December 2007

Another wild day on Wall Street. Was this the way things felt in the months leading up to the Great Crash? Those were interesting times too ' so much so that those who lived them must have sensed it self-consciously, just as we do of our own era. Back then, the U.S. was a relative oasis of political and economic stability. Europe enjoyed no such respite, mainly because the peace that had enjoined Germany after the war all but throttled the country's chance of returning to prosperity. Onerous reparation terms set the stage for the 1923 German hyperinflation, which in its final weeks saw a doubling of prices every 49 hours. Could such a thing happen in the U.S.? Probably not, since the will to bring it about does not exist. It is understandable that a broken and dissolute Germany would have been eager to stiff the allies via hyperinflation. But if the U.S. were to pursue the same course, devaluing the dollar to the point of oblivion, we would only be stiffing ourselves. Or rather, our creditors. Just try to imagine what it would be like without them. And vanish for a generation they would, since that is what hyperinflations do ' i.e., destroy lenders, and any possible incentive to lend, by turning their receivables into confetti. How much would payments on your $250,000 mortgage be worth when a loaf of bread costs $60,000, and a movie ticket $200,000? Let's hope it doesn't come to that. But whatever the course of events, it seems unlikely that the U.S. will once again act as a stabilizing force in the world. We are, after all, the root of the problem, the largest purveyor, by far, of debt both public and private. As such, the 'subprime mess' is as much Germany's and

Whooooosh! A little disappointment brought stocks down in a huge hurry yesterday. Permabears shouldn't get their hopes too high...er, low, though, since the nearly 300-point fall in the Dow didn't violate a single important support on the daily chart. In fact, we'd be surprised if the mass mental illness that drove shares to near-record highs in the first place did not reassert itself with a vengeance as early as next week. Remember, free-falling selloffs such as we witnessed yesterday are engineered by buyers, not sellers. The latter played a mechanical role, of course, but it is the specialists who determine a price at which they can feel blissfully confident about unburdening the panic-stricken of their unwanted stock. The gutsy trader could have made a years' lucre in mere minutes if he had guessed right about the size of the rate cut that was coming. Hours before the Fed announced a 25-basis-point gift, Wall Street appeared to be betting that it would receive an even more accommodating 50-point cut. How could you tell? Well, the shares of Citi, for one, rallied off a morning low and kept going, accelerating to the upside until the moment of the announcement. We've always considered Citigroup's price action a peerless indicator of what the sleazy money is doing, so deftly is the stock manipulated on a day-to-day basis. In this case, though, the buyers appear to have guessed wrong. We say that having guessed wrong ourselves. Assuming Citi's accelerating rise yesterday to be predictive of a 50-point cut, we loaded up on call options with the intention of selling them into a rally spike. Instead, the stock dove so sharply on the news that bids for our calls melted away before we could get off a closing sale. Rally Fed Speculation In retrospect, it seems obvious

Ahh, another Fed Day has arrived -- and just in time to stimulate a more joyous holiday shopping experience for all of us! Who can guess what kind of zany, utterly mindless reaction will greet the 'news' today that virtually every tape-watcher in America has known for weeks was coming? (Click here for Elmo's reaction.) Well, okay, there seems to be some minor confusion on the point: Are we supposed to be getting 25 basis points this time; or the full-monty, 50? No matter. If it's only 25, then the next 25 points will put some needed pizzazz into stolid January. Then we could look for 25 more in February for sure, since there's no way the central bank would make us slog through such a deadly, grey month as February without tossing us some kind of monetary treat. Personally, we've got our fingers crossed hoping that Punxsutawney Phil will see his shadow on February 2. Imagine how sorry the Fed is going to feel for us if ol' Phil predicts six more weeks of winter. We've written here before about the shameful histrionics that accompany each and every instance of easing no matter how widely it has been anticipated on Wall Street. Of course, buyers don't go crazy with exuberance because they actually believe yet one more rate cut will turn the deeply depressed housing market around, but because they know that all of the other OPM managers out there cannot possibly sit idly by when news of a rate cut hits in real time. Unaffordable California Speaking of the housing market, it can only get worse, as this blog-note from MarketWatch makes absolutely clear (with thanks to subscriber Mark Sullivan for sending it along). Do the math yourself if you think we've jumped to a conclusion: "In Northern California, a

Years ago, a reporter friend of ours was gathering information for a book he planned to write about Donald Trump. It was during the 1990-91 recession, and even though Trump was still riding high, we told our friend to save the final chapter for a sensational bankruptcy. A few years earlier, SPY magazine had similarly predicted that Trump's empire would crumble and that we would soon hear the last from the 'short-fingered vulgarian.' Trump returned fire, asserting that it was SPY, not he, that was doomed, and although this proved correct, the magazine survived just long enough to produce a memorable hatchet job that, in dissecting several of his business deals, revealed Trump to be far less astute than he would have the world believe. Remember, this is a guy who once steered an Atlantic City casino ' which is to say, a money machine ' into bankruptcy. Now, with recession practically upon us, we would be surprised if that episode turns out to have been much more than a warm-up for what's coming. For, as America's most promiscuous developer and promoter of residential high-rises, The Donald is ' there is no getting around it ' one dead duck. His condos, unfortunately for him, are everywhere you'd care to look: Miami, Chicago, New York ' although no longer in Tampa, where a $300 million venture with his name on it changed sponsorship after a flurry of lawsuits. Evasions Trump has been characteristically dismissive of anyone who would deign to point out how overextended he is in a soft and still weakening U.S. real estate market. Although a half-dozen towering condos under construction are tied to the man, he claims to have little money of his own in them. While this evasion fits his modus operandi, we would be shocked if it

One more thrust and the dollar will record its best rally of the year. We can't tell you why the buck has strengthened, at least not yet, but our hunch is that it will prove to be just another correction in a bear market now almost six years old. In the meantime, the rally is having a commensurate impact on bullion, and on the price of crude, which has fallen below $90 after flirting with the $100 threshold for a few days around Thanksgiving. How strong is the rally? At yesterday's peak, the Dollar Index (DXY) had gained 2.75% relative to the record low at 74.48 recorded nearly two weeks ago. The recovery high so far has been 76.17, but if DXY can make it to 77.29, that would surpass the 3.75% rally that ended back in February. Warning Went Out Rick's Picks subscribers received a timely warning just before the dollar turned. Here's the tout that went out on November 6, a few hours before the bottom was in: 'Even though I dissed the dollar in today's commentary, there's still a glimmer of hope for bulls (assuming any are left) in the form of a Hidden Pivot support not far below. It lies at exactly 74.43, and its provenance is shown in the accompanying chart. [See below.] I'll skip the drum roll and trading advice in this instance, since I want to focus attention on the level rather than the number. The pattern that produced the target is one that I feel quite confident about, and although it may not engender a major bottom, it has the potential to put in a floor for the intermediate term. Also, although the pivot may not work as precisely as the ones we like to trade, my gut feeling is that it

We always expected the Fed to pull out all the stops when the U.S. economy began to slip into the void, but we never could have imagined the spinmeisters would invent 'mortgage welfare' even before recession had been officially declared. Treasury's latest plan is designed to make it easier for certain ARMs borrowers to temporarily freeze their starter rates to avoid foreclosure. We know the situation is dire because the big lenders are signing on without even having their arms twisted. It is of course inconceivable that loosening their grip on their least creditworthy borrowers is going to be a money maker for companies like Countrywide and Washington Mutual. But profit is most surely not the point. It is appearances that count, and if the inevitable collapse of the U.S. mortgage market can appear to have been pushed back to a later date, that is reason enough for Uncle Sam to waive the daunting regulatory hurdles that might otherwise have impeded this salvage job for years. Paulson's plan is not merely being fast-tracked, it is being shot out of a legislative cannon. $100 Billion Pisher Fund It is so urgent, in fact, that another jerry-rigged relief package, Citigroup's $100 billion superfund, seems to have been relegated to the back burner. However, we expect that that measure too will be fast-tracked once the ARMs Chanukah present has been bestowed on beleaguered home-'owners.' Morgan Chase and Bank of America are co-sponsors of the superfund, which, like mortgage welfare, is at best a cynical ploy designed to forestall the inevitable. But whereas the ARMs giveaway may buy lenders an extra month or two to rearrange the deck chairs on the S.S. Paulson, the $100 billion superfund is going to get vaporized in, oh, maybe eight minutes. You can consider that a prediction --

The stock market's sociopathic behavior seemed to ebb slightly on Friday, starting with a half-hearted short-squeeze rally that petered out mere minutes after the opening bell. DaBoyz goosed the Dow for 160 points in the early going, but by late in the day their too-easily-won gains had mutated into a telling, 30-point loss. Not exactly the kind of number you want in the weekend headlines if you are in the delusionally bullish camp. But the bulls needn't have worried -- as when have they ever? -- since a flurry of short-covering in the final hour pumped the Indoos back up to a 60-point gain. The network-news ninnies must have breathed a sigh of relief at that point, knowing that Friday's obligatory eight-second sound-bite concerning the stock market would not be fraught with the enigmatic naughtiness of a key-reversal day. The day should have held few surprises for Rick's Picks subscribers, since most of the issues analyzed in Friday's touts performed pretty much as expected. Research In Motion, for one, took a $13 point dive after a final, powerful lunge to within 27 cents of a 124.73 Hidden Pivot target broached here earlier in the week. We couldn't claim to have gotten short at the top, though, since RIMM hit our target in the dead of night. Although we occasionally provide detailed trading instructions for night owls when off-hours opportunity beckons, in this case we had dozed off ourselves as RIMM stole up on the target after midnight. The Dollar Index danced to our tune as well, leaping past a Hidden Pivot resistance to achieve the next, a predicted 76.06. A slight overshoot of that target has bullish implications going forward, although we can't claim to know why the dollar should be rallying at all, if not for purely technical reasons. On another front, Gold