The Weekender

Doing a lot of reading this weekend, and remembered this spoof of the endlessly looped NYT subscription ads.  Enjoy...

Jim Cramer+Old School

Frontline recently put up an old school clip of Jim Cramer trading for his hedge fund.  It's pretty intense, and gives you an idea of where he is coming from on his show.  Cramer is on at the beginning and end of the five-minute clip

Looking to the markets, I continue to be wrong as stocks head viciously upwards in the face of many naysayers, including myself, who keep repeating this is a bear market rally.  I remain with my convictions, but I must admit some doubt is starting to creep in

I came across this post at The Big Picture, in which Dan Greenhaus, an Equity Strategist at Miller Tabak, is looking for stocks to test the lows in the S&P 500.  It's worth a look

Market Bottom

With CNBC more giddy than a college kid before spring break, you have to wonder how a news organization went from doom and gloom to Buy, Buy, Buy before you could say cat in the hat. Whatever the tone on CNBC is, I remain extremely cautious on the latest rally

Admittedly, the recent uptrend in the market, over 20%, has been shocking in both its length and duration.  But with the S&P 500 hovering around 800, technical barriers now exist. 800 may represent significant resistance, if only for the fact that traders love large round numbers

The Real Story with Frank Curzio is a favorite podcast of mine, and for the past several days he has warned about being sucked into the rally for fear of missing the bottom.  Surely, unless you are a soothsayer or Mr. Madoff, which I am neither, that risk will always remain.  But I firmly believe that a witnessing of a bottom scenario is unlikely here, and that the market will remain in a downtrend.  We should remember that a plan to remove toxic assets from banks' balance sheets is only a plan, and that the bridge of price discrepancy still must be crossed

  

Toxic Asset Plan (Part 2)

I've been thinking for some time that because the Government hasn't been able to come out and say this is our 3,4,5, etc. part plan to save the economy, that the markets have been in this perpetual tailspin, and the Obama administration has taken a flogging in the press

But today the tune seems to be changing with the release of Treasury Geithner's Public Private Investment Program (PPIP).  With futures skyrocketing (so much for that sell-off I was talking about), Wall Street seems to like the plan, but the real test will be if we can hang on to these gains throughout the trading day without traders trying to fade the rally

On the same note, the idea that private equity will shy away from the PPIP because of the fear of reciprocity by Congress from possible gains, seems to be a bit overblown, considering the fact that the Government is practically offering "free" money to finance toxic asset purchases.  There is some concern, but surely everyone can see the difference between AIG, and a private equity fund that works with the Government to buy toxic assets

Finally, a thought on populism, which seems to be the buzzword as of late.  The negative connotation the word often infers has been a bit insulting to Americans.  The word is very much associated with an anti-intellectual thought process, as if the uproar about AIG is morally ambiguous, instead of unjustifiable wrong.  Thus using the phrase "populist anger" to characterize the AIG situation discredits the populists (myself included) from the very beginning, comparing us to a mob with pitchforks and torches (thanks newsweek)

The Price of a Bailout

America is having its Howard Beale moment.  The credit crisis may be convoluted and intangible, but everyone was able to wrap their heads around AIG employees getting million-dollar bonuses in their financial-products unit

Last week culminated with the House of Representatives passing a bill that would tax bonuses at 90% for individuals in U.S. firms that make over $250,000, and whose firm has received over $5 billion in Government bailout funds  

Gretchen  Morgenson, of the NYT, summed this up pretty well on the NYT Weekend Business podcast (which is an excellent program if you're not already a fan), she said that perhaps this is the price of a Government bailout

I think Ms. Morgenson is spot-on.  It is tough to rationalize large bonuses for employees in U.S. firms that have received government money, for if not for the Government, many would be unemployed.  The argument could be made that many on Wall Street are not responsible for the shenanigans in the credit market, which is surely true.  However, the innocent and the guilty alike would have, in all likelihood, lost their jobs and their bonuses without Government money

Tomorrow, Politco has reported, that at 8:45 am, the Treasury Department will hold a news conference to announce the Public Private Investment Program that will hopefully help remove toxic assets from banks' balance sheets.  There will be a lot of pressure for Geithner to provide rigid details of the plan, and to avoid the type of sell-off that followed what could only be described as an announcement of "a plan to have a plan" that happened in February

Unless the plan is spectacular, and I hope it is, I would expect to see a "sell the news" downturn in the markets tomorrow, especially following the bear market rally we saw last week

Toxic Asset Plan

The wait seems to be over, as this week we can expect a final plan from the Treasury and Mr. Geithner about the over $2 trillion worth of toxic assets on the books of U.S. banks. The basic plan will involve using Government and private assets to buy bad mortgage debt from banks like J.P. Morgan, Citi, and Bank of America. The hope being that once these mortgages, both commercial and retail, are removed from the banks' balance sheets, they will be able to refill their coffers with private equity and begin to function normally again

The NYT reports that as of now, private funds have only been willing to relieve banks of these bad assets at no more than $0.30 on the dollar, while banks have only been willing to sell at $0.60 on the dollar. The hope is that this impasse will be bridged with the Treasury's plan

With only leaks on the plan available, Paul Krugman, and other notable figures, have already come out against it, in my opinion prematurely. Mr. Krugman's argument is that the plan will create an artificial market for assets, that in Krugman's opinion, are worth close to $0. However, the Governments argument has been that the assets are mispriced, and the reason transactions aren't happening is because of a lack of confidence and a market overreaction

I won't make a definitive opinion on the plan until I get to actually read it, but my initial thoughts are favorable, as my belief is that the inability of banks to relieve themselves of these mortgages is at the core root of the current financial dilemma. Though, I am concerned that taxpayers will end up paying higher prices for these assets than they are currently worth, as the Government will cover much of the losses of private money if the assets are overpaid for

The question remains, if $0.30 is too little and $0.60 is too much, what is a price that investors and the Government can make money on, but that won't destroy what's left of the banking industry, and lead us even deeper down the rabbit hole of recession