Tuesday, December 16, 2008

Let's Go to Zero

Each rate point cut has correlated with about a 1K point loss in the Dow, so cutting rates to zero makes a lot of sense. Following on our Chanos kick, when interviewed by Bloomberg today about what he thinks of all these analysts saying now is the time to buy, he responded by saying, "Are those the same analysts who told us all to sell a year ago?"

Irwin Kellner, Marketwatch's chief economist, pointed out what we already know. Low interest rates only matter if people are lending, and this additional cut is really meaningless. The only thing it helps solidify is the impending hyperinflation that will be created by the flooding and diluting of the dollar. Jim Rogers pointed out that the pound fell 90% from its high when it got replaced as the world's currency, and with the yen falling to 88 cents today, we're well on our way.

Chanos did point out that he is done shorting homebuilders in the single digits. But we shorted Ryland closer to twenty, and after their bonds were cut to junk and they were forced to cut their dividend 75% to 3 cents, we're going to hang on. Hovnanian lost almost $6/share today. "With the U.S. economy in a severe recession and housing likely to deteriorate more sharply in 2009, U.S. home builders are facing even more operational and financial pressures," Fitch Ratings said in a statement this week." S&P also gave a gloomy outlook for the industry. "While we expect that the severity of the recession will be moderate by historical standards, we don't believe the economy will begin to turn around until the middle of 2009, and this view influences our bearish stance on the creditworthiness of U.S. home builders."

Creditworthiness? Are you kidding? Two REITs, DDR and GGP, almost went under this week when unable to restructure their debt and may still go down. MGM gave away a casino yesterday. Real estate just isn't a very good business right now. Yet the SRS managed to go down 25% today! Ridiculous. For those with strong stomachs, this is a good trade if nothing else in the low 60s.

While I do think that the market will conspire against us this week with the impending bailout (again) looming to aid today's rally, the market ignoring Goldman's $5/share loss, and GE just deciding they won't give guidance anymore, take a look at where gold finished. Over $850, it's highest point in 2 months. Watch out. When the dollar fails and inflation kicks in (again), the shiny stuff is going to 4 digits.

http://www.marketwatch.com/news/story/Hovnanian-reports-loss-housing-starts/story.aspx?guid=%7BE0FC5E09%2D27DA%2D429C%2D8206%2D7BA684224CA9%7D&dist=hplatest

http://www.marketwatch.com/tvradio/player.asp?guid={ee0599de-3a35-429a-811b-62d765a6f61d}

1 comment:

Tiger Coach said...

Disturbing... It appears that rates have never been the problem...your analysis is correct by suggesting that each cut down has in-turn meant a 1k loss for the NYSE. The real problem is tighter lending standards, and a lack of credible borrowers. WE have a nation of credit addicts who are dealing with withdraw!!! It will be painful for some... agonizing for others... some will scream for more credit... and a rate cut will not help them!!!

This reminds me of the old western movies when the hero's guns run out of bullets... he then throws the gun as his last line of defense... then starts rolling up his sleeves to slug it out.

Each rate cut has been a bullet... and the bullets have not worked. I do not know if the FED even has the authority to expand their balance sheets as Bernanke has proposed. There will be #@%^ to pay if and when the story break about the $2,000,000,000,000 loan list.. and the collateral that was accepted.

Last, the expression "as good as gold" used to be associated with the British Pound... During WWII, we gave Britain all the weapons they needed in return for their gold... UDN... GLD... consumer discretionaries should take on water!!! BD