Friday, May 16, 2008

GE and their Appliances

I came across the following quote yesterday from Chris Whalen of Institutional Risk Analytics, in an article by the NY Times on Freddie Mac . This should give you a very clear picture of the distorted from of welfare capitalism which has taken hold of our capital markets. Like I have repeated again and again, future books will be written and courses taught about the shameful, shortsighted era we currently are in.

“Both these companies are clearly going to be insolvent by the end of the year, but everyone knows that Congress will do anything to keep them afloat, because if Fannie and Freddie go under, the entire global financial system will melt down,” said Christopher Whalen, a founder of Institutional Risk Analytics, an independent research firm. “These companies’ earnings don’t matter. Their accounting hardly matters. People buy the stock because they believe the federal government will bail them both out if things get really bad.”

No moral hazard here, thats for sure. Is is blatant idiocy or cronyism of the highest order?

Talking about moral hazard, for those wondering why I was considering shorting the U.S. bond market, Mike Shedlock on his blog, does an excellent job showing why. Hi-liting how the FED and ECB's swapping of gov't paper for bank toxic waste is mushrooming.

Housing starts better than expected and goosing the market this morning. Did I misinterpret Bob Toll's comments on housing the other day correctly?

I have a question which I have been thinking about for a couple of days. I continue to hear how the emerging economies are the place to be. I remember years back, one Jack Welch of GE at the time, made a claim that they would sell more fridges and freezers in Asia in the next decade than they have in their entire history in the U.S. Now given this, and understanding that he is no longer at the helm but rather on the celebrity circuit my question..... Why is GE selling their appliance business? Doesn't India have a middle class that rivals the population of the entire U.S. ! Am I missing something or just maybe does Mr. Immelt know something I don't? As many are fond of saying, stop watching what they say and start watching what they doing.

This rally in the market continues unabated and I must congratulate it on its persistance. The problem with bear market rallies is that they are just such. They defy much logic and and correcting the previous excesses. The average person's single largest asset, his home is under siege. The facts state the case quite clearly, no matter what the realtor and construction propagandists would have you believe. Lending standards are not going back to where they were, so you can get that dream out of your mind right away. Just like tech and dot com investors post pinnacle, kept dreaming of the old heights their stocks had scaled dreaming they would be back there soon.

Once a bubble bursts it is deflated and it is a long, long time, if ever for it to recover. You doubt this statement, go back through history and look at all the bubbles and you tell me. Tulip bulbs, automobile stocks, uranium, gold, silver, Japanese real estate, Japanese equities, baseball/hockey cards, dot coms and telecom, housing, the hoola hoop, cabbage patch dolls, beanie babies, you name the mania and look where it is now, and I can almost categorically guarantee it is nowhere near where it was. But of course housing is different, well, try debating that with the Japanese.

Some charts coming later this morning.

Good speculating to you all !

Open Positions:
Long 6 units Currencyshares Japanese Yen ticker FXY @ $88.55 stop at $91.40
Long 1 unit Allis-Chalmers ticker ALY @ $14.45 stop at $16.64
Short 2 units Daimler AG ticker DAI @ $86.20 stops at $82.48/$81.38
Short 1 unit Brinker Int'al ticker EAT @ $21.25 stop at $24.14
Short 3 units Retail Holders ticker RTH @ $96.72 stop at $98.56
Short 1 unit Goldman Sachs ticker GS @ $197.95 stop at $197.68
Short 1 unit Darden ticker DRI @ $37.30 stop at $40.27
Short 2 units Lehman ticker LEH @ $43.70 stop at $47.46
Short 1 unit Deutsche Bank ticker DB @ $117.80 stop at $120.18

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