Tuesday, September 16, 2008

DUMB AND DUMBER - The life and times of B & P (Fed chairman and Secretary)

First off, as usual, you heard it here first - turnaround Tuesday rules the roost! Nice trading day, to say the least. We had a super de duper day today - WOWSA!

OK, so I'm too tired and ready to go work out for the evening, so I'll start with the end and work myself back if I can.

Today after the close the NY Times reported that the US Government/Fed is loaning AIG $85 BIL and assuming an 80% ownership in the company!

As far as I know, this is unprecedented in US History, or true capitalism. First off, AIG has a market cap of $6 BIL at the $2.60 it closed after hours at. So, loaning a $6 BIL company $85 BIL seems quite remarkable.

Secondly, I bought some AIG at $2.30s afterhours on the news as it seems to me that if its true, there's a good shot AIG somehow remarkably rallies because the government will look even dumber (hard to believe). If the news is wrong then AIG will go the way of LEH and BSC more than likely, but I have a feeling they may just be dumb enough to have done what the Times is reporting.

In Capitalism the government does NOT own publicly traded companies! That's what happens in Venezuela or other parts of the world where they have dictators! The government owns companies! Here? How could they possibly be this dumb. I know I'm repeating myself, I just can't help it, I said it would happen, but even pessimist me didn't really think it would happen!

The futures were down 150 points and rallied to PLUS 100 after the news. Wednesday is going to be quite interesting. I think this news is HORRIBLE, but the market has its own way of interpreting things. Mine is almost always right (did ya see GS at $110s! Just as called!), but the market has this wrong if we rally, which we probably will. Why? Because this is desperation time, folks, and unless anyone is naive enough to think that AIG is the last problem company, this is setting a precedent that will have ripple effects far beyond AIG. Remember, then the Fed bailed out BSC we rallied hard and went much much lower. When the Fed bailed out FNM and FRE we did same and just retested those lows. This move? This move stinks to high heaven of socialism or communism, like I said, in those societies these kinds of things happen. And, when AIG ultimately does fail, which it is likely to do (hopefully after rallying to $12 tomorrow!) then what? The government has NO IDEA what to do here. We rallied today simply because we had to squeeze. So, in this market just wait for rumors and even though 99% aren't true (todays there were at least 10 or 15 relating to AIG and LEH) the market pops because shorts get nervous they will get squeezed.

I'm really in a state of shock, where does it end? Another 85 BIL the taxpayer is on the hook for! Enough already, this is beyond insane. They are busting the entire country out because they are just so clueless.
DUMB and DUMBER strike again!

BUT, its a gift for us, just means we can reshort at higher prices. S & P over 1200s here again, and stocks are going to be a short soon enough again. Stocks like C and WB bouncing big off this news simply is misreading the situation. These companies are done, they are Dead stock trading!

In the meantime, I'm off to the gym, we'll see what shakes out tomorrow, should be a very nice trading day, though we might not go much of anywhere. We'll see - RULE!

See ya on the other side,

Michael "Waxie" Parness


Ming said...


Is tomorrow's gap up shortable?


marks said...

Waxie, thanks for taking time to post your thoughts, I have been a big fan for awhile. Could you comment specifically why you feel the financials and the market in general are going to tank worse than they have. I suspect there is a ton of bad news that is being suppressed, but I am not sure what they are hiding.

Ming said...


May I ask you another question? With SPX breaking yearly low, LEH/FNM/FRE gone, brokers breaking down, and AIG's big trouble, SKF is still far far away from July high. And large banks like WFC / JPM / BAC are very strong. Will this trend continue? Any idea why financial is still strong with so many troubles?

thanks so much

Waxie said...


Lets see what shakes out. I would think its fadeable at least for a short time frame, but who knows, maybe we end up gapping down by tomorrow. In this crazy market ya never know. Watch 1225 on S & P, thats key, if we crack that solidly then we could squeeze, but notice after hours, we hit it a few times and haven't busted it,,,yet.

Marks - Cause 1000 banks will go under before this is through, thats why, including C and WB. And, perhaps BOA

The sector has held up because the Fed keeps pumping our money in to avoid a collapse before the election. Once the election is over I suspect things are gonna get a different turn. We'll see.