Friday, September 26, 2008
The analogy is pretty good. Create a false sense of panic that allows unelected officials "broad powers" to fix the crisis. When things calm down, we'll re-evaluate but for now, just push through $700 billion in blank check funds. Ironic that the Republicans are showing great resistance to this, but at least somebody is taking a stand.
WaMu imploded last night, as I told you it would in January (sorry Kass, beat you again to that call). Wachovia may very well be next. But between bailouts and no-short rules, we need to think beyond financials to collateral damage. S&P came out yesterday and said this is just the beginning for poorly rated companies. "More than 23% of non-financial companies with speculative-grade debt may default on their debt between 2008 and 2010, with consumer products, entertainment and retail companies among the sectors hit the worst." The trouble may be in shorting companies that have already taken major hits. I began researching these sectors a few months ago and am compiling a list of future failures. I took a close look at Decker Outdoor yesterday due to their $110 price tag for a company that sells expensive sandals. But unlike most retailers, these guys are sitting on $6/share in cash, a nice cushion for a company that has only 13 million shares outstanding. I correctly predicted a slide in Darden restaurants and Whole Foods, and will return to casino and other entertainment related products as well. Main street is next, and I don't know if we'll fund a JCrew bailout.
I have written both of my state senators as I've implored all of you to do. Mel Martinez replied with a canned response, but did include his floor speech bashing CEOs and golden parachutes, even pushing for prosecution. And he should. Here's how these guys have made out over the last 5 years..."Wall Street's five biggest firms paid more than $3 billion in the last five years to their top executives, while they presided over the packaging and sale of loans that helped bring down the investment-banking system." A Bloomberg article yesterday detailed how S&P sold out 7 years ago. "Frank Raiter says his former employer, Standard & Poor's, placed a ``For Sale'' sign on its reputation on March 20, 2001. That day, a member of an S&P executive committee ordered him, the company's top mortgage official, to grade a real estate investment he'd never reviewed." And there you have it, the end of AAA as a meaningful designation. Of course, Moody's and Fitch followed suit competing for huge dollars and began down the road of "rating cow manure if they were asked to."
I've heard from a few of you about taking positions. As I've asserted many times, we'll keep playing for homeruns here. But there's no need to panic. Let the markets do that. The rules are changing every day and we can't risk another ex post facto hit to our positions. I'm informed that E-Trade simply forced investors to close their positions if they held no-short stocks that expired during the ban, effectively reducing their investment to 0. There will be an overshoot on the bailout announcement and the subsequent devastation of the market on the way down, allowing for bargains on both ends. Be patient.
Posted by AX at 6:05 AM