First Fall Is Not As Ugly Yet

With Monday drop in the stock markets, sentiments have temporarily turned. I think before the first week of July, stocks may be still in the “levitation” stage, meaning that a big drop won’t come yet. Plus that today and tomorrow, Fed will come out and swing again. We are sure to see some more volatility. Unfortunately, the only thing htat I’m more certain is that it may be a short-term downside on gold. Fed is losing its credibility. Whatever Ben says may backfire now, posing risks to further bond yield rise, or US dollar fall. If US dollar falls (which is less likely in the short term), then we can party on.

I have previously stated on my blog that I believed a decline will come by July/August timeframe (please post the link if you find it sometime back in April/May. I’m really too busy to blog these days). Currently, I’m still not sure if the current decline will turn out to be the retest of the low. It is still possible for stock markets to decline moderately towards late July, and rally back up in August to establish a lower high on the chart. In any case, it seems to be fairly certain that the high of 2009 AND 2010 AND 2011 is behind us. There may be a very brief year-end rally in December timeframe, but I seriously doubt that brief rally can exceed the last high. And the financial crisis will probably replay with a even bigger magnitude either second half of this year, or in 2010. In any case, I’m also certain that Bernanke won’t have his current job in 2011.

It is my opinion that one should divest everything correlated to the general economy and go to cash.

For the aggressive traders, they can look for establishing short positions.

Banks Paying Back Taxpayers Money

Ten large banks are paying back treasury with 68 billion dollars, so that they can be freed from government meddling in paying their executives. Now that all of their accounting book is blessed with marked-to-fantasy, they don’t need the cash anymore. Can we put in a clause in the payback that “please don’t come back again even if you’re insolvent (after squeezing out more bonus for executives)?”

I’ve said many times, and I will repeat it again. Option ARMs and AltA are resetting starting from about now until the end of 2011. The wave of notice of defaults is already coming (Dr. Housing Bubble has got all the charts here). It’s not a question of if, but when (the next wave of financial crisis will hit). Mark-to-fantasy by thinking that you have not sold your stocks (mortgages on the book of these banks) after 60% losses and that they will come back to full value after 10 years will not help at all. The end game will come, when the homeowners stop paying mortgage and/or walk away from properties. When the properties go into foreclosures and get sold, banks have to mark down the losses without a choice. The fact that banks are not in a hurry to foreclose all the properties tell you that the level of losses in a foreclosure will probably destroy the banks. By choosing not to foreclose (and not mark-to-market), insolvency can persist in fantasy land.

And before they go down, CEOs are going to squeeze out more from shareholders, bondholders, and taxpayers. They’re definitely a smart bunch.