A Pirate’s Life for Me

Somehow in the excitement over the U.S. presidential debate, no one noticed Somoli pirates just scored 30 T-72 tanks, RPG’s, and Zu-23 anti-aircraft guns when they hijacked the Ukrainian cargo vessel, Faina. Since they didn’t capture a passenger plane, I guess the Global War on Terror is a success.

All Your Deposit Are Belong to Us!

Plan Q is unveiled as the Troubled Asset Relief Program (TARP) while Goldman Sachs and Morgan Stanley decide that deposits really might be worth their time. Considering the world no longer believes in the stand alone investment bank business model, Goldman and Morgan seem to be throwing a Hail Mary pass before they are forced to sell out. I for one can’t wait to see branch banks bearing the names Goldman Sachs and Morgan Stanley. Talk about the destruction of value! The degeneration of these brands into retail banking ought to result in the write down of imaginary property rather than the existing write downs of mark-to-market assets that should have been classified as held-to-maturity securities. Then again, no one ever said accounting was in any way related to reality.

Plan Q

The 1 month yield on treasuries went negative briefly this morning. The Fed has thrown out Plan A when it bailed out Bear Stearns. Plan B to save Fannie and Freddie should piss off anyone under the age of 35 and Plan C with Lehman is still working itself out, but the Barclays deal looks pretty sweet. As for the rest of Lehman, it’s anyone’s guess. Plan D for AIG is perhaps the best decision Bernanke, Paulson and co have made in the past year as long as no one mentions inflation. AIG’s loan is being provided by the Federal Reserve rather than the Treasury which means the tax payer will not be directly responsible unless that pesky inflation tax starts eating away at your purchasing power. Luckily, the rest of the world will be experiencing massive demand destruction so hopefully we won’t need to see what the Fed has up its sleeve to battle inflation in the short term. The VIX topped out at 36.40; not as high as the 37.57 in January but definitely a local peak. With the S&P 500 down 4.71% and the NASDAQ down 4.94%, investors have reason to be anxious. The Providence Society of Financial Analysts had its monthly meeting today at the Hope Club. Dan Fuss of Loomis Sayles gave a fairly straight forward explanation of how the CLO market is affecting European bank capital requirements. Anecdotes about polite, pissed off Japanese and Middle Eastern clients may indicate less foreign investment in the U.S. over the next few years but at least right now there seems to be plenty of demand for treasuries. The rest of his talk was entertaining without providing any insight on what might happen to interest rates tomorrow let alone next year. Everyone says September is historically the worst month for stocks and with recent events I would have to concur but I wonder how much can be attributed to the fiscal end of year for some funds.

Worth Remembering

In a rare example of long term consideration from the sell side, I would like to republish Bob Farrell’s Ten Market Rules to Remember as David Rosenberg reminds us of them today.

#1 Markets tend to return to the mean over time
#2 Excesses in one direction will lead to an opposite excess in the other direction
#3 There are no new eras, excesses are never permanent
#4 Exponentially rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
#5 The public buys the most at the top, the least at the bottom
#6 Fear and greed are stronger than long-term resolve
#7 Markets are strongest when they are broad, and weakest when they narrow to a handful of blue-chip names
#8 Bear markets have three stages: sharp down, reflexive rebound and a draw-out fundamental downtrend
#9 When all experts and forecasts agree, something else is going to happen
#10 Bull markets are more fun than bear markets