SubscribeHow to survive the market sinkhole
August 10, 2007
First, we should be clear about why some of this is going on. Aside from all of the underlying fundamental and very apparent technical conditions that helped to get us to this point, there is one overlooked item. This is definitely the repeal of the uptick rule.
According to Investopedia the “short sale uptick rule was, “established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines.”
That was what it used to be. But on July 6th, in a stunning reversal, the rule has been lifted. The intent was to help stabilize markets in a declining market. In that type of environment, as sales increased, certain traders (“shorters”) were locked out of adding to the selling pressure.
You know, I just thought of something; they must think we are stupid because I think I hear that analysts are now saying that the economy is slowing and not healthy. I am sure I did. In fact, did Joe Battipaglia say he is 50% cash? I think he did…. Was this what they were all saying just a week ago? No, I do not think so.
I am so sick of the talking heads telling us that they are in or out when they only seems to tell us where they are when the market is moving in their direction. Honestly, I am hard pressed to even believe I just wrote that, but it is so seems so obvious.
The regulators have given us this volatility by removing the safety trigger and holding of by any significant FED moves. It is very clear that no matter what is said by the gals and fellas on the tube, the regulators are the ones that need to take it back. The way this needs to be is by “operation flood-me.” This is the Read more
Sinkhole Alert - Watch out below!
August 9, 2007
Don’t forget to subscribe to The Disciplined Investor Podcast
(TDI Podcast #21 - Markets in Disarray)
“From tulip bulbs to 1929 through to Asian contagion and the dot-com boom, the bubble crash cycle can be traced back to novelty gone bad.” - Clem Chambers, ADVFN
That just says it all! He goes on to recently say:
“Hello there, trillion-dollar derivative debt markets. If in a couple of years time I’m writing a book called The Crash of 2007, the first chapter is going to be about how these marvelous new debt instruments ended up making a very large financial smoking crater of the world markets. There will be a large section on fraudulent dealings and how billion-dollar swindles were perpetrated and who got thrown in jail forever, who jumped off the skyscraper, etc.”
The problem now as I see it is the developing sinkhole. Underneath the “street” there is a gigantic fizzer that has been quickly eating into the underpinnings and support beams that have been holding up the road above.
The credit crunch that we are aware of has caused many to look around at the bad decision making that has gone on over the past few years by the financial companies involved in the mortgage markets.
Then, the perceived liquidity has started to change as sub-prime lenders have been sucked up by the earth. Early this morning, BNP hedge funds announced that redemptions on 3 of their funds will be HALTED . That is bad. This is on the heals of the Bear Stearns announcement last week. NEVER NEVER NEVER tell investors that they cannot have their money back from an investment. That is a sure fire way to start a classic “run at the bank”. Just a hint of this has been enough to historically create panic. This is now surely going to be the spark that will be heard round the world.
Now for more problems; The ECB announced that they are injecting, or at least is ready to add liquidity if need be to the European markets. How much? UNLIMITED according to the announcement. This caused the EURO to slide overnight. Said another way, the EURO slide will create problems for exports.
Remember, exports have been one of the main reasons that we have seen companies continuing to show good sales numbers. Shut that down and eventually there will be an effect on Earnings.
This and the share buybacks problem is going to sink this market. It is going to swift and painful. We have moved significant money from positions in equities to the sidelines starting July 27th. Each of the “dips” did not seem to be reason to buy, rather more hints that the markets are setting up for more, much more.
Tom Gardner, Motley Fool Co-Founder commented on CNBC this morning that (paraphrase) “even though the credit problems may cause significant problems related to the financial industry. He went on to say that “there are many other sectors that will not be affected by these problems.” HOGWASH!
That is the stupidest and most irresponsible statement I have heard of late. Is he proposing that if liquidity dries up and there is a implosion in the financial sector that it won’t be felt by other areas? Bombs blow up and Read more
Fed Up/Down or Steady
August 7, 2007
The Fed is going to provide some form of guidance today. What is will be regarding is the question which will surely focus all eyes on each word spoken by Ben Bernanke. Many are hoping that the Federal Reserve bail-out the credit markets and provide a soothing effect. There are those that are even pleading for this. Either way, this will be a “fun” day to watch the ticker.
There are three possible tools that the Fed can use in order to regulate the economy. While most think that the discount rate is the magic wand, the other two tools are just as effective even though they hardly ever in the spotlight.
Today, it is less likely that we wil see a rate cut even though many are hoping. (see table towards bottom). Yet, it would seem that there could be a rise in use of the open market operations. Liquidity is the main problem these days as credit Read more
Crocs - Riding the Rollercoaster
August 6, 2007
I am starting to think I am a Croc’s (CROX) hater or something. Actually, that is not at all true, I am only looking to assess the landscape to see if there is an opportunity to profit on the move of a stock. These days this is the one that has caught my eye with great interest. Many are not happy with me. That is okay. In fact, the more comments and replies that are linked to my rants, analysis and posts, the more I think that there are many shareholders whose engines are revving to high about this.
And for Pete’s sake, it is a stock, not a child or spouse or a parent. DO NOT FALL IN LOVE. That is one of the most important rules out there. Sure, I have been stubborn and negative on this through a nice rally. During that time, shorting into the peaks (as opposed to buying on the dips). The eventual covering has turned out to be generally profitable. Would a buy and hold have been MORE profitable?… YES YES YES.
But, I am still inclined to believe that this stock is running on fumes even with the tremendous quarter they just had. There is a great deal of “love and lust” that had been moving this stock recently. Just look at the real action of the shares after the earnings announcement.
As many predicted, the shares shot up after the earnings came out. If you look closely, the stock initially traded towards $62 that night. That was for a brief moment though. From there, Read more
CNBC Cheerleader Poll
August 6, 2007
This morning (Monday 8/6), three guests on CNBC, Farell, Santoli and Barbera talked openly about the credit markets and that the markets may go through a rapid adjustment of the credit markets and ultimately the equity markets. All the time, Joe Kernen was giving the contra view and continually injecting that the markets could move up. He was almost searching for a positive spin no matter what was said. Siss-Boom-Bah, Go Markets Go Markets Rah-Rah-Rah!
In the TDI Podcast 21, one of our guests told us that his firm has “outlawed” CNBC in the office.
My only other observation on this is one of regarding the morning comments on market futures. It seemed that as the futures were up ad moving higher, the pre-market morning host would give updates quite often. As they moved sharply lower throughout the morning, the updates were discussed less and less. Now, don’t let me sway you, tell us what you think….
How do you feel about CNBC? Are they reporting the news or market cheerleaders?
[poll=4]
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