Oh now I'm depressed!
A 1.25% rate cut in just over a week and this is the market's reaction? Rates are at 3% now, there's only 2 cuts like that left before we become Japan. Not only that, but you have the President (the rally-killer in chief) very appropriately addressing the nation from a helicopter factory (one of his handlers has a good sense of humor) to discuss the $146Bn money drop on top of the Fed's $163Bn (that's what a 1.25% cut costs the government).
"There's some uncertainty in the economy, but in the long run, you've got to be confident about your economy," Bush said. "Inflation is down, interest rates are low, productivity is high. Our economy is flexible. It is resilient. We've been through problems before." Let me tell you something - unlike this recent study detailing 935 false statements used by the administration to lead us to war, this is totally true! I have never seen so much panic in the markets over so little.
People are just ready to panic, they WANT to panic - they are disappointed if they don't have a good reason to panic. Sometimes my kids happen to flip on a random "scary" movie on the TV and they watch it with the same indifference as they watch Pokeman but if I turn off the lights and put on the fireplace and TELL them we're going to watch a scary movie, they're ready to jump out of their skins during the opening credits. That's what's going on in the markets now, pretty much anything will spook investors and every new piece of information is looked at by people who expect it to be bad.
Today's scary news was a report that the S&P MAY cut ratings on $534Bn of subprime mortgage securities and CDOs. The CDOs include the securities, the $534Bn figure is double dipping and downgrading paper from AAA to AA MIGHT cause an accounting shift and create paper losses but will have little actual impact on the financials. The real issue may hit the regional banks, who have so far used accounting tricks to avoid write-downs by hiding behind the still-AAA rated paper shield that kept them from taking losses last year.
``If you're holding a AAA piece and it's now downgraded to AA, you might have to write it down, even if you're holding it for an investment,'' Gary Gordon, a bank stock analyst at Portales Partners LLC in New York, said. ``The longer it goes on and the higher the credit rating of the instrument downgraded, the wider the pain.''
OK everybody - now SCREAM!
The Nasdaq is down 11% for the month so far, Thursday we'll see if we are heading lower of if we can keep it an even 10% by holding 2,385, a level that was firmly rejected in today's "rally." 10% on the Dow is way down at 12,004 - been there done that. The S&P's 10% drop zone is 1,323, quite a way's down, so it's up to the Nasdaq to snap out of it's funk but investors seem to be in no mood, treating 4-letter stocks like 4-letter words.
We ignored the ADP report that showed 130,000 private sector jobs were added in January but that report does have a very poor correlation with the government's payroll report we get on Friday. The government's jobs numbers are routinely adjusted up and down from 20-200% in revisions while the ADP report, based on hundreds of thousands of companies' actual payrolls, is generally given little notice.
MBIA (MBI) has earnings Thursday and that will be MAJOR as CNBC was banging the fear drum with ridiculous reports that they will report $12Bn in losses that came right at the height of yesterday's rally and sent the markets into a power dive. Their sole source for this story was speculation on the part of hedge fund manager Bill Ackman, whose Pershing Square Capital Management has been betting for years that shares of the bond insurers will weaken and stood to lose his shirt yesterday if MBI and (ABK) rallied. There was a TREMENDOUS amount of buying in both of those securities on the way down, very likely SOMEONE was unwinding their shorts ahead of MBI earnings that WILL NOT show anything near $12Bn in losses - yet, incredibly, no arrests will be made!
I'm going to begin calling all these attack-bears Hyenas because they tend to attack in packs and feast on the carcass' of weak and wounded companies, delighting in sowing the seeds of market destruction at every opportunity.
Hyenas position themselves at market tops and then will scream bubble over and over again until someone starts to believe them. While they do serve a useful position in keeping us from getting irrationally exuberant, when the market is already at a correction point and they need to get out these guys get downright apoplectic and are a disservice to the greater good.
Clearly we are a nation that is well-trained to respond to fear-mongering by our "leaders" and now we have a nation of sheep, anxious to follow anyone who rings a bell. According to former UN Security Advisor Zbigniew Brzezinski: "The culture of fear is like a genie that has been let out of its bottle. It acquires a life of its own -- and can become demoralizing. America today is not the self-confident and determined nation that responded to Pearl Harbor; nor is it the America that heard from its leader, at another moment of crisis, the powerful words "the only thing we have to fear is fear itself"; nor is it the calm America that waged the Cold War with quiet persistence despite the knowledge that a real war could be initiated abruptly within minutes and prompt the death of 100 million Americans within just a few hours. We are now divided, uncertain and potentially very susceptible to panic."
This is what the Hyenas are taking advantage of! By themselves they have no power to knock down the financial markets but they swarm in packs and attack by playing to your basest fears, playing with the knowledge that there is no oversight by the government or the SEC while playing off the fact that the public are generally uninformed to the point where people can make outrageous statements like "MBI and ABK will lose $23Bn" and it will be parroted by the MSM, who haven't checked a fact since Watergate and swallowed by the public, who are populated by so many children that were left behind that they are willing to believe a AAA rated insurance company with $2.5Bn in annual revenues was so extended that they lost $12Bn in one quarter.
Yes there are companies that lost (not even "lost", but wrote off) $12Bn but Citibank (C) has $146Bn in revenues - get a sense of proportion people! One might imagine Warburg Pincus had a sense of proportion when they agreed to purchase 16.1M shares of MBI at $31 per share as part of their $1Bn cash infusion into MBI and Wilbur Ross, who is actually looking to put Billions INTO the bond insurers right now said his examination indicates they should NOT lose their AAA ratings. Unfortunately, unlike the hyenas who are trying to bring them down, Mr. Ross has actually looked at the books and is bound by confidentiality. "We keep looking at a variety of mortgage insurers and the financial guarantees insurers, but we are bound by confidentiality agreements, so I really cannot go into detail into any of them," Ross told CNBC, according to transcripts of his interview made available to Reuters.
A similar thing is happening with Apple (AAPL) and Google (GOOG) as hyenas there take advantage of those companies' policies of not talking to the press, leaving them open to constant attacks of rumor and speculation designed to drive the stocks down. For those of you who missed it, here is Jim Cramer teaching a class on stock manipulation 101. As Cramer says "I would encourage anyone who is in the hedge fund game to do it because it's legal and it's a very quick way to make money and very satisfying."
Things have gotten so out of hand at Apple that Steve Jobs sent out an EMail, assuring his people that there was nothing actually wrong with the company. "I believe that investors who stay with us will be rewarded as the market's confidence is restored over time," he wrote. Meanwhile Cramer's own TheStreet.com was busy "fomenting" panic by publishing nonsense like "CEO Steve Jobs will need to work some magic to hit his sales target of 10 million iPhones this year." Cramer's staff reporter goes on to say: "To reach the 10 million mark, it needs to average 2.5 million phones in sales a quarter over the next four quarters -- or 200,000 more than what it sold during the big holiday season."
Apple NEVER said it was going to sell 10M IPhones in 2008, they said they would ship 10M IPhones BY THE END of 2008. So Cramer's team is pumping the premise that Apple will be missing if they fail to sell 2.5M phones a quarter - numbers that would make it the worlds best selling consumer product ever by a factor of 2 (with only the IPod even contending for second). WHAT CRAP! Before Cramer and his hyena crew got a hold of public perception, Wired published an article on Dec 21st that correctly indicated that Apple WAS ALREADY HALFWAY TO THEIR 2008 SALES GOAL.