Saturday, March 28, 2009

The “New Bull Market”

Let’s put the rally into perspective versus the last year of trading. Where is the volume?
Why hasn’t VIX imploded? VIX measures the cost to insure stocks against price volatility. The higher VIX is, the more it costs to insure a stock against falling in price. So you would expect VIX to implode if the Bear Market is over. But VIX is stuck, so fear is high and the odds of the bad all being over are very low.

The Hourly Rally
I think this rally has been on the back of a pack of lies from the CEOs of the major banks and several officials in the US Government spending several $ trillion of US Taxpayer money.

The only way BofA, Citi and JPMorgan aren’t nationalized is if they are allowed to lie about the value of the assets (via a change in “marked-to-market” accounting rules by FASB) and then sell these assets to taxpayers at artificially inflated prices.
The bank stocks loved it, because this is an outright redistribution of at least $2 trillion from the taxpayer to bank shareholders/bondholders.
The only way to finance this is through the Fed printing money and they announced they would start buying $300 billion on 3/18.

A Couple Interesting Days This Week
Traders key off of specific price levels and this week’s trading saw a lot of price acceleration (via trades in the Futures) at the key levels

SPX 804-806
804 was the 50-day average and 806 was the lows for December 2008 and January 2009

804/806 was challenged first on 3/18 when the Fed announced they will buy $300 billion in US Treasuries, then the market sold off into the Friday’s close
On 3/23 Geithner opened up the checkbook

March 23
804 Resistance (Green Line) held for most of 3/23, but was taken out at around 2:45 on a couple big Futures trades. If you were short, you wanted to have stops in right above 805. The Big Boys knew this and knew that if they could pop SPX above 804/806 , then they could launch a nice short-squeeze rally into the close.
That is exactly what happened and the clowns at CNBC got to have their fun

March 25 – 26
SPX rallied early and then sold off hard. The excuse for the selling was that Geithner told an interviewer he supported something other than the US Dollar as the standard “reserve” currencies.
He had corrected himself by 10:05. The market started to sell off at 1:00
At 3:05 SPX launched. The Dow rallied 200 points in an hour. It rallied 100 points in the last 6 minutes of trading!
It then rallied 84 point overnight and was up 100 points in the first 4 minutes of trading on 3/26

200 points in 10 minutes. That is the same bs they tried to pull in October 2008. It didn’t work then and my fear is that it won’t work now.

These big moves suck in money from individuals who rely on their government to protect them from large investors who try and manipulate the markets and steal money from the public. When Jon Stewart asked Cramer “Who’s side are you on?” he was addressing this CNBC habit of cheerleading the rallies driven by overt manipulation, that always seem to fail and harm the little guy.

My other fear is that you can only have these massive moves when there is not equilibrium between buyers and sellers. Prices are simply too high for investors to want to buy shares and take them home at night.

I think that shorts will keep executing orders at logical levels, with tight stops and reload each time the Boys hit the Futures Buy Button to accelerate moves up through the logical stop loss prices.

QE in the EU
Europe boarded the Quantitative Easing (QE) train on Friday. “Competitive Devaluation” will keep the currency market gyrating for the foreseeable future. Everybody wants their currency check so that they can export more.

US Dollar
The US Dollar held critical support. It will make a big move up or down in the near future.
Gold and the Yen continue to track the Dollar.

I have stops in on all Treasury, Currency and Gold positions.

Friday, March 27, 2009

Cuomo on AIG

"The question is whether the contracts are being wound down properly and efficiently or whether they have become a vehicle for funneling billions in taxpayer dollars to capitalize banks all over the world.” (Cuomo)

...there’s a possibility that AIG is becoming a portal through which the federal government is pouring money to capitalize banks in the U.S. and overseas.

Nobel Prize-winning economist Joseph Stiglitz also has said AIG’s settlement of credit-default swaps following its bailout by the U.S. government looks like “grand larceny.”

So goldman Sachs gets $12 billion from the US Taxpayer while former Goldman Sachs CEO Hank Paulson is running the US Treasury. Talk about self dealing!

The fireworks are coming soon...

Thursday, March 26, 2009

AIG Is Causing More Problems

If everybody knows that the Geithner Plan is outright theft of taxpayer money and most economists believe that it has no chance of working, then Geithner must either be stupid or on the take.

At some point soon, the public will collectively figure out the math and AIG death threats will become commonplace in finance-land. I can’t believe I just wrote that last sentence, but when the criminals are running the show (via crooked legislators who are on the take), at some point you would expect the victim of the crime to fight back. I’m not justifying it, I’m just telling you what is coming.

Here are some interesting articles covering the math that I have been covering for the last few months –

The prices of bad loans are too high on the balance sheets of banks

The Fed will overpay for these bad loans that are already priced too high

Because if they don’t it will bankrupt the banks who lied about what these assets were worth when they filed their last Quarterly Report (10Q)

The taxpayer will have most of the risk and the private investor will have most of the upside

Anybody with a pulse will be able to sell their stuff to the taxpayer at a ridiculous premium to reality

Banks are already starting to game the system

People are getting pissed

It just leaves me with one question – how can you screw over your countrymen and sleep at night? That is addressed to both politicians and bankers.

I think a lot of people are coming to the conclusion that the Geithner Plan is a scam. I am seeing articles about how this plan will harm the taxpayer in many leading newspapers from all over the world. At some point the public will force the politicians to do what is right and support the interests of the taxpayer over the interests of the large corporate donor.

My fear is that the employees of the banks who are bailed out will be tarred and feathered because of the actions of their employers.

I wrote this first thing Thursday morning. During the course of the day, the following occurred –

NY AG Cuomo sued AIG today to get more data on who got cashed out on their CDS at Par

These banks received the AIG money (a direct subsidy from the taxpayer)

$12.9 billion Goldman Sachs
$11.9 billion Societe Generale (foreign)
$11.8 billion Deutsche Bank (foreign)
$11.3 billion Bank of America/Merrill
$7.0 billion Barclays (foreign)
$5.0 billion UBS (foreign)
$4.9 billion BNP Paribas (foreign)

The NY Times is suing Treasury to see how PIMCO, GS and Blackrock consulted on the formation of TARP and how they got the contracts to manage it

Eliot Spitzer on Goldman Sachs

Wait until the news hits if PIMCO has been sell-dealing between its own accounts and the TARP money it manages... Potentially making money at taxpayer expense.

Wednesday, March 25, 2009

Best 12 Days Since 1938

The markets have had their best rally since 1938.

After watching the manic action today, I was reminded of a post I wrote late last year –

That rally ended in failure. Let’s take a look under the hood in today’s market –

Where is Big Money? 5 New 52-Week Highs ($NYHGH)! Five?
Percent of Companies about their 200-day moving average ($NYA200R) 10%?

I showed you that when the market truly bottomed in 2002-2003, these New High list exploded to several hundred names and the Percent of companies above the 200-day exploded to over 80%.

Those numbers let you know that there was broad-based buying by Big Money. They were buying with both hands, during a period of horrible economic news and the trend carried higher for several years.

When Big Money shows up, I will buy. Until then, this is a Bear Market rally to be shorted.

I think you are seeing the violent price movements, because nobody wants to take anything home at night, long or short. That is because prices are too high to attract real investors. More downside testing seems highly probable.

Indian Summer

I read an interesting interview with Former Treasury Secretary O'Neill. I think it was on PBS, and I will post the link later when I find it at the office.

“Here’s the fundamental problem: How much money can a society borrow before it begins to have negative effects on our ability to borrow any more? … When you get to the point that people won’t loan you any more money as a government, you’ve got a horrendous problem. And it’s happened to governments - - in Argentina, most famously, in recent times. Mexico was kind of in that situation until we gave them a very big loan.

… Now, what happens before that, is governments raise the interest rates so that people will loan them money. … Unfortunately, when interest rates get that high, economic activity slows down and eventually it will stop. We’re not at that level yet with our $11 trillion worth of acknowledged debt, but there’s a bigger problem out there, which is $53 trillion worth of unfunded liabilities that we, the American people, have signed up for. Most of the American people don’t know that we have these so-called unfunded liabilities. An important part of that is Social Security and Medicare…

… This fundamental crisis in retrospect will look like a child’s game compared to what we’re heading into when we have to begin raising enormous amounts of money through floating debt, or reneging on the obligations we made to people that they thought were good and clear from Social Security and Medicare benefits…”

What in the world is “acknowledged debt”? Paulson is admitting that the US Government has it’s own off-balance-sheet-accounting (ala Enron), via agencies like Freddie, Fannie, Sallie and the TVA. I think those amount to another $7 trillion. You can add AIG and AIG as well, for another $3.5 trillion. I’m sure there is more, but you get the idea.

The issue we are running into is that there are no buyers for US Government Debt at these interest rates, so the Government has to buy its own debt (ie, print money).

More O'Neill –
Interviewer –“I've got a credit limit - - there’s a certain point where nobody is going to give me any credit - - and you, too … Does the United States government?

O'Neill – “we do. We have a point where we won’t be able to get other governments, or the American people for that matter, to lend money, because they’ll be afraid we won’t honor our obligations.”

“Since 1935 we’ve talked that talk, like we were saving money. We’ve been spending money all along. It’s a GIANT FRAUD; IT’S A GIANT PONZI SCHEME (caps added by me). Every year we took the money and we spent it on other things.

There’s a so-called famous lockbox in West Virginia I went to look at when I was Secretary of The Treasury. You know what’ in the lockbox? Actually it’s a filing cabinet, and there are some pieces of paper that say, “We owe you.” There’s no money there; there are no investments there. There’s nothing there but a piece of paper. IT’S A FRAUD.”

People think, “Hey, I out money all my life in Social Security and Medicare.” You didn’t really. The government just took it and spent it on something else. There’s no money there”

The US is drowning in debt. Private debt is 300% of GDP ($14 trillion). This is twice as much as at any other point in history. Total Federal debt and entitlements is now over $80 trillion. State and Municipal debt is another several trillion. That is what, $130 trillion or so? World GDP was $64 trillion last year and will fall in 2009…

Indian Summer
The only solution is to try and reinflate speculation, via cheap money, subsidies and overt asset price manipulation. Once asset prices are artificially propped up, then the game will be to inflate away the real value of all the debt outstanding. 3 years of 20% inflation cuts the real value of the debt to 58 cents on the original dollar.

I’ve been wanting to post on entitlements for some time. My belief is that the Medical Insurance entitlement is as impossible to pay for as all the others and is just being offered to gain votes for a few years, until the true cost becomes apparent and somebody else will need to deal with it then.

Boomers Prepare
I want to quote a little from a book written in 1997, “The Fourth Turning” (William Strauss and Neil Howe) -

“Sooner or later, the truth will dawn on old Boomers that the money simply won’t be there to support their accustomed consumption habits in old age. Neither they nor their nation will have saved enough.

From this sudden realization could issue the end game of Boomer lifecycle consumption and saving habits: the Great Devaluation. At long last, aging Boomers will focus on the hard fact that a newly endangered America truly cannot (and younger generations will not) make their old-age subsidies a top public priority. This realization will render Boomers jittery about preserving their remaining assets. Some unforeseeable happenstance could spark a precipitous market selloff, as old investors will want to liquidate their equities to a shrinking universe of buyers. The main domestic buyers would be (Generation X), who will have lower incomes and far fewer assets than Boomers and who will be of no mind to take risks with wobbling markets. Foreigners will be hesitant to acquire more U.S. assets in a time of pending fiscal crisis, especially since so many of their societies will be facing similar demographic problems. A brief but precipitous panic could ensue. Years of savings could vanish in a matter of days – or hours.

The Great Devaluation is likely to hit Boomers just as their first cohorts are reaching the official ages of retirement, long before Social Security is now projected to go into official bankruptcy. Indeed, the panic could be triggered in part by the crystallizing financial anxieties of leading-edge Boomers. The flash point may well occur when the new elder mindset (of the 1943 “victory baby” cohort) combines with the new demographic realities (of the large 1946 “baby boom” cohort) to reach a critical mass. This could occur a few years before or after 2005 – perhaps between 2002 (when the 1943 cohort reaches the IRA distribution age of 59 ½) and 2008 (when the 1946 cohort reaches the initial Social Security eligibility age of 62, the age at which two-thirds of American now start receiving benefits).” (page 283)

“…The typical Boomer will live on bits and pieces of SEP-IRAs, Keoghs, 401ks, federal benefits, and assorted corporate pension scraps that will vary enormously from person to person. For many, this will add up to a lot; for many others, nearly nothing.
When the market hits bottom, millions of Boomers will find themselves at the brink of old age with far smaller nest eggs than they ever expected. They will immediately have to make do with steeply diminished material consumption.” (page 284)

We all understand the consequences of a rapid collapse in “confidence” in Social Security (per Paulson, the US Government version of the Madoff Ponzi Scheme). This is the reality that the government is trying to avoid.

The Obama Administration will now lever up the US Government, via the TARP, TALF and PPIP, to reinflate asset prices. Make no mistake about it - this rally in prices will be in nominal terms (inflation assisted) and will be met with massive liquidations from Pensions, both Public and Private.

I would expect the rally to carry into the 2012 Presidential Election and maybe into the first few years of Obama’s potential 2nd Term (no hate mail please – this sounds more realistic than Sarah Palin’s 1st term). But make no mistake about it - this will be like a late-October heat wave, into which you should be harvesting the last of your crops and not planting new ones.

Sunday, March 22, 2009

Quantitative Easing Review

For background information, here is the piece I wrote on Quantitative Easing (QE). It might be the best thing I have ever written –

After review the article, you can see why I had stops in place to benefit from the explosive rise in Gold and Treasury Bonds. I get well paid.

I am looking to add to these holdings, because there is only one end game to the Obama/Geithner/Paulson “Bank Bailout Plan” – an imploding Dollar with Massive Inflation.

The goal of QE is to increase asset prices and wages in Nominal terms, not Real terms. By definition, you do this by increasing inflation.

The Fed has only one method for handling this mess and that is to try and inflate away the real value of all the crappy debt they will be buying from banks, with Taxpayer money.

New Orders versus Stock Price

Do these charts look alike?

The market reflects economic activity – nothing more, nothing less.

Krugman on Geithner's "Plan"

"Meet the new boss, he's the same as the old boss" (The Who, We Don't Get Folled Again)

Paul Krugman’s thoughts on the Obama bailout plan –

“Now, early on in this crisis, it was possible to argue that it was mainly a panic. But at this point, that’s an indefensible position. Banks and other highly leveraged institutions collectively made a huge bet that the normal rules for house prices and sustainable levels of consumer debt no longer applied; they were wrong. Time for a Swedish solution.”

His posts from this morning -

The “plan” is simple – bailout the crooks that got us into this mess with taxpayer money, then take their generous campaign donations and get the hell out town before the US Treasury goes bankrupt.

Obama is just another con man – proving once again that it is character that makes the man and not the color of his skin.

If Krugman's posts make you upset, the Yves' will set you off -

Click here to see how this toxic crap is actually pricing and how the CDS insurance is pricing in default on the paper TALF and Geithner will be buying with your and my money -