Sunday, January 11, 2009

LOGIC DICTATES, TRENDS RULE...Deflation is very very bad...

Well, obviously we NAILED Friday. We called GOOG, AAPL short, SRS and SKF long right at the open Friday on my assumption that too many people front ran the #s thinking we would rally on the news. It's pretty uncanny, and again I knock knock knock on market's gate, but this has been an incredibly easy market to call. One of the best I've ever experienced. I'm now 6 for 6 on the year, my best start to a year in a long time (I don't track stats like that, but I'm sure it is pretty good). There's usually one or two early year days which buck all logic and odds. So far, so good. Don't worry, I'll tell ya when I lose, hopefully it won't be Monday, hehe! I went home net short, so you'll know if you see the market rallying hard early that I'm digging myself out of a hole! Not a big one, but I'll be down early at least if thats the case.

If we do rally here it'll just be smoke and mirrors into OBama's inaugeration. I have thought up til now that that would happen, and it may, but so many others keep saying the same thing that that got me leery. I don't like to be saying things I hear others say, it makes me feel claustrophobic!

I also think given the market action here that we're going to have a hard time going very far to the upside no matter what for the time being. This notion of a second half recovery in the economy is possibly the biggest lie and dumbest tale ever told. You may recall, they said the same thing last year and of course it was dumb then. Nothing has changed, in fact they've gotten worse. Friday's job #s came in smaller then feared, but the prior month's #s were adjusted DOWN 150,000 so no one believes these #s anyway, they are just so off its ridiculous to even announce them. What's the point? Off 30 to 40% isn't exactly a good guage, is it?

The key # was % and that's now at 16 year highs, most troubling.

We are in very bad shape. I'm worried, so should you all be. Though spiritually worry is a waste of time, so I take that back! I mean, we should be concious of what's going on. There are just way too many mistakes being made throughout the political system, from top to bottom and it seems like it's inevitable they will blow the whole dang thing system wide up. True shame. Hope I'm being a worry wart fo sure!

Deflation is a very very very dangerous thing. It's like that virus that made headlines a few years ago that ate away at all the victim's flesh, it just fed on itself until there was nothing left but the inards! Not nice, that scares the hell out of me, I'm not good at things that eat me like sharks, alligators or flesh eating viruses!!! Nooooo!

Well, that's what deflation is and why it's so dangerous. Here's the very simple of it;

Too much debt, people default, have less to spend

Less to spend means business slows

Business slows, layoffs and salary contraction

Layoffs and salary contraction means people have less to spend, and put more of a burden on the government to take care of the public

Less to spend means people start hoarding cash, fearing things are going to get worse

Hoarding cash means less spending, means business struggles, means layoffs, means more pressure on the government

The cycle can literally eat away centuries worth of business and create what we are now in, or a lot worse if it's not abated.

The government is trying to free up credit markets by pumping liquidity into it, however I think that's the wrong move. You can not make people borrow money unless they think that there's something worth buying with it! And, if you give the money away then it just devalues the currency, and you still have the same issues!

That's why I am so discouraged that they chose to bail out the automakers. Obama wants to do his version of the New Deal. OK, I don't agree with that tact, but fine, let's give it the benefit of the doubt. The problem is, if you are making things that no one wants it just builds up the same bubble that created this mess! You are perpetrating the same insanity! All the automakers should SHUT DOWN for 6 months or as long as it takes to clear out excess inventory. If that means that they shut down forever, so be it.

Oh, you, say "that's crazy! You can't do that, you're insane! You're an idiot!"

Maybe, I am all of the above and more, but take out your own biases and your own brain washedness (yes, I know its not a word) and think about it logically.

If OBama can create anywhere near the 4.1 MIL jobs he is now projecting he can with his plan, then why not give 600,000 of those jobs to the people who would lose their jobs if the automakers went on sabatical? He was only projecting 3.0 MIL last week, so he's till net 500,000 over that by doing this. Then those workers can make money, even if its slightly less then they make now (I'd rather overpay them (relatively speaking) to make things that are needed rather than make more unsellable cars!) by being productive in ways that actually BREAK us from the vicious cycle we are now stuck in.

There are MILLIONS of new cars that can't be sold. MILLIONS AND MILLIONS sitting on lots around the country. Why in the world would you bail out an industry that isn't an industry anymore? Industry infers that you're building something that helps growth. It's not an industry anymore, its antiquated and it's bankrupt. There's nothing wrong with that, look at the newspaper business, or TV or other media. When something newer and more innovative or popular sprouts up, then it means that there is a game changer. It means that some of those people who worked for the Times or on TV end up filtering down to work for Google. It means that some MSFT people go work for AAPL. It means that we, as a society, advances. THAT is capitalism, and that, my friends, is CIVILIZATION. By the government making these POLITICALLY motivated interventions they are not helping anything but the lobbyists. That is not how you dig yourself out of an economic mess. Think about what would have happened if the government bailed out the NY Times and Newsweek and other media companies and it stilted other technology, like the internet. Further, how does it make sense to reward companies that lobbied for years to not have to advance? These companies never wanted to build energy efficent cars, they paid BILLIONS to lobbyists to kill efforts to advance.

It doesn't matter whether I'm right or wrong, it's not going to happen no matter what, there's just too much lobbying power and the public isn't willing to take the government to task, at least not yet.

I am very disappointed in Obama's picks for his economic team, its same old same old, as I've stated here before. Unfortunately, and I do think the dude (yes, even the President is a dude to me!) means well and has some good ideas, but unfortunately he will be a 1 term president. It's highly unlikely we'll be out of this mess in 4 years based on the road we are going down, and thus unlikely that a sitting president will be reelected when the economy is still in shambles, or gets much worse, over 4 years. It's not his fault, and won't be for the most part, but people want things to get better, that's why the Republican's had no shot this election once things fell apart this year. You can mess with a lot of things we American's have, but you can't mess with our money! So, while its a tad early to make election predictions 4 years hence, and I do really REALLY hope I'm wrong if for no other reason then if he does get reelected its almost surely because things HAVE gotten better, I am just telling ya as I fear it!

Speaking of the American way, there's a scene in a movie I saw last night that was very funny and poked fun at us and the Brits. Was quite funny and was in quite a great film. I saw Slumdog Millionaire last night, what a wonderful and wonderfully hopeful and life affirming film. It reminds me why I love movie making so much! Go see it if you have the chance. I know a lot of you wouldn't have it on your radar and it may not even be playing in certain parts of the country, but it's really a great film. Highly recommended!

It's hard these days to write about the market and the economy. No one wants me to be wrong then me, trust me. It's just my job to inform you as best I can based on the knowledge I have (or don't have). Reality ultimately give you the best chance to excel. If I'm wrong I fully trust I'll be happy and making even more money. If I'm right then we protect ourselves as best we can and excel despite the issues. It is, however, very frustrating that we've gotten so complacent and so "bought out" over the years in our government that they don't know how to make good policy anymore it seems. Everyone is so worried about their jobs that they are all paniced. I can't help but to remember all the congressmen and women saying that when they sat down with Bernanke and Paulson and were told the perils of not bailing things out that they were aghast.

Instead of being aghast, perhaps they should have sought another opinion or two, instead of selling the country down the river based on two people who clearly have conflicts of interest and who clearly will go down as inept at best, and at least one of them potentially goes down as one of the biggest frauds in the history of this country. Nice $700 BIL bailout, it really helped. If I hear one more time how the credit markets are freeing up, hehe. Who wants to borrow money now? NOt me, baby, not me!

'Nuff said, I'm trying to find some good trading ideas for clients today and going to see another movie tonight. I love this time of year for movies, there are so many bad ones made that get released after the Academy Awards, this is usually the time when the best of the year are in theaters. If only the markets and the economy were a movie, I might be more hopeful of a happy ending!


See ya on the other side,

Michael "Waxie" Parness

1 comment:

pschannong said...

I agree with you regarding the automakers. However, I think the biggest reason why the government can't see them fail, is that the auto-industry is needed in times of war. You can quite easily convert an automaker into manufacturing war related products.