Saturday, November 22, 2008

WEEKLY ECONOMIC REVIEW (11/17-11/21)

To summarize, we’re basically continuing in the same direction that we were going last week and the weeks thereafter, and that is down. Hard. I do believe that these numbers and figures will continue to deteriorate significantly. Like last week, many charts have gone parabolic, such as the weekly Jobless Claims, Industrial Production, PPI, etc. Obviously, we have a while to go before the economy itself hits “bottom”, whenever that may be. The only things we can do are track the progression of this recession on a daily and weekly basis and adjust our strategies to adapt to the ever changing economic environment. Don’t hope that things will get better soon because they won’t. Business cycles simply don’t move that fast.

Empire State Manufacturing

The index’s reading came in at -25.4 for November (issued on Monday). The previous reading was -24.6 and the consensus was -26 with a range of -40 to -14. You think only white-collar workers in NY have it tough? The number of factory workers index dropped -25 points to -28.9 so this shows that employees of all ‘collar spectrums’ are having significant trouble in NY and it is a sample of the broad national manufacturing sector.


Industrial Production

Industrial production rose to 1/3% from a September reading of -2.8% with a consensus of 0.2% in the range of -3% to 2%. Much of the blame is still being placed on hurricanes Gustav and Ike and the Boeing strike. The important thing to note is that the industrial sector makes up a bit less than 20%. Capacity utilization rose to 76.4% from September’s reading of 75.5% with the consensus being 76.4%. This indicator is used to measure operating limits and it fell off a cliff.


Producer Price Index

The PPI fell considerably (see sharp spike below) at a rate of -2.8% in October vs. a decline of -0.4% in September. This -2.8% figure was much greater than the -1.7% consensus. The core PPI actually increased 0.4% due to strong prices for trucks, aircraft, and…beer. Since the vast majority of sectors are weak, the strength in these sectors should weaken. The largest declines came from cars, pharmaceutical prep, and computer/tech equipment. I anticipate a sharper decline in auto demand that will being down the core PPI.



Consumer Price Index

The drop in energy prices helped, but there was clear evidence of weakened consumer demand. The reading for October came in at -1% vs. 0% in September and a consensus of -0.7%. The core dropped -0.1% and the biggest hits came from autos and apparel retailers (no surprise here). Even though the CPI is declining, that doesn’t mean it’s a good thing since almost everything besides food and energy are taking a hit, adding to the current recessionary profile.


Housing Starts

The Housing sector, in general, is the root cause of this entire crisis. Housing prices continue to decline making all those toxic securities even more worthless. The lack of credit is preventing buyers from buying and sellers are unable to unload their property. This lack of activity is not giving incentive for builders to build. We can see in the chart below that it happened since Jan 2006 and this relentless spiral is not letting up. The reading for starts came in at 0.791 million vs. September’s 0.817 million. Permits fell to 0.708 million vs. September’s 0.786 million. What’s interesting is that the West and South posted gains of 7.5% and 1.5%, respectively. The Northeast declined by 31%. With the amount of layoffs/future layoffs in NY and the surrounding areas, this decline should only increase. The Midwest fell 13.7%, and if any automaker fails, this decline should spike.


Jobless Claims

This week’s claims were terrible indicating that there were 542K new claims this week compared to last week’s 516K. This is the biggest jump wince 1992. The consensus of 505K was blown out of the water. But you know what, I expect even more pain. Claims will most likely hit 600K+ by the end of the year as layoffs ad unemployment accelerates. With the number of cuts being announced on a daily basis, it is impossible for this number to decline by the end of the year. I still compare jobless claims with the VIX’s initial meteoric rise.


Philadelphia Fed Survey

The Philly Fed survey index dropped to -39.3 from -37.5. The consensus was -35 within a range of -45 to -24.8. There’s no question that Philly is in a recession and this survey is only a snapshot of what’s going on around most of the country. Prices paid this month was -30.7 compared to +7.2 in October and prices received was -15.5 this month compared to +5.3, both are enormous differences. There wasn’t a single positive reading in any sub-fields in this month’s survey and should to tell you a lot.


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SOMALI PIRATES IN DISCUSSIONS TO ACQUIRE CITIGROUP

DISCLAIMER: This is for entertainment purposes only. Don't freak out please.

Somali Pirates in Discussions to Acquire Citigroup
By Andreas Hippin

November 20 (Bloomberg) -- The Somali pirates, renegade Somalis known for hijacking ships for ransom in the Gulf of Aden, are negotiating a purchase of Citigroup.

The pirates would buy Citigroup with new debt and their existing cash stockpiles, earned most recently from hijacking numerous ships, including most recently a $200 million Saudi Arabian oil tanker. The Somali pirates are offering up to $0.10 per share for Citigroup, pirate spokesman Sugule Ali said earlier today. The negotiations have entered the final stage, Ali said.

"You may not like our price, but we are not in the business of paying for things. Be happy we are in the mood to
offer the shareholders anything," said Ali.

The pirates will finance part of the purchase by selling new Pirate Ransom Backed Securities. The PRBS's are backed by the cash flows from future ransom payments from hijackings in the Gulf of Aden. Moody's and S&P have already issued their top investment grade ratings for the PRBS's.

Head pirate, Ubu Kalid Shandu, said: "We need a bank so that we have a place to keep all of our ransom money. Thankfully, the dislocations in the capital markets has allowed us to purchase Citigroup
at an attractive valuation and to take advantage of TARP capital to grow the business even faster."

Shandu added, "We don't call ourselves pirates. We are coastguards and this will just allow us to guard our coasts better."

*CITI IN TALKS WITH SOMALI PIRATES FOR POSSIBLE CAPITAL INFUSION

*WILL REQUIRE ALL CITI EMPLOYEES TO WEAR PATCH OVER ONE EYE

*SOMALIAN PIRATES APPLY TO BECOME BANK TO ACCESS TARP

*PAULSON: TARP PIRATE EQUITY IS AN `INVESTMENT,' WILL PAY OFF

*KASHKARI SAYS `SOMALI PIRATES ARE 'FUNDAMENTALLY SOUND' '

*Moody's upgrade Somali Pirates to AAA

*HUD SAYS SOMALI DHOW FORECLOSURE PROGRAM HAD `VERY LOW' PARTICPATION

*SOMALI PIRATES IN DISCUSSION TO ACQUIRE CITIBANK

*FED OFFICIALS: AGGRESSIVE EASING WOULD CUT SOMALI PIRATE RISK

* FED AGREED OCT. 29 TO TAKE `WHATEVER STEPS' NEEDED FOR SOMALI PIRATES

TODAY'S ACTION

I'm mad. Or, I was mad today. There is such an utter delay with this post because something that shouldn't have happened...actually happened. At around 3:20PM, my exceptionally high-speed ISP cut off. Now remember, this is the last half hour of the trading day (and usually the most critical). You would understand why I yelled at them. I was so pissed off and explained to them (with enough force) why it was so important for me to have internet from 3:20-4PM. They gave me 6 months of service free as a result. The most important thing? It's my fault. It's my fault for not being prepared for it. I didn't panic because I was in 90% cash, but I'm sure I would have reacted differently, let's say, if I was 100% short. Ouch.

The most interesting and disturbing part? I issued my last order to cover short positions at 3:07PM (I, myself, covered 90% of my shorts and kept 10% as a spec play). Keep in mind that these are original positions from yesterday afternoon. This means that if I delayed covering my shorts, I would have been screwed. 13 minutes could have changed everything and there wouldn't have been anything I could do about it. Therefore tomorrow, I will get a backup ISP, most likely Comcast cable, along with a Verizon BroadbandAccess card for my laptop so I can access the internet from everywhere. I don't care how much it'll cost me because I am not going to take any more chances. Learn from this experience, and realize how close I flirted with a serious loss. This is part of risk management and it didn't even cross my mind, until now. The market gods must have anointed me at the close.

I missed most of the Tim Geithner rally as a result, but I'm more happy that I covered my shorts 13 minutes before I got cut off from cyberspace. One must ask themselves if this rally truly has substance, or if it is another news item rally. The short-term significance of today is the fact that the candle neutralized yesterday's loss. However, there is still a lot of ground for the bulls to recapture. This requires sustained positive catalysts and I don't see too many of them. What do we look out for over the weekend? See if the autos are still functioning, Citigroup is still alive, and if any surprise government regulations or gov't-assisted deals pop up. This weekend just feels like something is going to happen. Either way, the government will be busy this weekend, and I am in 90% cash and 10% short (because I can afford to). I did lose 2% today but still sit at +65.6% for November's gains. Can't win everyday, but better than getting your sack nearly chopped off by your internet service provider.

And by the way, the service became operational around 9:30PM, 6 freakin' hours later. Thanks a lot.


SPX 1-day

SPX 3-day

SPX 10-day

SPX 6-month

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MARKET CARPET

The vast majority of the market rallied with healthcare and financials lagging.

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Thursday, November 20, 2008

TODAY'S ACTION

Bulls got killed again. This is probably the 100th+ time this year. Don't say that I didn't warn you either. If you're still "hoping", then go back to your corner and keep praying. We broke our consolidation low yesterday, and today confirmed a clean break with a major spike in the last half hour and cut through the 2002 lows. That rally we had? That was a really large bear flag.

My gains for today put me at a +69% return for this month so far (the market is down -25% this month). My students have also pillaged the market with me and took whatever they felt like taking. If you can't trade this market and/or don't know how to, then get out. If you are slow to react and think too much about a trade, then get out. If you're still trading on fundamentals, then you have the right to lose every penny. And give it to me. If you diagnosed yourself with multiple personality disorder, seek professional help. This environment is not for you.


Today's orders for my subscribers: 1) 9:14AM - hold 25% Short/75% Cash from overnight positions. 2) 10:05AM - Add additional 25% Short. 3) 10:43AM - Hedge all short positions. 4) 11:19AM - Remove all hedges. 5) 12:23PM - 100% Cash. 6) 12:50PM - Add 25% Long. 7) 1:12PM - Hedge all long positions. 8) 2:08PM - 100% Short. 9) 3:27PM - Risk-averse traders cover before the close. That's all for today. You can't blame the market for anything, because your successes and failures are entirely the result of your trading decisions. No one said making money was easy, but there is always a way to make money.

Looking forward into tomorrow, if the S&P 500 does not close above 800, then that will mark a continuation in the leg. I don't really see any positive catalysts that can make the market rally 50 points. We may get a nice bounce to the upside following the last hour crash today. We have not hit a capitulation point, so the rally we do get will be a secondary reaction rally. The market is and will continue to get seriously, downright, and utterly crazy, so remember: if you can't handle it, don't trade.


SPX 1-day

SPX 3-day

SPX 10-day

SPX 6-month

SPX 10-year

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MARKET CARPET

You know what's really surprising? There were more stocks up today than there were yesterday. Wow.

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TODAY's UPGRADES & DOWNGRADES

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Wednesday, November 19, 2008

TODAY'S ACTION

During the neutral range, I was thinking to myself, "there are two options available for the market: 1) we form a long tedious rounded bottom, or 2) we form a very large bear continuation flag. #2 came really quick in the last hour. Over the weekend, I also stated that I had those two conditions that needed to be met. It's Wednesday, so both have expired and have not been met (not by a long shot). The bottom line is that we have broken our critical support level and the S&P 500 is reaching the 2002 lows which are currently around the 775-785 level. Unfortunately, this suggests that we have at least a very possible short-term 3-5% additional downside move. Whoever is still buying and holding...should probably stop. It doesn't make sense. Want some advice? Buy once we make a higher low (that means you might not be buying for a while). Don't be stupid. This is exclusively a traders market, all others will get/are getting killed and it's all your fault.

I, on the other hand, made a sweet 7% today adding to a 5% gain yesterday. This is a tricky market and I still remain mostly in cash overnights. There is too much uncertainty and the risk associated with holding overnight. I could hedge, but I just prefer to be in mostly cash. The $RUT, $SPX, and $COMP are all in trouble. The $DJIA is actually sitting at Thursday's lows, but this divergence will soon be corrected. The VIX is trading in a upward range and today's candle suggests additional upside. The financials are in some serious trouble and there is no possible way for the market to rally without them, so don't forget that. What's the only chance left for the market? We have to cancel out today's loss tomorrow (gain 400+ points), and that is highly unlikely. Today was just an all out bloody day and longs got mauled by the bear demon or the cartoon blood drop.


SPX 1-day

SPX 3-day

SPX 10-day
SPX 6-month

VIX 10-day

VIX 6-month

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MARKET CARPET

Ok, I count 4 stocks that are up (not including the ones that are 0% or not trading). The Financials crushed the market in the last hour (esp. C)


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APPLY FOR YOUR PIECE OF THE BAILOUT!

If you want to apply for a few billion dollars, you can fill out this 2-page application for the TARP program. That's right, it's 2 PAGES LONG. This is like 10x shorter than my college application. Applying for billions couldn't be any easier!

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TODAY'S UPGRADES & DOWNGRADES

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TUESDAY'S BREAKOUTS & BREAKDOWNS

The neutral range we are in right now is limiting the daily number of breakouts and breakdowns. There are only just a few each day that meet my criteria (esp. price and volume). Currently, the healthcare sector and biotech and pharmaceutical industries are doing the best in terms of displaying the most bullish patterns and they should be considered the core of a long portfolio. The retailers appear to be doing the absolute worst. It’s no surprise that they are breaking down every, single day and they should be avoided at all costs. Most sectors are just zigzagging up and down which is the reason why the general market is in a neutral range. As a group, we are simply not making any price progress or seriously taking back lost ground. The first six charts are not breakouts, but they are breakouts possibly waiting to happen. As always, breakdowns are for future preventative purposes.

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Tuesday, November 18, 2008

TODAY'S ACTION

Today was an easier day and more predictable than yesterday, obviously. It's important to keep your cool and to calm down if you find yourself too excited when you're making or losing money. I always tell my students to have patience in the face of considerable pressure. This morning I sent an alert at 9:28AM writing that I was anticipating a bounce (which did happened). At 9:56AM, I issued a "100% Short" order - slightly early, but didn't matter, the rally was dead from the start. A 10:30 alert was issued to notify traders that it will be another volatile session and if they can't handle it, then get out. A 2:37AM alert was sent notifying that I was still 100% short. A final order at 3:40PM was given to unload most short positions and have some cash handy for tomorrow. I netted a cool 5%.

We tested the lows for the $RUT, slightly for the $COMP, and not quite for the $SPX and $DJIA. The $VIX remains elevated, but the fear seems to be subsiding as it has not tested it's own highs (as of today). The indicator is still consolidating and a breakout is still possible as long as it hold the 20-day MA. As long as we have uncertainty surrounding the markets, it cannot start a strong rally (Ex: GM). In addition, looking at the market's components, 14 out of 28 sectors ended lower with the most decline coming from the broker-dealers, banks, semis, telecom, transports, and gold. I stated previously over the weekend that we needed to 1) cancel out Friday's loss on Monday and 2) break through the 20-day MA within 3 days. Both conditions have not been met yet.

We want to look out for 865 overhead resistance on the $SPX. There is support at around 845-850. We are not out of the woods yet regarding testing Thursday's low.


SPX 1-day

SPX 3-day

SPX 10-day

SPX 6-month

VIX 10-day

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HOUSE OVERSIGHT OF THE EES ACT OF 2008


Witness List & Prepared Testimony:

Panel 1

Panel 2

Panel 3

  • Dr. Alan S. Blinder, Gordon S. Rentschler Memorial Professor of Economics and Co-Director of the Center for Economic Policy Studies, Princeton University
  • Dr. Martin S. Feldstein, George F. Baker Professor of Economics, Harvard University and President Emeritus, National Bureau of Economic Research, Inc.
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MARKET CARPET - VERY MIXED


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