Happy Holidays

Wishing all my blog-friends/mates a Merry Christmas and a bail-out free 2009. Here's to another year in the blogosphere.

Normal blogging will resume after the festivities subject to availability of connectivity in Kenya.

Go Ye To All The Banks And Borrow

Someone should have told the Federal Reserve bank that when they got into the hole, they should have stopped digging. As of today, the FOMC ushered in a new era in borrowing money. They cut the Fed Funds overnight rate to nil. Never mind the language of the rate cut.

Instead of the usual verbiage, they established a target range of 0 to 0.25%. Whatever that means because the rate before today's 75 basis point cut was 0.11%.

For anyone who can access the credit markets, there can never be a better time to borrow. Only that you will be borrowing over-valued dollars because sooner rather than later we are going to pay dearly for the appreciating dollar.

Though the extent of the rate cut took the equity markets by surprise, the ensuing response was subdued. In total, 6.7 billion shares were traded in the NYSE and another 2.2 billion on the NASDAQ.

Now that the Fed has reached the bottom of the barrel, it remains to be seen how low they will hold the rates at this level.

Still Waiting..............

I'm not sure if it's worth second guessing what happened today in the equity markets. What started as a huge down day turned out to be an uneventful day for both the bears and the bulls.

How else can one explain the disconnect between Senate rejecting the $14 billion auto bail-out and the lack of direction in the market. Either all the bad news has been priced in, or investors expect some sort of government intervention, or there are simply no more sellers out there.

Today's trading volume was on light side despite the gravity of the bad which goes to confirm that the bottom may be behind us. As usual, I can never say never.

I see several events that are likely to bring further turmoil in the markets. First is the crashing of the dollar. This is a very unlikely event because the dollar is the world's reserve currency and accounts for more than 50% of the world's foreign exchange market. From what we've experienced in the last few months, anything is possible.

A more likely scenario would be hyper-inflation especially now that we are printing money like there is no tomorrow to fight deflationary forces. While it is certain that we will see the return of inflation, I'm not sure how this will affect the already weakened economy. My guess is that it will make the situation worse.

It is because of these two scenarios that am avoiding U.S. investments and I will continue targeting emerging markets that are primarily producers. Consumer driven capitalism is dead for now.

Waiting............

At times it's necessary to take a step back from the equity markets and wait. So what exactly I'm I waiting for?

I'm waiting for the market to come back to my level. Even though I believe we have bottomed, there is still a lot of uncertainity out there. Credit and money markets are still dislocating and the rest of the world is trying to figure how they can move forward without the U.S.

I'll continue waiting for a pull back before making my next move. If I'm right, we'll see a wave of tax loss selling which will put some downward pressure on stock prices.

Hopefully, I'll add to some of my new positions and open up new ones before the end of the year.

1 Wii, 2 Wiis And No More Wiis

Tuesday turned out just as I had hoped and more. My search for a Wii ended at around lunch time when I bought one console from GameStop at the shopping mall nearest to my place of work. I first called to confirm that they had received a shipment before heading out to the mall.

Later in the evening I passed by Best Buy to check on the accessories. Surprisingly, I found that they had one Wii in stock. Life has a way of presenting things when you don't need them. Only in this case, BestBuy has a 6 months no interest plan for purchases greater than $299.

And so I ended up buying the Wii plus one of the accessories bringing my total cost to $307. Now I have until the end of May 2009 to pay off the birthday present and an extra Wii hidden in the basement which I plan on returning to GameStop later this week.

From the little research I've done, I have to buy extra accessories to allow for multiple players. This include the remote controller, the Wii steering wheels, the nunchuk controller and the networking cables. I'll do so on Friday as I have 10% discount Best Buy coupons valid for this weekend. I'll be putting the entire purchase on my Best Buy credit card which will give me 90 days interest free period. Why should I pay cash when I can buy it on free credit?

Unfortunately for my kids, the one game that they would like to have is unavailable. For reasons best known to Nintendo, one of the most famous games, the Mario Brothers Kart, is out of stock. You would think that they can produce millions of CD in a weeks time but that is not the case. As Cold Tusker and Kim have commented in the previous post, they might be trying to create an artificial shortage to spur demand.

This way they can keep prices higher for a longer period and create a must have item. So you have people who would ordinarily not buy a gaming console taking interest in the Wii.

Come Saturday I'll see for myself whether the Wii is anything people claim it to be. I still have to figure out which games to buy on Friday. Any ideas out there?

Addendum (12/12/08); I reluctantly returned the second Wii console to GameStop and I was lucky to get the Mario Kart game. All retailers have run out of Wii's again.

Your Money Is Safer Under Your Mattress

Open up the business section of your local newspaper and chances are that you will see multiple adverts of banks offering 4% plus interest rates for your money. The Fed funds rate currently stands at an all time low of 1% but it is still cheaper for banks to 'borrow' from depositors. That is if they can access money from the markets.

But wait. There's more to it. The Treasury just announced results of the 4 week T-Bill auction.

Fortunately for the government, they don't have to pay the crazy rates that banks are offering. Instead, they'll take your money for free. In return investors are earning nothing on their cash. Yes, 000% interest. After all, the government is doing you a favor considering the situation we are in.

So what does this mean?

It means a lot. For one, you are better off keeping your money where you can see access it. Like under your mattress. That is if you have any money. Above all it means that a lot of rich people don't want to invest in anything. They would be happy to keep their money safe.

You've heard it before. Cash is king. Keep some of your powder dry. We still have some way to go before the current mess is behind us. Like Barack Obama said, it may get worse before the situation improves.

Desperate For A Wii

On Saturday is my son's birthday and we had planned on getting him a Wii for his birthday as this is the only way we can get away with buying one Wii only. If we are to get it for him as a Christmas present then it means that everyone gets their own Wii.

With the economy in the dog house you would think that Wii's would be available in abundance. Not in the the U.S.

The console is more than 2 years old but there are not enough to go round for everyone. I've been to Best Buy, Wal-Mart, Sam's Club, Toys R Us, Circuit City and GameStop but no one has it in stock. Most of the stores received their last shipment on Saturday night and they were gone minutes after they opened on Sunday. The associate at Circuit City told me that only a third of the people got the units yesterday.

GameStop has used (second-hand) Wii's but I couldn't get myself to even look at them. I could also buy a new one online but I'm not willing to part with more than the $250 that it retails for. I love my son very much but I'm not that stupid. I think he is very lucky to have his dad driving around town looking for a Wii because my dad would never have done the same for me. During my time, a birthday present from him involved slaughtering a goat which I had to do so personally even though it was a present from him.

I will hit the shopping mall tomorrow at lunchtime because Toys R Us and GameStop may be getting a shipment tonight. Failure to secure one by Saturday means that I will have to buy more than 1 Wii for Christmas. In the meantime I also have to come up with a back-up plan for Saturday.

Company Christmas Party Cancelled

Owing to the tough economic environment, my employer has cancelled this year's Christmas party. Although no one is surprised with the move, I don't think this is the right decision.

The excuse given is that in light of the on-going company restructuring (read lay-offs), the powers that be claim that holding a Christmas party would be insensitive. I am certain that the decision was an economic one and driven by cost cutting measures.

I'm not sure how much the parties would have cost but I would have thought that they would have been a good way to motivate staff during this hard economic times.

Now we have to make do with a departmental pot-luck 'party'. Everyone is going to bring a dish, drink or snack for the lunch-time event which will be held tomorrow today.

Tough Times

If you are reading this and you still have your job then you should be very grateful.

November saw the loss of 533,000 jobs and 422,000 more people stopped looking for work or left the work force. You can be certain that a number of people in the later group were forced to retire as has been the case at my place of work. And just when you thought that the news couldn't be worse, the previous month's job loss numbers were revised downwards.

Consensus in Wall Street was a loss of 335,000 jobs and so the new numbers were received with shock and awe. Only that the most, if not all, of the major indices closed up. Considering the fact that the markets are forward looking, I'm going to assume that all the bad news has been priced in.

Perhaps the reason for the rally could be the further decline of oil prices and commodities in general. Only that in the grand scheme of things, we are experiencing a major deflation of assets which doesn't bode well for businesses. While consumers may be enjoying the lower prices, producers, the engine that drives the economy, may begin to trim down resulting in more job losses.

I don't expect the good news to start rolling in soon but I have to admit I never expected the situation to get to this levels even though I've been very bearish about the U.S. economy for the better part of this year.

Oily Mess

Wow! Crude oil prices touched $43.64 today. That's a 70% decline from the record summer prices.

At this level, there is little incentive for oil & gas companies to explore for new supplies. Demand destruction in the face of a deep global recession is said to be the main culprit.

My favorite sector, Canadian Royalty Trusts, has been hammered as a result of the low oil prices. My position in PVX is 17% down if you exclude the monthly dividends but I have every intention of holding on.

Nothing seems to be safe anymore and except for the stocks that I want to own. That's very odd and I'm hoping that they will come to my level. I've put my limit orders and I have no intention of raising the amounts soon. I still have some dry powder to keep me going and even though nobody likes to buy stocks when prices are falling. It's no wonder that some of my colleagues at work have reduced their 401k contributions while I've maintained my deductions at 10% of my gross wages.

Tomorrow we get the jittery unemployment data which has everyone on their toes. In a time when layoff's have dominated the news and are the talk of every conversation, the numbers will confirm the underlying fears.

One thing that is certain is that by the time this carnage is over, a lot of companies will have closed shop. There's never been a riskier time to invest in stocks like today.

Staying The Course

It's times like yesterday and today that leaves many an investor trying to figure out which direction the market is headed to. Volatility has turned to be the greatest for to both longs and shorts alike.

For people who are used to stop losses, it doesn't matter whether you take a short or long position. Wide swings on either side has seen many a positions being unwound prematurely.

Being the last month of the year, I've been so busy with work that I've not had a chance to analyze the going-on's in the market. Most of the financial news has been very negative and even though trading volumes have been low, they are still at historic highs which means that there is a lot of activity taking place beneath the surface.

I still think that we are still in the woods till 1st quarter next year and even then, I don't expect the U.S. economy to return to normalcy. We are probably looking at several quarters of little or no growth as banks come to terms with the high levels of household debt.

For this reason, my money is on emerging markets. The rest of the world has only started playing catch-up with America and I expect this trend to continue. Even more important, these countries are generating real wealth instead of relying on financial engineering to produce money.

Red Monday

Last week's pre-Thanksgiving honeymoon came to a crashing halt today. Bulls looking for a repeat of the Black Friday rally ended up with a Red Monday instead. Reports by the NBER that the U.S economy has been in a recession since December 2007 was all it took to bring the markets back to reality.

I'm surprised that it took reputable economists 11 months to figure out that the U.S. economy has been in a recession. Never mind that I blogged (Let's Talk About R) about the recession on January 4th using data from the index of leading economic indicators.

The good news in today's decline is that trading volume was on the low side. Had volumes been higher it would have been bad news considering that we rallied on low volumes last week. This means that there is limited selling pressure from traders/investors who bought into the rally and thus November lows may hold.

The flip side is that we are in the final month of the year and we may experience some selling pressures from tax loss selling. This is the case where investors cut their losses before the end of the tax year.

I'll continue to monitor volumes and look for opportunities to add to my November positions in TSP and may be open up new positions in one or two stocks. I'm also looking to re-enter financials Exchange Traded Fund, UYG, at sub $4 levels for another short term trade.

Fillin' Up Like It's 2004

If someone had told me in the summer that gas prices would fall 50% I would have wondered what drugs they have been taking.

Thanks (but no thanks) to a global recession, crude oil prices have fallen from a high of $147 per barrel to $50.

I painfully remember paying $4.08 per gallon of unleaded gas in mid-July. Fast forward a few months later, and the same gas was going for $1.49 per gallon, even though the price didn't hold for long.

I'm not sure how long the sub-$2 gas prices are going to last but I will certainly enjoy filling up my car for less than $20 a fill.