Wednesday, July 23, 2008

What Next, Where Next.


Puppies
Walt Otto


I remarked on another blog about the notion of too big to fail with respect to banks etc. It is bandied about with little regard to the magnituded of the underlying problem which in my view goes beyond the ability of a single gov't to step in and triage. Given that BSC's rescue came at the expense of 25% of our Nation's balance sheet being pledged (if Maria B of CNBC is to be believed), then if we've other institutions, large and deeply in trouble, I'd posit that we have some institutions to big to save.

This notion of too big to fail and some banks being too big to save morph's into a broader issue that the US has become too big to fail. Our bonds and GSE debt are all over the place, and in hands that care if rates soar or currency plummets due to the impact on their investments. I suspect that there are many meetings with other countries.

There is almost a collected sigh of relief in the financial sector; though I cannot believe that this black cloud has passed. Our good friend G. C. Selden (Psychology of the Stock Market) has some terrific insights:
.
Historical parallels are likely to be misleading. Every situation is new, though usually composed of familiar elements. Each element must be weighed by itself and the probable result of the combination estimated. In most cases the problem is by no means impossible, but the student must learn to look into the future and to consider the present only as a guide to the future. Extreme prices will come at the time when the news is most emphatic and most widely disseminated. When that point is passed the question must always be, "What next?". (p. 54)


I think that a very interesting statement ending with a very elegant question of "What next?" If capital is scarce, I suspect that interest rates will go up so long as there is a demand for it. Perhaps we need a "wink, wink, nod" approach to bank capitalization as was done with Latin American debt crisis (not an original thought by me, but one that I've seen expressed by Jim Cramer and someone else (though I don't look to Cramer for credible guidance on anything)). And the of course, we've money on the sidelines, in gold and in bonds that is itchin' to deploy. So in a sense, the "what next?" is "Where next?"

Also, Martin Pring has a free report out. I really like Martin Pring. Though he is one of the technical luminaries that was very early in calling a bear market. You can find his "Reason for Optimism" here: http://www.pring.com/pdfs/ptgletter.pdf

3 comments:

nice said...

Taking trading longs bought last week off the table here...

Selling 1/3 of the position trades opened last week here...

Been a wild ride up the past week...

nice

nice said...

LOL

All the Hedge Funds and algorithmic traders must have thrown their little black boxes in reverse...

What was "Buy Commodities/Sell Stocks" is now "Sell Commodities Buy Stocks"

Going forward it will be interesting to see how the Non PM metals sector behaves...
It has been the weakest - leading the market down.

Economic reports coming out of Asia are not looking as strong as in the past...

At some point falling base metal commodities could be seen as a market negative - but for now falling commodities are a means to entice 'bomb shelter' money from the sidelines

nice.

nice said...

I have to say that this is one of the most inefficient, unfundamental, emotional and schizophrenic markets I have ever seen.

Blue chip stocks moving up and down 10-20% in a day.

Small cap stocks and troubled business have their stocks moving up and down 30-60% in a day.

The investing public for the most part is completely unable to make any investing decisions on their own - they just follow whatever Hank or Ben or CNBC says - chasing this or that.

Hedge Funds don't follow fundamentals they just throw their black boxes in one direction or another.

Due to emotions running high - traders are all over the place - in a state of confusion...

Irrationality has become a better trade than common sense...

Today I saw so many bizarre moves it was unheard of....
Like a Bank stock which has already up 4% on the day - having already rallied 30% in one week - announcing it was now the target of lawsuits over subprime - AND - of course - the stock went even higher.

Even when short term trading - I am terrified to leave the screen with anything open... and when I do come back to the screen I'm not sure if I'll come back to see a 10% gain or be stopped out of everything LOL

There is so much liquidity that things like bonds have been unable to discount anything properly all decade.

Market indicators are useless because of the divergent simultaneous sector rotations happening.

I can't help but think that we have to thank the ringmasters - the Central Bank and the Treasury department for what these markets have become...

'Meddling at any cost' is going to have implications down the road IMO - as it causes reality to move further and further away from us...

...Recall in ENRON that after a while, it was the 'Lie' that become the 'accepted truth' - until the day of reckoning that
was...

nice