25 bps nearly a certainty

It's irony on parade tomorrow as free market proponent, Ben "Helicopter" Bernanke and the other miscreants at the U.S. Federal Reserve make it known to other free market proponents on Wall Street what short-term interest rates shall be. Many folks are debating between the three possible options--50bps, 25 bps or no move. I see a nearly 100-percent chance of a 25 bps cut. A no move is virtually impossible given that unbeknownst to many folks, the Fed has actually already moved the Fed funds rate down to 5-percent after being as low as 4.5% in mid-August. I wonder when they were going to tell us? So that is nearly impossible. Besides, an announced "no change" would be greeted with a tantrum by the speculating community. The other option, which also seems pretty unlikely is a 50 bps cut. If this were to occur, that would be an irony within an irony. Think about this possibility amidst the current backdrop the day after crude oil closed at its highest ever price for a NYMEX forward contract EVER!!?!?! And, as of today's close, gold is less than 1-percent from its 26-year high. A move as aggressive as 50 bps could literally tank the dollar. Under the circumstances, 25 bps is almost assured. However, Ben Bernanke never asked my advice on the matter. But I would be more worried about the purchasing power of the currency by which folks other than hedge fund billionaires need for the purchase of food and shelter. I would be more apt to raise rates 25-to-50 bps. But that's just me. Pretty silly, huh Ben.

Gold knows

It wasn't more than five minutes into Ben Bernake's speech in Germany today, as he again tried to explain away the Chernobyl-like global financial imbalances as a mere "savings glut," that gold began to levitate. Within minutes, gold had traded nearly $10/ounce higher. Savings glut? That sounds like a good thing. Gold knows what Gentle Ben doesn't.

Tech, where the elephant is headed

This morning, Intel (INTC) raised guidance by a range that still overlaps previous estimates. Nonetheless, this coupled with news that Apple (APPL) had sold its millionth iPhone sent Nasdaq futures screaming higher pre-opening in the U.S. The news from Apple came just a few days after slashing its price on the gadget by a mere 50-percent. Just imagine how robust sales might have been had they simply given them away? Higher guidance from Intel, ironically, did nothing for its shares closing lower on the day. Yet, ignoring the curious non-starter in shares of Intel (lets see the balance sheet), folks seemed to extrapolate the Intel guidance across the rest of the sector in spite of hearing from both National Semi (NSM) and Xilinx (XLNX) late last week of quite the opposite…Countrywide Financial (CFC) broke below Bank of America’s (BAC) strike price, $18/share, on the $2-billion private placement convert done a few weeks ago. Remember, shares of Countrywide saw an initial spurt above $24/share on that news. I still remember Bob Pisani squeaking like a little girl that night as he sat in for Larry Kudlow….. British billionaire Joseph Lewis whose fortunes were made in catering businesses and currency trading has taken a 7-percent stake in Bear Stearns (BSC), or an investment of roughly $860 million. Its interesting how news such as this is almost always construed as being what the “smart money” is doing. Lewis is ranked among the 500 richest persons in the world. I’m pretty confident that much of these people on this list can credit luck as being a significant factor in amassing a good part of their fortunes. It’s important in this game not to confuse wealth for brains. I've seen time and again sickeningly wealthy folks do sickeningly stupid things with bits of their wealth and after it goes awry, they're still sickeningly wealthy. Anyone that has built a fortune in paper assets might not be as smart as previously thought. But that remains to be seen. Again, the rallying cry is “tech, tech, tech!!!” And just as none of these folks were capable of connecting the dots from egregious lending standards, to housing bubble, to popping of said bubble, to subprime defaults, to an eradication of said lenders; these same folks seem to have decided that there is no need to extend this logic beyond this point. However, from my vantage, buying tech is buying the giant hole where the elephant (recession) is headed.

Goldilocks chokes to death on debt

Goldilocks was found dead on Friday, September 7th, 2007. Cause of death is believed to have been due to asphyxiation. She was found dead at the residence of friends where she had been a tenant since March of 2003. The owners, a family of three bears, found her lying motionless upon their return home after reportedly returning from a long hibernation. Goldilocks was found with partially chewed mortgage, credit card and home equity loan applications lodged in her throat. Results of an autopsy reveal that Goldilocks may have been living off of such high enough levels of debt that had she not choked on it, the levels of toxicity built-up in her bloodstream would have likely resulted in sudden death within days. She is survived by her close dear relatives, Larry Kudlow, Jim Cramer, Hank Paulson, John Chambers, Bob Pisani, Arthur Laffer and actor, Ben Stein.

That can’t be good

Apple’s (AAPL) rock-star CEO, Steve Jobs, apologized to early iPhone buyers, including the ones that camped-out in front of stores on June 28th to be the first ones to own one of the most over-hyped chunks of plastic and silicon since Atari’s ping-pong game a day after announcing a $199 price slash on its 8-gigabyte model. Jobs and Apple said they want to make good by offering a $100 credit to earlier buyers at Apple's retail or online stores. Given what we know now about the iPhone’s preliminary sales and subsequent 33-percent price slash after roughly 65-days on the market can’t be good…Same store sales were better than expected at stores where one would expect the majority of parents to shop in preparation for their children’s return for the fall school semester. Its not unusual to see parents loose it as they watch their children get benched at sporting events is it? One thing to remember before extrapolating today’s “better-than-expected” same-store sales figures across the entire consumer specter is to realize that parents will go to extreme lengths to prove to others that their children are smarter, faster, prettier, more handsome, more hip, dress better and have cooler cell phones than other children. I believe they will even forsake the possibility of financial ruin in pursuit of those endeavors. That, in a nutshell, is why these particular stores reported better-than-expected same-store sales this morning. And this may also explain the scary growth in revolving credit growth (read: credit cards), now that people have tapped-out their home equity lines of credit. Speaking of that, foreclosures recorded a fresh new 55-year record high as a percentage of total mortgages entering foreclosure-- not just in number of foreclosures. That is a very significant point to understand. The Mortgage Bankers Association said that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent. This was the third consecutive quarterly record set. Also, I have to say that the crap CNBC U.S. commentators regurgitate day after day is such an enormous disservice to its viewers. Late this morning, I happened to catch Bob Pisani explain that with the S&P 500 just 55-points from its all-time high that this is most definitely not “telegraphing any kind of recession.” These guys have far too much faith in the market’s abilities to fully discount foreseeable dangers ahead. I wonder what Bob Pisani thought the Nasdaq was telegraphing on March 10th 2000 when it was trading 5132 and a P/E over 100x----the existence of Santa Claus? Markets are essentially voting machines by the monied masses that also price in an array of human emotions and temperaments. If masses weren’t capable of making mistakes, we would have never had Germany’s Third Reich. Sometimes, markets are pretty efficient at predicting the future, sometimes its relegated to an adolescent reality telly programe—and that’s where we are today….The front-month gold bullion contract broke the important psychologically important $700 barrier today. Hey Bob Pisani, what does that telegraph? It can't be good.

A bell never ‘ringtones’ at the top

You know things have become a bit too cozy when folks can concern themselves with the sound of their phone’s ringtone even as its country’s constitution is being used as a mere door mat. The former was one of today’s “major” announcements from Steve Jobs and Apple (AAPL), to let songs to be made into iPhone ring tones—oh, for 99-cents. And you pretty much know a stock has reached or is near achieving bubble-status when marginal product changes are treated as headline news. I subscribe to MarketWatch’s e-mail news alerts (among many). In addition to news alerts of today’s Pending Home Sales figure, Mattel’s (MAT) latest Chinese-made toy recall and an account of the Fed’s Beige Book release, I also received a headline that read, “Apple adds touch screen and Wi-Fi to iPod line, ups memory; iPod nano gets video capacity.” Pay attention to the signs. A company’s stock is usually not cheap when the financial press deems it necessary to provide play-by-play on its CEO’s bowel movements……Mattel is recalling 700,000 more toys due to safety concerns. It was he third such recall in five weeks. As was the case with their most recent massive recall, the toys were reportedly manufactured in China. Given the spate of China-made related recalls, I suspect there is somewhat of a disconnect between the growing concerns related shoddy manufacturing practices and the blind faith investors around the world have placed in it's stock market and by extension the integrity of China’s accounting as it relates to China-based, publicly traded companies. Judging by the hyperbolic move in Chinese shares this year—up 150% in just 8-months, and 5-year returns that now exceed the returns witnessed by the Nasdaq from 1995 thru early 2000, so far, investors seem to have concluded that it’s a lot more difficult to sell a lead-based toys to American parents than it is to lie about their earnings….. ADP’s “JV” jobs report reportedly grew by an anemic 38,000 in August. This number excludes an expected 27,000 government jobs anticipated to be included in Friday’s “Varsity” Bureau of Labor Statistics report putting the total of 65,000 well below the 100,000 to 123,000 expected on Friday. This was the weakest in four years. ….With over $1-trillion of corporate financing slated over the next few weeks from commercial paper rolling over to funding for previously announced private-equity deals, LIBOR is making this tank a bit more difficult. The rate banks charge each other to borrow in dollars for three months rose for a 10th day in a row. The London interbank offered rate, or Libor, increased to 5.72 percent, the highest since January 2001, from 5.70 percent yesterday and 5.36 percent at the end of July.….Also, for what its worth, one of the canaries in the coal mine, Blackstone Group (BX), saw a fresh new low today and some major retailers, Kohl’s (KSS), Best Buy (BBY) and Wal-Mart (WMT) all hit new 52-week lows today, just a day after the Nasdaq's best 4-day skein since 2003. More clues for the clueless. They’re right there for everyone to see like a naked Playboy bunny---just not as attractive.

August, NOT bull's "memento"

Ala, 2000, Piper Jaffray’s analyst, Gene Munster, raised Apple’s (AAPL) price target to $211/share. At that price, we would be looking at a $178-billion market-cap for the entire company. That would equate to a price-to-sales ratio of 7.9x based on their current trailing 12-month’s revenues. That would only be cheap relative to an even more absurdly priced Research In Motion (RIMM) with a current price-to-sales of 15.6x. The delusional price target helped the momentum crowd bid shares of Apple higher by over 6-points even as Microsoft (MSFT) floated the possibility that it is considering the introduction of a mobile phone combining features of its Zune digital music player to compete with Apple’s iPhone. This is the second such announcement of a possible dent to Apple's iPhone margins and market share in recent weeks. The other being Nokia (NOK). A Google search of “Gene Munster” and “AAPL” will find all kinds of Apple cheerleading sites reminiscent of the Qualcomm (QCOM) and internet bubble daze in late 1999 and early 2000. Also, Yahoo (YHOO) was singled-out as Bear Stearns (BSC) “top pick.” Do folks still care what people at Bear Stearns say about anything? The Apple and Yahoo calls seemed to really get the juices flowing among tech stocks on the first day back from trader’s long Labor Day vacation in the U.S. Even though Yahoo is essentially an advertising company that has seen one of it biggest customers, supbrime mortgage lenders, evaporate in recent months.…..Oh, and Jim Cramer, the guy that said subprime was "totally irrelevant" on July 16th, 3-days before the Dow Jones’ record high and then cried “Armageddon” on August 3rd, as subprime became "relevant" is now wildly bullish again calling this month, the “September to remember.” Today, he declared tech to be “immune from housing,” and ended one shouting session with CNBC’s Erin Burnett with, “tech, tech and more tech.” By today’s close, the Nasdaq is now within 3-percent of its 6 ½-year high set on July 19th. Its four day advance is its steepest since 2003. The S&P 500 is now within 3.9-percent of its all-time high and the Dow Industrials is also within 3.9-percent of its all-time high. If there are still unresolved credit, real estate, commercial real estate, private-equity financing, hedge fund and/or structured credit issues still looming, the equity markets are totally oblivious to it. Or the other possibility--- essentially all of these concerns that essentially took three-to-five years to accrue, have been solved over the past 45-days or so. With the jobs report looming on Friday and the heightened possibility of a fairly active earnings warning season that will begin next week, I’m pretty dubious of the latter scenario. Gold rallied nearly $10/ounce and is among the few assets now trading high than its July 19th price level.