Just came across this interesting quip in a Bloomberg article on Nobel Prize winner Joseph Stiglitz:

“Adam Smith's invisible hand -- the idea that free markets lead to efficiency as if guided by unseen forces -- is invisible, at least in part, because it is not there”, says Stiglitz.

QQQQ Double Bottom?

The Dow and the S&P 500 might have made new lows recently but the Nasdaq hasn't. As you can see in the chart above (click to enlarge) QQQQ, the Nasdaq 100 ETF, looks like it completed a double bottom this week. The 11/21/2008 intraday low of 25.05 was not breached on Monday and, with the slow stochastic indicator turning up from deep oversold, we could see a sustained rebound in the next few days (maybe weeks). The 20 and 50-day simple moving averages, around 28 and 29 respectively, are the next logical resistance but after that, the road is clear until the mighty 200-day simple moving average (around 37 these days).

The one caveat is that volume was underwhelming yesterday to say the least. It might just mean that the impetus for this rebound was coming from outside the Nasdaq stocks (indeed it came from the financial sector) and not necessarily that it lacked conviction.

Gold Haters vs. Gold Bugs, Part 2

If you're a gold bug, this Financial Times article (Hedge funds turn to gold) will be a sweet melody that will send your ear drums straight to heaven. If you're a gold hater, have acted on your hatred and feel vindicated by gold's recent swoon, keep your stops close and consider taking partial profits.

“The size of the Fed’s balance sheet is exploding and the currency is being debased. Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed,” Mr Einhorn [founder of hedge fund Greenlight Capital] wrote in a recent letter to his investors. “Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself.”

Mr Einhorn’s comments – and the revelation he is buying gold itself – are in line with the views held by other large institutional investors in Europe, according to bankers in London. The head of commodity sales at one major bullion bank told the Financial Times that he had never been so busy dealing in gold for large investors in his life.

The Deluded Uber-Bulls

Do you remember how ridiculed and laughed at the so-called uber-bears were during the most recent bull market? Well, nobody's laughing now.

The irony is that the current secular uber-bear market has spawned a new species: the uber-bulls. No matter how bad things look, no matter how many jobs are lost and how fast the market disintegrates, the uber-bulls see prosperity right around the corner. They see glimmers of hope in the darkest recesses of the economy. Naturally, just as the uber-bears used to become more bearish as the stock market soldiered on up, the uber-bulls become more and more optimistic as the economy and the markets keeps crumbling.

Case in point, Barron's Gene Epstein, who is fast becoming the most prominent and deluded of the uber-bulls. This is how he concludes his sunny review of this month's dismal employment numbers:
"At the end of this dark tunnel, a few rays of light may just be visible."

I sincerely hope he's right...although hope has been an increasingly unreliable sentiment to believe in lately. The uber-bulls will be right eventually and things will turn around. The big question, and one that no amount of wishful thinking will help answer, is when.

Rabid GE Employees

While reading this rather interesting article about the GE situation on the New York Times website, it suddenly dawned on me why the CNBC anchors are so rabid and full of "barely suppressed rage" to quote Bob Herbert:

A big part of their net worth is probably in or tied to GE stock and GE, their parent company, is in the process of going to zero if the above chart (click to enlarge) is any indication!

As the article points out:

“We’re in a new world, and new types of transparency are required,” Senator Christopher Dodd said this week. He was speaking at a hearing about A.I.G., but really, he could be talking about any company at this point. There is no faith. There is no trust. There is no confidence.

These days, the only thing that matters is proof. That is what General Electric has to supply.

It's Like Fishing, Part 2

Instant classic Michael Lewis piece on Iceland's economic mirage (hat tip, Ben T.).

Iceland, apparently, was one giant hedge fund. Young fishermen became currency traders overnight. At first, they would just pitch the Nordic version of the now-infamous carry trade to their clients: borrow in yen, buy krona assets. Then they figured, "what the hell, this is easy money" and started trading their own and their bank's money. And now, after the wreckage, each of the 300,000 citizens of Iceland is, on average, about $330,000 in debt.

One of the most devastating excerpts of the piece? This exchange between the author and a once-fisherman-turned-trader-turned-fisherman-again:

“You spent seven years learning every little nuance of the fishing trade before you were granted the gift of learning from this great captain?” I ask.
“Yes.”
“And even then you had to sit at the feet of this great master for many months before you felt as if you knew what you were doing?”
“Yes.”
“Then why did you think you could become a banker and speculate in financial markets, without a day of training?”
“That’s a very good question,” he says. He thinks for a minute. “For the first time this evening I lack a word.”

It's funny, this is not the first time the fishing metaphor has been applied to the financial markets. For Iceland, though, this is no metaphor, it's a cold hard fact.

If you need solid reasons to buy this market for the long run, read Toro's blog in general and this recent piece on 10-year returns in particular.

If you need extra insight into the GE mess, read this and this by Bronte's John Hempton or this in the Accrued Interest blog.

You know we're in deep shit when two successive headlines from Dow Jones Streaming News feature two prominent and potent public figures proposing two opposite solutions to the financial crisis:

17:45: Fed's Lockhart: Securitization Markets Must Be Revived.

17:47: US Rep Frank: Securitization Should Be Curbed.

The scary thing is that each statement builds on two opposite views of reality. The first presumably implies Mr. Lockhart believes the securitization markets are dead and that it's a bad thing whereas Mr. Frank apparently believes they are all too alive but shouldn't be. I would tend to think the latter view is not only a bit late to the game but potentially very dangerous.

And finally, check out Jon Stewart's well-deserved definitive destruction of CNBC:

Fan Mail

A funny thing happened today. This is what I find in my email inbox (emphasis added):

Subject: Fan mail, not for publication, just FYI‏

From: mail (mail@barrons.com)

Sent: Mon 02/03/09 23:04

Gosh, Gene, I feel ignored.

Thomas G. Donlan
Editorial Page EditorBarron's Weekly
1025 Connecticut Ave NWSuite 800
Washington DC 20036202-862-6606
tg.donlan@barrons.com

Apparently, someone at Barron's CCed me this internal email. Was it by accident? Did somebody there enjoy my "fan mail"(bottom of the post), my admittedly over-the-top ode to Mr. Gene Epstein's economic genius?

Picked up again by Seeking Alpha. Check out the "rabid, irrational" comments.