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Tango5 Members Update                               012509

Reflecting on 2008 Markets and What the Future Holds 

I have been spending a lot of time trying to asses the markets, the financial crisis we are into and relate that all back to the Tango trading systems and their performance's since inception and especially in 2008. I have been burning the midnight oil and have a lot of charts and a lot to say. I will put out several updates in the near future to cover all my thoughts and research. Here is a topic list:

1. Is 2009 going to be Better, the Same, or Worse than 2008?

2. How are we doing in terms of Performance from Inception and during
    the 2008 Bear Market Period?

3. Trading systems changes needed if any. I think we need the ability to
     go Short at times and Expand Endurance's capability. More on this and  
      my research later.

Just wanted to alert you that I have been doing a lot of work and you will be seeing some of the results soon.

In John Mauldin's Newsletter  "Here Comes TARP 3 and 4" of yesterday his comments about the banks not lending was extremely important to understand. Here they are if you don't want to read the entire report.

Excerpt from report:

"Here’s the problem. The banks are lending. If you look at bank lending numbers,there is growth. The banks, per se, are not the real problem with the lack of lending.  The real problem is that we vaporized an entire Shadow Banking System that boughtsecuritized debt in a wide variety of forms: autos, homes, student loans, credit
cards, etc.That industry exists no more.Banks over the last ten years became originators of loans, and not actual lenders.They would make the loans and then package them up for other institutions to buy. Apension fund in Norway (or wherever) would look at the rating from Moody’s, see AAA,and buy it. Or banks would create off-balance-sheet vehicles (SIVs) to buy their debt andleverage it up, and book some nice profits. In any event, the debt did not end up on thebanks’ balance sheets for very long.That process was responsible for the majority of debt that was extended over thelast decade. Now that process is broken, and it will not be fixed this year or next year or the year after that. We are going to have to come up with new ways of credit creation and debt processing. You can’t go to Goldman and tell them to start making auto loans. They simply don’t have the people to do that. Now, they used to be able to take auto loans from other actual originators and package them and sell them, but they did not make the loans.And the buyers for much of that securitized auto loan paper are gone. And they are notcoming back any time soon without greater transparency and real capital guarantees andhigher returns. A Moody’s (or any rating agency) rating is not worth the paper, as far asthe markets are concerned."

For John Mauldin's full report: Here Comes TARP 3 and 4
John Mauldin http://www.frontlinethoughts.com

 

At Christmas I was very encouraged, it looked like maybe the bottom was in as of 11/20/08 and we had a rally started and we were starting a new year. But the rally has faded and the volatility is still extremely high so my euphoria has also faded. I think this financial crisis will be with us for some time. My attitude in my reassessment has been "plan for the worst and hope for the best" so all bases can be covered.

This recession and wash out of the credit markets is a good thing. I know it does not feel like a good thing right now, but it will purge many excesses and eliminate some weak operators(such as Madoff) that will be to our benefit in the future.   

Enjoy, talk to you soon, Don

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