Barron's: Is This Bull Run For Real?

The bear rally since March has been sharp, and that has prompted some analysts to declare a bottom for the market and that the worst is over. Matter of fact, the headline in this week's front page of Barron's states, "Is This Bull Run For Real?" According to its "Big Money Poll," the majority of portfolio managers agree. They expect the DJIA to be up 7% by the end of the year and 17% by this time next year.

Ok, let's look at the evidence. See the following chart for the S&P 500 that depicts the time span from June 2001 to June 2003. Please observe the relationship between the price and its 50-day EMA and 200-day EMA.

Now, let's look at the current time frame. Obviously we are no where close to the bull cross or the price of the S&P 500 penetrating the 200-day EMA. See the following chart:

U.S. Would Hold Majority Stake in New GM Plan

I am not even going to comment on this. I believe you already know my feelings. If not, it can be summed up as follows: disgusting, disgusting, discussing, and discussing. The only viable solution is a "structured" bankruptcy, not monthly American taxpayer bailouts. All what has occurred is a bailout (payback) to the UAW and GM pensioners.

For those of you who say that those GM folks worked 25+, 30+ or in some cases 40+ years for benefits. Why are you so upset over those entitlements? They performed according to their contract, aren't they entitled to what they worked for? My response is as follows: They're not entitled to what they worked for if they want the American taxpayers, who were not a party to their contract, to pay for it. No problem with paying pension benefits as long as it isn't with taxpayers' resources. GM needs to go bankrupt. And, the entire legacy cost must be picked up by Pension Benefit Guaranty Corporation (PBGC).

Sorry for the short diatribe when I said I didn't have a comment, other than "disgusting."

Tennessee Walking Horse: GraveDigger

Nothing to do with financial markets, but you have to love the gate on these horses.
Matter of fact, My wife is a proud owner of one. She thought it would be a good investment.(LOL)

Bear in Waiting

Bye-Bye, Miss American Car

The "Wall Street Journal" reports that "General Motors Corp. still hopes to avoid a bankruptcy, but the option is becoming increasingly unavoidable as the company struggles to achieve key goals toward completing an out-of-court restructuring. In addition, Fritz Henderson, GM's chief executive, said today that bankruptcy remains a "probable" outcome for the auto maker, which is subsisting on government loans (taxpayers' money) and in dire need of more cash.

Stiglitz Says Ties to Wall Street Doom Bank Rescue

This article by Dr. Stiglitz is a "must" read. He won the Nobel in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time. His work is cited in more economic papers than that of any of his peers, according to a February 2009 ranking by "Research Papers in Economics," an international database.

Is the United States Heading for Fascism?

Robert Heilbroner, an economist and socialist, defined Socialism as a centrally planned economy in which the government controls all means of production. Fascism, as an economic system, is socialism with a capitalist veneer.

Sheldon Richman does an excellent job in discussing what fascism is all about. Excerpts from his article are as follows: "Where socialism seeks complete totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of private owners. Where socialism nationalized property explicitly, fascism did so implicitly, by requiring owners to use their property in the “national interest," that is, as the autocratic (government) authority conceived what that interest should be. (Sounds a whole lot like what the Fed, FDIC, and Treasury are trying to institute with its $12.5 trillion in bailout/stimulus commitments.) Where socialism abolished all market relations outright, fascism left the appearance of market relations while planning all economic activities. Where socialism abolished money and prices, fascism controlled the monetary system and set all prices and wages politically. In doing all this, fascism denatured the marketplace. Entrepreneurship was abolished. State ministries, rather than consumers, determined what was produced and under what conditions."

"Under fascism, the state, through official cartels, controls all aspects of manufacturing, commerce, finance, and agriculture. Planning boards set product lines, production levels, prices, wages, working conditions, and the size of firms. Licensing was ubiquitous; no economic activity could be undertaken without government permission. Levels of consumption were dictated by the state, and “excess” incomes had to be surrendered as taxes or “loans.”

Happy (Day After) Tax Day

There was no income tax in the United States of America until 1913. This great nation made it just fine for 150 years without an income tax. Today, 10% of Americans pay 70% of all federal taxes; and 50% of Americans pay little or no federal taxes. (See the following table.) Call it what it is, a wealth redistribution vehicle. Oh, but you did get a $12-$13 weekly income tax cut this year. Well, at least until January 2010, and then it reverts to $8. So why complain.

Lawyers Set to Profit on Lehman to the Amount of $200 Million Plus

The Wall Street Journal reports that "Lehman Brothers Holdings Inc., which set a record as the largest company to file for bankruptcy protection, is on course to yield one of the biggest bonanzas for lawyers.

New York-based Weil, Gotshal & Manges earlier this week asked a federal bankruptcy judge in New York to sign off on a $55.1 million payment for its work representing Lehman.

That marks the biggest quarterly fee request made by lawyers representing a bankrupt company, according to Lynn LoPucki, a law professor at the University of California, Los Angeles, who runs a bankruptcy-fee database. Mr. LoPucki estimates that Weil stands to bring in more than $200 million in fees by the end of the case. That would exceed the next-highest debtor counsel fee, the $159 million that Weil, Gotshal & Manges earned during the Enron bankruptcy."

Something just does not same right. This group of attorneys will end up billing close to $500,000,000 if you include the Enron bankruptcy. Wow! And they say that crime doesn't pay!

Your GM Warranty Is Backed By The Government

Funding the Financial Sector Versus Funding the Real Economy

The following table, provided by The Contrary Investor, speaks volume on the actual size of the bailout/stimulus money. (It will also make you bad and cry at the same time.) What is really interesting is the allocation of that money. Out of the total of $12.5 trillion in bailout/stimulus commitments, exactly $955 billion is economic stimulus money. ALL of the remainder, 92.4%, is financial sector and credit market bailout money. That’s right, of $12.5 trillion in committed money, a monumental 7.6% of the total is being directed to areas that “might” create jobs for a time. Only $190 billion, or 1.5%, is earmarked for so-called infrastructure money and that culminates in 2018.

Do You Have an Exit Strategy?

Do you happen to have an "exit strategy" for the current bear market rally? This question is directed to those investors who believe the bear market is over and plunged 100% back into equities or those investors who never did take the original sell signal on January 8, 2008. If this is just a bear market rally, the market lows of November 2008 at 666, as measured by the S&P 500, will be taken out. The S&P 500 has already rallied by 29%, which is within the window of previously bear market rallies. Can the S&P move higher? Of course, it can; but I would definitely want an exit strategy in place just in case the bear comes roaring back. Don't get caught up with all the current bullish euphoria. You have been forewarned.

See, I don't have to worry about an exit strategy. That was executed on January 8, 2008. Now, I am looking for an "entry strategy," which will be triggered when the 15-Week EMA penetrates the 40-Week EMA. Until that occurs, I will remain in the safe confines of money market instruments.

DXO

DXO is an exchange trade note (ETN) that tracks the overall performance of the price of oil. ETNs are debt instruments. These debt instruments do not own anything but a promise to track an index. Unlike an ETF, which does own a basket of securities, an ETN is considered an unsecured debt instrument. Therefore, when purchasing an ETN, it is a good idea to ask yourself if you would lend money to the ETN provider.

DXO seeks to track the price and yield performance, before fees and expenses, 200% of the daily return of the Deutsche Bank Liquid Commodity index - Optimum Yield Oil Excess Return. The fund allows investors to take a leveraged view on the performance of crude oil. The index is a rules-based index composed of futures contracts on light sweet crude oil and is intended to reflect the performance of crude oil.


Note: To enlarge chart, double-click inside it.

S&P 500 Weekly Update for April 9, 2009

Has Anyone Heard from Elizabeth Warren?

Elizabeth Warren has been officially silenced in the United States of America. Her report is damning on the entire financial system, and calls for a lot of heads to roll. What is very interesting about her is that she is "no conservative." Her only problem is that she has spoken the truth and no one wants to hear it. By the way, she was appointed by Barnie Frank (D), House Financial Services Committee Chairman.

Chair of the Congressional Oversight Panel Calls for Bank Executives to be Sacked

I can not believe that not "ONE" U.S. media outlet has run with this story. It has only been found in the UK Guardian and on the Huffington Post. The complete article is quoted below from the UK Guardian. Thank God for an individual like Ms. Warren. It's too bad she will probably be fired by the end of the week.

"Elizabeth Warren, chief watchdog of America's $700 billion bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG, and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse.

Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out." "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173 billion in bailout money, and banking giant Citigroup, which has had $45 billion in funds and more than $316 billion of loan guarantees.

Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said.

She said she did not want to be too hard on Geithner but that he must address the issues in the report. "The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous."

The report will also look at how earlier crises were overcome - the Swedish and Japanese problems of the 1990s, the U.S. savings and loan crisis of the 1980s and the 30s Depression. "Three things had to happen," Warren said. "Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out."