Headlines for the First Half of NOVNEWS
11/07 - GM warned it could run out of cash next year without a govt loan.
11/07 - 18 and 19th bank failed.
11/10 - Circuit City files bankruptcy.
11/10 - The govt revised bailout package for AIG worth around $150 billion, easing terms on the insurer as it reported a $24.47b 3rd qtr loss.
11/10 - Fannie ended the 3rd qtr with a loss of $29b, and net worth, the difference between assets and liabilities, of $9.4 billion as of Sept. 30. The company said that the number may be negative by the end of the year.
11/11 - Downey Fin may fail.
11/12 - Paulson changes TARP directions.
11/12 - INTC cuts 4th qtr revenue by 1b to 9b from 10b.
11/12 - AmEx became a bank, and requested $3.5b from the TARP.
11/13 - CIT wants to become a bank.
11/14 - Freddie ended the 3rd qtr with a loss of $25b, and net worth of -$13.7b. It will tap into the $100B lifeline from the Fed.
11/14 - A rush to become banks in order to access TARP $. Hartford, a property and life insurer, said it would buy a bank in order to become eligible for TARP$. Genworth Financial Inc., Lincoln National Corp. and Aegon NV have all asked the Office of Thrift Supervision for permission to buy thrifts - and access the TARP.
11/14 - Futures show Fed Rate at 0.25% in Dec.
PREDICTIONS
11/11 - The yield curve and CDS tell the U.S. can't borrow trillions without paying a price.
11/12 - Fighting the financial crisis has put the U.S. on the hook for some $5 trillion a report says. So far.
11/13 - Johann Santer at Superfund Financial HK expects to see gold goes to $1500-$2000 within the next three months, mirroring that of Jim Rogers, Robin Griffiths and Jurg Kiener who are predicting that global central banks’ insistence on printing their way out of economic turmoil is setting the stage for a hyperinflationary holocaust.
11/13 - Puru Saxena told CNBC that within the next four to five years he sees oil prices up to $300 a barrel. GS forecasted oil will reach $150 to $200 within 2 years. JPMorgan also predicted prices could rise to $200.
11/13 - Whitehead said eventually U.S. govt bonds would no longer be the triple-A credit that they've always been."
11/14 - Professor Krugman doesn’t expect another Great Depression but we are well into the realm of depression economics, where state of affairs like the 1930s in which the usual tools of economic policy — above all, the FED’s ability to prop the economy by cutting interest rates — have lost all traction. Krugman suggests a huge fiscal stimulus package on the order of $600 billion.
-- More articles warning of the current deflation fight via injecting massive money supply will create an inflation monster.
What Type of Collateral are the FED Getting From the Banks for Our Tax MoneyWe should all applaud Bloomberg News for throwing the flag on behalf of all the taxpayers. I'll be following this case closely.
Nov. 7 (Bloomberg) -- Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks.
The lawsuit is based on the U.S. Freedom of Information Act, which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn't seek money damages.
China Globalization or World WarPeter Thiel is a successful entrepreneur/VC and hedge fund manager. His latest contribution titled
The Optimistic Thought Experiment, published by Policy Reivew of the Hoover Institution of Stanford University, is a must read for clear thinkers.
Peter thinks only two things can happen from this mad global inflation. Either China succeed in globalization (supressing the global inflation by continuing to provide cheap labor/products/ services -- the great deflation effect), or an apocalyptic world war will surfaced where everyone fight for natural resources to end all inflation and start from scratch, an act like that of the natural forrest fire cleansing itself from excess growth.
I like to believe China will success in their globalization. It's not going to be an easy feast, as inflation is also affecting China's own economy, and Renminbi is growing stronger y-o-y. All these have negative impacts on China to deliver the deflation effect. But, I think they can do it, or at least I would like to think...
Is the Future of Dollar as the World's Reserve Currency in Jeopardy?I've read countless articles on the future status of Dollar as the world's reserve currency. None of them strike me as "clear thinking" -- they are all too gloomy and doomed. The worst comparison was to the fall of Roman empire caused by hyper-inflation and over-extension of its army and Government expenditures. Sounds familiar? Yes, but I only consider that as fun reading as it doesn't have any concrete analysis behind it.
Then, I found this commentary from Michael R. Sesit, titled
Dollar Reserve Status Is Tale of Fading Glory. While it didn't provide any concrete analysis as well, it did have basic logic and reasoning that are very close to my own. He doesn't think the dollar is going to lose its world's reserve currency any time soon, but it is on the course of doing so if the Government kept its course of spending and name-your-price-tag bailouts. It's fascinating knowing that many countries are doing business in currencies other than the world's reserve currency. I'm not sure where this would take us, but it would be an interesting study for the economic historians in the future.
Shall We All Be Concern of the Real Estates?
The major debate regarding the economy centers on the real estate/housing picture. Last week a headline in the Financial Times read, "Housing Data Not as Gloomy as Bears Think." The article went on to say that house inflation in both the UK and Australia declined to zero, yet nothing bad resulted. Price inflation held low in both places for three or four quarters, and then inflation started up again. In both the UK and Australia central banks have since raised their rates. No disasters there.
The latest issue of Business Week adheres to the same optimism, with an article that's headlined, "Housing: The Roof Won't Collapse on the Economy. As builders adjust their inventories, other sectors will offer plenty of support."
I think I'm feeling better already. But wait -- the most intelligent piece I've read regarding housing comes from that brilliant economist, Paul Kasriel, of Northern Trust Global Economic Research. Kasriel notes that the figures for July show that new family homes sold were down 22.2% from July a year ago. At the same time, New family homes for sale in July were up 22.4% from a year ago. The spread between the two was 44.6%. By this measure, states Kasriel, the supply/demand situation for new single-family homes was the worst since July 1972.
Kasriel notes that falling prices for new single-family homes will put pressure on existing home prices, and therefore we can look forward to a decline in residential home construction. Downward pressure on existing home prices will lead to increased mortgage defaults as home-owners may find that the new payments on their variable-rate mortgages amount to more than the declining value of their homes.
ONE MORE LEG DOWN TO GO!
Recap of Previous Blog
While I predicted the market will sneak a quick bounce benefiting no one, it did just that on Tuesday. Bob Pisani over at the CNBC’s NYSE post tried to put a positive spin on the lackluster week at the closing bell Friday stating that DJIA ended the week slightly positive. But the NAZ was down 17.42, and S&P 500 down 0.42. Big deal you said, but instead of Krispy-Krem’ing the week, I am going to call it as it is -- a FLAT week.
I know I am suppose to accentuate the positives, but it’s hard to pull an Allen Greenspan: lying to the public that this wide spread economic slow down is only a "soft patch," and insisted the economy would pick up where it left off soon; thus, he must stay hawkish to fight the inflation with higher interest rates. If you believe the Al-Green rhetoric, then I have the Golden Gate Bridge to sell to you for only $500.
Technical Analysis
All my “big picture” charts are acting as if they are warm-up for a massive leg down (crash) in the near future. Every one of them are now far below the 200MA. Further more, most of the charts are showing flat 200MA, and some heading down. Everyone except for Trannie (DJTA) of course. It is resting just above the 200MA. For bull’s sake, it’s critical that Trannie stay above 200MA next week. If it relents and confirms the weakness with the rest, anything could happen. And don't blame me for not warning you. I don’t think a big one-day drop (over 10%) is in the bear’s playbook, but a never-ending sinking feeling is what the bears have in mind for those who long the market and had pickup a few heavy weights during the last down leg -- warning with the “catching a falling knife” analogy. Another weakness in these charts is that everyone of them, except Trannie of course, is now below the major support line formed by the secular bull trend line back in March 2003. It 'may' mean the secular bull is over. But I’ll hold that prediction back until Trannie joins the rest of its peer.
Addition to reading the pulse of the big indices, I’ve also started to read each major sector with iShare.
Technology related iShares are the weakest and maybe on the verge of bottoming out, as most of them are approaching the major support lines of late 2002 and early 2003. By the way, all of the charts that I am reading have falling so far behind that I have to look back 3 years of history to find the support/resisting lines. That is another negative pulse of the market overall. Three iShares (Network, Semi, Software) caught my attention as they are touching the major 2002 supporting line. Let’s hope a dead-cat bounce instead of a falling knife is in the next act. But with the rest of the market cutting the short term support lines like a warm knife through a butter, I wouldn’t be surprise if these 3 sectors kept their negative momentum, and cut through their 2002 support line. That would be a very bearish setup. Retail (RTH) and Financial (IYG) are holding on to their last lifeline; Utilities (IDU) is looking to break above its resistance and move higher, or hit the ceiling and fall back down; Energy (IYE) is looking okay here, although it’s approaching its intermediate support, and needs to bounce up soon to keep its upward momentum alive.
While everyone in the world plus your mother-in-law are urging you to buy the battered INTC, HP, IBM and the rest of the battered blue chips, I restate that playing the markets at this point is like catching a falling knife -- the chance of catching the blade and bleed is far greater than catching the handle. If people keep insisting that there will be a dead-cat bounce, I’ll point them to last Tuesday’s session as their bounce from the dead and rotting cat.
Technical meltdown in general is not something you should take lightly. Although you shouldn’t rely on technical analysis to dictate your trading strategy, the fundamentals are not looking too bright either. And I will talk about that next week.
I wish the market a better week, technically.
Summation of current state of economy and psychology of the markets - [
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