Saturday, October 24, 2009

JP Morgan - Setup the Depression - Low standards in high places

JP Morgan was one of the main manipulators installing the Federal Reserve and beginning the great credit inflation era. In addition, JP Morgan was one of the largest margin lenders of the time. And encouraged the credit fueled orgy of the 20's.

The irony is that JP Morgan and the Fed along with selected buddies have done it again. They have created the new instruments of death - the very same conditions they took advantage of in the 1920's to set up the great wealth transfer of 30's.

This is a great documentary by the BBC...a must watch.

The video is in 6 sections...they should load automatically. If that is not the case for you, I have posted the individual links below.

Part 1

Part 2

Part 3

Part 4

Part 5

Part 6

To watch a full video at higher quality you may want to install the veoh player and play the video below. This is an easy install and not dangerous for your computer. veoh is a great site and the video quality is much better than youtube.

1929 - Great documentaries

Steve Meyers Interview - Interesting...

I am not sure what he is REALLY looking for regarding the dollar...but it seems he is looking to see if the unit can rally or not...and then make a determination. I see very little case to support a collapse of the dollar. Too many people are looking for it. I guess there is some chance that the dollar could selloff and the market could sell off - which would likely indicate a hyperinflationary condition. He does spend some time on this outlook which does not have much of a shot to me...For oen, hyperinflation is much too obvious a trade at this point. I do think hyperinflation will happen once the fiat system fails, but relative values will be more appropriate then and fiat currencies will end up being replaced. This looks to me to be sometime in the next few years - sometime in the 2012 to 2015.

This video is a "First Baptist" production. I do not like to mix religion and economics and am not affiliated with them in any way. I do think ironically, that there is some religiousness to the attraction of people to the long Gold mentality. I, for one, am not of that view. I believe that the most Armageddon type scenario would be a hyper-inflationary depression....which is why its attractive to many at this point. Gold fits nicely in that view.

I believe that a hyper-inflationary depression would ultimately lead to much more wealth destruction and futher undermine appropriate relative values. This would be catastrophic. A deflationary depression on the other hand, while catastrophic also, would be serving a practical purpose in purging the system and ushering the return to a real-value basis for relative values. This would end up improving the very long-term prospects for individuals and businesses. Keep in ming that "Very Long-term" part.

Short-Term Dollar Chart - but still unfinished business

Below is a chart from Mathew Fraily from yesterday...its great chart of the short-term dollar

Please see his blog: here

and here is an updated view version from today

Interestingly, in my brief look at the dollar today, since it is the main symbol I watch these days, looks like it could have a continued near-term bounce...but it still looks like it has work to do on the downside to create an emotional bottom...this is also reinforced because Gold, Silver, Oil, DBA and some other commodities look like they still have an up move left. Gold targets 1085 to 1090, DBA 27.8 to 28 and Oil 87 to 90. Perhaps we get a gap down in the equity markets and a rise in the dollar on Monday am...followed by a chaotic few days of trading with big reversals. I do think that a new low in the dollar will not result in a new high for most of the equity markets...but commodities look like they will be more sensitive to the move...and could produce nice parabolic type tops.

If there ever were contrarian indicators, they are popping up all over the place, Saudi Arabia, Faber, Weiss to name a few recent ones. Now, Lazard, ostensibly for marketing purposes, is changing currency denomination for their World Trust Fund to Pound Sterling. Anytime the basis for a decision is mass market perception - you can count on one thing. Its popular and wrong.
Change of share trading currency and proposed sub-division
In response to comments from a number of shareholders and potential investors in the Fund about the liquidity of the Fund’s shares, the Board, having consulted with the Fund’s brokers, Arbuthnot Securities, believes that having a larger number of shares in issue with a lower share price than at present and changing the currency in which the shares are traded from US dollars to Sterling, should assist in improving the marketability and liquidity of the Fund’s shares and support the attraction and retention of a diverse shareholder base.
Change of share trading currency – the London Stock Exchange has confirmed that the currency in which the Fund’s shares are traded will change from US dollars to Sterling with effect from 8.00 am on Friday 30 October 2009.

Friday, October 23, 2009

When Sheila Bair has to publically reassure us...

1. There is a problem she is not telling us about
2. she is playing the party line
3. she is close to running out of money

When Sheila Bair tells us that the FDIC is adequately funded:

1. is she actually reassuring us that there is plenty of money?
2. is she lying to us for our own good?
3. is she attempting to instill the state that created this mess - complacency?

Well, the answer is: ALL OF THE ABOVE and then a FEW...

Given the statements made in this video and the misguided effort to release it - it indicates that Sheila Bair is either a liar or a hack. But, I suspect the qualifications to be an accomplished hack would be to to be an accomplished liar.

Lets examine this.

The FDIC does not have adequate funding nor does the Treasury have 500 billion to lend to the FDIC. For that to occur the debt ceiling for the US will need to be raised...hence the need for the FDIC to borrow money from banks like JPM, Well Fargo, BAC directly.

Additionally, Sheila Bair states that she has asked banks to prepay premiums for the next three years in advance. I can tell you one thing, if my insurance company asked me to pay three years in advance, I would be very unhappy and deeply suspicious. Without some sort of compensation I would refuse. Additionally, if she thinks that it is reassuring for people to know that the FDIC needs to ask for three years of premiums in advance - I think she is mistaken. What's next, asking for 10 years of premiums? Why not 20 years? And what do you do next year when all the premium has already been paid in advanace? This is a game of musical chair shells. First, distract them with the music. Second, the slight of hand. Third, the change in strategy and finally followed by the trick - no music, no magician, no chair, no seat and no shell. But my question is, what happened to the last 75 years of premiums? There have been years when the FDIC miraculously abated any premiums since its reserves were supposedly met with credit from the treasury and premiums already on deposit. But, even in that case, how could the FDIC possibly be so mismanged that they need special premiums now? If the FDIC can not run itself, how can they manage a confidence game and ponzi scheme. (Please see my previous articles below regarding the FDIC)

Additionally, she indicates that the FDIC has 42 billion of reserves. Raising an additional 45 billion from advance payment of insurance premiums should do it right? Well, 89 billion, (according to her math) is still a small number especially given that they figure their projections based on $100,000 coverage per account even though they insure $250,000. This is the case, since the 250,000 number is supposedly only temporary so they can just ignore it for budget and accounting purposes...I think their math is fuzzy - to say the least. Incidentally, their reserve number is NOT the number that I come up with.

As if that is not enough, just how many banks does Ms. Bair expect to fail? Remember that IndyMac wasn't even on their list 2 weeks before it failed? Well, I will hazard a guess. There will be thousands of the 8,200 banks in the US that will fail... I will not be surprised with up to two thirds of our banks failing, given the counter-party defaults and liabilities of the the banking system as a whole. More importantly the riskiest banks are the largest ones - you know, the ones that the FDIC is planning on borrowing from...and, ironically, can least afford to support.

Sheila Bair, in my opinion, IS a hack and a liar. Her reassurances aside - the reality is that people will loose lots of pennies (lots and lots and lots of them) because of the FDIC, the ideal that it has fostered and is seeking to further - complacency.

see also: FDIC, is rapidly running out of money because of a wave of bank failures and FDIC incompetence - where did all the money go?

Art Cashin Interview

What is interesting is what he is NOT saying but is between the words. He is obviously keenly aware of the dollar issues and probabilities of deflation...I like Art. Like most, he was early in looking for this market to consolidate or roll over...but at least he's good company.

Dow adjusted for inflation

For some long-term perspective, today's chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s. Also, the inflation-adjusted Dow is now a little more than double where it was at its 1929 peak and trades a mere 51% above its 1966 peak – not that spectacular of a performance considering the time frames involved. It is also interesting to note that the Dow is up 54% from its March 9, 2009 low which is actually slightly more than what the inflation-adjusted Dow gained from its 1966 peak to today.

Thursday, October 22, 2009

Market Observations - Unfinished Business

As I repeated over and over...the dollar is the arbiter of the markets. The market is trading off the fumes of the burning dollar. If the dollar weakens, the markets rise or bias to the upside. What I have noticed of late, especially with the more speculative indexes such as the Russell, NDX, Nasdaq and Mid Caps, is that they have become less sensitive to the selling machinations of the dollar with the exception of when it strengthens. This is a sign that the rally for equities is fading and the failure of the dollar is also losing momentum.

Today was all about the dollar and until we see the dollar index capitulate, most probably to the 74.5 to 74.3 area...the market will not break down for anything more than a correction. It is absolutely stunning that a 4 day outside down day key reversal can be reversed by relative value dollar movements so easily.

I will post charts later. Needless to say, I am getting very bullish on the dollar here. I am not currently long the Dollar contracts but will go long once something concrete happens.

From the Press: As the Dollar Sinks, Oil Skyrockets

Interesting that they notice the Oil Skyrockets after its already up 15 bucks! Be careful, oil rally is getting mature.
As the Dollar Sinks, Oil Skyrockets
HOUSTON — Crude oil soared to close above $80 a barrel on Wednesday, breaking that psychological barrier for the first time this year, despite weak global economic conditions.
Prices have been up in 9 of the last 10 trading days, owing at least in part to the slide of the dollar. Many oil analysts predicted that prices would continue to rise in coming weeks and could reach $100 a barrel by early next year.
“Oil is just flying,” said Phil Flynn, senior market analyst at PFGBest Research, a futures trading firm. “It’s off to the races.”
Analysts said rising oil prices reflected confidence that the economy was beginning to rebound from a deep recession, as well as higher demand from refineries for superior grades of oil that were cheaper to refine.

Market Observations - Not Pretty - Warning Shots

Apparently, JP Morgan and Goldman Sachs need to sell some of the assets that they acquired using those hundreds of billions of dollars of crony capitalism supplied dollars they obtained through the manipulative tactics of their friends at the Fed and Treasury. Not satisfied that that money was enough, they leveraged up even further - so they could invest even more in risky assets and further the confidence game. Duping american investors and public out of more of they're money is a favorite past time for these guys.

Are assets really risky if you and your friends own most of them? Certainly JPM and Goldman prove the axiom that if you own the market, which these participants alone most likely owned, at the very least. a significant percentage can squeeze prices up and then you can tear them apart when you are good an ready. Mind you I am not here to spout conspiracy theories...these guys are so flagrant do they even count as conspiracies? So, back to the mundane, while Goldman MAY actually survive the upcoming catastrophe, JPM will most likely not. Regardless, remnants of most of the financial firms will certainly exist, but the firms will be shells of their former selves and the economy will likely be significantly damaged by their demise and misdeeds.

Fittingly, financials topped in ironic fashion earlier in October...with an island top. Financials are indeed in need of an island, Rikers Island would be appropriate for the gamesmanship they have demonstrated this year. All the earnings reports from the largest banks inspire distrust and are absent integrity...we will have to see how that flies. In any case, I am happy to report that JPM has more than enough money to lend to the FDIC to bail itself and most of the other banks that will fail out.

Back to the markets, today may not be classified as a confirmed failure for the transports...but a break of 3890 will do so. the SPX closed beneath a recent sell level at would not be surprising to see some sort of a test slightly above those areas...but I certainly am under the impression that the buy side is extremely dangerous at this point. My diatribe above was important in understanding the motivations of the sellers at this point. The sellers are the largest banks. They MUST sell...given the profits they have made selling will not be ruled by trying to eek out little profits...they already have big ones...they do not have to be choosey about prices. When you are liquidating trillions of dollars of leverages purchases, it takes time and the average prices are more important than any single price. Though there may be attempts to retain prices supports to allow higher priced distribution, there is a dramatic need for these institutions, who misused the benefits of America's money, to get out stage left. The specter of this dynamic means that we have to on guard for waves of downside pressure - probably much more persistent than in last years bear market moves.

Another interesting leading indicator for the markets is the Canadian Dollar which has failed its breakout...something to keep a close eye on.

There is unfinished business - potentailly a remaining pop to the upside for commodities. Gold needs to reach its target of 1080 to 1085, Oil should still make an upside push to the 85 to 87 area, Silver looks primed for a little up move. The dollar looks complete, but also looks like it needs to get that emotional drop below 75 convincingly. As seen today, a dramatic drop in the dollar is no longer fuel for rising equity prices.

So, what I am looking out for are small upside tests for equity markets followed by larger downside swings. There could be some unfinished business with regard to the per my usual comments - the dollar rules this game. I suggest having extremely disciplined rules for selling resistance and only buying support when its absolutely clear. It is important to recognize, that this type of market has the possibility to not let you in. Everyone is waiting for perfect backtests, retracements and kisses as in the LQD chart above. There is no guarantee that equity market need to give that courtesy. LQD has been breaking down for a month now, unconfirmed by equities. It may be time for some acceleration. Perhaps, some convenient excuses will come out this week - like MSFT earnings on friday.

Personally, I will be extensively using trade automation to trade the upcoming turbulence. Today, in fact, I released a price quantization system with extensive risk controls that absolutely killed it on the CL contract - up $3000 on a single contract today alone.  I think mechanical templates can be a tremendous support for managing emotions during extreme and persistent repricing episodes...especially if you are lucky enough to be able to build some good ones...or get your had on some.

Wednesday, October 21, 2009

Tuesday, October 20, 2009

Elliot Spitzer talking about Fed conflicts

Spitzer, rightfully, rails on Geithner and the conflicts created by the Fed being owned by the banking system. This is an interesting watch.

Spitzer does not totally get it, but at least he basically gets it. China's economy btw, to correct him is not booming...its running on methamphetamine fumes...and the vapors are both poisonous and about to stop. Withdrawal will be very painful for china and anyone who invested there.

Market Observations - Apple and Goliath

Similar to the 2007 high Apple has created a high level of excitement. Apparently enough that most people I saw on CNBC are screaming..."the coast is clear. You have to commit capital to this market." Well, if you look at the chart below of QQQQ, I am pretty sure that you can guess when the last time was that these very same words were being plastered all over the financial media based on Apple's results. If you guessed Oct 2007 - you would be right. That resulted in a throw over of the multi year channel. Followed by a failure and a retest where a new high in Apple shares was not confirmed by the Nasdaq 100 or the Composite. We are at different degrees of trend now, so the QQQQ's may only be confronting that lower uptrend line. But in any case, the optimism is the same. Over 90% bulls in Oct 2007 and over 90% bulls in 2009...with an Apple earnings pop. Very dangerous times for a long if history is any guide.

Additionally, the SP500 only needs one more wave to complete 5 up into the gap zone and the dollar only needs that push down under 75 to complete the wave patterns. Ideal ending points for the dollar is 74.62 and SP500 1,100 to 1,120. Just to reiterate, ideal levels are does not follow that we have to reach them, we are already within appropriate tolerances.

I would be on guard for a reversal tomorrow...and if a reversal were to occur tomorrow or wednesday - it would most likely be the top of the entire rally...finally.

Sunday, October 18, 2009

Dr. Morris Cerullo - Minister, Evangelist - Socionomist?

Morris calls himself a doctor. He created a ministry for which he accepts donations via informercials. And, if you see these informercials you think - "Only in America". In any event, he seems to have capitalized on the negative social mood in rather a timely manner - namely right at the bottom - in March. I guess he must have sold all his stocks then. At that time, considering his potential of capitalizing on loss (his and everyone else's), I imagine he came up with the idea for the "Financial Breakthrough Bible". In any case, I think this video is a telling statement about our times and certainly our social mood. Right now his special promotion of the month seems to be "Debt Cancellation". Interesting...Funny...Sad.

Morris Cerullo is an ordained Assembly of God Minister and Healing Evangelist. His personal ministry mansion and two-story home is over 12,000 sq ft. It is behind two secured gates in the richest neighbourhood in America and has been estimated at over $12 million. Mr Cerullo and his wife are the only two that live there, and report that they are on the foreign field 70% of the time... what a waste of God's money!
Cerullo refers to himself as `Dr. Cerullo,' although he does not have any degree earning him this title," says Lundy. "He runs MCWE from offices in San Diego, which he calls `mission control,' but he does not serve as the minister of any physical church or congregation." Cerullo raised millions of dollars and bought the defunct PTL Network, theme park and conference grounds from bankruptcy court after Televangelist Jim Bakker's career ended when he was convicted and sent to federal prison for fraud."
Morris Cerullo's sky limousine, a Gulstream G4, is estimated to be worth $50 million. He has two full-time pilots and a stewardess who said in depositions that the plane has a gold-plated interior. He has had three similar private jets since.
A Cerullo Story
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