Below The Crowd

Market Implosion Notes

Well, things continue to implode, or re-implode. I suspect that we found something of a bottom around DOW 7700 last week and would be a cautious buyer of select stocks and funds as we approach it again. Rare to see a re-test quite so soon, but just about everything we've seen lately is rare.

• Dylan Ratigan on FastMoney is straight to the point today. Confidence is not going to come back until the politicians who have created the environment which has failed are taken to task. Sadly, we have the absurd situation where the same politicians and institutions that either directly created or at the very least allowed the situation to develop are being called upon to solve it. Many of them are just broken records, "solving" the problem with more and more debt, which is what caused it in the first place.
• And let's be clear that this is not a Republican or Democrat issue. The difference between the two is where they tried to direct the huge flood of easy money that their common policies created. The Democrats wanted it sprinkled on housing assistance for the poor, on ACORN, and on support for old-line union-heavy employers. Republicans wanted as much of it as possible to head to Wall Street and to incompetent greedy managements. And of course, both sides wanted to spend it on a variety of government programs with the distinction being which programs, not whether the money really existed or could be spent. Nobody stood up and said "40-1 leverage is a bad idea." Nobody asked "why are we allowing trillion-dollar markets to develop with no regulation at all?" The only argument was where to spend the money. That continues to be the only argument. And that is why there is no confidence.
• Of course, all this might have been avoided if the government had allowed even one large institution to fail 10 or 15 or 20 years ago. The message would have been sent. Instead, we find ourselves in a situation where the insitutions have grown so out of control that even a single failure turns into a disaster.
• I continue to believe that the only way out of this is going to be printing money, and am slowly accumulating hard assets, but am mindful of the fact that a global slowdown means that many hard assets will face pricing pressure in the immediate term. Gold and silver, in that order, are my preferences right now. I expect that over time silver will outperform but at present it's getting killed by the fact that it is at least partially perceived as an industrial metal.

More of My Neighborhood Spider

I've been having a ton of fun photographing this spider that one of my neighbors has allowed to remain on his property.

Market Notes

Down 800 points at the low. Closing down "only" 300-and-something points viewed by many as a "victory."

Viewed by me as the result of more intervention, or at least rumors of intervention late in the day. Sadly, the reality of the market has been that it has become a huge mechanism for doing nothing more than discounting the rumor-of-the-moment about additional government intervention. And since the primary intervention is in the form of more rules changes, those of us who are not close to the rumor mill have no choice but to get out and sit on the sidelines. There's just no way to successfully play a game where the rules can be changed against you at any time.

That's part of the reason I haven't been writing much lately. Not much point in staying involved right now, and if there's no point in being involved, I'm not particularly motivated to comment either.

• A few days ago a letter-writer to the LA Times based short-sellers and said something to the effect of "if you big hedge funds like a stock, buy it, if you don't, then don't, no special rules for you!"

  Leaving aside the fact that anybody can short stocks, including him and his pension fund if he has one, we are seeing today that he and others like him should be careful what they wish for. We've seen the results on days like today. With no ability to hedge most stocks, and put options increasingly expensive, those big hedge funds and others are doing exactly what he hoped for: they are not buying. And with less and less short interest out there, there are no short positions to be closed out and buoy the market on harsh down days like today.

• Going to revisit The De-Financialization of Everything in a seperate post. The recent activity has suggested what the impacts of this will be. I'll explore what it'll mean to businesses, individuals and governments. Needless to say I think the environment we have come to depend on for the past 30 years is now dead. Many stupid businesses will die with it.
• This piece by Jeff Matthews in August 2007 really was prescient.
• As was this piece from ten years ago about the firing of John Succo at Lehman, for daring to suggest that “I don’t think that the people running our firm, our equity floor, have any idea of the things that we actually do, of how we hedge, the products that we’re involved with, the amount of risk we take or the lack of risk we actually take.”

-btc

Slow Weekend

Been a slow month or so and I've been spending time on a lot of things that I enjoy. As things stand right now, the economy sucks, job market is awful, and stock market going nowhere but down (though I suspect that could change for a while). So I've gotten the camera out, among other things.

• It's spider season in the neighborhood and while they are incredibly difficult to photograph due to focus and depth of field issues compounded by webs swaying in the breeze, the good ones are very rewarding.

  This is a local orb-weaving spider:

  

  This is another one just a few feet away. This homeowner apparently appreciates the benefits of having bugs to eat the bugs that bite you. Spiders, of course, really don't bite people unless provoked. After a recent flea outbreak, I'm happy to have spiders around.

  

• Some people think I'm nuts to spend money on good quality filters, even when the only purpose is lens protection. I think this illustrates why:

  

  A cheap filter with thin cheap glass and a lightweight alumninum ring would not have protected the front of my lens from this impact. The B+W with its thick brass ring and heavier Schott glass did. That saved me a repair bill that would have certainly exceeded $500. An extra $20-40 for a better quality protective filter is worth it to me.