Does it signal that we should pile back in? No.

Are we still in a bear market? Yes.

So, how do we make money? You don’t. Today is about preserving your assets:

1. Do the things you’re good at and have control over — like your work.

2. Manage your few preferred, favorite investments by writing covered calls.

3. Buy bonds or bond funds. We won’t see interest rates rising in the U.S. for a long, long  time.

4. Buy your favorite stocks on dips.

5. Steer clear of stocks that don’t pay dividends. High dividend payers make sense.

6. You should have some money in gold — e.g. GLD, SGOL or FSAGX.

7. Keep your stops tight. 8% looks good to me for today’s squirrelly market.

8. Above all, don’t wreck your health trying to beat this market.

My obsession with health. As we get older (I am 68) I obsess. My friends are dying, or about to. They don’t exercise. They eat too much.  They eat too much salt. They drink to much coffee. They work too hard.  They pop too many pills. The usual suspects.

Yesterday I wrote about falling. It can really mess up your life. Yesterday a longtime reader Guido Pagnacco, Ph.D. , a professor of engineering at the University of Wyoming, emailed me:

Dear Mr. Newton,

I’m writing to you because of your comments in today’s column about falls. This is a topic very dear to me, one about which my wife and I have dedicated a great part of our professional lives.

It’s great that you are warning your readers about the dangers of falls. All too often people do not realize how serious the consequences can be until it’s too late. I find that most do not think of falls as a serious health hazard, although almost everybody has had relatives or friends that suffered serious injuries because of falls.

Being able to stand on 2 feet without falling is an incredibly important part of our humanism. We are the only being that spend its life in an unstable bipedal stance. Although standing up and moving around comes to us so naturally that we don’t even think about it, it is a very complicated task, so much so that the control of postural balance develops fully only in the mid teens, and interesting enough healthy adults reach their best performance in their mid 40s, not in their 20s!

It is such an important part of humanism that nature gave us multiple redundant systems to balance ourselves and not fall. To understand where we are in space we can use vestibular (inner ear), visual, and somatosensory (nerve endings in muscles, skin and joints) information, we then process that at various levels of the nervous system, and we react and compensate by moving almost all parts of the body. Practically, not falling or having good balance involves the whole body. One of the consequences is that anything that makes any part of the body function below healthy levels does affect balance in some way, and therefore reducing the risks of falls is very difficult. According to a very recent CDC study (http://www.cdc.gov/nchs/data/databriefs/db31.htm) 75% of Americans over 70 years old have a balance impairment! In our experience 1/3 of the general adult population (20 years and older) has a balance impairment. Unfortunately, most health professionals do not want to tackle the problem because they have to look at the overall functioning of the entire body. It takes too long and nobody pays for it!

And the consequences are actually even worse than what you mentioned in your column: according to a CDC study a few years ago, more than 50% of those over 65 why fall and are injured (even non severely) end up dead or in a nursing home within a year!

To try and help with this problem my wife and I almost 10 years ago started developing and marketing a balance platform (a sophisticated scale that measures not only the weight but also the sway or movements of the weight of a person). In 30 seconds, the time it usually takes to weight somebody, the device can give an health professional not only the weight of a person, but also the Body Mass Index and, most importantly, a “balance score” and how well that compares to healthy subjects in the same age range. Granted we might not have had the greatest marketing, but so far the interest has been very modest, with only a few hundred units in the field. Perhaps it will change!

For now, I’d like to give you some advice regarding falls:

+ Most medications and over the counter drugs affect balance. Besides obvious ones, like any drug that makes you drowsy or sleepy, keep in mind that even aspirin reduces balance. Blood pressure medication also often reduces balance significantly, especially if the blood pressure gets too low.

+ Most people with an hearing loss also have associated a vestibular loss because the structures and nerves are so closed together. This means that the brain can’t perceive the position of the head in space very well. Normally this deficit is compensated using vision, but if that is compromised now the back-up system is gone too! The advice here is to have the vision checked regularly, always use the glasses/contacts prescribed for intermediate/far distance vision correction when moving around, and turn on the lights when moving around in the dark. Actually, many fall when walking around the house (or even worse hotels or unfamiliar rooms) in the dark (for instance to go to the bathroom) because they do not want to turn on the lights to avoid disturbing the spouse/children or others.

+ Do as much movement with your body as possible. Walk, move your arms, hands and fingers, turn your head, dance around. This not only helps the muscles, but it provides a lot of stimulation of the sensory pathways as well as the motor control part of the nervous system keeping them in shape. It is not important to do strenuous things, rather varied movements.
have enough sleep. Lack of sleep, like loosing a night, is worse on balance and motor control than being drunk!

Keep up the good work.
All the best,
Guido Pagnacco

Booming economy rest of the world would kill for by Peter Martin of the Sydney Morning Herald.

September 2, 2010

THE Australian government is claiming vindication after a surprise jump in economic growth delivered one of the strongest growth rates in the developed world, exceeding those in the US, Britain and most of Europe.

At an annual rate of 3.3 per cent, boosted by a 1.2 per cent jump in the June quarter and revisions to earlier quarters, Australia’s growth rate is back to its long-term average and exceeded among developed economies only by nations such as Canada and Germany that are recovering from recessions.

”Finance ministers elsewhere and prime ministers elsewhere would kill for a set of outcomes such as these,” said the Treasurer, Wayne Swan. ”This is an endorsement of what we’ve done to support the economy.”

The figures show consumer spending and private construction growing strongly to take the place of government spending, which has plateaued after soaring 39 per cent in the past year to fund stimulus building programs.

”Key parts of the Australian economic story now look set in concrete,” said the Commonwealth Bank economist Michael Blythe. ”The income flow from the commodity boom is moving out of forecasts and into the real world. The evidence includes the spike in company profits, rising wages and trade surpluses.”

… Much of the nationwide boost in spending was on motor vehicles, assisted by the January cut in tariffs and delayed deliveries of cars ordered using the business investment tax break that expired in December.

Real spending on cars climbed 22 per cent, real spending on travel 9 per cent and spending on shoes 13 per cent.

”It’s fantastic. The economy is as strong as an ox,” said the Macquarie Group economist Brian Redican. ”It’s also well balanced, with household consumption much stronger than anyone thought. From here, business investment should pick up the baton and drive growth for the next 12 months.” …

For the full article, click here. The easiest way to participate in Australia is EWA.

The U.S. Tennis Open is into its fourth day. In the old days, the tennis wa only good towards the end. But now there are so many good players, most matches are great. You can watch the tennis 24/7 on the Tennis Channel, ESPN2 or CBS. Make sure you’re watching in high-def. The TV Schedule is here.

Your web site is so important. I’m staggered at how many intelligent people tell me they’re too busy to pay attention to their web site. I’m also staggered at how much money gets paid to “consultants” to fix web sites. And what a lousy most consultants do.

Your web site is your window to the world.  Please respect it.

If I can learn how to fix a simple web site, you can too.

My friend Dave Arden rebukes me.

“I’m sick of seeing your fat pictures. Give me something pleasing to the eye.”

Dear Dave, If I can’t provide you the perfect investment, I can provide you the perfect breasts:

She wasn’t at the tennis. But I wish.. I wish. We’re going again next week. I’ll see what eye candy I can photograph.

Sam telephones Abe
Sam telephones Abe and says, “Oy vay, Abe. Am I in shtook. My best customer has just gone bankrupt and I have lost $100,000 with him.”

“Although you’re my main competitor,” says Abe, “I’m still sorry to hear that, Sam. So who is he?”

“Huh, nice try Abe,” replies Sam. “Do you think I’m meshugga (crazy)? I’m going  tell you the name of my best customer?”

Harry Newton, who has discovered the benefits of texting. It’s much faster than emails for people who are not near a computer or who don’t have a BlackBerry or i Phone  — like my tennis partner.

The Halloween indicator is a variant of the stock market adage “Sell in May and go away,” the belief that the period from November to April inclusive has significantly stronger growth on average than the other months. In such strategies, stocks are sold at the start of May and the proceeds held in cash (e.g. a money market fund); stocks are bought again in the autumn, typically around Halloween.

Though this seasonality is often mentioned informally, it has largely been ignored in academic circles (perhaps being assumed to be a mere superstition). Nonetheless analysis by Bouman and Jacobsen (2002) shows that the effect has indeed occurred in 36 out of 37 countries examined, and since the 17th century (1694) in the United Kingdom; it is strongest in Europe. According to the efficient-market hypothesis, this is impossible.

It is not clear what causes the effect.

Most interesting about the effect is that it shows that stock market returns in many countries during the period May-October are systematically negative or lower than the short-term interest rate, which also goes against the efficient-market hypothesis. Stock market returns should not be predictably lower than the short term interest rate (risk free rate).

Popular media often refer to this market wisdom in the month of May, claiming that in the six months to come things will be different and the pattern will not show. However, as the effect has been strongly present in most developed markets (including the United States, Canada, Japan, the United Kingdom and most European countries) in the last decade – especially May-October 2008 – these claims are often proved wrong.

That said, between April 30 and October 30 2009, the FTSE 100 gained 20% (from 4,189.59 to 5,044.55)

One study which tests the Halloween indicator in US equity markets found similar results as Bouman and Jacobsen (2002) over the same time period but using futures data over the period April 1982- April 2003 and after excluding the years 1987 and 1998 no longer found a significant effect, leading these researchers to conclude that it was not an “exploitable anomaly’ during that time period in the United States.”

The original saying is “Sell in May and go away, stay away till St. Leger Day”, referring to the last race of the British horse racing season, however this day is unlikely to be known by non-Brits so it is replaced by Halloween (which in turn is Samhain, about one-eighth year after the equinox).

This year’s miserable performance. Since May:

Watch the gap and the stairs. Read this carefully:

You’re not getting any younger. You are in danger of falling. You can fall when you get off the train. You can fall when you walk down stairs.

When you fall,  you may hit your hit and end up in hospital for years, or with a metal shunt in your head, or worse, in a wheelchair.

You may destroy your life.

Please be careful. Your reactions are not those of an 18 year old any longer.

Trust me on this one. I have examples of friends  who fell.

My sister and husband are visiting New York. Each day they float down to Times Square to the tkts and buy theater tickets at 50% off.

They’ve done it twice and get great seats both times. Best yet, they saved Ticketmaster’s outrageous $11 a ticket “service fee” for buying tickets online.

Incredibly useful iPhone tricks.  Including

+ Double click on the shift key for caps lock.

+ Hold down some keys for alternatives. Try n.

+ Retart: Hold down sleep (top button) and home, or hold sleep for ten seconds.

+ Get a screenshot. Home and then sleep. Saves the screenshot in your photos.

+ Tap and hold images in Safari to save them to your phone.

+ Spell check. Tap and hold a red underlined word.

Full list, click here.

The U.S. Tennis Open is into its third day. Don’t forget to watch the amazing slow motion videos  on The Beauty of the Power Game.

You can watch the tennis 24/7 on the Tennis Channel, ESPN2 or CBS.  Make sure you’re watching in high-def. The  TV Schedule is here.

Susan and I went to the Open yesterday. Scenes:

Advertisement in subway on way to the Open:

Cookies on sale:

Handsome visitors to the U.S. Open:

What is with tattoos and ear plugs? When they weren’t watching, they were eating. Correction: Many ate while they watched.

This thing is called a Spidercam. It flies all around the stadium. Note the video camera. I think it transmits its images with fiber optics. Amazing technology.

Here’s another photo of it:

For more, Spidercam.net.

Out of Iraq. Not. Our “combat” troops are out of Iraq. But we still have 50,000 “support” troops , plus innumerable outsourced, expensive hangers-on. And now we’re sending more troops to Afghanistan? For what purpose? Tro destroy Al Qaeda? Somebody please tell Washington that Al Qaeda left Afghanistan eons ago.

Harry Newton, who’s sweltering in New York’s 90 degree plus global warming. Or whatever this present heatwave is.

When in doubt, stay out. When in doubt and in, sell covered calls.

Cash is king, though its benefit is not yield, but retention of capital.

Bonds still make sense — but not long duration. I’m selling some of my longer bonds. Some have a 15% return on them for the last year.

I like a little gamble on an upcoming disaster…

A black swan event soon? from today’s Bloomberg:

Titan Capital Joins Black Swan’s Taleb in Raising Bets on Crash

Titan Capital Group LLC, whose flagship volatility fund rose 21.6 percent as stocks tumbled in May, has raised bets on extreme market moves because investors’ views on the economic outlook have polarized.

The New York-based hedge fund, which manages about $400 million, has added “a lot more” cheap, out-of-the-money options, betting the market is underestimating the likelihood of a crash, founder Russell Abrams said in a phone interview. Treasuries, German government bonds and Japan’s yen are pricing in economic outcomes that are bleaker than the stock market expects, said the former co-head of U.S. equity derivative trading and convertible arbitrage at Merrill Lynch & Co.

“They are pointing to a much more dangerous environment than what equity investors believe,” he said in an interview Aug. 27. “Either you’re going to see the bond market make the the big move or the equity market make the big move; the current situation is not in equilibrium.”

Nassim Nicholas Taleb, whose book “The Black Swan” is about how unforeseen events can roil markets, said Aug. 11 he is “betting on the collapse of government bonds” and that investors should avoid stocks. Government bonds around the world have rallied on growing signs the global economic recovery is faltering, driving yields on two-year Treasury notes as well as German 30-year and 10-year bonds to record lows last week.

The yen reached a 15-year high of 83.60 per dollar Aug. 24. The Standard & Poor’s 500 Index gained 9.4 percent from July 1 until Aug. 10, when the Federal Reserve said that growth probably will be “more modest.”

“When you have assets so highly correlated, that makes the risks far, far greater,” said Abrams, who worked with the late Fischer Black researching derivative strategies at Goldman Sachs Group Inc. from 1992 to 1993. Black and Myron Scholes developed the Black-Scholes model of pricing options.

Out-of-the-money options are puts and calls whose strike price is either lower or higher than the market price of the underlying security. An agreement to sell is a put option; an agreement to buy is a call option.

Funds such as Titan Capital tend to outperform when markets are falling because they trade on volatility, which increases when prices decline. Volatility, as measured by the Chicago Board Options Exchange Volatility Index, was at a 14-month high in late May as the sovereign debt crisis swept through Europe.

The Titan Global Return Fund gained 21.6 percent in May, according to a letter to investors. Hedge funds globally lost 2.7 percent during the stock market rout that month, their worst monthly drop since October 2008, according to Eurekahedge Pte. The fund gained 13.2 percent in the first six months of the year, according to the investor letter.

The Chicago Board Options Exchange Volatility Index rose as high as 45.79 on May 20 as the S&P 500 lost 8.4 percent. The VIX, a measure of investor expectations for stock swings known as implied volatility, decreased to 27.37 Aug. 26.

The financial system is riskier than it was before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, said Taleb, a professor at New York University who advises Santa Monica, California-based Universa Investments LP, a fund that bets on extreme market moves.

Any relapse in the U.S. economy would be “far worse” than the previous recession, Abrams said.

“The risk is that the government can’t keep spending money to keep the economy afloat,” he said. “The government’s thrown everything and if they fail, the confidence will plunge much faster.”

U.S. President Barack Obama’s American Recovery and Reinvestment Act spent $814 billion trying to spur growth. The U.S. government’s total outstanding debt is $13.4 trillion, according to Treasury figures.

As investors tend to become more risk averse later in the year, “any market downturn might lead to much higher volatility,” Abrams said.

Titan Capital, which managed almost $1 billion at the end of 2008 before the global financial crisis led to investor withdrawals, has opened an office in Hong Kong. Kyle Chuang, portfolio manager for Titan Asia Volatility Fund, relocated to Hong Kong from New York. Abrams founded Titan Capital in 2001.

The fund is set to trade more Chinese securities as the nation “becomes a more mature market,” Abrams said. It currently trades Chinese securities that are listed overseas.

The nation is on the cusp of a “big bang” of reforms that will give foreign investors greater access to capital markets, Nomura Holdings Inc. analysts led by Hong Kong-based Sean Darby wrote in a report Aug. 18.

The global fund allocates between 10 percent and 25 percent of its money to Asia and the remainder to the U.S., Abrams said.

Assessing new ventures. The good news: More ventures are popping up and ware wending my way. The bad news; Most of the entrepreneurs still think it’s the 1990s. They make ridiculous projections, take too much for themselves in management fees  and provide skimpy information to potential investors.

Big Banks Loosen Lending Standards. According to the Wall Street Journal, big banks in recent months eased standards on small-business lending for the first time since late 2006, a Fed survey found, but customers of all sizes showed little appetite for loans with the economy slowing.

New trend I’m seeing: Big real estate companies are forming money market-like funds to borrow money from private investors. They’re paying the same rate they pay the banks. Advantage for the borrower: More assured money. Despite the Journal’s story, banks have been slicing credit lines. Advantage for the lender: Higher interest than they can get elsewhere — with a bank CD or in traditional money market fund.

The history of Zippy’s townhouse. It’s two bedrooms with garage, about 1,200 square feet in a retirement community in Lakewood, a remote part of New Jersey. The previous owners bought it for $157K  in 2005. Zippy bought it for $130K in September 2007.  It’s now worth around $53K. He stopped paying his mortgage in March, 2010. He owes about $120K on the mortgage. He’s presently “negotiating” with Citigroup, whatever that means. He’s still living in the place. He’s talented, but unemployed and running fast through his savings and using up his 401(k).  He’s not untypical.

The U.S. Tennis Open is into its second day. The New York Times Magazine did a cover story with photos on Power Games — Women Who Hit Very hard.

The best part was several the amazing slow motion videos  on The Beauty of the Power Game. Please watch them.

You can watch the tennis 24/7 on the Tennis Channel, ESPN2 or CBS.  Make sure you’re watching in high-def. The  TV Schedule is here.

Rebooting the iPhone gets you better service. When you travel,  turn it fully off. Hold this button down for 15 seconds …

until you see a slide on the screen that says Power off. Turn it off, wait 2o seconds, then turn it on. the phone will then latch onto a nearby AT&T cell phone tower. Bingo, you have a stronger signal.I wrote about this trick yesterday as a way to get any service when you fly to a new city. But it also works around town — say between your home and your office.

Out of Iraq. Not. Our “combat” troops are out of Iraq. But we still have 50,000 “support” troops , plus innumerable outsourced, expensive hangers-on. Not my idea of a pull-out. We’ll hear more tonight from Obama. Yipee.

Ah, the joys of travel. Seen somewhere. Nice kid. Great t-shirt.

Taken with my new iPhone 4.

Sick old joke:

A senior citizen asked his eighty-year old buddy:
‘So I hear you’re getting married?’
‘Yep!’
‘Do I know her?’
‘Nope!’
‘This woman, is she good looking?’
‘Not really.’
‘Is she a good cook?’
‘Naw, she can’t cook too well.’
‘Does she have lots of money?’
‘Nope! Poor as a church mouse.’
‘Well, then, is she good in bed?’
‘I don’t know.’
‘Why in the world do you want to marry her then?’
‘Because she can still drive!’

Harry Newton,  who has finally learned the futility of advice-giving. Never was the old adage more true: You can lead a horse to water. But you can’t make it drink (i.e. listen). That goes for entrepreneurs and people who work in low positions for big corporations. Are you listening Michael Leddy?

Global weather changes are hurting harvests in Australia (drought), Canada (too much rain), Pakistan (flood and corruption) and Russia  (drought). Meanwhile nice government subsidies in the U.S. are not at the whim of the weather.

Stockmarket observers are thoroughly confused. Roger Lowenstein in this weekend’s New York Times Magazine wonders “Is Wall Street in for a long funk?“

But USA Today has a piece “Stocks may be ready for rebound as bulls retreat.” Adam Shell writes:

W YORK — Stock bulls are becoming an endangered species on Main Street. But the fact that the “I-hate-stocks,” “get-me-out-of-the-market” crowd has swelled to levels not seen since the bear market bottom in March 2009 could be a sign that beat-up stocks are poised for a rebound.
In its latest sentiment survey, only 20.7% of members polled by the American Association of Individual Investors said they were “bullish,” or think stock prices are going to go up. That’s the most feeble reading since March 5, 2009, or two trading sessions before the worst stock plunge since the Great Depression ended. On March 10, 2009, the U.S. stock market embarked on a monster rally that pushed prices 80% higher in a 13-month span.

So why is it good news that most retail investors think the stock market is a sucker’s game and not worth playing?

The answer is that from a contrarian perspective, a sharp spike in negativity, doom-and-gloom and pessimism signals that much of the bad news about the slowing economy that is scaring people is already reflected in lower stock prices, thus paving the way for a counter-trend rally in the opposite direction.

“All the bearishness is confirming that there has already been a lot of selling and that the market might be all sold out — (at least) for now,” says Nick Kalivas, global vice president of financial research at MF Global.

Adds Christopher Verrone of Strategas Research Partners: “At this point, who is really left to sell? The sentiment data is a sign sellers are exhausted.”

Some analysts attribute the Dow Jones industrials’ 165-point rally Friday partly to the spike in pessimism, although a better-than-expected revision to second-quarter GDP and reassuring comments from Fed chief Ben Bernanke about keeping the economic recovery going also stoked buying.

Historically, when retail sellers are tired out, the stock market tends to energize.

An analysis by Verrone shows that since 1982 there have been only 34 bullish readings lower than the one printed by the AAII sentiment survey last week, and on average, the Standard & Poor’s has been up 2.6% a month later, 6.5% three months later and 17.8% a year later.

But just because the indicator points to a bounce doesn’t mean that the troubles facing the stock market and the headwinds hobbling the economy are going away.

“Nothing has really changed,” Kalivas says.

Sure, it is possible that the bad news we already know is priced into stocks, but more bad news could be in the pipeline that could short-circuit any rally sparked by a short-term bout of over-pessimism. Real pessimism can return just as quickly if economic reports continue to paint a dark picture of the economic recovery.

This week, investors will be closely watching fresh economic data that will offer the latest glimpse on consumer confidence, auto sales, manufacturing, pending home sales and the job market.

“The real test,” Kalivas says, “is (this) week when we see how the market handles” the incoming data on the economy.

Failure of imagination.HP’s board authorizes another $10 billion for stock buybacks. Dell and HP are battling to buy 3PAR, a small go-nowhere server company that’s never made a profit. Intel is spending $7.7  billion to buy a second-rate security company called McAfee. It’s just announced that it’s buying the wireless business of the German chip maker Infineon for about $1.4 billion in cash.

Tech companies have stockholders who’d like dividends. Have these boards forgotten their duty — to reward their owners?

The answer is clearly Yes.

The surge in home prices fueled the recent consumer boom. But now home sales and home prices are falling. From Friday’s New York Times, the graph:

Here’s the fascinating piece:

Widespread Fear Freezes Housing Market
By JOE NOCERA
You have to wonder sometimes what they’re smoking over there at the National Association of Realtors.

On Tuesday, the self-proclaimed “voice for real estate” released its “existing home sales” figures for July. They were gruesome. Sales were down 27 percent from the previous month, and down 26 percent from a year ago. Annualized, the July sales figures would translate into fewer than 3.9 million homes sold this year — a staggeringly low figure. (The record high occurred in 2005, when more than seven million houses were sold.)

The months-to-sale number was depressingly high; the Realtors group reported that it now takes more than a year to sell a typical house, compared with six months in a normal market. The amount of inventory is high.

Lest we forget, these awful numbers are coming out at a time when the financial incentive to buy could hardly be stronger: the fixed rate on a 30-year mortgage is at an incredibly low 4.36 percent, according to an authoritative survey conducted by Freddie Mac.

Yet here was Lawrence Yun, the association’s chief economist, trying to turn lemons into lemonade: “Given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs,” he said in a news release.

Mr. Yun went on to attribute the weak July numbers to the expiration of the Obama administration’s tax credit for home buyers. They had caused consumers to “rationally” jump into the market during the first half of the year — at the expense of summer sales, he said. The post-tax-credit slump, he predicted, would be over by the fall, and by the end of the year, five million existing homes would be sold. (“To place in perspective, annual sales averaged 4.9 million in the past 20 years,” he said.)

Mr. Yun also predicted that home values would not fall much further, since they were “back in line relative to income.” In other words, the July numbers were a mere blip.

Clearly, Mr. Yun needs to get out a little more often. Specifically, he ought to talk to people on the ground — like mortgage lenders or prospective borrowers. Talking to these people would probably give him a more sober take on the larger meaning of the latest sales numbers for existing homes. Sometimes, you see, lemons really can’t be turned into lemonade.

“In the financial markets, a lack of liquidity immediately leads to falling prices,” said Lou Barnes, the founder of Boulder West Financial Services. (Boulder West was acquired last year by Premier Mortgage Group.) “In the real estate market, something different happens,” he added. “Illiquid real estate markets freeze.” That is what is happening now. For months, the Obama tax credit had been the only grease in the housing market. Now that it is gone, the buying and selling of houses is essentially grinding to a halt.

Why is this happening? Just as the subprime bubble of 2006 and 2007 required one kind of perfect storm — namely, incentives to throw underwriting standards out the window — we are now living through the opposite kind of perfect storm. Essentially, every participant in the housing market has a reason to be afraid. And that fear is paralyzing.

The prospective buyer, for instance, has two good rationales to fear buying a new home. One is the unemployment rate. “A major psychological thing happens with high unemployment,” says Dave Zitting, a veteran mortgage banker and founder of Primary Residential Mortgages. “Those with a job worry about whether they are going to keep that job” — which, in turn, prevents them from taking the plunge on a new home.

The second reason is that, Mr. Yun notwithstanding, most people simply do not believe that housing prices are even close to hitting bottom. “In the Bay Area, a house that was worth $300,000 a decade ago became a million-dollar home,” said Greg Fielding, a real estate broker and blogger. “Now it is listed at $800,000.” That price, he suggested, was still unrealistically high. The seller, meanwhile, doesn’t want to face the fact that his or her home is too richly priced, and won’t sell at a more realistic price — which may well be below his or her mortgage debt.

There is also an immense amount of inventory that has yet to hit the market but will, sooner or later. People in the real estate business have taken to calling this “the shadow inventory.” It consists of homes for which the owners have stopped paying the mortgage but the banks haven’t foreclosed on yet, foreclosed properties that have not yet been put up for sale, homes with modified mortgages that the owners still can’t afford and will soon default on and so on.

Mr. Barnes describes the shadow inventory as akin to “ranks of Napoleonic infantry, rows deep, hidden in the fog.” This inventory, estimated by Rick Sharga of RealtyTrac to be between three million and four million homes, is almost certain to drag down home prices for the foreseeable future. “The disinterest of buyers, in an interest-rate environment that may be the lowest ever, is striking,” Mr. Barnes said. But, he added, it makes perfect sense. Since 2007, housing prices have been in a deflationary spiral, and nobody can say when it will end. “It doesn’t matter if interest rates go down to 2 percent,” Mr. Barnes said — buyers won’t reappear in big numbers until they can see the light at the end of the tunnel.

So that is what it looks like for the prospective borrower. Now look at it from the lender’s perspective. Chastened by the excesses of the bubble, mortgage lenders have swung hard in the other direction, becoming excessively, almost insanely, conservative. They demand high FICO scores. They won’t lend to anyone who is recently self-employed — even if the potential borrower has socked away a lot of money in the bank, or is making a good income. They won’t count income from capital gains.

“I have wonderful people in my office every day who would have qualified for a loan prior to the bubble” but now can’t get one, Mr. Zitting said. Mr. Barnes said: “Underwriting standards are vastly tighter than any time in my lifetime. It is choking off buyers.”

Here’s the strangest part, though: it is really not the lenders themselves who are imposing the most draconian of these tight new underwriting standards. Rather, it is the federal government. That’s right, the government.

At the same time that the administration was offering a hefty tax credit to spur home sales, the government’s wholly owned subsidiaries, Fannie Mae and Freddie Mac, were imposing rules that made it increasingly difficult to buy a home. And Fannie and Freddie have the ultimate say these days because without their guarantee, Wall Street securitizers won’t buy a mortgage from a bank — because Wall Street is just as fearful as every other participant in the market.

“The government right now is insuring something like 85 to 90 percent of the country’s mortgages,” said Daniel Alpert, a managing director of Westwood Capital. And given the enormous losses Fannie and Freddie were saddled with during the financial crisis, they are in no mood to take risks, not even on borrowers who are normally considered creditworthy. So they are saying no a lot more than they used to — even though this is having a terrible effect on the housing market.

It’s even become nearly impossible for well-heeled investors to buy rental properties. This is no small matter. At the peak of the bubble, the rate of homeownership approached 70 percent. Now it is falling toward 65 percent — which is more or less where it was before all the housing madness of the last decade. That means that millions of Americans who were briefly homeowners need to become renters again. They need a place to rent.

But somebody has to buy the homes they are leaving behind and turn them into rental properties. The most likely buyer is a professional investor who purchases rental properties for a living. Yet, absurdly, government rules have made it exceedingly difficult to make loans to investors who want to buy up rental properties. This only adds to the shadow inventory.

A few weeks ago, some of the better known financial bloggers had a background briefing at the Treasury Department with officials who included Treasury Secretary Timothy F. Geithner. In their blog posts after the meeting, they did not, alas, describe a government strategy that called for loosening Fannie’s and Freddie’s overly cautious standards — the obvious short-term solution. Instead they described a Treasury housing strategy that was essentially a play for time.

The tax credit for home buyers; the willingness to look the other way as banks refused to foreclose, pretending that the owners still planned to pay their mortgage; the half-baked government mortgage modification programs — they were all aimed at buying time until the economy recovered and employment picked up. At which point, they hoped, the housing market would have achieved enough lift that it could take off on its own.

At the end of June, though, the tax credit disappeared — and that’s when time ran out. On Friday, the new G.D.P. numbers came out, confirming what everybody already knew. The economy has not recovered — not even close. If the housing market is like an airplane on a runway, it is far more likely to crash at this point than it is to take off. That is why the July numbers are so scary to those in the housing business.

On the ground, they don’t look like a blip. They look like a very painful future.

The U.S. Tennis Open begins today. The New York Times Magazine did a cover story with photos on Power Games — Women Who Hit Very hard.

But the best part was several the amazing slow motion videos  on The Beauty of the Power Game.

For the next two weeks, you can watch the Open 24/7 on the Tennis Channel, ESPN2 or CBS.  Make sure you’re watching in HD. You can see the TV Schedule here.

“It’s not the Ritz Carlton. It’s the summer. Ignore the smell or catch a later plane.” Thus spoke a Delta stew coming back from Minneapolis. Some moron had left the unserviced plane overnight in 90 degree heat.  The bathrooms had matured and the smell was akin to the grossest outhouse.

Lesson number one. In summer travel, don’t book  a seat near the bathrooms.

Second lesson. Book early. All flights are full. Getting cheap seats is not easy. In fact, getting any cheap is not easy.

“There’s no service on my iPhone.” I bemoaned to an AT&T technician. She explained my phone will still looking for the cell phone tower in the city I’d just flown out of — in this case New York. The solution was to turn it fully off and wait. That means holding this button down for 15 seconds …

until you see a slide on the screen that says Power off. Turn it off, wait 2o seconds, then turn it on. the phone will then latch onto a local AT&T cell phone tower. Bingo you’re back in business.

Pity this simple advice took 15 minutes of sitting on hold.

How to sell ribbon.
Goldstein, in his late 80’s and still gainfully employed as a ribbon salesman, has been trying unsuccessfully to sell ribbon to Macy’s for many years.

He tries again.

“Goldstein,” the buyer says, “You’ve been trying to sell me ribbon for at least 25 years. Now is your chance. Send me enough yellow ribbon to reach from the tip of your nose to the tip of your penis.”

Three days later, 4 tractor trailers full of yellow ribbon drive up to Macy’s receiving dock. The ribbon buyer goes ballistic. He calls Goldstein and yells, ”What’s going on? I ordered enough ribbon to reach from the tip of your nose to the tip of your penis. You send me 4 truck loads full of ribbon.”

Goldstein replies calmly, “The tip of my penis is in Poland .”

Harry Newton, who’s got conjunctivitis and a horrid sore throat — benefits of traveling. Or more likely, from the locker room at the tennis club.

It looks like another miserable year in the stockmarket. Remember that in the ten years from December 1999 to December 2009, the market also lost ground.

There are ways to make money on the market — Pick a hot stock . But even the “hottest” stocks — e.g. Apple, and Google — have recently tumbled.

Over the years the stockmarket has become increasingly stacked against the small investor — i.e. you and I. There is a serious argument for not being in it.

On August 20, Mark Cuban wrote the headline I have above and the following words:

I wrote a whole series of articles warning people about the stock market over the years. You can see them here. It’s gotten worse. So I thought i would write some more about why you should probably avoid putting any new money into the stock market…

If you haven’t noticed, individuals are avoiding the stock market in droves. There has been an enormous exodus from equity based mutual funds. Why ? Because people buy stocks for only one reason, they want them to go up in price. If you don’t believe the market is going to go up. If you don’t believe you can find a greater fool to buy your stock, or the stock your funds own, why would you buy either ? You wouldn’t and people aren’t.

The amazing thing is that doing nothing in the market is the smartest approach to the market. It is pretty much impossible for some man or woman or child who devotes a couple of hours per week to the market to outperform the professionals who spend 24×7 doing this for a living and when they are asleep, they have a workforce full of people doing more of the same. In this day and age, none of us are smarter than the market.

I didn’t always think this way. I didn’t ever think there was a truly efficient market until just recently. What changed ? The availability of capital changed. While we can argue about whether or not the market is efficient because everyone has access to the same information, I would always argue that they didn’t efficiently use that information and even if they did, capital was not always allocated correctly to every market segment.

Capital found its way to where people/funds thought they were smarter than the rest. Some people thought they understood the tech markets better than others. Some thought they understood retail better, etc. The belief that an individual/fund had an advantage drove where capital was allocated. People posted good performance or identified macro opportunities and put their own and others money to work. Others saw the success and followed. Like the saying goes “first there were the innovators, then the imitators, then the idiots”. Fortunately for market participants over much of the history of the stock market, if you were the innovator that was smarter and faster than the other guys, you could make money on the long and / or short side of the market before the imitators and then the idiots flooded the market.

The door was open to opportunity in the past simply because capital was relatively expensive. It was expensive to raise, it was expensive to borrow. High cost of capital creates scarcity of capital. The more expensive the scarcer. The scarcer the capital, the more untapped opportunities just waiting for innovators to exploit and the longer it took the imitators and idiots to chase the same opportunities and close them. Which is why you found funds and smart people posting great returns over a long period of time.

But a not so funny thing happened on the way to and through the Great Recession. Capital became progressively cheaper. It became the opposite of scarce. It became readily available. To anyone.

The innovators had put together unique mortgage programs. The imitators made it a little easier to partake. Then the idiots took over. Capital was so easy and suckers and idiots so prevalent, everyone believed that there was always going to be a greater fool to buy their house and /or give them refinancing money. Until the idiots couldn’t collect on the mortgages they lent or pay the mortgages they took out. That de-levered the system and we know what happened next to the banking, mortgage and housing industries and the entire economy.

In response to that great de-levering, the government stepped in and I truly believe they saved us. Sure, they watched as the idiots dragged us into the mire. Sure they allowed all those mortgages to be guaranteed and that was a key culprit in the Great Recession. Our government has never been very good at being proactive at anything. Reactive… thats another matter. That gets the votes.

So the government reacted and poured money into the system. They allowed just about any bank with a pulse to borrow money. To this very minute it is incredibly cheap to borrow short term capital. Particularly if you are in the business of trading/hacking the stock market. If you are a big fund or investor, money is cheap. Unfortunately for the stock market, it is cheap for everyone. In other words, capital is not longer expensive and it is no longer scarce.

When capital is so cheap that everyone with a pulse thinks they can make money once they borrow it, the stock market is in trouble.

Remember the rule about first there are the innovators, then the imitators, then the idiots ? It is why the stock market is truly in trouble.

There is SO MUCH CAPITAL available at so little cost to so many that the timeline from innovator to idiot is measured in days, hours and probably even milliseconds. The guys who are actually smart and uncover new opportunities can’t even get in a position large enough to make it worth their while before the imitators and then idiots pile in right behind them.

Remember the Flash Crash and the discussion about how trades are made in milliseconds, what I called hacking the system ? I don’t know for certain, but Im willing to bet that those innovators that made money by trading in milliseconds, now have so many imitators and idiots that have piled in behind them , putting servers right next to theirs and hiring their algorithm coders away from them, that there is no longer any advantage, or not enough of one for any of the players to make any real money.

There is so much capital chasing so little return that big time players are getting out of the business.

So what does this mean for you ?

It means that I don’t know if the market will go up or down, or by how much. My guess is that it stays in a trading range for a while. There isn’t much money coming in, but enough of that easy to come by capital has so much ego attached to it, that the same people will get in and out of the market over and over again and trade amongst themselves.

Until something happens. What that will be, I have no idea.

But I do know that I have continued to add to my cash balance or sovereign debt from around the world (that I have owned for a while now and has been profitable and is very, very liquid.) The stocks I still own for the most part pay me a nice cash on cash return, or I have owned them for a long, long time and have more in gains than I want to pay taxes on. But in total, I have been a net seller of stocks for more than a year. The only investments I am making are small buys into private companies. I want as much “powder dry ” as possible for when something happens.

I’m not saying you should get out of the stock market. What I am saying is that it is not a bad thing to accumulate cash right now. Retention of capital is a good thing. Don’t go chasing stocks. Something is going to give in this market. Like I said, I dont know what it is, but I want to have as much capital available as possible for when it happens.

Baron Rothschild said “the time to buy is when there is blood in the streets”, Warren Buffet said it differently when he said ” you pay a very high price in the stock market for a cheery consensus”

This is the time to start saving for a “bloody day”. There will be a time when capital regains its scarcity. When it becomes more expensive. When it does , what do you want to have in as great an amount as possible ? Capital.

So save your money. Pay off your credit cards. Put your money in the bank where it is insured. Be patient. Get a good nights sleep knowing that your money is not going any where and just wait till your capital is in demand and you get paid for it. When everyone is complaining about the money they lost, you will be ready to step in and buy.

That is how fortunes are made. Having money when no one else does. And you can take that to the bank !

His posting is here. You should also read his earlier postings on the market.

Beware of USB flash drives. Many firms prohibit their usage by employees. Many disable the USB ports on corporate computers. A prominent computer security company says 25% of all new worms are designed to spread through portable storage devices.

“Much of the malware in circulation has been designed to distribute through these devices,” said Luis Corrons, the technical director of PandaLabs, the research arm of Panda Security, in a statement Thursday. “Not only does it copy itself to these gadgets, but it also runs automatically when a USB device is connected to a computer, infecting the system practically transparently to the user.”

A recent Panda survey of more than 10,000 small- and medium-sized firms found that 27% of those victimized by a malware infection in the last year reported that the attack had originated with infected USB hardware, primarily flash drives.

The Stuxnet worm was one of the year’s high-profile threats that relied on USB drives. In July, Stuxnet targeted PCs running software that managed large-scale industrial control systems in major manufacturing and utility companies by exploiting a then-unpatched vulnerability in Windows’s shortcut files.

When users viewed the contents of an infected USB drive with a file manager like Windows Explorer, Stuxnet loaded itself onto the PC.

The USB infection vector isn’t new. Two years ago, the Conficker worm made headlines worldwide after it spread using flash drives, among other avenues.

Earlier this week, U.S Deputy Defense Secretary William Lynn revealed that the U.S. Central Command’s (CENTCOM) network was compromised after an infected USB drive was plugged into one of the network’s PCs. CENTCOM is the military’s joint regional command responsible for the Middle East, including Iraq and Afghanistan.

Nikon’s D700 shines, if you’re rich.The two professional photographers at Michael’s wedding were shooting with Nikon D700, which they raved about. If I were doing ultra-serious photography, this is the camera I’d buy. At $2,400 it’s not what I need today. My Canon G10, now updated as the G11  at $445 solves my needs today. The D700 is very tempting.

The D700’s two BIG pluses are:

+ A huge chip that’s virtually full frame. You capture a lot of image. The professionals were shooting in RAW and editing in Photoshop and Lightroom. No one will have blemishes.

+ Huge sensitivity to light, which means you can shoot in very low light.

dPreview.com, in a 32-page review, gives it a “Highly Recommended” and writes,

When we reviewed Nikon’s first full-frame DSLR, the D3, in April this year we said it was ‘possibly the most compelling, capable and well-rounded professional digital SLR ever made.’ Only three months later Nikon announced another full-frame camera with the D700. The new model’s ‘compact’ dimensions and much more affordable price tag make it a more appealing proposition than the D3 to many professional photographers and serious amateurs alike but can it keep up the high standards that have been set by its bigger brother?

There is no doubt the answer to this question is yes. Considering the cost advantage over the D3 (almost $1700 at the time of writing) the difference in specification between the two cameras is surprisingly small.

Not Tiger’s divorce, but…
After  being married for 44 years, the story goes of an old man who took a careful look at his wife one day and said, “Darling, 44 years ago we had a cheap apartment, a cheap car, slept on a sofa bed and watched a 10-inch black and white TV. But I got to sleep every night with a hot 25-year-old girl. Now I have a million dollar home, a $45,000 car, nice big bed and plasma screen tv, but I’m sleeping with a 65-year-old woman. it seems to me that you’re not holding up your side of things.”

So how did your approach go, his old friends asked?

He replied “My wife is a very reasonable woman. she told me to go out and find a hot 25-year-old gal, and she would make sure that I would once again be living in a cheap apartment, driving a cheap car, sleeping on a sofa bed and watching a 10-inch black and white TV.”

Harry Newton, who visited is daughter in Boston last night, for no other reason than he could. Children are what makes it all worthwhile. Grandchildren are the icing on the cake. I’m told that will happen, one day, too. Have a wonderful weekend. Get some rest and some exercise. Kiss the spouse and the kids.