Archive for 2009

More Cards Set to Fall

[Federal Home Loan Banks] Free Falling

More Cards Set to Fall

Courtesy of Michael Panzner, at Financial Armaggedon

That’s the thing about a house of cards. Only one of the supporting elements has to wobble or break loose before the rest follow suit.

That pretty much sums up where we are nowadays. It started with the subprime mortgage lenders. Then came the banks, the Wall Street firms, the government-sponsored agencies, and the hedge funds.

Now, according to the New York Post, in a report entitled "Don’t Bank on It," another layer of cards — er, financial institutions — appears set to fall.

FHLBs Fall; Look for $$

Two-thirds of the Federal Home Loan Banks, their balance sheets weakened by investments in toxic mortgage securities, could be forced to turn to the federal government for a rescue that could reach as high as $13.5 billion.

Already, several of the crippled FHLBs, the largest source of mortgage credit in the country, have stopped paying dividends to member banks, which are smaller banks and thrifts, which could lead to an increase in mortgage rates or in a noticeable decrease mortgage availability.

On Friday, FHLB Pittsburgh, one of the largest of the 12 regional bank-owned FHL Banks with $99 billion in assets, told its member banks that it is on the brink of falling below regulatory capital levels.

Paul Miller, a banking analyst with Friedman Billings Ramsey, told The Post it was likely an Obama Treasury Dept. would provide TARP money to prop up the FHLBs because having a chain of mortgage banks fail would automatically make mortgage rates go up…

FHLB Pittsburgh admitted Friday that at least one-third of their $8.8 billion in mortgage-backed securities are trading at 65 cents on the dollar…

The 12 FHLB heads wrote a letter last week to the accounting standards board asking for a change in the rules that will allow them to keep from marking the mortgage bonds to their actual value.

Some troubled FHL Banks are also asking their regulator to drop the ratio. But sources inside the Federal Housing Finance Agency say that is unlikely to happen because the regulator’s first goal is to preserve capital – not to Band-Aid failed balance sheets.

The FHLB Banks are not automatically qualified for TARP money and will need their regulator, James Lockhart, to lobby Washington.


Weekend Wrap-Up

I'll be out tomorrow and the US markets will be closed.

Tuesday will be a very telling day as will all of next week with earnings season kicking off in earnest and a new President being sworn in.  I hate to put pressure on it but Obama's speech is make or break and he better do better than the last couple of bland statements as we are seeing some scary poll numbers out there with 62% of the people polled saying the National Economy is "very bad" and 30% saying it's "fairly bad" leaving Larry Kudlow and Company to account for the other 8%.

54% of the people thought the economy was getting worse but 75% of the people thought Obama will make the economy better and 75% think Obama will create a "significant" amount of jobs in the next 4 years.  This is interesting as 93% of the same people thought that the current recession will last a year or more…  Expectations are not too high as only 9% of the people think that real progress will be made in year one but 72% approve of the cabinet selections to date.  What do all these numbers mean?  They mean America is willing to, is longing to, give Obama a chance – that the divided electorate is getting united behind the concept of change.  This will be the time to take bold initiatives and I sincerely hope Obama does not squander this unique opportunity to take this country in a bold, new direction.

I used the above cartoon on Monday morning, when we discussed how difficult it will be to convince people a Budget with a $2Tn deficit was just what this country needs but Wall Street took care of that for us by scaring Congress into releasing the remainder of the TARP money as our Financial sector went plunging back to the Thanksgiving lows, led down by the same people that we bailed out last time (well, the ones that are left anyway).  Notice GS is a little better than last time but BAC is much worse and it really can't get much worse for C but they sure are trying to disprove that theory! 

Also on
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Hyperinflation First, Then Global War

The politics of war, an unconventional view of clashes between global powers.

Ben Bittrolff discusses Niall Ferguson’s theory of violence in the 20th century. The theory suggests that ethnic unrest erupts during periods of economic stress and uncertainty. This is similar to the premise of Socionomics. According to Socionomic theory, social mood affects the economy and the economic landscape is a driving force in global conflicts. - Ilene

Hyperinflation First, Then Global War

Courtesy of Ben, The Financial Ninja

Watch the clip from Ron Paul explaining the consequences of destroying a currency…

Then read this book: The War of the World by Niall Ferguson.

Ferguson develops a theory to explain the brutal violence of the 20th century. He postulates that ethnic unrest is prone to break out during periods of economic volatility and uncertainty. Severe economic distress has the tendency to suddenly unravel even advanced processes of ethnic assimilation which then rapidly escalate into full-scale conflict. The catalyst for catastrophe is always the decline of great economic and political powers and more importantly the emergence of new powers.

One of many examples analyzed by Ferguson is the Second World War where empires in decline clashed with those on the rise while the global economy convulsed wildly.

Fast forward to the present. The "descent of the West" is now obvious. New economic and political blocs such as China and India are struggling to define their global identities. A truly massive philosophical, ideological and religious struggle has gone from a ‘cold war’ to a controlled ‘hot war’ on a global scale pitting Individualism against Collectivism, Science against Religion, and Christianity against Islam.

The current global economic instability will almost certainly be the final spark to set the entire world aflame.

"According to historian Professor Niall Ferguson, we need to rethink our understanding of the 20th century. There were not, he says, two world wars and a ‘cold’ war, but a single Hundred Years’ War. It was not nationalism that powered these conflicts, but empires. The driving force was not class or socialism – race was. And finally, it was not the West that triumphed; in fact, power slowly and steadily migrated towards the new empires of the East." -The War of the World

Channel 4 showed The War

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You’re Not Buying Stock, You’re Allocating Capital

Here’s a helpful article on allocating capital, by John Mihaljevic at The Manual of Ideas, The Ideas Report For Serious InvestorsJohn emphasizes the need to have the mindset of a Capital Allocator in making investment decisions.

Investors: You’re Not Buying Stock, You’re Allocating Capital

By John Mihaljevic, CFA, Managing Editor, The Manual of Ideas

I’d like to share with you some thoughts on investing and the need to have the right mindset when evaluating investment opportunities.

You’re Not Buying Stock, You’re Allocating Capital

Buying a stake in a publicly traded company is deceptively easy. Log into your brokerage account, type in the ticker of the company whose stock you wish to buy, and — voilà! — you own a stake in the enterprise. Many investors don’t even refer to companies by their name; they simply invoke the ticker symbol. The ease with which stocks are bought and sold obscures the underlying nature of a stock market transaction and invites bad decision-making. The trick is to avoid thinking of a stock as a readily disposable piece of paper and instead consider that you are buying a percentage of a business whenever you purchase a share of stock. Your purchase makes sense only if you would invest your capital directly in the business at the terms implicit in the market price of the stock.

Your Role in the Stock Market

Your role as an investor may at first glance seem like a trivial issue. After all, every rational investor wants to attain the highest-possible risk-adjusted after-tax return on invested capital. Isn’t each investor’s role, therefore, to make the most money for him- or herself by buying and selling securities? The answer is no because the question confuses objective (making money) and role.

Most investors, especially those managing small amounts of capital, view their role in the market as insignificant. While it’s true that you will probably not move the market, the accompanying "small fish" mindset is one that doesn’t lend itself to successful investing. Regardless of the size of your portfolio, you should adopt the mindset of Chief Capital Allocator. Imagine your role as distributing the world’s financial capital to activities that will generate the highest return on equity.
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Fed and BOE Shell Games

Good Bank, Bad Bank a desparate analysis of a broken banking system.  Another comprehensive and insightful analysis, courtesy of Mish.

Fed and BOE Shell Games to Bailout Insolvent Banks

The US banking system is insolvent.  I gave 25 reasons on Wednesday, July 23, 2008 in You Know The Banking System Is Unsound When….

1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

Many things have transpired since then. I could easily list another 25 reasons. But the fact of the matter is the insolvency can now easily be seen by anyone who bothers to open their eyes.

Washington plots next step after aid to Citigroup and Bank of America

Inquiring minds are reading Washington plots next step after aid to Citigroup and Bank of America.

Washington was last night considering fresh plans to clean up the US

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Start The Bailout Game

Thank you to Jan-Martin at Immobilienblasen for finding this cross between a clever little satire on the financial crisis and riveting game of high-stakes thrills and excitement. In case it’s not clear (it’s not), I think the goal is to end up with the most amount of money possible — kind of like Life.

Start The Bailout Game……….

Courtesy of Jan-Martin at Immobilienblasen

With the bailout structures getting more and more reckless (see US Negotiating to Backstop BofA Purchase of Merrill & Time to Fire Ken Lewis of Bank of America or for the German equivalent see Biggest German Bailout Stands Now At € 18.3 Billion & Counting…..) the following link is a must see. No better way than humor to withstand the daily insanity….. HT FT Alphaville

Nachdem die Bailouts bzw deren Form immer unverantwortlicher werden ( siehe heutiges Beispiel US Negotiating to Backstop BofA Purchase of Merrill & Time to Fire Ken Lewis of Bank of America . Deutschland ist da leider kein Stück besser…. siehe Biggest German Bailout Stands Now At € 18.3 Billion & Counting….. ) kommt der nachfolge Link zur genau rechten Zeit. Ohne Humor wäre das Drama wirklich kaum noch zu ertragen. Dank an FT Alphaville

Start Bailout Game

It takes a few seconds to start but it´s a must see…..

Es dauert einige Sekunden bis das Spiel startet. Die Zeit ist allerdings mehr als gut investiert……


THE WEEK THAT WAS: 1/12-16/2009

“The INDU closed Friday right on its’ lower trendline.  The bearish move of this past week could begin to falter at this level, however, the index is more likely to continue its’ retracement to retest recent lows at 8348.” 
“The same as [...]


-8348 will be important resistance in the INDU.  If the index breaks that level on volume, look for it to run to 8900-9000.  If it has difficulty breaking through, it could head back to retest the 7995-8110 level.  My best bet is that we are going higher.

-817-818 has shown to be stout support.  We are [...]



The bull put is a ‘spread trade’ comprising two trading instruments that have already been covered in our series on Risk Graphs.   The instruments in the bull put are, 1) the short put and 2) the long put.  Some people will not understand the benefit of using two instrument that [...]

THE WEEK THAT IS TO BE: 1/19-23/2009

Crude Inventories
Building Permits, Housing Starts, Initial claims


Zero Hedge

Enemy Of The People?

Courtesy of ZeroHedge. View original post here.

Via The Zman blog,

There has never been a time when normal people did not know the media was biased and biased in a predictable direction. For every non-liberal in the media, there were at least ten liberals. The ratio was probably higher, but then, as now, some lefties liked to pretend they were independents or some third option.

The media used to invest a lot of time denying they had a bias and an agenda, but the only people who believed them were on the Left, which had the odd effect of confirming they had a bias and an agenda.


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Phil's Favorites

A 2019 Earnings Recession?


A 2019 Earnings Recession?

Courtesy of 

Shout to Leigh!

On the new Talk Your Book – Josh Brown is joined by Leigh Drogen of Estimize, one of the leading providers of crowdsourced financial and economic data to talk about the trend in corporate profits that could potentially lead to an earnings recession later this year.

What is the thing that Leigh is seeing in the data that Wall Street isn’t yet picking up on? What segment of the stock market is most at risk? Why is the crowd smarter than the narrow consensus of Wall Street analysts?

Check out Estimize ...

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D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...

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Kimble Charting Solutions

Gold & Silver Testing Important Breakout Levels!

Courtesy of Chris Kimble.

Gold and Silver from a long-term perspective have created a series of lower highs over the past 8-years. Will 2019 bring a change to this trend? A big test is in play!

Gold since the lows in 2016 has created a series of higher lows, while Silver may have created a double bottom.

Gold & Silver are currently facing break attempts a (1) and (2). These falling resistance lines have disappointed metals bulls for the past few years.

The direction of Gold and Silver weeks and months from now should be highly influenced by what each does as they are attempting to break above important resistance levels.

To become a member of Kimbl...

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Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ... more from Insider

Digital Currencies

Russia Prepares To Buy Up To $10 Billion In Bitcoin To Evade US Sanctions

Courtesy of Zero Hedge

While the market has been increasingly focused on the rising headwinds in the global economy in general, and China's economic slowdown in particular, while the media is obsessing over daily revelations that Trump may or may not have colluded with Russia to get elected, a far more critical, if underreported, shift has been taking place over the past year.

As we reported in June, whether due to concerns over draconian western sanctions and asset confiscations following the poisoning of former Russian military officer Sergei Skripal, or simply because it wanted to diversify away from the dollar, Russia liquidated virtually all of its Treasury holdings in the late spri...

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Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...

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Members' Corner

Why Trump Can't Learn


Bill Eddy (lawyer, therapist, author) predicted Trump's failure based on his personality, which was evident years ago. This article, written in 2017, references a prescient article Bill wrote before Trump became president, in July, 2016, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

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Opening Pandora's Box: Gene editing and its consequences

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


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.


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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...

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Swing trading portfolio - week of September 11th, 2017

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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Free eBook - "My Top Strategies for 2017"



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.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


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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...

Learn more About Phil >>

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About Ilene:

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.

Market Shadows >>