Discounting the Unemployment Report

The market had a terrible day today losing almost 250 points. The blame for today was the ADP Report which showed a loss of 693,000 jobs in December. The official Unemployment Report for December will be released on Friday morning. I expect most of the corporate news to be bad for awhile as companies take as much as they can in losses for 2008. Tomorrow will be interesting as Obama will outline his economic plan for recovery. Thursday is also the fifth trading day of 2009. The direction of the market will be very important to me. Will the horrible unemployment report be discounted? We will see.

Random thoughts......Citi is working with the government to get the bankruptcy courts to change the law and allow CRAM-DOWNS (read a previous blog of mine to fully understand)....Obama will delay the tax increase on incomes above $200,000 until 2010....Obama is hinting that his plan could more than $1 Trillion.....Deflation has to be stopped now or it will be too late...we have a few months to turn this around or it will be too late....

Fiscal Policy Obama Style

In two days, President-elect Obama will announce the details of his two year economic stimulus plan. With a 2009 Fiscal deficit of about $1 Trillion, Obama will add another $775 Billion or so to this deficit. Obama must spend at least $1 Trillion to inflate our economy. He will accomplish this through a combination of tax cuts and spending. Should we worry about the deficit and inflation? No, we must get out of this potential deflationary spiral NOW! The bigger the stimulus plan, the better.

Random thoughts....The market is up two out of the first three days in 2009...the next two trading days are extremely important...if the market performs well in the next few days look for 9,600 next week...the Obama effect has begun.....look for the $dollar to remain strong as the euro and yen weaken...gold?.....

New Years Resolution 2009 CRAM DOWN

The U.S. Government has to realize that their #1 Resolution for 2009 is to end the residential housing decline. CRAM DOWN has to become the word of the year. Cram down is defined as a "bankruptcy court's enforcement of a reorganization plan despite the objections of some creditors. In terms of the residential mortgage debacle, this would give judges greater latitude to rewrite mortgages held by homeowners. Currently, bankruptcy judges cannot rewrite first mortgages for primary homes. President Obama will change this after January 20, 2009. He will sign into legislation a bill that will allow judges to alter these mortgages. The RTC of the 1990's had the ability to 'CRAM DOWN' commercial loans. These new loans help fuel the economic growth of the late 1990's. This is the year that the banks and the government have to bite the bullet and CRAM DOWN these loans to current market. If the principal due on a residential loan is reduced to the current market value of the home, then the homeowner will find a way to stay in that home and avoid foreclosure.

Random thoughts....Tomorrow, Friday is the first trading day of 2009....gold, oil,
real estate, and other investments may perform in 2009....look for my comments on these markets....the key is the first five trading days....Happy New Year

January Effect

The definition of the January effect on stocks is, "many investors choose to sell their stock before the end of the year (by December 31, 2008) in order to claim a capital loss for tax purposes." Once the New Year begins (2009) those same investors choose to quickly reinvest their money in the market, causing prices to rise. Most of the time, investors choose to invest in small capitalization stocks that were sold at losses during the prior tax year (2008). This year I believe that investors will choose large capitalization stocks, since most of them were down over 30% in 2008. The first five trading days of January will help me determine my views for 2009. We know that there is plenty of capital on the sidelines, but will investors decide to take any risk.

Random thoughts....since the markets have been down about 40% this year, we can expect a major upside from the January effect...question is how long will it last...if we can get a rally for the first five days of January, psychology will improve with the new Obama administration just weeks away...an optimist might look for 9,600 in the Dow in January....more later on 2009,,,gold, high yield bonds, real estate, how about Cram-down...that's the big news of 2009

The 2008 Christmas Stock Market Rally

There are three trading days left in 2008. Christmas had come and gone with no meaningful stock market rally. Tax selling will be over by Wednesday, December 31. What happened? Holiday sales were down over 8% and the economy is falling off of a cliff. The average American is scared. The market will probably do well for the rest of the year (three days). What about 2009? Gold? Silver? Currencies? Bonds? All the predictions are coming in the next few days.

Random thoughts....I think that the winter weather, good movies and great football is on the average investors mind this weekend....Israel and Gaza...Obama in Hawaii on vacation and a twenty four hour 'blackout'.....Christmas murder in Covina....it is time for positive thoughts for the New Year....Obama, Hillary, Kennedy, Peace, end of Bear markets.....more tomorrow..

Debt or Equity?

What would you rather own in 2009, the debt or equity of a major corporation? When a corporation files bankruptcy (as the Chicago Tribune did yesterday) the equity is completely wiped out. As in Lehman Brothers, all of the equity became worthless.
Debt holders are either secured or unsecured. Unsecured bonds are usually worth about 25%-50% of original value in bankruptcy. Secured bonds have a better chance of total recovery. In previous blogs, I have written about the lack of liquidity in the bond market which leads to very cheap prices for bonds. As we countdown the last three weeks of 2008, the debate over debt vs. equity will grow more intense. Will the Federal government rescue GM? What will happen to the equity and debt holder?

Random thoughts...The Governor of Illinois is indicted for trying to profit from his job of appointing a successor to Obama...Wow...Was he trying to get $$$ from Jesse
Jackson?...the market acted very well today in the face of horrible news...the tape is beginning to look better and better...hopefully a close above 9,000 by Friday...if not, hopefully volatility eases....

Fast Foward Sixty Days

On February 9, 2009, President Obama will be entering his third week as Commander in Chief of our military and CEO of our economy. What will have changed? The most important change will be consumer optimism about the future. The new President will probably get a six month honeymoon from the public. We will all be looking for immediate change. We will see a unified government as Congress will pass new laws and the President will immediately sign them. The fiscal package that will be signed on January 20, 2009 will probably spend over $500 Billion to create new jobs in the next two years. I expect consumer spending to increase as more people feel secure about the prospect for better times ahead. What about the financial markets?
I believe that we will probably see signs of an easing credit crunch. Corporate profit reports for 2008 will be terrible, but in the past. All of this sounds like a much higher Dow Jones. The key to this will be the performance of our new President and how he changes the negative psychology in the world. We will have to wait.

Random thoughts...President Bush just bought a mansion in Dallas....I wonder if Jeb Bush will be running for Senate in Florida...We have such high expectations for the new President....Is Depression talk and Deflation off the table now?...the market has been up for seven of nine days....this is the Christmas rally....remember that the first five days of January indicate performance for the year...Will GM have a new CEO in 2009?...what other CEO's will be gone next year?...how did Sam Zell make a mistake on the Tribune Company?

Save or Spend

Do Americans save enough? I bet that the savings rate is up dramatically in the last ten weeks. We know that Japan has a very high savings rate. In the last twenty years, economic growth in America has totally outdistanced Japan. The highest household savings rates for 2007 were Germany and Ireland (10.9%). The lowest household savings rates for 2007 were Finland (-3.8%), Norway (-1.2%) and the Czech Republic (-0.7%). The rate for the United States was 0.4%, while the U.K was 2.9%.
We can expect the savings rate for this country to increase dramatically in the next twelve months. Therefore, it is clear that once the recession is over, we can forecast a period of slow growth in the years ahead. It is up to our new government to modify monetary and fiscal policy to promote growth.

Random thoughts....Is Terrorism back?...you bet...amazing pictures from Mumbai...this will be another of President-elect Obama's priorities on Day 1......The seasonal trend helped the market go up for the fifth day in a row...lets watch next Monday and Tuesday closely...if we can avoid a huge decline in prices...look for a test of 9,600 in December..off to see Australia tonight...

Black Friday

Did you know that the official site for 'Black Friday' shopping is www.bfads.net.
Black Friday (the day after Thanksgiving) is the busiest shopping day of the year. The predictions for this year are pretty dire. Saks Fifth Avenue in NYC held sales all week offering up to 80% off. The store was jammed. The majority of stores have excess inventory and are offering historic discounts. Wal-Mart is offering a flat screen television for less than $400. Retailers are trying to reverse the double digit sales declines of the last few months. The stock market will be tracking sales daily until Christmas. I hope for a much better shopping season than expected.

Random thoughts....Look for President-elect Obama to announce his Security team next week beginning with Secretary of State Clinton...after the horrific events in India, Obama will show the world that foreign policy will be just as important as economic policy...The market closes at 1PM today....the rally will probably go for at least one more day......watch the financials for hints....

Citi Never Sleeps

Two days after Lehman Brothers filed bankruptcy on September 17,2008 a bearish raid knocked the stock of Morgan Stanley down 24%. A combination of complicated financial instruments called Credit Default Swaps (CDS) and the subsequent shorting of the stock of Morgan Stanley contributed to this huge decline. Last week a bearish raid on the stock of Citigroup(C) was responsible for a decline to $3.50. The Federal government could not allow another financial company to fall. This past weekend negotiators for Citi and the Government came up with yet another rescue plan. Hopefully this plan will stabilize the financials. We have to remember that all of these capital needs are based on the deterioration of the economy and the subsequent accounting write-downs that must occur. If the government can stop these bearish raids on our financials, then we will beat the potential depression.

Random thoughts....It seems that everyone agrees that President Obama's financial appointments will solve our problems...what will happen to Ben Bernanke (chairman of the Federal Reserve)...his term expires in 2010.....he is hoping for a quick recovery...a good way to play the backstop of financials by the government is the XLF (a financial ETF).....

Gold or Silver

It would seem that President Obama's new Economic team, including Timothy Gietner (Secretary of the Treasury), Paul Volcker and Governor Richardson (Commerce Secretary) will have to decide whether or not our economic system needs to be overhauled. Maybe we need to go back to the Gold Standard. Maybe the system of throwing darts at resolving the current economic meltdown will be debated by men who see alternatives. This weekend would be a great time for everyone to go to their local college bookstore and purchase a current economic textbook and decide whether or not it makes sense. It is clear that since September 15, our market system is not following any economic model. Hopefully on Monday, we will learn what President Obama will offer us for the future.

Random thoughts.....It is time to see a Movie Double Feature this weekend...James Bond would be a great first choice to take your mind to Italy or The Boy in the Striped Pajamas will definitely make you forget how much money you have lose on paper...Remember that November and December are tough months for gaining weight..no bread....Of course, lets not forget Citi...what will happen over the weekend....?

Is Global Stag-Deflation a Possibility?

Stag-deflation is when a recession is associated with deflation. We are definitely in a recession (at least since September 2008). The stock market is clearly deflating as it has lost about 50% in the last twelve months. Real Estate has declined about 20%-30% in various markets. This doomsday scenario could happen if the absence of Fiscal and Monetary leadership continues in the Obama administration.
Please read a previous blog where I asked President-elect Obama to act now and restore confidence in the markets. We cannot wait until January 20th!!!

Random notes...the Real Estate Investment Trust stocks are trading as if their tenants will not pay any rent in 2009. I guess the big three auto companies will face bankruptcy next year...we have to stop assets from deflating soon or it will be too late for all of us...watch for more layoffs and massive unemployment increases next year..

Waiting for President Obama

As the stock market goes down everyday, it is apparent that the world is waiting for January 20, 2009. The G-20 meeting last weekend agreed to meet in April, 2009 with President Obama. Is it possible for anything positive to happen in the next sixty days? I guess when Obama names his Secretary of the Treasury and informs the market about his upcoming policies. The market looks like it will test 7800 in the next few days. We may be headed to 7200 on the Dow by Friday. I expect retail sales to get better starting on Black Friday, the day after Thanksgiving. Hopefully, people will begin spending with hope for the future. It is Obama's job in the next sixty days to provide this hope.

Random thoughts...Mark Cuban has been charged with insider trading...why would he do this with a balance sheet in the Billions?....Citibank is firing 50,000 employees worldwide...I expect the unemployment rate to be over 8% by January,2009....will GM get money this week? I think so.....but it is easy to predict that GM, Ford,or Chrysler will be history at this time next year...

Wall of Worry

I have always believed that for the stock market to go up, it has to climb a wall of worry. If you scan the Wall Street Journal daily you will find that the percentage of 'negative' headlines to 'positive' headlines is 99 to 1. If you turn on CNBC, negative stories about the economy are 100 to 1. If you go out to dinner with a friend or business associate, the #1 topic for conversation is about the economy and how bad business is. It seems that the political discussions have stopped and the reality of hard times is here. Remember when we would get stock tips at the beauty parlor or find out that everyone was doubling there money in buying real estate. Clearly we are climbing more than a wall of worry these days. It is very close to total panic. Over the history of financial markets, the time to buy is when 'it is very lonely to buy'. Today, you might be the only buyer around.
Random thoughts....What happened to President-elect Obama?...He should pick Paul Volcker, former Chairman of the Federal Reserve, as Treasury Secretary. This announcement should be made by next week....General Electric's dividend yield is approaching 8%.....Watch the currency market carefully as the British Pound will continue to weaken over the next year....

Banks and the $700 Billion TARP

The question of the day is how long will the $700 Billion dollars in the TARP (Troubled Asset Relief Program) last? The Federal Reserve approved American Express as a Bank this morning. The government is investing at least $250 Billion to recapitalize U.S. financial institutions. Is it time for major industrial corporations to convert to Banks?
As I walk down NYC streets, I notice an abundance of vacant taxi cabs driving by. I also notice a lack of customers in boutiques and department stores. Can we conceive of Macy’s, Yellow Cab or General Motors as a Bank? In time we may be able to individually convert into Bank holding companies.
It is clear that TARP # 2 will be in place next year when President Obama takes office. We probably will need another $900 Billion to fund TARP #2. The worst Credit Crunch since the Great Depression is here.
Random thoughts… Las Vegas is in the news today. General Growth Properties (the second largest mall operator in this country) may declare bankruptcy next year as it is having trouble refinancing its debt. GGP owns and operates retail shops at the Venetian and Palazzo hotels in Las Vegas. The Las Vegas Sands Corporation which owns the Venetian and Palazzo has lost 94% of its market value this year. They raised $525 million today to avoid bankruptcy…….remember the market can’t go up unless every willing and unwilling seller has sold. We are getting close….