Archive - May 2010 - Story

The other perspective: "The US Senate has passed its version of financial regulatory reform that will include serious changes, some expected, some not, specific to the OTC derivatives market. The passage of this bill will lead to a compromise bill created jointly by the House and Senate and ultimately President Obama signing it into law before 4th of July barbeques are under way. Although its contents are questionable, getting the bill out of the Senate is a good thing as the Hill will finally be removed from the Street. But as we’ve learned during the entire, multi-year reform process, the devil is really in the details and unfortunately many of the details continue to be a bit hazy. At last check, there were 434 proposed amendments to the Senate bill. Most of these amendments will fall by the wayside now as the Senate was anxious to move the process along, but sorting out and knowing what’s in, what’s out and what replaces what may well require a gaggle of Congressional staffers. Even with the final text made clear, most of us at TABB Group are left trying to decipher the “spirit” of the law."

Max Keiser at his best, deconstructing the global ponzi with Gerald Celente, another very much outspoken critic of the broken financial system. Most ZH regulars will be quite familiar with the overriding themes exposing the mass corruption perpetrated by the kleptocratic oligarchy, yet Max as always delivers the message with his patented iconoclastic panache that just draws you in.

A Wave 4 is described as a Profit-Taking Wave. It is not so much that the Bears are getting stronger as the Bulls are taking profits off the table as they see them eroding. The mini-crash on 6 May may not have been real in the eyes of many, but it did technical damage to the market. The emotions of traders are seen in the market as fear and greed have their way. That is also why I said in my post on 6May that the low of that day would be taken out, even though the massive rebound made many think it was just an anomaly. That low (1056) was broken Friday as ES dipped to 1051.25. I think we still have more to go, but I’ll take that new low for now. If that first leg down on 6May didn’t convince traders and investors that there was a significant correction beginning, then the more deliberate decline to the new low on Friday should have convinced them that there is trouble brewing with their new-Bull market. IMO, this is why technical analysis is so great. It is based on repeatable mass psychology, and it is driven by the emotions, fear and greed. Fear and greed are ever-present human emotions that form repeatable patterns in the market, whereas news and world events cannot be anticipated and measured by the lowly traders like myself.

A few days ago we pointed out that Seth Klarman is bracing for yet another lost decade, as the legendary Baupost investor anticipates nothing good out of government incursion in capital markets, and has come up with the best description for the fake, busted and heart attack inducing market yet, comparing it to a "hostess twinkie" (full must read article summarizing his speech at the CFA Institute here). Another must read piece, for those who may have missed it the first time around, is his summary of lessons learned and unlearned from the financial crisis, found here. Today, the WSJ's Jason Zweig has a follow up on Klarman, who, as we noted earlier "is more worried than ever" and concludes that "all we got out of this crisis was a Really Bad Couple of Weeks mentality. I am more worried about the world, more broadly, than I ever have been in my career." And they say Zero Hedge is bearish...

The reform bill is a joke. It reforms nothing, it fixes nothing, and it will not prevent the next much bigger crash from happening (with or without Goldman's Supplemental Lack of Liquidity Provider assistance) - just two items that need to be pointed out: $6+ trillion in GSE debt - untouched, $400 trillion in IR swaps: untouched. This is reform? However, if you care enough to know what a bribed and corrupt Congress and Senate have "reformed" here is a useful cheat sheet courtesy of the New York Times.

The worst kept secret in New York politics is out: the Attorney General has officially announced he is running for governor. From nydailynews.com "After months of speculation of when he will make the formal announcement, Cuomo tossed his hat into the ring on his campaign website Saturday morning." Alas, any changes at the top will do nothing to cure the number one problem in both New York, as well as all other states: insolvency. Too bad New York is so bankrupt that pretty much nothing can help, least of all those tens of billions in NOL carryforwards at Wall Street's investment banks which will make sure New York State corporate tax receipt coffers are empty for years to come.

Jim Rickards, who some may say has gotten a little too much media exposure recently, is on King World News this morning, discussing the presentation he gave to the US Treasury (closed to the public) in which he lectured Tim Geithner on financial warfare, read China, and how flawed trade policies can impact this ever so critical and increasingly tenuous relationship. To be sure, it is better late than never that someone advised the UST on what the right path is. Unfortunately, righting the US(S) Titanic at this point is impossible as it would mean undoing 2 years of flawed actions and policies, and the cost would be unbearable. Another topic touched upon is the recent correction in gold. The price move over the past week should come as no surprise to anyone. On May 19th we noted Goldman's most recent move to a bullish stance in gold, and we concluded that "we may well be in for a gold retracement, at least from a purely
technical standpoint, as Goldman "distributes" its newfound gold
holdings" as Goldman moved to sell its gold to whatever few clients it has left. Sure enough, $70 dollars lower later, Goldman's ever-angrier clients who listened to this most recent horrendous tactical call, are only left with a receipt for a metric ton of KY. The gold move is nothing more than liquidation of real assets to cover margin calls in imaginary ones, such as LBO bonds which have moved from 10 cents on the dollar to par during the melt up, and are now seeing a bidless environment, a groupthink phenomenon of which a plunging FDC is the prime example. Those who have no reason to sell gold should obviously hold right - Rickards notes: "for every seller there is a buyer. The sellers are the daytraders, speculators and people in distress who need to raise cash, buyers could be foreign sovereigns, China, Russia, India, so we could be seeing a move from weak hands into strong hands. I see gold at $2,000 in the short-term, and $5,000 in the long-term." Also discussed is Germany's ban on naked shorting, which Rickards applauds, not so much as a policy move, but as a symbolic stand by European sovereigns against the bullying power of Wall Street, something we fully agree with is long overdue. "Merkel will definitely be supported by others. I know the French were a little but upset that she did it, but they are not upset because she did it, but that she did it first. Sarkozy will join in."

David Kostin: The sinking of the titanic is orderly. Do not panic. The S&P will still close at 1,250. And if you are a client and have listened to us, our bad: "Our overweight recommendations (Energy, Materials, Info Tech) have generated -38 bp of alpha while our underweight positions (Health Care, Consumer Staples, Utilities, Telecom) have generated +12 bp of alpha." In other words we have lost you money on both your longs and your shorts.

A few days ago Tim Geithner said that any risk from Europe is isolated on the continent and there is no risk of it spreading to the US. Following a near 10% drop in the S&P we yet again have confirmation that the Treasury Secretary is a pathological liar or an idiot, or just so confused by analyzing the ever-increasing gobs of negatve data that his brain has officially switched off, we are not sure which, although either case would make him ineligible to practice the role of US Treasurer (unless to the list of permitted exemptions which currently only lists tax "avoidance", one adds lunacy). And while we await a clinical diagnosis on the SecTres' pathologies, we offer this analysis on how European contagion will come to the US from Goldman's Andrew Tilton, which, for what it's worth, is one of the better ones written on the topic.

Courtesy of Economic Policy Journal we now know that the majority of American states are currently insolvent, and that the US Treasury has been conducting a shadow bailout of at least 32 US states. Over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states have now borrowed $37.8 billion from Uncle Sam to fund unemployment insurance. The states in most dire condition, are, not unexpectedly, the unholy trifecta of California ($6.9 billion borrowed), Michigan ($3.9 billion), and New York ($3.2 billion). With this form of shadow bailout occurring, one can only wonder how many other shadow programs are currently in operation to fund states under the table with federal money.The full list of America's 32 insolvent states is below, sorted in order of bankruptedness.

Your one-stop summary of all events of relevance and market technicals in the prior week.

Oil prices were lower again on Friday, despite an unchanged euro market and a decent rally in equities. Although a substantial part of the rally came later in the day in equities, the DJIA still ended up 125.38 points, at 10,193.39. There was support just above the 10,000 level. Oil prices were lower less on equities on Friday than on fears of a weakening economy and on heavy supplies available in oil markets right now. Distillate stocks dropped in the latest report, but they had been near their highest levels since 1989, coming into the week. Gasoline inventories are still near their highest levels in more than two decades, and crude oil stocks are abundant, with record levels at Cushing, Oklahoma, the Nymex hub.

Total US debt just hit $12,987,823,000,000, $13 billion from lucky $13 trillion. As next week the US Treasury is auctioning off another gross $140+ billion in Bonds, we will pass this totally irrelevant resistance level on May 25, when Timmy issues another $42 billion of 2 Year Notes. The next important support level of $14 trillion will be surpassed around the time the Democrats get destroyed in the mid-term elections, while the statutory debt limit of $14.3 trillion will likely have to be raised in January 2011 by a new Republican majority, an action which will promptly reduce popular republican support following their election victory, thus starting the pointless D->R->D->R etc cycle all over again. Also, at approximately that time headlines that US debt is now 100% of GDP will take the US bond vigilantes out of hibernation and will send US interest rates soaring, assisted by Ben Bernanke's most recent announcement that the Fed will be "forced" to purchase another $1.5 trillion in treasuries and mortgages. Stepping away from the Ouija board, we also notice that so far in April, the Treasury has rolled another unsustainable amount of Treasuries: $397 billion, of which $$359 billion is in Bills.

The CFTC's just released Commitment of Traders report indicates that Non-Commercial, speculative net positions in the Euro declined just marginally from -113,890 to -107,143 for the week ended May 18, Tuesday. With central banks throwing everything at shorts, up to and including the tungsten-plated kitchen sink, the response is surprisingly muted. However, with the major wave of SNB/ECB initiated forced short covering beginning on Thursday, and driving the EURUSD up by 300 pips from 1.21 in one day, we expect the short number to decline substantially. If it does not, "speculators" can tap themselves on the back for pulling off a feat bigger than even George Soros ever achieved- taking on all central banks and not wavering. If that is indeed the case, we salute them. On the other hand, Soros replicants are certainly on fire in the GBP: the cable saw a new record number of shorts in the past week, which increased by -4,557 to -76,745.

From Jim Cramer

Longs and shorts

5/21/2010 4:03 PM EDT

Frequently people say, "you never complain when the market's higher and you get this action". I want to make it clear to everyone that I thought the last 15 minutes up was outrageous and shows how broken everything is. Just ridiculous... And should be investigated.