I am really confused as to what the Fed is trying to tell us. Do they or do they not believe in the importance of transparency? Specifically, the Fed has refused to comply with requests for greater transparency (Bloomberg News has filed a lawsuit against the Fed demanding that the Fed reveal the assets on its balance sheet…only seems fair, right?), which is truly astonishing since both Hank Paulson and Ben Bernanke had touted the need for greater transparency during their plea for $700 billion to bail out their buddies…whoops, I meant to save capitalism and re-start the US economy. Sorry, I can be a bit skeptical at times when you have a Wall Street guy trying to save Wall Street. Come on…I used to work there and there is a reason I choose to not to do so anymore.
Over the past year, the Fed has opened the lending window quite wide to all of Wall Street. Surprisingly enough, the Fed’s balance sheet has grown by $1.3 trillion year over year. Last week, the Fed added $142 billion! I tell you…some of that would look nice in my account helping me out. Actually, I am helping to spend that amount since it’s our tax dollars at work. Wow, I am glad the Fed is taking care of us.
What’s really frustrating is that no one knows what the Fed is buying (and make note that this includes Mr. Bernanke). This is simply ridiculous. Honestly, it’s not a surprise that the Fed is refusing requests for greater transparency because Wall Street spent two years writing off roughly $500 billion in junk assets. So, how the heck could the Fed actually catalogue and assess the quality of more than double this ($1.3 trillion) in a matter of two months? I don’t think it’s possible.
Moving on. Did you read the news wire that Citigroup has announced the cutting of 52,000 jobs? This is in addition to the 40,000 job cuts the firm had already announced. I have to applaud Citigroup because they are deleveraging their balance sheet. It’s unfortunate that Vikram Pandit inherited this mess from Chuck Prince because it should have been Chuck Prince who trimmed the expense line long ago. Maybe, this will make Citigroup more able to acquire and properly integrate a regional bank, such as a Regions or SunTrust, for its deposits.
Last week, I attended the South Florida Auto Show in Miami Beach. I love car shows as I am always interested in checking out the latest concept vehicles and how technology will continue to integrate with auto manufacturing. However, this show was a bit of a disappointment when it came to the US auto manufacturers. I expected to see the Chevy Volt on display. Instead, I saw plenty of gas guzzling trucks and SUVs. Absolutely disappointing and another reason why they should not receive any government funding. Their only way to improve and revamp their business models is to go into bankruptcy and relieve themselves of the creditors, unions, and legacy costs. If they receive government funding, I guarantee they will come back for more because they would still have to pay back the existing debt (at sky high interest rates) and deal with the unions. Also, keep this in mind. General Motors is a $3.11 per share stock while shares of Tata Motors (TTM) is trading at $4.02 per share. General Motors has a market cap of $1.84 billion and Tata is at $1.55 billion. Yet, the former has a workforce that’s ten times larger. Again, another reason for a revamp in the business model for the US auto companies.
I read a good quote today from an investment letter I subscribe to on why the government shouldn’t bail out everyone and anyone: “you can’t hand your dog a biscuit after it urinates on the carpet or it will never learn.”
On that note, I made two trades today:
- purchased shares in JPZ (a fund with a breadbasket of blue chips) because these blue chips are getting very cheap, but I am not ready for the volatility associated with buying the individual stocks. I only bought a small lot of shares.
- purchased some Jan 17 09 UNG 36 calls for $1.05 (-UNEAJ) because it wasn’t too long ago that the premiums were above $1.50. If the stock reaches the mid $30’s (from a technical standpoint, it is ready for a bounce back as it is currently well oversold), the premium could easily hit close to $3.00. Plus, your downside is only the premium.
Here is an interesting article I came across today.
- Here is an article on returning to some sort of a gold standard. This article is by Walker Todd, who is an economic consultant with 20 years experience at the Fed Reserve Banks of New York and Cleveland and a research fellow for the American Institute for Economic Research in Great Barrington, Massachusetts.
-Moolah
