New Paradigm

The hits just keep coming, thanks to Mr. Bernie Madoff and his madcap financial company.

This fraud is simply a foreshadowing of what is to come on a massive scale. That is to say, the biggest perpetrator of a Ponzi scheme is….you guessed it,….our very own government. Don’t make things so complicated. Our survival depends upon investors buying T-Bills and T-Bonds. That’s how all the crap gets financed, in a nutshell. Confidence is numero uno in that game.

When confidence fails, the game is over. Our government can’t turn back the clock. It keeps on ticking. Decades and decades of overspending and overborrowing by both the government and consumers, has sealed the fate of the U.S. and the world. You reap what you sow. In this case, it’s irresponsibility and phony fiat money. Sorry about that, but things are falling apart, you know.

It may not happen this week, next month, next quarter, or even at the Obama presidential anniversary party, but it will happen eventually. We are due for an economic collapse that will rival the Great Depression. There, I said it. You have been warned.

We are deteriorating as a society. Everything is taking on new meaning. For instance,

CEO = Chief Embezzlement Officer

CFO = Chief Fraudulant Officer

Bull Market = A random movement in the market that causes an investor or trader to mistake himself for a financial genius.

Bear Market = An extended perior of time when the kids get no allowance, the wife gets no jewelry and the husband gets no sex.

Value investing = The art of buying low and selling lower.

P/E ratio = the percentage of investors pissing in their britches as the market continues to fall lower.

Profit = something fleeting and transitory; somewhat archaic in usage.

See what I mean? The times, they are a changing.

This is a new paradigm.

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Shakeouts are easy to see on the PnF charts. Take MTXX for example:

A shakeout pattern is when a stock makes two tops, then breaks a double bottom. This rids the stock of weak holders. The buy signal is on a three box reversal to the upside ($16.50). The shakeout is completed when the triple top is broken ($18.50).

(Currently, MTXX has already reversed to the upside and is in a column of X’s, but the shakeout hasn’t been completed yet).

These are nice patterns to look for and trade, so you might want to add this to your arsenal of strategies.

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You have to have a cast iron stomach for these shipping stocks. I refuse to yield to my emotions that are telling me to bail out now.

Instead, I’ve bought more, embracing the risk.

EGLE @ $6.43    

GNK @ $10.15

DRYS @ $9.13

EXM @ $6.77

The moon is full tomorrow night!

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GNK @ $11.70

DRYS @ $11.08

EGLE @ $6.97

EXM @ $8.42

Major shippers like GNK and DRYS have made good decisions to cancel orders for new vessels. This is a prudent move as it will allow them to maintain liquidity and purchase distressed assets when the opportunity arises.  Look for others to do accordingly. It will also allow them to keep paying dividends, especially GNK, whose $1.00 / share/ Qtr dividend is looking more secure. A 30% plus yield ain’t so bad.

We all know what has happend to the Baltic Dry Index (BDI) since hitting an all-time high of 11,793 last May. Recently, it hit 663, which it hasn’t seen in over 22 years.

This shippers have been due for a bounce, which could help investors recover two-thirds of their losses in these stocks, via the magic of Fibonacci.

The bounce could be huge, taking the BDI back up over the 5,000 level or higher. Shippers are moving freight at cash-flow breakeven. It would be unlikely that the day rates will go much below where they are now, unless operating costs fall or shippers like losing money. So, we may have seen the bottom in prices.

Excess capacity may start to get used up after the U.S. / China decision last week to allocate $20 billion to help ease the credit logjam in trade/shipping finance.

All hands on deck.

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Question: How much is the tab for the bailouts, guarantees and tax cuts (so far)?

Answer: Over $5.5 trillion:

1. JPM / Bear Sterns backstop:     $29 billion (03/16/08)

2. Housing bill that insures mortgages:     $300 billion (07/30/08)

The bill allowed up to 400,000 homeowners to refi into a new 30-yr fixed rate backed by U.S. govt.

3. Housing bill tax cuts and first time home buyer tax credits:     $15 billion (07/30/08)

Bill includes a $7,500 tax credit for first-time homebuyers who purchase homes between 04/09/08 and 07/01/09. It also sets aside up to $ billion for cities to buy and renovate foreclosed properties. 

4. Purchase of Fannie and Freddie preferred stock:     $2 billion  (09/07/08)

Also includes warrants for up to 80% of the common stock of each company.

5. Financial support for Fannie and Freddie, mortgage defaults:  $200 billion (09/07/09)

6. Troubled Asset Recovery Program (TARP):     $700 billion   (10/03/08)

$250 billion under Hank Paulson’s direction; $100 billion for Bush and $350 billion for Obama. Paulson gave half of his loot to 9 banks. In exchange, he got non-voting preferred stock, paying a 5% divi from each bank, and $18.75 billion in warrants for common stock.

7. Tax incentives (to sweeten up TARP bill):     $150 billion

8. Commerical paper funding facility:     $1.3 tillion backstop   (10/07/08)

The Fed to buy short term commercial paper through 04/30/09.

9. Temporary Guarantee Liquidity Program (TGLP), 10/14/08:     $1.4 trillion       

FDIC backed plan that allows banks and “other financial firms” that have been approved to participate and issue up to $1.4 trillion in government guaranteed bond with maturities of more than 30 days. Bonds must be issued by 06/30/09. The guarantee lasts through 06/30/12.

10. Money Market Investor Funding Facility (10/21/08):     $540 billion

The Fed announced that they will lend $540 billion to corporations (designed to unclog commercial paper market)

11. AIG / Insurer bailout:     $152.5 billion

The deal was originally $85 billion (09/16/08), with an additional $38 billion loan added 10/08/08. The deal was then reworked on 11/10/08 to a $60 billion loan, a $40 billion purchase of preferred stock, and $52.5 billion to buy other mortgage-backed assets of other insurers.

12. GSE Purchases Program (11/25/08):     $600 billion

This program will buy up to $600 billion of mortgage-backed securities and debt from Fannie, Freddie, Ginnie Mae and the Federal Home Loan Bank.

13. Term Asset-Backed Securities Loan Facility   (11/25/08):   $200 billion

Fed will loan up to $200 billion to private investors who would in turn buy securitized assets, backed by auto, credit card, student and small business loans.

14. Automakers……$15 billion ???

15. Runaway inflation:  Priceless

If Milton Friedman is right, when all this money finally gains maximum velocity, it will probably jumpstart this economy like we haven’t ever seen before.

Just saying….

But, let’s not forget about the inflation price tag.

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Sifting through the debris, I found three little stocks that I threw some bottom fishing money at this morning.

Bought GNK @ $9.88, CPE @ $1.49 and REXX @$3.06.

It’s a market of stocks. Just remember that. Too often, we think inside the box and conclude that if the market is crappy, all stocks are crappy. Or, if the market is doing great all stocks are doing great. Hence, we think in terms of “the stock market”, not a market of stocks.

Yes, there have been studies that have shown that about 80% of a stocks price is attributable to the “market” and its sector. However, “averages” mean just that….some stocks are advancing, and some are declining. These three are Costanza candidates off a bottom.

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