FOMC Minutes

by Larry Levin

Today's market opened higher on the news that Bank of America is diluting the h*ll out of its shareholders. OK, the market was happy that BAC was able to sell over 1 BILLION shares of stock, thus diluting the h*ll out of current shareholders, at a share price of about $10.77. BAC raised $13.5 billion in the stock sales and another $7.3 billion by selling its stake in China Construction Bank, which is great news because it is raising funds in the market and not accepting further taxpayer handouts. The problem is, however, this doesn't even quite get to 2/3 of the needed additional "stress test" capital. When will BAC raise the additional $14 billion? A better question would be - how can BAC say it wants to pay back the massive amount of TARP bailout money when it hasn't even raised the additional capital yet? Moreover, if it were to pay back the TARP money, wouldn't it immediately need to raise capital again?

As I have said recently, the current rally has been on very poor volume and that never lasts. Today's early pop ran out of buyers and longer term sellers drove the market lower. But the nose dive had help; HP and the FOMC pressured the market.

Hewlett-Packard shares fell 5.2% to $34.67. The world's largest PC maker warned it expects 2009 revenue to decline by 4% to 5%. On the other hand, Wall Street expected a decline of about 2%. For a change, I guess that was actually "worse than expected."

The market surprisingly heeded what the FOMC said this afternoon: it projected an even deeper recession than expected three months earlier. Moreover, the FOMC expects a more sluggish recovery over the next two years as labor markets remain under pressure.

Uh-huh, and why do we listen to the FOMC? I understand that it makes sense to listen to the very people who are legally in charge of interest rate manipulation WHEN one expects a rate change, but economic forecasts? Come on - they suck at forecasts!

- Did Greenspan and Bernanke both encourage people to take out teaser rate loans because their "forecasts" showed sunny skies in perpetuity? Yes.

- Did Greenspan and Bernanke both encourage people to withdraw home equity to buy garbage they didn't need because their "forecasts" showed sunny skies in perpetuity? Yes.

- How's this for a forecast? "There is a chance that housing prices could fall, but its effect on the economy will be limited." (Alan Greenspan, 2005)

- Or this forecast? "I suspect that we are coming to the end of the housing downturn, as applications for new mortgages, the most important series, have flattened out...I think that the worst of this may well be over." (Alan Greenspan, October 1, 2006)

- "At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." (Ben Bernanke during Congressional Testimony 3/2007) Contained where Ben - on Mars?

- How 'bout this forecast/statement? "It is not the responsibility of the Federal Reserve-nor would it be appropriate-to protect lenders and investors from the consequences of their financial decisions." (Ben Bernanke, 10/15/07) Boohahahahahaaaaaaa - yeah right!

- Most recently the Fed's worst case unemployment "forecast" was 8.8% and now it forecasts 9.6%. It currently stands at 8.9% so I'm guessing 9.6% will be another terribly wrong forecast.


In other news, the world's second largest economy, Japan, is sinking like a rock. According to news reports, "The Japanese gross domestic product shrank 15.2 percent on an annualized basis. It marked a fourth straight quarter of contraction and the biggest decline since Japan began keeping records in 1955." Umm, isn't that waaaaaaay beyond recession territory and firmly in DEPRESSION territory? Yes, it surely is. Thank God that can't happen in the US. Why not? Because Wall Street says so and that's good enough for us - right?

In late news this evening, the Wall Street Journal said the Treasury Department will give GMAC another $7.5 billion handout, a step towards making the company a quasi-federal entity with the power to offer low-interest loans to would-be buyers of GM and Chrysler cars.

Don't expect one dime of it to be paid back!




Previous Day's Trading Room Results:

Trade Date: 5/20/09

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

1) B/away buy @ 8:30am at 915.50 = +1.50 (1 lot)

2) Engf sell @ 12:00pm at 909.00 = -.25 (1 lot)

3) VA sell @ 1:40pm at 913.25 = +.25 (1 lot)

4) Algorithm positions (4)...combined Secret's and Algo total...-2.00


Electronic (YM) Mini-Dow:

1) None today



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