Friday, January 30, 2009

MARKET COMMENTARY (01-29-09)

Isn't it amazing how quickly news can drop the markets? It wasn't even news, it was a rumor. What rumor do I speak of? The one where Gasparino came on yesterday saying that the "bad bank" idea may not even materialize. So, why did they even report on it at all? CNBC should really stick with the facts like they're supposed to do.

Although I do not look at fundamental research often, I did spend some time reading up on important reports, most notably Meredith Whitney's "No Bad Bank Please". She had some great questions that I'm sure people thought about, such as "how will the Gov't price the toxic assets?". In addition to rumormongering, Charlie did state that these assets are at around $0.22/$1. Even this number varies among the different products out there.


If the Gov't paid par, or actually the perceived value (since no one wants to buy this crap), then these institutions may very well go out of business due to a combination of lower earnings power, heightened reserve requirements, a higher expense structure, etc. If the Gov't pay a premium, whatever that amount would be, then that will no doubt cause serious uproar among taxpayers (me included). Let's say the Gov't paid a ridiculous 100% premium, just saying, then these institutions will still take a major hit. It seems like a lose-lose situation.

I think the Gov't as the come to the conclusion that some of these motherfuckers need to fail. They should fail. It's the survival of the fittest, right? Natural selection favors the failure of the stupid and the rise of genious. We're doing the exact opposite. Odd, no? Also, several smaller banks are second thinking the bailout and are starting to refuse the money. The deal doesn't look so hot anymore, does it? There is no free lunch, unless the Fly buys you a sandwich.

Here are some notable tables in Whitney's report that I found to have caught my eye:



As for the market, this is ridiculous. I am once again holding over 90% cash overnight and I am keeping my maniacal day trader hat on until this whipsawing resolves itself. It is too early to tell if this is a pullback or the start of a deeper problem. I wasn't expecting a corrective measure to be as deep as it was yesterday. Who knows, we could have an up day today. I can't really write on specific direction, because I, myself, have to play the market on a minute-by-minute basis.

Unless there is deeper selling and broader market participation in it, with the financials filling their Wednesday gap and continuing the drop, I'd have to say that the move is still a corrective move. I'm not kidding about taking this market minute-by-minute. My thesis can and often does change intraday. If the market cannot form a rounding bottom today, then we're going to have some major problems.


Updated GDP chart:
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2 comments:

Anonymous said...

Hi,,next week any good news on banks -- JPM is a buy for a trade (take care)

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