As you can see on this chart…
…there was a very interesting ‘split decision’ issued by the markets last week. On the one hand, the Dow has scored a decline of sufficient size to close under the November (’08) closing lows. Technically this would seem to ‘open the gates of hell’ on the short side for the Dow.
On the other hand, we see that the S&P 500 has not yet closed under the ’08 fall lows and this is why it will be such an interesting week to watch.
So what’s my best guess? I try to look for very long-term historical guidance. One of the indicators that a sage investor (one who has lost less than you, perhaps?) would be to look at the Dow Transport Index. We see by looking up the historical prices (on a weekly closing basis) over at Yahoo Finance that on for the week of November 17, 2008, the transports closed at 3,122.75.
Then we look at the Transports close for last week and what do we see? The Transports closed at 2,698.97. That’s a whopping 13.5% lower than mid November 08 – and what this seems to suggest to me (although the coffee isn’t fully saturating my brain cells yet) is that I would expect the broader market to drop to similar levels.
Which means what? Well, given that the Dow on a closing weekly basis was around (what does that chart at the bottom of the page have circled?) 7,548 times whatever the transport decline was. I’d put it around 6,523.681 (plus or minus a stick of chewing gum).
And here’s the BIGGIE: That assumes the Transports are done falling for now. They very well could decline further and that occurrence should give anyone foolish enough to play the long side of this puppy a real Excedrin-sized migraine.
Oh, one more thing. While the S&P may not have broken the intraday lows yet, on the weekly data, you’ll see that the S&P was at 800.03 the week of November 17th, so…
Armed with all this, and that some folks will insist based on a hundred point bounce today that the sky has parted and that ‘good times are just ahead’ I’ll just sit here in junior curmudgeon mode, throwing back Mrs. Olson’s as fast as I can to stay awake through another round of the “bottom picking” which is almost a certainty by, oh, 11 AM today.
Not that any of this is trading advise. Why, if you’d take advice from me you’d take advice from any old stranger on the street. Granted my track record is a little better than most fund managers, and come to think of it, most people on the street given three or four darts could do as well against most funds, but remember my position for many, many months has been what? Wait until the lows are really in.
I don’t think they are, yet.
Could gold have one more head-fake to the $725 area? You bet! Would that be when ol’ George loads up on a few commodity calls? Uh huh, sure. And the same on oil, which I reckon might get back down to the mid to lower 30′s yet? Yup…that’d be my game.
But we never really know until the fat lady sings and despite the $53 pop in gold prices last week and what sounds like some singing off-stage somewhere, we’re not there yet. Best advice right now? I don’t give advice. I just throw dots up all over the place and it’s your job to connect them.
Nationalizing Banks, Redux
The second thing on my agenda this morning is to ask you to sing another chorus of “Rewarding Bad Behavior” while I somberly report that the federales may take as much as a 40% bite into flailing Citi. Of course, this would dilute existing stockholders values, which is one reason the stock has lost…hand me the calculator, wouldja?…roughly 96.45% of it’s value from the 55 area down to a $1.95 last week.
I have to admit a certain degree of mixed emotions on this. Without Uncle / Obama putting zillions into these losers, we would almost have bank runs and bank holidays. Oh sure, there are still linguistic pointers in that direction anyway, but the theory is that avoiding bank runs will prevent the realization by the population that there’s a Greater Depression underway right before our eyes. Which is why in Cliff’s work at www.halfpasthuman.com, the linguistics keep using words like ‘surreal’ to describe the situation ahead for the next six months (and beyond).
Since you may not look at such things the same way I do, here’s a grand little quote out of the Asia Times posting of Doug Noland’s Credit Bubble Bulletin that illustrates the point:
“The markets are now abuzz with “nationalization”. “The horse seems to have left the barn,” as they say. One way or another, a reasonably functioning banking system is an absolute priority. We are in for a fascinating few weeks, as the US Treasury and Federal Reserve grapple with what dramatic measures would have the highest probability of effectively restoring confidence in the banking system. The environment is almost surreal. “
The way I have it figured, by the time the competitive collapse of currencies world-wide gets underway (not later than late May) Noland ought to be able to safe eliminate the use of “almost” as a modifier of “surreal”.
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Not like I’m the only one with mixed feelings on this. Nouriel Roubini who seems to have taken over Dr. Marc Faber’s moniker as Dr. Doom, figures that the takeover and resale approach to banks is a ‘market-friendly’ solution.
Unless, of course, you happened to be in a fund which invested in Citi when the stock was in the 40′s and rode it down to recent levels. In which case, it ain’t so friendly, is it?
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As the International Herald Trib reports that “As doubts grow, U.S. will judge banks’ stability” I go back to scratching what’s becoming a much larger bald spot lately and wonder “If these clowns didn’t see it coming and couldn’t stop it, why should anyone in their right mind trust the now?”
Oh…wait! That’s it! With over half the American population on some kind of coping pharmaceutical, there aren’t enough people in their right minds to make a whit of difference! It’s all starting to come into focus, isn’t it? A little more fluoride, please, have another Prozac, a shot of el Don and this too shall pass.
Seems Everyone’s Talking About Banks
Here’s a press release just in:
Joint Statement by the Treasury, FDIC, OCC, OTS, and the Federal Reserve
The U.S. Department of the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board today issued the following joint statement:
“A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.
“We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares. The conversion feature will enable institutions to maintain or enhance the quality of their capital.
“Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized. This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy. Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.”
Huh? Did that mean anything? More coffee…I must be missing something…like details of where the money went and why Fox and Bloomberg have to sue to get details of what’s really going on down at the public ledger level… So is this morning’s statement like an anti-bank-run deal, or what? I am becoming way too cynical, I suppose. But now that I’m over 60 maybe this is what an onset of senility is like…Yeah, that must be it: Save the banks, wrap it up with apple pie and moms and see who salutes…got it!
FMTT (Texting Hint: may be related to an old Special Forces phrase which ends “…me to tears…”)
Globalism Stew
What if I had a new consulting client…the PowersThatBe? Why, if I were doing the morning briefings for the PowersThatBe, my report for today would go something like this:
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‘We oughta be able to whip up some anti-Iran frenzy among the sheep by pointing out that “Iran plans ‘pre-commission’ of nuclear plant” this week. Oh, and let’s do what we can to make sure that the US MSM doesn’t give any coverage to Amnesty International calling for an Arms Embargo against Israel for its conduct in Gaza....’
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‘Our sending Hillary to China to beg them to keep buying US debt instruments seems to be working. As long as China’s got skin in the game, no real changes are necessary – they don’t want this Second Depression any more than we do…they’d have a revolution on their hands.
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‘Hey! How about we whip up some anti-socialism content for right-wing talk show dweebs by putting out the story that “Chavez makes brief surprise visit to Cuba“. Yeah, that’ll maybe work…and keep the sheep from seeing that our socialist takeover of America is a done deal…except for 40% of Citi this week and maybe 40% of BofA after that…How about we get Richard Lugar to talk about rethinking the embargo? We might get some new resorts, exploit their sustainable agriculture mindset and boy, have you seen how good their health care system is in that Michael Moore flick Sicko? Think how much money we could make with that! We could load up Cuban health care workers with special visas like we did with other groups we wanted in the past…’
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‘We’ve got the Swiss swinging back at the US for daring to try and get the American names (like our PTB members) who have secret accounts in Switzerland…we oughta be able to stall that through summer…’
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‘Nice work getting Soros to see no bottom for world financial collapse…got lots of ink on that…’
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‘ We could maybe get more dollars into the ‘defense’ industries if we start doing some promotion of now North Korean Missiles can hit U.S. bases...” Yeah, that oughta send more funding our way…’
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‘We oughta do something about that nutjob in East Texas who keeps asking questions like “Why hasn’t the Port of Seattle posted January 2009 cargo traffic numbers yet?“ Not something we want folks thinking about.. more grist for the talk dweebs there, too.’
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‘Oh…and don’t forget to have your mega-yachts all in Brazil for the opening of Carnival…no pesky bloggers to pick up on our antics there, huh?’
See what a fine PTB advisor/briefer I could be? All that’s missing is a couple of million a year in compensation plus a UBS account in Switzerland….
Bad to Worse
No, not my writing; the economy, silly! “Forecasters: Economy worse in ’09, better in ’10.“
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How about Housing Prices? Yaley Robert Schiller says house prices are still way too high. Case-Schiller Index due out tomorrow. Also: Consumer CONfidence. Me? I’m waiting for the mass layoff report this week…
And Really Worse?
Glen Beck’s recent War Room “Worst Case Scenarios” – three parts for now – up on YouTube here. Don’t think he’s done ‘summer of hell’ but give it time….
Pop Goes the Airline
US Airways won’t be charging for sodas on its flights. Now, if they’d just do the same with beer, I could get behind it… high fructose corn syrup and additives? My opinion? People should pay to poison themselves, but I’m not in charge of an in-flight department anymore – that was long ago…
