Finally EOQ

EOQ = End of Quarter. This has been a long, stressful quarter for investors and traders, too. I'm happy to see it go into the dustbin of history. The markets have seen endless panic and rumors and fear as this century's first Rich Man's Panic has run its course. The Street has been forced to clean up the piles of garbage securites it created and sold ... oops ... but it seems they didn't actually sell it all as they have written down major positions. How greedy ! To make directional bets and continue creating structured products that were unsaleable, hence they took them down. Sheesh !

LEH was scammed out of $250-350 billion in Japan. Uh ... why were they taking a principal position in that paper ? Greed ... stupid. These scams always show up in times of stress. Well, I think LEH overall is a fine firm and I might buy some calls for a speculation this morning IF the stock gets hammered. This will be a SMALL speculation ... perhaps about the amount I might risk on a single session on the crap tables at the Venetian in Vegas.

And we see the lemming analysts continue to pile on with the "Sell" ratings as they "see" no end in sight. The latest is Merrill Lynch putting a sell on UBS. Uh ... did they "see" the beginning ? Or are they doing the bidding of their beefer bear trading clients to window dress the short bets of them ? Who knows, but being a bit paranoid, you can guess my thinking.

Why do people think the "banks" hold all this risky paper ? We hear about loss estimates based on the total subprime and CDO and Alt-A markets. Uh ... when I was an investment banker, we really did sell the securities to long term "real" investors, such as pension funds and insurance companies. We never took down anything. Those permanent investors hold the securites to term and don't mark them to market - they just hold until the real losses occur or not. Of course, many were also sold to hedge funds. So really only a small part of the losses should be borne by banks and investment banks.

The losses taken publically by the banks and investment banks "should" represent simply the the "Stupid" holdings of the chunks of structured deals taken down for greed to book the fees and increase someone's bonus pool. I don't see them continuing. But as I said to a friend this weekend, "What I don't know, I don't know". So all should obey the boxing adage, "Protect yourself at all times".

Every weekend I read Barron's [ hehe with black coffee at about 4AM on Sunday morning ], which often has some interesting facts and insights. Page M64 has the Intermediate Grade Bond index which was flat last week vs. the prior week at about 8.42%. That index has dropped a bit recently after increasing a lot during Q1.

Page M65 has the Fed's balance sheet. The monetary base increased a bit ... up $6 billion and the year over year increase is up 2.1%. Finally we are seeing a real increase in the supply of money ... real money. Readers know I have been griping about the Fed's parsimony in increasing the monetary base for months. I hope this is a harbinger of more Fed efforts truly to supply more real money to the banking system at least congruent with the needs of normal economic growth.

Page M63 shows total short selling is up again. Sigh ...

Pages 42-45 had an interview with Larry Fink, the CEO of the huge money management firm, BlackRock. I guess he reads this blog [ ;-) ]. He asks "... why aren't all large pools of capital regulated, including private capital and hedge funds? ... BlackRock is regulated but a $20 billion or $30 billion hedge fund is not. I don't agree with that."

There's more. He also says that BS was destroyed by rumors created by short selling hedge funds and wants an SEC investigation. Hmmm. And says it's time to buy credit risk in fixed income markets. And "... we are now beginning to say it's time to dabble in financials. ... There are great opportunities, even in financials, though there could be more downside. ... We believe we are getting close [to the bottom] and we may have hit it."

No doubt I was too early and did not anticipate the extent of the panic on the Street and by the Rich, but I have yet to see anything in the real economy inconsistent with a midcycle slowdown. I've traded around some positions ... buying more on large dips and them selling a bit on rips.

My C and WB show big losses ... ugh. Those were bought in size wayyyyyyy too early and I screwed up the time diversificaion. Even this "preacher" strays sometimes to error and the trading gods did punish me. But the BAC and JPM are now well-sized postions for the long-term and still have nice profits even the selloff late last week. Ditto GE.

Alpha Fund Holdings -
Large postions: BAC, JPM, C, WB, GE, AAPL, GOOG, DVN, CVX, not in order.
Small positions: HDB, IBN, EDU, CCJ, FCX, RIG, DO

Word of the Day

"Toady" - noun and verb [$10]
Toady means (noun) a sycophant; an obsequious hanger-on; (verb - transitive) behave servilely to; fawn upon; (verb - intransitive) same as transistive, but followed by "to".
Sentence: Why do guests on Babblevision and Blabberg toady to the airhead announcers with that ubiquitous response to a question, saying, "That's a great question !", argghhhh .. when it's always really stupid or obvious one.