Wednesday, September 17, 2008

The Meltdown Continues...

I think that despite all of the rhetoric, I think the policymakers are afraid that they are simply throwing gas on the fire right now.

First, AIG, Merrill, Bear Stearns, Fannie, Freddie, now Morgan Stanley and Goldman Sachs are in the cross-hairs. There are so many moving parts here that it's hard adequately summarize the events, but here are some of the big issues facing us right now:

1) AIG - The AIG rescue was probably necessary but it didn't do anything to stop the financial bleeding. If ever there is a company that was too big to fail, AIG was that company. The terms of the deal are slowly leaking out and it is clear that the Government views this as a very risky endeavor. I think the principal grows by 2% every month that it is not repaid - roughly 24% interest. That's like a really bad store credit card.

2) Look Out Below Comrade - Russia is in the midst of a complete financial meltdown. They closed their stock market for a second day after another 10% decline. Russia is coming apart at the seams because of seizure of the credit market and oil's collapse. The geopolitical impacts of their stock market falling coupled with events in Venezuela (what you didn't hear about this?) and Georgia make this a very delicate time to deal with the Russians.

3) Oil's En feugo! At least for today. Again, I'm of the opinion that people are eventually going to sell US dollars and buy commodities (Oil and Gold - up $87/ounce as a I write this) to fight the inflation bug that is coming. I'm not sure when this trade occurs but since the analysts are starting to lower their target price for oil, it's a pretty sure sign that we're near a near-term bottom in oil and the price could reverse quickly. Separately, there is a lot of bad info coming out of the Gulf on refineries and wells. Rumors plus scared investors equals irrational moves.

Things to look for - sharp bear market rallies, hedge funds blowing up, rinse, lather, repeat.


1 comment:

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