Bank Whistleblowers Are Starting To Show Up

It turns out that the 18 largest US Banks have all been using Lehman-esque accounting tricks the last five quarters –

From The Wall Street Journal on Friday –

http://online.wsj.com/article/SB10001424052702304830104575172280848939898.html

“Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.”

They lever up and buy Mortgages and other risky assets during the quarter by shorting US Treasuries. Effectively zero interest rates on Treasuries allow these banks to have virtually zero cost in borrowing and shorting them. This allows them to make even larger leveraged bets into risky assets.


Silver Manipulation
It also turns out that several of these same major banks (JPMorgan and HSBC) allegedly have been manipulating the price of Gold and Silver to stabilize the value of the US Dollar, while the Fed is printing Trillions new Dollars to try and prop up the prices of risky assets. Gold is the enemy of a money-printing central bank.

http://www.nypost.com/p/news/business/metal_are_in_the_pits_2arTlGNbMK7mb1uJeVHb0O/0#ixzz0knioYd8m


"JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer," Maguire said.

"HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size," Maguire added.

These banks take short positions to hold down price and if price goes up, then the Fed makes them whole!

“Also during the CFTC hearing, Jeff Christian, founder of the commodities firm CPM Group, said that the LBMA, the physical delivery market for gold and silver in the UK, has been using leverage, which is another way to depress the price of gold and silver.

Christian said that the LBMA -- the same market Maguire trades in -- has leverage of about 100-1 on the gold bars settled on the exchange. In layman's terms, that means if 100 clients requested their bullion bars be delivered, the exchange could only give one client the precious metal.”

“Back in 2007, Morgan Stanley agreed to settle a $4.4-million lawsuit brought by precious-metal clients, who alleged that Morgan offered to buy gold and silver and store it for the investors, but never purchased any metal and still charged them storage fees.”

So these banks “sell” gold to clients, but only have to have 1% of the gold available to deliver to clients. They then charge a “storage fee” for storing this 99% of the Gold purchased, which never existed in the first place!

How about if they only had to buy 1% of the shares of Microsoft that clients bought? What if 99% of the purchase orders in Microsoft never went to market, do you think that would have an impact on the price of Microsoft? If sure would affect demand and by definition, keep the price of Microsoft down.

“According to the e-mails Maguire sent to CFTC regulators, he was spot-on in his expectations of how the precious metals would trade on release of the January jobs report.

This message is to "confirm that the silver manipulation was a great success and played out exactly to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview," Maguire wrote to a staff investigator after the trading day.”

Insiders understand what is going on. For his troubles, Mr. Maguire and his wife were nearly killed by a hit and run driver, two days after the emails were made public.

The bottom line is that everybody knows the markets are rigged. But rigged bubbles can go on for a long time – the old “the markets can stay irrational longer than you can stay solvent…”

From my consultant over the weekend –

“Since 2/23/10 the SPX hasn`t had a pullback of 1.0%, and the last time that happened was over 3 years ago. It is not the rate of advance on light volume that stands out, but it is the persistence of advance which is very unusual.

I could only think of the PPT [plunge protection team] after I read the article in the NY Post today “Trader blows whistle on gold and silver price manipulation” It outlines how the major banks do the Federal Reserve’s bidding in the metals markets to keep the prices of gold and silver down versus the US Dollar. The whistle blower, who is a former GS trader, explained how JPM is stopped out by the Fed for any losses during the intervention tactics. The article also mentions the HSBC bank involvement, but the article also indicates that “They” are trying to shut this whistle blower down. So I ask you, is there a PPT team or not in the equity market, and the answer is definitely yes.

The volatility has collapsed despite the persistence major index advance, but we have another earnings season on tap, and interest rates are pushing new Break Out highs despite the Fed jawboning about keeping rates low for an extended period of time, so the trading volatility should increase. It is also tax selling season, and with Obama`s proposed tax hikes that should generate some volatility.

Keep grinding, for the volatility shall return!”

You can’t predict the future, but SPX in the 1,229 – 1,250 range (maybe as high as 1,300) is a logical place for a meaningful reversal.

Commodities are late stage movers, and they are starting to work. That goes for Commodity-based economies and currencies too.

This Is What Government Intervention Looks Like

The Swiss Franc
The Swiss government decided that the Swiss Franc was getting too strong versus the Euro, so they sold a bunch of Francs to weaken the price. Look at the massive volume on the ETF (FXF) and the abnormal, massive intraday trading volatility!

Now FXF is comfortably back inside the downtrend that mirrors the downtrend of the Euro. Because of the intervention, it is as if FXF never broke out in the first place.


US Treasuries
The 20-year US Treasury ETF (TLT) broke critical support on Monday (Green Line). It did so on fears that the economy is expanding and the Fed will have to raise rates sooner, rather than later. The reality is that The Fed will buy as many bonds as it has to put a cap on interest rates. Today, somebody came in in massive size and punched TLT back up through resistance to get it solidly back into its trading range.

Never bet against the guy with the keys to the printing press… Rates will only rise when it suits the aims of The Fed.

Is Greece The New Lehman?

A few weeks ago, a friend of mine asked me to describe the financial collapse.

The picture of what actually happened became clear when the 2,000 page investigation into Lehman was released a few weeks ago. The conclusion of how Lehman failed goes something like this –

Every Quarter Lehman would take a bunch of bonds worth some fraction of their Face Value and sell them to another bank, with the promise of buying them back after the quarter closed for a similar predetermined value. The sale price would be something close to Face Value, so Lehman would appear to have more assets than they really had.

This game literally went on for years. Until one day, Lehman tried to borrow money from another bank and offered securities as collateral. The other bank investigated the collateral and determined that it was worthless and they asked Lehman for other collateral. Lehman came back and said “we don’t have any other collateral.

The bank immediately called their loan and demanded cash from Lehman. Lehman could not pay and the institutional run on Lehman began. Within days, Lehman was broke. Too much leverage, with worthless collateral led to a negative net worth.

Why do I bring this up? Because the same thing is right now happening with Greece.

Commerzbank will not accept Greek Government Bonds as collateral from Greek Banks! Greece banks have already spent some of the money loaned to them by Commerzbank and now Commerzbank wants its money bank.

How do you say “run on banks” in Greek?

Look at the National Bank of Greece (NBG) falling on massive volume the last two days. That ain’t the short sellers. That’s the poor fundamentals of insolvent Greek banks running out of cash in very large hurry (just as it wasn’t the short sellers who sank Lehman, it was Lehman’s bulls***t accounting that failed Lehman shareholders).

A real bailout of Greece is needed ASAP. But a panic should lead to yet another great buying opportunity if it should materialize.

Yellen Indicates No Inflation Until 2013

From soon to be #2 at the Fed, Janet Yellen today –

http://www.frbsf.org/news/speeches/2010/janet_yellen0323.html

“In light of these continuing headwinds in the financial system, the housing market, and the job market, I expect that the economy will be operating well below its potential for several years. Economists use the term “output gap” to refer to an economy that is operating below its potential. We define potential as the level where GDP would be if the economy were operating at full employment, meaning the highest level of employment we could sustain without triggering a rise in inflation. Obviously, with the unemployment rate so high, we are very far from that full employment level. In fact, the output gap was around negative 6 percent in the fourth quarter of 2009, based on estimates from the nonpartisan Congressional Budget Office, or CBO. That’s an enormous number and it means the U.S. economy was producing 6 percent fewer goods and services than it could have had we been at full employment. In view of my forecast of moderate growth and high unemployment, I don’t expect the output gap to completely disappear until sometime in 2013.

This idea of an output gap has important implications for inflation. We have a tremendous amount of slack in our economy. When unemployment is so high, wages and incomes tend to rise slowly, and producers and retailers have a hard time raising prices. That’s the situation we’re into today, and, as a result, underlying inflation pressures are already very low and trending downward. One simple gauge of these trends comes from looking at the U.S. Commerce Department’s price index for core personal consumption expenditures, which excludes the prices of volatile food and energy products. These prices have risen a modest 1.4 percent over the past 12 months, below the 2 percent rate that I and most of my fellow Fed policymakers consider an appropriate long-term price stability objective. I just predicted that the output gap might not disappear until 2013. If the economy continues to operate below its potential, then core inflation could move lower this year and next. “

She expects deflation over the next two years and no inflation until at least 2013!

The Government is borrowing at a pace of 9% of GDP this year, and growth this year should come in around 3%, or

9% Spending with borrowed money – 6% Output Gap (over capacity) = 3% Growth

What she is telling us is that the Government can print many more trillions of Dollars without worrying about any Inflationary consequences. Put another way, the Fed can keep on letting hedge funds and banks borrow at 0% and lever the money to infinity for at least the foreseeable future.

Thus today’s bonanza in the stock market.

Lots of Breakouts

Leaders have held the 20-day (Green Line) and have popped.

Here is my post mortem on some trades and some potential set ups.

These leaders broke out nicely –




There are many more set up just below resistance and we will see if the big boys move them out as well.

Disk Drives and Semiconductors are leading. I have never seen a time where that was bad.

Look at LRCX holding the 200-day and breaking out of a two-month trading range. KLAC and VSEA are potentially setting up the same way. AMAT looks like LRCX.


I like the looks of Western Digital (WDC – you own it) – holding support and then retaking the 50-day. Watch EMC. I like the gap up out of that big base, off of strong numbers. EMC is just sitting around – “never short a dull market” as the saying goes – hint, hint… JNPR looks similar. CSCO already started moving up today.


The IMF (The US Taxpayer) is going to bail out Greece. That should help to stabilize Europe, but it brings into question the use of the Euro as an alternative to the US Dollar. That will probably mean the EU will have to pay a higher yield to attract capital – time to restart the Dollar Carry Trade!

The Euro (FXE) has a humungous decision to make in the next few days. It is now testing the 61.8% retracement of the November 2008 – December 2009 rally. That’s right, the US Dollar has appreciated 11.1% since December 1st! I have my rules for how to enter. I will be mechanical if they trigger, because this could be a big driver for what goes on in the middle of 2010.


You can plainly see that the Oil Service ETF (OIH) and the Euro ETF (FXE) are highly correlated. The 15-hour EMA (Green Line) is often key support and resistance. If the US is not going to have inflation until 2013 and the Euro zone is paying a higher yield than the US, then the big boys will be looking for exploit the Dollar Carry Trade again at some point.


Let’s see if Commodities will come on line here. A reversal up in the Euro is key. I am watching Copper (JJC) very closely in this multi-week, narrow trading range.


Here is the Canadian Dollar (FXC). It broke out of a multi-month base and has sat around for a few days. Does the chart remind you of EMC or JNPR? A failure back through $97 on volume would not be good and a breakout will be great. Support below $97 is at $93. I am watching FXC closely.

EPP is the ETF for the Pacific Region minus Japan. It is 67% Australia and 30% Hong Kong / Singapore. EPP and FXC have a very close correlation, which tells me that Commodity-based Currencies and Economies have been going nowhere for about six months.


Here is the chart of Occidental Petroleum. It is very similar to the charts of FXC and EPP. Remember, the longer the base, the bigger the move if price can break out. I am watching these asset classes VERY closely.

Like A Brick Wall

The Dollar hit key support and that night, the PM of Greece started to make noises again about the need for a better bailout and the possibility that the Euro could unravel. Again, this isn’t about telling the future, it is about knowing in advance where to look for potential resistance and support levels, and potential moves like this.

The question now is where is the next support level for UDN (or resistance level for the US Dollar)? Does UDN simply retest $26.4 or does it extend like the move for $28.8 to $27.4 and extend down to a level near $25.6?


I don’t care so much about currencies, but I am very interested in their impact on Commodity prices, because Commodities have been key leadership – Energy (OIH, XLE), Metals (XME), Gold (GLD, GDX). I will be closely key levels on these areas.

Oil Service (OIH) got hit for about 7% since the Dollar bottomed. Metals (XME) also was hit for about 6%, but is clearly now at key support.


Gold (GLD) is stuck in a three and a half month trading range. Critical resistance is $111.80

Copper (JJC) is now in its forth consolidation since mid-October. 1 & 2 led to nice rallies, while 3 led to a nasty break. There are some obvious support and resistance levels for JJC. Notice how on Monday, JJC cracked, only to see the market gap up hard at the open, to get back above support. Copper is currently up 40 cents over night, so we’ll see what tomorrow brings…


Apple is right above key support ($218.40 - $219.18). It has been sitting around for about 8 trading days, so a big move soon should not be a surprise.

Key Currency Decision Coming

Currencies are going to make a key decision over the next few days, as the Dollar is now at trendline support. This should have a big impact on Commodities and Commodity-based economies, as it will determine the next leg of the Dollar Carry Trade.

The US Dollar is at key support


The British Pound is at key resistance


UDN is the ETF that moves inverse to the US Dollar. It is effectively a weighted basket of several foreign currencies.

Here is a chart comparing UDN to China (FXI). China peaked in November on the Dubai default scare. The US Dollar bottomed a few days later as money looked to the Dollar for safety. The Dollar sold off and then rallied again in January/February on the Greece scare.

The Dollar has had a mild pullback, as stocks have gone higher over the past month. Now you have FXI and UDN testing the tops of their trends. A decision is near for the next leg up or down for Stocks, Commodities and Currencies.


Here is the ETF for Australia (EWA). You can see that price is little changed since October. But look at the trading pattern – a series of higher highs and lower lows. William O’Neil calls this “wide and loose”, others call it a Reverse Symmetrical Triangle. What it is is a lot of institutional indecision.

This pattern is the lowest common denominator entry point for trend reversals. EWA still has to hit a new high to set up the pattern, and then a sell has to trigger. The pattern may fail and EWA may break out from here, but the setup will be worthy of your attention if you own commodities or stocks.


That is the whole point of this blog. You can’t tell the future, but you can be ready in advance if the setups are there. You have to be! I actually hired a second consultant to help me simplify my money management. His job is to help me distill the market down to key leadership and see stuff like this as it is setting up.

I can’t keep track of 800 companies, but I can observe whether Large is outperforming Small or Domestic is outperforming International. And I can keep track of something as simple as this chart, because #4 was a key buy level and #3 was key short. I don’t need too many of those trades to make my year or miss too many blow my year.

You will see a different tone to this blog. It will be very mechanical – much more simplified. I will do a lot less trading in 2010. I will be waiting for setups like EWA or UDN/UUP and when they trigger, I will commit money with stop losses, in case the market tells me that I am wrong. A chart like EWA gives me a very clear idea of when I should be committing new capital and taking profits.

Here is a chart comparing UDN to Gold (GLD). You can see that Gold is the anti-Dollar. So a breakout in UDN will probably be good for Gold and a breakdown in UDN will probably be bad for Gold. We’ll see how it plays out. I would probably be focusing on GLD on a break above 112.5 if UND can break out. However, if UDN has another leg down, then I will be holding off on new Gold purchases.


The next crisis may be forming. It is a potential trade war with China over the valuation of their currency. Paul Krugman dropped a bombshell on Sunday when he wrote things like the following in the NY Times –

http://www.nytimes.com/2010/03/15/opinion/15krugman.html

“China’s policy of keeping its currency, the Renminbi, undervalued has become a significant drag on global economic recovery. Something must be done.”

“Most of the world’s large economies are stuck in a liquidity trap — deeply depressed, but unable to generate a recovery by cutting interest rates because the relevant rates are already near zero. China, by engineering an unwarranted trade surplus, is in effect imposing an anti-stimulus on these economies, which they can’t offset.”

“It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.”

“The Peterson Institute for International Economics estimates that the Renminbi is undervalued by between 20 and 40 percent.”

“In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.

I don’t propose this turn to policy hardball lightly. But Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It’s time to take a stand. “

Now you can agree or disagree with Krugman’s logic. That is not the point. The point is that you are now getting key economic figures talking about a trade war with China, where the purpose of the war is to massively devalue the purchasing power of the US Dollar.

I know that the long run path of the US Dollar is lower, because it is the only way to get jobs back home and inflate our debt away. That said, my brother once told me that “markets go to the most logical place, in the most painful manner possible”. So keep an eye on UDN and commodities and stuff like EWA, because a big decision is coming very soon – one way or the other.