Archive - Aug 2011

This is a TERRIBLE market to be invested in.

Update: aaaaand it's up. DJIA must be down only 300 now...

Without looking at the ticker we will assume that market selling has accelerated since the BAC call ended and the DJIA is down 400... Were we right?

Perhaps someone should staple the following latest poll from Reuters/Ipsos to the office door of the Fed chairman in the Marriner Eccles building, according to which a record number of people or 73% of all Americans, believe the economy is headed in the wrong direction. This is the highest number measured since the poll started its survey in February of 2009. Only 21% believe the US is on the right track: we assume these are the few people who actually made money in the stock market in the past few months, in other words those long various precious metals [/sarcasm]. Additionally, 47% of respondents believe the worst is yet to come for the economy, the highest since the March 2009 low when the number was 57%. Furthermore, Obama's approval rating dropped from 49% to 45% over the past month. Perhaps it is time to kill Osama for the 3rd (or is that 4th?) time. Bottom line: pessimism is now at or near fresh all time highs. And this is the environment in which the true viceroy of the Americas, Goldman Sachs, has now decreed will proceed with QE3? If the American revolution was deferred back in November when QE2 was enacted, we fail to see how it will be avoided this time around when people realize that gasoline is headed for $9/gallon. Or roughly what Europeans pay today.

... then it's not a very big net worth, we are sorry to say (and it will get even smaller).

Oversold rallies notwithstanding, the Debt-Junkie Market just stumbled into the pool and was barely saved from drowning. The stock market party isn't over for strictly technical reasons, though the technical damage is severe. The party's over for a much deeper reason: faith that the Fed can fix the economy has faded, and participants no longer believe Wall Street's self-serving hype about the recovery and rising markets. Oh sure, people go through the motions of expressing faith in the market, in corporate profits rising forever, in official pronouncements of the Fed's omnipotence, and in whatever snapback rally is in play at the moment, but it's all for show; nobody really believes any of it, they just don't want to be the odd man out by confessing their loss of faith in the false idols. The financial Status Quo has an unsolvable problem: reality isn't swayed by propaganda. Does anyone really believe another couple years of low interest rates and a snapback rally or two will fix what's broken in the U.S. and global economies?

After previously testing its mettle in such markets as Natural Gas and Crude Oil, the fractal algo, just like the StuxNet virus, is now ready to progress to its real test: equity products, and specifically ETFs. Courtesy of Nanex' sharp eyes (and extremely complicated market scanners), today we have the first official spotting of the fractal algo moving away from commodities and into extremely popular ETFs, in this case the bearish bond synthetic CDS better known as the TBT. The pattern below is quite unmistakeable. It is quite amazing that just one algorithm can override the entire market and determine the trading pattern of some as hugely popular as an ETF which most hold. We expect that very shortly, we will be observing daily fractal patterns in that most liquid and traded product of all- the SPY, as the market proceeds to become nothing more than a real life version of Nuke-em Duke-em robots.

Markets are trading sharply lower this morning after yesterday’s late afternoon rally on the change in language in the Fed statement that will keep short interest rates essentially at zero until 2013.  As I have stated before, I believe they will ultimately be forced to keep rates low forever, or at least until the bond market vigilantes eventually rise up and shock the world by demonstrating that indeed you can fight the fed.  Which begs the question, who will be the George Soros that breaks the US Fed?  We’ll see.  In any case, by 2013, it’s highly likely that the US will have over $16tr in debt.  If the average rate across the curve in 2013 is only 4%, which is low by any historical standard, then our annual interest payment will be over $600bn, or almost 30% of annual tax revenues.  So the Fed faces problems on a number of fronts.  They have to be seen as actively trying to do something so they continue to manipulate the price of money to artificial levels which only serves to send misleading signals throughout the economy.  QE1 and QE2 have come and gone and yet unemployment remains sticky above 9%.  Their balance sheet remains abnormally large and their policy tools to manipulate the market is dwindling.  Now add to that the reality of the math of our huge fiscal debt and deficits.  No matter which way you spin it, we have some tough times ahead that will involve some asset prices falling (commercial/residential real estate and other levered assets), other asset prices rising (agricultural land, commodities, gold/silver) and the façade that the Fed is all-powerful to come crashing to the ground. 

There were many odd things about today's $24 billion 10 Year bond auction, which just closed at an all time low yield of 2.14% (down from 2.92% in July), the pricing being just one of them. That this was a very favorable result is a given judging by the yield just following the auction which has since tumbled to the lowest ever except for yesterday's dramatic collapse in yields. At this point, courtesy of the Fed's genocidal policy, it is very possible that the 10 year could drop below 2% shortly. What was probably just as interesting about the auction was the unprecedented surge in Direct Bidder take down which soared from 13.9% to a record high 31.7%, a number not seen since the last time the world was imploding or back in May 2009, when it hit the then high 25%. The reason why Direct had to step in? A massive collapse in the Indirect Bid, plunging from 42% to 35%, the lowest since February 2010. Either the Fed's proxy account finally came out of the closet or China is now very confused and telegraphing a plunge in Indirect Bidding even as it buys up ever more via its London accounts. Either way, the first 10 Year auction since the downgrade passed with stunning success: congratulations, cherry popped.

Yesterday was a rough, tumultuous ride. I went from supreme confidence to getting bloodied up. If you remember, the BoomBustBlog traders recommended a grab for profits or a gamma hedge. I decided to go all in to FIRE sector short risk, with just a wide trailing stop to protect me. I was quite comfortable up to the last 40 minutes of the session, wherein it seems as if Bernanke's floor traders swept in to teach smart asses such as my self a valuable lesson. Fortunately, CBs can only affect the markets, they can't control them.

Ahead of today's Bank of America conference call organized by Fairholme's Bruce Berkowitz which has one purpose only: to rescue his losing investment in Bank of America, which is down almost 30% in the past week, below, courtesy of Manal Mehta, we present 6 prepared questions which we are confident will all get their due attention by Mr. Berkowitz because unless these core questions, which go to the heart of all investors fears about Bank of America, are not answered, and instead nothing but fluff is discussed, the whole exercise will lead to an even greater panic in Bank of America stock. And what would be more ironic than another 20% drop in the BAC stock during this call. Also, in addition to the questions below, we post the following, based on an analysis by Compass Point Research & Trading, which matches an analysis conducted independently by Zero Hedge, and according to which BofA could be forced to repurchase between $28.4 and $62.2 billion, or between $10.6 and $44.4 billion above the bank's current reserves, which would immediately impair the firm's Tier 1 Capital, trimming it by more than 50%, and forcing the company to immediately issue an equity follow on, which will likely lead to a stock price also about 50% lower.

On all those Experts by www.thetrader.se

Helicopter Ben Bernanke pusherman

The question is, "Will we make it till friday before a Euro bailout?'

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

The traditional inedible religion of barbarians had been oddly patient for most of the day. No longer: next up $2000.