"Wisdom is knowing what to do next; virtue is doing it"
David Star Jordan
Q&A
Why did I cut my short exposure in the MSN portfolio last week? Answer is a bit complicated but here is some good news/bad news logic:
We are on the verge of the full blown start of the earnings season and given how erratic and volatile stock behavior of most stocks has been during the last several weeks, with double digit up/down moves intra-day becoming very routine, I am not very confident whether the direction of the next major move is going to be up/or down. So I decided to lighten up and rather simply maintain the spread with indices instead of trying to widen it...
Random thoughts about the overall economic direction
Fannie and Freddie debt fears are in my opinion overblown- government is very unlikely to let either to fail- shareholders could certainly get diluted or even wiped out, but given how widespread the holdings of FNM and FRE debt is- Fed is certainly likely to step in if necessary.
Excerpts from Treasury's Paulson news release:
"GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure. In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately."
Translation- another bailout is likely and thus FNM and FRE debt holders should do just fine...
On the other hand - ABX indices have been simply devastated over the last few days and thus banks are likely to record a lot higher losses that anyone expected. Even formerly firm AAA prices have plunged and most of the BBB is now trading like it's worthless...
source: markit.org
http://www.markit.com/information/products/category/indices/abx.html
Commercial Real Estate spreads have widened dramatically again but still held up better than residential ones...
Source: Markit
GE's earnings numbers actually looked ok to me- a little surprising they did not beat the estimates. One would have thought that knowing that missing guidance would have meant a an almost inevitable resignation from Immelt, GE would have cut something to beat "at all costs", so may be the "core" numbers were in fact a bit weaker than headlines could lead you to believe.
Oil is certainly looking to march on to the $150 level- if it is in fact a bubble, in my opinion the oil bull market can only end with a major "super spike" rather than slow and steady climb, so it might not be over quite yet...
VIX almost hit 30 intraday Friday- which implies that we might be relatively close to the short term bottom and rebound could be in the works... But on the other hand the two bottoms, VIX jumped to the 35 level so we might have another one-two large down days to come...
Stay safe out there and watch your shorts, these could swing violently in the next few weeks...
skepticalcapitalist@gmail.com
