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Politics : Welcome to Slider's Dugout

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To: SliderOnTheBlack who wrote (6059)	8/19/2007 12:20:36 PM
From: jim_p	Read Replies (2) of 50481

Slider, Glad to give my opinion for what it's worth? I tend to focus more on the macro picture and not the day to day moves in the market. I think the only big change last week is that we now know that the Fed is more concerned about the credit markets/economy then they are about inflation. The scary part is nothing has changed with inflation, but the credit markets were on the verge of a meltdown the likes of which we have never seen before. Inflation is still heating up across the globe with wage inflation being a serious problem in both China and India. The deflationary effects of lower wages which allowed world’s central banks to flood the system with excess liquidity was a ONE TIME event and now we are about to witness the opposite effect with foreign wages rising much faster than domestic wages. Energy prices haven’t declined very much and food inflation is a serious problem and will continue to be a serious problem for years to come. On the macro picture it's important to recognize that excess liquidity has been the driving force in the markets in the past and going forward we are going to have just the opposite. If the Fed thought they could have lowered rates last week they would have. The only reason they choose to lower the discount rate, and more importantly to extend the maturity from overnight to 30 days, was because the CP market was totally frozen for anything related to mortgages and it was just a matter of time before CFC and many others would have collapsed which would have brought down the entire financial system. The fed had absolutely no choice in their actions last week. Going forward nothing has really changed. The Fed's decision was nothing more than a band aid to increase liquidity to avoid a crisis and to buy some time to see where things are going to settle out. I think we all know where it’s going the settle out with the tax payer being the one to bite the bullet just like we did with the S&L crisis. The problem is too big for anyone else to absorb it. Nikki futures are showing another 5% decline as I type. Banks are not risk takers and the only value their collateral with the hedge funds has is what someone else is willing to pay for it TODAY. In this case perception is reality whether we like it or not. The fact is we will not know the value of many of these packaged up securities for years to come because the actual value will depends on the foreclosure rate which is still increasing and will continue to increase as long as home values continue to fall and the teaser rates continue to get triggered higher. In addition, the rating agencies are about to down grade a large number of these securities which will force prices lower and cause many to have to sell them due to their charters into a market that doesn't exist. The prices will be adjusted down over the next few months, but the only price that matters is the value the bank is willing to loan on it and because of the uncertainty of the future value they will give the collateral value a large discount to today’s valuations going forward which will force addition liquidations of whatever the hedge funds can sell. You can expect the higher quality assets to be sold off first in this environment. The size of this problem dwarfs the S&L crisis. The only good news for the US is the problem is spread out over many countries and is not just our problem. The bad news is this will accelerate the worlds already negative opinion on wanting to accept more of our paper which will have a negative effect on the USD and inflation. I’m not a gold bug, but gold is starting to look pretty good to me right about now. I took profits on 1/3 of my shorts on Thursday and I’m looking to go back to 100% short . JMHO, Jim

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