When I read the news that J.P. Morgan had upped its bid for Bear Stearns from $2 a share to $10 a share I felt like I would be one of the few who would consider such news BAD, as opposed to GOOD. If JPM had to be bribed to take on Bear Stearns assets, why would paying more be a good thing? And by the way, JPM is now on the hook for just the first billion in losses that might occur from Bear Stearns assets. Formerly, I think JPM was on the hook for zero losses.
Anyways, I just want to show you this chart of JPM with its insane megaphone. I was short JPM as of yesterday.
The Financial Times on banks and regulatory backlash:
Wall Street crises have consequences. By 1932, John Maynard Keynes viewed financiers as “subhuman” and “of gangster mentality”. In 1933, at his inauguration, President Franklin Roosevelt told America that “the money changers have fled from their high seats in the temple of our civilisation”. The next two years saw the Glass-Steagall Act, which split commercial and investment banking, and the birth of the Securities and Exchange Commission.
The severity of the fallout from today’s crisis partly depends on the scale of loss borne by the public sector. So far central banks can, just about, present their activity as that of lenders of the last resort: lending to banks (and now dealers) in return for good collateral. Even the UK Treasury says nationalised Northern Rock’s assets exceed its liabilities.
But it is easy to imagine scenarios in which the public sector bears large and explicit costs. The collateral’s value could fall; central banks might feel obliged directly to prop up the prices of risky assets; bailouts of clearly insolvent banks might occur. High inflation might conceivably be tolerated to cut the real value of private debt – as Professor Niall Ferguson puts it, a re-creation of the 1970s to avoid the 1930s. Such public costs could render peripheral today’s regulatory debate. This is dominated by technical goals: making banks’ capital positions less pro-cyclical and boosting their liquidity. Faith in voluntary codes to reform bankers’ pay, such as that hinted at by Deutsche Bank’s Josef Ackermann, or credit ratings, might come to be seen as hopelessly naive.
Last week Barney Frank, chairman of the House committee on financial services, proposed a new US risk regulator. But the backlash could be more radical. Its objectives? Try these two. First, in an echo of Glass-Steagall, to prohibit some risky business lines at any institutions with implicit state guarantees. Second, to require central banks to take action to limit asset bubbles as well as conventional inflation. If the private losses “socialised” by the public sector do become drastic, so will the proposed remedies.
Rich Karlgaard of Forbes.com writes about how South Korea’s newly elected President seems to understand economics better than any of our own presidential candidates:
Wouldn’t it be cool if America elected a president in November who said things like this:
“Business is the foundation of the economy, and the economy will recover only when business activities are re-energized,” Mr. Lee said in a wide-ranging interview over the weekend. “And business here means big and small companies–and the workers and management of the companies.”
Unfortunately, this guy is not available. He is South Korea’s President Lee Myung-bak, the former CEO of Hyundai Construction.
How is it that some foreigners understand the ideas behind freedom and capitalism better than America, the country that once believed in and acted upon such ideas and ideals?
Gordon Smith over at Conglomerate has done some research on the facial hair of past Vice Presidents. I tell you, a beard comeback to the White House would be the only good thing to result from a successful Obama-Richardson campaign.
Do you remember the days when the VIX was in the single digits? Boy, those were smooth and easy times. I found this great post and chart over at VIX and More:
I last spoke about VIX Macro Cycles at length in December, at which time I posed the question, Was 2007 the Beginning of a New Era in Volatility? Given the extreme slope of the VIX increase over the course of 2007, I concluded that a new VIX macro cycle was indeed under way, but hedged my answer a bit at the time when I said “the current rise in volatility should persist through all of 2008, even if the rate of rise in volatility begins to slow.”
At the time I made that statement, I certainly did not anticipate that we would see multiple VIX spikes in the 30s during the first 2 ½ months of the new year, but even those events and the broad concerns about the stability of the financial system have not caused me to back away from my December prediction that volatility would flatten out “in the low to mid-20s range.” In fact, I still anticipate that volatility will spend a good portion of 2008 in the neighborhood of 22-26. Looking at the current VIX futures quotes, where the May through December futures are all trading just below 26, it looks as if my prediction is on the low end of the market consensus.
The big question I have is about the duration of current VIX macro cycle – and of course the slope of any continued increase in volatility. If the current slope of the volatility increase holds and the minimum cycle time is two years, that would project to a sustained VIX of about 40 by the end of the year. I don’t expect to see that scenario unfold, but it will be interesting to see how long it takes for the runup in volatility that started about 15 months ago to run out of steam.
I remember seeing an interesting chart from some blog showing a long term chart of some broad-based index showing the rarity of a decline in the markets for four straight months, but I can’t seem to find the chart or blog. Thus, I’ve created my own chart, a 20 year monthly chart of the S&P 500. I’ve highlighted the points where there have been 4 or 5 straight months of decline.
The important thing to note is that these series of declines have all taken place during a period of recession. Also, there is usually a good-sized rally after these series of declines. Just something to keep in mind.
This was one of the most volatile weeks I had ever seen in the markets. This might have a little to do with me being on spring break and therefore was able to watch the markets in more detail, but probably more so to do with these troubling economic times. With only four trading days this week, we saw hundred point gains and losses every single day I think.
Here’s the intraday chart of IWM, an ETF that tracks the Russell 2000 index, that shows the index bouncing and bounding across the intraday fib lines:
It’s really uncanny watching streaming quotes of the market and see the prices of stocks bounce off of and hover around the retracement lines. But anyways, it seems that the market is finally going for a rally after nearly 4.5 months of decline. Money is getting sucked out of leveraged positions in commodities and being put back into securities. One example of this I think is General Electric (GE).
GE had an huge day yesterday, making a 5% gain. For this week, GE went from a low of 32.83 to a high of 37.74. And just look at the huge volume on Thursday. GE has NEVER seen volume like that ever. I actually bought a put on GE, but if the market movers are getting back into GE, that might not have been the wisest decision. But in my defense, I bought the put as GE was pushing up against the 38.2% fib line. The stock moved up past that but now its cozying up to another point of resistance as you can see from the blue line.
Obama exploits his still living white grandmother. James Taranto of the WSJ thinks simple decency dictates that a public figure treat embarrassing facts about loved ones with discretion, but come on, he’s a politician!
I took a snapshot of my holdings this morning. Notice how they are all puts.
I closed half of my positions today and also made a tiny bit by scalping the IWM in the last 30 minutes of trading. This week still has time to be a doozy.
Overlooked Factors That Have Contributed to the Dollar Demise
Thebulltrader.com has created a list of five overlooked factors that have contributed to the demise of the U.S. currency. They are petrodollars, weather, Wal-mart, the U.S. Treasury Secretary, and public perception. I’m not sure about the weather or Wal-mart, but maybe they are very small factors.