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[TTHQ Staff]

Gene Inger's Daily Briefing. . . . for Friday, November 16, 2007:

Good evening,

Awe shucks . . . was the market's initial response to our warning that yesterday's lite reversal was a precursor to 'shock and awe' commencing anew ideally on Thursday.

Investors and even traders didn't want to consider the GE situation (minimized by GE via their wholly-owned financial outlet, that I'm sure conveyed what was assessed by the parent, and I mean that sincerely); they questioned the warning of Wells Fargo at least with respect to the worst since the Depression remark (analysis reserved) about housing; not news we believe developers and even some banks will approach falter.

If and as we get that kind of default contagion; we may be near a bottom, but totally no reason for it to be 'the bottom'; though of course that doesn't mean we won't get a few great trading opportunities (in both directions), and eventually a policy reversal as is less deleterious to the capital creation or sustenance abilities of American citizens; as contrasted to a façade that the bulk of our people are not under growing pressure.

Could this be curtains for the market; right here and now? Might the bond crisis; actual crisis in insurers and reinsurers (not just pensions) be a straw breaking the back of those repetitively trying to firm the market from every attempt at washout? Are the New York Yankees, and not just Citigroup actually involved? What about the latest 'review' (talk about after-the-fact rating) by Moody's and Fitch of Ambac or MBIA (of course you remember our mentioning them and 'credit cards' a couple weeks back). I mentioned London's piece 2 weeks ago about a 'trillion' in dubious U.S. debt and compromised by saying o.k. 500 billion. Now we suspect we were too conservative in that assessment! (Redacted) suggests something exceeding maybe 2 trillion.

Am sure glad I got that retirement villa paid for in Costa Rica (didn't; just a bad joke; even if we're bordering on trying hard to degrade into banana republic categorization it seems at times). Is it possible such defaults we're ruminating about might include a MBIA and Ambac? I did mention a Pandora's Box if investors and managers figured it out. It's her armoire. And possibly her closet, if you include the prospect that states or municipalities couldn't sell debt under such circumstances. Sure; Government would intervene; but not that fast; and not fast enough to prevent liquidation phases. They'll not expound much on this, or couch it obliquely; but I suspect this is all part of 'risk'. It comes down to a question (redacted hedge fund name) asked at a meeting: 'Is MBIA Triple-A'? Global financial risk (crisis) we say; and others are not insulated from it. In part because of globalist extremism which has overly-integrated virtually everything. I doubt you will see anything like that for many years to come if this fully 'engulfs'. You say I'm too bearish? Actually I'm praying it doesn't come to all this; might make (what I said just this last summer –balance reserved); historically a picnic by comparison.

(For edification: Ambac pioneered muni bond insurance over 30 years ago, and rated AAA for over 25 years. MBIA was thusly rated in 1974 as 'Municipal Bond Insurance Assocation'. These are monolines, and hence 'guarantee' structured finance bonds… as noted weeks ago this could also be the 'Achilles Heel' of this entire dire situation. Bulls say just that there are too many bears; and this is not an issue at all as it would be fixed. We agree; but how quickly? So if the Titanic hits the iceberg and everyone goes to the lifeboats; does it mean they're wrong, and the ship somehow is assured not to sink, or everyone fails to prepare and checkout the lifeboats because they are convinced rescue boats are coming for them? I reiterate as I said it in July, because it applies, so -reserved as to status or if- past lifeboat drill time. What, not a rehearsal?)

Candidly; I don't know if this will emulate the old REM song ('it's the end of the world as we know it'); so let's not get that carried away; it continues 'and I feel fine'. But for sure something has normally bull kinds of guys very worried; though we are honored to have foreseen some 'issues' as evolved through this challenging year in which I've dedicated much too much time not only in trying to alert investors, but even Florida's politicians and National media, to what was at stake. That nobody cared to take any of it seriously (until more recently) is why I've been critical of some, and curious as to why not; since there is empirical evidence and historical precedent regarding the risk. And remember my reputation is as a superbull from the '70's after calling the energy debacle and it's wake as an entry not exit opportunity of generational proportions, as well as the '87 crash, and the 2000 top under the tutelage of insane Y2k Fed policies as well as nailing the 2002 bottom with persistently optimism until this year. I'm not a Paul Revere but we saw the handwriting on the wall before the fall. Not inconceivable we now know 'what the Fed was up to' when they infused so much liquidity this week.

The Dollar has been bottoming; and nobody believed me on that recent call either. Europe will stop fighting inflation; and that won't help immediately, but over time 'gel' realization that 2008 is not exactly a growth (balance for ingerletter.com members).

Because of the profligate lending and borrowing plus greed which included firing 'risk management' guys and putting 'junk debt' in institutional 'house accounts' not to even mention investor portfolios (why is everyone so calm about this; could it be because it is not in the interest of the powers-that-be to let them understand what was sold them under the guise of being 'investment grade' wasn't anything of the type, ever ?). Sure, we understand that people will borrow low and speculate, and businesses as well as institutions will accept free money (inflation-adjusted it was just that); everyone does. But everyone does not distort 'structured to fail' deals into a ruse fooling market folks. Or maybe they were (at the top) actually fairly innocent; after all they got clobbered.

Further, I don't know why anyone is surprised by today's action or anything before. In this case it was not 'a crummy day' as the permabulls think; they are frozen in time it seems; or not understanding there is no short-term insanity in the short-term action. They need to get-out of their '90's / 'early '00 momentum mindset; it's a new century. And when the dust settles; the brainwashed modern portfolio theory may be ancient. Frankly it already is; the business cycle is not legislated out of existence; interest rate shifts are not the 'holy grail' in this sort of risk matrix, and neither are price levels or of course the most inane; the idea that global strength bails out the U.S. Pathetic and is not how this is going to play out. (Members know what we mean; need not expound.)

At this point, the insanity is that the market has held up this well; not that its volatile. It is volatile (that's why our 'Chinese Water Torture' forecast) because of the ownership structure, and that approach which got money off the street and under control of what some might say (not me) was the pit bosses. Incredible how many people and even a slew of brokers bought into the modern structure (which is aided we grant by laws as exist, and those which the Street has pushed into Congress making it opt-out to have a bit more control of what happens to your money, as you'll hear more about soon..).

I am exaggerating to make a point; but while listening to the 'pit bosses' at the Wynn or at Bellagio, I didn't simply hand over my chips and say 'manage my money as if it were your very own'; oh be sure to return me a profit; thank you very much. Seriously we know that the hedgers made their game (leveraged beyond comprehension and a topic still 'verboten' on financial media) and needed to unwind that excess risk matrix.

And we know that the multiyear effort of mutual funds that agreed with me was great; of course they will typically be invested all the way down; so that's why they held up a slew of big-cap stocks and peddled the 'can't miss with China' game; part of why they are in the extreme globalist cabal conspiracy, and not in favor of American interests. I am sure they don't consider themselves engaged in (treacherous) economics as tend to undermine the United States (unless they are actually doing that offshore which it's suspected some do); but the net effect has really polarized this Nation dangerously in terms of those that prosper and those that suffer; and normally those who suffer are a total underclass; but not this time. And that's the difference between what we warned of all year long; (balance reserved for ingerletter.com). Others are now grasping that; but they're already too late to do much in terms of anticipation; but will realize what it is as they simply run out of money to pay for addictions to consumerism and excess.

Daily action . . . may have you ask: so what happens next? We'll see in the fullness of time. All the obfuscations and distortions of reality, plus global growth nonsense as a 'savior' for Americans (it definitely helped the Chinese and Indians; and good for all of them; but we have to worry about U.S. citizen soul-mates; this is not merely what a conceptual risk looks like), is eroding the financial base and killing Americans. Really is; I even know a millionaire who lost everything and is going to Dubai for a new shot at a fortune; and he lost it ALL in real estate; not stocks. I warned him a year ago but he said I was overly worried; that there was so much liquidity it could never happen to the U.S. Sure; (balance reserved appropriately).

As to New York; good news! If not overrun by Islamic extremists hiding mostly in the Brooklyn Heights and adjacent areas like Coney Island, and industrial parts of New Jersey by the River named after a defunct car (Hudson; but just teasing); at least it's able to have a higher seawall installed, whereas that's not really feasible in Florida or places like Hilton Head. New Orleans? Ah; mostly (other than the French Quarter, the CBD –Central Business District- and higher areas like Metairie) a lost city of Atlantis.

I digress; sorry. Everyone keeps saying 'who knew'. We knew. We said so. They still sugarcoat this; as I argued all year makes it worse, as by the time they acknowledge (more are now) the reality of false inflation run-ups as mostly based on easy money, that's too easy and too plentiful; the leverage just vanishes (a factoid of history that has precedent; so why have so few seen this coming; why; it seems to me because they knew what it was and thought they could press it higher). And that's why it's silly to hear folks call for lower rates. Removes available cushion; pushes on a string; and has little to do with consumer demand; credit extensions; much less mortgage resets. They simply don't get, or won't assess, the magnitude of what this challenge is. That is why we have said that even the Fed Chairman is visibly nervous. After all it is he, of most men, that will have to deal with potentially one of history's biggest challenges.

Even the Chinese, with limited modern capital market monetary experience, realize (and are smart enough; unlike our former Fed Chairman who actually said to Charlie Rose that he 'didn't see the real estate bubble coming' from low interest rates) to not try to expand or call for lower rates like the circus performers out there, but actually to 'tighten reserve requirements' to head off speculation and ordered that to be in-force by all banks in the entire country not later than 26 November, 2007. Is that clear now.

And since (redacted) carried this story (once that I know of last week) how did it get missed seemingly everywhere? Ditto the story about China 'ordering' managers right away to reduce exposure and limit speculation (that was when we asked if they were going to do what; slay any managers who didn't comply, and sell their organs?). Not heard either; why? Didn't want you to hear it, I surmise. Are 'they' just cheerleaders. I think not all; some do a great job; but few have addressed the facts evolving as lead to contagion, and instead act curious about what's occurring; or just call it 'crazy'. So, crazy like a fox it is; and the fox already ate the chicken breast. Legs are up next so do be surprised when today's bulls will find it even harder to walk (the chicken bulls).

Having this occur at this time of year was something we expected; and we suspect a try to rebound, though probably after (forward daily pattern reserved for members).

If nothing else; there is no growth story (reserved; if that changes we'll say so). So we get talk of 'growth recessions' and stuff like that. Basically a 'cover' story. Essential to understand that there are and will be sectors that do grow, but generally there will be an expectation of a Democratic landslide (their's to lose some say); a worry from a line officially overseas suggesting worry about our trading partner status (not their's for taking advantage; for which we don't blame them either; again we were stupid for a number of decades; so we reap what we sow; thus must rebuild our principles in a financially responsible way, with banks being bankers not speculators); and pressure for letting adults take over. Why are we doing better in Iraq? Because the ideologues were shunted to the sidelines; and Sec'y. Gates (he's from Wichita, as am I, and was not radicalized) started running the war with power and common sense tactics, not merely prayers or statements of success which rang hollow, because they were. Good for 'W' at least in embracing adults instead of those who minister to the people; but don't truly help our troops, even as they proclaimed they were (minimally). Now, it's being done correctly. But that leaves the more serious challenge in SW Asia.

p.s. We have confidential hints that al Qaeda Arabs; mostly Saudi's, have moved into Afghanistan, not just Pakistan; as orders are being barked in Arabic dialects, not just what the Talliban and so on utter, as (reserved for members). So part of the story is that with domestic Sunni's switching to our side; terrorists left a bit ago and attacking our undermanned (comparatively) forces in Afghanistan now. I realize the media has shown a realistic firefight (we appreciate video journalism and a feel of the suffering of our men); but this is 'the rest of the story', and why we offered a criticism of letting Pakistan become the Cambodia of this war as it was enemy sanctuary in Vietnam.

Now; you'll have (I predict) the ringmasters of the market circus focus on everything we've talked about and warned of all year; hedge funds; private equity robber barons that I contrasted more to the 1880's than the 1920's, and much less the interim time. It's why I called this a (now ended; sorry, I didn't do it, but saw the brass rings slip, or those that were though to be tarnished gold shown to be merely cooper or brass) sort of 'Gilded Age' similar to the 1920's, and we know what came thereafter. Tried to get a warning out; that's why I sort of ramped-up my energy from semi-retirement 'daze'. I appreciated a few notes from members who (like me) reduced property holdings; for sure didn't press the upside or let money burn a hole in their pockets; and became at last the prudent, conservative, sober, and non-momentum 'cash-rich' investors who I think will be positioned to pick up bargains of (preliminary possible bottoming point).

Bottom line: we said it would take patience; and it did. We said you wouldn't like the frustration of a hard-to-break year; and some didn't. We said if we simply helped our members to maintain sobriety and temper their zest for leverage when the opposite of the masses was the appropriate way to lean against the wind; they'll sail again. It may be they'll sail well, with clear skies and following seas, from the future low point.

Last night's summary with some long-term charts sprinkled in for your visualization:

'Shock and Awe' . . . or at least the stock market's version this days, was at least the worry we outlined last night, in the wake of a dramatic short-covering rebound that we called a 'to be or not to be' question. Whether to recoil from what I said last night, in all likelihood a torrent (summary commentary reserved for ingerletter.com members).

Key idea of the entire year: suspicion that the 'perceived' liquidity was fiction as far as leveraged relationships as existed, and that (stated in June) a 'credit crunch liquidity crisis' as the threat (why I asked before Summer; when they want to sell..to whom?).

Bottom-line: Are we position short this market? Index-wise yes; common stock; no, but we sure outlined tops and downside targets for many big-cap 'wunderkinds'. From S&P 1585 we hold unflaggingly short. On a daily basis, we were actually short much of Wed. and Thursday, as was expected. There was NOTHING unusual about the 300 point rally fizzling and turning down .. it was the forecast. No bullish alternative.
Bottom line: signs as we interpret them, included the (slightly updated only) following bullet points:
· General Electric just awakened others to what I've said about the spread of CMO/CDO risk;
· GE claims it was minor; maybe. However, Florida State pensions are not minor, are they?;
· The Fed is rumored to have injected more money today than since 9/11; why is that?;
· If (withheld); that doesn't stop a plunge; merely facilitates functioning of the banking system;
· (There are at least a dozen more; but are reserved as too specific for non-members to view.)
MarketCast (intraday analysis & embedded Daily Briefing audio-video). . . remarks continue our position-short from 1585, as intraday guidelines remained primarily on the short side, with our bias today for failure and new intraday shorts, because we'd anticipated down; intraday chance of a snapback then down (got it too; no idea why a pundit or analyst would call this insane; actually it's excessively orderly which itself is a warning; as was negative breadth worse than the Averages all day long). I continue to believe 'economy better than you think' ideas the modern-day equivalent of Yale's Irving Fisher in 1929 saying 'permanent higher era arrived'. In this case continuity of 'panicky peddling pummeling prices', set-up a rebound and debacle. Actual panic?

In tonight's report we go into more of this; and expand in audio on what we projected earlier in the week. Nothing surprising if you are sober; understand the situation we're in these days in America, and that there is a dying propaganda campaign of extremist globalism, having little to do with fair free trade, but lots to do with profligate greed.

Key credit or derivative issues are not ameliorated, as projected Fed actions were, though 'structuring' does move toward improvement, essentially 'pushing on a string'. That's a different issue then just stemming a tide. The Fed is treading maturely, and doing the right thing. We are hardly yet out of the woods with respect to housing; or debt or war issues. Important: a Fed 'staying ahead of a situation', isn't preventing it. At this point; as argued for months; it would not help if rates were at 1% if loans aren't available to the masses; as they are not. Consumer credit and plastic are likely next.


Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment 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.
Rarely we will comment about stocks in text. Typically remarks are via audio-video.
Little PURE Biosciences (PURE) consolidating after new highs (little pullback might be welcomed by some) and in that spirit we were pleased to see them affirm my own remarks about inaccuracies of media pieces on the MRSA/Staph subjects. An actual growth story if they execute as they expect, is American; fills a need, and is win-win. After this pause (continuation as outlined is anticipated to proceed as they execute.)
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In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries. A world addressing terror threats continues, (balance reserved).

Slow growth has likely descended into recession; of course that fear prompted what the Fed did, inline with expectations (and a tad more), albeit with a bigger reaction to it. Our 2007 view has been that we're in an ill-defined recession; likely recognized if at all, only later. As to whether it descends into something like post-railroad debacles of the 1880's; well in-part it's what the Fed worries about. Regression to the mean and traditional affordability 'rules' will be hallmarks of lending guidelines for a while.

McClellan Oscillator finds NYSE 'Mac' folding after the intervening bull-bear shuffles on the NYSE and NASDAQ. Reflex rallies allowed 'risk off-loading' tactics; many of the 'Street' debt holdings aren't investment grade. Multi-month efforts are evolving. In this regard, we suspect that strategy is ramping-down with the markets; not trying to revive attractiveness of structured-to-fail creative financial paper. So many of the analysts are 'volunteering' what bargains financial firms now are; makes it (reserved).

Fears are rising in the credit markets that the turbulence could last for months as big US & European banks come under pressure due to losses in US mortgage securities, and as the America media generally avoids talking about German or Chinese banks, and what's happening with the Hang Seng (and why). The 'cover' of strong economic activity is masking the greatest credit bubble ripple effect risk since the 1907 Panic, if not the 1930's. The similarity is (if anything) somewhat like I recall in the 1880's when the 'railroad' bond debt fiasco took the Nation into a situation taking years to recover from. Frankly, though there will be trading opportunities; folks will pay for real growth; it will often be in smaller domestic stocks, not yet big-cap multinationals (reserved).

As this evolves, the market may become more treacherous rather than less so. It was of course on a precipice for challenging August's lows; which is why they gave us the crass oversold (daily basis) projected-to-fail rebound. Normally more follows; but we had Rule 157 plus what happened last Expiration. So we called for this week likely to turn out to be the wildest as of yet. Place your bets on the date for new yearly lows.

Enjoy the evening,

Gene

Gene Inger,
Publisher

~Gene Inger’s Daily Briefing™ (The Inger Letter daily analysis on www.ingerletter.com)

~Gene Inger’s MarketCast™ (Intraday audio updates emphasizing S&P futures and market action)

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