GDP Expands at 5.7% Rate in Fourth Quarter of 2009

The U.S. economy increased at a bigger-than-expected gain, which was driven more by slower inventory liquidation than by consumer spending. As a matter of fact, the slower fourth-quarter inventory drawdown added 3.39% to GDP. (Folks, it is about statistics. If you go from 2 to 1, that is a 50% decline; however, if you go from 1 to 2, that is a 100% increase. That is exactly what is happening to these inventory numbers. Businesses can only allow inventory to go so low. So what we are seeing here is that businesses have reached the point where the drawdown has now reached a level where a smaller percentage decline is really an increase. Like I said, it is all about the statistics!)

As mentioned, inventory drawdown added 3.9% to GDP; while consumer spending contributed about 1.5%. Consumer spending expanded at a very moderate rate but definitely remains constrained by a very weak labor market (It's all about jobs, stupid.) and household deleveraging. When you have close to 70% of GDP growth accounted for by inventory drawdown, that is not a real strong endorsement for economic health. And, keep-in-mind that these GDP statistics will be revised twice over the next two months. Right down, I would say those revisions will be adjusted downward, as the numbers were for the third quarter of 2009.

Money Market Funds: No Longer Guaranteed Liquid

Folks, this is down-right scary; and it is something that is not mentioned much in the media, unless you do your research.

According to the Securities Law Professor Blog, "Suspension of Redemptions: The new rules permit a money market fund's board of directors to suspend redemptions if the fund is about to break the buck and decides to liquidate the fund (currently the board must request an order from the SEC to suspend redemptions). In the event of a threatened run on the fund, this allows for an orderly liquidation of the portfolio. The fund is now required to notify the Commission prior to relying on this rule."

Formerly the fund had to seek permission to suspend redemptions. Now, the fund's board is empowered to do so unilaterally and advise the SEC after the fact.

This is potential a major problem to money market investors. As a money market investor, you could easily find yourself unable to get to your money until the fund liquidates. You have been forewarned.

Apple

To stay the least, I love the Apple toys, iPhone, MacBook, iPod. As a matter of fact, I want to have anything that has Apple produces. Now, we will have the iTablet, which will be unveiled to the world to see at 1 PM (EST). There is an old Wall Street adage that goes like this: "Buy the Rumor and Sell the News."

AAPL has had a great price run since March 2009, going from $78 to over $200. But, IMHO, I think the party is over. The following chart depicts the various cyclical phases for AAPL, just like GS. The stock has definitely been going through distribution, and it appears that the distribution phase could conclude today with the unveiling of the iTablet. The next phase, declining, could take us back to the mid-$80s. Sorry Apple, but I still love your products.

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

Goldman Sachs (GS): Distribution Phase

Goldman Sachs (GS) has culminated its distribution phase at $160 and started its declining phase that could take it back to $88. All stocks generally go through a typical stock cycle. That is, accumulation phase, advancing phase, distribution phase, and declining phase. Take a look at the following chart of GS and see how well-defined the phases of accumulation, advancing, and distribution were since March 2009.

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

What does this all mean? Well, stay completely clear of GS! I have placed FAZ on my radar. FAZ is the financial bear ETF. It moves inversely to financial stocks. In the case of FAZ, it carries leverage of 3X. That is, if financial stocks decline by 10%, FAZ should appreciate by 30%. Likewise, if financial appreciate, FAZ declines by a factor of 3. Stay tuned!

S&P 500 Weekly Update for January 22, 2010

Bad week for the Bulls, good week for the Bears. Is this the start of the decline that the bears have been waiting for since March 2009? I don't know. I will simply listen to the market to tell me by way of the exponential moving averages.

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

S&P 500 Weekly Update for January 15, 2010

Reflecting on the 2009 investment strategy utilizing the exponential moving averages, I became fully invested on Monday, September 21, 2009. On that date, I allocated the final 25% to the purchase of SPY (ETF on the S&P 500). My overall cost basis is $104.24. Given Friday's close for SPY at $113.64, the investment account is up 9.01%. On an annualized basis, the investment account is up 28.1%.

What will the market do going forward? I don't know. I can give you a thousand reasons why this market can not go higher. However, I have learned one thing during my career following the stock market. That is, the market trend is your friend. And, that is why I am a trend follower. As long as the 15-week EMA > 40-week EMA, the trend is bullish (buy stocks). When the 15-week EMA < 40-week EMA, the trend is bearish (sell stocks). It really is that simple. It all comes down to the KISS concept.

This week's update is as follows:
Note: To enlarge the chart, double-click inside of it.

Haiti

We may never learn the precise death toll inflicted by Tuesday evening's earthquake in Haiti. However, it's clear that it may rank with the 2004 Christmas tsunami. That is, 50,000 or even more people may be dead.

This is a nation where life expectancy is 53 and the average per-capita income barely eclipses $1/day. Haiti is the poorest of the poorest countries. These people need help. Please be cautious about what organization you decide to provide that assistance but do give whatever you can. There are many "relief organizations" that waste huge amounts of money, and then there are those that manage to provide nearly all of what you give to the people impacted.

One organization that I like is Convoy of Hope out of Springfield, MO. Check them out. If you can not provide financial assistance, please pray for the victims of the earthquake, especially those who are still searching through the rubble looking for lost loved ones.

Move Your Money

I thought the title would get your attention. In all seriousness, check out the "Move Your Money" site to find a bank and/or credit union near you. Why? If you are fed up with all the lies coming forth from those "too big to fail banks," such as Bank of America and Citigroup, then it's time for us to organize mass-removals of funds from these "too big to fail" banks to "local banks and/or credit unions. So, please check out the site.

The Geithner AIG Story

According to the "Wall Street Journal," House Oversight Chairman Edolphus Towns, a Democrat who represents the 10th District of New York, has asked Treasury Secretary Geithner to testify next week about the taxpayer bailout of $187 billion to AIG. This is a good start in determining why the Fed of New York urged AIG to limit disclosure of its deal to buy out derivative (credit default swaps) trading partners (Goldman Sachs) at 100 cents on the dollar.

But, what is really more disturbing is that Geithner would be the individual who would chair a new Financial Services Oversight Council, under the House regulatory reform package. The council could declare virtually any company in America a systemic risk, making them eligible for intervention on the taxpayer's dime. "The law firm Davis Polk reports that since this council is not an agency, it will not be subject to the Administrative Procedure Act, the Freedom of Information Act or the Sunshine Act, among other laws intended to allow citizens to scrutinize government." That is not a good idea!

AIG – Geithner Cover Up: The Smoking Gun

An article over on Seeking Alpha makes the following assertion via documentary evidence this is Geithner's own handwriting:



If this is Geithner's handwriting on the page. He is going to jail! Why is he going to jail? Specifically, Sarbanes-Oxley added the following to US Code Title 18, Part 1, Chapter 73, S.1519: "Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both."

Maybe Geithner and Madoff will be sharing the same cell. Would not that be interesting? While we are at it, I would like to know how much "Bennie Boy" knew about this cover-up. Also, let's see what Henry Paulson knew, former U.S. Treasury Secretary (Bush Administration) and past Chairman and CEO of Goldman Sachs. Just maybe we could have a "foursome" sharing the cell at the Graybar Hotel.

Great Winter Attire

UPS Plans to Cut 1,800 Jobs

"UPS said it would cut 1,800 staff in the U.S., with a one-time charge offset by savings in its domestic small-package unit. The Atlanta-based company said the cuts were part of a long-planned management restructuring, rather than a reaction to the slow economy. It trimmed about 13,000 U.S. jobs last year, mostly through attrition, in response to the recession and a steep downturn in package volume."

Nice spin UPS. Yet another company trying to boost earnings through cost containment measures of cutting labor cost. I have been saying for some time that it's all about jobs. You can not grow the economy (GDP) without creating jobs. Period. No jobs, no income. No income results in no consumption and a negative drag on GDP. It really is that simple.

Geithner Cover-up Gains Momentum

In yesterday's post, I discussed the cover-up at the Fed of New York under the guidance at the time of Geithner between AIG and Goldman Sachs. I am glad to read that something may come from this revelation.

Data for Junkies

Geithner’s New York Fed Told AIG to Limit Swaps Disclosure

Bloomberg reports today that "The Federal Reserve Bank of New York, then led by Timothy Geithner, told AIG to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show. AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee."

Remember, this was when Geithner was the head of the NY Fed. Who was he trying to protect? American taxpayers? No! AIG shareholders? No! Oh, I see. It was Goldman Sachs. He intentionally crossed off the reference to Goldman Sachs who received 100% on the dollar of the credit default swaps they had with AIG. I suppose this is the sort of thing we should have expected from an admitted tax cheat.

I will be very succinct with what President Obama should do with this information -- fire Treasury Secretary Geithner! Why? Geithner had an ethical responsibility to the American taxpayer and AIG shareholders to do so, not to cover such information up.

Home Affordable Foreclosure Alternatives Program (HAFA)

Does anyone remember Home Affordable Modification Program (HAMP)? I didn't think so. HAMP is the government, more specifically Treasury, program to prevent foreclosures. There are approximately 750,000 homes under HAMP, which 30,000 have converted to permanent changes in P&I, or 4%. That immediately tells me that the other 96% do not qualify under the new, so-called lenient guidelines, because these mortgagees don't have the income to qualify and/or they have significant negative equity in their homes.

So, what does they have to do with HAFA? First, HAFA is a supplemental directive pertaining to HAMP that was promulgated in November 2009 for the some 70 Servicers participating in HAMP. (For a list of these Servicers, click on HAMP Servicers.) Second, for those mortgagees who cannot qualify for a permanent mortgage modification while on a trial program (96%), Servicers "are" required to offer "short sale or deed in lieu" alternatives. HARP goes into effect in April 1, 2010. Keep-in-mind that HAMP servicers must offer procedures to mortgagees for short sales or deed in lieu. That is the law!

Now, come the traditional spring selling season for homes, we are going to see a flood of homes that were in HAMP but failed for permanent changes for whatever reason hit the real estate market. Remember that 96% and basic supply and demand from economics. A flood of close to 3/4 of a million homes have the potential to hit the market. Folks, that is just the HAMP program, not counting the inventory of homes being held in foreclosure at our financial institutions. If you need to sell your home within the next year, take heed. That is, get that thing sold within the next six months. If you are planning on buying a home, I would recommend you wait until the smoke clears (late summer of 2010). I know some of you are saying what about that $8,000 first-time home buyers tax credit. Let me say this about that! That $8,000 tax credit may be the most expensive money you have ever received compared to the housing deal that you would obtain had you waited several months and purchased into the supply of "short sales and deed in lieu" homes. The choice is yours. You have been forewarned.

Bernanke in Denial 2005-2007

This is the man that was so wrong before and will be proven so wrong again! Please listen very closely to what he stated during 2005-07, and then ask yourself if you have any confidence or faith in anything that he says currently.

Are Federal Reserve and U.S. Government Rigging Stock Market?

"The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion. The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock." Wow! And, this is based on what? Answer: Nothing more than "smoke and mirrors." This is one reason why I do believe that the market since March has been manipulated by the Fed and Treasury.

Keep-in-mind that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well? For 2009, the DJIA ended with an 18.8% gain. Still, it is down 26.4% from its all-time high set in October 2007.

Please take the time to read the entire article from the Zero Hedge.

It is hard to believe that 2009 is at its end, but it has. To all those that read this blog, I want to wish you a "Profitable and Happy New 2010!" May the market trend be with you.

The New Price Tag for Fannie and Freddie

The Treasury Department, as reported by the WSJ, announced that it was removing the $400 billion cap from what it believed would be necessary to keep Fannie Mae and Freddie Mac solvent. The reason for the cap removal is that the Treasury has come to the conclusion that $400 billion is far "too" small. That is, think in terms of trillions of dollars, not hundreds of billions.

Let's look at some history of Fannie and Freddie. By the end of 2008, Fannie and Freddie held or guaranteed approximately 10 million subprime and Alt-A mortgages with a total principal balance of $1.6 trillion. These loans are now defaulting at unprecedented rates. Since 2008 (and we know what happen then), these two governmental agencies have continued to buy these lousy mortgages in order to stabilize housing prices. (Insanity. That is to continue to do the same thing and expected a different result. Another example of the ineptness and stupidity of our government at work.)

By the way, there is more to this Fannie and Freddie story. New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A. [Sidebar: In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime. An Alt-A mortgage is one in which the quality of the mortgage or the underwriting was deficient; it might lack adequate documentation, have a low or no down payment, or in some other way be more likely than a prime mortgage to default.] However, Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008. [Outright fraud! What has the government done about this fraud? Absolutely nothing!]

So, once again, the American taxpayer is going to be at risk for over a trillion dollars because of failed governmental policies on housing. I hope it is just a trillion, not a quadtrillion.

Why Are So Many Demonizing America?

Dorothy Rabinowitz, who is a Pulitzer Prize winning American conservative journalist, states it this way in an article in the Wall Street Journal on April 22, 2009, "Five decades of teaching in colleges and universities across the land, portraying the U.S. as a power mainly responsible for injustice and evil, whose military might was a danger to the world (a nation built on fruits of greed, rapacity, and racism) have had their effect. The graduates of this education find nothing strange to quickly condemn the moral failures of America."