Tuesday, July 31, 2007

 

What a day

The Dow was up, the Dow was down. Just a heck of a lot of volatility. Very fun to watch in between getting my trading set up, cleaning up cat pee off our beds, and buying water proof mattress pads. Right now the S&P futures are down 1100 points which is about an 80 point drop in the Dow tomorrow morning. The Dow closed below support at 13,250 and the S&P is right at important support. A move lower tomorrow with a lower close looks really ugly.

It is time for you casual market watchers to start paying attention. Today was the day that the dip buyers got their first clue that the bear was in control. The stock markets rallied strong until 9 pm. The Dow was up 140 points to just shy of 13,500. (The markets like to stop at round numbers.) But then the bear took over and drove the market down relentlessly for the rest of the day. The dip buyers won't go away just because of today just like it took a long time, and capital, to slaughter the bearish rally sellers.

This is just a taste. I expect the bulls will have a nice rally at some point. Markets don't move in straight lines. Besides, the market has to keep most people optimistic enough to hold their shares even while the market falls. It's almost insidious the way the market keeps hope alive just long enough to keep the majority complacent so that they will feel comfortable leaving their money in the market right before the boom is dropped.

I am looking for support around 13,000, a big, round number, and 12,500, about where the Dow started the year. Enjoy the ride, weeeeee. Which reminds me I have to go check our beds.

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Friday, July 27, 2007

 

Crash Watch


The Dow ended up down 208.10 (1.54%) today. However, the S&P 500 futures continued to fall after the Dow's close at 3 pm Chicagotime. The futures stay open for another 15 minutes. The futures continued to drop another 7 points; equivalent to about 60 Dow points. They went straight down and the only thing stopping them was that time ran out. Monday could be very, very ugly. Let's hope that no one in the gov't says anything stupid like they want to raise taxes or they don't care how far the dollar falls.


Speaking of the S&P, as you can see from the chart this index has fallen much further than the Dow Industrials and this reflects the weakness of breadth which has characterized this last leg of the bull market. (The Dow is down 5.5% from its high and the S&P 500 is down 6.6%.) Predicting the market is not easy. Calling exact turning points is rare but it wasn't difficult to say that this bull was a little long in the tooth.



It is tough to say what will happen on Monday. I think we will open weak but I would not be surprised to see the market find support. The Dow closed right at the bottom of the triangle and the S&P 500 is near the February highs. Or we could go down a thousand. I might be able to pick a good place to buy in real time but I am not going to attempt to pick one on this blog more than 48 hours before the open. I do know that we are in a very serious correction that will last for months. There is really no point in picking resistance levels either because I am quite sure we are not heading up to 13,700 anytime soon. Just enjoy the ride.

What you are probably not aware of is that as bad as the stock market has looked this week the credit markets, with the exception of US treasuries, have it far worse. This is the narrative the the market observers have picked up on but it really is all the same story. Cheap credit is going away and the prices of securities that were bid up by cheap money are going down. Simple as that. To repeat a theme which I have tried to hammer into your heads: asset price inflation is bad. All types of inflation distort prices making it difficult to know value. On the other side of the coin inflation makes it easy to get caught in the euphoria.

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Thursday, July 26, 2007

 

Roundup of housing videos

Here are some videos related to the housing bubbles bursting I thought I would share. Remember prices have not really begun to fall, at least not according to the gov't stats.

A glut of homes in Sacramento. Unattended homes are not good for a neighborhood.



The Flip This House scam. (Bill O mentioned this to me. I had seen shows with this guy on them and the sales always seemed too good to be true.)



Real Estate cheerleaders. It is just funny to watch the willful disregard for risk which a bubble generates.



Homeowners learn the hard way that something is only worth what others will pay for it. A lot of people will be learning this lesson in the near future.



There are dozens of similar videos on YouTube all illustrating the slow deflation of the housing bubble. Without a housing market ticker to watch I guess this is as close as we will get to seeing the prices fall in real time. Enjoy the show. Homes are places you live, not piggy banks.

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Truth Be Told

Nothing can erase the memories and the scars for the falsely accused in the Duke NONrape case but at the very least the three victims get to hear this from the D.A. who prosecuted them, Mike Nifong:

"I agree with the attorney general's statement that there is no credible evidence that Mr. Seligmann, Mr. Finnerty or Mr. Evans committed any of the crimes for which they were indicted—or any other crimes against (the accuser)—during the party,"

 

Crash Alert

As I mentioned on Tuesday, a crash alert was close. It seems like when the market moves through important support or resistance levels it moves with a purpose and that is what is happening today. Mr. Market is telling us that the 2003-2007 bull is over. Don't doubt it.

Crashes are very rare and I am not saying this is going to happen this week but I not saying it isn't. What I am saying is that over the next few months we better be very cognizant of the fact that the market looks weak. I am suggesting you take a bearish posture and to start looking for resistance levels which are higher prices which would cause us to believe the bull has resumed or that a totally new bull has begun. That is what I will work on next. That entails looking at the structure of the decline and that will depend on the baby. ;-)

P.S. We are seeing a significant flight to quality into U.S. treasuries and the dollar has firmed up a little.

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Wednesday, July 25, 2007

 

Jury finds couple responsible for fatal teen drinking party

I once read about a British plan to increase safety on their rail system by putting up more sophisticated barriers at train crossings. To pay for the barriers they raised the price of tickets. Some economist(s) figured out that the higher price would cause more people to drive and that, in the final analysis, the plan would cause more people to die because driving is more dangerous than taking a train. The British gov't paid millions to kill people.

The absurdity of that outcome is the same way I felt when I read about the Hutsells of Deerfield. A couple who allowed their adult, but under the drinking aged children to drink in the basement of their home with some friends.

Lake County's most notorious party hosts have been found guilty of violating the state Liquor Control Act, nine months after two teenage boys died in a car accident at the end of their driveway during a drinking party in their home.

Jeffrey Hutsell, 53, and Sara Hutsell, 52, were found guilty Saturday of three of the four charges related to the drinking party their son held in the basement of their Deerfield home last Oct. 13.

So they want to prevent young adults from drinking because they want to keep them safe. But when the law just drives the drinking underground, literally in this case, you force them into their cars and that is decidedly not safe. My parents always had a pretty good idea where I was when I was a young man. I was in John O's basement. It was a safe, if hot, place to drink beer. My parents allowed me to drink a glass of wine with dinner when I was 18 and I avoided a lot of the problems that I saw in college when many young adults start drinking but have no idea of their tolerance levels. Their first experience drinking alcohol is driving someplace far from prying eyes and drinking to excess then driving some more.

The 21 year old drinking age limit is well intentioned but faulty way to keep young adults safe. Safe use of alcohol comes from learning about its effects from adults who can supervise youth and prevent them from doing something stupid. This conviction will push parents away from their role as teacher about alcohol into the role of law enforcement. The Hutsells claim no knowledge of the alcohol at the party. I wish they had known or, at least, did not need to pretend not to because, as this conviction makes abundantly clear, parents who try protect their kids by letting them drink at home risk their freedom to a prohibitionist nanny state run amock. The message to parents is stick your heads in the sand further because if we find out you knew we will lock you up.

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Tuesday, July 24, 2007

 

Subprime contagion spreads to prime borrowers

First off, the 226 point drop in the Dow today is cause for concern but it is a little to early to push the sell button. The intraday low was 13,701.56, just above the high made on July 17th and the beginning of our triangle. Right now the S&P and Nasdaq futures are a little higher than their close and the Asian markets are down but not cratering. So a crash alert might be coming as early as tomorrow but until we get through 13,700 I am going to stay cautiously unpanicked.

The big news which was buried in an article on Countrywide Financials poor earnings was the spread of the housing market woes to the more credit worthy borrowers. For the record, Angelo Mozilo is the Chief Executive of Countrywide.

First nugget.

Mozilo said the number of unsold homes must fall before the market can begin to recover. He doesn't expect the market will turn around until 2009 at the earliest.

Did you get that future home buyers? 2009! No reason to buy in Chicago when rents are so low relative to mortgage cost.

Like other lenders, Countrywide has also tightened its credit guidelines and stopped selling some types of adjustable rate loans. Management said the company plans to undertake additional lending restrictions.

This is how a credit crunch gets started. It is as much about psychology as it is about economics. Lenders who have tightened their borrowing to the worst credit risks will effect the next higher level of credits and so on and so forth. The thing is no one wants to jump in front of this bus without a compelling reason such as prices getting ridiculously cheap. We are a long way from there.

The company said the delinquencies were not due to borrowers struggling with mortgage interest rate resets, as many had expected.

Instead, the delinquencies have been largely due to people losing their jobs or similar factors, the company said. Those homeowners have been unable to refinance because the value on their home has fallen and the credit crunch has cut off other borrowing options.

"I do think it's important to observe what happens going forward," Mozilo said. "We are experiencing home price depreciation almost like never before, with the exception of the Great Depression."


This quote speaks for itself but you should really consider the last sentence because those are the stakes we are playing with. A housing bubble which collapses and affects consumer spending can snowball into deflation. It is just a matter of a large enough crowd of people panicking and closing their wallets and our consumer based economy will grind to a halt. So when a seemingly unstoppable juggernaut of a stock market breaks off its highs then you better pay attention. This might not be the beginning of the third leg of the bear that began in 2000 but you should always consider that possibility given the flashing warning signals coming from the technical side and from the economy.

Update: A special report on the subprime market from Bloomberg TV. Subprime Shockwaves. Do yourself a favor and watch it.

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Patton speaks!!!

Via Hot Air. Someone does a fantastic imitation of George S. Patton.


Monday, July 23, 2007

 

Global Warming Psychology

This post is triggered by a program on the History channel about the little ice age. To the point, the narrator brings up the possibility of an ice age triggered by global warming. Then the show veers into the geopolitical fallout of a 9 degree fall in temperature. The biggest laugh I have gotten is a description of China's Navy challenging the US Navy in the Persian Gulf. Puh-leeease.

This program got me thinking about the mentality that accepts global warming as a given and I have realized one thing. We worry about global warming because it is not something the average person can easily imagine the human species overcoming. If it was global cooling being pushed by the left as the catastrophy du jour then it is not so hard to imagine how humanity would survive. Why? Because we have an almost limitless ability to heat the planet via nuclear fission. This lead me to another thought. If you want to get peoples attention to your cause you better come up with a something to fear that is truly frightening. So as humanity progresses and our knowledge increases our fears become more complex. And the fearmongerers have to think that much harder.

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Thursday, July 19, 2007

 

Thursday funnies

In 2015 I will be normal. Matt, John and Diego won't be. Bill O is on the bubble. Keep eating that good Italian cooking Bill and join the normal. 80 % of black women over forty can't be wrong.

Yes, viscious killers are good fathers. This link has nothing to do with Craig Stebic.

Monday, July 16, 2007

 

EWI sees it the same way


I thought I would share this with you to show you that Elliott Wave International sees the wave count, at least in the short term, the same as I did when I said this rally which began on March 14th was started by two waves 1 and 2. They seem confident that the wave four triangle was a correction within this wave structure. I still not but it would make predicting what's next easier.

So the big question is what now? So far this 500 point rally which has taken less than a week is still looking good. Support is 13,700: the top of the triangle. If we trade below that I will have to consider a major correction is underway. If EWI is right then wave 5 should be ending soon and we should at least be correcting the rally from March 14th which is 2,079 points to date.

But let's not get ahead of ourselves. Just remember, I am thinking like an investor. If I was trading I would try and get short much sooner with a quick stop. Investors want to be very sure that the market is making a large change in trend before they act because it is easier to get whipped around and lose money from short moves of no significance if you try and pick tops and bottoms before they are clearer established. That being said there has been no reason to be short right now.

Answering Higman's question:

Kev, Tony's wave count of the S&P 500 has a the index as an impulse wave, opposite of a correction, since the end of 2003. Nothing wrong with that. Elliott Wave International thinks that the rally from 2003 is part of bear market. Caldero's view holds more water in my opinion. In many cases involving Elliott waves, especially long term counts, there are many valid possibilities. One thing to note, both Caldero and EWI don't see much more left before the pattern that began in 2003 ends. When that happens a correction of this rally is the least amount of a bear we should see. A correction of almost 7,000 points to date.

So the technical picture isn't crystal clear but we are closer to the end of this rally than the beginning. After the correction begins we can start to judge how far it will go.

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Baby news: Vaccinations

We went to see our Russian pediatrician, Tanya Kagan, for William's two month visit and his first set of vaccinations. Ouch! He got two shots, one in each thigh, and a liquid which he didn't seem to like very much. True to his character William cried while getting the shots but quickly calmed down to his usual mellow self. Mom didn't take it as well and had to leave the room when the shots were administered.

The doctor related a story of a man whose blood pressure shot up because of his daughter's screaming during vaccinations. The doctor thought he might have a stroke. William weighed in at 12 lbs., 8 oz. gaining 2 and a half pounds in a month which is approximately 1.3 oz./day. He is 23 inches long growing 1 and 3/4 inches.

Update: My wife and I got the scare of our lives when the baby started screaming around 7 pm. She tried feeding him but he would have none of it and then she gave him to me to swing which usually calms him down. Not this time. Then I noticed the area around the shots had swollen. I called the doctor and talked to her nurse who suggested I check his temperature while she paged the doctor. His temp was 100.3. The doctor said this is a normal reaction and to give him infant (liquid) Tylenol which I ran to the local CVS and bought. By the time I got back his swelling had already gone down and he had calmed somewhat. We gave him the medicine and he went to sleep for most of the evening. We had about 30 minutes of fear.

Tonight, after he awoke, he was his usual happy self. Gurgling and cooing. He seems to like the grape flavored Tylenol. He is still running a slight fever but we are a good deal more calm.

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Thursday, July 12, 2007

 

Big Picture


But first the little picture. I must admit I am a little confused about how to label this chart. It is clear that we have a triangle pattern and since I am writing this on July 12th and the Dow has broken out on the upside the correction is over. The problem is is this correction a part of the smaller waves I have labeled on this chart or is it a part of a larger correction. The size relative to wave 2 is just too large. A lot of this confusion is related to the larger count which I will take up in the next chart. In the interest of honesty I was wrong to have labeled this wave 4 so prematurely and finished so quickly. My goal is to predict larger trends; that is, to keep long as long as the main trend shows that. I am trying to keep an investors mentality.

Which leads us to the very confusing big picture. At least confusing if you are looking at the Dow Industrials. There is a clear bull trend starting in early 2003 with a correction that was difficult to see in real time which ended in October '05 or July '06. After that we have have clearly defined up moves and corrections to the bull market. I am not going to go into explaining what has happened before Oct. '05, you are not interested and I am too lazy. Besides what is interesting is that the wave patterns since then show a wave count which should be producing a significant top. The cheery on top of this sundae is the triangle which just ended. Triangles are patterns you see towards the end of larger moves. Add that to other problems with the market and there is a case to consider the next pullback to be larger than anything we have see since 2003. For the record, after a triangle the market moves at least the length of largest width (413 points) from its end which was July 11th at 13,475. So the Dow should be up to 13,888. We are less than a hundred points from there now. After that if the market breaks through the bottom of the triangle (13,250) it is look out below.


Luckily, the Nasdaq hasn't been that confusing. This bear market rally has maintained a corrective pattern and has been showing slowing upward momentum for a couple of years.







Even more pretty is the Dow Utilities. It is not hard to see this bull market or to give a solid prediction of where it will end- a decisive break of that lower trend line. So the bull is intact but showing signs of stumbling. Next time I have the time to post some charts I will show you the Japanese Nikkei and an update of the post-triangle Dow.

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Tuesday, July 10, 2007

 

Kick 'em when their up, kick 'em when their down












If you saw the CBS report on this then you would be ready to lynch Amy Jacobson. A reporter going to a pool party given by someone she has been covering? She was there with her kids so I doubt any funny business was going on. Then Eric Zorn brought this up on the Chicago Trib blog.

As long as the social event wasn't so lavish that merely attending it could be misconstrued as a gift from the source or an attempt to curry favor, accepting this invitation looks like enterprising journalism to me. Socializing with sources is an excellent way to build rapport that can lead to revealing conversations. It's why we interview people over lunch or coffee or, even, sometimes, drinks.


So socializing with a source is not necessarily a bad thing. I can see that and I am not willing to assume the worst. I just think it is funny that CBS news is so fired up about this which begs the question: If a CBS news reporter had been caught socializing with a source would they immediately throw her under the bus. I imagine that reporters at CBS will be checking with their bosses before getting a beer with a potential source and for NBC news cameras.

Sunday, July 08, 2007

 

Quote of the day

"This is what happens when you let hippies organise a big event."

Runners up:

Squads of pamphleteers handed out tips - on recycled paper - about tackling climate change. The stadium's hoardings were covered with the event's "seven pledges" for improving our carbon footprint.

Kevin Wall, the founder of Live Earth, told London's Sunday Telegraph: "Madonna is here today, which shows her commitment. Today we're not focusing on what she or any of the artists may have done in their past; it is about the future."

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Thursday, July 05, 2007

 

Chicago Home Inventories

One of my favorite real estate sites is Housingtracker.net which keeps track of home inventories and a number of other useful statistics. In Chicago, the number of homes for sale is over 40,000 which is about 80% more than during the heady days of the bubble back in 2005. Prices remain stubbornly high, however.

Housingtracker has added a new category, REO which stand for real estate owned- as in owned by the bank. The bank owns them because of mortgage default. Presumably these homes will be sold as quickly as possible with the only consideration being the bank wants to relieve itself of the burden and recoup as much of the failed loan as possible.

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Tuesday, July 03, 2007

 

Market update

Stocks. If you are looking for a bear market to start you will have to wait until the end of July at the earliest. Right now all short term possibilities point higher. Long term? Not so much. Way too early to be anything but bullish so look for the rally to take the stocks higher soon. Another possibility is a triangle in the Dow. That would be very exciting. Very exciting in a geeky sort of way.

Bonds. Yields will head higher (prices lower) soon, I just don't know when it's going to happen. There are a lot of good reasons to believe that a huge game of chicken is going on in bondworld with everyone wanting to unwind their horrible sub-prime portfolio. The problem is that there are no buyers and so they would rather wait and see if the market will firm up, it won't, before someone triggers the run for the exits. For a example of what I am talking about, recently Merrill Lynch seized some bad assets from Bear Stearns to sell. It caused enough problems that Wall Street is worried about the above mentioned panic triggering sell off. I shouldn't say that a panic is guaranteed. Afterall, the Fed has been known to intervene and prevent 'market events' from getting out of hand.

Dollar. It is falling but hasn't gathered much attention, yet. If bonds start down with a falling dollar then you have that nightmare scenario.

P.S. I forgot that we just had a Hindenburg Omen which is a necessary but not sufficient condition for a crash within the next four months. This summer is going to be fun, in a geeky sort of way.

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Fred Thompson will be our next president

It is pretty clear to me that Fred is on his way to the Republican nomination. The reasons are clear.

- He is a conservative without too much baggage. In fact, I don't think anyone has tagged him with anything that would cause a conservative primary voter problems. So far four criticisms have been rendered: Thompson has flip-flopped on abortion, he voted for McCain-Feingold, he only voted for one of two impeachment counts, and he worked as a lobbyist. Let me take these in order.

1) Thompson's campaign turned in a questionnaire saying that he would not criminalize abortion. As someone who is pro-life I would have to say I am against criminalizing abortion and I would not support a national right to life constitutional amendment. This is, in part, a federalism consideration and for a lot of people a dancing on the head of a pin position. The key being we are all for reversing Roe v. Wade and for turning the issue over to the states. We are all for much stricter regulation of abortion than is current policy. But we differ on the laws to prevent abortion. I would say this criticism is pretty weak especially considering Giuliani and Romney's overtly pro-choice positions.

2) He admitted his support for McVain-Feingold was a mistake. I give him points for candor. Again, every other contender has changed positions on other issues some with much more tortured explanations.

3) Umm, so what.

4) Umm, so what. Who did he lobby for that would cause conservatives any consternation?

There are people who think Thompson is a weak flash in the pan candidate.

A very experienced businessman once told me, “Managers don’t always hire the most qualified person; they hire the candidate that they are most comfortable with.” I’ve seen that happen over and over again. People hire people like themselves –– job candidates with whom they are comfortable. I think the same principle applies in the voting booth. People vote for the candidate they “like” and Fred Thompson is very likeable. People vote for the candidate that they feel they can trust, and Fred Thompson seems trustworthy. Voters go for the person who makes them feel comfortable, and Fred Thompson has the gift of making people feel like he is one of them. At the same time, he combines natural authority and a certain down-home dignity; no wonder his name comes to mind when producers are looking for someone to play an authoritative official for a movie or television program.


I don't know if this is a criticism or a compliment. Yes, he is popular with conservatives but that is because he is the most conservative candidate. Thompson is also the very well liked outside of the movement because of his friendly manner. What I think this means is that conservatives have a candidate who represents us and who has the personality to attract independents who lean conservative on some issues due to the likability factor. IOW, a winner.

Which leaves the general election. Hillary will win the nomination. I have no doubt about this. But she is not going to win the general election. She has way too high negatives and there is no way she can overcome them.

I am going to read that list of names again. This time, I want you to assume that person is the 2008 presidential nominee of their political party. Please tell me if, today, you would or would not consider voting for them as the next President of the United States.

"Would" means that you would at least consider voting for that candidate depending upon circumstances, while "Would not" means that you would not vote for them under any circumstances.

The results were as follows:

Would/Would Not Giuliani 64/36 (+28) Thompson 62/38 (+24) Bloomberg 61/39 (+22) Obama 60/40 (+20) Edwards 59/41 (+18) McCain 58/42 (+16) Biden 57/43 (+14) Richardson 57/43 (+14) Huckabee 56/44 (+12) Romney 54/46 (+8) Clinton 48/52 (-4)

Again, Hillary finishes last - this time by a mile.


There are two ways to handle this. Make yourself look better and make your opponent look worse. I just don't see she could outfox a sophisticated user of our modern media to move her negatives lower or Fred's negatives higher. Fred would have to be as passive as the Bush campaign of '92 and I don't see that happening.

Let me know what you think. And, of course, this is all subject to any really awful revelations about Fred.

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