Wednesday, September 24, 2008

Don't believe the hype...

Today the market gapped up early (and overnight) on news that Warren Buffet had "invested" in Goldman Sachs and shown confidence in them.

In the end the market closed DOWN and our favorite sector to short (Russell) was cracked again, under 700. I'll stick to my 350 Russell target, so there's still a helluva lot of downside!

OK, so you want the real deal? Here goes; it's a complete and utter distortion to call what Buffet did an "investmtent". He did NOT invest in Goldman Sachs, not at all. What he did is make a bet that Goldman won't go completely under, ie bankrupt the way Lehman and Bear Stearns did. That's all.

He got an unreal deal, a deal I'd personally do. He did a BRIDGE LOAN, nothing more and nothing less - BUT - he got the best freakin' bridge loan deal of all time!

He gets shares at current market price, $5 BIL worth, he gets another $5 BIL worth of warrants to buy shares of GS at $115 in the future, and he gets, best of all, 10% DIVIDEND on his $5 BIL! So, he gets $500 MILLION a year on his money, plus he has the upside on the shares, and the warrants!

Warren Buffet is not dumb enough to invest $5 BIL in a stock that is 99.9% to be under $50 in a year in my opinion. In fact, Goldman Sachs is near the top of my list, still, as far as GIMME shorts! This thing is going down and the people buying it here are out of their minds.

GS will have such a SICK wall to climb to make ANY money moving forward. They only make a billion a year or so and now $500 MIL of that is GONE, to the smartest guy around - BUFFET!

How in the world is Goldman going to make money in this market, with a dead core business, and fork over $500 MILLION to the Buffster? Answer - the SUCKERS buying GS here are just that - suckers. Booyahhead can scream all he wants that GS is a great buy here and this proves it, but he is the same knucklehead touting BSC at $80 and GS at $200s and AAPL at $200, etc,etc. GS will be $25, you can mark it down and say I suck if I'm wrong, but 18 months from now, or before, GS will be $25 or less.

You have to remember, this deal doesn't make GS worth more, it makes them worth a LOT LOT less! The stock should have been down $20+ off this news, but because GS is one of those cultish stocks, it was up big time even in a bad tape.

Now, back to the hearings, it appears that the powers that be may actually do the right thing and force the banks to give up equity/warrants to taxpayers. If so, that should drive down financial shares dramatically, there will be no bailout. The only real hope that the banks have/had is for the government to basically give them a free bailout pass, but that appears highly unlikely. In that case then WB, C, COF and many many others are in serious trouble and should fold. SOV is also trading like it wants to go under.

In the meantime, we really should get a move higher either Thursday or Friday as shorts have to cover into the weekend. NO one will want to be short and worry that the Fed is going to do something and we gap up 300 points. I think whatever gap we get will ultimately fail, just like everything else has. I think we will see below 10,000 by year end, and it may happen in a big bunches. It will not mark anything but a pause in a very bad market.

This is tough dudes and dudesses, but the market is cluing us in. Look at MS today, it gapped with GS but couldn't hold it and then collapsed into the close AND then had bad news after the close. This is a market that is revealing a lot of TELLS, we just have to listen closely!

See ya manana, I'll be taking a class trip with my daughter and then back on Friday, so trade safe and trade smart! CASH IS KING! CASH IS KINGGGGGGGG!

See ya on the other side,



Rich said...

Thank you Waxie. You are most definitely THE man!

Jeff L said...

Hey Waxie,

Thanks for the extra clarification on the Buffet move, and of course for the rocking calls made over the past several weeks on Option Trader - my account is smoking!!

Just curious what you're thinking about the recent run-up on FNM? I have friends that think this is going back up into the 7's and I tell them they're smoking crack, that it's going to roll on back over sooner than later. I personally feel like $2 or $2.5 is about is high as it's going to get, but wondered what your thoughts were?


locan.BBS said...

Dear Waxie,

sorry to be a "know it all" (I'm not, I had to look it up in Google myself!), but since you write in your own life resumee (what's it called? - I haven't lived in the States for over 40 years) the word "SACRAMENTO" so often, it honestly might look a little better IF YOU LOOKED UP HOW IT'S SPELLED! Sorry, again!
Now I'll get around to reading your very interesting blog (I'm new here, just got referred by Tim Knight).

Thanks for listening!

Lorenz Funderburk (Germany)

vs said...

Great video from our senate

MindThe Gap2008 said...

You are the man, you always have been! You say what only a few are willing to say, and you say it loud! The flippin' Emperor has not had clothes for aLONG while! Yesterday I listened to Harry S. Dent as he stayed on point with his predictions, like yourself, of $200+ oil in 2009, and eventually NAZ 1000 and Dow 4000-maybe best case ONLY 7K. He conceded that his 2000's call of Dow 20K was off mark, obviously >>> BUT, and more telling, he predicted there is NO WAY the crash next year does NOT happen. His next book in December is called the Great Depression of 2010-2012. I only mention him here, as you 2 guys are the smartest 2 guys I know. In my 401K, for now, I can only go long or go to cash. With a Vix spike up to 42 recently, I went from 100% cash, to 100% ALL in on Tuesday at close for a rally over the next 3 months, in my humble opinion. Then cash for 1-1.5 years...they prolly pass this insanity $700B package, like you say, bail out the very dealers who caused it, and leave Americans holding the bag...Europe looking better and better by the minute...Trendfund Prague :)