Well, my previous post predicting Dow 9000 no later than year end was way way off… It only took 3 days. Unfortunately, I’m a terrible trader and still reeling from the fact that I puked my short position of a lifetime at the interim top after the government changed the rules back on September 18th – so I never re-initiated my short position – but I’ve been lightening up my equity exposure all the way down.

Everyone seems to be expecting a capitulation rally of massive size and scope – and every day where the rally doesn’t happen is exceedingly more of a bearish indicator. Like yesterday – when the Fed and Europe emptied their holster with one of their last bullets: a coordinated rate cut: and the rally fizzled quickly. Then today – CNBC anchors were high-fiving when the Dow was up 150 points this morning- REALLY!??!?! The Dow sells off 2000 points in a week and you think a 150 point rally signifies a cessation of fear? Good luck with that. Anyway, let’s get to the real commentary:

-Greg Mankiw has a very good idea about how the Treasury could go about injecting capital directly into banks and financial institutions that would prevent conflict of interest (like Paulson giving all the money to Goldman while he let Lehman die) and lessen moral hazard:

Mankiw is a professor at Harvard, so there is even a chance that the doucheballs in Washington might listen to his suggestion.

-The Gothamist has a must see picture of the Wall Street Bull’s blue balls, titles “Wall Street Really Needs Relief.”

-On Paul Kedrosky’s blog I found the video below which does a pretty good job explaining exactly what went wrong with CDO’s (Collateralized Debt Obligations)

Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.

-How can anyone say our economy is fucked when the VIP Club is launching a $1,000 lap dance?

Keep the G-string… ugggh… I mean, what would you do with it? Use it as an eyepatch for a Halloween costume? Give it to your cat as a treat? Sorry – I just threw up in my mouth. It reminds me of an old axiom a former colleague of mine had: “If it smells like nova, turn her over.”

-The NY Times also had a big piece on former Fed chairman Alan Greenspan. Greenspan was a free-markets believer who stuck to the basic tenet that the market would be self regulating – that the BUYERS of all these fancy products Wall Street created wouldn’t be buying them unless they were worth the risk. He was flat out wrong about that. His policy of easy money supply in the wake of the collapse of the internet bubble replaced a relatively benign (outside of the stock market) internet stock boom and bust with a far from benign housing bubble of massive proportions. The problem is, when People bought AOL at $250/share and lost 90% of their money, they realized that there was nothing they could do. On the other hand, now, when people are down 30% on a house they bought with 5% down or less because someone gave them a loan which they never should have received – well, now they somehow feel that they are owed something by the System. I think I’ve already made it clear where I stand on that.

But please, Obama – please stop blaming the Bush Administration for the problems. They would have happened regardless of who was president, and there are a variety of people we can blame: The people who took out imprudent loans, the banks who made imprudent loans, the Government Sponsored Entities who guaranteed the imprudent loans, the conservative politicians who pushed for deregulation and figured the free markets would work on their own, the liberal politicians who pushed for the unreasonable goal of home ownership for everyone and exacerbated the debt problem (and who continue to suggest more debt as the solution), the ratings agencies who completely failed in their risk assessments, the people who bought the derivatives instruments and used extreme leverage to create a systematic risk to our country, and finally, the SEC – who first increased the maximum leverage allowed (At the behest of current Secretary of the Treasury Paulson, who was then at Goldman Sachs) and then failed miserably in its oversight roll and was probably most charged with preventing such abuses. So anyway, Barack – just say we have a problem – don’t blame Bush… That’s so Pelosian.

-I was talking with a friend of mine who is very in tune with the markets 2 weeks ago and she asked me, “When do you think gold and S&P will cross?” “A thousand,” I replied quickly – the S&P was at roughly 1200 at the time, and gold was around 870. “Yeah – I have around 900 as the level,” she replied, and BOOM – today it happened – gold crossed over the S&P 500 at roughly the 910 level. Barry Ritholtz also wrote about this tonight.

-Finally, commenter “The Bartender,” who is an inside member of the Dynamite family, suggested the video below, which we had all gathered to laugh about last December at Holiday time. Seems like the US Peso could be next…

Enjoy the ride.
-KD