Thursday, September 18, 2008

Holy Bear Rally Batman..

That was a violent rally today. Right around 3pm there was a sharp and insane bear market rally. The rumor continues to be that the Government is going to create yet another bailout in the form of a resolution trust.

My observations:

1) It is way too early to start talking about a resolution trust. Home prices are only about 1/3rd of the way down to where they need to be. Bailing out the foolish US consumer and Wall Street with my daughter's future tax dollars is insanity. This is the sort of thing that has me shopping for real estate in China and India.

2) The cost is obscene - $400 billion on the low side. We need to start seriously looking at these costs, $400 billion --- are you serious? I've mentioned before that we need $60 billion to build a new national electric grid that could produce 1/2 of our energy needs via windmills in the Dakotas. That investment is deemed as too expensive, but somehow throwing another $400 billion of your dollars out the window to save some knucklehead in Vegas that paid $400k for a 2bdrm ranch, is just wrong.

For a little perspective if you took $400 billion in $1 bills and stacked them in a single stack, you'd have a stack about 26,000 miles tall.

3) The media is in a tizzy over hedge funds right now. They are specifically targeting the hedge funds that are short. This is silly. Anyone ever heard of puts? A smart fund will just buy puts and stock and evade this rule. Right now, if I was a hedge fund I'd sell and go home for the week.
* UPDATE * Late last night the SEC leaked news that they were considering an outright ban of short-selling. Unbelievable, our leaders apparently are comfortable with the concept of free markets as long as those free markets lead to stocks going higher. This is the ultimate level of government interference in free markets and will do a number of things:

A) Produce a crazy, insane rally that could start tomorrow (China's up 9%).
B) We will lose all credibility as a global investment platform.
C) This is clear market manipulation on a scale that we've not seen in our lifetimes.
D) When this rally unwinds (and it will unwind) - buy hard assets (gold and oil) and invest in a farmable plot, because the next leg down is going to be the big one - the real big one.

When it was clear that the market was going to make a run on Goldman and Morgan Stanley the SEC decided to pull out it's Nuclear Option - banning short-selling. 9/15-9/19/08 a week that will live in infamy.
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Like I said, use bear market rallies to adjust your portfolio (update - tomorrow could be the mother of all bear market rallies).

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Good night and good luck!

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