Friday, February 29, 2008

Freefall Friday

The forecast is for another 7 plus inches tonight here in Massachusetts. Fun stuff indeed. I will be a little short on time tonight due to a later work day, and I have to have time to rock blog of course! I am giving a shout out to reader Watchtower who correctly guessed the film reference made last night in the LOL cat caption. Nobody has picked up on the "Major Award" reference as yet.

Freefall Friday
Stocks were down all day and closed at the days lows. The reason most cited was "economic worries" or some such silly thing. Watching the markets over the last 2 weeks without blogging on them has given me some time to try and see some form of a pattern that has been in place for about 2 months now. The cycle of the markets right now is basically:
  1. Some bank, lender, hedge fund, investment firm reports a horrific number with staggering losses.
  2. The markets sell off hard
  3. The FED sends out some face to say basically "the FED is ready to cut rates"
  4. The markets rally on the rate cut news
  5. Oddly, gold and the dollar do not rally on the rate cut news
  6. Things are choppy for a bit
  7. Gold rallies big and the dollar tanks without news to spark the move
  8. Economic data shows credit issues remain
  9. Markets look for signs of an end to the credit issues even after there is not one good piece of news
  10. Another company reports more poor numbers and we repeat at number 1

Simplistic I know, but that cycle is on about a month and a half time frame and has been VERY consistent. If you are the sort that can do quick trading, timing the top and bottom is pretty easy (even for me!) and there lies a good trading opportunity.

My take on the whole thing? The market seems to want to rally very much. The problem is that for any real move to happen there needs to be a span with no indisputable information that the credit issues still are real and are still here. Obviously that cannot happen. There lies the problem. At some point all the players are going to have to acknowledge that there are serious impairments to the system and they must be dealt with. This fact is in NO WAY reflected in equity prices at this time. When the FED rate is at 1% in August and a major bank comes clean and faces bankruptcy, things will get very interesting indeed.

Scary Thought

You may have heard the statement lately that something along the lines of 93-95% of all mortgages are paid on time and that only 5-7% are delinquent. I am not debating the numbers and they really do not matter anyway. The point is, say even as high as 10% of all mortgages defaulted, how exactly would that be able to crash an entire financial system? Still thinking? I would submit two things:

  1. Insane amounts of leverage exist and in fact are the basis for our financial economy (read FIAT money system of ever expanding debt/credit)
  2. There is no hard asset base to back any of this phantom money

I know that will not come as news for many readers here, but it could be that simple. I wonder when, if ever, some realization of how fantasy land our whole deal is will happen. Remember it is in the best interests of the rich and political to make sure that NEVER happens. I have a poll up tonight on the whole mortgage mess so please vote.

Enough somber musings! It is Friday night, and I recommend a beer and to get hyped up with a bit of rock and roll.

One of the saddest band collapses ever has to be the demise of Guns N Roses. That band had it all! One of my favorite songs is "You Could be Mine". Unbelievable drums, edgy vocals and great guitar work:

One of the all time great iron Maiden tunes, "Wasted Years":

A little Van Halen with the masterful Eddie Van Halen in "Panama":

The true master of the guitar Randy Rhoads with his guitar solo from the live album "Tribute", again the single greatest album of all time:

Have a good night.

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