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Mark's Market Blog

8-29-09: Insider Trading and Meth

By Mark Lawrence

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Another week, another boring result in the markets. In my opinion, we're waiting - we're waiting for some piece of news to be the catalyst for a major movement in the market. Right now the markets continue to stay at what I consider an unsupportable high price, trading on very low volume as the big money stays on the sidelines. Volume in the market continues to decline. Average volume in the S&P 500 in Q1 2009 was 370 million, in Q2 it fell to 253 million, and so far in Q3 average volume is even lower at 189 million. Insiders (management trading the stock in their own companies) are running for the exits. For the trailing week ending August 25, there was only one insider buy transaction for $4.58 million and 154 sales for $815.6 million. Insiders seem to have no confidence in their own companies earnings power to justify current valuations.

S&P 500 Jan 1 2009 to August 28 2009

Todd Harrison, CEO of, now believes the risk-reward favors shorting the market vs. being long. "This is a Splenda market - because there's so much artificial sweetener involved. The government is showing its hand and what they want to do: They want to transfer our obligations to our children, which will inherently lower the standard of living to our children." he says. But even worse than the shocking $9 trillion deficit America faces over the next decade, Harrison worries that we don't control our own fate. "That transfer of risk to future generation is in the hands of foreign holders of dollar-denominated assets," he says. "A seismic currency readjustment is a legitimate risk."

One-quarter of the total volume on the Dow has been from trading in five stocks, shown below. Sirius Radio, CitiBank, AIG, Fannie Mae, Freddie Mac. These companies are all basically bankrupt, and all but Sirius are now primarily government owned due to the bailouts. It's difficult to see these stocks are other than worthless, yet they have each shot up in value in the last month. Sirius has nearly doubled, Citi has doubled, the others have increased their values by a factor of 5 to 6. In one month. Rumor is that this is Goldman-Sachs traders trading among themselves, driving up the prices and trying to suck in investors money. If this were the Star Wars universe, the Chairman of Goldman would be the Emperor. The bad news is, there don't seem to be any Jedi.

S&P 500 Jan 1 2009 to August 28 2009

Pakistan has 1.5M refugees. Getting financial aid to these people was causing a huge problem, which has been fixed by issuing 230,000 families pre-paid Visa debit cards loaded up with $300 / month in aid. This program already exists in the Philippines, Mexico, Brazil, Costa Rica and the Dominican Republic - a total of over a million families now have such a Visa aid card. This means the banks are gearing up to eliminate paper money everywhere in the world; and the banks will take about 1% of every financial transaction in the world. Politicians are hailing this as a way to get the world's poor people involved with banks and finances, and to end check cashing companies that charge $15 or more to cash a check. You don't have to be home to receive your aid, it costs less than a penny to add money to a card as opposed to about 60 cents to mail out a check, and Visa is already all set up to deal with lost or stolen cards. The US politicians also like that they already get real-time information from Visa and will be able to track pretty much every financial transaction in the world. Orwell had no idea. . .

You remember meth labs? Those shacks out in the country that blow up now and then, and are surrounded by personal-sized toxic waste dumps? Well, that's all over now. There's a new recipe for meth, "Shake and bake." The old recipe required nearly 1000 cold pills, some strange chemicals that had to be stolen, heat, and a couple days to cook. The new recipe requires about 60 cold pills, a couple 2 liter soda bottles, some stuff you can easily buy at hardware and auto stores, and a couple hours. No heat, you can make meth while you're driving your car. The new recipe gives off a lot of ammonia gas, if you smell ammonia in a car, house, motel room, best leave. If you google "meth shake and bake recipe" you'll get the details in the top three to five listings. It's time to end the war on drugs. My answer: 1) legalize most drugs; 2) tax the hell out of them; and 3) mix them with contraceptives.

As of June 30, the FDIC's "problem list" had 416 institutions with a combined $300 billion in assets, up from 305 institutions at the end of the first quarter, the agency said. During the second quarter, banks insured by the FDIC lost a total of $3.7 billion. Over 28 percent of institutions had losses during the quarter, up from 18 percent last year. Institutions charged off a record $48.9 billion in uncollectible loans during the quarter, up from $26.4 billion a year ago. Loans and leases at least 90 days late rose by $40.4 billion to a new high of $332 billion, or 4.35 percent of the industry's total loans and leases, according to the agency. The FDIC deposit insurance fund currently holds $10.4 billion to cover these potential losses of up to $332 billion.

Eighty-four banks have fallen so far this year as tumbling home prices and spiking unemployment pushed loan defaults upward. That's the largest number in a year since the early 1990s, at the apex of the savings and loan crisis. It compares with 25 bank failures last year and three in 2007. Some analysts believe another 100 to 300 banks could fail in the next two years, largely because of commercial real estate. Vacant shopping malls and office buildings show the inability of investors to make payment on their loans.

A USAToday/Gallup poll released Monday found that 41 percent of Americans think the 787-billion-dollar stimulus package has made the US economy better, but 57 percent believe it has either made no difference or worsened the recession that began in 2007. 78 percent said they were either "very worried" or "somewhat worried" that money from the economic stimulus was being "wasted."

Obama released new budget forecasts. The deficit, previously forecast by the White House to climb $7T by 2019, is now forecast to climb $9T, quickly coming towards agreement with the CBOs projection of $11T and my projection of $13T by 2019. Years ago, Willie Brown, then the longest-reigning California Speaker of the House in history, said in an interview, "Who would have thought it? Me, a poor black boy from Texas, and now I'm in charge of spending billions of dollars of white people's money." Obama has him beat by a factor of 1,000, he's spending trillions.

California's July unemployment rate reached a new high of 11.9%.

Caltech and UC Berkeley are attempting to put together an international coalition to raise $1B and build the world's largest telescope. For nearly 50 years the largest telescope was Caltech's 200 inch scope on Mount Palomar; these days there are many 10 meter (400 inch) telescopes. Caltech's proposal is to build a 30 meter (1200 inch) telescope with 36 times the light gathering power of the 200 inch on Mauna Kea in Hawaii. The Chinese are reportedly very interested.

Barry Ritholtz, CEO of FusionIQ and author of Bailout Nation, believes things have improved but he's not ready say we're healed. "After hell, purgatory isn't so bad," he jokes.

Ritholtz says much of the positive economic data is simply the result of government action. Increased industrial production? Thank the "cash for clunkers" program - absent the increase in auto sales and production, industrial production in the US continues to decline. Higher average wages? Thatís the new minimum wage increase kicking in - temp and part time work continues to trend down, unemployment continues to raise.

Ritholtz won't be convinced of an economic recovery until:

Warren Buffett says, "We're Going to Be Crushed Under Mountain of Debt. We were justified in using any means necessary to stave off another Great Depression. Now we need to curtail our out-of-control spending, or we'll destroy the value of the dollar and many Americans' life savings." Buffet's points:

If the Chinese lend us $400 billion a year and Americans save a remarkable $500 billion, we'll still need another $900 billion. So, where's it going to come from? Most likely the printing press. And, ultimately, Buffett says, that will destroy the value of the dollar. It's worth noting that Buffet was a major supporter of Obama, and was named by Obama as a close economic advisor.

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