More views on 1929 vs today on the stock markets

Many are asking whether we are going to continue to rally or have a setback. Some use the analogy to 1929 and the Great Depression as a cautionary flag to warn investors, so I searched the web tonight and found this chart which was rather unique in that it compared all the recessions to the 1929-1932 great Depression. It was compiled as of February 2009 by JP Koning, so it has not been updated recently, but it is rather an impressive chart. Here's the chart and you can read the comments and this link.


As many of you already know, I believe we are setting up for a major correction to retest the lows in the Fall. We will go at least as low as 7,300 but if the economy doesn't show recovery in the wings, we could retest 6,400. I might be wrong and truthfully I hope I am.

And here is another comparison chart, more up to date, as this one goes to July 19th.

European market economic data update: They are hurting too!

According to news reports today, Unemployment rose to 9.4 percent in June, the highest since 1999. More than 3 million people have joined the euro region’s jobless rolls in the last year, and the Organization for Economic Cooperation and Development expects the unemployment rate to reach 12 percent in 2010. The highest rate was in Spain, which came in at an unbelievable 18.1% rate. Prices in the euro region dropped 0.6 percent from a year earlier, the most since the data were first compiled in 1996.

What does this mean for the U.S.? It means it will be difficult for Europe, a large trading partner for us, to purchase U.S. products, thus keeping our revenues pressured for U.S. Corporations and earnings going forward. We are counting now so much more on China than we ever have been, a dangerous move and a critical partner of our future economic stability, that we have increased our risk for recovery. And on that note, U.S. stock futures erased gains after the government said personal consumption slumped more than forecast last quarter.

Teachable moment or something familiar? President Obama meets with Harvard Professor Gates and Policeman Crowley

President Barack Obama sat down for a beer at the White House Thursday night with Harvard professor Henry Louis Gates Jr. and the man who arrested him, Sgt. James Crowley of the Cambridge, Massachusetts, police department. They were joined by a previously unannounced guest, Vice President Joe Biden. The media called this Obama's "teaching moment." Was there any real news or teachable moments here? I say yes. Take a guess who had drunk the most amount of Beer/liquid, at the time the photo was taken? Well the photo below shows the truth here. You need to blow up the picture below to see how much is in each glass.



Yep, it was the policeman. Not a surprise by me coming from Boston!

Market review

So Continuing Claims are down a bit today and the Weekly Job Claims are down a little over 8,000 but you would think by the commentary on CNBC this morning that everything was turning for the better and we are almost at a point where we are coming out of the recession. Bah, humbug! You can't believe that hype really, can you? I surely don't. Look folks, let's face it, many are on vacation and things are slow in business this summer, including layoffs. Restaurants might be surviving based upon summer vacation visitors and many stylists might be getting some business because people wanted their hair done before their vacation. But I tell you things are no better out there and this Fall, which by the way is only 2 months away, is going to bring back more unemployment. Don't be lulled by complacency that things are truly better, by just buying into an overbought market. You will surely be disappointed and lose some capital if you do. Next week they will have the Unemployment report for July and while it currently stands at 9.5% unemployment in June, I expect a creep up for July, maybe to 9.7%.

But remember the Consumer Confidence numbers came out this week and were down from the previous month. June numbers from the Conference Board for Consumer Confidence was 49.3 and in July it was 46.6 and when the economic outlook is good this number is usually over 90 to as high as 120. So most Americans don't see things improving going forward, and are concerned about whether they will have a job or not. Many writers of economic newsletters are wondering about whether there is sufficient capital to truly have a free market right now and they fear it is manipulation that has created this rally. I am concerned about this too. It is in Wall Street's interest and now the Federal Government to have the stock market rise to give us all the confidence that things are getting better and therefore we should trust the stock market with our capital and invest. I would like to share one line of a recent report I have seen and must keep confidential. Here it is: "even if the Chinese lent the U.S. all their $2 trillion, it would only cover this year’s U.S. borrowing. Where is the U.S. going to get next year’s? Because next year, it’s going to need even more. Let me be as clear as possible. There’s no way out of this without major structural changes. It’s not going to be just a disaster. Catastrophe is a better word."

The Put to call ratio is about 0.92 and the VIX closed yesterday at $25.61 and remember what I have said all along: Preserve capital and we will have a major stock market correction sometime before the Options expiration for October. We are still in the range from 7,800 to 9,300 on the Dow and have not gone above that level yet. If you want to try to capitalize on the move up in the market, go for it but have your hand on the trigger to sell. You have to have the time to watch the market to be able to do it though.

Bill Maher calls out healthcare industry For-Profit motive in "New Rules" segment last night

Last night Bill Maher, host of Real Time with Bill Maher, in his segment on New Rules, used the topic of my recent post on July 20th, "Healthcare and Banking: What do they have in common?" citing that healthcare should not be a For-Profit business and called out the Industry on its profit motive. He even called out Blue Cross and Blue Shield (BCBS) and Anthem Insurance Co., which now owns over 7 BCBS plans. If you missed the last segment of New Rules be sure to catch it on You tube. He pointed out that many are making profits and becoming millionaires on the backs of the sick. It is the first time I have seen anyone with such a high profile and is followed avidly, other than Michael Moore. They called Michael Moore crazy to dismiss his call for Universal Healthcare in his movie "Sicko". See it if you haven't yet, as it will open your eyes wide open.

One day we will have Universal Healthcare but it won't be during the Obama Administration, as he is still too mainstream and center in his politic and not a Progressive. But hopefully I won't be too old to see that day come. Oh, and by the way, on my flight from Buffalo to Chicago, I sat next to a Canadian lawyer who worked in the Property & Casualty Insurance business. He told me all the nonsense about Canada's Healthcare system not being responsive and people having to wait such long times for care, is nonsense. It happens rarely and when it does happen it is the exception, not the rule. Heck, many wait for ever now to get healthcare with Insurance in the USA, so I don't know what the complaints are all about. Anything would be better than what we have now to cover all Americans. This guy from Canada also said that they never talk money to pay for their healthcare, as it comes out of their taxes. It seems civilized to me. Does it to you?

Premarket July 24th, 2009

I believe we are still in the 7,800 to 9,300 range in the market and will have that major pullback I have been waiting for in the Fall. I expect the market to go down and retest the lows sometime by Options expiration in October. My reasoning is that business is not good anywhere and that any surprise profits are coming from cutting costs, not an increase in revenues. Unemployment is still rising and without that abating it's hard to see a true recovery taking place. While traveling in remote areas of upstate NY between Buffalo and the lower tier near Amish country, my wife and I saw many homes and farms for sale, one after another. The only place having any customers was WalMart and Dollar General, where everything is a dollar.

In the chart below from Chart of the Day, it shows expectations of the lowest earnings for companies since before 1929. That is not good at all.



And yes we will be in a period of inflation where whatever money we have will be worth far less 10 years from now, than we can today. Owning hard assets is the only protection against inflation, as cash will be worthless. So owning property, income generating property, Gold, Silver and anything that will appreciate as inflation increases, is the play for the future.

Sorry for the lack of posts on the market , but I'm back now.

Sorry for the delay in posting. I had to make a quick trip back east as my 91 year old Mom fell, broke her hip, had to have an emergency partial hip replacement and is now in rehab trying to regain mobility. It will be a long road to recovery with setbacks but she is in good hands with my brother who lives 20 minutes from the rehab center. I will be back to posting on the market going forward plus add any thoughts on other topics such as healthcare, banking and politics.

Healthcare and Banking: What do they have in common?

The Banking system collapse due to the excesses of greed and deregulation is well known. But I believe there is a root cause, not readily discussed. The same is true for the abysmal failure of our healthcare system to control the costs of healthcare. I have worked in both systems and will share some insights and thought I have had about these issues.

The For-Profit model of business isn't right for any business and many have been ruined by moving from a Not-for-Profit system, to a For-Profit system of governance. I have consulted over the past 20 years to 7 prominent healthcare company CEO's and their executive teams, as well as to Freddie Mac and Banks. While Healthcare companies don't seem to have anything in common with Freddie Mac and this story, they do. You see, most senior executives were allured, and are still allured, by the idea of making more money than just a good salary for themselves. They wanted their companies to become For-Profit entities and wanted a share in the company's profit through the use of bonuses and, when possible, stock options/grants. What has happened is that many healthcare companies have merged and become Publicly traded companies, such as Anthem Insurance company and then, Wellpoint.

I remembered the time back in 1988 when I was facilItating an Executive retreat with the CEO, the President and senior team. It was just before the Savings and Loan crisis had raised its ugly head to give you a reference point. Initially the team had a low level of energy and I asked what would make them more excited as a team. I was reminded that they were a quasi government appointed and instituted organization. I asked them what that meant to them. They answered that their compensation was set with little room to truly make the kind of money other Executive teams would make in smaller sized financial institutions, and, for the level of responsibility they had versus the compensation they received, they just weren't that excited about things. I asked the group, "What would make you excited and really engaged?" They replied almost to the person, "If we were a Publicly traded company and had a chance at owning stock and truly merit based performance aligned with the level of responsibility and accountability they had." That comment was an eye opener for me. I then asked, "Why don't you become a Publicly traded company?" The reply was, "You don't understand, we are a quasi government organization and therefore they couldn't." I said to them, "That's not the reason you aren't a Publicly traded company. It's because YOU DON'T BELIEVE YOU CAN become a Publicly traded company! I then suggested consideration that they could in fact become a Publicly traded company and asked what would have to be done to start the process. This began the process where Freddie Mac began a Publicly traded company in 1989. The rest is now history.

During that same approximate timeframe, I had Blue Cross and Blue Shield (BCBS) of Kentucky as a client beginning in 1988. It was a Non Profit organization at that time. It went through a major successful turnaround from 1988-1993 with a new CEO (my client) leading the charge. In 1993, it became the first BCBS plan to merge with Anthem Insurance Co. This was the first cross-state merger of two strong Blue plans. In 2001, Anthem became a Publicly traded company. In 2004, Anthem and Wellpoint merge becoming Wellpoint, Inc. and in 2005 Wellpoint, Inc. acquires Lumenos (formerly, another client of mine). To see the other acquisitions of Wellpoint during those years, click on this Wikipedia link.
What these all have in common is the pursuit of profits in the healthcare industry.

I don't know what contribution For-Profit motivation contributed to the increase in healthcare costs. But I am sure it has been substantial. For example, the Anthem/Wellpoint merger reaped the Executive team a total of hundreds of millions of dollars in deferred compensation, salary and bonuses. The exact figure is difficult to determine. But it is enough to say that many people could have been insured for years, had the companies not had these compensation packages. In the words of a former CEO from the Healthcare system, "The biggest mistake I made was going form a Non-profit to a For-Profit company, as everything changed after that. If I could do it over again, I would not have done it!

Foreclosures rise as banks make huge profits. What's wrong with this picture?

Here's several related stories which should cause great concern:
• "Foreclosures rise 15 percent in first half of 2009" versus then next two stories
• "JPMorgan Chase posts 2Q profit, surpasses Street"
• "Goldman Sachs sees record profit"

You see both JP Morgan and Goldman Sachs received significant Tarp money to ease the Credit crisis in the Mortgage industry to prevent foreclosures. In this earnings report, JP Morgan also said they had paid back all $25 Billion in TARP funds to the Government. Here's more details on the Mortgage article that should cause concern.

"The data show that, despite the Obama administration's plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation's housing woes continue to spread. Experts don't expect foreclosures to peak until the middle of next year.
Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May, RealtyTrac said.
"Despite all the efforts to date, we clearly haven't got a handle on how to address the situation," said Rick Sharga, RealtyTrac's senior vice president for marketing."

So despite the earnings looking very god in the banking and financial industry, things are not getting better. Compare that to the rising tolls of the unemployed, now expected to go as high as 13% by some estimates, and you have a recipe for a calamity ahead of us. This must affect the stock market negatively if the stock market is truly free of manipulation. But we know it isn't, don't we. My friends, it used to be one could generally predict market direction based on certain outcomes in the economy and based upon data which supports future predictions. The truth is I can't any more and I doubt any one else can as well. That should be the biggest concern of all. When the stock market becomes unpredictable, it is time to consider ending the trust placed in the system and cash in. There is an expression made famous by the man who was shown by the psychologist a series of ink blot charts. Evert time the man was shown a chart and asked what he saw, the man would say, "people naked". The psychologist turned to the man and asked him, Why do you keep seeing naked women. The man replied, it's not my fault, you're the one with the pictures! I see the same thing in the stock market right now, reason to give great pause as to the integrity of the entire system. Just because we are on a slower decline than we were before, we are still in decline with much more expected over the next several years with more people losing jobs begetting more foreclosures and less disposable income to prop up corporate profits and so the cycle continues. Help me see something differently here.

Market view: July 15, 2009

Yesterday's rally was a surprise, especially because of all the hype about Goldman Sachs profit of over $3 Billion this quarter. What did you expect? They got free government money and lent it out to make a profit. The real news is that they plan to use 49% of it to give out to employees. They calculate that to be about $900,000 per employee. Where are you working now and why aren't you at Goldman Sachs?

I looked at the Charts again and we have formed a perfect "W" pattern on all 3 indexes, with the 2nd leg of the "W" lower than the first leg. The question many are asking is this. Are we back into a rally and are going up from here? Well, my guess is still the same, lower, but in this manipulated market it is anyone's guess. It may not go lower today or even tomorrow but we still have not broken the downtrend line of 2 years on the Dow nor the S&P 500.

Both short and long term stock market outlook: Successful retest of the lows and then a Bull market rally

As today closes the week of the stock market, I was influenced in posting what I did today by a commentary yesterday on CNBC by a technical analyst who had a chart of the World stock market Index which showed all markets had started to drop in the May and June timeframe. This drop was consistent across the world and was not particular to the U.S. stock market. He said it implied this drop is a world phenomena and therefore it will take the world to solve it.

I have been following the Nikkei 225 stock market Index for some time but have never posted it and the Dow as 2 separate charts on my site until now. The main thing to compare is how quickly the Nikkei showed the downturn coming before the Dow has but both charts are similar when looking at a 3 year history. Below, in the first chart, the Nikkei 225 shows they have had a double bottom which was down to about 6,500 and if we return they will have put in a triple bottom. Usually triple bottoms are solid enough of a support level foe the possible beginnings of a real Bull market rally. This is what I will be looking for as the months going into the Fall will tell if this plays out.


The Dow chart below shows we did not have a double bottom yet and that is part of the reason I am quite confident we will retest the low of 6440 on the Dow, by this Fall and certainly by October Options Expiration, which occurs on Friday, October 16th this year. This could signal the moment of an attempt of a return to the beginning of a Bull market rally, which would go above the previous high end of the range of 9,300 on the Dow. This time the S&P 500 could go back above 1000 and it will be the time when I am buying heavily at hopefully the market lows. Time will tell if this scenario plays out as much is unknown as to the outcome of the crisis in the economy. But it certainly would set the stage for 2010 and hopefully a more optimistic outlook as the peak of the unemployment should give hope things are going to turn around mid to end 2010.

Market outlook and commentary July 8th and beyond

Today's close marked the lowest closing price for the Dow and S%P 500 for 2 months and it is clear that the Indexes are going lower, as today's volume spiked for the previous day. The drop continues to hug the downtrend line of the 2 year chart of the Dow which I posted back on June 25th. The Dow closed down 160 points today to 8,163 while the S&P 500 closed at 881.The Put to Call ratio closed today at 1.01 after hitting an intraday spike to 1.14 at the first half hour of trading. This represents 3 of the past 6 days where this Index was over 1.00 and it has happened every other day. If it continues in this short pattern, tomorrow would see it back off to about 0.81-0.88. The market could still drop some but I believe this continual decline will happen slowly, rather than precipitously. The Dow is now at the 8100 level and the S&P 500 has gone as low as 878 today. Remember Art Cashin said on CNBC earlier that 877 is a key support level and if we go below it we are headed down to 840 or 800 on the S&P.

My ETF Ultra Short, symbol TZA has now risen to $25.63/share and continues to rise slowly. Those who bought this as low as $20/share are now up 25%. Tomorrow these ETF's will all have a reverse split which should not affect the total value you have invested but the share price will be significantly higher with a 10 to 1 reverse split on some and 20 to 1 on others.

Not much talk of Green Shoots lately and rather, the conversation has now moved to focus on not just earnings reports but more exactly future estimates by these companies. If they set the bars lower, it will confirm that recovery does not look like it will happen as thought just a few months ago. This can and should cast a more negative tone to the market for the next few months. Adding to the conversation and discussion is the fact that VP Biden and Laura Tyson have independently said they might consider a second stimulus. That too will add to the negative tone.. Again, I remind you to preserve capital so that a few months from now all the gains you made the past 3 months aren't all wiped out. If your portfolio has gained back 25-40%, as some have, it is not a sin to take the profit and sit on cash, waiting again to buy back near the lows in the 7,000's on the Dow or lower.

Put to Call ratio on current market: Up!

The market closed on Friday with the Put to Call ratio back up over 1.00 for the second of the past 3 market days. On Tuesday, the Put to Call ratio closed at a new recent high of 1.08 while on Friday it closed at 1.05 after hitting a high of 1.14 during the first 1 hour of trading.

We have been in a market rally the past 3 months after hitting a low on March 30th and I have added some dates to the chart below to show you what was happening in advance with the Put to Call ratio. I believe this is the start of the decline I have been expecting for the past 2 months but never materialized. Rather, we had been in a very tight range causing much frustration for Bulls and Bears alike.


I believe that is about to change with Bears reaping their patient reward while Bulls wonder why they didn't take their profits while they had them. This unwinding may take us until September Options Expiration the third week of September or until October's but it will materialize. As I aid in a previous post, the ETF Bear Funds should be a nice rate of return and many not owning any might consider this play as it isn't too late to buy them. There are many to choose from and you might check to my post dated May 23rd, where I list them all. I have TZA as my readers know and also some FAZ as well. Good luck and Happy 4th of July!

ETF Ultra Short of Small Caps, TZA, versus S&P 500

Since I have held on to my TZA stock these past 2 months, I wanted to show my readers 2 charts which compare TZA versus the S&P 500 to give readers an idea where I believe TZA will go now. From the first chart of the S&P you can see in the chart below the first few data points in the beginning of April, the Index was between 825 and 840. The S&P closed yesterday at 889. I believe the S&P will go back down to test the 840 level again and it will break below that on its way to 800 and then we will see if it goes back to its lows of 666. That's right 666, a fitting number for the 52 week low as it felt like devils work indeed.


Now looking at TZA below, which is an ETF based upon the Russell Small Cap index, but is a triple short of it, you will see it closed yesterday at $23.63 and from the chart below, assuming all Indexes will retrace relatively the same, down, then you can see TZA should reach between $40 and $45/share. This would be roughly an 80% gain. If it goes back to the 52 week lows on the Russell Small Cap index, TZA could go well above $70 to $80/share, whatever the comparable reverse split will be.


Now I know the ETF's are all scheduled for a reverse split on July 8th so the numbers will be different but the value of the change should be about the same. It is something to look forward to, during which this time will be agonizing for many who have not hedged their gains these past 3 months. It will be the House of Pain, as Jim Cramer, host of CNBC's Mad Money program, refers to difficult market losing periods. I am hoping it will bring me and some of my followers who also own any ETF Ultra Shorts, to the House of Gain.

Bill Gross's gloomy outlook for the economy

This story from Bloomberg news this morning caught my eye not only because of who is quoted here, Bill Gross, Co CEO of Pimco, but more importantly for what this well respected individual is saying. Of particular interest was not where he said to invest, but his prognosis for the economy going forward and if true will be extremely painful for us all. Here is the article in its entirety:

Gross Prefers Bonds, Dividend-Paying Stocks in ‘New Normal’

By Bryan Keogh

July 1 (Bloomberg) -- Investors should favor bonds and dividend-paying equities as the U.S. heads into a “new normal” of higher savings and lower consumption, said Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co.

Higher savings, lower consumption and annual economic growth of about 2 percent, as opposed to 3.5 percent, may last a generation or more, meaning investors should “stress secure income,” Gross, who helps oversee about $756 billion as co- chief investment officer at Newport Beach, California-based Pimco, said today in his July note to clients.

“‘Non Appétit,’ not Bon Appétit, will become the apt description for the American consumer, and significant parts of the global economy, including the U.S,” he wrote. “It promises to persist for a generation at a minimum.”

Investment-grade corporate bonds returned 9.2 percent this year through June, beating Treasuries by a record 13.7 percentage points, according to Merrill Lynch & Co. indexes. The U.S. government and the Federal Reserve have pledged more than $12.8 trillion to thaw frozen credit markets in hopes of pulling the economy out of the worst recession since the 1930s.

Consumer spending rose 0.3 percent in May, the first gain in three months, while higher incomes drove the savings rate to a 15-year high.

Mini Poll summary for June: How long will the recessionl last?

From the chart above it is clear that people do not see the recession ending soon.

Below is a summary of the Mini Poll data for June as compared to December, January, February, March, April, May and June.

First the question.
How long do you believe this recession will last?

Data for December, then January, February, March, April, May and June:
Mid 2009 4%, 17%, 10%, 12%, 4%, 7%, 3%
End 2009 35%, 25%, 24%, 21%, 25%, 11%, 6%
Mid 2010 15%, 13%, 12%, 3%, 33%, 19%, 14%
End 2010 15%, 10%, 4%, 18%, 15%, 15%, 9%
Mid 2011 12%, 17%, 10%, 3%, 4%, 4%, 6%
End 2011 8%, 0%, 10%, 3%, 4%, 4%, 6%
Mid 2012 0%, 0%, 2%, 3%, 2%, 7%, 0%
End 2012 0%, 0%, 2%, 0%, 0%, 19%, 29%
Much Longer than the choices you have provided 0%, 0%, 10%, 12%, 0%, 11%, 14%
We are going to be in a Depression 12%, 19%, 18%, 24%, 13%, 4%, 14%

If I summarize by Year:
2009 39%, 42%, 34%, 33%, 29%, 18%, 9%
2010 30%, 23%, 16%, 21%, 48%, 34%, 23%
2011 20%, 17%, 20%, 6%, 8%, 8%, 12%
2012 0%, 0%, 4%, 3%, 2%, 26%, 29%
Depression 12%, 19%, 18%, 24%, 13%, 4%, 14%

Sample size for December was 26, for January 48 votes, for February 51 votes, for March 39 votes, for April 48 votes, for May 27 votes and June 35 votes.

Again, from the chart below, the major change seems to be the change in the year 2012 but it moved out to the end of 2012 according to the first set of data above. This validates the Consumer Confidence numbers for June, as they dropped from 54.8 in May to a 49.3 in June, as reported yesterday. The last 2 Months of my surveys show a shift in peoples feelings about the length of the recession to a much longer time, than my earlier survey results have indicated.



As Unemployment increases so does despair! Feel free to click on my comments button below this post and add some personal examples to what you see daily that has you thinking this way.