November 30, 2010
I find the opinions on the Wikileaks saga coming out of the politically conservative side of the blogosphere to be extremely disheartening, although not at all surprising. The general reaction seems to be that Wikileaks needs to be shut down by any means possible, up to and including assassination. This is in stark contrast to the financial blogosphere which is generally supportive of Wikileaks.
People who claim that we need to have major changes in the political process and the financial direction of America, yet want to see Wikileaks taken down are mush-brained idiots. I don't particularly like Assange and agree that his agenda is largely anti-American, regardless of what he claims. However, we rarely get to choose the agent of change, and even if Wikileaks isn't the ideal way in which we'd want the truth about matters to come to light, it's far far better than the status quo.
The simple fact of the matter is that the financial-political oligarchy is so firmly entrenched that it's going to take dramatic action to change the status quo. Those advocating a standard political solution -- elect the GOP and things will get fixed -- have their heads a mile up their asses. The reaction by the conservative blogosphere to Wikileaks demonstrates this quite clearly. Most would rather keep pretending that a bit of tinkering around the edges (as long as it's 'our guys' in charge) will fix things, that comfortable lies about international politics and the fiscal health of the world's banks are preferable to the truth. The truth must not be spoken too loudly, because once it is, we must address the actual source of our problems.
This is why I think it unlikely that there will be a political solution to America's problems. Most people are simply too afraid of real change. Things are going to have to get truly desperate before most are willing to do much of anything. While I continue to hold out some hope that the new Congress will make real progress, the reaction to the Wikileaks saga indicates that this hope is vague at best and unlikely to be realized.
So, I continue to prepare for increasingly desperate times. Major changes are coming whether one likes the idea or not. Attacking Wikileaks -- a source of hard information and an agent of change -- may stroke one's patriotic ego, but does nothing to alter or prepare for the future.
The price action is incredibly interesting so far this week. Here are a few thoughts, including some follow-up on issues I've mentioned previously.
Bank of America: I had previously mentioned that BofA (ticker BAC) was effectively bankrupt and trading as such, except with an idiotically high stock price. Although my short-term timing is often hilariously bad, in this case the stock has gone straight down over 10% from almost the moment I wrote about it. There has also been speculation that the upcoming Wikileaks release of bank information will be from BofA. Whether or not that turns out to be the case, this stock is still a great short if one can take a lot of volatility. Anyone who owns this (or any other commercial bank) stock is a fucking moron.
General Motors: My opinion that GM (ticker GM) was a good medium-term buy on the open of the first day of trading hasn't proven to be terribly impressive so far. The offering has suffered from a fair amount of indigestion as many who managed to get in on the IPO seem to have taken a quick profit in the stock. On the other hand, my cynicism seems to have been well founded as the stock has yet to trade down through its IPO price of 33 and is now rallying back, even in the face of a declining market. My short-term timing of purchasing on the public trading open was admittedly crap, but my opinion that this is a good medium-term buy is starting to look better. The jury is still out on this one.
Consumer Stocks: If there is one thing propping up this market, it's consumer stocks. The best measure of this is SPDR S&P Retail ETF (ticker XRT). With the economy getting worse again and the consumer increasingly strapped, to say that this is hard to believe is quite the understatement. However, as the old saying goes, "The market can remain irrational longer than you can remain solvent", so I wouldn't be looking to fade this yet. This sector has upward momentum and a life of its own, similar to tech stocks back in 1999/2000. At some point, it will all end in tears, but I'd need to see some serious proof of an end to the momentum before shorting this sector.
Oil: Oil is whipping around as much as two percent a day. This is a crazy amount of volatility for the biggest consumable commodity market in the world. At the same time, the net movement in Oil is very small. It's been trading around $83 to $85 a barrel for quite a while now. This kind of volatility with little net price movement is indicative of something that's trying to digest two strongly competing factors before making its next big move. In the case of oil, the competing factors are quite clear: inflationary printing of fiat currencies vs. deflationary economic forces reducing demand. I have no strong opinion on the direction in which this will eventually resolve; however, I'm of the opinion that if oil breaks down, the stock market will collapse even more strongly (and largely for the same reasons).
Precious Metals: What can one say? In the face of increasing stock market weakness, gold and silver have taken off again. This is a clear indictment of global monetary policy. There are also serious supply/demand factors at play, especially in silver. It looks like some very large players may be standing for December delivery at the COMEX (the primary US metals exchange), which has the potential to cause a short squeeze of epic proportions. If you're not reading the precious metals commentary at Along the Watchtower, you're missing out, as the author has been so perfect in his market calls it's spooky.
The stock market is hanging by a fraying thread. The only thing holding it up at all is Fed monetization and some vague hopes about holiday sales. If it collapses, the question becomes whether other risk assets will collapse along with it. This goes back to the question of whether a 'wealth preservation' strategy or simply holding cash is the best option. With all western nations monetizing as quickly as they can get away with, I still believe wealth preservation will win out over the long run. In the short run, however, a sharp downward move in the stock market would likely lead to a similar move in commodities, especially oil.
November 29, 2010
There have been a lot of developments in the world over the last week or so. I'm not in the mood to do full posts on any of it, so here are some quick thoughts:
Wikileaks: More please. The Federal Government is out of control -- anything that hurts them is ok in my book. This does nothing to harm the average American, while showing what a bunch of fucktards run State. As if that was any big secret.
Ireland: How does it feel to be slaves to the bankers? What are you going to do about it? Probably the same as everyone else in the western world -- bend over and ask for more.
North Korea: If we want to make a real difference in that situation, we should simply pull our troops out of South Korea and listen to the screaming from Japan et. al. Hey China, what are you going to do now? You want to be a regional power? Oh, not really? That's what I thought.
Holiday Sales: What's that sound? No, it's not Christmas Carols -- it's the sound of the dumb consuming American masses sticking their fingers in their ears and screaming 'la la la I can't hear you' to the nonstop economic warnings. It's ok, another iPOS on credit will make it all better.
TSA: Anyone who is flying who doesn't absolutely have to (death in the family is about the minimum requirement, and then only if it's over a day's drive) is a fucking cretin who deserves to live under the jackboot of government. The fastest way to take care of this situation is to immediately bankrupt the airlines by refusing to fly.
This coming New Year is going to be rather decisive for America. Do we, as a people, still desire to live freely and in a country where we are all equal under the law? I'm doubtful. It seems most would rather sell their freedom for a few shiny gadgets and a false sense of security. Europe, where governments are now seizing private pensions, is likely beyond the tipping point. America is on the edge. Prepare accordingly.
November 26, 2010
Even with the holiday week (including today's half session), there was some interesting movement in the markets. The US Dollar was much stronger, due to the insolvency issues in Europe, yet commodities were still very firm. This is rather ominous for inflation.
The stock market still feels like it's poised for a sharp drop, but the Fed will be injecting approx. 35 billion dollars of monetization in the coming week. The problem is that, with so many holes in the global capital structure, even 35 billion may not go nearly far enough to keep propping up stocks.
The current state of our fund battle:
The Wealth Fund is back up about 2% over the Investment Fund. Also, the spread between consumable commodities and precious metals has come in a fair bit. Both these movements are what we should expect over the longer term, although there is a chance that silver outperforms drastically, due to ongoing supply/demand issues. For those with limited wealth to preserve (or those who are willing to accept the increased risk of non-diversification), silver is likely to be the best place to keep it for a while.
No changes to the Bonehead Ben Bernanke betting game. See last week's post for odds. I hope everyone is having a good Thanksgiving holiday.
November 24, 2010
Congratulations to Chad Knaus for winning his fifth straight NASCAR championship with the number 48 Lowes Chevrolet. Yes, Jimmie Johnson drives the car, and he is a damn good driver, but he's not so amazing as to be able to win five straight.
Knaus, on the other hand, is almost certainly the best crew chief ever seen in the sport. His ability to get Johnson running up front under almost any condition is remarkable. His knowledge of the tracks, how they change during the course of a race, and how the cautions are likely to fall, is the real reason the 48 team has brought home the trophy for five straight years.
So, congratulations Chad:
PS. Denny Hamlin choked and Kevin Harvick is a tool.
November 19, 2010
This week saw some strong early movement to the downside followed by consolidation and a pop into the GM IPO and options expiry. With the market pegged into the Friday close due to options expiry, and the GM IPO not acting terribly well, it feels like we might see some more downside volatility early next week. On the other hand, short holiday weeks are usually good for advances on light volume. So, for the short-term, flip a coin and hope for the best. Current results for our funds and their components:
Not a whole lot of net movement, obviously. The most interesting thing here is the increasing divergence between consumable commodities and precious metals. Oil and foodstuffs were sold heavily most of the week, while gold and silver sold off, then consolidated. While this kind of divergence can continue for a long time, it seems unlikely that DBC can continue to move lower without other risk assets selling off as well.
On to the Ben Bernanke betting game. What will be the fate of Bumbling Ben by the end of next year? Place your bets:
- Strangled by Ron Paul -- 1000 to 1
- Hung for Treason -- 100 to 1
- Commits Suicide -- 75 to 1
- Killed by bankrupt lunatic -- 50 to 1
- Dead by other means / natural causes -- 35 to 1
- Fled the country -- 25 to 1
- Under indictment (or already jailed) -- 10 to 1
- Forced out of the Fed but free -- 3 to 2
- Still selling America down the river -- 3 to 2
As the GOP is starting to make some real noise about the Fed, I've increased the odds that our favorite criminal is forced out and decreased the odds that he's still thieving away. I've also added a generic category for his demise because, well, hope springs eternal.
Have a good weekend.
Regular Zero Hedge commenter "Turd Ferguson" (if you don't know where that name comes from, well, too bad) has started his own blog. TF is a precious metals fanatic and very much into the semi-conspiracy theory of market manipulation in same. I say semi-conspiracy because some of the manipulation is so well documented as to be proven, while some is a bit more 'out there'. Unlike many gold bugs, however, TF is very smart and methodical in his analysis and worth reading.
His new blog is called Along the Watchtower, and I'm adding it to my blogroll. With the continued devaluation of global fiat currencies, and thus the increased prominence of gold and silver, it's worth keeping up with a blog that is dedicated to precious metals. I haven't included one before because, quite frankly, most gold bugs are batshit insane and have the writing skills of 8-year-olds on a sugar high. It's good to see someone who can address the subject in a rational and readable fashion.
November 17, 2010
The GM IPO is pricing today. Bloomberg Businessweek has a good summary of the deal. This is going to be a huge event, and will be very closely watched by everyone involved in the markets.
I think it's a no-brainer to buy the stock at the open of public trading tomorrow, almost regardless of price. There are just way too many powerful interests that need to see this offering go well, and for the stock to perform well, at least for a while.
This would be a pure cynicism play, with no regard for the fundamentals. As I've noted previously, fundamentals are almost entirely meaningless in the current market environment. This will eventually change, but with an IPO that's this important, there is almost no way in hell that the stock price will drop for a while.
The broader market could do almost anything. I've seen markets rally strongly on a big, successful IPO, and I've seen markets sell off as a big IPO sucked the air (and money) out of everything else. But I think that, for the medium term, mindlessly buying GM is the correct thing to do.
For even more proof that the stock of RINOs is going down fast, here is a stock chart of RINO -- yes, that's a real ticker, and yes, it's crashing. Too funny.
November 16, 2010
In light of the continuing collapse in risk assets (although I'm sure this very post will cause the collapse to stop), I think it's instructive to look back to see where the last rally started. QE2 was proposed, and started getting priced into the markets, at the end of August. Here are the levels of the assets I'm using for the fund battle as of August 31, and their increases as of the date of the QE2 announcement:
If the entire recent rise in risk assets was speculative, these are the levels to which we should fall back. Given that the Fed was still doing QE1.5 during this period, and is now on QE2, I would expect to stay above these levels, all other things being equal.
Of course, all other things are not equal, and we've seen continued economic deterioration since the end of August. Also, Europe is having major issues, with their attempts to paper over the problems in Greece, Ireland, and elsewhere beginning to fail. The inflation vs. deflation battle is still raging on, more strongly than ever.
Unless and until the Fed is forced to stop monetizing the debt, I'm going to stay in the inflation (wealth preservation) camp. Note that under none of (what I believe to be) the possible scenarios would I be in the investment camp. To me, the choices are between cash and wealth preservation. At the moment, cash is winning out, as all risk assets are declining back towards the August launch point. It remains to be seen how much of the rise since then was speculative, and how much (if any) was actual inflation.
November 15, 2010
Going into the holiday season, with a lame duck Congress, and QE2 rolling along, there is probably not going to be much to discuss. It's likely to be status quo until January. Hopefully, if the new Congress can get their act together, the new year should bring lots of interesting things to talk about. For the time being, however, I don't expect to have much besides the Friday fund review and maybe some lame-ass xtranormal movies.
November 12, 2010
I decided to join in on the latest fad and give the xtranormal movie maker a try. Here is my guess as to what a conversation in the break room at the Fed was like after the close of today's market.
It was a wild ride this week, especially in commodities. Everything peaked on Tuesday, and at one point the broad commodity complex was outperforming the stock market by about 5%. Then the exchanges started to raise trade margins, and speculators were forced to post cash, reduce, or close positions. The result was a whopping sell-off that kept going all the way through the close today.
As for QE, it looks like a case of buy the rumor, buy the news, and sell the living shit out of the actual event. QE cash injections (POMO) will be an ongoing thing for the foreseeable future, but if today is any indication, the Fed has been frontrun many times over. The second half of this week took a lot of froth and short-term speculation out of the markets. The start of next week will be very interesting, as it should be an indication of how much speculation on QE remains.
Results to date for our fund battle:
The wealth fund is still a bit ahead of the investment fund, but the difference is down to about one percent. In the short term (especially early next week), the relative performance is likely to be based on how much speculation remains to be shaken out of risk assets. In the longer term, I'm still a firm believer in wealth preservation over investment. That won't change until the Fed stops debasing the dollar.
No changes to the Bernanke betting game. See last week's post for the odds on the fate of Bernanke by the end of 2011.
November 11, 2010
But they do some amazing stuff.
Remember the William Gibson novel Idoru? The title referred to a computer-generated pop idol named Rei Toei, who would manifest as a hologram. So much for that concept being mere fiction. Check these out:
Yes, that is a live band, and a live crowd, with a hologram lead singer. Incredible.
I've been intending to put up a post on silver for a while, discussing why it may be a much better alternate currency play than gold. However, it's a topic that requires a fair bit of detail -- combine that with my lazy nature and I hadn't got past a handful notes on the subject.
Fortunately for me, laziness sometimes pays off: There is an excellent post up at Slope of Hope which covers everything I had intended to say and more. I strongly suggest that anyone considering a wealth preservation strategy read it.
Another major market bell-weather, Disney (ticker DIS), just reported terrible earnings, missing on both top (revenue) and bottom (profit) lines. While Cisco is an indicator of the health of the technological infrastructure segment of the market, Disney reflects the strength of discretionary consumer spending. The stock, while holding up much better than Cisco, is down significantly in after-market trading (at the moment -- the situation is highly volatile).
My commentary here is identical to my earlier commentary on Cisco. Stocks are a terrible investment. Stick with wealth-preservation strategies.
Dino De Laurentiis died today at the age of 91. The man was a film and TV industry giant, with a truly incredible CV. Yes, a lot of his stuff was schlock, but he never pretended to be something he wasn't. He was just a hard-working producer of mass entertainment.
The best movie he produced, in my opinion: Three Days of the Condor.
Cisco (ticker CSCO) came out with earnings last night, and the top line (revenue) was a disaster. The stock is absolutely crushed today -- down about 16% at the time of this post. Cisco is a bell-weather stock: as one of the largest economic infrastructure companies in the world, they are an excellent indication of the overall health of the markets.
Collapses in Cisco have presaged both recent major bear markets. If one had used Cisco as a market timer, one would have done quite well on exits prior to broader market collapses. That being said, this time around is likely to be different, with the Fed printing money through QE.
Cisco is telling us that the economy sucks and that the market is overpriced. This is no surprise to anyone paying the least bit of attention. However, the broader market is no longer trading on anything remotely resembling fundamentals. With the fed doing QE POMO (cash injection) operations starting (again) tomorrow, the market is likely to stabilize and start moving higher again.
So, should one buy stocks? Absolutely not. As I've noted repeatedly since the start of QE2, the stock market is a terrible place to put one's money. Cisco's results merely clarify the broader economic picture, and reinforce my view that an investment strategy will massively under-perform a wealth preservation strategy. Stick with gold, silver, and consumable commodities and let the Fed and the stock market jerk themselves off.
November 10, 2010
Sarah Palin has a post up on her facebook which absolutely nails the current economic picture. Do I think she wrote this? No. Do I care? No. What matters is that she is advocating for the average American in the face of insanity by the Federal Reserve and the thoroughly-sold-out Obama administration.
I initially liked Palin, then cooled towards her as she seemed to be focusing more on social issues than fiscal ones. She's recently shifted hard towards fiscal issues. If she keeps this up, I'm going to get a fucking Palin tattoo on my ass and run around in the buff.
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