Dow Gets 331-point Boost, February 5, 2008, CNN Money
Sadly, many market pundits look for a story that fits the market's daily direction,
since they have no time to do any research. The article must go to press almost
instantly after the markets move. If the markets move up or down the next day,
they look for a new story to explain that day's movements. This has created
an environment where comments have no connection with a series of events or
any longer term trends.
If you look at the history of the NASDAQ, you will find that the most powerful
up day in the history of the NASDAQ was not in 1998 or 1999, but almost nine
months into the decline, on January 3, 2001.Did the rally stay?
Right now, I would be watching reports from the FDIC on bank closings,
companies accused of destroying tapes by attorney generals, and broad trends
even if they are painful to watch and are not in your neighborhood.
Missouri Officials Probe Wachovia in Saint Louis, The Bond Buyer,
July 18, 2008
"Hundreds of Missouri investors have called my office because of inability to
access their money." I continue in utter amazement at the lack of tough questions
coming from investors regarding the safety and security of their money.
While this headline is quite alarming, these comments are certainly not the first
concerns about the auction rate securities markets. I pulled our February
newsletter in order to find a reference to an article in the
Financial Times of London on Feb 14, '08, Warning over Auction Rate Securities:
"The auction-rate securities market, a $330bn slice of the municipal bond
sector, could disappear if the credit squeeze remains entrenched, analysts
warn. 'The auction-rate securities market is unwinding and most of the market
will enter a failed state,” said Alex Roever, fixed-income strategist at JPMorgan.
'The lack of confidence is the contributing factor and there is a risk this type of
structure will go away.' "
During a global credit contraction, something none of us have lived through,
you must force yourself to address the painful realities of the financial world
you depend on, before those painful realities become your own.
Click here to subscribe to our ongoing research, where we are always asking,
"What question should we be asking right now, that others are not?"
Federated Investors, Inc Announces Strategic Acquisition Involving the
Prudent Bear funds and the Hire of Key Investment Professionals,
July 15, '08
On December 5, 1996, Alan Greenspan presented his famous "Irrational
Exuberance" Speech. Just three months prior, David Tice opened Prudent Bear.
One man took no action to prepare for the end of a credit fueled mania, the other
did. We would like to congratulate David Tice and his crew for today's milestone,
but even more for his contribution to education of our Congressional leaders, as
well as investors the world over.
If you are searching for a manager to help you navigate these very dangerous
times, I would strongly encourage you to read Traits of an Excellent Manager,
taken from our industry research paper on short selling, Riders on the Storm:
Short Selling in Contrary Winds [Jan06]. In this section you will hear from some
of the most highly recognized names in the world in regards to short selling.
Paulson Sees Fannie, Freddie Share Purchase, 'Only If Necessary', July 15
Paulson Seeks Authority to Shore Up Fannie, Freddie, Bloomberg,
July 13, '08
"Treasury Secretary Henry Paulson swung the weight of the Federal Government
behind Fannie and Freddie.." Now with a weekend of intense talks about what
needed to be done to stop the hemorrhaging at two Government Sponsored
Entities, both stocks went from opening up 32 and 16 percent respectively, to
closing by the end of the day down 5 and 8 percent. Yes folks, that was the stock
fluctuation on two entities that hold or back 5 trillion in mortgages, about half the
outstanding mortgage debt in the United States. Now contrast that number to the
total outstanding public debt in the US. Finally contrast these numbers with the
monthly trend of the banking sector over the last decade versus the Dow.
Maybe we should be asking the Chinese how they are emotionally reacting to
their own market decline versus reading worthless articles dismissing the
historical risk facing us all. If you are asking tough questions, click here to
subscribe to The Investor's Mind: Anticipating Trends through the Lens of History.
John Templeton, billionaire philanthropists dies at 95, Int'l Herald Tribune,
July 8, 2008
Recently I spoke with a individual in the industry who stated, "A year ago, no one
could have seen the credit crisis that has unfolded." Well as one of my heroes
passes, leaving the world without his commentary, I would like to share with
you what one piece of history tells all investors, YES we all could have seen
it if we chose to answer tough questions ahead of the event rather than react to it.
"I do think it's interesting that in all my 92 years of life, I've never seen a time
when it was so hard to find a bargain." Sir John Templeton in Feb '05, and
found in section 7, "Now, About that Bubble", found in our research paper
Riders on the Storm:Short Selling in Contrary Winds. Jan '06.
In the next few years, investors are headed for a market structure that in 95
years of life, Templeton never saw. See "Blueprint for a Modernized Regulatory
Structure", a report released by the US Treasury in March 2008.
MBIA and Ambac Socks Financials, CNN Money, June 20, 2008
Last Thursday, before investors in the global capital markets learned of
MBIA's credit rating being lowered by Moody's, the stock closed at 6.45.
Today, June 23rd, MBIA stock is falling hard. However, if you will review the
following chart, you will understand why we like to ask questions BEFORE
we learn about events in today's papers.
If you are interested in patterns we have uncovered over the last 3 years, click
here to subscribe to The Investor's Mind: Anticipating Trends through the Lens
of History.
Goldman Sachs Does it Again, CNN Money, June 17, 2008
According to this article, Goldman Sachs has the Midas touch. But, those
concerned with future earnings may want to consider little details - like
"leveraged loan issuance falling 74% in the first quarter while loans backing LBOs
plunged 88 percent." Or, consider Doug Noland's June 13th Prudent Bear article,
noting "Asset Backed Securities Issuance is running at 27% of its comparable
level from 2007. Home Equity ABS Issuance is running at $303 million compared
to 2007's $184 billion. Year-to-date CDO issuance of $13.8 billion compares to the
year ago $208 billion."
Citigroup leads drive to hurt Taxpayers, Bloomberg, May 9, 2008
Banks Say Auction Rate Investors Can't Have Money, June 9, 2008
When city and states have to pay $5 to $10 million to Wall Street to get out of
investments they were sold by Wall Street, while banks and brokers prohibit
individual investors from selling "safe-as-cash" investments the investors were
sold by the same, should we be confident? What other questions are investors
not asking because they are afraid to investigate?
Chinese Shares Fall to 15 month low, China Daily, June 13, 2008
When Jim Rogers released his book, A Bull in China, last December, we released
an article titled, Fear & Perception, warning investors of the bearish implications of
the crowd psychology, which fueled the parabolic rise in the Shanghai. While I
respect Rogers, parabolic spikes all too often end with specific outcomes.
MBIA, Ambac Credit Ratings Under Threat at Moody's, June 4, 2008
Bloomberg
After you read the article that is linked above, you may want to test your sanity:
- Should investors be concerned about Moody's possible downgrades of the two largest bond insurers in the U.S. from Aaa, the safest rating, to Aa, the next safest rating? Answer: No. MBIA's and Ambac's stocks have already fallen 91and 97%, respectively. At least in these two instances, Moody's ratings have proven useless .
- If buy and hold investors have lost massively on these two stocks, have mutual fund managers sidestepped the damage? Answer: No. Click Ambac or MBIA to see if your mutual funds are exposed to these stocks.
- What will happen to the US equity markets if these companies go under? Answer: Though downgrading these two companies would cause all of the bonds they insure to be downgraded, causing a massive margin call on all the over-leveraged products built upon these bonds, until reality sets in, the boys at mission control will promise to loan more money to bolster the markets in hopes of maintaining investor confidence.
If you're already asking tough questions, click here to join The Investor's Mind. If
you're wondering who knew about the problems at Ambac and MBIA before they
imploded, read this article about hedge fund manager, William Ackman. Click here
to read a sample of our research, released to our paid subscribers on April 23rd.
After looking at charts of these collapsing stocks, I asked my 9th grade son to give
them a rating. At least he had enough sense to "give them a Z."
The (Mis)behavior of Markets, 2003, Dr. Benoit Mandelbrot, renown 20th
century mathematician who discovered fractal geometry
"From 1986 to 2003, the dollar traced a long,bumpy descent against the
Japanese yen. But nearly half that decline occurred on just ten out of 4,695
trading days. Put another way, 46 percent of the damage to dollar investors
happened on 0.21 percent of the days. Similar statistics apply to other markets.
In the 1980s, fully 40 percent of the positive returns from the Standard & Poor's
500 index came during the ten days - about 0.5 percent of the time."
As you consider Mandelbrot's Joseph and Noah Effects - lots of small changes
followed by a few huge ones - review these two charts.
Tice Proves Every Bear Has Its Day, Invokes 'D' Word, May 21, 2008
Bloomberg
In the fall of 2005, David was kind enough to give me his insights for our research
paper, Riders on the Storm, Short Selling in Contrary Winds. And while many
economists are praising Mr. Bernanke for taking bold steps to remedy the credit
crisis, talking as though "the worst is behind us," the FDIC raised its reserves by
370% in the first quarter of this year in anticipation of bank failures. Through the
newly established Term Auction Facility, the Fed loaned $75 billion on May 6th
and an additional $75 billion this Tuesday, May 20th. So, is the credit crisis really
behind us?
Pouring billions of short-term loans to the very ones who created this mess is
going to end very badly, no matter how many yes men praise the actions of the
Fed. If David's comments conflict with others in the mainstream financial world,
there is a reason. I encourage you to take a moment to learn from David and other
renowned contrarians in the fourth section of our research paper titled, Traits of an
Excellent Manager, which can be found on the Sample page of our website.
I also encourage you to visit Recent Updates, found on our home page, to read
our latest article,The Day Free Market's Died. The second half of this research
article is available to our paid subscribers.
Fed Revs Up Lending in Latest Jolt to Credit Market, May 2, 2008
Bloomberg
Since December of 2007, the Fed has gone to extraordinary measures to keep
the debt markets functioning. The Fed's new Term Auction Facility has increased
its lending from $20 billion, in December, to $150 billion a month. While the Fed
only accepted Treasuries as collateral before December, they have since allowed
mortgage-backed securities and are now accepting bonds backed by credit card
debts and auto loans as collateral. The Fed has even evoked a Depression Era
law to loan money to our troubled brokerage houses since early March. No
wonder the Fed is low on reserves. All this while the Dow is only 8 percent off its
high. What changes have your made with your investments and reserves that
address these rising risk?
Since this period in monetary history will only intensify, and the Dow closed above
the psychological level of 13,000 on May 1, I have placed these three pieces for
everyone viewing our website right now.
- Unlimited Wealth or Unlimited Debt, Best Minds Inc. May 2, 2008
- A New World Order: Explorers, Speculators & Debt Managers, the February 2007 issue of The Investor's Mind
- Factors Adding to Reserves, a Chart prepared on Apr 30 2008 by David Kotok, Cumberland Advisors, revealing the changes in composition of the Federal Reserve's reserves since the summer of 2007.
In the midst of this madness, let me encourage you to pick up a copy of a
more humorous book, The Worst-Case Scenario Survival Handbook.
Staying Alive, April 18, 2008, Doug Wakefield with Ben Hill
With the NASDAQ up nearly 5 percent and the Dow and S&P 500 up nearly 4
percent for the week, many investors are ready for reflation, thinking the markets
have signaled, "All clear," even as billions in losses continue. Yet, it is only a
matter of time before real world fundamentals devastate those investors who
have lulled back into complacency by two soothing words: "bail out."
Emergency Plans, April 11, 2008
Over the past 4 years I've spent thousands of hours researching and writing
about the grains of instability in our global financial markets. When Cambodia
bans rice exports for two months due to a 50 percent rise in price over the
same time, while Dubai builds a mall the size of 50 football fields and cars sell
for more than $1 million in the US while housing prices get hammered, we know
that the global markets are reaching an unsustainable juncture.
This is no time to follow the "expert," and that includes myself. Now is the
time to take any advice and think for yourself. Sadly, many have outsourced their
thinking to the various leaders. As you contemplate joining our ever-growing
group of subscribers, download our September 2006 issue of The Investors's
Mind, Too Costly To Bear. It is even more pertinent now than it was at its release.
Fed's Rescue Halts a Derivatives Chernobyl, March 24, 2008, International
Herald Tribune
When the US Treasury Secretary comes out with the "biggest overhaul since the
Great Depression", granting even more power to the Federal Reserve, correct
me if I am wrong, but doesn't this sound like massive socialism? Do you
remember what happened AFTER Sir Alan started cutting rates on Jan. 3, '01,
the day that the NASDAQ shot up 14%? Are the individuals who provided all the
cheap credit through historically low interest rates, the same "rescuers" today?
Let me also encourage you, if you have not taken a hit from the ongoing
financial storm, keep reminding yourself that losses are only statistics until they
are your own.
If the recent sell off in metals, oil, and commodities has made you
realize how fast things can change in this environment, I would encourage
to check out our research Taking time to look at trends over years, while building
those trends on the basis of math, history, and crowd psychology, continues to
place our readers AHEAD of turning points.
Crisis of Confidence Includes Consumers, March 17, 2008, Gallup
When you read that one of the largest brokerage firms in the US experienced
"an old fashioned 'run on the bank' ", and that the Fed is working to "stabilize" the
situation by expanding the government's role as fast as the debt markets are
losing money in the private sector, is there a reason to be quickly looking at other
investment strategies besides buy and hold?
If you have not changed from your basket of buy and hold investments, you may
want to consider the following:
- Are you asking tough questions to your bank regarding the safety of you cash reserves? If not, why not start now?
- If fashions change, tides come in and out, and weather changes, would it not be prudent to look for trends to come to an end?
- With almost every economists now espousing that we are either in or going into a severe recession or even a depression, how long will it take you to gain back your investments in the months ahead should markets decline sharply as history teaches?
- If your advisor is not familiar with the tool known as short selling, then just have them call Goldman Sachs after reading this article we posted last fall. In fact, do some homework, and google "inverse or bear funds."
As Bill Fleckstein stated recently in Gretchen Morgenson's column in the NYTimes, "We are a Bailout Nation". I don't know about you, but that does
not sound sustainable. To subscribe to a publication that has been
asking questions since Janaury 2006, click here. Our content has moved
to weekly from monthly as of March 1, 2008 due to the speed of
government intervention, and the extreme loss of historical perspective.
Israel on High Alert as end of Mughniyeh mourning period
draws near, International Herald Tribune, March 16, 2008
As we head into Easter weekend, let us not forget that March 22nd marks
the end of the 40 days of mourning, according to Islamic custom, for the world
renowned terrorist, Imad Mughniyeh. Fearing a large scale attack, Israel has
placed its military and embassies on high alert and has cautioned Jewish
institutions the world over to do the same.
JPMorgan Scoops up troubled Bear, CNN Money, March 17, '08
Foreign Investors Veto Investors,International Herald, March 17, '08
According to the OCC, JP Morgan has the largest derivatives exposure of any US
bank. When a company like this purchases Bear Stearns, one of the US's top
five brokerage houses for $2 a share, when Bear traded at $170 a share in
January of '07, should we be surprised if the Dow or the S&P 500 drops
substantially in the next few weeks or months? Destroying the dollar looks to be
running out of favor with the international community. Those that haven't started
asking some very hard questions of their money managers may pay the ultimate
financial costs.
Bear Sterns Nosedives on Rescue Plan, CNN Money, March 14, 2008
New Treasury Securities Lending Facility, Federal Reserve Press Release,
March 11, 2008
"Have no fear! The Government is here!" - intervening in our "free markets,"
creating "solutions" to the havoc their reckless credit policies helped to create.
You may recall that on December 12th of 2007, the Fed announced that in
working with the other central planners of the banking world, they had come
up with a new facility, the Treasury Auction Facility, which could lend their fellow
bankers up to $40 billion over 4 auctions.Now we have another new facility with
$200 billion to lend to the same.
While this has created a sea of financial acronyms, those with the least bit of
common sense can easily identify the pattern. Bill Laggner explains this new
development in light of real world losses. When a $3 billion hedge fund with a
2005 gain of 41 percent, gets hit with $1 billion in redemptions since January
of this year, we'd best sit up and take notice. And it might not hurt to develop an
exit strategy ...now.
FDIC: Bank Reserves not keeping pace with delinquencies, Feb.26 '08
Inman News
"Federally insured banks and savings institutions saw fourth-quarter earnings
plummet 83 percent - their lowest levels since 1991 - and failed to boost loss
reserves as fast as borrowers became delinquent on loans, the FDIC reported
today. Loans 90 days or more overdue were up 32.5 percent in the last three
months of the year - the largest quarterly increase in the 24 years that the FDIC's
been collecting that statistic."
After you read this article, review the first two pages of the pdf titled, Quarterly
Banking Profile, found on our Research page, and review this FDIC-produced,
short film titled, Overview on Deposit Insurance Coverage. Then consider what
99 percent of market participants never have: namely, if an economic slowdown
causes losses to continue to mount, where will the FDIC get the reserves to pay
off banks that go under? Thinking individuals are asking these questions now.
Searching for the next Dubai, February 22, 2008, CNNMoney.com
If you don't understanding the world we live in, this article shows us one reason
why. While California, New Jersey, the New York Port Authority, and now
Florida schools are choosing between cash flow problems or offering higher
interest rates, because big banks are pulling out of a $330 billion portion of our
municipal bond markets, desolate places, like Djibouti, East Africa, are receiving
$800 million dollars to build tourist attractions from Middle East companies like
Dubai World. Now, what's wrong with this picture? More importantly, have you
thought through the thousands of factors that could impact your financial life,
and have you developed strategic plans for this "transitional" period in history?
If not, I encourage you to consider diving into our research.
Syria Vows to Strike Back at Israel, February 15, 2008, DEBKAfile
On February 13,
Mughniyeh, one of the most lethal terrorist of the last twenty
years, was killed in a car bomb. In reaction, Lebanese, Iranian, and Syrian
leaders call for a war on Israel. If the "humanitarian crisis" in Gaza looked like
war preparations, Mughniyeh's death is the excuse to start it. The last three
weeks contain many parallels to the weeks leading up to the Six-Day War in
June 1967. As we seek to stay abreast of this developing crisis, I encourage
you to compare your news sources with those of www.debka.com. As this
situation heats up, those living in a democracy or republic should investigate
Walid Phares latest book, The War of Ideas: Jihad against Democracy.
Trading in CDOs slows to a trickle, February 11, 2008, Financial Times
"Just three CDOs worth a total of $1.3bn were sold last month - one in the US and two in Asia - compared with 37 deals worth $22 bn in January 2007,
according to analysts at Morgan Stanley."
In the June 2006 issue of The Investor's Mind we stated the following
with a chart on the derivatives growth from the Office of the Comptroller
of the Currency: " The credit derivatives market has grown at 75 percent per
annum from $55 billion to $5,472 billion in little over eight years. The OCC's
stated objective is, 'To ensure the safety and soundness of the national
banking system.' The more we find out about the derivatives market, the more
likely we are to question whether they're achieving their goal."
If you are just now coming to grips with the foundational problems in our
capital markets, and have never taken a hard look at the history of the financial
world, let me strongly encourage you to take a crash course by reviewing our
more than 2 dozen lessons written since Jan. 06. A current subscription,
allows you access to the past 2 years of our research. Denial of our current
juncture is only going to become more costly.
Rescuing Monolines is Not a Long Term Solution, February 7, 2008,
Bill Gross
The last 2 weeks have truly produced some incredibly blind denial. I have heard
bears (not bulls), with extensive knowledge of our financial markets, state that
the Dow Jones Industrial's low of 11,634 fulfills their forecasted low for 2008 so
they were tentatively calling this the bottom for the year. But Gross's article
(above), the Fed's report that credit card borrowing slowed from an annualized
pace of 13.7%, in November to 2.7%, in December, and January's retail sales figures - the worst since 1969 - tell me that we are just months past an
historic top, with no sign of an historic bottom in sight.
If you want to know why the declines in equity markets since October will cripple
long-term, buy-and-hold investors, take our "crash course" and see what history,
psychology, and science have been warning us about for years. Those who
ignore these areas of study and instead trust "experts" and fallacious theories,
could pay dearly for their lack of thinking. Click here to join the group of curious
minds who turn to our research.
Societe Generale trader wanted to be a star, officials say,
January 28, 2008, International Herald Tribune
With the January 22nd and 23rd window of relief, pundits have tried to explain
our previous steep sell off. Some suggest the $7 billion a trader at a French
Bank lost, triggered the sell off, while others contend that it was the bailout of
two of the largest bond insurers in the industry, who together insure more than
$2.5 trillion in debt. Or maybe these are simply two more stories reflecting an
ongoing credit contraction that is unresponsive to cheap credit. In fact, this
Sacramento article shows that the more bureaucrats try to intervene by lowering
rates, again, the more they compound the problem they helped to create.
U.S. Stock Futures Point to Major Decline on Re-Open, January 21,
2008, CBS Marketwatch
As investors continue moving from greed and complacency to fear, only a few
market commentators have discussed the possibility of accelerating declines.
Similar to the logic-defying force of the crowd on the way up, are the downside
adjustments that coincide with the crowd's realization that the force of nature
has never been overcome by new financial schemes.
The following quote, by Dr. Benoit Mandelbrot, discoverer of fractal geometry,
is found in our September 2006 newsletter, "Too Costly To Bear:"
"The size of price changes clearly cluster together. Big changes often come
together in rapid succession, like a fusillade of canon fire; then come in
minor changes, like the pop of toy guns."
If you are accepting anyone's opinion of what the market will do in the future,
without critically questioning that opinion (this includes us, too), you are setting
yourself up for failure. 2008 is already proving how unforgiving markets can be.
UBS to launch global warming derivatives index, January 9, 2008,
Financial Times
Those who think global warming is just a political discussion, fail to understand
Wall Street's product manufacturing mentality. The more debt central bankers
produce, the more new products roll off the shelves. We shouldn't be surprised
by their lack of familiarity. Nor should we be surprised by the many investors who
claim they never understood all the risks that came with the highly-rated and
highly-leveraged credit instruments that have been unraveling since mid-2007.
China Property Bond Risk Rises to Record, January 11,2008, Singapore
Property Press
With all the negative US real estate market headlines, it is easy to miss the fact
that this great credit mania has dramatically impacted property values and risks
from China to New Zealand to England to such off-the-beaten-path places as
Kazakhstan.
Fed to Lend $60 Billion to Ease Credit Crunch, January 4, 2008,
CNNMoney.com
With the markets rattled and fear rising, the Fed announces that they
will increase more short term loans starting with the next auction on January
14th. Investors should also note the much larger extension of short term
loans announced today by the European Central Bank.
RBI Permits Shortselling by Foreign Investors, January 1, 2008, Hindustan
Times
Much like the elimination of trading curbs and the short-sell, plus-tick rule in the
second half of 2007, in the US, India is now allowing institutions to sell short on
a limited basis. While the efforts of legal short sellers improve the quality of
information on companies they investigate, our research, in "Riders on the
Storm," considers the timing of these changes? Whether one employs short
selling or not, knowing the history of short selling, during and after prior manias,
will prove useful to us all.
The Shadow Knows, Bill Gross, December 2007 Investment Outlook
When Blackstone, one of the largest private equity dealers in the world, notes
a "reluctance of big banks to lend," and the world's largest bond manager, Bill
Gross, states that "Fed ease has lowered Treasury yields, but for the rest of the
market — the segment that influences the bottom line of U.S. corporations,
homeowners, and consumers — not much has changed," we can be sure that
a crisis is upon us. When we consider the effect this is already having on state
and municipal revenues, we begin to glimpse how widespread the impact from
the credit mania turned bust will be.
Hog Wild for China, Fortune, December 24, 2007
"In 2007, [China's] current account - a broad trade balance - will register a $400
billion surplus, about 12 percent of gross domestic product. That's up from $21
billion, or 1.7 percent of GDP, in 2000.
As a share of GDP, China's surplus is
'triple Japan's level in the 1980s when Japan-bashing was at its peak.'"
Though I respect Jim Rogers' long-standing public criticism of the credit bubble,
our research of global equity markets, manias and operational problems, see
our Fear & Perception article, suggests that China's trend is nearing its end.
"These Are Not Normal Times," LA Times, December 20, 2007
When Treasury Secretary Paulson uses the words "market failure" seven times,
while President Bush urges Wall Street to come clean on the amounts of their
mortgage related losses, while Wall Street's biggest banks decide they don't
need the superfund that was necessary to maintaining liquidity only two months
ago, we can all agree with Paulson's observation: "these are not normal times."
$9.4 Billion Write-Down at Morgan Stanley, International Herald Tribune,
December 20, 2007
When a major financial company announces that it will take a "$9.4 billion
charge on subprime-linked investments for the fourth quarter", and its stock
climbs almost 7% in the first hour of trading, while another major financial
company announces a $2 billion loss, and watches its stock fall 35% in an hour
of trading, is there be any doubt as to why investors are dumbfounded on how
stocks work? The difference, of course, is one of these firms received a "$5
billion cash injection from a Chinese state-run investment fund."
Citi moves $49 billion onto balance sheet, December 13, 2007,
CNN Money
China, Playing It Safe, December 11, 2007, RiskCenter
As they simultaneously try to address overvalued markets and contracting credit,
central bankers’ have taken dramatic actions in the fall of 2007. In an attempt to
maintain our current market and economic circumstances, the U.S. Federal
Reserve has cut the Fed funds rate three times since September 17th, while, for
the tenth time as of December 10th, the People’s Bank of China raised the
amount of funds their banks are required to keep in reserves to 14.5 percent.
If we apply geometry and physics, what can we tell about the future directions of
the Hang Seng, the Shanghai, and the Dow? To find out more, click here to
subscribe to The Investor’s Mind. Then read our August and September 2006
issues and our Major Markets and Major Players spreadsheets, which show
trends on a range of global markets.
FAS 157 Could Cause Huge Write Offs, November 7, 2007, CFO.com
CDOh no!, November 8, 2007, The Economist
In our September 2006 newsletter, we used sand pile studies to discuss the
inter-dependence of individuals within the markets, noting that "the motion in
one grain can induce motion in thousands of others." As default rates on
subprimes continue to accelerate, banks, brokers and insurers are taking huge
losses and bond issuance has fallen 65 percent from last year. When we are
overwhelmed our natural tendency is to deny that our corner of the world will be
impacted. We must not allow this tendency to go unchecked.
NYSE Eliminates Trading Curbs Dating Back to 1987, October 29, 2007,
Bloomberg
On July 6, 2007 the SEC removed the uptick rule for selling stocks short, which
came into existence after the 1937-1938 bear market that took the Dow down
over 47 percent. After Black Monday in 1987, trading curbs were put into place.
What can we learn by observing the timing of these rule changes?
The Alarming Parallels Between 1929 and 2007, October 2, 2007,
Robert Kuttlner, Congressional Testimony
Indian Stocks Pare Declines After Trading Halt; Rupee Recovers,
October 17, 2007, Bloomberg
Credit Card Debt is Ready to Blow, October 10, 2007, Baltimore Sun
David Rosenberg, North American Economist for Merrill Lynch, reports that
over the last 6 months credit card debt in the US has risen at a 17 percent
annualized rate while home equity balances slowed to a near zero growth rate.
If you read this article and my lastest posting on the Research page, you will
understand that insanity and risk are going parabolic.
ECB, Bank of England Hold Rates Steady, October 4, 2007,
Associated Press
China raises rates five times this year, and its markets are up. The US quickly
cuts rates two times, and our markets are up. The Bank of England and the
European Central Bank hold rates steady, and their markets are up. If you don't
see a correlation, it's because there's not one. Markets are controlled more by
perceptions, of how others will react to central bankers' actions, than they are by
central bankers' actions.
Investors to Fed: Thanks for Nothing, September 28, 2007, Allan Sloan,
CNNMoney.com
As Dr. Robert Shiller, Professor of Economics at Yale, stated in his 2005 book,
Irrational Exuberance:
"Another aspect of overconfidence is that people tend to make judgments
in uncertain situations by looking for familiar patterns and assuming that future
patterns will resemble past ones, often without sufficient considerations of the
reasons for the pattern of the p | 
