Tuesday, December 16, 2008
8)Thouhts on the market over the past couple of months
I still think we have some issues to get through ( commercial mortgages/credit card defaults ) that have not announced their presence to the market yet before we hit bottom and in the short term we have to get through christmas numbers which look less exciting by the day.
7)Thouhts on the market over the past couple of months
Now to the markets. Looking pretty ugly. No good news. I think that there is still to much complacency in the markets right now, but will say the level of fear is rising. All futures markets are sharply down as I write this and the Hang Seng opened down over -1000 and the Nikkei is down another -450. Is tomorrow the wash out day? I still think it is to early for the lows to be put in. Paulson is not really doing the job that needs to be done. He is dangling a carrot when it is real meat ( and a lot of it ) that is called for. The measures they are adopting to confront and combat this epidemic are falling immeasurably short of the needed dimensions to be abundantly assured they will work and to preclude any resistance to the rescue efforts. The economic data from Black Friday and the Christmas selling season will be the worst on record. When those numbers are reported that's when I feel the panic will set in. Consumers, to a large extent, buoy this country during economic calamities, without their financial support all bets are off. When the numbers are reported and reveal they have stopped buying, en masse, what we produce and import, that is when I feel you will truly be able to look under the bus and see that the wheels have fallen off and are rolling down the street.
Cash and shorts are the only alternative right now. A buy and hold strategy does not work in this environment. Sure, things look cheap and by all logical reasoning should be considering the the utter economic disaster that was engineered. But, could equities go lower? I think they could. Joel, how many times have you looked at Citi, Hartford, Goldman, Peabody, China Mobile or any other of the 5000 that are traded and said " I can not believe the level this is trading at, it must be a buy " ? Me, you and millions of others have done this and are still doing it daily. I believe that before this is over we will see that people in general will have become so terrified of the financial markets that they will not want anything to do with them. Once they have been deceived by what they thought was a once in a lifetime opportunity to own GOOGLE at $360 or Intuitive Surgical at $210 or GE at $25 or Intel at $17 after all these had all been cut in half only to see these issues lose another 30%, 40%, 50% or more from their buy price. People will be shell shocked and BROKE. I hate to keep sounding like a pessimist because by nature I truly am an opportunistic person. I just have had the unfortunate experience of losing a small fortune ( actually it was quite sizable ) by betting the wrong way at the wrong time in the face of over whelming economic statistics just because I didn't think it could go any lower. Well lesson learned. The path of least resistance is always the easiest path to travel.
Cash and shorts are the only alternative right now. A buy and hold strategy does not work in this environment. Sure, things look cheap and by all logical reasoning should be considering the the utter economic disaster that was engineered. But, could equities go lower? I think they could. Joel, how many times have you looked at Citi, Hartford, Goldman, Peabody, China Mobile or any other of the 5000 that are traded and said " I can not believe the level this is trading at, it must be a buy " ? Me, you and millions of others have done this and are still doing it daily. I believe that before this is over we will see that people in general will have become so terrified of the financial markets that they will not want anything to do with them. Once they have been deceived by what they thought was a once in a lifetime opportunity to own GOOGLE at $360 or Intuitive Surgical at $210 or GE at $25 or Intel at $17 after all these had all been cut in half only to see these issues lose another 30%, 40%, 50% or more from their buy price. People will be shell shocked and BROKE. I hate to keep sounding like a pessimist because by nature I truly am an opportunistic person. I just have had the unfortunate experience of losing a small fortune ( actually it was quite sizable ) by betting the wrong way at the wrong time in the face of over whelming economic statistics just because I didn't think it could go any lower. Well lesson learned. The path of least resistance is always the easiest path to travel.
6)Thouhts on the market over the past couple of months
So, now to the business at hand. What a week in the markets. I was surprised by the close on the Dow today. It seemed weak and indecisive all day long, as if it new with all the bad news that it should not be up but was trying to shake off the past two days. Not convincing to say the least, as the volume was anemic. The numbers for the week are painting a pretty abysmal picture going forward, unemployment at 14 year highs with almost 10 million unemployed . CEO's are saying that earnings are falling off a cliff, the Nikkei was off another 3.5 % , the Dow closed down for the week 4 %, Nasdaq ended the week down 4.25%, the S&P closed the week down 4 %, The Russell closed down 4 % and the Wilshire 5000 closed down 6 % which represents almost all publicly traded companies ( that 6 % translates into almost 500 Billion in lost equity ). Looks pretty bleak.
So what happens now? I don't know but it looks like we have a mountain in front of us that is going to have to be chipped away at a little bit at a time, it seems. As I said before, this time it feels different. Contracting P/E ratios down to low single digits is not going to fix the problem since that is not the problem. The problem stems from credit issues. Overwhelmingly almost all major banks, investment firms, insurance companies and some mighty big blue chips were leveraged to the hilt, where any complication could and has spelled disaster.
In the end the losses will have to be absorbed, ironclad regulatory oversights put in place, new leaders put in place at the helm and a good number of crooks will need to take responsibility and go to jail. Confidence must be restored and until those who led us down this path are appropriately compensated with a just reward I think we will remain gun shy and skeptical.
The economic fall out of this financial tragedy has yet to make it's self known in scope and intensity. I think it will be worse than most fear and hope I am wrong but there appears to be nothing bright on the horizon yet that we can look to with any confidence.
Based off the economics off the problem I have revised my bottoms on the markets and put this final tally of the carnage to you for your experienced opinion.
Dow bottom : Somewhere around 6200 - 6500
Nasdaq bottom : Somewhere around 1300
S&P bottom : Somewhere around 675
Are these numbers out of the realm of possibility?
So what happens now? I don't know but it looks like we have a mountain in front of us that is going to have to be chipped away at a little bit at a time, it seems. As I said before, this time it feels different. Contracting P/E ratios down to low single digits is not going to fix the problem since that is not the problem. The problem stems from credit issues. Overwhelmingly almost all major banks, investment firms, insurance companies and some mighty big blue chips were leveraged to the hilt, where any complication could and has spelled disaster.
In the end the losses will have to be absorbed, ironclad regulatory oversights put in place, new leaders put in place at the helm and a good number of crooks will need to take responsibility and go to jail. Confidence must be restored and until those who led us down this path are appropriately compensated with a just reward I think we will remain gun shy and skeptical.
The economic fall out of this financial tragedy has yet to make it's self known in scope and intensity. I think it will be worse than most fear and hope I am wrong but there appears to be nothing bright on the horizon yet that we can look to with any confidence.
Based off the economics off the problem I have revised my bottoms on the markets and put this final tally of the carnage to you for your experienced opinion.
Dow bottom : Somewhere around 6200 - 6500
Nasdaq bottom : Somewhere around 1300
S&P bottom : Somewhere around 675
Are these numbers out of the realm of possibility?
5)Thouhts on the market over the past couple of months
So, now to the business at hand. What a week in the markets. I was surprised by the close on the Dow today. It seemed weak and indecisive all day long, as if it new with all the bad news that it should not be up but was trying to shake off the past two days. Not convincing to say the least, as the volume was anemic. The numbers for the week are painting a pretty abysmal picture going forward, unemployment at 14 year highs with almost 10 million unemployed . CEO's are saying that earnings are falling off a cliff, the Nikkei was off another 3.5 % , the Dow closed down for the week 4 %, Nasdaq ended the week down 4.25%, the S&P closed the week down 4 %, The Russell closed down 4 % and the Wilshire 5000 closed down 6 % which represents almost all publicly traded companies ( that 6 % translates into almost 500 Billion in lost equity ). Looks pretty bleak.
So what happens now? I don't know but it looks like we have a mountain in front of us that is going to have to be chipped away at a little bit at a time, it seems. As I said before, this time it feels different. Contracting P/E ratios down to low single digits is not going to fix the problem since that is not the problem. The problem stems from credit issues. Overwhelmingly almost all major banks, investment firms, insurance companies and some mighty big blue chips were leveraged to the hilt, where any complication could and has spelled disaster.
In the end the losses will have to be absorbed, ironclad regulatory oversights put in place, new leaders put in place at the helm and a good number of crooks will need to take responsibility and go to jail. Confidence must be restored and until those who led us down this path are appropriately compensated with a just reward I think we will remain gun shy and skeptical.
The economic fall out of this financial tragedy has yet to make it's self known in scope and intensity. I think it will be worse than most fear and hope I am wrong but there appears to be nothing bright on the horizon yet that we can look to with any confidence.
Based off the economics off the problem I have revised my bottoms on the markets and put this final tally of the carnage to you for your experienced opinion.
Dow bottom : Somewhere around 6200 - 6500
Nasdaq bottom : Somewhere around 1300
S&P bottom : Somewhere around 675
Are these numbers out of the realm of possibility?
So what happens now? I don't know but it looks like we have a mountain in front of us that is going to have to be chipped away at a little bit at a time, it seems. As I said before, this time it feels different. Contracting P/E ratios down to low single digits is not going to fix the problem since that is not the problem. The problem stems from credit issues. Overwhelmingly almost all major banks, investment firms, insurance companies and some mighty big blue chips were leveraged to the hilt, where any complication could and has spelled disaster.
In the end the losses will have to be absorbed, ironclad regulatory oversights put in place, new leaders put in place at the helm and a good number of crooks will need to take responsibility and go to jail. Confidence must be restored and until those who led us down this path are appropriately compensated with a just reward I think we will remain gun shy and skeptical.
The economic fall out of this financial tragedy has yet to make it's self known in scope and intensity. I think it will be worse than most fear and hope I am wrong but there appears to be nothing bright on the horizon yet that we can look to with any confidence.
Based off the economics off the problem I have revised my bottoms on the markets and put this final tally of the carnage to you for your experienced opinion.
Dow bottom : Somewhere around 6200 - 6500
Nasdaq bottom : Somewhere around 1300
S&P bottom : Somewhere around 675
Are these numbers out of the realm of possibility?
4)Thouhts on the market over the past couple of months
As far as a trend being in place, the only trend that I feel can be truly ascertained at this point is the trend of overwhelming volatility.Although I will concede the bottom on the markets is closer than the tops, I think the foundation of our system has been exposed. The inherent weakness in the incessant corporate quest for greed ( or higher returns, which ever you prefer ) at all cost, has obscured the fiducial obligations of the corporations to the participants of the markets and to the determent of their own self interest.
With that being said, the only logical result is the mayhem we are experiencing now. I feel there are many different facets to the ills plaguing the markets now and it seems as though each one of them may ultimately need their turn at the confessional to confess their sins and come clean, as a way of wiping the slate clean and beginning again. It would seem that every facet to credit will have to eventually be exposed to rectify the damage that has been caused.
Have all the financial weapons of mass destruction on Wall Street been detonated yet? I'm betting not. I still think there is going to be a Private Equity implosion. These guys ( BlackStone, Cerberus...etc ) were doing deals, taking on enormous risk for standard gains? Credit Cards have not even really come into the picture yet but I just saw where MA lowered their 2009 by 15%. As I am writing this 10:13pm 11/5/08 the Nikkei is down -550 and the Hang Seng is down -1000. This is like a shark tooth stair step down, I don't think we have priced in the bottom yet.
I still favor fading the open, especially strong positive futures early in the morning, and stacking the shorts throughout the day before unwinding the positions before close.
This will turn one day, but again I don't think we have seen the bottom.
With that being said, the only logical result is the mayhem we are experiencing now. I feel there are many different facets to the ills plaguing the markets now and it seems as though each one of them may ultimately need their turn at the confessional to confess their sins and come clean, as a way of wiping the slate clean and beginning again. It would seem that every facet to credit will have to eventually be exposed to rectify the damage that has been caused.
Have all the financial weapons of mass destruction on Wall Street been detonated yet? I'm betting not. I still think there is going to be a Private Equity implosion. These guys ( BlackStone, Cerberus...etc ) were doing deals, taking on enormous risk for standard gains? Credit Cards have not even really come into the picture yet but I just saw where MA lowered their 2009 by 15%. As I am writing this 10:13pm 11/5/08 the Nikkei is down -550 and the Hang Seng is down -1000. This is like a shark tooth stair step down, I don't think we have priced in the bottom yet.
I still favor fading the open, especially strong positive futures early in the morning, and stacking the shorts throughout the day before unwinding the positions before close.
This will turn one day, but again I don't think we have seen the bottom.
3)Thouhts on the market over the past couple of months
These are exciting times, unfortunately or fortunately depending on your point of reference, things are extremely volatile right now. I am however, enjoying the extreme swings that these turbulent times are offering. Having been through the " Tech Wreck ", I feel I have earned an expensive education through the school of " hard knocks or experience " which ever you choose to call it, that has afforded me the patience and understanding this time around that I lacked last time. Things seem different this time. The underlying issues go much, much deeper than the frothy market capitalization's of businesses that hinged their success on a new paradigm shift to electronic commerce that in most circumstances did not produce the desired result. To me, that era could best be generalized by the over abundance of cheap capital chasing the latest and greatest thing that could possibly revolutionize the internet explosion. And we saw how that turned out.
This debacle, on the other hand, seems to have real teeth to it. The underlying issue is a physical asset that was ultimately valued at much, much more than it was ever really worth, fueled by low interest rates, decreased qualifications to obtain financing, and the willingness of the qualifiers to, perhaps, fraudulently overstate the ability of those being financed to satisfy the terms of the financing that they were seeking. Maybe because knowingly, once the closing had taken place the mortgage would be bundled with a thousand others like it and sold to some foreign sovereign wealth fund and the tranches would be priced accordingly depending on how much risk they were willing to take on.
Now enter into the equation the lack of liquidity that was so abundant when you could refinance your latest flip to buy as you say " flooring, cabinetry, new roof, HVAC for the flip to sell or for those who used the flip as a ATM to withdraw funds for other houses, cars, boats, trips, computers, electronics, college tuition, etc.......
And factor in that 2/3 of the economy is comprised of us poor hapless souls that patronize our society's retail outlets that contribute the GDP and GNP, now factor in the exponential decrease in spending power due to the illiquidity of the decrease in refinancing and new loans being awarded by banks who are stretched to the breaking point and the subsequent lack of altitude of earning power of the average American worker.
The ugly numbers that have yet to rear their abysmal heads leaves little confidence in the consumer pulling us out of this one. A total onslaught of the unjustifiably high mortgages is going to have to be combated with a through and vigorous assault by the treasury department to end the torture.
So how does this play out? Your guess is as good as mine, but I do suspect that in the end something will have to be done with the " overstated mortgages ". Some how they will have to be repriced to reflect the true value, and until that is done I feel a cloud of uncertainty will hang over the market, causing indecision, knee jerk starts and stops and general confusion.
Which will offer a plethora of opportunities to the the short term trader.
This debacle, on the other hand, seems to have real teeth to it. The underlying issue is a physical asset that was ultimately valued at much, much more than it was ever really worth, fueled by low interest rates, decreased qualifications to obtain financing, and the willingness of the qualifiers to, perhaps, fraudulently overstate the ability of those being financed to satisfy the terms of the financing that they were seeking. Maybe because knowingly, once the closing had taken place the mortgage would be bundled with a thousand others like it and sold to some foreign sovereign wealth fund and the tranches would be priced accordingly depending on how much risk they were willing to take on.
Now enter into the equation the lack of liquidity that was so abundant when you could refinance your latest flip to buy as you say " flooring, cabinetry, new roof, HVAC for the flip to sell or for those who used the flip as a ATM to withdraw funds for other houses, cars, boats, trips, computers, electronics, college tuition, etc.......
And factor in that 2/3 of the economy is comprised of us poor hapless souls that patronize our society's retail outlets that contribute the GDP and GNP, now factor in the exponential decrease in spending power due to the illiquidity of the decrease in refinancing and new loans being awarded by banks who are stretched to the breaking point and the subsequent lack of altitude of earning power of the average American worker.
The ugly numbers that have yet to rear their abysmal heads leaves little confidence in the consumer pulling us out of this one. A total onslaught of the unjustifiably high mortgages is going to have to be combated with a through and vigorous assault by the treasury department to end the torture.
So how does this play out? Your guess is as good as mine, but I do suspect that in the end something will have to be done with the " overstated mortgages ". Some how they will have to be repriced to reflect the true value, and until that is done I feel a cloud of uncertainty will hang over the market, causing indecision, knee jerk starts and stops and general confusion.
Which will offer a plethora of opportunities to the the short term trader.
2)Thouhts on the market over the past couple of months
Things do look cheap right now, but I have not gotten the sense that people have given up and thrown in the towel. As long as people feel that the sell offs present opportunity I don't we will have put in a bottom. Until people in general give up and throw in the towel and really want to disassociate themselves with stocks, I think the true bottom will remain elusive. That being said I feel the massive sell offs do present a short term opportunity to the up side just as these 800 and 900 point upswings present a compelling short opportunity.
I don't think the other shoe has dropped. We have had time to absorb that subprime shock that rocked the markets but the other side of that coin is the weak economic numbers which have yet to reveal their nature or intensity. We start getting numbers that reflect the sentiment of the consumer I think high 6000 to 7000 range on the Dow is not only a possibility but perhaps even a foregone conclusion.
You mention PNC. Here is a email I shot Al Nalven a couple weeks ago when they were given National City.
The PNC deal is the latest mega-merger orchestrated by the government to save a troubled bank. Previous rescues included Washington Mutual and Wachovia. Like Wells Fargo, which bought Wachovia, PNC will benefit from a recent rule change that allows it to use National City's losses to shelter income from taxes.
PNC has been relatively untouched by the mortgage crisis. But the meltdown has caused deep losses for National City. PNC said it expects it could book $19.9 billion in losses, representing 17.5 percent of National City's loan portfolio.
We are in trouble. These guys controlling our tax dollars are stacking the deck, deciding who wins and who loses. And all these write offs become " losses carried forward " for the privileged few in the clique, these thieves may not end up paying any corporate taxes for years, while they come to the public tax payer trough to remain solvent.
So to get this straight, PNC who was " relatively untouched " by the mortgage crisis ( has a profit margin of 19.71% and a operating margin of 34.79%, I just checked ) had a gross profit of 8.04 Billion in 07' and a net profit of 1.467 Billion in 07' and assets of 107 Billion in 07' and a total cash flow of 15.1 Billion, was just given 5.6 Billion in tax payer money to buy National City which had total cash, as of this most recent quarter, of 8.13 Billion ( net of any account holders ). For 2008 National City expects a loss of 20 Billion.
btw - PNC is super heavy in the DC area
PNC - 1.467 Billion in net profits a year
NC - 20 Billion in losses
20/1.5 = 13.33
PNC was given 5.6 Billion ( I have seen figures in the mid 7 range ) in taxpayer money for purchase of NC
PNC made off with 8 Billion Cash from NC buyout
PNC will not ( at current rate run rate ) pay any corporate income tax for 13.33 years
Is it just me or does this seem the definition of Moral Turpitude or just business the American way?
I don't think the other shoe has dropped. We have had time to absorb that subprime shock that rocked the markets but the other side of that coin is the weak economic numbers which have yet to reveal their nature or intensity. We start getting numbers that reflect the sentiment of the consumer I think high 6000 to 7000 range on the Dow is not only a possibility but perhaps even a foregone conclusion.
You mention PNC. Here is a email I shot Al Nalven a couple weeks ago when they were given National City.
The PNC deal is the latest mega-merger orchestrated by the government to save a troubled bank. Previous rescues included Washington Mutual and Wachovia. Like Wells Fargo, which bought Wachovia, PNC will benefit from a recent rule change that allows it to use National City's losses to shelter income from taxes.
PNC has been relatively untouched by the mortgage crisis. But the meltdown has caused deep losses for National City. PNC said it expects it could book $19.9 billion in losses, representing 17.5 percent of National City's loan portfolio.
We are in trouble. These guys controlling our tax dollars are stacking the deck, deciding who wins and who loses. And all these write offs become " losses carried forward " for the privileged few in the clique, these thieves may not end up paying any corporate taxes for years, while they come to the public tax payer trough to remain solvent.
So to get this straight, PNC who was " relatively untouched " by the mortgage crisis ( has a profit margin of 19.71% and a operating margin of 34.79%, I just checked ) had a gross profit of 8.04 Billion in 07' and a net profit of 1.467 Billion in 07' and assets of 107 Billion in 07' and a total cash flow of 15.1 Billion, was just given 5.6 Billion in tax payer money to buy National City which had total cash, as of this most recent quarter, of 8.13 Billion ( net of any account holders ). For 2008 National City expects a loss of 20 Billion.
btw - PNC is super heavy in the DC area
PNC - 1.467 Billion in net profits a year
NC - 20 Billion in losses
20/1.5 = 13.33
PNC was given 5.6 Billion ( I have seen figures in the mid 7 range ) in taxpayer money for purchase of NC
PNC made off with 8 Billion Cash from NC buyout
PNC will not ( at current rate run rate ) pay any corporate income tax for 13.33 years
Is it just me or does this seem the definition of Moral Turpitude or just business the American way?
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