Traderbill's Financial Markets Weblog

Quote of the day: “What can go wrong, will go wrong.” – Murphy’s Law. Correlary: “Murphy was an optimist.” – Anonymous

…that was the theme of an incredibly funny and educational comedy routine last night so if you have HBO check it out:

(On Demand>Premium Channels>HBO>Specials>Comedy>Assume the Position 201)

Robert Wuhl, a comedian and actor, uses the classroom full of students as a prop as he explains the history of the presidency. He starts out with a composite of all 42 presidents noting that none of the first 15 had facial hair, Lincoln was the first and 7 of the next 10 or so did have it…he points out that Andrew Johnson didn’t have time before assuming the position upon Lincoln’s death. He then points to the longest running world leader, Fidel Castro and points out that all who tried to bring him down had no facial hair.

Do you know who Victoria Woodall was? Remember during the campaign the talk of a Obama/Clinton ticket or vice versa as being historical? He says it would have been…back to 1872, when Woodall declared herself a candidate for the presidency and named as a running mate Frederick Douglass, the black abolitionist leader (without his knowledge). The amazing fact is that she did this when women could not vote.

Next he goes through several inept presidents making the point that poor leadership “is as American as apple pie.”  Franklin Pierce, a rich, alcoholic who fortunately went to school with Nathanial Hawthorne who wrote a book on him after he won the nomination and was thus able to become known to voters…as Wuhl says the book “was based on fact”, which he then weaves into several stories of how this does not mean in entirety and omits many key points. It is a very entertaining 45 minutes…go for it!

TB has written several times about his friend in L.A. that is one of the biggest buyers of foreclosed property in L.A. County. TB wrote him asking about the landscape and got this answer (actually to forward the youtube video referred to yesterday):

I am now getting multiple offers an all properties that I put up for sale.  Another 6 months and it will bottom out which may not be more than 2% to 3% lower if you buy now and sell in June retail! Remember, I said June of 2009 would be the bottom.  Now I believe that 12 months after that it will start to go up and then in 4 years from now we will be back to 2006 prices

Is he right? TB can buy into all but the last part…where will the incomes come from to support those lofty prices?

Congress is risking pushing us from recession to depression. Just like the financial bailout where TB had to hold his nose, the automaker bailout is disgusting. Here are some comments:

*”Let them fail that is how capitalism works,” Larry Kudlow (and others), and:

*”The big will get stronger and the little ones will do what they do, that is capitalism (meaning only the big and wealthy should thrive (not even a little trickle down, Larry?)

*”The talk of job losses due to a failure of the auto industry is overblown,” GOP Senator

Let’s examine that last comment…autos are one of the few industries that still manufactures anything…not what we want or need…but at least they make something here. The Senator implied that there would be jobs at WalMart…now think about that: high paying, big benefit manufacturing jobs replaced by minimum wage, no benefit jobs at WalMart and you know what else: it is doubtful they are hiring. Right or wrong, please Senator don’t try to tell us that nothing will happen if they fail. TB just learned the other day in the hearings that GM’s suppliers are paid three months in arrears…and as one of the Bloomberg stories out overnight says, they are now asking to be paid in advance.

On Friday, Republic Windows and Doors shut down unexpectedly…the workers didn’t even know there were problems but Bank of America froze the assets…so they couldn’t even get paid. So they called the union and staged a sitdown strike…this is in Chicago, site of the first sitdown strike in the U.S. in 1906…we sure are seeing history repeating itself. What is interesting is that if you listen to CNBC all you hear is union-bashing from the channel that inspired by Kudlow and now acolytes Michelle Caruso-Cabrera and Charlie Gasparino seems to be trying to outfox the FOX Network.

They are against all unions, everything is the fault of the unions, capitalism is good, where is their ire at the professionals who got us in this mess. First, they attacked the French for everything which is embarrassing when the broadcast is shown in Europe. At least now they are off that and admittedly the union contracts did create much of the mess. But labor unions are a dying breed, even in autos other than the Big Three, and municipal workers unions…and those are going to be front and center as cities, counties, and states (Schwarzenegger says California is bankrupt for now and needs an immediate.$7 billion infusion). But look what we have seen in the private sector: workers are working longer hours (exempt employees…and they are stretching the definition of exempt), benefits are being cut, and where are the pay raises? Don’t look for them now.

Is management going to look after your needs? Not likely, especially when they are losing their bonuses and shutting down facilities and laying off employees. TB doesn’t see much trickle down here but he does see the rich, while not getting richer, faring much better than the workers. Another Bloomberg story overnight estimates 1 million home foreclosures in 2009.

It is with the above in mind and the fact that hedge fund asset have shrunk by $64 billion and more redemptions are on the way, that TB cannot see a bull market in stocks for as far as the eye can see. What he can see is a series of small to large countertrend rallies that fizzle and then decline sharply…perhaps to test the lows, perhaps to new ones.

What is interesting is the growing number of strategists and money managers on CNBC who are recommending cash as the best place to be. They don’t like bonds…treasury’s too rich, investment grade corporates and junk bonds too risky, and municipal bonds attractive in yield but facing big credit downgrades (S&P may lower Cal’s rating already). Some like commodities and we have had a big three, going on four day rally in Gold  which is up $10.6% from Friday’s close at $752 and is now $832 (note however that the dollar fell sharply against all major currencies overnight ahead of the Trade Deficit for November), while Energy is up slightly but from 5 year lows.

As for stocks, overnight Procter & Gamble (consumer staples) warned that revenues for the quarter will be lower, and Eli Lilly missed on earnings. Those things drive the price lower or else the p/e rises by default and should that be happening yet? The basis for the optimism in stocks is once again the average length of a recession being 16 months meaning it could bottom by midyear and the stock market leads the economy by six months. Yet those are on AVERAGES…can anyone in their right mind honestly think that this recession will be average? Even if it is can the recovery be as robust as usual (note also that earnings decline in the first year of a recovery), and can the financial sector support it with tighter credit conditions and less funding from pension funds who are in a world of hurt…how much money will ‘pour’ into hedge and private equity funds?

So TB is sticking with his hypothesis that somewhere between December 19 (options expiry) and December 26 (last day for T+3 settlement in 2008), any rally achieved will be decimated or worse with now chance for a bounce until after the Inaugeration (Jan.20)!

Cash is king…for now…even if you have to pay above par for treasury bills. Why would people do that? Why did they pay to keep their money in zero interest Swiss Bank accounts until about the last 20 years? Because they are scared…like Bernanke is scared and if you aren’t scared perhaps you should reconsider your position? TB has and affirmed his. Do we care what stocks will be worth 20 years from now if they might not rise significantly for five years? Why do people tell us to buy now…but not if you will need the money in the next two years? Not much confidence in that statement.