Friday, January 22, 2010

Update/Comments 1/22

Decided to bail out of IBM.. so generous of me to pick the three worst stock market days of the year to start believing in the stock market. Serves me right I guess.. loss isnt too bad.. $180, but still not how I wanted to start my stock picking career. I've always been a commodities guy.. perhaps I'll just stick to what I know.

Obama announced a new set of meaningful banking reforms.. one of which is essentially Glass Steagall 2.0, which would separate common banks (and limit their activities) from investment banks (who's assets are not federally guaranteed, but these banks can do whatever they please more or less). This will hurt Goldman Sachs, which last winter which went from an investment bank to a common bank to get the federal guarantees.. and then Goldman went on trading whatever they liked wherever they liked as usual. This announcement caused a market selloff the last few days, especially in financial firms who might lose income from these changes.. Goldman stock took a stiff broadside. But this is a long overdue and needed reform.. if you're gonna do risky sh!t, don't expect the taxpayers to backstop your losses. He did'nt go nearly far enough (Obama needs to put an immediate halt to any additional derivitaves being written, enforce a 10-1 bank leverage ratio, and enact a rule that prohibits mortgages from being written unless the applicant has a debt-income ratio of 3 to 1 or less) but this is a brave and good start. The other proposal seeks to break apart the "too big to fails", which might prove to be a complex task. Lets hope he's serious about getting these passed.

In other news, the proposal of these new rules was the brainchild of Paul Volker.. and against the advice of Larry Summers and Tim Geithner. At the news conference announcing these, Volker was next to Obama; Tim & Larry were not there. I smell a changing of the financial guard coming soon... I'd wager that Geithner at least is gone, Summers possibly as well, and today a few more senators came out against Bernanke, and his reappointment might not make it past the Senate. These changes (and policy changes thereof) could have profound effects. As for me, I'm with Volker.. it's time to enact some meaningful oversight for these banksters. Ultimately, Obama is a smart guy; this was a really good move in the right direction. Lets hope he continues on this path; he'll need to apply these smarts come 2011 as I think deflation will begin to bite hard. By mid 2011, things like healthcare and cap/trade will be long forgotten, as will everything else except the economy. Obama started a year late, but I now have some hope we'll get it right.

The USD has risen nicely this week vs the Euro; some of this was from troubles in Greece and Spain. I can easily see the euro going into the 120's sometime this year.. and this would be good for them but bad for us in some ways (it makes our exports more expensive). Part of it is that deflation might be creeping back into the US as available credit to businesses and citizens alike continues to contract. Why would a bank risk loaning money to a small business (nevermind the hassle of it all) when they can simply borrow money from The Fed at 0% and then use it to purchase US Bonds and get 3% ?? Free, easy money. {and charge outrageous rates on credit cards and burn people mercilessly who bounce checks}. Whats not to like ??

Life out here in Hooverville continues to get tougher and tougher despite Wall St and the banks having record profits. At least it lifts people's 401K's.. assuming they're still working. Loans are harder and harder to come by for small businesses and consumers, limiting production as well as consumption. Classic deflation, folks. Today a new report came out with 45 of the 50 states losing jobs. Me thinks the election in Mass has struck fear into the Democrats, and so the changing of the guard is in the works. Problem is, unless tough reforms and balanced budgets are the answer, putting a few heads on the bloc won't get it done.

That or Bernanke will simply "purchase" yet more bonds and/or MBS.
This is my bet.. look for it in March or April.

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