Friday, February 12, 2010

Elizabeth Warren on the War Path

Elizabeth Warren was on CNBC today. Elizabeth Warren is the head of the TARP Oversight Panel.

First she talked about the Commercial Real Estate Market and how 50% of the Mortgages on Commercial Real Estate are now under water. 50%!

She then goes on to talk about how we need to be taking action now to prevent this from causing another systemic catastrophe in a few years. She says that shareholders and bond holders should be forced to eat the losses.

She says that most of these loans were written by small and community banks. That means as these banks eat their losses, they will have less capital to lend to small businesses. These banks represent 40% of our banking system.

She then has to defend her recent Wall Street Journal Op Ed from the GE-employed stooges at CNBC –

“Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don't trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.

Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren't selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.”

“The same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president's proposal for a Consumer Financial Protection Agency (CFPA).

So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.”

“The reputations of Wall Street's most storied institutions are evaporating as the lack of meaningful consumer rules has set off a race to the bottom to develop new ways to trick customers. Wall Street executives explain privately that they cannot get rid of fine print, deceptive pricing, and buried tricks unilaterally without losing market share.

This generation of Wall Street CEOs could be the ones to forfeit America's trust. When the history of the Great Recession is written, they can be singled out as the bonus babies who were so short-sighted that they put the economy at risk and contributed to the destruction of their own companies. Or they can acknowledge how Americans' trust has been lost and take the first steps to earn it back.”

Holy cow. She is calling bank CEOs a bunch of lying crooks. She flat out names Jamie Diamond.

CNBC goes after her and she tells them that credit card companies make $100 billion per year in bogus fees and that the credit card companies continue to devise new tricks to steal money from their customers.

“If the only way to make money off of your customers is to trick them… then you shouldn’t be in business.”

Credit Card companies are now borrowing at 0% Interest from the Government and then raising rates on their customers who are paying on time by 8% to 16%!

Eventually, the CNBC commentators go quiet and let Ms Warren say her peace. They know that by trying to defend the banks, they are pissing off their viewers and it is a losing battle.

Banks are a monopoly blessed by our representatives – the government. They were created to allow for the efficient creation and transfer of capital. They now tell us that if we restrict them in certain areas, then they simply won’t lend.

F*** them. If they don’t lend or do offer products that are by definition designed to hurt the American Public, then we can shut them down tomorrow – simply don’t allow that bank to borrow from the Fed. Pull their license and create a new bank out of thin air that will lend. That CAN lend. That will create products that are transparent and productive.

Bearish Wedge?

If you feel like you need some Prozac, here is why –

This is the one minute chart of the S&P 500, going back to last Friday. It has been a rumor-driven rollercoaster ride of a week, that has gotten prices literally nowhere (Black Dashed Line is Monday’s opening price)

The price moves have been impressive, but they have all been the result of whether or not the European Union (EU) will bail out Greece, by guaranteeing Greece’s Treasury debt.

The EU keep leaking rumors that they will do something to back Greece (Blue Arrows) and Germany keeps saying that they are not Europe’s piggy back and will not underwrite the plan (Red Arrows).

If I had waited 2 hours, then I could have shown the rally today on the rumor that they are going to freeze the trading on CDS (Credit Default Swaps), so that investors cannot bet against the worthless debt of Europe and Dubai. Sounds like when Chris Cox tried to ban short selling…

The point to this is that the markets are an absolute farce. The intra-day volatility shows how few true investors there are in the markets and how gamed the numbers are by all of the prop trading and hedge funds. The idea that you are investing by buying stocks and not speculating has long gone by the wayside.

Here is what I see. I am going to use Crude Oil (Symbol OIL) to describe what has happened since last week –

Last week there was a breakdown in Crude Oil that led to a selling panic on Friday morning. In the charting method use, the more volume traded, the bigger the bar. Remember, these are 1-minute bars, so there were 3 minutes of panic selling last Friday!

That was probably some hedge fund getting hit with a margin call and being forced to sell. Normally, once the panic is over and the forced selling is done, there can be a relief rally. This week has been a relief rally. But all OIL did was rally back up to touch the 200-day and it failed hard again this morning.

The markets have to make a big decision in the next week or two – whether to fail and start another leg down, or retest the low and mount a meaningful rally.

The S&P 500 has been hugging the 150-day (Blue Line) for the past five sessions. All of the violence and noise on the 1-minute chart, is simply a bearish wedge along a key moving average on the daily chart. The 200-day EMA (Orange Line) was tagged on last Friday’s selling panic, but this bounce has been pathetic and looks vulnerable for a test of the 1,040 – 1,020 range. The big boys will probably try and squeeze Germany into submission on the Greece Bailout, so I would not be surprised by further weakness to scare the heck out of people.

Financials are The key sector to any market. Remember how they topped out long before the market did in 2007? Well, Financials are now under a 5-month trading range, and on the brink of breaking their 200-day (Purple Line). See how support for the trading range (Green Line and Arrows) held for months and then failed last week? In my opinion, if that support breaks, then the markets are hosed for the short term at least. The flip side is that if price gets back above the green line, then you get one massive short squeeze.