From: Thomas
To: Patrick
Sent: Wed, 15 Oct 2008 4:02 pm
Subject: This is the end?
Oh my god, Pat. Are you worth, like, negative money now?
(Sorry. Hope you don't mind the weak attempt at a bad joke.)
Just heard the market is way down again.
How are you doing?
T
Hi Tom,
Let's just say about a year and 1/2 ago I could have bought a decent boat and had another 5 years where I would not have to work. Now, I could buy a dingy and take a few months off. Ha Ha.
http://www.ft.com/cms/s/0/19153990-9615-11dd-9dce-000077b07658.html
This is a great site to review recent financial history offered by the FT.
I have become the dreaded "day trader" that I never really liked. It is difficult for me to see value in a stock and buy it just to unload it when it moved up a dollar (or in the case when I short it buy it back when it falls a dollar) but this is what I am doing. On some days I can make a few grand. On others I lick my wounds. The market swings are heaven for day traders and I am trying to make it work. I actually look forward to 400 point swings and last week was full of them. I mean from Tuesday am open 9800 at to Thursday about 11 am at 8200 the market moved an entire years worth: nearly 20%
So if anyone sold into the early Tuesday rally they could have cashed out by Thursday morning and I can tell you I was one lucky person with one position I took on Monday which when the market was up I had shorted. I thought I would loose my shirt that day but by Thursday AM was making silly money as the market plunged (well on that position anyway). My only mistakes are not seeing how far the market can move. My strategy is move in 250-500 shares at a time then exit 250-500 shares at a time. Unfortunately this drastically lowers profit in really big swings but the key word here is to make a profit even though there are "make a killing" opportunities I give up with this more conservative strategy.
The news is finally starting to speak about hedge funds. There are by some estimates 8000 hedge funds and anywhere from $1.9 to $2.4 trillion they hold. From ALL the government speak and bailout speak and every thing damn else, you would think hedge funds did not exist. You know my take on the bastard industry. Well now they are making their way into the financial news at least and it is only the big names and their losses and redemptions over the last 60 days. Like we are supposed to cry for these pigs. Yea, even some of those assholes did not predict a crash and they did not get to cash early enough. Anyway, I have been predicting some of them will crash and it will be uglier than today. They are unregulated and some of them hold or held as much debt as Lehman. 1998 saw the bail out of LTCM, which was a hedge fund, but NOT with government money. Greenspan brokered a deal for a dozen or so banks to pony up enough cash to keep the fund from collapsing on Monday morning that year but no Fed money went in the pot. To this day, I have been pissed to no end at the Fed's opening up cash to non regulated Wall Street funds with tacit understanding they were going to support the unregulated hedge fund market with their access to cash. Lehman was $400 Billion in leverage (and this was DOWN to 23% or so when they went under). At their peak they had about $600 Billion in debt outstanding, a ration of over $30 invested for each $1 in capital. They were essentially one big hedge fund who operated right on Wall Street and took real money from real people. That is no joke. Well hedge funds run $7-10 for each $1 in capital if they are conservative. Others go $20-30 to $1 and they are out there now.
When we hear of debt markets freezing up, it is like "hello". Any idiot, including me, saw this thing happening years ago. With that many firms leveraged at such ratios it is like going to implode. I am surprised inflation did not really bite, I mean they chased oil and commodities to unheard of prices and somehow real businesses swallowed the costs and kept making money, albeit less.
It is the financial businesses that have imploded. I wondered at amazement for years what in the hell banks like Bank of America who was taking in after tax profit margins of 30% ($3 Billion on profit on $9 Billion in quarterly revenue back in 2006!) and other Wall Street firms where doing with all this money. Also, corporate America, with National Retailers and food producers who had bought up all the competition and commanded 40% of their respective markets, what were they doing with all the profits? Well as the quarterly reports come out and the exposure to Lehman Brothers and other financial firms are reported, it is becoming obvious that Wall Street was not only taking money from dumb suckers. They were taking money from corporate America, pension funds, university endowments, utility companies, all the way down to local governments and community banks.
In the US, unlike the 1980’s S&L scandals with Milkman (I mean Milken who was a genius at milking cash from anyone and everyone to play his buyout game), where junk bonds at the end of the debt boom where being sold to pensioners and old ladies through their local S&L, this current mess was not sold directly to individual private investors (with the exception of the "auction rate bond products" where banks are having to return capital to individual investors who bought these products and were stuck not able to sell them when the auctions "seized up", polite for Wall Street firms did not have any money left to support the artificial and non transparent market they “created” and for any person for 1/2 a brain, this was a canary of things getting worse as this market collapsed early in the crises).
In Hong Kong there have been near riots by individual investors because they were actually sold Lehman structured debt products directly. Can you imagine the hell they are going through? This paper is worthless. I am only glad the impotent and incompetent and largely on the sidelines SEC had rules on the books that unregulated paper could not be sold to Joe the Investor. All this crap created was basically unregulated insurance on debt. Strange stuff. There was a chart in the WSJ of the CDS market that went from an insignificant amount in 2000 to over $60 Trillion of the paper by 2007. The crazy thing is there came a point where debt could not be issued without the blessing of a CDS price (the cost to insure the debt). The ratings agencies still rated the stuff but the sellers of insurance on the debt were really making a killing (obviously or the product would not have grown so fast). Then of course this insurance product became a weapon and indirect way of destroying the ability of a company or municipality to issue debt. The issuers of unregulated insurance products suddenly had the power to decide who would get access to capital. The exceptional thing about this is that 99% of the people selling and writing this stuff (after the mathematicians and lawyers had written the novel long contracts) did not know a damn thing about insurance and had no capital to back losses if the underlying debt their "products" were created for actually went sour.
Along with the creation of this market which shows a curve going straight up from 2000 - 2007 before coming down for the first time in 2008 is the graph showing consumer price inflation doing the exact same thing along with Oil and commodity prices and I have seen graphs showing the private equity buyout craze (which started a bit later, say 2003) which had escalated to a point where a continued growth rate would have had private equity swallowing all of Wall Street.
Actually come to mention it, this week’s buzz about GM buying Chrysler is really a desperate attempt by Cerberus Capital Management and the syndicate of banks who backed this ludicrous buyout to avoid complete collapse when the private Chrysler declares bankruptcy. Yes, they will be bankrupt or bailed out by GM within 10 days of this posting. You know why? The Government bailed out Chrysler the first time but no person, even amongst Paulson’s cronies, has the stomach to bail out Chrysler while they are in the hands of “private equity”. I mean those guys are the cream of pigs. They buy companies with little to no money down, steal all the cash, strip the assets, pay themselves billions, then re-float highly indebted companies back on the street and cash in again. Who wants to lend these guys a hand? At the same time the complete collaps of this important Private Equity firm and or Chrysler will have real repercussions in the US economy. That is my take. Look at their company description:
Company Overview
Cerberus Capital Management, L.P. is a principal investment firm specializing in investments in undervalued companies. The firm seeks to invest in aerospace and defense, apparel, automotive and industrial, building products, commercial services, consumer and retail, financial services, healthcare, manufacturing and distribution, paper, packaging, and printing, real estate, food service, logistics, media, hospitality, technology and telecommunications, transportation, and travel and leisure sectors. It holds controlling or significant minority interests in its investee companies. Cerberus Capital Management, L.P. is headquartered in New York, New York…
Anyway, the paper economy of the first decade of 21st Century has collapsed. The problem I see is the Reagan boom was built on debt and ended with the collapse of the savings and loan and real estate markets and nearly took the banks with it, while the Bush II economy was built on debt and has ended with the collapse of the banking industry, investment banking industry, real estate market and is so severe it will cut into the "productive" side of our economy as well potentially destroying what actual productive industries we have left in the US. The Clinton boom also ended with a big bust of the artificial internet bubble economy and to some extent the financial world with the collapse of the tech oriented NASDAQ, but no matter how you slice this boom / bust, technology never accounted for more than 6% of so of the economy so the collapse did not have such a great an overall impact. Industries remained intact, banking remained intact and successful technology companies remained intact.
Anyway, without more on this, things are moving along.
Patrick
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