Thursday, December 23, 2010

Crimes of the state just like debt can not be healed by more of the same

Visit for breaking news, world news, and news about the economy

Weekly and Daily systems are short right at major resistance

As I indicated previously the weekly systems are also short and we are short silver, gold, euro, and the equity markets.

Merry Christmas and happy new year.

Saturday, December 18, 2010

180 Degrees - its getting hot out there

I did these interviews with Douglass in the first few days of November before the fed announcement regarding QE. It is important to understand the spirit of the conversation is casual. The goal is to educate people in general terms regarding what is happening in the financial system and to empoer or inspire them to figure out their own way. Understand that the achievement of life's goals means having the courage to use its dissonances as trigger points and inspiration and to focus on tyring to keep things simple.

Right now there are quite a lot of manipulators looking to confuse as many people as possible. Just look at the ridiculous interview that Ben Bernanke did on 60 minutes. Keeping in mind that a bear market's objective is that nobody wins,  means that it would be especially important for one to be flexible practical and not suceptible to stepping in front of traps. The last section of the interviews discusses the power of dissonance and looking at a 180 degree different view has enabled very powerful results in my work. 

Friday, December 17, 2010

A discussion regarding Municipal bonds I did in mid November

Douglass Lodmell is a talented attorney with integrity and formidable experience in the asset protection discipline...I will post additional information regarding his work on this blog as I believe that things are about to get rather challenging in the economy, financial system and general governance systems - which might make now be a good time to learn about real options you can use to protect what you have.

Debt or Depression...Which one is Obama, Bernanke targeting?


I will be posting new charts and updates on my systems view of the markets. As you may be aware, I am currently short Gold from around 1400, Silver from an around 30, EURO from 1.345 and 1.41, the S&P, DOW, Russell, Mid Caps and Nasdaq back on weekly shorts with full positions at these levels. There have been quite a lot of intraday long trades but we are now re initiating weekly system reticulation short trades on these markets and have been seeing some daily system activity around these levels.

November was a fantastic month, the second biggest of the year with returns for the month of roughly 18% for moderate risk allocations and substantially higher for aggressive ones.

So, far December has been a good month for shorter term and intraday trades and now we have some swing trades running. So, we will see how those go. All in all, 2010 has been very kind to the systems and my clients. I am hoping that 2011 will continue that trend as well as being a productive and positive year for all of you. My focus is on capital preservation with a core tenet of keeping as much cash out of the banking system as possible and I really want to encourage people to investigate this.

2011 will be a very dangerous year in my opinion for the insolvent large banks of the world. The results should be rather chaotic and confusing which continues the trend of the last years. Lots and Lots of misinformation, manipulation and unknown risks. I think its time for people to start looking seriously at cash as an investment via short-term treasury bonds of US, New Zealand, Singapore and Switzerland.

Its almost time to exit stage left...

I think now is a good time to pull this oldie but goodie out...

Authenticity in motion...

Authenticity has a way of bringing us where we need to go. This would be a good lesson for our false and hollow leaders to take note of. There are things ofcourse that you can not buy or sell...

Thursday, December 16, 2010

I wonder if Hoover was referring to the same conspiracy being promulgated by Ben Bernanke with a little help from buddies in the executive and legislative branch of the Fed.

``the individual is handicapped by coming face to face with a conspiracy so monstrous he cannot believe it exists.'' - J. Edgar Hoover, 1956,

The Wikileaks and Climate Change Rap (I mean News) Report

Thursday, December 9, 2010

Mastercard, Visa, PayPal...constitutional violators canabilse themselves

The way I see it is that governments think that the masses are stupid. They think that the money they print and the liberties that they oversee are easy tools to use to manipulate and steal from their citizens. Bernanke thinks that lies and manipulations are perfectly fine and nobody will be the wiser - just as many of the other wasthington manipulators.

The reality is that people in our world know what is going on. Many people who are calling out these particular websites, and doing so with swift and powerful acknowledgement that the government initiated violations of reasonable freedoms, are not US citizens, yet they know that the behavior of government and its enablers is really really dangerous. They know that the financial system thinks that it is the government because it is...So, in just a few hours these companies Internet based connectivity to the outside world has been taken down.

This symbolism should not go unheeded. The banks, Bernanke and government officials who continue to offend basic liberties and rights will not be in control despite their presumptions that they will. Their lies will not work. These sites were taken down rediculously fast despite serious technical protections, infrastructure and preparation by these companies. None of them would have believed that this could occur this fast or on these particular sites all at once.

The irony is that the control is with the people not the government and the people know what is going on.This is an expression of that and it is stunningly clear that the nation and the world are woefully unprepared and awfully presumptuous.

Tuesday, December 7, 2010

Jullian Assange Op-Ed: Don't shoot messenger for revealing uncomfortable truths

IN 1958 a young Rupert Murdoch, then owner and editor of Adelaide's The News, wrote: "In the race between secrecy and truth, it seems inevitable that truth will always win."
His observation perhaps reflected his father Keith Murdoch's expose that Australian troops were being needlessly sacrificed by incompetent British commanders on the shores of Gallipoli. The British tried to shut him up but Keith Murdoch would not be silenced and his efforts led to the termination of the disastrous Gallipoli campaign.

Nearly a century later, WikiLeaks is also fearlessly publishing facts that need to be made public.

I grew up in a Queensland country town where people spoke their minds bluntly. They distrusted big government as something that could be corrupted if not watched carefully. The dark days of corruption in the Queensland government before the Fitzgerald inquiry are testimony to what happens when the politicians gag the media from reporting the truth.

These things have stayed with me. WikiLeaks was created around these core values. The idea, conceived in Australia, was to use internet technologies in new ways to report the truth.

WikiLeaks coined a new type of journalism: scientific journalism. We work with other media outlets to bring people the news, but also to prove it is true. Scientific journalism allows you to read a news story, then to click online to see the original document it is based on. That way you can judge for yourself: Is the story true? Did the journalist report it accurately?

Democratic societies need a strong media and WikiLeaks is part of that media. The media helps keep government honest. WikiLeaks has revealed some hard truths about the Iraq and Afghan wars, and broken stories about corporate corruption.

People have said I am anti-war: for the record, I am not. Sometimes nations need to go to war, and there are just wars. But there is nothing more wrong than a government lying to its people about those wars, then asking these same citizens to put their lives and their taxes on the line for those lies. If a war is justified, then tell the truth and the people will decide whether to support it.

If you have read any of the Afghan or Iraq war logs, any of the US embassy cables or any of the stories about the things WikiLeaks has reported, consider how important it is for all media to be able to report these things freely.

WikiLeaks is not the only publisher of the US embassy cables. Other media outlets, including Britain's The Guardian, The New York Times, El Pais in Spain and Der Spiegel in Germany have published the same redacted cables.

Yet it is WikiLeaks, as the co-ordinator of these other groups, that has copped the most vicious attacks and accusations from the US government and its acolytes. I have been accused of treason, even though I am an Australian, not a US, citizen. There have been dozens of serious calls in the US for me to be "taken out" by US special forces. Sarah Palin says I should be "hunted down like Osama bin Laden", a Republican bill sits before the US Senate seeking to have me declared a "transnational threat" and disposed of accordingly. An adviser to the Canadian Prime Minister's office has called on national television for me to be assassinated. An American blogger has called for my 20-year-old son, here in Australia, to be kidnapped and harmed for no other reason than to get at me.

And Australians should observe with no pride the disgraceful pandering to these sentiments by Julia Gillard and her government. The powers of the Australian government appear to be fully at the disposal of the US as to whether to cancel my Australian passport, or to spy on or harass WikiLeaks supporters. The Australian Attorney-General is doing everything he can to help a US investigation clearly directed at framing Australian citizens and shipping them to the US.

Prime Minister Gillard and US Secretary of State Hillary Clinton have not had a word of criticism for the other media organisations. That is because The Guardian, The New York Times and Der Spiegel are old and large, while WikiLeaks is as yet young and small.

We are the underdogs. The Gillard government is trying to shoot the messenger because it doesn't want the truth revealed, including information about its own diplomatic and political dealings.

Has there been any response from the Australian government to the numerous public threats of violence against me and other WikiLeaks personnel? One might have thought an Australian prime minister would be defending her citizens against such things, but there have only been wholly unsubstantiated claims of illegality. The Prime Minister and especially the Attorney-General are meant to carry out their duties with dignity and above the fray. Rest assured, these two mean to save their own skins. They will not.

Every time WikiLeaks publishes the truth about abuses committed by US agencies, Australian politicians chant a provably false chorus with the State Department: "You'll risk lives! National security! You'll endanger troops!" Then they say there is nothing of importance in what WikiLeaks publishes. It can't be both. Which is it?

It is neither. WikiLeaks has a four-year publishing history. During that time we have changed whole governments, but not a single person, as far as anyone is aware, has been harmed. But the US, with Australian government connivance, has killed thousands in the past few months alone.

US Secretary of Defence Robert Gates admitted in a letter to the US congress that no sensitive intelligence sources or methods had been compromised by the Afghan war logs disclosure. The Pentagon stated there was no evidence the WikiLeaks reports had led to anyone being harmed in Afghanistan. NATO in Kabul told CNN it couldn't find a single person who needed protecting. The Australian Department of Defence said the same. No Australian troops or sources have been hurt by anything we have published.

But our publications have been far from unimportant. The US diplomatic cables reveal some startling facts:
  • The US asked its diplomats to steal personal human material and information from UN officials and human rights groups, including DNA, fingerprints, iris scans, credit card numbers, internet passwords and ID photos, in violation of international treaties. Presumably Australian UN diplomats may be targeted, too.
  • King Abdullah of Saudi Arabia asked the US to attack Iran.
  • Officials in Jordan and Bahrain want Iran's nuclear program stopped by any means available.
  • Britain's Iraq inquiry was fixed to protect "US interests".
  • Sweden is a covert member of NATO and US intelligence sharing is kept from parliament.
  • The US is playing hardball to get other countries to take freed detainees from Guantanamo Bay. Barack Obama agreed to meet the Slovenian President only if Slovenia took a prisoner. Our Pacific neighbour Kiribati was offered millions of dollars to accept detainees.
  • In its landmark ruling in the Pentagon Papers case, the US Supreme Court said "only a free and unrestrained press can effectively expose deception in government". The swirling storm around WikiLeaks today reinforces the need to defend the right of all media to reveal the truth.
Julian Assange is the editor-in-chief of WikiLeaks.

Friday, December 3, 2010

Freedom of the press is gone...

Anyone wishing to locate the site can do so by going to this ip address directly which by bypasses DNS  totally. Please send forward this IP as you feel appopriate.

Thursday, December 2, 2010

SP500 Posture

SP500 perfectly tested the first primary support level that I discussed in previous posts. Though I still expect a test of the weekly trendline (in red) this support may require a litte more time to work through before we get that test.

The weekly system is still building a short position and exited its short trades for the second time during the position via reticualtion at the cycle triggers. The short positions has not been re-entered.

We finished a tremendous month of November with the second best results for a month so far this year with trading well into the double digit returns on average.

Saturday, November 27, 2010

Want to make a lot of money...

Apparently, a lot of people want to make a lot of money without asking "what it is?" or "why?" or "what for?". They just have to have it, have to get it and regardless of any understanding of their process. This type of identification with "money", is a slow motion panic. It is a symptom of credit cheapening the value of money and thereby hastening the urgency to get it so one can get something with it before it becomes worthless. The proverbial mouse on the wheel. Central bankers really know how to play their victims and practice psychological warfare at an extemely high level.

"If we take man as he is...we make him worse. But if we take him as he should be, we make him capable of becoming what he can be" - Goethe

Below is a video of a lecture by Viktor Frankl on the "Search for Meaning..."

Wednesday, November 24, 2010

Manifestations of social phenomona derived from the values espoused via our system of credit are not limited to Wall Street

As if the abuses within the credit and banking system are not enough...those attitudes, distortions and unproductive motivations are also evident in the fabric of society as a whole...for massive crimes like the finance debacles to occur, society in general has to be complicit - so, government, judicial and regulatory complicity are required and end up compromising our liberties and freedom...

This is a great piece that illustrates some of the issues of a very similar incarnation in another forum...the legal system.

Tuesday, November 23, 2010

Market Update - perfect retest

Covered some of the index, forex and commodity shorts but left a core positions remaining.

Monday, November 22, 2010

Market Update

I am now reshort the EURO and all the major indexes.

Friday, November 19, 2010

Market Stuff

Weekly systems have reentered shorts in the 1195 area for ES and 720 for TF based on reticulation re-entries. Market looks rather frail...and they tried as hard as possible to get GM to stay above the initial offering price on the first day of trading. Given how fickle our fearless leaders are, I would not be surprised with an exit stage left scenario.

Tuesday, November 16, 2010

SP500 Update

Ultimate targets for the SP500 are still between 1120 and 1150ish but there is a support level here for an intermediate bounce. Again I think most of the elliotwavers are intellectializing the markets and will miss the trade looking for waves that are not happend with this current move down. The 5th wave never happend on the intraday charts and it is quite likely that the there will be another theoretical missed wave on the EW dailies. Bounce at trendline will likely produce a lower high and then proceed to emmulate the 10 year Treasury Bond indicated on this chart with the blue line. We have diverged significantly for the last 6 months. The equity market should start to look like that chart.

Sunday, November 14, 2010

Bubblicious "Bernanke Span Krudman" Baby...

Well here we go again, QE is announced and the yields that Ben and Paul say will go down go up...yet they will apparently swear under oath that rates actually are going down, have gone down, will go down and will stay down. Ben is living in a fantasy world. The results of the vote of no confidence in the QE ploy are readily available in the Junk, Muni, Corporate and Treasury markets. Interest rates will go up since credit risk is also increasing.

As I indicated in my post regarding the ending well line...Bernanke was willing to risk all and try to trigger a technical breakout that would create a sustained rally. What he forgot is that he needs shorts for that...there are precious few shorts left to be squeezed. Additionally, when you make it apparent to all corporations that you are going to increase their costs while lowering the demand from their customers due their customers increased costs and jobs attrition that are the result of said increases in corporate costs and cost cutting...most CEO's will stand back from taking risks and feed the beast by cutting more and spending less...In an environment where there are less jobs and fewer consumers, credit risk increases with the commensurate need for better compensation for bondholders brave enough or willing to take the risk. These are ultimately the dynamics that will prevail regardless of our blind, deaf and dumb leadership. But take heart - for atleast a few days to a few months, insolvent bank balance sheets like JPM's, BAC's, GS's etc will look better...and that is sure to create a gargantuan increase in confidence which will surely fix everything.

So there we have it. Default risk has doubled for Muni bonds, increased dramatically for Junk and corporates and will likely increase dramatically in the future.

Additionally, Mr. Bernanke has triggered a fearless rush into commodities regardless of fundamentals. We have parabola everywhere. Silver, Sugar, Wheat, Corn, Uranium...these patterns are very unhealthy and will require new cyclical lows to flush out the excesses in these markets. This type of activity is also not good for a stable market place or economic environment. What is interesting is that these activites fall so nicely into the "stable prices" mandate for the Fed. Bernanke must have left his reading glasses at home when reading that part - as he clearly has misinterpreted it.

The MUNI bond market pumped by Goldman Tax's new division as ultra safe investments are now on their way to the same insurance scam, financial fraud triggered default territory that nearly blew them up in 2008. This will not be pretty. All these markets have gained significant fuel due to Bernanke's bubble blowing and have additionally added the public to the bus. The public will now be raped because they will get the bill for the Fed's abusive manipulations and they will lose after having bought into the parabola psycheout.

All the Elliotwaver's are busy looking for a new high towards the end of the which I say they will probably get another missed trade - just like they got on this one. What happened to that missing 5th wave anyway? Where did it go? I got the shorts via my weekly and daily systems...but the current patterns do not look like we will be getting another high into the end of the year...though I do think we will get some sort of a bounce off my "ending well" line on the weekly SP500. In case you are wondering, we needed to avoid the breakout over that trendline, for the best possible outcome IMO...Benanke killed that and now we are going to have to watch the worst case scenario play out over the next few years. Below are some of the reasons that this will take years to unwind...and the world will likely look quite different when that is completed.

The Nasdaq has confrimed its overthrow sell signal and targets much lower levels. This is a dangerous pattern. 1,840 to 1,860 are possible if the pattern proves accurate.

The PIMCO Muni Fund 2 was stable for many years then broke out of its range and has now setup a bear flag which it has broken out of to the downside - perfectly timed with Mr. Bernanke's announcement that rates would be going lower. Apparently not!
Below is the PIMCO Califorania Municiple Bond Fund...clearly this is much weaker of a bounce and a much more bearish chart overall.
Picture perfect parabola...Silver is shown below. Popular wisdom apparently has it that Silver will go to new highs because there is a shortage, there is currency risk and there is a squeeze on the large commercial banks attempting to manipulate the Silver market...people tend to forget those were the reasons that the rally started...and will not likely be the reasons for its continuation.
The sugar parabola has started to break down. A true blow off top will require an appropriate bottom...lets start preparing to say hello to sugar below 10 bucks. 
A parabola before and after. This is what it looks like, except this was just one was relegated to just a relatively small group of energy markets. The recent parabola that hasve just happened have been much more pronounced and damaging. We are still recovering from the earthquake of the Energy complex parabola and Bernanke just had to make new ones for us...wonderful...we appreciate it Mr Bernanke.
The Schwab High Yield Bond fund was marketed as " safe as money markets and Treasuries" just like the primary dealers would like you to believe the Muni's and other paper are supposed to be now. We are now 2 years later and there is yet to be a meaningful bounce in this particular hyper safe, ultra conservative investment marketed by Schwab (among many others)...including the Auction Rate Securities that turned out to be a total fraud. The problem with MUNI's is that they are likley to reach a point where there simply is no bid. Selling in that enviorment could collapse the entire market so there will be intervention into our socialized markets.  There will likely be all sorts new limitations, rules and fake marking. Ultimately, I think it will be difficult to get money out of these securities at some point in the future.

Saturday, November 13, 2010

Quantitative Easing...defined

I saw this one and thought it was it on my blog...this is a must watch.

Thursday, November 11, 2010

Dollar Index break out over resistance cycle - tren move likely initated to the upside

Nasdaq 100 Confirming Ominous pattern?

While all the elliot wave counters are looking for the ellusive missing wave up...the NASDAQ provides a powerful confirmation...this market needs to get back over that channel barrier pronto for it to maintain some upward momentum.

Wednesday, November 10, 2010

The biggest load of BS I have read in a long time...

Mr Bernanke has presided over a wild west style price stability effort. Prices are anything but stable and they are more unstable BECAUSE of this idiot who has the nerve to write an op-ed attempting to manipulate the truth and his reputation - yet again...

The guy in this video was reappointed...I fail to understand how that is possible, supported and reconciled. He's out of touch to put it on the best case. How can an out of tough academic get the most powerful job in the country?

What the Fed did and why: supporting the recovery and sustaining price stability

By: Ben Bernanke
Two years have passed since the worst financial crisis since the 1930s dealt a body blow to the world economy. Working with policymakers at home and abroad, the Federal Reserve responded with strong and creative measures to help stabilize the financial system and the economy. Among the Fed's responses was a dramatic easing of monetary policy - reducing short-term interest rates nearly to zero. The Fed also purchased more than a trillion dollars' worth of Treasury securities and U.S.-backed mortgage-related securities, which helped reduce longer-term interest rates, such as those for mortgages and corporate bonds. These steps helped end the economic free fall and set the stage for a resumption of economic growth in mid-2009.

Notwithstanding the progress that has been made, when the Fed's monetary policymaking committee - the Federal Open Market Committee (FOMC) - met this week to review the economic situation, we could hardly be satisfied. The Federal Reserve's objectives - its dual mandate, set by Congress - are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills.

Today, most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run. Although low inflation is generally good, inflation that is too low can pose risks to the economy - especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation.

Even absent such risks, low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating. The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed. With short-term interest rates already about as low as they can go, the FOMC agreed to deliver that support by purchasing additional longer-term securities, as it did in 2008 and 2009. The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August.

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

While they have been used successfully in the United States and elsewhere, purchases of longer-term securities are a less familiar monetary policy tool than cutting short-term interest rates. That is one reason the FOMC has been cautious, balancing the costs and benefits before acting. We will review the purchase program regularly to ensure it is working as intended and to assess whether adjustments are needed as economic conditions change.

Although asset purchases are relatively unfamiliar as a tool of monetary policy, some concerns about this approach are overstated. Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation.

Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits. Nor did it result in higher inflation. We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time. The Fed is committed to both parts of its dual mandate and will take all measures necessary to keep inflation low and stable.

The Federal Reserve cannot solve all the economy's problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators and the private sector. But the Federal Reserve has a particular obligation to help promote increased employment and sustain price stability. Steps taken this week should help us fulfill that obligation.

The writer is chairman of the Federal Reserve Board of Governors.

Friday, November 5, 2010

The Dow Industrials...Abandoned or boarding ship...


NASDAQ - Abondoning "ship" baby

The same type of action was seen in 2007 for the NADAQ and market highs.

Thursday, November 4, 2010

Dollar update

VIX does not make new lows...

Obviously this is a big deal...perhaps there actually is a market that Ben BernaNke does not manipulate.

Market Update

Daily ES/SP500 system have initated new shorts over the last few days. The TF Daily system initated a short on the close yesterday and will likely add today. While the weekly systems are still short, having built nearly full size positions and expecting a drawnout and painfully large drop into the end of the year.

" does no good at all to just throw dollars from a helicopter"

Brazil will use the upcoming G20 meeting as a forum to complain about the Fed's decision to print billions of dollars to bolster the US economy, Brazilian finance minister Guido Mantega said.

Mr Mantega told reporters the Fed's decision could aggravate imbalances in the global economy.

"Everybody wants the US economy to recover, but it does no good at all to just throw dollars from a helicopter," Mr Mantega said. "You have to combine that with fiscal policy. You have to stimulate consumption," he said.

Tuesday, October 26, 2010

A Quick Update

I apologize for my lack of posting lately, I have released a batch of new systems as well as implemented new trade server infrastructure in Switzerland.

I would like to update you regarding the posture for the systems. The daily short that I posted previously was covered @1159.50. The weekly RVS models have continued to add short contracts to their existing positions which have been building. So, the systems are now weekly short, ES, NQ, TF, EURO, YM and long the DX (Dollar). The average win for the weekly systems on the ES contract is over 100 points and can be significantly higher. Given the extended conditions in the markets and the posture of all these systems on the short side...I believe this is a fairly compelling risk for the bulls here given the downside consensus and also supports my view that the markets will be 20+% lower by the end of the year.

Sunday, October 17, 2010

Asset = Liability, Good = Bad, Wrong = Right, QE = Deflation, Up = Down

Well, here we a world where what thing look like is not necessarily what they, the market is very difficult - it is unable to trend as opening prices and close prices are a virtually identical everyday, we get almost no intra-day direction - just volatility and chop. Moves are generally coming overnight and then chop most of the day.

We have overshot logical and normal resistance levels such as my 1.272 levels at which I look for reversals and gone parabolic. I know that this has been a very frustrating market for people to trade. What is even more frustrating is that the market has actually not moved much either in the last 30 feels like it has made a much bigger move than it actually has. Though on indexes like the Russell and Nasdaq we have had supstantial moves. The market as a whole has not however. Below is a snap shot of a month of trading for the that time all the candles are heavily overlapped and we have risen roughly 30 points...that's a little more than one or two good trading days for the SP...and all this while the largest QE effort in history (not to mention deception) has been in full swing. Impressive, Very Impressive, indeed. Below is a snapshot of those 30ish points:

So, I likely will post some charts later as to what my systems are doing with this market. Currently, daily and weekly systems are short. Weekly's and some daily's added short contracts on Friday, so they are short ES, TF, EMD, EURO and NQ. Also, weekly systems are now long the dollar.

Several interesting points regarding this market. The volatility indexes directly diverged and are not confirming the momentum in the markets - nor is breadth or many other secondary indicators I watch. The reality is that everyone and their brother is now looking bullish over the longer-term and thinks that QE will kill the dollar and create hyper inflation. All I hear about is discussion of "Inflation". You can see what I am talking about by reviewing my post "Some Objectivity" and "Coordinated Deception" regarding David Tepper's CNBS appearance.You can see what has happened to his arguments is the Appaloosa Portfolio and below is a list of holdings.

The reality is the if you refer to my "Ending Well" post...we have breached the primary trend line and Bernake and his accomplices have proven once and for all that they will stop at nothing to prop up inflation assets as the expense of the economy and individual Americans no matter how risky the strategy is.So the stage is now set for the worst case scenario which I was hoping would not happen. So, the downside risk/targets for the markets are much greater accordingly. Trust me, this issue is not lost on businesses and investors who now know that they will have less demand from the consumer combined with higher overall costs if Bernake's plans were to work. I can assure you that if someone were to attempt to do financial mediation for me personally and the result was less income, higher expenses and the small potential that some of my assets would rise in value due to inflation, I would not think very highly of that person. Bernake is an amature and a failure. Please also read (A dog with fleas, Insurance ...scam of our age...)

Now on to the next subject. If QE is really in full swing will it create money? My answer is no. What QE creates is levitating or rising inflation asset prices, in this case nearly ubiquitously for banks and very large corporations and no one else. That money has a very interesting way of vanishing as soon as the mystery buyer is no longer there with a bid. QE would have the potential to create money "IF" it were to create true inflation by influencing the risk taking of individuals and small business. That would have been much easier to do ironically than to prop up banks - and by the way, it would have also resulted in much more support for the banks. But QE is not for individuals its for cronies. The reality is that QE is creating deflation - massive deflation because it is creating more debt and risk on the part of already insolvent and unstable enterprises. There is NO velocity of money and QE will not do one thing to create any. Just like Obama's 500,000 a month job projection that the he and his administration were pumping early in the year...QE will never make it will never happen. In fact, the opposite will happen. Expectation is for inflation or hyper inflation but we will likely get D-E-F-L-A-T-I-O-N and much higher real interest rates! This is what this post is about. Now, the masses and equally the guys with the bazookas think that things will happen that defy reality and that an imaginary outcome can be projected on reality...this will likely be, once again, a sore disappointment. However, I am sure that there will those who will be nicely enriched.

Most of the time in my life when I looked for the answers where I thought they were or followed the crowd, I got exactly what I deserved - nothing, or better, less than nothing. The reality is that if you expect the obvious, you all to often, end up pushing the same stone up the same hill as everyone else...the results are obvious only not to you while you are pushing that stone. One of the things that people are doing now is fearing change overall. I know Obama was supposed to be change, but we can see how that has turned out...more of the same. People are fearing allowing failure for fail. They fear those results rather than allowing things to rejuvenate by being based on a constructive foundational premise. The reality is that I see many people still touting the concept that an asset is valuable and that a wrong can be made right. I think it would be much better to think differently rather than trying to project an outcome based on past experience.

While failures are a primary instigator for innovation. One must first accept the failure and then move on to build an organic and foundational reaction. One must be willing to accept that a premise or expectation may have been 180 degrees off course. That is where we are today - 180 degrees off. This is, ofcouse, because when one looks at the world, there are assumptions that are made that have very little to do with reality. These assumptions are usually colored dramatically by our projections of expected outcomes.

For example, it is easy to expect a dessert to be "good" when you are eating it and looks and tastes well. Yes, its a nice finish to a meal. However, several hours later if you are worshiping a porcelain throne...that same desert seems pretty bad. While we entertain one side of an expected outcome we often are reticent to pay too much attention to the less desirable one that's lurking.

What is ironic about this is that for many years people have played this kind of charade by investing in "ASSETS" that are really liabilities. A house is a liability not an asset. A car, a commodity, a collaboration, a business, a stock, a marriage are capable, with just one slight change in polarity, of transforming from things which you want and view as positive to things that you don't want and that view as negatives and wish you never had.

For example, basic materials companies, well if Apple computer keeps selling computers and people need to maintain, build, expand or renovate facilities that they currently use, obviously companies that own copper, aluminum or steel mines and production will have assets that are required to keep society going. This is a such a fundamental argument that its is incontrovertible. In this case, steel is an asset, aluminum is an asset, copper is an asset and the facilities to mine them, produce them and deliver them are assets. However, as soon as the demand for new materials is reduced, people will rely on existing supply and prices will drop. It has happened many times that core Basic Materials companies have gone bust because the reality is a Mine is not an asset its a liability. When the prices drop below the cost of maintaining that liability, the reality is that insolvency can blow up the strongest basic materials company or emerging markets economy faster than any expectation could envision.

This is where we are, we envision a need for humans to constantly expand, produce and multiply. Those expectations are rather silly when we think about them. People tend to expand and produce and multiply very well after they have consolidated and reset their expectations. That means that, we have the capability to contract, reduce and reuse much more than we think. If that is possible, its also possible for basic materials to drop below the prices of production...which would be gigantic shift in reality...and not necessarily a negative one.

As I see it we need to be prepared for the opposite of our social and governmental expectations or projections. The fed's and government's actions are creating a prime foundation for us to get exactly that. If QE actually increased the volume of money that would be called a success...but what if it were to drastically decrease it? I know that seems implausible because the Fed is printing supposedly new money. But its not new money - its new debt (debt money) and the collateral that is supposed to be propping it up has a funny way of collapsing when there are no more mystery QE is setting us up for the opposite of our most comfortable expectations.

Thursday, October 14, 2010

An update on allocation...

I received a few emails over the last weeks from some hedge fund managers who seem to be close to blowing up, curious market participants and from some individuals asking about whether or not I am short. I want to answer a different question. The reality is that if it is necessary to ask someone regarding a position or trade then one is most likely looking for support or rationalization regarding a position and it likely over allocated. Without question the primary issue that I see for traders is over rationalization, allocation or concentration. The markets are not rational and nor are they very forgiving. 

I do not trade that way. Let me give you an example. If I trade a weekly strategy, I know that my average winning trade is going to be around 110 SP points, I also know that building a position may result in scaling into an average of 35 points but up to 80 points. The question how much I am going to risk not how much I am going to make. Additionally, the best risk management of all is NOT stops, its proper allocation. So, where I may trade a 15% allocation of risk capital in one system for a daily chart, I know that the average risk is 15 points and up to 45 points, therefore, I can trade for a 1.75% risk to 3% risk depending on how aggressive I am. If I am going to achieve that result with a weekly system I may have to trade at a 7% allocation. Trading just 7% of your money in one strategy may not seem like a lot, but the rabbit rarely wins the race. In the markets its about doing the opposite of what you think and want to do and doing the disciplined and practical thing. People are rarely practical about losing money and exceptionally rarely disciplined about it.But those are precisely the things that will make us successful. So we must think about our weaknesses and capitalize on them. My experience is that the market is about hitting base hits not home runs.

So, in response to whether I am short or not, I have Weekly systems that have built short positions in some major markets and now some dailies, however, I also trade intraday long and short across quite a few markets, so, its important not overreach. I am not short 50% of assets, probably more like 8% of assets right now. Keep in mind that the maximum avererage allocation percent I will take is around 20% and that generates a very hefty return. If the market rallies, intraday longs and shorts will be taken without regard to my opinion of the market or any long-term positions - they will  be taken as appropriate with strict risk rules. As a note, I regard a break of 1122.5 as a key confirmation of a larger short move.

I hope that answers the question and gets people asks some questions of themselves too...

Wednesday, October 13, 2010

Market Update - more panic...

Ironically on the day that the Fed, I mean JPM reports earnings, the financials produce bearish action on rather not bullish volume. The shorts are non-existent and are now certain that POMO and QE will work to run over them with eighteen wheelers. Yet the bulls feel safe while the market has moved essentially sideways for 28 of the last 30 days. There have been very few trend days and even today closed near where it opened - that is not bullish! However, it is classic behaviour for a cheaply manipulated market (by a bunch of charlatans masquerading as Bennie and the Bets) as its much easier to move overnight prices than intraday prices... When you bankrupt the shorts there is another side effect - NO BUYERS ON THE WAY DOWN. Bennie and the Bets better have their dancing shoes on - they will be the only buyer left.

It may not be popular to be short...but from my vantage point...I hope that we remain at these levels till the end of the week so that the weekly systems can add to their positions short. I am not optimistic that we will be able to remain at these levels and feel that a cascade lower could happen at any minute - regardless of the perception of Fed support and intervension in our non-market markets.

The common theme right now is, Economy bad - Gold up, Market Up because of QE. Economy good - Gold Up Market Up, Economy stagnant - Gold up Market Up, Bank's broke - QE, Fed, Stimulus, Gold Up, Market Up...and for heaven's sake that Cramer guy is a raging bull, I guess BoooYAA is making a comeback and Gold Up, Market Up - No worries! Yes No Worries. These are manifestations of a top - not a bull market...the bears even buy into the above thinking. People are bullish - plain and simple they are ridiculously bullish and at the same time they feel negative. Perceptions of prices do not have anything to do with overall feelings of well being...therefore this market full fills two criteria - most people are negative regaring their wellbeing, yet positive about prices and socialised intervention supporting inflation asset prices.

Tuesday, October 12, 2010

Market Setup Updated

Get ready for fireworks...a failure of the overhead trendline and control, indicated in red on the chart below, targets 810 to 800. I am currently short EURO from 1.40ish and short TF, EMD, ES and NQ via weekly systems. FYI, weekly trades may add another entry at this friday or next, but the hold time for weekly trades is 3 weeks to 3 months.

Please note that the ten year bond is not confirming the recent highs. In fact this is the largest non-confirmation divergence I have ever seen between Equities and the ten year, indicated in light blue on the chart below...not good.

Thursday, October 7, 2010

ES Volatility Breakout Model

I figured I would show some new results since I am really happy with them. These are the results from my new ES Volatility Breakout intra day trading model. It trades 1 to 3 (max) trades per day. The risk process uses a fixed risk and that in this case is 1%. This risk is reduced to .5% generally within 20 minutes after the trade is filled. This means that the max targeted risk is $10,000 per trade and reduces to $5,000 per trade for a $1,000,000 account. The results above are uncompounded and trading on a $1,000,000 account from 1/1/2000. The model produces similar results back for nearly 30 years.

I will post more details about these systems when I can.

Wednesday, October 6, 2010

Ending Well...?

Well, Mr, Bernanke and his illustrious companions are at it again. Its apparent that all the brainiac economists over there at the central banks think that inflation at all costs is the answer. This is why I phrased my post regarding the primary down trend line several days ago the way I did. (Please see the previous post "A Dog with Fleas"  for the charts and analysis.) If we sell off from fiddling around at that trend line (as posted earlier today), as I still expect we will, that represents the best possible outcome for the markets. It means failure does not get rewarded. It means that pending insolvencies will be recognised as insolvent. It means frauds will be revealed, identified and handled. It means that there will be a point at which stability is possible.

Now the alternative is not so good. If we breakout decisively above these levels, I have no problem with that from a trading perspective as my systems will trade long. However, it means that the chances for the constructive scenario will be slim to none. The death nail will be layed to rest in the carcass of the economy. The brainiac economic team at the Fed will have succeeded in disconnecting reality from reality - and that's a very difficult thing to do. They will have determined that higher prices for inflation assets, lesser currency based buying power and lower wages can coesxist to establish a stable economic foundation. I would like to point out that there is only one way to support sustainable higher prices and that is through high employment, wages and productivity. None of these issues are even being addressed.

Wages are decreasing as they have for the last 10 years for the middle to upper middle class. Jobs and opportunities are decreasing and likely will not stand much chance of rebounding - especially if commodity and raw materials and general asset prices increase. Additionally, if indeed the US thinks that it can repay its debts by drastically devaluing the dollar and crushing the purchasing power of an already weak America, then we will face another problem in a staggering rise in interest rates which will finish the economy off once and for all. No jobs, no purchasing power, no credit and no chance for a reprieve.

The upside is that the Bankers will own your house after you lose your job and all your savings, - they will likely offer to rent it to you. The concept that the market will sustainably store value simply because dollar devaluation is in full swing will not support the unilateral objectives the bankers would like you to believe. Business relies on consumers of services and products in order to generate profits. Demand collapse will force most companies to eat through remaining credit lines, if they are still available, and the cash that they carefully reserved in bonds with collapsed principle value due to raging interest rates. The Fed, by the way, only controls the Fed rates are quite another matter entirely and they will not nor do they deserve to influence any of them. Any way you cut it corporations will NOT do well - unless of course you are a BANKSTER and would like to own everyone's assets without bringing any value to the table at all.

The setup brings up yet another issue, people with nothing will have no problem losing the nothing that they have left by rising against the Barron thieves that will have been identified as having stolen from them. Our illustrious banking community as led by Bernake and Co. and politicians may have quite a problem on their hands. No wonder we need all those new executive orders that we never really hear about publicly.

The end in this scenario will likely result in the markets falling much further than I have already thought they would, a total loss of confidence in fiat money, total distrust of banks and governments and a near halt to productive business transaction. Much worse than if we wring out the insolvencies and corruption now. However, I would like to point out that it appears that, whether Bernake and Co are successful or not, they have already decided that inflation via dollar collapse is an acceptable risk. It does not matter the risk. If people can not afford gas, eggs or bread - who cares?

This issue alone demonstrates Bernanke's incompetence. In fact, I think that Benanke and Co should face charges for this disastrous handling of our situation. In time I think they may indeed get that wish. However, for now, the market will likely see the scenario painted above fairly clearly and will not allow Bernake's BS to get too far before slamming it back where it belongs. The sad thing is that the Fed is willing to simply throw taxpayer money out the window without even a care for the future, the economy or the people of the United States of America - that alone dramatically increases the risk for the stock market, the economy and the country for market particiapants. I am not the only one who sees that the Fed has NO credibility nor capability...given that, confidence is not inspired by this episode in the least.

This is all very troubling. In fact, I have spent quite a lot of time writing systems precisely for this reason. When dollar devaluation occurs or dramatic deflation bites the violence can not be handled by the human mind. Some people may have good reasons for the trades they do and get one leg right but will get crushed by the one they don't see. It is important to remember that markets can remain solvent much longer than their participants. Benake and the Fed are but participants in our markets and one insolvency I am very much interested in seeing play out.

For now, weekly systems are building shorts at these levels and my current expectation remains for the markets to be down substantially (20%+) by the end of the year.

Tuesday, October 5, 2010

Sunday, October 3, 2010

A dog with fleas...

This market is at an interesting place. We are pushing on a string and have not been able to make headway over the last week. I see a primary trend line that we are bumping up against and very bad odds for us to breakout over it in some substantial way. Additionally, I really like to watch the nasdaq100 and SP500 relationship - that relationship demonstrates that the NASDAQ is no longer leading the market up and most likely will be leading it down if the pattern of related weakness continues. There is still a slightly higher resistance zone that is possible for this bearish wedge if it was not completed on Friday or does not complete on Monday...but it looks quite terminal to me.

Ironically, everyone and their brother were looking for a weak September...I guess that's because September's are supposedly usually weak. Now, however, everyone is looking for a BIG year end rally out of our sloppy inverted head and shoulders pattern courtesy of CNBS and their trusty charts and analysis...I guess that's because "as September goes, so goes the year"... Forgive me if I call a spade a spade: The market did not comply in September and now the very same people who got it wrong think that it should do the expected thing and comply in October and through the end of the year.

From my perspective, the forces that be, and expectations that are, generally try to get the market to rally into elections and then fail miserably a high percentage of the time as we progress into the elections. The elections are around the corner and the question is: "Is there enough commitment..." to deal with nasty technicals and a market that is still int he midst of massive de-leveraging? I am not betting on it.

While it may seem somewhat conspiratorial to think that the forces that be have been driving markets with artificial influence. It seems conspiratorial because it is. If one were to interfere in cooperation with others for no other reason than the objective of manipulating prices to achieve your own ends, you are conspiring. To wit, the conspiring Fed has done a terrible job of using that manipulation to get liquidity infused into the economy. They have done a terrific job of getting that liquidity to be infused into the balance sheets of their co-conspirators and Wall Street in general.

We will see the results of this conspiratorial imbalance in reference to true price discovery play out further with a crash in the MUNI markets, Bond markets in general, Real Estate markets, Commodities markets and the Stock markets. There is precious little liquidity out there looking to find a new home in inflation assets. If liquidity can not look for a bet on a healthy recovery or follow through in inflation assets then bonds will be defaulted and derivative markets will cease to function once again.

I have no doubt that the jig is up and that the piper will be paid. As I said in previous posts, just like Long-Term capital, once people with assets, knowledge and capability discover that a pending insolvency is in play - they seek it out and circle it like sharks rather than petting it like a hamster. This is not a bad thing. If there is a wounded beast, put it out of its misery and lets move on. Failure does not need to get rewarded, it needs to be failed. That is what is going to ultimately happen here.

The Fed gets an F. Fail.

The fed provided liquidity to the wrong group. A bunch of over leveraged, accounting fraud, bailout seeking institutions. It suggested the sky would fall if we did not get immediate TARP...then spent 6 months figuring out what to do with TARP. So much for "immeadate" and "the sky falling" without TARP. It also, encouraged mal-investment and accounting fraud by insisting that IT regulate and control everything it can get its hands on, like the banking institutions and consumer financial protection. The delivery of the Fed has been a disaster.

The impact of its policies will make the depression much more challenging and devastating that it would have been without them since they encouraged incredible mal-investment in an attempt to prop up asset values at any cost. That cost has not been counted - it will be.

Obama gets an F. Fail.

Obama, was supposedly about "change". From what I see he has changed nothing. He has encouraged Cap and Trade and huge bills that no-one who is voting on them is encouraged to read until they have been passed. He has weaved a web of disastrous economic policies and implemented stimulus that actually has, in my analysis, resulted in a cost of $10 at minimum for every dollar that made it into the economy.

Apparently, for both parties the government can not get big enough, spend enough or have enough overpaid employees. There seems to have been a feeling overall that a collapse of an insolvent company is going to create a bigger disaster than spending 10, or many more times the cost of that insolvency, in an attempt to prevent it. Cash for Clunkers is an example. This hair-brained program simply encouraged people to go into debt that they could not afford to buy a car that they really did not need. Additionally, it wasted perfectly good vehicles and resources in the process by destroying them. The amount of damage done to the economy and environment with the destruction of household balance sheets, perfectly good vehicles, pollution from chemicals used in disposal of vehicles and the ultimate cost to the taxpayer was simply irresponsible. Obama and his cohorts have changed one thing, they have brought irresponsibility and cronyism to the highest level I could imagine possible.

Bush gets an F. Fail.

If there was a presidency marred by incompetence, conflict of interest and dishonesty - Bush gets the award. His policies did not create our disaster but they did not prevent it. To look for the causes of our condition we need to look as far back as Bretton Woods and the Federal Reserve Act. However, Clinton's policies left little option but for the economics of the nation to focus on debt creation and expansion, surplus be damned...and Bush delivered on that mandate, just as Obama has.

Bush's Imperialisim has cost us dearly, yet we are still expanding its scope and continuing damaging policies of this failed president.

Congress gets an F. Fail.

Congress seems to side with just about anything that could "out" any individual member for some indiscretion or embarrassing conflict of interest. The most astonishing thing is that they have gone along with wholesale breaches of the constitution by the executive branch for several adinistrations with out even a whisper.

Additionally, they seem to have a certain pride about passing legislation that involves many digits with out the commensurate interest in reading the specifics of what they are passing. Health care, financial reform, consumer protection and many many other governmental efforts have been implemented to reward failure and promote people and institutions that are responsible for those failures. Until this stops the economic situation can not be changed. The only hope is that US constituents get tired enough of amatures and cronies to ultimately replace them or prosecute them.

Most states get an F. Fail.

States have encouraged budget deficits, unemployment compensation and other assistance that they do not have the budgets to afford while simultaneously generally supporting union benefits and pay increases that are a demonstration of how politicians can be bought and paid for. There certainly are exceptions and some good people showing up occasionally, but on the whole, the states and municipalities are broke and are not going to get bailed out by Washington or Wall Street...and they have done barely anything other than raise taxes and hope that things get better so that their revenues can accommodate their irresponsible obligations.

Moreover, the pension system is about the get blown sky high by the defaults that these conditions cause. This pension blowup will cause even more insolvency as states try to print IOU's to placate pension obligations. Ironically, these very issues are going to place a large conflict on the table for states that realize they are not getting assistance from Washington and therefore seek to retain assets and revenue for themselves rather than letting them flow to Washington freely. Not a pretty picture.

Regulators get an F. Fail.

Regulators have tried to skirt just about every issue that came to their attention by creating some sort of misdirection on which the public can focus. The special handling and exceptions granted to fraudsters are just amazing. Goldman Tax and most Wall Street firms who deliberately promoted fraud are allowed to get off with a simple payment and no admission of guilt or wrong doing. What kind of enforcement is that. Meanwhile a little RIAA (Registered Investment Advisor) get's pounded into obliteration for giving what he believes to be good or prudent advice to his clients. We are now left with a system that deliberately constrains peoples ability to make timely investment decisions and encourages complacency among both investors and advisers since there is no other reasonable choice. This type of regulation encourages big institutions get bigger and small ones are encouraged to get interesting.

The flash crash, derivatives regulation, financial reform, decimalization and a host of other regulatory lapses have encouraged a general instability within our market structure. The results of many regulatory resolutions achieve the benefit of eliminating smaller players and rewarding the big ones who were the largest offenders and simultaneously can afford useless resources required to comply with regulations which don't improve effectively results for the general public.

FASB rolled right over and allowed totally fraudulent marking of balance sheet assets for an indeterminate period and at the discretion of the institution. All it took was a little peddling from the Fed, the banks and Washington to make it happen. This little tid bit will be a major driver of the pending insolvencies that need to be resolved. And these guys call themselves regulators? Legalized fraud is not good regulation and can not fix previously failed or legalized frauds, as these actions are clearly intended to do.

Banks get an F. Fail.

Banks seek to play nearly every hand, get nearly every bonus and mask nearly every truth. JP Morgan Chase is building branches everywhere while the company is essentially insolvent. They are arbitratily and discretionarily reporting operating profits as reductions in required capital reserves, minimalising obligations with improper marks and withholding asset marks entirely by placing them off-balance-sheet. Any of this would usually be criminal if your regulator did not happen to be the Fed, who is doing the very same thing. Just look at Maiden Land holdings (legacy of the Bear Stearns/JPM deal) which had to be pried loose from off-balance-sheet handling with a lawsuit by Bloomberg.

Banks are bigger, in worse shape and more contrived than at any period in history...and what's more they are flaunting it.

The essential question is: "Why we should expect this to end well?"

I do not think we should...the primary trendline that I will include with this post later is the wall under which all this incompetence and fraud sits. Its the "Ending Well" line if you wish. If we can break that line in a meaningful way with these foundations and terrible technical action supporting us, then things are even worse than I thought!

Wednesday, September 29, 2010

Sound what? Ron Paul is the only politician telling the real story...

Some objectivity

I had several conversations over the last days with distinguished financial professionals. What I find intriguing about all of them is the unanimous feeling and need to take a gamble on market potential that depends solely on the action of a central bank, a government or a traditional attempt to take a gamble in a knowingly unstable environment simply because that's what feels like the appropriate action is. A simple approach would be just do nothing or the safe thing - right? But, regardless of that, why not bet on stimulus, emerging markets, china, sovereign debt, corporates or junk bonds...Just look at our Tepper character at Appaloosa Capital Mis-management - that clearly is his approach.

The reality, in my opinion, is very simple.
  1. Interest rates are at or near record lows
  2. Lending is primarily occurring between banks and the Treasury not small business or in real estate
  3. Stocks are pricing in perfection
  4. Mutual Funds have spend nearly all their cash
  5. Hedgefunds are shutting down or blowing up due to de-leveraging activity
  6. Cash flows do not support debts being repaid

Interest rates are at or near record lows.

Lets discuss point number one. Interest rates are at record lows and what does that mean? Well just like the prices of merchandise that has not been sold, and are lying in inventory within a very limited market - prices must come down as a mechanism of incentivizing transaction. The facts are, if some one does not want something prices have become cheaper for that thing in order to encourage them to find a reason to make a decision. In this case, rates have been brought very very low in order to try to sell a product that no viable candidate wants or needs. The people who think they need it are not viable clients since they can not afford it. It is important to understand that low prices equal low demand and urgency to sell by market participants. This translates to central banks and other financial market participants desperately attempting to sell debt money at nearly any price since there is little demand for their product - money made out of debt.

Low interest rates are occurring at precisely the most dangerous time to be handing out loans. At the time that real-estate is nearly as overvalued by my analysis as in 2005 and 2006 we are selling credit at the cheapest price available. If there is ever a recipe for disaster this is it. In nearly every case, quality  of credit and mark-ing has aggressively deteriorated since 2009 and additionally, most collateral/asset prices have not reflected inflation, with the exception of stocks, bonds and a select few commodities.

Lets talk about bonds. People seem to think that because the Fed can QE anything they want, even if its not in their charter, then bonds, especially MUNI's are safe, safe, safe. Well, do you remember auction rate securities - I believe that they were marketed as safe, safe, safe way back when - and the obligations did not add up for them just as they don't add up for MUNI's now. There are not enough tax receipts or accruing investments owned by municipalities to pay the obligations on these bonds. The result will be a light switch. When people finally realize that they have been sold on tax free income and the illusion of safe, safe, prices that absolutely reflect a panic rush into that illusionary safety at pricing that reflects extremely low risk, the door will no longer be open and there will be no bid. Not even one bid...just like auction rate securities.

Muni's are part of the ponzi scheme to push ever increasing debt into the system at low interest rates...this is not dissimilar to the the derivatives markets or other money inflation tools that the fed has used in the past. The requirement for our system to stay afloat is to create new debt money without creating interest or as little of it as possible. Given the mechanisms in place that is a very hard job.

The statistic and ironically question that many experts pose, is: "There is real buying and demand out there!?". Well, my answer is simple, there isn't demand. It's not real and one of the issues with myopically looking at markets is that, as with any thing you stare at all day, you can see things that are not there. There is no demand, and if QE was soo good at doing anything other than blowing bubbles in the bond and stock markets, how come the Fed has been unable to move any economic metric in any significant way without deliberately falsifying and optimistic promoting contrived and trumped up numbers that only get revised lower.  They just can not demonstrate real improvement on the scale that one would expect from QE when debt destruction is not factored in. QE is not increasing the volume of money. That's why its not having an effect. However, it is having a side effect and that's called - bubbles. Bubbles are the only thing the fed is good at, the sad thing is that the taxpayer will get the bill, tax roles and municipal revenues will decline dramatically when this bubble starts to burst.

Contraction in the volume of money (Total Money plus Credit) results in a shortage of cash. The fed is not creating nearly enough cash to deal with the credit destruction that is occurring via insolvency embedded and masked deep within our system. It will not fly. The bankruptcies are already there and what's more, just like long-term capital, people with assets know they are there and will force them out in the open. The FDIC, FHLN, SIPC and other assorted government complacency schemes will not be able to mask the fake accounting hiding insolvency deep within our financial system. JP Morgan, BAC, Goldman Tax, Morgan Stanley and many other institutions are hiding huge losses using mechanisms that no individual would be allowed to use without going to jail. But all this is simply cronyism and regulated fraud.

Lending is primarily occurring between banks and the Treasury

Now lets take a look at point two. Banks are borrowing at 0% and lending to the treasury at 2 to 3%. I don't really care what the percent number, so I am not interested in being precise...the concept is the essence of what I described above. Additionally to that, a setup like that is representative of a bubble, faulty financial regulations and structure - it does not usually end well.

Additionally, due to these contrived dynamics, the yield curves are making it treaterous and expensive to hedge market exposure in many types of lending activity, therefore, it may appear on the surface that banks are making nothing but money with this strategy but the reality, as usual does not connect directly with our perceptions of it nor the media's generally trivial and optimistic portrayals.

Small business is not getting lending activity nor are individuals. The irony is not for the interests trying their level best to incent people to borrow. But that qualified businesses and individuals see no reason to borrow. What's the upside - more liabilities and risk. People are risk adverse and see an unstable future, so even if they can afford and are qualified to borrow the extent of their activity will likely be to refinance existing obligations not to establish new ones.

Stocks are pricing in perfection, cash reserves, de-leveraging and cashflow

Stocks reflect both optimistic assumptions and market dislocation. Stocks have been heavily shorted via false breakouts and just as they are fairly strongly covered and longed at false upside breakouts like the one that we are potentially having right now. Liquidity is constrained, alpha is hard to generate and people are getting more and more desperate. To this end, mutual funds have very little cash left and additionally the shorts have been separated from most of theirs. These conditions setup a wonderful environment for that Fatfinger guy at Citibank pumped by CNBS to reappear. Who will be a buyer of inflation assets when there is limited real cash to buy and Muni's and other debt instruments are imploding?

Ironically, the de-leveraging process is not obvious. One would normally associate de-leveraging with deflating prices and forced selling. However, the reality is the highly correlated and specifically de-correlated activities in the markets are causing disruptions in arb market activity that has traditionally been active with highly leveraged risk taking due to its lower perceived risks. Therefore, de-leveraging is occurring as prices are actually going up in many markets. Arb is not working, just as most risk avoidance schemes are failing aswell. I suspect there will be a lot of body-bags required in the not too distant future.

On the subject of cashflow, there are 22 million unemployed (though probably higher) and a lot of under employed people in the US, that's a lot of pressure on unions, wages and incentive for business to lower costs with less expensive resources. These cycles tend to be self fulfilling, lowering the costs creates more unemployment which creates less demand which ultimately depletes cash and lowers asset values due to continued contraction in the volume of money. The results effect tax receipts, sales and cash reserves. Additionally, many of the US corporations touted as having huge cash stores have that cash held tax free offshore. if they need that cash to operate they will have to give 30+% to uncle sam...that creates a very different looking balance-sheet - one that most people are not factoring in.

Most of all people are paying a hefty price for risk with a rather low potential for return in almost all markets. This creates a dynamic that Fatfinger would just love to revisit. Sugar plum fairies and Ben Bernake fantasies may offer some restful nights at this point, but sleeplessness lurks right around the corner when fraudulent and regulated insolvency is no longer viably masqueradable as solvency.
© 2009 m3, ltd. All rights reserved.