On the Verge of Meltdown

It was a wild week no doubt. The majority of this week and last was like listening to a multitude of bullish chorus resonating their crack induced message: THE BOTTOM IS IN! You could hear it in the tone of uber bull Mark Hulbert and Peter Brimlow of Marketwatch.com fame. You could feel the smug arrogance of the bottom fishers building. You could taste the abject fear of the bears who have not made much progress over the past three weeks and their second guessing: COULD THIS BE THE BOTTOM?

In this irrational market for which was like teflon for bad news, much of the activity was probably manipulated on low volume. You could feel the tension and the excitement at the same time. People like Doug Kass was practicing witch craft of buying the dips and selling the rips. His increasing bullishness short term was also an indication that perhaps this reflexive snap back rally that began on January 21, 2008 SocGen lows could possibly be nearing its climax.

Anyway you look at it, it appears the time is running out against the bullish thesis. Like many bear markets before this, I suspect that many bulls will be caught on the wrong end of the tape. Many bears will be too scared to reload at the inflection point. No kidding. Bear markets are especially cruel to traders: bears and bulls alike.

AIG, the insurance company that could do no wrong, despite recent rumors surrounding their increasing exposure to this credit mess, finally came clean on Thursday night claiming over $11 billion in write downs. Their pathetic efforts at trying to down play this significance of "buying out of the money puts" and implying that their liability may be less than stated on earnings has got to be the single most ludicrous statement of the year. These jerks finally got check mated with no where to hide their lies any longer. I suspect there will be more "unforeseen" write downs to be had in the near future. I am patiently awaiting Goldman Sachs (GS) to also come clean at least to some degree regarding their credit exposure. Despite the company's silence, I think the analysts and the market is on to them. They closed below $170 on Friday.

Wall Street Journal is also getting the message that the off balance BS of our financial institutions regarding subprime liabilities must be stopped and the best way to heal from these wound is to come clean and mark to market their liabilities. As Karl Denninger aptly says, "they must mark to market their liabilities, and, if today it is a $0, then it is a $0. Perhaps tomorrow it may be more, but today it is a $0". You can hear the transcript of his recent radio interview on KFYI AM 550 with Terry Gilberg by clicking here. Also, be sure to tune in on March 15, 2008 for a full 3 hour exclusive interview on Terry Gilberg show for more indepth expose.

We are on the verge of another market meltdown. No matter how much the markets may downplay the significance of the cancer that eats within our financial system, it is there and it is worse than anyone can imagine. This time, not even Charlie Gasparino pump will save the markets. It is time to reload the shorts. Take your pick but think about the stocks that have had the biggest pumps the past few days and that may be the best place to start.

I am short Google, BIDU, BAC, and SPY.

Until the crooks in the Wallstreet can be taught a lesson in humility, Mr. Market will continue to exert and dish out much pain. This isn't over. We are barely out of second inning. Buy only with caution and if you're on crack.