Current Recommendations

May 21, 2009

Hitting the Road...

First up, I will be out of the office beginning next Tuesday, May 26th, through Thursday, June 25th. As my oldest boy is headed to college next year, I'm supposing true family vacations will be a thing of the past, and have therefore decided to pull out all the stops and take the biggest trip of my life since the one in which I met my lovely wife, Dorka Elizabeth Palma Ruiz, 22 years ago in Chile...I managed to get four round trip tickets to Frankfurt, Germany for $1200 and have a rental RV waiting for us when we arrive, which should allow us to camp and cook our way through some historically and culturally rich major European capitals, for maybe a few dollars less than would be the case if strictly using hotels and restaurants. Our tentative itinerary (absolutely subject to change on any given day, at any give crossroads) will take us to Prague, Vienna, Budapest and Belgrade, then on down through Serbia and Macedonia to Athens. From Greece, we will be taking a ferry across the Adriatic Sea to southern Italy and then begin working our way back north, with a major stop in Rome, to Frankfurt for our flight home.

As I definitely can't afford this trip, I am "planning" on a plunge in Soybean Oil prices while I am gone, and therefore upon my return am hoping to find many thousands of dollars in profits from my short positions, both in your accounts and my own...The truth is, I have recently loaded virtually my entire office onto my laptop and will be able to do anything on the road that I would normally be able to do here in Kennesaw. I will be reachable (not necessarily instantaneously), I will be following the markets (not tick by tick) and I might even punch out a newsletter or two (or none) along the way...I am leaving with the perspective there is nothing to even consider doing with our primary short position in Soybean Oil, or Live Cattle, between now and my return, but I can assure you, if something dynamic does happen, and we do need to take any action, I will be getting in touch with you...Basically though, just like you, I have my money on the table and all I want to do now is "let it happen", which will easily take more than the month I will be on the road.

As usual, the guys at Benchmark Financial (Rick Sitten, Tom Stafford and Willie Adams) will be able to take care of anything relating to your account or the markets. My phones will be forwarding through to them, meaning you can still dial whatever number you normally use to reach me, or you can contact them directly at either 800-273-0269 or 770-454-1880. If you need to email them, use ricksitten@aol.com .

If you want to catch me, there are two ways to do so...You can obviously try my cell, 770-366-3070 (you dial no differently than if I were in the States), or you can shoot me an email and I will call you (keep in mind I will be 5 hours ahead of you) as soon as I get a chance. As international cell phone rates are as high as $4.00 a minute in some of the countries we'll be visiting, I would prefer getting an email and then calling you, as, via Skype on my computer, I can basically call from anywhere on the planet to anywhere else for about 2 cents a minute (If you already have Skype, my Skype address is bill.rhyne, which you'll know means we can communicate for free, and with video!)...I would like to emphasize that if you do want to talk to me, do not hesitate to use either of these means to reach me...I won't be living and breathing the markets in front of the screen, but I will be connected, watching and thinking, and more than happy to talk about the markets, or more likely, what kind of beer I am sloshing down in Hungary that day...One more time though, as for the Soybean Oil and Cattle, I'll reiterate I pretty much will be trying to just let the whole thing unfold, really, for at least the next two to three months.

To the markets...

Stock Market? It Zoomed, now it Glooms...

The Dow has now rallied roughly 2000 points off its March 6 low. I cannot help but notice the despair that was everywhere with the market at 6500 has now been replaced by the near certainty of opinion that the bottom has been made in stocks. I also cannot help but believe this "certainty" will be severely tested in the months ahead and I would warn against falling for the idea that set backs from here are just "pullbacks" or "a normal correction" or "buying opportunities". At some point, you will want to buy stocks and just forget them but I don't think we're there yet. Maybe I'm wrong but I've never seen this stuff be easy and I would be extremely hesitant about expecting a rising market, especially when I see headlines like the two below taken from major newspapers during the last week:

"Bank Stocks? Ripe for the picking?"
(even though they have tripled and quadrupled in the last two months)

"Stocks poised for powerful rally?"

(even though the rally since March 6th is the biggest percentage three month gain in history)

You would not have found either of those headlines three months ago when bank stocks were "ripe for the picking" and the stock market was "poised for a powerful rally", so I'd suggest if the generic sentiment is NOW getting all hopped up on the idea of a rip-roaring rally, you're better off expecting the opposite...

I can't shake the feeling that the slide we've been in for roughly 18 months now has not really abated at all...that we are still in a rather severe deflationary environment which will result in lower and lower values for all the major asset classes, including real estate, raw materials (commodities) and stocks, which generally just means there will be less and less buying power everywhere (in spite of what funds various governments are pumping in).

Yes, the market rally has made everybody feel better, but I look at the chart below and all I see is some normal upside retracing after a sharp sell off...I mean, take a look at this chart and how the Dow generally does move...There's a LOT of back and forth see-sawing, which can really amount to big bucks if you are in and out at the wrong times, and a LOT of time therefore spent going nowhere...I'm sure the investing world would just freak out at the idea, but I still can easily imagine the Dow falling again into new lows, maybe if only because that is what NOBODY is expecting...

Real Estate still Glutted

It's almost June and I don't think you can even call the market "lukewarm".

If you are looking for a turnaround, that's not good.

A year ago, I cited a development down the street from me that still had 25 of 41 brand new, high 400's houses for sale, and they had been so, more or less, since the summer of 2007. A year later, the prices on those homes have been dropped to the low $400's and there are STILL 22 brand new, very attractive houses for sale, manicured lawns, picket fences and all. That's 3 houses sold in a year's time...The point isn't that the real estate market is slow. We all know that...What concerns me is that if those houses still are not moving after a 20-25% discount, prices most likely will have to fall even further, maybe just as dramatically as they already have before the long awaited "stabilization in home prices" even begins to happen...And until that does happen, I would assume homeowners everywhere are going to see their already shattered net worths continue to contract in value...And with that, and other factors in mind, I don't think the economy's much needed uptick in consumer spending is anywhere even remotely close at hand.

The following chart certainly indicates we are in the midst of something none of us (nor the officials trying to manage it) have ever experienced before...

With roughly 50% of sales coming strictly from first time home buyers receiving government incentives, I would assume that 50% of sales are therefore being done at the very low end of the market...Outside of that, I hear from real estate and mortgage buddies that the market is essentially dead, and with the spring market thus having been a "dud", my guess is this does not bode well for any expectations of a strong summer pickup when many people move while kids out of school...Beyond then, as we'll be heading into fall and winter, I can only conclude any hopes of a revival in real estate will still be on hold until NEXT spring...and in the meantime, prices will continue to fall, and add more misery to the average household...

And MANY, MANY of these average working class households are, as you probably know, already in terrible shape...but I'm afraid it may be worse than you think. This is anecdotal, but I have an good friend and client who has been a major automobile dealer for about 60 years, and has therefore seen a little bit more than the rest of us when it comes to real world economics. Several Saturdays ago, his total sale for the day was one automobile, which is obviously a horrible number...but what is even more significant is the fact he had ten people that Saturday who wanted to buy a car, but only that one who could qualify for a loan. This may be a random occurrence, but if nine out ten middle class individuals could not even qualify for an auto loan, I'd guess that it must be even tougher when it comes to securing a real estate loan...and we all know that without the ability to borrow, NOTHING is going to move in the real estate market...To anyone who says the "credit crunch" is easing, I'd point out that this inability to borrow took place two weeks ago.

I really had a lot of other economic ground I wanted to cover (commercial real estate, as well as the deflationary influence of continuing job losses and the stunning news of seeing city, county and state employee and service cutbacks) but I am weary of all this negativity...so I'm just going to quit here and move on to some specific ideas...My bottom line, however, is I expect for deflation to continue, meaning, as I said before, everything...except Treasury Bonds...will continue to go down in value. This then, is an environment to be primarily trading from the short side, which is what I intend to keep on doing. This perspective paid handsomely from June until December of last year, and though I may be dead wrong, I think it will be the same again in 2009.

Short Soybean Oil and Short Live Cattle

Yep, the same two trades...but part of this game

sometimes is just waiting...and knowing you have to be there,

keeping your money on the table until the market actually does move...

The soybean market itself is now trading at $11.75 cents a bushel, which I think is insane...Using the Soybean Oil contract, I expect to be short the soybean complex for quite some time to come, with strong expectations the complex will have lost at least 30-35% of its value before we get to 2010. Frankly, and I may be proven wrong, I think this market is where it is on nothing more than misplaced, speculative fervor left over from last year's bubble, and the coming result will be just as swift and nasty on the downside as what we saw last year.

The Soybean Oil is where I am loading up...For past examples of Soybean Oil bear markets (VERY similar to this one) click on the following link to go to my May 8th newsletter: http://www.crokerrhyne.com/currenttrade.htm

Thanks for your time...If you're interested in any of these ideas, do give me a call. As noted above, I'll be on the road as of Tuesday, but the guys at Benchmark can absolutely take care whatever you want to get done.

Ciao amigos,

Bill

866-578-1001

770-425-7241

Even though the markets will be closed on Monday, I will be around if you want to talk to me.