Friday, November 5, 2010

Jobs Report: Not Bad.

I have to be real quick today because I have a busy weekend planned.

Jobs report wasn't bad today.  151,000 new jobs were created last month which is way below what we need but hey it's a start.  Unemployment rate was unchanged at 9.6%.  That's less encouraging.

The market reaction to this news was interesting to say the least.  Dollar is up and treasuries are down which is not surprising because the jobs report was positive. Stocks are down which is a bit surprising.  Gold and silver are up slightly.

So why the negative reaction in stocks?  I think a couple things are at work here. 

1.  This solid jobs report puts a crimp into Wall St's QE party.  The Fed won't have the political cover it needs for a QE3 if the economy is improving.  If the recovery continues(which is unlikely in my view), we will have a serious inflation problem in a hurry.  The Fed will then be forced to raise rates and end the easy money party.

2.  Stocks are already at 2 year highs and very overbought. 

The Bottom Line

I still wouldn't be surprised to see stocks end in the green today.  However, the QE party that's rocketed the markets higher is now definitely in danger if the economy shows any type of growth like it did today.

I might not get back on today or tomorrow.  Have a great start to the weekend!

Thursday, November 4, 2010

Jim Grant on the Dangers of the Fed's QE

Great stuff here from Jim Grant on the perils of quantitative easing.  The Fed is creating more dollars that no one in the world wants, and everyone then suffers because the dollars become worth less as a result of the money printing.

The World is Yours

Sometimes music and movies speaks louder than words.

Many are feeling like this poor girl today(Not a country fan but I gotta admit I kinda dig this tune):

I don't really have it!:

As the QE insanity continues you have to ask:

How much money is enough Wall St?

This question has actually already been asked before:

"Just a little bit more" is how John D. Rockefeller famously answered the question.   I see things haven't changed much on Wall St after reading this quote.

Sometimes when you have it "all" is when it all falls apart.  Entourage anyone?

I can't help but thinking of Scarface as I watch this train wreck.  At one point Tony thought he had it "all"  as he snorted a pound of coke on desk:

When you can't get enough and become consumed by greed is usually when you loose it all(warning:  baaaad language):

The Market:

I can't help but think that we are now witnessing the beginning of the end.  The Fed has opened the floodgates.  It's free hookers, money, and blow for everyone involved!

Can't you just hear them screaming "WHO CARES ABOUT THE CONSEQUENCES!!" as they churn up the printing presses for one more big party.

QE3 is already now on the table because QE2 has been so much fun according to the news today:

"So with QE2 out of the way and the market ready to ride the Fed's momentum, talk immediately switched to when the economy will see future QE implementations that some market pros think are little more than an inevitability.

"They're already talking about QE3," said Dave Rovelli, managing director of US equity trading for Canaccord Adams. "Eventually we're going to be printing so much money the dollar is going to really go down and everybody's going to try to deflate their currency against us. I just don't know how this could end well."

For the time being, though, concerns about inflation were out of investors' heads as speculation grew rampant that the Fed has sent an unmistakable signal that it stands at the ready with as much easing as needed to restart the economy."

Quick Take:

DAVE DAVE DAVE!!  Shut up dude.  This party is rocking.  Who cares about the future.  All that matters is today!!!

In fact, I think everyone reading me today should immediately go out and max out your credit cards on hookers and blow.  If that's not your thing then go hit Vegas and start betting $500 a hand until your bank account is empty.

I mean who cares about tomorrow??  Screw it!(sarcasm off)

Sadly I am not really being overly sarcastic.  I am starting to believe that this is the mentality we are starting to see out there, and the root cause of this is the Fed.

They are doing everything in their power to get you to speculate in hopes that they can "grow out" of this multi trillion dollar disaster. 

They don't care if it's stocks, houses, or cars.  They just want you to buy buy buy until you are in the poor house.  They will give you every tool possible in the process in order for you to do so....3+% mortgages anyone?

There is no way we can mathematically grow out of this but they are going to fire every bullet in the gun trying.

The problem with this policy is they are promoting bad behaviour by everyone inclucing the banks who are bad enough as it is.  It all goes back to Rick Santelli's famous tea party rant:

It's so fascinating to watch this video 2 years later.  Pretty much everything Rick warned us about has come to fruition.  It's almost eery how accurate he was, and I don't think he ever imagined that the Fed would have taken it this far.

I fear for our future and I will continue to sit here in cash and metals as I watch the fireworks.

The ironic thing about today is I am sick to my stomach watching the markets despite having a great day in the markets due to my positions in gold and silver.  

I wonder how many people are having the same feelings? 

When this "funny money" party finally ends(and it will) we should hang a planet above Wall St with a banner that reads "The World Is Yours" as the "Scarface" bankers loose it all and end up hanging from lampposts.

The Fallout Continues

So much for the Fed creating price stability:

All hell has broken loose in the markets following yesterday's QE2 announcement.  Bernanke''s Op-Ed in the Washington Post where he flat out admitted that he wants higher stock prices has created a feeding frenzy for stocks.

The falling dollar following the QE announcement has added more fuel to the fire.  Ben's been successful with his attempt to goose stock prices but it comes at a cost.

The dollar is getting slaughtered:

Gold is soaring as investors "run to the exits" from the US dollar:

Oil is soaring as the currency weakens:

My Take:

Ben's Op-Ed is flawed because the stock "wealth" he is creating is being taken away by a falling dollar.

You need to ask yourself:  If equities rise 1% and the cost of goods rises 2% as the dollar weakens have you really gotten anywhere?

Also, keep in mind that input costs for corporations are going to soar.  Just think what $100 oil will do to the airlines and manufacturers who use this stuff like water as they fly people all over the world and use it to manufacture goods.

This is going to kill the profitability of corporations. 

Stocks love this news today but investors needs to realize there is no free lunch.  What's goosing the markets higher today is going to bite us in the ass tomorrow as our currency gets flushed down the toilet.

Congrats Mr. Bernanke, you have once again pulled the wool over the eyes of the American people.  When this all comes tumbling down I suggest you get on the first plane out of the USA because millions of jobless/penniless Americans will be looking for revenge.

Wednesday, November 3, 2010

The Aftermath of QE2

Well let's get this one started.  The Fed stepped up to the plate and announced QE2 as expected.  Here is the money quote from the FOMC statement:

"To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

My Take:

I don't even know where to begin.  Let's start with the last statement where the Fed will "adjust the program to foster price stability".

Price stability?  Really?  Take a look below and tell me how that worked out today?

Let's start with the 30 year bond following the announcement:

The 10 year wasn't much better:

Oh and the dollar?  That fell too after announcing that we will print $600 billion more dollars out of thin air:

Take Continued:

Another question.  How is any of this "fostering maximum employment"?  Since when did the Fed start creating jobs?  How many did QE1 create?  With unemployment at near all time highs you already have the answer to that one.

I could easily start ranting like a lunatic right now but I am going to try and refrain from doing so.  My mild rant above is all you are going to get.

All I can say is this has gotten beyond absurd.  I cannot believe what I am witnessing and I am serious as a heart attack when I say this.

However, it is what it is so let's break down what happened today.


The trading robots were once again able to keep things contained.  You can expect to see less and less stock analysis here at the THTB.  There is nothing to analyze.

The computers rule Wall St and their trading volumes morph anyone else that's currently involved in the markets.  As a result, whatever the trading algos decide to do on any given day is where the market will move. 

This can't last forever because the trading algos are not prepared for the "black swans" that inevitably will hit this market.  The Fed made sure that we will see one of these swans after today's spending spree.

The market is now filled with price distortions, bubbles, and fear.  One of these will inevitably create a selling panic, and god only knows how the trading robots will react to this....Flash Crash Part 2 anyone?


This is where the action was today.  The robots can't control the credit traders(who are a much more sophisticated bunch despite being human).

Yields soared and bond prices collapsed on the QE2 news.  One might have expected the exact opposite price action in bonds.  I think the credit traders were OK with the $600 billion number(as absurd as that sounds).  However, I don't think they liked the open ended language that followed it where the Fed promised to adjust their program if needed.

This was very aggressive on the Fed's part.  They should have just announced the $600 billion and then kept their mouths shut.  At most, they should have said that they will continue to monitor the situation.  They didn't need to discuss "adjusting the program" if needed.

This was a sign of desperation in my view, and the bond market responded by immediately worrying about money printing and massive inflation/hyperinflation(as they should).

As a result, they began dumping treasuries, and the selling got more aggressive as you went up the curve because the risk of high inflation is much more damaging to longer dated treasuries like the 30 year bond because of the duration of the investment.

The Bottom Line

We are now officially in uncharted waters.  The whole market at this point is now being propped up by toothpicks, the Fed,  and trading robots.

The US dollar was relatively quiet given the action in bonds.  There were reasons for this.  Things in Europe are detiorating rapidly.  One of Ireland's largest banks CDS swaps are now pricing in a  >60% chance of default.  Here are the bank spreads below:
This obviously pressured the Euro today and helped the dollar.  Russia also didn't help things after announcing it will exclude Ireland and Spain from it's sovereign wealth fund actvities.

All in all, things are going to hell in a handbasket.  There is no other way to interpret things although the stock pumping puppets on CNBC would strongly disagree.

But hey, let's try and look at the bright side....Stocks were up 26 points.  Yahoo!!!  Hooray for the robots!

Disclosure:  No new positions taken during the time of publication.

The People Have Spoken

And Obama's policies have been rejected by the American people.  All I can say is thank god.  I am an independent when it comes to politics right now, but I was relieved to see the idiots who failed to lead us out of this mess get thrown out on their derrieres last night.

All the Democrats did was spend spend spend with no positive results to speak of. and the American people had obviously had enough of this idiocy.

I had always thought the worst president I have ever seen was George Bush until Obama was elected.  IMO, he is by far the worst president ever.  I have never seen a more narcissistic radically left ideologue in my life.  His spending policies were about to send this country right off an economic cliff.

That being said, it's time for the Republicans to back up their promises of balancing the budget.  I am far from confident that they actually have the guts to make the tough decisions that need to be made.  As I have said before, I am always a skeptic when it comes to DC politics.

Washington needs to realize that this country is one of moderates and a far left or far right ideology will always be rejected by the American people.

Let's hope we see real changes in our economic policies that puts this country back on the right path.

I have a busy day today so I will be back a little later than usual with my QE coverage.  The market seems to be more interested in what the Fed has to say today.  Markets are flat heading into the FOMC.

Until later!

Tuesday, November 2, 2010

The Million Dollar Question: What happens to Stocks Following the QE2 Announcement?

The stock prognosticators are out in full force tonight as I work my way through my various blogrolls and media sources.

There seems to be no consensus.  I have seen calls ranging from a market crash on the FOMC news to a multi-week rally that will take us to 1300 on the S&P.

I liked what Rick Santelli had to say on the Tech Ticker today regarding the announcement:

Here Here Rick.  I couldn't agree more.  My gut tells me that if the Fed comes out with anything less than $500 billion over the next 5 months then stocks are at high risk of tanking.

If the Fed comes out with $500 billion and keeps the door open to more QE easing down the line then I think the market will accept this, and tomorrow could be a nothingburger unless there is an election surprise.

If Ben come out with the guns a blazing and announce $1 trillion or more in easing then I think the currency tanks and stocks could soar or crash depending on how high they go.

If Mr. Bernanke announces something absurd like say a several trillion QE2 then I think the market would sense desperation and sell off along with the currency.  If they come out with $1 trillion I could see this moving stocks sharply higher as the banks get loaded up with a nice chunk of cash for the stock casino.

The Bottom Line:

Let's be honest here.  Trying to predict what will happen tomorrow is almost impossible because the market is being controlled by trading robots not investors.  The market will trade based on opportunities the trading algos can identify. 

Perhaps they go long if they see high short interest on a stock or ETF.  On the flip side sell short another name because of a certain technicals.  Since no positions are held for the long term(most are held for a whopping 11 seconds) the computer doesn't care what the fundamentals of a stock are.

Because of this, I wouldn't be surprised to see more erratic unpredictable trading tomorrow just like we have seen the past several months barring any election shockers.

My eyes are increasingly more interested in the bond market and the currencies because these casino games aren't played as much because the markets are too large to manipulate for an extended period of time. 

Just ask the Bank of Japan how their currency interventions have been working out?  The more they try to intervene in an attempt to lower the Yen, the higher it appreciates in value.  I think they have finally given up at this point.

Regarding the elections, I think if the Republicans win big then it will be a short term positive for stocks.  The perception will be that this will mean lower taxes and a more business friendly government.

I see it a little different.  The Republicans are going to be hell bent on shrinking the deficit because this is what they have promised the American people.  If they don't come thorough they know they are toast in the next elections. 

The polls are clear:  Americans want no more new spending or bailouts!  As a result, you are going to see a lot more austerity policies coming out of Washington if the conservative Republicans win big. 

Think Reaganomics in the early 1980's.  In the medium term this could very well put us at risk of dipping back into a recession because without the government stimulus today we would be in one right now. 

Remember, government spending has replaced about 10% of our GDP spending as seen by this chart from Karl Denninger's Market Ticker :

When the government spigot is turned off, that 10% of GDP growth must be replaced by private sector, and this just isn't gonna happen folks when you look at our current economic fundamentals.

If the private sector cannot replace that 10% of government spending then we will start printing negative GDP numbers once again which is how a recession is defined.

The way I see it:  Happy days are here again tomorrow barring any surprises, but I think the honeymoon will be short lived.


I will be monitoring the elections.  I might be back on with an update later.

Don't Forget to Vote!

For your local village idiot that is.  The reality of the situation is the two characters below best represent both parties. 

Before you ask me which one is the Democrat and which one is a Republican let me save you the time and answer you now:  Does it really matter?  Both parties are corrupt and completely retarded. 

Just look at the cast of characters on the ballot this year if you disagree.  We have a witch in Delaware, the World Wrestling Federation in Connecticut, and a far right Tea Party whack job in Utah.

If you put all of this years candidates in a room together it would remind you of some type of 3 ring circus.

That being said, voting for any of them sure beats the alternative.  None of the clowns that have served this country should be re-elected.  As a result,  I suggest that you vote for the person that's currently not in office when you hit the polls on the way home from work tonight.

Heck, Feel free to write in Paris Hilton if you like.  If she somehow scores a major "write in" upset I am sure she would do a better job then the two choices that are currently on the ballot.

The point being here anything is better than what we have right now.  All of our current politicians have failed miserably. 

Vote out the incumbents and send a message to Washington that we demand change!  Fraudulent politics WILL NO LONGER BE TOLERATED!.

Let's face it folks:  Washington is broken and needs a complete overhaul.  I say we just keep tossing them out of office until they start listening to the people instead of the special interest groups that line their pockets with gold(I would say money but that stuff isn't going to be worth much soon).

Market is Clearly Pricing in a Huge QE2

Interesting start to the morning trading.

The market appears to be expecting a huge QE2 stimulus announcement tomorrow.

The dollar is selling off as it begins pricing in more easing:

At the same time bonds are up sharply since the start of trading.  Take a look at the 10 year:

Gold and silver are both up on the falling dollar news.  Stocks are also up as the lower dollar/higher equities correlation continues to hold.

The big money is clearly expecting something huge tomorrow from the Fed.  Based on the early trade I would guess they are predicting at least $1 trillion in QE stimulus over the next year.

The consensus is the Fed will announce $600 billion over the next 6 months BUT they will also announce that they will keep the door open to continuing the program.

How any of this is good for our nation is beyond me.  Strong economies are not built on weaker currencies.  QE2 will continue to keep prices artificially high at a time in which the average wage in this country is falling.  How is this good for America?

It's great for the bankers of course as they get another $1 trillion to blow bubbles with.  However, at the same time, it's going to force even more people to start eating out of garbage cans because they will no longer be able to afford to live.

I just hope that karma still exists in this world.  Recently, I have questioned my faith in such a thing, and too be honest I have begun to lose faith in this country.

Let's hope some real leaders are voted into office tonight that will look after WE THE PEOPLE instead of greedy bankers.

In the meantime watch the markets:  If the QE2 comes in lighter than expected then the market is setup for a nasty sell off.  If the pigmen get what they want(and from the looks of it today they will) stocks could march higher as the gamblers blow more bubbles with $1 trillion of fresh cash from their friends at the Fed.

Folks. let us never forget:  Greed is wrong and eventually it catches up with you:

Monday, November 1, 2010

TBTF Bank Restructurings?


The Calm Before the Storm

What a volatile day.

The robots managed to rally us back to even in the last hour after a violent sell earlier in the afternoon following the JP Morgan news.

Today and tomorrow I expect the market to spend most of it't time obsessing about the Fed and their statement. Predictions and rumors will be flying all over the place as we head into perhaps the most anticipated Fed statement in history.

The way I see it, the world changes forever once the QE2 button is pushed.  When it is announced, you must assume that this train wreck we call our economy can't be fixed.  The Fed is basically telling you that they see no way out of this.

I say this because they know QE2 can't work.  They have already tried it once and saw how it worked out.  The bankers made a fortune(what else is new) as they used the money to speculate instead of lending it.

The Fed was able to buy a lot of MBS's with QE1 which propped up the housing market for a year.  None of this didn't fixed our problems.  Unemployment continued to rise and housing prices continued to fall.  All it did was delay the inevitable pain.

The Fed knows QE is not a solution.  They saw what happened in Japan after they had conducted multiple QE's.  They know that Japan has still not recovered after 21 years. 

They watched Japan's currency turn into toilet paper in the process.  They also see Japan's debt to GDP ratio sitting at 200% which is the highest of any developed nation.

Since we all know today that Japan's drive down the QE highway was a complete failure you then have to assume that the Fed is basically preparing to tell us that they have officially given up. 

I would have a lot more respect for them if they came out and told us the truth regarding QE.  I wish they would all stand before us on Bubblevision and announce: "Fellow citizens, we are officially screwed.  As a result, we have decided to extend and pretend by financing ourselves hoping that it buys us a few more years before we blowup".

Of course this will never happen.  I am sure the Fed statements will be filled with lots of banking mumbo jumbo about how this will help keep rates low which will then stimulate lending blah blah blah....

The reality is, at best, it delays the banks from going bankrupt.  However, it does absolutely nothing positive for Main St.  Absolutely NOTHING!!!

I guess if you a masochist who loves watching people starve to death as prices soar as a result of our eventual currency crisis then you might be a QE2 fan.

The Bottom Line

"The credit trader" has always told me from the beginning that all Wall St cares about is money.  Nothing else matters.  He also says that it's only gotten worse over time.  According to him when someone made $5million they then wanted $10 million.  If someone made $500 million they had to then get to $1 billion.

It's never enough according to him and I now believe he is right.  The market has already priced in QE2 and it's already been painful.  Commodities have soared and corporations are already talking about higher input costs cutting into profits.

The problem here is QE won't ever end the way I see it because we don't have the money to continue hiding the fraud that's seen everywhere in the form of losses on everything from commercial real estate to the bad loans on the banks balance sheets.

In order to continue hising this monstrosity we will no doubt see a QE3 which will hurt us even more.  This will then be followed by QE4 will be even more painful and so on.

This is going to end very badly because there is going to be a point at which the markets realize that we can never pay back this money.  They will then respond by punishing our currency even harder than the QE's does,  and it will eventually end via a currency crisis.  Could it be hyperinflation?  It's very possible the way I see it.

I also realize that I am not smart enough to know how this all plays out.  I don't think anyone does.  "The credit trader" doesn't believe we have had a fundamental market since the early 1990's.  I have heard him say "none of this makes any sense" on multiple occasions. 

We talked about QE2 this weekend.

As we discussed the topic he stopped at one point when we were discussing the rally and looked at me and said "Jeff, How is QE bullish?".   I had no answer.

After that we both agreed to not even talk about the markets the rest of the night because the whole thing is so absurd.

We also concluded that there is pretty much no way out at this point.  The only real options are "extend and pretend".


A USA default which then includes a "reset" and the end of the day for the US dollar.

I guess when these are the only two options on the table "extend and pretend" doesn't look so bad after all. 

Wednesday will be a sight to behold.  The combination of the FOMC statement and a potential changing of the guard in both the Senate and the House will likely create one heck of a crazy day on Wall St. 

I think there is a high probability of a huge "sell the news" dump following the Fed's statement.  If it doesn't happen on Wednesday then I think we'll see it within the next few trading sessions.

The reason I say this is the market is going to eventually realize the QE2 will not work and if anything it's a sign of desperation.

After all if our deficit was manageable, and there was ample demand for our debt, then why would you attempt something so silly? 

All we can do at this point is hope that we all survive this nightmare relatively unscathed. 

In the end, I keep telling myself that the sun will rise just like it always does when this is all said and done no matter what the elites do from here on out.

I'll end tonight with a scene from the movie "Castaway".  I have always found this to be very inspiring.  I hope you enjoy it as much as I did:

JP Morgan Kills the Rally

This is ugly:

"U.S. stocks erased gains as financial companies turned lower following a report that JPMorgan Chase & Co. faces a regulatory probe over its dealings in mortgage securities, wiping out an earlier rally.

JPMorgan Chase, the largest U.S. bank by market value, lost as much as 1.2 percent after the website ProPublica reported that the Securities and Exchange Commission is investigating whether it allowed a hedge fund to improperly select assets for a $1.1 billion deal backed by subprime mortgages."

Quick Take

Little by little the fraud is getting leaked out to the public.  There are simply too many holes to plug at this point, and the public is finally learning that our financial system's accounting looks no different than Madoff's Ponzi scheme.

I'll be back with a full update later.

Sunday, October 31, 2010

Emerging Market Bond Bubble?

I'll be brief tonight because my 6 time Super Bowl Champion Steelers are on.

A couple of quick things.  First I suggest that you read Jeremy Grantham's latest named "Night of the Living Fed".  Jeremy is a legendary investor who is one of Wall St's all time greats.

It's a nice read.


Emerging market bond bubble anyone:

Bubbles are popping up everywhere as Wall St frantically looks for decent yield.  At this point, investors would buy a house full of hookers that had herpes if the place was yielding 8%.

Like all bubbles this one won't end well.

In the meantime:

Party on! 

Also, lets not forget to thank Mr. Bernanke and the Fed for turning our financial markets into one giant Ponzi scheme/casino as a result of their zero interest rate and other easing policies.

Futures and gold are both up again!  Don't forget, QE2 is only 2 days away and it's gonna be one hell of a party because all of our problems will be solved!!!  Let's Celebrate!