You Ain't Seen Nothin' Yet

Greg Hill left the Happy Fun Comment of the week, and it goes a little like this:

Had an absolutely fascinating dinner conversation with a couple of guys who manage a decently sized portfolio here in the mid-Atlantic region. At its peak it was over $1B in value. It has dropped some, but they managed to get out before the big crash, and have done well compared to others.

Anyway. They were explaining the logic behind TARP, and the reality behind its implementation, and what we should be expecting. They are not happy at all. The simple fact of the matter is that the toxic assets (remember what the “T” in TARP stood for originally?) are still on the books for most banks. And even though the auditors are telling the banks to unload, it’s not happening in any kind of rapid order. There is a whole new round of audits coming due, and mark-to-market is going to create an absolute shit storm all over again.

The simple fact of the matter is that the Fed is buying Treasuries because they’re terrified that the foreign market is about to dry up. We apparently experienced a near miss in September, which scared the living crap out of Bernanke. We tried to sell a batch of Treasuries, and nobody came to buy them. We had to “delay” the sale for “technical reasons”, or something like that.

The next six months are Big Ben’s attempt to shore up the markets so that the wheels keep turning. And the $600B $800B $1T+ dollars is really an open-ended promise by Ben to keep buying if nobody else does.

My guys say pay attention to what happens leading up to the May/June Treasury sales. If the foreign concerns are legit, then Bernanke will get mealy-mouthed about how much more he’s willing to spend.

We’ve got six months, gang. Fall of ’08 may have simply been the shot across the bow.

Discuss.