Panic of the Rich Continues ...

A huge positive development occurred Friday as Congress finally moved into the "real" part of our Universe out of their usual "imaginary" Universe to pass the Paulson Plan. Why the drop ? Easy ... traders had bid up stocks figuring to flip them to "real" buyers on the news ... but real buyers don't buy on the rips, so the traders bailed out.

Aside: I listened to Speaker Nancy Pelosi of the winery & pearls crowd while driving to the dog event - what an airhead !!

Germany's schadenfreude [* today's Word of the Day ] lasted about a week, as Germany, after arrogant talk for awhile about US problems and problems with US style free markets, found a rotten apple in its own barrel. Germany had to bail out Hypo Real estate and cover 100% [!!!] of deposits of German private banks. By the way, Hypo Real Estate did NOT have US subprime investments: from FT - "HRE’s main businesses are lending to commercial property developers and, through Depfa, to the public sector. It is not a retail bank."

Germany stupidly torpedoed the leadership of French President Sarkozy who wanted to create a European version of the Paulson Plan. Ohh EU, can you survive conflict and crisis? The Euro is falling rapidly this morning.

Denmark also covered its public depositors.

And Iceland has serious problems: a falling currency is hurting its public who borrowed in "low rate" foreign currencies to by cars, etc. Of course hedge funds who sent money to Iceland for high interest rates are now fleeing as its currency drops rapidly. Volatility induced by hedge funds hurts Iceland.

And the ECB still fiddles ... amazing. The official name for Trichet & ECB is now "The Ostrich" to [sort of] rhyme with Maastricht.

One would think that all can now see that a little "inflation" is really not so bad ? But still this morning an "market commentor" in London saying that the UK should not cut rates.

Meanwhile ...

The fine restaurant was full on Friday and Saturday in southeast Connecticut and the food was outstanding. The dog agility event was quite busy and the homemade bacon, egg and cheese sandwiches, cheeseburgers, jumbo hot dogs were tasty. Traffic was quite heavy driving late home Sunday afternoon. I guess that $3.35 gas seemed cheap.

US corporations have good balance sheets. Yes, some are drawing on commercial paper lines, but heck, those are backed by bank lines and the banks can fund them from borrowing at the discount window as a fine profit as LIBOR is quite high. So fund them.

Buyers line up for parts of AIG.

A wrestling match is occurring between C and WFC for WB, which two weeks ago was a pariah.

The credit derivatives market - which should not exist - gets a test today as the FNM and FRE credit default swaps get settled.

Hedge funds and the rich continue to panic. The rich pull money out of these "great" hedge funds, which were leveraged hugely with swaps and loans. Why are large hedge funds permitted to borrow money anyway ? They can't pay it back when the investors pull their money out. I guess that's another reform needed in the regulation of hedge funds.

These huge beefers sloshing money all over the world are the "root cause" of the problems over the entire world from Iceland to the US to India.

Markets

Big drop early this AM in stocks in Europe and US futures. Alpha Fund will likely be a buyer today on a big down day. I might go from 0% stocks to 100% stocks. No margin.

Look, let me reiterate that my Alpha Fund is purely SPECULATIVE MONEY. This represents only about 1/6 of my total financial investments which in turn are less than 1/3 of my net worth.

For my long term investments, I simply do a broadly diversified asset allocation across many asset classes on a purely mechanical basis. This has worked well for me for over 25 years, through other recessions and financial crises. I have tweaked it over time as new asset classes became available. But the core strategy is unchanged.

In fact, I have observed that my efforts to improve it by adjusting class allocations to reflect my views on the future prospects of a class have not helped, on average. Success in some moves are offset by errors in others. So I no longer try. My dog, Krypto, runs it for dog biscuits and just pushes a button as needed to maintain balance.

PS: By the way, in case it's not obvious, other than the banks and housing, the weak spot in the economy is the auto industry and its suppliers.

World of the Day

"Schadenfreude" - noun [$10] (originally German, now in use in English)
Schadenfreude means the malicious enjoyment of another's misfortunes.
Sentence: The German Finance Minister was able to savor his schadenfreude for only about one week until a homegrown mess as Hype Real Estate began to smell and Germany had to go beyond the US and guarantee all private deposits at its banks.