Wheee that was fun!
On Friday at 2:14, I was cautioning one of the members not to be too bearish on the markets, especially the financials saying: "The loss of the ratings will force some reshuffling of the bonds but new bonds will be reissued by new insurers, the point is that the insurance placed on existing bonds is valid. You (since I would guess you are short) need to worry about NO cut and AA cuts which, as you say, will rally the markets. I think it is possible for a rating agency to go over MBI’s books and leave a triple A in place with good justification. The fact that the rating agency would feel compelled to elaborate the position could serve to further rally the financials."
At 2:48 today, ABKs AAA credit rating was affirmed by S&P and MBI was taken off CreditWatch, sending both companies and the financials and the rest of the market flying. While this is not a full stamp of approval by any means, it was enough to rip the Financial Sector from being down 1.8% to up 1.2% in the last 72 minutes of the day! Word is that GS is very screwed up though and our man Gasparino (who broke the rally news on Friday) is saying the vererable broker is in BIG trouble this Q and will have significant write-downs.
This morning (and for weeks) I mentioned GS was having a rotten quarter as they were simply on the wrong side of pretty much every call they made. Is it possible that they ran out of things to attack to try to pull down the rally they are short on so they have decided to fall on the sword and attack themselves? A broker like GS can make their books say anything they want and this sudden revelation of losses, after telling us all of last year they were too smart for that, just smacks of an "in case of emergency break glass" kind of plan.
When you fire off the Greenspan gun and draw a blank, desperate times do indeed call for desperate measures as I pointed out this morning the former Fed Chair is now just embarrasing himself going out and working for PIMCO and spouting the company line but Bespoke Investments pointed out that Greenspan has always been THE WORST person to take advice from as he told us to get out of the market in 1996, to stick with Tech in March of 2000 and he wholeheartedly recommended adjustable rate loans to gullible Americans in early 2004 just 4 months before the Fed began a series of rate increases that took funds from 1% (how could Greenspan ever have believed they'd stay there?) all the way to 5.25%, destroying the lives of millions of American families who trusted their government.
Prior to Greenspan's recommendation, ARM loans were a fringe product used by a very small percentage of consumers and were, in fact, being considered for Congressional investigation before the Fed Chair headed off the controversy by issuing his stamp of approval, leading to a five-fold increase in ARMs and record profits for builders and brokers who were suddenly able to add hundreds of thousands to the price of their homes while keeping the monthly payments low – for a couple of years anyway…
So he pimps for Wall Street to shove overpriced tech on the masses and then he pimps for Bush and slashes rates to ridiculous levels to "stimulate" the economy (LONG before 9/11 gave him the excuse to cut rates to BEYOND ridiculous) – causing the great housing bubble and initiating the greatest transfer of wealth from the poor to the rich in World history, then he pimps for the builders and mortgage companies and leads the American people into the sub-prime slaughterhouse and now PIM(P)CO cuts his checks and he's herding people into bonds.
STOP LISTENING TO THIS MAN!!!
I will also remind you that Bush, Bernanke and Paulson were on TV in December telling us that the economy was fine, also aimed at bailing out Wall Street as the Dow was coming off its highs of 14,000. So believe those guys at your own risk too! I guess it's the fact that I came of age in the '70s but I tend to start off NOT trusting the government and that's served me pretty well for the past 40 years but for some reason this grand circus continues to draw everyone's attention and shape people's decisions even though the question is not "When have they ever steered you wrong" but more like "when have they ever steered you right?"
I did my best to steer people right today and we got really burned sticking with Google as they fell back near a 52-week low but at least it wasn't just me. Google topped the WSJ's Money Flow Index as the stock with the greatest inflow of of money on a down day, followed by FNM, C, ARTC and GS. Our CROX was also on the list but what's fascingating about Google is, that on a day when the stock dropped $21.36 (4.12%) NOT ONE SINGLE BLOCK TRADE WAS A SELL.
We ended up in the $510 calls at $11.15, now $9.25 so it's going to take a little luck to recover at this point but I still see nothing in the news that warrants a $60 drop in the past 5 sessions. Our working theory is that Google and Apple are being used to "cool" the rally, pushed down to clear out the suckers ahead of a major move in the Nasdaq. We'll see how that theory holds up but we've been looking for tech leadership all year and now, 57 days into it, I'd say it's about that time.
