I have no idea why the market retreated the way it did once the news came out. Nobody exepected anything and we got just that. However, towards the end of the session I was willing to venture my twitter trade against the trend because of the fact that a) we’ve already seen a selloff over the past 8 days in the market and b) there really wasn’t that much to dislike about the Fed decision today. I expected a slight rebound towards the close and we did get one.

In other news, I just finished browsing through some of the Transformers 2 reviews. I hate Michael Bay movies with a passion, but I’m realistic enough to know that even though this one got truly devastating reviews it will once again make autobot-loads of cash at the box office.

You know, if we were really experiencing a new normal, maybe people would wake up, start turning on their brain and stop spending their money on shitty movies like Transformers 2. Or at least they’d consider waiting until they come out on DVD to save some dough. And maybe they would not buy the DVD, but just rent it.  However, so far I don’t see any signs of that. Do you?

Until that happens, you know the new normal is really the old normal.

Be all that as it may, did anybody follow my live paper trade today on Twitter? The point was to demonstrate the use of scaling to slowly build a position at a favorable price. It did work to some degree and I think I was able to get the point across, but of course I’d have preferred a nice reversal at the end to end in the black.

Besides that, the put spread hedge that I recommended in early May is now turning out to be helpful after all. I’m also happy that my favoured utilities held up very well today and made it through the selloff almost unchanged.

Other than that, I don’t think anything noteworthy happened today. See ya ladies tomorrow. Let’s see if I can make it through the night here with all these constant storms..

No, this is actually not me making fun of them. More interesting is the key takeaway revealed at the end: the fact that they’re now happier people for having less. They called it the new normal. The new happier normal. Back to the roots so to speak (literally, at one point the Dad showed a beet to his son, who marveled at the foreign sight).

Here is my own personal takeaway: did you notice that whenever something big happens, people extrapolate the effects of that into all eternity? We already knew that they do it with assets time after time, creating bubble after bubble along the way. But they actually do the extrapolation with everything. Currently every economist runs with this “no more credit EVER, so what does this mean for our future?” theme. Nobody that I know of ever expects a return to the old normal.

But experience should teach us that nothing is stable. Bubbles eventually deflate despite everybody’s frenzy that created them in the first place. Life moves in cycles. We’ve just experienced a down. Next will come an up and before we know it we’ll once again have the story of the real gossip girls and real desperate housewifes on late night TV, living it up in all decadence, and inspiring the rest of us to follow suit.

And I guess then 20:20 will have another feature on it, on the new old normal. Giddy-up!

Well, now he has discovered a new evil product that had the audacity to lose their investors money last year: “Reverse convertibles” (say it out loud like Satan would). Good old Felix. Either he doesn’t know his finance 101, or he just wants to feign outrage for publicity’s sake, as he usually does.

What is he upset about? A bundle of things. Let me address his major points.

1. They are called bonds, but have equity-like downside. That is misleading.

Well, you know, individual corporate bonds also have equity-like downside when the issuer goes bankrupt. And as we discovered over the last few years, even houses have equity-like downside. Should we ban houses too?

2. They are sold to clueless investors, even though they have such downside.

Investors always pretend to be clueless when their investments go sour. And then they start crying, run to Mommy and try to get their money back by suing and complaining. They do it with houses by just walking away, they do it with stocks (”oh, our financial advisor never disclosed that equities can lose 50 % in one year”), and now they do it with reverse convertibles.

3. They have excessive fees

So do a lot of products, including mortgages, appraisals, refinancings, etc. Let’s ban all of them.

4. They are much too complicated for retail investors (similar to 2)

That is true, but you know, finance is complicated. That’s what you pay your financial  advisor for: that he preselects an investment suitable for you, based on your individual risk profile. Does this mean that he should be omniscient and be able to avoid everything that could potentially lose money? I wish. If that was possible I’d outsource all my own investments to a guy who can do that.

Listen Felix: if these investments were sold as something else than what they are, then you should go after the prospectus or the FA. Banning the product is just short-breathed populism, something that you unfortunately exhibit in many of your posts (which always, always go WITH the crowd, never against it).

What do you want? Treat the consumer like an idiot? Then you should ban a TON of stuff, not just reverse convertibles. Maybe you should even ban children then: just too complicated, risky and work intensive for the average consumer: “Who knew these little guys would be so much work? Nobody told me! And the costs? Food, clothes, toys…Sheesh”

And who is going to ban all these products? The government that you hate on in most of your posts? I guess. Is there anything left that you actually like, dude? Does anybody ever do anything RIGHT according to you?

Fact is: reverse convertibles are an interesting product, but they do have their up- and downsides, just like everything in life. It goes without saying that their risks should be adequately disclosed. But banning them? That’s just stupid. Before you call for a ban, why don’t you check how they do as a group over the long run, instead of just looking at a not-so-random sample of 1 client who lost money last year? How ridiculous.

Did this confrontation solve anything? Is there anybody left on earth that didn’t know yet that CNBC generally functions as an amplifier of market movements? Does anybody really believe that now that somebody officially “exposed” them, they are going to change their ways? Puh-lease.

CNBC will do whatever gives them the highest audience. Whatever happens to be the latest boom in the markets, they will go out and find as many cheerleaders as they can, both for the upside and the downside. Right now they have douches like Roubini and Jim Rogers on heavy rotation. Once the market turned around it will be whoever happened to have correctly “guessed”, pardon me, “forecasted” that particular development.

To really be a helpful voice amongst all the cacophony already in the markets, they would have to go against the prevailing trend. For example, during the next housing bubble they’d have to bring in people throwing buckets of ice water in the feverish face of speculators and advertisers. Does anybody really believe that this is what is going to happen? Doing this would give the average audience the feeling that CNBC has it wrong all the freaking time, and sooner or later they would not have much of an audience left. It also wouldn’t help very much if years later, after everything collapsed, they come out and say “But hey, we told you so”. Nobody ever likes to hear that when sitting on smoldering ruins, even if the person saying it did tell them so.

No, the ones who have to change are not CNBC or Cramer.

WE have to change.

We have to stop believing that anybody out there has all the answers. Not Cramer, not Santelli, not Obama, not Roubini, not anybody. We have to stop looking for simple explanations to extremely complex issues. We actually have to start thinking for ourselves instead of acting on the advice of people on TV shows.

Reality is, nobody has a clue what’s going on, but everybody has an opinion. Whoever happened to have guessed something right is then touted in the media as the one who saw it all coming. And of course, their explanations always make sense. But then, during the next market turn, once these “experts” are proven wrong, they will be left in the dust, to be replaced with more recently correct cheer- or gloomleaders.

Of course, flip-floppers like Cramer and CNBC will always be there. They are always right because their opinions change with the wind. And no Jon Stewart will ever be able to do anything about this, unless he figures out a way to change human nature.

Interestingly, the Citi trust preferreds that do not need to be converted, such as the C-PZ, are currently trading lower than the impaired preferreds (such as the C-PP). My trade recommendation is to switch into the trust preferreds for a pickup in yield and to retain the full upside potential in case Citi survives.

Currently some Republican senators such as Richard Shelby are on the tape again, suggesting closing down big, “dead” banks. Reading about these moronic, short sighted statements made me realize something important: there aren’t just Zombie banks in the world, there are also Zombie senators! They just keep aimlessly walking around from, talk show to talk show, but instead of muttering “Brains, Brains”, their mantra is “Nationalization, Nationalization”. They are completely oblivious to simple market relationships and market interdependencies. Why are people like that even in the position to comment on what needs to be done? Shouldn’t that be reserved for financial professionals?

Good thing is, they are largely irrelevant in today’s political world. Unfortuantely, though, they keep on moving and talking. Just like Zombies.

The media, Barney Frank and other dark knights , tars and feathers at the ready, now want TARP funds repaid and, if possible, heads on silver plates. If not silver, then at least copper plates.

Lessons learned:

- It is irrelevant whether you just had your best year ever or if TARP funds were forced upon you. If you’re a bank, you better cancel all client events that are not hosted by McDonalds.

- It is probably irrelevant whether the total expenditure for client events were unchanged compared to previous years. For example, what if this was Northern’s only annual event for all their biggest clients, compared to several smaller ones for other banks? Still bad? Why, of course.

- It is irrelevant whether these events make you money in the longer run through client retention or new clients that you win.

- It is irrelevant whether these events help keep the battled hotel or convention center industry alive (Keep in mind: one party’s expenditure is another party’s income). Cancel them all. If necessary, Congress will ultimately bail the hospitality industry out (once things get too dire for them).

Northern CEO’s, listen up: next time you better cheat on your tax returns instead of hosting client events. Congress can’t possibly get mad at you over that. They themselves are guilty as sin.

I believe it is safe to discount the opinion of minority politicians, who do not have the training to understand what’s going on and simply love to believe that if you just nationalize left and right, surely things will get better soon (because this is what they now hear from all the analysts who didn’t see any of this coming in the first place ). Also, republicans are now in the opposition so they’re naturally inclined to say “No” when the democrats say “Yes”, and vice versa.

It is also safe to ignore Greenspan. This guy had no clue of the mess he was causing when he was in office, so why would his opinion count now? All he did when things hit the fan during his tenure, was slash interest rates. If that makes him a maestro, well, I think a simple algorithm can easily replicate his efforts.

Fortunately he is not in power anymore. And the people who actually are in power, like Geithner and the White House, made it clear yesterday that nationalization is not on the agenda, unless it becomes absolute necessary, for example because of a bank run. The good thing is, nationalization talks alone usually do not trigger bank runs and I do not expect any.

What every advocate of nationalization does not seem to understand is that this crisis is only in parts because of the subprime and housing debacle. What made everything much worse last year was the government’s reckless way of handling private capital. The most egregious mistakes were:

1. Wiping out Fannie and Freddie’s Preferred Stockholders
2. Letting Lehman go bankrupt, wiping out even their Senior Bondholders
3. Seizing WaMu, also wiping out their Senior Bondholders

Do you see a pattern above? In every case, preferred equity and bondholders were wiped out. In WaMu’s case it is even highly controversial that the FDIC came in and seized them at that particular time.

The problem is not the wiping out of shareholders or bondholders of a particular institution, but the fact that it killed all confidence in the capital markets. Proponents of nationalization, read this twice: Whatever you do to one institution, the capital markets will REPLICATE it to every other institution. It is this instant replication of losses that caused the incredibly painful credit crunch we are in right now.

What do you think happens when the FDIC comes in and seizes Bank of America, which perpetually claims that they’re doing good and do not need any more help? This calamity will instantly be priced in at every other bank stock, including Wells Fargo and JP Morgan. Insurance companies, which hold untold billions of bonds and preferred stock, would take another deep hit across the board. They’ll then depend on even more money from the government, because private capital would once again retreat, just like it did last year.

It took hundreds of billions of support from the Fed to stabilize things last time. If they do the great wipe out again, maybe not even that would suffice. So, the lesson is, if you keep nationalizing, you will ultimately have to nationalize more and more and more, not because this was really necessary in the first place, but because you MADE it necessary.

How much money would it have taken to rescue Lehman? What if rescuing Lehman would have cost $ 40 billion, but it would have prevented the credit crunch, which now required $ 700 billion in TARP money and another $ 800 billion stimulus package? Would that have been a good deal?

Wiping out the preferred stockholders of Fannie and Freddie saved the government the incredible amount of $ 2.5 billion a year in cash flow. Unfortunately it also killed off more than $ 40 billion in regulatory capital that was held in these two institutions alone, greatly contributing to the current plight of banks and insurance companies. It also destroyed untold billions of additional capital, because the value of preferred stock ACROSS THE BOARD was cut in half.

I understand people having difficulties with moral hazard. But in these times, this problem should rank at the absolute bottom of the our long list of issues. After last year, it should be clear to everyone with a brain that what is required is a solution that does not wipe out any more wealth.  We have had enough of that and it only made things worse.

What we need now is confidence. Confidence in the markets, our economy, our people. All the politicians, economists, fund managers and bloggers who know about the wealth destruction replication of nationalization and still support the concept, can, pardon my language, go fuck themselves. I certainly hope Obama and Geithner learned their lesson from last year.

“This loan will assist in expanding my Forex (Foreign Exchange) company ‘Sovereign Wealth Company’ . Currently I have a total of 30 clients with a goal of 100 by the end of 2010 calendar year. Ninety percent of the capital received from will go towards the purchase of top tier computer hardware which will dramatically increase the speed at which I am able to analyze & execute orders on behalf of my clients.

In addition, I have already hired software engineers from several countries to create what might be some of the most dynamic trading software in the industry today. The remaining capital will go toward maintenance fee’s of the software. Currently my software executes the trades based on the changes in the market trend along with several other proprietary factors. The trading software performs at the highest modeling quality level of 90%. This simple means that for every 10 trades I place in the Forex (Foreign Exchange) market 9 will not only result in a profit, but will reach its intended profit target. <..>

Return On Investment: I plan to successfully fulfill my loan commitment via my company management fee system. The Sovereign Wealth Company Management fees are a hybrid fee system based on traditional hedge funds. In turn for successfully trading each client’s account the Sovereign Wealth Company receives 20% from profit made through each member’s account. To some people who are used to investing in a far less dynamic market place, 20% per month on profits may seem a bit over the top, but when you factor in that the Sovereign Wealth Company could produce account increases of 10% to 40% per month it’s all relative when compare to yearly fee’s charged by money managers in other industries.”

The sad thing is, this loan is already 31 % funded! Almost every other sentence should have made several red flags pop up for any reasonable human being, but apparently there are still enough people out there for whom common sense is not so common.

Guys, what’s the deal with the banker bashing lately? It looks like everyone’s favorite sport is to make fun of Wall Street. Hey, let’s ridicule them and let’s cap their pay, so that “the taxpayer” doesn’t finance their bonuses. Who in the newsmedia is not happy to jump in and throw some rocks at those terrible ”fat cats?”

What usually doesn’t get mentioned is that it’s the taxpayer who’s ultimately responsible for this mess. Yes, you read that right. Not the bankers. Not the regulators. It’s all the people who decided to borrow too much money and then just walk away from their obligations.

Where are the deadbeat bashing articles? I can’t find any. Instead, when these idiots walk away from their homes because they are underwater, journalists and bloggers seem to agree with the deadbeat’s ”smart choice” to hand over the keys to the bank and leave them with the mess.

This may be a rational choice on a monetary level, but it makes me wonder, where in the world was their rationality when they bought the house in the first place? When they bought way too much house on way too little money? I’m not talking about people who suffer from unexpected medical emergencies or a death in the family, wiping out their savings or their income. I’m talking about everybody who fell for teaser rates, turned off their brains and bought that one million dollar home on an entry level salary.

Make fun of these idiots too, not just of the bankers or regulators. It’s the taxpayers who are not paying their obligations who are primarily responsible for this mess.  If you punish the bankers you’re more or less just saying that the average person is too dumb to think on his own. If you go down that path then maybe you should also do away with that whole democracy thing. If the average person is too dumb to do personal finance, how could he be smart enough to figure out who to vote for? In that case, restrict their voting powers to American Idol and everybody’s better off.