G-Pap spreads diarrhea all of the modern world...

Now G-Pap is dressed in a nice suit and walking through the beautiful sunset for his action shots…he wants us to believe that he will form a consortium - by Monday!...yet his work is more grotesque than that of the lowliest sewage worker. The thing is that I actually respect a sewage worker…he does not pretend to be something he is not…he is really working in the sewer. However, our politician friends work several levels beneath the sewer and pretend that they are sailing on pristine fresh water lakes in 20 knots of wind - at their backs no less. 

G-Pap has spread his venom to Europe and to the US via the incompetent regulators and officials that are supposed to keep us and the fincancial system safe and in order. Even more disturbing is that G-Pap has been afforded this opportunity by even higher level leeches like Ben Bernanke, Alan Greenspan, Robert Rubin and Larry Summers and their assorted cronyists who thought that Trichet and the ECB were actually a good idea and who believe that the only way to fix the problem of spending too much, is by borrowing more and the only way to fix the problem of borrowing too much is to borrow more and spend more. These are not really very complex problems but they have gained their circular logic due to the nature of politics and the surreptitious nature of compensation of officials and cronyists. 

G-Pap has now exported to the US, via the MF Global disaster, the concept that the way to fix too much risk is by granting even more risk and then closing the eyes. All of the big futures exchanges have granted risk waivers of sorts by reducing margin rates to maintenance margin on all futures products supposedly to handle the smooth transition of accounts from MF Global to their new FCM's. Anyone who believes that a harebrained plan like that coming from a regulating body will work as planned is smoking something pretty potent. These same regulators watched as MF Global (and who knows how many others) used their client money to trade…and did nothing for years…but NOW they have an interesting plan and idea and its REALLY going to work. NOT! 

The reality is that when there is blood in the water the sharks will be circling…especially when the prey is wounded and weak. The regulators are weak, MF Global investors are tired and weak and the market and the system as a whole is weak…I think the answer as to who is the hunter and the hunted is easily answered. The regulators have now succeeded in taking one disaster and magnifying it into the beginning of the biggest capitulating global liquidity crisis in history. 

If regulators wanted to deal with this issue, they could have granted specific credits or options on futures/buying power to MF Global customers not all of wall street. Publishing that the MF Global situation was such a debacle that they are willing to change policy and risk protocol dramatically is rife with its own unforeseen risks. Those risks are going to be watched VERY closely by the sharks quietly circling the pending disasters. What’s more is that anyone trapped does is only getting what they deserve, there have been plenty of warnings. Capitulation of the prey and of the regulators by the great white market sharks should not be far off.

The reality is that the government has now once again demonstrated that its answers to problems of over leverage and risk taking are more risk and more leverage. As we know the problem of being pregnant can not be solved by being more pregnant - so the problems of MF Global and the European system can not be solved with such a circular and catatonic approach any better.

Regulators and investors subscribing to this perspective are committing suicide and their demise will be brutal and swift.

Liquidity crunch is on - deception continues everywhere but in the charts...

G-Papsmear is lying his butt off…chaning his story and his government and some magically he is going to have a consortium by Monday AM…I think not. Additionally, the liquidity crisis continues to accelerate and the shortage of dollars is more and more evident in the charts as of friday…I will post more details later today.

Some charts to consider...

Bearish candlesticks closed the day and we have these charts…

MF Global…Goldman Tax and JPM...

There is no practical way that the regulators could NOT have known about the endemic fraud at MF Global…what were the regulators doing sleeping with the enemy? The next question is what’s going on with JPM and Goldman Tax, BAC and Wells etc…all of whom own sovereign derived positions at much higher leverage than MF but do not mark the positions accurately because its part of being a bank to supposedly hold to maturity and commit accounting fraud! I guess this is why the banks on this list are able to fake their earnings with loan loss reserve write ups…

Are the regulators going to wake up and be similarly surprised when these institutions implode? JPM is a disaster and Goldman is worse which is hard to believe…BAC is simply a criminal enterprise and Wells bought Wacovia…how they could be faring much better than BAC would be remarkable.

MF Global was a shot accross the bow…the banking system as well as many more investment firms will be next on the block…

Meanwhile, Bill Black does have quite a few reasonable things to say…I do not agree that government is the solution but I definately think that people should NEVER be paid to do nothing…its bad for their skill sets and its bad for morale and moreover its bad for the country. As for the CEO’s of all the above firms and quite a few more who believe they can pretend to be great financiers and market participants…they should likely all be in JAIL.

Paul Krugman = 0 versus Niall Ferguson = 10

Krugman is not worth the pixels used to render his blog on the http://krugman.blogs.nytimes.com/...

How MF Global kicked off a Global Bank/Financial System Run...

Apparently everyone is sleeping…and the MF Global event is not a big deal…right? The reality is that though Charlie Gasparino seems to HATE John Corizine…he seems to think that the MF blow up was not a systemic event. Charlie Gasparino, I have found, is not nearly as insightful or smart as I one thought he was…He however, is much more arrogant and misguided than I thought he was capable of being…I guess that happens when you sign up at Fox.

In any case, the theory goes that MF and its challenges are not a problem for the system…I believe that the MF and Bear Stearns parallels are too close for comfort. The cases are essentially identical. Both events occured for very similar reasons and both are trigger events for crisis intensification - and this while Ben Bernanke talks calmly about all the things the Fed has done right and with distinction…So, this is the subject of this post. MF, like Bear over leveraged its book and used desperate measures to try to prop the whole game up. MF assumed it could use credit and other people's assets to hold up their dealings…with at least 700 million (probably more…the numbers will likely keep getting bigger) that was not theirs.

However, there is one thing that is absolutely endemic on Wall Street…people at both firms could get paid a lot of money to taking outsized risks with money that was not their own - and those people did just that. The whole problem with the accounting control fraud on wall street and the financial systems stems from people feeling like they have a right to money and purchasing power that is not really theirs and that its their right to use it to drive their compensation schemes. This is why I do not believe that money managers should be paid for anything but making you money…why pay a management fee? Pay only performance…that approach is much more constructive and does not reward mediocrity…which clearly John Corizine and his kind are striving and succeeding to be.

However, people WANT to believe that things are ok…but they secretly know its not. When you tell people who have been trying to put their head in th sand that they can not have access to their money and at the same time asset prices are collapsing around them…they get very very anxious. The people putting their heads in the sand tend to be people who want the system to keep working the way that it has in the past. They want to make money believing in dollars weaken, credit is cheap, leverage is good and assets increase in value. They usually also get paid handsomely for their pursuits of making money in such a scheme and pass the risks to other participants. This generally follows the axiom of privatizing profits and socializing losses.

So, lets look at MF Global. The main issue here is that improper incentives and complicit plans created an issue where people can now be sure that for certain almost all financial firms are committing accounting fraud and their assets are not truly where people think they are. The reality is that if John Corizine wanted to get his big bonus…the whole deal was not his ambition alone - it was probably engineered by his private share holders cronies and board members incentivising for their own gain to generate new profits to move share prices up. I am quite sure their suggestion was that it would be easier accomplish this objective with prop trades than actually building their business. Why else would anyone risk a perfectly good business in exchange for a far less certain and manageable outcome. Clearly, the board and key shareholders had to create the proper incentive for such an agenda. The interesting thing here is that all of these key people are looking at attempting to benefit from access to the assets of others - a classic credit money technique.

The result at this point of all this compensation incentivized risk taking, however, is that the largest liquidity squeeze and bank run in history has likely begun. BAC clearly does not have your money safe, neither does JPM or Goldman Sachs or now many non-bank financial entities like MF Global are proven to be highly duplicitous and untrustworthy. As I said before there are a lot of roaches…and we will need the cans of DDT.

The NFA sent out the following email, requesting disclosures to be made to pool participants that clearly indicate they many not be receiving their anticipated capital in amount or time from MF Global…clearly there are no guarantees…and the key is to get safe.

If you are a Member operating a pool that has pool funds held at MF Global, you must make the following disclosures:

• On October 31, 2011, MF Global reported to the SEC and CFTC possible deficiencies in customer segregated accounts held at the firm. As a result, the SEC and CFTC determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets, and SIPC initiated the liquidation of MF Global under the Securities Investor Protection Act.
• As of (insert date) approximately $XXX of (Name of Pool)'s assets were on deposit in an account(s) at MF Global. These assets represent XX% of the (Name of Pool)'s net asset value of $XXX.
• The General Partner does/does not believe that these actions will have a material impact upon the operations of (Name of Pool) and its ability to:
• Satisfy redemptions requests;
• Adequately value redemption requests and the manner in which they will be handled;
• Accept new subscriptions in (Name of Pool) and properly value the net asset value for new subscribers; and
• Provide for accurate valuation in the (Name of Pool)'s account statements provided to participants.
• Participants are cautioned that there can be no assurances:
• That (Name of Pool) will have immediate access to any or all of its assets in accounts held at MF Global; and
• As to the amount or value of those assets in the context of the bankruptcy.
• Participants should also be aware that future actions involving MF Global may impact (Name of Pool)'s ability to value the portion of its assets held at MF Global and/or delay the payment of a participant's pro-rata share of such assets upon redemption.

Read it as one may…this is not good and we must keep in mind that we may soon be getting these types of disclosures from the FDIC and other supposed government insurance schemes that encourage complacency that are endemic to a vast credit money ponzi scheme.

What we need to be prepared for is this HUGE margin call starting to playout emminently…and that means now, as in the next few weeks. This will mean, banks and financial institutions that even have a whiff of accounting fraud and undercapitlization are going down. Gettting money out of one of these firms is going to be a very frustrating process as it currently is for MF Global customers. As the run continues people will be forced to sell everything not glued down to get their cash needs met. And that my friends means GOLD and SILVER too.

The irony is that the source of the MF Global is the same source as our 2008 debacle and the various scams that have been perpetrated by politicians, wall street and regulators for the last years. Its a disease, a sickness that no one believes they have - especially Paul Krugman. Its a fraudulent currency that is source. Its the reason that there is no other process in our system other than involuntary wealth transfer…when people participate in the leeching behavior what we get are the symptoms of the disease. MF Global is just a symptom and not a cause. When you put raw meat in front of a wild animal expecting it not to eat is quite ridiculous. Our illustrious leaders have put the essence of valueless money creation and money amplification in front of wild financial provocateurs - we should expect them to eat at the trough we created. If we want to get rid of the symptoms we need to get rid of the disease. Often the end of a disease occurs with the capitulation of its host. That appears to be the path of this disease. We need to teach our children and culture what money is and how to respect it - until we do that we will continue down the same path and these disastrous symptoms will be all too prevalent.

On another note, becuase I view the MF Global breach as the trigger of the unwinding of a systemic liquidity problem in the financial system, I took quite a large withdrawal from my bank accounts today so I can be holding cash that I know I can get when I need it…it may seem extreme…but since when is being safe extreme. Currently, I look at having my money in a bank with less than 1% reserves and covered by FDIC insurance that can  pay me back anytime up to 99 years from now as much more extreme.

S&P500 Analysis...

Bob Januah Says it like it is...

This latest bailout relies on the market not calling what I see is a huge „bluff‟, because if the market does call it, the bailout simply won‟t be credible or even deliverable. It is instead akin to a self-referencing ponzi scheme, and I can‟t believe eurozone policymakers have even considered going down this route. After all, we all have recent experience of how such ponzi schemes end, and we all remember how eurozone officials often belittled and berated US policymakers for their role in the US housing/CDO/SIV financial bubble. - Bob Januah

He thinks the S&P could go as low as 700…That is to be seen…though I see no reasonable possibility that is could not do so in short order. Additionally, I expect that the S&P could go well south of that if the liquidity crisis expands as it seems likely.

MF Global…not so MF but quite global...

I did not really comment on this last week. However the amount of BS being propagated on the media and street about them is just ridiculous. The reality is that Bear Stearns also blew up because of what is really  proprietary trade gone wrong…all the big firms have essentially a ponzi financed prop trade that is short the dollar and attempting to capitalize on asset price inflation. MF was no exception and the reality is that you can see how the leveraged positions short dollars and long assets will end up turning out for the banks and large firms in general. Now, if MF were the only story we might skip it…but when Bear blew up its book…there were quite a few others on the verge of doing so at the same time…how the saying goes is that where there is one roach there are probably a lot more…well get your roach repellent out TODAY…we are going to need it…the contagion is spreading from Europe to everywhere.

ANYONE who has their trades cleared through MF Global either directly or indirectly has been unable to trade today. So, any trader who only trades there is just sitting there watching the market move…what a disaster. My best wishes go out to everyone who trades through them…maybe now people will better understand why I will NOT trade via Goldman and did not choose MF Global either but rather Interactive Brokers. I have to say for the record that I feel like IB is the best shop on the street and one of the most conservatively managed too.

Like an island…in the middle of the atlantic…the tsunami comes

perhaps its the pacific - its much colder water too. However, the reality is that yesterday’s gap and the patterns it placed are confusing many. The presumption is that the market is bullish…when we covered a month ago it was bullish…however, we did not go long that move. Now we sit precariously perched in a market looking for divergence and bullish extremes…and we also sit at very high probability reversal levels.  However, it is important to understand that the scope of a larger downtrend…divergences and bullish extremes often do not have time to build. This case looks to be no exception.

There are now complete patterns in the that should be scaring the pants off anyone who is approaching long that particular currency. The setup in the EURO postures for a move of epic proportions…perhaps 1,000 to 2,000 pips down in a matter of a few days. The risk markets are likely to correlate to the movements in the EURO as they did this time. In any case, as I indicated in yesterday’s post…the euro points to parity with the dollar and I think that that progression may likely happen faster than can reasonably be anticipated.

Also, of note is that the already strong buy trigger that triggered last week for US 30 year bonds is still intact and bounced off it…they are about to trigger another risk on desicion point…for the long trade ofr the UST 30 year.

It appears to me that we are setting up an Island top…and I think the water will not be of the nice calm Caribbean sort.

Powerful decline awaits…some quick charts

I did not have time to annotate the charts…however, the short squeeze into the resistance has occurred in quite a few separate markets. In addition, we are sporting one ugly gap…looks like it will not be a pretty. Additionally, I want to point on the pattern on the longer-term view of the EURUSD…this pattern is setting up for a breakdown and the measured move is indicated by my target arrow…which puts the euro near parity with the dollar. This will likely occur rather much faster than people may be expecting when it happens. This is especially the case when you consider the fourth chart and the clear zigzag bounce that the EURO has had. The implications are rather grave for the EURO. Of note also is that that Dollar has ticked near a major support level which can be seen in chart 6. Lastly, one of the things that occurred today that increases the likely hood of a powerful failure is the overshoots of the rising and falling wedges as displayed on the last chart. We overthrew the wedge boundaries and the result will likely trigger a reversal that ironically is much more powerful than the overthrows. Also, a last note, the usually leading NASDAQ dramatically underperformed its counterparts today.

Mind of Money Interview of Robert Prechter

Douglsss Lodmell interviews Robert Prechter - this is a really good interview and I think rather timely. The dynamics of the market and the financial system are covered very well in it and I think its one of the better ones I have seen of Prechter...I highly recommend that you watch it in its entirety.



On a markets note, we simply came up to and hit my target at 1250 on the SP500 and the market structure has changed little. Credit fueled drunken lunatics are driving shorts out of position and longs into position as precisely the most expensive times and central banks are desperate to try use any asset as potential symbols of solvency...the Gold, Silver and Oil shorts finally triggered today and the currencies are shaping up nicely. US 30 year Treasuries triggered long on monday and that IS NOT a good omen for this rally. I think that as I have said before and as Bob says in this interview...its time to get safe! or as safe as possible...the drop is not going to be pretty at all.

Market dynamics or dynamic markets?

Well, that was interesting a nearly 5% move in the ES intraday low to high…some key facts of worth, the VIX is in a clear bull flag and bouncing off support. US Treasuries put in bullish cycles a few days ago and did not get near their recent lows when equities got near their highs…the same applies for the dollar, which is sporting a rather nice looking pattern…and a head and shoulders on the 120 minute EURO chart...for all the noise about 2 trillion bailouts the EURO did not seem to energetic…having remained below its 61.8% retrace today…

So, all in all, though the systems have taken some very nice profits…they are still short and the same scenario still seems to be in play - a triple top rectangle….rather bearish indeed and highly probable too.

Many people are expecting a complex set of waves up over the next few weeks…the action in the dollar and the VIX and our pattern say otherwise.

On another note, we continue to have massive accounting fraud in the earnings of all the major banks…Citibank’s clear manipulation of its books is just one example of an outright abomination. The market is saying we do not believe you will pay us back Mr. Citibank and Citibank is saying our clients are so good we can reduce loan reserves…and call both earnings. There is only one option, if the market thinks that Citibank is at increased of default - what its saying is that Citibank clients are likely at even higher risk of defaulting. How Citibank can turn that into 3.8 billion of earnings via loan loss reserve reduction and the decline in their own debt value, is simply unfathomable. In fact, given this situation, Citibank should have increased loan loss reserves not decreased them.

Kyle Bass - following in John Paulson’s foot steps

“The value of the metal in a nickel is worth six point eight cents,” he said. “Did you know that?” 

“I just bought a million dollars’ worth of them,” he said, and then, perhaps sensing I couldn’t do the math: “twenty million nickels.” 

“Actually, it’s very difficult,” he said, and then explained that he had to call his bank and talk them into ordering him twenty million nickels. The bank had finally done it, but the Federal Reserve had its own questions. “The Fed apparently called my guy at the bank,” he says. 

“They asked him, ‘Why do you want all these nickels?’ So he called me and asked, ‘Why do you want all these nickels?’ And I said, ‘I just like nickels.’” “I’m telling you, in the next two years they’ll change the content of the nickel,” he said. “You really ought to call your bank and buy some now.” - quotes from Kyle Bass

This is the funny thing…Paulson made an historic trade, his psychology of success cost him his values and granted him complacency - so, he forgot the most important rule…when you have a success and confidence you are sure to need self doubt and humility…

Reading Bass’s quotes, it is apparent that he believes in his view so much that he is capable of marrying ridiculous analyses and obtuse risks…this one is ridiculous, however, theoretically its reasonable risk trade. NOT because of the silver content - but because the Nickle happens to be legal tender and due to the potential of its buying power increasing due to the “paper in it” and while the very silver he so desperately wish to have declines precipitously…and this despite Bass’s totally superficial analysis and understanding of the monetary system…The reality is that HE has to store all those coins, that is not cheap and it WILL significantly impair the risk/reward on the trade…Bass will be lucky to break even on it over the next several years…though I am not so optimistic about some of his other risk trades.

It takes people betting the farm on ridiculous trades and popular consensus views (the debasement and real asset hedge is VERY VERY popular) to make market moves that have conviction.

Market Update...

I will be posting some charts later today to add to this post…(as of 10:49 pm I am totally wiped out have not recovered from 10 oscillations from zero to 26,000 feet and back yesterday testing out a King Air B200…will post charts in the morning) But as far as the markets are concerned, I would like to share some observations from friday. It is important for me to point out that as opposed to most blogs and professional services that charge for their opinions and usually give you two opinions and subsequently claim the best one post history. I present my view, it is merely a view but is a focused one. I have never found that I can make money in the markets by flip flopping…I don’t have time to waste doing that…either I am wrong or I am not. In the case that I am wrong, I want to determine it early and manage that condition proactively...the most effective tool for proactively managing risk is proper allocation.

Hence, my view and posture has not changed at all since my last post…the market was SOLD by institutional traders especially into the short squeeze at close on Friday. In fact, it looks to me like the primary activity in the markets has once again been a roller-coaster of leverage becoming de-leverage…longs became shorts after blowing out of their trades and now they are blowing out of their shorts. In addition to that, you have all the asundry liquidations by the various insolvent and liquidating financial institutions around the world. With all their crazy derivative and leveraged risk positions this does not imply that asset prices must go down...and can indeed imply quite the opposite. The most ridiculous thing is that NOW that we are above that trendline…most will likely look at it like a breakout which will likely further their whipsaw. I am quite confident that this breakout will be a retest overshoot and thus a failure.

The dollar has lost downside momentum and looks powerfully positioned (hence we have reentered the dollar in the 77.12ish area. The EURO has lost its upside in a spasm of de-leveraging…while, its counter part, the dollar is sitting above a multitude of major supports and that to me has profound implications for the whacky diatribes and promulgation I am hearing about.

Oil, Silver and Gold are all set and generated partial short triggers on Friday…I think the ride down will likely not be interrupted by a zigzag for the markets- meaning that we put in a pullback here to a higher low and then proceed to a higher high as a part of this move. If that were to happen, however, the targets would be in the 1250 area for the S&P500. While it is inruiging to make that guess on this pattern - I am not in the business of guessing such things for profit. I do believe that the market will likely fall here and that the trip will be a rather powerful unwinding - hence, I do not favor our current wave up being an A wave of an ABC zig zag up...my positioning is looking more for nearer-term reaction...and is highly biased to the action of and in the currency markets which are indicative and at the center of our storm.

Markets setup for a fall…and possibly off a cliff

After covering shorts in the 590's for the Russell 2000 - the 1080's for the S&P500...we triggered short today and have very high quality fills near the highs...I am expecting this trade to be powerful. We sold the dollar for the dollar in the 80's and now are long again in the 77.20's...I expect that the dollar will regain those lost points much more violently than most would think and rush to new highs. So, additional to short triggers on the equity market...we got triggers long on the dollar...and now will likely get triggers short on Oil, Silver and Gold tonight or tomorrow...all in all, its the same story and same channel. People who were long got stopped out and went short...only to get hammered and highly leveraged on this current move...by now, many people are most likely flipped from short to long again and on all out leverage in order to try to overcome the losses on at least four failed momentum swing trades. THIS IS WHY I do not trade momentum or breakout trading...it just does not work over all. If you only trade at extremes you are much better off.

In any case, today we broke out over resistance on the S&P500, which for all intents and purposes looked like a clean breakout, took out stops and got people really convinced that they needed to be long. - the reality is that the breakout failed, as usual and we closed under resistance. While this rally has gone higher than I expected, it has tested and slightly overshot the resistance zone...and I believe that people are unprepared for what is about to befall them. I do not think people will get the chance to get in or to get out in a satisfactory way and that will cause quite a bit of volatility in our already leverage junkie markets.

The EURO has additionally, convinced participants - especially apparently Goldman Sachs clients, that it will be saved and is going to be fine...as I have said before, in today's markets the goal needs to be to short the shorts. When shorts capitulate - SHORT! That appears to be what we have now.