Archive for 2009

The Biggest Rip Off Ever?

The Perils of Securitization

The Biggest Rip Off Ever?

By MIKE WHITNEY at CounterPunch 

Is it possible to make hundreds of billions of dollars in profits on securities that are backed by nothing more than cyber-entries into a loan book?

It’s not only possible; it’s been done. And now the scoundrels who cashed in on the swindle have lined up outside the Federal Reserve building to trade their garbage paper for billions of dollars of taxpayer-funded loans. Meanwhile, the credit bust has left the financial system in a shambles and driven the economy into the ground like a tent stake. The unemployment lines are growing longer and consumers are cutting back on everything from nights-on-the-town to trips to the grocery store. And it’s all due to a Ponzi-finance scam that was concocted on Wall Street and spread through the global system like an aggressive strain of flu. This isn’t a normal recession; the financial system was blown up by greedy bankers who used "financial innovation" game the system and inflate the biggest speculative bubble of all time. And they did it all legally, using a little-known process called securitization.     

Securitization--which is the conversion of pools of loans into securities that are sold in the secondary market--provides a means for massive debt-leveraging. The banks use off-balance sheet operations to create securities so they can avoid normal reserve requirements and bothersome regulatory oversight. Oddly enough, the quality of the loan makes no difference at all, since the banks make their money on loan originations and other related fees. What matters is quantity, quantity, quantity; an industrial-scale assembly line of fetid loans dumped on unsuspecting investors to fatten the bottom line. And, boy, can Wall Street grind out the rotten paper when there’s no cop on the beat and the Fed is cheering from the bleachers. In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference titled, "Slapped in the Face by the Invisible Hand; Banking and the Panic of 2007", the author shows that mortgage-related securities ballooned from $492.6 billion in 1996 to $3,071.1 in 2003, while asset backed securities (ABS) jumped from $168.4 billion in 1996 to $1,253.1 in 2006. All told, more than $20 trillion in securitized debt was sold between 1997 to 2007. How much of that debt will turn out to be worthless as foreclosures skyrocket and the
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Sunday Readings

Interesting interview with Justice Antonin Scalia (below).  Click here for a free subscription to PSW Report, it’s really easy and you’ll have immediate access to all the articles. – Ilene

Tyler Durden’s Sunday Readings

  • Gordon Brown repeats vow not to go away (Telegraph)
  • Airline execs say industry outlook still grim (Reuters)
  • Extreme dumb money bullish sentiment (Technical Take)
  • Blackrock set to become largest quant fund in the world (Telegraph)
  • Monetizing debt: The grandest of larcenies (Daily Reckoning)
  • Evans-Pritchard: Merkel’s inflationary fretting may wake the bears from hibernation (Telegraph)
  • Bankruptcy filings rise to 6,000 a day (USA Today)
  • Daniel Gross: The bond war – Krugman vs Ferguson (Slate)
  • Roundup of (un)employment charts (Big Picture)
  • Justice Antonin Scalia: "The US Constitution is dead" (Fora)
  • Eli Broad’s remedy for the auto industry (Fora)

Chartology

Big thanks to Gayle and Sherrie for their donations and support.

 


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The way of a trader

The way of a trader

Courtesy of Allan

The focus here is on the bigger picture, although eventually this post will drill down to some more tradable analysis. For starters, lets look at a time frame I have seldom or ever posted before, a monthly view of the SPX:


During the past 15 years, we see two major up moves and two major down moves. Despite the rally of the past three months, the chart shows prices still mired in the most recent down move. Observe the angles of the four major directional moves, one should stand out, the most recent down move. It is by far the steepest of them all. What do you think this means?

The chart above is again a monthly chart, this time with Fibonacci retracements. Notice how prices have just now reached a 25% retracement level of the entire two year decline and that a typical 38% retracement would come in at about SPX 1015. Also observe how short this current three-month rally has been when compared to an 18 month decline. See how Advanced GET is suggesting that the completion of wave 4 will be between 960 – 1020.

Below is a close-up of the above chart via a weekly chart:


This above chart has a more completed look to the wave 4 advance from early March. The problem is that a confirmation will not occur until the Blue Wave sell level is hit. This level was 842.99 last week and will probably be at a higher level next week. We will know the new reversal level on Monday.

Moving to a daily view of the SPX, here is an interesting perspective courtesy of Market Club:


The MC chart is on a buy with a sell basis the weekly charts under 880. I’ve added a Parabolic stop/reverse indicator which is suggesting a level of 887.65 will generate a reverse-short signal. So with a weekly Triangle sell at 880 and the daily at 887.65, we have the makings of important support levels that if breached would signal a major change of trend.

Here is a daily view of the SPX, showing a much closer Blue Wave sell level:


The daily chart above has a much closer Blue Wave reversal sell level, 918, only a little over 20 SPX points lower.

Finally, the 120-minute chart, a time frame…
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Optimistic Unemployment and Housing Forecasts Looking Downright Silly

Optimistic Unemployment and Housing Forecasts Looking Downright Silly

Courtesy of Mish

Economics may be the "dismal science" but economists as a group sure seem to be an optimistic lot. Yes, there are a handful of "doomers" like Nouriel Roubini but most economists did not see the recession coming until it was already 10 months old.

Please consider unemployment forecasts. The Fed forecast unemployment at 8.4% in 2009 and the "adverse forecast" was at 10.3% in 2010.

Hello Ben, in case you did not notice, Jobs Contract 17th Straight Month; Unemployment Rate Soars to 9.4% and Bankruptcy Filings Reach 6,000 A Day.

Adverse Assumptions

Let’s take a look at all the Fed’s adverse assumptions for the recently conducted "stress-free test" as laid out in the Fed’s Stress Test White Paper.

Click on Table for Sharper Image

1 Percent change in annual average.
2 Baseline forecasts for real GDP and the unemployment rate equal the average of projections released by Consensus Forecasts, Blue Chip, and Survey of Professional Forecasters in February.
3 Annual average.
4 Case?Shiller 10?City Composite, percent change, fourth quarter of the previous year to fourth quarter of the year indicated.

Case Shiller Housing Index

Please consider the latest Case Shiller Housing Index.

The S&P/Case-Shiller Home Price Index ? which covers 20 metropolitan areas ? showed a price decline of 18.7% in March, suggesting a greater fall in prices than expected. Analysts were looking for an -18.40% reading, following the -18.67% reading for February. The 10-city measure fell a similar 18.6%.

The numbers were even worse on a quarterly basis. The Q1 report ? which covers all nine U.S. census divisions, rather than just 20 metropolitan areas ? recorded a 19.1% decline compared to the first quarter of 2008, marking the steepest fall ever in the 21-year history of the index.

“All 20 metro areas are still showing negative annual rates of change in average home prices with nine of the metro areas having record annual declines,” said David Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Seventeen metro areas recorded a monthly decline in March, with Minneapolis, Detroit and New York posting record monthly declines.”

Note that the baseline scenario for housing for 2009 is -14%. Home prices are already down 19.1% and the adverse scenario will be under


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The S&P 500 Conundrum

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Adam Hewison, co-creator of Market Club, sent me his new video analysis of the S&P 500, which he calls a "conundrum wrapped in an enigma" – here’s his intro and video below. – Ilene

The S&P 500 Conundrum

Courtesy of Adam of Market Club

A conundrum wrapped in an enigma… that’s the S&P 500 index.

I was just looking at the S&P 500 index as we come to a close for the week of June 6th. While the market appears to be higher for week, it also appears that we’re losing momentum on the upside.

This can be seen in the second attempt to close over the 950 level. Also some of our momentum indicators are showing negative divergences. This means that while the S&P 500 is making new highs for the move, the momentum indicators are not showing the same configuration and making new highs. This can often be the first clue of a potential market correction.

In this short video on the S&P 500, you’ll will see exactly what I’m looking at and why.

[Click on chart to watch the video.]

 

 





GE/NBCU TRYING TO STIFLE OTHER MEDIA’S COVERAGE OF COMPANY

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EXCLUSIVE: GE/NBCU TRYING TO STIFLE OTHER MEDIA’S COVERAGE OF COMPANY: Immelt Orders Nielsen Media Iced Over GE-NBCU-Obama Story: NBCU’s Zucker Follows Orders And Freezes Out The Hollywood Reporter For Past 6 Weeks

By Nikki Finke of Nikki Finke’s Deadline Hollywood Daily

Excerpt:

It’s a very dangerous situation when any huge multinational corporation wages war against media companies. Especially when that huge multinational corporation is General Electric, which itself owns a media company, NBC Universal, and it’s using all its power and influence and money to try to harm another media company, Nielsen, and Nielsen Business Media, and its trade publication The Hollywood Reporter. This certainly sounds like a situation which the FCC, and the FTC, and the U.S. Justice Department should be investigating. Just one problem: the controversy stems from GE/NBCU’s coverage of President Obama. Here’s what happened:

According to my sources inside and outside Nielsen Business Media, The Hollywood Reporter trade publication ran a story dated April 22nd and updated on April 24th covering the "drama" at the most recent GE shareholders meeting in Orlando. THR‘s West Coast Business Editor Paul Bond wasn’t sent to the meeting, but he interviewed about half a dozen people who’d been inside the shareholders meeting and told him what transpired (see below). Bond’s THR story focused on the attempts by stockholders and Fox News Channel and other media to find out whether or not GE Chairman/CEO Jeffrey Immelt ordered his news operations to be less critical of President Obama and his policies.

Bond’s story was immediately picked up by The Drudge Report under the headline "GE shareholders outraged over MSNBC bias; Microphone cut off." It became a widely posted news story on conservative and liberal and media websites everywhere. That’s when, sources inside and outside Nielsen Business Media tell me, GE Chairman Jeff Immelt ordered a GE company-wide ban on all of The Hollywood Reporter‘s parent company Nielsen: advertising, editorial, the works… Continue here.

 


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The New, New Normal

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The New, New NormalVisit John's MySpace Page

Courtesy of John Mauldin, Thoughts from the Frontline Weekly Newsletter

We are coming to a critical inflection point, perhaps the most critical point that we have had in 70 years for the US and to a great extent the global economy. The choices we make (or that Congress and the Fed make for us) will affect not just our investment portfolios but business and our jobs for a very long time. Last week I talked about the three paths we face as a nation. I want to go back to that theme and expand upon it. You need to clearly understand what the risks are so that you can interpret the actions and data that will be coming at us in the next few quarters. I am feeling a little tired today, so I am going to take the liberty to reproduce Bill Gross’s latest comments as well, which are somewhat in line with my own.

A Different Perspective on Health Care

But before we jump into the letter, I want to acknowledge the very large response I got from readers about the cut and paste I did about the differences between the national health care systems of Canada and Great Britain the health care system of the US. To say that I touched a raw nerve is an understatement. I should also admit that I learned a great deal from some very cogent and thoughtful letters. I often write about the problems with using selective statistics in gauging the economy. I have learned that you can do the same with health care statistics.

There are many letters I could quote, but let me give you a counter for the statistics from last week from Raoul Pal of Spain. And of course, there are other statistics that can be brought in to make almost any case you want. But I found these to be very thought-provoking.

"Using the Economists World in Figures I think there is a very interesting and maybe appalling story to tell. In its simplest terms a healthcare system is there to extend the longevity of live of the population. It is the single best and simplest way to judge it because we can all find examples of where one country is better than…
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Some Behavioral Thoughts On Home Buying

Courtesy of Tom Lindman at But Then What?

Some Behavioral Thoughts On Home Buying

Robert Shiller of the infamous Case-Shiller index has a particularly interesting piece in the NYT. Instead of hammering on numbers he takes a look at the psychology of home buyers and sellers and why that might affect home prices for some time to come.

Shiller examines the behavioral biases that lead people to “irrationally” hold onto houses during a period or declining values. The concluding paragraphs are thought provoking:

For this reason, not all economists agree that home price declines are really predictable. Ray Fair, my colleague at Yale, for one, warns that any trend up or down may suddenly be reversed if there is an economic “regime change” — a shift big enough to make people change their thinking.

But market changes that big don’t occur every day. And when they do, there is a coordination problem: people won’t all change their views about homeownership at once. Some will focus on recent price declines, which may seem to belie any improvement in the economy, reinforcing negative attitudes about the housing market.

Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.

I say it’s thought provoking because when you look at the recent frenzy in the lower priced end of the housing markets it’s hard to come up with a theory that squares with Shiller’s ideas. Unless you are of the opinion that the drastic decline in prices constitutes an economic “regime change.” Certainly, there hasn’t been any fundamental shift at all in the general economy that has prevailed in this sudden shift from a buyers to sellers market. So what might be driving it?

The only plausible theory I can come up with is that the buyers perceived an exceptional opportunity to purchase housing at favorable prices. Did they do so on the assumption that prices were about to begin a march back? Is the meme that you can’t lose money long term buying real estate so firmly ingrained that no amount of empirical evidence to the contrary will diminish it or are they simply grabbing an opportunity to buy shelter?

What


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Weekend Reading – Always in Progress!

Last weekend I warned my bears: "DO NOT underestimate how irrational the markets can get."

I also closed the wrap-up saying: "Keep in mind I am generally bullish – just not this bullish, this soon!"  It was "Just Another Manic Monday" and it was indeed a manic-depressive week with 250 points gained on Monday almost entirely erased on Wednesday afternoon ahead of one of the week's two massive stick saves that, overall, got us even for the week.  The markets remain too close to call as we drift into the "Triple Top Testing Zone" I spoke about on Thursday Morning (but these are recovery levels I've been predicting since the March lows).  So it was yet another week of watching from the sidelines and making few trades – even in our $106,191 Virtual Portfolio Update on Tuesday, other than buying more FAZ to protect our gains, and setting stops on some winning positions, there was not much to do as even the mix of stops we set on that virtual portfolio left us in a fairly neutral position going into the weekend.

Rather than do a Wrap-Up this week of a directionless week, let's see what we can figure out by reading some bullish and bearish articles, hopefully figure out where we're going in the week(s) ahead.  It's very good to be in cash, over the past two weeks we've had both bulls and bears screaming about market manipulation, statistics fraud and both green and brown shoots and having cash lets us laugh at everyone.  While our cash out at 8,600 in early May did cause us to miss a 150-point gain in the market over the past month, we also missed a 300-point drop so it's hard to say I regret my call at the time or my continued caution on "Double Top Tuesday," the 19th, where I said: "We continue to remain mainly in cash but playing for a drop unless another index breaks that 40% line at which point we will be forced to add some plays  to the bull side despite our concerns."

So, all we have been doing for the past 3 weeks is PATIENTLY (well, some of us have been patient) waiting mostly on the sidelines for our 40% (off the 2007 highs) levels to be broken.  Those levels are: Dow 8,413, Nasdaq 1,717, S&P 946, NYSE 6,232, Russell 514, SOX…
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Gorbachev: The US Needs a Perestroika

Courtesy of Mark Thoma at Economist’s View

Gorbachev: The US Needs a Perestroika

Mikhail Gorbachev says change is coming, and that "Washington will have to play a special role in this new perestroika":

We Had Our Perestroika. It’s High Time for Yours, by Mikhail Gorbachev, Commentary, Washington Post: …In recent years,… during speaking tours in the United States…, I have often told listeners that I feel Americans need … a perestroika, not like the one in my country, but an American perestroika… Halls filled with thousands of people have responded with applause. …

In the West, the breakup of the Soviet Union was viewed as a total victory that proved that the West did not need to change. Western leaders were convinced that they were at the helm of the right system and of a well-functioning, almost perfect economic model. Scholars opined that history had ended. The "Washington Consensus," the dogma of free markets, deregulation and balanced budgets at any cost, was force-fed to the rest of the world.

But then came the economic crisis of 2008 and 2009, and it became clear that the new Western model was an illusion that benefited chiefly the very rich. …The current global crisis demonstrates that the leaders of major powers, particularly the United States, had missed the signals that called for a perestroika. The result is a crisis that is not just financial and economic. It is political, too.

The model that emerged during the final decades of the 20th century has turned out to be unsustainable. It was based on a drive for super-profits and hyper-consumption for a few, on unrestrained exploitation of resources and on social and environmental irresponsibility.

But if all the proposed solutions and action now come down to a mere rebranding of the old system, we are bound to see another, perhaps even greater upheaval down the road. The current model does not need adjusting; it needs replacing. I have no ready-made prescriptions. But I am convinced that a new model will emerge, one that will emphasize public needs and public goods, such as a cleaner environment, well-functioning infrastructure and public transportation, sound education and health systems and affordable housing.

Elements


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Phil's Favorites

Interview with John Rubino

I had the good fortune of visiting with my friend John Rubino from Dollar Collapse last weekend, and that led to my latest interview with John in which we discuss the likely effects of Donald Trump's plans to stimulate the US economy and "make America great again." John shares some investing ideas to help guard against the probable outcome of increased borrowing and spending and the eventual devaluation of the dollar.  

****

Ilene: What are your investing expectations and premises now that we know that Donald Trump has been elected president? Have any of your premises changed as a result?

John: Trump is looking like Obama/Bush on steroids. That...



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Zero Hedge

"Hard-Core Clinton Fanatic" Manufactured "Viral Fake News" That MSNBC Used To Discredit Wikileaks

Courtesy of ZeroHedge. View original post here.

Authored by Glenn Greenwald via The Intercept,

The phrase “Fake News” has exploded in usage since the election, but the term is similar to other malleable political labels such as “terrorism” and “hate speech”; because the phrase lacks any clear definition, it is essentially useless except as an instrument of propaganda and...



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ValueWalk

Do Electoral College Challenges Have Any Chance Of Succeeding? Not Likely Says One Organizer

By Mark Melin. Originally published at ValueWalk.

A major anti-Trump protest is being planned for December which, in part, supports Electoral College elector revolt against the voter’s state-by-state decision. Does it have a high probability of succeeding?  Don’t count on it, says one of the movement’s organizers.

Electoral College

Image source: Wikimedia Commons

Texas Republican elector, upset with Trump tweets and policy choices, makes a stand

Texas Republican elector Christopher Suprun made waves when he said he will not be voting for Donald Trump on the basis of his judgement Trump is not qualified for the job.

“Mr. Trump goes out of...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

OPEC, Russia see smooth road to global deal on output cut (Reuters)

Russia and Saudi Arabia said they expect OPEC and non-OPEC producers to reach an agreement on Saturday to curtail oil output and prop up prices in the first such joint move since 2001.

OPEC, Russian Oil Cut Deal Pushes Up Asian Natural Gas Prices (Forbes)

The OPEC agreement reached last week to cut oil output by 1.2 million b/d (removing around 1% ...



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Kimble Charting Solutions

Gold could blast off, if this resistance cluster holds!

Courtesy of Chris Kimble.

Below looks at the US Dollar/Gold Ratio over the past 30-years. When the ratio is heading lower, US$ is weaker than Gold/Gold stronger than US$. When the ratio is heading higher, US$ is stronger than Gold/Gold weaker than the US$

At this time, the ratio in the chart below, has created a Power of the Pattern setup, that is seldom if ever seen.

CLICK ON CHART TO ENLARGE

A rare cluster of resistance is in play for the US$/Gold ratio at (1...



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Biotech

The Medicines Company: Insider Buying

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

I'm seeing huge insider buying in the biotech company The Medicines Company (MDCO). The price has already moved up around 7%, but these buys are significant, in the millions of dollars range. ~ Ilene

 

 

 

Insider transaction table and buying vs. selling graphic above from insidercow.com.

Chart below from Yahoo.com

...

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Members' Corner

How To Poop At A Party?

Courtesy of Nattering Naybob.

Once again, it's "Toilet Thursday" or "Thursday in the Loo", so we follow up on Second Hand Stink with How to Poop At A Party. 

This hilarious video demonstrates how to control the Shituation when needing to Poopulate at a gathering, in no uncertain terms. 

We hope this recurring bathroom humor theme "shits" well with our readers. So please do relax, drop the cursor below, click and enjoy.

...

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Chart School

Dow Jones Gann Angle Update

Courtesy of Read the Ticker.

When the Dow Jones moves the media must have an explanation for it. However the insiders have the nod to what is going on.

The media story so far is that since the TRUMP win, managers have been rotating their portfolios to represent TRUMP trends (lower taxes, go easy on the 'too big to fail' Wall Street banks, more jobs for Americans). Prior the election the stock market was set up for a HILLARY win, due to more of the same, status quo, FED support. But....

Using Richard Ney logic, the short answer is, stocks were always going up and the election results do not matter nor would a higher 10 yr bond or lackluster fundamentals. The real story is the marke...

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Promotions

Phil's Stock World's Las Vegas Conference!

 

Come join us for the Phil's Stock World's Conference in Las Vegas!

Date:  Sunday, Feb 12, 2017 and Monday Feb 13, 2017.            

Beginning Time:  8:00 am Sunday morning

Location: Caesar's Palace in Las Vegas

Notes

Caesar's has tentatively offered us rooms for $189 on Saturday night and $129 for Sunday night. However, we have to sign the contract ASAP. We need at least 10 people to pay me via Paypal or we may lose the best rate for the rooms. (Once we are guaranteed ten attendees, I will put up instructions to call the hotel for individual rooms.)

The more people who sign up,...



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OpTrader

Swing trading portfolio - week of December 5th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

Largest US Bitcoin Exchange Is "Extremely Concerned" With IRS Crackdown Targeting Its Users

Courtesy of ZeroHedge. View original post here.

Last Thursday we reported that in a startling development seeking to breach the privacy veil of users of America's largest bitcoin exchange, the IRS filed court papers seeking a judicial order to serve a so-called “John Doe” summons on the San Francisco-based Bitcoin platform Coinbase.

The government’s request is part of a bitcoin tax-evasion probe, and se...



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Mapping The Market

The Most Overlooked Trait of Investing Success

Via Jean-Luc

Good article on investing success:

The Most Overlooked Trait of Investing Success

By Morgan Housel

There is a reason no Berkshire Hathaway investor chides Buffett when the company has a bad quarter. It’s because Buffett has so thoroughly convinced his investors that it’s pointless to try to navigate around 90-day intervals. He’s done that by writing incredibly lucid letters to investors for the last 50 years, communicating in easy-to-understand language at annual meetings, and speaking on TV in ways that someone with no investing experience can grasp.

Yes, Buffett runs an amazing investment company. But he also runs an amazing investor company. One of the most underappreciated part of his s...



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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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