Investors Begin To Doubt Fed Plan...With Good Reason

fed bailoutPeer Pressure. It was mostly present during our years in middle and high school, when someone or a group of people were able to convince others that doing something (which usually was bad) would be good for you and help you be popular or successful. Yesterday, it seemed as though many were "peer pressured" into buying after the announcement of the FOMC meeting results, believing that it had to be good news. But was it? I mean over a trillion dollars to go to the purchase of bad debt and US government bonds. It sounds the savior of the economy. Just breathing the words of the announcement caused a huge jump in the Dow. So it has to bee good right? What many didn't see yesterday, may have been shown to them later on as they began to break down exactly what the Fed was doing and what that meant regarding our economy. I don't give all the credit of today's red trading to a change of mind about the Fed meeting, but as it usually does, investors seemed to return to reality.

Lets be honest, financials have had one heck of a run. Sure, they were oversold a bit to begin with, but we were beginning to hit the overbought range after yesterday's trading. Let me give that friendly reminder that, without default, there is a $450 billion dollar gap of debt coming due this year alone for refinance and that is available in the lending markets. Having the CMBS markets and the sloppy underwriting that prevailed in the valuing of the assets, has put us in such a deep mess, not even $3 trillion of Fed spending has put bank's problems to rest.

We saw a big 16% gain from FAZ today as financials finally showed its first strong day of weakness in over a week. I don't think this puts an end to the rally, but I think we've pulled the parachute out. I still think the high 7000's, creeping to 8000, is still very much attainable, before we see some more serious selling. The government is not done handing out its bailout coupons and I think we may find some more of these "false" reasons to cheer. So, although the strong gains from the shorts today could be encouraging for some to jump on in, as for me, I'm holding tight. I do still own my FAZ options from Tuesday, but I'm still catching up from yesterday's slaughter.

I woke up with another treat today. A few weeks back, I had purchased some DUG put options for $25, expiring tomorrow at $ .80 per contract. Well, oil had not performed as well as I had hoped for March, and as of Tuesday, I was looking to write the option off as it was trading for only $.05 per contract. However, with the help of Uncle Bernie and his plan to print our way out of this, we saw very big gains in crude prices yesterday and today. Well, this morning, I was able to sell my options for a healthy profit at $1.15 per contract. If only I would have gotten in at $.05, right? Oh well, I had already considered those funds lost and to end up turning it for a pretty strong profit is unbelievable in my mind, especially a day before expiration.

Gold continues to be on fire and with good reason, as we passed the $11 trillion mark with our national deficit and are still spending like it's 1993 in Japan. In fact, gold passed big technical markers today, which could mean even more gains for gold next week. I have recently mentioned three times now on this site of gold being on my "radar", but had failed to pull the trigger every time. Maybe I'll learn from my mistakes next time.

So, still staying put at the time being. If we see a rebound tomorrow and next week and FAZ, SRS, and QID continue to get hammered, I will look to start buying in lightly into them. Also, buying some GS put options are becoming very appealing to me as well. GS has received a lot of love lately, especially because of their ties to AIG and all the help they've been getting, but at over $100, I think that's becoming shorting season for GS.

I am excited to let you all know, that I was able to negotiate a special promotion for those who are interested in Lending Club (click here to read my write up about the company if you don't know about them already). For those who are interested, Lending Club will help start off your investment by giving you $25 to start in your investment account. I was excited to hear about this and hope that for those of you who are interested in it, will take advantage of this promotion. I have been invested in it now for a few months and have been on target to receive my 10.5% return I had opted to receive from the beginning. Rob, my contact at Lending Club recently emailed me this, "Lately, we have observed increased interest from traditional stock investors," said Rob Garcia, Director of Product Strategy at Lending Club, "With average returns of 9.05%, low volatility (0.35%), and little to no correlation to the stock market (Beta is -0.08), Lending Club is quickly becoming a perfect investment opportunity for those looking to diversify or migrate current investments in today's environment."

So if you are interested in this promotion, click Lending Club $25 promotion, and following your sign up process, you will begin your investment account with $25 in it. I hope to offer more promotions like these in the future to help stimulate interest in new investment vehicles. As always, I would love your feedback. Also, a new podcast update is available for those who are subscribed, which you can listen to here. If you are not subscribed, you can try it free by CLICKING HERE. So on that note, Happy Trading and have a great night.


  1. ___ Says:

    That's a helluva a return per unit of risk for lending club.

    That kind of Sharpe Ratio is the stuff CDOs were built on!

    I'd do that trade all day and lever it to the moooooooon

  2. Anonymous Says:

    FF, with inflation coming I personally wouldn't want to tie my money up in a loan even while earning 10%. You'l likely end up loosing money in the long term, granted not as much as if it were sitting in a regular savings account or CD, but a loss noneteless. Bernanke is making sure of that.

    FF, you don't say much if anything at all about currencies. That may be a good area to venture into and subject to touch upon on your blog. Though your blog is crashmarketSTOCKS and not you do seem open to alternative investment vehicles a la this lending club program.

    Along those lines I've found some very good dividend paying foreign stocks. So with currency, gold, silver, oil and foreign stocks covered I just need an ag play or two. I missed the boat on POT when it was at $65. The search continues. Looking to round out my portfolio. Got some shorts as well with like 25% cash on the sideline that needs to be invested soon, perhaps more currency, silver, platinum or gold. Maybe a dividend paying ag stock. Now that's a good idea. I wonder if I could find a good one.

    Thanks for the post.

  3. dreadwinaard Says:

    If you're bullish on gold, but late to the party, why not look into AGQ (Proshares double silver)? I'm in at $42.38.

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  7. Unknown Says:

    Thanks for...

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    What a mess things have become.