What Goes Up…
A Tyler Durden piece over at Zerohedge.com tipped by a reader Monday is a fine place to begin a Tuesday morning conversation about “How frigging crazy are we?”
The answer (looked surprised, OK?) is very crazy, manic, irrational, and insane - but thanks for asking. The behavior of markets is nothing more than numerical evidence of something we all know deep down inside anyway; we just don’t like to talk about it.
The Durden article makes the case that we’re in a market now which sees the “S&P Price Oscillator is three Standard Deviations from Mean: 99% outlier Market.” Or, if the coffee hasn’t sunk in yet, the market’s in a 1-in-a-hundred kind of rally.
With a modest pullback in gold in the early going indicating perhaps a soft start to the Dow today, we have to start looking for my (still expected) decline back to a test of the March 2009 lows around Dow 6,627 before the one final run up till August/September of 2010 which now seems like the time when widespread recognition of the Second Depression ought to be sinking in.
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Here’s one of the drivers to be watching: I was talking to one of my sources who’s pretty well ‘plugged-in’ to the commercial real estate market. “You know George, I’ve got one client who is a national retailer who has just negotiated a zero rent deal because the landlords are becoming so desperate to keep big-name tenants in operation…because when anchor tenants go, the traffic count drops and the remaining stores in a strip get upside down and the owners then find their properties in a downward spiral. So what we’re seeing is a lot of the anchor tenants are renegotiating great deals…”
Great, that is, if you don’t own commercial real estate. And I’m not talking the BIG malls - I’m talking the smaller strip kinds of malls.
As these huge rewrites of rents start rolling in to cash flows happens in early 2010, that will probably add to the woes of commercial real estate which tends to be a lagging sector.
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The Big Picture to keep in mind here is that when you see deals like Warren Buffett buying things like railroads, there’s a better-than-even-chance that he is buying because it’s a ‘fixed asset play’ that’s much more resilient than owning malls, strips, and so forth.
We kicked around “Why would he buy 100% of Burlington?” Especially since he is apparently planning to sell off his Union Pacific and Norfolk Southern rail pieces in order to own 100% of BN.
My source and came to appreciate that by taking BN 100% under the Berkshire umbrella, Buffett’s outfit would not have to report its rail operations separately. Thus, because the Interstate Commerce Commission is hardly regulating much of anything (except safety issues, driver hours and such) that would give Berkshire an opportunity to play poker essentially with other players while never having to show their hand.
So once again - it’s a sheer genius move by Buffett: He’s buying this huge inflation hedge since the replacement cost of all the rail stock and real estate under BN tracks has to be worth probably somewhere in the trillions.
In yesterday’s column I talked about my ‘poor man’s fixed assets’ project: Machine tools for the shop here at the ranch, a tractor that’s only 3-years old with only 220 hours on it, a collectable old air cooled sports car, and having no credit card debt plus enough real estate that’s paid for such that as global synchronized inflation comes along, our fixed assets replacement costs ought to zoom such that my next year (summertime) we can unload a few things having gotten desired use out of them, recoup probably our purchase price and maybe then some. No, it’s not a railroad, but it’s a start.
Looks like Buffett’s plan is in a sense the same thing, except he gets to play engineer on a big railroad and I have to be satisfied with a smooth-shifting five speed. He gets to move more zeroes around, for sure.
Probably the reason Buffett has so much more money than me is that I’ve wasted a lot of personal resources on projects like learning to fly airplanes, whereas Buffett had the good sense & focus to just make oodles of money and hire the plane and pilot. To each his own; Life seems like a tradeoff between focus and fun all too often.
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I suppose we could go through lots of technical discussion about why this market is overbought, but the simple part is that the turn down can come any time, or we could rally north of 10,500. Arguing against going too much higher are indicators like the report that German investor confidence is falling, and the HR department at Lloyds bank rolling grenades on 5,000 more workers.
Also making the case for ’synchronized global inflation’ is the drop in the pound today as Fitch said - in some many words, that the British credit rating is more at risk than ours.
If you’ve played the rally since March, “Get thee to the sidelines” seems like a fair approach. Especially since we’re now in 1% country as Durden’s work points out. As usual, this is NOT FINANCIAL ADVICE. Think of it like…oh… financial suicide prevention comes to mind…
Got What We Came For Department
Does the headline “Iraqi Cabinet approves Exxon-Shell oil deal” mean we can send fewer troops to the sandbox?
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Don’t you wish? Nope: Word is Obama is sending another 40,000 troops to Afghanistan.
PM’manship
The BBC News Magazine has a rather interesting article seeing as I’m such a $275 gold Gordo fan: “How does Brown’s handwriting compare with other PMs” they ask.
Well, at least he can write…that’s…er…reassuring.
Speaking of the BBC
Journalism at its finest here: BBC has also been covering the adventures of a female college student who was kicked out of school for wearing a mini skirt. She’s been readmitted to school, they report - but that’s just a good starting point to a finely honed investigative journalist like…ahem…..
“You’re going for a bad pun…like ‘Built like a BRIC________‘?” you worry.
Never anything so gauche! This is a serious (or nearly so) financial news & comment site, after all.
No, the BBC story launches us into a discussion on the application of hemline theory. You know - the one that says as go hemlines, so go markets. Hemlines going up should mean strong rally and upward movement while ankle-length attire would indicator declines or Depression.
The Dow is up something like 7% while the Bovespa is up around 75-80%. Conclusion: If our government is so damn smart…why aren’t they promoting miniskirts to get the economy rolling again, huh? Look what it’s doing in Brazil!
Rainy Night in Georgia
No, not Brook Benton - just knowing that likely makes you a Boomer, though. Tropical storm Ida is what we’re talking about.. Looking at the weather radar for Atlanta today the drought seems so long ago and far away….