Can Fraudulent Loans Destroy this Bull Market?
Gary Kaltbaum is an investment advisor with over 18
years experience, and a Fox News Channel Business Contributor. Gary is the
author of
The Investors Edge. Mr. Kaltbaum is also the
host of the nationally syndicated radio show “Investors Edge” on over 50 radio
stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”…a
weekly and monthly technical analysis research report for the institutional
investor. If you would like a free trial to Gary’s Daily Market Alerts
click here
or call 888.484.8220 ext. 1.
Fox Business Channel…Oct 15th…no more bubblevision.
Sorry for the length of today’s report but it is of import.
I would much, much rather write and talk about the technicals of the
market…but right now, it is imperative that I report to you what is going on
outside of the stock market. Unfortunately, everything I have been talking about
for 2 years on TV as well as on my radio show “Investors Edge” is coming to
fruition…and frankly, it may be much worse than I even thought. The complete
lack of foresight by the regulators and the overwhelming greediness by the
players put the markets in the position they are in. I am now starting to
believe that the credit bubble may go down in history as the worst bubble we
have ever seen…credit on steroids created by Easy Al. (Insert your own Barry
Bonds joke here.)
It was about 2 years ago when I stated on TV that what we were seeing was a real
estate and credit bubble. I was laughed at and received hate mail. This made me
question whether I was nuts. Why were only just a few people calling for a
problem? Simple…markets were still going up. Problems take time to work
through the system. In my past reports, I have outlined a few things that led to
the problems we are all seeing today. Some of the following is repetitive…but
necessary.
What you first need to know is that we could not have a credit bubble without
Uncle Al and the Fed. Think about it. The only reason the housing market got way
out of hand on the upside is because Easy Al lowered rates to effectively
0%. Speculation comes from easy money. The housing market got way out of hand
because Easy Al said that it is ok to lend $250,000 to a person with no means
by handing out interest only, no money down mortgages. In my last report, I gave
you a chilling quote by easy Al that in itself, was the genesis of the problem.
This enabled more houses to be built and more houses to be bought. The problem
was always going to be that when all was said and done , it was frauduent
demand. Someone who cannot buy a house, should not have been able to buy a
house. Why were only just a few people calling for a problem? Simple…markets
were still going up. Problems take time to work through the system.
Another part of the equation was the buyout bubble. That is now over.
How were the slimy private equity dudes able to buy hundreds of billions of
dollars worth of companies when they did not have hundreds of billions of
dollars to buy these companies? How were they even able to make the announcement
of a buyout when the funding for the buyout was still not at hand? Yup…they
were able because of the artificially low rates which enabled them to float a
ton of debt. Once again…the Fed. But as usual, when greedy people know they
are at the end of a cycle, they push the pedal down and buy as many companies as
possible before the well runs dry. Unfortunately, the greedy became greedier at
the most inopportune time. These imbeciles…yes, I called them imbeciles, are
now sitting with over $300 of unfunded buyouts…and I have news for these
Albert Einsteins, they aint going to get the money…because no one wants
to take on the risk and get a low rate of return while the slimebags take
hundreds of millions of dollars in fees. The game is up. Why were only just a
few people calling for a problem? Simple…markets were still going up. Problems
take time to work through the system.
Take the trillions in mortgages…package them…sell them…margin them up
anywhere between 50-90% and you have a recipe for disaster…and that is what
you are seeing now. The well runneth dry…and to be clear, when you see a Bear
Stearns in trouble, you have to know there is a lot more trouble to come…and
let me be doubly clear…no one knows how much of this gunk is out there. Funds
that were 75% margined only have to lose 25% to be out of buckos…this is not
hard to understand. I have sat in amazement that some are mad that Bear Stearns
actually told the truth on Friday. One latecomer pundit, who I believe needs a
rubber room, was yelling and screaming at them. Why were only just a few people
calling for a problem? Simple…markets were still going up. Problems take time
to work through the system. How could the so-called smart people not see any of
this coming? It is simple…and it is typical. Greed! Greed comes in all forms
and usually harnesses everyone down the food chain.
So now what? I cannot even fathom where this takes us…but I do have a few
thoughts:
#1:
Let anyone who should go bankrupt…go bankrupt. I believe in free market
capitalism…both on the good side and on the bad side. I do not believe in
holding up houses of cards and I do believe that people who took ridiculous
risks, should pay the penalty…big or small. You want to take on 90% margin, I
say have a nice life.
#2:
For the past 2-3 weeks, several Fedheads have been out claiming that the
problem is “contained.” Contained? Contained by what? As I have said in the
past, these Fedheads are either dumb or lying. In either case, it scares the
wits out of me. If the Fed is reading this, I would not even wait for your Fed
meeting on Tuesday. I would lower rates on Monday. Lowering rates would not save
the day and will not correct the problem. That will take time. In fact, I
believe this problem is not fixable in the short run. .But movement by the Fed
would send a real message to the markets that you are not a bunch of stumbling,
mumbling, bumbling ,fumbling, comatose, blithering idiots and that you get it.
You finally get it that there are real consequences of markets that are run amok
because the inmates were running the asylum. You get it that both you as well as
the other overseers and regulators stood by watching an orgy of credit and debt
and leverage infiltrate a system by the greediest of greedy people. You finally
get it that you should be in front of the problems and not enabling the problems
that are out there and that just because the stock market is going up,
everything may not be ok….because as I have told you, for some idiotic unknown
reason, it is only a problem when stock markets say so. Why were only just a
few people calling for a problem? Simple…markets were still going up. Problems
take time to work through the system.
#3
Make every hedge fund mark to the market everything immediately. When I
started in the investment business, I sold penny stocks. What we are seeing now
pales in comparison to the manipulation in the penny stock market. The penny
stock business was a very small market. The fraudulent loan business and the
fraudulent pricing of these loans is massive. I do not think it would be a good
thing to wake up every day to another fund marking their products
correctly…and going out of business. Take the medicine now so we can get a
semblance of order. I ask again…WHERE WERE THE REGULATORS? How were these
fraudulent markets able to live for so long? Oh yeah! Simple…markets were
still going up. Problems take time to work through the system.
#4
Shut Hank Paulson up. Hank Paulson and the company he used to run, were part
of this problem. Hank Paulson, in my mind, is and has been part of the problem,
not the solution. You just cannot come out every other day and say everything is
fine…when it is not fine. You cannot come out every other day and state
housing is stabilizing and bottoming…when it is not. Credibility is key when
you are the Treasury Secretary and frankly, I would rather listen to Michael
Vick tell me how to treat dogs then listen to Hank Paulson tell me the state of
the markets. How is a so-called genius not able to see any of this coming?
Why were only just a few people calling for a problem? Simple…markets were
stil going up. Problems take time to work through the system.
We are now hearing that even some funds in Europe are blowing up..thrilled. I
am hearing that a few more shoes are going to drop real soon. So…with the
unwinding of the credit bubble, the unwinding of the buyout bubble and oh yeah,
the unwinding of the housing bubble, we have one heck of a trifecta on our
hands. It is no wonder that markets are feeling the pressure worldwide. The
markets were way overdue to correct anyhow. They are now getting an excuse. I
have no clue whether the ugly continues but I know what not to listen to. I do
not want you to listen to the permabull strategists that continue to lazily tell
you their targets have not changed for the end of 07. Some of these pundits 2000
target have still not been hit. They were the same lazyheads that missed the
last bear market…the worst in 70 years. I do not want you to listen to the
calls of CHEAP and VALUE…and all that stuff. I have preached to you for years
that value is what the market believes…not a person’s opinion. I do not want
you to listen to the permabears either that have been calling for a crash since
the 87 crash. For them, this is a case of the broken clock theory. Listen to the
market.
As of right now, the market cannot be acting any worse. Oversold conditions
were only good enough to stop the bleeding for 2 days before Friday’s high
volume plunge. The TRANSPORTS, RUSSELL 2000,SMALL CAPS, MIDCAPS, NYSE, UTILITIES
are now trading below the LONGER-TERM 200 DAY AVERAGE…the NASDAQ and NDX have
broke shorter-term averages…and even the DOW, which always holds up best when
the market is defensive, is trading below shorter-term averages. The market
remains in a downtrend where a defensive stance is imperative. I will not buy a
share of stock until the market proves itself with a follow through day. I have
been in 100% cash since 7/25 and will not budge until the market decides
otherwise. Protecting capital in turbulent times is key. I do want you to
remember that the bad action did not just start in the past few days. This
report pointed out to you the meltdown in FINANCIALS, REITS, MORTGAGE, UTILITES,
REGIONALS, BANKS, MONEY CENTER BANKS, LENDERS and BROKERS before the major
indices came in. The major indices are now just catching up. I also make note
that my thought on OILS is also coming to fruition as they are now getting
smoked…so notwithstanding the few morsels of strength still left, there is not
much to even consider here. I also make note that world markets are now going
for the ride.
You will probably be reading this report about the time U.S. markets are
opening on Monday. There has been a lot of talk about whether the markets will
be roughed up following a late Friday plunge. I have no idea…but do believe
the volatility we have been seeing both up and down is just beginning. I would
say the best news that market may have here is that ALL THE NEWS is now
bad…and sometimes, markets perversely rally on that bad news. But…until I
see a follow through day, I am on the defense. A follow through day occurs when
the market is up on a day from any low…and in the 4th-10th day from the low,
is up 1.5% or more on heavy volume. Not every follow through day has led to a
new bull but every new bull has been preceded by a follow through day.