Monday, August 31, 2009

Equally Clueless Stuff From The NY Times

Is it just me or have retards taken over business journalism?"

The guy who wrote this piece at the Times must be related to the moron who wrote the BW article from last Friday.""

This idiot actually thinks the tax payer is making money from bailing out the banks.

This is like saying I have 15 stocks in my account, three of them I have made money on, the other twelve I am getting my ass handed to me, yet I will show I am making lots of money to my wife. This will work if you are married to the sister of the idiot who wrote the article at the Times.

Where is Stephen Glass when you need him? At least he made stuff up that wasn't totally moronic.

The article does make mention of all of the TARP Money that will never be paid back, and the explicit guarantees that have been made to the likes of AIG, BOFA, and Citigroup. But why do we need an article like this? So we can feel better? It makes no sense to say we just made $4B, now we just have to make up the $500B we are currently losing.

Does the Times even proof read the stories anymore?

Does Wayne Brady Have To Choke A Bitch?

Dollar Destruction Continues

I don't like the fact that equities are on the sell side, bonds are rallying, crude cratering, and the USD, the beloved Greenback cant rally!

This just either tells me that we will see an afternoon rally in equities or this is much more of a serious issue that needs to be monitored."

This is the first time in 16 years that the Dollar is cheaper to carry then the Yen. Japanese interest rates are at cellar dweller prices, and the simple fact that our currency is even cheaper to borrow then the Yen, tells you that asset deflation here in the states is just beginning.

"Last Wednesday, banks seeking dollars had to pay 0.37188%, which is the three-month dollar Libor, while yen borrowers needed to pay 0.38813%".

"The rate in U.S. dollars has been steadily declining since peaking at 4.81875% at the height of the credit crisis in October as the world's central banks pumped trillions of dollars into the financial system. At the peak of the crisis, the yen-Libor rate topped out at about 1%".

I don't like the fact that the USD is dropping today, this doesn't bode well for a potential safety trade or safety net when things do get dicey in equity land.

Energy And Commodity Weakness

The markets are down at mid day, but something is strange in the air. I just sense that the market are inching to go higher.

I just feel it.

But maybe its just me?

Anyway...Crude is dropping below 70, no doubt not helped by this article:"

This is a very disconcerting piece about OTC derivative contracts that are in serious risk of defaulting. The article goes on to say that investment banks will just eat the losses and make them up with compensating trades, but its never a good idea to have derivatives contracts broken by State Owned Companies, especially from China.

I will say this again, any market correction will come because energy corrects not the banks.

The banks and financials have some decent news flow with regards to mortgage underwriting and trading, so they will be able to pump out some fraudulent lunch money over the next few months.

When the market corrects it will be because of Tech and Energy, the two groups that started this huge rally.


We have so much static in the trading of AIG over the last month or so.

We have everybody trying to analyze whats going on."

Well, when you finally have Barron's doing a story, the cat is out of the bag.

The story goes on to state that AIG is overpriced. NAH! You kidding me! Really!

Can we all stop the psycho babble? The only reason AIG is going up is because of short covering. Period! End Of Story!

There is massive put selling, call buying, forced buy ins, and short covering going on indiscriminately.

People are actually trying to revalue this dog shit company.
We have tens of analysts and so called financial pundits on TV all talking about the reasons why AIG has been flying. I have heard it all. From Benmosche being hired to Hank Greenberg coming back, to them getting more value out of their assets. Its all crap. The company's assets have quite a bit of value, and will be sold off in the next 12-24 months, but the eventual sale of these assets will not net the taxpayer anything close to what we have given AIG for its survival. Not once have I heard of the one true reason this company has gone up - SHORT COVERING!

The whole market bet red on AIG's failure, as they should.
So in turn the market is betting green at the moment.

Lets Move On.

Dont Read Anything Into UBS Tax issue

There are some great write-ups about the UBS Tax Case.""""

To sum up:

4450 names have been released to the DOJ and IRS.
Still 48,000 names that have not been divulged or money has been sent back to the states.
$15.2B was total figure of 52,000 names, this is a bag of shells.

Korad Hummler - Managing Partner at Wegelin & Co states the following:

"Switzerland has become a paradise for foreign capital on which tax is not paid. The uproar from foreign governments is understandable.”

He says that around 30%, or CHF 1,000 billion, of the CHF 2,800 billion or so of foreign assets in Swiss banks is untaxed “black money”.

This means that close to$1 Trillion sit in Swiss Accounts that is unaccounted for.
This is not a US problem, as $15.2B is only 1.5% of the total unaccounted for figure. Also 52,000 bank holders is nothing compared to the roughly 3 million accounts that house the $1 Trillion currently.

I have known for years that most of the money unaccounted for is from shady politicians and leaders from developing nations (Pakistan/India/Indonesia/Philippines/All of Africa). They basically syphon money given to them from the World Bank, IMF, and USA to help their poor, instead 99% goes into secret bank accounts.

I don't know what is going to happen in the end, but business as usual after this latest ordeal is probably in the works. Again this is not Hollywood where there is some accountability at the end of the day.

Rich people get rich or try to get rich not because they like money, they like the political power it affords them and most importantly immunity from prosecution if in the event the shit hits the fan. History has and will always be a great affirmation of this one important detail.

Shanghai Composite Craters 6.75%

I have posted quite frequently about Chinese equity prices over the last few weeks.

Well China's Shanghai Composite took it straight on the grill last night, down a whopping 6.75%, it is firmly below 3000 at 2667.75."

The selling got worse as the session went along, this is what happens when the entire market is propped up by bad bank lending, government infusions, and retail speculation.

Our markets don't exhibit any of these characteristics so we are safe America."

Futures down 7.25 at 8:37AM.

I will just say this. I would not be at all surprised to see the markets rally and rally big today. This will only further perpetuate CNBC's continued lack of understanding of the true nature of whats going on. The bears will pull the plug and the bulls will have their victory. Short covering and forced buy ins will then take this market to 10K and beyond. Right in time for Friday's employment report ahead of the Labor Day Weekend.

The bulls are not going to concede defeat this quickly, they need more suckers to get in line and ratchet stocks higher. Its the ultimate ponzy/confidence game.

I guarantee you that Goldman will be doing all of the buying today, and they will be net short by the end of the week.

Futures down 6.50 at 8:46AM

Or the market can just take it in the ass today.
Who knows.
Trade what you see.""""

Crude Dynamics

In theory and in practice the Crude Oil market dynamics have changed.

Do you remember when analysts were making excuses for higher crude saying that there was a "Terrorism Premium" inherent in crude and that is why Crude is so high.

That was the truth to someone extent, but now we no longer have talk of this so called "Terrorism Premium".

What happened to it?
Has Islamic Terrorism been slayed?
Or was it just another excuse like Supply/Demand is out of whack?

There are all excuses for Wall Street to run up Crude Oil. Wall Street as well as the CFTC made up any excuse to say that higher crude was because of fundamental factors. The word speculation was never uttered, speculation means manipulation, and manipulation means Wall Street. Don't go there."

"Regulators don't and shouldn't talk about trying to influence prices," said John Brodman, a former Deputy Assistant Secretary at the U.S. Department of Energy. "But there's a growing political imperative out there. An oil price rise of $30 a barrel would offset 40 percent of the stimulus spending. That's not what these countries are looking for."

So lower Oil is bad for the stimulus? Yes it is, but isn't the ides of the stimulus to help tax payers and normal citizens to get back on their feet? Lower Gas Prices is the greatest tax benefit that government can give us.

More clueless talk from people who are put in charge of important business's.

There is new talk now that roughly 30% of the price of Crude is in speculation.

Bogus! Try 50%. When Crude was %150, it was 75% speculation.

I am not holding my breathe for the impotent CTFC to make any changes. We need a good old fashioned margin selling induced melt down to get things realigned once again.


Like I iterated in my post last week, this market is on the cusp. The longer we consolidate above SP 1000, the more the balance shifts heavier towards bullish over bearish sentiment. We are seeing it all over the place. I could name names, but ahem... we all know somebody... anyway the list of converts would be too long and not reserved to the likes of just Paul "Obama is wrong" Krugman who is now in the camp of those who've smoked one too many green shoots. Abbey Joseph Cohen, who I hereon shall refer to as just Joseph, popped up on CNBC out of nowhere (wasn't she fired last year?) and said the new bull market has started, ha! Although, I must admit my amusement at her relentless habit of prefacing all her statements with the clause "we believe that..." as if she is a mere puppet mouthpiece for the Goldman consortium who is trading in the shadows while misleading the masses in much the same way they talked up housing and continued to sell sub prime to the public on one hand while betting against it on the other by loading up on CDS's from AIG.

I said last week that the sell off in China is not over, but that markets would go on a hiatus from selling and rally for several days, just what we saw last week, before resuming down again by month's end. On Friday China dropped 3 percent and yet US indexes crawled higher on what many would attribute to "end of the month window dressing." All the dregs that didn't rally an iota throughout this six month rally began floating to the top in a rotational fashion, playing catch up with the market and making up for 6 months of slothful neglect in a record several days, another great indicator that the top is approaching. AIG, FNM, FRE, etc, and amid the recent talk about shipping stocks having failed to participate in this stock market rebound, they too got bought up with impunity all of a sudden last week.

I cannot help but be amused and equally disgusted when people talk of window dressing purely in the context of how to avoid getting caught against it and without even the slightest mention of just how absurdly unethical it is. The most blunt unequivocal concrete definition of window dressing is: the common month end practice of hedge funds colluding to manipulate the stock market and deceiving their clients at the same time.

A top formation is in development. But this is a laborious process. The biggest rally of our lives, the likes of which haven't been seen since the spring of 1930 (and we all know what happened after that!) does not just reverse and come back down that easily. The first 15 percent of the sell off from the top will be met with numerous rallies triggered by dip buyers and short squeezes alike. While the market may very well plod even further up from here, it must be seen within the context of a larger topping process.
Tops, which like bottoms are culminations, are times of great volatility, not to mention we are entering September which will be a very mercurial month. There will be huge up days that will bring out the cheerleaders like Joseph with their new "price targets" and there will be large down days which will convince others that the seasonal market downturn is back in full swing.
More later...

Sunday, August 30, 2009

Here Comes September

I fully expect the markets to rally and rally huge tomorrow. Alas Monday is the last day of August, and that means its window dressing time. But Tuesday brings September, which is historically the worst and most riskiest month of the year.

"Investors Intelligence's latest survey of advisory services showed an impressive 51% bullish and a meager 19% bearish...the spread hasn't been that wide since November 2007."

Alan Abelson, Barrons, Aug. 29, 2009

We come into September.....
.....There are some strange things going on.

This is a very strange things about suicidal cows."

Also we have this:"

Well I can only say that Obama can have the Internet in the event of a disaster. He should own the Internet just like he owns the pending Economic/Stock Market Meltdown. This is his puppy and we have seen not one decent financial reform come out of DC. Obama along with The Treasury and FRB, have contributed and enabled the market inefficiency that we currently see.

I am glad to see Bennanke back, he too owns the massive deficits he has helped create. The root of all our problems is the FRB and their loose interest rate pro Wall Street policy.

Wall Street insiders and their enablers pig out on public money while the nation suffers. This is not change brother, this is business as usual, Obama Style.


September brings Obama his "Katrina Moment". My question is? Who is his Brownie?

Krugman Comes Around To Drinking The Cool Aid.

I used to think Paul Krugman was one of the good guys.

Well from the looks of things he has moved over to the dark side.

He now thinks deficits and debt are good, and politics are bad.
Let me let you in something.

Deficits, Debt and Politics are all bad. No two ways about it. They all finance one thing and that is POWER and AFFLUENCE.

He states that deficits have "saved" the world.

Sorry Paul, deficits have "enabled" the world not saved it. It's just another way for the super ultra rich to re load their bank accounts at the expense of the average person.

He basis his thesis on the following:

"The numbers tell you why. According to the White House projections, by 2019, net federal debt will be around 70 percent of G.D.P. That’s not good, but it’s within a range that has historically proved manageable for advanced countries, even those with relatively weak governments. In the early 1990s, Belgium — which is deeply divided along linguistic lines — had a net debt of 118 percent of G.D.P., while Italy — which is, well, Italy — had a net debt of 114 percent of G.D.P. Neither faced a financial crisis."

OK, lets compare the USA to Belgium and Italy!

This is further evidence that the Noble Prize should take its rightful place next to BusineeWeek in the trash bin.

More Clueless Talk From BusinessWeek

This story was on page 26 of this week's BW. After reading it, I tore up the rest of the issue and threw it in the garbage where it belongs.

Thank god I got BW as a gift subscription. There is no way anyone should actually pay to read this crap.


The author probably just graduated from journalism school this past July. He is completely in the dark with regards to the economy, the credit crisis, and banking in general. With investment advise like this who needs Madoff or Stanford?

The reason that most banks and financial institutions are hoarding cash and capital at the moment is because what is happening at the moment is just a temporary blip up. The bank executives are hunkering down because they were severely taken of guard by what happened last year. This is just a small upturn in a secular bear market in credit, stock market, and overall economy.

The author just wants Wall Street to re leverage up again so that the economy can further recover.

He makes the argument that they banks are too conservative and that this might very well factor in on any non recovery in the overall economy.

The leverage in Wall Street has already risen this year. From looking at CDS prices insuring debt, people are starting to get worried again about leverage.

I am thinking the author doesn't really do a lot of reading or researching in his spare time.""

You would think BW would actually do the unthinkable and hire journalists who know their subject matter, but then again someone has to keep unemployment down, we all know the government cant.

This author is flat out dumb. I am throwing the next 20 issues straight in the trash.

Potential Melt Up Coming For SP 500?

Bank America, yes the same bank that was saved by TARP, has a note out on the markets. They say the SP500 and Nikkei are on identical courses. From this, they see the markets melting up an additional 40%.

First question-
Why was this chart not given to us back in March?

Second question-
OK, so looking at the past will definitely tell us whats happening in the future?

Third Question-
Is not Bank Of America using past data points to forecast future data? Is this not how all of the Quantitative Models got it wrong by saying that housing prices would never go down?

Fourth Question-
Do we ever talk about jobs anymore?

The Last time we heard of a potential "Melt Up" in the markets was back in Sept 2007, after the Fed lowered interest rates. Bears had thrown in the towel and had given in to the bulls. We all know what happened after that.

So in the end we are just like Japan, a lame economy. Just like Japan where economic realty and market stupidity diverged many years ago.

Also, didn't the Nikkei eventually crumble to new new new lows over the next 10 years or so?

What really is happening is that the powers that be are just giving the machines more ammunition to take the markets up.

Listen, I can come up with a 100 charts that say the same thing. But the real devastating reality is maybe this time is different? What we have seen over the last few years, is that nothing was conventional about the market correction. Conventional economic theory can be thrown out the window. Financial risk management can be thrown out the window. And yes, Technical analysis can also be thrown out the window. It doesn't matter, the one time out of a million instances can kill you, just like the credit storm which in many circles was considered the 1000 year perfect storm.

Friday, August 28, 2009

Howard Cosell Time

Calling it like it is.

I found this article very funny, deeply disturbing, yet extremely profound.

The level of lunatic thinking in Iran and basically the Muslim world is truly mind boggling."

This Ahmadinejad guy is truly an epic character.
You don't like the election results?
What to do with the Pro-Reform movement?
Prosecute them!
Kill Them
Teach them a lesson for demanding reforms.

Nothing like turning the clock back 1400 years to get your point across.
Who does he think he is? Christopher Reeves?
Superman was able to save Lois Lane by turning the Earth just a few hours back.
This guy wants to turn the earth back 1400 years. He better get a bigger cape.

I just don't understand the Muslim World. Why are they fighting modernity? Why try to bring things back to the 7TH century? Is that the only way for them to catch up with the rest of the world? By bringing things back?

Just imagine if these guys didn't have oil?

I have been reading The Times Of India Blogs, and most of the Pakistani's who do blog are just not living in realty. They have some real strange notion of life and justice and how to bring their vision to the rest of the world. From reading these ludicrous entries, they actually think we are the ones living in the dark ages.

Saying these guys are not living in realty is charitable at best.

The Return Of The King

Financial Re-Engineering is back and back in a big way. With credit spreads narrowing and a much more relaxed credit environment, Wall Street has started the securitization machine once again. The banks seem to have found a way to get rid of some of their bad debt. Just package them up with good debt, and have the entire tranche rated AAA.

Earlier this spring, both Morgan Stanley and Bank Of America did huge CRE/CMBS deals. But in recent months investment banks have been repackaging old crappy mortgage securities and offering to sell them as brand new securities with AAA ratings. This is identical to the complicated schemes that got them in trouble in the first place.

Its unbelievable the amount of this garbage that is still in the system. Hasn't the government back stopped trillions in losses? Have they not bought back a lot of the junk already? Are not tax payers on the hook for future losses because of this jink ? What happened to PPIP?

To think that Wall Street has to resort to the same ludicrous behavior that brought the market to a halt is really stunning. I can understand securitization is a needful business, and the financial credit system needs a strong packaging environment, but why cant we start with good debt? Why are we back to making crap look like gold? Who in the world is actually rating this junk AAA?

Most traders and bankers are stating that they need to off load these bad mortgages, so they can clear the books and start making new loans again. But were they not making loans before? The banks have been making the case that they have been lending from the beginning, that they are the not the problem, that the credit system was broken. True the credit system was broken, the banks broke it, and know they are about to break it again before its actually completely healed.

Most of the debt being repackaged is from the housing bubble, when home prices were soaring, banks and investors underwrote and bought these risky mortgages, bundled them with solid mortgages and sold them all as AAA rated bonds. With investors eager to buy these bonds, lenders came up with increasingly risky mortgages, like ARMS, Option ARMS, etc, sometimes for people who could not afford them. It didn't really matter in the end, the bonds would all get AAA ratings.

When the housing market got smoked, the market tanked, figuring out how much those bonds were really worth became nearly impossible.The secondary market for non agency mortgages just froze.

The banks and insurance companies that owned them knew there were still some good mortgages within the garbage, so they didn't want to sell everything at fire sale prices. But buyers knew there were many worthless loans inherent in them as well so they didn't want to pay full price for the remnants of a real estate bubble.

This problem has come full circle. A lot of the non agency garbage mortgages were so badly beaten up, they were never properly market down. The banks waited till the government reflated the system, some of those mortgages(Good Tranches) are now trading some 40% higher. But there is still bad mortgage debt that is still packaged out there. The market only wants AAA rated paper. Anything below that and investor appetite grows weary. So what is happening is they are taking lots of real AAA mortgages and packaging them up with AA & A Mortgages where the credit quality is not great, and repackaging them all up, then marketing them as AAA.

The real junk, the real crap goes for pennies on the dollar to hedge funds via the PPIP. This is why Geithner's PPIP has not gotten off the ground.

Give the institutions some credit here. These are structured differently. Investors who buy into the really risky pool agree to also take some of the risk away from those who buy into the safer pool. The safe investors get paid first. The risk taking investors lose money first. But it befuddles me that rating the entire tranche or class AAA. Its criminal! The only way they can sell and market these are if they are rated AAA, as pension and insurance funds can only buy them at that rating.

All this is taking a bond that doesn't necessarily have a natural buyer and creating two bonds that might have a natural buyer for each.

100% mathematical voodoo financial engineering. I am thinking they probably used the same models that caved in the market the first time here as well.

The reason this is all happening is that housing sentiment has gotten better. Its still bad, but less bad. Investors are feeling a little better about housing so this type of trading is back in vogue.

The risk here of course is, if the housing market slips even more, doesn't rebound or stops stabilizing, even these so called AAA rated investments may not prove safe in the end.

Even more puzzling, these deals are getting done because the ratings agencies have started to rate AAA again. These are the same culprits that miss read the risk in housing the first time around. Why are we so convinced they are correct now?

I personally think all of these mortgages are miss priced once again. Investors are getting the shaft. There are fundamentally miss diagnosing 4 months of less bad data and getting back in because of it. These mortgage bonds can totally decouple and become combustible very quickly if housing, employment and the overall economy get weaker, which will happen.

The only thing that is good is in the short run, there is some life in the mortgage market. They are moving bad debt masquerading it around as good debt off balance sheets. But why would banks consider wholesale lending when credit and employment conditions are getting worse?

Whats really dangerous is this is the first steps towards re packaging even more toxic debt. There is still billions in CDO and CDL inventory out there. CDO's are already complicated investments that not too many people understand. Repackaging them makes it harder to figure out what the investment is worth. The more obscure/complex the concept the more need for creative financial engineering.

We just felt the pain of the last credit/housing/mortgage bubble. That pain is still there. They have just re engineered another credit bubble to coincide with the last bubble.

Bubbles are everywhere in the world. China has both a real estate and a US Treasury bubble.
South East Asia has a current account surplus bubble. There is excess liquidity everywhere in Europe and US.

Where do you hide?

Something's Got To Give

I spoke yesterday about the strength in the markets, its all momentum based trading on low volume, but higher prices tend to perpetuate stronger sentiment, so we must respect the tape.

But something has to give, there are far too many divergences to ignore.

Even with 10 and 30 year yields backing down ever so slightly, many bond market junkie's like me just don't trust the no inflation in the horizon myth. You don't need a tick up in inflation to get yields higher. Its a dangerous game of sell bonds to but equities. This is a serious flaw in many peoples thinking. Also the USD is trying to stabilize, but any break below 77.5 and its head for the hills time. I think the way its going to play out is this:

USD breaks 77.5, and trades to low 70's, where there is long term support.
Bonds sell off viciously and yields back up above the highs for the year.
Equities Rally to the next resistance level. Dow 10K and SP500 1075.
Crude Oil gaps above $80

This perfect storm will lead right into Labor Day, when the real traders realize that both higher crude and higher bond yields are not good for anyone, thus the long awaited sell off in equities will commence.

Shanghai stocks have stopped going up. This is the market that lead global equities higher. This can't be ignored. The recent news flow out of China is also negative in terms of accounting irregularities and bank lending concerns.

The Shanghai Composite has broken 3000


The SP 500 recent run up is the biggest ramp since the great depression. Its still ramping even in the face of a weaker dollar, weaker bond market, stronger crude, and a broken Shanghai Composite.

Walking in this morning I see the same crappy stocks gaping up. Citigroup, Freddie, Fannie, AIG, and CIT all up 5%-10%.

Completely out of control trading. Something has got to give and soon.

We may get to 10K and have CNBC celebrate it. We may not get there at all. That can be the biggest head fake of all time. It seems like everyone has that figure (DOW 10K) on their radars.

I am getting very anxious to get back on the short side.

Thursday, August 27, 2009

Boy...This Is One Strong Market

The overall and underlying strength in this market has to respected. There is definitely a strong bid out there for equities. We are seeing a better bid for equities even in the face of weaker crude. Earlier we had weaker equities and stronger bids in Treasuries and USD, that has subsided. Equities have pared back losses at mid day.

I am not drinking the cool aid, but this green shoots doctrine is slowly gaining traction even in the bear camp. I think its crap, but what I think is just an opinion. An opinion and 2 bucks get you on the subway.

You may say that more bears need to become bulls to see a market reversal, but that can and will happen, but equities just might see 10K before that.

At the moment many are seeing 2%-4% GDP growth for 2010. That is not happening in this current consumer environment. This is not my opinion, its a fact.

Cash For clunkers was a huge hit, as some 700K cars were sold under this program. The rebate was like a down payment, and it worked. Give Obama credit here. Now we are seeing Cash for Washing Machines. No doubt that the availability of government rebate checks will stimulate demand for these products as well. The market is trading like the government will just keep issuing checks to consumers forcing them to upgrade appliances and goods. Of course this cant go on forever, but the market opinion which is the one that matters, feels this way.

I will be watching car sales over the next few months to see if this program has any stickiness. I am tending to believe that the government is just stealing from future consumption, and that its all just temporary. Demand will eventually fall flat, but don't tell that to Mr. Market.

It looks to me that Obama, Geithner, and Bernanke are not going to let the economy fall flat on its face. They will spend, spend, and spend more to give consumers a reason to keep consuming. The total opposite of a sane economy. But in the end, do these three guys have anything to say where the economy will eventually settle in? The economy runs rampant, its too big of a machine. In the end, the economy is a lot like the stock market. It will do what its going to do.

Did I even mention that if the economy dips in the 2ND half of this year or first half of next year, Obama Stimulus 2 will be drawn up and put into law? Congress will quickly approve it because after all its mid term election time.

So for the time being there is a bid out there. The market believes that Cash for Auto Clunkers has worked. But when does it end? When do the training wheels get taken off?

Whats Next after Cash For Washing Machines?

-Cash For Plasma's?
-Cash For Sofa's?
-Cash For Lawn Mowers?
-Cash For Computers?
-Cash For Hand Me Downs'
-Cash For Hookers?
-Cash For Houses?
-Cash For Boats?
-Cash For Time Shares?

How much more can be done? Where and when does sanity come to play when talking about fiscal and monetary policy?

Then again the market is thinking, the government has already backstopped and guaranteed bank loan losses up into the trillions, and they have issued trillions more in Treasuries to finance the stimulus. What makes you so sure they won't keep printing tens of trillions more to keep it going. After a while the numbers get numbing and people just stop caring about the law of large numbers.

You live long enough and you realize how the game is played. That is the great thing about waking up in the morning and learning new things about yourself and how life really works.

The market has become entirely Binary in nature. Its like a lottery ticket. You buy in and make serious money, or you can lose it all. This is not the way the stock market should work, but that's where we are at the moment.

I am not resigned to the long side yet. This just may be the top for equities. But the prevailing idea that I get from watching and reading the tape is the following:

Obama is not going to stop with Cash For Clunkers, especially now that it has worked. Hundreds of Billions is no longer a problem when you have already hundreds of Trillions at stake.

Importance Of Independent FRB

Mesirow Financial with an excellent piece on the importance of an independent FRB.

Short and Sweet.
We need to get the Fed back to the days of Volcker, where the Fed made decisions away from political circles. The main reason we are in trouble today is because Ronald Reagan appointed Greenspan who is the ultimate political vehicle to which the Fed has done business with over the last 30 years.

The problems that ensue come from the fact that most Inflation and Interest Rate Policies are set via political circles. We currently have a Politically driven inflation and interest rate policy. You actually think Bernanke would make a move with short rates without speaking to Obama and or Geithner first?

When doing things this way it leads to more destabilization of the economic system. Also the policy is completely ineffective as every one knows whats going to happen.

The author makes a lot of good points, but in the near and intermediate term, politics will be mixed with everything associated with money. That is a fact of life.

Mesirow Financial

Give Goldman Credit......

...For being excellent traders. Lets not for a second take them off the hook for being the governments proxy for a healthy financial system. Lets also not let them off the hook for issuing tax payer backed debt to finance their trading book. There is many ways we can keep hammering GS, but this one singular things that cant be minimized is that the guys and of course gals at Goldman are great traders.


What makes them great is everyone else lost their shirts except for Goldman. Think about it! Morgan Stanley got destroyed, and they are still not taking risk. Citigroup and Merrill are obinations. Lehman & Bear Stearns are dead. We don't even need to go into BNP Paribas, SocGen, CSFB, UBS, and the nitwits at RBS. Barclay's also had severe write-offs, but never took any government money, although toxic securities on their balance sheet were guaranteed by the government. All in all, all of these firms had traders who made millions previously, but lost 10X more when things got dicey, all except Goldman. We in the trader community are always judged by the last trade we put in, and the last trades that traders generally executed were the derivative, CDS, MBS, and the exotic variety. Most of these trades went the nuclear route leveling their respective firms and wrecking both the economy and credit system. Goldman Sachs was never hurt by AIG, Bear Stearns, or even Lehman. They made more money on their respective demises. There is absulutely nothing wrong with profiting from another's demise, you have a problem with that? Move to Tibet! Trading is a zero sum game, for every trade there is a counter party, for every trade a loser and a winner. What makes a market is buyer and seller. It takes two to tango. Let me just tell you AIG took it on the chin because Goldman was the main counter party for their ludicrous trading decisions. Should we hammer Goldman for that? Being smart and correct? If Merrill, Citi, Lehman, Bear, and even JP Morgan had simply stopped drinking the sub prime cool aid, they too would have escaped the carnage. But they didn't. All of these guys kept putting in bad trade after bad trade, levering up and doubling down on crap mortgages. Goldman never did that. They knew better, they were agnostic to the market. They traded what they saw, not what they believed. They had no opinion what so ever. You can say they were negative and short sub prime, but that was only after the market told them that. This information was out there for everyone to see, Goldman traders and executives were the only one who executed on it.

You cant keep telling me they are bankrolled by the government, they have drones everywhere in government, conspiracy this...conspiracy that. You could even say, they created the sub prime market, sold out their inventory of sub prime junk, then went short. All of which is 100% true! To this I say...So what! Why didn't JP, MS, Citi, Lehman, Bear, and the other so called great investment banks do the same? Why didn't AIG hedge just a little? Don't tell me that they couldn't or it wasn't available. Ridiculous! They simply didn't want to. They acted like morons because they failed to properly guage the market and the corresponding risk associated with it. They were themselves believing their own flawed thinking backed by models that didn't work. The traders at most financial firms never were able to adjust to the changing environment. That doesn't make them bad traders, but they can longer call themselves great traders or even good traders just by the amount of money they previously made. Good/Great Traders execute!

This comes down to simple behavior of human beings to act responsibly and to execute properly.
The best traders are not right more then they are wrong. They don't make more money on great trades, then lose less money on bad trades. It has nothing to do with leverage and risk taking. Nothing to do with your academic pedigree, or what secret handshake you use when you walk unto the desk every morning. Its all about making adjustments, adjusting your thinking and trading style to fit what's happening in changing dynamic situations. Great traders are the ones who get it right real quick when they are wrong. Great Traders don't need to be reminded that their positions are going against them, they have already figured that out and gotten out, before the losses multiply. Its all about executing in a dynamic changing environment. These changes happen 10 seconds after you make the trade, knowing your wrong is not admitting failure, its admitting that the trade and market is bigger then you, and can crush you. Great traders make quick decisions that are painful not only to their P/L Ledger, but also quite painful to their own ego. But making these tough decisions with no ego and bravado involved is what made Goldman escape the crisis. Although they show a lot of ego, arrogance, and bravado at bonus time. That's OK as well. To the victor goes the spoils. Where I have a problem is when irresponsible traders who murdered the system get equal amount of bonus money. No one! I mean no one should get a dime of bonus money on Wall Street except for the guys at Goldman. The Merrill and AIG traders should be publically flogged for their absurd behaivor.

All of the public attitudes and opinions of GS is implicitly and explicitly true. I agree the bonus money being paid out to Goldman bankers and traders is vulgar. That's the society will live in. You don't like it! Again...move to Tibet! but more anger should be pointed at AIG, Lehman, Citi, and the other 8 dwarfs. They are the ones who totally cluster screwed the system, Goldman just sat there and made money off the collateral damage. Nothing wrong with that. Just imagine if Goldman did the same as AIG and Merrill? Where would we be?

More Fuel For An Equity Top

Goldman Sachs is out with a report on August 24Th, that most hedge fund managers are piling into NDX 100 Stocks. A-HA! The chasing beta theory is working. They also state the following:

-That Hedge Funds have increased long exposure to 31% from 17% from September 2008.

-Funds are no longer net short financials.

-The largest holdings are in Tech and Health Care.

This is just more further fuel that the market is being run up by hedge funds chasing performance as well as HFT programs. Remember, many of the hedge funds participate in Algorithmic trading strategies that piggy back the big boys like Goldman.

Many of the catalysts that fueled this great rally are petering out. Short interest is way down. Cant create short squeezes if no one is short. Cant create buy-ins when no one is short. We have seen many financials like BAC, WFC, and COF triple and quadruple from their lows, pretty much all on short covering. Where is the future fuel to move these stocks higher?

The NASDAQ has so outperformed the broader markets, like I said they would much earlier in the year, but this is also coming to an end. Back when I stated that NASDAQ was better, it was that tech was under owned,but now its become over owned, time to sell tech as well.

Its also very worrisome to see equity exposure also surge, too many people are in the same trade, when that happens we need to exit.

Daily Hero Worship and Deification of Benny Doesn't Serve Public Good

I am usually on board with David Brooks on many things as we are both right of center on issues, but I totally and completely disagree with him on his characterization of Ben Bernanke."

"Bernanke & Co. never really got control of events. But they did avert disaster and committed only a few big blunders. In the real world, that counts as a job well done".

In the real world "a job well done" is really lets screw common citizens and play them as fools. The Fed although averted a depression, hasn't really averted a disaster, they do what politicians generally do, shift the pain into the future. They didn't avert disaster for millions of Americans. They let Wall Street create a culture of excessive risk taking that eventually led to the sinking of the economy. The Federal Reserve co-authored this crisis along with Wall street, they should own up to it, that is why Bernanke needs to be reappointed. No other reason needed.

Why do we continue to put flawed incompetent people like Ben Bernanke on pedestals?

In 1998, after LTCM and the Asian Crisis was swept away by bailouts, Time Magazine put Greenspan, Robert Rubin, and Larry Summers on its cover. It read "Committee To Save The World". Does anyone today think these guys are worth a single line waxing poetic on their accomplishments anywhere?

The deification of financial titans has been going on for 100 years. All the way back when JP Morgan himself was acclaimed for saving the stock market in 1907. In fact he did nothing, he made a few calls, it was government, not Wall Street that saved the day. That was the first bailout of Wall Street. That rescue convinced bankers that they can get away with murder, that they need to intertwine government with Wall Street.

The markets had wanted Obama to give Bernanke another run, that if he didn't, the markets would tank. That the President would be then blamed, so he interrupted his vacation to make the announcement 4 months early.

Give Bernanke some credit, he had an unlimited checkbook and he used it. He acted very aggressively with other peoples money. So he flooded the markets with excess liquidity, the exact opposite of what was done in 1929, which in turn at that time was a grave error. But he has not won the game yet. Only Wall Street has the Cheshire Cat grin at the moment, many regional banks are going out of business, unemployment is problematic, wages are falling. If the markets do break down we will be throwing darts at Ben.

The biggest problem I have with Bernanke and Geithner is not the run away spending and printing, its just the hand outs to Wall Street with no concessions attached. Has Wall Street changed one bit? Have the financials made life easier for American Home Owners? Credit Card Holders? Car Owners? NO! They have generally made life hell for the ones bailing them out. Handing out trillions to Blankfein, Lewis, and Dimon without any give backs and guarantees is down right criminal and un-American!

The Fed is so deeply intertwined with Wall Street and Congress that you cant take these guys seriously anymore. They are there to focus on fighting inflation and improving economic conditions, not to make sure bonus's are paid out.

I am already reading many economists who work on Wall Street who missed the entire crisis alerting Bernanke to raise rates now that he has stabilized the system. These economists should be shot! My guess is he will listen to Wall Street, and put the brakes on, killing the system, because its still on life support.

I am hoping against hope that the Treasury and Fed will one day confront the problems of millions of ordinary citizens. This is real pain and loss. The Federal Reserve along with Ben Bernanke should start serving the public interest of people not named Blankfein, Lewis, and Dimon. I am not holding my breath, the problem with Treasury and the Fed is that they see only Wall Street in their vision of America, not Main Street. They are incapable of serving the public. How can they? They don't think we exist.

Fed Vs. Bond Market Vigilantism - Who Wins?

I have been watching the 10 and 30 Year Treasury Bonds the last 10 months or so. We had an implosion of bond yields starting late last year that drilled yields lower for obvious reasons. As bond prices exploded higher the party had to end, and it did in March 2009. Many people will make many assumptions to why the sudden secular change in both the equity and bond markets, but my theory is just that there has to be a bubble market somewhere, and from late 2008 to early 2009, the US Treasury was the bubble market.

Just like Tech/Telco/Internet were bubbles that popped in the 90's, Housing & Credit were similar bubbles in the 21st Century. When bubbles pop, money needs to keep flowing, and these funds which were considered smart/dumb money becomes scared money, and looks for a new home. Considering that every asset class was considered toxic last year, that left USD and US Treasuries the only choice for the scared money. Well scared money became hot money after a while and we saw huge flows into Treasuries.

This was exactly what global risk managers wanted, but not what central bankers wanted. Central Bankers wanted a functioning credit system, a healthy Libor Market and a relaxed lending environment. So the printing began, QE after QE, and trillions of loss subsidisation's later those markets were stabilized in the short term. But printing money has its drawbacks, runaway inflation, exploding deficits, and nasty current account situations make owning Treasuries problematic. So what we have seen is an unwinding of the safety trade, or popping of the bubble trade back into risk assets, exactly what governments wanted.

But again, be careful what you wish for. Higher treasury yields are no good, it shifts borrowing costs into a higher gear that chokes off economic growth. I spoke in my last post about the delicate balancing act that government's around the world are engaging in. This is really a cat and mouse game between governments and their unlimited checkbooks and bond market vigilantes. On the surface you may say government wins, and so far they have, but lots of money has also been made by the bond market bears, who have been short treasuries since late March. But this is more about who is right, its really about achieving a fine asset balance within a risk environment.

So what happens? I firmly believe that overheated equities will soon quickly reverse course and head back down sharply, at the same time commodities will drop as badly as equities do. The Baltic Dry Index a standard proxy for international shipping rates is now off some 40% from recent highs, as well as the Shanghai Stock Index is below 3,000. China led the recovery and it will also lead the down draft. US Treasuries will rally viciously, The USD will rally as well, but not as much. The Aussie, British Pound, and Euro will get smoked, as the Yen rallies way above 100 vs the USD. The bond market bears are going to have to cover their shorts soon, bonds look like they have stopped going down, and the USD looks to bottom here. I have noticed over the years, when Treasury Yields top out, that usually signals a top in equities. Lower yields signal weaker economic output and an aversion to risk which is negative for equities. Yields have stabilized while equities keep ripping up, that has to change and change it will.

So in the end it doesn't matter who wins, just what side you are on when disaster hits.

Wednesday, August 26, 2009

More CDS Shenanigans

If you don't like the contracts, lets just tear them up. No moral hazard here."

The CDS Market should be outlawed and wound down. How in the world can there be so many offsetting contracts out there? Truly numbing.

These are the contracts that ruined many companies, and yet we want the Fed to be active in this market?"

Treasury & Fed At A Crossroads

The US Dollar has tanked very badly as the liquidity driven rally into equities has dried up demand for the safety of the greenback. Crude Oil not withstanding recent selling is still above $71 and still looks strong technically. Further depreciation of USD will have higher crude prices. Its the perfect storm of selling safety to buy risk assets.

Weaker USD = Weaker Treasuries = Stronger Equities = Stronger Commodities. This particular theme is playing out wonderfully on Wall Street but horribly every where else.

We have to watch for the 77 level on the Dollar Index, I fear any break below that level, will trigger technical selling of greenbacks and buying of most commodities including a run up for Crude above $80.

Longer term support is there at around 72 for USD.

Back to Crude. $75-$80 Crude is no good for no one. It cant be the forefront of any type of sustainable long term economic recovery. Americans are still in a state of shock when they look at their 401k statements, do we really need $4 gas once again? The crash in crude was nice, it was an added tax cut for all Americans, the kind that we needed.

But, the fact remains, the Treasury, Fed, and its conduits namely PIMCO, have spoken negatively on the USD for months now. They needed to unwind the safety trade so that funds can flow back into equities. Guess what? It worked! But now both the Treasury and the Fed are at a major crossroads. While reflating equities was secondary to stabilizing the credit system, what we have now is higher equity prices and higher commodity prices, which is an added tax on consumers who are already taking it on the chin with respect to jobs, loss of credit, and housing. The stock market is up over 50% this year, but has the average mutual fund rallied back even 1/4 of the losses from last year? Absolutely not! Case in point you take a mutual fund that was 100 last summer, that fund got smashed down 50% to 50 because of forced selling and shareholder liquidation. That fund is not even close to being up 50% like the market is this year. That fund if its lucky is up 30%, 30% gain on $50 is $65, which is still 40% off of where it was last year. This is the quandary that most people are in. The markets need to rally some 200% from here just so that people are made whole. Its just not happening. Whats worse, when the markets go spiraling back down, that fund will be at $25.

It all goes back to what the Treasury and Fed want. They wanted to unwind the safety trade, the only way to do it was to kill the dollar. They instituted all of this Quantitative Easing plans to ease the transition to liquefy the credit system, but the unintended consequences of just reflating the old bubble is what also happened.

The Fed needs to suppress rates to not only reflate the credit system, increase lending, but most importantly to help keep rolling the enormous debt that needs to be financed every day.

If you remember, when the dollar was so weak, and crude flying, there was actual talk of raising short rates to combat the drop in USD. In fact, the ECB did exactly that, which really started the meltdown in global commodities. At the moment, this is not economically or politically feasible. The only way to do so is to organically talk up the USD and Treasuries. This is an extreme tight rope at elevated heights. It has to be done right because any upward move in Treasuries and USD will have dire results for commodities and equities. I will say it here, the day the Fed/Treasury starts defending the USD, we have a crash in equities and all commodities. It will be Sept/Oct 2008 all over again. But the Treasury needs a somewhat stronger USD and lower rates to keep the delicate balance,so they can keep printing money.

In the end here the Treasury/Fed needs an equity crash to stabilize the USD and Treasury markets so they can still have a market for debt issuance. It really like a dog running around chasing its tail, but with trillions of dollars at stake.

Where does the market go? No clue. I will say this. This market is a work in progress, and what is working will work until it doesn't work anymore. At the moment the tape is very strong, it can get very negative very quickly after Labor Day, but at this moment there is tons of positive feedback in the system, and liquidity is very good even though volume is slow. \

There is so much excess liquidity out there. Its all chasing Beta at the moment. Crappy stocks are far outperforming good stocks. But the liquidity is not reaching the real economy, as consumer lending is non existent.

Putting it all together, we all know that long rates are considerably higher, the markets are in a bullish pattern with no volume pushing them up accept for HFT Programs. The Dollar back to 2008 lows as well as equities and commodities moving lock step. All of this tells spells out for me a major correction that is going to happen starting after Labor Day extending through October, where we might just as well see new lows for equity indices.

I see USD rallying, not a huge rally, but comfortably above 82-83, Treasury Rates will tank, equities will drop, financials will get hammered, energy sector will weaken as crude and commodities have another round of technical liquidation. I see USD higher, but I see the Yen taking off, while the Euro, Aussie, GBP, and Canada currencies get blitzed. Just draw a correlation chart of Aussie USD and the SP 500, its almost 94% correlated.

The big big wild card here is how does Gold perform? It all can go in the toilet, if we have a simultaneous drop of all that is holy. USD - LIBOR - Treasury - Equity - Crude all in the tank while Gold Soars? I am not ready to comment on that because that is truly frightening."

It can happen, I hope it doesn't. There is too much smart money as well as dumb money floating around that makes anything a possibility. massive deleveraging will bring more money out of risk and into safe investments like treasuries and USD, but that's all to conventional wisdom, and these times are far from conventional. What happens is smart and dumb money exit one bubble to start another. This is how Black Swans happen. Who is to say that USD/Treasuries don't become the de facto toxic security types that sub prime was?

The problem here is the dilemma of monetizing bad bank debt and excess reserves. This leads to inflation in theory which wrecks all things fixed income.

We are in a very dangerous period. I can honestly say that I am more concerned today with the averages up some 50% then I was the day Lehman filed for bankruptcy. There is so much more to lose today then last September.

We are in a deflationary environment that means that global deleveraging is the dominant force. Unemployment is too high, Rates are too high, housing still is a conundrum, too much growth is being predicted by equity prices. Most importantly real global economic growth is non existent, much of what we have seen is central bank printing money excessively to reflate credit systems.

The Treasury and Fed have some serious planning to do. How they do it? Can they do it? Do they kill the equity rally to get USD/Treasuries back in line? Do they kill the Commodity Rally? It all really depends on China, India, Japan, and the rest of South East Asia's demand for our treasuries. Do they keep buying?

Far To Much Speculation

Which means a correction is near to hammer the retail investor.
Yes the same retail investor who is trading:

CIT Group
Fannie Mae
Freddie Mac

Have you noticed that Fannie Mae (FNM) and Freddie Mac (FRE) have quadrupled over the last week? Why are investors bidding up these mutt stocks? Are we not aware that both of these companies owe the government over a $100B combined and must pay massive dividends each year to the treasury? This is not a smart investment long term. These companies were nationalized because the bondholders needed to be made whole.

The volume in these 2 stocks is truly exhibiting moronic behavior. On Monday alone these 2 stocks made up 20% of all NYSE trading volume. There is really no news that is worthwhile other then Freddie stating they don't need any more government funding other then the $50B they have already taken.

These two companies owe so much money to the government then they can actually can earn on their own, they shares are worthless. Goldman Sachs would have to start a satellite office on Venus and Mars, and start securitizing sub prime loans there for the next 50 years for both FNM/FRE to have value that equals today's valuation.

This is pure sentiment/momentum trading at its most reckless state. What typically happens in a late stage bullish tape, is people start to look around for penny stocks and run them up.

This is the type of investor behavior that leads me to believe a major correction is going to happen. I am not saying its happening today or tomorrow, or even next week. But watch after Labor Day when the big boys are back.

Chinese Accounting Tricks

Very good article in last weeks NY Times DealBook.

Mark Dixon, is the founder of a London based M&A Advisory Firm, and has more than 20 years experience in M&A, including with Chinese companies.

He basically makes the case that in deals he was working on, Chinese managers make Enron, Worldcom, & Adelphia look like cub scouts with regards to revenue and expense recognition. He goes on to state that the type of "Gymnastics" that goes on there, accounting should be an Olympic Sport."

In a previous post, I stated that Chinese Banks are worse then ours, and ours are insolvent. The Chinese government is well aware of these shenanigans as to is our government with regards to fair value accounting and FASB Mark To Market Rules. We are all in trouble when the Chinese Banks do a double header off the uneven parallel bars.

Deleveraging & Unemployment

While I was surfing the web for Economic Hari Kari Scenarios, this chart grabbed me.

I did some more digging around, and found out that this chart was developed by Australian Economist Steve Keen. Mr. Keen is one of the few economists who called this entire crisis correctly from the beginning.

He is more of a debt economist then your classical supply/demand/output theorists. You can search on, and find many interviews with Steve Keen.

Historically from looking at the above graphic, there was never a correlation between debt and unemployment till very recently. Most sane economies that are not addicted to debt/consumption will have no correlation between jobs and deleveraging, but in our Ponzy Scheme Economy, when the bill comes due, you have seen what the end result is. Japan went through similar pain, and still going through the emotions 20 years later.

If your economy is built sensibly, you should not have this type of forced deleveraging that has hammered output.

Like I said most economists didn't see this coming for many reasons. They are either classically trained or come from the Neo-Classical School Of Economic thought. They are so obsessed with supply/demand/output, they fail to realize the level of debt in the system that hampers peoples buying behavior.

The entire green shoots theory thought of by neo classical economist like Ben Bernanke actually believe the following:

-A Hard landing has happened, but a softer landing going forward is whats in store for the US Economy.

-A strong and sustained recovery in Europe and Asia.

-Solid Growth in Japan

-China And India kicking on all cylinders.

They base all of this on static modeling of integers that are no longer very important in formulating a thesis. They come up with output theories based on models that have the same level of debt that is needed to keep the consumption going. Wake Up!!!! The credit/debt game is over! The only ones who are in the debt game are banks and governments. Governments fail when the common people lose patience with their elected officials. This is what happened in France and Russia.

Not once have I ever read about global deleveraging and containing debt levels from economists other then Steve Keen and a select group who don't have skin in the game.

There was a study done, and only some 12 economists out of 10,000 adhere to the Steve Keen philosophy, which further leads me to believe that we are in for some serious pain as I just don't believe things are OK.

These neo classical economists still believe we are exiting a inventory led recession, that consumer buying patterns are coming back. The simple failure to realize the obvious puts the whole system in peril.

Going back to Static Modeling. You see models are all about historical data that even though has been back tested, still its historical data. On top of that, all risk measurements and a like are static in nature, meaning they re not dynamic as they are in real life. This is why VAR is a fraud. Totally ignoring time is self serving. Now some models do have dynamic output, but they are all based on the past data and make assumptions about convergence in the future. But all of these models don't take into account liquidity and the role of leverage/debt/credit.

In 1930, we saw deleveraging take place, it took some 10 years and a World War to get rid of it. But today, we have almost 375% more debt then total GDP! I am not even getting into the shadow banking world and $700 Trillion in Derivative exposure out there.""

There is a big tug of war between governments need to print and spend so that Wall Street executives can have one more private jet for themselves on the tarmac and normal common citizens need to deleverage. Consumers are feeling the pain to reduce consumption, save more, and get rid of debt, this is in direct opposition to the governments plan for the economy. Its very obvious that Obama wants business as usual, lets go back to the halcyon days of 2004-2007. That is why we are seeing cash for clunkers and the like. Consumers cant act responsibly because the government isn't, this is the ultimate conflict that will destroy the governments stimulus plans.

The whole problem was caused by irresponsible lending and the only way out of this ultimately is to eliminate that debt. The debt has to be written off."

When will we stop this chicken and egg game of consumption and credit? Its like the creepy 30 year old who keeps showing up alone at high school dances. Its over BRO! Get on with the healing.

Buy & Hold Is Dead....

....But Full Time Options Trading is Alive & Well.

This is a very disturbing story that the LA Times ran yesterday.,0,2266089.story"

Just to let everyone know that Options and Currency trading are two of the most dangerous and difficult asset classes to trade. 1 out 10000 actually make money doing it.

If you thought trading equities was hard, options/currencies/commodities are 100% dominated by big institutions, what makes you think that you are smarter, better funded, and have better technology then the Swiss Banks and Goldman Sachs of the world?

Also a fact about options trading, some 90% of all options contracts expire out of the money and are worthless. You are racing against time and most importantly can get crushed by volatility. Its always better to be a seller of options then to be a buyer. Most institutions like Citadel/Goldman sit around the whole day waiting for the middle aged simpleton sitting on his deck in his flip flops to execute against them. They are selling the entire day, they are fully hedged and will never lose money on the sell side. They rarely go long options if they are not properly hedged. Bottom line, the institutions have more money and more economically advantageous ways to hedge themselves. The retail investor is not sophisticated enough to keep up with technology and advanced math models that the boys on Wall Street use to screw the public.

You have a better chance of winning the lottery...TWICE! Then making money consistently trading options and currencies.

Its still a very good read on how the Dollar & the Dream Mentality of America has gone overboard.
I am very empathetic to the plights of common people who have been destroyed in this crisis. With the job outlook very bleak and consumers tapped out it surely looks like things will get bleaker.


.....Americans need to rebuild not figure out new ways to destroy themselves.

XO Recovery On Tap As Debt Levels Explode

Get ready for the Knock-Out (XO) Economic Shaped Recovery.

We have the V-Shaped Recovery to which the bulls are eluding to at the moment. We have the bears who point to a W-Shaped Recovery. But what about no recovery?

Do we have any argument that the following caused the recession:

1-Housing Bubble
2-Excess Credit Creation
3-Slowing Consumer Spending
5-Loan Delinquencies

Has any of these been resolved? Don't tell me that things have stabilized, they have to more then stabilize, all things equal, if we did not spend like drunken sailor's, I would agree that a normal stabilization warrants positive sentiment, but the level of debt that has been printed just to stop the bleeding is enormously vulgar. On top of that the jury is still out if an actual real stabilization is taking place. There is currently no evidence to state that anything the Treasury/FRB has done has benefited ordinary citizens.

I have debunked many of the myths regarding housing,unemployment, and consumer spending."""

New Mortgage apps are out this morning,they are up 7.5% but they also show 57% of all apps are refi's. Most of these are probably Loan Mods, that will again go bad.

The relationship between housing starts and existing home sales is quite worrisome, we have an industrial inventory led recovery that was predicated on exploding debt levels, quite the opposite of what needs to be executed, mainly lets get the debt and leverage down so we can exit this credit induced recession. Why do continue to build homes that people don't want and cant afford? So we are building more and more homes, and some 90% of all existing home sales are from the foreclosure/distressed/short sale variety. Every single nudge up in sales for homes as well as auto's have come about because of gimmicks, like loan mods and cash for clunkers. Next on tap, lets subsidize GE, Westinghouse, and Whirlpool, Cash For Clunkers II - Home Appliances - Revenge of the Spin Cycle.

We have more and more regional banks failing every day, CRE is in the dumps, there is no credit anywhere, and default trends are still at elevated levels. What has effectively happened is that Wall Street with the help of big brother government has shifted all of its losses and extended its debauchery onto the little man on main street.

Whats worse is every one in the media is drinking the green shoots cool aid. We now have the auto companies increasing production, because that s what government wants even though cash for clunkers is ending, these moron Auto CEO's actually think demand trends are getting better. Its all one big assumption. Careful what you assume.

Wall Street is preparing to pay out huge vulgar bonus's, because this is what they do, bleed everything dry and then pass the buck to taxpayers. They should be shoring up capital getting ready for the next recession which is coming soon.

The economy will be lifted by business's rebuilding inventories, but can they keep rebuilding to the tune of 3% GDP growth for infinity? Sooner or later, the consumer has got to get in gear if there is any hope of averting a full scale depression, which depressingly looks more and more in the cards.

I hear people say Asia is the place, true it is, but that whole region is dependent on China, and our banks are in better shape then theirs, and our banks are mathematically insolvent. Chines banks have to much invested in the stock market and have many bad domestic projects going nowhere.

Obama has dodged every tough decision with regards to banks and financials. A 90 year old man in a coma is more potent then he is. The entire compensation structure has got to change to get risks in line with reward. I am tired of hearing how great Goldman traders are, I used to be one when trading was about real risk and real reward. Anyone can make money when you are implicitly and explicitly backed by government.

Wall Street is having a V-shaped recovery, for every one else there is an XO Shaped recovery.

Why an XO Recovery? Let Me state the following

1-Unemployment is still falling sharply. It will take 3-4 years of above trend line growth to get employers to hire once again.

2- This is more of a solvency crisis, not a liquidity crisis, too much printing, not enough fixing. True deleveraging is in the 4Th inning of an extra inning game. Banks around the world, especially here have had all losses put on government balance sheets with guarantees, this has pretty much stopped corporate deleveraging.

3-Countries that have current account deficits like the US, citizens are dying to cut consumption and save more or doing so, while governments are alerting them to do the opposite. Consumers win on this one.

4-The US Financial System has become a shell game for the uber/ultra wealthy, yet its extremely damaged and getting worse. We have traders, bankers, and executives playing the flute while Rome burns.

5-Too much leverage and far too much debt are crippling end market consumption demand.

6-Global imbalances need to play out, and they will play out to the detriment of the US."

7-Zero exit strategy. This is just another bubble that is forming. Policy makers are in damned if we do, damned if we don't mode. If they raise taxes, cut spending, reduce leverage/debt, soak up excess liquidity, and stop printing they will undermine their already ludicrous behavior and risk putting the system back into a deflationary recession or stag-deflation, if they continue in their same self destructive path, bond market participants will start dumping bonds hand over fist, reducing the effectiveness of escalating debt issuance, rates rise exponentially, borrowing costs increase and all of that floating rate debt that Americans are saddled with will explode.

8-Do I have to mention Crude Oil and its destructive effects on consumer behavior?

Tuesday, August 25, 2009


I shorted today, looking for a down day tomorrow. SP futures opened up this morning on news of Bernanke being reinstated by Obama for another term or what Cate sees as Obama elbowing to Bernanke "You get another term, I get another term."
But people already knew that Bernanke was coming in, ie. Goldman Sachs knows everything that goes on in government, which is why they bid the S&P up 5% in just a few days leading up to today and now when the larger public gets wind of the news, Goldman is going to dump their shares on the unsuspecting little guy.
Housing data came in line or beat estimates, market rallied off the number and then sold off, attempted again, but reverted to the mean (SP 1026) by the close.
The S&P has been opening and closing at pretty much the same level for the past several days and I suspect it will open flat tomorrow at the same level. This type of consolidation normally presages a large breakout price move ahead and i believe it will be to the downside.
Last Monday, Shanghai was down big, bottoming out a 20% correction, the media was plastered with news of China being in official bear territory. Naturally we rallied from there, but while US market broke to new highs some key stocks did not. Usually after a big down move like that bearish sentiment re-emerges and we get a bounce for the next few days, but I believe last Monday's sell off was significant and will resume before August end.

Market Topping?

Like I said, fraudulent consumer sentiment numbers that came out at 10am propelled index values higher. You see, there are 3 sets of Consumer Sentiment Numbers that are published.

1-Every Day People
2-People On Wall Street
3-People In Government & Congress

They basically average 2&3 together to get a complete idea how the country is feeling, why should they not, the only ones who's lives have changed for the better since March 9Th are the ones on Wall Street and Government.

I said earlier this month, when the government actually had the nerve to say that the unemployment rate dipped, it basically gave the Dow a direct run up to 10K, when it was 9K. I still see that number as a given, the way the market is trading.""

Markets tend to overshot on either sides of sentiment, this is no different.

But this is a no volume market with nobody trading. Markets only go down if there are people actively on the sell side leaning on stocks. I am not seeing that as of right now."""

But it can all change after Labor Day when the big boys come back to play."

This market goes up on bad news and surges on decent news. That has to be respected until further notice. I can say the market is topping out, but then again what does that mean? Opinions don't matter, trade what you see. What I see is low volume ramp up of crappy stocks that propel stock index futures higher in the face of no sellers. I am not buying it realistically, theoretically, organically, and academically, but that doesn't mean I am aggressively selling/shorting it either. I got short right after the 10AM ramp up, and was able to cover lower, making some decent loot, but quickly found out that buyers just took a break for an hour. I would not be suprised if we go much higher today, but wont lose any sleep if we go lower as well.

Excessive SEC Drivel And No Volume Ramp Ups

The SEC is cowardly trying to explain away why they only fined BOFA $33MM. Its really frightening to see and hear Linda Shapiro and the SEC goons tell the Judge that $33MM is enough punishment for letting greedy incompetent Merrill executives get $3.6B in bonus money.

Regulators claimed that Bank of America had said in its proxy statement that it would not pay out bonuses to Merrill employees in fiscal year 2008, when, in fact, the bank authorized bonus payments of as much as $3.8B to Merrill employees. Then is a recent filing, BOFA "suggested" that investors should have already known about the bonuses given the media attention surrounding the merger after it was first announced last September. In addition, the bank pointed out that Merrill disclosed the size of its bonus pool when it reported financial results earlier that year. First BOFA gives too much credit to investors, investors only care if the stock price goes up, BOFA could be in the kiddie porn business, as long as the stock is in upward trajectory, all is good. Secondly, Merrill earlier in the year had set the bonus pool when the mortgage market wasn't on life support. Bottom line here, Ken Lewis and the honchos at BOFA had a hard on for Merrill Lynch for a decade and wanted the company at any cost. So John Thain and Lewis hammered out the deal while hammering the shareholders in the process. When Lewis realized they he was the one being screwed, he changed course.

The Judge in the case expressed concern about the SEC's apparent unwillingness to single out any individual at either firm for signing off on the payments, and the possibility that the settlement would be paid using bailout money from U.S. Taxpayers, namely himself.

The SEC said that the $33 million fine "strikes the right balance between the goals of deterrence and the need to avoid unnecessary harm to existing shareholders."

Why would any of this surprise anyone? The gals/guys at the SEC need to make a living after they do their public service, where would they work?

A lot has been said about the lack of volume that has ramped up indices. What is truly mind boggling is the volume is being dominated by crappy stocks like C, AIG, FRE, FNM, & CIT.

These 5 stocks make up nearly 30% of the total NYSE volume on any given day. Also AIG generally trades its entire public float on any given day.

You would think this would be a red light for regulators. Silly Rabbit! Markets are going up! Shut Up!
We know that there is forced short covering, forced margin buying going on. The HFT Machines need stock to trade, so the stock loan departments call in all stock on the short side. Algorithmic trading has taken over 100% in the financials and corresponding ETFS. All done to paint the tape and collect rebates, while the overall market floats higher on zero volume. This all puts the simpletons in a better mood, so that the big boys can lower the boom later.

You would think the SEC would be worried that just 5 stocks make up 30% of trading volume, no collusion here, this is just normal behavior on Wall Street...You got that right.

But wait they are on it. When the markets eventually get smoked and stocks start to retreat led by the financials, they will come out promptly re implementing the uptick rule. When Goldman, Morgan, Citi, and BOFA start to get walloped, they will prohibit short selling in them as they did before, all in an attempt to stabilize Skynet."

6 Months from now, everyone including Obama will say what a great job the SEC led by Linda Shapiro did to stabilize this pig of a stock market.

Case Shiller Is Out...

June Case Shiller is out and of course its less worse meaning greatly good for stock futures.

For the second quarter, Case-Shiller U.S. National Home Price Index posted a 14.9% drop from a year earlier, an improvement over the record 19.1% drop in the first quarter. It was up 2.9% sequentially.

Of course people will focus in on the 2.9% sequential gain, forgetting that home prices have dropped some 30% from peak values. At this rate, Homeowners will be at parity when the Mets win the World Series in 15 years if we are lucky.

The monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier.

Home prices are at levels similar to early 2003.

The indexes showed prices in both 10 and 20 major metropolitan areas fell 15% in June from a year earlier and rose 1.4% from May. Eighteen regions reported a slight price increase in June from a month earlier. Month-to-month gainers were again led by Cleveland, which posted a 4.2% gain, and San
Francisco, which rose 3.8%. Las Vegas again fared worse, dropping 2%.

Housing Sucks Still

For the 15th straight month, no region was able to avoid a year-over-year decline. Las Vegas edged out Phoenix as the worst performer. The two cities posted drops of 32.4% and 31.6%, respectively. Detroit followed with a 25% decline. The best year-over-year performer was Dallas, which posted a 2.2% decline.

Obama is on the tape congradualating Bernanke for totally skull mucking the simpletons we call the electorate. Where is the secret handshake?

Obama Does What Obama Does

The Futures rallied sharply right after this news hit the tape earlier in the wee hours of the morning.

I have stated in the past that Bernanke is the one of the biggest reasons why we are in this mess. His failure even to notice the pending housing disaster which led the economy into the dumpster was truly an epic oversight. But then again, did anybody notice this in his inner circle of social events?""

I am 100% in favor of bringing back this dolt."

The same reason I voted for Bush in 2004, namely because why should John Kerry and the Democrats have to clean up W's mess in Iraq? Why should the Democrats have to clean up and balance Bush's ridiculous out of control "No Veto" spending spree? The greatest thing that would have ever happened to Bush was him losing the 2004 election. People truly would not have ever realized what a nitwit he really was. Americans constantly need to be reminded that their elected officials are idiots. But what we have now after 8 incompetent years, is more of the same from Obama from a slightly different angle. Obama is no idiot, very bright articulate guy which ultimately makes him exponentially more dangerous. Stupid incompetent people in power who adhere to business as usual policy screw things up beyond belief, but bright intelligent people who adhere to the same business as usual policy finish the self destruction. America had no clue what they were in for with Barack Obama, they were so shocked at Bush's stupidity, they voted in the smart guy. Both are cut from the same "Business As Usual" cloth.

Back to Bernanke, again its a brilliant idea to bring him back, we are all going to hell anyway, lets just get there with the same bus driver. Again, why should anyone come in and clean up this mess? Why should we let Benny off the hook? Let Americans, foreigners, economists, and academics realize that this drunken sailor monetary policy is no good for no one except the drunken sailors on Wall Street. Just like Bush was defaced, Bernanke should face the music. Just as Paulson is though of as a total hack, Geithner should be destroyed similarly. In the case of Obama, he is just like the rest of them, totally impotent, and in the immortal words of John Wilkes Booth "USELESS".

We have more bogus Housing Data out at 9am, as June Case-Shiller Home Price Index is being released. We probably see the futures get more juiced up. Totally forgetting that both the Washington Post and FT, real news publications, are running stories about homeowners and foreclosures, don't read the articles, there negative in nature and the powers that be want you to focus in on fantasy news. This is followed by Consumer Confidence at 10am.

There is more mortgaging of our grand children's future on tap today. $42B of 2 Year Notes as well as 4 and 52 Week notes will be issued to subsidize Goldman's Retirement Pool.

Monday, August 24, 2009

Housing Smoke Screen Continues.

I knew over the weekend we would have every single person who missed the housing correction come out and tell us that America's pain is over with regards to housing. We had so called housing/real estate experts come on TV and tell everyone the good times are back.

We all should be wary of listening to such idiots. The housing report that ignited the gains on Friday was from the NAR - National Association of Realtors. These are the same ones who were waving the pom poms around when 2 BR condos were going for 700K in crappy neighborhoods.

The government can learn a thing or four about spin from these guys. The data that came out Friday was spun in a way to have more people buy into this fake recovery. Remember Ponzy Schemes only work if the morons on the bottom believe the people at the top.

Also, I have noted that 16K in condo sales made this entire rally happen! A lousy 16K low end condo sales in the Northeast made equities rally some 160 points on Friday. Take away this 16K, and we actually had a negative number. Also, the vast mount of homes in this country or the single family non condo variety. Single family ex condo sales were down 10% year over year, and down 5% sequentially.
Hence cheap condo sales in the Northeast is what the NAR and the frauds on Wall Street are hanging their hats on. Overall, the data suggests that housing is getting worse not better.

Even today, we have this nugget about the UK Housing Market.

BTW...I live and own a condo in NJ, that I love, so I am not picking on condo owners, I am one, but even with gains in condos, Western States are still in horrific shape, where sales are still down 10% Month to Month, and much worse year over year.

Step back and take a look at this:

Home Prices have cratered
Rates are at historic lows
Foreclosure Moratoriums
Loan Modifications
Tax Incentives
Better sentiment

And sales still suck! They are flat year over year, and down some 7% from 2007 levels. We just had the mother of all perfect positive storms in housing, and the actual trends are getting worse.

Conditions going forward are no where near going to be this positive.

There are so much governmental forces focused on getting housing out of its doldrums, just think about it, if the government hadn't already bankrupted the country, where would housing be? Foreclosure activity is off the charts now, just imagine if the government didn't act. Ethically, the government did what it needed to do, keep people in their homes, but in the process, they just prolonged the excess to future generations.

What is going to happen is unemployment is going to get worse, credit is going to tighten more, lending standards will get more stringent, and rates will rise as the dollar and debt markets crumble. THEN WHAT?

This entire theory of getting sentiment to lead the actual recovery is beyond ass backwards."

Can the government continue its vulgar spending unabated? Can the NAR continue to smother lipstick on the pig that is the US Housing market?

Foreclosure activity has grown almost every month since housing peaked, while housing sales including cheap condos are just at July 2008 levels.