[ snip ]
After launching an unprecedented spending program aimed at forestalling a meltdown of the US economy, US President Barack Obama vowed on Saturday to tackle a trillion-dollar deficit facing the nation.
[ snip ]
The full article Obama Urges Control of 'Exploding' Deficits can be found at Breitbart.com.
Saturday, February 21, 2009
Posted by Ben Bittrolff at 4:00 PM
Bank of America (BAC) declined 64% from a peak of $7.05 to an intraday low of $2.53 over just 10 trading days. Bluntly put: Bank of America is dead.
Dead actually means dead. It is unlikely they can survive the weekend... and if they do, they most definitely cannot survive the week.
It used to be that bank runs were very public affairs. Crowds would rush the PHYSICAL offices of a stricken bank and demand PHYSICAL withdrawal. The large, panicked and angry mobs would make instant newspaper headlines. More importantly, bank runs could not be covered up and kept secret. Unruly mobs demanding their money don't tend to go quietly into the night.
Today, things are much different. Bank runs occur with a phone call... nah... a click of the mouse. There is absolutely no need to show up at office and demand paper money. Now the bank run is electronic. Without the mob, without the noise and the rage a bank can be entirely drained of reserves almost INSTANTLY.
With Citigroup and Bank of America reeling from massive losses from failed credit and investment policies, their common stock, bonds and credit default swaps are all now signaling their imminent failure.
The single largest investor in Citigroup is Saudi Prince al-Waleed bin Talal. in November 2008 the Saudi prince increased his stake from 4% to 5%, investing an additional $350 million. In January of 2007, Citigroup had a market capitalization of more than $250 billion. As of Friday's close, the ENTIRE bank is worth about $10 billion. The Saudi prince is down 96% on his 4% stake. Put another way, his original stake was worth about $10 billion in January 2007. Today, he could buy the whole damn mess for the same amount. The prince must be absolutely livid over these developments.
The prince is very exposed to Citigroup. Not only is he an investor, he also does extensive business with the bank. The assets and debts of his financial empire flow through Citigroup in the course of normal business operations. Although his financial dealings are very secretive and opaque, it stands to reason that his advisors would insist he manage this risk. Being long the bank via his ownership stake AND conducting business with the bank is now just too risky. It is the equivalent of doubling up or more in terms of risk on the very same trade. If the bank fails, everything fails. His investment and his business exposures both get severely impaired SIMULTANEOUSLY.
Therefore, the only rational action the prince can take is to shift his business AWAY from Citigroup and towards more stable banks. First the most liquid assets, such as cash deposits would be electronically routed to safer banks. Less liquid assets held in trust from stocks to bonds would be next... all the way down to the least liquid or least transferable assets. Second the credit provided by Citigroup would be swapped out. The prince can't be certain that Citigroup will have the ability to honor the requirements as they come due. This would in fact be an electronic run on the bank.
The prince is damned if he does and damned if he doesn't. The very action of reducing his exposure to Citigroup actually accelerates the death of the bank. If he does not act, he then runs the risk of being the final bagholder should the bank die anyways. Consequently, he can't act until he has determined beyond a reasonable doubt that the cause is lost. Then and only then will his hand be forced into action.
Unfortunately there will be no angry mob lining up at the bank. Like Bear Stearns and Lehman Brothers, the run will be overnight, instant, electronic and leave no trace.
When the tipping point is hit, the world at large won't know until AFTERWARDS.
Big money investors can't run the risk of waiting and hoping that everything will work out just fine. They find themselves in a Prisoner's Dilemma. Since they can't play nice as a team, they have to be first to act... and act they will. The first to panic wins.
Therefore, big money investors must now be pulling their deposits at both Citigroup and Bank of America and they must be doing it quietly and quickly with the click of a mouse. No mobs demanding paper money... just a 'click' and a string of ones and zeros blitzes from one end of the world to another over the internet.
In the immortal words of Charles O. Prince III, the disgraced former Chief Executive Officer of Citigroup;
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."
The music has stopped. Clearly. The dance is over. Time to panic... because the market has signaled quite ominously that Citigroup and Bank of America won't get to a chair in time...
Personally, I'm almost certain there simply aren't enough chairs. There never were.
Consequently, nationalization is guaranteed.
Posted by Ben Bittrolff at 1:00 PM
Friday, February 20, 2009
Commercial Real-Estate: It's time for that beautiful, really large, RED capitulation candle. Prepare, for despair!
Last mentioned in Commercial Real Estate, IYR, SRS: Pending Disaster.
Gold is getting into massive resistance around the 975 - 1000 area. This attack will likely run into a vigorous defense.
Gold is also significantly overbought. However, momentum is definitely there... as evidenced by a new high in the MACD.
Because Gold is at the very top of it's price channel, an initial retracement from these levels is most likely. Support in the 900 - 925 area is pretty strong and would help work off overbought conditions. Failure to stay above the 875 area could then result in a test of the 750 congestion area.
A major catalyst is definitely required for a sustained move above $1000. The entire global economy is in a deflationary spiral... despite the feverish attempts of ALL central banks. The parabolic 'narrow money' numbers that have the Gold Bugs hyperventilating are not inflationary. 'High powered money' can't even begin to replace the 'broad money' being vaporized by the great credit bubble implosion.
From my post The Master Plan: "The Federal Reserve creates what is called High Powered Money. For that money to be useful it needs to be transmitted into the economy. If the transmission mechanisms don’t work, it is utterly useless. Bank hoarding on a grand scale is just such a failure to transmit. Printing without transmission cannot result in inflation. (ZERO velocity = ZERO money)
To make matters worse technology and financial innovation has resulted in what is now referred to as the Shadow Banking System. Since money and debt are fungible, that is to say that money is debt and debt is money, non-bank financial institutions were able to borrow, leverage up and then lend out on the grandest scale ever in human history. With such financial innovations as securitizations, new accounting gimmicks such as off balance sheet accounting, and new vehicles such as structured investment vehicles, this system literally PRINTED money! The broadest measures of money supply increased dramatically.
As part of the current de-leveraging of the ENTIRE financial system this debt money is being DESTROYED as they are called in and liquidated or go into outright default. This has the added consequence of smashing the very asset prices the shadow banking system used as collateral.
The Federal Reserve is therefore also in the race to merely REPLACE the amount of money (M) being destroyed as the shadow banking system implodes. To actually increase the money supply AND make up for the reduction in money velocity (V) the Federal Reserve has to print AND transmit truly astronomical amounts of money."
The CURRENT demand for gold is not as a hedge against inflation, but rather a pure safe haven bid as various currencies come under stress. A sudden large bank failure in Europe or Eastern Europe just may be the catalyst gold needs to break $1000.
Because of the massive, global deflationary forces at work, gold is very vulnerable to the downside IF no major systemic shocks manifest themselves... and IF they don't occur in rapid succession. Each cataclysmic failure is just another massive black hole of deflation. For example, an implosion of a 'larger Iceland' would destroy a ridiculous amount of both wealth and debt... but leave behind, undamaged and unencumbered capital goods (everything from factories to bridges). The consequences would be instantly deflationary.
Mish explains the process in great detail in Fiat World Mathematical Model.
Therefore, this ninja would only buy gold when:
1) It is above $1000
2) He can still here the sounds of whole countries imploding in the distance. This would be visible in the FX markets... where major currency pairs would start going absolutely apeshit AND multiple, global financial institutions start collapsing SIMULTANEOUSLY (Lehman style, despite the best efforts of central banks and governments).
Otherwise the risk of watching gold go cliff diving is actually very large...
Thursday, February 19, 2009
[ HT Calculated Risk ]
Rick Santelli for President... or Atlas WILL Shrug. Eventually.
(This is probably the only time I didn't taste vomit on the back of my throat after watching CNBC... damn program is on every trading floor I've ever been to. WTF?)
Posted by Ben Bittrolff at 6:10 PM
From the post Risk Reward Favors Short Positions:
"This is going to be awesome (for Bears)...
The stimulus package and the bank bailout is going to be sooo disappointing..." -TheFinancialNinja, 02/05/09
The CBOE Options Total Put/Call Ratio (CPC) still has quite a way to go before there is even the remote possibility of a bottom. A spike in the 20 day EMA (blue line) of the CPC to at least 1.10 is absolutely necessary.
Wait for the capitulation rinse in equities. Currently, the decline has been orderly... perhaps things will get a little more frantic as the price closes in around the 741 panic low.
[ snip ]
Now, the possible losses caused by these loans must be made transparent. Above all, all of the Eastern European risks must be fully disclosed. Together with the loan losses from UBS and Credit Suisse, the entire writedown for Switzerland could exceed the Swiss gross domestic product.
That is to say?
Switzerland, like Iceland, is threatened with a potential national bankruptcy. One consequence would be that the Swiss currency could fall massively in value — possibly even crash. Another would be that Switzerland’s credit rating would be massively downgraded. That would be a trauma for the country: Switzerland was always as a stronghold of stability. The franc could become an unstable soft currency. Then Switzerland would perhaps be forced to abandon the franc and take on the euro.
[ snip ]
The full article Switzerland Threatened by Bankruptcy can be found at Credit Writedowns.
Trading the Franc in for the Euro would just be trading one unstable, failing currency for another unstable, failing currency. If anything, strange as it may sound, the Swiss would switch to US Dollars.
Wednesday, February 18, 2009
The end of the fiat money, fractional reserve banking experiment is inching ever closer...
Since the Fed is buying what the market doesn't want, you can be certain the default rate will exceed 2%.
[ snip ]
But what new assets is the Fed acquiring? The Fed has already started buying the debts of Fannie Mae, Freddie Mae, and the Federal Home Loan Banks. It has also bought mortgage-backed securities issued by Fannie Mae, Ginnie Mae, and Freddie Mac. Bernanke is also considering buying other securities backed by consumer loans, credit card loans, or student loans. Long-term government debt is also on the list of assets that the Fed might buy.
In the analysis of the Fed balance sheet and the condition of the dollar, another detail is extremely important. The equity ratio in the Fed balance has fallen from about 4.5 to 2%.
This figure implies an increase of the Fed's leverage from 22 to 50. As we have seen there are large new positions of dubious quality on the Federal Reserve balance sheet. More specifically, should only 2% of the Fed's assets go into default — or if there is a loss in value of 2% — the Fed becomes insolvent.
[ snip ]
The full article The Insolvency of the Fed can be found at the Ludwig von Mises Institute.
Tuesday, February 17, 2009
Goldman Sachs: This Pig too Will Fall: Today, down 11%. There could be support around $80... then NOTHING until about $65.
Ninjas love puts... that way if the powers that be suddenly change the rules (like randomly banning short selling) the risk is clearly defined.
Posted by Ben Bittrolff at 6:00 PM
In Hyperinflation First, Then Global War I first presented the theory that global economic instability will lead to the sudden unraveling of even advanced ethnic assimilation and that internal ethnic unrest is likely to rapidly escalate into full-scale external conflict between nation states.
In Global Violence, Gold: But Not Yet I got more specific:
"Protests are popping up all over the world now. They’re small and they’re being ‘managed’. However, the global economy will continue to deteriorate and somewhere some governments will fail under the stress. If the governments that fall are in an ethnically homogenous country, any transition will be fairly uneventful. If the governments that fall are in an ethnically diverse country, expect trouble."
The people of Iceland took to the streets and the government fell. As predicted, the transition was indeed uneventful. Why? The population of Iceland for all intents and purposes consists only of two ethnic groups: 93% Icelandic, 7% OTHER. The population is ethnically homogenous.
1. composed of parts or elements that are all of the same kind; not heterogeneous: a homogeneous population.
2. of the same kind or nature; essentially alike.
What happens in a SLIGHTLY less homogeneous country?
Skinheads, Neo-Nazis Draw Fury at Dresden 1945 ‘Mourning March’: "German anti-immigrant, skinhead and neo-Nazi groups in the eastern city of Dresden staged one of their biggest demonstrations since German reunification in 1990 today, as 6,000 extremists marched through the streets, police said.
Groups tied to the National Democratic Party used the 64th anniversary of the 1945 firebombing of Dresden to hold a “mourning march” through the capital of the state of Saxony. Two counter-demonstrations, led by unions and political activists, drew almost 10,000, police spokesman Marko Laske said.
Black-clad youths gathered at the city’s main train station, waving black and black-white-and-red German nationalist flags as hundreds of police wearing body armor separated them from angry protesters, many of them screaming “Nazis out!”
“There’s nothing in Germany that could compare to the scale of this Nazi march,” said Robert Kusche, an activist with Kulturbuero Sachsen, which organized one of the counter- demonstrations.
For 10 years, anti-immigrant and skinhead groups have marked the anniversary of the bombing of Dresden in Allied air raids, which took place Feb. 13-15, 1945, at the end of World War II. Their aims have been bolstered since the NPD entered the Saxony state assembly in 2004."
These protests are the single largest since 1990... the last time ECONOMIC INSTABILITY hit the local population hard.
Obviously some 6000 protestors is not yet alarming... but the TREND sure is. Also, the number of protestors completely under estimates true local sentiment. Election results are far more accurate and reliable. The National Democratic Party of Germany (NDP), a far-right, pan-German nationalist and white nationalist political party, has been making continued political progress winning 7.3% of the popular vote in the Mecklenburg-Vorpommern state election in 2006 (For context, that is twice the 3.4% received by The Greens, the German environmental party.)
German Demographics are recipe for disaster:
"As of December 2004, about seven million foreign citizens were registered in Germany, and 19% of the country's residents were of foreign or partially foreign descent. The young are more likely to be of foreign descent than the old. 30% of Germans aged 15 years and younger have at least one parent born abroad. In the big cities 60% of children aged 5 years and younger have at least one parent born abroad.
The largest group (2.7 million) is from Turkey, and a majority of the rest are from European states such as Italy, Serbia, Greece, Poland, and Croatia. The United Nations Population Fund lists Germany as host to the third-highest number of international migrants worldwide, about 5% or 10 million of all 191 million migrants, or about 12% of the population of Germany. As a consequence of restrictions to Germany's formerly rather unrestricted laws on asylum and immigration, the number of immigrants seeking asylum or claiming German ethnicity (mostly from the former Soviet Union) has been declining steadily since 2000."
Unrest and violence is rather noticeably spreading...
Job Losses Pose a Threat to Stability Worldwide: "From lawyers in Paris to factory workers in China and bodyguards in Colombia, the ranks of the jobless are swelling rapidly across the globe.
Worldwide job losses from the recession that started in the United States in December 2007 could hit a staggering 50 million by the end of 2009, according to the International Labor Organization, a United Nations agency. The slowdown has already claimed 3.6 million American jobs.
High unemployment rates, especially among young workers, have led to protests in countries as varied as Latvia, Chile, Greece, Bulgaria and Iceland and contributed to strikes in Britain and France.
Last month, the government of Iceland, whose economy is expected to contract 10 percent this year, collapsed and the prime minister moved up national elections after weeks of protests by Icelanders angered by soaring unemployment and rising prices.
Just last week, the new United States director of national intelligence, Dennis C. Blair, told Congress that instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism."
Sudden double digit unemployment tends to enrage the locals and they immediately start casting about for a scapegoat. Anybody DIFFERENT of course is the juiciest target of all.
This economic turmoil is the catalyst for the ascent of nationalist parties. Anti-immigrant and protectionist policies will become compelling arguments for the unemployed masses.
(The French protest all the time.)
Monday, February 16, 2009
It would appear, that the criminal masterminds of the under ground economy apply 'conservative' leverage and tend to be 'highly liquid'.
How ironic is it that there were "signs that some banks were rescued in that way." Drug money rescued reckless and corrupt banks.
Impressive... and sad.... at the same time.
I'm willing to bet that a really neat consequence of accepting 'drug money' to save your bank is a rather sudden abolition of ridiculous management bonuses... cuz even banksters know not to mess with gangsters.
UN crime chief says drug money flowed into banks: "The United Nations' crime and drug watchdog has indications that money made in illicit drug trade has been used to keep banks afloat in the global financial crisis, its head was quoted as saying on Sunday.
Vienna-based UNODC Executive Director Antonio Maria Costa said in an interview released by Austrian weekly Profil that drug money often became the only available capital when the crisis spiralled out of control last year.
"In many instances, drug money is currently the only liquid investment capital," Costa was quoted as saying by Profil. "In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor."
The United Nations Office on Drugs and Crime had found evidence that "interbank loans were funded by money that originated from drug trade and other illegal activities," Costa was quoted as saying. There were "signs that some banks were rescued in that way."
Profil said Costa declined to identify countries or banks which may have received drug money and gave no indication how much cash might be involved. He only said Austria was not on top of his list, Profil said."
Posted by Ben Bittrolff at 8:00 AM
Read this: Obama Deal with Family A, B and C and cry... or rage. (But do something already!)
The FinancialNinja of course is just nimble enough to avoid being raped (like Family B or C) because ninjas move fast and have secret, super, hyper skills. But how many other responsible individuals will be forced (literally at gunpoint) to re-distribute their hard earned wealth to their irresponsible, incompetent and fat neighbors to satiate their feelings of divine entitlement?
Democracy is the rule of the majority. You are now bearing witness to what happens when the majority loses its way.
Government, is your own worst enemy. Opt out or die. It really is that simple. Vote with your money. Go short or send your wealth overseas. Anything. Starve the beast and it must die.
Or bend over.
Sunday, February 15, 2009
Bill Moyers interviews the former chief economist of the International Monetary Fund (IMF), MIT Sloan School of Management professor and senior fellow at the Peterson Institute for International Economics, Simon Johnson on President Obama's plan for economic recovery.
Full video interview here.
CHANGE? WHAT CHANGE! OBAMA? Possibly the most EPIC FAIL EVER.
[ snip ]
"BILL MOYERS: And, yet, Secretary Geithner's chief-of-staff is the former lobbyist for Goldman Sachs. How - serious question - how do they make a dispassionate judgment about how to deal with Goldman Sachs when they're so intertwined with Goldman Sachs' mindset?
SIMON JOHNSON: I have no idea. Of course, the administration, the new administration, has a lot of rules about lobbying. And they have rules that basically say, I think, as understood the rules, when they were first presented, I was very impressed. They basically said, "We're not going to hire lobbyists into the administration. There has to be some sort of cooling off period."
BILL MOYERS: And the next day Obama exempted a number of people from that very rule that he had just proclaimed.
SIMON JOHNSON: Yes. It's a problem. It's a huge problem. "
[ snip ]