Wednesday, May 7, 2008

Wednesday Afternoon

We are getting a washout of the ill capitalized latecomers to the party. Most likely these are the same people who owned Net 2 Phone, CMGI, Nortel and the likes when silver was $4/oz

This is a very healthy necessary shakeout. Is it over? Maybe, but I am watching the box as an area of attention. Gold could become a very attractive asset as it is no ones obligation. With the Fed backstopping anyone institution that can fog a mirror should we think global investors are oblivious to this folly.
Ask yourself this question. You manage 500 million in the middle of Europe/Asia/South America. Do you want U.S. treasuries, muni's? Do you want UK gilts Do you want bank or insurance paper. Or would you rather have Marathon debt paper, Peabody coal debt, Exxon Mobil ? Do you see where I'm going with this.

Okay so we have Vallejo California declaring bankruptcy. Couldn't come to an agreement with police and fire regarding salary concessions. You don't want to get me started on this subject but suffice to say that my beliefs are grounded in the premise that years ago fire was a VOLUNTEER position. My advice to these civil employees is to retire now before the hatchett falls and don't forget to take your pension lump sum before it disappears.

Yesterday we received news that Merrill Lynch level 3 assets, yes those mark to fantasy or make believe, rose 70%. Are you starting to see whats going on. Can't price something, or rather don't like the bid on something? Just move it from level 2 to level 3 and presto no more problems. Do you see why I believe this is a bear market(suckers) rally.

New liquidity measures out of New Zealand to go along with the UK and ours. Yup credit crisis is almost over 8th or 9th inning for sure. Comical, no other way to describe it.

I caught the late stages of an interview yesterday on CNBC, I cannot remember the cats name but he basically said this. The authorities here are doing all the wrong things. Consumer is up to his eyeballs in debt, what do we do, initiate stimulus plan to encourage him to spend more. Fannie and Freddie cannot file financials for over 2 years, what do we do, reward them with greater leverage ability. Perverse almost, don't you think?

Like I have said countless times before. Books will be written by future generations recounting the abject stupidity of this era. It will be ridiculed and looked upon as a low point in our national economic and social history. A few years back you could always read how everyone unanimously concluded Andrew Mellon the worst treasury secretary in history. Oh contraire, he will be overwhelmingly replaced by the Maestro, Alan Greenspan. Funny thing, Greenspan knows it full well. Hence his globetrotting effort to help rewrite the books of his legacy. I wish him luck, he will surely need it.

I want you all to watch what happens as the market finally comes to the realization that crude is NOT in a bubble but rather a multi year bull market based on the most fundamental of fundamentals, supply and demand. I continue to encourage you to read Twilight in the Desert or to avail yourself of the material outlining peak oil and its ramifications. You can do this or you can do as pom pom TV does and blame speculators.

I read recently that Target sold 47% of its credit card receivables to JP Morgan. Here is what Karl Denninger over at Market Ticker had to say on the subject.

Anyone care to bet if that credit-card paper will immediately wind up in the TAF?

You don't think Dimon would have created an arbitrage opportunity for himself via his seat on the board of the NY Fed, while (further) contaminating The Fed's balance sheet with crap credit card paper, do you? You don't think Dimon has been negotiating this with Target while debating the extension of those credit facilities as a board member of the NY Fed, do you?

Oh, and Target then uses this money to buy back stock, thereby propping their stock price, and offload the risk of consumer defaults to the taxpayer!

Both Bernanke and Congress are now permitting The Fed to essentially create a stock buyback and credit support fund for a retailer?

You're kidding me, right? We're not just "backstopping" banks but are now creating the ability to factor consumer credit card debt?

He sums it up pretty succinctly, no? Pathetic. Makes me wonder what men like Washington, Madison, Jefferson, et al would think or more importantly do? I think they would not take this sitting on their hands.

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 $12.64
Long 1 unit Ultrahort Real Estate ticker SRS @ $84.15 stop at $77.64
Long 2 units Ultrashort MSCI ticker EFU @ $76.25 stop at $71.72
Long 2 units Powershares DB Agriculture ticker DBA @ $36.35 stop at $35.24
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 2 units Retail Holders ticker RTH @ $97.20 stop at $98.56
Short 2 units Research in Motion ticker RIMM @ $133.10 stop at $135.72
Short 2 units Goldman Sachs ticker GS @ $197.95 stop at $204.14
Short 1 unit Darden ticker DRI @ $37.30 stop at $40.27

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