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March 14, 2008

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donna

Riding down desperation towards panic. Check out the Bloomberg headlines right now, if you haven't tonight....

The Financial Philosopher

I believe we will be in panic mode for at least part, if not all, of the day today (March 17). If we are lower around 3:30PM than we are at the open, I may put a few dollars to work in some quality long-term holdings... but I certainly will not let my emotions lead the decision!

Cheers...

Iqbal Latif

Oz: TFP has helped me change the way I think about markets, it is much more deep and far more philosophical, on much lower level I have tried to explain a day in my life and how do I rationalise my bullish bias as ‘optimism of life’ that I believe in and live with it. Some random thoughts..

I have always thought that you can’t sell what you don’t own, these ‘vandals on the door’ has taught us to be vigilante but the extreme volatility has opened a new frontier, rumours plus short instruments plus uncertainty can take any institution out, if the Fed would not have done on last Sunday what they did, we would have few Northern Rocks made out of BSC and LEH and others. The pain levels that market can now exact have multiple tools of execution, derivatives, AMS, CMBS, CDO’s added with commodities and currencies, investments are a ‘primordial soup’ very difficult to decipher if all the elements are not known, macro-economic plus knowledge of financing currencies and bias of hedge funds can only let a person survive, it is no more equities or bonds or fixed income, one needs to see and study a holographic image of the markets.

Global meltdown- A day in my hectic life; is the glass half full or half empty:

Bull and Bear – the lines are blurred...

For an average trader the real day starts at nearly 1.30 in the morning as Japanese markets pick up steam and ends at 8.00 in the evening, just six hours into the close New Zealand is trading and with yen carry trade being unwound the pain never seems to end around the clock. The six hours are the real party time, the sun down time. Ask me would I like to live any other way, burning at two ends I would rather resign and burn to the end, life in the slow lane is not for me. The ecstasy never ends, the fatalities mount and profits search is like unending pursuit of Eldorado, seeing perfectly normal ex-bankers ganging up to bring BSC down one day and going after Lehman the other is just pure fun. These are new vandals at the door, beware! Have you seen the movie 'The Independence Day' aliens in search of resources, these hedge funds are in search of big profits and their ability to trade both ways have provided new stability to the global markets. Refined to death ‘Shoot first ask questions later’ is the new-fangled philosophy of the new age.

For a global man, the world has become one country, the ‘borders’ only exist in the minds of those who are still involved with banal tribalism and frivolous battles. Excruciatingly painful global markets point out to one direction that we are part of the global village and in this village, the problem of one country affects the others, those rich in commodities are flush with monies today, those like India rich in intellectual capital are having field days. Countries like USA are going through a steep deleveraging, excess are being cleared out of the system, as there are no free lunches, free monies made through structured, exotic and derivatives products are flushed and games of cyber numbers make everyone of us realise that how difficult it is to create these numbers how easy to see them evaporating at Godspeed.

Everyone is a bear and everyone is a bull, the chameleon like change of mind, strategy and approach is the biggest strength and threat to any institution or individual. The lesson is clear never over extend, if the leverage is 1 to 32 the call that makes 2 billion last year if reversed will make person a pauper overnight. That is the lesson BSC executives learned the hard way, but that is the surgical accuracy of cleaning the thrash out that makes ‘Wall Street’ the greatest circus in the world of money, where Wall Street goes there goes the world monies. Money like matter remains within the system, it never gets destroyed, if Soc-gen loses big on the other side of the trade is someone who makes it. Soc-gen loss is GS profit, BSC liquidation or takeover is JPM advantage, it is dog eat dog world and one has to be nimble and smart.

The instruments of short are far more lethal than instruments that help you go long. The capacity of ultra shorts, like SDS, DXD in drawing the last ounce of blood left in the bulls, is immense. A bull is a bear at the same time; those who in this august thread feel that a bull is never a bear fail to comprehend that GS made its monies from short on ABS.

A week last Tuesday the sophistication of bull-bear relationship can be well imagined that a hedge fund which bought a huge qty of 40 puts on BSC was borrowing from BSC to short them. Imagine borrowing a stiletto from your lover to plunge it in her heart.

GS and LEH earnings yesterday should have been much worse after 9 months of continuous bleeding of the financial sector.

XHB, XLF have suffered immensely to that extent as if US economy is in depression, not even a severe recession. The illiquidity of the CDO's, ABS and CMBS kind of paper is deeply discounted; all this is a sign of capitulation where market news takes far higher toll than it is warranted. But that very selling is what differentiates USA from Japan, where inaction can help linger a problem, whereas, ask-questions-later-shoot-first led the Fed to sell BSC at 2$'s to JPM. Later on it was evident that the price was far lower than what shareholders expected or deserved. In this kind of environment, the snap back rally of yesterday was just a sweet reminder of how low and badly markets have been discounted..

Commodities are higher for a reason: it is not that demand and consumerism globally have fallen off the peak, depression and disasters, also recessions that everyone loves, are based on falling demand. Commodity prices are high because a full 1 billion middle-class consumers have added on to the global scene from Latin Americas to India and China. BRICS are the countries who are commodity-rich, and need a lot of infrastructure development; they are loaded and ready to spend on basic amenities like power houses, roads and health. The master economies of the world and mature companies are set to take advantage; lower $ would mean they are more competitive than Europe.

Rising consumerism benefits USA the most. MCD's, Starbucks and Pizza Huts are products that these new billon consumers will add on to their diet; unhealthy it may be, but 'in' it is. This is considered as a sign of affluence.

A decade ago Greenspan used to worry about USA being an oasis of stability; the speech of irrational exuberance also contained that USA cannot be the last banker of resort to everyone from LTCM, to USSR to Latin America or the Asian debt contagion. Today, most of these sick economies are great possible customers of mature economies.

We are at the cusp of a huge move forward; the pessimists will keep distorting the mantra and demanding the 'death dance' and full capitulation, however, the only thing that will decide the fate of the markets or recession or the death of $, is new consumerism and new commodity rich countries as part of the global free trade, or they are behind the Iron curtain. The one thing I am sure about is that these new consumers are very much a part of the scene and are looking to buy on GOOG, buy the latest INTC 6th generation chips and are avid users of Facebook and everything that is western produced; the best advice they get for their infrastructure development is from the likes of BSC and GS or LEH. Mark my words - a bull is a bear and a bear is a bull. Those who will not be able to change colours and tie themselves with old school definitions will cry themselves hoarse; markets are for people who are optimistically poised and understand the full dynamics of global realties.

The ability of the market to punish excesses and exuberance mercilessly, and overnight, is the strength of this market. BSC’s 9.4% shareholder turned from a billionaire to a pauper overnight – is this not what we all want to punish, those who make mistakes? And are we not addressing the fine print of moral hazard more than adequately? Now when these funds want to kill everything in sight, then comes the bank of last resort and takes those 'papers’, which back the other nearly 99% of the American population’s houses and they do not have exposure to 'ninja loans' or subprime problems.

Housing starts fell 0.6% in February and permits for new construction plunged 7.8% to the lowest level in 16 years. The housing report showed February starts were 28.4% less than the level of February 2007. Given that the enormous overhang in inventory is a huge part of the problem, this is, perversely good news. New Home Starts Building Permits Continuing to add to the supply in this environment would be sheer madness. Housing starts fell 0.6% in February and permits for new construction plunged 7.8% to the lowest level in 16 years. The housing report showed February starts were 28.4% less than the level of February 2007.

Lot of carry trades $/Yen has been unwound but yen at 96 with possible 0% rates on the horizon and still no consumer demand will be hard to appreciate any further.

http://iqballatif.newsvine.com/_news/2008/03/19/1376747-global-meltdown-a-day-in-my-hectic-life-is-the-glass-half-full-or-half-empty

rick funston

Very insightful. Enjoyed your commentary. Are your the creator of the emotional cyclce? It's brilliant. Similar in some ways to Kindleberger's five stages. I would like to use it with credit to its author.
If you are not the creator, could you please identify the source of the emotional cycle?

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About Kent Thune


  • Kent Thune is a philosopher who happens to be a money manager and freelance writer... Read More

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