If you follow the markets, you are more than aware that they have been melting down for the last three weeks, with the Dow crashing hundreds of points in a day. For those of us who trade stocks, it’s been a very volatile time, with fear and greed hashing it out big-time.
The cause of all this was the “sudden” realization that a huge number of adjustable rate mortgages out there were sold to people with poor credit, and that many of those mortgages are about to have their interest rates raised, leading to a large number of defaults. This in turn caused the rapid devaluation of many other investing vehicles which were levered to those loans, which in turn has sharply devalued the businesses of some of the biggest banks on Wall Street, and caused carnage in the hedge fund world (like, losing 60% of their portfolio values).
I won’t try to get into more detail than that here–there is plenty to read elsewhere on the subject written by more knowledgeable observers–but I’ll give you my bottom line, based on my research: The economy is in trouble, banks are in trouble, there’s not a whole lot that the Fed can do about it, and it is going to take a while to unwind…not days or weeks, but months or even years.
Consequently, I have unloaded almost all my long positions and gotten short via ETFs: SKF and SRS. I believe that this is a good time to be in cash or in a defensive posture. But the markets have been extremely volatile and irrational. There has already been a rally since the first selloff two weeks ago–when the Dow and oil had both reached record highs–but it has been a classic “dead cat bounce” and more than a few investors (like myself) swooped in on an apparent buying opportunity, only to get stopped out of those positions a day or a week later.
Danger, Will Robinson, Danger!
That’s about all I’ll say on the markets right now.
Moving on…I feel compelled to comment on the announced resignation of “Hot” Karl Rove, since he’s been a regular whipping boy in these pages, but I’m not sure what to say. In a sense, I think I felt safer knowing approximately where he was and what he was doing. Who knows what his next trick will be? But of this I’m sure: he’s not going anywhere. I have no doubt that he will continue to work on Republican campaigns and do everything he can to divide and conquer America by actively destroying its social fabric, pitting us against each other in order to scrape a few more votes his way. Just for grins, feel free to email me your best guess at Rove’s next gig.
Finally, I did a short (~6 minute) guest appearance at the daily online podcast The Real Story with Aaron Task today. Check it out here (“No Shelter From the Selling”). My bit starts around 27:00.
Keep your powder dry and your stops tight, and good luck everybody!