Saturday, April 18, 2009
Before I begin a little housekeeping here:
I will be out on business this week. Feel free to discuss the capital markets in the comments section. I will try to add a few myself in there. I also plan on putting some things up on Twitter throughout the week if anything big occurs. You can link up to me on Twitter in the upper right hand side of the site.
I wanted to share a few videos today. I never really discussed the tea parties last week. I was very proud of our citizens on tax day 2009. I planned on attending one myself but I wasn't able to due to prior commitments that I had made. I do plan on attending the next round of these parties and trust me folks there will be more.
The fact that the business and political elite of this nation are transferring trillions of dollars in taxpayer money into their own pockets is beginning to infuriate Americans. The pro Obama press is trying to muzzle this grass roots campaign by calling it a radical right wing movement.
This is a crock of crap. I see equal anger among Democrats and Republicans. Both sides of the aisle are watching their 401k's vanish along with their jobs.
Check out the video below of a Republican Congressman Barrett speaking at a Greeneville NC tea party. This guy voted yes on the TARP and was practically booed right off the podium despite coming from the right. The tea parties are not about politics folks. Its about right and wrong.
They also represent the anger and frustrations of ordinary people who are struggling. People are tired of being ignored by the politicians in Washington. Americans were 100-1 or more against the TARP. Despite this Congress passed the bill anyway and then proceeded to donate the $700 billion dollars of OUR money to Wall St. Anybody here think they got their monies worth? Yeah me either.
The TARP went right into the bankers pockets and was never seen again. Don't let the MSM fool you. The tea parties are not about the taxes that we are paying today. They are about the taxes that we will be paying down the road in order to pay off this mess. What infuriates Americans most is most of us were totally against these bailouts. Almost all of us were against the TARP. Congress is supposed to represent their constituents and they clearly failed.
You need to ask yourself: Is this taxation without representation? This colossal fraud must be cleansed from the system before we begin to recover from this. There will be no recovery as long as the people who created this mess are still in power. The roaches on Wall St must be exterminated in order to get this country back on its feet.
If we fail to do this the economy is going to get worse and worse and the risk of social chaos will become very real. The tea parties should represent a shot across the bow to our politicians. A revolt is brewing if you continue to play these games.
Are you listening Washington?
I of course am not alone when it comes to worrying about social chaos. Take a look at Gerald Celente here from trend forecasting. Please note that I do not agree with everything that's being said on here especially around the military.
However, Gerald does do a nice job describing why social chaos is potentially right around the corner. Whats happening here among our oligarchs is morally and ethically flat out WRONG!
Could this spark a revolution? I hope not but maybe this needs to be put on the table.
Friday, April 17, 2009
I'll be fairly quick today. What a surprisingly boring Friday considering it was an options expiration day. Stocks closed pretty much flat as a board as the market continues to calm down and gain a false sense of security. The VIX was down again today at under 34.
PUTS are starting to get cheap again as a result. I picked up a few June QQQQ's the other day for .67 a piece. I took a very small position here as I continue to very slowly scale in short here.
I think the risk is to the downside moving forward(what a shocker right?). We are pretty severely oversold here. IMO the next several weeks will be all about the bond market.
Take a look at the 10 Year today and this week:
The bond market appears as if it wants to force the Fed's hand here. If you recall, Ben's quantitative easing policy started with the 10 year yielding 3%. Yields immediately dropped to 2.5% on the Fed's announcement..
As you can see above, yields rose sharply today to close at 2.93%. We have taken a few runs at the 3% level in the last few weeks. I think that the traders in Chicago are about to take a more serious run at 3% in order to see how the Fed reacts. Traders have been trying to figure out exactly how aggressive the Fed will get with their QE when yields rise.
The only way to find out is to take them higher and force Ben to make a move. You see the bond guys know the Fed cannot afford higher lending rates because it will blow up whats left of the housing market.
What they don't know is how far the Fed will go in terms of buying treasuries. Making things even more interesting here is the staggering amount of treasuries that need to be sold in 2009. We are expected to issue around$2.5 trillion dollars in treasuries this year to finance our Ponzi government spending versus the $750 billion or so we issued last year. This is turning into quite a game of cat and mouse we have going here between the bond market and the Fed.
The bond boys are really smart guys and I expect them to eventually take a serious run at the Fed. Markets hate uncertainty and the Fed has created plenty of this since it announced its QE policy.
How far will the Fed go in order to keep lending rates low? Who knows? The Fed has to be extremely nervous given the enormous amount of treasuries that need to be sold this year. There is a limit to the Fed's resources despite their claims, and the bond traders realize this especially given the massive supply.
If demand around the world for our worthless debt crashes will the Fed give up if they are the only buyer left bidding on bonds? If theFed decides to walk away from treasuries at a certain point lending rates are going to skyrocket. This will destroy whast left of both the housing and equity market.
Keep an eye on this story.
If bond yields on the 10 year begin to creep up over 3% find a place to hide!
Thursday, April 16, 2009
Many people ask "What inning of this recession are we in?". My answer is simple: Who knows? The government has completely changed the rules of the game folks. How can anyone be expected to predict what inning we are in if you don't know what the rules of the game are?
Anyone that says they know is full of crap. The market for now is believing it will be over by next year. My question here is: SAYS WHO? WALL ST?
The reality here is this: No one has any real information confirming that the worst is behind us. Anyone calling a bottom here with a straight face is either a fool or a liar. If this person is from Wall St its most likely the latter.
Right now the combination of mark to market accounting suspensions along with the propping up of insolvent banks and companies by the government makes it IMPOSSIBLE to value anything.
Adding to the confusion here is the fact that the Fed has created $10 trillion out of thin air in a desperate attempt to fend off this financial collapse. WHO IN THE HELL REALLY KNOWS WHAT THE RAMIFICATIONS OF THIS ARE? I can answer that folks: No one.
Where is Nostradamus when you need him. Maybe he knows!
Despite all of this the market continues to drift upward as the bulls talk themselves into thinking that the worst is behind us. The total denial by Wall St. of the hideous problems in our economy has now reached an all time high in my view.
It seems the worse the news is the higher stocks go. SRS was a perfect example of this today. GGP which is one of the largest commercial REITS declared BK and SRS(short commercial) responded by hitting a 52 week low today! Has the market lost its mind??
I think that the bulls believe that its good that the numbers are collapsing because it means we are near the bottom. Pardon my french but this logic is retarded. When things are getting worse month after month the more logical conclusion would be to expect that things might continue to worsen!
Why would you think things have bottomed at a time in which the government won't let you see any companies REAL balance sheet? If we were really recovering then why does the government continue to allow this lack of transparency? It makes no sense.
Lets get real here:
The only information any investor has access to these days are the "fantasy land figures" that we get from companies that are allowed to hide all of their skeletons in their closet. I mean don't get me wrong: Are banks profitable right this second? Hell yes! The problem is they have trillions in losses that they are allowed to sit on without penalty.
This is total BS: If you were a tiny company that made $100 in a month but had $5,000 in debt that you couldn't afford to make payments on you would declare bankruptcy. This is how capitalism worked until a year ago. Not anymore.
My point here is EVERYTHING has changed folks. We are trying to save our economy by attempting things that have never been done before in this country.
The problem here is the things that we are trying to do have been attempted in other countries and the results have almost always been catastrophic. Go read up on how Japan's government responded to this same type of economic crisis. The similarities are frightening. Its like we are using their exact playbook.
IMO, any investor that attempts to invest into this new market using a dated investing strategy are going to get crushed. This crisis is different then anything we have seen before and its almost assuredly going to get worse.
Need proof? Check out the disasterous foreclosure news today:
"WASHINGTON (AP) -- The number of American households threatened with losing their homes grew 24 percent in the first three months of this year and is poised to rise further as major lenders restart foreclosures after a temporary break, according to data released Thursday.
The faltering economy is causing the housing crisis to spread. Nationwide, nearly 804,000 homes received at least one foreclosure-related notice from January through March, up from about 650,000 in the same time period a year earlier, according to RealtyTrac Inc., a foreclosure listing firm. During the quarter, Ohio was the state with the seventh highest number of homes seeing foreclosure activity with about 31,600 receiving at least one filing, up 1 percent from a year earlier.
In March, more than 340,000 properties were affected nationwide, up 17 percent from February and 46 percent from a year earlier. Ohio had 12,600 homes receiving foreclosure notices during the month, 12 percent more than during March 2008.
Foreclosures "came back with a vengeance" last month and are likely to keep rising, said Rick Sharga, RealtyTrac's senior vice president for marketing."
Everyone on Wall St will tell you that we don't get out of this until housing stabilizes. As you can see above, we are not even close to seeing this happening. In fact, things are deteriorating.
Look at the numbers!
We saw 340,000 foreclosures in March alone! Yikes!
I did a little math here. Lets say the bank averages a $100,000 loss on each foreclosure in March. This sounds reasonable considering foreclosures sell at a 40% or so loss right?
When you add this all up the totals are mind boggling: The banks took a $34 billion dollar hit in March alone if each house takes a 100k loss. Multiply that out for the year and it adds up to $408 billion.
Pretty frightening isn't it? Now ask yourself: What if the losses are 200k per house and the number of foreclosures rises to 400k a month? Then ask yourself: How many foreclosures are sitting on the banks books and haven't been reported!!!!
Add this all up and throw in all of the credit card losses and the numbers are simply daunting. Anyone thinking this will all be cleaned up by next year simply isn't being rationale.
The rationale thing to do here is to continue and raise cash in case this whole economic "science experiment" blows up. Buy this market after we get transparency and get a chance to see what the real undervalues of these companies are.
Remember, you can't blow yourself up by sitting in cash. You can blow yourself up by investing in companies that are temporarily being propped up by the government.
Until next time!
Tuesday, April 14, 2009
We can officially call Ben Bernanke a failure when it comes to his quest of preventing a deflationary death spiral ala Japan. Deflation continues to strengthen its grip around the economies throat despite the fact that the Fed has expanded its balance sheet by trillions of dollars in an attempt to stop it. Winner? Deflation!
Gold bugs and reflation traders beware: You are about to get used and abused by the destructive power of deflation. I will explain later after showing a few examples of deflation and why it will be around for awhile.
Retail Sales Once Again Collapsed in March as the deflationary spiral deepened:
Hey Bubblevision! How are those "economic recovery" mustard seeds growing? It looks like they need a little more water!
Folks, I'm sorry but I need to take a few shots at all of the "hope/mustard seed" bubbleheads on Wall St after being forced to listen to their bullshit day after day on CNBC.
The reality here is deflation as a result of a tapped out consumer continues to rip apart the economy. The expectation in March was for retail sales to grow by .3% as the "economic recovery" was expected to continue. Oooops.. So much for that idea!: The consumer collapsed in March as retail sales dropped a stunning 1.3%.
The bullish argument that the "worst is behind us" is completely ridiculous when you look at the deepening unemployment in this country. Everyone got so excited in February after the consumer bounced back a tad. What these analysts need to realize is one month does not make a trend.
After March's horrific retail numbers, the downward trend seen over the past year is now firmly back in place. This should not be a surprise because the fundamentals have not changed. The consumer is still stuck with tapped out credit cards, a housing payment that he/she cannot afford, and a Hummer in the driveway that's about to get Repoed.
If you take a look at the the second chart: Crashing consumer demand is still outpacing reductions in production. This confirms that prices on assets will continue to collapse as oversupply continues to pressure prices.
Once deflationary collapses start they are almost impossible to stop. Why buy something today if its going to be cheaper next month? Why pay $300,000 for a house when it might be $250,000 in 6 months. This is the type of consumer behaviour that dominates when deflationary spirals begin.
I personally believe that Ben has officially lost out to deflation. The spiral has already started and accelerated. Look at the collapsing demand above! Its absolutely frightening to see how quickly things are falling apart. The consumer has virtually disappeared. All of this talk around a recovery is pure nonsense.
What pisses me off most about this whole thing is when push came to shove: The Fed bailed out the banks while doing practically nothing for "we the people".
I need to rant a little because my blood is starting to boil. It didn't have to be this way:
The Fed's biggest mistake was they spent our tax dollars in the wrong place. They basically pissed away trillions of dollars in taxpayer money by throwing it into financial institutions that were nothing but financial "black holes". The money just vanished because the institutions were so insolvent! They might as well taken the money and burned it. The result would have been the same. I mean can anyone show me one piece of positive economic growth that occured as a result of throwing hundreds of billions of dollars into AIG or Citi? Yeah I couldn't find any either.
Let me be blunt here folks:
THE FED AND TREASURY BASICALLY JUST PISSED AWAY TRILLIONS OF TAXPAYER $$$ BAILING OUT THEIR BANKING BUDDIES WITHOUT ANYTHING TO SHOW FOR IT. NOTHING! ZILCH! NADA!
THE REASON WHY WE ARE STILL FIGHTING DEFLATION IS BECAUSE NONE OF THIS MONEY WAS PLACED INTO THE "REAL ECONOMY".
IF THIS MONEY WAS THROWN TO THE TAXPAYER INSTEAD OF THE BANKS IT COULD HAVE BEEN USED TO STIMULATE REAL ECONOMIC GROWTH.
This is so fricking infuriating. This is Japan all over again folks! Its a spitting frickin image of Japan. We continue to sit here and prop up worthless banks instead of helping the millions that are losing their jobs. I mean Goldman gets to blow out earnings as a result of the Fed's gift while the taxpayer sits around and wonders how they are going to pay next months bills.
The Fed is nothing but a good 'ole boy network of bankers! They took care of their buddies versus taking care of America.
A few questions for these morons:
Why didn't the Fed use any of their balance sheet creating jobs? Why did they continually throw the money into worthless banks that then refused to lend it back to us? Not that we could afford to borrow it anyway. Who wants more credit when you are scared sh*tless that you might lose your job.
WAKE THE HELL UP BEN: LOOK AT THE CONSUMER DATA TODAY!
Could we be any more afraid? Look how little we are spending?
Do you need anymore proof to realize that your stupid recovery plan of bailing out the banks while ignoring the people is a total failure? Do we need to go down this road just like Japan did for 8 years before you realize that we no longer want credit anymore? Jesus Christ: Wake up!!!!
This country is going down the tubes as you continue to on throw money at the banks in an attempt to "loosen" up credit so that we can lend more easily.
Hey Ben guess what? We don't want to borrow any more damn money!
How about getting us a job? Why don't you stop throwing money at the elitist pigs of this country and take care of the taxpayer for a change? The economy is going to collapse if you continue down this path. Enough already!
Inflation is coming no time soon. Production needs to collapse at an even fasterer pace in order to come more in line with the tapped out consumer.
Anyone thinking this will result in an economic recovery is simply insane. The market looked terrible today and I think the bulls got a real dose of reality once the consumer numbers came out today.
I see NO signs that things are getting better. In fact, I am more concerned that things are getting worse. Prices will do nothing but drop as long as the consumer continues to be officially on strike.
Like any union worker knows: The longer any strike lasts the uglier it gets.
Monday, April 13, 2009
Goldman Sachs came out after the bell and reported stellar earnings:
"NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) posted first-quarter earnings of $1.66 billion, a higher-than-expected profit helped by strong trading revenue, and said it planned to raise $5 billion of common shares.
The New York-based bank reported net income applicable to common shareholders for the quarter ended March 27 of $3.39 a share. For the quarter ended February 29, 2008, the company posted net income for common shareholders of $1.47 billion, or $3.23 a share.
Analysts had on average expected earnings of $1.49 a share, according to Reuters Estimates.
Goldman said it planned to use proceeds of its share offering plus additional funds to repay the $10 billion of capital it received from the U.S. government under the Troubled Assets Relief Program."
Is anyone else completely sickened by these earnings? I will chop off my right testicle if this earnings number wasn't juiced by the back door TARP money that Goldman received as a result of being made 100% whole on CDS bets the bank made with AIG.
Everyone knows this fact by now. The hundred billion dollar infusion by the Treasury into AIG a few months back was done for one reason: To pay off the horrible CDS bets that AIG made with several banking institutions all over the world.
What makes this even more disgusting is there are rumors that GS also hedged themselves on their AIG CDS bets in case they were never made whole on them. They could have been done this in a variety of ways: Shorting AIG would work.
So in true pigmen fashion, GS may have possibly been paid twice on the CDS bets. Once by the Treasury via the taxpayer and a second timeby trading moves made by the firm to cover themselves.
Sick isn't it? How about sending back the AIG bailout money back to the taxpayers if you "doubled down" on your profits? All I got to say is kharma is a bitch Goldman. You will get yours one day you SLIME!
These stellar earnings are just another example of how fraudulent our financial system is. Earnings like this would have made Mr. Ponzi himself proud!
Goldman's balance sheet must be a mess after watching unemployment and foreclosure numbers rise substantially throughout the quarter. There is no way they should have beaten like this if these numbers were legit. The system will never recover until this type of bullshit stops. Confidence is not restored by events like this.
It only makes investors more suspiscious. If the citizens feel that they are being gamed by the system, they will eventually walk. They will play a little while longer for now because its taking the market higher. However, once this false liquidity that allowed for these earnings disappears and these stocks tumble once again, investors will once again be left holding the bag.
Whats not surprising here is if you look at Goldman's earnings report, revenues were down in every part of their business. The stock actually is doing very little after hours. Tee Hee... Serves them right the scumbags.
Anyone see a connection between Washington and Wall St below?
Government US Deficit Rises as TARP Spending Soars:
Meanwhile(Back in reality) Tax Receipts are Crumbling as their spending soars:
It doesn't take a math degree to see how this is all eventually going to end. The Treasury has less and less money coming in and trillions going out. Notice the extreme jump in expenditures over the last several months. Gee..Do you think some of it might be in the form of AIG CDS handouts courtesy of the US Treasury(taxpayer)?
Folks, if you ran a business and had cash flows like this you would be in bankruptcy. There is NO way the Treasury can continue to spend the way it has if tax receipts continue to disappear at this speed.
The Fed/Treasury at some point will be forced to begin pulling some of this liquidity from the system in order to stay solvent and when they do....KABOOOOM! We are going to see one hell of a plunge in the markets IMO.
I wouldn't be surprised to see more strong bank earnings. Its pretty obvious that these earnings are being propped by all of the gifts from the government. These include:
- The AIG backdoor bailout
- M2M accounting gifts.
- Zero interest rates which allow for ridiculously profitable lending.
- Quantitative Easing which makes ridiculously profitable lending even more profitable.
- Direct Treasury capital injections.
These earnings are all "smoke and mirrors" folks. IMO, I believe this earnings bonanza is just a one quarter aberration because the AIG ATM is about to be shut off due to public/political scrutiny. The worsening economy will also increasingly take its toll on earnings.
Basically the way I see it, the future of the banks looks pretty darn bleak. I see nothing but a further deterioration in their loan books as a result of a deepening recession and soaring unemployment. All sectors of their businesses continue to slump: Lending, investment banking, and M&A are all weak and show no signs of recovery in the near future. I also see no catalyst that will allow this to change anytime soon.
We could see the "delusional" bulls continue and take this market higher as the financials enjoy one last profitable hurrah. I still believe this rally looks to be running on fumes. The reaction to Goldman was muted at best. The futures are pretty flat. Could this be a sell the news event tomorrow? Time will tell. I held my shorts on the S&P and treasuries.
Over the long term there is only one conclusion you can come to when you look at the charts above. The Fed can only replace the consumer and their spending with its liquidity for so long. The losses in tax revenue are going to eventually force them to reign in their lending and shrink their balance sheet. This is going to leave a lot of companies with no clothes on because there will be no money left for bailouts. Expect to see these same insovent companies head straight to bankruptcy court.
The financial fireworks as a result of this inevitable conclusion will leave the stock market in shambles.