Monday, April 27, 2009

Oh, Where To Begin...

Late last year I wrote a lot about two issues –

1. The markets were pivoting above and below SPX 852
2. There was violent trading on very light volume

I figured that 852 was the target at which the Government wanted to keep the markets. I suggested that they would lie, cheat and steal in an effort to hold prices at this level until fundamentals caught up to price as the economy ultimately recovered.

Price is now at 856, and all the Government had to do to keep prices here was spend $3 trillion on worthless bank holdings and stocks, promise to spend another $3 trillion buying a bunch of worthless paper at an artificially high price and break a series of securities laws designed to protect the public from lies and the hiding of price discovery.

The only way that you can have such violent price moves is if prices are at levels at which nobody is willing to hold onto shares overnight. It will require prices to fall or fundamentals to rise before real investors step in and start buying in a meaningful magnitude. That is our new reality – until further notice…

Merrill Lynch and Bank of America
Bank of America CEO, Ken Lewis, recently testified under oath that he was told to lie about the value of Merrill Lynch to his company’s (Bank of America) public investors. This was during a panic phase in late 2008, when the markets were crashing because everybody knew Merrill was worthless – thus creating a run on Merrill as institutions pulled their money out of Merrill (a Run on their Commercial Bank).

This Run on Merrill could have led to a situation many orders of magnitude larger than the bankruptcy of Lehman Brothers. The Fed knew this, and also knew that it did not want have to manage Merrill, so it forced Bank of America to absorb Merrill – much along the lines of how it forced Bank of America to absorb Countrywide (it gave them $10 billion up front, so don’t feel too bad for B of A). In return, Bank of America received over $100 billion in loan loss guarantees from you and me - the US Taxpayer…

Lewis told investigators that none other than Hank Paulson and Ben Bernanke told him to lie about how bad of shape Merrill was in or he would get fired. That is illegal if anything ever were, don’t you think?????

Everybody and their brother (Barron’s, NY Times, Bloomberg, CNBC) has now written about this travesty, however (of course) nobody is being prosecuted and no bonuses will have to be repaid.

Obama received over $800k from Goldman Sachs. Have you heard him say a peep about repaying any of that money? How about Dodd and all the money he received from Bank of America/Countrywide – do you think he will even give back a cent of that blood money? F***ing scumbags… $1 million in bribes gets you $100 billion in taxpayer handouts. That is a 1,000 percent return on your lobbying investment! I’m in the wrong business and our Politicians aren’t charging enough for their bribes…

From Bloomberg today –
“That leaves you and me, the American public, with the uncomfortable realization that we are slipping toward a state of lawlessness in this country, all in the name of saving our financial system by creating even bigger banks out of combinations of banks that were dangerously too big already. This doesn’t inspire confidence. It destroys it.”

www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=aXHVu97lAGjs

So What Does Merrill Do for an Encore?
Merrill has their analyst upgrade a Real Estate Investment Trust (a REIT) the day before they do underwrite a stock offering for that REIT. Even better, the REIT then uses 100% percent of the proceeds of that offering to pay Merrill its underwriting fees and to repay Merrill for a business line of credit. You can’t make this stuff up –

The deal was for KIMCO Realty, a shopping center specialist. How do you think they are doing right now in the recession? Definitely worthy of an upgrade…

news.moneycentral.msn.com/ticker/article.aspx?symbol=US:MER&feed=AP&date=20090402&id=9756675

Remember, banks are buried up to their necks in Commercial Real Estate Loans and will do anything to sell their holdings at higher prices to somebody else. Morgan Stanley has the most exposure to this stuff. It leads you to ask the question – who are the idiots that are buying this stuff?

Zerohedge does a nice job analyzing that question. My Cliff Notes version is that Bank A buys an offering from Bank B, who levers up the new capital 30 to 1 and buys the offerings of Banks A, C, D and E…

In the end, the loser is the average investor who buys the company believing the analyst and the numbers coming out of the Government.

zerohedge.blogspot.com/2009/04/is-there-reit-reverse-inquiry.html

Why Has the Government Been Doing This?
Because Benanke has said all along that his goal is to offer time to allow the Financial Industry to delever (that’s Banks, Insurance Companies and REITS). Under Geithner, it is clear that the US Taxpayer will be left holding the bag for the majority of this leveraged junk.

Have you noticed how these Financial companies are lobbying the Governemnt to extend the terms of what can be bought in TALF and PPIP from paper with 3-year maturities to paper with 5-year maturities? That is because there is a massive block of Commercial Real Estate debt maturing over the next 5 years. These companies want that toxic stuff off of their books ASAP, and can only unload all of it if they can sell up to the 2014 paper. Again, the US Taxpayer will overpay and the shareholders, bondholders and greased politicians will walk away rich…

The Current Rally
The current rally has propped up the prices of the crappy stocks - Banks, Real Estate Investors (REITS) and Insurance Companies – to allow them to sell shares and raise capital.

Northern Trust (NTRS) is the latest to announce a capital raise and will sell $750 million in new shares and debt this week.

Companies like Merrill Lynch (now Bank of America) will make a fortune in fees as they take 3% of all the money raised as underwriting fees. Other banks will have bad loans with questionable companies repaid as shares are purchased. Do you think that any of the Mutual Funds that Merrill Lynch manages will be buying any of the stock being sold buy Merrill Lynch underwriting clients? Even if it is illegal, do you think the Fed gives a damn?

Insiders Are Selling Shares at an 8 to 1 Ratio!
Why are Insiders selling if we are in a new Bull Market? Maybe they aren’t so certain about where things are going and they want out. The ratios of Selling versus Buying are pretty staggering -

Where Is the Volume?
The rallies of 2008 and 2009 are rivaled only by the Bear Market rallies of 2001 and 2002 in terms of the percentage move and the enormous fall off in volume. The lack of volume allows for the incredible intra-day and inter-day price moves. We are in no-mans’-land where investors are absent and traders accelerate directional price moves at the push of a button.

The 2008 and 2009 rallies have had the biggest fall off in volume of any rallies in history.

Throw in a little Government assisted Futures pops and some Short Squeezes on a few huge Quant Funds via JPMorgan and you actually get prices going UP as Selling Volume reaches its daily MAXIMUM. Welcome to the Efficient Market, brought to you by the US Government. If I weren’t already sick, I’d be sick…

zerohedge.blogspot.com/2009/04/nyse-updown-volume-update.html

No comments: