stockmarketwebinar.info

A few weeks ago I made a comment at Robert’s webinar on the market as at today, asking if Dave and him thought the new volume indicators were the new levels now.

They, like I didn’t know but didn’t rule it out either.

What I am getting at is we know I closed out psun and have been waiting to get back in. The reason I haven’t is that it has been climbing but volume has been low when compared to the average. So psun gapped up again last night, this time on good volume. Perhaps the new lower volume is now the new average for now anyway, because the punters aren’t in the market yet.

Why? The media don’t know the recession is over. All the stats haven’t filtered through to the government which is what they report on.

We all know that the punters follow not lead.

I’ve been telling everyone that would bother to listen that the media and governments (punters in general) are always behind by around 12 months to what is going on in the market place. I don’t mean just the stock market, I am talking about business sentiment in general.

When I’ve been talking to clients I’ve been saying that the recession is over – and I was saying this 12 months ago. Certainly businesses are saying that it has never been better.

The only one’s crying foul are shop owners because the punters haven’t realised that the recession is over. And the world has changed forever.

So too I reckon has the stock market. The smart money is buying now.

Whilst I will consider volume always, I think the 50 day average moving through the 200 may be a best buying signal at these times.

ESI, I bought the jan $65 put x 6 contracts for 35c. Earnings is due around 22nd October and as it is overpriced, any minor hiccup could send it crashing and burning.

As we could have made $52K from a similar priced trade just over 12 months ago, I thought the time just may be right again. If not I’ll close it out after earnings which they have never missed.

August 10, 2009

Company Description: Copart, Inc. (CPRT) provides vehicle suppliers, primarily insurance companies, with a variety of services to process and sell salvage vehicles through auctions. Salvaged vehicles are primarily sold to licensed dismantlers, rebuilders, and used vehicle dealers.

We perceive Copart to be second in line to benefit from the “Cash for Clunkers” bill as we see auto dealerships as the initial beneficiary. One of the underlying purposes of this bill is to increase fuel consumption and as the “clunkers” are literally pushed into dealerships to be exchanged for more fuel efficient vehicles, the old vehicle will have to go somewhere. According to the bill many of the parts such as the engine should be destroyed or recycled to prevent the out of date vehicle returning to the road. Copart will be a viable option for dealers to turn to in order to sell these broken down vehicles to the various used parts suppliers, scrap metal recyclers and salvage yards.

Copart has been growing rather steadily since its inception in 1982 now operating 140 facilities throughout the US, Canada and the United Kingdom. They have over 50,000 vehicles for bidding each day ranging from classic cars, motorcycles, jet skis, boats, and used cars. Most of the revenue that Copart brings in is received from fees paid by vehicle sellers and buyers as well as related fees for towing and storage of said vehicles. Copart acts similar to eBay (eBay) to insurance companies, vehicle dismantlers, dealers, and recyclers on both the buy and sell side for used, damaged and vehicles not economically repairable. As a second source of revenue the company has the ability to purchase vehicles outright from the various outlets and sell them for a profit through their various auctions.

Copart is a beneficiary of the “Cash for Clunkers” bill as the revenue stream should be generated through the high volume of salvage vehicles moving into retail car dealerships inventories. If we begin to see new car sales pick up amongst the new car dealers then Copart should see a direct correlation of increased revenue based on the movement of the trade in vehicles.

By Greg Peel

The Dow fell 299 points or 4.2% while the S&P fell 4.7% and the Nasdaq 4.0%. The Dow slammed through the 7000 mark on the way to its close of 6763. The average reached a height of over 14,000 in 2007. The S&P fell 34 points to close right on 700, representing the low of the day. This is the next major technical level, and late selling suggests the same crowd who ensured the index was knocked through the last important level of 752, thus triggering a Dow Theory resumption of the bear trend, is probably going to try and force the broad market index through this level as well. The next level to consider is 650 – which has been a popular target for more than one group of equity strategists. If you assume 20-30% reductions in S&P 500 earnings, and a multiple of 12x, 650 is about what you arrive at. Notably, the Nasdaq is still to breach November lows, but is not far off.

While Britain’s financial sector has become as much if not more of a basket case than the US financial sector, one of the more robust institutions amongst the carnage had been HSBC Plc. Honkers & Shankers had only fallen 40-odd percent in value from its highs, making it quite the star in comparison to 95% drops in global bank stocks. But reality bit last night as HSBC announced a 70% drop in profit in 2008.

The bank also announced an enormous rights issue to the value of US $17.7bn, and a closure of HSBC Finance in the US. Had the bank never made a US acquisition in 2003, which became HSBC Finance, it would not be in such strife. HSBC shares fell 17% on the London Stock Exchange, dragging the FTSE index down over 5%. The reverberations were felt around the globe. If more robust HSBC needs that sort of capital raising, what are other less stable institutions going to need?

The question was driven home across the pond when AIG announced a US $60bn loss in the fourth quarter – the biggest quarterly loss in US history. The insurer lost US$90bn in 2008, wiping out a decade of profits. But Wall Street had already reacted negatively to this news last week when CNBC provided a scoop preview. Nevertheless, weakness is currently feeding on weakness. The previous US administration had already injected US$150bn into the global megalith, and now this one is to throw another US$30bn at it as well.

The reason why the government will not allow AIG to fall is because its losses stem from the issuance of billions upon billions of credit default swaps – effectively insurance policies for mortgage-backed and other securities. The insurer took no collateral. To allow this business to go under with a mountain of CDS exposures would be like telling Victorians there is no bushfire insurance. It would be catastrophic. AIG operates in countries all over the globe.

Ironically, the company was founded by Americans in Shanghai. As the government (majority shareholder) looks to auction off other aspects of the AIG conglomerate (such as aircraft leasing), bidders include the Bank of China, the ICBC Bank of China, and the Chinese sovereign wealth fund. Bidders for other areas of the business stretch from London to Singapore. It will be a fire sale.

The US market now has to contend with a couple of realities. Firstly, there will be a redemption window opening after March. Secondly, as many big-name stocks (especially, banks, GM etc) fall under US$5 per
share, US institutional funds managers can no longer hold them, forcing more sales. Wall Street is on a slippery slope with little on the horizon to pull it up.

Such is also evident from a continuing flight into US Treasuries. Last night the ten-year bond fell back below 3% again, where it had traded in November. Investors continue to seek safe haven in government
bonds, forcing the US dollar ever higher. The Aussie fell 0.8 of a cent to US$0.6308.

But the safe haven of gold is not enjoying such support in this latest stock market rout. The run up to US$1000/oz was sharp and sudden, so a fall back to US$900/oz is not a surprise. Gold fell US$18.20 to US
$924.20/oz last night. The fear in the gold market is for a repeat of March 2008, when having reached US$1000, gold began to fall heavily as a falling stock market forced margin-called investors to raise cash
through gold sales.

Oil’s positive run also came to an end last night as traders again were forced to focus on the simple weakness of the global economy. Oil fell 10% or US$4.78 to US$39.98/bbl.

Economic data releases last night in the US were nevertheless mixed, with consumer spending increasing 0.4% in January – only the second increase in eight months and the largest in fourteen months. The ISM
manufacturing index rose from 35.6 to 35.8 when economists expected 34, but remember that anything under 50 still means ongoing contraction. The loser was January construction spending however,
which fell to its lowest level in four years.

Base metals in London were remarkably resilient as traders attempted to untangle conflicting data and general malaise. Aluminium rose 2% and zinc 3% while tin fell 3% and the others were relatively steady.
Yesterday’s release of CLSA’s Chinese manufacturing PMI showed a greater recovery than the ISM manufacturing index in the US. No doubt this has fuelled hopes that China is on a (slow) path to recovery.

The SPI Overnight fell 78 points or 2.4%.

I received this email today, and as it has such a powerful message, it is worthy of reprint here.

Hi
This is an article I received from Bill Zheng I have done a many of his seminars and he is always well informed, makes for interesting reading. I agree there are opportunities out there, we just need to be aware of what is happening around us.
==================================================

On 20th January 2009, just a few days ago, Prime Minister Kevin Rudd said in a speech in the South Australian Capital of Adelaide:

“Overseas banks accounted for more than half of the A$285 billion in syndicated loans that have been issued to Australian businesses since 2006″ (citing Merrill Lynch & Co. figures.)

“Of those outstanding loans, A$75 billion is scheduled to fall due over the next two years,”

“If foreign banks do not roll over their share of these loans, it will be difficult for Australia’s four major banks to fill the gap on their own.”

Just so you know, according to Bloomberg, Australian banks, led by its big 4: CBA, ANZ, Westpac and NAB went into a massive finance campaign to borrow more than $30 billion in the last few weeks (since December 2008) using guarantee provided by the Australian government.

After all that massive effort, I am now hearing the Prime Minister saying we need to raise another $75 billion! According to Stephen Halmarick, co-head of economic and market analysis at Citigroup in Sydney: “If that money doesn’t come through, there will be less investment, less growth and fewer jobs.”

Doesn’t this sound alarming to you? If not, let me interpret them with my understanding:

* Our economy (& your investment) is heavily built upon borrowed money from overseas. If we can’t continue to borrow from overseas, property prices and jobs will suffer big time;

* While Kevin Rudd is not sure whether our foreign lenders will call in those loans, he is very sure that our own banks don’t have enough money to lend to fill the gap if the foreign lenders start pulling out now;

* Even our largest banks don’t have enough credibility to borrow from foreign lenders without the guarantee from the government;

* If our largest banks are not good enough to borrow money from overseas on their own merit, what chance does an average business or property buyer have?

* This goes to show that our private sector has lost the ability to borrow from overseas as a whole; the government is now the last resource.

When it comes to understand what is really happening in the market and more importantly what we should do, I usually give more weight to people who have demonstrated long lasting ability to make money during good times and bad times than economists and academics.

Over the last few days, George Soros and Warren Buffet have been interviewed on the current economy. I thought I would share some of their comments with you.

Soros said on Monday, 19th January 2009:

“The bursting housing bubble acted like a detonator that exploded a much larger bubble.”

“The economies of the world are falling off a cliff. This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger,”

“If they (the bailout packages by creating more money to offset the collapse of credit) are successful…the deflationary pressures will be replaced by the specter of inflation and the authorities will have to drain the excess money from the economy almost as quickly as they pumped it in. Of the two operations the second one is going to be, politically, even more difficult than the first.”

“It should create more money to offset the collapse of credit and then rapidly pull that cash out of the system when inflation emerges. The government would have to be very nimble in the timing of such moves.”

What George Soros is saying is that we will see lots of money being created and flooded into the system, this is usually accompanied with dropping interest rates fast to stop deflation (e.g. property prices drop). Then before inflation kicks in due to increased supply of money, the system needs to flush out all the excessive money, this is usually achieved by increasing interest rates fast.

In other words, interest rates can be very fast moving on both directions in the near future depending on how well the bailout packages work. We all know that it is very hard to time the market, even some of the world’s best investors such as Warren Buffet don’t bet on market timing.

Instead of betting on timing, I believe that it is better to have your baseline worked out first, when interest rates drop below an acceptable benchmark, you may decide to lock it in.

On Sunday, 18th January 2009, Warren Buffet was asked to comment on Jeff Immelt, the CEO of General Electric, for his description of the current crisis: “This is not a cycle, it’s a reset”.

Buffet’s answer was:

“Well, there’s some real truth to that. And we have lived in one way in one type of economy. And we’re now deleveraging that economy. We’re gonna have to live without the same impetus from credit expansion that really helped propel the economic engine for a long period of time. That wind will not be at our back. But there’s all kinds of things that will be in our back. But that he’s right about resetting, without credit expansion being the propellant for the economy.”

While majority of the commentators are still using normal business or property cycles to explain the current situation because they may not have the vision and experience to see far enough, legends such as Soros and Buffet are already talking about Eras.

Not many people in the world have the expertise and financial capacity to bet against the judgment of Buffet and Soros, plus the odds to beat these guys are so low that doesn’t even warrant the risk. Hence my preference is to join them and get myself prepared. If you still believe the current crisis as part of a temporary low of a normal cycle, you may be in for some big surprises.

I have also noticed that people like Warren Buffet and George Soros don’t come out to talk about bad news without talking about solutions at the same time; you can easily see that they are always anticipating opportunities even during their casual kinds of interview.

Whereas you often read a lot of negative news with no mention to solutions from the media, they simply put more fear into people’s head so that they become inactive and addicted to more bad news.

Some people do not like to hear negative or bad news because they want to stay positive, they choose to avoid them at all cost, because they don’t like to be called a ‘negative’ person or don’t want to be affected by them.

I personally do not agree with that approach entirely. Not looking at the bad news or harsh reality doesn’t make them go away, and confronting them doesn’t make you a ‘negative’ person.

You may be perceived as ‘negative’ if you talk about problems and bad news all day long without a solution or doing something about it.

In my view, a person who can confront a negative situation and come up with positive solution, is more positive than a person who is avoiding the reality all together.

If you ask me, there are proactive (or solution oriented) people, there are no such thing as ‘positive’ people. If someone insists on calling themselves a ‘positive’ person, I would remind them that a ‘positive’ person is usually very negative about people who are not, in their view, ‘positive’J!

2009 is a year of great opportunities, the reason I know this for sure is that there are going to be so many problems ahead, hence many solutions to be discovered and profited from.

Kind regards,

Bill Zheng
CEO, Investors Direct

2008 has gone ……… the markets bring us light volume moves that are
less than desirable for active trading, so it is the right time to reflect
on the year behind us and to prepare for the year ahead.

Have you reviewed your trading plan? Where do things stand? What have you accomplished and what can you do better? Does your trading plan need re-tooling?
This is THE time to put time and energy into your future success!

For those that struggled last year, I want you to answer the following
questions:
* What did you do well? Focus on the positive; create a success story.
* What can you do better?
* What were your challenges?
* What were your weaknesses and what do you need to do to be better prepared for 2009 trading?
For those that did well, you can do better:
* What are you goals for 2009? Raise the bar. Raise your expectations!
* What held you back? Where there struggles through the year? Can they be minimised or eliminated in 2009?
* What is preventing you from making more money and being more effective as a trader?
For those that did great:
* Where did you excel, and how can you maintain this momentum in the coming year?
* What challenges do you expect in 2009? Prepare for them now, so they simply become issues you are ready to handle!
If lack of experience held you back:
* Remember that there are no shortcuts.
* Experience is very important when trading, and through a combination of historical back-testing and live trading, you will be better prepared for the coming year.
* Commit to understanding a strategy through historical and live testing, and make sure that your plan is solid for 2009!
* Look to complete an education package or use the expertise of a coach???
If confidence held you back:
* What is contributing to your lack of confidence?
* Confidence can be linked to experience, but even more importantly, to expectations.
* Quite often I see traders who will backtest a strategy, be completely comfortable with their performance, but then lose confidence after a series of losses – even if these losses were completely in-line with the testing that was done.
* Remember expectations when trading a strategy are two-fold: winning expectations and losing expectations.
* Understand possible drawdowns and the probability for losses when trading a strategy.
* If you flipped a coin and only expected heads, you’d be very discouraged when tails came up half the time.
* If you’ve tested a strategy that has a 65% winning percentage, you need to acknowledge the potential for losses, and put yourself in a position to trade the strategy and benefit from the same results you experienced during your simulated paper trades.
If execution held you back:
* What do you need to do to improve?
* If you entered trades late, commit to trading right at the completion of a signal, or not at all. Don’t chase a trade!
* If your emotions interfered with your trading decisions, create a reward system that focuses solely on execution and not on wins or losses.
* Losses are part of the trading business. It’s too easy to think of wins as success and losses as failure.
* By rewarding yourself for execution, it will be much easier to keep emotions from interfering with your trading decisions.

The markets in 2008 provided us with unprecedented moves and opportunities for day traders. Let’s make the most of the opportunities in the upcoming year and be prepared for what the markets have in store.

Thoughts for year end and FOCUS for next year????

It could be worse – We have seen some real financial carnage in the market. When you deal with people who trade or attempt to trade the market there are people with huge exposures to specific situations, not just stocks, but businesses, jobs, opportunity and ambition. Some have been destroyed and would envy those who have suffered no more than a set back.

Situation - If you did better than the average market return, you are blessed.

Income – A lot of retirees are looking at the dwindling income on their cash as interest rates fall. It is obviously stressful having to re-budget and next year it is likely to get worse. There isn’t much consolation. But it will not go on forever and if it does, don’t worry, everything is going to be getting a lot lot cheaper. You won’t need as much income. And for those of you in cash….just thank your lucky stars???

Blame – Everyone is trying to do their best for their families and their futures with the best intentions. To be tripped up on that mission by the worst market performance in living history is unfair and unjust but let me tell you, it is also blameless. There is no-one, not the Kings and Queens, Presidents, Central Bankers, Regulators, CEOs, strategists, economists, gurus, experts or your mates that saw this coming and so what chance did the rest of us have. None. You are not to blame and nor is your spouse or whoever has been burdened with your families investment responsibilities. The market is to blame. You may find some solace in that.

No Regrets – the key is “Acceptance”. I have had things happen to me in life that I have to live with and I am sure you have too. We all have. Things that, if allowed to roam free, can plague the mind to the point of madness.

However, I have learnt in my old age that in a busy life the most important thing is “now”, the kids grand kids and my wife…and in that privileged environment a moment lost to regret and anger over what has already gone past is wasted. As we move into 2009 we will all have to come to terms with 2008 and its impact on our financial situation and have no choice but to see it as a base on which to build….with a new strategy built out of the 2008 experience?

2008 is done.

NEXT.

Move on.

The past is past. Time to plan how to YOU build “now for 2009”.

THE LESSONS OF 2008

Here are a few of the lessons we have learnt from 2008 – there are too many to mention of course…but these should keep you going:

Capital is more important than income. Protect capital at all costs. This comment is born out of our experience with the bank sector. Those that held onto the banks for income, telling everyone the dividends would be OK lost 55% of their capital (and the truth is the dividends aren’t safe….we will find out in May). A focus on the income from equities rather than the importance of the capital tied up in them has been a big mistake. ‘Never again’ should be your catch phrase. Capital first. Income second.

You cannot focus on the long term if you can’t take the losses in the short term, even if they are only on paper. There is no “long term” for any portfolio. You should always be running stop losses on all holdings forever, no matter what YOU consider the long term prospects. You have to protect yourself from events like 2008 and you cannot do it with your head in the sand about the “Long Term”. I know many of you will disagree. But you need protection from this sort of event in the future.

Booms Bust. The single most devastating event of 2008 was the resources sector going bust on May 19^th. It has been devastating, not just because of the share price falls but because of the speed that it happened. Vicious. It is only in hindsight that we recognize the signs and the similarities with the tech wreck. The only thing to respect was that the sign were in the charts, the share prices and the commodity prices. In periods of irrational exuberance we can but trust the market not the propaganda. The market talks and we should listen. You should have developed a healthy respect for technical analysis this year. You should recognize its weaknesses but also its tremendous strength. The resources sector has reinforced a couple of old adages….

• “If you find yourself standing up and punching the air in delight…Sell”
• A falling share price tells you something and it’s not “Buy me”.

Research – Fundamental research in particular has on the whole served us badly. This is not a crack at all research but some observations on our experience of how it performs in a market collapse. In particular:

• The constant optimism. The buy recommendations continued to flow all the way down. It is disappointing that analysts are not free to write what they think without restraint. Instead they have one eye on their corporate client and the other on their relationship with the company. No-one is allowed to write bad stuff. You cannot point at the King with no clothes without attack. Net result, there really is very little “independent” research around and that is the lesson from 2008. Research is biased to optimism. You have to read it in that light and read between the lines. Despite that you should know that most analysts have the integrity and intelligence to write the truth…it is only the front page recommendation that deceives.
• Behind the curve – One broker recently dropped all their recommendations to “Sell” in the resources sector. It was a pitiful display of how slow opinions move and how so many “forecasts” are shaped not by vision but by reality, not by the future but by history. Forecasts never seem to get ahead of the game. “When will someone forecast something that hasn’t just happened”. We have been watching resources analysts downgrade their commodity price forecasts all year and economists downgrading their economic forecasts all year. In most cases they have only ever adjusted to something slightly more optimistic than reality and have rarely led reality. Apologies to the industry but you have to admit, forecasts are almost always behind the curve. In a downturn they are too optimistic and constantly downgraded and in an upturn too conservative and upgraded. The turning point in the market will come when they are momentarily spot on. Like a stopped clock.

Going forward always read the research. These people know more about companies that we ever will and there is always value in their work even when they are conflicted. The problem comes because all of us are in a rush and we skim the front page for a conclusion which all too often is not on the front page but in the text, if only we took time to read it.

In conclusion

The stock market is not life. If is just a fabulous intellectual pursuit, and you have to admit, that for all the money lost this year we have had a massive education that will set us in good stead to provide security and certainty for our future financial lives. I enter 2009 optimistic, determined not to lose any more and determined to profit. I will pursue that goal and will provide you with a window on my best efforts to achieve that goal.

I hope everything I have done this year has helped. Hopefully I have been able to “INFORM, EXPLAIN, EDUCATE and ENTERTAIN”. In a Bear Market “entertainment” has been at a premium. Hopefully we’ve managed at least that.

Finally. As always…a prediction for next year….that we will continue to see the amazing, the unpredictable, the brilliant and the stupid, the brave, the reckless, the wise and the unbelievable and the honest and the dishonest. Our minds will be stretched, never return to the same size.

Above all….keep your eye on the important things in life……..

Below is an interesting newsletter not written by me but I thought useful for my subscribers to know……

As the carnage and dislocation intensified last week the question has to be asked: Is there any way back, or has it gone too far?

Despite the best efforts of Central banks and governments worldwide, the mayhem continues. It would appear that the total world economy is just too big for individual Central banks and Governments to control or influence.  They simply don’t have the money.

There is a crisis of confidence that has revealed the limitations of globalization. There is now fear amongst politicians, central banks and governments that they don’t have the means to fix the problem. More importantly they can’t control human psychology, so the markets are currently ruled by fear and panic.  Only when this fear and panic subsides and some trust and logic emerges will there be a stabilization in the markets.

A major reason for the continuing lack of trust is that the IMF estimates there are $1.4 trillion of worthless US mortgages of which only $660 billion has been written off.  This means banks remain reluctant to lend, at an institutional level, until all write offs are declared.

Sovereign failure?

One big question being asked is not which company will fail next but which country, following Iceland’s rescue.  Among others, Hungry, Pakistan and Brazil have major problems. However they will be rescued as to allow any countries to fail at this stage would be catastrophic.

Retirement in doubt for millions

So far this month $10 trillion has been lost in the world equity markets – one third of the total for the year to date. Quite simply this can’t continue as Pension and Superannuation Funds will suffer irreversible damage and millions will be unable to retire.

It is worth noting that from November 1929 until June 1930 the US market recovered 50% before falling again. Whilst the causes of the decline are different this time, the markets and market psychology are the same and general market behavior repeats.

AIG has already burned thru the $90 billion it received from the Government a few weeks ago so how much this will cost in the end is anybody’s guess. It demonstrates the massive problems now in the financial system… no credit.

VIX at historic highs

The Chicago Board Options Exchange volatility index is at 79.13, the highest in the 18 year history of the index.  The index is a popular measure of the implied volatility of the S & P 500 index options. A high value corresponds to a more volatile market and therefore higher priced options which can be used to defray risk from volatility. The index is often referred to as the Fear Index and represents one measure of the market’s expectation of volatility of the next 30 days.

So far 200 S & P company quarter profits are down an average of 23%.  This will impact on both dividends and capital investment plans.

US auto sales are the lowest for 25 years with Ford and GM having serious cash problems. Looking forward, car loans will become harder to get as the banks tighten general lending.

Currencies surprise

The Yen is at a 13 year high against the $US even though Japan is in recession. Additionally, against other currencies the $US continues to strengthen. This has been unexpected as most believed that gold would become the major investment and that the $US would continue to fall. In fact the opposite has happened, catching many by surprise.

The flight of cash from markets to treasuries continues, as seen in the US 30 year bond yield being the lowest for 30 years at 4.07%. This, together with general rate cutting by central banks should see much lower interest rates next year. There is speculation that in Australia we will see 4%.

Cargo disruptions and what that means

The 90% fall in global commodity shipping costs since May has exceeded the DOW’s plunge in the 1930s. The Baltic Dry Index fell for the 14th straight session reflecting a total lack of funds to buy cargo on credit. This could lead to a serious disruption in commodity shipping which add further strain to the international economies.

The Baltic Dry Index is an index covering dry bulk shipping rates and managed by the Baltic Exchange in London. Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. However since the demand for shipping varies with the amount of cargo that is being traded in the market  and the supply of ships is much less elastic than the demand for them, the index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as cement, coal, iron ore and grain. Because dry bulk primarily consists of materials that function as raw materials inputs to the production of intermediate or finished goods such as concrete, electricity, steel and food the index is also seen as a good economic indicator of future economic growth and production, termed a leading economic indicator because it predicts future economic activity.

Conclusions

Lastly, there is no short term end in sight for falling US house prices.  This means that further, significant losses will occur within the finance sector.  The bottom line is that, in my opinion, a worldwide recession is inevitable. It is up to the individual as to how they prepare and deal with the situation. There is no doubt that market traders, as against investors should have had a profitable year as the trend has been very clear. So for a trader these markets offer opportunities that have not been seen for a very long time. The bear is here but you can take advantage of it.

By WARREN E. BUFFETT
Published in New York Times, October 17th 2008

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy). If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month – or a year – from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: ‘I skate to where the puck is going to be, not to where it has been.’

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: ‘Put your mouth where your money was.’

Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

John Crowe
First Vice President
Investments
Merrill Lynch

This is a long story, but if you have any interest in what’s going on in the financial markets, I think you’ll find it a more useful analysis than you’re likely to find anywhere else.
It is worth investing the five minutes it will take to read this, before you check the link at the bottom.

=========================================

*** A short explanation of how we got to where we are
Today’s banking crisis is the THIRD trillion dollar plus US-caused financial meltdown in the last twenty years.

Each one of these crises came into being through the same basic mechanism…the fraudulent over-valuing of financial assets by Wall Street – with a “wink and a nod” (and sometimes a lot more) from the White House and Congress.

The fraudulently valued assets stimulate the economy, impart the illusion of health and then, inevitably, the fraud goes too far and the whole house of card comes painfully crashing back to earth.

The three trillion dollar plus frauds were:
Fraud #1: The so-called “Savings and Loan Crisis” of the late 80s
Fraud #2: The so-called “Tech Bubble” of the late 90s
Fraud #3: The so-called “Credit Crisis” of today

*** How the scam works:

The mechanism of these frauds is simplicity itself…Take a shaky financial asset and blow up its value and then sell as much of it as you can.

In the “Savings and Loan Crisis,” the instrument was junk bonds.
In the “Tech Bubble” it was Internet stocks.
In the “Credit Crisis” it was individual mortgages collected into pools and re-sold to investors.

In each case, normal, well established “bread and butter” financial principles were consciously thrown away by Wall Street with no hint of protest from federal regulators.

***The “Savings and Loan Crisis” dissected
Junk bonds caused the Saving and Loan crisis which resulted in the US taking over the assets of hundreds of banks and selling them back over time to the marketplace at fire sale prices.

Junk bonds, which caused the “Savings and Loan Crisis” were shaky bonds that were pumped up by deliberate misrepresentation and what I call “staged dealing.”

Bonds get their value from two things: the amount of interest they pay and how safe they are.

“Junk” bonds have to pay higher interest because they are less safe. Therefore, until the “Savings and Loan Crisis,” savings and loan banks banks were not allowed by law to buy them and call them assets.

Reagan/Bush changed all this and then a group of Wall Street fraudsters used the new loophole to kick off an orgy of junk bond creation and junk bond selling to banks and insurance companies.

The crooks would deal the junk bonds back and forth amongst themselves thereby establishing their “value” and then they’d sell them to outsiders. The bonds then became “assets” which could be borrowed against and leveraged to buy even more bonds.

When the bonds failed, the banks failed and in stepped the US government to “fix” the problem that it created at the cost of at least one trillion dollars to US tax payers.

Deja vu, eh?

***The “Tech Bubble” dissected
The instrument of fraud in the “Tech Bubble” was Internet stocks, start ups in particular.

A stock gets its value from the underlying company’s sales, its growth and its overall prospects for the future.

Pre-tech bubble, companies used to have to prove themselves by being in existence for several years before they could be sold on major exchanges. That standard was thrown away during the tech bubble.

To pump of their values, the companies engaged in “staged dealing” just like the junk bond crooks.

Company #1 would “sell” 20 million dollars in banner ads to Company #2 which would in turn “sell” 20 million in banner ads to Company #1.

In fact, nobody sold anybody anything. Company #2 ran ads for Company #1 and billed it for them. Company #1 ran ads for Company #2 and billed for an equal amount.

These should have been called media trades not sales, but Wall Street was happy to claim them as legitimate cash sales and then use the sales numbers to fraudulently value these companies – many of them totally worthless – in the hundreds of millions and sometimes even the billions.

***The “Credit Crisis” dissected
By now, you see how the scheme works.

It’s not complicated at all.

You take near worthless pieces of paper (junk bonds, stock of start up Internet companies, etc.) and declare them to be good as gold.

Then you create as many junk bonds and Internet start up stocks as you get and sell them as fast as you can.

In the case of our current crisis, the instrument of fraud was so-called sub-prime mortgages.

Previously, sub-prime mortgages had very little trading value. Only people in the sub-prime industry itself dealt in them and for good reason. They’re tricky to value and packed with financial peril.

But Wall Street changed all that.

Wall Street said: “If we take LOTS of these mortgages and assemble them into large pools and then slice and dice the pools in various ways, we can sell the slices to banks and other investors as AAA paper.”

It sounds crazy, doesn’t it?

If the underlying pieces of paper are garbage, how does assembling a whole bunch of garbage into one place make it “better?”

It doesn’t, of course, and this is a principle even a three year old child can understand.

But greed and the need to pump up a shaky economy for propaganda purposes are two very strong motivators.

Banks created these mortgage pools, sold them to each other, and they by virtue of these “staged sales” declared them valuable.

Do you recognize the pattern now?

If you do, then you are now smarter than all the assembled j@ck@sses who do financial reporting because they apparently can’t – or won’t.

This is the THIRD trillion-dollar plus fraud driven financial meltdown in twenty years and apparently no one in the financial news media can see how it happened.

***But there’s more…
Junk bonds were mass manufactured as fast as the crooks could invent them. Ditto for Internet stocks.

But how did hundreds of billions of dollars worth of “toxic” mortgages suddenly come into being?

Why did the mortgage industry change its lending standards so radically and so suddenly to make their creation possible?

And why did real estate lending regulators in all 50 states – because real estate lending is a STATE-level issue not federal – go along with it?

Here’s where it gets very interesting…
The fact is state-level lending regulators were VERY concerned about what was going on. They have been for years. And they not only expressed their concern clearly, they also took SERIOUS concerted legal action to stop lenders from making bad real estate loans to their citizens.

(Most of the sub-prime loans in the news so much today were designed to screw the people who borrowed the money and can rightly be called “predatory” loans.)

Guess who stopped the states from enforcing their own time-proven real estate lending laws and thus created the raw material that made the current “Credit Crisis” possible?

*** The trillion dollar plus question
If you’re a US taxpayer, you’re going to pay for this fraud so you might as well know who did it to you.

His initials are GB.  You know him well.

But perhaps more interesting is the name of the person who single-handedly rallied first state attorneys general and then fellow governors to fight the creation of these loans and who in the process became Public Enemy #1 to the Bush Administration…

His initials are ES.  If you follow “silly” US political scandals, you’ll recognize his name instantly when you hear it.  And you will finally understand why he was quickly and permanently “assassinated” politically earlier this year.  Had ES been allowed to “live,” he would have been in position to remind everyone every day of who made the current meltdown possible.

Instead, he was silenced very effectively. Not with a bullet in the back of the head, but the net effect was just the same.

So effective was this that no one can even mention his name in connection with today’s crisis without risking ridicule, or worse.

hear him on predatory lending at http://www.brasschecktv.com/page/291.html

Last note:The crisis this fraud has created is exponentially bigger than the S & L and Tech Bubble combined.  It’s not going to be resolved by a quick “patch up” and will likely have the same impact on the current generation that the depression of the 1930s had on its parents, grandparents and great grandparents.