Thursday, June 26, 2008

Blood In The Streets?

Not quite, but the pain is being felt. While the bears run the risk of seeing a sharp intraday
reversal given the growing oversold condition of the market – the market is very much a news
driven animal these days with bad news actually being viewed as 'bad news”. Who knew!
This represents a key shift in sentiment as participants move from denial to using a more
focused and critical approach to assessing the fundamentals. So it's no wonder that the Dow
Jones Industrial average is now just a measly 29 points away from touching a 20% drop from the October highs, which would be defined as a “bear market”....

Our real worries, however, center around the credit markets. The Goldman short
recommendations on Citi and Merrill were an interesting side show, but largely un-noticed in
the media is the pending implosion of a major mortgage lender and a seizing up of a wide
swath of paper in the mortgage market,... (Find Out How to Get The Rest of Today's Report By Clicking Here!)

Monday, June 23, 2008

Brenanke & Co; Monday Options Scanner; Credit Fears; CDS Troubles

Let's look a bit into the future- specifically over the next two days when Fed policy makers will be meeting. On Wednesday at 2:15 (same Bat-Bernanke time, Same Bat-Bernanke channel) the Fed is expected by economists to announce no change in its benchmark overnight lending rate known as the fed funds rate. We also foresee no change in the Fed's discount rate. A token dissent in favor or a rate increase from either Fisher, or Plosser shouldn't be ruled out.

The Fed's statements will likely echo Bernanke's recent comments about diminishing risks of a sharply slower economy... (Please click here to read further by subscribing for only 80-cents a day. Thanks!)

Sunday, June 22, 2008

The Cross of Death

The loss of over 400 points last week for the Dow on the surface appeared to be yet another temper tantrum on the part of the bulls to more bad news: monoline implosion, ugly economic data, earnings from Goldman that weren't enough to lift the market, etc). Going into Monday's session the market faces a test... a real technical and fundamental test. There are some deep seated issues that bulls must confront. And if things don't shape up soon we're talking about the dreaded cross of death appearing once again - not seen in many years.

What do I mean by the cross of death? (To read more, please subscribe by clicking here. Thanks!)

Thursday, June 19, 2008

More Trouble For Regional Banks

The quarterly expiration of futures on stocks, stock options and index options and futures will be upon us on Friday. The options markets have been telegraphing some interesting signals of late with some very specific guidance 0n where the next shoes may be about to drop in the growing regional banking problems. Also, in looking further at OEX puts and calls, an OEX below the....
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The stock market has been feeling the weight of the world in the last month - since it peaked at its 200 day moving average (illustrated nicely by the chart below.

As we all know, the spectacular rise in crude oil in the last month has severely hampered the Wall Street bulls. How does the American consumer survive $4 and possibly $5/gallon gasoline? How will Americans survive winter heating bills should home heating oil not pullback from record highs, or should natural gas reach post Katrina/Rita 2005 high as it is now so close close to doing now? With the housing ATM no longer spitting out dollars..... (To Read More, Please click here to subscribe).

Friday, June 6, 2008

Some Quick Thoughts

Crude Awakenings
Again, our re-tweaking of crude to a higher upper end range of $145 came just at the right time. Our bullish opinion of natural gas remains right on. But did we envision a $10 up day in crude within a week of our increased opinion of crude? No, we weren't thinking specifically about a $10 up day, but have long written about how this has become an "anything can happen" trading environment. So today was a $10 up day for crude and a limit up day for home heating oil futures. Simply amazing. Trader extraordinaire Dennis Gartman commented earlier in the week on morning television about he was avoiding crude futures due to the wild swings. He is a wise man, indeed!

What next? $100 swings in a day for gold? A dollar crisis? A 1,000 point Dow drop? Will we see a massive reversal again in the energy markets? Probably yes to each of those possibilities, but when it all happens is something that we just don't know. Eventually a lower crude oil price shall materialize as demand suffers globally, but that time is not now. We are monitoring global data daily and will present a future post when the situation hits a breaking point.

The operative trend remains up for energy, down for the dollar, equities; up for metals. But that's 'trend' that we speak of - day to day will be fraught with the risk of financial tornadoes that pop from out of nowhere.

$150 is looking to be much more in the cards for crude. If there isn't a meaningful correction in the past two days of huge gains in the energy complex, coming to gas pump near you, average national price of gas at $4.30/gal or more. Will a $5 bill merely become a coupon for a gallon of gas - let's hope not!

With respect to our continuing bullish perspective on crude, why listen to us when a fellow like Jim Rogers had this to say:
"Jim Rogers, chairman of Rogers Holdings, said the increase in the price of
crude oil has "years to go'' as known sources of petroleum are dwindling. "I
know that unless someone discovers a lot of oil, it can go to $150, $200'' a
barrel, Rogers said in a Bloomberg Television interview. "The facts are the
world is running out of known oil reserves.'
We take no delight in the rising price of energy for it empties the wallets of those of us involved in the Buttonwood Speculator too.

A word or two about Gold
We remain bullish on gold and have been for longer than was healthy (from mid-1990s) and have been buyers of gold and silver since that time. Warren Buffett once stated that "wealth is transferred from the impatient to the patient"? The metals have been a remarkable investment, especially since 2001 and will continue to out perform paper markets.

We won't be surprised to see the precious metal reach the $1200/oz level THIS YEAR with a low end range to at most the $850 area.

Shame to those who think because gold bounced down from the $1000 level that it's a broken investment -- a theme we've heard many times in the mass media of late. One can look the price movement of gold as if it were a stock that went from about $20 in 2001 to just above $100 in 2008 - now in a consolidation phase in the mid $80's. The pundits constantly hype stocks that have pulled back by 20% or more with poor fundamentals as big "bargains". For 2,000 years gold has been a store of real value so we're just puzzled with the bias against gold in an era when the net worth of our nation is about -$60,000,000,000,000 (that's negative $60 Trillion), to say nothing of the state of the Fed's balance sheet, or the state of the trade and current account deficits. While we're puzzled that so many eyes are blind to gold, we know why: Wall Street has little to gain from investors flocking to metals with intrinsic value; Wall Streeters are peddlers of paper (from mundane common stock to OTC derivatives) and need to bash alternatives with real value.

Stock Market
In very predictable fashion, a well trafficked financial web site has the glaring headline: Stock Selloff Offers Chance to Seek Bargains. Yikes, are you going to take the bait? The buy on the dippers just can't help but to try to lure more into what has become a dangerous 'investing' environment. Investing has been a long time honored work. Never mind the wild commodities markets, but is 'investing' possible in a market where the Dow is up a couple of hundred points one day and then down about 400 the next? That sounds like a casino environment to us. With a very noticeable short term trading range on something like a Berkshire Hathaway, things are indeed quite volatile.

Friday was another one of those 90% down days in the stock market where down volume and down number of issues overwhelmed the gainers. 90% down days can be a setup for a rebound, but let's let the chart below remind us of how the stock market behaved preceding lows in January and March. The chart shows periods of significant selling that have spanned through up to three consecutive days. Many make the assumption that sellers exhaust themselves on days where we see a 3% or more down move. We don't wish to quibble too much with that assertion except to say that a large one day only drop is not a foregone conclusion.

What makes today similar to January and March was that it was a revelation day. The revelation this time comes from the thought that by golly there could be something to the weak economy talk. We won't be surprised to see another retest of the Dow 11,800 range in fairly short order.

One sentiment boosting factor early next week may be Lehman. Various newspapers reported that by early next week Lehman will have raised fresh cash from a U.S. pension fund and could announce that along with an early earning release to try to convincel the world all is jim-dandy.

Another booster could be work of a $65 offer for AB from Inbev. For us, there are a number of reasons why we don't want to see that merger happen, but reports coming out of Europe have indicating that bankers are swooping in to try to get a piece of handling such a deal. $65? That's a pretty decent number for BUD shareholders. That's a mid-40s per euro price that Inbev would have to pay.

A further large negative, could be another downgrade of the biggest monoline insurers, MBIA and Ambac. Anything related to the financials, earnings warnings, etc.

Ultimately to the pundits and their questioners we and many others are asking: How many more times will you call a bottom in the stock market and tell us we're in for a renewed period of strength???

Jobless Numbers
For those that have read this blog over the long haul, we've pointed out the numeric alchemy that has gone into the monthly employment report. Today's numbers, blamed by many on the teeny boppers entering the workforce in May, are still a far sight better than reality. If anything, the BLS is starting to catch up ever so slightly with reality by reporting an unemployment rate of 5.5%. Payrolls actually collapsed by over 130,000 last month if you ex out seasonal adjustments. We'll have more on the employment figures in a later post since many are holding on to hope that the numbers today were an "aberration". We'd also add that the sharp rise in labor market participants was not a teeny bopper only event; there noticeable gains in people looking for jobs across all strata of the age scale. A slightly deeper level of thinking might come up with the suggestion that perhaps as the consumer suffers, some who previously had the good life and didn't have to work, are now searching for jobs. Is that a kooky thought, or is it possible a soccer mom or two, or a guy who trying to build a business at home might be looking for work?

ECB vs the FED
Jean Claude Trichet - the EU Central Bank president, or Ben Bernanke's counterpart in Europe, gave Bernanke quite a lesson in what it really means to be concerned about inflation. While the Fed had been making noises about a rate increase later this year to help the dollar and reduce the rate of inflation, ol' Jean Claude said rates in the EU could be going up as early as next month. Many a tv commentator were outwardly offended and incredulous at the notion that the EU would think about such a drastic, dollar hurtful thing by attempting to contain the very bad inflation monkey.

The pundits and many of their questioners don't get it to begin with and don't know their history. They don't understand the cultural aversion continental Europeans have toward inflation. The U.S. punditry was so comically blindsided this week because they forgot that Bernanke is not the only monetary guy in the room. The punditry was blinded because they have relegated to the back of their minds the teachings that they surely must have learned somewhere along the way of the 1920s Weimar Republic hyper-inflation where folks did literally burn currency in the stove to keep warm and did literally need a wheel barrow full of currency to buy a loaf of bread. The Europeans know all too well that the caustic inflation that emerged in the Weimar didn't casually and slowly come about. It came on quickly and with a vengeance. As a side note, today in Zimbabwe it takes a little more than 15-pounds (weight) of near worthless Zimbabwean currency to exchange for a $100 dollar bill. Trichet and the folks he talks to at places like the Bundesbank have not forgotten about the perils of inflation. Like a game of tennis, Bernanke thought he cleverly spoke and sent his ball hurling to Trichet who whipped it right back with double the force and knocked Bernanke right between the eyes.

Buried in the news of the past week, were comments from Japanese minister of finance Nukaga. To paraphrase: he was sympathetic to Bernanke's effort to support the dollar, but went on to note that Bernanke's comments were U.S. centric. Nukaga broadly hinted that Bernanke's comments came as a surprise to him. With the Fed nearly half emptied of its own holdings of Treasurys in about one fiscal quarter thanks to the scheme to exchange sovereign government debt for bank "assets", we just don't know why Bernanke would not effort some sort of coordinated approach toward a "repairing" the dollar strategy. Well, really we do know, there just is no fix for the dollar at the present time. An honest Uncle Sam accounting approach would need to be taken, Congress would have to enact draconian spending cuts, the Fed would need to do Volker Part II with rate hikes, etc. It's just not going to happen.

Tough Times Even For the Truly Wealthy
This is a quite a write up from the NY Times...

NANCY CHEMTOB, a divorce lawyer in Manhattan, has found that her days have
become crammed seeing clients, all worried about how an economic downturn
will affect their marriages.
They seem to have nothing to fret about: their net worths range from $5 million to $1 billion. A blip in the markets shouldn’t send their chateau-size Park Avenue co-ops to foreclosure or exile them to Payless Shoes.
But Ms. Chemtob’s clients are concerned all the same, she said, because their incomes have shrunk, say, to $2 million a year from $8 million, and they know that their 2008 bonus checks are likely to be much less impressive.
One of her clients recently confessed that his net worth had decreased to $8 million from more than $20 million, and he thinks that his wife will leave him. He has hidden their fall in fortune by taking on debt to pay for her extravagant clothes and vacations.
“I literally had to sit there and tell him that he had to tell his wife that she had to stop spending,” she said. “He was actually scared she would leave him because their
financial situation changed so drastically.” Read the rest at this NYT link

Sunday, June 1, 2008

Tweaking the Crude Range

Our April 14th call for an upper range of $130 for WTI light sweet crude is being adjusted upward to $140/bbl for the same reasons we've outlined before: strong world demand and that the days of easy access to sweet crude are in the rear view mirror. As one example, last week it was reported that output from Mexico's Cantarell oil field plummeted to just over 1 mln barrels per day. True, the Mexicans could tap copious deep sea patches in the Gulf, but constitutional barriers bar the deep pocketed foreign partners from getting involved. Internal political dis-unity has prevented a constitutional change from taking place. So they've blown it to the point where there won't be any deep sea production from Mexico for 20 years. James Polk and Sam Houston are laughing in their graves.

The bottom end of our range remains intact. It's hard to imagine in a correction scenario that crude will dip much below $115. One way or another, we're certain that crude will rebound back to the highs of the year this year.