Traders,Yesterday I listened to the Congressional Hearing, I had the original 3 page Legislation that Paulson purposed. Before the hearing started I reviewed this double spaced, 3 page, plan and I must say I was shocked. First, an average citizen in this country trying to get a loan for $100,000 needs to fill out a 50 page document in triplicate, yet this plan is 3 pages and gives one person a blank check, no oversight, and unbelievable powers. Too bad we can't submit our own loan docs to the bank - like Paulson submitting his.
The legislation had me concerned with a couple of issues, specially section 8. Here are a couple of items in the document that have me concerned:
Sec. 2. Purchases of Mortgage-Related Assets.(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
Sec. 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
This document, being discussed and question at the hearings, will give one person a huge amount of power. Probably more economic power than any single person in government and Sec. 8 - giving them a free pass without oversight, not even by ANY court of law, well is a little disconcerting.
Bernanke and Paulson were pushing for a quick decision - I don't think anyone expected that Congress would just blanket agree, well maybe Barney Frank.
For me, the Congressional Hearings, while historical and interesting, was nothing more than a parade for the public - so a few Congressional members could give a tongue lashing to Paulson and Bernanke as if they really do have concerns about the tax payer. Believe me when I tell you that it has already passed, sure there will be a few amendments and earmarks - but it WILL pass. I am sure that Paulson and/or Bernanke did not think it would pass in its current form, however I know that game - start HIGH and let them amended, rather than shoot low and then ask for more. I would be totally surprised if Congress didn't pass some form of this plan, very surprised.
As you know I am no fan of Krudlow, basically because he SAYS he is a Free-market guy - but on principal he doesn't really know what that means. He is like the O'Reilly of Economics - shouts people down and calls himself something that his actions and words are the direct opposite. Here is a quote to prove my point, "I am a Free Market Guy, but shorting the dollar is unpatriotic!" See what I mean. Well, Krudlow stuck his Socialist Foot in his mouth last night - enjoy:
http://www.cnbc.com/id/15840232?video=865507900&play=1
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Goldman has a new partner
Buffet is injecting $5 billion into the NEW BANK of Goldman. Goldman is now a bank, in my humble opinion they are now more powerful than before and in a better position. They have becomes members of the Fed and if the Bailout Plan is passed, their EX-CEO is going to be the single most powerful economic policy maker (with $700 billion or more at the ready). Imagine that, lots of ideas come to mind. Goldman can unload bad trades onto the new "Homeland Investments" - that gives them a free put on every trade. Why hedge your positions, if you can just dump them on into a tax payer slush fund. If Paulson gets his way - he will have no oversight and will pretty much get free reign to do with what he wants.Buffet is no dummy, where would you put your money? The question we need to ask is did Buffet make this investment based on his belief that it is a value play or is this an investment of safe haven? I personally think it is the later. I too opened an account at Goldman - why not - free puts don't suck. Of course I may be taking this to the extreme, but we live in extreme times. Remember it was only a week ago that Lehman, AIG went under, Freddie and Fannie taken-over, Merrill sold in a fire sale to B of A. So NO - these are NOT ordinary times. Goldman having the mother of all hedges - is probably the safest thing.
However - this may still come back to bite us. The problem has really turned into a creditability of the dollar at this point. We really are "HOPING" at this point that Paulson and Bernanke can sell the Faith! So far it is still questionable if they can. I personally believe - if China was positioned well - they would have no problems slapping down the USD - however they still have too many strings attached. At what point is enough is enough? I don't know, but several countries have already shown their hand - Gold, Euro, and anything BUT USD.
Goldman is probably the safest house on the street - but I would still keep an eye on the USD and it's percentage as a world currency. Having an account at Goldman is a domestic hedge, but that doesn't mean you should avoid hedging the dollar.
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Red October?
I personally think that September's volatility is just giving us a taste of what October's action will be like. Here's why:1. Homeland Investment, ok I am joking - but that is what I am calling this bailout package. The Congress will vote for it, it will probably do two things - create a knee jerk rally in the market place - but we don't know how long that will last. It will also put serious stress on the dollar and World's faith in the USD as a reserve currency will yet again fall another notch - how far and how much pressure - who knows.
2. Short-ban Lifted Oct 2nd? The Short-ban will be lifted, millions of shares were covered in two days that sent the market higher. All those convertible bond funds, neutral basket funds, pairs traders, and the list of other shorts will re-enter the market. How fast and how much is questionable - but no doubt it will bring volatility to the market.
3. Terrorist Attack? The Middle East story has been on the back burner the last couple of weeks with the current economic crisis taking front and center stage. However, our relationship with Pakistan is a little difficult, we are trying to get permission for combat troops to move into to borders areas to deal with Al Qaeda and Taliban - however a large attack in Pakistan's capital (supposedly by the Al Qaeda) has left 100s dead and has made negotiating with Pakistan (as far as combat troops) more difficult. There has also been "chatter" that a terrorist attack is in the works. Now I don't know if this is just our Administration doing a little "fear mongering" before the election, but the bombing of the hotel and the Al Qaeda/Taliban issue is still real - Both Obama and McCain recognize that and have promised to send MORE troops into Afghanistan. I would expect the Homeland Security Colored Light system move up to Yellow, Orange, Red (or whatever the scary color is) in October. That leads me into 4.
4. 3rd Infantry Division’s 1st Brigade Combat Team stationed on domestic shore? I can't remember, maybe during WWII that we had a full-time military unit serving on our shores. According to Army Times this is a full combat brigade in their "battle rattle". Here is a quote from Army Times:
"Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks."
"This new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities"
"They may be called upon to help with civil unrest and crowd control or to deal with potentially horrific scenarios such as massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack."
I am not trying to scare anyone here, but why would we need a full brigade marching around our streets? I am not saying we will see them, as I don't expect armed Hummers to be driving around - but that would not be out of the question. I can only draw three conclusions:
1. The possible coming Terrorist Threat is real.
2. The possible coming Terrorist Threat is NOT real and this is just posturing before the election.
3. There is an expectation of civil unrest - either from market conditions or from the elections.
I hope it is number 2 - because the other options are not good ones. This is not paranoia or conspiracy - this is just volatility, unstable economy, unrest in the world, and going into a very heated election.
http://www.armytimes.com/news/2008/09/army_homeland_090708w/
5. Elections - are heating up! Factcheck.org http://www.factcheck.org/can not keep up with the lies coming out of Obama and McCain’s mouth. The mudslinging is in full swing - you really can't believe either one! It's just muck racking and the media is squarely in the center, FOX, CNN, NPR, NYT, LA TIMES, talk radio. I have never heard such bias reporting going into this election, not even NPR (which I listen too) gives McCain a fair shake and praises Obama. FOX, who didn't initially like McCain has now turned into his biggest supporter, while NBC toss softball questions to Obama. The papers, who OPENLY support one candidate or another have become openly slanted in reporting. I just wish I could get STRAIGHT talk from some media center - I guess I will stick with the FT, Economist, and foreign papers for now. One thing is for sure - October will be a volatile month on the political circuit. Maybe it's time we all enter Ron Paul's name as independent and vote for him http://www.ronpaulforpresident2008.com/news/
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Futures Pre-market
Just like the other day, the futures are rallying. We are getting a little "confidence" rally thanks to the Buffet investment. However, certainly during the testimony and going into the close it would seem that Paulson and Bernanke could NOT sell the faith, the market did not respond well. Maybe the overnight/after-hour traders believe differently. The spreads are fairly decent, expect Arb traders to short the futures and buy the basket. With the short-ban, this is the only side of the trade they CAN take.
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Support / Resistance
The market started to slid again as the faith continues to falter.
INDU 10500-10750 (11,000) 11,500 (I really don't know what to think - 11,000 is a pivot point - we headed lower - the futures are up because people believe in Buffet's investment as confidence - which I think it is really more about safe haven. Expect volatility.)
NDX 1600 (1650) 1700 (We are at that pivot point, the futures are showing 10-15 points higher at the opening but that is a faith rally - nothing more.)
SPX 1150 (1200) 1250 (Again we are near a pivot point, futures looking higher - but who knows after the opening.)
RUT 680 (700) 740 (Again near a pivot point)
We wait - what does the new bailout plan bring us. Expect volatility through October.
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Conclusion
A little rant - read if you dare: The SHEEPLE
Friends and partners sometimes state that I take things too far or that I am a little extreme. However, I have to ask myself why do they think that, maybe it is their blind faith and complacent arrogance in being American (something we all have)? I stated the housing market would collapse, the dollar would see pressure, inflation is on the rise, a few banks will fail, etc. I am NOT trying to be extreme, just a realist. I like to think of myself as someone that "Hopes" for the best, but is firmly grounded in reality. I do NOT buy into conspiracy theories - but at the same time remain skeptical and do NOT take things at face value. I do read foreign papers, including Al Jazzera to hear the other side of the story. As much as I am not a Democrat, I am certainly not a Republican - unfortunately in this country if you are not one, you are automatically the other (talk about division and bi-polar). If I would of said Lehman, AIG, Bear Stearns, IndyMac, Countrywide would of gone under this time last year - I would be called a crazy-whack-job. But think about this - look at where we are right now! So to my friends (and even partners) that think I may be taking things a little to the extreme - I say to you - take off the shrouds of faith in our system and it's time to start questioning not accepting things on blind faith.
I had an interesting conversation with a friend yesterday, it was about the 1st amendment, the Freedom of Speech and Right to Assemble. Think about this for a second - if the British allowed the colonist the freedom of speech and the right to protest, do you think we would of had a revolution? I think the 1st amendment is VERY important, one of the most important amendments. However, it is interesting that it does relieve the probability of rebellion and revolution. You could say it is the right to bitch! Protests allow the people to vent in a non violent way, but does it really make a difference.
It didn't create the civil rights movement, it was people like Rosa Parks that stood up and took a stand. She wasn't a protestor, she was a rebel! It's people that Rebel that make a difference, not the protestors or letter writing campaigns. We live in a Republic, we don't vote or draft legislation our representatives do. They voted for the IRAQ war, not the citizens. There is nothing wrong with that and we can protest, voice our opinions, and write letters - but that really doesn't change anything. Our power is VOTING and it is a shame that more people in this country do not vote. It is also a shame that we really only have TWO parties!
This country has become lazy and complacent - Obama is popular because he represents Change and Hope, but he doesn't really - he is just more of the same. (same being Democrats and Republicans - two sides of the same coin). Remember Democrats also voted for the War (Hillary and Bidden - Obama was not a Senator then), Democrats voted for NAFTA, Democrats just let the off-shore Oil Ban expire, Democrats voted against Partial Birth Abortion, Democrats (who control both houses and chair the banking and finance committees) voted to expand Fannie and Freddie's leverage which help induced their quick collapse, Democrats voted for and gave MORE power to the Fed and Treasury (Paulson Bazooka), etc. I am not trying to hammer on the Democrats, but rather show you they are really no different than Republicans. There really is not much difference between them. The reason they hate each other so much is that they are so much alike. They booth take money from big oil companies, they both have questionable people working for them, including lobbyist, etc. At the end of the day is their really much difference between Obama and McCain? They both want to send more troops to Afghanistan, both willing to send troops to Georgia. Sure there is the religious stuff, gay marriage, and abortion issues - all very important, but the President doesn't get to draft legislation or make court rulings. He has influence no doubt - but being President is a lot more (hell of a lot more) than just family values.
Even when the economy is concerned they are the same, remember BOTH the Democrats and Republicans have changed methodology in calculating the CPI, Job Numbers, and other government reporting data to make things look better than they really are. What I am getting at is simple - we can protest and complain all we want - that will change nothing. At the end of the day, Obama and McCain are two politicians from two parities that as much as they hate each other are more alike than different. This election is NOT about Hope or Change this election is about whether BOTH parties can seriously get their shit together and solve both the economic crisis, energy crisis, and foreign policy issues. It doesn't matter who wins, without the other party NOTHING can get done. We are talking about CHANGE for BOTH PARITIES. Standing up and doing what is RIGHT for this country. If not - expect more protesting - which leads to nothing.
I am just wondering - at what point do people say enough is enough? I really don't think that will happen. This election will mark the Zenith of the American Empire. So to those that think I am extreme sometimes - just stop and take off your binders and SERIOUSLY look at what is going on in the economy and foreign policy. If you don't you are just like the rest of complacent America - and you better have lots of HOPE and strong Faith - because that is all you have at the end of the day. The shift of power is taking place and we are not on the winning side.
WE THE SHEEPLE OF THE UNITED STATES OF AMERICA.....
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