Full Commanding Denial

Jim Kunstler eloquently presents his views on how we will gradually be forced to shift from denial to recognizing real change in our lives. – Ilene

Courtesy of Clusterfuck Nation by Jim Kunstler

       If central casting called for a poised, straight-talking, and capable-seeming president, it would be hard to come up with someone better than the Barack Obama who walked and talked around the White House grounds with Steve Croft on "60-Minutes" Sunday night. He may perfectly represent the majority who elected him, though, because he also appears to be in full commanding denial of the realities overtaking our American experience.

      Those realities include the fact that we can’t possibly return to the easy credit and no money down "consumer" economy no matter how many nominal dollars get shoveled into the fiery furnaces of banks too-big-to-fail. As Treasury Secretary Geithner’s underling, Stephanie Cutter, said last week, "Our singular focus is on increasing lending to support economic recovery. Everything we do to stabilize the financial system is done with that goal in mind." 

      Lending on the scale that became normal over the last decade is for sure the one thing that we will not recover. We turn around in 2009 to find ourselves a much poorer nation than we thought we were a year ago, especially among that broad range of formerly middle-class wage-earners who lived so luxuriously until yesterday. The public can’t process this reality and the president, for all his relaxed charm, is either not ready to articulate it, or can’t process it himself.

     Everything that we’re doing right now is engineered to avoid reality, to sustain the unsustainable, to recover the unrecoverable, when the mandate of reality compels us to face our losses in order to move on to the next chapter of a collective American life. The next chapter would be a society that runs on a much more local and modest scale, centered on essential activities like growing food, requiring harder physical work, and focused attention — in other words, the opposite of a society lost in abstractions, long-range daisy chains of off-loaded responsibility, and incessant pleasure-seeking.

     In retreat from this reality, we’ve set in motion two forces that are pretty certain to bring us to grief. The first proceeds from the fateful FOMC decision last week at the Federal Reserve Bank to begin buying massive amounts of our own treasury bonds and bills. This is predicated on the idea that the mechanisms of wealth production — even of illusory wealth, such as the fortunes created by trading securitized unpayable debt — can keep chugging along, spinning off limitless additional suburban villas, chain stores, car trips, and deep-fried snacks. It would be sententious to explain how this destroys currencies, but wherever "monetizing debt" has been tried before in history, that is the outcome. The result would be ruinous at every level and would lead straight to the second terrible force: social upheaval brought on by the conversion of economic problems into political turbulence.

     Those two forces are underway right now, in fact, since the overt monetizing of last week was preceded by the shoveling of bail-outs, which tacitly guaranteed a collapse of credibility in US debt instruments. I’m not in favor of violence and anarchy, but after the AIG bonus affair, it’s hard to imagine that we are not one more corporate misdeed away from a rocket-propelled-grenade, or something like that, being fired into a glass office tower somewhere — and then the "first-broken-window" rule of social disintegration comes into play. Meanwhile, I stick to my time-table of six-to-eighteen months before the reckless creation of new money-for-nothing filters through the system, overcomes even compressive mass bankruptcy, and starts expressing itself in the sinking value of dollars and the revved up velocity of their circulation in pursuit of tangible commodities.

     We’re already seeing the first twinges of that in the up-creep of oil prices, busting through the $50-a-barrel barrier last week. Since scarcity tends to express itself in gross volatility, it’s easy to imagine oil prices rising swiftly beyond the $147-per-barrel record level of last year. As that occurs, the most basic premises of everyday life in the USA will be called into question. If you think car sales have been bad lately, with oil in the $35-a-barrel range most of the winter, just wait. The newly-minted unemployed will be marooned in their subdivisions. They will not be buying GMC Yukons on 48-month installment contracts, let alone X-boxes on their Visa cards. They might be very very hungry, though. All bets are off as to how these social classes may organize themselves to alleviate their hunger (and express their anger about it).

    Given all this, it’s kind of hard to believe that the savvy, thoughtful Mr. Obama is going along with such a disastrous program as the one his "team" is rolling out. Perhaps his ease and confidence masks a tragically conventional world-view, an incapacity to imagine "change" outside a very narrow range of possibility. I must say I doubt this is the case. I think, he is going along, for the moment, with a consensus of wishes to prop up life as we know it at all costs. This consensus emanates from the top down and the bottom up. The millions of "Joe-the-Plumber(s)" out there don’t want to rethink the terms of existence anymore than the lords of Goldman Sachs. I also think that circumstances will force Mr. Obama’s hand before long — specifically that a moment will arrive when he goes on TV and tells the American public that things have changed way beyond the scope of what they even imagined when they pulled the levers last fall and voted for an uncharted future.  

    Capable observers are calling, meanwhile, for a robust bear market rally moving through Spring, on technical grounds that have little to do with the greater forces roistering in the background. Reality is a cruel mistress. If the stock market rally rolls out as predicted, it will surely fake-out the mainstream media. They’ll conclude wishfully and foolishly that something like "recovery" is underway. They may even interpret rising oil prices as a "positive sign" that the great groaning enterprise of the something-for-nothing economy is back "on track."

     They’ll be shocked sometime after Memorial Day when it all comes off the rails again. We have a lot to sort out and very little time to get on with job. Notice, I haven’t even mentioned the potential for mischief and instability coming out of the rest of the world — enough black swans to blot out the sun. Want some concrete advice? For those of you sitting on US Treasury bonds and bills, now would be a good time to get out.
____________________________________
My 2008 novel of the post-oil future, World Made By Hand, is available in paperback  at all booksellers.

 

It Looks Like Citi And Bank Of America Are Already Gaming The System

Why are BofA and C buying up Alt-A and ARM MBS?

It Looks Like Citi And Bank Of America Are Already Gaming The System (C, BAC)

Courtesy of John Carney at ClusterStock

The huge subsidy to banks hidden inside of Tim Geithner’s public-private partnership program may already be leading banks to load up on securities they plan to sell at inflated prices.

According to the New York Post, Citi and Bank of America have been aggressively buying up Alt-A and ARM mortgage backed securities, sometimes paying more than the going rate of around 30 cents on the dollar.

Mark DeCambre reports:

One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.

This raises serious questions about how the banks are using TARP funds. Instead of stimulating the economy by making new loans, B of A and Citi seem to be spending money to buy up old loans. That’s probably a bet  that the Geithner plan will create renewed demand for MBS.

Source:  DOUBLE-DIPPERS CITI, BOFA BUYING BACK LAUNDERED LOANS AT LOWER RATES, NY Post, by MARK DeCAMBRE 

See Also:

The Geithner Giveaway, Explained, Henry Blodget

How Taxpayers Can Get Hosed Even When Private Investors Get Rich, John Carney 

Here’s Why The Geithner Plan Is So Complex,  John Carney 

 

Geithner’s Arrogance Knows No Bounds

Wondering if there’s a Plan B?  There isn’t and, in Geithner’s mind, there’s no need for one. - Ilene   

Courtesy of Mish

Inquiring minds are listening to Geithner explain to Congress how his plan works. Here is a transcript of a conversation between Rep Gresham Barrett and Treasury Secretary Geithner.

Rep Gresham Barrett: "The last question I have guys, which is the $64 million question or I guess I should say $64 trillion question is: What’s the backup plan? If everything fails what do we do? Where do we go from here?"

Treasury Secretary Geithner: "Congressman this plan will work. This plan because of the authority provided not just by Congress but the treasury and the Fed gives us broad ability to do what you need to do to get through a financial crisis like this. It just requires will; It’s not about ability. We just need to keep at it. We just need to work with Congress to make sure we do this on a scale that will make it work."

Someone needs to get this Jon Stewart on the Daily show. I think he will have a field day with "It [The Plan] just requires will; It’s not about ability." Unfortunately, Geithner’s attitude is more scary than it is funny.

Geithner Seeks Expanded Power

It would be hard for Geithner to screw up more badly or to say dumber things. Yet, his counterattack is to seek still more power. Please consider Geithner Seeks Expanded Power to Seize Firms. 

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit.

The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan.

Unlimited Plan For Unlimited Arrogance

Notice that the "plan" does not require approval of Congress or the President only a "consultation". What good is that? And why should Congress grant this authority to such an arrogant fool?

Geithner even asks for powers that are unconstitutional such as the ability to break any contract. Getting 2/3 approval from the Fed is no big deal as the Fed and the treasury are in cahoots to rob taxpayers.

And speaking of robbing taxpayers, note that the request would allow the Treasury to guarantee losses, buy assets, or take ownership stakes in whatever it damn well pleased.

Fed Uncertainty Principle

Geithner’s actions were called in advance by me, before he was even appointed. Please consider the Fed Uncertainty Principle, written April 3, 2008. Simply substitute "Fed and Treasury" where I previously said "Fed".

Uncertainty Principle Corollary Number Two

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Inquiring minds referring to the article will note that corollaries three and four pertaining to illegal actions and repeating past mistakes, also apply.

In Geithner’s Galling (and Dangerous) Plan For Bad Bank Assets I said "Tim Geithner is the most dangerous man in America, and Obama is too blind to see it."

If you did not believe it then, hopefully it is obvious now.

Congress Needs To Censure Geithner

Congress should not just deny Geithner’s request, Congress ought to Censure Geithner and ask Obama to accept Geithner’s resignation.

Mike "Mish" Shedlock

 

The Stupid Exuberance Over New Homes Sales

Home sales numbers always go up this time of year, like clockwork.  Compared to this time last year, home sales are down. – Ilene

Courtesy of John Carney at ClusterStock

OMG! You guys! The housing market is finally bottoming! Let’s party!

Every year around this time, we expect to get a phony rush from the housing market. It”s like clockwork. If it’s March, it’s time to get excited about home sales numbers. And it’s only going to get worse for the next five or six months. Then September will come around and everyone will realize that our enthusiasm was built on sand.

Why does this happen every year? Because home sales are highly seasonal.

"Anyone with kids tries to avoid disrupting their school year when possible," Barry Rithotlz explains. "And so, the ideal time to move into a new town (and school district) is prior to the start of the new school year in September. That factor, along with other annual holiday activity, explains the annual rhythm of the existing home sales."

He continues:

January is the worst month of the year for sales. From that low point, sales improve gradually for each of the next 6 months. They plateau over July and August, and then began heading down until December. This occurs year after year.

For those people who actually want to understand the state of the Housing market, you have two options that avoid the cyclical seasonality: 1) You use year over year data. This removes the seasonal patterns by  comparing January to January, June to June, etc. And 2) Compare non seasonably adjusted monthly data over the course of multiple years.

So how did the new home sales do year over year? Horrible. Sales of new homes fell 41 percent from February 2008. In other words, new home sales aren’t up. They are down. A lot.There was one bright spot in today’s data: the supply of homes at the current sales rate fell to 12.2 months’ worth from 12.9 months. 

See Also:

Market Soars After Strong Home Sales, Joe Weisenthal

More Positive Signs On Housing From Existing Home Sales, Henry Blodget

Sad Times For Hamptons Homeowners, Joe Weisenthal

 

Cara’s Commentary & Community Chat

Bill Cara at Cara’s Community discusses the manipulation of gold prices.

The discussion of the gold market inevitably comes down to whether or not the gold price is manipulated and by whom. GATA’s Bill Murphy has been an effective spokesperson for many people who are outraged that central bankers and the money center banks are motivated to suppress the price of gold, and they do it in a highly organized fashion. In the context of our need for free capital markets, I lend my voice to that argument as well. http://news.goldseek.com/GATA/1237997471.php

I believe that the money center banks and broker-dealers (Humungous Bank & Broker) work in combination with central banks and government in whatever way they can to ensure the risk-free trade. If it were in HB&B’s best interest to reverse the trade, ie, to inflate the price of gold via depressing the $USD, and that’s what central banks and govt wanted, that’s what HB&B would do. Their interest is to make a profit, and partnering with the US government and the Fed is a guaranteed winning move.

Yes, depending on the intentions of government, the price of gold has gone both ways in the past 100 years. In fact, during a severe deflation such as the 1930’s Great Depression, I believe that finance ministers, central bankers and HB&B did use gold as a policy instrument to end the economic woes of the time. The US government devalued the US Dollar and repriced gold from $20 to $35, but also seized people’s control over gold for about 35 years. After the people were allowed to trade gold freely in the late 1960’s, due to reflation needed to pay for Vietnam, the price of gold soared then too. During the high inflation 1970’s, the opposite was the case; the monetary authorities took actions intended to suppress the price.

So, there has always been a direct link between the $USD and gold. The common factor is the price rises when government needs it to rise, and it falls when it needs it to fall. HB&B is merely along for the ride.
http://en.wikipedia.org/wiki/History_of_the United_States_dollar

Because the US is in a severe financial crisis today, where the monetary authorities have now decided to reflate as they did in the early 1930’s and late 1960’s, I would not be surprised to see the gold price soon rally to $2500, along with the tacit approval of the international authorities, and I note that these people of the group of 20 most economically powerful nations will be meeting in London on April 2 to discuss issues like currencies and gold.

But whether the gold price is being supported or suppressed, it is my strong belief that both are wrong. What we the people need to argue is that these interventionists have no right to use capital markets as an economic policy tool. The independent owners of capital use the market as a legitimate price discovery mechanism, which ought to be our fundamental right since it is our capital. Government and central bankers should not have the right to use our capital against us.

Here is a reason why. The FOMC has decided to “stabilize” prices by buying bonds and pushing liquidity into the banks. They give their trading orders to the banks that immediately profit from them. Why not be fair about this and announce to the world that the policy decision was made and that following the six-week interval between that FOMC meeting and the next one, should the free market not adjust accordingly, the FOMC would start to trade in a fashion that would achieve the Fed’s objectives.

That is not being done because insiders would not profit from it. So, the bottom line is that I do believe intervention, at times is necessary, but policy announcements ought to be sufficient. What is happening today is a fraud against the public. These risk-free trades being handed to HB&B have got to stop.

Bloomberg TV’s interview with GATA Chairman Bill Murphy

Bill Murphy is the chairman of the Gold Anti-Trust Action Committee.  In the video above, Bill speaks with Bloomberg’s Bernard Lo about global central banks’ intervention in the gold market.  The video may also be found at Bloomberg, here.

 

How Taxpayers Can Get Hosed Even When Private Investors Get Rich

Here’s one way in which private investors and banks can make money in the PPIP deals, while taxpayers lose.

Courtesy of John Carney at ClusterStock

Tim Geithner keeps saying that investors would share in the downside of any losses in assets purchased through the Public-Private Investment Partnerships.  But that’s just not true.  It’s entirely possible for the private investors to make money while taxpayers lose money.

The reason is that the asset purchases are financed with non-recourse loans, which effectively means that the private investors can just walk away from any money losing deals while keeping the upside from the winners. Basically, the government is enabling the equivalent of jingle mail. The private equity investors in the plan can treat money losing deals like homeowners underwater mortgages: default on the debt and hand the crappy loans back to the government.

A blogger named Nemo described the problem very nicely. Paul Krugman linked to his blog, and it seems to have crashed now due to the traffic. We’ll describe the argument of Nemo here.

• Say a bank has 100 mortgage pools with a face value of  $100 each.  No one knows what these mortgage pools will actually be worth because we don’t know what the default rates will be and all the models we developed earlier have turned out to produce misinformation.  For simplicity’s sake, let’s assume that half are worth $100 and half are worth $0. On average, the pools are worth $50, and the true value of all 100 pools is $5000.

• The FDIC provides 6:1 leverage to purchase each pool, and some investor takes them up on it, bidding $84 apiece.  Between the FDIC leverage and the Treasury matching funds, the private equity firm thus offers $8400 for all 100 pools. That’s $600 from Treasury, $600 from the investor and $7,200 from the FDIC.

• Half of the pools wind up worthless. So the investor and the Treasury each lose half the money they invested, $300.  The FDIC lent $3,600 but because the loan is non-recourse, the investor doesn’t have to pay it back. Instead, it just hands the FDIC the worthless paper. 

• The other half wind up worth $100, for a $16 profit each. The FDIC gets paid back its $3,600 loan. After paying back the loan, the total profit on the pool is $800. That profit gets split evenly with the Treasury. The investor makes $400. 

• A $400 gain less the $300 loss leaves the investor with a $100 net gain. So the investor risked $600 to make $100, a tidy 16.7% return. The Treasury is in the same position as the investor, making $100. It almost looks like the tax-payer has made money on this deal.

• And the bank did well, too. It unloaded assets worth $5000 for $8400.  So the bank made $3400.

• So in the end, the investor made $400, the Treasury made $400, the bank made $3,400 and the FDIC lost $3,600. The FDIC funds its own loans by borrowing from the Treasury, which means the Treasury—that is, the US taxpayer—is out a net $3,200.

Of course, the FDIC will still owe the money to the Treasury. How will it pay back the loan? It has proved impossible for the FDIC to raise fees on banks because their balance sheets are so shaky. It seems likely that the Treasury will simply have to cancel the loan and eat the loss, or taxpayers will have to inject funds to bailout the FDIC. Either way, taxpayers eat the loss.

For a similar argument, here’s Paul Krugman’s blog entry.

See Also:

Krugman Trashes Geithner’s Bank Plan…And Obama, Henry Blodget

Krugman Despairs About Geithner’s Latest Giveaway, Henry Blodget

Paul Krugman: The Problem Is Toxic Banks Not Just Toxic Assets (Video), John Carney 

 

 

Prague’s Franz Kafka International Named World’s Most Alienating Airport

The Onion, America’s Finest News Source, reports on the world’s worst international airport.  H/T to Miss Trade at Trading for the Masses.  

Prague’s Franz Kafka International Named World’s Most Alienating Airport

 

(More) Misdirection By The Fed And Treasury

Karl Denninger calls it as he sees it – after doing such a bang up job enforcing existing laws, Geithner wants new powers. – Ilene

Courtesy of Karl Denninger at The Market Ticker

Geithner wants more power for Treasury?

Geithner, who testifies today before the House Financial Services Committee on AIG’s rescue, is expected to focus on the need for new tools for financial institutions other than banks, similar to those that the Federal Deposit Insurance Corp. has for winding down failed lenders and insuring consumer bank deposits, the official said.

We already have plenty of tools in the box folks.

Writing what amounts to insurance when you have no reserves against it has a common name: fraud.

Playing "black box" with earnings and other business features has a common name too, coined a few years ago: ENRON.

Geithner wants:

Regulators should be able to safeguard the entire financial system as well as monitor the health of specific institutions, Geithner said. This oversight should cover “all institutions and markets that could pose systemic risk” he said, according to the excerpts.

Regulators can already do this.  It is already against the law to lie in your financial statements, it is already against the law to defraud and it is already against the law to make promises (contracts) you know for a fact are mathematically impossible to keep.

We don’t need new laws, we need existing laws enforced, and we need the restrictions that were on the banking and financial system prior to the 1990s when we dismantled all of the separations and protections put back.

Specifically:

• Restore Glass-Steagall.
• Restore branch banking restrictions and CONSTRAIN the size of companies so they CANNOT pose "systemic risk."
• Bar the trading of OTC derivatives by any regulated company – period.  If regulated firms want to trade CDS or such it has to be done via exchange-listed, central-counterparty mechanisms so that nightly margin and mark-to-market can be (and is) enforced and monitored.
• Remove the "exception" for CDS from the regulatory structure; if it walks like insurance and quacks like insurance it is insurance.  Regulate it as insurance.
• Prosecute those who intentionally game the system as purveyors of fraud – which is exactly what they were – and put their butts in prison where they belong!

We are here because we willfully turned our heads from outrageous acts of deception and willful misconduct, not due to "lack of oversight capability."

Pull your heads out of your butts folks – handing more power to people who have proved they will not exercise the powers of oversight and regulation they already have is not the answer.

Bernanke, in particular, had the ability to prevent the AIG mess from happening because he already had regulatory power over the banks that were buying these CDS instruments from AIG.

He did nothing to stop them from purchasing "credit default insurance" (which is what it was, no matter what AIG and others claimed) from a company that did not have any money to pay, even though he had the unquestioned authority to do so.

The Fed, OTS and OCC (the latter two of which are Treasury both in name and in fact) willfully ignored what AIG was doing despite having the ability to stop it.

A drug pusher cannot sell drugs without drug users.  In this case Treasury and The Fed had regulatory authority over the drug users and refused to exercise it, and now claim they need "new authorities."

In fact what they need is prison terms for their willful refusal to exercise the power they already had, with Geithner being one of the worst offenders in that he sat as head of the NY Fed while the worst of these abuses occurred, head firmly and intentionally buried in the sand.

Source:   Geithner to Call for New Powers to Avoid AIG Repeat

 

You Can’t Stay Wrong for Long in SKF

Corey Rosenbloom discusses trading the SKF trading vehicle.

Courtesy of Corey Rosenbloom at Afraid to Trade.com

A lot of newer traders are drawn to double (and triple) leveraged ETFs including the inverse side, but being on the wrong side of a trade can be financially devastating quicker than most traders imagine possible.  Let’s take a quick comparison of the recent moves in XLF (Financial SPDR ETF) and its double-leveraged inverse counterpart SKF.

XLF (Financial SPDR ETF):

The Financial ETF (XLF) has moved up over 60% from its March 9th bottom.  Look closely at the trend structure that preceded this move – we had a “Three Push” Reversal pattern (actually a ‘five push’ but there’s no such pattern, so maybe it’s best to call it a generic “multiple swing positive momentum divergence”) into the recent lows, which also formed a doji.  Odds certainly shifted at that point to favor a larger than normal counter-trend reaction, if not a pure trend reversal off that level.

Price managed to surge to break both the 20 and 50 day EMAs, and it now sits above both EMAs and – if it stays above these levels – a Cradle Trade will form which will be the impetus for an trend reversal.

What happened if you were ’short’ the XLF going into this rally?  Or more specifically, what happened if you were long the SKF, which is a double leveraged inverse fund (also called a “juiced” or “supercharged short” fund)?  Let’s hope that didn’t happen to you.  But let’s see the chart anyway, and learn why you have to be very precise and elegant in your trades in this high-risk, high-reward fund.

SKF (Double Leveraged Inverse Financials ETF):

Assume you just had the worst timing possible and bought near $260 and rode the move all the way down to $100.  That’s also a 60% loss, but in price movement terms, it was more devastating than perhaps most newer traders expected.  That represented a dollar per share loss of $160, meaning if you got long 100 shares (a $26,000 position), then your shares you bought near $260 are now worth $100, or your account shows $10,000 for a $16,000 ‘unrealized’ loss.

If you look closely, the SKF made a new low not seen since September 2008.  Logic would imply that, for the SKF to be making new lows, the XLF must be making new highs but clearly that is not the case.  In fact, the XLF is down 60% from its September highs at $24.00 per share.

Think about that for a moment. If you bought the SKF (went 2x short the financials) at the September 2008 XLF price high at $24, and prices in the XLF have now fallen to $11 per share, take a look at your SKF position that you bought about $100 per share.  You were 100% correct in your assessment that the Financial Sector was going to fall hard – and it did.  However, as of today, you’re only back to break-even after a 60% fall in the XLF.

This is one of the serious pitfalls of leveraged ETFs – the rise is great, but the fall is worse than most people expect or can tolerate.  Among other reasons, this effect occurs due to the way percentages are reflected in price over time.

Without getting too technical, the moral of the story is this:

If you’re going to trade leveraged and leveraged inverse funds, you need to exercise tight risk controls, not give positions ‘room to run against you,’ cut losses as soon as possible (do not let your losers run), and treat them as very short term tactical trading vehicles. You may even want to consider a radically reduced position than normal.

If you can’t resist them, then juice up your returns when you’re right or have a strong opinion on a likely price direction, but when you’re wrong on a trade, exit immediately without hesitation.

Corey Rosenbloom
Afraid to Trade.com

 

Obama to Wall Street: xoxo

Some odds and ends from Stock Jockey — thoughts on the administration, market, selling into strength. – Ilene

Courtesy of StockJockey at 1440 Wall Street

Was the rally all Geithner related? Of course not. The scary days of a few weeks ago, when sellers whacked health care equities left and right and panicked over everything else on their sheets, have been replaced by a new marketing/PR campaign, just in time to launch a thousand ships.

Well, you get the idea. Its all good now….

The Obama administration, after months of criticizing Wall Street, has been scrambling to woo top bankers and financiers to back its latest bailout plan.

In recent days, in spite of public furor over huge bonuses paid at American International Group Inc., the administration has concluded that it needs the private sector to play a central role in fixing the economy. So over the weekend, the White House worked to tone down its Wall Street bashing and to win support from top bankers for the bailout plan announced Monday, which will rely on public-private investments to soak up toxic assets.

But weeks of searing criticism by politicians and the public had left bankers leery of working with the government. After brainstorming about what to do about that problem, the White House resolved to try to take control of the debate, according to several administration officials. In weekend television appearances, President Barack Obama and other administration officials tempered their criticisms of the financial sector. WSJ

Meanwhile every idiot with a browser is looking for a resurgence of inflation, something I find unlikely given the trends in employment, or lack thereof. And with some strategists suggesting the Quantitative Easing measures by Bernanke are, give or take, roughly equivalent to a 100 basis point Fed Funds cut, we are far from out of the woods, sportsfans.

But if you are looking for longs based on the recent policy actions (despite the fact we are up maybe 18% from the lows) check this out:

Impact on stock market: overall, policy makers are likely to get ahead of the curve with an ever increasing set of policy announcements (QE by UK, US, Japan, Switzerland and we believe soon to be followed by Sweden and Canada), buying poorer quality assets (e.g. TALF) and more direct action to help banks. And this, at a time when lead indicators are tentatively turning up (9 out 12 on our indicators) and equities are still attractive valued (an ERP of 6.1% on trend reported earnings against a target of 5.6%).

We continue to prefer to play the policy announcement of QE, bank bail-out etc via the credit related plays in the equity market:

(1) Non-life insurance and (for the brave) life insurance;

(2) autos (the most correlated sector to credit outside of financials);

(3) companies with high financial leverage but safe operationally;

(4) US housing related areas. Credit Suisse

The ducks are quacking, and I am a seller into strength. May the force be with you.

Mike Santoli has some thoughts on “Geithner Plan” below. I am sure of one thing – Larry Summers is thrilled it is not named after him. Brilliant, he is.
______________________________________________

_______________________________________________

Obama Dials Down Wall Street Criticism
WSJ

No Reg FD at Treasury
The Stash