Sunday, September 09, 2007

Market Update

Our latest tactical update is available by clicking on the link above. Here's an excerpt:

In August of 2007, America awoke wearing a lampshade of Miami pre-construction condos, a throbbing liar loan headache, sucker written on her forehead in lipstick and a sub-prime mortgage stuck to her shoe. This mighty hangover has only one cure according to Jim Cramer and various other self interested parties: a little hair of the dog; a Bloody Mary mix of lower interest rates and newly printed dollars to inflate the next bubble in this ongoing Fed sponsored orgy of irresponsibility. Rather than remove the punchbowl, America, like a drunk who won’t leave the party, wants the Fed to get us a refill.

Those of us who stayed away from the punchbowl can now finally gloat about the fools who are losing their deposits on condos for which no greater fool appeared. We can revel in the knowledge that the condo flippers were, in many cases, the same folks who thought they could quit real jobs and day trade their way to untold riches. Unfortunately, our schadenfreude can be only temporary for there are real consequences even for those who stayed sober during the recent real estate bacchanalia.

One thing we can count on though; the Fed is always around to spike the punch anew and get the party going again. They’ve already started by opening the discount window a little wider by accepting some dubious collateral in exchange for some crisp new dollars. The Fed created this mess by cheapening our money to the point that banks had no qualms about loaning it out to folks with grand but dubious plans. The banks didn’t much care who they lent to since they didn’t intend to keep the loans any longer than it took them to package it up, get it rubber stamped AAA by a rating agency and sell it off to a hedge fund run by a slick salesman with an algorithm in his pocket.

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