Monday, March 2, 2009

My Kind Of Sell Off

Happy Square Root Day!!!  (We only get 7 per century, 3 in the first decade of the century.)

Bottom's are put in when investors give up hope, and not before.

Oil is not a short term issue (90 days).  We have all we need at the moment.

With the exception of the 10 biggest banks, the banking industry is not so bad (considering that the 10 biggest banks are roughly half of the banking system this is clearly a "glass half full" kind of statement).

My bet is is that we are pretty darn close to a bottom in the U.S. equity market.  I have posted before that I place an 80% probability of the Dow holding 6,000 (or better) and the S & P holding 650 (and a 90% probability that .  That meant that when the Dow was 7800 and S & P was 835 I was very bearish.  My bearishness is molting quickly.  Still, I can't bring myself to fight a trend.  Further, just because a bear market rally materializes does not mean that the economy is on the path to recovery, or that a new bull market is under way.  It is still time to survive, so if you take a position and you are wrong, you gotta be gone (unless you are swinging for the fence).

If it continues, the market's momentum to the downside must be taken into consideration. 

Also, unforeseen events and influences... The Obama administration's policies, already despised by the markets, could get worse. California's descent could accelerate.  An earthquake or Category 5 hurricane could literally bankrupt the U.S. insurance system overnight.  And the political fallout from a default of the U.S. pension system might be significantly worse than anticipated.

In other words, I won't fight the trend - though I expect the trend to change abruptly at some point.  Just because I said a Dow 6,000 would likely hold, does not mean I would buy it (or not buy it) if the market momentum was still straight down.  I don't stand on ceremony.  Capitulation is in the eye of the beholder.

The U.S. and the world's financial systems are at an inflection point.  The available data is often late and incomplete, not to mention conflicting.  Case in point:

The U.S. Department of Energy says that gasoline demand was only down .1% year over year for December and January.  Really??  The Department of Transportation says total Vehicles Miles Traveled decrease over 3% in the same year over year period.  These are mutually exclusive data points (unless average miles per gallon declined VERY dramatically for the covered period).  

The market's trajectory, that is its rate of decline, can have unforeseen consequences.  REAL crashes come from oversold conditions (when the market has already "crashed"), not overbought conditions.  Was this THE crash? Still, big scores are made by taking positions when everyone else was in full scale panic.

Trading for a living has never been so difficult.

In the final analysis, I view everything through the prism of future Oil constraints.  The valuation in the energy complex appear to me to have been stretched to the extreme.  

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Can any rational, independent person see any difference between the Obama and Bush Administrations?  Yes, Obama can string a sentence together in a coherent fashion... you got me on that one.... Anything else?  A couple of bones thrown to his constituency has left Obama with egg on his face with the markets...  you got me on that one, too... hmmm... anything else?  Nope.  Same policy on the banks...  Same policy in the military budget...  Increased troops here, decreased troops there... Making promises the Government cannot keep... Spending money we don't have... Rewarding supporters at the expense of tax payers...

Seems like the same stuff to me.  

This is no criticism of either Administration's efforts to stop the financial system from collapsing overnight.  That had to happen, or within a few days the National Guard would have been called in to distribute food and maintain order.  Given the options... 

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In the past I sort of favored Robert Rapier's "Peak Oil Light".  Now, I am coming to the opinion that the credit and financial crisis might have brought on the real thing, while at the same time elongating the plateau.  This does not help the U.S. much.  World exports will be a declining pie being shared among a growing family of importers.  Maybe that effects prices now, or maybe not.  The question is just how does it effect prices in 2012.

Think that is far off in the future?  My high school sophomore son will be a freshman in college.

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Quote of the day:

"Its one thing to invest in America's recovery.  Its another thing altogether to make a down payment on the American welfare state."  Larry Lindsay on CNBC

I have been pounding away at this for some time:

The American entitlement system is on the ropes, and and has been bludgeoned into dementia.

Anybody that thinks that Secretary Clinton was doing anything other than begging in her meeting with the Chinese is in loopey.  American and China are like 2 mating sharks swimming together.  If they stop swimming, they drown. If only one drowns, it is the end of their offspring.   The U.S. and China are on a "perpetual motion machine" ride that will go the way of all perpetual motion machine schematics.  

Good Luck !

Mentatt (at) yahoo (d0t) com




9 comments:

Anonymous said...

I'm finding the "stimulus package" and the budget in general very troubling. You keep talking about the age of personal responsibility. Yet, Congress keeps spending more and more on social programs that can't possibly be sustained. I'm in general agreement about that the whole mess in unsustainable.

There is no way that the welfare portions ( over half ) of the "stimulus package" won't be made permanent, and there seems to be an unending list of "needs to be addressed" to follow. There is no way that this can't come to a very messy conclusion. Since there is no possibility that the handouts will stop, something will happen to make them worthless.

Since none of TPTB seem to be worried about the federal debt, and more importantly, the government's ability to borrow, that is a likely place for a BIG CRISIS to appear. My bet is that the market for T-bills will dry up. They'll monetize the debt and lots of inflation will follow.

Regards,

Coal Guy

bureaucrat said...

I think we've been a country for 240 years not because we did everything wrong when crisis came, but because we did a few things right. I don't believe we're going to have an apocalyplse, but I do see a case to be made for the stock market to go to 1000 Dow, which it has done already (1930s) as opposed to the ending of "America" as we know it. While "Mr. Momentum" (Jeffers) follows the trendline, I prefer to follow the fundamentals, the reality that I see around me. Who is going to keep the price of stock heading higher? The baby boomers are losing so much wealth now, we'll be lucky if they buy ANYTHING in the next 30 years, and it will be long while before their kids can buy anything substantial. Who can start a business with the oncoming 8% interest rates? Whose gonna buy all the houses and cars? Me? The number of real-live pension funds is dropping cause we all (stupidly)agreed we'd rather dump the retirement burden of people on those same people to fund. I would also remind everyone how many YEARS it took to climb back from the Great Depression and feel comfortable with credit again (decades). And how many years(19) that Japan has been in this malaise since their asset bubble burst. Just tell me where the money is going to come from for this "Incredible Rising Stock Market)?

A Quaker in a Strange Land said...

Bureaucrat:

Who said rising?

Let's say you were short the market. My bet is, this is a good time to cover.

THere will another time to go short.

WHat is the point of following the market if you don't trade it? It is no where near as interesting as say, Internet porn.

If you think the market is going straight to 1000, you can become the world's richest man with jut $1000, and the beauty of compounding.

Of course, you have to be right.

THere is not much left to the "market". F, GM, and C are almost ZERO and BAC and GE is just a step above.
Same with AA.


I am long the energy stocks through an index. If you think I am wrong, you are welcome to profit from the other side of the trade.

My bet is that XOM, CVX, et al just are not going to zero, and that they are oversold at the moment.

Same with Oil.

Does not mean I am right...

Anonymous said...

My bet is that when oil goes up again, the gubment will blame big oil and nationalize it for the revenue.

Regards,

Coal Guy

bureaucrat said...

From a Great Depression diary series in Newsweek ...

"June 5, 1931. Immediately after the 1929 crash the speculators rushed in to buy "bargains" but were badly mistaken because the market kept going down and down even tho' industrial leaders kept on assuring the people that everything was fine and the worst was over. At the present time the newspapers are urging people to buy these "bargains" but opinion is much divided as to whether or not the bottom has been reached."

bureaucrat said...

Continued ...

"June 15, 1931. Stocks continue to go lower and lower and dividends are being slashed right and left. For over a year now people have been buying stocks at what they think are bargain prices. These prices are much below 1929 but there is no way to tell if they have reached bottom. Only the blue chip stocks are still high. It seems there should be no rush to buy bargains in a panic. The opportunities are many and the period is often protracted. The best time to buy, of course, is when the panic is almost over. My guess is that we haven't seen the end yet."

A Quaker in a Strange Land said...

Bureaucrat:

All true. Today is 3/3/2009 - not 1931.

I could be wrong, but I am betting on a high probability of a rally in the energy complex. If I am wrong, I will be gone.

Since the weight of the S&P is now Tech, Consumer non discretionary, energy, healthcare, utility heavy, and I think these sectors are close to bottoming for the time being.

I will have no patience with the trade, but markets do not move in one direction only for very long. Otherwise, we could all just show up at your local Cuckie Schwab office tomorrow, short everything, keep shorting with the excess margin every day and be as rich as warren buffet in no time...

A Quaker in a Strange Land said...

Coal Guy:

By addicting more people to bigger government support congress is hastening The Age of Personal Responsibility.

Dan said...

When you hold cash in an environment like this you won’t need financing. Just wait for the auction and by the capital equipment you need. Then you start with a no debt and a cleared playing field; unless you are making luxury goods or something else that people do not “need” it would be almost impossible to not make money in the environment that is coming.

There will be some upside soon enough but possibly not in the markets; why seek equity financing, and the attendant BS regulations, if you don’t need it.