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TTO Weekend Update 9/21/08 |
The Editor’s Rant:
Part One
Lehman went bust, and
thank goodness it happened. The bankruptcy resulted in some
accounts and assets becoming frozen. Despite what anyone
thinks, I remain of firm belief; what drove the US deep into
the Great Depression was the Fed freezing the banking
system for three days. For three days no financial transactions
could be completed.
The radical step was a
bit like ultra aggressive and intense chemotherapy. The
treatment threatened the patient’s life; he ended up on life
support for a long time. But in the end the patient survived.
To this day, people contemplate better potential alternative.
As they search and study, they will never understand the
emotional and time stress policy makers confronted in real
time. Ben Bernanke is the preeminent student of the
Great Depression. Upon seeing the after effects of the Lehman
failure, I can’t help but wonder if it was a somewhat needed
event to bring the emotional stresses and real negative
potential of current events into perspective.
Here is what we know: A
lot of home loans were made that never should have been made.
They were designed such that by the time the first payment
would be made; the originating company would have long since
packaged, repackaged, sliced, and sold the thing to some
poor sap thus removing its self from the risk loop. A
million transactions later,
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TTO Weekend Update 9/14/08 |
The Editor’s Rant:
Fanny and Freddie have
been saved, but Lehman and others loom. Oil, despite what some
would like to believe, is done. Any move higher for oil is a
technical bounce. Yes, IKE was a big powerful hurricane, but it
is no reason for Oil to go higher. OPEC is cutting production
but again, this is a reason for prices to move lower.
OPEC cut production for
the first time on many months in an effort to stabilize prices.
Note: Their goal isn’t to drive prices higher; they just want
them to stabilize, meaning doesn’t fall too much more.
The good news, I remain of the opinion that Oil prices have
much further to fall and should provide consumers with much
needed relief. But it won’t be enough.
Fanny and Freddie are
saved, so what does that really mean? It means people that own
Fanny and Freddie stock are out of luck. Why the stocks
continue to trade is beyond me as there is no value there. FNM
has gone from $70 to $.070 in one year, and yes, the management
teams will be well paid.
The takeover means the owners of the billions and billions of
Fanny and Freddie bonds will not incur losses.
It’s all about the bond holders. Who are the bond holders?
Think China, think OPEC, think of any entity that buys US Debt
to support our deficits. China owns a lot of US T-bills, and
they also own a lot of Fanny and Freddie Bonds.
From a money multiplier
effect stand point, it makes a lot more sense for China to buy
Mortgage related bonds than Treasury bonds. Why? Because
mortgages mean homes are being built for lots of Chinese goods.
Wages paid to the people that build the homes can be spent at
Wal-Mart. And we all know a lot of their merchandise comes from
China. From a global economic stand point, funding the mortgage
market in theory should have a greater impact than supporting
US Government spending, which has a low economic multiplier
effect.
Fanny and Freddie have
be saved, Hurray! There is just one small, well not so small,
problem. The chart below tells the story.
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TTO Weekend Update 8/24/08,It's August & Slow |
The Rant:
Sometimes about all
there is to say is: nothing changes but the date and the
weather…and the speed of global communications.
Bad debt and the fall
out, rising commodity prices and the fall out, & the slowing
economy; these are the ongoing major themes of the day. The
data is known, the topics have been covered, and the market has
discounted a significant portion of the news. In short, it is
time for a new story to emerge. I am tired of talking about the
old one and like the street, desperately want something new. If
we are going to get in early on the next big move, we need to
figure out what the new story is and or will be…and
therein lays the problem.
What’s the new emerging
story? I can’t find one…yet. Biotech? Yea, that one never
worked for me either. Some money is flowing into the sector,
but, well, my experiences on anything other than a very
short-term basis with the bio-tech group have been…shall we
say…of poor quality.
Consumer retail? It
sounds good with the price of gas backing off, but the truth is
consumers are strapped and wages are stagnating. The S&P 500
Retailing Index (S5RETL Index or $GSPMS on Stockcharts.com)
made a strong move higher off the July low. You can see in the
chart that almost 80% of the 28 stocks in the group are above
their 49-day moving averages, a healthy overbought condition.
But take a look at the group’s cumulative breadth line.
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TTO Weekend Update 06-22-08
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