Update and Two Cents

I didn’t listen to President Bush last night but I would have listened to either Bill Gross or to Warren Buffet.

I think our President might be a bit confused by the economic situation.

Someone told him to hire Henry Paulson and that was a good thing to do. Mr. Paulson came up with the plan and he has the backing of people who understands the problems that the economy is in.

The lawmakers passed the bill today and we will see if it works.

Also, I am about to start a survey on high school and grade school principles
on a subject that I am interested in. If I am right about their feelings
then an industry might change.

Is this Market Botton?

Today brought the news that Warren Buffet had invested 5 billion dollars in Goldman Sachs. He said that the government was doing the right thing with the bail out.

Then I read that Bill Gross from PIMCO said the government was doing the right thing as well.

So I guess we are now near a market bottom.

Both men are extremely smart and understand these sorts of debacles.

Let's hope that the politicians don't spend too much time trying to figure out how to mess things up. If they do the market will collapse.

Special Interest and the Stimulus Package

I realized over the weekend that the market is having trouble because the politicians can't seem to put away their special interests to finalize the economic rescue plan.

On Sunday I was visiting with a friend who wanted my views on the stock market. I told him I thought there was still trouble to come and that if congress didn't swiftly pass the stimulus package early in the week that the market would be right back down to where it was before the Thursday and Friday rallies.

Lucky guess on my part as the politicians are taking there time.

So we have given back about half (350 points on Monday and 150 points on Tuesday) so far and we are in a world of hurt for the moment at least.

Wrong Target

As I am sure many know, the government has intervened in a large way. I haven’t seen anything this large ever. $85 billion to AIG is small compared to the $900 billion they are going to help out financial institutions with.

When the government came out and said no short selling, well that was a bit too much.

People now have the wrong reason for the market decline. It isn’t short sellers, it is bad management decisions by financial companies such as Bear Stearns and Lehman Brothers. Those companies and others ended up making large over sized bets that nothing could go wrong. Almost all of it is real estate related. And plenty has gone wrong.

We haven’t seen the end to this crisis just because someone diverted the attention off of the financial problems to people who short stocks.

You will now get artificial up moves in stocks because people will believe these problems are over.

Banning short selling may be one of the worst ideas ever, even if it is only in financial stocks banning. Forcing people to short stocks legally is another matter and I hope that part of the plan works.

I wonder how much bad real estate paper is left to write down. It has to be more then the 900 billion. That will tell us when the market decline is over.

I think most of these moves by the government are politically motivated and they may not be in the best interests of the American people. Blaming short sellers is sort of retarded.

This week was extraordinarily stressful for traders and investors and me.

The Playing Field is Constantly Changing

I started writing the below text on Tuesday and then things got more exciting, the government loaned AIG 85 billion dollars for 80% of the company.

People have lots billions and billions of dollars. The market in general is now worried about the next shoe to drop. People are not sure if Goldman Sachs or Morgan Stanly might end up getting sold or going out of business.

The landscape keeps changing and lots of companies will be extinct.

Huge leverage will not be allowed anymore. There will likely be even more government regulation and many people will suffer. Many already are and it is sad.

I remember the crash of 87 and how exciting it was to be short and make money, and then I woke up the next day worried for America. As a Country we made it through that, this will be much harder

My original beginning went:

On Sunday it was clear that Monday would be an interesting day, Bank of America was buying Merrill Lynch not Lehman and Barclays also walked away from Lehman. Lehman has filed for bankruptcy.

AIG is having liquidity problems and between Lehman and AIG the market collapsed 500 points on Monday.

It seems as though people are waiting to see what will happen with the actual financial instruments not just the stock and companies that bought them. A lot of people will be losing their jobs and it is really a sad state of affairs. This will bring more financial oversight and more regulation.

Additionally the banking troubles are not over. AIG may get bailed out but the cost to share holders has still been huge. AIG is so large the ramifications of this company going bankrupt or something like it is unknown.

So, I have been asked how the insurance and mortgage fields break-down might affect what I do in the short market.

The insurance companies are part of a larger group called financials which would include the brokerage firms, banks, saving and loans and other things.

Financial Institutions Getting Crushed

It is interesting to watch these financial institutions get crushed.

I have no information or way to know if Bank of America would buy Lehman (I wouldn't have enough knowledge to know what they were buying, in terms of assets).

But, the amount of leverage they were using must have been so large they couldn't get their hands uncuffed at Lehman. So many billions of dollars down the toilet for investors and employees.

It will be too bad for all the people out of jobs and all the people who have lost money in what should have been a very stable company.

Diamond Profits in the '70s

When I first got into the diamond business, it was very exciting.

I remember the first big sale: A $200 commission in one day. Remember, this was the late '70s and that would have been a lot of money for me at the time. I thought "Wow, a job I could make $200 a day at!!"

Of course, many years later as a short seller, my expectations were far exceeded!