Kevin Walmsley

Is Another October Surprise in the Works?

October tends to be a violent month--going back centuries--because it's harvest time. Crops are brought to market, resulting in wildly fluctuating commodities prices. Loans are paid off, monies reinvested, and huge sums of money change hands. What's more, the entire agrarian economy would shut down pending Spring.

Pinning the Blame on the House Republicans

Last I checked, it isn't the job of the US Treasury to borrow hundreds of billions of dollars to make good the losses on the balance sheets of Wall Street banks. All these bailouts have done is transfer default risk to the taxpayer, from the investors in the equities and the bonds.

We should have wiped them out, and found real market pricing on the avalanche of crummy paper these crummy banks have on their sheets. Instead we've thrown good money after bad, with the added privilege of getting to pay it back over the next 30 years via higher taxes and lower standards of living. And if the Congressional Republicans tried to stand athwart these developments, then we need more like them, not less.

Sentiment Positive Ahead of Citi Earnings

"Only Citi knows their actual results, but their current sentiment points to Citi meeting or exceeding earnings expectations on Friday."

That might be giving C more credit than they deserve. For the past three years, they have been famously clueless about what assets they even carry on their balance sheets, let alone on the many off-sheet vehicles.

Months ago, Congress and the FASB decided it would be prudent to let banks lie to investors, and to themselves, by not recognizing real losses. So, is natural that people are optimistic that they will meet their numbers, just as I could drop 40 pounds in one night if you let me fiddle with the scale.

Sentiment Positive Ahead of Citi Earnings

Only Citi knows their actual results, but their current sentiment points to Citi meeting or exceeding earnings expectations on Friday.

Looks Like Rising Big Trade Bets on Genworth

The volatility on GNW was starting to move a couple of weeks ago. On May 19, we grabbed the shares at $5.55, and wrote the June 5 calls for $1 each. Static and called returns of 9.9%, annualizes to 111%, with downside protection to $4.55.

Monday Options Recap

We took down a small covered call position in DRYS this afternoon, selling the June 7.5 calls.

Design A Country Rescue Package Here (Comment Competition)

You work for your clients, not for the government. You have a fiduciary obligation to:
1. Sell short the country's banks, homebuilders, and natural resources companies
2. Buy interests in credit default swaps, if any are available
3. Remind them that you're doing them a favor by providing liquidity in a market that's about to see it disappear
4. Enjoy the accolades of your investors, who are able to make money despite calamity

New Jersey's Pension Crisis: A Canary in the Coal Mine?

Two choices: use money kited from the Chinese to pump into these public pension carcasses, resulting in severe inflation years down the road, or reduce benefit payments.

Either way, people are going to be working longer than they had planned. In the first case because their benefits in inflation-adjusted dollars don't go nearly as far, in the second because their benefits are slashed. And considering that Social Security and pension indexing haven't come anywhere close to increases in longevity, that's a good thing. You shouldn't be able to retire at 55 on my nickel anyhow.

Update on U.S. Debt and Fed Assets

By the time this is all over, it would have been far easier and less expensive just to have let it go. Let the Wall Street banks go under, let the housing prices find their own level, let Detroit collapse, and replace all the above with a model that works, instead of one that depends on continually adding trillions in new borrowed money.

Deal for World's Largest Offshore Wind Farm Finalized

In the past twenty years we've moved away from clean nuclear power, to getting our energy from burning food (ethanol) and building big windmills.

Hopefully twenty years from NOW, we'll be able to look back and realize how foolish it all was.

FAS/FAZ: Dangerously Crossing the Ultimate Pairs Trade

I use both FAZ and FAS as hedges in our portfolios. Direxion is working on funds that will mimic the trailing 30-day performance of these indices, both up and down, to a 300% magnitude. That will make it considerably easier to use as a hedge.

But I'll make the case that the 8-handle on both FAZ and FAS are irrelevant. Taking a block position in each will result in the same amount of cash on both sides, but you can do that irrespective of relative price: just buy more of the cheaper ETF. So what has the YTD numbers looked like? Awful. FAS year to date is down 78.3%; FAZ down 42%. Just because they are now at price parity--whatever that is for instruments such as these--simply doesn't matter.

Options Trader Monday Outlook: Global Pandemic Edition

Great point on General Motors.

The market has rallied strongly over past weeks on news that the banks are now able to lie about their financial position, with the blessing of regulators and the accounting community. Now GM surges on news that the common shareholder will experience massive dilution, courtesy of secret meetings between General Motors' management, union representatives, and the Treasury Department.

It's time to start using the term "irrational exuberance" again. Or, "certifiably insane exuberance". Maybe.

Book Review: 'Financial Reckoning Day' by William Bonner, with Addison Wiggin

Sobering review. And if these are some of the issues that lie in wait for American policymakers and investors, what about Europe? The demographics there make ours seem like a rounding error by comparison, and all the important cultural indicators are headed the wrong way. Cradle-to-grave entitlement systems, a surging Islamic population. If America's facing a serious problem, Europe faces a catastrophe.

Geithner's Doomed Bailout Plan

The irony is that it won't work anyhow, and that they've again gone to a lot of trouble for nothing. Between the let's-make-the-law-up-... Congress, and the very real issue of loans that are worthless, the banks are still going to be stuck with the lousy paper they wrote.

It's not that the bids for this toxic issuance is far below what banks are looking for. It's that there are no bids at all. Not at 50, not at 30, not at 25. For the government to swoop in and say they're going to be kiting more checks for the difference between the bid and the ask presumes that there's a bid in the first place. And there isn't.

Bank Stocks Rally: Sustainable or Bear Market Blip?

Absolutely not sustainable. Sell. And tell everyone you care about.