Quote For Today 1.08.09

   “Ability is of little account without opportunity.”

More Bad News..

Although yesterday's news was mostly the same, the result was quite different.  There was more bad news, real bad, but for some odd reason investors actually read it; the market was hammered.  By the close, the Dow had dropped the most since December 1st.  Like the rally, however, today's thumping occurred with low volume.  In other words, it could very well be a fleeting drop. 

Before the market opened a preview of Friday's jobs data was released, which was less like Santa Claus and a lot like Halloween - Michael Myers to be exact.  The ADP employment index showed private-sector firms shed 693,000 jobs in December, which was far worse than expected.  But one must wonder - how did this happen?  After all, wasn't ALL the bad news already "priced in?"  Um, not so much.

We await Friday with trepidation, wrote Ian Shepherdson, chief domestic economist for High Frequency Economics.  He said to expect that nonfarm payrolls contracted by about 700,000, which would be the biggest drop in 59 years.  Here's the scary part: Mr. Shepherdson is actually one of the few good economists.

I failed to mention the corporate news yesterday but that's OK, there was more today.  Alcoa plans to cut 13,500 employees, which is good for its bottom line, but its statement scared the hell out of investors today.  Late yesterday Alcoa said it believes the economy is headed for another major downturn, will chop capital spending by 50%, sell four businesses, and further curb output to help weather the steep drop in aluminum prices.  This led to the fear that Alcoa will cut its dividend, which caused AA to drop 10.1% today.

Intel didn't help either.  It dragged the market lower with its shares closing down 6.1% after warning it expects its fourth-quarter revenue to fall 23% from a year ago to $8.2 billion.

Finally, for all the talk of big deficits - it finally hit.  The CBO estimated that the Congressional fiduciaries of your money would squander $1.2 trillion more than it receives in fiscal 2009: the first trillion dollar deficit.  It also forecast that unemployment could exceed 9% early next year.  Oh yeah, and that does NOT include Barack Obama's $800 billion Keynesian wasteful spending.  What's more, Mr. Obama said today that we should expect trillion dollar deficits for many years to come.

Can you borrow your way to prosperity?  Can you spend your way there?  When will the madness end?

Good luck with your trades today…Jim

Quote For Today 1.07.09

"Ability is what you're capable of doing. Motivation determines what you do. Attitude determines how well you do it."

Economic Data.....Boring!!

From Federal Reserve notes to corporate news to government economic data, it was all bad news yesterday.  Taking it in stride, however, the market closed higher as it moved throughout the day in another extremely choppy and slow trade.

Indicating further weakness could be in store for the housing market, the National Association of Realtors' index of sales contracts on previously owned homes fell 4% in November from the prior month.  Moreover, we learned that foreclosure sales in the 25 largest metropolitan areas almost tripled in the first 10 months of last year as rising unemployment and falling home values made it tougher for homeowners to sell or refinance their mortgages.  In fact almost half the homeowners who bought in 2006 now owe more on their mortgages than their houses are worth, so without paying down their current principle at the closing, there probably won't be any refinancing.

I'm not sure what the so-called experts see in 2009 for the housing bottom they keep chirping about, because it doesn't seem to be getting better.  Sure, interest rates are dropping thanks to the largest intrusion into the free market by the Fed of all time, but how many will be able to refi?  I don't think we'll see a bottom until the employment picture has radically improved.

Keeping in line with their amazing ability to continue receiving a paycheck without ever being correct, economists blew the call on factory orders by a wide margin: they were off by 100%!  Orders for U.S. factory-made goods fell 4.6% in November, twice as much as the expected 2.3% decline.  Way to go fellas, you're prognostication skills are simply awesome!  The only number they'd get right is their own phone numbers - or would they?

Shipments leaving factories in November fell a record 5.3%.

In a surprising bit of bullish news, the ISM services index rose last month.  The ISM non-manufacturing index rose to 40.6% in December from a record low of 37.3% in November.  Although this is good news, we must keep in mind that a reading below 50.0% still shows that this sector is contracting overall. 

The next news to hit the tape, which came in the afternoon, was the minutes of the recent FOMC meeting.  In it we learn that the Fed sees increasing risks of depression and deflation as they struggle with employing newly concocted ways to directly interfere in the free market.  Will they ever learn that all economic problems are a direct result of their meddling in the first place and that further interfering will solve nothing?  Sadly, the answer is no.

The overwhelming message gleaned from the minutes of the meeting is one of fear; fear of a deep recession, and fear of a debilitating deflationary spiral that would capsize a debt-laden economy, wrote Joshua Shapiro, chief economist for MFR Inc. 

Hmm, but adding massive amounts of new debt to the already debt-laden folks among us would NOT capsize the economy?  Odd.

One section of the minutes read - some members saw significant risks that inflation could decline and persist for a time at uncomfortably low levels.  Now that sounds like good news to me.  Call me crazy, but if I'm going to buy a house I'd rather buy when prices have dropped.  I'd rather enjoy buying cheaper cars, food, gasoline, home products, etc.  And I'd much rather buy stocks that have fallen 50% or so - wouldn't you?

On the other hand, the government wants to steal from you through inflation.  Inflation is often called a hidden tax and for good reason.  For example, if you bought a home 3-yrs ago and its price had gone up 20% in value, you may feel richer but the government IS richer.  Not only do you have to pay back the principle, interest, HELOC's, property tax, fix the roof, paint, fix the driveway, etc - which all costs money - the house just gets older and in need of more repair eventually. 

But the government is collecting MORE funds in property taxes without ever passing a law that allows them to legally steal more of your money.  All governments love inflation, and that's why it almost never goes away.

On the other hand when inflation does temporarily leave us, governments tremble.  For they not only go without extra income through the theft of inflation, but they may even (gasp) receive LESS due to deflation.  And when this happens, they can't keep their promise to Cousin Winifred for that sweet job at the DMV.  For those already employed by the government, bad times are a coming.  The "G" can't keep paying the ridiculously high salaries for the paper pushers it employs, nor can it pay the promised pensions that become a serious burden.  

But don't expect your local, State or national government to make do with less.  No sir - you should.  They're coming after you soon with higher taxes and "fees" to plug the holes because all politicians are gutless men of no character whatever, and will always go the easy route.  I hope that I am wrong and there are men of character in the government, but other than Ron Paul and a very few others - I haven't see many.

Good luck with your trades today….Jim

 

Quote For Today 1.06.09

"Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to attain uncommon results."

Auto Shakeout...

Yesterday was a bit of an odd day: although we had greater volume, we had less action.  We caught what action there was, which occurred early, but the remainder of the day was quite range-bound.  All three major indices closed slightly lower by the close.

Yesterday’s main economic news was the dismal auto sales from the Big-3.  GM's sales, for example, plummeted to a 49-year low.  However, GM did not suffer the worst percentage drop in December YoY:

1)     Chrysler, -53%

2)     Toyota, -37%

3)     Honda, -35%

4)     Ford, -32%

5)     GM, -31%

6)     Nissan, -31%

As a whole, it should shake out as the worst annual result for the entire industry sine 1992.

Last week I talked about the government's latest mugging of the US taxpayer to handout GMAC $6-billion, and then how GMAC planned on lending its newfound booty to GM customers for subprime auto-loans at 0% interest.  Will it work?  It's doubtful since people are worried about paying for their homes, credit card debt, and holding on to their jobs.  I just don't believe there is much, if any, pent up demand at the moment.  Moreover, I doubt it will pull much demand forward either. 

Without massive changes in the automakers basic structure including; new management, selling off weak model lines or shuttering them, new management, new labor agreements, less plants, selling only to qualified customers, close dealerships, and (did I mention?) new management --- none of this bailout money will help. 

Good Luck with your trades today….Jim
 

Quote For Today 1.5.09

"Sow a thought, and you reap an act;/ Sow an act, and you reap a habit;/ Sow a habit, and you reap a character;/ Sow a character, and you reap a destiny."

When Does The New Year Start...

The real New Year begins Monday.  Yes, last Friday was the first trading day of 2009; however, given the lack of volume it is easy to call into question Friday's gains.  The market was up big for the week, and Friday alone saw the Dow close up nearly 3%.  When all of the market's traders return from holiday vacations Monday, we'll see how solid those gains really were.  Who knows, maybe it rallied enough to squelch the skepticism?

The rally certainly was due to good news; the ISM data was simply horrible.  The Institute for Supply Management (ISM) reported Friday that U.S. manufacturing activity dropped to a 28-year low in December, as manufacturing contracted for the fifth straight month.  The overall ISM index fell to 32.4% in December, the weakest reading since 1980, according to the institute.  It's down from 36.2% in November.

Of course, most economists lived up to their record of being ass-backwards in their forecasts, which this time was a predicted rise in the ISM. 

ISM readings above 50% indicate an expansion of the manufacturing economy, while readings below indicate a contraction.  These recent excessively low readings signal ongoing recessionary conditions.  The institute said that new orders now have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948!  Manufacturing payrolls also shrank as the employment index fell to 29.9% from November's 34.2%.  The institute's price index dropped to 18% from 25.5%.

Overall this report was a bad end to a bad quarter, and it gave no real sign of momentum going into early 2009, said Abiel Reinhart of J.P. Morgan.

This coming week will bring a lot more economic data.  Will the market be able to ignore more bad news such as that above?  Of all of the week's data, Friday's monthly employment report will be the most important.

Good Luck with your trades today….Jim
 

Quote For Today 1.2.09

   "We cannot swing up on a rope that is attached only to our own belt."

Happy New Year

Wall Street is saying good riddance to 2008, but that's because Wall Street believes it is owed a return with its stick your head in the sand style of investing and fought it all the way down.  On the other hand, since we follow the trend, 2008 was quite profitable.  What's more, we expect 2009 to be more of the same: buy & hold is dead - you must be a trader to make money.

Notice I said we are trend followers - not predictors.  Predictions are useless.  If you doubt me, feel free to research all of the useless claptrap from the so-called Wall Street experts at the start of 2008.  Wall Street is infested with perma-bulls, which is fine when the market is going up.  However, when it's suffering the mauling of the bear, they look foolish.  They cannot fathom their predictions being off.  In cult-like fashion they hold steadfast to their foolhardy beliefs in Keynesian economics and the Efficient Market hypothesis.  All the while as information gets worse, they remain incredulous to bearish data. 

Simply put, the perma-bulls ability to whistle past the graveyard is astonishing.

It won't matter how many trillions of dollars have been lost listening to these clowns - their bad market calls and overall predictions will carry on.  So keep in mind that these folks didn't even see the crisis coming and ask yourself, why would I trust them for '09?   They aren't basing their analysis on fundamentals or anything else but blind hope and historical statistics.  Every crisis is different, which makes the prediction game less than accurate.

Oh sure, from time to time we may put out a price as to where the market could go, but this is based on the current trend whether it be short or long term.  As I said above, long-term predictions are useless.

 

Good luck in 2009….Jim