Market Confidence Continues to Weaken

Just a few comments tonight.

The markets traded sideways today as the interventions, fraud, and confusion continue to paralyze Wall St.

Volume was on the light side as the "casino" like trading continues on Wall St. We are pretty much in uncharted waters here when it comes to the markets folks.

Madoff's fraud continues to make headlines, earnings continue to be dreadful, and Bernanke continues to confuse the markets as he tries to throw everything but the kitchen sink at the market in an attempt to prevent the most serious economic downturn in the US since the '30's.

This all adds up to confusion and uncertianty in the stock market. Bernanke's speech today over in the UK is a perfect example:

"Jan. 13 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke warned that a fiscal stimulus won’t be enough to spur an economic recovery and that the government may need to buy or guarantee banks’ tainted assets to revive growth.

“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” Bernanke said in a speech today at the London School of Economics. “More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.”

Bernanke’s remarks indicate he may be seeking to influence deliberations among lawmakers and President-elect Barack Obama’s economic aides on how to deploy the next $350 billion of the financial-rescue fund approved in October. While some Democrats have focused on offering aid to troubled homeowners, the Fed chief’s comments show he’s more concerned about a continued choking off of credit to companies and households.

Bernanke reiterated his call for a regulatory procedure for resolving a large, failing nonbank institution. The absence of such a process hampered policy makers during the failures of Bear Stearns Cos. and Lehman Brothers Holdings Inc. last year.

“A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions’ balance sheets,” Bernanke said. “The presence of these assets significantly increases uncertainty about the underlying value of these institutions and may inhibit both new private investment and new lending.”

My Take:

Please take a minute to read that whole peace. My god, I am as confused as ever in terms of what the Fed plans to do after reading that speech. This dude needs to make up his mind and stick to one thesis!

I have some TARP questions Ben:

So what option is it going to be Mr. Bernanke?

What black hole are we throwing this $350 billion into?

Is it going to be all of the above?

Are we going to form bad banks so that we can take the financial trash out to the dumpster?

or

Are you going to buy these troubled assets(aka Sh*t sandwiches) yourself and hold them directly?

Do you plan on using the TARP money to bailout homeowners who were slayed by the housing Ponzi scheme?

Are you planning on giving the banks more capital injections?

Here is the most important question that I have for you Ben:

How in the hell are you going to do all of this with a measly $350 billion?

The answer to that is easy. He can't do all of this and his plan is going to fail because the losses are far too great for the Fed to absorb unless he attepts to print out of it. Lets all just pray he doesn't pull the trigger on this option.

It appears this $350 billion will be pissed away just like the last $350 billion. He will try to stimulate lending that doesn't exist because know one has any credit left anymore. He will throw more money at worthless companies. I hope Congress shoves this proposal up his you know what.

Mr Bernanke, how does this idea sound?

How about we use the TARP to create good banks versus creating bad banks?
Healthy banks would actually have the assets to lend. Once you got them established, why don't you then run off the current banks that created the greatest financial fraud in economic history via our housing bubble?

You would then have the option to hold onto these near worthless assets until they are more valuable. The other option you would have is to let private equity set a market price, and you could then sell them off and take the hit without risking our banking system in the process.

I say lock away the current banks along with the fraudsters that ran them and throw away the key.

The bottom line here is there is no need to work on creating bad banks! You already have them!!! Just take a walk down Wall St and you will see more bad banks than you know what to do with!!

Bottom Line:

Rant off. Speeches like the one above do more harm than good. How are you supposed to invest or buy a house when the Fed keeps changing the rules? Wall St. needs to be punished for what they did and the fact that they have gotten a virtual free pass infuriates me!!!

At least the UK fired all of their bank CEO's and took large stakes in their banks when they nationalized their banking system. They also destroyed the compensation packages for the pigmen going forward.

Why didn't we do the same thing? If they want to try to work out of this economic crisis using the current banks then they should rip them apart and exterminate all of the roaches that have infested our financial system. The fraud needs to be cleansed before its too late.

I can't believe how soft this country has become. Our lack of coping skills when it comes to our ability to take pain is what will end up being the downfall of our economy. The Fed is going to end up having its hands in too many cookie jars trying to save everyone. I see this as inevitable now. When the money we use to finance this monstrosity stops flowing into the US via othercountries, the music is going to immediately stop.

When it stops, find a nice strong chair to hide under.

Gambling

For the time being the trading section will have a new name. That's because the government interventions have made investing or trading in our stock markets virtually impossible. I am sitting on my hands right now because we sit at very dangerous levels heading into options expiration on Friday. I don't plan to do much throughout the end of the week.

We should see a sharp move on Friday but I can see it going either way. The S&P closed at 871. There is pretty strong support at 850. If we breakthrough 850m, it is entirely possible that we are headed back to the November lows.

Warning: TA has not been very accurate over the past several weeks folks. Anyone using such analysis needs to realize that we are in a market that is unlike any other thats been seen before. I read many top notch TA newsletters and they have not been very consistent. In fact, I would have to say that many of the best newsletters have been flat out wrong lately.

Just something to think about when it comes to using TA. Remember, how did the Wall St. quants TA strategy workout last year? Uhhh...not very well. Most of them were slaughtered throughout this downturn. TA is important but it can also empty your trading account. Play small in a market like this folks.

If we somehow break through the November lows this week, Lucifer may pay us a visit. My best guess is we won't test the lows quite yet. Expect high volatility throughout the rest of the week. An Obama bounce has to be on the table for next week as we head into inaugeration. One item to note. The last 3 or 4 options expiration weeks were extremely volatile. The fact that we sit near the middle of the trading range heading into expiration makes this a difficult entry point.

Enter at your own risk.

Stay Tuned!