Saturday, December 20, 2008

The Fed's Bailout Bonanza!

My Gosh

I go out for the evening to a holiday party and I comeback and see that the Fed has lost its mind.

We wow how the TARP and an new version of the TALF. I think the next bailout should be called BARF because that is what I feel like doing as I watch the taxpayer being forced to bailout America. Below are the two articles on the Fed's recent endeavors. I will have some thoughts below.

It appears that Congress has agreed to release the second $350 billion to the FED from the TARP.

"Dec. 19 (Bloomberg) -- U.S. House Financial Services Committee Chairman Barney Frank said Congress will release $350 billion from the bank-rescue package after lawmakers, President- elect Barack Obama and Treasury Secretary Henry Paulson agree to provide foreclosure relief and aid to automakers.

Frank, a Massachusetts Democrat, said he plans to introduce legislation with Senate Banking Committee Chairman Christopher Dodd to release remaining funds in the $700 billion package next month. The bill will include homeowner help and short-term loans for General Motors Corp. and Chrysler LLC, Frank said in a telephone interview today.

“We should have an agreement among Obama, Paulson and the congressional leadership to release the $350 billion with conditions on how it’s spent,” Frank said. “We need the second $350 billion, but it can only be done if there’s an agreement as to how to do it.”

Here is the announcement of the new TALF:

"Hedge funds will be allowed to borrow from the Federal Reserve for the first time under a landmark $200bn programme intended to support consumer credit.

The Fed said on Friday it would offer low-cost three-year funding to any US company investing in securitised consumer loans under the Term Asset-backed Securities Loan Facility (TALF). This includes hedge funds, which have never been able to borrow from the US central bank before, although the Fed may not permit hedge funds to use offshore vehicles to conduct the transactions.

The asset-backed securities to be funded under the programme are pools of credit card receivables, automobile loans and student loans.

The idea is to increase the supply of these loans and reduce borrowing rates by ensuring that the companies that make the loans can sell them on to investors who have guaranteed access to low-cost funding from the Fed.

The TALF is a key plank of the unorthodox strategy set out by the Fed last week as it cut interest rates virtually to zero. Washington insiders expect the programme will be dramatically expanded next year with further capital support from Treasury once the Obama administration takes office.

A senior official in the outgoing Bush administration told the Financial Times it could also be broadened to include new commercial and residential mortgage-backed securities."

Final Take:

I think my head is going to explode after reading these two articles! The Fed is going to turn me into a frickin mental patient. Is there anything that the Fed isn't going to bailout? The last line that I highlighted explains the move in SRS this week.

Is it just me or did did the Fed just hit the PANIC button this week? Its obvous things are spiraling out of control here folks as the debt bubble continues to spring leaks everywhere. The first $350 billion in the TARP lasted all of 3 months. Paulson had said previously that he wasn't going to request the second half of the TARP before the Obama administration took over. I guess that idea just flew out the window!

Bottom Line:

Things are falling apart at lightning speed again. In just one week the Fed and Treasury have dropped rates to zero and released the second half of the TARP. They also created a new bailout that allows hedge funds and any other US company to borrow from the Fed in an attempt to support consumer credit and potentially commercial lending. This is desperation folks, pure and simple.

Let me repeat: This is insane and again does not fix the problem! There is no demand to borrow. Americans are up to their eyeballs in debt and are struggling to payoff what they have already borrowed. They are also losing their jobs at an alarming rate as they attemot to pay it all off.

When is the Fed going to realize that WE DO NOT WANT TO BORROW ANYMORE! Stop wasting the taxpayers money in an attempt to re inflate a debt bubble that you cannot prevent from bursting.

At some point helicopter Ben must be stopped. It appears that the press has had enough of this crap as well. Naked Capitalism is reporting that Fox News is now suing the Treasury in an attempt to gain more information around the TARP and the AIG bailout.

Hooray for Fox. Bloomberg has also done the same. God I hope they succeed This must be stopped before they destroy this country force us to drown in our own debt.

In the meantime be very careful trading here. Fighting the Fed's balance sheet can be a costly game. "Don't fight the Fed" no matter how crazy they are in the short term. Some longs are going up on Monday. I will discuss them tomorrow. This is all going setup up the shorting opportunity of a lifetime down the road but we are not quite there yet.

It appears the bursting of the debt bubble is going to happen in the near future. When it does, find a strong steel table to hide under.


John Maynes said...

In the meantime be very careful trading here. Fighting the Fed's balance sheet can be a costly game.

Jeff, will you be selling your SRSes next week?

flipdippy said...

Yes - would be interested to see if you are holding.

I was trading some SRS this week but may have to get out Monday and buy in lower.

Trying to time when the market will captiulate and resume its downtrend could make you poor.

Jeff said...


I don't think so. Its not a huge position and I have the ability to hold it for awhile. The Fed intervention could hurt SRS further short term.

Short term there are better opportunities.

I am going to hedge myself with some longs incase there is further pain on SRS.

The market eventually will eventually realize that these Fed interventions can only go so far.

They have already done way more than I could have ever imagined so it makes trading the market tough. It appears they are in panic mode and who knws what else they have up their sleeve.

The sidelines are probably best here while this Fed crap gets digested by the market.

Playing small and hedged is advised if you like having skin in the game.

Jeff said...


Those are my thoughts

Any big move lower and I am going to put a large position on this sucker.

Try to follow the Fed when trading right now. The market is the Fed at this point. SRS has gotten killed on the potential bailout of commercial.

History shows you the stocks involved in the bailouts all move higher on the news but eventually get pummeled.

I will back up the truck if we see the 30'3 or 40's. That is going to be one hell of a trade if we get there.

Growler said...

Holy Sh'nikes!

hmmmmm.....if I were a distressed debt vulture fund, would I be happy as hell or down in the dumps?

My first thought is they can profit handsomely by borrowing from the Fed, allocating x amount to funding the highly credit worthy while using other amounts to purchase distressed debt with very low capital costs (of course those that they buy it from will have their own problems to contend with but at least their balance sheets can begin to get cleaned)...... (pondering)

On second thought....

Can someone please tell me why I don't have a Hedge Fund?!

Jeff said...


totally agree but its a little early to start buying distressed debt

Prices have further to fall. Some of this debt will

Go for pennies on the dollar. We are getting close though!

Minton Mckarkquey said...

Bailing out hedge funds? Ok, I'm moving to Canada...

Jeff said...


I hear you!

I am starting to question where in the hell can you move to and be safe!