Tuesday, December 16, 2008

Today's Fed move...

OK, one more cause this is a doosey. So, I'm watching Kuddy bear now. At least there are a couple of people who have a clue. Peter Shiff definately has it right. It's amazing to me that people get so stuck in their beliefs that they can't see their way out to reality. Today's Fed move is an unmitigated DISASTER. It's a ticking time bomb. You can not buy your way out of a recession. You can not try to pump air into a leaky tire and then drive on it and expect the car isn't going to break down. This notion that we should get rid of mark to market is possibly the most dangerous and insane idea out there. The short seller nonsense that booyah spiels is basically harmless ignorance, but mark to market creates and regulates a real market. For those of you who don't know what mark to market is, and I preface this by saying I'm not an "expert" on this subject, but basically it means that you have to account for whats on your books at the REAL market value of it. It regulates the market because otherwise a company like Citibank could mark their $350 BIL in "assets" that have a real value of like $3.00 maximum at something a lot higher, thus artificially pumping up their "net" worth and making it appear that they are worth more than they are. If these companies are allowed to skirt that rule it will falsely create "wealth" for shareholders and an illusion of value. It will once again rally the market, which is fine with me, but it will ultimately create false values that shareholders will rely on. The Fed is playing Russian Roulette with the taxpayers money. It is a disaster and it's going to lead to a very bad ending I believe. As always, I preface this by saying that I hope I'm wrong, I just don't think I will be. The Fed historically has overshot both ways, which is what they have done now. I've talked about the first ever deflationary-inflation period in the history of economics. That's what we have, and when we do switch from deflation, which we are clearly in, to inflation, it's going to wreck such havoc to be beyond belief. The market rallies are only good for us traders. Investors are mostly too stuck and foolish to use market strength to sell into. If I am right about a move to 10,300 area then it will potentially create one of the best shorting opportunities of all time. I'll be releasing a TOP 10 STOCK and TOP 10OPTION SHORT trades of 2009 when I feel we are near the "top" of this move. It's too early here I believe, but it should be once we get past Obama's inaugeration.

This is why you must be a trader and let go of the notion of investing. What is anyone investing in? The Fed saving them? None and I mean NONE of these rallies are based on anything fundemental, they are ALL based on what the Fed does or doesn't do. That's a very VERY bad base for any market. Markets are not artificial by nature, they are organic. We right now have an artificial market. If the Fed were not rigging the game the DOW would already be below 5000 and the Nasdaq would easily be below 750. President Elect Obama said it today, the Fed basically has run out of REAL bullets and now is resorting to phoney/smoke and mirrors ones.

Now the old adage of "don't fight the Fed" would normally apply here, however that's with NORMAL bullet usage, meaning they would be lowering rates. We are indeed in unchartered territory and I believe most of what they are doing now is what I've dubbed "wishing well economics". Throw it out there and make a wish and hope it comes true.

I have to say, I actually agreed with Kuddy bear tonight for the 1st time potentially ever. Good show tonight, I enjoyed it. Peter Shiff is tough, he may be more opinionated then me! ROFLMAO! That's tough, but he just might be! We see things similar on many counts. I'm trying to get him for the symposium as well. More on that later, in the meantime, there ya have it, this is my take on what the Fed did today. It'll be interesting to see what the markets do tomorrow. Often the day after the FOMC day move we reverse, and then the day after we rally again or fall again, whichever is the 1st (today) move. I'm pretty bullish here, but we'll see. Nothing, as you all know, goes in a straight line. Right now the futures are down slightly, we'll see, we shall see!

One last thing, cause I just heard it, and I think I've said similar things before, actually earlier. The Fed is trying to be all things to all people. When you do that generally you fail everyone. Ultimately they will fail YOU and ME unfortunately.

Paulson said today that they are trying to prop up the stock market, they don't want to Nationalize the financial system. THAT, in my opinion, is exactly what should and what will have to ultimately happen. If they did that then they would ORGANICALLY get to where they want to go, they would just be sacrificing the banks. Why they won't do that is beyond me. Yes, shareholders will get wiped out that own these worthless assets, but there would not be massive job losses, and there would not be carnage. By trying to serve all sectors and all people they are doomed to fail in everything. The banks are WORTHLESS. C, JPM, WFC, etc, etc,etc are all WORTHLESS. The stock should be ZERO on them all, they are no better than Fannie Mae or Freddy Mac. Ultimately they will get there, in the meantime the Fed will keep trying to prop them up and foolish investors will be sucked in even deeper until they are ultimately hurt even more.

THAT is reality, my friends, at least according to me - your friendly neighborhood WAXIE!


Michael "Waxie" Parness


SteveInChicago said...

I think that the issue with Mark to Market is that a lot of the securities are illiquid.

If you or I buy a stock or an option, someone has probably at least bid on it in the course of any given day. However, if I'm holding a CDO, I probably don't have an accurate price. Furthermore, these are traded so rarely that weeks or months might go by before the security is bought or sold.

My understanding is that true Mark to Market means that if a day goes by without a bid, you carry it on your books as zero. Once there is a bid, you can use that to value the security.

I'm guessing that the some of the folks that want to get rid of mark to market are people concerned with having to raise reserves to counter "losses" caused by having to mark the value of a security that is actually worth something as zero. I'm also guessing that some of the people screaming about this just want to ignore a lot of really bad investment decisions.

All told, there's probably some better way, but until we start accurately pricing this type of asset and recapitalizing, we're not going to unravel the mess.

Erik78 said...


do you like STEM as as Jan Effect/Obama inaguration play?

52wk highs were an ezact mirror off the "Obama election" run up trade.