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Welcome to the W. B. Busin Group Publishing's Home page for our "Free Access Area"

We post general market and economic commentary here every few days, or as changes and conditions in the markets make it necessary.  Return as often as you like.  WBB

Next update will be October 31, 2008.  WBB

October 13, 2008

A look at the potential tracks for the indexes after a crash, using 1987.  The difference between then and now is likely to be the bull market in which the '87 crash occurred.  The bull market resumed within weeks.  Any significant bounce in this Bear market is likely to resemble a version of the bounce from the low of the October 1929 crash that moved higher into April 1930. 

We do expect that the potential for a final leg downward to begin in the next two weeks is quite high.  The structure remains in the 3rd phase downward from the August high, currently executing the upward 4th phase with a 5th down phase to follow soon.  New lows are likely but not necessarily to some of the extreme lows forecasted by some talking heads, or as Pelosi said today "go into survival mode."  Wow!  Congressional leaders Speaker Pelosi and Senator Reid have been just incredible haven't they.  Reid tells America "nobody knows what to do", and Pelosi tells America to go into survival mode.  Inspiring and reassuring they are not.

McCain and Obama have each had at least a new plan a week, and, both have expressed disdain for their opponents solution plan.  Obama has a new one today.  McCain had a new one at the last debate. 

So, not to be left out of pitching our plan onto the table, we submit our simple plan below.  It is too simple to be taken seriously because it only attacks the cause and the more glamorous symptoms.  Perfect, it is not. Perfectly simple and understandable, it is.

Excerpted from today's commentary:

1405 EDT

The markets are up strongly as expected.  With banks and interest rate futures closed, a full reaction to the effects of the G-7 and G-20 agreements and plans is delayed until tomorrow. 

The energy complex, US and LIBOR rates, and currency action remains the key here for the trading markets. 

We will likely reverse to a small short position at the closing in all indexes, if current or higher levels are seen at the closing.  This a 4th phase within the larger 3.   So, this up and down and then up 4th phase may not take as long as I first thought. 

WBB

 

1325 EDT

Economic rescue plans are becoming quite de rigueur.  If you haven't been criticizing many of the plans floated, then you must have been forming your own plan.

We see the ideal rescue plan having three basic components:

1.  Make the American bad loans (mortgages and others) and bad CDS's disappear.  Let the rest of the world follow.

2.  Do #1 at the lowest cost to taxpayers.

3.  Prevention for creating this mess again.

The first can be accomplished by the Fed offering to back the refinancing for all home owner and commercial mortgages and other loans at a nice 5% or 6% rate, even if done at newly lowered asset values.  The availability of these loan guarantees and refinancing should be for a period of 3 years.  Collateralized real estate loans should be for a term of 15 and 30 years.

The difference between existing loan values (the bad ones) and the new 'good' local market values is absorbed by the original owner of the loan.  Allow all properties to be sold/purchased with this same facility.  The Fed can deal with the equity capital depletion and reserve issues of the lenders (many will be Fannie and Freddie). 

Immediate benefits - hundreds of thousands of loans disappear and then reappear as properly underwritten loans.  The same action makes the related credit default swaps (CDS's) disappear.

The second slashes the cash outlays and cash creation (by Fed) of $700 Billion plus is not needed, since a guarantee is not cash out, but a confidence factor in the lender of last resort, the U.S. government.  The original money for the loan is recycled isn't it.  The old credit vanishes and the new one appears.

The third is the easiest.  Restrict the creation of any new financial instrument until approved by a panel of U.S. citizens. This review panel should exist for at least 20 years.

The panel would act as a type of Food and Drug Administration for financial services.  The panel should be comprised of only people with less than $250,000 of net worth.  None may be bankers, traders, or market savvy, or, have a direct interest in hedge funds.  Selection should be conducted like the lottery of birth dates for the military draft in the 1970's.  Permanent deferments for bankers and financial people.

The panel serves for one year with pay and should be comprised of sole proprietors, elementary school teachers, truck drivers, secretaries, police and firemen, farmers, auto workers, lumberjacks and many very old men and women (because they remember the good old days and the bad ones).  If this cross section of the American people can't understand the new financial instrument, it gets a thumbs down. 

If they do understand it, but can't explain it to a 5th grade child in Wasilla, Alaska, then it still gets a thumbs down.  If the 5th grader from Wasilla, Alaska does understand it, then the last test is whether the 5th grader can explain it to John McCain and Barrack Obama.  If those two Senators can answer questions about the 5th graders explanation, then a final vote of the panel is still required.

If the people on the panel, the 5th grader and the Senators can't understand it, then a financial instrument should not be created and should be phased out if it does exist.  Every existing instrument (if created after 1985) should be reviewed  in this manner, and if not approved, then it should be on a sunset deadline. 

WBB

P.S.  Only a wee bit of saucy implied in the above plan - most of it is including McCain and Obama. -:)

God bless America.

WBB

September 20, 2008

Trillion is the New Billion

Add 7 and 5, you get 12.  In this credit and financial collapse, the estimated total of the faith and credit of the United States government dollars thrown at this problem is now going to be at the very least $1.2 Trillion.  That is, $500 Billion already 'injected' by the Federal Reserve plus another $700 Billion for the new magic Federal market-making agency for toxic derivatives of mortgage backed securities, such as credit default swaps. 

The 'clean cash' situation has gotten so thin that the Federal Reserve Bank has just asked for $100 Billion more to add to its $800 Billion in reserves, since they were down to less than $300 Billion of non-toxic dollars.  Make that a $1.3 Trillion total.  I am sure that this total will grow significantly in the next several days. 

As the political Congress draws the legislation, the urge to go beyond saving the homeowner and their local bank and their local over-leveraged local industries (auto industry ?) will bring the attitude, "Well, while we are doing this financial sytem/industry bailout, a few other industries could use some help."

With fear of runs on banks atrophying the lending hearts of the nation's bankers who are hoarding cash, we hope these elected leaders recognize that the financial patient has two wounds, a financial system head wound and a gaping gut wound in the local retail and housing market. 

The "no shorting financial stocks" rule implemented this week coupled with the prospect of a bailout reversed and then buoyed the markets into the weekend.  I don't believe the ban on shorting was necessary or useful.  I believe the long term forward view of this newly created tool has too many pot holes for anything resembling "an effective measure".  To all of us here, it closely resembles the 'buying time' and resting that occurred in at the end of October 1929. 

At the end of October that year, the famed Black Thursday, October 24, 1929 was followed by an even worse week that included even higher volume.  On Black Tuesday, October 29, 2008, the Dow Jones had lost nearly 40% of their value in 41 sessions from the all time high, Dow 381, on September 3.  The last week of October, the market's drop lost more value than the entire annual Federal budget for 1929.  The men on the floor were exhausted and after stocks rising a bit on Wednesday and Thursday, the 30th and 31st, the exchanges declared a Market Holiday, and closed on Friday, the November 1st session.

If the ban on shorting financials spurs more buying in the coming sessions, we will remain long.  Our Time Locus dates of the 16th, 17th and 18th proved incredibly accurate, as usual.  The week before had the Time Locus, September 10th, as a turn which resulted in a volatile lateral track into the 16th and the FOMC keeping rates flat.

With the prospect of the ban in effect until Congress issues its legislation, potentially until November 2nd, the markets will trade.  But will it be true trading?  Has this ban created an unseen hazard in the future?  Is this the beginning of the C phase of the upward corrective phase from July - the phase 2 - from the May highs?   What will it look like once the selling completes when the ban is lifted? 

We ARE NOT predicting the next Depression but we see the similarity of market conditions, rising and spreading economic troubles.  We remember that the history of markets is actually the history of human behavior, played out in a marketplace.  And, We the People, the Traders and Investors, have not changed much over time.  We have simply become technically better and faster at repeating the history we forget or never learned.

This is what the 50% retracement in 1929 into April 17, 1930, the 2 phase and subsequent decline, looked like in those surreal days of trading in 1929.  The inset shows a similar action to the recent drops and reversals.  We still have a major Time Locus for April 15, 2009.

So, how do you trade the lifting of the ban?  Probably short, but maybe long.  Right now, let's see what these administration and Congressional leaders put in the cake mix.  Do you think politics will replace all of the flour and baking powder to produce a cake that never rises?  I hope not.  So, don't short the cake yet.

Never short the greatness and hearts of the American people.  We always seem to get through the best and worst of times.

God bless America. 

WBB