Saturday, February 21, 2009
I thought George Soros made an interesting comparison between our fiasco and the demise of the Soviet Union:
"NEW YORK (Reuters) - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.
He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.
"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."
I think that our focus needs to move away from "saving the financial system". Folks the system is dead. You can't revive a patient that has flatlined.
Everyday I sit here and watch the government attempt to juggle 10 balls with 2 arms. Each day another ball is added as another major industry or bank announces that they will fail if they don't get a government bailout. Its only a matter of time before the government drops a ball as it continues to try and juggle this house of cards. If you have ever tried to juggle you know what happens after that.
I think Soros makes a great comparison here. Communism and Capitalism are polar opposites of one another but they both share the same fatal flaw: When either system is taken to the extreme they are doomed for failure.
The total failure of our economic system is what happens when Capitalism goes too far. Just look at the distribution of wealth in this nation. The top 10% own the majority of our country's assets. Personally I find this to be both disgusting and embarrassing. It also tells you we took it way too far.
You know, when you think about it: Is there really that big a difference between Communism and Capitalism? When either system is taken to the extreme the end result is the same. The rich and powerful end up with the majority of the assets. The only difference here is the rich and powerful in Communism are the politicians whereas in Capitalism its the bankers.
I have always believed that you should try and live your life in moderation. Too much of anything can destroy you. Unfortunately, as a nation we are learning this lesson with "capitalism" the hard way.
The system will never be the same folks. Personally, I now want to puke when I hear the word "capitalism". I am sure many of you now share the same view after watching your personal wealth get destroyed by a bunch of fraudsters who took capitalism too far.
I find the whole thing to be so ironic because all of my life I had always believed that capitalism was the greatest thing since sliced bread because that's what I was told growing up. Boy oh boy was that a mistake.
As far as I am concerned, today's form of capitalism can kiss my behind.
The sooner this country lets this house of cards fall the better. The end result is now inevitable. The sooner our leaders recognize this the better off we will all be in the long term because I believe we are a very creative and resilient nation. I know that we are smart enough to learn from our mistakes and come up with a solid solution.
Hopefully, when this is all said and done, the world will have learned that Capitalism in its worst form can be as evil as Communism at its worst.
I think a highly regulated moderate version of capitalism is the perfect formula for success.
The days of excesses and bubbles need to go by the wayside.
Friday, February 20, 2009
Stocks continued their slide today during a volatile session that saw the DOW briefly drop below the 2002 lows before bouncing slightly on the close.
Stocks rallied of the lows when The White House came out and announced that the banks would not be nationalized:
"WASHINGTON (AP) -- The White House on Friday insisted it's not trying to take over two ailing financial institutions, even as stocks tumbled again. On Wall Street, talk of nationalization of Citigroup Inc., and Bank of America Corp., prompted investors to continue to balk, worried that the government would have to take control and wipe out shareholders in the process.
Citigroup fell 20 percent, while Bank of America fell 12 percent in afternoon trading but also came off their lowest levels.
"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," White House press secretary Robert Gibbs said when asked about nationalizing the banks.
"That's been our belief for quite some time, and we continue to have that," Gibbs said.
Investors have shown decreasing confidence that U.S. banks can right themselves. Citigroup and Bank of America have already received significant help from taxpayers as the government has rushed in to try to save the financial sector, which has been choked by bad assets and seen the flow of credit shrink."
This was quite a change from what Senator Dodd said earlier in the day:
"Feb. 20 (Bloomberg) -- Senate Banking Committee Chairman Christopher Dodd said banks may have to be nationalized for “a short time” to help lenders such as Citigroup Inc. and Bank of America Corp. survive the worst economic slump in 75 years.
“I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd said on Bloomberg Television’s “Political Capital with Al Hunt” to be broadcast today. “I’m concerned that we may end up having to do that, at least for a short time.”
Bank of America and Citigroup, which received $90 billion in U.S. aid in four months, tumbled as much as 36 percent today on concern they may be nationalized. The Obama administration today said a “privately held” banking system is the “correct way to go” and House Financial Services Committee Chairman Barney Frank said nationalization ought “to be avoided.”
I gotta say it: WTF!
What a total cluster****! Whats it gonna be guys? The White House needs to at least have all of their own party on the same page as they try and fix the banking crisis.
Hellloooo....This confusion is not instilling confidence fellas!!!! This whole monstrosity has become a complete PR disaster for Obama.
One thing is clearly obvious here folks: THEY HAVE NO IDEA WHAT THEY ARE SUPPOSED TO DO!
I have a brilliant idea: Stay the hell out of it! Perhaps doing nothing is what needs to be done. If these clowns refuse to nationalize the banks then they better at least clean them up:
The criminals who created this mess MUST be swept up and either fired or put in jail. There will be no confidence in the banking system until this is done. PERIOD. The current group of pigs on Wall St have lost all credibility. If Obama doesn't watch himself he is going to see his approval rating plummet to George Bush levels.
Folks, we need a leader right now. We need a guy who will make tough decisions and stand by them. WE CAN'T AFFORD A PRESIDENTIAL FLIP FLOPPER AT THIS POINT!
Where is Abraham Lincoln when you need him? He knew how to make tough decisions. Without him this nation never would have survived the Civil War. Presidents make tough decisions! We are seeing nothing that resembles this coming out of Washington.
Obama is looking more and more lost with each passing day. I like him and I am pulling for him, but man he is royally screwing up. He needs to start acting presidential or this economy is toast. Its time for him to grow a pair and pull the plug on this group of pigmen on Wall St.
The market has sent a clear message to Obama and his flip flopping by plummeting over 11% in less than two weeks! We will find ourselves down another 11% if he continues these ridiculous policies that provide no clarity.
This lack of transparency is getting real old. The "hide the losses" approach is no longer acceptable to investors.
We need to face a grim reality as a nation here folks: Hundreds of banks and perhaps thousands of businesses need to go under. There is no stopping it because we simply don't have the money to contain it anymore!
How many times does this socialistic whimpy approach have to fail until we accept the obvious? The government can'tt replace the consumption of the consumer over the long haul. Eventually the government stimulus will have to be yanked and when it does LOOK OUT if we continue down this path.
The only way our economy will prosper is by creating an environment in which people can be successful. Keeping millions in homes that they cannot afford in order to stabilize home prices is not the way to go!
LETS TAKE THE PAIN AND MOVE ON!
The longer we wait the more painful its going to be.
Thursday, February 19, 2009
I heard this rant live on satellite radio in the car this morning. Kudos to Karl Denninger for finding this on You Tube. Folks, I couldn't have said it any better than Rick Santelli did. Obama's speech was a huge disappointment. We are essentially attempting to socialize the losses in the banking system at the expense of the taxpayer.
This is crazy!
Why on earth should anyone that lived within their means be forced to pay for someone who took on excessive risk and failed? Does Obama really think he is going to get away with this? I think the financial system will collapse if he tries to force the good money to eat the losses.
Dropping the cost of housing down to to 31% of a home owner's income is what needs to be done and makes a lot of sense. HOWEVER, the way in which you get there makes all the difference in the world as to whether or not you succeed in selling it to the American public.
Here are the three options that allow us to get to this magic number of 31%:
1. Do nothing and allow housing to revert to the mean.
Americans would be willing to tolerate the pain of this option even if the economy moderately blew up in the process. We have survived the crashing of every other bubble in our history, and we would survive this one as well.
2. Destroy all of the fraudsters who created this mess and use their riches to absorb the losses. Taxpayer dollars would only be used to secondarilyclean up whats left.
We would buy this as long as the people who created this mess were wiped out as a result.
3. Socialized taxdollar bailout.
Sigh. Sadly this looks to be the way we are headed. This option gets a big fat F in my grade book. The problem with Obama's plan is it forces the good money to bailout the bad money. I don't see this working because we won't buy it!
IMO, this is not an option from this country's point of view because its socially/morally unacceptable to the average American.
This country was built on capitalism. The American economic philosophy has always been simple: If you take some risk and fail, you accept your losses and move on. If you succeed after taking risk, you get to enjoy the fruits of your labor and live the good life. Its worked this way since day one here folks. Hundreds of millions of foreigners have moved here from around the world for one reason: They want a shot at the American dream.
The problem that we have here today folks is EVERYONE NOW EXPECTS to live the American dream. They no longer feel that they need to earn it. They are entitled to it dammit! What they are about to learn is this isn't how it works. There is no "free lunch" in this world. Cheap money fueled by a 25 year credit bubble created the illusion that there was such a thing. Post crash, the world is realizing this was nothing but a mirage.
I think that the good hard working Americans have had enough of this idiotic self absorbed mentality. The taxpayers are furious and ready to put a stop to this insanity. If Obama continues to head down the "socialism path" I think we are in deep trouble.
I mean think about it:
If we fail as a nation to recognize the difference between good and evil then why should anyone one be good? Why continue to pay on your mortgage if your neighbor doesn't have to anymore because he can't afford it? Why should you pay taxes when you know all of the money is going to be used to bailout a bunch of greedy bankers and speculators?
I think the taxpayer will eventually just say "screw it" and pack it in. They will pick up their toys and go home. They will walk away from there mortgages. They may even decide to take their money out of the bank. I must say: Can you blame them?
I believe this country will fail as a society if we attempt to socialize our losses. If there is no right from wrong than why play by the rules? This is the exact message that our government will be sending us. I suspect that social chaos is right around the corner if this all goes down.
Things are spiralling out of control folks. You ain't seen nothing yet if you think its bad now. We are headed in the wrong direction and our economic and social problems are growing by the minute.
I haven't done much this week because I haven't been home. I am hedged short. I own some SDS(S&P short) calls that are hedged with some SPY calls. I see no reason to be bullish. The banks are teetering on destruction. Confidence is rapidly dwindling and the news continues to get worse.
The direction should be south from here until we retest the 741 lows. There is a good chance that we blow right through it and head off onto the abyss.
Be careful trading. Raising cash should be your main focus. You are going to need it.
Tuesday, February 17, 2009
Ugly! Ugly! Ugly!
Stocks collapsed today as economic conditions around the world continue to deteriorate. My personal take on today's waterfall is more about whats going on in Europe versus what is happening in the US.
Folks, its bad here, but its considerably worse everywhere else in the world. This makes the US dollar highly desirable because we are screwed but the world is screwed worse! As a result, many world currencies have become extremely vulnerable. The troubles we saw in our market today began last night when we had a worldwide currency collapse versus the dollar last night.:
"Feb. 17 (Bloomberg) -- The euro fell below $1.26 for the first time since early December after Moody’s Investors Service said it may cut the ratings of several banks with units in eastern Europe, adding to concern financial turmoil will deepen.
The dollar and yen gained against most of their major counterparts as stock markets fell, making the U.S. and Japanese currencies more attractive as havens. Poland’s zloty traded near a record low versus the euro as Deputy Prime Minister Grzegorz Schetyna said the weakening of the currency is dangerous.
“The Moody’s report has rehashed concerns about Eastern Europe, which is definitely weighing on the euro,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “The banking system is at risk. There’s more reason to be bearish on the euro.”
The euro declined 1.5 percent to $1.2606 at 4:01 p.m. in New York, from $1.2801 yesterday, touching $1.2563, the lowest since Dec. 4. The euro will trade at $1.25 in three months, according to UBS. Europe’s currency slid 1 percent to 116.33 yen from 117.46. The dollar rose 0.6 percent to 92.30 yen from 91.73, after touching 92.75, the highest since Jan. 8."
You aren't supposed to see currency moves like this! At one point last night the Euro had fallen over 1.1% versus the dollar. Moves like this usually take weeks to occur in any stable market. Consider this to be an ominous warning that there are deep problems over in Europe. The big fear around our Euro banking buddies lies around all of the bad lending that was done to Eastern Europe. Supposedly, close to $2 trillion was lent to the old Eastern Block.
The concern here is many of these countries economies are broke and their currencies are collapsing. Many likely do not have the money to pay back the loans. From what I have read, the concern among the European banks revolves around $400 billion inrollover payments that are due to be paid by Eastern Europe over the course of the next year.
The ability for these countries to pay back these loans is slim to none when you realize that some of these countries are taking bailouts from the IMF in order to just pay the bills. Hungary and the Ukraine have both received emergency funding from the IMF.
How can we expect these countries pay back these loans at a time in which they cannot even fund their own day to day operations?
Whats even more disturbing is the amount of money that these banks lent out. The Daily Telegraph out of the UK published a startling commentary around the amount of assets that the Western European banks hold. Apparantly, these assets have swelled to $41 TRILLION DOLLARS:
"The breakfast meeting discussed how EU governments should deal with, in other words pay for, the "toxic" banking assets that triggered the economic crisis.
As discussed here on Monday, the European Commission warned that government attempts to buy up or underwrite "impaired" assets could plunge the EU into a deeper crisis, one that threatens the Union.
Everyone is terrified that a second bank bailout will push up government borrowing at a time when bond markets have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain, to pay it back.
"Estimates of total expected asset write-downs suggest that the budgetary costs - actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states," a confidential EC document, seen by The Daily Telegraph, cautioned.
"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems."
Updated: Figures evaluating the 41.2 trillion euro of assets held on EU bank balance sheets are eye watering."
These numbers are mind numbing. Our whole mortgage market adds up to only about $10 trillion dollars. The banks across the pond lent like a group of Bear Stearns Bankson Steroids!
What's interesting here is this commentary from the Telegraph has changed in the past week. The article had previously stated that there was an EU document that supposedly had expressed concern that as much as $16.3 trillion(Euro's) of these assets may go bad before its all said and done. That's $25 trillion dollars folks!
That number really wouldn't surprise me when you look at the massive 50-1+ leverage that was used from a borrowing perspective. Post collapse, this leverage is now gone and so is the borrowing power behind it. As a result, Europe's losses could have a pricetag of $25 trillion! This represent about a 44% drop in the value of these assets which seems to be about right when you look at what has happened to our deflationary asset spiral.
Housing over here is down 30% in value and the losses have shown no signs of stopping. I am sure the total losses here in the US will be closer to 50% when it all said and done. Whats startling about the piece above is the total dollar value($41 trillion) of the assets that are involved.
Lets talk a little trading. I decided to cover all of my shorts in my trading account. I still own a good amount BEARX and a little SRS in my retirement accounts. However, these are longer term holds that I plan on keeping until I believe this crisis is over and the market has seen its lows. We have a long ways to go before this occurs!
Short term I decided to cover all of my shorts in my trading account. This is nothing more than profit taking. I pretty much caught the whole move over the last week and a half. Being piggish historically has been very costly for me, and we have a huge news day tomorrow so I decided to get out of the way.
Fundamentally I think nothing has changed. My concern here revolves around Obama's speech. Obama's policies may not be the best, but he is a very bright politician and I believe he learned a lot from last week's Geithner debacle.
You can be sure that that he will not make the same lack of clarity mistake that Geithner did. I expect a clear definitive plan to be laid out tomorrow. Is it going to work? Of course not but that's beside the point.
First, let me be clear here and say that I hope he does find an answer to this bad asset problem.
This whole situation is getting extremely dire and we are nearing the breaking point. The world economies are now all covered in lighter fluid. One small spark here or abroad could very well take down the financial system. Eastern Europe has me EXTREMELY concerned BTW. This match could strike at any second.
If this happens longs and shorts won't matter folks so lets hope we find solutions to this problem.
Anyway, getting back to my Obama point, if Obama's plan looks OK to the naked eye than we could see a sharp bounce tomorrow. Its a dangerous setup for the shorts: Many of them have all piled in here expecting a retest of the 741 S&P lows. We almost set a new low on the DOW today which should increase short interest.. We missed a new low by less than one point!
The shorts have jumped in here because technically we should retest or break the 741 lows now that we have closed under 800 on the S&P(we closed today at 789 btw).
The problem with this short play is the technicals have meant very little over the last few weeks due to all of the interventions. Almost every technical site on the net had called for a multi month bounce before we retested. Technically I totally agreed with them. However, the recent trend is interventions(good or bad) trump technicals. This was clearly evident over the past week and a half. I know many good traders that got stuck going long last week.
I could be wrong here, but I think Obama makes a successful pitch tomorrow and stocks will bounce as a result. This guy is one of the best orators I have ever seen and this cannot be underestimated. I mean this dude can out sell Willie Lohman! People want to believe there is hope, and I think the prez delivers tomorrow.
Either way I will be flat heading into the news. I may take some positions once I get a chance to see his proposal.
Monday, February 16, 2009
Just a few quick notes tonight since the markets were closed. The credit markets are once again starting to unravel.
Credit spreads on AA debt have gone through the roof:
Here we go again. As you can see, we have soared right by peak that was seen in November when the financial system practically fell apart. This chart tells me that any debt below AAA is all pretty much worthless.
From a macro point of view, it tells you that the bond market is once again nervous and cracks are beginning to reappear in the credit market.
AAA spreads have still behaved fairly well:
I suspect the government guarantees on a lot of AAA paper have allowed these spreads to remain relatively intact. Overall though, things generally don't look too rosy in the credit markets.
It will be interesting to see what Obama has to say on Wednesday. Word on the street is the banking losses and guarantees that the government is responsible for may be approaching $10 trillion. Its gonna take one hell of a "bad bank" to hold these type of losses. The sad reality here folks is the government does not know what to do in terms of fixing the problem because they can't afford to carry this type of debt load.
I think this is why you see Washington changing their minds every 3 days. There is no way to contain this type of damage. We simply cannot finance enough treasury sales to pay for this. Its an absolute disaster plain and simple.
The only answer is a total nationalization of the banking system. Most of this debt needs to be defaulted on and its going to be very painful. Many companies will evaporate overnight when the government realizes this debt problem is too large to contain.
Toto, We're Not in Kansas Anymore
Toto should consider himself to be lucky!. It appears the state of Kansas may be unable to make payroll next week:
"Kansas has suspended income tax refunds and may miss payroll this week as a partisan battle erupted Monday in the Statehouse over how to address the problem.
Republican legislative leaders demanded that Gov. Kathleen Sebelius cut the budget before they would agree to inter-governmental loans to fund state employee paychecks, as well as numerous other state payments.
But Democrats said the Republicans, who hold significant majorities in the Legislature, were trying to blackmail Sebelius, a Democrat, by threatening to shut down government."
Expect to see more and more of this as state funding begins to unravel. The states spent just like our HELOC loaded consumers during the debt bubble. Expect to see massive cuts in state budgets and programs as their tax receipts continue to dwindle. I didn't even mention the state pensions that are massively underfunded. I will save this one for another day.
The ES Futures have been down since Asia opened last night. The S&P currently sits at 811. This is 15 handles lower than the 826 close from Friday. We will likely open in the red tomorrow unless something big happens overnight.
Its all about Obama on Wednesday. Lets see what happens!
Sunday, February 15, 2009
I just wanted to share a couple of interviews today that I came across over the weekend. Both of them are must watches in my view. The first one is from Gerald Celente who is from The Trends Research Institute. You better sit down when you watch this because his outlook is pretty horrifying. Here is a biography on Mr. Celente for those who haven't heard of him.
The second interview was with Simon Johnson and orinally aired on PBS. Simon is the former chief economist of the International Monetary fund(IMF).
I found this interview to be fascinating. Its around 20 minutes long but well worth a look. His discussion revolves around the power of Wall St and why they must be taken down.
CLICK HERE TO WATCH