Friday, September 19, 2008

the right thing

Now that the government has stepped in and backstopped all markets, it is time for Congress to pass regulations that will allow the markets to function on a more normal basis. In April 1998, when Travelers and Citicorp merged, dooming Glass-Steagal regulations, they replaced it with basically nothing. We need regulations that are flexible, helpful, and provide adequate protections. Let's hope that the momentum we have now isn't forgotten after election day.

Thursday, September 18, 2008

Lost in the Shuffle

I've watched and listened to a lot of the financial media this week (too much, probably). Here's a few observations about things that have gotten lost in the shuffle. On the media itself, I have to give CNBC credit for breaking much of the big financial news of the week. As a trader, I should be glued to that channel. As an investor, if all I watched was CNBC, I'd be jumping out the window. That is why I am keeping an eye and ear on Bloomberg and Fox Business. Fox is talking about the the real economy (doing OK as a reality check) and Bloomberg has an international focus (doing worse than here).

That brings me to my next point. Lost in the shuffle is that international markets, especially emerging markets, are getting killed. Russia has shut down their stock markets. Closed, not operating. Russia made it worse with all of this Georgia nonsense. Pundits should not be surprised in light of this move and the situation in other markets that the price of gold is up $100 in the last two days. In the vast majority of the world, gold and other hard assets are the only option for those involved in the financial markets.

Lost in shuffle of all of the action by the Fed and Treasury is the culpability of Congress. I think it was summed up by Harry Reid yesterday when he said, "I don't know what to do". It was probably the most accurate statement he ever made. Instead of trying to legislate a solution, Congress is going on a break for the election. Hopefully what won't get lost in the shuffle is the cheap political trick that the Congressional leadership is engaged in. They need to act now to stem systemic financial risk by giving the government the tools to help fix the problem.

There is more, but I will end it here

Monday, September 15, 2008

Reality Sets In

Not much to say about today. Many of the pundits said that the last hour in the equities market was the capitulation trade that everyone is waiting for in this market. Even a broken clock is right twice a day. The Fed meets tomorrow amidst the hue and cry for rate cuts. If they are going to do it, it better be big, meaning in excess of 50bps. Otherwise, we are back to watching the Fed ,meeting after meeting, trying to devine what they will do next. Not that I thing it will do very much. Rates have come down 325bps in the past year and even accounting for the lag time, rates that matter to people and companies, mortgages and borrowing costs haven't done very much. Banks don't have any capital to lend, and even if they did, the only ones that want to borrow are doing so out of desperation.

I went back and checked this blog, reviewing the numerous entries screaming for transparency in the credit markets. Here we are a year+ later and the books are still as opaque as ever. This is the real problem. Things will not get better until all involved come clean about where they have their crap marked. When I couldn't find a price for something and didn't have a reasonable (not a black box model) basis for where I had something marked, I marked it at ZERO. Of course, I wasn't levered 40 to 1.

The good news is that we are finally seeing the beginnings of the resolution. While I was genuinely sorry to see Lehman go (they were my first employer, starting in 1981 right on through to 1994), they had the chance to do the right thing. I learned my lesson; I have some of their wallpaper stock now. The faster the rest of them go, the better in the long run. We may need a RTC-like vehicle to unwind all of this. Congress should start on this now. The longer it goes, the worse it gets.

Friday, September 5, 2008

A "Gross" Miscarriage of Justice

Enough is enough! How many more decades is Bill Gross going to get a free pass to go on national television and talk up his book? Is it because the media is so afraid that he won't dispense his wisdom to them anymore? Is it that the media doesn't really understand the bond market? Is it both? (probably). The bottom line here is that if Bill Gross was an equity fund manager, he would be in jail right now. Stop treating him like the altruistic oracle soothsaying from his fixed income Delphi.
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