The Seas Were Angry My Friend!
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
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or call 888.484.8220 ext. 1.
The market’s attempted rally is all but on the morphine drip as the big money
crowd lit into the sell side causing painful losses for investors on
Thursday…not just here but around the globe. Studies show that the market has
flashed distribution days within the first three sessions of a follow-through 14
times since 1982. On 13 of those 14 occasions, the rally has gone on to fail.
Frankly, those odds are good enough for me.
What happened?
BNP Paribas, France’s biggest bank, said it was halting withdrawals from
three of its top funds worth about $3.79 billion and wouldn’t make investor
redemptions until it could determine net asset values. Determine net asset
values? As I have told you, I believe the net asset values for billions of
dollars in many funds were and are fictional. This was an accident waiting to
happen. The question now and most importantly, how big of a scale are we talking
about? Washington Mutual has finally fessed up this morning.
A move by the European Central Bank to provide more cash to money markets
only caused more problems. The bank’s loan of more than $130 billion in
overnight funds to banks at a low rate of 4 percent was intended to calm
investors…but in a case like this, markets around the world saw it as
confirmation of the credit markets’ problems. It was the ECB’s biggest injection
ever. The Federal Reserve added a larger-than-normal $24 billion in temporary
reserves to the U.S. banking system.
Kids, all the denials, all the “don’t worry” talk, all the “contained” talk
is now unraveling. Hopefully, someone can put a clamp on this but I don’t think
anyone has big enough clamps. On top of this, AIG is now saying that the
problems in subprime is spreading to prime and I am now hearing that the
almighty Goldman is about to drop another shoe. But it is not just them. Losses
are now widespread. The markets will get through this…but this will take time
and there will be more pain.
Again, this is another example of a problem that is never a problem until it
becomes a problem. How anyone could think this wouldn’t happen with so much
leverage, so much greed and so many on one side of fictional trades is beyond
me. Even the great Warren Buffett warned years ago that the build up in
derivatives and leverage was a ticking time bomb.
I am now going to tell you the next shoe to drop. If you recall, I have told
you that the recent buyout binge was also a case of fantasy land. You see, all
those buyouts were done with debt…but the debt was not raised yet. For a
while, there was no reason to believe all these deals would not get done…until
these leverage buyout idiots started jumping over themselves to buy out every
company in the world at inflated prices. Only one problem, the greedy became
overly greedy at the worst possible time….leading to a $300 billion void. No
longer can money be raised with ease. In fact, money is not being raised. That
leads me to the next problem…the unwinding of all these fantasy buyouts. Home
Depot was selling their supply company. Now we hear the price has to drop or
else…but what interests me most is what is happening to the stocks of the
companies that have been bought. When you have a chance, check out the charts of
Cablevision
(
CVC |
Quote |
Chart |
News |
PowerRating) and Clear Channel
(
CCU |
Quote |
Chart |
News |
PowerRating)! JUST LOOK HOW BOTH ARE
HEADING LOWER AS THE MARKETS ARE NOW BELIEVING THESE DEALS WILL NOT GET DONE.
Wait until we hear the first shoe drop in this neck of the woods.
 Charts courtesy of Stockcharts.com
 Charts courtesy of Stockcharts.com
Make no mistake about it. What we are seeing was caused by greed…nothing
more. Greed by the hedge funds who kept their fantasy prices high in order to
collect big fees…greed by the buyout kings who create nothing…greed by the
lenders who loaned to anyone for anything…greed by the big brokerages who sold
a ton of these products and yes, greed by investors who continued to buy into
this nonsense.
For months I have been complaining of an impotent Fed that has been wrong
about everything. For months, I have been complaining that they were behind the
curve on everything. For months, I have been complaining that they enabled a lot
of this and for months, I have been warning that I hope it never gets to the
point where a real problem arises…because they will only react after the
problem is already in the system. We may be at that juncture. I EXPECT THE FED
TO CUT RATES ANY DAY…AT THE LEAST…MOVE IN THAT DIRECTION. This will not cure
any problem…but will send a message that they finally get it.
Lately I have been accused of being a pessimist. I am not. I am a
realist…and when I see trouble, I do not believe in sitting on my hands. I do
believe we live in the greatest country in a time with the greatest of
possibilities. But I also recognize when greed has gotten out of hand. We all
saw it in 99…and we are now seeing it again. HOPEFULLY…HOPEFULLY…
HOPEFULLY…what we are seeing can be contained. I am not so sure…but I am
sure this will eventually pass…but certainly won’t even begin to bet on when.
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