September 2

Above, Daisey is in the woods. Much better than the concrete kennel.

Can we take that again? My eyes were closed.

I'm queen on this deck.

I couldn't come up with a title for this hodge-podge post, so I settled for a date. It's hard to believe that it is September already. Yesterday was one of those bright, clear days that demands your being outside. I spent most of the day outside. The above are not great photos in any sense of the word, but I think that they capture my happy puppitos. I've been pulling burrs and "dead man's lice" out of Daisey's tufted ear hair. She stands patiently. She has settled in well into her new home. Macy's coat is so short, not a burr attaches itself.

The credit crunch now seems a bit like the garter snake in my garden. When it jumped out of its hole beneath the roots of the pineapple sage plant, it scared the bejeebers out of me, but upon further inspection deemed to be a benign threat. I'm of the opinion that the true threat has not been fully disclosed. I think that there are some real liquidity issues afoot. I'm still waiting for the other shoe to drop. However, to be fair, I've been waiting for that shoe for sometime--so perhaps it is just my own personal paranoia. Personal paranoia aside (or, here's proof that one can always find evidential matter to sustain--even nurture--one's paranoia), I found the following on Mish's Global Economic Blog, but he lifted it from Minyanville. Here's the reference from Minyanville

"3. A Strange and Terrible Comment on Potential Systemic Risk

A little over a week ago the Federal Reserve suspended the limit on the percentage of capital that Citigroup (C) and Bank of America (BAC) can lend to their affiliated brokerage firms. What does that mean, and why should we care?

• The exemptions are from section 23A of the Federal Reserve Act and the Board's Regulation W.
• Section 23A and Regulation W limit the amount of "covered transaction" between a bank and any single affiliate to 10% of the bank's capital stock and surplus, and limit the amount of covered transactions between a bank and all affiliates to 20% of the bank's capital stock and surplus.
• Both Citigroup and Bank of America petitioned the Federal Reserve for the exemptions in order to extend short-term liquidity (in excess of these caps) to finance "certain mortgage loans" and related assets.
• Well, hey, that's' well within the Fed's mandate, right? After all, they are to provide liquidity and help ensure the stability of markets, right?
• Sure, after all the Fed must have some leeway in determining when to grant section 23A and Regulation W exemptions in order to fulfill those objectives.
• In researching this we stumbled across a Chicago Federal Reserve comment paper on Regulation W that discusses, among other things, , .
• The comment paper offers some helpful suggestions on Reg W exemptions, among them this important paragraph:
  "Broker/dealers actively use matrix pricing to validate the price of a fixed-income securities portfolio for SEC reporting and capital allocation purposes. In fact, matrix pricing is an accepted pricing convention for most fixed-income securities. Perhaps a distinction needs to be made between matrix pricing and idiosyncratic internal pricing models. In its simplest form, matrix pricing involves comparison of a security to other securities of similar credit risk profile and tenor to determine an appropriate spread to a reference Treasury security. Simple non-complex bond math is then applied to calculate a price. These spreads are tracked and disseminated through a number of widely used independent pricing sources (Bloomberg, Reuters, etc.). In contrast, internal models are used to price more complex instruments that often involve imbedded optionality, contingent cash flows, or other subjective pricing assumptions. As a result, common sense warrants limiting matrix pricing
  for the (d)(6) exemption to relatively “plain vanilla” transactions such as investment-grade corporate bonds and commercial paper. This would effectively exclude most structured notes and mortgage-backed securities where the ultimate price is highly dependent on prepayment and rate volatility assumptions."
• So much for that suggestion."

I heard not a murmur on TV about this (I keep CNBC on in the background in another room), and I'd think that it would be an reportable event in mainstream media.

Foreclosures: While foreclosures are being "talked about", I do not note any increased activity in the foreclosure listings. Longer term readers will note that I used to publish these numbers weekly. After several months of not seeing an appreciable change, I stopped monitoring. Certainly the listings continued at stasis, AND stasis was more elevated in terms of (1) number of foreclosures and (2) the dollar value of the notes than previous. But currently that stasis is running between 20-30 per week. I still count them once a week, but unless they fall out of that parameter (either high or low), they'll remain dormant in terms of my reporting them.

GaryK sounded downright righteous the other night. I'm not sure if we are in a bear market or not--I think that we've met the criteria for IBD to have had a follow through day (albeit on lighter volume). The leading stocks are going back to being just that. I've been very active in this market in the last 30 days, largely on the short side in very short term trades. The gaps up and down are impossible to forecast, so I stay away from inverse (and 2 x inverse) ETF's. I've had fairly good luck with individual stock picks on the short side (DE, FAST, HWAY, GRMN, WLT, FARO, TUP, SRCL). I do not have any short positions now.

Today promises to be another one of those brilliant days. I hope that you are enjoying the long weekend.