This Week Chicago Trip

I will be in Chicago till Sunday.

I you need my attention please call my cell 201 966 -7788 I can still carry on a full range of financail services.

thank you

James Foytlin

let the kids Dance !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

So Mayor Mike says its OK to dance in NYC again and as the word spread that the repressive dance ban in the city was about to end the market responded with a bit of a dance of its own ! Putting together back to back wins for investors. While some licked their wounds from the recent market turmoil other expressed optimism that toilet paper will continue to have strong sales in the current market environment.

Crowds filled the down town underground club scene and an excitement in the air that seemed to spill out and into the streets and perhaps into the hearts and heads of investors . Perhaps this is a sign of things to come and perhaps that the next generation that is waiting in the wings with new ideas and a solve the problem get it done attitude unlike the down trodden 70’s generation is starting to feel its own.

Perhaps we have reached the depths of financial and sub prime despair and banks have finally told us what is really on their minds and on their balance sheets . Better yet perhaps the solutions will be reached despite the best intentions of the political class and the worlds largest economy will once again create jobs by getting back into the energy business.

So look for more volatility till the end of the summer in to the middle of October . October 21 or so should see some kind of direction set and the playing of both sides of the fence the short and long should come to the end .

The issue of energy is not a supply problem it’s a delivery problem.

The issue of energy is not a supply problem it’s a delivery problem. We are not running out of resources, its our ability to deliver energy to the right place at the right time to the right people at the right price that is the problem. The US has so under invested in energy infrastructure since the 1970’s the ability to deliver energy has been so constrained as to push up prices and until the restraints on the energy delivery system are relieved we will continue to feel the pinch of higher energy prices . That means we need, power plants, transmission lines, refineries, shipping terminals, drilling rigs, better regulatory environments and so on and so on…

Looks like we have gotten a strong counter rally the last two weeks. What has worked the last year or so, what I have been calling the 1970’s inflation trade or “Disco trade” of energy, Ag and precious metals has backed off while the counter sectors such as airlines and financials have rebounded. The process has been exacerbated by heavy short covering and the climatic event of Fannie Mae and Freddie Mac almost testing the implied guarantee of the federal government. So what’s next, I would expect the counter rally in airlines to continue until oil prices stabilize again and the financials bounce should get you back up to the 50 day moving average and then the fundamentals of each issue and the industry should begin to guide us.



I am available for public speaking and beers after work please contact me for bookings

Ball Four!

Years of economic observation has taught me that consumers tend to put off major spending decisions during the summer months. Looking to Wall Street and their annual proclamation of the next great depression after every summer holiday season of stalled consumer spending does not seem a reliable indicator of future economic activity. I find a more accurate way to tell the health of the economy in the seasonally slow summer spending period is attendance at major league baseball parks. Over the years this is one of the simplest ways to judge the underlying strength of the general economy. Given a baseball game in a major market can set you back at lest $50 per seat ,a set of $10 hot dogs ,$20 bucks to park ,gas and a watered down beer running $15 bucks. For anywhere from $200 to 400 bucks you too can take your kids to see the New York Yankees… ouch but as every parent will tell you and experience well worth the cost.

So let compare 2008 so far to 2007 and 2006


RNK TEAM GMS TOTAL
AVG


2008
1 NY Yankees
54 2,842,615 52,641
2 NY Mets
46 2,318,166 50,394
2007
1 NY Yankees
81 4,271,867 52,739

3 NY Mets
81 3,853,955 47,579
2006
1 NY Yankees
81 4,200,518 51,858

3 NY Mets
78 3,379,551 43,327

Looks like baseball fans don’t know about the economic slow down…

Starbucks closes stores

So lets take a look at Starbucks is it just another case of over expansion or perhaps a bad economy eating into consumer spending or is there something even more fundamental?

First some history,

For years I have used something called the “Starbucks test” to gauge the economic vitality of potential clients. The test simply says, the more expansive the coffee chosen by a particular consumer the lower there prospective net worth. The theory is simple the less money you have the more significant short term gratification plays in your consumption. People with more substantial net worth have many avenues in which save and spend and self actualize or feel significant. Let’s face it $10 bucks maybe a lot for coffee but to tuck $10 away for a rainy day is not nearly as gratifying. People with less means get a so much greater feeling of significance spending the money right away instead of saving it .That $10 bucks for a rainy day, that in the end is still only $10 ,which saved or not still hardily amounts to anything.

Since Starbucks has in my view lost its way ,the “Starbucks test” is no longer as valid as it once was.

In my view Starbucks is struggling because of 2 basic reasons 1) is over expansion ,enough said that seems obvious to most of us and 2) and significantly more serious, abandoning the “coffee house” look for the typical “sandwich shop” knock off look. The mass produced “coffee house” look was what made Starbucks ah Starbucks , and with out it ,its just not Starbucks .The fact that they continue to worry that Mac Donald’s selling better coffee is proof positive that the company has lost its way.


*this is not a recommendation, solicitation, offer it is the opinion of the author and only the author

you can’t fall off the floor

Ok so the back stop on the financials has been put in place and as a wise man once told me you can’t fall off the floor ,but incase you do the FED will step up and cover your ….yea.. you get the picture. So I have only one proverbial question, if government agencies operate under an implied Federal guarantee and bank deposits are insured by the FDIC why does the Secretary of the Treasury have to keep reiterating what appears to be the obvious?

The Treasury Secretary put on a grand show over the weekend in an attempt to avoid a Bastille Day route of the financials

The Treasury Secretary put on a grand show over the weekend in an attempt to avoid a Bastille Day route of the financials and in typical fashion as we have seen time and time again Federal reassurances often have the opposite effect not reassuring traders at all. The Secretary outlined the possibilities of a Fanny and Freddie bailout reiterating what this blogger finds all to obvious with the “implied guarantee” nature of the relationship that the two agencies have with the federal government. Some market participants however seemed quite surprised by seeing it all outlined on national TV.

Tuesday the grand show will continue when the FED Chairs testifying before congress and there is nothing more entertaining than a bunch of congressmen and women with little to no understanding of the banking system and the economy in general grandstanding and looking to pass the buck in an election year .Makes for very good daytime TV but I am afraid it is hardly a substitute for sound fiscal policy.

Other issues such as the more permanent nature of the inflation picture coupled with anemic US growth rate it is thought leave the FED little wiggle room. It does seem to this blogger that given the disconnection of the FED funds rate with more general consumer loan rates that the FED has more wiggle room that one might think .A small increase in the FED funds rate seems fairly insignificant to overall economic growth yet it might just do the trick boosting the dollar higher and reassuring markets that this FED really means business on inflation.

Fannie and Freddie may be forced in to receivership, yikes!

Fannie and Freddie may be forced in to receivership, yikes! Perhaps we all should have paid more heed to the warnings of the previous FED Chair as he pinned over how much on the hook the Treasury could be with its implied guarantee’s .Perhaps this is the climatic event that from which my past experience signals the end of the crisis and the beginning of a rebound in financials. I had long surmised that this current crisis would end with some major bank teetering on the edge of disaster. My regular readers will remember several times I pointed out that in financial crises of the later half of the 20th century all roads led to Citi bank but a crash and burn act from Fannie and Freddie might just do the trick .Apparently it would be an understatement to say that things are a bit worse than even the most negative commentator has led us to believe! Folks I am not ready to say buy yet but as Baron Rothschild once said,” buy when there is blood in the streets” and at this moment it’s starting to look pretty gory.

off to the races ...well sort of

So how does the sell off end and how does the rally start ? Unlike the huge oversold bounces of the previous decade the current decade has hard sell downs under low volume, little or no capitulation, followed by a rapid re-flation of equities values under steady volume. The key is no one calls the bottom and stocks are up 20-30% by the time anyone realizes the party has already started. The up motion of the market is characterized by a subtle shift from sellers to buyers and a slowly and steady building volume .

can you say re-remics ?

"Collateralized debt obligations that helped drive banks to $400 billion of writedowns and credit losses are finding buyers under a different name: Re-Remics. "

the word of the day?

Fed chair reiterates the “too big to fail policy”

Fed chair reiterates the “too big to fail policy” and avoids the big interest rate decisions till next year ,or “as long as emergency conditions prevail” .Again the current economic dilemma’s has been created more by continued poor policy judgment and much less by the forces of supply and demand.

The very congress that seems so out of touch on the sub prime mess continues to look to act on more regulation of the financial sector and throw in enough tax increases to go around consequences be damned ….humm sounds like the Carter Era to me and remember investment banks may be too big to fail but your portfolio isn’t .

As this current correction runs its coarse dust off your white suit and look to slowly add back the same sectors; energy, Ag and metals, with particular attention to natural gas and drillers. Like the 1990’s the sectors that led the market higher will lead the market when it comes out of a tail spin unless there is some major change in policy direction.

Given the inherent political opportunities with “global warming” and the current government penchant for raising taxes and over regulation “global warming” offers politicians a goldmine of unlimited chances to tax and regulate the human condition recognizing that all living activity results in the explosion of CO2 gases. This blogger however hopeful that sanity may prevail is rather dubious that any leadership will be exhibited from Washington.

The big issue once again is leadership and the 70’s generation’s inability to exhibit any.

As I put fourth in the last post the market has just about sold off everyday since the FED meeting and to readers of this blog that should be no surprise. The FED has once again talked the talk, waffled, but failed to walk the walk.

On the positive I don’t really think the economy is half as bad as we have been led to believe, after all productivity continues to grow which is virtually unheard of during a slow down and unemployment remains relatively low. Inflation for all the talk is still low compared to the 70’s, but still a long term treat and high compared to recent years .

The big issue once again is leadership and the 70’s generation’s inability to exhibit any. The lame 1970’s style political solutions are pushing the market down and will continue to do so given the vast failure of all these government first, tax and regulate everything that moves policies .The thing any keen market observer should take away from the 1970’s was the utter failure of the policies of that time period and the grave consequences that followed. So don’t forget to take profits from time to time but stick with the Ag ,Energy and Precious Metals trades that have performed so stellar year to date and given the possibility of an emergence of a “second jimmy carter “ presidency this trade should stay in tact for some time .