This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

It’s been great to contribute to Move the Markets over the last year or so. I appreciate Richard allowing me to contribute. Without that, nobody ever would have read anything I had to say. Richard’s built-in readership base was just what I needed. I hope that I have brought something good to his site during the time I have been here.

I also appreciate everyone who has ever read my stuff, commented or emailed me. I’ve made lots of friends and gotten gems of advice and wisdom that have helped me immensely.

As Richard said, I am interested in finding a new blog home. I haven’t decided what I will do, whether join someone else’s blog or make my own. I do know that there are so many people out there with exceptional content and actual trading skills–I don’t think I’d be able to generate any readership base on my own. So, contact me at prospectus@movethemarkets.com if you need a washed-up hack like me to contribute to your blog, though I may end up deciding to do nothing and just fade away.

In any case, trade well, manage your risk and enjoy your life!

–Prospectus

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Well, not apart from these:

In this corner, we have S&P (”Sluts and Pimps”) reaffirming the AAA ratings on the monolines:
S&P Affirms MBIA, Ambac

Since the beleaguered bond insurance industry was thrust to the foreground of the credit crisis, MBIA has sold $1.6 billion of stock and $1 billion in bonds, fortifying a $17 billion cushion the company has available to pay claims.

S&P said raising this money “is a strong statement of management’s ability to address the concerns relating to the capital adequacy of the company.” Based in Armonk, N.Y., MBIA insures $670 billion in debt.

So they have $17 billion saved to pay up to $670 billion in potential claims? Just a 2.5% default rate will bankrupt the “AAA” MBIA. Now THAT’s a strong financial position…

And in the other corner, we have MBIA (”More Bullshit, Insanity and Asshattery”) itself cutting their dividend and suspending new insurance on credit derivatives:
MBIA Eliminates Quarterly Dividend

MBIA Inc., a bond insurer fighting to hang on to its top-notch rating, said Monday it is eliminating its quarterly dividend in a move expected to save the company $174 million a year.

The company also said it will stop ensuring new derivative credit contracts, and suspended the writing of new structured finance business for the next six months.

$174 million per year! That’ll put a dent in that $670 billion. Stopping new and existing lines of business will also help, too. If your business actually does better when you don’t do anything, you might be in a crappy business (or you’re just doing it wrong…)

MBIA has been scrambling to raise cash to mollify ratings agencies that are threatening to downgrade its financial strength rating because of exposure to risky mortgage debt.

One of those agencies, Standard and Poor’s, Monday afternoon affirmed its “AAA” rating on MBIA and Ambac Financial Group Inc., another bond insurer fighting to stave off a downgrade.

MBIA has already sold $1.6 billion in stock and $1 billion in bonds to fortify its cushion of capital used to pay claims. But as the canceled dividend shows, the company appears willing to take further steps to maintain its top-notch rating.

“MBIA will continue to take reasonable and prudent actions such as this dividend elimination in an effort to retain and strengthen our Triple-A ratings,” Brown said in a statement.

This would be laughable if it wasn’t so incredibly disingenuous. God bless America, where you can stand up and say with a straight face that a bankrupt company with more exposure than the red light district in Amsterdam has a better credit rating than New York City and their $17 billion in debt, ironically also affirmed by “Sluts and Pimps”.

Unbelievable.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Bernanke is now between the “rock” of recession and the “hard place” of the soft dollar, with economic growth slowing and core inflation at 0.3% and rising. The Fed historically wants a core inflation at +0.2%, giving an annual rate of +2.4%, which is considered “price stability”. A rate of +0.3% puts us in the +3.7% annual rate zone, well above the Fed’s comfort level.

Should this trend continue, this is a worst-case scenario of slowing growth and rising inflation. In that case, there’s nothing left for the Beard to do but pray (but those puppy-dog eyes will not get you anywhere):

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I’m putting on my “robe and economist hat” here. The estimate of January Retail Sales just came out at +0.3%, compared to a consensus estimate of -0.3%. Because of this, futures are up sharply this morning, and the terrible, terrible recession of the first two weeks of January, 2008, is but a distant memory (remember how bad that recession was? Now we can look back and laugh…)

Anyway, traders just see the number, see it was a huge bullish upset, and then buybuybuy. I looked at the actual statement, and found this wording in the opening text (emphasis mine):

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $382.9 billion, an increase of 0.3 percent (±0.5%)* from the previous month and 3.9 percent (±0.7%) above January 2007.

Basically, they look at the sales revenue and see if it’s higher than previous months / years. These numbers do NOT take into account changes in prices! With inflation numbers ex-food and energy nearing 0.2 to 0.3%, retail sales barely broke even on a real basis. But just eyeballing the data, it seems that everything dropped or stayed basically the same from the December estimate except:

*Motor Vehicles & Parts Dealers
*Food and Beverage Stores
*Pharmacies and Drug Stores
*Gasoline Stations
*Nonstore Retailers (think Amazon.com) was a smaller player

Gasoline was a big hitter in both a percent change and actual dollar value in the estimate. So basically, if sales were up at all, it’s because people spent more on gas, food (not restaurants as that dropped, but grocery stores) and drugs. Arguably, they spent more, but could have purchased less due to neglecting price changes as stated above. Further, these categories are necessities, and I wouldn’t hang my hat on these leading the way out of a recession. These are defensive purchases, and the discretionary items (like electronics, sporting goods/hobby stores, department stores etc.) are flat or worse.

So buybuybuy! Load up the truck on retailers! The number was up! :p I’m not going to call the recession over just yet. The consumer is still taking blows to the head, and the reported number is not what it seems to be.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Oh, if I had just gone to work in the car business! I’d be banking coin right now. $140,000 if you have 10 or more years of experience and want to forego all future benefits (like anyone in their right mind would count on them!). Um, yes, please!?

GM’s annual loss last year was a record $38.7 billion. If they had just paid all 74,000 UAW workers the $140,000 payout and quit making cars at the beginning of last year, they would have saved $28.3 billion dollars!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

In this article, it is stated:

More than 30 percent of U.S. homeowners who bought in the last two years owe more on their mortgage than their house is currently worth, a housing market research company said on Tuesday.

The housing market peaked in most U.S. markets in the last two years. Of home buyers in 2006, 39 percent of those with a median 10 percent down payment now have negative home equity similar to 30 percent of those who purchased in 2007, said online company Zillow in its quarterly home value report.

If Zillow, who are notoriously known for hyper-inflating house values says that homeowners are underwater, then things are bad out there! Like I say, Johnny-on-the-spot gets the money, Johnny-come-lately gets the shaft. If you got into and out of the housing “Musical Chairs” game while the music was still going, you made out like a bandit. Sucks to be you if you’re one of the people scrambling to find a chair now.

Look for more people to just walk away from this game in 2008.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

A look back in history today, as we see Jesse Livermore in a verbal pugilistic match with John Pierpont Jr. over the market conditions of the day in 1907:

Livermore banked $3,000,000 that day when he covered his shorts (and I don’t mean breeches).

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

The Beard has a subtle message for the banks:

The amazing Michael Shedlock over at Mish’s Global Economic Analysis recently posted an article about leveraged buyouts and the effect of the current credit situation. Among many insights, he quotes an article from Financial Times that says:

Ironically, the Federal Reserve’s dramatic 1.25 percentage point cut in interest rates in January contributed to Harrah’s problem, because loans are floating rate and with benchmarks such as Libor dropping, returns to investors fall proportionately.

It seems that Bernanke agrees with the Fly’s sentiments. The Fed is clearly trying to save the economy from recession, and hang everyone else. The banks are getting no free ride here.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

The continental landmass, the bugs, inflation…

Supermarket till slips show the price of chicken rose more than 236,000 percent to 15 million Zimbabwe dollars ($3) per 2.2 pounds between January 2007 and January 2008. Scarce eggs rose by 153,000 percent in the same period. One of the lowest increases of about 64,000 percent was on sugar, bringing independent estimates for overall food inflation to about 164,000 percent.

Of course, the inflation rate ex-food-and-energy is probably only 2% :P

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I was dreading preparing my Schedule-D this year for all the overtrading I did with my prop firm. Not only did I blow up, but I have to meticulously document it too? Match each entry and exit(s)? Wash sale rules? Bad times.

Then, today I get a Schedule-K from my firm. One simple number of my share of the profit / loss (definitely loss in my case) of the partnership, my share being the results of my trading activity. Taxes done!

Capital to fund account: $2000
Commissions over 6 mo: -$300
Realized trading losses: -$1250

Giving the IRS the finger: Priceless

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Maybe it’s just me, but that beard seemed familiar…

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

In my prior post called “The Worst It’s Ever Been?“, I compared the current market environment with three prior market crashes (1929, 1961, and 1987) in the Dow Jones Industrial Average. This was all sparked by a chart that Barry Ritholtz posted on The Big Picture. On the prior post, Bill Rempel left a comment asking “What’s your assessment of the four-year period BEFORE each date?”

Good question! I found a great site called Measuring Worth that has historical closing data for the DJIA going back to 1885(!) among other cool datasets. I was able to take the crash data I plotted yesterday, and append four years worth of data to the front of each set. (One note: I erroneously referred to the y-axis of each chart previously as “% Decline from Peak”, where what I was really showing was “% of Peak Value”. You knew what I meant, though :P )

Here’s the first extended chart, showing % of Peak Value vs. Trading Days. The legend gives the starting year of the dataset:

For a slight adjustment we ratio each time series into equal parts as I did previously:

From this chart, two things are evident to me. First, 1929 and 1987 both had quite a run-up going into the crash, while 1961 and 2007 have a much more moderate advance prior to the peak. These first two seem like bubble bursts in every sense, with a fast, dramatic crash ending a spectacular and ever-accelerating rise. The latter two seem to behave more like secular bear markets, with not a lot to show for 4.5 years of time one way or the other, with rallies and even declines taking quite a bit of time to form.

From this analysis, I would expect our current market environment to behave in future more like a 1961 and less like a ‘29 or ‘87. Any continued decline should be moderate, and I would stick to the 70% of peak number that I referred to earlier as a downside target for the Dow. Further, I would also expect the current market to decline more slowly and steadily rather than over only a couple of days. Now that we know the big weekend sell-off was caused by “Le Societe Genius-ale” and their fall guy (Rogue Trader my @$$), I would lean even harder in the direction of “slow and steady bear market” instead of a true market crash for the future. Caveat: Should more sub-prime, credit-default swap or other financial atom bombs drop, we could be in for more market fireworks. Heck, even The Beard arguably lost his head during the big sell-off as SG liquidated their position! People are jittery, and should they all decide to run for the exits, then all historical bets could be off. Should be fun times ahead in any case!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Barry Ritholtz from The Big Picture recently posted a chart of three prior stock market crashes in the S&P compared with our current market environment. There were some comments about the charts not being to any kind of scale to each other. I wanted to analyze a bit more. Of course this is all moot, thanks to the Beard Power unleashed last week, but indulge my study for the pure academia ;)

Unfortunately, being the cheapskate I am, I didn’t have access to free data for the S&P past 1950. So I took historical data for the Dow Jones Industrial Average from Yahoo Finance instead. I tried to isolate the data that was used in the Big Picture post. My charts of the Dow are above the charts Barry posted of the S&P:

Source: Bronson Capital Markets and http://bigpicture.typepad.com/

As you can see, I think I match the time periods in question pretty well. I then plotted them all on the same chart on a basis of percent correction from the peak vs. trading days after the peak:

To non-dimensionalize the time factor, I plotted the data against a ratio of start-to-finish time. For 2007, I assumed that if the current correction is indeed a crash it will follow the 1961 and 1987 time ratios fairly well:

The data from the 1929 crash really went on for a long time compared to the other crashes. When you isolate it to the first trading year after the peak, and ignore the protracted bear market through 1933, you get a more congruent picture:

Still, the data is not similar in that the 1929 data contains a large rally before the ultimate resumption of the killer bear market. I decided to truncate the 1929 data after the first higher low (at 79 trading days or 12/23/1929) as the 1961 and 1987 datasets seem to have been truncated. This would mark the end of the crash and the beginning of a new upward trend phase. The curves then collapse in a very satisfactory way:

Should this time prove to be a true crash, we can expect (according to historical average) to hit around a 70% decline from Dow 14,000 putting us near Dow 9,800. To stay on target for a similar timeframe, it would have to come sometime in the first two weeks of February. We’ll see if it all pans out and my assumptions are correct. It should be an interesting few weeks either way!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com