Don't Buy don't buy at current situation

If the market theory is true, the new low in last week around 8,000 should be retested. Just wait.

Start to build short position

I start to build short position, lightly with short in V and QID.
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The U.S. economy shed jobs for the fourth-straight month in April.

In post-Great Depression history, a four-month losing streak has always preceded a recession. The Labor Department told us this morning that the U.S. lost another 20,000 jobs in April. The economy has shed 260,000 jobs since the new year.

But we’ll spare you the suspense. Here’s the headline you’ll read tomorrow: U.S. Employment Report Better Than Expected. Stocks Rally on Jobs Surprise, Unemployment Down.

Indeed, economists were expecting a net loss of 75,000 jobs in April. And by some mysterious quirk of government math, the unemployment rate actually fell 0.1% from March. It’s now at 5%.

The U.S. stock market, having baked in higher job losses already, surged on the news this morning.

The Fed is saving the Market, not the economics

As foreclosures surge, we also learn today vacant U.S. houses have reached a record high. According to the Census Bureau, over 18.6 million houses are empty -- up 1 million properties from a year ago.

That’s the biggest glut of vacant homes since the Census Bureau started keeping track in 1956. Most likely, this many homes haven’t sat empty since the Great Depression.

Our friend Kurt Richebacher rolled over in his grave so hard this morning he likely pulled a muscle.


But the crumbling housing market is old news, right? Gasoline prices are now the No. 1 economic concern among U.S. consumers.

What we can do for rice crisis?

Rice prices all over the world set record highs yesterday and overnight… again. Futures in Chicago punched through the $25 level in yesterday’s session. Now up 26% in April alone, Chicago rice is climbing at its fastest monthly pace since 1993.

Then, as we slept, Thai rice (the world’s most traded rice) shot up to $1,000 a ton. We got our hands on a chart of this stuff… unbelievable:

Your eyes do not deceive you… prices have tripled since the New Year. A month ago, when we were shocked at the $720 sticker price. Now $1,000? Oy…

People of the world’s poorer nations are thrilled. Here’s a Bangladeshi man expressing his excitement to a policeman. About 20,000 of his friends joined him in the latest food riot there.

A U.N. “peacekeeper” was dragged out of his car and shot in Haiti, where riots over the price of food occur almost daily. In the Ivory Coast, a mob of 1,500 overturned cars and burnt tires while chanting, “We are hungry.”

Senegal, Kenya, Egypt, Cameroon, Jordan, Yemen, Pakistan, India, Mexico, Mozambique, Zimbabwe….

Several stocks related to rice include MOS or you can just play with commodity.

too bad for job market

very bad for me:(
But here’s the rub. Unlike the tech bust, during the mortgage crisis fallout, it won’t be just Wall Street scions and their New York dependents struggling to find employment.
Today, given the slowdown in the housing and mortgage markets, only 59% of American employers plan to hire 2008 college gradates this year, down 17% from 2007. What’s more, according to Monster Worldwide’s annual survey, 29% of employers say they are “unsure” about hiring new grads -- twice as many as responded this way last year.
Pollsters at Monster say about half of all 2008 college grads plan on moving back home after graduation -- more than double the 22% who had the same plan in 2007. That can’t be good for family balance sheets already strapped preparing for retirement.

S&P 1350 is the support for new bull market

It seems we get it today . Now the question is whether it can hold for 3 days.

the lesson we learn from BSC melting down

You will recognize that line, dear reader. It describes what happened to Julius Ceasar after he was stabbed to death by a group of rivals on the Ides of March in the year
The Ides of March came this past Saturday. When it had gone, the bloody corpse on the ground was that of one of Wall Street’s biggest players – Bear Stearns.
Last week, we reported a rumor. That a large Wall Street firm was in trouble – which was said to be the real reason that the Fed announced its new $200 billion of loans.
By week’s end the news was out: the Bear had gotten the ‘Margin Call from Hell.’
The Fed and J.P. Morgan Chase rushed in to give aid and comfort. But officials were very worried that if a deal to rescue Bear Stearns were not completed before Asian markets opened this morning, there could be a financial meltdown.
“I’ve been on the phone for a couple of days straight, throughout the weekend,” said U.S. Treasury Secretary Hank Paulson on television...”but I’m not going to project right now what the outcome of that situation is...”
“That situation” of course, was the situation at Bear Stearns. Early reports here in London say that a deal was finally struck with J.P. Morgan Chase to buy out the Bear for a reported $2 a share.
The background for this latest crisis is what we’ve been reckoning with in these Daily Reckonings for so many months. The geniuses at Bear Stearns had their calculators...their Black Sholes Option Pricing Model...their mathematicians...their risk figures... They had some of the finest minds in the country – or at least, some of the finest minds money could buy on Wall Street.
And yet, a year ago they also had a stock trading for $150. Now, it is down to $2...the shareholders have been largely wiped out.
When Wall Street got the news of the Bear’s predicament, stocks were sold off – driving the Dow down 300 points. Then came word that the Fed and JP Morgan Chase were on the case, and the index bounced back, closing down 194 points. Hardest hit, (this will come as no surprise) was Bearn Stearns itself – down 47%. Other financial stocks took a beating too.
We began last week worrying that we might be wrong. We begin this one worrying that we are probably right. At the beginning of the week, U.S. stocks seemed to be rising more than gold. By week’s end, things were happening as they should: God was in his heaven. The queen was on her throne. Gold was rising...and stocks were going down. All is right with the world...or as right as it can be after a 27-year credit expansion.
Little noticed in the Bear affair is the role of Chinese investment firm, Citic. The Chinese were going to put up some money to prop up Bear Stearns. There might be many explanations for why the Citic deal didn’t go forward, but here we suggest one that is the most far-reaching: the foreigners are growing wary of the United States. You will recall our friend in Geneva told us to “Sell the United States...sell its money...sell its stocks...sell its debt.” That attitude is spreading – the belief that the United States is a short sale.
“For years,” begins a report in the Wall Street Journal , “the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.”
“Clearly, the whole world is focused on the financial crisis and the US is really the epicenter of the tension,” the paper quotes Carlos Asills, at Globista Investments. “As a result, we’re seeing the capital flow out of the US.”“The Fed’s rescue of Bear increases the odds of a generalized, taxpayer-funded financial bailout. Combined with superlow rates, that will add to pressure on the beleaguered dollar. Bear is the biggest firm so far to hit the wall this time around. But the biggest name in financial distress could eventually be the US.”
*** How do you like those foreigners? We were nice enough to take their money...spend it on stuff they sent over...and ruin our own economy and our own balance sheets so theirs could grow at breakneck speed. And this is the thanks we get! Now that we really need their money, instead of opening their wallets, they ask questions: what’s that paper really worth, they want to know?
The United States emits a lot of paper – bonds, notes, SIVs, MBS, securities, repos, you name it – but one piece of paper is the one emitted most and the one the foreigners are probably most concerned about: the paper with pictures of dead presidents.

A warlord steps down

He was once a crusade for little investors. Just for memory.

Wow, the Fed acts again as an irresponsible person

The Fed’s new TSLF -- a promise to swap Treasuries for mortgage-backed securities -- kicked off the best day for U.S. stocks in five years.
The Dow shot up 417 points, or 3.5%, its best percentage gain since March 2003. The Nasdaq also had its biggest percentage gain since spring ’03, up nearly 4%. The S&P hasn’t seen a day this good since May 2002… it popped 3.7%.
“The Federal Reserve’s announcement,” John Williams, “that it will be providing an added $200 billion in liquidity to the system in a coordinated action with other central banks, on top of the $200 billion emergency funding announced by the Fed on Friday (March 7), again highlights the depth of and the ongoing deterioration in the banking system’s solvency crisis.

“The good news is the Fed will create whatever dollars it needs to keep the system from imploding. The bad news is the price that will be paid in higher inflation. Despite any relief rallies that seem to be taking place in the equity and dollar markets, the news here has horrendous implications for the dollar and inflation, corresponding positive implications for gold and likely continued trouble for equities.”
Stock markets in Asia rallied big on the Fed bailout plan too. Markets in Australia, Hong Kong, Malaysia and Singapore all surged about 3%. Indian and Japanese markets gained 1% apiece.
In classic form, whatever America did, China did not. The Shanghai Composite fell 2.3% on rumors the Chinese central bank is planning to hike rates again… and the government is devising more ingenious ways to stymie inflation in their fledgling capitalist economy.

Consumer confidence has dipped to a five-year low so far this March.

The chance counts on the chris.

According to the RBC CASH Index -- a measure of Consumer Attitudes and Spending by Household -- confidence among consumers has sunk to 33 this month, steeply down from 48 in February and its lowest reading since inception in 2002.


Jobs took a hit this morning, too. U.S. nonfarm jobs fell by 63,000 last month, the Labor Department reports. January numbers got revised down, too… from minus 17,000 jobs to minus 22,000.

That’s an “official” two-month, back-to-back loss in jobs. Worth noting, because in the past 40 years, there have never been two consecutive months of job losses that didn’t coincide with a recession.

Still, as usual, the government stats are confusing. Somehow, despite the net loss of 85,000 jobs over the past two months, “unemployment” has improved to 4.8%, up from 4.9% in January and 5% in December. Hmmmn…


Ten minutes before this morning’s jobs report, the Federal Reserve announced it’d be injecting $100 billion into the U.S. banking system. The Fed will print an extra $20 billion for both of its term auction facilities held this month on the 10th and 24th. Each will now inject $50 billion in the embattled financial industry, for a monthly total of $100 billion.

Immediately following the Fed announcement and jobs report, traders in Chicago priced in 100% odds of future Fed cuts of 75 bps.

2007 brought you terms like “ARM,” “CDO” and “SIV”… here’s one for 2008: pay option loan (POL).

The pay option loan is a variation on the ARM in which the borrower can choose how much they can pay toward their mortgage each month. The loans allow you as the borrower to pay less each month if the going gets tough. Fair enough.
Trouble is, if you pay the minimum enough times, you’ll come up short of the interest owed, the remainder of which gets added to your principal. Enough of that… and you’ve got a noticeably larger mortgage than you first signed up for… with the adjustable rates about to kick in. Fun, eh?
Yeah.
Countrywide filed an SEC report on Friday admitting they hold $29 billion worth of POLs… $26 billion of which have already grown beyond the amount of the original loan. More than eight out of 10 of these loans were made to borrowers who provided little to no income documentation. As of December, seven out of 10 of them were electing to pay less than interest-only payments.
Good grief… three guesses as to what happens next.

Nothing new turns out to be good

We may see another leg donw.

The Chicago manufacturing index fell to a low not seen since 2001 on Friday.

The Chicago-area “manufacturer purchasing activity” fell from 51, to 44, in February -- way lower than quants and wonks alike thought it would. Dropping below the 50-point line signals increased uncertainty and forecasts “negative growth” -- an oxymoron only a two-armed economist could dream up.


Likewise, the Institute for Supply Management reported a worse-than-expected February manufacturing report this morning. The ISM’s monthly manufacturing index fell from 50.7, to 48.3.

Still, according to the ISM, history shows that the U.S. is not in an official “recession” until the index nears 41… as manufacturing has never been a smaller part of the U.S. economy.


Contrary to a recent increase in consumer spending, consumer sentiment is waning.

U.S. consumer sentiment in February fell to a score of 70.8, reports Reuters and the University of Michigan. Consumers haven’t been this bummed out about their prospects since Dubya’s father was asking people to read his lips. Reuters and the University of Michigan cited the first monthly drop in employment in four years -- and rising gas prices -- as the two key contributors to a worse-than-expected February.

Coupled with the Conference Board’s sentiment survey from last week -- at five-year lows -- it’s almost safe to say that U.S. consumers are starting to fear an economic downturn. When (or if) they’ll start acting like it… your guess is as good as ours. The following may, at some point, be of concern, too…


The U.S. dollar struck a fresh record low again early this morning. The dollar index declined to 73.4… but it wasn’t against the euro this time. In fact, the eurozone currency fell a penny, to $1.51. Lo and behold, it was the yen’s turn to take a few shots at the punch-drunk dollar.

The Japanese currency strengthened over 2 full points in as many days, to 103. That’s more than a three-year high versus the dollar.

The dollar index is down 13% over the last 12 months.

“The thing that put the dollar on the greased skids last week,” our currency sage Chuck Butler reminds us, “still exists this week. And that, simply put, is the fact that the Fed is going to cut rates even further.”


And they plan to do more than just cut rates. The Fed will auction off some $60 billion more in short-term loans this month.

As a “service” to the U.S. economy, the Fed will print $30 billion fresh dollar bills for auction on March 10, and then again on March 24, and then lend them to banks at rates that no normal consumer or small business could ever attain.


Gold rallied to yet another record high this morning on word of a weaker greenback. The precious metal shot up to $984 per ounce in Hong Kong trading. Silver prices followed suit, rallying to even greater 27-year highs. It’ll now cost you a cool $20 to score an ounce of silver.


Meanwhile, oil backed off its recent $103 high as the U.S. market sold everything in sight. Some “soft” commodities, namely wheat, have retreated from record highs lately, as well.

Brilliant or Stupid Ben?

market 's 300 point down.

“I think the greater risks are to the downside," Ben Bernanke reiterated in his second day of congressional testimony yesterday, “that is, to growth and to financial markets.”

We heard hints in his testimony Wednesday that more rate cuts might be on the way. Yesterday, the Fed chairman made it quite clear that he means to cut rates again, noting that inflation expectations have remained “pretty stable” and that “inflation will moderate this year as oil and food prices don't rise as much this year as they did last year.”

From the cheap seats, it’s sure looking like every food and energy commodity is at or near an all-time high and U.S. inflation is growing at a rate far from “pretty stable.” Regardless, gamblers in Chicago were emboldened by Bernanke’s remarks… futures there now price in a 100% chance for a 50 point rate cut in March, a 62% shot for 75 points.


Following Bernanke’s testimony, the dollar reached new lows across the globe. The dollar index has given up two full points since the Fed chairman began his testimony on Wednesday, and now sits at an all-time low of 73.

Likewise, the euro shot up to $1.52 yesterday, an all-time high of its own. The yen gained all the way to 104, a three-year high versus the greenback. The Canadian dollar and British pound stood still at about $1.02 and $1.98.

This is starting to surprise even us. We remember predicting the euro would go to $1.50 just after parity was reached… and getting roundly criticized for it. Now that we’re inching even higher, we suspect it’s going to have to gain some sympathy votes sooner or later.


“There will probably be some bank failures,” Bernanke suggested, saying that many overexposed small financial institutions in the U.S. are still at risk. While we respect Bernanke’s candor on the matter, markets didn’t care for his speculation.

Traders sold down financials in style yesterday, and the whole market followed… nearly1% losses for the Dow, S&P 500 and Nasdaq yesterday.


Neither Fannie Mae nor Freddie Mac helped in the matter much. Both banks reported big losses this week, writing down $3.6 billion and $2.5 billion in their respective fourth-quarter earnings announcements. Both losses were greater than Wall Street expected.

Naturally, as the U.S. two largest buyers and backers of American mortgages disclose a basket of bad subprime bets, the U.S. government has chosen to ease regulations on their investment capabilities.

Within hours of Freddie revealing its multibillion loss, the Office of Federal Housing Enterprise Oversight proudly announced that it will be removing limits to the amounts of loans and securities Fannie and Freddie can own. The two companies’ investment pools were formerly capped at a fixed level because of a few accounting “lapses” in 2004.

But now, Fannie and Freddie can invest in as many subprime-backed securities and risky mortgages as they can stomach, potential losses be damned. Brilliant.

Visa unveiled plans to go public yesterday

In an SEC filing, the company said it would offer up to 446 million shares at $37-42 a pop. Thus, the company may raise up to $19 billion -- the largest IPO in history by nearly a factor of two. AT&T’s 2000 IPO scrounged up a measly $10 billion.

Visa will be the last major credit card company to go public. While we dare not speculate on the short-term outlook of the IPO… if MasterCard’s recent offering is any indication, Visa’s will be the buy of the year:

There is no exact date set as to when Visa will begin trading, but rumor has it ticker “V” will be tradable by March 20.

The best perform sectors and worst sectors

we just need to follow where the money is flowing into so that we could track the potential leaders

10 Best Performing Industries
Industry Name Percent Change (over time selected)

DJ US Platinum & Precious Metals In... 17.39%
DJ US Heavy Construction Index 7.35%
DJ US Nonferrous Metals Index 7.18%
DJ US Steel Index 5.90%
DJ US Industrial Metals Index 5.58%
DJ US Full Line Insurance Index 5.39%
DJ US Mining Index 5.27%
DJ US Coal Index 5.18%
DJ US Gold Mining Index 5.05%
DJ US Basic Resources Index 4.50%

10 Worst Performing Industries
Industry Name Percent Change (over time selected)
DJ US Fixed Line Telecommunications... -6.27%
DJ US Telecommunications Index -6.18%
DJ US Mobile Telecommunications Ind... -5.45%
DJ US Footwear Index -4.53%
DJ US Internet Index -4.01%
DJ US Food Retailers & Wholesalers... -3.72%
DJ US Consumer Electronics Index -3.55%
DJ US Automobiles Index -3.53%
DJ US Mortgage Finance Index -3.33%
DJ US Specialized Consumer Services... -3.18%

Something you don't wanna miss in this market

I got this news from others.
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In the U.S., gas prices have crept up again. They’re now just short of all-time highs.
The national average price at the pump rose to $3.11 over the weekend, a dime short of last May’s record high of $3.21 and 75 cents higher than this time last year. The U.S. Energy Department recently raised its forecast for spring gas prices up to $3.40. If you ask us, that’ll be a bargain by 2009.

The dollar index continued its recent fall over the weekend, sinking deeper into the 75 range and now less than one point from its all-time low. The euro dug deeper into $1.48, and the pound rebounded to $1.96. The Canadian dollar is little more than a whisper below parity, at 99.7 cents. The yen rallied too, back to 107.

“If you’re keeping score at home,” notes Chuck Butler, “that's two consecutive down weeks for the dollar, after spending most of the early part of this year on the black side of the ledger. There were just so many pundits out there talking about a ‘dollar rebound’ in 2008 that the markets had to test the waters to see how it looked. And it just didn't look very good! The fundamentals just aren't there for a dollar rally in 2008.
“But hey! Stranger things have happened, eh?”

Gold’s price held steady all through the weekend , around $950, just off recent record highs.
To put that price in perspective, each Oscar statuette last night cost “the Academy” $100 more this year than it did in 2007, says Bloomberg. Gold has shot up 40% since the last Academy Awards, and according to Oscar spokespeople, each legendary trophy now costs a record $500. But even an enterprising Oscar winner won’t be able to profit from gold’s rise: By accepting an Academy Award, winners are required to never sell, trade or alter the Oscar before offering to sell it back to the Academy… for $1.

Friday's market view from IBD

Bond Insurer's Potential Bailout Plan Turns Market's Early Losses Into Gains.
Posted 2/22/2008

Stocks reversed sharply for the fourth straight session Friday, this time closing higher after shaking off early losses.

The Nasdaq followed Thursday's 1.2% loss with another decline early Friday. It was down about 1.5% in the session's final hour of trading. But a late rally carried the index into positive territory, closing up 0.2%.

The Dow industrials scored a bigger gain, finishing 0.8% higher. The S&P 500 matched that 0.8% advance, while the NYSE composite picked up 1%.

Volume picked up slightly on the NYSE and rose 4% on the Nasdaq.

The day's action capped a topsy-turvy week for the market. Four times the major indexes started in one direction, only to change course by day's end. Tuesday and Thursday brought negative reversals, Wednesday and Friday positive turnarounds.

That behavior points to a market that lacks direction, as well as any kind of conviction among big investors. A healthy market doesn't react that severely to every little headline.

The rally confirmed on Feb. 13 by the Nasdaq's follow-through day remains technically intact. But we need to see a lot more healthy gains in the broad market and leading stocks before growth investors can start buying aggressively.

Right now, you can almost count the market's total number of breakouts on one hand — most of those being late-stage commodity stocks.

For the week, the Nasdaq fell 0.8%. The NYSE composite fared better, advancing 1%. The Dow ticked up 0.3%, the S&P 500 0.2%.

Without Friday's late rally, the Nasdaq would have closed at its lowest level of the correction.

The session started with more weakness among battered financial stocks. Several beleaguered investment banks, weighed down by the impact of the credit crisis, flashed more losses early on.

A lot of smart people think Bernanke and the Fed are fast running out of bullets.

The FOMC said that its 125-point cuts in January "would likely not contribute to an increase in inflation pressures given the actual and expected weakness in economic growth and the consequent reduction in pressures on resources."

Translation: A slowing economy -- consequently slowing demand for raw materials -- will put the kibosh on any bad things that might happen as the dollar gets crushed. The Fed did, however, leave the door open for a “rapid reversal” in policy, should the need arise. After all, the Fed’s charter says it’s supposed to promote “price stability.”

To review: Cutting rates won’t increase inflation, because the economy is slowing down. But raising rates quickly will stem inflation in a pinch. Got it?

What happens to the economy, then? Hmmmn….

Oil closed at $100.01 yesterday, a record high

WOW, isn't it expected with the aggressive and irresponsible GOV and FED? They are crazy as they did in the past 10 years and tried to create more bubble. Gosh, where does the money come from for tax cut?
And of course, there’s your typical “rebel uprising” news from Nigeria this week… rumors that OPEC is going to cut production… and more than one CNBC cheerleader calling for a quick U.S. economic comeback, leading to higher U.S. demand.

“But the real reason oil finally broke $100,” says our oil man Bryon King, “is a fundamental shift in global production. The old ‘Seven Sisters’ are aging relics -- Standard Oil, Royal Dutch Shell, British Petroleum, Texaco, Chevron, Exxon and Mobil. They are no longer what they once were. Today, these poor spinsters collectively control less than 10% of the world's oil resources.

“The old seven have now been replaced by the new ‘Seven Other Sisters’ (SOS).” These are:

Saudi Aramco (Saudi Arabia)
Gazprom (Russia)
CNPC (China)
NIOC (Iran)
PDVSA (Venezuela)
Petrobrás (Brazil)
Petronas (Malaysia).

“The party line from the SOS and OPEC,” Byron says, “is that ‘the market is fully supplied.’ Well, only if you like paying $100 a barrel.”

breaking news:avid Walker Resigns as U.S. Comptroller General

“As comptroller general of the United States,” says David Walker, the federal government’s top accountant, ”there are real limitations on what I can do and say in connection with key public policy issues, especially issues that directly relate to GAO’s client — the Congress.”

You may recall, we’ve been traveling with David for more than a year documenting his efforts to educate the public on the fiscal issues challenging the country. Our film, I.O.U.S.A., featuring Mr. Walker among other luminaries, premiered at the Sundance Film Festival on January 19, 2008.

Despite the “very difficult” nature of Walker’s decision, he has chosen to leave his post at the GAO to become the president and CEO of the newly founded Peter G. Peterson Foundation. He made the announcement to Congress today.

“While I love both my job as comptroller general and the GAO,” said Walker, “I love my country more. And I believe that leading this foundation represents a unique opportunity and will be good for my country. My new position will provide me with the ability and resources to more aggressively address a range of current and emerging challenges facing our country, including advocating specific policy solutions and courses of action.”

As the head of the Peterson Foundation, Walker will oversee the billion-dollar endowment of Pete Peterson – former Commerce Secretary, the founder of the Blackstone group, The Concord Coalition, and legendary advocate for government fiscal responsibility. Chief among Walker’s duties at the Peterson Foundation will be the funding and advocating of projects that will enhance public awareness of fiscal imbalance, government deficits, and nuclear proliferation.

“We are at a make-or-break point in American history,” Mr. Peterson said of his new foundation. “The entitlement monster is unfunded. We are dangerously dependent on foreign capital, our health care costs per capita are twice the level of the developed world. The goal is to integrate public policy and charitable giving and to answer this question: How do you educate a public that has become largely inert?”

It’s now up to David Walker to answer that question. Walker’s resignation, coupled with the launch of Peterson’s fund, has broad implications for the future of fiscal responsibility in the United States, and more specifically, the development of our documentary, I.O.U.S.A.

Swiss banking monolith UBS announced its first-ever yearly net loss

It’ll close the books on 2007 down $4 billion.

Including today’s announcement of over $13 billion fourth-quarter mortgage-related write-downs, UBS racked up over $18 billion in such losses in 2007. Only Citigroup, with $21 billion, and Merrill Lynch, at $19 billion, can claim larger annual losses.

Spokespeople for UBS guessed 2008 would be “another difficult year.” We think they could be right…


But not if Hank Paulson and George W. Bush have anything to say about it: “After years of unsustainable home price appreciation, our economy is undergoing a significant and necessary housing correction,” Hank Paulson told Congress.

“The housing correction, high energy prices, and capital market turmoil are weighing on current economic growth,” he said. “I believe that our economy will continue to grow, although its pace in coming quarters will be slower than what we have seen in recent years.

“While we are in a difficult transition period as markets reassess and reprice risk, I have confidence in our markets. They have recovered from stressful periods in the past, and they will do so again.”

Focus more on Energy , signal from dow's component shift

We open today with a teeny sign of the times: Directors of the Dow Jones industrial average announced this morning they will change the Dow’s composition for the first time since 2004. Withering corporate giants Altria and Honeywell will be replaced with the swelling Bank of America and Chevron.

“We saw that the financials industry was underrepresented,” said Marcus Brauchli, one of the Dow’s caretakers, “notwithstanding the current turbulence -- and that the oil and gas industry's growing importance to the world economy called for another representative to join Exxon Mobil Corp.”

Altria will be removed because recent and expected spinoffs make it mostly a domestic tobacco manufacturer. Honeywell, despite outperforming the Dow by over 100% over the last five years, will get delisted from the Dow because it is and threatens to remain the smallest component by revenue/earnings of all the companies in the Dow 30.

Insider Buying buckles up!

insider buying among Wall Streeters has reached a 13-year high. In fact, January marked the first time since 1995 when CEOs and other senior corporate officials bought more of their own company’s shares than they sold. “Insider” purchases totaled $683 million last month in spite of the S&P’s 6% decline.

The last time insiders were net buyers, in January of 1995, the S&P rallied 34% in less than a year. What’s more, of the last seven times insiders bought more than they sold -- all occurring between 1988-1995 -- the S&P rallied an average of 21% in the following 12 months.

Among all the market’s sectors, net buying was most significantly found in communications, industrial, energy, materials and consumer cyclical groups.

opportunity associated with market dip

LIBOR -- the interest rate banks charge each other for overnight loans -- has gone down and even briefly dipped under the fed funds target rate. “That means,” explains Dan Denning from the other side of the planet, “the Western world's major banks are not scrambling for cash as desperately as they were a few weeks ago.
The falling LIBOR rates also suggest that the big banks are not as suspicious of one another as they were a few weeks ago. If that is the case, several financial stocks such as GS with low PE should deserve our attention.

If you still believe in US, Dollar, see what ISM tell you?

The U.S. service sector, savior of American consumerism, and roughly 90% of the American GDP, plunged into contraction during January for the first time in five years. The Institute for Supply Management reported early this morning its nonmanufacturing index dropped from 54 in December to 41 in January.
That’s a monumental change. A score of 49 or lower represents “contraction” within the sector. January’s score of 41 is the first below 50 since March 2003. And the lowest reading since 2001.

The number is so bad, in fact, the ISM released its data at 9 a.m. EST this morning, an hour and change ahead of schedule, in an effort to quell any leaks that might spook the stock market. In spite of an early release, the Dow opened down over 200 points.

Is the president responsible for the economics?

After chastising Congress for earmarks and pork barrel spending in his State of the Union address last week, the president unveiled the first ever $3 trillion budget proposal today. $3.1 trillion to be exact, but who’s counting the extra billions these days?

The man who once promised a more humble foreign policy and championed “compassionate conservatism” is now responsible for the first $2 trillion (2002) and $3 trillion (2009) government budgets… which is nothing short of incredible. It took his predecessors 200 years to reach the first $1 trillion in 1987.

What’s more, after repeating his promise to balance the budget by 2012, Bush announced the second and third largest deficits in the nation’s history. The $410 billion deficit projected for this year and the $407 billion projected for 2009 will be surpassed only by his $413 billion deficit four years ago. By what fuzzy math this is heading toward “balanced,” we cannot even hazard a guess.

“These are not insignificant changes,” Paul O’Neill comments in I.O.U.S.A. of Bush’s uncanny ability to add to the national debt. “These are monumental changes.”

“When you’re no longer able to service your debt,” O’Neill warns, “you’re finished.”

Back from New York

Finally got a chance to look at the real Wall Street by myself and really hope good fortune will follow up onto me somehow this year:) //bless myself
Gold buyers rejoiced en force on the rate cut news, too. The yellow metal surged to a record $942. Overnight in Asian trading, gold settled back to a respectable $926.

The Senate Finance Committee approved its version of the “stimulus” package yesterday. It’s already $12 billion heavier than when it left the House… now weighing in at over $150 billion. Despite the extra funding, the average American will actually get less than they would had the House’s $146 package gone straight to law.

The current version of the stimulus package encompasses a wider range of potential recipients… now anyone making less than $150,000 per year will get a check. The new package will also now include those living on Social Security and unemployment, while additionally extending unemployment benefits and lightening requirements.

"This package will put rebates into the hands of 20 million additional American seniors," said committee chairman Senator Max Baucus, “plus lower-income payroll taxpayers and disabled veterans -- all of whom will spend this money quickly and give our economy the shot in the arm that it needs.”

In 2007, new home sales suffered their worst yearly decline in history

reported the Commerce Department today. December sales registered an annual rate of 604,000 in the last month of 2007, down from 634,000 in November, thus bringing the total new home sales number for 2007 to 774,000. That’s a 26% drop from 2006’s 1.05 million new homes sold… the biggest annual drop since the government began tracking new home sales in 1963. The median price of such homes also fell by a massive margin… down over 10% from 2006, from $244,700 to $219,200.

So let’s take a second to absorb all of 2007’s housing data… The NAR reported the first ever annual decline in the average existing home prices, along with the largest fall in the pace of existing home sales in 27 years. Then the Census Bureau told us housing starts posted their biggest decline in 27 years. Now this, from the Commerce Dept: the worst year for new home sales on record.

Soros is still bearish on US

“The current crisis is the culmination of a super-boom that has lasted for more than 60 years,” adds the legendary investor George Soros in the Financial Times.

“The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises [preceding the current crisis] were part of a larger boom-bust process…

“Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the U.S. Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realize that the Fed may no longer be in a position to do so.”

Mr. Soros is famous for having made a billion dollars in one day betting against the monetary foolishness of Britain’s elite back in 1992.

2005‘s support works today

After SPX approaches 1250, the support line of year 2005, the market finally see a rebounce. The rebounce will not last long and should serve for a chance to unload the share for lower cost. The rebounce could be strong.

Following its “surprise” rate cut yesterday, the Fed released this statement.
“The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction, as well as some softening in labor markets... Appreciable downside risks to growth remain.”

I think we are at the edge of buying now

Today, finally we monitor the panic sell with double average volume in a 300 point down day. And what we need to do is to wait patiently for a reversal now.

Merrill Lynch announced a $14 billion write-down this morning, bringing its total past $22 billion in the last two quarters alone. The investment bank was forced to take a $10 billion loss during the quarter, its earnings statement reported, the largest dollar loss in the bank’s 94-year history.

Thus, this week alone, banks marked down some $34 billion in bad subprime bets -- $18 from Citi, $1.3 from JP Morgan yesterday, and now $14 from Merrill. Oy… we’re not out of the woods yet.


Homebuilder confidence stayed at record lows in January, the National Association of Home Builders reported yesterday. At a score of 19, the NAHB’s housing market index rose one point from the lowest score since the association began tracking builder sentiment in 1985. The NAHB had revised December’s housing market index record low score of 19 down to 18. Like most other housing surveys, a score of 49 or lower implies pessimistic sentiment and negative growth.

But of interesting note, the NAHB’s measure of six-month expectations rose unexpectedly. With a score of 28, builders now have the most confident short-term outlook since August 2007

Sucker Rally Yesterday, we probably need to stay away for a while

The U.S. stock market rallied yesterday, sending the Dow and Nasdaq up about 1.5% and the S&P 500 up just over 1%. Nearly the entire day’s gains were fueled by an early-morning earnings announcement from IBM. Big Blue beat fourth-quarter earnings estimates by a handsome margin.


But we’re willing to bet very few people noticed this: IBM's outsized profits were the result of currency moves in its global sales.

“If you take out the currency component,” Chuck Butler from EverBank points out, “IBM's sales increased 4%, not the 10% for revenues expected. Even big old (boring) IBM can make some money in the currency markets!”

In all, the move shows how desperate the Street is for good news.


And with good reason. Citigroup announced a cornucopia of bad news this morning:

- $18 billion write-down
- $12.5 billion cash infusion from outside investors, including Government of Singapore Investment Corp, Saudi Prince Alwaleed bin Talal and former Citi CEO Sandy Weill
- 41% dividend cut
- 70% decline in year-over-year revenue
- a 4,200 job cut -- at minimum
- $9.8 billion net loss -- the biggest quarterly loss in the bank’s 196-year history.

Merrill Lynch, Wells Fargo, JP Morgan and Washington Mutual all report earnings this week. While Citi is expected to be the worst of the bunch, similar write-downs and losses are practically guaranteed.

When the dust settles, this might be the worst quarter for financials since the Great Depression

Credit Suisse has Called to buy, shall we follow?

Credit Suisse has recommended an overweight position in U.S. stocks for the first time in 10 years.
By virtue of the weakening dollar and the Fed's easing cycle," said a report from the Swiss bank, “monetary conditions are now far looser in the U.S. than in Europe.” The authors of the report believe the Fed will be “more balanced in its assessment of inflation risks” moving forward. The same report suggested investors take on underweight positions in European markets.

Analysts at HSBC recently made a similar call.

Bush tried to save the market in his last year

The Dow had fallen nearly 150 points by 2 o’clock, but, by some market miracle, it managed to rally over 200 points in the final hour, to end the day up over 1%. The S&P 500 and Nasdaq behaved similarly, but fared even better… both rose 1.3%.

Yesterday, marked the first day in 2008 when all three indexes closed higher.

Why the sudden comeback, you ask. We searched high and low for a good reason for the sudden reversal -- ironically, led by the dogs of Wall Street such as JP Morgan, Citigroup, E*Trade and Merrill Lynch. Alas, we found only one shred of evidence for yesterday’s sudden reversal of a nasty six-day losing streak, penned by Ambrose Evans-Pritchard of the Telegraph:

“On Friday [Jan. 4], Mr. Bush convened the so-called Plunge Protection Team for its first known meeting in the Oval Office. The black arts unit -- officially the President's Working Group on Financial Markets -- was created after the 1987 crash.

“It appears to have powers to support the markets in a crisis with a host of instruments, mostly through buying futures contracts on the stock indexes (Dow, S&P 500, Nasdaq and Russell) and key credit levers. And it has the means to fry ‘short’ traders in the hottest of oils.”

Really Nice Reversal today

Today will mark the first rally attempt. Once we see confirmation, could get in the market again :)

Afternoon selling came at the expense of Countrywide Financial.

The New York Times, doing what it does best, kicked it off with a heart-manipulating expose accusing Countrywide of fabricating lending documents and burning blue collars in western Pennsylvania.

Then Lehman Bros. did what it does best… After a wicked session of dart throwing and chicken bone reading, analysts there decided to downgrade CFC stock. Their analysis suggested that Countrywide would never be able to return to former profit levels.

After that came the rumor. CFC, whispered traders, was about to declare bankruptcy. The stock got taken to the woodshed. By the end of the day, CFC stock had fallen 28%, to 5 bucks and change. Countrywide shareholders are down 80% since this summer.

“There is no substance to the rumor that Countrywide is planning to file for bankruptcy,” a spokesperson from the company shot back, “and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company.”

CFC investors should be familiar with that one… they heard it at $30 and $18 and $11. And this morning, CFC opened down another 15% right off the bell. They wouldn’t be straying too far from the script if Mozilo and his brood denied bankruptcy rumors all the way to $0.

Merrill claims "Recession"

We have continuously to believe that recession is here. However the trader won't and push it harder today after Merrill's report.
A recession in the U.S. “has arrived,” reports Merrill Lynch this morning. "According to our analysis, this isn't even a forecast any more, but is a present-day reality.”

"To say that the backdrop is 'recession like,’” Merrill asserts, “is akin to an obstetrician telling a woman that she is 'sort of pregnant.'" What a refreshingly mordant statement for a Wall Street bank. Makes our coffee taste that much better this morning.


And what’s this? President Bush appears to agree … umn, we think.

“Recent economic indicators,” he told a coalition of the mind-numbed yesterday in Chicago, “have become increasingly mixed.” It’s comforting to have such convincing leadership… this coffee is really good this morning.

“Core inflation is low -- except when you're going to the gas pump it doesn't seem that low; or when you're buying food it doesn't seem that low. Core inflation is low, but energy and food prices are on the rise -- have risen.”

And he knows this because he goes to the pump himself… and buys his own food. Oy.

China Merchantise Bank Daily Analysis

Recession is here, no doubt

If you’re the charting type, Friday’s hike in unemployment confirms a likely bottom at the end of 2006. The trend suggests higher unemployment rates to come:

The unemployment rate has now risen 0.6% in less then 12 months. Historically speaking, any rise of more than 0.5% in less than 12 months also indicates a recession:

Here I made a statement under the assumption that the Labor Department is releasing accurate numbers… during an election year.

“The jobs report was heavily manipulated to keep the payroll number positive,” says government stats watchdog John Williams at shadowstats.com.

“Politically, it is extremely important for the Bush administration to keep the monthly jobs changes on the plus side, because a down month or two could provide the timing base needed for the National Bureau of Economic Research to call a recession, and such is not wanted in an election year. As with the month before, the reported monthly payroll gain was statistically indistinguishable from a monthly contraction.

“Keep in mind that beyond the standard gimmicks, the Bureau of Labor Statistics simply can report any jobs number it desires. The current message from the reporting seems to be that the administration does not want to show a recession, but it would like Mr. Bernanke to ease further.”


And if last week was any indication, the stock market won’t be faring very well in 2008, either. Be careful of the coming ER season, it won't be any upside surprising.

Yesterday marked the worst start of a new year that Wall Street has seen in 25 years

From the Financial Times : “The Dow Jones Industrial Average fell 1.7 per cent to 13,043.96 points, its worst percentage decline on the first trading day of a year since 1983. The S&P 500 closed 1.4 per cent lower at 1,447.16 and the Nasdaq Composite shed 1.6 per cent to 2,609.63.”

Turns out the markets weren’t too keen on the ISM data that showed manufacturing had weakened in December, sinking below 50 to 47.7.

Theory says when the ISM hits a level of 45 for two consecutive months, it indicates a recession. We are definitely in a turmoil situation worse than we have expected.

The minutes from December’s FOMC meeting were released yesterday, showing that the Feds believe they may need to cut rates again. Apparently, the turmoil in the housing market was worse than they expected, and surprise, surprise, it has affected consumer spending. According to the minutes, “tighter credit condition, higher gasoline prices and the continuing housing correction might be restraining growth in real consumer spending.”

Basically, the Fed is caught between a rock and a hard place – nothing new here. They are trying to fight inflation while dealing with the slowdown in U.S. growth.

There were some bright spots for traders yesterday, however...energy stocks and precious metals.

Gold futures hit a high not seen in 28 years today, surging above $860 an ounce. The yellow metal ended the year with a 31% gain – its seventh consecutive year of gains.

Will gold continue its winning streak in 2008? Of course only time will tell because no one can predict the future. Nevertheless, one thing is certain. If central banks persist with actions that debase national currencies, the gold price will continue to rise in terms of those currencies.

Given all the debasement that we have seen over the past seven years, it seems like a sure bet that central banks are not going to change their ways. Their pronouncements to ‘fight inflation’ and to protect a currency’s purchasing power are nothing more than hollow rhetoric.

Meanwhile, crude oil hit $100 a barrel on the weak dollar, geopolitical uncertainty – and the possibility that global demand will outstrip supplies.

Gold surged to an all-time high this morning.

The precious metal rose from $836 to $848 in morning trading, just a breath away from its record high of $850, set in 1980. By lunchtime, gold had soared to just short of $860, and continues to rise.

“It looks like gold is in the midst of a breakout of its two-month consolidation,” writes our gold adviser Ed Bugos. “If confirmed, we are likely to see at least a $100 rally in the next few weeks, and the bulls may even challenge the $1,000 level as early as February.

“The longer I spend looking at my charts, the more I’m convinced that the market is poised for a history-making move. The time is ripe for the bulls to challenge $1,000 and wake the world up with a foray into four-digit terrain. Let the fireworks begin!”

The fireworks began awhile ago for gold’s die-hard fans. The metal rose over 31% in 2007 -- its seventh consecutive positive year versus the dollar.

Focus on :ABX, NG, AZK

Happy New Years!!!

Happy New Year to all friends here, wish the best with trading in 2008!:)