Traderbill's Financial Markets Weblog

TB’s Quote of the Day: “Democracy is a device that ensures we shall be governed no better than we deserve.” – George Bernard Shaw…but does that include Barney Frank???    

Bloomberg Quote of the Day: “Success has ruined many a man.” – Benjamin Franklin – so true!  

—

If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or, being lied about, don’t deal in lies,
Or, being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise;

—

…Yours is the Earth and everything that’s in it,
And – which is more – you’ll be a Man my son!

-‘If’ by Rudyard Kipling (1865-1936)

…remember that line from The Sixth Sense?…dead people walking, seeing only what they want to see…the zombies of Night of the Living Dead…blindly walking to and from work…looking straight ahead.

That is what we have become as investors. Fundamentals?…out the window. Old saws (i.e. sell in May and stay away)..out the window…Technicals?…now there is an interesting one…but do you believe history or do you say “it’s different this time?”

Wrote this column yesterday but the surprise rally makes TB add this: while the rally was at face impressive, it changed nothing from Wednesday…but they can maintain if the Dow can gain just 10 points to stave off a down week and 20-50 points on the rest. Still, the 40 day m/a’s held and it begs the question what for? Why a rally on the 3.5% GDP number which was a mere dent and ex-autos due to Cash for Clunkers which ended at the end of August it was up just 1.5%. A Bloomberg article postulated that inventory rebuilding will replace the consumer…for how long??? They think into the first quarter and then they see net new jobs…oh really? Overnight another Bloomberg article said the risk of the Obama/Bernanke plan is that the recovery will be fleeting and the U.S. will be saddled with trillions of debt…Martin Feldstein, Chairman of the NBER said that after the inventory rebuild there could be a slowdown “and a possible double dip.”  Actually, this adds to today’s discussion because TB could argue either the bull or bear case…but it is worrisome to him that everyone is a bull…meaning fully invested…so where do we go from here? Do you think the last two days which were more or less offsetting made the little guy feel more comfortable? Heck, TB couldn’t even find a professional that felt more comfortable…it was what it was (cliché).

The last one describes a conversation with an old friend of TB’s who he respects more than any other technician…but we diverge at times and this is one of them. We talked yesterday morning and here is the way the conversation went:

TB: Did you see that breakdown yesterday? Every index plunged thru the 40 and 50 day m/a’s! We should correct down to the 200 day…and hopefully hold there.

RS: I don’t get too concerned about that only when the 200 day is above the 40 and 50 day.

TB: …but how can you have that given the steepness and length of the decline?

RS: I see this as a correction…September is normally the worst month of the year but we rallied thru it…December is a very strong month so I think we will be higher by then and into January

TB: …but look what happened this year…strong December and beginning of January, then  we tanked on January 6^th until we hit the March lows…

RS: …but that was because we didn’t understand how bad the condition of the banks was

TB:  …and you don’t think it still is? This is, and was a credit crisis…also fear is back in the market…virtually every stock was down yesterday…

RS: …that is because the buying has been in ETF’s and so they are selling…but I don’t think the hedge funds have started selling yet…

TB: …another good point…people aren’t ‘picking stocks’ they don’t have the confidence and are instead buying the broader indices and sectors…they still have a lot in money market funds…also saw a CNBC poll taken after Wednesday’s close…100% of strategists they polled said that this was just a blip…and all said we would be higher by year end…some with Dow 11000 and one with Dow 11500…we are still in a credit crisis

RS:  …I think we will be higher and yes 11000 is possible..just got the fund flows and money markets saw inflows last week…jobs are a lagging indicator so it will show up late

TB: …GDP is a lagging indicator too…I still think we have to go down to the 200 day!

RS: (Phone rings)…sorry, I have to take this call…

Do not misunderstand…TB is not saying he is wrong but he thinks that there is too much significance placed in historical data that does not apply in a credit crisis…instead compare to 1929-34 and Japan from 1989 to 19994 and longer…we are tracking both! Scarily so….and it is the very steepness of this correction (rally?) that should concern us. We are way ahead of the fundamentals…the value was at the March lows…when fear prevailed…or as another said…the value was at the 9/30/08 level…everything else was panic selling…reminds TB of ‘if you can keep your head while all those about you are losing theirs…you just don’t understand the situation’ (Kipling/Mad Magazine)

TB must admit that he was chicken…why? Because he could not subject his clients to any more losses than they already faced…he did not sell everything mind you…but he could not risk more losses…but is that being cowardly…or just prudent? Which would hurt a client worse: to sell everything at the lows? To hold on? To buy and risk further losses? It is not an easy answer and it comes from the basic principle of money management: know your client. But if you are a major money manager how do you do that? After all, you can’t selectively sell while selectively buying for others? Do you become more concerned with relative performance than absolute performance? We all know the answer to that one…because that is the game…to beat the other guy…even if you lose money. Our values are warped…hedge funds have it right: only absolute returns matter…but uh oh…there is that 2/20 fee…with the 20% only applying above the high water mark…which will never be seen again by most and they need the 2% to cover expenses…so why not just shut down the fund and regroup? That is what many are doing. For the love of God how did we come to this? Our investment principles stink! Worse, what we are buying is stock in companies who only  care about beating their competitors as the key is to have the best performer in a sector, knowing that money will flock to the best performer at the expense of the worst and managers must maintain some kind of sector weighting. Why do I want to own an auto company when the entire sector is in the tank?…or an airline?…just because it is the best performing one even if it is operating at a loss? Oh, and utilities…with solid yields…yet nobody wants to own them? Go figure…don’t dividends count…IF you have the ability to maintain or raise them?

Here are the support levels for the key indices, ranked as TB sees their significance:

(close is first, as of 10/28, Fib retraces are 1^st 23.6% from low; 2^nd 38.2% from low)

Note: Peak 10/31/07; low 3/6/09…also moving averages are still rising rapidly!!!

1. Nasdaq 100: 1682; res 1693 50 day, 1709 40 day, 1773 1^st Fib from high; sup 1629 50%; 1485 2^nd Fib from low; 1441 200 day

2. Nasdaq Composite: 2059; res 2064 res 50% retrace; 1875 2^nd Fib retrace from low; 1782 200 day

3. S&P 500: 1042; res 1050 50 day, 1058 40 day,1110 50%; sup 1005 2^nd Fib, 917 200 day

4. Russell 2000; 566; res 50 day 566!, 50% 586; 40 day 596; sup 2^nd Fib 528, 200 day 506

5. Dow Transports: 3640; res 3835 50%; 3836 50 day, 3869 40 day; sup 3494 2^nd Fib; 3264 200 day…peak was May 2008!

6. Barron’s 400 (best stocks): 241; res 241 2^nd Fib; 244 50 day; 247 40 day; sup 218 2^nd Fib; 207 200 day

7. Dow Industrials: 9762; res 9755 40 day; 10216 50%; sup 9697 50 day; 9732 2^nd Fib; 8585 200 day.

8. SOX: 301; res 316 50%; 317 50 day; 321 40 day; 326-27 multi-top; sup 288 2^nd Fib; 266 200 day

9. NYSE Energy: 11222; res 11233 2^nd Fib; 12037 10/21/09 high; 12426 50%; sup 11087 40 day; 10945 50 day; 11233 2^nd Fib; 9757 1^st Fib; 9743 200 day – look how steep that is!

10: Dow Utilities: 366; res 376 40 and 50 day!; 390 1^st Fib; sup 354 200 day; 351 1^st Fib

There you have it. Now about stops. This is the data you need for setting stops for individual stocks be they trailing or stop loss…and be sure to use limits so you don’t get crushed! They can be time-consuming to find manually (TB has a Bloomberg), but as Jim Cramer says if you are an investor you need to devote at least one hour a week to it…seems fair doesn’t it? Most sites can give you whatever averages you want it just takes longer to find. But don’t you owe your future one hour a week? One hour less of TV or something else you do that may be relaxing but is a waste of time.

Also do not be afraid to sell…if you have big enough positions and like the stock…put in stops on half…and don’t be afraid to buy it back if you were stopped out even if it doesn’t go lower IF market has stabilized. You are doing this for protection, not because you don’t like the stock…you are trying to hold on to gains and minimize losses.

You may not agree with the above and TB respects that This is just one suggestion that might let you sleep easier at night. Remember the most important thing: whatever you do…do it to make you feel better and reduce stress. If you are more comfortable doing nothing or if you don’t feel you want to devote the time to your portfolio, that is your choice…but TB hopes you will at least think about your plan.

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Why should we have confidence in our markets? The banking lobby is stalling and watering down any possible regulation; Geithner told Congress it was crucial that the Administration and Fed work together on any future crisis (while FDIC Chairman Sheila Bair took the other side)…which could turn things even more political last time thanks to differing treatment of Lehman, AIG, and CIT; we have the biggest insider trading scandal in history that has roped in INTC, IBM, and now former CEO’s of AMD and McKinsey and Company; Goldman claims that their Black Pools and flash trading improve market liquidity….yet they know that it is illusory liquidity.

But if you think that a positive GDP that was propped up by an expired auto program, and believe that a one quarter inventory rebuild can possibly turn the economy around without new, higher paying jobs, more power to you. So think a deep ‘V’ or join TB and Martin Feldstein who say why have a single when you can have a double dip???

Happy trading and Happy Halloween!

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, © October 30, 2009.

“The trend is your friend…until it hits a bend,” Albert Edwards, Societe Generale economist, “beware, we may have just hit one.” Commenting on slowing in U.S. economic growth for first time since March…that would be the lows.

…like ‘perfect storm,’ ‘at the end of the day,’ and other clichés, this one is getting on my nerves…it started as “thank you soooo much’ morphed into ‘thank you so much’ and has no iterated to ‘thank you sa mach’…it grates on the brain! Thank y’all so muuuch for understanding. But what are they all so thankful for? Coming on their show? TB doesn’t get it as it is being so overused…now you can expect it to become thank you so much for not belching. Anyway thank yew so much for reading this blurb. Your humble writer, TB

Ok, enough levity as yesterday’s sell-off was dead serious and cannot be dismissed:

*For the first time since 7/8-7/10, new 52 week lows exceeded now highs. Since the March lows here are the only times that happened (prior to that lows were in control): 3/30-4/1; 4/7-4/8; 4/14-15; 5/5; 5/13-14; 7/8-10…they did not exceed new highs since then including following the key reversal on 9/23 that looked like a ‘rout’

*Volume was 1.68 billion shares – highest since 9/30…in fact every day this week has had above average volume…something we have not seen since the four days leading up to the 9/23 key reversal

*Advance/Declines and Breadth were not only negative they were the worst seen in this sell-off: NYSE -8.6:1 and -9.4x; Nasdaq -5.6:1 and -11.8x; AMEX -4.6:1 and -15x!!!

*Whereas on Tuesday, only the Dow Transports and Utilities were below their 40 and 50 day moving averages, we had a plunge yesterday of the S&P 500, BOTH Nasdaq indices, Barron’s 400, AMEX Composite and the Russell 2000 which took out both of these, as TB warned could happen – in a single session! The sector TB watches, Philly Semiconductor Index (SOX, was below them for two days and plunged yesterday even more. Remember this sector the Nasdaq indices and the Russell 2000 led us out of the March lows! This is a very bad sign! The NYSE Energy which had been riding the coattails of the runup in Crude is now suffering with it and is withn 125 points  (about 1%) of breaking the 40 day and another 125 puts it below the 50 day…tell it goodbye!

*On Friday and Monday, commodities, stocks, and bonds were all down…following the dollars lead…but wait? Weren’t stocks supposedly benefitting from dollar weakness? That was the line we were fed…Tuesday only stocks and the dollar were weak, bonds

were strong and commodities ‘stabilized’. Yesterday, the dollar rallied – right up to and slightly above the 40 day moving average and stocks and commodities plunged while bonds were up. The sell-offs were broad base hitting every sector!

*While earnings have been beating ‘lowered bar’ estimates, there continues to be little ‘top line’ revenue growth and more coming from cost-cutting. Add to this the Fed ‘testing’ it’s reverse repo facility…just in case they need to use it if economy surges, which they are forced to do because the supply-siders are wringing their hands over fears of inflation…they would prefer DEFLATION??? Meanwhile the central banks of Australia and Norway have tightened, China is becoming tougher on bank lending, India has told the banks to buy more government bonds to bolster their balance sheets, and both the Bank of England and ECB are talking of raising…all of which is about increasing investor confidence that they know what they are doing and they don’t favor inflation. It is highly unlikely that either will tighten soon…perhaps for a year or more…but the biggest joke is the Fed tightening…to what end? …drive us back down again???

TB is not happy to be proven correct…all he cared about was for his readers not to suffer unnecessarily by following the bulls who were begging for more inflows to stocks. Isn’t the biggest rally in seven decades (per Bloomberg) enough for them? Doesn’t it make sense to realized we have rallied too far…too fast??? This remains a credit crisis – not just an economic one. Overnight, BASF reported a 69% drop in revenues and said they will cut but not eliminate their annual dividend which is (was) near 5%. Exxon Mobil just reported earnings of 98 cents vs. estimates of $1.02 – their fourth straight decline as oil prices fell! It closed at $73.84 – indication is down $3 on open.

So all we have going for us (?) is a positive GDP surprise this morning…consensus is for +3.2% vs. down 0.7% in Q2…and it better be that good or better…also the Price Index is expected to be +1.5% from unchanged and we need that to show some of he deflationary pressure is off. That information will be released at 8:30 am EDT  - GDP just released…look for positive open then fade into close. TB

Where might stocks stop their decline? Think their 200 day moving averages…TB will provide the data for key indices tomorrow…how exciting! 

The K1 hedge fund blow-up has snared JPMorgan, Bank of America, and others including Deutsche Bank…something like $300 million each. Helmut Kiener, the founder has been arrested for fraud…he a former salesman turned hedge fund manager.

Then there is the story that won’t go away: Goldman Sachs and AIG!

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The bailout of AIG is getting more scrutiny due to the fact that the negotiations over how much to pay creditors on the CDO’s was overseen by Tim Geithner, then President of the NY Fed and the Chairman, Stephen Friedman of Goldman Sachs…who during the negotiations bought 400,000 shares of Goldie and resigned saying there was no conflict of interest. Unlike Martha Stewart nothing further has been done to him. Once Geither went to Treasury, he oversaw the settlement which ‘to avoid a long drawn-out settlement with creditors’ which included ahem Goldman Sachs, Citi and others, he took the unprecedented step of paying 100 cents on the dollar and it was recorded as market value!

The ire at Goldman and Citi getting paid in full by a company now owned 86% by the taxpayers is not going away…worse, Goldman had already hedged its hedges with AIG sensing that they would be worthless…talk about a windfall…double! This is sick.

Meanwhile the House is working on a new plan for future financial rescues even as they say that ‘too big too fail’ is a mistake…no doubt that is due to the enormous lobbying effort of the banks (Citi spent more money lobbying this year than last year or the year before). The latest plan is for those who have a vested interest…read the public would have to ante up in order to save them…i.e. throw good money after bad. We are being screwed by our elected officials who are apparently more concerned with their own wallet and re-election than about the taxpayers the swore to serve! When will we learn?

CNBC should discontinue their Fast Money segment where you can ‘learn’ from traders…have you noticed they hardly ever admit when they are wrong…and last night they saw this selloff as not even a correction but a blip. How much value is there in that? Only to make you make dumb bets into positions they are already in….SOP.

Have a some kind of 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, © October 29, 2009.

Bloomberg Quote of the Day: “When you’re as great as I am, it’s hard to be humble.” – Muhammad Ali

TB saiz: “When you’re as humble as I am, it’s hard to be great.”

…gains momentum and this sell-off is certainly doing that…painfully so! Thanks to Mad Magazine decades ago for that saw…who cares about gathering moss anyway? The point is that this selloff is gaining momentum and overseas markets are in the tank today on poor earnings (why did they just realize this…the qualtity of earnings?). Worse, the retired CEO of AMD has now been drawn into the Galleon affair so we have a triad of tech: AMD, IBM, INTL. Isn’t that just great? Buy today and you will regret it. Also, if you are a stock picker note that the stocks that go up are ‘rotating’ and by and large it is becoming every stock having a down day…eventually. The danger here is of fear taking hold again as we saw last September…cheer up…you can buy stocks cheaper…just don’t do it yet. Those 40/50 day moving averages TB has been chirping about (as a canary), have been prescient as that is when his stops kick in…so far he has lost only about 15% on the stops…many of which he raised above the 40/50 line when he saw the sell-off emerge….a nice place to be. None of the stocks he has been stopped on have rallied since – none! The latest casualty was Cisco, with WalMart, and Nucor the day before. Also got stopped out on Glaxo which just reported and missed…bid is down. By the way, other than Cisco he did not buy any of these stocks but ‘inherited’ them from another ‘well-known’ manager. Expecting to get stopped out on several today of the Asian stocks…arigato! If you try it be sure to put a lower limit in with your stop!

So what happened yesterday?

*Advance/Declines and Breadth were negative again…that is three straight and four of the last six sessions for A/D and five of the last seven for Breadth!

*New 52 week highs plunged to 111 from 248 from 306 from 245 from 534…twice before it was over 600 this month. Meanwhile new lows which had been running single digit rose to 48 and the ratio which has been as high as 22:1 is just above 2:1!

*Transports, Utilities, and the SOX are now below their 40/50 line and the Russell 2000 small cap is not only below 600 but below the 40 day and closed on the 50 day yesterday! The rest could do it today based on the overnight weakness. We could/should be in for a test of the 200 day moving average as has happened in every bull market rally in a secular bear market….remember this 10+ year cycle is only two years old! Oops!

*Volume which has been below average for months has been at or slightly above for the past three sessions…this is not what you want to see in a sell-off!

You can be bullish if you want…but not TB!

Let Jamie do it! Ah, the one, the only Jamie Dimon. Yesterday, TB listened to a long interview of him by Charlie Rose at the SIFMA (Securities Industry and Financial Markets Assn. – which no one ever called it as it was expected we knew the acronym!). Dimon was candid (?), funny at times and not completely forthcoming in TB’s humble opinion. There were many culprits of the financial crisis according to Sir Jamie but they were not the banks, the regulators, and most definitely not derivatives! No sir, it was greed. Derivatives are good, he says…despite the fact that credit default swaps which were ‘designed’ as a hedge…pullease…they were for speculation by hedge funds under cover of being hedges for legitimate investors. Thanks to them, companies cut their staffs of bond analysts relying instead on municipal bond insurance and the swaps to let them buy crap. This put them in the position of making more money on a bond if it defaulted than if it paid off at maturity (isn’t this what the problem now is at CIT???). Sir Jamie also talked of the bad guys in the industry…he had only to look within his own bank to see ripping off municipalities such as Jefferson County, Ala. (Birmingham), Oakland, Ca, and other places where interest rate swaps were misrepresented. Also, on the subject of derivatives, how about the limitless commodities swaps his bank and others underwrote to commodities index funds causing the surge in food and energy prices in early 2008 which sealed our fate? Then, after saying that banks should be separated from their investment subsidiaries (told you that was what he was preparing for with the internal shake up), he said banks should be able to operate hedge funds…he said this even after the Galleon scandal?…or what about Citi’s foray into them and what that cost them. Speculation is not now, or never was, part of the definition of a bank. But he feels that it is OK to own them so long as they don’t invest in them…could the reason be to keep his wealth management clients captive? He also is still big on credit cards (he recently said his goal is to surpass AmEx – the losses be damned). He talked of their takeover of WaMu which is an unmitigated disaster as their conversion doesn’t work…you can’t transfer funds from one state to another and they are losing customers in droves.

Make no mistake about it, he is the smartest banker out there…at least that we hear about. But if he is such a good guy, why hasn’t he done anything about those interest rate swaps that the bank force fed to state and local governments? We’re waiting, Jamie.

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TB has been checking daily for a response on Salary Czar Feinberg’s plan on executive compensation from Graef (Bud) Crystal. Readers know of TB’s respect for this recognized compensation analyst who has been disgusted as we all have by the growth of executive compensation…with no correlation to performance. TB has talked to Crystal in the past and was writing for Bloomberg regularly. He is no longer doing that but writes as an occasional contributor. Today he has a column and it is the first sensible comment on compensation (ironically he talks about the Nixon salary controls which were a failure as people only moved from one company to another and some even moved back at much higher salaries…TB had planned to comment on that failure today). Crystal now has a website www.graefcrystal.com on executive compensation…check it out.

Have a terrific 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, © October 28, 2009.

Famous Baseball Quotes: Who said the following?

A. “Adios”

B. “Back, back, back, back…Gone!”

C. “Bonsoir, elle est partie!” (It’s gone!)

D. “Bye bye, baby”

E. “Forget it!”

F. “Get up. Get outta here. Gone for good!”

G. “It could be…it might be…it is! (A home run!)

H. “It’s going…going…gone!”

I. “Kiss it goodbye!”

J. “Long gone!”

K. “Tell it goodbye!”

Answers at end of commentary…what? You wanted TB to make it easy for ya? 1^st prize is a one year paid  subscription to TB, 2^nd is a two year, 3^rd is a three year…

…what are all those quotes doing here? Because they aptly describe what happened yesterday…but it was like watching the visiting team hit the home run! A SECOND straight DOWN day! Stocks were DOWN, Bonds were DOWN, Commodities were DOWN. It isn’t supposed to work that way but that is how it was…and not just down but big time down….and we did it twice! Worse, stocks tried to rally and failed miserably.

We start talking about $2,000 gold and gold falls (meanwhile the moving averages are not only up, they are over $1,000!); we start talking about $100 oil and crude falls…don’t even ask about natural gas which has been in the dumps for months! So why not start talking about Dow 11000 and watch it turn turtle too?

As if Friday’s selloff wasn’t bad enough, Monday’s was enough to make one ill Yesterday’s rall out of the chute took the Dow precisely 100 points above Friday’s close, then it plunged again closing down 106 points – a 206 point swing on the day. We were saved from another negative key reversal by the mere fact that Friday’s closes were at or near the low. Mind you, the rallies are insignificant as we are still nowhere near the 50% retracement of the entire selloff from 2007…in fact in most cases we are still down from September 30 2008…hence the focus on year-to-date figures. Also, the steepness of the rally HAD left the 40 and 50 day moving averages in the dust but they are back…Transports and Utilities have already penetrated them and the rest are in striking distance…but who cares? Also, who cares that in every secular bear market we have rallies of the size of this one and they invariably end with a test of the 200 day moving average and in the case of Japan they did it repeatedly while they dove for 10 years. There was plenty of opportunity to make money trading but not if you were greedy! But the real question is:

Why do we think we should be where we are???

If things are so ‘rosey’ (not to be confused with bear David Rosenberg), why are we screaming for more stimulus (when only about half of it has been spent…the remainder being saved for just before next year’s elections)? Why did the market sell-off as it focused on this mornings Case-Schiller Home Price Index which is expected to decline for a 32^nd month? Worse yet, why are our elected officials ignoring calls for more bank regulation – in fact a return to Glass-Steagall by the only man in this country with a proven track record on knowing how to run the banking system…if you said Alan Greenspan go to the rear of the class and sit down! Paul Volcker…a man Obama respects enough to make head of his Economic Recovery Team but instead relies on Rahm Emanuel and Tim Geithner?

A Bloomberg story this morning cites that it was Geithner…no doubt with the blessing of the Treasury’s economic consultant – Goldman Sachs…who after supervising the creation of a document on how much the creditors (those holding credit default swaps with AIG) would be paid. The document had a _________ to fill in with the percentage of the notional value of the contract. The blank was crossed out so that Goldman and Merrill received 100% of the value of those contracts…no negotiation…just pay it! Never in the history of a bankruptcy has this been done…and worse to firms we were busy bailing out! Thus Goldie had a good year at the taxpayers expense and is upset with our interfering in their black pools, flash trading and more. Capitalism is the best way, so leave it alone and we will all thrive…trickle down! Do you feel it?

How many times in these commentaries has TB said that capitalism only works on its own IF management manages…i.e., plans for the future not the current quarter or the tenure of the current CEO? That also requires investors who are there for the long run but they are not…the average holding of a stock is not only less than one year, it is more like three months! Who cares in that environment and that creates the motivation to ‘cheat’!

Were it not for the costs of getting elected and more importantly (to them) re-elected, we might be able to survive. Instead we want quick fixes such as encouraging more consumption when the consumer is in fact tapped out! He has depleted the equity in his home and the banks aren’t going to advance more.

Overnight, Emerging-Market stocks had their biggest decline in seven weeks…the last time being when China said they were going to require the banks to curb lending. Well, this time it is India, who told it’s banks to increase their holdings of government debt. Result: -2.3%, taking Japan (-1.5%) and China -1.9% on Hang Seng and nearly 3% on both the Shenzhen and Shanghai exchanges. Three weeks ago, Australia’s central bank tightened and Norway may be the first European bank to tighten. But that is not going to happen here. Why? Because we have the worst personal debt levels in the world and if you want to kill the recovery (technical) all the Fed has to do is tighten. Yesterday, the Fed tested it’s new ‘reverse repo facility with the primary dealers…a week ago they tested an overnight facility…this time they created a dual facility: overnight and one week and that sent shivers thru the bond market….needless TB thinks but it would be nice if we backed up enough to put some value in the 10 year note (3.80%-4%).

But it is merely a test…like those air raid drills at 10am on the last Friday of the month when we were growing up in the Cold War. The Fed knows it can’t tighten…even if it wanted to…which it does not…but it needs to show they are alert…unlike those two pilots for Northwest who overshot Minneapolis by more than 150 miles. Remember  Thomas Jefferson’s famous quote: “eternal vigilance is the price of liberty.”

A friend sent TB a speech by David Einhorn who runs a long-short hedge fund. It is TB on steroids! Yesterday, John Mauldin picked it up in his Outside the Box edition and TB urges you to follow the link. You have to read it for yourself to see just what a man of wisdom (Renaissance Man?) Einhorn is. Here is the link:

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/10/26/liquor-before-beer-in-the-clear.aspx

If we persist on growing the economy quickly (i.e. before the 2010 elections), it will not only enrich the banks who screwed us but insure that we do not build the foundations for sustainable economic growth and if we don’t reform the banking system including irradicating the inane ‘too big to fail’ we will doom ourselves to repeating this exercise in a few years and likely with worse consequences…fool me once…

TB is going to cut right here in hopes you will connect to the link and read it in entirety and thoughtfully. It may be the most important piece you read this year!

Answers to baseball trivia: a) Wayne Hagan, b) Chris Berman, c) Rodger Brulotte, d) Russ Hodges, e) Vin Scully “Vinnie”, f) Bob Ueker, g) Harry Caray, h) Harry Hartman, i) Bob Prince, j) Ernie Harwell, k) Lon Simmons – Hall of Famer

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While the supply-side economists wring their hands over rampant inflation in the wings, we should instead be focusing on the risks of DEFLATION…deflation spell DEPRESSION, yet these seers cannot understand that what we have seen in rising asset prices (capital assets only) is an aberration. Unsustainable and that stagflation would be a welcome event at this point.  After all the supply-siders helped to create the greatest income imbalance in a century…way to go guys! But at least you got rich!

Have a great 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, © October 26, 2009.

Bloomberg Quote of the Day: “The best time to make friends is before you need them.” – Ethel Barrymore

…what kind of day was it? A baffling day! No, it was a DOWN day! Stocks were DOWN, Bonds were DOWN, Commodities were DOWN. It isn’t supposed to work that way but that is how it was…and not just down but big time down.

Commodities were off nearly 1% with only Silver and Copper up anywhere near 1% – Gold down slightly, ten commodities, led by Coffee (-4.5%) were down 1% or more; Bonds were down from 1/8 on the 2 year to 1 point on the long bond, and stocks were down more than 1% on every index with Transports leading the way – down 3.5%!

It is that that last note that is particularly disturbing as Transportation has not confirmed this last leg of the rally from the March lows. Also Barron’s confirmed TB’s concern about small caps which led the rally along with the two Nasdaq indices did not put in new highs last week but only they big stock indexes and those struggled all week to eke out even minor gains…but not to worry…stock futures are up overnight – by about 0.5% – but let’s not get carried away by that.

Also, it is inconceivable to TB that his equity brethren can still be so giddy after the gains we have had since the March lows and still see stocks rising as far as the eye can see. TB also has had no takers on his theory (not proprietary) of trailing stops with limits…everyone still appears to be all in for a Merry Christmas, Happy Hanukah and even Ramadan! …heck, many are still looking for a Happy New Year and more!

On the subject of trailing stops however TB cannot stress enough (although he is stressing of late), the significance of placing LIMITS with those stops. A case in point is Burlington Northern (BNI) which posted earnings Friday (although Barron’s didn’t see fit to point it out or even make mention of it), that missed on earnings, which were lower than Q3 2008, had lower revenue and lower revenue miles. That caused the stock, one of Warren Buffett’s and TB’s favorites, to plunge…taking the Transportation index with it.

The stock gapped down on the open by more than 2 points, plunge more than 6 points and close down 6.5% on the session.. Not only that it opened below both the 40 and 50 day moving averages and even closed more than 3-1/2 points below both of them. But the real story was the index where BNI subtracted 28 index points (the total loss was 137), and not one stock in the 20 comprising it was up…UNP and CSX added another 34 points. If the rails aren’t doing well how can the economy be doing well? Hard to fathom.

 So how did TB’s stops fare? He had a trailing stop at $81.95 with a LIMIT of $81.70 (due to having sizable gains). The stop was well below the 40/50 day m/a’s which converged at $82.77 (had he had a loss he would have had a stop at $82.75).The stock closed Thursday at $84.62…gapped down on the open to $81.92! and dove to $78.32 before closing at $79.12…where it was on October 5! Also, that is right on the trend line from the March 9 lows. So had TB not had a limit, he would have been stopped out and he would be fuming. Assuming it can stabilize here this is a good entry point on the stock (or at least it looks that way). On the other hand if it fails, support is at the 200 day: $72!

Whether you choose to call this a countertrend rally in a secular bear market (and contrary to popular belief these do not last just two years but a decade or more), or a cyclical bull market which TB refuses to do since we have not come back to 50% of the entire loss…to refresh that is 10336 on the Dow and 1121 on the S&P – which TB thinks is moot. What is of interest…or at least should be…is the similarity to this secular bear market with 1929 and to Japan following 1989. If that similarity continues this is merely the first leg in many before the secular bear dies. Don’t be like the bull in the corrida.

Barron’s also neglected to comment on the failed IPO two weeks ago of Banco Santander do Brasil (BSBR) – the largest every in Brazil $8Billion and the largest globally since 2008…priced at $13.40, it opened at $14.04, plunged to $12.80 and closed at $13. The high since then has been $13.87 and high closed $13.79 that day, with Friday’s being back at $13.25. The importance of this issue, along with the size, is the fact that they priced it at 18x earnings despite the average Brazilian bank being 15x…the size of the issue be damned! Also, a week ago it finally dawned on someone to comment on the 50% premium to net asset value that the market has ‘deeded’ to Pimco…how long has TB been chirping about that???

You cannot trust those who talk on CNBC or even Bloomberg, or those who write (including TB) to make the right decisions…those decisions are yours so you have to do your own thinking…but one way you can beat money managers is to be flexible…they, like economists, cannot be…and we know the track record of even the best economists.

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One more week of the talk shows focusing on health care and TB is going to go stark raving mad! The rhetoric-loaded blather is enough to make you feel ill. Oh, and if the GOP doesn’t shut up about their ideas being ignored…they have no ideas…only negativism…nattering nabobs of negativism (Spiro T. Agnew)…nor do they want to as they sense failure and by being the loyal (sic) opposition they can be the heroes.

But regardless of which camp you are in …or neither as TB and most people he knows…do not forget that all these hired guns are just that…bought and paid for by the lobbyists and the best and most highly paid are by the financial sector who wants absolutely no reform whatsoever. They would destroy us all for their own gain. Why do similarities to the Romans keep coming to mind?…or even the Venetians. This is how empires are destroyed…by smiling politicians…OK. and House Minority Leader Boenier who always looks like he is in pain. How do we extricate ourselves from this mess and these thieves? 

Have a contemplative 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, © October 26, 2009.

Bloomberg Quote of the Day: “All men of action are dreamers.” – James G. Huneker

TB saiz: “But all dreamers aren’t men of action.”

..apologies for yesterday as TB had intended to put some reasons down for a continuation of Monday’s sell-of (Tuesday was little changed and thus meaningless). Perhaps it is a good thing as the markets did not follow suit. Here are the reasons:

*First and most important is the fact that we had negative key reversals (higher high, lower low, close below the prior day’s low) in the major indices (sans Transportation) which was the only major index that close up, albeit slightly. The last time we saw this was September 23 and we had a significant selloff then lasted until October 6!

*Second was advance declines and breadth which were much more negative than they had been positive on the prior up days.

*Third, volume was a slightly above average 1.4B shares, highest since October 2, also a down day as was the 1^st which was a major down day with 1.6B shares and highest since 9/18.

*Lastly, volatility…both indices (VIX/VXN) were down slightly Friday, Monday, and Tuesday – until 90 minutes before the close when they rose sharply ending up about 6%, the biggest move in months and signaling too much complacency.

Those look like a pretty good justification for a continuation of the sell-off, right? Yet despite those strong factors we rallied yesterday but that did not negate the reversals (can you negate a negative?…wouldn’t that be a positive?). So here is what happened yesterday:

Rallies in all major indices (Transports however essentially flat), with both Nasdaq indices the weakest of the group as they have been lately along with the Russell 2000. Since they are the biggest gainers year-to-date, the hesitation has, at least to TB, significance, and indicates an overbought market?

Despite the gains, they were weak with most indices having lower highs and lower lows, one following new rally highs. The VIX/VXN were up (more risk) early in the session then steadily declined, effectively offsetting the prior days gains…perplexing.

So technically, no damage was done either on the downside or upside. But here is the problem: the moving averages are rising rapidly (this is also true in Gold where both the 40 and 50 day are now above $1000), When you have had a rally as strong as this even going sideways for a few days can bring the moving averages within striking distance as occurred in the sell-off from September 23…it held then but it was the third time the decline brought the indices closer to the 40/50 day and in fact broached it on October 1. Perhaps it was the promise of great earnings that held the sell-off in check. Remarkably we even survived the Galleon scandal despite having broad participation from companies apart from Wall Street. But how long can sustain this? Earnings continue to beat lowered bar estimates but with little or no top line growth (revenues). So unless we see the Dow take out 10336, and the S&P 1121, TB sees no reason to change his opinion.

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Are we totally ignorant or just stupid? Either way the flack the government is taking over regulating the pay at TARP rescued companies is incredible. A Bloomberg story this morning says that at least 66 executives have been granted waivers, the largest being AIG’s CEO (who came in to rescue it and was NOT part of the problem). A Bloomberg article this morning has Feinberg reporting that only one in five of the AIG execs who promised to return their bonuses have done so.

The thrust of Feinberg’s salary problem is to do something about linking executive pay to performance…long-term performance thru stock grants and options, not to encourage more risk-taking. TB does not like this one bit but it is less sickening then bailing out companies and the CEO’s continue with their ‘win-win’ situation! How have these men suffered…yet their employees have been downsized or had their pay or hours cut?

IF we do nothing they will continue to take excessive risks and we will have more problems. To the point that firms won’t be able to keep or draw top people, TB notes that producers are not subject to these levels…only the executives who have oversight responsibility…and ‘oversight’ was just what they did…blinded by their own bonuses.

Furthermore, when one company tacks, just like in sailing, the others must ‘cover’ or in other words follow or risk underperformance. So the key is to FORCE executives to take most of their compensation in stock or at least deferred bonuses. Without the government forcing the issue it would not happen! As for the proposal to give shareholders the right to an advisory vote on executive compensation, that too is needed to prevent what happened with Bob Nardelli at Home Depot – contempt of shareholder. TB would also require that the Chairman not be active in the company – either an outsider or former CEO (especially with bonuses paid in restricted stock so he has a vested interest in promoting shareholder value). To date advisory votes have been simply ignored by management who thinks they know best which they obviously don’t. How can we expect them to be objective???

Also, we need to re-institute Glass-Steagall and quickly…yet the lobbyists are stalling any type of reform and they are even imbedded (emphasis on ‘bed’) in the Obama administration. Jamie Dimon knows it and that is why he is restructuring the investment division – where all the money is being made…note that is the only area of profitability in the banks and a good reason not to own them! A bank should be just that: a bank! Also, let’s defrock Goldman and Morgan Stanley of their newly-acquired bank status – it stinks! Let them have the right to borrow from the Fed but as a broker NOT a bank!

Glass-Steagall’s repeal was the brainchild of Sandy Weill…who convinced Rubin (later to become vice chairman of Citi), who in turn – along with Sen. Phil Gramm who is as slimy as they come…lobbied for UBS then became Chairman of the US division, and whose wife was not only a director of Enron but chaired the audit committee) to back it. That was 10 years ago and precisely when the problem began.

Now we have come full-circle: the CEO’s didn’t have a clue what was happening in their divisions which were ignored as long as they were profitable. They even testified they didn’t know what was going on and none of them understood derivatives. Why do we pay millions for people like this? Worse, if they fail they get a golden parachute, or in the current situation get to keep their jobs and make millions more!

Finally, why has no one gone to jail? Not even Angelo Mozillo, who destroyed Countrywide while selling his own stock…as did Sandy Weill! It stinks!

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, © October 23, 2009.

…TIMBER!!! It looks like it finally happened yesterday – what should have happened on Monday when the news on the Galleon fiasco was disseminated…but no sir…the bulls had their way until we had the selloff yesterday…but that began on Tuesday when the only index up was the Dow Transports…yesterday it was the Dow Utilities.

We are in an era of bad news…perhaps we have been numbed to it…but it is the disparity between bottom up earnings estimates and top down estimates that signals that something is wrong with the analysts conclusions. Top down begins with the economy while bottom up is individual stocks. “No man is an island” but neither is a stock. The wave of ‘bottom line earnings growth reports is staggering. But the catalyst for the selloff yesterday was Wells Fargo’e earnings report…which could be labeled ‘wishful thinking.’

Wells could be a victim of the economy…along with most of the other ‘too-greedy-to-fail’ banks and brokers (oops, they are now banks too…they just won’t accept your deposits…unless they are in money market funds). In other words, they can look good until the economy does but once the Fed withdraws credit and stops being the lender of last resort. Analyst Dick Bove hit them over the head on their mark to imagination Level  3 assets. Wells falls in the greedy classification because of its subprime lending unit which generated more junk mortgages than anyone else but the bank sold them all off thinking they were smart to keep the second’s (figuring they would earn more and get paid off quickly when the loans were re-fied) – it worked until it didn’t. But the worst part was when management said they kept the second’s because they were better than the first’s. Whoa, cowboy! When is a junior lien better than a senior lien? Only IF it gets paid off. Bove cut them to a ‘sell’ from ‘neutral’  on the basis that servicing fees on mortgages rose $1.1 billion (15 cents a share), lower tax rate (2 cents), and hedges tied to mortgage servicing rights produced a $3.6 billion gain (68 cents) compared to a $1.3 billion loss in Q2…the total from these three items exceeded the total EPS for all other areas…meaning there were losses once you got past the fluff. He also said they are not provisioning for loan losses aggressive enough with all the resets coming thanks to Wachovia’s (Golden West) pick-a-pay loans. It is hard to duplicate gains from hedging – no, it is impossible!

A friend at a brokerage wrote to an analyst friend asking what he thought of BofA’s and Wells earnings: “Overstated. Even BofA reported a loss of $1 billon and was more forthcoming than Wells Fargo – which is running a $1.2 trillion Ponzi scheme – the financial statements of neither reflect company or economic reality.”  Oh come on, don’t mince your words!

So while Galleon could only cause a ripple, Wells brought on a wave. It is unfair to single them out as you cannot trust the financials of any bank out there these days. They exist on the kindness of the government…and the taxpayers…yet they arrogantly deny any kind of need for federal assistance. Didn’t you think all was rosey again…well Rosie (David Rosenberg) doesn’t think so…take off those rose-colored glasses and smell the napalm. TB actually heard the term ‘double dip’ a couple of times yesterday…but not to worry as stocks are either fairly or under valued…right?…aren’t they?   Too bearish? Than you need to read Paul B. Farrell writing in MarketWatch…but be sure to not do it on an empty stomach…or one that is too full. http://www.marketwatch.com/story/story/print?guid=47729BA0-933E-4299-92CC-EB41EEE671D2

Don’t let the illegitimates get you down.

Whatever you do, don’t let the bulls with the vested interests talk you out of your money market funds…not at this point! The easy money has been made….all the money has been made? So just don’t lose it. TB can’t figure this out:  as much as he has talked about trailing stops with limits and stop losses, he can’t find a broker who has talked about this to his clients…nary a one. Why not? Beats TB as this is a win-win for a broker. It costs nothing (except the brokers time) to put in a stop order…if the market keeps going up (against the odds) you just keep raising the stops (oh, more time), and if it goes down, and TB is thinking down big, your client will be thankful – and you Mr. Broker will get a commission to boot…that’s what I’m talkin’ about! Oh yes, taxes…we don’t want to pay  more taxes this year…would we prefer to have some nice tax loss carryforwards that stretch as far as the eye can see?  Analysis Paralysis – a condition where the opportunity cost of not doing something exceeds the gain from doing something.

Have a great 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, © October 22, 2009.

…the iceman cometh but there was no celebration…looked like someone already took the punchbowl away. While the major indices remain above their 40/50 day moving averages, a lot of individual stocks are now straddling them…that can’t be good, can it?

Starting to see some of the earnings coming in beating by a penny…TB always worries about that…just too close. Lilly beat on cost-cutting but raised forecast due to their ongoing ‘plan’ of more layoffs and plant closings…hmmmm. It has been rallying for a week and is now hovering around $35…now look: 40 day 33.25, 50 day 33.23; 200 day 33.95…doesn’t take a rocket scientist to see where to set stops. USBancorp reporting record earnings and over-reserved for loan losses…still they didn’t raise dividend from 5 cents which was a cut from 42.5 cents. 40 day 22.24, 50 day 22.18, 200 day 18.28. Closed 23.80…why do we loathe trailing stops and stop losses so? Wells just reported with 3^rd consecutive quarter of record earnings…revenue tied the record set in the 2^nd quarter…looks good. Morgan Stanley also reporting with earnings of 38 cents vs 30 cents consensus….revenues and earnings up for the quarter but way down on the ytd.  Return on equity 5.8%…hmmm.

So we have a ‘salary czar.’ A friend asked where TB stood on this, adding he didn’t think the government was the way to go…but neither was STUPID Wall Street. Doesn’t it seem a bit awry to be paying out record bonuses when these companies would not exist were it not for the largesse of the U.S. taxpayer? They have proven that they don’t understand risk…why does one assume a five or ten year liability and then pay out a humongous cash bonus to a hired gun? So what TB hopes is the czar sets guidelines for paying bonuses, not salary levels. In other words, the weakness of capitalism is trying to compete…on salaries…bonuses…products they don’t even understand. If one is doing it, all must do it…or die. Perhaps that is part of ‘creative destruction’ Schumpeter missed?

Then there is the flash trading, black pools, electronic trading networks. Goldman is a leader in black pools…where one can trade with anonymity…except to Goldie of course, and the SEC is cracking down. The issue is transparency…not who is doing the trading but the market can be influenced by these pools, yet the sponsor, has the right to determining who can play in his pool…without fouling it? The SEC went on to say that it creates a false illusion of liquidity which exists for a microsecond only. Markets require liquidity to survive. On this point, margin borrowing is up sharply…after a rally of this magnitude? IF we presume that individuals are the ‘dumb’ money, and institutions the ‘smart’ money, we should be worried about a sharp selloff accelerating on margin calls. Today, it was proposed by a guy on Bloomberg that it is actually sign of strength…could be but that is not the way to play it

TB is still shaking his head over an analyst on Bloomberg the other day saying that Citi is a buy since it is trading below book value per share! Book value is meaningless for a financial stock and only applies for an industrial and even then you have be sure that the assets are fairly valued and don’t have a lot of goodwill that might not be valid. The last time TB heard this ‘excuse’ was when he was working for L.F. Rothschild in 1987. We had done an IPO in 1986 and the stock rose nicely…then it turned over….and was finally below the IPO pricing…those who had restricted stock decided that since it was below book value it was a steal…it was bought out shortly thereafter for a pittance.   

A friend directed TB to www.zerohedge.com and an article “The 60% Rally in Perspective.” It is in line with what Rosenberg and other bears have said but in data from Contrary Investor…it would indicate we have gone way too far. They analyzed  previous 60% rallies so here it is for you to decide whether the market is good or even fair value:

• · Year over Year Retail Sales: 9.3% average in prior 60% rallies versus -5.3% in the current one
• · Consumer Confidence: 95.5 average; 53.1 now
• · Capacity Utilization: 79.9% average; 66.6% now
• · Year over Year Industrial Production: 4.1% avereage; -10.7% now
• · ISM: 53.9 average; 52.6 now
• · Payroll employment gains over period: 2.2% average; -2.0% now
• · Decline in continued unemployment claims from cycle peak: -26.3 average; -11.6% now
• · Year over Year growth in total credit market debt: 9.3% average; 3.0% now
• · Year over Year growth in household debt: 8.8% average; -0.1% now
• · P/E Multiple: 16.8x average; 20.0x now

Note the p/e multiple…you cannot buy, never have been able to, stocks at this level and produce above market returns…unless…you truly believe that the consumer is coming back so that we don’t have just a ‘technical’ recovery but GDP growth of 4% or more.

Study and then you decide.

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The Galleon story continues to build and there are more stories in the Naked City…but why are we not seeing the significance of it. This would not be a story IF it was just a hedge fund, but the fact that the best and brightest at IBM, Intel, McKinsey, were risking their entire futures to participate means there must be more of these out there and any conspiracy that has more than two participants is a risky proposition…even one with two is when you get caught and investigators are trying to crack you and you aren’t sure if your ‘good buddy’ is going to take the deal. As an investigator told TB during the Orange County bankruptcy, “the big guy will roll…they always do.”  Well this time he won’t be able to because of all the tapes linking him to everyone else…finally some good news!

Have a great 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, © October 21, 2009.

…he’s not going to come…or is he merely late? At the risk of sounding as if TB is making excuses, there was NO VOLUME today…barely 1 billion shares and we squeaked out new rally highs and high closes on most but not all indices. Whereas they were ‘slight’ new highs and high closes on Thursday and Friday, call them barely perceptible today. You have the numbers to watch…the only ones that matter: Dow 11334 and S&P 1121…the 50% retracement of the entire selloff. Furthermore we are back to September 2008 levels with a lot of people wanting out (trapped longs).

Sounds obvious to TB, but then so did a scandal involving a prospective CEO at IBM, a guy from Intel, one from McKinsey & Co. and two former Bear, Stearns hedge fund managers…but so what? They didn’t do any damage…the hell you say! Not only have we turned the market into one big casino but we have loaded the decks, dice, and roulette wheel against us…who cares about a rogue hedge fund trader (well not so rogue except the degree of arrogance)? So take these easy gains in stride…rumor has it that the money wants out of Galleon…and withdrawals are allowed quarterly. Overnight news says investors are fleeing…can you blame them?

Please don’t disgrace yourself or TB by saying the stock market climbs a wall of worry. Not this time…this low volume climb is totally professional in nature and will correct sharply…at the 50% retracements? We heard similar before and after the 1929 crash by some of the most respected economists, like Hyman Minsky in a ‘Minsky moment.’ This time around the economists and strategists are being scoffed at by the analysts and PM’s. But also this time, it was the economists and strategists that were right…who do YOU trust? Well, TB does trust one analyst Meredith Whitney…BNY Mellon had a loss on investment restructuring.

Most earnings coming in well ahead of estimates but the bulk of them are not exhibiting top line growth. Overnight data however from Apple, Caterpillar, and Blackrock (you have to back out a huge tax refund first though), are showing top line growth and CAT raised forecast….must all be to China, India and Russia, right? Poor old Pfizer did in on cost-cutting and LOWER sales but boosted guidance due to the Wyeth merger which closed Friday..

Yesterday’s report that one in five hedge fund managers misrepresent performance, strategy, etc. was conducted by the Stern School of Business…talk about a need for transparency!

It’s not easy out there…just don’t make it more difficult than it is. TB

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Look the Galleon scandal is nothing new…only the extent to which Raj had permeated the corporates structure and that people would risk their careers there…for what? Not much in proportion to their wealth. There are others out there but more likely linked to hedge funds and Wall Street. Meanwhile the banks we just bailed out are gloating about their profits and paying out huge bonuses. This is contempt of the taxpayer. Goldman would not even exist today without the government stepping up…and more importantly that cheap money TGLP guarantee which they have no plan to compensate the taxpayers for while we remain on the hook. It is what it is: sickening. Meanwhile CIT is flapping in the wind – the only ones that do anything for small to mid-size businesses…much like the bailing out of GM/Chrysler while we let the parts suppliers take the hit.

The rich get richer while the rest of us…

It seems execs are beginning to fly around in corporate jets again. TB has no problem with that but wants this issue addressed: use it for your private use and you pay the going rate for a charter…not a first class seat on a cattle car! There was your misuse…along with having too many jets…like Citi and then letting Sandy Weill fly in one and buying a new expensive one that you can bet would have been designated Citi One.

TB got hit suddenly and hard with the worst cold of his lifetime…but at least it isn’t the flu! Over and out.

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, © October 20, 2009.