gabe borenstein

Speculative Trading Indicates Rally Losing Steam

Only few months ago ,the consensus had indicated that we are heading for a major decompression.
This major rally appears to have been missed by most of the market gurus.
I have reiterated my bullish convictions quite frequently in various interviews with the Bloomberg's reporters.
One thing for sure ,the current rally is difficult to classify as speculative in nature .The rally may be a logical response to the
the fundamentals which point to above average ,non inflationary expansion in the period ahead and certainly negate the original assumptions of the economic implosion.
Finally , financials have rallied ? Why not .
The provided liquidity via fiscal and monetary policies has stabilized the financial sector that includes AIG ,FRE ,FNM and others.
Until the debacle of 2008 (which I have correctly predicted as early as June of 2005 in an interview with Mark Gilbert),the U.S guarantee of the agencies was implicit only.
I think after giving an access to required liquidity to the FRE and FNM ,that guarantee appears to be no longer implicit perhaps adding relative value to the U.S agencies' equities and bonds.
The rally in the AIG ?Not a big deal so far as allowing for the reverse split ,the stock trades at 2.50 dollars.
I would argue that the current rally is a function of a massive ,speculative short covering .
The real rally lies in the period ahead when the impact of the implemented measures becomes explicitly clear.

Expect the Treasury Bubble to Continue to Inflate

Nonsense.There will be no bubble .The U.S economy was recued from a massive economic implosion which would have made the Great Depression look like a desirable economic outcome .For myself ,I have heard enough of the econonomic/quant back seat drivers.The time to express quantitative concern was between 2005 and 2007 (I did ).We are fine ,The FED did a great job although it should not contemplate measures that would allow a large financial entity go under.The Lehman experience should a lesson to all.

10 More Notes for the Current Crisis

The only failure with the TARP ist hat it should have beem implemented much earlier.
The error committed by the Treasury was tho allow Lehman to fail allowing speculators to test the tolerance limits.The error committed by the various components of the industry was diverse but the subprime lending enhanced by the Micky Mouse AAA rating on the subprime paper ,is the culprit of the financial sector's derailment.
The articles like this one have no value as the problems,issues are identified and remedies are applied .
The results may take some more time(lag),but major market and economic rebound is on the way.
It seems to me that the imposition of no naked short rule shoud be reinstituted untill broad confidence is restored .
Shorting thestock has no economic value -you don't like public company A ,don't buy the stock or buy the stock in company B.
For myself ,I have issued the warnings about impending Armageddon in an interview with Mark Gilbert (Bloomberg London) in June of 2005 and again on September 18 /2007 (Bloomberg TV -Brian Sullivan).
Now ,I am not going to discuss the sincere and measures implemented by the Administration,Congres... ,Treasury and the FED aimed at addressing serious issues-but I know they are very effective.
Spain?-it is about to implode and the higher reserve requirements will only enhance the degree of implosion.
U.S stock market is in the midst of solidifying the base for unprecedented rally .Volatility will continue.
Global cooperation on the key financial /economic issues makes the constructive outcome a certainty.

The Greatest Short Sale in History

The U.S government is about to launch the most comprehensive stability program which will lead to a mega economic and the stock market rebound.
For all of the disseminated fairly tales,the 700 billion dollars"loan" may be fully repaid.All of the "non performing debt " which under the plan ,would be bought by the government ,is likely to appreciate in value as the economy and the markets stabilize on the way to a major rally. Let's remember these non peforming assets are collateralized,althoug... they have questionable value at this time.
As the injected liquidity strenghtens the system ,dollar will proceed with the next leg of the major rally.
Congress should pass this "stability program " without the waste of time and the Europe should study details as they are about to face similar issues.
For now both Mr.Bernanke and Mr.Paulsen should take a bow for creating extremely effective program in an incredibly short time .
Finally , the FED in coordinated effort with the other Central Banks
should lower the rates-just to give the shorts another reason to cover.

Prepare to Sell Monday - Cramer's Mad Money (9/19/08)

At this point in time it appears that the battle lines have been drawn.
On one side we have Treasury ,FED ,Congress and the Administration .On the orher side we have Mr.Cramer and members of the CNBC crew.
I can only recall Mr.Cramer recommending Taser(Stock) at close to one hundred dollars.
CNBC? disseminated mostly inaccurate details about the current "stabilization" program untill the key details were finally announced.
When the "smoke" finally clears,I believe the Treasury and the "allies" will prevail.
Perhaps a greater global cooperation amongst the monetary authorities will become more pronounced next week.
One more time,rating agencies should sit back a bit untill we can evaluate the stabilization plan and its impact on the corporate universe and economy.
There is an opportunity to turn the chaos into an orderly recovery/boom.
Like every one ,Jim Cramer was wrong and right on his previous calls.

The AIG Rescue: Can Bailout Capitalism Work?

This is not a bailout.This is a necessary redress of the past errors which should have been addressed years ago.
It is a waste of time to criricize what transpired .
We need to stop financial sector bleeding and disruption.
FED should ease immiediately and sequentially 50 bps at a clip.
The Treasury should not hesitate to address any problems ahead and promptly .
In addition it should stop decimating the shareholders because of the cumulative missmanagement of companies in trouble.
Enforce the short rule and increase the penalties for violating the rules.
Remember this,all of the systemic disruption is due to mega speculators (including propdesks) ,which were allowed to squeeze the crude to 147 dlrs/brl.
The system is sound but the media thrives on the "yellow journalism"...and yes consider another fiscal stimulous package if need be.
Finally send CNBC reporters back to school to learn at least ECO 101.
Jim Cramer excepted.

AIG: America's Insurance Giant

Most financial entities have assets which are less liquid than liablities(cash?).At this stage of the game AIG had survived and has two years to "restructure".The company will not fail as it has substantial assets(trillion dollars plus) and is well diversified.
The FED/Treasury shoud have never allowed the Lehman to fail.By allowing the failure ,both the FED and the Treasury have given an opportunity to "mega bears" to test the limits of allowable "disruption".
Finally both sides (Treasury /FED and the speculators)got the message .I would argue that the announced AIG assistance should have been offered immiediately.This would have avoided market turbulence which led to a massive liquidation(market decline).
The record open short interest has not declined.
The amplification of the existing issues just serves to enhance paranoia. The issues have been identified and are being addressed.
The FED should ease another 100bps in 50 bps increments in order to allay the market psychosis.
The issues have been with us for years .I have issued a wraning in June of 2005 and as late as September18,2008. Then the issues should have been resolved.Instead they were ignored.
Now as the problems are being remedied ,the voices of Doom continue to disseminate self serving fear and economic nonsense.
We are on the way to a major economic rebound .Some additional help may be needed. AIG will survive, earn record profits in the period ahead and even the share holders(common) will be happy.
In the future ,we need less politics and a quicker response time.
I am sure ,given the record short open interest ,another negative analysis/article is in the making.

America Buys AIG

The latest action taken to assist AIG ,is not a charity it is a quantifiable and a viable business deal.AIG has some very valuable assets and is a solvent company temporarily facing a cash squeeze ,partially due to "revaluarion " or "devaluation" of their portfolio and the market exposure.Economic trend clearly has an impact even on the value of the CDS that AIG had entered into.An economic upturn will change the value(upwards)of the many components of the AIG's portfolio benefitting the company ,share holders (Treasury is one of them)and the market .
The AIG has over one trillion dollars worth of assets globally and it will repay the Treasury's loan.
Allowing company to fail would have an impact on 125,000 workers employed by the AIG directly or otherwise.
There was a potential for systemic global risk with unquantifiable financial losses.
Judging by the record short opent interest,we will hear from the bears a lot of "political" nonsense and criticism about the latest financial crisis resolution.
The loan by the Treasury was a great and unexpected response.
Since we do not know the terms of the warrants,depending as to how and when the Treasury Exercises them,we will still likely see a significant rally (common shares) in the period ahead.
The crocodile tears for the taxpayers are reflective of ignorance(intentional or not).This deal will not cost the taxpayer a penny.The Tax payer will make a "usurous" rate of return,Libor plus 800bp.

AIG Bailout: Over to Congress

A wise decision on the part of the the Treasury. I wonder why the officials did not respond two days ago to AIG's lack of liquidity. Perhaps by addressing early the debacle ,the sharp decline in the share prices could have been deflected and market volatility woud have been diminished.
Details are still a murky ,but why is it that the common shareholders are always victimized in the process of "solution" .
They were not speculators originally ,but investors prodded by the rating agencies and institutions to buy the blue chip issues and take a long term investment horizon.Now they are called speculators-right.
AIG has significant assets .Now the FED had providede AIG with liquidity -not bad .

AIG Downgrades Should Create an Endgame

The real question during this debacle is why did the "short "rule was not extended by SEC.This would have allowed the FED ,Treasury and others involved for rational solution to the to the issues that financial system is facing .The open short interest has reached new high as some "hedge funds" are looking for money making opportunity.
This systemic "bleeding" should be stopped as it could lead to unpredictable consequences .
These problems were created over many (operational) years,now as they are being addressed ,decimation of the financial community is allowed .Rumors in the market allude to selling activity in Lehman(prior to the final outcome) and AIG shares by some prop desks -unbelievable.

AIG Borrows From ... Itself

The issue is not why ,the important news is that AIG has secured an access to 20 billion dollars.Likely more on the way from other sources.
The market had ignored the good news .We have a record short open interest .I a scheme of financial universe AIG ismore relevant b than most other institutions .Let's what is the rest of the solution of AIG.

Lehman Is Just the Thin Edge of the Wedge

For all of a dialogue and distortions about the financial sector(for the record I believe that the key issues have been resolved),it very well may be that the share holders have answer to the onslaught on the financial sector.Every investor whether institutional or individual should ask for delivery of the stock that they own.This would be more effective approach to financial sector's stability than any SEC edict.
Far fetched ?-perhaps....but if enough investors feel the pain, it is one way to cause a massive rally(equity indices would double) and turn the table on the shorts .
Would you allow a speculator to "short" your house(individually) because he thinks that the price of your house will go down? -I don't think so.Same principal applies here .A speculators are allowed to "short" what they do not own and disseminate distorted information.
Sounds crazy.Take a delivery of your stock and help yourself and the market.
Finally the perfect negative indicator ,Mr.Greenspan expressed his convictions that a recession is alikely outcome of the current chaos(which he seeded)- now I am convinced that it is not.
The FED should be seriously contemplating a rate cut to neutralize some of the market paralysis.

Lehman Is Just the Thin Edge of the Wedge

The market at this point is not about the "free capitalism" ,it is about the speculators (ie hedge funds) which in a search for profit and are in the process of the "assault" on the U.S and the global stability.There is no doubt that Lehman has an access to the window ( a great source of liquidity) and that at least until now thety were able to conduct business .In fact the SEC "short"rule(recently expired) forced major (speculative ) short covering allowing for a major upward price adjustment in the financial sector and allowing the firms to function.
The problems/rumors came back to haunt the market after the "short" rule (SEC) expiration.
It is important to note the almost geometric explosion in the open short interest in the sharesof Lehman ,followed by the "impending" demise of the company rumors .
The real question is" Why all of a sudden the subprime (misinformation) issues are resurfacing as the industry has been making the allowance for the "exposure" by taking some substantial losses"
In fact the mortgage related distortions ,have an impact on AIG ,where the real issue is exposure in the CDS market (AIG did take some substantial write offs).
More importantly ,what happened to the experts two years ago or even last year?
In an interview with Mark Gilbert(Bloomberg London ) in June of 2005 ,I have discussed the risks that we are witnessing today.
On September 18 ,2007 ,on Bloombrg TV(Brian Sullivan ,during the FED time),I have expressed my concern about the severity of the subprime issues which are about to impact the market .
It took almost two months after the the interview for the financial community to realize the severity of the problems.
Now as the market is consolidating,the financial sector is addressing the issues systematically and responsibly(with the assistance of the Tresaury ,FED, Congress and Administration),some Mega speculatorsare trying to undermine the global financial system in the name of "free Capitalism"(read we are short the market).
Once and for all the Treasury and the FED should address the speculators by sending the message to the markets that Lehman and likes will not be compelled to fail.What's next ? Citi? Merrill?.
This speculative assault on the very economic fabric needs to be stopped now .
The Bank of England had nationalized a "mortgage " banking institution in order to avoid the assault on the British Banking system.
It has worked well.The Treasury has send the same message in "nationalizing" the FRE and the FNM.
It should assist the resolution of Lehman's issues and once and for all send a message that failure of a finacial institution will not be allowed.There is always a more rational approach.
I don't want to hear about the cost of saving the viabilty of the financial institution to the taxpayers -we simlpy do not know .The future economic trend ( I am a bullish on economy and the market) will determine if in fact there will be any losses(I dont think so).In fact allowing the institution to fail may cause unquantifiable losses to the U.S and the global financial system.
As far as gold is concerned it is just a shiny piece of metal used as universal means of "exchange" from the biblical to medieval ages.
What are we going to do ?utilize 1 oz bars for day to day transactions?
For the resolution of the banking problems experts are questioning liquidity- for the public? they are recommending gold (relatively illiquid asset when compared to cash).
I continue to be bullish on the U.S markets and economy.The finacial issues have been identified and are being addressed.
The experts had proclaimed recession (we are not in one).the markets have adjusted accordingly,now they offer a relative value.
The voices of Doom are about to fail.Even the rebound in the housing market in the period ahead will surprise many.
Resolving and accomodatimg Lehman's problems? will be the step in the right direction.