Wednesday, August 13, 2008

Where's the "Money Honey?"

The market is so difficult for so many people, because people try and match the fundamentals they see in the economy with the stock prices they see on Wall Street. And Wall Street just spins the story depending on where the money is going.

Remember back when Maria was known as the "money honey?" Remember back when she would always breathlessly intone, "how's the flow?" or "do you see any conviction?" Doesn't that seem like so last year already?

Look at oil. On the way up, all we heard about was production shortages. Now all we hear about is "demand destruction." Remember the peak oil theorists? Peak oil was like Level 3 assets on banks books. No one supposedly knew what Saudi Arabia's oil fields consisted off. What was good and what wasn't. What was sweet, was was sour. What was in decline, and what wasn't. And nobody knew how much water was being pumped in the wells to get at the oil. (More water increases the pressure of the reservoir, and that pressure increases the odds that the reservoir pressure will ultimately collapse.) And the majors? Well they needed their books of "reserves" to be audited also.

Heck, Matt Simmons even made a $5000 bet with a NY Times reporter that oil would be $200 in 2010.

The brokerage firms fed the hysteria, but once SEM group blew up, the game was over for the oil longs.

Now look at the banks and brokerages. The "money honey" on them has been Meredith Whitney. Will she soon have Maria's fate? Will she be shilling books with Ted Simmons? Now that's doubtful! But she can be right on the fundamentals on wrong on stock prices. That "story" is over.

The banks are finally getting real. They are dumping their foreclosed homes at half off, and now the retail investor is getting whole on their auction rate securities. BMY wrote their ARS' down to .50 cents on the dollar!

UBS lopped 5% of of theirs.

Now that crisis is looking to pass.

No one wants to believe the housing crisis will pass. But the banks pricing mechanism is different from a homeowner. What's $200K worth to a bank, especially if you can get a net interest margin of 3%, and leverage it 10X? So who needs the housing inventory? So just blow it out.

But just like we had a resolution to the Auction Rate Security crisis, we'll have one in homes.

The rub is at just what price.

And soon, we'll get the new "money honey."

But you'll probably get a "catfight" first!

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