Monday, September 22, 2008

Going Down???

Top Line: You said you like volatility, right? More on the way, in case you were wondering. The market needs to go down and the next three to four weeks should be the time for this move.

Oil was up a bunch along with gold as the dollar got hit. The dollar has taken the little drop we were looking for a while back.

You can see that our gold mining suggestion has done well with the GDX moving up to 38 today from around 28 just a couple of weeks ago. That trade alone should pay for your subscription to the Update. Seriously, the gold mining complex has come up quite a lot but we are waiting for a pullback before we recommend getting in. This may not happen but we still think we should be patient with any more buying.

We should be talking about the government bailout so we'll remind you that you should go back to our last post and read Gretchen Morgenson's article. The reason we like the article is the analysis about the details. You have heard that the government is hoping to buy troubled securities at a discount with the possibility of "making money"on them over time. And, on top of that they expect to help the banks out now.

For some reason, we don't think all of these things can happen. If they can buy at a discount, doesn't the bank necessarily have to take a loss right now? So, if this plan is implemented, several banks will still have losses to report and it seems that their capital will be depleted rather than enhanced. Is there a bank that wants to do this??? We are so confused...Apparently, if you give a guy a checking account with $700 Billion in it, you should expect that there may be some contradictions.

In case you were wondering, we don't think the government will be making money on this transaction. Congress is trying to figure out what to do and we understand that it is a difficult thing to make a good decision on something like this. Our position is that we don't think any bank that is "bailed out" of its toxic assets should retain its management. This isn't a giant Texas Hold'Em tournament where you get to buy back in.

Remember that this and all other "bailouts" are designed to help the banks...remember, confidence in the banks and confidence in the government. It's a Con Game...

GDX 38.09
BGEIX 18.65
HUI: 354.13

FSI: 71.27 (is the Big Bounce over???)

VXO: 36.28 (Thursday's high of 45.81, getting close to 50 or higher)

SDS: 70.20 +3.17
QID: 52.00 +3.32

Dow Industrials: 11,015.69 -372.75

1 comment:

Anonymous said...

Why doesn't the government just suspend the valuation of these troubled assets and suspend mark to market for a set period?