20 SEP 2009, Sunday

1. WTF!!! When the f**k is this shirt going to stop???!
2. The current extreme government manipulation of what were, in the past, only lightly manipulated markets is absolutely out of hand. Your government is using your tax dollars to prop up markets from housing to autos to stocks and bonds....enjoy it while it works but, also, remember the government couldn't even run a used car turn in program. The Fed does this through "Da Boyz" network. This is how....and why the risks are too high for the system to be able to function properly instead of being on a permanent tightrope walk.
3. The Fed basically temporarily provides "freshly printed" money to "Da Boyz" via asset purchases/transfers through "Open Market Operations". And then "Da Boyz" put the "new found free money" to work pumping the chosen asset of the day by using leverage of 30-40 times. Prior to 2005, they were only permitted to use a maximum leverage ratio of 12:1. But the financial industry lobbyists "BOUGHT"....errrr, excuse me....influenced Congress to raise the leverage ratio.
4. The 12:1 leverage ratio prevented financial implosions like we just experienced since 2007. Look at it this way...if you're using leverage of 30-40% and the asset you own drops in value by 2.5-3.3%, you are completely wiped out. Pfffftttt!!! KAPUT! You then have to sell other stuff to raise the money to meet your margin call. If enough of "Da Boyz" are trapped in losing positions and have to raise cash at the same time, their volumes will completely destabilize and swamp the markets. Think of someone yelling "fire" in a crowded theatre...the folks that are first to the exits get out OK...the rest of the folks get killed....the "Quick and the Dead."
5. That's how it works. And that's why the crap came apart so fast in Fall 2008. Think now...FOR REAL....THINK!!! When was the last time you didn't typically see 3% fluctuations in the stock market??? I'll get back to this thought in a minute but first...
6. And now that these institutions are now all considered banks, they're backed by FDIC!!! YUP...you're tax dollars again. And Congress HAS NOT YET reduced their leverage back to the 12:1 level which would lessen the likelihood of loss to the taxpayers. And if they are banks, why are they even able to run hedge funds and proprietary trading desks (Glass-Steagle prohibited this), not for the benefit of their customers, but for the benefit of themselves...once again USING YOUR TAX DOLLARS! Instead, those banks are swinging big risky positions because "Hell, we're not at risk! We'll be made whole by the Treasury." FORKERS! FORKING BOOSTARDS!!!
7. Hmmm....back to the 3% loss thought. Current market is acting just like 2006 and 2007, accelerated straight upmoves with no corrections (ie, >3% drops). Made me think then, and now, Hmmm..."Da Boyz" own a lot of crap and are trying pump the prices higher to entice the retail guy into the "All's Safe...I can buy now" mode. One question, is it possible that the retail guy is on strike...he ain't buying it? Does this scare "Da Boyz" because they got this crap on their books all levered up and no suckers to sell it to? If that's the case, are they doing everything they can to avoid that small downswing and potentially a recurrence of last fall? Possible? I dunno but I don't like this nonsense one bit...it reeks of a bull trap.
8. Me personally??? If I were in a crowded theatre I'd make sure that I were seated next to an exit. And when I smell smoke, I'm moving...no need to wait for the "Fire" call.
9. Closing thoughts from Paul Krugman (Nobel Prize winning economist)...."A lot of what we think we know about recession and recovery comes from the experience of the 70s and 80s. But the recessions of that era were very different from the recessions since then. Each of the slumps — 1969-70, 1973-75, and the double-dip slump from 1979 to 1982 — were caused, basically, by high interest rates imposed by the Fed to control inflation. In each case housing tanked, then bounced back when interest rates were allowed to fall again.... Post-moderation recessions haven’t been deliberately engineered by the Fed, they just happen when credit bubbles or other things get out of hand." And that means that the Fed can't just cut interest rates and boost housing. This recession is very different than the early '80s. This time housing will remain under pressure until the number of excess housing units (both owner occupied and rentals) decline to more normal levels. Soooo....an "Immaculate Recovery" coming? Very unlikely.
10. This is not your father's economy / stock market anymore. Welcome to a brave new world.
11. PS - In September 2008, a large money market fund "broke the buck" of a run induced due to the crap paper it held in it's portfolio. That means that each share was less than $1. In order to maintain confidence, the US Treasury instituted (for the first time ever) temporary backing for all money market funds. The backing was renewed twice during the past year. However, on Friday 18 September, it was quietly allowed to expire. If you're in money market funds, you may want to look at what they contain and, if necessary, switch to a money market fund of US Treasury Bills. It will be a slightly smaller return but at least you know what you own and it has the full backing of the US taxpayer.