Gee, what a shocker. As reported by CNBC above, neither party can agree on where to price the assets that are on the banks books. Translation: The price Washington wants to mark down the assets to puts 70% of the big firms out of business. I don't see how this gets resolved folks. The bad bank in its proposed form looks to be dead.
There is only one way to solve this crisis and I will continue to harp on it. Nationalization is the only way this mess gets cleaned up. I think Washington will eventually come to this realization once they find out how fraudulent these firm were during the housing bubble.
You know its pretty clear what happened to all of us during this supposed "boom". We were all basically scammed by Wall St. You can call it "Punk'd" if you want to be hip. The public is getting increasingly more angry about getting robbed as they continue to struggle and lose their jobs. I think Washington has finally caught wind of it. The politicians are beginning to realize that they risk losing their constituents if they agree to bail out these greedy group of criminals.
Understand one thing here if this is what has happened: If it comes down to helping out their Wall St buddies vs. getting re-elected guess which side a politician is going to take? Let me answer that Alex: Wall St your screwed!
What everyone now realizes is the housing "bull market" was nothing but a fantasy. You can also call it a sham. It did nothing to grow the economy. As you can see below, real GDP growth minus the housing ATM was virtually non existent even during the boom:
Housing prices exploded during the boom despite the fact that wages in this country have been virtually flat or declining since 2000:
What happened during the housing boom was nothing but a massive transfer of wealth from the poor to the rich. We were all basically flat out robbed by Wall St. Call it a reverse Robin Hood. Look at the wages above. Median household income really hasn't moved significantly higher in the last 40 years!
How in the hell did we ever get here folks? We make on average 12 grand a year more per household versus 1966 yet housing is probably up 20 fold over the same period. The only way we got here was through exotic lending products that were devised by Wall St to rob you of all of your wealth.
The bankers sold us this mantra: "Don't save anything America. Just invest all of your money into a house. It will double 5 years from now." Yeah right. How did that work out?
The bankers finished this game with billions and a fleet of private jets while you the people ended up unemployed with a $2500 a month mortgage that you have no idea how you are going to continue to pay.
Bottom Line
Paybacks are a bitch and Wall St is about to learn a brutal lesson. Obama appears to be severely agitated by this whole thing. Now that Washington has gotten a chance to really dig into this problem they realize how bad it stinks. Senators are now proposing legislation that caps bonuses. As we tumble into a depression, Congress and the American people will demand that heads roll as a result of this pillaging of the middle class. They will accept nothing less!
Trading
From a trading perspective it was a very profitable day today. Once the GDP # came out better than expected and the futures didn't move I smelled blood in the markets. I took down all of my longs and went short via SDS and SRS calls. I already owned some QQQQ PUTS and SPG PUTS going into the morning.
I had some work to do in the afternoon so I sold My SDS and SRS at a nice profit once we dipped down around 120 points. I held onto the other two. SPG was the only disappointment today. They beat earnings but announced that 90% of their divi would now be paid in stock. The stock was down $3 at one point today but bounced back and closed down only $1.50 or so. I thought there would have been much more damage here considering the meltdown in financials today but I guess a beat is a beat when it comes to earnings.
I stayed short on the Q's and SPG headed into the weekend mainly because I didn't get home in time to take them down.
I don't know what Monday will bring. Closing right at 8000 makes things interesting. This is where the bulls have repeatedly defended themselves. If we break south on Monday I think we test 741 on the S&P. If we break down from there, it may be time to pay Lucifer a visit.
There is certainly a valid case to be made in the other direction. If 8000 is successfully defended, we could see a nice bounce out of oversold conditions. We also have a desperate Treasury that could roll out a bailout at any time here. I think I will most likely get out of the way and sit on my hands on Monday.
I have a busy weekend so I am not sure if I will have a chance to post anything.
Enjoy the Super Bowl and Go STEELERS!
26 comments:
Hey Jeff,
Even if the gov. manages and digestable stick save for the banks, isn't the real damage already done?
Since the market can't seem to rally anyhow, I imagine prices are too high regardless. No?
Joey
Thats exactly what I thought when the market rallied only 200 points after the supposed bad bank "sticksave of the century" was created. I thought thats it?
That have been short since but I gotta think we get a retrace here at some point.
I am still pissed that I got headfaked out of my treasury short on Wed. That would have paid off huge because I had calls on TBT.
What are your thoughts after today? I am on the fence.
Those are two efficient charts, Jeff: they'd save me a 1000 words of typing.
Can you cite the source?
The MEW graphic is extra-critically relevant because (to beat a dead horse): the creditworthiness, on average, of American households is deteriorating and making a sham of populist harangues of banks to 'lend more'. Only a few biz-2-biz projects merit creditworthiness in this environment. Back when I was a lender, we always explained that our loans were not grants; the bizarre truth is, today, most loans to consumers (on a scale that would matter to GDP), or most any project with a consumer-based pro forma, is in essence 'a grant'.
Note: Mega-Mall’er, Simon Properties, said mall construction is maybe dead for a decade.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aId.u_N9CC88
Jeff,
IMO (and I stress IMO) I think we're gonna fall (% price distance from the 200MA be dammed).
I think we fall because clearly there is no "value" in the market other than for scalps, day trades, and maybe (though its becoming increasingly difficult), swing trades.
Those "investors" that remain in, imo, do so in hopes of re-couping at least part of a losing position.
I believe the speed of the crash / decline IS IN FACT DIFFERENT THIS TIME because information is so readily available from many more reliable sources other than broken traditional media outlets (1000x more so than during the 2001 crash).
I believe because of this information accessibility we will have nothing to compare this to and must trade not based on solely on historical predispositions.
The more people learn (research) the less confidence we'll have in the system / market. The wealthy and well connected aren't necessarily running the show anymore. The people are.
Again, my opinion
Hope the job is going well.
AVL
Glad you liked them. The earnings chart is from the US census via PNC bank.
The second chart I picked up last August and I honestly can't remember the source. It was credible. I don't use it if I can't verify it.
I hold onto a bunch of charts and use them when appropriate. Wait until you see the Japan charts I picked up a few days ago.
SGP is a pig and its only a matter of time.
Joey
Great thoughts.
I agree. I know I am much more educated this time about how to trade around this mess.
I was one of those shleps buying when the NASDAQ was at 4 and 5000 back in 2001. It took a lot of time and research to realize how rigged this game is. I also had some help from some pigmen themselves that I am close too from growing up together.
I always try to learn from my mistakes.
I like your thesis. I am struggling with this Fed bailout thats coming in the next few weeks. I will be playing small ball until I hear from Geithner.
Been lurking here since the beginning and great post as always (I've read each of your posts) but the Steelers? I thought you were a Baltimore guy. At least I know where I can find you on Sundays during regular football season - NcDevins.
Kevin
LOL Sorry man. Born and raised out in Pittsburgh. I bleed black and gold.
Baltimore is a great city and the Ravens had a hell of a season. Flacco reminds me of Big Ben. The Ravens have a great future.
Glad you are enjoying the blog.
J
Oh and yup...Love NcDevins out in Canton. I feel like I am at home when I am in there watching a game.
Jeff, speaking of graphs...that other blog, CR, must have been inspired by ur post because he ran 20 in today's post blog...enough to induce vertigo if u have a fear of falling from inflated heights...and nausea.
But the graphics represent a compelling case against incurring more debt (or helicopter money) to jump-start spending into deeper debt. That the 'Brightest Administration' cant grasp this is unfortunate. As Winston said, "you can always count on America to do the right thing...after first exhausting all other alternatives".
How many years do we have to wait before they realize 1) you cant stop foreclosures while joblessness is rising, 2) you cant stop rising joblessness when ur economy is dependent on debt-riddled consumers going further into debt, 3) you cant re-jigger ur GDP without re-embracing production as well as lower domestic wages or far fewer imports, and 4) U cant make lower wages work unless housing is cheaper and services (medical etc) come down in price, and 5) U cant do #4 unless u allow deflation and debt unwind to run its course.
I say they don’t realize any of this til after the 2010 mid-terms, if then.
AVL
Yup
Totally agree with all your points. I had a very interesting meeting with a close friend from FHA.
Apparantly lending standards took a huge turn for the worse in the last 7 days.
Its Steeler Sunday so I am not sure I can get to it tomorrow but I will next week. PMI just got A LOT TOUGHER TO GET if you don't have 20% down.
Stay tuned
Define "worse" Jeff. It sounds like you're saying lending standards became a lot tougher, which would be a very good thing in my book. In this market and economy, people should not be able to get FHA loans with 3-5% down.
Speaking of CR, he had a good post and link to an op ed in the WSJ about how we should allow foreclosures to happen. Some compelling arguments, but obviously that won't rule the day.
http://online.wsj.com/article/SB123336541474235541.html
"The Fraud of the Century" are your SRS babies, Jeff. When this shìt goes up then less than the daily 200%. When it goes down then more than the daily 200%. This paper is a piece of shìt. A complete scam. This is how WallSt works and we are keeping the wheels rolling. What a bunch of idiots we are.
Maynes,
The 2x ETF's require a great deal of understanding but mostly luck. Following the the index being shorted is much better than looking at numbers on the ETF. They may not be exact but, when they work it's fanta$tic. That being said take a look at the graphs for SRS IYR SKF and IYF. SKF seemed to hold up much better than SRS with similar performance of the underlying index.
http://finance.yahoo.com/echarts?s=srs#chart2:symbol=srs;range=1y;compare=skf+iyf+srs+iyr;indicator=volume+stochasticslow;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
I can't figure out why SRS has lagged so much, but I can see it in my account balance.
Note: made a boatload of $ on SRS and then lost 2 boatloads. I feel your pain.
ZMon
FRom What I understand mortgage insurance guidelines were tightened in the last 7 days.
I was speaking to a friend who sells Fannie, Freddie, and FHA loans.
You must now have a credit score of 680-700 in order to qualify for morgtage insurance(PMI). No exceptions. Period
Anyone under this credit score must have 20% down in order to buy a house. Even then they must have a decent credit score in order to qualify for a house.
These new lending standards just severely shrunk the pool of potential buyers that can qualify to buy.
This will only further pressure prices on housing. This negative feedback loop is going to devestate housing.
The more I read the more I understand how bad this problem is getting. I am starting to wonder if a 50% haircut on housing is too conservative.
So we have massive inventories, fewer buyers that can qualify, and banks that are broke and have very little money to lend.
This is going to get real ugly
John
The slippage on SRS is very difficult to guage. Shorting IYR is a more consistent play on shorting commercial.
You are dealing with a derivative leveraged based ETF that doesn't directly correlate with IYR. It acts goofy at times and the slippage is huge.
I continue to believe that commercial and the homebuilders are both showing some strength based on the perception that they will get some sort of government bailout.
My thought here is good luck! The government can't afford to bailout the banks. I don't see how these sectors think they are going to get saved.
I have reduced my SRS position. I am going to start shorting homebuilders and commercial REITS like SGP.
I need to hear Geithner's plan before I put these on. TOL is my favorite potential homebuilder short.
These zombies will go tits up before this crisis is over. The tougher lending standars were just another nail in the coffin.
oppor
I totally agree
Short some IYR if you can. SRS slippage is a huge problem.
The bottom line here the levels of fear in commercial and the financial sector are not what they were back in Sept/Oct when Lehman and AIG went bye bye.
We are starting to get back to these fear levels and I expect SRS to come back.
It may not reach the levels that it previously did however. You also need to start worrying about the health of the banking system with some of these ETF's if you are holding them long term.
If a series of banks fail, SRS could vanish because its derivative based using counterparties(banks).
I would try and hold these more short term now. I have been using these for scalps recently although I do hold a some SRS in a long term account.
GL
Jeff,
Congrats on the Pittsburgh win. No matter what the market does today, there should be some happiness. You had a scary couple of minutes there at the end.
The difference between 2x inverses and the underlying stems from the way they are structured. They move 2x on a percentage basis, but reset each day. So this means they really outperform when the underlying is trending strongly, but underperform if there is whipsaw, especially if the daily ranges are large. Here's a thought experiment, say both start at 100. IYR goes up 10% day 1 to 110, then day two declines points to return to 100 (a 9.1% move). Net change zero. SRS though, drops 20% to 80, then climbs 18.2% the next day to finish at 94.56. End result, underlying is unchanged, but 2x is down over 5%! Similarly, if the underlying keeps chugging along in one direction, the 2x will compound all the gains, and you'll end up with more than 2x gains.
Woodboy, I know mathematics. You don't have to show off your college math. The problem is that SRS doesn't go up 200% when the underlying stocks go down and it goes more down when the underlying stocks go up. This is just a scam. Proshares takes this extra profit. Do your homework and stop stating the obvious.
Listen jackass, first off this is not college math it's sixth grade arithmetic. Second, I do my research, which is why I short IYR instead of buying SRS. Here's the last month worth of percentage changes of IYR and SRS. Yes, the tracking is off, sometimes quite a bit, but it's not consistently in one direction as you state. And if you hold this for a long time, the fact remains that most of the divergence stems from the compounding effect rather than tracking errors.
IYR 2x% SRS %
3.92 -3.81
-9.92 9.99
6.76 -5.61
0.89 -2.25
9.21 -8.66
11.64 -11.91
-6.02 5.91
10.37 -10.61
-5.79 6.16
-7.35 6.80
21.64 -19.97
-19.92 19.24
10.15 -8.98
-6.34 5.48
1.68 -1.05
-3.63 2.44
-15.92 16.30
15.66 -13.79
6.36 -6.50
Schoolboy, you have to look at the underlying shares and their weightings of SRS - not at IYR. Do your homework. When you're finished you can come back and post your results. :-)
Come on fellas
Keep it respectful here. Lets all just agree that SRS is not a long term hold.
Zmon
Thanks by the way on the 6 pack Steelers! One for the second thumb.
They are calling That interception by Harrison the "Immaculate Interception"!
It was nice to have something to feel good about. Writing about gloom and doom can get pretty depressing:)
I will have something up later. It might not be much. I am hungover and beat from last night!
I'm sorry, Jeff. I admire how calm you are. Don't you still have SRS in your portfolio?
John
No problem.
Woodboy
Thanks for sharing your thoughts on SRS. This ETF creates more controversy than any other investment vehicle I have ever seen.
I own just a tad in a long term account. I am not too worried about it.
I am only going to daytrade SRS going forward. Both of you make good points. Its not a perfect inverse and Proshares is expensive.
I will short IYR going forward when I place larger bets on shorting commercial real estate.
I wish the Fed would come out of their new plan. The market looks to be on hold until we hear what Geithner is going to do.
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