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

Revisiting Supply & Demand 2008

With two days left in 2008, we can definitively say that the 'Demand' for products and services has declined precipitously in the last three months. This decline in 'Revenue' for industry will continue for at least the next three months. With a total lack of demand, what about supply? There is still a ten month supply of unsold homes!! I bet there is a huge supply of ' IPHONES', 'Flat-Screen TVs', and 'RIMM' products sitting on the shelves of various retailers. It is clear that Manufacturing companies are cutting production as fast as they can. Therefore, Unemployment will probably be in the range of 8%-9% by April 2009.

Random thoughts....the euro and the british pound are approaching parity...they both will be weak in the next few months....best picture of 2008....the Curious Case of Benjamin Buttons....Madoff is hoping for an insanity defense....two more days for tax selling...lets not forget the January effect (hint...tomorrow's blog)......watch for the Indy Mac sale to mark another bottom in markets (this could happen today)...

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..

Global Deflation 2009

About three weeks ago, I wrote a blog on stag-deflation. I said that the risk of deflation would lead to a depression. The Federal Reserve acted yesterday to lower rates to zero and told the markets that it will do whatever is necessary to avoid deflation. The results of these actions will take hold next year. Christmas is one week away and a sampling of retail stores shows massive deflation in prices. Sample the prices at Macys, Bloomingdales, Neiman Marcus, Saks, the Gap, and Best Buy. The sales show record declines approaching 60%-80% off of original price. In fifteen days we will be adjusting to the new realty of 2009. BMW is currently offering interest free loans as an incentive to purchase their automobiles. The first quarter of 2009 will be extremely depressing with more unemployment. As we enter the second quarter of 2009, hopefully we will see the credit crunch start to ease. The way out of deflation is inflation. Therefore, don't wish for lower prices as that will indicate that you assets are worth less (not worthless).

Random thoughts....Chrysler is closing its' manufacturing plants for the next thirty days..GM will survive in 2009 as will Ford....Chrysler will be history.....The most profitable sectors for next year will be led by Financials....I still think we have a shot at closing above 9,000 before Christmas.....rally could go to 9,600 by January 1.....

The Housing Market is a BUY

The Federal Reserve today lowered the Federal Funds rate to 0%-0.5%. They also announced that they will be the ultimate buyers of mortgage bonds. This fact will ultimately raise the prices and lower the yields of corporate and junk bonds. This will also have the effect of lowering mortgage rates into the 4% area. The Federal Reserve also said that they will keep rates low for an extended period of time. In one month or so, President Obama will be instituting a $500 Billion fiscal policy that will aid in creating jobs. The markets have bottomed and now it appears that monetary policy (the Federal Reserve) will do anything possible to get the housing market moving. The combination of fiscal and monetary policy will lead to better markets in 2009.

Random thoughts....Bernanke performed well today and probably assured himself of a chance to get re-appointed to the Federal Reserve in two years by President Obama....the Christmas rally is here...if the market can close above 9,000 this week ...look for a test of 9,300-9,600 next week....It is time to find that house that your local bank owns in foreclosure and is willing to sell it today...

The Story Of Charles Ponzi

I remember one day in 1986 when my cousin in Irvine invited me to dinner in Orange County and told me to bring $1000 cash. She said that we could make $32,000 within a few weeks. She knew at least five people that made $10,000. This pyramid scheme ended rather quickly. The last people to join were the big losers and so on. In 1903, the Italian Charles Ponzi emigrated to the United States and came up with a scheme that had to do with postage stamps. Ponzi's scheme took in over $1 million dollars in a short period of time. Over the years there have been hundreds of ponzi or pyramid schemes that have defrauded investors. Notable examples include boy band mogul Lou Perlman who ran off with $500 million over twenty years.
Bernard Madoff will definitely win the prize for the biggest scheme of all over $50 Billion. I am sure that this will not be the last time we hear about a ponzi scheme.

Random thoughts....will the Federal Reserve cut the Funds rate to 0.50% tomorrow?....will money market fund returns got to 0.00%?....only ten days to Christmas...the rally has to begin any day now...I believe that Bernanke has to find a way to end the credit crunch...the corporate and municipal bond market have to function soon and I mean soon...within the next thirty days...

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....