Saturday, July 24, 2010

presenting the Finance not so "Reform" bill

I posted previoulsy regarding Warren Buffett's deplorable testimony in Washington regarding the rating agencies and specifically his Moody's service. Things are going swimmingly well for Mr. Buffett's agenda if you tally points by trying to benefit from the free cash being doled out by the government and being able to influence government and regulation. Under considered incarnations of the financial reform bill, Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) likely would be required to put up $6 billion to $8 billion in additional collateral on its $63 billion of index derivative contracts. Not to mention requirements on the huge CDS exposure that it has for municipal bonds. I am quite sure you know how this turned out (click here). We got the bill passed so Hathaway did not get a bill and does not need to post additional collateral on those positions. The reality is that Buffett does not have enough money to cover his CDS and other derivatives obligations in the case of a significant market event. The other reality is that is grandpa/uncle Buffett is really a leverage junkie, it will be a sad state of affairs when the tide does indeed go out.
Warren Buffett and other holders of derivatives lobbied hard to exempt existing derivatives contracts from the requirement to post collateral to cover possible losses.
It would now appear that these efforts paid off, with a letter from Senate Banking Committee Chairman Chris Dodd and Senate Agriculture Committee Chairwoman Blanche Lincoln – two of the main authors of the financial regulation bill – saying that the bill "provides legal certainty to those contracts currently in existence, providing that no contract could be terminated, renegotiated, modified, amended or supplemented" ex post facto.
Warren Buffett’s Berkshire Hathaway conglomerate holds $63 billion in existing derivatives contracts, according to Barclays Capital, so the assurance from lawmakers will save the company from having to commit enormous quantities of capital – possibly as much as $8 billion – to meeting collateral obligations.
Reportedly, the majority of the derivatives sold by Berkshire are equity-index puts, hedging against the possibility of a sustained collapse in stock prices.
I think that one of the greatest assumptions of those able to speculate with the shadow money system is based on there being always being a greater fool or a reasonable way to create one. The rating system was one way and Buffett clearly was deceptive or at the least disingenuous in his testimony regarding it.

Ironically, when the tide goes may not only be JP Morgan and Goldman Tax's (not to mention the rest of the crew) lack of underwear we will be observing...(I for one do not particularly want to see Warren without skivvies) In any case, our revolutionary financial reform bill allows any entity to trade derivatives over-the-counter if they are using them for hedging purposes - for example an airline hedging jet fuel. I think we should get ready for quite a few off-balance sheet airline fuel hedging (I mean speculation) entities funded and run by our discount window supplied and over-leveraged pals...this finance bill is great at managing the people who did not need to be managed, while enabling wolves to roam free via big loopholes for types like Goldman and friends including our buddie Warren.

in case you are interested in seeing some of that testimony, here is a video below:

My comments on June 2nd:

Buffett simply dismisses the biggest bubble of all time as a "bubble-et" and that "...since 300 million people never saw it coming why should Moody's have been expected to see it"...on its face that is rediculous.

More derivative fib level discussion

On the chart below, I have further noted the fib levels that I and my systems like to watch. The 1.128 and 1.272 extensions are major test points for people psychologically, because they pray upon the emotions that people have when they think they have got it wrong. At these extensions people think we are going much lower or much higher (depending on the direction we come into them) and tend to capitulate, go to their local bar for drinks and or start shopping for hookers in the village voice. The irony is also at these levels other market participants are absolutely sure they have it right and a absurdly relaxed taking what they believe to be their high probability breakout trade. This is why breakouts fail most of the time. Breakout trading is very difficult to be successful with unless you have something more substantial influencing your decision than a simple trend line break.

These fibs are called derivatives because they are square roots or derived values of the natural fibs. There are some others that I watch as well for example 80.9. I do not look at these numbers for 100% dead nut precision, though their accuracy is uncanny, but what they really do is increase the odds one way or another for the trade probabilities. 

As you can see from the current setup we are about to test the shorts balance of capitulation versus desire for alcohol and hookers. 655 is the level on the TF. Probability favors that we should reverse hard around those levels and I will be watching closely. TF has a tendency to overshoot so I would view that as a good opportunity. For the SP500 the levels are between 1106 and 1112. So that is a zone. Think of it that way. We may stop exactly at 1112 or 1106 but we could also shoot up to 1118 or 1120...still probabilities favor the contrarian. The funny thing is to watch how people behave around these levels. You should see bloggers and analysts totally reverse their view and take losses just as we did at the recent lows.

Its all very interesting and our game is not to be perfect just probabilistic. I would like to point out also that in the chart below that is most definitely NOT a good inverse head and shoulders. It is deformed and therefore less probable. First swing high did not take out previous swing high resistance and the retest broke the left shoulder lows...these are both signs of weakness in the pattern.

Friday, July 23, 2010

"Its a very serious test"...really it is...

“It is a very serious test,” Franz-Christoph Zeitler, a member of the executive board of the Bundesbank, Germany’s central bank, said at a news conference in Frankfurt. “All this criticism was absolutely premature.”
The stress tests, similar to an exercise conducted in the United States last year, were intended to rebuild confidence in European financial institutions that has been shaken by the sovereign debt crisis. Uncertainty about which banks may be sitting on piles of Greek debt and other potentially toxic assets has made institutions reluctant to lend to each other as well as to businesses, and acted as a drag on economic growth. - nytimes
What I find interesting is that a stress test designed to rebuild confidence can accomplish that rather duplicitous task and surreptitious goal. I am rather confident that this is not a stress test but rather another piece in the charade to paint numbers with different colors in the hope that people don't recognize them for what they are and continue believing that the debt based fractional reserve money creation mechanics can create enough principle to pay the interest on the new principle they create. Thankfully, anyone who thinks that sentence sounds a little conflicted probably understands that the results of more charades and lies will suffer a similarly conflicted state. The difference is that by that time all the rich banks and bankers will have transfered any remaining assets into their books and the bills onto ours.

What is interesting is that the one thing you would expect on a stress test is what would happen if a EURO nation defaulted...or if a large bank imploded because of it. Naahhh, that type of analysis does not belong on a serious stress test. So, the people most likely to come up with this fairy tale have got to be the same people who told us the there was no subprime crisis or recession and unemployment was not a problem...speaking of which I think they just said it again:
"The White House said it expects unemployment will stay at or above 9% until 2012, and that the 2010 deficit will come in at $1.47 trillion" - cnn money
"But again, you are seeing a recovery," says Geithner in an interview to be shown on NBC's "Meet the Press" on Sunday morning. "You're seeing private investment expand again, job growth starting to come back. And that's very encouraging."
  • Also, you may think FDIC insurance is $250,000 per account...right? Wrong! They tumpet the ponzi scheme when they need to and then conveniently sweep the reversion back to $100,000 per account under the rug...did you hear this get any press early in the year when it was rolled back? (Note 7/26/10: The new finance reform bill permanently sets the FDIC insurance level at $250,000.)
  • FDIC bank seizures are tracking well above last year same time (70 vs 102), but that doesn't matter does it...Ever wonder how many of those passed the FED's stress tests?
lets see how this plays out...most likely not like the propagandists are saying, in my opinion.

ES Setup and the coming short...

The market is whacked, suffering from Fed-itis...the de-leveraging continues...bankrupting shorts in squeezes and bankrupting longs in panics. This market wants to move beyond probable levels to trigger false breakouts and breakdowns to ensure that it fulfills its "whacked" delegation.

These types of triggers, false breakouts and reversals, most frequently occur at derivative fibonacci levels not the primary ones. 1.272, 1.128 and .886 are the strongest magnets for people to think they misinterpreted the trade are are wrong footed. If we get follow through strength tomorrow, a powerful reversal is most probable in the region that I marked. (1106 to 1112 on the ES futures). Also, I would like to note that the reason these levels are important is that EVERYONE and their brother is watching the .382, .618 and .786 levels and virtually no one watches the derived levels...which is why they are natural psychological and fractal targets.

A reversal there will convince many market participants to play the upside breakout and buy any weakness thereafter...The caveat is, the weakness will actually be the follow through to last weeks probe to the downside that I posted about and that we traded.

The systems covered beautifully and are setup for shorts here. The income system for ES took entries this afternoon on the close in the 1091 area.

Wednesday, July 21, 2010

US in decline...this is an interesting discussion about it

My favorite quote: "To he who has a hammer, all problems look like nails" - Mark Twain

Applies well to financial markets too.

Johan Galtung and Dennis Kucinich discuss the proposal for a Department of Peace

Tuesday, July 20, 2010

For anyone who think there is even a possibility that the government or BP is telling the truth

The spill is no where near over...please listen to this interview of Matt Simmons. click here

About time for another Madoff style ponzi scheme blowup...

  • Goldman made just $2.3 billion in 2008 but paid $4.8 billion in bonuses. Citigroup and Merrill Lynch, Bank of America  combined lost $54 billion in 2008, but paid out $9 billion in bonuses.
  • Morgan Stanley earned $1.7 billion in 2008 with bailout money, and paid out $4.475 billion in bounses JPMorgan earned $5.6 billion in 2008 and paid bonuses of $8.69 billion.
  • Wall Street if asked for a claw back, the funds would likely come from current profits. 
The above is, to the letter, a description of a ponzi scheme. The participants in the scheme are (and have been for years) taking money which is not rightfully theirs and distributing it as they see fit so that they can have their $100,000 a month Hampton's house and lover at the Jersey shore. The reality is that you can not run a business at a deficit where you create NO value for 20, 30, 40 or even 50 years and expect anything more than a ponzi scheme. And ladies and gentlemen that's what we have before us above - a legally regulated and enforced ponzi scheme courtesy of the Fed, past and current presidents and congress.

Who will it be this time?

Monday, July 19, 2010

Flat ES and TF

If people have questions about the recent trades...these are two accounts showing the actual real results for ES and TF swing systems. These are not the trend following systems. (Click on the image for a detailed view)
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