Friday, August 22, 2008

Big Ben's Pep Rally

I can remember back to high school. The big homecoming football game was always greeted with a pep rally. The band played, cheerleaders cheered, and the football team got pumped for the big game. This helped create a euphoric environment for a team that had a losing record. But at the pep rally, records don't matter. The only game that counted was the one they were going to play that night!

This anecdote really reminds me of the shenanigans at Jackson Hole, WY. Make no doubt, Big Ben is giving his team a pep talk on keeping this economy floating. The team's record is not good. But, the Fed and Treasury have manipulated this game to where it would make the most crooked bookies in the underworld envious.

The Play
When Big Ben speaks, people listen. The Fed policy makers tended to fall in line with Big Ben this time. Commodity prices are on their way down, oil appears to be stabilizing, and the dollar's strength may well continue the market's rally mode. The mere suggestion of a commodities, oil, and the dollar had the possibility of a trifecta was enough to send Wall Street into another buying frenzy Friday. Smiles, back slaps, and high fives should be in order. After all, a pep rally is a pep rally.

In anecdotal conversation, we are reminded of the game outside of the pep rally. This evening I was contacted by a home builder who has changed his occupation. After all, his family needs to eat. The former builder disclosed that he was building approximately 30 homes a year. Over the last 18 months, he has built one. For this man, Big Ben's Pep Rally does not apply. He is down, he is out, and in spite of whatever types of stimulus checks are sent, this man like many other Americans, is behind the eight ball. One must guess that this story in one small part of the housing sector could be told over and over throughout America. Last year, Big Ben promised to stabilize the U.S. financial system, while allowing investors to lose money. A financial adviser for AXP believes that many of the big wigs show go to jail for the mess they have created.

I truly hope that the U.S. Economy wins at the end of this game. The F.I.R.E. economy is still taking on water with no clear end in sight. While Paulson suggested that FNM and FRE will not need the government backstop, almost everyone knows better. And when that play is called watch out for the short blitz! One blogger suggested that Fannie and Freddie should be combined and renamed Countrywide. As readers know, FNM and FRE are the equivalent of dumpsters for bad mortgage debt within the financial industry. Let's not forget about the GSE's.

While some are quick to point out the genius of people like Ken Lewis (et al.), many others believe that BAC is on a collision course with a brick wall as states are starting to pile on to the litigation for shady business practices and outright deception. Couple this scenario with loser real estate companies like GGP, and the black cloud of bad credit card debts held by COF, and Wall Street will sober up again after this pep rally. That is unless acceptable accounting practices allow these companies to create their own reality... you know move debts off books and into holding companies... it worked for Enron... just like a pep rally.

Sources Referenced



AX said...

Pep Rally indeed. Do you think that Warren Buffett would've been asked if he had any short dollar positions prior to the market opening if CNBC didn't already know the answer was no? Can we stop watching these whales for sage advice when Buffett, who holds large stakes in Coke and AmEx, has gotten hammered over the last few years (including his own stock, which he says will never be the same).

I have lost permanent faith in this government. It, and the Fed, are full of crooks, and neither McCain nor Obama will rectify that anytime soon.

Tiger Coach said...

I just read a Buffet article in which he said the financial markets should be back in about 5 years... He also went to see the debut of I.O.U.S.A. in which he does the introduction... I think he is genuinely concerned about the future of the U.S. government.