Thursday, December 28, 2006


(from NPR this AM)
M and A activity, mostly PRIVATE EQUITY FIRMS!

8 of the 10 LARGEST deals ever were done in last few years and were private equity firms.

More and more of these are running after the same deals pushing up prices paid, HUGE multiples and premiums being paid saddling new companies with mountains of debt.

“the things that used to turn the economy/markets no longer do…” chances for defaults because of huge premiums is growing.

Money continues to FLOW into these private equity firms.

In some ways me bucko’s this is MUCH LARGER THAN 2000 action, it just isn’t seen as same as before meaning huge runups in penny stocks etc, the BUBBLE is in the MA activity and the higher multiples being paid, too MUCH money running after too few deals pushing prices paid up way beyond reasonable value.

Investors are complacent and comfortable with only blue skies seen ahead.


Tuesday, December 26, 2006

XMAS CHEER? Holiday retail sales fall short of estimates, deeper discounts coming equal weaker profits from retailers.


Transports very weak, sensitive to economic conditions. Have not confirmed new highs in the Dow.

Several FED indiactors showing contraction of economy.

DOA residential housing.

Democratic control of both houses means stagnation and less possibility of keeping or adding tax incentives.

Bull market long in tooth in cycle.

Peter Eliades points out MANY cycles predicting top between Jan0March period.

NAZ underperforming. Strength becoming more selective. Energy weak.

This may be a period where one would weed out weaker performers in portfolio, I may not be short just yet, but I am on defensive and not long. JMHO


Saturday, December 16, 2006



Corrections are short and painless, advance decline line continues to advance, life appears good for the ongoing bull market. As this bull from 2002 lows has exceeded its previous highs, we can consider it a Secular trend, most cyclical bull markets were long since dead.

What has also helped the market is the comeback of the hated weak sister US DOLLAR, mostly because sentiment got too negative, once this works off, new lows are possible.

Interest rates are still LOW historically speaking, and money is easy to obtain, it is possible that the housing sector has temporarally stabilized as some buyers may be inticed to come back into market. Sellers still reluctant to lower prices aggresively, but in ost areas they have stopped going up or have come down slightly, 2nd chance buyers may appear.

HEAVY foreign investment money is still POURING in, money supply has begun to grow again but this years growth has been stunted.

Merger and acqusition activity has reached new extremes beyond even 2000 top, there is a LOT of money sloshing about.

Fund managers want extreme bonuses too, so year end performance should remain in bullish control. Early next year we could see some weakness, but not sure it will amount to much, yet.

This may be the first time in market history where a NEW BULL MARKET began near historic extreme valuations, valuations have come down because of record margins and profits also at record levels, but now SPX PE of 18 is getting pricey especially if profit gains slow or regress.

Everything returns to its norm sooner or later, that trip for the stock market will not be a pretty sight, from a BELOW 10 VIX (volatility) there is a TON of FEAR to feed on, but I must say a new BEAR MARKET is nowhere in sight.

A well diversified portfolio must be doing rather well, the question is, when the winds of change DO finally come, are you prepared to make changes?

Question marks, last bull market charge led all to new highs, near the end, the Transports began to fall onths ahead of final top in DOW, then NAZ in March. The SPX is still below its 2000 top, the NAZ 50% below. The Transports have not CONFIRMED the NEW HIGHS in the DOW, according to Dow Theory, these non confirmations have led to MAJOR MARKET TOPS!

So, I am watching the TRansports to see if they can rally to new highs with DOW, the NAZ? not gonna happen. However, the NAZ is VERY close to an area of HUGE resistance, of which a month ago I charted and pointed out if it could "get inside" this area, a SURGE on 100's of points should occur.

I also charted the double tops on Q's near $43.30 once broken could be riden long, a buy near $43.50 on a close above was there and use of $43.25 (just below breakout) would define a well controlled stop loss. We're about a dollar above that now.

FED meeting and OPEX Fri wnet with a whimper, bulls in control UNTIL SERIOUS SELLING PRESSURE arrives.

I will attempt to post every Sat, so check back until then take care


Wednesday, December 13, 2006


There is underlying weakness on the nazdaq IMHO, market may go higher, I feel within next 4-6 weeks a severe correction will be upon us.

That said, I cannot rule out Bull mkt continues, as adv/decline line is rising as does mkt.


Saturday, November 25, 2006

The DR is in

Dr. Kurt Richebächer

On the surface, it seems that there are diametrically different views at work in the markets. While the rising bond prices and the falling commodity prices apparently suggest underlying distinct economic bearishness, the sudden surge in stock prices and persistent record-low credit spreads appear to reflect very optimistic expectations about the economy.
The turn in the bond market started in June with yields of 10-year Treasury notes at 5.25%. A decline to 4.7% generated a 5% return for investors within just three months. Annualized, this comes to a return of 20%. Take further into account that there is generally heavy leverage involved, multiplying this return between 10-20 times.
Considering further that this rate of decline of long-term rates has occurred against the backdrop of a firmly inverted yield curve, implying that expenses of carry trade exceed current yields, the strength of this move seems a bit surprising. The quick capital gains, though, have richly offset these interest expenses - for the time being. But to maintain these highly leveraged positions, it will need at least one of two things: either a further sharp fall in long-term rates providing new capital gains or rate cuts by the Fed reducing the costs of carry trade.
More surprising is the new bull run of the stock market in the face of an economic slowdown. Approaching recessions have always tended to depress stock markets in expectation of falling profits. Well, there is a tremendous difference between past and present experience.
Past recessions were all triggered by true monetary tightening, hitting both the economy and the markets. The current economic downturn is unfolding against the backdrop of unmitigated monetary looseness. While the Fed has raised credit costs from unusually low levels, it has done nothing to tighten credit. Its expansion has kept accelerating.
Credit demand has been running wild for consumption, housing and financial speculation. There is just one striking and ominous exception: Corporate credit demand for fixed investment remains zero. Corporations, too, have been borrowing heavily, but for mergers, acquisitions and stock buybacks, not for productive investment.
In 2005, nonfinancial corporations spent $136.8 billion less than their cash flow from retained profits and depreciations on capital expenditures. Simultaneously, they spent $363.6 billion on mergers, acquisitions and stock buybacks. Given their moderate cash surplus, one has to assume that the stock purchases were generally financed with borrowed money.
It is certainly reasonable to regard the strong trend of corporate stock purchases as an early negative indicator of investment intentions. Principally, there are two different ways for corporations to expand and to raise profits. One is the old-fashioned way of organic growth through creating new plant and equipment. The other is to purchase economic growth and higher earnings through mergers and acquisitions by going more deeply into debt.
What, then, has been happening more lately to mergers and acquisitions? In short, they have gone crazy. During the first quarter of 2006, they hit an amount of $558 billion at annual rate, and in the second quarter another $554.8 billion.
This compares with continuously weak capital investment. In the first quarter, it was $2.7 billion below cash flow, and in the second quarter, $43.2 billion above cash flow. There is an interesting comparison with the year 2000. Then, capital expenditures of nonfinancial corporations exceeded their cash flow by $310.8 billion, compared with net stock purchases of $118.2 billion.
We would say that these figures indicate a continuous, rather dramatic change in corporate policies of expansion away from new capital investment and toward "purchasing" growth and earnings. It started in the 1980s. It strongly intensified during the 1990s, and during the last few years has gone to extremes.
Stating this, we primarily have the long-term development in mind. But in the same vein, we are pondering what is going to happen to business investment in the short run, when consumer spending slows, or even slumps, in the wake of the bursting housing bubble. The generally highly optimistic expectations and forecasts about investment spending taking over from consumption as the driver of the economy greatly puzzle us.
To stress one important point, which appears to be generally overlooked: Some rise in capital spending is not enough. Given its much smaller share of GDP than consumer spending, it needs a very strong rise to offset even a minor decline in consumer spending.
While the markets seem to reflect highly conflicting views about the U.S. economy's outlook, we nevertheless presume one underlying common view, and that is the perception of very little risk of a possible recession because the Fed would, in any case, swiftly act to head off any gathering weakness. What matters from this perspective both in the bond and stock markets are impending rate cuts.
In essence, this is in line with the conventional thinking that the U.S. Great Depression of the 1930s, as well as Japan's prolonged malaise since the early 1990s, could have been avoided by prompter monetary easing. Whoever believes in this is entitled to be bullish both on stocks and bonds.
U.S. stock prices received their lift since June/July mainly from lower oil prices and lower long-term interest rates. To keep heading higher, it will now need sufficient earnings growth. After an unusually steep rise in profits during 2005, analysts are predicting more of the same. Our focus is on aggregate profits, as calculated and reported by the Bureau of Economic Analysis within the National Income and Product Accounts (NIPA).
The customary way of making forecasts of economic developments is to extrapolate the recent past. Profit growth in the United States during the last two years has been at its best for the whole postwar period. Profits of the nonfinancial sector in 2005 have jumped to $900.1 billion, from $584 billion in 2004 and $411.8 billion in 2003. These figures compare with a profit peak of $508.4 billion for the sector in 1997 and a profit low of $322.0 billion in 2001.
If you look at the profit development of U.S. corporations over the last 10 years, you will see that it is an awkward picture. Profits fared very poorly during the "New Paradigm" years of the late 1990s, presumably a time of excellent economic performance. No less astounding is their sudden steep rise in the course of 2005, from $624.2 billion in the fourth quarter of 2004 to $1,027.7 billion in the first quarter of 2006, happening while the economy distinctly slowed.
The irony is that after a strong rise during the first half of the 1990s, profits abruptly turned down during the "New Paradigm" years of the late 1990s. For six years, from the recession year 1991-97, the nonfinancial sector's profits had soared from $227.3 billion to $508.4 billion. As a percentage of GDP, these profits had risen from 3.8% to 4.9%.
While "New Paradigm" ballyhoo and stock prices flourished after 1997, business profits, as officially measured, suddenly slumped. As a percentage of GDP, they were a little higher at the height of the dot-com bubble than in the recession year 1991.
Coming to the recent recovery years, we must point to some irritating observations. On the surface, it looks like a fabulous profit development. From recession year 2001 to 2005, profits of businesses in the nonfinancial sector have more than tripled, from $322 billion to almost $1,100 billion. It was the best profit performance of all time.
However, this good-looking total consisted of two extremely different parts. It was in the first quarter of 2004 that profits exceeded their peak of 1997 for the first time. From there, they shot up almost vertically. Typically, it has been inverse that the very first years of recovery were best for profits.
21 November 2006
Dr Kurt Richebächerfor The Daily
Editor's Note: Dr. Richebächer has found the best investments to protect your portfolio, no matter what lies ahead for us in 2007. See his full report here:

Friday, November 17, 2006


Home builders slam on the brakes

Housing starts hit six-year low while permits, a key sign of builder confidence, slide to the lowest since 1997.
By Chris Isidore, senior writer

November 17 2006: 1:04 PM EST
NEW YORK ( -- New housing starts sank to the lowest level in more than six years in October and a key measure of builders' confidence in the market hit a nine-year low, a government report showed Friday.
Both housing starts and applications for new building permits tumbled well below Wall Street forecasts - a sign that the slumping housing market has not yet hit bottom.
"Today's figures clearly reveal that a quick turnaround in this sector is not just around the corner," said Anthony Chan, chief economist for JPMorgan Chase Private Client Services. "Any real turnaround may not be forthcoming until the central bank reverses course and begins to lower short-term rates again."
Housing starts plunged nearly 15 percent to a seasonally adjusted annual rate of 1.49 million in October from a revised 1.74 million in September, according to the Census Bureau report. That was the lowest reading since July 2000.
The pace of single family housing starts in October was down nearly 32 percent from the year-ago period when the home building boom was still roaring forward.
Building permits, seen as a measure of builder confidence in the real estate market, fell to the their lowest pace since December 1997, coming in at 1.54 million, down from 1.64 million in September. Permits for single family homes are also off 32 percent from the year-ago levels.
Economists surveyed by forecast that starts would fall to an annual rate of 1.68 million and permits to 1.625 million.
"Housing starts reported this morning was a shocker," said Phillip Neuhart, an economist with Wachovia. "The South -- the strongest home building region during the recent housing boom -- had by far the weakest month of any."
In some ways the slowdown in starts and permits is a positive for the housing market, since it will reduce the inventory of homes on the market, which as been depressing prices for both new and existing homes. But Neuhart said as inventory-induced slowdown is likely to depress the gross domestic product, the broad measure of the nation's economic activity, throughout all of 2007.
"We do not see healthy inventory levels being reached until at least the second quarter of next year," he said.
Another sign of weakness in the housing market came when a realty tracking firm reported Friday that home foreclosures rose once again in October, climbing 42 percent from year-earlier levels.
Still, before Friday's report, there had been hopes from other recent real estate reports that perhaps the slump in home sales and home building had bottomed out.
The National Association of Home Builders' survey of builder confidence for November posted a modest increase for the second month, even though far more builders still saw the market as poor rather than good. And housing starts rose in September, although permits fell.
In addition, mortgage rates fell sharply this week, with the average 30-year fixed rate mortgage dropping to 6.24 percent from 6.33 percent a week earlier, according to mortgage financier Freddie Mac. Mortgage applications climbed to their highest level since January in the most recent weekly reading from the Mortgage Bankers Association.
But other reports have showed weakness in prices for both new and existing homes, as inventories of both types of homes available for sale climbed to record levels. And home builders have reported having to offer attractive deals to move homes they have completed.
Major home builders have been reporting lower earnings and cutting forecasts for future results due to the downturn in new home sales.
Pulte Home (Charts), the nation's largest home builder, became the latest to report a stepper-than expected drop in earnings earlier this week, and cut its outlook.
"You can count us among the companies that would like to see this be the beginning of a more stable operating environment," said Pulte CEO Richard Dugas, after he cited some of the hopeful signs of improvement in the housing market during his call with investors following Pulte's earnings report. "But for now we will wait for the trends to continue and to broaden before we conclude that the bottom is being reached."
He said that it was important that Pulte and other builders cut back on housing starts, especially so called "spec homes" that are begun without a sales contract in hand.
"There is no need for us to aggravate existing market difficulties by throwing unnecessary supply into the market," he said.
Other home buildings reporting problems reduced earnings and or sales outlooks include Centex (Charts), D.R. Horton (Charts), Lennar (Charts), K.B. Home (Charts) and Toll Brothers (Charts).
Builders to buyers: Take this house, please!
October foreclosures jump 42 percent

Tuesday, November 14, 2006


Until the BEars stop trying to call the TOP, and IMHO until the CPC (put call ratio) takes a hard dive this rally can feed off the newbie dopes who might keep getting in front of it as it has feasted on the ones already run over.

When ALL have given into its hypnotic cry of riches and any stock can rise, obviously this is not the Titanic yet, it seems topsy, it seems unreal, it seems like it needs a breather, it keeps going up. The animal is loose when the techs lead the way, we might be in that phase now.

PPI shows almost deflationary drop, maybe market loved that, FED will soon cut? Can they? The YIELD CURVE says they MUST! 10 yr near 4.5% but 90 day money is near 5% ??!!! woweeee the shits upside down and being ignored.

ENERGY TRUSTS have been GORED by tax fears, even if not taking effect until 2011 !!!!

I am licking my chops to nibble, but it is always toughest when something is getting blown up, right ow maybe too hot to handle, I am charting the secrot now, but if OIL does not hold this area and falls below recent low range, they could be whollapped again.

Consumer spending falls for second straight month.

Housing stocks rumbled today? what happened to the bubble?? saying low rates here we come!

Well if bonds are soaring money not coming out of there, money also in stocks, liquidity floats all boats.

I could say when this party is over, the market of 2001-2003 will look tame, but I wont.

I am NOT short any more, even though my charts tell me a comeupins is NEAR, I mean what I see has held true last 5 years on my indidcators......but only once did the market NOT bottom in OCT, in last 10 years!!! well make that 2 now in over 10 tricked us and bottomed in JUly.

I see where the NAZ has declined most years in Jan quarter, but these days, I dont know if I want to bet on it.

One lesson all must learn for sure, you can find ALL the fundamental reasons, and charts that say this ish ow IT SHOULD BE, but shoulda coulda dont make you money, not fighting the trend does.

Specialist short position just SKYROCKETED, I thought I'd throw that in. It doesnt have to lead to a huge retrace, but it normally is good NOT to bet against these guys while they are at an extreme.

Money managers MUST run after performance, evryone is running to and running from. I am concerned with this chart.

So have fun while the fun lasts, I have a sip, but I sure as hell am not staying long enough to get drunk. For I am at least of memory of 2001-2003 and know that NO BEAR MARKET has ended with the SPX PE ratio and DIVIDEND yields where they were in 2003 bottom.

We are in the stratosphere of performance historically, and sooner or later you revert to the mean.

I get the feeling at some point next year this might be visable, but then no year after MIdterms has evern been a disaster, and most quite good, more history for you....not a guarantee.

If Dem's go after BUsh, all bets are off and tax cuts, but we dont know just yet what 2007 holds, for all of us I hope promise, and no worse than muddle thru.

Trillions in mortages are set to go much higher in 2007, and could greatly effect consumer spending. Savings rate still negative.

Saturday, November 11, 2006

Doug Noland from Prudent Bear

The explosion of Credit derivatives and top-rated corporate securities issuance is a Monetary Development of historic proportions. I have written about the “Moneyness of Credit” issue over the past few years, but never did I imagine it would come to this. Marketplace perceptions of safety and liquidity are today being grossly distorted on a scale – multi-trillions of securities from one corner of the world to another - that so overshadow the technology Bubble – that overshadow anything previously experienced in the history of finance.

Following in the footsteps of the technology derivatives Bubble, the mania in Credit “insurance” ensures a collapse. It today feeds a self-reinforcing boom, but when this cycle inevitably reverses, the scope of Credit losses will quickly overwhelm the thinly capitalized speculators that have been more than happy to book premiums directly to profits. Undoubtedly, an unfolding bust will find this “insurance” market in complete disarray. Much of the marketplace today expects that they will - when things begin to turn sour - either obtain Credit “insurance” or hedge/”reinsure” protection already written. But when much of the marketplace moves to offload Credit risk there will simply be no one to take the other side of the trade. As losses mount, the market will then face the harsh reality that minimal “insurance” reserves are actually available to make good on all the protection written. This will have a profoundly negative impact on both Credit Availability and marketplace liquidity – ruining the plans of many expecting – and requiring – that “money” always flow so freely.

A major problem with the current monetary boom – the “Moneyness of Credit Bubble” – is the enormous and widening gulf between the market's perception of safety and liquidity and the acute vulnerability of the actual underlying Credits. Runaway booms invariably destroy the “money” – in whatever form it takes – whose inflationary expansion was responsible for fueling the Bubble. This lesson should have been learned from the late-twenties experience, or various other fiascos as far back as John Law. When current perceptions change – when $ trillions of Credit instruments are reclassified and revalued as risky instruments as opposed to today’s coveted “money” – Dr. Bernanke will learn why a central bank’s monetary focus must be in restraining “money” and Credit excesses during the boom. And the longer this destabilizing period of transforming risky Credits into perceived “money” is allowed to run unchecked, the more impotent his little “mop-up” operations will appear in the face of widespread financial and economic dislocation – on a global scale.


Briefly, a mild pullback seems in order, but high beta NAZ issues are holding strong, but I do see multiple bearish divergences, at some point should come into play.

High volume selloff was not followed though Friday. Options expiration is Fri and MAX PAIN has Q's at $42 Area just above current price has been resistance, if broken price could run.

Commodities after brief pullback could be good place to be. Same for OIL.

LArge caps still outperforming, some newsletters calling for rally into 2007, top making data near non existant. Opinions dont matter, market action does.

Sometimes you need to be watching when good stuff gets battered AKA EBAY at $22 or YHOO at $23. HOT stock HANS been gored. Dem's in charge has some selling in big pharma.

I think a top of mega years in duration appears early 2007, but year after mid term elections decisively bullish, if still so, maybe the market holds together even longer than now expected. One thing is will consumers with Bush spanking and Dem's in charge have a giddy rise in Consumer Sentiment?



A Time For Accounting
Joseph L. Galloway
November 10, 2006
Joseph L. Galloway is former senior military correspondent for Knight Ridder newspapers, columnist for McClatchy Newspapers, and co-author of the national best-seller We Were Soldiers Once ... and Young. Readers may write to him at: P.O. Box 399, Bayside, Texas 78340; e-mail:
Better late than never.
Secretary of Defense Donald H. Rumsfeld is gone, but there's little time for celebration, even for those of us who long ago began calling for his removal. The damage that men do lives after them, and it's time at last for an accounting. The nation’s voters have spoken, and it's reasonable to expect that the Congress finally will begin to exercise some oversight of the wars in Iraq and Afghanistan after five years of serving as rubber stamp and doormats.
Can you spell "subpoena?"
For the Democrats who will soon take charge of the House of Representatives and perhaps the Senate, too, here's a preliminary laundry list of some of the things that need doing:
A comprehensive investigation of the pre-war intelligence on Iraq and how it was perverted, how the mine was salted, and by whom.
A thorough investigation of what pre-war advice was offered by senior American military commanders on troop strength, equipment requirements and strategy and tactics. Did even one general ignore the bullying from on high and ask for more troops, and how did Defense Secretary Donald H. Rumsfeld respond?
Why did the Pentagon send American troops into battle without enough armored vests, armored vehicles, rifles, ammunition, food and water? Who's responsible for that debacle which cost so much in blood and money?
Where did our money go? Billions of dollars of taxpayer money disappeared down various rat holes in Iraq, forked over to contractors without even so much as a handwritten receipt. Who got the money? What did they do for it? This is a fertile field that can be drilled for years, with a steady stream of indictments, trials and prison sentences.
What about those no-bid Defense Department contracts that were parceled out to the Halliburtons and KBRs and Blackwaters in Iraq and Afghanistan, and other more costly weapons and equipment contracts that went to big defense industry conglomerates accustomed to writing very generous checks to the Republicans?
Why did an administration that was hell-bent on going to war, with the inevitable and terrible human casualties among our troops, consistently underfund the Veterans Administration, which is charged with caring for our wounded and disabled?
What's been the effect of the grotesque politicization of the selection and promotion system for senior military commanders by the office of the Secretary of Defense? What failures have resulted from that ill-conceived action? What responsibility do those generals and admirals chosen by Donald H. Rumsfeld bear for the failure to prepare for and conduct effective action against an inevitable Iraqi insurgency?
Who at the top bears responsibility for the torture and mistreatment of prisoners and detainees at Abu Ghraib prison and the Guantanamo detention camp? A score of Pentagon investigations got to the bottom of the chain of command but declared that the top, in Rumsfeld’s office and the White House, was innocent.
Who's responsible for breaking our understrength Army and Marine Corps with endless combat duty tours in Iraq and Afghanistan? Who refused all suggestions that the force was too small for the mission, and that 50,000 or 100,000 more men and women were needed in uniform? Who stubbornly refused even to consider the inevitable consequences of an Army so tied down trying to man these wars that it no longer could react to an emergency anywhere else in a dangerous world?
Simply put, the jig is up. President George W. Bush, Vice President Dick Cheney and Rumsfeld have come to the end of their free ride. No longer can they act without thought or ignore the boundaries of the Constitution, the law and common sense.
Did they really think they could get away with all of this without ever being called to answer to history and the American people?
They all deserve what's about to descend on their heads. They deserve every subpoena. They deserve every indictment. Most of all, they deserve a reserved place atop the ash heap of history.

Thursday, November 09, 2006


NYSE traded close to 3 billion shares today on DECLINE, when a move is made on increasing volume it is to be taken seriously. Selling pressure picked up today that is for sure, why it did is for speculation.

I have reasoned that IF the Repub's and their inside cronies goosed the market by buying futures togive the party a lift, now seeing it was for naught, might sustain new buying as the reason to do so is no longer there.

The Q's were held right at their previous 52 wk high leaving a double top in place, it is very interesting how stocks and indexes act at important levels be they previous support now resistance or other way around. Its full meaning is for now unclear, but what is sure, is a pause was necessary.

Will this lead to a meaningful correction? SHOW ME I say, but if high volume continues on declines, be very cautious.


Saturday, November 04, 2006




Bush is stumping on his Economic record and sending fears of tax hikes if Dem's gain control as only reason to vote R.

President Bush said Saturday his tax-cutting policies have created jobs and promoted growth, economic progress he contended is jeopardized by the prospect of Democratic victories on Election Day.

"Americans are finding jobs and they're taking home more pay. The main reason for our growing economy is that we cut taxes and left more money in the hands of families and workers and small business owners," the president said in his weekly radio address, delivered live from Mile High Coffee in suburban Denver.
Campaigning on the final weekend before Tuesday's vote, Bush told reporters just before the broadcast that he "feels good. It's quite a campaign coming down the stretch."
On the radio, he said Democrats consistently have opposed his tax cuts and they predicted the tax would not create jobs or increase wages and "would cause the federal deficit to explode."
"American workers and entrepreneurs have proved all those predictions wrong. But Democrats are still determined to raise taxes. And if they gain control of the Congress, they can do so without lifting a finger," said Bush, seated at table in the shop as patrons sipped coffee and snacked.

Bush's main tax cut was a cut in dividend tax rates in which the avg American gained very little, however the insiders and already rich in the higher tax brackets with much larger stock portfolio's have gained mightily.

Bush's policies have widened the gulf between the have's and the have not's. The avg American is falling deeper and deeper into debt.

ALL we have gotten from Bush policies is asset inflation and dollars fleeing this country to Asia. China now holds a record $1 trillion dollar of US debt, even more than Japan.

It takes 250,000 jobs a month just to keep up with those coming into work force. Yet last 2 months we have averaged less than 100,000 and unemployment rate drops dramatically?

Only once has the market rallied in OCT, now make it twice in 10 years. just a coincidence?

I think the short term health of the stock market will be determined by the outcome of the Tues election, if the Repulican's lose their grip I think the market will react badly, but you never know the Republican's might pull it off again, and then we see a SWIFT rise.

The markets recent mild pullback is telling us it doesn't know for sure how it will all come out, I do not expect much until we get Wednesdays reaction.

If you like the way things are going, if you support the war in Iraq, and don't mind losing some of your constitutional rights, vote R. If you think a STRONG message needs to be sent to the Republican majority and BUSH we don't agree with his policies and ignoring criminally the know what to do


Wednesday, November 01, 2006

The Brilliant Hans Sennholz "An Unstable Dollar Standard"

An Unstable Dollar Standard
We live in a period of world-wide economic expansion and prosperity. The world economy is said to grow this year at some five percent, which will be the third year above the historic average. Even if, in the coming year, the growth rate should decline a little, the global economy looks bright and prosperous. Led by some Asiatic countries, especially China and Japan, more countries than ever before are reporting rapid economic expansion.
But no matter how bright the economic outlook may be, the international prosperity is exposed to a looming risk, which has even grown in recent months. The war in Iraq and the skirmishes in Afghanistan are an ever-present danger that may destabilize the Middle East and spread the conflict to more countries. The Islamic republic of Iran, which does not hesitate to confront American interests and concerns, may upend the peace at any time. But the greatest concern of many economists is the global economic imbalance which is clearly visible in the huge balance-of-payments deficits of the United States and in the corresponding surpluses of the creditor countries. Americans are said to consume some 70 percent of the world’s savings while Japan, China, and other developing countries are financing the deficits and accumulating American IOUs. Many economists are convinced that such disproportions and imbalances are unsustainable in the long run.
Surely, American foreign debt has increased significantly, but so has individual income and wealth. Total domestic debt has risen visibly over the last decade, but so have productivity and income. This economic harmony nevertheless is burdened by considerable risk of global imbalances that may cause disruption and upheaval in the future. The debt-and-credit differences of the large national economies continue to grow, the balance-of-payment deficits of the United States surpass all national surpluses. In 2005 the deficits amounted to some $790 billion, which, in relation to gross national product, exceeded six percent. So far this year, it may exceed $800 billion, or 6.5 percent of GDP. Moreover, the federal government continues to suffer huge budget deficits which enlarge the national debt and add weight to the international concern.
The American mountain of debt is matched by large balance-of-payment surpluses in developing Asian countries, as well as by most oil-exporting countries. Many creditors welcome the surpluses. They keep the exchange rates of their currencies low which, in turn, boosts their exports and gives employment to millions of workers who, with American assistance and technology, are learning to produce for the world market. Chinese banks now hold nearly $1 trillion, which is the highest reserve position in the world, having passed Japan this year with some $865 billion. Without such dollar purchases, their currencies would rise immediately, which would boost all export prices, curb exports, and depress economic production and employment.
A few critics believe that the U.S. trade deficits may be the greatest threat to the economic order. Yet the deficits have neither impaired the U.S. dollar nor undermined the position of the United States as the primary economic engine and power. Many observers, therefore, question and disclaim the dangers of American balance-of-payments deficits. They not only cast doubt on official statistics that may exaggerate the case, but also point to the stable rates of exchange which all participants maintain voluntarily. Stability, after all, benefits everyone.
This economist, nevertheless, is convinced that a correction is unavoidable. All markets function to adjust and readjust any maladjustment. They are burdened and strained by the growing mountain of debt which raises the question of American ability to meet its obligations. If there ever should be any doubt about the stability of the American economy, the world-wide demand for U.S. dollars would decline, which would cause the dollar exchange rate to plummet. American imports would decline, dampening the surge of consumption and slowing the very growth engines of export countries such as Japan, China, and many others. The whole world would feel the American instability. A weaker dollar and rising import prices also would accelerate the inflation rate which would pressure the Federal Reserve to raise interest rates. Higher rates would slow the American economy and boost the rate of unemployment.
Despite such international imbalances, the U.S. dollar has not weakened significantly in recent months, and the world economy has not fallen into a global recession. At first, Asian central banks, and then also the oil-exporting countries, financed the huge deficits. It is in the economic interest of the Asian developing countries to keep their exchange rates low in order to keep export prices low and thus keep the export motor running. Massive purchases of federal obligations support the exchange rate of the dollar and increase Asian currency reserves.
It is in the interest of the United States, as well as the Asian countries, that the U.S. dollar maintain its high exchange value. Some American economists like to speak of a “Bretton Woods II” arrangement, which would resemble the international system in effect between the Second World War and 1973. Participating countries supported each other’s currencies and thus sustained stable exchange rates.In Bretton Woods I, the member countries supported each other’s currencies – in Bretton Woods II, they eagerly support the dollar. The European Central Bank, which actively pursues employment policies, manages to avoid the influx of U.S. dollars by keeping interest rates very low and liquidity plentiful. According to some estimates, the quantity of money in euro countries, since 2000, has increased some 25 percent faster than the gross product. In the United States, it has grown some 10 percent, and in Japan by 15 percent. The European Central Bank even surpassed the Bank of Japan, which is inflating its currency in order to counter powerful deflationary forces. In short, euro liquidity is plentiful and interest rates, seen historically, are exceptionally low.
As the U.S.-Asian imbalances continue to mount, the forces of readjustment are gaining strength. There are indications that the imbalances are correcting slowly and in an orderly fashion. Most governments agree that greater flexibility of the exchange rates, especially of the Asian currencies, is an orderly step toward the correction of the global imbalances. But most governments cling to their old policies. The interest rate differences are closing slowly, which causes more and more investors to shun the dollar risk. Moreover, the American real estate market has cooled off significantly without dramatic crashes. The boom, according to Fed Chairman Ben Bernanke, has given way in an orderly and moderate fashion. But there cannot be any doubt that the decline in the housing market will be felt throughout the economy in months to come.
Some Americans will have to curtail their spending which is bound to slow down the economy. Will it drag the world economy with it? The rate of expansion in many Asian countries undoubtedly will decline, but by less than pessimists predict. Most economic expansion in China, India, and other developing countries in recent years has been driven by domestic demand and supply. Yet we must not underestimate the weighty and consequential role played by the United States in world financial markets. A huge debt casts a shadow on any market; the rapidly growing international debt of the United States is clouding the world economy. It cannot grow perpetually; it will be settled sooner or later either in an orderly and upright fashion or in financial crisis and economic recession.
The finale of the scenario may be played by the Federal Reserve System. It may seek to reassure and pacify numerous Asian creditors by maintaining high market rates of interest or at least approximate them, or cater to the notions and wishes of most legislators and their constituents who usually favor monetary stimulation. Sooner or later Federal Reserve governors will have to choose between economic consideration or political preference. Their choice will determine the future of the U. S. dollar.
Hans F.

Saturday, October 28, 2006


Fair playing field?

October 27 – Bloomberg (Shannon D. Harrington): “Derivatives traders may be profiting from inside information on leveraged buyouts and other takeovers, a study by Credit Derivatives Research LLC suggests. Credit-default swaps based on the bonds of 30 takeover targets, including four of the five biggest LBOs of 2006, rose before deals were announced or news reports said transactions were likely, according to the New York-based independent research firm.”

It’s not only the resurgent corporate debt Bubble that has me recalling 1999/2000. It was no coincidence that NASDAQ went parabolic about the time deterioration in underlying fundamentals was gathering pace. A spectacular short squeeze, flight into perceived safer corporate bonds, and liquidity creating securities/derivatives leveraging were prominent aspects of that period’s Monetary Disorder. Today, an extraordinary confluence of factors including the housing downturn, economic vulnerability, destabilizing Credit excesses being “recycled” back to U.S. securities markets, and a major shift of speculation into riskier Credits is fueling a corporate debt Bubble with a present scope and future consequences that greatly exceed anything from 1999. The tech Bubble was only a warm-up…

Dr. Issing is absolutely correct: “… Excessive liquidity world-wide is fueling asset prices and is something which has to be taken seriously by central banks.” Tonight I’ve focused on U.S. Credit system dynamics. But our massive Current Account Deficits have as well spurred lending, liquidity and speculative excess around the world. Our degraded currency has certainly unleashed systemic global Credit inflation, with profligate domestic Credit systems no longer disciplined by the (dollar-anchored) global marketplace. It’s more aptly described as “Global Wildcat Finance,” with Credit and asset inflation readily condoned by a speculating community that has come to wield incredible power and influence.

Please read entire post by Noland. ALL you have to understand is how the markets asset inflation is coming about, and like the tech bubble this will burst and be 10X worse, for now? enjoy all boats floating

Duratek (I am currently short the NAZ with stop loss previous high, which was NOT taken out Fri, and when I think any correction due is done? I am long


So here we are, my haven't we come a long way? Who among you thought you would see Dow above 12,000? How about that bursted housing bubble? Iraq war, deficits, stock option scandal, etc etc.

Selling pressure has melted away, giving way to a renewed bullish zeal maybe never seen, by some measures one wonders if 1982 Bull market ever ended?

Years after mid term elections are usually VERY BULLISH seldom blue. I wont take too much trying to explain it, wondering where did that 4 yr cycle low go, or how the market can gain almost every day or ignore monumental divergences and inbalances and record debt.

What we have is record earnings expansion, fueled by easy money, financials from trading and IPO'S M and A activity, a virtual frenzy.

The FED stands pat, idley by, as the market spirals up out of control and no anchor to reality. They are and have been fostering every kind of bubble and form of asset inflation, and are mainly responsable for every crisis.

I do not know where this rally goes or where it ends. AS long as traders/investors fear not (VIX 10) and money flows in not out, maybe longer than anyone predicts....or it could suddenly end without notice.

As a new high is in DOW, CRASH potential is now back on the table, the 2 CRASHES have only occurred very shortly after new highs, not well into any bear market, no near the top....this is a rare phenom.

So, maybe no news matters, it isnt all jiggy news we see, 1.6 GDP (could be lowered when revised) we have a reliable indicator, the yield curve telling us Recession is coming or here, but it is excused away.

WHat matters is enough want this market, have to be IN this market and the flow of cash is blowing away any sellers.

Is FRIDAY the top of this rally VERY short term? I think it is possible, we have VERY overbought condition daily and weekly, and I see momo divergences all over the place, but Fri was not VERY aggresive selloff, and may be over or last just a few days.

Lots of retraces back track 30% of rise, so we need to be watchful here to see what develops.

The rise VERY sharp parabolic like, when or if parabolic rise is done, it usually gets 100% retraced.

Goldilocks landing/economy? ALL I see is one asset inflation being traded for another, so this musical chairs Ponzi scheme marches on, but at some point the music will stop, no greater fool will arrive, and no one to tell those to get out that may have gotten back most or all of their bear losses, 2nd time no charm and will be horribly painful. IMHO


Sunday, October 22, 2006





Saturday, October 14, 2006


I just scanned weekend L< need to read whole piece, but it seems, and with mkt action, there will be NO mkt pullback and IF the R’s hold onto majority this NOV BAMMM an EXPLPOSIVE RALLY into yr end will ensue……while many
….waiting for the OCT or other decline that never comes.

Even with record string as EWT points out of 90% plus bulls, 4 yr low no low down, 4 yrs without 10% correction…in a climate we all know is false but it creating record SPX earnings qtr after qtr after qtr……and here is L all but shouting ALL IN M’fer’s all in

*(one good thing, I found a BEAUTIFUL Japanese made Fender Jazz like new, played my friends last night on AMPEG equip all night…jamming, so nice!!!! Excited one day I will jam in front of people got long way to go) picking it up today !!!

It is now clear that 200-2003 was just correction to the MUTHA of all SECULAR BULL MARKETS!!!!! Can it be anything else? There is NOTHING that can derail it…..ANY long term MA’S you run shows it INTACT and strong, so why are we looking for its end, why NOT ALL IN??

EVEN 2 ½ year MACD divergence cant end it. Longest running Trannie/Dow non confirm cant end it, now other way around Dow new highs and trannie non confirm cant end it. Housing bubble burst cant end it. Destruction of manufacturing cant end it, record debt cant end it. BOND inversion cant end it.
Record % of income for mortgage cant end it. Negative savings rate cant end it.BLOW OUT record of total credit market debt as % of GDP cant end it.
Coming qtr probably near 1% GDP my guess cant end it? Flagging LEI’S cant end it. Record gas prices didn’t end it. $2 B a week in IRAQ Fiasco didn’t end it. STOCK OPTION SCAM didn’t end it. Loss of ENERGY earnings as leadership to record SPX earnings isn’t going to end it?

GOLDILOCKS IT IS and I cant fight them anymore I think, I don’t have to understand how ASSET inflation one to another then another is all we need? Now a BULL that began no later than 1982 (some accts say 1974) is still gaining momentum in 2006?? Minimum length 24 years as many as 30 years.

And it is said the BEAR THAT FOLLOWS BULL is of equal length and severity/extreme……and so this is not the case to date.

Was all it was about checking just one facit of it? The techs, taken down 90% (and we wanted more?) has been accomplished. FED is invincible holding rates down to 1% a record move AND NO ONE should doubt they can fix anything?

Record trade and gov deficits cant end it?

WE all cant win in the end I KNOW that, like ANY Ponzi scheme, how is it possible we ALL make money in the stock market? WE ALL just keep putting money in for retirement, and never stop.

Historic LOW levels of Mutual fund cash can’t stop it. 8,000 wild and untethered hedge funds cant stop it.

Why not just give in to it, what sense in the worrying, what good is that. Had one only had small % in Tech going into 2000 who stayed LTBH are way ahead of the game and NEVER Lost any sleep nor had to put ONE OUNCE of time, worry or effort in to managing their accounts.
Yes to this point in time, “It is time IN the mkt, not TIMING the market” that pays off.

Now how can one argue with that?

Duratek (tired of being a bear and constantly on watch, in a world where nothing adds up and the rich get richer as lemmings buy their wares.....there is world of hurt out their for the barely haves and the the DAY OF RECKONING has been put on hold)

Friday, October 13, 2006



I dont care what
> definition you apply to this IS contracting as of this
> BELOW JAN position, we have int rate INVERSION, we have CNBC laughing off
> falling retail sales numbers....we have NOV election. WE have making of monumental top,IMHO


Friday, October 06, 2006



Dr. Kurt Richebächer

There is total detachment from the bad news that is pouring out of the economy. For several years, the booming housing market has made the difference between recession and recovery for the U.S. economy. Zooming house valuations provided private households with the collateral that allowed them to replace the missing income growth with a borrowing binge.

But as the housing market is sagging, this major source of higher consumer spending is plainly drying up, and most obviously and importantly, income growth is by no means catching up.

In 2005, real disposable incomes of private households in the United States increased $93.8 billion, or 1.2%, while their debts grew $1,208.6 billion, or 11.7%. Total consumer spending on goods, services and new housing accounted for 92% of real GDP growth.

The U.S. economy's recovery from the recession in 2001 has been its slowest in the whole postwar period, and in addition, it has been of a most unusual pattern. Real GDP rose by 11.7% over the four years to 2005. Within this aggregate, residential building soared by 35.6%. Consumption gained 13.4% and government spending 10%. The big laggard in domestic spending was business nonresidential investment, up only 3.6%. Net exports year for year were increasingly negative.

Most economic data have softened, with the downtrend accelerating. In the face of this fact, it could not be doubted that Mr. Ben Bernanke and most others in the Federal Reserve were anxious to stop their rate hikes. In question was only whether they would dare to do so in view of the high and rising inflation rates. They dared. They even disappointed those who had predicted the combination of a declared "pause" with hawkish remarks about fighting inflation.

In its statement, the Fed conceded:

"Readings on core inflation have been elevated in recent months, and the high levels of resource allocation and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative of monetary actions and other factors restraining aggregate demand."

When the Bureau of Labor Statistics (BLS) reported on Aug. 16 that the CPI in July had seasonally adjusted, advancing 0.4%, following a 2% rise in June, both the bond and stock markets responded with strong rallies. What, apparently, had made it so exciting in the eyes of the consensus was the fact that these bad figures had remained in line with distinctly unoptimistic predictions. Never mind that during the first seven months of 2006 the CPI has risen at a 4.8% seasonally adjusted annual rate, compared with an increase of 3.4% for all of 2005.

It is, of course, perfectly true that monetary tightening impacts the economy and its inflation rates with a pretty long delay. The trouble in the U.S. case is that there never was any monetary tightening. There were many small rate hikes, and the Greenspan Fed had probably hoped that the higher costs of borrowing would exert some restraint on credit demand. But it has not happened. It was a vain hope.

The fact is that the credit expansion has sharply accelerated during these two years of rate hikes instead of decelerating. During 2004, when the Fed started its rate hike cycle, total credit, financial and nonfinancial, expanded by $2,800.8 billion. In the first quarter of 2006, it expanded at an annual rate of $4,392.8 billion.

Over the two years of so-called monetary tightening, the flow of new credit has effectively accelerated by 56%. In 2005, credit growth was $3,335.9 billion. Over the whole period of rate hikes, it had steadily accelerated from quarter to quarter. Borrowers and lenders, apparently, simply adjusted to the higher rates, trusting that there would never be serious tightening.

True monetary tightening would have to show first of all in declining "excess reserves" of banks relative to their reserve requirements. These have remained at an elevated level during the rate-hike years of 2004-05.

In 1991, when the Fed tightened, credit expansion slowed sharply from $866.9 billion in the prior year to $620.1 billion. A sharp slowdown in credit expansion in 2000 to $1,605 billion also happened, from $2,044.7 billion the year before. Yet this still represented very strong credit growth in comparison with the years until 1997.

Like all central banks, the Federal Reserve has two levers at its disposal to stimulate or to retard credit and money creation. The big lever is its open market operations, buying or selling government bonds, thereby increasing the banking system's liquid reserves. The little lever consists of altering its short-term interest rate, the federal funds rate, thereby influencing the costs of credit.

It is most important to distinguish between the two instruments. True monetary tightening has to show inexorably in a slower credit expansion throughout the financial system. There is one sure way for a central bank to enforce this, and that is by curtailing bank reserves through selling government bonds.

The other lever at its disposal, as pointed out, is to influence credit costs. But the influence of the central bank on credit costs begins and ends with altering its short-term federal funds rate. During the past two years, the Fed has raised its federal funds rate from 1% to 5.25%. But long-term rates hardly budged. To the extent that borrowers shifted from the low short-term rate to the long-term rate, they encountered higher borrowing costs. But at the long end, interest rates rose less than the inflation rate.

Here are still a few other credit figures illustrating the Fed's monetary tightening since mid-2004. Total bank credit expanded, annualized, by $957.0 billion in the first quarter of 2006, against $563.5 billion in 2004. For security brokers and dealers, the two numbers were $611.3 billion, against $231.9 billion; and for issuers of asset-backed securities (ABSs), they were $663.3 billion and $322.6 billion. This is monetary tightening à la Greenspan.

Monetary tightening has one purpose: to curb credit expansion fueling the excess spending in the economy and the markets. By this measure, Greenspan's monetary tightening since 2004 has been a sheer farce. During these two years, he presided over a sharply accelerating credit boom, for which the reason is also obvious.

To equate rising short-term rates automatically with monetary tightening can, therefore, be a gross mistake. Later on, we shall explain that this is the great error of the monetarists in assessing the development in 1929 and following years. Borrowing exploded during 1927-29, despite the Fed's rate hikes, and then literally collapsed after the stock market crash.

It can be argued that rate hikes in the past have generally worked. Yes, but the central bankers of the past never forgot to tighten bank reserves. Tighter money to them meant tighter credit, and it always showed in sharply shrinking credit figures. So it also has, in the past, in the United States. But this time, the diametric opposite has happened.

There was reserve easing. Money and credit, moreover, only became significantly more expensive at the short end. All the time, there was nothing in this to slow the housing bubble and the associated borrowing binge. Rising house prices easily offset the effect of rising short-term rates.

Does this mean that the economy can continue to grow as before? No, not at all. All excesses, if not stopped, are sure to exhaust themselves over time. That is no less true for economies than for the human body. In our view, the housing bubble is finished not because credit has become tight, but because the borrowing excesses are running against natural barriers.

One such natural barrier is the affordability of housing and the limited number of greater fools who are able and willing to pay these inflated prices. At some point, excess supply will exceed demand. We read from reliable sources that in June, sale offers of existing single-family homes were up 35%, while actual sales were down 6.5% versus a year ago. So the year-over-year "excess" supply was 42.2%.

Affordability is way down, units offered for sale are way up and price appreciation has all but stopped. It is a radical change in the market situation, which, however, has so far impacted economic activity only moderately.

Past experience with housing bubbles suggests that the first effects are in the steep fall of actual sales and in the lengthening of time until sales materialize. The markets become illiquid. Until sellers capitulate and accept lower prices, it can take a long time. In this way, apparent price stability becomes increasingly treacherous over time.

Present American folklore has it that a protracted slump in house prices is impossible. Let us say for many people it is unthinkable. And that is precisely one reason why this housing bubble could go to such unprecedented excess. The little historical knowledge we have about bursting housing bubbles is from a study published by the International Monetary Fund in its World Economic Outlook of April 2003. It presents past experience in a very different light. Here are some excerpts on decisive points:

"To qualify as a bust, a housing price contraction had to exceed 14%, compared with 37% for equities. Housing price busts were slightly less frequent than equity price crashes... Most housing price busts clustered around 1980-82 and 1989-92, while equity price busts were more evenly distributed across time.

Housing price crashes differ from equity price busts also in other three important dimensions. First, the price corrections during house price busts averaged 30%, reflecting the lower volatility of housing prices and the lower liquidity in housing markets. Second, housing price crashes lasted about four years, about 11/2 years longer than equity price busts. Third, the association between booms and busts was stronger for housing than for equity prices."

An important theme running through the foregoing analysis is that housing price busts were associated with more severe macroeconomic developments than equity price busts. Coupled with the fact that housing price booms were more likely (than equity price booms) to be followed by busts, the implication is that housing price booms present significant risks. For this, the authors give the following reasons:

"Housing price busts have larger wealth effects on consumption than the equity price busts...

"Housing price busts were associated with stronger and faster adverse effects on the banking system than equity price busts... All major banking crises in industrial countries during the postwar period coincided with housing price busts.

"Price spillovers across asset classes matter, as evidenced by the fact that housing price busts were more likely associated with generalized asset price bear markets or even busts than equity price busts.

The authors then give a fourth reason, which was true in the past, but in which the situation in America today radically differs:

"Housing price busts were associated with tighter monetary policy than equity price busts, reflecting the fact that most housing price busts occurred during either the late 1970s or the late 1980s, when reducing inflation was an important policy objective. The disinflation increased the real burden of debt, which exposed inflation-related overinvestment and associated financial frailty."

Dr Kurt Richebächer
for The Daily Reckoning


*(NOTE: Money cannot be easily withdrawn from a Hedge Fund, is a trap being set in attempt to find higher returns? Amaranth investors found Eboli! Also Real Estate unlike Tech stocks of the 2000 Bubble are NOT LIQUID, escape from them as it BUSTS NOT TO EASY)

We are in zone where the SPX should find STIFF resistance, today could be pivotal day if SPX slips back below 1350 convincingly, time for a breather IMHO.

Also my technical work suggests the Q's may be nearing some kind of short term top as it has rallied for near 8 weeks. I wouldn't necessarily short in here, too crazy, but I am waiting for a pullback before adding any Q longs. My guess is a mild pullback of $1-2 bottoming near end of OCT.

Banks' love affair with hedge funds
Large banks are eager to manage their own hedge funds, despite recent blowups like Amaranth.

By Shaheen Pasha, staff writer

October 5 2006: 5:35 PM EDT
NEW YORK ( -- Hedge funds have come under fire in recent days, owing in part to the recent $6 billion Amaranth debacle. But the regulatory run-ins aren't scaring off large banks, which increasingly are turning to hedge funds as a way to create serious growth.
As increased competition for deposit growth and a flattening yield curve continues to put pressure on profits, banks are eager to attract high net-worth clients and diversify their profit stream.
And while banks like Goldman Sachs (Charts) and Morgan Stanley (Charts) have had success in their prime brokerage units, which cater in part to servicing hedge funds, analysts say the big bucks lie in the management of actual hedge fund assets.
Just look at the numbers: Hedge fund managers collect 2 percent of the assets under management regardless of the fund's profitability. If a fund shows a profit, its managers receive an additional 20 percent as a performance fee.
For the banking industry, which is concerned about dwindling profits and higher interest rates, that type of fee structure is particularly appealing, analysts said.
A no-brainer for banks
High net-worth investors continue to demand hedge-fundproducts, making it a no-brainer for banks to enter the business and meet that demand, said Dick Bove, analyst at Punk Ziegel & Co. Hedge funds are notoriously high risk but offer potentially high returns to investors - thus their appeal to wealthy bank customers.
According to industry tracker Hedge Fund Research, the U.S. hedge fund industry grew to $984 billion in assets in July - a 32 percent jump from last year. Global assets are in excess of $1.5 trillion.
"The banking industry is in the business of gathering money wherever it may exist," said Bove. "If the money now exists in hedge funds, it's incumbent on the banking industry to get into that business."
But banks are doing more than just getting in to the business. They're now becoming leaders within the hedge fund industry.
Banking titans Goldman Sachs and JPMorgan (Charts) Asset Management - through JPMorgan's majority stake in Highbridge Capital Management - are currently the largest hedge fund firms in the United States, according to a recent survey by industry magazine Absolute Return.
Goldman Sachs leads the pack with $29.5 billion in assets, while JPMorgan ranks a close second with $28.8 billion. Barclays ranks sixth with $17 billion in assets under management.
It marks an impressive leap for both Goldman and JPMorgan in just one year. In 2005, Goldman Sachs ranked third with $15.3 billion, while JPMorgan wasn't even in the top ten.
As hedge funds aren't required by any regulation to disclose their monthly returns, they're notoriously tight-lipped about their performance, and it's unclear what the banks' profits - if any - are on those assets.
But given the growth in assets under management at Goldman Sachs and JPMorgan, its little wonder other banks are looking to enter the hedge fund arena as well. Morgan Stanley, most notably, has been the subject of Wall Street rumors to the effect that the bank is in talks to acquire a hedge fund. The buzz is that such a buy would fulfill part of CEO John Mack's vision of expanding the company's alternative investments business, which includes private equity.
Still, Wall Street has long had a love-hate relationship with hedge funds. Investors love the promise of high returns, and managers love the heady fees associated with running the alternative investments.
But when a large-scale meltdown occurs - such as Amaranth's roughly $6 billion loss attributable to bad natural gas bets or, worse, the implosion of Long-Term Capital Management in 1998- the closely guarded hedge fund world suddenly becomes enemy number No. 1, raising fears of litigation and hugelosses to investors.
A risky business
Indeed, banks eager to profit from hedge funds may open themselves up to increased legal risks, warned Christopher Whalen, managing director of Institutional Risk Analytics, a financial analysis and valuation firm.
"These things are highly speculative and we're likely going to see a lot more [Amaranths] coming out of the closet," he said. "If a bank-owned hedge fund blows up, the liability trial attorneys will have a field day."
And there are no guarantees that a fund will be profitable for investors or the banks that offer them.Citigroup (Charts), for instance, has been struggling with its in-house hedge fund unit. The company invested about $1.5 billion in Tribeca Global Management and currently has about $2 billion in assets. Citigroup Alternative Investment, which includes Tribeca Global Management, has total assets of about $7.5 billion, according to Absolute Return.
But the unit lost its chief executive, Tanya Styblo Beder, after months of relatively poor returns to investorsand high expenses.
There is also concern that, after years of stellar growth, hedge funds may be in for a slowdown that could lead to consolidation. That could spell bad news for banks that enter the business now.
After starting the year with a 3.5 percent gain, the HFRI Fund Weighted Composite Index - a broad industry measure of hedge fund performance - ran into a rough patch in May, June and July. The index showed losses for those three months before rebounding modestly with a 1 percent gain in August.
The number of new funds launched has dropped, but liquidations declined apace. In the first half of 2006, 549 funds were launched and 223 liquidated. Over the same period, there were 1,211 launches and 428 liquidations.
But critics shouldn't be too quick to predict a decline in the hedge fund industry, said Josh Rosenberg, president of Hedge Fund Research. For one thing, the HFRI index is still up almost 7 percent year to date as compared to a 5.8 percent gain on the S&P 500.
Record inflows into hedge funds
And while fund launches fell from last year, the hedge fund industry is in for a record year of inflows.
Through the first half of the year, the hedge fund industry saw inflows of $66.1 billion, with the second quarter accounting for $42.1 billion of those flows - a record for a single quarter. And inflows in the first half of the year beat the $42.1 billion in inflows that the industry recorded for the full year of 2005.
"There's been quite a bit of fluctuation in performance during the course of this year but money still continues to flow into hedge funds," Rosenberg said.
And as money keeps flowing in, banks will continue to have an even stronger incentive to get in on the action.
"I don't know if banks will ever own the entire market," said Denise Valentine, senior analyst at independent consulting and research firm Celent LLC. "But it's a major trend that will continue because banks have tremendous resources both in technology and money to buy these firms."
Amaranth debacle raises cry for regulation
Shrugging off Amaranth


BorgWarner to cut 850 jobs, trims outlook
Auto parts maker stock dives on news; company blames cost cutting measures at Big Three automakers and higher commodity prices.
September 22 2006: 12:39 PM EDT
CHICAGO (Reuters) -- Auto parts maker BorgWarner Inc. on Friday said it would slash 13 percent of its North American work force and cut its 2006 earnings forecast, becoming the latest U.S. supplier to warn that a slump in orders from Detroit-based automakers would hurt results.
Shares of BorgWarner (down $1.72 to $52.77, Charts) fell almost 4 percent on Friday, touching their lowest level since June 2005. Shares in most other U.S. parts makers also sagged for a second consecutive day following a warning by Lear Corp.
The job cuts will cost BorgWarner a charge of 15 cents a share in the third quarter.
Several U.S. parts suppliers have warned that cuts at General Motors Corp. (down $0.49 to $30.44, Charts), Ford Motor Co. (up $0.18 to $7.94, Charts) and DaimlerChrysler AG's (up $0.05 to $50.05, Charts) Chrysler Group would hurt results, and BorgWarner is not likely to be the last, analysts said.
"Despite the short-term pressures, BorgWarner remain well-positioned for the long-term," Morningstar analyst John Novak said. "We expect more of these announcements from the large suppliers and significantly more instability in the Tier II and Tier III supply base over the coming quarters."
Job cuts by October
BorgWarner said it would cut about 850 jobs across its 19 operations in the U.S., Canada and Mexico by the end of October, citing in part, production cuts at the Big Three automakers and a rise in commodity prices, mainly the nickel used in turbochargers.
The supplier trimmed its 2006 earnings per share forecast to a range of $3.95 to $4.10, excluding 15 cents per share for restructuring, from a range of $4.35 to $4.60. Analysts on average expect $4.42 per share, before special items, according to Reuters Estimates.
Auburn Hills, Michigan-based BorgWarner sees 2006 sales at the low end of its outlook of 5 percent to 7 percent, but expects to be back on track for 7 percent to 9 percent growth in 2007.
The company supplies powertrain components, including components for all-while drive vehicles that are supplied to Chrysler and Ford. North American operations were affected by the Big 3 cuts and other customers, the company said.
More than a one-customer issue
"This is more than a 'one-customer, one product' issue," Chief Executive Tim Manganello said in a statement.
In a conference call, BorgWarner executives said the majority of the restructuring costs will be cash for employee severance taken in the third quarter with a payback to the company in 2007.
"We are trying to salvage as much of the fourth quarter as we can and position ourselves to be in a better position starting with the first of the year 2007," Manganello said on the conference call.
All of the traditional Detroit-based car companies have taken cost-cutting steps in response to slowing sales for pickup trucks and sport utility vehicles, an area of the market they have dominated.
GM and Ford are closing more than two dozen plants and cutting over 75,000 jobs. Chrysler said earlier this week it was cutting current-quarter production by 24 percent to reduce inventory of slow-moving trucks and SUVs.
Chrysler has said it is considering other cost-cutting steps as well.
BorgWarner's cuts are similar to North American restructuring efforts by Johnson Controls Inc. (down $1.13 to $68.06, Charts) and Lear, J.P. Morgan analyst Himanshu Patel said in a note.
Patel expects more warnings in coming weeks from large U.S. suppliers, naming American Axle & Manufacturing Holdings Inc., Visteon Corp., Johnson Controls, ArvinMeritor Inc. and Gentex Corp. as most at risk.
Lear on Thursday warned that U.S. carmakers' production cuts would hurt results, which followed warnings by suppliers TRW Automotive Holdings Inc. and Navistar International Corp.

Thursday, October 05, 2006

Market Poised To Go Higher

Small and Mid Caps are beginning to heat up and the NAZ has been steadily gaining, in what appears to be an acceleration of the rally.

Oct up to this point appears to be a pussycat, not a bear. The bear is being put to death. The animal spirits will run wild until they duplicate 2000 bubble euphoria.

Falling gas and inflation fears fueling the run, as well as goosing by those who want to see the Repub's maintain status quo. We are however probably putting in a multi year high, with avg Bull market lasting around 4 years, this is one will be in matter of days from OCT 2002 lows.

The market has come all this way without a 10% correction, rather rare, and it has been a record setter for more than 4 yrs of bullish plurality.

There remains too much bearish sentiment however and predictions of a selloff in OCT that has yet to appear, and likely will not.

But make no mistake about it, no matter how high we march, this IMHO is the ending move from the 2002 lows to complete this bull market.

Once a trend gets going it is hard to stop until it exhausts itself. I see no exhaustion here.

The market should correct soon, maybe next week, for now I don't expect it to amount to much.

NO, I am not chasing this last piece, and I would be on guard for any blowoff move or early strong up day that reverses to red.

Energy may have bottomed short term, USO PTEN VLO XLE put in solid days, I think more downside is possible.

PGH is yielding near 14% as an energy trust.

Watch Transports to see if they can better their 2006 double top, for now we have a Dow Theory non confirmation in place.


Wednesday, October 04, 2006


Falling mortgage rates can do only so much
Lower rates will help buyers stretch -- but there are other forces pushing down real estate prices.

By Les Christie, staff writer

September 26 2006: 2:15 PM EDT
NEW YORK ( -- Low mortgage rates were a big factor driving the housing boom of the past few years and their climb was expected to play a big role in the market's undoing.
But now rates are sliding again - is it time to breathe a sigh of relief?

The slowing process has already begun: Not only are inventories up and sales down, but, for the first time in more than 10 years, average home prices have actually gone down over a 12-month period.

Rates have dropped from July highs of about 6.79 percent for a 30-year fixed mortgage to 6.40 percent last week, according to Freddie Mac. That, however, is still higher than a year ago, when they were 5.8 percent.

Since mid-2001, the average 30-year, fixed-rate mortgage has rarely exceeded 7 percent. Rates bottomed out at 5.2 percent in June 2003.

Rates have a direct impact on monthly payments - the lower the rate, the lower the payment - and therefore on how much home a buyer can afford. Ellen Bitton, founder of the Park Avenue

Mortgage Group, says today's lower fixed-rate mortgages have the potential to lift the market, because markets often run on emotion.

"[Lower rates] make people more optimistic," says Bitton. "The markets may not go all gangbusters again, but overall, they're good for the business."

Joel Rassman, the chief financial officer for homebuilder Toll Brothers (TOL (Charts)), agrees the lower interest rates have a "positive effect on the psychology of buyers." And, he points out, there is significant pent-up demand for housing that low interest rates could help free up.

The impact on falling rates, however, will depend on the market. Dianne Saatchi, vice president with the Corcoran Group, a New York based real estate broker, thinks declining rates will have little impact on her buyers. "The mortgage rates never got very high. They're still, looking at the last 30 years, outrageously low."

Allen Hardester, a senior executive with a Maryland-based lender, Hyland Financial Services, says most of the demand for homes is in the affordable price range - $200,000 to $300,000 - and that's where lower interest rates will help. Many buyers are stretching the limits of their budgets. Lower interest will make those limits a bit more elastic.

But in Hardester's opinion, even if rates do drop further, it may not be enough to offset another factor that was a feature of the boom - the decline speculative investing. NAR reported that 40 percent of all home sales in 2005 were purchased primarily for investment (28 percent) or for second homes (12 percent).

Many of those speculators have stopped buying. Some have even put their properties on sale, helping to fuel the inventory glut (see table). There were 3.9 million homes on the market in August, up 38 percent from a year earlier.That will work against sellers trying to keep prices from falling further.

In addition, interest on adjustable rate mortgages, which added lots of fuel to some of the nation's hottest housing regions, have not returned to the very low levels they hit in 2003, when a one-year ARM could be had for 3.40 percent, or less. That's more than 2 percentage points below where they are now.

Neil Garfinkel, a real estate and banking law attorney with Abrams Garfinkel Margolis Bergson, LLP, says the current mortgage rates are merely keeping a tough real estate market from getting worse. "I think that if anything has saved the market, it's the low interest rates. Consumers have been gun shy. They hear about bubbles and what disaster is going to happen. If interest rates had shot through the roof it would have been a big problem."

Tuesday, October 03, 2006


Click to enlarge, then click again in lower right corner for orig size.

COP briefly below long standing support line as I have drawn, and another down day dooms it to close beneathe it.

Oil on the NYmex $58.70 as we speak, why the tumble? Even as fears and threats of production cutbacks come from some OPEC members, did not support price today!

Oil rose with stocks as did gold, and commodities in general, as demand grew with economy, so now as commodities PLUMMET and stocks still head upward this is seen as BULLISH development. Consumers will HAVE MORE MONEY IN THEIR POCKET to spend on frivalous items.

Don't mention that it takes 30-50% of their income to rent or buy orthat MANY things cost more now, not just gas for the auto.

Housing is coming in for a soft landing? maybe so, but Home Depot etc are laying off, CHallenger reported today 100K job cuts announced some 40% above recent stats. We are JUST feeling the fallout from the housing slump would be bubble that popped.

WHO is talking about how much oil and energy companies were adding to the huge SPX profits being reported? Stocks should fly as earnings momentum is taking blows to the head?

Even with pullback in rates recently many mortgages are being reset and going up substantially, more than the measley $10 per fill the drop in gas is associated with.

Did you know as the DOW was making its run today at a NEW ALL TIME CLOSING HIGH that the volume of stocks declining was greater than those rising? according to YHOO FINANCE we had 51% down volume!!! does that strike you as odd?

My take is that we are ever narrowing the amount of stocks participating in this rally and this is NOT a bullish development IMHO

This MUST change or the market will surprise many, for now who is worried with new high that it isnt going to continue?

Anything is possible, all we can is look at probabilities, and in my mind, as each leadership group has come forward and then gotten CRUSHED, I will take my 5% CD's and 4.5% CASH MM'S and call it a day.

The next move to surprise is coming to the Bear side. IMHO



Job cuts top 100,000 in September
Survey shows planned layoffs driven by softness in automotive, housing sectors.
October 3 2006: 7:58 AM EDT
NEW YORK ( -- The U.S. labor market showed increasing signs of weakness last month as the number planned job cuts topped 100,000 in September, according to a report released Tuesday.
The survey, published by the global outplacement consultancy group Challenger, Gray & Christmas, revealed that planned job cuts reached 100,315 last month, up 54 percent from August and up 40 percent from the same period last year.
"The top reason provided by job-cutting employers during the month was a downturn in demand," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas. "We probably would not see permanent job cuts if the downturn were considered temporary."
While planned job cuts soared in September, layoffs are still down 18 percent so far this year, compared to the same nine-month period in 2005.
Challenger, Gray & Christmas said the majority of payroll cutting came from the automotive sector, which announced 33,745 cuts, while suppliers to automakers Ford (Charts), General Motors (Charts) and DaimlerChrysler (Charts) were particularly hard hit.
Softness in the housing sector has sparked job cuts at the home improvement retailer Home Depot (Charts) and homebuilder Pulte Homes (Charts), according to the survey, while both the telecommunications, computer industry and consumer product companies all reported more planned job cuts last month.
September typically marks the start of the heaviest job-cutting part of the year, Challenger said, noting that he would not be surprised if another 30,000 cuts were announced before the end of the year.

Duratek OCT will be OCT

Thursday, September 28, 2006


GDP softens in second quarter

Pace of US economic growth falls short of expectations to revised annual rate of 2.6%, hurt by weakened corporate profits.

September 28 2006: 8:41 AM EDT
WASHINGTON (Reuters) -- The pace of U.S. economic growth softened more sharply than expected in the second quarter and corporate profits rose feebly, according to a Commerce Department report Thursday that pointed to a significant easing in expansion.

Gross domestic product or GDP that measures total economic activity within U.S. borders advanced at a revised 2.6 percent annual rate, down from the 2.9 percent estimated a month ago and less than half the first quarter's 5.6 percent rate.

Wall Street economists surveyed by Reuters had expected second-quarter GDP to be unchanged at 2.9 percent but the government said inventory building was weaker than first thought and imports of services - which detract from domestic output - were higher.
Prices continued to bubble higher.

An inflation gauge favored by the Federal Reserve - a measure of personal consumption spending that excludes food and energy items - rose at a revised 2.7 percent rate instead of 2.8 percent reported a month ago. But that was still well above the first quarter's 2.1 percent and was the highest rate since 2.8 percent posted in the first quarter of 2001.

A cooldown in housing sales and prices is affecting the overall economy and it showed clearly in the GDP statistics. Investment in residential structures tumbled at the sharpest rate in more than a decade - down a revised 11.1 percent instead of 9.8 percent reported a month ago.

It was the third straight quarter in which spending on new housing declined and department officials said it was the biggest quarterly drop since 12.2 percent in the second quarter of 1995.
Corporate profits barely grew by a revised 0.3 percent in the second quarter rather than 2.1 percent that the Commerce Department estimated a month ago. That was a steep plunge from a 14.8 percent rate of profit growth in the first three months this year.

Businesses continued to increase their investment in new operations during the second quarter, but not as strongly as first thought and far less robustly than in the first three months of the year. So-called nonresidential spending was up 4.4 percent instead of the 4.7 percent estimated a month ago and was less than a third the 13.7 percent rate of growth posted in the first quarter.

The U.S. Federal Reserve has paused in its cycle of interest-rate rises, waiting to assess the economy's performance in coming months, and policy-makers are cautioning that some easing in the pace of growth should be expected.

In an interview with Reuters on Wednesday, Richmond Federal Reserve Bank President Jeffrey Lacker said "growth is going to be a bit below par for a quarter or two, maybe longer, but I'm looking for it to return to potential next year."

Similarly, Kansas City Fed Bank President Thomas Hoenig said Wednesday night he was anticipating growth will bounce back - but still stay below trend - in 2007 after dipping to an annualized rate in the second half of 2006 of 2.0 percent to 2.5 percent.
Why relying on GDP as a leading economic gauge can lead to poor decisions - Good numbers gone bad