Monday, December 29, 2008

A Look Back at 2008 Through My Eyes

What, you think I'm Larry Kudlow? Mustard seeds my ass. We have issues. The media will have you believe that the bell will toll on December 31 at midnight for the all clear. More of the same from that lot, just more of the same, and it will NEVER change, they have no vested interest in telling you to sell things. Why? Because about 1 % of the public knows how to short and it's not their audience.

In 2008 we saw the unfortunate failures of banks and investment banks, two of the brokers, Lehman and Bear I spent some great years working for. We discovered that Greenspan was a putz and was more knowledgeable about body tanning with Andrea Mitchell than anything about the economy. What a charlatan. We discovered that although Ben Bernanke was a scholar on the Great Depression he almost single handedly put us in another one. Speaking of body tanning, Angelo Mozilo sent Counrtywide Credit to hell in a hand basket and we discovered the hard way that the credit rating services give new definition to the word incompetent (they are analysts after all). Alan Schwartz at Bear Stearns told us things were swell and that counter party risk wasn't an issue but went belly up days later. Funny, why weren't some of my buddies taking their trades at the time of the interview? It was OK though because Jimmy Cayne was at the helm, he was smoking wacky weed at the time, but he was at the helm. Richard Fuld hid in his ivory tower as Rome burned to the ground, now his art work and Hampton's hacienda could be up for sale. He's not getting saved by zero. The Oracle of Omaha took it in the shorts because even the mighty fall when markets crash. Trust in the market was annihilated this year and nothing has really changed because we will just pass the baton to another twit who will be thrown into the deep end of the pool and will discover baptism by fire. It's just the natural evolution of things. Chairman Cox watched the world implode from his mahogany office, he started a "no short rule" but the market still tanked thousands of points. A couple of months later he signed off on some really sweet triple short ETF's. No, you can't make this shit up. Cramer yelled buy, buy, buy for about 90% of the move down yet the idol worshippers still call in every night just to say Booyah. The media has yelled "bottom" for thousands upon thousands of points and at some point they will be right by accident, but they did none of their viewers any favors.

But from the ashes some stars were born. Meredith Whitney was the only gal in the room that had the balls to call the financials the drek that they really were and still are. She received death threats and harassing calls from the old boy network that all suckle from the same teet. The same mindless warriors that travel together like neons in a fish tank, all snapping in unison at the same minute piece of food. Pathetic and no value added at all.

Some other brilliant thinkers added great value although they aren't new to the landscape. Nouriel Roubini has been around but achieved rock star status by going against he grain and calling a spade a spade. Doug Kass was as right as rain on real estate, mortgages and the bond insurers, and early on I might add. Gary Shilling waxed gloom on the home builders while getting abused by Kudlow. Peter Schiff can be Chicken Little but was spot on and is no longer considered the red headed step child. Honorable mention goes to Joe Battapaglia for never acquiescing to he idiots that surrounded him.

At the end of the day we discovered that all our leaders and pundits actually were the dumbest guys in the room. 98% of mutual funds lost money in 2008 and hedge funds went out of business, primarily because they got caught leaning the wrong way in over crowded trades, but mostly because the A-holes didn't hedge. Hence the name hedge fund? Sometimes the simplicity and obviousness is so right in front of us, but we fail to see. Funds became too big in the first place, they will be smaller now. God forbid a manager was at capacity and refused inflows, it might crimp on the almighty 2 and 20. It was easier to take the money and just go buy more Potash and hope it hit RBC's $450 price target. If not worry about it later. Well, later came.

We bailed out everybody in 2008 and I think it's only fair that we have two S&P's, the nationalized one and the free market one. After all the largest institutions took money, note to self, call my Congressman and Chairman Cox in the morning and make suggestion. The banks bellied up to the bar and if you weren't a bank you just filled out a simple form and became a bank. Piece of cake, even Goldman Sachs did it. Who's the schmuck that tore down Glass-Steagall in he first place? I need to find that guy. I remember saying as a green kid that banks know nothing of the brokerage business and that it would fail miserably. Because of the bailout I am now a proud owner of all the big banks, I hedge my position almost everyday by being short, and will continue to be through 2009. John Thain was at Goldman, went to the NYSE, went to Merrill diluted the begeezus out of it, said everything was grand, sold to Bank America and then acted like a brat last week demanded a $10 million bonus. Great job Biff, I have your back. He's another one.

Homes values got murdered and continue to do so as I write. Unemployment rose substantially in 2008 and will probably get much worse in 2009. Equity lines and credit card lines for folks were cancelled or reduced dramatically and retail produced the worst numbers in decades. 70% of what drives this market found itself to be broken, and that is the consumer. The autos bellied up because they figured out that they are really just health care providers that make cars as a side job, they realized that business plan doesn't work, they are on the verge too, but the unions don't care.

We elected a new President and he truly does face a bees nest. I wish him luck and he will need it. I was going to discuss 2009 on this post but will save it for tomorrow night. 2008 was my best year trading and I don't know if I could ever duplicate the results, but I'm sure going to try. I hope everyone made money or at the very least limited the battle damage.

8 comments:

Sail Away said...

Great summary! I've learned a lot reading your blog, so keep it up in '09!

coasternuts said...

Nice synopsis. A lot of it I didn't know, ie. who was behind what, but I knew where there's smoke there's fire and mostly stayed out. 9% for the year. I can only imagine what an experienced trader reaped knowing what fire was brewing underneath the sheets. Congrats on the good year!

gamingthemarket said...

The schmuck who tore down Glass-Steagall was Phil Gramm. From 1989 to 2002 he was the top recipient of campaign contributions from commercial banks.

He left Capitol Hill in 2002 joining UBS as a senior investment banker and head of the company’s lobbying operation.

Deregulation: Catalyst to a Crash
http://www.gamingthemarket.com/2008/12/deregulation-catalyst-to-crash.html

B-rad said...

Excellent summary of the shitstorm we've found ourselves in.

upsidetrader said...

gamingmarket
thanks, now i do remember-the self serving hypocrisy never ends does it? geez

upsidetrader said...

coasternuts
hey, most would have killed for what u returned last year, great job and have a great 09

Glenn said...

Great article. Just listened to your interview as well. Thanks for sharing your knowledge.

RE Pools said...

Larry Kudlow is an asshole.

Excellent article--thanks for putting up on the web.

www.adamjlevine.com

About Me

My photo
I am a former hedge fund manager, broker and capital markets dude who now trades for his own account. I love what I do. I will try to post some stocks and an occasional chart that looks attractive for entry.I will also try to point out the idiocy of conventional wisdom and the lack of value added by the mainstream financial media. These postings should not be viewed as recommendations.