Wednesday, December 10, 2008

The Low Hanging Fruit Will Be Driving Cabs

Can't take credit for this one either. It's actually a combination of two of my favorite quotes from short-sellers recently. The first part is in reference to Ivy-Leaguers who bought the other side of CDS contracts taken by a hedge fund manager who made 800% last year. The 2nd part comes from Jim Chanos, short-seller, whose fund is up 50% this year. “The marginal people on the trading desks, there’s no skill set,” he says. “If they don’t trade derivatives, I don’t know what they can do. The next stop is driving a cab.”

And yet, optimism remains in this market. Obama has conceded that while we shouldn't borrow from China to pay the Saudis, we will print ourselves into hyperinflationary oblivion as we "can't worry about the debt right now." The Dow has rallied several times, ostensibly based on the potential auto bailout which we knew was inevitable anyway.

But where is the hope coming from? Companies like Dupont, Electonic Arts, and Sony are announcing huge misses and layoffs. And these companies are actually making money. What about banks and retailers? Itulip predicts 10 million job losses. We lost 500K just last month and if you look at the separate stat of discouraged workers and those forced to leave full-time for part-time positions, the unemployment rate is closer to 12.5%!

I guess there is some pessimism when $32 billion in zero-yield bonds are sold. This doesn't wreak of a lot of faith in the market or our government. As a matter of fact, it's probably only a matter of time before money markets are back to negative yields.

I'd like to finish with a comment about spending. Stop it. Americans have gotten used to the idea that they're entitled to spend heavily at least once a year. When you can't pay for the stuff you've got, you're not entitled to anything. I was glancing through a magazine my wife receives called Real Simple the other day. It's not bad actually, frequently offering tips on how to save money or use what you already have in a better way. But at its core is the constant push to sell, particularly women, shiny new products. In the article entitled "50 gifts under $50," most of the items were $48 trinkets that would never be used beyond a single holiday season and were purely throw away spending. If this is our idea of conservation, we've got a long way to go.....

How long before the Big 3 are back and begging? I give them 4 months.

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