Tuesday, March 3, 2009

Quick Note

Home a bit late and I have to do a couple of errands this evening, so just a quick post.

So Which Is It?
Late last week and most certainly today there has been a ton of talk about this being "the bottom" or the possibility for an economic recovery late in 2009. I just wanted to know:

IF this is the greatest economic catastrophe since the Great Depression, and IF we are facing "Systemic Risk" daily, and IF there has never been a credit crunch of this magnitude in history...

THEN how is all this going to get resolved by the end of 2009? How is growth going to return at anywhere near the silly dream numbers being discussed (3-3.5% for 2010)?

It seems to me that you cannot have it both ways. Either this whole thing is a big scam to promote wasteful spending and mega bailouts for the financial class or there is no way GDP is going to grow in 2010. What say you all?

A Little Hedge Help
I had wanted to write tonight about the whole AIG drama. Time constraints and a lack of knowledge have conspired to stop me. I will have time tomorrow, but the knowledge may still be lacking.

I read today that JP Morgan had fully "hedged" its insurance CDS exposure to AIG and thus was not in trouble should AIG go down. Let us put aside whether that is pure bullsh%t for now. I would like to know how a firm goes about hedging CDS and other exotic instruments. If indeed everyone is hedged all around, just what is the problem here? If all is covered there should be no AIG bailout at all. That AIG is getting the biggest bail in history (so far, but it is only March!) we know intuitively that this is false. Who can help shed a little light by comments or articles? Any help is appreciated.

Have a good night.

6 comments:

Anonymous said...

GYSC

I wouldn't write a whole lot about AIG, were just getting warmed up here.

Hartford Financial Services Group Inc., the insurer that lost $2.75 billion last year, was downgraded by Standard & Poor’s for the third time in a month on concern that the deepening recession may hurt the brand.

S&P cut the counterparty credit rating to BBB from BBB+ and said capital needed to fund Hartford’s variable-annuity business could “meaningfully exceed” the amount that’s not committed to other parts of the company, according to a statement today.

“Hartford’s earnings, capitalization, and financial flexibility have been weakened considerably by the deepening equity market decline, continuing volatility, and significant asset impairments in the past two quarters,” the statement said. “The uncertainty of this financial stress could erode Hartford’s brand.”
http://www.bloomberg.com/apps/news?pid=20601110&sid=asNex1viw4iw

It's going to be like domino's one right after the other.
Just like shooting fish in a barrel.

Kevin

watchtower said...

I ran across this article on the Financial Sense website tonight:

PADDLES! * CLEAR! * FLAT LINE...?


"...of course, the epicenter for all the high anxiety continues to reside in the market for Credit Default Swaps where AIG is the kingfish. One can only presume that were AIG to fail, or to see its vaunted Moody’s Credit Rating actually downgraded to junk, the chain reaction financial holocaust which would be unleashed would probably force a global system-wide heart-attack of the non-revivable variety..."

http://tinyurl.com/1w56

It's probably not of the depth and scope that you are wanting to see, but it did catch my eye tonight.

Lisa said...

GYSC,
The biggest scam is the CDS's written by AIG, or anyone else for that matter. I'm not an expert on this crap, but I know that JP Morgan has the largest holding of derivatives. JPM and Goldman Sachs and foreign central banks are hedged all right...with OUR money. One day this will be written about as the biggest fraud ever committed.

watchtower said...

Here is a quote by Teddy Roosevelt that pretty much sums up exactly where I think we are today in America (I picked the quote up from a James Quinn article titled "Stairway to Retail Heaven" http://tinyurl.com/amdlxw )

“The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get rich quick theory of life.”


To me that man is starting to look like a visionary.
That just hits the nail right on top of the head IMO.

I'm just an ordinary guy I'll admit, but I can still remember stumbling upon KD's Market Ticker site and thinking "holy cow this guy makes a lot of sense"
I was 100% invested in the market at that time but after reading KD's thoughts on what was going on I couldn't shake the feeling that this guy was on to something.
I called my broker and put my money where my gut was and cashed out (dow was 13700).
It was probably the single most "gutsy" thing I have ever done in my life.
I was ridiculed at the time (especially when the dow hit 14000) but I always felt that I had made the right decision.
I guess what I am saying is that I have the same gut feeling that we are not going to pull out of this unscathed. When I read about the incredible debt that has been rung up over these years, not to mention the out and out fraud, I cannot convince myself that we as Americans are going to get a "get out of jail" free card.

I am preparing accordingly.

Lisa said...

LOL, I just finished reading Quinn's article at Financial Sense. I don't agree with everything he says, but the article is chock full of great information and charts!! And the quote bears repeating:

“The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get rich quick theory of life.”

Anonymous said...

Watchtower,

Holy cow man! Way to go! You broke from the pack when the time was perfect and now I bet your set to weather the storm and buy back in when the time is just right.

The word of the day is "BEZEL".

I like it.

Guys:

Market is in turmoil.
Market confidence is gone.
Market is manipulated.
Market is infected.

Less and less will make sense the farther down the rabbit hole we go.

Not to sound wacky or cruel but the individual is powerless to stop what's about to happen. I no longer need to beg my family to listen or for my coworkers or friends to listen to me on how to prepare. There is going to be a mad panic/rush/stampede for the door and everyone will be trying to get out the same way. Best have yourself and yours out of harms way way in advance.

G

PS: ENDGAME