The Housing Time Bomb

Will the Greeks Agree to Austerity? Sure, When PIIGS Fly!!!

2011-11-03T19:21:00.000-07:00

Sometimes I just have to chuckle when I read about our financial markets. Somehow/Someway the markets always find a way to get even more ridiculous than I thought they ever could.

Stocks soared today as word got out that the Greeks were cancelling their referendum on the bailout/austerity package that they had accepted from the Eurozone.

Germany and France happily breathed a HUGE sigh of relief on the news. I am impressed with the worlds central bankers on this one. They somehow frantically pressured Greece into cancelling their planned referendum vote. I'm not buying that it came down to Greek politics. My guess is the Greeks had a gun pointed at their head by the European bankers.

You might ask: Why would France, Germany, and the rest of the EU absolutely freak when they heard this plan was going to be voted on by the people?

Ummmm.....Maybe because the plan completely pillages the people of Greece??

As I like to say, the devil is in the details and here are the details of the austerity plan.

Let me ask all of you a question before you read the summarization of the plan: If you lived in Greece would you vote for this???:

"Income tax threshold would be lowered from €12,000 (£10,300) to €5,000 (£4,300)

Retirement age would be raised from 61 to 65

VAT would rise from 19 to 23 per cent

Higher property taxes

Monthly pensions above €1,000 (£860) would be cut by 20 per cent

Excise on fuel, cigarettes and alcohol would rise by a third

To qualify for a full pension people would be required to complete 40 years work

Retirees aged under 55 would lose 40 per cent of their pensions over €1,000 (£860)

Public sector wages would be cut by 20 per cent

Employees of state-owned enterprises would have their wages cut by 30 per cent

A cap would be introduced on wages and bonuses

30,000 civil servants would be suspended on partial pay

All temporary contracts for public sector workers would be terminated.

Just one in 10 civil servants retiring this year would be replaced

New levies on household incomes of between one and five per cent."

My Take:

I highlighted some of the details that were the most harsh. Folks, let's just cut to the chase, this just isn't gonna happen. I spoke to "The Credit Trader" about this today and he explained it best:

"Jeff, Greece will fail because the WILL to implement such evil/harsh measures on the people in Greece simply isn't there".

I asked him how he thinks this plays out and this was his answer:

"I see it going one of two ways. Greece will reject the austerity plan and head back to the Drachma.

OR

Greece will "play the game" and agree to the terms of the the austerity plan and then just never implement them."

He finished with this:

"Either scenario will end up with Greece collapsing. The politicians are either going to take their medicine now and head to the Drachma or they will try and play "kick the can" until the EU stops funding them when they refuse to comply to the terms of the bailout.

I couldn't agree with his assesment more.

Of course the stock market loved the news. The bulltards took stocks to the moon the last two days on the hopes that Greece is now "fixed". What they don't realize is Greece can't be fixed. Greece is broken! Greece has about as good a chance of being fixed as Kim Kardashian's Marriage.

Just think about it for a minute. Who in the hell would agree to the terms above without revolting in the streets. Citizens in third world nations are treated better than this!!!

The idea that the market is buying this Greece BS is simply amazing to me. I'll say it now and I'll say it again:

Greece is Toast with a capital T.

The Bottom Line

Stocks look very extended to me here. Keep in mind we had about a 20% rally in October before getting pounded early this week. This last move reminds me a lot of the Bear Stearns rally in 2008 right before stocks collapsed.

Remmber all: HOPIUM only can last for so long before the effect of the drug begins to wear off. Reality and the fundamentals ALWAYS matter in the end folks, and it's no different this time.

So what happens next?

The bond markets already understand that Greece is toast so they will immediately begin focusing on Italy and the rest of the PIIGS. In fact, it's already happening when you look at the Italian 10 year bond:

As you can see above, we are once again nearing the recent all time highs when it comes to 10 year yields. Italy cannot afford to finance itself with 10 year yields sitting over 6%.

Watch European bonds like a hawk in the coming days.  The market knows that the EU/ECB cannot afford to bailout Italy because the size of the bond market is close to $2 trillion Euros. As a result, the bond traders went right to Italy from Greece because the markets love to go for the jugular. I mean why screw with some irrelevant country like Portugal when you can go right for the throat in Italy?

That being said, I do expect to see the yields in the other PIIGS to follow suit as the fears of contagion settle in.

Let me repeat again what I said up above: As this crisis intensifies focus your intentions on the credit markets instead the stock markets. Bond traders are a much more sophisticated crew of investors. They almost always get it right whereas the stock market often gets it wrong...2008 ring a bell?
So what am I doing to prepare?

Buying gold and miners again because I expect a printfest by the ECB as they try and stave off a massive bond contagion. I also remain in some high divvy energy/tech stocks. EXC, D, and Microsoft are my largest holdings but let me stress that they pale in comparison to my cash holdings.

The volatility in stocks has made them difficult to short so I am mainly on the sidelines except for a few short hedges. Recently, I have increased the size of my short holdings after the October run up via some longer term option plays on the SPY that I scaled into that expire in March.

I also currently hold some SDS, QID, and TWM because I am expecting a sharp pullback thanks to Europe. I will sell these 3 positions on any large move down. I am willing to take some pain on these if I'm wrong because it's impossible to time the markets. If I eat some decay on these short ETF's due to the volatility then so be it.   Like my gold holdings, these short positions are very small in relation to my cash holdings.

All in all be careful out there folks. These trading robots are wicked fast and they trade the news faster than the speed of light.   Trying to compete with them via day trading is a losing battle unless you own a quant yourself.

If the jobs number beats tomorrow we could see another meltup if Greece behaves.

In the longer run buyer beware and own some hard assets.

Disclosure: No new positions were taken in any of the names above at the time of publication.

Hey OWS!...Need Help Understanding the Issues?

2011-10-16T18:24:00.000-07:00

Are you frustrated and feeling helpless but don't understand why?

Award winning economist John Hussman has just given you the answers this weekend. Pass this along to people heading down to Wall St who don't really understand the issues. Please also use this as your bible as you continue to working on crafting your message.

If you can only read one thing this week then click on the link below and read this. When you are finished wait 5 minutes and then read it again. It's that important.

You have gotten the world's attention. Moving forward it's going to be IMPERITIVE that you send the correct message while the world listens. I have highlighted the areas that I think are important.

I hope this helps:

I'll link this here and again down below:

"Talking Points for the "Occupy Wall Street" Protesters
We're all for a good peaceful protest. As long-time readers know, I've been an adamant critic of the bailouts of mismanaged financial institutions, as well as various illegal policy actions that have been pursued by the Fed since the financial crisis began in 2008. Undoubtedly, there is good and bad on Wall Street, and we know a lot of smart, well-meaning financial advisors who go to work every day with the goal of improving the financial security of their clients, who do careful research, avoid speculation, and provide a service to others through their profession. A functioning economy needs to allocate capital effectively, and there Wall Street can be essential.
Unfortunately, over the past 15 years or so, the basic function of the financial markets has been corrupted into what I've grown to view as a self-serving carnival of speculation, where many participants are interested in nothing except getting the next rally going at public expense, regardless of how badly market signals are distorted, how recklessly capital is misallocated, or even whether what they do has any positive effect on the economy or the country (some of the sleazier ones even have their own shows on basic cable).

There is no single source of this transformation. Part of it is a remnant of the dot-com and technology bubbles, when market valuations moved to nearly triple the historical norm, and investors began to view perpetual market advances and high returns as a birthright. The subsequent decade of zero overall returns for the stock market largely reflects a reversion to more normal (but still cyclically elevated) valuations.
Another part of this transformation is due to the activist policies of Federal Reserve, which has continually attempted to short-circuit every instance of short-term economic discomfort by distorting the menu of investment returns (e.g. zero interest rate policies) in an effort to provoke investors to accept fresh speculative risk. Ironically, the long-term effect of distorting market signals has been to drive good, potentially productive capital into wholly unproductive uses - the housing bubble being a prime example. As a result, real U.S. gross domestic investment has not grown at all since 1998, and the portion financed by domestic U.S. savings has collapsed, so much of the new capital we've accumulated is owned by foreigners.
Undoubtedly, one of the greatest rhetorical victories of Wall Street has been to successfully plant in the minds of the public the idea that some financial institutions are simply "too big to fail," and that the "failure" of "systemically important" institutions will result in global financial meltdown and Depression. The reality is much different.
So, with the hope of providing the Occupy Wall Street protesters with some talking points, what follows are some perspectives that might be useful in framing the issues that we are facing as an economy.
1) "Failure" only means that corporate bondholders don't get every penny
Background: When Wall Street talks about the "failure" of a bank or other financial institution it means the failure of the company to pay off its own bondholders. It does not mean that depositors, counterparties or other bank customers lose money (See Recession, Recovery, and the Ring-Fence ). A bank is essentially a big portfolio of assets, about 70% which are typically financed by depositors, customers and other liabilities, about 20% by the bank's own bondholders, and about 10% with the capital of the bank's stockholders. In a typical bank "failure," the bank is taken into receivership by regulators, the liabilities to stockholders and bondholders are cut away, the remaining package of assets and liabilities is sold as a single entity to some other firm (or can be reissued to investors as a new company), the old bondholders get the proceeds of that sale, and the stockholders are wiped out. When investors willingly take a risk, and buy the stocks and bonds issued by an institution that goes on to mismanage its business, this is the appropriate outcome. Depositors and customers typically don't lose a penny (See the section on "How to Restructure A Major Bank" in Not Over By A Longshot ).
If public funds are provided during a financial crisis, and it cannot be clearly demonstrated that the institution is solvent, the funds should be provided post-failure, as senior loans to a restructured institution where shareholders and existing bondholders have already been subject to losses. The interest rate should be relatively high, to encourage replacement of public funds with private ones. With few exceptions, when public funds are used to avoid major restructuring and shield private investors from losses, the result is almost inevitably a larger, less transparent, and more recklessly managed institution.

The same is true for government or "sovereign" debt. When Wall Street talks about "failure" of Greece, for example, it means failure of Greece to pay off its own bondholders. In trying to avoid this failure, Greece is instead forced to impose extreme austerity and depression on its citizens. From the standpoint of those citizens, Greece has already failed them painfully. Those are the choices - let bad debt "fail" or force depression on innocent citizens.
Of course, there is a cost to any financial crisis, which is "contagion" where the failure of one institution or government calls others into question. The main way to contain this is to follow the century-old "Bagehot's Rule" - lend freely, at high rates of interest, but only to institutions that are solvent and able to provide collateral for the loans. When policy makers behave as if every institution, solvent or not, is within the ring-fence, or that some institutions are simply "too big to fail," saving these institutions comes at enormous costs, because true economic losses that should properly be taken by private investors are instead forced upon the public.

Keep in mind that money is fungible - not all losses are taken directly by the institution that created them. Many of the losses that should have been borne by banks were instead assumed by Fannie Mae and Freddie Mac. This allowed TARP to seem largely successful even while hundreds of billions of public funds are still being spent to bail out Fannie and Freddie. Recent efforts by government overseers of Fannie Mae to claw back these losses from the banking system are appropriate, but they also demonstrate how easy it is for private institutions to transfer their mistakes onto the public balance sheet.

2) The Federal Reserve's purchases of Fannie Mae's and Freddie Mac's debt obligations were illegal
Background: Beginning in 2009, the Federal Reserve began buying nearly $1.5 trillion in obligations of Fannie Mae and Freddie Mac, both which were insolvent and in government receivership. The Fed justified these purchases by appealing to Section 14.2 of the Federal Reserve Act, which allows the Fed to purchase securities which are a "direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States." Now, Ginnie Mae, the financing arm of the Federal Housing Administration (FHA) is a bona-fide government agency. So there would have been no legal problem if the Fed had purchased Ginnie Maes. In contrast, however, Fannie Mae and Freddie Mac were not, and are not, U.S. government agencies. Nor are the obligations held by the Fed "fully guaranteed as to principal and interest" by the U.S. government. At best, the obligations of these GSEs have implicit and informal backing, as any member of Congres will tell you, and simply taking a failing institution into conservatorship doesn't confer government backing to its debt. In fact, the stop-gap measure enacted by Congress during the crisis only provides temporary backing for the obligations of Fannie and Freddie maturing by the end of 2012. Very simply, the Fed broke the law by buying Fannie and Freddie's debt.

3) Creating shell companies to buy Wall Street's bad assets is not "discounting," and was therefore also illegal

Background: In 2008, the Federal Reserve created a set of off-balance sheet shell companies called "Maiden Lane" to buy undesirable long-term assets of Bear Stearns and other financial companies, justifying the purchases by appealing to Section 13.3 of the Federal Reserve Act. But if you actually read Section 13, it is clear that under the law, "discounting" means (as it has always meant) providing short-term liquidity by essentially providing a check-cashing service for obligations that are short-dated, well-collateralized, and promptly collectible (See also Outside the Oval / The Case Against the Fed ). The Fed's creation of the Maiden Lane companies to purchase bad assets was, and remains, illegal under the language and intent of the Federal Reserve Act.

Keep in mind that we have only three branches of government: the executive, the legislative, and the judicial. The Federal Reserve is not an independent fourth branch of government, but operates under the legislation of Congress and therefore cannot be "independent" of Congressional control. While nobody wants monetary policy to be "politicized" in the sense of Congress telling the Fed what policy actions should be taken and before which election, it is quite a different matter to require the Fed to operate within the law. Here, Congress could use some encouragement.

4) The skewed distribution of wealth in the U.S. is worsened by policies that misallocate capital and divert public funds to bail out investments that have already gone bad.
Background: If you think about the "standard of living" in a country, you can roughly define it as the amount of goods and services that individuals are able to consume in return for their work. If you think about the "productivity" of a country, you can roughly define it as the amount of goods and services that individuals are able to produce for their work. Clearly, over the long-term, the productivity and the standard-of-living of a country go hand in hand. The best way to create both, over the long-term, is for an economy to build a stock of productive capital (inventions, new technologies, plants, equipment, public infrastructure, etc), and human capital (labor skills, education).
Still, even a generally productive economy can produce a skewed distribution in the standard of living enjoyed by its citizens. In a competitive and undistorted economy, the distribution of wealth is determined by the ability of each individual to a) provide a useful service, b) distribute the services they provide over a large number of "units", and c) maintain the scarcity of what they provide.

So for example, professional football players earn more than teachers not because playing football has more virtue, but because professional football players are among a very small group, and distribute their "services" over millions and millions of spectators, each which implicitly pays a few cents to each player per game. Mark Zuckerberg at Facebook is able to distribute his services across hundreds of millions of users, each which implicitly pays him a tiny amount by viewing advertising. Bill Gates distributed his services over every computer that ran Windows, while the factory workers who built those computers were each able to distribute their skills over a smaller number of units. Teachers represent a large professional group, but are typically able to distribute their services over a limited number of students, each which implicitly pays a portion of their family's income to the teacher. One-on-one aides tend to earn less, despite often being extremely skilled, because in order for them to earn a high income, their earnings would have to capture much of the income of their single student's family.

The distribution of wealth has become increasingly skewed as trade has become more globalized and technology has allowed the innovations of a single person to be spread across millions of consuming "units." At the same time, the economic emergence of China and India has brought forth literally billions of new workers who dilute the scarcity of the existing labor force. An economy where capital is scarce, protectable, and can easily be distributed over numerous units, while labor is plentiful, homogeneous and can only be applied to a smaller number of units, is an economy that is prone to an enormously skewed distrbution of wealth.
This process takes on a grotesque character when it becomes possible for a company to distribute its impact over a very large number of units, and government policy protects that ability even when the impact of the company reflects not skill but ineptitude. This is essentially what has happened with the "too big to fail" institutions. Despite inflicting massive damage on the economy, they are afforded a protected status that allows them to extract "rents" that don't reflect the cost they have imposed. From that standpoint, the Occupy Wall Street protests are a welcome reflection of public frustration over Washington's slavish coddling of reckless financial institutions.
Policy Responses

The proper way to address the present economic imbalances is pursue policies that encourage the restructuring of bad debt, the allocation of public funds and private savings to productive investment and new research, the accumulation of education and labor skills ("human capital") to allow workers to capture a greater share of their own productivity, and the continuation of social safety nets to ease the economic adjustments that are necessary in a deleveraging economy. In my view (which not everyone will like), this requires:
Monetary policies that abandon the constant pursuit of new financial bubbles, which distort investment opportunities and misallocate capital;

Housing policies to coordinate the restructuring of mortgage debt for homeowners capable of servicing a restructured mortgage (we've advocated breaking the mortgage into a lower principal loan plus a right of the lender to a portion of future appreciation), and unfortunately, foreclosure for homeowners unable to service even a restructured mortgage, with associated losses being taken by lenders;

A return to a reasonably smoothed form of mark-to-market accounting (say, 3-year averaging) so that financial institutions cannot let a bad loan book deteriorate while still reporting those loans at amortized cost.

A requirement that banks hold a significant amount of their capital in the form of mandatorily convertible debt, so if the assets deteriorate, the debt converts to equity immediately and provides a capital cushion against losses without risking default to senior bondholders. Yes, this will result in a slightly higher cost of capital to the banks, but it is a reasonable alternative to more intrusive forms of regulation.

A major increase in government-sponsored research in basic sciences (as opposed to huge pick-the-winner bureaucratically-awarded grants to companies like Solyndra). Recall that research and innovations coordinated through government initiatives such as the Advanced Research Projects Agency (which largely originated the internet), the National Science Foundation, and the National Institutes of Health have been the basis for much of the industry that has built upon that foundation;

Continuous investment in public infrastructure - although the long lead times simply to obtain permits for major projects largely rules out much near-term stimulative effect from the Administration's proposed Jobs Bill even if it were enacted immediately;

Efforts among workers to increase their own protectable level of scarcity, ideally through increased education and labor skills, but if necessary through collective bargaining in industries that are reliant on locally-sourced employees (understanding, however, that this alternative also has the effect of reducing employment);

Incentives for capital investment and R&D such as tax credits and immediate expensing of new investment;

Tax policies that reduce distortions by applying a sufficient but relatively constant tax rate to every dollar of income regardless of the source (wages, profits, financial gains), with large exclusions at initial income levels - essentially taxing all dollars and all people according to the same rules, broadening the tax base by including all forms of income and avoiding the need for class warfare;

Broadening the tax base but substantially reducing the tax rate on Social Security and Medicaid (which are a larger tax burden than the income tax for 75% of American families) and applying that lower rate to all forms of income - not just wage income. This would stop the regressive treatment of payroll workers, which exists only to perpetuate what economist Alvin Rabushka has called "the fiction that Social Security is a retirement insurance program in which contributions are linked to benefits, rather than what it is — a transfer of income from workers and the self-employed to retired people.”

http://www.hussmanfunds.com/wmc/wmc111010.htm

Occupy Wall St.: Right Idea...Wrong Reasons

2011-10-10T03:29:00.000-07:00

Hi all!

It's been awhile. Things in my world have been crazy busy so I haven't had time to post.

I just wanted to quickly chime in on the Occupy Wall St. protests. My quick take on the whole thing is they have the right idea but they are doing it for the wrong reasons.

Their agenda is very fragmented and reminds me of some form of socialism.

That being said, I support the movement. I hope that OWS will eventually morph into an uprising that focuses on our corrupt political and financial system.

Watch the video below if you need a reminder as to what we should be protesting about. Dylan pretty much nails it.

Lee Adler also gets it. This is a must read. The Fed's Bernankecide as Lee beautifully puts it continues. The first few paragraphs of this piece pretty much says it all:

"We as a society must stop pretending. Most of us think that we still have money in the bank to protect, so we go along with the game of extend and pretend. For some of us, the game has already ended. The rapacious zero interest rate policy that I call Bernankecide has already robbed millions of savers of their life savings. This is the reality that has yet to hit home for many Americans who are content to wallow in the status quo. Unfortunately, the longer it takes for them to wake up, the worse their, and our, fate will be.

My mother and millions of other senior citizens are among the victims of the game that policy makers and those who empower them are playing. Their life savings are gone because Bernankecide, the financial genocide of the elderly, forced them to spend their principal. Now the government is indirectly confiscating 8% of my income because I must support my mother. That percentage is likely to grow as her health deteriorates.

Millions of other boomers are in the same boat. They are forced to pay this immoral hidden tax because Ben Bernanke decided that the innocent must pay for the sins of the guilty. While Bernanke’s ZIRP goes on allowing the banksters to continue to collect their fat bonuses, it steals the savings of millions of Americans, eliminates their disposable income, and cuts the spending power of millions of others who must now support those rendered destitute. The guilty benefit, and the innocent are punished."

The Bottom Line:

Let me preface this by apologizing for being so quiet recently. I am hoping to pick up the pace on my posting over the next few months.

When it comes to the markets I am speechless. The HFT's continue their games. I have been playing the short side in the last few months and done well shorting DB, COF, and PHM.

I am now currently pretty flat from a trading perspective. I am expecting a move back up to around 1200 on the SPX.

Europe is a disaster, and there is a risk that their banking system could go belly up if the EU doesn't take action within the next few weeks.

The Dexia stick save this weekend has juiced the futes. This makes no sense of course but what else is new? I expect an S&P downgrade of Belgium and France within the next month as a result of their failed banking systems.

Greece appears to be toast. The regulators are now trying to sell the "orderly default" dream to the markets. History has shown that there is no such thing. When Greece goes down I expect haircuts in the 70-80% range versus the 50% that has been thrown around.

I am sitting on my hands for now until I can get a better grasp as to what is going on. Good luck out there and be careful!.

DOW 5000 Possible by 2013???

2011-08-11T18:42:00.000-07:00

United ICap's chief technical analyst Walt Zimmerman sure thinks so.

Gulp. This is kinda how I see things playing out although I am not sure we get down that far. Europe is a repeat of our banking collapse here. There is no reason to think that "it's different this time".

Enjoy Walt and have a drink or two this weekend. It's been a long stressful week for anyone that has a 401k.

BTW

Futes are rolling over here tonight so I wouldn't be surprised to see a red day tomorrow if the retail sales #'s are bad.

For what it's worth I am flat in my trading account. I sold my last DB PUTS on Wednesday. Sitting in cash. I do not like playing when the tape is this violent. Options are too expensive, and its easy to get your face ripped off if you are on the wrong side of the tape.

For now I will grab some popcorn and enjoy the fireworks from the sidelines.

Dylan: Our Political Syatem is a FAILURE!

2011-08-09T20:54:00.000-07:00

I couldn't agree more....

Our political system is a complete and utter catastrophe. I must admit that I hate both parties at this point. Dylan's rant is something that I think all of us can relate to.

It's time to get angry folks. It's time to demand change. Our system is BROKEN. I received several panicked messages today asking about what they should do with their investments after the massacre we have seen in the past two weeks.

People are confused and SCARED at what in the hell is going on in the financial markets and they damn well should be! How did our financial system get so screwed up?

I have friends with families that are petrified. They ask me: How do you "invest" when the DOW is up and down 100 points every 2 minutes? I then proceed to tell them that I have no answers and if they are uncomfortable then they should go to cash or bonds so that they can sleep at night.

You have to ask yourself the following questions:

How can the average Joe grow his investments in a peaceful manner when the market continues to be in total chaos?

How many times is the average investor going to keep investing when he sees his investments drop by 50? It's already happened twice in the past 10 years and we are likely about to see the same thing happen for a third time.

When are the regulators going to say enough? How many billions of dollars need to be lost by the average American before the government stops all of this high speed computer BS?
All most Americans want is a safe place to invest money so that they can send their kids to college and then retire. Is that asking too much???

The way the system is setup right now it's basically impossible for the average American to achieve their goals:

A) Private colleges are now 40k a year...

B) Houses are unaffordable and over priced...

And....

Most importantly:

C) Americans no longer have a safe way to invest!!!!! I can't stress this point enough which is why it's in bold.

My final question: How does America get to both A&B when C is a complete disaster/failure????

Let's just face it: "Children's college funds" are a complete joke now that the sharks on Wall St have turned investing into a casino as they buy and sell stocks every 7 seconds.

When is this all going to stop??? Enough already!!!!

Listen to Dylan and realize you are not alone:

THTB Crash Warning

2011-08-08T19:19:00.000-07:00

I wanted to hop on tonight and alert everyone that I am very concerned about the possibility of a crash tomorrow.

Crashes are usually not telegraphed so it likely won't happen. However, the elements for one are there and the price action in the futures is extremely alarming.

We are down an additional 35 handles on the S&P from the close.

Here is a print of the /ES(S&P futures) as of 10PM tonight:

China's inflation numbers that were released tonight are are making matters worse because they came in hotter than expected:
"China CPI 6.5% YoY, higher than expected.

PPI is 7.5% YoY."

This is is hammering the world markets at a time where the world's investors are already completely panicked.

The Bottom Line

I am extremely concerned folks. The US banks are collapsing. BAC was down 20% on the day. GS, MS, and Citi were also down big.

The whole banking system has basically been torpedoed for two straight weeks. The price action is very reminiscent of 2008. What's scary here is there has been no obvious catalyst for the sell off.

IMO, somebody knows something and the shorts are sniffing blood. The European banks look just as bad. Unicredit teeters on the brink of bankruptcy, and I suppose our banks exposure to Europe could be the trigger for the horrific sell off we have seen in the banks over here.

Folks, we are so oversold it's ridiculous, and the fact that there are no buyers tells me something bad could very well be in the mix.

We all learned in 2008 that there were solid reasons why the market dropped down to 6K. We just didn't know them at the time. Looking back once we got the facts there were solid reasons as to why we got there. Just watch HBO's TBTF if you want to see how close we came to financial Armageddon.

I am afraid were are now once again at the tipping point. It's time to stop trading and pray that we somehow find a way to get out of this.

Markets are all about confidence and for the past two weeks confidence has been completely lost.

I am hoping that the Fed can pull a rabbit out of the hat and stabilize things with their statement tomorrow. I must admit I am not optimistic.

Protect yourself and let's all hope for a bounce.

USA Downgraded by S&P to AA Credit Rating

2011-08-05T18:00:00.000-07:00

Well folks, the chickens are coming home to roost:

"Updated, 8:27 p.m. ET] The credit rating agency Standard & Poor's announced Friday that it has downgraded the U.S. credit rating to AA+ from its top rank of AAA."

Quick Take:

I am kinda sick to my stomach because I closed about 70% of my short positions this morning at the lows.

This is a sad day and this week has been more proof as to why you can't believe anything that Wall St tells you.

The recovery/Green shoots/bull market hoopla was nothing but a complete sham manufactured by government spending. I have been saying it ever since the lows in 2009 and I took a lot of heat for it.

It was easy to see if you covered your ears and didn't listen to the BS that was being thrown to you by Wall St on an hourly basis on CNBC.

Get ready for I wild shit show on Monday. The unintended consequences here are numerous because our debt is no longer AAA which means many will be forced to sell it due to various covenants.

Money markets are a prime example. They can not own any thing that's not AAA. The question now becomes where in the hell do they go with these massive amounts of cash if they can't sit in treasuries. FRN's perhaps? Does the dollar rally then or does it crash due to the downgrade?

I have no idea how this plays out folks but please be careful. Don't end up like many of the bulltards who have been drinking the recovery koolaid since 2009.

Do stocks now rally because treasuries are no longer safe?

I plan on sitting mainly in cash and seeing how this plays out before I make more trades. The only shorts I kept on were DB based on the Euro mess which I failed to even get to tonight.

Let's hope we don't see total chaos in the markets next week. Hold your breath and just pray that no one panics.

Praying for a QE3? Don't Count on it....Yet

2011-08-02T20:51:00.000-07:00

Hmmm......So the Fed ends QE and the market tanks.

Haven't we seen this nightmare before??

My Take:

We sure have!
As you can see above, we have basically rocketed straight up from the lows except for a "soft patch" that we saw beginning in June of last year. Coincidentally this was exactly when QE1 ended. QE2 was not initiated until the fall.

Without the Fed Playing "Charles Ponzi" in the background the market corrected by about 15% over last summer before QE2 was initiated in September.

As soon as QE2 was cranked up Wall St loved it and stocks rocketed 30% higher by MArch. However, as soon as the Fed announced this spring that it was leaving the QE party in June, the market has gone nowhere.

Like clockwork, once QE ended, the market is doing an exact repeat of what it did the last time QE ended: It's TANKING!

The Wall St cheerleaders will soon be trotted out on CNBC to begin their ad campaign for QE3. I am here to say it's not going to happen. At least not for now.

Why???

Well, thanks to the European debt crisis we have very strong demand for bonds so we don't need the Fed in the bond market. Yields on the 10 year are crashing as scared money flocks into US debt from Europe as their crisis continues to spiral downward:

Folks, high interest rates are not a problem for the Fed when the 10 year sits at 2.6%! The problem is unemployment and consumers that are being strangled by massive debt loads.

I mean think about what the average Joe consumer must be asking himself:

"Why should I put another noose around my neck when I am already in one as a result of being too deep in debt? I already owe $200,000 on my school loan. I never should have put $50,000 on my credit cards as I yucked it up and partied like it was 1999. What in the hell was I thinking???"

This is what what the majority of consumers are asking themselves right now. Many of them are jobless or have no job security. Others have taken jobs that pay much less than the one they previously had as a result of this crippling recession.

The bottom line is the majority of Americans no longer have the ability or desire to borrow.

The Bottom Line

The Fed understands that credit/low rates are not the problem. They also understand that oil rose from $20 at the lows up to $110 this year as a result of their QE printing exercises.

They also watched all other commodities soar as the currency weakened as a result of their printing Ponzi scheme. Gold now sits at new all time highs once again today.

The also now understand the unintended consequences of taking such reckless actions....Arab Spring anyone? Starvation in third world countries? Soaring corporate input costs?

The bottom line here is there are many knowns and very few unkowns for the Fed after pulling this QE stunt twice since the 2009 lows.

Obviously, the stock market would love it but the Fed has to seriously ask themselves if this money printing is worth the price? You all know my answer.

Making matters more tough this go around are the ratings agencies. Any initiation of a QE3 would almost immediately trigger a debt downgrade from S&P and Moody's. Both agencies are already right on the brink of taking away our AAA status without adding any additional stimulus in the form of QE3.

Who knows what unintended consequences this would trigger?

The Fed is running out of options. If they pull the QE3 button then we will likely lose our AAA status, and run the risk of massive inflation as our currency takes it on the chin.

If they don't pull the trigger then we run the risk of a Japanese style deflation as we see historic debt destruction.

As you can see, the stakes are very high here and the downside risk of a QE3 are clearly understood by the Fed. As a result, I expect the Fed to take their time figuring out what they should do.

If the market continues continues to completely unwind like it has in the past week then I think the Fed will eventually think about a third dose of QE heroine. However, I expect them to think long and hard before doing so which means there is likely a lot more pain ahead when it comes to the stock market.

Disclosure: Sold PUTS in PHM. No new positions taken at the time of publishing.

USA Default? Not Yet Folks..........

2011-07-27T20:23:00.000-07:00

Let me start by apologizing for only writing on a monthly basis recently. My schedule simply hasn't allowed any time for writing. I love doing this blog but it's something I can only do during my spare time so please bear with me.

I am hoping to get back on here more regularly in the near future but for now I can't make any promises.

So let's talk about this cesspool we like call a stock market. Things sure are getting crazy aren't they? Watching the markets the past few months has been a bit like watching paint dry. We continue to bounce around the 12,000-12,700 are on the DOW.

This has definitely been a traders market. There is no volume which means the algos can pretty much have their way. Stocks have basically been moving on the news of the day. I feel like the traders on Wall St have become Twitter/Facebook addicts as they look for any nugget of info that they can use to create price action.

Unfortunately, for the average Joe this only makes investing more confusing and thus frightening. As a result, many investors now find themselves staying on the sidelines which is why there is no volume in the markets.

In a nutshell: The sharks on Wall St have basically eaten the E-traders alive and they are now starting to feast on each other. As a result, some of the best investors in the world are now hanging up the gloves. George Soros decided to walk away this week. His fund was down around 6% for the year and was only up 2% last year.

They realize that the glory days of 1980-2007 are far behind us now. The smartest guys in the room are have basically come to the realization that there really is no sound fundamental strategy for making money on Wall St these days.

IMO, computer trading is pretty much destroying Wall St from a fundamental investment standpoint. The algos only worry about what is going to happen for 11 seconds. Back in the 1970's the average stock position was held for years not seconds. Back then you could at least make sense as to why stocks traded in a certain way. The market historically has always been painful for all involved at some point but these days it's been taken to a whole new level which is why the smart guys no longer wanna play.

The bottom line here folks in when the best in the world can't make money it should be an eye opener for the rest of us.

I guess the good news is I don't think it's going to last. Once they start eating each other they will start losing more $$$ which means many of them will be turned off. They will always be a factor but I believe in the future they will be less of one.

The Bottom Line

So what am I doing with my money these days? Let me share and please remember this is not investment advice. Let me also note that my stock/short positions are very small and represent about 10% of my portfolio.

I have gotten into some energy names in the nuclear/oil and gas space via EXC and D. I am still short the Euro via EUO which has been painful recently as the dollar craters thanks to the morons in DC.

I reamin short the financials and home builders via COF and PHM which has worked out really well.

My main position however remains cash. I am starting to not like the gold trade. The recent move seems too parabolic to me. I hold some but not a lot, and I am completely out of silver.

Moving forward I think we are due for a big dollar rally here shortly. This may sound crazy given the default risk out there and I could very well be wrong.

However, my view still remains that Europe is in much worse shape than the US. I think they will fall first which will create a huge race into bonds and other investments in the USA. The recent price action in US bonds says it all:

.

Here we are days from a default and as you can see above 10 year yields have barely budged. Why? Because there is nowhere else to go unless you want to stuff your mattress with cash. There is no bond market large enough to replace the USA which means there will always be buyers.

Don't get me wrong, the low yield situation won't last because we are Greece. Buyers in the future will still be there but the yields will be significantly higher because the risk of us defaulting will rise. However for now, risk is relative and Europe is a complete disaster versus the US.

The bond market has spelled it out for you folks. The PIIGS bonds yields are soaring once again after a recent pullback following the 2nd Greek bailout. Italy, Portugal, Greece, and the rest of the Euro trash increasingly look like they are all toast.

Let me repeat: The credit markets are telling you who is going down first and they are the smartest traders in the world. The vigilantes are having a field day over in the Eurozone.

The way I see it at the end of the day Congress will come up with some ridiculous deficit reduction bill will get through that will allow us to continue this madness. It may happen after August 2nd but I believe it's going to get done. Don't be fooled into thinking it won't.

The only way I don't see it happening is because the idiots running the asylum in DC are starting to realize the only way to get something substantial done is to create a crisis like a debt downgrade. This would then give them the political cover to make the painful cuts that are needed to get the ratings agencies off our backs.

I don't see us going down that road. I fully expect a giant can kicking piece of crap bill that solves nothing. I then expect to see the ratings agencies downgrade the US in a matter of months. I suspect it won't be immediate because they are meeting with the S&P clowns on a daily basis.

The bottom line here folks is stay in cash and play small ball. I am extremely hedged here because this thing could swing in a variety of ways.

For the most part I would advise staying out of this mess. There are sharks everywhere and the government is desperate to keep the game going. I expect a large stock rally on any substantial debt agreement. I expect a lesser rally if we pass some BS deficit reduction bill that does nothing(which is what I expect).

If nothing gets done the market is going to flat out free fall. I still believe we will be lower by the end of the year because we don't fix problems anymore in this world. We only delay them which only makes them worse.

I fully expect this house of cards to eventually come tumbling down. However, I remain convinced that we don't see this until the PIIGS of Europe have been butchered and cooked into pieces of ham and bacon.

Good luck out there.

Disclosure: No new positions at the time of publishment.

QE2 Goes Out With a Whimper....Get Ready for Deflation

2011-06-24T17:17:00.000-07:00

I'm baaaaackkk:)

I had to chuckle to myself as I watched CNBS ignore QE2 today. Any rational objective financial news organization would have designated several hours to discuss the ending of the greatest monetary printing stimulus ever seen.

In typical bulltard fashion hardly a word was said about it on this ridiculous network. I finally turned it off after hearing 3 shills call our current slowdown a "soft patch". HA! What a joke. It reminded me of "the green shoots" crap from 2009.

"Soft Patch" my ass is my retort.

You would think that the immenent ending of QE2 would have been discussed on as stocks puked for a 3rd day in a row. Why anyone still watches the buffoons on this network is beyond me.

Folks, the most concerning thing that I see right now is the bond market.

The 10 year bond soared once again today as the smart money piled into treasuries as they prepare for the shitstorm that is about to strike the Western World:

This chart should keep you up at night.
I mean think about it: Bond traders are piling into bonds despite the end of QE2 which is supposed to be horribly bearish for bonds. What this tells you is the big money would rather sit in bonds that yield nothing and may end up being worthless instead of sitting in the stock market.

Ummmm Hellooooo...RED FLAG ANYONE????? Could there be any larger red frickin flag than this????

Here is some more data on our little soft patch/speed bump:

The Bottom Line

As you can see above folks the unemployment situation is getting worse and more hopeless by the year. It's flat out dire at this point.

Without a huge influx of jobs our economy is only going to get worse.

The stock market now realizes that at least for the time being the Fed does not have their back. This makes them extremely scared and they have every right to be.

They are afraid for many reasons:

Will Greece unravel?
Could they take the rest of the PIIGS down with them?
Could the US get sucked right down with them?

There are many unanswered questions. One thing is for sure: The bailouts in Europe are not working and the situation continues to worsen. Papering over losses is not the answer because the problems are still there.

So what should we do as investors?

For now you need to play the market for deflation until the Fed steps back in and blows up the dollar with QE3.

IMO(let me reiterate this) IMO that means shorting stocks and going long the US Dollar. I have done both and it's been working well. I actually went short the Euro versus the USD via EUO as my dollar play and its been paying off recently although it's been a very volatile trade.

Holding cash here is also a good idea until we see what the markets look like without the Fed throwing money into the market via POMO injections.

I don't like the metals here because I think the USD is going to rise although I still hold onto some gold as a hedge. I am compeltely out of silver at this point.

The bottom line here folks is the time to be long stocks has passed us. At the very least I see no problem sitting in cash and waiting for much cheaper buying opportunities.

Technically we are sitting right on the 200 moving day average so don't be surprised if the bulls defend vigorously here. If the market closes below 1250 on the S&P the bulls are in deep trouble and they know it.

Hold on tight folks. Expect lots of volatility as the market digests the huge slowdown in the economy combined without the help of the Fed.

I don't see how this doesn't all end in tears. I wouldn't be surprised to see us back in a recession within the next 4 quarters.

Without QE3 this market is toast and I fully expect that the Fed will come back with it after we suffer for awhile. Once they do the inflation trade will then again have to be turned back on because it's going to put massive strains on the USD.

For now expect Deflation which means lower stocks, lower bond yields, and a soaring USD.

Be careful out there and enjoy the show. It's going to be quite a spectacle.

Is the Bear Back?

2011-06-02T20:06:00.000-07:00

I know I know, it's been awhile.

I like to hop on here during periods of crisis and share my thoughts. Overall, things are playing out just like I thought they would. In the early part of this year I was warning that the markets would begin to roll over in April/May as the ending of QE2 arrived.

Ironically it was the worsening economic data not QE that finally grabbed the market's attention. Over the last month things have deteriorated significantly when it comes to the economy.

What cracks me up here is how Wall St is "shocked" at how the economy has come to a screeching halt. I sit here and ask myself why are they chocked???? How these idiots didn't see it coming????

Once gas hit $4 a gallon it was pretty much over for the consumer. We've seen this story before. Back in 2008 it took about 6 months for the economy to roll over when gas hit $4. I assumed that the economy would stop a lot sooner this time because unemployment is double what it was back then.

Making matters worse this go around is the fact that the consumers balance sheet is also considerably worse in 2011 vs 2008 asAmericans struggle through the worst economic period since the Great Depression. The ones that own homes are even more distressed as housing prices continue to drop in most parts of the country on a monthly basis.

When you consider these facts I must ask the question again.....Why is Wall St "SHOCKED" that the economy has stopped???

Ive said it before and I'll say it again: CNBC and the rest of the pundits fail to understand that we never got out of the recession back in 2009. The pump monkeys all dove in once the recession was officially "over" according to the BS economic statistics thinking that we will recover like we always have.

If you timed it right and bought in March of 2009you made a lot of money on this play. This was a great trade. Let me emphasize and repeat that: Trade not investment. The problem is most of the bulls won't treat it as such. They will overstay there welcome like they always do and give most of it all back as they ignorantly believe that happy days are right around the corner.

What the bulls fail to realize over the longer term is this isn't your typical recession where you stimulate the economy and then recover. This is a Great depression.....It may be our greatest depression when it's all said and done. The only way we recovered in any way is because the government SPENT their way out of it.

They handed out checks like candy to the unemployed and dropped money out of helicopters and into the banks coffers in the form of QE and QE2.

What we witnessed the past 2 years was the largest government financial drug binge the world has ever seen. In the end they fixed nothing. Strucurally the economy is a mess. The losses haven't been taken, and the insolvent banks only remain solvent thanks to fraudelent accounting

The Bottom Line

The recovery is a sham and it's time to be very careful as we near the ending of QE2 on june 30th.

The drug binge is over folks, at least for awhile. If you are curious to see what the world might look like without QE2 all you need to do is look at what happened during the summer of 2010 when the first QE ended:

As you can see above stocks dropped 15% after the first QE drug binge ended. Why anyone would think it would be different this time is beyond me.

History often doesn't always repeat itself but it often rhymes. What's absolutely frighting to me this go around is QE2 is ending at a time where the economy is in shambles versus last year where things were relatively stable.

I am sure this keeps Bernanke up at night which is why I think we will see a QE3 in the not too distant future.

Many of the hedge funds are betting that the stimulus will continue beyond June in some form of a QE3 that might not be called QE. If you look at the bond market that idea makes some sense.

I say this because the big money wouldn't be diving into treasuries unless they either thought the Fed had their back OR they were scared to death of a deflationary collapse. I wouldn't be surprised to see the Fed do something like reinvest the money from maturing short term treasuries back into the bond market.

I guess we will know the real reason why we saw a flight to safety into bonds in the next few months.

So where do we go from here? Too be honest folks it scares the living daylights out of me. Without QE the market is going to roll over like a cheap suit which is why I don't think the Fed can stop supporting the economy.

The problem is if the Fed stays in the game it's going to have a very negative effect on our currency which will then create even worse inflation. $6 gas anyone??

The Fed has a brutala choice to make and I have talked about this for the past couple years:

Option 1

End QE and try to manage a deflationary death spiral.

Option 2

Continue QE'ing and try to manage an inflationary disaster that could potentially collapse the dollar.

Nice choices eh??

Personally, I would go with option 1 and just let it go and get it over with. As I have said before, lower prices from deflation can be a good thing. It makes things affordable. The Fed and the banks are the only ones that want to keep prices propped up because both of their balance sheets are littered with toxic overpriced assets.

I suppose the homeowners would hate deflation as well but I say why do they care? Most of them are already likely underwater anyway.

As for my investments I remain cautious. I am hedged short with some high beta names as hedges. I am also getting a little speculative and shorting the Euro versus the USD via EUO(Warning: VERY risky).

I remain mainly in cash for the most part even though it may be worthless one day soon. I continue to choose cash because I think stocks will get a lot cheaper in the future and you need to have some powder dry in order to take advantage of it.

Bonds look awful here and I would avoid them like the plague. I own some PIMCO which is out of treasuries which is where I wanna be as this plays out. Remember folks: If Bill Gross is running away from treasuries you should too. He may look wrong now after the recent rally but he will be right in the longer run because this country is bankrupt.

I can't see anything but soaring bond yields in our longer term future. The Fed may be able to keep the music going a little while longer with more QE in the short term. However, longer term time is running out and smartest guys on Wall St know it. Go read Bill Gross and BlackRock's Larry Fink's latest pieces. They see the writing on the wall.

Longer term we are abviously in deep trouble. Moody's warned theUSA again today that they will look to lower our credit rating if we don't get our fiscal house in order.

The questions to ask now are these: Is this even possible? Do we have the political will to pull it off?

I lean towards the answer "no" on both questions. I hope for the sake of this country I am wrong.

Be safe.

$100 Oil Fears Threatens Economic Recovery

2011-05-10T06:54:00.000-07:00

This isn't good:

My Take:

So much for that "relief" at the pump that CNBC loved to crow about last week. "Bubblevisions" calls of $3.50 gas by the summer look like a pipedream as the commodity speculators once again turned bullish. Silver and gold also surged as traders shook off last week's historic commodity sell off.

I am continually amazed at the risk taking that we continue to see in the markets. You would think after a 30% sell off that the commodity speculators would want to take a breather in order to lick their wounds after last week's slaughter.

This idea turned out to be a foolish theory. It's becoming icreasingly clear that the market continues to resemble something from "The Wild West". There are no "rules of thumb" anymore when it comes to the price action on Wall St.

The robots that dominate the trading on Wall St decide what the rules are on any given day. Wounds no longer need to be healed because robots have no emotions.

Wall St has become an increasingly dangerous place to play because the trends now change faster than Lady Gaga's costumes during a 3 hour concert. Trends that lasted weeks during the '70's and '80's now potentially last for only a few hours or days. Should we expect anything different when stocks are held for seconds today instead of years like they were in the '70's?

It's becoming more clear that speed rules Wall St at this point. Fundementals and historical trading patterns are increasingly becoming irrelevant. As a result, the markets are basically been morphed into a giant casino at this point.

There is no "fundemental" reason why oil is up 6% today. Demand did not pickup. Inventories remain high because the economy continues to show no signs of life.

The Bottom Line

Keep a close eye on oil prices and understand that gas prices never had a chance to drop because there is a lag time before you see a drop in oil prices show up at the pump. If anything gas has continued to rise in most staes in order to reflect the $113 oil we saw just 2 weeks ago.

This means that the consumer will continue to be restrained as a result of higher energy costs. This will also continue to pressure companies because input costs will remeain high.

PIIGS

Let me refocus here for a second and remind everyone to keep their eyes on Greece and the PIIGS debt crisis. Greece apparently is threatening to leave the Euro. This will be a disaster for the banks if this becomes a reality. All you need to do is look at the chart below to see how catastrophic this would be for the Eurozone and it's banks:

Bottom Line Continued:

The crippled banks of Europe cannot afford to take tens of billions of dollars in losses if Greece decides to bail on the Euro and walk away from it's debt obligations. What's even more concerning here is the rippling effect that a Greece departure could have on the rest of the PIIGS.

Perhaps the rest of the PIIGS might all come to the same conclusion as Greece? I mean when you boil it right down the various "PIIGS" rescue packages bailout the banks instead the country and it's people. If anything, these are bailouts of the banks at the EXPENSE of the people.

I mean let's get real here. Who ends up paying these ECB loans back? Why the taxpayers of course. The politicians of these countries are slwoly starting starting to realize is it's the people(not the bankers) that get them re-elected.

Iceland's politicians came to this conclusion a long time ago, and their economy is starting to rebound after telling the bankers to take a hike.

The European debt crisis is a very unstable situation that needs to be monitored closely.

As for today, stocks finished slightly higher for the day. We have some huge bond auctions coming up here in the US this week so don't forget to keep an eye on treasuries. I took no new positions in the markets.

I continue to believe that sitting in large amounts of cash works for the shorter term because the US dollar is going to rise as the European debt crisis countinues to take it's toll on the Euro.

Double Top?

2011-05-03T19:23:00.000-07:00

Wanted to take a few minutes and share a chart with you. As you all know I am not much of a T/A guy. However, over the longer term, I do watch them from time to time.
I often watch the Russell 2000 when I am looking for a trend change because it's usually the first sector that rolls over during bear markets.

After taking a peak at the monthly of the Russell I couldn't help but take notice of an almost perfect double top:

My Take:

The Russell is much more sensitive than the rest of the market because it is comprised of smaller companies with matching smaller balance sheets. Therefore, they are much more susceptible to a weakening economy versus a huge company like Apple that sits on tens of billion in cash.

As a result, when things start to head south as a result of things like $4 gas the market tends to sell these names first. The fact that it couldn't hold the trendline after breaking through the 2007 highs is something to take note of.

The Bottom Line:

So are we due for a major correction? Hard to tell. The Fed seems obsessed with taking the market higher, and it has decided to destroy our currency in order to due so in the process.

The reality here is no one wins this game if the dollar loses because stocks that are priced in dollars, and if the currency cracks it's not going to matter where the market is.

The market IMO seems to be struggling with the colossal battle between the powerful forces of debt deflation and deleveraging versus the equally powerful forces of inflation via currency debasing courtesy of the easy money Fed.

This battle has become a personal struggle for myself which is why I haven't had much to say recently. Part of me believes that debt deflation is inevitable as the world realizes the trillions of digital dollars that people moronically borrowed over the past decade will never be paid back.

However, at the same time, you also have extremely powerful inflationary forces that are being created by the Fed as they continue money printing and keeping rates low at the same time the rest of the world takes rates higher. India just raised rates by .50 basis points yesterday.

Who will win this battle? Hard to say. I am positioning myself for both.

What I can tell you is what I have done with my positions recently:

I sold out of 50% of my silver at around $45. Things got a little too bubbly for me here. I will look for cheaper prices.

I shorted the Russell last week via TWM. I also continue holding some small short positions in SDS and QID. On the long side I bought the nuclear stock EXC when it got oversold following the Japanese nuclear disaster and I also added the titanium stock TIE.

I still hold the majority of my money in cash which at any moment could become worthless. This is a scary proposition to me but the way I see it the dollar should rise before it tanks because I think Europe is going to go down before we do.

Greece will default by the end of the year. The market has already priced it in. The rippling effects of this in terms of the rest of the PIIGS are flat out frightening to me but there is nothing I can do to control it.

All I can do here is stick to the fundamentals and the most important one to remember is risk is relative! As a result, I don't believe the dollar is toast just yet because the bond market continues to tell us that we are the best looking horse in the glue factory of bankrupt countries.

I write this post as a warning that something big could be coming. Please play defense and be safe.

THTB Warning: Keep Your Eyes on the US Dollar

2011-04-21T00:05:00.000-07:00

I came out of hibernation tonight because I am extremely concerned about the markets right now.
I know I know, why be worried some may ask? Many will say Apple just reported record earnings and Intel hit it out of the park yesterday!

My response to this is kudos to these companies for banking so much coin in such a crappy economy. Steve Jobs is a frickin god IMO after seeing their earnings today.

That being said, let's get real about what's really going on here. I'll start with a little video from Steve Wynn. He get's it:

My Take:

Couldn't have said it better myself. Folks, the dollar is in deep trouble. Let's take a look at the recent $DXY action from a longer term perspective:

As you can see above we have now broken the 2009 lows on the dollar that haven't been seen since the 2008 inflationary/credit market crash.

This recent price action has been reflected in commodities. Oil has surged to over $112 per barrell. Silver's reaction says it all:

Take Continued:

Silver has surged over $46 tonight as investors continue to worry about the US dollar and fiat currencies in general.

The Bottom Line

The market futures are up but I can't see the market ignoring the USD problems for much longer.

Now that the dollar has broken it's late 2009 lows it could very well hone in on the 2008 levels that blessed us with $140 oil. The consumer is tapped out and can ill afford to return to these levels so the economy is in serious trouble as a result.

I wanted to write this piece because I see many investors getting complacent with the rising stock market. The VIX is nearing all time lows and indicating all is well.

I am hear to tell you that all is not well and I would advise people to sell into this rally because the dollar is on the verge of melting down(this is my opinion of course).

It's time to stop looking at prices and start focusing on what's really valuable at this point. Our interpretation of "wealth" is about to dramatically change in the near future IMO.

Wealth in the future may not be about how many US dollars that you hold.   What will determine wealth in the future? That's the million dollar question. Right now the silver market is telling you that it's the place to be for value.

I am sure the gold market will say the same thing at some point. Holding metals as a hedge to currency is a must in my point of view.

That being said, the metals aren't necessarily the answer as all fiat currencies face collapse.  After all, you can't eat gold and you currently can't trade it for food right now if the world goes "Mad Max".

Farmland might prove to be as valuable as gold or silver at some point.

The bottom line is there are no answers right now folks which is why the metals are surging to 30 year highs. The one thing I can tell you is the market is not healthy when the metals are acting like this two days after the S&P downgraded their US debt watch to "negative".

Be careful out there when it comes to buying stocks. The FOMC will be out a week from now explaining their exit strategy from QE2. I don't see how this will end well because I am very confident that the Fed will stop buying bonds on June 30th because the dollar is selling off so hard.

The Fed will also want to see how the market reacts after they stop the QE printing presses. They would LOVE to bail on this printing program if the markets allow it.

IMO there will be no QE3 until the Fed tests the waters by ending QE2.  This will likely be a gigantic failure if history repeats itself. When QE1 ended last August the market dropped 16% and didn't reverse itself until QE2 came to fruition.

A surge to 1400 on the S&P would not be out of the question from here as the dollar devalues. The market likes it...FOR NOW.

Longer term a collapsing dollar is catastrophic for the US economy and stocks will eventually react negatively to it. We may need $140 oil before the market wakes up.

Alrighty, it's time for me to go back into hibernation. I will be back as needed.

Be safe.

Why we are screwed...

2011-04-09T07:08:00.000-07:00

In a nutshell here is where we are folks:

My Take:

Scary times. The US dollar and bonds are getting hammered. Oil, silver, and gold are soaring as the Fed remains the only game in town that refuses to fight inflation by raising interest rates.

The ECB assured this last week with their rate hike.   The obvious concern here is how long can the consumer hang in there as oil rises to $113 a barrel?

Things are really unstable at this point. I currently sit here mainly in cash and metals with a few short hedges.

I continue to believe that the ending (or extension) of QE2 is the next real inflection point for the markets.  The last few weeks of price action have been nothing but a bunch of black box trading among the robots on Wall St.

There is nothing really to analyze when 70% of stocks are being held for seconds by the HFT guys. IMO, throw out the old T/A analysis for the most part because things have changed.  The market is now a different animal.

Focus on bonds here. The 10 year is once again nearing 4%. If we hop over that level look out. If this happens than I expect that the Fed will pull liquidity and create a sell off in order to keep the bond market solvent. As a result, be careful shorting treasuries here. I will be increasing my short on treasuries on any hard sell off in stocks which artificially raises bond prices.

Also, if we get over 4% on treasuries and oil rises to $120 a barrel then its time to short the market. For now I sit on my hands.

Hope all is well with everyone and be careful out there!

Beware of Low Volume

2011-03-21T19:33:00.000-07:00

Before I start here I wanted to let you all know that I am taking a break for awhile in order to take care of some things. I'll try to pop on here and throw up a post now and then but no promises.

As for the market, I just wanted to warn everyone about low volume trading days. Take a look at the SPY here on the daily:

My Take:

As you can see at the bottom of the chart above, volumes are dropping again as things settle down in Japan.

We tend to drift up during times like these because the robot trading tends to dominate the price action. If you take a close look at the trading volumes you can see that the market tends to selloff on the heavy volume days and rise when the volumes fall of a cliff.

This happens because the HFT's can basically take the market wherever they want on lighter days because they are supplying the liquidity for the markets. Throw in the seemingly endlessPOMO Fed injections you have the perfect makings of a bullish tape.

The Bottom Line

As long as these trading robots are free to run wild there really isn't too much analysis that you can do when it comes to stocks.

None of this is investing. It's speed trading done by a bunch of algos that hold positions for a matter of seconds. The fundamentals of the market don't matter in this type of market setup because these speed demons are in and out of positions faster then you can say the word "elephant".

The fundamentals of the market have changed folks: Right now there are NONE! You need to wait until the volume picks up in order to have any chance at accuratelty analyzing this beast because it makes algo trades a smaller part of the price action.
Let me close with my usual bearish tone:) None of this is going to end well because the fundamentals SUCK. The February housing numbers were in the toilet this morning. Housing inventories are soaring.

Also:

The geopolitical situation is dire and so is the European debt crisis. These stories haven't gone away folks! They have been muted by a bunch of black trading boxes that have taken over Wall St.

The sad reality here folks is no analysis matters in a market like this as long as 70% the stocks are trades are bought and sold for a matter of seconds.

I continue to ride this storm out in metals, cash, some short hedges, and a short on treasuries that I plan on increasing in the very near future. Be patient and careful with this market.

A flash crash on some type of horrific developement wouldn't surprise me in the least. Longer term I still have my eyes focused on the ending of QE2 in June. April and May are going to get really interesting as all eyes begin to focus on the Fed. Until later.....

Tipping Point for the US Dollar?

2011-03-17T12:59:00.000-07:00

Watched some great tech tickers today:

Which would you prefer? A 77% tax increase or a 40% reduction in federal spending. According to BU's Kotlikoff these are the only solutions to our deficit issues:

Dollar Tipping Point?

Jim Rogers thinks so and based on today's price action you have to wonder if it's over:

Quick Take:

Today's price action in the dollar is not good folks. The dollar should be rallying hard right now based on all of the geopolitical chaos we are seeing in the world. It's becoming more clear with each trading day that we are no longer viewed as a "safe haven"

The signs of a collapse in the dollar are already being seen when you look real close at what the big boys are doing.

When people like PIMCO's Bill Gross sells all of his treasury holdings that are priced in USD's it's time to get nervous.

The fact that the dollar is free falling right now is a very ominous sign. Let's hope this isn't the beginning of the end.

Kotlikoff nailed it in the first video. We are using Enron accounting rules to run this country and we all know how well that worked out. The harsh reality here is this country is doomed unless we take the Draconian measures that are described up above.

It's time to stop all of the games before it's too late. Think hyperinflation can't happen here? Look up above and think again.

That's it for now. Time to drink lots of green beer and forget about the harsh realities of our economic nightmare.

Yen Soars After Hours as the Global Economic/Political Chaos Intensifies

2011-03-16T16:52:00.000-07:00

They always say: Leverage is a bitch when it goes against you. Just take a look at the Yen after hours if you want to see what it can lead to:

My Take:

Before I get to the leverage point let me point out that the Nikkei futures are down over 1000 points before the open(that is if they decide to trade today). Rumors have been flying around that the Nikkei might shut down for the rest of the week.

Leverage

All hell essentially broke loose after the Yen broke 80 against the dollar. This is the first time the Yen has seen this level since 1995. When it broke firmly through 79 it almost immediately triggered a violent unwind as seen in the chart above.

After hours the Yen SOARED to a whopping 76.39 before pulling back into the 78 area. My guess is someone(hedge fund perhaps) likely was liquidated after today's trade.

Currencies can be leveraged 100-1 so it doesn't take much of a move to literally wipe out your capital when you are on the wrong side of a violent move in currencies. This move after hours was literally breathtaking towatch. We seem to be rallying back as I type here.

The Bottom Line

My posts are going to be brief and to the point in the near term following this one because things are happening so quickly.

US futures are down again sharply once again after hours following the move in the Yen. This is a disaster scenario for the Japanese economy because the soaring Yen makes their exports much more expensive. Japan is EXTREMELY dependant on their exports...Toyota, Honda, Sony, Hitachi anyone?? The cost of imports soars as their currency rises.

At this rate you will be able to buy two Mercedes for the cost of a Toyota 1 month from now!

Folks, things are bad and getting worse. I am starting to get concerned that we might see some panic selling in the oncoming days. The Middle East is spiralling out of control, Japan is an absolute mess, and the economic data coming out of the US looks awful.

The housing starts "y on y" were the worst numbers seen since 1984, and the PPI came in smoking hot at a 1.6% increase versus the .7 that was expected. Making matters worse is the fact that our government is in danger of shutting down because Congress cannot come up with a budget.

My advice? Put yourself mainly in cash and ride out this frightening storm. The "buy the dip" suckers have gotten their teeth kicked in since this crisis started.

The biggest shame here in my view is Japan will be blamed for creating this economic crisis. The reality here is the crisis was caused by the same crap that put us in the soup back in 2008.   It's easy money and highly leveraged gambling (not earthquakes) that got us here.

You should blame the bubble blowing Fed and their printing press for creating this mess. Japan was the trigger not the cause.

Don't get me wrong, there is no doubt that the Japanese crisis would have hurt the global economy in either scenario. However, risk taking and leverage are what makes these corrections so much more violent and painful than they would be if this extreme speculation was taken out of the system.

The way I see it hings are just getting started folks. Expect more aftershocks(and no I am not talking about ones that are created by earthquakes).   Why? Because our speculative quants can't handle these economic shocks.

The trading robots weren't prepared to handle the Black Swan of "subprime" back in 2008, and they aren't prepared to handle the "Japanese" Swan either. As a result, many quants/hedge funds likely just got caught with their pants down just like they did when thehousing bubble came crashing down.

The Yen trade after hours is a prelude of things to come IMO.

What keeps me up at night about this crisis is it's going to cause the bursting of a much larger bubble.   The bubble that ends up popping this go around will be much worse than 2008 because it's a broad based credit bubble. Unlike housing, EVERYONE is involved in this one including governments.

There is only one outcome the way I see it. The "easy money inflation genie" is about to be released and it's going to wreak havoc on our society. It's already stared, and I don't think there is any governmental policy that can stop it. The proper response here would be to raise rates, but this is not an option for us right now because it would take down the entire banking system.

As a result, the only other option is for the government to print dollars in order to pay our enormous debt load which is about to be further burdened as we spend enourmous amounts of money bailing out Japan.

This will lead to catastrophic inflation down the road. I don't see any other way out. Please be very careful right now. Things are happening on an unprecedented pace. Protect your investments the best you can and prepare to ride out this horrific economic storm.

Show me the Money!

2011-03-15T19:50:00.000-07:00

It's hard to make sense of the markets following the unprecedented events we are witnessing in the world today.

I can't help but think of the video below as I watch the BoJ respond to their crisis by turning on the printing presses:

"The central bank, for its part, eased its policy on Monday by doubling to 10 trillion yen a fund earmarked for purchases of assets such as government and corporate bonds in hopes that together with money market cash injections will improve sentiment, since it lacks the authority to directly buy shares to prop up prices.

Under the scheme, the central bank can buy exchange-traded funds, or trust funds investing in stocks, but the money set aside for such purchases is far too small to make a sizable impact on Japan's stock market."

Quick Take:

Greattttt...Now we have two drunken central banks dropping money out of helicopters.

I don't blame the Bank of Japan for taking this approach. They had no choice. What worries me is Japan's 200% debt versus GDP was already twice as bad as the USA's fiscal situation before the quake. The cost of cleaning up this disaster is going to make this number considerably worse..

My question is how can Japan afford to rebuild?? As Jerry Maguire famously says above..."Show Me The Money!". We already know the answer to this one...The money simply isn't there but one has to ask does it matter anymore?

It seems as if no country is held accountable for their spending by the bond market . I guess the PIIGS have to some extent but that's about it. Everyone else is allowed to spend money that they don't have without any consequences.

The Bottom Line

At some point the bond market will hold these insolvent governments accountable. If they don't then inflation is going to continue to rear it's ugly head and create more chaos around the world. We got our first glimpse of it in the Middle East.

Next up is Europe and the USA. If you've filled up your gas tank in the past week you have already gotten a wiff of it. Japan will likely get a pass for awhile, but I can't help but think they are about to experience some type of inflationary or hyperinflationary event down the road.

The inflation genie was placed temporarily back in the bottle thanks to the horrifying events in Japan. Commodity prices have pulled back as the world's 3rd largest economy(and third largest user of oil) experiences a collapse in demand.

Don't expect this to last. In fact, as Japan starts to rebuild over the next year I expect oil prices to soar as demand for oil sky rockets. It takes lots of energy to rebuild a country, and we are about to head into the oil peak demand months of summer.

I wouldn't be surprised to see $5 gas as we head into June as a result of the events that have taken place in the past week. If the Fed decides to continue QE3 during this time then gas prices could get worse if the dollar falls.

Enjoy the break in prices as Japan get it's act in order. The way I see it we are in the eye of a Category 5 inflationary hurricane, and we are about to head into the back of the storm as we head into summer.

Tragedy....

2011-03-14T22:43:00.000-07:00

I'm sorry for being quiet today folks. Times like these simply aren't about the markets.

My heart goes out to the Japanese people. I can't imagine witnessing what you see below.

US futures are plummeting as Japan attempts to prevent a nuclear panic. The Nikkei is now down over 20% in the two days since this crisis hit.

That's all I have to say right now because I am deeply saddened by what is going on. Japan was already struggling with a 200% debt to GDP ratio before the earthquake hit. Let's hope this crisis doesn't put them down for the count economically.

I suggest everyone donate to the Red Cross if they have the means to do so.

My thoughts and prayers are with the Japanese people.

Consumer Sentiment Collapses as Gas Prices Soar

2011-03-11T13:55:00.000-08:00

From Haver:

"Consumers don't like it when they lose money. And the rise in oil prices reduces their spending power. The mid-March reading of consumer sentiment, from the University of Michigan, reflected that concern and declined 12.0% to 68.2 from 77.5 in February. A reading of 76.4 had been expected. During the last ten years there has been an 83% correlation between the level of sentiment and the y/y change in real consumer spending."

Now lets take a look at the consumers expected price inflation:

My Take:

These charts tell you all you need to know about where we are heading economically. As Haver explains, there is an 83% correlation to real consumer spending and consumer sentiment.

Today's consumer sentiment number was a huge miss and you can thank soaring gas prices for it. The way I see it, anyone that doesn't think $4-5 gas over the summer isn't going to stop the consumer in it's tracks needs their head examined.

I also thought it was important to highlight the consumers soaring price inflation expectations(as seen in chart 2). This means the consumer thinks things are going to get worse which means they will likely reign in spending in anticipation of having to be forced to pay more for things down the line. This does not bode well for things moving forward.

The Bottom Line

Anyone notice what happened the last time prices soared? The year was 2008...Need I say more?

I don't think we''ll see $140 on oil this go around unless something drastic happens in the Middle East. I say this because the consumer is in way worse shape than in 2008. The unemployment rate is almost double what it was back then, and millions of Americans have been forced to dip into their savings over the last 2 years in order to pay the bills. This means their own personal balance sheet is in much worse shape.

That $1500 in monthly unemployment check only goes so far when you are forced to use just about all of it to pay your bloated mortgage payment on your underwater home.

I think we are nearing a tipping point for the consumer. Our economy cannot handle $100 oil.

I wouldn't read to much into today's move in stocks. The market is simply a lottery at this point because there is so much going on right now. Just think about it: We have the European debt crisis, the Middle Eastern Revolution, Japan's earthquake, US debt issues.

These are unprecedented times. The market is highly vulnerable to violent swings as all of these events play out. I am starting to sniff a little deflation out there which is forcing me to contemplate selling off some metals. I have already sold some into this recent strength.

A short term dollar rally wouldn't surprise me here after today's USD sell off. Don't think for a second that I believe in the dollar over the long term. My thesis here is risk is relative, and Europe is in a lot worse shape then we are over here as Spain and Portugal hang by a thread. This should be bullish for bucky. The Middle East craziness should also support the dollar's case.

These are my thoughts for now but please note that they can change at the drop of the hat because the sudden shocks that we are witnessing in this crazy world are occurring at an unprecedented pace.

Be safe and stay diversified. I am sitting mostly in cash right now(about 80%). The balance of my portfolio now sits in GLD, SLV, SDS, QID, and TBT. I also have a spec play in biotech ADLR but please realize the risk here is HUGE. I will patiently wait for cheaper prices before buying stocks. There are some divedend plays that I have been watching but it's still too early. Stay tuned.

China Trade Worries Rattle Wall St

2011-03-10T16:02:00.000-08:00

In the end the numbers never lie:

"Exports rose 2.4 percent in February from a year before, the least since 2009, as Lunar New Year holidays disrupted shipments, and imports climbed 19.4 percent, customs bureau data showed yesterday. Central bank adviser Li Daokui said that the full-year trade surplus will shrink from the 2010 level."

My Take

The wizards of Wall St hate it when the math reveals itself because it makes things much harder for them as they try to sell us boatloads of worthless stocks.

We all know that pretty much everything we consume comes from China. Just about every other country can say the same thing. Just take a look at the chart from The Wall St Journal:

As a result of this shift in trade, you must focus in China's trade data if you want to gauge how the consumer and the economy is doing globally.

Wall St took a look at the numbers today and puked when they realized that Chinese exports rose only 2%.

What happened to our glorious global recovery? Wall St's job of pumping stocks just got a whole lot tougher. As I have warned before, stocks are priced for PERFECTION with P/E's at 24 versus the historical average of 16.

This means the market can't remain lofted at such high levels without mind numbing growth. 2% growth just isn't going to cut it, and stocks reflected this today.

The Bottom Line

The S&P 500 sold off by almost 2% on the trade data. The deflation trade is now back on as Wall St begins to worry about slower global growth.

As a result, commodities got clobbered as bonds and the dollar both rallied.

I find these violent reactions to be quite amusing. The market acted like it was shocked at today's news of slower economic growth. My reaction to this is how could you not see this coming?

I am amazed at how mesmerized investors get when the market rallies. The reality here is stocks rallied but the economy never really did. Government spending soared after the recession and was used as a replacement for the the collapsing private sector.

In other words the US government was able to hide this economic disaster for a couple of years by printing and spending money like drunken sailors. We would have seen a depression in this country without all of the stimulus.

I still think were going to see one because nothing has been fixed.

The banks are still bankrupt. The housing market remains in tatters. Americans continue to lose jobs, and the people that manage to find new ones are usually making considerably less money.

SAdly, the stimulus was spent in all the wrong places. Most of it ended up going right into the pockets of the uber wealthy of this country as the financial system got bailed out.

What's scary moving forward is the public sector is about to slammed as the Republicans begin to cut spending. Just take a look at Wisconsin if you want to see what that looks like. I say more power to the Republicans on this issue. The union thugs had this coming, and it's about time they get treated like the rest of us in the private sector.

I don't know about all of you, but I am tired of working like a slave in order to finance my local toll booth collector's six figure annual pension.

Watching these union idiots up flip out up in Wisconsin over slight pay cuts is a complete joke. Are frickin kidding me? I am just happy to be employed at this point, and these nimrods are whining about pay freezes. Go grab yourself a 401k and start saving like the rest of us. There is NO FREE lunch! Grrr...This gets me so mad. Unbelievable!

There were other reasons why we sold off today that I will get into that later. Go Google "Spain downgrade" and "Saudi Arabia" and you will see why Wall St is worried. Until next time!

Are REIT's the Next Bubble?

2011-03-09T15:58:00.000-08:00

The way I see it the answer is a resounding YES!

I thought it was important to discuss this sector because many investors(especially fixed incomers) are desperately chasing these stocks in order to find yield which allows them to avoid eating into their nest eggs.

Finding yield was much easier 5 years ago when yields were at 5% on bonds.

Back in those days if you saved $1 million dollars and threw it into treasuries your were guaranteed $50,000 a year in interest. Throw in an additional $20,000 of social security and it's not a bad living for most folks after they retire.

The problem today is this treasury investment no longer exists thanks to the Fed's zero interest rate policy. The only treasuries that offer anything close to 5% is the 30 year bond which will give you about 4.5%. The problem with buying these is you are locked into an investment for 30 years!!! It's almost like buying a house.

The risk of owning bonds at the longer end of the curve is inflation. If you buy these bonds and inflation rises above 5% annually(which seems highly likely at this point) then you are losing money in real terms on an investment that yields only 4.5%. Additionally, the value of these bonds in an inflationary world would drop which means you would also take a huge hit on your principal. Essentially you get screwed twice!

As a result, many investors and investment advisers are avoiding these long bonds like the plague. They have decided instead to look elsewhere for yield and one of the areas they ran to was the REIT's.

This was all well and good early on when these stocks were fairly valued. The problem is these stocks have become grossly overvalued as investors continue to gobble up anything that offers a decent return. As these stocks started to rise the speculators got into the game and before you knew it it was "Bubblemania" in the REIT sector.

Of course this is not going to end well. I mean haven't we seen this game before? Do the words "triple A mortgage backed securities" yielding 8% ring a bell? How did that one work out?

Anyways, the best example I could find to show how you insane the "REIT Mania" has gotten was Simon Property Group(SPG). Simon has essentially risen about 400% from the high $20's up to $106 since the 2009 lows despite the fact that commercial real estate has plummeted in value at the same time. This puts it near it's all time high of 123 which was seen before the real estate bubble collapsed.

Here is a chart of SPG's amazing performance:

I chose the "best in class" REIT to make my point although I must admit this is similiar to looking for the nicest horse in a glue factory.

The Case

Let's start with their balance sheet. Simon(SPG) currently has a whopping $17.49 billion in debt on revenues of $3.96 billion. They currently hold $796 million in cash.

What was first startling to me when I first looked at this was the P/E values. The trailing P/E on SPG is a whopping 50. Meanwhile the forward looking P/E for year ending 2012 is only 15.

Ummm...How do these numbers work? Are earnings going to rise 400% this year while unemployment remains at 10% and commercial real estate prices continue to fall?   This is a joke right?

Perhaps they going to make up these losses on their malls that continue losing tenants month after month? Good luck with that!

It gets better:

Simon's cash level is disturbingly small when you look at how much cash SPG raised in the debt markets the last 2 years:

"The company maintains significant financial flexibility and has demonstrated access to a wide variety of capital sources through cycles. At June 30, 2010, Simon had approximately $2.3 billion of consolidated cash and cash equivalents on its balance sheet as well as approximately $3.35 billion of availability under its unsecured revolving credit facility. Additionally, Simon has raised $3.15 billion of long-term, unsecured bonds year-to-date to fund tenders of bonds due between 2011 and 2014. Simon also raised over $3.5 billion of external capital in 2009 through unsecured bonds, mortgage debt, and common stock during volatile financial market conditions."

My Take:

Where did all this money go? They only have about $800 million in cash after raising billions in the debt markets. Did they decide to "double down" and pile it into more worthless commercial real estate or did they need all of this money to pay their 3.2% dividend?

Perhaps the capital was needed to manage the losses they have been forced to take on their commercial properties?

Let's think about that for a second: Can you imagine what the total losses are on their massive commercial loan portfolio?

Let's get real here: SPG would likely not be around if the Fed didn't allow the REIT's to roll over their commercial loans at "fantasy" values. Remember folks, commercial loans are not like home loans. They are refinanced ever 2 years or so. If these companies were forced to eat their commercial loan losses they would have gone the way of Lehman Brothers.

The Bottom Line

Needless to say SPG is not a buy at $106. In fact if anything it's a darn good short the way I see it.

REIT's like SPG have more than quadrupled in value for two reasons: Dividends and specualtion. These not a sound fundamental reasons to own a stock.   If anything it's a recipe for disaster.

Don't get me wrong on the dividend part, 3% dividends are nice as long as the risk is relative to the return you are receiving.This is clearly not the case anymore when the trailing P/E's on SPG sits at 50! The earnings growth expected in 2012 is nothing but a fantasy.

Remember folks, there is a reason why SPG continues to suck billions out of the debt markets. They obviosly need the money in order to survive and pay their dopey dividend.

Bubbles never end and the price action that has recently been seen in the REIT sector is clearly Ponzi style investing. Buying insolvent companies for a dividend is never a smart approach towards investing.   A 3% yield doesn't work out so well if the stock drops by 30% or more.

There will come a time where all commercial real estate will be forced to mark to market because the banks are going to need the money and they will start to foreclose on these properties in order to get it. If this doesn't finish off many of the REIT's then the collapsing retail markets most assuredly will.

Disclosure: No position long or short on SPG.

Help Wanted: Only Jugglers and Bubble Blowers Need Apply

2011-03-08T15:49:00.000-08:00

Ever wonder what goes on at the Fed behind closed doors? Here is an exclusive behind the scenes look at Tim Geithner and his crew managing the US economy each day:

My Take:

I commented yesterday that I was curious to see what the markets would look like if things settled down in the Midde East. Well.... We got a sneak peak today as the market soared higher as things quieted down and oil prices pulled back a bit.

The move means nothing IMO. In today's world of speedy robot trading a quiet day means the market can take quick advantage and move higher.

The interpretation by the markets is pretty easy at this point: As long as Bernanke and Geithner can keep all of the juggling balls in the air and keep printing then the big boys will stay long. The question they will eventually askthemselves in the next few months is how long is this sustainable as the ending of QE rapidly approaches?

As you can see above, it becomes increasinly more difficult to keep all of the balls moving when more and more balls keep getting thrown into the mix.

When QE first started in late 2008 the juggling was easy. Inflation was low, gas prices had collapsed after 2008's brutal recession, and the rest of the world was relatively quiet.

Today is a different story: Soaring food and gas prices, political unrest in the Middle East, and the European debt crisis have all been added to the mix. This means there are many more balls that now need to be juggled which makes the game much tougher.

The Bottom Line

The ridiculous price action that we saw today given how dire things are in the real world validate the theories that our markets have been over taken by trading robots that no longer trade on fundamentals.

IMO, the game is now all about speed. Positions are held for seconds and the large algos all compete to see the stock quotes before everyone else. They are also becoming increasingly obsessed with speed when it comes to information. They know that the ability to access and process information in a timely manner gives them a competitive advantage.

AS a result, algo's are now reading Twitter accounts in order to find instant information that might give them an edge in the markets.

a little tough love before I move on: If you are day trading you need to accept the fact that you are outmatched and outgunned by these guys. If your account has been getting hammered as the markets trade like a bi-polar teenager then I suggest you re-evaluate your approach to investing.

We live in a different world today folks. The markets will likely never be the same as long as it only looks 2 feet in front of itself thanks to these speed obsessed little black boxes.

We are rapidly approaching an economic cliff, and there will be no turning back once we get there. Our ADD markets will have no time to react once we start to fall over the edge because the players are all too focused on whats going on 10 seconds from now in the stock market instead of doing the smart thing and preparing for the longer term.

Our financial markets were not designed to act like this. They were supposed to be a place where you could safely invest and grow the capital that you worked so hard to build over your lifetime.

Today our markets are nothing of the sort. The stock market has morphed into a high speed casino where you can win or lose it all in a matter of a few months.

Just look at the past 11 years. We have seen 4 moves of greater than 40% in the S&P 500 over this time. The bulls and the bears are tied at 2 each.

Here is a chart of the insanity since 2002:

Ummmm...And you call this investing?

Who on earth wants to see their life savings go up or down at a 40% clip every few years when they are investing for their retirement???

One day the stock market will be filled with nothing but speculators and fools. It's going to resemble the same group of people that got stuck holding tech stocks in 1999 and houses in 2006. I can't tell you when it's gonna happen. I can only tell you that it will.

Let's hope that the Fed and our government finally end their bubble blowing ways that always end up with millions in tears.

It's time to stabilize the stock market casino and turn it back into a place where capital is appreciated and rewarded instead of being repeatedly raped and pillaged by a bunch of predatory robots.

Enough already. People are tired of this nonsense.

Is QE3 The Next Black Swan?

2011-03-07T15:26:00.000-08:00

One has to wonder. I thought these folks were smarter than this:

"Arlington, Va. (CNNMoney) -- If oil prices continue to climb, it could force the Federal Reserve to make a new round of asset purchases, according to Atlanta Fed President Dennis Lockhart.

Appearing at the National Association of Business Economics in Arlington, Va., Lockhart said that while he doesn't think additional purchases are currently warranted, more stimulus could be needed if oil prices continue to climb.

"If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation," Lockhart said at the conference."

My Take:

Please hold on a sec....HAHAHAHAHA! Let me stop laughing first before I go on.

Ok, on a serious note:

Let me start by taking a look at the bond markets since QE2 was announced in early November. Let's take a refresher course first. QE2 was implemented in in order to keep interest rates low. This was intended to help stabilize the housing market which would then help prop up the economy.

Let's look at the 10 year since and see how that worked out:

Oh it worked all right...In the opposite direction!!! As you can see above, bonds have tanked since QE2 was announced. We are up over a full percentage point in yield since QE2's inception.

So much for that idea!

QE3=Lower Gas?

So let me get this straight. Lockhart believes that QE3 will help keep gas prices lower?

Let's take a look at the dollar and crude oil since QE2 was announced:

Hers is the dollar first:

Now let's take a look at crude:

Take Continued:

As you can see above, the dollar tanked on the original QE2 news in early November, and we are once again about to retest the lows that we saw when it was first implemented.

This price action is pathetic considering the fact that we have seen total geopolitical chaos in the last month. The dollar is supposed to be the "safe haven" during times of crisis like these. Not anymore I guess!

Now let's take a look at oil. Oil stood at $80 when QE2 got started. Crude responded to the news by rising up to $90 in the first month following the Fed's announcement. Crude has done nothing but move higher ever since. It now sits at $105 a barrel. I will give the Fed a pass on the recent spike due to the Middle East chaos.  However, minus these events, oil still rose 20% following QE.

The Bottom Line

A quick question for Lockhart. How does weakening our currency via QE3 help lower the price of oil? Wouldn't it have the opposite effect?   How could you not come to this conclusion?

I mean look at what has happened to food prices since the announcement of QE2! In case you have been hiding under a bridge they are soaring!!! In fact, food prices have passed the highs seen back in 2008!!!

This rise in the cost of food thanks to your inflationary policies are why we are seeing the Middle East blow up right before our very eyes.   People don't risk their lives fighting well armed government armies with rocks unless they have nothing to lose because they are starving, broke, and desperate.

Everyday I read things that absolutely blow my mind. The stupidity and greed we are witnessing at the Federal Reserve is just breathtaking.

Mark my word...This is all going to come home to roost one day, and we may be very well seeing it happen right now. The market looks sick but it's too early to call this a correction.

The market is trading on oil prices for now. I am curious to see what the market does once(or should I say if?) things start to settle down in the Middle East. I thought it was interesting that the market didn't rally more at the end of the day when crude prices slid back a tad near the end of the session.

The bulls tried to rally it back, and the DOW at one point was only down 49 points before the sellers took over into the close. We ended the session down 80 points.

It will be interesting to see if this geopolitical chaos continues into April/May which is when the Fed will begin contemplating the end of QE in June. This could be a potential disaster for the Fed because oil could very well rise into the $150's by then if the Arab world remains in tatters.

The Fed at that point may very well feel that they have no choice but to press the QE3 button which means they will be playing with some serious fire.

They will have no idea how the markets would react to such a move. The dollar could get destroyed by the currency traders on such a policy decision. This would then force oil prices even higher.

Will this be the Black Swan? Probably not because Black Swans usually come out of left field.  Is the Middle Eastern revolution developing into a Black Swan? This could very well be because NO ONE saw this coming, and things seem to be getting worse by the second over there.

Enjoy the rest of winter folks. Things are going to be heating up faster than usual this spring. Fill up your oil tanks as winter ends before the fun starts. This is going to get interesting.

Tough Times for our Children

2011-03-06T19:18:00.000-08:00

If this doesn't bring a tear to your eye then I don't know what will. This is the side of America that your rarely ever hear about thanks to our pathetic media. Our trillion dollar bailouts have come at a price, and our future generations have been scarred for life because of them.

I hope everyone on Wall St sees this as they gorge on their 2010 billion dollar bonus checks that they received a couple of months ago. Perhaps it will put a few things in perspective for them.

Recovery? I think not.

The Only Chart that Matters

2011-03-04T16:11:00.000-08:00

For the near term anyway:

My Take:

I hate to keep putting this up but the market is obsessed with oil. We broke $105 briefly today before pulling back to $104 and change at the close.

We saw a sharp rally off the lows at the end of the day. I say no reason for optimism near the close other than oil pulling back a tad. I will chalk this move up as a robo rally and nothing more.

I thought we would end the days at the lows because it was a Friday, and I figured traders wouldn't want to be stuck in positions over the weekend due to fears of what might happen in the Gulf region.

One thing is for sure at this point: Volatility is back! I expect more of the same moving forward as the market worries about the ending of QE and oil prices.

The way I see it: Stocks are doused in gasoline, and all it will take is one spark to turn this thing into a towering inferno.

What could trigger the blaze?

Let me count the ways:

$140 oil.

Saudi Arabian revolution(Keep a close eye on the scheduled March 11th protests).

PIIGS default/Euro debt collapse.

European interest rate hike(which was hinted at this week by the ECB).

Sharp sell off in the US dollar(look at the chart of the dollar folks, it's ugly).

Sharp rise in interest rates on treasuries.

Buyer beware:

If any one or a combination of these things strike we are in deep trouble.

The Bottom Line

The jobs number of +193K was decent but it's not enough to allow us to grow out of our problems. We need at least +200k new jobs a month in order to start lowering the unemployment rate to any large degree. Given our devestating job losses since 2008 the number needs to be even higher than this for now so I think the market was a tad disappointed at the number.

Remember, we have about 100,000 people entering the job market every month so you need to peel this number off when you look at the jobs number when it coems to putting people back to work.

Stay focused on oil for now, and let's all pray that the Middle East settles down before things get out of hand.

The Fed's QE will be the next crisis. Worries about the ending of QE are already hitting the market after today's tough talk from the Fed:

"Federal Reserve policy makers are signaling they favor an abrupt end to $600 billion in Treasury purchases in June, jettisoning their prior strategy of gradually pulling back on intervention in bond markets.

“I don’t see a lot of gain to reverting to a tapering approach,” Atlanta Fed President Dennis Lockhart told reporters yesterday. “I don’t think that is necessary,” Philadelphia Fed President Charles Plosser said last month."

Bottom Line Continued:

Translation? Umm...Things are really getting out of hand and we better settle down before oil hits $200 a barrel.

I have said it over and over again: Bernanke has painted himself into a seriously bad corner. I think the global chaos is forcing the Fed to rethink things. The problem is if Ben ends QE than interest rates are going to soar. This in turn will then KO the housing market and the banking system.

Nice choice for the Fed eh? $200 oil and raging inflation or a deflationary spiral/banking collapse with double digit interest rates on treasuries.

Being Fed Chairmen at this point just has to plain stink. It didn't have to be this way if we had taken our medicine in 2008. Talk about a no win situation.

Bill Gross Walks Away

2011-03-03T21:55:00.000-08:00

Sorry for the silence. It's been a busy week!

I have thought a lot about how the markets trades these days. The new Wall St is now dominated by billion dollar backed trading robots that buy or sell stocks in milliseconds when any news hits the wires.

At this point around 70% of the trades on Wall St are done by these amazing machines. I can't help but wonder how intimidating this must be for the average investor.

Cash on the sidelines remains high and I can see why. Everyone has to be asking themselves the same question at this point when it comes to investing in today's markets:

HOW CAN I COMPETE AGAINST THESE HIGH SPEED TERMINATORS????

The answer: You can't. If you are trading the markets I suggest you that you use one of these bots or read an investment newsletter that has one.

These machines all look for similiar trends, and if you are caught on the other side of their trades you risk being taken out to the woodshed and shot. I see more and more individual names that are being shot dead or pumped alive by these algos for no apparent reason. Be careful if you are stock picking and be aware that what you own could become a target.

The police love to say "speed kills". I believe the same saying can now be used when it comes to investing on Wall St. The problem with these machines is it's turned the markets into a casino. Investors are being rewarded on the long side for being the flavor of the day instead of P/E ratios. Just look at stocks like Netflix and Salesforce.com. I haven't seen such idiocy since the tech bubble.

There problem the market now has is there is no fundamental method to the algos madness. Like predators, they scan the markets everyday looking for the next kill long or short. They are in and out of their trades in seconds which means the fundamentals are irrelevant.

The next question we must ask ourselves moving forward is can a market run efficiently without fundamentals?

The answer is of course not, and over time it's going to hurt the markets because I think you are going to see more and more "investors" walk away from the game as long as the robot insanity is allowed to continue.

I mean think about it: When the fundementals no longer matter how can you logically remain in stocks if you invest based on fundamentals?

A "fish" at the poker table eventually learns this after repeatedly getting his teeth caved in day after day. I can't help but think that many investors will eventually come to the same realization.

Case in point:

Bill Gross. The world's most famous bond investor basically announced this week that he is walking away from treasuries because he thinks the government is now a Ponzi scheme.

Here is his conclusion in his most recent letter to his investors:

"Investors should view June 30th, 2011 not as political historians view November 11th, 1918 (Armistice Day – a day of reconciliation and healing) but more like June 6th, 1944 (D-Day – a day fraught with hope for victory, but fueled with immediate uncertainty and fear as to what would happen in the short term). Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market handoff and stability in currency and financial markets. 15% gratuities may lie ahead, but more than likely there is a negative two-bit or even eight-bit tip lying on the investment table. Like I did 45 years ago, PIMCO’s not sticking around to see the waitress’s reaction"

Take Continued

He is putting his money where his mouth is. His largest fund(PTTRX) has dropped it's treasury holdings down to 12%. I have seen PTTRX hold quadruple this in the past.

Can you blame him? How can anyone after looking at the chart above conclude that this is sustainable?

The Bottom Line

How much more "gamesmenship" will it take before we all pull a "Bill Gross" and walk away from the game?

Let's all just face it: The market now trades on day to day news. You could actually say it now trades second to second at this point!! If bad news from the Middle East hits the wires then stocks plummet. If we get a decent jobs report like today's claims number then the market soars.

It's gotten totally ridiculous!

Watching today's stock market reminds me of watching a young boy that has ADD. The stock market and it's zero attention span spends each day bouncing around like a pinball as the robots react to the various news items of the day.

It's time to give the market a gigantic dose of "Ritalin" in order to slow this train down before it runs itself right off the tracks. This could easily be done by simply increasing the costs of each transaction.

Don't hold your breath waiting for this to happen. The gamblers are all addicted, and the Fed is fueling their "animal spirits" by dumping billions of QE dollars into the markets via helicopters.

Speechless

2011-03-01T18:32:00.000-08:00

This about sums it up today:

My Take:

The world is a scary place right now:

Bernanke is in complete denial as inflation continues to strengthen it's grip on the world.

Tanks are rolling through the streets of Bahrain, Libya, and Egypt as the Middle East remains on the brink of total chaos.

Goldman Sachs takes another hit to it's permanently scarred reputation as one of their board members gets accused of insider trading by the SEC.

Congress prevents the government from shutting down after making a last second deal that lasts for a whopping two weeks.

The US consumer takes another blow to the head as oil rips through $100.

States, the US government, and the banks are all bankrupt!

I could keep going but I will end it there.

The Bottom Line

I don't know what to say folks. I am speechless at this point. All I can do at this point is pray that we somehow find a way to keep things together.

The rising stock market over the past few years has been very effective at hiding the Ponzi scheme that our whole world has morphed into. It's now all beginning to burst, and I don't see how it can be stopped.

Our 2 year economic recovery was built on a foundation of sand which means it had no hope from the beginning.

The debts that were created during a 30 year credit bubble have become insurmountable as inflation rears it's ugly head. Rates will inevitably rise as a result which will then make our debt too costly to service.

All we can do is hope for a miracle because that's the only thing that will save us at this point.

Who's Right? You Decide...

2011-02-28T19:44:00.000-08:00

Great exchange here between Schiff and the Fast Money guys.

Bullard's Tells the Savers to Piss Off

The market partied on today as the Fed rolled out Bullard on CNBC this morning. The Fed President preached QE, easy money, and low rates for the whole segment. The market responded with an immediate boner as they become convinced that the "easy money" game will keep rolling on.

Take a look at Bullard's arrogant reaction below when CNBC pressed him on the devestating effect that zero rates on have on the elderly who live off of fixed income.

He basically tells them "tough shit" and blames them for not taking on enough risk. I am continually amazed at the size of the balls the Fed has.

The P/E's on stocks are now at 24 which is the highest levels seen since the tech bubble. Historically stocks P/E's usually remain around 16. This is hardly sound advice from a Fed President.

Today was also a POMO day which helped stocks. For now it's party on. The Fed shows no signs of taking their foot off the "easy money" gas pedal despite the turmoil in the Middle East.

I fear the day when this all comes back to bite us. Enjoy Bullard's remarks below:

Oil Futures Surge Higher as Libya Burns

2011-02-27T18:53:00.000-08:00

Things are not looking good folks. It looks like crude is headed back over $100 by the morning:

My Take:

The market looks AWFUL tonight. Stock futures are diving and gold and silver are surging as Libya sinks into a full blown civil war.

Qaddafi has officially reverted back into his old "lunatic" self as the walls begin to cave in around him.   The situation in the Middle East is bordering on the brink of chaos.

IMO, There is more uncertainty over there today than ever before which says a lot when you look at the history of this region.

The questions are endless:

Who will rise to power in Egypt and Libya(after the regime falls)?
What happens to the Suez canal?
Which government will fail next?
Does oil go to $200 if Saudi Arabia is next?

I could go on and on. Wall St will spin all of this change as being one gigantic positive for the markets as the crazy dictators come crashing down like a ton of bricks. The market rallied on the rumored death of Qaddafi on Friday.

This is retarded thinking in my view. The reality here is millions of impoverished arabs are becoming desperate as inflation takes the cost to living unaffordable levels. These worries are now starting to drift over into the Western world:

The EU is getting increasingly concerned about rising prices. there are reports that they might bolt on the Fed and start raising rates in order to quell inflation:

"(Reuters) - The Federal Reserve and European Central Bank may go their separate ways if Middle East unrest provokes a sustained, inflationary oil price spike.

Crude prices creeping back into the triple digits have sparked concern about slower economic growth and will no doubt reignite two long-running monetary policy debates:

Should central banks have a single inflation-fighting mandate, as the ECB does, or dual goals of price stability and full employment, like the Fed?

Should policymakers focus on headline inflation rates or strip out volatile food and energy prices?"

Take Continued:

This is NOT good folks. If the EU starts taking rates higher then our currency is toast unless the Fed follows. Gas is closing in on $9 in the UK, and I am sure the prices are similar throughout the whole EU.

The PIIGS simply cannot afford this type of shock as their unemployment rates hover over 20% in some areas.

The walls are closing in on this whole charade people.    The Fed is slowly getting "boxed in".

What will Ben do next?

Does he risk a huge surge in global inflation as he continues dropping money out of helicopters?

OR

Will he be forced to raise rates which then risks the whole economic recovery?

The Bottom Line

The right answer is to raise rates of course. There is no economic recovery to save. Government spending created an artificial one there for a bit, but we all knew all along that this was not sustainable.

The problem the Fed has if it raises rate then it will likely put this country into an economic depression. This is why I fully expect Ben to choose option A.

This means you should expect to see prices continuing to rise until the whole thing inevitably collapses. $140 oil should do it.

Remember, we are much less prepared for an oil spike this go around. Unemployment is nearly twice what it was when a similiar "shock" occurred back in 2008. This means the consumer will roll over much faster this go around as Americans continue to remain jobless.

This is all going bad much sooner than I originally thought. If oil continues surging like this then the central banks of the world are going to have some tough decisions to make when it comes to interest rates.

Sticking our head in the sand and running up the government credit card with mind numbing amounts of debt is not the answer. The market will eventually force the Fed to raise rates if Ben continues to deny that we are seeing inflation.

Keep an eye on Bernanke's testimony in front of Congress this week. What's interesting here is the ECB has their policy meeting regarding interest rates right in the middle of his testimony. We should learn a lot about what Ben is thinking as he is forced to take some tough questions. I am sure the phone lines of the central bankers will be lit up in the hours before Bernanke speaks.

That's all I have time for tonight. I didn't even get a chance to discuss Ireland's dramatic election results.. The ruling party got abused by the voters. In fact, the ruling party came in 4th place which is mind boggling when you really think about it.

The concern here of course is what will the new regime do in regards to the EU bailout of Ireland? Does the Irish now tell the ECB to take a hike and refuse to pay the money back? I would if I were them. Why would any government sacrifice it's people in order to pay back a bunch of greedy bankers? Afterall, that's what the bailout is all about.

Keep a close eye on this. Until next time.....

GDP Miss...."The New Normal"

2011-02-25T07:31:00.000-08:00

Here is a shocker(NOT!):

"WASHINGTON (Reuters) - The economy grew slower than initially estimated in the fourth quarter as government spending contracted more sharply and consumer spending was less robust, a government report showed on Friday.

Gross domestic product grew at annualized rate of 2.8 percent, the Commerce Department said in its second estimate, marking a downward revision from its initial 3.2 percent estimate.

Economists had expected GDP growth, which measures total goods and services output within U.S. borders, to be revised up to a 3.3 percent pace. The economy expanded at a 2.6 percent rate in the third quarter. For the whole of 2010, the economy grew 2.8 percent instead of 2.9 percent.

The pace of growth was too slow to do much to lower the unemployment rate, which fell during the quarter from 9.6 percent to 9.4 percent. It fell again in January to reach 9 percent."

My Take:

Stocks are up on the news which isn't a surprise because we were due for a bounce after 3 days of nasty selling.

I just love these economists and their "misses". Let me share a funny story here from "the credit trader". He loves to tell this story about a large banking customer that he traded treasuries for back in the 1970's and '80's.

His client would ask "the credit trader" what his firm's economist was advising when it came to where the 10 year bond was going to trade. If the economist said that he expected bonds to sell off then his client would immediately take the other side of the trade for shits and giggles and go long. "The credit trader" told me that his client won way more times than he lost when he took these bets.

They both would share a nice chuckle when his client would make money on these trades.

My point here is economists are pretty much worthless. There are a few who have a clue, but for the most part they are shills that are bought and paid for by the people they work for on Wall St.

The Bottom Line

The market is pretty quiet. The DOW is up around 60 points. IMO, Stocks going to trade on oil in the near future so if the Middle East stays quiet and oil prices remain steady then I wouldn't be surprised to see us move higher.

The longer term fundamentals however remain weak. GDP growth below 3% means ZERO job growth folks which is not good when you consider 1/5th of this country is unemployed.

No jobs means that housing will remain weak and continue to deteriorate. It also means that the consumer cannot recover and start buying the millions of I-phones that Apple needs in order to keep up it's amazing growth.

The stock market has not accepted our "new normal" growth rate of 2-3%. Stocks are priced for perfection. We need a robust recovery in order to create the earnings growth needed to sustain these prices. Folks...I hate to say it but it "ain't gonna happen"!

If QE stops in June(which I am starting to doubt after seeing the bad GDP print), then I expect to see negative growth by Q4 of this year which means we will likely dip back into a recession. We could possibly even see it in Q3 but I think that might be a tad too early.

If QE does not end and #3 is announced then inflation is going to continue to be a problem. It's going to destroy profits as input costs continue to rise. We are seeing signs of this already.

Can you imagine what the dollar is going to look like if QE3 is announced? It's not going to be pretty. You can be assured that the bond market won't be too happy either.

The bulls are still loaded with lots of profits so don't be surprised if this POMO market rises from here for a tad.

I stick hold firm on my prediction of a sell off as the ending of QE approaches in the March to May time frame.

What a Difference a Day Makes!

2011-02-23T16:26:00.000-08:00

Whoa! I don't even know where to start today. Should I begin with $100 oil or the ugly bond auction.

Let's start with the 5 year bond auction and the 10 year bond's reaction to it:

My Take:

Today was a scary day. There was nowhere safe for money to hide. Cash started flying into treasuries in the morning as stocks sold off thanks to more Lybian mayhem.

That was working just fine until the bond auction was announced at 1PM. Santelli gave it a D-. Here are the ugly details:

"Bonds fell after the five-year note auction drew a high yield of 2.19 percent and a bid-to-cover ratio of 2.69, below the average bid-to-cover ratio of 2.79 posted over the past ten auctions.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold."

Take Continued:

As you can see above, treasuries sold off following the poor auction results.

Folks, I don't what to say here....If we can't sell bonds now when stocks are selling off at the same time the Middle East is in the process of blowing up then when in the heck can we sell them???

The bond action spooked me more than the revolution in Libya today. All I can say is this is a really really bad sign for treasuries moving forward.

Is the Fed Waking Up?

Sure sounds like it. Two of the Fed presidents created some serious waves today. The Fed's Plosser first came out with this bomb:

"WASHINGTON (MarketWatch) -- One of the most hawkish of the new voting members of the Federal Open Market Committee, Philadelphia Fed President Charles Plosser, on Wednesday said he's considering voting against continuing the $600 billion bond buying program but is also concerned about undermining the Fed's credibility. "Based on my reading of the economic outlook and challenges that the economy faces, I have expressed some doubts that the benefits outweigh the costs of this policy," Plosser said before the Rotary Club in Birmingham, Ala. "However, I supported continuation of the policy in January because it is generally a good practice for a central bank to do what it says it is going to do unless circumstances significantly change." He said should economic prospects continue to strengthen, he would not rule out voting to bring the bond buy program to an early close. "If the growth rates of employment and output begin to accelerate or if inflation or inflation expectations begin to rise, then it may be time to begin taking our foot off the accelerator," he said. "

Hoenig

Kansas City Fed President Hoenig then hit the wires with a fiery speech that was directed at the TBTF banks. Here is the speech:

"Fed’s Hoenig Says U.S. Should Break Up Largest Financial Institutions

“I am convinced that the existence of too big to fail
financial institutions poses the greatest risk to the U.S.
economy,” Hoenig said today in Washington in the text of
remarks prepared for a speech. “They must be broken up. We must
not allow organizations operating under the safety net to pursue
high-risk activities and we cannot let large organizations put
our financial system at risk.”

Quick Take

Talk is cheap but this is a start! Don't think for a second that the political chaos we are witnessing in the Middle East didn't have anything to do with these speeches.

The Fed is well aware of what money printing does. They are also smart enough to realize that they need to hedge when their games start self destructing on them and the rest of the world.

They can tell us that they see no inflation until it's completely obvious that it's staring us right in the face.

In case you didn't notice we have definitely reached that tipping point:

I mean Christ....

When oil hits $100 a barrel, gold soars over $1400 an ounce, and monarchies start toppling due to soaring food costs I think it's kinda hard for the Fed to come on TV and tell us "we see no signs of inflation".

They understand that people are only stupid to a point. The question now is will they ACT. The Fed has a tendency to do a lot of barking instead of biting. I will congratulate them when I see action Jackson.

The Bottom Line

$100 dollar oil is gonna hurt folks. I wouldn't be surprised to see $4-5 gas by the summer which is when demand starts peaking. That's a big punch to the gut for the consumer.

Today's Fed speeches were VERY interesting to say the least. My guess is the Bernanke is taking some SERIOUS heat from the world's central bankers. Most commodities are denominated in dollars folks which means the Fed's money printing creates and imports inflation to the rest of the world!

Let me remind you what the dollar has been looking like recently in case you haven't noticed:

This recent price action is going to only make matters worse overseas. BTW, the dollar is selling off hard ahter hours tonight.

The fact that the Fed is hinting that they might end their QE program tells me that their arm is being seriously twisted by the powers around the globe.

The governments of the world were more than happy to play along with the Fed's games until they realized that they might lose power in doing so.

Folks I don't know how else to say this: If the Fed is forced to stop QE then the financial system as we know it is toast. Bond yields will immediately soar(they already are) and the banks will be toast because they own billions and billions of them.

The Fed knows this, and I think it's a little too coincidental that Hoenig's speech focused on breaking up the TBTF banks.

It's too early to tell what's going down here but today's events are certainly interesting to say the least.

That's about it folks. You all saw the market today. It was ugly, and if the Fed is forced to pull back on QE it's going to get even uglier.

Let's see if the robots can create a bounce tomorrow after two nasty days of selling.

Timberrrr!!!.....

2011-02-22T11:30:00.000-08:00

This is going to leave a mark:

My Take:

I have a busy day so I thought I would note a few things while I have a bit of time.

Beware: The Middle East is making all the headlines but there are other problems that lie underneath:

Like this one:

"NEW YORK (MarketWatch) -- The Treasury Department sold $35 billion in 2-year notes on Tuesday at a yield of 0.745%, the highest level since May 2010. Bidders offered to buy 3.03 times the amount of debt sold, compared to an average of 3.58 times at the last four monthly auctions of 2-year notes, which were all for the same amount. Indirect bidders, a group that includes foreign central banks, purchased 31.3%, compared to 32% of recent sales, on average. Direct bidders, a group that includes domestic money managers, bought another 6.8%, versus an average of 16.3%. After the auction, Treasury prices remained higher as investors sought a safe harbor amid the turmoil in Libya and the Middle East. Yields on 10-year notes, which move inversely to prices, fell 9 basis points to 3.48%."

Take Continued:

Not good folks. If we lose the short end of the curve in the treasury market it's GAME OVER. I was surprised to see such a poor result when we are seeing such instability in the Arab world.

I also thought the dollars relative weakness given the chaos was also very interesting and a bit disturbing:

So much for the US being the great "safe haven" that it once was!

Unbelieveable: We are currently witnessing some of the most insane geopolitical risk in over 30 years and the dollar can't rally worth a damn. Pretty pathetic if you ask me.

This just shows you how far this country has fallen in stature. Bonds have caught a bid but it's not all that impressive given the heavy sell off in stocks.

The Bottom Line:

The Fed's leveraged bets on the economy via easy money policies is seriously threatened with every country that topples overseas. Inflation is beginning to topple the dictators in the Arab world. As Gerald Celente likes to say: "When people lose everything they lose it!".

This is what is happened in Egypt. The average wage thereis $2 a day. When food prices soared as a result of too many US dollars sloshing around the global system, millions started to wonder how they were going to feed their families.

The Egyptians "lost it" because they didn't see any other choice. As I like to say "You gotta eat!".

AsI said yesterday: This is a potential game changer that is going to seriously turn up the heat on the Fed and it's printing presses.

So what happens if they are forced to change course? We will see higher rates and less leverage in our future. You can kiss housing and the banks goodbye if this is the case.

Making matters worse today was the fact that Case/Shiller housing index was a complete disaster.

Also, Japan's debt ratings were dropped to "negative" by Moody's. Gee, that's a shocker....You mean having a debt vs GDP ratio of 200% is a problem?

So where do we go from here?

There are still plenty of buyers of stocks on any pullbacks so the jury is still out as to whether or not we are about to see a large correction in stocks.

One thing is for sure: The world is getting a whole lot dicier thanks to our reckless monetary policies. If the Middle East continues to unravel then things could unwind in a hurry here because we have once again Ponzied up our whole financial system via easy money policies of the Fed.

The market ran up on the thesis that Ben had the markets back. This may no longer be the case.

If the Fed's leverage is politically forced out of the system then we are about to enter the financial equivalent of a Category 5 hurricane.

Oil Soars on Middle Eastern Chaos

2011-02-21T18:57:00.000-08:00

Ummm...This isn't good(/CL is oil futures for those of you that don't use Think or Swim):

My Take:

I hope you folks filled up your gas tanks over the holiday weekend. Gas is going to go up sharply if the Middle East continues going "Mike Tyson" crazy.

IMO, $4 gas is the tipping point for the consumer, and we are rapidly closing in on this number as I type. Gas sat at around $3.40 when I hit the pump today.

The markets are going to be interesting tomorrow. Stock futures are down sharply. On the flip side, food futures, gold, and silver are all soaring as the world sinks into total chaos.

What's scary is it's not just the Middle East

We have our own version of "Egypt" over here in the beautiful state of Wisconsin. Who woulda guessed that the crap would start hitting the fan there first?

It's comical watching this whole charade. The unions look like a bunch of clueless little spoiled brats.  Weaning the unions off of the government "teet" is going to be a very painful process.

Sadly these people don't understand that it's got to happen because the money isn't their to pay for their 100k per year pensions. The state unions are bunch of morons, and I am going to enjoy watching this legislation get shoved down their throats.

A note to the unions: Wake the hell up and realize that we cannot fund the future promises that we made to our state workers. These promises were made assuming that the market would go up 10% a year forever which is impossible!

It's time for you people SUCK IT UP and DEAL like the rest of us private workers who have been forced to deal with massive layoffs and 20% unemployment.

Grrr!!!.....This gets me so angry.....I need a breather!

(Pause)

OK...Feeling better now...

Meanwhile, down in DC, the government faces a complete shutdown in less than two weeks as the Republicans and the Democrats face off against one another over spending. Watching this face off reminds me of watching the movie "Dumb and Dumber".

Neither side has a clue.  Both sides remain blinded by greed as they continue to try and protect the hands that are lining their pockets instead of focusing on the real issues. I can't even stomach watching it anymore. Wake me up when they are ready to raise the social security age to 70.

The Bottom Line

Things are now happening at lightning speed folks. Fasten your seat belts and enjoy the ride. Watching this credit bubble unwind is going to be a sight to behold.

Keep a close eye on the Middle East. It's rapidly becoming a game changer. It's strange, looking back, I always thought it would be the bond market that would stop the Fed's "easy money" spigot. Now I am not so sure.

If the global inflation thats been created by our easy money policies continues to heighten the risk of global political instability then you might see this stop the Fed's "helicopter" policy dead in its tracks.

It will be interesting to see how the trading robots handle tomorrow's trade. The geeks from the Ivies that program these robots can't prepare them for global chaos.

Please be careful with your investments. We are entering into a period of extreme instability thanks to the "unintended consequences" of money printing.

Has America Gotten too Expensive?

2011-02-20T19:09:00.000-08:00

Here is the new reality in America:

My Take:

Wages have gone nowhere for a decade for 95% of the people in this country. Meanwhile the upper 5% has flourished during the same period.

Folks, no matter how Wall St spins it, the economy isn't coming back until the bottom 95% of this country sees more jobs and higher incomes.  To date we have seen nothing of the sort.

Unemployment remains at around 20% depending on who you listen to. Housing remains deader than dead. Jobless claims are now back on the rise. Inflation is becoming a huge problem, and it's creating chaos around the world. Oil is up close to $3 tonight as the Middle East remains in complete turmoil.

Corporate earnings are better but it's not helping the job situation. In fact, it's having the opposite effect IMO. Companies are not hiring because they feel pressured by the pigmen on Wall St to keep profits growing. Since the economy sucks, companies are forced to cut costs and increase productivity in order to meet the streets ridiculous profit expectations.

The problem is you can only "layoff" your way to prosperity for only so long before there is nowhere else to cut. This means earnings become flat and as input costs rise thanks to inflation I expect you are going to see earnings begin to fall in the very near future.

After a 100% rally in equities I think many are going to start questioning the idea of staying long.  This doesn't mean that the market will crash. The algos now control a lot of the liquidity in the market so it's made it very difficult to anticipate where stocks go.

Sidebar

Let me switch gears here for a second. I thought I would share some weekend discussions that I had. I spent it with some Wall St folks and we had a few long discussions about the markets.

Many things were discussed.  The one I found most interesting was the long discussion we had about the effects that the HFT's, algos, and quants(whatever term you prefer) are having on how equities trade.

The conclusion was everyone agreed that the speed traders are having a dramatic effect on the price action of the market. Most of them concluded awhile ago that there is no investing on Wall St anymore. One of them said "Jeff, when the average trade is held for 11 seconds how could you possibly call buying stocks investing?".

They all agreed that it's all about speed now versus fundamentals. I asked them if they thought this could last, and everyone agreed that it would eventually self destruct via a flash crash or some other Black Swan type event.

This was also interesting: Many of them sit in cash, and some of the ones who have large cash positions believe the dollar is toast. Thats how crazy this market is! The ones that hate the dollar and sit in cash think they will be able to move it into currency hedges before the dollar gets flattened.

The group generally agreed that the next big profit opportunity will be to the downside in stocks, bonds, and the USD. All of them are petrified of inflation. Interestingly, many of them don't like the commodities right now because they think too much "hot money" has already flowed in them.

For the most part they were all extremely bearish and scared. One of them noted that the recent money flows from the retail investor into stocks is a definite sign that we are nearing a top.

For the most part they believe sitting on your hands and waiting for a trend change is the thing to do right now. Food for thought.

Back to My Take

The oligarch of this country will never admit it but they need the middle class in order to turn around the economy. The truth is that they do because the top 5% represent a very small part of the population.

The biggest problem our economy has is reflected in the wage earning chart above. Incomes are dropping and they have remained flat for over a decade now. However, during this same period of time, the cost of living has SOARED!

The harsh reality is middle class can no longer afford to live here anymore. Americans can't afford the $400,000 house that they got suckered into buying from 2003-2007. They can't afford to spend 50k a year on a college education.

In fact, with the way food costs are rising, they can barely afford to eat anymore. I think the consumer is about to once again fall off a cliff. The consumer numbers we got last week were 50% short of expectations.

Should we be surprised???? Incomes today are the same that they were in the late 1990's, and the recent data shows that they are actually beginning to decline once again as the economy suffers. One of the most startling things that I read this week is 50% of Americans now make less than $505 a week.

Good luck trying to get them qualified to buy a house!

One way I like to emphasize the whole wage point is by telling people to go back to the late 1990's and look at how much it cost to live on the same wages versus today. Houses in the bubble markets were one third of what they are today. That's right folks, homes have doubled or tripled in cost in certain markets. Slower housing markets saw less appreciation, but prices are still up significantly versus 10-12 years ago.

College is up around 30% in price. Gas is triple what it was back then.

How in the hell can we recover when salaries have not increased at the same pace of our cost of living?

How is this sustainable? Answer: It isn't.   Add in a bad job market and it's even more frightening when you think about it.

The Bottom Line

The Fed can POMO up the stock market all they want. The problems are not being fixed which means our economy is only going to get worse.

The Fed's zero interest rates policy/money printing combination is making the cost of living in America unaffordable.   Zero interest rates are also hurting us in more ways than one. Most people love to focus on the inflation that this policy creates and it's a very valid point.

IMO, people are forgetting that this policy has absolutely destroyed people who depend on fixed income. People who used to be comfortable living off of their 5% CD's are getting pummeled as they are now forced to eat into their principle. This is crippling many senior citizens. I would love to see the actual income destruction from this policy. I bet the numbers are devastating.

The Fed is basically punishing the people who did things the right way all of their lives with this zero rates garbage. The fixed iincomers in this country are the ones who worked hard all of their lives in order to save enough money to comfortably retire and live off of the interest from their principle.

These people did things the right way and they now they are getting SCREWED by the Fed because the banks need to be saved. Their lives have been turned upside down by this. Millions of seniors are now worried that they might outlive their money.

It's really disgusting when you think about it.

Moving forward I just don't see how the consumer can recover under such brutally expensive living conditions.

The only conclusion that I come to when I look at all of this is that the system will collapse.

If the Fed continues to print then we are going to see a brutal inflationary period that will eventually take down the consumer. Since the consumer represents 70% of our economy it means the system itself will likely go right down with it. I can't tell you when this all happens.   What I can say is that in my opinion is it's inevitable.

It's going to suck going through this difficult time but down the road I think it will be good for all of us.

After all, who wants to live in a country where you can't afford the simple pleasures in life?

.

Is it Time to Walk Away From Your House?

2011-02-17T16:31:00.000-08:00

According to Dylan why wouldn't you? The banks and the borrowers entered a contract using the house as collateral when you did your mortgage. To no one's surprise the banks still expect you to pay your mortgage back after the housing sham went south.

The problem is they didn't hold up their end of the bargain. When their finances went south they ran to the Fed and got bailed out by the taxpayer. Wall St argues that you must pay back your loan because you entered a contract!

I say screw that! If you are in financial straights then why should you continue to be forced to pay your bloated mortgage when the banks couldn't hold up their end of the deal? Just drop your keys in the mail and walk away.

I love the analogy below with the car. When you don't pay your car loan back what happens? The finance company repos your car. Your credit rating then takes a hit and it's over.

Why shouldn't you be able to do the same thing with your house?

Let's be honest here: Without the Fed, 90% of the borrowers would have no place to mail their mortgage payments to right now because the bank that they lent it from would have likely failed back in 2008. They have a lot of balls to try and force you to hold up your end of the deal when they couldn't themselves.

The Bottom Line

Both parties entered into an agreement that was dead from the start because most borrowers were never going to be able to pay the loan back.

The banks no longer have to "stress out" about it because the Fed propped them up. You deserve the same relief, and the only way you will get it is by walking away from your house and backing out of the agreement.

Avoid the 30 years of stress and just mail back the keys! Before you do so make sure you listen to the consequences below in Dylan's clip:

Visit msnbc.com for breaking news, world news, and news about the economy

Kyle Bass: Zero Lower Bound=ZIRP

2011-02-16T14:51:00.000-08:00

Absolutely brilliant stuff here from hedge fund guru Kyle Bass.   Very few people on Wall St tell the truth so you need to pay attention when CNBC gives these folks an opportunity to speak.

My Take:

Kyle uses simple math to explain how we are artificially financing this Ponzi scheme using zero interest rates. None of this is sustainable but the robots on Wall St don't seem to care.

And why would they? They only hold stocks for 11 seconds at a time. They could care less what happens next year, next month, or even tomorrow.   They are laughing all the way to the bank by the following day.

I am amazed this charade has lasted this long. So far, Ben Bernanke has been able to hide our ridiculous balance sheet by purchasing his own treasuries in order to finance the nations expenditures.

The absurdity of such thinking is really beyond belief when you think about it logically.

Think about it: How can a nation finance itself? Can you finance yourself when you are 30k in credit card debt? For a time the answer surprisingly is Yes! How? By getting another credit card and taking on more debt.

Eventually we all know how this plays out for us when we borrow Peter to pay Paul: BANKRUPTCY anyone?

Why is it any different for our government? The answer is it's not. They can however delay the day of reckoning for a much longer period of time.   This is what we are witnessing today.

Don't kid yourself though folks.  Our day of reckoning is coming. It's not "different this time". They tried to tell us that during the tech and housing booms and how did that all work out?

We were much smarter before we started blowing bubbles in the mid nineties:

Ben would have been laughed out of the room 20 years ago if he had tried to offer up this proposal as a solution to the nation's fiscal crisis. We laughed and criticized Japan for attempting the same thing back then.

Ben's lucky he wasn't a central banker back then because he could have every well ended up in prison. We threw bankers in jail back then following the housing bubble in the late '80's/Early 1990's.

Today we bail them out instead of prosecuting them. When the economy turned around following our massive bailouts, we then allowed the same group of crooks to pay themselves billions of dollars in bonuses instead of forcing them to pay back the losses that caused the crisis in the first place.

Why we ever allowed any of this to happen is beyond me. I never thought this nation would ever become so blinded by greed and money. Boy was I wrong. Money talks in America.

Today we say "fuck off" to capitalism instead of embracing it. The rich are allowed to lie, cheat, and steal themselves into prosperity at the expense of the taxpayers.

All I can say is one day the bankers will get theirs. Karma is a bitch and it ALWAYS comes back and bites you in the behind.

The Fed Must be Stopped

2011-02-15T15:24:00.000-08:00

Busy week so I haven't had time to write. I'll be honest here, I am glad I have been busy because I am disgusted by everything that I see and read recently. The budget was a complete joke today.

The unravelling of the Middle East is startling even though it should have been predictable for anyone that understands basic economics and inflation.

It's getting hard to continue to write about what I am witnessing. The housing sentiment among builders remained at near all time lows. Consumer spending came in at +.3 versus expectations of +.6.

It's all unwinding all at once once, and yet our POMO pumped stock market fails to see the oncoming trainwreck. The next 401k disaster for J6P is right around the corner as he gets caught holding the bag once again after getting sucked into the market for a 3rd time in 11 years.

It's so easy to see if you looked at the fundamentals. However, the greed of the bulls after a 100% rally is too strong for them to stop. The bulls are now stampeding with huge blinders on as they become obsessed with taking the DOW up to all time highs.

If they would only stop for a second and look around they would save themselves a hell of a lot of money.

Must Read...

I wanted to post this great article from Marketwatch's Paul Farrell before I wrap it up.

Folks, when stuff like this starts hitting the main stream media it's time to take notice. The Fed will not stop until they run us straight into a wall and it's time for us all to take notice and stop them before it's too late.

Please click on this link to read the rest of the article. We need to continue to keep the pressure on these thugs until they stop their easy money policies. I don't know about you, but I have ZERO desire to watch this country turn into another Egypt.

This is right where we are heading if the Fed isn't stopped.

Enjoy the read:

"ARROYO GRANDE, Calif. (MarketWatch) — Fed boss Ben Bernanke is the most dangerous human on earth, far more dangerous than Hosni Mubarak, Egypt’s 30-year dictator, ever was. Bernanke rules a monetary dictatorship that will trigger the coming third meltdown of the 21st century.

Just as Mubarak was blind to the economic needs of the masses and democratic reforms, Bernanke is blind to the easy-money legacy that’s set the stage for revolution, turning the rich into super rich while the middle class stagnates and peanuts trickle down to the poor.

Warning, Egypt also had a huge wealth gap before its revolution. Bernanke is the final egomaniac in America’s bubbling 30-year wealth gap, where the top 1% went from owning 9% of America’s wealth to owning 23% during this dictatorship.

Bernanke’s ruling ideology is the culmination of a 30-year economic war that has forged together Reaganomics for the super rich, former Fed chairman Alan Greenspan’s toxic allegiance to Wall Street, the extreme Ayn Rand’s capitalist dogma, culminating in the toxic bailouts of Treasury Secretaries Hank Paulson and Tim Geithner, two Wall Street Trojan Horses corrupting government from within.

Since 1981 this monetary dictatorship has caused enormous collateral damage, systematically sabotaging democracy, capitalism and the American dream while fueling the rise of our most dangerous new enemy, China. See “Secret China war plan: trillions in U.S. debt.”

When Obama reappointed Bernanke a couple years ago, “Black Swan’s” Nicholas Taleb was “stunned.” Bernanke “doesn’t even know that he doesn’t understand how things work,” that Bernanke’s economic methods are so inadequate they make “homeopath and alternative healers look empirical and scientific.”

We called Bernanke, the “Captain of the Titanic,” warning that he was setting up the third meltdown of the 21st century, predicted by “Irrational Exuberance’s” Robert Shiller, a coming crash worse than the 2000 dot-com crash and the subprime credit meltdown of 2008 combined. See “Capt. Bernanke sinks the U.S.S. Titanic.”

Inside the Fed: Cassandras, Chicken Littles, governors crying wolf

Unfortunately, as with Egypt’s dictator, the 30-year dictatorship now headed by Bernanke must end soon: And this class war will not be pretty. But it is no black swan; no one can claim they didn’t see a new crash coming.

For several years before the 2008 meltdown we reported on money managers, economists and financial gurus warning of a coming meltdown. They included two Fed governors who warned Greenspan in the early Bush years. And yet, as late as summer 2008 Bernanke, Paulson and Greenspan were systematically dismissing mounting evidence of a mega crash dead ahead.

That’s why Time magazine’s cover story about Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, grabbed me. David Von Drehle’s “The Man Who Said No to Easy Money” is a warning to all America.

Like Ed Gramlich and William Poole, the two Fed Governors who warned Greenspan during the Bush years, Hoenig regularly dissented from Bernanke’s easy-money policies that have been favored by Wall Street throughout this 30-year dictatorship.

We’re paraphrasing Drehle’s interview with Hoenig as 10 warnings because it brilliantly reveals the broader historical tragedy of the Fed’s 30-year monetary dictatorship driving America to the edge of another 1930s economic revolution, one that will be triggered by a repeat of the 1929 wake-up call.

1. Commodity price inflation will soon end the Fed dictatorship

Hoenig consistently “cast his lonely ballot against the indefinite reign of easy money. Eight meetings, eight no votes … an unyielding point of view, one that has become ever more relevant now that rising commodity prices have put inflation worries back on the economic radar screen.”

In short, global commodity inflation may soon do what Hoenig could not, put an end to America’s self-destructive easy money reign of economic terror, and more importantly finally end the Fed’s 30-year “monetary dictatorship.”

Again, please click here to continue.

$150 Oil Around the Corner?

2011-02-13T17:00:00.001-08:00

Worth a look:

Freedom Wins! Housing Loses!

2011-02-11T10:49:00.000-08:00

Congratulations Egypt!

It's amazing what you can accomplish if you want it bad enough. Hopefully, all governments of the world will take notice of this amazing event.

The message?: If you abuse "We The People" you will be taken down. If a brutal dictator like Mubarak can go then anyone can!

The market looks like crap today BTW. The fall of Mubarak should have sparked quite a rally. We have seen nothing of the sort.

On the news front the PIIGS are back:

"LONDON (MarketWatch) — Proving that the euro zone’s sovereign-debt crisis is yet to be vanquished, yields on Portuguese government bonds continued to climb to levels viewed as unsustainable on Thursday, prompting the European Central Bank to intervene.

Yields on the 10-year bonds soared to a euro-era high of more than 7.6% at one point Thursday morning, according to strategists. The European Central Bank later intervened to buy Portuguese bonds, several analysts said, after staying out of the markets amid relative calm in recent weeks."

The Bottom Line

The PIIGS issues and their massive losses have been hidden versus being solved. The same thing is happening over here. Keep "printing and praying" guys. Everything is just fine...NOT!

Fannie/Freddie

Geithner came out and discussed a new plan that will wind down Fannie and Freddie. It's too bad the plan is about 3 years late and lacked detail.

It is also way too drawn out. They say it will take 5-7 years to wind these two worthless entities down. This pretty much guarantees that the housing crisis will be stretched out for a decade as the government slowly gets out of the mortgage market.

The reality here is when they do get out than no one will be doing loans. Think about it: What bank is going to take on the risk of doing a mortgage without a guarantee from the government?

I wouldn't be lending if I was a bank. Who in the hell wants to lend people money for loans on houses that are still grossly over priced? On top of that who is left to qualify to buy with unenployment nearing 20%?

Also, note that the new requirements will demand that you have 10% down when the government leaves the market. Good luck with that one! How many borrowers have that? You probably just took out 70% of the buying pool with the 10% rule.

Don't get me wrong, it's a good idea. In fact, it should be 20% down like it was in the old days. This is called sound lending!

All I can say is good luck to the housing market as the government slowly backs out. You think things are bad now? Wait until the only lenders left are a bunch of insolvent banks that will only do prime loans with 10-20% down.

Housing is DOOMED with a capital D.

Keep Printing Ben

2011-02-10T17:43:00.000-08:00

You are right!..There is NO inflation. NONE! ZERO! ZILCH! NADA!:

"PORTLAND, Ore. (AP) -- Kraft Foods Inc., like many of its peers, is feeling some pricing pressure.

The company reported Thursday that price increases it made to cope with higher ingredient costs are not going to be enough to sustain its profitability and it plans further hikes this year.

As one of the world's largest food companies, Kraft is feeling the pinch from higher costs for wheat, corn, sugar and other commodities.

The company already raised prices on most of its products in Europe and more than half in North America. But it said its input costs rose nearly $500 million during the fourth quarter and its profit margins suffered accordingly."

Quick Take:

Somebody please wake me up when all of this stupidity ends. I just can't take it anymore!

This is all going to end in tears. Prices will keep rising until demand falls off a cliff and earnings collapse. We are seeing signs of it already in earnings from Cisco and now Kraft.

This whole scenario reminds me of May of 2008 all over again.

It's important to note that our inflation problem is now officially worse than last time. As you can see below, most commodity prices have now passed the all time highs of 2008. Many don't realize this because they are too focused on oil which is rising but remains far below it's 2008 peak:
"Global food prices hit a fresh record high last month, surpassing the levels seen during the 2007-08 food crisis, the United Nations said on Thursday.

The Rome-based Food and Agriculture Organisation said its food price index, a benchmark basket tracking the wholesale cost of 55 commodities such as wheat, corn, rice, vegetable oils, dairy products, sugar and meats, jumped to 231 points, up 3.4 per cent from December. The FAO started tracking the basket in 1990."

The Bottom Line

Our inflation problem has gotten beyond ridiculous, and it is time for the whole house of cards to come tumbling down once again.

The problem this go around is there is no money for large bailouts. Congress pissed it all away on saving the banking system. In fact, it's still pissing it away on these tards as we speak.

There was a lot of market violence today despite the flat close. APPL saw a violent sell off midday before rallying back.   Bond yields spiked back up. All is not well.

I was expecting to see some serious violence this spring as the end of QE nears. However, as things develop, I am starting to get concerned that we might not make it through the winter without seeing something nasty marketwise.

I didn't expect these earnings issues so soon. If this trend continues then the market has some serious problems to deal with right NOW.

The recovery is starting to sputter thanks to inflation just like it did in the fall of 2008.    Stocks are priced at ridiculously elevated levels. Many stocks have passed their 2007 highs.

Earnings must come in PERFECT in order to hold these levels, and companies are failing to do so thanks to the rising input costs that Ben fails to see.

Meanwhile, 20% of the nation remains unemployed and their homes continue losing value on a monthly basis. This is hardly the proper foundation that economic recoveries are built on.

Reality is starting to set in folks and it's not going to be pretty for anyone involved.

"Juggle Mode"

2011-02-09T16:00:00.000-08:00

Have you ever gone to the circus and watched a juggler?

It's always so cool watching all of those balls fly so effortlessly through the air.

If you are a big fan of jugglers then I have some great news for you!!! You no longer have to pay for a ticket to the circus in order to watch it. In fact, you no longer even need to leave your house.

These days all you have to do is turn on CNBC and you can see all the juggling you want for FREE.

Some of today's best juggling was seen in the bond market:

"The government's auction of 10-year notes drew greater interest than expected from investors, including foreign buyers. Indirect bidders, a rough proxy for foreign funds and banks, took 71 percent of the notes, the largest share since May 2003."

At the same time bonds were soaring the currency dropped sharply:

Quick Take:

This makes no sense of course. Why would a dollar denominated asset like bonds soar on a day the dollar sells off hard?

Answer: Because the world's juggling central bankers are printing money like madmen and throwing it wherever they have to in order to keep all of the "balls" in the air.

Today's gaping hole was in bonds so that's where the money went.

Juggling Creates Distortions and Inflation:

There are unintended consequences when you decide to pursue reckless monetary policies. The banks of the world have decided to pursue this reckless path and theyare desperately doing everything in their power in order to keep this pig of a market propped up.

Remember folks, this is a globally coordinated central banking system at this point. If one domino falls they all do so they are all in this together and for now they are loaded with boatloads of cheap money.

This will likely allow keep the game going in the near term. The problem is it's creating a boatload of inflation.

Just look at Cisco after hours:

"Cisco Systems reported financial results Wednesday that topped expectations, but investors punished shares after hours as weaker margins added to concerns about increasing competition.

Cisco, which sells computer networking equipment to businesses, earned 37 cents a share excluding special items in its fiscal second quarter, against 40 cents a share last year. The company's net profit for the quarter ending Jan. 29 fell to $1.5 billion from $1.9 billion.

The company garnered sales of $10.4 billion in the quarter. This time last year, Cisco reported sales of $9.815 billion."

Take Continued:

OK, so let me get this straight: Sales are up from $9.81 billion to $10.4 billion, but profits are down about 25% from $1.5 billion from $1.9 billion from the same time a year ago????

HUH????...Bbbuuttt...Ben Bernanke said there was no inflation!

I can't think of another reason why Cisco's profits would get creamed like they did. Another possible cause for this drop is if Cisco had to drop prices a bit in order to hold share. I don't buy that excuse for one second. Their "profit pain" came from a weakening dollar and higher costs.

Either way, this is not good news for Cisco or the stock market.

The Housing Collapse Rolls On!

It appears that the only thing that doesn't rise in price in this market are houses:

"The number of borrowers who owe more on their mortgages than their homes are worth took a huge leap in the fourth quarter of 2010. A full 27 percent of borrowers are now “underwater” on their mortgages, up from 23 percent in the previous quarter, according to a new report from Zillow. Foreclosure moratoriums and falling home prices are to blame."

Take Continued:

I have said for a long time now. Housing is deader than dead and is never coming back in our lifetimes.

Things are only going to get worse as more and more people end up underwater in their homes because they will not have the ability to sell them. These borrowers will then eventually be forced to default after running out of options. This is going to then put even more pressure on already depressed housing prices as inventories continue to rise.

Let me also add that I am starting to see some blue skies:

Some areas like Miami, LasVegas, and some areas of California are now starting to show signs of stabilization after seeing 70% price declines.   This makes sense in these areas at this point. About 25-50% of these buyers are paying cash.

We could very well be nearing a bottom in these devastated areas. However, I don't think you will see any appreciation in these properties for years, and many of these buyers will likely see losses over the next several years before things turn around. Nonetheless, if you are paying cash and can rent them out, do you really care?

Food for thought.

Let me repeat....Don't misconstrue what I am saying here:  Most housing markets are going to see devastating housing declines and are nowhere near the bottom. A 50-70% drop in prices will be the norm in the majority of housing markets by the time this is all said and done. We are only down about 30% nationally at this point so there is a ways to go.

The Bottom Line:

That juggler at the circus is really cool until he drops a ball. We all know what happens after that.

If you forgot then go buy some tennis balls, start juggling, and watch what happens after you drop the first one.

The market's miraculous juggling show is about to drop it's first ball, and IMO, it will be triggered by June's "QE Crisis".

Ignore the Bond Market at your own Risk!

2011-02-08T15:53:00.000-08:00

Sorry Folks, I am a little bit under the weather. The cold is getting to me!

A few quick points. I am sure you know what I'll start with today...The 10 year bond of course!!:

Quick Take:

The spike occurred following today's 3 year bond auction which was pretty ugly. The primary dealers ended up having to eat about 62% of it which is the highest percentage seen since 2007.

Also:

Something that should be considered even more alarming is yields on the short end of the curve also spiked. Folks, if we lose the short end of the curve it's over. I'll leave that one for a later post because I feel like crap.

Another interesting thing to note today was the move in gold:

Quick Take #2:

This makes no sense people. Gold had two powerful headwinds that should have sent it lower today: Higher interest rates in China as well as rising rates here in the bond market.

Why the sudden rush into the yellow stuff at the same time real rates are rising? Loss of confidence in our worthless dollar perhaps? Enquiring minds would like to know.

The Bottom Line

The market continues it's rise despite signals out of the bond market that we are about to enter some rough water.

Their fear of course is inflation and a falling dollar. For the shorter term all of this "funny money" liquidity is helping stock prices.

However, over the longer term it will unfortunately bring us horrible inflation which is why you are seeing a mass exodus from the bond market.

I stick with my start of the year forecast. The trend is likely higher until the March to April time which is when the end of QE2 approaches.

The Fed's Fisher is already out today vowing to vote against any extension of QE. The posturing has already started and we are barely into February. Imagine how heated this debate will become a few months from now!

Enjoy the ride for now because the Fed has your "back". The bond market is about to change all of this so get prepared.

Remember, our already unaffordable housing market dies if the 10 year rises a point from here. Let's face it, it's already on life support as it is. Housing prices continue to fall despite the easiest monetary policy ever seen by mankind.

Stocks can only deny this reality for so long. Enter at your own risk.

Edit:

An interesting take here from Newsy.com on the potential repercussions of the NASDAQ hacking scandal that was reported over the weekend. Take a peek:

Multisource political news, world news, and entertainment news analysis by Newsy.com

Must Listen Podcast from Joe Saluzzi

2011-02-05T17:09:00.000-08:00

Check out Chris Martenson's interview with Themis Trader LLC co-founder Joe Saluzzi.

Joe shreds the HFT's and discusses why the market is now based on speed versus investing. Most of the liquidity and volume in the market is being created by these robots and Joe explains why this is extremely dangerous.

I have been talking about this for weeks now and it's nice to hear that it's starting to get some legs.

Pension Insanity

2011-02-05T10:49:00.000-08:00

No wonder why this country is bankrupt.

Before you watch these check out this article from the WSJ. Apparently someone has repeatedly hacked into the NASDAQ:

"Hackers have repeatedly penetrated the computer network of the company that runs the Nasdaq Stock Market during the past year, and federal investigators are trying to identify the perpetrators and their purpose, according to people familiar with the matter.

The exchange's trading platform—the part of the system that executes trades—wasn't compromised, these people said. However, it couldn't be determined which other parts of Nasdaq's computer network were accessed."

Quick Take:

The manipulation of equities via HFT's is bad enough. Now we have to worry about hackers. IMO, this is just one more reason to stay the hell out of the markets.

What a mess.

Funny Stuff Below.

Enjoy!:

Everything's Just Peachy....NOT!!!

2011-02-04T14:55:00.000-08:00

Bondzilla(10 year):

Quick Take:

This is what the bond market thought of today's jobs number.

Translation: The recovery is a sham and every month that goes by where we see zero to little job creation puts more and more pressure on our government's ability to pay off it's deficits.

The reason for this is simple: Without jobs there is no tax base. Without a tax base the government cannot raise revenue. Without revenue the government can't pay their bills. When they can't afford to pay their bills they lose their ability to buy treasuries unless they print more money.  When they print money it devalues our currency and increases the risk of inflation.

The Bottom Line

This is not rocket science folks. We are spending money that we don't have. Stockman explains the numbers in the video below. We are spending more than we bring in.

This is mathematically impossible to sustain without destroying the currency. The fact that stocks don't understand this is mind boggling to me.

SAdly, millions of people are going to get their 401k's shoved up their ass for a third time in a decade when the stock market eventually wakes up and starts calculating the numbers.

The robots rule equities for now but this also can't last. I am hearing more and stories around how some of the the trading algos are starting to lose money.  The trading desks on Wall St had a terrible 4th quarter from an earnings perspective when you look at their quarterly reports.

Why is this happening? Because the market no longer trades rationally. It trades based on zero fundamentals. At this point it basically trades based on positions that are held for seconds at a time.

IMO: The problem the robots have right now is there is no accurate way to program their trading algos at this point because the market trades so inconsistently.   There seems to be no rhyme or reason in which it moves. It often goes up on bad news days and trades down on good news days.

How in the hell can you program anything based on such nonsense? I predict that you will see a drop off in algo based trading if the market continues to trade so erratically.

One More Rant Before I Roll

I started getting really angry today after watching yesterday's Bernanke speech a few times on the internet.

This dude needs to seriously take his foot off the easy money gas pedal.
The Fed is creating political instability throughout the world with their disgusting policy of printing money.

When I saw the bad jobs print this morning I immediately asked myself this question:

WHEN IS THE FED GOING TO REALIZE THAT THEIR POLICIES ARE NOT CREATING NEW JOBS?

How many bad unemployment numbers do they need to see before they wake the hell up!!!! How many countries have to implode before they realize that their policies are creating destruction all throughout the globe?

Grrrrr......This is all getting so infuriating to watch.

Well...I'm off for some cocktails. Numbing my mind with booze is the only thing that keeps me sane at this point.

Happy Friday and GO STEELERS!!!!!!

David Stockman Nails It!

2011-02-04T13:08:00.000-08:00

This is an absolute MUST MUST MUST Watch!!!!!

The recovery is a sham and David provides the numbers to prove it:

Fleckie is God!

2011-02-03T21:23:00.000-08:00

Awesome stuff below. The money printing MUST stop:

Visit msnbc.com for breaking news, world news, and news about the economy

Keep an Eye on the Bond Market

2011-02-03T13:13:00.000-08:00

The guys in Chicago didn't care for Bernanke's speech today. The 10 year bond is about to retest an important resistance level:

If we clearly break through the 3.6% yield level then there is no resistance until we get to around 4%:

Should we be surprised by the bond yields given the inflation we are seeing in commodities? Ben Bernanke actually sat there with a straight face today and tried to say there was no inflation.

My answer to this is what are you smokin there pal? Whatever it is I want some of it. Bonds are obviously rising because they are concerned about inflation. The fact yields are moving higher at a time where we have great geopolitical instability in the Middle East is not a good sign.

I say this because bonds are a place that people usually like to run and hide when things in the world look unstable. Today they have decided dive into gold instead. The yellow stuff is up about $24.

The Bottom Line

The Fed shows no intentions of backing off from their easy money ways. Bernanke thinks the Fed is doing the right thing and they use the higher stocks prices as a way of supporting their loose money policies.

The reality here is all they have done is created another bubble. Today's bubble is a stock bubble that's been created with insane leverage thanks to the Fed's massively insolvent balance sheet.

This of course comes at a cost which is inflation. It's amazing that the man has the balz to say such a thing at a time when countries begin to topple as a result of rising food prices thanks the the Fed's money printing addcition.

Folks, if you thought the tech and housing bubbles were bad then you need to hold on tight because you "ain't seen nothin" yet. These policies are not sustainable and we are starting to see the inflation that we have seen throughout the world start work it's way into our economy.

After watching the unprecedented events unfold in the Middle East the "guns and gold" crowd all of the sudden don't look so crazy to me anymore.

The Joke is on YOU!

2011-02-02T21:24:00.000-08:00

I haven't laughed this hard in awhile:

Hopefully America will wake up and realize how badly the banks and the government have screwed their own citizens.

I sit here in awe as I watch the Egyptian situation. It's dawn there now and the protesters are already gathering to throw more rocks in defiance of Mubarak.

This fat cat needs to go ASAP!

I can't help but wonder if the same thing is going to happen over here a few years from now. Egypt and Tunisia are proof that the rich can only pillage the poor for so long before they rise up.

When you listen to how badly we have been screwed in the video above you would have to be stupid to think that it couldn't "happen here". I hope it doesn't, but as things continue to deteriorate economically in this country the people will eventually rise up out of desperation.

As the millions of "99'ers" run out of unemployment benefits they will quickly realize that they are out of options. Let's hope Congress is listening and learning from what is happening in the Middle East and takes this dramatic uprising as a wakeup call.

Remember: When there are no jobs people lose hope, and in the famous words of Gerald Celente "when people lose everything they lose it!".

Sadly, we are really not all that different from Egypt at this point. Their unemployment is 20%. Our real unemployment is 16.7%. That's not a big spread folks.

The American dream has been taken away from us in the form of bailouts and corruption.

My heart goes out to the Egyptian people today and I pray that Congress wakes up before it's too late.

The Pressure on the Fed is Rising and so are Prices

2011-02-01T17:08:00.000-08:00

I have a few topics that I would like to discuss. One of them will not be Egypt. It's too early to see how this situation will play out. All I have to say is good luck to the Egyptian people. I hope Mubarak goes down ASAP.

OK, Let's talk a little economics. Let's start with today's blowout ISM report:

Some Highlights:

"Manufacturing continued to grow in January as the PMI registered 60.8 percent, an increase of 2.3 percentage points when compared to December's seasonally adjusted reading of 58.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 20th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 18th consecutive month. Ore stated, "The past relationship between the PMI and the overall economy indicates that the PMI for January (60.8 percent) corresponds to a 6.4 percent increase in real gross domestic product (GDP) on an annual basis."

Quick Take:

Great news right? We saw our 20 straight month of economic expansion. CNBC and the rest of the retards on Wall St couldn't wait to Ponzi up the market after seeing such a great number.

What the market conveniently ignored was the cost of doing business that was explained later on in the report:

"The ISM Prices Index registered 81.5 percent in January, 9 percentage points higher than the 72.5 percent reported in December and the highest reading since July 2008. This is the 19th consecutive month the Prices Index has registered above 50 percent. While 64 percent of respondents reported paying higher prices and 1 percent reported paying lower prices, 35 percent of supply executives reported paying the same prices as in December. A Prices Index above 49.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

The 16 industries reporting paying increased prices during the month of January — listed in order — are: Textile Mills; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Fabricated Metal Products; Nonmetallic Mineral Products; Paper Products; Machinery; Transportation Equipment; Miscellaneous Manufacturing; Chemical Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; and Computer & Electronic Products. Furniture & Related Products is the only manufacturing industry reporting paying lower prices on average during January."

Take Continued:

Ummmm...Helllooo...Inflation anyone? The reality here is sales are up but so are costs. In fact, companies are facing their worst inflation since the inflationary crisis of 2008 where we saw oil Ponzi up to $140+ per barrel.

We all know how that ended.

You would think that the most logical thing for the Fed to do would be to tighten interest rates in order to quell the inflation that clearly showed up in this report. At the very least you would expect them to stop buying treasuries in an attempt to start balancing out our outrageous spending.

Afterall, the economy is growing strongly. Any policy maker with a brain would ask themselves: Why keep flooding the market with liquidity after 20 straight months of economic growth?

As you can see below.the Fed has other ideas:

"Feb 1 (Reuters) - The Federal Reserve could debate extending its bond-buying program beyond June if U.S. economic data proves weaker than expected, Kansas City Fed President Thomas Hoenig said.

Another round of bond buying "may get discussed" if the numbers look "disappointing," Hoenig told Market News International in an interview published on Tuesday.

Hoenig, an inflation hawk who vocally opposed the Fed's commitment to purchase an additional $600 billion in government bonds, reiterated his call for the central bank to reverse course, according to Market News.

He called for the U.S. central bank to "normalize" policy by shrinking its balance sheet and raising interest rates.

Hoenig has argued the Fed should raise rates to 1 percent and potentially higher depending on the economy's performance.

The Fed has kept interest rates near zero percent since December 2008."

Take Continued:

The dollar continued it's decline following the news:

Folks, when we see extreme political instability in the Middle East the dollar should be soaring. After all, we are the supposed safe haven of the world. Perhaps the world is no longer seeing it this way as we continue to dig ourselves deeper and deeper into debt thanks to ridiculous spending policies?

The reality here is there is no economic recovery. If there was one than the Fed would not take such an enourmous risk with QE3. They understand that if the bond market blows it's over.

The Bottom Line

I was surprised at the markets reaction today. Egypt falls, inflation soars, the rest of the "governments" in Middle East start to panic and the DOW rises 148. All I can say is LOL. So much for the market hating uncertainty.

I guess the trading robots of Wall St don't have the ability "feel" anything so this rule no longer applies. I can't help but think of the Terminator movies where the young boy tries to explain to the Terminator why killing innocent people is bad and forces Arnold to stop.

The way I see it, Wall St is going to continue and do anything it can to keep the rally going at all costs. It's the only thing they have. The economy is in shambles which makes them even more desperate to stabilize the market.

They realize that they have no chance to get out of this unless people feel wealthier and start spending. This is a fantasy of course because Americans our jobless and saddled with trillions in mortgage debt.

This won't stop the pigmen. In fact, they appear to be willing to risk the dollar in the process of trying to dig out of the massive hole they created for themselves following the crash of 2008.

I think we will see an inflationary crisis before the end of the year. That is of things are status quo. If the events going on overseas begin to spiral out of control it might force the Fed to reign things in as the governments of the world demand tighter fiscal policies from the US.

If the Fed is allowed to continue down their inflationary path then you can expect it to start showing up in lower earnings by Q3 thanks to higher input costs.

IMO, the bull stampede is running out of fumes and I still stick to my early year prediction that the ending of QE in June will be the inflection point that decides where we go next.

Until then, I wouldn't be surprised to see equities rise into the March/April time frame. At this point it will be time to take profits because the big money will sell realizing the Fed's decision in June will potentially wreak havoc in the stock market.

The risk reward ratio for stocks is rapidly declining because the Fed has painted themselves into a corner. If they attempt a QE3 then they risk the currency. If they end QE then they risk higher bond yields as the demand for treasury collapses. This would tank the housing market and the banks.

Good luck with this one Mr. Bernanke. You are going to need it.

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

The Robots Strike Again!

2011-01-31T13:00:00.000-08:00

Anyone who believes the trading robots aren't controlling the stock market must look at the chart below:

Quick Take:

This isn't some thinly traded penny stock folks. This is the VIX which is highly liquid and it's used to measure volatility.

There is no way the VIX can drop this violently. This is especially true today because the volatility on Wall St has been very low. The DOW has traded in a range of up 20-50 points all day.

The Bottom Line

This is why you should not be playing around in the markets long or short. Stocks today are bought and held for seconds as the trading robots sell back and forth to one another in blazing speed.

Essentially there is no investing in the stock market anymore. We now trade stocks versus investing in them. Stocks used to be held for an average of 8 years back in the 1960's. Today they are held for about the same amount of time as it takes you to sneeze.

Why anyone would invest their life savings in something as ridiculous as today's robot controlled stock market is beyond me.

One day this is all going to end very badly.

Old Fashion Sell Off: Egyptian Style!

2011-01-28T12:22:00.000-08:00

First let me apologize for being so quiet lately. Work has been keeping me quite busy so I haven't had time to write. Things should lighten up later next week.

I could throw up a bunch of charts but there really is no need to. The Middle East is now center stage. What a frustrating day for the bulls. They were preparing for another bold stampede down Wall St following a solid GDP number. The private sector finally showed up in this report. Government spending was down.

All in all it wasn't a bad report. I am not surprised given the amount of stimulus the market has gotten from the Fed.

I mean Christ, the private sector deserves to be shot if they can't show positive GDP growth when the Fed is handing out free money by the trillions.

We currently live in a world where companies are essentially allowed to hide all losses via fraudulent accounting while they reap the rewards of massive money printing.

If you can't make money now you then aren't ever gonna make money!!!!

Profits Come at a Cost

As I have repeatedly said: There is no free lunch. The stock market and Wall St believe that there is one of course.....And why wouldn't they? They have been receiving free bailouts at the cost of the taxpayer for over 3 years now.

In other words: They have had a free lunch since this crisis started!

The reality here of course is there are "unintended consequences" when you start making risky policy decisions like deciding to print money.

They are now starting to hit and unfortunately it's occurring in the worst possible area of the world. The Middle East has always been a complete disaster. It's a part of the world where hate, ideology, and repression dominate their societies.

As I have said in recent posts, the Fed is creating an inflationary crisis via their money printing and the result of such actions is creating financial chaos around the world.

The Bottom Line

The global oligarchs need to realize that they cannot continue to eat like kings at the expense of the rest.

This whole world is a mess because the top 1% has raped, pillaged, and mutilated the other 99%. History has shown that there is a tipping point in terms of what the lower classes are willing to take.

I am very concerned that this crisis has legs because there is a structural issue within the world's societies core that's just morally wrong.

Please let me do a little "It's just wrong" rant here. I am sure this will make me feel better after I am finished:

It's wrong when the taxpayers are forced to bailout the banks mistakes.

It's wrong when the Fed prints money and creates inflation that forces millions across the world to starve because they can't afford rising food prices.

It's wrong when banks are allowed to hide losses and pocket profits that don't really exist in the form of bonuses.

It's wrong that the Fed can take interest rates to zero in order to save their banking buddies when it simultaneously forces senior citizens that live off of fixed income to suffer.

I don't know what else to say folks. I am not surprised by what is happening. I am however surprised by where it started.

The chickens will eventually come home to roost because the world is just "wrong" right now. Hopefully we will end the corruption before it's too late for all of us.

Pick your Death: Stocks or the Dollar

2011-01-26T21:37:00.000-08:00

That's the reality here folks. The Fed is now officially painted into a corner when QE2 ends in June.

The March to June time frame will be the turning point for the markets. My guess is we drift higher for the next few months as the Fed keeps pumping like a two bit whore on 42nd st.

The FOMC statement was totally predictable. Stay the course and extend and pretend!!! Like I said yesterday, Ben will continue doing this until the markets force him to stop.

The bond market didn't the FOMC statement because they realize the stupidity of QE. Here is the 10 year:

Quick Take:

There really isn't a lot to say about the tape right now. The bulls are stampeding across Wall St because Ben continues pumping the market with dollars.

My guess is beginning in March this rally is going to lose some serious steam as the big players start hedging their bullish bets as QE2 inches closer to ending.

The million dollar question is does the Fed have the balls to cut off the program? I doubt it if they think they can get away with a QE3. The problem they have is I don't think the bond and currency markets will let him.

Just look at the hissy fit the bond market threw today when the Fed simply announced that they planned on maintaining QE2.

The Bottom Line

Somethings got to give when June comes around folks. Here are my two scenarios:

Scenario 1: The Fed Pulls the QE3 Lever

The way I see it, if the Fed tries to continue printing I think you could see chaos in the bond market. The dollar and treasuries would nosedive on the announcement.

I see a scenario here where the markets could possibly act as a hedge against a crashing dollar and move higher as the resource and mining stocks surge as Wall St looks to protect themselves from a collapsing currency and soaring inflation.

The Fed may roll the dice and try and pull off QE3. They know if they don't then the whole house of cards comes tumbling down without further printing.   There isn't any demand for risky paper like MBS or the long end of the treasury curve without the Fed backing it.

I mean think about it: Who on earth would buy a 30 year bond if QE3 is announced and the dollar starts to crash? You would have to be a total moron to even touch the stuff.

I also see a scenario where QE3 could tank the markets. Stocks could collapse if the bond market goes apeshit and pulls a "Greece" in defiance to the Fed's printing. Another risk for equities would be a falling dollar which would force energy prices to soar. This would tank the consumer and the higher interest rates would destroy the housing market. If this is how it plays out it's Game Over.

Scenario 2: The Fed "Walks Away"

This one is easy. Deflation takes over and everything collapses. Investors would run for the hills from both treasuries and stocks because the Fed would no longer have their back. Demand for treasuries would tank on the simple fact that the Fed would no longer be purchasing them.

Interest rates would then rise, commodities would get crushed as demand collapses, and the dollar would likely strengthen because the Fed would no longer be destroying it via printing.

The banks and housing would both be toast as housing prices crash as a result of soaring interest rates and higher unemployment. Unemployment would soar because budgets and entitlements would have to be slashed because the money simply wouldn't be there to continue paying them.

My Preference?

Both would be painful but scenario 2 is a much less painful route to take IMO. The soaring inflation seen in scenario 1 would eventually lead to scenario 2 anyway because no one could afford to live. Prices would eventually crash because there would be no demand due to lack of affordability.

I wish I saw a way out of this folks. Unfortunately, I don't see how we don't go down one of the two paths described above. My guess is the Fed chooses scenario #1 out of desperation. They know there are no markets without them.

Just look at the credit markets if you don't believe me.  It's virtually non existent unless the paper is backed by the government.

Enjoy the breather over the winter as Ben throws money out of helicopters.  Things aren't going to be pretty in the latter half of the year.

Everything is Just Fine

2011-01-25T21:21:00.000-08:00

Today's market is is so stuffed with cheap money that it reminds me of a turkey that's about to be served for Thanksgiving.

The dislocations are unprecented. Treasuries are soaring despite the stock rally so far this week:

Meanwhile, the dollar continues it's collapse as the Fed continues to rain money all over the markets:

The USD unsuccessfully tried to rally today after it broke through the critical 78 level like butter on Monday. We now risk breaking back down to the recent November lows of 75.63 which was when the Fed announced their ridiculous QE program.

Folks, if there was any confidence in this rally then bond yields would be soaring right now because the markets would be worrying about inflation and a falling dollar as the economy recovers.

The fact that investors are flocking into bonds despite the above risks tells you that the market is scared ****less. No one that believed in an economic recovery would be in bonds at this point. The inflation risks would simply be too high.

The Bottom Line

The deady combination of Helicopter Ben and high frequency trading robots has turned the markets into a total mess.

"Cheap money" is sloshing all over the system and it's ending up everywhere: Stocks, bonds, and commodities(until recently).

I don't know why anyone would want to touch this cesspool at this point. This is a total frickin speculative DISASTER.

Everything's fine for now as long as the music doesn't stop.

The problem we have here is that history has showed us time and time again that the music always stops when the fundementals are ignored.

Betting "the house" on equities thinking that "the Bernanke" will always have your back is simply foolish.

Bernanke will continue this game as long as he can get away with it. However, since this is unsustainable he will eventually have to stop. It will end in one of two ways: The dollar will crash or the bond market will take yields to the moon.

Like I have said before: THERE IS NO FREE LUNCH!

A Smell of Fear in the Air

2011-01-22T18:13:00.000-08:00

Sorry I haven't had much time to post. Last week and this week are very crazy so don't expect much over the next few days.
I wanted to put up two charts tonight that I thought were interesting. First let's start with the dollar trade over the last few weeks:

Ouch! Surprisingly, treasuries(which are priced in USD) have been catching a bid despite the violent sell off we have seen in the dollar:

My Take:

What this tells me is that there is a lot of fear out there. Investors continue to gobble up bonds on the long end of the curve despite huge increases in inflation combined with a weaker dollar.

This makes no logical sense of course. That being said, nothing really has in the few weeks!

As we continue to print money via QE, the hopes and dreams of a strong USD continue to disintegrate.

The way I see it: The only reason treasuries are catching a bid is because people basically have no clue what to do in this choppy/crazy market. This market is tough right now folks. All you have to do is look at the huge drops in trading revenues on Wall St in Q4 if you want to see how tough it is out there.

The Fed has created total financial chaos with their "funny money" policies. Investors are taking enormous risk as they speculate on everything from commodities to junk bonds as Ben's "cheap money" continues to slosh around the system.

This is not going to end well folks. In fact, if the market continues to stall here things could get rather ugly in a hurry.

I see no confidence among investors right now. The fact that rates are steady tells me people are so scared right now that they are willing to buy 10/30 year treasuries at a 3% yield despite huge inflationary risks.

If inflation rises to just 5% annually this paper will be guaranteed annual losers and let's face it folks: Inflation is already here. Just look at food and gasoline prices.

Things are starting to look very grim. I am expecting a pullback here shortly and I plan on buying some resource stocks after a nice correction. Everything is still too expensive right now after the recent rally we have seen.

Folks IMO,It's time to start investing against the dollar and placing all of your bets on gold is not a smart way to do it after it's recent run. Gold looks very sick to me right now and I wouldn't be surprised to see a pullback. I still plan on holding what I have left..

I think you need to spread your risk around in a variety of hard assets via resource stocks and other metals. I am working on a list of ideas. More on this later.

Have a great weekend.

Let's go Steelers!

Read This

2011-01-20T21:33:00.000-08:00

Make sure you read this incredible article from former banking regulator Bill Black before you run to the bars and start chasing the ladies this weekend.

This explains exactly why everything in our financial system has turned into a total cluster****.

Fraud is now legal in this country folks, and we are never going to get out of this nightmare until the people that created this Ponzi scheme are prosecuted and go to jail.

The sad reality here is our financial system is BROKEN and it has not been fixed. Washington refuses to address the problem and things will never get worked out until they do. You simply cannot create a REAL economic recovery on a foundation that's built out of sand.

It's time to throw out the trash and make things right. Being a banking billionaire should not allow you to commit crimes against the people of America. These banksters are worse than the frickin mafia. Al Capone once told the police to head down to Wall St if you want to arrest the real criminals.

He was right.

In fact, at this point we might as well bring back John Gotti from the dead and put him in charge of a TBTF insolvent bank.

Let's face it: There is absolutely no moral difference between Gotti and these banking CEO's. I can't believe something like this was allowed to happen in this country.

We have lost our way folks.

Rant off. Time for bed.

Uh oh

2011-01-20T07:15:00.000-08:00

Be careful:

The bond market is not happy today and the metals trade is unwinding.

Be safe.....

Inflation+Unemployment= Trouble

2011-01-19T17:06:00.000-08:00

It was another interesting day on Wall St. Stocks continue to churn and burn as the market figures out where to go next. When the market looks confused like this I always like to go back to the fundamentals.

The bottom line here folks is we are currently seeing a nasty combination of inflation and high unemployment. A hat tip to I-Tulip for the chart:

My Take:

As you can see above, we are starting to enter the "danger zone" from an inflationary standpoint. The last time we saw inflation this high was early 2008 and we all know what happened next.

What's scary about our current bout of inflation it's hitting at a time in which the unemployment rate is much higher. Making matters even worse is the fact that the mean duration of unemployment is also rising which makes rising prices that much more brutal.

So what does this mean? The way I see it, the consumer will fold like a cheap tent much faster this go around: Savings are more depleted, a much higher percentage of people are unemployed and can't find work, and millions more sit in underwater McMansions versus the last time we saw this a few years ago.

Folks, I don't see how this all bodes well for our economy moving forward. It's pretty much the nightmare scenario.

You would prefarably like to see a nice bout of deflation during times like these. The price drops that accompany this scenario would help "soften" the blow as peoplecontinue to lose their jobs and see their wages plummet.

You can thank the Fed for throwing the deflation scenario right out the window. As you can see in the chart above, our inflation started to rise just after the Fed dropped interest rates to zero.

Our current bout with inflation became even more exacerbated when Ben "the beard" Bernanke started printing money via his famous QE machine.

As you can see below, the dollar has now resumed it's path to zero after a receiving a recent reprieve thanks to the European Debt crisis:

Take Continued:

It appears the dollar is ready to race right back down to the November lows in the near term as long as Europe stays in one piece.

All I can say is the US needs to thank their lucky stars for Europe's debt nightmare. It's the only reason the dollar has any value IMO. As my friend "the credit trader" likes to say: Risk is relative so the dollar looks darn pretty when you compare it to the Euro.

I don't know how any of this ends well for any of the fiat currencies. I guess I will keep using bucky as long as people continue to accept it!

The Bottom Line

Extend and pretend is still in control for now. Things are awfully quiet on the news front which I find bizarre given all of our problems. It almost appears as if Wall St has muzzled anyone involved with the markets.

I mean think about it: Why is there no news????

Have the PIIGS suddenly become solvent? Are people once again buying houses in droves? Did Illinois miraculously cure their debt problems after finding $15 billion in Al Capone's vault?

The answer of course is NO! I thought Goldman's earnings were a good barometer as to how slow things are out there:

"Goldman Sachs Group Inc (GS.N) fell 2.6 percent to $170.07 after it posted a 53 percent decline in profit as trading revenue tumbled, spoiling hopes that Wall Street's most influential bank might buck a volatile climate that has hurt rivals such as Citigroup Inc (C.N). "

Many were expecting much better numbers. Their earnings showed very flat to negative growth in areas like M&A and other investment bank activity. This tells me that Wall St is very slow.

All I can say folks is don't believe the hype. The "silence is deafening" on Wall St and the fundamentals stink. Its only a matter of time before the combination of rising unemployment and high inflation takes down the consumer.

It's beginning to smell a lot like early 2008 out there except this go around both the consumer and our government are broke.

Stocks made it to September during our 2008 inflationary crisis before falling off a cliff. I can't see us making it that far this go around because the economic fundamentals are materially worse.

Are the Days of "Investing" Gone Forever?

2011-01-18T19:48:00.000-08:00

I can't help but ask myself this question. The market now slowly rises on a daily basis as the "bearded one" continues to print Monopoly money and give it to the banks who then turn around and pump it into stocks.

Now that we know how the "QE" game is played, I can't help but wonder why stocks aren't rising at a faster rate. During the tech and housing booms the stock market would rise hundreds of points on any given day.

We have seen nothing of the sort during our current boom. It's becoming increasingly obvious that the average investor wants no part of this market when you look at the pathetic trading volumes. If they did, we would be soaring to new highs because the Fed is literally pumping billions into the markets via the TBTF banks.

The rallies of the past never had the opportunity to enjoy a tailwind like this! As a result, one must hesitate and ask why so many people don't want to join the party.

In fact, you must dig deeper and ask yourself: Why is no one other than the HFT's participating in this glorious rally?

It's becoming pretty clear that no one outside of Wall St is interested in touching stocks. The HFT's are loving this of course because it makes the market easier to game. Just look at the price action on a daily basis. The tape just wonders around aimlessly as it reacts to various algo trades.

Rallies are almost immediately sold into and sell offs are almost immediately bought. I have to admit, it's boring as hell to watch. There is no conviction at all right now when I look at the markets.

Have Investors Lost Interest?

I can't help but wonder if the average investor just doesn't understand stocks anymore and refuses to buy them as a result.

Can you blame them? It seems like nobody makes money these days unless they own a sophisticated trading robot.

The trend for stocks might be higher but individual stocks are increasingly trading with higher volatility. It seems like we see a mini flash crash in a any given stock at least once a month these days.

The Bottom Line

Wall St better be careful because I think they risk losing the average investor as they play their "computer war games".

Americans are scared, frustrated, and confused when it comes to how they should be handling their investments. Nothing looks safe to them and so many sit paralyzed in cash as a result. A few brave souls are out there chasing yield but that game seems like it's nearing as end as they watch various munis begin to blow up.

The only people that have confidence in how stocks are trading these days are the computer nerds from Harvard and Yale that created all of this computer BS.

When QE ends(or should I say "if"), the markets are in for one hell of a ride. Without the "magic" of QE the trading robots may decide that selling and taking profits is their best option.

If this is what happens when the end of QE occurs then you must ask yourself this question: Who is going to be left to buy the stocks?

Answer: "crickets chirping".

If you are in equities please be careful. You are one of a brave "few" who have decided to swim with the HFT sharks in the shark tank that we like to call the stock market.

The Next Crisis

2011-01-16T20:38:00.000-08:00

The next leg down is going to be political chaos in Europe. It looks like Ireland is the first one to step up to the plate:
"DUBLIN – Irish Prime Minister Brian Cowen faced a fight for political survival Sunday as he rebuffed pressure to resign and a senior Cabinet colleague announced he would challenge him for the party leadership.

Foreign Minister Micheal Martin said he had "reluctantly concluded" that Cowen would have to be forced from office since he refused to go voluntarily. The two face a showdown Tuesday when lawmakers of the long-ruling Fianna Fail party gather to vote whether to keep Cowen or promote Martin.

At stake is the course of Ireland's fightback from a European-record deficit amid a euro67.5 billion ($90 billion) international bailout. The leadership tussle within Fianna Fail — "Soldiers of Destiny" in Gaelic — raised new doubt over whether lawmakers would be able to pass a deficit-slashing bill without a national election first.

Hours later Martin — one of three Cabinet ministers who have signaled their desire to succeed Cowen — became the first to declare a challenge. Martin said he had tendered his resignation as foreign minister because he no longer supported Cowen and would ask lawmakers to back him instead Tuesday.
"The longer (the Irish government) stays in power, the greater the damage that is being done to the economy and to our international reputation. This government should go," said Gerry Adams, leader of the Irish nationalist Sinn Fein party."

My Take:

This is serious stuff folks. We just saw a mini version of political chaos in Tunisia last week. We also saw it in Iceland last year.

The next huge debate(which I predict will trigger a financial panic) will be the people of various nations rising up against government and the banks.

You see, the politicians of these various PIIGS are all making a huge mistake as they accept these bailouts. The money is great but it comes at a steel price.

Essentially when they sign these deals, the politicians of these various nations have decided to bail out the banks at the expense of the people. The reason I say this is the loans come with certain "terms".

The terms of course are to slash spending and agree to start paying off debt. In other words, they force the governments to make catastrophic job and spending cuts in exchange for the money.   The problem is the money never trickles down to Main St. It's used to clean up the trillions of dollars of losses that the bankers made on bad bets like housing.

The problem for the politicians who have taken these bailouts is the people are starting to wisen up. The people are starting to understand that it's their jobs(not the banks) that will disappear as the government is forced to slash spending.

The Bottom Line

As you can see above, the people of Ireland want to toss out their government who sold them down the river. If they are successful then I expect the new regime to tell the ECB to "take their bailout and shove it where the sun doesn't shine".

The arrogant ass that's in power and signed the bailout is toast at this point. His tight associations with the bankers pretty much seal his fate IMO. Time will tell if the people will successfully throw him out of office. I would guess that they will be. The fact that someone from his own party has already agreed to challenge him in an election tells you all you need to know.

The markets are going to panic if Ireland is able overthrow the government and then decides to tell the ECB to "shove it". The US banking exposure to Ireland is estimated to be around $200 billion. The European banks are much more heavily exposed.

All I can say is Go Irish! Take down the bums that got you into this mess. This financial nightmare is not your fault.   YOu should NOT be forced to pay for the mistakes of greedy bankers.

This whole thing just infuriates me. The idea that the banking cartel actually thought they could force the taxpayers to pay off their losses is beyond insane.

Expect more and more anger in Europe as the recovery fails to materialize and living conditions become worse due to extreme austerity measures.

Whats scary to me here are the ramifications if Ireland is successful in it's attempt to reject the bailout. You can be sure Greece will right behind them demanding the same. Hell they almost burnt the country down a few months ago.

Countries like Portugal and Spain will also eagerly be watching.

The people of the world are realizing they are selling their souls to the devil by agreeing to the brutally fiscal terms of these government bailouts.

The people know that there are far better deals to be made which will include the bankers taking large haircuts.

The banks are about to learn there is no free lunch. All I can say is it couldn't have happened to a nicer group of people.

A Politician Who Gets It

2011-01-15T10:12:00.000-08:00

Just a few comments. Before I start I want to say that it's a great day here in Steeler Nation as we prepare to watch our Steelers take their first step towards winning a 7th Lombardi trophy:

Getting back to the economy. Former LA Mayor Richard Riordan was recently caught doing some truth telling in an interview recently. He warns that 90% of the cities in this country will be bankrupt within 5 years thanks to unions who have corrupted the whole political system.

Let me do a quick side bar here before I continue. I am very busy with business over the next month so I might not be posting as much as I usually do. Work comes first folks because unfortunately blogging doesn't pay the bills.

Let me also add that I am disgusted at what's I am seeing on Wall St and in Washington. The muni market is showing signs of collapse. Food and gas prices are soaring. Tunisia just overthrew their government because of rising food prices and a 50% unemployment rate among the younger generation.

Despite all of this chaos, the market trades as if it doesn't have a care in the world while Rome slowly burns in the background.

The whole thing is absolutely ludicrous and I want no part of it right now. In a nutshell: Stocks are too expensive to buy at this point, and the Fed's money printing makes shorting the market too dangerous.

As a result, I sit here in cash with my thumb up my ass waiting for this absurdity to end. The way I see it, the next big event is the ending of QE2 in June. The market will start to worry about this in March/April and I expect chaos in DC as the Fed tries to figure out what to do.

Remember folks: Without this insane government spending we would be in the middle of a depression right now. The problem is the government cannot sustain this Ponzi scheme without destroying the dollar. We are broke and Moody's is talking about lowering our credit rating as a result of this stupidity.

Enjoy the interview below. It's always nice to see a smart guy who has a clue.

Consumer Spending Collapses in Early January

2011-01-13T15:56:00.000-08:00

The early 2011 numbers are out for consumer spending and they are flat out ugly:

Quick Take:

The market will likely rally 500 points on the news the way it's been trading lately. Folks, I was shocked that the market didn't sell off hard after the inflation and jobs data today.

As you know, I am very skeptical about what is going on right now when it comes to stocks. Everyone keeps saying that the market can only go higher thanks to the money printing Fed via QE. I must say I agree but I think there is more to it.

I can't help but believe the HFT trading algos are also involved in helping create a floor for this market. They are creating massive amounts of liquidity as they move in and out of stocks in a matter of seconds. They now represent about 73% of the trading on Wall St.

This is very scary to me. Last year's flash crash showed us what can happen when they all decide to stop buying.

I wanted to throw up a chart of the DOW and point something out:

Quick Take:

I thought it was interesting to look at the daily market moves since early last year.  As you can see, we haven't had a 200 point sell off since August 2010.  On the flipside, we haven't had many 200 point moves to the upside either. I can count them on one hand.

Does anyone else find this bizarre? Here we are working our way through the most dramatic financial disaster in history and the stock market acts like it barely notices on a daily basis.   Think about the stories the market has ignored over the past few months:

- The greek riots
-  Ireland collapse
- European debt crisis
- Horrific housing numbers(beginning in the fall)
- Bad unemployment
-  Rising interest rates
- Munincipal bond/state solvency issues

I would have expected at least a couple of large sell offs as a result of these events.

On the flip side, we never got a huge move higher as the Fed started printing money and companies started blowing out earnings. The trend is definately higher as a result of these two things but it's been a very slow methodical climb higher. It doesn't look normal too me when you compare it to the fierce rallies we saw in 2009.

The markets movement is even more strange when you compare it to the the bond and currency markets. Both have reacted violently as we work our way through our worst financial crisis since The Great Depression:

We saw the largest bond rally in history last year which was followed by a violent sell off after the Fed announced QE.

As for currencies, they were just as volatile.  Take a look at the dollar over the past 12 months:

Quick Take:

These moves in the dollar are huge versus normal times.

The Bottom Line

I think the stock market has developed into nothing more than a casino parlor that's dominated by trading robots that scalp each other all day long. Any large move up or down seem to get sold into.

I guess we should expect the market to move like this when the average trade is 11 seconds. When you think about it: How in the heck can any daily rally be sustained when the quants are programmed to sell once they scalp a few points?

IMO, the market no longer represents what's going on with the economy. It now represents whatever the trading robots want to do on any particular day.

I will be keeping an eye on consumer spending moving forward. The chart above tells me that the inflationary pressures from higher oil and food are starting to have an effect on discretionary spending. If this trend continues things are going to get ugly in a hurry.

Party On!

2011-01-13T06:36:00.000-08:00

A few data points for you as you start your day:

"The Producer Price Index for Finished Goods rose 1.1 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.8 percent in November and 0.4 percent in October and marks the sixth straight rise in finished goods prices. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.0 percent, and the crude goods index increased 4.0 percent. On an unadjusted basis, prices for finished goods advanced 4.0 percent in 2010 after climbing 4.3 percent in 2009."

Quick Take:

Ummm....Inflation anyone?

Jobless Claims:

How can I describe this....Fugly???

"In the week ending Jan. 8, the advance figure for seasonally adjusted initial claims was 445,000, an increase of 35,000 from the previous week's revised figure of 410,000. The 4-week moving average was 416,500, an increase of 5,500 from the previous week's revised average of 411,000."

Quick Take:

OK...So let me get thris straight: Prices are soaring and so are jobless claims. What a perfect combination.....NOT!

Stocks barely moved on the news. We shouldn't be surprised. Stocks are not allowed to go down anymore no matter what the news. Remember: Ben Bernanke has your back. Thanks to him, the market will ALWAYS go up no matter what the news.

Seriously folks, this is not going to end well. Please be careful with your investments.

A Walk Down Memory Lane

2011-01-12T22:31:00.000-08:00

I thought it was interesting to go back in time and look at my first post that was published on 2/23/2008. I lived in a different city at the time and my writing skills were pretty crappy back then(they still are but I hope they have improved somewhat).

Anyways, I am pleased at how accurate my first call was. I have been wrong many times but I pretty much nailed housing. To date, home prices are down 36% from the highs despite rates dropping to 3+%. I thought some of the newer readers would find this interesting:

"Welcome to my spot on the web. For all you buyers in Baltimore I hope this little spot will help educate you while you house hunt. Today I wanted to discuss why rates have climbed so much in the past week. Many banks and brokers are now over 6% for a 30 year fixed.

The reason this is happening is because of the bond market. the bond market is basically now starting to ignore the FED. Usually mortgage rates drop when the FED drops rates. This for the time being has changed.

The bond market however is a smart bunch and they are now worried that home prices might drop on a national basis. If you want to see where rates are heading you need to watch CNBC and look at the 10 year rate. There was a massive spike upwards this week in the 10 year which has resulted in a big jump in interest rates. So in closing look at the 10 year when you are trying to predict where rates will go.

I expect housing to drop 30-40% based on the change of lending standards in combination of higher interest rates. As a result I recommend anyone that is looking for a home to wait at least another year. "

Deny Deny Deny

2011-01-12T13:22:00.000-08:00

Sorry it's been a few days folks. Too be honest I haven't really seen anything worth talking about when it comes to the markets.

We are in a period right now where all of the news is good. Any bad news is either papered over and hidden by the Fed's printing press or it's spun positively.

Today's Portugal bond auction was a perfect example:

The market rallied this morning on news that the auction was successful and saw very high demand. However, Portugal refused to give any details around the auction. Know one knows who bought what. My guess is China and the ECB were the ones providing all of the demand.

Nonetheless, our permabull media took the story and ran with it without giving the details.

The Bottom Line

Basically, what's going on right now is the governments of the world have decided to print over their mistakes and pretend that everything is Hunky Dory.

The problem is the debts from our masive credit bubble are still there and they aren't going anywhere.

Today's price action was interesting:

The market had every reason to zoom higher today: Europe settled down thanks to Portugal, the Treasury had a very strong 10 year bond auction, the Fed continues to pump POMO "funny money" into the banks, and earnings reports have been strong.

Despite all of this, the market has only managed to rally 83 points after being up triple digits earlier in the session. Some may say the market is digesting recent gains. I personally believe the rally looks tired.

That being said, over the shorter term stocks are likely to keep rising without a significant downward catalyst. The issue for the bears is it doesn't appear that the Fed is going to allow any such fuse to be lit for now because the "recovery" is too fragile.

They will continue to print money in order to ignore our structural problems and kick the can down the road. Unfortunately, our children and our grandchildren will be the ones who will end up paying for this tragedy.

Nothing has changed folks. The problems are still there and things are getting worse. Eventually, spending money we don't have is going to crush our currency and when it does our world will never be the same.

The dollar's status as the worlds reserve currency will eventually end. China looks like it's already preparing the renminbi to take it's place:

"Bank of China, one of the country's main state-owned lenders, is now allowing American clients to open accounts in renminbi and trade in the mainland's currency, another step in China's introduction of the renminbi to the world stage.

''China sees the global financial system as too U.S.-centric and dollar dependent,'' said Robert Minikin, senior currency strategist at Standard Chartered in Hong Kong. ''That created issues during the financial crisis.''

Now, he said, the country is trying to take a step away from that dependence. ''Conditions are in place for sustained yuan appreciation against the U.S. dollar,'' he said, predicting that it would increase by 6 percent this year to 6.20 per dollar.

Take Continued:

The longer we sit here and do nothing to solve our problems the more vulnerable we become.

Is Portugal About to Bite the Dust?

2011-01-10T14:51:00.000-08:00

Last Monday the bulls were oozing with confidence after a triple digit gain on the first day of trading in 2011 following a massive rally in December. I think I saw several of the CNBC girls achieve orgasm periodically throughout the day as the market stormed out of the gates.

My oh my...What a difference a week makes.

The market has done nothing but sink ever since albeit slightly. The question many traders have now is will the market be able deliver the massive earnings beats that the market has currently priced in?

Alcoa kicked things off after hours and beat but the stock barely moved despite announcing a 12% earnings growth forecast for 2011. Hehe...Good luck with that Alcoa.

Where is the growth going to come from? Europe and the USA are both disasters. China is hitting the breaks on it's growth as inflation heats up.

Perhaps they are expecting a building boom in Pakistan?

Portugal

It looks like another PIIGS nation is about to bite the dust:

"CONTAGION CONCERNS: Portugal's borrowing rates briefly spiked to euro-era highs amid reports other European nations are pushing it to accept outside help to keep its debt crisis from spilling over into Spain.

PEER PRESSURE: The early spike in yields followed a report in German newspaper Der Spiegel that France and Germany are both pressing Portugal to tap a European rescue fund.

BAILOUT TALLY: Analysts estimate financial assistance for Portugal would be between ?50 billion and ?100 billion ($65 billion to $130 billion). But EU officials deny a bailout is in the works for Portugal."

Quick Take:

These bailouts are nothing but Monopoly money at this point.

Expect to see the same Eurozone debt fire drill:

The bankers will threaten Portugal with their financial lives if they don't take the bailout. Portugal will say they are fine knowing that they eventually cave in to the banksters and take the money. The losers of course will be the Portuguese who instantly become debt slaves for the rest of their lives. Austerity will immediately be put in place which will trigger social unrest as the country is forced to cut jobs and entitlements.

Rinse, wash, repeat.

The Bottom Line

You have to wonder how long the governments of the world can continue to get away with throwing their own people under the bus in order to save the banks.

It's happening over here too:

"California Governor Jerry Brown's budget will cut spending by $12.5 billion, including as much as a 10 percent pay reduction for most state employees, aides said.

The plan, which Brown is to unveil today, will also raise $12 billion by retaining tax increases due to expire and making other modifications. Some of the revenue will go to cities and counties as part of Brown’s plan to transfer spending authority from the state to local governments."

Continued:

That's going to leave a mark. I am sure all of this will be bullish for the markets!

I applaud Jerry Brown for at least trying to do something about it. However, it appears he didn't touch the unions for the most part which is very disappointing.

Nonetheless this state is fiscally screwed and paying back this deficit is going to be very painful. Why anyone would want to live in this cesspool is beyond me.

Before I continue, please save your breath if you are going to attempt to defend this place. I know the weather is great out there. I also understand that you can also legally smoke mountains of pot in between innings at a Giants game.

You are going to need both of these things way I see it moving forward in California: Hoovervilles aren't heated, and the drugs will able to provide you with a nice escape as you sit in your refrigerator box and think about which garbage dump you plan on picking your next meal from after you get the munchies.

Party on folks! There is plenty more monopoly money that is around for the taking! It will be interesting to see if this printing party will continue to move the markets higher.

A Sad Day/Leading Economic Thinkers: Things Don't Look So Good

2011-01-09T18:03:00.000-08:00

Before I get to the economy let me just share a couple of thoughts on yesterday's assassination attempt.

The shooter was obviously a complete nut job who was mentally ill. What disgusted me today was how it's getting politicized. This makes me sick.

There is nothing to analyze here IMO and It's not a right or left issue:

A whack job lost it and went postal on a politician. That's it. Period. We see this craziness all the time. We saw it happen at Virginia Tech. We saw it happen at Columbine.

The only difference here is a politician was involved. Unfortunately, both sides of the aisle now see an opportunity for blame. I keep reading about how all of this was the Tea Partiers and Sarah Palin fault.

HA! Gimme a break. Did you see those You Tube videos this guy made? This mental patient couldn't even write a complete sentence. Who knows what was going on in his pea brain when he started firing.

Let's hope we see some positive changes as a result of this tragedy. If there is any blame here it should be placed on the anger and hatred that the left and right consistently spew at each another.

It's OK to disagree with one another but it's slowly but surely gotten out of hand. Media personalities like Hannity and Olbermann then make it worse as they sensationalize this hate as they attempt to carry out their biased agendas.

This has to stop because there are mental patients out there with guns who don't know how to process the anger.

I'll tell you what folks: The moral/social crisis in this country is just as bad as the economic one.

I say enough already! The hating has to stop.

The country is a mess and the only way we ca turn this around is by working with one another. Let's hope we can see a little more peace in DC. Our future is in jeopardy and now is not the time to figure out who to blame all of this on on.

Let's fix things first. We can have the debate later.

Another Lost Decade?

I'll end with an excellent piece that summarizes a convention that featured the leading economic minds in the world.

Their conclusions on where things are headed are disturbing to say the least. Have a read:

"DENVER (By Mark Felsenthal): To hear a number of prominent economists tell it, it doesn't look good for the U.S. economy, not this year, not in 10 years.
Leading thinkers in the dismal science speaking at an annual convention offered varying visions of U.S. economic decline, in the short, medium and long term. This year, the recovery may bog down as government stimulus measures dry up.

In the long run, the United States must face up to inevitably being overtaken by China as the world's largest economy. And it may have missed a chance to rein in its largest financial institutions, many of whom remain too big to fail and are getting bigger.

On the one hand, Harvard's Martin Feldstein said he believes the outlook for U.S. economic growth in 2011 is less sanguine than many believe.

First, the boost to growth from government spending will be drying up this year, he said. Renewal of expiring tax cuts is no more than a decision not to raise taxes, and the impact of one-year payroll tax cut is likely modest, he said.

"There's really not much help coming from fiscal policy in the year ahead," he said. Woes from the dire situations of state and local governments may actually be a drag on growth, he said.

Growth got a lift from a lower saving rate in 2010, but that probably will not last this year as households worried about an uncertain future return to paring back debt and socking more away, Feldstein added. Discouraging declines in home values mean there is less to save from, he said."

"People are worried, so there's a strong reason for precautionary saving," he said.
THE RACE IS ON

On the other hand, there is the race with China and the dynamic Asian economies, including India. Most estimates put the size of the Chinese economy on par with the United States by the early 2020s, said Dale Jorgenson, also of Harvard.
Jorgenson sees Asian emerging markets as the most dynamic in the world, eclipsing other emerging market contenders such as Brazil and Russia with steady growth over the next decade.

"The rise of developing Asia is going to accompany slower world economic growth," he said.

The United States will need to come to terms with the fact that its prevalence in the world is fated to come to an end, Jorgenson said. This will be difficult for many Americans to swallow and the United States should brace for social unrest amid blame over who was responsible for squandering global primacy, he said.

MIT's Simon Johnson put it more bluntly, saying the damage from the financial crisis and its aftermath have dealt U.S. prominence a permanent blow.

"The age of American predominance is over," he told a panel. "The (Chinese) Yuan will be the world's reserve currency within two decades."

Johnson said he believes the United States has failed to learn its lesson from the financial crisis and continues to implicitly back its largest financial institutions.

"I'm concerned about the excessive power of the largest global banks," he said. "Who are the government-sponsored enterprises now? It's the six biggest bank holding companies."

To be sure, Raghuram Rajan, a former IMF chief economist now with the University of Chicago's Booth School of Business, could still envision an ongoing U.S. leadership role.

Nothing proceeds in a straight line, he said, and there are many pitfalls along the way even for dynamic Asian economies.

"I would say the age of American dominance may be nearing an end. But America as the biggest mover will be in place for a long time," he said.

(Reporting by Mark Felsenthal; Editing by Maureen Bavdek)"

US Rep Gabrielle Giffords Shot Point Blank in the Head

2011-01-08T12:10:00.000-08:00

This isn't good:

"TUCSON, Arizona (Reuters) – Representative Gabrielle Giffords of Arizona was shot point blank in the head by a man who opened fire indiscriminately at a constituency meeting in Tucson, U.S. media reported on Saturday.

Giffords, a 40-year-old Democrat in her third term in Congress, was airlifted to a hospital in Tucson shortly after the shooting at a Safeway supermarket in the Arizona city.

"She is currently in surgery. She's alive," University Medical Center spokeswoman Darci Slaten told Reuters. Slaten added that nine other shooting victims were being treated at the hospital.

NPR, citing the sheriff's office in Pima County, Arizona, initially reported that Giffords and six others had died in the shooting, though it later said there were conflicting reports."

Quick Take:

Let's hope this is just a random isolated incident. My gut tells me that it isn't. The shooter was white and in his mid to late 20's according to news reports.

This is tragic and my heart goes out to her family. Washington DC better wake up and get their priorities straight because 20% of this country is unemployed and they are getting restless.

Social unrest is a virtual certainty when this many people feel like they have no future.

I will wait for more details before commenting any further.

Robo Recovery!

2011-01-07T14:34:00.000-08:00

Another day another bizarre tape. Wall St is certainly happy to have trading robots creating liquidity on days like today. Today's news would have likely sent the market down 200 points if the market was trading like it was a few years ago.

Technically I thought this was interesting. The market has done nothing since the big up move on Monday:

Quick Take:

We closed the week out almost to the point from where we started the week following the bounce at the opening.

The rest of the week has been dominated by this bizarre/choppy algo trading. My guess is the majority of the day traders are getting slaughtered by the robots on this type of tape. They have no chance against the speed and precision of the pros and their powerful HFT's.

The algos are loving this hot market right now because it's sucked in many new retailers for them to fleece.

Over time I am hoping the tape will return to more normal trading once these E-traders get chewed up and spit out. For now, the robots will rule because there are new pockets for them to empty.

The Next Bull Market is Here!

It's time to go long food stamps!:

Quick Take:

For a second there I thought I was looking at an Apple chart. I need to figure out how to buy call options on 20% participation by December. I am sure those would pay off handsomely by the end of the year.

Seriously, it's a sad day in America when 1 in 6 people cannot afford to eat. What happen to these people when the deficit forces us to cut entitlement programs like these? Let me answer that for ya: You might want to load up on some guns and ammo.

The Bottom Line

The market is being held up by the power of the trading robots along with fumes of the emboldened bulls who have ridden this powerful rally the last few months.

I am sensing a loss in confidence in the last few days. Retail numbers and the jobs report were OK but less than expected. Europe looks like it's ready to explode. The Massachusetts foreclosure ruling is a huge negative for the financials. Commodities like gold and silver have had a bad week as the dollar rallied.

Can this market still move higher without the financials and the commodities participating? It going to be tough. Earnings and Europe will take center stage over the next few weeks.

In the meantime it's time for us to pay our respect to the power of the robots! Who needs QE2 when you have the robot PUT!!!

Massachusetts Bank Bomb

2011-01-07T09:49:00.000-08:00

I refuse to even discuss the jobs report this morning because it was so ridiculous. 500,000 people disappeared from the workforce which lowered the unemployment rate down to 9.4%.

Where in the hell did these people go? Mars? How did the unemployment rate drop this much when we only created 103,000 jobs? This just wreaks of total desperation. Let the clowns in Washington report whatever stats they want. I will wait for revisions.

In case you are curious as to why the market is starting to roll over look no further than this:

"NEW YORK (Reuters) - Wells Fargo & Co and US Bancorp lost a ruling by Massachusetts' top court on Friday that found the banks failed to show they held the mortgages at the time they foreclosed on two homes.

The ruling could cause other foreclosure sales to be invalidated, especially where lenders may not have all of the underlying documentation.

It may also be significant in the realm of securitization, where mortgages are packaged into securities to be sold to investors.

In midday trading, Wells Fargo shares were down $1.03 or 3.2 percent at $31.12, while U.S. Bancorp shares were down 1.3 percent at $25.95.

The KBW Bank Index, which includes both lenders, was down 1.7 percent."

My Take:

This was a Supreme Court ruling which means it can go no further folks. All along I figured it would be one of the extremely liberal states that blew foreclosuregate wide open.

This will have a rippling effect but the severity of it is unknown. This ruling potentially has the ability to unravel the banks as their MBS holdings become worthless. It also opens them up to lawsuits from the pension holders and anyone else that bought these worthless securities.

However, as we have seen before, you can never underestimate what the scumbag banks are able to get done in DC so I will withhold judgment on the fallout of this ruling.

The bank stocks rolled over on the news and the rest of the market then followed. The Illinois news and the weak jobs report didn't help things either.

Hold on tight folks. Things are going to get a whole lot more interesting.

Bend Over: Here it Comes!

2011-01-06T18:23:00.000-08:00

So much for those tax cuts if you live in Illinois:

"SPRINGFIELD — Gov. Quinn and the Democratic legislative leaders have struck an agreement to raise the income tax on individuals from 3 percent to 5 ¼-percent and raise the state tax on cigarettes by $1 a pack, sources said.
The moves, if they pass the House and Senate before next Wednesday, could erase the state’s expected $15 billion deficit, generate a $700-million-plus windfall for schools and grant property tax relief, sources said.

The tax increase, which would represent the first time the income tax had been raised in roughly two decades, would be temporary and need to be renewed by lawmakers and the governor, though the duration for that temporary period remained fluid, sources said."

My Take:

Let the raping and pillaging of the US taxpayer begin! This is the first step that America has taken on the austerity path and it's only the beginning folks.

Good luck with that whole economic "recovery" thingy as both taxes and prices rise at the same time income falls. The sheeple can barely afford their mortgages as it is.

It's not going to take much to knock this economy right back into recession. Watch for margin compression in the next round of corporate earnings as input prices rise thanks to the Fed's bubble blowing antics.

Alcoa is already feeling it:

"Citigroup analyst Brian Yu cut Alcoa to "hold" from a "buy," explaining that the aluminum maker was approaching his stock-price target of $17. Yu also trimmed his fourth quarter profit estimate for Alcoa to 17 cents a share from 19 cents due to the weak U.S. dollar and rising input costs."

The Bottom Line

There is no free lunch folks. You cannot bailout the world without consequences.

Our recent strengthening of the dollar won't help us that much on the rising prices front because the inflation genie is already out of the bottle in China.

As a result, wages are rising in China which means prices will rise on everything we import from there. The same thing goes with many of our other countries we import from.   Get used to rising prices as long as the Fed keeps rates this low.

I will be curious to see how the markets trade the jobs number tomorrow. ADP really heightened expectations around tomorrow's jobs report after they reporting a blowout number.

If the government's numbers fails to deliver then we could see a negative reaction after the news. In fact, I wouldn't be surprised to see the market sell off on a great number because the market have already "priced in" something big.

I like the percentages for a quick short trade here on the announcement.

Quiet day marketwise. The pump has lost it's momo the last few days.  Let's see if they can regain it after the jobs report.

Edit:

Please take a look at this chilling video from Peter Stansberry.

Fed's Hoenig Warns of New Economic Imbalances

2011-01-05T16:00:00.000-08:00

It was another boring day of algo trading on Wall St as the robots scalped each other for a few points hour after hour after hour.

This market is acting so bizarre. It moves higher when the news is bad and then does nothing when the news finally looks more promising!

The problem the market has here as I said earlier today is it can't unwind all of the easing without destroying the whole recovery.

Hoenig was out with some interesting comments regarding Fed policy today:

"Hoenig, who repeatedly dissented against what he regarded as excessive monetary accommodation as a voting member of the Fed's policymaking Federal Open Market Committee last year, predicted that currently "modest" inflation will increase as the pace of recovery picks up.

Hoenig, in remarks prepared for the Central Exchange, also expressed strong concern about the record federal budget deficit and its "ramifications for monetary policy." He said it could lead to "sharp and disruptive" movements in interest rates and exchange rates if not dealt with."

Quick Take:

Oh don't be silly Mr. Hoenig. The Fed has this all under control. Blowing bubbles is very efficient and does not present any increased risk to the markets.

If you just look at the 10 year today you will be able to see that your Chairmen has this all under control. You need to stop all of your dissenting and get with the program!!:

You see? There is no risk of inflation. Just look at food prices if you don't believe me:

"Food prices hit a record high last month, surpassing the levels seen during the 2007-08 crisis, the UN’s Food and Agricultural Organisation said on Wednesday.

The Rome-based organisation said the increase did not constitute a crisis. But Abdolreza Abbassian, senior economist at the FAO, acknowledged that the situation was “alarming”. He added: “It will be foolish to assume this is the peak.”

The jump will increase fears about the repetition of the crisis of 2007-2008. However, poor countries have not so far seen the wave of food riots that rocked countries such as Haiti and Bangladesh two years ago, when prices of agricultural commodities jumped.

The increase in food costs will also hit developed economies, with companies from McDonald's to Kraft raising retail prices."

Take Continued:

Alrighty, let me turn the sarcasm off. The Fed's reckless policy of printing money is obviously doing a lot of damage.

This might be good for the banks but, as you can see above, it's devastating for the rest of the globe when it comes to rising food costs. The Fed is basically forcing people in many third world nations to starve as they attempt to bailout their greedy banker friends by printing like there's no tomorrow.

The Bottom Line

Unfortunately for the rest of the world when we create free money for the banks it never sits in cash. Bankers would never think of doing such a thing. There is too much money to be made speculating with it!

Therefore it sloshes all across the globe creating mini bubbles in bonds, gold, silver, stocks, and food. The problem is these bubbles always eventually pop because these addicted gamblers always need to find new "action" once they run something up as far as it can go.

Hoenig obviously sees this and knows if the economy shows an uptick then it will create the recipe for an inflationary disaster.

Ironically, the bulls better pray for more bad economic numbers because you are going to see an instant inflationary crisis if the economy shows signs of life.

The "sweet spot" for the bulls is a crappy economy with tons of money printing. An improving economy with money printing is actually a nightmare for the bulltards because the QE toy and all of the "free money" associated with it must be put back in the closet.

The bond vigilantes are obviously ready to pounce as soon as any inflation appears in the economy. The mere risk of inflation crushed bonds today after the strong jobs number.

Rising prices are already being seen in areas like India, China, and even Europe.

Folks don't kid yourself: Inflation is heading straight this way if we keep seeing numbers like this and the Fed keeps the pedal to the metal when it comes to easing.

Finally Something Bullish: ADP December Jobs Report

2011-01-05T07:09:00.000-08:00

I have to admit I was pleasantly surprised by the ADP jobs report today:

"Private-sector employment increased by 297,000 from November to December on a seasonallyadjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from October to November was revised down but only slightly,from the previously reported increase of 93,000 to an increase of 92,000."

Quick Take:

The issue here is how much of this was just $10 an hour Christmas Season hiring versus actual jobs growth:

"According to the ADP Report, employment in the service-providing sector rose by 270,000 in December, the eleventh consecutive monthly gain and the largest monthly increase in the history of the report."
Take Continued:

I think the reason stocks didn't soar on the news was because 270,000 of the 297,000 jobs were service sector jobs. These tend to be lower paying jobs that you look for during the holiday season. Manufacturing looked better too but the numbers were hardly impressive with an increase of only 23,000.

Nonetheless it was a solid report. I will be looking for some nice follow through post shopping season before I call this a trend.

The problem with the economy showing any sort of a pulse is the bond market. The 10 year bond soared on the positive jobs report:

This is the box that Bernanke finds himself in. If the economy improves then interest rates are going to soar because the bond market will start to worry about inflation.

Rising rates will crush any sort of housing recovery which will then destroy the banks balance sheets. The way I see it the Fed is in a damned if they do and damned if they don't/no win situation.

If the economy grows then they will be under severe pressure to raise interest rates. If the economy doesn't grow then we have a huge deflationary problem as the country sinks into a deep depression.

European Debt Crisis

This nightmare reared it's ugly head again today:

"Portugal paid almost twice as much to sell 500 million euros ($660 million) of six-month paper on Wednesday as it did in September, keeping the country at the sharp end of persistent market concerns about euro zone debt.

The yield rose to 3.686 percent from 2.045 percent in the previous auction. The auction produced a bid to cover ratio of 2.6, compared with 2.4 previously."

Yikes! Ugly.

We also got this from the Swiss:

"The Swiss central bank confirmed Wednesday it has excluded Irish government debt from a list of assets considered eligible as collateral for its repo deals – operations under which it lends money against collateral."

The Bottom Line

The dollar is soaring on the strong jobs report and the European debt issues over in Europe. Commodities dropped on the stronger dollar.

The market is mixed as it tries to digest all of the news out of Europe and the US this morning.

I have been warning that the European debt crisis would take center stage early this year and it looks like things are heating up again over there.

I'll be curious to see where we end up closing on the S&P after today's session.

CNBC Gets Punk'd: Market "Bear" Dresses as a "Bull" and Warns of DOW 3000

2011-01-04T15:14:00.000-08:00

This totally cracked me up today. In a segment called "Stay long: Market Pro" Mike Rubino, CEO of Rubino Financial, duped CNBC and pissed on the bulls parade.

Rubino was supposed to be bullish on the market and in the shorter term he did agree that he was a bull. However, a few seconds later, Rubino changed into his bear costume and began warning about how the Fed has created the "mother of all bubbles" and warned that the DOW might see 2,3,or 4,000 before all was said and done.

The other contributor in the segment(Scott Redler of T3live.com) was visibly irritated by Mike's comments and immediately went on the attack claiming that such dire predictions as DOW 4,000 are "irresponsible" and hurt market confidence.

Take a look below and I will have a retort following the video:

My Take:

Question for you Scott: Who is the one being "irresponsible" here? Could it possibly be YOU??? Confidence and fundamentals are two totally different things.

Perhaps real confidence might be restored at DOW 4000? TRUE confidence will not be restored until the credit losses that remain hidden in the system are purged. I am not saying DOW 4000 is where we need to go to get there but I wouldn't say it's unreasonable.

Whatever the number is one thing remains clear: The sytem will lack confidence until the balance sheets are transparent and assets are accurately marked to market. No one is going to be confident owning bank stocks when they know that there are trillions of dollars in assets that aren't accurately marked to market.

Scott and the rest of the other bulltards Wall St remain in a state of denial about this critical piece of market fundamentals. They delusionally believe the market can just "grow out of this" despite 17% unemployment and trillion dollar debts.

Anyone that refuses to buy into their thinking is instantaneously demonized and labeled as being "irresponsible". In my eyes Scott is the one being irresponsible because he believes confidence is expressed in only one way: Higher stock prices.

This is total BS. The market lacks confidence because stocks are an absolute horror show fundamentally. The traders trade the tape and they are basically forced to go long thanks to Fed's QE printing press.

IMO, 90% of the pros that are long right now are not confident in how the markets are trading. I know a bunch of them who tell me behind the scenes that this market is a piece of garbage.

However, they are paid to make profits so they trade the trend no matter how ridiculous it is. If the bulls were really "confident" then guys like Scott wouldn't be so quick to attack someone that is bearish on the market.

The Bottom Line

CNBC really looks bad when they turn into a bunch of hacks. Shame on Mark Haines for piling it on after Mike made his bearish call. CNBC needs to look in the mirror when they wonder why their ratings have continually shrunk month after month.

When I look at the markets right now I see a bunch of nervous bulls that are concerned that their miraculous rally might be over.

The commodity trade got pummeled today despite the Fed claiming they are still worried about deflation. GLD got pummeled as gold dropped around $40 a share:

I thankfully sold out of a good chunk of my GLD a few weeks ago. However, I don't think the gold trade is done longer term.

Nonetheless: The inflationists need to mark this day on their calender because the commodities should not have reversed like this on a day where the Fed came out and said they plan on keeping the printing presses on.

I have a feeling the market might start getting infected with a deflation virus in the near term where we see the dollar rise and stocks and commodities fall.

However, it's hard to make a call on stocks when you watch the tape. The HFT's make the tape so choppy day after day as they buy and sell stocks in a matter of seconds. Trng Identify trend changes are almost impossible when I look at this tape.

I was told by an insider that it's gotten so bad on the trading floor that the specialists basically only pay attention during the first and last hours of trading because everything in between is a bunch of quant nonsense that means nothing.

Until next time!

The Real Economic Analysts of the USA

2011-01-04T08:00:00.000-08:00

Sometimes you need to travel outside of this country in order to hear some USA analysts that have alternative views on what's really going on in this country.

CNBC would never even consider allowing dissenting opinions such as the ones seen below. They prefer to spend their time trotting out the puppets of Wall St hour after hour.

The "economic recovery" that these puppets love to tell us about is nothing but a pipedream, but you would never know it when you listen to our media that has basically morphed into something that resembles a propaganda machine.

You may think differently about our "recovery" after watching the clips below:

Let me note that Gerald Celente can be a little over the top and I do not agree with everything below. Things are bad but "The end of the world"? C'mon....