Tuesday, September 30, 2008

The Fix Is In

In case you didn't know....

Let's review some of the events from the past week:

WaMu and Wachovia went under. "A Durham, North Carolina native, (new CEO) Steel told analysts on Sept. 9 that Wachovia had cash to meet more than three and a half years of maturing debt. During his mid-September meeting with Woodard in Charlotte, Steel expressed optimism that Wachovia could battle through investor unease caused by its option ARMs. ``I have absolutely no idea how Bob Steel defined liquidity,'' said Gary Austin, a former Wachovia bond trader who now heads PDR Advisors LLC in Charlotte. ``When you run out of assets to pledge at the window, you've got nothing left.'' But statements like this, combined with no-shorting rules, had catapulted Wachovia to $24/share just last month.

Freddie Mac gained almost 200% in one day. Why?

Citi and JPM were awarded banks with little risk attached. Unless all of the MBS blow up, in which case the whole country goes bankrupt anyway.

Bush prodded not only Congress, but all Americans today that failure to push through a bailout cost us a trillion dollars yesterday, more than the cost of the bailout. As if the 2 were apples to apples. Never mind the over $4 trillion that had been lost by the markets since its highs in October due to the criminality of the banks.

Buffett was given the best terms of all-time by GS on a $5 billion investment.

That's why, as tempting as the last 2 days were in a day-trading kinda way, I stepped back and just added to my list of terrible companies and those that might gain from this dictatorship-like intervention. We've glossed over the slowing economy and yet another disappointing home sales figure because we were too busy celebrating this no-short bounce.

Not everyone drank the kool-aid. "Rick Dillon, fund manager and chief executive of Diamond Hill Investment Group, demanded that his firm be removed from the SEC's "no-short" list. "It's better for shareholders to have [shorts] as participants," said Dillon. "Short sellers provide a valuable service in two ways: price discovery—their information content is valuable; and they provide liquidity." Really, it's true Congress. Prices can also go down. Which brings us to our next point, redemptions.

See, when hedge funds can't short stocks, they can't go long either. Why? Because you've taken away their hedge, Mr. Cox. So, in the short-term you managed to pump up a few bank stocks and started a chain of events that will lead to massive selling by the $2 trillion dollar industry. As their returns have suffered, they've been asked for redemptions by their clients. How will they pay for those redemptions? By selling stock. "Many hedge fund investors can withdraw money on Dec. 31. Some funds require that redemption requests be submitted 90 days ahead of time. That means requests have to be in by Tuesday. Other funds require 45 days notice, so there may be another round of withdrawal requests toward the middle of November.
Some managers have already been selling positions to raise cash to return money to investors. However, if redemption requests come in higher than expected, there could be another wave of selling and market disruption during the fourth quarter."

Aha! You thought that I forgot. No way.

Where to begin? With his infamous rant a mere month after he said cutting rates would be disastrous? Good start. Let's go back to some of his predictions for this year first.

Goldman Sachs (GS) makes more money than every other brokerage firm in New York combined and finishes the year at $300 a share. Not a prediction—an inevitability. In fact, it’s only January, and I think it’s already come true.

Google stock reaches $1,000. The company becomes one of the top three companies in the U.S. in market capitalization... and successfully challenges Microsoft (MSFT) for operating-system dominance.

Apple (AAPL), he predicts, will reach $300.

9/30/08-"Jim Cramer Admits: "I Screwed Up" In Recommending Wachovia Stock Two Weeks Ago Because I Liked The CEO"

8/1/08-""I am indeed sticking my neck out right here, right now, declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15. and I think anyone out there who’s waiting for that low to be breached is in for a big disappointment and [they’re] missing a great deal of upside."

6/5/08-"At an investment symposium I attended last night, someone asked me whether I thought Lehman Brothers (NYSE: LEH) (Cramer's Take) was going under. I said, no, no I didn't think so. It's got a great franchise with a good cash position, reduced leverage, much better management than Bear and a buyback that's kicking in that wouldn't if things were as bad as the bears make it out to be."

3/21/08-"I call it a bottom."

3/11/01-"Bear Stearns is fine!"

10/1/07-"I'm now confident that what would've been a given in 2008, a brutal recession..will now be avoided and prosperity assured."

1/21/01: "This is the lowest-risk, highest-reward environment possible." And from 3/24/03: "...the risks of owning stocks are as high as I have ever seen them, and the rewards the least certain." Right before the Nasdaq crash and 4-year bull run respectively.

Another example of the fix being in. Cramer effectively influences 2 of the top financials shows and websites (CNBC and TheStreet.com) that Americans turn to (unfortunately) for their picks and info. After touting the overblown selling of this market and twice calling a bottom, he now has instructed America not to buy stocks until the Dow hits 8,200. This is the noise that Taleb talks about. Hopefully, you'll find my writing a note of truth amongst that noise. I recommended shorting Lehman, Wachovia, and WaMu this year, not to mention Synovus and GNW, both of which went under $4 in the last week. Keep alert over the next few days. Continue being skeptical of this market and our government. And we'll look for the advantages that our leaders thought they could keep just for themselves.





Tiger Coach said...

This is good stuff Ax... Interesting that the mere thought of pushing this $700 Billion package through the Senate revived the market again yesterday...

Hey buddy, FEAR SELLS!!! This will be nothing short of the Salem Witch Trials by the time it is all said and done...

In the latest letter to my Congressmen, I applauded LaTourette for his NO vote... And suggested that Legislation should never be forced down the throats of Congress as take..and take it now!

The true folly lies with the Executive Branch which, has lost credibility. I am convinced this (bailout) was orchestrated to be introduced now, and arm twisted through both houses. Just press the panic button a couple of times, and our courageous fellow-Americans will submit themselves to their financial masters.

Tiger Coach said...

Ok... ... when my wife and I were purchasing a home, they offered us a loan of $100,000 more then we wanted. ...then came the lines about how homes were the "best investment" "money is cheap"...buying a big home was a "good idea"... My wife and I looked at each other in awe... looked at the mortgage broker.. then laughed!

Anonymous said...


Nice post. The Nanny State has begun!


Looks like your mortgage broker was right. The last laugh is actually on YOU! Keep paying your mortgage, your HOA, and oh yeah now keep paying for your neighbors as well.

The executive branch, congress, and our neighbors are all to blame. But to say it is on the Executive branch (which I agree has no credibility) when the bullies in the congress were bushing sub prime loans is and threatening businesses who would not do so is just crazy.

Welcome to PC gone crazy and the Nanny State!! 700 Billion is just the start. Just wait to see when the next hand out or stimulus package is asked for.