What's Coming?

by Larry Levin
A lot of news was released today and recently. Each news item on its own means little, but if they were all grouped together one might wonder if the government is laying the groundwork for something big. What's coming?

Recent news items

1. Hedge fund bailouts

2. Fed's monetizing debt

3. Insurance companies to get bailout

4. Uptick rule to be reinstated

Although there have been many hedge fund disasters in the past, even mega-wipeouts like Amaranth, all have been liquidated via free market forces and bankruptcy procedures. None have had "systemic" risk over the whole economy. Now, however, Tax-Cheatin' Timmah(!) of the Treasury Dept says everyone should get a bailout, including certain hedge funds that he alone finds deserving.

I wonder why this is happening. What's coming?

As you already know, the Fed is monetizing US debt: printing money. Today's FOMC minutes read that its staff economists lowered their forecast for economic growth this year and next, raised their forecast for unemployment, and lowered their inflation forecast. The minutes of the meeting went on to read that a significantly worsening economic outlook forced the Federal Reserve's hand a few weeks ago, leading the FOMC to commit to buy up to $1.25 trillion in long-term assets to hopefully goose the economy and prevent a slide into deflation.

"Forced" its hand? What's coming?

Today we find out that Tax-Cheatin' Timmah(!) of the Treasury Dept is handing out your money to almost any company. Now the insurance companies have their hats in hand looking for and receiving handouts.

From an actuarial standpoint, most property & casualty insurers do not charge rates that would by themselves be enough to yield net operating gains; only investment gains have kept insurance companies in the black. So with a stock market down 40% last year, bonds out-of-whack and money market problems too, it should be small surprise that insurance companies are in trouble. I guess Timmy believes NO companies should experience the horror of bankruptcy procedures.

I wonder why this is happening. What's coming?

Finally we have the government's insistence on further rigging the market in favor of the longs: bringing back the uptick rule. Although the uptick rule was in force during the 70's, the market still dropped. Although the uptick rule was in force during the 1987 crash, the market still crashed. Although the uptick rule was in force during the Nasdaq's pinprick, the market still dropped - crashing 80%!

Short selling had nothing to do with any of the aforementioned collapses. Short selling is a risky but legitimate activity that becomes the whipping boy for depressed bulls and politicians whenever ridiculous management or valuation practices are laid bare, and the bulls lose their shirts. Bear markets happen - we just have to live with it.

The irony here is that the bears and short sellers are the ones who saw this mess clearly. The uptick rule wouldn't have saved Bear, Lehman, AIG, Fannie Mae, Freddie Mac, Wachovia, Merrill Lynch, Countrywide; it would have only slowed the inevitable deaths of these corporations. The short sellers where the ones who saw the smoke and mirrors and called the financial alchemists out on their BS.

This recent housing bubble was caused by the Federal Reserve just as the Internet bubble was before that by maintaining negative interest rates. Short sellers, Wall Street, and the SEC - you can punish all of them and it won't amount to a hill of beans unless you reign in the Fed and its gullible belief in Keynesian economics.

I wonder what's coming. It must be something big that the government knows will cause a panic in the market. Is the government getting its ducks in a row before it nationalizes the banks?

I wonder if we'll see this in a MasterCard commercial: "Bailing out AIG, $170 billion; Bailing out banks, $5 trillion dollars; Bailing out auto makers, $16 billion dollars - Making complete fools out of the taxpayer? Priceless!"



Previous Day's Trading Room Results:

Trade Date: 4/8/09

E-Mini S&P Trades*
(before fees and commissions):


1) VA sell @ 8:30am at 819.25 = +2.25 (1 lot)

2) PP buy @ 9:10am at 815.75 = -1.25 (1 lot)

3) PP sell @ 10:00am at 815.75 = -1.50 (1 lot)

4) TP sell @ 10:35am at 818.00 = -1.25 (1 lot)

5) VA buy @ 11:40am at 819.25 = +3.75 (1 lot)

6) VA buy @ 2:10pm at 812.25 = +1.75 (1 lot)

7) PP (R1) sell @ 2:45pm at 820.75 = +1.75 (1 lot)

8) Algorithm positions (2)...combined Secret's and Algo total...+5.00


Electronic (YM) Mini-Dow:

1) None today



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