Email the Bender Bender Paper Portfolio Richard Ney Link Reviews: Lefevre Leon Levy Peter Lynch Oneil Toni Turner Martin Zweig Links Page Richard Kolon Jay Steele Your Government has been lying to you U.S. Offial CPI Inflation Calculator The Bender's Own High Altitude Gardening Pages

Welcome to Bessemer Bend Stocks. Here you will discover a different approach to stocks and trading. This is not a commercial site. Nothing said here constitutes a recommendation to buy or sell securities. However, the Consitution does allow individuals to express opinions about companies and their securities. Investors and traders are strongly urged to make up their own minds and to trade in their own styles. Grownups are supposed to think for themselves. Indicators Long Term Medium Term Short Term DOWN UP UP QQQQ 12-16-08 483 - 6% =454 12-16-08 483 - 3% =469 My System's Stocks: 1.BIDU-buy in Mar or 100? | 2.FMCN-buy in Mar or 7? 3.FSLR-buy in Feb or Jun or 110? | 4.SINA-buy in Oct or Mar or 28? 5.AAPL-buy in Apr or Aug or 80? | 6.ATHR-buy in Oct or Mar or 11? 7.MA-buy in Oct or 140? | 8.SPWRA-buy in Mar or 16? 9.FWLT-buy in Mar or 15? | 10.RIMM-buy in Jan or Jul or 41? Rich Kolon is not working on his pages right now. But his old stuff is quite educational.

Commentary January 4, 2009 Turn the Machines Back On Toward the end of the movie Trading Places, the Duke brothers, having lost their fortunes, want to turn back the hands of time, want to go back to the times when money was flowing their way and times were good. Congress, amongst others, wants to turn the machines back on. The fools in Congress simply do not know what they are talking about when they envision the Federal Government handing out enough money to prop up all the housing prices in the U.S. Between them and Bernanke nearly 1.7 Trillion has already been passed out and not one dime has gone to support house prices. Does this not seem strange when the purpose of the TARP was supposedly to give home owners some relief? Actually, it is not strange at all when you look at the size, the true size, of the problem. When you talk about house prices, you are talking about real inflation, a real bubble, some real money. This bubble is many many times the size of the Dot-Com bubble. Dot-Com money that was lost was money we actually had, that we had already earned, extra money the average person had in his retirement account. Losses on houses is money nobody ever really had, but money they all still owe, both lenders and borrowers. To bail out home owners we're not talking Billions, we're talking Trillions. I just don't think we, as a people, have the ability to borrow, or even to print, that many dollars. I think the wise in Congress will vote against any such efforts, and also against any more handouts to banks. 2009 will be the year of Consumer Failure. As for markets, I think we are currently witnessing denial at its worst. The consumer, (remember him?) is not coming back any time soon. We are going to see double digit unemployment before the year is over. We are going to see foreclosures at a rate not seen in a generation at least. Industries of all kinds are going to be shrinking their workforces and their orders. 2009 is when the chickens come home to roost. Brawwk! But there is always a beacon of hope being held out, isn't there? Right now there are a couple: the January Effect, and the Giant Pool of Money on the Sidelines (Here is a relevant link sent by Red and White D). The January effect will be over, then what will late January look like? We should start getting reports late in this month about the fourth quarter. Hopeful? I am not. Those are going to be grim numbers. When those numbers come out, the DJIA could go from the 10,000s to the 7,000s easily. Money on the sidelines can simply stay there. Most people think the sheep have to emerge from the cave. But, they don't. As the scared sheep watch 2009 play out, they will be less and less inclined to leave the safety of the cave. And the sheep logic will go something like this: Perfectly wonderful funds have lost twenty or thirty percent in the past year. Badly managed ones have fared worse. Comparatively, I can make twenty or thirty percent on my money simply by not losing it! I think I'll ride out 2009 in the cave, thank you. The inflation stored away in housing is a huge problem, it is a huge bubble and it will take more than one year (2009) to deflate. The real silver lining will be that house prices will fall, and people who have been saving to build up a 20% downpayment will find that prices will have fallen down into ranges they can afford. To reinforce what I have just said, here is a link sent by Rich Kolon to the Marc Faber Blog. I quote it below: "Many investors argue it's dangerous to buy Treasuries with such low yields. While a holder can expect to get repaid in full at maturity, the price of longer-term Treasuries could fall sharply in the interim if yields rise. The 30-year T-bond, for instance, would drop 25% in price if its yield rose to 4.35%, where it stood as recently as Nov. 13. The bear market may have begun Wednesday, when prices of 30-year Treasuries fell 3%. They lost another 3% Friday. - "Get out of Treasuries. They are very, very expensive," Mohamed El-Erian, chief investment officer of Pacific Investment Management Co., warned recently. Pimco runs the country's largest bond fund, Pimco Total Return (ticker: PTTPX)." in Barron`s Online. ...2009 will be a write-off in terms of economic activity. ...Faber thinks the best trade for 2009 is to short US treasuries. That can be done by shorting US 30 Year Government Bond Futures in the CBOT or buying the ProShares UltraShort Lehman 20+ Yr(TBT) ETF. (This might force some sheep from the caves.) ...Given the expansionary fiscal and monetary policy of the United States, 'there will be a time when inflation accelerates along with a weak dollar,' Faber says. 'When that happens, central banks will have to increases interest rates, which will be difficult to implement.' Trade Craft How has the Bender Paper Portfolio been doing? Lousy, and that's the truth. It took a 20 percent hit in 2008. But I have repositioned it for 2009 to be a lousy year. I am going to be patient about this and wait for my short positions to come in. Meanwhile Keith sent this link to Nine Ways to Profit in 2009, by Matt Callow on the Seeking Alpha site. I find myself very much in agreement with his analysis. I quote the article below. "Resist the urge to jump into this sick market. Anyone looking at 2008's near 40% decline will feel tempted to jump in at these bargain-basement levels. If you reference the year 1930 (one year after the start of the Great Depression), you may think twice. Despite all the fiscal and monetary stimulus being thrown at our economic mess, the US, and the world economies will look a lot like they did in 2008." Here is a look at the Bender Paper Portfolio's performance over the years. DATE TOTAL WITH NO ADJUSTMENT ADJUSTED TOTAL COMMENT 12-31-97 167,800.46 beginning amount 12-31-98 466,355.76 12-31-99 1,676,740.53 12-31-00 1,418,840.78 12-31-01 3,730,413.48 12-31-02 5,233,356.48 12-31-03 4,934,787.28 12-31-04 8,373,538.20 01-01-05 8,373,538.20 83,735.38 amount reduced to 1 percent of '04 total 12-31-05 12,986,120.00 129,861.20 01-01-06 12,986,120.00 32,474.00 amount reduced to 25 percent of '05 total 12-31-06 12,023,768.00 30,059.42 12-31-07 22,628,824.00 56,572.06 12-31-08 17,969,784.00 22,462.23 amount reduced to 50 percent of '07 total

Red and White D should think seriously about selling into the January Effect. He knows what I am talking about. Remember what the Duke Brothers were saying just before the Machines were turned off? Sell, sell, sell!

December 16, 2008

Here is a link to 'Op-Ed: Ponzi, Ponzi Everywhere' from the Minyanville.Com site. I quote from it:

"This begs the question: If this scam has been in progress for decades, how many of its kind are still out there?"

Here is a link to another in their series on the Madoff scandal:

'Deregulation to Blame for Madoff Fiasco', by Guy Bennett of Minyanville.Com. I quote it below.

"Every financial system requires rules and regulations to function. The PR coup of the 'free-market economists' is that they managed to convince the American public that only little people need rules.

Hogwash. In the late 1990s, when Bill Clinton was president, the financial industry spent $300 million lobbying Congress to deregulate. Astonishingly, Congress went along with it - despite the fact that deregulation of the savings-and-loan industry a decade earlier triggered an orgy of plundering that eventually cost the federal government more than $500 billion.

...In corporate and commercial law, there’s a legal requirement that every contract be negotiated in 'good faith.' Good faith is defined as 'the observance of honorable intent and the avoidance of any attempt to deceive.'

So how is a major bank allowed to go into a poor neighborhood and sell mortgages to people with 'teaser rates' that triple a year later? Why is a guy like Madoff allowed to shuffle around tens of billions of dollars without any branch of the government glancing over his shoulder to see what he's up to?"

December 15, 2008

A Car Czar. What?

There was a bad idea. A czar is a distant potentate. Someone, by definition, who is not worldly, someone who does not have to deal with reality. That's who congress wanted running Detroit? Methinks that Congress should take a closer look at the financial bailout first, who got the money, and how it has been used.

December 9, 2008

Here is a link sent by Red and White D to a 'cheery' article titled '10 clues: A new bubble is blowing Bet on Wall Street hyping a recovery, big earnings, new bull in 2009', by Paul B. Farrell.

December 8, 2008

Today my December 15 copy of Time Magazine arrived. Let me give a quote from the lead article on Detroit's car manufacturers (p. 37).

"What is particularly ironic about the Big Three's situation is that the companies are now as near to their long-sought goal of parity with the Japanese firms Honda and Toyota as they are to collapse. In the past couple of years Detroit has closed the quality gap. Its cars are competitive on engines and drive trains and fits and finishes. Some top-class products score well with car rater J.D. Power, such as the Cadillac CTS and Ford's new F150. 'What exposes us to failure now is not our product lineup or business plan or our long-term strategy,' GM's Wagoner told Congress. 'What exposes us to failure now is the global financial crisis.'"

Horsehockey.

I once bought a set of new Goodyear tires. Over the next two years three of the four tires blew out on the sidewall. I did not protest to the company. I simply will never buy Goodyear tires again. I also lost three out of four new Firestone tires on a fishing trip to a fairly remote spot in Wyoming. Again, I did not protest to the company. But I will never buy Firestone tires again. That's how I handle things. I am not alone either. I note that the tire stores in downtown Casper (my hometown) that sold Goodyear and Firestone are no longer in business. A lot of other customers besides me must have been unhappy.

Mr. Wagoner may be making great cars now, and he may have a great business plan. But it is not the 'global financial crisis' that is hurting his, or the other two companies' sales. What is hurting their sales is what is probably parked in your driveway, or your neighbor's. What is parked in mine is a 1996 Ford Contour. The front doors don't work right, and that is very irritating. It's the hinges. They are hinges designed to work for five years. The car is 13 years old now. Ford probably saved 12 cents putting 5 year hinges on instead of 25 year hinges.

You know what I am talking about. Those kinds of problems are driving all around you, even if you aren't driving one. Parts don't fit right. Paint does not adhere to metal. Paint does not adhere to plastic bumpers. Knobs come off. Windows quit working. The engine runs fine past 100,000 miles but the transmission gives out. Or the transmission is fine but the engine is shot after 100,000 miles. The list goes on and on. The big three built all these problems into the cars that are still on the road and their owners are reminded of them every time they drive them.

Did you ever try to actually buy a part for your car? I was in the local Ford dealership this fall looking for a part. I had not been in the establishment for at least 12 years. I was soon reminded of why I had not been there for so long. They did not have my part. They could not even promise to get it to me in two weeks...for a 1996 car. It occurred to me as the parts man was telling me this, that I had been visiting the local Casper Ford dealership over a period of 42 years, for both my own used vehicles and brand new company vehicles, and not once had it ever had my part, not once.

The Contour is my wife's car. But I drive it at least once a week. Everytime I drive it I have to open the door, one of the doors with the 5 year hinges, and I am reminded each and every time why I probably don't want to own another Ford. My other vehicle is an old Toyota pickup. It is 5 years older than the Ford, and everything on it works. Hmmm.... and they say that Honda and Toyota have been taking market share away from the big three? Really?

The Big Three have at least twenty years to live down the cars they used to make. A lot of us American consumers simply do not trust them any more to build a decent car. And if they can make one as good as the Japanese cars now, why didn't they do it twenty years ago, and save us good old American consumers all that money and all that grief? And do I get a discount if I buy an American car now for having owned one of the old defective American cars of yore? Not even if we give them the emergency loans?

Speaking of the loans...the Big Three wants $34 Billion. If the Big Three makes 13 million cars in the next 12 months, that's about $2,600 per car. Ouch!

December 2, 2008

Rich Kolon sent a link to this article: 'America's Coming Financial Vortex', by Paul Mladjenovic on FinancialSense.Com. It is very well written and is worthy of your time.

I must say though that I do not agree with this writer's first point: "You will see an inflationary depression that will be evident by 2010."

I think Mr. Mladjenovic has missed the importance about what has been happening in the U.S. in the past dozen years, or so. We've already had the inflation. The overspending by our government need not be inflationary if it is absorbed by the deflating of the inflation we have already seen.

There is a capital exchange that can occur that results in both the buyer and the seller losing money. Commonly, for the average person this can happen, ironically, with the largest purchases he/she makes: a home, or an auto.

A home buyer can take on a mortgage. If the realty market then goes south and/or he/she loses a job and the house gets turned back to the mortgagee, both buyer and seller of the mortgage lose money.

It's also easy to get upside down making payments on a two year old auto that is worth 40 percent of what you paid for it and you still owe two thirds of the money on it. This is particularly onerous if one you lose a job and can not afford the gas for the buggy. The bank, or car company can also lose money if you turn the keys in. What are they going to do with that gas guzzler except lose money when they sell it?

We have just lived through a period of extravagant credit that fed rampant inflation (the inflation I said we've already had). Think about house prices. If you own a home and the value of that property went up by 140 percent over those twelve years, even if it has fallen twenty or thirty percent, you are still looking at some incredible inflation.

For my money, house prices have not fallen nearly far enough. House prices are still way too high. Here is one arguement. Given a simple supply and demand situation, and given that no houses were built during the aforementioned twelve years, what would have to happen to make houses double in price? Well, demand would have to double...population would have to increase dramatically. That did not happen, and houses were built during those twelve years. So what made prices more than double? Easy access to credit. It's just that simple.

So if the U.S. government throws a trillion or two dollars at the problem will that be inflationary? The answer is that it does not have to be if that money is soaked up by losses that have occurred already, and will be occurring as house prices take the hit.

So how, dear reader could we have had such horrible inflation and none of it even made the papers? Well, your Government has been lying to you, particularly about inflation. The scarry part about the lying is that the Government itself does not know how bad the inflation has been. It is opperating in a fog of self delusion and/or denial.

It's even more difficult to fix a problem when you can not even see it.

November 24, 2008

WE MUST BELIEVE IN SOMETHING

Why did a Congress inclined to give money to the auto makers not give them any money? .... because the auto makers failed to give Congress something it could latch onto...a story it could believe.

Remember in Peter Pan when the audience is asked to believe in order to bring Tinker Bell back to life? Well, the auto makers forgot to bring Tinker Bell with them when they testified. They left Congress dangling with nothing to believe in.

That's how we invest folks. We develop a story line that we believe in enough to risk our capital. No Belief = No Investment. It may sound crazy, but that's how we humans are. And we are capable of incredible self delusion. As long as markets are going up and our story lines are supported, we will believe almost anything.

But if the story line gets broken, if we no longer can believe, then we pull back and refuse to take risk. That is why all that money is parked in Treasuries at stupidly low interest rates right now. Nothing new has been developed in which investors can believe.

Looking at it from a Neyian point of view: the flock has suffered some losses, the sheep are scared, they're holed up in a cave where the wolves can not get to them.

Now if you are a wolf, what do you do?

Why, you allow a trading range to be put in that the sheep can believe in...and you tell them that the markets are...you guessed it: 'FORMING A BOTTOM! The sheep are safe in the Cave of Treasuries, and they will find Bottom Formation strangely calming.

And what comes after a bottom? Why yes. We'll have to HAVE A RALLY! Let's make it a good one. I know, we'll have a parade, just like the circus is in town. Everyone loves the circus. We'll have naked ladies and elephants, a brass band with a big booming drum, lions and tigers and bears, trapeze artists, tight rope walkers, and lots and lots of clowns. And slowly at first the sheep will emerge from the cave... one by one, and then more...and thick and fast, they'll come at last, all scrambling to buy more.

Those sheep will be dazzled. They'll be amazed. They'll tell themselves that "it's different this time." Those silly woolies will never notice that they're being led into a box canyon...a place carefully selected beforehand for an awful and bloody shearing.

Now we know that the redemption money from the hedge funds has to be put back to work. There are tax reasons to prompt the sheep out of the cave...and hey, if there is a parade passing by at the time, so much the better. How jolly.

When will that money leave the cave? I'm guessing we'll have a bit of a Christmas rally. There's nothing like a few sugar plums to loosen up the sheep's grasp of reality.

We've just seen the first sugar plum appear. The AP and the Wall Street Journal have writers who have to come up with reasons why the markets went up or down. They have to do this about 280 times a year. Reporters run out of ideas of their own pretty fast (I used to work in a news room, so just trust me on that.) So the reporters develop 'sources', old stock hands who will feed them a believable story line that will explain the market action de jure. That's how and why you will see a headline like this:

'Low interest rates weigh heavily on the markets'

A month later you might see this one:

'Low interest rates boost markets'

Or you might see this old saw:

'Falling oil prices boost markets'

A month later you might read a headline like this:

'Falling oil prices dampen markets'

Headlines that explain why whole markets do something are just plain wrong about 80 percent of the time. So what sugar plum did we just see?

'Obama puts financial team together, markets rally'

Really? Did you buy that one? That's like going to the doctor because your back aches. He prescribes some massage therapy. You feel better immediately...before you even see the therapist. That simple script in your hand made your back all better, right?

Jim Cramer, good Democrat that he is, read that headline and swallowed the whole thing...hook line and sinker. You'd know that if you caught the beginning of his show tonight.

Manipulation is as bad as I have seen it right now. I would expect insiders to pull one of their old tricks out of the bag to further the rally, like a delayed opening, or some computer glitch.

The rally will gather strength near January 10 when much of the money decisions are going to be made. I'd expect that rally to peak for the Innauguration on January 20. I would look for a Time Magazine cover in January ballyhooing the 'Obama Rally', or some such nonesense. Expect an awful racket soon thereafter, partner, as the wolves do a number on the sheep in the canyon where they can not escape the ambush.

And that will be handy because the incoming administration will already have plans made to rescue those sheep, and what with those sheep having just recently had the tar kicked out of them, it'll be easy to sell that rescue plan. Those wolves will have provided Congress the Tinker Bell it can believe in.

November 23, 2008

THERE IS NO MAGIC NUMBER

How far will markets fall? Beats me. There is no magic number, 'levels of support' are illusions folks.

What I see in my crystal ball is establishment of a Primary Low. From that level we will likely see a rally which could go to January 20 or could go on into March. After that we will see markets start falling. Not only will they fall past the Primary Low, they will fall further in an attempt to establish The Low. After that my crystal ball gets cloudy. For, in truth, The Low may not happen until the coming summer.

My guess, and it is only a guess, is that the Primary Low is somewhere in the DJIA 7,000s range and The Low is likely going to be in the 5,000s.

Certainly, we see evidence for what I am predicting. Big 'Smart' money is parked on the sidelines right now in Treasuries, whose interest levels are at historic low levels. That is panic folks. The lower those interest levels go the tighter the constriction on the collective investing airways is.

We had a snap back rally on Friday. Whoopee. I need to see more followup before I would be inclined to go long. Meanwhile the Short ETFs, like SKF, are at dangerously high prices. I feel there is no need to jump into that market at its extreme high.

Many people have written of late. Here is some of what they sent me.

From Rich Kolon:

"My mining stocks have been badly hit. But stocks in general have now gone down more than any time since the GREAT DEPRESSION. And that time stocks rallied 50% off the bottom in 1929 before collapsing to a 90% loss in a few years. If the market is to rally it has got to be in the next few months. But the summer next year may be terrible. Nickel is trading at under $5 a pound, about as bad as it was in 2003. It was over $20 a pound last year, I think. Copper is still almost double 2003 prices. I'm going to hold on to most of what I have. It sounds stupid, but the biggest profits after a huge bear move come early."

Bad Timing: Get Ready for Higher Taxes on Your Investments

Greece braces for shipping storm. I quote it below.

"Global shipping is facing its worst crisis in decades. In just a few months, dry cargo rates have fallen by more than 90 percent as a five-year boom has turned to bust. For Greece, which owns a fifth of the world's fleet, that spells trouble.

'Panic is one word to describe what is going on,' said Polemis, sat beneath an oil painting of one of his family's first vessels, bought some 200 years ago. 'People are selling some ships in a panic mode ... Some companies will go bust.'"

........................

From the Orange Section:

"I think it is more important than ever to remember how Joe Kennedy made his money: By investing during the depression. At the end of this mess will be a fabulous buying opportunity. Now is the time for people to be great savers. Those that do will be handsomely rewarded."

...............

From Ben Smith:

Bob Hoye on SafeHaven.Com:

"In the meantime, one of the advantages of independent research is not having to endorse conventional wisdom. This affords the ability to be clinically critical of the wonders of policy making, in particular, central banking. Last year the advice was to ignore their boasts, then during the summer it was to ignore the promises that things had been fixed. In September the advice was that even the most desperate measures would not alter the fall crash pattern. It hasn't.

This critical theme was developed with hopes that our subscribers would not repeat the mantra of central bank infallibility to their clients. There are at least two main failures. One is in the financial markets, the other is in central planning. The notion that that a speculative collapse could have been prevented by more regulation is absurd, and reminds of the old saying from the old and notorious Vancouver Stock Exchange: 'So long as it is going up the public will believe the most preposterous story'. The most preposterous story in financial history has been that a committee can 'manage' the economy.

Somewhere there should be a rule that those who did not anticipate the disaster should be prevented from vain attempts, with taxpayers' money, to end a financial disaster. This would be particularly applicable to those who claimed that with their skills a disaster was impossible."

http://dshort.com/

"All the links on the page have interesting charts, but go to 'A Photo Album of Bear Markets'; then click on the tabs at the top for comparison. In that same section, click 'Here's a chart' to see the 1929 bear included."

Bailout Comic

The Humpty Dumpty Economy

.....................

From Red and White D:

The Ending of the Big Government Era Comes to An End. This is humor.

...............

From Jay Steele Adopted Lab Helps Little Girl Eat Again. This is great news.

November 14, 2008

Red and White D send this link along with the idea that perhaps banks are just being prudent this time:

'Banks must start lending: Senate panel'

Ben Smith sends along these two links.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1926808' http://www.foxnews.com/story/0,2933,450464,00.html

November 11, 2008

Here is a link to a 'must read' article: 'The Problem With Deleveraging', by John Mauldin of Minyanville.Com. I quote sections below.

"Here's what we do know. Each and every recession is different from all the others for different reasons. The '70s and '80s were subject to serious levels of inflation. The recession at the beginning of this decade saw fears of deflation. Some happen with a stronger dollar and some with a weaker dollar.

...The internal data was even worse. New orders fells to 32, suggesting further weakness in the manufacturing world. Backlog of orders was 29. New export orders, a source of growth in recent months, fell from 52 to 41, a rather large drop for a single month. This shows the rest of the world is beginning to slow down as well. Boding poorly for employment, only 43% of companies reported that they were planning to add additional employees.

...Basically, automobile manufacturers, in their drive to sell as much as possible, "brought forward" future sales of cars and, as a side effect, put lots of still quite good used cars on the road. New car sales are likely to be depressed for some time. It is somewhat like the housing problem. There is just too much inventory on the road that will have to be worked through. When Detroit gives me a real reason to buy another car, like an electric-powered vehicle, I will. And a lot of Americans, with a need to save money for retirement, are going to feel the same way.

...Hedge funds are also being forced to de-lever. While for most styles of hedge funds, leverage was not all that high (an average of about 1.4 times equity), large redemptions, especially by funds of funds, are forcing sales of all types of assets, but in particular stocks. As an aside, this selling is not over. Mutual funds are seeing large withdrawals, and are also selling."

.......

Here is a note from the Orange Section in response to my comments about China.

"Bender,

Another issue for China seems to be product quality. (This is probably not across the board) Their products are getting a bit of reputation state side for their cheap quality. In tighter economic times this could become an issue for them.

I have concerns that an administration as pro-labor as Obama's will likely choose to bail out the Detroit Autos. This will solve nothing. Those corporations are sick for a variety of reasons, amongst which is over bearing labor contracts. The fact is, they need to be building better cars at a lower cost basis than their competitors. Right now they have huge pension liabilities and a high labor cost due in part to the UAW. This is compounded with a poor reputation for quality and decreasingly competitive products. If the UAW and their Democratic allies want to see this fixed it is not going to come through Government subsidy. They need to start producing products that people want to buy. Otherwise the Federal government is just flushing tax payer money down the toilet. Of course, when was the last time congress cared about wise spending choices?"

I seriously doubt it will do our domestic car producers much good to bail them out before bankruptcy. Bankruptcy would allow the car makers to shed a lot of obligations to unions (to the tune of about $25/hr/worker). It is those obligations that make a domestic car about $1,600 more than a domesticly-produced Japanese car.

November 10, 2008

Ben Smith sends this link to 'Marc Faber Sees Bankruptcy for the US'.

Rich Kolon says: "The Rydex Nova / Ursa ratio suggests a large shift into bull funds vs bear funds.

http://www.schaeffersresearch.com/streetools/market_tools/rydex_nu.aspx

And that suggests a good possibility of a stock market rally."

Meanwhile China has come up with a stiumulus plan. Here is a link:

'China's stimulus plan buoys markets', from the International Herald Tribune.

The problem with the idea that China is going to lead the way out of economic troubles is twofold. One, it is still heavily dependent on exports...exports that just are not going to be there in future months. Two, as Ben Smith points out, a lot of those exports were subsidized so that China could keep the masses busy. When those factories close, they probably will not reopen.

It looks to me that China is following a sensible plan to invest in infrastructure. That will help some, but will not 'turn the machines back on.' I look for China to import less oil in the future and to sell gold to finance its infrastructure play. The implications for commodities in general are still grim.

November 6, 2008

November 5, 2008

Rich Kolon sends this link to 'A "Perma-Bear" Warms to Stocks', by Lawrence C. Strauss of Barrons.

I think I agree with William Fleckenstein. This thing is like a double or tripple header. We are still playing the first game. We still don't see the effects of the economic slowdown that is surely coming.

What I see is a recovery rally here....then more downside.

November 3, 2008

Red and White D sends this link to a wonderful spoof.

'Recession-Plagued Nation Demands New Bubble To Invest In', by TheOnion.Com.

"According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent."

Red and White D also sends this link.

'Money for (Almost) Nothing', by the Wall Street Journal.

Ben Smith sends this link.

'How Low Can Stocks Go?', by Morgan House of The Motley Fools.

Here is a link to 'Five Things You Don't Want to Know', by Kevin Depew of Minyanville.Com.

October 31, 2008

Happy Holloween!

Lar sends along this link to 'Why raising interest rates won't work', by Jon Danielsson of the BBC. It is a good summary of what went wrong in Iceland.

Here is a link to 'Preparing for the Coming Crises in Jobs, Funding', by William Fleckenstein on Minyanville.Com. I quote it below. The bolding is my own.

"In the last expansion, economic growth was almost entirely about real estate. GDP growth, excluding mortgage - equity extraction, was almost nonexistent. In addition, when you consider that 30% to 40% of all jobs were real - estate - oriented, it's clear how hollow the economy was liable to be going forward.

Given the capital destruction and credit contraction now underway, I have a hard time seeing where new jobs will come from to handle all the layoffs that are going to take place. Additionally, given how wild consumer spending has been, there are lots of marginal businesses that are simply not going to make it, on top of all the carnage in anything related to real estate or finance.

...I hope that as the government goes about spreading taxpayer money everywhere, it does something intelligent - like spending money to rebuild our infrastructure (roads, bridges, ports, etc.), and perhaps undertaking the task of stimulating alternative energy resources (while also building plenty of nuclear-power plants), so we can create jobs and eliminate our dependence on entities like OPEC.

...To sum up in baseball metaphors: I believe the credit crisis is probably in the eighth inning. The economic crisis is still doing batting practice. As far as the funding crisis goes, I don't think folks have realized that the game has even been scheduled."

Fleckenstein hits several nails on the head here. Think back two years. The U.S. economy is booming...or is it? A lot of houses are being built at prices beyond which the average family can afford to pay. House builder stocks are some of the darlings of the stock markets. Folks are getting rich 'flipping' homes. Hell, there are television shows devoted to 'flipping'. This isn't the dot-com bubble writ large...writ on the one item that just happens to be the average American family's biggest investment. No, this isn't a bubble. It's different this time.

Idiots are walking off the streets into mortgages there is no way they can afford. Other idiots are lending the money to them. There is a shaddow mortgage industry that is almost completely unregulated, that can nontheless borrow huge amounts of money from the regular banking system, and thus indirectly from the FED itself. Even the 'big boys' like Lehman are neck deep in the funny mortgage business, busy engineering credit default swaps for sub-prime loans.

Most of the growth in the U.S. economy is linked to home building, mortgages, real estate, and U.S. consumers taking out second and third mortgages on their homes to buy all kinds of things from tuition for college, to vacation homes, to Harleys, to goodness knows. And the whole thing is being financed by foreign money. (Now wait a minute there Houston...if the economy is doing so great, expanding a mile a minute, why do we need foreign financing anyway? I guess no one thought to ask that question at the time.)

Fleckenstein tells us that the second crisis isn't even up at bat yet. It's the second game to be played in the tripple header. He's not just woofin' there. Markets have not begun to deal with the layoffs and slow-downs. How could they? The news hasn't even been reported yet. How could it be? Most of the bad stuff that is going to happen hasn't even happened yet. (Comforting thought that, heh?)

Still in the dugout, not up until the third game in this tripple header, is the funding crisis. By the time we really get to cranking up the infrastructure play, will we still be able to borrow from the foreigners like we did back in the bubble days? Will we? Will they? Really?

And this leads me to talk here about energy. It is the most critical challenge we face. We need to develop a lot more of it. The 'drill babby drill' crowd misses the real point I think. We already are. There are no spare rigs around. We are drilling as fast as we can right now. The drilling businesses in North America are running flat out right now. The rigs are busy and committed far into the future.

T. Boone Pickens is dead on when he states that this is one energy crisis we can not drill our way out of. Even if we had the rigs, and we don't; even if we could start drilling off the East Coast and California, and we can't do that either because the states still have veto power on that; we could not drill enough wells to move domestic production of oil from the current 29 percent of our total usage to 30 percent; at least not without a huge drop in domestic demand due to a deep and severe recession.

There I've said it. The only way we are going to be able to increase our domestic oil production, in relation to our total usage, is for our total usage to take a really big hit. Do you get that? Our current producing fields produce less and less each year. We have to drill like crazy just to replace the production we are losing from existing fields. All drilling off-shore can ever promise is to help maintain the status quo, to help us keep up our 29 percent. And to do that we have to build a lot of new off-shore rigs. We don't have any to spare. So if drilling off the East Coast or California is going to happen, new rigs will have to be built to do that, and that will require billions of dollars in investment.

Meanwhile, we need to convert to compressed natural gas (CNG) and electricity to drive our trucks and autos. We need to get that new electrical power from new Nuclear Plants, and from Wind. Clean Coal technology is not ready, not available for this crisis, neither is coal gasification. Neither is truly efficient solar power, though solar can still play a limited role. Solar panels need to go onto the roofs of houses in a big way, both on new and existing homes. They can be effective there. But solar/electric technology is still not efficient enough for commercial installation. In order to create enough electrical power for a city the size of Denver, we would have to pave about two thirds of Nebraska with Solar Cells.

CO2 sequesterization, which would revolutionalize Coal Fired electrical plants by actually eliminating the CO2 they throw into the atmosphere, has never been tested yet. We don't know if it will work anywhere. But we are sure that many parts of the country don't have the right kind of geology for it to work there.

We need to get moving with the technology at hand as soon as a new administration takes over. We don't have time anymore for technology to catch up. We have to start now with the technology we have that works, and that will give us non-poluting electrical power. That boils down to Nuclear and Wind. Period.

October 27, 2008

Here is a link to 'Monday Morning Quarterback: The Great Wonder of the World', by Todd Harrison of Minyanville.Com. I quote its not-so-reassuring words below.

"Since September, when we warned of the impending credit crash, the S&P has declined 35%, almost halving the mainstay U.S. average year-over-year. The selling has been relentless as social mood shifts, risk appetites abate, leverage is unwound and debt is destroyed.

If you're feeling financially inadequate, know you're not alone. This year alone, Brazil is down 51%, China is off 67%, India is 58% lower and Canada (-32%), France (-46%), Germany (-49%), Hong Kong (-60%), Italy (-48%), Japan (-53%), South Korea (-50%), Singapore (-54%), Switzerland (-36%) and the U.K. (-42%) are listening to similarly sullen chin music."

.............

The Orange Section writes some more:

"I agree with you on Banks and the traditional savings account being essentially a losing deal when you mix in inflation. To sum it up: No one will ever get rich on that rate of return.

Americans save in different ways through financial markets whether it be in a Pension or a 401K. I would argue that the main issue is the level of savings and lack of understanding of the ideal of sacrifice.

I don't think you have to look any further than the polls to see the problem. A Majority of Americans are preparing to elect a candidate who is promising to make their lives easier by taking away from those who have succeeded. They think they are getting something for nothing, but they fail to see that Obama's taxation proposals are not just a tax hike for the wealthy, they are also a barrier to opportunity. A progressive tax is also a barrier to upward mobility.

I don't think those voters have done enough time thinking about what it means to call America the Land of Opportunity, and what it means for the country to make it harder to achieve such opportunity. Obama ridicules the income gap and yet his policies will do more to preserve such a gap than any tax hike could ever hope to accomplish. How is that for Irony?

The larger point though gets back to sacrifice. What happened to the breed of American that looks to the accomplished individual and instead of jealousy says 'I want that for myself.' Our culture is so busy lavishing praise of victimhood we are ignoring the fruits of the go-getter. What a tragedy.

Well it started out on savings, but I see the savings as being symptomatic of larger issues in American Society. I have a friend in Texas who puts it much more bluntly: People are whiners."

............

October 26, 2008

Ben Smith reports that there are alerts out for the U.S. Dollar. It is expected to fall soon and test the 50-day moving average.

Here is a link to 'The Other Side of the Trade: Bear Trap!', by Todd Harrison of Minyanville.Com. I quote it below.

"There is a massive distinction between a trading low and market bottom. All else being equal, it remains my view that either the dollar must devalue or equities will decline - perhaps next year - as debt destruction manifests across the financial continuum.

...Seeds of isolationism continue to sow as the going gets tough and the tough tend to their own interests. Derivatives may be financial weapons of mass destruction but liquidity is the neutron bomb - pull the pin and it'll suck the life out of the global economy." [Bolding is my own...the Bender.]

In this article Mr. Harrison links to one of his older articles: 'Our Wishbone World'. I quote it below.

"While near-term nuances are difficult to digest, the big picture has come down to a simple question. Will foreigners allow the dollar to devalue further, paving the way towards hyperinflation, or will capital drain from the system and introduce a prolonged period of deflation?

...We are approaching a critical crossroads. Structural imbalances have cumulatively increased since the back of the tech bubble and risk has built to a crescendo. The credit contagion simply served as a catalyst to bring this conundrum to bear. All that remains to be seen is where the bear will domicile.

Let's look at both sides of the great debate. To the left is the socialization of markets, nationalization by governments and hyperinflation. To the right, we have asset class deflation, risk aversion and the unwinding of the debt bubble.

...As Mr. Practical observed as we surveyed the situation, 'None of these plans will affect the larger deflationary credit contraction. Debt deflation is occurring outside of the Fed's control at the world's money center banks, where supply and demand for credit has undergone a rapid and significant decline.' [Bolding is my own...the Bender.]

This process will take years to manifest but will ultimately yield positive results. The destruction of debt will allow world economies to build a solid foundation for future expansion that is entirely more secure than what we currently have in place."

And here is a link to a very gloomy article: 'Taiwan Dumps Fannie, Freddie. And Uncle Sam?', by Randall W. Forsyth of Barrons. I quote it below.

"Taiwan's financial regulators reportedly have ordered that nation's insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine."

Links to older commentary:

News 84, 09-30-08 to ?

News 83, 09-30-08 to 10-22-08

News 82, 08-08-08 to 09-29-08,

News 81, 06-18-08 to 08-03-08

News 80, 03-27-08 to 06-16-08

News 79, 02-03-08 to 03-24-08

News 78, 12-23-07 to 02-02-08

News 77, 11-16-07 to 12-20-07

News 76, 10-14-07 to 11-12-07

News 75, 08-19-07 to 10-10-07

News 74, 04-30-07 to 08-17-07

News 73, 10-24-06 to 04-23-07

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