Five Things You Need to Know: Why Nothing Matters Anymore
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Why Nothing Matters Anymore
At some point in the past 72 hours the news has become pure gibberish. Nothing matters anymore... if it ever did... but The Story, the gritty reality, is that the facade of "newsworthiness," of "market impact," has crumbled around us in a heap of splintered chaos.
We are staring at the teeth of the buzzsaw this morning, and God help anyone still short the stock market and hoarding doomsday supplies. I have a pair of pliers and a roll of duct tape in my briefcase... always... but those are leisure items in my hands, not implements of despair.
Yes, I see Freddie Mac (FRE) and sister Fannie Mae (FNM) crashing today, but that just proves the point; the worm has turned. Even now, angry stock market rubbernecks are demanding answers: Why has the market not crashed? What is wrong? Was it canceled? These are legitimate questions, of course, but the answers are elusive. Might as well ask a tick farmer to count his herd.
But enough of that. Here is what we do know: The following technical measures of stock market participation and extremes are nearing levels last seen in March (courtesy of Investor's Intelligence):
- NYSE Bullish Percent: Os (Negative) 27.5%
- S&P 500 Bullish Percent: Os (Negative) 26.4%
- Nasdaq Composite Bullish Percent:Os (Negative) 26%
- Nasdaq-100 Bullish Percent: Os (Negative) 34%
- Russell 2000 Bullish Percent: Os (Negative) 32.6%
- NYSE High-Low Index: Os (Negative) 11.5%
- Nasdaq High-Low: Os (Negative) 6.8%
The two most important indicators of that lot, for now, are the High-Low Indexes. These simply measure the ratio of new 52-week highs to the sum total of new highs and new lows, smoothed, the 10-day moving average plotted on a point and figure chart. They reversed up in late March and had a nice run until around the middle of May when they reversed down, leaving the bullish percent indicators hanging there, twisting in the wind.
Essentially, the High-Low Indexes are the early warning devices of mean reverting rallies. They haven't reversed up yet, but they will...
2. Stop the IMF!!! Wait, What's the IMF?
Speaking of gibberish, there's a groundswell of concern over an apparent plan by the International Monetary Fund (IMF) to carry out a so-called Financial Sector Assessment Program (FSAP), basically a general audit, of the U.S. financial system. This is being characterized by some as an "embarrassment," a "violation," a "conspiracy" and, in some circles, the beginning of the end of a decades-long game of fiscal chicanery and systematic looting.
Far be it from me to interrupt a storm of outrage; occasionally even the most misguided outrage is a welcome diversion from the blind acceptance of the cattle prod guiding us into the butcher's stall. But look, before we form the posse and light the torches, let's get a few things straight:
1) The International Monetary Fund is the global equivalent of a group of special prosecutors appointed by, and accountable to, an organized crime family operating a fleet of garbage trucks.
2) The IMF is accountable to the governments of its member countries.
3) The IMF's resources are provided by its member countries.
4) The FSAP program wasn't even founded until 1999.
5) Countries that have had FSAP "audits" include: Australia, Canada, Denmark, France, Germany, Spain, Ireland, Israel, Japan, Switzerland, New Zealand and the UK.
3. The Long, Slow Descent of GM
The one thing you learn early on at the racetrack is that when the desperation sets in you can't run around like a lunatic feeling under seats for change and scraping together discarded mutuel tickets looking for a live one somebody accidentally tossed. Hell, at decent tracks they will immediately escort OFF THE PREMISES anyone caught collecting discarded mutuel tickets.
If this seems harsh, put yourself in track management's shoes. From a business standpoint, this makes good sense. They are trying to run a business that turns people into broken, desperate beggars; not host some kind of weird halfway house for people who got that way prematurely.
Unfortunately for General Motors (GM), and all the more horrific for us, there's no such entity, no governing body with an enforcement arm possessing an all-powerful eye-in-the-sky surveillance system capable of identifying this kind of ugly, shameless degenerate behavior and then quickly shooing them out of our eyesight. No, we're forced to witness the entire grisly descent, the whole god-awful collapse into desperation.
Where will it end? This morning, responding to reports the company is probably going to axe thousands more salaried jobs and is hoping to sell off some of its brands, GM said No... they're only looking to sell the Hummer. This is shockingly bad timing, if for no other reason than the memory of GM giving everyone the finger and rubbing our noses in the oil splattered tracks left by these military transport vehicles remains so fresh, so vivid.
If our post-90s version of socio-capitalism were not so primitive, we'd be shielded from embarrassing sights like GM hawking off its Hummer line. That the abandoned carcasses of these vehicles will soon be recycled into low-cost housing for the homeless is cold comfort.
4. Hey Mister, Can You Help a Freddie Out?
If General Motors is indicative of what happens when the government has bigger fish to fry than your failing business, Fannie Mae and Freddie Mac represent those "bigger fish." The pair is down 20% each as I write. The Story... again... is not the news. There were rumblings this morning about analysts reporting additional capital raising measures and writedowns, but that's like the idle chatter moments before a crack bust everyone knows is coming; the bust is self-evident, the details something for attorneys to work out later.
In the case of Fannie and Freddie, The Story is the capitulation by the last of the true believers in the equity. That's what's happening today. Look, they had a 40-year run, but it's back to the womb, back to the warm, safe canal of the mothership that spawned them in the first place, the U.S. government. This return is not truly today's business - recognition is only the first stage - but it's the beginning of the end.
5. Preliminary Mr. T Sell Signal
Just a warning, we saw where Snickers is revising its Mr. T "Get Some Nuts" campaign. The new online-based ads will feature Mr. T in a workshop building a huge cannon loaded with chocolate bars. We'll update the Mr. T Gold Indicator later this week.
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The Pundits wants everyone to believe we are heading for a recession and most of the surveys would lead one to believe its so but I'm hear to tell you that is hog wash. Under the Republican administration according to Bush things are fine.
The economy is thriving. We have prostitution churning along at its fastest rate ever. Drug traffic is booming in Heroin cocaine, crystal meth, and grass. We have Human traffic of illegals from every continent in the world. Organized theft rings looting stores of billions a year. Under ground counterfeiters producing everything imaginable from Levi's to Viagra, song tracts and software, medicines and currency. Strong arm mafia shaking folks down for protection money. Internet porn rings selling anything and everything. Kidnapping and extortion. Slave labor, Illegal labor, child labor. We have the thieves of corporate America and Wall Street thriving with Sarbanes Oxley in place. Thieves in general and then we have just thieves trying to feed their families. Pawn shops are everywhere dealing in stolen merchandise. Huge gangland populations within our cities creating their own economies. Millions of people legal citizens and illegal's working under the table for cash just trying to get by. We have Art fraud and insurance fraud and arson. Ten percent of our legal population is in prison and another 15% of the Illegal population is in prison. Prisons are the fastest growing cottage industry out there. We have billions of dollars going into churches, tax free disbursed back as non profit to the folks with the big diamond rings. Identity theft a fast growing muti billion dollar a year business. Illegal arms trade for the War Mongers. Government Pork Barrel projects that would make Al Capone look like a Bible thumper. 30 Million Illegal migrant workers supporting our corporate world and private sector with under the table labor for cash with no benefits. So all you pundits out there that think were in for some bad times. Wake up! Ya gotta look at the big picture. Bush and Cheney know what they are doing. Things are fine. We need another 4 years of Mr. Bush's (econonomicalcy) policy.
You all have a nice day.
JPM
OH PS. Did I mention our banking system?
I understand that building SUVs is more profitable. Build and sell all the SUVs you can. But shouldn't GM be CAPABLE of building a Honda-like car if circumstances require them to do so?
Why, with 30 years warning, could they not see the need for research and development on fuel efficiency and reliability? I'm sure they did some. The insufficiency of their efforts is obvious.
And so dies an American icon.
Per the book did GM manage their pension plans responsibly? There are a lot of underfunded pension plans out there because companies didn't make contributions in years when the markets performed unexpectedly well, and when the inevitable year of plan underperformance occurred, didn't make the catch-up contributions - because, of course, those are the tough years and the cash wasn't there.
The Federal retirement budget is not a pension plan, as I am sure you know. It is a classic Ponzi scheme and the number of new contributors is falling relative to the number of beneficiaries. Why we can't be grown up enough to raise SS eligibility age to 75 and then index it to the average American lifespan escapes me.
Knowing you have an interest in public policy, I'd recommend it to you. Considering that the underfunding of future retirement obligations he decries in the corporate/public-union world is echoed in Federal budgets, it's worthwhile to get a handle on the magnitude of the issue, overall.
Anyway.. THAT's what happened to GM; the inability to say NO to future benefits, plus the terrible truth that retirees live much longer than was anticipated.
GM's best bet, IMO, would be to fold, give generous buyouts to everyone they can, and hand out the designs to former employees who want to start new companies.
Best written piece I have read in a long time.
Thank you Dr. Depew!!
