Way To Hell
Research for Online Investors

by John Dalt

3/25/09

“Way to Hell”, that is how the E.U. President described the U.S. Stimulus.  I must confess, sometimes it seems I am too strident in criticizing OH! Bama, but he deserves it all.  I never thought my ally would be the President of the E.U. and Czechoslovakia.  Who would have thought that Europe would tell the U.S. we are becoming too socialist?  He should know, since the Czech Republic was under the thumb of the U.S.S.R. for over forty years.  We still have some of Roosevelt’s legacies left.  Old habits die hard.

Yesterday I wrote about the Treasury auction that would occur today. The auction today did not go exactly how the Fed had planned. $24 billion in Five-year Treasury bonds sat on the table, looking for buyers. Like an auctioneer calling “Anybody, Anybody, Anybody”, seems the Fed was the only excited buyer. Of course, they are the only ones with someone else’s money. What do they think is going to happen when the real action starts, our government needs to sell a few trillion in bonds!

Interest rates went up!  Britain could not sell all of their bonds.  This has not happened for almost seven years.  Well, so much for buying down rates with “quantitative” money.  The old perpetual money machine does not work!

There is a great letter in the New York Times today from a Vice President at A.I.G.  He is more than a little upset over the witch-hunt atmosphere that currently surrounds his employment.  I encourage you to read it.  I think he just had a ‘John Galt Moment’.

I am reading “America’s Great Depression” by Murray N. Rothbard, published in 1963.  A scholarly look at economic theory, why business cycles occur, and what causes a depression.  A passage caught my eye; I thought I would share with you.  “The boom-bust cycle is generated by monetary intervention in the market, specifically bank credit expansion to business.”  I will bring you more insight from this book.  In the first ten pages, Mr. Rothbard has hit the nail on the head.  Our Federal Reserve System has manipulated money supply to try to maintain full employment, and now we pay for it.  All good parties must come to an end!  You can glance at an online version, to preview, before you order your copy.

The market today tried to go higher, then went lower after problems at the treasury auction, and in the last hour pulled off the mat to close higher.  Market pundits are hailing the resiliency of the rally.  I have tightened my stops, and going to cash in my trading account.  We have a few positions open, but they are hedged, or are in inverse funds.  Resistance has held, but buyers seem sensitive to any news to sell.  It seems we are moving to a situation of sell the news, whether good or bad.  This is very bearish.  In rallies, the market ignores news, and just keeps buying.  In bear markets, good or bad news is greeted with more selling.

Here is an interesting chart of earnings of the SP500 companies since 1935.  I have written about the repricing of stock prices based on bear market multiples.  Multiples contract during bear markets.  This chart shows the declining earnings that add to the downdraft.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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