Sunday, March 15, 2009

Grrrr....Ouch!....Watch the Bear Trap.

The markets had great returns last week. The banks rallied huge. Crude Oil is pushing $50. Things are great! Why were the markets so strong last week?

Lets see:

1-Citigroup and Bofa stating that they were profitable on an operating basis the last few months, sparking huge short covering in the financials.
2-Rumors of an imminent Suspension of Mark to Market Accounting.
3-Talk of Reinstating the Uptick Rule.
4-Max Negativity.
5-Technical move in Crude Oil.
6-GE drop in credit rating not as worse then imagined.
7-Goldman/Moose Earnings coming soon.
8-Retail Sales in February not as bad as feared.

The market mood was so depressing, so inundated with poor information, any type of good news, or just a lack of bad news would spark a big rally. This is what we saw last week. It also helped that the government is encouraging across the board "Accounting Fraud" to assist the banks as most short sellers had to cover earlier bets in that sector.

But has anything really changed? Is this a classic bear trap? Is this just going to be another opportunity to liquidate at higher levels? Can the market handle a whole sale sell off once again to fresh new lows? The jury is out, but I think we go lower much lower before we bottom.

On the backs of positive news last week, I would look for some gains in the markets to start off with, but I look for lower prices by the end of the week. Nothing really has changed in the financial space to warrant bidding these up more.

Bank Of America and Citigroup were earnings positive on an operating basis. This is a senseless statement! Remember banks charge ATM Fees, Savings/Checking Fees, they lend long, borrow short? You would have to be a total retard NOT TO MAKE MONEY on an operating basis! A three year old CEO can make money in this environment. The only way they can lose money, is if you ask for $40 from the ATM, and they give you $80! They credit your account $25 when you bounce a check. For some strange reason, they lend short, and borrow long.

The banks senseless statements don't take into account the following:

1-Continued losses on principle investments.
2-Continued mark downs on bad loans.
3-Write-Offs/Charge Offs in HELOC/Credit Cards
4-Reserve Buildup to take into account losses.

The point is, employment is still accelerating to the downside, more and more jobs are being lost every month, with no clear good news in sight. Housing still is devastatingly bad in most major markets, and most importantly, the Credit System is still frozen. Its frozen for the following reasons:

1-The securitization market is non existent. Bank don't lend because they cant offset the risk in their loan portfolio's. 50% of the credit/finance system in the U.S. is via securitization.
2-Any type of Quantitative Easing measures enacted by the government has not worked. TARP, TALF, etc.
3-Losses in mortgages are just the tip of the iceberg.
4-Banks balance sheets are worse then reported and imagined.
5-The banks/treasury have no way to value/off load Toxic Assets from bank balance sheets.
6-Lack of leverage.
7-Shadow Banking System (Hedge Funds/Private Equity) are in liquidation mode.

The banks have yet to take responsibility and be accountable for their the lack of regulation and risk controls. They have not done so, and probably never will. They are just waiting around for more bailouts, less regulation, and affirmation of accounting fraud from the U.S. Government to pull the wool over the eyes of everyone once again.

Americans have their heads in the sand, they care more about "Slumdog Millionaire" and "American Idol" then they do about whats actually happening to their country. This is why the average American takes it in the ass every time.


  1. I agree.....the majority of Americans are clueless to whats going on.

  2. I see that the Treasury has enacted the Asset buy program for the banks....question will this help other asset classes that are in trouble?