Sunday, October 14, 2007

20-Day Play: EHTH

In order for a stock to make The 20-Day Play, it must trade above its 20-day simple moving average for at least 20 days, and then bounce on or near the 20-day average.

EHTH saw its IPO just one year ago. After finishing a cup-shaped pattern, the stock has pulled back to its 20 DSMA. This touchdown is also a revisit of a pivot point.

Last week's 20-Day Play, DAR, is still in play.


Sierra Water said...


Don't forget about the OTC Derivative issue. Mark my words, it will raise it ugly head with terror in its eyes. 80 billion won't come close. The game has just started, 1st inning. August was National Anthem. Viz...

Woodshedder said...

Where's the blog? lol

I'm treading carefully. I have no problem liquidating everything when the worm turns.

Sierra Water said...

I have trade shows this week and next.. URRE looks good as well. Uranium should eventually be a huge play.

Sierra Water said...

Wood, sorry for this long paste, but I think its worth reading and supports higher stock prices and of course Gold 4 digits:

From another Board:

"We are not staring at the seeds of the next "Great Depression." I'm not of the view that the current credit crisis is "the big one." "The big one" is a subject for another day and I believe it will come when peak oil serves what amounts to a margin call on the credit system as resources contract. Energy and money are both, in a manner of speaking, the "ability to do work" and when the peak oil crisis goes global, that will smack the financial system into what will eventually turn into massive deflation and credit contraction (but it's not clear just now much inflation we'll get before that deflation spiral happens).

Nope, the current credit crisis isn't "the big one." The main reason is that the powers that be have an identified target to go after. Granted, the target is titanic in size, but it is identifiable and it can be set in the cross-hairs of the PTB. The problem is indeed "fixable" (I'll get to the mess the "fix" causes after we address what the "fix" is).

The challenge facing the PTB is two-fold:

1) monetizing the $100 billion to $1 trillion in mortgage-backed paper that is beyond repair and worth much less than nominal face value - and indeed, the fact that no value can be set is indeed part of the problem; note also that I think the ultimate value in question is going to be bigger than what is suggested in the Wall Street Journal article;

2) halt at all cost the killing of the global financial system "confidence game;" our entire fiat credit system is essentially a confidence game, and so long as the powers that be can contain #1, the confidence game can continue for a while.

I argue that we have already seen the product of the decisions on how to address #1. The cat is out of the bag. The PTB has ALREADY taken the decision to create additional liquidity to absorb and retire these CDOs, CLOs, etc. The only question is what is the organizing vehicle that will coordinate all this laundry work (the reason for the "leak" timing WSJ article, and the fact that Citigroup is going to come to the markets with a confessional on Monday, speaking to how bad their balance sheet holes are).

Folks, it's not DEFLATION and the Great Depression that you have to be worried about right now (again, that may very well come once peak oil starts to bite the global system in the butt beyond the problems already seen in less developed nations). It's INCIPIENT HYPERINFLATION that you have to worry about (above 10% but below 20%). This is why gold went bonkers after the double 50 basis point cuts to the Fed Funds rate and the Discount Rate and gold isn't finished, believe me. This is one of the reasons why the stock market has performed well since August 16th - because it's reflecting coming asset-based inflation from the credit infusions that will be a part of addressing #1 above! Sure, more goes into stock market values than just liquidity, but liquidity is a massive driver of stock prices. This weekend's announcements about this new fund was known to be in the works. People haven't known what would be the "ultimate" solution put into place - and we still don't. But the rough outlines? Heck yes. It's been clear for weeks that some sort of bailout was coming for the bad paper, and it's been known for weeks that that would, by definition, involve some level of monetization of this bad debt. That's part of the reason why gold and stocks have been both going up, and the US Dollar has been diving. And guess what? It isn't over. We're going to have other bailouts targeting other problems, the other "big one" being what to do with all the hundreds of billions of dollars in mortgage refinancing that will not be able to be met by over-extended borrowers. That bailout will mostly be executed via the wonderful sausage making factory known as the United States Congress. We don't know what all the final "programs" will be, but we do know that it will inflate the national debt and kick the taxpayer in the butt. That added debt, at least for now, is also supportable by the system, so we will once again be faced with the inflationary story, not deflation crash. But I digress. The subject for today is this bailout for the money center banks, not the rank speculators that bought more house than they could afford.

The powers that be have already decided that in the end game, if they have to monetize the whole damn mortgaged-backed asset paper mess, they're willing to do it. In fact, the Fed has already bought at least $30 billion worth of this stuff that I know about from a few Bloomberg articles, via their normal "coupon passes," accepting for the very first time as collateral mortgage backed paper. This happened in August. At the time, Bloomberg reporters made the generic presumption that the liquidity injection would be like most others - ultimately reversed at a later date. I'd argue that was known to be all along anything but a temporary credit infusion. I'd argue that those early injections will never be paid back, and the collateral that was presented to the Fed for those borrowings at the Discount window will be worth pennies on the dollar - and the Fed will conveniently ignore the paper and never bring it up again. It will be direct monetization of the bad debt, and all you economics and financial analysts out here that might be inclined to have a fit when I say this, just remember, the rules of the game have changed. This time, the financial institutions will not be on the hook to pay back (all of) those liquidity injections. I don't care what our finance and economics textbooks taught us. It really is different this time.

This organization they're creating [to be called Single-Master Liquidity Enhancement Conduit (SMLEC) or Master Liquidity Enhancement Conduit (M-LEC)] will serve as the dumping ground for the particular batch of bad financial assets bundled in what are called "structured investment vehicles" (SIVs). Generally speaking, the money center banks like Citigroup sponsored the creation of the SIVs with short-term based funding, and the SIVs went out and bought medium- and long-term paper like the CDOs and CLOs - mortgage-backed asset sausages with a certain percentage of crap rolled-up with "good" mortgages. The SIV part of the credit crunch story came into play when none of the money center banks wanted to further fund the SIVs with more short-term credit (to roll over the short-term credit the SIVs already had) because the money center banks were rightly scared that the stuff the SIVs bought had too high a percentage of sausage crap. Presto, the cost of borrowing started to shoot up in July and August because there wasn't enough available funds (cost of borrowing = interest rate, the price of money).

The money center banks can't hide this crap indefinitely, so this SMLEC thing is the proposed solution. But unlike the Resolution Trust Corporation of the 1990s Savings and Loan crisis, the US Taxpayer isn't going to directly fund the beast. No, this time around, the money center banks are going to fund into existence SMLEC through loan guarantees. But we already know that the assets to be placed within the SMLEC have a high garbage ratio and that on average, what goes into the SMLEC will likely be worth something like $0.50 on the dollar of the original principle of the paper. In order for the money center banks to be able to do this dump, they in turn have to be backed up by the Federal Reserve, and quietly, in the months ahead and likely beyond public view, the Fed will inject credit into the money center banks to support the latter's SMLEC effort. I believe this ultimate credit injection will be conveniently ignored. It will ultimately prove to be monetization of the credit crisis.

Can I prove this? Hell no. Ask me in one year. Maybe it will be possible to prove whatever happened - and all the shades of gray and twists and turns that will ultimately come out of this SMLEC-creation process. But the above sequence of events is what makes the most sense. The PTB see the crisis. They have defined the crisis in terms of #1 above. They will do everything and then some to make sure that #2 does not enter into the picture. And there will be no "liquidity trap" because the Fed will not be "offering" credit and waiting for some institution to "take" the offer. No, they will be injecting credit by directly buying (in a roundabout way) the crap mortgage paper. This is exactly what was meant by that famous Ben Bernanke speech that gave him the nickname Helicopter Ben. We're talking Helicopter money, and the Fed can inject it even if the system isn't looking to take it. So, stop looking at this as the trigger that will create the next Great Depression. It could do that if confidence (#2 above) blows and we have a credit system crash. But I think the PTB have this situation well defined and they're going to flood the system with money (in a roundabout way). For now, you need to worry about inflation, not deflation and depression.

There's a near religious debate among the most strident proponents of deflation vs. inflation. I'm not going to get into a deep debate where ideology governs arguments. Ideology is most thick among adherents to thinkers like Robert Prechter or blogger energizer-bunnies like Michael "Mish" Shedlock that can talk an argument to death by sheer repetition without seeing the forest for the trees. The ability of the Fed to inject credit into the system even if no one wants to take the credit (by roundabout asset purchases) is something that these dogmatists have difficulty wrapping their heads around.

And as to what the man/woman on the street can do - well, buying gold and silver and doing the preparation work you may already be doing in the context of preparing for Peak Oil is a good route to be on.

Finally, as to the questions about what the financial markets are going to do Monday I will say the following: perhaps not much. Gold will likely see the continuation of its move higher (as well as silver and oil). Keep in mind that this weekend's "news" isn't 100% new news, and that the bailout itself is highly inflationary, which means that at least in the intermediate-term (less than one year), it will likely support inflation in financial assets (i.e., stocks). The news from Citigroup (where the largest number of dead bodies are found) and this program overall could very well serve as a catalyst for a generic stock market correction. But it will NOT be something that signals the next "Black Monday" or whatever. We could have a correction in the stock market regardless just because it has moved so much since August 16th. But if it evolves out of this coming week's news, it will be a correction, not the start of the Great Depression nor even the start of a bear market in stocks. There's just way too much credit expansion coming to the world in the months ahead to see financial asset deflation. Come 2010 or whatever when peak oil stars to bite beyond belief, we'll have an entirely different story. But today, it's inflation that you need to deal with.


Anonymous said...

I just started using Firefox browser and this here blog doesn't load properly, wtf?

PS: I got schooled in the market today!

Woodshedder said...

M- I don't know why it is not working in Firefox, but I'm working on it. Check back and let me know if anything I'm doing helps. Sorry you got beat up today!

Sierra, put your blog back up. Thanks for that comment, it was an excellent read and explains ALOT.