Saturday, April 18, 2009

CDS Hangover - Drunks Spilling Wine...

Credit Default Swaps are a very large portion of the Shadow Banking System that was created without regulation and has gone largely untracked.

People get how Mortgage Backed Securities (MBS) work as derivatives, but going beyond those and into CDS or even into interest rate swaps eludes most people’s understanding. While these derivatives are complex in their scheme, they are actually quite simple when boiled down to their Ponzi essence.

Credit Default Swaps in essence are “insurance” that pay the purchaser of a contract money in the event of a default in the company or whatever entity underlies the swap.

Normal insurance requires the company writing the insurance policy to carry reserves in the event they have to pay. But in the unregulated world of CDS, no such regulations exist.

Companies like AIG sold Credit Default Swaps with no intent to ever pay in the case of a large series of defaults. They never had the money to do so, and they knew it. Still, they sold the “insurance” to companies, took their money and spent it, partied with it, and paid themselves big bonuses. The lack of reserves meant that any payouts pretty much had to come from new income – this is what made them Ponzi.

Then come the defaults… Oops, money’s not there. So in steps Paulson who controls OUR Taxpayer money and hands billions to them to payoff their Ponzi scheme, much of the money going to Goldman Sachs who Hank Paulson (former Goldman CEO) holds over $600 million in investments in!

BEFORE the blow up, companies that purchased this “insurance” from AIG thought they were protected. They took larger risks and levered their businesses to extreme levels without doing what ordinarily would be their due diligence job. In this regard, CDS actually INCREASED system risk instead of decreasing it like the “geniuses” who sold it told everyone.

The sellers of CDS got drunk on the money, now the hangover is beginning…

Credit-Swaps Sellers Take Beating on Latest Auction

By Shannon D. Harrington and Pierre Paulden [Nate’s comments in the brackets]

April 17 (Bloomberg) -- Credit-default swaps traders set a value of 3.25 cents on the dollar for bonds of an AbitibiBowater Inc. unit to settle derivatives linked to the newsprint maker that’s now in bankruptcy protection.

The price means sellers of credit swaps guaranteeing as much as $1.1 billion against a default by the Abitibi- Consolidated unit would pay 96.75 cents on the dollar to settle the contracts. Eleven dealers, including JPMorgan Chase & Co., Barclays Plc and Morgan Stanley, bid in the auction, which was administered by Markit Group Ltd. and broker Creditex Group Inc.

A combination of rising defaults and shrinking recoveries that are set through the auctions mean credit-protection sellers since the collapse of Lehman Brothers Holdings Inc. in September have lost as much as 70 percentage points more than rating services estimate the debt is worth.

“Clearly, if you’re a seller of credit-default swaps in an auction, you are getting your head handed to you,”
Janet Tavakoli, president of Tavakoli Structured Finance Inc. in Chicago, said in an interview before today’s auction. The potential for losses because of low recoveries “was underestimated, particularly on highly leveraged companies,” she said.

Losses on these derivatives, which insure a net $2.6 trillion of debt, may mount as the recession that started in December 2007 causes defaults on high-yield bonds to reach 14.6 percent by the fourth quarter, from 4.1 percent at the end of 2008, according to Moody’s Investors Service.

Face Value
Sellers of credit-default swaps earn fees from banks, hedge funds and other investors by agreeing to make another firm whole on a company’s debt if it defaults.

Following a default, the seller pays the face value of the debt protected, minus the recovery value determined during an auction among as many as 15 banks, including JPMorgan, Barclays and Deutsche Bank AG. Swaps sellers also have the option of receiving the debt.

Firms that sold credit protection on Lyondell Chemical Co. two years ago would have been paid about $178,000 a year in exchange for a guarantee on $10 million of the company’s debt, according to prices from London-based CMA DataVision.

After Houston-based Lyondell filed for bankruptcy protection Jan. 6 as the global recession sapped demand for plastics and commodities, traders held a debt auction that set a value of 15.5 cents on the dollar for the company’s senior unsecured bonds and 20.75 cents for its secured loans, according to Markit Group and Creditex.

Projected Loss
That means swaps sellers who agreed to settle in cash locked in losses of 84.5 cents on the dollar for guaranteeing Lyondell bonds, or $8.45 million for every $10 million of protection sold, and 79.25 cents for the loans.

Standard & Poor’s estimated on Jan. 7 that creditors should expect to lose less than 10 cents on the dollar for Lyondell loans [Just a little off… AGAIN]. The ratings company said losses on Lyondell’s debt could increase because of terms of the bankruptcy financing, which took priority over existing creditors.

Other auctions have yielded similar results, from Lehman to Aleris International Inc., the producer of aluminum for aircraft and automobiles.

Sellers of credit-default swaps on 22 defaulted companies in the past seven months had to pay an average of 70 cents on the dollar for loans and 84.7 cents for bonds to buyers of protection, data from Markit and Creditex show. That compares to losses of 13 cents on the dollar for loans and 30 cents for bonds in all of 2008, Moody’s data show.

Faster Payout
“We don’t believe that CDS trading prices are necessarily good predictors of ultimate recovery,” William Chew, managing director at S&P in New York, said in a statement. “Our recovery ratings, which employ fundamental analysis, are designed to capture the range of ultimate recovery an investor might expect if an issuer defaults.” [Hope that strategy works for ya!]

That makes little difference to derivative traders, said Henry Hu, a law professor at the University of Texas in Austin. Unlike bankruptcy, which can take years of courtroom negotiations to increase the value of a creditor claim, derivatives pay out within a couple of months of a default.

“It’s no hassle, no whining, versus trying to work things out with the company,” Hu said.
Credit-swaps sellers can receive the loan or bond during an auction and then take their chances during bankruptcy. Of the five defaults last year on which Bermuda-based Primus Guaranty Ltd. had to make payments, it opted to get the actual underlying bonds in only one of them, according to a regulatory filing.

‘Fundamental Problem’
While derivative auctions may not show the amount debt holders will ultimately recover when companies emerge from bankruptcy, they provide an early prediction by drawing together buyers and sellers, said Kevin Starke, an analyst at CRT Capital Group LLC in Stamford, Connecticut. “It’s essentially like calling everybody to the starting line,” he said.

“The market is saying recovery values will be very low, and that’s a fundamental problem facing every financial institution carrying these assets,” said Christopher Garman, chief executive officer of Garman Research LLC in Orinda, California. [No kidding…]

After Lehman blew up, the world thought they had escaped the wrath of CDS as the entire system didn’t implode immediately. The reality, of course, is that it did. AIG had no money to pay and it only survived on Paulson’s back door deal (with our money). But in the drunken Pigman world of banking and derivatives, not everybody gets saved, a little bit of wine gets spilled now and again…

CDS blamed for role in bankruptcy filings

By Henny Sender in New York

FT - Published: April 17 2009 00:57 Last updated: April 17 2009 00:57

Credit default swaps, the derivatives instruments that have figured prominently in the global financial crisis, are now being blamed for playing a role in two bankruptcy filings this week.

Bankers and lawyers involved in restructuring efforts say they are concerned some lenders to troubled companies, such as newsprint producer AbitibiBowater and mall owner General Growth Properties, stand to benefit from a default because they also hold default swaps, which entitle them to payments in such events.

“We have seen CDS becoming a significant factor” when negotiations on out-of-court restructurings fail, said Alan Kornberg, the partner in charge of the bankruptcy practice at Paul, Weiss, Rifkind, Wharton & Rice, speaking generally. “We used to talk about the practice theoretically but now we see cases where it is hard to get lenders to agree to tender or to compromise and then you find out that these holdouts had significant CDS protection.”

Abitibi , which filed for bankruptcy protection on Thursday, ran into trouble as the dire state of the newspaper industry eroded its cash flow and left it unable to service its debt load. It sought to persuade debt holders to exchange bonds due in August for new debt with longer dated maturity and higher yields, but failed to do so as creditors squabbled.
Such exchange offers require the support of a significant number of lenders, 97 per cent in the case of bondholders in this case. But those who withhold support often have powerful incentives to do so, either because they hope to be made whole or because they are seeking to force a filing that would trigger payments under their credit protection agreements, bankers and lawyers say.

Some creditors, including Citigroup, which held a small exposure to AbitibiBowater, hedged themselves in the CDS market, meaning their economic interest in the deal was different to lenders who had not bought credit insurance, according to people familiar with the matter. Citigroup declined to comment.

Lawyers say CDS holdings were also a factor in the default and filing for Chapter 11 protection of General Growth Properties this week. Restructuring advisers expect many more such cases involving so-called fallen angels, or firms originally investment grade, since CDS was widely sold on such names.

CDS placed pressure on the company to fail? Hardly. GGP is way overextended and possesses far too much debt. I listened to their CEO state that their "only problem was being unable to role over their debt." What baloney. They can't roll their debt over because their business model can't support it when consumers themselves are saturated with debt. They built too many malls and didn't see the collapse of the bubble coming.

In regards to CDS, what this last article doesn’t state is who sold the swaps? While the people who buy protection receive payouts, that money has to come from somewhere. Where? As corporate defaults like GGP begin to increase we’re going to find out who can hold their liquor and who is spilling their wine…

Eric Burdon (The Animals) and War - Spill the Wine (1970):

Venture Investments and Corporate Profits Cliff Dive…

All this talk of printing (QE), stimulus, bank rallies, mark-to-fantasy accounting changes, stock markets can’t go down SEC rules, not to mention global coordinated action has the inflationistas shouting from the hilltops.

The truth is much different from inflation. Three consecutive months of negative inflation data, ramping unemployment, stagnant to falling wages, crashing residential and commercial real estate, an IMPLODING tax base, and debts that are not being allowed to clear… but Nate has it covered for you, I’m manning the watchtower as your politicians and media most certainly are not.

Times like these are not kind to startup business. This point in the cycle is the time that is supposed to wash away malinvestment, and is generally not a time of flourishing innovation.

The numbers here, again, are historic in scope. These are certainly not inflationary types of numbers.
Venture Capital Investments Plunge 61% Amid Frozen IPO Market

By Joseph Galante and Tim Mullaney

April 18 (Bloomberg) -- U.S. venture capital investments fell 61 percent to $3 billion in the first quarter, the lowest level in 12 years, as the financial crisis chased away funding for technology and clean-energy deals.

Funding of clean technology -- coming off a surge of investments in 2007 and 2008 -- plunged 87 percent, the National Venture Capital Association said today. Total venture investments dropped 47 percent from the previous three months.

The freeze in initial public offerings kept startups from getting funding because investors weren’t sure how they would earn a return, said John Taylor, vice president of research at the Arlington, Virginia-based association. Venture capitalists are devoting more attention to companies they already own.

“We are in a very difficult, stressed time,” Taylor said on a conference call. “Everyone is trying to figure out what is going on.”

Venture capitalists are now wary of the large financial commitments needed to commercialize technologies such as solar power and ethanol, said Noubar Afeyan, chief executive officer of Flagship Ventures in Cambridge, Massachusetts. The investments don’t seem to provide a quick payoff, he said.

“A lot of that money came in expecting a short-term exit, which didn’t happen,” Afeyan said.

The IPO market showed signs of thawing this week, with two companies going public. Bridgepoint Education Inc., a provider of college courses, began trading April 15. Shares of language- software maker Rosetta Stone Inc. debuted on April 16.

Still, the deals probably won’t open the floodgates, said Stephen Harrick, general partner at Institutional Venture Partners, a backer of the Twitter Inc. microblogging site.

“We have companies we think are ready or could be ready, but there hasn’t been any interest from the capital markets,” Harrick said.

The average size of a venture-capital investment fell to $5.5 million from $7.8 million a year ago, the NVCA said. Most of the investments are going to later-stage companies.

And for those who think that hyper-inflation is immediately upon us or that stocks are going to rally to the moon in Alice In Wonderland never ending growth fashion, please take a look at corporate profits as reported by the St. Louis Fed…

Those who have Spent some Time with the Good Dr. Bartlett know that parabolic cures eventually crash under their own weight. Martin Armstrong correctly describes the fact that curves in markets, and in nature, do not form a perfect bell shape like the ones found in the textbooks at school! Parabolic curves start off with the prospect of never ending small growth rates which turn into ramping growth rates that eventually go through a phase transition into a parabolic blow-off top.

While the climb up the front side of the curve may resemble the first half of a bell, the backside of such curves do not. They resemble a cliff! And here’s a good example, this is a chart of Corporate Profits After Tax:



But what’s truly stunning is the rate of change. Again, these numbers and charts are historic in nature – frame them and put them on your wall, you will not see charts like this again in your lifetime.

Here is Corporate Profits After Tax year-over-year in billions:



Here is Corporate Profits with Inventory and Capital Adjustments:



And if you think that the loss of profits is all due to the financial industry, here is a chart of NonFinancial Corporate Businesses Profits After Tax:



Does any rational analyst really believe that this type of cliff diving is going to cure itself in a matter of months with nothing but hokey games of hide the sausage from our government? Stress test? Oh yeah, that’ll bring the profits back.

This data confirms the cliff dive in corporate tax receipts as I pointed out in my article U.S. Budget Disaster Strikes...

Are you "looking past the vally" at those "greenshoots" on the other side? I hope you have good binoculars, man, because that vally looks decades wide to me - perhaps there's too many people in the financial, political, and media worlds that are smoking those "greenshoots?" Plowmen dig Jimi's herb?

Jimi Hendrix – All Along the Watchtower:


Lyrics written by Bob Dylan:

There must be some kind of way out of here
Said the joker to the thief
There's too much confusion
I can't get no relief

Business men they drink my wine
Plowmen dig my herb
None were level on the mind
Nobody of it is worth

No reason to get excited
The thief he kindly spoke
There are many here among us
Who feel that life is but a joke

But you and I we've been through that
And this is not our fate
So let us stop talkin falsely now
The hour's getting late

All along the watchtower

Friday, April 17, 2009

Stiglitz, Black, and Weiss – Getting to the Heart of the Matter…

No, this is not about a law firm, this is about people who are beginning to get it, to listen, to get to the heart of the matter...

Don Henley - The Heart of the Matter:


Joe Stiglitz certainly gets it, he's now getting to the heart of the matter:

Stiglitz Says White House Ties to Wall Street Doom Bank Rescue

By Michael McKee and Matthew Benjamin [Nate’s comments]

April 17 (Bloomberg) -- The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.” [BRAVO!!]

The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.

“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.

The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”

Rather than continually buying small stakes in banks, weaker banks should be put through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said. [That process is called BANKRUPTCY, HELLO?]

Nobel Prize
Stiglitz, 66, won the Nobel in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time. His work is cited in more economic papers than that of any of his peers, according to a February ranking by Research Papers in Economics, an international database.

The Public-Private Investment Program, PPIP, designed to buy bad assets from banks, “is a really bad program,” Stiglitz said. It won’t accomplish the administration’s goal of establishing a price for illiquid assets clogging banks’ balance sheets, and instead will enrich investors while sticking taxpayers with huge losses.

“You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders,” he said, [Uh, Huh!] referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California.

Bigger Losses
Stiglitz said taxpayer losses are likely to be much larger than bank profits from the PPIP program even though Federal Deposit Insurance Corp. Chairman Sheila Bair has said the agency expects no losses.

“The statement from Sheila Bair that there’s no risk is absurd,” he said, because losses from the PPIP will be borne by the FDIC, which is funded by member banks. [Exactly, except there’s no money, it’s already been spent!]

“We’re going to be asking all the banks, including presumably some healthy banks, to pay for the losses of the bad banks,” Stiglitz said. “It’s a real redistribution and a tax on all American savers.”

Stiglitz was also concerned about the links between White House advisers and Wall Street. Hedge fund D.E. Shaw & Co. paid National Economic Council Director Lawrence Summers, a managing director of the firm, more than $5 million in salary and other compensation in the 16 months before he joined the administration. Treasury Secretary Timothy Geithner was president of the New York Federal Reserve Bank.

‘Revolving Door’
“America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”

Stiglitz was head of the White House’s Council of Economic Advisers under President Bill Clinton before serving from 1997 to 2000 as chief economist at the World Bank. He resigned from that post in 2000 after repeatedly clashing with the White House over economic policies it supported at the International Monetary Fund. He is now a professor at Columbia University.

Stiglitz was also critical of Obama’s other economic rescue programs.

He called the $787 billion stimulus program necessary but “flawed” because too much spending comes after 2009, and because it devotes too much of the money to tax cuts “which aren’t likely to work very effectively.”

“It’s really a peculiar policy, I think,” he said.

Plan Deficient
The $75 billion mortgage relief program, meanwhile, doesn’t do enough to help Americans who can’t afford to make their monthly payments, he said. It doesn’t reduce principal, doesn’t make changes in bankruptcy law that would help people work out debts, and doesn’t change the incentive to simply stop making payments once a mortgage is greater than the value of a house.

Stiglitz said the Fed, while it’s done almost all it can to bring the country back from the worst recession since 1982, can’t revive the economy on its own.

Relying on low interest rates to help put a floor under housing prices is a variation on the policies that created the housing bubble in the first place, Stiglitz said.

“This is a strategy trying to recreate that bubble,” he said. “That’s not likely to provide a long run solution. It’s a solution that says let’s kick the can down the road a little bit.”

While the strategy might put a floor under housing prices, it won’t do anything to speed the recovery, he said. “It’s a recipe for Japanese-style malaise.”


This entire article is good, one of the few where someone is hitting the nail on the head. My personal belief is that “Japanese-style malaise” is the very best case outcome.

The media and a few economists are FINALLY beginning to get to the heart of the matter. The roots. If I could boil my position on the economic mess into two themes, or meme’s, they would be that THE MATH DOES NOT WORK (Death by Numbers; When the Math No Longer Works...), and that CORPORATIONS AND THEIR MONEY NEED TO BE SEPARATED FROM THE STATE (especially central bankers; Huh? Interest Bearing Fractional Reserve Money by Fiat… Doh!; The Dawn’s Early Light… Calling all PEOPLE to get us through the night!).

Another person who really gets it and is in a position to know is William Black. Man, does he tell it EXACTLY LIKE IT IS! BRAVO, Mr. Black, you are one of the people who need to be running the show to restore REAL AND LASTING confidence in our financial system. Listen to his interview yesterday on Bloomberg by clicking on this link - William Black on Bloomberg.

And Mr. Black’s been busy, creating his own meme which I think is important enough to show you a couple of different ways:

Geithner's Stress Test "A Complete Sham," Former Federal Bank Regulator Says:


"Stress tests Total Sham" William K. Black on Fox Business:


And if that isn’t enough, here’s the interview he did with Bill Moyer - William Black on Bill Moyer’s Journal.

So, while we’re listening to truth tellers and people who get it, here’s what Martin Weiss just sent out via email regarding the “Stress Test” and health of our banks (Weiss’s firm monitors and reports on the health of the individual banks):



What Washington DOES NOT want you to know
about the true condition of America’s banks


Dear NATHAN,

At this very moment, more than 200 federal regulators are examining our 19 largest banks — supposedly, if you believe Washington, to determine which are strong and which are at risk for failure.

They’re reportedly asking, “Will this bank survive if the U.S. economy shrinks 2% in 2009?”

But in the first quarter, the U.S. economy contracted two and one-half times more than that — at an annual rate of 5%!

They’re asking “Will this bank fail if unemployment rises to 8.4% in 2009?”

But unemployment is already higher than that — at 8.5% and more than 600,000 more jobs are being lost each and every week!

Even the regulators’ “worst case scenario” of a 3.3% economic contraction and 8.9% unemployment is a joke:

Not only is the economy already shrinking much faster than 3.3% ... the Obama administration itself has warned that unemployment will be much higher than 8.9% this year!

Nevertheless, on May 4, our leaders will — with great fanfare, I am sure — release the results of this jury-rigged stress test. And you can be assured that it will likely say that, given these mindlessly optimistic criteria, many of our 19 largest banks are “safe.”

These phony stress tests might be laughable if only the truth behind them wasn’t so terrifying:
Our own government is clearly cooking the books— using these false criteria to deceive you; hoping you’ll trust banks that are clearly hanging by a thread.

Worse — they’re so busy concocting this smoke-and-mirrors stress test that nobody’s asking what will happen... how will we cope... how will families survive when...

>> The still-accelerating surge in home mortgage defaults hammers banks in the weeks ahead...

>> The new explosion in the number of defaults on jumbo loans made to prime borrowers hits the headlines as lay-offs continue to intensify, and when...

>> Large chunks of the entire commercial real estate sector go the way of GGP — the nation’s second largest shopping mall operator that declared bankruptcy yesterday.

Nobody in Washington seems to have the time to ask what will happen if and when...

Our cities are unable to provide police, fire and other essential emergency services when the credit markets shut down...

Our hospitals are forced to close their doors due to disruptions in insurance payments...

Our supermarket shelves are emptied because trucking companies can’t get short-term loans to stay in business...

Our utilities — the companies that deliver crucial electricity, gas and water to our homes — are crippled as the crisis kills the revenues they count on from corporations, and when ...

Our soaring deficits drive interest rates sky-high and gut the dollar, driving our cost of living through the roof.

QUESTION:
WHY isn’t Washington asking
these all-important stress-test questions?

ANSWER:
Because they already know what will happen
- and it has them TERRIFIED!

This is why I’ve warned you that, in the next phase of this crisis, literally hundreds of banks and other lenders will be pushed to the brink — and OVER the brink — demanding hundreds of billions of dollars; perhaps even trillions in new bailouts.

This is why I’ve repeatedly warned you that the recent stock market rally was nothing more than a dead cat bounce — a bear market trap — and urged you to use it to dump stocks before it’s too late.

These three gentlemen know what they are talking about and are truth tellers. Who else has been telling you the truth only earlier? Yours truly! Here’s a link to my first article on the “Stress Test.” Note the date (February 25th – nearly two months ago) and please read the content, here are the first two paragraphs:
Sorry to pop everyone’s HOPE bubble, but a stress test designed by the bankers for the bankers is nothing more than a continuation of keeping hopes high while playing hide the sausage. Who sets the parameters of the “stress test?” Who determines pass or fail? Will they use it to say everything’s okay, or will they use it to ask for more money claiming that the system can’t allow failure?

You want a stress test? How’s this… force the banks to mark all their assets to market and completely open their books to ME, the taxpayer who is giving them money! That way I can determine if they are simply covering up more debt and derivatives that they do not have the real capital to cover. I, however, don’t really need to see their books, and neither do you… we KNOW they stink to high heaven or the books would have been opened a long time ago.
Truth tellers…

Want to get to the heart of the matter? There it is. The math does not work and we must separate corporations and their money from our political system!

It's Just Time...

This is the end of pretending to be innocent:

Don Henley - The End of the Innocence:

Morning Update/ Market Thread 4/17

Good Morning,

GE reported profits down 58% from a year ago, but still managed to “beat” the estimates.

Citi reported a profit, no wait, it was a loss after actually paying interest costs to the government. But if it weren’t for that, it would have been a profit! And if it weren’t for mark-to-fantasy accounting and government bailouts they would no longer be in business which is exactly what should have happened.

Consumer Sentiment comes out at 9:55 Eastern this morning.

Bonds are down sharply, the dollar is up, and futures are up a little for this options expirations Friday. Here’s the overnight, DOW futures on the left, S&P on the right:



We’re sitting in overbought territory on the short term stochastics still, and anything over about 875 will push us out of the top of the rising wedge. There are many small negative divergences here, so I think the odds are still high, despite the monkey business in the financials, that a top is near. The 877 area is the top of the previous decline, look for resistance there if we break above that wedge.

You’ll note that I increased the Google ad exposure on my site. Yes, I’m doing it for what little coin I can get to help me cover my costs and to give me a small incentive to keep writing. It’s not my intent to have them be glaring and I realize they make the site busy looking, but that’s the tradeoff and I'm still tinkering to get the best arrangement. If you see a better way to display them or if any of them are particularly obnoxious, let me know.

Have a good day, hey, it’s Friday!

Nate


Here’s a song to celebrate that we’re past tax day…

TAX CHEAT (Tim Geithner Song):

Thursday, April 16, 2009

Central Banker Fun & Games…

In the never ending game called The Great American Rip-off, JPMorgan and CEO Jamie Dimon take the prize. Well, maybe a tie with Goldman Sucks, but it’s close. The latest ploy, the “Stress-Test,” is like a carrot hanging out in time at the end of a long stick. Oh boy, more details and a timeline. That must mean I should buy stocks and the debts of the banks, right?

Who, exactly, is fooled by this game? Not me. The banks themselves are as unhealthy as ever, if not more so. They are hiding trillions of dollars of debt that will never be serviced in addition to trillions more in all types of derivatives. The stress test and the conditions with it are meaningless if the testers agree to overlook the leverage created by the debt and derivatives. Thus, it is a show to attempt to convince unwitting people that everything is okay. Everyone involved simply pretends and looks the other way.

Why would they do that? Because this is where their money to get elected comes from, that’s why.
U.S. Aims to Release Bank Stress-Test Results May 4

By Craig Torres

April 16 (Bloomberg) -- The Federal Reserve and other regulators aim to release the results of stress tests on 19 of the biggest U.S. banks on May 4, a central bank official said.

Regulators also plan to publish a paper on their methods on April 24, according to the official. The May 4 results will include any plans for boosting capital to weather a deeper economic downturn, the person said.

Procedures for releasing information on specific firms, including whether the banks themselves or the supervisors will release the results, are still under discussion. The Securities and Exchange Commission, which sets rules for what publicly traded companies must disclose to investors about their financial condition, is involved in the talks, the person said.

The goal of publishing the stress-test methods is to bolster credibility of the assessments, which will expose weaker banks and may boost confidence in stronger ones.

“The more markers or sign posts you can put on the path, the more helpful it will be,” said R. Scott Siefers, managing director at Sandler O’Neill Partners L.P., a New York research firm specializing in bank stocks. “There are a lot of questions in investors’ minds.”

Two-Year Horizon
The Fed, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., and Office of Thrift Supervision are using the tests to determine whether the top 19 banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining.

While the tests are a central element of the administration’s financial-industry rescue, top U.S. Treasury officials aren’t participating in the reviews in order to maintain the independence of the regulators. The Treasury also won’t be a contributor to the white paper later this month.

The economy has worsened since the Treasury first announced the tests in February, raising questions about whether the baseline scenario regulators are applying to bank portfolios is rigorous enough.

Baseline Scenario
The baseline forecast projected a 2 percent economic contraction and an 8.4 percent jobless rate in 2009, followed by 2.1 percent growth and 8.8 percent unemployment in 2010.

An “alternative more adverse” scenario had a 3.3 percent contraction in 2009, accompanied by 8.9 percent unemployment, followed by 0.5 percent growth and 10.3 percent jobless in 2010.

“There is a sense that the worst case is becoming the base case,” said Siefers. “People are starting to view double-digit unemployment as a foregone conclusion.”

JPMorgan Chase & Co. today reported profit that beat analysts’ estimates, with first-quarter earnings dropping 10 percent to $2.14 billion. Citigroup Inc. is scheduled to report tomorrow. Bank of America Corp., Wells Fargo and Morgan Stanley are scheduled to announce results next week.

The tests are designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets, which have hampered lending to consumers and businesses.

Toxic Debt
Officials aim to have the first purchases of the toxic assets by private investors financed by the government within weeks of the conclusion of the capital-need assessments.

JPMorgan Chief Executive Officer Jamie Dimon said today that his firm doesn’t expect to participate as either a buyer or seller in the Treasury’s Public-Private Investment Program, known as PPIP.

The Treasury plans to start PPIP “as soon as possible,” spokesman Andrew Williams said today. “We’ve been encouraged by the interest from both investors and financial institutions who wish to participate in creating a market for these legacy assets,” he said.

The Treasury estimates it has about $135 billion left in the financial-rescue fund enacted in October.

In their assessments, regulators will look at off-balance- sheet commitments, earnings projections, risks of the banks’ business activities and the composition and quality of their capital, according to the Treasury.

The exams will help provide a ranking of the financial health of “one institution relative to another,” Frederic Mishkin, a Columbia University economist and former Fed governor, said in a Bloomberg television interview. “That can be very useful if government then decides it needs to take steps to deal with weak institutions.”

Of course JPM won’t be a buyer or a seller in the PPIP. They will have their surrogate companies do all that, of which there are many.

For a refresher, please view the video found in the article How Geithner’s Plan Really Works…

It’s time to end the charade. The central banks should be broken up and the functions of the central bank returned to the people who rightly own those functions. The creation of our money supply and money system does not belong to them, they hold a false claim to it.

A Constitutional Amendment separating corporate money from the State is the ultimate long term solution.

Those solutions will never be implemented if our government officials listen to and are dependent upon central banker money to get elected and to stay in office.

Dimon Says He’s Eager to Repay ‘Scarlet Letter’ TARP

By Elizabeth Hester

April 16 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who today reported first-quarter profit that beat analysts’ expectations, said his firm could repay U.S. government rescue funds “tomorrow.”

Dimon, calling money received through the Troubled Asset Relief Program “a scarlet letter” and “the TARP baby,” said on a conference call with reporters today that the New York- based bank is awaiting guidance from the U.S. Treasury Department. “We could pay it back tomorrow,” he said.

The 53-year-old CEO received $25 billion in U.S. government rescue funds last year. Dimon is among banking industry CEOs who have said pay limits imposed by lawmakers are pushing many employees to foreign or non-TARP firms.

Dimon said he was counting on the government being “equal” in allowing banks deemed healthy to repay the TARP money. “I don’t think any competitor should be allowed to pay it back faster than we do,” he said.

Dimon has fared better than most rivals in guiding the company through the financial crisis, taking $33.3 billion in writedowns, losses and credit provisions through the fourth quarter. That compares with $88.3 billion at New York-based Citigroup Inc. and $55.9 billion at Merrill Lynch & Co., now part of Bank of America Corp., the biggest U.S. bank.

‘Learned Our Lesson’
The bank, which bought about $34 billion in mortgage-backed and asset-backed securities in the quarter, doesn’t expect to participate as either a buyer or seller in the Treasury’s Public-Private Investment Program, known as PPIP. “We learned our lesson” about borrowing from the government, said Dimon, who expects PPIP to benefit the financial system as a whole.

The Treasury plans to start PPIP “as soon as possible,” spokesman Andrew Williams said in a statement today. “We’ve been encouraged by the interest from both investors and financial institutions who wish to participate in creating a market for these legacy assets,” he said.

Dimon has said previously that he’s eager to repay the government funds “as soon as is prudent.” Such a move would free the bank from compensation restrictions and other oversight that was tied to the bailout money. Goldman Sachs Group Inc. raised $5 billion this week in a share sale in order to help pay back the $10 billion it took from the government.

No Money Needed
“I don’t see why a company with that kind of capital would have to raise capital,” Dimon said on a call with analysts. “What Goldman did is what Goldman did. It has nothing to do with us.”

Dimon told reporters that the firm doesn’t need to raise capital to repay the funds, although he believes he could tap the public markets for money. “It may not be entirely up to us,” he said. “I don’t think we need it.”

Some analysts remain skeptical that banks will repay the funds any time soon. “It may be a back-half of 2009 event or probably into 2010, only because it sends the message of, ‘why is this bank OK, why can’t the other banks return the funds?’” William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, said in an interview on Bloomberg Television. The firm holds about 400,000 shares of JPMorgan.
JPMorgan’s Tier 1 capital ratio, which measures assets on a risk-adjusted basis, would be 9.2 percent excluding the TARP money, JPMorgan said in reporting earnings today. It’s now 11.3 percent including the government funds.

Dimon said the firm is awaiting the results of the government’s stress tests on the nation’s top 19 banks and hopes that it will be announced in a way that provides “clarity” to the market.


Necessary write downs have never been taken. JPM is the world’s largest holder of derivatives and one of the most highly leveraged institutions in history. The only success Dimon has had is in hiding the crap he possesses and in hiding the crap other businesses possessed as well. He is a sitting member of the New York Fed, clearly a position that should never be held by any central bank CEO, former, present, or future.

I’m sure that Mr. Dimon is looking forward to business as usual. While he may pay back the TARP, business the way it was will never come. Never ending credit growth cannot happen and growth will not remerge until the current debts are cleared. We are a long way from that as our government, now synonymous with the central banks, attempt to throw more credit (debt) upon the piles of already unserviceable debt we posses.

JPMorgan to Raise $3 Billion Without U.S. Backing

By John Detrixhe and Gabrielle Coppola

April 16 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank by assets, plans to sell $3 billion of debt without the backing of the U.S., according to a person familiar with the transaction.

The notes may price to yield 350 [3.5%] basis points more than similar-maturity Treasuries, said the person, who declined to be identified because terms aren’t set. A basis point is 0.01 percentage point.

JPMorgan last sold dollar debt without government backing on Aug. 14, issuing $1.6 billion of perpetual preferred securities, according to data compiled by Bloomberg. Preferred stock with characteristics of both debt and equity counts toward an issuer’s capital reserves.

The debt may be rated Aa3, the fourth-highest level of investment quality, by Moody’s Investors Service and A+, one level lower, by Standard & Poor’s, the person said.


The money held at these central banks is the problem. These people get their money into politics to influence the creation of laws and politicians directly. They use the power of taxation and of the printing press against the very people who are the United States of America. They use their money to manipulate markets and to create a blend of socialism that benefits only the very wealthy. Privatize the profits, socialize the losses.

Their credit is somebody else’s debt. That debt must be serviced with income which is ultimately the labor of the people. Their incomes cannot go up because they pit the people of America against the other workers of the world.

The people of America are slowly catching on. We have a long way to go, however, until all the light bulbs are lit. I am looking forward to that day.

Morning Update/ Market Thread 4/16

Good Morning,

Futures are up this morning following JPM “earnings” report. Here’s a shot of the overnight:



Of course with mark-to-fantasy, along with the fact they rule the planet and can do anything they want, JPM managed to “beat estimates” and earn $2 billion for the first quarter. What do you think Jamie, was that about right? Heck you probably could have ratcheted it up a notch or two, but you wouldn’t want to incite the little guys, right?

The little people are doing fine. Only 610,000 of them filed initial jobless claims this week, that’s down a whopping 53,000. But let’s not advertise the record breaking 6.02 million who are on continuing claims, and let’s totally ignore those who are no longer eligible.

But maybe the little people aren’t really doing so well, Jamie? Foreclosure filings jumped 24%, and new home construction fell another 11%.

General Growth Properties, the second largest U.S. Shopping mall owner, filed for bankruptcy protection claiming over $27 billion in debts. So, we know the economy must be good, Jamie, because JPM is making money (and taking our money).

We’re still in the rising wedge, just above the 848 pivot, no recognizable pattern beyond that, VIX is still going down, green shoots galore, a perfect Alice in Wonderland world.

Options expiration is tomorrow, this will be the first time period of the bear market without any substantial pullback from one Opex to the next. That’ll drive some bears out.

Have a great day,

Nate

Ted Nugent performs the Star Spangled Banner at "tea party" yesterday on Glenn Beck FOX News:

Wednesday, April 15, 2009

Martin Armstrong - Financial Panics = Political Change!

As promised, here is Mr. Armstrong’s latest.

In it he covers a wide gamut from talking about what I call the “events that tend to follow economic events,” to the concentration of capital, to debts.

But then he sets out to explain the way things should work in his well informed opinion. Restore Rule of Law, abolish the income tax as our forefathers envisioned, regulatory reform, and even changing our currency system.

He is correct that a window of opportunity is coming. His inputs are unique and deserve consideration.

Financial Panics = Political Change4!15!09 Financial Panics = Political Change4!15!09 Kris Martin Armstrong's sequel to Behind the Curtain" a MUST READ!

I’ve been suggesting a way forward as well. I believe like Martin, that our currency system needs reform. I agree in restructuring our tax system, but I also believe that corporations have become far too powerful to let any this happen in a way that benefits the people. We, the people, need to take action. Martin Armstrong isn’t going to get it done for you from behind bars. The Dawn’s Early Light… Calling all PEOPLE to get us through the night!

Again, I’m compiling questions that can be presented to Mr. Armstrong via an intermediary. Please feel free to ask your questions in the comments section below.

Here's a link to download the file Financial Panics = Political Change.pdf

Nate

Martin Armstrong - MoneyWeek Article...

Below is a reasonable article about Martin Armstrong that came out today in MoneyWeek online. I’m placing the entire article here so that it can be archived along with Martin’s articles as it’s a good introduction to his work and situation for those who are not familiar. Glad to see him getting more press, please let me know if you see him anywhere else.

To view the entire article at MoneyWeek, please click on the headline link.

Watch out this weekend

By Dominic Frisby Apr 15, 2009

27 February 2007 is not a date that stands out. It is not indelibly imprinted on the minds of millions; it does not carry the pain or notoriety of 9-11; unlike 'Black Wednesday', it has not been nicknamed Nor, like 31 August 1997, The Day Diana Died, did it send a nation into mourning.

Yet the repercussions of this day are, quite simply, enormous. They may be felt for decades, and possibly mark the beginning of the next Great Depression. For this was the day the greatest credit bubble in history peaked and popped.

And one man predicted this turn as far back as the 1970s. He is Martin Armstrong.
What's more, another one of his turn dates is coming this weekend …

Martin Armstrong's story reads like a thriller. He was a globe-trotting and extremely contrarian investment manager, who in the late 1990s was accused of misappropriating Japanese investors of some $700 million in some kind of Ponzi scheme.

It appears that, like Nick Leeson, the money was lost on bad bets in the currency markets and losses were being concealed, though Armstrong said he did not authorise the trades. Nevertheless, he was indicted in 1999 and ordered by Judge Richard Owen to turn over gold bars and antiquities, which he is said to have bought with his firm's money, as well as computers and documents.

Armstrong delivered four of the five computers sought, eight of the 11 requested boxes of documents and gold coins worth $1.1 million. The receiver said assets worth about $15 million were missing; Armstrong insisted that was all he had. Judge Owen – revisiting the order every 18 months - held him on contempt of court for some seven years, some kind of record for time in prison without trial. Nevertheless, Owen repeatedly held that Mr. Armstrong was motivated by greed and was awaiting his release from jail to retrieve the $15 million that the government said was missing.

Mr. Armstrong's years in jail for civil contempt match the sentence of six-and-a-half to eight years that he would have received if he had been convicted of all 24 criminal counts of securities fraud, commodities fraud and wire fraud. But in late 2006, after appeal, Judge Owen was removed from the case. In 2007, after a period in solitary, Armstrong faced trial, pleaded guilty and is now serving a prison sentence for a further five years.

Armstrong's unique 'economic confidence model'
What makes Armstrong's story exceptional is his astonishing economic confidence model, which he developed in the 1970s and 80s.

Looking back at centuries of economic data, Armstrong identified a long-term business cycle of 309.6 years, which is broken down into six waves of 51.6 years – roughly the same duration as Russian economist Nikolai Kondratiev 's more famous cycle. Armstrong's 51.6 year wave breaks down into a further six waves of 8.6 years, which break down into a further three individual waves of different duration.



What many will find interesting is that the total number of days in one 8.6 year cycle is 3141 – or Pi times 1000. Hence the model is also known as the 'Pi Cycle'.
The next chart shows the key wave dates of the recent past and near future.



Let's look at some of these turn dates and see what happened. 2007.15 equates to 27 February 2007 (That is .15 of the year). The chart below shows the Dow Jones US Financials – an index of the major stocks relating to banking, insurance, real estate and financial services.



You can see he's nailed the turn to the day.

1987.8 equates to 19 October 1987. The next chart shows the Dow during the stock market crash of 1987. You can see Armstrong again nailed the low to the day.



Not precisely to the day, but to within a fortnight, 1989.95 (December 89) saw the highs in the Nikkei, 2007.



2000.7 (September 2000) saw the turn down in the S&P (September 2000), while 2002.85 (Octover-November 2002) saw the post crash lows.



1998.55 coincided with Russian debt default and the longtTerm capital management crisis, 1994.25 saw an intermediate S&P low. More recently we had 2008.225 (23 March 2008). That caught the turn in the dollar that surprised just about everyone – myself included – especially those who thought the dollar's collapse was imminent.



Some will say that it's easy to look back at history, attach an arbitrary pattern after the event, then call it a 'cycle', but you cannot deny that Armstrong's calls have been astonishing.

In fact, his forecasting abilities and imprisonment have made him a cult figure among conspiracy theorists. He claimed to have developed a 32,000-variable super-computer based on his economic model, with "perhaps the largest economic database in the world". In fact, some claim the CIA and Chinese wanted this very computer model and the reason he was held in prison for so long without trial was that he refused to hand it over. Armstrong himself commented, "I know too much".

The next big turning point: this weekend

Nevertheless, of note to all investors, is that there is another Armstrong turn date coming on 2009.3, or 19-20 April. What we have to figure out is which market is going to turn.

Armstrong once advised Canadian technical analyst Ross Clark that markets which were trending the strongest going into a cyclic turn point would be the most likely to reverse. "It is the concentration of capital that creates booms and the subsequent busts."

So we have to ask ourselves which market fits this bill. Could this bounce in the stock or commodity markets run out of steam? It's possible. This year might be yet another when you should sell in May and go away. If we get a big rally into the weekend, perhaps we should look to sell.

But I must say, I think this rally may have further to go. Could gold turn back up? Again, I see a low for gold coming in the summer – although $840-$850, if it gets there, is an obvious place to make a low. Could it signal the long-awaited end of the US bond market? Perhaps we'll see some turn in the currency markets. The yen could turn back up… or the pound could turn back down. As I write this, I can't see a market that's showing any signs of exhaustion.

My bet is that we'll either see another major bankruptcy – perhaps a corporation such as GM, or even a country (Ireland?) – or we'll see some kind of turn in the currency markets.

I should stress this is only a secondary turn date. There are plenty of examples in the past where nothing of any significance has happened at these junctures. In other words, they do not always work. But the outcome of this weekend, 19-20 April, bears watching with interest.

Again, if you have questions you would like Mr. Armstrong to answer, I am gathering questions and will send them to him via an intermediary sometime in the next couple of days. Please leave your question in the comments section.

February Monthly TIC Flows Negative Again…

The Treasury International Capital flows for February were NEGATIVE $97 billion. This follows a negative $146.8 billion flow in January. Since we run a negative trade deficit, we need this flow to at least equal our deficit in order to create sustainable debt financed trade.

While our trade deficit is falling due to a decrease in overseas trade, the TIC flow is falling much faster and that simply means that foreigners are not purchasing our debts. In the statement below note that net foreign PRIVATE capital flows were negative $106.3 billion, but that net foreign OFFICIAL flow was positive $9.3 billion. So, it is the private capital flow that is negative while foreign official flow is only slightly positive.

We have had negative months during the past year or so, but we have not been stringing negative months together – this two month string is large and it is significant. The overall TIC flow is definitely averaging down and the trend is very clear – we are not financing our trade. Ultimately this lowers demand for our debt and places pressure on Bernanke to perform more QE.

Below is the verbiage of the official release. Follow the link to see the table of flows:
Treasury International Capital (TIC) Data for February

Washington —The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for February 2009. The next release, which will report on data for March 2009, is scheduled for May 15, 2009.

Net foreign purchases of long-term securities were $22.0 billion.

Net foreign purchases of long-term U.S. securities were $20.8 billion. Of this, net purchases by private foreign investors were $25.9 billion, and net purchases by foreign official institutions were negative $5.1 billion.

U.S. residents sold a net $1.2 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $5.0 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $43.1 billion. Foreign holdings of Treasury bills increased $68.3 billion.

Banks’ own net dollar-denominated liabilities to foreign residents decreased $145.1 billion.

Monthly net TIC flows were negative $97.0 billion. Of this, net foreign private flows were negative $106.3 billion, and net foreign official flows were positive $9.3 billion
Complete data are available on the Treasury website at www.treas.gov/tic.

If you examine the tables you will find that purchases of our long term debt increased, but it was largely the short term securities that were negative. The media can evidently interpret that as being a positive as evidenced by this report by Econoday on Bloomberg . Their headline report states a POSITIVE number but that is only long-term securities, not net overall purchases:

In a mostly positive report, net foreign purchases of U.S. long-term securities rose $22.0 billion in February for a solid nearly $60 billion improvement from a net outflow in January of $36.8 billion (-$43.0 billion first reported). Foreign demand for long-term U.S. securities has been uneven since the September credit panic showing alternating increases and decreases. But a big underlying positive, despite all the concerns, is strong demand from the nation's two biggest customers China and Japan. Treasury holdings by China rose 0.6 percent in the month to $744.2 billion with Japan showing a sizable 4.3 percent increase to $661.9 billion. Net foreign purchases of Treasuries from all sources rose a very solid $21.6 billion with net foreign purchases of corporate & other bonds up $3.3 billion. Foreigners even showed demand for U.S. agency paper, up a net $1.1 billion to end a long run of selling. But foreigners were less interested in U.S. stocks during February, a component that shows a net outflow of $5.1 billion to end a long run of small increases. Given the big stock market gains in March, this component is likely to show improvement in next month's report.

Also showing improvement was foreign demand for short-term U.S. securities. Including short-term securities, net overall flows show an outflow of $97.0 billion, very heavy but still less severe than January's record low of $146.8 billion. Prior to January, safe-haven demand for short-term securities made for a run of gains. Foreign demand for short-term securities is less closely watched than demand for long-term securities, yet the outflow does suggest that the U.S. may have trouble funding its account deficit in what would be a negative for the dollar. There was no significant reaction to today's report which does not shake up the outlook for continued foreign buying of U.S. Treasuries.

This was a very upbeat article that completely downplayed the significance of the very large net negative flow. A good example of cherry picking data and talking only about the positive aspects.

Unfortunately, this data is already a couple of months behind and we do not have the transparency of timely information. Seeing our debt auctions go off with a bid to cover over 4 (short term auction where this report says there is weak foreign demand) makes me question who it is exactly that is doing all the bidding for our debt.

I have my suspicions. It obviously isn’t mom and pop. It obviously isn’t foreigners. Who does that leave? Well, it leaves Bernanke and it leaves the large investment houses/banks/whatever you call GS and JPM. I call them central banks and they are not just surrogates for the Fed, they are THE Fed.

The amount of money Bernanke has into QE to date is supposedly fairly minimal… definitely not enough to compensate for the $243.8 billion in net negative TIC flows of the last two reported months. My suspicion is that the games being played in the bond market are deeper than we are being told. I think we need to know and be able to see exactly who it is that is doing the bidding and the buying. The people of the United States deserve to know. We need to know because our collective financial futures are at RISK.

I’ll say it again… the central banks need to be dismantled, the money and central banking functions need to be returned to the people, and we need to separate corporations and their money from our government that is supposed to be of the People by the People, not of the corporation for the corporation. Put the horse back in front of the cart!

Morning Update/ Market Thread 4/15

Good Morning and happy tax day – not!

Futures are down this morning, here’s a snapshot of the overnight hours:



This morning the CPI data came in with less inflation than expected, the CPI fell by .1% when plus .1% was expected.

The New York manufacturing index actually rose from its horrid low of -38.2 up to -14.7. Still very significant further contraction, but the pace of contraction is slowing.

Billionaire Sam Zell now sees commercial real estate down 30% and admits he made a mistake purchasing the Chicago Tribune. No kidding.

UBS announced an additional 7,500 layoffs.

It looks like the /ES is going to open at about 833. that will place the SPX very close to the lower boundary of its potential ending diagonal. The 100dma is at 827, so a break beneath that would be bearish, but keep in mind that the short term oscillators are reaching or already are oversold. Of course the Daily is overbought and a real correction could be in the cards, but it may require more impetus to get over the hump.

Have a good day, and best of luck to your trades!

Nate

Tuesday, April 14, 2009

End of Day 4/14

Don’t forget that tomorrow’s tax day. Found an appropriate video for that, a little old, but still appropriate. Love the lyrics. Listen to what Bush tells the reporter at the end of this video...

The Beatles – Taxman:


And now tax revenues are collapsing. I just read in the community newspaper that due to shortfalls the State of Washington is proposing a new 6% tax on Sewer and water bills! Love it. This is a great example of the real trickle down effect!

At any rate, what I described last night as a potential top and ending diagonal is still in play and looking reasonable, although the diagonal is yet unbroken.

Today the DOW finished off 137 points, the S&P was down 2%, the NDX lost 1.1%, and the RUT lost 3.2%.

Declining issues were slightly more than two to one down, and declining volume was 69% on the NYSE. The put/call ratio finished the day at .72. I’m not sure in this volatile a market if today’s decline satisfies the small movement on the McClelland Oscillator from yesterday, it’s marginal if it did. The VIX diverged from the down market by also being down slightly (.37%).

Intel reported after the bell, and yes, earning were better than forecast, but much smaller than last year and revenues were way down. Intel lost an entire dollar after the bell and dragged the Q’s down with it. That should anchor the market some in the morning.

Here’s a twenty day, 30 minute view of the SPX showing the ending diagonal in red. By the way, for those who watch Denninger’s video, he drew one in but did so on too small a time frame… I believe this to be the more accurate version. Note that the stochastic here is oversold, the 10 minute is in the middle, the 60 minute fast is oversold, and the daily/weekly is overbought:



The daily SPX shows a bearish reversal, but there’s a lot of support in the 825 to 835 area with the 100dma in there. It did get beneath the 848 pivot and the next lower is at 789, just about where the 50dma is now. Note how fast and high the bottom Bollinger has come up, already approaching 770. Way overbought on the daily stochastic:



The DOW daily is closer to its support line than the SPX and may break or bounce first. Note that today’s decline is on rising volume and is HIGHER than any volume of the last 3 weeks here. Volume was generally higher market wide:



The XLF is just bearish looking. After closing two consecutive days above the upper Bollinger, it closed well beneath it today. That is a sell signal. And the fact today opened down and closed below yesterday’s low makes this look like a dark cloud formation – a very bearish one if it’s confirmed by tomorrow’s action. Note the 100dma is just beneath $10, there’ll probably be some support there. Higher volume here today too:



Talk about bearish looking, IYR is nasty. Not only a dark cloud formation, but it closed beneath last Thursday’s candle body. Higher volume today than yesterday and the CMBX indices were all higher again today – no let up at all on those:



That’s about it, the SPX has not broken the bottom of that potential ending diagonal yet. How about that Martin Armstrong piece? Did you read the last paragraph and catch the names he dropped? These “club” members need to be shown the real club.

You know, I keep picturing Lloyd Blankfein, CEO of Goldman, as the commander of the Death Star in Star Wars. That would make Paulson Darth Vader of course. And today I learned who’s in charge of it all:



Oh, and it’s not really the Death Star, it’s the DEBT STAR:



Not to worry, tomorrow the Taxman commeth…

GEORGE HARRISON – TAXMAN (Eric Clapton guitar):

Martin Armstrong – Behind the Curtain…

Martin takes us on his view “behind the curtain.” There he shares his own experience, “I was invited to join this “club” expecting me to bring billions of dollars from Japan. I was asked to bring $10 billion back in 1998. That meeting was with Dov Schlein President of Republic National Bank…”

He discusses the article by Matthew Malone in Porfolio Magazine and offers his take on what he views is really happening behind the scenes in the recent financial crisis.

Much of this article centers upon Goldman Sachs and the people who work there and in our government. No wonder. I have also been discussing many of these points as well.

While he is leaning towards some of the conspiratorial and control issues, I believe that he is correct to do so as they are at the root of the current financial crisis. The central bankers are controlling our political system. The same players are found over and over again. They come from the central banks, such as Goldman, and they wind up working in the halls of government, not just here, but also abroad.

It’s an interesting read, please keep in mind his personal circumstances and you will understand perhaps a little better where his viewpoints are coming from. I understand that he is working on yet another article and I will bring that too you as soon as it’s available. Also please keep in mind that he’s working without the advent of modern computers.

Behind the Curtain4!9!09 Behind the Curtain4!9!09 Kris This is Martin Armstrong's "Tell All"

If you prefer to download the .pdf you can do so by clicking on this link: Martin Armstrong – Behind the Curtain…

Also, Mr. Armstrong has agreed to answer questions via an intermediary. If you have questions you would like his reply to, please leave them in the comments below or email me the question at time4changenow@comcast.net

I will compile questions and replies and will post a follow-up in a week or two.

Nate

Morning Update/ Market Thread 4/14

Good Morning,

Futures are down this morning seesawing lower, higher, and then coming down on lower than expected retail sales for the month of March:



Retail Sales were down 1.1%, and the PPI was also down 3.5% ("core" down 1.2%) showing that the deflationary trend is still in place. For the week, both the ICSC and Redbook showed small advances in sales.

That’s about it, Johnson and Johnson beat, Home Depot is down, the Dollar is up, gold is down, bonds are up, the XLF and GS are down.

Have a good day, I should have an article or two coming up…

Nate

Monday, April 13, 2009

End of Day Update 4/13

Goldman Sucks, renegade company of the century, reported earnings after the close that were LESS than the amount of money they received via AIG (tax payer money). Let me state that another way… had Paulson not arranged to shoot taxpayer money to AIG that he knew would be funneled to GS, then GS would have lost money in the first quarter, and that’s with marking assets to fantasy.

And I’m going to say this again… you can pump every last cent in the world into the banks but that will not improve economic conditions a single iota, not one. Quite the opposite. Too little liquidity has never been an issue! Too much liquidity is the real issue, it has enabled more debt than there is income to service. That’s the problem. Far too much optimism as is usual during a bear market rally based upon intervention, lies, and manipulation.

Today we closed with the DOW down 25 points, the S&P was up .25%, the NDX was down .27%, and the RUT was flat, producing an inside hammer.

Internally advancers were 18 to 13 on the NYSE and evenly split on the Nasdaq. 67% of the volume was up on the NYSE and the number of new lows increased from zero to nine. The VIX rose 3.5%.

Here’s a 20 day 30 minute chart of the SPX. On Thursday, last week, I showed this potential ending diagonal and mentioned that we may rise a little to about 865, and that’s exactly what we did today. If pattern is valid, this was probably the high for now. I would not stick around short, however, on a move above this formation. The stochastic is a broken record, severely overbought on all timeframes up to weekly. Oh, and the RSI divergences are back:



The SPX daily produced a near hanging man/ near hammer. Overbought stochastic and you can see the potential ending diagonal:



The DOW daily shows the same candle only red. Right on the 100dma, on lower volume, and overbought:



The Transports produced a perfect red hammer, but it’s inside which degrades the reliability as a reversal indicator. It, too, was on lower volume. The RUT produced an almost identical candle as this one:



The XLF is just nuts – it’s just more partying on taxpayer money. They are not healing, they are stealing. Heck, making money long on GS is worse than making money on tobacco companies – bleck… pfst… you’d have to spit the foul taste out your mouth and shout 3 Hail Mary’s! Impressive candle today, though, still above the upper Bollinger, but on diminishing volume – the volume also came down on IYR:



The Put/Call ratio closed at .67… every time it’s closed this low recently, it has marked at least a short term top. One of these times it’s going to mark a top that will at least produce a reasonable pullback. This is very likely that spot:



So, overall the odds favor a decline, especially if that ending diagonal confirms. However, I wouldn’t stick around on a break above. Allow the banks to take excessive risks, fail, get bailed out by taking hundreds of billions of taxpayer money, pressuring accounting changes, diverting AIG funds, and then report profits is just enough to make me want to lose my lunch. These corporations are out of control, the central banking function needs to be returned to its rightful owners, the people. Goldman Sucks is the renegade of the century, and thus has prompted a return of Styx – hey, I like ‘em and didn’t have the time to search for something better! I do take requests, but you need to provide a youtube link, I’m investing too much of my time in these!

By the way… I am being told that I will be getting Martin Armstrong’s latest expose’ either late tomorrow or on Wednesday. I have been reminded to remind everyone that he is doing his calculations on his cycle dates by hand. If you noticed a discrepancy in his papers, as I did, that he was talking March earlier and then April 19th, he confirms that April 19th is the correct calculation. Get this… he has agreed to take questions and will answer them via a go between, so get your questions ready! It will take about a week to turn around answers. Hey, who’s the renegade really?

Styx – Renegade: