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Monday, April 13, 2009

Are You a BELIEVER?

Are You a BELIEVER?
NEW YORK (AP) -- A number of bank stocks bucked the broader market Monday, plowing higher as investors placed bets on which banks might report better-than-expected earnings in the coming weeks.The KBW Bank Index, which tracks 24 of the nation's largest banks, rose more than 6 percent. Citigroup Inc. and Bank of America Corp. shares led the gains, rising more than 17 percent and 14 percent, respectively.Analysts said much of the buying was fueled by investors trying to determine which other banks could be the next Wells Fargo & Co., which wowed the market on Thursday when it said it expects to report a record quarterly profit for the first quarter.The surprise announcement buoyed bank stocks and helped send the overall market sharply higher ahead of a long weekend. Markets were closed for Good Friday.

Sorry, I am not a chicken little, yet this type of manipulation appears to be so obvious that I have to step back and question the integrity of the markets. As a believer in the Free market concept I want nothing better than a bull market to surface. In the end however that Bull market needs to be based upon some reality. How can any Bank (especially any of the top ten) post record breaking profits in this economic climate? Of course you can get the books to say anything you like, I however any referring to some logically based factual evidence that this could even happen. Citi falls beneath a dollar and suddenly has Q1 profits of 8 Billion. Possibly with TARP funds in the books you can cook them for the appearance of profit. Yet with the credit markets still stalled and unemployment still rising as a lagging indicator, exactly where does this sudden surge of profitability come from? As an investor you have ask the question before you leap into the pool.

By simply racing to the troth in another greed driven motivation you risk getting caught up in allowing your wealth to be gobbled up by those who are looking to regain their losses. Could this possibly be a simple market run to pull in profits quickly? Is this a bigger gambit by the Fed to capture the personal wealth that has wisely sat this game out? Maybe it is simply a speculative day trader’s game to pull back losses. Any way you slice it, the same stench comes from it. Banks that over leveraged and gambled the house on high risk, illiquid mortgages are now somehow rebundling and packaging these very same derivatives and once again asking you to fall victim to your own greed weakness for some very quick profits. This is hardly the way back long term. I also doubt seriously that any of this market manipulation will be able to last.

Let's review; we have watched speculators drive the price of oil beyond $150 a barrel, thus driving the costs to the consumer to all time highs of over $4 per gallon at the pump. Remember this was totally SPECULATIVE; it had nothing to do with the principles of supply and demand. While this happening we watched as Land and House speculators drove the price of Housing through the roof once again with no basis of supply and demand only pure speculation. This housing boom led to a over speculation of the leveraged credit markets (mortgages) again all based on pure speculation. Now, the cycle is starting again this time hyped by the government in the form of the Federal Treasury taking the lead. In the end we must have stupid stamped on our heads!

In order to better understand what speculation truly is please read the following:

When Too Many Think Alike"As a general rule, it is foolish to do just what other people are doing, because there are almost sure to be too many people doing the same thing." -- William Stanley Jevons (1835-1882)

"In speculation, as in most other things, one individual derives confidence from another. Such a one purchases or sells, not because he has had any really accurate information...but because some else has done so before him"-- J.R. McCulloch 1830.

This is the first cycle when all asset classes have risen ranging from stocks to commodities. Everyone has had a taste of success. The explanation for it all is "the world is awash in liquidity". Everyone is also feeling rather complacent & secure. It reminds one of the Red Indians...."It was autumn, and the Red Indians on the remote reservation asked their new Chief if the winter was going to be cold or mild.Since he was a Red Indian Chief in a modern society, he had never been taught the old secrets, and when he looked at the sky, he couldn't tell what the weather was going to be.Nevertheless, to be on the safe side, he replied to his tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared. But also being a practical leader, after several days he got an idea.He went to the phone booth, called the National Weather Service and asked "Is the coming winter going to be cold?” It looks like this winter is going to be quite cold indeed," the meteorologist at the weather service responded.So the Chief went back to his people and told them to collect even more wood in order to be prepared. A week later, he called the National Weather Service again."Is it going to be a very cold winter?" "Yes," the man at National Weather Service again replied, "It's definitely going to be a very cold winter." The Chief again went back to his people and ordered them to collect every scrap of wood they could find.Two weeks later, he called the National Weather Service again. "Are you absolutely sure that the winter is going to be very cold?" "Absolutely," the man replied. "It's going to be one of the coldest winters ever.""How can you be so sure?" the Chief asked. The weatherman replied, "The Red Indians are collecting wood like crazy."

And so it is with SPECULATION, please don't get duped!
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