Traderbill's Financial Markets Weblog

TB will be visiting relatives until January 1, next scheduled commentary will be on January 2, TB.

Bloomberg Quote of the Day: “Leave well – even ‘pretty well’ – alone; that is what I  learn as I get old.” Edward FitzGerald…kind of like “if it ain’t broke, don’t fix it.” Unfortunately, that does not apply to financial markets regulation! TB

…and all thru the markets…it was as if everyone threw in the towel yesterday and don’t expect much today…oyveh!

Wishing all of you the best holiday season ever…personally that is…only a fool would attach a financial note to that. Oh, no good wishes for Bernie Madoff though or to the fools who got us into the mess we are in…some are rich…one is now dead…can they try Madoff for manslaughter since it was in the commission of a felony? Sounds like something from Law and Order, no?

Anyway back to the pleasant thoughts…as bad as things were this year they could have been worse…a lot worse…so we do have something to be thankful for. Enjoy family and Friends this holiday season…they are even more important now than ever.

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 December 24, 2008.

Bloomberg Quote of the Day: “Happiness lies in the joy of achievement and the thrill of creative effort. – Franklin D. Roosevelt. TB thanks all of his readers for helping him to understand this…”sure beats the joy of victory and the agony of defeat.’

(A note to readers who agreed with TB on how biased and unprofessional the reporting at CNBC has become. Don’t write TB, write elizabeth.seibert@ge.com, who TB wrote and who responded. Try finding a contact address on CNBC’s website…that should tell you something…oh, and be nice to Elizabeth if you do write…it isn’t her fault. TB)

…the system appears to be unraveling as the top stories on Bloomberg illustrate. First, it was bad news that after surviving options expiration last Friday we couldn’t hold on yet despite that both volatility indices declined…despite bad advance/declines and even worse market breadth, and the major indices falling back below the 40 day moving averages. All this on a paltry 1.22B shares so the only explanation left for the drop in volatility is positions are squared for yearend as hedge funds and others try to brace for the yearend redemptions. But there were many weird happenings yesterday:

1. Bonds: despite an incredible 0.922% bid on $38 billion of two year notes (today $26 billion of 5 yr notes are being auctioned)…they actually had bids totaling $80.9 billion…of which 30.4% went to foreign central banks, treasury’s closed down on the day. The 10 yr was off 3/8, 30 yr down 1-9/16, but it was the TIPS that were hit the hardest. The long end was off more than 7/8 while the short end was off 3/8. But what is amazing is why the 30 yr TIP is yielding just 1.92% when they couldn’t give them away at 3.23% just one month ago…that, folks, is up 24%! But what is really strange is that not only is there no inflation but we are we at risk of deflation. But what is even stranger is that in December, the inflation accrual  turned negative and  due to that -1.7% CPI in November it will get even worse in January so that the decline is larger than the interest accrual, meaning you have to have significant price appreciation just to stay even. You can buy a 30 year treasury at 2.61% vs a 30 yr TIP at 1.92%. What is causing this and why are the yields on the 10 and 20 year TIPS slightly higher than the 30 year? TB chalks this up to short covering and once that is completed there will be a huge selloff in TIPS. TB has advocated in this column buying the TIP ETF (TIP) which is a blend of all the outstanding TIP issues. On July 15, it peaked at $109.17, then slipped to $105, before falling off a cliff and hitting a low of $84.24 on October 10, not coincidentally at the lows of the stock market. It quickly rebounded to $95 where it has gone sideways ($91-97)…until last Tuesday when it exploded, peaking at $102.20 last Thursday…TB sold all of his clients positions yesterday at $101. This not gloating as cost was about $106…just being thankful!  

2. Currencies: after a good run from 77.69, last Thursdays low, the Dollar Index ran to an 81.62 high on Friday and is now in its second straight inside day and showing weakness. While the Yen is strong, the main reason has been unwinding of ‘carry trades’ which has now abated (coinciding with the decline in stock options volatility). It bounced off the highs (low in number) of last Wednesday (87.15) and is now 90.07 leading some to believe the carry trade is back…some say the carry trade has now moved to the dollar! Meanwhile the British Pound is trading at a record low against the Euro (since inception 1/1/99). Like with TIPS it appears that positions are pretty much squared for yearend.

3. Commodities: The Goldman Sachs Commodity Index is at a four-year low while the CRB Index is almost at a seven-year low! This is a reaction…over-reaction?…to the ‘induced’ rally from March to July by massive inflows to commodities index funds who then engaged in commodities swaps with our wonderful banks who in turn ‘hedged’ by buying the contracts…without limit…which singlehandedly created the inflation scare and caused energy and food prices to destroy the growth in the world economy…TB kids you not! We all know that this could not have come at a worse time as over that period, despite an easy Fed the 10 year treasury note went from 3.40% to 4.20% before falling to a record low of 2.08% last Thursday. Nobody asked why this was happening and why with the inflation levels we were seeing bond yields didn’t rise much further than they did. That is artificiality…and remember we have been in a credit crisis for a year and a half! Energy prices are now plunging and the veteran oil analyst Charles Maxwell said this morning on CNBC that he would not venture a guess how low oil will go or when it would rebound but noted that 20% of the oil now being produced is at a loss! Yet what is the alternative for the oil producing nations? Maxwell sees $50 oil as best for everyone. Note also that the crude market is in a major contango with December 2015 trading at $30.50 more than the front contract…that’s $71.42! Gold has not proved to be the protection the gold bugs believes it would be…declining from $989.60 on July 15^th along with all other commodities to a low of $681 on October 24^th. It has since rallied but after crossing the 200 day moving average on Dec 17^th ($866) and closing just $1.50 above it, it has declined again (along with the dollar’s rebound) and could retest the lows.

3. Stocks: pretty much covered at the opening but there seems to be no energy left in the bounce…don’t call it a rally, it is merely a bounce and TB has repeatedly warned what has happened at the end of each of the last four quarters…including yearend 2007. With redemptions from hedge funds and mutual funds running high there is no reason to believe this yearend will be any different…so expect a retest of the lows by early January. This, by the way is counter-intuitive since it is not in anyone’s interest to take the market down at yearend which reduces already weak fee income, but yearend for hedge funds who, due to their leverage close their books on the 26^th (last day for T+3) settlement this year, they can sell with impunity. Can’t say it will happen but that is how TB is playing it. Of course there are individual stocks that may be able to buck the trend but you better be pretty sure they can…for certain: don’t buy index funds here!

TB hopes the summary today was of use to you. There are far too many crosscurrents to make this a great buying opportunity. The Madoff affair…more companies tapping the TARP (GE and CIT are the latest along with scores of banks…real banks), and everyone and their mother…latest being homebuilders, who helped cause the mess we are in…are now asking for help…where will it end? Oh, and there is a story on how Milton Friedman’s legacy and the cornerstone of the University of Chicago School of Business – free market capitalism – is falling apart. There was simply more greed than he imagined and now we are all going to pay for it for years and decades to come.

Hope your day goes well…only one more shopping day till Christmas!

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 December 23, 2008.

…that is how the markets are trading…even the options expiration last Friday. Boring. True, volume was a healthy 2.45 billion shares but almost 600 million was on the close and 950 million in the final half hour…so the only other surge was on the open with 800 million shares in the first half hour! Despite the mixed close with the Dow closing -0.3%, all other indices were up, except NYSE Energy, although Oil Services rallied 2.3%!(-0.8%), and the AMEX Composite (-0.9%) with the stars being the Nasdaq 100 and the Russell 2000 small cap, both up more than 1%. Specifically, tech was the strongest sector with MS High Tech +1.2%, the SOX +1.7%, Computers +1.3%; Telecom +1.7%, and the average of the four Internet indices +1%. Housing stocks were the big loser, -2%.

But the surprise was that even with a mixed market both volatility indices declined over 4%. Since breaking through the 40 day moving average on Dec. 5, the VIX (S&P 500 options) is down 31% and down 50% from the Oct. 24 record high, the VXN (NDQ 100), is similar. The close on the VIX Friday was 44.93 while the 200 day is just 10 points lower. But putting this in perspective, prior to the market peak in June the range over the past five years was 10 to 20, while in July and August it was 16 to 38 – very high by historical standards. Then in late August, it began to spike rapidly hitting an all time record of 89.53 on Oct. 24, basically saying everyone wanted put protection and nobody was buying calls. So while the drop is impressive, it could mean several things:

*position squaring ahead of liquidity drying up, and/or yearend

*conviction that the worst is behind us – not bullish but at least the volatility is gone

*massive redemptions causing deleveraging of hedge funds eliminating the need

TB’s best guess is that while a bottom may be in the lack of options volatility does not imply the dawning of a new bull market and more likely going sideways in a range unless some major shock occurs. While some may attribute it to Obama’s aggressive stance and Bush’s caving to bail out the auto industry, we might just be seeing a form of insurance. After all, the increase in volatility coincided with the selloff and peaked just at the markets bottomed. So don’t be an eager buyer, be selective and cut your losers. Value and dividends continue to be the theme…if you are looking for strictly capital gains you may have a very long wait and much more pain.

Besides volume and volatility, TB also considers advance/declines and breadth which are still not great shakes on the upside and are overpowered on selloffs. Even more compelling is the ratio of new 52 week highs to new lows which, despite new lows falling to just FOUR last week, is still overwhelmed by new highs which have fallen from around 1500 on the peak selloff days to 166 on Friday, still produces a negative ratio of about 11:1…and this is worth watching because there have only been a couple of positive days in the past year and both were reversed in the next day or two. So remain bearish! One other thing is that corporate earnings and earnings estimates will continue to fall – even if and when we come out of the recession and that has traditionally caused a second selloff in stocks as the price (P) must come down to the earnings (E), if the value is to remain. Also, we have no idea of the impact on earnings of financial stocks due to accepting the TARP money…the government is running the show…devil is in the details.

TB has received numerous emails in support of his complaints about the biased and nonsensical reporting on CNBC. So he decided to do something about it and wrote an email to GE, which was received and acknowledged. Here it is in entirety:

A note to Jeff Immelt on CNBC…dump it!

If that sounds harsh it is because your reporters there have become a bunch of primadonna’s. Their egos far surpass their expertise in finance yet they spout off as though they know the answers, especially when you have panels and a shouting match ensues. The lack of professionalism is appalling. Fot that reason, as it is detracting from the professionalism of GE, it should be sold so you can focus on your primary businesses.

Talk to anyone and you will hear the same thing: they act like a bunch of arrogant immature kids, and now that we have to listen to their biographies every day it is unbelievable how egotistical they are becoming. Here is why:

1. Mark Haines introduces his segment each morning with: “from the financial center of the known universe.” Your broadcasts are heard in Europe, how arrogant does that make Americans sound?

2. Constant references by all to ‘the mother ship’. This too is publicity GE doesn’t need.

3. Continual references to France as socialist, the socialization of America when the only alternative was a global financial system collapse yet your people act as if they have all the answers…the problem is that each has his/her solution which is different from the others. How wonderful to be so much smarter than the Fed and CEO’s.

4. Almost single-handedly Larry Kudlow is converting CNBC to the FOX network. His neoconservative views trump everything and I believe he is the spearhead of the socialist comments. His one attribute is the ability to have interesting guests, but his politically skewed views on everything is so far to the right as to offend a large number of viewers. That was alright until the past couple of weeks when he began to shout during discussions drowning out anyone with an opposing view…witness his reference today to the auto bailout plan by the Bush Administration (who he used to adore) as a “pooper scooper plan”. He didn’t say this once but at least a half dozen times while drowning out everyone else.

Kudlow conveniently forgets how wrong he can be. How in August of 1987 he declared subprime loans blown out of proportion as they were just 5% of total mortgages…ignoring that about 25% written in the prior year were subprime. He also declared that the “Goldilocks” economy was strong…then months later said we might see a slight recession and don’t worry about unemployment. Had he had his way we would be in a Depression by now as he is opposed to any bailouts…the rest of us hate them but it is his party (GOP) that neglected to enforce any regulations, again as Kudlow favors, thus letting corporate greed take over and risk destroying the global financial system.

4. Kudlow’s acolytes are Michelle Caruso-Cabrera and Charlie Gasparino who continually deride the Democratic Party as the cause of our problems even when Steve Liesman tries to get them to stop making foolish statements. Then there is Dennis Kneale who is pompous, arrogant, and obnoxious…ask around. Cramer? I will give him smart but he is no guru and is influencing unskilled investors as if he knows for sure…but the blowups prove him wrong. He also told everyone to buy stocks all the way down.

6. A constant stream of advisors is introduced saying ‘here is someone who will show you how to make money in this environment’, when all they are doing is talking from position and the opinions tend to cancel each other out. Nobody pays attention. Now the anchors have this ‘around the horn’ approach where they claim they are a dream team but fall way short of that, especially by their incessant bickering…how do they get CEO’s to say that is where they get their business information in their commercials? They look stupid saying so.

7. Positives? UBS’s Art Cashin, Rick Santelli (although he has now joined the screamers and is not nearly as useful as a result). Your star is David Faber who no longer mingles with the rest but does good research…what we watch to see. Maria Barteromo does excellent interviews while Sue Herrera is great at relaxing guests so they can make their presentation (she does not join in the shouting matches). You are losing large numbers of viewers to Bloomberg and if they ever get their format right you will lose more, it is simply too difficult to follow markets there, but the markets are the star, not their reporters…as it should be for a financial network.

While I find Fast Money occasionally interesting one baldheaded chap who you will know is obnoxious with his know-it-all, talk over everyone ways too. Ratigan does a good job however of moderating, but is the show really useful to investors?

I was impressed with your analysts meeting where you accurately described the companies problems and laud you on not providing anymore guidance…we need more Meredith Whitney’s, not a cluster of analysts all around the same number. But I am selling and advising my clients to sell GE…the common, while I do still like the preferred…because it is cheap, and also your bonds. You need to get out of broadcasting and focus on your main businesses…this is not the era of conglomerates, focus on what you know…how to run an industrial and financial company…let someone else lose their reputation by laying claim to CNBC.

You can ignore what I have to say but I can assure you that among investment advisors I am not alone…CNBC is a joke to all…except those who go on their to preen or promote themselves or their firms. I wish you great success with GE, but sadly it will be without my, or my clients buying your common stock.

How they can allow a subsidiary company to report so irresponsibly is uh, inconceivable.

…“it was clear as mud but it covered the ground and the confusion made the brain go ’round…” –  Man Piaba, words and music by Harry Belafonte. Day-O!

We have a lot of material to cover today folks, so let’s get to it. First, the dollar has given up all its gains since September 29 and the Yen is fading from a 13 year high since Nakagama says the BOJ will do what it has to do meaning a possible rate cut or selling JGB’s to weaken the Yen, their rate might also approach zero. Meanwhile in Europe, Jean-Claude Trichet says he thinks that Europe is in a better position than the U.S. He is alone on that thinking by the way, but they are definitely better than the UK where Sterling has fallen to a record low versus the Euro since inception on 1/1/99. Gold of course is benefitting and at $874.50…right on the 200 day moving average…respect a close above…or below it! Poor Crude and other commodities are not benefitting from the weaker dollar though and Tin has now broken support.

U.S. bonds continue to rally sharply and the 30 year TIP yield has fallen to 1.85%…that is a rally of 28-1/2 points just since 11/24…an incredible move and ultra overpriced! How low can it go? Nobody believed long Japanese Government Bonds could fall below 1%, but they did and are still yielding just 2.08% while the 10 year is 1.25%

But not to worry we are told as the U.S. is no Japan…we are a nation of consumers, the greatest the world has ever seen. But the bubble on that appears to have burst. We have far too much personal debt (not to mention government debt and corporate debt) to be able to continue to consume as we have…not without the engine of housing appreciation, low interest rates (and TB does not mean Treasury’s), and easy credit. Read the interview with Stephanie Pomboy in Barron’s this week. She is a credit specialist and incredibly perceptive. No more will we have the easy money policies of Alan Greenspan that helped create this mess.

Obama just appointed Mary Shapiro to head up the SEC, replacing finger-pointing, sit on his butt Chris Cox…and not a moment too soon…wish she could do it now! Shapiro headed the CFTC under Clinton and was an SEC lawyer…see where this is going? You can bet that the CFTC (Commodities) will be merged with SEC post haste. After all, it was the CFTC who allowed those commodities swaps to be written by the BIG BANKS who were then able to buy unlimited amounts of commodities…unlike any other group, commercial or speculator and THAT, not increased global demand or dollar weakness  which was shoved down our throats, is what drove commodities prices to record levels…especially energy…how about this: the average daily volume of crude futures this year is 15.8x greater than average daily consumption! Get it? We were had and we let JPMorgan, Citi, and others profit while shoving the entire world into recession or worse…where is the outrage…why is nobody but TB writing about this? It is sick!…and guess what? The driver of those swaps was pension consultants telling public pension funds to put their money into commodities which like the sheep they are, the did! About $60 billion which is small in equity standards…that money started hitting the commodities index funds in late March…golly gee…just about when oil, gold, etc. started to rise…and guess what the index funds did since position limits prohibited them from buying as much as they needed? They entered into commodities swaps with the aforementioned banks…lovely! Meanwhile the CFTC sat there and allowed it to happen until they finally realized as much and TB surmises, told the banks to cease and desist. So about that time prices peaked, and then plunged…isn’t it amazing what three months of huge increases in energy can do to inflation and drive the world into the tank? Damn!

Now, energy is plunging, gold is attempting to rebound and we are about to see if it is real or Memorex while the Russian currencies are plunging as are the Baltics which is negatively impacting the Scandinavian  banks who eagerly bought their currencies. Oh, and Atlas Shipping, a private company, filed for bankruptcy overnight, might there be more? Well, it is being helped now by everyone using tankers for storage tanks but if crude breaks $40 there will be a fight to exit and that could really hit hard.

Also hearing overnight that Paulson may tap the remaining $350 billion of TARP funds and that Obama’s stimulus plan may top $800 billion…now unless you think these fools are over-reacting, aren’t you over-reaching if you think now is the time to buy stocks? We are in for a long, slow recovery…and that is the optimistic case! So stop listening to money managers on CNBC talking from position or who have billions to invest and thus cannot wait for a bottom but have to try and anticipate one! Unless you by 50,000 share blocks, relax you have plenty of time…but if you do want to buy you might want to consider sound preferred stocks selling at discounts…and not convertibles!…or…dividend payers of 4% or more with the earnings cushion to continue to pay them…TB favors the preferred’s except for the cream of the crop companies, like Caterpillar. TB considers Johnson & Johnson, Procter & Gamble, Kelloggs, etc. sound companies but far too rich…too small a dividend and too high a p/e for what we face.

A hint TB learned in the 1998-2000 stock market rally: in a bull market, the 40 day moving average makes for incredible support, but in a bear market as we are in now it makes formidable resistance…witness the past seven days of trying to get back above it for the firs time since early October. In fact, since the Dow peaked it has only traded above the 40 day for three brief periods and now is the first time since September 19^th where it did so for just one day and closed below it then….the last time it was above the 200 day was another one day wonder on May 19^th. So unless you believe everything’s coming up roses for the economy, you might want to heed that advice…especially with the final options expiry of the year coming tomorrow and Dec. 26^th last day for T+3 settlement this year…we may not see new lows…yet…but we could in January or at best remain trapped in the same range since Oct. 9^th of 7450 to 9650 but mainly 8000-9000.

TB is no guru but he believes this to be the case…so think…it’s your money!

TB’s Quote of the Day: “Any CEO who is worth his salt will diversify as much as possible.” Man on the street in commercial of an energy company. Obviously not one of those who invested with Bernie Madoff

…necessarily. Let’s say you notice your tire is going flat…first you jack it up and the leak slows or may even stop. Then you insert a plug into the hole…assuming you can find it. Now, if you take it off the jack and drive off what happens? You ruin your tire! That is because you stopped the deflating…in two stages, first by removing the pressure, and then by plugging the hole. But you lacked air…something to pump back in. Note that whether you drive it without plugging the hole or continue to drive after plugging the hole the result is the same: the tire is destroyed.

Yesterday, the FOMC in an unprecedented move cut the Fed Funds rate from 1% to a range of 0-0.25% and said they will “use every tool at their disposal” to fight the recession, now entering its second year. Also, the announcement came as late after 2pm EDT (about 2:20pm) that TB can recall…either a big battle for consensus or trying to prove that they spent a long time deliberating. The action was greeted by glee in the bond market and the stock market. One of them is wrong…dead wrong.

Consider that we are in the greatest financial deleveraging in history, that consumer and investor confidence are on the skids globally, that all of those brilliant financial derivatives as well as the worst of the subprime mortgages originated right here in the good old US of A! As if things weren’t bad enough with mutual fund, hedge fund, and private equity investors trying to pull money out as fast as they can…further deflating equity valuations…along came Bernie Madoff. As bad as it is the worst is yet to come: further declines and in some cases decimation or worse of charities and foundations, and worse, a further loss of confidence in investment managers…and hedge funds…for their stupidity in not kicking the tires, performing continuing due diligence such as asking how he was obtaining those terrific consistent returns instead of settling for “it’s a black box”, which can resemble a casket (this is not to be confused with Jim Simons, whose Renaissance funds are strictly black box, unfettered by Wall Street brains and who has posted double digit returns for decades). There is a total lack of transparency, honesty, integrity, and sadly those who act responsible as money managers are suffering too.

So the Fed is now pushing even further on the string. No doubt it will stem the deflationary aspects but can they truly reflate? TB thinks not…at least until investor confidence returns and Madoff set that back immeasurably. Banks do not trust one another, dealers do not trust one another, investors due not trust their money managers. So unless the Fed can restore ‘trust’, it cannot restore confidence and we will continue to languish at what appears to be very ‘cheap’ prices for stocks…but beware of lower earnings going forward and if we cannot get off the bottom first we will see new lows.

There was one very positive note yesterday and it came from Geoffrey Immelt, CEO of GE. He said that he would no longer provide quarterly or annual guidance on revenues or earnings! Good for him…finally someone willing to make analysts work for their money. Perhaps he got the idea from Meredith Whitney, who it appears is the only thinking analyst remaining on Wall Street! TB has long suggested this because guidance causes ‘clustering’ of earnings estimates in a relatively tight range…hedge funds love this because they can make a ‘bet’ on an earnings announcement…thus the sharp selloff when a company misses by a penny…or even makes the estimate these days. A wider range means that more offsetting bets will be made, allowing the news to be absorbed.

On CNBC, just before the announcement PIMCO’s Bill Gross, along with others on CNBC, said they will likely start buying bonds (massively) but he thinks in the 3-7 year range…that is because after Volcker’s run on inflation, Gross made his reputation by buying the five year treasury…the reason being that they had to recapitalize the banks and by driving five year yields down, banks could do so easily. But there is a big difference today: first, the banks have already tapped the TARP, and furthermore with FDIC guarantees on their debt are issue 2,3, and 4 year debt at Libor plus 65 basis points, or fixed at less than 3%. The others who didn’t make their reputation the way Gross did, said to sell bonds. Well we had a huge rally in bonds with the 30 year up 3-1/2 points, the 10 year up 2-1/8 and even the 5 year up 13/16 to a 1.32% yield. 2’s and 3’s rallied much less but their yields fell to 0.65% and 0.89% respectively…imagine having to go out four year or more to earn 1%!

But the weird thing is that TIPS rallied too…in a deflationary environment and after we just saw a 1.7% decline in CPI, the biggest decline in the post WWII period! iShares on the TIP ETF had already suspended the dividend for a second month due to declining ‘inflation accurals’, and they will be not only negative in January but will more than offset the interest accruals! Is this a good reason for a rally. About a month ago, the yield on the 30 year TIP was over 3.25%…on Monday it closed at 2.31% and last nights close was 2.02% (that was a rally of almost 6 points!). Is this rational? Maybe for five or ten years but like stocks: does that mean you need to buy it now?

Commodities were mixed with the only moving sectors (>1%) being Grains, Precious Metals, and Livestock, while Industrials and Soft Commodities were down by 0.7% and 0.3% respectively and Energy was up but just 0.7%. This despite a huge decline in the dollar meaning economic fears trumped currency concerns.

The Dollar lost against all major currencies and fell to a 15 year low versus Yen. The Euro gained 4.25 cents and Sterling 3.05 cents…both huge moves but the gain in Sterling still pushed it to a record low (since inception 1/1/99). versus the Euro  More to come!

Now what you all want to hear about…stocks! For a seventh straight session, the major indices fought the 40 day moving average after the setup to close just below it a week ago Monday. Like Tuesday a week ago, yesterday spiked right thru it on all major indices, so it must be good right? Wrong! Stocks are so weak that the 23.6% retracement from the cycle lows of November 21 is still much higher and it is inconceivable that we will take it out. IF we had a chance it would have had to be on the rally a week ago. Overnight Globex stock futures are off significantly…about a third of yesterday’s rally. Here are the levels to watch:

                                                Resistance        Support

                        12/16 close      23.6% Fib        40 day

Dow 30:           8925                9042                8557

S&P 500          913                  938                  889

Nasdaq 100     1243                1307                1209

Russell 2000     482                  486                  422

Those should prove to be formidable resistance given the liquidity drying up and the continuing deleveraging…no doubt redemptions increasing thanks to l’affaire Madoff! Also note that 20% is a very good countertrend rally…to expect more is wishful.

A last comment on Bernie Madoff…investors may have lost $50 billion…but TB agrees with Vanguard founder Jack Bogle, that Madoff did not ‘make off’ with $50 billion. TB believes it wasn’t originally a Ponzi scheme but merely an ill-advised strategy that once it began to fail it turned into a scheme…like the employee who takes money, fully intending to repay it but the amount becomes so large he becomes an embezzler…in for a dime, in for a dollar. Bernie, no doubt paid himself well, but most probably vaporized – to margin calls or worthless options. Yesterday, we learned he is trying to get released on $10 million bail but needs two people to vouch for him…due to the severity of his crime and the flight risk/suicide risk, he should remain in jail…and rot there!

Hope you have a good day in the markets…and in the real world!

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 December 17, 2008.

Bloomberg Quote of the Day: “Delusions of grandeur make me feel a lot  better about myself.” – Jane Wagner.

…the Grinch who stole Christmas…and Hanukkah….and Kwanzaa! Virginia now knows there is no Santa Claus as do a whole raft of ‘savvy’ investors, right? He told him he had a ‘black box’, and guess he would have to kill them if he told them how it worked. If one investor pulled out he just went to another hedgie and said he was going to open it to them so they could put in more…what a guy! …and they bought it! You sure don’t get much for 2 and 20 these days or 1 and 10 but what were you doing at the discount window. The beauty of the funds of funds is the fees are lower as you can see but the diversification really makes it safe…until it isn’t…and it wasn’t. Bernie should have a movie made about him…too bad Weekend at Bernie’s was already used…perhaps The Deal of a Lifetime at Bernie’s? Anyway, he put a pall of gloom on the markets somewhat do to the fact that he supposedly used options and Friday is Grand Ole Expiry. The best part is nobody was watching him…nobody knew how the ‘black box’ worked…and UBS Head Floor Trader Art Cashin says he never declared owning more than $1 billion in securities. Now tell me this: how could any rational investor give money to one man who won’t tell you what he is doing and nobody who works with him does. Let’s just assume he was legitimate, which he definitely was not…who would know what his positions were or how to unwind them…something smells here and when you have most of your family working for you one has to wonder, no? One better wonder. 2009, The Year of the Lawyer…surpassing even the wonderful 2008…they must be the only ones throwing Christmas parties these days!…and Wall Street thought they were the dumb ones letting the guys in the flashy braces (or Bermuda shorts if it’s a hedge fund), make the money. Not any more, Virginia…not any more!

Wonders never cease…SIPC is going to guarantee investors accounts up to $500,000. How many will come out whole? Not many IF any!

Believe it or not, TB firmly is in the camp that the Madoff scandal could signal an end to this mess. Finally, it has hit someone that most of us can identify with: university endowments, charitable foundations, banks, an insurance company, hedge funds…Man Group PLC, Access International Advisors, Fairfield Greenwich Group; Fix Asset Management (some not well diversified either), banks ‘savvy’ investors including a U.S. Senator’s (Lautenberg), Steven Spielberg’s, Mort Zuckerman’s, and Carl Shapiro’s charitable foundations and the Elie Wiesel Foundation for Humanity, wealthy people who invested without their knowledge through highly paid money managers, and yes, even retirees. It has now come down to the least common denominator. One has to think that Madoff, as prominent as he was in New York and Miami circles, would have been a philanthropist at least in the Jewish community. But looking at who was scammed whatever he might have given had to be a mere pittance from the guy who made Ponzi look like a piker!

But why a bottom? Well, not necessarily a bottom but the ‘revulsion’ stage has set in. Utter disgust at the greed of people and and it began to come out yesterday, even on CNBC. When charitable giving will be down sharply…in a recession where it was already going to be much lower, along comes this slimeball and takes even more away, and for what? Ego? What was the driving force behind him? Nobody needs that much money…and to do that with your friends and associates is unbelievable. So we have reached a low…we ignored the fact that our brokers, insurers, mortgage lenders…including some of the top banks in the country failed us…miserably. We doled out money to rescue them without asking for retribution or even an act of contrition (except the automakers who must be very low on the pole these days for supporting Congress…why else single them out after they did their bidding for decades?).

Anyone who reads this column knows TB has no use for Larry Kudlow and in fact believes his elitist views were part of the problem that created the huge wealth gap. They also know that TB views Jim Cramer as a buffoon and a blowhard…not to say he isn’t a smart if eccentric blowhard. But Cramer is more and more preaching the gospel according to TB. First it was his damning of the SEC and especially Chairman Chris Cox, for failure to prohibit ‘naked’ shorting and for not seeing what was being caused by eliminating the ‘uptick’ rule (when instead he should have put some teeth in it), then it was his embracing dividend paying common stocks and even preferred’s and sometimes even a positive aside on bonds…something TB has been screaming about since before the peak (unfortunately even preferreds and sound dividend payers have been trashed along with those great ‘growth’ stocks…much of which was accomplished thru massive record stock buybacks).

But before TB accuses him of stealing his ideas, Cramer has a new enemy: ETF’s that leverage long or short positions against the indices…once again blaming, and rightly so, the SEC for failure to see the damage they could cause to the system. Lest, TB be accused of becoming an acolyte however, TB felt his relentless bashing of Bernanke for, in his opinion, mishandling the credit crisis, “he knows nothing”, and his scare tactics of “we are going into a depression”, which he has since modified and which was in itself a modification of his ‘buy, buy, buy’ all the way down saying “you can’t make money unless you have skin in the game.” The man is dangerous but at least HE is now sounding the alarm and has been, to his credit, doing so for months. What he fails to see is the impact of the biggest deleveraging in history and how that impairs any bull market in equities for years…possibly decades (same goes for real estate which has historically grown at the same rate as the economy).

Last night, Cramer read from a list…too quickly for TB to catch the specific figures…that he obtained from someone working at the NYSE that proves that both the uptick rule and naked shorting were the major cause of the implosion of our financial system. It appears that at a minimum, 50% of the trades in the financial stocks just as they were imploding were shorts…the average appeared to be about 70% and some were as high as 90%. He pointed out that some of those shorts were by brokers to make markets (or as he said some to front run customers), but on down days….which were the ones they obtained the data from…they should have been buying! Cramer concluded, and TB concurs, that the massive damage and near destruction of the global financial system was done by greedy speculators without regard to the damage they were doing to economy and it is little consolation that there own wealth is now, finally, being diminished (to TB this started with Soros being a hero for shorting the pound to ‘help’ the Bank of England realize the error of their ways?…and this all happened on the watch of Christopher Cox…including Madoff!   

Without the catalysts of Alan “leave the punchbowl in place” Greenspan, the phenomenal growth of credit and hedge funds, the booming real estate market in the wake of the Dotcom bust, and unilaterally trained quants and MBA’s, plus the accompanying massive income increases of the top 1% or so of Americans while the lower 90% went nowhere – for at least 10 yrs and arguably much longer (the top 10% stopped at $100,000 in 1981 and has scarcely budged since…which is a big negative after adjusting for inflation, thus average income has become a total farcical joke!), we could not and cannot have rapid growth. Meanwhile, the ‘dumb’ lower 90% just kept borrowing on credit which the bankers and credit card companies were only too willing to accommodate…do you see where this is going? Until the lenders can rebuild capital they cannot lend aggressively, and that lower increase in loans means profits will grow more slowly…especially since they have to repay the Feds for that TARP money.  

The obvious answer of repaying loans can only inflict pain as it further curtails spending (you don’t really believe there are going to be pay increases do you?), and thus slows consumption which is running more than 70% of GDP. You do the math! See, there are no simple answers…and without Wall Street and hedge funds leveraging themselves to provide product…to a depleted class of investors…growth will be further impaired.

Rapid inflation is a bad thing…some inflation (as opposed to deflation which is bad), is a good thing…you decide where we are on that metric.

But it appears even the ‘experts’ are becoming skeptical of how cheap stocks are. First, while some p/e’s look cheap, that is on the assumption that even trailing earnings levels can be supported which TB doubts. Schiller recommends using 10 year trailing earnings but depending on the company that might not be enough. TB would urge you to look at dividend paying securities and not count on growth! Those dividends re-invested in other cheap securities might be able to work you out of the whole. But beware of bonds as the ‘yield to maturity’ is based on reinvesting the coupon income at the same yield over and over until maturity so if rates stay down for a long time period you might not get what you think you will earn…that is the same problem that we are faced with when rates peak as they did in 1981 and the only bonds that could deliver the promised returns were zero coupon bonds…and only if those were in tax-advantaged accounts since you have to ‘accrue’ the income and get taxed when you have no real income which can be painful.

Beware of those talking ‘averages’ here…or anywhere for that matter” the average length of a recession, the average duration of a bear market, the average lead time between stocks bottoming and the end of a recession…the list goes on and on. We are in a six sigma event…something that is ignored… just as the “quants” ignored the possibility of all those variables coming together at one time…but they did and now we are paying for it!

You have to love this: CNBC is going to have a special: Inside The Harvard Business School…do you think anyone is left there? How timely: many of those who have just shafted us graduated from there…or some other highly esteemed edifice of learning. Some students might consider enlisting in the Army and requested Afghanistan so they can get some useful experience on their resume’s (it is sad and a lost opportunity that Dubya didn’t ask people to do something other than spend in the wake of 9/11…if he had we might not have gotten in this mess…emphasis on ‘might’). Hopefully, a lot more people who are just in this business for the money will pursue other interests or better yet do something to make the world a better place!    

Hopefully, you got some value from this…if not insight…at least something to make you think about the issues here and that if you invest in your old style you are not only unlikely to do well but even worse to regain a significant portion of your investment losses. Please think long and hard about how you invest and who you invest with!

Color TB disgusted!

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 December 16, 2008.

Joke of the day: “Dubya was talking with friends and when asked what he that about having a ‘car czar’ for the auto industry: ”I thought he was President of Afghanistan?” – Jay Leno

Comments on the markets last week follow the first part of the commentary. TB

…who was the man impersonating John McCain for the last six months of the election? Well whoever the man was he is gone and Mac is back…sounding like his old self and looking rested. TB believes he will be a lot more useful in the Senate than Obama would be, whereas Obama will be immeasurably more useful as President. Would an incoming McCain have been able to do what Obama has already without drawing the ire of the GOP? Thankfully something is being done before the elections and McCain seems to have signed on board…goodbye to the Rove, Palin wing of the GOP…hopefully. It is time to do what Bush promised us eight years ago and promptly forgot: to bring people together. History will not treat him lightly for that and it will go even harder on Cheney and Rumsfeld. The damage those two have done to America, both domestically and abroad cannot be overstated. End of story.

TB’s take on the bailout: The indignant GOP Senators (some from states with Japanese automakers), was a sham. First, Paulson says no to TARP money…it wasn’t intended for that purpose which is interesting since he has had no problem dispensing it (without concessions or accountability…especially to Citi…and worse refusing to disclose where it went…amazing that trillions of dollars of loans and guarantees don’t have be accounted for to the taxpayers). THEN, Dick Cheney, such a lovable man, tried to persuade the GOP Senators that they must do it…they balked. NOW, the Administration, not thru their Treasury Secretary, who they have been content to let run the show, says that TARP money can be used. If this is starting to look like a sham to you, you are not alone…that is exactly how TB sees it. How about this: we are further along in the year yet the auto makers lowered their request and Ford withdrew their request. So now they need just $14 billion…of course they will be back. But as George Will pointed out yesterday, there are 3,000 parts suppliers affected who alone are owed $13 billion! This is because they are, or at least were, paid three months in arrears by GM and are now demanding payment with orders. It is those 3,000 companies that TB worries about, not the Big Three. Think how many people that would affect both directly and indirectly…we cannot risk that. So TB says, disburse the $13 billion directly to the suppliers…now…then have the automakers requisition payments to them going forward…that way it gets to the right place. Any thoughts? In defense of the banks, one enlightened individual on Meet the Press said the banks are the villains as they won’t lend to the Big Three…well if Cerberus won’t give any more money to Chrysler…and the money the banks got from the TARP has to be repaid at some point in the future…would you lend to this ship of fools? Not TB! TB doesn’t claim to know what the answer is but he does know that what we are attempting will be a spectacular and expensive failure!

Bernie Madoff…front and center. This is a failure…a failure of him to take his fiduciary duty as an investment manager not only seriously, but to defraud his investors. A failure of investors (TB loathes the term savvy investors as it always seems they are the ones who come up with egg on their face), both individuals and professionals including we are learning, hedge funds, banks (especially Banco Santander, who it had appeared thus far could do no wrong), to do their due diligence…and those who did and wrote the SEC but were ignored (after all he was a former President of the NASDAQ), making the SEC once again the biggest offender. Investors deserve much more from a government agency charged with protecting investors to maintain orderly markets. A travesty.

________________________________________________________________________

Enough of this, now let’s look at last week’s markets:

What a week it was too. Focusing on the Dow Industrials, Friday Dec. 5 was a key reversal, normally a sign of a very strong market (yet readers know that the track record for these moves in this sick market has been not only abysmal but has created bear traps). A reversal is a higher high and lower low than the prior day (an outside day), plus a close above (or below) the prior day’s range. Not only was there a reversal but the close was 60 points above the double top created on Wednesday and Thursday which should have created strong resistance, especially after the weak open and low that was 250 points below the prior days close and 130 below the that days low! What’s more it followed a jump in the unemployment rate and a loss of 1,250,000 jobs in the past three months alone! Pray tell: in what hell should this produce a major rally?

Monday was even more difficult to understand as we tacked on another 300 points despite gruesome descriptions of the economy over the weekend. Nevertheless, we accomplished one thing that they failed to do on Friday: the intraday high had been 8,686, while the 40 day moving average was at 8,701. Monday’s close however, eclipsed it with a run to 9,026 before finally settling at 8,934 or 221 above the average!

Ahem, now for the rest of the week which had a lower high each and every day, and a lower low every day except Tuesday (which only missed by 15 points but was also a meaningless inside day), and every day including Monday had a low below the 40 day m/a. Friday’s high, 8,683, was just 10 points above the 40 day and then they took it down, only to feebly recover on the close. That does not bode well for today, or this week with Friday’s options expiry, the last of the year and a quadruple witching. No, Virginia, Santa Claus is not coming this year…only Ben Bernanke and the Fed and a likely 50 basis point, pushing on a string, rate cut tomorrow. Isn’t it nice that the Fed and the Treasury are providing all this cheap capital to the banks yet it is doing nothing for lending, which is in fact becoming even tighter! It is more like trying to move mercury with your finger as it envelops it…and therefore it is toxic too.

The other indices fared poorly too all struggling with the 40 day, while only the extremely weak Philly Semiconductor Index managed to close above it on Friday, but don’t bet on follow-thru there!

Bonds continue to be nerve-wracking. You can make or lose a point…two points…in minutes…and now they are talking about it being in a bubble stage (David Rosenberg of Merrill), TB agrees it is but look how long the equity and real estate bubbles ran…they run…until they don’t.

Commodities are weak and can be expected to do worse. Gold, despite a valiant attempt to rally significantly last week failed, while Crude is going nowhere (can you raise prices by storing oil in tankers when the entire world knows you are doing it?), and the only thing of interest there is the spread to the long dated contracts. A year ago they were in backwardation which is normal (the longer contracts trading cheaper than the front end), while we just came off a record high spread, contango of $40 and even with a backup late in the week, the December 2015 contract (the longest with any significant open interest is $31.50 above the lead contract: $77.81 vs. 46.28??? Obviously, this implies that oil prices are way too low but it gives us no clue as to how low they could go or how long this situation can last. Furthermore, the lessening of the contango reflects the cost of maintaining this bet…good luck.  

Currencies are very strange: there is now talk with U.S. rates so low of a ‘dollar carry’ trade replacing the ‘yen carry’ trade as the low cost provider! The deteriorating British economy has pushed the Pound Sterling to a record low against the Euro! Wow!

More on real estate: if you recall my email exchange with my friend in L.A., the foreclosure specialist, where he saw the bottoming in real estate prices around mid-year and then a return to 2006 levels. I challenged that assumption and this was his reply with a frightening follow-up:

I may be wrong on the 3 years returning to 06 prices but they will be going up.  The feds are forced to push the prices up so not to hurt the people that are paying their mortgages.  If prices remain flat that means that there will be more short sales and more foreclosures and the lenders will all be upside down more so than now. There will be a lot more than 700 trillion dollars. 

To make matters worse the city of L.A. is trying to put foreclosed SFR under rent control.  I addressed the city council last week and explained what it would do to lenders and values of properties.  No lender would want to put a loan in LA City especially if the owner decides to make that house a rental. 

Rent control on foreclosed homes…now that is a great idea when you are trying to put a floor on real estate…perhaps the L.A. city council should offer their insight to Congress on the auto industry…

Hope your week goes well for you and that you remember that any liquidity in the markets is drying up by the minute so the market is subject to the whims of the big guys.

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 December 15, 2008.

Quote of the day The Little Blue Engine, by Shel Silverstein:

“With a squeak and a creak and a toot and a sigh,
With an extra hope and an extra try,
He would not stop — now he neared the top —
And strong and proud he cried out loud,
“I think I can, I think I can, I think I can!”

He was almost there, when — CRASH! SMASH! BASH!
He slid down and mashed into engine hash
On the rocks below… which goes to show
If the track is tough and the hill is rough,
THINKING you can just ain’t enough!”

(Note: if you have small kids and read books to them, two must haves are “Where the Sidewalk Ends” and “A Light in the Attic”, hey, you might as well enjoy reading them at the same time they are! TB)

“It’s impossible, tell the sun to leave the sky, it’s just impossible
It’s impossible, ask a baby not to cry, it’s just impossible…”

…so much for impossible…and so much for thinking you can…we are like Humpty Dumpty…unfortuntately we have a whole flock of MBA’s out there who believe ‘they think they can’…actually know they can. Not to disparage the entire group but what is their motivation? To get rich! Plain and simple. Let’s see how many want to get a financial MBA next year…every year the studies show that the herd flocks to the highest paying profession…there you have it. Also, to what do they aspire to? First, it was to work for a major brokerage, now it is a hedge fund…well it was until the past few months.

Yesterday’s sharp selloff…after four days of toying with the 40 day moving averages and finally failing…should come as no shock. What is shocking it that if the stock market is the epitome of capitalism how a failed bailout can send the overnight futures market down over 300 points on the Dow, 34 points on the S&P 500, and 43 points on the Nasdaq! TB can hardly wait for the opening…but then we could also close up 300 points right? Not!

TB is going to go back to his original thesis that the problem with capitalism is that aspiring to become wealthy often falls prey to…capitalist greed…and is for that reason that the private sector needs government oversight…but when the government is in bed with them  through lobbying efforts…what protection do you get?

Take the still emerging story of Bernie Madoff, a former president of the NASDAQ, and money manager who touted a single strike options strategy…whatever that is. How did the SEC miss this: he posted 8% returns for years…steady ones…several angry clients wrote letters to the SEC as far back as three years ago…ignored…after all, he IS Bernie, right? Now investors may be out as much as $50 billion and worse, and this becomes important with options expiry just a week away…a quadruple witching…because those are leveraged positions. It is bad enough to cheat your clients, but to pull money out and then write big bonus checks to employees the night before it broke…saying it is a ‘giant Ponzi scheme…wait a minute…how could they not know? Even at Equity Funding (1973), higher up officials knew they were cooking the books…in fact it was a dismissed Executive VP who told analyst Raymond Dirks about the fraud…again, the SEC did nothing…after all the CEO Stanley Goldblum was well-liked by them…he even chaired a Watchdog Committee that a good friend of TB’s, Don Moulton served on…little did he know! But the SEC prosecuted Dirks for using insider information in his research report…which he sent first to the SEC but it was ignored…he was convicted but 10 years later the Supreme Court reversed the decision…imagine, were it not for him the scam would have possibly continued for years and cost investors millions more.

So amidst all the name calling here are the culprits:

1. Congress…bought and paid for…and don’t you dare say it was Barney Frank and Chris Dodd (TB loathes Dodd but the GOP was the majority at the time), do your homework will you…FNM and FRE bought the Dems in the House and the GOP in the Senate (and they did it through a third party…pullease!)…and God bless him Sen. Phil Gramm…now Vice Chairman of UBS being repaid for his lobbying efforts…Gramm also was the brain behind the repeal of Glass-Steagall…who along with Robert Rubin convinced Clinton to back it. Also don’t forget the new improved Bankruptcy Act that benefited credit card companies and banks…at least at the time…so sorry, boys. Oh, and don’t forget the Cheney-led administration which armtwisted Cox to do nothing for shareholder rights.

2. The SEC. First under Chairman William Donaldson who gave the green light for the Big Five brokers (kind of like the Big Three automakers, right?), to do as they pleased, increase leverage to 40x, no regulation of them or derivatives…and ignored a negative comment on this by the computer programmer who wrote the risk models that all were using…and warned of the danger…ignored. That was in December, just before the affable but dumb Chris Cox took the helm (loosely), obviously advised by Wall Street’s best and brightest.

3. Wall Street themselves! Letting their greed exceed their brainpower. TB believes this would never have happened without the actions of the SEC who fought regulating derivatives, and even more importantly if all had not gone public. As partnerships the partners watched it like a hawk…careful about who they hired…but once it was OPM (other peoples money), who cared what they did?

4. Hedge funds and private equity. An article in The Nation (How Hedge Funds and Private Equity Firms Hurt Us, December11), talks about the enormous losses to university endowments. It cites a WSJ report that of 109 U.S. companies that filed bankruptcy this year with assets of $1 million or more, 67 had been owned by buyout shops or spunt off by them. Cerberus Capital Management looted Mervyns, who is now begging for protection for Chrysler and their half position in GMAC (they also installed fallen former Home Depot CEO, Bob Nardelli as CEO of Chrysler). This is capitalism at its worst. Hedge and private equity funds have produced a “vast misallocation of capital by entities such as the private equity funds.” It goes on: “They are not venture capital enterprises that made bad bets on what seemed like good ideas but free market vampires. They have been able to take over healthy business organizations and ruin them for their own profit and the larger society’s loss.” The hedge funds provided the leverage in other situations both to short companies ‘naked’ and thus force troubled companies, like Bear Stearns (?) out of business…and likely Lehman too.

5. Us! Yep, you and me…for failing to do something about our corrupt Congress…not voting them out and if it wasn’t clear who the villains were after Katrina when ‘some’ wanted to apply the new bankruptcy standards when victims couldn’t get to their records.

There are scores of others however who just keep rolling along: 1. Management Consultants who got CEO’s outrageous contracts with no accountability (golden parachutes, etc.), and non-performance rewards…Sandy Weill did it on his own as Citi was HIS company. 2. Pension Consultants for chasing performance and getting so much of public pension fund money in alternative investments (hedge funds, private equity, real estate), their track record is poor…consider their failure to advise clients to rebalance before the 2000 crash! Then there were the crooks like Madoff…and the fools who believe in people just because they know them and give them access to their money. Would you give your kid full power of attorney over your assets? Yet, people blindly give it to some guy from the country club…guess because he is one of ‘us.’ Never, never give a money manager full power of attorney, and if he asks for it, run! This is not the same as discretion over your account where he can buy and sell but NOT have access to the funds…yet it happens over and over again and makes TB sick! We can find enough ways to lose money for you without taking your cash too! Joke!

So what we have is a nation of people out for themselves…or their ‘class’…like Larry Kudlow and the other supply-siders who are totally ignorant of what is brewing due the enormous wealth gap…we held it together with the artificially strong real estate market but now it is one shoe dropping after the other…where are the safety nets, Larry?

Last night, the Senate effectively killed the auto industry…not that they didn’t deserve it but what the hey…we bailed out the crooks who robbed us in the financial sector and at least Detroit makes something! TB was skeptical at the claimed number of job losses if GM and Chrysler failed. Why? Because a significant portion of those jobs are going to be lost either way as they cut back. But nobody is talking about the effects on other sectors besides automakers and suppliers.

Remember in Economics what happens when a military base is shut down? If memory serves the job losses are about five times the number of soldiers involved who have been servicing the base or whose income derives indirectly from the base (home sales, auto sales, restaurants, etc.).  This is no time to experiment on what happens if we just let them fail…just like the financial sector. We did that once and it got us the Great Depression. TB believes we are on the brink right now…and like then it is of global proportions and mainly caused by our financial sector’s unbridled greed. Good luck.

You may well disagree with TB’s stand. Not only is that your right, TB encourages you to think for yourselves…just putting out his thoughts. Just don’t drink the Kool-Aid!

Can we go home yet? We need to relax to prepare for the FOMC meeting next week and options expiry next Friday! Have fun kids!

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 December 12, 2008.