DEFCON 4: TradeKing's view of the Fed

Asset ideas:

I actually funded, albeit modestly, my TradeKing account. Believe it or not I may speculate in AIG. Citi may be too late for speculation.

Don't get me wrong, such moves are just good bets with good odds. No real investing going on, in the true sense, unless my horses come in. Then, I am a great investor.

Below is the commentary from TradeKing's blog where the writer compares Washington to the military being in DEFCON 4.

I want to make a little investment based upon the notion that holding cash is stupid, and as I can't afford much gold, I may as well try to outrun the dollar. To my mind, AIG and Citi will not fail and their stock prices are so low, you are at the bottom. This is the time honored blood-in-the-streets investment approach.

The companies will not fail because the government won't let them. The government, which used to mean "we," are major stake holders in the companies. Congress and the prez want to proclaim they run things, not preside over massive collapse - and lose their seats.

There is no hint of letting them die, in fact Bernake assured the American people on 60 Minutes he would not let the big banks fail. OK, I take him at his word and since he can just hand over money, I see Citi as safe from bankruptcy. If not, one less day at the track.

AIG's Liddy told Congress he see a repayment to Congress in two to three years. He mentioned the "bonuses" were promised to individuals to keep experts around to sell toxic assets. They did - to the tune of 1 trillion. Again, I don't see AIG failing, now, as it is sort-of nationalized and on the way to recovery. Mr. Obama has pooh-poohed all the hysteria about taxing bonuses because he doesn't want the private investors to back away from dealing with the Reich, not because it was illegal. With each day, AIG gets better, rather than worse.

Colin suggested a bret on Ford is a good idea. Another near bankruptcy price. So, are the odds good it will not fail (If it doesn't then it will go to up, at least, 10 time today's cost)? Recall, Ford did not take money from the feds. This means something. Also, as it does during every recession, the market will come back. Cars die and they are essential products. Cars last longer these days, but commerce will pick up. At some point, the pent up buying will be let go. To my mind, then, there is a play here, but I will look closely. Who knows if it is long term.

I may buy a gold mine, as well. That is a good leverage position.

TradeKing blog:

(Updated: 4:30pm CT) The FOMC statement appears to have been written in DEFCON 4 status. A new term lending facility has been announced. It will accept even less credit worthy collateral than the previous multitude of term lending facilities do. They are in panic mode as well they should be. NOT ONE WORD IS WHISPERED AS TO ANY IMPROVEMENT IN ANY SECTOR OF THE ECONOMY SINCE THE LAST REPORT. The only thing the Fed has done in over a year is to open one lending facility after another and print more money to fund them. Oh wait, I'm lying.

They have also continued to say they are and have been optimistic during this same time period. Optimism, confidence and continued bungling in the financial laboratory do nothing for our economy. This "in for a dime, in for a trillion" game is insane.

In previous posts I told you this next item was coming. The first breath of air has just been injected into the next bubble. The T Bill market to be exact. One, potentially more lethal than any Ben has attempted yet. Mark my words. This could be devastating. Ben and his bunch of bananas have announced they will produce another $1trillion out of thin air. $300B of this will be used to purchase Treasury Bonds. The other $700B will be used as a BAILOUT for our esteemed financial institutions. Ben, the caped crusader, doesn't have the balls to call it a bailout, but a rose is a rose is a ...

Do you really believe they will stop at $300B for T Bills when they get the ball rolling?


My take on this:
Why would the Fed find itself buying long term T Bills? Because foreign interests have been selling more of and buying less of the U.S. debt (specifically, Treasuries) they hold. Why are they doing this? Because the ever increasing trillions of pretend dollars that sprout at the Federal reserve gives them well founded doubt that the U.S.will be able to honor its debt going forward. Would you trust someone who owes you money if they were unable to quit borrowing in order that they could continue on an un ending spending spree?

From todays calculatedriskblog.com excerpts from a long post. Well worth the read:
Bernanke's Grand Experiment Continues
Bernanke Has Failed
[Please note that Bernanke has already failed. "It" (deflation) has arrived. And deflation has arrived in spite of the fact that Bernanke has slashed rates to 0%, instituted numerous lending facilities that have all failed, squandered $trillions in taxpayer money, and has already implemented phase II (or do I mean phases 2 through 20) of his plan, that being the "offer fixed-term loans to banks at low or zero interest, with a wide range of private assets as collateral."]... [Note the losing battle Benanke is fighting: attitudes. The Fed has become the lender of only resort as opposed to the lender of last resort. Bernanke cannot force banks to lend nor can he force companies to hire or if they do hire the wages that will be paid.
Wage destruction continues unabated, and if Bernanke does succeed in driving prices higher, he just might ask himself, how anyone is going to pay the bills.]