"Maharaja Of The Keyboards." 1925-2007

Oscar Peterson, whose speedy fingers, propulsive swing and melodic inventiveness made him one of the world's best known and influential jazz pianists, has died. He was 82.

During an illustrious career spanning seven decades, Peterson played with some of the biggest names in jazz, including Ella Fitzgerald, Count Basie, Duke Ellington, Charlie Parker and Dizzy Gillespie. He is also remembered for the trio he led with Ray Brown on bass and Herb Ellis on guitar in the 1950s.

"Oscar Peterson is a mother fucking piano player!" - Ray Charles, in Martin Scorsese Presents the Blues - Piano Blues (2003).

Sadly missed, You always have that swing !

C Jam Blues.mp3. http://www.raisethepraise.tv/songs/mp3/Oscar%20Peterson%20-%20C%20Jam%20Blues.mp3

Watch that Jobless claims data.

The market is starting to suggest that we are going into – or may already be in – a recession, the Pavlovian response is that there can’t be a recession unless job creation falters. But the chart above is indicating that the jobless claims trend is starting to skew upwards despite going into the traditionally busy festive season.

If we are not yet in a primary bear market, the probabilities that one is developing are as high as they have been since the 2002 bottom. Taking it a step further, though it may not matter for the here and now, we must also consider that if we have a bear market in the offing, the possibility (rather than probability) that the S&P 500 (SPX) has put in a massive double top must be respected.

How far the market can rally and January Effect (likely to be short-lived) or not, we'll soon find out by mid-January and what's in the offing for the 1st Q.

Clear And Present Danger.

Richard Russell, an 83-year old author of the Dow Theory Letters, said: “In the stock market, hope gets in the way of reality. Hope gets in the way of common sense. If the stock market turns bearish and you're staying put with your whole position, and you're hoping that what you see is not really happening, then welcome to.. Poverty City.”

In order to gain some perspective on the outlook for equities it serves a useful purpose to study a long-term graph of the S&P 500 Index (above). This chart is based on monthly data, which tends to be more helpful than daily or weekly series when trying to identify the stock market’s primary trend.

There are a number of interesting observations that one can make from this graph:

* The MACD indicator (bottom section of graph) has just given a sell signal, as evidenced by the blue histogram bars falling below the zero line. These signals do not occur often – the last one, a buy signal, was given in May 2003 and the sell signal before that happened in September 1999.

* The more sensitive RSI (Relative Strength Index, which measures internal relative strength) oscillator (top section of graph) has fallen below 70, thereby giving its first sell signal since 1998. (A buy signal was registered four years later in 2002.)

* The 20- and 40-month moving averages (middle section of graph) are still intact, but these are lagging indicators and the turning down and crossing over of the two lines typically only serve as final confirmation of turning points in the index.

After the multiple Fed cuts, stocks had usually firstly experienced a bear market decline of 20% to 40% prior to recovering, and the average P/E on the S&P 500 Index was typically below 14 (compared with a multiple of 19.1 at the moment).

US profit margins, inflated by super-cheap credit in early 2007 (i.e. the lowest spreads ever seen), are clearly unsustainable. As a matter of fact, profits for the Standard & Poor’s 500 companies fell almost 25% on a per-share basis in the third quarter, the biggest year-on-year decline in almost five years.

“The earnings recession has already arrived,” adds David Rosenberg, North America economist for Merrill Lynch.

It's time to consider The January Effect.

If you already understand that supply and demand determine prices, then you'll quickly grasp how to trade the "January Effect".

We hear a lot this time of year about the "January Effect." The name suggests that it happens only once a year, so it is understandable why many investors don't bother to learn what it is. But there really isn't anything mystical going on, and its influences are quite normal.

The January Effect happens when it does because of the United States Tax Code. Wake up!! Sorry.., thought I saw you dozing off there when I mentioned the United States Tax... wake up! Seriously, you don't need to be a CPA for this exercise, you just need to understand that tax consequences on your portfolio are based on whatever happened during a single calendar year.

In other words, if you close out a position in your portfolio before the market closes on December 31, then its profit or loss should be considered in calculating your 2007 taxes. This is not an investment decision. To be sure, the decision to sell may be purely for investment reasons. But unlike any other time of year, that can be augmented and perhaps even overshadowed by tax considerations.

The loss taken on one stock can offset an equal gain from another stock. If I sold a stock earlier this year for $8000 that I bought previously at only $5000 (yes, I'm just that good) then I must declare a $3000 gain to pay taxes on. If I have another position worth $5000 that I originally bought for $8000 (yes, I'm just that good) then I can sell it and avoid paying taxes on the other stock's gain. At year-end, investors are more likely to sell their losing positions. So, under performing stocks tend to continue under performing into year-end.

Investors can sell a stock at a loss in January and still get the tax benefit, but they won't get that benefit until after year-end. So, this selling pressure suddenly disappears when the market closes at midnight December 31, when the time value of money meets human nature of not wanting to admit being wrong. Now add another reason to sell: the tax loss that can help to avoid paying some taxes a couple of months later. This increases supply, which makes price decline further.

Well, this sounds easy, right? Look for stocks that have been declining, find the ones that decline even further into December 31, buy them when the market re-opens on January 2, then choose between the red Ferrari or the black one. Too easy. Firstly, those bad-boys Ferraris are so.. last decade. To keep up with the times, think Lamborghinis instead!

In reality, everyone and their dogs have already figured out this strategy's timing. Buyers are already acquiring their positions well before year-end, anticipating the January Effect rally, even while some shareholders continue selling to realize their tax loss. We can take out some of the guesswork by limiting our choices to stocks that already stopped declining, or else those that are trying to bottom. I like to see price momentum indicators like MACD & RSI giving buy signals, and I also like to see Money Flow or On-Balance-Volume indicators under accumulation. Even if all systems say "go," the actual impact of the January Effect rally should subside by month-end.

By the way.., the season is changing, Winter Solstice is just round the corner - 21st Dec 07, and market will experience a directional change too.

Merry X'mas..and hav'a profitable 08!

Gold Rush.

Gold is weak once again this morning on this silly idea that the Fed is going to be a tough guy because the inflation data is finally beginning to show some of the inflation that's been there all along. Sure, the Fed may be forced at some point by the market to stop feeding inflation with more rate cuts, but the Fed won't be tightening anytime soon with the economy and financial system in the mess it's in.

This is the stagflationary. It's finally beginning to show up in the government's data (which is a feat in and of itself), and stagflation is probably the most bullish environment for gold known to man.

The interesting thing that jumps out at me about gold this morning is that it's finally beginning to break free of its euro and dollar-related shackles. Gold has been rallying in all currencies, including the euro, but it has had a rather tight correlation to the euro over the past six months (and as a result, a negative correlation to the dollar index). This morning, however, that appears to be in the process of changing.

Note that while the dollar index has made a new one-month high and the euro has made a new one-month low, gold is resisting the decline in the euro (and the rally in the dollar) and not following the euro to a new one-month low of its own.

China Investment Corporation.

To see why a crash may be coming, it is worth examining the behavior of the China Investment Corporation- the $200 billion sovereign wealth fund set up by the Chinese government in September ... Six weeks ago, the power of sovereign wealth funds was celebrated and China Investment's moves into the market were awaited with bated breath.

A third of China Investment's portfolio is to be invested in Central Huijin Investment Company, a purchaser of bad loans from the Chinese banks, and another third will recapitalize China Agricultural Bank and China Development Bank, to shape them up for privatization. $3 billion of the fund was invested in the private equity manager Blackstone Group in May - that may have bought China useful political contacts, but it is now worth $2 billion. And the remainder is being invested very carefully, primarily in U.S. Treasury securities - which are also losing money steadily in yuan terms.

The lackluster investment strategy of China Investment exposes a central flaw in the Chinese economy, its lack of a rational system of capital allocation. For more than a decade, Chinese state-owned companies have made losses, and have been propped up by the banking system. Since 2004, loss-making state-owned companies have been joined by overbuilding municipalities, erecting white-elephant office blocks in attempts to turn themselves into the next Shanghai. None of these losses has resulted in bankruptcy; instead the cash flow deficits have been covered by the Chinese banks. As a result, the Chinese banks have an enormous volume of bad loans $911 billion at May 2006, according to a later-withdrawn estimate by Ernst and Young, which must surely have ballooned to $1.2 trillion-1.3 trillion now ...

A $1 trillion problem in subprime mortgages has caused even the U.S. money market to seize up and has required frequent applications of sal volatile by the Fed. Since China's economy is around one fifth the size of the United States' the Chinese banking system's bad debt problem is in real terms about five times that of the United States, about 40% of its gross domestic product.

We have seen this movie before; the Japanese banking system's bad debts after 1990 totaled around $1 trillion, about 30% of Japan's GDP. The result was the bursting of the 1980s bubble and a period of little or no economic growth that lasted well over a decade.

Since China also has much of the corruption that bedevils Latin America and its government lacks any genuine understanding of the free market and is increasingly dominated by special interests, it may indeed be fated to follow a Latin American growth path for the next few decades, with a tiny entrenched elite enriching itself at the expense of the disfranchised masses.