Wednesday, September 24, 2008

Nobody is Trading... We Are All Watching the Bureaucrats on CNBC

It was to be expected that the volatility might compress in the days after the nonsense we went through last week. Add to this the fact that everyone was watching the extensive coverage of the House Financial Services Committee's questioning of the powers that be. If a second day of politicians not knowing how the hell the economy works (why are they on the committee?) was too much for you, the decision to keep trading might have seemed like a good idea. But sideways trade to nowhere is only a good thing for the market makers. One might have been better served by drinking beer and laughing at hapless congressman.

What I find amazing (other than the amount of useless campaigning that takes place at such a gravely important meeting) was the genuine lack of understanding of the world that surrounds these representatives and their decisions. These congress folk continue to be astounded at the "complexity" of our financial markets, fail to recognize that we have the only government who's borrowing costs DECLINE during a market bust, and completely miss that the fed and treasury want to buy up cheap debt assets which will provide a massive amount of cash flow. This is essentially the greatest carry trade ever. Our government borrows (currently) at less than 1% and buys debt products yielding anything from 6%-12%. Any bank would kill your grandmother to get this kind of positive carry.

Anyone testifying in front of congress about financial matters requires a heaping helping of diplomacy and almost infinite patience. There is, however, one representative who understands the market better than his peers: Rep. Spencer Bachus. This guy typifies the scumbag I was mentioning in my rant below. The representative from Alabama made an estimated $160,000 in short term options trades last year. Now I am not in any way saying that I know this guy had insider information.... but it is extremely difficult for me to believe that this man did not posses material information before any other scrupulous trader or investor who was not a member of congress would have. I'm not a member of the House Financial Services Committee, are you? And I know for SURE that Ben Bernanke and Hank Paulson have never shown up at my house on a sunday night to brief me on anything, let alone the largest bailout in history.


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