Friday, May 21, 2010

Theme Of The Day

The magic words for today is "HEDGE FUND LIQUIDATION."

Carry trades all around the world are collapsing. The resulting unwind is killing hedge fund clients all around the world. I am sure margin clerks were working overtime last night and came in extra early today to sell out their clients. It also doesn't help that LIBOR keeps rising.

The biggest carry trades AUDJPY and EURJPY got mauled yesterday and are trying to make a comeback today. This is little to late as margin clerks are going to work.

The German DAX which broke its 200DMA yesterday and rallied strongly above it by close is now firmly below that mark once again. The FTSE and CAC are broken short term and need to find some support. I am firmly in the camp that these markets will see an "Air Pocket." in the coming days. Days like this make me look for whole numbers in index values, DAX at 5000, FTSE at 4500, CAC at 3000, and SPX at 1000. Those are all some 7%-12% away.

This market is busted at the moment. Is it broken is the question? The markers will probably try to rally to get the SPX above the Flash Crash lows but like the DAX, the SPX is also belows its 200DMA which is very problematic. Any rally will be and should be sold.

Thursday, May 20, 2010

Long Euro? Short Gold? ....Soon

The Euro which is everyone's mule has been slaughtered this year. Non Commercial short positions in the Euro have been hitting records.

This looks to me like the Euro is begging for a short squeeze up.

The net selling has been a little bigger than during the Lehman swoon of 2008. Most of the selling (70%) during the 2008 credit crunch was just longs being liquidated. This time some 70% of the selling are shorts leaning on the Euro. This is much more of a speculative risk position. As we all know when speculative risk positions are put in there is always a risk aversion trade around the corner. I believe a serious snap back Euro trade is nearing.

Yesterday's nice rally was all derisking from the short Euro trade. All types of rumors from ECB buying to Greece leaving the EU were attributed to the rise. It was also nice that the Swiss CB was also selling CHF and buying Euro's as well.

Gold on the other hand is so in vogue that it has to correct. News that Dubai has installed Gold ATM's is just too much. I don't see a huge correction in the yellow stuff, but safety trades like gold when they get the publics attention no longer become safety trades. News that perma bear Jeremy Grantham just bought doesn't help either. When gold was floundering in 2003, the FT and WSJ were saying Gold was dead, it was a barbarous relic. That was the time to buy. Now the FT and WSJ are talking up Gold.

AHH! Deflation!

If you don't see defaltion then you are obviously not looking at lumber futures. You know? Lumber? The stuff that is used to build homes?

After the building permits data came out a few days ago many market observers were ignoring this stat in favor of the headline housing start number.

Building permits data is forward looking. And its not looking good for future housing starts now that the gravy train tax credit has expired.

Lumber futures are now down some 35% since hitting highs in late April. They should be demolishing homes that no one wants not building homes that no one wants.

Tuesday, May 18, 2010

Capitalism's Kryptonite

Too Big Too Fail is Capitalism's Kryptonite. Without creative destruction we have total economic destruction. I can't say it better than that. Capitalism depends on this very simple notion of creative destruction. If risk challenged and poorly managed financial firms are not allowed to go belly up or fail, the overall risk to the entire economy is threatened.

Every single time the idea of greater regulation is tossed around we hear the same rhetoric from the financial sector mafia. If you regulate us? The economy will suffer. If you regulate us? Credit will become scarce. If you regulate us? You will ruin our competitiveness. All of these excuses are just that. Excuses. The economy is already in the toilet, consumer credit other than last months small increase is contracting. As for global competition? The recent problems in Europe should take care of that.

The biggest reason they give for TBTF is that the giant economies of scale argument. This is totally preposterous. They just want to protect their bonus pool. As these giant banks have grown over the last 15 years, most of the efficiencies and profits have flowed to the executive ivory towers and shareholders. Where is the benefit for the real economy of having BOFA, CITI, JP, and Wells owning some 2/3rds of customer deposits? The only efficiency was the somewhat lower costs that were passed onto consumers. This is hardly the type of efficiency that should bring TBTF as public policy.

The only reason they want TBTF is because its a get out jail/accountability free card. This is 100% opposite of what true capitalism should be.

The majority of financial experts didn't see the credit crisis coming. This is for good reason. They willfully missed it because business as usual was the order of the day. Everyone talks about "Black Swan" events, but was it? It was only a Black Swan event for the head in the sand crowd. There were many investors that saw this coming as evidenced by John Paulson getting short subprime via Goldman's Abacus vehicle. Anyone who says it was a Black Swan event is just taking an intellectual cop out. This is unacceptable. The idea that financial firms were helpless because LIBOR-OIS and the TED Spread was soaring is borderline criminal. This is what happens when you are in a both a liquidity and solvency crisis. It is very convenient to say its a liquidity crisis when in fact we all knew the banks were tapped out. The banks used terms like 10 standard deviation events, Black Swans, storm of the century to absolve themselves from reckless credit decisions. It was pure greed blinded by free market/rational ideology that led to the immense leverage inherent in the system.

Millions of honest hard working people who were downsized deserve better than what we have gotten from both the Bush and Obama Administrations.

Wall Street has made trillions from the Moral Hazard trade the last 15 years or so. Ever since LTCM, the coast has been clear.

When this trade comes to an end and it will the resulting pain will live on for tens of generations.

All great bubbles begin with a truly convincing shift in fundamentals and rhetoric. And many of them are all kept going by reckless lending on the part of Citigroup and its competitors, remember emerging markets in the 1970s and 1990s? US commercial real estate in the 1980s?  Finally US residential real estate in the last decade?

What are we asking for? What do we want from our elected officials? It's quite simple. We need to break up the banks and shrink their balance sheets down to a point where they can no longer hurt the economy if shit hits the fan.

Why I Blame ZIRP For All Of Our Problems

If there ever was a  reason to believe that the Fed's Zero Interest Rate Policy (ZIRP) is the root of all evil. Then this is it.

Junk Bonds Sell With Weakest Creditor Protection Since 2007

I just can't figure out where the ignorance comes from?
Didn't we just have one of the worst credit disasters in our lifetimes?

Crappy home builder Beazer Homes couldn't even sell debt at the height of the credit craze, yet they are able to do so today with even less loose debt covenants. Its one thing for issuers to act ignorantly, but why do investors have to act similarly? This is because debt investors as well as their nitwit equity counterparts have to take on risk! This is what the Fed wants. When rates are zero investors scramble for yield. You don't think Beaxer knows this? The Federal Reserve has effectively taken over risk management. They make the curve. ZIRP forces these type of investor decisions to be made.

Friday, May 14, 2010

Short Into Monday

I am loading up short over the weekend, maxed out on double and triple leverages.
If you take all the mondays and plot them on a graph forgetting about all the weekdays inbetween, you'd get a steady uptrend, even during the mkt corrections. Last Monday at 50 SP points was the biggest up open since the 14 month rally. That's when the graph went exponential, a blowoff top. Any trader would love to fade a move like that, hence i'm short into this monday. I highly doubt it would be a crowded trade, most mkt paricipants are quite trepidated about being short into a monday.

Monday, May 10, 2010

Desperate Times....

....Call for desperate measures.

With the EU Bailouts this morning, it is a calling that Global Markets, Central Bankers, and Policy Makers have signaled that they are all in at the casino table.

I don't believe in God, but here goes.

Heaven Help Us!

Saturday, May 8, 2010

Dirty Little Secrets

The market activity this past week only further reinforces many dirty little secrets that DC and Wall Street wants to keep on the down low. Many of these things are quite well known to the non CNBC, Lost, American Idol, and Big Brother brethren, but when the feces hits the fences hopefully all of the country can watch as Rome burns.

1-The US is effectively morally bankrupt as the Brown/Kaufman Bill to shrink TBTF institutions failed. This bill would have massively shrinked the financial sector, reduce leverage and maintain adequate capital for futures crisis. The audit the FED measure was also gutted so that the GAO can only onetime audit certain aspects of the FED. The Dodd bill that is making the rounds and probably will be put into law effectively placates Wall Street's predatory and parasitic behavior. It does nothing to reduce bank concentration and does even less to contain the next crisis which is rapidly approaching. The worst part of the reform farce is that it will close the discussion of reform. The Obama Team will then move on to either SS, the Deficit, Climate Policy, or perhaps even war with IRAN? Simply the Obama Team doesn't have the stomach or the political will to take on Wall Street. Dollar Dollar Bill Yal! We are in the midst of a correction, how big is really the question.

2-Europe is bankrupt financially. The Euro form the onset was doomed to fail. Why would anybody want to be in a union where one or two parties are doing all of the work and the other just sits their and consumes? Other than one party getting laid many times over, I can't figure this out. Germany and France are the two biggest exporters in the EU, and much of the economic activity coming out of Europe goes through these two countries, its by design that these are the two biggest countries on the hook if the PIIGS go bust. Portugal, Italy, Ireland, Greece, and Spain have too much debt that they cant effectively ponzy over because of rising interest costs. Why Greece was ever allowed into the EU is mind boggling? Greece has never been able to run their finances through out history. Even when their borrowing costs were higher, and their debts lower they still managed to muck it up. So why in the world would the other European Nations allow the Greeks to effectively lower their borrowing costs? Its like handing over the chocolate factory to a 5 year old. What we have is Greece running up huge amounts of debt on the cheap. They used the Germans and French to issue cheap EU debt because by themselves they would have never done this. Who do you think is on the hook for this? Mostly German and French financial institutions. Angela Merkel is in a bind. The Germans are sick of bailouts and have known from the beginning that everyone else in the EU was using them to run up debt. When the truth becomes unpalatable, it fails to become the truth. Every one knows that the best Greece can do for the Greek people is to default. They need to exit the EURO and then devalue their own new currency. The Greeks can worry about the legalities later. Its the least of their worries. We are just talking about Greece at the moment. What about the other PIIGS? We are in the 3rd Inning of a Pan European Debt Crisis. The dirty little secret here was that banks and policy makers were telling us that Greece is only 3% of Euro GDP and that the damage is contained. We have heard that from the frauds that are our policy makers. Remember Bear Stearns?

I posted early on in this crisis that Greece was a big problem.

Currency traders all around the world were all ready derisking away. Derisking always happens with the most liquid assets. It starts with currencies, then moves to bonds, and then equities. I would not be surprised to see commodities crude take it in the grill this week. The correlations of all risk assets was incredibly 1. This is just completely unbelievable. This is the failure of Keynesian economic policy. We can't print our way out of a debt problem. We can't leverage ourselves out of a leverage problem. We can't issue more debt to get out from underneath existing debt. What ever bailouts have been announced and what ever monetization of future debts can't get you away the inevitable. Extend and pretend and kick the can down the road only works if you can keep the house of cards erect while you sucker the citizens into believing that you are on the electorates side. EU and US policy officials have been trying to re inflate the rotten to the core financial system. The Obama Team was purposefully put together not for repair and reform, but to re inflate the old corrupt system. To this effect they were highly successful.

There is no way out for the Euro. Its dead! Long live Europe and multiple currencies. People in UK who want to travel to other EU nations can't do it because things have gotten very expensive. The only ones doing any shopping in London are Non Europeans. The PIIGS must be allowed either to default or massively restructure their debts. The European Union was 1000 years in the making, and the Euro has been a product of 60 years of hard work but its time to move on to another system that conveys accountability.

3-High Frequency Trading along with program trading will kill our markets. I have written on these subjects so much I won't comment. Just read:

4-Asia has all of the money. China which has been using currency manipulation tactics has trillions of USD in their system. One would be surprised to find out that there is a general shortage of USD and Yen and too much Euro's in the system, but that is exactly what is happening. The Yen which is the biggest carry trade currency started to surge vs other currencies, this is what started the 1000 point down draft. Investors had borrowed YEN and used the cheap currencies to run asset prices around the globe. When the Yen rose violently, this caused the derisking/deleveraging in global equities. Investors around the globe have started to hoard Yen and USD. This is extremely dangerous for asset markets that have risen some 80%.

In the final analysis after careful consideration, I can't blame China. Its the US Policy Makers that have enabled not only Wall Street but China to do what they have been doing.

What is going to happen to China and the rest of Asia when they suddenly find out that the European and US customers are bankrupt? Tapped out?

Asian demand brough the world out of a serious recession. Commodities surged on China demand. China has already started to cool their economy, but with US and EU also going into the tank and the carry trade unwinding, this could get really ugly really fast.

Friday, May 7, 2010

Risk Aversion Is Real

I posted a few days ago that I wouldn't buy this dip.

I think aversion to risk is real and that a major market derisking is in effect.


US 3 Month LIBOR

The risk in the market is always in the intermarket lending arena. This is where loans are financed, refinanced and turned over. If the rates too which these transactions are conducted or going higher its the markets way of telling you that risk is becoming a problem. The market is getting worried about counterparty and other various risks.

Risk gets transferred in the markets this way.

-First its the currencies that get hit.
-Secondly the bonds get hit
-Finally its the equities.

Yesterday was the day the risks got transferred to equities. The currency and bond markets were telling us that the global V-Shaped economic recovery was a hoax. European and US Equity markets were decoupling from what was happening in the currency and bond markets.

The ever rising USD was telling people its time to derisk. Time to deleverage. The Euro was screaming at you to do the same, but equities that are run by machines were not listening.

This all just postpones the day of inevitable reckoning.

Greece will default. This will have cascading effects in Europe.
The Euro is finished. Its dead. Long live the Euro.
China is slowing their economy which will lead to a global deleveraging of any risk asset.
US Financial Reform is going to be vicious for the financial sector.
Goldman Sachs will settle their SEC but it will be for billions.

Non Farm Payrolls out. Looks to be a good number. Up 290K, but employment rate edged up to 9.9% - WTF?

Thursday, May 6, 2010

Trading Glitch? Want To Buy A Bridge?

Trading Glitch?
Incorrect Entry?
Fat Finger?

Don't believe the hype.
The MTM is completely captured in Wall Street's Casino Capitalism's Skynet web of lies. Wall Street is just one giant elitest casino to serve the purpose of the crony bankers and politicians.

All afternoon we heard from CNBC, Fox Business, and Bloomberg that a staffer typed in a "B" instead of an "M" and caused this scary slide in prices. Let me tell you this. If anyone is stupid enough to believe this then you deserve to be fleeced and looted the rest of your lives. Take it from me a former trader. This is utter crap. If you believe this then you must also believe in the following:

-Easter Bunny
-Santa Claus
-Lochness Monster
-Abominable Snowman
-The Boogeyman
-Candyman - Please stand in front of a mirror and say Candyman 3 times.

One must also think that what is good for Wall Street is good for the rest of the economy as well.
Can one tiny keyboard stroke at a huge Wall Street firm possibly make this type of mistake? If it was that easy we would see it more often. You cant tell me that one mistake would cause $1T in losses?

The entire stock market gain since March 2009 was orchestrated by the Federal Reserve Board and Treasury via their proxy - Wall Street. This was no different than what we saw in August 2007 when all of the quants got blistered. Each and every one of the PD's were in the same trade. They all owned the same asset classes. The Algo's were all programed the same way. When the correlation of all risk assets =1 any slight cough becomes a bad cold. The HFT systems all caught the same infliction at the same time, and what probably happened is computer programs were triggered and started selling off since volume in the market has been low virtually throughout the entire one year rally. Liquidity is never there when you need it.

As anyone can attest to, when I was covering all of my shorts at around 2:45pm, I happened to log into my Etrade account. I loaded my buy to cover orders and hit send. What I got back was  not one but two warnings. Do you want to submit this order? Or you sure you want to send this order? You telling me that the fancy sophisticated order entry systems at the PD's don't have this? Preposterous!

The MTM will believe anything that the crony capitalists tell them because without them Joe Kernan and Becky Quick are washing cars and waiting tables.

Lets take a further look at the so called "Fat Finger Error". Was it a futures trade? Not really as it makes no sense. If it was every stock in the SP 500 would have been equally hit hard. Some stocks didn't go down while others like PG and ACN did. I am not saying that futures were not involved, but I am thinking that some hedge fund was long some stocks and needed to liquidate. This liquidation took on a life of its own as all liquid stocks got hit. The Algo's then just went and did their thing in perpetual self awareness mode. Where is Christian Bale when you need him?

I just cant imagine that one trader can put in an incorrect trade. These systems  must have stop gap error detection systems. I have worked on trading desks on Wall Street for 12 years and in that time I have never seen an error of this magnitude, this is because it can never happen. We all make errors but not of this magnitude. People get thrown out of windows for stuff like this. I have traded bonds, derivatives, and swaps my entire life and every trader has a position and execution limit. If they don't they risk blowing up the company and market. Just imagine if instead of an "M" he typed in a "T"? The market would have gone to 0. This is so bottom line jaw dropping stupid reasoning.  Every trader has risk parameters and execution limits. You actually think a Citi, GS, MS, and or JP would allow someone to trade without them?

This is just another snow job that the crony elite bankers are trying to convey to the masses. They don't want the public to realize that the markets are a total scam. That the only ones trading are the machines. Market volume has steadily dwindled since last year, because the broader public have already been washed out of the market. There has been zero retail participation in this rally.  Money has been exiting equity funds and going into bond funds at a huge pace, yet equity prices have rallied 80%? This is because the Government is funding the the PD's and having them speculate in equity futures.

Another theory my friend was alerting me to was that some Algo's are programmed to sell when certain correlations are met or crossed. One of these can be the fact that the Yen had surged vs the dollar. There was a huge gap up in YEN/USD.

All in all the market came back from the brink. It still finished down 347 points. Tomorrow is Non Farm Payrolls. If that figure doesn't print above 100,000 job additions, we are probably going to see huge losses as bond prices, Gold, and the USD will likely go much higher.

The Nikkei is currently down over 400, but the Hang Seng is rallying off much lower levels. We will have to see how China and India trade.

Europe is a total disaster. I believe those markets gap down violently and get slaughtered.

Whoops? Maybe? Don't Believe It.

There are rumors that a computer error caused the market to drop more than 1000 points intraday.
Looks like:

1- Someone at a PD incorrectly entered a huge order to sell PG way below the market. Proctor was trading at above 60 and the order was placed in the high 30's.

2- Instead of entering an order for $16MM - An order for $16B was incorrectly entered. We don't know what type of order? Stock Index Futures? Basket?

This happened a few years ago at Morgan Stanley when an order clerk incorrectly entered a huge order that caused the market to take a dive.
He soon was fired and he currently works for CNBC producing skits.

All of this sounds very fishy.
Will have more real soon.

AIR POCKET...Is SkyNet Self Aware?

That was some Sell Off.

This is what happens when Skynet is running the markets. The Algo traders were gunning this market, gunning it directly into the face of what was really happening in Europe and China. 

I wrote a few days ago about EUR/SPX correlation.
This had to decouple and it did today. The Euro was far to weak for the SP Algo Gunners to ignore.

That entire drop down was some sort of forced margin selling or a hedge fund/PD that was caught on the wrong side of the trade. 

I have also spoken about the dangers of HFT/Algo Trading.

There could be many things that can explain this.

Was it an error? Unlikely.
Was it the free falling Euro? What do you think?
Was it that European Bond Markets closed early? Huge possibility.
Was it that Euro Lending Markets froze up? Bigger possibility.
Was it the Rising Yen? Interesting Theory.
Was it the USD rallying killing the risk trade? Most Definitely. 
Did all of the Algo's suddenly act in the same way? Haha! Yes.
Has Skynet become self aware?  You make that assumption.
Was it that the fact that 5 PD's control the casino stock market and all of them needed to liquidate in a zero liquidity market? Highly likely.

The market has recovered from that scary Algo induced drop right in time for tomorrow's NFP Data.

Wednesday, May 5, 2010

The Enabler From Omaha Speaks....

It shouldn't come as a huge surprise that Warren Buffett is defending Goldman Sachs. Buffett has been unmasking himself for the fraud that he is ever since he bought into GS last year.

I really don't know what to make of his latest missive about the ratings agencies.

Is he just doing a Vinick by talking up Moody's because he wants to dump the piece of shit company?

It looks to me that Charles Munger has a better grip on reality than Buffett.

"Berkshire Vice Chairman Charlie Munger was characteristically more blunt. "What happened," he said, "is that they drifted with the stupidity of their times."
Munger took a swipe at the academic theories and quantitative formula's the ratings firms used to make their judgements. "I've yet to hear a single apology from business academia for its huge contribution to our present difficulties," he said, to rousing applause from the audience."

The ratings agencies to me are the biggest reason why the credit markets imploded. If they had the guts to call a spade a spade, hundreds of billions of worthless structured products would have never been sold to investors.

I can't be any clear on this. I will not mince words when I say the following:

These guys at the ratings agencies should be tarred, feathered, quartered, and hung out for public ridicule. Instead of doing the proper due diligence, they just willfully neglected to do their jobs and the tax payer is on the hook for their gross incompetence.

The fact that Buffett has the gall to give the preposterous ratings industry any props should grant him a one way train ticket to hell - hopefully on Burlington Northern!

He makes these statements about derivatives and the such to sucker the masses into thinking he is on their side, but he really is looking to loot the masses for the betterment of Berkshire Hathaway. His opposition to derivatives reforms borders on the criminal. He is 100% out for himself.

I simply can't take this guy any longer. He is no more a charlatan than Jim Cramer and the other parrots on CNBC. The quicker he makes his exit the better. It will a great day when they put this lowlife in the ground.

PIMCO's Bill Gross in his monthly letter has more to say about the ratings agencies.

In all of the hullabaloo over Goldman Sachs, a CQ analysis of the rating services – Moody’s, Standard and Poor’s and Fitch – has escaped front-page headlines. Not that a number of observers haven’t been on to them for a few years now, including yours truly. Back in July of 2007 some of you will remember my description of their role in the subprime crisis. “Many of these good-looking girls are not high-class assets worth 100 cents on the dollar. You were wooed, Mr. Moody’s and Mr. Poor’s, by the makeup, those six-inch hooker heels and a ‘tramp stamp.’” Now, it seems, I was a little long on humor and a little short on the reality. Tramp stamp and hooker heels do not begin to describe the sordid, nonsensical role that the rating services performed in perpetrating and perpetuating the subprime craze, as well as reflecting the general deterioration of investment common sense during the past several decades. Their warnings were more than tardy when it came to the Enrons and the Worldcoms of ten years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbors. The result has been the foisting of AAA ratings on an unsuspecting (and ignorant) investment public who bought the rating service Kool-Aid that housing prices could never really go down or that countries don’t go bankrupt. Their quantitative models appeared to have a Mensa-like IQ of at least 160, but their common sense rating was closer to 60, resembling an idiot savant with a full command of the mathematics, but no idea of how to apply them.

Unmasking For Profit Online Schools

PBS Frontline hit it out of the park last night with this feature.

It unmasks the scam that For Profit Online Schools are.

These scamsters at these institutions are  just as worse as the peddlers of garbage mortgage loans at New Century, Fremont, Long Beach Financial, and Countrywide.

Most of the student loan defaults are directly correlated with these type of institutions. Who do think is on the hook for these losses? Take a look in the mirror.

Federal Student Loans are the lifeblood (Pun Intended) of this parasitic industry. The taxpayer is funding this industry as 75% of the revenues are from federal student loans.

Bloomberg Businessweek also has this feature in last weeks magazine.

Whenever you have Wall Street and the government jointly involved in an industry you can 100% guarantee it is fleecing and looting the tax payer.

Don't expect the government to do anything to curtail these purveyors of debt slavery. The government needs these institutions just like they needed non bank financial companies to bring home ownership to the masses. These institutions are intertwined into the worst fabrics of predatory Wall Street and engage in tremendous amount of lobbying of our elected officials.


"Its different this time."
-Famous Nameless Lost Dead Investors.
This is what is carved into most headstones of people who have lost their shirts in the stock market. 

We all try not to get involved or caught up in these market slides, but inevitably we all go down with the ship in one way or the other. I may not lose money when stocks go to Mexico but when TBTF institutions go out of business its my tax dollars that are being looted to bail them out. In truth every market cycle is or has something different than the previous, but also each market cycle has its own distinct characteristics. Like leverage and over margined investors. The copious amounts of liquidity on the way in but no liquidity on the way out. We all should ask ourselves how is the current market environment any different than past situations?

I would not buy this dip.
I think we are in the midst of a minimum 10% correction.
After over a year of stellar gains of some 80, almost every major market guru has even more gains yet for the broader averages. Many of these parrots say that a correction is still a year away and that as long as the Fed/Treasury is your friend you have to be long this market.

I posted over the weekend about sentiment.

Albert Edwards Of SocGen Has these charts to further explain that buying the dips will get investors in the end.

When the fundamentals no longer matter, we have to take a second look at our books. When investors main thesis is how a bailout can be engineered in the home country of that investment, it is time to sell equities and all risk assets.
This is macro investing as it is today.
People have to be out of their minds to buy equities just because the backstop for their losses is the government. This is why there is rioting in the streets of Greece this morning.

More On Gold And Silver Manipulation

This piece further builds on Andrew Maguire's discussion on metals manipulation.

Jim Rickards is the former General Council of LTCM.

When USD Rallies...Sell Risk Assets

The Euro has broken $1.30

When the entire global investing zeitgeist is getting drunk off of a weaker USD and its that USD that has rallied sharply this year, one can't be surprised that markets are trying to recover from a hangover. The dollar started to rally late 2009, just about the time we were hearing the words sovereign debt issues. People still piled into European and US Equities because sovereign debt was just an issue, after all issues can quickly become socialized on the backs of taxpayers. It then became a problem, no problem here. Bailouts will do the trick. Now its a full blown crisis. OK. If bailouts don't work, we can just print money cant we? Sorry Charlie! It ain't working this time until the market corrects and China starts their printing press. Blast off for that is sometime in August 2010.

I would say that the 12 week rally we saw in Euro/US Equities was kinda like the last call at the bar. The markets were running on fumes. We are in a period of long due consolidation and the correction in Euro/US Equities is long due.

Essentially, what we were seeing was how risk asset markets were so dependent on a weaker USD. Weaker USD meant faster/cheaper exports for Asian economies. When the USD is weaker we have global liquidity. This global liquidity reached a top at the end of 2009. There was a tight correlation between liquidity and risk assets, this is not rocket science people. People have had a hard time making any loot because liquidity has shrunk because of the move in USD higher. Higher USD means people are becoming risk averse. Why do you think policy makers had a dollar destruction policy in the first place?

Remember this is a problem of debt. The 2008 global equity correction was a problem of debt. What we are seeing today is a problem of runaway debt. Subprime problems were clearly evident in 2006 and those problems actually peaked in 2007 before the peak in equities. This is no different. Same problems of debt with different incompetent characters. The progression is the same as it was in 2008. The optimism in investor attitudes towards the stock market topps out when the underlying fundamentals are getting weaker. Its exactly the same when markets bounce from severely oversold levels.

The correction will be quick and painful, because that is how corrections roll. It takes 12 weeks to go up 15%, but 2 weeks to lose it all. Ahhh! Such is life in the global casino we call financial markets.

We all should enjoy this. I know I certainly will.

Tuesday, May 4, 2010


Another reason to sell global equities...Windfall Profits Tax!

There is nothing worse for equity prices than the words levy and taxes. Especially if its attached to the biggest industry in your country.

Other countries are also considering such taxes.
Brazil mining industries should take notice.

COMPX Down 2.82% - Sayonara!

The NASDAQ or THE COMPX is down 2.82% or 71 points today. This was after it was up 1.57% yesterday. The COMPX was down 2.01% on Friday and 2.04% on last Wednesday. This is clearly an indication that the NASDAQ/TECH run for the time being is over.

You may ask why are the techs weaker than the broader markets? My dear fellow this is because this is where the growth is! Has anyone noticed that the Shanghai Composite is down some 13.48% this year and 18% off its 52W highs? We all know that China was the big growth driver that drove the global economies out of recession. Sure central bankers helped out tossing money from the skies, but it was the original China stimulus that got things back in gear. Now that momentum is exiting China equities investors have to re-access growth globally. This is happening for one simple reason. China wants to slow their economy. They want to slow speculative lending. They have continually raised reserve requirements this year in an attempt to reign in their banks. The Chinese will not allow an overheated economy anymore than they will allow their economy to go to hell. This is what stimulus is for. I fully expect the Chinese to come out with a $500B USD stimulus sometime in late July/August. This will pull global equities out of their summer hiatus.

The NASDAQ, like I predicted last year would get us out of this funk. Now that it has, profits need to be booked. How many profits is the question? In the final analysis, the selling in tech land should filter over to other hot sectors like the REITS and Retail.

More Greenspan Incompetency

The Huffington Post has done a nice job of reviewing the 2004 FOMC transcripts.

This is certainly not eye opening stuff. We all know that Greenspan is as incompetent as they come, but its still mind boggling the level of such nitwit behavior that was exhibited. If this type of monetary policy can be modeled from the nitwit school of economics, I really have no idea what the idiots at the FOMC are doing today. Ben Bernanke is willfully taking the country for a ride off the cliff with his bubble inducing ZIRP.

When someone says they had no clue that housing was a problem or that it was becoming a bubble, that person is bottom line rationalizing incompetent willful destructive behavior. It is disingenuous to state differently.

Greenspan at every opportunity downplayed any talk of bubbles and over investment. For Instance, Atlanta Fed Governor Jack Guynn has this to say:

"A number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on ‘flipping’ the properties–selling them quickly at higher prices."

Again, all of these worries were brushed aside by Greenspan. Greenspan wouldn't budge from his roots of deregulation, free markets, and financial innovation.

This should not come as a surprise to anyone at this point. Greenspan has been unmasked for the fraud that he is. His total rationalization of his destructive Fed policies are all well known. First it was productivity gains, then globalization, then global savings glut. Then Ben Bernanke got on the Greenspan wagon with the idea that deflation was the killer. All of these failed policies are just an excuse to print money to make Wall Street happy.

If anyone wanted to know where Greenspan's head was with regards to Housing?
Here it is:

Remarks by Chairman Alan Greenspan
Understanding household debt obligations

"One way homeowners attempt to manage their payment risk is to use fixed-rate mortgages, which typically allow homeowners to prepay their debt when interest rates fall but do not involve an increase in payments when interest rates rise. Homeowners pay a lot of money for the right to refinance and for the insurance against increasing mortgage payments. Calculations by market analysts of the "option adjusted spread" on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners' annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward."

"American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance."

Here Greenspan is calling all of those fixed rate mortgage holders idiots for locking in their rates.

You don't think Wall Street structured finance desks were listening? Why were Neg Am, ARM, Pay Option, and other destructive mortgage products such a problem? Greenspan was telling Americans why are you acting irrationally by locking yourself in a fixed rate? He was begging people to speculate on housing. Its the same today as Bernanke is begging people to speculate in financial markets. Where did all of this speculation lead us?

The simple idea that deflation is such a worry leads us directly into destructive bubbles. Bernanke and Greenspan love to print because they are closet inflation junkies.

William McChesney Martin forcibly warned the Senate in 1957 of the problem of inflation.

This piece is littered with the dangers of letting inflation run wild and how this policy damages dollar purchasing power.

It is just unfathomable that Greenspan and Bernanke held the same office as William McChesney Martin.

Monday, May 3, 2010

Greece - CHECK!

Step 1 - Run up deficits to preposterous levels - CHECK!
Step 2 - Have CDS rates spike monstrously - CHECK!
Step 3 - Have bond yields equally gap higher - CHECK!
Step 4 - Blame speculators and short sellers - CHECK!
Step 5 - Threaten default - CHECK!
Step 6 - Get Bailout - Check!
Step 7 - Screw tax payers with austerity and higher taxes - CHECK!
Step 8 - Continue to ruin economy by running up debt - CHECK!
Step 9 - Take the money and Default anyway - CHECK!
Step 10- Have new bankers come in 10 years from now and do it all over again - CHECK!

Speechless Datapoint Of The Day

Liquidity Bubbles are all around us.

You want total decoupling?

Here you go!

Can someone please tell China that Europe is their number one trading partner?

Sunday, May 2, 2010

Physical Gold Shortage

This is an eye opening piece about the fraud that is precious metals trading.

This is a US and European National Security Issue. There is currently leverage of 100-1 in terms of paper gold to physical gold available at the LBMA.

What happens when investors demand physical gold?
The easy trade here is to short the Euro, Yen, and USD and buy Gold and Silver hand over fist.

Thank god my mother was buying gold all throughout the 90's.

This really made my Sunday. Enjoy.

Saturday, May 1, 2010

The Ending Of the Mortgage Casino

What ever happens in the Goldman Sachs SEC and criminal case is secondary to the ending of the great American Mortgage Casino Machine. The GS case is the ultimate conclusion to a decade long Housing/Real Estate bubble fueled via easy money, NINJA Loans, and complex predatory products. It was this machine that fueled the economy for the last decade. It was the housing casino that elevated top line economic growth. It was this casino mechanism that spurred all of that job growth. It was all a farce.

All of the growth we saw in GDP was a joke. It was all structured finance. Structured finance was the lightning rod for all of the fraud that occurred in the mortgage market. Watching GS in front of Congress this week as well as Blankfein on Charlie Rose last night just alerts to me how out of touch Wall Street is with regards to the real economy. They still have no clue what they have done and how it was the tax payer that saved their bacon. Americans at the moment have a front row seat watching financial reform get gutted in front of them. They have a birds eye view in 3D on how crony capitalism really works. Why do we need James Cameron when we have Congress?

What ever you think about John Paulson and GS doesn't take away from the fact that the Abacus product was a doomsday product that was guaranteed to blow up someone other than Paulson and GS. The product was set up to make John Paulson a boat load of money. In the end, Paulson made out like a bandit while ACA/ABN and IKB took it in the grill.

Meanwhile, CNBC and Bloomberg the two biggest Wall Street apologists constantly seem to make a case that GS is not entirely at fault. Well...We know that. We know that Wall Street is rotten to the core. Can someone please alert CNBC and BBG to this?

Wall Street again is so out of touch they are fighting over semantics of predatory parasitic fraudulent practices. Many Americans are watching this circus as it plays out. Americans simply can't believe that Wall Street created this mess, cleaned up on it before hand and then cried bloody apocalypse to get trillions in bailouts to reopen the Casino once again. Each and every way they have paid out hundreds of millions in campaign money to gut financial reform. The average American at this point has to be completely infuriated.

Goldman was one of the lucky bastards that received huge chunks of bailout money pumped via the Treasury and FRB, many have come to grips with the idea that the government essentially bailed out a decade long casino gambling spree financed by Wall Street and enabled by the Federal Reserve Board. Who was the biggest benefactors? Wall Street and the subprime supply chain.

It was socialism at the highest order bestowed upon the Wall Street Crony Elite. Its the biggest wealth transfer from tax payers to the power elite in the history of mankind. Our country can no longer find fault with Latin American Banana Republics and Russian Oligarchs. We are the quintessential Banana Republic but without any banana's. We are a Swiss-Cheese Economy with rotting cheese.

Watch Sentiment

The biggest and most dangerous risk to this market advance IMHO is sentiment. There is far to much complacency going on. When the original GS news about the SEC case came out, everyone shrugged it off the following week as a major buying opportunity. After the congressional hearings on GS this week, it was the same old bullish rhetoric.

Barron's is running this story today.

"Recently, Alan relates, money-market and bear-fund assets both fell to multiyear lows, while bull- and sector-fund assets mounted to their highest levels since the October 2007 market peak. Currently, he reports, there is roughly $7.50 in bull and sector funds for every $1 in bear-market fund assets, which he calls “the most ridiculously one-sided sentiment we have seen since the tech mania convinced folks that no price was too high to pay."

Who knows what happens to Greece. The market always rallies on days where there are rumors of a bailout.

What happens when the inevitable default happens?

Earth To US TaxPayer....

....Time to pay up a lot more for some gyro action.

With the clock ticking on Greece.

If you think Greece is the ultimate problem, you are mistaken.


The two biggest donors to the IMF are the USA and Japan, which also happen to be the two biggest economies in the world. Did I happen to mention that Japan is in a twenty year deflation battle and the US is a never ending ZIRP policy?