Monday, March 30, 2009

Cess Pool Plain and Simple.


I want to bring your attention to a monster story that is now out in the open. Kusdos to the blog Zero Hedge for the story. Remember all those claims about the first 2 months of the year as being extremely profitable for the big banks. Well, according to Zero Hedge in this post AIG Was Responsible for the Banks' January and February Profitability. (hat tip to Zero Hedge) Please visit this great blog and read the post for for yourself. Zero Hedge sums up the situation perfectly, which I have re-printed below;

For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman's terms:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.

In simple terms think of it as an auto dealer, which knows that U.S. taxpayers will provide for an infinite amount of money to fund its ongoing sales of horrendous vehicles (think Pontiac Azteks): the company decides to sell all the cars currently in contract, to lessors at far below the amortized market value, thereby generating huge profits for these lessors, as these turn around and sell the cars at a major profit, funded exclusively by U.S. taxpayers (readers should feel free to provide more gripping allegories).

What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.

For banks to proclaim their profitability in January and February is about as close to criminal hypocrisy as is possible. And again, the taxpayers fund this "one time profit", which causes a market rally, thus allowing the banks to promptly turn around and start selling more expensive equity (soon coming to a prospectus near you), also funded by taxpayers' money flows into the market. If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day.

Do you expect anything less when there are no consequences. There is no law, there is no order, there is no cop, there is no decency, it is truly an atmosphere of get mine while I can.
I wish I could say I am appalled. I wish I could say I am shocked but unfortunately I am not. Never in my wildest dreams, as bearish and as cynical as I have been, did I think the culprits would be this brazen. Never did I expect this level of audacity in their looting and pillaging. But yes once again no matter how bad you think it is, it always is worse.

What I wouldn't give to be in charge for 12 months. Oh what I wouldn't give for the opportunity to clean the markets up, my way. And yes, it involves a very adult form of corporal punishment.

You think CNBC is bright enough to link the bloodbath in the futures this morning to this? Ha, Ha, Ha, Ha, surely you jest as that would be too funny. It would also require a functional IQ of about 64 which unfortunately either they don't have or the restraint collar will not permit (advertisers dear reader). You figure out which.

So you can continue to stay long stocks. You can continue to listen to the touts via the likes of Steve Grasso, Peter Costa and the other crumb eating stock clowns. Unfortunately they will know of the bad news after the fact always reiterating the self-absolving quote " we all knew this news blah blah blah". Please count how many times they say that today.

Ahhh the humility or lack there of. No worries though as it's not their money is it now, it's yours. So hang in there. Hope for the best. You're gonna need it.


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 1 unit Ultashort 20yr Treasury ticker TBT @ $44.25 stop @ $43.74
Long 2 units Ultrashort Real Estate ticker SRS @ $49.85 stop @ $49.78
Long 1 unit Ultrashort Emerging Mkts ticker EEV @ $38.75 stop @ $36.18
Long 1 unit Ultrashort China 25 ticker FXP @ $25.15 stop @ $23.38
Short 1 unit Microsoft ticker MSFT @ $19.20 stop @ $19.20

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