dougnhi

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    • Tue Oct 7th 23:28 PM
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      Stock Market to Bernanke: Hints Aren't Good Enough
      It's counterintuitive, but we need MORE TRANSPARENCY, not less. Folks are arguing for suspension of mark-to-market accounting standards, eliminating short selling, proping housing and market prices, and even using new government SIVs to hide bad debt. You name it, they've ad-hoc'd a bandaid for it. When will folks realize that the current policy actions by Bernanke and Paulson are a national disaster of biblical proportions? These folks truely believe they can conquer the business cycle through manipulation, and all they've done is trash our currency, run up huge national debts, allowed moral hazard to run amok, and caused a general mistrust of market mechanisms. They're thinking all wrong. The way to healing is to accept the human nature of the business cycle, understand that the greed and moral hazard have run their course, and now the inevitable correction can't be stopped. We need to finally force the bad institutions out into the open and let them fail. We need to expose those who have thought they could flip/flop/and steal their way to enormous profits on the backs of other peoples money, and deal with them vigorously. We need to allow honest folks who made mistakes to unwind with some pain so that lessons will be learned for the future. We need to REWARD those who saved, avoided debt, and were responsible as the NEW CYCLE WINNERS via reduced prices that they can pay with hard earned/saved dollars. Will the corrections be ugly? Sure. Will we all survive? ABSOLUTELY. Come on folks, enough games....let's get it over with and move on. We need to distance ourselves from the Bernanke/Paulson doctrines, and reestablish the common sense that made us great many years ago. This something for nothing generation and manipulating elitist class of folks need to go. Did anybody really think it would be wise to have Goldman Sachs running the world bank and our treasury department? We were deluding ourselves. Time to wake up and get real. It's not too late to save our democracy from these idiots, but the longer we wait, the worse they'll leave it.
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    • Sat Sep 27th 02:01 AM
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      The Secret Villain Behind Our Economic Collapse
      The thing is, it's hard to accept this description of what happened, because it's all predicated on a falacy. We were all naked and drunk at the party, thinking we were really cool. In fact, we were just naked and drunk (and not cool at all). This wasn't too hard to see; there were many people who saw it coming. What's most disappointing is that our vanguard, our omsbudsman, the media, watchdog of democracy, let us down big time. It's become commercialized, a special interest conflicted by it's own greed, and totally unwilling to do it's job in this democracy. To assume that CEOs would run wild and invent all kinds of stupid ideas to make a buck (or a few trillions) isn't so spectacular. What's spectacular is our own failures, first as willingly uninformed participants in this democracy, and second, as believers that we could use debt to buy our way into prosperity. Where were the adults? Shame on us as citizens for participating in a lie, on the media for failing to expose the lie, and to congress, for allowing all these games to continue to pretend the lie doesn't have consequences. We're morally more bankrupt than our banks are insolvent. Time for a reset. Let's hope when it's all over, the wise, smart, hard working folks who have thus far been punished by bad policies, will come out on top and ready to lead us in the next cycle. We can't stand any more of this current crop of dead-beat CEOs and leaders. Vote them all out.
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    • Sat Sep 27th 01:44 AM
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      Is the System on the Verge of Collapse?
      There is nothing wrong with capitalism perse. What is terribly wrong is the ethical bankruptcy that encourages moral hazard. Ethical capitalism is not necessarily an oxymoron. There is plenty of good old fashioned money to be made in an ethical capitalism environment. However, that's not what we've had have we? What we've had is a totally immoral set of individuals, completely captivated by greed, who pressed the very limits of legality (let's give them a suspect benefit of the doubt for argument's sake), knowing that Uncle Sam (i.e. the taxpayer) would ultimately be there to bail them out. Does anyone, even for a second, believe this problem would have gotten so bad if there was an EXPLICIT threat of failure without bailout issued by the Fed and Treasury? It didn't exactly help to send the CEO of Goldman Sachs into the most prominent government position (our treasury!). This latest power grab will be analyzed for years by historians. One can only hope that it's lessons in abject immorality will be documented and taught in the schoolrooms as what went wrong in America between 2003 and 2008. If we love true democracy and free markets, we've got to kick out the current set of robbers (both parties) and start thinking better. It's hard to devote one's life to American Idol, and at the same time be intelligently informed and involved. Wake up folks; the Fox is in the henhouse, and he's stealing all the golden eggs! If you don't keep calling and writing congress, we'll end up fully socialist, fascist, or worse. The best way out of this mess is not a shortcut, it's a haircut. Let the market solve this. Will it hurt? Of course. Will we survive? Of course. Afterwards, our dollar will be stronger, our house prices will be cheaper, and all this moral hazard will be put back into the bottle where it belongs. Tough love is coming, whether or not we go into debt...so let's stop digging as they say and start acting responsible both at the personal level, and within government. The less these politicians muck with the system, the sooner market confidence will be restored. Right now, all of these games being played only go to destroy the confidence in fair and open markets, with the result that we're getting more and more unstable. We can't say we believe in capitalism and yet put our money on socialism when losses need to be taken. Time to route out the rot and reward the folks who've played it smart, worked hard, and played by the rules without using excessive debt. That's the capitalism we can all be proud of, and the sooner we get there, the sooner this mess will end. Until then, trying to bailout the badguys just makes us look stupid.
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    • Sun Sep 14th 04:18 AM
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      Lehman: Victim of F&F Bailouts Plus the Bystander Effect
      Why would anybody want this company? Only because if they don't, the level 3 assets on their books will have to be sold, at which point the mark-to-market value of all this toxic waste will be discovered. That, and the insurance swaps, will ripple. The Fed has opened pandora's box with each successively larger public taxpayer funded bailout, and now moral hazard has gone terribly wrong. The best thing for everyone is the least intuititve.....let them fail! Until we reassert that stupid decisions will incurr real losses, we can't have a healthy and fair market. Let's hope cooler heads prevail, and that taxpayer money won't be used any more. We have PLENTY of public debt already...we don't need Paulson and Bernanke backing up the truck anymore.
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    • Tue Sep 9th 22:16 PM
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      WaMu on the Brink
      A bank that offers a high rate CD should be seen as a warning sign in and of itself. It can imply (indirectly) that the bank is cash strapped. Better financed banks can afford to push the envelope and give less return; that's after all how they make money (differential between long & short terms). Just because they offer a term of 12 months doesn't mean they'll be around for 12. I bought Airline tickets good for a year, and the airline went under in a month. Buyers/depositors beware.
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    • Thu Sep 4th 17:59 PM
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      Wildfires, Financial Crises, and Type Conversions in Markets
      The analogy is fine enough, but I hope the implication isn't that we should continue to unnaturally suppress the healthy fire/clearing process. In fact, it would be easy to extend the analogy and contend that the federal government has had a "no burn" policy in the markets for way too long, fostering rampant moral hazard that has only brought us to the natural conclusion that a big fire is coming. If you doubt this, find the youtube video on the vice president of the Federal reserve claiming that the fed "is in the business of creating moral hazard"...as if this is a good thing! All the meddling and preventing of small fires has only brought us to the Yellowstone moment in the markets..... Folks might not immediately recognize how good the burn will be when it's happening, but rest assured that the sun will come up again, the market will renew, and savers and responsible people will be able to afford assets at much more reasonable prices. Those who lived by debt and moral hazard will learn the life lesson they need, and let's all hope that more than a few fraudsters will be discovered and put in jail for the messes they created. The sooner the better...let's get on with it.
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    • Mon Aug 25th 23:20 PM
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      Let's Not Emulate the Hoover Administration
      Even though I read the words "I am not in favor of bailouts", all I can perceive is "I AM in favor of bailouts". There is a never ending stream of insolvent entities and institutions, and we're constantly talking of either bailing out or giving away free money (e.g. stimulus packages). First it was the threat of a failed MBIA/ABK ratings game. This morphed eventually to FNM/FRE failure, with a spash of consumer stimulus. Now we need auto bailouts. The airlines are a wreck because of high fuel...they'll obviously need bailouts soon too. Banks are cranking up the failure rates right and left...so we better hurry and bail them out too. House prices are way too high for justified valuations....let's not let the prices correct....we need to support this market also so the prices can stay unrealistically high. Can't anyone see that regardless of how you spell it, there's no way to bail out all these failed folks without the moral hazard that goes with it? Yes, some babies will be damaged too, but that's what happens in circumstances like this if you want to avoid the moral hazard. It might be possible to sort the insolvent from the solvent, but it requires more will than the SEC has to force accounting beyond Enron/WCOM standards.

      Will anyone ever learn that insolvency can't be fixed with the hammer of a bailout? Fact is that all of these bailouts are supporting failed entities, and the only result will be a GINORMOUS national debt that eventually will destroy the dollar and drive us to depression anyway. Let's have a humdinger of a recession, get it all cleaned up and marked to market (as opposed to allowing the ENRON/WCOM style level 3 marks to legally continue). Sure, it's gonna hurt....but it's a hell of a lot better than a bonafide great depression. All this meddling by the boneheaded FED and Treasury (along with a heavy dose of SEC looking away while it's all going on) is only going to make matters dramatically worse. For everyone who has any feeling for the next generation, this financial delay game must stop. Mark to market now and flush insolvency out of the system. If it's true that there are some banks and other institutions that truely are solvent, the market will reward them handsomely. However, it's pretty obvious that the number of solvent institutions are much ...much fewer than the insolvent, so this is why we need to bail pretty much everyone out. What a shameful mess this all is, and my only hope is that first Greenspan (the author of much of the mess), and his protege Bernanke (who supposedly rose as cream to the top of the replacement list because of his depression knowledge), both will bear the full brunt of the history books. These folks are a shameful bunch who claim to be concerned about moral hazard and our dollar, but in deed care only about delaying the inevitable credit crunch and subsequent hard landing. If they don't give up soon and let the market fix this mess, Bernanke's knowledge of the depression will get a new lesson. Personally, I believe regardless of his meddling, he's only making matters worse.
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    • Fri Aug 15th 19:07 PM
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      Inflation or Deflation?
      There's no doubt that the Fed would use inflation if it could. However, the assumption that it can without consequence is flawed. The Fed can't just print dollars without financing those dollars with Bond sales. Someone must buy the debt. When the bond buyers cry uncle because the payback is less than what is expected, they'll demand much higher interest for the risk. Bernanke may think he's in the driver's seat, but in fact, the real drivers are the bond holders. When they sense that Bernanke's printing press has started to deteriorate beyond what they are willing to absorb in losses, the game will be up and deflation will occur. We are a nation of debtors and the creditors must be paid. To think otherwise is to go down the road to Zimbabwe. Remember, first inflation, then deflation. It's uncontrollable in a credit crunch, and if you believe Bernanke and Paulson have it together, you're kidding yourselves. This situation is a powder keg. Will it blow? Nobody knows, but if you want to be safe, think long and hard about what the natural outcome of a credit crunch is......deflation.
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    • Sat Aug 2nd 14:50 PM
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      Friday Options Update: ELN, BIIB, ANR, ORCL, MAR, A, IP, HBC, RKH
      Great post....very useful. Thank you for being so detailed!
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    • Sat Jul 19th 11:52 AM
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      Was That 'a' Bottom or 'the' Bottom?
      Smart investors shouldn't be fooled. Like the mountain road sign says...."drivers don't be fooled...sharp curves ahead!". You'd have to be blind not to see that nothing goes straight down, and that a temporary rally would be needed to relieve panic. Housing and Banks are a mess. Their averaged losses are probably a good leading indicator for how big the eventual market losses will be. Housing at ~25% (so far), and banking at ~60% (so far) probably means something like ~40% in the market. This implies at least another leg down (and possibly 2 if conditions deterioriate further). We're only in the 3rd inning or so of a long, hard game. Buyers beware!
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    • Thu Jul 17th 19:22 PM
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      Earnings Preview: Citigroup
      Whatever they say, it will be assured that "Level-3" assets will be maxed out to make the hit seem less than what it actually is. The banks are insolvent, and all the off-balance-sheet games can't hide this fact from informed investors. Any other industry (Enron, WCOM) would find their CEOs in prison, but when the top regulatory people are bankers and corrupt, you have special rules to allow the falsificiation of records. Cox, Bernanke, and Paulson are all fully aware of what would be criminal activity in other sectors, but which is "business as usual" in banking. Sooner or later (hopefully sooner), the games will need to end. If they don't, expect a depression.
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    • Wed Jul 16th 02:48 AM
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      Little To Fear But Fear Itself
      The actions taken so far by Banks and Government officials in regards to hiding bad assets and allowing moral hazard via excessive leverage have only exacerbated the issues. It's hard to muster a George Bailey moment when the banks geared their speculation by 30-50 or greater. The fact is that the banks ARE insolvent, and all the denials (followed by continual successive failures) isn't helping confidence in our leadership. Every day brings another run on a bank who's CEO claims solvency, and then a few days later claims that it's insolvent by accident. BS... These guys made their beds and need to come clean. When we see level 3 and level 2 assets get marked to reality (level 1), we'll know we're at the bottom. Until then, the market is in real trouble. We might see a relief rally, but the bear won't be finished until the debt and margin get's unwound and cleared. Buyers beware of falling knifes! Notice how each rally attempt fails to even lower levels? Until the capitulation, I'd steer clear entirely. Preserve capital and wait for better valuations. It will come, but not for a while yet. Maybe next year?
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    • Tue Jul 15th 16:37 PM
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      Time to Exempt Mortgage Securities from Mark-to-Market Rules
      The key to this failure is excessive leverage. It only takes a 10 percent hit to wipe out a fund that has levered 10 to 1. Marking to make believe encourages moral hazard, and the banks played this game much higher than 10 to 1. Look at the ABX...it tells the story. Even if you don't believe the markings there are right, they're not as wrong as they are right. Add to this gearing at 25 or 30 to one (industry average), and you see that the banks are insolvent (no matter what Bernanke and Paulson have said). Hiding losses will only make matters worse.... didn't your parents teach you anything about this kind of crap? The sooner we take the medicine of truth, the sooner we can recover. Until then, we can only guess how bad it is, and we'll probably guess it's much worse because the banks keep on hiding from the truth! There's the clue that it actually is much worse! If it were not that bad, they'd have already written off the level 2 and level 3 assets.
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    • Tue Jul 15th 16:22 PM
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      Volatility and Sentiment: Today Doesn't Matter
      Couldn't agree more. The head fake of VIX spike above 30 was just that...a head fake. The failure and subsequent rundown at the end of the session is just setting up folks for more "catch the falling knife" games. The slope of the VIX tells the story....a slow bleed. It sure looks like the VIX will spike to at least 35 or higher (assuming it does so soon). If it continues this low ramp, it could go much higher. The sooner we get the panic sell-off, the sooner we'll be ready to rally. I think it will be obvious when you see both the market and commodities selling off hard at the same time. Right now, commodities sell off just a tad, and the press bites. When you see hard commodities sell off without intraday relief, that's when you'll know a stock rally is in the cards. Until then, don't buy the fake moves! We're probably going to 10,500 on the DOW before the rally starts (assuming we get a selloff soon...otherwise it will be lower!).
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    • Thu Jul 3rd 08:56 AM
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      Commodities Are Taken to the Woodshed - What's the Game Plan?
      typical pump story on all the overblown bubble commodity stocks. The correction is well overdue, and the typical "hold your position" advice doesn't serve the community well. These particular stocks (which the author is long in) can fall MUCH FURTHER! Just look at the P&Fs for any of them! Ignore his advice and watch out below! In a global recession and credit crunch, most of these will see dramatically reduced demand.
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