Bill Cara’s Blog for Aug 4, 2010 [See post-close report]

Pending home sales contracted M/M - 2.6%

http://fidweek.econoday.com/byshoweventfull.asp?fi...

MBA purchase applications, released this morning, show positive territory thanks to Govt. sponsored purchase applications. Conventional purchase applications remain flat. Refinancing makes up the lion's share of activity, as 30 year rates ave. 4.6%

http://fidweek.econoday.com/byshoweventfull.asp?fi...

Uncle Sam still holding the mortgage market together - sort of.

Dear Bill,

Thank you for sharing your words of wisdom everyday, tireless and one the Q's. America has hope with people like you. May God Bless you.

"Gates is a great salesman — I'll leave his business methods and customer care for others to decide."

http://www.youtube.com/watch?v=iK6SS8CXYZo

That's pretty cool BH. I like the YouTube idea as well.

I was complaining on the weekend about not getting IB's TWS and Amibroker working on Linux. Finally got it working on Monday!! Told my wife it was a monumental day! I've been on IBM clones forever and Windows since it came out, but never went past XP Pro because I hated every (friend's)computer I was on with a version since then. I have the same complaints about Windows updating/rebooting. Even if I didn't lose anything, it made me mad to see the blank screen in the morning.

I still need to get a few kinks worked out of my Ubuntu Linux, but can't wait to spend weeks without booting Windows. I will still need Windows for my Adobe InDesign desktop publishing program I think, but the other main programs will work with Ubuntu or there are good alternatives in the Linux community. (Grym, over the past 30 years I could never bring myself to use a Mac.)

I've been spending quite a bit of time away from my desktop and using an older laptop (instead of my new netbook) because of the bigger screen & keyboard. Older, slower computers show the biggest speed improvement of Linux. Not having Norton slow everything down is another huge advantage.

Not to paint too rosy a picture, as it takes someone a little "geeky" to make everything work. If you are so inclined, you can dual boot Linux/Windows and try it out without messing up your Windows.

Non ISM expectations 53 actual number 54.3. This expectation beat caused SPX to instantly jump 3 points breaking to new highs for the day (and incidentally tripping stops of everyone who went short

Initial market reaction was positive, but secondary reaction (including the buck rallying 0.50%) is distinctly negative.

Perhaps this is the start of the dollar rebound?

FD: sold my dollar puts today, sold euro two days ago

I was in Spain for a few weeks and asked several people why I didn't see more houses for sale, and the ones that were listed did not seem to be bargains. My summary of the answers I got are that neither banks, (which are still foreclosing on houses), nor owners who bought at inflated prices are willing to book losses and so are simply not selling at current offer prices. I haven't done any research on this beyond the anecdotal evidence, but it seems to me there may be significant losses not being recorded or recognized by the lending institutions with real market value losses to hide.

http://tinyurl.com/32vpj2o
The Biggest Lie About U.S. Companies
by Brett Arends
Tuesday, August 3, 2010

Until reading this article I had the single impression from news reports that US companies were flush with cash. This article makes the opposite case.

[from Bloomberg, which this spring hailed the "surprising strength" of corporate balance sheets. Or perhaps in the Washington Post, where Fareed Zakaria reported that top companies "have accumulated an astonishing $1.8 trillion of cash," leaving them in the best shape, by some measures, "in almost half a century."]

"American companies are not in robust financial shape. Federal Reserve data show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression."

"A look at the facts shows that companies only have "record amounts of cash" in the way that Subprime Suzy was flush with cash after that big refi back in 2005. So long as you don't look at the liabilities, the picture looks great. Hey, why not buy a Jacuzzi?

According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever.

" That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s."
----------------
Increasing debt could indicate rising business, confidence in the future or just a struggle to stay alive.

ALOHA!!

"Anyway, my points this morning are related. I find that too many people don’t think enough; they spend their day reacting, and that’s such a waste. Those of us who take pride in being leaders and independent thinkers see this. For most people, however, life is just a treadmill, and if somebody cranked up the speed to 4 or 5 from 2 miles or klicks per hour or whatever, they had better move it or lose it."

A treadmill indeed ... Thanks for the Dirty Harry memories Bill!!

My wife and I were watching Miami Vice and the episode THE PRODIGAL SON. Watch this and listen to what the "dirty Ace..." has to say.

Here is the exact episode and scene we watched on YouTube ...
LINK: http://www.youtube.com/watch?v=8LYrnqQC60o

I hereby nominate Sonny Crockett to head the SEC!!

At any rate there is a lot of powerful truth in that one scene from the 1980s regarding "money" and Wall Street, whereby "money is a commodity" and the operative word comes into play "DEBT". Money is suppose to be a medium of exchange and a store of value under the best circumstances. Now it is an "exchange of debt" not value. Most commodities support life on Earth for human beings, like oil and food, but corrupt money, which is what we have, does not. Debt does not support life. In that sense money is no commodity, nor is it even backed by one.

Now contrast this Miami Vice episode from the 1980s with this diary from the 1960s in which the Brazilian Central Bank is engaged in creating a new stock market in Brazil. Here we have an insider who brokers deals between HB&B and Central Banks, one in the same, since bank cartels run both. Norman S Poser is professor at Brooklyn Law School on wrote literally the book on BROKER DEALER LAW AND REGULATION. In this diary you see the tentacles of the US Central Bank, the US FED, and how it extends out into the World via USAID, a taxpayer funded government agency that is still very much alive today.

LINK: http://tinyurl.com/2alwlz2

The idea that central banks, especially the US FED, are somehow not involved in manipulating the stock market, as Bernanke keeps saying, is preposterous. Just read the diary especially around pages 10-11 and later at 14. Very interesting read and very enlightening as to the various monetary and market issues that still exist today that were issues in 1966. So exactly what CHANGE has happened over the past 44 years since this diary was written?

The very first SEC Chairman was Joseph Kennedy, JFK's Father appointed by FDR,who was a known bootlegger and stock market fraudster. The SEC has been a disaster from day one!

The (high probability) scenario I am anticipating is as follows: strong August— then a really bad sell-off sometime in the September-October-November timeframe. (> 10%) Then our 'Presidential year' rise into 2011 (historically has averaged 50% since 1908!). Then our second leg down (double dip?) in this cyclical bear— very possibly taking out the March 2009 bottom. That last could occur in the Spring and/or over the summer and/or in the Autumn. Thereafter, we should coast sideways for a while and/or see the next cyclical bull market beginning sometime in 2012 or 2013.

In any event, I am in the "new normal" economy camp of Bill Gross, John Mauldin, etc. So I expect the economy (and the stock market) to stabilize at much lower levels. After the next (cyclical) market downleg, I think we will finally lose most of those "retail" investors we picked up during that last secular bull (1982-2000). Moreover, I am not looking for the next secular bull to start much before 2018.

Probably should do some judicious pruning/selling of 'core' (world 'dominator' stock) holdings at the (anticipated) "tops" and re-allocate and buy back in at the (anticipated) bottoms, but I strongly believe that the market will not top its cy2000 peak (inflation adjusted) during the next decade; so we will definitely not be in a 'buy and hold' market.

This 'reading' is based on the combination of Sy Harding's Seasonal Timing Strategy (see http://streetsmartreport.com/sts.html) plus the 'Presidential'/Kitchin cycle (see http://www.tradersnarrative.com/the-presidential-c..., http://www.hussmanfunds.com/rsi/prescycle.htm, and http://en.wikipedia.org/wiki/Business_cycle) plus the decennial/Juglar cycle (see http://en.wikipedia.org/wiki/Business_cycle), and, finally, a variation of the Kuznets infrastructural investment cycle (normally 15 - 25 years, but in this variation seen as having alternating negative and positive cycles, and so is ~40 years; eg, see 1930 or 1970— though it appears that this cycle is about 1-2 year(s) advanced, so this would be already ~1971/72). (See http://www.financialsensearchive.com/editorials/br...)

To quote from that last reference link witten in December, 2006: "The ~ 8-year Juglar Cycle reflects overall business cycles. It peaked in 2000 and is entering the second and worse half of its decline into 2008. After a brief uptrend following its likely 2008 trough it can be expected to repeat with another decline into 2014".

That modified Kuznets cycle pretty much also captures the Kondratiev cycle (which puts us just past midway in the 'Winter' phase). There is considerable room even in these cycles to reflect the current financial / economic woes, though the worldwide scope of the current crises is surely unprecedented.

But, as Bill says, "Trade what you see, not what you feel."

I'm looking at buying some FXE SEP puts at $120.00.

Carl Weinberg was on Bloomberg this AM talking about the IMF audit of Greece. He said that Greece is still a "black box". If Greece doesn't get the IMF dough it needs by end of August, it will default on its bond coupons and we could have another Lehmann situation (which, ultimately, could result in a revolution in Greece). I know all of this has been thoroughly kicked around before, but Weinberg is saying that the IMF audit is legit (unlike the Euro Bank stress test BS).

Euro has run a little too hard & fast here methinks and needs to drop some. Those FXE puts can be had for a wooden nickel right now and the VIX is low, low, low.

Food for thought. GL!

bobj,

I have never been keen (a word showing my age ;-) on computers for doing art work. To me computer graphics is to art what Playboy is to real sex. (Both are better — "hands on.")

I spent too much money on hardware and software upgrades and too much time non-billable time learning to use, maintain and fix them. Optimizing on Norton used to take me 45 minutes and with some jobs need to be done more than once a day.

I'm just curious about the need for Windows to use InDesign. I've only been a Quark user, but does this mean Linux can't use a DTP application on it's own? (Obviously I'm not Linux savvy.)

All I care about now is the internet — I use one of my older Macs to do Christmas and birthday cards, since my best (very expensive printers) have no upgrades to my latest iMac.

Are you involved in graphics as an occupation?

I posted about this a few weeks ago:

"All we hear about is the record cash on the balance sheets of the S&P 500 companies. So I began saying to myself, "Well, what about the debt?" We all know its great to have a lot of cash but if you have more debt than cash then what good is it really?

Here is a great article I came across that shows the cash and debt levels of the S&P 500:

http://www.standardandpoors.com/products-services/...

As you can see, the S&P 500 has about $1 Trillion in cash. However, there is about $2.7 Trillion in debt. If you compare these figures with those in 2006, you will see that while cash went up about $300 Billion, debt went up about $600 Billion.

So the next time you hear someone say the market is cheap because it has so much cash on the sidelines, ask them: "What about the debt?"

Bill,

you can configure Windows to either not download updates or download but not install them and leave it to you to install them in your own good time.

If you want, I can send you screen shots showing which dialogs you need to visit, there must also be somewhere on the web with info about that.

If you absolutely need to preserve a certain state of your computing environment, you might look into VMWare and its ability to take snapshots, caveat: you will need lots of RAM and lots of disc space to comfortably run VMWare

hope this was of some help

UGL is up and ZSL is also up ... what gives?

Yes, he is indeed one of the worst (in the past few years). Others are typically off 10-30% in their 'predictions', but he has been off a digit - an order of magnitude!

He said Citi was a great buy in $40s, generational buy in $30s and buy of the century (or something like that) in the $20s.

Question should not be why people listen to him, but why CNBS keeps inviting him back! I don't mind if he every time he speaks, they ask him about his prior 'predictions' on the same subject and then ask him why he will be correct this time...

Msquare,

Do you happen to remember if the declaration of ownership showed he owns it?

I'm always interested to see "no ownership" after a guru has bragged up a sure winner.

Buick used to use the slogan, "Buick — Ask the man who owns one." Seems reasonable to me.

lets see, gold had a wonderful little pop on very low volume as the USD bounced off a very over-sold condition from the .80 level.

gold shares.... dont even ask.

i was reading Ron Rosen's catastrophic predictions of an HUI collapse and found it interesting: http://www.kitco.com/ind/rosen/aug032010.html

interesting watching Kinross purchasing a jr. gold outfit and their stock tanks on large volume before rebounding today and tanking back down. Kinross is close to its lows relative to bullion from the 2008 crash.

for the fanatics who naively believed that industry consolidation and buy outs would enrich the sector please think again, these purchases are made by the same outfits that hedged gold against a falling price or so they thought in 2000 going forward. now why would their next move be savy?

Kinross and Yamana used to be stalwarts of the gold sector in canada, now they are nothing but forever falling stocks vs. gold. they will never have the kind of run up compared to gold simply because their business model is corrupt and has already enriched the insiders who sunk the stocks with shadow short positions.

i challenge any and every gold bug out there bullish on the gold shares vs. gold who think during the next run the GDX and others will rise past and exceed their prior highs relative to gold to explain why and to qualify it, which means giving proper rationale why they couldnt do it from $800 gold to $1200. what makes anyone think they will do it from $1200 gold to $1500?

good luck gang, dont say you havent been warned.

ALOHA!!

Well, I am not a gold bug but ...

I wouldn't give Ron Rosen 5 cents to invest! He's been so far off the mark for so long he makes Prechter look like an expert!

What HUI? Go read my last post last night #66631 ...

I agree on Kinross regarding their poor performance, but then those big miners were never my bag. They bought Red Back(RBI) the company I presented on at the CTA Conference 2010, so now they have a Ghana presence to add to their Russian one . I see Kinross bought two more companies based in Russia for $365Mil. What else are they going to buy? So far the market is not impressed. Is KGC a line item on the US Treasury?

If Fed credit creation is akin to stocking grocery stores with food and nobody comes to buy any, you would have the equivalent of the M1 Mult falling. I have posted M1, M2 and MZM charts before from the St. Louis Fed and they are available there in the Fred Data section.
Here is the Multiplier chart from the Fed. Each time I see it I get more alarmed. Thoughts welcome!

Grym, I agree with Team F and I liked his link to SP because of the charts and numbers included #66663. The spin about using the $1T cash hoard to buy European companies was just so much propaganda to my ears. Even though the debt to cash ratios improved, US companies still carry $2.7T debt to $1T cash. So now they are ready to buy, buy, buy? I haven't seen an abundance of those stories in the news. If I owed $2.7 dollars for each $1 cash on hand, I would not be in a buying frame of mind.

Who knows, stranger things have happened, right?

Johnny,

"Who knows, stranger things have happened, right?"

Yes. The last few years there have been few reasonable people in high places.

Locally we have 14.8% unemployment and the city council is talking about a "special tax" on downtown businesses to make improvements and draw consumers.
(Why a tax? If they want to contribute they can do it themselves.)

Our former governor Badboyovich (awaiting a jury verdict) raised fees and licenses on businesses and they (and jobs) left the state — isn't it likely it will happen here too?

We have a MetroCentre which has never made a profit in 25 years. They spent $23million putting lipstick on it and just signed a five year contract with an out of town management firm.

There is no good way to get to the city center from the tollway. (Could this be a problem for people coming from Chicago?)

They have given low interest loans to everything from beauty shops to restaurants to entice businesses there. When just folded having repaid zero on an $85,000 loan.

There is no end to the ways to spend tax dollars. My letters to the editor have me labeled as "anti-progress" by the paper. I see a progressive pile of debts and pie in the sky ideas.

Joking mostly on this, but what would that do to a market anyway?

http://www.businessinsider.com/china-stress-test-6...

http://tinyurl.com/2765fjk
N.Y. Fed May Require Banks to Buy Back Faulty Mortgages, Assets
By Dawn Kopecki and Jody Shenn - Aug 4, 2010 4:39 PM ET

This seems to me to be a starting point, if politicians want to do something constructive to begin to fade the burnt in memory of eliminating the Glass-Steagall act of 1933, shilling for the bank and mortgage mobsters, bailing out the too-well-connected-to-fail crowd, plus corrupt dysfunctional behaviors too numerous to list.

Reference: http://tinyurl.com/y9zt2ur
The Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999-2001) signed into law by President Bill Clinton which repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies. The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.

-----------------
I have to admit, for me this one falls into the "too good to be true" category.

Castro may be in the loop:
http://presstv.com/detail.aspx?id=137492&sectionid...

Iran thinks it is a bad idea:
http://presstv.com/detail.aspx?id=137494&sectionid...

And the US continues its financial terrorism:
http://presstv.com/detail.aspx?id=137496&sectionid...

..http://www.cbsnews.com/8301-504763_162-20012601-10391704.html

Looks like Rosen's signal was 3 months before the top last time...

Money is created by banks when people borrow money. Mish had some good articles about the Fed's credit creation model and why it is backwards - I think the original source was Steve Keen. Keen's theory is, banks create the credit first because of borrower demand, and then find reserves later, which is the reverse order of things from what the Fed says occurs.

However, that bank credit creation mechanism is distinct from what the Fed did last year. Last year, the Fed did not simply make it possible for banks to lend more money, they actually went out and bought assets in the real world, creating new Fed bank credit (money) in exchange for those assets. That new money was then used by the former asset owners to buy other financial assets, including equities, which sent the price of those financial assets higher. Thats why last year there were entire weeks when both bonds and stocks rose in price. All that new money had to find a home, and it did - the price of everything went up as a result.

Thus, QE led to higher financial asset prices, since there are suddenly all those new Fed dollars chasing the same number of financial assets.

Did that money enter 'the real economy?" Thats hard to say. Some of it probably did, but probably not as much or in the same way that consumers taking out loans to buy houses and cars, and buying products using credit cards.

Regardless of what the Fed's multiplier chart (or model) shows, money creation in the private sector depends entirely on the willingness of people and companies to borrow money. If real people and companies do not want to borrow, then no money is created, regardless of Fed models, multipliers and reserves, etc. There's no pushing on a rope, and there's no forcing people to borrow when they don't want to - or need to - or aren't able to.

Lengthy reading George, which Dave summed up nicely, but worth understanding:

http://www.debtdeflation.com/blogs/2009/01/31/ther...

S&P -0.40 / -0.04%
Level 1,124.20
Fair Value 1,124.33
Difference -0.13
Nasdaq -2.00 / -0.10%
Level 1,903.25
Fair Value 1,908.10
Difference -4.85
Dow -2.00 / -0.02%
Level 10,633.00

as Twiggs' suggests possible $ dollar retracement to 85:

http://www.incrediblecharts.com/tradingdiary/2010-...

Ah, yes, but rhetoric and drum beating have sometimes led to more than smoke signals.