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Inside the Doomsday Machine

I thought I'd have something to crow about yesterday. Before the market opened, Christopher Rugaber of the Associated Press reported: "The Labor Department said Thursday that first-time claims increased by 18,000 in the week ending April 3rd, to a seasonally adjusted 460,000. That's worse than economists' estimates of a drop to 435,000, according to a survey by Thomson Reuters.". The market didn't like that news and the futures traded down. I thought I was on easy street for the day, especially when there are new worries that Greece may default on its debt, and if Greece defaults, there will be other sovereign nations to follow. Most specifically in Europe. After dropping down roughly 40 points the first two hours of trading, the market turned around at about noon with the news that the current currency crisis in China may be over.

The market just keeps going up and with earnings season on the horizon, there's no telling how much higher it can go. That's if we get good earnings reports. I'm a believer that the good news is already baked in the cake and we may get another correction as we did in January. For the mean time, I'll just watch the paint dry and not do any trading although it would be easy to cave under pressure. Once this market runs out of steam, all hell will break loose and it may fall faster than it ramped up. I'll just play the cards I've been dealt and stick to my long-term investing style. Being flexible and patient and not giving in to peer pressure are some of the themes covered in Michael Lewis' new book The Big Short: Inside the Doomsday Machine.

If you are not familiar with Lewis, he is probably the king of the jungle in nonfiction writing here in the US of A. Liar's Poker, MoneyBall and The Blind Side are some of his books you may be aware of. He's recently been featured on Bloomberg, CNBC and 60 Minutes touting The Big Short and rightfully so. He's a damned good writer and one of the bestselling ones in the past 20 years. If anybody is going to tell the story of the real-estate implosion, it might as well be Michael Lewis with the track record he has. I'd never read him before and was looking forward to his new book, but came away disappointed. Not because of the writing or the subject matter, but because much of The Big Short has been covered in other books. In essence, Mr. Lewis has been scooped by Gregory Zuckerman in The Greatest Trade Ever which was published back in 2009 and already reviewed on this blog.

Both The Big Short and The Greatest Trade Ever tell the stories of Greg Lippmann and Michael Burry among others, and, both books also give analysis as to how the real estate derivatives were created. I really related to Michael Burry. He shorted the real estate market for two years with his hedge fund Scion Capital and investors bailed on him because he was too early with the trade. Despite those that jumped ship, Burry was vindicated when the market finally turned down and pocketed 100 million dollars for himself. Seven hundred million dollars was made for the remaining investors at Scion, those that showed patience. Of the two chronicles, I liked The Greatest Trade Ever better. It was a more compelling story although you can not go wrong reading either book. They are tales that needed to be told and are probably defining points of the end of the decade. Both books make you angry at the system that Wall Street created with the help of Uncle Sam. If you want to point fingers, read either of these books and you'll know where to direct your angst. Or maybe you won't. It's a very tangled web we've weaved and I think we're not done yet.