It’s not falling off a big cliff. But it has suddenly turned down. Items:
+ Warren Buffett told CNBC his companies noticed a downturn beginning about six weeks or so ago.
+ Las Vegas reported sharply lower gambling revenues in May.
+ Europe is suddenly doing horribly. Their two-year old mess is now catching up with them economically.
+ Richard Russell, the doyen of stockmarket newsletter writers, wrote:
We are in a bear market — one that ultimately may turn out to be the worst in history.
I assume that most subscribers were surprised by yesterday’s site, in which I wrote about the US unilaterally raising the price of gold. By now, everybody knows about the danger of our nation continuing on its current path. Aside from the “fiscal cliff” coming up, our whole politico-economic set-up isn’t working. Something drastic must be done — such as a new monetary system, and a new government set-up. The fact is that our Congress isn’t functioning intelligently — in fact, it just is not functioning. Congress is disgustingly corrupt and much of Congress is in the grip of lobbyists. Too many people enter Congress medium-poor and leave Congress rich. The President spends far too much time running for a second term. We should elect presidents for a single six-year term, and then the president should go home and do something else, that hopefully, is useful. The Supreme Court members should be elected, not appointed.
In other words, our whole system is, today, tied up in knots; it’s just not working. We need a non-corrupt political system and a new monetary system. Personally, I’m in favor of any system that actually works on an honest and sustainable basis. Our current system doesn’t work. If it did work, we wouldn’t be in the God-awful mess we are in now. And no, I don’t enjoy bear markets. And I don’t enjoy bull markets that ultimately take stocks far above known values, followed, usually, by a crash.
The old gold standard worked reasonably well. It forced monetary discipline on the nation. The Federal Reserve is an abomination. The nation ran for many years without a national bank, and it was never in the fix it is today.
The Fed is a monopoly run by bankers, for bankers. It should be abolished. Well, there’s no sense in my going through the whole government piece by piece.
The gruesome fact is that this country is not running in a way that is sustainable. As it is, we are leaving our children and grandchildren with a debt-choked nation that is technically bankrupt. We’ve substituted fiat, man-made paper notes for gold. Our whole nation is in hock. Cities, counties and states are now bankrupt and are unable to pay their bills. Raising the price of gold is a stop-gap measure. We’ve got to toss out what doesn’t work, and go back to the drawing board. And if that’s what a bear market will do for us — then let it rip.
But it won’t be that easy. When a nation has a fundamental disease, nobody (certainly not the voters nor the politicians) wants to take the pain of a real, honest, bear market cure.
Subscribers ask me how we could unilaterally raise the price of gold. Easy, one day the president (Roosevelt did it) announces, “The price of US gold is now $4,000 an ounce.” Period.
Three of California’s cities — Stockton, Vallejo, and San Bernadino — have filed for bankruptcy. What about their muni bonds?
Last Friday, the city of Scranton, Pennsylvania, sent out paychecks to its employees, as it does every two weeks. But these checks were for amounts significantly smaller than usual because Mayor Chris Doherty reduced all city employees’ pay — including his own — to the state minimum wage of $7.25 an hour.
I note that new highs on the NYSE are dropping off with each new day. Today there were only 107 new highs.
Of the 19 sectors that Dow Jones posts each day, 16 were down today, signifying broad weakness. The VIX is still low, at below 19, and calmness and confidence is apparently the order of the day. Today, with such low volatility, it’s inexpensive to buy downside protection (puts). The thought is that if there is any danger, the Fed will immediately act. Thus traders feel safe, which is one reason the VIX is so low. This is a very professional market. Joe six-pack and his wife are not in this market. They’re still in shock (if not broke) following the 2008 crash..
Is history repeating? This is the longest job recession, 53 months, since the Great Depression. The Midwest is suffering the worst drought since the “dust bowl” of the 1930s. The movies are showing the scariest stories since the 1930s. Then it was Dracula, now it is vampires. Then it was the birth of radio and news beamed across America, now it is the birth of the Internet and news beamed across the states and the world.
This was my list of shorts in June 5’s column:
Best Buy (BBY)
BHP
Caterpillar (CAT)
Cisco (CSCO)
Deckers (DECK)
Dell (DELL)
Eaton Vance (EV)
Exxon Mobil (XOM)
Facebook (FB)
First Solar (FSLR)
Gold (SGOL or GLD)
Green Mountain (GMCR)
Fossil (FOSL)
GameStop (GME)
Goldman Sachs (GS)
IBM
JC Penney (JCP)
Joy Global (JOY)
JPMorgan (JPM)
Morgan Stanley (MS)
Patriot Coal (PCX)
RadioShack (RSH)
Research In Motion (RIMM)
SanDisk (SNDK)
Starbucks (SBUX)
Supervalu (SVU)
Terex (TEX)
Of those shorts, two performed spectacularly:
+ Patriot Coal filed for bankruptcy. That’s the perfect short.
+ Supervalu (SVU) recently reported lousy earnings and make this delicious chart:
+ My favorite shorts — RadioShack (RSH) and Research in Motion (Blackberry) are steadily losing value.
I don’t believe your portfolio should be a 100% short. But, just as there are obvious “longs” (good companies going places), there are also bad companies also going places (different places).
Here’s today’s shorter list:
Game Stop (GME)
Fossil (FOSL)
IBM
Eaton Vance (EV)
JCPenney (JCP)
Joy Global (JOY)
RadioShack (RSH)
Research In Motion (RIMM)
SuperValu (SVU)
Terex (TEX)
450,000 accounts at Yahoo got hacked. If you receive an email from a Yahoo account, delete it immediately.
The hackers are getting creative. I got one today from my daughter, “Claire Newton [mailto:wdave93@yahoo.com]”. Claire doesn’t have a Yahoo account. Her email suggested I visit a web site that I’m sure would have infected my computer. Claire wonders how they got her name. I’m guessing someone with a Yahoo account had emailed her a while back and the email was still on Yahoo, nicely being preserved for the crooks.
Which Programming Language Should You Learn For Software Development? Reader Ryan Lakshmanan emails:
At the Sun Valley conference hosted by Herb Allen this week, a child went up to Mark Zuckerberg and asked his advice on programming. Zuckerberg told the child to write programs that interest you, that you find fun….like games. He told the child that thats what he did, was to write programs that interested him and was(how he started Facebook).
Ryan “saw this link and thought it might help you make a decision.”
http://www.makeuseof.com/tag/programming-language-learn-software-development/
Harry’s new technology: This week I bought:
+ A Canon S100. It’s pocketable, yet has a 5 times zoom, a decent size processor and some manual controls — including a programmable ring around the lens, which I’ve assigned to adding or substracting a stop or two to the photo (making it brighter or darker).
+ A Kindle Touch. Smaller, lighter, newer. Perfect for reading the trilogy of “50 Shades of Grey” and not having the riders on the subway eye me suspiciously.
+ A SATA hard drive duplicator for $90.
Clone hard drives without using your computer. May be the perfect simple backup tool. Save screwing around with Acronis and Ghost and all the other half-assed software “solutions.” Cross your fingers. I just placed my order this morning. Pray it works. Click here.
Harry Newton who compliments The Economist for seeing the bright side. Lead article this week is The American economy, Comeback Kid. America’s economy is once again reinventing itself.
The Economist talks abot our fast growing “app economy.” Get your kids to learn software programming, please. Read the full Economist piece here.
Harry has JP Morgan as a short. It was Up 6 percent yesterday,. You get my point.
Sorry to depress you. I am not personally short JPM. It's on my big June 5 list above. But as with anything I publish it's a list of suggestions. Not always what I own or am short.
You'll notice that “today's shorter list” published above does not contain JPM.
I guess your point is that you don't follow my life-long motto; CHECK. CHECK. CHECK.
I wrote that it was on a list of shorts you published. Reading comprehension not part of the curriculum in Australia?
As to your disk cloner tool, is it good idea to unplug and replug your drive from your laptop on a weekly or monthly basis? One is more likely to mess up the pins on the drive connector if these are not handled properly. Let us know bit further once you use the tool on regular basis.
SATA drives don't have pins the way IDE drives do.
I've also been removing and cloning laptop drives for years. I've never had a problem with the pins. The software, yes, but not the pins.
We think this is a generational buying opportunity in a number of sectors. I'm scooping up shares of beaten down and oversold European ETFs, as well as coal companies. I also love real estate at these prices. Of course, the latter is highly regional, and not a screaming buy everywhere, only in most places. Our research seems to indicate that high yielding REITs are fools gold. When interest rates inevitably pick up, they should plummet.
Fred,
I see that Patriot Coal recently filed. Do you have any suggestions on any coal Co's that are solid?
Since our goverment has decided to kill the coal business, it makes me nervous to get into that sector.
I'm buying Arch Coal. The potential upside is huge. There's also a chance it could fall off a cliff. It's definitely a sector you gotta watch. I'm in small, and if the sector stabilizes I'll get in bigger. The government can't kill anything. Coal will be around for some time. Right now I'm hoping that Harry Newton shorts more coal companies, a sure right it's heading up.
I recommended shorting Patriot Coal. Subsequently it went bankrupt. That means if you bought PCX when I recommended shorting it, you would have lost 100% of your money.
Heh, Arch Coal (ACI) still looks like a great short, too. It started the year at $15.19. it closed on Friday at $6.14. I bet it's going lower. But I need to do a little more research.
Let's bet. Just a general bet – you say Arch Coal fails, or does poorly, I say it does at least moderately well.
This is by no means a sure thing for me. To even compare Arch to Patriot means you have a LOT of homework to do. The numbers for Arch are quite a bit better. Still, coal's a wild card.
FYI – I bout Arch at 5.7. So far, so good for me.
Harry, PHP may be a good choice of programming language for you. Your WordPress blog already uses it, so you'll be able to modify your blog more easily. PHP is available on almost every server. If you want to learn more, you can attend several PHP and WordPress meetup groups in NYC.
I have no idea why, but my business is having its best week in about five years.
Yes, I'm seeing something shifting this week as well. Larger companies and venture-backed companies are suddenly in the mood to spend.
I wish more of your comments would focus on investing and not on our government. You'll have your chance in November. Meantime, let's focus on making a few shekels.
Harry,
I appreciate your concern, but in this environment, many sectors as well as companies are making decisions based on what the government *might* do. Sadly, government action is such a large part of investing that one ignores it to their own peril. One must be cognizant of what the government agenda is when making investing decisions, such as our discussion on coal, energy in general, health care and financial forcasting decisions for home and business.
Are you responding to Jbwolf? Hard to tell. He is right – based on what my CEO and entrepreneur clients tell me, I think the 2008 recession started when it was not clear who was going to win the election, and the heads of companies just held their cards. They're still doing it, although there are several exceptions: 1) small, profitable well-run companies that just keep getting on, no matter what; hot new companies run by very smart people who are going gangbusters (growing 25% per year, minimum); and some who are just tired of waiting for the other shoe to drop, and who are just deciding to go for it.
Harry
Per your concerns about change at the top in Government; there is only one solution in my mind. We have to Vote ALL of them out. And it doesn't matter about who they are or their party affiliations. And we have to keep doing that until we end up with a group that starts doing something right. When I talk with others about this concept they say “Oh, they will be inexperienced and make major mistakes!” Excuse me; what could they possibly screw up more? Think about it. We have to remove politicians at every level and keep doing it until we end up with leaders.
JimBob – I agree with you and here is a realistic way that can happen if the people rise-up! Put strict term limits on every elected office in every state through ballot initiatives or other realistic means. The biggest problem we have with politicians today is that they are there to serve themselves instead of our country and they spend more time raising money to get re-elected than they do performing their duties which essentially makes them puppets of their donors. With a single term in office (be it 2 years or 4 years) and no re-election, only people who truly want to serve will want to run for office and that weeds out the career politicians who want to just enrich themselves not to mention the fact that there will be a wide range of ideas that will be brought by the rotation of those who hold office. Of course, today's politicians will do everything to fight that because it threatens their personal interests….and to think they were serving America.
They have single terms here in Mexico. All it does is make politicians grab all the money and influence they can so that after their term, they can live high on the hog and get directorships from the companies they serve during their term. If not, I'm sure they know they are basically unemployable.
Unfortunately, getting anything done in the political system requires intimate knowledge of how to play the system, and that's why the system has to change before regular joes can have any chance of being effective in it.
Harry since you're a subscriber Richard Russell's “Dow Theory Letters” why don't you email Mr. Russell and ask him what he thinks of the Economist's “The American economy, Comeback Kid” article? Maybe you could post his response………I don't know if Mr. Russell is aware of the Economist being a European left wing pro Obama publication but his response would be interesting.
did you actually read the economist's piece?
Harry, more and more information is appearing that we are heading down into another, (or just deeper in this) recession. The job numbers yesterday were worse than dismal if you remove the outragious “seasonal adjustment”.
The Department of Labor in their press release states:”The advance number of actual initial claims under state programs, unadjusted, totaled 439,743 for an increase of 69,971 from the previous week.
good time for shorting selected stocks.