We continue to believe the Obama administration’s approach to the banking crisis has been warped by its personal relationships with Wall Street. Former regulator William Black, who has been a vocal critic of the current approach, goes further, calling the bank stress tests "a complete sham" and the cover-up of the insolvency of massive financial institutions "felony securities fraud."
William Black was the deputy director of the government agency that insured S&P deposits in the 1980s. He helped identify the Keating Five, a group of senators who tried to prevent the closure of Charles Keating’s S&L. He’s now a professor at the University of Missouri. Barrons’ interviewed him last week:
ON GEITHNER’s BANK PLAN
It is worse than a lie. Geithner has appropriated the language of his critics and of the forthright to support dishonesty. That is what’s so appalling — numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.
The current law mandates prompt corrective action, which means speedy resolution of insolvencies. He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything. He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.
ON THE BIG PICTURE
With most of America’s biggest banks insolvent, you have, in essence, a multitrillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale.
These firms will ultimately have to be forced into receivership, the management and boards stripped of office, title, and compensation. First there needs to be a clearing of the
"Anyone who is doing anything sensible right now is either losing money or is out of the market entirely." These are the words of a quant trader, who is seeing something scary in the capital markets. Scary enough to merit a warning that we could be on the verge of another October 87, August 2007, or January 2008.
Let’s back up. I recently posted a chart which tracks equity market neutral strategies: in essence a cross section of quant funds for which there is public performance tracking. The chart is presented below. [click on charts for larger images]
There is not much publicly available data to follow what goes on in the mystery shrouded quant world. However, another chart that tracks the market neutral performance is the HSKAX, or the Highbridge Statistical Market Neutral Fund, presented below. As one can see we have crossed into major statistically deviant territory, likely approaching a level that is 6 standard deviation away from the recent norms.
What do these charts tell us? In essence, that there is a high likelihood of substantial market dislocations based on previous comparable situations. More on this in a second.
Why quant funds? Or rather, what is so special about quant funds? The proper way to approach the question is to think of the market as an ecosystem of liquidity providers, who, based on the frequency of their trades, generate a cushioning to the open market trading mechanism. It is a fact that the vast majority of transactions in the market are not customer driven buy/sell orders, but are in fact high frequency, small block trades that constantly cross between a select few of these same quant funds and program traders.
This is a market in which the big players are Renaissance Technologies Medallion, Goldman Sachs and GETCO. Whereas the first two are household names, the last is an entity known primarily to quant market participants. Curiously, the
Four hundred of the 2,000 largest shopping malls have closed; construction is halted on hi-rise construction projects; and no one knows what to do with the increasing number of vacant auto dealership lots.
Enclosed shopping centers, long the cathedrals of American consumerism, are closing their doors by the hundreds as the recession continues to clobber retail sales. Is America’s love affair with the mall over?
The vital signs are not good. Even before the recession hit, consumers had developed mall fatigue, and the classic enclosed shopping mall was in decline. More than 400 of the 2,000 largest malls in the U.S. have closed in the past two years. The last new major mall in the U.S. opened in 2006, and only one big mall is scheduled to open this year—the troubled Xanadu mega-mall in Rutherford, N.J. With some 150,000 retail stores projected to fail in the U.S. this year, more mall closings are imminent. Mall mainstays such as Mervyn’s department stores, Linens ’n Things, and KB Toys have already disappeared into bankruptcy, and mall vacancy rates topped 7 percent last year, the highest level since 2001. “It’s an absolute disaster,” says Howard Davidowitz, an investment banker specializing in retailers. “What a mall represents is discretionary spending, and discretionary spending is in a depression.”
Is it really that bleak?
The data suggests that it is. For decades, American consumers could always be counted on to spend more than they did the year before—the only question was, by how much. But in the past 12 months, retail sales in the U.S. have dropped an unprecedented 9.8 percent. The economic collapse has landed especially heavily on the old-line department stores, such as Sears and JCPenney, that anchor many malls. As their sales and profits have tanked, they’ve been pulling out of malls, to the distress of the smaller merchants that depend on the larger stores to feed them traffic. The Turfland Mall in Lexington, Ky., recently lost Dillard’s as an anchor tenant, setting off a cascade of closings. “We have no choice but to leave now
So now it’s a revolution that Bernanke staged. Here’s the most common definition of a revolution: "an overthrow or repudiation and the thorough replacement of an established government or political system by the people governed." Feeling revolutionized? - Ilene
Bernanke’s ability to understand and synthesize the views of his colleagues goes a long way toward explaining how he has revolutionized the Federal Reserve, which under his leadership has deployed trillions of dollars to try to contain the worst economic downturn in 80 years.
Famously soft-spoken, Bernanke is an unlikely revolutionary. He is, after all, a career economics professor who lacks the charisma of a skilled politician.
Yet in the past 18 months, Bernanke has transformed that stodgy organization, invoking rarely used emergency authorities. His decision to do so has drawn criticism — he has transcended traditional limits on the role of a central bank, stretched the Fed’s legal authority and to some, usurped the responsibility of political authorities in committing vast sums of taxpayer dollars.
More than a few times over the past year, senior Fed staff members have logged into their e-mail accounts to find an unusual message. Subject: Blue Sky. Sender: Ben S. Bernanke.
The point of the e-mails has been to encourage them to think of creative ways that the Fed can guard the economy from the downdraft of a financial collapse.
This is an institution that not long ago could spend the better part of a two-day policymaking meeting deciding whether its target for short-term interest rates should be 5.25 percent or 5 percent. But in this crisis, rate cuts, the most common tool for helping the economy, have lacked their usual punch. The Fed already has dropped the rate it controls essentially to zero, meaning there is no room left to cut.
That’s why Bernanke’s Fed has been trying to dream up ideas out of the clear blue sky. The result has been 15 Fed lending programs, many with four-letter acronyms, most of them unthinkable before the current crisis.
"For many months, the chairman was asking ‘how can we escalate?’ " said William C. Dudley, president of the New York Fed. "There
Sometimes as traders, we get caught up in a ‘Micro View’ of the market and neglect the longer picture. It can be detrimental to your financial health to take such a stance. The debate rages on as to whether or not we have put in a bottom in the market. As a chartist, it looks like in the short term view we may need to come back down and retest the recent lows of March 6. The RUB is that many traders fail to consider the larger picture when doing their analysis. We all agree that chart patterns such as double tops and bottoms can be critical areas of support and resistance. When analyzing charts with 6 month to 2 year times frames, the chartist would surmise that another leg down is required to put in a double bottom. While that may in fact be the case, it is not necessarily needed.
When considering the 20 year chart of the SPX, you will see my point. It is many times beneficial to do a top down analysis and start with a ‘Macro View’ of the markets and then narrow the analysis from that point. As you can see, from the perspective of the 20 year chart, (one could actually see this in a 10year chart, but I have included the longer time frame in order to put the trend in context of the overall market) you can see that we have in fact already tested the bottom from 2002-2003.
Please keep in mind that it does not preclude the market from moving down and retesting the recent bottom from March 6th. However, from a technical analysis perspective, it is not required that it do so.
We were very excited when word first came that Paul Volcker (Fed head before Greenspan) would be part of the Obama economic team – a man of gravitas who is not afraid to make very hard decisions at the cost of near term popularity. Volcker is not in bed with the banks or Wall Street itself unlike Timmy and Larry. But as each month has passed, we’ve only seen more and more freezing out of this man [Mar 6, 2009: Where is Paul Volcker?] , and at this point I would not be surprised to see him step down within 12 months from his post. I am beginning to get vibes of Paul O’Neil here. Instead of listening to a person like this, the official policy is now to make the easy money policies of Alan Greenspan look like child’s play. It is just a sad spectacle… just as with Greenspan we’ll laud the solutions (1% interest rates did fix everything… well they papered over everything for a while anyhow) and then face some incredible fallout "later".
As an early supporter of Barack Obama, Paul Volcker gave the young presidential candidate gravitas and advice. He frequently sat by Mr. Obama’s side at key economic events, and started carrying a cellphone for the first time, just to be able to brainstorm with the candidate from the campaign trail. In the Obama White House, the role of the 81-year-old former chairman of the Federal Reserve has been more limited.
The one-time central banker has been put in charge of a presidential advisory board that hasn’t yet had a formal meeting. It has been nearly a month since he has seen Mr. Obama. (pathetic) Mr. Volcker hasn’t been a main player in key decisions handling the global financial crisis.
Treasury Secretary Timothy Geithner unveiled the administration’s plans for handling troubled financial institutions and the housing crisis without seeking input from Mr. Volcker, associates say. (Because he knows Volcker would simply tell him this is looting of the taxpayer and a handout for the monied
Why was it so easy for Bernie Madoff to pull off a massive Ponzi scheme? Because the funds who led their clients to slaughter fattened up on almost $800 million in fees and really didn’t think it was a good idea to ask too many questions.
This tasty nugget came out of the court documents as prosecutors and plaintiffs’ attorneys try to hunt down ill-gotten gains of Madoff and the cadre of people around him who got rich. Whether any of that money comes back to Madoff clients is another story.
Here’s an excellent review of the economy by Tyler at Zero Hedge. He calls attention to the fading divide between so-called democrats and republicans, and the emergence of a new division between investors and taxpayers – many of us are both. What’s being ignored by those celebrating an end of the banking crisis? For starters, the commercial real estate market. – Ilene
With articles like this coming out of Time magazine, it is inevitable that in the immediate future, the United States will be split into two partisan camps. However, this will not be the traditional schism of republicans vs. democrats, contrary to Mr. Barney Frank’s attempt to start ideological partisan warfare. The real split will be of naive, easily-manipulated, small-time mom and pop investors, who only care about looking at their daily yahoo finance screens and 401(k) statements, seeing more black than red, and only focusing on what happened in the immediate past, and the forward looking taxpayers, who see the upcoming budget deficit fiasco, the social security ponzi scheme, the Medicare/Medicaid debacle, the ridiculous underfunding in public and corporate pension funds, the rising city and state taxes, the shuttering factories, the rising unemployment, the plummeting American production base, the "seasonally" upward-adjusted economic data coupled with consistently downward revised prior economic releases, the increasing savings rate and the multi trillion discrepancy in consumer purchasing power. The taxpayers are becoming angrier and angrier at the net present value destruction of future opportunities of being a U.S. citizen, while investors cheer every piece of information (whether or not supported by facts) that provides a push to their current net worth, ignorant of what this may mean for the future. There will come a point where this schism reaches a boiling point, in the meantime, the paradox is that so many of the taxpayers are also investors, who are caught in a tug of war with themselves on what the proper response to the crisis should be: happy as a result of bear market rallies, or sad when they put the facts into perspective.
Speaking of facts, Time contributing author Douglas McIntyre, may have considered presenting some to justify his thesis that the "the great banking crisis of
With all eyes being focused on the Financial Sector, I thought it would be helpful to key-in on four key financial stocks and look at their daily chart: Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), and Goldman Sachs (GS). Let’s hit the high-points on each one.
Bank of America (BAC):
Bank of America was taken down sharply to the $2.50 level, though a multi-swing positive momentum divergence preceded the recent strength, which has resulted in price quadrupling in over a month’s time as price has broken above the daily 20 and 50 EMA, and now a Cradle Support trade just triggered as the EMAs themselves crossed bullishly. We should expect these to hold as support.
The pathway to higher prices potentially is upon us, as we have ‘open air’ above – prior swing highs could form resistance, but the EMAs should be expected now to hold as support.
Notice that over 1 billion shares traded on Thursday’s strong trend day – BAC gained 35% in one day alone!
Citigroup’s stock is not as strong technically (chart-based) as Bank of America or the other large financial stocks (that remain). Price rose 12.50% on Thursday, though we are currently trapped beneath the 20 EMA as support and 50 EMA as resistance – that’s not a compelling place to be.
Look closely and you’ll see a negative volume divergence setting in as price rose off the $1.00 lows of March. That’s a little concerning to the bulls. However, price has tripled off the lows which isn’t shabby.
Strange to know that for some of your monthly banking fees or even ATM charges, you could be buying a share of some of these lower-priced mammoth financial companies….
Wells Fargo (WFC):
Wells-Fargo fared better than some other companies (BAC and C in particular), and we see a current bullish breakout from a triangle consolidation on stunning volume. WFC was the “talk of the town” on Thursday thanks to better-than-expected earnings. Thursday’s action broke a declining trend in Volume, and as long as support holds at $16… and the gap does not prove to be an exhaustion gap (it could very well be a ‘breakaway gap), then a test of $24
It’s natural to be wondering – is the the stock market rally anything other than a bear market rally? Did the previous decline mark the bottom and is our economy slowly recovering from its prior meltdown? John Mauldin gives many good reasons not to get too excited just yet. – Ilene
The market, we keep hearing and reading, is telling us that there is recovery around the corner. And pundits point to data that seems to suggest the worst is behind us. The leading economic indicators, while still down significantly, seem to be in the process of bottoming. There is a large amount of stimulus in the pipeline. Mark-to-market has been modified. Housing seems to be finding a bottom, if you look at the rise in sales from January. And so on.
In this week’s letter, we look at what past recoveries have looked like in terms of corporate earnings; and we look at the continued slide in earnings on the S&P 500, which has a negative price-to-earnings ratio looming in future months (yes, that is not a typo, we have an unprecedented earnings multiple). We take a peek at housing and foreclosures. There is just so much bad news out there (like continued unemployment) that it just has to get better, doesn’t it? This should make for an interesting letter.
Is That Recovery We See?
This week the market seemed to like financial stocks and was buoyed on news that Pulte Homes would buy Centex to create the largest US homebuilder. And with banks having some room to adjust their writedowns as mark-to-market is modified, the market saw significant increases in the financial sector. Everywhere I keep hearing the old saw that the market predicts a recovery about six months out, so won’t we see a recovery in the fourth quarter of 2009?
If you look at earnings estimates for 2009, that is what is suggested. Bloomberg reports that profits at S&P 500 companies probably fell 38% on average in the first quarter. The stretch of quarterly declines is the longest since at least the Great Depression, data compiled by S&P and Bloomberg show.
Earnings may drop 31% in the second quarter and 18%…
Chicago finances are even worse than I thought which is saying quite a bit because I have written about the sorry state of Chicago finances on numerous occasion.
Kristi Culpepper, a bond guru, has gone over Chicago's annual financial report, bond documents, investor presentations, and CAFRs. She has uncovered things the City of Chicago does not want anyone to understand.
For example, Culpepper reports Chicago general obligation bond deals have been used by the city as a means to avoid servicing short-term debt. Says Culpepper, "These bonds have received extraordinarily aggressive tax opinions . If the Internal Revenue Service ever gets around to scrutinizing them, your bonds probably won’t be tax exempt for long. Many of these uses of bond proceeds are not eligible for tax-exempt financing under the federal tax code." ...
Today's losses took indices to test March lows before buyers stepped in to bring things back by the close.
For the Nasdaq, bulls came in at the 50-day MA, although today's action registered as higher volume distribution.
The S&P didn't quite make it to the more significant March low, instead buyers stepped up on the test of last week's swing low. However, technicals returned to net bearishness, with on-balance-volume trending lower across the March double top; whatever late day buying there was, it was outgunned by the selling trend.
Last week, the major indexes fell back below round-number thresholds that had taken a lot of effort to eclipse. There has been an ongoing ebb-and-flow of capital between risk-on and risk-off, including high sector correlations, which is far from ideal. But at the end of it all, the S&P 500 found itself right back on top of long-standing support and poised for a bounce, and Monday’s action proved yet again that bulls are determined to defend their long-standing uptrend line.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast...
Former Federal Agents Charged With Bitcoin Money Laundering and Wire Fraud
Agents Were Part of Baltimore’s Silk Road Task Force
Two former federal agents have been charged with wire fraud, money laundering and related offenses for stealing digital currency during their investigation of the Silk Road, an underground black market that al...
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Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
Bullish trades abound in Cypress Semiconductor options today, most notably a massive bull call spread initiated in the July expiry contracts. One strategist appears to have purchased 30,000 of the Jul 16.0 strike calls at a premium of $0.89 each and sold the same number of Jul 19.0 strike calls at a premium of $0.22 apiece. Net premium paid to put on the spread amounts to $0.67 per contract, thus establishing a breakeven share price of $16.67 on the trade. Cypress shares reached a 52-week high of $16.25 back on Friday, March 13th, and would need to rally 4.6% over the current level to exceed the breakeven point of $16.25. The spread generates maximum potential profits of $2.33 per contract in the event that CY shares surge more than 20% in the next four months to reach $19.00 by July expiration. Shar...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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