Period of uncertainty

Due to the Celtics game 6 and Sam Adams summer ale, yesterday's post had to be delayed until this morning. A few comments on the game: The Celtics looked tired at the end of the game; Not having a defensive presence is killing them in the paint; With Ray Allen on fire, why is Pierce jacking up that elbow jumper in OT? I love Pierce and think he is one of the best pure scorers in the league, but he just banged 3 HUGE shots in OT in game 5. Share some love with Ray and let him hit that game winner dude. The Celts will win the series at home tomorrow, but think about the wear and tear on those dudes legs. Rondo, Ray, Pierce and now even Big Baby are all playing 50+ minutes a game and are going to tire out come next series. Not having KG is akin to the Patriots missing Brady. It's a sad thing to watch such a talented team struggle because they are missing a main piece to the puzzle. Enough sports talk or else I'll rant all day.


I speculated that the Fed was going to announce further quantitative easing on Wednesday and was incorrect. The dollar clawed back after their non-announcement, interest rates rose on the 10-yr, and the short 7-10 yr Treasury ETF saw gains. Caught off guard by the non-announcement, I thought about it for a while and it made more sense. Everyone thought the Fed was going to buy more debt. They acted like contrarians and didn't. Last time the Fed announced they were going to buy Treasuries, rates still rose. The Fed doesn't want monetize the debt if rates are going to keep rising in the face of them buying. The announcement said, "The committee will continue to evaluate the timing and overall purchases of securities in light of the evolving economic outlook and conditions of the market." There is no doubt they will have to buy more because the housing recovery plans assume mortgage rates will be low and with the bond traders pushing rates up, this would create a problem. This was a smart move by the Fed because they are going to keep traders on their toes and will leave any investors shorting the bonds at risk. At the same time this creates more uncertainty surrounding the market because at anytime the Fed can announce more debt purchases. Overall this is negative for the dollar, which I believe, is the main barometer of economic health. The weaker our dollar gets, the more purchasing power we lose, the more our standard of living goes down. The current administration doesn't seem to care much about the dollar, but that's an entirely different debate.

Yesterday, Chrysler announced they are going to claim bankruptcy. If I was a creditor of the company, I would have balked at Chrysler's offer. They would basically get pennies on dollar for the money they are owed. I would take my chances in bankruptcy, hoping to get more than what Chrysler was offering. This is going to be an interesting event to follow. Going into bankruptcy is obviously not a good thing. The government wants this to be a quick 30-90 day process. This is going to be a long drawn out process unless someone from the government strong arms some "friends" in bankruptcy court. This could be an example for what's to come with other companies that could potentially go into bankruptcy. Investor psychology will be effected by this and will be important to track. Real tough trying to discount the bankrupcty case into stock prices.

Goldman had a $2 billion dollar debt offering and raised $750 million in a stock offering. If the company that runs the world is building it's capital base, what does that tell you? The "too big to fail" banks are in need of capital says the make believe stress test regulators. Did we really need to test these banks to know they are under tremendous stress? C'mon that's ridiculous. Look at what's been going on in these companies since October 2007 and you'll see if they are stressed. This test is just another way for the government to buy time before the day of reckoning. Banks are now arguing that the test doesn't show conclusive evidence they need to raise capital. The "too big to fail" banks are insolvent and do not need capital. They need to fail. Stop all this propping up and creation of zombie banks which will ultimately be ran by the government. My take is that these tests will be used as a backdoor way to nationalize the big banks. Sneaky, but a lot better than just announcing outright nationalization of the banks....well atleast from a PR prospective. These damn Keynesians are ruining our once robust economy.

I feel like this market is running out of gas. April was the first month of the new quarter and investors will like the way it started. The sell in May and go away mantra is starting to surface. Investors have been shrugging off horrendous news for quite some time now. The SP is hitting resistance around 900, which will be tough to break through. While this 23% run up since the May 6 low of 666, could have more legs, I think it's an opportune time to look to build some short positions. Many people are claiming this new bull market will continue but remember the popular opinion is rarely the profitable one.

That's it for now. Be back after the market closes. Have a good day.