Yesterday’s action was small volatility compared to previous days – down, up, down, up – nothing too big. Certainly the statistical volatility is coming in and also the implied volatility is coming in. Could this just be a lull in the storm before we move rapidly higher or come crashing down hard. Certainly the volume is light across the board that when any serious volume comes to the table it gives the underlying a big jolt to the upside or downside.
It’s as if we are waiting – for another shoe to drop. The news isn’t getting better and last night the Congress voted through the Auto Bailout and now it is up to the Senate – which is likely to block it.
_____________________________________________________
Goldman fires broadside at States!
Can Counties, States, or even the Federal Government go bankrupt? Certainly – why not. To think otherwise is foolish. Counties, States, even the Federal Government is a business in so far as it has bills to pay and raises money via taxes. Just like GM, AIG, or Freddie they can go bust. Counties and States go bust FASTER and EASIER than the Federal Government, simply because they don’t have access to the printing press, like the Fed does. Just like individuals and companies – as the states and local governments made MORE money from tax revenue they spent it, added this service or that service – there was NO PLANNING or RISK MANAGEMENT for shortfalls. Thus as they made more money, they spent more money. Remember Milton Friedman’s quote: http://marketpreview.blogspot.com/2008/01/how-money-is-spent.html
A little story….
A several months back at my local Chamber of Commerce, I was talking with a life-long politician who pretty much laughed in my face when I said local/state government bankruptcy is a real possibility. Son, he sad (which I hate being addressed like that – especially from someone that is not my father. As if adding the word “Son” confirms the wisdom that is about to spew from his mouth. Furthermore he is working on the tax payer nickel and obviously doesn’t understand risk, math, or economics, otherwise our local government wouldn’t be in the current mess) – “Son, I have been in politics for longer that you’ve been alive …. governments can’t go bankrupt.” And with a magic wave of the political hand – I was dismissed. I guess he forgot about Orange County, but maybe history and Econ 101 was something he slept through. Sorry for my low respect for this life-long politician (sucking down tax payer dollars) I just hate to be dismissed, hate debating against rhetoric, hate debating people that just can’t do the math. Sorry – just a little steamed dealing with stupidity.
A little history….
Remember Orange County – The treasurer of Orange County, California got way in over his head – because on paper it looked like he was making money (which he thought incorrectly he was trading some kind of arbitrage – yeah right!) – Then when interest rates went against him and his county lost 1.5 billion dollar (that’s right A County LOST 1.5 billion) he said he was confused and had a brain defect or something and it was too complex or some such nonsense. Yikes!– of course he dismissed ANYONE and EVERYONE that questioned ANYTHING – prior the collapse. I am sure he addressed people, “Son, I have a story to tell you…”
Another local story…
It was equally alarming (if you read last year) my meeting with the local CFO of the hospital that THOUGHT he was actually trading an arbitrage (when in fact he was borrowing money (on 4:1 leverage) for one interest rate and buying a basket of corporate bonds receiving another interest rate = by the way that is NOT arbitrage – that is simply borrowing money on big leverage and investing. Nothing more or less) – Needless to say the Hospital was (and is) on the brink of blowing out some serious coin and our hospital relies on tax payer money – which is going to be in short supply as the housing market collapses. He smiled, handed me a colorful power point (given to him by the firm that got him into some corp. bonds, CDOs, and the latest and greatest liquid debt product) as if that held the magic key as if it was all right. He had no clue, has no clue, and when offered help – never ever responded. I was waiting for the speech, “Son, ….. “ while that didn’t happen – what most certainly did was a wave of his hand and I was dismissed. He had the power of a nice colorful PowerPoint presentation!
Conclusion…..
Is it me, or are people really that stupid, I say stupid because it combines continual ignorance with a dismissal of wanting to look at the facts. The problem with the hospital, local politicians, and people in decision making positions – is that while they be an expert in their field they do NOT know the RIGHT questions to ask when faced with financial or economic decisions, what RISK is, how do we mitigate it, etc. Sure – I might of come off heavy handed with the CFO at the hospital, but the hospital relies on tax payer revenue and this knuckle is sinking the ship and doesn’t even know it and refuses to look behind the beautiful power point that he has been handed. He sure doesn’t know the definition of arbitrage.
Of course I emailed, wrote letters, visited the hospital. Offered my help for FREE (second best 4 letter “F” word) – but they didn’t WANT to know, still do NOT want to know, and when the piper comes it will be too late. The sad news is my town, SARASOTA, is run (for the most part) by individuals that are more interested in being SEEN at the weekend’s Black-n-White Gala, rather than seriously taking some crunch time on the local economic picture, taxes, risks, and trying to solve the problem. We have a couple of people doing some heavy lifting – for sure – but not enough. I am sure we are, like all cities and counties, living WAY BEYOND our means. People don’t like help, because they don’t like to admit they are wrong. That is the problem at the local level, the state level, and yeah the Federal level. Are we beyond help?
Sure, Cities, Counties, States can go Bankrupt.
On with the story….
Goldman is drawing some seriously pissed off government officials after their broadside. Goldman recommended purchasing Credit Default Swaps (betting against state’s ability to pay their debt). New Jersey is DONE (they said) at $60 billion in the hole on pension funding the Governor is planning on skipping payments until 2012.
If New Jersey was a stock, Goldman is saying SELL SELL SELL. Credit Default Swaps are a way to SHORT a debt product, in this case the State’s ability to pay.
Betting against states was once thought of unheard of, because of its supposed SAFETY. Now the reality is kicking in and the local and state governments are seriously in the hole. When times were good (and tax revenue was fat) build this, lend that, spend this – the word SAVING, PLANNING, RISK MANAGEMENT was never an issue, discussed, or thought of.
So here we are, STATES – not just Counties are facing bankruptcy, Goldman is taking flack from State and County officials for recommending to buying the Credit DEFAULT Swaps (betting on states failing) and the Federal, State, and Local Officials are again saying “Everything is ok – we can bail them out!” are we kidding each other. When does the stupidity train stop and when do the Sheeple of this country WAKE UP and say STOP THIS TRAIN!
Goldman’s sell recommendation (via buying DEFAULT swaps)
(I really can’t believe I am listing states and not stocks)
NJ
CA
FL
NV
OH
WI
MI
MA
CT
HI
I guess they do look like stock symbols. Could U.S. be on that list eventually – YIKES – I guess that really means does the USD make the short list.
http://www.bloomberg.com/apps/news?pid=20602007&sid=ac9AV.yzTCNw&refer=govt_bonds
http://globaleconomicanalysis.blogspot.com/2008/12/goldman-recommends-credit-default-swaps.html
____________________________________________________________
Treasuries go NEGATIVE – first time since 1929!
Why are people rushing to give money to the government for FREE. Usually smart people understand the “COST” of money or buying power. Treasuries are attractive IF and ONLY if they can beat inflation (or the CPI – if you believe it is at all correct). If you can’t beat CPI you are LOSING buying power. Most people I know – understand that basic concept. But now it’s as if the lemmings are just jumping off the cliff as if they don’t know WHAT to do. They are actually purchasing Treasuries for NO return. Are they kidding me!!! The fools rush in.
We are blowing up the next big bubble it’s called TREASURIES – and it will BURST! We are at record lows in Treasuries – STOP PEOPLE PLEASE! I am starting to believe that the masses are seriously asses, like those people you see interviewed on Jay Leno show that doesn’t even know WHEN the Declaration of Independence was signed! Or where is the capital of the United States! Seriously – the sheeple are that dumb.
Bill Gross (probably the sharpest tool in the bond shed) stated “Treasuries have some bubble characteristics, certainly the Treasury bill does. A Treasury bill at zero percent is overvalued. Who could argue with that in terms of the return relative to the risk?” He is right and that is a VERY scary thought – if ANYONE thinks Treasuries at ZERO are overvalued is a serious TARD!!! But people keep buying them so some fool thinks it is.
This COULD be the bubble that bursts that send the dollar into the toilet – how much air can we put into this balloon – who knows but when it pops it will make things A LOT worst!
_______________________________________________________________
Futures Pre-market
The futures are coming off in the pre-market. Spreads are in – so expect ARB traders to buy the futures going into the opening and short the basket, thus putting pressure on the equities at the opening.
_______________________________________________________________
Support / Resistance
We moved up and are at those levels again – RESISTANCE – do we break through. If we do – I think it is just a Santa Claus rally of HOPE and nothing more.
INDU 8000 (8500) 9000 (We are in the upper band and haven’t come back down to the pivot point – YET)
NDX 1100 / 1200-1250 (We are still in this toppy 1200-1250 area – not a place to get long – IMHO)
SPX 800 (850) 900 (Right there at resistance.)
RUT 400 (450) 500 (Again we are in the upper band and not yet TO resistance, but also not at the pivot either.)
______________________________________________________________
Conclusion
I am getting a little concerned – not so much for the market – but rather as the economy as a whole. The Governor of Ohio was on CNBC this morning and was desperate for money – fending off Goldman’s “Sell Ohio” recommendation. The Governor pretty much said he is BUSTED in 2012 = unless more federal aid comes to the table. Great – sounds like he planned for short falls! Again – just like companies and people – when the tax revenue increased as the housing market expanded these fools spent and spent and spent. Expand this, build that, increase this, pay that, - the word SAVE or RISK MANAGEMENT was NOT even discussed. They lived TO or ABOVE their means and NOW they want Mommy Government to give them some money because they screwed up.
They need to CUT spending – where did all that MASSIVE increase in Tax Revenue GO? Fools – Hey – I am dealing with the same idiocy here in Sarasota and Florida – it’s probably no different anywhere. Some states have it more difficult than others –but come on – we need our TRUSTED officials to get a clue!
No comments:
Post a Comment