Tuesday, January 13, 2009

Ouch! Ouch! Ouch!

Is there anything in the economic data that would (or should) give any comfort and support to the cheerleaders on CNBC?  Even GOLD has broken down, though not even close to everything else,  (If you have been selling covered calls each month you are in still in pretty good, and profitable, shape). Unemployment continues its trajectory, the Financials are bleeding to death in spite of the "forced" feeding of capital by the U.S. Treasury (or should I say "Government Sachs"?).

Here we are in the middle of the Northern Hemisphere winter and Oil inventories continue to build.  Well, Oil is not as important as a heating fuel - Natural Gas is now well over 50% of the heating market - but the decline in distillate usage tells me that the trucks are not rolling.  And why would they be?  Take a look at the retail numbers - retail sales have collapsed
Retail sales last month were down a record 9.8% compared with December 2007, the Commerce Department's data showed. Sales excluding autos fell a record 6.7% in the past year.
and are MUCH worse than they appear.  The margins on goods sold dropped far more than 9.8%.  In order to get the sales the retailers got they slashed prices more than Freddy Krugger in a bad mood. 

The markets are puking it all up and out, as expected, with the U.S. S & P 500 down nearly 10% in 7 trading sessions.  This is my kind of sell off.  Yes, we are going to go lower (in my opinion) but that will not happen in a straight line - otherwise, all one would have to do is come to work, short everything, and sit back and collect billions, and that just ain't how things work - I like to go long after 7 to 10 day market selloffs for a trade.  But that's trading (I don't give specific advice or share my positions in equities in this forum).  The data tells me that we are still in the grips of deflation and GDP contraction, and that these are going to get worse.  I can comment on the commodity market (I hold no commodity registrations) and I will tell you that I think we are close to the point where I will be selling puts and trying to buy some stuff (notice I did not say which and at what price).

Lastly, stock market crashes come from OVER SOLD conditions, not because the market is too high.  I am not saying the market WILL crash, only that it CAN crash.  I would define a 8,000 Dow dropping to 6,000 in less than 1 week as a crash.  I also believe we could see a 6,000 Dow WITHOUT a crash, just slowly grinding your #$%! off.  In short, a trading range between Dow 6,000 and Dow 9,000 for the next 5 years is not unreasonable (in today's dollars, that is - the question is: Will we have inflation? And when? If not, in a sustained deflationary environment the Dow could go a lot lower than 6,000 - and in a hyper-inflationary environment the Dow could go a lot higher than 9,000.  Those are nominal, not REAL, numbers).

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Everyday, I get more and more excited with Barak Obama.  He is pissing off people on BOTH sides of the aisle (but especially those in his own party) - a sure sign that he is onto something.  I am still deeply sceptical of the "Fiscal Stimulus Plan", which is surely going to lead to more "bridges to nowhere", influence peddling, and outright thievery, but what can I do?  I am just trying to make a living in a crazy world.

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New York voters prefer Andrew Cuomo to Caroline Kennedy in a recent poll.  I hope Governor Paterson does not pander to Kennedy's monied connections for the 2010 election, but I hold out little hope for that.

Caroline Kennedy should not be appointed to anything.  If she runs for office and wins, well, good for her.  APPOINTMENTS should only go to those with a lifetime of service and/or accomplishment.  If Ms. Kennedy's last name was "Smith", would we even be having this discussion? 

Governor Paterson: Do the right thing!  And it doesn't have to be Cuomo, but he should be at the top of your list.

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You heard it here first:  The Banking industry will need another "bailout" that will total over $1 TRILLION.  Housing has not bottomed, not even close.

Good Luck!

Mentatt (at) yahoo dot (com)

9 comments:

bureaucrat said...

I guess the only spot of happiness for people who are following oil (like me) is that supply is so under fire: a) we can't possibly produce oil for very long in any quantity at $35 a barrel and b) for KSA, Venezuela, Nigeria, Iran and every other oil "country", they cannot survive on $35 oil in their present form. So with the demand destruction non-existent (there has been maybe a 6-8% drop in oil consumption at most in the U.S.) and all these tinpot governments needing bread to keep the cops paid, there is no way I see for prices per barrel to stay low for much longer. OPEC might actually find its backbone this time. Just gotta wait.

bureaucrat said...

Yee god! Natural gas went under $5 per million BTUs today.

Anonymous said...

Greg- in your opinion, how does all this massive contraction play out? What happens to the USA, the dollar? And what if peak oil occurs and exports start contracting- so a real recovery never happens?

So what should we be doing to ride this thing out? I mean as far as basic savings preparation, preps for our families, occupations, etc.

Your opinion of the likelihoods...

Anonymous said...

Anon,

Check out cluborlov.blogspot.com. He is a good start.

Robert

Anonymous said...

Thanks Robert- I have read all the Orlov material (and other stuff ie Privateer & Hat Trick Newsletters).

I am wondering to what extent Greg agrees with Orlov. He is an experienced trader and probably has a little different take on how it will all play out- and what to do to come out in one piece.

Anonymous said...

What do you make of the
M1 Money Multiplier (MULT) going below 1.0?

http://market-ticker.org/archives/703-Uh-Oh.....-Monetary-Flat-Spin.html

Anonymous said...

Looks like Cuomo doesn't care about the Senate. Blood on Wall Street will be so much more fun. And just as productive for a political career.
Let Caroline have the Senate tea party.
The following link is to an article in the FT about Cuomo's investigations.
Maybe the Wall Street boyz will wish Spitzer was still there when Cuomo gets finished.
http://www.ft.com/cms/s/0/51a152ac-e31e-11dd-a5cf-0000779fd2ac.html

bureaucrat said...

Good (long) piece on the current oversupply of oil on the West Texas Intermediate (WTI) crude oil markets on Mish's website, and why the people betting on higher prices later in the year might be making a mistake ... http://globaleconomicanalysis.blogspot.com

A Quaker in a Strange Land said...

I hope for Cuomo's sake he is appointed. Working as a prosecutor, even as A.G., is TERRIBLE for the soul.

The net will drag many innocent nobodies that TPTB need to "turn" in order to make their cases. Don't think for a moment that their is any justice, either way.