CURRENCY VOLATILITY !!-----CHARTS

This is a vertical drop on the USDX chart; which seems to have accelerated after the FED rate cut announcement.

The currency charts below are 3month and 1year charts of the respective currencies, with the 1 year chart commencing mid December 2007

The charts are from the CNBC Currency webpage: http://www.cnbc.com/id/15839178/

The Japanese Yen strengthened consistently through 2008, as carry trade unwinding and the sell off across asset classes intensified.

The EURO and the Swiss Franc (CHF) have rebounded strongly this past fortnight. Is the ECB going to be next in line with aggressive rate cuts? Also now that the Fed is ready to buy anything and everything, (by doing whatever it takes to sort things out) is the ECB too going to get into the act?

The British Pound (GBP) has struggled this year, and as the UK housing market continues to deteriorate; 2009 is going to be particularly difficult for the British economy.

LENDER OF THE LAST & ONLY RESORT !!

Well, the Federal Reserve cut the main U.S. interest rate to a target range of between 0 - 0.25 %
Clearly the FED is now ready to do whatever it takes, even if it means bailing out all the incompetent or greedy or 'too big to fail' entities there are out there!!!
Makes me wonder why the auto bailout is still on hold?????

Sooner or later we will reach a point when there are going to be just too many to bailout/save.
Remember the days when a $700Bn bailout was a Wall Street stunning event! ( actually that was as recently as Sept 2008; we clearly have come a long way !)
Right now, the FED promises to buy MBS and Agency Debt, in order to finally stabilize the US Housing market, even as the USD continues to slide against major currencies, continuing the trend of recent days.
As I write this, Gold is up $ 20 at $855.60 and the DJIA is up over 334 POINTS AT 8900!

Somethings gotta give. Its just a matter of when not if.

USDX - WHAT'S GOING ON NOW!

In recent posts, I noted that the USD had started to lose ground against a basket of currencies.
Here's the background on the USDX.
http://thebullishbear.blogspot.com/2007/10/understanding-us-dollar-index-usdx.html
Since the USD bottomed out in mid July 2008, it has been in quite a steep uptrend, that is quite visible on the 3 year USDX chart.









According to some technical analysts, the USDX index has formed a head and shoulders trading pattern, and thus the next move will be DOWN ! Is this going to be a decisive move, or just a minor pull back after the recent USD rally? Gold meanwhile has been trading in the mid $830s.









Stockmarkets globally have recovered from recent lows, but are trading nervously ahead of the FED meet later today.
The '''Madoff scandal & ponzi scheme''' is yet another sign of the irrational excesses, lax regulation and manipulation of recent years.
Here's a an interesting take on the Madoff scandal by James West of the 'Midas Letter',
http://www.gold-eagle.com/editorials_08/west121508.html

US CONSUMER CONFIDENCE!

Things don't look too good. Upcoming factory shutdowns and layoffs in 2009 are going to add to the pain!!

And yes........the NBER has recently recognized the US Recession, as indicated by the shaded area in the chart.

COMMODITY MELTDOWN !!

When you look at a chart that has witnessed an almost vertical drop, you know that its worth a second look!!!!! As the CRB Commodity Index shows, gains accumulated over the last 3 years were wiped out in 4 months!!
This deleveraging commodity meltdown has been much faster than most expected, as speculators and leveraged hedge funds have bailed on this once '''must have sector'''. Now that the'weak hands' have been forced out, commodities look interesting again!!!
Welcome to Commodities round 2!










While I am not a big fan of Base metals/metal ores, even these commodities have seen a sharp selloff! Given the global slowdown and recession we are in, industrial metals and ores could take a while to recover.
GOLD - meanwhile has held its own amidst all the turmoil in the credit markets, stock market and in the real economy. I repeat that Gold IS NOT A METAL, but a currency that is a true store of value.
It is one of the most liquid mediums of exchange; something that many high networth individuals who are trapped in ILLIQUID HEDGE FUNDS may now realise!

I continue to be quite optimistic on soft commodities, such as corn, wheat, soybean and other agriculturals, which continue to see growing demand in emerging markets along with the alarming possibilites of reduced acerage and farmer bankruptcies on the back of the recent food grain price collapse.
I have never been a supporter of using 'food for fuel', but irrespective of the meltdown in the ethanol industry, these food crops look interesting at this stage.

Coming to Crude Oil, although the selloff has been sharp, in the near term a demand slowdown can cap any attempts of a rally here. However you must remember that the recent strength in the USD has been showing some sings of weakening lately, and any USD currency volatility / crisis in 2009 will support crude oil prices even if demand fails to recover.
Longer term I remain an oil bull, given the lack of fresh capacities added, as also growing consumption in Asian economies.












Will post more on Crude Oil and Soft Commodities in coming weeks.

GOLD & THE FED : HEADLINES & RUMOURS!!

Don’t quite know what to make of this, but if rumors are to be believed, the IMF is about to flood the gold market with Gold!! Upto 3000 Tons of it!!!
http://www.commodityonline.com/news/IMF-to-flood-market-with-3000-tonnes-of-gold-13259-3-1.html
http://www.stockhouse.com/Columnists/2008/December/8/Horrific-gold--dump---Is-this-guy-for-real-Thom

Also, saw this other crazy headline- US FED to issue debt!!!
Don’t quite know what to make of that either!!

http://www.kitco.com/ind/West/dec102008.html
http://online.wsj.com/article/SB122888021757894023.html?mod=googlenews_wsj
http://www.bloomberg.com/apps/news?pid=20601103&sid=am8eBgidYgsI&refer=us


While I put up the above mentioned links, that I came across in my daily scan of global financial news, I must state that I have no idea that such events are about to occur or have been planned.

Here's what I do know!
If there’s one thing that I’ve learned over the past few months, it is the importance of the concept of ‘mean reversion’, something that everyone seems have forgotten after the extraordinary global growth over the last 5 year, albeit financed by ‘easy money’.
Also, give the excess manufacturing capacity (think China!) and excessive debt and overleveraging ( think U.S. Consumer and Investment banks) in the system, this deleveraging downturn is far from over!

P.S.: Gold is up $32 as I write this, currently trading at $ 808.20.

ABX - NEW LOWS- Update 4

Every time I write about the ABX Indices, I am shocked at the extent of the fall!

News lows—This is one mega subprime mess!

'The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected.' http://www.markit.com/

8 DEC 2008

29 AUGUST 2008

Previous posts on the ABX Indices
November 10, 2007
http://thebullishbear.blogspot.com/2007/11/subprime-mortgages-abx-indices.html

March 24, 2008

http://thebullishbear.blogspot.com/2008/03/abx-meltdown.html

August 31, 2008
http://thebullishbear.blogspot.com/2008/08/abx-3.html

3 MONTH U.S. TREASURY YIELD

Simply stunning!!! We are either headed for a catastrophic 2009 where job losses are going to escalate and growth rates are going to turn sharply negative, or the world economy is in a state of 'irrational panic'.

Yields on 3 month U.S treasuries are near zero!!!
Points to note:

• Is this a US Bond market bubble, as risk aversion has pushed international central banks to favour U.S. Treasuries over GSE debt?
• Has this bond market bubble been supporting the USD?
• As Crude Oil prices have corrected substantially, the Middle East nations are going to be less aggressive buyers of U.S. Treasuries.
• Asian Central Banks are using their accumulated Forex Reserves to stimulate local economies by funding infrastructure projects, supporting their local banking industry and aiding sectors of the economy that are witnessing slowing growth; this is going to slow down purchases of US Treasuries. China, Russia and India are cases in point!
• Lastly, when the 'shorts' sense overvaluation in any market, and once selling kicks in; beware a stampede out of this 'safe' haven.

WATCH THIS SPACE

WHAT'S AN INVESTOR or TRADER or SPECULATOR to do now?

Looking at these charts, its easy to see the similar manner in which markets fell, after hitting all times highs, in 1929 and 2007. (Click on the charts for a closer look)
While no two crises are identical, and government policy responses in 2007-2008 have been far more aggressive, as compared to actions taken in the aftermath of 1929, no one can guarantee that this is the ultimate solution that will solve all our troubles. (Do Paulson & Bernanke actually have things under control!!!!)

Jesse Livermore the legendary stock market speculator once said, ‘‘ The average man doesn’t wish to be told that it is a bull market or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing.’’

While I’m not saying that we are headed for another great depression, the question I’m trying to address is – ‘What’s an investor to do now?’

For example, if the Dow Jones Industrial Average(DJIA) were to come down to a level of 7000 ( Yesterday's close: 8419.09), it would imply a further drop of almost 17%.
The DJIA at 7000 would mean a crash of almost 50.58 % from the record highs.
Impossible? Here’s an analysis.

In the initial fall of the 1929 Crash, the DJIA witnessed a similar vertical drop. The current crash in the DJIA occurred over a longer time frame, with the all time high being 14,164.53 on 9th October 2007. It must be noted however, that the DJIA was trading at around the 13,000 levels as recently as May 2008.

As an investor or a speculator, would you play for a bounce or a sustainable long term recovery now? Fundamental news continues to deteriorate, take for example the fall in auto sales announced yesterday, or Bernanke’s comments that further rate cuts (without more bailouts) may not be enough to save the day!!

Should a long term investor buy in now or wait?
It’s important to consider the possibility of things really taking a turn for the worse.
I mean, some people who bought stocks in 1932 actually made money in a depression, as compared to those who bought in November 1929.

Do you sell out now?
For those that are stuck with stocks bought at much higher prices- Analyse your reasons for buying the stock in the first place. Has there been a significant deterioration in the company's business or industry fundamentals. Is the company struggling to raise debt or meet interest payments?

Lastly, do you sell out now, or wait for the illusive bounce which could be on the cards?

The answer to these questions will depend on your individual risk profile, investment/trading time horizons and ability to survive the ongoing financial storm. Yes even good businesses and companies with stong cash flows and fundamentals will see their stock prices crash in such a meltdown. Decisions must be taken by considering the adequate margins of safety you need, and the maximum losses that you are willing to take if the situation continues to deteriorate.

REMEMBER : Your LIQUIDITY position will determine your success or failure rate.

You must be able to buy, when everyone is forced to sell-----(Yes easier said than done, considering its impossible to ever call a bottom for any market).This has been the hallmark of all the great investors, traders and speculators, be they Warren Buffett, Jim Rogers, Marc Faber or George Soros.

Here’s what I’m doing now.
In my personal portfolio in India, I continue to hold on to core long term holdings. For the record,I have never held Real Estate stocks or stocks of Brokerage firms, whose values in my opinion may never ever reach their all time highs, much like the Nasdaq post 2000. I do believe that the broader market and certain stocks in particular, appear to be oversold here, so I am not a seller at these lows.
I am compiling a list of stocks I would like to buy, and am also considering investing in Index funds to play this oversold situation, for a bounce.
But as always, I will continue to add to gold positions on declines, and will use any significant stock market declines that trigger margin calls and cause selling in gold, to do so.

Lastly, as my disclaimer says 'Investors must carry out their own research & make their own informed investment decisions, using qualified independent advice. Always invest with an adequate margin of safety and know your own investment risk profile. Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments.'

S&P 500 vs GOLD

GOLD : STEADY AS SHE GOES

Amidst the total chaos in world financial markets, gold has remained fairly stable.

Since early to mid July, the US Dollar staged a comeback as the sell off across asset classes continued. At some stage, this trend is going to reverse, and we might see all the USD Bulls run for cover as the USD Bond market sells off.

Carry trade unwinding resulted in the Japanese Yen strengthening significantly, and this has put immense strain on the results of Japanese Export majors like Toyota and Sony (incidently, gold is down only in JPY!)

The Indian Rupee has weakened substantially vs the USD, sinking to around 1USD = INR 50 recently, as compared to 1USD=INR 39 a while ago. This currency volatility has resulted in FX losses for many companies whose USD borrowing suddenly turned more expensive, and also losses for many in the export-import business, who till very recently were expecting the INR (Indian Rupee) to stabilize around INR 43 to the USD.

TERROR ATTACKS + ECONOMIC CRISIS + LACK OF LEADERSHIP

Well it’s over 24 hours now, and the gun battles and hostage situation in South Mumbai continues.
My heart goes out to the innocent victims and families who have lost near and dear ones in a totally bizarre and premeditated terrorist act.

The equity markets here have been volatile and volumes have been low, as signs of an economic slowdown have started to kick in. Pile up of goods at the ports, Airlines cutting back low traffic routes and auto companies announcing production cuts and running reduced shifts. Layoffs and retrenchments are going to be next in the news, as companies shelve expansion plans.

This is not just an India specific phenomenon, but is something that countries across the world are going through.
A disturbing fact however, has been the complete ‘lack of leadership everywhere’.
Let’s start with Bernanke and Greeenspan refusing to acknowledge the US Housing Bubble in 2006 and in August 2007 continuing to tell us everything was fine, as Bear Stearns Hedge funds were collapsing. Then hedge Fund managers and Investment Bank CEOs paying out huge Christmas bonuses in December 2007, as their firm were on the verge of collapse. Ad hoc and spur of the moment changes in bailout plans and totally opaque financial rescue/bailout packages, have done nothing to restore confidence in the system.
This is not just a liquidity crisis as the authorities claim, but a crisis of confidence.

Back home in India, with upcoming General Elections next year, each political party is going to use the events of the last few days to point fingers rather than work out any long term solution.
For a country with so much long term ‘domestic’ potential, and a hardworking and talented workforce, its sad to say that our politicians ‘stink’.

If the world is to recover from the current economic turmoil, something must be done before things take a turn for the worse, and now more than ever, there is a need for LEADERSHIP.

GOLD : THE FRIDAY REBOUND

Even as the US Equity markets rallied late on Friday, the Gold rally seems to have gone unnoticed on CNBC (big surprise!!!).
Short covering by Hedge Funds, Bullion Banks or naked short sellers...........who knows!!
The US Stock markets have been all over the place and are impossible to trade. They can be up or down 2-4% a day without any major newsflow.
Equity markets everywhere appear extremely oversold, something that becomes especially evident on long term charts. Maybe another market bounce, post a CITIGROUP or GM bailout/rescue package.
GOLD
Over the past few weeks there have been rumours of Saudi Arabia and then Iran purchasing GOLD.
Rumours that the COMEX might default on deliveries of its DEC2008 gold contracts.
http://meltdown2011.wordpress.com/2008/10/22/warning-comex-may-default-on-december-gold/
Rumours that CITIGROUP could collapse!
Whether panic buying or short covering, the move after stabilizing in the $ 700- $ 750 range is encouraging.
Here is Mish's take on it.
http://globaleconomicanalysis.blogspot.com/2008/11/i-like-gold-here.html

I hope people are finally beginning to realise, that the guys running things are no longer in control, but are just confused bystanders, whose opaque policies and inconsistent decisions are doing more harm than good.

CITI NEVER SLEEPS

............and neither do any of their investors it would seem, given the way the stock has tanked!!!

The Government of Singapore, the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Prince Alwaleed bin Talal of Saudi Arabia have all seen their investments slide sharply in value.

A few weeks ago, I commented on the lack of interest from Sovereign Wealth Funds to invest in global financial institutions. Do they know something that we don’t!!
A year ago, these guys were stepping up to the plate as white knights, but now they seem to have abandoned these ‘emergency one time cash infusions’ in institutions that are losing money faster than the automakers.

The management has tried to reassure panic stricken investors, but after the Lehman Brothers debacle, no ones taking any chances.

CITIGROUP vs. GM
If push came to shove, which one would they bailout?
White-collar jobs vs blue-collar jobs?
Could the Fed & Treasury risk a collapse at Citigroup?
Are we in for a ‘Bailout Weekend’, and could we expect a government rescue by Monday?

WATCH THIS SPACE!!!

SUB 8000 - THINGS COULD GET NASTY!

Panic about deflation. A crashing CPI and many more Bailouts to come!

Too many 'experts' are calling for a bottom, and so I think there is more downside to come.

With each passing day, despair and delusion continues to spread.

Only when all hope is lost, and fear and regret( of not having cashed out earlier) take over, can the foundations of a 'market bottom' be laid.

GOLD prices meanwhile have remained reasonably stable in the $735-$744 range.

It will be interesting to watch how gold reacts to this 'asset deflation' and 'commodity rout.'

How will gold react to deflation amidst unstable fiat currencies,turmoil in the '''Central Bank Reserve Currency economy''' (USA), record debt levels, and unimaginable levels of OTC derivatives outstanding??

Short term directional calls are impossible, but, I maintain my positive views on Gold- as a true store of value, and an insurance in a world where no one, I repeat ''no one'' knows how bad its going to get.

OTC DERIVATIVES & COUNTERPARTY RISK

Sorry for not posting regularly this month! I'm back now and there’s a lot to catch up on.

http://www.bis.org/statistics/otcder/dt1920a.pdf
Now this is something that caught my attention!!!!!
What the heck is going on!!
The whole world is falling apart and the OTC Derivative time-bomb continues to grow.
It going to turn nasty, that’s for sure. Amidst talks of Clearing Houses for derivatives, Fed & Treasury Bailouts for anyone who may be too big to fail ( or possibly too big to save), it seems that the authorities are just keen to buy time and hope this whole mess just goes away.
Counterparty defaults and Bankruptcies are going to add fuel to this OTC derivative bonfire.

A combination of record debt levels & a bout of deflation will ensure that the markets retest 'new' lows over the next few quarters.

Who is Anna Schwartz?

Who is Anna Schwartz?
She is a revered economist at the National Bureau of Economic Research in New York City, and is about to turn 93! Yes, she was born in 1915!!!
She worked with Milton Friedman on ''A Monetary History of the United States, 1867-1960'' and is the one person who has really been around long enough, to make sense of the current state of chaos.

She expresses disappointment at the ad hoc program announcements by the authorities, which have only undermined faith in the US Financial system.
She also disagrees with the Fed’s idea that the only solution to our current problems is to flood the system with liquidity.

Anna Schwartz -

• On Policymaking: It’s like there’s a bunch of guys that are making it up as they go along.
• On the FED: The new group at the Fed is not equal to the problem that faces it.
• On Monetary policy: It is clear that monetary policy was too accommodative. Rates of 1 per cent (2003- June 2004) were bound to encourage all kinds of risky behavior.
• On Disclosure: They talk about transparency and what they present is opacity. This only increases the already high levels of uncertainty and anxiety.
• On Inflation: She is worried that policy makers are not even considering inflation, after the massive increase in the monetary base.
• On Recapitalizing banks: Recapitalizing institutions on the questionable premise that the accounting of potentially bad assets on the bank balance sheets is correct and accurate. She says the treasury has shifted from trying to save the banking system to trying to save banks.
• On Derivatives: A bewildering array of instruments with uncertain prices. The problem comes from a lack of ability to price the instruments, and not a lack of liquidity. We don’t know who’s solvent and who’s not.
• On the current crisis: This is not due to a lack of money available to lend, but due to a lack of faith in the ability of borrowers to repay their debts. She says the Fed meanwhile has gone about as if there is a shortage of liquidity!!!

I think she makes some really valid points.
The President elect is in for a baptism by fire. I don’t think he has a solution, but I hope new actions don’t worsen the current chaotic pandemonium. As the unemployment rate rises and underfunded pension funds face market stress and healthcare costs escalate, 2009 is going to be a terrible year for Barack Obama. Good luck to him, and lets hope that he takes note of Anna Schwartz’s words of wisdom!

Source Links:

http://online.barrons.com/article/SB122489726575668975.html?mod=googlenews_barrons

http://en.wikipedia.org/wiki/Anna_Schwartz
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/2782488/Anna-Schwartz-blames-Fed-for-sub-prime-crisis.html
http://online.wsj.com/article/SB122428279231046053.html

http://economistsview.typepad.com/economistsview/2008/10/anna-schwartz-o.html

MANIC MARKETS – THE BLIND LEADING THE CLUELESS!

It’s been a while since my last post. Here’s the market roundup.

Not in a long while have I seen so many Financial Market Analysts absolutely puzzled by the current state of markets. Incredible intraday volatility and a total loss of confidence have resulted in a very lackluster dead cat bounce and then continued unrelenting selling.

With due respect to Warren Buffett and some other cash rich value investors who recently came up with ‘BUY’ calls; these are dangerous times in the investing world. Even prior to this crash, most investors were either fully invested or overexposed to equities. Many investors especially those nearing retirement may now realize that large exposures to the equity markets was a grave mistake!

TO BUY OR NOT TO BUY?
While I would say that there has been a panic led forced selling across world markets (including gold bullion), many stocks are now trading at attractive valuations. I would think that we will see more downside before an uptrend emerges.

Firstly, forced liquidations and realignment of risk profiles could intensify the sell off.
Secondly there is currently a great threat to the earnings growth momentum ( albeit propelled by cheap money) that the world has seen over the last 5 years. If earnings begin to stumble, cheap stocks could get cheaper.

I have been a Bullish Bear for over a year now, and although I have been conservative in my investment decisions and cautiously adding to gold positions on declines, the current crash has been incredible. I clearly wasn’t bearish enough.

GOLD & the USD
Gold has tanked over the last week on forced liquidations, margin calls and panic selling as gold was sold to raise cash. After finding support near $680, it has stabilized at $734.30.
I continue to maintain my stance on adding to gold positions on declines, buying in stages as the sell off intensifies. The rate, at which EVERYONE is being bailed out, clearly indicates that we are headed straight into a financial hurricane! AC-DC said it best; we are on the highway to hell!

Coming to the USD, as the global sell off intensifies, investors pile into the USD, and the currency has appreciated against almost all currencies excluding the Japanese Yen (which is rallying due to the unwinding carry trade).

The Litmus test of the current USD strength will occur in January next year, when USD Holders must ask themselves if they are actually safe in the currency of a ‘bankrupt nation’ whose Asian creditors are perplexed and now annoyed by the chaotic manner in which the US Leadership has let their ship run aground.

ACTIONS & CONSEQUENCES

• The US is dealing with a toxic combination of record high debt, rising unemployment and rapidly slowing growth.
• Can you really have a recovery not led by savings and investment?
• Is it not weird that the FED is asking banks to lend aggressively (even as asset prices are collapsing) to people who are already way too indebted? Weird or just crazy?
• Can the FED keep buying toxic assets at their face value – given that no one in the private sector is willing to step up to the plate. How come the Sovereign Wealth Funds are not value buying even after this crash? Do they know of coming government actions that we are not aware of?
• The fallout from the Financial and Real Estate Sectors is spreading like a cancer to the broader economy. Bailouts and rescues for Auto Loans and Credit Card loans will be next on the agenda. Basically guarantee and back stop all liabilities and defaults, so that we can get back to normal.
• Bailout after bailout; the inflationary impact (albeit with a 6-12 month time lag) of all the money supply growth currently occurring will be disastrous.

More updates on specific markets in coming posts.

BALTIC DRY INDEX : SLOWDOWN DEAD AHEAD!

ICELANDIC STOCK MARKET CRASH !

The currency has collapsed, banks have gone bust and the market closed down 77% to a level of 678.4, its lowest levels since April 2006.
http://www.independent.co.uk/news/business/news/icelandic-stock-market-crashes-on-reopening-961419.html
The reason I put this chart up, is to remind readers, that no matter what THEY tell you, despite reassurances about how everything is undercontrol, you must be aware of some simple facts.
Excessive Speculation coupled with leverage ALWAYS ends in a collapse! yes always!
Deleveraging with counterparties spread across the world is complicated and will take time to run its course.
So, do not try to call a bottom in stock markets at the moment, and consider your risk profile and investment time horizon before jumping into the ring. Don't Invest in anything that you don't understand!
For those that are ready to catch falling knives, intermediate rallies and dead cat bounces will provide exit opportunities, and expect things to get volatile (read: crazy) as the earnings season progresses.

SUSTAINABLE OR NOT ??

The DJIA soared 936.42 points, its biggest 1-day percentage gain since 1933!!!
Now that's a dead cat bounce!!

Removing all limits on Central Bank currency-swap arrangements (to meet USD demand), Governments buying Equity stakes in 'bankrupt' banks and endless liquidity infusion arrangements to solve problems of 'insolvency'.

Meanwhile, Housing numbers show no signs of improvement, unemployment numbers will rise, the auto sector bailout comes through, and quarterly results will show signs of deteriorating fundamentals.
We may not realise it yet, but the era of cheap money is over! and the perma-bulls are going to be '''stress tested.'''
As some wise commentators have pointed out,
Marc Faber - the current bailout does not address the problems of overleveraging which went unsupervised under the watchful eye of the US Fed & Treasury.
Jim Rogers - In the long term, bailing out weak and insolvent players at the expense of conservative and prudent players , defeats the very principle of free markets, & he fears the coming Inflation Holocaust more than the short term turmoil caused by letting insolvent firms go bankrupt!http://www.cnbc.com/id/27097823

ARE WE THERE YET ?

Have we hit a bottom (albeit a temporary one) for now?

And is this the dead cat bounce that everyone was waiting for?

Short these markets at your own risk!

The Nikkei 225 has really tanked!!!!

The PIRATES OF WALL STREET & PANIC + PANDEMONIUM + CRASHES + QUICK FIXES !

WHAT THE HELL IS GOING ON ?
A $700 Billion bailout FAILS and a co-ordinated global rate cut FAILS, so I guess they are working overtime on a new plan.
In the meantime, nothing has really changed -

President Bush says the economy is innovative, industrious and resillient!
The Credit Market is frozen, and the LIBOR just won't come down.
Billions and now possibly trillions of USD, and no liquidity injecting measures are working yet.
The G7 will 'take necessary steps' and has been calling for'urgent and exceptional action'

The declines in stock markets have been incredible! Whats been really surprising and rather worrying, is that there has been no dead cat bounce yet!

CATCHING FALLING KNIVES:
In the coming weeks, if total panic sets in, even conservative and unleveraged firms could fail or at least see their stock values crash if things don't stabilise soon. Be careful while bottom fishing in equities, and although you may have a long term investment horizon; focus on your risk profile and your necessary 'margin of safety' before you buy in.

My call would be for the onset of deflation, and as prices of overvalued and leveraged assets fall, the Central Banks will continue to flood the system with liquidity, and bailouts for all the PIRATES OF WALLSTREET.
As poor quarterly results and upcoming layoffs add to the woes of Wall Street in the coming weeks , the bailouts are going to get larger and larger.
Ultimately this will destroy the currencies of all participating Central Banks, and we could be in for a dose of hyperinflation as a result.

My next post will focus on charts of crashing stock indices, currency graphs, and Gold prices

POPULAR STOCKS & MARKET MELTDOWNS

Given all the turmoil in global Equity Markets, I thought I would look at some stocks that until recently were popular holdings of Foreign Institutional Investors, Traders, Hedge Funds and the investing public.

US STOCKSUntil recently Fertilizer stocks were skyrocketing ( Potash & Mosaic), as fertilizer demand and food grain prices rose sharply. You had to buy coal stocks(Peabody Energy), as Chinese demand was growing exponentially and crude oil prices were going to $200. The bankers/finance people and their BlackBerries (RIM)were taking over the world, as were the Apple iPhone & iPod. And last but not the least you had to own Goldman Sachs- the one firm that could survive and thrive no matter how bad things got.

INDIAN EQUITIES Punter favourites like Jaiprakash Associates ( which rallied despite no significant change in its fundamentals) are now back to square one. Real Estate Developers like HDIL and DLF have crashed over 73% from their 52week highs - These were a must own at one stage, as India needed housing, and surging property prices appeared to have no effect on end user & investor demand. Anil Ambani's Reliance Industrial Infrastructure ( and other group companies like Reliance Power) tanked- as irrational valuations were pricing in projects to be executed years down the line. ICICI BANK is down over 65% from its 52week highs!! MTM losses from its International operations and solvency fears are driving the stock price still lower. Analysts had prevoiusly valued the sum of parts valuation of its Asset Management + Insurance + Banking businesses at well above the current stock price.

MORAL OF THE STORY : Avoid investing in the most popular sectors, without doing your own research first, and do check that valuations leave you with an adequate ''margin of safety''. Markets have the tendency to overshoot both on the upside and the downside, so buying stocks that are expensive market favourites is never advisable.

BBA LIBOR : STRESS IN THE CREDIT MARKETS

Source: http://sharedata.lloydstsbsharedealing.com/en/money/interest/index.html

Banks are unwilling to lend, and despite the massive liquidity infusions and bailout packages, LIBOR rates are not backing down. This is raising the cost of borrowing for solvent and conservative businesses and borrowers the world over.

SO WHATS NEXT ?

Stock markets around the world are tanking, Banks are not lending, and immense wealth destruction is taking place. It is almost unreal-- as Large capitalisation stocks around the world are down 10-20% in a single trading session.

Imagine if they allow the short sellers back!

Considering how sharp the selloff has been, could we be in for a dead cat bounce?

GOLD prices have been slowing creeping upward amidst fears of imminent deflation.

I wonder if a US Fed rate cut might kick off a USD selloff despite the usual flight to safety, just as news of the $ 700 Bn Bailout kept the markets afloat for a while.

HAPPY BIRTHDAY !

THE BULLISH BEAR BLOG - Is now a year old.

And what a year it has been.

Since the Credit Crisis intensified in July-August 2007, the 'experts' have been reassuring us that things were under control, and that everything was going to be fine!!

While I was bearish on the prospects of the US Economy even a year ago, I underestimated the ferocity of the downturn. May be the delaying tactics of those in charge are no longer working.

The process of deleveraging in an interconnected financial web has been a DISASTER.

Regulators supervising undercapitalised institutions that underestimated risk, encouraged by the Monolines and Credit Rating Agencies ---> All estimating that home prices would rise forever.

Meanwhile, the currency markets are chaotic, as everyone scrambles for US Dollars! A safe currency they say! Well at the rate the bailout fiasco is going (with Bailouts III & IV to come I guess), things don't look all that good.

GOLD - SHELTER FROM THE STORM

While the recent volatility in Gold prices has been startling, the long term story is intact. As I have said before, when all is said and done, GOLD will be the one true store of value. So if there is one permanent holding in anyone's portfolio this has to be it. Use the volatility to buy on declines.

BOTTOM FISHING IN INDIAN EQUITIES

Equity Markets in India, like the rest of the emerging markets have seen continued selling.

Large capitalisation stock are down over 50% in some cases, and the once 'Long Term India Investors' have vanished.

While I am still holding on to my core holdings, paper profits are evaporating.

At the same time its important to remember that India is not an export oriented economy, like some markets in the Asian region, so its worthwhile keeping an eye out for attractive buying opportunities in companies with strong fundamentals.

Its going to be a real test of conviction especially for those that were buyers in Indian Equities recently. For long term investors who are ready to sit out the storm, there will be plenty of buying opportunities.

A year ago, it was difficult to find value in Indian Equities. Today there is panic and that value has re emerged.

Tread lightly for now - and be selective while making a list of stocks you want to buy. Not every stock that has fallen is worth looking at. Midcaps and Small Caps may provide higher returns from current prices, but are going to find the going a lot harder in tighter credit markets.

Also consider the fact that the recovery when it comes, is going to be slow and hesitant, so theres going to be no easy money now.

Interest rate sensitives in the Financial, Real Estate and Auto sectors have had a really hard time as have the Metal stocks - as Metal prices have corrected globally.

Lastly, know your own risk appetite - Investment time horizon - and the extent of volatility that you can tolerate for your portfolio

& BEFORE I FORGET = IGNORE THOSE EXPERTS!

PERMA-BULLS, BAILOUTS & BULL**** in a free market!

The Bailout grows larger everyday ($700Billion now) - ban short selling - may be ban mark to market pricing - cut taxes - raise deposit guarantee limits: The cost is going to be humongous!!!!
As the US elections near, election politics are taking centre stage.

What adds insult to injury is that the spin doctors and regulators, under whose watchful eye this whole ‘calamity’ went unsupervised, are now absolutely clueless about a way out of this financial maze.
The guys at the top are well aware of the mess they put us in, so they are now hoping to bide their time and dump this hot potato on the new guy (Obama/McCain), who by the looks of it has no clue either.

What is most annoying is that the whole scheme feels like the rush into the War in Iraq. ‘Trust us, we must do this or else…’ … or the ‘We are saving the American People and the world from financial Armageddon’ routine appears to be poorly researched and lacks adequate explanation and transparency -- unless you are in the Bernanke- Paulson- Bush camp or are a CEO in the Investment banking Industry.
What about the large, medium and small businesses that did not overtrade and borrow recklessly, or the ‘fools’ that carefully repaid their mortgages over the years? Are they going to be rewarded for their prudence and rational risk taking?

THE BAILOUT
Using tons and tons of money to buy worthless toxic junk ( that no one in the private sector is willing to buy)------- is just a bad idea if it means short term rallies in the stock market and long term damage to the American and indirectly the world economy.

I am also surprised that no Foreign Sovereign Wealth funds (read: Temasek and GIC of Singapore and Middle East Sovereign Wealth funds) have stepped up to the plate yet.
Even Warren Buffett’s deals with Goldman Sachs and now General Electric do not involve an upfront equity stake in either company, but are opportunistic deals by an astute cash rich financier.
Does this mean that the coming bailouts will wipe off all the equity of the investment banks?

Oversight and Executive pay!
Finger pointing and blame games as to who was responsible for the collapse of the first Bailout Plan are yet another meaningless distraction, as are calls for more oversight and continuous whining about exorbitant executive pay.
Oversight! We sure don’t need any more of that. Look at the fine job that the OFHEO (Office of Federal Housing Enterprise Oversight) did with Freddie Mac and Fannie Mae. As for Executive pay- the shareholders sure didn’t complain when the stock prices of the US Investment banks were at their 52 week highs.
REALITY CHECK
Well, looks like the recovery in the second half of 2008 is going to be postponed indefinitely.
In the meantime everyone is ignoring the continued weakness in US home prices, and as the quarterly results come in, we may be in for more disappointments. The new government is going to have a lot of explaining to do, as job losses increase and the virus spreads from the financial sector to the industrial sector. They may have to Bailout the US Auto Industry as well, or risk losing a LOT of votes!
Emerging markets that are major exporters too face tough times as the US Economy slows.

US DOLLAR & GOLD
The US Dollar is now rallying, as there is a flight to safety, as money is exiting all asset classes from commodities to emerging markets. The stronger USD is going to eat into the profitability of large US multinationals, whose recent earnings have been ‘subsidized’ by the weak USD. In the longer run, these short term artificial supports are going to fail, and the final recovery is going to be even more painful and delayed.

So is the market facing inflation/deflation/recession/ stagflation?
First of all, ignore the wise men who are still not willing to face facts. The US has been in recession for a while, and over the last quarter we have drifted from stagflation to nearer the edge of a possible deflation (read: deflation = decrease in money supply and prolonged periods of falling general prices)!
I must say that although I expected prices to fall (read: US real estate/US Equities/ Industrial Metals), the declines have been rather sharp.
Deleveraging after a boom that was built on foundations of easy money and lax regulation is going to be more horrible than I first thought.
With the US Fed leading the way, the Central banks are going to fight this deflationary spiral with all the money they’ve got (fighting insolvency with liquidity – not a smart move), this is going to do real harm to their currencies in the long term.

This is going to be extremely positive for Gold, and although its $100 price swings continue for now- It will be the currency that survives and continues to be a true store of value.

BULLISH BEAR ADVICE:

Focus on Capital Preservation, not Wealth Creation.

Use the wild swings in Gold Prices to buy on declines, the Central Banks and Bailouts will fuel its bull run.

Ignore all analysis / advice / research reports / recommendations of all the wise guys who have appalling track records, and have called one bottom after another for the market. Focus on the guys that have been consistent and right all along, guys like Robert R Prechter Jr., Prof. Nouriel Roubini, Michael Panzner (of Financial Armageddon), Barry Ritholtz of Big Picture, Tim Iacono of ‘The Mess that Greenspan Made blog’ and many others, who were amongst the first to warn us about the current crisis.

If you are looking to buy into stock markets anywhere----DON’T, but if you must, be aware that the recovery can take a long long long time, and there is more downside to come. Deleveraging, and tight credit affects a wide range of industries, not just the financial sector. The rising cost of working Capital and tight commercial paper markets are going to be the real WMD’s.
The Central Banks may buy all the Toxic Junk they want, but they can’t force the banks to lend.

Over the past month, I have been re-reading a book –
‘Conquer the Crash – by Robert R Prechter Jr.’. When I first read the book in 2004, I found it rather radical, and I wondered whether things could really get that bad.
Well I think it’s worth a read given the times we face today.

JIM CRAMER: STAY ON THE SIDELINES IN CASH & BUY GOLD

In an article titled : Cramer: Sell, Sell, Sell ; posted by Tom Brennan, this is what Cramer had to say!!!

"""Cramer’s bottom line for this market: “If you’re already on the sidelines, stay there. If you’re not, keep on selling until you get that cash up to a respectable level and then go buy some gold."""" http://www.cnbc.com/id/26840500
From his demands and pleadings for FED Bailouts and Rate cuts to his calls on a bottom in housing and financial firms-----
This new call had me stunned!!!

STAY ON THE SIDELINES AND BUY GOLD--------------never thought I'd hear that from a CNBC news anchor.
(Unlike Jim Cramer, I still think the U.S. Housing market will see more down side)
We are indeed in desperate, uncertain times:
Capital Preservation not Wealth Creation should be our primary concern.

GOLD : A STORE OF VALUE

Headlines from a FREE MARKET!

Treasury Seeks Authority to Buy Mortgages Unchecked by Courts
Sept. 21, 2008 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=ae6b6P1L8E_E&refer=home

Paulson Plan May Spark Showdown Between Democrats, Republicans
Sept. 21, 2008 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=almXrJDtT2TY&refer=home

Paulson Bailout Plan Is Either `Worst' Approach or `Giant Step'
Sept. 19, 2008 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIpE3XaHDNwA&refer=home

Tab for financial bailout: $700 billion
Los Angeles Times Staff Writers, September 21, 2008
http://www.latimes.com/news/nationworld/nation/la-na-wallstreet21-2008sep21,0,1208602.story

Paulson Begins The PR Offensive
Sept. 20, 2008 (Forbes.com)
http://www.forbes.com/businessinthebeltway/2008/09/20/paulson-bailout-pr-biz-belt-cx_jz_0920paulsonshows.html

Seven Days that Shook Wall Street
http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080919_945045.htm?chan=rss_topStories_ssi_5

President Bush's remarks on the economy
http://ap.google.com/article/ALeqM5gltEeAKv74u88ZAtyj5m-GjMeAQAD93AJC7G0

Americans take out frustrations with Wall Street
http://www.freep.com/apps/pbcs.dll/article?AID=/20080921/BUSINESS07/809210405

Bailout: ‘Whatever it takes’
http://www.chicagotribune.com/business/chi-sat-financial-rescue-sep20,0,2525209.story

Bush defends $800b bank bailout (ABC News)
http://www.abc.net.au/news/stories/2008/09/21/2369995.htm?section=justin

Market gain a 21-year high on on financial rescue plan, but investors not out of woods yet
http://canadianpress.google.com/article/ALeqM5hU_Qx0OSSCE98whi4YRCjMW4Sd8g

GOLD - REACTING TO THE CREDIT CRISIS

The Bull market in Gold continues, and prices are nowhere near the record highs of $850 in 1980.

Using the Inflation calculator of the U.S. Department of Labor (Bureau of Labor Statistics),

$ 850 in 1980 has the same buying power as $2,259.99 in 2008.

http://data.bls.gov/cgi-bin/cpicalc.pl

Expect more volatility next week, both in Gold and the Equity markets. For now Gold needs to consolidate in the mid 800's for a while longer, before its next upmove. It is above its crucial long term support - the 300 Day MA currently at $840.67

AMERICAN CAPITALISM & THE EMPEROR'S NEW CLOTHES!

The FED and the US Treasury have done it again. Hooray ! We’ve been saved!

Markets around the world rallied furiously and confidence has been magically restored. The Financial media is talking about how wonderful the whole scheme is!
Restoring confidence and punishing manipulative shortsellers!!

At the end of the day, the markets have rallied and everyone can have a good weekend. Everyone except the FED and the Treasury, who are going to have to come up with a detailed plan soon, (if they haven’t done so already.)

Well here are the Free Market guidelines they are working by -

Privatize Profits, Socialize Risk and losses.

Stop short selling in financial stocks; Blame the short sellers, and not the incompetent and bungling regulators, Fed, Treasury and overpaid Investment Bank CEO’s that got us into this mess in the first place.
Surprising that Crude Oil futures were not suspended on grounds of market manipulation !

Bailout everyone who took on more risk than they could cope with.

Punish Creditworthy debtors by rewarding defaulters and leveraged overtraders.

Conduct Bailouts on a case by case basis, randomly deciding who is to big to (let) fail.

Coming to the Story of the Emperor’s new clothes, starring Hank Paulson and Ben Bernanke as 'the illustrious tailors'.
Heres the summary from Wikipedia

“An emperor who cares too much about clothes hires two swindlers who promise him the finest suit of clothes from the most beautiful cloth. This cloth, they tell him, is invisible to anyone who was either stupid or unfit for his position. The Emperor cannot see the (non-existent) cloth, but pretends that he can for fear of appearing stupid; his ministers do the same. When the swindlers report that the suit is finished, they dress him in mime. The Emperor then goes on a procession through the capital showing off his new "clothes". During the course of the procession, a small child cries out, "But he has nothing on!" The crowd realizes the child is telling the truth. The Emperor, however, holds his head high and continues the procession.”
http://en.wikipedia.org/wiki/The_Emperor

The Question is : How long can this go on??
Delaying tactics may postpone the day of judgement for a while, and although the authorities may promise you that they are taking unprecedented measures under extraordinary circumstances,----we may be running out of road!!

Gold has survived a most volatile week, closing around $ 872 today on news of the continuing credit crisis. Increases in money supply and ‘fighting insolvency with liquidity’ are going the be factors that will drive gold prices still higher

The coming week or should I say weekend should be interesting!

Some excellent coverage of the volatile week -
http://globaleconomicanalysis.blogspot.com/2008/09/us-taxpayer-giant-dumpster-for-illiquid.html
http://www.financialarmageddon.com/2008/09/be-careful-what.html
http://economicdisconnect.blogspot.com/2008/09/pandemonium-of-clueless.html
http://www.nakedcapitalism.com/2008/09/ban-on-short-selling-will-hurt-rather.html

$ 247 Billion - Just how much is that anyway?

Today,Central Banks around the world worked together to ease the liquidity crunch.
'''The Cash injection package '''to the tune of $ 247 Billion, to calm global financial markets, tells us that we are indeed in desperate times.

Read on below to get an idea of how large that sum of money actually is !!!!

At the current USD/INR exchange rate of approx. 46 ( 1$ = INR 46),
$ 247 Billion works out to
Rs 11, 36,200 Crores.

To put that into perspective for Indian Investors, the current marketcap of the NSE Nifty 50 Index as of yesterday's close is Rs. 24,57,226 Crores ( ie Rs. 245,72,261 Million) .

Meanwhile US Markets rallied sharply towards the end of the trading day as Hank Paulson is now proposing a massive bailout package for the financial sector!!!!!!!!!!!!!! AGAIN!!
Gold fell sharply to $853 after briefly rising over $ 900 earlier in the day.
Dangerous but interesting times!!!

US FINANCIALS : D - DAY

I've said it time and again, you just can't trust these guys!!!!Countrywide Financial - Bear Stearns - Freddie Mac - Fannie Mae - Lehman Bros - AIG...and a few more big names all set to join the list.

You may blame the short sellers for the steep stock declines, but the blame lies squarely with incompetent regulators, CEOs and management and risk managers, whose models never seemed to figure out the dangers of overleveraged derivative positions and the simple fact that home prices would not rise forever!

GOLD - THE FLIGHT 2 SAFETY

For the past few days, I have been puzzled at the movements in the GOLD price, given all the turmoil in global financial markets. Although I added to my gold positions yesterday, I thought I would delay todays purchase until tomorrow, expecting a better price!!!!!!Well I just missed a 11 % rally in the precious metal!!!!!!!
BY A SINGLE TRADING SESSION !!!!!!!!!!!!!

Although prices were pretty flat through the Indian trading session ( despite news of the AIG Bailout which came in about mid day IST), in the US trading session, Gold rose sharply as fears of further bankruptcies across global financial firms triggered a flight to safety!!!

I'm not sure how much short covering contributed to today's rally, but things are getting pretty serious. Panics of this magnitude are extremely dangerous, as solvent firms can get dragged down by the overleveraged collapsing ones.

The USD rally over the past week appears to have stalled, but I would not be surprised to see gold rally, even as the USD holds out for a while longer, as the selloff across various asset classes continues.

Investment bank CEO's may blame the short sellers and try to calm panic stricken investors, but it appears that the overleveraged CDO, CDS mess is derailing the US economy at the moment.

Interesting times...........watch this space!