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[TTHQ Staff]

Gene Inger's DailyBriefing . . . for Monday March 17, 2008:
Good Weekend;

A 'sign of the times' . . . is not the news per seof a bailout; nor the commonly-heard refrain that 'fear of what we don't know' has broughtthe market to its knees. Why are we saying it thusly? There are so many analogies towarnings here over the year just past, that I can't begin to start. But we can simplify itthis way: Bear Sterns as 'dealer' or clearer, is historically on the other side of theledger. Anyone remember the 'crash of 1987' we forecast back from San Francisco and LA onthe ancient FNN (morphed into CNBC). Recall that Bear was part of the solution not theproblem. While pundits are saying 'we don't know'; well, we saw the issues. Whether thefirst notable NASD net-capital liquidation in Irvine, which caused us to dig into 'why'they sold everything else, and learned it was because they held CMO's and CDO's in the'house account'; it was a head's-up clue a year ago… especially when we dug to learnlots of firms not only were in leveraged derivatives, but had CMO's & CDO's in theirhouse accounts.

While we were already bearish (technically for broadeningtops early and during '07, and as the market internals were deteriorating while othersproclaiming the opposite, were either ignorant of the reality, distorting the facts, ordelusion about the world as well as market technicals); it was the combination of the'house account' revelations, the ensuing 'Reg W' waivers (which proved theFed was on-top of the situation from the start, contrary to those who months laterimmorally blamed the Fed for bankers, and apparently some brokerage firm's internal moneymanagement's own greed), as well as the realization (something we've warned of for yearsincluding leading-up to a crucial secular top in 1999-early 2000) that trading leverage(derivative or otherwise) was nowhere remotely in the realm that a majority of investorsperceived it as being.

Once we got past 9/11 and inflation-adjusted 'free money'(which was the real reason for the 'bubble's growth' and) an absence of oversight the realreason the President is incorrect in blaming housing -because the lack of prudent-manenforcement and loan guidelines (which could easily have been governmentally-mandated)given that as we have also noted, two economists in the employ of the Fed warned Greenspanwhere, in a couple years, it would lead, way back in 2002- resulted in (also for a yearnow) a very basic comment here: 'housing's a microcosm of greater macro debt issues'. 

Ominous Calamity Risk Growing?

So we don't know why 'they' say everyone fears what willsurface next or who will be in trouble. We once posted (and said we wouldn't again andwon't) the list of virtually all the major money-center banks that had unconscionableholdings in derivatives. It was not my desire to panic anyone (that is amply done today bythe financial media's after-the-fact haranguing; often from the same 'perpetualprosperity' crowd cheering, when we were warning, based on fact, not propaganda, of whatwas setting-up to hit us hard). We told ingerletter.com members once; referenced the Reg Wwaivers in a defense (earned) of the new Bernanke Fed repeatedly; emphasized thegargantuan nature of the issues belied any ability of the Fed to redress; but that theycould 'ease' the situation into a 'Chinese Water Torture' scenario, culminating with acapitulation; typically well after Wall Street had completed the distribution manydisguised as an accumulation, if you think about the nonsense they spouted about valuationcriteria.

All along it was (and remains) our view that the Fed isavoiding Hooveresque policy by simply doing everything in their power to preserve thecommercial banking system in the United States. After all, the elected officials of bothparties had generally been a bunch of whiners and typical politicians; with few avoidingearmarks, patronage, or worrying about jobs rather than the stupidity of lower costforeign consumer goods. It is notable you won't even have that now, since they destroyedfirst, most of our solid U.S. growth engines; next our reasonable free trade policies(replaced by unfettered anti-American globalist extremist radicalism that could have beenengineered by any adversary, but not by patriotic Americans); and then you had a WhiteHouse (that to this day) portending that to be for fair free trade is somehow equated toisolationism.

That's rubbish (no offense; to be ignorant is neitherconservative nor liberal; just well .. out of it.. at best .. and at worst, involved in aninternational cabal to destroy us). It is not even the stupidity of trying to equate areasonable trade agreement such as is the case with Columbia, with that dealing with Asiancountries that sucked our blood for years, more than any trade negotiator or sittingPresident ever intended. A Prez saying that sovereign wealth funds should come here 'causeit's our money anyway; is closer to the truth; but it's not the petrodollar recycling thatcharacterized the past.

Why am I ticked off? Because they blamed housing; ratherthan an absence of policy that invites the other side of radicalism into the center ringof this circus; the lefties. At the risk of offending someone, I would hope that bothparties clarify that they're totally capitalist; that free-market capitalism does notequate with unfettered trade stupidity; that free trade does not mean only for the othersides; and that if there are no growth engines hardly left in the U.S.; then who's goingto buy all that imported stuff anyway.

The President is right. We don't need a bunch of newlaws. We do need leadership; a crowd that is willing to enforce the existing laws, andprovide oversight. Even all such 'fully-conforming' guideline loans for housing would havebeen sufficient; just stop the packaging, and root-out the packager-paying of therating-agency misrepresentations as nothing structured (with multiple resets henceintended to fail) is investment grade.

We need candor from both parties before this spins out ofcontrol or creates societal discord. For the media to celebrate a huge short-coveringrally that means nothing as S&P said 'we were half way through the debt clearance atbankers' was ignominious to say the least. Do you have an idea what the other half couldlook like? Even up in the solid Midwest, an experienced hand told me today that it takes20 months from a commencement of foreclosure proceedings until the matter is closed. Aneternity with respect to markets; real estate or equity. And that was not a bubble-maniaarea.

So, what's the outcome? I bet even in Florida you didn'thear about the Boca Raton riots. No; not for the last call at Neiman's, orthe Nordstrom Anniversary sale. But for the 500 'subsidized housing' units made availablein Palm Beach County (more).

So.. we know folks say you have to buy when there's bloodin the Street. There's not that much blood though; and it's sort of like the firstlifeboat departed Titanic; while a few passengers debated whether the water was too coldto bother dipping toes in. It is a freefall situation risk; but we've seen this before.Often (especially with Expiration looming) you pullback from the brink. That doesn't meanyou don't plunge thereafter; or for that matter if one or two more dominos rollover evensooner. Risk is ominous, in a macro way; and has been for more than the year of ourwarning incidentally. We say that's because the housing burst initially shifted funds intostocks, so we played it for a good while; but at the same time (2005-early 2007) believedthat underlying it was a message; with the governmental policies ignorantly destroying oneengine of growth after another (through multiple administrations and congresses); that a'piper was looming offstage' waiting to be paid; and that we blew the reflationopportunity in a big way, by virtue of encouraging spending, versus savings, during agolden time to shore-up, rather than seductively titillate with cheap bobbles, theAmerican families. I correlated it with leveraged debt (bread and circuses) for themasses; at our peril.  

Daily action . . . notes all of this brings tothe surface the magnified ramifications we said from the start would develop; and we stillhave commercial property; retail heavy disasters; and credit card delinquencies (as wellas 'credit line' default since typically those are 2^nd mortgages which in manycases now have zero equity to buttress those of course) ahead. Not to mention amounts oftotal Fed resources already committed; no assurance that today's bailout (which is areprieve really; as Bear broke badly) by any means succeeds (that's why the rumor of JPMorgan after them on the cheapo; thus it will be no surprise if they get them for pennieson the dollar as we've noted); and other banks, which remain reticent to extend terms toeach other. Shades of the 1930's incidentally; as aside the coordinated intervention bythe Fed; we'd be there. I continue to admire Chairman Bernanke for doing what he's ablegiven the challenges he inherited; and those who blame him..well, simply put: it is theywho were deceitful.

I think the Prez really probably means well but is overhis depth. The Treasury Sec'ys in his element; but frankly we were past a point of easydeleveraging before he took office. So in fairness to the 'regime', some are mitigating asbest they can. Let's face it; when FDR said 'all we have to fear is fear itself' (funnyhow the media mentioned a colleague of Obama when he quoted him; and none I heard said itcame from FDR in the depths of the Great Depression.. oh well, maybe Obama's ministereducates him on revisionist history.. not that I'm trying to be political.. but hey thisis the U.S. of A.).  

As to FDR's quote: all we had to fear was not fear;actually fear was the only thing to not worry about. We were already 'down the drain' agood bit, the banks were closed periodically, and unemployment skyrocketed (as is theinaccurately reported case by the way now; though not yet to that extent). We didn't needto fear fear; it was a done deal. So President Roosevelt was trying to uplift our spirits;absolutely correct. What's he supposed to do? Exactly that. Ditto George W. Bush.Interesting comparison. But of course the problem is we're in the netherland region of thedecline. More banks in trouble; many more months (or years) of foreclosures; and minimumof years prior to an prospect of real estate appreciation (housing was the remaininggrowth engine we warned remaining several years ago; tech is also too outsourced,commoditized and too regional to be a National-level growth engine of the magnitude as isneeded now) again. In my general thinking, the hot bubble areas will not see those pricelevels (at least inflation-adjusted) for a generation. So that's the bullish alternative,for the kids.

That by the way doesn't mean their won't be propertydeals sooner (even I'm starting to show some interest, but not much due to carrying costsof property during the long winter..), and equity deals for sure; but not yet. Whether abang ('crash') for the large Averages (really broad markets had never recovered all thatmuch) or a whimper (the Chinese Water Torture); we'll assess how we get to the nextgeneration buying level.

Meanwhile, so long as the bulk of analysts keepcontending 'values' are attractive; it's feasible we get a sharp rally here and there; butthe trend is down; at least untested. And there's no particular reason to assess a pointarrived at discounting future profits as many say. Why don't they question if futurelosses or contractions are discounted?

Print more money; keep shopping; keep borrowing? Cutrates more than 1%. Oh my; the inmates are indeed if not running the asylum; dictating therules to a few adults in their payroll database. Victimless crime? Not to defend NY'sGov'nor; but how dare a crowd of proselytizers' who set-up pension funds, municipalities,and house accounts for demolition and preached greed; gang-up on a client of a lessexpensive bordello.

Is this a set-up for a big rally rather than a crash? Howabout both potentially? That's a subject I'll broach in this weekend's weekly-basis chartvideo 'technical corner'. (We invite investors to join ingerletter.com; no sample trialsduring this; we have devoted energy over the past year to alert investors to risks; wewelcome their membership.)

At the same time, let's emphasize that next week isTriple Witching (Thursday due to Good Friday's holiday hiatus); that Bear Sterns may notexist as we know it Monday; that the BBB downgrade by Moody's late today is a bit silly;and that the limitations of a Fed to battle all of this beyond what we've outlined, hasbeen repeatedly validated. 

Since we remain 'on-goal'; 'on-target'; and 'zeroed-in'on what is and what isn't keen in all of this; we'll just reiterate last night's remarksin brief before resuming Monday comments. The entire saga of our 'traders gone wild'videos are in archives below.

Paine Weber is being shopped; UBS has no further comment.Merrill is firing more in the non-broker overhead realm; JP Morgan presumed the logicalBear buyer. In most ways they would be keeping the clearing house and dumping everythingelse. Clients are nervous; hedgers are in trouble (especially if still leveraged); and wethink most of everything you've heard from the disingenuous crowd or the naïve, hasrelated to the 'covering' the getaway of a year-plus long distribution during a stealthbear market. Of course we did our best to candidly share what we suspected or ascertainedduring it all; and maintained a rebound short (still) from the rebound phony all-timeS&P high (because of concentration into cap-weighted stocks to give the illusionagainst what I saw in reality as nothing more than sucker-rallies before the next phasesdown). Now you hear the naïve saying that we have to go up because 'sentiment isnegative'. We say you could (pattern forecast reserved for ingerletter.com members).

But, the sentiment argument for the primary bottom ispremature. This is a secular hit to the economy and the market; and that is why we saidthere was no 'fluffy froth' as we made the spike high last year. It' because that ended abear market rally forecast from 2002-2006/early 2007 which was a cyclical upward reflationin a long-term bear, that began in 1999-2000. I never heard anyone else offer this theory;which doesn't in any way prove I'm right; but the Advance/Decline and overall breadth ofthe bull tend to support my argument. If so; the good news is this takes us to a secularlow in time.

That will then be periods of stabilization; with (CommentaryReserved for Subscribers…..) doing far better thanbig-cap promoted institutional darlings (some of which will work too only after thedeleveraging catharsis is over); and in-the-mix a generational buying opportunity for allour members who are still in high school and college or just newlyweds. Very seriously;that's not too many (unfortunately, 'cause they won't realize how terrific the opportunitywill be, since they're mesmerized by those decimating their funds trading 'stuff' all theway down). For us middle-aged plus types; it could be fun too.. and just maybe theopportunity to reinforce our prosperity heading into the (reserved) froth.

(Commentary Reserved for Subscribers…..) ChairmanBernanke agrees… you did essentially hear him say so. Oh sure; I shared my viewswhich he was more genteel about; but they are similar. I believe he said we have totransition from consumption to being an industrial power, again. I believe that's whyglobalists accused him of being a democrat. Poppycock. He's an American; since when is itpolitical to want multiple growth engines and jobs for your fellow Countrymen? I supposeit is if you favor unfettered economic sedition.

And by all means stop the funny math by which you outsourceNational Security and invite interlopers who aren't vetted by any normal measure to ourtechnical knowhow (that's the same knowhow of engineering that globalist extremists areoutsourcing). I also insist that Congress ask hard questions and embrace bipartisanoversight now. (Of course I can't do any of this; but you can. Prod your politicians intoreal service.)
Bottomline: macro signs as interpreted; including (updatedagain) the following bullet points:
· Primary issue remains not sharp'lending issues' or mere liquidity, but of financial solvency;
· Raising margin requirements on'commodity or oil futures', will only have nominal impact;
· (more than a dozen bullet pointsreserved for ingerletter.com members only);
· Deleveraging remains 'a b*tch', as unpleasant (secular) scenariosrotationally evolve.

Furtherpoints: nearer-term issues to contend with beyond above; some with macro aspects:
· Pyramiding mountains of compounding debt have not ended;facilitation assisted a bit;
· Not to suggest (identified) interim rallies won't be feasiblefrom extremes; as recently noted;
· Bear Stearns has a new building in Midtown; equivalent to name ona ballpark (ominous);
· (another dozen near-term key points reserved for ingerletter.commembers only).

MarketCast (intraday analysis &embedded Daily Briefing audio-video). . . remarks continue guidelinesto catch short-term swings including Friday's 'traders go wild', on debacles that weoutlined likely almost a year ago. Remains our view that rate cutting is 'pushing on astring' and not a solution at this point. Stop the insanity! Delighted to see ChairmanBernanke imply agreement; but will he prevail? Even so the Dollar is again weak; implyinginsufficient ammunition to underpin matters -or resolve- exists.

All part of maintaining fluidity and unfreezing systemsduring historic 'deleveraging'; but not defeating theprimary trend nor our analysis about that ongoing activity. Complex bank issues arosebeyond rate concerns; our key point for months. Pundits calling for further cuts continuecrazed. (Expanded in evening's text & video reports). We retain our macro(forward-rolled believe it or not) June S&P 1599 short-sale; it's irrespective ofinterim short washouts & long-side plays; as outlined in tonight's video.

Bits & Bytes . . .provide investors ideas in a few stocks, often special-situations, but also covers anassortment of technology issues (needed for assessment of general factors in tech overall,or as compelling developments call for) that are key movers in the NDX, SOX or S&P,plus ideas ingerletter.com thinks might merit further reflection.

--

In summary . . events continue reminding us ofrisks Allied fighting forces face, given continued attacks on free peoples, by elementsincluding organized terrorist forces in various countries. A world addressing terrorthreats continues, as domestic issues absorb us more while as we also focus on MiddleEast and World War III avoidance.

Our 2007 view had been that we're in anill-defined recession; finally recognized as it evolves. As to whether it descends intosomething akin to post-railroad debacles way back in the 1880's; is likely what the Fedworries about; never talks about; but actions affirm they're desperately engaged tostabilize fluidity of functionality. Regression to the mean or traditionalaffordability 'rules' likely hallmarks of home lending guidelines for years. I hasten toadd, whether depressing or realistic (per 3 year forecast here of the housing breakcombined with 'junk debt' investment avoidance); stocks eventually get interesting. GildedAge globalists unflaggingly failed to see the era's transition, or detect the public moodof increased populism; essential reform calls; and low taxes.

McClellan Oscillator finds NYSE 'Mac' fluctuating viaintervening bull-bear shuffles on the NYSE & NASDAQ. Reflex rallies allowed 'riskoff-loading' tactics; as 'Street' debt holdings aren't investment grade.Multi-month efforts evolving. In this regard, we suspect that strategy fluctuates withmarkets; trying to salvage attractiveness of many stocks, whose expectations remainout-of-line optimistic for the actual world situation. In some regions, as DC debates'Recession' or not; a light 'Depression' is more likely.  

Issues continue including oil, terror;China (includinglatest Pentagon hack spying; a type of action that if we were financially sober wouldprovoke warranted redressing), Pakistan; certainly allthe Middle East, Europe; funny money NY economics. Noted for ayear: includes international dependencies, as outcroppings of a radical extremistglobalism which is neither pro-American nor conservative; even as true conservativessupport fair trading; constrained spending, and not squandering our US crown jewels.

Thirteen months ago I called this an 'accidentwaiting to happen'; commenting that it is affirmed historically that long-duration periodsof free money (Gilded Age mentality) do not create permanent liquidity; but givethat illusion while the opposite transpires. There will be various trading swings; through2008. We scalp these, while retaining our (adjusted) position short from June S&P 1599 (rolled), which continues clearly torepresent the belief that while rallies occur; they remain within our structural bear.

Since early 2007 we noted economic conditions moresimilar to post the Gilded Age ending in 1929, the panic of 1907 (hence our call for thestart to be the 'panic of 2007' last year at the end of that Gilded Age, and it's NOTcoming back (party over whether they like it or not, as they didn't or only now 'start' to'concede' there's needed rehab). It is not a structure entirely resolved by rate cuts,stimulus, 'miracles', arrogance of a few who think they have influence; although all canhave short-run responses at best.

Long-run: 'new' adults in charge will enable betterfiscal and public policy, than what passed for prudent economic or money management in thepast era. We played the upside so long as sensible (Oct. 2002 - early '07); look forwardto doing so yet-again, in a macro perspective. On the micro-front; we do so onlymomentarily; as scalps. In the case this is a signal of an evolving bottoming structure;that still takes months not hours or days to sort out; and that means the best-case wouldbecome a 'w bottom' (I respect what the Fed's trying; so we mitigate addressing worstcases just for now but have outlined possible realistic targets to members on macrooverview videos). I've warned only a stronger Dollar would ease the inflation insanity(the one they distort); that's a clue to keep an eye on in the days immediately ahead. Sofar a faded clue.

Enjoy the week!

Gene

Gene Inger,
Publisher

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