The News is Worse

Much, much worse than it was when the market hit its lows on November 20th.

Singapore's GDP dropped at a 16.9% annual rate in Q4 '08.

South Korea's dropped 3.4% from a year earlier.

Japan's exports dropped 35% yoy in December. Imports dropped 20%. And exports to China were down 25%. I can't wait for the numbers to come out of China. Then we'll know how badly the official numbers lie about the real situation. My guess is that Chinese exports dropped 20-30% in December. What does this mean that exports are dropping faster then imports? It means that inventories are building and that raw materials still have a long way to fall. Demand is still coming down.

And it's not coming back any time soon. The credit crunch is worse than ever.

Spain's debt rating got cut from AAA to AA+. How does this affect American banks?

Portugal got cut from A+ to AA-.

Greece got cut.

Ireland will soon be next.

The Pound has now fallen $0.11 this week. Jim Rogers, who founded the Quantum Fund with George Soros says the UK is bankrupt. They can't afford to nationalize the 2.12X GDP debt of failing banks Lloyds, RBS, and Barclays because it would push overall debt levels to 4X GDP. And they have nothing to export. North Sea oil production has been falling for years, and prices will be low for years.

Treasury bonds are now falling on fears of dumping by panicked foreign central banks, pushing yields back up to 3.20%.

Bank of America needs another $80 billion says an analyst from FBR. And they just got $138 billion from the Fed last week.

Deleveraging continues. ML's Rosenberg says that hedge fund withdrawals hit $152 billion in Q4'08. "By way of contrast, hedge funds attracted an all-time high of $194bn over all of 2007."

The Fed is not printing. They are just transferring enough debt from insolvent entities to keep the whole system from collapsing.

Trade wars are coming: Obama Deems China ‘Manipulating’ Yuan, Geithner Says. If they're manipulating, then we have the option to do something about it, right? We can pick up a 4% boost to GDP just by eliminating the trade deficit. Paulson never labeled China a "manipulator." But what interests me is not the coming China - US trade war, but Chinese / Japanese relationships. Will there be a trade war? Probably. Will Japan try to protect itself, or will they attack China? Maybe.

So, it's worse than before. Time to start thinking about taking profits. This time, I will take a different approach than the last cycle. I am going to take profits on the less volatile and stronger positions and hold the more volatile positions longer. As the market becomes more unstable, the more volatile positions grow riskier, but the profit potential rises as well.

Closing my short in COF is a possible profit taking trade, but I want to wait until earnings come out after market close today. If they're good, I'll close it and wait for a few months for a bounce. If it's bad, I'll keep it short for now.

Brazil (EWZ) just cut their benchmark rate from 13.75% to 12.75%. They have a lot of room. They've engineered a middle class in their country over the last 10 years. They don't manipulate their currency. Oil is down, and they have high corporate debt levels, but they are also energy self sufficient. I am looking to close this position.

Mexico (EWW) has hedged all their oil production at $85/barrel. This should enable them to hang in there, although they are extremely dependent on the US.

EEM - emerging market index. I'm just waiting for it to hit new 52-wk lows on a big down day.

Housing - looking at book value, they are not even close to what I think they're really worth. Book value is still getting written down by the billions every quarter, yet ITB trades at 0.93X book. I want this ratio to drop to about 0.7X book. Same with KBH.

Gold - looking better and better: now we have deflation with longer term Treasury rates edging up. Keep OZN, IAG, and IAU. Consider NG > $1.50.

QQQQ - tech is getting hammered, and people are still hiding there. Apple beat expectations, by growing earnings by a measly 1.5%. If Apple can't grow, nobody can.

And finally, oil. My DUG ultrashort is way under water, at $26 with a cost basis of $34. But I'm just going to wait and see what happens. I still think oil keeps falling, although it might all be future prices.

FRO - the contango is still there. Currently 40+ tankers are being used for storage. Rates are high. I think they pay out a big dividend or announce something big.