Living in a WTF World

Look you illiterate government people, the house (of cards) is on fire and you want to water the lawn, fix the gutters and paint the garage. I’m talking about your lack of focus in solving the problem in your face. I’m talking about health care reform, increasing taxes, cap and trade clean air programs, and telling people that stocks “might be a good value now.” Save it for another time, dillweeds.

Enough with all the stupidity and ADD behavior. Focus on the problem at hand: a broken down financial system. Your might also hire a few more people to help Tim out, as well.

Please refresh your memory with the circuit breaker rules for Q1 2009.

The situation with the capital markets is so ridiculous that we either have a “Black Monday” scenario coming up shortly, or….

We should be loading up on stocks for the bounce.

Either way, risk is at levels too high for me—-long or short. I didn’t think I’d have to do this, but…..

I’m going to 100% cash today. That’s right. I’m going to sit this one out for now.

The economy…..Housing…..jobs. The stock market. How does all this get better? I’ve got news for you—-it doesn’t. Thanks to the stupidity (or conspiracy) of the elected government officials and their appointees, this country is sliding from recession into depression. It’s past the tipping point now and we will not recover from this anytime soon.

If you haven’t done so by now, get ready for hard times. These will be times that you nor I have not ever seen or experienced. There is a time and season for everything. There is a time to be optimistic. This is not one of those times. Tis’ the season to hunker-down and “get small”.

I’ve taken a very defensive position that I intend to stay in for now.

Cash                                55%

Fixed income                   10%         (PZA)

Short fixed income          10%         (TBT)

Short Equity                     15%         (SH, RWM)

Currencies                        10%        (UUP)

Let it be known that I took some time off and spent the past five days in the backcountry, basically having a great time. I was able to step away, take my mind off the market, the news, and the plethora of crap on the airwaves.

Now that I’ve come back to it all again, I’m seeing things with more clarity, fresh eyes and a clean perspective. Everything is so glaringly simple, that it’s frightening. This whole situation with the economy and the market is still only going to get worse. Don’t try to overthink this and get all fancy-pants contrarian and shit on me. I’m not buying it. The trend is down, bitches.

Believe it or not, there is still a little too much optimism out there. Stocks and commercial real estate prices are still too high even at these levels.

Thursday’s action produced 33 breakouts and 68 breakdowns on my watch list of over 3800 stocks and ETFs.

Among the breakouts in ETFs:

DBE, SKK, and UCD

The breakdowns in ETFs are:

DRG, FBT, IBB, IHI, IYH,PBE, RYH, TLT, TIP, VHT, XBI and XLV.

By the way, the healthcare sector is selling off thanks to Mr. Obama’s plan to bankrupt this country  through “healthcare reform” that  “cannot wait, must not wait and will not wait” (or something to that effect).

(For a more complete list of yesterday’s stocks, by sector, that are breaking out or breaking down, check out my post in The PPT)

At these levels, C is trading like it’s either going to fail or be nationalized. Neither of those scenarios sounds good for the shareholders. However, we shouldn’t completely write off this stock. Let’s talk about this…..

First of all, the Feds probably will not allow Citi to fail. Regarding nationalization, it is a possibility, if the economy stays in this recession for an extended time. But, nationalization is the solution of last resort—at least that’s what we’re being told after they bound and gagged Chris Dodd.

Citi will be splitting into two parts. One will be an entity that will closely resemble the old Citicorp. The other will be a “bad bank” that will consist of $300 billion of assets that the government has agreed to backstop. The bad bank will also have some of the other businesses that Citi is looking to unload, such as 51% of Smith Barney to Morgan Stanley in a merger of the two brokers. Because Smith Barney makes money “the old fashioned way” (supposedly, they earned it), they are one of Citi’s better business. Obviously, due to present circumstances, Citi is selling SB because they need to raise capital.

Just know that Citi has a long way to go. It’s currently trading at a fraction of it’s book value (whatever that is) and will be taking in another round of TARP capital to offset losses still coming in waves of write-downs.

And, due to fortuitous “ring fencing” arrangements announced last November, they will share losses with the Federal government as well as have access to capital infusions.

C will issue $7 billion in preferred stock to the Treasury and the FDIC, in exchange for a guarantee on the $300 billion of assets in the “bad bank’s” balance sheet, that are backed by commercial and residential real estate. Citi will absorb the first $29 billion of losses on these loans, and the government will absorb 90% of the losses above that amount.  Citi will also be paying an 8% dividend instead of the 5% dividend required by TARP I.

In spite of all that, Citi is due for a bounce. This is a stock that is and will continue to be volatile, so if you like to trade, you gotta play in this sandbox.

I’ll be posting more on The PPT site later today, including what’s up with information on the new “stress test”.

Valuing banks right now is pretty much out the door, over the hill, and in the shitter by the pond. Sure BAC is trading at 0.79x tangible book value, but is it really a “bargain”? No Tim, I don’t think so, even if you say “no nationalization”. Besides, how can we trust any sounds coming out of Ken Lewis’ pie hole?

So,  when I take a look at WFC trading at 2.8x tangible book value of $3.85, I think to myself, “Self, that is just wrong”. Yes people, WFC is still trading at lofty and optimistic levels, even as pollyanna bank bulls cry “all aboard” at $10.91. What makes the Stagecoach People so special when the wheels are falling off the wagon?

WFC and their stupid stagecoach should be sold for firewood.

Thanks to their dumb purchase of Wachovia, WFC inherited Wachovia’s dumber purchase of Golden West Financial—originally, a $200 billion Calipornia headache. As you know, Cali’s mortgage industry has taken numerous Hellfire missiles to it’s already surgically altered face. It’s not pretty, my friends. It’s a downright ugly shame.