I'm Old School

For those of you who have come to the market in the past year and a half, I'd like to tell you "this" is not how it used to be. We used to actually trade on some semblance of normalcy. Washington D.C. did not matter much. Senators and Congressmen did not appear on CNBC as much as financial pundits. "Breaking News" was not announced every 5th day.

I was mulling last night why I had been successful from the last week of November until last week, and had such a hot streak for about 2 months. I just figured it out: we had a leadership vacuum as we went from Bush to Obama. Aside from 1 day at 3 PM when Geithner was announced as Treasury-elect, I cannot recall one moment when the government interfered in our so-called free market. We had a relatively normal functioning market in which things you learned over a decade mattered.

The only "surprise" movement in that period was the Federal Reserve meeting when rates were slashed to 0.00 to 0.25%, and the market went giddy. But we're used to that; the Federal Reserve meeting is like an earnings announcement for the whole market. The lemmings do their knee jerk reaction and then we go on to normal business within 36 hours. We have experience in that. But for 8 weeks, we had a batch of non-interference and the market did not do crazy things based on government actions in premarket or aftermarket. Hence, skill mattered. Experience mattered. Sense mattered.

Now? We go back to an era of guessing what Charlie Gasparino or Steve Leismen is going to announce on CNBC. An era where Uncle Ben or SuperObama announcements matter more. Where someone with one day of stock market experience can guess 50/50 probability just as well as someone with 30 years. Bespoke blog has a list of dates that the market gapped up 2% premarket in 2008 - you can see it here. You will notice how many were in Sep - Nov, but we had so many "Sunday night meetings" that caused the market to gap up, causing people in legit short positions to flee en masse. Or financial short banning. Or new "fixes" for housing. Or emergency rate cuts.

You know what we were talking about a year ago at this time? Charlie G. was on CNBC breaking in every 4th day talking about proposed solutions for Ambak and MBIA. Each time it happened, I got smashed in my Ultrashort positions.

So I'm going to be a good soldier and take my loss in Goldman Sachs (GS) short like a good boy. Our bankers deserve my support. And I'll remember why I have so much cash - not only do I lose as a tax payer by subsidizing this market, I also lose as a rational investor who is judging this market on historic precedent and past experience. It was a good 8 weeks; it made me remember that I actually used to be able to rock in a normal market. Heck, it made me remember what a normal market was like. Now it's back to riverboat gambling time and guessing when/what the next surprise government announcement will be. When someone with 24 hours of market experience has the same skill level I do. Dart throwing is back.

p.s. Rick Santelli deserves a 3-hour daily show on CNBC. Someone to replace the childlike giddiness and laughter during government interventions would be a nice change of pace.

p.p.s. we got to S&P 860 which is where I was going to layer on a good layer of shorts, but I thought we'd get there through normal process, not government intervention, so until I see what this market does later in the day and/or tomorrow, I will not commit one way or the other. S&P 875 is the 50-day moving average (down from 880 to start the week).

Comments

[market ace:]

You have described the modern markets to a tee. Smoke and mirrors in gov't policy have created an environment of rewards for the companies that should be going under and nothing for solid growth companies. It is safer to be on the gambling tables in Las vegas where some sanity prevails than invested in a gov't controlled market. The only good thing is we know eventually it will all fall as the daily bailouts fail since the gov't will never be able to come up with the trillions necessary to "save us".

Jan 28 06:38 PM

[waf76:]

I feel your pain. I experienced this investing in the ultra short financial EFTs. The gov't intervention is something we cannot account for. Today's rally is pure BS. The fundamentals have not changed. The market will give it back tomorrow.

Jan 28 07:03 PM

[EW:]

Agree with all, especially comments about the childlike giddiness and laughter on CNBC. Can't bear to watch. It's no wonder Santelli stays in Chicago. Otherwise he might slug somebody.

Today's rally in financials is doomed to fail as they all have before.

Jan 28 07:22 PM

[User 265729:]

TRADER:

I'm surprised anyone watches CNBC anymore. The best US source is Bloomberg, buy they are getting into the hype a bit lately too. If you want to see something funny from CNBC, check out this link that I found cleaning out my bookmarks on CNBC:

www.cnbc.com/id/258484...

Yep! You should have bought then!

I thought everyone could use a laugh...

Jan 28 07:24 PM

[Nick Waddell:]

This too will end. It's funny: triple digit losses or gains barely make anyone blink anymore. Things will return to normal, but maybe this has moved our definition of normal a bit...

Jan 28 07:38 PM

[Just Say Whoa!:]

"I cannot recall one moment when the government interfered in our so called free market."

That's called "C.R.S", haha!

To refresh your memory, here's a brief history of US Bailouts, including 3 bailouts done by -R presidents:

* Continental Illinois National Bank and Trust Company 1984 Then the nation's eighth largest bank, Continental Illinois had suffered significant losses after purchasing $1 billion in energy loans from the failed Penn Square Bank of Oklahoma. The FDIC and Federal Reserve devised a plan to rescue the bank that included replacing the bank's top executives. $9.5 billion

● Savings & Loan 1989 After the widespread failure of savings and loan institutions, President George H. W. Bush signed and Congress enacted the Financial Institutions Reform Recovery and Enforcement Act in 1989. $293.3 billion

● Airline Industry 2001 The terrorist attacks of September 11 crippled an already financially troubled industry. To bail out the airlines, President Bush signed into law the Air Transportation Safety and Stabilization Act, which compensated airlines for the mandatory grounding of aircraft after the attacks. The act released $5 billion in compensation and an additional $10 billion in loan guarantees or other federal credit instruments.

Source:
www.propublica.org/spe...

Jan 28 08:08 PM

[D. McHattie:]

I will admit that I'm not a terribly experienced investor/speculator/tr... But one element I remember about doing a strategic analysis in b school is that you have to give consideration to the overall environment in which the business is operating.

Governments are and have always been a critical component of environmental analysis and you ignore them at your peril.

Jan 28 08:23 PM

[CJJ:]

Agree D. These people are just upset that things aren't happening as they expect. As the poster says, what the government said didn't matter in the past and now it does. Guess what, the Government has always been speaking, always been interfering.
The issue is the government, media and people are all now fixated on the downturn...So why don't you blame the whole environment for your issues. The fact is the markets are no longer just for traders(those people that have absolutely no blame in all of this..HAHAHA) and as D points out, not taking into account the whole environment you aren't going to "rock" as you so eloquently put.

Jan 28 09:29 PM

[keithpiccir...:]

I think you took the GS short off one day too soon.
Cnbc must be listened to selectively - today I did watch the Heebner segment with Cramer. Watch MarketWatch on Bloomberg weekend.
It is much less confrontational.
That last week in November until last week period was predominantly bullish.

Jan 28 09:33 PM

[User 265729:]

Wasn't the original Chrysler bailout in 1978-79 done with a Republican administration, or was the President and Congress in "split control" during that period?


On Jan 28 08:08 PM Just Say Whoa! wrote:

> "I cannot recall one moment when the government interfered in our
> so called free market."
>
> That's called "C.R.S", haha!
>
> To refresh your memory, here's a brief history of US Bailouts, including
> 3 bailouts done by -R presidents:
>
> * Continental Illinois National Bank and Trust Company 1984 Then
> the nation's eighth largest bank, Continental Illinois had suffered
> significant losses after purchasing $1 billion in energy loans from
> the failed Penn Square Bank of Oklahoma. The FDIC and Federal Reserve
> devised a plan to rescue the bank that included replacing the bank's
> top executives. $9.5 billion
>
> ● Savings & Loan 1989 After the widespread failure of savings
> and loan institutions, President George H. W. Bush signed and Congress
> enacted the Financial Institutions Reform Recovery and Enforcement
> Act in 1989. $293.3 billion
>
> ● Airline Industry 2001 The terrorist attacks of September 11 crippled
> an already financially troubled industry. To bail out the airlines,
> President Bush signed into law the Air Transportation Safety and
> Stabilization Act, which compensated airlines for the mandatory grounding
> of aircraft after the attacks. The act released $5 billion in compensation
> and an additional $10 billion in loan guarantees or other federal
> credit instruments.
>
> Source:
> www.propublica.org/spe...
>
>

Jan 28 10:04 PM

[User 265729:]

"That last week in November until last week period was predominantly bullish."

I've never really seen CNBC not being bullish. Of course, when you get below the surface, where do they get their money? Ads from big business. Who do the talking heads get paid? I'm sure all of them have a segment paid by GE stock -- thus the glum faces on Cramer to Matt Lauer.


On Jan 28 09:33 PM keithpiccirillo wrote:

> I think you took the GS short off one day too soon.
> Cnbc must be listened to selectively - today I did watch the Heebner
> segment with Cramer. Watch MarketWatch on Bloomberg weekend.
> It is much less confrontational.
> That last week in November until last week period was predominantly
> bullish.

Jan 28 10:08 PM

[User 265729:]

But when the markets BECOME the government, then you are in big trouble. That's where we are today. Markets are not rising and falling based on long/short-range outlooks PE or anything else that makes sense. It's all about the bailout de jour. After the bailout is passed, the markets start to tank again, until the government throws in another $trillion for the next quarter.

When I hear CEOs speak or when outlooks are issues, most are not positive anytime in 2009 OR 2010. Stocks are significantly overpriced based on conditions and the only thing shilling them up is our tax $$$, but that won't continue past Q3 2009. They are hoping to buy a "lift" then do a psych job on invesors C/O the media like CNBC.

Won't work, but the government is doing the only thing they know how to do: Spend money.


On Jan 28 08:23 PM D. McHattie wrote:

> I will admit that I'm not a terribly experienced investor/speculator/tr...
> But one element I remember about doing a strategic analysis in b
> school is that you have to give consideration to the overall environment
> in which the business is operating.
>
> Governments are and have always been a critical component of environmental
> analysis and you ignore them at your peril.

Jan 28 10:17 PM

[{5U}:]

Great article...hence my not so popular user name on this site.

In New York magazine there's some tale about some 33 year old who made $500k trading SKF using charts. Fundamentals don't matter so much as gorilla trading ...in the short run. A guy I know who makes a living scalping a few "handles" trading the "spus" (s&p futures) had a record year.

Be careful. It is Superbowl Weekend. The government wants people to talk about all the great things they are doing like getting rid of the toxic assets and the stimulus package. And expect to see a lot of pro government rhetoric during commercials and maybe an Obama appearance.

One thing I have learned in this market is to be very careful being caught short over a long weekend. It all started with Bear Stearns.

Jan 28 10:41 PM

[hoover:]

Government policies are shaped by lobbyists, political calculations, opinions by over 500 congessmen, and a view from the top of government. It has the ear of the most useless part of the economy -- big irresponsible banks that are not even viable businesses, while ignoring useful productive businesses, well run banks, small businesses, and main street. Therefore, I would say the government's bailout effort is failure waiting to happen.

Jan 28 10:58 PM

[Mr. Cynical:]

Not true, MM. Government was simply taking a commercial break for the lefty relief pitcher to come in. Just add it to the equation, man.

Jan 28 11:41 PM

[MarvinMBA:]

I hope this country succeeds in getting 1/2 of those that lost jobs back to work...when this happens I would say we have the potential of recovery.

Until jobs show up we are all going to feel the pain one way or another including Uncle that will eventually be responsible for the wrong moves at the wrong time...MarvinMBA

Jan 29 01:11 AM

[Bill Thompson:]

I wish more people were old school, because all the rallies now a days are all emotional and just slowing the dying process. See here crashmarketstocks.com

Jan 29 01:45 AM

[Jake Berzon:]

Hey, don't cry! You win some, you loose some. If you knew ahead of time which ones you were going to loose, you would never loose them, right?

By adding enough noise, politicians can level the playing field so that somebody just starting out can have the same chance as you. Now, isn't that fair?!

Jan 29 02:16 AM

[User 346847:]

p.s.s would be "post-script script"

p.p.s. is "post, post-script"

Jan 29 04:13 AM