In Our Own Interests
Research for Online Investors

by John Dalt

2/18/11

Stupid headlines and statements are always coming across the wires.  Today French President Nickolas Sarkozy told the G-20 finance ministers that economic policy coordination was the only way forward, “Giving priority to national interests would be the death of the G-20.”  So, why didn’t the U.S. walk out?  We could leave our phone number; tell them to call when they had something to talk about that interested us.

The Chinese are not as polite.  According to Reuters, the Chinese central bank governor Zhou Ziaochuan, told the conference that ‘China would decide the pace of appreciation of the Yuan, and would not be swayed by pressure from other countries.’  You have to love it when the Communists are better Capitalists than we are!

The New York Times has a headline “Mystery Surrounds Elevated Borrowing from European Central Bank.”  What the heck is the mystery?  We have written about Portugal, Italy, Ireland, Greece and Spain (PIIGS) for over the past year!  Half of the eurozone countries are going broke.  The ECB is buying their debt from banks to keep money flowing.  The sheer size of the overnight borrowing caught market participant’s attention.

Normally the ECB loans out $1.65 billion in overnight “emergency” funding. For the last two days, the ECB has funded $22 billion to banks in the higher cost overnight loans. The ECB will not identify the borrowers, or comment on the jump in loan demand. Suffice it to say, somebody has a problem, and their country’s name begins with one of these letters “PIIGS.” Or, maybe we have a new victim ready to make headlines, like Belgium?

Bernanke says that “Foreign investors fuelled credit crisis.” According to the Financial Times, Bernanke wants to blame the credit crisis on foreign banks that bought the sliced and diced mortgage backed securities (MBS) that U.S. banks created.  This headline caught my attention as it seems close to “the dog ate my homework.”  In a certain way he is correct, but it is hardly worth saying.

What is worth asking is “Why did we bail them out?” Most of the money the government put into AIG was used to bailout banks in the U.S. and abroad. Why didn’t we let them fail for making foolish investments? One truth in business is that the best learned mistakes are the most expensive. Who learned anything constructive from the credit crisis? Certainly not bankers, they all got out with their silk suits. Maybe the silver lining is that citizens woke up and kicked some pols out in November 2010.

According to CNBC, China flexed their financial muscle with the U.S. during the credit crisis.  They were worried about their investments in U.S. Treasuries and other assets in the U.S.  In June of 2009, the head of China’s sovereign wealth fund met with Turbo Tim Geithner.  The Chinese government needed Geithner to ‘lean on regulators at the Fed’ to speed up approval of a $1.2 billion investment in Morgan Stanley.  The deal was approved the next day!  As I write this, I am on hold to the IRS.

The market looks to close higher today.  We don’t know what to say.  Last July and August we listened and were scared of all the doomsday predictions as the market bounced off 1040.  We became so conservative; we couldn’t see the opportunity the market presented.  Today I heard a commentator say the Dow was headed for 14,000.  I thought about it…na.a..a

Extremes are meant to be ignored, and I believe we are in an extreme situation right now. Just like we were in an extreme situation last summer on the lows, we are extremely high right now. I cannot imagine the market holding these levels. That doesn’t mean it couldn’t close this high at the end of the year, but how are we going to get there?

Let’s have a good weekend; we have Monday off for President’s Day.  We will be back on Tuesday for another week of market action.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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