Wednesday, September 26, 2007

The Fed versus The Facts

I read overnight about the new government panels on hedge funds and it got me to thinking that it might be more economically efficient to just completely turn over the Fed and the Treasury to Goldman Sachs. I mean rather than beat around the bush and do it piecemeal. Just gore the proverbial ox so to speak and do it in one fell swoop. There have to be 'synergies' in the deal, no? Could cut down on rent expense via the consolidation and we can all stop pretending the Chinese wall exists. And before you say it, yes, I am jealous as hell of Goldman's success(not to mention too stupid to work there). If you can call taking the other side of the trade of your clients success (according to the latest earnings report) So Goldman takes 2 and 20 on the hedge funds that get loaded with the toxic paper and subsequently tank, yet they copper the customer trades and short the heck out of it the same shit paper for the proprietary house accounts. I am no missile engineer with NASA but can someone explain this conflict to me or am I the holier than thou righteous ignoramus?

Wow did the home builders stink yesterday. August home sales drop 4.3% ! The markets response seems to say that it doesn't matter. Just like Fedex's warning last week, and more of the same with the retailers. Now this morning durable goods orders down 4.9%. I know price is the final arbiter and you cannot argue with the tape. But there are certain times when participation entails more risk than is warranted and I believe this is one of those times. Again I am not basing this on my opinion which can often be wrong but rather on the facts. The facts continue to point to an economy that is steadily deteriorating and a market whose leadership continues to narrow, which is never good, yet in the face of this the market chugs higher. Lets face it BIDU is trading with a 200 multiple right now and while it continues to make new highs only the most experienced and disciplined traders should be playing this right now. If not you risk life and limb if it reverses, either way on you.

A friend reminded me the other day of an oft uttered saying 'don't fight the fed' and while it carries weight of substantial value I am trying to balance it with a saying that rings in my head of 'don't fight the facts'. Now the tape can become de-coupled(to say the least) from facts for a time but like the drunk who continues to pound them back eventually he will hit the floor. Make no mistake this will happen as the market always does what it is supposed to just never when. We saw this with the tech bubble and with the housing bubble and now we are witnessing it with a global asset bubble. I mentioned shorting Ryland back in early 2005 to some former working colleagues who laughed their asses off at me. I never did it and was definitely too early for sure but I bring it up because there are so many examples of ideas that look so bizarre at the time only to become brilliant with time.

Ask yourself a question right now, will Apple and Amazon who are effectively retailers be immune to the housing induced consumer spending slowdown? If you believe yes, then you had better hope so because given the multiples that these 2 are trading for there is no room for error and if the tech bubble taught us anything it is that the market can be ruthless to high multiple stocks that disappoint. So which will win out, the Fed or the facts? My money is on the facts. Good trading to you all.

P.S. The financials continue to lag. I know the media will have you believe this and anything else that is negative doesn't matter, and if it does it will be spun positive for stocks. I continue to harp the financials are they are very important to the overall market(approx. 20% of the S&P)and continue to look very sick. They are no where near to making new highs and quite frankly look tired and poised for a failure here. Bubble TV reported yesterday that traders are expecting another rate cut in Oct.

No comments: