Charting While New Orleans Burns
It was an interesting day both in the news and on the market. At one point the Dow was down 110 points and oil at $71 a barrel but towards the end of the day those numbers mellowed a bit. If you follow the market like I do and you're of the technical charting frame of mind you'll notice some really interesting things. In the short term it looks like we are in a channel that is heading up, we just happen to be on the down side of hump number two and it's feasible that the market will head back to the 10800 level shortly. On the other hand, we're also in a huge banner or triangle that spans three years. This triangle is the second bubble after the huge run up to the year 2000.
This is the housing/credit bubble. It appears that we are in the end of it and that we have just breached the bottom support wall. I've included these two charts so you can see what I'm talking about. In my experience, usually watching intraday prices, when a triangle is breached it usually means that prices will head downward very quickly. So I'm watching what happens next to see if this will occur over such a large time scale and if in fact this is a triangle that I have identified. As it stands now, the price of the Dow is outside the support wall of the large triangle and if I am correct, it will not go back into it, but rather the price will head down dramatically.
New OrleansThere are some interesting things about the devastation in New Orleans, which I think we should pay close attention to. One is the willingness of state and Federal officials to strip away the civil rights of those affected via martial law, containment and in the days ahead possibly quarantine. The second thing that is interesting is how rapidly the populace turned to looting and other crimes. When something like this happen all bets are off, normal, law abiding citizens start doing the previously unthinkable. I feel that this is to expected whenever humans are placed under environmental stress and it's conceivable that we will see much more of this kind of behavior as stresses such as a possible flu pandemic or other unforeseen calamities befall us.
Here's a great story by Jack London where I got my whacked-out ideas. My advice: (and I can't believe I'm saying this) but guns are looking pretty good right now. A second passport might be in order as well.
Feeling Philisophical
New Orleans was spared a catastrophy. Now all they have to fear is all the toxic sewage floating through their neighborhoods. And like I said, timing the downward path of the market according to the news is impossible. Who would have imagined that with futures down 75 points the night before that the Dow would rebound and gain 65 points? However I will go out on a limb and guess that the Dow will go down tomorrow.
The older I get the more I realize all that I do not know much about anything. I've heard other older people say this and I am finding that it is true. When you are younger you figure out the intracacies of something and you think you're an expert. This gives you confidence. But the more life experience you get, the more you see that things change. What you used to know is no longer valid and you haven't taken the time to learn the new intracacies of the thing you once knew so well. You also find that it doesn't really matter because even though you have no idea what's around the corner it somehow it all works out (or you're dead and the result is the same). About all I can do in life is say, I've seen something like this before and this was the result. Life tends to repeat itself and form patterns. We humans are really good at recognizing patterns. Patterns are not 100% however and neither is our ability to recognize them. If you apply this idea to the stock market you'll begin to look at price fluctuation the way I do. This idea flies in the face of The Random Walk Down Wall Street theory, which thinks that patterns are bullshit. Which idea is right? It's a philosophy of life really.
Katrina and the Wave TM
The weird thing about the market going down is that it sometimes takes a catastrophic event to kick it off (whereas you don't see that on the upside), thus making bearish predictions rather tricky (impossible really if you try to time the market based on news). On Friday there were only hints that this hurricane would slightly effect oil rigs in the Gulf and there was a mild sell off. Tonight, now that this storm has intensified and made a bee-line for New Orleans, I see oil has shot above $70 a barrel. We also come to find out that New Orleans is the major hub for oil receiving and that most of our oil rigs in the Gulf are getting slammed right now. Futures on the Dow are down $75 (I have never seen futures go that low). Tomorrow will be a very interesting day both market-wise and news-wise. Of course I hope for the best for the residents of New Orleans and Mississippi but I fear the worst.
Here's a good story in the NYT about why this hurricane caught everyone by surprise.
And another good story in the Washington Post about a nightmare scenario in New Orleans that we (humans) have brought on ourselves.
Big thanks to the other Lowbar patriarchs who put up with my pork chops this past week in DC. I think I ruptured my spleen.
Rose-colored Market
My prediction that the Dow would go down to 10250 is so far holding out. Today (at 1pm) the market was down mostly on oil prices. It's funny to read the financial news. As with most news we are exposed to, financial news can be biased. Just like when you come to Lowbar and your read my postings, you'll get a negative view of the U.S.'s economics, if you read the regular press, you'll get an optimistic view. Here's an example from Yahoo's Market Update:
While August was widely advertised as the third worst performing month for the S&P 500 over the past 50 years, and has so far lost about 2.4% this month, it may be worth noting that the rally last year did start in August... In fact, the S&P rallied on two separate occasions last year... From Aug. 12 through Sept 21 the S&P surged 6.2%.
They had to report the news but they didn't have to add that last bit about the rally in September that occured last year. This logic assumes that the stock market follows trends along the calendar. This is shakey logic for timing the market. The investor who follows this advice is probably going to loose money.
Let's make a bet, I have no idea what the market will do during the Aug. 12th through Sept 21 timeframe but I'll bet that's it's going down on average.
Why is the financial press optimistic? Is that what is keeping the market going? What happens when the general press turns negative?
Dow Predicition
I feel like making a prediction on the Dow. I predict that the Dow will continue to slide downward and will hit 10250 before the month of September is over. That will be a slide of about 250 points. I don't know why this will happen, could be oil, housing, who knows. I'll post an update once 10250 occurs and I'm right or the month of September is near its end and I'm wrong. Also it will be curious to see what happens after the price of the Dow goes below 10430 (or bounces off it). There is a strong support line there and if it breaks through the price may drop rapidly.
P.S. Today's news about lower than expected sales of existing homes should be a wake up call. We may be on the backside of the housing boom.
20-Year Itch
I went to my 20-year high school reunion this past weekend. It was a rough week for me. I quit my job on Monday because they were getting ready to ship me down to Southern California and I didn't want to go. That left me without a job, nothing in savings and a wife and child to feed. I panicked but then started making phone calls. After the third call I landed another job in downtown San Francisco. I got extremely lucky. I owe it all to some good friends and a shower. The friends lent a calm ear to me and helped me think things through. The warm shower helped unlock my subconscious and ideas started flowing.
All of this put me in the mood to listen to old friend's tales of survival at my reunion. There was the friend who went down to Mexico and worked as security for a mining company, met his wife there but now sells real estate in Salt Lake City. There was the friend who developed housing in Palm Springs but now owns a string of laundramats, he is doing quite well for himself. There were lots of well-to-do lawyers and a couple of doctors. Then there was the opposite side of the coin. There were a lot of divorces, a few single moms and dads without custody of their kids. A few of us had spent time in the slammer for multiple DUIs or stealing. I noticed that, contrary to where I thought I was, I was smack dab in the middle of the class. If there had to be someone who was right in the middle, that person would be me. I grew up in a very Mormon, white school. I had always thought that I would be off -the-scale in comparison to the rest, but I wasn't. I was normal, very normal. My point in telling you all of this is this: survival is the most important thing. We all go about it in different ways. We all have certain traits that either make us have a high or low probability of survival. Often those with the highest probability lead the dullest lives, they have the calmest marraiges, they take the fewest risks. They don't engage in harmful activities like smoking, high speed motocycle racing, cocaine or theft. On the other hand, they probably don't have much fun. They're averse to it. My high school was always a place that consisted of lots of specialized groups (the punks, the Mormons, the mods, the jocks, the partiers, etc.) but somehow we all got along. I somehow had friends in many different groups. I would spend time with one, get bored and then go spend time with another. I learned a lot then as I did again this weekend. Survival is why we are here. It is why life exists. It is life and the answer as to why we are here. It's interesting to have the photograph of life in the form of my classmates of twenty years ago and then compare it to how we turned out (so far). I'm not sure if one survival method is better than another. Situations could also change suddenly which could make one technique that is now effective for survival be later ineffective and vice versa with a technique that is currently ineffective. The key: stay flexible. Situations change but that doesn't mean we can't. We are not our jobs, our religions, our vices, our past. We are managers of our lives and as such we need to be able to adapt.
P.S.I am pleased to report that Plumtree is being acquired by BEA Software. I am happy about this. I have many friends who own Plumtree stock and this will ensure that they get a good price. Previously I had predicted that Plumtree stock would go back to $4 range (it did) but then would drop below $3, lucklily I'll never know if I was right or not.
George Bush's Worst Nightmare: Cindy
Last week when I first heard of Cindy Sheehan I thought, "Uh oh, Bush has got himself a problem." The more I read about
this story the more doo doo I think Bush is in. The conservative right like Matt Drudge (I'm never going to read the DrudgeReport again by the way), Bill O'Reilly, et al. seem to think that if they keep aligning her with the left-wing protesters that surround her then they can turn her into something that they can deal with. I don't think they'll succeed in fooling anyone but themselves. In her current state, she is invincible, she is a mom who lost a son and doesn't know why. As such, we can all understand her. Her place in history is all but secured. All she has to do is sit in that drainage ditch for another two weeks holding up a sign to the President's passing motorcade and writing an occasional blog. This lady is smart too. She's succinct and to the point like a punk rock lyric. Here's a sample: "No one else, not one more mom, should have to lose her son in Iraq." Who can argue with that?
In Cindy Sheehan I'm reminded of the lone student standing in front of a line of tanks during the Tianamen Square slaughter and also of Harriet Beecher Stowe, "the little woman who started the big war." Indeed Bush is in trouble with this one. He can't ignore her, nobody can.
Having said that, if I were advising Bush, now would be the time to broaden the scope of this thing. This was never about Iraq. It's about stability in the Middle East (US control). It's about oil. This is a good ol' fashioned resource war, the most important resource ever. It's time the American people heard the truth. I think we can handle it, and in my opinion, if the war is talked about in this way, it makes sense. The entire future of our economy and country depends on cheap oil, without it, we can kiss the American way of life goodbye. Bush has a good opportunity right now (especially with what is going on in Iran) to level with us. Do I think he will? Of course not.
Retraction
Did I say the Dow wouldn't rise above 10700? I meant 10800. It's all Greenspan's fault.
Amazing Sights on Google Earth
This is a satelite image on Google Earth of Coronado's beach. These letters are massive. Is this the hilly area before you get to the beach? Google Earth = hours of wasted time, but very fun.
Recent Flu News
Here is a
very good article stating that a flu pandemic is probably going to happen and that the world is very unprepared for it. It cites World Health Organization's Dick Thompson who says that recent developments in the geographic spread and the presence in migratory geese as alarming.
Another
news article today claims that the U.S. has developed a vaccine for H5N1. There appears to be some problems with this however. The strain that is circulating in China and Southern Russia is different than the strain in Vietnam and therefore any vaccine that was developed last year will be ineffective. Also, this vaccine was developed using the old egg incubation method, which takes a long time to produce and probably would not be ready for this year's cold weather. This article from
Recombinomics.com explains why this vaccine may be faulty. Check out
this article as well.
Also in this story is the disturbing news that Chiron, the company that usually produces the U.S.'s flu vaccine, is still closed due to contamination. Getting this labratory up and running should be the highest priority.
Dumb Irish Luck
I once had a bird and her name was Enza. I opened the window and in flew Enza.I'm of Irish decent so I like to tell the dumb joke about the definition of Irish luck: Irishman walking through a pasture steps in cow shit and considers himself lucky he wasn't wearing his
good shoes. If we're lucky the coming bird flu will restricted to animals and not humans. This is probably just wishful thinking because the longer it exists, the better chance it has to mutate (recombine) into something that can be passed easily from human to human. The way it exists now, a human must become infected directly from an animal although there is one case in Thailand that seems to be human to human (a child to a mother).
The flu is now present in chickens, ducks, probably pigs and migratory birds like geese. The thing about migratory birds is they travel large distances. These birds from China are begining to fly to other parts and bird flu is starting to show up in
Russia. As a result of Russia's new bird flu, other countries, like Belgium, are refusing to import poultry from Russia. The migration season is just starting and we can expect that other countries will start to discover H5N1 within their borders.
I contemplate what a world-wide bird flu pandemic would mean. It would certainly have economic ramifications. The U.S. exports a lot of chickens and turkeys and their associated products, like eggs and sausages. The USDA claims that we export in the neighborhood of $1.4 billion worth a year. If all of a sudden nobody wanted to buy our poultry the U.S. would suffer a $1.4 billion dollar hit. And that's just the exports which account for 18% of total poultry production. So we're talking about an $7.5 billion industry. If our poultry were to be infected with bird flu nobody in this country would want to consume chicken or turkey. In fact, once this story hits the mainstream media you'll see poultry consumption plummet. This illness can infect other animals like pigs. A few notable cases of pigs getting the flu and consumption of that meat will drop as well.
The tragic part of all of this is that we could do something about it now except that the region of the world where this is occuring is China and the Chinese have decided that rather than let the world in on it's dirty little secret it will brush it under the rug and pretend it isn't happening. That's why they are calling it pig flu (not a flu at all but historically benign bacterial infection). That's also why they won't share samples with the World Health Organization. It's why they are jailing their scientists and shut down the only lab that was doing H5N1 tests. And it's why they won't let western reporters near this area.
The Chinese are doing this because they learned a lesson from SARS, that potential pandemic illnesses are expensive. They cause exports to suffer and they feel it is cheaper for them to let the infected peasants die than to let the world know what is going on. For more on this listen to
this audio interview by Larry Kudlow.
We are pretty much at the mercy of this virus once it becomes passable from human to human. We have no resistance to it. It's not like normal flu. The only good news I've seen is that some
brilliant person(s) in England may have developed a flu vaccine that works via DNA rather than the old egg incubation method. This means that it can be produced very quickly and a person can be innoculated against all flu strains.
Now is the time for the World Health Organization to use every diplomatic resource at it's disposal to lift the lid on China's stonewalling.
Dow: Down. Going to come back up a bit on Monday and then head south again. > 10,500 by the end of the week.
