Friday, February 29, 2008

Mark vs Buffet vs Ultrashorts

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As we have mentioned each of the past few Fridays, I plan to lighten up on the Ultrashorts as we get near the weekend. We always have to fear government interventions. I watched one show on Fox Business last night, and the first 20 minutes literally was devoted to (I kid you not) comparing about 7 different "intervention" plans, 3 from Dems, 2 from Republicans, and 2 from Hillary/Obama. It is sickening to be blunt, but something we talked about last summer... as the situation worsens we will get bailout proposal on top of bailout proposal by these panderings *edited for content* ;) Now when one of these passes eventually, the market will scream higher, because after all, we are all about free markets here in America right? Right.

Anyhow, I do fear all these invisible hands and worse yet Buffet is on CNBC for 3 whopping hours premarket Monday. Last time he was on, he said he'd be happy to kill off the bond insurers by stealing their municipal bond business, and leave them to die on the side of the road.

This "news" today is quite funny: essentially Buffet told the bond insurers: I want the best part of your business; the business you were founded on - the municipal bond insurance business. This is a business with almost no defaults and the insurance (while low margin) is just about the safest business in the world. It's a cash cow and perfect business for a guy like Buffet. So Buffet "generously" is offering to take it off the hands of the bond insurers, leaving the bond insurers with the junk business. What a deal :). Now pathetically, the municipal bond market is not the problem, yet the equity market is loving every minute of this "bailout'... even though today's news essentially means nothing since it has nothing to do with the at risk part of the market. But logic and the market never really coincide much in the near term. But this is the risk of holding any position betting against financials - any "bailouts" or "solutions", however superficial are seen as major Kool Aid.

Just imagine what would of happened if Buffet actually said something that would of HELPED the bond insurers. This market is so desperate for any Kool Aid, they ran the market up 200 points. While ridiculous, you can't reason with Kool Aid drinking bulls. So Buffet was able to run up the market 200 points in 12 minutes. Now they are going to give him 3 hours. 180 minutes. So by my math that means the markets could rally 3000 points (200 points for every 12 minutes Buffet is on CNBC) Monday. So I don't want to be in front of that.

As we all know
  1. Buffet makes puppies happy
  2. Buffet will be happy to bailout all bond insurers
  3. Buffet will buy all homes from all underwater home owners
  4. Buffet makes little children happy
  5. Buffet can make credit problems disappear with his little pinkie
  6. Buffet makes Chuck Norris look weak
  7. Buffet will buy out Singapore's sovereign wealth fund
  8. Buffet will buy the entire United Arab Emirates
  9. Buffet will buy Yahoo for his buddy Bill Gates
  10. Buffet walks on water while riding a unicorn and butterflies and chirping birds follow him around everywhere he goes

So for these reasons, 3 hours of CNBC will get the Kool Aid bulls shaking with joy and we'll probably see Dow +3000 premarket. So I'll be cutting back Ultrashorts throughout the day fearing the Kool Aid that will literally be gushing out of my TV, not to mention the saliva running down the shirts of CNBC hosts while we hear about unicorns, butterflies, and little puppies.

Anyhow the market is down 2 days in a row, and it's been 48 hours since we heard of bond bailout talk so by 3:30 PM today expect CNBC to trot out Charlie G and tell us about how the bond insurer bailout is going to be here any minute now (for the 40th time). And the bulls will roar. And we'll keep repeating this ridiculous game until someone, somewhere decides to face reality. Until then... more Kool Aid coming next week. Frankly, this charade is all a bit tiring; if we'd face reality we could drop hard, wash out, and then build a case based on reality. But we refuse. So we keep repeating the same up and down, as we toggle between "reality" and "6 months from now everything will be great" - whatever the flavor of the day is, we trade up or down on.

Short Kool Aid


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