Your Mail/Cry of Marvin Dale

Attn;

My name is Marvin dale Molamba, I am young boy of 17yrs old. I lost my parents and my only sister to the war in Congo which my father Abbas Sula Molamba owned a diamond/gold mine. I am lucky that I was able to flee to this place here in Cote d'Ivoire by the good grace that spared my life.

I am sure you are aware of the on going event in my congo due to the ethnic clash being experienced except you will need me to enlighten you though its on the news and everyone is aware of this crisis situation. I am presently staying in a residence lodging apartment here in Cote d'Ivoire.

I would like to appeal to you confidentialy to assist me concerning my late father's Fund which he deposited in a financial firm, he has the sum of nine million, two hundred and ten thousand Euro (9.210,000) and some treasure in vault company here in Cote d'Ivoire

I want to move out from here because of the my wicked stepmother who plotted with the rebels that killed my father and will stop at nothing to hunt my life except if i flee since my father own a diamond/gold mine.
So please i want to know you better. I am willing to offer you 921,000euro for your assistance after the successful transfer of this money for investment; I have plans to do investment in your country, like real estate, industrial production or any other lucrative investment you bring to my notice in your country.

If you are willing to help me please indicate in your next mail and let me know so that I can mail to you. Let me have your private telephone number & address so that i can communicate with you at any time for more details.

Thanks,
Marvin dale

The Music Is Stopping...Chairs Everyone!

This bear market has been brutal and in my opinion is not over. I see it this way...the collapse of the world's greatest financial/banking system should lead to the greatest bear market in history. To quote Newton's third law of motion, "To every action there is an equal and opposite reaction." One may argue that the law's of motion don't apply to the stock market but i think they apply just fine. The law of inertia is another one to think about but that one can be more fickle.

The worry now is Citibank. At less than $5 there is obviously a problem. Could C be on the way to insolvency and a government bailout? If C goes bust that may very well be the nail in the coffin that ends this bear market, or at least ushers in the end game.

Using short etf's and other instruments have kept us alive so far and I believe there is more to go on the downside. But, time will tell. Stay tuned.

What a Week! What’s Going On?

The market really got clocked, down 7 - 10% for the major US indices. However, GCM's portfolios held up perfectly as we have been in cash for nearly 3 weeks and avoided most of this mess. The small "market" short positions that are held added value as well. For the week, we ROSE about 2.5% and dodged a major bullet.

The week started out badly with a near 8% drop on Monday. Lots of backing in filling after that but by weeks end nearly every major US index was at a new low. Late session breaks in the S&P and confirming declines in the Russell 2000 (and Mid Cap, Dow, etc.) are certainly troublesome. But what is most troublesome is the failure of the market to rally in the face of the House passing THE bill. If they can’t muster a rally off of that then what’s next?

We’ll stay in cash, hold those small short positions, and be patient for what may be a great buying opportunity. But for now we are in a good place!

Stay tuned…and have a nice weekend! Please contact me for further or a more personal discussion about how Geller Capital can help with your investment portfolio.

Excuse That Momentary Lapse of Reason

OK, so I did say there were some reasons to consider going long but I also said I was staying out of it. That's where we've been for several weeks and where we are now, mostly cash with a small short bias in some cases. Yes, some of those big banks look good and they should: the Gov't bailed them out and they are going to make sure they stay afloat and (become more) profitable. But the rest of the market looks terribly weak. Advances/declines & highs/lows look lousy and indicate poor demand for stocks. To boot, several indices went to new lows today: Mid Cap, NASDAQ, Small Cap, and Utilities to name a few. The S&P and Dow are close but holding. So far the volume isn't extreme and some might say that this break is not a "major" one. To that I say "nonsense". So much damage has been done on low volume and I expect that to continue. We have yet to see that massive wipe-out day which might indicate an end to the selling.

The Small Cap break may be significant because that index had held its ground around 650 since January. It finally broke through to a new low today. Usually when an index holds a level as this one did - 4 times over 10 months - it is deemed significant. However, leading into today's break to new lows, the Small Cap had already fallen 15%. It may be unrealistic to expect another major decline from here without some backing and filling. After such acton it may be that the index slides again or fakes out and rallies. But I expect more weakness and that decline could play catchup to the S&P 500.

With the market down so much with the House vote in front of us I think it may be smart to think of the upside. The market seems to be discounting failure. And why not? Our leaders seem to have failed us from many corners and why should they succeed with this massive proposition? But when everyone is leaning on the market it often surprises...just a thought. (I keep trying to think of reasons to go long...) If the House turns it down again, then all hell should break loose.

Stay tuned - it will get more interesting.

Changing Sentiment?

In my last post I wrote "the fact that we aren't much lower suggests that the street may be thinking that this could be much worse. Maybe the Govt's steps are working in that we are not falling apart. Its something to think about." Here are some things to think about:

- As the market possibly capitulated these past few sessions it is worth noting that the bank stocks and other financials that got us into so much trouble were trading to the higher end of their ranges. See BAC, JPM, & C. I was not bullish on these stocks but they do look potentially bullish.
- Market weakness the past few sessions did not make a new S&P low. Bad economic news and concerns about the House vote may be discounting things that are not as weak as anticipated.
- The Russell 2000 has not made a new low since March 2008. This is the fourth trip to the 650 range and if we hold that expect a nice rally.

However, the market still acts poorly. Its not difficult to think about the S&P500 between 900 & 1050. I have little reason to take money from cash to go long. Maybe that's reason enough...

There They Go Again

Last we looked the financial stocks were dropping like stones. They have since recovered but the other shoe dropped. WAMU broken and sold to JPM, WB broken and sold to C. Surprised C did that deal since they have been hurting but I bet the Feds strong armed them to take it on their balance sheet. In turn C will probably dump WB bad assets into the bailout pool. The mess continues.

My view may be naive but collecting all these assets into one large smelly pile doesn't make them go away. Yes, it will cool things off but too many financial institutions are hurting and new lending is probably immaterial at this point. But we can't overlook that balance sheet improvement will occur and that will matter at some point. And we can't overlook the potential that the Big Five - JPM, BAC, GS, MS, & C - have over everyone else. But there is much to worry about, too. Just how will the Feds manage these new assets. What other dangers lurk that will stress a bloated Fed? How bloated can bloated get?

The mess must be paid for and I wonder about how will this happen. Will taxes get raised to foot the bill and just how bad will it be? What if taxpayers revolt or demand an alternative. What if the Gov't sells off other assets it owns instead? Talk about reducing the size of Gov't. Imagine the cronyism on those deals.

The market is breaking down this morning but so far the inherent braking system of the bear is doing its job. The Fed is at it again with massive open market operations to add liquidity. Hooray but I can't imagine any good coming from all of this, especially in the short term. In fact, in the short term I don't understand why we aren't much lower. And I mean MUCH. I think that earnings are generally going to be horrible and when the street wakes up to that there will be some bad days. Realistically, the fact that we aren't much lower suggests that the street may be thinking that this could be much worse. Maybe the Govt's steps are working in that we are not falling apart. Its something to think about.

Stay tuned.

Another Thing...

Just checked out the major financial stocks as I do regularly. If the Government is restoring calm and order to the system today they are doing a poor job. Almost every major financial is down, most at new lows. Goldman Sachs is down 30% these past 2 weeks, Citibank about the same, AIG down over 90%, the list goes on. These are either screaming buys or another big name is close to failure. Curiously BAC and JPM have held up ok. More curiously, we haven't heard a word from Jamie Dimon. Is no news good news?
Prepare for the worst (Citi), hope for the best (we hold 1150).

Moment of Truth

Well here we are at 1160 after a sharp opening rally to 1184. They say the market rallied on news that the Fed was injecting massive amounts of liquidity into the system. They say that it was a coordinated efforts with other central banks. Why then are we back at the lows? I think we will break down (targets 1100 and the other i won't mention now) but bear markets are tricky. While they do go down like stones, they also face enormous efforts on the part of enormous market players to stem the tide. So bear markets have an inherent "braking" system in place.

But this is probably not an ordinary bear market. So all the pundits that say "well the average bear market drops 26% so we are there and..." don't realize what's really going on. I hate to sound like a broken record and maybe I am believing too much of my own you-know-what BUT, Bear Stearns, Fannie Mae, Freddie Mac, Lehman, Merrill, now AIG, who is next? all went bust in the last 6 months. Please reread that and think on that. Some questions come to mind...who will step in and replace these "providers of capital to our economy"? what will be the effect of tens of thousands (maybe hundred thousand plus) of unemployed secretaries, clerks, and m&a mba experts? Other than the US Governement (& taxpayers) why weren't there any other bidders for these storied companies? And just what is the Government going to do with all that bad paper and those bloated companies? It occurs to me that none of the answers bode well in the near term. I just do not see this turning out ok for a while.

Give the Government credit. They are taking steps to calm things, to buy time, so that order is restored. But I am concerned that

a: they are running out of "bullets"
and
b: they are now inexperienced custodians of very complicated companies.

Yes, in the long term this might work out but 3-5 years is a long way off. When the Fed is out of bullets I am sure the Government can take other steps but they can't be desirable alternatives. And if the economy weakens further from the decline in bank lending and lack of credit creation then that could put even more pressure on the economy.

What's an investor to do? I just don't see any reason to be long here other than a very small position or to trade a counter trend rally. I think we could go sharply lower with very little 'meaningful' risk to the upside. As I write this, yesterdays low's have been taken out. We are now 1150 and falling...what's the Fed's next move? Wow!

Our Capitalist System - RIP?

This AIG thing can't be good. The Govt stepped in to avoid the disaster of a violent unwind in the banking system. Firms in bad shape are essentially facing "margin" calls that have created a liquidity crisis. LEH, AIG, MER/BAC, et al, are in the center of the crisis. As they sell to meet their calls, prices fall furhter causing more "margin" calls placing further pressure. Other liquid assets must be sold to help the cause (in addition to non liquid assets). But those liquid assets may include things like stocks and that threatens prices. The break in the market occurred Monday, yesterday was likely a kneejerk sort of reaction, what they call a technical bounce. How low will it go? Today the pressure is on and we'll see if they hold. I just don't see how all this Govt bailout stuff makes the sun shine.

Regarding the S&P time spent under 1200 is bad. (now 1188, near the day's low) Everyone invested in the S&P/lookalikes over the last 3.5 years sees their positions at a loss. That will put pressure on any upside move. Eventually the supply will be absorbed but that is clearly a concern on top of the aforementioned concerns of a banking unwind. Meanwhile the Russell 2000 shows small caps holding 10% off the lows. This impresses me and if I were going long I would emphasize this sector of the market. Small caps would appear to have less overhead supply and pressure. In either case we must listen to what the market is telling us.

A major brokerage, perhaps Barclays, said the financial sector bottomed with the AIG bailout. Many have said similar things over the past 15 months in this sector and have been wrong. How do we know there aren't more "dead bodies"? Of course I will watch the sector to find future winners but this sector is a mess and other than reversion to the mean rallies I don't see strong enough evidence to support a bullish position on this group.

It's not a dull market.