Wednesday, December 17, 2008

The Morning After.

I do not know what to say about current events but I am sure the history books will do a wonderful job. I happened to catch the the "financial summit" on CNBC this morning with the same old faces pumping the same old ideas. Are there no other voices to be held in this environment.

Has pompom TV become the promotional arm of PIMCO? Letting them pump their views and promote their positions day in and day out? The shameless, grovelling Paul McCulley nominating Bernanke for Man of the Year today. Should we be shocked that he that worships at the alter of the Fed be so reverential?

Bob Doll claims we are still in a bottoming process, he has and will continue to claim this for the foreseeable future I would duly expect. Reversing course would admit error and that is a no no in the world of public persona. Look no further than what they did to Hank Paulson when he reversed course. Whether required or not reversing course is unacceptable.

Poor, Mr. McCulley and the gang at PIMCO. Poor Bob Doll and the boyz at Blackrock. They all are arrogant enough to think they are smarter than the game. They assume they will have a chair when the music stops. Anyone that's been in the markets longer than 3 quarters knows this is an impossibility.

Just as the titans of the 20's, men like Durant, Stillman, and Whitney were not immune to the ravages of the bear market, similarly today's titans like Buffett, Redstone, Kerkorian, and Adelson will realise you cannot outsmart the bear. This is the reason for my admonition that in a bear market one can have only 1 of 3 positions, short, very short, or neutral.

The Fed cannot repair what is broken beyond repair. Greenspan attempted this back in 2000 with his cut in rates from 6% to 1%, all that was successful was delaying the inevitable day of reckoning. The delusion must stop. To think that we can succeed in policy where Japan failed ZIRP- zero interest rate policy) is hubris of the highest order.

We have had the mother of all credit bubbles. This is the hangover and we do not have a choice of accepting it or not. Depression comes from the government intervention. We must absolutely let the unfit products of the free money orgy go bankrupt. To save the weak at the expense of the strong is the recipe for a horror show.

I caught Jim O'Shaunessy this morning on pompom TV talking about how we are now at the same point, valuation wise as 1982. Rather than ridicule this statement as it full well should be, I will leave it to my readers pass judgement. I will counsel that these investment managers know of nothing else than to buy stocks. They truly are one dimensional. Their faith in the Fed and the powers that be is nothing short of mind boggling. We were flabbergasted to see sheep follow someone like James Jones to their collective deaths yet we sit mesmerized by the Wall St. gurus as they flap their gums using comparisons to something completely different.

Worse still and I trust you have noticed that these pundits of finance have, as the markets have progressively made further lows, exaggerated their comparisons to previous long term bottoms such as 1982. Did we not just see this same bottom calling and claims of buys of a lifetimes just occur post tech bubble top? The masses have oh so short a memory in these matters that one is left questioning sanity.

Time will tell, but I can assure you, the PUBLIC has not yet capitulated and sold out in a panic. These baby boomer stock holders are all on the cusp of retirement and are up to their eyeballs in real estate and stock mutual funds via their 401k's. The race for the exits will not be pretty, no matter how much Steve Grasso tells you there is money on the sidelines.

Regarding my above mention of sanity, lets move on to the Fed and their 3/4 of a pt rate cut along with their promise to buy anything and everything. I don't which is more shocking, their move to do this or the adulteration of their actions by the financial luminaries. I have repeated adnausem the necessity of the Fed to ring fence this cancer that is spreading rapidly. You do not bail out a losing division with a solvent one. You do not cure the disease with the same cocktail that created said disease in the first place.

More credit, more free money, more unsound lending to entities and people who cannot pay it back, will ABSOLUTELY NOT fix the problem. People who cannot pay must be foreclosed upon and liquidated. This is just the way it works. You cannot reward imprudence via prudence. The existing banks whom are insolvent, and believe me, they are insolvent msut be allowed to fail new ones created in their stead. The same could be said of the auto industry among others. Free money created this mess and it sure as hell will not fix it. You can delude yourself into thinking otherwise but you will end of paying a dear dear price.

Housekeeping notes;

I was stopped out of my 2 unit position in SRS at $68.45 for a loss of just over $13pts on 2 units.

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:


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