Thursday, April 30, 2009

Dazed and Confused

That's how the market looks to me right now.

We have gotten pretty choppy in the markets here as of late. 875 on the S&P is becoming an area of serious resistance for the bulls. We have seen several failures at this level. Stocks closed pretty flat today as investor's digested the Chrysler BK news. The S&P ended the day at 872.

Treasuries continue to sell off as the bond market continues to pressure the Fed. Yields were up slightly. Futures are down pretty sharply after hours. Tonight should be interesting to watch.

It was a pretty quiet day so I will keep it pretty short.

I wanted to share a couple pieces of news that could be potentially significant. Mortgage insurer MBIA sued Merrill Lynch over subprime debt protection:

"April 30 (Bloomberg) -- MBIA Inc., the largest bond insurer, said that two of its units sued two Merrill Lynch & Co. businesses now owned by Bank of America Corp. over protection sold against mortgage-debt defaults.

The suit, filed in New York State Supreme Court, seeks to unwind $5.7 billion of credit-default swaps and related insurance sold against collateralized debt obligations, as well as recover damages, Armonk, New York-based MBIA said today in a statement.

Merrill Lynch misrepresented the nature of the debt being protected as part of a “deliberate strategy to offload” billions of dollars of “deteriorating” subprime mortgages, the insurer said in the statement."

Lawsuit #2

It appears the tan man is one step closer from being forced into court in Florida according to the WSJ:

"The Florida Attorney General's office moved one step closer in its effort toput the former Countrywide Financial Corp. chief executive on trial.On Thursday, a U.S. District Court judge remanded a lawsuit filed by the stateof Florida against Angelo Mozilo back to Broward County Civil Court.

The action came in a case filed by Florida Attorney General Bill McCollum,alleging that Mozilo and Countrywide, violated the state's deceptive tradepractices act by placing consumers in loans they could not afford or with ratesthat were false or misleading.After the complaint was filed, Mozilo and Countrywide sought to have the caseremoved to federal court. Bank of America Corp. (BAC), which acquiredCountrywide last year, settled the Florida case without admitting or denyingguilt."

My Take:

Let the lawsuits begin!

Its time to start the blame game now that the financial system has lost trillions of dollars.

The above lawsuits are significant because they could potentially expose the blatant fraud that occurred during the housing bubble. Its about damn time!

The Merrill story could potentially have huge ramifications. The leeches on Wall St are in deep trouble if the lawyers can prove that Merrill knowingly securitized loan products that they knew would not perform. Everyone played the same game so expect a flood of new lawsuits to hit every major bank if Merrill is found guilty of selling giant piles of dog doo.

Lets see if the judge has the guts to make the right call and expose the crooks. A win by MBIA could be the trigger that takes down the banks and forces them to become nationalized. The flood of lawsuits that would follow such a victory would be too costly for any of the banks to handle.

This lawsuit has the potential to expose the housing boom for what it was: a multi trillion dollar Ponzi scheme.

Bottom Line:

Lets hope that the "rule of law" swoops over Wall St and starts prosecuting the banksters that blew up the whole financial system.

This is the only way that confidence and trust can be restored on Wall St. The bankers must be removed and jailed. Period!

These are the "green shoots" that I have been looking for. Its time to life up the curtian and expose the thieves that created this mess.


Peter said...

Since our government and banks are nothing buy mobsters in suits the odds are that these suits will go nowhere if they have the potential to blow up the banks.

I hate to be cynical but my guess is that the judge will get a visit from someone who will convince him to rule against the lawsuit. Just as I predict that Cuomo will get the NY Gov. nod in order to let the Lewis/Paulson/Bernanke admitted criminal actions with respect to ML die down.

I am at the point that I have absolutely no faith in any person involved with the government of this country. They are all criminals looking out for themselves and their banking buddies who bribed them to destroy this country.

opportunistic said...

"Buoyed by earnings that are proving better than dire forecasts"

"The household products giant's 4% profit drop wasn't as steep as forecast."

"though better than economists' expectations"

The secret to a market rebound.....low expectations????

Jeff said...


Sadly I totally agree.

I have pretty much lost all faith too.

I keep hoping that we find a hero who rises above all the corrpution and does the right thing by cleaning this all up.

I am afraid we are going to need to see more misery in the economy before we see an end to this.

I gotta admit its all very depressing. It appears we are destined to head down the Japan route of denial.

Get ready for a lost decade.

Jeff said...


Yeah it makes no sense but thats the mood of the market right now.

You also have a lot of trading manipulation thats going on. This is a very dangerous time to be in stocks long or short.

My guess is the next leg down is when companies start running out of cash.

Without mark to market insolvent companies can stay alive as long as they can pay the bills.

However, they can only pay the bills for so long in this scenario because they are bleeding money.

My guess is we will see another Enron where a large company runs out of money and collapses with a giant balance sheet of bad debt.

This will spook everyone out of stocks because know one will know who is solvent without mark to market accounting.

Macroanalyst said...

Quite to the contrary of dazed and confused, market seems to be on a one way track higher while volatility is falling. I think you mean traders are dazed and confused which is quite a different thing.

Jeff said...


Both in my view.

The market really hasn't done much in the last few weeks.

We have been stuck in the 7800-8200range for awhile now.

The stress test delay has to make the bulls nervous. The Chyrsler story is also starting to become a problem as the bond holders clash with the president.

I don't expect any big action in stocks until we see those results.

Macroanalyst said...

I agree with you on market action lately. My point is more that Mr market can never be confused since he decides whether traders make money or not but he certainly can make traders confused.

Jeff said...

I remember an old Wall Steeter telling me that "traders die broke".

Check out Dow Theory legend Richard Russell's comments when asked if he thinks day trading is a good idea.

BTW this guy has the longest running newsletter on Wall St. I believe he is closing in on 60 years at this point:

"April 30, 2009 -- Does trading make financial sense for the average subscriber? My answer is "No." My experience with trading is that the average amateur (as opposed to the professional) tends to lose money if he or she tries to trade the market over any extended period of time. Even if the trader tends to be right on the trades, commissions and taxes will put him behind.

Do you remember a few years back when "day trading" was the national fad? Where are the day traders today? Most of them are no longer trading; they are out of the market and counting up their losses.

What about trading and limiting your risk and losses with stop-loss instructions? The problem with this is that whenever you put a stop-loss under a trade, for some mysterious reason the market almost always hits your stop-loss. Also, a stop-loss does not mean you will get out at your stop-loss price. You buy a stock at 30 with a stop loss at 27. The stock sells off to 27, and your stop-loss becomes an active market order. Your stop-loss becomes an order to sell "at the market." Your stock will be sold at the next bid, which might be 26 or 25. That's the actual price you will get for your stock -- not necessarily your stop-loss price of 27.

The other problem with trading is that in order to make decent money, you have to trade in large quantities. I mean you don't get a lot of great trades, so you have to depend on the BIG ones that are successful to make money. And since every trade entails risk, it's a high-risk process to put big money into each trade."

Wise words from a wise man.

Jeff said...

Something up around 7 or so.