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10,176 posts
msg #94622
Ignore johnpaulca
7/7/2010 4:51:03 PM

The excessive bearishness has worked itself out in a huge rally today.

We did see capitulative selling last Thursday but there were other things that went on:

1. It was the end of the quarter.

2. The .382 level was hit on the weekly chart with a doji on that chart yesterday.

3. There was bad fundamental news yesterday at the bottom and the market shrugged it off.

4. Hedge funds liquidate their positions on the first and second days of the month which caused artificial

selling on Thursday and Friday.

5. Professional accumulation was huge last week.

10,176 posts
msg #94691
Ignore johnpaulca
7/11/2010 1:09:25 AM

Letter to an Investor as a Young Man

Youth is wasted on the young.

-- George Bernard Shaw

Long-term investing can be very profitable, but few people reap anywhere near the maximum investment benefits possible because they make mistakes -- both of commission and omission. As a result, most people's retirements will not be as comfortable as they had hoped. Nobody knows that better than me; I’ve had more than my fair share of investment regrets. As my hero Dennis the Menace once said: "How come dumb stuff seems so smart while you’re doing it?" I’m not sure of the answer, but I think most of my investment mistakes have boiled down to four causes: (1) ego; (2) laziness; (3) recklessness; and (4) stress.

Since time immemorial, parents have warned their children not to make the same mistakes they have made. Since I’ve been around the block a few times, I thought I would carry on that tradition by writing a letter to my son Alex on some basic rules of investing that I wish I’d known when I started dabbling in the markets more than two decades ago. Alex is only one year of age, so it’ll be a while before he appreciates what I write today. Nothing I have to say is as profound as the one-word piece of advice that Mr. McGuire gave Benjamin Braddock in the 1967 movie The Graduate, but maybe some of you 20-something young’uns out there can benefit from reading it now anyway:
Letter to My Son

Dear Alex,

As a young man who has just graduated from college, the gravy train of parental support is ending. It’s time for you to strike out on your own in the world. At a minimum, that means getting a job and saving for your retirement. If you decide to get married and have some kids, all the better (no pressure).

As you know, I’m not what you’d consider super-wealthy, but your mother and I do alright; we’re not complaining. Looking back, I could kick myself for the mistakes I made with money that prevented us from living the really good life in Aspen or Palm Beach. The good news is that you can learn from my past mistakes and avoid them. If you do, there is every reason to believe that you will be a millionaire many times over by the time you retire. Got your attention? I thought so. So listen up; I want to visit you in your Aspen mansion one day. Below are thirteen investing mistakes to avoid that will help you get rich beyond your wildest dreams.
1. Ignore the Advice of Your Elders

When I was younger, I thought I knew everything. I read a lot of investment books advising me to limit risk by diversifying and keeping position sizes small but I ignored it. I thought the people writing about their mistakes were just losers and I was smarter and wouldn’t lose like they did. It turns out that the stock market is inherently unpredictable over the short term. No matter how smart you are, you WILL get the direction of a stock wrong quite often. Be humble. Overconfidence is a wealth killer.
2. Get More Than One Graduate Degree

After graduating from Yale College, I didn’t know what I wanted to do with my life, so I just decided to avoid the issue by going to graduate school for two years. After that, I still didn’t want to get a job and went to law school for three years. By the time I got a job as a lawyer, I had amassed more than $150,000 in student loan debt. For the next seven years, I had virtually no discretionary income; whatever I made either went to food and shelter or debt repayment.

A good education is important, but don’t overdo it. Spend college figuring out what you want to do and then do it. Hanging out in school not only incurs humongous debts, but it also reduces the number of years that you are earning an income; a double whammy against wealth accumulation.
3. Wait Until Your 40s to Invest

I didn’t get serious about saving and investing until I turned 40. This delay has had a colossally detrimental effect on my wealth accumulation. The power of compounding over long periods is amazing. You don’t need a lot of money to make a lot of money if you start early.

For example, a person who starts saving at age 40 and invests $5,000 per year will have contributed a total of $100,000 by the time he retires 20 years later at age 60. Assuming an annual investment return of 8%, that $100,000 contribution will have generated a nest egg worth $267,000.

In contrast, a person who starts investing earlier at age 25 and invests only $2,000 per year will have contributed a total of only $70,000 by retirement but will have amassed a nest egg of $402,000, 51% more than the person who started at 40!

To achieve an 8% annual return, you're going to need a substantial slug of your portfolio in common stocks. Historically, common stocks have outperformed virtually all other asset classes over the long term (except maybe timber). But the past does not guarantee the future, and stocks are extremely volatile (i.e., they can go down a lot), so be careful.
4. Put All of Your Eggs in One Basket

I initially learned about investing by watching CNBC and they only talk about common stocks, so that’s the only asset class I invested in. It turns out that there are other types of investments like cash, U.S. Treasury bonds, inflation-protected bonds (TIPS), real estate, managed futures, precious metals, etc. When the financial crisis of 2008 rolled around, my entire portfolio plunged along with the S&P 500. Meanwhile, treasury bonds and gold skyrocketed without me.

If I had read’s special free report on Asset Allocation Strategies, I would have known that investing in different asset classes other than stocks can reduce the downside volatility of a portfolio and increase returns over the long run. Always remember the simple arithmetic of investing:

Gains and losses of equal percentage magnitude have asymmetrical effects on wealth, with losses having the greater effect.

Look to add asset classes with low correlations to common stocks (i.e., they zig up when stocks zag down) in order to reduce the magnitude of potential losses.
5. Bet Too Large Going for the “Big Score”

More than once I’ve been so sure that a stock is going to skyrocket that I’ve put most of my money into it. I’ve discovered that my worst losses occur when I am most confident. Why? It’s not that my track record with stock picking is worse when I am confident; actually, it’s about the same win/loss percentage. The problem is that I invest a much larger position of my portfolio on my “sure thing” bets so the inevitable losses are much more damaging. As I wrote in So, You Want to be a Trader?, proper position-sizing is all-important.
6. Don’t Learn About Stock Options

I had always heard that stock options were “risky” and were for gamblers only. Boy, was I wrong. It turns out that stock options can actually reduce the risk of your investment portfolio and provide monthly income all at the same time. Option strategies such as selling covered calls, selling puts, and purchasing long-term calls and spreads would have really helped smooth out my portfolio returns and given me more cash to invest in safe, fixed-income investments.

Now, don't misunderstand me. Options are very powerful, leveraged tools that can blow up on you if used improperly. They can expire worthless, so only use them responsibly. To wit: (1) buy long-term options that don't expire for many months or years; and (2) sell short-term options that expire soon and which defray the cost of your long investments.
7. Focus on Fundamentals Only

Superstar value investors like Warren Buffett and Peter Lynch say that they invest only according to the fundamentals of each of their stock picks, but in truth no stock is an island. A stock’s fundamentals are affected by macroeconomic factors in their industry. As I wrote in How to Pick Industry Sectors, top-down investing can help save you from making a lot of investment mistakes.

In addition, you should also take note of a stock’s price action via technical analysis. Often, trouble will show up in a stock chart before a company’s fundamentals begin to deteriorate. This may be because large investors with insider, non-public information are trading the stock in advance. Illegal? Yes, but it happens and a stock chart sometimes gives you a hint of this nefarious (but informative) activity before the fundamentals.

Despite what I just said, fundamental analysis and value investing should be the core of your investment philosophy. Just not all of it.
8. Avoid Dividend-Paying Stocks Because They're "Boring"

I know what you're thinking: dividend stocks are boring. Their businesses don't provide enough growth opportunities to use all of their cash flow so they are forced to return some of it to shareholders. You want to invest exclusively in "glamour" stocks that don't pay dividends and plow all of their cash back into the business.

Think again. Buy dividend stocks.

Remember one of Aesop's fables: A bird in the hand is worth two in the bush. As I wrote in The Best Stocks are Dividend Stocks, companies that pay cash dividends actually have better earnings growth than companies that don't. The reason is that dividends impose fiscal discipline on corporate management and prevent them from wasting money on low-return projects and wasteful empire building. Don't fall for phony promises of future riches. Focus on well-performing businesses that respect shareholders enough to return some cash today.
9. Buy 52-Week Lows

I used to think that I was getting a real bargain buying stocks selling at their lowest price levels of the past year. After all, buy low and sell high, right.? Wrong. A 52-week low is often just a temporary stop on the way to even lower prices. As I wrote in black swans, the stock of BP (NYSE: BP) continued to fall long after the initial news hit of its disastrous Gulf Coast oil spill.

Focus on winning stocks with good fundamentals. As I wrote in The Growth vs. Value Debate, oftentimes growth stocks trading at higher valuations are the better long-term investments because of their high compounded earnings growth.
10. Listen to Hot Stock Tips

If you ever hear that your friend’s barber has a hot stock tip that is ready to quadruple in value, run away as fast as you can. Most people lose money in the stock market because they trade based on rumors, hype, and bad information. Why would you want to follow in their footsteps? It’s like cheating on a test by copying the answers of the class moron. Do your own homework.
11. Trade During Your Vacation

You work hard so when you go on vacation, just relax. Leave your investment portfolio alone. Don’t trade anything and don’t even look at your portfolio while on vacation. I can’t explain it, but there is some cosmic rule of the universe that says that your investments will perform their worst during this time. Why ruin your vacation by spending your time watching your stocks fall off a cliff? And trading during your vacation will inevitably make things even worse. Investing is hard enough when you concentrate full-time. When you make ad-hoc trading decisions in between frolicking at the beach and going to your favorite crab shack restaurant for dinner, you’re bound to make a bad mistake.

In fact, let me extend this advice to say the following: don't trade during periods of emotional distress. Just as a vacation distracts you, so do emotional moments. Sometimes I found myself trading just to "make myself feel better." Needless to say, stress clouds investment analysis and the trades I made at these times were among my worst ever.
12. Overtrade

The key to investment success is to start investing early in life and continually contribute throughout your working life. Let the miracle of compounded returns work its magic over the long-term. Churning your account making a lot of trades may be fun, but it just incurs a lot of commissions that will make your broker’s retirement a prosperous one, not yours. As investing legend Jeremy Grantham likes to say:

Getting the big picture right is everything. One or two good ideas a year are enough. Very hard work gets in the way of thinking.

13. Forget About Tax-Advantaged Retirement Accounts Like 401ks and IRAs

You’ve heard of the old saying “A penny saved is a penny earned?” Well, it applies to taxes too. Unfortunately, we live in a time of humongous government budget deficits and President Obama has added to the budget pain by dishonestly pushing through an incredibly expensive new entitlement program called healthcare reform. Increased tax rates – including higher capital gains taxes -- are a virtual certainty going forward.

Tax shelters are going to be more important than ever. Avoiding a 20% or higher capital gains tax is the same as earning 20%. Even the best investors like Warren Buffett haven’t compounded their wealth much higher than 20%, so take full advantage of tax-advantaged accounts while they last. Contribute to your company’s 401k plan at least up to the point where you get the maximum employer match. For a young person, there is no better tax shelter than a Roth IRA. Pay taxes now and then enjoy tax-free compounded returns without having to worry about paying higher future tax rates.
Good Luck

That’s all I got, Alex. If you avoid even half of this list of mistakes, you’ll probably end up richer than me. However, if you’re anything like I was at your age, you’re probably going to smile, give lip service to my advice, and then ignore most of it. That’s ok, the greatest teacher is often adversity. But after you’ve made a few investing mistakes, I hope you’ll realize I may actually know something and read this letter again. It’s never too late to learn.



10,176 posts
msg #94714
Ignore johnpaulca
7/12/2010 8:47:48 AM

After the Mechanics, It Is All Mental

I am often asked about the skills necessary to be a great trader. The answer to that question parallels the criteria for most pursuits where excellence is the goal. First, you have to learn the mechanics and then you must learn mental mastery.

The mechanics are the simple and straightforward part of the equation. Traders first need a set of criteria for identifying opportunities, the rules for entry. Some will develop technical analysis criteria, perhaps looking for a convergence of indicators that the traders tests to determine their effectiveness. Others will rely on fundamental valuations, looking to buy stocks that appear to be on sale in consideration of the company's ability to make a profit. Some may combine research methods from both analytical disciplines.

With these rules established, the trader must work to develop a method for understanding and managing risk. I plan to lose on every trade I make, knowing the exact triggers that will make me exit a trade at a loss. For me, I rely on price barriers established by the past actions of traders. Others may use percentage drawdown or even time scale factors to know when to exit. For me, the amount of risk on the trade determines the position size that I take so I always know my exposure to loss going in. This all comes from the recognition that trading requires capital and losing it or tying it up in dead stocks is a quick way out of the trading game.

Then there is the question of when to exit. Again, the individual trader must develop their set of criteria to exit a trade, knowing the importance of sticking with winners and letting profits run. The winners have to pay for the inevitable losers so all exit strategies should factor in some understanding of expected value and probability theory. You can't be right all of the time, but you can change what you do when you are right and when you are wrong.

Finally, since technology now plays a huge role in trading, there is the mastery of the tools that traders use to identify and execute trading opportunities. My primary tool is the Stockscores web site, but I also use real time quote feeds, spreadsheets, order entry tools and information sources to help in my trading decisions. Technology has given traders a lot more power, but also a lot more to think about. The challenge is to separate the significant from the minutiae and remain focused on using technology to make money.

These are some of the mechanics of trading. Just as a golfer must master the mechanics of the golf swing, the trader must master these areas if they are to ever succeed.

But mastery of the mechanics of trading only assures the trader occasional glory. As anyone who has ever seen me golf will attest, mechanics alone will barely get you down to the green. In golf, there are times when the threat of the woods or water call out to your subconscious mind, causing you to overpower your understanding of mechanics and leaving you in search of some small thing that seems to separate you from success.

Trading is no different.

The fear of losing money and the desire to feel the empowerment that comes with trading profits can lead many away from the execution of their trading plan. Learning the mechanics of trading can take mere months, but for some, mastery over their trading minds can never be achieved. For most of us, it is this second phase of our learning where the greatest amount of effort must be spent.

First you have to learn the rules that form the backbone of your trading approach. Then you have to work on understanding why you keep breaking those rules. Understanding that mechanics alone will not make you money is a revelation that often comes to traders long after their brokerage account balances have been depleted. Keep this in mind as you work to master the markets.

Source: Stockscores

10,176 posts
msg #94730
Ignore johnpaulca
7/12/2010 6:14:16 PM

10220 is a double Fib point on the daily Dow cash chart.

This double resistance is caused by taking the Fib points from the recent

swing points made in the middle of June and the beginning of July and from

the April high and July low.

To get a sell signal, you wait for a bearish engulfing bar or a string of dojis or low range days.

10,176 posts
msg #94767
Ignore johnpaulca
7/13/2010 8:35:13 PM

Small Cap Peril and Opportunity

When investors feel like speculating, they move to small-cap stocks. In good markets, small-caps can deliver outsized gains very quickly. On the other hand, when investors are nervous, small-cap stocks are the first to go.

As a result, small-cap stocks feel the annual summer slump (caused by the forecasting cycle) more profoundly. The period between July 1 and November 1 is especially dangerous - it is the small-cap "dead zone".

The Russell 2000 Index, which covers the 2000 smallest companies in the Russell equity universe of 5000 stocks, was created in 1979. Since its inception, there have been 31 "dead zones", of which 17 were down. A hypothetical investor beginning with $100,000 in 1979, investing in the Russell 2000 only during the four-month "dead zone", would now have $53,500. This represents an annual return of -2.0%. Over the course of 31 years, there have been several of these four-month periods which have been game-changers:

1981: -10.6%
1983: -11.5%
1987: -27.7%
1990: -29.0%
1998: -16.9%
2001: -16.2%
2002: -18.9%
2008: -21.7%

This cycle is not written in stone. After all, the small-cap "dead zone" has been up 14 times since 1979. It was up 11.2% in 2009, for example. Nevertheless, the lesson for long-term investors who are focused on risk management is pretty obvious; namely, avoid the "dead zone" and come back in late-October.

The small-cap "dead zone" is caused by the annual forecasting cycle. The cycle begins late in the year, when earnings analysts tend to be overly optimistic about the next calendar year. This optimism normally translates into strong returns in November and December. By mid-year, analysts tend to lower their full-year estimates for the companies they follow. Investors become nervous and begin shedding their riskiest holdings - small-cap stocks.

The "dead zone" sets up one of the best investment bets available to conservative, risk-managed portfolios. As the market recovers from the annual forecasting slump, and as analysts put forth their glowing estimates for the next year, investors begin moving once more into small caps. In December, for example, the Russell 2000 has an average return of about 3%, twice the average return of the S&P 500.

During the fourth quarter, there are three periods when small-cap returns are extremely robust and exceptionally consistent:

The last 2 trading days of October and the first 2 trading days of November. This period has been up 87% of the time since 1979, averaging a return of 2.0%*.
The last 6 trading days of November and the first 3 trading days of December. This period has been up 87% of the time since 1979, averaging a return of 2.1%*.
The last 7 trading days of December. This period (the Santa Claus Rally), has been up 93% of the time since 1979, averaging a return of 2.3%*.

Overall, these three periods in combination have averaged an annual total return of 6.5%* over 20 days of market exposure since 1979, and have suffered only two nominal losses in 31 years (-0.6% in 2006, -1.0% in 1984).

Now let's suppose you are a very conservative investor. While risk management is your primary concern, you also know that your assets have to grow in excess of inflation to stay ahead of the game. Somehow you have to incorporate a growth machine into your investment equation.

Well, now you have it. By investing in small-cap stocks for just 20 days each year, you can add a highly reliable "equity kicker" to your portfolio.

Source: Alpha Power Investing

10,176 posts
msg #94772
Ignore johnpaulca
7/14/2010 8:48:39 AM


We’ve been asked repeatedly how the stock market has managed to bounce off the nearby lows with such veracity. Especially with the ongoing weakness we have seen in the incoming U.S. economic data due to the fact that the retail investor still refuses to participate and is solely focused on income-generating strategies. The answer is that the market may have been on the receiving end of another few jolts of liquidity. M2 money supply has expanded $38.5 million in the past two weeks and the M1 money multiple has risen from 0.839 to 0.862.

When we go to the weekly data from the Fed, we see that “trading assets” on commercial bank balance sheets expanded to $325 billion in the past two weeks from $297 billion. And, when we go to the Commitment of Traders report, we see that there has been a big swing in the net speculation position on the S&P 500 “E-minis” on the Mercantile Exchange (futures and options) to a net long position of 28,172 contracts from 15,155 net shorts just two weeks ago. That’s a big part of the bounce-back — prop traders and short-coverings. Nothing fundamental here, as far as we can see.


* Last week’s 5.4% increase was the best performance since mid-July 2009 (week of July 17th). But yet, prior to last week, the S&P 500 saw the largest decline (-5% during the week of July 2nd) in eight weeks, and it was down two-weeks to boot (July 2nd and June 25th weeks).

* Last week also saw three days of positive performance, a streak we last saw in mid-April of this year. However, prior to those three positive sessions, the S&P 500 was down five trading days in a row.

* Last week’s increase also comes in the heels of declines in June and May, which was the worst back-to-back decline since January and February 2009

* In Q2, we saw the worst quarter (-12%) since Q4 2008 and before that, Q3 2002. In fact, going back to 1946, a decline in the quarter of 12% or more is only a 1 in 20 event (we have only seen 12 quarters of 12%+ declines in the past 64 years).

* For the first half of the year, we have seen three up months (February, March, April) and three down months (January, May, June).

* The 80% increase in the stock market that we saw from March 200

355 posts
msg #94775
7/14/2010 9:19:17 AM

Democratic interests and the election cycle may very well push a bull run here, hence the long positioning. Just a thought.

10,176 posts
msg #94973
Ignore johnpaulca
7/22/2010 8:41:53 AM


Traders looked into the market's mirror this morning and asked - "Mirror, mirror, on the wall, when will this rally fall?" The answer came quickly, "TODAY!" Yes sir, today's auction resulted in a mirror image of Wednesday: straight (almost) down.

Although the market immediately dropped from a higher gap open, it traded sideways for hours as it waited for the commentary of Ben Shalom Bernanke. Known as "The Chopper" by his central banking buddies for his penchant of printing US dollars at a mad pace and figuratively showing the banking system with them from his "helicopter" with "Bernanke Bucks," Helicopter-Ben was on the same theme today.

In short he said something like this..."Err, ahhhh, the economy kinda sucks right now and...ahhh, the reports that traders follow, well, aahhhhhh - yeah, they suck too. They just don't seem to be showing any sign of improvement. Soooo (now rocking from heel to toe waiving his arms front to back) looks like I'll be moving forward with QE 2.0 soon and throwing more 'Bernanke Bucks' out of my 'Helo.' I know it didn't work for $#i* before, but...ahhh, we're gonna do better this time. How? Oh! Well, just trust me. I'm from the government and I'm here to help."

Here were the official words of Zimbabwe-Ben himself, “we also recognize that the economic outlook remains unusually uncertain,” Bernanke said today in testimony to the Senate Banking Committee. “We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability.”

In other news, the Financial Regulatory Bill was signed today. In part of his speech, president Obama said, "There will be no more tax funded bailouts. Period."

Really? Did it take a 2,300 page Bill or just a president who said NO. Bailout? NO! FDIC backed loans? NO! Suspension of FASB 157? NO!

So, since president Obama said, "There will be no more tax funded bailouts. Period." can I assume that the massive bailout of AIG is over? Has the money train from the Treasury to Fannie Mae and Freddie Mac stopped running? Has the FDIC ended its guarantees of insanely large amounts of bank debt?

Of course, the answers are all no. This Bill will do little to nothing to stop the next financial crisis and the president will bailout whichever bank or insurer comes with hat in hand first. Bet on it.

10,176 posts
msg #95124
Ignore johnpaulca
7/27/2010 9:12:46 AM


In another good article from "Breakfast with Dave" we read a Letterman-like (top 10) list of reasons why we should know we're in a depression. It's also reminiscent of the "You know you're a Redneck when..." comedy routine, but without the comedy.

From Breakfast with David:


Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.

The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak, and the youth unemployment rate is stuck near 25%. These developments will have profound long-term consequences – social, economic and political.

The fiscal costs of the depression continue to mount, with the White House on Friday raising its deficit projection for 2011 to $1.4 trillion from $1.267 trillion. That gap in the forecast – $133 billion – was close to the size of the entire budget deficit back in 2002. Amazing.

You also know it is a depression when you find out on the weekend that the FDIC seized and shuttered another seven banks, making it 103 closures for the year. What a recovery!

Meanwhile, how are the surviving banks making money? By cutting their provisions for bad debts (at a time when the household debt/income ratio is still near record highs of 120% and at a time when one-quarter of the consumer universe has a sub-600 FICO score – which means they are also ineligible for Fannie or Freddie mortgage financing. The banks thus far have reduced their loan loss reserves between 23% (Cap One) and 73% (First Horizon) – as Jamie Dimon said last week, these are not real earnings.

You also know it's a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago and is now instead thinking of restarting Quantitative Easing. Of course, we are in this bizarre environment where bank credit continues to contract – last week alone, bank wide consumer credit outstanding fell $2.2 billion; real estate lending contracted $9.2 billion; and commercial & industrial loans slid $5.1 billion.

What did the banks do this past week? They replaced cash with government securities – the $47.5 billion net buying was the second largest in the past three years. As the banks find few opportunities to lend – households are either not creditworthy enough to lend to or are busy paying off debts and companies that do have any expansion plans have enough cash on their balance sheet to finance their initiatives – they are likely to use their $1 trillion in excess reserves buying government and related securities, especially with the yield curve so steep and the Fed ensuring that it has no intention of taking the 'carry' away for a long, long time.

Did we mention that you also know you are in some sort of depression when after two years of record $1+ trillion deficit financing to kick-start the economy, the yield on the 5-year note is sitting at 1.8%? What do you think that tells you? It tells you that the private credit market is basically defunct, especially when it comes to the securitized loans, which played such a critical role in promoting leveraged economic growth from 2001 to 2007 – the amount of securitized credit that has vanished since the credit bubble burst two years ago is $1.4 trillion – 40% of this market is gone. And what replaced it was this rampant government intervention into the economy – aimed at putting a floor under the economy. But insofar as the government stimulus fades and the contraction in credit persists, it will be interesting to see what sort of spending, output and income growth we are going to see in the near- and intermediate-term.

10,176 posts
msg #95153
Ignore johnpaulca
7/28/2010 9:05:05 AM


Recent economic reports have not been good; neither this week nor the last several. The small bit of news that we have received this week, however, has been lauded by the financial press, which in my opinion is laughable. In order to make any of it sound good on television or in print, one must willfully ignore the full picture in order to skew the data as positive.

Take for example yesterday's so-called huge housing sales "success" story. The lame stream media regurgitated the same bile all day long: New Home Sales surged by nearly 24%. Did they tell you the whole story? Of course not.

The whole story is that the near 24% increase from the prior month was only possible because the prior months data had been massive revised - LOWER, of course. (Don't you just love the much later lower revisions that nobody seems to care about? That's one of the way the market is "rigged" to do as the central planners wish.) In fact, 57,000 heretofore prior new home sales were stripped away from the data.

The May number was revised lower by 33,000 to reach the WORST EVER SALES DATA IN HISTORY...and April was revised lower for the SECOND time by an additional 24,000 sales. So we have colossal revisions of 57,000 worse than reported sales but yesterday's data point was better than expected by 20,000...from the worst level in history...and this is good news? Home prices also fell 1.4% according to this report.

Any reporting short of the full story is laughable, yet the headline is probably all that you heard.

The Dallas Fed's manufacturing report was also released yesterday and showed business activity in that part of the country crashing. Last month's reading was -4 but July was supposed to improve to a -2.5 print. Not so much. It crashed to an abysmal reading of -21.0! By the way, a reading below zero is bad.

Today wasn't much better. The poor folks in the lame stream media who have to wear a happy face every day had more BS (read: manure-like substance) to spread around this morning. The Case-Shiller Home Price Index (HPI) was again lauded as marvelous, but again the full truth was kept from you. Did you know that the Case-Shiller HPI is a three month average and is released with a two month lag? Therefore, one wonders if the folks in the lame stream media bothered to remind you that today's "3-month average" included the time that folks were receiving their $8,000 government cheese to buy said houses; which does nothing but pull demand forward I might remind you.

The headlines read something like this: "Case-Shiller HPI rises 4.6% with economic recovery." Really?!? According to the National Association of Realtors the median home value is $180k. The government cheese giveaway therefore represents 4.44% of the median home value. Hmm, did home values really rise 4.6% because of an economic turnaround or did homeowners just raise their house prices that $8,000 because they knew the buyers were coming in with extra cash? Another government boondoggle if you ask me.

Finally there was the consumer confidence report. It was worse than expected - nuff said.

Despite the real news, the stock market algorithms and dark pool players drove the indices up 4% in just a few days. Oh yeah, that was also done on less...and less...and less volume with each passing day.

Healthy market --- or laughable?

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