Here We Are, Now What?

GDP equals consumer spending plus investment plus government spending plus the difference between exports and imports.  For the past two full years, our economic saviors have dunked the markets in "money" not to repair the structural issues of consolidated risk, financial fraud, and an unsustainable economic model, but rather, to maintain some semblance of confidence in this rapidly fraying system.

Now, as before, the problem remains that there's no plan following Operation Market 'Roid Rage for which to transform our economy into something stable.  Sure Obama likes to jump in front of crowds and talk about how important it is to focus on exporting, but does policy even lay the ground work to begin reasonable corporate effort to repatriate production?

If I'm being honest, Cuban was right, the market is for suckers.  The market is for suckers and assholes, and the financial sector is a zero value added enterprise.  For some reason, our culture has come to accept that we absolutely must put our future into stocks, bonds, and mutual funds, instead of ourselves.  To all those deriding housing as an investment consider that over the past 10 years the market is more or less even.  Consider that if houses cost about the same as 10 years ago, the savings of compounding mortgage interest ( ~8% on a 30 year fixed back in 2000) actually pays the homeowner by not being a future expense.  Add to that that the homeowner would not have to worry about paying a mortgage during retirement, the preponderance of most Americans' core monthly expense.

If anything has been learned, I think we're going to see the leverage coming out of this market as the kick of the can was meant for time-released stimulus and taxation, more commonly known as an inflationary transfer of wealth to those who survived recent history, from those so deeply indoctrinated by fear that they don't know what to do.  (They do know where the unemployment office is, though.)  Until there is a plan, expect disappointment, and receive it, because this leaderless, spineless, partisan, nouveau-Aristocracy cannot be relied upon to think philosophically and with regard for complex payoff, rather than insta-profit.

Mind. Your. Own. Business.

MYOB.  Call that the libertarian motto.  I am always amazed about the fights people put up to preserve the status quo, even if directly contradicting the Constitution.  After three centuries of running this little experiment called the United States, we have seen:

• Slavery Abolished;
• Women's Suffrage;
• Civil Rights Movement;
• Repeal of Ban on Gay Marriage.

At the end of each battle, usually including physical altercations and hundreds of casualties, but always including mountains of time and money, the Supreme Court hears the merits of each argument and that group of cornerstone principles called the Bill of Rights comes down on the side of ... equal rights.  Just like we learned in 3rd grade?  Go fig.

The problem with being a self-righteous prick isn't that one can't handle one's emotions, though that's certainly a factor, the problem is that self-righteous pricks earnestly believe that the status quo somehow turns wrong into right.  None of the above issues should have been politicized.  None of the above issues should have been issues in the first place.  Neither should the Ground Zero mosque be such a hotly debated topic.  Does it make America look like trite, stupid, douche rockets to constantly ignore our own Constitution?  Yes, it most certainly does.  Are there more serious issues to spend time and money addressing than fighting a battle that cannot be legally won?  I think the unemployed 20% of Americans would probably agree that there is.  At least they would if ever the specter of cessation of extended benefits became real.

Did you know that people feared JFK becoming President for fact that they believed he would make policy decisions based on the Pope's whims?  Absolute buffoonery.  Here's what he had to say:

I believe in an America that is officially neither Catholic, Protestant, nor Jewish ... where no public official either requests or accepts instructions on public policy from the Pope, the National Council of Churches or any other ecclesiastical source ... where no religious body seeks to impose its will directly or indirectly upon the general populace or the public acts of its officials ... and where religious liberty is so indivisible that an act against one church is treated as an act against all.

So, unless you plan on imploding St. Paul's, St. Peter's, or vigorously fighting the reconstruction of the Greek Orthodox church building, put your pretty head to rest, and mind your own business.

Buddha, Jesus, Mohammed, Ra, Thor, Viracocha, the walking Darwin fish, and all the other gods are probably up there playing poker anyway ... and talking about what retards we all are, for acting with hate under the guise of "defending their ideals."

I think he said it all.

Watched the video below on John Lee's (a/k/a @weeklyta) blog.  The whole clip is great, but I feel that the commentary at 31:33 resonates profoundly in its sublime simplicity.  The following is a quant's response to whether or not he believes that computer models were responsible for the most recent market collapse:

No ... There have been an increasing number of financial crises in the world since 1994 ... and people are used to constant growth and acceleration and every time it's slowed down the government stepped in and tried to stimulate it again by lowering interest rates, just like they're doing now.  And so you get these [sic] sort of rise and collapse, and people don't like the collapse, so they lend money cheaply and force a rise again.  And each time the oscillations get bigger and bigger. 

When previously alluding to the United States economy as exhibiting similarities to the life cycle of sun-like, or larger stars, here, this gentleman's prognosis was what I tried to contemplate.  Large stars burn progressively heavier elements as they age.  The larger a star, the more elements it will fuse, with each element being consumed more rapidly than the last.  Indeed, we have seen time compression between booms and busts since the early 80's, much the same as a large star progresses through its feed cycle.  Red stars last much, much longer than blue ones, by factors of hundreds, and even thousands.  Though their mass, and therefore energy output, may not be as great, red stars are able to reach a better harmony between gravity and energetic expansion.  Without finding some kind of balance by acknowledging that painful results must be accepted as a way to offset gluttonous excess, the fate of our economy rests on ever greater gambles, and ever fewer options.  Soon the pressure on our core driver, the American spender, will be too great.  Philosophical changes must be made before that limit is reached, as supernovae typically occur afterward.

Quick and Dirty Market TA for 8.20.2010

I feel that there remains an over confidence in the strength of the US markets, and an irresponsible inclination toward equity price growth, or at least horizontal action without adequate appreciation for downside movement.  Remember, leverage as liquidity isn't liquidity at all.  Below a weekly SPX chart, click to enlarge, as always:

Light blue lines of resistance and support, as I see it:  1118, 1067, 1021, 944, 876.  Also, please note that 1141 has not been marked on the above chart, but it is a level that I am watching overhead.  This week's inverted hammer is entirely below a 50 week moving average that's on the cusp of rolling over.  Additionally, the MACD rebuffed the 0 line and is beginning to widen down.  No bueno.  An analagous situation from 2007 has been highlighted for effect.  I feel that next week's candle could bring -2 to -4% barring a major interventionist move over the weekend.

As tweeted earlier, "[I] feel like there will be a lot of chipper covered call writers tonight, and grumpy new longs next week."

Good luck.

Corporate Boards are like Pro Athletes.

Corporate boards are like professional athletes.  Very few of them care about anything but their personal way of life, even if that means forgoing maintenance on the vehicle which put them in such a position in the first place.  Corporate boards, like athletes, are actually slaves to the people who manage the funding underpinning their way of life, not because they're too dumb to figure it out for themselves, but because they are able to partition their responsibilities neatly, "It's just a job, when can I get the private jet to Bali?"

Recall Capital One releasing tons of reserves after 1q2010, Home Depot raising their dividend after 1q2010, STI instituting a dividend while still saddled with TARP and a Texas Ratio over 40, and so many other examples of common idiocy at the highest levels of corporate management.  At least one hopes it's idiocy.  COF gapped the morning after the release and hasn't been within 2% of that opening tick since.  Try to remember that these measures develop at the behest of Wall Streeters who, through voting power, control the lifestyles of board members via appointments, comp packages, and ultimately advice and share price when it comes to option exercise and expiry.  Wall Street also does not care about investing.  It's just a job.  It's just a trade.  As long as the board member keeps his ticket on the gravy train, Wall Street gets assuaged, even if at the cost of the business and/or the retail shareholder.

In this office, any company buying stock, raising dividends, and/or acquiring at this point in time goes on the watch list for shorting.  If a company can't support its stock price through performance then all the rest ain't no different than the gold plated gas cap on my '86 Cutlass Supreme.

The longer a market defies its nature, the larger the reversion candle will be.

Book Idea

Someone should go around the country to high school reunions of various anniversaries, regions, etc. and interview the people about their old perceptions, of themselves, of others, of the world, and try to ferret out some links between attitude, behavior, and success from an early age.

Historically, we have seen studies whereby the only folks interviewed are classically "successful," typically meaning those who have abundant money.  I believe this method taints the populace's view of what success really is, what it can be.  The method also fails to adequately study the perceptions of those around the successful person from an early age.

Freeform Ruminations

• Eat. Pray. Love. See. Bridge. Jump.
• For a dude not quite out of his 20's I have prematurely developed a rather visceral distaste for shit head kids and their jerk off parents, particularly related to mall behavior.
• Tricked up movie screens are really just over-sized projections meaning the people in the front, not the back get screwed, and the theater can cram more talkers, texters, candy grubbers, and smelly, fat fucks into the stadium.
• Tricked up movie sound (a la THX, etc.) basically amount to turning the volume up seven notches above the normal pain threshold, and then breaking the knob off.
• Neither are worth the money.
• The United States government, can be likened to HFT.  Both desire to keep money changing hands at all costs.
• Our economic model, which I call Western Financialism, can be likened to the life cycle of a sun-like star, and depending on what happens over the next few years, maybe even a blue star (think supernova and black hole).
• I think EMC is taking a big gamble continuing to load up on VMW stock at these levels.  For sure VMW is throwing off the cash, and in a good segment, but they're not without competition and the valuations are up there in this still uncertain market.  (see past blog post:  Green Lining)  One wonders what kind of deal the two would strike.  Right now, I tell myself that EMC's board is rolling out bid support to back up their 2.4 billion dollar position since company insiders at VMW are selling while EMC is buying.  Alternatively, there could be a cash and stock deal in the cards, which wouldn't be surprising, but would be better launched from lower prices.  Maybe even a new joint product.  I don't know, but VMW's chart remains weak even if I don't hold my short positions over night in this goofy market environment.
• When it's late and sleep isn't coming easy, I throw a Benadryl or two down the hatch.  While waiting for that righteous drowsiness to set in, dude will often browse through wikipedia, the greatest of all websites, or urbandictionary, the latter to stay ... relevant.
• BIDU is still a bomb composed of opaque quarterly reporting, huge tail risks, stretched valuation, increasing competition, and coming soon, a bad chart.  I am looking for new 52 week highs in order to start shorting against momo chasers.
• I am not sure why folks don't care for Zerohedge.  I love Zerohedge.  I love everyone's opinions, most especially the free ones.  Zerohedge does more to encourage questioning (which is the well spring for knowledge) than just about any other market site out there.  The tone, user comments, and checkered history of cribbing others' work notwithstanding, Zerohedge is a must on any market participant's blogroll, in my view.
• I expect the DJIA in the 4 digits again within the next two months.
• I am tired of hearing Pimco's opinions on everything.  If the government wants money spent to support the economy, one questions taking advice from a firm that manages over 1 trillion dollars ... of savings.
• Having read about this guy Druckenmiller's surprise retirement, link here, I have to wonder what took so long?  Dude, I love this job, and I like the money, but it wouldn't take me becoming a millionaire 70 times over, much less 2600 times over in order to decide to hang it up.
• MON is a short.

Good luck tomorrow.