Wednesday, October 20, 2010

Morning Update/ Market Thread 10/20

Good Morning,

Equity futures have rebounded some overnight, retracing approximately half of yesterday’s decline before settling near the 38.2% retracement. The dollar and bonds are both down, while oil and gold are both up slightly. Yesterday’s sell off in oil was something, it lost $4 in dramatic fashion to break the range it had been in, closing back beneath the $80 mark (now just below $81).

The hypocritical MBA released its completely worthless Purchase Applications Index this morning for the week prior, clearly showing that foreclosuregate may be affecting people’s psyche – we know that it’s directly impacting foreclosures which had been largely halted. The Purchase Applications Index fell 6.7%, while the Refinancing Index fell 11.2% pushing the composite index down 10.5% for the week – here’s Econoday:
Purchase applications fell steeply for a second straight week, down 6.7 percent in the October 15 week following an 8.5 percent drop in the prior week. The declines point to new trouble for the housing market where indications had finally started to stabilize. Refinancing applications swung 11.2 percent lower following the prior week's 21.0 percent jump. Rates popped back up in the week, 13 basis points higher for 30-year fixed mortgages to an average 4.34 percent.

Watching sales plummet even further into the abyss is very likely to garner more attention and focus on the problems of securitization. Banks like Wells Fargo and Bank of America are trying to pretend that a problem doesn’t exist, but it does and it is very likely that the two who are in public denial are the very two who are least likely to survive the fallout.

First, let’s get something straight about the stock market… Stocks are not going anywhere without the financials going along for the ride. Once again, the truth is that nothing was ever “fixed,” no real problem was solved, none. Below is a chart showing the POMO’ed, pumped up, and fluffed up SPX (black line) versus the BANK index. Note the huge divergence since the April top - $BANK shows it, the XLF shows it, and $BKX shows it. And this is despite the trillions used to bail the banks out and the near daily swaps that allow the banks to offload their crap on the American public:

What occurred in 2008 was NOT just a “bank panic,” it was simply the first major tremor of a completely insolvent, fraudulent, and morally bankrupt financial system. We are very likely to wind up with more major bank failures and as I’ve been saying all along, nothing will truly be solved until we cure our systemic debt saturated condition.

This whole bank mess has turned into a surreal and bizarre affair. Yesterday the New York Fed along with PIMCO and BlackRock announced they are filing suit against Bank of America in an attempt to get them to repurchase Mortgage Backed Securities (MBS) that have turned bad. The irony of this lawsuit runs as long as the river Nile. For starters, BlackRock just happens to OWN 5.35% of BAC, they are the largest shareholder of Bank of America! Thus they are in effect suing themselves!?! But wait, BAC also happens to be the largest owner in BlackRock with a huge 34% – 47% stake, depending upon the source cited. And if that relationship isn’t bizarre enough, consider that the New York “Fed” is really a private institution that is owned by the banks, the largest shareholders of the “Fed” are the large Primary Dealers of which BAC is one of the biggest! In short, BAC also owns a portion of the New York Fed.

This incestuous relationship is not a minor point, nor did it come about by accident. There are very serious games afoot here and ultimately I believe that this suit is most likely some sort of distraction that is leading ultimately to the sacrifice of another institution or two and most likely is a setup for another round of public fleecing by these private criminals who are absolutely robbing America blind. Don’t be fooled for a second into believing they are finally doing the right thing – absolutely not fooling me. Just look at the fact that PIMCO has been buying up MBS over the past couple of months while simultaneously talking about overpriced treasuries. Connect the dots and you will see that something contrived is occurring and that it is leading somewhere… where? I’ll bet we find out at the height of fear – again.

So how exactly does that work, owning one another like that? Is it okay for me to create “Nate, Inc.” and sell you stock which you buy through issuing your own “You, Inc.” stock? In other words, we could simply do a stock swap and both claim to be worth whatever we want? Is that okay?

Will we ever learn the lesson that what’s most important in nearly all aspects of running a country is WHO controls the power to create the supply of money? Sigh.

This issue of foreclosure title handling is simply the tip of a HUGE iceberg that can and probably will wind up involving nearly every retirement fund and investor who has purchased MBS. In fact, it will run to the entire spectrum of how debt is securitized – all MBS, plus securitized Commercial Real Estate debt, Auto debt, credit card debt, all of it.

And the markets are so broken that the people have fled in huge groves. Market volumes are down so low that it is damaging the largest profit (fraud) centers of the banks. Just look at Morgan Stanley’s earnings report that just came out:
Third-quarter profits fell 67% from a year ago, Morgan Stanley (MS) said Wednesday morning. The culprit: weak volume in the trading businesses that only a year ago were fueling Wall Street's resurgence.

Morgan Stanley made $313 million, or 5 cents a share, from continuing operations for the quarter ended Sept. 30. That compares with a year-ago profit of $936 million, or 50 cents a share. Revenue tumbled 20% from a year ago, to $6.8 billion.

Even that modest profit was bolstered by a tax gain, without which the firm would have lost 7 cents a share for the latest quarter.

Analysts surveyed by Thomson Financial were looking for a 15-cent profit at Morgan Stanley. But Wall Street's profit expectations for Morgan Stanley and Goldman Sachs (GS), which reported a 40% earnings decline Tuesday, have been falling sharply for about three months.

Once again proof that you cannot fool all of the people all of the time. Their schemes will in the end prove to only lead to their own demise – they are the fools, they have lost all perspective on right and wrong and the people have mistakenly let them.

Note again that here we have a company who actually LOST MONEY yet is claiming to have positive earnings "ex-items." Again, those who buy into this "operational earnings" nonsense are going to be spanked for failing to understand how the markets and valuations are being spun!

And if you want to be completely insulted by the spin from yet another Warren Buffett company, read this regarding Wells Fargo’s earnings release:
NEW YORK ( -- Wells Fargo reported its highest quarterly profit ever Wednesday, and said its "sound and accurate" practices meant it does not need a freeze on foreclosures.

Third-quarter earnings for the bank came in at $3.34 billion, or 60 cents per share, compared to $3.24 billion, or 56 cents, a year earlier.

… In its release, the bank reiterated that it has no plans to institute a foreclosure moratorium because its "practices, procedures and documentation" in its housing business are sound.

Uh, huh… all I will say is that it will be my pleasure watching them fall. And speaking of that, below is a chart of MS on the left and WFC on the right and you can see the reactions to these releases on this 5 minute chart:

And to those who think the world is going to go on a hyperinflationary tear, I present very clear evidence that wave C mentality, in Britain at least, is going to temporarily push aside any such thought:
Osborne Deficit Cuts to Slash Jobs, Levy Banks, Curb Debt Costs

(Bloomberg) -- Chancellor of the Exchequer George Osborne detailed the deepest budget cuts ever in Britain, eliminating 500,000 public-sector jobs and imposing a levy on banks to extract the “maximum sustainable” revenue.

“Today’s the day when Britain steps back from the brink,” Osborne told lawmakers in the House of Commons in London today as he outlined plans to virtually eliminate a 156 billion-pound ($245 billion) budget deficit. It’s “a day of rebuilding when we set out a four-year plan to put our public services and welfare state on a sustainable footing.”

Half a million government jobs? That sounds like a very good start, and it will certainly prevent wage pressures from fueling inflation in that part of the world.

Yesterday’s selling did do technical damage to the markets. Breadth on the upside is rapidly narrowing, while volumes on the down strokes are increasing. The McClelland Oscillator went negative once again, and were it not for today being another POMO day, I would say that the odds of follow-through on the downside is high. But since today is a POMO/ rob Americans blind day, that puts the short term movement into the hands of the criminals who all own one another, they own the HFT machines, they own the exchanges, they own the politicians, and they likely “own” you too via their fraudulent paper.