Monday, May 10, 2010

Too Many Holes, Not Enough Fingers 2

Almost a year ago, this title seemed appropriate as the market started its ascent from March lows. With Europe's bailout package near $1 trillion, the parallels to our own desperation are clear. Buying the debt of bankrupt countries with moneys from healthy economies seems eerily familiar to buying troubled assets with taxpayer dollars. No granted authority for such actions (the proposed package is in direct violation of the Maastricht Treaty on which the EU was based) exists, as Ron Paul has repeatedly pointed out that no such authority for the Fed to create their programs exist. There has been a refusal to let dying corpses (Greece only 2% of EU GDP, GM, Fannie, Freddie) fail at the risk of hyperinflation.

As HK emailed to me today, how in the hell is Europe going to pay for this? Will German pollsters allow hundreds of billions of their euros flow to the PIIGS without burning Berlin to the ground? Will the Greeks ever be able to reduce their debt burden to 3% of GDP? C'mon!!!

And perhaps while you were counting your temporary winnings today, you forgot to notice that we have reopened CDS agreements with Europe, or that our largest banks have $3 trillion in European exposure? How about Fannie and Freddie asking for another $20 billion? Perhaps Dr. Michael Hudson is right. When this thing implodes the Greeks will declare their debts in drachmas, the Italians in lira, and it will be every country for themselves. Black Swan author Nassim Taleb has pushed for the printing presses to stop. "My fear is that if we don't stop them now they're going to create hyperinflation...nobody has confidence in a guy like Bernanke."

Gold down today, but is another trillion going to discourage a flight to gold? I don't think so. It is imperative that some shorts be opened or maintained, just in case. That's what Taleb is doing, as Universa, the fund he advises, put in for 50K contracts on June SPY 80s Thursday, just before the market dropped 1,000 points.

Sunday, May 2, 2010

Odd Timing

Just when it appeared that all signs pointed towards recovery, just as the market cracked 11K and some companies such as Apple and Amazon were hitting new highs, a wrench in the works appeared in the form of an SEC lawsuit against Goldman. Forget the Greece debacle, we've been privy to that for months along with the rest of debt filled Europe. Wasn't the initial Greek bailout supposed to be $30 billion, now $146 billion? No, it's the GS case that seems to come at an inopportune time for our oligarchs.

The SEC has sat idly by (or maybe passed the time watching porn) as some of the greatest crimes committed in the history of our country came and went. Stated-income loans, Countrywide, WaMu....the AIG rescue, all under a blanket of excuses and incompetency. Now, with GS striding towards $200 and the market regaining 80% of its losses, our biggest demon comes under the microscope. Forget the correlation with the Dodd bill too; banks know regulation is coming and we've already seen the derivatives component of the bill scrapped. No, this seems out of character for our SEC, the same agency that ignored ten years of evidence against Madoff.

Whether anyone ends up going to jail or GS is slapped with a mere billion dollar fine remains to be seen. But what is even more odd is that this trade with Paulson has been chronicled for 3 years, it's what made Paulson the premier hedge fund guru in the world. Only now is the SEC finding the position GS took illegal? This is what GS does! They make markets in murky waters with losers on both ends. They trade with computers that view blocks and prices before they commit to a position. Did anyone watch Blankfein before Congress? He clearly refused to answer questions he had direct knowledge of.

So what of it? Too late to short GS as it was never a cheap trade to begin with, unless you really think it will collapse into the ground which I think is highly unlikely. Oil and gold have actually rallied in the wake of this disaster, spurred not only by safe haven flight but the continuous money pumping our world banks have committed to in order to save one failing country after another. I think there is better leverage in short term SPY and DIA shorts than GS, and AIG should be shorted every month with OOM puts in case this month truly is their last. It's clear they have no equity once preferred shares are paid out. Should be a long and interesting year ahead....