October 2008
61 posts
Employment Cost Index
The employment cost index was released by the BLS today. This index is largely ignored, and has limited utility. The lack of value has mostly to do with the fact that it is such a lagging indicator. It’s a quarterly report. The end of October marks the release of September statistics, reflecting decisions made in June. That said, there were a few things of interest, and I think the next...
Printing Press Revisited
At the beginning of the month, I wrote Printing Press to provide the Fed’s printing press data. I was going to wait until November to write this post, but it is extremely relevant right now.
The government is still trying desperately to fight deflation by printing new money. How much is the government printing? Well, here’s the monetary base graph as of September 24:
And...
Lake Wobegon Effect
I don’t know why reporters are surprised by things like this, but Diana Olick at CNBC writes Wake Up America—Home Prices ARE Falling:
Am I not doing my job? Or is nobody listening? How is it possible, in the midst of the worst credit crisis in history, which is predicated on one of the biggest housing crashes in history, that nearly half of all Americans still don’t get that home prices...
Bullshit Called
Again, I was watching CNBC (why do I keep doing that?). There was a brief discussion about whether or not a Fed Funds Rate cut actually matters. The guest claimed that it did, because every little bit will help.
Bloomberg carries the torch with an article titled Fed May Cut Rate to 1%, Signal Steps to Save Economy:
The Federal Reserve may lower its benchmark interest rate to 1 percent today...
Today's Nutjob: IMF
I read this post from Mish. The Telegraph is reporting IMF may need to “print money” as crisis spreads:
The International Monetary Fund may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or...
Complaining About Rising Stock
Everyone seems to hate short-sellers on the way down. However, this is the first I’ve heard about people complaining about short-sellers on the way up. Bloomberg reports German Regulator Looking Into Volkswagen Trading After Surge:
Germany’s financial-markets regulator is looking into trading of Volkswagen AG shares after Porsche SE’s plan to raise its stake in the automaker...
It Started as a Good News Day
Before the market opened this morning, I browsed to Bloomberg and found the following headlines:
Boeing Machinists to Vote on Deal That May End Strike
Global Stocks Rise on Valuations; BP, Air France, Alcoa Advance
Yen Falls Most Since 2001 Against Euro as Global Stocks Rebound
For most people, all of these things were positive. The futures were up, and it was a pretty impressive market...
Law of Unintended Consequences
This is going to be a big week for news on the markets. Today started with the new home sales report, which was pretty poor according to Calculated Risk. CNBC called the report good, and claims the market rallied in response to the report (but the market started going up before the release of the report, so I disagree with that assessment). To be honest, the fact that nothing catastrophic happened...
Globally, Not so Good
The global markets have not been doing so well. The bad news in the US is tame by comparison. Argentina might default again, Britain looks to be in recession, the Baltic Dry Index (a pulse on shipping) has collapsed, Russia’s up to shenanigans, and Australia is realizing that the law of unintended consequences enjoys physical humor (it just kicked Australia in the balls). I found some good...
Big Government Ahead →
(via hilker)
— Well written piece. I really hope to be praising fiscally conservative democrats next year.
Unemployment Update
Chrysler just announced that it is laying off 25% of its white-collar workforce, or roughly 4,000 jobs (of 16,000 total salaried workers), in November. I’ll update this post when I find an article after breakfast.
UPDATE
I still can’t find an article, but I did find that Chrysler’s white-collar workforce is 16,000, and the “25%” is of that. That would equate to...
Non-Event: Dow Opening Down 500
The Dow is opening down right now. Unfortunately, there’s still no panic selling. Is that odd, that we’ve now been able to hit the circuit breakers on the futures and not have a lot of fear in the market?
Today looks like a normal trading day. Things could easily change, though.
UPDATE
It was only a 440 down opening.
Time to Invest?
“Invest when there’s blood in the streets” goes the old saw. Many people are saying that stocks look cheap right now, and it wouldn’t be a bad idea to invest if you’ve got a long enough time horizon (even I’ve said this). I’m not convinced the bottom is in, and am playing mostly for the downside now. Nouriel Roubini predicted another 20% downside to the...
Unemployment Up, Rising
I’ll start with a report from a couple days ago from CNN. Monthly job losses cut across 41 states:
Private sector and government jobs fell in 41 states and the District of Columbia last month, the Labor Department said. By comparison, only 18 states reported monthly job losses in August.
Today, the Department of Labor confirmed: Unemployment is up. CNNMoney reports Initial...
I (Heart) Calculated Risk
Calculated Risk has a collection of video clips of Roubini on CNBC. Roubini has pretty well nailed every step of the financial crisis. I disagree with his strong calls for government intervention, but because of his record, his predictions must be taken seriously. Click it.
Incidentally, while some of my distaste for government intervention comes from my basic economic philosophy, much, if not...
Fed Trying Harder to Inflate
Today the Fed announced a hike on the interest rate that they will pay on reserves. As I’ve mentioned before, this essentially gives the Fed the ability to create money. In time, this additional money will successfully inflate. I couldn’t find an article from the usual sources, so here’s the press release from the Fed:
Previously, the rate on excess balances had been set as...
Sucks to be E*Trade
I follow E*Trade because their stock occasionally can be used for swing trading. I gave up trying to trade them recently after losing money on one trade. Once something stops working, I try not to embarrass myself by pretending it still will. I’ll continue to follow the stock to try to determine if trades will start working again (I’ll likely stick with bets on the market as a whole,...
Market is Mocking Me
You know, I just wrote yesterday that I’d make money in this market as long as the S&P 500 didn’t dance around 960 for a month. Today the market decided to mock me by dancing around 960. I’m going to be quite bitter if this continues.
Great Depression Parallels Overblown
Ok, I know I wrote the alarmist headline Great Depression Risk Increasing, but now every media outlet has a commentary on the parallels between this market and the great depression. I just read one at CNN titled Commentary: Is it 1929 all over again?. The main stream media is getting desperate if this counts as authoritative history:
Every intense convulsion of the stock market raises primal...
Kerkorian Dumping Ford
Bloomberg reports, Kerkorian Cuts Ford Stake, May Exit as Bet Collapses:
Kerkorian’s Tracinda Corp. sold 7.3 million Ford shares yesterday for an average of $2.43 each and said it contacted an investment bank about unloading the rest. Tracinda’s remaining 133.5 million shares were valued at $311.1 million yesterday.
Tracinda “intends to further reduce its holdings”...
Economic Stimulous and Porn
Kevin Depew’s “5 Things” over at Minyanville is almost always worth reading. Today’s had the ominous title Five Things You Need to Know: Deflation… And the Headstones Climbed Up the Hills. The short blurb for the article was quite depressing:
The question of whether capitalism can survive is irrelevant because a government, by issuing public debt to buy private...
How I'm Playing This Market
First of all, I’m done calling rallies. I suck at it.
Today was an up day that was easily traded. I do believe that we are overdue for a sustained rally, just as much as I believe we are not at the bottom. However, I have a terrible record of calling these things. They are far easier to trade than they are to call. I actually bought some calls on this one, hoping to sell them higher. After...
More Idiocy
Bloomberg Reports Bush Is ‘Open to Idea’ of Second Economic Stimulus, Perino Says:
The Bush administration is “open to the idea” of another economic stimulus package, though approval would depend on details drafted by Congress, spokeswoman Dana Perino said.
You’ve got to be kidding me. The solution is not to mail checks to every American in the hopes of...
Bernanke Is Fighting the Last War
WSJ had a piece this weekend with the excellent title, Bernanke Is Fighting the Last War, taken from an interview with Anna Schwartz, co-author of “A Monetary History of the United States.” That alone gives her credentials as one of the world’s greatest experts on the Great Depression. The entire article is worth a read. Here’s one choice quote (of many):
So even though...
Week in Review
The Dow posted a gain for the week, despite having the worst single day sell-off on record. Given that it posted one of the best single day gains as well, that’s not too impressive. Given that it’s the first up week in over a month, it’s not too shabby, either. Overall, the rally failed to materialize (yeah, I blew that call). Nobody knows what Monday will bring. Going into the...
CNBC Tries to Polish a Turd
CNBC (on TV) just stated that low housing starts was a good thing because it helps us work through the inventory. The reporter also stated that we should be bulldozing houses that are unoccupied. This is not a unique idea, but it is incredibly stupid. It’s called the “Broken Glass Fallacy,” and has been refuted many times by many people. The fallacy goes like this:
Housing...
I'm Right, They're Wrong
CPI was flat. The futures were up this morning, and pundits were claiming that the CPI numbers were indicative that any recession will be shallow and short. After all, if prices aren’t spiking, the consumer will have an easier time. This analysis is flawed. This only indicates what everyone should know: CPI isn’t a leading indicator.
CPI isn’t a measure of inflation, despite...
Tesla’s wild ride continues - Techland →
— C level changes at Tesla. Aren’t these guys part of the $25 Billion bailout congress approved for the auto industry?
Fire, Ready, Aim.
Bloomberg is reporting on what happened during the bailout meeting with the banks in Paulson Lacks Leverage to Compel Banks to Put New Cash to Work
Treasury officials acknowledge they can’t force banks to get the taxpayer money into the hands of their customers. Instead, officials are betting that the government’s investment will create conditions where banks have a greater...
Selling the Rally
It appears as if the afternoon “Sell the rally” that many people talked about this morning has come to transpire. The downward pressure has met little resistance. Oh, resistance encountered at about 9200. Unfortunately, there should be upward resistance at about 9400 today. I think I’m done with today. I’m going for a long lunch.
The Next Leg Down
If this rally is real (and despite today’s performance, I still think that the market will close higher on Thursday), how long will it last? Setting aside whether the next leg down will establish a new low or not, there will be an end to the rally. I read Naked Capitalism (‘cause it tastes good). Yesterday, Yves posted this insightful piece, Spreads for Credit Cards and Auto Loans...
Essence of the "Rescue" Plan In Comic Form →
— Best concise explanation I’ve seen
Sucks to be Iceland
Iceland is getting pretty close to a worst case scenario, economically speaking. We’ve heard about Iceland turning to Russia for a bailout. We’ve heard about the shutting down of the Icelandic Stock Exchange.
Today, however, I heard about food shortages in Iceland (found here). Bloomberg reports Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports:
After a four-year...
Dow Has Record Gain
The Dow closed just shy of 9,400, gaining just over 940 points. That represents an 11% gain today. That would be a point and a percent record for a single day. Volume was around 7 billion shares, which would be a low-volume day. Those expecting or hoping for an end of the day fizzle (myself included) are left scratching their heads. I was expecting a rally through the week, but not with such an...
Options Expiration Week
It must be options expiration week. We’ve had another announcement of massive government intervention.
Bloomberg reports Fed Releases Flood of Dollars, Market Rates Fall :
The ECB, the Bank of England and the Swiss central bank will auction unlimited dollar funds with maturities of seven days, 28 days and 84 days at a fixed interest rate, the Washington-based Fed said today. All of the...
State Job Cuts
Times are tough for individuals and businesses across the nation. States have burned through their rainy day funds and are facing similar problems, with similar results. Unemployment is going to climb.
I live in California, perhaps the worst state in terms of budgeting this year. CNN reports California may need $7 billion federal loan
California may need a $7 billion emergency loan from the...
Bank Failure Friday
The Paulson plan was too slow for Meridian Bank of Illinois and Main Street Bank of Michigan. Both banks were closed today. Here is the FDIC Failed Bank List.
Back in the USSA
Paulson Says Treasury to Buy Equity in “Broad” Array of Banks
U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity in a “broad array” of banks and other financial institutions to restore market stability and ensure economic growth.
(emphasis added)
We’re not just buying banks, we’re buying anything that Paulson wants. Hundreds of...
Hedge Funds Still Unwinding
Today an awesome 11 Billion shares were traded on the NYSE. I’m not sure how the record volumes are calculated, but that would be about a billion shares more than the previous record I know of. Surprisingly, the Dow only finished down 128 points.
Hedge funds are still unwinding. Yves Smith at Naked Capitalism asks Are Hedge Fund Margin Calls Leading to Stock Rout?:
But some believe...
I Hate Sharebuilder
I will be moving my main account from Sharebuilder to TradeKing in the immediate future. Sharebuilder has not scaled well with what I imagine is a decent increase in customer activity over the past couple weeks. Individual pages have taken up to 20 seconds to load, and the site has given me numerous errors (which costs minutes). Even when I day-trade, I don’t have timing issues where that is...
Lehman CDS
CNBC just reported that the Lehman debt has been valued at 9.75%. This means that companies that sold CDSs covering Lehman debt will owe 90.25% of the debt they insured. This amounted to around $130 Billion (I think). If this cascades, there have been reports that $400 Billion is being held in reserve by those that wrote the CDSs. Unfortunately, there are more CDSs written than there are bonds, so...
Dow 7900
The Headline was Dow 8000, but before I was done bringing up the page, the Dow dropped another 100 points. It’s now above 8000. George Bush speaks in 45 minutes. I’m still not going to do anything for 10 minutes.
8165 at submission.
Spenders vs Savers
I always try to read the articles over at Yahoo Finance. Today there was an interesting article from Laura Rowley titled Double Bind: Savers on the Hook for Squanderers. I expected the typical fable about the ant and the grasshopper, and a discussion about the unfairness of government wealth redistribution strategies. I think that was the intent of the article, too. That’s not really what I...
Well Hedged
I bought 3 SPYOF.X contracts on September 19 for 3.80. Today it was at 20.00. The change today was +6.15, or $1845. My portfolio today was up $300 (yes, that means my stocks were down about $1500). That’s pretty well hedged. I bring this up not only to brag (feeling pretty good about myself), but to stress the point that diversification is not the same thing as hedging. My stocks,...
40 Percent
It’s hard to believe that the S&P 500 was at an all time high just one year ago. The S&P is down 42% from its peak while the Dow is down 39% from its peak. Losses are measured in the trillions of dollars.
Sadly, I did nothing today. I woke up with the thesis I posted last night, that extreme pessimism could establish a temporary bottom that would be traded. CNBC had many talking...
Extreme Pessimism
I may finally get my rally. I’ve been trying to read articles online to gauge fear. I think that we may be in a period of extreme pessimism. I said that the lack of a rally following the housing announcement was an indicator that there wasn’t enough pessimism. I may have been wrong. The news may have been ignored because people are too pessimistic. That’s the vibe I’ve had...
Printing Press
We are experiencing a deflationary period. Debt is being destroyed faster than it can be created. However, once deflation runs its course, there is going to be a period of terrible inflation. This is because the government is trying desperately to fight deflation by printing new money. How much is the government printing? Well, here’s the monetary base:
I put the scale back to 2001 so...
Reaction vs News
A trading idiom is, “The market’s reaction to the news is more important than the news.” Today, after watching the swing in the DJIA futures, I set a 20 minute alarm for myself. I wasn’t going to take any position on the market for 20 minutes after the opening bell. In that time, the Dow swung from down 200 to up 40. I thought, “Maybe my rally is finally here.”...
30 Percent
The US stock market has fallen 30% from its peak. That’s a lot of magic money. The put options contracts that I bought as hedges for my portfolio have now grown larger than the value of the stocks in my portfolio. The net value has risen, so that means I over-hedged. Oops. Actually, that makes up for some of the losses my retirement accounts have taken (they aren’t well hedged …...
Great Depression Risk Increasing
I love fantastically absurd headlines. In this case, I really do mean it. The risk for a deep and long recession has increased, not decreased. I plan to explain why in just a moment, but I wanted to make a few declarations. I’ve been reading all I can on the actual history of the Great Depression, as well as the economics. When I read about the economics, I try to make sure I have a balanced...