Monday, July 23, 2007

Some Thoughts ...if you can call them that.

I know I harp on how duplicitous Wall St. is and they are but in reality they are only responding to the needs of the market. Just like a drug dealer responds to his market demand, the brokers only respond to market forces, selling to the (public) marks hoping to make their fortune. Caveat emptor right? I want to take this opportunity to say I left the retail brokerage biz of my own accord and am just calling it like I saw, and continue to see it.

But even as the public steps into the morass that is Wall St. there are some lights at then end of the tunnel. There are some who are bold enough to speak their mind and risk purgatory for it. Voices of reason are not always limited to the independents or the buy side of the street. Sometimes you do find it in the strangest of places. During the tech bubble chief strategists like Chuck Clough of Merrill who was sick of being fogged quit (and has probably never been happier and added years to his life in the process) along with Michael Metz of Oppenheimer who was demoted to their asset management division for his bearish caution (where's Joe Battapaglia when you need em') were just such voices. You just cannot be a major Wall St. firm strategeist with a neutral or negative strategist it is just not conducive to good profits. Memo to clients, we will take care of you until your interests and our interests diverge, then, you're on your own!. Nice the see Bernstein over at Merrill recently voicing some caution on this market. For the uninitiated his use of the word volatility is Wall St. lingo for downside. Just like 'high yield bonds' is code for junk bonds or plain ol' crap and 'hold' is code for sell, and fast.

CNBC keeps trotting out every shill they can find to keep telling us the consumer is fine. My question is if the consumer is fine (freaked-out, insecure, neurotic and emotional with apologies to Donald Sutherland in the Italian Job), which he is not but who cares what I think, but if he is fine why do Brunswick and Harley Davidson charts look so bad. These are the quintessential adult toy stocks. Just something to consider along with the fact that you need to ask yourself why do they keep repeating everything is fine over and over again ??

The other evening I was considering the deteriorating technicals of the financials and it got me to thinking about how at the turn of the century industry was king and the country MADE things. Things that, as Dennis Gartman likes to say "if you dropped them on your foot it would hurt." Finance at the time was an ancillary by-product of that manufacturing, the tail of the dog, so to speak. So what does it say that the the tail is now the main driver of the game, to the point where the days of the 4 C's of credit (which by the way are character, capacity, collateral, and conditions) are not even known by the inhabitants of the industry and have been perverted to the extent that we have no money down, adjustable rate, negative amortized lending ! I wonder what J. Pierpont Morgan would have to say about all this.

You can slice this current easy money orgy, (courtesy of Greenspan) which has led to the current state of affairs, any way you want but in the end the pension funds bought the worthless paper based on A) favourable ratings from the agencies and B) an insatiable desire to outperform and get their bonus $$ and/or promotion. I was at a local hospital charity fundraiser recently. It was a casino theme with players allotted play money for blackjack and poker tables. It was very eye opening to watch how people gamble when the money is someone else's. Logic to me says the same goes on in your pension fund or that mutual fund in your retirement account. In the end, you the taxpayer will be called on to bail out this quagmire via the PBGC (why this entity other than for political pay-back appointments I have no idea) under the guise of 'systemic risk to the economy' which just encourages more reckless behaviour. Stop bailing these guys out now no matter how big or how important or they will never learn any lessons. As with children there must be consequences for their actions.

To finish of I want to say that being bearish or negative regarding the market is not unpatriotic as is made out by the talking heads on biz TV. If conditions call for it then why not. Just as calling into question decisions that our politicos make is part of our freedom of speech no matter how much others will disagree. Good luck and good trading to you.
P.S. I was thinking about Cramer's 4 horsemen again, (he is quite the vaudevillian showmen is he not), and I was thinking I should have my own 4 horsemen. How about GLD, USO, SRS and SKF. I'm gonna think about that one, but at first blush, I like it!

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