Expectations: Mish’s Global Economic Trend Analysis

 

 

 

 

 

 

Mish’s Global Economic Trend Analysis.

Mish’s posting linked above is a must-read-and-understand summary of expectations for stock investors who stick, unfortunately, with ‘buy and hold’ methodologies.

Best political summary of 2010

Cartoon from Investor's Business Daily

downplaying foreclosure paperwork failings

This is not about a missing signature here or there.

•  It’s about the big banks trying to subvert the Land Title laws which the common law has relied on for hundreds of years.   The reason our laws and customs REQUIRE these documents are in writing AND recorded AND requiring the original signatures  is to protect the people from grievous, irreparable harm.

Has cutting corners led to clouded titles on half the properties sold in the past decade?  Who pays for that remedy? If title insurers withdraw from the market, how will you sell your house next year?

•  It’s about mortgage backed securities sold to your pension fund and mutual funds in which the Trustee, in black and white expressed contract,  certified there was a valid chain of endorsements on the mortgages and notes delivered into the trust.  How many MBS are hollow shells, without assets?     Failure of these MBS vitiate their tax-favored REMIC status, requiring a 100% tax, retroactive.  So what are the pensions worth now?

•  It’s about banks thumbing their nose at the notary laws.

•  It’s about banks demanding the courts permit them to ‘cure irregularities in paperwork’ when the black letter of the law prohibits it.

•  It’s about the banks filing motions with the courts demanding the silence of opposing attorneys that expose bank affidavits given ‘in bad faith.’

•  It’s about banks hiring shop clerks to sit and forge signatures all day without the clerks even understanding what the word “affidavit’ is.

•  It’s about banks forging notices of process service for foreclosures.

•  It’s about banks filing notices of assignment of mortgages AFTER the foreclosure lawsuit was filed.

•  It’s about bank vendors relying on document forgery consultants to ‘recreate’ a paper trail.

•  It’s NOT about people not honoring their commitment and ‘getting a free house.’  A note is the promise to pay, and the mortgage is the security interest in the property.   It may be found that the mortgage itself is invalid and the collateral (the house) cannot be repossessed. But the note itself still exists.  The question is to whom are the payments made.

• It’s about the banks deliberately destroying notes and documents or shipping them off to India ‘for storage’ in order to obfuscate legal discovery.

•  It is about preserving property rights and the rule of law, and preventing another staggering lurch into the dark world without rule of law.

•  It will be about banks trying to evade the financial and criminal consequences of their mortgage ‘pump and dump’ onto the taxpayer. Again.

Foreclosure resolutions

It’s extraordinarily difficult to summarize the mortgage/foreclosure/note transfers/securitization mess.   I point you to 4closurefraud.org and foreclosurehamlet.org blogs to get you started on the grassroots horror stories.

Karl Denninger’s Market Ticker is a good source of much of the background on the financial ramifications.  It’s unknowable at this point, but I understand that nearly all of these mortgage backed securities (MBS) have the legal structure that requires the mortgage notes to be delivered by a specified closing date to receive the special tax treatment of the interest.  Think of it as Noah’s Ark… if the mortgage note isn’t in the boat when the door closes, tough luck. If the special REMIC tax treatment is violated, it’s revocable to inception, and the revenuers will have a field day.

Portfolio managers might discover their mortgage backed portfolio doesn’t legally own the notes it thinks.  Portfolios (mutual funds, pension funds, etc.) may very well have to chase down the Wall Street bank that sold the MBS and sue for fraud and nonperformance.  Where will the investment banks get the capital to reimburse the damages, if found in judgment?    Personally, if I was a portfolio manager with a pile in what are supposed to be valid mortgage notes, I’d have someone seriously sampling the collateral.

A political take-away is be sure to chuckle and shake your head at the next candidate that says they want to get rid of the office of the Secretary of State.  The leading elected official to cry ‘foul’ in this mess is Ohio SecState Jennifer Brunner.  With her prompting, the Ohioh AG is suing GMAC - known now as Ally Bank — for fraud to the tune of $25,000 per false notarization on foreclosures.  Doing the math, of  one bank, in one state …

It was humbling to leaf through the foreclosure notices posted at the town hall this week.  These are my neighbors. If they pledged their property as collateral, and things didn’t work out, they get to suffer the consequences.  But property rights and contract rights are inviolable, and our justice system and our legislators must not permit shortcuts.

Hindenburg Omen

It’s a minor victory when the general media express an interest in technical analysis (charts, graphs, and statistics) of the stock market.

Here’s a post in the Wall Street Journal with just a twinge of panic over the Hindenburg Omen.

The heroes over at ZeroHedge.com have been watching this development also.  (I recommend ZeroHedge as a daily read for investors. Some of the language is a bit salty, but Wall Street isn’t well known for its good manners.)

As a simple summary, the Hindenburg Omen shows when the market is divided.  The best analogy is that the Hindenburg Omen is like the  funnel cloud you see in the sky. It doesn’t mean a tornado will touch down, but it does mean you should prepare for the possibility.

A far more reliable indicator of the market starting to roll over (giving investors a chance to side-step a steep correction) is the distribution day analysis in the Investors Business Daily.  Searching this blog for “distribution” will give you a head start in the study.

UPDATE: Here’s a good revisitation by ZeroHedge of the Hindenburg Omen.

of monopolies

The following are the basic data points from the PostCrescent.com article about the Outagamie County Airport “making itself competitive.”

• Airport revenues growing at 1% per annum.

•  Airport’s expenses are growing at 8%-11%  per annum. (Do the math…)

•  Airport borrows $3 million in bonds to become its own refueling monopoly. (I’ll add, after putting the regulatory squeeze on competition with an ’06 Ordinance.)

Reporter concludes the article, and I quote: “The purchase has no direct impact on county taxpayers because the airport generates its own revenues.“

I needed a good laugh this morning.

Be wary of distribution days in a young rally

The June 2010 rally attempt began June 8, at Point A (see below), as the market indexes undercut the prior low price, but closed higher.  At Point B, June 15, the market gave a Follow Through Day on the 6th day of a rally attempt, which historically bodes well.  (A Follow Through Day is thought of as a confirmation that the correction has ended and a new rally has begun. The Investor’s Business Daily reports that a Follow Through Day on Day 4-7 of the rally attempt is usually a strong signal.)

At Point C, June 21, the market made a strong advance during the day, but retreated and closed lower.  That reversal was quickly followed in three of the four next trading sessions by distribution days of lower closes on volume that is higher than the prior day.  Therefore yesterday’s 268 pt drubbing of the DJIA (and 3% loss in the Nasdaq) cannot be too surprising.

We are in a correction. The plan from this point is to wait for the next eventual and inevitable Follow Through Day signal.

Be wary of quick distribution days after a rally begins

Can We Get Ahead by Picking Each Other’s Pockets?

Here is an excellent post from the Mises.org crew.  As a further enticement, here are the mini-headlines with in the post:

C + I + G = Baloney

Victims of a Failed Economic Theory

Government Spending Is a Parasite on the Private Economy

Or, in a paragraph:

The key fallacy embedded in Keynesian economics and the GNP equation is the idea that government spending adds to an economy’s health. In reality, the opposite is true: government spending subtracts from an economy’s health. The real economy is the private economy — there is no other. Government spending must come out of the private economy.

Abiding the follow-through-day

We are in a correction. Hopefully you lightened the load with my April 27 post about Greece and knowing where the exits are.  (Be sure to subscribe to my RSS feed with your browser to stay on point with my outlooks.)  But what about deciding when getting back in?

Recognize how the market puts in a bottom. As the correction unfolds, the indexes will make new low after new low interspersed with intraday or daily gains. (The market never moves in a straight line in either direction.)  On a chart, where it’s easier for me notice such things,  a major index will undercut the prior low price of the leg down. Yesterday, May 25, that occurred when the S&P 500 moved below the low of the May 6 “Flash Crash.”  (See Point A.)

An undercut resets the waiting period for a follow through day

Yesterday is “Day 1″ of the rally attempt. It seems overly simplistic to say that “just not going lower” means a rally attempt is underway, but that’s exactly it.

Now we wait for the Follow Through Day to come on Day 4 or later of the rally attempt. The 25th + 4 days gives us Friday as the soonest we can trust a Follow Through Day.

FAILURE?

If the market indexes breech the lows of the 25th, then that particular rally attempt is kaput.  Each new low begins the rally count again until either the low is taken out again, or we receive a Follow Through Day.   Be sure to click on the tag of this post to see my other explanations of the Follow Through Days.

Greece is the word

I remember last Thanksgiving talking with the family back in Iowa about the Greece debt situation. It had just started to bubble to people’s attention, but at that point it wasn’t a “problem.”  It was just a reminder that we weren’t out of the woods yet in terms of unwinding the credit excesses around the world.

Today, finally, the equity markets are acting as if they are tangentially aware of Greece. (In the world of investing, equity takes a hit before creditors.  Therefore if the creditors are nervous, shouldn’t the shareholders be too?)  The rating agencies cut Greece’s sovereign debt to ‘junk’ (below investment grade) and downgraded Portugal. Who’s next?  Spain? Ireland? Italy?  The list goes on…  California? Municipalities?  Pension funds?  Is there a reason Germans are starting to check the serial number prefix on their Euro currency bills before accepting them as a tender?

Action plan:

1) Always invest knowing where the exits are.

2) Understand the Austrian Business Cycle Theory. (Start with Mises.org.)

3) Accept the fact that we’ve been through credit deflations before. They are not cured by new legislation. In fact, meddling always makes them worse and extends and exacerbates the pain.