Wednesday, January 27, 2010

State of the Union: FFF

Alright, it's a poor poke at a Vin Diesel movie I never saw, but by definition it must be terrible. Who knows, maybe we would be better off taking financial advice from Samuel L. Jackson than the cast of clowns who have run us into the ground repeatedly over the last 30 years. Tonight, Obama will give his State of the Union address, and supposedly fess up to the mistakes he has made over the first year of his presidency. My guess is that he will couch these in terms of necessary evils and unprecedented financial disasters that framed his decision making. Economist Michael Hudson thinks the rhetoric will be much worse, with any talk of recovery or recession implying that we are fighting to get back to the previous normal. Why would we want that?

There is zero chance that Bernanke will not be reappointed next week. We saw briefly last week what even a hint of that possibility will do to a fragile market. Geithner will be roasted this week before Congress, but no change is imminent there either as they will find no wrongdoing with the guy who was running the NY Fed while daily crimes were committed. But perhaps a paradigm shift is in order as the "Volcker Rule" is being pushed forward. This will be a blackhole as well because the odds of GS losing their prop trading desk are also zero. C'mon! The banks that have been so lavishly bathed in our money and who are the largest campaign supporters of our congress members are going to lose one of their biggest avenues of revenue?

So I still say sit tight. Expect a brief pop next week when Bernanke is reaffirmed and laugh at CNN with me while reps like Barney Frank seek to limit the size of FNM and FRE, the very institutions he allowed to behave like hedge funds.

Wednesday, January 13, 2010

Happy New Year

Sitting on my book shelf amongst other financial reading, placed well below my Philip K. Dick collection, is The Man Who Beats the S&P. Bill Miller, a fund manager for Legg Mason, had an almost two-decade run where his primary fund outperformed the S&P 500. Keep in mind, this included multiple negative year returns. But like the turkey in Taleb's opening Black Swan analogy, Miller did not see the crash coming, and his performance imploded over the course of the financial crisis. People looked to Miller for comfort, for a way to outperform, even as he recommended buying AIG and Lehman brothers all the way to the bottom, costing his clients billions.

In between a hotly contested game of Chutes and Ladders with my daughter, I saw Miller barking up regional financials and stocks in general, noting that risk has passed us by because of the crisis. It was as if losing 60% of all you clients money in a single year was simply a blip in time, an "oh-well, sucks to be you" type of commentary. Momentum into the new year has carried modest stock gains but a new spike in gold and oil. Where the conviction for buying stocks comes from I have no idea.

Eric Janszen of Itulip recently pointed to 4 possible stock/gold scenarios, with 3 of them reducing the S&P ratio/gold price even more dramatically. The mainstream media has remained bullish however, and the old guard is happily sneering after market success last year. A recent consult with BBB reader HK has reaffirmed my own hazy outlook aside from gold this year, and a need to stay cautious and in cash for the time being.

Aside from the market, the impending playoff games are coming in with big lines after a weekend of blowouts except for the instant classic Pack/Cards game. If this game didn't secure Warner's HOF credentials, I don't know what will. I'm torn by my always winning strategy of betting against Manning in the playoffs/always bet Colts against Ravens worlds colliding matchup. I like the Cards much better as TD dogs, and while I foresee the Chargers winning at home, 8 points is a lot. The Boys' as underdogs seems solid, and I think a Cards/Cowboys teaser may be in order.