Monday, February 23, 2009

The Housing Time Bomb Turns 1!/Market Update

Good Evening Folks!

I guess its fitting that my blog turned 1 on a day that the market collapsed! One Year ago today I wrote my first post. It was just a few paragraphs and it ended with this prediction:

"I expect housing to drop 30-40% based on the change of lending standards in combination of higher interest rates. As a result I recommend anyone that is looking for a home to wait at least another year."

Looking back now, my housing prediction on price drops appeared to be on the high side! Seriously, I want to thank all of you that have supported me since I started this voyage. I have learned so much from all of you. Your comments, emails, and support are all very much appreciated.

Hopefully all of you have come here at some point and picked up an article or two or found a nugget that has helped you with your investments.

When I started this blog a year ago, I never would have guessed that it would have grown like it has. The 60,000 visits by all of you over the past year is about 59,000 more than I would guessed when I first started.

I look forward to another great year!

Alrighty, lets get back to business

MY OH MY

AIG! WTF!

What in the hell have they been doing over the last 3 months. In case you live under a rock, CNBC reported that AIG will announce a $60 billion loss for the quarter. That's right folks: ONE QUARTER! This will be the largest quarterly loss by any company in history:

"American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.

Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.

That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn't have.

In addition, if AIG's book value falls below a certain level, as it seems certain to do, it will trigger default in certain of its debt instruments, say people familiar with the situation.

All of this adds up to a huge headache for the Federal Reserve and Treasury, which have already provided over $150 billion of assistance to AIG.

Talks between the government and AIG are focussed on how the company can swap some of the debt held by the government for equity in AIG.


AIG's board is scheduled to meet this Sunday night in hopes of hammering out an agreement with the government. But in case it can't, AIG's lawyers at Weill Gotschal are preparing for the possibility of bankruptcy."


Quick Take:

Isn't this just dandy. What a frickin nightmare. Stocks tanked on the news. The DOW now barely sits above 7000. The S&P broke through the critical 751 area and closed down at 743.

Guys and gals, confidence is totally shot. Stocks were up at the open, but immediately reversed into the red. The AIG news didn't even come out until the market had a triple digit loss. Once the AIG news hit, the market reacted like it just got punched in the stomach.

The fact that the government has kept this outfit alive without firing the whole management team is simply unacceptable. The foxes must be taken out of the hen house everyone before confidence ever gets restored on Wall St.

Remember, 80% of AIG is owned by the government. As a result, the $60 billion loss is almost completely being taken out of our pockets! What a mess.

Obama Backs the Pigmen

In another inspiring move, financial regulators pledged to pour additional capital into our insolvent banks:

"Feb. 23 (Bloomberg) -- U.S. financial regulators pledged to inject additional funds into the nation’s major banks to prevent their collapse and will this week begin examinations to determine whether they have enough capital.

Banks that cannot privately raise the additional capital they need after the so-called stress tests will get taxpayer money, regulators said in a statement in Washington. Government funds would be in the form of “mandatory convertible preferred shares” that would be exchanged into common equity “only as needed over time.” Stakes the Treasury has already bought will be eligible to be changed to convertible preferred shares.

While the new injections could leave the government with majority ownership of several lenders, Citigroup Inc., Bank of America Corp. and other banks rallied on speculation shareholders won’t be wiped out. Officials said that the move would be a temporary effort to ensure firms stay in business and keep providing credit to households and businesses."


Quick Take:

Hey great idea guys! Lets dump some more money into these financial black holes. I think its great that you allow the criminals that ran these companies into the ground to continue to stay in power. What a great formula! I mean hell, look how well its working at AIG! Hey, why fix it if it ain't broke right? I mean gosh, the original TARP capital injections worked so well the first time. Why wouldn't you do the same thing all over again too?(sarcasm off).

Is this all just a bad dream? Am I going to wake up and have to go to work in 20 minutes? The fact that they are going to continue to support these financial fraudsters is terrible policy. A few questions: Why isn't Obama angry? Why does he continue to throw money at these clowns and allow them to stay in power?

I mean I am livid about this whole fraud and I can't even see their balance sheets. You can see the losses Obama and yet you still support these cockroahes! I don't get it. Where is the CHANGE that you promised? You are following the exact same financial policies of the failed Bush administration! When are you going to say ENOUGH and remove the management teams that created this debacle?

The government brilliant takeover of AIG has now cost the taxpayer tens of billions of dollars! Do you think that we are stupid? Do you think we believe this next taxpayer donation to the banks is actually going to work?

How long do you think we are going to sit back and allow you to continue and pillage the taxpayer? The market is losing patience over this policy because they think it won't work! You may find the DOW at 3000 if you continue down this donation path.

Perhaps a change in approach is in order? Ugghh... The whole thing is just sickening.

Bottom Line:

I was mildly short today with a few small positions via SPY and SDS. I kept both of them on. We violated the closing low of 751 on the S&P but the intraday low of 741 held so there is still a possibility that we hold and perhaps bounce.

Folks, if we see another plunge tomorrow like we saw today run for the exits. As I said yesterday, 600 is likely the next stop on the S&P if we fail to hold here. I have been starting to accumulate cash at home. I have been hitting the ATM over the last two weeks. I must admit, I am pretty much scared ****less at what I am witnessing in the markets. This is not a time where you worry about trades folks. Today is a time where you need to be thinking about CASH.

I think a "bank holiday" is possible at anytime. Does that mean I think its going to happen? No. Do I think you should have cash on hand to be safe as we now stare into an unknown abyss? Yes. I advise everyone to keep enough on hand to last you for a few weeks. Better safe than sorry.

Could we be nearing a bottom and bounce from here? Its possible but its not the low for this bear market IMO. Everyone keeps telling me: It can't go lower than this! Oh Yeah? Well that's what I said ten years ago when the NASDAQ hit 4000 then 3000 then 2000 an so on.

Need another example? Take a look at stocks in the 30's when they dropped almost 90%:

Feel free to try and be a bottom caller and buy equities. As for me? No thanks, I'll pass.

13 comments:

Anonymous said...

Congratulation on the 1-year anniversary. Keep up the great works! As always, the information is extremely valuable to many of us.

Jeff

Moff Tarkin said...

Change we can believe in!

Anonymous said...

Personally, I would not trust any modern president, whether he/she is a Republican or Democrat. Running an election is very expensive. Therefore one has to be rich and/or have connections with "rich" people. Once elected, it is time to return the "favors".

During the election, they will say what the common people (us) want to hear. Once elected, it is time to serve their rich friends. No wonder why common people always get screwed by the politicians in DC!

Jeff said...

Thanks Jeff!

Yeah, our political system is pretty screwed up right now.

If they don't watch themselves they may find themselves in deep trouble with the American public.

I never thought our political system would ever be in jeopardy until recently.

I can't believe these clowns would risk blowing themselves up in order to cater to Wall St.

Total insanity

Joey said...

Happy 1 Year

Avl Guy said...

Congrats on hitting the Big "1" .
And blog years are like double dog years so ur blog is really like 14 y.o....a pre-teen!

Avl Guy said...

Yves has been doing a 2-parter on the sham known as Geithner's Stress Test.
Timmy will be the downfall of this administration if they dont kick him upstairs to some ceremonial post.

http://www.nakedcapitalism.com/2009/02/now-its-official-stress-test-results.html

Jeff said...

avl

Thanks bud.

I can't believe its been a year already.

The stress test is a big joke. I won't trust anything until I see management teams getting fired by the feds.

NAtionalization isn't a must, but firing the crooks is in my book. the government has zero credibility until they remove all of the assclowns on Wall St.

Anonymous said...

Those ass clowns should be thrown in the slammer for the crime of the century. This great country is being ruined by the immoral thieves.

Jeff said...

Anon

Couldn't have said it better myself

alex said...

Hey Jeff, I wanted to post here before but now seems like the right time, so congrats on the anniversary and keep up the good work.

Just to put it in perspective, I live in Eastern Europe, my country's stock market is more than 90% down from the highs of 2007 and it's nowhere near done falling.

I've been learning quite a bit reading your posts, links as well as the comments page. Thank you.

Jeff said...

Alex

Your welcome. Thanks

I am sorry to hear about your market.

I hope you have been able to avoid some losses over there.

I was in Vienna and had a chance to spend some time in Eastern Europe and I thought it was amazing.

Good luck and I hope things turn around over there soon.

Minton Mckarkquey said...

Happy Birthday to my favorite blog! Keep up the good work.