Traderbill's Financial Markets Weblog

Bloomberg Quote of the Day: “The word ‘meaningful’ when used today is nearly meaningless.” – Paul Johnson

Aesop’s Fable: The Man, The Boy, and their Donkey

A Man and his son were once going with their Donkey to market. As they were walking along by its side a countryman passed them and said: “You fools, what is a Donkey for but to ride upon?”

So the Man put the Boy on the Donkey and they went on their way. But soon they passed a group of men, one of whom said: “See that lazy youngster, he lets his father walk while he rides.”

So the Man ordered his Boy to get off, and got on himself. But they hadn’t gone far when they passed two women, one of whom said to the other: “Shame on that lazy lout to let his poor little son trudge along.”

Well, the Man didn’t know what to do, but at last he took his Boy up before him on the Donkey. By this time they had come to the town, and the passers-by began to jeer and point at them. The Man stopped and asked what they were scoffing at. The men said: “Aren’t you ashamed of yourself for overloading that poor donkey of yours with you and your hulking son?”

The Man and Boy got off and tried to think what to do. They thought and they thought, till at last they cut down a pole, tied the donkey’s feet to it, and raised the pole and the donkey to their shoulders. They went along amid the laughter of all who met them till they came to Market Bridge, when the Donkey, getting one of his feet loose, kicked out and caused the Boy to drop his end of the pole. In the struggle the Donkey fell over the bridge, and his fore-feet being tied together he was drowned.

“That will teach you,” said an old man who had followed them:

“Please all, and you will please none.”

…can you believe it? Rick Waggoner, the CEO of GM driving to Washington, D.C…in a hybrid…as is Mullally. TB has referred to the above fable before, and it is if the Big Three are scripting from it. That is what is happening…sort of…they get jumped on them for bringing three corporate jets to beg for alms at the alter of Congress, so what do they do? Do they fly down in one plane? NO…do they take a commercial airliner? NO…they drive. Oh how TB wishes he could ask a question: Mr. Waggoner and Mr. Mullally, the world is wondering if you think this is a good use of your time in a financial crisis? If you do, get out of here because even the $1 salary you have no agreed to is too much…since you could be replaced by someone with common sense…wouldn’t you love to hear what Lee Iococca would say??? Chrysler, TB thinks is selling its fleet of jets…what about the rest of them? See this is the problem with spoiled little boys and their toys…and believe TB these whizbangs are just the tip of the iceberg. They are all good at plant closings and layoffs (except when times are good and they just let people sit around doing nothing…then suddenly they layoff 10,000 or 50,000…WTF??? Meanwhile they spent five years doing record share buybacks which look insane in retrospect! But give up their country club memberships, jets, limo’s, etc…uh uh…things aren’t that bad…especially if the taxpayers are willing to foot the bill. So the poor Big Three took the heat…what about AIG? Did they sell their jet fleet? Did anyone ask them too? This is truly sick!

Note that Ford says it does not need the money now but is asking for the commitment because if the other two fail they will need it. GM and Chrysler now say they need $15 billon to survive until next month…time’s awastin’ while those CEO’s drive to D.C.

About 40 years ago TB heard a great story. The general manager of Ford had a major problem…they had hired so many people due to rapid growth that they didn’t have room for them. So, within his authority, he had plans drawn up for a new building adjoining the old one. Winter was approaching so, since he couldn’t get Henry Ford’s attention he had the excavation begun, certain that Ford would see the logic. One morning he finally got to see ole Henry and explained to him how they had run out of room. “Get your clipboard,” Ford said and proceeded to walk thru the office. If he saw someone with their feet up on the desk or reading the paper, etc. he got their name. By the time they had finished, he had cut the staff substantially. “See, your idea was a good one, but mine was more effective,“ Ford said. Sheepishly, the GM led Ford to the window where trucks were busy excavating a huge hole. Ford said, “I have never punished a man for using initiative so you won’t lose your job…but…by tomorrow morning I want that hole filled and grass growing on it.” Trucks worked all night but they got the job done. TB heard this story from a business law professor who had one of the driver’s grandson in his class. A great story…we need more Henry Ford’s and Lee Iacocca’s and fewer clowns.

Stocks: Yesterday was a classic dead cat bounce…but the oh’s and ah’s at CNBC were remarkable. Only in America…or at least on CNBC, would a 270 point gain following a 679 point decline be heralded as a victory. Furthermore, both were on slightly above average volume and yesterday’s rally was on a string of inside days (higher low and lower high than the prior day), and an indication of no conviction. True, Monday created a major oversold position, but then why didn’t we dive initially since the decline then and the rally yesterday were both done in the final hour of trading (for that matter the gains and losses over the past three weeks, or more, have been determined in the final hour). So label it as a DCB, nothing more…no evidence on how today will fare…just be careful. As usual, the movers are 90% the same stocks, moving in whatever direction the traders want it to go, with little or no concern over fundamentals…so if you are a fundamentalist in these markets…you need a church, because that is the only thing working for you, and even they had problems in the last election! TB might be more constructive on stocks if every time they rallied all those parading on CNBC weren’t saying it is a buying opportunity, thus no capitulation…a few more are bearish now but it takes ALL of them to be bearish to force a capitulation…got it?

Bonds: What can TB say as the long end is at record lows, yields on treasury bills are non-existent and you have to go out to three years just to earn more than 1%! You can get about 2% on a federal agency while the new TGLP’s (Treasury Loan Guarantee Program) bonds being issued by everyone from Goldman Sachs to Wells Fargo are yielding about 3%…question is why with the guarantee by FDIC why do you want to buy a treasury?…only reason is the state income tax exemption and that is more than compensated for by the yield. TB long a lover of Zero Coupon bonds is reveling in his success as they are at record highs (in price). Municipals are truly bifurcated, with the short end rich…lucky to get 2% in the front end while the longer term muni’s are suffering from the eroding economy and thus lowering of credit quality (see it’s all about credit), and increasing supply, accompanied by the loss of insurance protection, meaning investors now have to do their homework. Corporates are bifurcated also with investment grade now going sideways after rebounding while junk bonds…er high yield…are at their lows…price, not yield. Some say you should take the risk…the same ones who have been telling you that stocks are a bargain…so you can safely wait if you are a junk buyer.

All that glitters: yesterday, TB mentioned that technicians were recommending selling gold and buying platinum. Today, the WSJ is questioning whether the yellow metal still has value in economic turmoil. TB poses that it was the ‘securitization’ of gold that caused the fall last March from the $1,033.90 record high and subsequent failed attempt at $1,000 that peaked on July 15 at $989.60. In fact, Gold peaked just as the surge in other commodities really took hold (due to massive investment in commodities index funds and unlimited buying by commercial banks to write commodities swaps with them). The peak in the CRB Index was July 3 and it is down 25% since then while the energy heavy Goldman Sachs Commodities Index is down 40% over the same period.

TB believes that the reason for the initial rally in gold and its subsequent peaking was the popularity of the two ETF’s for it and later silver (note that there are no capital gains on these as the physical commodity is purchased the same day). The first, was StreetTracks with GLD with an inception of 11/18/04. Over that period it rose from $44 (1/10 of an ounce of gold), to a high of $100.44 on March 17, a gain of 228%. Due to the new product (we know this since the earlier inception of the ETF in London had a similar effect there, but the real run-up began in November 2005. TB has pointed out in the past that the success of the product is self-fulfilling since the higher the underlying commodity goes, the more buying interest and the more that is bought the more gold that has to be purchased for the collateral…it is physically held in a vault and stamped with the ETF’s symbol. Conversely, declining gold prices cause selling of the ETF and thus further selling of physical gold. That is the reason, not a desire to hold gold, that gold is weak, it is still a storehouse of value…try to buy a Kruggerand or any other gold coin these days, they are not available. Thus, like other commodities that had heavy speculative investment, it is weak.

Currencies? The dollar is the only game in town…that and the yen, while the Euro, and especially Sterling are being trounced. Unfortunately, that is bad news for the U.S. economy and big ticket items as those coming over here to buy luxury goods and avoid the Value Added Tax are finding it too costly.

What’s left? The only safe harbor…cash…of course you are earning less than 1% in a money market fund and nothing under your mattress…under those circumstances the ole mattress looks pretty attractive…relatively speaking, right?

So if you are expecting the long-awaited resumption of consumption, you have a long wait coming…indeed.