Sunday, January 25, 2009

A Game of Inches... 8,000 or Bust... Shays Rebellion Revisited... Stock Watch... Economic Calendar... Seally Mattresses...

In baseball only an elite number of players were able to end the season with a .400 average. Names like Ty Cobb, Joe Jackson, Ted Williams, and Rogers Hornby belong to that elite list. Of the 12 times the magic .400 number was breached, two players (Rogers Hornsby and Ty Cobb) finished the season above this benchmark number on three separate occasions. In recent history Tony Gwynn finished the season at .394, George Brett at .390 in 1980, and Rod Carew .388 in 1978. (1)

Similar to the magic .400 number, it appears that Wall Street has drawn a line in the sand at the magic 8,000 number. This number has been tested on several occasions. November 19, 2008 stands as a key date. (2) That was a day when housing starts reached the lowest level since 1959,and the CPI marked its largest one-month decline since 1947. Since then, inter-day losses have crossed the 8,000 mark on several occasions, but the mark is always reset within a 24 hour period.

Let's face it, the news has not gotten better... and many feel it has actually gotten progressively worse. Sure the government intervened with TARP, the Big 3 bridge-loan, Obama's election, and release of the second half of TARP have all figured into the equation. Still though a steady flow of bad news should have sent this market lower. Now this mess sits squarely in Obama's lap. The issue of government transparency will be raised once again. Like Roosevelt against the back-drop of bank runs, Obama's administration may well be served to have a formal "banking holiday." (3) While FDR's plan was meant to stop bank runs, Obama's holiday would allow the banks to come clean once and for all. Obama's political capital cup is over-flowing. This is the time to make a big move. And banks need to finally come clean with bad loans, bad collateral, and faulty accounting methods. His approval rating will allow Obama to practically anything...

The Treasury and Fed, which appear to be in no way shape or form accountable to the American people must called to the carpet. The Treasury's mis-use of the original TARP funds to re-capitalize banks is the first place to start... The TARP in its original form was created to combat the mortgage and foreclosure crisis. Instead, Bush and friends exhausted their last bit of political shenanigans for a last laugh at Congress' expense. It could be that Thomas Jefferson was right. He was fearful of a class of financiers who would become so rich and powerful that they could actually manipulate the entire financial system. As mentioned before, this is the principle reason that Andrew Jackson "Killed the Bank." We have long-since blown through reporting the amount of money the Fed has printed. (4) However, the public... Congress... and the world economy for that matter is entitled to know the names of institutions which have received "additional loans" from the Fed. Furthermore, it is a necessity to find out the "true value" of the collateral that was received in those loans!!! The day that happens, could well be the last day any entity is interested in purchasing T-Bills from the U.S. government. Bloomberg's lawsuit inquiring about these loans is as much a national security issue as much as it is a question about the basic institution of democracy itself. Should that suit be denied, as Lincoln once said "When it comes to this I should prefer emigrating to some country where they make no pretence of loving liberty -- to Russia, for instance, where despotism can be taken pure, and without the base alloy of hypocrisy." (5)

Shays Rebellion Revisited...
In the past, I have alluded to Shays Rebellion. In American History, a farmer by the name of Daniel Shays took out loan, but could not repay it. Like many states immediately after the American Revolution, Massachusetts had a tremendous amount of pressure placed on it by the debtors to increase money supply, thus allowing debtors to repay their loans with inflated dollars. The creditors preferred a tight money supply. State governments were owned by the creditors. When massive numbers of farms went into foreclosure, Shays and other Revolutionary War veterans led a rebellion against banks... Kind of scary if you think about it...

What is different now it that banks are just as broke as the debtors who borrowed the money. While Treasury ad Fed have made several attempts to re-capitalize lending institutions... then beg them to lend, the credit market has become the X variable int he equation. And I would not loan a cent to ANYONE rated below a 650 credit score.

Stock Watch
Added NEOP traded on the OTC... This little dandy out of Dublin, OH is a pure speculation play which could bring a 300-500% return, or could lose 20% of my investment. We'll know more by late February. Price .70 cents a share...

SRS showing sings of a major breakout this week as retailers are showing weakness... and demand for commercial real estate diminishes.

SCC Consumer discretionary spending tends to rise during income tax season. With unemployment, and massive amounts of debt, the consumer in spite of Obama's tax cuts will be storing money under their mattress and shopping discounts!!!

EFU Significant movement from the ECB is making this an immediate winner. I own common shares. Unless the EURO becomes the world's reserve currency tomorrow, I believe we will see continued erosion in the buying power, coupled with liquidity injections.

Continued 6/115s on British Pound Sterling...

CNK I have sell orders in at 3.8. The options are currently trading at 3.2 for March. I am pushing for an extra 20% return on premium... o.k. I'm a pig at times!!!

RYL, MDC, MLHR, FXI, WYNN Puts are still in rally mode...

MCRI... June/5s puts still looking a bit shaky... We will see what their earnings look like... remember, this company gets its revenue from Nevada... ouch!!!

*Natural Gas is looking interesting...

Economic Calendar

Monday Jan 26 Tuesday Jan 27 Wednesday Jan 28 Thursday Jan 29 Friday Jan 30

Market Focus »

Existing Home Sales
[Report][djStar]10:00 AM ET

Leading Indicators
[Report][Bullet10:00 AM ET

4-Week Bill Announcement
[Bullet11:00 AM ET

3-Month Bill Auction
[Bullet11:30 AM ET

6-Month Bill Auction
[Bullet11:30 AM ET

20-Yr TIPS Auction
[Bullet1:00 PM ET

FOMC Meeting Begins

ICSC-Goldman Store Sales
[Bullet7:45 AM ET

[Bullet8:55 AM ET

S&P Case-Shiller HPI
[djStar]9:00 AM ET

Consumer Confidence
[Report][djStar]10:00 AM ET

4-Week Bill Auction
[Bullet1:00 PM ET

2-Yr Note Auction
[Bullet1:00 PM ET

Bank Reserve Settlement

MBA Purchase Applications
[Bullet7:00 AM ET

EIA Petroleum Status Report
[djStar]10:30 AM ET

FOMC Meeting Announcement
[Report][Star]2:15 PM ET

Weekly Bill Settlement

Durable Goods Orders
[Report][Star]8:30 AM ET

Jobless Claims
[Report][djStar]8:30 AM ET

New Home Sales
[Report][djStar]10:00 AM ET

EIA Natural Gas Report
[djStar]10:30 AM ET

3-Month Bill Announcement
[Bullet11:00 AM ET

6-Month Bill Announcement
[Bullet11:00 AM ET

5-Yr Note Auction
[Bullet1:00 PM ET

Money Supply
[Bullet4:30 PM ET

20-Yr TIPS Settlement

[Report][Star]8:30 AM ET

Employment Cost Index
[Report][Bullet8:30 AM ET

[Report][Bullet9:45 AM ET

Consumer Sentiment
[Report][djStar]9:55 AM ET

Farm Prices
[Bullet3:00 PM E

Seally Mattresses Stink... We have gone through Three... 3 of them in a 24 month period!!! All have developed the same material defect... Finally, we are getting a refund!!!

Sources Referenced



AX said...

What are you using to short the pound?

Anonymous said...

Hey Ax... Rydex ETF... 6/115s

boom and doom said...

Tiger Coach,
I would disagree that the TARP was ever intended to help mortgages and foreclosures. The TARP stands for Troubled Asset Relief Program. This has become one of the most misunderstood things I have ever seen. The Treasury department intended to buy toxic debt to help the capital structures of the banks. Everyone wanted them to purchase shares of the banks and really let the Treasury have it. Well, then the Treasury invested in the stocks of banks, and still the people were not happy. This is the typical "we don't like what you are doing and no matter what, we are going to disagree with you". Part of the problem I believe is that the Bush Administration, the Treasury and the Fed did a poor job of explaining the program. But after Congress approved it, there has been a large element of people in this nation that are against the TARP no matter what is done. And that I believe is wrong. They may not agree with the program, but don't keep changing your mind on what you want the program to do, especially after the Treasury does what you want them to do.
Boom & Doom

Tiger Coach said...

Dear Boom and Doom and other concerned readers,

This is what Wikipedia said about the changes in the TARP. Consider the ideas that were floated... v. what the funds were actually used for... I'll let you be the judge and jury in this case...

Changes to the Initial Program

"On October 14, 2008, Secretary of the Treasury Paulson and President Bush separately announced revisions in the TARP program. The Treasury bought preferred stock and warrants in the nine largest American Banks, and is buying preferred stock and warrants from hundreds of smaller banks, using the first $250 billion dollars allotted to the program.[6] The first $350 billion TARP money was primarily used to buy preferred stock, which is similar to debt in that it gets paid before common equity shareholders. This has led some economists to argue that the plan may be ineffective in inducing banks to lend efficiently. [7] The original plan that Secretary Paulson presented was for the government to buy up the troubled (toxic) assets in insolvent banks and then sell them at auction to private investor and/or companies. This plan was scratched when Paulson met with England's Prime Minister Gordon Brown who came to the White House for an international summit on the global credit crisis. Prime Minister Brown, in an attempt to mitigate the credit squeeze in England, simple infused capital into banks via preferred stock in order to clean up their balance sheets and, in some economists' view, effectively nationalizing many banks. This plan seemed attractive to Secretary Paulson in that it was relatively easier and seemingly boosted lending more quickly. The first half of the asset purchases may not be effective in getting banks to lend again because they were reluctant to risk lending as before with low lending standards. To make matters worse, overnight lending to other banks came to a relative hault because banks did not trust each other to be prudent with their money. [needs reference]

The Act requires financial institutions selling assets to TARP to issue equity warrants (a type of security that entitles its holder to purchase shares in the company issuing the security for a specific price), or equity or senior debt securities (for non-publicly listed companies) to the Treasury. In the case of warrants, the Treasury will only receive warrants for non-voting shares, or will agree not to vote the stock. This measure is designed to protect taxpayers by giving the Treasury the possibility of profiting through its new ownership stakes in these institutions. Ideally, if the financial institutions benefit from government assistance and recover their former strength, the government will also be able to profit from their recovery.[2]

On December 19th, 2008, President Bush used his executive authority to declare that TARP funds may be spent on any program he personally deems necessary to avert the financial crisis, and declared Section 102 to be nonbinding. This has allowed President Bush to extend he use of TARP funds to support the auto industry, a move supported by the United Auto Workers.

Secretary of the Treasury Henry Paulson indicated that reviving the securitization market for consumer credit would be a new priority in the second allotment[8][9]"


The effects of the TARP have been widely debated. A review of investor presentations and conference calls by executives of some two dozen US-based banks by the New York Times found that "few [banks] cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future." [10] The article cited several bank chairmen as stating that they had no intention of changing their lending practices to "accommodate the needs of the public sector" and that they viewed the money as available for strategic acquisitions in the future.

A congressional review panel concluded on January 9, 2009: "In particular, the Panel sees no evidence that Treasury has used TARP funds to support the housing market by avoiding preventable foreclosures". The panel also concluded that "Although half the money has not yet been received by the banks, hundreds of billions of dollars have been injected into the marketplace with no demonstrable effects on lending." [11]
For a complete read, you can go to Wikipedia at:

This should clarify what was promised and what was delivered for TARP. In the car business, I believe this is referred to as the bait and switch...

boom and doom said...

Tiger Coach,
I don't think anyone promised anything with the TARP. It was a plan that was put together to unfreeze the credit markets, which it has done. At the time, Paulson and Bernanke took their best approach at what should be done. This was a difficult time, the likes of which had not been seen before. Because they decided to do something they thought was a better approach, I don't see how that was a "bait and switch." I'm not sure that even what they are doing now is the right thing to do, but it is better than doing nothing. What would you like to see done? I don't like all the money that is being put out there because the government is now involved in the private sector and we will be headed for high inflation in the future, but I still believe it is better than the alternative. The social ills that come with depression or worse yet, a collapse of our currency and economy are something we do not want to live through. What are your thoughts?