Capital Preservation

Hi Pop, glad to see you are working with some brokers and getting the ball rolling. Here's my thoughts on what's going on in the market and a few investment ideas on the bottom...

In my opinion the politician's are playing russian roullete with the credit markets. Forget the stock market the credit markets is a much more dangerous and complex animal. An animal growling in the closest... no one is really able to quantify the size of the beast yet though.

But here's what I know... In terms of Housing prices to Gross Domestic Product (this is all the products and services the country makes, and essentially this is what backs the dollar since being off the gold standard) this is the biggest bubble in history. Bigger then 32' (on an GDP adjusted basis).

Good news - There is some talk of getting around the red tape of congress and the house and just using the FDIC to bail out and structure deals like they did today with Wachova and Citi. FDIC sweetened citi deal by limiting there potential loss on a portfolio of 213bil to only 42bil...

I got to say the NPR news clearly anticipated the log jam in the house/senate this morning I wish I would have acted on it... (buy SDS's)

More good news - There are some technical indicators that might indicate a bottom new HILO ratio, Selling volume verse buying volume was at 98% (wow), and the VIX a general indicator for option premium (aka - "Fear" or how expensive the insurance component is of all S&P 500 options) at record levels...

Bad news: Perception drives the market...The govie looks incompetent (bush needs to get up and explain this thing and push it through).

My girlfriend called me wanting to know what's going on w/ the market? (in any other market I would call this a buy signal, b/c when the novice gets out this is when the experts get in). There is however a very different dynamic here, when the general public gets nervious is exactly when this thing may become a real crisis- when the credit market contracts to a halt.

Lets get technical (technical anaylsis that is):
Past: we had a strong bull run in stock from 1981 to 3/10/2000... During that time the market averaged 16% up per yr even with 1987 when it lost 36.44% in a matter of a few weeks. After september 11th the market tumble 50% over the coarse of two years.

Reversal patterns: Both market bottoms where determine when the market retested lows price and THEN slowly built up steam (in 87' the market went down to 214 during the panic and then retested at 219 to build a base before taking off on an uptrend). After 2001 fall, the market had three BIG trading days that touching 775, 768, & 788 each one the low of the days trading. Once the market esablished a base it took off upward. General speaking the market is like a ocean liner it turns slowly...

Present: The market is down 30% over the coarse of almost exactly a year. Typically the markets find support in the past around the golden ratios 30ish, 50ish % down (as above). Right now it's a 1106 which is right about 30ish (if this is the turning point you'll see price bounce tomorrow or very soon only to revisit that price area again a few week or even months later).

Future: I think the govie MIGHT have been able to make 1106 the bottom, but what I think is actually more likely is the S&P will retrace 50% t0 768 (Scary I know). I think this crisis is more proportional in scope to the post Sept 11 (actually mostly proportional to the tech bubble). Although September 11 had a huge psychological effect, you could draw far more paralells to the rapid expansion of technology sector creating false (non productive) value and post 2001 goverment stimulas (fed reducing rates to 1%) and spending (war in iraq, without the spoils) creating false value.

Key levels to look for support on the way down: 1171, 1077, 768... (based on fibonacci numbers, the numbers represent perfect proportions based on natural systems. Abit mystical I know but they hold up especially if the markets can't fundamentally determine value).

Tip bits
The new york times reported that, post lehman collapse, Blankfein (goldman sachs CEO) was the only wall street chief exec to attend a meeting at the NY FED with a group of regulators and bankers led by Paulson (former CEO of goldman) to discuss what to do about AIG. The conflict of interest is that Goldman has reportedly 20billion insured by AIG.

Walking away with the cash: Paulson when asked to join the treasury had to cut ties with any corporation. So he was able to exercise all his goldman stock options for a cool 500mil (lucky bast*rd got out near the top of $200, currently 120), here's the best part No taxes...

I'm not questioning the mans actions b/c i think the were good... but wow!

ETFS vs MUTUAL funds
Basic discription:
http://www.fool.com/etf/etf02.htm
Argument for ETFS:
http://biz.yahoo.com/pfg/e09etf/art012.html
There is 3 pages read all three
(aside: I don't care how we'll you know the guy, if your broker says he doesn't know what an ETF is he is either not qualified, or he is lying. I would not hesistate to bet the farm that the guy has ETFs in is own portfolio).

Investment Idea: Below are regional banks and thier price to book ratio (For example Nat City stock costs .06 cents for every dollar of break up value- Yet just another indication that no one knows how to value these mortages.) If an these guys can pull thru should have nice returns.
NATL CITY CORP 0.06

SOVEREIGN BANCOR 0.19

REGIONS FINANCIA 0.29

FIFTH THIRD BANC 0.54

KEYCORP 0.59

MARSHALL &ILSLEY 0.72

ZIONS BANCORP 0.73

COMERICA INC 0.90

SYNOVUS FINL 0.99

1) IAT (ETF):
iShares Dow Jones US Regional Banks Index Fund is an exchange-traded fund incorporated in the USA. The Fund seeks investment results that correspond generally to the price and yield performance of the Dow Jones US Select Regional Banks Index.

2)I sent you a story on Nat City this afternoon, based on that story I bought 200 shares at 1.50... I figured it's worth a $300 gamble when the upside has got like 5 bucks or more the a 200% return... If I'm wrong and that bank goes under, news like that would have to push up my gold position higher.

Good night and lets talk tomorrow...