Saturday, March 30, 2013

ECB, FED, EJB, BOJ, JPM, GS, BAC, UST - lets play hot potato(e)

"FDIC has taken care of every single person effected by the financial crisis" according to BURNanke…”not one has lost a single dollar”…is that an answer to the question of whether it possible to have haircuts on US accounts for US account holders on US shores? Shiela Bair apparently is smart enough to have vacated FDIC before she was to be asked that question under similar official scruitiny.
Kyriacos Loizides, a 53 year old businessman, said: "Next week there will be huge demonstrations [in Cyprus]. I think there will be violence and killings. People will take revenge against the people who created this scandal, this tragedy.” And we have not had anyother EU bank blow ups yet…or US - all of which is waiting in the wings.

Friday, March 29, 2013

Harmonics are everywhere - the Expanding Broadening Triangles

The harmonics are startling and ont he DOW show us just a few points from the nirvana of a perfect hit at 14585…(chart to come)…meanwhile here is the S&P500...

This is a very large chart click on it for detail…for highest resolution click this link
This is a very large chart click on it for detail…for highest resolution click this link
Guidelines for expanding broadening triangles indicate that each wave needs to retrace atleast 100% of the previous wave and optimally between 105% and 125% but not more than 150% +/- a few percent on all measures. In terms of the triangle as it progresses, each move in the triangle will be a greater number of points but a lesser amount of percent of each prior wave, and therefore, limits the current wave to a maximum of the pervious wave’s retracement percent but usually prefers a fibo relationship percentagewise.

Out of sight and out of mind…the pretense of WINNING

How interesting it is that what we don’t see, don’t hear and are not reminded of seems to not matter. Fukushima, Libya, Egypt, Iraq, Syria, FED balance sheet (hedge fund), Greece, Ireland, Portugal, Belgium, Luxembourg, Slovenia, Hungary, Bolivia, Citibank, JP Morgan, Goldman Sachs, Central Banks, IMF, Water, Plastic, Obesity, Unemployment…

That’s a list for sure, but one that politicians and bureaucrats have attempted with serious conviction to obfuscate. We hear nothing really after spending 7 trillion in IRAQ and leaving the country in a bigger state of upheaval than before we started. We hear nothing about Libya, so, yes - “it must be fine”. We hear nothing about Egypt, so there is a beautiful blossoming American approved democracy budding there and the Arab Spring is yielding flowers and fruits for everyone. Fukushima’s half-life is over 300,000 years, yet its now safe to eat fish from the oceans, move back to the provinces and play on the streets after just a few years. JP Morgan, though recently in the news, is now all fine just because we made certain that we nipped their indiscretions in the bud and talked them down in a public hearing - now its back to business as usual for regulators and JPM - faulty accounting, books and marks and all. Nothing to worry about there.

The FED is the only asset buyer in history that can buy Hotel Debt, Mortgages, US bonds and other bonds (and most likely Equities in their unnamed and unmarked accounts) and NEVER lose money…though they are clearly teaching JPM required mismarking and book making skills…but since it seems like it essentially adds up - why even think about it - the FED will hold till maturity even if that means S&P500 shares bought at 1560 take 40 years to mature - skipping over any price drops…Citibank, Goldman Sachs (among others) can now pay dividends and do share buybacks…nothing to worry about because everything has to be fine for them to be allowed to do such a thing. Greece, where’s that? Scuttlebut has it that, as arranged by Angela Merkel and EU, Greece was taken over by Cyprus…Greece is now just fine and Cyprus will be fine too if we all can only stop thinking about it for a little while. Just get the yields down on bonds from Italy, Greece, Ireland, Portugal, Spain and no one will be able to even find those countries on a map. Unemployment, dropping like a rock thanks to the FED mandate to lower the size of the national workforce rather than to increase the number of jobs. Nothing to worry about - not even worth a newspaper mention. Libya, was a much better place to live apparently than nearly any European country and probably the US too…however, now thanks to our NATO (I mean American) little intervention we need’nt worry about it - everything is just fine…realize that decending into chaos is no issue unless it makes the news…we did our job spending billions to bring the relative instability and calm there and call it stabilization, democracy and order. Capitalism and Freemarkets why do we have to worry about those if intervention and Central Banking work just fine to replace individuals and markets.

Right now the headlines, political rhetoric are absent the real issues and the realities are absent the politicians, news or awareness. Everything is FINE…the S&P 500 is 1570! and its Easter!

Wednesday, March 27, 2013

Everything is even MORE WRONGer…here are other times this happened...

Today we had a condition that has only occured three times since 2007…VIX Up, Dollar Up, Bonds Up with markets making recent new highs…see chart below for these occurences:

click chart to see a more detailed image:

VIX UP = Market Rally
Bonds Up = Market Rally
Dollar Up = Market Rally
Total European Banking System Failure = Market Up and near highs
Currency Controls = party time for Ben BURNanke
ECB Officials dazed and confused = Risk On
Margin Debt increases for Feb = Margin Debt increase in March
Central Bank = Over leveraged hedge fund

Sunday, March 24, 2013

Bottom's Up...

I wanted to discuss the status of the European dilemma...there is a huge dichotomy going on and its is  highly dischordant. We have a crazy situation where, the ECB wants Cyprus to play by the rules, yet ECB and EU are making them up as they go along. Firstly, we must ask some basic questions.

 I am going to try to answer them as best as possible...I think some graphics will be necessary...

Above you can see the essential structure of the central bank credit driven monetary the very bottom of the pyramid is the real unencumbered cash...the rest of the cash system is credit money with its inherent implied obligations attached. What seems to be partially happening, as evidenced with the huge rise in bitcoin, is that people are redefining their concepts of what they think money actually is. Perhaps, stocks and commodities will begin to replace fiat tender for a time...but probably not for long. Ultimately, not very far away, they as well as any other asset, will have to be be sold as sources to raise fiat money as the great credit money pyramid collapses.

As you can see above, I show no actual assets on this pyramid. That is because almost every asset in the world is collateral for some sort of debt. The fact is that though you may think you own your home when it is paid off, the government has already pledged it in some from or another in order to create new credit money.

Now to the questions:
  • The ECB is the defacto regulator for all EURO banks. Cyprus banks have been insolvent for years, yet its only NOW that we find out that they were allowed to store nearly all of their reserves in Greek could this be possible? 
  • Since Greek (among others) bonds imploded years ago, just who is the bigger problem? the regulator who allowed concentrated investments in them? The regulator that allowed them to be held on books, used as collateral and itself leveraged with the pretense of solvency?
Why did the ECB attempt to fuel demand for high risk sovereign bonds at any cost…Cyprus being one of them? Its a rather interesting picture. I can not imagine as a defacto regulator that you would allow a bank to safely park its reserves in high risk investments but that’s exactly what ECB has done and not just with Cyprus, with Italy, Spain, France and just about anyone else they could tempt. The temptation was multiple fold…high releases on collateral and high returns in terms of yield on bonds. The idea seems nice enough, except that the bonds of Greece have not been worth anything for a long time…which is why its peculiar that ECB decided that NOW was the time to stop granting Cyprus collateral release on them. It’s clear something else must be going on here…

Obviously, any astute foreign nationals with money in a Cyprus bank must have been withdrawing large amounts of money recently in order to create the present condition that the ECB finds so contradictory and repugnant and that it had to be handled in the most ridiculous and inept way they have chosen. What else has really changed in the last months that should change the ECB's policy so drastically? Several years ago Greek bonds were actually worth less than recently and ECB did not force Cyprus to steal money from its depositors. They obviously have done so now because the EURO system is riddled with similar problems and the ECB is for all intents and purposes, insolvent.

We need to remember that ECB is holding vast amounts of worthless bonds as collateral, not just Greek, but Spanish and Italian, Latvian and Belgian etc…they have sustained the pretense of things improving by encouraging banks to take tremendous risks and purchase relatively high yielding bonds with the benefit of high collateralization rates with ECB…when sovereign guarantees are meaningless ECB will be forced to mark them properly rather than magically.
  • Why is ECB trying so hard to resist the Greek style "close your eyes and do anything" approach and say anything PR campaign?
ECB clearly has fear of much bigger problems and needs to manage its behaviour now in such a way as to not have to roll over for the other 15 insolvent EURO nations when they can no longer suppress them. Spain and Italy make Cyprus look like an ant on an ant hill compared to the giant Dung Beetles waiting to emerge from their burrows, since a Cypriot national default would render the ECB immediately insolvent and require all plus some of their reserves. 
  • Just how much collateral is the ECB holding on its books at par that is really @ 0?
More than I can count for sure…I would like to know this answer specifically however…
  • Just what is the theft, I mean haircut, ahemm - levy and what does it mean? Who does it really effect? How long are funds impaired?
The funny thing about this haircut issue is that its really not as advertised. As I get ready to post this, a 40% haircut has been agreed to and that is exceeding even my worst expectations. But if that was the end of the story that would be bad enough, but it is not. 

If you have 1 million Euros in Laiki Bank, 100,000 will be paid to an account at a supposedly solvent bank. The remaining 900,000 will be held in a “bad” bank…360,000 will be deducted leaving 540,000 which you will not be able to access till the bank is liquidated…at which point you will likely find out that you will get 10 to 30% of the remaining amount - IN FIVE YEARS!!! 

So, the advertised 40% haircut is likely really only going to give you 200,000 to 250,000 euros back. If you happen to be an employer in Cyprus, you are not anymore. And while its nice that all the individuals with less than 100,000 in their account will be whole…they likely will be out of a job. Politicians will of course. demonstrate that they saved the voters from loss…and though those voters will be out of a job because the bulge bracket employers are no longer…the Cypriot leaders will blame Germany for that little issue. hmmmm
  • How is JP Morgan involved?
Though, as far as I can yet see, JP Morgan is not involved with the Cyprus debacle directly. However, they 80 trillion of mismarked securities are a symptom of the the Central Banking system and Banking System run amok. This is the exact problem that has encouraged the top levels on the chart above and which is enabling the ECB and many other central banks and banks to operate as if they are solvent when they are absolutely the opposite. JP Morgan is just the poster boy and the example…ohhh, and by the way, totally insolvent.
  • Cyprus is so small - does it really matter?
A Cypriot national default would render the ECB immediately insolvent and require all plus some of their reserves…and that matters a great deal if Van RUMPy and BarRUFFo would like to keep their cushy corner offices.
  • What is the architecture of this problem?
Debt, more debt and when you have a really big problem more debt. When all else fails instead of indirect theft…just do it directly. The end result of all of this will be quite simple, default after default and a contraction in the size of the money system by gargantuan amounts. It is very easy to destroy credit created money and our illustrious leaders have done a great job of it. The only problem, is that when you do so, you destroy lives, productivity and potential aswell. Just as any Cypriot today. And while the markets are celebrating the insantiy to which our financial system has resorted, as if its good news, I suspect they will not be looking at contagious 90% haircuts very favorably in the future.

One thing of note, when Ben BURNanke was hased if American’s would be hit with a similar crisis and haircuts, he neglected to answer the question at all, and instead said that “Since the worst of the economic crisis in 2008, the FDIC has protected every account and not one person has lost a single dollar"…I hope you don’t mind if I read between the lines.

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