Monday, October 3, 2011

GIVE ME A DOUBLE DIP OF RECESSION

Tom Keene from Bloomberg interviews Lakshman Achuthan, co-founder of the Economic Cycle Research Institute and they talk about the outlook for a U.S. recession.

 I don't know how it is possible to have a view that is bullish in this environment. I traded emails today with a person that is convinced that they need to be fully invested in the market and were attempting to find high dividend payers. Fine, I understand that if you are a mutual fund manager. I am not ok with that if you are an individual investor. In this kind of scenario you could lose 20% or 40% in a matter of a few months! A 4% dividend isn't going to make up for that kind of loss!

 So, as we examine this video, keep in mind the comments from Warren Buffett the other day, as he tells us that there is not a recession.



Here are just a few of the interesting tidbits from the video.

"This is not a double dip, it is a new recession." 

"If you think this is bad, we haven't seen anything yet."

 "Profits can be good, but I don't know where stocks go. We expect more frequent recessions so you have an elevated stock risk premium. Look at the case of Japan after the bubble burst, it is not that they didn't make any money, but the Nikkei is a quarter of the value."

Can yields go lower? -- "Yes, look at Japan"

IT COMES BACK TO THE FED IS OUT OF BULLETS
I'm becoming more pessimistic as I see more data from the US that is poor and then we have further deterioration in Europe and the emerging markets. Copper is signaling that things globally are turning anemic.

It doesn't seem like the fellas at ECRI believe it's all good.  Perhaps just the Warren Buffett rails and insurance companies, and furniture stores that employ 70,000 are doing fine.  I'm not a huge fan of ECRI's cop out that this is not a double dip recession, for them it is a new recession, because I think they missed the signs as the Fed blew up their model (revealing that much of ECRI's data is based on liquidity and credit just like the Financial Conditions Index.  Having said that, I believe their models are back to pointing in the correct direction because the Fed simply had to quit fueling the economy with additional printed propellant.  It won't be long until the Fed is back again with the Mother of all Stimuli.  If we see significant breaks with the Dow with a 8000 handle I think this will allow for the globally coordinated stimulus from all central banks that I've been waiting for.  Until then, we'll see support levels fall as the confidence in the US economy falters and the Eurozone mess goes into total meltdown stage.  Alas, there won't be the "decoupled" emerging markets to save us either.  We better get our deflation hats on, it is coming.

GOATMUG 

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

Saturday, October 1, 2011

SO ARE WE IN A RECESSION?

IS THE SLOWDOWN HERE?
I've talked about being in a recession for more than a few months and yet I'm still amazed that there is still an open discussion on the subject in play.  What led me to this post is a clip I found where our favorite guru from the Midwest was interviewed on Bloomberg and he gave another powerfully rosy call signaling that everything was "just fine".

Take a look.

See, don't you feel better?  I thought you might.  Today as I was getting all worked up over the Oracle's comments I thought to myself, why would he say such things?  And I came to the conclusion that he has several reasons to put lipstick on this pig.

  • First, he has been buying like crazy over the last several years and he is probably underwater in many of these positions (BAC and GS anyone?).  While I am one to give most people the benefit of the doubt, it is obvious that Warren Buffett talks his book all the time and in fact has had a staff that likes to front run their own trades, why would we think that Buffett is going to tell us what he really thinks?   He is more likely to tell us what we need to hear to push up his positions.
  • Second, our friend Warren is now pretty tight with our President isn't he?  If he says we are in a recession he pretty much turns the lights out on the Presidential bid for President Obama.  I would guess that Mr. Buffett won't call a recession till the ECRI and NBER guys call it, even if he knows it well before they do.
  • Finally, Warren Buffett is so "big" now that he can't be negative.  If Mr. Buffett were to come out and declare that we were in a recession, it simply would be the final nail in the coffin for the economy (recall, the Fed thinks that sentiment and asset values are everything).  Call it economic diplomacy right?  Just like the post the other day "GEITHNER LIES BECAUSE HE CAN - AND MUST," that I highlighted with Jon Corzine that stated that Tim Geithner could never tell us he wants a weak dollar.... essentially giving the implication that he does.  Buffett is such a market mover that he can't possibly say what he might really think because if he did it would be catastrophic. 
Well, what other perspectives might we have to see if Omaha's greatest investor is on track or not?

FINANCIAL CONDITIONS INDEX
Let's grab a look at the Financial Conditions Index from Bloomberg.  In this index we have a measurement that includes all sorts of liquidity and credit metrics.  This is a measurement that is a standard deviation and essentially we find that any level above zero indicates an economy is expanding.  If the measurement is below zero, it indicates that we are in a recession.



Unfortunately the indicator doesn't look too positive to me as the the Financial Conditions Index took a nose-dive at the end of July and doesn't show any signs of reversing course.  The level indicated here is well under the key zero level.

CEMENT SAYS WE'RE FACING A GLOBAL SLOWDOWN
If any of us had other thoughts that global demand is going to rebound, we can also see that global cement making company Cemex has dropped 56% in the 3rd quarter!  Cemex acquired Rinker, a cement company that produced 80% of US cement, so their results are very indicative of the US outlook too. http://www.bloomberg.com/news/2011-09-30/cemex-posts-worst-quarterly-decline-ever.html

So while Uncle Warren tells us everything is just great, we have a couple of other perspectives that tell us he might be painting a picture that is just a bit too rosy.  If we didn't have a completely rigged bond market we might be able to look there for some truth, but alas, our Federal Reserve has destroyed that market too.

Next week we'll do the monthly update so we'll speak more about this issue and share more charts and data to determine if we can discern if Mr. Buffett is telling the truth.


GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

Thursday, September 29, 2011

NFLX - YUCK (TARGET $100)

OUCH!
Over the last couple of years I've done posts where I have highlighted my short trades on NFLX.  Don't get me wrong, I don't have some hatred for the company or the service, in fact, I think it is cool and as a late technology adopter I would love to obtain the service one day.  I have an issue with companies that become over-valued and NFLX certainly has been one of those stocks.  (You can insert many a high-flyer with a PE ratios that are obscene).

In December of last year I was targeting $175 as an exit for a successful short.
http://goatmug.blogspot.com/2010/12/december-macro-update-rally-on-feds.html

Here's a nice little update on NFLX as we see how powerfully and violently the once favored stock has fallen.  I expect some bounce around $100 which is still $18 or so south of where it is trading this morning.



Somehow, I think we'll see a lot more of this type of action with the broader market.  Make sure you are defensive.


GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

Tuesday, September 27, 2011

FRANKEN-TARP & THE PHANTOM BAILOUT (DJIA UPDATE)

We've rallied almost 550 points on the Dow based on the rumor that we are all saved and that the ECB in coordination with the alphabet soup of Eurozone entities will create a Euro-version of the TARP (Trouble Asset Relief Program).  As of this typing, Europe has created nothing real in terms of negotiating this facility although we've heard that it will involve a TARP-esque approach to trade poorly performing financial assets (Greek bonds that are garbage) for shiny, glimmering, and sterilized Eurobonds (that don't exist yet).

Clearly the market thinks this is a great strategy and solution to the sovereign debt woes of Europe and the developed world, however I don't think it does anything significant to really address the core issues that at driving investors to shun the financial debt obligations of countries like Greece, Portugal, Spain, and Italy.

JUST LIKE THE US?
In the US TARP, there was a panic-stricken financial world that didn't know how to value mortgage assets because every single debt instrument was being treated like trash.  Good mortgages and bad mortgages were seen as untouchable and therefore the entire market seized up.  Although government regulators and financial market wizards act like this was the worst thing ever, the market repudiation of all mortgage debt was an accurate response because the entire market was tainted.  Yes, TARP eased things as a savior emerged (US Taxpayer) to backstop anything and everything that could be bad.

Unlike the US situation, markets in the Eurozone are operating extremely well AND there is no need for additional liquidity.  Stronger countries that are not overspending like Germany have bonds that are well bid, while disasters like Greece that can't pay their bills or meet interest payments are completely shut out of the market.  THIS IS EXACTLY HOW IT SHOULD BE.  Franken-TARP is really about hiding the bad debt under an ECB SPV (special purpose vehicle --- Enron and other off-balance sheet manipulators should be coming to mind here) and asking the other countries to continue to write checks to Greece to keep its head above water and to pretend that the European banks that hold this crap are financially just fine.  In other words the Euro leadership is asking everyone in the world to just pretend that all is well.  To add to the awesome power of the approach, the ECB and IMF are rumored to intend to allow for levering up these debts too so they can get the biggest bang for their buck.  

PROBLEMS WITH FRANKEN-TARP
The problem with the plan is that it still requires the richer countries to send money to the poor.  This wealth "spreading" will come to a stop at some point as the citizens of Germany simply tell their leadership to stuff it.

Second, as much as the poor countries promise to change their ways, they are still in a depression and won't meet financial targets for spending reductions or for country economic growth, so we will see future shortfalls.

At this moment, I don't see anyone losing either.  Healthy markets have losers (I hate to say it) and this Euro-Franken-TARP approach doesn't have any investors taking haircuts.  The no-loss solution means that risky minded investors didn't learn a thing and can now be counted on to double down and increase the odds of a more cataclysmic implosion in the future.

THE RETURN OF THE PHANTOM.....RUMOR
Finally, I don't see any real action, just a lot of rumor floating and hoping!  We have lots of phantom rumors and then we get other rumors that refute the initial market moving rumor.  The problem with the EU is that you 17 members that don't have any real authority or central decision making power over each other, this is why a central Eurobond is actually the DESIRED outcome as it will bind them together even more and has the potential (based on new agreements that must be put in place to handle EU Bonds) to trump national and sovereign interests.  Those silly conspiracy nuts have long suggested that the Eurozone currency union was really only an initial step toward unification and regional command and control that would result in the abdication of national rights and interests.  As long as the citizens have a say in these accords, there will not be a move to go this direction, however we've seen time and time again political leaders trash their own people's will in an effort to maintain and improve the regional interests of the EU.  (Just ask Greeks if this is true.)

So as much as I simply swoon over the notion that all is better and the all clear has sounded (although nothing has actually been approved or implemented) I just cannot help remembering the days in 2008 where each day a new facility and measure were created to stop the financial damage as bank after bank was swallowed up by their own financial mismanagement and leverage.  It is interesting to me that we see that leverage of 30:1 killed Lehman, but the cobbling together of Greek and other damaged credit into some Frankenstein-like TARP will save Europe.  Good luck with that.

TWO UPDATES
As I was typing and proof-reading the post I noticed that there has been a denial of the levering up for the EFSF.....we'll see if that is true or not.

Also, I found this nice summary of what could be happening as it seems like all of us are simply trying to put a finger on how the Europeans will try to do anything but take a write down.
CNBC - by John Carney - Officials working on a Sovereign Debt TARP for Europe? -


TRADING UPDATE
Oddly enough, I've been discussing a DJIA level of 11,300 for a week or so as I hoped that markets would bounce and it would give me a safer place to reload and short.  We are almost there and I am starting to begin to add to positions.  There is a risk here that we could trade up to 11,500 so I've set a stop just above it to give me some room.  My lower end target here looks to see a retest of the support at 10,650 to 10,700 a move below that makes 10,000 very attainable. (Click on the chart to get a cleaner picture).




GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

Monday, September 26, 2011

SOBERING UP ON MONDAY

Well, the world elite met and promised a wave of liquidity and backstops that will surely save us. US markets are up about 1% as I type this and I am left wondering how we are only up that much. Since we are not in "face-ripping" rally mode yet, I thought I would put up a sobering interview that is unlike most of the media that we consume from the Fed's favorite network, NCBC.

Below is a BBC interview with Trader Alessio Rastani. He is a complete nut job or the most brilliant man in Europe. Unfortunately if you say these things in Europe you begin to be seen as an enemy of the "state". We'll need to double up or prayer efforts for him!

Check out this 3 minute video, well worth the entertainment value alone. I'm not so sure I like his Treasury strategy, it seems like a brilliant guy like him could have been more creative. Perhaps he didn't want to talk his book like T. Boone Pickens, Bill Gross, Marc Faber, and the rest? 




You have to love the "Goldman Sachs rules the world" comment as well which makes him look even more psycho.  She didn't even touch that one.

Have a great week. Look for the rally to 11,300 in the Dow....or a total collapse.

GOATMUG
Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/