Worth A Look: The Economist

The Economist's reprisal of this 11.23.29 article is well worth your time. The beauty of finding clever articles is that it relieves me from having to work too hard!

Another One for the Record Books

Gary K calling out Cramer (JJC) as a miscreant and a fraud. Apparently Gary listened to JJC's show this evening for 5 minutes. I stated here that JJC said that THE bottom had been put in. Probably the most important thing about the market is listening to the right people. JJC is not one of them. Gary K is certainly one of the right people.

Another Day (week, month, year) of Goofiness

I'm still have two feet rather firmly planted in the land of deflation. Yes, I am a 'nobody', and I know that my opinion is not based on any informed experience in navigating a portfolio consciously (I was unconscious for too long) through bull/bear markets.

But I still have to ask the question, "What will lead us out of this bear market?" I've still not seen any piles of sparkling jewels hidden in the bushes like in some video game. In fact, I feel like I'm in one of those video games....going round and a'round because I cannot find my way out. Attacked on this side, that side by evil gnomes wielding sharp instruments. Wizards in the distance saying come here, go there and all will be well.

I'm putting on my magic cloak that makes me invisible and mutes everyone else.


I have a subscription to SFO magazine (www.sfomag.com) There was a wonderful "Tech Take" at the end of the June 2008. You can find the article here. I strongly urge you to read it. I only recently found it in my reading basket in the WC. You gotta make good use of your seat time!

Miscellaneous ramblings:

• Meredith Whitney seems to have incontrovertibly won in the bank analyst smack down with Dick Bove.
• Letting Lehman fail---that the ramifications of this were not apparent to those making the decision makes me less confident.
• Though I've been on the fence about the election, I have made my choice--not so much through my being enamored with my choice, but rather through my ruling that I was completely incapable of voting for the other candidate. I consider it my duty to choose as a citizen between the two candidates offered. So there....I've made my decision without offering a disparaging comment about the other candidate!
  

A. M. Post

John Murphy continues to say it is too late to sell and too soon to buy. Rev Shark thinks that the news driven market is a gamble. Bill Cara thinks that the next bull market is underway. Gary K thinks he'd like to get bullish because everyone is negative--but there's no real leadership. Leisa thinks it's nuts out there. I don't mind waiting for the smoke to clear.

A great man, Paul Newman, has died. Here was a man that had enormous beauty, talent and integrity.

I've completed Week 6 of my plan. Today starts Week 7. Day by day, I'm making progress on my goal. My bike is back from the bike shop. I bought some new tires which Mark and I put on both our bikes. I bought a less aggressive tread so that I could ride more easily on the road. This tire, a Continental Flow Protection Kevlar, seems to be a good mix of road/trail ability. The old tires are hard--these bikes have stayed out of the weather, so the rubber has not dry rotted. But soft rubber is good.

I'm still training with my HRM--I was pleased to note that the same home trail cycle loop was being met with lower heart beats. My top end was 158 after making a climb--now it is 150. A heart zone range is 20 points--that is quite an improvement, and I could feel it.

I've not been attentive to my diet. I've not gained weight, but I've not lost any more either.

My son is still grumpy, but medicated! Everyday he'll be in less pain.

As I Write....

Son is home. Surgery successful, but he's uncomfortable. Listening to the debate. Markets did not melt down. I wrote a letter to my congressman and told him of my expectation for him to step into the conflict and reconcile.

Checking In

It has been another eventful 24 hours in our household. My son was injured in a dirt bike accident at a friends' house. He suffered a concussion, a badly broken collar bone that will require surgery, and slight breaks in the humerus and the tip of his thumb. All on the right side.

It could be worse from a physical standpoint (head injury, neck injury etc). But from a trust standpoint, it could be no worse. He is grounded this week. He has a job. He told us that he was going to work. When I received the phone call on my cell that my son had been injured, I immediately believed that he had been in a car accident, as he would have been driving to work.

In my household, I like to be in charge of these events. My husband received the phone call, and informs me of the accident, and then proceeds to tell me that Reade felt like he could drive home. A broken collar bone and a stick shift don't compute. I indicated to him that he should get Reade. As it turned out, his friend brought him home, and Mark shuttled him to the hospital.

I had my KPMG alumni event that evening. It was at a nice hotel (The Jefferson), and I invited a friend to have a drink with me prior to the event. (I gotta get all my social stuff sandwiched while in town). When I received this phone call, I had a long pause as to what my response would be. Do I attend my event? Do I go to the hospital to meet them?

I let my maternal instincts be subjugated by my rather extreme anger that my son had purposefully lied to me about his whereabouts. In fact, the first thing out of his mouth in walking in the door was a lament that he had to go to work. He then went to stage two of his ruse by asking me if I minded if he took a month off from work. Would I be disappointed?

Now there is a classic irony--it's best not to tempt the fates. He'll get not a month, but about 6-8 weeks off from work. And there is no current measurement for the depth of my disappointment in being lied to in such a deliberately calculating way.

As such, I attended my event and reconnected with people with whom it was a privilege to work with. We remarked that though so many years had passed, getting together made us feel like family. We worked so many hours together, these people were indeed our family and our colleagues. Those four years forever shaped my career: it instilled a solid work ethic, the ability to meet deadlines, the facile working with other people of varying difficulties, the need to make choices against judiciously weighed evidence, and the value of happy hour in cementing relationships and blowing off steam! My career was immensely helped by these folks who recommended me for positions. I owe them much.

I'll be out all day tomorrow with his surgery.

Nothing makes sense in the market to me; so I continue to have little to say. Well....I'll say this...I don't see how we can avoid a protracted recession. I believe us already to be in a recession. Would that it stays in the r neighborhood of the alphabet.

Jeff Saut and Old Age Reminders

“Glass or no glass (read: no class)”
September 15, 2008

Jeff Saut has another wonderful column. I hope that you'll take time to read it above.

A friend of mine (who worked in banking most of his post public accounting career) e-mailed me this after essentially telling me that my notions about the banking system were likely over stated:

And Leisa, you get the crystal ball award for forecasting the downfall of the American banking system as we once knew it. All those years in healthcare, when you should have been running the Federal Reserve Bank.

I have an alumni event with this firm on the 24th. Every couple of years they host one--and it is pretty nicely done: open bar, heavy and delicious hours d'oeuvres. I've been gone from the firm since 1986--22 years. It is always great to catch up with old colleagues. I was 22 when I started there!

I also have my 30th high school reunion on October 4th. And....my 26th wedding anniversary on October 1. Geez.....

Fit by Fifty Update

I've just completed Week 5. The time has flown by. Here's my record keeping on my progress using my minutes in cardio, points and average Z-factor (my cardio zone). Aerobic Zone would equate to 3. My fitness level does not allow me to work in that zone comfortably, YET. My goal is to be there in another three weeks.


I recovered from my over-training from WK2. I tapered on WK3/4. I then increased my intensity on Wk5. My minutes went up marginally, but I was able to increase my intensity to finish with 2.25 for the week. I'm going to add one more workout (last week I did 4) at the same intensity. I plan to do 5 workouts in the 2.2 - 2.4 range for weeks 6-8. Already, I can feel that my heart and lungs are getting conditioned--and the smartest thing that I did was listen to my body after WK2.

While the chart shows my cardio, I've been strength training and working on my flexibility. Accordingly, in addition to transforming my heart and lungs, I'm transforming other parts of my body. Most notably, I have lost 1 inch from my thighs. Admittedly, I've not been very good with my diet this past week, but I know that I have more active tissue (muscle)--my body is getting tighter and stronger. The nice thing about making changes in your diet and exercise, you do not have to wait long to see results.

I had a great joy this week too. I was able to take both Macy and Daisey on the firebreak behind my home sans leash. It made for an enjoyable trail run. Macy stayed by me, and Daisey made her great English Setter concentric circles. Though I had not earthly idea where she was most of the time, she was keenly aware as to my and Macy's whereabouts. IN fact, I could hear her great thunderous strides and breathing coming to and fro on the trail (I think that a horse would make less noise). Though I have plenty of room for her to run on my property, she was clearly enjoying the long trail stretch.

Would that I could run that way! I hope that our dear Mark M is still training for the Boston Marathon. I secretly envy people who have such high aspirations. But through their example, I'll set a more modest goal of running a 5K or 10K race in the Spring.

I took my bike to the bike shop today, and I ordered some new tires. The rubber on my tires feels terribly dry though there are no cracks. I've been enjoying cross training with my bike on both the trail and the road as well as running on the trail and road. I bought some new road running shoes, and I look forward to trying them out when they arrive next week. I'm not ready to get new trail shoes yet.

We are beginning to ease into Fall. I'm glad for the hot, humid weather to end.

Apocalypse be Gone!

Four Horsemen of the Apocalypse

by Albrecht Dürer

The secret formula of Apocalypse be Gone (a rip off of Bug be Gone) has been perfected over the last weeks, shipped to central bankers around the world. They were instructed to spray at the same moment yesterday.

I missed some of death spiral of GS/MS yesterday as I was checking on my SIL's lab, Sadie. She has terminal cancer, and her time is quite limited. I let her out so that she can potty (she is on prednisone), and then give her some comfort. Outside of her belly being swollen, she is not in any overt pain. Though, she is clearly a little uncomfortable--like a pregnant woman is uncomfortable.

With the extraordinary worldwide response of the markets to this news, it is easy to say, why am I not exposed more, if you are neutral. If you are heavily short, you are likely pegging your sphinctometer.

I do not believe that short selling should be banned. I do believe that stock manipiulations to the upside as well as the downside should be against the law. As you know, I'm dismissive of the parade of stories---the sausage in the media casing--that lured investors into the believing that the global liquidity boom would go on forever. They were peddling those stories right at the top. I still remember a breathless Maria B talking about global liquidity boom, infrastructure boom, third world middle class boom etc....

One of the most important things that I've learned about anomalous stock behavior is to look at the short positions. Modest, even mediocre news, is sometimes met with extraordinarily positive moves in the stocks. It made me scratch my head, until I realized that short covering rallies are very powerful.

Short sellers are the first buyers. They are not 'real' buyers per se, as they are merely buying to neutralize a position. To be fair, I should say that short sellers are not really real sellers either, as they are selling something that they do not have. On the selling side, relentless short selling takes out stops of the real holders and produces a cascade effect. And if you were a long time holder of GS and had your stop taken out at $85, only to have it go up as high as $120 and then settle at 108--and the current bid as I write is $137--how would you feel?

While there will be much weeping and wailing about the intervention, I believe that intervention was needed. And the seeming euphoria that we are witnessing is a scramble to cover shorts. The market will likely go back into price discovery mode for stocks of specific companies to find out what is out of synch with the fundamentals of the economy and the the company's prospects withing those fundamentals.

I still don't see how we have created additional liquidity to flow into the economy. We are unfreezing the credit markets by assuaging fear, and we are making institutions list less in the tubulent credit waters. Our underlying problem problems of deleveraging have not gone away. But we have mitigated the number of bodies (or parts of) on the field by allowing a bit more time to sort things out.

Yesterday's Market Close

Epic Events and a Couple of Charts

I'm not certain what the sense of fear was in the savings and loan crisis. I was a busy professional and new mom. I never paid any of these matters much mind. But given that there are respected professionals such a Dennis Gartman and Art Cashin suggesting that these contemporary events are like nothing that they've ever experienced says something.

In a couple of weeks I'll be celebrating the two year anniversary of this blog. The space has been more silent than usual, as I really have so little to say--largely because I said so much earlier. This blog effort has been singularly helpful in my process to becoming a little less perplexed about the market. Without this space, I would not have found and tackled Hedge Funds and Systemic Risk. Without this space, I would not have had a venue for writing my thoughts to which I can return for reference or refer others.

Stumbling upon that paper directed my efforts to investigating CDO's and the mechanics of this debt: how structured, risk tranches, loan composition, guarantors, size of the market, size of the guaranty market. That paper also made me want to step back and look at the root cause. It was never the subprime issue--and that was the initial snow shoveled on the pile of shit. Rather the inflated price of houses to the earnings of buyers COUPLED with the extraordinary yearning for yield that compelled lenders to come up with innovated ways to put buyers in homes as well as earn handsome fees.

Those things are merely market forces. But unfettered market forces produce some pretty noxious behavior. Child labor laws came about not because of overzealous government regulation, but rather through overzealous capital putting children in harm's way. If history has proved anything it is this: we will have periods of expansion, funded with leverage; and we will have periods of contraction that will result in de-levering. This current period of over-levering though is historic given the use of synthetic liquidity/leverage in the form of derivatives.

While I don't think that what we are witnessing in terms of an event should be surprising, but the MAGNITUDE of it should be frightening. And I believe that the market response reflects that fear with gold having it's single best day yesterday since WW2.

None of this would have been terribly problematic had (1) risk been priced effectively and (2) we had effective regulatory oversight. Cheap money and the search for yield certainly does engender creative ways to satisfy that yearning--but had risk been priced in appropriately we would have reduced the magnitude of the crisis, but not avoided it. Effective regulatory oversight--to include the rating agencies-- would have sent up some red flags sooner.

In effect investors have been flying blind. Investors depend on executives to price risk effectively. Reports yesterday say that AIG had no idea of the magnitude of their own issues. If those close to the situtation do not understand it, how is the hapless investor to know?

These crises are the free markets' way of purging the system. Accordingly, they should not be eliminated. However, these crises should not be laid at the foot of the taxpayer. If the organization is so endemic to the health of the financial system AND the central bank will ultimately have to step into the morass, then there are two simple things that can be done:

• Simple Thing 1: Tax these organizations accordingly--allow the taxpayer to enjoy some of the heyday if they are expected to participate in the mayday. (Hey, I like that!)
  

• Simple Thing 2: Provide effective regulatory oversight with rules that are designed to optimize the protection of the public's interest with successful operations of the organization.

Of course, I'm just a layperson, but that is my rather over-simplified suggestion!

~~~~~~~~

On August 10, I mentioned Farmer Mac, ticker AGM. They were trading at $30. Yesterday, they traded below $10. Farmer Mac is the last man standing in the GSE family. I didn't see any reporting on it. Did you? I took no position on that musing. There are no options; otherwise I would have bought puts. The chart (click to make larger) says it all.



And if you really want to see some nonsense on a stock, you can look no further than CEG This is a 2 day (not 2 year!) 1 minute chart.

And look at Sempra Energy--at the same fated time, 2 p.m

Both of these stocks (and there may have been more) were funded by LEH for their commodity trading. Now I know I will never be a trader because for some reason I was watching CEG and when it hit $13, I hesitated and passed. Sigh. Perhaps I'll get a testosterone shot!

One for the Record Books

John Murphy notes in his missive: too late to sell; too soon to buy. Makes sense to me.

Historic Day?

Of the large investment banks, Lehman, Goldman, Bear Stearns, Merrill Lynch, three of them have failed in a way that has required being bought or bankruptcy (Lehman). While MER is being bought by BAC at a premium above Friday's closing price, Lehman will likely go bye-bye. MER/LEH outcomes are a good example of betting v. investing. How would anyone know the outcome ultimately? Who gets bought; who goes away? I've not even mentioned AIG which is looking for a $40B loan from the government.

But there are some that have speculative money cached for just this purpose, and prudent speculation can be well rewarded. And when one cannot determine the line between prudent v. imprudent, there is much to recommend about standing on the sidelines.

Jeff Saut

Click on the link above to see the September 8 comments by Jeff Saut of Raymond James. His missives are important to people who value stuff and not fluff.

LEH: Top 5 Holders of Lehman as of 06.30.08

You'll need to click the image to see clearly.

VIX

Marty Chenard made an interesting observation about the VIX, and it is available at his Stocktiming website--free stuff. His observation is that if there is institutional selling, then the VIX will not face upward pressure.

A simple, but rather elegant statement. So VIX is not just about fear per se, but rather when it acts in seeming incongruence to our expectations (conditions are yucky, but the VIX does not budge), then one explanation is that there is distribution in the market. And...if there is distribution, you are unwinding your position. Unwinding positions do not requiring put hedging.

Reflation Yields What? Inflation? Deflation? Flatulence?!!!

It seems to me that the single biggest question looming is the outcome of reflation of our insolvent institutions. Inflation? Deflation? I saw a news crawler on CNBC that said that Allan Greenspan endorses what the Treasury has done. BFD. Greenspan's endorsement of anything should immediately call it into question.

There's a delicious irony that so many of our self-professed free market folks who rail against the seemingly putative tax system that takes from the wealthy and gives to the the lazy are happy to take (even demand) a government handout when their bacon is sizzling on the griddle.

I'm in the camp of deflation first, then real reflation then real inflation. I just don't see how the central bankers can reflate anything right now until prices come down. Once the 'excess'---those asset prices that are brought down through de-leveraging--is out of the system, then the central bankers can act in some meaningful way. I've always been of the mind that the credit crisis was too big for the CB's to have any meaningful tools in which intervene.

In fact, as I write this, such a scenario makes a lot of sense (though you are welcome to call me on it). There are many who went to hard assets (precious metals, oil) thinking hyperinflation. I think that was too soon.

I see that oil output is being cut. Where are all of the "demand driven fundamentalists" who were incessantly (if not manically) making their case that we were running out of oil and the world as we know it was ending? That global demand was so voracious that we'd be burning our homes for fuel. Sigh. I had a few flashbacks from "Road Warriors"--the apocalyptic film about a world that has run out of fuel except for those stockpiles that are in the cross hairs of those with a real need for fuel!

In the end, I'm convinced that that the world had a diet too rich in debt and now it is being transformed into a giant gut grenade (as my son would put it) that once cleared from the world's financial system ensures that most of us will be wiping shit off our collective faces. And though we may wipe it off of our faces, the stench of it all will likely be around. I just don't see the switch for the exaust fan. I shudder to think that there is something in my eye!

I hope that you are weathering this nonsense in the markets well. To me, this is the lesson of a lifetime--and my tuition has not been too steep.

Here's a pic of FINVIZ performance for various Sectors. You'll have to click on the image to read it.

FINVIZ Features

http://finviz.com/map3d.ashx

FINVIZ has a couple of new features: 3D view

The other feature is an archive, but I'm not sure that I "get it".

Gary K's Friday Show

Gary K's Friday show---

Gil Moralis was Gary K's guest on Friday.

Gil (has covered his shorts on Friday) and is talking about the concept of forced selling by institutions (de-leveraging). He covered because now Bill Gross is talking about it, as well as others. When it is in the popular media, that means that it is more known.

Gil believes that the July lows will be tested. Hedge Funds are affected as well by institutions that need to liquidate their holdings to raise liquidity. Gary asks Gil to suggest to listeners what they should be studying to understand

Understand the underlying conditions-is there enough liquidity to sustain a bull market? Look at the leading indexes to understand if they are under distribution. Look at their own positions and back away from losses.

Gil Closes with this: In the end, credit drives liquidity and liquidity drives the market. It's worth remembering.


You can find a print interview with Gil HERE. You can also sign up for Gil's free newsletter here. I don't currently receive it, but I just signed up for it.

Gary notes these:

• No characteristics of a washout.
• No leadership to speak of. Most stocks look a mess; in a downtrend.
• Great time to NOT lose money.
  

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I'm off now to do a transport--we moved it due to Hanna passing through. The storm brought some welcome rain, and not too much unwelcome stuff. We did not lose power, but other parts of our county did.

Physically, it is a rest day for me. Last night I was able to wear a pair of pants that I've not been able to wear in about 6 months. I sure did feel good.

Girls, Girls, Girls!

I was looking at Asian Times on line and I saw these ads. There's a point here....

The Nikkei Market is tanking, down 322 as I write. I tried to listen to Gary K, but someone loaded the 08.21 tape. Perhaps tomorrow it will be correct.

I missed most of the ugliness. But it was a good day to be out.

In another forum, someone stated that they thought that Sarah Palin's daughter's pregnancy reflected poorly on Palin's values. I have to say that prior to my having children, I had this sense that if kids were f'ups, it was the parents' fault. After the manifold time of saying (most particularly to my son), "I didn't raise you to say/think/act this way." A million prior false judgments come to roost when you have kids of your own.

There's a point in time when we parents cease to have influence over our kids (there are studies to confirm this fact that every parent knows). If kids are miscreants, mendicants or deviants, does that really reflect OUR values? (Assuming that we didn't beat, molest or otherwise harm our children growing up).

Adolescents are a randy bunch--it's life's way of ensuring that there will be progeny. A lackluster, when-I-feel-like-it sex drive is liable to spell doom for the future of that genus/species. Accordingly, Nature made sex first and foremost on the mind of our young people (most particularly our men-folk).

I think that Palin's daughter and beau understand that actions have consequences. Seems to this pair of eyeballs that they are facing those consequences within the parameters of their values: supportive family, marriage and life for the unborn child. In the past, unfortunate girls were sent away, shunned by their community and their family. What sort of values does that behavior imply? Kids are going to have sex even though they know there will be consequenced. But it is like the drunk driver or the smoker--it's going to happen to someone else.

Someone always has to be the statistic. I doesn't mean that their behavior was abnormal, but that it was their turn to be an unfortunate statistic. And Palins' family is doing what families ought to do--bear up under hardship and provide love and support. Providing love and support does not mean that you condone the behavior. Quite frankly, the manner in which this has been handled garners quite a bit of respect from me (and I say that as a partyless observer).

And if we didn't care about sex, then all of the ads on the Asian Times website would not be for sex (or the promise of). I think that there was a belly fat one too....but we all know why folks want to get rid of belly fat. (Personally, I want to get rid of mine so my clothes fit---but hey, if it makes me a sex magnet, then so be it!).

And....I have to say, if McCain could make good on a promise of "ending partisan politics" that sure is eye catching. But is it possible. I don't know, but my ear is a bit more tuned in than it normally would be.

Markets, Politics and FbF

On the market front: I cannot make any sense out of this market. I believe that some HF's have blown up in the energy area. I've said here that the commodities--should be the last area to collapse for the economic cycle to be complete. The key question (and no one knows this answer) is whether or not the drops in the other sectors (financial, retail, etc) have appropriately priced in the slowing global economy.

I was looking at charts and noticing that the rails are failing and that semiconductors are rolling. You know my rail against the rails, as I've been writing about it since the beginning of the year. In my typical fashion, I was early. I'm still trying to figure out what is going on with utilities--particularly natural gas utilities. I exited my SDP, and may re-enter.

What is particularly satisfying is that I'm listening to GaryK (as I write) from last night, and he's commenting on the semi's (and technology in general) and rails. I feel some vindication on the training of my eye on charts. Do listen to Gary K's 09.3 broad cast. The first 10 minutes generally have the pith of most of his commentary. In fact, that is generally all that I listen to. For a free resource, I find his opinions priceless.

Here are just a few charts for you.

Here's a 10 year Kagi chart on XLU:


It's worth noting that the insurance index has been pretty strong. Take a look:

And retail of all things:

Precious Metals---



On the political front: What a historical moment, regardless of your political affiliations, on both tickets. I only wished that I felt some affinity toward either message. I don't. But that's my issue!

On the Fit by Fifty Front: I've lost weight (5-6 lbs); I've increased my muscle tone; I've lost 1.9% in body fat (though the scale seems to have some erratic moves!); I've lost 1/2 inch on my thighs. My arms have not lost any inches, but they are more toned; hips, waist--all getting smaller.

I'm finding that staying within my calorie allotment much easier this week. Perhaps it is training my head/stomach. I bought some Scottish oatmeal, ground flax seed (which is my breakfast with fresh blueberries and soy milk); brown rice (though I've not made it yet). It is rib-sticking! If I eat a little later in the morning, I can eat lunch later. A later lunch means I'm not so hungry for dinner.

My foot hurt yesterday; and I did no cardio. No nothing really. Today I have a lunch date, but will move around in some fashion this evening.

Oil

How funny that just a month ago the world energy markets were collectively afraid that we would run out of oil and the peak-oilers had their "end of the world" sandwich boards on. That there were never any lines was my simple clue that there wasn't an oil shortage.

I still think that long-term, energy is in an up trend, but as it has led the market for the last 5 years, it's likely due for a rest. Again, I cannot help but marvel at the stories that get spun for the benefit of handing overpriced stocks to others.

Fitness Goals/Oil down $4

I elected to create a FreeMind file of my fitness goals. You can click on the image to get a better view.

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A fire sale on oil? Down $4. My idea of hell (other than being consigned to driving the roads of Sicily for eternity) would be to be consigned to the energy pits for eternity!