Tuesday Markets: after you, my dear Alphonse

The next five per cent move in the market is as clear as the smoke-filled skies above Los Angeles. The deadly and massive Station fire, which doubled in a day to 105,000 acres, from 52,000, mirrored the brutally singled-minded cyclical bull market beginning in March. Both U.S. Fire Service and the Los Angeles County Fire Department concur that the fire’s growth had slowed and that its ferocity is declining. The same might be true for the magical, mystical Wall Street rally we witnessed over the last six months.

Pre-market jitters point to another down opening as disappointing economic manufacturing data of contraction from Europe, and unexpectedly, likewise from England, reminded investors that the all clear from last year’s global meltdown is not entirely clear. The overly rich valuations built into current share prices could be premature.

Bloomberg is reporting Paul Tudor Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are among funds betting the green shoot economic recovery announced weeks ago by Goldman Sachs (GS) and Morgan Stanley (MS) are off base this time as economic growth will be overtaken by a continuation of fundamental deleveraging.

On Monday, the DJIA closed down 47.92 or .50 per cent at 9,496.28. The S & P 500 Index also fell 8.31 or .81 per cent to 1,020.62. NASDAQ fell, down 19.17 or .91 per cent to 2,009.06.

Total volume today on the NYSE was 1,377,655,473; advancing shares were 273,143,033 and declining shares were 1,094,260,290 with 10,252,150 unchanged. NASDAQ volume was 2,256,216,789; 847,105,496 shares were up, 1,385,908,101 were down, and 13,912,894 were unchanged.

The Five-Year Note closing yield was 2.387 percent; the Ten Year Note also was lower to 3.402 per cent; and the Thirty Year Bond fell to 4.18 per cent.

Today, economic data hitting the market includes Motor Vehicle Sales, Redbook, ISM Mfg Index, Construction Spending, and Pending Homes Sales Index. The inflated Motor Vehicle Sales figure with embedded Cash-for-Clunkers one-off buying borrowed from future purchases. That program ended August 24^th.

This year’s menace to society, unemployment residential foreclosures will pick up again in the fall, as explained by bankers yesterday. Because the government’s mortgage modification program is fully up and running, the foreclosure process ending in eviction can resume running in real time. This could add up to five million additional homes on the market by next spring.

Personal bankruptcies are rising again. Calculated Risk reported non-business filings are up 34.3 per cent from July 2008. Additionally, personal bankruptcies filed in July, are at their highest levels, 126, 434, since the 2005 reform of bankruptcy laws.

Mike Shedlock at Minyanville wrote about a recent Gallop Poll showing that the recent slowdown in consumer spans the entire spectrum of shoppers; from the Greatest Generation, Silent generation, Baby Boomers, Generation X, to Millennials. The study reports that all generations’ daily spending is down about $30. Truncated spending habits are a further macroeconomic drag on the economy.

However, the big enchilada this fall, for blowing a hole in any economic recovery or continued bull market, is commercial real estate. Disappearing prospective tenets, grossly over-valued properties, absent refinancing, and upside-down mortgages, should do to CRE what occurred to residential single-family homes in 2008.

If this does not bother you, then, neither will the fact that the FDIC is running low on cash. It should be pointed out that the FDIC is handing out 80 percent loss guarantees to supposedly intrepid private equity guys willing to save capitalism, if the deal is not too risky for them; but for taxpayers...

Macro Economic Trend Outlook: January 2009

Happy New Year, everyone!  This is my first letter in several weeks.  Because the economic data reported in December was just plain awful, I decided to stop delivering the drip, drip, drip, of negative news and allow everyone to enjoy the holidays.

Now, that we are in 2009, I feel comfortable in resuming the transmission of data to describe the current state of affairs.  In a word – ugly – will be the operative word for 2009.  As you know, 2008 was the most brutal year, for virtually all assets classes, except for treasury and municipal debt.  Holding these specific assets, while our financial, banking, and credit systems imploded, not only protected your principal, they increased your account value.  Individual stock portfolios, mutual funds, ETFs, and so forth, meanwhile, experienced declines of 20, 30, 40 percent or more.

Last year’s margin call on global assets played havoc on the global financial structure to the point of its near collapse.  The forecasts and predictions for 2009 are grossly overly optimistic.  Analysts and money managers behave as if 2008 was a routine year.  Nothing could be further from the truth.  This year, the pain will appear from the beneficiary of ongoing de-leveraging; negative GDP growth and rising unemployment.  

The Lost Decade: Widespread and Furious

Last Friday morning before the US stocks markets opened, the American financial system was staring into the abyss – again. Complete liquidation had occurred throughout the night in Asia and Europe, and now it was our turn. The US was given a death row reprieve, at least for now.

Virtually every measurement for wealth, even if casually examined since the year 2000, shows a decline in value or no change. The S & P 500, the DJIA, and NASDAQ, closed on December 29, 2000, at the levels of 1,320.28, at 10,786.85, and 2,341.70, respectively. Friday, October 24th, their respective levels were 876.77, 8,378.95, and 1,202.27.

Also on December 29, 2000, the Wilshire 5000 Composite Index closed at 12,175.88 versus 8,806.20, October 24th; the 10-year Treasury note at 5.12 per cent versus 3.69 per cent, October 24th; and Value Line – Geometric closed at 393.47 versus 226.82 last Friday.

REITs, open and closed end mutual funds, individual stocks, and all classes of equity assets have been savagely beaten up by the Great Bear market of 2008, with the same ferocity as it counterpart, the Great Bull Market of 1982-2005, rose. Leverage and deregulation ushered in 30 years of miraculous wealth and prosperity. Now, the tide has reversed. Asset values, first real estate, ultimately all assets, in the short term, have nowhere to go but down.

The federal government is using all of its power to soften the landing, but historically, expansionary monetary policy will only debase our currency and opens the door for massive inflation once we exit the impending recession.

This summer I wrote about the inevitable pain deleveraging would inflict on the economy and why it had to occur. I think we are far from the end of this cycle. Municipal Market Advisors reported municipal bonds staged one of their biggest one day rallies in history on October 22 and the 30-year Treasury bond traded at an unbelievable 3.96 yield Friday. The cash price for gold is currently being pushed lower through forced liquidation.

Baby Boomers, still traumatized by their 3rd quarter retirement account and September brokerage account statements, are having a collective epiphany about their upcoming retirement years. Their careful planning and hard work to secure a comfortable 'golden years' lifestyle has been robbed.

What's next for the economy? Just as all other assets are unwinding, in time, so will the bond markets and the US dollar. By then, TIPS, gold, and non-credit dependent stocks should be your first line of investing defense.

Thursday Market Action

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After shaking off a worrisome inflation report before the opening bell and a dismal real estate report soon after the opening, the Dow rose steadily throughout the morning and settled into positive territory for the remainder of the day. The DJIA closed up 82.97 or .72 per cent at 11,615.93. The S & P 500 also closed higher 7.10 or .55 per cent to 1,292.93. NASDAQ likewise ended the day up 25.05 or 1.03 per cent to 2,453.67.

Volume on the NYSE was 1,003,398,038; advancing shares were 663,931,108 and declining shares were 332,074,290 with 7,392,640 unchanged. NASDAQ volume was 1,842,236,076; 1,414,017,121 shares were up, 358,110,252 were down, and 70,108,703 were unchanged.

Bond yields fell and prices rose as the market digested the early morning four week average jobless claims number which increased by 19,500 to 440,500 and the and a much higher consumer price number of 5.6 per cent, year over year. The Two-Year Note closing yield was 2.43 percent; the Ten Year Note was 3.89 per cent; and the Thirty Year Bond was 4.51 percent.

Foreclosures were up 55 per cent from a year ago, July. More than 272,000 homes received at least one notice, compared to 175,000 last July. This was eight per cent higher than June, as reported by RealityTrac. Lenders reprocessed 77,000 homes in July.

Existing home sales fell 16 per cent to 4.91M, annualized, in the 2nd quarter while prices fell 7.6 percent to $206,500 from $223,500 last year. One in three home sales was a short sale or sold out of foreclosure, according to the National Association of Realtors.

Crude oil finished the day at $114.70 a barrel and Gold closed at $807.4 an ounce.