Mad Hedge Fund Trader

Should You Still Buy and Hold Stocks?

Trade em. Let me tell you that I, and the rest of the hedge fund industry, are highly suspicious of the global stock market rally that has ensued over the past week. Companies lowered earnings expectations so far they were easy to beat, and could be achieved by laying off a few more workers. The question this raises is how the economy moves forward with skyrocketing unemployment. Now that we have double topped in the S&P 500 at 956, even the bulls are saying we only have another 4% to go. This on a day when we are all wondering if commercial real estate loans will be the stick that breaks the back of the banking industry. Mike Mayo, a banking analyst with Clayon Securities, says that the industry may have to write off a quarter of its $7 trillion loan book over the next three years, levels greater than seen during the Great Depression. While banks are making a lot of money trading, they are losing it even faster in loan losses. It’s like trying to fill a barrel with water that has been perforated with a shotgun blast. If you are playing from the long side here, keep one foot in the exit, and a finger right on your mouse.

ADP Job Loss Estimates Paint a Gloomy Picture

this is going to be the last place to recover. I spent the evening with Dr. Janet Yellen, the president of the Federal Reserve Bank of San Francisco. She thinks that thanks to the government’s tax cuts and spending programs, we will be out of the recession by the end of this year. After massive inventory liquidation, the auto industry in particular is poised for a rebound. Financial markets are now in better condition than we imagined possible six months ago. However, the pace of the recovery will be frustratingly slow, and it could take several years to return to full employment. Since the majority of the Fed board members feel that inflation will be stuck at 2% for years to come, deflation presents a greater risk than inflation. We are not by any means out of the woods yet. Rising energy prices and interest rates are a potential drag on the economy. Commercial real estate is at the top of her worry list, as falling rents and capital values could create a downward spiral, further impairing the banks. China’s wishes for an alternate reserve currency are impractical. Answering questions as only a UC Berkeley professor can, she further confirmed my belief that we are looking at an “L” shaped recovery at best (see www.madhedgefundtrader... and www.madhedgefundtrader... . However, she did pour some cold water on my idea that the TBT has further to run. “Inflation running up to untoward levels doesn’t make any sense,” she averred.