Saturday, December 11, 2010

Friday, December 10, 2010

DC Chaos: Bernie Sanders Blows a Gasket

It was a slow day in the stock market despite the chaos we are witnessing in Washington.

Bernie Sanders basically blew a gasket on C-Span this morning.  I thought the old guy was going to pop a clot at one point as he flipped out on the TBTF banks, tax cuts, and the rest of the villains on Wall St.  We still have no tax deal and it's now only a matter of days until the cuts expire.

By the end of the day, Obama basically bailed on the whole fiasco and handed the baton over to former President Bill Clinton.  From a PR perspective this is another disaster for Obama who seems like he is in way over his head politically.

Leaving the scene in the middle of a crisis hardly looks presidential.  Obama once again looks like weak polictial ametuer in front of the world.  When the kitchen got too hot it's obvious that Bubba ws called in to take the heat because it's clear Obama can't handle it.

The bond market didn't like any of this as the 10 year sold off all day.  The futures continued selling after the close:

The Bottom Line

The 5 year yields also rose sharply today as they closed at a shade under 2%. 

We should be in for a helluva week next week as the big showdown in DC continues.  The markets were surprisingly quiet despite the theatrics in Washington.  It looks like stocks are taking a "wait and see" approach.

Nonetheless, Bubblevision was busy all day rolling out one retard out after another telling us to buy stocks for next year.  Several analysts also came out with bullish calls on the markets 2011.

Should be surprised?  2010's gains are locked in for the most part.  Wall St's pump machine now must get focused on 2011 as they begin working on next years fat cat bonuses.

Great idea guys!  Going long from here after an 80% bounce from the lows in 1-1/2 years sure looks like a good idea to me...NOT!

I will be the first to admit that I missed out on a nice gain the past two years in stocks even though I profited along the way with metals and bonds.  However, it's only a gain when you sell and at some point Wall St is going to start taking profits.

The Fed can only string this economic disaster along for so long before they destroy the dollar and Wall St knows it.  Their printing policy has already created huge inflation in China, massive deficits in the USA, and sent gas prices soaring past $3 a gallon in most states.

No one can no for sure when the music stops because Ben can do a QE 3,4,5, and 6.  However, this can only continue for so long before the currency is destroyed.

Don't be fooled, when the printing press no longer works this whole house of cards is going to come tumbling down.  Trying to time when this happens is a fools game.

Have a great weekend and I'll see you next week.

Thursday, December 9, 2010

Time to Take a Pause?

Let me start things with a chart of the S&P of the past 12 months:

My Take:

I think this chart is very interesting.  As you can see above, we saw a huge rally this fall as the market roared back to it's post crash highs.  What's interesting to me is it looks like the market is having a hard time breaking through to the upside since getting back up here.

Could we be hitting an inflection point where the trend reverses?  It's to soon to tell, but what I can say is if the longer the market continues to stall up here the higher the risk is to the downside.

I think the market is realizing there are many questions that need to be answered before marching higher:

Are the bond vigilantes going to take rates higher?

Are rates rising due to a strong economic recovery or rising deficits?

How bad will housing get hit if rates keep heading north?

What will this do to the banks balance sheets?

Will QE cause inflation or will the deflationary forces of a bursting credit bubble eventually win out?

Will unemployment continue to worsen?

If unemployment continues how will this effect the consumer?

Can Europe contain the Sovereign debt crisis?

If it can't will the Euro survive?

Will QE destroy the US dollar?

Can the Fed react fast enough if inflation hits as the currency weakens?

Take Continued:

Can you blame the market from taking a pause here?  The market seems to be running on fumes at this point given the risks I described above. 

I loved the two tech tickers below that discuss some of the same worries:

Take Continued

I couldn't agree more with the guests above.  QE2 is "criminal" and the fact that Bernanke feels he needs to go on 60 minutes and sell it makes me extremely uneasy.

Bernanke's point about being 100% in control of this situation is borderline delusional. 

How could anyone be 100% certain of anything given the risks above?  Some of the most brilliant hedge fund managers quit the game because the market became so uncertain.  How can this guy get on air and actually say something like this?

I mean just look at their history as the commentator above brilliantly points: The Fed has always been late in reacting to key "inflection" points over the past 15 years.  Their biggest mistake was holding rates down for too long which then created the housing bubble.  This will likely go down in the history books as the worst policy decision in history.

In fact, after looking at their history, I am 100% sure that they will be too late to react when this all blows up in their face.  God help us all when this happens.

The Bottom Line

The one thing you can count on right now is uncertainty.  The Democrats have now decided to not go through with Obama's idiotic tax cut deal(thank god). 

Let's hope the Democrats have enough balls to hold out long enough for a better deal.  I must admit I am skeptical because in their eyes they can't afford to not do anything.  The Republicans have time on their side because the clock is ticking and something must get done now.

If this thing gets strung out without compromise then my guess is the Democrats will end up eating the whole **it sandwich at the 11th hour before the critters go home for the holiday.  We will see what the bond market has to say if this is how it plays out.

In the meantime,  cash is king until we get more clarity around the economy.   As "the credit trader" told me last week: "Now is a time to sit on capital because bigger opportunities lie ahead". 

Remember, we are in the middle of a housing crash and we still have a long ways to go especially if rates keep rising.  This is the 1000lb gorilla in the room that everyone keeps trying to ignore. 

Every now and then he rears his ugly head, beats his chest, and reminds us how bad it really is:

Wednesday, December 8, 2010

Fight of the Century: Washington DC vs. The Bond Market

Somedays I can't figure out which polical party I despise more.  Today it's an easy answer:  The Republicans.  I used to be one years ago.  The Republicans used to stand for fiscal conservatism, smaller government, and low taxes.

This platform was all well and good provided the economy is sound which is why I was a big fan at the time. 

My how things have changed.  When I look at the Republicans today I see a party that lost their way.  The party has basically been split in two. 

On the one side you have the tea partiers who are pushing for deficit reductions and smaller government.  On the other hand you have the greedy oligarchs who demand "big" government style bailouts and low taxes for the rich.

The problem here is although they have common goals and interests, their fundamental belief systems are polar opposite from one another.

As a result, they have different views on how the economy should be repaired.  The tea partiers believe that the government, big bailouts, and spending all need to be slashed in order to save the taxpayers from the government.

The oligarchs have a different view.  They could care less about the taxpayers.  They want to be bailed out by big government at the expense of the people, and they don't want their taxes increased while we clean this mess up even though they are the ones who caused it in the first place.

Tax Cut Crisis

So here we are hanging on the edge of an economic cliff once again as the Republicans and the Democrats begin their showdown over tax cuts.

Obama is being slammed(and rightfully so) by the left for caving in too hard to the Republican demands of tax cuts for everyone in exchange for unemployment benefits.  Obama looks weak here and it's even more pathetic looking when you realize he still has the house and senate. 

Why in the hell is he not pushing back and at least demanding that the ultra wealthy($1 million plus annual) see a tax increase.?

This is no "deal" for the Democrats.  The Republicans have already admitted that they are willing to pass a bill for extended unemployment benefits without a tax cut deal.

Obama looks awful here and he might find himself getting thrown under the bus by the democrats.

Lest be honest here folks, the rich need to be taxed.  Buffet has said it and so have multiple other million and billionaires.  It's would be absolutely disgusting to not increase taxes on people making over $1 million a year.  The fact that the Republicans have drawn a line in the sand over this is repulsive.

There is middle ground here people and it's not letting the rich walk in exchange for unemployment benefits.   This would be highway robbery for the wealthy if this is how the deal gets done.

The Republicans need to stop listening to the people who are lining their pockets with gold and do what is right for the country. 

I understand the Tea Partiers have no say on this because they aren't in office yet but I have to ask:  Where are you guys?  Why haven't you spoken out on this?  Where is Rand Paul?

Have they been bought and paid for before by the far right elite before even getting into office?

Bondzilla Sits and Waits

Meanwhile as the clowns in DC continue to fight like retards the bond market continues to rumble:

Things played out pretty much as I expected today.  We saw a panic sell off into the auction and then a nice rally in bonds as the PD's took profits.

Nonetheless, bonds still were down on the day and 10 year now sits at 6 month highs from a yield standpoint.  Treasuries are down a bit after hours but have steadied.

The Bottom Line

The bond market seems prepared to battle Washington over the deficit issues and the tax cut issue appears to be taking center stage.

I think if the left loses and the agreement stands as it is without any tax cuts for the wealthy then I think the bond market is going to have a hemorrhage. 

Ironically , if this is how it goes down, Bondzilla would be set off by the Republicans this time.  Historically it's been the big spending Democrats that have always woken up the bond market.  Clinton anyone?

IMO, the Republicans have it wrong because they are trying to use policies that work well when times are good and the economy is rolling. 

What they need to realize is we just finished a 25 year spending binge that has left us with trillions in debt.

Taxing less and spending more simply isn't going to cut it during times like these.

Ronald Reagan must be rolling over in his grave as he watches what has happened to his beloved party.

Remember, when things were bad economically under his watch, Reagan took down most of Wall St as he let Volcker fix the economy using higher interest rates in order to beat inflation. 

Great leaders often have to do unpopular things in order to do whats best for the country.  This is what makes them great.

Unfortunately, Washington looks both broken and leaderless at a time when we need leadership more than ever as we head into the toughest economic period this country has seen since the 1930's.

Jon Stewart Nails it

A little humor this morning.


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The 10 year bond sell off is continuing this morning but it's not as violent. This could all change after the auction results this afternoon.

I suspect the auction will go OK as the PD's play the old bond game as they sell bonds heading into the auction as they begin gobbling up the new ones at the auction at lower prices.

If the auction goes smoothly they will then turn around and sell them at a sweet profit as treasuries rise as a result..

There is too much at stake here for it not to go well. If we see a bad auction then hold on tight because things could get really ugly:

Tuesday, December 7, 2010

Jim Rogers: Let Them Fail

I thought I would put up this excellent interview of Jim Rogers as I sit here late at night watching the bond futures sell off again.

The Bearded "money printer" once again gets called out by Mr. Rogers who argues that Ben only knows how to do one thing and that is print.

It's going to be interesting watching the bond market tomorrow.  The 10 year auction should get announced at 1pm.  If this auction bombs tomorrow then the wheels of our economy could most definitely start falling off.

I am not expecting this to happen, but I find it surreal that we are basically only one bad bond auction away from a potential bond market collapse. 

The Fed is going to look around one morning and find that they are the only bidders at the bond auction as the world slowly realizes that the gig is up and decides to "walk away" from our bonds.

I will be here tomorrow to report the fireworks.

The Race to the Bottom

Has Bondzilla finally arrived?
By the looks of the 10 year at the end of the day you have to wonder:

That's a parabolic move folks.  At one point the 10 year had sold off by two points. 

Just think about that for a second.  Ben tells us on Sunday that he might consider further QE'ing and the bond market has responded by heading in the opposite direction with interest rates.  This is a complete rejection of Ben's thesis.

He flapped his gums for 20 minutes on Sunday night and all he got was a one day bounce yesterday!

I think the $1 trillion tax cut/unemployment spending spree might end up being the straw that breaks the camels back in the bond market.  You can only go to the well so many times before it runs dry.

As the bond market was telling Washington to go pound sand: Obama decided to step out in front of the cameras in the afternoon and put his foot in his mouth as he talked about the solvency of the United States of America.  That did a lot for market confidence idiot.  I swear, this guy couldn't lead ants to a picnic.

Folks, you can't make this stuff up.  I thought I would never see a president as inept as Jimmy Carter.  Boy was I wrong.

Stocks sold off in the afternoon as the chaos seen in DC and in the bond market started taking it's toll.

The rising dollar didn't help stocks either.  You might ask yourself:  Why would the dollar be rising after the announcement of last night's possible agreement on another $1 trillion USA "Ponzi" style spending spree.

Well here is your answer:

"The euro slumped to $1.3304 at around 2200 GMT from $1.3415 late Friday.

Against the Japanese currency, the dollar edged up to 82.67 yen from 82.58 yen on Friday.

Eurozone finance ministers meeting in Brussels were facing deep disagreement over what to do next to tame the debt crisis that earlier this month claimed Ireland as its latest victim and now threatens to spread.Analysts fear that Portugal could be next in line for a bailout, with Spain coming into the firing line.

"Not for the first time, the euro’s bounce is being undone by conflicting messages from eurozone politicians, with calls for an expansion of the temporary bailout facility and a creation of a single eurozone bond rejected by German Chancellor (Angela) Merkel," said Vassili Serebriakov of Wells Fargo."

Quick Take:

Awesome!  Maybe both of us can collapse at the same time!!!  Everyone yell "BANKRUPT" on the count of three!!!

The Bottom Line

The rising dollar sent a bit of a message today.  The currency market is saying we're screwed but Europe is screwed worse.  However, the bond market threw a definite temper tantrum over what we are doing on this side of the pond.

Folks, if yields begin to pull a "Greece" it's over.  I was reading that our annual deficit will equal 15% of GDP if we approve the tax cuts.  Percentage wise this would put us AHEAD of Greece from an annual deficit vs. GDP.

I think the bond market has had it with our government, and the European situation doesn't look any better.

The world's central banks are juggling way too many balls at once, and it's only a matter of time until they drop one.

If rates start to unwind housing will be officially be declared dead, and the death of the banks will soon follow.   Both are already on life support as it is.

Silver decoupled from gold today and unwound pretty violently.  The whole silver trade is looking scary to me at this point given all the talk about JPM's massive short.  I feel like there is massive speculation on both sides of this trade, and I usually don't like to be involved in situations like this because one side usually ends up getting clobbered.

I am going to rethink my silver position over the next day or so.  I will stick with gold as a currency hedge.

Overall, I think it's a race to the bottom at this point.  It seems like the question we should be asking ourselves is what blows up first? The US bond market or Europe's sovereign debt contagion.

Something tells me we will know soon enough.  The Fed is increasingly looking impotent at this point as the numbers from a debt perspective begin to defy belief.  

You could juice Bernanke up with 15 bottles of Viagra and I still don't think he could keep this debt bubble propped up.

Watch the bond market tomorrow.  We have a 10 year bond auction.  I wouldn't be surprised to see the Fed try and juice up this auction with a nice BTC so don't get fooled. 

Stay Tuned! 

Free Lunches Do Exist!

Welcome to America:  The land of the free lunch.  It's a land where no one ever sees tax increases.  Are you unemployed?  Don't worry the government will send you a check so that you can pay your bills. 

Are you worried about investing your money in stocks?  Don't worry, in America stocks only go UP!  Just buy them and forget about them.  In fact, this is the only country in the world where insolvent stocks thrive.

You see, here in America you get bailed out if you are insolvent by the government so their stock prices just rise.  Just remember, don't worry, Uncle Sam has your back.

Are you worried that America might build up massive deficits as a result of such spending policies?  Forget about it!   We don't worry about deficits around here.  We just spend spend spend.  The government buys our treasuries so they can never rise to a level where we can't afford to service our debts.

You may ask yourself:  "God, does it get any better than this?".  The answer is..NO!  In fact, it's so awesome here that you can legally have unprotected sex.

If you have the opportunity to come to America you gotta TAKE IT!

OK, Sarcasm off before I barf.

The Bottom Line

The easy money game is still in full bloom after last nights deal to extend the tax cuts and extend unemployment benefits.  The total cost of this program over 2 years is estimated to be about $1 trillion and bond market didn't like it one bit this morning.  Here is the 10 year:

Gold initially loved the news but has pulled back since the open.  Do I even need to explain how stocks reacted?  You know what happens when they get more fast money.

I have things to do this morning so I gotta roll.  I'll leave with this interesting exchange between Steve Forbes and Rick Santelli regarding the absence of the bond vigilantes.

You can tell that Rick is very frustrated with the Fed's bond purchasing program because it's preventing the normal bond market forces from doing it's job.

Translation:  The bond market would be taking rates much higher as a result of our insane spending policies if it wasn't for the Fed buying everything in sight:

Monday, December 6, 2010

Mr. Bernanke Speaks

Busy day today but I wanted to throw this up.  I will be back later tonight.

Mr. Bernanke flapped his gums last night and the market reacted by flocking to the metals after hearing him say that more QE isn't out of the question.

All confidence in currencies is slowly but surely being lost as the central banks print them into worthlessness.

Will it really matter what the market does moving forward if the dollars it's priced in aren't worth anything?

Silver broke above $30 for the first time in 30 years before pulling back.  JP Morgan is probably having a panic attack as they watch their massive short position get smashed:

Sunday, December 5, 2010


Missed this one on Friday.  Hat tip to The Market Ticker for catching it.

Great stuff here from David Stockman who is a guy everyone should listen to.  He was basically Ronald Reagan's financial quarterbackback in the early '80's.  His interview starts at the 3:20 minute mark if you are short on time.

David explains why the unumployment rate isn't going to turn around anytime soon, and also rips into how ridiculously the market is currently trading.