hello from germany,

The trouble with the housing market / economist cover story

the perfect anti spin! plus a beautiful cover...

Regulators Scrutinized In Mortgage Meltdown
wsj + minyanville

have a nice weekend

http://immobilienblasen.blogspot.com/

Financial Post in Canada reporting Merrill recommending SLW, target price of $13.50.

http://communities.canada.com/nationalpost/blogs/tradingdesk/archive/2007/03/22/silver-wheaton-price-target-us-13-50-in-new-coverage-at-merrill-lynch.aspx

Disclosure-Long SLW. As previously noted HL (Long) and other silver producers PAAS & SSRI continue to outperform SLW.

I'll be on the road this morning but hope to check in later this afternoon. Call or beep me if necessary or if NYUgrad goes to lunch:)

Let's see, it's Friday; no wine recommendations until the market closes. Be careful out there and good luck.

We worry about excessive money printing, which, invariably results in inflation. The argument used is that the faucet has to be turned off at some point. However, since the government manipulates CPI/PPI calculations lower or indeed, lies about these reports (and there is historical proof of this on tape from the Nixon era, I believe); there is nothing to stop the Fed from using this manipulated "lower" inflation readings to lower interest rates and keep on printing more money to bail the US out of it's numerous problems and help stocks and bonds go up.

Unless I am missing something, the only down side would be a lower US$ and higher PMs. A PM rise is relatively easy to control. And with the willing co-operation of other nations, the Dollar could have gentle adjustments lower without actually falling off a cliff. This is a small price to pay to engineer a soft landing, avoid mortgage default problems and drive stocks and bonds higher. Goldilocks all over again.

No down side unless you are young or about to be born. No, then those poor people get to inherit your debt without so much as talking, much less a VOTE. I'd say that is downside, just not for the living.

For them you drive DEBT up higher and higher. How special!
I think you are missing the social equity portion of your three bears story. Is Goldilocks a children's story or an adult S&M horror flick?

Ian Telfer has been dumping his shares for the last few weeks...http://www.canadianinsider.com/coReport/allTransactions.php?ticker=SLW

I didn't hear the interview Cramer did with Imus, but in response to all the criticism he's been getting he posted this on his site yesterday.

"The Least I Owe You
By Jim Cramer
3/22/2007 6:29 AM EDT
URL: http://www.thestreet.com/newsanalysis/general/10345939.html
You may have seen some articles the past several days attacking me about an interview I gave recently where I discussed the kinds of manipulative trading practices that go on every day in the investing community. Let me say this: No one knows and respects the securities laws more than I do. (I didn't go to Harvard Law School for nothing!)

When I was a hedge fund trader in the 1990s, I played fair, and I did nothing that violated those laws. But others did not play fair, and that's why I started TheStreet.com and have been writing about these abuses for nearly a decade -- to explain to my readers how the markets really work. I wanted to give transparency to the market and tell people the good and the bad.

Some professional traders don't like it when I expose how their game is played, and some of the TheStreet.com's competitors don't like it when people are interested in what I have to say. But I am going to continue to write and talk about how the markets really work -- in my own sometimes hyperbolic and tongue-in-cheek style -- and call them as I see them. That's the least I owe you."

After the "confessional", we'll see how far he goes in explaining "how the markets really work" in the future!

Thanks Marc from NZ and Bill for these tidbits.

jragusa-

I believe that is The Playbook. It's very smart and started in earnest last Spring when oil, PMs and metals got into the hands of the mo-mo's and hedgies. Then came an engineered whackage at the behest of the Fed and with the help of HB&B. It continues today.

I went long at Dow=12000 and am looking to lighten up here, frankly. The macro situation is very concerning.

Well Cramer's site is a very nice read, however the forum he chose to bash the HB&B is NOT his site. It is was a T.V. show from a corporation that is manipulated by the politics of the street.

Back in 2000 when people were losing fortunes, CNBC was sensationalizing the events(some said CNBC added to the decline) and they were chastised heavily by not only the HB&B but the govt. as well.

Kudlow's diatribe is a plant IMO,,,lol.

Why do you think cnbc tries to put a good spin on bad events affecting the mkt.

JMO/thoughts.

Dab

Thoughts on why gold went south today so far??

Does anyone know what's up with GG? It seems the buyers are piling in!

Iran seizes British troops, therefore gold goes down. And GG goes up.

Logic only in Vulcan.

We are getting our regular dose of anti-gold vaccine from Fed, although I'd expect the dose to be a bit higher this time due to dovish policy statement. Be prepared for another rough ride in PM for a week or two.

AMGN
28/13/21. halting research on a cancer drug. Yahoo profile shows a company buying back stock and generating cash. Is AMGN in the Cara 250? Just wondering as this is in an Accumulation Zone. (I am just watching)

SNDK MU JNJ

SNDK up to 45 from 39.17 since March 1st(20%+ gain). still holding on to it. Got MU at 11.42 and got JNJ at 61.15 with a tight stop at 60.

well stated, jragusa and MarkM

Traders, can i have your opinion:

I've been looking at a country fund, an etf in south africa. I hesitated and the price got away from me. EZA. I consider it to be a gold miner play, which i'ld like to hold for a while. Seems to be a lot of demand pressure. Are the market makers forcing this one higher at a premium. Any thoughts?

Sergio,

Looking at Ian Telfers SLW sales, I don't think this is anything but noise. His 500,000 shares probably vested March 7th, and with an exercise price of 3.25, he's sitting on a 250%+ gain (not to mention its basically free money for him).

Maybe Bill could shed some light on exactly how involved Telfer still is at SLW. My guess is that these options are left over from before spinout. I don't really consider options to be insider ownership, so it's not entirely like an owner jumping ship on his company (though we know Ian does that at GG).

Sergio:
re: Ian Telfer "dumping" SLW shares...
please tell me what I'm missing... my read of the insider filings is that he exercised options @$3.50 for 500,000 shares and sold 342,100 thereof into the market; so, he's increased his shareholding.
He had to pay - option exercise price - for the 157,900 shares he kept; pay for and provide for tax on the shares he sold...doesn't leave a very big dump, imo...

regards.

typo...slw options exercised @ $3.25

typo...slw otions exercised @ $3.25

sry. typo...options exercised @ $3.25

The fed would love a gradual devaluation of the US$ but what will pull the rug out from under them is the gradual shift of denominating oil (and possibly other commodities) in US$ to euros or other currencies. If I'm not mistaken - Iran just moved to the euro, russia to the ruble, etc. Give us 18-24 more months of this type of move and we could see a $ crash.

Craig,
Re: down side to printing more money and a lower US$ - I am confident that our policy makers and politicians don't give a hoot about our children or the future of America. All they care about is maintaining their position now and ensuring they have signed work contracts in private industry when they are kicked out of office. Their only goal is to make things look rosy now and for the immediate future - social equity be damned.

MarkM - Isn't all the lying and deceiving to make the macro situation look good? Tons of money floating around, the prospect of lower interest rates and contained inflation. Except for the select few who frequent blogs like this one, the masses view the government and corporate propaganda (i.e. TV and media in general) where everything is coming up roses. They pour money into the markets. Ditto for HBB.

If the liquidity faucet stays open, the CPI/PPI miraculously are reported at acceptable levels, the Fed starts lowering rates, the commodities and currencies are "managed" and the media feeds this vision of Goldilocks to the public, why would we see a market correction?

jragusa

fwiw..your position is exactly what is vexing for me, as I try to protect capital I risk missed opportunity, if the technicals of the mkt confirm for me this rally I will be aggressive again, all the while prepared to nimbly pull out. i feel like i'm back to the late 90's when i was also conflicted about the balance of risk and reward. i find it stressful.

jasper re: South Africa, EWZ. The rand (currency) can be very volatile and affect returns both ways.

Selling some oil stocks into strength here.

sergio/proudPapa/joey - thx for comments on SLW. I concur with proudPapa comment re Bill's take on Tefler. Was he at PDAC? Maybe Jock knows.

Note SLW April 10 calls twice as many open contracts as putts; not much activity in May; much more volume with 12.50 calls (17.7K vol) and 10 calls (11.6 vol) in June. (I have some June open call contracts strike 10 in addition to long position previously mentioned)

jragusa-

Confidence would erode, as Bill posited, if traders suddenly thought earnings were not there. That is the key for me. It starts with the banks and brokers. I think earnings erosion happens, but who knows when.

Thanks jragusa,
I think Bill is telling us in times like this to look within. If you are not confident for named reasons (certainly good reasons) then others, like most on this list, are not as well.

We all instinctively know that the fed cut talk is an admission of the obvious.....the end of the consumer.

Forget sub-prime, look at the CC offers you get in the mail or at the rates offered for HELOC when you have the best credit. Look at food and gas prices. I received one today, an email from ING for an "Electric Orange" checking acct. paying 5.3% for large balances. See the increased maintenance fees for some banks lately?
They nickle and dime you slow and steady. The fact is the liquidity story is history as we speak and the consumer is beyond done. It might take some time to turn those with resources who are not friends and family on their heads to shake their coin free, but it will happen ever so slowly they won't notice until they're sucked dry.
The poor will happen much more visually since they don't have a media that speaks for them.

ALOHA !!

Look ... I wish this were all as easy and as transparent as a game of MONOPOLY, but it isn't! Is there a HB&B version of MONOPOLY yet complete with a lame SEC and derivatives? Add in the fact that American's feel more and more pressured to produce returns. If not in the stock market then flipping houses or a big raise at work. The old tried and true method of just plopping your paycheck into a savings account does not work any more, that is if there is anything left from your paycheck to save! I BELIEVE AMERICANS NO LONGER SAVE BECAUSE THEY CAN NO LONGER AFFORD TO! Inflation of lifestyle is rising more rapidly than wages so now we are all looking for ways to "leverage" our earnings and that puts us smack dab in the middle of a BIG casino where bigger players like insurance companies and HB&B are competing directly with the masses and in many cases their own clients. THIS IS MASSIVE CONFLICT OF INTEREST !!! If there are any honest agents at the SEC they must surely realize that their budget and manpower are not even 1/1000th of what it would take to police US markets today. Anyone who even remotely believes that CEOs don't pass down strategic insider info to relatives and friends are certainly a brick short of a load! Martha Stewart was the tip of the tip of the tip of the iceberg!

Aside from what BeeThousand mentioned about Russia and Iran there is a lot more. The Iran ban on US Dollar trade started on March 21st and I looked for any news and there was none! Same for Russia! So much for "fair and balanced" reporting ...

Two other major developments against the US Dollar are the new CHINA FUND that plans to spend US dollars and TIC. The US Dollar is in trouble even if foreigners just stop buying US Tresuries. To make up shortfalls in buying the USA either has to print more US dollars or raise taxes. The raising taxes is meeting up with strong headwinds if the real estate market tanks and jobs are lost. Lost jobs equals lost tax revenues and in fact increases US laibilities due to unemployment benefits. The States are facing similar circumstances but even worse since the property values will drop and that ends the plethora of property tax revenues in the most populated statees like New York, Florida and California. The age old saying ... "you can't squeeze blood out of a turnip" comes to mind. For all intensive purposes US taxpayers are tapped out already! Due to excise and income taxes the average taxpayer is already paying 54%! What's left in the end is to cut benefits to the elderly and cut social welfare programs and cut market controls and pull out of the Middle East. The alternative is INFLATE OR DIE!

There is no debate that the US Dollar is going down in the long term and as it does prices in the USA for all imported goods will rise. What do we import? Just about everything we eat, see, hear or feel is either partially made up of imported parts or is 100% imported. As prices rise for staples like food and medicine that will leave a lot less discreationary income and lot less citizen complacency regarding taxation and other government interventions.

To me this is not all that bad and I welcome the changes. For one Americans will see what the "real world" is all about and hopefully this whole "entitlement mentality" will vaporize along with the FED, IRS, HB&B, unions, lobbyists and the Rep and Dem parties ... in other words the entire structure of BIG GOVERNMENT! We have to get really "broke" for such major changes to occur.

Don't forget a lower US Dollar will make US exports more competitive and will stimulate US manufacturing. Will we ever truly be able to compete with China or India? Perhaps in time but more than likely not in any of our lifetimes. A cataclysmic financial and economical event would have to visit our shores similar to the Weimar Republic. China and India have huge labor pools to draw from paid at near US slave wages and their people are used to suffering.

Just from all this prognosticating my mind is getting dizzy with the vast huge tangled web of dependancy that makes up US GDP. Last week my wife and I watched the movie "THE MATRIX" and a lot of the terminology and theme reminded me of the US government and the HB&B markets. Would you take the "red" pill? You practically have to trade like "NEO" to keep your head above water any more, arms and legs flailing all the while dodging speeding bullets! None of this was ever taught in my high school civics and economics class!

That's a good name for a book "THE MARKET MATRIX-What Neo Knows" It would be all about the RED PILL!

We are just coming into earnings season. So it will be interesting to see how people guide forward. Maybe we are all hand wringing for nothing, and we'll continue double digit earnings growth. My guess is that we will not. But it is just a guess.

Also, we will start to see the bad debt expense from the 2006 vintage of mortgage loans (I say mortgage loans not subprime). My guess is that we'll see those numbers ramp each quarter this year.

My crystal ball is no better than any other's, and I'd love to be wrong.

The cramer story gives me a kind of empty satisfaction, but i do love it. Cramer sounded like a wise guy from the soprano crew. He squirms like like an adolescent for redemption. Helpless to hide his sociopathic nature. Suck up, act confused, giggle, change the subject, and best of all his subttext...ya got love me because i love you. Imus mentioned a recent donation of 100k to "the ranch". I'll bet that was imus's taste of the action and cramer's admission ticket for the interview. Imus is one of the stops for damage control.

Bill,

I just read another pump-me-up article media article ( this one from Bloomberg ) intended to give me warm & fuzzy feelings about a housing recovery underway. I don't buy it! Yes, latest resale home sales volume is up but this market and its repercussion on the economy is not about volume - it is about price. Prices are continuing to decline, with a few markets being the exception. Retirement markets in CA, FLA and Europe ( Spain) are in a state of near-collapse and demographics do not help. We are lead to believe that the sub-prime and "high-risk" borrower is someone who didn't deserve to own a home in the first place. Not the case. I see a lot of small business owners and entrepreneurs ( those who are providing the jobs these days ) with the inability to get conventional lending for homes because income is retained in their business. They do not show personal financials or tax returns that tell lenders they are a reasonable risk. I say this because recently I personally provided a large private first mortgage to an entrepreneur couple who have a great and profitable business but couldn't get a bank mortgage if their lives depended upon it. Now that buyers are realising that their next home will not have an ATM attached to the north wall they should enter the market with even more caution. Let's see how next week's latest new home sales PRICES look like.........

Interesting post kaimu.

Though irrelevant to trading, I'd just comment that direct competition with China and India is a very long way off if it happens at all.

I would point to Taiwan as the Asian canary. Thirty years ago, this was the source of all the cheap "stuff" we were buying in North America. Now, Taiwan is a high-tech country paying much more Western wages. It will take the larger masses of China and India longer to make a similar transformation, but they will want more than they currently accept.

I point to post-Empire, post-war Britain. A mighty global leader, brought to it's economic knees by the 1950s/60s. Now, Britons are remarkably prosperous, having reinvented themselves. No longer a bunch of coal miners and ship builders, they built a new economy on finance and global capitalism.

You're probably right about the painful breakdown to come in the US. It would be interesting to be around long enough to watch what happens afterwards.

The following article was written on September 24, 2006. For those of us who are too young to remember ( or too old to remember! ) this article is a good reminder of how things could unfold.

Why Hasn't “IT” Happened Yet? by Aubie Baltin
Palm Beach Gardens, FL.
aubiebat@yahoo.com

To listen to the Bears over the past few years, you would have thought we would all be in bread lines and soup kitchens by now. So far, all of the ranting about doom and gloom sounds more like the boy who cried wolf than accurate forecasting. But I do believe that when “It” happens, things are going to get much worse than anyone can imagine. Even though the markets, at their lows in March of 2003 had lost over $6 trillion of value. But that was not “It.”

What is “It”? Why hasn't “It” happened and when will “It” happen?

“It” is a major financial melt down followed by an economic contraction. “It” is sudden and sharp downward spiral that takes everything down with it. “It” will be started by a catalyst, a spark that will get everybody's attention. But “It” is already built into the system, like a bunch of oily rags, all in a pile just waiting for internal combustion or a match or a spark to ignite “It.”

Some of the candidates for the catalyst include the following:

1. Crash of the Dollar
2. Stock Market Crash
3. Derivative meltdown at a major bank
4. Nuclear, Biological or Chemical terrorist attack on the US
5. Major Corporate Debt Default
6. Major Municipal or State Default
7. Secession or even Sale of US Treasuries by Foreign buyers

These are the matches. Alone, each of these can be easily weathered. But when combined with the poor underlying fundamentals of the economy and stock market, such as $800 billion trade and $600 billion budget deficits, sitting on top a mountain of unfunded pension and medical liabilities; then “It” can turn into an inferno.

Below are some of the oily rags just waiting to ignite:

* Massive amounts of derivatives ($90 + trillion in notional value)
* Over valuation of the US dollar
* Overvalued stock market (19 times last 12 months “earnings”)
* Massive private and public sector debt build up
* Record low percentage of cash levels in mutual funds
* Massive build up of personal debt
* Under funded pensions–government and private)
* Housing bubble
* Deflation or Inflation
* Municipal and State deficits

But one thing for sure, “It” will not happen as every body expects. Some are waiting to see the writing on the wall. Most need to see the fire before they will believe there is danger. Things haven’t really changed that much over the past 3 years. Investor attitudes are much too complacent. They see nothing to worry about. Yet liabilities have been outpacing income for six years; since 2000, household income growth has slowed while expenses have continued to accelerate.

So why hasn’t “It” happened yet? Thus far the Fed has succeeded in playing Fire Chief and kept pouring liquidity into the system. But the Fed cannot keep the money and credit spigots wide open indefinitely. After all, is that not the definition of inflation? All they are doing is delaying the inevitable, not curing it. Adding liquidity is only making our future economic problems worse. It’s the same as adding tons of kindling in time of drought. Excessive liquidity was the main cause of the 90’s stock market bubble in the first place and for that matter, every other bubble throughout history.

The Crash in 1987 came as a shocker. But Fire Chief Greenspan and his liquidity hose were on the phone to the banks and brokers offering unlimited credit to any institution that needed it. He saved a melt down with five minuets to spare. The downturn in 1997 was again saved by Alan and his liquidity hose. In 1998, the Long Term Capital Management debacle caught everyone flat-footed. Once again along came the Fed to the rescue. Then came Y2K and the Fed just turned on the printing presses just in case, to prevent any problems. All of these problems had similar characteristics-they were sudden and solved by the Fed with increased liquidity.

Along comes 9/11 and Greenspan once again took out his liquidity hose and drove interest rates down to 1%. But this time liquidity was not enough, it required two G.W. income tax cuts to halt the recession and get the economy rolling again. Only this time the 1% interest rates fueled the biggest real estate boom in history. This chart below, although not fully up to date, shows that the fabled liquidity that Wall Street crows about doesn't exist. This chart is a comparison of M2 (liquid money) to the NYSE capitalization. (If the NASDAQ’s capitalization were included the chart would look even worse.) Liquidity bottomed out in the 1st quarter of Year 2000. It is only slightly higher today, but not enough to make a case for a long lasting bull run based on liquidity.

In fact, the Fed’s solutions have once again driven stock prices to levels of irrational exuberance,. Too much liquidity has destroyed the allocation function of interest rates. Corporations and individuals have taken on unmanageable debt loads. Excessive liquidity drove the housing bubble. Too much liquidity must eventually weaken the US dollar, forcing the Fed to raise interest rates much higher. Adding more liquidity won’t solve any of these problems; it will exacerbate them by delaying the inevitable, and quite possibly will make matters worse. It is taking ever-increasing amounts of money and credit just to hold on to where we are.

When will “It” happen?

“IT” is in fact beginning to happen all around us.

The “oily rags” are there for everybody to see. Debt continues to pile up. The market is still over valued. The US dollar is just barely holding on. No, these aren’t things that have “always been going on” as some pyromaniacs on Wall Street would have you believe. No, they haven’t ignited yet, but we are getting close.

The potential for a stock market crash is always there with a market so overextended. The amount of derivatives outstanding are growing ever larger, now totaling more than $95 trillion, according to the Comptroller of Currency. The total of derivatives is 8 times bigger than the entire US GDP. How risky is that?

What are the odds of any one of the catalysts for “It” happening? I don’t know. The risk varies. I put the odds of nuclear war very low, but rising. I imagine the North Koreans or Iran might think differently. The odds of a derivative meltdown taking down a major bank are much higher. Barings Bank’s failure and Long Term Capital’s failure have shown us that derivatives can cause a financial disaster over night. The top banks are playing with matches, big matches, and there is almost no Federal regulation on derivatives.

Warren Buffett referred to derivatives as financial time bombs. The odds are that the catalyst will come from the credit markets. Maybe one foreign bank will start to dump US bonds. Which would cause US long term interest rates to spike up and the US dollar to crash Could this happen? Could this have a domino effect? Japan with its 40% savings rate, has been the biggest buyer of our bonds both public and private, now looks like it’s finally starting to come out of its 14 year recession. If it hasn’t, it will, sooner rather than later, and then they will need some if not most of their savings to invest in their own economy. Their stock market is deeply undervalued compared to the US stock market. It’s a matter of when not if they stop buying or even start selling its massive holdings of US treasuries.

Any one of the above could lead to a market decline or crash. Long term rates look like they may start climbing again should inflation numbers force the Fed to resume increasing rates. And the stock market is once again attempting to climb a wall of worry and break out to new all time highs. Could that be the trigger; the Big Hook that I have been looking for, for almost two years? Yet each time the market looked like it was ready to break out it sold off.

Irrational Exuberance

If there is any doubt that the world’s investment community is suffering from irrational exuberance, just look at the German and French Stock Markets. In the face of 12% unemployment rates and less than 1% growth rates to look forward to, which they consider to be good, unemployment rates can only get worse and yet their stock markets were making new five year highs, in spite of political instabilities as indicated by two weeks of Muslim rioting in Paris.

There is certainly enough smoke to know there are still problems with stock and bond markets all over the world. Anyone who is tired of hearing all of the dire predictions from the bears should be doubly careful since some of the most die-hard bears have finally tossed in the towel and turned bullish; when the last bear turns bullish or neutral, watch out below.

Anyone that is waiting for “It” to arrive before they act is playing a dangerous game. Now is the time to act to protect your assets. If you wait for IT to be obvious, it will be too late as you get trampled in the mad rush for the exits.

The Last Remaining Bull Market

For those of you who do not know how to handle the coming bear markets and insist on always being fully invested rest easy. There is still one ongoing bull market that is still in its infancy and yet most bulls are ready to throw in the towel: gold. My opinions are always forward looking, usually projecting three to six months out. So if you have heeded my past musings you have been selling your stocks and bonds into rallies and you have cashed in your speculative real estate over the last year or so. At the same time you should have established a program of scaling into gold and silver with your ever increasing cash reserves. Buying gold and silver bullion and gold and silver stocks or what might be even better, buying any one of the well known Precious Metals Funds that are out there, and stop worrying. It’s my estimation that you will more than double your money at a minimum, somewhere over the next two to five years.

Gold: Where to now?

For all those that have now been gripped by fear that gold has by breaking below 600/oz entered a new bear market of its own, stay calm. I have been warning you that when ever you have an Elliott wave extension and that extension occurs as part of a fifth wave blow off–which is exactly what happened–that extension is always doubly retraced, pulling back to the beginning of the extension which according to my interpretation of Elliott wave is $540. Now if the bullish sentiment percentage drops to below 15% as gold approaches $540 in my opinion it would then be time to back up the truck and load up with gold and gold stocks.

Now $540/oz is not a written in stone magic number. My down side support and thus the area of accumulation should be a $50 range bracketing $540 or $515 to $565. This is a typical Fibonacci, Elliott Wave 50 to 62% retrenchment of the 2001 to 2006 first wave of the bull market. So start scaling into gold as we approach that range. As far as silver is concerned, there is a strong probability that silver will out-perform gold.

Personally I prefer gold because apart from all the fundamentals it is the only real money and I’m willing to pay a small premium for the insurance. But take your pick. Real profits occur to those who at crucial times have the courage to stand alone.

GOOD LUCK and GOD BLESS

Aubie Baltin CFA, CTA. CFP. Phd.

Housing Bust Recovery in 1930s
04:35 minutes

"The housing bust is here and we can all expect home prices to decline every year for years to come. However, recovery will eventually happen and when today's market seems bad just take a look at this to know what a recovery looks like."

http://www.youtube.com/results?search_query=Housing+Bust+Recovery+in+1930s&search=Search

(number of views of this video before my posting the above link : 382 )

Why the Fed Didn't Raise Interest Rates

Inflation is running above the levels that Bernanke has targeted, but he's holding off on hiking rates because of the risks. By Peter Coy

http://www.businessweek.com/bwdaily/dnflash/content/mar2007/db20070321_817682.htm?chan=top+news_top+news+index_top+story

Holy cow Aubie! The match and rag could be simple.
No money in houses, houses depreciating. HELOC/CC interest rates prohibitive or worse. More expensive/non-existent money = People spending less, profits suffer, markets go down. That's aside from effects of sub-prime. Ugly.

Normally the little guy with some cash would get more for passbook savings or CDs, but the negative savings takes care of that and earns nothing even when banks will pay for capital. Downward spiral continues.

Is that how you see it Leisa?

I'm with Kaimu, I own the farm, no debt. Live simple, save all I can. Walk on the yellow brick road.

I don't believe that the market will capitulate until the "fears" about the generous lending practices and the potential fall out become realized. Realization will come through (1) missed numbers--watch the lenders (watch FED) and the guarantors (watch MTG). Did anyone notice that FRE had a 480M loss this quarter? If we don't see those numbers starting to show up then (1) we were wrong to speculate on the magnitude being so high or (2) massive fraud is being committed.

Remember, loan loss reserves are at the discretion of management--and as Bill will confirm, it's a story you can spin however you want your reserves to look like (and to be fair, there's a gotcha if your reserves are too high to with new promulgations). The discretion of management, when they have options and stock and all of that other stuff gets a bit distorted. We've seen that with Enron, Worldcom etc. I'm not accusing anyone, do not for a minute think that I am. But I'm going to tell you this here and now---I'll wager a dozen donuts that there are some heated discussion internally among management (how I would hate to be a CFO of one of these companies) and between management and their auditors about WHAT that loss reserve should be.

Calculated Risk has done a tremendous job covering this issue.

I've been watching FED for a year. It got sold heavily and then bought back the last four weeks and perfectly mirrors the panic/who cares flip in sentiment regarding sub-prime. From my recollection most of their loans are in California to Alt-A and subprime borrowers. You would expect that they would be hurting badly. If I have time I will dig into their regulatory filings this weekend.

Craig
I too feel blessed to own the farm, have no debt (beyond what my accountant tells me I should have), live simply (like my old hippie days), but..uh..my tastes are a little more champagne than beer these days. I could change this and will if it becomes necessary, but not until then. After all this is my one and only life.
Leisa, I remember when my dad used to offer me a "nickel to a donut" bet, actually I think it was a "doughnut" in those days, but the inflationary message is the same.
Kaimu, I so enjoy reading your posts. Thanks.
By the way "intensive purposes" makes more sense when spelled "intents and purposes" if you think about it.
This blog community that Bill has created is so valuable to me. I used to experience much more anxiety sitting up here in the Maine woods trading my account.. all by lonesome myself.
I still make all my own decisions and mistakes, but so appreciate having a community to draw from and, hopefully, contribute to on occasion.
Thanks y'all and especially you Bill.
Since it is Friday I will simply add: drink any recent 2005, 2006, New Zealand Sauvignon Blanc you can get your hands on. Drink it now, because it doesn't cellar, and stock up for the hot summer months. Very soon this stuff will be way too expensive.

Bill,

Then in that case, to honor your other Chilean friend, for me it will be an Echeverria Caberbet Sauvignon 2003.

Salud!

Hi jasper,

It was not my intention to exuded the air of a confused individual. I have a plan and I stick to it. Currently, I am with the consensus on this blog and feeling edgy. These days, I am scaling out on up moves. However, I am never comfortable with a high level of cash - no matter what the macro economic environment. Remember, the market goes up more often than not. If you invest in ETFs, one strategy I love in an edgy market is to sell your ETF holding, purchase ATM LEAPS at a fraction of the cost and stack away the cash in a MM or CD. This lets you participate on the upside if the market goes against your gut. If it crashes, your loss is limited AND best of all, you have tons of cash and accumulated interest that you can use to scale back in. Certainly takes the stress out of investing and lets you sleep at night.

Bill, you say that Prices are largely based on trader confidence. If traders get uncomfortable with the macro economic environment and deteriorating earnings picture (as MarkM indicates) they will sell. However, if HBB with help from government entities collude and intervene to avoid a sell-off (for whatever political reason), can they avert a sell-off? As there are no checks and balances on how much money the government can print, they have an indefinite source of funds to support the market if they so wish. In other words, it does not matter what traders think or want, the market will only correct when HBB and the government want it. Or am I being too cynical?

BTW, although I am hesitant to subscribe to your current all Cash/Gold position, I have whole heartedly adopted your “selling puts” strategy. Excellent source of income. As yet, I have never been assigned. Unless I am not comfortable with a company (e.g. DELL), I sell puts pretty much when the three RSIs go under 30. I have MU and SNDK April puts open now. Thank you for the education.

Hmmm..looks like I am a tad late with a serious post. Happy hour is in full swing.

If you get a chance this weekend you might want to
watch this BBC Video on Theory of Crowds and how the
mass media is used to manipulate the public.

http://video.google.com/videoplay?docid=8953172273825999151&q=The+Century+Of+The+Self

ALOHA !!

I will admit that a some of my posts have nothing "directly" to do with trading specific shares but I have been a long believer in knowing the BIG picture and that includes how the USA and its representatives conduct business in the global arena. Such information can provide more valuable info than charts at times. Every good sailor knows it is in his own best interest to know which way the prevailing winds blow ...

Everybody recall the news release talking about Halliburton abandoning the USA and moving HQ to Dubai? If not here is the link.

Link: http://edition.cnn.com/2007/BUSINESS/03/11/halliburton.move.reut/index.html

Now it seems the Bush family is having similar desires. All thats left is Cheney, but with his bad ticker he may just decide to ride it out in the USA!

Maybe Bush Sr. has been reading my posts about buying farms! Seems as if there is a lot of buzz in South American newspapers about Bush Sr. buying 98,000 acres in Uruguay right near a huge US military base just given "total immunity from prosecution by the Uruguay Senate".

Read more and let me know why two US Presidents would want an escape hatch in Uruguay?

Link: http://tinyurl.com/txhtl

Apparently the Bush land is right on top of a water aquifer in dispute.

Link: http://tinyurl.com/yvpjdb

Why is that wherever the Bush family goes military conflicts soon follow?

Kaimu
Is there any doubt as to why the Bush cartel, and cronies want to secure a safehaven in some easily manipulated banana republic? This has been the modus of every despot throughout history. I personally think that it won't work, as the people in this country won't let these crooks run and hide. It isn't in our nature and the Bush family has misjudged the rath that will be forthcoming.
How stupid do they think we are? How stupid are they?
I have also been looking for "shelter from the storm" and have been exploring some other countries where I might live out my years in peace and comfort. I would happily share my discoveries if anyone here was personally interested and would like to hear from others on the same pursuit, but this is really inappropriate to the this site, so I won't go on.
Any readers out there might (on this topic) enjoy: 'At The Tomb of The Inflatible Pig: Travels Through Paraguay' by John Gimlette. Different country, but a history of dealing with dsplaced despots... and, in a reassuring sense, how little comfort these countries (moves) actually provide.
Justice will ultimately prevail, but god help us in the interim.

Moab...I've been reading much about FED in fact I posted a rant at Roger Nusbaum's site.

Most of their loans are 40 year loans with monthly adjustable interest based on a 12 month rolling average. They offered these loans because of lack of affordable housing in CA. The payments were capped (remember way back when it was the interest rate that was capped?), at 7.5%, BUT most loans after 5 years, regardless of the payment capitation, are reset to fully amortize over the remaining life of the loan. I imagine there will be a few surprises by homeowners. Refinance? I think that might be tough if the principal balance is going up (due to negative amortization) and the housing value is going down.

If I have time this weekend, I may try to pull together a few "scenarios" that might show the sensitivity of these loans to interest rate changes (up or down to be fair).

For those interested in this issue and suffering from some serious DNA anomolies, I would direct you to the following:

For the insurers of MBS's and other stuff, go to FGIC.com. They have the Moody's/Fitch/S&P reports on their org and you can get Moody's industry outlook there.

Second, look at the 10K's for MGIC (MTG) and First Fed Financial (FED).

For the size of these markets in 2006 and 2005 (as well as the players, go to http://www.abalert.com/public/marketplace/ranking/index

Rigdon and All,
Well, I let it fly a bit or there's no point in all this, is there? When there's no debt and all is paid for you can afford a fine wine.

I see the listers are fans of the tannins, and fine Chilean varieties at that. I'm caught in the Chardonnay mode at the moment, so in the spirit of Friday night I offer Chateau St. Jean 2003 Reserve (a fine Costco selection).

Enjoy.

Ah....Concha & Toro.....I'm waxing rhapsodic over the 2001 Don Melchor (Cab)(I think that shoulder year, was quite exquisite as well--2000, 2002?).

Last night I had a Oveha Negra (black sheep) 2005 Chardonnay(70)/Viognier(30) blend. Very nice, particularly so at 10 USD.

ALOHA !!

I had a brain fart and typed "Uraguay" instead of "Paraguay" where the Bush family plot is located! I did hear about one of the Bush daughters in Argentina doing something a few months ago.

Rigdon ... you say none of this is appropriate for this site but I disagree. There are many angles and ways to examine in order to survive the oppresive hand of BIG government. Look at Bill ... he mentions fairly often his plans for the Bahamas!

I have always believed that the US military is nothing but a taxpayer funded negotiation/confiscation tool for US corporations. I do not believe our elected leaders have our best interest in mind at all. There is no long term evidence of that! Our Founding Fathers saw this happening over 200 years ago. Why? Because the same thing was going on 200 years ago! None of this is new except the technology, the size of our money and the "new" spin!

What happens politically directly effects your bottom line and every one here. If the US government and the States need more taxes then that means more is taken out of your paycheck and at the gas pump which leaves less "net income" for us to buy gold or buy stocks or buy a better house or put our kids through college or afford retirement.

This is why LESS government is the way to go ... just like our Founding Fathers designed it to be! To me the US Constitution is not only a guide for individual freedoms and rights but it is most certainly a guide for "financial freedom" as well! The US government is the 800lbs. gorilla that has been on all our backs since birth!

Leisa ... My pen pal in Japan says banks there have 100 year mortgages. Is that how bad it will get here in the USA? I mean 40 year loans and 100 year loans ... could be your kids will inheret your mortgage payments!

I am sipping on a fine box of Franzia Chardonnay, a nice gentle mix of cardboard and plastic flavor, vintage Jan 2007! In the mid 1970s I secretly stashed a bottle of Ripple in my Uncle's wine cellar so that when he had his oh so elegant wealthy movers and shakers visiting would see the Ripple and have a grand laugh! I got in trouble for that when Gloria Vanderbilt discovered it! Crazy turn of fate I inhereted my Uncle's wine collection about four years ago when he passed away and I did not find my bottle of 1976 Ripple! Anyone want to buy a world famous NYC fashion designer's wine collection?

Inter-citic appoints a new senior geologist. Bill, do you know him?
http://www.marketwire.com/mw/release_html_b1?release_id=230440

ALOHA !!

CNBC is full of "experts" being paraded through the media cheering and supporting the "sell side" promoters of HB&B Land!

A historical perspective from the "experts" of the past! Only the names have changed!

From 1927 to 1933 ... six years ...

READ ON:
1927--"We will not have any more crashes in our time"---John Maynard Keynes

Jan.12 1928--"I cannot help but raise a dissenting voice to statements that we are living in a fools paradise,and that prosperity in this country must necessarily diminish and recede in the near future"-- E.Simmons--president New York Stock Exchange

Dec.4 1928--"No congress of the U.S. ever assembled,on surveying the state of the Union,has met with a more pleasing prospect then that which appears at the present time.

In the domestic field there is tranquility and contentment--and the highest record of years of prosperity.In the foreign field there is peace,the goodwill which comes from mutual understanding"--Pres.Calvin Coolidge-

Sept.5 1929--"There may be a recession in stock prices,but not anything in the nature of a crash"---Irving Fisher PHD. Professor of economics-Yale University

Oct.24 1929--"This crash is not going to have much effect on business"--Aurther Reynolds-Chairman Continental Illinois Bank

Oct.25 1929--(Black Friday) "There will be no repetition of the break of yesterday--I have no fear of another comparable decline"--A.W. Loasby--Pres. of the equitable Trust Co.

Nov.1929--"The end of the decline of the stock market will not be long,only a few more days at the most"--Irving Fisher

Dec.1929--"I see nothing in the present situation that is either menacing or warrants pessimism--I have every confidence that there will be a revival of activity in the spring,and that during this coming year the country will make steady progress"-- Andrew W Mellon--U.S.Secretary of the Treasury

May 1930--"While the crash only took place six months ago,I am convinced we have now passed through the worst and with continued unity of effort we shall rapidly recover.There has been no significant bank or industrial failure.That danger too is safely behind us"--President Herbert Hoover

March 9 1933--Executive Order Of The President Of The United States--

"By virtue of the authority vested in me by The Act of March 9 1933--In which Congress declared a serious emergency exists,I as President do declare that the national emergency still exists;that the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to peace,equal justice,and the well being of the United States;and that appropriate measures must be taken immediately to protect the interests of our people.

All safe deposit boxes in banks or financial institutions have been sealed,pending action in the due course of law.All sales or purchases of such gold and silver within the borders of the United States and its territories and all foreign exchange transactions or movements of such metals across the border are hereby prohibited.

Your possession of these proscribed metals and/or your maintanence of a safe deposit box to store them is known by the government from bank and insurance records.Therefore be advised that your vault box must remain sealed,and may only be opened in the presence of an agent of the "Internal Revenue Service".END

In the end it was those who the government deemed as "unpatriotic hoarders" that were punished for the crime of being prudent and wise! Governments will always move to make those who act responsibly pay for those who act in an irresponsible manner. It is the nature of BIG GOVERNMENT and tyranny.

Well, before I buy my plot of land in Argentina or Spain I want to COMPLIMENT the Fed and Treasury on the fine job they are doing. That's right! Remember that what they thought peeking around the corner in 2001-02 was a Japanese style deflation. It could still happen. They chose massive re-inflationary measures and negative real interest rates as our antidote aided by tax cuts to the high spending deciles and here we are today. We have a very fragile economy built through monetization of an asset class (housing) that produces no income for the vast majority of holders, four years of weak job growth, subpar nominal GDP expansion, gross leveraging of individual and governmental balance sheets, offshoring of 30% of our industrial base in order to create corporate profits, and massive new entitlement programs. I am sadly reminded of the case of original Appalachian landholders being forced to cannabalize their holdings in order to pay assessments that now exist because the authorities have allowed developers to put taxpayer supported condos on top of Stone Mountain. But the Fed "did their job" . At least as they understood it.

So we have put off The Day of Reckoning for 4 years and now have a different set of messes to paper over. How do we do it? Is there another asset to monetize? Another "cheap" source of fuel to keep the home fires burning? Well, you have seen the first- stocks- which had a strange persistent bid under them from July through February. And you are seeing it again. Stocks were very overbought after Wednesday's coordinated blastoff and STILL the Dow managed to tack two more days of gains on top of that. Lots of coupon passes and repos being used to buy equities I think. (Not that I should be complaining. I bit on the "too obvious" technical signal and made 3% in 5 days by buying index funds: IWN, SPY, EFA, EEM. Now my job is to keep it! I have a feeling that will be the hardest part.)

What does this semi-bearish to bearish commenter do now? Keep playing the game I think. Keep taking what is being given. Keep trading while the internals are okay. I think that we are going to look back at the charts and see that somewhere real close by a top was made that did not get bettered for quite awhile(if it wasn't February's). We are going to see a "real" correction and a real cyclical bear market. We are going to see that X number of years from now we are still in the same place as where we began and that buy and hold was an awful strategy. Because at 19 times trailing peak record earnings there's very little upside left to this market. Ask Grantham. Ask Hussman. Because physics of earnings hasn't been repealed by "platform companies" or else capitalism is dead. Because stock cycles have not gone away. Because debt does not equal income.

Now I didn't get to enjoy those fine wines you all were sipping last night. I am having my favorite drink: a strong cup of Chock Full O Nuts coffee, cream and sugar, this morning. But I see a lot of handwringing and let's escape to the hills talk. If you learn Bill's principles of trading you can come through this more than okay. There are stocks out there right now that on a three year window will make you money. Some of them are being called out in these pages. (I am staring VERY HARD right now at JNJ to see if the selling's over.)

I hope you take this in the light it was intended. Money can be made in up, flat and declining markets. Let's not get distracted from our jobs. Good luck and good trading.

Rigdon,

I would be interested in knowing what you research has yielded. Pls email me at jimkingsland@gmail.com. thanks.

I have two questions, and I may have to post this on Bill's new post. But two things occurred to me that I know you guys wrangle with.

Thing 1: I presume that since the purchase of gold takes money out of the "system" that causes concerns for central banks when it is accelerated due to concerns. Isn't buying gold akin to making a run on banks? (Perhaps this is a stupid question to ask).

Thing 2: As oil is priced in USD wouldn't it be in China's best interest to devalue the dollar and thereby cheapen the cost of this resource. Wouldn't Wouldn't that also deter others from the conversation of tagging oil to Eurodollars? (Perhaps another stupid question.)

Thanks in advance.

Kaimu
So it is Paraguay that the Bush family is thinking of for "retirement". That is priceless. This was also the "retirement" choice of Mengele (Angel of Death) in 1948, and Martin Bormann,s last stop in life. Its history would be comical if it wasn't for the cruelty and blood shed that its leaders visited upon their people. In recent history Gen. Stroessner whose dictatorship lasted almost as long as Kim Il Sung. Gen. Andres Rodriguez who started his career as a smuggler and ended up building his own miniature Versailles. Pastor Coronel, Chief Torturer who re-introduced music to the art of intergogation. And of course who can forget Fransisco Solano Lopez affectionatly known as "The Monster" who made his Irish coutesan, Madam Lynch, the Empress of Paraguay. This country's history is peopled with (to quote John Gimlette*):" cannibals, Jesuits, and sixteenth-century Anabaptists; Victorian Australian socialists and telented smugglers; dictators and their mad mistresses; and of lives transplanted from Japan, Britain, Poland, Russia, Germany, Ireland, Korea and the US"
The Bush family should feel right at home.

* 'At The Tomb of the Inflatable Pig, Travels Through Paraguay'

Don't forget Italy...
2003 Nipozzano Riserva Chianti Rufina.
Nice easy drinking wine.
Goes particularly well with a little GFI or HL or
tse:spm