Traderbill’s Financial Markets Weblog

…TB defies anyone to compare the action on August 16, the market lows with yesterday! The only similarity is that we barely took out the 12517 of that day on the Dow to 12501  …will apologize profusely for this if wrong but pretty darned sure that is not the case…we are going lower. Note that none of the talking heads ever apologize!…ever!…and they are telling you what to do to make money in the market!

The bounce was caused by Warren Buffett apparently planning to get involved with a monoline insurer. Later we learned that the New York Insurance Commissioner had asked them to help out on the situation…this could be in the form of reinsurance…why would they want to compete with themselves?…or invest in a monoline insurer with problems…think, don’t react to headlines! On their own they did their first insured muni issue…those were never the problem…only insuring the CDS crap…there is no other word for it. That is right up there with Merrill Lynch’s stupidity for putting them in portfolio. While we are on that subject, John Mauldin reported that one deal of $5 billion created by Merrill had $1.5B of AAA and the rest lower rated. They did this by buying derivatives…not the underlying loans…it is all junk now and presumably worthless. Furthermore, it is simply wrong to believe all the problems will be disclosed with Q4 earnings  …that would be impossible as they do not even know where the problems are. Consider that foreclosures are improving but delinquencies are rising  …with a large amount of mortgages resetting in Q1…both in dollar and percentage terms…that means delinquencies will continue to rise and it will take months before the foreclosures show up.

That bounce was in spite of more bad news on Countrywide Financial (CFC) and WAMU took a hit too. Does that sound like a good reason to rally? After the close earnings reports came in such as Men’s Wearhouse…hardly an indicator…who did OK but downward revised forecasts. Alcoa did well +76% but that was due to sale of assets…get the picture? TB predicts more will be like Mens Wearhouse or worse and not the Alcoa variety. 

In the piece referred to yesterday by John Hussman, he pointed to a series of 10% plus selloffs followed by short rallies…not too different than we have seen this year except the highs keep getting lower. That is no fun. He also pointed out that the average bear market ends in a 30% decline…but there are always rallies to sell into.

CNBC this morning had  piece on Countrywide (CFC) CEO Angelo Mozillo speaking two years ago on mortgage lending: everyone should be able to own a home and 10% down is too onerous…we should also be looking for reasons to approve borrowers, not reject them…and that folks is exactly what ole Angelo did…for his company’s short term gain and his long term reward…all at the expense of shareholders…most recently BofA who is being very tacit about their $5 billion cash injection into that failing beast! Guest today also was former Assistant to the President for Economic Policy, Lawrence Lindsey, who was summarily dismissed by Dubya for saying the cost of the Iraq war would exceed $100 billion when their estimate was just $50 billion…it is now up to $400 billion and climbing. Lindsey served on a Clinton commission to increase home ownership…yep, it started with him and the Dems who wanted to see every American able to buy a home…they concluded at least 3% down would be required…another noble experiment gone awry. Lindsey could not get tricked into commenting on the Fed. But note that now with the Dems in control again, they are pushing for stricter lending requirements. Think AMT for another example of a good idea gone awry. That is why Lindsey, like TB, feels that fiscal policy is no good…it will take months for Congress to pass any stimulus program and then it will be too late and come back to haunt us later (remember those 100% first year depreciation programs for SUV’s used for business???…added to the energy problem today). Just like those temporary tax cuts which can never be reinstated without cries of a tax increase…and now they want to make them permanent…got it? Where are the good guys? There are none…not in politics today…or if there are, what difference can they make against the Beltway cabal? Keynes was villified for his fiscal policy views yet he never proposed permanent stimulus but did require surpluses in the good times…but you know how we Americans hate to save for a rainy day. Meanwhile we have a Fed Chairman who wants Wall Street to love him…really love him…so he provides a roadmap and thus there is no shock value to the Fed’s actions…where is Tall Paul Volcker when we need him? Too bad he wasn’t here 10 years ago to overcome the mistakes of Alan Greenspan…one will go down as a great Fed Chairman, the other as a fool…you decide. Bernanke? He just wants people to like him…and love him…be a good guy. Good ole helicopter Ben spreading those dollars around. (How’s that for being apolitical…just the truth! TB)

Those of you who believe the liquidity crisis at yearend is over think again…it is just in remission. Next week we have a re-auction of the Fed of the $30 billion inadequate capital loans to banks and Wall Street…and another equal size one at monthend…keep changing the dressing until the wound heals. John Mauldin estimates that another $10 billion will be added to the outstandings but so what…short term rates are lower, right? TB wouldn’t touch a financial stock with a 10 foot pole!