Custom Search

Saturday, September 27, 2008

While We Patiently Wait: Ninja Cat!

"... iam pridem, ex quo suffragia nulli
uendimus, effudit curas; nam qui dabat olim
imperium, fasces, legiones, omnia, nunc se
continet atque duas tantum res anxius optat,
panem et circenses. ..." (Juvenal, Satire 10.77–81)

While we all patiently wait for Congress to decide how exactly they'll piss away your wealth...

I present to you: Ninja Cat!

Bread and circuses people. That's all it takes...

The Ninja Cat - Watch more free videos

Friday, September 26, 2008

What Would Jesus Do? He'd Hedge by Going Short!

What Would Jesus Do? Apparently, he'd hedge... by going SHORT.

Short-selling’ church leaders accused of failing to practise what they preach: “The Church of England was accused last night of having used short-selling to maximize profit on a £5 billion investment hours after its archbishops criticised banking practices.

After the call from the archbishops of Canterbury and York for tighter regulation of the markets, the liberal think-tank Ekklesia said that the Church was implicated in stock market speculation. It said that in 2006 the Church Commissioners, which manages the Church of England’s investments, set up a currency hedging programme against a fall in the value of sterling, effectively short-selling the pound to guard against rises in other currencies. It also criticized the Church for its shareholdings in oil and mining companies.

On Wednesday the Archbishop of York, Dr John Sentamu, branded the traders who cashed in on falling share prices in the troubled bank HBOS as “bank robbers” and “asset strippers”.”

*** Nobody’s allowed to go postal on me in the comments. This is not a religious blog. This is just funny AND something to reflect upon. ***

China LOVES the Short Selling

“It's quite positive for the market and will help attract fresh capital into equities.” –Wu Kan, fund manager

China LOVES the short selling.

You know you're FUCKED when the commies are capitalists and the capitalists are commies.

China Allows Short Sales, Margin Loans to Help Market (Update2): “China's cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop Asia's second-largest market after prices and trading volumes slumped, an official familiar with the plan said.

The State Council signed off on a China Securities Regulatory Commission plan submitted this month to allow margin lending and short selling, said the official, who declined to be identified as he isn't authorized to speak on the issue.

China's action contrasts with regulators in the U.S., Europe and Australia that have banned short selling in the past week to shore up financial shares battered by the global credit squeeze. China's government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low.”


In other news, China’s first space walk is planned for Saturday: China Astronauts Braced for Walk.

The torch has been passed.

Game Theory: Why the Bailout Won't Work

[ via EconompicData ]

A GREAT post. This absolutely nails it on the head.

Read this carefully. Make sure you understand it. This is exactly what will happen. Each agent (bank) will act in their own self interest.

Ignore the clowns on CNBC. They're pumping a bailout that can't succeed.

More on general Game Theory here.

Game Theory: Why the Bailout Won’t Work: “Lets assume for the time being that there are only two banks; Bank A and Bank B.

The media / political pundits would have you believe the likely outcome of the bailout is the top-left box in which both Bank A and B sell risk assets to the Treasury. In this case, the result is a more regulated banking industry, with imposed limits to salary, but importantly markets clear.

HOWEVER, it is in BOTH banks interest to deviate from that.

Why? Simple. If Bank A (or B) believe the other is selling their risk assets to the Treasury; they will each be better off holding on to theirs.

Why? If the other bank sells and they hold, markets will still clear (in theory) and the bank that holds onto their risk assets can sell at the new market prices. This results in increased market share as they:

*Can pay more for talent
*Are less regulated
*Don’t have the stigma of selling to the Treasury (think of what selling portrays to the market)

This is even worse in the “real world” as all banks have the incentive to wait for other banks to sell risk assets to the Treasury to clear markets.

The likely result? The bottom right box in which no bank sells voluntarily and markets remain frozen. While there were many problems with the initial plan, at least there was a 100% incentive to sell the assets.”

BTW, EconompicData is a great blog I read daily. Complex economic 'stuff' made simple, and understandable... and full of pretty pictures.

Washington Mutual Implodes, JP Morgan Takes All the Risk

“We don't know and we don't care.” –Jamie Dimon, CEO JPMorgan, about rival bids for WaMu,


We have a new record: Washington Mutual (WM) is the largest bank failure in U.S. history.

No surprise here. We all knew this one was a long time in coming.

JPMorgan Buys WaMu Deposits; Regulators Seize Thrift (Update1): “JPMorgan Chase & Co. became the biggest U.S. bank by deposits, acquiring Washington Mutual Inc.'s branch network for $1.9 billion after the thrift was seized in the largest U.S. bank failure in history.

Customers of WaMu withdrew $16.7 billion from accounts since Sept. 16, leaving the Seattle-based bank “unsound,'' the Office of Thrift Supervision said late yesterday. WaMu's branches will open today and depositors will have full access to all their accounts, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said on a conference call.”

The thing to take away from this is that WM couldn’t even make it to ‘Bank Failure Friday’ and had to be shut down on a THURSDAY. That demonstrates just how quickly things can get that bad.

On September 15th I wrote FDIC Can’t Afford Washington Mutual Failure. This appears to have been true, because the failure and seizure of WM was done in such a way as to cost the FDIC nothing. Common equity will be wiped out as will all bond and note holders. (That could still change, but seems unlikely.)

“WaMu's balance sheet and the payment paid by JPMorgan Chase allowed a transaction in which neither the uninsured depositors nor the insurance fund absorbed any losses.”

JPMorgan has gobbled up WM… and with it all the risk as well. Don’t forget, everybody else took a look at WM and quietly backed away.

Citigroup Inc., which had been among five potential acquirers, elected not to bid for WaMu because presumed loan losses outweighed benefits from the deposits, said a person familiar with the situation. Wells Fargo & Co., Banco Santander SA and Toronto-Dominion bank had expressed interest in buying all or parts of WaMu, said a person with knowledge of the process.”

Is JP Morgan being reckless? Merrill Lynch (MER) and Washington Mutual (WM) may come with a few embedded balance sheet surprises…

“New York-based JPMorgan, which separately announced plans to raise $8 billion by selling common stock, had its outlook lowered to negative by Moody's Investors Service. Moody's left its Aa2 rating on JPMorgan unchanged.”

Related Posts:
Paulson Bailout: The ABSOLUTE ASPHYXIATION of Taxpayers
Short Ban? What Short Ban?

Thursday, September 25, 2008

Shock and Awe: Option A or Option B?

[ hat tip Comrade Baron Von Helmut III ]

The “Shock and Awe” campaign is well underway. Paulson and Bernanke are busy fear mongering…

Option A: If you DON'T pass this bill, you'll lose:

1. Your house
2. Your job
3. Your money
4. Your 401k
5. Your wife
6. Your dog
7. Your truck

Option B: If you DO pass this bill you will get these bonuses too:

8. Hyperinflation
9. Much much higher taxes
10. Much much higher interest rates
11. Much lower standard of living

Bank in Spain Offers Free Car or Motorcycle to Get Deposits

Well, I’m speechless…

Free car gambit to lure depositors: “A Spanish bank is offering its customers cars free of charge in exchange for opening long-term, interest-free deposits.

Banesto, a mid-sized lender controlled by Santander, Spain's largest bank, is offering savers Citro├źn cars or Piaggio motor scooters in lieu of interest payments under a promotion called Sobre Ruedas, which translates as "smooth running".

Banks routinely offer customers opening new deposits small gifts like pens, although Banesto has in the past given clients computers and flat-screen televisions. The lastest offer, however, marks the bank's biggest product giveaway to date.

Banesto does not pay interest on depositors' capital during the lock-in period of the offer, and those customers who do take it up pay tax as if the vehicle's value were interest.

The gambit highlights the tough times both banks and the car industry are facing in Spain as the country weathers a sharp economic downturn.

Spanish lenders have been particularly hard hit by the seizing up of wholesale funding markets, which many had grown dependent on to finance their ballooning mortgage portfolios. The credit squeeze has exacerbated a downturn in the housing market, which is virtually at a standstill.”

Ok, almost speechless.

For Banco Benesto click here.

I’ll translate the Spanish for you all. (I used to live in Argentina for four years.)

“Deposit on Wheels”
“Get a car or a motorcycle”
“Without withdrawals”

Don’t be surprised. Spain probably had THE largest real estate and debt bubble in the world.

Ghot Towns? In Spain? was one of my first posts on this blog in July 2007. I’ve warned that Spain would absolutely collapse in many posts. In More Ghost Towns, I pointed out that the ‘Ghost Town’ phenomenon had started to appear in the U.S. I went into more detail in Slow Motion Howsing Crash: UK, Spain:

“The Spanish economy tripled on wild speculation in real estate as cheap money from the ECB flooded the country. Upon joining the ECB, interest rates in Spain dropped. More importantly, real rates turned negative. That of course made this BUBBLE INEVITABLE. Only a SUCKER didn’t borrow madly. The smart money is of course long gone, leaving behind only the bagholders.

If the economy tripled, and a good chunk of it was on wild real estate speculation, how much of that 1.1 trillion Euros will turn out to be nothing but the ILLUSION OF PROSPERITY?

Hint: In Japan real estate AND equity prices dropped by 90% over 15 years after their shockingly similar bubble burst.”

In The Other Bigger Shoe: The Rest of the World I argued: “The other BIGGER shoe is finally dropping: The REST of the world is weakening rapidly.”

Since then Pakistan: Has Dumbest Idea, Sets Floor for Stocks and India: Also Had Dumbest Idea, No More Commodity Futures. Russia: One of the BRIC’s Just Bricked. After back to back drops in excess of 15% each, Russia: Smashed Again, Halted Indefinately.

Last but not least Borat, the famed journalist from Kazakhstan, says, “Very nice. Is good.”

Yes it IS true, Kazakhstan Plans Paulson Style Bailout.

Wednesday, September 24, 2008

Kazakhstan Plans Paulson Style Bailout: Borat?

What have you done Borat?

I can't believe it! Kazahkstan plans to implement their very own Paulson bailout. Those crazy Kazakhstanis!

Insanity is a virus.

Those of you still betting on some kind of decoupling are just absolutely nuts. This thing is huge. This thing is global. Nothing and nobody is immune.

Kazakhstan Plans Paulson-Style Rescue Fund for Riskiest Banks: "Kazakhstan's government, grappling with a credit squeeze that has cut economic growth by half, is working on a $5 billion rescue fund to buy distressed assets from its banks.

The central Asian country's banks will be able to swap their loans for bonds that are "partially guaranteed by the government,'' Kazakh Finance Minister Bolat Zhamishev told a banking conference in the financial capital Almaty today. The government will set up the fund "as quickly as possible'' and keep it in place for at least three years, he said.

Kazakhstan's banks have a bigger default risk than any in Europe or Asia, based on the cost of credit-default swaps for BTA Bank, the country's largest lender. Banks raised their bad loan provisions by 42 percent in the first eight months of this year amid a slump in the value of property assets that back more than a third of their clients' debt, according to the Financial Supervision Agency.

"The Kazakh plan is similar to the U.S. plan'' to buy bank assets, said Ekaterina Trofimova, a Paris-based analyst for Standard and Poor's, said in an interview in Almaty. "In these circumstances there aren't many roads to salvation.''

President Nursultan Nazarbayev ordered the government to create the fund earlier this month and the government said on Sept. 12 it would invest about $1 billion. Local units of Citigroup Inc., Deutsche Bank AG, Credit Suisse Group AG and Renaissance Capital took part in a government meeting on the fund last week, the Financial Supervision Agency said on its Web site.

Paulson Plan

Like the $700 billion U.S. rescue plan advocated by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, the Kazakh government will avoid paying banks discounted prices for their loans, basing the swaps instead on the stated "book value,'' Zhamishev said. Bernanke said yesterday that the U.S. government won't pay "fire-sale prices'' under its plan.

The Kazakh bonds that are offered in exchange for distressed bank assets may be split into three portions or tranches. The risk of losses from the lowest tranche will be assumed by the banks, Zhamishev said. The banks may be allowed to resell the top tranche to investors.

"It wouldn't be reasonable to sell these bonds to investors at this point,'' Zhamishev said, adding that banks should wait until market conditions are "favorable.'' The amount of bonds issued by the fund will depend on the assessed value of banks' distressed assets, he said.

Default Risk

Lenders have been battered by the end of a construction boom fanned by Kazakhstan's oil-led economic growth at 10 percent a year since 2000. The $100 billion economy grew 5.4 percent in the first half of 2008 as banks curtailed lending because of the global credit crunch.

Net income at Kazakhstan's 36 banks has fallen 47 percent this year as lenders put aside more money to cover bad loans, the Financial Supervision Agency said in a statement.

"The fund will help to increase investors' confidence in the quality of bank loan portfolios,'' Zhamishev said.

The cost of protecting bonds sold by BTA Bank from default jumped by 118 basis points to a record 1,463 basis points today, according to prices from CMA Datavision. That means it costs investors $1.46 million a year to protect $10 million of the Almaty-based lender's debt for five years. The cost is higher than all three of Iceland's largest banks.

Credit-default swaps, financial instruments based on bonds or loans, were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default. An increase indicates a deterioration in the perception of credit quality.

The Kazakh bailout plan is a "positive" step, S&P's Trofimova said."

The only thing I know about Kazakhstan, is that Borat lives there.

I decided to find out a little about how their markets have been performing of late. From the Kazakhstan Stock Exchange site I learned that the KASE index "is the ratio of included into the representative list shares market prices at the list development date to this list shares prices at a certain date, weighted on capitalization considering free floating shares. KASE Index is recalculated after each deal concluded on shares, included into the index representative list."

WTF? Click here to see for yourself.

Apparently they entire exchange was founded in 1993 and only lists a few dozen companies. That's what Wiki says.

Lehman, Money Markets, ABCP

Asset Backed Commercial Paper (ABCP) continues to implode.

The rapid contraction in ABCP might be part of the reason corporations in general are doing a mad dash for cash and financial firms specifically are hoarding all the liquidity the Fed keeps pumping in.

ABCP looks set to have started ‘another leg down’.

The default of Lehman Brothers (LEH) has hit the ABCP market hard and made a couple of money mark funds ‘break the buck’.

What Happened?

On Monday, September 15, Lehman Brothers Holdings Inc. filed for bankruptcy.

On Tuesday, September 16, Reserve Primary Fund, the oldest money fund, broke the buck when its share fell to 97 cents after writing off debt issued by Lehman Brothers.

On the same day, BNY Institutional Cash Reserves, a fund run by BNY Mellon, also broke the buck – its NAV fell to 99.1.cents – also due to Lehman holdings.

The resulting investor anxiety caused a run on the bank for money funds, as investors redeemed their holdings and funds were forced to liquidate assets or impose limits on redemptions: through Wednesday, institutional funds saw net outflows of $173 billion, to $2.17 trillion, a withdrawal of over 7%. Retail funds saw net inflows of $4 billion, for a net outflow from all funds of $169 billion, to $3.4 trillion (5%). The lack of retail outflows is attributed to the lag required for individuals to open a new account to transfer their funds out, and retail funds expected significant withdrawals the following week

On Thursday, September 18, Putnam Investments’ Putnam Prime Money Market Fund, a $12.3 institutional fund, announced that it was liquidating, due to redemptions.

In response, on Friday, September 19, the United States Treasury announced an optional program to "insure the holdings of any publicly offered eligible money market mutual fund — both retail and institutional — that pays a fee to participate in the program." The insurance will guarantee that if a covered fund breaks the buck, it will be restored to $1 NAV. This program is similar to the FDIC, in that it insures deposit-like holdings, and seeks to prevent runs on the bank. The guarantee is backed by assets of the Treasury Department's Exchange Stabilization Fund up to a maximum of $50 billion.

The program immediately stabilized the system and staunched the outflows, and drew criticism from banking organizations, including the Independent Community Bankers of America and American Bankers Association, who expected funds to drain out of bank deposits and into newly insured money funds, as these latter would combine higher yields with insurance.

They Want Mama to Make it All Better

[ hat tip Mish ]

A really good rant. I promise.

Libor, Fed Funds, Money Markets: It's All Broken

“We've seen quite a bit of upward pressure in the past couple of weeks and the fact that the TAF came in at over 50 basis points above yesterday's one-month Libor will no doubt add to that. It's a bit of a lottery as to where Libor will set.” -Barry Moran, money-market trader

Libor spikes again. Bloomberg chart here

Money-Market Rate Climbs as Bank Funding Constraints Worsen: “The cost of borrowing in dollars increased after banks paid a record premium for cash at yesterday's Federal Reserve auction, underscoring the shortage of funds available on money markets.

The one-month London interbank offered rate, or Libor, for dollars rose 22 basis points to 3.43 percent, the highest level since January, the British Bankers' Association said today. Financial institutions paid 3.75 percent at the 28-day Fed term auction facility, or TAF. That's 57 basis points more than yesterday's one-month rate, the widest spread since the TAF program began in December.

Demand for central bank loans backed by collateral surged this week as financial institutions hoard cash and balk at lending to each other on concern more banks will fail. Libor loans aren't secured and typically command rates above those of secured loans of similar maturities.

Demand for euros at today's European Central Bank auction of three-month loans was the strongest on record. The ECB allotted 50 billion euros ($73.3 billion) at a marginal rate of 4.98 percent. That's the highest since 2000. Banks bid for 155 billion euros.

As borrowing seized up last week following the collapse of Lehman Brothers Holdings Inc. and the U.S. government's takeover of insurer American International Group Inc., the overnight rate for dollars doubled to 6.44 percent, on Sept. 16.

The cost of borrowing in euros for one month rose today to the highest level since December, according to the European Banking Federation. The euro interbank offered rate, or Euribor, climbed 6 basis points to 4.91 percent. The one-week rate climbed 4 basis points to 4.74 percent, the highest level since May 2001.”

On Monday, September 15th in the post Losing Control? Fed Funds Climb to 6%, I wrote:

“Why equities aren’t in a death spiral is beyond me. My guess is they will be soon enough…”

Sure enough, equities did go into a swan dive…

On Tuesday, September 16th in the post Fed Definitely Losing Control. Fed Funds Hits 6%, I wrote:

“The markets now face the very real possibility of a disorderly liquidation. (That’s just a fancy way of saying MELTDOWN.)”

This is what has Paulson and Bernanke so spooked. This is why they’re so eager to pump $700 billion into the market. This is why they’re desperately trying to gain control of the entire financial system in the greatest power grab in history.

I last mentioned LIBOR in LIBOR Perks Up Again
I also mentioned the TED Spread then in TED Spread, Sneaking Back Up.

Since then, LIBOR has become completely unhinged.

Like I said on April 14th in The TED Spread, LIBOR and EURIBOR = Scary Bad:

“Aberration? Nah. Not bloody likely. This is probably foreshadowing the great fun Bears are likely to have in the very near future at the expense of the Bulls…

The BEST idea the Powers That Be are shopping around is another great debt circle jerk. They’re seriously considering having the US Treasury, which is already running a massive deficit that requires in excess of $2 billion dollars from abroad daily to finance government expenditures, sell MORE debt. The brilliant plan is then to park that debt with the Fed, so the Fed can swap it out for GARBAGE. Brilliant. Wicked brilliant.”

I was having so much fun as a Bear, they had to change the rules. (Bears are NOT allowed to out-fun the Bulltards. I'm pretty sure this one of the Ten Commandments.)

“You are having waaay too much fun. No more short selling for you. Time out for you. Go sit on the thinking chair.” -Christopher Cox, Chairman of the SEC (Stupid Equity Clowns)*
*Not an actual quote. But this is what I heard (in my head) when the short selling ban was put into effect.

Tuesday, September 23, 2008

Paulson, Bernanke Fail to Blackmail Congress

House Leaders Struggle to Generate Support for Rescue (Update2): "Congressional leaders in both parties are struggling to find support among House lawmakers for a $700 billion rescue plan for troubled financial firms pushed by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke.

Congressional testimony today by Bernanke and Paulson and a visit to Capitol Hill by Vice President Dick Cheney may not have persuaded a majority of either party to back the rescue plan, lawmakers said."

Despite a lot of fear mongering, Paulson and Bernanke appeared to have failed to blackmail congress into rushing this bill through. A lot of tough questions were asked today, and both Paulson and Bernanke definately felt the heat. A few times they really squirmed in their seats.

I personally think the bailout bill is a disaster waiting to happen.

Unfortunately it still looks like the damn thing is set to pass. Click here.

Bank of America Not Lovin' It

“This is the first signal that turmoil in the financial markets is reaching McDonald's.” – Richard Adams, McDonald’s Consultant

“Bank of America has been taking steps to increase capacity to fund additional growth.” –McDonald’s Treasury Department

“McDonald's is identifying new sources of liquidity and loan programs for our franchisees.” –McDonald’s

Can you say CREDIT CRUNCH?

McDonald's Says Bank of America Won't Boost Loans (Update3): “McDonald's Corp., the world's largest restaurant company, told some U.S. franchisees to seek other ways to finance store improvements after Bank of America Corp. declined to increase lending.

Store owners have exhausted financing used to pay for upgrades and equipment to make lattes and espressos, and Bank of America won't provide more money as it works on the planned purchase of Merrill Lynch & Co., McDonald's said in a memo that was obtained by Bloomberg News.”

Sorry, we can’t make productive loans because we are too busy digesting the toxic waste we’ve acquired…

“These levels held and violently rejected prices. BAC fell back into “the box” and then dropped through support around $28 before closing above that key level. BAC is run by executives blinded by greed. Countrywide Financial was not a bargain. Merril Lynch (MER) is not a bargain. They are giant, undefined liabilities. To expand like this in a credit crisis is border line retarded. BAC shareholders will eventually realize this?” –TheFinancialNinja, 09/17/08

Short Ban? What Short Ban?

After the greatest PUMP in history, comes the greatest DUMP in history. That is how a pump and dump works. (Click the link. I promise, the irony of it all is just great.)

On Friday, in Disgusting Super Spike I wrote: “I don’t feel like posting today. I feel sick to my stomach.

After this, the markets will absolutely crash… and for the first time in a long time, you’ll see ‘NO BID’ in even the most liquid stocks after this squeeze sorts itself out.”

The Bank Index (BKX) was down over 10% yesterday. No, it wasn’t the financial terrorists commonly known as “EVIL SHORT SELLERS”. They were mostly banned. I say mostly because there is ALWAYS a way to get short. (More on that later.) It was the Bulltards getting out of their overly exuberant longs from Friday.

Perhaps the pump didn't last as long as expected... but the Bank Index (BKX) has retraced 100% of Friday's obscene move. This puts prices back below the declining 200 day EMA (green line) and just above the declining trend line (black line). I expect prices to drop straight into "the box" ($60 - $70).

The Regional Banking Index (KRX) retraced even more, losing over 13% from Friday’s close. The loss from Friday’s high is more like 20%.

The technical picture for KRX is better than that of BKX. The price is above all key averages (20, 50 and 200 day EMA’s) with the 200 day EMA actually having a positive slope. The regional banks are sitting on a CRE (Commercial Real Estate) bomb. Their balance sheets are set to absolutely implode. I personally can’t reconcile the technical picture with the fundamental picture. Therefore, I won’t touch the regionals…

I expect that we will soon hit the point where the longs try to sell in quantity and there are no bids from covering shorts to firm up the market. I expect prices to just absolutely melt then…

The pump ran into resistance around 1265 (Remember that level?) on the S&P 500 (SPX).

Prices are currently sitting on support around 1215. A confluence of moving averages should help a bit but I only expect a pause before the real dump.

The short selling ban is no such thing. The ban prevents the shorting of the cash equities on the banned list. However, futures contracts were never included in this ban. I for one, smashed the S&P 500 contract short on the open Friday. (Honestly, it was the scariest thing I’ve ever done. Shorting into lock limit up was freakishly nerve wracking.)

Suppose I was a super quant and I really really wanted to get short the banned financials. How do you suppose I go about doing that? Well, quite simple really. How about I short the entire market using the S&P futures contract and then go LONG everything I don’t want to be short via different equity baskets, ETF’s, options and swaps. This would leave me NET SHORT ONLY THOSE VARY SAME BANNED FINANCIAL STOCKS. (Granted, this is terribly inefficient, but it works.)

How long do you suppose it took for them there hedgies to figure that one out? You think they maybe poured over their models over the weekend and tweaked them real quick?

Furthermore, option market specialists have been exempted from the ban. This means I can buy puts in quantity while the specialist then goes out and shorts cash equities to hedge his exposure to the puts he just wrote me.

So what has changed? Not much really, except that it is a little more difficult and a little more complicated. Perhaps just difficult and complicated enough to keep Joe Sixpack from getting and staying short, but not nearly difficult enough for the professionals.

Monday, September 22, 2008

Why The U.S. Economy Went Boom

As always, click to enlarge.

Whatever this is, it sure isn't Capitalism... it never was...

Naturally, Capitalism WILL receive almost all the blame. Almost none of the excessess would have been possible without the EXPLICIT support and intervention of various government entities.

[ hat tip Joergie ]

No Fear: DHIL Opts Out of Short Selling Ban

I don’t know anything about this company… except that I like their style. Well played.

DHIL has VOLUNTARILY opted out of the ‘emergency short selling ban’.

That right there is a confidence builder. (Well I'm not going to short them...)
The chart looks healthy with DHIL above all key moving averages, especially the 200 day EMA (green line). Looks to be consolidating... which is one hell of a victory in this environment.

Actual release here.

King Paulson: Money Markets and Unintended Consequences

Hahahaha! King Paulson fucked up already (or again).

This is awful. Just awful. Read the post from Mike Morgan carefully. Talk about unintended consequences. Ask yourself this: Why would ANYBODY keep more than a few token bucks in the bank if you could earn MORE and be insured for MORE in money market funds?

This should suck liquidity straight out of the banks that need it most faster than a ninja gone apeshit.

via Mike Morgan Behind Enemy Lines:

Move Money to Money Market Now: “Before I explain the title of this blog piece, let me note that we will be holding a general conference call on Monday morning that will be open to everyone - clients and non-clients. Everyone will have the opportunity to ask as many questions as you like. At the conclusion of the general (open) conference call, I will hold a private call for my General Clients and Trading Clients to discuss more spefic trading for the day. For the open call, here is the registration link to obtain an access code -

It looks like King Henry really goofed, but we can take immediate advantage of this one.

The other day I spent a lot of time trying to figure out what to do with our cash. King Henry answered that question today. I recommend everyone move your cash from your bank accounts to higher paying money market accounts. Now that Paulson has declared the FDIC will insure all money markets, why not earn 2-3 times more interest. In fact, I never keep any money in the local bank. All of my funds are in money markets, as I have checking and credit cards tied in. Moreover, this is tied to my trading accounts as well.

Just wait until this really sinks in. If enough people realize how much better their money is with the money markets, the banks will fail from the flood of withdrawals moving to money markets. In any event, if you were worried about the $100,000 limit at banks, Paulson has declared he (we) will insure money markets for 10 times more than we are prepared to insure banks. You can keep up to one million in a money market with FDIC insurance.

Most likely tomorrow he will be offering insurance on our pets and he will be covering all losses in Vegas so the casino operators can surge higher. I heard tonight that he will also be guaranteeing the weather and personal happiness.

Seriously though . . . you are only insured for $100,000 at your bank, but now you are insured for one million in your money markets. Move your money.”

Default by the U.S.: No Longer Unthinkable

There IS a tipping point somewhere out there. NOBODY actually knows where it is, but we are now a lot closer…

Financial crisis: Default by the US government is no longer unthinkable: “But, in the run-up to the US election in November, Democrats in Congress - and even some Republicans - may decide they're simply not having it. How much more can the US taxpayer take? It sounds insane, but the liabilities being taken on by the Fed and the US Treasury are now so enormous that the government itself could default. No?

Check out the chart showing the recent spikes in the US 10-year credit default swap. In other words, the market is now pricing-in the genuine possibility that the US will struggle to pay-back some of its long-term T-bills.

That possibility is still deemed to be quite low. But the ultimate financial question - until recently, unthinkable - is now being asked. Yes siree, the mighty US government could default. That's how much the world has changed.”

If you had to bet, do you think the (actual) smart money is 'going long' into this short covering rally in equities... OR using this sudden lift to discretely sell and quietly exit? The U.S. isn't even in a CONFIRMED recession yet...

Paulson Bailout: The ABSOLUTE ASPHYXIATION of Taxpayers

The 'disgusting super spike' of Friday merely takes equities back to where they were prior Friday... for an 'unchanged week'.

SPX is now at significant resistance around the 1262 area and bumping up against a declining 50 day EMA (red line).

Expect prices to consolidate between 1210 and 1262, before plunging to new lows…

Perhaps most interesting of all is the fact that volume was LESS on Friday than it was on Thursday.

Banning short selling is a cheap shot and does nothing to alter the fundamentals of individual companies and the broader economy. This ‘short covering’ rally will end and CANNOT be the foundation for a new BULL MARKET. Gaming the market does not work in the long run…

The Paulson bailout package is absolutely insane and has been covered in great detail across the Blogosphere (see links below). I doubt very much that this package would lay the foundation for a new BULL MARKET because the losses are being socialized via the taxpayer. This AUTOMATICALLY translates into a massive tax burden going forward. During the greatest credit and real estate bubble ever, the U.S. was also running some of the largest deficits in history. Now an economy in free fall coupled with the largest bailouts in history cannot lead to anything but the ABSOLUTE ASPHYXIATION of both INDIVIDUAL and CORPORATE taxpayers in the NEAR FUTURE.

You would almost certainly be insane to go long equities for anything other than a quick trade.

On a more personal note, I got blown out of most of my shorts Thursday afternoon as my stops kicked off. I had spent the whole week scaling out as profit targets were hit. The gap up on Friday (I've actually never seen a 'lock limit' UP before), only caught me holding vastly reduced positions. I immediately slammed short everything I could on the cash open. I easily got short equities via the futures (ES). I tried everything I could think of to get short my favourite financials... I tried shorting individual cash equities on every platform/account I have. They all failed to execute (most messages timed out with 'failed to locate shares'). I bought inverse ETF such as SKF. I didn't touch puts because the liquidity isn't there (nasty spreads) and the (implied) volatility is insane, making them too expensive.

If you don't' here from me in the future, its probably because I'm sitting in a cage on a beautiful beach somewhere in Guantanamo Bay Cuba...

"You are a financial terrorist! Admit it!"

Bailout Posts:
Calculated Risk:
Krugman: Cash for Trash
Paulson Plan: Will it Work?
What We Should Get for $700 Billion
Bailout Eligibility Expanded to Foreign Institutions
NY Times Makes a Funny
Some Thoughts on the Bailout

Financial Armageddon:
More Questions than Answers
The Source for Insights
Pooh-Poohed OptimismTrader Mike on Financial Armageddon
Be Careful What You Wish For

Humble Student of the Markets:
Relief Rally But No Convincing Bottom

Hussman “Why On Earth Would Congress Put The U.S. Public Behind the Bondholders?”

The Mother of All Frauds
Welcome to the USSA

Mike Morgan Behind Enemy Lines
Henry Paulson – Fraud or Gross Negligence

Mish’s Global Economic Trend Analysis:
Open Letter to Congress on the $700 Billion Paulson Bailout Plan
Lies from Paulson Keep Stacking Up: What You Can Do About It
Bush Administration Seeks “Dictatorial Power”
Weep for the United States of America
US Taxpayer: A Giant Dumspter for Illiquid Assets

Naked Capitalism:
Update to Bailout Bill Fracas
Why You Should Hate the Treasury Bailout Proposal
New Bailout Proposal Costs Estimated at $500 Billion to $1 Trillion

Short Selling Ban Posts:
Daily Options Report:
SKF Riff
The SEC to the Rescue

Sunday, September 21, 2008

Fact Sheet: The Bush Bailout Package

"Power corrupts, and absolute power corrupts absolutely.." -Lord Acton

The original release can be found here. (U.S. Department of the Treasury)

The GREATEST power grab in U.S. history is neatly summed up in a one page fact sheet that leaves much to be desired in the way of details. This thing is vague enough to get passed, and vague enough to become an ABSOLUTE DISASTER.

September 20, 2008hp-1150

Proposed Treasury Authority to Purchase Troubled Assets

Washington – The Treasury Department has submitted legislation to the Congress requesting authority to purchase troubled assets from financial institutions in order to promote market stability, and help protect American families and the US economy. This program is intended to fundamentally and comprehensively address the root cause of our financial system's stresses by removing distressed assets from the financial system. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to significantly damage our financial system and our economy, undermining job creation and income growth. The following description reflects Treasury's proposal as of Saturday afternoon.

Scale and Timing of Asset Purchases. Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets. Removing troubled assets will begin to restore the strength of our financial system so it can again finance economic growth. The timing and scale of any purchases will be at the discretion of Treasury and its agents, subject to this total cap. The price of assets purchases will be established through market mechanisms where possible, such as reverse auctions. The dollar cap will be measured by the purchase price of the assets. The authority to purchase expires two years from date of enactment.

Asset and Institutional Eligibility for the Program. To qualify for the program, assets must have been originated or issued on or before September 17, 2008. Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.

Management and Disposition of the Assets. The assets will be managed by private asset managers at the direction of Treasury to meet program objectives. Treasury will have full discretion over the management of the assets as well as the exercise of any rights received in connection with the purchase of the assets. Treasury may sell the assets at its discretion or may hold assets to maturity. Cash received from liquidating the assets, including any additional returns, will be returned to Treasury's general fund for the benefit of American taxpayers.

Funding. Funding for the program will be provided directly by Treasury from its general fund. Borrowing in support of this program will be subject to the debt limit, which will be increased by $700 billion accordingly. As with other Treasury borrowing, information on any borrowing related to this program will be publicly reported at the end of the following day in the Daily Treasury Statement. (

Reporting. Within three months of the first asset purchases under the program, and semi-annually thereafter, Treasury will provide the appropriate Congressional committees with regular updates on the program.

Wall Street: Greed is Good

"Greed is good." -Gordon Gekko in WallStreet

Gordon Gekko: [at the Teldar Paper stockholder's meeting] Well, I appreciate the opportunity you're giving me Mr. Cromwell as the single largest shareholder in Teldar Paper, to speak. Well, ladies and gentlemen we're not here to indulge in fantasy but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than one percent. You own the company. That's right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes.

Cromwell: This is an outrage! You're out of line Gekko!

Gordon Gekko: Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents. The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated. In the last seven deals that I've been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA. Thank you very much.