Archive - Nov 16, 2009 - Story

This report explains the method I use to interpret the financial markets, economics, and potential
investment opportunities. I have found this method to be very helpful. Please Note: The econometric
models used in this report are real. I created and tested them myself. If had to name my method, I would call it the Multiple Personality Financial Market Economic Investment Disorder, or simply (MPFMEID).

Someone should translate Bernanke's speech extolling the virtues of Goldman Sachs never having to worry about being broken up or giving up its prop trading operations, and that the American economy is sizzling, to the just announced record 35.1 million food-stamp recipients. That's right: a record number of Americans are now subsisting courtesy of foodstamps. One wonders at what point these people say enough and decide to start their own prop trading shops, as that is the only guaranteed way to make money these days. If these millions are allowed to simply replicate Goldman's trading feed, we are confident that the entire economy would recover practically overnight.

The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

No mention of Gold

Bad news for Beazer's CEO, Ian McCarthy, courtesy of the angry and completely impotent hornet's nest that is the SEC.

"In 1982, Ronald Reagan was President (two consecutive terms as Governor of California), Don Regan was Treasury Secretary (35 years of financial sector experience), Martin Feldstein as the Chief Economic Advisor to President Reagan (the dean of business cycle determination), and Paul Volcker was Fed Chairman (9 years of prior financial sector experience). Compare and contrast to Barrack Obama (junior senator from Illinois for 3 years); Timothy Geithner (21 years experience in government, three years as a lobbyist); Larry Summers (no private sector experience; 27 years of academia and government) and Ben Bernanke (no private sector experience; 30 years of academia and government). Which team do you think deserved the higher multiple — the one with actual experience in the real world or the one immersed in academia and government?" David Rosenberg

The Service Employees International Union must not have gotten the revised scriptures. Which is the presumably why the SEIU is organizing a protest at noon in front of the Washington D.C. cephalopod cathedral: "Enough is enough. Join hundreds of taxpayers on November 16th, when we demand that Goldman Sachs give its $23 billion in bonuses to foreclosure prevention programs and press Congress to implement rules that would protect Americans from big bank greed."

Melt up occurring in every aspect of the markets as the dollar is in its last death throes. Helicopter Ben is now upgraded to Conviction C5 Galaxy Ben by Goldman Sachs.

The SEC has no problem being all over what is handed to them on a silver platter. As to the pyramid scheme that the market now is, they'll just leave that one alone. " Bullish bets on 3Com Corp. options four hours before Hewlett-Packard Co.’s bid for the maker of computer-networking equipment are being investigated by regulators, according to a person familiar with the matter."

"I have been a big critic of the systemic risk posed by excessive leverage, problematic CDOs and the credit derivatives written against them. But I did not specifically criticize Goldman’s deals until it became an issue of public interest when AIG blew up. Goldman may not have to answer to sophisticated investors, but it should answer for its role in the systemic risk posed by AIG’s near collapse, its role in the way in which AIG was bailed out, and the fact that the U.S. taxpayer had to bail out the global financial system along with a number of Goldman’s trading partners." - Janet Tavakoli

Cash for Clunkers hangover is permeating everywhere, with the latest casualty being the Empire States Manufacturing Index General Business Conditions, which tumbled from 34.6 to 24.5 in October. Never one to leave on a sour note, the NY Fed's survey indicated that respondents are even more optimistic even as coincident data trends turn negative, curiously on expectations of deteriorating margins, and a hope that no additional cash will have to be spent as the "new normal" is attained.

We had discussed last week that even though the S&P future was back around the tops for the year, we did not have enough elements to think the turn was right upon us as the price action and its fractal nature did not have the makings of a complete bullish impulse. We are now starting to have some elements. Purists will realize we made the tops last week with only divergence on a 30-minute and 60-minute interval charts, which is historically only indicative of a short-term retracement. As can be seen on the 60-minute chart we had slight divergence on the 11th and we have been consolidating since in a wave 4. It is not clear whether wave 4 is completed just yet. Watch 1,095.50 for now. As long as this level is not violated we may be in the last leg up of the impulse started at 1,026, but if it violated expect a pull back towards 1,082/1,084 before we make new highs.

• Retail sales ex-autos at 0.2%, miss expectations of 0.4%, huge downward September revision (AP)
• Evans-Pritchard: China has now become the biggest risk to the world economy (Telegraph)
• Remember Europe? Greek bonds decline, spread with bunds widest in four months (Bloomberg)
• NY $10 billion budget gap looms as lawmakers returns to Albany (Bloomberg)
• Obama talks human rights, censorship with Chinese students but event is not broadcast nationally (ABC)
• GM reports $1.2 billion loss, generates $3.3 billion in cash
  courtesy of CfC and other subdisides that keep it out of liquidation,
  threatens to pay back government loan back with more government money (Bloomberg)

• APEC leaders back China's anti-protectionist stance, avoid currency debate.
• Asia stocks, currencies rise on APEC pledge to continue stimulus; Dollar drops.
• Euro gains a second day as recovery signs boost demand for risk.
• Japan’s GDP in Q3 rises 4.8% - higher than expectations, on rebound in domestic demand.

On September 30, 2008, the Treasury issued an edict innocuously titled "Notice 2008-83," published in the equally innocuously titled "Internal Revenue Bulletin 2008-42." Perhaps it is just our paranoid side, but we suspect you could return the country to the gold standard in "Internal Revenue Bulletin 2009-63" and no one would catch on for 6 months. Add to this the fact that Congress, and the rest of the planet, was already quite literally possessed by the upcoming vote on Emergency Economic Stabilization Act of 2008 (the underpinnings of what would later become the Troubled Assets Relief Program or "TARP") and it isn't hard to see why the "notice" went, ironically, somewhat unnoticed.

It shouldn't have.

"It wasn't a bow, exactly. But Mr. Clinton came close. He inclined his head and shoulders forward, he pressed his hands together. It lasted no longer than a snapshot, but the image on the South Lawn was indelible: an obsequent President, and the Emperor of Japan."