Wednesday, October 20, 2010

Dollar Down/Stocks Up.. Conversation with "The Credit Trader"

Stocks are higher as Wall St digests yesterdays wild day.  The one thing that caught my eye this morning was the dollar has given back a lot of it's gains from yesterday:

My Take:

Was that Chinese induced dolar rally a one day wonder?  Wouldn't surprise me if it was.  There is really no real fundamental reason why this country should have a strong currency given our massive debts.

This has definitely been a nice tailwind for stocks today as the lower dollar/long stock robotraders get a chance to come out and play.

"You Don't Wanna Go There"

I often speak about my friend "the credit trader" on this blog, and I had a chance to speak with him yesterday after the market close. 

Needless to say it was a very depressing conversation.  I spoke to him about some of the things I wrote about yesterday.  We discussed exposing the losses from the banks and foreclosuregate.

When it came to exposing the losses he repeatedly told me:  "Jeff, you don't wanna go there".  I pushed on pleading that we need to get to the bottom of this and expose the fraud!

He was silent for a bit and said it again:  "Jeff, I'm tellin ya, you don't wanna go there".

When I ask why he basically argues that the losses are too big for the government to handle and the system would fold like a cheap tent.

I responded by offering up the Band Aid Theory where I argued:  "Isn't it better to rip it off and move on now versus sitting here and slowly have it pulled off as the system unravels?"

He replied: " Jeff, there's no way out of it so why open that can of worms?".

He basically thinks that our quality of life is going to dramatically drop when this all comes to fruition so why rush it?

"The credit trader" believes that we should enjoy whats left of the system we have enjoyed for 30 years because when it finally rolls over it's going to be ugly for years if not a decade.  

He also doesn't believe that things will get worse if we hold off because the system is screwed:

His explanation is simple:  Our total obligations when you include Social Security and Medicare are about $181 trillion according to his calculations. There is no way that these obligations can be met when you look at our GDP.

Essentially, his argument is zero will still be zero later so what's the rush to expose it?  It can't be fixed in either scenario.

I have to admit that it makes me pause when I think about it.  I guess we all need to ask ourselves:  Do we REALLY want to know what lies behind the curtains?

Will our bank accounts immediately be vaporized if the fraud is exposed?  I actually asked him that BTW and he replied that it's a very possible outcome.  He also added that seeing people stuffing money under their mattress after the fraud was exposed wouldn't surprise him either.

At the same time, he is also humble enough to admit that he doesn't have any answers to the problem.  He also doesn't believe anyone knows how this exactly will play out.  He hates the fraud as much as all of us do but he just doesn't see any fiscal solution.

I also asked him about foreclosuregate.  He laughed and said that Band of America is only "the tip of the iceberg" when it comes to the lawsuits.  He also added that the mortgage insurance dilemma is the biggest nightmare moving forward.  As he explained "Who on earth would offer mortgage insurance for any foreclosure right now, and without it, what bank would ever touch the loan?"

We kinda wrapped it up there.  He doesn't like to talk about this stuff for too long, and I have to admit it was so gloomy that I was ready to shut it down as well.

You know it's interesting.  I get opportunities to sit and hang out with him and his Wall St buddies every once in awhile.  Some of them are way way way up the food chain.

I will ask them about the market and what I find is none of them really want to talk about it.  They are all as bearish as he is.  Their attitude is basically "We're screwed so why waste the time trying to fix it?". 

I guess I can't blame them .

Most of these guys made millions by being eternal optimists.  This attitude worked for 30 years as the DOW rose from 1-2k in the early 1980's all the way up to 14k in 2006. 

As a result, coming to terms with the reality that their craft has been destroyed is obviously very difficult for them to accept so they don't like to discuss it.

Perhaps taking their attitudes and sitting back and enjoying what's left of our lives is the best way to cope with this tragedy. After all life is short.

Until later.


CT-Hilltopper said...

I think that the reason that I haven't been posting is that I have taken the same position as your credit trader friend.

Life is short, and when you get to the end of all of this, you are going to find a situation much worse than what you had originally thought. Better to enjoy life as you know it now than to continually worry about what you know is going to be fucked up later.

It wasn't even Citibank or Bank of America that started me down that road. it was Wells Fargo.

Looking at Wells was my aha moment.

I'm not going to go much farther into my ramblings from here, but anyone at anytime could have an aha moment with Citi, B of A, and probably even JP Morgan Chase.

We're so screwed.

(Cue the anonymous guy to come and tell us how everything is wonderful now...)

Jeff said...


Yeah. I hear you.

My friend definately got me thinking.

He says I shouldn't think about it and write about it so often.

I plan on thinking about that for awhile.

It's all so crazy. Look at the frickin dollar today. It's been crushed almost back to where it started yesterday.

This kinda volatility is nuts and not reassuring for investors.

Anonymous said...

We just need to adapt to a sustainable lifestyle. The world must cooperate to survive this crisis and that´s a good thing. I see a new economy in the horizon.

Anonymous said...

(Cue the anonymous guy to come and tell us how everything is wonderful now...)

Ive never said a god damn thing like this.

Ive told jeff, time and time again, there is a 50/50 shot the whole system goes KABOOM in our lifetimes. I think there is about a 90% chance this country implodes in the next 250 years. Now compared to you permadoomer idiots who say its IMMINENT, I look like a pollyanna, but either way, I agree with where we end up looooooong term. However, between now and the looooooong term is not a straight line down. There can be "countertrend rallies" that last 5, 10, 20 years...

Still, its nice to see that the rest of you are coming around to my position. Yes, just because we are screwed long term, does not mean we shouldnt enjoy the time we have. Yes, there is no reason to "rip the band aid off" when we are screwed either way.

For better or for worse, extend and pretend has been part of the american way of life since the 1930s. Read the writings of depression era senator frederick stewier. Back then, there were a bunch of permadoomers, convinced that the farm subsidies enacted by FDR were "unsustainable" and they would cause permanent trade imbalances that would collapse the system. All those people are now long since dead. So while they are right looooooong term, how do you think "waiting it out" worked for them?

I stand by what I said in the beginning its a 50/50 shot. That means there is a 50% chance you spend your ENTIRE LIFE waiting, worrying about the big KABOOM, only to realize on your death beds it didnt happen.

Sorry, but thats a pathetic existence. Take some precautions, do what you can to hedge against various types of calamaties, and then GO OUT THERE AND ENJOY THE TIME LEFT YOU HAVE ON THIS PLANET.