Intervention Lasted Two Years. The Unwind Begins Again.

It has been two years to the date when I posted on Bank Holidays.

I would say all the intervention - TARP, TALF etc. bought us some time.  But the drum beat is sounding again.

The foreclosure fraud matter is serious.  It is going to reopen old wounds.

Some new abbreviations for you to learn: REMIC and MERS.  Add them to your ever growing list such as MBS, CDO, CDS and REPO105.  They will all be in the news again shortly.

The Great "Re Boot"

I often get asked, "What do you think is going to happen financially and economically"?  Followed by, "Should I be worried"?   The short answer is no.  And this post will tell you why.

First of all, remember that there are many, many powerful people around the world that are fully invested in "the status quo" of how things work.  They will do anything and everything to maintain it.  I am not talking about elected politicians because they are the pawns in this game.  We are talking about the people who really really run things.

But what if the TSHTF?  I can't speak for all countries but the plan for the United States is very clear albeit undocumented, unreported and unspoken.  Dr Martenson (link to the right) often speaks of the 3 big "E"s... Economy, Energy and Environment.   I will outline what I think the plan is covering these three sections.

ECONOMY:  As of this writing, the US Federal Reserve is now the 3rd largest holder of US Government Debt behind China and Japan.  By the end of this year it will be #2.  And while it may not be possible for the FED to hold 100% of all USG debt, it will reach a tipping point.   When that happens, the FED will simply forgive the USG of its debt obligations -- this is referred to as the "big reboot".  If you don't understand how this can reasonably happen please watch these 2 videos.  The US dollar will remain the world's reserve currency, US debt to GDP ratio takes a multiple order of magnitude leap to the positive and no body gets hurt.

ENERGY:  It is documented that if China reaches its full potential, the natural resources required to accomplish this will basically require a second planet.  For decades the US plan is to conserve its own resources and buy energy from other countries now.  Sooner or later the extraction curves of natural resources will peak and the US will still have its own resources, on its own soil, to use (Coal, Oil, Natural Gas, Uranium, Precious Metals for electronics, etc.) while everyone else has depleted their reserves.  These countries will wake up one day and say, "hey we are out of oil.  We sold it to the Americans and all we got in return was little green pieces of paper!"

ENVIRONMENT:  When these 2 things are enacted, their will be disruption in the interconnected network of world commerce.  So country self sufficiency and self protection will be crucial.  Still being the only superpower on the planet, our ability to protect our perimeter is obvious. Inside the US perimeter is the planet's largest reservoir of fresh water (the great lakes) and the mid-west is still the breadbasket of the world.  And, while it may be difficult to get kiwi fruit in February, I think there will be plenty to eat and to drink for the 400 million or so Americans.

If it is hard for you to appreciate the plan shown above, it is perhaps you are too caught up in the zeitgeist of current day distractions.  But a word of warning- There is always pain in transitions.  And, you may need to be a little more independent of the world around you at we go through the worm hole.

Why Investors Are Leaving The US Stock Market

Last May 2010 I wrote about the May 6th "flash crash" (here).  My belief continues to be that, "This was a premeditated demonstration of power over the market that was so sophisticated that it was unforeseeable and perhaps inconceivable upon which case the only possible response is capitulation to the victor."  The bullies were asked not to do this to the whole market all at once but to please just do it to "little pieces of it at time".  You see we need the bullies because they are providing liquidity to an otherwise desert dry (volume wise) stock market so we must let them extract their pound of flesh from retail investors, insitutions and pension funds.

On September 27, 2010, the target was Progress Energy and everyone stood by and watched.  No one will say anything. Here is the chart (in milliseconds) of what happened at 9:57 and 42 seconds AM.

Chart Courtesy of Tyler Durden

First: Please note the time stamp on the chart.  All of this happened during a millisecond slice of the 42nd second of the 57th minute after 9am.  

Second:  Anyone with stop loss orders got taken to the cleaners.  Their orders went to immediate execution.

Third:  Someone was buying at $4/share (down from $44/share) and had orders sitting there waiting to be executed.

Fourth: In the blink of an eye, the price returned to the $44/share mark.  Bagging a 1,000% gain.

This is the work of high frequency trading systems using quote stuffing techniques.  It happens everyday to somebody's stock.  And this is why nobody wants to play anymore.

Read and remember this: http://tedbits.blogspot.com/2009/07/united-states-district-court-southern.html

I think whatever this was, it slipped out into the hands of some very clever, now powerful people.  I hope they are only in it for the money.

Carry Trade for the Common Man - Do Something Patriotic

I discussed the mechanics of carry trade in this post earlier in 2010: http://tedbits.blogspot.com/2010/02/some-carry-on-while-others-get-carried.html

The stock markets of most countries are going idle and brokers need to stimulate trading so they can earn commissions.  I heard a radio commercial today about borrowing on margin.

1. Let's say your broker will lend you 5X your collateral at 1%.  This was the interest rate advertised on the radio commercial!
2. So suppose you have $200, this allows you to borrow $1,000 @ 1%.
3. Use that $1,000 to buy some form a relatively safe and stable stock that yields 5% dividends (there are literally dozens to choose from).
4. Assume further that in a year, the price of that stock is the same price at which you bought it (no loss no gain).
5. You would make $50 on your $1,000 and still have the original $1,000.
6. Sell the stock and pay back the broker $1,010 dollars (principle + interest) leaving $40 gain.
7. Set aside $20 of the $40 for taxes.
8. Keep $20 for yourself. ( I did some rounding here but you get the idea )

Sounds like a lot of work for $20.  But what if you multiplied all these numbers by 1,000,  now that gets interesting don't you think?

Plus you will have earned $20 per 1,000 for your politicians so that they can fund wars or give it to their friends.  How patriotic of you.

Can't muster up the collateral?  Get a bunch of friends to go in together.  People do it all the time for lottery tickets.  They only difference here is that your odds of winning are near 100%.

If you have a financial adviser and they have not suggested this to you, maybe you should print this out and discuss it with them.

Think if everyone in your country started doing this!  Millions of people!  The coffers of your governments would get filled with tax money and you would have money to spend on things to stimulate your economy and grow jobs.

US Gov Debt Rating Cut to AA by New Global Rating Agency

In July, I wrote about For Whom Da-Gong Tolls. Basically this was a warning of the consequences if the dominance of US rating agencies were diminished.   Well, it has only taken 2 months for the impact to be felt.

Here is the latest from Da-Gong Global Rating Agency:

AAA  - Norway, Denmark, Luxembourg, Switzerland, Singapore, Australia and New Zealand.
AA+   - Canada, Netherlands, China and Germany
AA - United States, Saudi Arabia

US rating agencies insist that US government debt be rated AAA.  Da-Gong disagrees, "Americans may not like to hear the truth, but there is no gainsaying the massive budget deficits, the mounting national debt, the current economic weakness, the expansion of entitlements and the coming wave of retiring baby boomers".

China has been tempering its purchases of US Government debt forcing the US Federal Reserve to buy the treasuries that China won't.

My prediction-- one of two things is going to happen:
(1) Interest rates on US debt will start increasing dramatically as treasury buyers want better insurance for the risk they are taking thus adding more burden to the US debt (this is a deadly embrace).
(2) The US will cause or allow something bad to happen in the world which forces everyone to the only place of safety they know-- The US dollar.  Thus counteracting Da-Gong's downgrade of US debt.

My bet is on option #2 because it has already had a successful trial run--> The overblown implications of a default of Greek Sovereign debt caused a "flight to safety", people ran to US Treasuries and US interest rates fell.

What do you think?

US Postal Service Confirms Dollar To Be Replaced by New Global Currency

Back in May of 2009, I mentioned that a new global currency was on its way.

Since that time, there has been rumblings by many governments to replace the US Federal Reserve Note ("the dollar") with some other form of global currency to establish a new monetary system for financial settlements.

My prediction remains that "the dollar" will be replaced by an IMF created fiat currency known as Special Drawing Rights or SDRs.

It may strike you as unusual that the United States Postal Service now accepts SDRs as legal tender for transactions.  Click here.

This is significant since the last time the United States Postal Service confirmed the existence of something fictitious was in the movie "Miracle on 34th Street".   Per Wikipedia:   in the 1947 film Miracle on 34th Street, the identity of Kris Kringle (played by Edmund Gwenn) as the one and only "Santa Claus" was validated by a state court, based on the delivery of 21 bags of mail (famously carried into the courtroom) to the character in question. The contention was that it would have been illegal for the United States Post Office to deliver mail that was addressed to "Santa Claus" to the character "Kris Kringle" unless he was, in fact, the one and only Santa Claus. Judge Henry X. Harper (played by Gene Lockhart) ruled that since the US Government had demonstrated through the delivery of the bags of mail that Kris Kringle was Santa Claus, the State of New York did not have the authority to overrule that decision.

Thus the USPS proved the existence of Santa Claus.  AND.... has now proved the existence of Special Drawing Rights as legal tender for US Postal transaction making it a valid, legal substitute for the US Dollar.

Getting It Down Pat

The Social Security System of the United States is at an inflection point where money being paid out is starting to exceed money being paid in.  SS is one of the harshest taxes in the US because it takes 6.2% of everyone’s paycheck and requires their employer to add an additional 6.2% matching contribution.  If you earn low wages, 6% of a small number is significant and if you are an employer, that means your employees are 6% more expensive. 

A Real Story:  Pat, born in 1948, started working in 1970 earning $5,784 per year.  A good median income at the time and, being rewarded with cost of living wage increases each year, Pat retired in 2009 with a final salary of $44,144 per year – still about median income.  Pat paid $53,234 into Social Security and is entitled to government retirement benefits of $18,514/year.   Accounting for Pat’s employer contributions which matched Pat’s SS Taxes, Pat will consume all $106,468 (her contribution + employer match) sometime during year 6 of retirement (age 71); after which Pat starts taking “other people’s” money.

NOTE: Data to support the above calculations can be found here: http://www.ssa.gov/OACT/ProgData/retirebenefit2.html

Here is what is going to happen:

Today- We know that politicians didn’t save Pat’s contributions but rather spent them replacing Pat’s government “nest egg” with an IOU.  As more and more “Pat’s” from the baby boom generation retire, the government needs to borrow more money to pay the benefits.  The current plan is for the US Federal Reserve to buy US Government debt to maintain the financial stability of the economic system.  Read that again- The Fed is buying US Treasuries with money it prints so that the US Government can give Pat $18,514/year.

Long term- (1) Ration healthcare so Pat doesn’t live too long and (2) make all illegal immigrants citizens so we can apply the 6.2% tax to their meager wages.

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In a parallel universe:  Using the same basic data, Pat’s SS Taxes and the matching employer contribution are placed in a government trust fund that earned 3% return on average.  Pat now has $291,603 and, at the same withdrawal rate, this money would last almost 16 years until Pat was 81. 

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If you like Pat's story don't forget to read about Elieen, Peg, Matt and Bob (click).

Red Money

This is the stuff of conspiracy theorists but if you told me in 2008 that the US government was (a) going to take control of the auto industry, (b) financially wipe out all stockholders and bond holders of the then private US auto companies and then (c) give the remaining value to the labor unions-- I would have thought you were a conspiracy theorist because of the US Constitutional protections against "unreasonable search and seizure".

Now for more...  One of the provisions of the new United States Healthcare laws is that starting January 1, 2012; all purchases of precious metal coins and bullion over $600 must be reported to the Internal Revenue Service. I am sure you can immediately see the direct relation of precious metals trading with a national healthcare program. This was buried in the 2,000 page plus piece of legislation that no one had the time to read before they voted it into law.

And more...  In the financial regulation reform bill just passed, another law was added that allows certain bank holding companies to freeze the money market funds (nothing in; nothing out) if the banks believe that sudden, unexpected money flows put the institution at risk. Risk to be defined by the banks themselves or the newly created financial regulation czar. Click here to recall my musing about US Czars.

Finally... The last leg of this positioning move is still open for public comment. But basically the plan is to confiscate the $4T in privately held pensions, pool it, and pay back to all retirees (those with and those without pensions) a fair monthly pension based on what some politician thinks is fair.

This is all positioning for Red Money.

At some point in the future, US currency will be changed from green to red.  You will have some period of time (say 3 months) to convert all your green currency to red currency.  This has two purposes:

(1) An estimated 1/2 trillion green dollars are suspected of being trapped outside the US, held by criminal elements both in the US and abroad as well as by ordinary people just keeping cash "off the books".  If you don't want to expose yourself by making a cash transaction greater than $7,500 in a bank and alert the Internal Revenue Service you are going to spend the money on something.  This is automatic 500B of economic stimulation forcing the world to buy US based goods and services.

(2) When only red money is left, the US Government will devalue it by about 50% thus wiping out half of the country's debt with the stroke of a pen.   In US history, devaluation has been done already at least 2 times on a very large scale, once in the 20th century alone by president F. D. Roosevelt.

Stealth Oil

The old joke goes like this: The CEO of a defense contractor takes the US President to a military air base and says, "Mr. President, parked here on the tarmac is the new Stealth Bomber- price tag a mere $2B each".  POTUS replies, "but sir, I don't see any airplane!".  "Of course not, Mr. President that's because our stealth technology makes them very difficult to detect".  The leader of the free world replies, "That's fantastic!  I'll take 4 dozen."

2 WHOI scientists review recent US Gov't
grant to search for missing Gulf Of Mexico oil.

Fast forward to 2010, where the Associated Press reports that-- Major study charts long-lasting oil plume in Gulf.


Excepts and commentary (emphasis mine):

FOLKS THESE ARE QUOTES!  YOU JUST CAN'T MAKE THIS STUFF UP!






"A 22-mile-long invisible mist of oil is meandering far below the surface of the Gulf of Mexico, where it will probably loiter for months or more, scientists reported Thursday in the first conclusive evidence of an underwater plume from the BP spill."   "The most worrisome part is the slow pace at which the oil is breaking down in the cold, 40-degree water, making it a long-lasting but unseen threat to vulnerable marine life, experts said."  "Earlier this month, top federal officials declared the oil in the spill was mostly "gone," and it is gone in the sense you can't see it. "
Comment: Sounds like the Stealth Bomber story to me.

"Monty Graham, a scientist at the Dauphin Island Sea Lab in Alabama who was not involved in the study, said: "We absolutely should be concerned that this material is drifting around for who knows how long. They say months in the (research) paper, but more likely we'll be able to track this stuff for years." 
Comment: Poor Monty, he isn't shown in the above picture so didn't get in on the first government grant.  However, if he can glum on to the fact this is a persistent problem maybe he can get in on round 2 of the money.

"The scientists used complex instruments...to detect the chemical signature of the oil that spewed from the BP well after it ruptured April 20. The equipment was carried into the deep by submersible devices."   Comment: They used rare equipment that nobody can understand and conducted the experiments where no one could confirm they were doing anything.

* * * I THINK WE SHOULD GIVE THESE GUYS MORE MONEY * * *

Comment on this model portfolio

First the necessary disclaimer: The following is provided for educational and entertainment purposes only. The information that follows is neither an offer nor a solicitation to buy or sell securities and/or investment vehicles of any kind. In all cases, individuals are encouraged to do their own research and seek investment and tax advice from qualified, certified professionals properly licensed in the country or locality in which they reside.

Assume equal amounts invested--

Group 1: Playing the yield game:

Pimco High Income Fund

Strategic Global Income Fund

iShares S&P U.S. Preferred Stock Index

MFS Special Value Trust

Group 2: Hedge with the general market:

Standard & Poor's Depositary Receipts

Group 3: Buy Cheap Protection Against Inflation:

Health Care REIT Inc.

Fidelity Inflation-Protected Bond (FINPX)

Fidelity Real Estate Income (FRIFX)

Fidelity Strategic Real Return (FSRRX)

Group 4: Insurance for when the SHTF:

SPDR Gold Shares (GLD)



What do you think?

Too Few Too Big To Fail

In the United States, a bank failure is the closing of a bank by a federal or state banking regulatory agency. The Federal Deposit Insurance Corporation (FDIC) seizes a bank's assets when its capital levels are too low, or it cannot meet obligations the next day.

The global financial crisis circa 2008 has caused 176 banks to fail as of this writing.

And now more failures are to come-- due to the new US Financial Regulation legislation recently signed into law with its "Pravda-esque" promise of protecting consumers and regulating wall street.

Interesting point #1: Three large financial institutions- the Federal Reserve Bank (a private bank) and Freddie Mac and Fannie Mae (quasi-government institutions) are all exempted from the legislation.

Interesting point #2: The stated intent of the legislation was to end taxpayer bailouts of financial institutions deemed too large too fail (TBTF). When in fact, what it has done is relieve politicians the nasty task of openly debating the next bailout in front of the public by establishing a taxpayer funded trust fund to bailout TBTF institutions. Get it? They didn't eliminate the bailouts only the public process was eliminated; the bailouts continue in secret with a private slush fund.

Here is what to watch for in the news:

Sooner or later, the US FED and FANNIE and FREDDIE who all have been buying up collapsing mortgages and mortgage backed securities, will now start forcing the banks that originally cast these bad loans to start covering the losses (i.e. buying them back). When this starts here is what happens:

1. Banks begin consuming their "loan loss reserves" and become unprofitable and eventually insolvent. Thank god the FDIC has hired hundreds of new auditors to handle a new wave of bank closures.
2. Banks know this is coming which is why they aren't lending now. They will lend less when the full power of the US government is unleashed upon them.
3. The last banks standing are the TBTF banks operating with a tax payer funded safety net and everyone who wants money will have to go to them. Because they are now government backed they are quasi-government agencies.

This is how to nationalize the banking system of a country without having to be very public about what you are doing.

For Whom Da-Gong Tolls

As is customary after my medical exam, my doctor and I chit chat about the world situation. He asked me, "Do you think we will go to war with China". I answered saying that conflict may already be underway but I doubted that we would ever engage in a "shooting war".

To which he asked, "You mean an economic war?". I said, "No, monetary".

So to my dear Doctor C and all my faithful readers, I submit the following excerpt from the Dow Jones News service reporting on an interview my the Financial Times:

"Guan Jianzhong, head of China's biggest credit rating agency, blames his Western counterparts for the global financial crisis and says China, as the world's leading creditor nation, should have a greater say in how sovereign debt is rated.

Rating agencies such as Moody's Investors Service, Standard & Poor's and Fitch "are politicized and highly ideological and they do not adhere to objective standards," Guan, who is chairman of Dagong Global Credit Rating, said in an interview."

So here we have the Dagong show. And why not, if you were the largest creditor in the world, would you leave the task of credit rating to anyone else? Or better yet, do your own credit rating and don't tell anyone else-- leave the current puppets in place and threaten them with their very existence if they reveal true credit ratings to the anyone else.

First Installment on $20B Shakedown

So, on June 17, I let you folks know how the $20B shakedown of British Petroleum by the US Government was going to unfold. The first installment is for $7B and was announced today at the Apache Corporation website.

Go back and take a quick look at my June 17 posting: here.

Now, after checking out the Apache Corporation website link above notice 3 things:

1. The underwriters for this transaction are all US financial institutions that have been bailed out by the US Government because they are insolvent,
2. The lead is Goldman Sachs former employer of just about everybody who is anybody in the US Treasury or Federal Reserve,
3. Apache Coporation does not have $7B to execute the purchase for the assets they announced they are buying.

This is getting really easy to predict. I hope you are making money. If you are just reading my posts for your entertainment; I at least hope that you are amused.

Sell into the Summer Strength

When you visit here please remember you are getting the news about a year before it happens.

Remember my treatise of April '09 on the coming double bottom? It was hard to see then with the stock market roaring back after its March '09 lows. Even harder to see when we were all getting real "giddy" in December of '09. But here is comes.

This past April, I encouraged everyone to keep an eye on their country's bank statement. After all, it is your money.

Well, based on the June 30th report from the US Treasury, it looks like we might just tip over the country's legal debt limit before the November 2010 elections. Its a close call.

Also, on July 1, 2010, the Congress of the US decided that they are not going to publish a budget for fiscal year 2011 which starts in September 2010. Never before -- since the creation of the Congressional budget process -- has the House failed to pass a budget, failed to propose a budget, then deemed the non-existent budget as passed as a means to avoid a direct, recorded vote on a budget, but still allow Congress to spend taxpayer money.

Should be an interesting 2nd half of 2010:

• A new supreme court justice (life time appointment btw) that was never a judge,
• A war that cannot be won (war on terror),
• A problem that cannot be solved (climate change),
• Growing disregard for the "rule of law" by the government,
• Politicians who cannot lead without spending,
• $955B in stimulus spending that didn't stimulate ($168=Bush;$787=Obama),
• An ecological disaster (Gulf of Mexico oil spill) that will not be re mediated,
• A central bank (the Federal Reserve) which has exhausted all its monetary "tools",
• Banks that won't lend,
• Consumers who won't spend unless the government subsidizes the purchase (home buyer rebates, cash for clunkers programs, etc.),
• shall I go on?

How to establish a $20B victims fund for free

The USG needs to look tough on BP. BP is a responsible company and would be happy to have its liabilities and obligations played out through the US Court System (ala Exxon Valdez). USG says, "payup". BP says "see you in court". Hence the need for a meeting.

Here is a win-win scenario:

• BP hires Goldman Sachs (GS)
• Goldman borrows $20B from the US Federal Reserve @ 0%
• BP sets up a Special Purpose Entity (SPE) and transfers some of its US based real estate from BP US to the SPE
• The SPE uses the real estate as collateral to borrow $20B from GS
• The land doesn't have to be worth $20B because Goldman does not have to comply with "mark to market" accounting so you use "mark to model" accounting because there is the "potential" for mineral rights on this real estate.
• $20B bond is floated.
• But buying a BP bond may be bad PR so...
• GS splits the bond issuance up and rolls it into CDOs (Collateralized Debt Obligations) to blur the source.
• The CDOs are bought by already underwater public pension funds (government workers, teachers unions, etc.) and GS reaps the underwriting fees and commissions
• AIG, a company controlled by the USG due to previous bailouts, is then directed to issue Credit Default Swaps as insurance against the CDOs in the event the BP SPE defaults. Goldman buys all the CDSs at a discount.
• $20B in cash transfers from the BP SPE to the USG for the victims fund.
• Later the BP SPE is determined to be under capitalized (ie. the land really isn't worth $20B) and the SPE defaults on the bond.
• The pension funds that bought the CDOs get a financial haircut causing them to go more deeply underwater increasing the pressure for a USG bailout of public sector pension funds.
• GS cashes in on the CDSs used as insurance so it has the $20B to return to the federal reserve.
• AIG is receiving government bailout money (TARP) so it gets $20B from the USG to cover the loss on the CDSs that it had to make good on to Goldman Sachs.

Bottom line:

• A $20B fund was set up with money printed out of thin air and put in control of the USG to be doled out to "deserving" victims of the oil spill.
• GS is paid for handling the financial transaction with money they never had to put at risk in the first place plus they got some land.
• Public Pension funds go deeper underwater setting up the "next crisis" that government must solve.
• BP had to give up some land.
• US Taxpayer bails out AIG for $20B effectively paying for the "victims fund".
• USG looks like it "got tough" with BP

That's a lot of alphabet soup in this fictitious story. And that is why it will work. There is no way the media could ever explain to the "man on the street" how he ended up paying for BP victims fund because it is too complicated.

Neutering The World

One of the techniques employed by the transnational groups against standing countries is the fostering of the notion of "measured response". This means that a country's military should not overwhelm its rival in any situation but rather only deploy enough resources to make the fight "fair".

I don't really care about your politics as it comes to Isreal or the US or the Middle East or Saudi Arabia or Taiwan or Tibet or anything else.

My point here is that governments that give in to media pressure or NGO pressure concerning "measured response" or "soft power" end up killing their own military personnel. And I think this is wrong.

In the words of TUCO from the classic movie "The Good, The Bad and the Ugly", I offer you this YOUTUBE link....

How The Mainland Europeans Got It Backwards

Bottom Line: A single form of government must come before a single currency. To reverse this sequence is absurd. The British and Swiss knew this from the start.

Facts:
1776 13 colonies declare Independence from Great Britain.
1791 The US Constitution is ratified effectively creating the United States of America.
1913 Passage of the Federal Reserve Act creates the first unifying monetary system in the US.

The EURO was unnecessary:
The creation of the European Union is a good idea. The creation of single currency showed a lack of understanding between the relationship of monetary policy and government policy. When the two are left to go in different directions- default and currency collapse are simply a matter of time. Once citizens of a country learn that they can vote themselves government payments without regard to the source of those funds, they will continue to do so until no money is left.

The rise of Germany:
Germany is accepting obligations of financially weak Euro members and yet is not getting any tangible assets from the counter parties. The German people will not let this go on for much longer. I am not talking about war - after all why destroy Greece militarily? You own most of the darn thing already that would be like bombing your own home.

France- the role of first follower:
An essential ingredient to being a leader is that you have a follower. Due to mutual banking interests (Soc Gen and DB), France will support Germany. Being first follower often takes more courage than being the leader, so give France some credit when it occurs.

Lastly- Ignore the BS that is reported in the media since it is all prepared for "public consumption". France complains they are not being consulted- this gives their government cover. Germany complains about speculators but they know they need the liquidity that speculators provide. Blah, blah, blah....

2X2 Analysis of The Near Crash of May 6th 2010

Five days after the near market crash of May 6th, we still don't have any answers or even plausible lies about what happened even though micro second trades are routinely logged and cleared AND ostensibly erroneous trades during that same time can somehow be miraculously reversed. Yet the data on root cause for an event that almost destroyed our economic system as we know it seems MIA.

Let's have some four quadrant fun.




X AXIS: The event of May 6th was either a coincidence (a confluence of loosely connected but interactive events) or a premeditated act (most likely a demonstration of power).

Y AXIS: The event was either preventable or unforeseeable.

QUADRANT A: If it was premeditated and preventable then we know who and what happened and we should have the facts by now. But we don't, so I don't think it is "A".

QUADRANT B: If it was coincidental and preventable, it must be that regulating agencies are so ignorant of how the markets work that they did nothing to protect the basis of our economic foundation.

QUADRANT C: If it was coincidental but unforeseeable, why didn't regulating agencies have the contingencies in place so that when the markets move beyond certain control limits (for whatever reason) the stop gap measures prevent a meltdown.

QUADRANT D: This was a premeditated demonstration of power over the market that was so sophisticated that it was unforeseeable and perhaps inconceivable upon which case the only possible response is capitulation to the victor.

What is your vote? A B C or D

Do you think a $1T EU Bailout over the weekend (bailout of banks not of countries and their people) was ransom paid?

Why the fascination with gold?

I freely admitted that I trade precious metals derivatives: http://tedbits.blogspot.com/2010/04/from-btq-pdq.html

Now with full disclosure let me tell you that I am NOT a "gold bug" nor do I believe that a country's currency must be backed by gold.

There is a reason why everyone wants nukes and it is not about using them. It is about keeping them in inventory. Don't bet against the dollar because it has the basis of the full faith and credit of the US Government.

And the dollar has very good backing:
Source: The Center for Defense Information (CDI) a member of the World Security Institute. The World Security Institute (WSI) is a non-profit organization committed to independent research and journalism on global affairs.

Stop Insulting Pirates!

I am not one for "political correctness" in speech but if I were a pirate, I would take offense at this report on The Borrowitz Report (note: I shortened it up a bit for posting)

NORFOLK, VIRGINIA (The Borowitz Report) - Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs ... The pirate ... elaborated on the nature of the Somalis' work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted." ... The pirate acknowledged that they merged their operations with Goldman in late 2008 to take advantage of the more relaxed regulations governing bankers as opposed to pirates, "plus to get our share of the bailout money." In the aftermath of the shocking revelations, government prosecutors were scrambling to see if they still had a case against the Somali pirates, who would now be treated as bankers in the eyes of the law." There are lots of laws that could bring these guys down if they were, in fact, pirates," one government source said. "But if they're bankers, our hands are tied."

I wonder if Borowitz is his real name... "borrow wits"?

I might add that if the Pirates do take bailout money that they infact will become government controlled at which time they must be considered Privateers not pirates. My guess is that their salaries will be capped as well. I hope they know what they are getting into.

Goldman Sachs - Old News

The recent actions against GS is about old news. The NYTIMES wrote about it last December:
http://www.nytimes.com/2009/12/24/business/24trading.html?_r=3&pagewanted=1

This is really old new because by the time it gets through the editors of a major newspaper, especially one so linked to the US Government like the NYT, you know that the story has been verified multiple independent times and was probably several months old by the time they printed it.

"Keep moving folks, nothing to see here".

So why did it take so long for the SEC to charge Goldman Sachs? One of two reasons: (1) They are not as good as NYT and most of the blogosphere at getting the facts or (2) The government needs everyone distracted for awhile.

What Goldman Sachs did may have been immoral by someone's standards but it certainly wasn't illegal under US Law. The process of packaging Collateralized Debt Obligations and then laying off the risk with Credit Default Swaps is also very old news.

Listen for the lie.

Notice that the drumbeat in the press is about how many pension funds were hurt because they invested in GS debt based special purpose vehicles that were destined to collapse. Notice how many pensions, mostly government pensions, at all levels of government are underfunded. Notice that GS made a deal with the devil in utilizing taxpayer funds to prop up their profits. Notice that AIG (the provider of Credit Defaul Swaps)to GS was nationalized in a blatantly illegal transaction executed by the New York Federal Reserve (under Timmy G) who later had to become Treasury Secretary in order to keep to truth buried. Recognize that none of these transactions could be accomplished without detection by GS the company or because of near incestous relationships in the fraternity of Goldman Sachs employees who now either work in government, the media or run their own hedge funds.

So to keep the real bad stuff secret, Goldman will take the fall. Like GM shareholders, GS shareholders will get financially hurt. GS will pay the government large sums of money which the government will use to prop up failing pension funds. Since GS got tons of money either directly from the government programs, near 0% interest rate loans from the Fed AND AIG insurance payments that are all funded by the US taxpayer; we have another example of pending redistribution of wealth from the tax payer to just about everyone else aforementioned above.

"Keep moving folks, nothing to see here". "The show is over; move along now".

It’s A Show About Nothing – Tribute to Seinfeld

There is no reason to worry if Greece defaults on its debt. Did you worry when Iceland and Zimbabwe were collapsing recently? Did you know that countries throughout history have defaulted on their debt and nothing bad happened? Did you know that even states of the USA have defaulted on their debt and nothing bad happened?

When General Motors corporation defaulted on its debt to its bond holders recently did anything bad happen? When Lehman Bros collapsed and its obligations defaulted, did anything bad happen?

If you want to know why, watch this Youtube clip from an episode of Seinfeld.



You see my dear readers we are engaged in a show about nothing. Banks around the world create money that they don’t have via fractional reserve banking. And where do they get the fractional amounts upon which to leverage? They get it from their Central Banks who create money out of thin air.

When you default on debt you cause money to disappear that was never there in the first place. It’s a show about nothing. For more proof, what this:

From BTQ PDQ

For those that are acronym challenged, the title means from Billions to Trillions to Quadrillions Pretty Damn Quick.

I must admit that I am part of the problem. I am a derivatives trader. Rather than buy real gold like the guys on TV, I buy and sell GLD. GLD is an Exchange Traded Fund which is nothing more than a proxy for the price of gold slightly discounted for expenses. A derivative is anything that you can speculate on that is a "proxy" for the real thing.

The great thing about derivatives is that you can leverage them up 10X, 100X, 1000X if you wanted to. So I could sell 100X more GLD contracts than I have gold in my vault to cover the contracts. This is allowed because your derivative contract is a financial claim on the gold but it is not a physical claim. In the event everyone tries to lay claim all at once, I simply default. If everyone tries to sell their contracts all at once, the price goes to zero.

In the end, I still have your money and you got nothing.

I was deeply concerned about total, global derivative contracts about this time last year when I published this post. But things have gotten much better as total exposure has dropped from $1.4Quadrillion to just over $1.0Quadrillion.

Remember when a billion was a lot. Remember how easy it became to start saying a trillion?

Math note: A Quadrillion is 1,000 trillions.

Now I present you with a similar table that has been updated since my last post. Please keep in mind that 100% default on all derivatives is very unlikely. However, what if 10% went bad?

How Eileen Became Bob

This is not a transgender discussion. Having said this, I most likely lost 50% of my audience already as they just clicked "next blog".

Recently I wrote that you and I can't make easy money in the market. The video is here.

We are all handicapped with one short leg. I am Eileen. We all are Eileen. None of us can stand straight. The individual investor is a "wobbly" lot.

Central banks of various countries, who can simply print money and either give it to banks or buy market futures, are impacting markets. This forces us to follow a "false herd", our short, twisted and withered leg was cut off. We transformed from Eileen to Peg.

This week I talked to a really smart man about investing. He was a professor, technician but mostly he was a Quant. He didn't like PEG and I asked him, Why? His equations dazzled me into the realization that-- the reason I get 2 stock picks wrong for every 3; is because I am lucky.

Based on the "corrected PEG", I should be 100% wrong all of the time! This, my dear readers, requires some analysis of the broader market because I cannot be that wrong, could I? Or that lucky?

Therefore, I further applied his modifed PEG to about 50 of the more popular stocks based on volume traded. And you know what? They all stink! And if this guy is right, we are going to lose more than a leg. We are going to lose both of our legs and both of our arms.

Do you know what you call the guy with no arms and no legs? His name is Matt. Matt lies at your doorstep. Matt is the guy that everyone steps on and cleans their shoes. Eileen became Peg and Peg became Matt.

But we are not done.

You see after all the money printing, it seems that we must take more money from the people and give it to the governments. But the governments are not keeping the money because they are obligated to the people who are printing the money. So the money is returning to the rightful owners-- the people that printed it in the first place. So the story goes that more taxes are needed. And not just for the rich, but for everyone. Here comes the national sales tax or a VAT.

So let's take Matt, the poor unfortunate door rug with no arms and no legs and toss him into the toilet. For you see, the guy with no arms and legs that is now floating in the water is not called Matt, he is now called Bob [Define Bob: a small float usually made of cork; attached to a fishing line].

So now that we are all bobbing, please.... no one flush!

Thomas Jefferson once said, "The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin [coin = gold in the early 19th century]. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."

Check your country's bank statement

I live in the USA and always check my country's bank statement. You should check your country's bank statement too, to see how things are going. This is the US statement as of 31MAR2010.



https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=10033100.pdf



If you don't know what the line items mean, you should. After all, it is your money.



One particularly important segment is Table III - C Debt Subject to Limit. Think of it as the self-imposed credit line established by the government. Unlike you and me, when the government reaches its debt limit it simply votes to increase the limit. In the US, this was done on 12FEB2010.


The point -- On average, the USG borrows $152B every month, which means that in roughly 10 months it will once again be bumping up against the debt ceiling.

But then again, it is only debt if you plan to pay it back. Right?

Do you think the Citizens of the PIIGS are checking their country's bank statements?