Obama Urges Control of 'Exploding' Deficits: Hahaha!

Baaaaaaaaaawahahaha!

Unbelievable.

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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.

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The full article Obama Urges Control of 'Exploding' Deficits can be found at Breitbart.com.

Citigroup, Bank of America: Prisoner's Dilemma, Electronic Bank Runs and Nationalization

Citigroup (C) declined 61% from a peak of $4.10 to an intraday low of $1.61 over just 10 trading days. Bluntly put: Citigroup is dead.

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.

Commercial Real Estate, IYR, SRS: Prepare for Despair

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: Massive Catalyst Required

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
AND
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...

Rick Santelli For President!

[ 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?)