Wednesday, February 27, 2008

It's time to get REAL!

I wish I could stop being a trader for a little while and just take a deep breath and just buy $1.000,000 worth of puts on the brokers, the banks, and tech for like Sept. of ghis year. There's simply no shot that by then the market isn't making new lows, and it could get beyond ugly if/when a few banks go under, which they unfortunately will. Citi is trading like they could be in trouble. Could Citi go under? I don't think so, but I wouldn't be shocked by it either. These banks are so loaned to the hilt, I read that Student loan defaults are through the roof. If people can't pay their student loans, they certainly can't pay their mortgages. I had a dream, GS is below $100 this year. I think $75 is realistic on GS in 2008. GOOG has already started to crack, it'll be less than $200 by year end. #1 rule of investors? They always underestimate the problems and potential downside and they always overshoot the upside. I can't believe that Bernanke is still preaching that we'll avoid a recession. If we're not in a recession already, then what do you call it? There are now BLOCKS and BLOCKS of empty retail space on BROADWAY on the Upper West side. Not just a few, but literally whole blocks. The notion that this could possibly be a short lived thing is so preposterous it's simply outrageous.

This from the WSJ tonight -

Dealers having difficulty selling variable-rate demand notes - WSJ
The Wall Street Journal reports a new round of higher debt costs confronts some states and cities as another part of the credit markets runs into trouble. This time, the culprits are variable-rate demand notes. And banks that guarantee they will act as buyers of last resort face something they never expected -- having to purchase many of them at once. Variable-rate demand notes let issuers borrow for long periods -- but at short-term interest rates. Like auction-rate securities, interest payments adjust on a weekly or even daily basis. The difference is that for variable-rate demand notes, securities firms sell the debt at whatever interest rate meets the market's demand. The problem: Just like many issuers of auction-rate securities whose interest costs soared after auctions for some of their debt failed, an increasing number of municipalities are being hit with sharply higher interest on their variable-rate demand notes because dealers of the debt are having trouble selling it. Last week, rates on $300 mln of California's variable-rate demand notes rose to 8.25% from 2% the previous week. "This is an amazing confluence of problems that no one expected to happen," California Deputy Treasurer Paul Rosenstiel said. "The entire floating-rate [municipal bond] market is in disarray," said Michael J. Marz, vice chairman at First Southwest Co., a Dallas financial adviser to governments and municipalities. With variable-rate demand notes, securities firms unable to sell the debt -- as has been happening for the past couple of months -- have the right to essentially turn the bonds over to a bank that has guaranteed to buy them. When the backstop banks buy the bonds, the debt turns into so-called bank bonds. The interest payment rises to the prime rate - or an amount even higher than the prime rate, now 6%.

LOOK people, it's time to get REAL. Wishful thinking is not going to protect you, or make you money in the market. This crisis, and it is indeed a crisis, is going to get a LOT worse. Cutting rates, giving $600 checks out is NOT the answer. We are going to washout in a big way and then at some point in the next 2 - 4 years find a real bottom. The notion that we have "bottomed" is, and I am repeating myself because it is so completely ludicrous, well, it is - LUDICROUS! And, for those of you who watch the Fed speak and say it'll be fine and believe it, let me ask you something - do you think the Fed would #1 know if that was true. #2 say the truth in an election year when the incumbant party surely will get crushed if things completely fall apart and they hired you in the first place #3 - the saying "don't shoot the messenger" applies here. NO Fed Chief wants to be on the hook for the impending financial market crisis. Housing stocks have rien nicely lately, if you own them I'd suggest selling or at least protecting yourself with puts to avoid a cracking when they get crushed.

In the meantimee, the GAPS have been AWESOME, today was another day the market gapped down and then rocked before settling back late day to be virtually flat.

Let's rock on Thursday!

Michael "Waxie" Parness

Michael Parness


Anonymous said...

I don't day trade like you guys and put everything in foreign funds. Southeast Asia, Latin America, Canada and some emerging market bonds.

Why? cuz everyone that was heavy in U.S. funds are down double digits while I am breaking even or sometimes a few percentage points down.

Are we at a point where the US economy will have no affect on foreign markets?

rlagm3 said...

I dont think that foreign invesments will be immune to this recession that is largely going ingnored in the US. The FED and everyone else is giving an impression that they will do whatever it takes to prevent the economy from going into the toilet. But the reality are the facts, and the facts point to harder times ahead imo.. Inflation protected bonds may be a good place too put your money.. but I think, and this is just my opinion, that emerging markets stock and funds, will get dragged down when we plumment..

AP said...

That's pretty strict. But that's what everybody is afraid to say - we are in recession. Thanks for continuing your blogging. That's very helpful.


Hollow M said...

Is it worth seriously considering using 30-50% of a portfolio to buy Puts 1 year out when this current mini-rally starts breaking down?

TheITGuy said...

Hey, Waxie,

What do you think of the STLD stock split announced 3/4? Tradable, or did you already post something about this for your subscribers?



roadrash said...

No Blogs lately - must be busy in LV still - or recuperating - lol

Thanks Waxie for all the good words so far and please keep em coming - I've been shorting these Mtg and Housing stocks for months now as far back as Sept. Just rode CFC down from 12's in Dec to 4.50 and still holding em short.

Most people are afraid to short stocks, everyone is looking so hard for a stock to invest in! All this talk about foriegn markets etc, etc! Let me say this "What goes up comes down a lot faster" you can wait years for a stock to rise but when it falls it falls fast & hard! You guys should listen to the man here and SHORT SHORT SHORT - it's right in your own back yard!!

You should start a SPOW / SHORT - lol

Waxie said...

Sorry guys, I'll just say that you gotta roll with the punches in this market, its not trending anyway but loose day to day. Market is very volatile, which is awesome and makes trading fairly, dare I say it - easy, a lot of the time. Of course we're in a recession, but the issue is - how do we make money here in any environment and that's what we do or try to do here. As far as specific stock questions
we play it as it comes here. Seriously, this is a traders market, period. And, one where you can't be too biased. Long term I think we gonna roll over, but near term I like us probably higher baring news. It's a truly psychotic market, so you just have to stay mostly cash and ride it both ways. If you want to take a position then be prepared to hedge against it so you don't get smacked the days we gap one way or the other dramatically.

You guys should try the chat room for a month, it'll be well worth your while, you can count on that. Just the education is worth its weight in gold, an that's a lot these days!