Hand Wringing Until the Final Hour?

Expect most of the action to occur in the last hour of trading today.

Microsoft's Technical Difficulties

First Vista was delayed. Now Office 2007. Maybe you should take short term profits on Microsoft and wait for a pull back.

The War over Movie Rentals is On

The much anticipated battle between renting movies through the mail (the Netflix model) and digital downloading movies over the Net is now underway, even if only in the form of skirmishes, rather than full-fledged war. Starz has started Vongo.com to compete for Netflix customers. Will Vongo represent a bigger threat than Blockbuster (which has been somewhat hobbled in its battle with Netflix)? I think that eventually hardware and software will be available to make the digital downloading model the real alternative to Blockbuster's brick and mortar business and Netflix will be out in the cold. After all, Netflix has alienated a lot of its customers by its tendency to ship movies selectively (which resulted in a class action lawsuit and a change in the wording of their terms of "service") and the mail is already less reliable than downloading (even with the technology having not quite made it to prime time). In other words, if you own Netflix, you might want to take your profits now.

Amazon is Getting Worse

Recently ordered something from Amazon on 18 June. Two day delivery. They first indicated it would be delayed until 27 June with no option to cancel. Didn't arrive. Once again no option to cancel. Now they are saying 5-10 July. Again, no option to cancel. Two day delivery? I've had this problem from them before. I've made money shorting Amazon in the past. Will look for another such opportunity.

Bad Apple?

The latest company to fall into the irregular options deals with execs pit is Apple Computer. After the close of today's relief and short covering rally (post-Fed hike), Apple's PR agents were forced to release the distasteful news that the company's board had made some shady options deals with Steve Jobs and other Apple execs. In after hours trading, APPL was down from the closing price. Stay tuned.

EMI and Warner Music: PacMan

Classic game of pacman (the financial version) is going on between two music corporations, EMI and Warner Music. This would make a nice case study in corporate finance.

Vive la France

Congratulations to France on their victory in the knock out round/Group of Sixteen and move to the quarter-final match (although I must admit that some degree of sympathy at who they will face in that match, Brazil, may also be in order). Nevertheless, I hope they savor this moment, particularly Zidane and Henry. The young Ribery and veteran Vieira (who once played with Henry on Arsenal) were both magnificent when it most counted. It was an absolutely fantastic match and I hope their match against Brazil will be a classic, whoever wins (and I suspect it will be Brazil).

UVN Arbitrage Possibility

Check out the buy out deal ($36.25 in cash) and the current price. I bought in at 33.95. The private equity firms who have combined to make this offer may actually believe they can get a quick payoff from the $150 million "get lost" fee that UVN must pay should Grupo Televisa come back with a higher offer (say, $38-40 per share, which is closer to what the UVN board wanted). After all, UVN is a lot more valuable to Televisa than it is to these investors. We'll see. I'll buy more when the price drops below 33.80.

Window Dressing Week

Time to buy undervalued companies that have been weak this quarter, as the fund managers dump them ahead of the end of the quarter. Don't worry, odds favor them buying these stocks back during the first week of July.

When an Empire Goes Wrong

Let me be clear about something, I was very happy to see Saddam Hussein removed from power in Iraq. However, I think the cost of that removal may be far more damaging than Saddam. This is the fault of the Bush administration, however, and was not built into the removal. And when I say cost I'm not speaking purely in terms of the economic resources. I'm talking about the lives lost. I'm talking about the way the occupation has been turned into a war profiteering cash cow for friends of the Bush administration, doing more damage to the integrity of our national government than any act by any administration in my lifetime. I'm talking about the damage to civil liberties and individual freedom inside the United States. The Bush administration has done more damage to the American system of values than anything that bin Laden could have dreamed of doing directly. I'm talking about the transformation of the American Empire, which could have been a positive influence on democracy, human rights, and individual freedom, into Dick Cheney's Dark Side Empire of paranoia, torture, suppression of individual rights, and corruption.

By the way, did you know that the President and Vice President of Iraq asked President Bush to set a deadline for leaving their country? Also, did you know that Iraq's National Security Adviser Mowaffik Al-Rubaie stated that "Iraqis now see foreign troops as occupiers rather than the liberators, and said that their removal will strengthen the fledgling government by legitimizing it in the eyes of the Iraqi people." (This information was provided to me by a trusted source, but you should double check it.) We are occupiers. We need to recognize that. Otherwise we will never understand the events that are likely to come from our current behavior. We'll just think people are being irrational for attacking us. This is another cost of the manner in which the Bush administration has turned the invasion and removal of Saddam Hussein into the invasion, occupation, and exploitation of Iraq (and simultaneous theft of public funds from U.S. taxpayers).

Speaking of the theft of public funds --- I believe that when governments seize the hard earned value created by citizens (in the form of taxes) then this money/value should be treated as precious and used only in ways that meet the needs of the citizenry and do so in an efficient manner (with little wastage). Corruption is quite the opposite of this. The current administration is unafraid to channel tax dollars to their cronies, even engaging in war profiteering, which is one of the most vile forms of corruption. (In general economic terms, making war profitable creates incentives to make more wars, even creating a perpetual "war on terror" or some other Orwellian scheme of the same ilk. This is magnified when the profits flow to members of the executive branch, their families, and/or their close friends and cronies.) It is not difficult to get the impression that this administration's policies are primarily designed to channel tax monies to cronies in the military-industrial complex (Eisenhower's phrase), the oil industry, and the related parasitic firms who provide "services" for the Imperial war bureaucracy, in particular Halliburton. In order to protect their dishonesty (including the lies used to cover up their theft of tax dollars), there has been a persistent attack on transparency (on the rights of the press to expose what this administration is doing or the public's right to know about their behavior). By using the euphemism "war on terror," the usual role of the press in exposing the behavior of the government (knowledge that is fundamental to democracy), the administration turns normal press activity into a "threat to national security," even as their own members "leak" information on CIA operatives in order to get some political payback for an ambassador's failure to go along with the aministration's lies. They do not have to follow constitutional guarantees of freedom of the press, free speech, etc. for the same reason. Academics whose political beliefs are not favored by these thugs are kept from even entering the U.S., further stifling the free flow of information required to have democracy.

And what about this keystone terrorists thing in Miami? The administration is now trying to create terrorists to provide further fodder for their anti-freedom legislation and executive actions (including illegal executive actions). I'd love to be the attorney for these guys. Agents for the government went to them and suggested they make an arrangement with al-Qaeda, that al-Qaeda would provide them funding and arms, and even provided them with cameras to take the photos that are alleged evidence of their terrorist intents. These were not very bright individuals, but individuals who wanted to do something to change their lives and the lives of the people they care about, people living in poor communities that have been cast out as trash by the neo-conservative dominated federal government. The federal agent offered them an imaginary opportunity to make something happen (or perhaps he was just offering them money and resources to change things, even if in a manner that is illogical and potentially self-defeating). Would they have actually carried the terrorism out? Probably not without further encouragement from the agent provocateur. And that is the point (even if the federal prosecutors manage to paper over the entrapment -- after all, most of the federal judiciary are fellow travelers). This is another symptom of something seriously wrong in this country. A lot of people have accepted all sorts of undemocratic, uncivil actions by their government, rather than be outraged and rising up in protest. Torture, secret prisons, incarceration without habeas corpus, the growth of big brother powers: At some point, someone should ask --- what are we trying to protect if we are willing to give up freedom. I suspect bin Laden is quite pleased with this administration's behavior.

Signs

What are some of the indications of an increased probability of a sharp crash/correction in the near future for the equity markets?

1. Sustained upward pressure on interest rates. The Fed needs to keep the foreign lenders happy in an environment where fiscal policy is out of control. The Republicans have taken profligacy and corruption to new heights and now the Chinese and Japanese central banks have become our sugar daddies. Not a pretty picture. Nor is the virtual war this has ignited between the U.S. and Euroland central banks.

2. As a result of the above, the dollar is finally deflating.

3. Despite having turned the White House over to the oil industry, or because of it, we're looking at sustained higher oil prices . . . at least until and unless the market crash translates into a sharp downturn in the "real sector," meaning we may have an opportunity to revisit discussions of Herbert Hoover and relearn why all those automatic stabilizers were so important to the health of a capitalist economy.

4. The manic depressive market psychology. Extreme optimism followed by extreme pessimism followed by a return to extreme optimism . . .

5. All major crashes have been preceded by a period of sustained redistribution of wealth from the idiot masses to the idiot rich. Sorry to be so pejorative, but when a majority of ordinary voters can be suckered into voting for George W. Bush (or allow the votes to be rigged so that it appears that such is the case) and most rich beneficiaries of Republican largesse are less farsighted than George Soros and Warren Buffett (who both recognize the destructiveness of current policies) then the only term I can think of is "idiot," much as I like to believe we're smarter than that. The truth is that most of us wouldn't recognize self-interest if it hit us in the face. There's a good reason the Chinese government is providing financial support for U.S. military adventurism/imperialism. It is weakening the United States and strengthening China. The same result happens when we allow corruption to dictate economic and regulatory policies (including the "awarding" of federal contracts). A lot of supposedly very smart intellectuals are also behaving like idiots, thinking that China couldn't possibly want the U.S. to collapse because they need us to buy all those cheap toys, toasters, shirts, power tools, pdas, etc. Chinese leadership is not so short sighted as one might think.

6. Add to all the above the fact that sustaining the consumer spending binge requires continued high levels of borrowing in the face of downward pressure on incomes (profits have to come from somewhere -- an increased rate of exploitation is one way to get higher profit rates, but that means workers need to work harder and/or longer for the same pay -- thanks to outsourcing and fifty plus years of sustained anti-union propaganda this has become easier to achieve). Something will eventually break. Why not sooner rather than later? The longer it takes to correct the deeper the correction will be. This means if we avoid the bitter pill this fall, it will be worse when it eventually does come.

7. Market crashes require a high level of faith in markets to not crash. Neoclassical economic theory usually rises to greater prominence before crashes. Today we're awash in neoclassical jibberish. In fact, the quantity of neoclassical talk to be heard on the airwaves and in new books is at its highest level since before the so-called Great Depression. Economists who actually understand the economy, the complexity of institutional behavior, etc. are fewer and less likely to be heard these days. These sorts of things have a way of getting corrected when the reality that economic relationships are not grounded in magic resurfaces (such as through a deep recession or depression).

Jens Lehmann back in form, the stock market not so much.

I felt sorry for Lehmann and his Arsenal teammates in the Champion's League match with Barcelona. It was a pity that he was sent off with a red card early in the match (it should have been a yellow!!!), destroying what was primed to be a wonderful show and leaving Arsenal to play a fragile game of desperation that was valiant and almost victorious against one of the world's great teams but it was not to be. It is good for Lehmann to be riding high again and creating new positive memories so soon after that bitter moment. I wish him well.

As for the stock market, that other game, it is behaving as I expected. I'm still looking for a bitter pill for the longs in the fall. In the meantime, keep trading. Make some money buying and selling on the volatility (try not to fall in love with your portfolio) and then get out of this market by August and wait for the fall.

Another Inflection Point?

Today may be see another short term inflection point in the U.S. stock market. I suspect that we can continue to make incremental profits from this market by trading. However, the long term is not positive. But, hey, what do you expect in an environment where the U.S. government is run by a corrupt group that shovels tax dollars into the hands of their cronies, commits the world's only superpower to a suicidal and imperial strategy, and allows the domestic infrastructure to deteriorate? I'm also not sanguine about the ability of the Chinese government to avoid making some serious judgement errors going forward. The communist leaders in Beijing are not immune to hubris and after almost 30 years of rapid economic growth hubris should be growing at Zhongnanhai faster than mold in New Orleans.

Yesterday's purchases included shares of Mittal Steel (29.02).

Burning the Flag versus Burning the Cross

Which of the above does the Republican leadership consider an offense worthy of a constitutional amendment? At least the German government knew enough to ban swastikas and other hate symbolism when they decided to place some boundaries around free expression. Republicans, on the other hand, think it is burning the flag that is the dangerous expression, not swastikas and confederate battle flags or burning crosses. I know, I know, they don't want to offend a key constituency that keeps them in office, particularly a constituency that is so full of hatred that they are easily manipulated, can't recognize what would be in their interest (such as a government that isn't corrupt, provides them with health care, education, clean water and air and other protections that might reduce their chances of suffering and dying of cancer or other diseases), and either votes Republican or doesn't vote at all. Too bad the Republicans aren't as good at understanding history as the German political parties, who recognized (even if a bit too late for a large number of people) that getting in bed with hate mongerers destroys all values and leaves a landscape of devastated lives and broken morals. On the other hand, since they are trying to find some issue to stir up their "base" then perhaps we should count our blessings it isn't something more divisive. What are the Democrats doing while this flag show is being orchestrated?