Archive for November, 2008

Live Video from Mumbai

Thursday, November 27th, 2008

As America spends its Thanksgiving in a honeymoon period with its President-Elect, India is suffering a horrendous terrorist attack. There is significant debate about whether it is al-Queda or not, but who ever is responsible has certainly caused horrific damage.

If you want to keep an eye on it, you can check out this live video from CNN India at:

http://ibnlive.in.com/videos/video_streaming.php

Just copy/paste into your browser.

Lets all be thankful that we are safe and healthy and able to spend the day with friends and family, free of terrorist acts — and lets all hope that the reports of al-Queda plans to bomb Penn Station in New York have been averted as well.

Happy Thanksgiving!

Mark

Amounts Committed and Spent Already on the Crisis

Wednesday, November 26th, 2008

I had a couple of questions from people wanting to know how Bloomberg calculated their $7 Trillion total commitment by the government to date to deal with the financial crisis. They did not provide the details, but I put together the spreadsheet above for your review.

It shows that we have committed to spend a bit under $8 Trillion actually(and that does not count anything for the auto makers or the economic stimulus package coming from the Obama administration that is estimated anywhere from $500 billion to $1 trillion). It also shows we have spent a bit over $1.3 trillion so far.

The spending comes in four primary areas: Economic Stimulus Packages, Guarantees of Debt, Equity and Debt Purchases, and Low Interest Loans.

I'll try to keep this up-to-date and re-publish it from time-to-time.

Have a Happy Thanksgiving!

Mark

Trying To Maintain A Positive Outlook, But…

Tuesday, November 25th, 2008

Bloomberg News is reporting that with the current bailout of Citibank, the US Government has now pledged $7.76 Trillion, or $24,000 per Citizen of the USA, or 1/2 of last year's GDP to bail out the credit crisis. This is more than the previous amount reported a few days ago because it includes the new Citi money plus the contingent liabilities the government is assuming.

Ack! I'm dying here…

To put it another way, these numbers are so big that it is more than double the cost of the following things (as adjusted for inflation, no less) from our history:

Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

I think I am losing my mind.

The only way to equal the costs pledged so far is to add in:

World War II – Original Cost: $288 billion, Inflation Adjusted Cost: $3.6 trillion

After adding in WWII, we are still short by several Billion inflation adjusted dollars. And, we haven't even gotten to the cost of the stimulus that the new administration will implement.

The government printing presses are in hyper-drive mode…at some point in the not-too-distant future (months, not years, in my opinion) the reflation process gets traction and it will be like that big ball that chases Indiana Jones in Raiders of the Lost Arc…gold and commodity investments will be our friend once again.

Mark

(credit for the source information goes to Barry Ritholtz, Jim Bianco, and Bloomberg News)

Share Your Vision of America with the President-Elect

Sunday, November 23rd, 2008

Just follow this link and let our President-Elect know your thoughts on ways to improve things:

http://change.gov/page/s/yourvision

(you'll need to cut/paste it into your browser).

My suggestion was very practical; since we are going to provide incentives to stimulate the economy, lets accomplish something positive with them (Japan stimulated during their deflationary decade, but they build bridges and roads that no one used – it did not have a positive impact on their society):

1. adopt the Pickens Plan for Wind Farms and Natural Gas – lets reduce dependency on foreign oil imports and reduce carbon emissions (carbon is building up in the atmosphere – I don't know if global warming is happening or not, but the carbon increases are proven)

2. provide incentives to gas station owners to change to LNG pumps – lets put people to work manufacturing and installing the pumping equipment

3. remove incentives to oil companies for oil production and switch it to natural gas production incentives – lets provide incentives to produce low cost domestic sources of fuel that are cleaner than oil/gasoline

4. provide incentives to auto makers to retool their plants and being to produce cars that run on LNG – put people to work manufacturing cars that will be in demand

5. provide incentives to consumers to convert their current vehicles to operate on LNG – LNG operated vehicles are cheaper than gasoline operated vehicles, another financial stimulus to the general population

6. provide incentives to build the wind farms for electricity production – it will replace a meaningful percentage of our current electricity produced by oil

7. provide incentives to build nuclear plants for electricity production – it will also replace a meaningful percentage of our current electricity produced by oil. The new plants are safe (ever hear of a nuclear problem in France that generates > 80% of its electricity with nuclear power) and the waste per year per plant is equal to less than the contents of a five gallon bucket.

So, write in and give him your thoughts. Yours will likely be more interesting than mine.

Mark

The Technical Setup For the Market

Sunday, November 23rd, 2008

Since the beginning of this crash, I've been trying to figure out how low we'll go and when we'll retrace a big part of the downward pattern. I've been watching various intermediate term technical set-ups and what I think has happened is that since this is a crash and not a typical correction, we need to look for a more secular sort of pattern to the market.

I've written before that market returns are made up of two components: earnings and sentiment. Technical patterns fall under the sentiment category as the swings in prices represent emotional highs and lows of investors. Given the highly emotional state of the market currently, the technical picture plays a huge part in the success of an investment portfolio, much more than temporarily depressed earnings.

So, with that, I started reviewing more indepth but less frequently observed patterns. The pattern that seems to most closely approximate our current market action is the Wycoff Spring. As described by Barry Ritholtz, a Wyckoff Spring occurs when a market average (or stock) falls below its trading range, and makes a new "panic low" — and then "springs" back into its previous range.Its a relatively rare situation, one that is usaully associated with a sell off.

As you can see in the template for the Wycoff Spring above (Source: San Francisco Technical Securities Analysts Association), it starts with a big selloff that ends with a bounce higher before it moves back down to establish a low (in our current situation, it would be the October 10th low). It then moves into a trading range as investors get excited or depressed by any news that sets their emotions to buy or sell. Next, some piece of news happens to get it to sell off into a new panic low that is below the previous selloff low (in out situation, that would be last Thursday – see point 8 on the template), before bouncing back into the trading range ( Friday's action – point 9 on the template).

If the pattern holds true, then we should work our way back to the pre-crash levels of the markets (on or about mid-September levels) in a few weeks. That will be back to roughly 20% down from the market highs from the current 40% down levels. Not the best news ever, but certainly better than what we've had the last 9 weeks.

Realistically, we could certainly be anywhere in the pattern, like point 7 and immediately after, with a long way to go before we get to the spring higher. In any event, we are working our way through the bottoming process and eventually we will work our way higher at which point we will be implementing the recession asset mix discussed several posts ago (swapping into higher dividend equities that will pay us to endure the time requied for the economy to make it back to positive territory. Given the seriousness of the problems we have, it will likely take some time and the dividend income from these equities will provide help us weather the storm.

Hang in there!

Mark

CNBC Reports Total Spent on Crisis

Tuesday, November 18th, 2008
Financial Crisis Tab Already In The Trillions
CNBC.com | 18 Nov 2008 | 04:38 PM ET

Given the speed at which the federal government is throwing money at the financial crisis, the average taxpayer, never mind member of Congress, might not be faulted for losing track.

CNBC, however, has been paying very close attention and keeping a running tally of actual spending as well as the commitments involved.

Try $4.28 trillion dollars. That's $4,284,500,000,000 and more than what was spent on WW II, if adjusted for inflation, based on our computations from a variety of estimates and sources*.

Not only is it a astronomical amount of money, its' a complicated cocktail of budgeted dollars, actual spending, guarantees, loans, swaps and other market mechanisms by the Federal Reserve, the Treasury and other offices of government taken over roughly the last year, based on government data and news releases. Strictly speaking, not every cent is a direct result of what's called the financial crisis, but it is arguably related to it.

Some 68-percent of the sum falls under the Federal Reserve's umbrella, while another 16 percent is the under the Troubled Asset Relief Program, TARP, as defined under the Emergency Economic Stabilization Act, signed into law in early October. (The TARP alone is bigger than virtually any other US government endeavor dating back to the Louisiana Purchase. See slideshow.)

Financial Crisis Balance Sheet
Government Entity Sum in Billions of Dollars
Federal Reserve
(TAF) Term Auction Facility 900
Discount Window Lending
Commercial Banks 99.2
Investment Banks 56.7
Loans to buy ABCP 76.5
AIG 112.5
Bear Stearns 29.5
(TSLF) Term Securities Lending Facility 225
Swap Lines 613
(MMIFF) Money Market Investor Funding Facility 540
Commercial Paper Funding Facility 257
(TARP) Treasury Asset Relief Program 700
Other:
Automakers 25
(FHA) Federal Housing Administration 300
Fannie Mae/Freddie Mac 350
Total 4284.5

Jim Cramer Calls the Bottom in Oil

Tuesday, November 18th, 2008

A Bottom for Oil Is Finally at Hand
By Jim Cramer

11/18/2008 8:48 AM EST

For weeks I watched the oils go and said over and over here that Chevron (CVX) and Exxon (XOM) and BP (BP) and Marathon (MRO) and Oxy (OXY) were priced for $60 oil. Great call.

Except I said it as a defense to own them, that they were overdone. They were exactly right. The stocks correctly foresaw this morass. Now the stocks are struggling to go lower.

Exxon is saying we are done going down. So is Chevron. That doesn't mean it is ready to go up. That's the old days. But I am conscious that the rate of decline may have decelerated so that $40 oil may not be in the cards.

If that's the case, two you should consider: BP and Anadarko (APC) . The former had a fantastic quarter by all measures. It has the best dividend and should have no problem paying it.

The Russians look like they are fed up with crushing investing; that can help. The stock's looking stable. Anadarko is more of a play on the ultimate comeback of natural gas and a company that is smart enough to have hedged in much higher prices — it never believed the $13 price could stick — for a long time, and it has no problem paying the debt it took on to buy oil and gas properties pretty much at this price.

Jim Hackett came on my show last night and said something very interesting, that the majors should wake up and realize that all of the stocks have fallen too far. He said he was buying back stock and did so intensely when the stock was even lower because of a simple reason: His company was priced at $10 a barrel and he could not drill for oil at those prices.

Why not stand there and buy rather than spend a lot of money to drill at very high prices, he asked. He predicts a tremendous consolidation in the industry. He says there is no way that the majors can resist.

This may be a group that is putting in a bottom. The charts aren't all that bad. The weather is cold. The seasonality is right. Every rally keys on Exxon.

I think that, at last, there is some safety in oil.

China May Buy More Gold for Reserves

Friday, November 14th, 2008

The story below is from today's Bloomberg. It details China's fears that the US bailout will cause interest rates to rise and the dollar to fall. They are likely to start accumulating gold and other commodities now that the prices have fallen to current levels. This will make the shares of commodities and commodity producers more valuable.

What is not said in the article, but I can guarantee you they understand is that since they are the world's largest commodity user/importer, if they buy commodity companies (whether iron ore, aluminum, copper, oil, etc.) they have better control over the availability to them and the scarcity to the rest of the world.

This is a very inflationary event and will make gold more valuable along with whatever commodities China tries to control. There is a lot of talk about how we are now experiencing deflation and that inflation is not a problem. Unfortunately, that thinking is what got us into trouble – all of the actions taken to get us out of the current financial crisis are highly inflationary and once we've turned the corner inflation will be a big issue once again.

Mark

China May Buy More Gold for Reserves

By Theresa Tang and Aaron Pan

Nov. 14 (Bloomberg) — China may buy more gold for its currency reserves on concern the $700 billion U.S. bank bailout will cause declines in the dollar and Treasuries, the Standard newspaper reported, citing an unidentified person familiar with the situation.

The decline in gold prices means it is “the right time'' to increase the gold reserves, Wan Guoli, vice secretary general of the China Gold Association, told the newspaper. The unidentified source said the government is considering building up holdings of the metal in “a big way,'' the newspaper said. China holds the world's biggest foreign-exchange reserves at $1.9 trillion, according to data compiled by Bloomberg.

Gold for immediate delivery was little changed at $733.07 an ounce at 8:21 p.m. in Singapore, after gaining 3.4 percent yesterday. Futures for December delivery were up $26.90, or 3.8 percent, to $731.90 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange. The dollar was little changed at $1.2764 per euro.

The mainland could increase its gold reserves to as much as 4,000 tons, the Hong Kong newspaper said, citing Tanrich Futures senior vice president Colleen Chow Yin-shan. It said the reserves are 600 tons now.

Chinese authorities are now grappling with how best to manage the reserves, forecast by the International Monetary Fund to reach $2.2 trillion by the end of December and $2.7 trillion by the end of 2009. The yuan remains Asia's best performer against the dollar this year, rising 6.9 percent.

To contact the reporters on this story: Theresa Tang in Hong Kong at ttang3@bloomberg.net; Aaron Pan in Hong Kong at Apan8@bloomberg.net.