Dow ends best 6 weeks since 1938: 1938 – “The Rest Of The Story”

Dow ends best 6 weeks since 1938

Stocks rose on Friday, with the Dow scoring its biggest six-week gain since July 1938, helped by a reassuring report on the mood of consumers and stabilization in General Electric (GE.N) and Citigroup’s (C.N) quarterly results.

The Dow is up 22.7 percent over the past six weeks, making this the largest six-week gain since July 29, 1938.

http://www.nyse.tv/dow-jones-industrial-average-history-djia.htm

As famed commentator Paul Harvey would have said, “and now for the rest of the story”.

The year 1938 was a year during the “Great Depression”. 1938 did not signal the end of the “Great Depression”. The “Great Depression” lasted ” 4 more years” after 1938, not ending until 1942.

How did the ”stock market” fare during the Great Depression? In 6 of the 11+ years of the Great Depression the “Stock Market” closed up despite the fact that unemployment continued to rise, home foreclosures hit all time highs and thousands of businesses and farms were lost.

Following the 1938 “bounce” in the DJIA, the “stock market” closed down for 4 straight years. The Market was down in 1938 – 1939, 1939 – 1940, 1940 – 1941 and 1941 – 1942. During that time period the DJIA lost nearly 25% of its value. In fact, the DJIA closed lower in 1942 than it did in 1937. http://www.nyse.tv/dow-jones-industrial-average-history-djia.htm

Economists note that these years of the “Great Depression”, 1939 -1942, followed the implementation of FDR’s “New Deal” and that the “New Deal” may have, in fact, caused this, the second half, of the Great Depression”. (New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America,  by Burton W., Jr. Folsom, http://www.amazon.com/New-Deal-Raw-Economic-Damaged/dp/1416592229 )

This writer is hoping an economic recovery is underway, however, that is not what the data suggests. As you can see, the DJIA, does not necessarily reflect the direction of  economic activity – the DJIA can register gains while the “economy” slips futher into a “Great Depression” or, in other words, Government bailout programs can make the politically connected extremely rich while the Country, as a whole, slips below water.

April 2009 unemployment continues to climb at 600,000 + per week. Unemployment, with the addition of the newly unemployed in April 2009,  is now above 9%, nearly one full percentage point above the Obama Administration’s “worse case estimate” for a “maximum unemployment figure” of 8.1% in 2009. Economists are now examining whether unemployment will top 11% before year end, 40% higher than the Administration’s forecast.  http://www.bls.gov/news.release/pdf/empsit.pdf  Between January of 2004 and January of 2008 unemployment in the US averaged 4.5%. 1/2 the current rate. Twice that number of people are currently unemployed and the fact that the unemployment number will continue to rise is undisputed. There are no (zero) projections that the US unemployment rate will return to a 4.5% rate prior to 2017, a full 8 years from now.  

Despite the moratorium on “Mortgage Foreclosures”, March 2009 foreclosures were 46% above March 2008 figures. Fannie & Freddie’s moratorium on foreclosures ended on March 31st 2009, so this increase occurred prior to the moratorium’s expiration. A huge backlog of foreclosures were placed on “hold” and will now move forward.  In many parts of the Country “housing surpluses” will take 4 to 7 years to be absorbed. Reaching a floor in the housing market is years off. Maybe 5 years off, if we pursue the correct policies and restore confidence in  American mortgage backed securities and the international investment community commits to investing in those “derivatives” once again.   http://www.mlive.com/business/index.ssf/2009/04/us_foreclosures_up_24_percent.html http://www.idahobusiness.net/archive.htm/2009/04/08/Foreclosures-up-again-in-March

New home starts are way down. New single family home starts for March 2009 are 45% lower than March 2008. http://redfishemergingmarkets.com/blog/2009/04/16/housing-starts-are-still-anemic-anybody-surprised-at-the-data/

March 2008 was a very bad year in it’s own right. Housing starts will need to increase 500% before reaching the levels seen in 2005. http://www.reedconstructiondata.com/news/2008/08/residential-construction-near-bottom-but-still-declining/

In March 2009 there was nearly 1 home foreclosure for every new home start. http://redfishemergingmarkets.com/blog/2009/04/16/housing-starts-are-still-anemic-anybody-surprised-at-the-data/

Auto sales remain down, despite dishonest claims to the contrary. March 2008 to March 2009 auto sales are down an additional 40%. http://money.cnn.com/2009/03/26/autos/jd_power_march_sales/index.htm . February 2008 to February 2009 auto sales were also down, almost 50%. http://www.thegreenmotorist.com/index.php/february-2009-auto-sales-down-yet-again/ . March 2008 auto sales figures were no reason for optimism. Even if sales figures should suddenly leap “up to” 2008 sales levels, one needs to recall that 2008 sales figures were dismal in there own right and were down 20% from 2007 sales levels. GM’s sales volumes in 2007 were 40% less than in 2006. Current auto sales levels will need to triple to catch back up with the “profitable” levels of 2006. After “special items” GM only lost $2 Billion in 2006. http://jalopnik.com/cars/breaking-gm-finally-releases-2006-financial-results-showing-profits-and-notsomuch-profits-244072.php

The current cause for “economic optimism”?  Two banks reported “profits” at the end of the first quarter. What do the bank’s financial numbers mean? Where did the profits come from? Who really knows?

Both “banks” received Billions in bailout funds that have not been repaid. Despite promises of “transparency” the Government’s Stress tests formulas are a secret and the “formula” applied changes from bank to bank. The “stress test” results are also being kept secret. Who passed? Who failed? Who knows? What transparency!

The recent “mark to market” accounting changes are a sham. There is no way for the public to know exactly what a banks exposure to toxic mortgages are, nor can the public determine how the bank is evaluting those assets or exposures. Isn’t this is exactly how we got into this mess in the first place, financial institutions overstating the value of their investments in Mortgage backed securities?

See: http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/a-bear-rally-in-bulls-clothing.aspx   “Money printing plus imagination are potent forces that can’t solve our problems but can affect the stock market in such a way as to make it appear that the worst has passed.”

The recent accounting changes allow banks to evaluate the same piece of property differently, depending on how the bank chooses to classify the property. If a property or asset is to be put up for sale in the near future, the expected sale price is to be used. If the property is to be held for a longer period of time, the anticipated value at the time of sale can be used. How can the public discern whether a piece of property or asset currently valued at $1,000,000, doesn’t in fact have a “real” current value of $10,000. The bank, when it cannot sell the property for $1 Million, simply changes the “asset classification” to a long term hold rather than calling the property what it is, an overvalued piece of realestate with a $1 Million asking price and a current $10,000 value.

Is TALF responsible for the Bank’s stated profits, profits made at taxpayer expense? Who knows? http://www.businessinsider.com/how-banks-and-hedge-funds-will-scam-the-talf-2009-3 Are these profits a sign of economic improvement or a sign of the fleecing of America?

Had the Government allowed this sham, the change in accounting practices,  months ago, the Financial Institutions bailout would not have been necessary.

Nothing has changed in terms of the availability of “zero down” mortgages or the “Liar” or “Ninja” loans. The actions of Congress and the Boston Federal Reserve still stand, nothing has been repealed or revoked. Now those without a “down payment” can acquire their “down payment” through the use of a “second mortgage” where the “downpayment” is funded through a “second mortgage” or other “give away programs” intended to create the illusion that a purchaser has a “down payment”. http://www.mhdc.com/homes/down_payment_assistance/index.htm , http://www.ehow.com/how_4492950_through-zero-down-payment-loophole.html (An ACORN Scam),  http://www.collinsdevelopment.com/home-buying/mortgage-down-payment.php .

The “leveraging” in the US banking system remains unchanged. Certain US banks are still permitted to “leverage” up to 40%. http://www.startribune.com/business/41611927.html?elr=KArks:DCiU1OiP:DiiUiD3aPc:_Yyc:aUU  The “dangers” of leveraging, another lesson that went “unlearned” from the “Great Depression”.

The Government TALF Program even encourages the Hedge Funds and Banks to “leverage up” at taxpayer expense. http://www.businessinsider.com/how-banks-and-hedge-funds-will-scam-the-talf-2009-3  Do these Bank and Hedge Fund profits signal economic recovery or are they simply derived from looting “taxpayer” provided funds.

Beware the “false recovery”. Many things can be learned from the 1938 “bounce” in the DJIA. One of those things is that the “1938 Bounce” did not signal an economic recovery. That recovery was 4 long years away.

Signs of a pending economic recovery in 2009 are few and far between. Next to nothing has been done to prevent a repeat of the current crisis. The Government, Regulatory Agencies and Financial Institutions are busy cooking with the old recipe.  

Don’t delude yourself, when clear thinking is needed.

The ship may be sinking at a slower rate, but the ship is still sinking. The time to call the orchestra on deck and dance has not arrived. It is time to man the buckets and bail like crazy.

For a technical analysis of the Market Recovery in 1929 – 1930 and how Federal Reserve Interest Rate moves affected the Great Depresssion see:  http://www.ameinfo.com/16529.html

BEAR MARKET RALLY – Definition and Chart Examples: http://www.mysmp.com/stocks/bear-market-rally.html ; “After a move up of 20% to 35% off the bottom, the market begins to stall out”.

Warren Buffet’s Pronouncements – A wise way to make your investment decisions?

10/17/08 – Warren Buffett Says Now Is the Right Time to Buy U.S. Equities (DOW Close 8,577 – The DOW has dropped 25% since that pronouncement) – http://www.bloomberg.com/apps/news?pid=20601087&sid=a_p0g99V7HUg&refer=home
 
03/02/09 – Buffet says both “economy in shambles” and “best days ahead”  
 
03/09/09 – Buffet says, “economy has fallen off a cliff”, “people have really changed their habits like I haven’t seen” and  “the current situation is like an economic pearl harbor”. http://rawstory.com/news/2008/Buffett_Economy_has_fallen_off_cliff_0309.html
 
Now one of the Fox commentators, trying to manipulate a rise in stock prices says, “Warren Buffet said, “America’s best days are ahead”” …..
 
Buffet’s full quote was , “America’s best days are ahead, but how fast we will go there is in question”. Asked about the lackluster economic recovery and plunging inflation, he said “it will depend on the wisdom of government’s politics.”  “I’ve never seen Americans more fearful,” he said. “It takes five minutes to become fearful, much more time to regain confidence. The system does not work without confidence,” he said. http://rawstory.com/news/2008/Buffett_Economy_has_fallen_off_cliff_0309.html

To Buffet’s great credit he also said he “did some dumb things in investments” in 2008 while taking responsibility for his company’s worst performance since he took over 44 years ago.

“By year-end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game,” he said.

Berkshire’s net worth nosedived, falling by $11.5 billion, according to its annual report, released March 1. Its shares have taken a beating in the past year. Since peaking at $151,000 a share in December 2007, it has fallen to $78,600, a decline of 48 percent. The S&P 500 has dropped 49 percent over the same period.                                                                                        http://www.dailyfinance.com/2009/02/28/buffett-admits-dumb-investing-mistakes-in-2008-berkshires-wo/

Closing note – the Obama Administration has already spent, or has committed to spend enough money to pay every family in America $78,000, enough to buy every family 1 share in Berkshire. Personally, I’d rather have the cash. 


Stock Market & “Naked Short Sales” – What are they? A repost

SEC adopts rules against naked short-selling

By MARCY GORDON, AP Business Writer Wed Sep 17, 9:31 PM ET

WASHINGTON – Federal regulators on Wednesday took measures aimed at reining in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some feared could be used against other vulnerable companies in a turbulent market. http://news.yahoo.com/s/ap/20080918/ap_on_bi_ge/sec_short_selling

Short selling is a form of speculation that allows a trader to sell securities that he does not own, effectively taking a “negative position“. They do this when they expect the value of the securities to decrease in the market, allowing them to sell securities at today’s price and then buy the securities back when they decrease in value. With a large enough move in the price, the trader can purchase the securities, “covering” their position, for less money than they received for selling them earlier. http://en.wikipedia.org/wiki/Naked_short_selling

Short sellers bet that a stock’s price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference. http://news.yahoo.com/s/ap/20080918/ap_on_bi_ge/sec_short_selling

Naked short-selling occurs when sellers don’t even borrow the shares before selling them, and then look to cover positions immediately after the sale. http://news.yahoo.com/s/ap/20080918/ap_on_bi_ge/sec_short_selling

The Securities and Exchange Commission adopted rules it said would provide permanent protections against abusive “naked” short-selling. Unlike the SEC’s temporary emergency ban this summer covering naked short-selling in the stocks of mortgage finance giants Fannie Mae and Freddie Mac and 17 large investment banks, the new rules apply to trading in the broader market. http://news.yahoo.com/s/ap/20080918/ap_on_bi_ge/sec_short_selling

In a further move, SEC Chairman Christopher Cox said he planned to ask his four fellow commissioners to consider on an emergency basis a new rule that would require hedge funds and other large-scale investors to disclose their short positions — the stocks they have borrowed and sold but not yet replaced. http://news.yahoo.com/s/ap/20080918/ap_on_bi_ge/sec_short_selling

The rule would be designed to ensure transparency in short-selling in general, beyond the practice of naked short-selling, Cox said in a statement issued Wednesday night. Investment managers with more than $100 million holdings in securities would be required to promptly begin public reporting of their daily short positions. http://news.yahoo.com/s/ap/20080918/ap_on_bi_ge/sec_short_selling

Certain Commenators believe that “short-selling” accelerated the demise of Merrill Lynch and Lehman Brothers and that it was also involved with the sudden drop in AIG stock values that led to the Government takeover.  http://en.wikipedia.org/wiki/Naked_short_selling. The Primary reason for these Companies economic troubles was their ill-advised real-estate investments, however, “naked short sales” may have killed the already ailing Companies.

DJIA Down 300 Points In Premarket Trading / Follows International Markets

US Futures & Markets Indicators

Dow Jones

-320.00

8250.00

12/12 6:08am

FTSE 100

-186.58

-4.25%

4,202.11

XETRA-DAX

-239.45

-5.02%

4,527.75

CAC 40

-187.70

-5.68%

3,118.43

HANG SENG

-855.51

-5.48%

14,758.39

NIKKEI 225

-484.68

-5.56%

http://money.cnn.com/data/premarket/

Crude Oil at $48.88/Barrel – Gasoline $1.13 Gallon / International Stocks Slow Loss Rate

Dated Brent Spot  $48.88 Barrel

NYMEX RBOB Gasoline Futures  $1.13 Gallon

http://www.bloomberg.com/energy/

DOW JONES        – 94                8400

FTSE 100

81.95

-1.95%

4,126.60

XETRA-DAX

-73.94

-1.61%

4,505.53

CAC 40

-50.67

-1.57%

3,166.73

HANG SENG

-100.09

-0.77%

12,815.80

NIKKEI 225

-55.19

-0.66%

8,273.22

http://money.cnn.com/data/premarket/index.html

Dow Down – Crude Oil Futures Below $50/Barrel – Gasoline Below $1.20

Dated Brent Spot         $49.72 Barrel          -$1.27

NYMEX RBOB GASOLINE    $1.17 Gallon         -0.064

http://www.bloomberg.com/energy/

Dow

-223.73

-2.63%

8,273.58

NASDAQ

-34.80

-2.29%

1,482.05

S&P

-22.54

-2.58%

850.75

FTSE

-100.81

-2.38%

4,132.16

DAX

-152.97

-3.25%

4,557.27

Nikkei

+60.19

+0.71%

8,522.58

Will Oil Futures find a floor at $45/Barrel, Gasoline at $0.95 Gallon and the Dow at 7500?

Crude Oil Futures $60 Barrel / Gasoline Futures $1.42 – DOW poised to drop into 8000’s

Dated Brent Spot

60.40

-1.00

-1.63

05:38

http://www.bloomberg.com/energy/

Nymex RBOB Gasoline Future

142.57

.13

.09

05:01

  

http://www.bloomberg.com/energy/

 

Dow Jones -130.00 9045.00 11/6 5:29am

 

HANG SENG

-1,050.12

-7.08%

13,790.04

NIKKEI 225

-622.10

-6.53%

8,899.14

 

 

FTSE 100

-175.86

-3.88%

4,354.87

XETRA-DAX

-212.25

-4.11%

4,954.62

CAC 40

-144.93

-4.01%

3,473.18

http://money.cnn.com/data/premarket/index.html

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