Last week I paid very close attention to the markets and the news. On news of government intervention of any sort, the markets plunged or the markets rallied (at exceedingly opportune times). Several times I took profits on my two primary trading vehicles (SRS, which is double-short U.S. real estate, and FXP, which is double-short China) when my stops were triggered and I reentered positions at lower prices. My trading account was still 100% short at market close on Friday. Needless to say, I feel pretty darn good about my trading account, but I’m still staring at losses with my long-term account. I haven’t yet gotten around to reevaluating my long-term holdings, whether or not to add to them or to switch into stocks that are even more undervalued.
As for today, on a technical level, it seems S&P broke through resistance. Chances are increasing that the DJIA will retest Novemeber lows and then fall below 7k and the S&P will fall below 700. I feel that investors and traders are now more psychologically conditioned and prepared to take the market lower simply because they have become accustomed to seeing the DJIA in the 7000s and the S&P in the 700s. Traders and technical analysts (see Slope of Hope and Maoxian) see the S&P at 650-660 as the next large resistance level.
I remember hearing the word “capitulation” a LOT during October and November. “Capitulation” nearly replaced “change”, which had the number one spot on my list of “Words I Never Want to Hear Again.” I suspect “capitulation” might soon reenter the vocabulary of the buffoons on CNBC, unless they’re not too busy talking about bailouts, nationalizations, and car czars.
This is pretty damn outrageous to me. It’s like a doctor who does not read the patient’s chart and medical history and then performs surgery blindfolded. I can’t think of a better analogy, so feel free to help me out if you want.
Charlie Munger had an editorial in the Washington Post yesterday. I bet it’s quite easy to get an editorial in a paper when you own 21% of it! Anyways, Munger feels the key to restoring confidence is new legislation that will stamp the sins and follies of the past:
Our situation is dire. Moderate booms and busts are inevitable in free-market capitalism. But a boom-bust cycle as gross as the one that caused our present misery is dangerous, and recurrences should be prevented. The country is understandably depressed — mired in issues involving fiscal stimulus, which is needed, and improvements in bank strength. A key question: Should we opt for even more pain now to gain a better future? For instance, should we create new controls to stamp out much sin and folly and thus dampen future booms? The answer is yes.
Sensible reform cannot avoid causing significant pain, which is worth enduring to gain extra safety and more exemplary conduct. And only when there is strong public revulsion, such as exists today, can legislators minimize the influence of powerful special interests enough to bring about needed revisions in law.
However, legistlators are having a tough time working together in a bipartisan way. Munger seems to be worried about this apparent fact. But the petty bickering in Congress seems to be in relation just to a stimulus package. I believe that once the fools in Congress start to work on comprehensive reform legislation, legislation that completely reworks and strengthens the regulations governing the financial industry, the American public will begin to see some true bipartisanship.
I’m not sure if other people think will think this is significant or not, but this could be the first time since last November that the DOW will close beneath 8,000 for two days in a row. My feeling is that this will be another psychologically important event. When traders, retail investors, and institutional investors realize that DOW sub 8k is more and more a reality, I think they will begin to worry about DOW sub 7k and that is where we will go. If the DOW closes beneath 8k today, this will dramatically increase the odds that the DOW will dip below 7k within the next year.
Remember way back when the government brokered a deal for JP Morgan to take $30 billion of Bear Stearns assets? JP Morgan was responsible for only the first $1.15 billion in losses while the government was responsible for everything beyond that.
Bloomberg reports that the central bank’s Board of Governors wrote in a Dec. 29 report to Congress that it didn’t expect “any net loss to the Federal Reserve or taxpayers” from the Bear Stearns holdings. Looking at the chart now, it seems like taxpayers will be on the hook for a lot of money. Currently, taxpayers are down $3.07 billion.
Is TMI a forerunner of a wave of forced-liquidations of SPACs? Or is this just another example for Phil Goldstein’s detractors to cite when they say that he’s only interested in his own pocketbook and doesn’t care how his actions affect value for other shareholders?
It’s obvious that Goldstein wants his money out of TMI – whether because he has better things to do with it, or because he doesn’t believe that TMI will be successful even if a merger is completed. Consent solicitations can be quick and painless or long and drawn out (under state law, Goldstein has 60 days to reach 50%).
I think this will serve as an interesting test-case: if Goldstein is successful early, it may trigger a wave of copy-cat liquidation solicitations (by other hedge funds) at other SPACs. Perhaps, though, “copy-cat” isn’t exactly the right word, because such a wave might be an indicator that Goldstein is in fact representing the feelings of other hedge fund SPAC shareholders – that while the SPAC seemed like a great investment vehicle a year ago, today’s market conditions are just too tough. Hedge funds recently hammered by the market may see this as an easy way to get their cash back.
Deysher, manager of Pinnacle Value Fund, trolls the same ponds where Buffett is fishing, but he focuses on shares of small-cap and microcap companies with the cheap valuations and solid business characteristics that hook bargain-hunters.
And so no one misses the connection, Pinnacle Value’s Web site links to Berkshire Hathaway Inc.’s Internet home page and Buffett’s folksy-but-frank shareholder letters.
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Deysher’s eye for the little details has kept Pinnacle Value at the top of its small-cap value category most of the time since its April 2003 launch. That made a big difference in 2008, when the average small-cap value fund tumbled 32%. Pinnacle lost ground last year too, but its 16.9% decline left shareholders — including Deysher — with almost twice as much money in their accounts as they would have had in many rival funds.
This blog is produced by Douglas Ott, an employee of Banyan Capital Management as an outside business activity. As such, Banyan Capital Management does not review or approve materials presented herein. By viewing or participating in discussion on this blog, you understand that the opinions expressed within do not reflect the opinions or recommendations of Banyan Capital Management, but are the opinions of the author and individual participants.
Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security or other instrument. Before investing, consider your investment objectives, risks, charges, and expenses. Any purchase or sale activity in any securities instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results.
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