Thursday, November 06, 2008

The Fantasy Thinking, the Madness and the Sadness...

The market rose last week and Monday/Tuesday on Fantasy Thinking. Which, in layman's terms is HOPE. The fantasy that the Fed's moves are loosening the credit markets, freeing up captial for lending to stimulate the economy. The fantasy that a new President, as great as we all HOPE he is, will be able to solve what until now is unsolvable. The fantasy that valuations are so compelling that even though the whole world is in the crapper, you should be buying because the market is "cheap", and the fantasy that the market is forward thinking, and therefore the economy will turn around eventually and so you should be buying now for the time when the turn happens.

The Madness is believing any or all of the above and acting on it. The Madness is the government continually finding reasons to bail out companies that are antiquated becuase "it's too big to fail". The Madness is listening to these "reports" that suddenly get released right before GM's earnings that say that if ONE of the big three car makers fails that it will basically ruin the economy to the point of no return, and cost $100 BILLION. The Madness is that I haven't heard anyone say who sponsored this "report" and I'm thinking there is a conflict of interest in there somewhere. The Madness is that we're bailing out homeowners that can't afford the standard of living they have. The Madness is that despite every evidence to the contrary, analysts, fund managers and investors refuse to accept the fact that the market is not just a little overpriced, that it is VASTLY overpriced, even at 8600, even at 7500 and even probably at 5000.

I am VERY empathetic to those amongst us that are struggling. Most of us are struggling on some or many levels, there is a dark cloud hanging over a lot of things right now. I know that it is very un-PC to suggest that GM and F be allowed to fail and go bankrupt. We have a lot of Union workers as clients. I have many friends who are union workers in various industries. There is, however, a very distinct conflict of interest when the government is deciding who gets taken care of, and who doesn't. For example, by definition, let's say Trend Fund were to "fail" and we had to lay off all employees (plus I'd be out of a job, too!). Should the government bail Trend Fund out? Why not? Why should the people here have to go on unemployment while the government is going to bail out companies that can not possibly succeed. So, all they are doing is protecting the pension plans, and jobs that aren't necessary. It would be, in my opinion, much better for the government to extend unemployment benefits and in fact RAISE them dramatically so that there is a cost savings, rather than keeping companies going that will just bleed the taxpayers of everything they have, and thus extend this misery? The pensions, give buyouts so that those people are taken care of best case. But, just remember that when Enron went under, and LEH and others those people weren't remotely taken care of, they were let go and they let them lose everything in many cases. It's a problem when the government is just taking over everything on a whim, which is what's been happening clearly.

The sadness is the madness, and is the fantasy, because in my opinion most of what's been done will come back to haunt us, and it won't work - NONE OF IT. Yes, I am the grim reaper. Until the markets, companies, and people are allowed to succeed and fail organically again there will be no "bottom" in anything. It's frustrating. Look at everything they have thrown at the economy and at the markets and what good has it done? We are right off our multi-year lows and we show no sign of forming any kind of lasting bottom anywhere in sight. There is no rationale for anything being done, there hasn't been throughout this. That's part of why it's gottten worse, not better. The system is broken, and it needs to fail so that it can be reborn as something better and stronger. Nice rally last week, all those fools that rushed in to buy Monday and Tuesday this week are already SHOT. There needs to be a "time out" and a plan, but that's fantasy, madness and sadness on my part since it's just not happening and not likely to do so. Let's see what they do with GM. They can't possibly be ridiculous enough to give a $25 BIL loan to a company that is never going to recover. NEVER. You can point to history all you want, but as long as they have all those pensions on their books its just impossible for them to make enough to cover their nut. Very sad. Same as the homeowner who can't pay their mortgage, they need to be able to start from scratch! The market tomorrow SHOULD bounce at some point after the #s come that are going to be brutal, the thought being that it's "priced in". That's the fantasy and the madness, but you can trade both. Eventually you pay the piper, but probably we keep trading this range until we break it lower more than likely. Stay cash, stay a trader and stay in reality! RULE! Waxie


Erik28 said...

Have you seen these new 300% leveraged ETF's?

TZA = TWM on even more "roids!"

volume is still kinda low...but it went WAY up since it's first day.

What do you think is the tops left on the Russell 2000 waxie?

keep up the great posts....!

Waxie said...

I think the market is headed a lot lower, though I guess they could devalue the dollar to nothing and that would make the market go up, since that would make the value worth less, but be more.