Like my dear friend above I too have found myself waiting patiently through this unwinding process. Well, it seems that the WSJ is reporting some progress coming from our socialist think group (Fed/ Treasury.) Seems they want to reward some more financial fraud/alchemy with a good 'ol American (workin' man's back) liquidity backstop. Sometimes my dear friend and I look at each other with nothing to say. Just a patient, inquisitive stare as in to say; "are they done yet?"
Of course the answer to such a foolish question is "no....stop thinking like a monkey!" While it's easy to throw darts in a bull market; this bear has teeth and has a taste for blood. This is no place for a monkey to be. So it's time to put on the thinking cap, and stray away from conventional monkey wisdom.
Steve Liesman, of cnbc fame; points out a very obvious fact that is overlooked by the mainstream. FAS 157 is looming in the background due to kick in on September 30, 2008. So it's imperative they get a Resolution Trust established soon. Because if they don't they are going to have some serious competition from the rest of the banks when the next capital raising round gets underway. And it's coming right when it looks like the financials are going to break out. Why? Because that's how they do it. They'll sell assets for pennies on the dollar to the smart money to raise liquidity, and they'll mark up stock prices and further dilute common equity in order to gain some liquidity from the common man.
My point is a Resolution Trust is no magic bullet. Yes, it will inject a dose of much needed confidence in the system; and the moral hazard argument will be rekindled. However, history shows that even after the first Resolution Trust was established in 1989 there were still a record number of bank failures to come in the years after. 1990-1991 were the worst for bank failures.
http://www.fdic.gov/bank/historical/bank/1991/index.html
RTC
http://en.wikipedia.org/wiki/Resolution_Trust_Corporation
So be prepared to trade on the long side as euphoria sets in. Watch those charts for signs of exhaustion though as we continue to grind lower in an overall market down trend. Keep those eyes peeled for another capitulating move in the indices. When we get it we'll have another window to trade more aggressively with this long bias. But just as the bear of 1973-1974 drug it's feet; this bear will more than likely drag it's feet deep into 2009. So while you can not fall in love with the upside you most certainly can flirt with it in the intermediate time frame. As for me and my dear friend we are trying to accumulate some more for a long term holding on the next panic. Which, on top of the socialistic moves trying to be implemented; could take a moment. Patience is still required.
UYG is the vehicle for a bullish take on financials. And yes, my dear friend owns some. He's sharper than he looks!
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