Friday, November 14, 2008

THE WAXIE PLAN, and why it should work...

First off, let me say one thing - NICE FOLLOW THROUGH on yesterday's rally! Man, this market is a disease, buy at your own ridiculous risk, you will get burned big time!

OK, so let me preface this post by saying the following - I am NOT an expert in economic theory, nor am I sure that what I am about to propose will work. I'm posting some thoughts and am open to feedback (email me at - from you all. If something I am saying is illogical or out and out wrong, don't be shy, let me know, I'm shooting from the hip here and am ok with input, right or wrong. OK, let's begin.

Let's call this my 3-point plan and see what happens. I'll also say that this is part of what I think (pure speculation) Obama is going to do, at least in part, and why I think that the stock market is TOAST and anyone who doesn't get it, will get a chance to see what DOW 2500 feels like!

1)The government nationalizes the insolvent, or virtually insolvent banks, of which I believe there are many. If you look at the books on banks like C, MER/BAC and even WFC/WB and CYN and such I think you should find that a lot of what's keeping them afloat at this point are depositors money. Now, I can't state that as a fact, but that's what it appears to me as a dude who knows a tad about this stuff and who's been pretty dead on so far.

This is why I think that anyone buying financials is NUTS at this point. I think you're looking at a very bad outcome to this who system/sector and I think its inevitable. Paulson can say anything he likes about how strong the banks are, notice how we rallied on him saying that and then completely tanked? Yeah, well, figure it out! Too much smart money is betting against these things to not take it serious that they are in a very dire situation. Since we are headed toward socialism anyway, the cleanest thing to do, rather than throw good money after bad, is for the government to take over the banking system either on a case by case basis, or in it's entirety. Personally, I think we should let it all fall apart and start over, but since that doesn't seem to be anyone else's opinion, this is next best.

This would effective wipe out the entire financial sector's stock market worth. This would have to encompass the insurers and some other troubled companies.

2)Obama has stated that the government should have some more controls over retirement accounts. If that comes to pass I think that #1 may very well be part of the agenda. I think that Obama is willing to sacrifice Wall Street for main street, he's made that very clear. By taking these measures you basically wipe out shareholder value left and right. Obviously companies have value, so they will either take themselves private and be ok with the new valuation models that I believe will happen one way or another. Investors and fund managers have been spoiled, they think its reasonable for companies to sell at 30 X's forward earnings, or even 15 X's forward earnings, or 10 X's current earnings. That's not realistic in a real world business model. If anyone wants to buy out at a 10 X's current earnings let me know, I'll sell it to you tomorrow. And, I think we have tremendous growth opps here, so in terms of the stock market, you'd be getting the steal of the century! I won't hold my breath, but the offer stands!

3)Once the government has taken over the banks, or in conjunction with, instead of injecting the banks with all this stupid money that is just being thrown away, start offering 3% or lower mortages to eligible buyers, and rework current mortgages to those that can afford to stay at their new realistically worth homes. The banks can't do it now because its not profitable, if the banks are nationalized then it becomes possible because the government doesn't need to make the "vig" on the Fed Funds rate. By doing this you would stimulate the housing market, and allow those homeowners who can and want to stay, to stay. Interest rates are 1.0% yet because of the credit crisis banks are still asking for 6 to 8% for mortgages. That's way too steep a profit, but they need to since they are drowning in debt, and are afraid to loan anymore. People buy when the market is or should go UP, or they buy because its as cheap or cheaper to buy then to rent. I would buy a place if I could lock in a 3% or less mortgage, then it would pay for me to do so, plus I get the benefit of owning something. Otherwise what's my incentive? There isn't any, hence the problem, or one of them, with the housing market's reinvigoration.

So, in effect, what I am calling for is for the stock market to be sacrificed rather than the consumer/home owner. I am asking for the stock market to reach its organic levels. This charade that the banking system is fine will only lead to more and more investor and company crushings. Let's stop the BS and do what needs to be done to the SYSTEM. Having hearings on Hedge FUnds, which are the only thing I would ever consider investing in if I was going to invest, is ludicrous. They are going after these guys because they made too much money? That's absurd. This is AMERICA, a capitalistic/free market system. You can't limit people's ability to earn what they can...unless its done so illegally or immorally. Yes, I know, I am sure I will get at least a couple emails saying "it's immoral earnings $2 BIL a year!" To that I say - PHOOEY! That's rubbish. If the hedge fund manager made $2 BIL in a year that means that the hedge fund investors did pretty freain darn good! So, that's why I think that we should just admit we are now a socialist country and go for the whole nine yards, rather than pretending it's all in the name of capitalism. Be real, dudes and dudesses, be real!

Something has to be sacrificed and my vote is the stock market, I think it'll survive without C, trust me. I'm not advocating the government take everything over, but they can take over some things that are just so damaged they need immediate attention. We're so intent on saving GM< which is a DEAD business, its time for us to do something rewarding in LIFE!

See ya on the other side,

Michael *Quick" WAXIE


mdp129 said...

i like it. send it to obama! send it to folks in congress! send it to someone who can actually do something with the info!

mdp129 said...

i like it. send it to obama! send it to folks in congress! send it to someone who can actually do something with the info!

Gan said...

Any thoughts on AXP Wax? It looks like AIG; options activity and chart action wise...Do you think credit cards will still take a hit now that Paulson has reallocated the TARP funds to alleviate consumer debt...?

TheBigBadBeerGuy! said...

Well, you can't have some nationalized banks and others which are not. They all must be. If that's the case and banks are under big brother control, then lets change our flag to solid red with a hammer and sickle in the center.

Since the government knows everything about our finances due to access to the IRS, hardly anyone would get loans, desirable credit card limits or substantial credit of any kind since we all lie to obtain these. Sad but a fact of life.

Plus for those who think Pandit is doing a poor job at Citibank, just wait until the Fed takes charge of everything. LOL!

As far as stock multiples, I also agree the valuation method has ALWAYS been ridiculous. 40x earnings is a BUY since XYZ company has developed a new way to wipe yourself on the crapper is ridiculous. I sold a GREAT business years ago, liquor distribution route that was making money along with about $170k annual income for me. All I could get for it was the value of inventory and about 2.5x my annual profit. In the REAL WORLD one can NEVER sell a business for 10x, 15x, 20x. So, this model is broken and was merely a tool used by sleazebag firms such as Goldman to fill their pockets with cash.

Many years ago, stocks were valued using different models that actually made sense (almost). Today...its a joke.

Leave it to Paulson to basically give massive amounts of cash to his cronies and leave the average Joe holding the bag. With MUCH less capital they could have bought EVERY troubled mortgage, forcibly shut down non-performing institutions and worked out a realistic plan to get the credit markets flowing again. Leave it to the Feds to totally wreck things.

Anyhow, the way I see it is there's just too much supply of EVERYTHING for the demand. Too many auto manufacturers, shopping centers, real estate developers, widget peddlers, retailers, yada, yada, yada. So, the only cure for the current state of disarray is time and plenty of pain.

JayW said...

Hmm, you may be on to something. Too bad that nobody would listen because they dont think on that level in Washington. You can't have a Treasury secretary from the Wall St. world and expect them not to take care of Wall St. This ludicrous idea of pumping money into failing banks is ridiculous. While I agree with you that the market is going lower I believe it will rally first before taking the next plunge. The short trade got overcrowded and the break of the lows brought in more shorts that got crushed. I suspect those shorts will be reestablished around the 930 to 950 level on the SPX. Quick question for you. On your options service how are you guys getting around the high premiums with the Vix at such high levels? Are you just selling calls as opposed to buying puts?

Erik28 said...

Geez Waxie, i thought you said it would take 12-18 months to hit 150! Heck u only called goog short, when it was 8 months ago!


Waxie said...

I like AXP short. I mentioned it here the day they gapped up on the announcement they are now a bank holding company. Every company so far that has done that has ended up going WAY down. GS, MS, etc. AXP no reason to think they will be different, when there is smoke there is fire more than likely.

Thanks for all the comments! I've gotten a couple of nasty ones, which is fine, open discussions are always good! Though, don't be ridiculous and send me obscenity, hehe, it makes me laugh but it's very childish and emotionally ridiculous.