TBTF October 12, 2010 - The beat goes on

Too Big To Flail

October 12, 2010

The beat goes on, the beat goes on, Drums keep pounding a rhythm to the brain, La de da de de, la de da de da (Sonny & Cher – 1967)

The two main themes of this play we call the US Economy are still housing or better yet foreclosures and the devaluation of the US$, also known as QE I & II.

First of all, the housing market. The subject is diverse and though it may seem to be hard to grasp, it is a lot easier to handle than let’s say your ordinary CLO or ABS. I found a Cheat Sheet to the Foreclosure Crisis on Seeking Alpha. The article covers the consumer side of this housing market foreclosure mess. Makes it easy to see that the ramifications could be such that nobody (a lot of people) knows if the house they live in is legally theirs. From that it’s easy to conclude that investors in CDO/CLO and all those exotic derivatives, that may or may not have a lot to do with mortgages, have a basis for suing the financial firms that sold them instruments on mortgages that are not valid. If ABN Amro can sue Goldman Sachs over hiding the identity of John Paulson as a counterparty, then an onslaught of law-suits can and will come forth to try and recuperate some or all of the losses that were made in the tricky 3-letter-instrument market. (For more explanations and up-to-date news see 4closurefraud) To be continued….

The one piece of ‘economic data’ everyone will be watching today is going to be the ‘Minutes of FOMC Meeting’. Will there be a clear sign that Bernanke will start QE II and crank up the printing press once more? My guess is NO: Mr. Bullard (St. Louis FED) will be against and Mr. Evans, Mr. Dudley and Ben-The-Man himself will be the advocates of another round of pump-and-pump.

The price action on the markets yesterday was a reflection of the tug-and-war within the FED. Markets went absolutely nowhere and ended the day flat.

Dow +0.04% S&P +0.01% Nasdaq +0.02% EuroUSD 1.3888 WTI $82.30 Gold $1.354

Telcos were the best performers +0.3% while Industrials lost 0.26%

We will probably see more of the same today. Technically the picture hasn’t changed in the last 2 weeks. With all this uncertainty surrounding the housing market, a potential second round of stimulus and the mid-term elections of Nov 2^nd keep investors at the sidelines, as they have been for most part of the year. Will we break the stalemate? Yes! When? Your guess is as good as mine, so let me know please….

Happy Hunting & Let’s be careful out there !!!