Archive for November, 2009

Draining the Swamp: The Fed’s Tri Party Repo Machine

Draining the Swamp: The Fed’s Tri Party Repo Machine

Courtesy of  Jesse’s Café Américain

In this case as outlined by the New York Fed memo below, a triparty repo transaction is a transaction among three parties: a cash lender acting on behalf of all holders of dollars (the Fed), a borrower that will provide collateral (dodgy debt holder in shaky financial condition), and a clearing bank, most likely a primary dealer like J.P. Morgan, which is only too happy to collect its fees as an agent of the Fed.

The triparty clearing bank provides custody (agency) accounts for parties to the repo deal and collateral management services. These services include ensuring that pledged collateral meets the cash lenders’ requirements, pricing collateral, ensuring collateral sufficiency, and moving cash and collateral between the parties’ accounts. What if any liabilities the clearing bank such as J.P.Morgan or Goldman Sachs might obtain for the mispricing of risk remain undisclosed, but are probably negligible at worst.

This is the method of obtaining toxic assets from the books of non-primary dealers, and providing stability and liquidity from the aggregate value of all dollar holders to cover the misdeeds of diverse financial institutions and other favored parties.

In other words, the Fed is draining the financial debt swamp and toxic waste dumps into your basement, if you hold Federal Reserve Notes. Your IRA’s, your 401k’s, your savings, as long as you hold Federal Reserve Notes, which are claims on their balance sheet loosely backed by the Treasury. When the Fed’s balance sheet contained nothing but Treasuries and explicity backed agencies that relationship was firmer. Now, we are into the realm of make believe and Timmy’s credibility.

The Fed pledges that Goldman and Morgan assure them that there will be no radioactive material in the sludge pond headed your way, and levels of carcinogenic and toxic contamination will be within levels that they believe are adequate based on the non-binding estimates.

In practice the Fed has a defaults account on its book for the shortfalls from fat valuations due to the toxic debt it has already assumed on your behalf.

The source and composition of the sludge will remain a secret among the bankers, without oversight. This seems like taxation without representation, at least for holders of dollars that are US citizens, since the Fed is engaging in the expenditure of public money…
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Interview with Commercial Real Estate Developer

Interview with a Commercial Real Estate Developer about the CRE Industry

Developer and commercial real estate (CRE) investor Mr. Solmon discusses how the once overheated CRE market froze over.

By Ilene

Mr. Solmon (name changed) is a CRE veteran with 40 years of experience developing commercial real estate in 15 states and has kindly agreed to be interviewed about the current conditions in the CRE market.

Ilene: Thanks for doing this interview with me. Rumors of continuous heating up in the CRE market, didn’t exactly pan out. What are you seeing in the CRE market now?

Mr. Solmon: CRE is undergoing deleveraging with the rest of the economy, debts are being reduced or going into default. Large numbers of projects are not cash flowing and will have to be liquidated, or ownership will have to be transferred. Concurrently, there’s an oversupply caused by the same ill advised financing that led to the overbuilding.

Ilene: Did you see this happening?

Mr. Solmon: Yes we knew, and so did everyone else. Most people make a decision based on what they can get out of it in the short term. It’s the collective crowd behavior problem. Why do the lemmings jump over the cliff? It seems like a good idea till they get to the cliff – they keep being rewarded, till they’re not. Like the stock market, people invest because it keeps going up, without knowing when to get out, when the market’s going to crash. It’s a justifiable course of action as long as the market goes up and there are no losses. You can argue that the players didn’t really lose because the government bailed out a lot of the participants. Taxpayers lost the most.

Ilene: How far into the decline are we now?

Mr. Solmon: So far about 25%. A lot has been recognized. And it’s no longer a surprise. Some properties have already been foreclosed out. There are a lot of vacancies.  I think a further substantial group of commercial properties will get foreclosed. I don’t see it leveling off for another few years because of the problems of contraction, debt, and oversupply. Oversupply in real estate doesn’t get worked off, the buildings have to be used. Less consumption and less business mean less demand. Creative financing, excessive easy money caused the oversupply, caused hyped…
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Stock Market Commentary: Markets Hold Their Ground

Stock Market Commentary: Markets Hold Their Ground

Courtesy of Fallond Stock Picks

There was a chance with the return of traders that Friday’s recovery would have been erased, instead buyers stepped in to protect the gains achieved following Friday’s gap down. The Nasdaq closed above its 50-day MA on higher volume accumulation.

[click on chart for larger view] 

The Dow held its breakout for another day but also finished with a MACD trigger ‘sell’. Although the ‘sell’ was countered by an accumulation day.


The Russell 2000 did well to recover its early day losses, but it still finished the day below its 20-day MA albeit on a bullish hammer (however – stochastics are not oversold so the candlestick as a reversal line is weak).


The S&P hasn’t quite had the same strength as the Dow; a MACD ‘sell’ and a confirmed loss of the breakout is softened by support at the 20-day MA on an accumulation day.


Tuesday looks set to close a little more of Friday’s breakdown gap, but then the challenge for bulls begins.

 





SP 500 Futures Daily Chart

SP 500 Futures Daily Chart

Courtesy of Jesse’s Café Américain

Stocks are being managed on light volumes.

At most times the markets are price discovery and capital allocation mechanisms.

Under the current Bernanke-Summers regime, they have become instruments of financial engineering, the shaping of perception, and government influence.

 





The Dangerous US Financial Sector Is Still Smoldering and May Reignite

The Dangerous US Financial Sector Is Still Smoldering and May Reignite

Courtesy of Jesse’s Café Américain

Timmy and the Merry Pranksters at the Treasury and the Fed are throwing taxpayer money at the financial sector with the same prudence with which Angelo Mozilo used sunblock.

Smothered by paper, the fire in the financials is still smoldering, and could reignite with the breezes of further credit contractions in commercial real estate, mortgage foreclosures, and frothy debt in the developing world.

When the US financial system tumbles there should be little doubt where Ben, Tim, Larry, and their Boss failed the American taxpayer and all holders of US debt.

The ratings fraud and accounting deception will continue until confidence is restored.

Barron’s
More Nasty Bank Surprises

By JIM MCTAGUE
November 28, 2009

THERE’S GROWING EVIDENCE THAT THE CASE FOR buying financial stocks is larded with "bulloney." Recent indications are that bank regulators from the Treasury to the Federal Reserve to the Federal Deposit Insurance Corporation and on to the state level remain in the dark about the quality of bank-loan portfolios — especially at small to midsize institutions. An estimated 21 publicly traded banks that have received TARP injections are on the ropes, according to published reports. The number likely will grow, leading to some nasty surprises for investors.

Because of the political antipathy toward Wall Street, the consensus is that any Congressional financial regulatory reform bill will be punitive in the extreme and consequently inhibit the growth and profitability of the sector for years to come. This hardly is a buy signal.

The latest and perhaps most startling evidence of endemic regulatory weakness is the failure this month of two banks and the bankruptcy of CIT, all recipients of TARP funds from Treasury after they were deemed earlier in the year by "expert" regulators to be safe and sound. CIT received $2.3 billion in taxpayers-financed TARP funds; UCBH Holdings, parent of San Francisco’s United Commerce Bank, received $299 million; and Pacific Coast National Bank, a San Clemente, Calif., lender, received $4.1 million. All were publicly traded.

The aforementioned 21 wobbly publicly traded companies that have received TARP money had zero or negative net income. They’ve suspended dividend payments to the Treasury. Regulators vetted all of these institutions, using the "CAMELS" rating system. CAMELS stands for "Capital, Asset quality, Management, Earnings, Liquidity, and…
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Simon Johnson Talks Dubai on PBS Newshour

Simon Johnson Talks Dubai on PBS Newshour

simon johnsonCourtesy of Trader Mark at Fund My Mutual Fund

One of our favorites, and a voice of reason, is former IMF chief economist, Simon Johnson. Aside from offering good ideas that are summarily dismissed by the political elite and special interests he writes profusely (with a few partners) at the blog Baseline Scenario (which I also believe is summarily dismissed by the political elite and special interests).  You should notice a theme here. ;)

He also posted a blog entry on the subject Friday: Does Dubai Matter? Ask Ireland.

If you are not familiar with Johnson, he had an epic story in The Atlantic this spring which is a must read, titled "The Quiet Coup."

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets,and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Below we have a 8 minute video where Johnson discusses the implications of Dubai on PBS Newshour. Of course, after viewing it – make sure to promptly ignore it and buy stocks on the open tomorrow morning, Christmas season sale! ;) Just because you wasted the weekend shopping doesn’t mean Ben B was not busy printing more US dollars … he works 7 days a week, 24 hours… like Santa. Instead of a sleigh he has a helicopter… and delivers bundles of joy to bankers everywhere.

If you are old school, the full transcript is here.

 

 


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Bearish Risk Reversal Anchored in Royal Caribbean Cruises

Today’s tickers: RCL, GE, YHOO, XLF, X, FCX, AIG, CF, JAVA & UAUA

RCL – Royal Caribbean Cruises Ltd. – Bearish option traders clawed-aboard global cruise company, Royal Caribbean, today despite the 0.5% increase in shares during the trading session to $24.24. A large-volume risk reversal in the June 2010 contract indicates rougher seas could cloud RCL’s horizon. One investor sold 20,000 calls at the June 30 strike for an average premium of 1.70 apiece, spread against the purchase of the same number of put options at the lower June 20 strike for 2.25 each. The net cost of the reversal amounts to 55 cents per contract. The investor responsible for the trade is likely long shares of the underlying stock. If this is the case, the long put position established today, provides downside protection beneath the effective breakeven point at $19.45. Conversely, if shares surge during the next seven months, the underlying stock position will be called away from the trader if shares exceed $30.00 by expiration in June.

GE – General Electric Co. – A sold straddle on General Electric this afternoon indicates one investor expects shares to settle at $16.00 by expiration in June of 2010. Shares edged slightly lower by less than 0.50% to $15.88 in late afternoon trading. The trader looked to the June 16 strike to sell approximately 5,000 calls for a premium of 1.61 apiece and 5,000 puts at the same strike for 1.89 each. The gross premium pocketed by the investor amounts to 3.50 per contract. The trader keeps the full 3.50 premium on the straddle if shares center at $16.00 through expiration. The investor may take profits ahead of expiration by buying back the short straddle for less than 3.50 per contract. Premiums on both calls and puts are elevated today because of the 6% increase in option implied volatility on the stock to 35.50%. The trader benefits from lower volatility on GE and from eroding time value of option premiums. Both factors drag option premiums lower and allow the trader to buy back the straddle in a profitable manner.

YHOO – Yahoo!, Inc. – The 0.5% decline in shares of the internet company to $14.93 did not deter one investor from taking a bullish stance in the April 2010 contract today. It appears the trader put on a ratio call spread to position for a rebound in shares by expiration.…
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Holiday Shoppers Shun Credit Cards Use Cash; Self-Serving Fed Infomercials

Holiday Shoppers Shun Credit Cards Use Cash; Self-Serving Fed Infomercials

Courtesy of Mish

Inquiring minds note a huge shift in consumer attitudes towards credit cards. Please consider Cash is king for holiday shoppers.

Cash was king for consumers who shopped over the Thanksgiving weekend, according to survey results released on Sunday, and that factor could have cost retailers additional sales.

Only 26 percent of people who shopped over the weekend said they used credit cards for their purchases, according to a poll conducted for Reuters by America’s Research Group.

"That’s an amazing shift in consumers’ habits," said Britt Beemer, founder of America’s Research Group.

A total of 39 percent said they used cash, while the remaining shoppers used debit cards, the survey showed.

Consumers shunning credit cards is a bad sign for retailers, since people who buy gifts with a credit card tend to spend anywhere from 20 to 40 percent more on the gift, Beemer said.

Every Retailer Wants To Be A Discounter

The National Retail Federation has this Black Friday Verdict: Number of Shoppers Up, Average Spending Down.

As the closely-watched Black Friday weekend winds down, a National Retail Federation survey conducted over the weekend confirms the expected: more people spent less. According to NRF’s Black Friday shopping survey, conducted by BIGresearch, 195 million shoppers visited stores and websites over Black Friday weekend*, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending reached an estimated $41.2 billion.

Shoppers’ destination of choice over the past weekend seemed to be department stores, with nearly half (49.4%) of holiday shoppers visiting at least one, a 12.9 percent increase from last year. Discount retailers took an uncharacteristic back seat, with 43.2 percent of holiday shoppers heading to discount stores over the weekend and another 7.8 percent heading to outlet stores.** Shoppers also visited electronics stores (29.0%), clothing stores (22.9%), and grocery stores (19.6%). As millions of shoppers gear up for Cyber Monday, one-fourth of Americans shopping over the weekend (28.5%) were shopping online.

“In an economy like this one, every retailer wants to be a discounter,” said Tracy Mullin, NRF President and CEO. “Department stores have done an admirable job touting both low prices and good quality, which are important requirements for holiday shoppers on a


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Ben Bernanke Pleads For His Job; My Response to Bernanke

Ben Bernanke Pleads For His Job; My Response to Bernanke

ben bernankeCourtesy of Mish

Ben Bernanke is on yet another self-serving mission to save his job. Please consider The right reform for the Fed an op-ed by Ben Bernanke in the Washington Post.

Here is Bernanke’s entire article (in italics) with my comments interspersed in plain type. Most of my comments are made straight to Ben Bernanke, but they apply in general to all central bankers.

Bernanke: For many Americans, the financial crisis, and the recession it spawned, have been devastating — jobs, homes, savings lost. Understandably, many people are calling for change.

Mish: Ben, the reason people are calling for a change is that you and the Fed wrecked the economy. You did not see a housing bubble, nor did you foresee a recession. I would also like to point out your selective memory loss about your role in bailouts. To refresh your memory, please refer to Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America "Turd in the Punchbowl" for details.

Bernanke: Yet change needs to be about creating a system that works better, not just differently. As a nation, our challenge is to design a system of financial oversight that will embody the lessons of the past two years and provide a robust framework for preventing future crises and the economic damage they cause.

Mish: No Ben, we need a system that works differently. You have proven beyond a shadow of a doubt that you and the Fed are incompetent and cannot be trusted.

Ben here is a compilation of your own statements made from 2005-2007 proving you have no idea what you are talking about.

Bernanke: These matters are complex, and Congress is still in the midst of considering how best to reform financial regulation. I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions.

Mish: Hello Ben, exactly what is that core function? Is it a dual mandate of price stability and full employment by any chance? Pray tell exactly how badly did you blow that? Did you succeed at either? Is it mission impossible in the first place?

Bernanke: Notably, some leading proposals in the Senate would strip the


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Dear God, please confirm what I already believe

None of this is a bit surprising, but in case you thought otherwise, the part of your brain you use to infer what God thinks is the same part of your brain you use to figure out what you think.  – Ilene

Dear God, please confirm what I already believe

God Rocks' in graffiti on the side of a truck

By Andy Coghlan, New Scientist  

God may have created man in his image, but it seems we return the favour. Believers subconsciously endow God with their own beliefs on controversial issues.

"Intuiting God’s beliefs on important issues may not produce an independent guide, but may instead serve as an echo chamber to validate and justify one’s own beliefs," writes a team led by Nicholas Epley of the University of Chicago in Proceedings of the National Academy of Sciences

"People may use religious agents as a moral compass, forming impressions and making decisions based on what they presume God as the ultimate moral authority would believe or want," the team write. "The central feature of a compass, however, is that it points north no matter what direction a person is facing. This research suggests that, unlike an actual compass, inferences about God’s beliefs may instead point people further in whatever direction they are already facing."

Full article here.

 


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Zero Hedge

Explosion Hits Russia's Largest Virus Lab Which Houses Plague, Smallpox, Ebola And Other Deadly Viruses

Courtesy of ZeroHedge View original post here.

A sudden explosion at a Siberian virus research center on Monday reportedly left the facility engulfed in flames, according to several Russian news outlets. 

Firefighters and other emergency personnel were dispatched to the "Vector Institute" located several miles from Novosibirsk - an emergency which was upgraded "from an ordinary emergency to a major incident," a...



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Phil's Favorites

The future of work will still include plenty of jobs

 

The future of work will still include plenty of jobs

Even though the future is unknown, Canada’s employment rate has risen steadily from 53 per cent in 1946 to more than 61 per cent today. (Shutterstock)

Courtesy of Wayne Simpson, University of Manitoba

There is now widespread anxiety over the future of work, often accompanied by calls for a basic income to protect those displaced by automation and other technological changes.

As a labour economis...



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Lee's Free Thinking

Is The Drone Strike a Black Swan?

Courtesy of Lee Adler

Pundits are calling yesterday’s drone strke a “black swan.” Can a drone strike on a Saudi oil facility, be a “black swan.”

According to Investopedia:

A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.

I seriously doubt that no one expected or could have predicted a drone strike on a Saudi oil facility.

Call Me A B...

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Insider Scoop

New Relic Cuts 2020 Sales Guidance, Announces Changes In Management

Courtesy of Benzinga

New Relic (NYSE: NEWR) has reaffirmed its second-quarter guidance and cut its sales guidance for fiscal year 2020 from $600 million-$607 million to $586 million-$593 million.

The company’s chief technology officer, Jim Gochee, and chief revenue officer, Erica Schultz, have resigned. New Relic also named board member Michael Christenson as its chief operating officer. Christenson joins from his ...



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The Technical Traders

Metals are following downside sell off prediction before the next rally

Courtesy of Technical Traders

It is absolutely amazing how the precious metals markets have followed our October 2018 predictions almost like clockwork.  Our call for an April 21~24 momentum base below $1300 followed by an extensive rally to levels above $1550 has been playing out almost like we scripted these future price moves.

Now that the $1550 level has been reached, we are expecting a rotation to levels that may reach just below the $1490~1500 level before attempting to set up another momentum base/bottom formation.  And just like clockwork, Gold has followed our predictions and price is falling as we expected. Just look at our October 2018 chart where we forecasted the price of gold...



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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 

...

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Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...



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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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Biotech

The Big Pharma Takeover of Medical Cannabis

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

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

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About Phil:

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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