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Sunday, March 2, 2008

Financial Ninja Favs: February

In case you missed them, here are YOUR favourite Financial Ninja posts for the month of February:

1) Really Scary Fed Charts, Why Bernanke Will Furiously Cut
2) Fed CHANGES Really Scary Fed Charts
3) Fact Sheet: The Bush Stimulus Package
4) Fannie Mae, Freddie Mac: The Dumbest Idea Ever
5) Simply Insane

As far as the first two posts goes, they will be updated now that the February numbers are out. I can’t imagine that the situation improved.

I’ve collected some scary facts and figures regarding stimulus packages. I can tell you right now that stimulus packages give the tiniest of boosts for the shortest amount of time and then create the worst kind of long run economic hangovers. Pick a country. Any country. Same results.

In the short run, the prices of risky assets will continue to primarily trade off of developments, or the rumours of developments, in these names:

· Fannie Mae (FNM)
· Freddie Mac (FRM)
· Ambac (ABK)
· Citigroup (C)
· Bank of America (BAC)
· Countrywide (CFC)

To simplify, watch how these indices behave:

· Bank Index ($BKX)
· Mortgage Finance Index ($MKX)
· Dow Jones Transportation Average ($TRAN)
· Volatility Index ($VIX, $VXN)
· US Dollar Index ($USD)
· Japanese Yen Index ($XJY)

Bottom line: Economic conditions are deteriorating the world over... and the pace is accelerating. Bottom callers will get annihilated.

Now for the good news: This is not the end of the world. While YOU may have grown fat and complacent, economic cycles have always existed and always will. Sometimes the amplitudes of these cycles can be greater or smaller. This is one of those times when the distance from peak to trough will be positively MASSIVE. But, as always, the beauty of capitalism lies in its nature. It is the most dynamic and adaptive system out there. Period. Recoveries, despite any interventions, will occur when they are supposed to. That is to say, once the excesses have been flushed and the weak hands have folded through the process of creative destruction. Not before. Then from a strengthened base the next ‘Golden Era’ is launched, where the previous economic peak is not only eclipsed, but easily doubled and trebled.


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