THE DOT - if this turns orange or red be alert

Wednesday, September 30, 2009

Brainstorming Wednesday

1. First off all as expected the corrections are very limited so far due to the high expectations for one plus the fact that some indicators were not really ready for more. On top we have now window dressing operations plus some Jewish holiday effects. The basic line though is that nothing has really changed for the better nthe most positive momentum one can see is temporarily created by the governments and not sustainable plus effects deriving from the propaganda machine trying to convince people that they can act with a good faith that things are better.
Ironically all the pundit crowd lining up to convince that things have changed for a better were not the ones forseeing the downturn at all - they can not be trusted but as market participant you still need to figure out how you need to act being right does not pay the bills but making the right trades.
For me it remains the same story I said one should sell around 1050 SPX and we are about 1- 2 weeks away from a severe correction in the magnitude of 10% as the government of the USA is determined to make a positive year and therefor supports the manipulative forces on Wallstreet who are carring this rally on undeserved levels.
Below some very interesting facts who confirm what I have been writing about all way long that Goldman is heavily involved in this manipulation.


Hank Paulson's Speed Dial #1: Goldman Sachs

It would appear that employees of the NY Post can do more than merely plant stories and spread unfounded rumors. Some of them actually do investigative work. Case in point - John Crudele, who has compiled FOIA reports to create a chronological narrative of Hank Paulson's speed-dialing in the days after the Lehman collapse, in a piece titled "The secret to Goldman Sachs' good fortune." The net result: more communication between Paulson and Blankfein during the heart of the crisis than anyone else (including then-President Bush), with the only exception of Ben Bernanke. Just what were these two people talking about so frequently in the two days when the Dow made an 800 point round trip? And just who was leaking the rumors that ultimately were based on information sourced by Hank Paulson himself? Crudele's chronology presents a relevant framework for analyzing just who the critical decision-makers are in US financial markets. Hopefully one day phone transcripts will be released and the full picture of just what information Blankfein was getting straight from his former boss can be reconstructed.

Crudele's post, represented almost in its entirety, due to the extended amount of relevant detail:

On Wednesday, Sept. 17, 2008 -- the day before the one I am writing about -- the stock market performed horribly.

By the end of the session the Dow Jones industrial average tumbled 449 points as investors worried about the nation's financial system. The next morning, Sept. 18, Paulson placed his first call of the day at 6:55 a.m., to Lloyd Blankfein, who succeeded Paulson as CEO of Goldman. It's unclear whether the two connected because Blankfein called Paulson minutes later.

And then Blankfein placed another call to Paulson at 7:05 a.m. for what looks like a 10-minute conversation.

After that Paulson called Christopher Cox, Securities & Exchange Commission Chairman twice; British Chancellor Alistair Darling and New York Federal Reserve head (and now Treasury Secretary) Tim Geithner two times.

Then Paulson took another call from Goldman's Blankfein.

It wasn't even 9 a.m. yet -- 30 minutes before the stock market was to open -- and Paulson and Blankfein had already exchanged three phone calls.

This wasn't particularly unusual.

On Wednesday, Sept. 17, the day the stock market was in trouble, Paulson spoke with Blankfein five times, including a pair of calls at 7:20 p.m. and 8:45 p.m. One of the earlier calls -- at 12:15 p.m. -- is listed on Paulson's log in the same five minute interval as a call to Geithner, which could indicate that this was a conference call.

If Paulson did set up a conference call, it would have been an extreme instance of putting someone who wielded a lot of power -- Geithner -- together with someone -- Blankfein -- who could profit from that connection.

And all of this doesn't include possible cell phone calls. The Treasury turned over to me Paulson's official schedule and phone records after I made a request under the Freedom of Information Act.

There's no way for me, or anyone else, to know what Blankfein and Paulson talked about during those first three calls on Sept. 18.

But it would be reasonable to assume that the conversation, coming as it did in a period of market turmoil, had something to do with what was happening on Wall Street.

So no matter how you slice, dice or excuse it, Blankfein by 9 a.m. would have had information that was not available to anyone else who makes their money trading securities. And, as you can imagine, there is a whole lot of value in that kind of inside access.

Robert Scully, a co-president of Morgan Stanley, called Paulson at 8:50 a.m. on the 18th.

But he appears to be the only Wall Street-type who was in contact with Paulson until Larry Fink, head of the private investment firm Blackrock, called at 12:40 p.m.

By then the stock market was going down again. But the decline wouldn't last long.

Stocks began a miraculous recovery at 1 p.m. on Sept. 18, when rumors started to spread that Paulson was considering a "government entity to bail out troubled banks" and that a meeting was going to be held that night on the matter.

At 1:05 p.m. Blankfein called Paulson again. Paulson would call Blankfein for the last time that day at 4:30 p.m. when he "left word."

That was the sixth time these two men called each other on Sept. 18.

That's one time less than Paulson spoke with Federal Reserve Chairman Ben Bernanke, arguably the most important person when the financial markets are in trouble. But Bernanke didn't get his first call from Paulson until 9:30 a.m. -- and it included Cox and Geithner.

President Bush only spoke with Paulson twice that day. To be fair, on the afternoon of Sept. 18 Paulson did call John Mack, head of Morgan Stanley (at 1 p.m.) and Merrill Lynch's John Thain(at 1:10 p.m.).

But Fink is the only one who seems to have gotten through to Paulson anywhere near the time the market started rallying.

By the end of the day, the Dow was up 410 points in an astonishing comeback.

Hopefully Tim Geithner is aware of the 1-800 arrangement that his predecessor set up with Goldman Sachs. After all why spend taxpayer money on phone bills when that same money can go straight into the balance sheet of the only company worth calling, for advice on how taxpayers should bail said company out. If this sounds too circular, don't worry, it is.

2. Sentiment update - most indicators do confirm that a 10% correction is possible and likely but we do not have a situation which cries for a crash scenario - even ISEE numbers (not shown here) have been rising towards a more severe correction level but do not confirm urgency right now. The Rydex is also more in neutral territory and the media bias is not as negative anymore as it was for Sep ( in terms of a correction) which increases the probability for one.

Excerpt from Barrons
High bullish readings in the Consensus stock index or in the Market Vane stock index usually are signs of Market tops; low ones, market bottoms.

Last Week2 Weeks Ago.3 Weeks Ago
Consensus Index

Consensus Bullish Sentiment56%53%39%
Source: Consensus Inc., P.O. Box 520526,Independence, Mo.
Historical data available at (800) 383-1441.
AAII Index



Source: American Association of Individual Investors,
625 N. Michigan Ave., Chicago, Ill. 60611 (312) 280-0170.
Market Vane

Bullish Consensus51%50%49%
Source: Market Vane, P.O. Box 90490,
Pasadena, CA 91109 (626) 395-7436.
FC Market Sentiment

Source: First Coverage 260 Franklin St., Suite 900
Boston, MA 02110-3112 (617) 303-0180.
FC Market Sentiment is a proprietary indicator derived from actionable sell-side trade ideas sent by the sell-side to their buy-side clients over the First Coverage platform. Over 1,000 institutional sales people at more than 250 firms participate on the First Coverage platform and have contributed hundreds of thousands of ideas since inception. Each Idea is associated with a ticker or sector and is tagged bullish or bearish by the creator. This data is aggregated at the sector, industry and market level. The FC Market Sentiment score ranges from 0-100 (0=most bearish, 50=neutral, and 100=most bullish) and represents a completely objective, real-time view into what advice the sell-side is providing to their buy-side clients

Citigroup Panic/Euphoria Model
Market Sentiment

Tuesday, September 29, 2009

DBK update - back from vacation

First of all I had a connectivity problem with the mobile unit I could not open the blog.
Deutsche is chasing its top target around 55 and we have at least one higher weekly close ahead and should reach the 55 60 is an exxtreme posibility) target. Now after the elections have been won by the Bank friendly parties sector rotation should favor banks and utilities.We also are now in a big window dressing operation for the quarter end and some new money will flow into German stocks with this election result.

Thursday, September 17, 2009

Deutsche Bank -one of my special longs

Deutsche is heading for my target at 55 after todays breakout to the upside and will likely extend even to 60 sometime this year. Someone was shorting it around 50 and has to cover now says the chart picture. Goldman is also at least one higher week away from a top and that kind of special situations might be on for a little while. We will challenge soon the upper end of the wedge formation and will likely trigger a short term profit taking as starting next week we can expect markets to retreat in general terms. The moron long only funds are rushing in now as the pressure to participate is rising and many official but clueless or evil minds have declared the recession for finished including Bernanke and other gasbags who have not made one single good call. As Einstein once said 2 things are indefinite Human stupidity and the universe allthough he was less sure about the universe.

Wednesday, September 16, 2009

Brainsttorming Wednesday - part 1

1. We have come to the scenario which makes a top likely as we had yesterday an ISEE of 1.49 thats the high of the last months range and we will open firmer for a change to day which is how it should be for a reversal pattern. Mr Buffett droped some oil into the fire with his interesting timing that he is buying ( I do not get why people care about his advice as he made some very bad calls recently). The whole scam machinery works at full power as also Goldman declared an obscure stock buy back program worth 20 bil. - which brought it to my extended target around 180 and we are in a count 11 weekly which requires at least one higher weekly close after Friday. Earnings are dreadful and prospect poor to say the least the government trigers with printed worthless money some sporadic one time consumtion spree which pumps up some numbers and the artificially rising stockmarket raises sentiment on undeserved grounds. That is called deception and if someone else but the government would do it the FBI would be all over you.

Here a good argument from zerohedge about the obscure propaganda numbers to say the least.

Someone Is Lying

The most recent reading of the increasignly unreliable UMichigan Consumer Confidence index was recently at multiyear highs, yet today the ABC Consumer Index turned down yet again. The most recent reading was -49, a one point reduction from -48 in the prior week, and below the SM Average of -48.57.

Not surprisingly, this week 43% of Americans feel the economy is getting worse, up 12% from last month! Only 44% rate their personal finances positively and only 24% think it is a good time to "buy things."

2. Sentiment of the Bloomberg survey retreats a bit but thats how the tops are signaled by a turning momentum as the overall level remains high. The 10.8 times earnings referred to in the following article might have been a fair value since at that time earnings were even higher but they have dropped by 40% and stocks risen by over 60% that makes a real expensive stockmarket even on insane levels. On top we have those earnings on a cheat to book avlue level or in cases for banks earnings generated by the central banks as borrowing is at or close to zero.

Stock Sentiment Falls Worldwide as Valuations Hit Six-Year High

By Whitney Kisling

Sept. 16 (Bloomberg) -- Investor sentiment deteriorated from Tokyo to Paris and New York on speculation a six-month rally in stocks has outstripped the prospects for earnings as indexes trade at the most expensive valuations since 2003.

Optimism for equities fell in seven of 10 countries in the Bloomberg Professional Confidence Survey. Users expect stocks to drop during the next six months in the U.S., Japan and Spain, while investors in Brazil and the U.K. were the most bullish. Sentiment had improved in all 10 nations in August.

The MSCI World Index has surged 64 percent since March 9 on signs the global economy is recovering from its first recession since World War II, driving valuations on the gauge of 23 developed countries to 27.3 times the earnings of its 1,659 companies, weekly data compiled by Bloomberg show. The measure of global stocks was trading at 10.8 times profit when the advance began, close to the lowest level since at least 1995.

“We would not be surprised to see a short-term pause in the rally,” said Lawrence Peterman, who participated in the survey and is the London-based investment director at Eden Financial Ltd. “Everyone is looking at the next earnings season in the U.S. at the start of October for the next indicator of what’s going on. If earnings don’t come through, then the market will look expensive.”

Earnings Slump

Profits for companies in the MSCI World tumbled 40 percent last quarter on average, Bloomberg data show. Earnings at U.S. companies in the Standard & Poor’s 500 Index slid 30 percent in the April-to-June period and will decrease 22 percent this quarter before rebounding in the last three months of the year, analysts’ estimates compiled by Bloomberg indicate.

Japan was the only country where sentiment turned from bullish to bearish by sliding below 50 in September, indicating users expect prices to fall in the next six months. Investors grew less certain that stocks will gain in France, Italy, Switzerland and Mexico, while respondents in Spain and the U.S. were more convinced of a drop, the data show.

The outlook for the U.S. slipped to 46.2 after climbing within 1 point of 50 in August, the survey conducted from Sept. 7 to Sept. 11 showed. The S&P 500 has surged 56 percent since March 9 to an 11-month high as reports on manufacturing and home sales indicated the longest American recession since the Great Depression may be over. The proportion of companies that beat analysts’ profit predictions matched a record, according to data compiled by Bloomberg.

G-20, Lehman

The gains pushed the S&P 500’s price to 19.3 times operating earnings from the past 12 months, the most expensive level since June 2004, weekly data compiled by Bloomberg show.

Valuations climbed as the Group of 20 countries committed $12 trillion to help end the recession, while the Federal Reserve has held its target rate for overnight lending between banks at near zero to unlock credit markets after the bankruptcy of New York-based Lehman Brothers Holdings Inc. last September.

“I would have thought we’d have some sort of a pullback by now because of the pace of this rally so far,” said Jason Cooper, who oversees about $2.5 billion at 1st Source Investment Advisors in South Bend, Indiana. “A lot of that rally has to do with the fact that our government and other governments outside of the U.S. have put a lot of fuel in the fire.”

The confidence gauge for Japan slid 12 percent to 47.3. The country’s Nikkei 225 Stock Average trades at 43.4 times the estimated earnings of its companies, the most expensive level among the world’s 20 biggest stock markets, data compiled by Bloomberg show.

Yen Strengthens

Japan’s economy expanded at a slower pace than economists projected in the second quarter, government data showed this month. The yen strengthened to the highest level since February against the dollar today, reducing the value of overseas sales at Japanese companies when converted into the home currency.

Spain was the only country besides the U.S. and Japan where respondents predicted declines for stocks, with the survey’s gauge slipping 1.9 percent to 39.3. Sentiment deteriorated the most among French investors, as the nation’s measure tumbled 12 percent to 50.8.

The U.K. had the biggest advance in the survey for the second straight month, climbing 5.3 percent to 63.8. The FTSE 100 Index has surged to the highest in almost a year as data showed British service industries expanded at the fastest pace in almost two years in August and house prices rose for a second month. The Bank of England said last week it plans to keep buying as much as 175 billion pounds ($288 billion) of assets to cement the economy’s recovery.

Recession’s End

Confidence in Germany’s DAX Index increased 1.1 percent to 50, after government data last month showed that the country unexpectedly exited a recession in the second quarter. Sentiment in Switzerland slipped 2.9 percent to 52 and Italy’s reading fell 4 percent to 60.4.

The measure for Brazil climbed 5.1 percent to 71.5, the highest of the 10 countries. The nation’s Bovespa Index has jumped 58 percent in 2009 on speculation a rebound in commodity prices and record-low interest rates will fuel growth in Latin America’s largest economy. Confidence in Mexico slipped 2.9 percent to 52.3.

Tuesday, September 15, 2009

Dollar Index update -- red alert

The Dollar is almost done we need a final 1-2 day dive to complete - the Euro seems to be complete already. We will see in any case a strong rebound of the Dollar til end of Oct as also stocks have reached target zones and are about to retreat as all products except Bonds trade in sink. Buy Dollars over the next days as Europe can not be stupid enough to let the burden roll on them in a deflationary scenario. The advantage American companies get by a weak Dollar plus the US investors might have reached the pain area and get even DC to ramp up Dollar values. We can expect some action on behalf of it and with a real German leader in would be already a battlefield but wimpy chancelor Merkel who concentrates on the elections might soon be in trouble anyway as the clear victory is on weak footing which will also be a burden on the Euro once the election are out on the 27th of Sep. Since we have a Saturn Uranus opposition we can expect the left parties to gain momentum. That will bring Germany back to the Weimarer Republic scenario of the 30ies.

Gold tech update - the only way is up?

Gold is at an interesting spot right now as we are about to make a low in the Dollar within a few days we can expect a retreat in Gold prices. The bigger picture suggest mid term a rise up to 1300 as we have made a classic price patter which is an inverted Head and Shoulder as a consolidation pattern which will lead apparently to a leap up within 6-9 months to 1300/50. My ultimate goal is rather 2000 but that will be more the hyperinflation price as the governments have to put more printed money into the real economies next year when markets do collapse again. So for now we have a bit of margin left to the upside but the ratio is to dangerous to go for it as a retreat is mandatory. The fllor the Chinese have put under Gold is the speculative driver for now but that will be turned around by a rising Dollar near term.

Monday, September 14, 2009

part 2

3. Another news increasing the potential for a surgical strike on Iran as they paint the picture of urgency for a military strike - I doubt though that sensitive military tech of the latest generation can reach Iran that easily after the Patriot act they do listen to everyone making any move or noise so the NSA will be very aware of what is going on at all times. More intersting though is the notion that Russia takes a tough stance against any further sanction refering to Iran as they will play the situation to their advantage.

Iran Gains U.S. Military Technology Through Malaysia Middlemen

By Justin Blum

Sept. 14 (Bloomberg) -- Iran increasingly is obtaining U.S. military equipment and technology through shipments to Malaysian middlemen that illegally circumvent trade restrictions, according to American officials and analysts.

The U.S. has charged, convicted or sentenced defendants in at least six cases involving Malaysia since August 2008. The shipments have included parts for bombers and items sent to firms linked to Iran’s nuclear and ballistic missile program, according to court papers. More Malaysia shipments are under investigation, according to a law enforcement official who spoke on condition of anonymity.

The shipments illustrate how difficult it is for U.S. law enforcement to keep military secrets and equipment from reaching Iran, a country the U.S. accuses of developing nuclear weapons and sponsoring terrorism. The U.S. bans most trade with Iran.

Middlemen also have operated out of the United Arab Emirates city of Dubai. Shipments through Malaysia increased after the U.A.E. cracked down on exports more than a year ago, said Steven Pelak, the principal deputy chief of the Justice Department’s counterespionage section in Washington.

“We’ve seen a lot more being now diverted through Malaysia in particular,” Pelak said in an interview. “We have seen Iranian front companies there and we’ve seen an increase there since there’s been a tightening in Dubai.”

Military goods also have been illegally shipped to China, which has been trying to obtain missile, imaging, semiconductor and submarine technology from the U.S., according to a Defense Department report this year. Espionage allegations against China are “unwarranted,” said Wang Baodong, a spokesman for the country’s embassy in Washington.

4. Sentiment picture is rather mixed but if we discriminate in a 10% potential and a 30% potential move both would be negative/neutral on the upside and positive for 10% , neutral for 30% on the downside. That means a 10% pullback is the most likely scenario. some of the indicators are the following but its important to see their dynamic as well to make a valid conclusion.


Blank Image
MONDAY, SEPTEMBER 14, 2009 Blank Image

High bullish readings in the Consensus stock index or in the Market Vane stock index usually are signs of Market tops; low ones, market bottoms.

Last Week2 Weeks Ago.3 Weeks Ago
Consensus Index

Consensus Bullish Sentiment39%42%47%
Source: Consensus Inc., P.O. Box 520526,Independence, Mo.
Historical data available at (800) 383-1441.
AAII Index



Source: American Association of Individual Investors,
625 N. Michigan Ave., Chicago, Ill. 60611 (312) 280-0170.
Market Vane

Bullish Consensus49%47%49%
Source: Market Vane, P.O. Box 90490,
Pasadena, CA 91109 (626) 395-7436.
FC Market Sentiment

Source: First Coverage 260 Franklin St., Suite 900
Boston, MA 02110-3112 (617) 303-0180.
FC Market Sentiment is a proprietary indicator derived from actionable sell-side trade ideas sent by the sell-side to their buy-side clients over the First Coverage platform. Over 1,000 institutional sales people at more than 250 firms participate on the First Coverage platform and have contributed hundreds of thousands of ideas since inception. Each Idea is associated with a ticker or sector and is tagged bullish or bearish by the creator. This data is aggregated at the sector, industry and market level. The FC Market Sentiment score ranges from 0-100 (0=most bearish, 50=neutral, and 100=most bullish) and represents a completely objective, real-time view into what advice the sell-side is providing to their buy-side clients

Citigroup Panic/Euphoria Model
Market Sentiment

Brainstorming Monday - red alert week - part 1

1. We have reached the sell zone for the SPX at/around 1050 and as I recommended sell any strength above 1030 is still very valid and almost no time left to do so for now. We likely will see another attempt in late Nov and Dec but rather not bet my grandma on it. The overall bias is now that a bullmarket has been declared by a rising crowd of guru's who you barely saw around 666 but that is how the story goes and confirms a big top at hand and building. We can expect a retreat of 10% at least over the course of the next 2 months depending on the country and index it can even be more like 20% as we already saw for China. We are in a big expiration week and big manipulations will be at hand for this week as the overall market has been anyway in general terms but the big boys behind this know that the smartest thing to do is to have the market drop temporarily to get some people short and squeeze them up towards yearend thats how they can generate some natural buying momentum ( although they are not net buyers). that also will make the opportunist bulls joining them as a so called healthy correction will have been taken place and the 'big bull market' can carry on - which it will not but they want a positive mark on this year. since it fully suits the interests of DC that markets are rising since that lifts the spirits of consumers and calms down the angry crowd the manipulators have their full support.

2. A fairy tail about the brave Mr paulson who fought for the American people as treasury secretary but the facts say different as Goldman has been the biggest benificary of this crisis by all means and he himself pocketed a handsome reward as a law which is supposed to take out any conflict of interest makes him to sell all his stocks (of Goldman) but to make it a bit easier does exempt him from any tax payments. Mr Paulson had approx. 800 Mio worth of them so he will ahve made around 150-200 mio in profit on that deal and that was one of the reasons he took this office. the other is very obviously to widen the web of power Goldman has in DC and especially in the FED and Treasury. Beneath a myth story about Paulson far from any truth its like one of those 'wag the dog' stories.


Friday, September 11, 2009

NDX update

We have reached the extended sell area for the NDX and approached also the time band almost as the 15th and or the option expiration is just a few days away. As you can see the 9 (green) week count has almost the effect of marking a turning point at least short term but tends to mark places from where to expect 10% countermoves. We have some indicators still in neutral territory so The big crash back to the lows is not imminent but will happen eventually but I rather expect that to happen in Q1 2010. For now expect the bulls to run out of steam and volatile retreats for late Sep and Oct.

Brainstorming Friday - sell stocks into this strength

1. Morgan Stanley back to the Mc Kinsey trip which resulted from its merger with Dean Witter and brought the Investment banker into tier 2 which did not work out at all and that was the reason why Mack who was fired in that process of the merger was brought back. Must be a deja vu for Mack it happens all over again as Gorman is again from Mc Kinsey and a broker expert from Merrill who orchestrated the takeover of ( joint venture for now) the Smith Barney Broker force of Citibank.
I doubt that Gorman is the man to restore the Morgan Stanley culture he rather will change it to a new Merrill culture as Morgan is a non Jewish zone mostly it missed the boat completely due to lack of insider information - I due doubt that MS has lesser 'talent' - they just do not have axcess to the inside ring Goldman has developed over 2 decades. Once Morgan was part of the bigger JP Morgan before the Stegall Act and part of the most powerful inside ring. Since the takeover by the WASP it has run its course and especially the last 2 decades it lost plenty of its grip and Mack made plenty of bad calls in the good times as well as in the bad ones. To be a tough arrogant SOB does not make one a good manager as most manager rather do not earn their merits but are placed their to work for a bigger circle of insider and not the stockowners.

Mack Steps Down as Morgan Stanley’s Chief Executive (Update1)

By Christine Harper

Sept. 11 (Bloomberg) -- John Mack, who struggled to return Morgan Stanley to profitability after surviving the worst financial crisis since the Great Depression, will turn over his chief executive officer title to Co-President James Gorman.

Mack, 64, will step down at the end of the year and remain chairman of the New York-based bank for at least two years, he said in an interview yesterday. Gorman, 51, will become CEO and Walid Chammah, 55, co-president with Gorman since 2007, will relinquish that role and remain chairman of Morgan Stanley International in London. The changes take effect Jan. 1.

In more than four years leading the firm, Mack sought to improve profits and repair divisions that appeared under former CEO Philip Purcell. Mack’s strategy of boosting trading risks backfired in 2007 when bad bets led to the firm’s first quarterly loss. While the company survived the financial crisis that devastated some rivals, Morgan Stanley has lost money since the third quarter of 2008 and reined in trading even as Goldman Sachs Group Inc. earnings hit an all-time high.

2. We are now in the sell area for the SPX and I do recommend to lighten up up stocks heavily if you can trade you may hold some very speculative sectors as a bit more is due in some financials as Deutsche bank has still a potential up to 55 just to give one example and oil needs to push up towards 78/80 giving more scope to the XOİ sector as well. Some are doing the right thing already

Excerpt from zerohedge

$5.1 Billion In Outflows For Domestic Equity LT Mutual Funds Over Past Month

As CNBC guests will be so quick to admit, the money on the sidelines is indeed not sitting still: it is fleeing! Even as the market has gone up by 4% over the past month, flows in domestic long-term equity mutual funds have become increasingly more negative. The total amount withdrawn is over $5 billion, and last week alone saw a -$3.2 billion outflow, according to Investment Company Institute.

Not only does this refute claims of any presumed sidelines money stoking the rally, but it emphasizes the question mark over who it is that, with Swiss watch precision, keeps gunning the market at 3:30 pm sharp every day, while the volume keeps declining progressively (except of course for those days in which the market tanks such as last Tuesday - Chart 2).

3. Some camouflage moves on the so called bonus pools but the irony is that the banks may be glad to have an excuse to cut down bonus payments as those are roughly 50 % of all expenses so they will have a better profit situation in the 4th and 1st Q's which could raise the stock prices briefly hence the executives can unload old stocks from former bonus payments which is overall a far bigger share than 1 years pay reduction after all. That has been accomplished anyway as the average stocks in the financial sector have doubled thanks to the great work of the FED for their real employers Wallstreet.

excerpt zerohedge

Correlation Of S&P 500 Performance With Fed Monetization Activities Since Start Of QE

The chart below requires no substantial commentary suffice it to say that since the launch of the Fed's Quantitative Easing, aka Monetization, program, the value of the Total Securities Held Outright on the Fed's Balance Sheet has increased by $917 billion- from $584 billion to $1.5 trillion. This has been accompanied by an almost linear increase in the S&P 500 Index, from 721 at QE announcement on March 18 to 1033 yesterday. This $917 billion in extra liquidity, instead of igniting an inflationary spark, as the QE program was designed to do, is now (metaphorically) sloshing around bank basements. As a reminder: the most recent reading of Total Deposit Reserves was... $886 billion dollars: An almost dollar for dollar match with the increase in Securities Held Outright of $917 billion. And instead of this excess money hitting broader aggregates such as M2 or MZM, it is held by the banks, who proceed to buy securities outright on their own, either Treasuries or Equities. Apply the proper "money multiplier" to get the monetary impact on the S&P 500, as a result of the banks not lending these excess reserves, and instead simply speculating with it, and you will likely get the increase in the market cap of the S&P since the launch of QE.


Thursday, September 10, 2009

Thursday Brainstorming

1.First of all plenty calls for a 1200 rally over time combined with correction is a buying opportunity which leads to 2 basic assumptions the top is very close and we rather will not see 1200 as it rather would mark a PE around 24 without heavy government intervention (second 1 tril. package). Assuming earnings staying rather around 50$ for the SPX for 2010 as where is no prospect for rising earnings after the current cost cuts since further delays in the same magnitude would trigger an official depression with a jobless rate around 15% ( real more in the high 20's). any further cust reduction would harm the PE not benefit it and we have no scope for topline growth at all with rising jobless situation and an ongoing credit crunch with a consumer retreating.
Ultimatelly against all this Wallstreet garbage research the whole system needs a deep cleansing the buble also in consumption was based on the pathetic deathwish of ever rising house and equity prices which can never be sustained except for hyperinflation.

2. The problem will be to keep the steep yield curve on set levels as any implosion of the long end which can be triggered easily for many reasons would turn the profit machine for banks into a final disaster. So far the whole operation of the FED is to create a leveraged carry trade profit printing machine by putting the borrowing side on 0 interest and keeping a stable investment at the long end around 4 % , which gives a profit margin of 4 %. That sounds not like a lot but since a bank can leverage that up to 20 times the 4 % turn into 80% - why should a bank lend money to any one as it can create that 80% profit with no risk ( as long as the FED keeps buying the long end to keep the price stable other wise its huge risk).
Against all other declarations the FED always knew what they were doing and that banks would not lend the money they borrowed from the FED - they did the same thing in the early 90's as Citi was bankrupt with others as well only that the deficit of America was in better shape and the borrowed money by foreign countries was on a lower scale. Now its far more risky and complex and the core situation is on the negative bias still.

3. Very good coverage of the old theme I tried to illuminate from many angles we are still very likely on the path of a depression.

Another Great Depression Comparison

ThoughtOfferings takes a unique angle on Great Depressions comparisons, and instead of focusing on earnings and multiples, demonstrates the similarities between corporate dividends which, like everything else, indicate an eerie comparison to the dark days of 1930. The chart and commentary below are sourced from TO:

  • While Doug Short's charts have already shown the similar stock price trend now compared to the Great Depression, the recent trend in dividends and earnings is amazing similar to the Great Depression trend as well! (At least if one compares operating earnings today with reported earnings back then, since operating earnings did not yet exist).

  • While anything could happen in future months, the current trajectory of dividends (down 11% from peak) is looking slightly steeper than the Great Depression decline. Since reported earnings have fallen so severely even relative to the Great Depression, and reported earnings are a closer representation of actual cash flow than operating earnings, the downward pressure on dividends seems like it should be much greater than during the Great Depression — unless reported earnings can stage a miraculous recovery. Is there a reason I'm not aware of why this conclusion is wrong? If correct, bonds may look increasingly attractive relative to stocks for income-seeking investors.

Dividends, along with CapEx and Taxes, are the key corporate cash outlay mechanisms. And if CapEx trends are any indication, and taxes will not be a concern for most companies due to massive accumulated NOL carryforwards during the last 2 years, it is increasingly likely that dividends will continue to suffer and decline, probably to GD corresponding levels. This is going to impact traditionally dividend-heavy issuing REITs most of all, which will likely continue to issue stock-based dividends for years, thus increasingly diluting existing shareholders, while preserving the much needed cash for the CRE crunch starting in 2012.

As for the historical comparison, ThoughtOfferings sums it up best:

To me, the clearest value in these charts is yet one more piece of evidence that this recession/depression is very comparable to the Great Depression, despite the claims of many people that this period is "nothing like the Great Depression." And I did check the data for the years since WWII and found no other dividend declines near as large as today's, so this is not a normal recession pattern. That said, these charts say nothing about the future and what will result from current government stimulus and any structural economic differences that may be relevant. Stock prices, earnings, and dividends could immediately start heading sustainably higher and break from the Great Depression trend, or they could keep heading down. My personal view is that the downside probabilities are much higher than the upside ones (with flat being another feasible path somewhere in between), but everyone needs to make their own determinations and none of this is investment advice.

So there you have it - another data set confirming that the similarities between today's situation and that of 80 years ago can be extended to yet another dimension, with the main sticking difference, of course, of free liquidity and tight bid-ask spreads compliments of those remaining computers who still trade this market.

Wednesday, September 9, 2009

Brainstorming Wednesday

1. We are entering an interesting period now from an astrological perspective the Uranus /Saturn opposition on the 15th is the 3rd time it will occur in this 40 year cycle and the last 2 times market rose to that date to drop 20 % thereafter. Just before we have another positive effect short term which is Venus will be opposite Jupiter for a few days fueling the bull camps hope for ever rising stocks. At the same time we have a quincunx of Saturn and Neptun which brings up stories like it was covered in Bloomi yesterday that stocks are the cheapest since 1989 - which is complete bullshit as most of Wallstreets research is - why else would they need to change their assumptions every week following the flow of deception and stupidity. At the lows they were most negative to get more optimistic with rising markets. Any housewive with no academic training can do better than that.

2. The non financial aspect of some astro patterns forming over the next weeks is documented by the following story and a pending strike by Israel on Iran which would be one trigger for a big sell off in stocks after all. That will be again an inside trade for the ones close to Israel who will definetely know before it happens.


Iranian Nuclear Effort Nears ‘Breakout,’ U.S. Says

By Jonathan Tirone

Sept. 9 (Bloomberg) -- Iran’s atomic work is nearing a “dangerous and destabilizing” breakout point at which the Persian Gulf country may be able to build a bomb, the U.S. envoy to the United Nations International Atomic Energy Agency said.

“Iran is now either very near or in possession already of sufficient low-enriched uranium to produce one nuclear weapon, if the decision were made to further enrich it to weapons grade,” Ambassador Glyn Davies said today in a prepared statement to the IAEA’s 35-member board of governors, which is meeting for a third day in Vienna.

3. The ongoing credit crunch is the best indicator where the economy is heading where is no substantial recovery or a turnaround at all just a bounce back for several one time effects.


Record Plunge in U.S. Consumer Credit Signals Weakened Spending

Sept. 9 (Bloomberg) -- A record $21.6 billion drop in borrowing by Americans added to evidence that consumer spending will be slow to recover as banks and credit-card companies tighten lending standards and households pay down debt. Not only that consumers will be out of the game for a long time the governement sponsered purchases will be missing the next years and drag the economy even more down.

Consumer credit fell by 10 percent at an annual rate in July to $2.5 trillion, according to a Federal Reserve report released yesterday in Washington. The drop was more than five times larger than economists forecast. Credit fell for a sixth month, the longest series of declines since 1991.

“The consumer is hunkered down in the process of repairing his finances,” said Ryan Sweet, a senior economist at Moody’s in West Chester, Pennsylvania. “Consumers remain very cautious and won’t be leading us out of this recession.”

Unemployment that’s projected to reach 10 percent by early next year and a decline in household wealth are casting doubt on the strength of the recovery from the worst economic slump since the 1930s. Federal Reserve policy makers, at their last meeting in August, expressed “uncertainty” about the projected pace of gains in spending by households.

Monday, September 7, 2009

Excellent read - facts you barely get from mass media

from contraryinvestor

The "Other" Real Estate Issue- Revisited

The “Other” Real Estate Issue - Revisited…It was in early February of this year that we penned a discussion about the state of the commercial real estate markets. Of course at the time the Street’s eyes were collectively glued on the near free fall in residential real estate values and general activity. Our suggestion at the time was that CRE (commercial real estate) was about to make a very prominent guest appearance on the economic stage as being yet another meaningful real estate related issue for the financial sector, the economy, and for those holding significant investment positions in the asset class such as institutional pension funds. You know what has happened since, but the reality is that CRE will continue to be a problem child issue for some time to come. As we’ll see in just a minute, relative to prior historical CRE reconciliatory cycles, we’re just getting started. Will this be yet another “challenge” for the banks ahead? You bet. But the miracle of the eraser the government allowed the banks to invoke sidestepping mark-to-market activity may delay the true realization of asset value declines. As you’d guess, we have a lot of charts that together tell quite the story of deflation in values and activity, both now and we expect also yet to come in the current cycle. And why is this issue important to really the broader US economy as we look ahead? Simple - its implications for bank lending and normalized functioning of credit markets ex the massive baling wire and duct tape support of the financial sector the Fed/Treasury/Administration (none of which has been removed as of yet, or can be if asset values such as CRE continue to deteriorate) has engineered. We believe the CRE issue will forestall a return to credit flows from the banks as they privately (no mark-to-market) continue to nurse balance sheet wounds for some time to come. Let’s get started.

We want to kick off this analysis with some data we have never shown you before. But it is certainly very timely right now. Why? Because this data is both current and market value based. We’re NEVER going to see this type of data coming from the banks as they will lie as long as they can about CRE values on their books. They have the blessing of the government, so don’t hold your breath in terms of trying to find truth coming from the financial sector. Alternatively, and very importantly, the institutional investment community still marks their real estate assets to market each quarter in terms of keeping integrity in calculating ongoing total rates of return for their funds. Thank God someone is willing to tell the truth, right? It seems there’s less and less of it around each day.

The National Council of Real Estate Investment Fiduciaries (NCREIF) is an association of institutional real estate professionals who share a common interest in their industry. They are investment managers, plan sponsors, academicians, consultants, appraisers, CPA's and other service providers who have a significant involvement in pension fund real estate investments. They come together to address vital industry issues and to promote research. The NCREIF was established to serve the institutional real estate investment community as a non-partisan collector, processor, validator and disseminator of real estate performance information. Now you know what we are talking about in terms of integrity of the data. No tier I, II and III assets for these folks to manipulate and massage in terms of values, just honest third party actual quarterly appraisals of real properties. The NCREIF publishes a National Property Index (NPI) on a quarterly basis that gives us some very good insight into what is happening quarter by quarter with the value of institutionally held commercial real estate investments. And you can be darn sure they are much closer to the truth of what is happening with CRE values than the banks in this country will ever let on. The NPI covers all “classes” of institutional investment in CRE including, office, retail, hotel, industrial and apartment properties.

The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment. NCREIF requires that properties included in the NPI be valued at least quarterly, either internally or externally, using standard commercial real estate appraisal methodology. Each property must be independently appraised a minimum of once every three years. Because the NPI is a measure of private market real estate performance, the capital value component of return is predominately the product of property appraisals. As such, the NPI is often referred to as an "appraisal based index." At the moment there are roughly 6000 individual properties in the index whose value approaches $300 billion. Sorry for the knock down drag out description as to who these folks are and how the index is calculated, but we believe it is one of the most “transparent” pieces of data regarding ongoing CRE values we can find. Of course it seems the government alternatively believes that by wiping away mark to market we can just go back to lying to ourselves and everything will be just fine. That worked out really well in the prior cycle, no? In terms of honesty and integrity, we’ll take the NCREIF data any day of the week, thank you.

Finally to the point, below is the three decade-plus history of quarterly returns for the NCREIF property index. Get the picture as to current trends?

Of course you do. We’re currently looking at the most significant period of consecutive quarterly drops in value in what admittedly is the short history of the data (going back to 1978). Although we do not detail the quantitative numbers in the chart, over the last four quarters (3Q 2008-2Q 2009) the index has recorded a 22.5% contraction in value. And just what does this infer about bank holdings of CRE loan paper? Thanks to the current Administration’s financial sector “don’t ask, don’t tell” policy for bank assets, we’re not going to really know any time soon. Good thing the US banks can simply move forward reporting record earnings and ignore the current inconvenient truth of declining CRE values, no? We only see some glimpse of the truth in asset values every Friday when we see that week's US bank failures. Did you catch how BB&T wrote down Colonial Bank asset values by 37% after Colonial's essential failure and melding into BB&T? The write down never happened until Colonial hit the tarmac nose first, yet asset values had vaporized long ago. And this is the "transparency" we've been promised?

In the next chart we’ve taken CRE individual asset class quarterly returns from the NCREIF data and produced a compound rate of return series for each asset class since the beginning of the current decade. Please be aware that the NCREIF rate of return data includes two components - an income return and capital price change. Although we will not drag you through the specific quantitative data mud, you’ll just have to trust us in telling you that income returns have been positive each and every year. That means the capital return (price change) both primarily drives the direction of the data in the chart below plus is a bit worse than the actual numbers in the chart show due to the positive influence of the income flows.

In short, we are looking at some very substantial price declines to produce these compound annual rate of return trends for each property type. In the table below we delineate the NCREIF pure prior four quarter rate of return by property type for the period ending 2Q 2009. Again, it is the true reality of actual property price appraisals that is driving these numbers. C'mon, can't we allow the pension funds to simply make up "fair value" numbers like the banks do? It just doesn't seem fair they should have to take these types of asset value hits, right? They can't convert to bank holding companies, can they?

CRE Property Class

NCREIF Prior Four Quarter Rate Of Return











Certainly the numbers you see above are breathtaking, especially given that they only cover the prior four quarters through 2Q of this year. And to be totally honest, value declines in the third quarter of last year for all property types were less than 1%. Meaning that 95% of the price damage you see in the table above has occurred since September month end of last year to the present. Just how meaningful is this historically? How does the present CRE down cycle compare to historical cycles? We only wish we had the very long term data. But what we do have is a copy of a presentation done by Ken Riggs, President and CEO of Real Estate Research Corp. (RERC) given at the summer 2009 conference of the very same NCREIF. RERC bills themselves as “one of the first, and one of the most recognized, independent and objective commercial real estate research, valuation and consulting firms in the nation. For more than 75 years, RERC real estate research, publications, market studies, property valuations, investment criteria and trends analysis have proven visionary”. Anyway, the following is some data Mr. Riggs presented to the NCREIF crowd literally seven weeks ago in terms of prior CRE cycle character.

Periods Of Commercial Real Estate Downturns

Quarters Of Duration

Price Adjustment For Each Period

1Q'90 - 4Q'95

24 quarters


3Q'01 - 1Q'03

7 quarters


2Q'08 - Present

4 quarters so far


As you can see, his numbers for current magnitude of decline are not too far off what the NCREIF property index tells us. As we look at the data above, what is most striking is that it has only now taken really three quarters in the current cycle to produce 41% of the decline seen in the 24 quarter down cycle of the early 1990’s. And of course the early 1990’s CRE collapse was in good part driven by the vaporization of the S&L industry. Seven quarters of CRE decline early this decade produced a “rounding error” of price decline magnitude relative to the present cycle. And unfortunately, as we see it, we’re still in the first few innings of the current CRE cycle reconciliation game for now. And as far as the banks and their CRE assets are concerned, the national anthem has not yet even been played. We’ll just have to see how it all unfolds from here.

Final chart from the good folks at the NCREIF. As is often the case in any asset class where a very meaningful decline in values takes place over a very short period of time, activity simply dries up. You may remember our personal near and dear mantra courtesy of Ray DeVoe - “Liquidity is a coward. There’s always too much when it’s needed the least and it’s never around when it’s needed the most.” Please be aware that the 2009 number in the chart below has indeed been annualized. Quite the collapse in activity, right? In no way will this help "price", quite the opposite.

It’s a shame all the buyers have vanished, because as you may remember close to $300 billion-plus of CRE mortgage loans are up for renewal or reset this year. And as of now the asset backed market for commercial real estate loans is contracting as opposed to expanding. Much like the residential asset backed markets, the commercial asset backed markets are no longer open 24/7.

That really leaves the banks as the potential saviors for commercial real estate finance. But here unfortunately again, the banks are nursing their CRE wounds in the privacy and blackness of their non-mark to market balance sheets. What we do know is that per the most recent bank loan officers survey, over 65% of banks were still tightening standards for commercial real estate loans when these folks last answered the phone (a quarterly survey).

So just where does that leave CRE owners who need to refinance this year or early next? In trouble, that’s where. And if this were not enough, we can tell you from first hand knowledge that bank regulators have been crisscrossing the country examining bank CRE loans intently. They do not want another mortgage debacle as was residential real estate on their current watch. Like they have a choice, right? In many cases current CRE appraisals are being conducted against existing bank property loans and capital calls are going out to CRE owners who have always been model credits and have never missed a payment in their lives. And CRE values will improve in this type of a regulatory and available capital environment? Quite the opposite, as you already know.

Taking The Lead?...So just where does all of this lead us with CRE ahead? When will we begin to get some “green shoots” or signs of “stabilization” in CRE values? We wish we had the answer. But we do have yet another data point from an industry source we hope can help in terms of timing ahead. The wonderful folks at the National Association of Realtors have put together what they call the Commercial Leading Indicator (CLI). The Commercial Leading Indicator for Brokerage Activity is a tool to assess market behavior in the major commercial real estate sectors. The index incorporates 13 variables the NAR believes reflect future commercial real estate activity. The index is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate. We like it in that it is comprised of the NCREIF price index, the NAREIT price index, industrial production, labor market data, retail sales, personal income and capital spending data factors. As much as we distrust most data or comments from the NAR, the CLI appears a very reasonable indicator. In fact, this is what it is telling us right now.

Admittedly it’s not looking too wonderful, especially as a “leading indicator”. Sorry for the small print in the chart above. It covers the 1990 to present period and, of course, it’s the direction that’s most important. Directly from their latest report comes these comments.

“The sharp fall in the CLI implies that commercial activity, as measured by net absorption and the completion of new commercial buildings, will likely contract quite severely over the next six to nine months. Commercial real estate construction spending (i.e., non-residential structural investment) had held on relatively well in the current economic recession, but is anticipated to tumble in commercial real estate building construction in upcoming quarters. Commercial practitioners can also anticipate a much weaker net absorption in the office and industrial sectors later in the year and a far fewer number of new commercial buildings reaching the market.”

“We now expect office vacancy rates to rise very sharply, surpassing 20 percent in 2010. Office rents will fall 7 percent in 2009 and further fall an additional 1 percent in 2010. Industrial and retail sectors will face deteriorating conditions as well. Only the multifamily sector looks to squeeze out positive rent growth, though at a slower rate of increase than in the past.”

Comforting, right? Sure it is. One final comment in terms of the commercial real estate cycle and how that cycle relates to residential real estate. The following is simply an update of a chart we have shown you the past. Directly from the GDP data, we are looking at the year over year change in residential fixed investment (residential real estate) set against the same year over year change in non-residential fixed investment (a loose proxy for CRE).

Important point being that at least as per the historical message of past cycles, the rate of change in the residential markets turns up before the rate of change in non-residential activity does. And at least as of yet, residential construction/investment activity is not turning up. As we said a few minutes ago, the CRE down cycle is unfortunately still young. We hope we can anticipate the eventual turn when we see the NAR CLI reverse up and the annual rate of change in residential fixed investment bottom and begin to move higher.

That Vacant LookAnd we’ll close with a bit more data from the super folks at the National Association of realtors. In conjunction with the production of their Commercial Leading Brokerage indicator, they also project forward vacancy rates for office, industrial and retail property types. Here’s what they think is coming down the pike for the remainder of this year and looking into next. Maybe we're colorblind, but it seems even the NAR can't find any "green shoots"? We never thought we'd see the day. The numbers for this year and next are certainly sobering.

Property Type And Data Points






Vacancy Rate





Net Absorption (000 sq ft)





Rent Growth






Vacancy Rate





Net Absorption (000 sq ft)





Rent Growth






Vacancy Rate





Net Absorption (000 sq ft)





Rent Growth





There you have it. We suggested in February of this year that CRE would be an important issue before the current year had run its course. The numbers, analysis and industry commentary tidbits suggest the down cycle is far from complete. The ultimate impact on the financial sector remains an open question mark at this point. Will banks simply ignore the issue, as they continue to do with many a residential real estate foreclosure situation by simply not sending out notices of default? Will the Fed/Treasury/Administration devise yet another taxpayer funded bailout scheme for their very close friends at the banks and in the US financial sector at large? Without question, the regional and community banks are most at risk with current and to come CRE issues. We do not expect death and destruction as excesses in CRE lending were NEVER as egregious as what we witnessed in residential lending. But these folks will need time to heal. They will need time to earn their way out of their current and to come CRE problems. This simply tells us their will be less aggregate systemic risk taking and credit availability from this crowd of regional and community bankers ahead. It can be no other way. And yet equity investors continue to attempt to discount a “V” economic recovery, as is implicit by the recent vertical action in equities? They certainly know something we do not. They do know something, don’t they?

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