Friday, July 25, 2008

End of the Week Rant

The news of the day was something I am sure most of you out there heard little about. The news was that the National Australia Bank wrote down its book of CDO's to the tune of 90%. That means they're worth about 10 cents on the dollar! The implications of this for the U.S. financials is ominous. But you have nothing to worry as they will simply defer the day of reckoning and move said assets to the level 3 holding bin. Are you buying these cheap financials based on the proclamations of the shills on pompom TV.

Did you hear that Sheila Blair thinks the blogs are responsible for starting bank runs. I am now confused. First we are told that Senator Schumer was responsible for igniting the bank run on IndyMac, then the SEC told us the short sellers are responsible for shares of financial shares declining, and now we hear the blogs are spreading misinformation regarding solvency of banks.

Just like the pollyannas who claimed we were talking ourselves into an economic malaise, Ms. Blair subscribes to the same school of ignorance. That by discussing THE FACTS surrounding problematic banking issues can incite a bank run. Ergo, if you ignore the problem and don't talk about the problem it will go away.

This is just beyond funny. There is reportedly 90 banks on the FDIC's critical list which by the way, the FDIC will not share with us, probably because information like that is on a need to know basis and we don't need to know. For those keeping score, IndyMac wasn't even on that FDIC list before it failed.

What is it they do with mushrooms?.... oh yeah..... keep em' in the dark and feed em' shit!

The capital markets in the U.S. are in a complete and utter shambles. The SEC is useless, as Senator Bunning aptly put it, the Fed is the systemic risk, and the Treasury is complicit with the banks and Wall St. I cannot sugar coat it and better, it is just a complete and utter disaster. Men like JP Morgan would roll in their grave at not at what has transpired but rather the response to it.

Men like Morgan has been around enough to know bad speculating decisions, regarding leverage, lending, and trading, etc have been made all through history. The difference between then and now is before this idiocy was fenced off and contained to the offending parties, whereas now we are socializing them by spreading them to the taxpayer. Karl Denninger over at Market Ticker recently put it into perfect perspective ;

The bottom line: The bad debt must be "ringfenced" and the losses forced to be taken. Government must not contaminate itself with this trash, as it is entirely possible for an expanding default bubble to engender even more defaults and down this road lies the potential destabilization of our currency and government. We must have some adults show up at this drunken creditfest and remove the tap from the damn keg! This situation will not get better on its own accord nor can it be fixed through "bailouts" or "handouts."

Therein lies the essence of speculation, that you will be wrong, it is the nature of the beast. But can you keep your losses small so as they do not overwhelm you and the boat you are in. You goal has to be to live to trade another day. The powers that be not only are not interested in rectifying the situation they are aiding and abetting the guilty offenders. They WILL NOT PROTECT YOU !! You must take action to protect yourself. To effect this....

I am short equities via a long position in DXD and QID.
I am short long dated U.S. Treasuries via a long position in TBT.
I am short the U.S. dollar via a long position in the Japanese Yen FXY and the Swiss Franc FXF.
I am long gold via a long position in GLD

The government will not quarantine the outbreak of the deadly virus called losses. Now only will the not quarantine these losses but Bernanke, Paulson & Co. are intentionally contaminating the government balance sheet with this toxic virus via backstopping Fannie and Freddie debt, swapping illiquid CDO's and CLO's from Wall St, etc. By the way, the Fed will not tell us what the paper is that the Wall St. firms have been pledging when they access the discount window.

I wish the facts were different. I truly do but they are not. You can listen to cats like Larry Kudlow, who, quite frankly must live on another planet than the one I inhabit. But why should he worry, survival is not his objective, how could it be when hubris, ego, adulation, and arrogance make up your 4 basic food groups.

Good speculating to you all and never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 6 units Currencyshare Japanese Yen ticker FXY @ $88.55 stop at $91.40
Long 1 unit Ultrashort Dow DXD@ $50.12 stop at $58.62
Long 4 units Currencyshares Swiss Franc ticker FXF @ $97.70 stop at $93.82
Long 1 unit Ultrashort QQQ ticker QID @ $37.05 stop at $42.87
Long 2 units Hecla Mining ticker HL @ $8.50 stop at $8.09
Long 2 units Ultrashort 20yr Treasury ticker TBT @ $67.85 stops at $69.24/68.32
Long 1 unit SPDR Gold shares ticker GLD @ $91.55 stop at $89.19
Short 1 unit of Visa ticker V @ $86.25 stop at $75.43
Short 2 units of Netflix ticker NFLX @ $30.35 stop at $29.43
Short 1 unit Wells Fargo ticker WFC @ $29.90 stop at $31.22
Short 1 unit Bank America ticker BAC @ $32.70 stop at $34.32


Anonymous said...

Under more normal circumstances I would probably not be this paranoid, but I worry a bit about betting against the markets using long ETF positions.

GLD is probably OK because they tell you they have the gold to back up the shares. But stuff like DXD and SRS worry me because I don't know how the administrator of these funds achieves the inverse leverage.

Even if the fund was just a straight 1x short then it's not 100% comforting to me. When you short stocks the normal, time tested way, YOU end up with the cash and THEY end up with your promise to repay the shares. But anytime you go long something then they have your money and you have the promise.

In a time where we are discussing world shaking things like the potential destabilization of the US gov't, counterparty risk has to be examined carefully. Yes, giving your money to a broker has counterparty risk. But for Ameritrade to rip you off of the money you already collected by shorting a stock, the situation would have to get very very bad. On the other hand, if the SRS algorithm blew up on them because someone defaulted on a derivitive, etc., what is your recourse? Would it even be considered a violation of the law?? I bet not. I bet they would just say "we never saw it coming, sorry we F'ed up but it really wasn't our fault".

You can see that with straight shorting or even put buying there would have to be a much bigger level of collapse before you would really risk losing any money. The whole system would have to collapse and the USD declared worthless, etc.

BTW I like your blog. THANKS FOR SHARING IT!

Harleydog said...

thx for reading and glad to hear you like the blog. I appreciate your kind words.

there is no question the ultrashort derivatives contain risk, but we have to play the game with the tools available.

that being said, we must take precautions as best we can with what is available as there is no perfect insurance. continued speculating success to you.