Saturday, May 2, 2009

Marked to Reality

To paraphrase Warren Buffet - when you need to see what something is really worth, go try and sell it.

Enron blew up because it tried to created legal subsidiaries designed to stay off of the reported balance Sheet, where Enron could hide its losses. The practice was considered illegal, because it allowed Enron to lie about the true financial health of the company. The heads of Enron went to jail, the shareholders and creditors of Enron were wiped out and Congress created the Sarbanes-Oxley Act to make corporate executives personally liable for the lies of the corporations they ran.

Banks created Special Investment Vehicles (SIVs) that were designed to take assets off the books of the banks, where they would be securitized and sold. When the Securitization Market froze, banks took dead assets and moved them into SIVs so that they would not have to realize the losses embedded in those securities (think mortgages, credit card loans, commercial real estate loans…). Yes, this is the same practice used by executives at Enron that ultimately led to their incarceration.

The large US Banks now have massive amounts of worthless securities crammed into SIVs. I think Citigroup has about $1.2 trillion presently in SIVs. Why is this important?

It is important because the banks are marking this paper at between 88 cents on the dollar and 100 cents on the dollar. The FASB (Marked to Market) rules change now allows these banks to essentially price this stuff at 100 cents on the dollar. Several large banks had record earnings because they were able to mark up the prices on a lot of this worthless debt this quarter – JPMorgan, Wells Fargo, Bank of America, Citigroup all took multi-billion dollar gains on this stuff in Q1 2009.

Now, reality has come to slap the crooks at FASB and the Banks in the face. Yesterday, two SIVs were liquidated at auction. Deloitte & Touche LLP had $5 billion liquidated at 54 cents on the dollar. That was all junk stuff. Whistlejack had $2.5 billion liquidated at 67 cents on the dollar (that was all the junk and the good stuff – so figure that their junk also prices in the 50’s).

This is the same crap that Geithner now wants to purchase at 97 cents for the taxpayer, via TALF and PPIP.

Geithner’s plan has done nothing more than promise to transfer trillions from the taxpayer to the bank shareholders and bondholders – but it still has done nothing to remove the toxic assets from the books of banks. Moreover, it has frozen the lending market and succeeded in leaving massive over-capacity in the banking sector.

Friday, May 1, 2009

Pessimism in Canada

I mentioned yesterday that they economy would react new equalibrium where demand was fueled by savings and not credit. Today an interesting study was released in Canada on the subject of optimism in and consumption patterns.

Here are the findings -

"What is different in this recession is that all the trends seem to cross
all income levels," says Michael Marzolini, Chairman of POLLARA. "Fundamental
shifts in consumer behaviour, habits and motivations are emerging not only in
lower and middle income families, but even to some degree amongst higher
income groups. This is unique in that the fear and perception of an increased
cost of living and a sense of falling behind is spanning all age and income

The massive layoffs and cutting of Industrial Capacity Utilization may have put the economy into a position where it will grow over the next few quarters or years, but the trend for some time will be a gradual closing of factories and high levels of unemployment.

You will need to be saving more than you are used to doing. You need to understand that at some point in the next few years, it will become apparent to Baby Boomers that the entitlements they have been promised will not arrive. Either your Social Security checks and Medicare payments will be smaller than you thought they would be, or they will grow at a ridiculously slow pace relative to inflation.

As Baby Boomers realize that they will have to self-finance the majority of their retirement lifestyle, they will sell assets to raise cash and lower their consumption. Who are they going to sell those assets to? Generation X is poor and small in size, relative to the Baby Boomer and The Echo Boom, while numerous, will not have the income to finance purchasing vast sums of stock and real estate sold by their parents.

Therefore, there is a natural bias for asset prices will fall (in real terms). There is also a natural bias for significantly diminished consumption.

I got a 1-year Bible this year and have been reading it daily. I consider the bible more parable than fact, so to me its lessons are more about the universal similarities of human behavior than the religious component. I figure a 2,000 year old book can teach me a lot about the human experience.

I am reading the story of Joseph in the Book of Genesis. Joseph took over the day to day operations of Egypt before 7 years of great bounty. He had the wisdom to safe enough for the 7 years of famine that he knew would follow. He suffered great hardship to get to the place where he could make the critical decisions to save the Egyptian people from famine, but he understood that he was there for a reason.

The Gilded Age of 1982 - 2000 is over. It was fueled by excess credit and will lead to a time of great financial dislocation. We have already seen two of the most brutal Bear Markets in history. About 15% of our countrymen cannot find work. The standard of living of the generation now hitting the work force will be well below that of their parents.

SAVE MONEY while you can make it. Our endgame is either default due to lack of capital to pay our debts or massive inflation and the collapse of the Dollar. Or war. None of them are good, so you need to save money and protect it when times turn bad again - as you know they will.

We enter this new reflation of asset prices withe MORE DEBT than when we entered the last one in 2002-2003. None of the fundamentals exist to justify a protracted Bull Market. Prices may rise due to inflation, but the real guages of economic prosperity will lag past economic recoveries.

AIG Junior, Your Name is Syncora

Sycora (also known as SCA) has become the first Municipal Bond Insurer to be ordered to stop paying claims. They insured $85 billion in Municipal Bonds.

The problem in the Bond Insurance Industry is that the main companies went from insuring Municipal Bonds to insuring Mortgage-Backed Securities (CMBS). They took on massive leverage (100 to 1 was normal) and got blown up when the CMBC turned out to not really be AAA, but turned out to actually be Junk.

SCA started last summer having written insurance on $56 billion worth of CMBS paper.

There is $18 billion in Credit Default Swaps (CDS) written on the bonds of SCA. Today’s event is considered a bankruptcy in the eyes of the holders of the CDS and they will expect to be paid next week on this insurance.

So SCA is a mini version of AIG. The question is - who are the banks that wrote the CDS on SCA? Remember how I mentioned that Derivative Exposure was up $20-something Trillion last quarter? The system continues to get more leveraged, not less, even as the real consequences of too much leverage play out. The one left holding the bag continues to be THE TAXPAYER, as we will end up backing any hedge fund or bank that fails as a consequence of SCA CDS.

TALF to Buy 5-Year Notes

You knew this was coming. Now the taxpayer will get to pick up the tab for the crooks in the Commercial Real Estate Market. REITS and Morgan Stanley should go parabolic on the new wealth transfer from Taxpayer to Shareholder (not really, but there may now bw a floor below them)...

On a side note, I talked to a buddy of mine yesterday who is in the Residential Real Estate construction business. He told me that unit volume is very strong. He then told me that they are losing money on every unit they sell...

Sounds like Techland 2002.


The economy won't bottom in a V. Hopefully it bottoms in a W and not a WW, skipping along the bottom like Japan has done the last 20 years...

I’m strongly considering shorting the NASDAQ today.

This morning the markets gapped up above a logical level stop loss for Shorts and could have had another ramp up on a short squeeze. It hasn’t happened, which tells me that there may not be too many shorts left to squeeze. Who would have thought that making short selling illegal and shares impossible to borrow would actually truncate a rally…

This rally may have simply run out of fuel.

Here is the monthly chart of the S&P 500. It looks like two mirror images, but it is not – it is the 2000 – 2003 Bear Market next to the 2008 - 2009 Bear Market.

The Green Line on each chart is the first key Fibonacci Retracement Level at 23%. This line was the place where the trades sold off hard in 2002 and may be the same for this rally. At some point this market will need to pull back. It may be from here. The pullback in 2002 – 2003 was a 4-month affair.

The markets are trying to bottom, but are now extremely overbought.
Look at the Percent of Stocks above their 50-day at over 90% (second chart $NYA50R). So there needs to be a pullback.
But the Percent of Stocks above their 200-day is now up in the 30% range ($NYA200R), which is constructive for the longer term.
All we need now is a pullback that is followed by a huge-volume rally!

Thursday, April 30, 2009

Wages Keep Falling

I am not sure if it is the guy on top who is getting squeezed or the guy on the bottom who is getting squeezed, but wages are falling – and that is BAD.

It’s not just wages that will fall – it is the other sources of retirement income that will fall (at least versus inflation), because we can’t afford to pay it. Municipalities are drowning in pension obligations and the Federal Government will be bankrupted by Entitlements – the same way United Airlines, USAir, Chrylser and GM were.

My point is that you will need to be responsible for your own retirement income. Save now while you are working. Work longer, just in case. The Government will make promises to get reelected, but they will walk away from their promises when our kids decide to secure their own futures at the expense of ours.

“The Greatest Heist In Monetary History”

If the Democrats know we (The Taxpayer) are getting robber (by Wall Street) and the Republicans know we are getting robber and the guys voting to steal our money are Democrats and Republicans, then maybe the is different than Democrat versus Republican…

The issue is that Wall Street has bought the politicians with campaign contributions and promises of fortunes when they leave Washington and either go to work on Wall Street or become lobbyists.

At some point, the public going figure this out and it will get ugly.

Obama saved the bankers from the “pitchforks” a few weeks ago when he changed the FASB rules (don’t think that FASB made the decision by themselves) and manipulated the largest 8-week stock market rally in 70 years.

The rally was designed to – save Obama’s behind, save Geitner’s behind and save the C-levels executives at the banks. If and when these guys get fired and honest men take their jobs, the crooked game will end and Obama will actually have to make difficult decisions about how to CHANGE the economy and rebuild a Middle Class at the expense of Wall Street.

Wednesday, April 29, 2009

Fed Day Was Sort Of A Let Down

The Fed did not do as expected and failed to up the level of US Treasury purchases above $300 billion. I hope you were watching Bill Gross CNBC so that you could see his reaction when the markets ripped the face off of US Treasury bonds.

Look at how the 30-year Treasury went vertical at 11:16 am today (green arrows)!

There were over $100 billion in new Treasuries issued over the last few days. I am sure that a lot of those buyers expected the Fed to protect prices today, with the commitment of more cash to buy Treasuries.

All of those people are now under water.

There are another $71 billion in Treasuries being issued this week. Unless the Fed steps in in size, Bonds could get annihilated in the next few days as they find a new price at which people will be willing to buy them.

Mortgage applications fell over 18% this week. Just wait to see how bad this number gets if rates go vertical the next few days.

Unemployment Numbers Are Badder Than Bad

I took a look at the Unemployment Numbers released today and they are staggering!

The unemployment rate is now 11.5% - That is not a misprint
That is measuring just the ones who are still bothering to look for work. There are a lot of others who aren’t working and have thrown in the towel on the whole job search thing ( estimates that the Government data is 5 to 7% below reality, thus making a real unemployment rate for California of 16% – 18%).

Here are some of the numbers released today for county and city unemployment rates –

Los Angeles – Glendale – Long Beach 11.3%
Oakland – Fremont – Hayward 10.2%
Bakersfield 15.9%
Fresno 17%
Merced 20.4%
Stockton 16.4%

Other notables –

Yuma, AZ 15.3%
Indiana 10.6%
Kentucky 10.3%
Michigan 13.4%
Detroit, MI 14.9%
Flint, MI 15.3%
Nevada 10.5%
Ocean City, NJ 15.0%
North Carolina 10.9%
Charlotte, NC 11.4%
Ohio 10.1%
Oregon 12.9%
Bend, OR 17%
Providence, RI 11.4%
South Carolina 11.2%
Longview, WA 14.8%
Puerto Rico 14.7%

Holy cow! That’s like Depression Era data…

There are clearly some major tectonic shifts coming for our economy. . We have off-shored manufacturing, engineering and resource production. Companies, executives and banks have gotten rich, but there is effectively no middle class left. We are not using the natural resources we have as a country to employee people. We’d rather be green and on entitlements than slightly dusty and gainfully employed…

Obama was elected by a generation of young adults who see their future as working at Wal-Mart and sleeping on their parents’ couch. We are now also faced with a growing number of retirees who are faced with the prospects of gutted pensions, 401k accounts that have been cut in half and massive tax increases on both incomes and sales. Their kids should start making up the couches for Mom and Dad to crash on…

But hey, the stock market is up for 6 weeks and all it cost us was $3 trillion in new government guarantees to the crooks who gutted the country and got 10% of its citizens idled. I consider unemployed people to be excess labor capacity.

Take a look at the Capacity Utilization Rate at Factories. It is at an all time low –

The Fed’s answer to solve the imploding economy is to try and put Humpty Dumpty back together again and rev up the Securitization market - via massive, government-sponsored leverage. How’d that work after the 2003-2007 securitization bubble popped? Great for a few years, but the underlying problems were only masked and not fixed. We are now in a whole lot worse shape than if we had fixed things in 2001.

Excess cash reserves held at banks have gone vertical. This is supposed to put the banks in a position to lend more money –

But banks are not lending money, so all these excess reserves do is sit on the books of the Fed and earn the banks a 0.25% interest rate. This is how the Fed is trying to “recapitalize” the banking system.

The real driver for the economy is when people borrow these excess reserves and then buy stuff. A dollar is borrowed and buys a good. The vendor then takes that dollar and buys new inventory. The next guy also uses the dollar and so on… The number of times that dollar is used becomes what is call the “Velocity of Money” – the more active in the economy, the higher the Velocity of Money.

The Velocity is falling as people have maxed out their credit, run out of home equity and lost their jobs. So the actions of the Fed to pump several trillion in new money into the system has failed in that sense.
But maybe the actions of the Fed were never designed to increase economic activity over the short run. Maybe they were simply designed to make money cheap (thus driving inflation) and buy stuff off the books of the banks, real estate firms and insurance companies.

Judging from the fact that so many companies (and executives) are selling shares into this rally, it is clear that Financial and Materials companies are simply building up cash reserves to buy themselves time – the time it takes for the economy to truly heal and finally recover.

I’m always trying to figure out how to make money on this information and the Capacity Utilization chart reminds me of the vicious trading range in stocks from 1966 -1982. When I compared the Capacity utilization chart with the S&P 500, I see these crashes in utilization are followed by strong stock market rallies. Actually, the market tends to bottom before Capacity Utilization picks up again.

The big picture is that the economy will have to go through a multi-year period of consumption adjustment. That will lead to a diminished need for production. Plants will close and over time, the economy will set a new equilibrium for consumption financed by savings and not credit.

It will take time – a lot more time if so many are unemployed. Assets within the economy will have to be reallocated. That is why I am so incensed with all the money going to bail out the banks. America has a finite amount of investment capital and a finite capacity to borrow. Under Paulson and Geithner, we have squandered trillions of that capital and will not only have less to finance the new round of investments, but will also be burdened with all the interest payments on that new debt.

Obama hallucinates that building a “green power grid” is the answer. It is an expensive answer we may not be able to finance. The real answer will lay in the natural resources currently possessed by America – coal, wind, water, timber. I hope these clowns don’t bankrupt us before they figure it out.

With 10% of America unemployed and $100 billion in new debt generated each month, they will soon run out of time.

CDS and The Rally

Here is a great post recapping what I have been posting about the last few weeks –
thin liquidity, Quant Fund leveraged bets, a rally led by the weakest of the weak. Insiders are selling and companies are issuing new shares (selling) into the rally. Both are doing so to bolster their own cash positions to get through what is coming. That is not bullish.

The real question is who is writing the new round of CDS insurance on this rally? Somebody is doing it – and they are going to get crushed on any selling. The (un)intended consequence of all the government bailouts is that banks now know they can write infinite CDS, thus generating enormous income off of this leverage, and be bailed out by the government when the who thing blows up. Good stuff Geithner…

Renting Versus Owning

Price to Rent Ratios
The cost of owning versus the cost of renting becomes a very important factor when one is deciding whether or not to buy property. In the bubble, you could rationalize over-paying for a house because you thought that the house would appreciate and that would offset the additional cost of owning versus renting.

I sold my house in November 2005, because the numbers just didn’t justify owning any more. It was simply too cheap to rent for me to want to risk several hundred grand in home equity. I cashed out – tax free – and the rest is a history lesson.

Now that housing prices have imploded, prices are more in line with rents. They will probably overshoot some and fall into the 0.8 or 0.9 range, because owning a house or being a land lord is a pain in the neck and is expensive – property taxes, upkeep, insurance… But housing prices may stabilize soon.

The issue right now is that the only way the average person can afford a house is via historically low interest rates. What will happen to prices when the Fed finally stops buying bonds to artificially hold rates low? The obvious answer is that the cost of owning a home will sky rocket and prices will take another leg down.

So the only solution may be for the Fed to cap interest rates for an extended period (several years). This will allow them to ramp inflation up and make the real cost of home ownership fall, even as prices stay flat. The method for the Fed to cap interest rates is for the Fed to buy US Treasuries. So I would assume that the Fed will announce another commitment of several hundred billion dollars today to buy more Treasuries on the open market.

Not only does this hold interest rates down, it also pumps investment capital into the system, thus supporting stock prices. The policy is obviously to increase asset prices and hold down interest rates.

Expect the next big policy decision to be the extention of TALF to buy 5-year paper, instead of the current 3-year limit.

More Business as Usual

Citigroup is for all intents and purposes bankrupt and owned by the US Taxpayer. The decisions of management made it so. Now a unit of Citi wants the Government to allow it to pay its executives massive bonuses.

This is at the same time that stories are circulating that Citi will need to raise even more money ASAP, because it failed the un-failable “Stress Test”.

“How is this possible” you ask? It is possible because Wall Street has bought Washington. News just came out that Barney Frank’s former top staffer will now be the chief lobbyist for Goldman Sachs. Does anything surprise you about this?

Tuesday, April 28, 2009

Fed Day Tomorrow

I have played a lot of poker in my life and one of the things I have learned is that I will only play cards that allow me to make strong bets throughout the course of the entire hand. Otherwise, it is too easy for me to get shaken out of a potential winner.

That is some of what has occurred the last few days. I committed money into legitimate setups into strong stocks and strong sectors, but was easily shaken out of those trades via tight stops, because I am concerned that the markets need to correct and will most likely do so very soon. Oh, and there is massive intra-day volatility, which moves some positions 8 to 10 percent in a matter of an hour or two…

Besides, volume has been very light and until it shows up, this rally is extremely suspect.

The Fed is meeting today and Wednesday, so expect the usual fireworks at 11:15 am PDT tomorrow. Believe it or not, but rates now sit higher than they were when the Fed announced that they would buy $300 billion of US Treasuries. There are clearly too many sellers and too much new debt being issued by the Treasury each week for the Fed to be able to cap interest rates with only $300 billion. I think the Treasury will borrow about $390 billion this quarter. We are now just printing money…

I will continue to focus on the areas that historically lead new Bull Markets – Semiconductors (Technology), Financials (less so here, because their numbers are fraudulent), Retail, Energy and Materials (Raw Materials for building stuff). My intention is to build positions in these areas and hold these positions for several Months or Quarters – normally I would say years, but I am not sure that is possible over the next Decade or so. The reality is that it is very difficult to not get shaken out of holdings at these levels. A pullback will offer much better entry points.

Semiconductors (SMH)
SMH broke out of a 4-month trading range as it broke above $19 (Green Line). It now needs to pullback into the mid-$18 range to make it comfortable for me to be able to buy it and hold it.

Maybe the market goes up 500 points tomorrow on the Fed committing to buy another $300 billion in US Treasuries… If that happens, then maybe I am looking for a pullback on SMH to $21. That will be fine with me. I want to make money, while risking as little as possible. Even with this recent rally, I am still over 40% ahead of the market since late 2007.

Technology (XLK) is extremely extended and due for a 10 – 20% pullback. That would set up a chance to buy it.

The same goes for Retail (RTH), Materials (IYM) and Large Cap Growth (IVW).

Crude Oil (USO) has already had a nasty pullback into support over the last 22 days. It has given back 62% of the recent rally. It is now a buy on a pullback to $26 or a breakout above $29 – hint, everybody else can see this on the chart, so expect to be whipsawed about if you enter this thing. A move above $32 would confirm the Feb 19 low and would force a hell of a lot of money to flow into USO in a very short period of time. The Commodity ETF (DBC) has a similar chart pattern.

I expect the stock Market to play out like USO is playing out – a high, followed by a shakeout, setting up the potential for a major breakout that forces a lot of money in from the sidelines.

Regardless of what sectors do in the short run, I do not expect to feel comfortable committing money until the Market has a correction of this rally.

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.”

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…

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.

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…

The Fed Is Now Levered 48 to 1 (Citi would be proud...)

So the Fed is now leveraged up 48 to 1 – most of this leverage a result of the Toxic Waste that it has either been bought from or taken over from banks. That is the “Expand the Balance Sheet” component of QE in action…

I told you this would happen when the US Government refused to do what was difficult but right - force the Shareholders and Bondholders of the Banks to eat the loses via Default and Nationalization. Now, instead of the same crooks that created this mess losing their money, the US Taxpayer will lose his money.

The issue we will soon face (2012? 2014?) is that the US Government/Economy will choke on this debt and there will not be an entity large enough to “bail out” the Fed.

Here are your choices for getting rid of your debt –

1. Pay off your debt
2. Default and don’t pay it
3. Inflate the real value of the debt away

Choices #1 and #2 are unrealistic, because they would both result in the government no longer being able to spend – and that is all governments know how to do.

So, choice #3 is the only reasonable answer. That will mean either - rising inflation and a sharp rise in interest rates or rising inflation and a crashing US Dollar. Neither sounds very appealing to me, but when you elect a government that is incapable of making tough choices or is outright on the take from the criminals, you are forced to endure a lot of bad consequences resulting from the actions of the crooks.