes frivolous home equity loans although many were used for home improvements and education…or to supplant incomes that are not growing with inflation…CEO’s excepted on this…and Wall Street although that too is changing.
Meanwhile, the greatest Fed Chairman of all time (?) is defending his reputation…his latest is that the housing crisis will be over earlier than anticipated…he says early 2009…TB will take that bet!
New 52 week Highs rose to 137 from 116 while New Lows rose to 90 from 77…the point is this: since the selloff from 12/26, there have been just six sessions where the ratio was positive and each was followed by a selloff (2-1 and 2/4, 2/25-26, 4/4 and 4/7…this is the most new highs…as for most new lows that would be 2,338 on 1/22)! The ratio of new highs to new lows is 1.6:1 the highest we have seen over the period cited, yet compare to double digit negatives most of the time. What happened after these two day wonders? 2/5 Dow plunged 370 points; 2/27 it rallied 97 but reversed the next day, 2/8? To be determined but after yesterday’s squandered opportunity the path seems to be down. TB believes at best we retest the lows…but more likely that will be the third and final attempt.
Frankly, TB is tired of writing about the market and about a government that runs off of our apathy and the lobbyists money. If you can’t see the problems ahead then by all means go buy stocks…sans TB! This has to be the shortest TB on record but either preaching to the choir or you think he is nuts! Take your pick. Will bounce back by tomorrow…now reread the paragraph on new highs/new lows as that is the only positive TB can find but the track record on it this year is miserable.
Wait! Stop the presses…just heard on CNBC that Las Vegas is the most recession resistant city in the country…when the going gets tough, the tough go gambling. Hold on pardner! TB lived in Reno for five years and was Investment Officer for the biggest bank in the state. We were building a new airport, Vegas was booming…S&P and Moody’s cited the same argument…but not the CEO of the bank, Art Smith. True, people come there to forget their problems but when they get back home they are right back there and worse off. We now have huge growth of Indian casino’s in California and elsewhere. In California alone Indian gaming tops gaming revenue on the Las Vegas Strip! But the big thing is that there has never been the kind of growth that Vegas is experiencing…and it is overbuilt: homes, condos, and definitely high priced hotels…in a short recession they can handle it…but in a long one? TB bets they will lose…crap out if you will…and casino stocks (an appropriate term) are indicative of this. Enough!
TB has a lot on his mind today as his wife is having knee replacement surgery and so will make this commentary short.
Have a good day,
TB
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful.
Copyright TBD Capital LLC April 8, 2008
