Still Bearish After All These Months

Several points are suggesting that the most successful pump and dump stock scheme in memory may be history. These points include:

• Nouriel Roubini came out this week with an unusually lengthy and detailed defense of his bearishness. He did concede the possibility of some up-moves in GDP, but glossed over that possibility as being due to inventory restocking and stimulus (if they occur). Over the medium term, he remains convinced that there are so many headwinds that we need to expect sluggish growth for several years to come, even when negative growth end.
• David Rosenberg, now with Gluskin Sheff in Canada, continues to make a sensible bear case and specifically calls for A) a 20+% stock correction and B) much lower 10-year Treasury rates.
• The FOMC disclosed today a downward revision in its growth forecast for 2009 and 2010, an increase (toward consensus) in projected unemployment rates, and the potential for yet more money-printing to help the Treasury and its wards Fannie-Freddie out.
• Sir Alan Greenspan in quoted in Greenspan Says Banks Still Have a ‘Large’ Capital Requirement:

May 20 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan signaled that the financial crisis has yet to end even as borrowing costs tumble, warning that U.S. banks must raise “large” amounts of money.
“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview today in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”

DoctoRx here. Now he tells us! Where was he when Big Finance was raising all its money recently? We must remember that Greenspan chose Bernanke and is a flack for PIMCO, which obviously has quite an in with the Fed and Treasury. So I view Greenspan's pronouncements as the "bad cop" alter ego of Bernanke, who has to present the sugar-plum fairy point of view.

(I do however disagree with Sir Alan that a flattening out of home prices would mark the end of the mortgage crisis.)

The article goes on to say that:

Greenspan’s comments suggest he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders.

Again, I want to presume that Bernanke is speaking through Greenspan, in another criticism of Tim Geithner a la the WaPo article of Monday, but of course I have no proof of this supposition.

Now that tens of billions of dollars of stock in Big Finance shares have been sold at vastly higher prices than were available not long ago, there is no need to keep stock prices at this level. In fact, implementing PPIP as planned will require a statement of systemic emergency in order for the FDIC to prostitute itself for the benefit of Big Finance and Larry Summers' hedge fund friends, and so some withering shoots and withering stock prices would suit Big Finance just fine around now, I would suspect.

Time of course will tell, and the Establishment believes its time will never end and therefore has a very different time frame from that of traders. Econblog Review believes that in these manipulated markets, trading is what the Establishment wants you to do- because it brings in profit to the financial community- and therefore you should think in longer time frames than usual. Keep your friends close and your money closer.

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