Wednesday, July 29, 2009

The Corruption Continues

Alrighty Folks,

Today's price action was absolutely baffling to me.

We almost saw a failed bond auction in Chicago as the world begins to run away from our treasury debt:


My Take:

As you can see above, the bid to cover was a measly 1.92! This was not officially considered to be a failed auction even though many economists will tell you that anything under a 2 BTC is considered to be a failure.

The primary dealers "Goldman, Morgan Stanley, etc.)" were forced to eat more then half of the auction as world demand plummeted. They had to put up $24 billion of their own cash in order to close this nightmare out. Indirect bidders(China and the other FCB'c) gobbled up only $14 billion.

Folks, the fact that the indirect bidders are disappearing this early in the year is frightening. We still need to sell over a trillion dollars worth of debt.

It's pretty simple as to why we are screwed:

THERE IS NOT ENOUGH MONEY IN THE WORLD TO FINANCE OUR $2 TRILLION DOLLARS IN ANNUAL TREASURY SALES.

The only way they can pull it off is if they push the DOW down to 4000 by yanking liquidity which would then scare everyone into treasuries.

The Ponzi spending party is just about over folks. Batten down the hatches when our funding is cut off. The market pretended to take this all in stride. What's bizarre is treasuries actually rose today despite the news of the horrible bond auction. The market actually rallied from the lows of the session AFTER the bond sale. The dollar also spiked on the news.

You gotta ask yourself folks:

HOW IN THE HELL DOES ANY OF THIS MAKE ANY SENSE? WHERE IS ALL THE MONEY GOING TO CONTINUE TO COME FROM TO PROP UP BOTH THE EQUITY AND THE BOND MARKETS INDEFINATELY WITHOUT AN ECONOMIC RECOVERY???

ARE WE ALL LIVING IN THE TWILIGHT ZONE?

I am sorry, but anyone thinking that there isn't market manipulation going on only needs to look at how the bond and equity markets traded today. NONE of it makes one ounce of sense.

The high frequency trading scandal continues to gain traction. How can you not believe that the market is being front run to some extent after watching the market action today?

As an investor, I wouldn't touch anything at this point because I believe that THERE IS NO WAY THIS IS ALL SUSTAINABLE.! The market rally combined with its resilience in the face of bad news has really emboldened the bulls.

This is very sad because they are totally being led to slaughter. I don't see it any other way.

Rome Continues to Burn

Meanwhile, as the bankers continue to count up their TARP dollars and prepare to pay themselves billions in bonuses, the sheeple continue to suffer:

The USA Today reported that there are now 39 million Americans on food stamps as of April 2009. This is a whopping 20% increase from the same period a year ago:

"More retailers are accepting food stamps, as a record number of consumers are turning to government aid to pay for groceries.

Nearly 39 million people received food stamps — now known as Electronic Benefit Transfers — in April 2009, up about 20% over April 2008. Retailers ranging from some Costco (COST) stores — yes, quarts of capers do qualify — to 7-Eleven to Target (TGT) are moving quickly to cater to cash-strapped customers.

To accept the debit-card-like EBT cards, stores must meet at least one of the following conditions:

•They regularly sell at least three varieties of foods in each of four categories — breads/cereals; dairy products; fruits and vegetables; and meat, fish or poultry — and at least two of the categories must include perishable foods.

•Or more than half of total gross sales must be in "staple foods," which means no candy, soft drinks or prepared foods.

In its third-quarter earnings report July 8, Family Dollar cited EBT as among the reasons for its success in this economy. Same-store sales were up 6.2% for the quarter, and food and beverages gained the most. Food stamps represent "a significant opportunity for us," said CEO Howard Levine. EBT spending at Family Dollar (FDO) was up 18% from March 2008 to March 2009, says spokesman Josh Braverman."

Quick Take:

Is this what its come to folks? Is this how companies now plan to now grow earnings? Perhaps we can create a "food stamp bubble". We can start doing hundreds of food store IPO's on Wall St as the number of people on food stamps soars as a result of our Greatest Depression. I can already see the headlines now:

Soup kitchen.com stock soars to $300 a share as food stamp demand soars!

Bread for pennies.com soars to $500 a share as unemployment rises to 25%! (scarcasm off).

Where is the anger from the average American? At an annual 20% growth rate, in five years we will have twice as many Americans on food stamps. This means we will have roughly 80 million people on food stamps by 2013.

This would equate to about 30% of American households eating on the governments tab if you look at the census numbers in terms of the number of households in this country.

HOW BAD DOES IT HAVE TO GET IN THIS COUNTRY BEFORE THE PEOPLE RISE UP AND PUTS A STOP TO ALL OF THIS!

ITS TIME TO TURN OFF "AMERICA'S GOT TALENT" AND PULLOUT THE PITCHFORKS PEOPLE!

The Bottom Line

I am sorry for the rant today but I have had about enough of the fraud and manipulation by the Fed and Wall St. This is NOT going to end well folks. I had warned yesterday that a failed bond auction may very well be in the cards this week. We came within a hair of seeing one today.

We aren't done yet this week either. We have several more more auctions this week and some are on the longer end of the yield curve. Wall St may be able continue and hide this fraud and keep the market propped up as they temporarily trade with one another using their quants.

However, what the large trading desks are missing as they daytrade themselves into billionaires is the fact that the governments access to money via treasury sales is rapidly dwindling.

Wall St is slowly going to find themselves with less and less liquidity to trade with as the primary dealer firms are forced to buy up the treasuries that the FCB's no longer want.

The "quants" will then find themselves with smaller and smaller balances from which to make trades as the mounting treasury debt overwhelms their firms. As the availablity of cash shrinks, their ability to manipulate the market will dwindle as well.

Let the games continue for now. Once the Fed's pocketbook gets cutoff after a failed bond auction, this rally will end violently.

43 comments:

getyourselfconnected said...

Jeff,
I am currently working on a post and would love to use the bond auction chart you had up. Can I post it, with full credit and link back, of course?

Great article. I am with you, and my post will be a bit on the "this is baloney" line of sight.

All my best.

Jeff said...

go for it Get

You have an open invite on any of my stuff

Anonymous said...

If it is not American Got Talent, then there are stories on CNN front page such as Reggie Bush and Kim Kardashian breakup. Is that really newsworthy?

No wonder they are being raped by their own government! The American people simply waste too much free times with trashes.

getyourselfconnected said...

Thanks!

I always like to check first, the author has final word on his own material. If there is ever anything I have up feel free to use should that ever happen. Haha.

Jeff said...

Anon

LOL

Too funny. Sad but true. The reality trash is out of control.

Pure senseless mind rotting garbage. ALthough I must admit I like "The Deadliest Catch".

The pillaging of the middle class continues!

Jeff said...

Get

I will always ask as well. You usually post after me so I don't have the chance to use your stuff as much!

flipdippy said...

Do you reckon the fact they're about to pull the markets down has anything to do with brokerages starting to disallow trading of leveraged ETFs?

Starting to feel like the best thing to do is spend all my money on hookers and blow.

Jeff said...

Flip

LOL

I am thinking the same thing. Ready to book a trip to Vegas and spend a week in sin before the financial system blows!

I think the ETF is more of an SEC fraud issue.

They are realizing that with the slippage, these things could end up going to zero.

SRS is a prime example. I have heard various rumors. The main one being they were going to force the banks to eliminate these.

Any ETF thats 1 to 1 on is ok. Anything leveraged needs to be carefully monitored.

I

John Maynes said...

Jeff, what is the definition of a failed auction? When they don't sell anyting?

getyourselfconnected said...

Has anyone heard when the lower stock price than 3rd quarter 2007 ban goes into effect? I would think that should allay some fears about the markets going forward.
Sarcasm on high......

Jeff said...

Wikipedia does a nice job explaining it:

"Bid-To-Cover Ratio is a ratio used to express the demand for a particular security during offerings and auctions. In general, it is used for shares, bonds, and other securities. It is computed in two ways: the number of bids received divided by the number of bids accepted, or the total amount of the bids is used instead.

The higher the ratio, the higher the demand. A ratio above 2.0 indicates a successful auction comprised of aggressive bids. A low ratio is an indication of a disappointing auction, marked by a wide bid-ask spread."

If you go by Wikipedia's rules. Today was a failed auction with a BTC of 1.92.

For whatever reason they are not calling today's auction a failure.

I for one think it was.

link below for BTC info

http://en.wikipedia.org/wiki/Bid-to-Cover_Ratio

CT-Hilltopper said...

Jeff,

How does this differ from the failed auction that China had not too far back?

Get,

I'm reluctant to say much, but I fall under research and development. One of the great parts about my job is that I do a lot of traveling. One of the sucky parts of my job is that I do a lot of traveling. Two sides of the same coin.

My favorite mind rotting garbage is "Ice Road Truckers". I can't even explain to you what I like about it. my second favorite mind rotting garbage is "House". I like to second guess the diagnosis and the medications prescribed. I can usually say, early in the show..."you idiots, you got that wrong". My kids just stare.

LMAO @ hookers, blow, and Vegas...don't think something similar hasn't crossed my mind, except that I'm female, I don't do coke, and I don't really gamble that much. So what in the hell is left for me to do?

I would ask for suggestions but I'm deathly afraid I would get some. LOL

John Maynes said...

Thanks, Jeff!!!

CT-Hilltopper said...

Jeff, in the post above, I ask about the failed auction in China because it seems (to me) to be about the same. Yet here, everything is being ignored.

I believe we have just had our first failed auction.

That's why I'm asking.

Jeff said...

Get

THat wouldn't surprise me.

Maybe they will just reset the DOW at 14k and then stop all trading.

What a sham.

The Democrats are out screaming for more mortgage cramdowns.

If that gets legs half of the banks are toast.

The pressure is mounting and thi ssucker is about to blow.

getyourselfconnected said...

CT,
I hear you, my firm is so "no disclosure anywhere" I try to say as little as possible as well. As far as things to try;
a luis vitton handbag is my wife's own personal high so I dunno. I just like beers and books myself.

Jeff said...

John

No problem!


CT

Regarding the bond auction I have no clue why it wasn't called a failure. Perhaps we aren't ready to face the music? Denial is a strong emotion.

I am shocked at how the bond market reacted today. I would have guessed that yields would have soared over 4%.

Perhaps they aren't ready to face reality either. There will be one day where they can't continue to deny the reality of how bad this situation really is.

Eventually the market will get it right, just like last fall when the market collapsed.

Tomorrow's auction are going to be very interesting.

CT-Hilltopper said...

Get,

I have a fully stocked library of books I love to read. I have some of the bags also, for when I do have to go out.

I guess I'm just not the "hookers and blow" type. LOL

I'll just sit down with a good book and an ice cold Guinness.

Jeff said...

CT

Come on!

Rip it up! Its time for a group of Chippendales and a bottle of champagne!

CT-Hilltopper said...

Hahahahahaha Jeff

In this fantasy, end of the world as we know it (never gonna happen) scenario) sure...why not?

LMAO!!!!!!

getyourselfconnected said...

I could never go to vegas because i would never leave so thats out.

If yoy like a tale of the actual end of the world coming soon try out the short story "Inconstant Moon" by Larry Niven. What would yYOU do with a few short hours knowing the world is going to end? great read.
http://www.fictionwise.com/ebooks/eBook444.htm
Night all

Jeff said...

Get

Hmmm..Intersting question.

I could probably do a lot of damage in a few hours.

I would probably end up with a nasty case of VD and my liver would probably be beaten to a pulp.

The good news would be that I would never find out!

Futures are up a few points.

The Fraud rolls on!

Robby said...

Very interesting...

Now "they" have to consider letting the equity market free fall to get the money into treasuries.

Anonymous said...

ok, let me try providing some analogies here even though i have no idea what i am taking about. If Bid to cover ratio is over 2 that means there were at least 2 bidders for each lot - so one bid $1 and another had to bid $1.1 to get it. Thats good. When it drops below 2 that means there were not higher bidders for some lots so the lower the number drops to 1 the worse is the outcome for the sellers.
Now for another issue which i do not understand but here is how i see it. Gov prints money which causes dollar go down and stock proces go up. This dynamis is not gonna change for a while. So forget the entire "they will sell off the market to force bond buying". Nope, they will just print more dollars and buy those bonds. Now back to our scheduled program about how "failed" action will result in the end of the world.

Jeff said...

Robby

Yep

The Fed triggered the sell off last fall by pulling liquidity out of the slosh fund.

They won't hesitate to do it again in order to finance their spending.

Be careful out there. Dangerous market.

Jeff said...

Anon

Thats all well and good until inflation wipes out the consumer. The idea of printing fails in the long run.

Go back in history and look at how printing has worked. Argentina? Weimar Germany?

The Fed is now trying to balance deflation and inflation by printing just enough money to get by.

The problem is the world is losing appetite for our debt and the more they back off the more the Fed will need to print in order to sell the debt.

The more they print the higher the risk for rampant inflation.

The Fed will be forced to sell off the market because they cannot afford to have rampant inflation at a time in which Americans are losing their jobs and making less money.

Inflation forces social chaos and can take down governments.

The Fed will sell off the market in a heartbeat in order to save themselves.

Molecool said...

Excellent post Jeff - love the anger - I feel just like you.

Mole

jeff said...

Mole

Loved the Oscar tonight on the Evil Speculator.

Classic!

Laughed my ass off. I am getting more and more angry.

My ranting may rise on my posts.

J

flipdippy said...

Honestly people...after you buy all the precious metals and ags you need, and you have your cash, you may as well make like a Lohan and spend you money on hookers and blow. At least that way you know the money spent is going back into the US economy and not to banksters or to foreign companies.

You don't need to worry about the hangover because as I understand it, Alpo cures hangovers well, and it'll probably be the staple of the average US citizen's diet by winter.

Toney Brooks said...
This comment has been removed by the author.
Toney Brooks said...

(minor change to my prev. post)

I think the difference between a failed auction in China and in the U.S. is the U.S. auctions are rigged. Primary dealers must bid, so in the U.S. nothing remains unsold.

One indisputable fact from yesterday: the auction portends, as Jeff has noted, a disaster waiting to happen. Quarterly funding should be interesting.

Fact is, we have no debt or equity "markets" in the U.S. It's all a government/GS/Pimco three ring circus.

jg said...

Jeff, quick back of the envelope arithmetic trick, 'Rule of 72': to approximate how long something will take to double, divide 72 by the growth rate.

If things are growing at 20% per year (food stamp coverage), how long will it be before the number of Americans on food stamps doubles?

72/20 = 3.6; at a growth rate of 20% per year, it will take approximately 3.6 years (not five) for the number of Americans on food stamps to double.

I presume the sheeple will wake up this fall, when transfer payments (welfare) and social services start getting cut off (here in California, for example).

Anonymous said...

Yes the market is not rational. But i guess there is a reason for every move and we had that failed head and shoulder that might have forced many to cover shorts. The market wants to fool as many as possible some say.

Jeff said...

FLip

MArket up a buck fifty.

Its time to party like a rock star. I'm heading to Vegas baby!

Treasuty yields back up over 3.70 but that could just be the outflow into equities.

This market has got to be killing the shorts.

MAny day traders will go down on this bounce.

Jeff said...

Toney

The primary dealers balance sheet must be shrinking after sucking up all of the leftover treasury debt.

On the flipside, they must be making a killing going long this bounce.

I wonder if the two are fueling each other. By taking the market higher, the banks are able to raise the liquidity needed to soak up this leftover treasury debt.

One thing is for sure, we are in rally mode!

Jeff said...

jg

I was never very good at math in school:)

thanks for the correction. I can only imagine where we will all be in 3 years.

Jeff said...

Anon

Yep

The market always seems to inflict maximum pain.

GOld is up and treasuries are down. thats whats savig my ass today. My small amount of shorts are getting pounded but overall it hasn't been a bad day.

I like how I am hedged right now

Anonymous said...

The idea of printing fails in the long run.
------------------
define what is a long run. If this is going to continue for another 2 years, why worry now and go short?


Go back in history and look at how printing has worked. Argentina? Weimar Germany?
-------------------
well, in the long run it worked just fine for both of them, did not it? :-)

Anonymous said...

so what happened to the bond auction today? did it fail? by the market reaction it seems like it was wildly successfull

Jeff said...

Anon

I am not shorting right now. I own short mutual funds and I have held on to a few small ETF plays, but I haven't put any new shorts on for over a month now:)

Define working out

If regime change,
Hitler, and social chaos is your idea of things working out then I guess so:)

Jeff said...

Anon

Regarding the bind auction

Money must be growing on trees!

I am very curious to see what the money supply is doing right now. I have a feeling the printing presses are running at full speed.

I have nothing to support this idea yet but I am searching.

CT-Hilltopper said...

Well, I'm glad to see that everyone is still here, not having booked a plane to Vegas for debauchery, hookers, and booze!

41 comments! I'm impressed. And quite a few of them are even regarding the topic. ;)

Well done, Jeff. I'm off to read the new topic now.

Jeff said...

CT

Thanks

Yea this little place keeps on growing.

And, no, I haven't booked a hooker yet or flown to Vegas:)