Friday, September 19, 2008

RIP Free Markets

I have said in the past that there is no free market. What an understatement.

This is the Mother of All Government Bailouts and a true government bottom

Paulson & Co are now spending trillions of taxpayer dollars to bail out his friends on Wall Street (banks, brokers, PIMCO etc…) while 45 million Americans have no healthcare and millions live in Third World conditions (remember Katrina?)

Banning short selling on financials and taking billions of dollars of junk off the books of the banks is disgusting. Why not cover the losses on all those people with mortgages under water? What about losses on oil longs? This is no different than communism where the government controls the market. That would be fine if the US didn’t criticize Japan and Asia for their attempts to manipulate markets in the 1990s. How much pressure did the US put on Japan to let banks fail and write off debts!

I’m not sure how this ultimately plays out but they clearly saw a 1987 type crash out there to do all this. It could still happen once we get through the near term spikes with heavy short covering. I covered some ultrashort funds on Wednesday but I still have some exposure here. I am not sure what to do as the rules that have governed this “game” have changed overnight.

It is probably best to be 100% cash IMHO as I don’t believe a new bull market has started but shorting here is almost illegal and hazardous to your mental health.


Jen said...

Would you recommend getting out of money market funds regarding what has happened with these funds in the US? I'm feeling it might be best to move MM funds into short-term treasuries or bonds, but I'm not sure what to do. I can see the quality of ABCP in MM funds getting ever lower and riskier, but I'm not sure how this will affect Canadian banks.

Any advice would be highly appreciated.


BBC said...

I have heard a rumour that BOC will drop interest rates due to the current bank turmoil. ..what do you think about this? Bandaid or softer landing? We had a crazy week...its getting scary out there, thinking of stuffing the mattress ;)

Adil Burney said...

A 25 pt cut by the BoC can't be ruled out here, although I doubt that they will move before the Oct 21 scheduled meeting (unless the markets crash).

I would also not be surprised if they do nothing with a bias to ease, but I don't buy the talk of a 50pt cut as that would weaken their inflation fighting credentials.

Most of the G7 is still holding rates steady so perhaps the BoC will want to err on the side of a hold. Tough call though...