Keys to the Game

Take Warren Buffet, the BP team of scientists, the a$$ kickin president’s economics team, the smartest minds from the US Banks, and still there seems to be no remedy in sight for the economic duress the US equity markets are facing...The government and our most trusted economic minds have tried more solutions to fix our leaking economy, than BP has to fix their leaky pipe, yet the results are equal to Ray Allens shooting percentage in last nights Lakers Celtics game--- A big fat zero. Yep Ray Allen went from hero to zero: Raining threes, leading the Celtis to a Game 2 win, then shooting 0-13 from the floor in game 3. Zero solutions to the US economy, zero field goals for the Celtics Ray Allen, and unless a solution is found zero may be BP’s stock price. While yesterdays end of day Black Box bonanza shot the market up an inexplicable 1.2%, there is still a potpourri of reasons to fear this market.

A History of Violence
There are so many reasons to think the market will have a significant and possibly violent downturn during the balance of this week. A couple that come to mind are related to the Housing markets. The genesis of all these problems is the creation of the subprime mortgage, and the packaging of those creations into CMO’s (Collateralized Mortgage Obligations). The result, when defaults on subprime mortgages start to happen en masse, those CDO’s crumble, and the synthetic ones created to mimic the actual ones crumble as well, leaving the banking system in a shambles. They are unable to process new mortgages to buy these homes that are being foreclosed, and this causes housing prices to fall further bringing the Principal Loan amount on existing homes to be higher than the actual value.

When the loan is more than the value, the frequency of people walking away from these homes increases dramatically, and exacerbates the vicious cycle. The administration and numerous media outlets continue to tilt the news to suggest we are in recovery. Much of the recovery in the stock market is due to massive government intervention ($2T) in the US, and ($1T) over in Europe. Plus, our global monetary policy is one that would make Mr. Guttenberg proud, PRINT, PRINT, PRINT! Today, some more signs of the grim future facing US housing comes to forefront. First, new home applications fell again last week, this marking the 5th straight week they have fallen. Not coincidentally, the new homebuyer tax credit, where good ole Uncle Sam gave new buyers an $8000 gift, expired 5 weeks ago. This is an easy game, end government stimulus, watch new home sales drop. Following on the realization that people obviously aren’t buying homes without help from a rich Uncle, is the mortgage applications report, which tells us that last weeks new mortgage requests tanked in the double digits…down 12% over the previous week. And, if you are sitting there saying, “Ah, C’mon JT, this is a short term blip and things are getting better!” Consider this: The Mortgage Bankers Association reports that the recent new mortgage applications number is the lowest number in over 13 years.
Ah, 1997…a democrat president Bill Clinton was inaugurated for a second term, Switzerland admitted they had a secret (they were the bankers to the Nazis), American Terrorist Tim McVeigh goes on trial (and is thankfully sentenced to death), the UK ceded Hong Kong to China, and the NYSE invokes Circuit Breakers to stop trading after the Market Crashes down 7% to 7161.
A lot of parallels: Democratic President, Switzerland recently admitted to assisting US citizens in tax evasion, Terrorist Khalid Sheik Mohammeds trial slated to begin, China is allowing No. Korea to attack So. Korea, and last but not least we have already had a devastating intraday crash, and the SEC and major exchanges are promising Circuit Breakers.

The part we haven’t seen yet is the one day 7% crash. The funny thing is that the 7% crash was not the first crash, but the second. We haven’t sent he second shoe yet, but all signs point to it being imminent. Be very alert these next couple of weeks, and keep the words of George Hegel clearly in focus, “We learn from history, that we do not learn from history.”

History should tell us that a second leg, a double dip, a dippity doo da, whatever you want to call it is a-coming. I implore you, don’t get caught!

Me So Hungary
Food is often a hot topic in this blog, and I often try to find a reason to talk food. Prosciutto, Mozzarella, Wo-Hop Chinese food, Souvlakis, we have talked about it all and there will be more, but the markets suffered some Hungar-y pains this week when word leaked out that Hungary may be a candidate for insolvency. EU leaders quickly circled the wagons and dispelled the story, but the story hasn’t stalled. It seems that shorts think that whether it’s Hungary or Portugal, or some other unmentioned nation, the entire globe is on alert. Event he slightest new news can send tremors throughout global markets.

HOT SHORTS
The stocks that seem to be in the focus of the bears are wide ranging:
Big Shorts see something they really don’t like in FSLR…SPWRA is also a follow on play.

AIG, C, BAC are all still highly sought after and some short sellers are willingly paying borrow premium to have immediate electronic access to the US Banks.

SPY is a short play that tells me my 950 call is still in play, and XLF is also a Bear favorite.

IOC had a decent day in yesterdays updraft, but basic fundamentals are still lacking and the stock continues to look like a $25 stock

The retail shorts are playing XRT.

One of the highest premiums to borrow is, BPL meaning shorts see this as highly overvalued, so much so they are willing to pay 5 cents a share to get a good locate. The volume so far hasn’t been huge but the borrow rate has sprung up. Keep an eye on it.

NWY is an up and comer worth a look, and NFLX continues to have a solid disciplined following making me think that there are fundamental reasons to believe the stock goes lower.

Dr. Currys Nutritional Report
Yesterday we talked about Dr Patrick Curry and his work on the new experimental dietary system. Evidently the good Dr. did some serious experimental work yesterday. While the base line staples of the Dr. Curry Diet were adhered to, (2) Isagenix shakes break fast and lunch, with the accelerators in between, the Doc seems to have stumbled onto something. Apparently if you stick to the 2 shakes and 2 accelarators, you can splurge a little with negligible negative results. In a controlled experiment last night, one spectator reports that the Doc, took the dangerously death defying experimental challenge of drinking Sangria, with joyous results. With a new beverage added to the list of acceptable snacks, he ventured further into uncharted testing waters, with a handful of wheat crackers, a half plate of low-cal soppresatta- and pepperoni.
Then finished this most recent project with a healthy dose of Dereks leftover Meatballs and Sausage. And when I say healthy dose, I am talking quantity, not nutritional value. The results seem to be great, it seems this is allowable behavior and upon further follow up testing this combo could be added to the list of acceptable meals. Now with diet items like this you can understand why the world renowned Dr. is on the verge of the newest Diet Craze. Stay tuned for more dietary tips, and this Friday the weigh in.

Happy eating and trading.