Monday, October 06, 2008

Even My Head Hurts

The chatter around the markets during the late afternoon went something like this:

Random Trader A: Is this the bottom?
Random Trader B: Dunno - Are you buying yet?

Trader A: The VIX is going crazy, we've got to buy a little.
Trader B: I heard the rate cut is coming.

Trader A: Okay, (in my best Sarah Palin Midwestern fake folksy voice) Buy, Baby, Buy.
Trader B: We're up, up, up and away!!!

Trader A: Martinis are on me tonight.

Obviously, that is an overly simplistic view, but there are so many people chasing the technicals of the market that it is becoming dangerous for the average fundamental investor to play in these markets. Everyone and his cousin is waiting for the glorious capitulation (a final crash) so they can buy the bottom. Well, one of the keys to capitulation is that no one sees it coming. Much like the watched pot that never boils, this market can't right itself with chart followers buying every dip trying to pick the bottom. If this trend continues, we are likely to suffer the death of 1,000 cuts, when we look up one day and see the Dow trading at 7,200.

Here's what to watch for tomorrow - The markets are still betting on a coordinated rate cut. I've said before that easy and cheap credit was what caused our problems. Easy and cheap credit seems to be our government's answer for every problem. When an addict has a problem, the solution isn't cheaper and more plentiful drugs. The American consumer is addicted to cheap credit and we're are all enablers. Without a rate cut or another intervention look for substantial volatility again tomorrow.
The first few signs of just how weak the economy really is are starting to leak out. Note Bank of America's "earnings" after the close (the stock fell another 10% after hours) and SAP which noted a "very sudden and unexpected drop in business activity'' which will lead to lower-than-anticipated earnings this quarter.

Expect this theme to continue for the next two to three weeks.
On a more pleasant note - "There's talk on The Minor Planet Mailing List about a small asteroid approaching Earth with a 99.8% probability of colliding. The entrance to the Earth's atmosphere will take place October 7 at 0246 UTC (2:35 after this story goes live) over northern Sudan, releasing the energy of about a kiloton of TNT. The asteroid is assumed to be 3-4 meters in size; it is expected to burn up completely in the atmosphere, causing no harm. As a powerful bolide, it may put on quite a show in the sky." Wait that wasn't so pleasant.
Google to Save the World
Okay, I'm not sure exactly how this works, but Google apparently feels that making a minor mint off the concept of paid search advertising isn't enough.

"At a speech in San Francisco on Wednesday, Google CEO Eric Schmidt proposed a new energy plan for the U.S. that the company claims could reduce fossil fuel-based energy generation by 88 percent.

The plan calls for the replacement of all coal- and oil-fired electricity generation with natural gas and renewable electricity, including a whopping 380 gigawatts of wind power, 250 gigawatts of solar power and 80 gigawatts of geothermal power.

Other elements of the plan include reducing energy use 33 percent via energy-efficiency measures, boosting sales of plug-in hybrid vehicles to 90 percent of new car sales in 2030, increasing the average fuel efficiency of conventional vehicles from 31 miles per gallon to 45 miles per gallon in 2030 and turning over the country's current fleet of vehicles more quickly so that cars are driven only 13 years, instead of an average of 19 years today.

The plan would cost plenty of cash. According to Google, the cost of the proposal – called Clean Energy 2030 – is a hair-raising $4.3 trillion dollars. But the company is also quick to point out that the investment will result in even greater savings of $5.4 trillion over the 22-year life of the plan, according to Google's calculations."

You know what, it's an insane idea, but it's forward-thinking and bold. Why does an idea like this have to come from a tech company? Couldn't a politician cut and paste this proposal? It would create hundreds of thousands of real jobs and it could reestablish our dominance as a leader in 21st century industries like renewable energy and clean transportation. We just rushed $700 billion through Congress without any real idea of what it would be used for - $4 trillion to transform the future of our country? I'm intrigued.


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