Endgame??

0015hrs
Oct 10, 2008

I've gotten a whole bunch of emails about what I think
of all this "stuff" that is transpiring, and how I'm
trading it. In no particular order, here are some
observations, starting with what I think is important
to watch for over the next 24-72 hours.

- My own trading is based on a personal belief and ongoing
practice that the market is a probabilistic voting machine
ie., there are not bad markets and there are no good
markets. This attitude forces me not to put labels such
as "scary" or "good" on the outcome of financial markets.
It allows me to be open to all possibilities. I've lost
money on four of the last five days as I did not control
risk on a few trades. So, now I move onto the new trades
that will beckon tomorrow. As long as I don't have hope,
show fear, or feel happy or sad about various outcomes in
trading....my trading will be without emotion whether I
make or lose money.

- Tomorrow (Fri), the true effect of the demise of Lehman
will be felt. Since Lehman's bonds are trading around 10-15%
on recovery, the counterparties to the trade may have to
pay up about 70-80 cents on the dollar. What is important
is how many of these counterparty contracts net out. If
things hold, then we'll likely be on our way to some sort
of stability.

- Its getting harder for the US treasury to sell its bonds
ie., the government has to pay the buyers more of an interest
rate to buy our bonds. If this trend continues it's VERY
bad for the housing market. And Yes, things can and will
likely get worse.

- The equity markets are not responding to these stabilization
plans because the plans are plain dumb. For instance, the
repealment of "mark to market" requirements is absolutely
stupid. I can wear a T-shirt, build my own model to price it,
come up with $5000 bucks. Will you buy it? Assets need to be
priced out in the open. We have to let the idiots that took
on undue risk, fail. Plain and simple. There has to be blood
letting.

- The idiots in Washington and the Presidential incumbents
keep talking of "Wall Street Greed". That's complete BS! It
takes two people to make a baby and this whole messy financial
orgy has many different players - Joe Shmoe that could not
really buy a house and lied about creditworthiness, mortgage
company that accomodated that lie by creating "liar loans",
the creditors wanting yield, the homebuilder wanting to sell
the house, and the Wall Street people that packaged the debt in
clever ways and the "Regulators" that did not create regulation
to stop the practice. We are all to blame. Realize that.

- The banning of the "short sale" rule, time and analysis will
show, was the dumbest things the idiots in Washington perpetrated
on US financial markets. Why? Shorts provide liquidity (when
buying back their shorts) to markets during severe downturns.
You remove the ability to short and you remove that liquidity.
I'm sure this dumb ruling exacerbated the sell off.

- If the Fed and Treasury keep doling out a different pill
every week rather than letting the markets find their own price,
this problem will be protracted. Imagine a doctor giving you a
different pill every week for the same symptom.

- aLV