By Denise McCosh
September 23, 2008
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Goodness Gracious, isn't this exciting - Big History in the making! This is no localized dot.com crisis, this is a systemic problem throughout the financial and credit markets in the free world and the communist world for that matter.
It's bi polar...
On one hand; you have the leaders of the world saying this is the worst and most complex financial crisis they have ever been through in their lifetimes, and on the hand, you have global markets that rally on the revelation of how big the problem is. Hallelujah.
SuperFeds to the rescue. How?
I heard they have an unlimited balance sheet and can just print money. Not a joke, this is direct from some seasoned economist on CNBC. Well, I am old school, you have got to earn a buck to make a buck, it is not ink and paper. If that is the solution, their solution to the problem will mutate into a new problem!
Well, it's going to be another long weekend...
The feds and wall street will be up late as they attempt to save their asses/oops I mean main street.
We might get a bit of news tomorrow just enough to flame the fires of the rally until the premarket announcements on Monday morning, providing us with more details of the "resolution trust plan" they teased the markets with today. Maybe the Feds want to coordinate this "good" news bail out story with the bad news of WaMu and Merrill going into bankruptcy.
This "resolution trust" bailout is NOT a new idea that Bernanke just dreamed up...
Some of you have been reading my articles for almost two years, and know that last year I warned everyone that the FDIC was staffing up to manage through a number of bank closings. (Thus my cry to get into a safe bank.) And, that they were also looking to hire seasoned professionals experienced with the Resolution Trust/Savings and Loans crisis. ( Thus my cry to get into cash or short term 3 month T-Bills if capital preservation was your goal.)
The FDIC has actually been trying to lure these folks (the professionals who worked on the Resolution Trust) out of retirement for the past year!. Bernanke knows what is going on and what tools are at his disposal, he has spent a lifetime studying market crashes and what worked and didn't work. If there was enough information out there for the Contrarian Consensus team to see this crisis coming 2 years ago, then you know Ben saw a lot more than we did and a lot sooner.
So now what?
Hmm, here is what I am watching and thinking
(mind you, as information changes, I change my mind - shift on the fly. You need four wheel drive trading skills in this market) ...
a) If former support, now resistance is broken, then the rally is not over. You have choices;
1) Wait a tiny bit and sell your non performing assets and hold onto cash to preserve principle or
2) If you are an investor buy more shorts into the rally - have them out to Dec/Jan (if we are still able to short.)
3) Believe what Wall Street and the Fed want you to believe (they are joined at the hip now) and think this is the low and invest in equities
b) If former support, now resistance is tested and retreats,
1) sell any non performing assets immediately, hold onto cash or
2) Buy more shorts.
So what is the former support, turned resistance?
S&P rallies to 1,227, Dow rallies to 11, 198, Nasdaq rallies to 2,224, If these levels are exceeded then a) If broken then b) above.
I worry that we will be temporarily banned from trading put options, this is the legal side of shorting the market, not the illegal short selling side you are hearing about in the news now.
If I can't buy put options, then I guess I will go into currency trading.
FYI: Did you know that this $180 billion "Rescue Plan" was mainly in dollar currency? Central banks from around the world had to obtain USD for the "Rescue Plan" One more time, HEY how about that $180 Billion Rescue plan this morning, guess it didn't work too well!
Remember the math.
If the Global derivative market is $700 trillion (this is the leveraged stuff of concern, let's assume only 0.01% is bad stuff, that equals $7 trillion. The rescue plan for $180 billion covers only a meager 3% of the $7 trillion.
We need to reduce debt and properly value risk. All of the present efforts are an attempt to let the air out of the balloon slowly - to let the markets absorb the $7 trillion of losses over time (or some other ridiculous number) because $180 billion just doesn't cut it.
We are looking at 2012 or longer before this slow bleed will be over.
God bless this mess.
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