Friday, April 16, 2010

Breaking - S.E.C. Sues Goldman Sachs for Fraud

Pay attention to this, it is extremely important, but not because our S.E.C has finally grown a pair and decided to enforce the rule of law. No, I think there’s way more to this than meets the eye. (ht LostDude)
U.S. Accuses Goldman Sachs of Fraud

By LOUISE STORY and GRETCHEN MORGENSON
Published: April 16, 2010

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.

As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.

According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.

Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds.

But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.

Mr. Paulson is not being named in the lawsuit.

In recent months, Goldman has repeatedly defended its actions in the mortgage market, including its own bets against it. In a letter published last week in Goldman’s annual report, the bank rebutted criticism that it had created, and sold to its clients, mortgage-linked securities that it had little confidence in.

“We certainly did not know the future of the residential housing market in the first half of 2007 anymore than we can predict the future of markets today,” Goldman wrote. “We also did not know whether the value of the instruments we sold would increase or decrease.”

The letter continued: “Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a ‘bet against our clients.’ ” Instead, the trades were used to hedge other trading positions, the bank said.

In a statement provided in December to The Times as it prepared the article on the Abacus deals, Goldman said that it had sold the instruments to sophisticated investors and that these securities “were popular with many investors prior to the financial crisis because they gave investors the ability to work with banks to design tailored securities which met their particular criteria, whether it be ratings, leverage or other aspects of the transaction.”

Goldman was one of many Wall Street firms that created complex mortgage securities — known as synthetic collateralized debt obligations — as the housing wave was cresting. At the time, traders like Mr. Paulson, as well as those within Goldman, were looking for ways to short the overheated market.

Such investments consisted of insurance-like policies written on mortgage bonds. If the mortgage market held up and those bonds did well, investors who bought Abacus notes would have made money from the insurance premiums paid by investors like Mr. Paulson, who were negative on housing and had bought insurance on mortgage bonds. Instead, defaults spread and the bonds plunged, generating billion of dollars in losses for Abacus investors and billions in profits for Mr. Paulson.

For months, S.E.C. officials have been examining mortgage bundles like Abacus that were created across Wall Street. The commission has been interviewing people who structured Goldman mortgage deals about Abacus and other, similar instruments. The S.E.C. advised Goldman that it was likely to face a civil suit in the matter, sending the bank what is known as a Wells notice.

For months, S.E.C. officials have been examining mortgage bundles like Abacus that were created across Wall Street. The commission has been interviewing people who structured Goldman mortgage deals about Abacus and other, similar instruments. The S.E.C. advised Goldman that it was likely to face a civil suit in the matter, sending the bank what is known as a Wells notice.

Mr. Tourre was one of Goldman’s top workers running the Abacus deal, peddling the investment to investors across Europe. Raised in France, Mr. Tourre moved to the United States in 2000 to earn his master’s in operations at Stanford. The next year, he began working at Goldman, according to his profile in LinkedIn.

He rose to prominence working on the Abacus deals under a trader named Jonathan M. Egol. Now a managing director at Goldman, Mr. Egol is not being named in the S.E.C. suit.

Goldman structured the Abacus deals with a sharp eye on the credit ratings assigned to the mortgage bonds associated with the instrument, the S.E.C. said. In the Abacus deal in the S.E.C. complaint, Mr. Paulson pinpointed those mortgage bonds that he believed carried higher ratings than the underlying loans deserved. Goldman placed insurance on those bonds — called credit-default swaps — inside Abacus, allowing Mr. Paulson to short them while clients on the other side of the trade wagered that they would not fail.

But when Goldman sold shares in Abacus to investors, the bank and Mr. Tourre only disclosed the ratings of those bonds and did not disclose that Mr. Paulson was on other side, betting those ratings were wrong.

Mr. Tourre at one point complained to an investor who was buying shares in Abacus that he was having trouble persuading Moody’s to give the deal the rating he desired, according to the investor’s notes, which were provided to The Times by a colleague who asked for anonymity because he was not authorized to release them.

In seven of Goldman’s Abacus deals, the bank went to the American International Group for insurance on the bonds. Those deals have led to billions of dollars in losses at A.I.G., which was the subject of an $180 billion taxpayer rescue. The Abacus deal in the S.E.C. complaint was not one of them.

That deal was managed by ACA Management, a part of ACA Capital Holdings, which changed its name in 2008 to Manifold Capital Holdings.

Goldman at first intended for the deal to contain $2 billion of mortgage exposure, according to the deal’s marketing documents, which were given to The Times by an Abacus investor.

On the cover of that flip-book, it says that the mortgage bond portfolio would be “selected by ACA Management.”

In that flip-book, it says that Goldman may have long or short positions in the bonds. It does not mention Mr. Paulson or say that Goldman was in fact short.

The Abacus deals deteriorated rapidly when the housing market hit trouble. For instance, in the Abacus deal in the S.E.C. complaint, 84 percent of the mortgage bonds underlying it were downgraded by rating agencies just five months later, according to a UBS report.

It takes time for such mortgage investments to pay out for investors who short them, like Mr. Paulson. Each deal is structured differently, but generally, the bonds underlying the investment must deteriorate to a certain point before short-sellers get paid. By the end of 2007, Mr. Paulson’s credit hedge fund was up 590 percent.

Mr. Paulson’s firm, Paulson & Company, is paid a management fee and 20 percent of the annual profits that its funds generate, according to a Paulson investor document from late 2008 titled “Navigating Through the Crisis.”

No kidding, this is exactly what everyone’s known all along, that GS, and their insider clients, have been profiting by betting against the very debt products they help to package and sell.

Is the U.S. Government really getting serious about going after these guys? NO WAY. There are always token fall guys and this is all theatre and show.

Think about the timing of this. It comes just as I have been talking about a “triggering event” that will take the blame for turning the markets. This suit was reported AFTER the open on OPTIONS EXPIRATION day. Why now? My suspicious mind says that it was timed to allow the options sellers and contract speculators to walk away and to instill maximum damage on the retail buyers of the ALL TIME RECORD number of option call buyers who were in the market just yesterday.

Markets almost always turn on such sentiment extremes, but I know that Goldman controls the government and absolutely is in control of the S.E.C. too! It’s almost a joke to me that they would turn the markets by allowing the S.E.C. to bring suit against themselves. And I’m willing to bet the majority of people will believe there’s no way they would do that. Want to bet?

Watch future events unfold, I can almost guarantee that there will be fines that are later mitigated, that a few people may take a fall, but nothing real or meaningful will come of it other than an opportunity to profit on the short side after running the market up to bubble extremes. It’s a nice game to play when you control all the pieces on the board. Meanwhile the people of the world are simply played as fools and pawns. How’s that feel, were you long the market?

How many times before people learn that what’s most important is not WHAT backs your money, but WHO is in control. America gets what it deserves, karma’s a bitch and it seems to be going around.

Not an hour before the release of this I was talking about bubbles and triggering events that take the blame. Take a look at the 30 day, 30 minute chart of Goldman Sachs. All parabolic profits of the past month GONE in an instant:



Here’s a 3 month version:



The XLF is hit hard by this, breaking its current uptrend. To the people who do not understand the VIX sell signal and were saying that it was not valid, I have only this to say:



Media ecstatic of late? Do you enjoy record setting roller coaster rides with your investments and your markets? Think 60% market dives and 70% + recoveries are normal and healthy? There's no doubt more games are coming, it's not normal and it's not healthy. It's Enron times a million.

Morning Update/ Market Thread 4/16

Good Morning,

Equity futures are down, the dollar and bonds are up, with oil and gold down. The chart action over the past two days has produced a pretty clear head & shoulders top in the indices. Below is a 5 minute view of DOW futures on the left and S&P on the right:



It’s not a large pattern, but is signaling that a fall back beneath 1,200 is possible on a break of the neckline.

More than 17,000 flights have now been canceled across the Atlantic and in Europe due to the volcanic ash emanating from Iceland. The upper level winds are blowing straight at the financial centers of Europe, I can’t help but laugh at the irony of that – karma comes to mind.

Housing permits improved in March, wow, who would have thought that permits would increase in the spring? Econoday’s still talking about the weather, but to be fair, this report is a sizable increase and it is an increase over March of last year. Just remember what was occurring March ’09.

Highlights
Housing in March made strengthened from snow bound February-with permits pointing toward even better improvement than starts. Housing starts in March rebounded 1.6 percent after a snow storm damped 1.1 percent rise in February. The February number was revised up from an original estimate of a 5.9 percent drop. The March annualized pace of 0.626 million units came in above analysts' projection for 0.605 million units and was up 20.2 percent on a year-ago basis. The boost in March was led by an 18.8 percent jump in multifamily starts, following a 21.6 percent fall in February. The single-family component edged down 0.9 percent after a 5.7 percent boost the month before.

The impact of weather on February's numbers clearly was seen again in March as the latest surge was entirely from a rebound in the South which was battered by snow storms the prior month. By region, the March boost in starts was led by an 18.2 percent rebound in the South after an 11.8 percent drop the month before. For the latest month, declines were seen in the Midwest, down 28.4 percent; the Northeast, down 8.3 percent; and the West, down 2.1 percent.

Permits were even more positive, jumping 7.5 percent, following a 2.4 percent advance in February. The March pace of 0.685 million units annualized was up 34.1 percent on a year-ago basis.

Today's numbers indicate that housing is not slipping back into recession although this sector is still getting support from homebuyer tax credits that are about to expire. On the news bond yields firmed slightly and equity futures nudged up.



Not slipping back into recession? Are they joking? Permits below the million level are recession prints, we have a very long way to go to get back to those levels. There is still a ton of inventory out there and more coming on all the time. Keep that chart of Option-Arm resets in your mind, that wave is quickly approaching.

Also keep in mind that RealtyTrac reported yesterday that, “Foreclosure filings were reported on 367,056 properties in March, an increase of nearly 19 percent from the previous month, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.”

Sure am glad the recession in housing is over. Option-Arm resets, end of buyer credits, government supposedly no longer buying Fannie and Freddie paper… okay, let’s see that rock swim.

Citizen Sentiment just came in with a reading of 69.5 when 75 was expected and 73.6 was the last reading. Seems that the unemployed aren't quite as joy filled as the media.

Google beat official earnings estimates yesterday, but didn’t blow out the supposed “whisper” numbers and promptly fell $30 a share, or nearly 5%. BAC, with the help of Merrill junk assets, managed to rape the people of $3.8 billion for the quarter. Nicely done for an insolvent zombie, bravo. Just imagine removing all those marked to fantasy and market manipulating earnings from the S&P, it would be very ugly – nothing but paper profits, nothing real. Their stock initially zoomed, but fell right back down. GE, another financial company bad boy who used to primarily be known for actually making things did the same thing; beat estimates, their stock zoomed but then fell right back down.

When you get “beats” that produce sell-offs, it’s telling you loud and clear that the market is overpriced and that the insiders are distributing to whomever they can.

We saw a record 611 new 52 week highs on the NYSE on Wednesday, then yesterday the market moved slightly higher yet the number of new highs contracted to 511. That’s exactly what you expect to see with topping action. The indices are all up against their upper Bollinger bands, the DOW and S&P are up against their upper uptrend lines, up against their 200 day moving averages and their 61.8% retrace levels.

Volumes have been higher the past two days, not super high, but higher. It would be nice to see a real high volume spike to show capitulation buying, but we may be seeing that in the options market with numbers yesterday that were nearly twice historic highs.

The move over the past two months has been a very steep one, nearly parabolic in nature. It is possible that a parabola is exactly what we’re building. If so, it could continue until it simply runs out of fuel. Parabolic moves are very dangerous, they are late stage bubble moves. Again, I’ll point out the psychology of Minsky’s 5th bubble stage, “The strong will not enter at stage five and reconcile themselves to the missed opportunity. The ‘fool’ may even realize that prices can’t keep rising forever… however, they just can’t act on their knowledge. Everything appears safe as long as they quit at least one day before the bubble bursts. The weak provide the final fuel for the fire and eventually get burned late in stage six or seven.”

Roll here or zoom to the moon, doesn’t matter to me, it’s a fool’s game. I’ll take a small poke at the extreme internal readings for fun, but only with money I’m willing to lose, and I know that the right way to play parabolic moves is to simply wait for a trendline break and then enter.

The ingredients for the move to be over are here - they are simply waiting for a triggering event. VIX sell signal, record number of 52 week highs, record low put/call readings, extreme bullish sentiment... the trigger event can happen at any time, a volcano or one piece of bad news can be it. The triggering event will take the blame, not the actions that created the bubble.

Markets that behave in that manner should be a warning sign to the general population, unfortunately the media and government trumpet parabolic moves and simply add fuel to the speculative fire. Look at China… what a mess. Twelve percent growth rates? Completely not wise and not sustainable. Today their planners are taking action to cool it down, seems they would be happier with only 10%! What a joke, 12% produces a time to double in only 6 years. Good luck with that.

"Another factor in maintaining balance involves the element of time. As we peer into society's future, we you and I, and our government must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow."
Dwight D. Eisenhour

Pink Floyd – Time:

Thursday, April 15, 2010

Damon Vrabel - Renaissance 2.0, Lesson 5. The Emerging Global Empire

In this lesson Damon takes a look into the future of the world headed on the present course. It is our intention to alter that course but understanding what is happening is a necessary first ingredient. Here’s Damon’s explaination:
The next chapter has been added to the Renaissance 2.0 series. It describes The Emerging Global Empire or what has come to be called the new world order or new world economic order. The primary force driving this is the simple math of the bond market, debt-based money. Please pass this along because it's critical that more people start learning how this drives the world...governments do not.

This lesson hopefully paints the strategic picture on what's happening in the world so we can correctly interpret the endless stories the media pumps out, rather than being stuck in false paradigms, like the left vs. right political paradigm. Once this strategic perspective is understood, then it's easy to understand how hundreds of random stories that seem to make no sense in the left vs. right political paradigm actually make a TON of sense. Stories like these: a Harvard billionaire taking over Chile, the government's response to the crash of 2008, increasing govt debt, Goldman Sachs taking over Greece, British banks pressuring Iceland, the US military presence in 75% of all countries, the G2 relationship, JPM Chase destroying municipalities and funding the destruction of Apalachia while its CEO Jamie Dimon gets setup as the next Treasury Secretary to get ready to steal even more from Americans, and many many more. All of a sudden after lesson 5 the world becomes a lot clearer.

Then after this lesson, the series will start imagining a different, brighter future than the one illustrated in this lesson.

Warmly,
Damon

Renaissance 2.0: Lesson 5 (part 1 of 2) - The Emerging Global Empire (10:16):


Renaissance 2.0: Lesson 5 (part 2 of 2) - The Emerging Global Empire (9:51):

Morning Update/ Market Thread 4/15

Enjoy your tax day! Doesn’t it feel great working hard so that you can give it away like a share cropper? Why it sure makes me feel good knowing that my family’s productive efforts are being shared for such worthy causes.

Hardly believable is that equity futures are down slightly after yesterday’s rocket ride. Weee! Who’d a thunk that man could build a roller coaster that goes so high? Can’t wait for the thrill when the bottom drops out, that’s going to be exciting, just like a good taxpayer likes his markets to function – like an amusement park. And the dollar went straight up overnight, the Euro straight down, wee! Bonds down, oil down, gold down.

Continuing Claims leaped 24,000 for the week to 484,000, rising back nearly to the 500K level again. “Don’t worry,” the tax dollar supported government employees say, “special factors, like Easter and another ‘holiday’ you’ve never heard of, are to blame.”
Highlights
Claims continue to pile up due to special administrative factors. Initial jobless claims jumped for a second week, up 24,000 in the April 10 week to 484,000. The four-week average is up 7,500 to 457,750 but is still a bit below the month-ago level. Continuing claims for the April 3 week rose 73,000 to 4.639 million, a level that is also the four-week average. Here too, the four-week average is a bit below the month-ago comparison.

The Labor Department attributes the rise in claims not to economic factors but to continuing administrative snags as offices catch up with claims during the shortened Easter week and, in California, for the Cesar Chavez holiday. The department is warning the next report may be affected by quarter-end reclassifications for emergency compensation, but that the chances for downward revisions are greater than for upward revisions.

Given all the noise in the data, expectations are likely to hold for a big gain in April payrolls, at least for now. Equities and commodities fell but only briefly in initial reaction to today's report.



Of course the markets only fell for a moment, people aren’t really out of work, they are simply not working due to the Chavez holiday. Duh.

From the Department of Labor, "States reported 5,855,301 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending March 27, an increase of 261,817 from the prior week. There were 2,148,241 claimants in the comparable week in 2009. EUC weekly claims include first, second, third, and fourth tier activity."

Only 3.7 million more on Emergency Unemployment yoy, and 261K more than the WEEK prior. That's all... no biggie.

So, it only makes sense that the Empire State Manufacturing index should jump…
Highlights
Activity is accelerating sharply in the New York manufacturing region as the Empire State index jumped 9 points to 31.86 signaling strong month-to-month growth for April. The growth is sweeping across factors: new orders, shipments, inventories, jobs, delivery times, input prices. A draw in unfilled orders is the report's only negative signal.

Strength is also evident in data on the six-month outlook where the region's manufacturers increasingly see strong conditions and increasingly expect to make capital investments in their businesses. The manufacturing sector more and more is the leader of the recovery. Industrial production data for March will be posted today at 9:15 ET with the Philadelphia Fed's manufacturing report for April out at 10:00 ET

Of course none of the former special circumstances affect manufacturing, only unemployment, right? Because we know how much we manufacture in the U.S., heck, everyone I know works in manufacturing, isn’t that true for you?

What? It’s not? Even though our population has more than doubled, America employs the same number of people in manufacturing than we did in 1942:



What is that, about 11.5 million people, or only 3.7% of our population. For comparison, there are 39 million people in this country on FOODSTAMPS! That’s 12.8% of our population!

That's 3.4 times as many on food stamps as work to manufacture something. Please take the time to let that one sink in.

Below is a chart of workers in the financial industry:



Amazingly, it’s still less than the number in manufacturing, but barely, coming in at 7.6 million. Now look back on that chart to the year 1942 and you’ll find that at that time it took only 1.2 million financial industry workers to support the same number of people working in manufacturing. Today the ratio of financial workers to manufacturing workers is more than 6.3 times higher! Conclude from that what you want, I say it’s messed up as obviously our employees are the world’s purveyors of debt and that most of the world’s manufacturing occurs elsewhere.

Like China that just reported their annual growth to be 11.9% in the past year! Industrial growth? 22%, LOL! Riiight… let me just say that for those who don’t recognize a bubble or false statistics, one’s biting you in the ass right now, feel it? You will.

Treasury International Capital flows (TIC) for February was barely positive, coming in with a net $9 billion, but foreign official flows were negative $21 billion. Remember, to be balanced, we need inflows that are equal to our trade deficit which is running in the $40 billion per month range today. Overall this is another very weak report, and it is a report that, like bids at auction, is hard to know how real the numbers are. Auditing the Fed, the Treasury, the Primary Dealers, their surrogates, the IMF, and all foreign central banks would be the only way to really know. Alternatively we could just get rid of all of them and start over. Now there’s an idea.

TIC Flows February

Let’s turn back to the markets where you can clearly see a nice and very unbelievable climb over the past 3 months as well as over the past year. Historic climb and historic divergences.

Yesterday produced a confluence of readings that should not be ignored. Remember, we just produced a market sell signal on the VIX. Yesterday we had 611 new 52 week highs on the NYSE, from what I can gather that’s an all time record, surpassing the 601 new highs that occurred just this past March. That is an extreme. Numbers that lopsided have always produced reversals – will this be an exception? Are we now living in an alternative universe? I don’t think so, the Kool-Aid tastes the same.

Below is a chart of the CBOE Total Put/Call Ratio over the past 3 years. It landed on a the lowest low of the past 3 years at the close yesterday, .56:



Below is a one year chart of the Put/Call Ratio to show you in more detail how the low points often correlate to tops, and the high points often correlate to market lows:



Below is a 3 year NYSE Bullish Percent chart. Not at the highs of the chart, but definitely at an extreme reading:



The volume was a little heavier yesterday, which is exactly what you see towards the end of large moves, it is a sign of capitulation. Overall volume levels are still way low, but yesterday was 124% of its 10 day average. The indices are now very close to their 200 day moving averages and that important 61.8% retrace level.

I note that the VIX is higher on the open this morning… I hope you are not a part of the heard at this point in the markets. The alignment of extreme indicators is screaming that a significant top is in or near.

Enjoy your tax day, a tradition that’s getting harder to take all the time, especially knowing how much of that effort is funneled directly into the banks. Not to worry, another 17,000 IRS employees are in the pipeline to ensure compliance. If only that last part were a joke...

Wednesday, April 14, 2010

Morning Update/ Market Thread 4/14

Good Morning,

Equity futures are zooming overnight following good earnings reports from INTC, CSX, and JPM. The dollar is down, bonds are up, and both oil and gold are up as well. Watch the bond flow, you would normally expect bonds to be headed the other direction with rising equities.

JPM earned $3.3 Billion in one quarter ($13.2 billion annualized) based largely upon trading revenues. They are taking lower provisions for loan losses as well, but I would say that this one company is probably the most highly leveraged company on the planet, they are certainly the world’s largest holder of derivatives by far, and they would be totally insolvent were it not for their mark-to-fantasy models, toxic debt shell games, and control of the government and her supposed watchdog agencies. Enron times a million. Yet, Jamie Dimon announces they are going to hire 9,000 people over time. There’s an economy to be proud of right there.

Of course when you own and control the markets, manipulating your gains to steal from all other participants, life is good. Dang, I’m proud of JPM, way to go!

Speaking of being proud, the worthless MBA Purchase Applications Index produced another wild swing last week, plummeting 10.5%, with refinancing applications also dropping 9%. Here’s Econoday:

Highlights
An increase in FHA mortgage premiums led to a big drop in applications for government mortgages while applications for conventional mortgages also dropped during the April 9 week. The combination made for a 10.5 percent setback for the Mortgage Bankers' purchase index, raising new questions over what should be a strong month for housing demand given the pending expiration of second-round stimulus. Applications for refinancing also fell, down 9.0 percent.

About half of the prior week's spike in mortgage rates reversed with 30-year mortgages averaging 5.17 percent, down 14 basis points. But rates, following the end of the Fed's direct purchases of mortgage-backed securities, are still much higher than they were just last month and are now a drag on housing demand. Next data on the housing sector will be tomorrow afternoon with the housing market index.
Oh yeah, roaring recovery there, and 10 year rates are still near the neckline, wonder what the housing market will look like with rates that are 2% higher than here?

The CPI for March came in with a .1% rise month over month, but a 2.4% rise year over year. Remember, the Import inflation is much higher, the PPI has been elevated and those are leading. Hey, 2.4% inflation is bad enough, that seemingly benign number will destroy your purchasing power in very short order, but keep in mind that these numbers are some of the most inaccurate numbers produced by our government and they affect almost all the other statistics. Here’s Econoday’s report:

Fed inflation hawks got no help this morning as consumer price inflation was essentially nonexistent for March. Overall CPI inflation for March nudged up to 0.1 percent from no change the prior month. The March rise matched the consensus forecast for a 0.1 percent increase. Core CPI inflation, however, eased to no change from up 0.1 percent in March and coming in just under expectations for a 0.1 percent gain. At the headline level, food prices rose moderately while energy costs were flat. The core was held down in part by declines in apparel and recreation and flat housing costs.

Looking at detail, the energy component of the CPI was flat after declining 0.5 percent in February after jumping 2.8 percent the month before. Gasoline dipped another 0.8 percent, following a 1.4 percent decline in February. Food inflation rose 0.2 percent after a 0.1 percent gain the month before.

Keeping the core soft in March were a 0.4 percent drop in apparel prices, a 0.1 percent dip in recreation, and no change in housing costs. Housing has been flat or negative for an unheard of four months in a row.

Year-on-year, overall CPI inflation firmed to 2.4 percent (seasonally adjusted) from 2.2 percent in February. The core rate edged down in March to 1.2 percent from 1.3 percent the month before. On an unadjusted year-ago basis, the headline number was up 2.3 percent in March while the core was up 1.1 percent.

Overall, inflation remains quite subdued-matching Fed expectations. Today's news is good for bonds.
The media is all ga-ga over the March Retail Sales figures – up 1.6% month over month, and year over year the figure is up 7.6%. Supposedly this report is adjusted for seasonality, but March contained Easter shopping week this year, so look for April to possibly show relative weakness. Secondly, the retail sales numbers fail to capture the effects of survivor bias. That is, companies who have failed, their lack of sales are not figured into the equation just like stock market indices. This is why sales tax receipts are a far better indication of what is truly happening, but even those are measured in dollars and not in actual goods sold:

Highlights
The consumer sector is starting to pull its weight in the recovery and may even turning into an engine of growth. Overall retail sales in March jumped 1.6 percent after gaining 0.5 percent in February. The March boost topped market projections for a 1.2 percent spike. Motor vehicles provided a huge contribution, spiking 6.7 percent after dipping 1.9 percent in February. But even excluding autos, sales in March posted another healthy gain, rising 0.6 percent which came after a 1.0 percent surge in February. The boost was not related to changes in gasoline prices as sales excluding autos and gasoline improved by 0.7 percent, following a 1.1 percent increase in February.

The boost in March sales was based on widespread gains by components. In addition to motor vehicles, notable increases were seen in building material & garden supply, up 3.1 percent; clothing, up 2.3 percent; and furniture & home furnishing, up 1.5 percent. Apparently, the stabilization in housing is starting to spill over into retail sales.

The only component declines were seen in electronics & appliances and in gasoline. The first came off a spike in sales in February while gasoline was nudged down by lower prices, seasonally adjusted.

Overall retail sales on a year-ago basis in March improved to up 7.6 percent from 4.4 percent the month before. Excluding motor vehicles, the year-on-year rate jumped to 6.4 percent from 4.5 percent in February.

Apparently consumers with jobs are more confident that companies are not likely to hand out more pink slips and are willing to spend. Sales strength in March was broad based. After today's retail sales report, you won't be hearing too many arguments that we are in for a double dip recession. Equities should like today's report-especially in tandem with mostly favorable earnings reports since yesterday's close.

Yesterday produced another small change in the McClelland oscillator, thus a large change is expected for today or tomorrow. The SPX managed to get over the 1,200 hump overnight, so I would expect that it could run up to 1,220 or even 1,250, but there is heavy resistance as we get close to the 61.8% retrace level.

The VIX sell signal is valid regardless of what occurs over the next few days, it is often early, one of the few signals to actually lead. It’s also possible that a blowoff occurs and sends the VIX back below the lower Bollinger, or it could even push it down for awhile. Again, that will not negate the signal should that occur.

Here’s some more mood music for those still struggling with their 1040s. Want to really see special interest influence? Turn off the Turbo Tax and start doing it yourself manually, there’s an eye opener, especially if you’re a business owner...

George Harrison and Eric Clapton - Taxman:

Tuesday, April 13, 2010

Morning Update/ Market Thread 4/13

Good Morning,

Equity futures are about flat this morning. The dollar is down, still beneath its 50dma, oil is down significantly and gold is slightly lower.

The Euro is higher as the “rescue” plan brought in buyers for a Greek bond offering yesterday:

Greece Sells $2.1 Billion of Debt After Rescue Plan

April 13 (Bloomberg) -- Greece’s auction of Treasury bills drew stronger demand than at a previous sale as yields more than doubled in the first offering of debt since the nation won a pledge of aid from the European Union.

The government sold 780 million euros ($1.06 billion) of 26-week bills at a yield of 4.55 percent, attracting bids for 7.67 times the securities offered, the nation’s Public Debt Management Agency said today in Athens. Greece also offered 780 million euros of 52-week securities at a yield of 4.85 percent, with a bid-to-cover ratio of 6.54 times. In January, the 52-week bills were sold to yield 2.2 percent.

Euro-region finance ministers and the International Monetary Fund offered the country as much as 45 billion euros in loans two days ago. The nation’s bonds rose for a third day today as the lifeline boosted confidence the government will honor its debt payments.

“The result confirms that the package which was put in place on Sunday has enabled Greece to fund itself in the near- term,” said David Owen, chief European financial economist at Jefferies International Ltd. in London. “But the longer-term fundamental issues in terms of where we go from here haven’t changed. Greece has to put its finances in order against the backdrop of an economy that currently is shrinking.”
Bid to cover of 6.5? Riiiiiggght… Guys, this piece is nothing but central banker spin and a marketing devise, it is complete bull. The central banks in the U.S. invented the game of producing “bids” to make debt auctions look like there is strong demand. However, I will note that central banks have literally nothing to lose in producing any and all debt – they now know they will be bailed out by taxpayers regardless of what the future brings. Curing debt with debt? That’s their plan, and it’s not for the benefit of the people of Greece.

The trade deficit for February widened to $39.7 billion. In our upside down world people think that’s a good thing and have for the past two decades. It means Americans are buying more than they export and more than they can afford. No problem, just charge it!

Highlights
Today's trade report suggests that businesses are a little more optimistic about domestic demand. The U.S. trade gap widened in February on both oil and non-oil imports. The trade deficit for February expanded to $39.7 billion from a revised $37.0 billion the month before. February's gap came in a little larger than the market forecast for a $39.0 billion shortfall. Exports rebounded 0.2 percent while imports made a 1.7 percent comeback.

The worsening in the trade deficit was led by the nonpetroleum balance which widened to $27.2 billion from $25.6 billion in January. The petroleum deficit came in at $22.9 billion, compared to $22.5 billion in January.

The source of the gain in nonpetroleum goods should give comfort to those worrying about business confidence in the consumer sector. The boost in imports primarily was the result of a $1.1 billion jump in consumer goods, followed by a $1.0 billion gain in industrial supplies (largely oil). But imports of capital goods excluding autos posted a moderate gain of $0.4 billion. Overall, businesses appear to be in a restocking mood-which is favorable to the economy.

Exports were up only marginally with major components mixed. Capital goods excluding autos were up $0.4 billion in January despite a $0.8 billion drop in the aircraft component. The food, feeds & beverage component showed the biggest decline, dipping $0.5 billion. Taking into account the fall in civilian aircraft exports, overall exports were good.

On a year-on-year basis, growth in overall exports of goods and services in February slipped to 14.3 percent from 15.3 percent in January. Meanwhile import growth jumped to 23.3 percent in February from 13.7 percent the month before.
Half the increase in deficit was due to rising oil prices – that’s not reflective of demand, that’s reflective of the speculation – inventories are up and demand for oil is still down.

And what do you know; import prices are rising sharply on the back of speculation in oil. We went very quickly from deflationary prints to year over year numbers that are looking not very well contained – export prices up 4.7% yoy, and import prices up a mind numbing 11.4% yoy. Note that the things Americans are buying from overseas are rising way faster than things they sell to overseas. What does that tell you about YOUR purchasing power?

Highlights
Import/export prices are offering an early but still mild signal of oil-related pressure. Import prices rose a sharp 0.7 percent in March and reflect a month-to-month 4.0 percent swing higher for petroleum prices. Fuel costs accounted for about 80 percent of the month's headline increase. Oil prices have continued to rise so far in April with gasoline costs for instance up roughly 2.5 percent from this time last month. Year-on-year, import petroleum prices are up 70.2 percent.

So far there's been no indication that businesses have the pricing power to pass through rising fuel costs to their customers. But today's report includes an unusually steep 0.3 percent rise in import prices of consumer goods (excluding autos). This is only a one-time gain at least so far and follows a 0.1 percent dip in the prior month, and the year-on-year rate for consumer prices is still only plus 0.8 percent. Also, there's no pressure evident for imported capital goods where prices fell a sharp 0.4 percent for a second straight decrease that follows two prior months of no change.

The export side also shows a 0.7 percent increase reflecting a month-to-month swing higher for agricultural prices, up 2.1 percent following February's 3.8 percent dip. Export prices of consumer goods fell 0.1 percent while export prices of capital goods reversed the prior month's decline with a 0.2 percent gain.

The price picture is still benign though any further increase in oil prices is certain to turn up the heat on FOMC policy makers who are focused on job growth, not on inflation. Consumer prices will be posted tomorrow with producer prices out next week.
There was a small movement in the McClelland Oscillator yesterday, expect a large directional move today or tomorrow most likely.

Yesterday the VIX closed beneath the bottom Bollinger Band. This sets up a market sell signal which will occur once the VIX closes back above the band. This is a rare event, one that has occurred exactly four times since August of '07. All of them have led to significant market declines. Below is a close in view of the VIX daily:



If we zoom out a little farther you will see the last time for this occurrence was back in mid-January. It closed below the Bollinger and immediately jumped back above. This led to an 8% market decline, one of the smallest declines of the past four signals:



This signal, when it occurs, may not cause an immediate market decline, it can continue to drift higher for a short time, or not. Do not ignore this significant market indicator, it has way too high of a success rate, and has even worked during this nutty ramp job of the past year.

Risk to the market is extremely high. Volumes are still nothing, and a large percentage of the volume is on trading of zombie financial institutions. The fact no one talks of them that way tells much of the story, extreme complacency. The truth is that nothing has been fixed. The banks are still toxic, they are still leveraged beyond belief, the only thing that has changed is accounting rules to sweep it under the carpet, and bailouts from the government which do nothing but produce sovereign risk.

Oh, and we’ll all pay for it – your productive efforts going to keep the banks and all the people who receive entitlements afloat. Say hello to the tax man, you know what he wants!

Monday, April 12, 2010

Martin Armstrong Update…

I just learned that Martin was released from the hole today. We had been working this behind the scenes and are pleased with his release.



Thank you to all who wrote letters to him.

Nate

Morning Update/ Market Thread 4/12

Welcome to tax week, are you aware that as you were growing up School House Rock was programming your young mind regarding taxes?



Hey, "be happy they don’t tax it all, ‘cause he’s the tax man." And since he is we’re going to be harping on him all week long!

Remember this little gift from heaven, The American Recovery and Reinvestment Act of 2009? Yeah, the one that was going to save you soooo much money in taxes that they adjusted all the withholding tables to take less out of your paycheck? Guess what, it’s now time to pay up.

After completing my 2009 taxes I can attest that they under withheld to a very large degree. If I’m even close to what others are experiencing, then expect a surge in IRS receipts and expect the consumer to have less money than they thought they did.

So you had Easter shopping come in March, that will be a drag on April, and you are going to have a big tax anchor moving forward, both as people send in what little money they possess, and readjust their withholdings going forward. This to send money to a government that passes it along to the banks who control the world and collect interest from the bonds they issue all while robbing Americans every step along the way – the Jefferson County example is a good one. Wonder why your utility bills are so high? Wonder why we are spending hundreds of billions on interest expense while losing funding for actual things that benefit the majority who comprise society?

This will all be coming to a head soon. The math that was created is quite literally impossible and it won’t take many more years of this type of action to produce some pretty wild results – as if watching the markets cliff dive and moon shoot isn’t wild enough. I can tell you that from my perspective it is intolerable already and quite apparent how working Americans have been turned into little debt/tax slaves. All that School House Rock programming is going to come undone. Look no further than the activity of groups like TaxFree15.com and you’ll see that there are groups actively working to wake people up.

For those that can handle reality, I will blow your paradigm by stating that under a proper sovereign money system there is no need for income taxes at all. I know that sounds nutty with our conditioning that we’ve all been exposed to, but it’s the truth and someday when I have a few more hundred hours left over, after spending days calculating what I owe the tax man, I’ll write about it and why that’s true.

Equity futures jumped yesterday on the supposed arrangement of bailout money for Greece. Well, that they don’t really have an agreement came out later, just another little detail to go with the fact that Greece said they need twice as much as they were talking about anyway. And the one question I never hear asked by anyone is where do the bailout funds come from? Everyone is led to believe that the banks just have billions laying around in order to “bail out” someone. Ah, that’s not the way it works. “Bailout” money is generated simply by generating instruments of indebtedness – bonds. New bonds get stacked on top of the old bonds, prior debt instruments that got them into trouble in the first place, only at a higher rate of interest this time. Oh yeah, it’s reaaaalllly hard to see who wins and who losses playing that game. The Greece, the PIGS, or any country including America is nuts to play that game – not that it can continue too much longer.

No meaningful economic data is released today, later in the week we’ll get some inflation data, Citizen Confidence, Retail Sales, and importantly International Trade and TIC flows. Today opens the Q1 earnings season, Alcoa is first at bat and there will be a lot of large companies reporting all week. Remember that year over year comparisons are going to be easy, but there are huge anchors, like taxes, that are going to be weighing on consumers going forward. And the pressure on the debt markets is going to be simply unrelenting. This will continue to pressure taxes upwards and the real productivity of America downwards.

Turning to the markets, the dollar has broken beneath its upchannel and below its 50 day moving average for the first time since early December. The Euro is up a very large amount, debt on top of debt, oh yeah, that’s going to work out well. Meanwhile our long bond has risen back above its large neckline.

The markets are pressing up against very heavy resistance. The wave B rising wedge has given way to a large megaphone and we are pressing the upper boundary of that now. The 61.8% retrace of the entire bear market decline is in the DOW 11,100 to 11,200 area and for the SPX it’s just above 1,220 – not far from where we are now:



Everywhere I look it’s a mess. City, County, State, Federal governments – deeper in debt forced to look for higher taxes and cuts. Commercial Real Estate still a mess. Residential real estate, a complete disaster and going to get worse with Option ARM resets in progress and much larger numbers coming. Financial sector that is INSOLVENT were it not for false accounting and mark-to-fantasy. Higher energy costs, insolvent retirement plans, broke entitlement programs, sky high but under-reported unemployment, misreported economic statistics, a media that no longer performs its watchdog function and can’t even tell the truth, co-opted government. Man, do I sound like a curmudgeon or what? Too bad that’s simply the truth, handle it or not. Either way get ready because here comes the tax man!




Artwork by AZ Rainman

Sunday, April 11, 2010

Uncle Jay Explains the News...

It's time once again, boys & girls, for Uncle Jay to explain the news...

Matt Taibbi with Max Keiser – The Crimes of Jefferson County

Zoom the video ahead to the 11:10 minute point to hear Matt Taibbi talk about his investigation into Jefferson County, Alabama.

What occurred there with the investment banks (JPM) was nothing short of the breakdown of the rule of law instigated by the same organizations who are basically running this country. This is a terrific example of the type of project that a State Chartered Bank could finance forcing out the criminals who prey on municipalities like Jefferson County. Again, the lesson to learn is that WHO controls the money is far more important than WHAT backs it.

Send the central bankers packing, support Freedom’s Vision and FIRE THE FED.