Friday, April 23, 2010

SEC wasn't quite sleeping under Christopher Cox's leadership. They were watching porn!

I had written here that Christopher Cox, former head of the SEC under the Bush Administration, should have been brought up on charges of incompetence and criminal behavior for all the problems related to the SEC during the years 2007 and 2008. The headlines today reveal just how bad things were under Cox's leadership. Here's the headline: "GOP ramps up attacks on SEC over porn surfing."

and now a few excerpts:

"WASHINGTON – Republicans are stepping up their criticism of the Securities and Exchange Commission following reports that senior agency staffers spent hours surfing pornographic websites on government-issued computers while they were supposed to be policing the nation's financial system."

" it was "disturbing that high-ranking officials within the SEC were spending more time looking at porn than taking action to help stave off the events that put our nation's economy on the brink of collapse.

In addition here's some other juicy tidbits:

• A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. He agreed to resign, an earlier watchdog report said.
• An accountant was blocked more than 16,000 times in a month from visiting websites classified as "Sex" or "Pornography." Yet he still managed to amass a collection of "very graphic" material on his hard drive by using Google images to bypass the SEC's internal filter, according to an earlier report from the inspector general. The accountant refused to testify in his defense, and received a 14-day suspension.
• Seventeen of the employees were "at a senior level," earning salaries of up to $222,418.

A Congressman from California said he expects the head of the SEC, Mary Schapiro and her team, are "very focused on" the issue. Schapiro has been parrying GOP complaints about the Goldman Sachs lawsuit, which agency officials hoped would mark a new era of tougher oversight of Wall Street. They followed high-profile embarrassments including the failure to catch Ponzi kings Bernard Madoff and R. Allen Stanford.

Republican lawmakers also accused the SEC of being influenced by politics. The SEC's commissioners approved the Goldman charges on a rare 3-2 vote. The two who objected were Republicans. Schapiro is a registered independent who has been appointed by presidents of both parties.

So you see, there is much to charge Christopher Cox with given this probe. He surely deserves it and I am pressing Congress to hold hearings and subpoena Mr. Cox to testify. And boy do I hope they file charges of some kind so he has to spend some jail time!

If you are interested in reading my earlier Blogs on Christopher Cox, click here and here, or here and if you are interested in reading the entire news story above from Yahoo, click here.

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Thursday, April 22, 2010

My Worst and Best picks of stocks

My best and worst recommendations over the past year are worth reflection on my part. So let me start with the worst pick.

Worst pick:
It was the ETF Ultra Short of the Russell 2000, symbol TZA in about January of 2009. My initial purchase price was around $36/share and the stock went to $51/share but I held on and didn't take the profit as I should. It played out that the shares have fallen down to $5.91 at the close for a whopping 83.6% drop. I still own this ETF. How's that for a bad play.

Best picks:
So in dollar terms my recommended purchase of Apple's stock, symbol was spectacular at $79/share. Yesterday that stock hit a high of $260/share. That's a remarkable 229% gain.

But that isn't my best pick, interestingly, as it turns out during the Auto bailout, when GM was headed for bankruptcy in December of 2008, I had recommended and purchased Ford Motor stock, symbol F. The price was an amazing $1.49/share. That stock has increased to a whopping $14.54/share for an 876% gain! Unfortunately I sold those shares and bought them back twice over the period so my gains are much, much less. But those that have held the stock did quite well indeed. Wish all my pics were that good, but it is truly a rigged game and we all know it. The real question is this. Knowing it is rigged, can you still make money? Because my friends so isn't Vegas and we still go there too, now don;t we! :)

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Greek Debt issue not really resolved yet.

The Greek Debt issue is not resolved according to reports from and other news outlets. Their Bonds have dropped sharply and there are strikes in the streets of Greece over austerity measures being proposed by the government to show creditors they have the backbone to do what is necessary to get the financing of their debt issue resolved.

This is important because if this issue is now resolved soon, the World stock markets could take a turn for the worse and a major correction could be precipitated as this spark becomes a roaring fire. The next 30 days are key here. A defensive position in stocks is warranted at this time in my view. Our stock markets are very over bought and so we are in position for a long awaited correction anyway, with the recent lows of the VIX Index and the low of 0.56 for the Put to Call ratio. Add to that the sentiment of investors has reached high levels of optimism , while Volume has decreased in this market rise and you have all the necessary ingredients for a major correction. Fair Warning!

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Thursday, April 15, 2010

VIX Index also points to a correction

Another piece of data from yesterday's close points to a 3 year new low. It is the VIX Index which measures volatility in the market. The last time the VIX was this low was in May 2008. That was the beginning of the big drop in the Dow as well as other indexes as shown on the Dow chart with the Blue line. When you take this piece of data along with the Put to Call ratio data from the previous post, it is clear to me we are approaching a MAJOR correction period. I can't predict the exact timing but this could start the decline culminating in the Sept./Oct. period. This is about how long it took to play out last time if you look at the Dow chart. Time will tell.

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Wednesday, April 14, 2010

Put to Call ratio lowest close in 4 years

Yes, the Put to Call ratio closed today at 0.56, the lowest level in 4 years, as you can see from the chart above. When the Put to Call ratio is at an extreme low level, it can be a Sell signal. When it is at extreme high levels it can be a Buy Signal. It can also be a signal at this low level to increase short positions as a hedge. Maybe finally we are approaching the long awaited correction, or at least a leg down for a change. It was back in March 2006 that the Put to Call ratio was lower than today's close. Then it was as low as 0.35

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The data is in on the Healthcare Bill approved by Congress and it's good!

I though an appropriate amount of time has passed since the Healthcare reform Bill passed and President Obama had signed it into law. There has been a lot of hype about it. Remember when on Dec. 5th they dropped the Public Option and the Healthcare stocks Wellpoint and United Healthcare started their march up. See the charts above. Well now that weeks have passed since the signing into law, interestingly enough the stocks of both of these Healthcare Insurance companies has dropped. I also said that when the stocks were going up, that the language in the Bill was good for Insurance companies and if the price of the stock dropped it was bad for the insurance companies. Well, as you can see the stock prices have come down and are now approaching where they were before the Public Option was announced dead.

For all the hype about the Bill as negative for average Americans, I think the real data is in and it isn't the polls taken by Republicans. It's the stock price and it is speaking loud and clear that the Bill in its final form is good for Average Americans.

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Monday, April 12, 2010

Is this the beginning of States moving towards sedition and against the U.S. Government?

Out late this afternoon is this headline on Yahoo: "Oklahoma Tea Baggers and lawmakers envision a militia!" It goes on in the article to say the following:

Frustrated by recent political setbacks, tea party leaders and some conservative members of the Oklahoma Legislature say they would like to create a new volunteer militia to help defend against what they believe are improper federal infringements on state sovereignty.
Tea party movement leaders say they've discussed the idea with several supportive lawmakers and hope to get legislation next year to recognize a new volunteer force. They say the unit would not resemble militia groups that have been raided for allegedly plotting attacks on law enforcement officers.

"Is it scary? It sure is," said tea party leader Al Gerhart of Oklahoma City, who heads an umbrella group of tea party factions called the Oklahoma Constitutional Alliance. "But when do the states stop rolling over for the federal government?"

Thus far, the discussions have been exploratory. Even the proponents say they don't know how an armed force would be organized nor how a state-based militia could block federal mandates. Critics also asserted that the force could inflame extremism, and that the National Guard already provides for the state's military needs.

"Have they heard of the Oklahoma City bombing?" said Joseph Thai, a constitutional law professor at the University of Oklahoma. The state observes the 15th anniversary of the anti-government attack on Monday. Such actions could "throw fuel in the fire of radicals," he said.

Is this scary enough for you? Every day we move closer to the unimaginable! People are playing with fire and they don't have any clue as to the consequences they are putting into motion. Will sanity prevail? God I hope so!

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The change of a generation

The economic crisis which hit the country a year ago has taught us much about the excesses on Wall Street, the excesses by the Consumer in spending money they didn't have and by using credit to buy homes they couldn't afford. We now have an unemployment rate in double digits and the future doesn't show much hope to be optimistic that the unemployment rate will come down any time soon. As a matter of fact, this high unemployment may now be structural and here for many years to come.

The effect of this is obvious in the credit used by Consumers. It has been steadily dropping, as more and more households are forced to cutback on their spending habits just to survive and scaring others to be more mindful about their cash flow. As my survey on the Mini poll to the right of this post shows, people aren't wanting to live outside their means anymore and have an aversion to borrowing money. These new patterns will have a long lasting effect on this generation just like the lean years of the Depression had on the generation that was young at that time. Scarcity became the mindset then and it stayed with that generation for their lifetime. Not as severe, but nonetheless profound, this scarcity mentality will affect this generation for their lives as well.

This effect will create a new generation of entrepreneurs, the likes of which helped build this country after the war. The reason for this is that there are no jobs for people. Many will need to build their own business to survive by looking at what needs people now have and filling that void. It will be Small Businesses again that lead the way forward. The one difference we have in this generation that those who lived through the Depression didn't have, was the polarization of people by the politics of the day. The polarization we have today seems to be more vitriol and aimed at government and race differences, than differences caused by individual poverty.

It seems that those who have, are rebelling against those who have not, as if it is their fault. The victims are getting all the grief now, as if at some level the "Haves" expect what they enjoy now to be taken away from them. This is with a current tax rate for the upper income folks (greater than $1 Million in income) at 29.6%. They all seem to be complaining and have others scared enough to do the screaming for them in the form of Tea Baggers, who interestingly enough have no where near that level of income. It's the Glenn Beck's ($18 Million/year) and Rush Limbaugh ($33 Million/year) types leading the charge as they make 10's of Millions of dollars each year, as well as Sarah Palin who is getting $200,000 per speaking engagement, to rattle everyone into action. Remember though some of the greatest years in this country like the 1950's, we had a 90% tax rate on the wealthy and we seemed to do just fine. Seems like the more they make or have, the more they want today. Just how much is enough?

So getting back to the theme of this post, this generation needs to start to get busy equipping themselves in becoming self sufficient. It is the only way to survive and have some joy in life again. The trick will be figuring out how to do this with limited or scarce resources. That's where coaches can help. If people who have some skills in this area could offer help to those who can't afford to pay for it, it could help quite a bit. Some of us who aren't rich, but have a generous spirit, could consider free assistance for those who are structurally unemployed generate some ideas to change their lives. That help could truly turn some lives around. However, when offering help like this to others, scaleability is very important. Why offer skill help for just one, why not 10 at once or 25 or 60? Think how you can help others, if you were attracted to read this. I certainly will. Most of us don't really think about helping others in this area but many of us have skills critical for survival and eventual prosperity. It's time we think about using those skills for the betterment of society.

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Saturday, April 10, 2010

Market outlook: Correction ahead amid turbulence during Greek debt crisis

I had a close friend ask me my opinion of the markets last night. I gave it to him but thought I would use the opportunity and show a chart on my Blog. In the 5 year chart above of the Nikkei 225 versus the Dow, you will notice that the Dow appears ahead of itself compared to the Nikkei. The Dow has been behind the Dow for the past 3 out of 5 years but recently has gotten ahead of itself and risen too rapidly.

The Euro has hit an 11 month low on concern that the Greek debt crisis may not get resolved in time, as Germany shows concerns about the issue. Germany is showing reluctance to subsidizing emergency loans for Greece and this may hold up efforts by the European Union to reach agreement on terms of a proposed financial lifeline for Greece.

The Dow did hit 11,000 yesterday and looks as though it has petered out. The Volume for the past week is lower than it has been recently. When Volume is low and price increases, that is a bearish sign. However, I have been saying that since the Dow climbed back to 10,600 and here we are at near 11,000. As long as the government plays will the addition of more money into the economy through a variety of measures by the Fed and the Treasury, predictions are going to be impossible with any merit. As I have said many times before, the game is rigged and it is rigged more now than at any time in my lifetime.I continue to be cautious. Painfully, I still own my short positions even while I retain stocks and have benefited the ride up of the market with my long positions. This week I bought more shares of ZSL (a Silver ETF Ultra Short) at $3.78, as Silver climbed over $18/ounce again. ZSL correspondingly hit a new 52 week low of $3.65. As you can see from the 10 year Silver chart, we are at a high price for Silver comparing 10 years of data and I do believe this is a good reason for me to own ZSL, as we are bound to correct again back to $12-$13/ounce in my opinion. Time will tell. Stay tuned.

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Friday, April 09, 2010

Consumers still paying off debt. A good thing for them but a bad thing for the economy

I came across a good chart and data provided by Haver Analytics on Consumer Debt. You will remember that I said in a recent post that the Consumer is 70% of the equation in Sales in this county and until they start really spending, the economy is going to stagnate. Add to that the fact that unemployment will also stay high as long as companies can increase productivity with their existing employees. In the chart above you can see that things don't appear to be trending in the right direction for the economy to pick up.

In the Haver Analytics posting today, here is what they said:

"Consumer borrowing continued its retrenchment during February. Consumer credit outstanding fell $11.5B, reversing a revised $10.6B January increase which was much larger than reported last month. The Federal Reserve reported late-Wednesday that the resultant 4.0% y/y decline in credit outstanding remained near the record. During the last ten years, there has been a 60% correlation between the y/y change in credit outstanding and the change in personal consumption expenditures.

· Usage of revolving credit was cut sharply. The $9.5B drop followed a modest January increase and left usage down a near-record 9.1% y/y. Versus February 2009, finance companies lowered lending by 14.3%, commercial bank lending fell 12.7%, pools of securitized assets fell 7.4%. Loans from credit unions offset some of these declines with a 6.5% increase while savings institution raised lending 1.6%."

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Wednesday, April 07, 2010

Stagnation in Europe's Economy?

As a follow-on to my last post, I saw this news item from this morning titled, "Europe Economy Unexpectedly Stalled in Fourth Quarter". Here is an excerpt from the story. You will notice the word "Stagnation" in the first sentence, which is in the title of my last post.

By Simone Meier
"April 7 (Bloomberg) -- Europe’s economy unexpectedly stagnated in the fourth quarter as companies cut spending more than previously estimated.

Gross domestic product in the 16-nation euro region remained unchanged compared with the third quarter, when it rose 0.4 percent, the European Union’s statistics office in Luxembourg said today. It had previously reported a fourth- quarter expansion of 0.1 percent. Corporate investment dropped 1.3 percent instead of the 0.8 percent estimated earlier.

The European economy is now showing signs of rebounding from its end-of-year relapse as the global recovery prompts companies to step up investment and offsets some concerns that Greece’s fiscal crisis will hurt the euro region."

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Monday, April 05, 2010

It's the economy stupid! Boom, Bust or Stagnation?

Many are wondering when the economy will be coming back to pre recession levels anytime soon. I gave this some thought and when you look at the math, it looks dismal. Let’s take a look at it.

First, let’s begin with the Consumer. The Consumer has been responsible for 70% of the spending in the country. The other 30% comes from the Business community buying from each other. Since nominal GDP (Gross Domestic Product) of the United States was $14.2 Trillion dollars in 2009. Assuming the Consumer contribution, of 70%, that comes to $9.94 Trillion dollars. Ok, now let’s assume that even though the numbers I presented are for 2009, let’s assume there was no recession that year. (The reason I say that was because the nominal GDP for 2007 was $13.8 Trillion dollars, not far off from 2009.)

The Unemployment rate in 2007 was only 4.6%, while today it is 9.7%, and as high as 20%, if one counts those not collecting benefits and have given up looking for work. There are about 237 Million people in the Civilian non-institutional population and the Civilian Labor Force has about 153 Million people. The officially unemployed total about 15 million people.

In 2006, total discretionary income totaled $1.7 Trillion dollars in 2006. Nearly 78% of all discretionary income is held by households earning more than $100,000. “While the percentage of households with discretionary income has risen over the past several years, purchasing power remains concentrated in the wallets of the affluent,” said Lynn Franco, director of The Conference Board Consumer Research Center.

So, if you take approximately $10 Trillion spent by Consumers, and then figure in the unemployment rate of approximately 10%, you have about $1Trillion less dollars for Consumers to spend. Add in the fact that 78% of all discretionary spending is from households earning more than $100,000, and it is even a higher number than $1 Trillion. That doesn’t include the businesses that don’t have money to spend buying other’s equipment, which represents the 30% of spending done by business. There could be another $1 Trillion less spending by business. That’s a huge hit on the economy.

If you put the $2+ Trillion out of the economy and then add in the Governments $0.8 Trillion Stimulus package, you can see we still are a long way off to making up the difference. As long as we continue to have 9-10% Unemployment rate and higher real Unemployment, we will not come out of this mess anytime soon. This implies to me not to believe the stock market will continue to rise. As a matter of fact, when these inferences become more recognized as truth, we may have a double dip recession. We will know by September/October this year whether that plays out. Oh, and by the way, conveniently, this is just before the November mid term election, where the Republican Party hopes to make much gains and take over the Congress. It will be the time when Democrats are more vulnerable to losses. Stay tuned!

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