Grab Your Shorts, the Tide Has Turned 23 comments
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You only learn who has been swimming naked when the tide goes out. - Warren Buffett
So much for that.
Last week we commented that the latest rally stunk even more than the post-Bear Stearns one. It doesn’t matter how cleverly CNBC and the talking heads spin these things, you cannot stage a bull market via interventions.
In the history of market regulators it has always been the market, not the regulators, that resolves financial issues. And credit contraction, worsening fundamentals, growing inflation, and shrinking corporate profits aren’t what bull markets are made of.
However, despite all of this, I was expecting the market to stage some kind of rally this week. Stocks have rallied during the last five days of summer for four years straight now. It’s a bad sign if traders aren’t trying to push this during one of the market’s thinnest trading weeks in terms of volume.
Instead, we got a whopper of a Monday with stocks plunging nearly 2%. A whole slew of bad news was announced, including:
- The national median existing-home price fell 7% in July from the year before.
- Goldman Sachs announced that half of the world's economy is in recession.
- Commodities may have hit a bottom: see News Bulletin below.
- Another bank going under, this time in Kansas.
At this point, even the most delusional perma-bulls are beginning to realize that the market is in serious trouble. The list of problems and issues is virtually endless.
Willem Buiter, policy maker at the Bank of England, tore Ben Bernanke and the Federal Reserve a new one at the bankers’ meeting in Jackson Hole, Wyoming. Rumors are circulating that at least one central bank has banned the ownership of US agency debt. And no one, not even Sovereign Wealth Funds, has stepped in to help out Lehman Brothers (LEH). Meanwhile, Fannie Mae (FNM) and Freddie Mac (FRE) are inching closer and closer to an inevitable bailout: one that will kick the dollar in the face.
Stocks were in a critical spot last week, forming a rising wedge pattern between their 28-day moving average (DMA) and 55-DMA. At that time I commented that these patterns tend to break to the downside.
Yesterday it did.
As you can see, stocks gave up Friday’s rally and then some. And the S&P 500 breached a critical support line. I know this. And so do traders around the world. If we don’t see a substantial turnaround today, the next leg down is here and it’s time to establish some shorts.
Fortunately, going short is easier today than ever before. There are a whole slew of short or inverse ETFs that allow you to short sectors, or the market as a whole. You can see them here.
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This article has 23 comments:
Here again we are dealing with the conclusions that the FNM and FRE are doomed and will face the bailout.
The data reflects that the both agencies are responsible for about 80% of the mortgage activity in the U.S market.
Both agencies have been handling mortgage funding betterr than the banking institutions.
Both agencies have been created by the Congress(implicit U.S government guarantee), with the aim to assist the housing market.
There is no bailout involved .If either of the agencies had to face financial issues ,the governmemt would have to live up to the implicit guarantee-nothing is wrong with this potential action if ever there was a need for it. In fact potential for such an action should enhance perception of the market stabiliy.
In fact the housing sector's risks had existed for years but were conveniently ignored allowing the share of both agencies to trade in the stratosphere. By the way I have discussed the relevant risks as early as June of 2005 (Mark Gilbert -Bloomberg interview).I have reinforced my view as late as September 18 ,2007 (Brian Sullivan TV interview-Bloomberg).F... few weeks later investors had seen the light.
Now that U.S economic/financial issues have been identified and addressed ,I am bullish on the market as economy will respond to the implemented measures but with a lag.
Would not surprise me if the stock market rally in the period ahead was lead by the shares of the FNA and FRE.
In the meantinme ,as the market consolidates ,the volatility will continue.
The financial risk perceptions which should have been discussed last year ,will be a focus of the media.Why ?,because the investment community has a record short positions in this market segment.One thing that should be noted ,it is Europe that is heading for a recession.This will benefit U.S economy and the American markets-period.
Yes it really is that easy.
Yes, I revel in the irony.
"Both agencies have been created by the Congress(implicit U.S government guarantee), with the aim to assist the housing market.
There is no bailout involved .If either of the agencies had to face financial issues ,the governmemt would have to live up to the implicit guarantee-nothing is wrong with this potential action if ever there was a need for it. In fact potential for such an action should enhance perception of the market stabilty'
Whom is the government, do you mean the taxpayers? Do you mean the debt-laden, house deflating, job losing middle class being ripped at now all sides by predatory utilities, local and state governments? Please extrapolate if this means the taxpayer Mr Bornstein. Because right now to me that is what it means to me and historically, the middle class takes it way up the keister in such affairs and that does NOT promote market stability. 70% of our economy is consumer driven.
You comments of 'bullish with a lag'. What does that mean, exactly? 2020? I have stated for several months the next Bull is 2013, since June of 2007 chance of recession this year 100%. I don't want credit or to sound important, I give a damn about my countrymen, so stop sounding so obtuse about 'government implied' guarantees.
My comment trail explains my positions of why I feel this way about prior forecasts. Now, since we are all a shade tired of just regurgitating the obvious, here are my solutions and which sectors will provide some shade next year (as this year is shot, minus some obvious shorts):
Washington Policy:
1) Energy- the national focus and investment should consumer 35% of our entire GDP if we wish to avoid the Great Depression part II. As it stands now, very nasty long-lasting recession if good policy emerges from Washington in this and other areas.
2) Healthcare - Enact discount drug program with big pharma. Approaching them with 'discount or else' in 2006 by House Democrats was STUPID. Go the Dennis Hastert route of 2000. This will promote loyalty programs with big pharma patients and cross-sales opportunities. This also keep clinical trial business in the US. Investigate Medicaid and Medicair fraud and prosecute much.
3) Education - I like Bush's proposed $300 B Higher Ed bill. Too bad this Congress made him a lame duck, this one of his better ideas. I assume this will pass next year and the funds must be better managed to improving college standards. Like Healthcare, work with private colleges to offer multiple 'grants' (in other words discounts) . Time to stop pissing good money away and NOT supervising the entire affair. Laziness abounds in Washington. Not new but reaching alarming levels.
4) Lube multiple regional banks that have displayed fiscal disipline these last few years. Stop feeding ugly, dishonest iBanks and begin investigations for fraud. No investigations, the global investor keeps shorting into oblivion. Force taxpayers to pay again, get pitchforks. There are many now joining the good guys network to educate the population. Not to forment revolt, but to let people have the facts and decide what should be done about this continuing disgusting problem. Perhaps by 2012 we'll see the voter revolution needed to get half of Washington back on a beach someplace warm instead of office creating new schemes to rape the middle class, tax the wealthy, most of which spent an entire lifetime earning and stop malinvestment into the least productive of our society to bribe votes.
5) Enforce immigration laws to seal our southern border and DO fine businesses hiring them. No more $30k per year entitlements tax free so Latino queens can drive around in an SUV on my and yours dime, then go back to a couch to call friends to complain why we all don't learn spanish. Meanwhile, the guy making $30k a year working 40 hours a week can't to get to work or feed a family.
Short & Mid Term Shade Sectors:
Agriculture, Consumer Healthcare, Energy, Higher Education, Efficiency Technology, Railroads
Voter revolts do occur, the last one was in 1933 when 206 of 531 incumbants were ousted. Similar events occurred in 1861 and 1877. History rythmes as human nature never changes. It willl occur again in 2012. It is about retention ratios of House Congress and Senate and getting true public servants in. It has been 75 years since the aggregate retention ratio was under 85%. The free market including Washington, does work but it certainly doesn't fix itself on its own. People fix it.
And in these next few years, pain points will multiply for the American people similar to the events of 1929-1933. It does take time to gather a movement and connect the stars with a simple ambition to serve the public. The retention rates plunge when American citizens feel the economic woes and get off the couch. Right now, half the country wants a bailout and thinks that will solve it. Socialism being used to attempt to fix Socialism, just like 1930's. So in one fashion I agree, the time is not right and this government itself may collapse in-between, anything seems possible right now. But pending that, expect voter registration in 2012.
The U.S. stock markets are heavily manipulated, as are the commodities futures markets. SEC and CFTC are coomplete failures and rather protect the manipulators than anyone else. You only need to look at which firms most guys from SEC and CFTC end up after they leave these regulatory institutions to know whose interests SEC and CFTC are actually serving.
Probably the guilt from knowing they achieved their wealth from a dishonest banking system and/or crony capitalism.
Strike Pickens Buffett Gates Perot Soros Trump.
Add Ron Paul
Don't know about Redstone or Zell
hopefully, i didnt read this by the time it got posted (26th.. right?)
i do regret dumping abk with 50% profit "only" when i could have made more than 100%+ as of todays price.
i do regret going to RDN right after that, as i could have bought FRE/FNM ..
but anyway,
at least im green, green, happy, and over 70% this year, NO I HAVENT SHORTED ANYTHING.
so i say...
for the long term, fre/fnm mbi and abk are the right thing to do..
how patient are you?
if you can afford to put 10k in any of this stocks today.. you will get a 500%+ in about 5 to 10 years.
thats amazing, considering a fixed income (the best ones) are paying dividends of 10%/year ...
anyway, in the end
im glad i dont follow the amazing minds that puke those articles around here.