Monday, March 9, 2009

Some Reasons for The Market Weakness

Another, yes another, snow storm here today. It is March 9th and lady winter will not give up so soon! Leave us alone! On a personal note it is going to be my Birthday later this week. Time keeps on trucking.

More Economic Terrorism
By now I am sure most readers have seen this piece that came out today concerning AIG threatening all kinds of systemic risk and demanding bailouts without end on their own term sheet. Totally disgusting. Outrageous.

I could excerpt the piece, but I do not want to put a fist through the computer screen. I would direct you to this post from February 19th that sums up my position on things.

I would add that this story really makes the members of congress look pretty ridiculous. While they like to parade executives on CSPAN and ask dumb questions as to give the illusion they have any say on matters, the truth is they are given their marching orders FROM Wall Street. They continue to follow directions no matter the cost to the US taxpayer. Sad.

Some Reasons for The Market Weakness
Another down day for the markets. While we have not seen anything approximating a real "capitulation" sell off, the slow grind down has been pretty stark. In a bear market everyone loses and this has been no different. If you are long you have been halved, if you are short you have to be on top of your positions AT ALL TIMES or vicious rallies and crazy one day moves can hurt you. Capitalist Preservation is having hard time identifying trades to make as this market is rough.

Let us discuss some possible reasons for the current mess. Some will be deadly obvious, while some are more subtle. All are not entirely independent of each other and none are the sole reason for the continued downdraft.

Earnings are both shrinking and unknown quantities
Estimates for S&P earnings are contracting at a record pace and are still probably too high. While I would argue earnings have little to do with stock prices usually (nobody cares when things are good) this time the E of P/E ration is a minuscule number. Add to this the great unknown that are bank earnings (losses) going forward for YEARS (as they will have to pay back TARP, bailouts, convert shares by government) and you have a real mess.

Technicals are Bad
I am not a huge fan of technical analysis, especially at inflection points, but they are what they are. While the markets reach big "oversold" conditions rallies are small and far in between. Looking over many charts I would offer that fully 90% of stocks are ugly in a technical sense. Most 6 month charts I looked at were total "skip it" in character. I myself seldom short as I cannot do anything about my positions until after hours. But even shorting here is fraught with risk due to whipper days (see BAC in today's action).

The Market is playing chicken with the government
Look, we know what the financials want from the US government. A total and complete guarantee of their bad assets, recapitalization, minimal regulatory additions, and a blind eye to their actions. I feel that a key factor at play in the markets right now is that the big money players are playing chicken with the government. They are trying to bleed the markets as low as they can as to get a desired policy action. Witness the AIG threats as proof. The balance is to create fear, but not panic. So far mission accomplished.

Many market participants have said "No Mas!"Be it foreign wealth investors, retail investors, regular buyers of stocks, or whomever the staggering loses of the past 8 months is bound to make people gunshy. A 10% correction may be a good buying opportunity. A 20% correction maybe even better. A 50% retracement wipes out an entire decade of gains and that is pretty scary.

Deleveraging and lack of game rules mean many do not want to play
Deleveraging will become the term most associated with this era. Too much debt and too much leverage are being unwound. This process will take years. Add to this how the government continues to change rules piecemeal and without rational and you have a situation where nobody wants to play a game with no ground rules.

There are many others I can think of. Use the comments section to add some thoughts you may have.

I am stunned at the current market levels. I am more shocked that we have yet to face "the moment" I have written about a few times. Denial still runs high, and many still think buying 6 months to a year will magically fix all that is wrong. That viewpoint will die off sometime this summer. Maybe then we will get some direction.

Have a good night.

10 comments:

watchtower said...

GYSC
The buzz that I've been hearing is that now they are saying that some big banks may have to fail (I heard this on the radio today no less).

Does this qualify as getting closer to the "moment"?

Or do the big banks have to actually fail to qualify?

Anonymous said...

Gysc

The market has one job. Take the most amount of money form the most amount of people in the least amount of time. That's it.

Today was the 19th day of this move down typicaly they last from 17-25 days. my guess is turn by next monday at 650 S&P but 600 souldn't be ruled out.

The goverment fire fighters around the world are throwing more debt on a debt fire, bankrupting countries in an atempt to prop up an insolvent global banking system making things worse.

Its image is mostly that of rich California housewives, multimillion-dollar beach mansions and Disneyland, but Orange County has been hit so hard by recession that some of its food banks say they are swamped and struggling to feed the hungry.
In fact food banks in Orange County, which has been portrayed as an oceanfront playground for the wealthy on such TV shows as "The O.C." and "The Real Housewives of Orange County," were reporting demand had increased 40 to 60 percent since June of 2008.
http://www.iii.co.uk/news/?type=afxnews&articleid=7208844&action=article

Kevin

Lisa said...

This situation our country and markets are in is more dire than I've ever seen. The corruption and cluelessness of our elected officials is worse than it's ever been. It's been almost 100 years since the Federal Reserve was created, and before that the Dewey-inspired educational system was forced on us. If I could only point to two things that could kill a nation, it's those two. People may say I sound jingoistic, but the people of this country have to take back control of the government. It's going to be a very long, ugly summer, I'm afraid.

watchtower said...

I'm sure that the GOP is probably doing a little political pandering here but this did get out on the airwaves for J6P to hear.


GOP Says Some Banks May Have To Fail

Tom LoBianco (Contact)
Monday, March 9, 2009
Washington Times

"Close them down, get them out of business," Sen. Richard C. Shelby, Alabama Republican, said on ABC's "This Week." "If they're dead, they ought to be buried. We bury the small banks; we've got to bury some big ones and send a strong message to the market."

"This Week" host George Stephanopoulos asked Mr. Shelby whether he was referring to megabank Citigroup, which stock share has fallen to about $1 from a high of $55 three years ago.

"Citi's always been a problem child," he said.

http://tinyurl.com/b7o63v

getyourselfconnected said...

Calculated Risk has a great video up tonight where the show "60 Minutes" is allowed to see the FDIC take over a small bank. I watched it and I was scared. Real scared. "The Moment" should it ever come will be when either/or/both Citi and Bank of America go down and the FDIC has to limit withdrawls to say $100-200 a week for maybe a month or two for those customers (me included). While debt is the most used vehicle for Americans, cash is KING and that event will result in nasty confrontations.
side note: Seeking Alpha picked up another of my articles from last week, cool!
http://seekingalpha.com/article/124858-u-s-economy-golden-dreams-fallacies-and-nightmares

Anonymous said...

GYSC
"Leave us alone!"
Here is what I get to look forward to tomorrow, glad I don't have to work out in this crap. Yet at least, never say never.

The National Weather Service in North Platte has issued a Winter
Weather Advisory for snow... blowing snow and freezing drizzle... which
is in effect from 7 PM this evening to 4 PM CDT Tuesday.

Light snow and patches of freezing drizzle will continue tonight
producing icy roads. The snow will become moderate for a few
hours Tuesday morning with 1 to 4 inches accumulation. Periods of
moderate snow and windy conditions Tuesday morning will reduce
visibility to around 1/2 mile. Temperatures in the single digits
will add to the danger.

Got some spinach planted earlier this week and I'll be planting the early season peas, turnips, radish, cabbage, kohlrabi, carrots, arugula and some other stuff in about 6 weeks.
Kevin

getyourselfconnected said...

Kevin,
I bought some pussy willows for the wife, they are her favorite, and I was wondering if you have any idea about a good time to plant those things? Any help is appreciated.

Anonymous said...

GYSC

I can't help you out on those flowers if I can't eat it I ain't planting it.

GYSC yht try this Gal she's in your area.

http://carletongarden.blogspot.com/2008/03/pussy-willows.html

Kevin

getyourselfconnected said...

Wow kevin,
thanks for the great site! The blogger is a biochemist so I think we would have alot in common. Thanks so much.

Anonymous said...

GYSC

Your welcome just looking at the pictures of the snow in those garden boxes she has there look just like mine. I went out the other day and the ground is still frozen about 3" down.

Pussy Willows aren't a native plant here in Nebraska so I don't know if they would grow here or not. I have found that blogs and Universities have the best gardening information and the closer to where one lives the better.

Kevin