October is Here

August & September were brutal, many are expecting October to be worse.

The following links have good analysis & commentary that are worth pondering as October begins:

http://www.robertsinn.com/2011/10/01/reaching-for-yield/

http://www.alphatrends.net/2011/09/30/stock-market-video-analysis-93011/

http://peterlbrandt.com/lessons-from-seven-weeks-of-stock-market-chop/

http://tradingwithtechnicals.com/deflationary-pressures-mount/

http://dragonflycap.com/2011/10/02/shades-of-pale-sector-review-1022011/

http://www.marketanthropology.com/2011/10/trilogy.html

http://highchartpatterns.net/miscellaneous-thoughts-including-market-talk-strategies-and-a-defense-of-dip-buyers-who-didnt-get-their-heads-bashed-in/

http://www.upsidetrader.com/2011/10/01/the-next-90-days/

There are other good analyses that I could link to, but those above provide more than enough color on the state of the markets, sentiment, and possible outcomes.

Let me simply point out, however, that with so many expecting a big flush, or "the final flush" any day now, it could be that too many bears are currently on board, so its also possible for an unexpected rally, or just more up and down gyrations that will drive everyone nuts.

AIG sells stock at $29, Ouch to Gov't, Fairholme

AIG is now down 31% from where I suggested to Bruce Berkowitz that he at least hedge, if not sell, his huge exposure. That's over 3 1/2 months !

JOE is down 21% in the same period.

MBI is down about 29% in the same period.

That's a huge ouch.

If BB were a hedge fund, as opposed to a mutual fund, his investors would have bailed by now.

I know this sounds like I think BB deserves criticism, or I don't like him, or something. That is just not the case. I only met him briefly that one time and I think he's a smart guy w/ a very good track record.

I am just mystified by the strategy of loading up on these dogs; riding them to huge gains; NOT CASHING OUT, and not hedging them ! His initial strategy, however counter-intuitive worked. But he didn't ring the register and is now paying the price.

Good luck Bruce. I would be interested in your thoughts on what happens next for your holdings in these names.

Bruce Berkowitz & AIG:I told him he should hedge his positions (MBI & JOE also); why didn't he listen ?

Over the weekend, I was thinking about writing a little piece here about a very smart and well regarded fund manager, Bruce Berkowitz, who runs the Fairholme Funds.

During 2010, Mr. Berkowitz had taken concentrated positions in several controversial stocks, notably AIG, JOE (St. Joe Corp), MBI (MBIA) and others. In my view, all of these companies were train wrecks, and I had on occasion played them to the short side.

News of Berkowitz' investments, along with his discussion of them in various media appearances, helped to rocket the stocks higher. In AIG's case, the stock went from around $30 to over $60. JOE went from around $18 to over $30, and Berkowitz faced off with David Einhorn, who had a well publicized short position in the stock.

Coincidentally, with AIG now $29 / share (again, down from $60 3 months ago), I noticed this on Twitter tonight.

Bruce Berkowitz Says He Was Wrong About AIG http://read.bi/lRyCuF

Yes he was wrong. Big time. Many Twitter and StockTwits traders & momentum chasers didn't believe me when I told them that these stocks were train wrecks, basing their views simply on chart patterns and Berkowitz' bullishness.

But I am writing this piece not to crow about being right.

What troubled me about Berkowitz' positions was not that he was long; it was that he did not protect himself through cheap hedging techniques from being wrong.

I don't know Berkowitz personally, although I did get to meet him briefly earlier this year at an investment conference in New York that he spoke at. He has a great track record, he is smart, and he seems like a likeable, honest, no BS kind of guy.

But he doesn't hedge.

How do I know this ? I asked him.

While I was confounded as to why he would take huge positions in stocks like AIG and MBI that were not only train wrecks, but black boxes that are almost impossible to understand, I didn't challenge him about that.

I just wanted to know if he hedged his positions, as I thought that he should protect himself and his fund. AIG for example, was going to be faced with the US government trying to sell its ginormous stake, representing 92% ownership of the company. That's a lot of selling pressure that hadn't even begun, and everyone knew about it.

Berkowitz should have sold down his stake during the run up, or at least hedged.

He told me that his positions were too large to hedge, and that is why he did not.

I thought that was ridiculous, but I didn't say so to him. I mentioned that I could show him how to hedge these stakes effectively and cheaply with options, but he didn't take me up on my offer, and I didn't push it.

I don't get how most long only investors that either can't, don't or won't hedge. Its nonsense and irresponsible in my opinion.

Anyway, I wish Bruce Berkowitz well, I had been meaning to touch on this subject.

Here are some charts of AIG, MBI and JOE ... the conference took place in late January or early February ... see what's transpired.

The Federal Reserve For Dummies - aka Bernanke Glasnost

Omid Malekan is back w/ another searing takedown of Uncle Ben:

"Since He Has A History of Being Wrong About Everything, And Has a Tendency To Lie ..."

Japan - How Bad Is It Really ?

While it is still too early too assess the damage to Japan & the Global Economy from the triple whammy of a 9.0 catastrophic earthquake, the follow-on tsunami, and multiple nuclear plants in full or partial meltdown, consider the following:

http://www.zerohedge.com/article/japan-update-it’s-much-worse-it-looks

Also, I read today that "Reactor # 3 used MOX fuels, that is recycled stuff (often military material). This contains plutonium and is a lot more toxic. that is true. a big problem is that such plants also keep all the spent fuel rods there in water pools in the reactor buildings. These are still very dangerous and can start to burn once they are not surrounded by air. Since this is quite an old plant I read that up to 600.000 spent fuel rods might be on the plant. So you can add these to the risk calculation. I just can’t see any positive thing there. It’s really a disaster and we will have to deal with that for decades or hundreds of years (or more)."

Is the USA Broke ? Can our debt & deficits actually be dealt with ?

Every day I see overwhelming evidence that the USA is in fact broke, the country's debt cannot be repaid, and the politicians and economic policy makers are recklessly exacerbating the situation through their actions.

Today's examples include the following:

Democrats -- no cuts, more taxes, more spending ! http://www.nationalreview.com/corner/261268/ahead-biden-visit-dems-call-higher-taxes-andrew-stiles

Uncle Ben "the Bernank" Bernanke -- full speed ahead over the cliff

http://www.zerohedge.com/article/guest-post-bernanke’s-unstoppable-self-reinforcing-feedback-loop

Uncle Ben dissembles in congressional testimony; distorts Taylor rule (intentionally)

http://www.zerohedge.com/article/when-even-john-taylor-says-bernankes-interpretation-taylor-rule-wrong

Michael Moore (y'know, big fat rich communist film maker)

Michael Moore Thinks Wealthy People's Money Is A 'Natural Resource' And Should Be Shared by @GlynnMacNhttp://read.bi/ehRzgm

Can It Be ? Tom DeMark says big Correction Coming

In these days of Fed Induced POMO ramps, DeMark calls for 11% correction .... we'll see

http://lemoyne-mappingthemarket.blogspot.com/2011/01/tom-demark-predicts-11-correction.html