Friday, April 11, 2008

The Fed gives the all clear to buy

And they will. Goldman throws in $30 billion of assets to Level 3, and sells Chrysler bonds at .63 cents on the dollar. They must need the low mark for their credit default swaps.

Citigroup sells $12 billion of leveraged loans at .90 cents on the dollar. They must need the higher mark! (Just pretend that they didn't indemnify the buyers for their first 20% of losses!

Lehman Brothers, after raising $5 billion for a buyback that never was, another $2 billion unsecured, and a $4 billion non cumulative preferred, now tosses hundreds of millions away bailing out some of their funds and throwing these assets on their balance sheet. But not before constructing a $2.8 billion "Freedom CLO" and getting the garbage rated AAA. And then, giving it to the Fed! No wonder they called if Freedom!

Paul Krugman of the NY Times frets and says: "All of this involves fear of defaults by banks — despite what look from here (central New Jersey) like utterly clear signals from the Fed that bank debts will be socialized if necessary. I’m puzzled, and worried."

Bill Gross has been stabilizing the mortgage arena, by buying paper backed up by houses, and shorting Uncle Sam's paper, backed up by it's promise. here's the story:

"April 10 (Bloomberg) -- Pacific Investment Management Co.'s Bill Gross lifted holdings of mortgage debt in the world's largest bond fund to the highest since 2000, while putting on the biggest bet against government debt since at least the same year...

Bearish on Government Debt

The fund also increased derivative positions that make it short in Treasuries, meaning it will profit from declines in the securities. It held negative 18 percent of assets in government debt in March, the most bearish stance since at least June 2000, according to data compiled by Bloomberg News.

``Treasuries are the most overvalued asset in the world, bar none,'' Gross, Pimco's chief investment officer, said on CNBC on April 4."

The Fed's burying all the toxic paper until the economy has a resurrection, giving the green light to those who hold their nose, and cover their eyes and buy! Thank goodness Easter was early this year!

Tomorrow GE reports earnings. And the bulls will spin it bullishly. And those that sold stocks down at the close today will get clipped again.

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