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.

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.

A Bull Is Born, 2009

More like stillborn. Every single economic datum is deteriorating. EVERY SINGLE ONE.

Yes, you're right--the stock market typically leads upward before the economy does. But for that to happen, the market has to become cheap. It isn't. Even with the most optimistic crack-dream-induced forward earnings forecast, the market is trading at 14 times. That's not even slightly inexpensive, let alone cheap.

Sorry, but this is a sucker's rally. It might last another couple of weeks. After all, we can expect Barack Obama and his miracle workers to get nothing less than fawning media coverage, through the first week or so after the inauguration. Then the blinders come off again.

Credit Started This Recession; It Will Also Help End It

Shoot. My apologies to Smarty Pants, who already used the junkie analogy. And did a better job besides, I may add.
Sorry.

Credit Started This Recession; It Will Also Help End It

It's a good thing this crew of geniuses wasn't around to combat the dot-com collapse. We would have thrown hundreds of billions of taxpayer dollars at Global Crossing, Enron, and Dr. Koop.com. The end would have been the same, but the tab would be paid over the course of the next hundred years, rather than in 2002 and 2003.

Credit Started This Recession; It Will Also Help End It

You can't borrow your way out of debt, and instead of asking the question, "what should the government be doing to loosen up an economy that simply refuses to lend or borrow any more", perhaps they should ask something else. "What do hundreds of millions of individuals, tens of millions of households, millions of firms, and tens of thousands of banks know, that the government doesn't?"

The credit cycle is ending, that's what. And sometimes it's better to let a junkie go through a period of withdrawal, painful but (hopefully) brief, rather than keep up the addiction another day.

Random Thoughts About a Potential Rally

Good article. A client of mine phoned me last Friday and wanted to know why the market was rallying in the face of such dismal news. He knows I've been bearish for most of this year, and wanted to know if it was time to go long again.
Sure, I said. Nothing like the worst employment report since I was 7 years old to make me feel all bullish all over. And it's just beginning, I reminded him. The posters above are right, as we cynics usually are. With climbing unemployment and falling incomes, good luck convincing folks that expensive gadgets are a good gift ideas for this year. Or next.

CDS Market: Don't Believe What You See

The author ignores the primary reason for the spike in premium pricing: the fact that so many of the players in the CDS markets are no longer in business. As the number of available counterparties falls, they will demand higher premiums. After all, there are limits to THEIR capital; obviously they will take the trades on which profitability is highest, and risk is lowest. And when Bear Stearns, AIG, and Lehman out of the game, and every finance company on earth hoarding capital and reducing exposure, premiums have only one way to go. Up.