Wednesday, January 28, 2009

Financial Mania Day

The XLF (chart above) is rallying and the volume seems to be missing in action. Is it me or does this bother anyone else.

The RKH (chart above) paints a similar picture. I continue to hear pundits say the regional banks did not make the mistakes the big boyz did. It seems to me the market thinks differently.

The chart on JP Morgan (above), has a very, very nice rally in progress. Yes, I know Jamie Dimon is the best, but he better hope volume shows up, and quickly.

The chart on Wells Fargo (chart above) has gapped up today. Remember my 20 yr chart on WFC a few days ago? $20 was the break down level. Note where we are rallying into it today.

The chart on Bank America (above) looks to show a bear flag. Again note the declining volume of the rally. Caveat emptor.

Lots of the talk about the good bank/bad bank scenario in the markets as the impetus for this. What can I can tell you except that there is no shortage of fools in this market. Markets rise and correct in bull markets and drop and correct in bear markets. CNBC can continue to bring out pundit after pundit extolling the value and virtue of the banks at these levels and yes they are bouncing wonderfully this morning but just remember that they can just as easily gap down and they have up today.

I realize many are just yearning to believe that each remedy by the Fed and Treasury is the holy grail fix for the financials. Many are praying the worst is over and sunny days lie directly ahead. In many cases their retirement counts on it. Unfortunately for these people the banks are insolvent. All this is window dressing, it is just pain delay that is all. Buying time. The powers that be were sure that this was just a temporary disruption in the regularly scheduled bull market of profits and credit. So why price assets at "fire sale" prices when they will quickly recover.

Well, it has been more than 18 months and prices have not recovered. So even my room temp IQ deducts that this is NOT fire sale prices but rather market prices. Remember my grandfather's admonition that "he who panics first panics best".

I am sure CNBC will cart out Steve Grasso and the rest of the crew to crow about this "rip your face off rally". Just remember where these stocks were prior, (as CNBC conveniently omits this quite often) because it is where most folks and fund managers own these things. Hint, it is at extraordinarily much higher prices.

So is this it? Have we seen the bottom? Have we seen the capitulation? I want you all to do some homework. I want you all to ask your family and friends if they have sold out their IRA and 401k accounts. My guess, mainly from my own informal research, indicates that they have not. they have not sold out and moved to cash. Just like the tech bubble, they hung on all the way. The hope and prayer method as it is informally called.

I want to say this last thing about the good bank/bad bank garbage. If you think that President Obama, the Fed, the Treasury can wave their wand and magically make this all go away then you deserve the fate that awaits you. Sorry if this offends you but that's just the way it is.

I will tell you this, that as bad as things feel given the stock market and the economy currently YOU AIN'T SEEN NOTHIN' YET compared to how bad it can and WILL be if our bond market implodes. I used to say we need to quarantine these bad assets, loans investments, etc that the financials hold, this cancer and write them off and accept the consequences. The Fed and Treasury taking this paper, which is code for the taxpayer, is just like a rescue vessel approaching a sinking 'Titanic' as it is going down. The rescue vessel will get sucked down. This is a painful decision but it MUST BE MADE !

Please, Mr. President I beg you, back the boat away and let those ready to sink sink, before they sink us all !

Housekeeping notes;

I was stopped out of my long SRS position this morning, as it gapped down, at $54.95 and $54.74 for loss of 3/4 of a pt on 1 unit and a flat trade on the other.

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 Ultrashort MSCI EAFE ticker EFU @ $89.80 stop at $89.80
Long 1 unit Ultrashort S&P500 ticker SDS @ $66.15 stop @ $66.15
Short 1 unit Darden ticker DRI @ $27.70 stop @ $28.70

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