Still Fighting last War........

I cannot help but feel everyone and his mother-in-law is fighting the last war. What I mean by this is the following:

• If you watch CNBC, the talk of inflation is incessant and non-stopping. And with Crude Prices and Gold prices going up on a daily basis, the talk is simply getting out of control. But is it possible that crowd is wrong once again. If inflation is getting out of control, how come it is not showing up in 10 year T-bond, which is stuck between 3.55 to 3.9 %. In this fight between crowd psychology and Bond market action , I am with Bond market. I feel at this point DELFATION is still a problem, as the interview, I posted earlier, with David Rosenberg of Merrill Lynch indicated. As David Rosenberg, said :Inflation is a Lagging Indicator The time to worry about Inflation was last year and not this year. So all the fighting and shouting in the media is about what happened and to some extent what is happening. From my perch, right now Crude is trading more on pure price action rather than on Fundamentals. Except to see, Crude reach 70 to 80 by April.
  
• The other war, lot of Wall-Street firms are fighting right now is, suddenly having risk managers. Morgan Stanley, Citigroup and other companies are all now talking about Risk Managers. Question, is of the companies focused on Risk, how many really survive this hit from Credit Crunch. It is my opinion that give the losses that are yet to be accounted for, it likely some of the IBs will be out of business. For example, most companies are assuming that housing prices will decline some where between 7 to 8% , but in most cases housing prices have already declined by 20%. In other words, the fun is just getting started.


• Dollar value. For most part every one is looking at DXY index, to measure dollar value. Given that Cash is King. A lot of Banks, Hedge Funds, Investment Banks (IB) will be forced to sell the garbage, aka CDO, CLOs and Money losing Commercial Construction loans, and buy Dollars, this should cause the Dollar to raise. Also, with Euro appreciating against Dollar, US has essentially kicked Europe into a recession. This will force the idiot ECB to cut rates, sometime before June. In other words, Dollar should be appreciating against EURO and Pound soon.


• Lately on Radio, I am listening to advertisements about Debts. The ads talk about how they can help, people solve their debt problems with one phone call. I am not sure how many of these actually work, but the only to resolve Debt issues is by not getting into one. In short, as far as debt is concerned, there is no free lunch. The cheap Credit has made lot of people indulge in lot of irresponsible behavior, that include both the companies as well as individuals. Sadly, they are all coming to roost now.

Even though every one wants issues pertaining to Credit Markets be resolved ASAP, if there is one thing I learnt from Dot Com collapse is, only in fullness of time the issues will be resolved. As far as Credit Bubble, unwinding is concerned, we are just getting started........Sadly.

Good one from Steenbarger

I always been a fan and admirer of Dr. Steenbarger. Today on his blog, there is this post titled:

Why Trading Might Be the Most Difficult Job in the World . Please read it, it is very insightful

Volume on SP500......

The chart below shows the volume on Sp500 it is below 50 DMA. So we shall see how much strength this market has.........

% of Stocks above 40 DMA

Last few times this reached above 50 , it turned back. We shall see ........what happens this time.

Here it is..........

Two Must read interviews, Inflation and Deflation

I feel the following two interviews are requireed reading, one is by Jeremy Grantham, titled This Credit Crisis Has a Long Way to Run in Barrons.

And the other is by David Rosenberg of Merrill Lynch, titled Where next for the US economy? in FT.

These two interviews give a very good view of what most likely is to happen. The entire US Credit Market problem can boiled to into a simple statement and here it is :

Available Income, is not enough to service the Outstanding DEBT.

Hence the Debt has to be destroyed and the debt destruction is DEFLATIONARY. It is as simple as that, also remember as the economy starts weakening, there will be less demand for lot of things, especially descretionary items. This can explains why Wal-Mart will be fine, but other retailers will be in a world of hurt.

It is on this basis, the demand for Crude also comes down, even though Crude trades many times on things other than demand. I expect Crude to come down to somewhere 60 to 70 Dollars a barrel by May, even though Driving season is ahead, in other words the consumption of crude will come down.

With USA, Eurpope, Japan in recession, the idea that China and India, will keep the world going is a big joke. Do not let anyone fool you in this regard.

The recent data which showed their is inflation in the system, is A LAGGING INDICATOR, and is not forward looking.

Notwithstanding the lies supply-siders talk about tax-cuts it is actually the availability of easy credit thats what caused the boom of last 4 years. Hence with the Credit contraction, the effects going to be far longer than lot of people understand. Right now, that only thing that resolve all the issues pertaining to Credit and Bank problems is time. Unless Fed Govt., tries to Nationalize the entire housing market. Which is always a possibility...........

Thanks for Reading

Market rout all set

It is amazing every time market wants to find bottom, something strange happens.



Here are some instances:

• Last Aug, when the Credit Markets went haywire (I think it is Aug 16.......) Heli-Ben cut rates.




• Then the day after MLK day, when the markets around the world sold-off and the US markets was ready to sell-off then HeliBen, interfered again, this time cutting rates by about 75 bp.




• Then on Feb 22, when the markets was about to breach the 1320 level on S&P, someone plants a story about Ambac through Charles Gasparino.
  

I am not sure whether there is a PPT (Plunge Protection Team) or not, but it looks all but certain, their are many motivated folks, who want to make sure that market does not a find a bottom.

It looks to me. the more this kind of nonsense, goes the more the market, rout is all set. The lasttime, when their was a recession, Greenspan, tried to cut rates again and again but to no avail. Something like that will happen.

Also, the weakest part of the US Economy right now is , Consumer. No amount of AAA tramp-stamping can fix that problem. Since the consumer is weak and their are many clear indications that their is a growing attitude change towards unrestrained spending are more problems that will effect spending.

All the GDP growth, if you can call that has been caused availability of cheap credit, especially Mortagage Equity Withdrawal (MEW). With House prices falling and MEWs going down with it, their is no way consumer will be spending on non-descretionary items any time soon.

At the consumer level as the balance-sheet repair takes prominence, the recession only end up taking more time.

Coming back to Ambac, bail-out, the parties which are doing this are mostly Banks which have most to lose. Given the dubious ratings agencies, whose business plan seem tp be tramp-stamp, shit as AAA, will not trusted by anyone. Toddo, writing in Minyanville.com commented, Banks bailing out Ambac amounts to taking money from left pocket and putting into right pocket. And I have to say I totally agree with him.

Assuming their is indeed a bail-out plan for Ambac, come Monday following issues will still be with us

1. Housing still has lot of issues
2. Consumer spending not coming back.
3. Commerical Real Estate issues still with us
4. Securitization business still completely broken.

Couple of Good stories

Here is what Floyd Norris of NYT wrote about coming up with solutions about present predicament, the columns titled When Bankers Fear To Act. I liked this rejoinder at
Naked Capitalism.

I especially liked this line by Yves Smith :

Too many of the people I know who give time and money to charities are motivated to a significant degree by the networking opportunities.

Now regarding markets, there is this one at WSJ about Commercial real-estate titled
CMBX Signals Trouble In Commercial Property; 'Doesn't Make Sense'

As for markets, they are still in Trading Range, watch out if SP breaks 1320 level.

Credit Issue once again

Follow this story in todays WSJ titled .... KKR Seeks to Restructure Debt, Reviving Credit-Crunch Worries, where it talks about how KKR is not able to meet it obligations on some of the payments, their are more details on this here

Corp. Bonds and Rating Agencies

Please read this story in WSJ about Corp. Bonds, titled Corporate Debt Looms as Next Bank Debacle.........

This one talks about issues pertainign to corp debt, without going into detail, who is holding which bonds and by how much............In other words when it comes to details, none of the Banks want to provide any kind of information. That is the reason why the market is to jittery.

Also, one more thing....

This is about rating agencies (RA) and AAA rating on ABK and MBI. Given the amount of discussion on these topics on various forums. Does anyone believe at this point, what RAs do Vis-a-vis Ambac and MBI. It is pretty clear atleast the market does not think the rating of ABK and MBI matter much. Or else, the auctions of Municipal Bonds would not have failed.

Please keep a close eye on this issue for next week.

Thanks for reading........

Equity Markets Vs Credit Markets

Read this article on Minyanville.com. This compares the time-lag between Equity Market and Credit Markets.

We will probably may know by next week, whether Equity Markets and Credit Markets will converge or whether they continue to live in their own separate worlds.

Gun-to-Head, 1308 level on S&P May crack next week......

As old cliche goes time will tell........

New India ETF

For all those interested in a new ETF on India.

% of Stocks above 40DMA

T2108 is a Telechart chart that gives the % of stocks above 40 DMA. Around 50 level, the last few times the market reversed.........

Watch this

Credit Market troubles ......

Credit markets are at it again........this time it is municipal markets.

The following story in Financial Times titled Debt crisis spreads to US municipalities ..........says it all.

Credit Markets once again............

This time it is students loans in todays WSJ............

Unless the Credit Markets start running once again...............things will not improve.......

It is that simple........

Floyd Norris Post

I always admired Floyd Norris.....for his commensense based writing. I particularly liked this one on AIG.

Thanks Floyd...........

Buffet's Offer......

Before anyone gets excited, Buffet's offer to Monoline Insurers was for only Municipal bonds and not for CLO, CDO.

Remember, Municipal Bonds side of the Business has been healthy.......atlease so far. The issue has been with CLO and CDO, this is where the time-bombs are sitting. Buffet's (who is always wise) will not going touch those with a thousand foot pole.

If this deal goes through (which is a big if), then I wonder what will happen to stock holders of Insurers........

In other words, the ISSUES STILL REMAIN.......

A good one

I subscribe to Minayanville.com. I find the price reasonable and it has some excellant contributors. I especially like Bennet Seddaca, Toddo, Fil Zucchi among others.

Today their was a good article by John Mauldin titled Consumers, Credit and Complication. It was really good with lot of information packed into it.

Also, the downside for today market action, volume was poor. But then, things can change in heart-beat on Wall Street.

Thanks

Financials continued...........

Hope you saw the Front apge article in todays WSJ about how some Banks are planning to sell loans at the distressed prices. This is what I was talking about yesterday.

I feel, just as Fianancial sector goes, so goes rest of the Market, not withstanding pronouncements of some of the market pundits.

But then, I could be wrong............

Thanks for reading

Time to Buy Financial Stocks ?

Last Friday, on Kudlow's show Jim Awad when asked about Financial Stocks, said the time to buy Financial stocks in about April. Jim's reasoning was by then we will have a better understanding of what happened in the first Q and also companies will have a better understanding of what is going on by then.


By opinion is, I am not sure when is the good time to buy these stocks, but the longer you wait the better you are . Since there are way too many issues that need to be resolved before one has a clear idea what to do.

Some of the issues that need to be resolved are:

• Are we in a recession, and how deep the recession going to be. The best time to buy would be in the middle of a recession, but sadly their is no way to know this.


• Mark to Model, or some would call it appropriately, Mark to Fantasy. This is the big one, unless their is a feeling all the loans are properly priced, it is just not safe to invest.
  
• SWFs role. Till now Soverign Wealth Funds, were willing to fund the capital needs of IBs and Money Center Banks . But this article in The Financial Times makes it clear, SWFs may not be forth coming with their money anymore.
• Also, some of the companies PE guys took private in the last two years are showing signs of stress. FreeScale SemiConductor and others. Even though as of now, the companies are still paying interest , if a deep recession ( which in my opinion, started sometime in Sep - Oct last year) takes hold. Then these companies will start having even more issues.
• How many more losses Banks will announce if Ambak (ABK) and MBI are downgraded.

Even though the above list of issues are not exhaustive, it is my humble opinion that, Financial companies, are treacherous for investing. I would wait atleast April/May/June to know where things are.

I am right now playing Financial Stocks with SKF, which is an ETF Pro Shares Ultrashort.

Curious About Future

My Primary interestes are Stock Market, Politics and how it impacts future and accompanying attitude changes. Even though from time to time, I talk about things totally unrelated to above topics in this blog.

Thanks for reading