Saturday, April 4, 2009

Party Like It's 1933

Why not? That was the last time we saw this kind of rally over a 4-week stretch, only to be followed by a 60% additional decline in the market. I'd just like to make a few points about this recent rampant optimism.

"Bridgewater Associates, the $71 billion money-management firm, has come out against participating in Treasury Secretary Tim Geithner's plan to get private investors to buy banks' toxic assets -- a week after saying it was interested in it." This should be viewed as shocking news as Bridgewater was viewed as one of the 6 or 8 firms that would be piling money hand over fist into this program. But apparently the leverage isn't readily available...."When the program was first announced, we were originally interested because the leverage the government was promising made the assets cheaper. However, as things now stand, very little leverage is actually being offered via the 'Legacy Securities Program,' " Dalio (Bridgwater founder) wrote, pointing out that the leverage offered is just 1-to-1."

"Charles Bowsher, who was comptroller general of the U.S. from 1981 to 1996, had a simple reason for resigning last week as chairman of the Federal Home Loan Bank System’s Office of Finance. He didn’t want to put his name on the banks’ combined financial statements, because he was uncomfortable vouching for them. Bowsher, 77, had held the post since April 2007." “I was not comfortable as an audit-committee member in signing off on the financial statements, after I became aware of the standards and processes for valuing the mortgage-backed securities.” Just to update you, the article goes on to say that the FLB is the second largest U.S. borrower, behind only the government.

January job losses were revised up 90K. Assume we'll do the same for Feb. and March and we are on pace to lose another 3-5 million jobs more on top of the 5 million we've already lost, even if losses slow down considerably. Where the hell are people going to get money to buy homes and retail when they're out of work?

Despite France and Germany's rebuff of Obama's plan for international printing, the G-20 has agreed to kick the IMF a trillion dollars. How in the world anyone can believe Bernanke's assertion that we can simply deflate this type of printing by selling assets that will be devalued by these very measures is beyond me. But shelter your savings and prepare for the superinflation that will result. Jim Jubak has apparently regained his sanity and wrote this about the impending inflation. "U.S. investors should take a clue from the Chinese. There's no reason to flee dollar-denominated assets en masse. But do make sure that your portfolio contains a big dollop of stocks and bonds that represent currencies other than dollars and that are backed by things such as copper mines and molybdenum deposits that will hold their value even if the dollar depreciates and U.S. inflation soars somewhere -- 2011? 2012? -- not too far down the road."

Point taken. We don't know if it will happen this year or even next. But we have to position ourselves for this impending event and that includes oil, gold, and food. By the way, the Rogers ETNs have halted trading, so don't buy those (RJI, RJA, etc.)!

We've added more BBW puts after this ridiculous rally, 9/09 5s. I also attempted to buy both TM 1/10 40s and 10/09 50s with minimal success. Despite a projected $225 billion yen loss this year, TM is up 35% in 4 weeks. Ok.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/us-debt-sets-stage-for-inflation.aspx?page=2

http://www.nypost.com/seven/04022009/business/no_private_hedge_162512.htm

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=aSWuIRVf5Q9k

3 comments:

said...

Ax...
Clear thinking and steady hands will prevail in this market. Another told me this market will be emotionally charged to the upside piling on another 5%... I am not so certain though. Anything can be a buzz kill right now... Speaking of buzz... N. Korea is doing a bit of saber rattling just to let everyone know that they are there!!!

DCNorth said...

What a joke! I can't believe those accountants capitulated over the mark-to-market rules! That's like letting the fox in the henhouse after he still has feathers hanging from him mouth.

Absolutely ridiculous. 1933 eh? *sigh*, it doesn't seem like we are progressing at all are we...

AX said...

Of course we're progressing...towards complete market and ethical collapse. Please watch the William Black interview when you get a chance guys.