broken government walking

Print Page

In this post you will find information about:

Economy
-Dead man or dead government walking, an essay from Sprott
-An overview from www.shadowstats.com
-World recession status map from Dismisal Scientist Economy

Gold
-my musings about last weeks action
-Richard Russell opinion

FED
-my musings about a FED audit

Banks and Banksters
-my musings about the high leverage banks run
-CIT and Capmark Financial two mines the blew up
- About Goldman and the way they made their profits
-GMAC needing more money

Equity
-my musings
-comparison to 1929
- FED having given Carte Blanche to primary dealers
-my musings about being programmed to believe that stocks prices only can go up
- Wall Street's Naked Swindle

Hyperinflation
- James Turk, Hyperinflation watch

Derivatives
-video about derivatives, black box pools

Commodities
-overview



Before going to the excellent must read essay from Sprott Asset Management, as usual the overview from www.prudentbear.com

For the week, the S&P500 sank 4.0% (up 14.7% y-t-d), and the Dow declined 2.6% (up 10.7%). The Banks were hammered for 9.1% (down 4.7%), and the Broker/Dealers were hit for 5.5% (up 44.4%). The Morgan Stanley Cyclicals fell 9.2% (up 49.1%), while the Transports dropped 5.0% (up 2.2%). The Morgan Stanley Consumer index declined 3.2% (up 15.2%), and the Utilities fell 3.6% (down 4.1%). The S&P 400 Mid-Caps declined 6.0% (up 22.5%), and the small cap Russell 2000 fell 6.3% (up 12.7%). The Nasdaq100 declined 4.9% (up 37.6%), and the Morgan Stanley High Tech index fell 4.9% (up 51.5%). The Semiconductors dropped 6.3% (up 39.8%). The InteractiveWeek Internet index sank 5.1% (up 58.7%). The Biotechs fell 6.4% (up 26.9%). Although Bullion declined only $11, the HUI gold index was hammered for 9.1% (up 29.3%).




Economy

Dead man or dead government walking
Well dear reader, please do read the essay on the following link. The information and analysis is excellent. In my opinion it is a clear must read.
http://www.sprott.com/Docs/MarketsataGlance/MAAG_10_2009.pdf




I do hope that you still feel like going ahead with your reading.

From www.shadowstats.com
Economic Outlook Update: Economy Remains in Severe Recession. The general outlook for the U.S. economy continues to be for severe contraction, with the worst still ahead. The downturn will remain generally unresponsive to traditional stimuli, other than as seen in occasional blips from government giveaway gimmicks. The business contraction is structural in nature, tied to a lack of real growth in consumer income and liquidity constraints from contracting consumer credit. As a hyperinflation unfolds, the current circumstance will evolve into a hyperinflationary Great Depression.



Following you can find the world recession status map from Dismal Scientist Economy.com (http://www.dismal.com/dismal/map/default.asp) indicating the health of the world economy. Although as we know the information is based on numbers that are managed and do not show the real picture, it is interesting to compare countries or regions.


Click on the following link to get to the interactive world map
http://www.dismal.com/dismal/map/default.asp




Gold (http://en.wikipedia.org/wiki/Gold)

The fluctuations of the gold and silver exchange rate over the past days, has been considerable. Gold for example fell from USD 1,070 per ounce to 1,030 and silver from almost USD 18 per ounce to the low 16. How could that happen? I got some mails on Monday asking me what the reason for lower prices were. To those that have sent me a mail I answered that the price move is not unusual. The reason for that was that there was an option expiry day on Tuesday last week. The Gold cartel banks (JPM, HSBC etc) had huge outstanding positions of written calls on gold and silver. In order not to have to pay huge amounts to the holders of the call options it was very important for the cartel banks to push prices down in order to have the gold and silver price below important option strike prices which were between 1,040 to 1,070. With a price slightly below 1,040, the cartel banks achieved a small victory in the battle for the control of the gold price. If the price behavior over the past couple of months is an indicator, we now can expect the gold price to shoot up to a level above 1,100 (maybe up to 1,150), another attack of the cartel shortly before next option expiry day and, once the expiry day has passed, another move up to a level close or above USD 1,300 per ounce. Anything else would be a surprise.

Following some more information about gold:

The venerable Richard Russell, whose understanding of sentiment is similar to mine:
I get a kick out of advisors who have taken their subscribers out of gold. These advisors are chagrined, annoyed, and angry at the sight of gold slowly rising to new record highs. A trend tends to continue until it is reversed. The "gold-grouchies" don't want to believe that old truism. They are saying that gold is overloved, gold is overbought, gold is close to a top-out, the dollar is ready for a big rally, the central banks will "knock" gold down. The gold banks will kill gold. The Commercials are ready to drive gold lower.

Frankly, I don't give a damn about what the frustrated gold-philes say or predict. The steadily rising gold continues to torture those who have jettisoned their gold. 

These people are torn between two thoughts. If gold continues to climb, should they swallow their pride and just jump back into the gold market, regardless of the price. Or should they just admit that they screwed up and forget about gold and turn to another asset or stock? 

I'm convinced that gold is in a bull market. I would never get completely out of a bull market, particularly one that is not finished (where's the third phase of this gold bull market?) When the speculative third phase finally arrives, you will see the real "gold fever." Many of us saw that fever in late 1978 and '79. I think we'll see it again, when the public finally decides that gold is the place to be. 

In the meantime, beware and stay out of the dreaded gold relic. What? You don't believe me? Then read the article in on page 39 of the current (Oct.26) Fortune magazine by Scott Cendrowski. The article is headlined, "Beware a Gold Bubble -- The run-up in price to more than $1,000 an ounce has investors excited. But market fundamentals point to a decline." By the way, who is Scott Cendrowski? That bubble he's warning about may really be in Cendrowski's head.


FED

Well dear reader you certainly came across the news that some of the congress woman and men in the US want an audit of the FED. The FED itself tells everybody that an audit would threaten it’s independence. Well for me the concept of an audit threatening independence is kind of new. I never heard that a company that was audited has lost it’s independence unless the audit showed or brought to light illegal activities that had to be stopped by the authorities. So I really do wonder why the representatives of the FED argue that an audit could threaten their independence? I mean if their activities are according to the rules, which should be expected to be the case, there is no reason at all to be worried about an audit. Is there?


Banks and Banksters

I might already have mentioned in one of my past posts that especially the big banks are highly leveraged. Meaning that they run a leverage of higher than 60 if one does include the off balance sheet items. That is highly speculative. As James Turk says, in the old days a sound bank lending policy was to use a leverage of 6 (the very aggressive banks had a leverage of maybe 10 but not 60 or even more). A leverage of more than 20 is already highly speculative. With a leverage of 20 a 5% drop would erase the banks capital base. Having those big banks with leverage numbers considerably above 20 I think it is a save guess that the government has soon to step in again in order to bail out most banks and especially the big ones.

CIT
Over the past months I have several times warned about being in a minefield with many mines that did not blow up yet but could do so at any time. The CIT bankruptcy is certainly one of those mines. What impact will the CIT bankruptcy have? Apart from being or having been a very important lender to small and midsize companies and therefore very important for the overall economy, CIT was or is as well the most widely held Euro CDI Reference Obligor, held by 1,053 CDO’s which is 66% of the total.

Some more information about CIT
http://gata.org/node/7962

Another mine that blew up already and whose impacts might be felt soon is the bankruptcy of Capmark Financial. Capmark was THE ring leader in the Commercial Real Estate derivatives markets. According to a contributor to www.lemetropolecafe.com, the key to all this is that the Commercial Real Estate Derivative market is now IMPLODING. This contributor opines that The Commercial Real Estate derivatives are the largest and most structured of all the derivative products. He refers to a 2007 presentation at a Mortgage Bankers Conference which can be found on the following link.
http://www.mortgagebankers.org/files/Conferences/2007/CREFFebruary/DarrenEsser.pdf

My guess is that sooner or later, possibly in a couple of days, we might feel the impact of these troubled companies.


About Goldman and they way they made their profits.

How Goldman Sachs Leveraged $70 Billion in Government Money For Record Profits
"Guess which two Wall Street banks were acting as informal agents of the government in order to support the bond and stock markets and reinflate them?



Two big banks that are showing record trading profits, and a small group of enablers and assistants.

Exchange Stabilization Fund - wise, its a near layup when the US fronts you the money and then works with you to take the markets higher. Especially when it is on thin volumes based on 'news' which you help to create and control via frequent calls to young Tim who is your coordinator, in addition to all your other well-placed backchannel sources. You get a heads up, you use the futures to prop the markets. You need some good news, some can be arranged. Just like the good old days when Timmy was riding herd on the NY Fed desk."
http://jessescrossroadscafe.blogspot.com/2009/10/how-goldman-sachs-leveraged-70-billion.html

and
Dylan Ratigan: Goldman Sachs' Black Magic, Here's How They Did It
Here is the Goldman, Sachs & Co. revenue break down for the past 3 months:

Financial Advisory-M/A: 325 million.
Equity Underwriting: 363 million.
Debt Underwriting: 211 million.
Trading-Principal Investments: 10 billion.
Notice that 10 billion is much bigger than two or three hundred million made from the traditional Wall Street businesses.

That $10 billion is evidence of their magic trick. For we the taxpayer gave Goldman Sachs the following:
10 Billion in TARP
11 Billion from the Fed
30 Billion from the FDIC
13 Billion from AIG



October 28 – Bloomberg (Peter Eichenbaum and David Mildenberg): “GMAC Inc., the lender that received two government bailouts totaling $13.5 billion, is in talks with the Treasury Department to receive a third lifeline… The U.S. government may inject an additional $2.8 billion to $5.6 billion into GMAC…”



Equity

I do expect a correction and it seems that we have seen the top of this move up. However I do expect the government to step in again once we see a close in the DJI below the 8,000 mark. Printing money (Quantitative Easing) will therefore not stop soon as the newly created monies will be needed to prop up the markets again. Yes the equity market is expensive. Prices are too high. A correction down to a level below the 6,000 mark we saw at the beginning of the year should be expected but with the government that will not allow to market to fall to a healthy level, I do, as mentioned, expect the government to spend lots of money to support the market. If you follow a strategy to short the market, which would make sense, I suggest to put stop-loss orders to avoid possible losses. Although the government has enormous troubles they still seem to have some sufficient gun powder to inject cash in order to support the markets.

Some more information about the stock market.
On Oct.23 there was the 80 anniversary of the 1929 crash. To look back please have a look at the following video
http://video.google.com/videoplay?docid=7233622324068640582&ei=ptXfSvfLBMSXlAef7pWGDQ&q=great+crash+of+1929&hl=en#

does some of it sound somehow similar? Following some more information about that time and about the Kondratieff cycle
http://themusingsoffritz.blogspot.com/search?updated-min=2007-01-01T00%3A00%3A00%2B01%3A00&updated-max=2008-01-01T00%3A00%3A00%2B01%3A00&max-results=33

Zerohedge.com website has published a long piece arguing that last year
"the Federal Reserve effectively gave a Carte Blanche to primary dealers to purchase any and all equities they so desired, with such purchases immediately being funded by the US taxpayer, via the PDCF. In essence, this was equivalent to the Fed purchasing equities by itself through a Primary Dealer agent."
The cheerful conclusion is that because of
"the Fed's, up to now speculative, and hereby confirmed, willingness to (in)directly manipulate equity markets via its Primary Dealer network… it is obvious that banks will manipulate stock prices to the point where nobody but other Primary Dealers who enjoy the same Fed backstop benefits will remain in the market… Zero Hedge advises all readers to immediately remove all their capital from the stock market, until such time as proactive steps are taken to remedy these numerous concerns, or alternatively suffer the consequences of not only another Fed inflated market bubble, but the even sadder consequences of its unwind."
See
http://www.zerohedge.com/article/overview-feds-intervention-equ
ity-markets-primary-dealer-credit-facility



Being programmed
Well it seems like most of those that call themselves investors, although to me it seems that most market participants are rather speculators than investors, have been programmed by the prosperity bubble of the last 60 years (1946 to 2006). The prosperity bubble of the last 60 years led to a general sense of peace and prosperity for the Western world. This bubble leads people like Warren Buffet to stay course and remain invested fully in stocks. This resulted in a loss of 10 billion USD over the past 2 years. Warren Buffet and his followers and the general public became programmed to believe that the US markets always recover following his long term “value investing approach” which assumes that there will be value in the decades to come. But is that the strategy one should follow? What if things simply have changed? What if there is no more value? What if the US will have to suffer two lost decades as for example Japan did over the past 20 years, or if the US does even worse? Well as mentioned before, the market is too expensive that alone looks like being an indication that the value approach might not be the correct approach to follow. Furthermore we should not forget that 70 million baby boomers (all of them programmed to believe that one should be fully invested in stocks) are already or are close to retire (if they still would have sufficient savings to do so). Although these baby boomers are programmed to endure any market crash, they will have to sell on a monthly basis part of their (hopefully still existing) 401K or other investments in stocks in order to pay for their living expenses. This will mean a steady ongoing sale of stocks. What will happen when these baby boomers do want to start to use their investments to cover their expenses and the stocks they hold will have no value and have far less purchasing power? Maybe these baby boomers are somehow a bit too overoptimistic. Maybe it is not the time to be complacent and overly optimistic. So what will happen when these baby boomers or all those that are programmed in the same way will wake up? What will happen when these people will find out that the 60 year prosperity boom in equities has ended? Well maybe the reputation of the “Sage from Omaha” might suffer somehow in the years to come.
Of course, the QE or money infusion from the government might alleviate this situation. However although stock market prices might go up over the coming months and therefore it might seem that new wealth is created, we should not forget that purchasing power will not increase at all and in fact will decrease considerably. Meaning with other words that all those programmed people happy to maybe see higher stock prices will find out soon that they will not be able to buy the same amount of goods as before and will not be able to maintain their living standards.

Wall Street's Naked Swindle
A scheme to flood the market with counterfeit stocks helped kill Bear Stearns and Lehman Brothers — and the feds have yet to bust the culprits
On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — "like buying 1.7 million lottery tickets," according to one financial analyst.
http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle/1


Hyperinflation

James Turk, Hyperinflation watch
http://www.fgmr.com/hyperinflation-watch-october-21-2009.html


Derivatives

An excellent video about derivatives, black box pools, market manipulation and so on.
http://video.pbs.org/video/1302794657
a must see video in my opinion


Derivatives Bill Amended To Let Big Banks Keep Some Contracts Secret
Read more at: http://www.huffingtonpost.com/2009/10/21/derivatives-bill-amended_n_329382.html

Do Naked Shorts make up half the entire US stock markets?

The following is from www.lemetropolecafe.com
Quote
it seems like Matt Taibi's latest article in the Rolling Stone has reminded everyone that we still have a problem with naked shorting with the SEC being the biggest joke in town. Jim Puplava did a great Crime of the Century series of interviews last year with the likes of Bud Burrell and Patrick Byrne.

I would advise anyone who missed them to give them a listen to get just an inkling of the systemic corruption that pervades the markets. Bud Burrell who is a very sharp guy, believes there is one naked counterfeit share for every legitimate share in the US markets. You may want to read that last sentence again. Scary indeed! Even with all the will in the world, the SEC would be farting in the wind against such endemic larceny.

HM summed up the financial mafia succinctly enough during the Madoff Testimony:
"Government has coddled, accepted, and ignored white collar crime for too long. It is time the nation woke up and realized that it's not the armed robbers or drug dealers who cause the most economic harm, it's the white collar criminals living in the most expensive homes who have the most impressive resumes who harm us the most. They steal our pensions, bankrupt our companies, and destroy thousands of jobs, ruining countless lives." - Harry Markopolos in Congressional Testimony 

Links:

Jim Puplava's interviews with Bud Burrell:
12 Jul 08 http://www.netcastdaily.com/broadcast/fsn2008-0712-2.mp3
11
Oct 08 http://www.netcastdaily.com/broadcast/fsn2008-1011-2.mp3


Puplava interview with Patrick Byrne:
http://www.netcastdaily.com/broadcast/fsn2007-0331-2.mp3
and slide show
http://www.businessjive.com/nss/darkside.html


Bloomberg naked short expose:
Bloomberg Special Report - Phantom Shares http://www.youtube.com/watch?v=7fcre8P2UUY


Commodities

October 28 – Bloomberg: “China Investment Corp., the country’s sovereign wealth fund, said it has $110 billion for overseas investments and will focus on buying into commodities companies and property as a hedge against accelerating inflation. ‘Now we are seeing expectations of medium and long-term inflation, and the value of major currencies may have to fall to a new equilibrium level,’ Chairman Lou Jiwei told a forum… ‘Investing in major commodities can be a hedge. So is investing in real estate.’”

October 28 – Bloomberg (Luzi Ann Javier): “Rice prices may return to record levels as bad weather curbs output in major growers and forces some nations to accelerate imports, a Philippine minister and the U.S. Rice Producers Association said. ‘We are not very far from another rerun of 2008 prices,’ Arthur Yap, the Philippines’ Agriculture Secretary, said… Higher oil prices may push up fertilizer costs, boosting prices further, he said.”


Print Page