Securities Research Services

Friday, April 04, 2008

Look! That Pig is Wearing Lipstick!

Despite all the hullabaloo in Congress regarding Bear Stearns yesterday, the market held its gains yet one more day. This can be best interpreted as the market agrees with Tuesday's strong breakout and an argument, we think valid, can be made that it is just biding its time for follow through higher.


The market turned 180 degrees yesterday and as such, the recommended position flipped to long. Over the past few days we have argued that it was too late to add new short positions and to protect last Friday's lows with stop losses. Indeed, this should have protected everyone from a loss, thus we were accurate in assessing that risk was manageable on the short side.

With the strong reversal that not only took out Friday's highs, but which blew through the 50-day average on strong volume, long side risk is now quite manageable with stops to be kept below Monday's lows.

Bear Stearns: The Pig That Was All Gussied Up to Be Sold To Your Pension Manager

Speaking of Bear Stearns, the argument has been tossed around over the past few days by's Jim Cramer, among others that a good company was taken down by short traders.

This is bunk. Don't believe those who tell you any different.

These types of arguments might work amongst school children but for the rest of us adults it is clear that banks are in trouble not through some Fed conspiracy to take a monopoly position in the industry and not by a handful of secretive and powerful short traders. The banks are in trouble because they took on massive amounts of risk and hid the risks from their investors by doing what Wall Street has been doing for years, putting lipstick on the pig.

In other words, the official story is Wall Street lying to you. Protect yourself by being skeptical, it is in your best interest.

Here's a nice little presentation on Sub Prime that explains in very simple, yet profound terms exactly what happened and what type of fraud was perpetrated on investors. This is nothing new. If anyone is interested in seeing how Wall Street operates from the inside, read Liar's Poker and learn how banks like Bear have been putting lipstick on pigs like many complicated derivative packages and hawking them off to your pension fund managers for decades now.


Note: The presentation is from a Russian website, but it has both English and Russian translations. It's easy enough to navigate. Just click the funny little set of symbols [Следующая] at the top of each page. In Cyrillic these symbols spell the word "next."

No comments: