Thursday, 1984 + 23

On Tuesday, Aug 28th I had you view this video:

I said: "The video on the right is a fantastic illustration of the current investing climate.  I especially like the way that Homer is repeatedly smacked in the head on the way up (rescued by Helicopter Ben?) and the end is just perfect!"

This morning I pointed out that, where there are Federal Firemen turning their money hoses on full and aiming it at our markets, then there is probably a very serious market crisis or they wouldn't have scrambled all the engines.  Upon further reflection this afternoon I pointed out to members (as the dollar continued to fall): "This is the problem with the CBs stepping in – they are putting out fires with gasoline! It’s cheap money that got us into this mess, more cheap money, through either low rates, liquidity or inflation does NOTHING to fix the problem." 

This was shortly after they released Cramer's pal, Bill Poole, from whatever ReEducation Center they had placed him in and the markets were rallying because the Fed's resident rate bull (now neutered) was trotted out on the English stage to say: ""I think the probability of recession is higher than it used to be.  I don't think we know how long this market upset might last and don't know to what extent it has impacted areas outside housing," he said. "The extent to which it's affecting the broader economy … I don't think we know yet. We shouldn't take for granted the assumption that the economy is about to take a nose-dive."  

Oh he's so close, we can almost bring him home and put him on CNBC!  ""A rate cut has to be in the context of the overall stance of monetary policy – what is needed for the longer run for price stability and maximum economic growth," he said.  That's it Bill, you've got it – nice and vague!  Welcome back citizen Poole, Big Brother loves you…

"And if all others accepted the lie which the Party imposed—if all records told the same tale—then the lie passed into history and became truth. 'Who controls the past' ran the Party slogan, 'controls the future: who controls the present controls the past." – 1984

While we can't expect Mr. Poole to be fully rehabilitated in just 2 weeks, I think they've done a wonderful job of toning him down and shipping off to Europe just before the Fed enters their "quiet period" before the meeting was masterful.

"People simply disappeared, always during the night. Your name was removed from the registers, every record of everything you had ever done was wiped out, your one-time existence was denied and then forgotten. You were abolished, annihilated: vaporized was the usual word." – Orwell

I think a lot about Newspeak and about the Ministry of Truth, where they change the past to fit the present, when I'm watching CNBC these days.  The "crisis" that rocks the markets at 10 am turns into a positive at 2 pm but at 4pm they blame it for the market sell-off at 3:30.  It's amazing that they can say this with a straight face sometimes (insert botox joke here) but once the morning crew signs off, there is very little actual hard-nosed reporting on that station as the day is turned over to the PR machine that feeds the beast.

So today the market loved that we found out that record numbers of homes went into foreclosure (our 3rd consecutive record!) now between 19% and 26% of all sub-prime loans and 0.65% of ALL homes in the US, up from 0.58% the previous quarter and up 44% from last year.   The rise in foreclosure starts comes despite intensified efforts by regulators, lawmakers and lenders to stem the time of delinquencies, with close to 2 million adjustable-rate mortgages resetting by the end of next year into higher monthly payments.

Of the 44 million loans included in the MBA's National Delinquency Survey, 5.12% of all loans were past due, or delinquent, on a seasonally adjusted basis, compared with 4.84% that were past due at the end of the first quarter. The MBA's delinquency statistics do NOT include loans that are already in the foreclosure process.

"Day by day and almost minute by minute the past was brought up to date. In this way every prediction made by the Party could be shown by documentary evidence to have been correct; nor was any item of news, or any expression of opinion, which conflicted with the needs of the moment, ever allowed to remain on record." – 1984

Former Fed Chair, Alan Greenspan, must have lost his Newspeak dictionary as he was way off the government's book at a Brookings event in DC this evening: "The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly [the bank panic of] 1907."  Whoa!  What's the matter Al, is CNBC broken in your hotel room?

Greenspan continued to be the lone voice in the wilderness, stating: "Bubbles can't be defused through incremental adjustments in interest rates, Mr. Greenspan suggested. The Fed doubled interest rates in 1994-95 and "stopped the nascent stock-market boom," but when stopped, stocks took off again. "We tried to do it again in 1997 (when the Fed raised rates a quarter of a percentage point),  "and the same phenomenon occurred.  The human race has never found a way to confront bubbles," he said.

This is nothing new, we've heard the gist of it before, often from the pre-spayed Poole.  Strong retail sales and a decent ISM report kept the rally going (even though a rational person might think it takes a rate cut right off the table) and the fact that the Fed had to pump $31Bn into the market this week was also a sign of strength today.

"For whom, it suddenly occurred to him to wonder was he writing this diary? For the future, for the unborn . . . For the first time the magnitude of what he had undertaken came home to him. How could you communicate with the future? It was of its nature impossible. Either the future would resemble the present in which case it would not listen to him, or it would be different from it, and his predicament would be meaningless."  – Orwell

On the whole, the markets were little moved considering there was a coordinated move by the CBs to flood the markets with liquidity.  Both the ECB and the BOE held rates steady (the BOJ already did last week) but none of that was enough to stop people from converting their dollars (down 0.2%) into oil (up 0.75%) and gold (up 2% to $704!).

Needless to say our new DIA mix turned a little more bearish now:

• 100 OCT 131.00 DIA CALL (DAWJA)
• 100 OCT 133.00 DIA CALL (DAWJC)
• 200 SEP 133.00 DIA CALL (DAWIC)
• 100 SEP 133.00 DIA PUT (DAWUC)
• 100 SEP 134.00 DIA PUT (DAWUD)
• 200 OCT 134.00 DIA PUT (DAWVD)
• 100 OCT 132.00 DIA PUT (DAWVB)

We are still closing more positions than we are opening by a wide margin, aiming to get back to 80%+ cash before this little grease fire turns into a towering inferno:

Tomorrow is the very critical jobs report so go out there and be a good little consumer and perhaps the governent will give us a "good" number.  Just remember, Big Brother is watching you…