I wrote the following article, Risk is High!, on my blog on September 29, 2008 before the market began to crash.
I have one word to describe what is going on with the economy and stock market right now....Wow! It is hard to believe since the last monthly CMR was sent out the speed at which Wall Street has virtually disappeared and the stock market has lost a couple thousand points. Actually it is not hard to believe because the long time subscribers and readers of the past CMR issues knew this economic collapse was coming. I have warned everyone about it for the past two years. I hope many of you have taken the necessary steps to insulate your investments from this mess. If you have procastinated and avoided doing anything I think you may want to rethink your strategy.
If anyone would like a referral for a financial advisor for your investment accounts, 401k, etc. you are welcome to email me and I can point you in the right direction to somebody who uses similar risk management techniques I have discussed in the past. I only recommend advisors who use Tactical Asset Allocation NOT Buy and Hold. I do not manage personal accounts but would be glad to point you in the right direction if you are not happy with your current portfolio performance. I even know a gentleman in Florida who can help those of you with High Net Worth accounts set up Swiss Bank Accounts as long as you have over $500k. Be very careful with due diligence if you happen to want to buy stocks, real estate in Charleston or any other market right now. Nobody has seen a real estate or stock market like the one we are in right now in over a hundred years. So if you are being fed a line of bull by someone then get a second or third opinion before you make the investment decision.
The following is NOT doom and gloom BUT rather reality. The Global financial system is at risk of a meltdown and severe depression right now. As I have stated so many times in the past, the problems are the credit markets. That is where the problem started and that is what is currently causing the stock market to crash. There is absolutely ZERO confidence among banks to loan to each other right now. We not only have a severe recession, financial crisis and banking crisis in the United States but also Japan, Europe, UK, Canada, Iceland, Russia and I am sure I have missed others. Many of these countries are advanced economies that represent 55% of the global GDP which is why the entire world has turned into "Bailout World."
Below is a 5 year chart of the TED Spread from Bloomberg. This chart illustrates the problem in the credit markets right now.
Those of you who have read past CMR Reports will remember me saying how painful the deleveraging process can be and unfortunately now you are witnessing this process unwind before your very eyes. It sucks doesn't it? Just ask Wachovia, Merrill Lynch, AIG, Bear Stearns, Lehman Brothers, Phoney Mae, Fraudy Mac and the countless others who are now in financial heaven.....history. The "lending bubble" I mentioned two years ago in the P&C is now popping and very few are immune in Charleston, the U.S. or the world. It has been very frustrating for me to to argue with many "experts" in Charleston regarding my comments over the past two years and I just hope and pray that some of you have listened and taken action to prepare for this situation. This recession will be long and painful because it has been generated over years of excess leverage, the securitization of crappy and good loans into AAA rated financial instruments, the rating companies giving this mortgage paper a AAA rating when it was anything but AAA, an unregulated CDS (Credit Default Swaps) market that clearly is NOT working and countless people just not doing their jobs and giving into pure excessive greed.
The problem is we keep focusing on "they," "Big Mama," or The Government to fix the current problems. I was against the bailout for many reasons and will not get into it right now. The Barnum and Bailey Circus Side Show of Congress passing the $700 billion Bailout Bill was part of the problem NOT the solution. What is perplexing to me is that why Mr. Paulson waited to the last minute to shove a $700 bil Bailout Bill down our "Fearless Leaders" throat. Actually this "Bailout Boondoggle" is just another gigantic Money Laundering, Black Hole and Financial Abyss where there will NOT be any oversight and who knows where OUR money goes in the future. If you really want to know become a "fly on the wall" in Goldman Sachs. Do you know how the money in Iraq is being spent? I did not think so and you will not know how this Bailout money is spent either and I guarantee you it will not be in our best interest.
Have you noticed how all these Goldman Sachs Clowns, such as Paulson, Neel Kashkari (The New $700 Billion Bailout Czar) Bob Steel (Wachovia CEO), and many others are in such powerful positions in the financial system?
Have you wondered why Paulson, whom is one of the architects of creating this securitization process and economic cluster_____, is given the power to fix it?
Just thought I would ask. Things that should make you go hmmm.
Nouriel Roubini cleverly states:
"This disconnect between more and more aggressive policy actions and easings, and greater and greater strains in the financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March, the rally in equity, money and credit markets lasted eight weeks; when in July the U.S. Treasury announced legislation to bail out the mortgage giants Fannie and Freddie, the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the U.S. government, the rally lasted one day, and by the next day the panic had moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion, the market did not even rally for a day and instead fell 5%. Next when the $700 billion U.S. rescue package was passed by the U.S. Senate and House, markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next, as authorities in the U.S. and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.), the stock markets and the credit markets and the money markets fell further and further and at accelerated rates day after day all week, including another 7% fall in U.S. equities today."
"When in markets that are clearly way oversold, even the most radical policy actions don’t provide rallies or relief to market participants. You know that you are one step away from a market crash and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway."
The main reason the stock market is crashing right now is that:
1. There are no buyers.
2. There are large margin calls being placed on Hedge Funds because of bank related loans.
3. Investors are starting to panic.
4. Governments think they can fix the markets by pumping endless amounts of money into the markets. Can you say hyperinflation in the future? Is there enough green ink in the world to keep these printing presses going?
Where is the stock and real estate market bottom?
"Never try to sell the top and never try to buy the bottom. it can't be done except by liars"
When I look at the technicals this stock market is extremely oversold BUT it could get worse if nobody is buying and everyone continues selling. One thing I do know is that it will not last forever.
* In 2002, intra-day the S&P 500 was down as much as 33.05% on a Year-To-Day basis. Looking at the S&P 500 this year it is down nearly 33%. For some perspective, during the 2000 to 2002 period, the S&P 500 was cut in half as it lost half of its value from March 2000 highs to 2002 lows.
* The reading on the NYSE Bullish Percent (BPNYSE) is 5.48%. This takes out the January chart lows of 16% (actual reading was 14.58%). This also puts the BPNYSE at its lowest reading since 1987 when it hit 6%. In 1974 the BPNYSE fell as low as 8%. * In 2002, the lowest the BPNYSE chart got was 24% and in 1998 the BPNYSE got down to 20%.
* There were 2223 new lows on the NYSE on Wednesday which is by far the highest number of new lows we have seen in a single day. The High-Low Index is now at 2.31%. * The lowest reading in the NYSE High-Low Index came in October 1987 at 0.7% and in March 1980 it came in at 0.9%.
* The Dow Jones and S&P 500, and most other major indices, are now more than 100% oversold levels on their 10 week trading bands. On June 27th of this year the DJIA got 117% oversold on that trading band. In July 2002, it was 116% oversold and on September 21st, the DJIA was 161% oversold. The average stock is now 92% oversold on its ten week trading band as seen on the Weekly Distribution for All Stocks (WDALL).
After the collapse of Bear Stearns the G7 should have had an emergency economic summit to bring in the best and brightest OUTSIDE of government to help address solutions to this mess. Now, it may be too little too late because certain companies have been selectively allowed to remain in biz and others were selectively allowed to fail. Welcome to the Great Unwind! Lehman Brothers will unwind their debt today in the open market. When the G7 meet this weekend I will tell you what they should do. GET THE HELL OUT OF THE WAY AND QUIT MANIPULATING THE MARKETS OR IT WILL GET WORSE!
Let me just state as I write this report to all of you that I am extremely pissed off. Part of the reason I am writing this is for own my personal therapy. :) Writing helps and many of you should try it. I am upset how so many things have been handled and how it appears to me that the enemy is within due to a combination of intentional actions and pure stupidity. I hate seeing unemployment go up, bankrupcies increase, marriages and families destroyed, etc. over poor economic strategies and policies. Unfortunately, as Mr. Dorsey says, "What is is." We all have to deal with it now.
Let me end this ticked off rant on a more positive note. I appreciate you reading this and if you have reached this point of the report and I hope it has helped a little bit. At the end of the day I am a believer that "Everything Happens for a Reason." Even though the financial world is in a bit of chaos right now, I do believe, hope and pray the world will change for the better in the future due to our past economic mistakes. There is nothing any of us can do about the past behavior and decisions of the individuals responsible for this mess except try to forgive them and vote some of them out of office. Please do not allow Fear to destroy your life right now but rather have Faith you can overcome any personal obstacles you may be facing right now. Maybe these global financial problems will create a more loving and understanding environment among our fellow nations. Maybe the governments around the world will get so broke none of us can afford war anymore. Maybe these financial tough times will bring more people together and force everyone to wake up and place more emphasis on their personal finances. Maybe this is the start of a new economy which focuses less on greed and more on peace on earth. I know some of this sounds cheesy but many people's lives are being destroyed right now so if you can lend a hand to the less fortunate right now please do it.
I reiterate if anyone needs help or a referral with your own personal financial situation please feel free to email me and I would be happy to try and help you.
There will be more details in the Q3 CMR. Until then please pray the leaders making the important decisions look out for us and not just their business buddies.
Take Care,
brad
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
