Sunday, July 13, 2008

Yellowstone trip delayed one day on account of financial insanity.

I've decided - in the eleventh hour - to delay the departure of my Yellowstone wildlife photography expedition by a day to monitor the insanity that will no doubt be coming tomorrow now that the Fed predictably announced they are really bailing out Fannie Mae (FNM) and Freddie Mac (FRE). How many hours has it been since the Fed lied right to our face and said they would not be bailing out these two companies? This seems to be modus operandi for our current Fed Reserve, Treasury Department, and President.

Step 1: Say you will not bail out *insert ticking financial bomb here*
Step 2: Hope they don't blow up so you can look like a tough free-market capitalist
Step 3: Realize that if anyone is wondering whether *insert ticking financial bomb here* is going to blow up, then it already has. This is like the Salem Witch Trials but where everyone is actually a witch.
Step 4: "Oh, crap."
Step 5: Bail out *insert ticking financial bomb here*

You don't even have to wonder anymore. Like a child who knows their parent's hollow threat of corporal punishment, investors can predict this sort of move all to easily and just need to plan accordingly.

The only question is how far the bailout goes, who it helps, and who it hurts. I'm anxious to watch this roadkill ressesitation unfold, because ever since October I've had to consider how big of a risk premium to add to my investment thesis in MBI going to zero due to the chance the government will bail out shareholders (my conclusion was they absolutely will not...they'll only bail out the policy holders).

So anyway...another morning to be spent watching financials trade at 5-10 times their average daily volume. Watching them trade plus and minus 15% in the same day as the market tries to desperately grab the sides of this endless well into which it is falling.

Tomorrow might be a good time to unload a couple of your long positions and short any one of the numerous financials that resemble a sliver of real assets tied to a nuetron bomb of debt. The bison are going to have to wait one more day.

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