Tuesday, October 5, 2010

Wall St's PR Machine Switches Gears

Stocks soared today as the Wall St's pump machine turned it's focus over to equities and away from bonds.

Warren Buffet led the charge today:

He was not alone:

"Fortune's Street Sweep blog points out that the 10-year Treasury yield has dropped to under 2.5 percent from 4 percent over the past six months.

FDIC Chairwoman Sheila Bair told CNBC there "a bit of a bond bubble now", longtime bond bull Goldman Sachs believes bonds have peaked and will be heading lower from here, and Pimco's Steve Rodosky tells Dow Jones today that "the best day in Treasurys is probably behind us." He hasn't bought them since July."

My Take:

Hmmm...Call me a skeptic.   

You know, the longer I watch this act the more I learn.  Isn't it convenient that PIMCO, Goldman Sachs, the FDIC's Sheila Bair, and Warren Buffet all come out on the same day and declare that equities now look much cheaper than bonds.

The minions of course didn't disappoint their blowhard leaders.  The DOW closed the day up 200 points. 

Today reminded me a lot of that infamous day in March of 2009 where all of the banking CEO's came out on the same day and told the world that business appeared to be improving.

The market soared that week and never looked back. 

In hindsight, what really triggered that massive rally was the suspension of the mark to market accounting rules.  Once word got out that the banks didn't have to take their losses the banking stocks instantly turned into screaming buys because they were priced like they were all about to go under. 

What amazes me about days like today is the fact that these cast of characters still have any credibility left.  You would think investors would have learned to put all of these clowns on ignore after seeing what they have done to the economy.

The problem with the recent rally is there is nothing behind it other than a string of bad debts.  The last time we heard a Wall St. chorus like this there were fundemental reasons to buy the market. 

Although the fundemental change was fraudulent(mark to market accounting changes), it nonetheless made stocks a buying opportunity. 

Think about it:

Wouldn't you want to own a stock that just found out it didn't have to ever take their losses after it's value had dropped by 80%?

Now let's fast forward to today.  What catalyst made stocks more attractive today versus yesterday?  QEII? 

I seriously have my doubts.  Look at what's happened to the dollar and gold since they even discussed pulling the QE lever. 

More on this in The Bottom Line.  I wanted to talk a little bit about Buffet first.

Warren Buffet

Is it just me or does Warren Buffet make you want to make you vomit when you listen to him spew total BS to the masses.  Talk about a fall from grace.  With each speech it's clearly becoming evident that the "Oracle of Omaha"  basically sold himself to the devil when he took a significant position in Goldman Sachs. 

It's sad to listen to him today.  Before our recent collapse, Buffet was deeply respected and trusted by the American people as being a sound voice of reason when it came to investments.  Today he is just another sounding board for the elite.

I really don't understand why he did this.  The guy was a legend of the game.  He was a first ballot entrant into the Financial Hall of Fame.

His reputation was cemented during the tech bubble when he consistently warned investors to be careful because none of it made sense to him.

He stuck to his guns during this insanity despite being highly criticized, and he ended up being right.  This turned him into an instant icon.

If I were him I probably would have taken my billions and walked off into the sunset at that point.  He should have pulled a "Bill Gates" and just focused on philanthropy. 

I would have totally understood it if he had chosen this path.  It's probably the right thing to do when you have more money than you know what to do with.

Just look at all of the good that Bill Gates has done for Africa and the rest of the world with his genorosity.

BTW let me sidebar here real quick and add that I have the utmost admiration for Bill Gates.  In fact, I can't think of another human being who I have more respect for.  He has spent the majority of his life trying to make the world a better place with his fortune.

On the other hand, other billionaires have chosen a different path:

Some for example have decided to stay in the game and tell it like it is. They don't care if they piss of the elite because they already have more money than they know what to do with.

Jim Rogers or George Soros come to mind if you want a couple of examples.  I don't have to provide you with sound bites from either one of these two fellows.

Both of them are predicting Financial Armegeddon.  Soros owns over $600 million in gold.  Jim Rogers "got out of Dodge" and now lives in Singapore.  His fortune is invested mainly in commodities.  The rest of it is most likely more short rather than long the market.

I have a lot of respect for the paths that these two fine fellows have taken as well.  If you are gonna stay in the game at least try and tell the truth.  Do they talk their books sometimes?  Sure, but at least they didn't join the dark side.

Sadly, Warren Buffet chose neither of these two options.  He has chosen instead to joing the pigmen and earn more billions at your expense. 

For example, he has taken your taxpayer dollars via the AIG bailout because Goldman Sachs was paid out to the tune of $12 billion in the process.  As a result, Buffet made a small fortune on his $10 billion investment in GS as Goldman's shares recovered.

Since the collapse he has decided to take 50% of his fortune and invest it into one railroad. 

Question here: 

If he is so bullish on stocks then why would he spend so much money on something so antiquated like a railroad?  Why wouldn't he be buying equities hand over fist if he actually believed the venom he spewed?


How many times did he tell people to invest in 2008 before the market crashed? 

Then ask yourself:

Is this who I should be listening to when it comes to investment advice?

The Bottom Line

I would trust Warren Buffet about as much as I would trust a realtor who is telling me that "now is the time to buy a home".

I don't know what today's motive was but Wall St definately sent a coordinated message today.  The fact that all of the talking heads came out at once and tried to tell you to get out of bonds and into stocks was not a concidence.

What's interesting here is for the most part they were ignored by the bond market.  Bonds held up pretty well relative to the big move in equities.

So what could be the motives of the Wall St PR machine?

There are many potential reasons:

Fear of the move into gold and out of US dollars?
Fear of scaring too many investors into bonds which has threatened the liquidity of the stock market?
Pressure from the elite on Wall St as they see investors bailing on NY and heading into the safety of bonds in Chicago?

Anyone of these or a combination of these makes sense to me.

Folks, one thing is clear:  Today's "equities over bonds" announcement was definately calculated and I smell a rat.


flip said...

Well said Jeff. I sortof hope oil goes to$ 100 soon that would very rapidly expose all these shenanigans once and for all.

Jeff said...


I hear u. Had a great day in the markets but I am sick over what I see is happening.

This is 2008 all over again. Shorting will commence when oil hits 100. I will scale in with larger positions if we get close to 150. This is where the economy hits the wall and we collapse again.

The fed is a bunch of retards!

Anonymous said...

Obviously Warren Buffet is a super sharp guy but I learned a long time ago to take what he says and other so-called pros with an eye of skeptism as they are about lining thier pockets. Wasn't Buffet the one that was saying derivatives were weapons of mass destruction but yet he utilizes them.
I personally find it impossible to invest in this market with all the tinkering going on. More quantitave easing (QE2)is just more manipulation, how can one make a solid decision to invest in something that is being superficially being guided? Have you ever tried to fix something that was over your head and the more you try & fix the more it gets further messed up until it's too the point you have fcked it up for good, that's what I feel is going on with all this tinkering. Let the economy heal itself, let companies share price rise on earnings and stop ruining the future for generations of Americans.

Jeff said...


Couldn't agree more.