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The regulatory reforms of the Credit Agencies are coming soon. All I can say is its long overdue.

AP excerpt via Yahoo:

“Federal regulators on Thursday proposed new rules designed to stem conflicts of interest and provide more transparency for Wall Street’s credit rating industry, which was widely faulted for its role in the subprime mortgage debacle and the financial crisis.

The five members of the Securities and Exchange Commission voted at a public meeting to propose rules that could reshape an industry dominated by three firms: Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. Their practices would be opened wider to public view and subject to some restraints.

Regulators say they also hope to spur more competition in the rating industry, with new entrants challenging the dominant firms.

The proposed rules, which were opened to public comment, could eventually be adopted by the agency, possibly with revisions.”

You can see all of my prior Rating Agency criticisms here . . .

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Previously:
The Abysmal Track Records of Moody’s, Fitch and S&P (November 21st, 2007)

http://www.ritholtz.com/blog/2007/11/the-abysmal-track-records-of-moodys-fitch-and-sp/

David Einhorn on Credit Agencies (November 21st, 2007)

http://www.ritholtz.com/blog/2007/11/david-einhorn-on-credit-agencies/

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The Baltic Dry Index has fallen today to the lowest level since mid May, down for a 6th straight day at 2,356. It still remains 255% off the Dec lows but is now down 45% off the late May ’09 high and is 80% below the record high in May ’08. To give perspective on how much of an outlier though the May ’08 high was at 11,793 and compared with today’s level, the 20 year average is about 2,300.

Following the two biggest back to back volume days since early August, we’ll get today another above trend volume day solely due to quadruple witch expiration. With the open interest in the SPX options at strikes around current levels relatively small, it may be uneventful. The US$ is bouncing for just the 2nd day in the past 11 off yesterday’s one year low. The Pound is lower after a UK newspaper reported that Lloyds Banking needs to raise more capital and may have to remain in the government’s asset insurance plan until they do so and the Yen is down after Aiful, a large Japanese consumer lender, said they need to restructure their balance sheet. Its stock was offered limit down by 27%. Chinese stocks fell more than 3% to a one week low and HK also was lower after government officials expressed concern with the pricing and other risks with the enormous lending that has gone on. There is no US economic data today.

The Baltic Dry Index has fallen today to the lowest level since mid May, down for a 6th straight day at 2,356. It still remains 255% off the Dec lows but is now down 45% off the late May ’09 high and is 80% below the record high in May ’08. To give perspective on how much of an outlier though the May ’08 high was at 11,793 and compared with today’s level, the 20 year average is about 2,300.

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Excerpt:

The anniversary of Lehman’s bankruptcy has come and gone, and so too has the commemoration of the 9/11 terror attacks.

Wall Street suffered terribly when the Twin Towers fell and many traders nervously noted the Dow was at 9605 on both Sept. 11, 2001 (it was the prior day’s close – markets never opened on 9/11/01) and on Friday Sept. 11, 2009.

Setting aside the eerie coincidence, the bigger issue for investors is the Dow is essentially unchanged for the past eight years.

Barry Ritholtz, CEO of Fusion IQ and author of Bailout Nation, says the market action the past eight years – really since the peak in 2000 – is classic secular bear market activity, where you get dramatic swings in both directions.

History suggests we’re about two-thirds of the way through the current bear market, Ritholtz says, suggesting investors would be wise to employ tight stops and be much more focused on protecting capital vs. during secular bull market phases.

But as discussed in the accompanying clip, Ritholtz disagrees with the popular view that this prolonged period of market malaise means “buy and hold” is dead — or that America’s economy is going to be stagnant forever.

Source:
Dow Unchanged Since 9/11 But Don’t Bet Against America, Ritholtz Says
Aaron Task
Yahoo Tech Ticker, Sep 15, 2009 10:00am

http://finance.yahoo.com/tech-ticker/article/330627/Dow-Unchanged-Since-911-But-Don%27t-Bet-Against-America-Ritholtz-Says

The Securities and Exchange Commission has proposed halting high frequency and flash trading.

In response, Nasdaq (and others) are now prohibiting flash orders. Supposedly, the NYSE is also considering banning the practice.

This was a given. The real question that remains unanswered and demands a thorough investigation is this: WHAT EXCHANGE OFFICIALS APPROVED THIS? WHO BELIEVED THAT ALLOWING FAVORED FIRMS TO FRONT RUN OTHER INVESTORS WAS OK?

Quite bluntly, the clueless dolts who allowed this to occur need to be publicly excoriated, fired from their job as exchange officials, and driven out of town on a rail. Oh, and, all the gains from this organized theft should be clawed back from all the front-running firms that stole this money — THAT’S RIGHT, ITS THEFT — one quarter cent at a time. Put the recovered ill-gotten gains into the SIPIC fund that compensates investors who have been defrauded by their stock brokers.

Stop for a moment to consider what sort of massive disregard for the investing public is required to permit this kind of trading. The sheer hubris that finds no problem in this exchange permitted encouraged theft is hard to fathom.

One of the problems with the most recent crisis is that there have been no shaming of the responsible parties, no disgorgement of ill gotten gains, no perp walks. We need to change that pronto.

The WSJ had an Op-Ed last month, In Defense of ‘Flash’ Trading, that suggested that “Flash trading is like offering to sell your house to your neighbor before you officially put it into the real estate listings.”

That description is, of course, utterly false. We have alternative exchanges where you can offer stocks privately to other willing buyers (i.e., Instinet).  Flash trading is more like having access to private info from the sellers, knowing what they will accept, stepping in front of legitimate buyers, and then flipping the house to those buyers while capturing 0.001% of the transaction. No benefit to the seller, to the neighborhood or to anyone else — all at a small cost to the buyer.

Oh, and that article defending Flash Selling? It was written by Donald Luskin — so you know its utterly wrong, morally contemptible, and guaranteed to lose you money.

Quod Erat Demonstrandum . . .

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epitaph courtesy of Josh at Reformed Broker

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Sources:
Flash Trading Halt Backed for Nasdaq, Bats as SEC Proposes Ban
Whitney Kisling and Jesse Westbrook
Bloomberg, Sept. 18 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aCHizjnQq73E

In Defense of ‘Flash’ Trading
CHRIS HYNES AND DONALD LUSKIN
WSJ, AUGUST 27, 2009

http://online.wsj.com/article/SB10001424052970203706604574374431720968204.html

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Note that TBP had a similar debt in 2005:  James Altucher: “The Underlevered American Household”

OK, its time for round 2, Shedlock vs. Ritholtz.

You may recall that last time, Mish & I disagreed as to whether this was a recession (Me) or a depression (He).

• 1929 Versus 2007: Employment Change

•  Depression Debate – Is this a Depression?

• Depression versus Recession?

This time, the debate is over the current rally.

On Monday this week on Yahoo Tech Ticker, I discussed that we did not see evidence that the rally was ending (See Rally May Only Be in 6th or 7th Inning, Ritholtz Says).

Shedlock pens a response — Rally in 6th Inning or Top of the 12th? — and discusses the reasons he thinks the market rally should be ending soon: “the flip side of the coin is this market has advanced so far, so fast that if downside momentum does develop, there is nothing but air pockets below. Air pockets are thus a two-way street. If anything, there is far more air below than above.”

That may be. However, none of the various metrics we track suggest the rally is about to run out of gas anytime soon. That doesn’t mean it can’t end tomorrow, but we would rather play the high rather than low probability outcomes.

Here are 5 most reasons why I think we can have more upside, plus a look at some grim economic reality.

1) Individual investors remain under-invested (See Liquidity/Sentiment Review).

2) Market Breadth and momentum are each positive (i.e., supportive of further upside);

3) Sentiment has not (yet) reached extreme levels;

4) The broader investment community believes — incorrectly in my opinion — that a recovery is upon us, profits are getting better.

5) History shows that secular bear markets have deep selloffs and huge rallies; this current rally still has room to run based upon a composite of prior cycles (See Four Stages of Secular Bear Markets).

Now, about that economy. Here is my dirty little secret: FOR ~TWO/THIRDS OF THE TIME, THE ECONOMY REALLY DOES NOT MATTER.

I know that sounds insane, but consider the following: In the middle of secular bull markets, economic info seems to have the greatest correlation with market performance. Good data, more profits, better market action.

At market tops, the economy looks great. Valuations are rich, but record profits support the multiple.

Then it all goes to hell.

At bottoms, it looks awful. It looks like these companies will never make another dime, that layoffs won’t ever end, that we can never escape the tar pit.

And then we do.

This must be perplexing, maddening, infuriating to pure economists. But that is Mr.Market’s job — to frustrate the maximum number of players . . .

With a few weeks left in Q3 and as we look to year end, the S&P’s are approaching the important technical level of 1121 which is the 50% retracement of the entire bear market from the Oct ’07 all time highs to the March ’09 lows. While we may continue in that direction if we can escape the Sept-Oct jinx unharmed, in the very short term and I emphasize short term, the Relative Strength Index in the S&P’s this morning rose to the highest level since Aug 7th. In the two weeks following that date, the S&P’s sold off a modest 3% to work off the overbought condition before the next move higher. This is why the indicator is just short term useful and the market doesn’t have to sell off hard to shake off being overbought.

One of my favorite sites is Yachtworld.com — its a giant relational database, where you can punch in any combination of characteristics and find the exact boat you want.

Want a Formula, years 2002-06, between 32-36 feet, on the East Coast, between $100-200k? There are 16 boats that meet those exact characteristics.

Given the recession and the credit situation, this summer, I have been perusing boat Repos — Bank financed machines that have been defaulted and are now the floating equivalent of REOs.

On Yachtworld.com, there are some 436 repos available in all sizes and shapes — 127 New, 309 used. Event he used boats tend to be newer (older boats don’t need much in the way of financing). 10 of these repo boats are more than $500k, including one repo that is $7.7 million dollars.

Something more modest, perhaps?  How about:

Length: 22′-29′
Year: 2002-2006
Price: USD $0-50,000

That gets you 29 choices.

As I have noted many times in the past, I am a big believe in being a counter-cyclical spender. I try not to buy stuff when the economy is on fire and everything is overpriced. I don’t believe in using excess credit (Like these folks that ended up having their boats repo-ed)

This year, I have been selectively shopping for , and occasionally buying, whatever I thought was priced right — especially distressed  merchandise.

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