Friday, October 31, 2008

Conference Board Consumer Confidence Index as a Contrarian Indicator?



This Wednesday's Wall Street Journal had a graph of the Conference Board Consumer Confidence number on its front page.

It jumped out at me as soon as I saw it: it looked like it had potential as an excellent contrarian indicator, and was reminiscent of technical analysis oscillators such as stochastics.

I dug up a 40 year log graph of the S&P 500 overlaid with the Consumer Confidence index, and extended it to now using the most recent data. It seems that when we're talking about investment timescales (holding periods of say 1 year or more versus trading timescales of under a year), when consumer confidence is at historical lows, it seems to signal market bottoms and excellent periods for accumulation, whereas when consumer confidence is at historical highs, as it was in mid 2007, it seems to signal market tops and excellent periods for selling.




http://img231.imageshack.us/img231/4091/confboard1db1.jpg
http://img231.imageshack.us/img231/97/confboard2xe7.jpg

Friday, October 24, 2008

Earnings season

Earnings season is upon us. May god have mercy?

On another note, what is up with Larry Kudlow on CNBC.

He has turned into a ranting, populist-elitist perma-bull. Or maybe I just never noticed he was a ranting, populist-elitist perma-bull. I am seriously sick of his responding to any market strategist with a rational, well thought out negative outlook with "CAPITALISM IS GREAT. AMERICA IS THE GREATEST COUNTRY IN THE WORLD" and "but but but this and that". Then he'll turn around and defend executive compensation at companies that grossly underperformed compared to their peers (the elitist part of that populist-elitist equation). He seriously sounds like a child who got his ass kicked in fantasy football now listing the reasons why he should have won and not the other guy. Larry, I really respect your economics background but.. seriously..get a grip.


Another guy I can't stand is the one who looks like a lawn mower went down the middle of his head. Do you not look in the mirror? Are you trying to look like Dilbert's boss? Get rid of the reverse mohawk, you look retarded.


Lastly is the turd in the newsroom, the one with the glasses and the gigantic forehead that is even larger than Rihanna's, Dennis Kneale, who makes quite possibly the dumbest remarks I have ever heard in relation to finance. Where did they get this guy? He makes Maria Bartiromo seem like a financial Einstein.



More of Jim Cramer, less of the dummies. Amen.

Wednesday, October 15, 2008

Ranking Commercial Banks, Homebuilders, Insurers

I created this in mid-June, but it still might be of some use going forward. It's a relative ranking along with a bankruptcy rating:

http://efranco.googlepages.com/mortgagecomp6.xlsx

I'm a big fan of visual displays and built the spreadsheet accordingly:

Maroon = very likely to go into bankruptcy, conservatorship, or forced marriage
Red = significant likelihood of bankruptcy, conservatorship, or forced marriage
Orange = weak capital position
Yellow = decent capital position
Bright green = strong capital position

Monday, October 13, 2008

Perspective

What direction do you see the woman rotating in?

Can you reverse it?

If I use my main vision window she always rotates clockwise.

I seem to be able to reverse her direction of rotation it if I start with peripheral vision, which orients her rotation counterclockwise rather than clockwise.

Just a fun little exercise in perspective.

Where to go from here?

Time to jump back in to the long side on equities?

Frankly, I don't know.

I'm thinking the economic numbers coming out later this week will be quite ugly.
Then there's the matter of the CDS auction for WaMu next week.
Then there's the matter of the CDS auction for Iceland's 3 banks, sometime in the next month.

Tuesday has no real economic numbers, but we get a slew the rest of the week: Retail sales, CPI, TIC Purchases, and building permits. These are all lagging indicators and will probably be abysmal.

Will the market discount them as irrelevant, as worsening primarily because of the credit crunch rather than real factors or as relevant evidence of a truly momentous downturn in the business cycle only partially or minimally related to the credit crunch? I don't know, I'm not psychic.

Standing aside is a position and its often the hardest one to take, but I see no clear trade at this juncture.

Saturday, October 11, 2008

VIX 75?

A VIX level of 75? Seems a bit like capitulation to me.... thinking of shorting VIX CFE futures...

Friday, October 10, 2008

CDS Cascade

A credit default swap cascade would be horrible.....

CDS is zero sum, but if the cash transfers for the current CDS defaults on Lehman, WaMu, Landsbanki, Glitnir, and Kaupthing go from the weak to the strong and thereby triggering additional credit events on the counterparties who have written the CDS ... it will be a total disaster.

The rush to have these CDS's placed on an exchange seems to be a desire to figure out the CDS web, in other words, make transparent who is on the line for what... but that in itself will not prevent a cascade.

See:

http://www.reuters.com/article/bondsNews/idUSL958906520081009

http://www.ft.com/cms/s/0/7cb2e4e2-958a-11dd-aedd-000077b07658.html?nclick_check=1

Monday, October 6, 2008

Dow below 10,000

The Dow is below 10,000.

Stay in treasuries...