Wednesday, March 18, 2009

What Makes Sense?

You have to ask yourself, does the Fed move today to buy up to $300B worth of long term gov't debt and to purchase more mortgage backed securities make sense? Wall Street took it as all problems are solved with financials. But why is the Fed doing this? All the major banks have been pounding the table that they have all the money they need. They all say they are profitable. They all say they are solvent. They all say their capital is good. All say they don't need any more government.


Oh really? If this were all true, would Uncle Ben step to the microphone and make statements such as "we are in a major crisis", "we have to do this to avoid a major recession", "this is necessary in an attempt to get credit markets moving again".

If the banks are all in as good a shape they have all claimed to be in over the last 3 weeks, why does the Fed have to step in again? Shouldn't the Fed be raising rates in anticipation of the banks reporting good earnings and saying that credit is flowing?

Obviously the b.s. they were feeding us last week is totally untrue. Banks are not solvent, banks are not profitable, banks are not well capitalized, banks WILL NOT PASS STRESS TESTS!

The Fed is stepping up because things are much worse than anyone is telling you. The banks are on verge of collapse as is the economy. Was this move necessary by the Fed? Yes. Because without it, all banks would be nationalized and Uncle Ben wants to keep to his word that nationalization will not happen. So he will take your tax money and your kids tax money to risk long term hyper-inflation in the interest of short term avoidance of nationalization of banks.

Its a long term disaster if this does not work. It will take 10-12 years to recover from this mess if these programs do not solve the problem. Is the risk worth it?

OK, back to the market. The VIX amazingly stayed above 40. I have no idea how. But it stays in a range that can result in a reversal. As I stated the other day, financials are not a good place to short as a whole. Are they now? Yes they are, but not all in. I think they are a good short right now to get your feet wet. If market continues to climb, add more. They are totally overbought. Citi is now above $3. This is a company owned by the gov't. AIG has tripled. Also owned by the gov't. These are both going to go very close to $0. Maybe not this week. Maybe not this month. But they will get there. The gov't can not give AIG any more money without civil unrest occuring. The bailout of AIG is done. And AIG has already spent the billions already given to them. They are toast.

I believe tech may be the best short out there for the long term, not the short term. Short term, it is very dangerous. But if you have patience, and can withstand potentially losing 25% of your initial investment before things turn around, now is the time to start building short positions in financials.

The Fed said it will buy up to $300 billion worth of longer-term U.S. government debt over the next six months and expand purchases of mortgage-related debt to help ease credit market conditions in its latest action to lower borrowing costs.

1 comment:

  1. Hi Bsen,

    I did not realize you are in Atlanta. I live in Duluth, GA.

    By the way, I have a dog name Beamer too....but he is a small chihuahua....

    That is very funny...