Bernanke is Whacky
White House Economic Advisor, Ben Bernanke, wants to be the next Federal Reserve Chairman after Alan Greenspan steps down. The problem is, he's no Alan Greenspan. Mr. Greenspan knows when to lie and when not to. He knows not to sound alarmist and he knows not to cheerlead. Mr. Bernanke does not know these skills. He recently went on record to say that the economy is strong and the housing market is proof of that. That's exactly like saying the economy that was strong in 2000 owed its strength to the astronomical prices of tech stocks. He says that although housing prices have gone up a lot, that there are "strong fundamentals" underlying it. The only strong fundamental is that money is easy because banks are lending money at very low interest rates. If that ends either by interest rates going up or banks not willing to lend as easily due to a flat yield curve, then the housing market will evaporate overnight. He then went on to say that "We've never had a decline in housing prices on a nationwide basis." This is false. The IMF did a study titled "When Bubbles Burst" of historical (since 1970) housing busts where prices fell by 30% over a four year period and they found five busts in the U.S. (20 worldwide). Busts follow booms and when they do, people loose money. It's just a matter of time until our housing market declines. The only people I find that don't share this sentiment are those that are leveraged in the real estate market and those that stand to gain from this shakey economic boom, like Mr. Bernanke.
The Dow topped 10,700 on Thursday and then fell 50 points. We will never see 10,700 again in our lifetimes.
Not Swine Flu
I felt a little foolish after posting that the illnesses in China were avian flu because a couple days later all the news stories were claiming that it was a pig bacterial virus "swine flu" rather than bird flu. Then I saw this story claiming that because so many people have died that it may not be swine flu but something else entirely and that the world is getting all of the information about this outbreak from the official Chinese news releases only. I'm a bit more emboldened in my original statment. These outbreaks have occured in the same region as major migratory bird deaths due to the bird flu. This may indeed be the pig infection of avian flu that would be a logic step in the evolution of this pandemic. Because pigs are so similar to humans, the virus (once present in pigs) can mutate (recombine) into a form that will allow human-to-human transmission.
PS The Dow hit 10700 today. This will be the high-water mark.
Plum Tuckered Out
As you can see from this blog, I party a lot and like to do silly stuff.
PLUM puddin'
Plumtree Software, of which I am intimately familiar, warned on thier number a few days ago and the stock slid 20%. They also said in a press release that they may be out of compliance with some price reduction clauses in thier GSA contract and that they may have to take a charge to get back into compliance.
As you've gathered from this blog, I look at stock charts and I try to gleen future direction from past performance. As I look at Plumtree (PLUM), the future doesn't look bright. I'm going to say that the stock price will rise above $4 soon, say around $4.15 and then it's going to head South again, like to the $2.90 level.
If you own PLUM, my advice is to not sell right now, wait for it to go above $4 and then sell with confidence (I don't think it'll see 4 again for a long while, if ever). Watch it closely. I don't think it'll take long for it to go back to $4.
"Mystery" illness kills at least 17 Chinese
This is bird flu, even though the Chinese don't want to admit it. This story shows that the virus is spreading geographically and that it is endemic to the swine and sheep population.
BEIJING --An unidentified illness has killed 17 farmers and sickened 41 in southwestern China after they butchered sick pigs or sheep, China's official news agency said Sunday.
Those affected had symptoms including high fever, fatigue, nausea and vomiting, and "became comatose later with bruises under the skin," Xinhua news agency said.
Over the past four weeks, 58 people from areas around the cities of Ziyang and Neijiang in China's southwestern Sichuan province were hospitalized with such symptoms, Xinhua said.
Seventeen of those hospitalized have died, while 12 are in critical condition, 27 are stable and two have recovered, it said.
A "preliminary probe found out that the affected farmers have butchered sick pigs or sheep" before falling ill, the report said.
Here comes bird flu
GENEVA, July 22 (Reuters) - Indonesia's first human bird flu case, coupled with more birds dying elsewhere including Russia, are signs a long-dreaded global influenza pandemic may be approaching, the World Health Organisation (WHO) said on Friday.
Health officials fear the virus will mutate and mix with human influenza, creating a deadly pandemic strain that becomes easily transmissible and could kill millions of people.
Yield Curve Ball
This thing is what is known as the Treasury Bill Yield Curve. It shows the bond yields for the various bonds (5 year, 10 year etc.). This chart shows yesterday's and today's numbers. Economists pay attention to this thing. They claim that if the curve flattens or worse inverts, then that always signals a recession (this rule has never failed). The last time the yield was inverted was from July through November 2000, right about when the last recession began. John Herrman Economic Director of Cantor Fitzgerald, the US's largest bond broker believes that there is no "reason to prevent this thing from inverting" and that an inversion could come by next quarter.
Alan Greenspan signaled today that the Fed is going to keep raising the Fed Funds Rate quarter point at a time at least until the end of the year, culminating in a 4% rate. What this means is that the short term yields are going to keep going up. Long term yields will probably keep going down since other country's bonds have lower yields, making our 10 year bonds attractive. This means we will have a flat to inverted yield curve. Chairman Greenspan tells us not to worry however since a flat yield curve is not a sure sign of an economic slowdown.
This all sounds a little like hocus-pocus until you look at why a flattened or inverted yield curve causes trouble. I'll let Tom Dyson explain it from today's Rude Awakening article, Murphy's Trade:
[When an inversion happens] there's no incentive for banks to make loans and they pull money out of the system. Liquidity dries up.
Debt still needs to be serviced. The country will be screaming out for cash to pay its debts like a junkie screams for more drugs as he's being strapped to his bed. Anyone with debt feels the pain, and in America, that's most people.
A self-fulfilling circle will have been put in motion. Higher bond prices will choke the economy of even more liquidity as the curve inverts further. Consumerism will grind to a halt. The U.S. economy will hit a wall. Assets that went up will come down fast. You'll get bankruptcies, profit warnings and unemployment...
A cash crunch ensues. People panic and rush into safe haven investments. Treasury bonds are still the most trusted instruments in the world; they will be popular and their prices will spike even higher. People will talk about a bubble in bonds.
Panama
A nice historical synopsis of the Country of Panama from Lonely Planet. Does this stike anyone as being oddly familiar?
General Manuel Noriega took control of the country in 1984. A former head of Panama's secret police and a CIA operative, Noriega became a demagogic bogeyman. Murdering political opponents, quashing democracy, drug trafficking and money laundering were his principal concerns during the 1980s, activities which eventually attracted US sanctions and the freezing of Panamanian assets. When the winning candidate of the 1989 presidential election was beaten to a pulp on national TV and the election declared null and void, Noriega's regime became an international embarrassment. Noriega appointed himself head of government on 15 December 1989 and announced that Panama was at war with the USA. The following day an unarmed US soldier dressed in civilian clothes was killed by Panamanian soldiers - or so the Pentagon claimed. The Panamanian version of events was that the soldier was not only armed but that he had shot and injured three civilians before running a roadblock.
Since US forces had for months been itching for a pretext to attack, this was more than enough reason to call in 26,000 troops for 'Operation Just Cause'. The invasion, the intention of which was to bring Noriega to justice and create a democracy better suited to US interests, left more than 2000 civilians dead and thousands more homeless. Noriega escaped capture by US troops for six days by claiming asylum in the Vatican embassy. US forces surrounded the embassy and pressured the Vatican to release him. They memorably used that psychological tactic beloved of disgruntled teenagers and bombarded the embassy with blaring, devilish, rock music to psychologically wear down those inside. It worked (as any parent knows); Noriega was sent to the US, where he was convicted on money laundering charges; he is currently serving a 40-year prison sentence in Florida.
Predatory Lending
Good article in the New York Times about the rampant mortgage lending that is going on in the country. I'm guessing that this predatory lending that is happening will be the downfall of our economy, even though banks have taken steps since the S&L days to hedge their positions, there's inherent weakness and someone will pay the cost, probably consumers first and then ultimately the banks.
NPR was just doing a story on people who are participating in real estate investment clubs. They interviewed a guy in Las Vegas and asked him if he was wary of the risks. He said no, that he listens to what the brokers and real estate professionals tell him and they tell him everything is ok so he invests with confidence. Um, of course a real estate professional is going to give the most rosey scenario, just like a shopkeeper tells you look great in those jeans that accentuate your fat rolls.
The Dow stands at 10614. I'm betting that from this point onward we won't go back to this high of a number. It's all downhill from here.
New Flu Strain
Flu news out of China... The avian flu has turned into a more deadly strain within the migrating wild bird population, killing 6% of a large bird santuary. This new strain affects previously unaffected bird species and in a lab it'll kill a chicken in 20 hours and a mouse in 3 days. The migrating birds are expected to begin their seasonal migration soon, fanning out among China, Thailand, India and Pakistan. Scientists are using language such as "far exceeds" deadliness of other strains and "highly pathogenic".
On the good news front, JD Fortune has survived round one of Rockstar:INXS. JD is the clear winner, the others are either chicks, which wouldn't work for INXS or they're too much into themselves. JD's rags to rags story is irresistable as are his cryptic t-shirts and Billy Joe Armstrong-likeness. Go JD!
M&A Monday
Today was M&A (mergers and acquisitions) Monday. That means that the companies that have extra cash are using that money to acquire other companies. The big one today was Sprint acquiring US Wireless for $1.3 billion in order to muzzle them because they were suing Sprint over a breach of contract. Corporations are flush with cash right now. They had a couple of good years and they are now using that money to buy back their own stock and make foolish decisions like buying other companies, for example, Ameritrade just bought TD Waterhouse. Why? TD doesn't add anything to Ameritrade's offering, it just eliminates a competitor. Companies are acting like people (big surprise). Money is easy right now and if the money is easy then it's easy to get rid of it. The other reason that M&A's are happening is that firms like Goldman Sachs make money on them. Goldman will encourage companies to acquire other companies and say that it is in their best interest. But when money is easy people don't use their heads. Abby Cohen from Goldman thinks that we are in the "summer rally" right now. She thinks the S&P is going to rise this summer 10% to 1325. It's in Goldman's best interest to say things like this. If they say the S&P is going to tank then their clients aren't going to be in an M&A mood. Here's my prediction. If the S&P 500 goes higher it'll only hit 1,250 (it's at 1219). After that, expect it to go to 1,130. Don't expect it to stay there long. The price will drop lower.
Dear Bil, how was Jost?
Stocks in Shock
At this very moment, the Dow Jones Industrial Average (DJIA) is up 44.57, or 0.43%. Meanwhile, shares of Ceradyne (CRDN) are down 0.06 in light trading.
Bold prediction based on the above: the world is going to end.
British Virgin Islands rule.
Satellite's Alright
I've known that Google maps allowed one to switch to a satellite view but I didn't make the connection that I could zoom all over the planet and see satellite images of any spot. This is a fascinating activity if you've got a few moments. The maps for the US are more detailed than any other place but you can still get to the level where you can see the grid of a city. The amazing thing is that we humans have completely overrun the planet. Find Taiwan. Literally half of that island is human impacted. Notice how every inch of China has been touched by humans. Go over to Hawaii. Notice Oahu and how humans have cut into the south side. Find the US and British Virgin Islands. The US side has lots more homes. Cut up to Cuba, it's mostly farms. Juxtapose that with the west coast of Florida, humans from the tip to the top. Go up the east coast of the US until you get to the Chesapeake. Follow the Potomac to DC. Notice that the Capitol and White House have been modified so we can't see them.
MarketOn Friday the jobless numbers came out and stated that the jobless rate is the lowest it has been in four years. This caused the stock market to zoom up. This on the surface would refute what I am espousing, a market collapse. Actually it doesn't refute it at all. The Fed and most institutional investors are focused on inflation. They have their backs turned to deflation and are not paying attention to the fundamental flaws in our economy namely debt and speculation. It will not be until after the market collapses that we have unemployment. Before the Great Depression we had very low unemployment. After the market crashed unemployment went up to the 30% range. The market will tank first and then the effects will be felt. That's the way it happened last time.
Hedge Fund Shakeout?
It's been an interesting couple of days. After the explosions in London, oil dropped in price by more than $5 intraday. That's a huge drop. Then it bounced right back up again when people realized there's a hurricane headed for the Gulf. Then the price mellowed a bit when it looked like the hurricane would peter out before causing much refinery/oil rig damage. I wonder what all that fluctuation did to the hedge funds. Did it catch them off guard like when GM's bonds were downgraded and then GM was saved by buyout talk? I'm willing to bet that some speculators got taken to the cleaners yesterday but it may be awhile before we get the story.
The other thing that is interesting about oil is the talk about what is driving up the price. The price of oil by the way is at a record hit this morning of $62 a barrel. The talk is that if it is driven by demand, then that's a good thing and price is irrelevant. The logic being that demand means the economy is strong and business will be able to afford higher fuel costs. If the price of oil is high because of supply, then we're in deep doo doo. I'm taking the uneducated guess that it is in fact supply. The reassurances by the Saudis that they can turn the spigot and increase the flow are hogwash. They are at capacity now and their supply is on the downward slope. Nobody knows when we'll reach peak oil. Many I've read believe it will happen between 2003 and 2015. The only clue that we'll have of when we reach is a fluctuating oil market. That's why I think we're there now.
Dow 1,000
I am going to make a bold prediction: The Dow tonight stands at 10,270.68 (after having fallen 101 points today). The Dow will soon drop below 10,100. After it does this it will fall rapidly but will find resistance along the 9750 line. It will not stay there long. Next stop is 7500 where it will bounce up slightly and then dive. Before we know it, the price of the Dow will be 3500. It will take a couple of years to get there (2007 give or take a year). Eventually the price of the Dow will rest around the 1,000 level, I'd say by the year 2015.
Tipping Pointless
As you know, I follow the progress of the coming flu pandemic. The rhetoric of late is interesting. Seems everyone is overusing the phrase "tipping point" in homage to Malcolm Gladwell's somewhat pointless book. The WHO cites that we are at the tipping point of the pandemic and that the only thing that will stop the pandemic is lots and lots of cash. "We are at a tipping point. If we do not do anything, the situation will worsen to the point that inevitably this virus will develop into a pandemic strain." Notice the word "inevitably" in that sentence.
The UN then chimed in and said that steps were needed to educate farmers. That they needed to separate their species and have more hygenically controlled slaughter spaces. Yeah right! Like that's going to happen. We're talking mostly about the 3rd world here. Even if more money makes it to Cambodia, China, Indonesia, Malaysia, Thailand, Vietnam, North Korea, South Korea and Japan it's doubtful that the money would trickle down and actually be spent educating farmers.
The current tally is 108 human infections resulting in 54 deaths (that's 50%).
As of July 5, 2005, there have been 108 human cases of avian influenza A (H5N1) in Vietnam (87), Thailand (17), and Cambodia (4) resulting in 54 deaths. According to the CDC, of particular note is one isolated instance of probable limited human-to-human transmission occurring in Thailand.
Paranoia
Market:The market indeed fell 4% last week (as I predicted). I follow the Q's (QQQQ) or NASDAQ 100 composite and it went from a high of 38.1 down to 36.6 early this morning. I expect the price to go down 1% and if it breaks through that level it'll head further down for a net of 4-5%. If it doesn't break through it'll go back up to 37.10 and then head down.
The Crash:I've been filling my head with all sorts of books with dire warnings:
Financial Reckoning Day and Conquering the Crash. It seems there are lots of books on the market right now that are predicting a coming market crash. I just went to the book store and found two more. The arguments are pretty much the same with lots of Libertarian/Objectivism viewpoints sprinkled in there. It's truly depressing stuff. Add to that the notion of "peak oil" and it's enough to make a citizen downright nervous. About the only thing I am taking solace in is the fact that it took us a while to get here and it's going to take a while to make it to the bottom (which isn't necessarilly a good thing but at least there should be some time to get ready). It sounds like it'll be a rough ride though if these authors are correct.
9-11:And if all this economic talk weren't enough, while at a friend's house the other night a caught a few minutes of a cable access show on the September 11th conspiracy. I don't typically believe shite like that but there were a few compelling items (especially the plane/missle that flew into the Pentagon stuff). Hey, wanna waste a few days of your life? Start doing Google searches on
Silverstein lease,
WTC 7 demolition,
Cheney war game,
Flight 77 shot down,
Pentagon global hawk, etc. Wow, there is a lot of stuff out there and most of it is really interesting. One could spend a lifetime going through all of it. Needless to say, I wasn't feeling very patriotic this 4th and the fireworks over Pier 39 reminded me more of the "shock and awe" we performed on innocent Iraqis than feeling good about our experiment with democracy.
"The only way our enemies can succeed is if we forget the lessons of September 11."George W. Bush
