Market Update: Questions That Should Worry Contrarians

As a contrarian, there a couple of things that worry me quite a bit when I think whether the markets have topped or not.

The first one is that the US Government has been selling their shares of banks such as Citigroup and BofA  and they are now planning to sell their toxic assets back to the banks and the public:
21 March (Bloomberg) -- The U.S. Treasury Department plans to wind down its $142 billion portfolio of mortgage bonds guaranteed by Fannie Mae and Freddie Mac by selling as much as $10 billion per month.

Sales will start this month and be subject to market conditions, the department said today in a statement.
This second report, is in the same line, but is also less worrisome because less likely to happen at the current market top:

24 March (Bloomberg) -- A sale of the British taxpayer’s 65.8 billion-pound ($107 billion) stake in Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS) is likely to start next year, creating a one-time budget windfall before the next election, according to four people familiar with the talks.

Lloyds, 41 percent government-owned, will probably be offered to investors first as the London-based bank is better prepared for a sale, said the people, who declined to be identified because the discussions are private and the plans may change. The coalition government would aim to return RBS, 83 percent taxpayer-owned, to majority private ownership by the end of 2014, three of the people said.
So what is it that worry me so much? It's the fact that governments are the worst "investors" you can think of. They never make a profit, and are 100% wrong when timing the market. Yet, if we were at a major top, it would mean that the US Treasury — and to a lesser extent, the UK government — are actually timing their selling very well. So is it possible that we are actually not at a top, and that yet another higher one is coming? How likely would that scenario be? This is an open question, and I would like to hear your opinion.


Anonymous said...

Please read this article by Don Swenson.
"Mark to Market – what does this mean for future trends?"

It simple to understand. I have to say, that although you do a good job by posting the "deflation" argument by many of whom I respect and follow my self, this guy does it best in explaining it to the "laymen" and I hope "the EXPERTS".
I mean.... it's as simple as he describes it.
At least ONE of many examples of why DEFLATION is coming!!
To me?... This logical argument has eluded many many well respected economist.
So please read the article.

Dean said...

Hey I'm "Anonymous".
The one who sent you the Don Swenson article.
I would have liked to e-mail you this article but could not find a way.
I try to keep up with the "deflation/inflation" debate on a daily basis and I sometimes find really good articles, audio and video's that you may like.
I'd send them to you if you would like?
Regardless... keep it up! Many of us count and rely on you!
Good job Bro!

pej said...

Hi Dean,

Thanks a lot for the link and for offering to send more links and videos. Please just post them as a comment to the latest post on the blog, and I will go through them. Generally speaking, I do monitor comments on my blog and hence read all of them — I don't have too many for now :-)

Every help in trying to re-educate people, who have been brainwashed by 70 years of government propaganda and Keynesianism is very welcome.