Saturday, January 3, 2009

The next big TIP: Buy the financials with "borrowed" money

You had oil go to prices that made every speculator puke it up; and then you had prognosticators who pontificated that somehow these puked up prices were permanent, and then they declared that these prices were now the ceiling instead of the new bottom! You even had people touting oil at $17.85 a barrel just two weeks ago!

Look at the action in oil in the last week. Were these puked up prices permanent? At least here words weren't minced. It was a pounding the table buy, and not a sell!

You had government bond prices go to unheard of prices, with every bond bear covering, and every bond bull giddy, and prognosticators who pontificated that somehow these panic induced prices were permanent, in this new "deflationary" environment.

The reality is that the government bond market is a massive sell, and the corporate and municipal market are a massive buy, but the market seers now seem to only want Uncle Sam's paper.

Until they won't. And they don't want it now! Has anyone watched the action in bonds the last week? That story is over!

It;s the same with the financials. But the bear story there, is now over also. Remember this when on December 19, S&P downgraded 12 major European and American financial companies. How timely is that? Check out this story--"a Definite Bear Signal."

Here's the companies that the lightbulb went off with S&P!

A definite bear signal? No, it's a definitive buy signal! The day before Credit Suisse executives decided to take the "opaque" assets into their bonus pool.

Which means that these bank executives, who pimped sub-prime paper to their clients, while buying hedges on the same, now were seeing some light. And it wasn't that they were just so smart. It was just that they could gauge the level of interest of those who were interested in buying distressed paper.

Why else would it be in their bonus pool?

Didn't IndyMac just sell to the people who had made billions shorting mortgages. Now they are buying. And we are supposed to be bearish? If you need to buy a bank to get distressed paper, it means there isn't enough distressed paper that other banks will unload to satisfy the appetites of those short, or who want to play the rebound. The big banks have already gotten $10 to $25 billion a piece from the taxpayer to offset their mortgage losses. So why would they offload their paper? They'll keep it.

WASHINGTON -- The Federal Deposit Insurance Corp. reached a preliminary agreement to sell the remains of IndyMac Bank -- one of the biggest bank failures in U.S. history -- to a team of high-profile investors, suggesting there is private money willing to invest in troubled banks if the government agrees to shoulder heavy losses.

The investment team, which includes affiliates of private-equity chieftain Christopher Flowers, hedge-fund investors George Soros and John Paulson, and computer mogul Michael Dell, will contribute $1.3 billion in capital toward a purchase of IndyMac Federal Bank. The investor group and the government also agreed to share losses on IndyMac's portfolio of troubled mortgages, which will likely reach into the billions of dollars.

The deal won't come cheaply to the FDIC, which said on Friday it expects to lose up to $9.4 billion from the IndyMac failure. The FDIC's reserves were down to $34.6 billion at the end of the third quarter, compared with $52.4 billion at the end of 2007.
Heck, even Robert Schiller sees daylight on home prices!

They even had the FDIC backstop half of their losses, after the FDIC already took huge hits. And now we are supposed to be bearish?

Even the worst of the charlatans, Citigroup and it's executives, are supposedly now not taking bonuses. Does anybody think that this won't last?

You can rant and rave about terrible "fundamentals" all you want, but at these levels it won't make you any bit of money. Every dime and nickel has already been squeezed out of these banks on the short side. You need to own them!

After all, if things get worse; you the taxpayer, will just have to pay the tab. So why don't you make some money off it instead, and get bullish!

I suppose I can rant and rave bullishly about the banks, but anecdotal evidence in this cynical environment isn't enough of a reason, to turn those bearish bullish. So let's look at the evidence.

Remember when the shorts tried to drive Citi into the ground? When they nakedly shorted this number under $4? Did that work? It didn't, because our Government, effectively nationalized it, in a non-dilutive way to current shareholders. You, as a taxpayer prevented Citi's collapse. And now, you as taxpayer will backstop any and all institutions and banks that are going to fail!

It's the next big TIP! The Fed's Targeted Investment Program!

WASHINGTON (AP) -- The Treasury Department opened the door Friday to using a Citigroup-style rescue package to help other troubled financial institutions.
The financial lifeline thrown to Citigroup Inc. in late November involved backing billions in risky assets and providing the banking giant with a fresh capital infusion.

Treasury said participation by other companies in such a program would be weighed on a case-by-case basis. Treasury said it would consider, among other things, whether the "destabilization" of a financial institution could threaten the viability of creditors and others. It also would weigh the extent to which the institution faced a loss of confidence because of the troubled assets it held.

The information was contained in guidelines for the initiative, dubbed the Targeted Investment Program, unveiled on Friday.

Separately, a new program that provides government backing for a financial institution's potential losses from risky assets will be used sparingly, the department said. Congress required that the insurance program be created as part of the $700 billion financial bailout package enacted in October.

"This program will be applied with extreme discretion in order to improve market confidence in the systemically significant institution and in financial markets broadly," the department said.

Extreme discretion? When has Treasury shown discretion? Treasury has as much discretion as Hulk Hogan's ex wife at a High School prom or a Governor with an open Senate seat! It's just that Treasury keeps their discretions discreet!

So the Treasury get's looted. And you can complain about the bill, or play their game, and buy the Pro Shares Ultra Financials, (UYG 6.08), which will give you double the move of the financials.

They have finally bottomed, and now it's their turn to move!

It's the Treasury's TIP!


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