Saturday, November 20, 2010

It's Tee Shirt Time!!!

I figured I would have a little fun tonight. Everyone seems a little worn out from what I can tell.

In honor of the idiocy of America I thought I would make it a "Jersey Shore" night. I'll be the first to admit that I am one of the tools that watches this show!

I grew up on the Jersey shore, and I saw these people all the time so the "the shore" pretty much cracks me up.

Anyways enjoy:

No Grenades!

Snookie takes a punch:

Snooki vs. Angelina!

Sammi vs. JWOWW

We have a Situation:

Dirty little Hamster

Friday, November 19, 2010

TBTF=Dead Money

It was a quiet day on Wall St today which is surprising because Op-Ex usually creates a lot of volatility.

I had commented earlier in the week that the market looked fatigued, and today had the same feel to it.  I think everyone at this point is looking forward to eating some turkey and taking some time off.

The stress of our economic collapse has worn people out.  I think this is why shows like "Dancing with the Stars" and "Jersey Shore"  have gotten so popular.   People just want to want to watch "mind rot" on TV by the end of the day because the stress of everyday life leaves them with very little left in the tank emotionally.

Watching "Pauly D" scream "the cabs are here" on the "Jersey Shore"  is a perfect escape from reality that is badly needed as Rome burns:

I must admit that I find myself watching the same stuff at this point.  After all, who wants to turn on the news night after night and listen to how economically depressed our nation is?  

I used to be a political news junkie until I realized there was no difference between out two parties. 

Not anymore, I'll pass.  Maybe I'll watch this stuff again in a generation or two when this fraud is finally cleaned up.

As for the markets I wanted to put up the TBTF banking stocks.  Talk about dead money:

Here is BofA(the ugliest chart of them all):

The rest of them don't look much better:


JP Morgan:

Wells Fargo:

These stocks have continually been ignored during our recent 17% rally.  In fact, they have been dead money since May.

It's rare to see the market rally this hard without the financials participating.  

Thank god for the magic of QE2!

Anyway, I think it's something to take notice of and it tells me that this foreclosuregate issue isn't over.  Wall St has completely ignored this bunch for a reason.

Folks, the banks will never recover for decades.  I would put the odds at greater than 50% that they even survive this crisis.  They are broke, their balance sheets are shattered, and people look at houses right now the same way they do when they see a girl with a herpes outbreak.

The game is over in housing and Wall St knows it.  They have moved on.

It appears the next pump job is emerging markets.  I must have heard the word "China" 300 times on CNBC today. 

The street quickly moves on once bubbles burst.  If it wasn't for the government, the TBTF banks would be BK by now, and housing would be down 50% or more in most markets.

It's still going to happen.  All the government has done is delayed the pain.  Wall St is now desperately looking to create another bubble.

The problem is they are running out of places to blow them.  They have already blown stock, commodity, and bond bubbles in the past year as the Fed keeps rates at zero in an attempt to catch a Hail Mary and save the economy.

I don't see how this game of extend and pretend lasts much longer because they are running out of sectors to pump. 

Turkey day can't come fast enough for me. 


Thursday, November 18, 2010

"Real" Rates Continue to Soar

I just finished reading this brilliant article in Barron's.  I suggest that everyone takes a few minutes and take a look at it.  Here are some highlights:

"Against the backdrop of this uncharacteristic criticism of the U.S. central bank—and equally uncharacteristic defensiveness on the part of the Fed—the bond market had been in virtual freefall. The sharp, nearly-half-point rise in yields translated into steep price losses of 6% for the iShares Barclays 20+ Year Treasury Bond exchange traded fund (NYSEArca: TLT - News), a popular way to participate in the long end of the market. That would equal to nearly a 700-point drop in the Dow Jones Industrial Average, or 200 points more than the Blue Chip gauge's actual decline from its peak only a week and a half ago.

Yet, for all the inflation hysteria provoked by QE2, the bond market's severe back-up in the past couple of weeks reflected something else all together—a leap in "real" interest rates, that is, the level after deducting expected inflation. This perceptive observation comes from James O'Sullivan, chief economist at MF Global.

The real yield comes from the 10-year Treasury Inflation Protected Securities yield, which has risen even faster than the nominal note's yield. The difference between the TIP and the nominal yield is the "break-even" inflation forecast derived from the market, and that's actually rolled over as the rhetoric about the Fed's policy has heated up."

My Take:

After reading this I decided to do a little research to confirm that "real" rates have indeed been steadily increasing faster than treasuries.

I was able to pull the Novemeber data right from the US Treasury's site:

"November 2010

Date            5 yr        7 yr     10 yr    20 yr   30 yr

11/01/10  -0.34%  0.02% 0.49%  1.23%  1.40%

11/02/10 -0.34% 0.02% 0.49% 1.18% 1.35%

11/03/10 -0.40% 0.00% 0.50% 1.22% 1.43%

11/04/10 -0.48% -0.07% 0.44% 1.20% 1.47%

11/05/10 -0.47% -0.05% 0.48% 1.26% 1.52%

11/08/10 -0.45% -0.04% 0.48% 1.26% 1.52%

11/09/10 -0.31% 0.07% 0.58% 1.40% 1.62%

11/10/10 -0.37% 0.04% 0.56% 1.35% 1.58%

11/11/10 NaN% NaN% NaN% N/A N/A

11/12/10 -0.22% 0.19% 0.71% 1.47% 1.66%

11/15/10 -0.06% 0.34% 0.87% 1.68% 1.79%

11/16/10 0.00% 0.36% 0.87% 1.66% 1.75%

11/17/10 -0.04% 0.32% 0.84% 1.67% 1.76%

11/18/10 -0.06% 0.31% 0.83% 1.64% 1.73% "

Continued Take:

As you can see above, "real" rates have indeed risen sharply since the Fed initiated QE2. 

This tells us that bond market is indeed beginning to price in inflation which is why the Fed is starting to take so much heat.

Of course Bernanke and the Fed will get on bubblevision and tell all of us that deflation is the larger fear and they must QE in order to keep rates low.  The bond market obviously thinks this is utter bull****.

Treasuries rallied hard on the sell off  on Tuesday which relieved many bond investors.  However, as you can see above, the "real" rates didn't.  They merely paused for the last couple days, and the trend is headed in only one direction.......... Higher!

This disconnection between "real" rates and treasuries will not last long, and it tells me that the bond vigilantes are still busy behind the scenes pushing yields higher.

Keep your eye on this moving forward.  "Real" interest rates tell you what the bond market REALLY thinks in regards to inflation, and this recent trend suggests that they are starting to get very nervous about it.

Market "Nothingburger"

Nice piece here from Peter Schiff.  He calls the GM IPO a fraud and rips into Warren Buffet's Op-Ed piece in the NYT. 

Watching Buffet's fall from grace has been shocking for me personally.  I always had deep respect for the guy until the economic collapse.  I wrote him off as just another crook as soon as he jumped into bed with Goldman Sachs.

Buffet can take his "medal of honor" and shove it up his ass as far as I am concerned.

As for today's stock market rally I am not impressed.  We saw more distortions in the markets once again. Bonds should have fallen sharply today as investors piled into stocks. 

As you can see below, the 10 year barely budged as stocks rallied:

As a result of the price action in treasuries I take this rally with a grain of salt.  This was basically a GM pump job. 

Speaking of GM, I can't wait to short this stock into oblivion after the initial mania of the offering wears off.  As Schiff said above, the core issues with this company have not been resolved.  Cars are now selling at a much lower rate historically, and I don't think GM's restructuring was aggresive enough to allow this company to be profitable over the long haul.

I think I will keep it short today because today's price action is irrelevant to what's really going on over the longer term.

GM Disease

Happy days are here again this morning as CNBC gets ready to throw a GM party at 9:30.

I just finished vomiting after watching an idiot from our governemnt on Bubblevision talk about how unemployment benefits are a huge positive for the economy.

The trade this morning is definitely risk on.  Here are the gold futures:

Stock futures point to a sharp open as well:

My Take:

GM is in da house so it's time for a Detroit party today.  Does anyone else find it sad that an initial stock offering is one of the only things left that can juice this crooked market?

Given the recent market volatility in stocks and bonds I often wonder if this is the only way the Wall St can make money at this point.  As the the credit markets, credit worthy borrowers, and investing banking opportunites are all evaporating perhaps gaming the market casino is the only thing left for the markets from a profitability standpoint.

Don't be fooled folks: Wall St is a ghost town right now.  I hear from the frontlines on a daily basis about how bad it is.

The Bottom Line

I continue to remain neutral and hedged in the market.  I hold gold and a little silver as my "risk on" trades.  I am short tech and the S&P 500 via QID and SDS respectively as a hedge.

I refuse to buy stocks at these lofty levels.  I think the metals are a safer "risk on" trade when the market wants to move higher.

I also own a bit of TBT and plan on increasing this position down the road because I think treasuries are toast.  I am hoping the European instability take bonds higher so that I can find a better entry point for this position.

Enjoy the Detroit/GM rally.  I'll play some Eminem in honor of it:

Wednesday, November 17, 2010

So Now What?

I don't know what else to call it.

The market looks tired.  I know I am tired. 

The way I see it:  Everyone seems fatigued in all facets of their lives.  They are tired of being stressed out at work.  They are tired of being fleeced by the banks and the Fed on a daily basis. 

They are tired of not being able to trust anyone.  They are tired of feeling that the economic system could blowup on any given day  One day they worry about the bond market blowing up the system, the next day it's Ireland, the following day it's inflation via the Fed's QE program.

I think most people at this point people have just had enough. 

Like a child, the world is dying for some security and someone they can count on to protect them.  They currently believe nothing like this exists. 

Obama and CONgress look like a deer in the headlights and appear completely lost.  Their policy ideas change by the second, and the public has clearly lost confidence.

Wall St has no answers for the economy either.  They appear to only want to fleece anyone they can in order to keep the bonuses rolling in. 

In the old days, Wall St were deal makers.  They helped build America into what it is today.  Wait, let me change that, they helped build America into what it was.   Wall St used to be a productive part of our society for many decades. 

They would match Entrepreneurs with investors who were willing to take risk and the result was spectacular.  This nation became the most powerful one on earth in less than a century.

Like all great empires that fall, we fell victims to our own success.  We became fat, greedy, and lazy.  We decided as a nation that we would drive our economy on consuming instead of producing. 

This was all well and good as long as we were still productive and innovative.  For awhile it worked.  The baby boomers drove our economic engine as they consumed and innovated for most of their lives. 

At first, during the 1940's to the late 1970's, the growth was slow as the boomers grew from children to adults.  Our stock market reflected this.  The DOW moved higher but flattened out at around 1000 for the majority of the 1970's.

This all ended in the early 1980's as the boomers moved into their prime earning years.  As the economic recession ended in the early 1980's we created the perfect setup for prosperity. 

The following three decades were spectacular.  Wall St prospered in the 1980's when the financial engineering got started.  Junk bonds became all the rage until the regulators stepped in and put an end to it.  1000's of banks went under but the system was saved.  Thank god we had guys like Bill Black back then.  If we hadn't we would probably still be feeling the effects of that economic crisis today. 

The engineering continued in the 1990's as the tech bubble took this country to new highs.  We were innovating via technology and consuming like animals as the stock market roared higher.  Wall St rode the wave and made billions on .com IPO's.

The music stopped briefly during the popping of the tech bubble and 9/11 but it didn't last long.

Greenspan lowered rates, Bush instructed everyone to buy like drunken sailors, and before you knew it we were off to the races as the housing bubble took us back to the stock market highs.

The music then stopped for a second time in less than a decade as the housing bubble popped.  In the end, the financial engineering that gave us 30 years of prosperity ironically turned out to be the same thing that destroyed us.

So now what?

The whole country is all asking themselves the same question.  The financial engineering that has proved so reliable for 30 years hasn't worked this time.

We have spent $13 trillion on it this go around and it's gotten us nowhere.

The "innovators" have bailed out everyone, manipulated our markets, and taken interest rates to zero and nothing has happened. 

The financial tools that were so reliable on the way up have now failed us.

So now what?

The world has yet to find the answer, and the lack of answers has exhausted everyone in the process.

I think the world is finally realizing that there are no easy answers to our problems this go around.  This is a pretty depressing realization for everyone involved.

The world has been filled with hope since March of 2009 when the banks told us that things were getting better.

In reality they were not.  The only thing that was growing during this time was the fraud and the losses that accompanied it.  We were able to blow a few mini bubbles via stimulus during this period but nothing more. 

After a multiple trillion dollar spending spree the economy continues to barely have a pulse.

So now what?

Both the bond market and the people are demanding an answer to this question.  Washington is scrambling to find an answer, and it's becoming more and more obvious that they don't have the medicine to cure what ails us.

The only way this nightmare will end is exposing the truth no matter how painful it is.  The longer we avoid this the worse things are going to get.

Tuesday, November 16, 2010

All is Well...............

Isn't that what they keep telling us?

You need to travel over the pond to read the truth

"Almost 15% of US households experienced a food shortage at some point in 2009, a government report has found.

US authorities say that figure is the highest they have seen since they began collecting data in the 1990s, and a slight increase over 2008 levels.

Single mothers are among the hardest hit: About 3.5 million said they were at times unable to put sufficient food on the table.

Among those categorized as having "very low food security" - that is, those who experience the most severe food shortages - 28% of adults said that there were times in 2009 when they did not eat for an entire day because they could not afford to buy food.

Ninety-seven percent reported either skipping a meal or cutting the size of their meal for the same reason."

Debt Contagion Fears Rattle Wall Street


That's all I have to say about today's tape.  It would be easy to blame this sell off on the Eurozone's debt problems as Ireland's sovereignty hangs by a thread.

I think it's more than that.  I'll be honest:  Things are happening at such at such a lightning pace that it's hard to keep up with it all.  I think the Asian inflation and our muni issues are also putting tremendous pressure on equities.

Take a listen to the brilliant Chris Whalen as he discusses the state funding crisis:

My Take:

Chris nails it.  The only answer here is massive debt restructurings which means haircuts for everyone involved.

If you are a state worker and you have been promised a $60,000 a year pension you are basically going to end up getting screwed.  Start saving money now because you were basically sold a bill of goods when they promised to pay you 80% of your salary for the rest of your life after only 20 years of service.

The math of this insanity never made sense from the beginning and it wasn't sustainable.   It's now time to pay the piper.

State munis continued to sell off hard today(look at the chart in my last post).

Treasuries on the other hand rallied huge as the market cratered:

My question here is why didn't the munis follow treasuries?  Has the bond market started to price in state defaults before a government default.  Perhaps the bond market now believes treasuries will be the "last paper standing" as the Euro PIIGS debt turns into trash?

Don't get me wrong here, although I think the stock market currently has many problems, the European debt crisis is clearly front and center right now.

The way I see it:  Ireland could be 2010's version of "Lehman Brothers".  The Eurozone is already saying that it's "contained".  Yeah OK, heard that one before.

I just finished listening to the Brussell's EU news conference.  Ireland continues to refuse to request aid from the EU although they are being pressured to do so.

I am sure Ireland is hesitant because they know that you basically "sell your soul to the devil" when you take a bailout from the central bankers.  Just ask Greece.

If Ireland refuses the bailout then the debt contagion risks are very serious.  Yields could start blowing out on all of the PIIGS if Ireland says "no thanks" because the governments of these nations would then run out of funding in no time because the majority of their revenues would be needed to service all of their debt as a result of the surging borrowing costs.

The Bottom Line

There simply is not enough money left to cover the debts of the world:

California doesn't have the money, Greece doesn't have the money, Ireland doesn't have it.  Neither does the US, Japan, Italy, Spain, or the UK.  Germany won't have it anymore in the end because they will have to bailout their penniless neighbors.

Everyone is basically broke except for China.

So what you need to do in these situations is to try and figure out who goes broke last because risk is relative.  

The US Dollar is rising because it looks safer than the Euro because it appears Europe will blow before the US.  This should temporarily take care of the Asian inflation problem.

The problem is, in the end, we will all be forced to deal with our insolvencies because there is no free lunch.

The effects of this will be painful and multifaceted:  Massive entitlement reforms, haircuts via debt restructurings, lower standards of living, bank insolvencies, and massive financial losses on everything from pensions to houses.

The stock market will eventually reflect this "new normal" as PIMCO likes to call it.

Don't be fooled folks, the restructuring of all of this is a matter of WHEN not if,  and I don't expect the process to go smoothly.  There will be a lot of social chaos in between as these issues are forced to be dealt with.  Let's just hope wars don't break out when Judgement Day arrives.

Disclosure:  No new postions taken at the time of publications.

PPI/China Disappoint Wall St

Stocks headed into the day spooked after the Chinese markets experienced a viscous sell off last night.

The PPI report via the BLS failed to calm down investors.  Prices of things we don't need feel .6% which was way above what analysts were expecting. 

At the same time, prices surged on food and energy and other commodities. This is going to really start pressuring profits as companies input costs skyrocket.

Meanwhile in the credit markets, bonds are rallying which isn't a surprise given the violent 2 day sell off we say the last two days.

California munis however continue to free fall:

Stocks are down triple digits on the session following the PPI and China. 

There are also reports that Ireland will be announcing a statement regarding their financial crisis later today.

Get some popcorn for this one. 

Crazy times my friends.

Back later.

Monday, November 15, 2010

Why Debt Matters

Beeen saving this for the proper time.  A MUST watch from Kyle Bass who is one of the best in the biz on why debts matter:

Have the Bond Vigilantes Finally Arrived?

It sure looks like it.

Bonds were routed badly today as the bond market continues to sell QE2.

The trends are pretty frightening.  Here is the 10 year bond going back to last week when QE got started:

Here is the 30 year:

The market took notice as the bond sell off accelerated late in the day, and gave up all of the gains made during the trading session:

My Take:

It's pretty clear that the bond market has had enough of the Fed's antics.  The ten year yield moved up 1.5 points today!  That's about as violent as it can get. 10 year yields are now approaching 3% after sitting at 2.4% just a few weeks ago.

Since mortgage rates are basically based off the ten year bond, you can assume that rates will be up about a half a point.  This is a blow that the crippled housing market cannot afford to take right now.

Ben Bernanke told us that QE was being done to ensure that rates stayed low. 

The market has responded by moving in the exact opposite direction. 

Essentially, the Fed's QE policy has been completely rejected by the markets. 

Folks, if the Fed loses control of the bond markets things are going to get real ugly very rapidly.

The inflationary effect that QE has had on commodities despite the recent pullback in commodities is another headwind that faces bonds. 

The increased inflation is forcing bond investors to demand higher yields because they are afraid that the QE inspired inflation will wipe out their gains. 

As I have said before, if you own a bond that yields 3% and prices rise 6% annually due to inflation your bond investment is losing 3% in real value each year.

Something else that is really concerning is the sell off in the muni markets(especially California).  Take a look at Pimco's Cali bond fund:

Something is going on folks and it isn't pretty.  People are running away from fixed income in droves.  This smells really bad.

If bond vigilantes are back and decide to pull a "Greece" and take interest rates rise to near double digits you can be sure that things will never be the same here in the good ole USA.

The speed in which this is all going down is flat out frightening.  The violence of the sell off has me thinking that the vigilantes are indeed back.  If this is really true then hold onto your seats!

I say this because the vigilantes are usually ruthless when they have seen enough when it comes to spending.  They have a tendency to relentlessly take rates higher until the spending stops.  The Fed in response will have no choice relent and slash spending because the bond market dwarfs them in terms od size.

If this is what is going down then you can expect to see another financial collapse because the government will no longer be able to paper over the losses via government spending.

The Bottom Line

We could be reaching a tipping point in a matter of days or weeks.  If you are long stocks via the "easy money Fed trade" then I think you might want to reconsider.

We will see a deflationary collapse if rates continue to rise like this because the fraud and the losses that accompany it will be exposed.  It's too early to call this of course but the trend has definitely been set.  It remains to be seen as to whether or not it continues.

If we start getting close to 4% on the 10 year we are in DEEP trouble because we have so much debt that we need to service.

One thing is clear trend or no trend:  Since QE started, some extremely large investors are bailing out of our credit and muni markets.Someone doesn't like what they see which is unsettling to say the least. 

Ben and the Fed now have a decision to make:  Do they continue QE and get into a potential brawl with the bond vigilantes or does he possibly end the program in the hopes that the bond market will settle down and keep rates low.

Has judgement day arrived?  I'm afraid will know soon enough.

We're Not Gonna Take It!

The bond market keeps the pressure on.  The 10 year is down again so far this morning:

So far QE has been a total failure.  We are closing in on a 3% 10 year.  Mortgage rates should rise pretty sharply this week as a result.

This should be great for housing...NOT!!!

Come on Chicago...KEEP SELLING TREASURIES!!!  Put an end to QE!  Let's not take this crap anymore!!!

Sunday, November 14, 2010

What's the Fed's QE Exit Strategy?

Excellent stuff below from Euro Pacific Capital's Michael Pento:

My Take:

QE2 is the worst thing I have seen yet from the Fed and Pento does a great job destroying it.

The best point he makes above is about the exit strategy. I have the same question:  How do we ever stop buying treasuries without imploding the bond market?

So how did we get here?

The Fed's first answer to our debt problem was to increase our treasury issuance's in order to fund our bailout nation.  This worked for a bit until the bailouts got out of hand as our spending addiction spiralled out of control.

When the treasury issuances exploded in terms of size we started running out of suckers to sell these bonds to. 

Seeing that the game was about to end, the Fed implemented QE2 in a desperate attempt to keep the credit bubble game going. 

The way I see it, this was a criminal act because the Fed basically made the US taxpayer the ultimate sucker/bagholder as they began using our money to buy bonds that no one in the world had any interest in purchasing.

So Pento asks a very logical question:

How does this process ever stop?

If the demand isn't there for treasuries and we pull out a few years from now what happens to the bond market and interest rates?

How is this process sustainable if the Fed backs out?  The demand for this paper isn't there today, and it certainly won't be there tomorrow or 5 years from now because the world is broke up to their eyeballs in soveirgn debt.  Their fiscal situations are as bad as ours if not worse(Japan, PIIGS anyone?).

We are going to be the largest holder of treasuries in the world by 2011.  Can you imagine what the credit traders are going to do to the bond market if the Fed comes out and says QE is ending and then starts selling their holdings?

Interest rates will be in double digits almost instantly. 


Because this is a PONZE SCHEME.  The Ponzi only works as long as you can keep finding suckers to keep the game going.

We have now ran out of suckers so the Fed created QE, and in the process, made the US taxpayer the final sucker before this whole thing blows up.
This is one gigantic Madoff courtesy of the Fed.

The Bottom Line

The answer to Pento's question is an easy one.  The Fed can never stop QE'ing because the Ponzi/bubble will pop.  The only way this ends is by us stopping it via the bond market, dramatic budgetary reform, or a currency panic.

Greenspan was on "Meet the Press" this morning preaching the same thing:

"The United States must move to rein in its massive budget deficits or it faces the risk of a bond market crisis, former Federal Reserve Chairman Alan Greenspan said Sunday.

"We've got to resolve this issue," Greenspan said of the ballooning U.S. debt levels"

The idiocy of QE makes me speechless.  This is "the last hurrah" folks before this whole thing comes crashing down.

I really hope the people that are responsible for this are held accountable in the end because this is going to be one of the worlds greatest tragedy's.

The Fed has backed themselves into a corner at this point and they have no way out.

I hope the bond market continues to sell off treasuries until the Fed is forced to take action and stop the QE insanity.