Thursday, March 26, 2009

The Spin Stops Here


I am not a huge Bill O'Reilly fan but I thought the title was appropriate for today's post. Just an FYI before I get started. I am away over the weekend so I might not have a chance to hop on here until Monday.

Alright, lets get started. The markets are pulling back today as I speak after an incredible bull run over the last three weeks.

I wanted to provide some data today to reinforce why we are nowhere near the bottom when it comes to this bear market. You often here that this recession will not be over until housing prices stabilize and the jobs picture improves. As you can see below, the numbers in both areas are still bad and getting worse.

New home sales prices continue to decline:

The unemployment picture is just as grim when you look at the most recent jobless claims numbers:

Quick Take:


The most stunning data point that I saw around the new home sales figures was this: In the last three months there have been ZERO new home sales over $750,000. Zero! Zilch! Nada!

During the housing boom 750k barely got you a one bedroom condo in NYC. This is quite a remarkable change when you think about it.

When you look at the economic data there is simply no reason to think that we have turned a corner. Housing prices continue to fall and unemployment continues to soar. There have been zero signs that either number is stabilizing. Until these numbers reverse there is no hope for a recovery.

The Real AIG Story

This is a must watch video from Dylan Rattigan around the AIG fiasco. Many Americans were outraged by the whole $165 million bonus payment scandal around this company.

Dylan does a great job pointing explaining why the real fraud around AIG is the $50-100 billion that was paid out to the banks via the taxpayer in order to make them whole on bets they placed with AIG using CDS's. This was basically a "backdoor bailout" at our expense.

Basically AIG was nothing but a clueless bookie that took sucker bets from the banks via CDS. The banks were then made 100% whole on their bets courtesy of the US government via the taxpayer. Once again the taxpayer gets raped!:

Must Reads

This is perhaps the best read that I have seen around this economic crisis. Here is the link to "The Quiet Coup in the U.S.". Its written by former IMF chief economist Simon Johnson and he does a great job explaining why the elite(oligarchs) in this nation must be stopped before they destroy this country.

Also, check out Rosenberg's latest here.

Bottom Line:

We have a long way to go before the recovery begins. Housing and unemployment continue to worsen and the fraud continues to roll on. All three of these must be reversed before we can begin our economic recovery. Keep an eye on the AIG story. If J6P learns about the $100 billion AIG extortion by the banks you may start seeing mobs on Wall St looking for blood.

We also found out this morning that consumer spending rose 2% while personal income dropped 2%. So basically the consumer spent more while making less. Sigh...Do I need to start banging my head against a wall again? Its time to save people versus digging yourselves deeper into debt!

The markets are down around 1.5% as I finish this post. Lets see where we close today.

Have a great weekend!

Watch Bonds not Stocks!

Rally on!

Stocks soared once again today as the "hope" rally rolls on. One of the big rocket boosters today came in the credit markets after a successful 7 year treasury auction was announced.

In the short term folks, it is CRITICAL that you focus on the credit markets versus the stock market. Remember, the bond market is 5-6 times larger than the equity market. The bond market is the dog and the stock market is the tail. Nerver forget that.

The stock market is now being held hostage by two powerful forces: The bond market and government intervention.

The Fed's Biggest Fear

Financing this debt has increasingly become a concern over at the Fed. They know all too well that if the bond market cannot fund the Fed's recovery plan then the game is over. Stocks are rallying because they think the Fed has found a solution to all of our problems. The Fed is also hopeful, but also concerned at the same time:

"NEW YORK/MAUMEE, Ohio (Reuters) - The U.S. recession will drag on for some months before a recovery starts in late 2009 or early 2010, but the future is still clouded by risks, top Federal Reserve officials said on Wednesday.

Monetary and fiscal authorities have plenty of ammunition to combat the deepest downturn in decades and the measures already taken will be critical in driving a recovery, the presidents of the Federal Reserve banks of San Francisco and Cleveland said in separate remarks.

"I'm convinced this is no time to relax our efforts," Janet Yellen, president of the San Francisco Fed, told the Forecasters Club of New York.

Cleveland Fed President Sandra Pianalto, who is not an FOMC voter this year, was similarly cautious in a speech to business leaders in Maumee, Ohio.

"I expect the economy to recover next year as the fiscal stimulus boosts spending and as we work off excess inventories," Pianalto said. "I have to warn you, however, that this outlook is subject to a number of strong downside risks."

In particular, Pianalto said a vicious cycle between the hobbled credit markets and the weak economy could continue and become mutually reinforcing, despite the Fed's "unprecedented" range of policy actions."

Yellen Agreed

"Yellen said an array of unconventional programs put in place by the Treasury and the Fed are "the best hope for recovery."

Yellen, however, cautioned it would be difficult to gauge the size of the impacts of the Fed's various programs. "We are using new policy tools and we simply don't have the experience needed to pin down the magnitude of the impacts," she said."

My Take:

Translation: Well we've(The Fed) never tried anything like this before! We sure hope it works! Gee thats comforting isn't it?

The reality here folks is this is nothing but a giant monetary experiment. The fact that our economy hangs in the balance while we wait and see if this works is quite frightening if you ask me!

The market in the short term could very well trade based on how are successful our treasury sales are in the bond market. This positive auction today is what lit up stocks this afternoon. On the flip side, the bad auction yesterday caused a 300 point selloff in less than 2 hours.

The bottom line here is be very careful trying to trade this market. The treasury auction results combined with constant government intervention can easily put you on the bad side of a trade in a hurry. I am currently sitting on my hands because I think this rally is based on nothing. The street is betting that the Fed's science experiment will save the day. This is a pretty reckless trade if you ask me because all I see in the real world is people struggling to keep their heads above water.

Go outside and conduct your own economic recovery test. Talk to people and ask them how they are doing. Ask them if they feel like their job is safe. Ask them how business is where they work. Take a walk through a shopping mall or head to a restaurant and see how busy they are.

I have done all of the above and I gotta tell you folks: I hear nothing but horror stories. Many have been asking me how in the hell is the market going up when everything they see in the real world is so horrible?

I try to explain to them that this is a common occurence during viscious bear markets:

Bottom Line

We have had a 25+% rally from the lows and as you can see above, this is very common. Hope and intervention can push the market higher at various times througout a long term bear market. The fundementals continue to deteriorate despite what the pundits on Wall St are telling you. I see nothing but anger and despair mounting when I am out and about.

Right now the financial news networks are focusing on nothing but positive news and ignoring the negative stuff. This can create a false sense of security. I read 10 negative articles for every one positive when I do my economic research. The latest today was the potential collapse of the postal system!

I could do a 10 page post everyday on whats wrong with the economy. I try to avoid this because I don't want anyone jumping off a bridge!

Wall St and CNBC are selling the bull with all their might right now because we are on the verge of tipping over. Don't get suckered in especially after a 25% move to the upside.

Play small if you trade the market short term in this environment because you might only be one good or bad treasury auction away from getting slaughtered by this bipolar market.

Currently I am looking for an entry point to get short here because I think this rallies about done. However, I am in no rush to get in front of this freight train. Longer term PUTS are the best option IMO moving forward. Constant governmet interventions combined with almost daily treasury sales in the credit markets make day trading nearly impossible at this point.

Wednesday, March 25, 2009

The Bond Market Rumbles!


Mr. Bernanke must not be too happy after seeing what happened in the credit markets today:

"March 25 (Bloomberg) -- Treasury 10-year note yields rose the most in more than two weeks after an auction of $34 billion in five-year notes drew a higher-than-forecast yield, spurring concern record sales of U.S. debt are overwhelming demand.

U.S. securities dropped even after the Federal Reserve today bought $7.5 billion of Treasury notes, its first targeted purchases of U.S. securities since the early 1960s. The five- year auction drew a yield of 1.849 percent, higher than the 1.801 percent forecast in a Bloomberg News survey of eight trading firms. The Treasury will sell $24 billion of seven-year notes tomorrow.

The 30-year bond yield gained 10 basis points today to 3.73 percent, while the current five-year note yield appreciated eight basis points to 1.81 percent

The bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, fell to 2.02 from an average 2.18 at the previous 10 sales.

The Treasury Department is selling a record $98 billion in notes this week, eclipsing the record $94 billion auctioned the week ended Feb. 27. The U.K. failed to attract enough bidders today at an auction of 1.75 billion pounds ($2.55 billion) of gilts for the first time in almost seven years.

President Barack Obama’s government is selling record amounts of debt to revive economic growth, service deficits, and cushion the failures in the financial system. Debt sales will almost triple this year to a record $2.5 trillion, according to estimates from Goldman Sachs Group Inc."

My Take:


I bet Ben is about to have a heart attack! This isn't good folks. The fact that demand for treasuries has softened after the Fed just announced it plans on buying them does not bode well. Consider this to be a shot across the bow from the rest of the world.

Making things worse in the credit markets today was the failed bond auction over in the UK. This is not a good sign for our future treasury auctions considering the Brits have already started quantitatively easing!

The FCB's of the world are obviously getting increasingly irritated and concerned over the Ponzi style spending approach that Geithner and the US has adopted in an attempt to pull the US out of a deepening recession.

Czech Prime Minister Mirek Topolanek didn't hold back any punches when asked about this topic:

"March 25 (Bloomberg) -- Czech Prime Minister Mirek Topolanek said the U.S. is on the “road to hell” with protectionist steps that threaten to deepen the global economic crisis.

Topolanek, demoted to a caretaker role after losing a confidence vote yesterday, said European Union governments were wise to resist U.S. appeals for more pump-priming measures at a summit last week.

“The U.S. is repeating mistakes from the 1930s such as wide-ranging stimuli, protectionist tendencies and calls, the ‘Buy American’ campaign, and so on,” Topolanek told the European Parliament in Strasbourg, France today. “All these steps, their combination, and even worse, initiatives to make them permanent are a road to hell.”

Gee Mirek: Tell us how you really feel! I think that a lot of countries are thinking the same thing but are afraid to voice their opinions out of fear of angering the US.

China really started to ramp up the rhetoric this week as they voiced their concerns around its treasury holdings. They also continued to push the idea of a world currency. This idea appears to be gaining some traction.

In fact, the worldwide buzz around a new global currency actually forced Geithner to respond on the topic today:

"NEW YORK (Dow Jones)--The dollar declined to session lows against the euro and yen after U.S. Treasury Secretary Timothy Geithner said he was open to considering a new global reserve currency.

The issue of a new global reserve currency to replace the dollar has caught steam lately, after both China and Russia proposed expanding a Special Drawing Rights, or a currency issued by the International Monetary Fund.

An independent expert panel convened by the United Nations is also expected to recommend an expanded SDR this week.

Geithner said he hasn't yet read China's proposal, but that he was open to considering expanding an SDR. He added that the dollar's future role will be determined by good U.S. policy."

Quick Take:

The heat on the US is coming from all directions. The world is beginning to realize that they are sitting on a pretty strong poker hand as they watch us drown in our own debt. Expect them to use it to their advantage.

I gotta be honest folks: I frankly just don't see us selling $2.5 trillion of this crap to the world without us cutting back on spending and showing some responsability. Yields will scream higher if this crap continues because the countries of the world will "walk away" from our debt just like a homeowner walks away from their bloated mortgage.

Also, keep in mind that the world now needs to spend more money at home as a result of this global economic meltdown. This will only further dampen demand.

The huge risk here if we continue down this path is simple: Higher yields push lending rates higher which then blows up whats left of the housing market.

Bottom Line:

I think what you saw in treasuries today was a rejection of the Fed's recovery plan by the world. The reason they are rejecting it is because they know it won't work! We seem to be the only country other than the UK that doesn't realize this!

Everyone knows that our new policies are nothing but a new game of "smoke and mirrors" that fails to deliver what the market needs: TRANSPARENCY. I hate to keep saying folks but that's the problem is. Transparency will force us to default on all of the bad debt that we have been accumulating over the past 25 years. Putting more lipstick on this pig simply doesn't cut it.

The Fed's quantitative easing policy is off to a rocky start. Yields are going in the opposite direction that Ben wants as the demand for treasuries collapses. Even if yields stay low there is no guarantee its going to spur demand for borrowing.

QE certainly didn't work in Japan. Lets take a look at the facts:

Japan started its quantitative easing policy in 2001.....

Housing prices continued to drop during the QE period despite lower lending rates:

Final Take:

As you can see above, quantitative easing doesn't work even when the government is successful in keeping rates low! Housing prices continued to collapse in Japan even though the government was able to keep rates artificially low using QE.

People lose their desire to lend after suffering through a major financial collapse. You can call it: "Post Bubble PTSD". Everyone is going to suffer from PBPTSD because they are scared and there isn't a darn thing the government can do to stop it. FEAR is a powerful emotion.

What's frightens me most here is our QE may end up being very different from Japan's. Rates may actually RISE over the course of our QE. This will likely force the government to buy even more and more treasuries in order to try and keep rates low.

You can pretty much guarantee that this scenario doesn't end well.


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Tuesday, March 24, 2009

The Last Hurrah

Stocks pulled back a tad today after a magical two week run. As I watch this latest leg up in the stock market I can't help but ask myself: Is this the last hurrah?

I think we will have our answer within a couple months. There are multiple triggers that could bring us back down to the lows. The biggest potential threat that I see is when Turbo Timmy's bank auctions begin. According to the wires, the auctions for these worthless assets could begin as soon as May.

There are many reasons to think that these auctions could very well fail. Tyler from Zerohedge posted a great piece of research from Goldman Sachs today around the marks that banks have taken on their toxic assets:

My Take:

My eyes almost fell out of my head after reading this. Many banks still have commercial loans marked at 100%! Anyone been to a mall lately? These marks are shocking.

You gotta wonder: What planet do these clowns live on?

There obviously is going to be a huge gap between the price at which private equity is willing to pay on these assets versus what the bank is willing to sell them for. Many private equity guys think the values on these assets are worth anywhere from .20-.40 on the dollar. That's a far cry from the full market price that these banks have marked on their balance sheet.

Good luck bridging that gap Timmy. Oh and Turbo by the way: If you plan on raping the taxpayer by massively overpaying for these assets in order bridge this gap I have some advice for you: Build a moat around your McMansion and go out and hire yourself a small army. You are going to need it in order to keep J6P and their torches out of your living room!

Let The Fed's Financing of America Begin!

Its Official! The Fed plans on purchasing treasuries tomorrow. Lets see how long this circle j**k lasts:

Operation Date
Settlement Date
Operation Type1
Maturity/Call Date Range

March 25, 2009
March 26, 2009
Outright Treasury Coupon Purchase
02/29/16 – 02/15/19

March 27, 2009
March 30, 2009
Outright Treasury Coupon Purchase
03/31/11 – 04/30/12

March 30, 2009
March 31, 2009
Outright Treasury Coupon Purchase
08/15/26 – 02/15/39

April 1, 2009
April 2, 2009
Outright Treasury Coupon Purchase
05/31/12 – 08/31/13

April 2, 2009
April 3, 2009
Outright Treasury Coupon Purchase
09/30/13 – 02/15/

Quick Take:

It sure didn't take the Fed long to pull this trigger did it? Whats wrong Ben? Are you buying now because you are finding demand to be a little soft? Has China decided to SELL to you instead of buying more?

What are you going to do if the FCB's decide to bail and you find yourself bidding against yourself at these treasury auctions?

You gotta wonder:

Which group of auctions will be a bigger failure? Turbo Timmy's bank auctions or Ben's treasury auction escapades? This one is too close to call in my view. I expect a photo finish. One thing is for sure: Both will fail!

Bottom Line:

The dam is springing multiple leaks and Ben and Timmy are running out of fingers. I really can't see us holding this debt bubble together much longer.

The $300 billion that the Fed is using to buy treasuries will be gone in a matter of weeks. Expect them to expand this program until they either blow themselves up or the bond vigilantes come out of hibernation and put a stop to all of this nonsense.

No matter what happens one thing is clear: We are running out of money and Washington's Game Plan looks to be a colossal failure.

Wall St and Washington pumped this plan up with more air then the housing bubble. Short term the market has bought it.

However, now its time to execute and it appears that many pieces of the puzzle are missing. This is where the elites are in deep trouble. America and Wall St are getting restless and looking for answers. This plan does nothing but further muddy the waters with opaque transactions combined with massive government interventions.

Transparency is nowhere to found in this plan because the elites of Wall St and Washington need this puppet show to continue so that they can continue to steal billions from the taxpayers.

I don't think we get through the spring before this plan totally disintegrates.

I wish that old lady from the Wendy's commercials was still around to ask: Where's the Beef?

Monday, March 23, 2009

I Smell A Rat

The S&P surged over 7% today completing its best 10 day run since 1938.:

" March 23 (Bloomberg) -- U.S. stocks rallied, capping the market’s steepest two-week gain since 1938, as investors speculated the Obama administration’s plan to rid banks of toxic assets will spur growth and investor Mark Mobius said a new bull market has begun. Treasuries and the dollar fell.

Bank of America Corp. and Citigroup Inc. both soared at least 19 percent as the U.S. Treasury said it will finance as much as $1 trillion in purchases of distressed assets. Exxon Mobil Corp. and Chevron Corp. jumped more than 6.7 percent after oil rose to an almost four-month high. The Standard & Poor’s 500 Index extended its rebound from a 12-year closing low on March 9 to 22 percent as all 10 of its main industry groups advanced."

My Take:

This just hit the wires after hours:

"(US) REPORTEDLY, SEC IS WORKING ON UPDATED VERSION OF UPTICK RULE FOR APR 8TH MEETING- Could include price test which would only allow investors to short stock if Bid price is rising- Also considering circuit breakers for individual stocks to stop aggressive short selling."

I'm sorry folks but somethings smells really fishy here. Lets take a look at whats been sold to us over the past several weeks:

- Citi, BofA, and JP Morgan all come out at the same time and announce that Jan/Feb have been extremely profitable

- Congress comes out and announces the potential change/suspension of mark to market accounting.

- The Fed comes out last week and announces that they will begin buying treasuries and more MBS's.

- Bernanke and Obama hit the airwaves telling Americans that they are beginning to see signs of recovery.

- Geithner comes out today and announces his bank recovery plan which is then praised by everyone on Wall St.

- After hours we then get whacked with the potential reimplementation of the UPTICK Rule.

Sorry folks, this is all just too coincidental for me. What on earth do they plan on announcing tomorrow? Hmmm let me take a couple guesses:

- Tomorrow night perhaps Obama announces that he plans on dropping gold coins out of helicopters across the country every Thursday?

- Wait a second, that may not be enough to satisfy the debt slaves in our bloated economy. Perhaps they will up the ante and throw a $100,000 check to every taxpayer?

HA! I know I know, I got out of hand with that last one. We all know the taxpayer only gets screwed in this country. The bottom line here is this all seems waaaaay to coordinated for my taste. Something tells me the government saw some economic data that has scared the living daylights out of them. The PR machine was then put into motion.

Whats scary here folks is this: They just threw the whole kitchen sink at this problem. God help us all if it doesn't work. I mean think about what they've done: They have bought treasuries, bailed out the banks, potentially suspended M2M, and brought back the uptick rule all in one week.

WTF? Whats left? Also:

If our recovery has already started and the banks have been profitable since the beginning of the year then why do we have to do all of this? Why does the government have to once again pillage the taxpayer by using our money to allow hedge funds to leverage up and purchase worthless assets at inflated prices if the recovery has already started?

I mean according to Wall St stocks are a buy! The mustard seeds are already starting to grow. Get in now before you miss the big rally! God they are all so full of shit. Every damn one of them!
Feel free to buy into this load of BS. I'll pass thanks. IMO, here is what they are looking at:

Employment is collapsing:

Industrial Production has fallen off a cliff:

Housing prices have collapsed and still haven't reverted to the mean:

Bottom Line:

The snake oil salesmen on Wall St have somehow managed to sell Main St another bill of goods. The reason Geithner's plan was such a hit is because its a slam dunk for private equity: The taxpayer takes almost all of the risk while Wall St takes very little but keeps 50% of the profits.

Once again the taxpayer gets shafted. Obama out to be ashamed of himself. A man of the people. Ha! What a sham. He is as big a fan of Wall St as Bush was. This guy has lost almost all credibility at this point.

I have come to one conclusion after watching this whole crisis unfold: The political and wealthy elites of this nation have no remorse over what has happened, and they will continue to game the system until its destroyed.

I honestly feel like I am watching a bunch of narcissistic sociopaths run our country right into the ground.

Remember folks, 7% moves in the stock market are not healthy and this crisis is far from over. The desperation that we are witnessing makes trading stocks almost impossible. The trend is long but the fundamentals are flatout horrific so the bottom could drop out at anytime. These are the types of markets where both the bears and the bulls get slaughtered.

You can play the trend and go long here but buyer beware. My advice continues to be simple: Raise cash and tune out all of the garbage that is being sold to you by the pigmen.

Sunday, March 22, 2009

Treasury Scam To Be Released Tomorrow

Get ready to bend over taxpayers: Here it comes!

Geithner finally plans to announce his "bank recovery" program tomorrow:

"WASHINGTON: White House economic advisers said Sunday that they believed private investors would respond with confidence to a plan that would try to coax them to form partnerships with the government to buy as much as $1 trillion in toxic assets from banks.
The plan, being presented Monday by the Treasury Department, is likely to offer generous subsidies, in the form of low-interest loans, to facilitate the purchase of troubled mortgages and related assets from financial institutions.

To help protect taxpayers, who would pay for the bulk of the purchases, the plan calls for auctioning assets to the highest bidders

To entice private investors like hedge funds and private equity firms, the F.D.I.C. will provide nonrecourse loans — that is, loans secured only by the value of the mortgage assets being bought — worth up to 85 percent of the value of a portfolio of troubled assets.

The remaining 15 percent will come from the government and the private investors. The Treasury would put up as much as 80 percent of that, while private investors would put up as little as 20 percent of the money, according to industry officials. Private investors, then, would be contributing as little as 3 percent of the equity."

My Take:

Anyone else thinking that this rescue plan will result in nothing more than just another raping of the taxpayer?

Basically private equity is going to have a chance to grab $1 trillion dollars worth of assets with little to no risk . Gee, if this isn't tightly regulated, do you think we might see more fraud and corruption here? I will withhold judgement until I see the details but I am already very skeptical.

Geithner better be careful here because both the taxpayers and Congress have had about enough of Wall St and this historic fraud.

Must Read:

I want to thank one of my readers(thanks Joey!) for sharing a great article from Rolling Stone.

This piece does a great job exposing the collapse of AIG and how the bankers benefited from it. It also suggests that the bankers are using this crisis as a way to gain even more power over the financial system.

Have a barf bag next to you when you read it because the fraud and corruption that's so eloquently described in the article will make you sick.

These bastards need to be stopped.

Until tomorrow!