Where We are Heading into 2009

1/3/09

The following is written by Karl Denninger.

Where We Are, Where We're Heading (2009)

Let's score the 2008 edition predictions first:

• US will enter a recession: Confirmed by NBER. Check.
• Unemployment will rise north of 5%. Check (bigtime)
• Housing will not turn in 2008. Major check.
• The story in 2008 will be defaults on prime mortgages. Check.
• Consumer lending practice stupidity exposed. Check.
• Recreational sector (boats, etc) smashed. Check.
• Government will meddle. Biggest check of all!
• Buffett will win on munis. Miss - a clean miss.
• Equity prices will at least touch 1220, target of 1070, no surprise on a three-digit handle for the SPX. Major check.
• Return of capital is the dominant theme. Check; 0% IRX anyone?
• No "hyperinflation". Check.
• Debt to be paid down and/or defaulted. Half a check. The hiding continues, and so far, there's no indication that the end of that rope has been reached.
• CRE will collapse. GGP anyone? Check.
• Business CapEx will go to hell. Check.
• Dollar will strengthen. Check.
• Market callers coming to the public "hat in hand". Nope; clean miss. Where's Cramer committing Seppuku on national TV? Oh well; hubris knows no boundaries.

16 predictions, two clean misses and one half-miss, the rest either panned out or were proved tremendously conservative.

That's not bad. Anyone else got a public scorecard? Cramer? Kudlow? How about Dickey Bove? "Generational buy eh? Hmmm....

Let's recap where we are today:

• Debt has risen at a faster rate than GDP for the last seven years. This has led to a falsely-stated increase in GDP, in that when debt rises faster than GDP (on a percentage of GDP basis) what you're doing is financing expansion through debt that is not being paid down through production. Due to the nature of interest, that being the compound nature of it, this constitutes a pseudo-Ponzi Scheme that must fail. It now is failing, yet The Media continues to report falsehoods on exactly what is going on with households (and for that matter, businesses as well.)
• The Federal Reserve has continued to pump "liquidity" into the economy, which is their job, but they have also continued to cover up fraud and blatant thievery, which is antithetical to their role as the primary regulator of the banking system. This is what Japan did, but they had savings to cushion the blow of their idiocy. We do not - we only have debt. Note that it did not work in Japan in that they have had below-trend growth for more than 10 years and now are facing a second, disastrous leg downward. Why anyone thinks it will work here with a higher debt-to-GDP ratio defies logic - but this is the altar being prayed at.
• As The Federal Reserve and Treasury actions have proved inadequate they have continued to do the same thing but with ever-larger amounts of money that doesn't exist, committing to borrow ever-larger sums. This simply accelerates the first problem.
• Neither Treasury or The Fed has a damn clue as to what they're doing. The SEC's Chris Cox and various members of Congress have confirmed this repeatedly, stating clearly that both Bernanke and Paulson have come to them with demands for immediate action backed by outrageous claims of immediate collapse of the entire financial system, martial law or both if they do not acquiesce to their demands, even though less than a month prior (and for the previous year!) these same people were claiming that our economic issues were contained. The only possible explanation for this behavior is that these two men were and are incompetent, insane, panicked and unable to think clearly, concerned that their complicity in this mess is about to be exposed (and it will end very badly for them) or all of the above.
• Many of the actions of both Treasury and The Fed are of questionable legality - at best. The worst abuses include claims of "transparency" on the TARP that have simply not been met and The Fed creating over one trillion in new debt against the taxpayer without an authorizing bill in The House - a flatly unconstitutional act that in a true Constitutional Republic would have led to the immediate de-authorization of The Federal Reserve as the nation's monetary authority. More recently Treasury has actually been kiting checks on the TARP (they have committed $10 billion more than authorized thus far); that's a criminal offense if you do it with your checking account.
• All of the above have taken what was a 10% correction in GDP that was necessary in 2000 (and which was primarily centered in businesses) and moved it to a nearly-30% correction in GDP that is now necessary. If we continue down this path and actually spend all the so-called "committed" funds in 2009 as would be expected, the net contraction in GDP necessary to bring the system back into balance could reach 50%. This level of contraction would be catastrophic and could easily threaten the political viability of our government, not to mention 30% of American jobs and incomes.
• President Obama has "threatened" to spend north of $1 trillion in "stimulus", but in fact the nation doesn't have that $1 trillion. You cannot go further into debt to avoid the consequence that arises from excessive debt in the first place! If President Obama does not realize this fact and change course before he (and Congress) spend this money the odds of that 50% contraction go up precipitously; the $1 trillion expenditure alone will "back load" yet another 5% onto the GDP contraction that must come. This is an act of pure lunacy and yet it appears to be precisely what our government intends to do.
• The cockroaches have scurried as their cover is withdrawn (Buffett's "swimming naked" analogy) and this has continued apace all year, with the latest being Madoff. We've developed a quite-impressive list of ignored warnings going back 20 years; subprime, banking "regulation", securities dealers running ponzi schemes and Treasury Secretaries lobbying hard (before becoming Treasury Secretary) for leverage limit removals that prove to be the trigger for the crisis.
• Madoff is not what it appears to be. At best Madoff is a 20+ year scam that occurred with not only the intentional blindness of our government but its explicit assistance and cooperation. It is simply not possible for one man to run a Ponzi Scheme of this size, sending out statements every month to hundreds if not thousands of clients and employing a group of people, moving this amount of money around, and have the entire thing be a scam without the cooperation of literally hundreds of accomplices including accomplices inside regulatory agencies and the government itself, along with regulated entities including the banks that lost money. You cannot place that sort of capital as a bank or other regulated entity on nothing more than "trust" - no matter who its being placed with. There is much, much more to this scandal and you can bet the people involved will do their level-best damndest to keep the truth from coming out. Never mind the fact that explicit warnings were transmitted to the SEC.
• Job loss has risen and shows no sign of topping. Don't expect it to any time soon. Be aware that unemployment peaks after recovery is already well underway. This makes unemployment a good indicator of misery but a horrible one for where we are in the economic cycle; as such looking for this to "bottom" is a terrible idea if you're an investor.
• The number of "bottom callers" have increased dramatically. Don't believe it. The S&P 500's forward earnings for next year is still estimated around $70 (!); that's lunacy. The banking model for earnings is permanently broken and they will return (after washing out) to the "Grandfather's banking" sort of earnings - slow and steady with growth limited to that of GDP. IMHO the S&P 500 will be lucky to post $50 in earnings for 2009. Bear markets frequently bottom with a single digit P/E multiple, which puts the SPX at or under 500 before this is over. We are still 40% overvalued by this metric!
• The 20/50W (and 13/34 EMA) timing signals are not only on a SELL from early 2008, they are still getting more divergent toward the sell side. I will simply observe that those who try to be heros in the market often wind up with zeros in their account. Until these timing signals flip the primary trend in the market is down. This doesn't mean you can't make plenty of money trading bear-market rallies, but it does mean that if you're buying here "for the long haul" you are attempting to front-run a trend change that would be years away and another 50% - or more - below us in terms of price. This market is not a falling knife - it is a falling chainsaw.

In short, essentially nothing positive has been done and a lot of damage has been inflicted on everyone in America out of hubris, fraud and avarice.

We now are "discovering" what I have written about for more than a year first-hand - the so-called "growth" over the last seven years has all been a fraud, instead being nothing more than additional debt. Ponzi-finance has taken over every area of our economy, from government to private business, and has run to the natural limit of "the greater sucker", now leaving all of the people beguiled and bedeviled exposed as the naked-swimmers that they are.

There has been zero push for accountability and truth throughout the system. Not among our so-called "leaders", not among the bankers, not among the political or economic elite. All are focused on trying to keep the impossible going.

The truth of all of this is trivially easy for you to demonstrate to yourself. Just ask the following questions:

• If you have $100,000 and borrow another $100,000, have you doubled your net worth, or have you actually harmed your economic position, as you will not only have to pay back the $100,000 you borrowed but also interest on that money?
• If you do not own a home, do you want that house to be priced high or low?
• If you want to buy a car, do you want the price on the car to be $20,000 or $40,000?
• If you're buying gasoline do you want it to cost $2 or $5 a gallon?
• Are you better off with zero credit card debt, $2,000 in credit card debt or $20,000 in credit card debt?
• How did we actually nominate a man for President of the United States (he lost by the way) who declared publicly that he had one half million dollars in credit card debt and couldn't tell a reporter how many houses he owned?
• How did we have a bill, the EESA/TARP that obligated citizens to pay $700 billion in taxes that we do not have (that is, to put us all in debt by another $700 billion), that was opposed from 100:1 to 300:1 in calls, faxes and letters to Congress, was passed over those objections with an election less than a month away, and we the people then returned 90% of those who voted "Yes" and stood for re-election to office?

There will be no improvement in the economic condition of our nation until each and every one of us ask ourselves these questions, honestly contemplate our answers, and then put our outrage (or desire) for those economic conditions into firm, no-nonsense peaceful action to force our elected and unelected government officials to act as we direct.

Please realize that if just one third of one percent of the population of America was to get upset enough with the blatant fraud, theft, Racketeering and Ponzi Finance that has literally decimated the economic structure of our nation, American households and our future (not to mention our children) and were to show up in Washington DC in peaceful protest, occupying The Mall, Constitution Avenue and surrounding areas and refused to leave until every one of these charlatans resigned in disgrace or committed seppuku on national TV the protesters would number one million.

Such a mass of people would be literally impossible to refuse to answer to. That we have not yet seen it simply means that the population of this nation either doesn't care that it is being systematically looted, is too full of Prozac to pay attention to the racketeering and theft or is simply not paying attention. (My vote, by the way, goes to the latter - at least for now.)

Further, if we the people were to organize as few as one hundred individuals in each major city we could effectively slow commerce to the point that it would break down entirely, all through peaceful means.

How? Envision your local freeway; you, and three of your friends (four lanes each way, four drivers) line up parallel and then slow to a crawl (if you're in "rush hour" traffic) or to 20mph if not. Traffic would instantaneously snarl behind you and remain that way for hours. Your risk? A traffic ticket. A few hundred dedicated people in each major city could very effectively demand that real reform take place and that all the fraudsters go to jail, refusing to stop their daily protest until it was done. Again - a tiny fraction of one percent of the population of this nation could, through entirely-peaceful actions in protest, force a stop to this nonsense.

It hasn't happened. Why not? Are there not a few hundred unemployed as a consequence of this fraud in every major city across America? Are we really all so neutered as Americans that we will refuse to peacefully protest in an effective manner?

You want to know why the fraudsters - including everyone screaming to be bailed out of their ill-conceived schemes - are winning?

It is because Americans refuse to get off their ass, even though very effective and fully-peaceful means of demonstrating and demanding change - Constitutionally Protected means of expression that would have vast and immediate effect - exist.

Simply put, we are consenting as individuals and a nation to the economic rape being served upon us by the scams and schemes of the few.

Now let's look at first principles when it comes to economics. All of these are not desires, wishes or dreams - they are facts:

• Debt when used to "pull forward" future production into current spending can be useful (for example, the farmer who borrows to buy seed or the producer of goods who borrows to buy raw materials that then are made into finished goods.) Debt taken to finance consumption has zero positive long-term impact on the economy. When debt is taken to pay existing debt it has the potential to result in catastrophic economic collapse. The latter is what we have been doing for the last 30 years.
• You cannot solve an addiction problem with more of whatever the addict is hooked on, whether it be booze, crack, meth - or debt.
• Its not credit, its debt. Stop listening to the BS handed out on CNBC and in the paper. When someone you talk to says "credit" stop them right there and correct them.
• Our monetary system is debt based. The more "liquidity" they pump (and even the more money they "print") the more debt is taken on. Again - have you ever seen an addict cured by giving them more of their favored drug? Is there any possibility that this "medicine" can actually work? Simply put: NO.
• Debt is inherently deflationary. The inflationary impact of additional credit creation is temporary; in the longer run debt always has a deflationary impact. This is obvious and inescapable if you use your head; since debt must be repaid with interest, it therefore must deflate (decrease) the monetary base since interest is a non-productive "charge" against income and (thus) earnings. This, by the way, is the fatal flaw in Bernanke's Doctoral Thesis; by refusing to recognize that all modern monetary systems (including ours) are debt-based he also fails to recognize that there are limits to being able to "print" your way out of a deflation since what you are printing is in fact debt and eventually you reach an "inflection point" where the spiral tightens - that is, the more "printing" you do the worse the problem gets!
• If debt as a percentage of GDP is increasing then you are paying off debt with more debt and falsely stating GDP. This is obvious to any objective observer; a debt taken to buy a car shows up in "GDP" as the car must be produced but in fact the actual GDP impact of that transaction (over time) is negative as interest must be paid on the debt and the principal must be paid down. In the converse if debt-to-GDP is shrinking then GDP is understated. The true GDP number is only presented when the debt-to-GDP percentage is stable. This is true for all debt-based monetary systems and cannot be changed by waving around magic Federal Reserve wands.
• We have been falsely claiming "growth" that did not actually occur for more than 20 years; this is why your wages have been stagnant while everything you need to buy has gone up in price and for most Americans their standard of living has contracted.

The above will not change until the Debt-To-GDP ratio begins to drop.

That cannot happen until The Government stops supporting the bankrupt with more and more bailouts and "stimulus" and instead forces those who can pay down their debt to do so along with forcing those who can't (the broke) into bankruptcy court where their debt is discharged.

The economic pain inherent in such a process cannot be avoided, it can only be delayed and with each delay the total damage that must be absorbed to restore balance to the economy grows.

We keep hearing so-called "pundits" talk about how "we must spend like mad or we will have a Depression." Folks, that die was cast in 2001 when the decision to avoid a recession by pulling forward demand through excessive debt. It is no longer possible to avoid the outcome, we can only choose when the outcome occurs, and the longer we wait to do it the worse it will be as a direct consequence of the fact that in all modern monetary systems money issued by the government is in fact debt and the problem is that we have too much debt already!

FDR has been widely hailed as a hero. He was no such thing. FDR's policies in fact caused a second wave of depression after the original downdraft that originated in 1929. This is not commonly reported but it is in fact true - there was a second, nearly 20% contraction in GDP that occurred as a direct consequence of FDR's policies. Repeating what FDR did to any material degree will not help, and any apparent "relief" will be false.

In short, as pointed out in The Ticker of the 20th - We are all Madoff in one form or another.

Ok, so with that cheery backdrop, here you go with my predictions for 2009.... and I will prefix this by saying this is a list I hope proves to be entirely incorrect. Perhaps there really is a Unicorn that craps skittles even though I've yet to find it - this is one round of predictions I'm willing to take a zero score on come December 09.

• The economy will not recover in 2009. Job loss will continue through the year and unemployment will reach 8% in the "headline" statistic by the end of the year. U-6 (broad unemployment, or the closest to "real" unemployment without government "cooking") will top 15%. All the "talking heads" are predicting a turnaround in the second half of 2009. They will be wrong. Look at their records for 2008 - all of them were predicting closes at or above 1500 for the S&P 500. Why does CNBC continue to put people on the air who, if you listened to them, cost you 40% or more of your money?
• Deflation, not inflation, will become evident well beyond housing. Other capital goods beyond housing will see real price declines for the first time since the 1930s. Debt is inherently deflationary; the "hyperinflationists" will once again be shown to be wrong (how many years running will it be now?)
• Housing prices will continue to decline. I believe we're about halfway done with the price correction. Those who think we will turn this in 2009 are wrong - unless we get an all-on collapse in prices in early 2009, which I do not believe will occur. I've heard several claims we will have positive year-over-year home price changes in 2009. I'll take the other side of that bet.
• The Fed's attempt to "pump liquidity" will be shown to be an abject failure. We will see either a Treasury Market selloff or worse, severe instability in the dollar at some point in 2009.
• GDP will post a 12-month negative number and there is a decent shot that we will actually see an official depression print before the end of 2009, defined as a 10% decline peak-to-trough.
• The Stock Market has not bottomed although you may think it has for a few months. The annual range will be quite extreme; I would not be surprised at all to see 1,000 touched on the SPX in the first part of the year. I believe the SPX will at least touch 500 in the next 12-24 months and the current bottom will not hold. It is possible that we could see a crash to SPX 300 and DOW 3,000 some time this year, probably after the spring (when the "Obama Halo" wears off - if it isn't blown off by economic events first.) Yes, this means I am predicting a fifty percent swing in the SPX in 2009. Lots of money to be made as a trader if you're quick and good, but an absolute minefield if you're a long-term investor.
• Precious metals will not be a safe haven. The callers for $1600 and above on gold will be wrong, unless there is a major military conflict. I do not rate that probability as particularly high, but it is an event (along with a major terrorism incident - nuclear or biochemical - that would cause a rocket shot in Gold prices), so I am hedging that call. The risk of this sort of "response" to the economic crisis is, however, real, and will rise significantly going into 2010 and beyond. We'll revisit this one (a major war) next year.
• The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are. Last year pundits were all calling for the dollar to collapse to 40 - it didn't happen. Now they're calling the dollar's strength a "Bear market rally." Nonsense; the simple truth is that while we're in bad shape the rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example.
• The pound or euro - and perhaps both - will likely be where the FX dislocation initiates if it occurs. I see the potential for the pound and euro to both reach par with the dollar, although I'm not going to go that far out on the tree limb and predict it - yet. Needless to say that would rocket the Dollar Index but it won't be our strength that does it - it will be their weakness.
• The US Consumer will go from a negative savings rate to a seriously-positive one. I am predicting 4% in 2009 but it could go as high as 10%. The math on this is simple - the "consumerist legion of more" has run its course and all that's left is debt. It hurts and bad; expecting the American Consumer to cut off his other arm is just plain dumb. By the way this is a good thing in the longer term for America once the excess debt is forced out and defaulted through the system.
• Commercial Real Estate will effectively collapse and most commercial Real Estate REITs will be either insolvent or limping on life support. There will be calls for bailouts (which may be attempted; the calls are already starting to be heard) but it won't matter - a failed business is a failed business, bailout or no, and overcapacity must go away before sustainable business conditions can return.
• Along with the above, expect 10% of all retail stores to close, and that number could go as high as 20%. That's not going to be fun; there will be hundreds of malls that wind up literally shuttered across America. Stay away from most retailers and property groups as investments. Firms like SPG and VNO are levitating on the strength of their dividends (7-10% yields at present); I believe this is a sucker play; if retailer defaults force dividend cuts (and I believe they will) the commercial REITs will go straight into the toilet.
• Several states will get in serious financial trouble and outright default of one or more is possible in 2009. California leads this parade. But even if there is a default on a state basis, the effect will be highly localized, as county and municipal governments vary in their wisdom and budget process. The real pain comes in state-wide social and educational programs. Be very careful if you are in municipal bonds or thinking of getting back into them (I recommended they be dumped in 2007 - look at what has happened to the closed-end funds in 08! Aieeee!) as the default risk is VERY REAL. If you're buying individual issues and do the work to determine not only the risk of default but also the likely recovery if they do default there are some good deals out there - but only if you're doing the work. "Trust me" (as in buying funds, whether mutual funds or closed-end stuff) is very dangerous.
• Mortgages are not done. The story last year was "Subprime." This year's will be "ALT-A", "Option ARMs" and so-called "Prime". The Fed and Treasury know this, which is why they are playing games with "agency" debt in a desperate attempt to clear this market before the ticking nuclear devices go off. The amount of debt involved in these "bad deals" is vastly higher than that in the "subprime" space and if they fail to contain it (a near certainty) Round #2 of severe bank instability gets served up on us in the second half of 2009.
• If you want to refinance a mortgage you may get one brief shot at it with long rates around 4%. You're nuts to buy outright unless you intend to die in the home, but if you have a solid reason to be obtaining a mortgage or wish to refinance you will probably get the opportunity. This assumes the "buydown game" gets going before Treasuries dislocate; if you get the opportunity take it as it is likely to be fleeting. The few places in this country where homes wind up selling for 2.5x incomes (on average) and you have an opportunity to finance at 4% and change will be decent buying opportunities - if you're sure you can cash flow the note (e.g. your job and/or income stream is not in any danger of collapsing.)
• Those who have said that the corporate bond market is being "unreasonable" in its expectation for defaults will start to look like the jackasses they are. Actual default rates (not projections) on non-investment-grade debt will skyrocket starting in 2009 and there will be no sign of it turning around this year. If you're playing in this area of the market thinking that "the worst is behind us", I hope you like walking around bald as the haircuts handed out to folks like you will be especially severe and delivered with a straight razor.
• The calls for "more lending" to consumers and businesses will go exactly nowhere. The problem isn't credit availability - there's plenty of money available to lend if you are credit-worthy. Those who are being turned down now simply aren't credit-worthy when one looks at what they want to do with the money and what they're backing their repayment capacity with. The more "credit stimulus" is thrown into the economy (and there will be more) the worse the downturn will get.
• General Motors and Chrysler will fail to meet their targets and it will be labor that sinks the deal. At least one and probably both will wind up in some form of bankruptcy in 2009. The UAW is insane; Gettlefinger needs to be strung up by his genitals and pelted with rotten tomatoes by his union "brothers", and if they had a lick of sense they'd have already done it. They obviously don't. I give this mess six months tops, with Ford as the only possible survivor. The recent GMAC games show exactly how desperate they are; 0% 5 year loans to people with 620 FICO scores are flat-out insane and the default rates on those loans are going to wind up in economics textbooks five years hence.
• Protectionism and currency manipulation will rear their ugly heads in 2009, originating not here but in Asia as their economies go straight into the toilet. China and Japan are at severe risk here.
• Commodities will appear to be headed for a new bull market but this will turn out to be a false hope as demand continues to collapse. Attempts to manage oil output to prop up the price will fail. Several oil-producing nations will find themselves in serious economic trouble, with Russia being in the lead but by no means alone.
• Sovereign debt defaults will number at least three with many other nations on "watch" for same; we had one last year (Iceland.) Noise about a US "AAA" downgrade will continue. Highest on the list for probables are Russia, which needs oil at roughly double its current price - and stable - to be financially viable. Not going to happen in the near term.
• China will have its first large-scale rumbling of civil unrest as a consequence of collapsing export demand and thus employment. They'll manage to tamp it down - this year. Don't take a bet on that holding together longer-term. Those who think China will be "ok" are deluded; they have a horrifying overcapacity problem (debt-financed, of course) and there is no way for them to get out of it. They are truly going to "take it in both holes" down the road, but the worst of it won't be in 2009 - that is still a year or two in the future.
• Foreign uptake of Treasuries will be choked off - by necessity. It won't be because they want to screw the US (although they should have a long time ago, given our profligate and unsustainable habits), it will be because they will be forced to redirect their resources inward as their own economies collapse.
• "The City" (London to be precise, Britain generally) will be recognized as getting it "worse than we are" (in America.) This will be the first of many validations of my thesis "we're screwed, they're gang-raped."
• Things will get "revolting" in a number of nations. Not here in America. Yet. If we're lucky the American Sheep will wake up and stage some of that peaceful protest stuff I outlined above. If we're not so fortunate 2010 could be really bad.

In terms of recommendations its simple - rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.

This is simliar to what my 2009 outlook I posted on 1/1/09

Best picture of 2008

1/2/09

The following are few links to best image of 2008. Enjoy watching!!

Stunning Images of 2008

Best Images of 2008 Part 1

Best Images of 2008 Part 2

Best Images of 2008 Part 3

Another 2009 Outlook

1/2/09

The following is another 2009 outlook by Marty Chenard. He is an advanced technical analysist and he is always using qualitative approach to support his view of market.

What's in store for 2009?

If you have been listening to CNBC or Bloomberg, you have probably picked up on a "growing expectation" that we will come out of the recession in the 3rd. Quarter of this year.

This expectation actually began to show up over two weeks ago. At that time, I was at a Christmas Party with an Investment analyst from one of the top Wall Street firms. His stand was a "committed opinion" that we would see bad news and bad employment reports in the first two Quarters, and then an end to the recession in the third Quarter. He expected the economy to finish getting the bulk of the job losses out of the way in the second Quarter.

A day later, I had a conversation with a key executive at one of the "DOW 30 companies". His opinion was the same. In fact, his wording of what would happen was almost the exact same as what the Wall Street investment analyst had said.

My comments to both of them was that it wasn't going to be that simple, or easy. Part of their assumptions revolves around the thinking that "there are no more shoes to drop".

One of the things I brought up, was the trillions in CDOs/CDSs that have 3 year contracts coming due in 2009 and how presently that could mean over 8 trillion in default write offs. That danger would be a default problem larger than the sub-prime problem.

I asked "Mr. Wall Street", "How will that be solved ... was there a way of rolling over the contracts to a future date so no one saw them in 2009?" "What about the projected closings of 30,000 to 40,000 of our largest retail facilities and their unemployment impact?" He didn't have an answer, and questions like these were upsetting him ... to the point where he abruptly left the room as he said, "Excuse me, I'm going to go into the other room and stick my head in the sand!".

From where we stand now, I see no "empirical evidence" yet that would suggest the "third Quarter turn around" will end up being a fact ... we will need to see home hard core changes in the trends and numbers during the second Quarter. My oldest son asked if this couldn't turn out to be a "self-fulfilling prophecy". I'll grant that it is one of the possibilities, but world wide demand will have to pick up with increased consumer spending which brings me to U.S. output vs. jobs.

For decades, I have watched the "Help Wanted Index" as a sign of when the economy would be seeing an exit out of a recession. Last August, I abandoned using the data in disgust when the historical data was "adjusted" back for all months going back for years (about the same time when AIG and Lehman were in big trouble). The numbers were all increased from 11% to 17% per month ... with July 2008's number being increased the most by 17%. If the data change was about resetting the base line, the monthly reset deviations would have been fairly consistent ... but they weren't. As an analyst, it meant that I could not trust the data any more and represent it as accurate to our subscribers. So, what can we use instead?

One of the data sets I am now watching is U.S. output leaving our export ports. I watch the total tonnage of "Loaded outbound" and "empty" port containers. Here is my theory: When outgoing tonnage is increasing, then our productivity is increasing and we need more employed people to make that happen. When outgoing tonnage is decreasing with "container empties" increasing, then U.S. productivity or output is decreasing and we need fewer employed people to make that happen ... which translates into cut hours and layoffs. The tonnage reports don't lie ... they are what they are, and they don't get changed or "revised".

The data shows that the "empty cargo containers" reversed a down trend to the upside last June. That said that a new trend of increasing, unused export containers was beginning. Then, last September, the number of "empty containers" sitting on the docks EXCEEDED the number of "Loaded Outbound containers" leaving the U.S.

The current chart is above ... I am now waiting for the December Tonnage Report to come out in the next few days and I will post the updated chart on our paid subscriber site. The chart now shows, that as of November, empty containers were trending higher with outgoing containers falling rapidly. Note how the empty containers signaled a problem in June when the trend started up in the chart below. If we are going to see a third Quarter end to the recession, then we will need to see the evidence with empties declining, and "loaded outbounds" increasing. Without that occurring, you can't get an economic turn-around with less goods being manufactured, bought, and shipped ... it just doesn't work that way.

So, 2009 will be a wait and see proposition relative to whether or not the recession ends or continues. Whether or not Obama's stimulus plan works. Whether or not CDO/CDS defaults bring in another "shoe dropping" surprise to Wall Street ... and whether or not job losses stop AND consumers start spending again. We will monitor what happens during the year, so our paid subscribers can see and understand if the possibility of a third Quarter turn around can become a reality. What happens in the second Quarter will be critical. In late May and June, if adequate improvements are not seen, Mr. Wall Street and his friends will "abandon ship" and sing a new tune.

After all, read the data, do not believe what the f?#? so called experts to tell you we will rebound on second half of 2009. It is just bullshit. Good luck to all.

Another historical facts in chart

1/2/09

Does it mean we close to the bottom?! Maybe or maybe not. Personally, I do not think so. Yes, I am still very bearish. Period.

Are we following into "Japan" like depression??!

1/2/09

The following article or phrase I repost from other blogger. I have no credit of it. However, it is very correct fact information I want each of you to know. After reading those, whether you agree or not, I strongly believing his analysis.

Bernanke Correctly Judged Nothing

Bernanke considers himself an expert on the great depression and on the Japanese deflation as well. Trying to act quickly, Bernanke has come out blazing with 8 new policy tools, including the TALF, TARP, PDCF, ABCPMMMF, CPFF, TAF, and MMIFF to go on top of Open Market Operations, Discount Rate setting, and setting reserve requirements.

The result so far is deflation. The result in Japan was deflation.

There is only one way to defeat deflation and that is to not let the conditions that foster it to build up in the first place. What caused this deflationary bust is the credit boom that preceded it. What caused the great depression was the credit boom that preceded it. Hoover's policies and FDR's policies made the great depression worse.

Bernanke's policies are going to make this depression worse. Yes, I used the word depression. It may not be as big as the great depression, but the word "recession" does not do justice to what we are in and what is coming down the pike.

Obama's Bridge To Nowhere

John Maynard Keynes died in 1946, but to hear President elect Obama speak you would think he was going to be heading the treasury department. What does Obama propose to do when he takes office in January? Well other than raise taxes, and increase spending he believes in public works. That’s right, that’s his big plan. The same plan that didn’t help us during the Great Depression, or didn’t help the Japanese during their recession in the 1990’s, and they basically paved over everything they could.

When governments decide to follow the Keynesian philosophy they have to get the money for it, and there is only one place where that money can come from. The taxpayers will be paying the bill for all these new, and mostly useless, projects. This means government becomes bigger and has more control over the economy, it becomes more powerful, and governments don’t like to give up power or cut the fat out. Government is already too big, the expansion that Obama wants is practically Orwellian.

Aside from the government getting bigger and more intrusive there is the simple fact that Keynesian economics don’t work. When the stock market crashed in 1929 President Hoover, and later President Roosevelt decided that public works were the way to go. We built the Hoover Dam, put thousands of men to work on construction projects. Yet none of that prevented an even bigger stock market crash in 1936, and unemployment was never lower than 14%, that’s hardly an economic success story.

In the 1990’s the Japanese economy, suffering from a downturn fueled by deflation, the Japanese government desperate to keep unemployment low and to stimulate economic activity went on a building binge. They built bridges to nowhere that would have made Ted Stevens ashamed. All the building didn’t get the Japanese economy moving up until deflation ended, consumers started spending, and business became more productive.

Obama’s economic plan won’t accomplish any real economic growth. The only engine for economic growth is the free market. The Keynesian belief won’t add anything to the economy, but it will add to the debt, the tax burden, and increase the federal leviathan. If Obama goes through with his economic plans we can expect the economy to go from shaky to catastrophic. John Maynard Keynes is dead, it’s time his wrong headed economic philosophy join him.

Inquiring minds might be wondering why people, including some very prominent and otherwise highly intelligent professors believe in clearly discredited Keynesian Claptrap. The answer has to do with belief in something for nothing.

"Something For Nothing" Ideas Become Policy

1) Those with money control policies in Congress. In return for sponsoring policies that make no economic sense, corporations pour massive amounts of money into campaign coffers of those who will support whatever legislation the corporations want. The first thing corporations want is government sponsorship at taxpayer expense. The last thing corporations want is a free market.

2) Inflation (expansion of money and credit) is a stealth tax (theft), demolishing the middle class over time. Inflation allows government to collect more every year in property taxes, sales taxes, income taxes, etc., typically to pay for war mongering and social redistribution activities sponsored by the corporations that benefit from war mongering and social redistribution activities. The expansion of credit scheme "works" until it all blows up in deflationary bust every few generations.

3) Academia is a breeding ground for socialists. I discussed this aspect at length in ..... Academia likes to promote socialism and blame the free market for failures caused by excessive regulation.

4) People want to believe someone is in control. Even though it is crystal clear that the Fed is a huge part or the problem, people want to believe the Fed is in control. It is very discomforting to think the Fed has no idea what it is doing, so people simply refuse to accept the fact that the Fed has no idea what it is doing.

5) People want to trust the experts even though the experts screw them time and time again. The same thing exists in the stock market. People want to believe stocks will go up so they believe anyone who tells them stocks will go up.

6) There is an overwhelming propensity by everyone to seek something for nothing. People will listen to and vote for anyone promising something for nothing. Economic professors and members of Congress are both particularly adept at promoting something for nothing.

End of part of his analysis. Good luck on your investment in new year. If need help, please contact me.

2008 World Stock Market Performance

1/1/09

Year of 2008 is in Historical Book in term of many categories. Of course, Dow & S&P were performed the worst since 1931(the year great depression) in term of percentage loss. Nasdaq tech was performed the worst ever in term of percentage loss too.

S&P 15mins chart

1/1/09

This is 15mins chart. Watch out for retrace.

Trading thoughts for New Year 2009

1/1/09

1. Be patient with trades and setups. Do not chase trades. Let them come to you. If you miss a trade, that's okay.

2. The best setups in this market focus on extremes. Buy extreme weakness and sell extreme strength.

3. Watch for accumulation patterns that form as prices base near lows. This will get you in on "bottom" trades early.

4. Ignore the market forecasters and pundits.

5. It's all about the charts. Price, volume, support, resistance, overbought and oversold indicators are all you need to make money.

6. Manage risk vigilantly.

7. Define your stop-loss and target before entering a trade, and stick to it!

8. Keep an eye on breakouts and watch for sectors that are well represented in breakout scans. These sectors will lead the next rally.

9. Do not watch CNBC.

S&P chart

1/1/2009

This is it. Let's watch if the 3rd time is different. Bears or Bulls. I know Chicago Bears are out of playoff but I am still Bears fan. As old saying in Wall Street, "As January goes, so does the year!!" Let's see how January goes(up or down)!!

2009 Outlook

1/1/2009

The S&P 500 will re-test the 750 lows in the first half of 2009, and we will close below 700 by the end of 2009. This bear market will not end in 2009.

Crude oil will stay below $80/barrel for all of 2009.

Gold will break out above $1000/oz.

The VIX will hit over 80 or make new high to 100 for the first time ever.

Unemployment rate will hit over 10.0%. Total Unemployment (U-6) will hit 20%.

Housing prices will keep dropping without finding any bottom.

Commercial real estate values will drop 30-40%. Land development, office space, warehouses, shopping malls, hotels, and resorts will do the worst. Large multi-family properties will do the “best” because they will house all the folks who will lose their homes.

20% of retailers will file for Chapter 11 bankruptcy.

The bailout money will run out in first half of 2009 and the Fed/Treasury will request an additional package…and be denied. This debate will drag on for months and months.

Numerous local municipalities and/or states will go bankrupt. Many states will be unable to pay out full unemployment benefits.

Yes,I am still very bearish. I do not see how our Bear Market(the worst since great depression as I pointed out in early 2008) can last for only 2 years. The last tech bear market lasted for about 2 1/2 years. In addition, the last 9 bear markets after world war II that all did not involve a global credit crisis! So, there are sure more disappointments ahead the hollow secular bear market ever.

Tracking bailout $700 billion?!

12/31/08

The following is written by AP:

Federal officials acknowledge difficulties in tracking bailout money

• Jeannine Aversa, AP Economics Writer
• Wednesday December 31, 2008
  

WASHINGTON (AP) -- Government officials overseeing a $700 billion bailout have acknowledged difficulties tracking the money and assessing the program's effectiveness.

The information was contained in a document, released Wednesday, of a Dec. 10 meeting of the Financial Stability Oversight Board. The panel, headed by Federal Reserve Chairman Ben Bernanke, includes Treasury Secretary Henry Paulson and Securities and Exchange Commission chief Christopher Cox.

The officials discussed "the difficulty of isolating the effects" of the bailout program "given the variety of policy actions taken by the U.S. government to support financial stability and promote economic growth."

The officials also noted the "difficulties associated with monitoring the use of specific funds" provided to individual financial institutions, according to the document.

The bailout program, created Oct. 3, is designed to break through a debilitating credit clog and spur financial markets to operate more normally again. Credit and financial woes -- along with a severe housing crisis -- have plunged the economy into a painful recession.

Earlier this month, the Government Accountability Office said the government must toughen its monitoring of the bailout program to better keep track of how the money is used.

The government has pledged to provide $250 billion to banks in return for partial ownership. The goal is for banks to use the money to boost lending. However, a recent review by The Associated Press found that after receiving billions in aid from U.S. taxpayers, the nation's largest banks can't say exactly how they're spending the money. Some wouldn't even talk about it.

Money from the bailout pot also has been used for other things, including throwing a financial lifeline to ailing auto companies Chrysler and General Motors Corp., and teetering insurance giant American International Group. Money also was used to back a rescue for Citigroup Inc.

My comment: Folks, this is it. Our taxpayers money is gone to richer people's hand and no way to track. What a waste!! Am I right again?! If people keep saying the Ponzi Scheme $50 billion by Bernard Madroff, how about Paulson, Bush, and whole congress are already running the largest Scheme in human-kind history: $700 billion scheme. Until now, we all know $350 is gone to nowhere. Yes, it seems those money has injected into some banks. However, none of those wanna loan it back to us, tighten lending for commercials, restricted mortgage for home buyers, cutting credit line of your all credit card....etc. Credit market is still frozen, Housing prices are still dropping, unemployment is rising,... I do not want to list them all. I guess everyone now knowing what was happening and what will it be for the year 2009. Recovery is in question for second half of 2009?!

Hilarious 2008 Investment Guides

12/31/08

The following was investment guides posted by so called professionals at the end of year 2007. However, they all need to go back school to re-educate themselves.

• Jon Birger, senior writer, Fortune Investors Guide 2008
Smart investors should buy [Merrill Lynch] stock before everyone else comes to their senses.”
Merrill’s shares plummeted 77 percent.

• Elaine Garzarelli, president of Garzarelli Capital, Business Week’s Investment Outlook 2008
Buy some of the most beaten-down stocks, including those of giant financial institutions such as Lehman Brothers, Bear Stearns, and Merrill Lynch.
As of January 1, none of these firms will still exist.

• Sarah Ketterer, CEO of Causeway Capital Management, Fortune Investors Guide 2008
“Fannie Mae and Freddie Mac have been pummeled. Our stress-test analysis indicates those stocks are at bargain basement prices.”
Fannie and Freddie had lost 90 percent of their value.

• Jon Birger, senior writer, in Fortune Investors Guide 2008
Our bet is that in a stormy market investors will gravitate toward, GE, the ultimate blue chip.
GE’s stock price tumbled 55%, and it’s on the verge of losing its triple-A credit rating.

• Archie MacAllaster, chairman of MacAllaster Pitfield MacKay in Barron’s 2008 Roundtable
“Bank of America will [not cut its dividend], I think they’ll raise it this year. My target price for the stock is $55.”
BofA share price now hovers around $14, and it has slashed its dividend in half.

• James J. Cramer, “Future of Business” New York Magazine
“Goldman Sachs… finishes the year at $300 a share. Not a prediction — an inevitability.”
Goldman Sachs’ share price was $78, and the firm announced its first quarterly loss — $2.2 billion.

If anyone recall that I have been saying to avoid financial and banking stocks since the beginning of the year. Gee, I am the one who do not have finance degree or higher education compare to them and I still could make much better advice than anyone of above. Why?! How can I do that?! READ the stock CHART. Technical give me the profound prediction. What would the market will be for year 2009. I will post my view later soon.

The Worst Predictions About 2008

12/29/2008

Here are some of the worst predictions that were made about 2008. Savor them -- a crop like this doesn't come along every year.

1. "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" -- Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008

At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.

2. AIG (NYSE:AIG - News) "could have huge gains in the second quarter." -- Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008

AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.

3. "I think this is a case where Freddie Mac (NYSE:FRE - News) and Fannie Mae (NYSE:FNM - News) are fundamentally sound. They're not in danger of going under I think they are in good shape going forward." -- Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008

Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.

4. "The market is in the process of correcting itself." -- President George W. Bush, in a Mar. 14, 2008 speech

For the rest of the year, the market kept correcting and correcting and correcting.

5. "No! No! No! Bear Stearns is not in trouble." -- Jim Cramer, CNBC commentator, Mar. 11, 2008

Five days later, JPMorgan Chase (NYSE:JPM - News) took over Bear Stearns with government help, nearly wiping out shareholders.

6. "Existing-Home Sales to Trend Up in 2008" -- Headline of a National Association of Realtors press release, Dec. 9, 2007

On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million -- down 11% from a year earlier -- in the worst housing slump since the Depression.

7. "I think you'll see (oil prices at) $150 a barrel by the end of the year" -- T. Boone Pickens, June 20, 2008

Oil was then around $135 a barrel. By late December it was below $40.

8. "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." -- Ben Bernanke, Federal Reserve chairman, Feb. 28, 2008

In September, Washington Mutual became the largest financial institution in U.S. history to fail. Citigroup (NYSE:C - News) needed an even bigger rescue in November.

9. "In today's regulatory environment, it's virtually impossible to violate rules." -- Bernard Madoff, money manager, Oct. 20, 2007

About a year later, Madoff -- who once headed the Nasdaq Stock Market -- told investigators he had cost his investors $50 billion in an alleged Ponzi scheme.

10. A Bound Man: Why We Are Excited About Obama and Why He Can't Win, the title of a book by conservative commentator Shelby Steele, published on Dec. 4, 2007.

Mr. Steele, meet President-elect Barack Obama.

This is all written by Peter Coy from Business Week.

The reason I repost it here is simple. Folks, you all need to educate yourself well in financial sense. I do not blame all those people called those prediction has no credit at all. However, as you can see, none of those have predict anything correct. And, if anyone of you can retrieve my blog since 12/2007. You all can find how I use my studies and analysis to interpret the US stock markets as well as economy. More importantly, my ability to pinpoint the change of market trend has been amazing, do you agree?

SPX 10 days chart

12/29/08

Stock markets are trading in neutral bound since the beginning week of 12/22/08.