Meaningless Market Gyrations Show How Clueless Everyone Is

Sweltering heat all week up here in Massachusetts. I will never complain about heat, just the cold, but you could SEE the air today it was so heavy and humid! Garden update is as follows; Potatoes look good, strawberry plant is going wild, cucumbers starting to grow out well, but turnips and carrots do not look like a go. Also, I seem to have a rampant mushroom growth problem with the lawn. Any tips on how to stop them from the more experienced lawn folks? I will be away for training at an out of state site for my company all next week, so no posting next week.

Weeks Best Articles
Wild and crazy weeks tend to produce good articles. I am becoming a fan of the site Naked Capitalism by Yves Smith, and will be adding his site to the blogroll. Check his work out.

Any of the "5 Things you Need to Know" from this week were spectacular, but yesterday's was the best:
http://www.minyanville.com/articles/depression-california-housing-mortgage-time/index/a/18055

Mish shows his comedic side with a look at the 90% drop in Orange County construction:
http://globaleconomicanalysis.blogspot.com/2008/07/orange-county-office-construction-sinks.html

A look back at a 2005 post by The Mess That Greenspan Made that basically spells out where we are now, 3 years in advance!:
http://themessthatgreenspanmade.blogspot.com/2008/07/valuable-lessons-about-debt-revisited.html

Plenty of others, and please post some of your favorites in the comments that I can read this weekend.

Meaningless Market Gyrations Show How Clueless Everyone Is
The saga that was the week of July 14th through July 18th was a good show. Sadness and despair on Monday in the face of outright socialism, then smile about said socialism, then exuberant excitement about possible lack of socialism! That was alot of ground to cover.

The Fannie and Freddie news was the dominator, as it should be. With backstops, bailouts, loans, and credit line extensions all ready in the wings (not that it is needed!) it was clear the FED and Treasury were removing the "implied guarantee" from the whole GSE game. While government control of FNM/FRE would mean all those shareholders were broke, it at least promised to protect the mythical "system stability" we all crave like a cheeseburger.

This at first made the stocks drop. Then the idea that there was some price for FNM/FRE stock, buyers rushed in. Faced with a new rising stock price, which Mr. Bernanke actually said he WAS TRYING TO ENGINEER, Freddie Mac bum rushed the FED and Treasury by quickly moving to place a huge stock sale for this month. How big? How about 6 Billion dollars, for a 5.5 Billion dollar company! 100% dilution baby, yeah!

So what does it all mean? I can kind of understand the fools out there lining up to buy the Freddie offering. If you rode this pig all the way down, the only way to get any capital back is to keep the thing away from the government. Why not double down your bet? It is usually good advice to gamble bigger when you are down a ton, ask any gambler in treatment they will say the same thing. I wonder if the FED will buy the offering themselves? Who knows.

When you are watching swings of 20% in a stock any stock, on a daily basis repeatedly then things are just plain lost. Right now nobody knows what the GSE's are worth, or any of the banks for that matter. Merrill Lynch had a terrible report, but Citigroup had a "better than expected" report. Which is real? I have no idea. With all of the accounting games these firms play we never know just what is going on.

The gyrations make the markets look silly and foolish. Obviously things are getting out of control. We go from total meltdown to huge upside potential withing hours of each other. I always had a feeling the big money managers were about as smart as a rock, but now I have proof daily. Freddie is a zero, then it rallies a bit, then it goes for a 100% dilution to build capital it says they do not need, and the stock still is going up. OK. Good luck with that one.

My final takeaway this week was from the JP Morgan conference call. Mr. Jamie Dimon the CEO, who I have hammered at times, was brutally honest and forthcoming to a degree. His message: Deterioration is occurring across all credit spaces. Prime loans, credit cards, auto loans, commercial loans, they are all getting worse. That is not good. His dour comments went unheard. I give him full credit for at least trying to warn people.

I wanted to take a position in this market, but the FED's stupid pet tricks and the crazy % swings are making entry/exit points tough to manage. I cannot do daily moves, so this market is just too tough for me to play. If you are out in the mix, beware and good luck!

Friday Night Entertainment
I know it is hard to have so few posts to read, but I always try to deliver the goods on Friday!

Gas Guzzler!
So you are taking the train to work instead of driving, but your gasoline bill is not going down? What could it be?

more cat pictures

I was thinking about the great Dale Earnhardt lately, basically how much less I like racing since he has been gone. So sad. Take a look at Dale's last win from 2000 at the Talladega racetrack where he came from 18th place with 4 laps to go to win the race!


If you are amazed at he whole Guitar Hero craze as I am, check out the hardest guitar song possible on the game by Dragonforce. The song is called "Through the Fire and Flames" and the guitar work is simply baffling. The duelling solos at the end bear watching!:


I heard Metallica is coming out with a new album. One can hope it is good, but if not we always have the good old stuff! Listen to "For Whom the Bell Tolls":


The "Diary of a Madmen" album by Ozzy with Randy Rhoades is one of the true masterpieces of all time. I love all the songs. Try a listen to "S.A.T.O" which features wondeeful guitar riffs and a great tempo:

Have a good night.

JP Morgan to FED: Thanks Chumps!

Strange weather. Late night thunderstorms had the dog all riled up, which was not fun if you happen to want to sleep. It was mostly sunny all day, then as I was leaving work it got very dark and rained very hard for about an hour. Then light again. "Unsettled" is what the weather for caster calls it. OK.

AP Gets Crabby
I am not sure what to make of the whole move the Associated Press (AP) is trying to make. It seems they have taken umbrage to the fact that bloggers all over the universe use their stories in posts. I know I do. I guess there is some concern that AP is not capturing the revenue they are due by this kind of widespread copy making. I guess that is fair enough.

I like Yahoo Finance for most of the news stories I use because I feel that AP and Reuters represent the basic mainstream media reporting that bugs me. If my using the stories from there is not getting back to AP, then perhaps they need to better monetize their material. I think it is useless to try and stop bloggers from excerpting, there are just too many to follow up on. Until I get a clear directive from AP, I will continue to excerpt stories. This may change in the future. Geez, can't even use mainstream stories any more!

Financial Stocks Unhinged
If you have been following stocks like LEH, WM, and WB it has been revealing as an exercise. One day up 15%, the next day down 8%. Day after day. Week after week. What does this mean? Probably two things at least:
One: Wall Street has zero ability to price financial stocks. While this has always been true (due to funny money book keeping) there seems to be a sudden realization of this fact. Add to this the serial dilution that capital raising does and you see that this area is subject to quick and nasty repricing to both the up and downside. Like I have said, the value of an insolvent bank is zero, but a FED bailed insolvent bank has a value of X. Solve for X and you have a trading theory.
Two: How much is short interest playing a role here? Wild swings of 25% from peak to trough have been weekly pretty common, and those kind of swings smack of short covering.

In either case, it bears watching to see the levels of volatility involved here. In a finance based economy I wonder how long things can remain reasonably ok while the money machine companies themselves are broken. We may have one part of that answer this summer when the FED runs out of cash.

JP Morgan to FED: Thanks Chumps!
From my favorite department, the department of "you can't make this up", comes this story from CNBC today about the JP Morgan (JPM) buyout of Bear Stearns (BSC) that the FED felt was the key to keeping the universe from unravelling and the end of the world as we know it:
CNBC
JPMorgan Chase: We Got Bear Stearns on the Cheap
By Charles Gasparino, On-Air Editor 17 Jun 2008 12:36 PM ET
JP Morgan Chase's top investment banking executives conceded yesterday that their acquisition of Bear Stearns was worth far more than the rock-bottom $10 a share price they paid, but that the market turmoil is still taking a toll on investment-banking profits and may result in further layoffs, CNBC has learned.
The executives—CEO Jamie Dimon, as well as investment banking co-heads Steve Black and Bill Winters—made the comments late yesterday afternoon during their first company address to the newly combined investment bank.
Bear was forced to sell itself to JPMorgan amid a run on the bank that nearly toppled the US financial markets as investors bet that bad loans on Bear’s books would leave the firm insolvent. Under the terms of the deal, the Federal Reserve guaranteed $30 billion of those bad loans, while JPMorgan agreed to assume the first $1 billion.
That said, Black, the investment banking co-chief, said the integration of the firm is proceeding "smoothly" and that JP Morgan "got something that has far more value then the price we paid," according to people who attended.

Not to say I told you so, but I told you so! The FED has no idea how sleazy these guys are. JPM not even a half year removed from getting BSC on a cramdown deal by the FED is already out gloating about it. If you were a BSC major stock price loser, you may be even more pissed off now.

I love this story. It shows how shameless JPM is, how foolish the FED is, and what a fix the rest of us are in!

Have a good night.