Thursday, January 17, 2008

Fictional Financials and Fantasy Land Insurance

A bit short on time tonite, so this post will be a little brief. Did I ever tell you out there that I hate the winter? Ice storm for tomorrow's commute! That should be tons of fun. At least I get a half day off and Monday off in honor of MLK day. I love work holidays.

Nasty Market Action Today - Lots of Calls for a Bounce
I will not go over all the specifics of today's bear attack. The markets really took a pounding today. The Big Picture wonders whether a bounce is in order, or a prolonged sell off. Karl Denninger of Market Ticker says that a bounce is likely, and a perfect time to dump any holdings (yes, even gold). Todd Harrison at Minyanville also is looking for a bounce. That's more bounces than a cheerleader on a trampoline!

I am not a technical guy, so the "oversold" kind of analysis never really moves me. Tomorrow is expirations Friday, and the FED will now be hard pressed to do nothing with rates tomorrow. A "surprise" 50bps tomorrow could, I repeat could, manufacture the bounce everyone is looking for.

I can only offer my own personal experience at this juncture. The markets have been going steadily down for some time now. The mountains of selling can only be seen as a major restructuring of market exposure by large holders of stocks. With a recession in the works and banking issues getting more precarious, the markets are going to break down severely very soon. When it happens there will be no bounces, no upticks, and no safe haven. I remember vividly when the tech bubble burst and biotech went with it. 6 months straight of down days with maybe 1 or 2 small up days thrown in. It sneaks up on you like the current drop has, and it keeps on going down. Is this it? If I knew that I would not need to work! My guess is the final move down will commence when the FED is out of ammo (probably the end of this month) and the proposed stimulus plans are detailed (and are seen to be ineffective). So my guess is the start of February!

Fictional Financials and Fantasy Land Insurance
I am not a big Jim Cramer fan, but you have to love the guys enthusiasm. He hits the ball out of the park today though with his take on the financials and the bond insurance companies:
Cramer calls the financial statements from the banks "fictional" and the AAA ratings still retained by the bond insurers as "criminal". I could not agree more. This is an important juncture right now. So much of the current debt based economy is built on absolutely nothing more than blind faith that things (stocks, homes, etc) all go up forever and so spending all one has is just fine, there will always be more in the well. The veil of bond insurance is going to fall very soon. The silly "book value" of financials will be shown to be pure fiction. The collapse of the mentality of interest rates as a fix for everything will be elucidated.

Check out MBI and ABK today. That is what happens when reality smacks fools in the face and makes them feel stupid. A rebate check of $1000 dollars given to someone $150,000 underwater on a home is an insult to their now slightly elevated intelligence. The fantasy land that is the US consumer may be hit by an earthquake. One can hope, but I always feel that it is just a bit out of reach.

Have a good night.


Anonymous said...

It wouldn't surprise me for a surprise, tommorow. BB has done it before on option expiration date. Nothing to instill a little fear in those bears to keep them in line.

The problem with a bear market is it is not straight down. The bear claws you to death slowly. You stick to your positions with counter trend rallies. Hence the expression "Slope of Hope."

Anonymous said...

great blog by the way. you and market ticker are exceptional reading. I work in financial restructuring and the wave is already hitting. friends of mine at hedge funds follow these financials and talk about book value and P/BV being cheap...anytime you have non-zero probabilities that book value could be negative, what does book value even mean! what a joke. I told one guy to buy puts on MBI and ABK back in early December, and he said they were too expensive (vol had spiked, etc)...I bot them though...he was a dumba$$!

Anonymous said...

Hey all!

Yeah Cramer was hilarious in that video!!! The SEC was laughing at his comments as I couldn't stop laughing either.

I am still long on gold and short on hope for this country until everyone comes clean on the dirty laundry we have been cramming down the bottomless hamper deficit pit.


PS I love this site and thanks for making small mention(s) to my beloved metals!

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

I think that the TLD is a dead giveaway something isn't right....


watchtower said...

Yeah, payday loans, why didn`t I think of that, what a great idea.


getyourselfconnected said...

I deleted that payday loan spam comment. Maybe it is a sign a few folks are reading this blog that the spammer thought it was worth leaving a comment?

Thanks for all the real input guys! I should have a post up later tonight. Any rock blogging requests?

Corinna said...

Well said.