Friday, November 21, 2008

Tactical Radar Readings

Some readers have been kind enough to point out that in my older posts, going as far back as two years now, I accurately predicted the current mess. A few more have asked for a list of "Best of..." posts but I must respectfully decline for a simple reason: there's no accounting for individual tastes. What strikes me as particularly brilliant (insert very loud scoff) may seem as utter nonsense to someone else.

So, if you feel so inclined, please scroll back to the past and pick and choose as you see fit. There are lots of self-explanatory charts, so the slogging won't be as tough as it may seem at first.

[Insert: OK... if I could choose just one post as "particularly brilliant" (scoffs and guffows definitely encouraged) it would be this one The Greenback: Toward A New Monetary Policy.]

On to the future, then.

My first boss, a bear of a man called Stan, used to say: "I know about yesterday. What are you doing for me today?" He was a right old bastard, but I must grudgingly admit that he got results.

So, in no particular order, what's on my radar screen today?
  • The market "chatterboxes" are now at fully anguished scream mode. The "financial and economic crisis" is topic number one at the evening news, radio, newspaper headlines, websites, blogs - everywhere. It has definitely permeated to the daily conciousness of the legendary "average person".
  • My physical therapist called me on the phone three times this week (my daily sessions having ended a couple of months ago), to ask for advice on his holdings. He was very troubled - almost panicked. I gave him the same anodyne I always give non-pros - and silently thanked him for the contrarian signals he is providing.
  • Everywhere you turn you hear "This is the worst crisis since the Great Depression". In other words, markets are already pretty much discounting a future very similar to it. Not quite there yet, but relatively close if we judge by a single - but extremely important - indicator: oil prices have collapsed by an eye-popping $100 per barrel. Dry cargo charter rates are down by an even more astonishing 95%. And everything has happened with unprecedented speed: just 3-4 months. Hmmm...
  • Finance is essentially finished as a business model for the foreseeable future because deleveraging will go on for years. Investors should look elsewhere for returns; my choice is renewable energy and sustainable resource utilization, particularly proven technologies such as wind, organic farming and the peripheral opportunities arising from them. Sorry, no stock tips from me - you must do your own research. And be prepared for the long haul, because there won't be any instant gratification out there. Another intriguing area is genetic/molecular medicine, but I am woefully ignorant on the subject. Biology was my worst subject in school.
  • Right now - and only for the short-term (i.e. up to 6 mos.) - I'm focusing on tactical moves and not on grand strategy. Market psychology being as horrible as it is, and negativity having permeated the very lowest reaches of the popular consciousness, I am looking for a relief rally (always the contrarian, I am). Perhaps such a rally will be caused by Mr. Obama's conservative, market-pleasing choices for Treasury and State secretaries (probably Summers and Clinton respectively). Still, if there are no real, hard decisions on dealing with our global economic problems I will view such a rally as an oportunity to sell instead of buying.
And, as always, a warning: Caveat emptor/venditor. Tactical radars, analyst crystal balls, gypsy Tarot cards and such mumbo-jumbo are ALWAYS subject to interference and interpretation.

Have a nice weekend everyone.

Update: Looks like Clinton at State, Geithner (NY Fed) at Treasury and Summers at "senior" White House post, slated to succeed Bernanke at The Fed in 2010. Hey!! The Gang's all here.. and markets cheered - predictably. What are they gonna do with Bill, I wonder?


  1. It was her singing Lascia ch'io pianga a few posts ago. I will change it..

  2. again only a big thank you from France

  3. Hell, either relief rally or end of bear market - is what I am seeing. It is awful out there by all historical measures.

  4. "Another intriguing area is genetic/molecular medicine, but I am woefully ignorant on the subject. Biology was my worst subject in school."

    I am an engineer like you (electrical not mechanical) and biology was my least favorite too. After some brainstorming in 2001, I decided to take a plunge into genetics. Good to know that we are in the same page regarding thoughts about future.

    If finance is over, what will you do? Should I create a course 'biology for bankers'? :)

  5. Hell said: " Biology was my worst subject in school."

    Without in any way sounding rude- that is quite apparent. I really do recommend the Hrdy book if you are going to continue down the anti permagrowth path (she should have been given the Nobel prize in medicine and physiology IMHO but honesty on very unpopular subjects never wins anyone friends and there has always been a bias towards 'the molecular' with the Noble committee).

    Greenie, I think you might be doing many a favor.

  6. Damn you hell....

    Are you saying I gotta go back and read it all (just to find the real gems)


    If I get some time.

    I'm with you on the alt E page, and will likely posting chapter 2 of Alt E in the next 2 weeks over at the RGE.

    The Alt E returns at first will obviously be horrible (as R&D is too costly, and start up capital is not available.)

    I however believe their suppliers will receive the first Obama check, and are the best 1st round of Inv Ops.

    I'm doing my homework, and will post it soon.

    All the best, Rich Hartmann / Miss America

    p.s. Here's the latest:

  7. I am concerned about the fall in 'oil' price. This effectively means a significant fall in revenue for the 'oil' companies.

    In energy terms, the opportunity cost of 100bbl is alleged to be 7bbl, and rising. This is bad news. The development and deployment of Alt E will require the diversion and use of considerable amounts of conventional (fossil) energy resources.

    If 'oil' revenues are declining, then how will the exploration, production, refining and delivery of new (ie. additional to current) fossil fuel resources be obtained. Considering that the new resources are likely to be more difficult to deliver to the consumer (energy op cost will increase) there will be a squeeze on supplies, especially if the primary producers keep increasing amounts for their own internal domestic use.

    In respect of Alt E technologies please do not confuse the energy costs with the money costs. We have a unlimited amount of the latter, but an exponentially diminishing amount of the former.

    Brian P

  8. ps on my post.

    Interesting article by Gail The Actuary over on TheOilDrum.

    Brian P

  9. This isn't related to any particular post. But been reading your blog and am interested to see all of your opinions regarding this.

    Have a question regarding the banking sector. Something doesn't add up for me. This is relating to TARP.

    Originally Paulson's plan was to purchase so-called "toxic" assets. Instead money was invested in banks. $350 billion or so. Even if the share price is diluted (with the government taking an interest), shouldn't the market cap of these banks increase by...well...$350 billion or so.

    Yet instead, with this market drop...the banking sector plummeted. Something doesn't add up to me. Am I missing something or are the fundamentals for banks that far from reality as a result of fear...which could mean the opportunity of a lifetime.

    Love to hear your thoughts.

  10. The demand side employment as a percentage of total employment has risen over the past 20 years with financial,marketing,advertising, sales and various subsets becoming the main growth sectors of the economy due to the increasing automation and productivity gains in the manufacturing sector which displaced direct factor labor.
    The ability of the manufacturing sector to produce widgets in ever greater volume has also generated the need for greater consumption from consumers with cheap easy credit availability as the primary tool to move product.
    Emphasis from gov't, industry and labor will be to reinflate the credit making idustry which has been based on leverage, structured credit product creation and CDS.
    What this crisis is producing is the fast unwind of the demand side employment and business models associated with its creation and use. The extent of the unwind will be watched carefully as gov't bailouts will have limited use in a rapid deleveraging environment as Citi bank and others are quickly finding.
    The lack of cheap available credit will be shutting down industries throughout the world even though demand for their products will exist but on such a marginal volume level that only custom manufacturing can respond.

  11. "Yet instead, with this market drop...the banking sector plummeted. Something doesn't add up to me. Am I missing something or are the fundamentals for banks that far from reality as a result of fear...which could mean the opportunity of a lifetime."

    You probably asked Hell, who is an expert on these matters. Here is my opinion just in case.

    The 350B that you are seeing to be contributed to the banks is real money. So, some other place of the economy must show an equivalent amount of loss for the banks to show 350B gain in market cap, right?

    Here is how it will happen. I expect the dollar to lose substantial value in the coming months, and that will mean that people with savings will lose money in terms of present dollar. On the other hand, the stock prices will go up and banks will gain market cap, but may not be the entire 350B.

    So, Americans will cheer the rise in stock market and especially of the financial stocks, whereas any outsider analyzing the transaction in terms of his own currency will clearly see the wealth transfer from people to bank shareholders.

    Opportunity of lifetime? You tell me.

  12. Re: bank stocks/recapitalization

    It's all about dilution of existing shareholders (i.e. the shares currently trading). That's the academic explanation.

    The "real" one is mostly about market psychology, which has become very black indeed. Perhaps too black from an immediate trading standpoint (thus the current post). Still, I'd rather look at the further future and the possibilities in green/sustainable systems.


  13. Everywhere you turn you hear "This is the worst crisis since the Great Depression". In other words, markets are already pretty much discounting a future very similar to it.

    Not yet.

    We absolutely are nowhere NEAR the real poverty and misery that the Great Depression doled out.

    My grandmother lived back then - in Denmark even. She saved & reused gift wrappings, plastic bags and whatnot for ever after from fear of running out money!

    What we might very well have is a (a few) decent sucker rally(s) from people doubling down on 40-60 percent losses in their pension plans. It is about now that the tax deductible money goes into those schemes.

    I my opinion The Bottom(tm) comes when something "too big to fail" actually fails and the market no longer cares enough to fall further.

    Maybe the UK monetising it's debt thus dropping out of the Euro-zone, Pakistan, Egypt or China blowing up. Something like that.

    Anyway - It is *stupid* to buy stocks at the bottom of an interest cycle; there is nothing to inflate their value except hard work and profits -> which takes too bloody long.

    This is speculating time. Investment - pah!

  14. Re:Am I missing something?

    I think that you are; the banks' market has not gone up after the TARP infusions because no one knows the value of their toxic assets, how many more write downs are still to come and how much more capital will they need to make them solvent? Once that is known, the market values of the banks will begin to reflect capital infusions.

  15. Re: Great Depression/Denmark

    Hej fajensen,

    Du har ret min ven. :)

    The economy is nowhere near the depths of the 1930's - it's just that markets are already fearing such an outcome, in my opinion far too soon.


  16. subject to interference and interpretation

    Inference, may be?

    BTW, did you follow your own advice?

  17. Ok. I posted the comment regarding market cap. of banks. I think it is a good point regarding an actual coming inflation that will raise the price of shares (superficially). The Gov't is basically printing money and wealth will be transferred from those holding cash to those holding assets.

    There is also a great deal of fear and the market cap of these shares don't reflect this infusion.

    Hellasious- sure there is dilution of your market share. But what troubled me is the drop in the overall market cap. Bank of america's market cap. is down 50% after their share of the infusion. Share prices are a 1/3 of what they were three weeks ago. Even with the dilution, the share price dropped substantially in excess of that.

    But the point to my post was this. Doesn't all of this spell the opportunity of a lifetime? For someone with the funds to get in and sit out for a full year. Even if the US economy doesn't recover to what it was once. Prices will rebound. Holding cash is absurd with coming inflation.

    Or any way, that is how I see it and how I started to play the market (in incremental doses) this past week.

    Thanks for the great blog. Been following it for over a year now.

  18. What did the share price of Japanese banks do after they were zombified and BOJ started purchasing some of their junk?

  19. I have spent years listening to corporate bosses and politicians lecturing the ordinary working man that he needed to 'adapt to survive in a world of constant change'. Strangely now the same situation has arrived at the doors of the elites they appear to want to move heaven and earth to prop up the status quo. Hypocrites to a man and destined to fail.

  20. re: BTW, did you follow your own advice?

    Calling it advice is a big stretch. Instead, think of me as the USAF staff sergeant sitting on the tac radar on an AWACS plane, calling out hard to decipher "hits". How the captain decides to act is another matter altogether.

    But.. yes.

  21. "What are they gonna do with Bill, I wonder?"
    Put him in charge of interns?

  22. If you like opera, and are single, I can introduce you to my lovely sister in law. I'll be in London in a months time, and she is there all the time. Of course if you live elsewhere an introduction won't work too well. So many hurdles.

  23. I found this really interesting:

    "Obama motivates D.C. to initiate new lower and middle class bailout"

    Obama's Taxpayer Bailout

  24. "my choice is renewable energy and sustainable resource utilization"

    Sounds respectable. I nearly buckled under Edwardo's gold raves, but then I read about the eco disasters caused by mining and I felt dirty.

    C'mon, give us your PM opinion, Hell. Help a dink out ;)

  25. re: help-a-dink with PM opinion.

    I honestly cannot. I am a PM agnostic - except for jewellery that is.

  26. re: meeting opera loving sister-in-law.

    Thank you for thinking of me :)

    I do love opera. And so does the love of my life.


  27. Dink,
    You might try re-phrasing your question to focus on the $ex-rate and how it is being affected by the deleveraging being forced by the margin calls by prime brokers on their hedge fund clients and what the likely end result of that process winding down will be.

    I think that will give you an indication toward the answer you are seeking WRT gold and other commodities.

  28. "My grandmother lived back then - in Denmark even. She saved & reused gift wrappings, plastic bags and whatnot for ever after from fear of running out money!"

    You westerners are so spoiled. That's how we lived in India for all my life, and I mean in 1980s and 90s, not 30s :)

  29. "I am a PM agnostic"

    Thanks. Agnostic is a good word for it. I mostly believe gold is ridiculous, but every once in a while I hear a passionate fire-and-brimstone PM sermon and I begin to find religion.

    "what the likely end result of that process winding down will be"

    You phrased better than I could have:)

    "You westerners are so spoiled"

    Are there at least three separate people posting as "greenie"?

  30. retreads seem to be Obama's idea of change..

  31. Dink, Greenie's dad just died. You might cut him a little slack.

  32. As long as no third party is able to threaten the Republicrat duopily, all we will ever get is retreads of approved establishment policies, no matter how old or worn out.

    If only Democrats in Red states had voted for Nader or McKinney and Republicans in Blue states for Barr or Paul, the duopily would have sat up and taken immediate notice.

    My condolences to Greenie but how were we supposed to know.

  33. "Dink, Greenie's dad just died. You might cut him a little slack."

    No has to move on doing its things :)

  34. >"I am a PM agnostic"
    >Thanks. Agnostic is a good word for >it. I mostly believe gold is >ridiculous, but every once in a while >I hear a passionate >fire-and-brimstone PM sermon and I >begin to find religion.

    Love you guys. This is music to the ears of this hombre :)

    I am a born-again gold bug, just to let you know. Seems like some divine order chose myself to be always on the opposite side of Hell :)

  35. "a little slack"

    Belated condolences to all who have lost loved ones to cancer. I hope happy memories will soon replace the grief.

    "Seems like some divine order chose myself to be always on the opposite side of Hell :)"

    Your gold-buggery is paying off this week. Do you have a timeframe/price/situation in mind that will be the trigger point to sell?

  36. 2016.

    I am in it (PM miners) since near Oct bottom.

  37. Good interview -

  38. Go read another book as i did. Buying will present itself as the Obamanites Meddle. I am also watching basic material sector real close. Meanwhile Our findings may also provide insight into the
    policy mistakes in the late 1960’s and 1970’s. If monetary policymakers in the 1950’s had figured out the essence of sensible policy, the mistakes of
    the 1960’s and 1970’s cannot just have been the result of continuing ineptitude or misunderstanding.
    Rather, something must have changed. One obvious candidate is the model of the economy.
    Thomas Mayer (1998) and Taylor (1999) suggest that a naive Keynesian model with an exploitable
    trade-off between output and in ation and, later, a natural-rate hypothesis with an unrealistically
    low estimate of the natural rate e
    the key sources of the inflation of the 1960’s and the 1970’s. Our finding that these models are so different from that in the low-inflation 1950’s and post-Volcker 1980’s and 1990’s adds credence to this view. Volcker smells inflation he will enable it to crushed if he has a grain of salt left.
    The rabbit is out of the hole.