Saturday, March 14, 2009

End of day/ Week/ Weekend Update 3/14

Hey, everybody has a dream, especially those who believe any actions in the prior week saved the banks or the markets. Nothing’s changed, this rally is just like all the others in this bear market, a rock and roll fantasy…

Bad Company – Rock and Roll Fantasy:

Friday saw the DOW gain 53 points, the S&P rose .8%, the NDX gained .3%, and the RUT gained .8%. IYR was down 2.1%, the XLF gained .6% and was up an amazing 40% on the week… 2 whole bucks!

Hey, that’s a giant move from under $6, but it, like all the others was a false rally. The root causes of the problems have not been eliminated and those who think that the banks can earn their way out of their debts with a falsely wide interest rate spread are simply mistaken. I know, maybe they can earn their way out by charging fees on unemployment debit cards! Unemployment Debit fees…

Market internals showed 56% of the issues advancing on the NYSE with 62% advancing by volume. New lows have dropped very significantly over the week and Friday there were only 14 on the NYSE. The percentage of stocks above their short term moving averages is at extreme highs, a bearish indication.

The Put/Call ratio is sitting at .71 which is low and has been hovering in the low 70’s without a significant push lower for the past three days. Unusual. There was a related negative divergence on Friday in that the VIX bounced off its 200 day moving average and was UP on an up day for equities.

McHugh had a turn date that was supposed to occur on Friday… the trend into Friday was up, so if his turn date is correct it argues for lower prices next week.

Several of the Elliott Wave experts I follow favor wave 5 down being complete. I do not see that count on a small timeframe, what they see as wave 4 was too small in relation to wave 2, much too small. The current move is in relation to wave 2 and thus I am going to base my analysis on the past week being part of wave 4 as my primary thinking with my alternate being that wave 5 down is complete and we’re just starting a larger A-B-C correction up. For this to be correct, prices need to begin correcting last week’s move soon.

I note that next week is a busy week with options expiration, an FOMC meeting, and lots of economic data, so it’ll be exciting, I’m sure. This weekend already we’re learning that the G20 is agreeing to pump up the IMF so that they can enslave the entire world with debt from their fake money. They believe this will strengthen the Euro (LMAO), and thus cause further rally of the Krona and Swiss Franc as well. That, of course, would mean a weaker dollar and a rally in stocks? Well, we’ll see about that, adding onto this past week’s rally may not prove to be as easy as some people are thinking.

When we look at the SPX weekly chart over the past 6 months, we see that there have not been two consecutive up weeks in that time frame other than a couple of doji weeks that moved sideways. If wave 5 is truly over, however, that could change. Notice how we had closed beneath the weekly Bollinger the prior week and this week we closed above it, that is a buy signal on this timeframe, but that signal during this bear market has not meant much:

Next is the one month daily SPX. That is a legitimate outside hammer, with NO overlap of candle bodies. That raises the odds that hammer will be a reversal, but prices need to start lower right away on Monday to confirm that as a reversal (I can’t find examples in the past year where an outside hammer at the top of an uptrend was not a reversal. In fact, if you look back over the year on the SPX you will find that nearly every hammer like this resulted in lower prices the next day and sometimes significant declines). Note that the fast Stochastic reached overbought on the daily timeframe already. While you’re here, take a look at the 50dma which is just above 810. If we’re etching out an ABC, that area could be the final destination, probably for the C wave which would by then probably be just over 800 and would be coincident with the upper Bollinger which is moving down at a pretty good clip:

Next is the SPY. I’m showing it just to point out that this is more of a doji than a hammer and Friday’s advance was on decreasing volume:

Next is the DOW daily. Close to being a hammer too, and also on slightly decreasing volume. The volume the past three days on the DIA has been very low. The daily stochastic is already touching overbought and is higher than where wave A of 2 began to turn:

While we’re looking at daily charts, let’s look at the XLF. Here is a black outside hammer, again on decreasing volume – volume confirms price and this declining volume pattern on advances has not gone away. I’ll be surprised if prices continue over that candle, it looks like a top of some degree to me, but must be confirmed by Monday’s action:

Here’s a look inside a 10 day SPX chart. Here I do see a pretty obvious 5 waves up that ended in a double top on Friday. If prices do advance, it’s possible that will produce an ending diagonal, but by the looks of the hammers, it may not get there. This has tracked that green channel very well and topped out very close to where I had the larger blue channel drawn. Prices do not go in a straight line like that forever; a correction of some magnitude is coming. The stochastic is overbought on all the shorter timeframes. On the 30 minute chart I am seeing the RSI diverge bearishly on the last three peaks. You can see some of that here by looking at the double top and seeing a lower RSI, but it’s more noticeable on the slightly longer timeframe – that said, going out to a 60 minute chart I can see a bullish divergence. This could mean some short term pullback followed by further rally of some degree:

I normally don’t do forward projecting of prices onto charts, but I was playing around on TOS and drew in my favored idea of a wave 4 triangle (which would be followed by wave 5 down). Wave 4 could be a triangle because wave 2 was not. As I have that triangle drawn, it is a little more than a month in duration, but wave 2 was not that long, so an actual triangle may occur more quickly with steeper boundary lines. The other path is a slight pullback followed by more rally in my most bullish scenario which I consider a secondary possibility. If wave 4 is happening and is not a triangle, it could unfold as a simple ABC. Again, I don’t really like doing these for anything more than fun and wouldn’t trade based on either one of those possibilities as there are many others too. It is possible that news over the weekend drives prices a little higher before pulling back:

Next is a series of Advance/Decline lines compared to their respective indices. The red/black lines are the A/D line and the solid black is the index. On the NDX and AMEX I point out BEARISH divergences. Again, McHugh has been incorrectly drawing these and calling them bullish… they are not and the bearish divergences grew over the past week, especially on the NDX. The NYSE is the closest together:




Overall, I keep hearing a lot of bullishness, more than is warrented. If you stayed long going into the weekend you may have overstayed your welcome. I still do not see where wave 5 down happened… I could be wrong about that, but the time relationship of what people are calling wave 4 in the last decline does not fit the time of wave 2, not even close. I see decreasing volume and bearish divergences on the RSI, VIX to market, and A/D lines coupled with extreme percentage of stocks above their short term moving averages.

Sure, we could just keep running like the Energizer Bunny, and everybody on CNBS has a dream too…

Billy Joel – Everybody Has a Dream:

IMF to Double “Bailout Pool.” – Where’s the Money Come From?

Think about that. Where’s the money come from?
IMF Bailout Pool May Be More Than Doubled, G-20 Officials Say

By Brian Swint and Gonzalo Vina

March 14 (Bloomberg) -- Group of 20 finance ministers pledged to at least double the International Monetary Fund’s bailout pool as the economic crisis forces more countries to seek its support.

“My forecast was that we needed to double our resources,” IMF Managing Director Dominique Strauss-Kahn told reporters after a G-20 meeting near London today. “A commitment to do so has been made. It may even go further.

Strauss-Kahn has lobbied for the fund’s cashpile to rise to $500 billion from $250 billion after being inundated with loan requests from Pakistan to Hungary. A European government official said they agreed to “more than double” the pool, though ministers have yet to say how much they will increase it by.

“It takes months to get the technical details worked out,” said Strauss-Kahn and they may not be agreed by the time heads of government meet in London next month. Still, “the resources we have now are enough to wait.”

The U.S. Treasury has also sought an expansion of the IMF’s supplementary borrowing program by up to $500 billion.

“The G-20 supports our proposal for a substantial increase to emergency IMF resources,” Treasury Secretary Tim Geithner said.

The fund is currently able to borrow about $50 billion -- from 26 mostly wealthy member countries -- through these special financing arrangements. If that proposal won international support, the IMF could have the ability to lend $750 billion and possibly more.

In the past six months, the IMF has approved $16.4 billion for Ukraine, $15.7 billion for Hungary, $10.4 billion for Latvia, $2.5 billion for Belarus, $2.1 billion for Iceland, $7.6 billion for Pakistan and $516 million for Serbia -- a total of about $55 billion. Turkey is negotiating an IMF loan accord, and Romania has expressed an interest in borrowing.

The IMF and World Bank are essentially the same old central bankers that own and operate the central banks in the U.S. and U.K. Issuing debt to countries in trouble sounds like a nice, safe, and sane thing to do on the surface… helpful of them isn’t it? But when you consider the effects of the loans on the countries who take them, you may rethink those intentions.

Once a loan has been accepted, a country’s free-will and sovereignty are compromised. The productive efforts of their people and their natural resources are now under the control of the central bankers who skim interest and fees from money that they “lend” which has no backing, and was created from thin air. Are there actual reserves to back these loans up? Doubtful, very doubtful.

The fiat money game is one of confidence. As huge sums of money appear from thin air, the game of the central bankers will be revealed. Just look at the trillions in bailouts and how it is now doubled and tripled in an effort to keep the exponential math growing. Once confidence is lost it will not come back.

More Martin Armstrong – Is it Time to Turn Out the Lights?

From Behind Bars on his IBM Selectric…
I cannot stress enough that the level of volatility that we are experiencing during this financial crisis is just well beyond even that experienced during the early stages of the Great Depression and is more akin to the collapse of Rome.
In case you didn’t catch Martin’s last rendition, you can find it here: Martin Armstrong's Latest... from behind bars. I include links there for you to research Armstrong’s background.

Well, he has published another article, and this one is good too with many valid points, especially about capital flows and very pointed history lessons as well. Here is a link to the entire new .pdf article: Is it Time to Turn Out The Lights?

I like that version although he does get very technical and degenerates a little at the end. Contrahour edited the piece down and you can view their version here: Contrahour – Armstrong’s Article.

His thinking is way above most and outside the box compared to regular commentators you hear. I strongly suggest you read and think outside the box the way the politicians and bankers want to define it. They are both boxing in the issues to their benefit, not yours.

Would love to hear your comments or thoughts.

Friday, March 13, 2009

Interview: Mark Green – CEO FICO…

Interesting interview, Mr. Green’s responses seem thoughtful.

I personally do not like the PEOPLE credit rating system and think there are much better ways of doing credit screening – like meeting people face to face and reviewing their paystubs, etc. in PERSON. While it may not be as “efficient” sounding, once this credit rout is over it may look way more EFFICIENT.

The depersonalization of the credit process coupled with all the rating agency behavior has allowed LESS TRANSPARENCY. The people who believe in these systems believe they are great statistical measuring devises, but I think the facts argue against that overall.

Mark Green – CEO of FICO:

Larry Summers – The Root Cause of the Problems!

The root cause of the problems:

1966 stock prices? Yes. Sale of the Century? No.

Larry Summers does not understand economics or basic math – he is a poster boy for Keynesian idiocy. I would recommend that he, and the entire Obama Administration Spend some Time with the Good Dr. Bartlett…

The other side of getting “credit flowing” is debt. Unfortunately, Obama is taking Summer's advice. His stimulating policies worked during the Clinton years because debt saturation had not yet been reached (if you call an 80% Nasdaq crash working). His policies of trying to smooth out and stimulate downturns IS THE ROOT CAUSE OF TODAY’S PROBLEMS. He is influenced by corporate America and Central bankers. President Obama is hopelessly surrounded by these people.

Mike Larson – Banking Problems Solved!

EXCELLENT article by Mike Larson who is one of the few guys who has been consistent and consistently right. He sees through the BS and keeps his eye on the ball. Critical to read...

Eureka! The Banking Industry’s Problems Are Solved!

by Mike Larson

Who knew it would be so easy? Who knew we could solve the banking industry’s collapse by simply changing how we account for assets. Eureka! Problem solved!

That seems to be the conclusion Wall Street came to earlier this week, judging by the reaction to Fed Chairman Ben Bernanke’s comments at the Council on Foreign Relations on Tuesday. During that speech, Bernanke weighed in on “mark to market” accounting, saying the following:

“The ongoing move by those who set accounting standards toward requirements for improved disclosure and greater transparency is a positive development that deserves full support. However, determining appropriate valuation methods for illiquid or idiosyncratic assets can be very difficult, to put it mildly. Similarly, there is considerable uncertainty regarding the appropriate levels of loan loss reserves over the cycle.

“As a result, further review of accounting standards governing valuation and loss provisioning would be useful, and might result in modifications to the accounting rules that reduce their procyclical effects without compromising the goals of disclosure and transparency. Indeed, work is underway on these issues through the Financial Stability Forum, and the results of that work may prove useful for U.S. policymakers.“

What Bernanke did is shift ever so slightly toward the position of the banking industry’s apologists. These lobbyists, assorted policymakers, and pundits (including folks like Steve Forbes, who wrote an Op-Ed in the Wall Street Journal the other day), are arguing — once you cut to the chase — the following …

The problem with the banks isn’t all the crappy securities and loans they’re loaded up with.

It’s not that they took on too much excessive risk, lending against assets whose value is plunging.

It’s not that they funded asinine private equity deals, stupid commercial construction deals, and dumb home purchases.

It’s that they have to mark their book of securities made up of these bundled loans to market. And they argue that the prices they could get for those securities in the markets are “artificially” low — or in some cases, that there is NO market for them.

If only they could avoid marking those assets to market, or use their super- duper net present value and cash flow MODELS — which, surprise, surprise, say the “real” value of those securities is higher — then the banking system would be fine. We could all go back to the wonderful world of yesteryear.

There’s just one problem …

Pretending Something’s Worth More Than It Is Doesn’t Change Reality!

Look, the problem isn’t that there’s NO market for these bad securities. The problem isn’t that the prices are “artificially” low. The problem isn’t how we account for these assets. The problem is that the industry doesn’t want to acknowledge that today’s prices are the REAL prices.

There are tons of bidders out there for this crappy paper … at the RIGHT price. Vulture funds, hedge funds, private equity investors: They’re all raising billions and billions of dollars to scoop up cheap real estate, inexpensive bundles of mortgage backed securities, and distressed buyout loans.

But sellers don’t want to admit reality. They’re not hitting the buyer’s bids. They’re hanging on to the garbage securities, hoping against hope that they won’t have to sell at the true market prices. And the government is busy trying to figure out ways to prop up the price of the garbage rather than forcing banks to take their medicine now, even if it means the result is that they have to temporarily be nationalized or put into receivership.

I understand why this is occurring: Policymakers are afraid of mass insolvencies. So they’re trying to figure out how to do something akin to the early 1980s use of Regulatory Accounting Principles (RAP), which papered over insolvencies in the Savings & Loan industry.

Of course, papering over the problem didn’t mean it went away. No surprise, then, that the unofficial nickname for RAP used to be Creative Regulatory Accounting Principles; you can figure out the acronym yourself.

Worse, many of the S&Ls that were granted forbearance were also allowed to try to grow their way out of insolvency. They increasingly gambled on new ventures, especially commercial real estate, to do so. Result: They eventually blew up anyway — at a much LARGER cost to U.S. taxpayers.

This strategy of delay, stall, and hope has another more recent analog: It’s exactly what we saw in the early days of the housing market downturn. Sales VOLUME dried up, while the SUPPLY of homes for sale surged.

Yet reported median prices didn’t decline. I lost count of how many people asked me: If the market is so bad, why aren’t prices falling? I answered that fewer and fewer buyers were paying inflated prices, holding up the median.

But the huge build up in supply and dramatic fall off in the sales pace meant it was just a matter of time. The TRUE, underlying market value of U.S. homes was declining; it just wasn’t being acknowledged by most sellers yet. Sure enough, the numbers eventually took a dramatic turn for the worse. It’s kind of like those old Road Runner cartoons, where the coyote runs over the cliff but doesn’t start plunging until he looks down.
My Prescription: Deal with the Problem Head On!

The longer the industry tries to push out the day of reckoning … and the longer Washington pretends the problem is accounting rules (or even worse, short sellers, who also were cast as the latest bogeyman for the banking sector) … the longer this recession is going to drag on. It also increases the chance we end up like Japan, with zombie institutions consuming more and more government dollars even as the economy stagnates.

Think I’m crazy? Then consider this: If institutions just bit the bullet a year or two ago, and unloaded all this crappy paper at the then-available prices, they would be in clover today. They would have gotten much higher prices for these assets.

But they followed the delay, stall, and hope doctrine — and instead of learning from that mistake and changing course, they’re STILL making the same mistake today. They’re still saying their modeled prices are the “real” prices and that anyone who suggests otherwise doesn’t know what he’s talking about. They say if the accounting procedures are modified, and the regulators forebear, everything will be fine down the road.

That strategy didn’t work for the S&Ls in the 1980s. It didn’t work in Japan in the 1990s. It hasn’t worked so far this time around. And I don’t think it will work in the future.
Until next time,

Right on, Mike. Keep up the great work, agree 100%!

Cramer and Jon Stewart Face Off...

By popular demand... this is the entire 21 minutes of The Daily Show from last night. Too bad that neither one knows what's going on in the economy, but it's a good diversion:

Morning Update/ Market Thread 3/13

Good Morning,

Futures are up slightly this Friday the 13th morning.

We had China threaten us not to devalue our dollar last night (or they won’t keep buying our debt) and then they turn around and claim that they can stimulate their own economy at any time sending copper and other commodities higher. Don’t you just love being a debtor nation?

But the GOOD news is that our trade deficit is coming down rapidly, falling all the way from the $60 billion a month level, month after month, down to ‘only’ $36 billion. That shows the collapse in trade and manufacturing. I say that’s a good thing, because trade needs to come back into balance.

As trade has collapsed, prices are down. Import prices are down 12.8% in the past year!
(Econoday) Prices for imported goods continue to contract, though perhaps at an easing rate. Import prices fell 0.2 percent in February, less severe than the 1.2 percent decline in January and the run of even much more severe declines in prior months. But the slower decrease is tied to prices for imported petroleum which bounced 3.9 percent in February. Excluding petroleum, and this is the core reading for the report, prices fell 0.6 percent in the month, just a bit easier than the 0.8 percent decline in January and much easier than the extremely severe declines in prior months. Prices for imported capital goods are very weak, down 0.4 percent in the month and reflecting the monumental downturn that the industrial sector is suffering.

On the export side, prices fell 0.1 percent in the month reflecting a 1.7 percent drop for agricultural products. Prices for non-agricultural export products are actually steady, up 0.1 percent in both February and January and a big improvement from prior sharp contractions.

There are definitely mixed signals in this report. Year-on-year rates of price decline for both imports and exports continue to accelerate, though only slightly. Import prices are down 12.8 percent year-on-year with export prices down 4.5 percent. Today's report isn't likely to raise new concerns over deflation, though it does indicate that the period of disinflation is still ongoing. And today's report isn't likely to raise concern over next week's producer and consumer price reports.

Gold and oil are up again overnight, today I am looking for another consolidation day, probably not huge gains or losses. That will keep people guessing going into the weekend. I’m hearing A LOT of bullishness now. That’s a pretty dangerous statement, especially since I still don’t see any wave 5 of 5.

The next pivot higher is at 768 and then 789. Pivots below are 734, 717, & 696. My best guess for today would be range bound, but I won’t be surprised by moves in either direction. There’s very little volume resistance now until we get up to the 800 level, but once we reach there, going higher will be very difficult indeed. The 50dma currently resides at 813ish.

I see a potential small bear flag that’s worth about 7 points already in the futures, so we’ll see what today brings, I doubt we’ll see more panic buying at these levels and I don’t see the catalyst for panic selling here either other than the fact we’re up against some potential channels tops as I outlined in last night’s report.

Have a great day,


Hey, Friday the 13th and a full moon coming... as Seth would say, must be the season of the witch!

Donovan - Season Of The Witch

Thursday, March 12, 2009

Five Companies and the U.S. Government All That are Still Rated AAA…

The ratings companies and their fee for rating business model are broken and need to be overhauled, if not eliminated entirely so that new rating businesses can be started that receive their income from those needing to use the ratings instead of from the rated themselves.

GE AA+… are you kidding me? Do we know what their assets are worth? How much do they hold? How much level 3?

While the U.S. government may be the last to hold a triple A rating, we certainly don’t deserve it either… take a look at our debts - Death by Numbers.

Ranks of AAA Companies Thinning After GE, Berkshire Downgrades

By Erik Holm

March 13 (Bloomberg) -- The credit crisis is thinning the ranks of AAA companies, after General Electric Co. and Warren Buffett’s Berkshire Hathaway Inc. lost top-level debt ratings on concern about losses on financial instruments.

Fitch Ratings yesterday stripped Berkshire of its AAA grade, citing risks stemming from derivatives holdings and Buffett’s role as chief investment officer. Hours earlier, GE lost the top rating at Standard & Poor’s that it’s held since 1956. S&P and Moody’s still rate Berkshire triple-A.

The downgrades underscore how the credit seizure is hurting perceptions of even the strongest companies, said Michael Yoshikami, chief investment strategist at YCMNet Advisors. Five non-financial U.S. companies, including Microsoft Corp., now hold S&P’s AAA grade, down from more than 60 in 1982, according to the ratings firm.

“Triple-A in the end is probably going to be left for the Treasury when it’s all said and done,” said Yoshikami, whose Walnut Creek, California-based firm oversees $800 million and owns Berkshire Hathaway shares. “You’re seeing the rating agencies taking an abundance of caution at this point.”

U.S. companies aren’t alone in losing triple-A status, as the weakest world economy in six decades strip them of sales.

Toyota Motor Corp., the Japanese company that ended General Motors Corp.’s 77-year reign as the world’s largest carmaker in 2008, had its credit rating cut to Aa1 from Aaa on Feb. 6. Toyota is forecasting its first loss in 59 years as auto sales slump.
Rating agencies “taking an abundance of caution at this point?” Give me a break. Even when a 2 year old knew that the monocline insurers where broke they still carried AAA ratings. These are the same companies who’s method of operandi is to downgrade companies AFTER their stock has fallen 80% or more.

No, the ratings agencies are a huge part of the problem… they obscure risk and cause distortions in the economy. They need to be dismantled and restarted. Will it happen? Doubtful, they rate the Treasury AAA.

China “Worried” - Issues not so veiled threat…

You tell me, does this sound like a threat to you? “If the U.S. can make sure this won’t happen, then China will continue to invest.”

Sounds like one to me.

A lot of thoughts come to mind, like how could we allow a situation to develop where they have or even think they have power over our country? You see, when you owe people money, you are surrendering your FREEDOM and you are ceding your control to those who you owe money. This is why I’ve been harping on the relationship of freedom and security. To be free and secure, you must practice fiscal discipline.

Now, they have a very valid point. Why would they continue to buy our debt if we simply print away the value of the paper they are holding? They shouldn’t and they won’t.

Does that mean that they are playing fairly with their currency? NO, but that doesn’t change or excuse our own misbehavior.

How about the timing of this? I stated publicly on my market threads that I see what looks like suspicious activity in the bond auction world. All of a sudden billions and billions are being bought by “non-dealers.” Who are these people/companies? Why would they be so interested in buying billions in debt when the equity markets are zooming? That’s not the usual. Usually when markets rally, money leaves bonds for equities. Yet, when critical resistance is met, all of the sudden the buying comes pouring in – just in the nick of time to prevent interest rates from rising beyond that “line in the sand.”

Tinfoil? Watch what happens when TLT hits the 101 area, or the TNX reaches the 30.50 or 3.05% level. Yes, it is critical for the economy in this environment to keep these rates that low. How do you think the big banks get to claim to have operational profits? How do home owners get to roll over their mortgages for affordable rates? How do corporations and the Government get to roll over their debts at affordable rates?

When the world is permeated with DEBT, low interest rates are a MUST. Thus, China’s threat has real meaning. Bernanke has openly stated he’s going to do exactly what the Chinese are telling him not to.
China ‘Worried’ Over Safety of U.S. Debt, Wen Says

By Eugene Tang and Tian Ying

March 13 (Bloomberg) -- China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

“We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today after the annual meeting of the legislature. “Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

China should seek to “fend off risks” as it diversifies its $1.95 trillion in foreign-exchange reserves and will safeguard its own interests, Wen said. Chinese investors held $696 billion of U.S. Treasuries as of Dec. 31, an increase of 46 percent from the prior year.

Treasuries have dropped this year as President Barack Obama sells record amounts of debt to fund his $787 billion economic stimulus package. Merrill Lynch & Co.’s U.S. Treasury Master index shows the securities declined 0.5 percent last month, after falling 3.1 percent in January, the most since April 2004. The dollar has dropped 17 percent against the yuan since China ended a fixed exchange rate in July 2005.

Treasuries declined, causing the yield on the 10-year U.S. Treasury note to rise 3 basis points to 2.89 percent at 11:49 a.m. in Hong Kong, according to BGCantor Market Data. The yuan was little changed at 6.8380 per dollar. The Shanghai Composite Index of stocks climbed 0.7 percent.

Stable Yuan
“China is worried that the U.S. may solve its problems with the fiscal deficit and banks by printing money, which will stoke inflation,” said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., the country’s second-biggest lender. “If the U.S. can make sure this won’t happen, then China will continue to invest.”

U.S. Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying U.S. debt, which she called a “safe investment.” She didn’t press China on its foreign-exchange policy, backing away from January comments by Treasury Secretary Timothy Geithner that the Chinese government manipulates its currency to boost exports.

China will maintain its policy of seeking a stable yuan, even as gains against the euro and Asian currencies hurt the nation’s exporters, Premier Wen said. People’s Bank of China Governor Zhou Xiaochuan pledged last week to maintain yuan stability as investors pull money out of emerging-market assets because of slowing global economic growth.
Independent Policy

While the yuan has weakened 0.2 percent against the dollar this year, there has been a “drastic depreciation” in the euro and Asian currencies that has put a lot of pressure on Chinese exporters, Wen said. The currency has gained 8.6 percent against the euro this year and 6 percent against the Philippine peso.

“Our goal is to maintain a basically stable yuan at a balanced and reasonable level,” Wen said on the final day of the meeting of the National People’s Congress. “At the end of the day, it is our own decision and any other countries can’t press us to depreciate or appreciate our currency.”

Collapsing exports have dragged the economy to its weakest growth in seven years and eliminated the jobs of millions of migrant workers. Wen reaffirmed China’s target of an 8 percent expansion in 2009 as economies from the U.S. to Japan contract, saying the goal was “difficult but possible” to achieve.

Stimulus Plans
China can add “at any time” to 4 trillion yuan ($585 billion) of stimulus measures to revive the world’s third- biggest economy, Wen said. Gross domestic product expanded 6.8 percent in the fourth quarter, compared with 9 percent for all of last year and 13 percent for 2007.

“We have reserved adequate ammunition,” Wen said, adding that the fiscal deficit is under control and the debt level still safe. “At any time, we can introduce new stimulus.”
Yu Yongding, a former adviser to the central bank, said in an interview on Feb. 10 that China should seek guarantees that its U.S. debt holdings won’t be eroded by “reckless policies.” While Wen used the Chinese word for “guarantee” in his answer, it was translated into English as “ensure.”

Delegates of China’s legislative advisory body suggested that the biggest foreign holder of U.S. debt diversify away from Treasuries into more risky assets at the annual meeting that started on March 3.

Jesse Wang, executive vice president of China Investment Corp., said on March 4 that his $200 billion sovereign wealth fund may invest in “undervalued” commodity assets. Zhang Guobao, head of the National Energy Administration, said China should invest more in commodities instead of hoarding the U.S. dollar, the official Xinhua News Agency reported on March 7.

“We have adopted a principle of diversification with our foreign-exchange investments,” said Wen. “So far, our holdings are generally safe. China will mainly use the reserves for outbound investments and trade.”
Interesting times... I hope our officials can do the right thing. Yes, China and the U.S. need each other. People do funny things when it comes to money!

Howard Davidowitz - Inside Retail...

I love it when people who have common sense match up against those who don't...

Howard Davidowitz, Davidowitz & Associates:

End of Day 3/12

Well, that quite the goring the bulls gave to the bears! Relentless buying all day long… I was flat out wrong on my guess last night, but this morning I warned that if we broke above that dragon’s head, it was bullish, and look at the resultant chart:

That’s some serious determination. I can just picture the bulls singing their revenge tonight… “Somebody better put you back into your place!”

Queen-We Will Rock You:

But let’s not get too ecstatic, bulls. Yes, you have gained 12 whopping percent in the last four days, BUT, that 80 SPX points has only gotten you a 38.2% retrace of the LATEST wave down, and still leaves us below the descent rate of the S&P during the Great Depression. It’s brought the DOW back to about the rate of the great depression as you can see by looking at the big picture for the bear market so far. Look at how much further we would have to go to get back over the last area of support that is now resistance… we do that, THEN I’ll be impressed:

Today the DOW gained a Seth 239.66 points (3.46%), the S&P added 4.1%, the NDX gained 3.4%, and the RUT zoomed 6.5%. The prior laggards gained the most, with the XLF up 10.3% (76 cents), and IYR climbed 7.9% and I do note that the CMBX index has come in ever so slightly, certainly not in proportion to the moves seen over the past 4 days. LQD, that high quality debt fund was actually down slightly today.

Internally it looked like more panic buying with advancers leading decliners 10 to 1 and 94% of the volume on the upside, the second 90%+ up day in the past 3. That’s often a bottom marker technical analysts look for as these are usually found at significant bottoms. They show follow through. That said, I would weigh these two 90% days within the context of the four negative ones we’ve had in the past month. This market is a different animal, and that’s some kind of volatility. But what’s amazing about all that volatility is that fear on the downside, as measured by the VIX has remained relatively low and it fell another 5.6% today. It’s one of those situations where the bulls point at the bears and say they are too bearish and the bears point at the bulls and laugh at how unafraid they are. I’m no perma-bear, but right now I’m laughing at anyone calling this THE bottom simply because there has been no change to the fundamentals the way I see them, and NO, I don’t believe for a second that we’re done in 18 months correcting the largest credit bubble in the history of the planet.

I remind everyone that crooked bank CEOs who got us into this mess are not to be trusted any further than you could throw one! Oh, what a great game just came to mind… never mind, I don’t want to get in trouble for calling them lying S.O.B.’s or anything like that, even if they are, I just wouldn’t do a thing like that!

People bought the Citi BS ramming the banks higher, then I was amazed that they bought the same bull again from JPM after Dimon said to himself, “Aha, that worked, think I’ll try that…” and then I was just astounded that it worked YET AGAIN when BAC liar/criminal CEO Ken Lewis piled on with the same BS again today! People are actually that gullible? Oh, yeah, they’re making money, and my name is Bond, James Bond. Asshats, all of them. Should have waited a day and made it a joint award – hey, what can I say, my timing’s a little off right now.

Oh, and mark to market and uptick rule changes mean NOTHING to the real fundamentals underlying the debt holding up this economy. They are a smokescreen, just like the “stress test.” Fun and games by criminals, the same ones who brought us here, that’s all.

And speaking of criminals, Bernie Madoff is finally behind bars. Hell, he practically put himself there. People begging the SEC to do something and he turns himself in and then pleads guilty! LOL, you couldn’t make this stuff up if you tried. Have we really begun to get to the root of the problem here? NO? Let me know when Paulson is behind bars, then I’ll be optimistic about our future.

Okay, the charts are talking to me… just like Cramer or Doug Kass calls the bottom over and over, and over, sooner or later I’ll be right if I say that tomorrow will be a down day! LOL, there are signs… and when I’m right, by golly, I’m going to remind you of that over and over in my commercial and ignore all the times I was wrong. Can I interest you in my new option selection service? NO? Why just look at this winner I selected that gained me over 400% in just three days! You, too, can turn your meager $10,000 investment into $40,000 in JUST THREE DAYS!

LOL, oh, we have to have fun at the lunacy.

One thing’s for certain, today eliminated the possibility of a small wave 4 retrace. There are now only two real possibilities from where I stand; either we are just about done with the larger wave 4, or the large wave 5 down is completely over and we just began wave 1 up.

When I look at the 10 day chart of the SPX I am amazed at how we ran up the middle of the green channel today and didn’t even bobble from the centerline. Look at the stochastic indicator… went up and stayed up, never even dipping down after the open. I don’t have my Fibonacci’s on here, but if we retrace, the 23.6 is at 732, the 38.2 is at 720, the 50% is at 710, and the 61.8% is at 699. The pivots are 768 above us, 734, then 717 and then 696 below. Note the light blue larger channel I drew in. That could be in play if this is the first wave up of a larger correction. If we’re still in wave 5 down, then it probably won’t hold later on. If you count the waves up from the bottom, there’s a pretty clear 5 waves there and it looks like wave 5 extended to 750. That does look like a potential ending diagonal (not drawn in):

The 60 day, 60 minute view of the SPX shows the old larger wave 5 green channel. Remember how I said a couple days ago that I could envision that smaller channel running up to the top of the bigger one? Well, here we are. The fact that channel crosses right at 750, just where we probably ended 5 waves up is amazing. And overbought on the stochastic too. Note how the 23.6 of the wave 3 move lays right at the 717 pivot… and guess what? A 38.2 retrace back down lands right back in the same neighborhood. Isn’t TA fun? Yes, wave 2 up above did overthrow the channel and this one could head fake a little more too, so be careful:

Here’s a 5 minute view inside the DOW. Really just showing it so you can see how perfect that climb was on the centerline today:

The DOW daily shows another powerful candle, but on still lower volume. Note how fast the fast stochastic has made the trip up from the bottom. The odds are very high that we’ll reach overbought before the next deep retrace gets started, and note that the slow (my slow is set slow) is still not out of oversold. If you are trapped short, you may not want to bet on a deep retrace until later and then all this action at the 7,000 level will become support:

Here’s the DIA… I’m showing it just so that you can see how low the volume is here. The SPY is a little heavier, but not a substantial amount:

And the XLF is the most bullish chart I’ve seen in a while, even if it is based on the lies and half-truths of criminals. That’s the last 3 months of XLF with the blue lines showing a large descending wedge that I pointed out last night. This time was indeed different than all the last black topping candles! Hugely engulfed and it just launched off that trendline. I got long on that this morning, but cut it lose too soon. It looks like it could easily make a run up to the $9 level, that would peg the 50dma, the upper Bollinger and fill the gap up to $8.75. We may get some pullback first, however, but probably not too much… I can still feel the optimism pouring out of my Teevee set even though it’s happily off!

The Put/Call still resides in the gutter at .76. I’m surprised that it’s not lower. Surprisingly, the other indices, like the transports and RUT that didn’t produce a breakout higher on the P&F charts still have not.

This is definitely one of the most difficult investing environments for stocks ever. If you just did the right thing and went to cash a long time ago, it’s not your problem, congratulations. I was only able to convince a few of my friends to do that, most did not. Trust me, if that was you, there is no reason whatsoever to rush into the market now. Oh yeah, it could be THE bottom and then again, we could wake up and your debts, and my debts, and America’s debts may all be gone too. Wouldn’t that be nice? Wait, is this rally real life, or is it just fantasy?

Queen - Bohemian Rhapsody:

Is this the real life-
Is this just fantasy-
Caught in a landslide-
No escape from reality-
Open your eyes
Look up to the skies and see-
Im just a poor boy,i need no sympathy-
Because Im easy come,easy go,
A little high,little low,
Anyway the wind blows,doesnt really matter to me,
To me

Retail Sales and Weekly Unemployment Data - Keep your eye on the debt ball...

Much was made in the media this morning of the retail sales numbers, it would seem that losing ground is now a good thing. But the markets are not about the data releases per se, they are about expectations and as those expectations change the markets move. Expecting and extrapolating “signs of life” into the future is exactly the fuel that’s needed to get the next decline, not the next rally.

Yes, Spring is right around the corner, people start to feel optimistic this time of year, the flowers will be out soon.

Funny that they always want to exclude the lagers, in this case autos, but they want to include the ones the zoom when it favors their bullish tint, in this case fuel. But when it comes to inflation, it’s always ex-fuel. These are the types of games that just distort people’s perceptions and make for misallocated money. How if we just go with the total and compare it to last year? It was down, but better than expected – I don’t see a strengthening trend that’s long enough to follow yet.
Signs of life at the store

Latest government report shows retail sales fell much less than expected in February, and surprisingly strong January sales were revised even higher.

By Parija B. Kavilanz, senior writer

NEW YORK ( -- U.S. store sales showed a smaller-than-expected decline in February after an unexpected surge in January that was bigger than originally reported, according to a government report Thursday.

The Commerce Department said total retail sales fell 0.1% last month, compared with January's revised increase of 1.8%. January's increase was originally reported at 1%.
Economists surveyed by had been expecting a decrease of 0.5% for February.

"It looks to us like little more than a temporary, though welcome, rebound," he said.

The overall monthly sales number was dragged down by a 4.9% drop in auto sales and a 4.3% decline in sales of auto parts.

Sales excluding autos and auto parts increased 0.7%, compared to a revised 1.6% rise in January. The measure had originally shown a 0.9% increase for January.

Economists had forecast a decrease of 0.1% for February sales, excluding auto purchases, according to

The government report showed sales rose across retail categories, including a 2.8% gain clothing purchases, a 0.7% increases in furniture sales and a 1.1% increase in purchases at department stores.

Gasoline station sales jumped 3.4%, boosted by rising gas prices at the pump.
Continuing claims for unemployment hit another new record last week. The market is treating this as a lagging indicator and “looking past it.” The problem with that theory is that if conditions do not improve unemployment adds to the negative spiral.
Record number of Americans on unemployment

Continuing jobless claims spike to 5.3 million. Weekly jobless claims rise to 654,000.

By Julianne Pepitone, contributing writer

NEW YORK ( -- The number of Americans filing initial claims for unemployment insurance rose last week, with the number of people collecting benefits overall rising to a record 5.3 million, according to a government report released Thursday.

In the week ended March 7, 654,000 Americans filed initial jobless claims, up from a revised 645,000 the previous week.

Economists expected 644,000 new claims, according to a consensus survey by The 4-week moving average for weekly filings was 650,000, up 6,750 from the previous week's revised average.

"We think claims are still nowhere near their peak, which could well be close to a million," said Ian Shepherdson, chief U.S. economist with High Frequency Economics, in a research note.

The steady increase suggests that the rate of decline is likely to accelerate, Shepherdson said.

Continuing claims: In a sign that more jobless Americans are having trouble finding work, 5,317,000 continued filing for unemployment insurance in the week ended Feb. 28. That's an increase of 193,000 from the revised number from the previous week.

It was the highest level since record-keeping began in 1967. Continuing claims have set a new record for six out of the last seven weeks. The 4-week moving average was 5,139,750, an increase of 124,250.

Initial claims spiked to a 26-year high two weeks ago, reaching 670,000 for the week ended Feb. 21.

The insured unemployment rate is 4%, up 0.2 percentage point from the previous week's unrevised rate.

Highs and lows: Initial claims rose by more than 1,000 in 12 states in the week ended Feb. 28, the most recent state-by-state data available.

The largest increases were in New York, with 16,481; California, at 7,765; Oregon, at 4,001; Georgia, with 3,313; and Wisconsin, 3,006. Those spikes were likely due to layoffs in the construction, trade and manufacturing industries, among others, the report said.

By contrast, five states - Missouri, Massachusetts, New Jersey, Florida, and New Mexico - saw claims decrease by more than 1,000.

Stimulus: The stimulus bill that President Obama signed into law has several provisions that help those living on unemployment benefits.

The weekly unemployment benefit has temporarily increased by $25 on top in addition to the about $300 jobless workers currently receive now. Also, the first $2,400 of benefits in 2009 will be exempt from federal income taxes.
Watching markets rally on mixed news is where it really helps to have a ball to keep focused on. That ball is debt. Keep staring at it, it will help you filter through the noise and B.S. - Are debt levels decreasing? Are salaries and incomes increasing? Remember that what really matters in this entire crisis is income to service debt. That relationship needs to change and adding new debt only makes that relationship worse – everything else, like bank CEO’s jawboning their profitable spreads does not help the underlying condition of debt.

The real trick to the markets is not just playing other people's expectations. You must know where reality is in relation to those expectations. Keeping your eye on the debt ball will help to filter through the noise.

Morning Update/ Market Thread 3/12

Good Morning,

The markets were down substantially overnight and then this morning the retail sales were not horrid and the market rose on that news, and in addition GE was called “stable” and was downgraded from AAA to AA+… and their stock popped. Quite the deal to see a company that’s on the ropes still called AA+. The sad jokes never end. The credit ratings industry is broken and needs to be totally revamped. Again, their profit incentive and model of charging fees for ratings is just ridiculous. Many, many people mislead by false and meaningless ratings.

I’ll compile this morning’s economic data into a separate post and will have it up soon. Not really anything to get too excited about either way. That said, the teevee crowd is glomming onto the “ex-auto” retail sales numbers and they came in slightly better than expected. Anything that makes ‘em feel better…

Gold is up overnight, the financials are down, bonds are up a little, and the dollar is up slightly. The Put/Call ratio came up slightly to .83.

I did notice a pattern this morning that I’m not quite sure what to make of it. It’s really only visible on TOS when the overnight trading is displayed. It’s the infamous dragon pattern… you should be able to see it in these charts on all the major indices (15 minute charts):

The rule on this pattern is that it is bullish if the “head” is above the back and bearish if it’s below the back. The problem here is that I’m not sure which is the back! I think the head is above it, but when I look for the pattern on Prophet without after hours, it’s not really recognizable as the same pattern. I think it’s just worth keeping in the back of the mind for now and we’ll keep looking at the channels and pivot points for now. However, a break above the "head" (a triangle) would be bullish, while a break lower, out of the head, would be bearish.

These patterns could also be constued as as W or even a double top. We'll just have to see how they play out.

Have a great day, see you on the market thread,


Wednesday, March 11, 2009 Charts the DOW and S&P...

Daryl Guppy uses what I would consider the conservative method to calculate a triangle target. If it's a pennant, and not just a triangle, the ultimate destination will be much lower. (love the announcer pointing out the big two day up trend in the DOW... wow, 3 points! She's beaming! LOL)

Yoshikami also reminds people of bank reality...

End of Day 3/11

Interesting day in the markets… I was looking for today to give me clarity, but instead I have a mixed picture, so we’ll have to see what tomorrow brings now. In the mean time, we can all congratulate Jamie Dimon who, having no conflicts of interest whatsoever by being both the CEO of the company who’s claim to fame is being the world’s largest holder of derivatives and who simultaneously sits on the board of the N.Y. Fed, has won the prestigious 1st annual Asshat of the Year Award! Congratulations, Jamie Dimon, you’re a lucky man…

Emerson, Lake & Palmer - Lucky Man:

On this magnanimous awards day, the DOW gained 3 entire points (may someday soon represent a 5% move), the S&P gained .2%, the NDX gained 1.2%, and the RUT was the drunk of the party with the nerve to LOSE .4%. The transports were strong, gaining 2%, but on DECLINING volume, IYR lost 1.7%, and the XLF gained 2.6% which I’ll cover in detail later.

Ah, what the heck, let’s cover it now. Below is a 6 month daily chart of the XLF. That is a great big, giant descending wedge. Today we broke the downtrend line, came back to it, rose again, and then closed on it. This is a tricky wedge, we may or may not be complete with it. As you can see, it’s had previous breakouts with the line resting on the previous peaks, only to then fail again… and again. Each time it does this, I point out that little black spinner on top of the rally leading into it, and each time we subsequently enter a new downtrend. What’s different this time? Rising volume instead of falling volume... Not to say that it hasn’t happened that way before, it has. And as we go along, you’ll see that overall today had lower volume levels (it may be easy for the XLF to have higher volume when you can buy shares of major banks for a buck, or it could be meaningful):

Here’s a zoomed in one month chart of the XLF. See the last rally that ended in a black candle? That was wave 2, and here I am looking for wave 4. Do they look similar? Note that the last time the stochastic was in the same position as it is now:

Okay, so there may or may not be something there. Let’s look inside at a company like Wells Fargo (WFC – full disclosure, I am short WFC). This is a one month chart, just like the last. See the same pattern? Only here it’s identical… a red bottom day, a black spinner, two up days, and topped with a black spinner, falling volume at the end. Hmmm:

Internally it looked more bullish, with advancers leading 9 to 6, and advancing volume was 60% on the NYSE. New lows fell slightly to 69 (look at all the sixes and nines, Seth likes that)… There is a possibility that today produced yet another small change on the McClelland Oscillator. I’ll know later tonight and will brief that in the morning.

When we look at a 10 day chart of the SPX, we see a new channel that is more steep and narrower than my initial guess last night. Amazingly, we ran to about 732 and posted a pin half way through that open gap but did not fill it completely. I would be more comfortable had we done so – but nothing is easy in this market. Note, though, that we ran up on Dimon’s “profit” comments but failed to get back in the upper half of the channel. You know, this rally, like everyone before it, has no substance behind it. Just meaningless words and bullshit games. The uptick rule? Give me a break. I simply am disgusted by how many people think that will be good for the markets. MEANINGLESS. Before I move on, note the stochastic is near overbought again on this timeframe. It’s in the middle of the 30 minute time frame, but on the 60 minute stochastic the fast is half way down but the slow is still overbought. That’s a royal head fake position for those who do not check it, because it tells me the short term pressure will remain on the sell side while the shorter timeframes just oscillate:

Next is the SPX daily. Spinner doji officially shows indecision or consolidation but can be a reversal marker when at the top of an ascent, or a bottom marker at the end of a decline. This looks a lot like a top to me, but we’ll need confirmation, as it could be a continuation – that’s why I say that we need to see tomorrow to know. Regardless, today’s one point gain hardly qualifies as follow through on yesterday’s rally. Yes, we have the fast stochastic out of oversold, but the slow is still down there with my settings:

Next we see a black spinner on the DOW daily (it’s black because it closed up slightly, but below where it opened this morning). Note the lower volume. That looks like a rocket that’s running out of fuel:

When we swing over to the DIA, we see a black spinner as well, also on falling and just plain old low volume, the lowest on this chart. The SPY is the basically the same:

Today is the third day in a row with the Put/Call ratio in the gutter. I closed today at just .73. See the little curl at the end? When I look for the same thing back in time, it usually indicates it’s about to reverse:

Bonds. Wow, TLT and the TNX hit their support/resistance levels and just zoomed off them. That did NOT look natural to me – I’ll leave it at that. There was an auction today that went “well” but this happened before that auction ended by an hour. It seems we may have found a line in the sand:

Today’s up then retreat action was just enough to flip some of the indices to breakout bullish targets on the Point & Figure charts. I do not ignore these, but they can be whipsawed, so this is a bullish piece of the puzzle. I’ve noticed that since we’re in a bear market the bearish targets get hit or exceeded, but the bullish ones are less reliable. We’ll see. I know there are people out there talking bullish, that’s what this market does… Draws in money and grinds it up. $50 trillion world wide in the past year (other indices not shown did not trigger):




So, overall, if I had to place a bet on tomorrow, I’d be a sharp dressed man and pony up to the charts/tealeaves that tell me the bulls had better be careful tomorrow as we may very well see some selling (make that a small bet please). It did take some outside-the-box detective work to come to that conclusion, so we’ll see. I am still expecting a 5th wave in here somewhere… again, my count doesn’t show it complete. That said, the bears should be cautious too. 734 is the pivot above, 717 and 696 are below.

Hey, congrats again to Mr. Dimon on his Asshat award. Well deserved by a sharp dressed man!

ZZ Top - Sharp Dressed Man:

Jamie Dimon - Asshat of the Year...

JPMorgan CEO, and N.Y. Fed member, Jamie Dimon, got up in front of the Chamber of Commerce and gave what CNBS was calling a command performance and what I call the Asshat of the Year Speech.

In this speech Dimon demonstrates arrogance and defiance. He Jokingly blames the people… but I think there’s a huge message there. He and the other jokers on CNBS are “tired of the people blaming Wall Street,” but sorry, Wall Street is exactly to blame.

It is their money that influenced politicians and it was their lobbyists that pushed to create this regulatory environment. It was them that invented “securitization of debt,” and it was them who permeated the world with it while throwing lavish parties for their salesmen.

And we, the people, let asshats like Dimon sit on the “Fed,” and vote on issues that affect us all. The Fed just needs to be dismantled and the central banking function returned to the people to whom it rightly belongs:

(view about 7:30 you will hear him blame the people)

Then, following this arrogant speech, CNBS’s Dennis Kneale gets on the phone with Dimon where he announces that like Citi, JPM made money in the first part of the year too. RIGHT. When you get to hide all your crap assets and take money from the taxpayers to cover your mistakes, then claim to make “profits” that’ll get you Nate’s Asshat award. They borrow money at near zero interest rates (courtesy of the same people he blames) and then turn around to charge usurious rates, thus making the spreads huge. And we let them get away with this… it’s unbelievable to me.

Arrogance at its finest. He talks about leverage and yet JPM, the company he runs, is the center of the world’s derivatives and one of the most highly leveraged companies in the history of the planet.

By the way, Jamie. We know the shell game that’s being played with all the toxic assets that JPM holds as well as those “acquired” (with taxpayer help) from Bear Stearns and WaMu. You want Wall Street to be respected? Come clean, take your marks, and open all your books today!

Jamie Dimon – Asshat of the year... Congratulations!

Bondholders May Be Next to Share Pain…

I’ve been talking lately about the supposed “cash on the sidelines.” Most of it resides in Treasuries and bonds. That’s keeping our debt supported and interest rates low. Pull that support to chase equities and that rug may be pulled out from under the debt markets.

The question becomes, is there enough money to keep all the prior bubbles in the air?

The answer is clearly NO. In order to do that, credit creation would have to continue to expand. It simply cannot because debt has saturated the people, corporations, and the government. The income from our productive outputs can no longer service all that debt.

Thus, there are choices to make. Sure, you can rally stocks, but where’s the money come from? Bonds? Other debt instruments?

As the following article demonstrates, bond holders are beginning to get nervous:

Banks’ Bondholders May Be Next in Line to Share Bailout Pain

By David Mildenberg and Bryan Keogh

March 11 (Bloomberg) -- Citigroup Inc. and Bank of America Corp.’s bond prices are sliding on concern that owners of debt issued by U.S. financial firms will be forced to swallow losses if the industry needs another bailout.

U.S. bank debt has lost 7.8 percent and yields have jumped to record levels compared with benchmark rates in the past month, even after taxpayers committed more than $11.6 trillion to prop up financial firms. With shareholders almost wiped out at banks like Citigroup and lawmakers resisting more rescues, holders may be asked to swap bonds for new debt that offers reduced interest rates or lower face values, analysts said.

“The bond market is getting more scared every day,” said Gary Austin of PDR Advisors in Charlotte, North Carolina, who manages $450 million in fixed-income securities. “At some time, the government is going to say enough is enough, the only way we will give you more cash is if the bondholders have to be hit.”

Debt investors are an attractive target because of the size of their holdings -- more than $1 trillion just at the four largest U.S. banks -- and because they’ve emerged almost unscathed so far. Since any reduction in debt at a bank helps boost capital ratios, members of Congress including U.S. Representative Brad Sherman, a California Democrat, say it’s time for bondholders to share the pain.

“These banks can go into receivership, shed their shareholders, shed or reduce the amount they owe to their bondholders and come back out much stronger institutions,” said Sherman, who sits on the House Financial Services Committee, in a statement to Bloomberg News. More U.S. capital might be offered as part of the package, he said.

Record Spread
Yields relative to benchmark rates on bank bonds average a record 8.21 percentage points, 3.63 percentage points more than industrial companies’ debt, according to Merrill Lynch index data. Before August 2007, when the credit crisis began, bank bonds paid spreads less than industrial-related debt.

Standard & Poor’s, which cut Bank of America’s credit rating this month to A from A+, expects the Charlotte, North Carolina-based company to break even this year because it’s hobbled by losses on credit cards and home loans. If it posts a loss this year, more government assistance may be required, raising “the possibility that debt holders could then be required to participate,” S&P said in a report.

“It’s only intuitive that the government would contemplate the thought, ‘Why are we only putting this on the taxpayer?’” S&P credit analyst John Bartko said in a telephone interview.

Sagging Prices
Scott Silvestri of Bank of America and Danielle Romero Apsilos of Citigroup declined to comment. Bank of America won’t need further government assistance, Chief Executive Officer Kenneth Lewis said in a Feb. 25 interview. The U.S. government is examining ways to further stabilize New York-based Citigroup if needed, the Wall Street Journal reported yesterday, citing people it didn’t identify.

The concern among debt holders is reflected in Citigroup’s $789 million outstanding in 7.25 percent subordinated notes due in October 2010, which have dropped 17.9 cents in the past three weeks to 77 cents on the dollar, according to Trace, the bond- pricing service of the Financial Industry Regulatory Authority. That puts the spread over Treasuries of similar maturity at 25.2 percentage points. Bank of America’s 7.4 percent senior subordinated debt due in January 2011 traded yesterday at 80.1 cents, compared with 98.9 cents one month earlier.

Trust-preferred shares of Bank of America and Citigroup are trading at less than 30 cents on the dollar and yielding more than 25 percent because investors anticipate restructuring, said Tim Anderson, chief fixed-income officer at Riverfront Investment Group in Richmond, Virginia.

“The current prices imply that the companies’ equity is worthless, the government’s investment is worthless and subordinated debt holders will lose some of their investment,” said David Darst, an analyst at FTN Equity Capital Markets in Nashville, Tennessee.

Citigroup, once the world’s biggest bank by market value, dropped below $1 in New York trading for the first time on March 6. The bank jumped 38 percent yesterday in New York trading to close at $1.45 after saying it was having its best quarter since 2007.

Investors shouldn’t increase holdings that lack explicit government guarantees because “extreme losses” could force senior creditors to share in bailout costs, JPMorgan Chase & Co. said in a March 6 report by analyst Srini Ramaswamy.

Forcing bondholders to take losses could drive the cost of capital higher for banks, said Thomas Atteberry, a portfolio manager at First Pacific Advisors in Los Angeles with $3.5 billion in fixed-income assets. That’s not all bad, he said, because it may help ensure banks don’t do the same kind of “sloppy” underwriting that set off the credit crisis.
Investors who choose to lend money to banks like Citigroup, which Atteberry said was poorly run, “should share the pain of a business that’s having to write things off,” he said.
Bond holders in financial institutions are not going to allow equity holders to be in line in front of them. Before you see big losses here, equity is going to be zeroed.

Just this morning, TLT and other bond funds sat right on the verge of breaking to new recent lows in price and highs in yield. At the very moment they were about to break, equities peaked and began to correct. Is there a direct correlation? You bet. There is not enough money in the world to shoot stocks to the moon and to keep interest rates at zero.

If you allow the stock market to run, then eventually that will pressure interest rates and that will increase the cost of carrying all the debt that is still permeated throughout the system.

This is the crux of the problem and it’s NOT being addressed at all. That’s because the banks run the world and do not want to be the ones to default on the debt to clear the system of the very menace that they permeated the globe with. They would much rather push it onto the taxpayers… the same people who are ultimately responsible for the debt anyway. Default must happen to clear the system. It could have happened through bankruptcy, but again, the banks have passed laws to prevent YOU from defaulting on your debts through bankruptcy while at the same time going to you to bail them out from having to default on their own debts. Oh, and then if you’re a day late on a credit card payment, they jack you to 30% Guido usury rates.

Their proposed solution to reinflate the globe is to get CREDIT flowing again. Credit in this context sounds like a good thing – or so they want you to believe. But the flip side of extended CREDIT is that someone winds up with the DEBT. More credit/debt cannot happen now because incomes cannot service still more debt on top of the debt already there.

So, they talk about printing or “quantitative easing.” Buying one’s own debts is completely false. A sad, sad joke. Doing so does not do anything but rob the people via stealth tax. You need productive dollars to pay back debt… that or default are the only two ways to do it.

It’s the debt, stupid. The world is permeated with it, that’s what put our economy on the highway to hell…

AC DC – Highway to Hell:

But debt is just a symptom of the problem.

The root of the problem lies in our debt money system where the bankers are allowed to influence politicians and get laws and bailouts passed in their favor while ignoring the debts of the people. How is that allowed to happen? Money talks, “those with the gold make the rules.”

But guess what? They don’t even hold the gold anymore. The bankers are losing control because all they have is confidence in their system and that’s waning.

The bankers are still solidly in control though. Just this morning was a press conference where President Obama and Secretary of the Treasury, Tim Geithner, talked about the importance of the global economy. They are pushing credit and a free trading world, the very mantra of the central bank. How’s that agenda working for YOU?

Boy, how many times did you hear the word “WORLD” in there? How many times did they talk about you? Obama is a good salesman for them, but he is surrounded by the one world central bankers who are the ones responsible for permeating the world with credit – DEBT.

How about a world and money system based on competitive production instead of debt? I’m all for a free and open world as long as everyone is competing under the same rules and regulations. Once countries are saddled with IMF/central banker debt, they are then under their control and their future productivity and resources are turned over to the bankers. America is allowing this to happen to us. It’s not supposed to happen that way, people better start understanding the constitution and what our founders had in mind - My MONEY 'tis to thee...

And we better get our act together to take action soon, or the One World Central Banker crowd is going to have a plan to “save” the world soon. The Dawn’s Early Light… Calling all PEOPLE to get us through the night!

You can bet your bottom that their plan will include more bank focused bailouts, more fiat money stimulus, and more “credit” pushed into the world in a massive way. Just remember that credit is debt.

Bonds, stocks, currencies… all of these things tie together. They all are influenced by credit/debt.

The ROOT of the problem is not the debt, that’s a symptom. The ROOT lays in the influence that central bankers and other corporations are allowed to exert on our political system. The Constitution and our founders saw this as a potential future issue, and boy, were they right about that. But I don’t think they could have dreamed in a million years that America would become so permeated with debt, or that our population could become so brainwashed and controlled by corporate influences. Now we’re getting to the heart of the matter:

Eagles – Heart of the Matter: