This stuff isn't my area of expertise, but it is my bond-trading officemate's. He thinks the Fed's actions have backed them into a rat hole, and are hurting the housing market and all forms of credit. His arguments seem very logical to me. Far more so than Najarian saying on CNBC this morning that the Fed is keeping rates low to help credit card customers?! Huh? When the likes of Citi (C) are raising card rates to 25% on their best, high credit score decade + customers??

Ponder this:

It's official, the oft-repeated yet chronologically irregular spectacle, "The Running of the Sheep" has once again begun on Wall Street.

Although not as well known as Pamplona's "Running of the Bulls", the ROTS is no less dangerous, as "investors" (i.e., sheep) trample each other to pile money into, or in other examples, pull money out of the stock market at what has historically proven to be EXACTLY the WRONG TIME.

One of those oft-repeated investing "truisms" is that since big companies like Coke (KO) or Microsoft (MSFT) or Apple (AAPL) each have a million analysts covering them, there is no way to have an informational advantage and hence you shouldn't expect out-sized gains from investing in these stocks. The market is too efficient for that when it comes to big companies.

Sure this makes intuitive sense. It would even be true if the market were in fact efficient. I would hope that most folks have observed enough ridiculous pricing in the market over the past few years as to dispel any notion of efficiency.

The market continues to confound the bears. Not only is is climbing a wall of worry, it's ascending as it tramples the backs and steps on the heads of incredulous investment professionals. After all, has anyone REALLY seen any verifiable shoots, seeds, or flowers? Anyone other than Larry Kudlow, that is. First he saw Goldilocks carrying the stock market in her basket ever upwards just as she tra-la-la-ed right off a cliff. I often wonder if the shoots and seeds that fuel Larry's persistent optimism reside under gro-lites in the back room of his basement.

From an economic standpoint, the best news we can get these days is that the 2nd derivative of economic implosion is decreasing. That is, things are still awful and getting worse, they just aren't getting worse as quickly as they were. Personally I, like many others, feel that this rally is underpinned by vapor. The only thing I can see that "should" be driving a rally is that the silly-cheap levels some stocks attained in early March lit a fire under value investors. For a few days anyway.

Omaha, NB - "In a surprise move, Warren Buffett has replaced the much-maligned derivatives contracts he wrote last year, with insurance policies written on a variety of equity indexes. Doug Kass, who has been one of the most vocal critics of said derivatives (European put options that Buffett wrote on a variety of equity indices) declared that his accusations of "style drift" have been vindicated by Buffett's surprise move. Now, instead of receiving a premium up front in return for assuming a risk that said indices decline to levels below 2008 levels by the end date of the contracts 15-20 years from now, Buffett has now received a premium up front in return for assuming a risk that said indices decline to levels below 2008 levels by the end date of the..." Hey... wait a minute!

Get the point (Doug)? Buffett's short puts are nothing new for him, and do not represent style drift. They are simply insurance policies that Buffett was willing to write in return for $4.9B received up front. Much like an insurance risk, Buffett knows his maximum loss, and knows how much in premium he will receive. Even better than an insurance policy, he knows the date of any potential liability.

I am as sick as you are of talking (and typing) heads calling bottoms. I also have a bad case of trauma-induced tickerphobia (both potentially positive contrarian signs). So I am filing this one in the "food for thought" category.

JP Morgan reports today that since 1900, there have only been two occasions where the Dow cracked 12-year lows: April 8, 1932 and December 6, 1974. In the first case, it occurred 3 months prior to the bottom. In 1974, it marked the exact bottom.

Having been in this business through the tech bubble and now this mess, you would think that I would've long ago learned to ignore the inanity of sell-side analysts. Talk about complete wastes of space. 99.9% of these "professionals" destroy value in oh so many ways. They collect handsome salaries yet produce nothing of value for the American economy. If you listen to them, you will lose money. Lots of it.

The favorite game now is to spit out a string of descending price targets as a company's earnings decline.

This is a good article about market performance myths. It's worth reading in this day of doom, gloom, and Wall Street incompetence. The quick summary: don't take claims of historical market performance at face value (not to mention fund and manager performance).

The author points out that it is easy to make dramatic claims (in today's environment, that's often negative claims - e.g., a recent Newsweek cover article saying that stocks made no money between 1965 and 1982) by cherry-picking the starting and ending points, ignoring dividends, and using indices that don't truly represent the market.

Warren Buffet foresaw the current financial disaster more than five years ago. I pulled out his 2002 Chairman’s Letter, wherein he addresses derivatives and their potential to scuttle the entire financial system. Here are some key passages:

“Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system.”

As Dan Weiss writes in this blog, we have seen the market undergo a radical shift since midyear. The first-half darlings are so far 2nd-half disasters, and vice-versa. As Dan says, there is no way to know if this is the start of a long-term trend or just another bear market spasm.

One group of investors that is certainly counting on a long-term shift, whether now or later, is value investors. The recent performance of value managers with long-term records of trouncing the market has been awful. Gurufocus.com reports that market legends like Marty Whitman, Monish Pabrai, and Robert Rodriquez have seen recent stock picks pounded by the market to the tune of more than 30%. Many other similarly decorated value managers have also seen painful declines. Bill Miller, Wally Weitz, Bill Nygren, Chris Davis, the list goes on an on.

There is simply nothing to be optimistic about right now. Times are tough and look to be getting nothing but tougher. Forget about the quarter, let's look at year to date stock performance. It's awful. We all know why, there is no need to spend much time on the contributing factors: energy prices, commodity prices, credit crunch, and housing crisis. If you have been brave (stupid?) enough to buy stocks this year (excluding energy or commodity related stocks) you have likely lost notable amounts of money. I know I have.

Yup, that mysterious stock market metaphor, Mr. Market, dreamed up by Ben Graham many many years ago is in fact a living, breathing (hyperventilating?) human being. This may come as a shock to other value junkies out there who know Mr. Market simply as the incarnation of the entire stock market's fear and greed. But I am here to tell you, Mr. Market lives. And he's been right here in front of us for years, in plain sight. Any guesses as to who he is?

To those of us that follow market psychology, there are certain events that just scream "market top". I wrote about a story on CNBC in early April that I thought indicated that gold might be topping (gold hit its highs shortly before the story and has been down since - so far it was a prettty accurate call). Recall that the story was about people hiring guides to help them pan for gold, including a former mortgage broker who was buying claims to mine for gold.

Today, General Motors (GM) announces that they are completely revamping their manufacturing focus, closing 4 truck plants, and building more small cars. The CEO said he believes that high gasoline prices are permanent. Similarly, Ford (F) announced recently that they are going to downsize the F-150 pickup.

The world of finance is built upon a foundation of complex formulas, dense spreadsheets, and super computers churning complex algorithms 24/7. Yet it became painfully clear over the past 9 months that this foundation is unsound at best. With all these rocket scientists (yes many are in fact real rocket scientists) wielding massive computing power, how can such a thing possibly happen?

Now, a confession. I in fact use a very large self-built spreadsheet, complete with XBRL (which allows it to load historical and real time financial data into it on demand and create several models on the fly), 23 worksheets and 7 valuation models when looking at most stocks. I don't know exactly how many calculations this thing does, but it's probably somewhere around a bazillion.