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Short rally to fizzle soon...



April 05, 2009 – Comments (6) | RELATED TICKERS: GE , XOM , JPM

While I had hoped that the economy was in the early stages of stablization, it appears that there is another leg down to come.  In looking at my weekend edition of FT and grazing it is pretty evident that the equity markets don't stand a chance for a sustained rally and will chop along probably for a couple more years at least.  I had hoped the worst was behind us.  It's not. 

Even though the G20 did the right thing in funding the IMF, the bad asset clean up and fixing of regulation in the financial industry is painfully slow and not good.

With the way that the toxic asset clean up is constructed, corporate debt issuance going forward for the next year or two is going to be very expensive as the government's plan squeezes new debt issuers.  So while poorly run banks are being bailed out, good companies will go under.  The end result will be a lot of business failures and even more unemployment.  I'm sadly surprised that Geitner doesn't realize this.  Put me on board with calling for his head.  He doesn't understand economics.

Here I'll offer again a solution to bad debt I brought up six months ago.  The govt should immediately sanction a market for credit default swaps and other bad debts, should have kept mark to market and made banks handle their problem.  The govt could still do some open market buying which would be good for all.  As it stands, there will be cherry picking and people who don't deserve support will receive it in the name of "systemic risk."  Folks, the systemic risk is in killing good companies at the expense of bad, not in what will happen if bad banks go down.

I'll be selling a lot of equity holdings into whatever rally is left and picking up some currency shares in commodity rich financially strong countries- you can count them on one hand even if you are feeling a little loony.  On Caps, I've decided to start playing for score when I have time.  I had been using this just as a watch list and some minor playtime trading- which already has me above 99.  As I reposition my real assets, I'll treat this as if it were a global asset allocation fund that is allowed to go short.

6 Comments – Post Your Own

#1) On April 05, 2009 at 10:13 AM, portefeuille (98.81) wrote:

Is there any particular reason for your choosing "outperform" ratings on "short-ETFs" over "underperform" ratings on the respective "long" version?

(was/is it a benchmark, risk, "yes man" issue or the result of assumptions you make on the way the underlying behaves?)

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#2) On April 05, 2009 at 10:35 PM, russiangambit (28.83) wrote:

It is naive to think that the huge mess we are in could be done and solved in mere 2 years (and I guess, arguably the majority of the US population is very naive since they believe it is a real possibility).We are experiencing the total credit collapse, massive deleveraging and consumer collapse at the same time. It takes years to rebuild the foundations in such situations, if (and it is a big if) the things are done right. If not done right, think more like a decade.

Look at any emerging country financial crisis, and you'll see that it took them 5-10 years to work through it. The complexity and depth of our current crisis is on the same scale.

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#3) On April 07, 2009 at 1:07 PM, kirkydu (90.50) wrote:


not really sure what your point is here, but you are right about CNBC sucking.


I just liked the "yes man" tag before.  Also, more importantly, I don't generally short individual stock issues.  I usually only short entire sectors or styles, which I can use ETFs for.  In the future, I'm sure I'll use the red thumb as I've said I'll start to play a bit for score going forward.  I was inspired to play for score a few weeks ago when I measured myself against the Seperate Account Managers on the Schwab and TD platforms, apparently not only have I been doing better than the general public the past decade, but I've been doing better than over 90% of SMA managers.  I'm not sure if I should be proud of myself, sad about the industry or both.  I'll put up a blog when I make my first red thumb pick.

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#4) On April 07, 2009 at 1:45 PM, portefeuille (98.81) wrote:

I might start giving some more "underperform ratings" once the announced new feature that gives you the ability to view "underperform" and "outperform" scores separately is implemented. We should make the top 10 in "outperform" score points easily.

I guess you should be proud and sad.

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#5) On April 07, 2009 at 8:21 PM, russiangambit (28.83) wrote:

My point was being that the situation is getting worse, not better. And most people are not realizing it. And I don't mean CAPS bloggers. I mean average people leaving in Houston, Tx. Their only involvement in poltics and economy seems to be bashing democrats, conviniently forgetting republicans faults and leaving it at that. Or, and the reason for all ills, not enough people going to church. In no way they understand the causes of this crisis or inner working of the economy or how they are being lied to every day . And moreover, they like it that way. They remain willfully ignorant (like Larry Kudlow) because it is comfortable. So, I was agreeing with you that things will get worse, and they will get really bad when the general population realizes how bad and they start looking for someone to blame. I am sure that is already the situation in Michigan and California, but not yet in Texas. But never mind me, I am just being a bit irritated by the wide spread ignorance. Nothing new here,

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#6) On April 09, 2009 at 10:05 AM, kirkydu (90.50) wrote:


I thought that was what you meant, butt you were a little brief.

Read this, you'll get a smile.  I run this site with a friend, it's an Onion competitor we started a while back to amuse ourselves, we've been neglecting since the election though:

Conservative Analysis of Economic Crisis

I also like this one, which is a serious interview on Moyer with William Black.

Peace out.


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