Thursday, May 21, 2009

Mediocre Sell Off

It was a pretty mediocre sell off today. The news was horrid but the sell off was mediocre. No volume with breadth that wasn't as bad as the market drop would have seemed to indicate. Improving spreads on credit all down from the huge gap open at the open. Big banks were up for the most part all day while the smaller banks got shot.

Tomorrow may be a down day (it would be encouraging if it was) but the odds of that occurring going into a long weekend are small. Prices are set by supply and demand and since shorting is more dangerous with higher potential losses ,a long weekend typically means supply to sell is less than to buy.

Bank United finally, finally croaked today. Largest bank of the year to fail. This was my first bank I shorted, ever. Back in 2006 I shorted it in my personal account and made like 30% (should have obviously never covered). A friend mentioned it to me previously. He had recognized it with another friend back in 2005 and said it was going to be a zero. Took years for that to finally come to pass.

I am not wasting typing space. Using this crossover for a reason. In general I becoming more and more bullish in the short term (next few months) even if we do sell off a little over the next few weeks and more and more bearish on the longer term. I am amazed still how many bears are out there waiting to pounce on anything bad. My guess is this still needs to be broken before we can really head lower. Over the longer term, I think America is in deep deep trouble. Investors recognized this with Bank United years ago. It took 4 or 5 years for it to finally happen. This decline could take just as long and be just as drawn out. Today sell off was partially caused by the speculation the U.S. may lose its AAA rating. The country has been AAA since WW1. The problems in front of us are massive and in my opinion the government is approaching this all wrong. WE HAVE TO LET THINGS FAIL. California is having huge budgetary problems. This is just the start of states and municipalities. Pension funds are going to be down billions. Billions more of mortgage losses not to mention commercial real estate is coming. The real big one no one is talking about may be the billions from coming corporate defaults not really hitting until 2011. In general, I see the road we are on (with full endorsement by our government) to be just as bleak as Bank United. We have to start letting things fail and we have to let bond holders take massive losses. Once the loss is taken, the overall debt load goes down, the leverage is decreased. Protecting debt holders does not help because the leverage does not decrease. It is even possible there may be growth for 12 months. Big whoop. Our government keeps managing to create bubbles and the impact is becoming smaller and smaller with the aftershocks beocming bigger and bigger. We need failure to purge the system.

Well tomorrow I am on the road. In San Antonio looking at a couple of stores. Then the long weekend. Don't know what I am doing yet so may not be on this blog until Tuesday or Monday. Everyone have a good weekend.

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