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Archive for 2010

LBMA Gold Manipulation Story Hits The Mainstream

Courtesy of Tyler Durden

First, the gold manipulation story that Zero Hedge and select others have been beating a drum over for months, had finally made inroads into the broader public, first via the Huffington Post, and earlier today via the NY Post. It has also gone global thanks to the Melbourne Herald Sun, the largest newspaper in Australia, whose column by John Beveridge “More bull than bullion” is reproduced below, courtesy of the GATA. Most importantly, Zero Hedge will soon disclose some very stirring details on the manipulated gold market courtesy of yet another whistleblower, and add a new twist in the greatest precious meals fraud saga of all time. Stay tuned.

 





So, How Are Stock Prices Now That We’re Back At DOW 11,000? They’re 30% Overvalued

So, How Are Stock Prices Now That We’re Back At DOW 11,000? They’re 30% Overvalued

Courtesy of Henry Blodget at Clusterstock/Business Insider 

So, how do stock values look now that the DOW is back to 11,000?

Not outrageous.  But certainly not cheap.

Measured using our favorite valuation technique, Professor Shiller’s cyclically adjusted PE analysis, the S&P 500 has a PE of 22X.  The long-term average (1880-2010) is about 16X.  The current level is actually close to the big bull market peaks of the past--with the exception of the gigantic one that peaked in 2000.

Check out the chart below, from Professor Shiller’s web site.  The blue line is the cyclically adjusted PE ratio for the last 130 years.  (The cyclically adjusted PE mutes the impact of the business cycle by averaging 10 years worth of earnings.  This reduces the misleadingly low PEs you get at peak profit margins, like the ones in 2007, and the misleadingly high ones at trough profit margins, such as the ones we had last year).

Note a few things:

  • The long-term average for the cyclically adjusted PE is about 16X. 
  • Stocks have spent vast periods above the average and vast periods below it, usually in multi-decade cycles
  • We’ve just descended from the longest period of extreme overvaluation in history, suggesting (to us, anyway) that the next multi-decade cycle is likely to be below average


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More BOJ Policy Members Join Hoenig’s ZIRP Vigilantism; Japan’s Central Bank Realizes It Is A Media Manipulated Puppet

Courtesy of Tyler Durden

The just released minutes from the March 16-17 policy-setting meeting by the Bank Of Japan indicate that dissension to global ZIRP, and its mutant step brother, Galactic Moral Hazard (we can’t wait for Goldman to LBO Uranus, with $1 of taxpayer equity and a 0.001% perpetual PIK loan from the Federal Reserve), is growing: the vote to double the BOJ’s 0.1% interest lending facility to Y20 trillion saw a final tally of 5 to 2, with two opposing. It is no surprise that as time goes by, ever more rational people will emerge at most central banks, and join such vigilantes as Tom Hoenig in expressing that extremely rare CB quality – unbribed common sense. Yet what is more notable in the last sentence is that Japan just increased the amount of funds to be injected to cover 3 month cash needs among commercial banks, and not only that but that the BOJ will also double the frequency of the new operation from once to twice per week. In summary: the fiscal tragedy discussed earlier by Koo is starting to once demonstrate the powerlessness of monetary policy when you are dealing with a defunct state. Yes America, this is coming here too. Here’s why – the reason for all of this newfound excess monetary flooding: “To encourage a decline in longer-term interest rates.” Because that is just what Japan need – more deflation. 

In the words of the BOJ:

In December 2009, the Bank newly introduced a fixed-rate funds-supplying operation against pooled collateral (hereafter the fixed-rate operation) to further enhance easy monetary conditions, and has been implementing such measure to encourage a decline in longer-term interest rates. Given that the amount outstanding of funds provided by special funds-supplying operations to facilitate corporate financing will gradually decline from April 2010 onward, the Bank will expand the measure to encourage a decline in longer-term interest rates by substantially increasing the amount of funds to be provided through the fixed-rate operation.

And with the BOJ shows that once again the cause and solution to all of life’s problems is simple: just print more money.

An amusing anecdote in the March minutes, indicates that even the BOJ now realizes just how hilarious any calls to central bank independence are. To wit:


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The Guy Who Brought Down AIG – and Maybe the World Economy – Gets Off Scott-Free, and Gets to Keep $315 Million in Loot

The Guy Who Brought Down AIG – and Maybe the World Economy – Gets Off Scott-Free, and Gets to Keep $315 Million in Loot

Courtesy of George Washington 

Joseph Cassano, the guy who brought down AIG – and maybe the world economy – with trillions in risky derivatives deals which AIG couldn’t back up, is getting prosecuted … and the government will claw back all the money he made, right?

Uh, no.

In reality, Cassano is walking away scott-free with $315 million.

As Cent Uygur points out:

Prosecutors will likely not charge him with fraud. They are not going to try for clawbacks to get some of the money back. In the end, he gets away scott-free. But it’s better than free, he gets to keep all the money he never really made in the first place …

I told you about his $35 million thank you note [his exit bonus] for robbing the place clean. But how about the original robbery? How much did he make for himself from 2000 to 2008 by gambling with the company’s money? Only $280 million.

In the end, he walked away with over $315 million for destroying the company and maybe the whole economy. So, why wouldn’t he do it again? Well, next time it won’t be him. We’re on to him, so he’s going to have spend his retirement on his yacht. It’ll be someone else. It’ll be another Cassano. And we’ll fall for it then as well. 

 





Don’t Want To Read That Gigantic Report About The Hedge Fund Magnetar?

Don’t Want To Read That Gigantic Report About The Hedge Fund Magnetar? Here’s The Condensed Version

Courtesy of Courtney Comstock at Clusterstock/Business Insider 

A 7-month long investigative report into the hedge fund Magnetar’s role in the housing crisis was published by ProPublica on Friday.

Here’s what you need to know about it.

1. Magnetar asked banks (for example, JPMorgan, Merrill Lynch) to create CDOs that were bundles of bonds made up of people’s home insurance mortgages. If the people paid off their mortgages, the bonds made money. They named most of these CDO packages using astronomical terms: Orion, Libra, Scorpius, etc…. Read more here.

2. The banks used CDO managers to select which mortgages actually went into these bundles. Magnetar requested that the managers put the most risky mortgages, the mortgages least likely to be paid off, inside Orion, Libra, etc. Read more here.

3. Magnetar bet that the bonds in these CDOs (Orion, Libra…) would be worthless because the mortgages would default. In other words, they shorted the CDOs they asked the banks to create. Read more here.

4. Magnetar then found (through the banks) investors that were willing to go long on the CDOs, to bet that the mortgages would be paid off. One of those investors was Mizuho, one of Japan’s biggest banks. Those investors, like Mizuho, actually "bought" Orion, Libra, or just parts of them. They were basically buying very risky debt obligations that offered a big pay off if the mortgages did not default. Read more here.

5. The Magnetar Constellation Fund, the fund investing in these CDO "shorts," returned +76% in 2007 because the mortgages defaulted. The investors on the other side of the trade, like Mizuho, lost money.

Two sets of documents in this report are interesting: the emails between Magnetar and the CDO managers and the graphs that show the (estimated) proportion of the number of CDOs Magnetar created to the number of the CDOs everyone else created (most famously, Goldman Sachs, although they were by no means the only ones).

The emails clearly show Magnetar’s wanting the riskiest, most unlikely-to-be-paid-off mortgages inside their CDOs.

Here are the graphs. Magnetar’s CDOs (black) make up a huge portion of the total market’s CDOs (blue). This is why the report claims Magnetar "kept the bubble going." Because they created a large portion of what would become worthless CDOs and found buyers that would lose tons of money by investing…
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Goldman’s Take On The Greek Bailout: The Lawsuits Are A-coming

Courtesy of Tyler Durden

From Erik Nielsen

Europe this week

A few more details have come out on the Greek bail-out since I circulated my Sunday email this afternoon, specifically with respect to the potential size of the package.

Specifically, the Euro-zone finance ministers agreed this afternoon to make available – if requested by Greece – EUR30bn to be disbursed during the first 12 months, and (apparently) with a 3-year maturity, at an interest rate of either 3-month EURIBOR rates or a fixed-rate based upon the rates corresponding to Euribor swap rates for the relevant maturities.  Either way there’ll be a 300bp charge on top of the base rate (and a further 100bp for loans longer than 3 years, if that were to be the case), as well as a one-time service charge of max 50bp.   As agreed earlier, the all Euro-zone governments will participate in a ratio equivalent to their capital share in the ECB.  The ministers also said that they envisage a 3-year IMF program worth 10-12 times quota, which would be about EUR12-14bn extra.  There was no comment on the potential mis-match between 3-year money from the IMF and 12-months money from the European partners, but an unidentified senior finance ministry official said that “a logical amount for the three-year period would be significantly higher than EUR 40 billion, but this has not yet been determined.”

In my view, this is good news because the amount of money is more than I had expected (although for only a 12 months period), although the program would still not be fully funded (but close.)  Even if it were to be a full EUR45bn for the first 12 months, this would cover “only” about 2/3 -3/4 of their needs during this period.  The interest rate is about the 5% I mentioned in my email earlier.  The issue of whether this is concessional or not will be debated for a long time.  My view is clear:  Sure it is concessional, so we’ll probably see some interesting court cases if the loan gets disbursed.

Beyond the size, I am not particularly surprised.  As we have been arguing for months, Greece would not be allowed to default in April-May, so money would be made available, if needed.  But as discussed before, there always were two key issues to get comfortable with: (1) the


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Radical Concentration of Wealth is Destroying Both Capitalism and Democracy

Courtesy of George Washington

Washington’s Blog

Note: If you wish, feel free to substitute the word “republic” for “democracy”.

As I wrote in 2008:

 

The economy is like a poker game … it is human nature to want to get all of the chips, but noted that – if one person does get all of the chips – the game ends.

 

In other words, the game of capitalism only continues as long as everyone has some money to play with. If the government and corporations take everyone’s money, the game ends.

 

The fed and Treasury are not giving more chips to those who need them: the American consumer. Instead, they are giving chips to the 800-pound gorillas at the poker table, such as Wall Street investment banks. Indeed, a good chunk of the money used by surviving mammoth players to buy the failing behemoths actually comes from the Fed.

 

No wonder billionaire George Soros says that the way US Treasury Secretary Henry Paulson was handling the situation was “very reminiscent of the way the central bankers talked in the 1930s”, the time of the Great Depression.

And no wonder Nobel-prize winning economist Joseph Stiglitz stresses putting poker chips back in the hands of the little guy …

This is not a question of big government versus small government, or republican versus democrat. It is not even a question of Keynes versus Friedman (two influential, competing economic thinkers).

It is a question of focusing any government funding which is made to the majority of poker players – instead of the titans of finance – so that the game can continue. If the hundreds of billions or trillions spent on bailouts had instead been given to ease the burden of consumers, we would have already recovered from the financial crisis.

As FDR’s Fed chairman Marriner S. Eccles explained:

As in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

As I pointed out last August, and again last month, fewer people…
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Concentration of Wealth is Destroying Democracy

In this excellent essay, George Washington II concludes that America is no longer a nation governed by the rule of law.  Might this be why the stock market rally over the past year has been labeled by some as the "most hated rally"? – Ilene 

Concentration of Wealth is Destroying Democracy

Courtesy of Washington’s Blog

As I wrote in 2008:

The economy is like a poker game … it is human nature to want to get all of the chips, but noted that – if one person does get all of the chips – the game ends.

In other words, the game of capitalism only continues as long as everyone has some money to play with. If the government and corporations take everyone’s money, the game ends.

The fed and Treasury are not giving more chips to those who need them: the American consumer. Instead, they are giving chips to the 800-pound gorillas at the poker table, such as Wall Street investment banks. Indeed, a good chunk of the money used by surviving mammoth players to buy the failing behemoths actually comes from the Fed. 

No wonder billionaire George Soros says that the way US Treasury Secretary Henry Paulson was handling the situation was "very reminiscent of the way the central bankers talked in the 1930s", the time of the Great Depression.

And no wonder Nobel-prize winning economist Joseph Stiglitz stresses putting poker chips back in the hands of the little guy …

This is not a question of big government versus small government, or republican versus democrat. It is not even a question of Keynes versus Friedman (two influential, competing economic thinkers).

It is a question of focusing any government funding which is made to the majority of poker players – instead of the titans of finance – so that the game can continue. If the hundreds of billions or trillions spent on bailouts had instead been given to ease the burden of consumers, we would have already recovered from the financial crisis.

As FDR’s Fed chairman Marriner S. Eccles explained:

As in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

As I pointed out last August, and again …
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Greece Offered $61 Billion in Standby Loans; Someone in the “Know” Already Profited

Greece Offered $61 Billion in Standby Loans; Someone in the "Know" Already Profited

Courtesy of Trader Mark 

Notwithstanding the fact that markethave rallied on

  1. A rumor of a potential bailout for Greece a few months ago
  2. Confirmation a bailout was being discussed
  3. A framework of the bailout version #1
  4. A framework of the bailout version #2

And late Friday and most likely Monday, a more precise bailout…. it is almost sad to see the Greek problem go away being kicked down the road.  Each time we talk of more moral hazard the markets rally; at this point it seemed best to leave Greece hanging so we could get a new rally on a new bailout news item every 2-3 weeks…

That said, "smart money" investment banks who have close ties to global governments already knew this late Friday.  (I cited it on the blog as well)  It is hard to find a good intraday chart of the Athens Exchange, but I cut and paste what was available from the exchange website below… as you can see, the "smart people" got whiff of the news as a market that was doing nothing all day, suddenly spiked 3% in the closing hour. 

Once again fellow peons, the stock market is all about analyzing, PE ratios, profits, and homework.  It has nothing to do with having the right people placed in the right places to take advantage of all the information leaks… nope, not one bit.  Will anyone look into this to see who profited? Nah – it was just a 


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The Wheel

The Wheel

Courtesy of Allan

Below is my QQQQ chart, including the Daily Trend Model, an EW count, Auto-Trend Channels and the Elliott Oscillator.

Since the mid-February LONG signal, the index is up about 10%.  Prices have been contained in a well defined trend channel, all the time safely above the Daily Trend Line (navy).  On the bottom oscillator, the recent new highs in price are not being confirmed by new highs in the oscillator.  This suggests that the proposed wave count on the screen is correct and that after the completion of the Wave 5 of 5, a significant decline will be likely.

Below is the same QQQQ chart, less all of the bells and whistles save one, the Daily Trend Model: 

This chart suggests only one thing:  that the market is in an uptrend and traders/investors should be LONG.  The late January EXIT was good for about a 10% decline before the index flipped back to the bullish camp.  There is no suggestion here about any imminent declines,  non-confirmations, wave counts or trend channels.  Just that one thing: LONG.

There may be a market environment coming where such simple, observable, understandable analysis will fail.  Alternatively, this kind of market analysis will continue to be an effective steering current for navigating market direction.  All I can say is that this analysis continues to amaze me with its effectiveness across so many indexes, ETF’s and stocks, as well as across multiple time frames.

I don’t claim to have re-invented the wheel here, only to have found one and am now employing it in all of my market decisions. 

*****

Allan’s new newsletter, “Trend Following Trading Model,” incorporates his chart-based, trend-following method. Most trades last for weeks to months. Allan’s offering PSW readers a special 25% discount. Click here.  For a detailed introduction to the Trend Following Trading Model, read this introductory article.


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Help One Of Our Own PSW Members

"Hello PSW Members –

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 jennifersurovy@yahoo.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.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!

 
 

Zero Hedge

"Why I Will Not Submit To Medical Martial Law"

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Brandon Smith of Alt-Market.com,

One of the most dangerous philosophical contentions even amongst liberty movement activists is the conundrum of government force and prevention during times of imminent pandemic. All of us at one time or another have had this debate. If a legitimate viral threat existed and threatened to infect and kill millions of Americans, is it then acceptable for the government to step in, remove civil liberties, enforce quarantines, and stop people from spreading the disease? After all, during a viral event, the decisions of each in...



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Phil's Favorites

The Death of the Blue Chip

The Death of the Blue Chip

Courtesy of 

My title above is only half-kidding. Because everytime Wall Street pronounces “The Death Of” anything, that’s pretty much when it starts working again. But there is an important point being made in a new article at the Wall Street Journal about the current state of some of our biggest stalwart stocks and their underlying businesses, a point I made two days ago here

Here’s the Journal:

A third of the companies in the Dow Jones Industrial Average have posted shrinking or flat revenue over the past 12 m...



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Chart School

S&P 500 Snapshot: Back in Rally Mode

Courtesy of Doug Short.

After a one-day pause, the S&P 500 returned to rally mode. The index opened at its 0.20% intraday low, vaulted upward and then drifted to its 1.81% mid-afternoon high. It closed ninety minutes later with a trimmed gain of 1.23%. The popular financial press touted strong pre-market earnings (most notably from Caterpillar and 3M) as the rally trigger and blamed the afternoon fade on renewed Ebola worries (a doctor being tested in NY).

Looking ahead ... will Amazon's post-close earnings disappointment trigger a market struggle at tomorrow's open? Stay tuned!

The yield on the 10-year Note closed at 2.29%, up 4 bps from yesterday's close. The weekly average for the 30-year fixed mortgage was announced today at 3.92%, the lowest rate since early June of last year.

Here is a 15-minute chart of the past five sessions.

...

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All About Trends

Mid-Day Update

Reminder: David 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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Option Review

LUV Options Active Ahead Of Earnings

There is lots of action in Southwest Airlines Co. November expiry call options today ahead of the air carrier’s third-quarter earnings report prior to the opening bell on Thursday. Among the large block trades initiated throughout the trading session, there appears to be at least one options market participant establishing a call spread in far out of the money options. It looks like the trader purchased a 4,000-lot Nov 37/39 call spread at a net premium of $0.40 apiece. The trade makes money if shares in Southwest rally 9.0% over the current price of $34.32 to exceed the effective breakeven point at $37.40, with maximum potential profits of $1.60 per contract available in the event that shares jump more than 13% to $39.00 by expiration. In September, the stock tou...



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Sabrient

Sector Detector: Sharp selloff in stocks sets up long-awaiting buying opportunity

Courtesy of Sabrient Systems and Gradient Analytics

Last week brought even more stock market weakness and volatility as the selloff became self-perpetuating, with nobody mid-day on Wednesday wanting to be the last guy left holding equities. Hedge funds and other weak holders exacerbated the situation. But the extreme volatility and panic selling finally led some bulls (along with many corporate insiders) to summon a little backbone and buy into weakness, and the market finished the week on a high note, with continued momentum likely into the first part of this week.

Despite concerns about global economic growth and a persistent lack of inflation, especially given all the global quantitative easing, fundamentals for U.S. stocks still look good, and I believe this overdue correction ultimately will shape up to be a great buying opportunity -- i.e., th...



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Digital Currencies

Goodbye War On Drugs, Hello Libertarian Utopia. Dominic Frisby's Bitcoin: The Future of Money?

Courtesy of John Rubino.

Now that bitcoin has subsided from speculative bubble to functioning currency (see the price chart below), it’s safe for non-speculators to explore the whole “cryptocurrency” thing. So…is bitcoin or one of its growing list of competitors a useful addition to the average person’s array of bank accounts and credit cards — or is it a replacement for most of those things? And how does one make this transition?

With his usual excellent timing, London-based financial writer/actor/stand-up comic Dominic Frisby has just released Bitcoin: The Future of Money? in which he explains all this in terms most readers will have no tr...



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OpTrader

Swing trading portfolio - week of October 20th, 2014

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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Market Shadows

Falling Energy Prices: Sober Look takes a Sober Look

Falling Energy Prices: Sober Look takes a Sober Look

What do falling energy prices mean for the US consumer? Sober Look writes a brief yet thorough overview of the consequences of the correction in the price of crude oil. There are good aspects, particularly for the consumer, bad aspects, and out-right ugly possibilities. For more on this subject, read James Hamilton's How will Saudi Arabia respond to lower oil prices?  In previous eras, Saudi Arabia would tighten the supply to help increase prices, but in this "game of chicken," the rules m...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly. Just sign in with your PSW user name and password. (Or take a free trial.)

#457319216 / gettyimages.com

 

...

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Pharmboy

Biotechs & Bubbles

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

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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