Friday, August 1, 2008

Something is Rotten in Denmark...

In a classic scene from Shakespeare's Hamlet, a palace guard named Marcellus saw a ghost of the former king. He spoke to Horatio about the ghost as if it were an omen. Indeed the ghost was a sign that foul play and corruption was in play. Marcellus claimed that "Something is rotten in the state of Denmark."

Something is rotten on Wall Street as well:

1. The Fed has extended its discount window to a select group of financial institutions until January. (It is my belief that funds from the discount window are propping up stock prices of financials.)

2. The SEC has protected 19 financial institutions from Naked Short-selling for at least another month. (The goal is to break the short-sell altogether.)

3. Banks have successfully lobbied to forestall changes in accounting practices where all losses would be booked mark to market... until 2010. (Banks will continue to manipulate and twist numbers to lessen the bad news.)

4. President Bush signed the Housing Bill into law. The President had previously been on record claiming that the bill was VETO material. (Bush is trying to save the economy so it is not a campaign issue for McCain.)

There is no question about it, the U.S. government has gone to great lengths to manipulate and protect Big Banks, and certain aspects of the financial sector. The more serious question raised should be... Why do the financials need so much support and intervention? Are the financials that weak? How long will the write-downs last? Interestingly enough, the financials may have taken a breather over the past two and a half weeks. However, there is reason to believe there is a Part II to this story. The other option is to become more and more like the socialized welfare states of Europe. Any time there is trouble in a European economy, it is rolled into public debt.

Mr. Lee How are Your Picks?
XLF bought at 23.33 now 21.68
XLY bought at 29.70 now 28.25
XLE bought at 86.02 now 74.39

Sources Cited:
1. otc-paperwork-commitments-again.html?cid=124912584#comments




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