Thursday, November 20, 2008


I am now ensconced in my cocoon, waiting for my VIX indicator to signal a stable, investable market.  I did check this morning daily prices from 2002 to see the precise low of the S & P 500.  The number was 776.76.  This average sank to precisely that point this morning before bouncing. There were buy programs that came in at precisely 776.76.  It is impossible to play the bounces in a major bear market and make money on anything resembling a reliable basis.  I have given up trying and will simply wait for the VIX to indicate sufficient stability to make new investments.  The current market has made a mockery of those advocating buy and hold in all markets.   We are not only close to breaking the bear market low from 2002.  We are already at a level prevalent in April 1997 when the S & P average closed the month at 801.34.  So we have lost more than 11 years of appreciation with no end yet in sight.  It is certainly possible that we could get another spirited rally off the 777 figure but none of those rallies have lasted very long and are hard to trade even for old gamers like myself.  You really have to take a big chance by buying a lot of shares and then selling them before the close-day trading which is a losing proposition in my opinion.

I still have taxable short term gains for this year, notwithstanding the tax loss selling done a few weeks ago.  I may use the rallies to off load a few securities recently purchased at small losses just to offset the gains taken earlier this year, since it is hard for me to justify having any taxable gains in a market down almost 50%. 

New unemployment claims jumped to the highest level in 16 years last week.  The Philly Fed regional manufacturing index fell to its lowest level since October 1990  Yahoo! Finance

I was watching the auto chiefs yesterday begging for a cash infusion and even the Democrats were skeptical.  One congressman noted that the head honchos rode to town in luxurious private jets, with the trip to Washington costing about $20,000 for each of them.  ABC News: The congressman then asked them to raise their hand if any of them would sell their private jets and fly back to Detroit first class.  None raised their hands.  I listened to Cramer argue last night that a bailout package for the auto companies would actually do more to save jobs and help the economy than the 350 billion that Paulson gave his friends on Wall Street, which is either being hoarded or disbursed to the employees for a job well done this year.  Maybe he is right. 

There was an article in the WSJ this morning about the amount of compensation taken by the just the top executives in 120 financial firms during the past 5 years, and the total came to 21 billion, an ample reward for helping to bring the world's financial system to near collapse.
15 executives from firms that failed took in over 100 million each.   Maybe it is just me, but why are people rewarded for failure?  They say that the companies prospered before they failed so that is their justification for the outrageous amount of compensation.  But these firms just succeeded for a few years by taking the risks that ultimately caused their failure. And why are a small number of people who bring down the largest insurance company in the world entitled to 500 million a year for their trouble? The benefits are kept by those who gambled with their firms money while the risk of failure is socialized by laying it on the American taxpayers.  Of course, the beneficiaries want to keep this system in tact, calling it free enterprise, and the really scary thing is that nothing will change-no lesson has been learned or will be remembered for very long even if learned.  The people and firms who engineered this financial crisis for their own personal gain are few in number, and have landed on their feet with hundreds of millions of dollars, many having secured new gainful employment.  Their sole sacrifice, after receiving tens of millions for failure, is to lose their job and then have to find another one.  They were not innovators, inventors  or creators of new companies providing good jobs to thousands of people.  Instead, they used other peoples money to take risks which initially worked to their firms benefit but were ultimately doomed to fail.  With failure, they walked away from the carnage that they wrought, leaving it to others to clean up their mess.  What are they worth?  They are not worth anything to society.  If they have any value, it is a negative one, certainly not a 100 million for wrecking a company or helping to create a severe recession.     

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