Thursday, August 27, 2009

Housing Bottom Joy

An udpdate on the media's housing bottom. The chart below shows subprime loan resets ending and never to return:

The next update shows us where we are in the real world. The chart below shows the Option A loan reset/explosive time bombs set to detonate:

Supply of homes on the market has now fallen to 7.5 months, again showing signs of a housing bottom. However, what is not accounted for is the foreclosure inventory sitting on the banks books because they do not want to take their write downs:

Wednesday, August 26, 2009

Debt To GDP, Or "What Really Matters"

The argument you hear against our debt levels being a problem is that they are only a small portion of our GDP; That we will "grow" our way out of the problem.

Unfortutely, our phony GDP which is made up of 70% consumption is going to evaporate. The debt is set to take off upward. The numbers will continue to go in the opposite (wrong) directions.

Tuesday, August 25, 2009

First Thoughts On Bernanke Nomination

Couldn't say it any better than Peter Schiff who manages over $1.5 billion at his firm; Euro Pacific Capital:

Monday, August 24, 2009


I haven't commented on the town hall meetings happening right now because the footage you have seen speaks for itself. I did want to post this one that I came across this evening.

What many politicians do not realize today is that the baby boomers are not babies anymore. They no longer look up to these men in awe as they rob them of their wealth right in front of their eyes.

These town hall meetings are the first chance the public has had to speak out since the financial "bail out" and the pretend stimulus that was crammed down the throat of Congress overnight.

While these town halls meetings are being down played by all media outlets, they represent a significant new movement of anger moving forward.

As Obama and Congress bail out the financial institutions that led their campaign contributions, and they create spending "stimulus" bills that are payment plans toward other campaign contributors, the now grown up baby boomers are starting to take notice.

A Sad Moment In American History

Breaking news tonight comes from President Obama who has decided to re-appoint Ben Bernanke for another term as Federal Reserve chairman.

This decision has all but sealed the fate for America as Bernanke has clearly laid out his calculated plan to destroy our economy with an ocean of printed money ready to wash away any hope of future prosperity.

Much, much, more to come on this landmark decision and its implications on our future.

Price to Earnings

The P/E of a stock is a ratio used to determine how expensive a stock is, and it is formulated by dividing the price of a stock by the earnings of the company.

If a P/E ratio is high the stock is considered expensive. If it is low it is considered a bargain. Historically when stocks were in the 7-10 range they have been considered cheap and that point usually marked the end of a bear market cycle.

On the other hand, during the absolute mania stage of the stock market bubble in March of 2000, the P/E ratio reached 52. This was the highest on record and marked a point of lunacy for new buyers purchasing shares.

During the stock market collapse from October 2008 - March 2009, the P/E ratio bottomed out at around 18. This was still considered expensive in historical terms. Since that bottom in the S&P 500 of 666 on March 6th, the market has rallied about 50% and has rocketed straight upward without a pull back. The following chart shows stocks current P/E ratio with this most recent move:

We are currently sitting at a P/E ratio of 129.

This has occurred because company earnings have collapsed across the board at a time when stock prices are exploding upward. (Become more expensive)

Can the P/E ratio go higher from here? Absolutely, and it probably will. Would I bet my money on it? No thank you. I'd rather play Russian Roulette.

While the P/E ratio is a gauge of market fundamentals, the daily sentiment index is a gauge of where the market may be heading from a technical perspective.

The following is a chart of the S&P 500 from October of 2007 through today. The important line is the one below the index which shows the sentiment of traders over the past two years. At the market's all time high the sentiment index touched 88%. This means that at that point 88% of market participants thought the market was going higher: they were bullish.

This afternoon that index crossed 89%, the extreme reached during the October 2007 high. Technical traders use these tools to determine points when the market is most vulnerable for a turn.

(To understand why think about this example: If 90% of the market is bullish then they have already invested their capital in stocks. They now have no capital to push the market higher because they have already invested it. The short sellers at this point can push the market downward against little resistance from upside pressure.)

As discussed above, this does not mean the market has reached a top. The sentiment index can reach 99% bulls and push the market even higher. (A 99% bullish sentiment level was reached last October in the bond market during the rush to safety in treasury bonds)

China Sells New Subprime