Thursday, February 26, 2009

Sometimes price isn't reality

Unless it is!

The action in gold looks like another bout of Government intervention, leasing gold to the bullion banks to bang it down, so the whole world will believe our paper, is once again king.

Today, we also heard that Jim Chanos, of Kynikos Associates, who had one of the better performing hedge funds last year, had redemptions for about 20% of the assets he had under management.

And if the best shortsellers investors are now already asking for their money back, what is happening to the average hedge fund that isn't performing?

If you saw the action in the financial stocks the last few days, you would of thought that "someone" had to bring in their shorts, or maybe, it was just the recognization that this environment is so poisoned that even shortsellers can't tell their stories to journalists anymore!

WFC went from under 9 to 15, USB went from 10 to 15, and Capital One went from 9 to 15 all in the past week. It looks like they all had the same script!

Remember back when all we heard about was the widening of credit default swaps? Now it even costs you more money to insure US paper!

And it's 100 basis points!

So if I want to buy a 5 year bond from Uncle Sam that's yielding less than 2%, theoretically I would have to put up over half of this yield up front to be assured that I'm going to get paid!

So who's the counterparty on the other side of this "insurance?"

And that's the market we have.

Where price is the new reality.

Until it isn't!

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