Friday, August 27, 2010

08/27/10 - Dow 10,000 Is The Zero Line

The Dow cannot go below the 10,000 line. That is the new 'zero'. The Dow will not fall below this mark. It cannot. It will not. It will not be allowed. Every single person that owns even a single share of stock can sell that stock on Monday morning and guess what? The Dow will not go below 10,000. Why? The PPT will not allow it. And, they have a printing press. It appears that their strategy is to boost the Dow every single time the index hits 10,000. After ten or fifteen times, every investor on the planet will catch on. Mortgage the house. Break the piggy bank. Sell a few kids. Do whatever you have to do to raise cash when you see the 10,000 mark penetrated. You know what to do. Put it all on '25 Red'. Uh, I mean, put it all on the Dow. Ben is on your side. Up goes the Dow. It is magic. It is definitive. Of course, it is a con but you have to be on the same side of the con as Ben.

Just look at Friday, August 27, 2010. The Dow dropped below the 10k mark on Thursday's close. Friday morning, Intel said sales were slowing, durable goods were weak, housing sales were the worst on record, unemployment was still 'officially' at 9.5%, and second quarter GDP was revised down from 2.4% to 1.6%. And, ...well..., you know the drill. 'Dow below 10k, Ben'. Uh, excuse me but the Dow opened even lower. I said, 'The Dow is below 10k, Ben'. There we go - a 165 point rally! And yep, we had strong volume. Okay, Ben - I've got it. The next time the Dow drops below 10k, I'm buying with everything I've got. I don't care if the US just announced bankruptcy and bond default. I don't care if IBM, 3M, and M&Ms just announce bankruptcy. I don't care if Buffet went broke and Gates had to get a job as a janitor. I don't care if every hammer on a construction site just quit swinging and every wrench in every factor just went silent. I don't care if GDP was minus a hundred. I'M BUYING! You know why? Because it doesn't matter anymore. The man with the printing press has clearly demonstrated a line in the sand.

Take a look at the chart below. It is the Dow year-to-date. You can draw the line at the 10k mark and see that every time we hit, we get a rally regardless of the economic news. This might be the new 'Ben' strategy. Buy at 10k and sell a few hundred points higher. Wait for a dip below 10k and repeat the exercise. Ben, if you are reading this, could you just send me a reply email to let me know that you will never let us down. Thanks, Ben.

DJIA Year-to-date
Chart courtesy

Friday, August 20, 2010

08/20/10 - A Summer of Discontent

The chart below is the year-to-date picture of the DIA. I think the interesting thing about it is it shows the schizophrenic nature of the modern casino we used to call a 'market'. At the beginning of the year, the indices were diving. The PPT stepped in and we had something close to nirvana in February, March, and early April. The index behaviors were calm, consistent, and marching higher. This is a weekly chart so you can see that each week in this period was well contained. Suddenly in mid-April, everything changed.

From mid-April, the indices have become frantic, wild, and headed south. What happened? The Greek debt crisis may have been the match but the fire that is burning right now is being fed by reality. Most people are realizing that the government has been overly optimistic about economic 'recovery'. There is no such thing. Unemployment is now going to be structurally higher than in the past. Debt is pervasive and excessive both at a federal level and a private level. That has led the Federal Reserve to act as the chief manipulator of indices and now, the Fed is buying Treasuries in a bid to manipulate the bond market. The debt combined with a difficult economy has also led to a record number of individuals applying for hardship withdrawals from their 401(k)s (according to Fidelity). Oh well, workers might as well withdraw all their money before Obama and his 'stick it to the rich people' cohorts get their hands on it. That's another thing bothering the investor world. The result is a chaotic casino. Just look at the chart. What will next week bring? God only knows. That's the problem.

DIA Year to date
Chart Courtesy

Friday, August 13, 2010

08/13/2010 - 'Beam me up, Scotty'

Like Captain Kirk calling to his engineer on the starship, Enterprise, 'Beam me up, Scotty'. Get me out of here. I can't take any more. The world is filled with idiots and zombies. No one has even the first clue about what is happening in the economy. And worse, our government representatives are unconsciously clueless. When any of them open their mouths, I think, 'what?' It's almost like they speak by stringing random words together to make a sentence. At this point, I think our only hope is for the government to disband. Just go home. Leave us alone. Board up the White House and the Capital building. Just look at the past week.

The fellow that sleeps in the White House is still running around blaming everything from the current recession to the extinction of the woolly mammoth on the previous resident incompetent. And somehow, Obama takes credit for the stimulus and bank bailout and saving the economy from depression. But, didn't all that stuff get started under Bush? Have I been dreaming for ten years? But take credit for what? Bankrupting the country? Continuing the eradication of individual liberties? The massive expanse of government control? And he brags about these deeds?

On Tuesday of this week, the Fed met and and left the Fed Funds rate at zero. They also said that the supposed (my word) 'recovery' was weak so they would boost it by buying US Treasury bonds. Only, they were going to buy all the intermediary stuff and leave the 30-year maturity and the 2-year maturity alone. Why? They want to keep the so-called yield spread nice and wide. Even as dumb as Bernanke is, he has learned you don't mess with the yield curve. If it inverts, it signals recession. How does buying bonds help? It doesn't. What did the stock casino do? It jumped higher. Look at the chart below. You can see the jolt given to the casino with a powerful boost of volume no doubt supplied by the PPT.

Pelosi and her corrupt minions of nation destruction passed more legislation consisting of some $26 billion of state aid. Of course, the government doesn't have $26 billion to pass out but Pelosi and her pals don't care. They just think its magic. Write legislation. Pass out money. Reap the votes of the free money recipients.

By the end of the week, consumer confidence was reported to be ever so slightly up while real spending was down. All this babbling idiocy has made the stock casino impossible to navigate. As you can see from the chart below, every day now produces a gap at the opening of trading. In other words, whatever level a major index ended at on the previous day, it will no doubt start the next day at a much different level. Every day is completely different from the previous day. Government manipulation is pronounced and the Fed is determined to grease the indexes. What will they do next?

Several observations. Earnings don't mean a thing anymore. Besides, accounting is simply molded to meet the desired results. Lies are reality. The government tells us everything they want us to believe. All that matters is momentum. And now, that momentum has turned negative. When will it turn positive? I will tell you the exact moment. It will be when the Dow falls a few hundred points below 10,000. At that point, the Fed will unleash a trillion dollar buy program. Most likely, it will happen at 3PM. Watch for it.

SPY - last five days, 10 minute bars.
Chart courtesy

Friday, August 6, 2010

08/06/2010 - 'Gap' Trading

The chart below is the past 6 days of intraday, 10-minute bars, trading of DIA. Everyday opens or closes with a gap. In other words, before investors can fire a bullet, the ETF, and the indices, lurch up or down. Friday was a good example. The jobs number that was reported was not as strong as players wanted. The Dow opened trading down some fifty points. It went down as much as 150 or so but you know the drill. The PPT was not going to allow their rally based on nothing to fade. It was just a matter of 'when'. Sure enough, the buying started at 2:30 and the PPT nearly got the Dow back to even for the day. Great job, fellows! Why did the index fall? It appears that the 'recovery' is going to be weak. Why did the index rise? Yes, I know the casino is a joke. Of course we all know why the index rose. 150 down. 150 up. It's only money and the PPT has all the money now. Since there is so much obvious evidence that there is no 'recovery', the Fed wants to convince us otherwise by driving up the Dow. Don't you feel better now?

What we are experiencing is not a 'recovery'. It is a 'transformation'. The economy is not going to 'recover' to what it used to be. Real estate is a bust and will remain so. The credit bubble that the Fed engineered has popped. The Fed stole all of our money and gave it to the big banks. The world economy is a mess. China is even doing a 'stress' test on their banks. First they told the banks to run a scenario of real estate declining by 30%. Then they came back and said go for a 60% reduction. How about this. Europe, China, and the US should run a stress test that allows for real estate to go down like Freddie and Fannie. The whole thing is a clown show. But, we have to keep the casino going. Let's play like the Dow can rise to the sky with a rotting root system.

What can we look to since governments have turned into scam artists? Let's look at the bond market. US Treasury yields have now fallen to lows that were unimaginable just a few years ago. The 10-year Treasury yield ended the week at 2.82%. Given that the currency, the dollar, has lost 16% of its value versus a basket of currencies in the last 10 years, buying the Treasury seems like a losing proposition. Well, it would be if it were bought for investment purposes. But it's not. Like everything today, it is an illusion. Treasuries are like chips in Las Vegas. They are only used to play the game. They have no value nor does the currency. It is all 'assigned' a value by the house. In our case, the Fed. Treasuries are now bought to 1) manipulate interest rates, and 2) to support the credit default swap world. Yes, derivatives are at the heart of everything. Eventually, all yields will be zero because the interest coupon is no longer relevant.

Credit is the new currency and it costs nothing because it is simply a book entry form of money. It doesn't really exist. But it is the currency that governments want to promote. Why? One, it doesn't cost them anything to borrow and two, it is limitless. Consider this. In 2008, the US owed $12 trillion in debt. By 2009, the debt grew to $13 trillion. You know we are talking big numbers when we can round off by hundreds of billions. But even after the increase in debt, the amount of interest the US paid actually dropped. Why? In 2008, the average interest rate on the debt was 3.4%. In 2009 it was 3.1%. Do the math. In 2010, the goal is probably something like 2.5% because by the end of the year, the debt will be around $14 trillion. But so what? The treasury will pay less in interest on the debt because yields are dropping. This is by design and it is planned.

So why would anybody buy the debt? It's derivatives, silly! Sovereign debt is now 'securitized' and sold while derivatives and swaps produce the income as opposed to interest coupons. Now you know why nothing will be done to impair the derivative market. Now you know why interest rates will soon be zero. If you think you are going to generate an income from bonds, you better have a whole lot of money.

This is the transformation of the economy. The casino of stocks now gyrate wildly from day to day and hour to hour and minute to minute. Why? Because there are no longer any fundamental underpinnings to support investing. Institutions now run the show and they are traders, not investors. They react to and impose manipulation. Any guesses as to what will happen Monday morning? No one has a clue when the lever is pulled on the NYSE slot machine Monday morning whether or not we will get 3 oranges or a mix of pictures giving us a loss. Good luck.

DIA last 6 days
Chart courtesy