Monday, October 27, 2008

Start of the Week

I believe that the markets have become numb to the Fed and Treasury. I also believe we have moved past the point of no return now. We have a Fed, Treasury and government for that matter, who almost to the point of insanity believes it knows better and it can influence the outcomes of all it touches.

The markets have woken to the fact that there is no Wizard and worse the guy behind the curtain has an IQ that is barely room temp. Some may laugh at this and normally I would be rolling on the floor but the problem is we are now looking at the sinking of all to save the well connected few.

Forget the fact that banks are not using the taxpayer funded bailout money for consumers but rather for acquisitions. One of the first rules of capitalism is that you fund successful ventures, departments or divisions of your business and you close the money losing ones. The logic being that if you don't, the money losing division, just like a disease if not removed will spread and consume the host. This is where we are now.

Instead of letting these banks fail and fail they would for they are all insolvent, Citi, Wachovia, Wells, JP Morgan, Bank America, Morgan we bail them out pouring good money in after bad. Instead of having confidence in a country, in our system, in the ability of smaller, sounder, banks who know how to make loans and run their business to step in and replace their larger insolvent competitors.

We are all but assured of a depression now with this meddling by the government. It pains me to no end to say this. I wish it were not so. I completely understand why one would be inclined to almost think some of these decisions by Fed and Treasury are being done to sabotage the economy. What other explanation could one come to when you look at what damage is being done.

Logic would dictate that if all of their actions so far have resulted in what we have, would not attempting the opposite actions be worth investigation. It surely cannot result in anything worse we have been dealt.

I pulled the following from a piece off Bloomberg entitled Gulf Bank Customers Rush for Deposits After Currency Losses.

Kuwait's benchmark share index fell 2.7 percent to 9,839.8 in early trades today, after losing 3.5 percent yesterday. The index is down 22 percent for the year.

About 40 stock traders in Kuwait marched from the Kuwait Exchange to the Seif Palace, where the cabinet sits. They are demanding that Kuwait's Emir Sheikh Sabah al-Ahmad al-Jaber al- Sabah act to halt the decline in share prices in the country, stock trader Mohammed al-Dosari said today in an interview outside the exchange.

``I used to have 400,000 dinars to trade with, and now I only have 20,000 dinars,'' said al-Dosari. ``This is a big national disaster. We don't want the government to make the market go up, we just want to stop this panic.''

Please read the last paragraph again and you will understand that government intervention will continue and continue with all its attendant unintended consequences. We are living with lies on top of more lies on top of more lies on top of fraud and deceit on top of cover up lies. It cannot stop until all that are insolvent are permitted, no rather forced to go bankrupt so we can begin to rebuild.

This poor boob of a trader in Kuwait most definitely wants the government to make the market go up. I suggest he take his his remaining 20,000 dinars are run for public office as he would be most well suited for that position, better yet a central banker as he has the complete skill set necessary for the job. Taking a 400,000 dinar stake and turning it into 20,000 makes him eminently qualified to run the Fed, the Treasury, the IMF, the World Bank or any bank or brokerage. Sadly I am not joking, as he is just as qualified as Hank Paulson or John Mack maybe more so for at least he had the spine to take his OWN stake and go it along. More than I can say for the above 2 clowns who need OPM (other peoples money) to make a living.

I suggest you acquaint yourself with what is going on in Iceland, Argentina, Pakistan, and other areas of the globe on a societal level. I suggest you prepare and protect yourself because I can assure you NO ONE ELSE will. These cats on pom pom TV telling you to ignore the doom and gloomers will be nowhere to be found when you need them. I want to ask the 'market is cheap' crooners on TV how they will feel when we have 10 or 12% official unemployment rate which those born at night but just not last night would know would translate into a real world rate of about 15-20%.

I want to touch on something very important. The subject of energy. Regulars readers know I am a peak oil proponent in that I am fairly versed on the subject and am a long term bull on energy. That said you don't have to be rocket scientist to side step an oncoming freight train which is what we have seen with the bear market in crude and gold along with other commodities.

I believe the concept of peak oil still is intact. The Saudis will not let any outside agencies audit their reserve claims. Same goes with Iran, so much like the financials we have to take them at their word and we know where that will get us. That said, this bout of global depression induced demand destruction will pass, simple demographics suppport this. This, along with the fact we see irreversible production declines across the board, Cantarell, Ghawar et al. spell a much higher price for crude down the road. My question is what is in store for us economically if we have an S&P at 500-600 and a Dow in the 5-6000 area and crude embarks on a supply contrained rally from say around $50 to the $200 level.

Can't happen? Sure, keep believing that and you may get a gig on CNBC.

Government's printing money, (aka paper) and bonds are included here, under a beggar thy neighbour policy. I posit this because the further this market drops one is inclined to look for buys, its human nature. I am trying to suggest we might, I know I will, limit my universe to the commodity arena.

USO, UNG, KOL, UGA, UHN, GLD, SLV, CCJ, GDX, OIH, XLE, DBA, CCJ, SU, SLB, RIG, NOV, PXP, XTO, CHK, APA, APC, BTU are all at the top of my hit list.

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 2 units of Ultrashort S&P ticker SDS @ $90.60 stops $101.88/$95.94
Long 1 unit Japanese Yen ticker FXY at $97.15 stop at $101.68
Short 1 unit ticker CRM @ $56.05 stop at $34.31


m said...

What are your thoughts on commodity companies, such as SLW? The way I'm thinking, if the market collapses this week to 7000-7500, it might be a great short-term buy with very large returns.

Harleydog said...


Well worth watching for sure. after this deflation is an inflation that would make Weimar Germany blush.