2008 was a rough year, no doubt. But don't start to think that you can revert back to your old tactics to make money in 2009.
Folks, the 90's are over. Done. And don't start to think this year is going to be the year we revert back to the 90's.
What you ACTUALLY need to do is the exact opposite of what you did in the 90's. The 80's and 90's saw interest rates fall rapidly, but conditions from the awful 60's and 70's were beginning to improve. We had smart political discussions, making business easier. Now that we have the exact opposite scenario, your strategy needs to flip as well.
Look, no stock market in the world is going up right now. Right now the bond market (which people aren't used to and nobody knows anything about) is where all the money is being made right now. As interest rates go down, bond prices go up. The government is POURING money into the bond market right now, buying treasuries and more corporate bonds. As people start to feel safer in the economy, corporate bonds will appreciate in price, making you money.
The reality is that the stock market will probably continue to move sideways for several more years. That's not exactly heartening since we've been moving sideways for almost a decade now, but it's the truth.
We in the United States have a surplus in our 401k's, our savings, etc. The rest of the world is going to be developing and joining us in the middle class in the coming years. In order to do that they're going to need capital, which we have. THAT is the opportunity, right there. I'm sad to say that you won't be able to buy and hold mutual funds like you used to. You'll have to get in and get out where the assets are appreciating, so you need to get educated.
When everything goes up, everyone's a genius. But the difficult times like now separate the people who know what they're doing from the others, so you better get educated and be on the side that actually makes money.
If you're willing to let me teach you about the bond market and get you ready for these times, click here.
Friday, January 2, 2009
Friday, December 12, 2008
Fed Refuses to Disclose Recipients of $2 Trillion
Bloomberg reports: "The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.
Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.
The Fed responded Dec. 8, saying it's allowed to withhold internal memos as well as information about trade secrets and commercial information."
Here's what it may be about...
"If they told us what they held, we would know the potential losses that the government may take and that's what they don't want us to know," said Carlos Mendez.
The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program. The central bank loans don't have the oversight safeguards that Congress imposed upon the TARP.
Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA.
The Fed hasn't called to ask me, but while I'm waiting for the phone to ring, here's my take.
Look, I don't know if these guys have nefarious intent or not. I doubt it, and I'm not a conspiracy kind of guy anyway, but I do see them making amateurish mistakes. They're acting like completely novice traders, getting whipsawed and not able to execute a decision. I absolutely know I wouldn't trust you with 2 trillion dollars, and I don't think anybody ought to be free to act on my behalf with that kind of money at stake.
Allowing that is negligence. And we're doing it.
So I don't know if what they're doing is good or bad, but it's hard for me to imagine that it could all be that smart, cause I see them making unbelievably amateurish mistakes.
Look at the rule of making the companies insolvent because they can't sell their mortage bonds when the mortgage bonds are mostly still paying their interest. Remember I have lots of mortgage bonds, and they are all paying all the interest. The price has gone down, then it went up, but nothing about those bonds changed at all.
These prices are irrelevant.
I've told you that story about the house next door that couldn't sell, so the bank sends you a letter and says, "We've marked your house down to zero, so we're calling your loan." That's basically what they did to the banks with those illiquid bonds, turning them into "Toxic Assets."
The point here is the guys that are in charge right now don't understand this simple problem. They caused it, and now they're shelling out trillions of dollars to cover up these dumb mistakes.
Let's keep going with the article:
"Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn't receive a formal response that would let it file an appeal within the legal time limit.
On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.
In response to Bloomberg's request, the Fed said the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects."
Look, your business is not my business. I have no right to know your secrets. But if you want me to lend you money, you better believe you're going to have to come clean. Now you're telling me I'm too childish to know the truth? Maybe losing confidence in failed institutions is the right thing to do.
If we didn't have news in Iraq, we would never have had the mass loss of confidence in the Rumsfeld strategy, and we never would have had the surge. Keeping the truth from us because we woudn't like it, means not giving us the right to react.
But that's just more of the steady erosion of our rights and freedom. Telling the trust is NOT a "dangerous step" by the Fed.
"In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information," they wrote.
New York-based Citigroup Inc., which is shrinking its global workforce of 352,000 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.
The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn't seek money damages.
Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country's biggest bank by assets.
You all know me, and I am not generally that concerned about public policy. But it's obvious to me these guys are covering up, and this is why I'm telling you the bull market has not started yet. Too much bad news has yet to surface.
“It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed,” Lucy Dalglish said.
The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.
Here's a telling quote from the article: "Americans don't want to get blindsided anymore," Mendez said in an interview. "They don't want it sugarcoated or whitewashed. They want the complete truth. The truth is we can't take all the pain right now."
The Bloomberg lawsuit said the collateral lists "are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression."
In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank's customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said.
All they have to do to keep their secrets is not ask us to assume risk on their behalf. This is a giant conspiracy. And a lie.
Now the president was convinced there was an emergency and we would all die if we didn't buy those mortgage bonds. Now the mortgage bonds went up by themselves, and we gave the banks money to buy other banks instead. Now they don't want to tell what they are doing with the money.
Hey. Get the point of all this. I am not saying it's all bad, I'm saying making long term decisions about betting on the health of our economy is a complete crapshoot. You may win, or you may lose. I don't gamble with my family life savings. Do you?
Maybe you do, but you'd better stop.
Now I'm telling you the way you're going to have to relate to all this. Ready?
Get used to it.
I want you to get used to the idea that there really is no U.S. economy that means anything anymore, or a U.S. stock stock market, or a U.S. currency.
Whether you're feeling inspired or discouraged, right now, I can tell you for sure, the world economy is going to be vital, and it's going to grow. Billions of people are going to learn to live like Americans over the next 5 or ten years. And this is gonna be BIG BUSINESS!
You don't want to limit your thinking to one country, even the good ol' US of A.
I'll tell you again, and you can take this to the bank, the vitality, the ambition, the courage, and the ingenuity of people around the world who want a good, educated, safe, comfortable electronic life for their families --- WILL NOT BE DENIED.
The growth is gonna be there, and the people around the world will pay a lot to use our capital. So from now on you can afford to be very, very choosy.
Starting right now, You don't have to invest in uncertain situations. You don't have to try to guess the bottom of anything. Money's already becoming VERY scarce, and you can pick and choose your investments.
I know this isn't the way most of us think. But this is the new world and you can afford to think like this. You can demand that everything be right before you commit.
There's no excuses anymore, you better take the responsibility to evaluate each deal carefully.
You can know the real story about every single thing you invest in, and everybody you loan money to. You can demand only good deals. It's a buyers market for investments now, and it's going to be that way maybe for the rest of your life.
Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.
The Fed responded Dec. 8, saying it's allowed to withhold internal memos as well as information about trade secrets and commercial information."
Here's what it may be about...
"If they told us what they held, we would know the potential losses that the government may take and that's what they don't want us to know," said Carlos Mendez.
The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program. The central bank loans don't have the oversight safeguards that Congress imposed upon the TARP.
Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA.
The Fed hasn't called to ask me, but while I'm waiting for the phone to ring, here's my take.
Look, I don't know if these guys have nefarious intent or not. I doubt it, and I'm not a conspiracy kind of guy anyway, but I do see them making amateurish mistakes. They're acting like completely novice traders, getting whipsawed and not able to execute a decision. I absolutely know I wouldn't trust you with 2 trillion dollars, and I don't think anybody ought to be free to act on my behalf with that kind of money at stake.
Allowing that is negligence. And we're doing it.
So I don't know if what they're doing is good or bad, but it's hard for me to imagine that it could all be that smart, cause I see them making unbelievably amateurish mistakes.
Look at the rule of making the companies insolvent because they can't sell their mortage bonds when the mortgage bonds are mostly still paying their interest. Remember I have lots of mortgage bonds, and they are all paying all the interest. The price has gone down, then it went up, but nothing about those bonds changed at all.
These prices are irrelevant.
I've told you that story about the house next door that couldn't sell, so the bank sends you a letter and says, "We've marked your house down to zero, so we're calling your loan." That's basically what they did to the banks with those illiquid bonds, turning them into "Toxic Assets."
The point here is the guys that are in charge right now don't understand this simple problem. They caused it, and now they're shelling out trillions of dollars to cover up these dumb mistakes.
Let's keep going with the article:
"Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn't receive a formal response that would let it file an appeal within the legal time limit.
On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.
In response to Bloomberg's request, the Fed said the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects."
Look, your business is not my business. I have no right to know your secrets. But if you want me to lend you money, you better believe you're going to have to come clean. Now you're telling me I'm too childish to know the truth? Maybe losing confidence in failed institutions is the right thing to do.
If we didn't have news in Iraq, we would never have had the mass loss of confidence in the Rumsfeld strategy, and we never would have had the surge. Keeping the truth from us because we woudn't like it, means not giving us the right to react.
But that's just more of the steady erosion of our rights and freedom. Telling the trust is NOT a "dangerous step" by the Fed.
"In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information," they wrote.
New York-based Citigroup Inc., which is shrinking its global workforce of 352,000 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.
The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn't seek money damages.
Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country's biggest bank by assets.
You all know me, and I am not generally that concerned about public policy. But it's obvious to me these guys are covering up, and this is why I'm telling you the bull market has not started yet. Too much bad news has yet to surface.
“It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed,” Lucy Dalglish said.
The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.
Here's a telling quote from the article: "Americans don't want to get blindsided anymore," Mendez said in an interview. "They don't want it sugarcoated or whitewashed. They want the complete truth. The truth is we can't take all the pain right now."
The Bloomberg lawsuit said the collateral lists "are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression."
In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank's customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said.
All they have to do to keep their secrets is not ask us to assume risk on their behalf. This is a giant conspiracy. And a lie.
Now the president was convinced there was an emergency and we would all die if we didn't buy those mortgage bonds. Now the mortgage bonds went up by themselves, and we gave the banks money to buy other banks instead. Now they don't want to tell what they are doing with the money.
Hey. Get the point of all this. I am not saying it's all bad, I'm saying making long term decisions about betting on the health of our economy is a complete crapshoot. You may win, or you may lose. I don't gamble with my family life savings. Do you?
Maybe you do, but you'd better stop.
Now I'm telling you the way you're going to have to relate to all this. Ready?
Get used to it.
I want you to get used to the idea that there really is no U.S. economy that means anything anymore, or a U.S. stock stock market, or a U.S. currency.
Whether you're feeling inspired or discouraged, right now, I can tell you for sure, the world economy is going to be vital, and it's going to grow. Billions of people are going to learn to live like Americans over the next 5 or ten years. And this is gonna be BIG BUSINESS!
You don't want to limit your thinking to one country, even the good ol' US of A.
I'll tell you again, and you can take this to the bank, the vitality, the ambition, the courage, and the ingenuity of people around the world who want a good, educated, safe, comfortable electronic life for their families --- WILL NOT BE DENIED.
The growth is gonna be there, and the people around the world will pay a lot to use our capital. So from now on you can afford to be very, very choosy.
Starting right now, You don't have to invest in uncertain situations. You don't have to try to guess the bottom of anything. Money's already becoming VERY scarce, and you can pick and choose your investments.
I know this isn't the way most of us think. But this is the new world and you can afford to think like this. You can demand that everything be right before you commit.
There's no excuses anymore, you better take the responsibility to evaluate each deal carefully.
You can know the real story about every single thing you invest in, and everybody you loan money to. You can demand only good deals. It's a buyers market for investments now, and it's going to be that way maybe for the rest of your life.
The New Global Environment
First things first.
I want you to get used to the idea that there really is no U.S. economy that means anything anymore. For that matter, get it through your head that there isn't a U.S. stock stock market or a U.S. currency either.
Whether you're feeling inspired or discouraged, right now, I can tell you with complete certainty, the world economy is going to be vital, and it's going to grow.
Billions of people are going to learn to live like Americans over the next 5 or ten years, and this is gonna be BIG BUSINESS! You don't want to limit your thinking to one country, even ours. You can take this to the bank: the vitality, the ambition, the courage, and the ingenuity of people around the world who want a good, educated, safe comfortable electronic life for their families will not be denied.
The growth is gonna be there, and the people around the world will pay a lot to use our capital. So from now on you can afford to be very, very choosy.
Starting right now, You don't have to invest in uncertain situations. You don't have to try to guess the bottom of anything. Money's already becoming VERY scarce, and you can pick and choose your investments.
I know this isn't the way most of us think. But this is the new world and you can afford to think like this. You can demand that everything be right before you commit.
There's no excuses anymore, you better take the responsibility to evaluate each deal carefully.
You can know the real story about every single thing you invest in, and everybody you loan money to. You can demand only good deals. It's a buyers market for investments now, and it's going to be that way maybe for the rest of your life.
That's why I want to help give you a whole new set of skills.
I want you to get used to the idea that there really is no U.S. economy that means anything anymore. For that matter, get it through your head that there isn't a U.S. stock stock market or a U.S. currency either.
Whether you're feeling inspired or discouraged, right now, I can tell you with complete certainty, the world economy is going to be vital, and it's going to grow.
Billions of people are going to learn to live like Americans over the next 5 or ten years, and this is gonna be BIG BUSINESS! You don't want to limit your thinking to one country, even ours. You can take this to the bank: the vitality, the ambition, the courage, and the ingenuity of people around the world who want a good, educated, safe comfortable electronic life for their families will not be denied.
The growth is gonna be there, and the people around the world will pay a lot to use our capital. So from now on you can afford to be very, very choosy.
Starting right now, You don't have to invest in uncertain situations. You don't have to try to guess the bottom of anything. Money's already becoming VERY scarce, and you can pick and choose your investments.
I know this isn't the way most of us think. But this is the new world and you can afford to think like this. You can demand that everything be right before you commit.
There's no excuses anymore, you better take the responsibility to evaluate each deal carefully.
You can know the real story about every single thing you invest in, and everybody you loan money to. You can demand only good deals. It's a buyers market for investments now, and it's going to be that way maybe for the rest of your life.
That's why I want to help give you a whole new set of skills.
Monday, December 8, 2008
Human Tendencies That Lose Us Money, Position and Power
We all have to fight to stay awake
Remember, the pros on Wall Street must also fight their "robot selves." That's how they know about yours, and they've been using that knowledge to take your money for years. Get clear that financial markets are best understood as the device for the transfer of assets and power from the unconscious to the conscious, from the uninformed weak hands to the informed strong hands. Welcome to the winning side.
How can you stay awake? Constantly reminding yourself…
So how do you do all this? How do you strengthen yourself and get ready to win in the most challenging and yet the most promising financial environment ever seen on our planet?
I invite you to join me in constantly reminding ourselves of the following:
1) Making money is the opposite of human nature
2) My only real opportunities to improve my financial and social position come at major societal inflection points, and ironically, those are the time when I am most scared and compulsive.
3) My mind is hardwired for physical survival, and for bad performance in sports and money games. By using my brain, I can easily transcend this.
4) I am hardwired to be great at procreation and terrible at finance. By using my brain I can easily transcend this tendency.
5) Because I am hardwired to follow the leaders of my herd, I have a mad compulsion to believe whatever I hear people say on TV. The experts on TV are Wall Street's modern day priesthood, and something about us makes us VERY receptive to the feeling that our priests stand between us and God. They are anointed and appointed to interpret for us what God wants, and how he behaves. In my heart, I know that how certain they sound or how attractive and articulate they are has nothing to do with whether they are actually correct at any given moment. Ironically, I am hardwired so that the better they look, the more articulate they are, and the more certain they sound, the more compelled I feel to believe and follow them. By using my brain, I can easily transcend these money-losing tendency
6) Because I am hardwired to be a herd animal, I have a mad compulsion to believe the guys at my club or at work, especially when they act confident, happy and prosperous. By using my brain and staying awake, I can easily transcend this money-losing tendency
7) Because I am hardwired to survive in an environment that changes very gradually over thousands of years, I have a persistent tendency to base all my assumptions and calculations on whatever I see as the established past. Obviously, this tendency will take me right over the cliff at inflection or turning points. Fortunately, all the people who are after my resources are slaves to this tendency and by using my brain, staying awake, and recognizing that the immediate past is not working as a good reference point, I have the edge over the millions of investors who are determined to separate me from my wealth, but may not have the horses.
Remember, the pros on Wall Street must also fight their "robot selves." That's how they know about yours, and they've been using that knowledge to take your money for years. Get clear that financial markets are best understood as the device for the transfer of assets and power from the unconscious to the conscious, from the uninformed weak hands to the informed strong hands. Welcome to the winning side.
How can you stay awake? Constantly reminding yourself…
So how do you do all this? How do you strengthen yourself and get ready to win in the most challenging and yet the most promising financial environment ever seen on our planet?
I invite you to join me in constantly reminding ourselves of the following:
1) Making money is the opposite of human nature
2) My only real opportunities to improve my financial and social position come at major societal inflection points, and ironically, those are the time when I am most scared and compulsive.
3) My mind is hardwired for physical survival, and for bad performance in sports and money games. By using my brain, I can easily transcend this.
4) I am hardwired to be great at procreation and terrible at finance. By using my brain I can easily transcend this tendency.
5) Because I am hardwired to follow the leaders of my herd, I have a mad compulsion to believe whatever I hear people say on TV. The experts on TV are Wall Street's modern day priesthood, and something about us makes us VERY receptive to the feeling that our priests stand between us and God. They are anointed and appointed to interpret for us what God wants, and how he behaves. In my heart, I know that how certain they sound or how attractive and articulate they are has nothing to do with whether they are actually correct at any given moment. Ironically, I am hardwired so that the better they look, the more articulate they are, and the more certain they sound, the more compelled I feel to believe and follow them. By using my brain, I can easily transcend these money-losing tendency
6) Because I am hardwired to be a herd animal, I have a mad compulsion to believe the guys at my club or at work, especially when they act confident, happy and prosperous. By using my brain and staying awake, I can easily transcend this money-losing tendency
7) Because I am hardwired to survive in an environment that changes very gradually over thousands of years, I have a persistent tendency to base all my assumptions and calculations on whatever I see as the established past. Obviously, this tendency will take me right over the cliff at inflection or turning points. Fortunately, all the people who are after my resources are slaves to this tendency and by using my brain, staying awake, and recognizing that the immediate past is not working as a good reference point, I have the edge over the millions of investors who are determined to separate me from my wealth, but may not have the horses.
Wednesday, December 3, 2008
An Unbelievable Fed
Did you know that the down volume on the NYSE on Monday, after accounting for foreign stocks and REITs and closed end bond funds, was 98.6%? That's one of the most lopsided days that history has ever seen. So do you still think selling pressure is used up?
Investors have no reason to buy stocks, and every time the government acts isn't giving them new hope, it's giving them another reason NOT to buy stocks.
The Paulson effect I told you all about a while back (and is now being used all over TV and all over the place) is still working and hasn't failed once. As soon as that man gets on TV the market holds for the first 5 minutes. But then he keeps going and you can watch as the market starts dropping. It's the only reliable options trade on the CME right now.
Now the government is guaranteeing mortgage bonds but you're not seeing any action on that front. Why do you think that is? It's because for the past 7 weeks foreign central banks have been selling agency securities, bringing the Fed's holdings down $93 billion. Now, the Fed has announced they're going to buy $100 billion of the agency securities (I learned that from Art’s article). I've already started buying agency securities in expectation of the move.
So the Fed is literally printing $550 billion to finance the buying of mortgage bonds. Mortgage bond rates are going to continue to go down because nobody wants to buy the houses right now. By buying the bonds now people know that in the future they're going to have to raise taxes later to pay for it. In this situation the herd is knowledgeable enough to know they're going to have to pay for this eventually. It's the biggest lack of confidence in our leadership that we've seen.
The Fed's also began the process of printing $540 billion to special purchase vehicles to buy money market assets from mutual funds. They think that doing this will improve money market investors' liquidity positions and make them willing to buy commercial paper. And don't think they're done yet. They’re going to do T bill redemptions. They're planning on expanding their balance sheet without borrowing money from the treasury.
How do they do that?
They print money and the monetary base goes up.
The only reaction Art and I have is shock.
Investors have no reason to buy stocks, and every time the government acts isn't giving them new hope, it's giving them another reason NOT to buy stocks.
The Paulson effect I told you all about a while back (and is now being used all over TV and all over the place) is still working and hasn't failed once. As soon as that man gets on TV the market holds for the first 5 minutes. But then he keeps going and you can watch as the market starts dropping. It's the only reliable options trade on the CME right now.
Now the government is guaranteeing mortgage bonds but you're not seeing any action on that front. Why do you think that is? It's because for the past 7 weeks foreign central banks have been selling agency securities, bringing the Fed's holdings down $93 billion. Now, the Fed has announced they're going to buy $100 billion of the agency securities (I learned that from Art’s article). I've already started buying agency securities in expectation of the move.
So the Fed is literally printing $550 billion to finance the buying of mortgage bonds. Mortgage bond rates are going to continue to go down because nobody wants to buy the houses right now. By buying the bonds now people know that in the future they're going to have to raise taxes later to pay for it. In this situation the herd is knowledgeable enough to know they're going to have to pay for this eventually. It's the biggest lack of confidence in our leadership that we've seen.
The Fed's also began the process of printing $540 billion to special purchase vehicles to buy money market assets from mutual funds. They think that doing this will improve money market investors' liquidity positions and make them willing to buy commercial paper. And don't think they're done yet. They’re going to do T bill redemptions. They're planning on expanding their balance sheet without borrowing money from the treasury.
How do they do that?
They print money and the monetary base goes up.
The only reaction Art and I have is shock.
Wednesday, November 26, 2008
It's a Lot Easier to Play the Short Side
I keep getting asked if the market's turning around right now. Yes we've bounced a bit over the recent week, but don't think we're out of the woods yet.
Remember, there are such things as bear market rallies and I believe we're staring straight in the face of one right now. It's a whole lot easier to play the short side right now. Every time the market's going up the volume decreases, which makes betting on the market going down is a lot easier.
So how do you make money on the short side without taking on unnecessary risk? It's a lot easier now with the ETFs they have out there to eliminate the unlimited risk.
I guess if I HAD to make an argument for equities right now it would be that you can sell happiness and buy fear right now. But you have to be nimble, VERY nimble. Investors are getting happy very quickly right now, even though we're only getting relief rallies. I know this because all that's driving the market right now is stories of global growth, which isn't what you'd be seeing if serious investors were getting in the market. So all we're seeing is people covering profitable short positions, which definitely does not mean we're in a new bull market.
Remember, there are such things as bear market rallies and I believe we're staring straight in the face of one right now. It's a whole lot easier to play the short side right now. Every time the market's going up the volume decreases, which makes betting on the market going down is a lot easier.
So how do you make money on the short side without taking on unnecessary risk? It's a lot easier now with the ETFs they have out there to eliminate the unlimited risk.
I guess if I HAD to make an argument for equities right now it would be that you can sell happiness and buy fear right now. But you have to be nimble, VERY nimble. Investors are getting happy very quickly right now, even though we're only getting relief rallies. I know this because all that's driving the market right now is stories of global growth, which isn't what you'd be seeing if serious investors were getting in the market. So all we're seeing is people covering profitable short positions, which definitely does not mean we're in a new bull market.
Monday, November 24, 2008
Private Mentoring
I’ve got another really interesting thought for you about how we believe in investing and the truth if you just look at results. I warn you, this isn’t going to sound right to you. That’s because it is right.
Let’s take the global stock market for now. Not your country, but the whole world.
The world economy is going to be vital and it's going to grow. You don’t want to just think in terms of one country, even ours, just because economic, business, and tax policy affects how successful you’re going to be in that one country. Believe me, the vitality, the ambition, the courage, and the ingenuity of people around the world who want a good, educated, safe comfortable electronic life for their families will not be denied.
The growth will be there, and they will need our capital. So from now on you can afford to be very, very choosy. You don’t have to invest in uncertain situations. Money will be scarce, and you can pick and choose.
I know this isn’t the way most of us think. But this is the new world. You can afford to think like this. You can demand that everything be right before you commit, and you better take the responsibility to evaluate each deal carefully.
You can know the real story about every company you invest in, and everybody you loan money to. You can demand only good deals. It is a buyers market for investments now, and it’s going to be forever.
Let’s take the global stock market for now. Not your country, but the whole world.
The world economy is going to be vital and it's going to grow. You don’t want to just think in terms of one country, even ours, just because economic, business, and tax policy affects how successful you’re going to be in that one country. Believe me, the vitality, the ambition, the courage, and the ingenuity of people around the world who want a good, educated, safe comfortable electronic life for their families will not be denied.
The growth will be there, and they will need our capital. So from now on you can afford to be very, very choosy. You don’t have to invest in uncertain situations. Money will be scarce, and you can pick and choose.
I know this isn’t the way most of us think. But this is the new world. You can afford to think like this. You can demand that everything be right before you commit, and you better take the responsibility to evaluate each deal carefully.
You can know the real story about every company you invest in, and everybody you loan money to. You can demand only good deals. It is a buyers market for investments now, and it’s going to be forever.
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