The Sun Came Out

Yes, the world did not end yesterday and the sun came out. I actually experienced a sunny day yesterday here at the bunker, the first in many weeks. So Mrs. B and I took the dogs for a four mile walk.

While away, the forces of light turned back the forces of darkness in the markets, which closed flat to down a bit. The worst did not happen as the design and powers of the Fed were used effectively by Battleship Ben with an assist from Hank Paulson in hammering out a takeover of BSC by JPM. JPM rose 10%.

Today the Fed meets again and a substantial interest rate reduction is expected. I reiterate that over time, these rates cuts mean substantial savings for consumers and banks. The consumers save money on floating rate mortgages and on home equity loans. Small business and small company loans linked to the Prime Rate save money. Commercial banks, particularly those with consumer deposits, will have larger profits as their net interest income grows.

Now that the liquidity issues of investment banks are settled, the fear mongers point to credit derivative books.

Now a "derivative" is not the same as a loan or even a CDO. Loans are not zero sum games, but for every "long" derivative there is a "short". So those pointing to large derivative books as certainly having large losses simply don't understand the nature of the beast. Properly managed, an investment bank or a commercial bank "should" be running a "flat" book of derivatives, making money on a small spread of offsetting risks. Now the monoline insurers or some hedge funds by nature run a directional book, meaning they have one-sided derivative positions not offset by others. We've been through the monoline risks. The hedge fund (beefers = big, evil funds") might have big losses, but who cares ?

So unless an investment bank or a commercial bank was "stupid", they should not have large net losses on credit or similar derivatives. I suppose the fear arises that they are or were stupid. Maybe. I guess we'll see this week if some investment banks were "stupid".

So what else will the fear mongers bring up to fan fears ?

For now, market action seems to point to real buyers picking up cheap stocks slowly. We know of some big names doing this. GE stock chart sure looks better as it closed over its 50 day moving average .

Today I sell move gold & silver. The money will go to buy stocks as I see good buys.

Words of the Day

"Milieu" - noun [$10]
Milieu means environment, setting
Sentence: This seemingly endless bearish milieu for the stock markets might soon change as the Fed policies take root and produce results.

"Ennui" - noun [$10]
Ennui means a feeling of weariness and dissatisfaction
Sentence: Bunkerman's ennui is growing at the endless fearmongering on Babblevision; he turns off that channel and Blabberg, too, more and more every day.

"Manichaean" - noun and adjective [$10]
Manichaean means (noun) 1. an adherent of a religious system of 3rd - 5th century representing Satan in a state of everlasting conflict with God; 2. a dualist; (adjective) of or relating to the foregoing.
Sentence: The excessive monies in trading oriented hedge funds makes the markets appear more and more like a manichaean, commodity-like system rather than an investment, asset based system.