Salvation is Close at Hand

The purpose of this blog was meant illuminate the Economic Disconnect that exists between what is reported and published by the government, television, and print mediums with reality. One of the major problems that I focus on the the current housing bubble implosion. While the housing market has started a severe correction, I must regretfully inform the readers that housing has now been saved. That's right, no more price declines. An end to foreclosure acceleration is coming. The real estate market is about to reignite into a burning Sun of economic prosperity. How is this going to happen? Its all right here (from Yahoo Finance headlines today):
AP
Foreign Cash Could Boost Housing Market
Saturday November 10, 2:35 am ET By Stephen Bernard, AP Business Writer
Foreign Cash Could Provide Much Needed Relief for U.S. Housing Market Thanks to Weak Dollar
NEW YORK (AP) -- The weakening dollar has caused many problems for consumers, but it may also be providing the fuel for one unintended -- and very welcome -- benefit: a rally in the struggling housing market driven by foreign investors.
Link: http://biz.yahoo.com/ap/071110/wall_main.html

Well there you go. Game over. I suggest reading the entire piece. What passes for economic journalism is pretty weak these days. Some snippets with commentary:

"The theory goes that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.
That will help restart owners moving up the housing ladder, a process that had been key to economic growth in recent years."
Comment: So the weak dollar will entice foreign buying of homes in the US? Say I agree with the premise, what numbers are we talking here? What is the foreign purchase rate right now or historically for residential real estate? Are there enough Ireland or France natives looking to buy in Phoenix Arizona to even make a dent in the 50,000 homes for sale there? We don't know, and the article offers no information to gauge the veracity of the claim.

"The dollar is on sale," said Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania.
Comment: "On sale" usually implies something is priced below what it is worth on the open market in an attempt to increase sales volume. The dollar trades on the open market and thus is set to it's true value. Wharton business school is a Donald trump favorite, so I guess I would expect this kind of thinking. If Mrs. Wachter thinks the dollar is on sale now, wait for the "going out of business sale"!

"Some mortgage brokers are already seeing a boost in inquiries about buying property from overseas. Dan Green, a certified mortgage planning specialist and author of TheMortgageReports.com, said the number of inquiries he's received from outside the U.S. is probably five to 10 times larger than it was a year ago. The influx of foreign investors can help set a floor for the real estate market, Green said"
Comment: Five to ten times larger? Larger than what baseline? Is this a significant number? Again, we have no idea and the writer provides nothing comparative to work with. How bout that range, 5-10 times? That's pretty broad. 5x20 is 100 inquiries, and 10x20 is 200 inquiries, a 100% difference. Is Mr. Green not sure? As far as setting a floor to housing prices, that would require a enormous amount of foreign buying. Remember when Japan was going to buy all the property up in the US after the last real estate bubble collapsed in the late 80's to early 90's? How did that work out?

First the FED was going to slash interest rates and that would save housing. Then the SIV Superfund was going to put a floor underneath the mortgage credit markets. Then housing was only 5% of the economy anyway. Then the worst was over in September. That's a lot of saving going on for housing! Now we are left with foreign buyers propping up a bubble market. It seems that Salvation is Close at Hand all the time, yet things are still deteriorating.

There are I thinks two central questions that need to be answered in the next year or two. How the answers play out will have a lasting effect on the US economy and perhaps even the US consumerism way of life:

• Can and Should homes require over 50% of net income to own?
• Should interest rates be so low as to encourage borrowing at any cost, even at the cost of destroying the dollar and pushing inflation?

Obviously, homes should not be eating up over 50% of a households net income. The 50% is a low figure. I know people right now that commit 70% of their net income to "owning" a home. Until buying a home comes down to somewhere even near it's historical ratio of income commitment, the housing bust is going to continue. Its that simple. Any other argument is smoke and mirrors. There is no other final analysis. Another point lost in the debate is whether it is a good thing for home to cost so much that a severe financial strain is required to buy one. How many 2nd jobs and lost nights of sleep are required by overpriced homes? Theres a chart I would like to see.

The US does not seem any longer to be able to function unless more debt can be piled on at ultra low interest rates. If the FED cannot raise rates to lower inflation or protect the currency there is a systemic problem. This is a key point. When a possible action is ruled off the table, the threat of it no longer exists. If the currency traders out there want to short the dollar sort of speak and continue to push the dollar down, they know there is no counter force to stop them. What happens when the fear of being stopped is gone? You guessed it.

As I have stated before, the problem with financial event watching is the glacier like speed at which things move. The dollar continues is slow drop. Home prices continue their slow bleed. Slowly the rocks of "goldilocks" and "soft landing" are worn away by the tides of reality. The true extent of the damage that the housing bubble has done will not be evident and clear perhaps for years. This spring will be another milestone for the deterioration of the US bubble economy. Until such a time when things resolve themselves, we will have to have fun with the latest Salvation story.

Enough serious stuff!

In the event that the scores of cute realtor women out there need another line of work, perhaps stripper school would suffice:

Imagine if someone hijacked a television broadcast and woke people up to the problems facing the US economy. On November 22, 1987 a joker hijacked a TV broadcast in Chicago, but he didn't offer any economic forecasts:

For more on the above, try Damn Interesting: http://www.damninteresting.com/?p=776

Have a good night.

Friday Levity

This week just felt different. Something has definitely changed. Its subtle and its bubbling below the surface, but the change is palpable. Its seems that market participants are FINALLY catching on to the structural problems at the major banks and housing market. The news was coming fast and furious all through the week. Because it is Friday, I will cover a few major issues with my characteristic dry humor.


The US Dollar $

Today's close on the index was 75.4! I will be honest, I never thought the dollar would fall so far so fast. It is comical to listen to Boom Boom Bernanke say in his testimony that rate cuts may cause some weakening of the dollar. Some? How much room is left? The wonders of a weak dollar include competitive exports of goods that can increase profits from increased sales. Problem is the US is a consumption based economy, not a production one. So how does weak dollar help the average person? I have no idea. It seems lately even cheerleaders for the market are coming around to the fact that a weak dollar sucks. Inflation in all the things we need (gasoline, food, heating fuel) are showing up in consumer confidence numbers. Inflation concerns tip the list, even as the FED and the cheerleaders would tell you inflation is "well contained". Which brings me to my second issue:


The Word Contained Should be Removed from the American Financial Vocabulary

Never before has a word been as misused and misapplied as "contained". Loan defaults were contained. Foreclosures were contained. Loan losses were contained. Home price declines were contained. Worthless paper sold all around the world was contained. Inflation was contained. I submit that all these things were contained, to this Galaxy! I hear home prices are still rising in our neighbor the Andromeda Galaxy. Maybe the real estate flippers can build a Bussard Ramjet with all their profits and travel over there and try again. Take the FED with you on the way out.

Mythical Spring 2008

Last night I covered the "Spring 2008" miracle turnaround projection. Anyone parroting this line is either an absolute dolt, or thinks you are. Either way it is not pretty. Will any of the jokers using this mantra ever be held to account? What we need is Abby Joseph Cohen and Henry Blodget to come out and be the new poster children for the 2008 miracle. In the Spring I will refer to this crap as the "Miracle on Ice", meaning the recovery is on ice.


Time to Hit Back

The financial banking system is a scam. A select few run the hedge funds, manage 401k's, trade stocks, and basically populate wall street. They throw money around like candy, because NONE OF IT IS THEIRS. While I am sure there are a bunch of sound thoughtful money guys out there trying to do the best they can for investors, the majority is out there trying to do the best for themselves. The derivative market is a made up sham meant only to run up fees and multiply money across the banks. As the great unwind of crap paper continues, it will be clear the derivatives do not help anybody. The financial sector has given themselves tons of your money. New York's financial district has so many millionaires its scary. I am all for free market capitalism. I am all for getting all you can. The point is that the same fools that brought you the Nasdaq nuclear winter stock collapse turned around and now have provided a mortgage multiple independently targetable reentry vehicle (MIRV) of bombs that will sink every ones assets. They did it for riches, they did it for fame. Well, in the free market "paybacks a bitch and she's in heat". Nobody on Wall Street should see a bonus this year. Matter of fact, all bonus money should be pooled to pay back the Billions lost in the mortgage lending scam they designed. I like that idea.


Homeowner Help

I have no doubt plenty of folks had to buy a home over the past 3-5 years. I am sure plenty of people did not do it to make a killing. The problem is that tons of other people did. Easy money and a silly psychology of home buying swept the nation. When this is all said and done it will be written that a major contributor to the housing bust was that people with no understanding of money were given ridiculous sums of money to play with. The money became like chips in a casino. Its hard to push all in on a bluff in poker if you have to move a stack of $100 bills into the middle of the table. Pushing some red and blue chips is easy however. Now we are told the misled homeowners need a bailout? Most knew exactly what they were doing. Most aggressively went after the instant riches. Reap what you sow. Unfortunately the collapse will take a whole lot of money through various vehicles from folks that had nothing to do with it.


Enough financial doom and gloom. Its Friday! Only a week and a half to Thanksgiving. Where does the time go? I wanted to submit a photo for a look, as it is one of my favorite pictures:



The photo is of an Apollo 12 astronaut standing next to the Surveyor 3 Lunar probe. Surveyor 3 was the third lander of the Surveyor program that explored the Moon. Launched on April 17, 1967, Surveyor 3 landed April 20, 1967 at the Mare Cognitium portion of the Oceanus Procellarum. A total of 6,315 images were transmitted to Earth. The Apollo astronauts landed November 24th 1969 not even 600 feet from the probe. The crew removed some parts from the probe and brought them back to earth. I can look at this photo for a long time. It really stirs something in me. It is amazing.

Friday Rock Blogging!
A little music to settle you in for the weekend.

I was thinking of the song "Lodi" by Creedence Clearwater Revival the other day. A particular line "If I only had a dollar, for every song Ive sung. Every time I had to play, while people sat there drunk". Sometimes I feel like that. I try my best to explain what is going on in the financial system to people, and they either do not care, can't understand, or they are drunk. I hope this blog helps someone somewhere see whats going on:



Simon&Garfunkle with "Homeward Bound"


Have a good night.

Hope Springs Eternal

Did you know that housing price declines are going to stop in June 2008? I bet you were unaware that mortgage defaults will not only stop accelerating, but reverse back to their low end scale exactly in June 2008! Bank losses will stop and and funky level III assets will recover their full "mark to model" values on the first weekend of June 2008! All I can say is, that's a relief. All the upset and turmoil in the market is starting to be depressing, so if we can just wait until Spring of 2008, all will be great.

The above lunacy is a rough encapsulation of the FED, the banks, the home builders, the retailers, and anyone on financial TV. Reading through FED testimony, listening to conference calls, and watching CNBC for a while brings repetition of the Spring 2008 miracle. Not even Miracle Max from "The Princess Bride" could provide that kind of magic. Those rebound forcasters must be living in Never Land. In case they did not get the memo, even Never Land is being foreclosed on:
http://www.tmz.com/2007/11/06/neverland-in-foreclosure/

Is Ron Paul the Only Public Official with a Clue?
The Mess That Greenspan Made, a wonderful blog in the blog roll, has a tremendous post today on the testimony of Ben Bernanke before the Joint Economic Committee today. I absolutely require that you read the post in full: http://themessthatgreenspanmade.blogspot.com/2007/11/dumb-things-said-at-jec-meeting-today.html
While the dummies from both sides of the aisle are basically begging for more rate cuts to help "stimulate the consumer", only Ron Paul sees what rate cuts have done and will do to the US dollar and economy. Excerpt:
Rep. Ron Paul, R-Texas
The best way I could describe the problems that we face here in this country, as well as the problem the Federal Reserve faces, is that we are indeed between a rock and a hard place because we have a serious problem but we don't talk about how we got here. We talk about how we're going to "patch it up". The bubble has been burst - we saw what happened after the Nasdaq bubble burst and we don't ask how it was created and then we had a housing bubble and it's deflating and it's spreading.Yet nobody says, "Where does it come from?" and what is the advice that you generally get? Inflate the currency. They don't say "inflate the currency", they don't say "debase the currency", they don't say "devalue the currency", they don't say "cheat the people who have saved", they say "lower the interest rates". But they never ask you and I never hear you say, "the only way I can lower interest rates is I have to create more money"
....Unless we get down to the bottom of it and define what inflation is and not look at only prices... this was taught by the free market economists all through the 20th century, they said, "Beware, they will increase the money supply but they will make you concentrate on prices and they will give you CPIs and PPIs and they'll fudge those figures and they'll talk about wage and price controls to solve our problems".We ignore the fundamental flaw and that is that not only have we had a subprime market in housing, the whole economic system is subprime in that we have artificially low interest rates. And it wasn't under your tenure in office - it's been going on for ten years or longer and now we're bearing the fruits of that policy. A one percent interest rate and that's not a distortion? Instead of looking at consumer prices, that nobody in this country really believes, we need to talk about the distortion, the malinvestment, the misdirection, the bad information that is gotten from artificially low interest rates.

This is not a political blog, and I am extremely uninterested in any type of political debate, but I will tell you I donated money tonight to Ron Paul's election campaign before I started writing this post after reading his clear and thoughtful analysis of the current mess. Ben Bernanke must have been very uncomfortable being faced with such truth. I have a new poll question up tonight that asks the readers just what Bernanke wanted to say to Paul if only he could! Please vote.

The question right now is at what point will the forecasts for a recovery become untenable? In August the cheerleaders pointed to a post September rebound. Today Toll Brothers homebuliders reported cancellations of purchases accelerated in Octeober. The CDO, SIV, and mortgage paper markets are deteriorating, not improving. Retail sales suggest a weakeng consumer. A definite time point must be set by which if the silly and comical "rebound crowd" is still clearly wrong, the market votes with its feet. The call for a Spring 2008 hairpin turnaround is both impossible and naive. As we move to the end of the year and into late winter, watch for the goalposts to be moved once again. Perhaps October 2008 will be the new miracle month?

Have a Good Night!

Suspension Of Disbelief

This blogger has been busy entertaining out of town guests, and of course the week has been a real doozy so far! I am going to try and write a post of a thought I have had during buzzing this week.

Suspension of Disbelief
The optimistic case as it relates to the mortgage and credit market implosion situation has several points which are repeated often as if they are absolute in nature. In no particular order they include:

• The mortgage credit crunch was at its worst in early September, and is now getting better
• Banks and lenders have already written off the losses from bad loans
• Housing prices have or will bottom exactly in spring of 2008 and resume a steady upward climb from there
• Demand for housing will revert back to the mania level of 2003-2005 by spring 2008
• Countrywide Financial will be profitable next quarter, and all of next year
• The FED cannot allow housing prices to fall, and so must cut interest rates aggressively, which in turn will save the entire sector (thanks Bill Gross!)

Sounds like an extremely wonderful turn-around scenario. The problem begins when you start to question the assumptions made and ask for any hard data to back any of it up. It puts me in mind of a term used in theater and film "Suspension Of Disbelief". Suspension Of Disbelief refers to the willingness of a person(s)to accept as true the premises of a work of fiction, even if they are fantastic or impossible.

The list above can be compared to real world, real time data. The headlines running around on Yahoo, Bloomberg, Marketwatch, etc just over the last few days speak for themselves:

Moody's cuts more SIV ratings
Ratings agency warns situation has deteriorated since early September

Banks Face $100 Billion of Writedowns on Level 3 Rule

Washington Mutual shares sink on Cuomo probe, losses

Lennar Suspends Sales at Two Major Projects
Builder is waiting out a dismal market so it can get full value for homes at Central Park West and A-Town in southern California

Morgan Stanley to Take $3.7 Billion Write-Down

I will stop there as it is enough to illustrate the point. All above headlines are from today, and can be found with commentary on Calculated Risk on the blogroll, as I am pressed for time tonight. Add to the headlines that the ratings agaencies are facing real problems, the inflated appraisal scam now being legally pursued, and the Superfund having issues getting started and there is NO WAY a turnaround in housing is going to happen in 2008. NO WAY, NO HOW. Got that? Any fool writing a column or on TV that states otherwise is not believable and an assclown on top of that. Anyone wanting to bet against me on that is encouraged to write in the comments section their contact info. Any possible scenario that will stop bank losses and raise home prices will rely heavily on another term "deus ex machina". Deus ex machina (translated: "god out of a machine") describes an unexpected, artificial, or improbable character, device, or event introduced suddenly in a work of fiction or drama to resolve a situation or untangle a plot. The only way this gets better in the next 6 months is if fairies and angels descend onto earth bearing no risk mortgages and unending liquidity. And no, the FED cannot do it.

Thanks to those that stop by here to read. I appreciate it. Loyal reader AnonG wanted to know about the metal content in US coins. I dug up this old article that sums it up: http://www.usatoday.com/money/2006-05-09-penny-usat_x.htm

The article is a year old even, so its worse now. I do not give investment advice here, but my opinion on metals is to be careful. I have tight stop losses on my mining shares as any major downturn in the markets is going to trash gold and silver as well. That's just my opinion. There is never a sure bet, and when the market gets nasty selling what you can means metals and metal company shares. Sorry for the short post, hopefully I will be back on schedule tomorrow.

Have a good night.

Revenge is a Dish Best Served Cold

"Revenge is a dish best served cold. It is very cold in space."
-Khan discussing his plan for revenge in the film "Star Trek 2; The Wrath of Khan"

Not much in the Financial world going on today. I would like to be a fly on the wall during the Citi emergency board meeting tomorrow though! I am going to do a football preview tonight, so if football is not your thing, I apologise. I would recommend checking out the amazing web site Damn Interesting which is linked on the left in the must read banner. All kinds of little known facts, events, and history that I get lost reading whenever I stop there. Highly recommended.

New England Patriots vs. Indianapolis Colts
I am not objective in this situation. The Patriots have been my favorite team for some time. The character and determination they exhibit year in, year out is inspirational. Never before in the history of the league has a team been so well coached and so focused that they were able to win 3 Superbowl titles with talent that at best would qualify as middle of the pack. This year is different, as the Patriots have true superstars to complement Tom Brady. The results thus far are a testament to how good this team is. That is my full disclosure up front.

2007 AFC Title Game
Everything you need to know about this game goes back to last years AFC title game at the RCA dome. The Patriots had squeaked by a truly dangerous team, last years San Diego Chargers, through sheer force of will. The Patriots hung around and fought so hard for so long in that game the Chargers finally wilted and lost. The Chargers were easily the best in the league last year. Had they won, they would have steamrolled the Colts in the title game.
The Patriots were a bit beat up after the San Diego tilt, and a flu had gone around the team during the prep week. The Colts were coming off a tough game themselves, outlasting the Baltimore Ravens 15-6 in game where the Ravens dominated both lines of scrimmage, but could not score any points to save their lives.
The game started out hot, with the Patriots jumping all over the Colts, who are a slow starting team historically. Into the second quarter it became obvious that the Patriots were dominating both lines of scrimmage, and had been able to get some points on the board. A late 2nd quarter interception of Manning returned for a touchdown made it 21-3. The colts were able to get another field goal before the half making it 21-6.
Now I will explain what has driven the Patriots insane for the last year. During halftime the decision was made to switch from a pressure defense using the linebackers in blitzes and bump and run coverage to a more soft 2 deep zone defense. I cannot know the motivation for this change. Perhaps the defense was a bit tired from the last game. Perhaps the flu had made them able to go all out for only 1 half. perhaps they thought the clock that this defensive set would run off would shorten the game enough to win. I have no idea why they did this.
The 3rd quarter opened with a ridiculous 87 yard drive by the Colts for a touchdown that was all underneath crap passing that the 2 deep zone allows. The drive took almost 9 MINUTES! The Patriots defense was visibly exhausted by this drive. With the score at 21-13, things were still in hand. The Patriot offense could not help the defense, as they went 3 and out. The game got pretty wild from there, but again the decision to play a prevent defense in the 2nd half effectively allowed the Colts to play their game, and the Patriots to play passive which is not their style.
All told, the Patriots still could have sealed the game, but Reche Caldwell dropped a sure touchdown pass late in the 4th quarter when a broken coverage by the Colts left him uncovered. With a stalled offense, and an exhausted defense, the Patriots lost the game 38-34.

The Game
The Patriots want this game. They have thought of nothing else for nearly a year. The additions of Welker and Stallworth on offense were aimed at punishing the Colt corners. Adalius Thomas was added to shore up the middle of the field. And finally, Randy Moss was acquired to give Tom Brady what he has never had, a bonafied deep threat. All the pieces are in place.
All the talk about running up the score ignores the fact that last years loss was the largest ever comeback in AFC title history. I am not saying its a possibility that a team would come back from 40 plus points down like many have been this season, but it is a new psychology with the Patriots. If they get up on a team they are going to put the pedal down all the way the whole game so that never happens again. The scoring of tons of points, and not accidentally 52 points the game before facing the Colts, is a clear declaration to the Colts that they will have to score tons of points.
Its hard to know how the game will play out. I think the Patriots are going to run Maroney tons in this game. I think the Colts can stick with the Patriots for the 1st half. I think as the game goes on, the deep patterns the Patriots will keep running will take a toll on the Colt defense, and late in the game the Pats will run away with it.
Final Score: Patriots 42 Colts 31

In the Revenge theme, I have included the final scene from the film "Unforgiven". The Patriots are going into the RCA tomorrow and they want to know who owns it:


Have a good night.

Your're Gonna Need a Bigger Boat

"You're gonna need a bigger boat."
"Thats a thirty footer!"
"Thirty-Five, 3 tons of him." -Crew of the Orca upon seeing the great white shark for the first time in the film "JAWS".

The moment in "Jaws" when the shark is finally seen and the crew realizes the true enormity of the problem they face is easily applied to the current situation facing the US banking industry and the FED. In early summer the rise in foreclosures and falling home values were thought to be contained to the micro niche subprime space. As time wore on, the definition of "subprime" was found to include all kinds of paper that masquerades as prime grade. The accelerating foreclosures and price drops stopped being so contained, and now engulf almost every real estate market in the USA. "Mark to Model" fantasy prices of various mortgage related securities are now being exposed as pure lunacy. I am not going to rehash all the details, you will already know them by now. The point is the banks, hedge funds, mortgage lenders, and the FED thought the problems seemed small and contained. By using old tricks like off balance sheet holding of paper, slight increases in provisions for losses, and FED rate cuts could stop the unravelling in its tracks. Only now do the powers that be see the depths of the rabbit hole that was mortgage lending over the past 3 years. They are going to need a bigger boat.

Merril Lynch and the SIV Minifund
If you are easily amused, check out this headline:
NEW YORK (MarketWatch) -- Shares of Merrill Lynch & Co. fell more than 8% Friday, retreating in the face of a Wall Street Journal report that the company has engaged in deals with hedge funds to delay when it had to record losses on risky mortgage-backed securities.
Seems like Merril had an idea to set up their own mini SIV Superfund. The purposeful mispricing of assets that are shuffled between entities to hide losses is fraud, and it is illegal. Enron accounting it is called. Merril is going to be investigated. They should have waited a bit to join the new SIV Superfund that I have covered in the past. That illegal shuffling has the explicit backing of the Secretary of the Treasury Hanky Paulson. Timing is everything.

Citibank's Weekend Retreat
Not amused yet? here at economic Disconnect I try my best. This is a choice tidbit:
APReport: Citigroup CEO May ResignFriday November 2, 6:52 pm ET
Report: Citigroup CEO Will Offer to Resign Sunday; Board Expected to Hold Emergency Meeting
An emergency meeting on Sunday? I do not think they are gathering to congratulate themselves on the containment of the mortgage losses. Another CEO resignation? If Ken Lay had only resigned, all would be well in the fraud-o-verse.

Jobs Report is as Real as Unicorns

The jobs report today is as fake as Pamela Anderson from the waist up. The silly birth/death model adjustments are so skewed towards major job creation that the number itself is no longer a valid economic indicator. Mish has a wonderful piece on this, pay attention to the chart he provides: http://globaleconomicanalysis.blogspot.com/2007/11/jobs-report-from-alternate-universe.html

Please don't comment that you have seen a unicorn lately, we all know they went extinct in the 1700's.

In summary, the week was more funny than anything else. The rising tide of reality is slow and steady. Monday should be interesting, as both Merril and Citi should rocket up from here. In the "all the bad news is already out" mantra, an investigation into financial dealings and a CEO resignation should be worth quite a pop to the upside in this market.

Enough, its Friday!

I will do a complete Patriots vs. Colts preview and prediction tomorrow. Hint: I do not feel it will be all that close a game.

Friday is rock blogging time! In keeping with the ominous news and feelings in the market, I have selected some dark songs that convey the mood. I think I figured out how to embed even!

Black Sabbath's self titled "Black Sabbath". If there is a song that epitomizes evil and conveys a dark mood this classic is it!

AC/Dc with "Hells Bells"

Dio with "Holy Diver"

Have a good night!

Warning Shot Across the Bow

Well, November 1st comes around and all hell breaks loose!
On the surface, it was a pretty bad day for the markets overall. The DOW closed down 362 points at days end. Why on earth would that have happened? Lets ask Yahoo Finance, Ya?:

Stocks Plunge; Dow Drops More Than 360Thursday November 1, 5:55 pm ET By Joe Bel Bruno, AP Business Writer
Wall Street Plunges on Fears That Interest Rate Cuts Will End Even As Economy Is Weakening
NEW YORK (AP) -- Wall Street plunged Thursday, pulling the Dow Jones industrial average down more than 360 points as investors found themselves confronted by two uncomfortable prospects: an end to interest rate cuts and a slowing economy.

There you have it. Yesterday I had noted the wild gyrations of logic that passed for financial analysis, and today one of the listed memes comes to roost:
"The FED Sets the FED Funds rate, Unless the Market Does"
I commented yesterday that I believed a market downturn could not happen (in the next calendar year) because of the overall sentiment of the market. Today does not qualify as a downtrend for the market. What is does signal is a move by the market to force the FED's hand on more rate cuts.


"I want a party with room fulls of laughter. 10,000 tons of ice cream. And if I don't get the things I am after...I'm going to SCREEEAAM!!! "- Veruca Salt from "Willy Wonka and the Chocolate Factory"

Over at the Big Picture, Barry Ritholtz has a great quote from James Paulsen, chief investment officer at Wells Capital Management:
"It's like monetary policy is being affected by the tantrums of Wall Street As every parent knows, the worst thing you can do is give in to a tantrum, because then you get five more of them."
Link: http://bigpicture.typepad.com/comments/2007/11/quote-of-the-da.html
Veruca Salt and James Paulsen show what is now happening. The one dissenting vote on the FED, the adding of commodity price concerns to the FED statement, and the fact that a FED meeting does not happen until December really started to itch the markets. The idea that further rate cuts may not be forthcoming simply will not be tolerated in the current atmosphere.

The market today repeated a regular pattern that it has been using since August. Go down a large amount, but not enough to trigger any automated selling programs. The magic number seems to be the 375 point mark on the DOW. Go back and notice when selling has been done in the market (a rare event) the stoppage of the slide is always around 350-370 on the DOW. This must be the magic number. Enough to cause a stir, but not enough to do any damage to yearly returns.

The talk yesterday was about how housing is 5% of the economy, and the economy is very robust. The global economy is booming. Rate cuts were needed to help the credit markets, but all was well. Today, all the headlines conveniently include a new "US consumer slowdown" concern as well as a "Slowing Economy" meme. Yesterday the GDP number was hailed as a great testament to the US economy, today it is dog poop which was pushed higher by a rigged Price Deflator component (it was in truth, but since when did that matter?). I understand a 24 hour news cycle, but I have whiplash after the car crash of a change in economic discussion.

The market is firing a warning shot across the bow of the FED. Rate cuts are being demanded, and the market is resorting to childish tricks to get them. Perhaps another down day is in the works for tomorrow, but then expect a long rally based on, you guessed it, rate cut expectations!
After the market has rallied on the rate cut expectation "baking into the cake" trick, the FED will have no choice but to deliver the goods. After, the FED is responsible for "market expectations" is it not?

This is not the "Big One" sort of speak. This is not the start of the Economic Disconnect beginning to unravel. It is a threat and a demand being made on the FED. The downward movement today was so fake and so non-alarming that it cannot pass the smell test of validity.

The Big One will come if the FED ever grows some balls and says to the market no way, no how, no more, no mas! Again, "Willy Wonka and the Chocolate Factory" gives us the exchange. Substitute the FED for Wonka, Hanky Panky Paulson for Granpa Joe, and the market for little Charlie:
Willy Wonka: Wrong, sir! Wrong! Under section 37B of the contract signed by him, it states quite clearly that all offers shall become null and void if -- and you can read it for yourself in this photostatic copy -- "I, the undersigned, shall forfeit all rights, privileges, and licenses herein and herein contained," et cetera, et cetera... "Fax mentis incendium gloria cultum," et cetera, et cetera... "Memo bis punitor delicatum"! It's all there, black and white, clear as crystal! You stole fizzy lifting drinks! You bumped into the ceiling which now has to be washed and sterilized, so you get nothing! You lose! Good day sir!
Grandpa Joe: You're a crook! You're a cheat and a swindler! How could you do a thing like this, raise up a little boy's hopes and then dash all his dreams to pieces? You're an inhuman monster!
Willy Wonka: I said good day!

It will never happen, but one can always dream.

Football Time!
Tonight I will compare the defenses.
Like the US prosperity, the Indianapolis Colt Defense is largely an illusion. The defensive line, while fast, is extremely small. The leading tackler and best run stopper for the team is Bob Sanders. Bob Sanders is a safety! Indy likes to use allot of 8 man in the box fronts to stop the run and to pressure the QB, usually from a lead. Put 8 men in the box on Sunday, and all hell is gonna break loose. The Colts will have to play a broader nickel and even dime package on Sunday, so expect the Patriots to run allot early. The Colts are one of the worst rushing defenses, when teams run, of the past 5 years.
The Patriots have a proven, veteran defense. Adalius Thomas is going to make a difference in this game. With a high powered offense, the linebackers will be set loose this game to go after Manning. The Pats' secondary is about average, so expect some long plays from Indy. The Patriots mission on defense: 3-4 stops. That could be turnovers, punts, or downs. There will be no repeat of the dog poop "prevent defense" (it only prevents you from winning) to slow drives down like in last years AFC title game.

Have a good night.