Monday, May 11, 2009

My Dream Girl: Meredith Whitney

Good Evening Folks!

Lots to get to today so lets "get it on" like they say in the UFC.

Let me start out with some "bear porn" from Meredith Whitney. In my opinion, this is the best analyst on Wall St. I had to laugh watching this interview because stocks took about a 50 point nosedive by the time she had finished her interview. Her insights are brilliant as usual. This is a must watch.

She kinda stole my thunder a little bit today because I had planned on discussing some shorts on the consumer retail ETF's. I think this is the best short out there. What has me a little worried here is everyone and their mother is going to hop into this trade now that Meredith has hit the airwaves with the same thoughts.

In this traders market, you need to be very leery of being involved(long or short) in trades that everyone else has piled into. Especially when you see lighter trading volumes like we saw today.

The reason I say this is because the markets can be manipulated by the big trading desks like Goldman Sachs. If the big boys get the market moving higher with huge buy orders, shorts that are heavily piled in to tend to get slaughtered even if fundamentally the trade is a good one. This is a result of massive short covering by the bears.

This short covering phenomenon has become even more exacurbated in today's market because the shorts have gotten their teeth kicked in over the past 8 weeks. This has given the bears a bad case of PTSD which of course makes them much more susecptible to covering much earlier then they have in the past.

Anyway, enjoy and I will continue below after you listen to the Goddess of Wall St:

The Bullish Case?

I didn't get a chance to discuss this yesterday. There are many(including myself) that have been surprised and confused by this violent move to the upside.

There are a few opinions and theories around why the market has moved higher. Russell Napier who is the author of "anatomy of a bear" had an interesting take. Russell's main thesis is bear market rallies are common and are usually stopped dead in their tracks when treasury yields in the bond market reach around 6%.

Once yields get to these levels, they become a compelling alternative to stocks because many investors at this point then begin to then ask themselves: Why risk my money in the stock market for an 8-10% return when I can get a guaranteed return of 6% in fixed income without the risk?

Napier warns that we have a ways to go(perhaps 2 years) until yields reach 6%(not sure I agree on this timing given the $2 trillion we need to sell this year alone).

When yields do reach 6%, he believes the S&P will then collapse and hit a bear market low of around 400.

This argument is pretty compelling. However, I believe yields will hit 6% at a much faster pace. I would say we could approach 5% by the end of the year. The Fed has pissed away almost 1/3 of their QE money in an attempt to keep yields down. They can always expand their balance sheet and spend more, but they run the risk of blowing themselves up in doing so.

One more thought around the rising market. Another theory around this latest move higher revolves around the cheapening of the US dollar. Investors as a result are increasingly getting concerned about having too much cash on hand. In order to protect themselves, they are diversifying into the market and commodities as a hedge against a potential US dollar collapse as a result of our government's irresponsible Ponzi spending.

A good example of this hedging is oil. The "black gold" should be continuing to drop in price as oil tankers sit in the Persian Gulf with nowhere to go as a result of crashing demand. Instead, oil is up 33% since its recent lows. Ahhh....Higher gas prices...More good news for our crashing consumer. NOT!

Let me finish this piece by saying I still expect equities to drop. Short term there is a high probability that we see a nice correction after this huge bounce. It may have gotten started today! The news around our budget deficit swelling to almost $2 trillion dollars was pretty horrifying to the markets. Remember the days when we panicked when the deficit reached a few hundred billion dollars? Thats chump change compared to today folks.

The IG report below also spooked traders. Santelli said the "Inspector General" you tube video was the talk of the bond market today.

Inspector General

The inspector general is responsible for auditing the Fed. It sounds like someone fell asleep on the job. The lack of knowledge surrounding how the Fed used their balance sheet by the inspector is simply horrifying here folks!!

Who in the hell is protecting us? This is OUR money that the Fed is pissing away on their gangster banking buddies. They have pissed away 9 TRILLION DOLLARS and this inspector can't answer one question as to how this money was spent. NOT ONE QUESTION!

This is Watergate times 100 as far as I am concerned. Please watch this video and then buy yourself a pitchfork and a torch. Its time to march on Washington and demand that this fraud end right here and right now! We are pissing away our future generations wealth in an attempt to bailout a bunch of thieves!!



EDC said...

relax. The dollar isn't going to crash. It will get much stronger, QE is a firehose trying to fill up a leaking dam. Not possible. Credit destruction is destroying global supply of dollars. The rise in oil will end in tears, 15% of the population isn't working how can they afford $2.50 gas? They are already driving less, they are running out of oil storage all over the world. This is a front running stupid trade. Sell into the strength. Black gold is worth no more than it was 10 years ago.

Jeff said...


I totally agree.

I try to explain both sides here. My take is the same.

Deflation rules. I described the reflation trade. I didn't endorse it.

The dollar will continue to fall if the fed doesn't settle down on deficits.

I am not convinced that the currency is safe until the spending stops. The fed is playing with fire.

Jeff said...

post up around 6.

A little teaser...Its going to be an unusual one.