Here is commentary straight from Options University
As we repeatedly predicted, many, many moons ago, and most notably within several issues of
"The Options Specialist", Options University's monthly newsletter, we've arrived at the time in which Congress is now in "full press" mode of their predictable "witch hunt" looking to "string up" someone as the "fall guy" for this cataclysm that Congress itself not only failed to prevent but in fact actually encouraged. That's an entirely different matter however and not our focus at the moment.
We were just reminded again earlier this week that things could have been much different, not only for the markets but for many investors that relied on the typical news sources for a "read" on things. We have to take exception with comments made today by Lehman Brothers Holdings CEO Richard "Dick" Fuld in front of the House Committee on Government Reform.
On Monday, he served as the "poster boy du jour" for the posturing pols. Below we're quoting directly from the prepared remarks of one Dick Fuld. He's just the latest "tricky Dick" to become a thorn in this country's side but a few lines that we've highlighted truly astounded us.
Behold:
"No one realized the extent and magnitude of these problems, nor how the deterioration of mortgage-backed assets would infect other types of assets and threaten our entire system." In April 2006, Chairman Bernanke predicted that the housing market
"will most likely experience a gradual cooling rather than a sharp slowdown." In March 2007,
"the impact on the broader economy and financial markets of the problems in the sub-prime market seems likely to be contained." Similarly, Secretary Paulson said in June 2007 that the crisis in the mortgage markets
"will not affect the economy overall," echoing the views of the International Monetary Fund.
And at Lehman Brothers' annual shareholder meeting, I too said what I absolutely believed to be true at the time - that the worst of the impact to the financial markets was behind us. With the benefit of hindsight,
I can now say that I and many others were wrong. Far from the credit crisis being contained, we now exist in a world where there are no major independent investment banks; where AIG, Fannie Mae and Freddie Mac are under government control; where we are seeing the largest bank seizures in history; and where we are struggling daily to stabilize the financial system. These events have been as stunning as they have been swift.
On September 14, there were four major stand-alone investment banks, and they were considered essential for the flow of capital to and investment in American business. Within a week, there were none.
Since July of this year, nine banks across the United States have been taken over by government regulators. Creditors and shareholders have lost money on their investments, employees in the financial industry - from support staff, administrative professionals, and recent college graduates to thirty-year veterans - have already lost jobs.
Around our country, workers in industries dependent upon the flow of credit fear they could be next.
Fortunately we're able to produce a track record across various media of having forecast just such a scenario. We don't claim to be alone in that as a few others were certainly sounding the alarms but we were vociferously consistent while remaining specific and exposed the mainstream financial media as the Wall St cheerleaders that they are in fact are and remain. We include a few choice pieces from Options University writers Ryan Mastro, Gregory Wolfe and their ethereal colleague "The Grayman".
A snippet from Ryan Mastro writing in The Option Specialist January 2008 issue:There are too many factors to go into of why this is not the right thing to do and why the Federal Reserve is just a puppet to the big banks. The reason why this bandaide will only help in the short term is that with rates decreasing banks can borrow money at a cheaper rate.
The lower the interest rates are the looser the lending practices become. This is what we saw with the last housing bubble. Short term rates were cheap, long term rates were relatively cheap allowing people to finance and refinance exorbitant amounts of debt in their house.
They used their houses as ATM's. I am all for using equity in smart ways. I suggest keeping about a max of 25% equity in your house and using the balance to create wealth in other ways.
But back to the economy. So to bail out themselves, banks need to get the interest rates down to a level where investors will start to purchase mortgage backed securities that offer a little higher rate than average.
The problem is now why would anyone get into a risky mortgage backed security or CDO (Collateralized Debt Obligation) for slightly better than average return? You wouldn't!
There needs to be a complete flush out of these old products. New standards and new risk measures have to be installed to reduce the risk for the average investor to get back into the murky waters. Banks are on the hook for all of the CDO's on their books at this time and there is still more to come.
This interest cut will not get people interested in the CDO's until the risk is reduced. The banks cannot sell these worthless pieces of paper to anyone so it is forcing them to write them down. We are now getting numb to the fact the banks are writing down multi-billion dollar quarters. How many years does it take to get back those billions of dollars in revenue? I think the banks are insolvent at this point, but the Fed will print as many dollars as possible to keep the major banks afloat.
They will also force banks to merge to hide the carnage. Case in point is the Countrywide deal. If Countrywide failed, we would have even larger problems.
From Gregory Wolfe in The Option Specialist May 2008 issue:Add to all of this the weak fundamental picture that remains, and the constantly amended financial write-downs and the "worst is over" kool-aid could be souring in the stomachs of even the most ardent and gullible sheep. Sorry, I meant bulls. What the matter of the next couple of months really boils down to is: Who and what is going to save the markets this time? Since October, the two times that the INDU approached 20% correction from its highs, surprise stimulus and liquidity measures were miraculously revealed from Washington (the second of which was predicted the day before it happened in the OUS forum).
A 20% retracement, of course, is an official bear market. Now I am no conspiracy guy, I even believe that we really landed on the moon, but it just seems a little coincidental that these measures were taken while we are in an election year, especially in an election year where there is widespread public dissatisfaction with the incumbent party.
A cutting from Warning Signs, the Grayman's column from The Option Specialist March 2008 issue:The Grayman isn't absolving any of the culprits in this mess but unfortunately the damage has already been done. The really good news is that Washington will now subsidize not only the crooks on Wall St. but many foolish consumers as well.
"Socialist Creep" had now become "Socialist Ramp". It seems as though a bailout is on the way for virtually every one and every group in "Bailout Nation". The free market will continue to take the majority of the blame and socialism will continue to win out.
The irony is that the reckless intervention and manipulation by Washington and the FED combined with a practically worthless federal government are really what caused our current problems more so than anything else. The beauty of it all from their perspective is that they now have the f.r.e.e market set to play the "Fall Guy."
How would the Grayman like this to be re?solved? As Quixotic as it may be, we're calling for an "unwind" here. We'd like to see all of the players that participated in this tragedy be made to pay for it. That includes- but is not limited to- all the agents, brokers, loan officers, inspectors, appraisers, attorneys, Wall St salesmen et al.
They had the party and they should experience the hangover. The more rational and reasonable investors who did not indulge in the mania shouldn't have to purchase the black coffee for these greedy opportunists let alone be responsible for nursing them back to health.
If the government can build an Atom bomb, fake a moon landing, and keep a straight face about inflation being under control, then they should be able to find enough bean counters to reconstruct the hous?ing bubble larceny to its sources and leave the rest of us alone.
Finally one more blurb from Warning Signs, the Grayman's column from The Option Specialist May 2008 issue:The financials will be back on center stage again very shortly. We know that some hall of fame level shenanigans have been perpetrated in that sector to prop things up but we're curious to see if it can last.
We know that all stops will be pulled to keep the charade going but we've found it interesting that commentators have begun to suggest that things will appear to have gotten better for the financials over the past quarter.
Reality would argue otherwise as would our research but if investors are indeed optimistically looking towards this next round of reports that sets up potential for serious downside fireworks. Just as the warranted concern last time around served to propel the financials higher on the subsequent manipulation, the opposite could occur very shortly when the reports really start to come out.
BUT, let's get back to the present. We take no pleasure from actually witnessing in real time some of our worst economic fears become manifest. We're writing to implore investors to become familiar with even just a moderate body of practical
options knowledge and a reasonable dose of our "alternative" commentary because that would have allowed investors to not only protect their portfolios, but depending upon the level of aggressiveness, possibly permitted sizable gains in this bear market environment.
We encourage everybody to explore things further at
www.OptionsUniversity.com. Options aren't nearly as risky and inaccessible as they've been purported to be and learning how to use them the right way has never been as convenient, nor as critical as it is today.
That completes the commentary from Options University
