Dow Theory Sell Signal and The Run on the Florida State Bank - Fingers of Instability, Part 13
Stock-Markets / Credit Crunch Dec 01, 2007 - 05:32 AMBy: Ty_Andros
In This Issue – 3 Fingers of Instability
- Breaking the Buck!
- Look at the Actions, Not the Words!
- Showdown at the O.K. Corral!
Dear Readers, first I must apologize for my absence the last two weeks, I have been to Europe to meet with some institutional investors who want solutions to their investing conundrums and I had to prepare for a week then do the travel. It has been heartwarming to get the emails asking for their Tedbits. This week I will be brief and give you “three” fingers, but next week we will be back to the deep insights you expect from TedBits.
Better late then never I say and the bombs are a bursting all over the street: Dow Theory sell signals, new lows below August lows in everything but the S&P 500 and the NASDAQ. Freddie Mac and Fannie Mae meltdowns of over 30%, expect government bailouts shortly. But the plunge protection team has worked overtime to keep things alive and, as this morning's GDP numbers of 4.9% suggest, the Government statisticians have kept their pencils very sharp to keep the illusions of growth and low inflation in front of the masses. The wolf wave illustrated in previous fingers of instability is becoming reality as the S&P earnings are DOWN about 7 % year over year and are headed a lot lower. You have to wonder why stocks are not joining the parade in a more emphatic manner as profits are headed lower, while stocks are a lot higher than they were a year ago.
Breaking the Buck!
In the last two weeks more than three money market funds had to be recapitalized by their banking parents as the securities they held had been downgraded to junk. If they had not injected capital they would have “broken the buck” and returned less than had been deposited in the supposedly ultra safe parking places. But today took the cake as we discovered a new area in which government has tread in search of revenue and public and civil servants demonstrated their expertise in the world of finance.
In the State of Florida a money market fund run by local and state government has had a “RUN ON THE BANK” as it has been disclosed that over 8 billion dollars, which equaled 30% of its assets, had been withdrawn by local government depositors after they learned that over 700 million dollars of the securities they had held are in default. When redemptions hit 15 billion Thursday afternoon Florida Governor, Charlie Christ, closed the doors in FAIRNESS to the depositors who had not gotten wind of the “foul” smelling investments the fund had been holding, and would not be left holding a completely empty bag.
The real finger of instability is brought to our attention by Bill King of the King Reports. This is not something we can expect to hear the end of any time soon:
More runs on the bank and government-run pools are set to begin. It's off to the races as more of these funds than you can imagine hold this BAD paper. I can hear someone yelling FIRE in a theatre. It's a race for the door. Can anyone say “qualitative due diligence?” Yields on AAA paper that are too good to be true? Can you say “Roach Motels”? Dominoes anyone?
Look at the Actions, Not the Words!
When I write Tedbits and offer insights, it's quite often just as simple as ignoring the press reports and looking at the actions. And there is only one message you can take from the Dubai PIPE deal (private investment in public equity) in the world's biggest bank. It is a walking dead man, it is too big to fail and that is the only reason anyone would pay almost $8 Billion IN EXCHANGE for this equity injection. Citigroup's balance sheet is far worse then being disclosed, they had to give an interest rate 7% above 2-year treasuries. These are rates for which the junkiest of junk corporations are currently paying funds. These are not the rates at which the biggest bank in the world should be raising money. The maximum should be 2-3% above treasuries. The amount they are paying SAYS IT ALL: Their balance sheet is in tatters and the buyers are just buying it waiting for the bail out of the bank that is “too big to fail!”
Showdown at the O.K. Corral!
After the most recent Federal Reserve open market committee meeting in October, the statement was fairly explicit: NO MORE RATE CUTS for a while. Up until about a week ago, several Federal Reserve governors were sounding fairly firm in this belief. The Market has had a .25% basis rate cut as a 100% probability and, as I write this, is pricing in a 60% chance of a .50% basis rate cut. In light of today's 4.9% GDP report how can they cut? But, Donald Kohn, aka “Greenspans” righthand man, made an about face speech several days ago so now the stage is set. Will they bow to the market or will they bend it to their will and prudent central banking. Can you say “they will print the money”?
In conclusion: It's been a wild several weeks and the “fingers” I have outlined in this series are all FINALLY unfolding. They are in their infancy after impulse waves signaled their launch. These are opportunities! HUGE ONES! Have you captured them? The credit markets of the G7 have basically turned to toast, Libor is skyrocketing again and the Junk bond markets are basically SHUT DOWN. The G7 central banks are throwing money into the money markets like sailors on shore leave after a night of drinking. 10's and 100's of Billions of them.
The Printing presses at the ECB (European Ce ntral Bank) and the Federal Reserve must be running overtime and they probably have spare computer keyboards at the ready as they have to run keystroke on top of keystroke to replace and print the cash that is VAPORIZING! Jean Claude Trichet's and Ben's helicopters then spend the night dropping them into the blast holes in the financial systems to cover them up. It's INFLATE OR DIE and I don't see them preparing a funeral yet. Volatility is opportunity for the prepared investor.
The markets are rocking: precious metals, stock indexes, commodities, raw materials, energy, interest rates, foreign currencies, the dollar and more are providing opportunities, up and down, to the prepared investor. The tsunami of money and credit creation required to underpin the asset backed economies of the G7are providing opportunities as far as the eye can see. And the massive sterilization of this same money printing by the emerging world is stoking runaway inflation to surface in every area of the globe and signaling the unfolding “Crack up Boom” (see Tedbits archives at www.TraderView.com ).
Thank you for your patience as I have been away. I will return next week with something special for you.
Ty Andros & Tedbits LIVE on web TV. Don't miss Ty interviewed live by Michael Yorba from Commodity Classics every week discussing this week's commentary and unfolding news. Catch the show every Wednesday at www.MN1.com or www.CommodityClassics.com at 4:15pm Ce ntral Standard Time . Archived video casts are available there as well.
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By Ty Andros
TraderView
Copyright © 2007 Ty Andros
Hi, my name is Ty Andros and I would like the chance to show you how to capture the opportunities discussed in this commentary. Click here and I will prepare a complimentary, no-obligation, custom-tailored set of portfolio recommendations designed to specifically meet your investment needs . Thank you. Ty can be reached at: tyandros@TraderView.com or at +1.312.338.7800
Tedbits is authored by Theodore "Ty" Andros , and is registered with TraderView, a registered CTA (Commodity Trading Advisor) and Global Asset Advisors (Introducing Broker). TraderView is a managed futures and alternative investment boutique. Mr. Andros began his commodity career in the early 1980's and became a managed futures specialist beginning in 1985. Mr. Andros duties include marketing, sales, and portfolio selection and monitoring, customer relations and all aspects required in building a successful managed futures and alternative investment brokerage service. Mr. Andros attended the University of San Di ego , and the University of Miami , majoring in Marketing, Economics and Business Administration. He began his career as a broker in 1983, and has worked his way to the creation of TraderView. Mr. Andros is active in Economic analysis and brings this information and analysis to his clients on a regular basis, creating investment portfolios designed to capture these unfolding opportunities as the emerge. Ty prides himself on his personal preparation for the markets as they unfold and his ability to take this information and build professionally managed portfolios. Developing a loyal clientele.
Disclaimer - This report may include information obtained from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made to ensure its accuracy or completeness. Opinions expressed are subject to change without notice. This report is not a request to engage in any transaction involving the purchase or sale of futures contracts or options on futures. There is a substantial risk of loss associated with trading futures, foreign exchange, and options on futures. This letter is not intended as investment advice, and its use in any respect is entirely the responsibility of the user. Past performance is never a guarantee of future results.
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