If your perspective on performance runs from the daily open to the daily close, here is what you got this week:

• Monday           S&P500 -4.65%
• Tuesday          S&P500 +2.13%
• Wednesday      S&P500 -4.46%
• Thursday         S&P500 +4.27%
• Friday              S&P500 +3.46%

If your perspective on performance runs from the weekly open to the weekly close, here is what you got this week: +0.33%.

HEDGEfolios only changes signals at the open of each week.  For all the critics of my laid-back style, this week exemplifies why I do what I do the way I do it.

How did HEDGEfolios actually do this week given that I went into this volatile period with 56% UP signals?

From Monday’s open to Friday’s close, HEDGEfolios was UP 1.9%.

In 2006 and 2007 when the markets were hitting record after record, many financial gurus were advising everyone to buy international and to pump up their portfolios with 20-50% of foreign stocks and ETFs.  They made a ton of money doing that.  The advisors did at least.  Maybe some traders did too depending on when they got in, but as for long term investors still in those positions, I doubt they are holding big gains or gains at all.

Please take a look at this research from Bespoke from September 17, 2008 (before the bailout).

I wrote this piece back in 2006 trying to warn people that international investing had its risks.   I don’t feel much different now than I did back then regardless of how far the markets have declined.

Finance theory known as MPT suggests that putting international stocks in your portfolio reduces your risk while increasing returns.

I am not a fan of this theory which was proposed about 50 years ago when the data supported the concept that international markets are not highly correlated or perhaps, negatively correlated.  In the past, many of the markets currently trading all over the world did not exist and the information flow around the world was nothing like it is now.    We live in a very global economy with very integrated capital markets and just evaluating the past 5 years you’ll see that directionally, the US markets are highly consistent with foreign markets.  What you can see is that when the US goes up a little bit, the foreign markets go up a lot and recently, (per the Bespoke research), when the US goes down 20%, many other markets do as bad or worse.

It’s real easy for financial advisors to push a program that makes them money, especially when it is “supported” by finance theory that has been accepted as the truth for decades.  When it doesn’t work anymore and clients lose, it’s time to separate the facts from the theory.

Doug Kass just ripped through the myths of short selling and their effects on the supposed bear raids that have been going on.  Awesome stuff.  It’s always fun when the facts actually interfere with the “news” presented on CNBC.

It would never happen, but I’d love for all the actual short trades in AIG, LEH, MER, MS, GS, WM, etc. over the supposed bear raid period to be published so the public could evaluate what really went on.

Pull up the daily charts of GS, MS or any other financial stock you want.   If the shorts aren’t selling then why are so many of these stocks below the open?

I thought only shorts sold stocks.

Nice to see Bill Gross pitching pimping for the business of managing the government’s bailout fund.  He is the financial version of Halliburton in Iraq.

Having the dollar as the world’s reserve currency has pros and cons.  Using the dollar to denominate the majority of all oil contracts in the world for the past few decades has pros and cons depending upon the global energy demand and the quality of the US economy and financial condition at any point in time.  Some even believe that the Petrodollar issue has incited wars.  Certainly, it has affected global trade battles.   You might want to investigate the percentage of CDS contracts denominated in US dollars and whether there are any pros and cons associated with that.  The same people that told me I don’t have a clue about how wonderful Credit Default Swaps are to reduce risk, increase liquidity, increase capital and how harmless the market is because they were offsetting contracts will likely tell me that there is nothing to worry about.  Okay.  I got the message.

I am looking forward to seeing how Merrill shareholders vote now that the big bailout has occurred and the arbs are challenged by the short ban.

Here is the section from the BAC/MER merger agreement.

6.3 Stockholder Approval. Each of Company and Parent shall call a meeting of its stockholders to be held as soon as reasonably practicable for the purpose of obtaining the requisite stockholder approval required in connection with the Merger, on substantially the terms and conditions set forth in this Agreement, and shall use its reasonable best efforts to cause such meeting to occur as soon as reasonably practicable. The Board of Directors of Company shall use its reasonable best efforts to obtain from its stockholders the stockholder vote approving the Merger, on substantially the terms and conditions set forth in this Agreement, required to consummate the transactions contemplated by this Agreement, and shall recommend such approval except to the extent expressly permitted under Section 6.10(d). Company shall submit this Agreement to its stockholders at the stockholder meeting even if its Board of Directors shall have withdrawn, modified or qualified its recommendation. The Board of Directors of Company has adopted resolutions approving the Merger, on substantially the terms and conditions set forth in this Agreement, and directing that the Merger, on such terms and conditions, be submitted to Company’s stockholders for their consideration. The Board of Directors of Parent shall use its reasonable best efforts to obtain from its stockholders the stockholder vote approving the issuance of Parent Common Stock in the Merger, on substantially the terms and conditions set forth in this Agreement, required to consummate the issuance of Parent Common Stock contemplated by this Agreement, and shall recommend such approval except to the extent making such recommendation would cause the Board of Directors of Parent to violate its fiduciary duties to Parent stockholders under applicable law. Parent shall submit the stock issuance proposal to its stockholders at the stockholder meeting even if its Board of Directors shall have withdrawn, modified or qualified its recommendation. The Board of Directors of Parent has adopted resolutions approving the Merger, on substantially the terms and conditions set forth in this Agreement, and directing that the issuance of Parent Common Stock in the Merger, on such terms and conditions, be submitted to Parent’s stockholders for their consideration.

I’ll be watching the action in inverse ETFs with great attention today.  Here’s a list.

Shorting of equities of the financial variety may be prohibited for now.  But the shorts will just find new places where shorting is not prohibited.  Once the covering in financial stocks is done, whoever has money left or who has not been wiped out entirely will redirect their efforts to other stocks, commodities, financial instruments, etc.  The volatility and hedging in other asset classes will likely go wild.   If you couldn’t stand the consequences of shorting financial stocks, good luck dealing with the losses and volatility in the rest of the financial system.

It looks like the guy that tried to bring us the Super-SIV is getting close to a much bigger fiasco that some people are calling a new “RTC”.  Sadly, a week ago while having lunch with a close friend I suggested that the government would likely set up a big bad bank entity and try to put all the crap from the financial industry into it in one fell swoop.    I just got a bad feeling when I heard that Paulson was fixated on the good bank/bad bank concept as his solution for Lehman.

Why stop there?  Why stop with just doing one investment bank at a time?  Of course that never worked out with Lehman because no non-governmental entity wanted to touch the same stuff they helped create.  So it is only the next evolutionary step for a socialist like Paulson to resolve that problem and replace the nonexistent buyer with the US government.

Does anyone get the sense that Paulson is just tired?  Tired of having to work so hard every damn day, every damn weekend.  He is probably worn down.  And besides PIMCO pretty much ordered them to do it this morning.  So just give in Hank.  Just take all that crap that the investment banks innovated and securitized and made all kinds of profits on years ago and buy it.  Buy it all.  And while you are at it, with your unlimited blank check powers, just buy every bad mortgage or house or car loan or car or credit card ABCP or the crap they bought with the credit card.  Buy it all.  Buy, Buy, Buy!

Just lump all that shit onto the government’s books so that the IBs and then everyone else can go back to making a whole new bunch of crappy loans.  Never mind what this will do to our country, our taxes and our currency.  Reading through the Volcker, Brady, Ludwig summary, it all seems so simple.  Just say, “desperate times call for desperate measures” over and over and over again and you will convince yourself it is not only necessary, it is beneficial.  I have no idea how they are going to be able to price these assets at “fair market value” or how they are going to force the seller to sell.  For the holdouts, those marks are going to be brutal.  As a result, if this goes through, I fully expect the mark-to-market rules will be waived.  If not, the losses that would have to be taken will devastate the banks as much as they would have been devastated with no intervention.

The Big Bad Bank appears to be a solution that politicians and regulators can get behind to show the public they are doing something.  It doesn’t matter what I think of that something.  Apparently it doesn’t matter what anyone that isn’t looking for a bailout thinks either.