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Saturday, January 31, 2009

Tom Daschle--The new face of "private equity."


KKR Private equity trades at $2.30. It's stated asset value is $18.85.

AP Alternative assets trades at $2.40. It's stated value is $10.30.
http://online.barrons.com/article/SB123335928543535161.html?page=3

Who calculates the asset valuations of these private equity shops? J.C. Flowers, the genius that gave Ken Lewis the heads up to buy Merrill Lynch, because he had already gone over their books?

And at least yesterday, we found out what private equity does besides overstate asset values and assist in failed mergers. They provide a car and driver to former senators and future political appointees whose nominations will now get squashed. Tom Daschle, Obama's nominee for Health and Human Services made the same "innocent mistake" that Timothy Geithner claimed he did. He forgot to pay $140,000 of taxes. But Daschle evaded the taxes due the driver and limo provided to him, for the last three years, courtesy of private equity firm Intermedia Advisors. And like Geithner, Daschle's accountant "missed" these problems. His accountant missed the limo service, missed his fake deductions, and missed the unreporting of his income! Maybe Daschle's accountant could find work with Treasury!
http://www.politico.com/news/stories/0109/18245.html

Daschle claimed it was an oversight, because he was always provided a car and driver in the Senate, and he just expected this "perk" in private life.

Daschle also didn't report $88,333 of income in 2007. Another "oversight."

He also "overstated" his charitable contributions by $15,000. So Daschle made up charitable contributions to non existent charities; but supposedly Daschle has been making charitable gifts to legitimate charities, except that he made these "donations" to the legitimate charities with cash, and nobody has any record of them!

But still there is more:

Committee staff still is reviewing whether travel and entertainment services provided to the Daschles by EduCap, Inc., Catherine B. Reynolds Foundation, Academy Achievement, and Loan to Learn should be reported as income.
http://www.foxnews.com/politics/2009/01/31/raw-data-senate-finance-committee-report-daschle/

So then let him keep his private job and limousine, pay his taxes, and stay out of public office!

And let Daschle be the face of private equity's latest "advisor!"

Because none of Daschle's assets, match anybody else's marks!

Wall Street bonus math

From 2002 to 2008, the five biggest Wall Street securities firms paid an estimated $190 billion in bonuses.

Their profits? $76 billion.

How about just for 2008?

In 2008, these firms, combined lost $25.3 billion.

Their bonuses? $26 billion.
http://online.wsj.com/article/SB123336341862935387.html?mod=testMod

Friday, January 30, 2009

Bring out the stimulus; GDP contracts 3.8%

Should anyone be surprised at these figures? These figures beat the whisper numbers of -5.5%.

But let's look at what's happening in the news today.

Remember the long term time horizon of the sovereign wealth funds? A little more than a year ago, Istitmar, Dubai's fund, bought Barney's for $950 million. Now they already want to sell it, but instead of asking today's market price of about $400 million, they still think they can get $950 million.
http://www.nypost.com/seven/01302009/business/full_price_follies_152629.htm

Who pays more than oil sheiks? Even "working" girls know that.

The telegraph is reporting that 40% of the wealth of the world has already evaporated.
http://www.telegraph.co.uk/finance/financetopics/davos/4374492/WEF-2009-Global-crisis-has-destroyed-40pc-of-world-wealth.html

Now we see that credit card payment rates dropped by the most on record. Analysts say it shows that consumers are altering their buying habits.
http://www.usatoday.com/money/perfi/credit/2009-01-29-consumer-credit-delinquincies_N.htm

Altering their habits? No they are preparing to default! Does anybody think that the consumer that has lost his home, or his job, or has ruined his credit or any combination thereof, now is losing sleep at night because he's not going to pay his revolving balance?

This is Super Bowl XLIII weekend, and it's apparent that this is the Recession Bowl. Tampa has 43 strip clubs to go along with the party, and the Tampa Tribune even had a section in their paper devoted to the clubs. Now it's apparent that the stimulus plan isn't what it was cracked up to be, even in Tampa!

Has anyone been to the Victoria Secret party? Oh that's right, it was cancelled this year. So go to the Playboy party. Oh that's right, it was cancelled this year. So go to the Sports Illustrated party. Oh that's right, it was cancelled this year. Heck, go to the GM junket. Oh that's right, it was cancelled this year. At least you have the ESPN or Maxim party. At least there you won't have blogging from the http://www.dabagirls.com/!

What it means though, is that the Obama stimulus plan, is going to be changed a bit in the Senate, with more stimulus, and less pork.

Because even in Tampa, during the Super Bowl, in this "foxhole" economy, the stimulus business is suffering!

Unless everyone just decided to go to Kurt Warner's bible study!

The "bad bank" beneficiary--Gold


Gold was "pushed" down to $870 the other day by TPTB (the powers to be); and promptly reversed and went through $900 like a hot night thru butter. For more on the precious metal conspiracy click here.
http://aaronandmoses.blogspot.com/2009/01/gold-and-silver-conspiracy.html

Vocal shortseller of Lehman Brothers, David Einhorn of Greenlight Capital, bought gold for the first time in his life. From his latest shareholder letter:

The Fed is making loans collaterized by toxic waste and has now begun a policy called "quantitative easing"-a fancy term for "printing money." The size of the Fed's balance sheet is exploding and the currency is being debased...Our guesss is that if the chairman of the Fed is determined to debase the currency, he will succeed.

The gold vaults banks in Switzerland are already full, because people don't trust paper assets and they want to have gold in their possession.

Those that don't mind a proxy for gold are flocking to the ETF's, and now the gold alone in the gold SPDR's are geeater than the central bank gold reserves of all but five countries and the IMF.
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=a0pWErBctHdM

Why gold?

It's simple really.

People want to own, what Government's can't print

Former Merrill Lynch big wigs invested with Madoff

Former Merrill Lynch & Co. executives Daniel Tully and Barry Friedberg said they lost money by investing with Bernard Madoff through a fund started by another ex-colleague, John “Launny” Steffens.

The former executives may be among the highest-level Wall Street executives to reveal they were duped by Madoff, 70, who was arrested Dec. 11 after saying he’d been using money from new investors to pay off old ones in a $50 billion Ponzi scheme. Both said they had “very little’’ invested with Madoff.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aRhzcmD7TTYc&refer=home

Thursday, January 29, 2009

The "foxhole" economy


This may be a foreign concept on Wall Street, but there are parts of this country that go to church or synagogue on weekends, and some people even go mid-week.

My Mom fits in that category, and she called me tonight to ask me how things were.

She told me that today she went to a bible study, and then her fellow parishioners starting talking about the economy. The people had so many prayer requests, that they weren't even able to commit any time to the bible study, as the praying took up the entire time!

I doubt that this indicator is in the latest econometric models, but last I checked, most people really don't pray. And when they do, it's usually in a foxhole.

Or now it appears, in this, the "foxhole" economy.

Meredith Whitney on the "bad bank"

Here's a few points from her report:

If a bank were to sell its “bad” assets into a “bad bank,” it would still be left with lower earnings power from higher losses on “good loans” and the requirement to build reserves, lower earnings power from lower assets and a higher legacy expense structure, or both.

The greatest unknown regarding the “bad bank” is at what price the gov’t would pay for “toxic assets.” If the government elects to pay fair market value, the banks will likely not elect to participate as capital hits would be too dear; however, if the gov’t pays above market, the burden on an increasingly “taxed” taxpayer grows.

We would be most encouraged by banks selling “crown jewel” assets to cover their own losses. We believe private capital will readily invest in businesses that make money and grow. However, the banks do not fit this description. We remain cautious on the group.

The full story is here.
http://ftalphaville.ft.com/blog/2009/01/29/51834/meredith-whitney-thinks-a-bad-bank-is-a-bad-idea/

Bank of America defers bonuses

Any bonus over $50,000 at BAC 's investment banking staff will be paid in three annual installments in starting in 2010.
http://www.ft.com/cms/s/0/51df9ac6-ecb5-11dd-a534-0000779fd2ac.html

Maybe these overpaid bankers can get Wall Street to securitize their bonus in a special pool with TALF funding! I'm sure Bernanke would approve!

For more on the TALF:
http://www.federalreserve.gov/newsevents/press/monetary/monetary20081125a1.pdf

At least BofA is a quick learner. Look what Obama had to say about these "shameful" Wall Street bonuses:

The American people understand that we’ve got a big hole that we’ve got to dig ourselves out of, but they don’t like the idea that people are digging a bigger hole even as they’re being asked to fill it up,” Mr. Obama said, adding that “there will be time for them to make profits and there will be time for them to make bonuses. Now is not that time.
http://www.nytimes.com/2009/01/30/business/30obama.html?_r=2&hp

The support group for girls dating bankers


Dating a Banker Anonymous-DABA's now have their own support group online.
http://dabagirls.com/

Check out some of their posts:

...OK I’m not in my 30’s I’m in my 40’s, so me and my banker have a lot to lose - the apartment with private roof deck, 2 kids, opera tickets, the wine club. We agreed to pretend nothing would change (though we wouldn’t do anything lavish - we stayed in Manhattan for Christmas and finally saw the Nutcracker, for example) until he got his number in January, and then we’d adjust, whatever.

Number is in and it’s a 75% cut, ladies. We’re looking at just enough money to make our mortgage payments, paying none of the principle down. So we aren’t going to lose the house yet, but we aren’t going to think about THAT until NEXT January. Meanwhile: My own dinky-by comparison salary, which had been my own since I went back to work so I could have the company of grownups, is no longer my own. It all will be spent on family expenses. The sitter’s hours are cut, both the family and my private credit card are cut in half, and I’m switching from having my facials and massages in my earthy, yoga-and-wine serving downtown spa to a midtown been-in-business-forever place with ladies in cubbies wearing pink jackets and lots of make-up giving facials only. I know, I know, only old people and gay men go there these days, but congested skin isn’t an alternative for me, so I have to go someplace. I’ll do it once every 6 weeks instead of monthly, and it is 1/3 the price of the facials at the spa. And I remember from the 80’s that they do a good job.

It gets worse. I’ll now be doing my pilates with others, in class, on the mat instead of on the machines with my private instructor. This truly frightens me. I could hurt myself competing with you 20-30 yr-olds. Private was so much less humiliating....

...Thanks to the recession, I now have a completely devoted BF, which is exactly what I wanted. So I should be happy, right? Wrong. I’m bored and can’t stop thinking about my perpetually unattainable Euro ex-boyfriend who is recession proof courtesy of an offshore trust account. To be honest, I’m only with my BF because I just don’t have the heart to change my facebook status from “in a relationship” to “I ain’t saying I’m a gold digger, but I ain’t messin’ with no broke banker...

....Suddenly, I found myself being taken out less and less frequently. A recent argument went along these lines:

Me *pouting*: You haven’t taken me on a trip since we went to Bermuda in September. What’s going on?

Charles: Honey, finances are tight right now so my wife has taken it upon herself to check up on all of our accounts. She will notice any big expenditures.

Me *cute voice*: Wellllllllllllll, what are you going to do to make it up to me?

Charles: Can we talk later sweetheart? I’m really busy right now.

Me: No. Give me an answer NOW. Don’t you realize what you have? I’m way too hot to be treated like this. (Disclaimer: Yes, I come across as bratty here, but it typically works when trying to get something out of him)

Charles *yelling for the first time in our almost two-year relationship*: I’VE GOT TO FIRE TWENTY PEOPLE BY THE END OF THE WEEK. Z has four kids, X just had a baby girl, Y just sent his son to college and I’ve got to get rid of two of those guys… and you’re complaining about vacations and dinner? God, you are so 24! GROW UP!

Me *stunned*: Okie dokie, let’s talk later lover.

He apologized a few hours later. He promised my age was one of the things that endears me to him the most, but that I just don’t understand the tremendous amounts of pressure he is under right now. Fair enough. But damn, it’s tough to date a banker, even for the girl on the side...

Read them and you'll understand why these bankers think they deserve their bonuses!

Congress trying to reign in credit default swaps

House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The draft, distributed by e-mail from the committee, would also force U.S. trades in the $684 trillion over-the-counter derivatives markets to be processed by a clearinghouse. Hearings on the draft will be held next week.

So what did Wall Street have to say?

The proposal “would radically shrink” the market, said Scott MacDonald, head of research at Aladdin Capital Management in Stamford, Connecticut, which oversees $16.5 billion in assets. “While it’s important that there’s a drive to return to some degree of plain-vanilla in financial products, this would be considerable overkill.”

Why would they say that? Is it because we have $62 trillion of unregulated derivatives out there? Or is it because of this:

As much as 40 percent of profit at Goldman Sachs Group Inc. and Morgan Stanley comes from OTC derivatives trading, according to CreditSights Inc.

Without transparency you have outrageous profits, and room for games. Why should Wall Street want regulation?

They have the taxpayer to back them up!
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aWuHY2JsDEaM

All hope abandon ye who enter here!

Or in Latin it's "Lasciate ogne speranza, voi ch'intrate"" which, for Dante was the sign at the entrance way of Hell and today it aptly described the financials!

I had to put it in Latin, because today, we heard that last night, John Thain was speaking in pig Latin, as he was attempting his resurrection. But first, to understand that, and the financials, you have to know a little about another story of hell.

In Luke 16:19-31, we have the story of the rich man, who was also dressed in purple and fine linen, who found himself in hell, and looking across the gulf, he saw the beggar Lazarus, who apparently was enjoying himself in Paradise. The rich man, actually had the gall to ask Abraham, if he could have Lazarus, come over from Paradise to Hell, and just give him a drop of water from his finger to cool his thirst. (Maybe the rich man was watching The Mentalist and he thought he could just cross over.)

Apparently, the rich man didn't recognize that hope had already abandoned him. And that, the beggar, was now in riches, and he wasn't.

Enter John Thain, and his "pig latin" spoken at dinner last night with BlackRock Chairman Larry Fink while eating at San Pietro. Here's what Big John had to say while ordering drinks:

"...under the circumstances with this tough economy, I think I'll have tap water..."

Are you kidding me? At least we don't need an interpreter to decipher what John Thain wants. John Thain thinks he can re-cultivate his image, by ordering tap water in a loud voice so the whole world will now know that he is tightening his belt! He thinks a cup of water will make up for the billions and billions and billions and of wealth eviscerated under his watch, and the billions and billions he paid his lieutenants that helped him eviscerate it!

Apparently John Thain hasn't recognized that hope has already abandoned him! He still thinks he is in paradise, and a cup of water will fix his image, just like the rich man thought a drop of water from Lazarus would cure his thirst!

In the above example there is a great gap or moat between hell and Paradise. It's the same with the financials. But the great gap exists in the discrepancies of the prices for their most toxic assets! And in The Divine Comedy, in order to get to paradise, you have to get through hell first, and we are stuck in Dante's eighth circle--that circle reserved for those that commit conscious fraud!

Which brings us back to the financials today, and why all hope had abandoned them.

Supposedly, the two best big banks are Wells Fargo and JP Morgan. This morning, we found out that JP Morgan engaged in conscious fraud in their dealing with Madoff.

How is that supposed to engender confidence in the banks when they engage in that type of behavior? Was JP Morgan miming Santander? Did anyone notice that? Yesterday they promised $1.8 billion to those investors (excluding the institutions) that invested with Madoff. It sounds good until you look at the terms. It was a preference piece, with a yield of 2%, which means it was an offer of 15 cents on the dollar. But not in banker speak!

Now enter Wells Fargo. They touted their financial strength yesterday, not telling investors that without the $25 billion from the TARP, that their Tier 1 capital would be below 6%! WFC isn't even covering their dividend, and their tangible common equity is only at 2.68%, and yet they say they don't need anymore TARP money! Wells didn't disclose it, because they said that their TCE doesn't reflect the goodwill of the Wachovia acquisition!

Three banks, all at the eighth circle of Dante's Inferno, but they were led by Bernanke and the FOMC statement yesterday, whereby he promised to communicate that they possibly might engage in quantitative easing! Bonds got whacked again today. Does anybody believe "ceiling fan" Bernanke?

Which is why the financials are like Dante's Inferno! But the eighth circle, is supposedly just an evil pocket, a Malebogle.

A pocket? It's a moat!

And it's awful hard to get across!

Just like in hell!

"It has to be done quickly!"

Does this ever end? The new bailout tab looks like it could cost $2 trillion.
http://online.wsj.com/article/SB123319689681827391.html

We know that the supposed capital of the banking system is less than $1.4 trillion, so that means the tab of the bailout we be at least $2 trillion, because the banking system is insolvent.

So Barney Frank says, that there is a bunch of ideas, but we have to spend this $2 trillion on a plan "quickly!"

Treasury, who wants to do something quickly, said "while lots of options are on the table, there are no final decisions."

But heck, it's not there money it's yours. So do something quickly!

It's only $2 trillion!!!

JP Morgan screws Madoff investors

In 2006 JP Morgan allowed bank investors to leverage their bets on Madoff, and then put $250 million of the firms money alongside those investors to invest with them. JP Morgan, then yanked their money a few months before Madoff collapsed, without telling any of those investors!

They used the Goldman Sachs "model" that was used during the subprime debacle. Goldman got short sub-prime, while still selling the product to it's clients.

Here's the story:

JPMorgan Chase says that its potential losses related to Bernard L. Madoff, the man accused of engineering an immense global Ponzi scheme, are “pretty close to zero.” But what some angry European investors want to know is when the bank cut its exposure to Mr. Madoff — and why.

How is it possible that JP Morgan can say their losses are pretty close to zero? If JP Morgan withdrew money just months before an entity imploded, JP Morgan has to give that money back. That is known as "fraudulent conveyance." So now we know how JP Morgan calculates losses that the bank will eventually have to eat. $250 million of losses on the bank's book, is "close to zero." So what does that mean for the hundreds of billions of prime jumbo mortgages that are their books where JP Morgan is acknowledging those losses?

As early as 2006, the bank had started offering investors a way to leverage their bets on the future performance of two hedge funds that invested with Mr. Madoff. To protect itself from the resulting risk, the bank put $250 million of its own money into those funds.

But the bank suddenly began pulling its millions out of those funds in early autumn, months before Mr. Madoff was arrested, according to accounts from Europe and New York that were subsequently confirmed by the bank. The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless.

A spokeswoman, Kristin Lemkau, said the bank withdrew from the Madoff-linked funds last fall after “a wide-ranging review of our hedge fund exposure.” Ms. Lemkau acknowledged, however, that the bank also “became concerned
about the lack of transparency to some questions we posed as part of our review.”

Investors were not alerted to the move because, under sales agreements, the issues did not meet the threshold necessary to permit the bank to restructure the notes, she said. Under those circumstances, she added, “we did not have the right to disclose our concerns.

You take your money out, and you don't tell investors? That's like leaving your kids in a house burning down, while you run out the back door!

That doesn’t satisfy some investors. As they see it, they were the first people who should have been alerted to the bank’s concerns. “Instead, we continued to pay our fees to the bank and remained the only ones exposed to the risks that JPMorgan did not want to assume,” said the chief asset manager of an Italian investment firm, who declined to be identified because of potential litigation.

JP Morgan didn't tell, because they wanted the FEES!

The tale began several years ago when a unit of JPMorgan Chase in London issued a series of complex derivatives that gave investors a way to triple their bets on the Fairfield funds, whose solid consistency mirrored the track record that had quietly — and ruinously — drawn investors to Mr. Madoff for decades...

Some investors now note that Mr. Madoff maintained several accounts with JPMorgan Chase, and wonder if the parent bank saw trouble brewing in those accounts and got its London affiliate out of Fairfield before the storm hit.
http://www.nytimes.com/2009/01/29/business/29madoff.html?ref=business

Isn't that rich? JP Morgan develops notes from it's derivative division that allows investors to triple their bets on Madoff, then later, JP Morgan gets squeamish, and yanks their money, but they don't tell any of the investors that they are no longer investing with them.

Why? What prevented this patron bank of virtue from not telling their clients that Madoff was a fraud. Why would JP Morgan leave their clients holding the bag?

JP Morgan wanted the fees!!

And was JP Morgan nervous about Madoff? They had access to other Madoff accounts.

And how did JP Morgan prevent others from selling?

They discounted the "quoted" prices of the notes by 12%, so those investors would stay in with Madoff and lose their money!

And that, my friends, is how Jamie Dimon does business.

After all, he's the face of the nation's bank!

PETA's Super Bowl ad rejected

How did PETA possibly think this ad was going to get past the Super Bowl censors? (Today I'm running this website, like JP Morgan runs their business. I'll do anything for hits!)


'Veggie Love': PETA's Banned Super Bowl Ad

Wednesday, January 28, 2009

Our Government now bails out the Credit Unions!

Now the supposedly sound credit unions need a bailout! Here's the story:

In the latest effort to prop up a sector of the finance industry, federal regulators on Wednesday guaranteed $80 billion in uninsured deposits at the powerful institutions that service the nation's credit unions -- a maneuver that shows how the economic crisis continues to ripple across the U.S.

Regulators also injected $1 billion of new capital into the largest of these wholesale credit unions, U.S. Central Federal Credit Union of Lenexa, Kan., after the firm on Wednesday posted an unexpected $1.1 billion loss for 2008. U.S. Central serves essentially as a main clearinghouse for the others in the network.
http://online.wsj.com/article/SB123318420520726249.html?mod=testMod

Citi's new logo

How are we to value the bank's toxic assets?

What did Geithner say?

We could use the market, or
we could use a model, or
we could ask the bank supervisors.
http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=avQ3LP7o44oU

And he's the Treasury Secretary!!

Treasury's contracts with the banks are now online

Here's the link:
http://www.treas.gov/initiatives/eesa/agreements/index.shtml

Check out State Street's contract, page 25, section (j):
http://www.treas.gov/initiatives/eesa/agreements/State_Street_Agreement_Dated_26_October_2008.pdf

No Undisclosed Liabilities. Neither the Company nor any of the Company Subsidiaries has any liabilities or obligations of any nature (absolute, accrued, contingent or otherwise) which are not properly reflected or reserved against in the Company Financial Statement to the extent required to be so reflected or reserved against in accordance with GAAP, except for (A) liabilities that have arisen since the last fiscal year end in the ordinary and usual course of business consistent with past practice and (B) liabilities that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

Ain't that a hoot!!!

Who cooked up the "bad bank" plan, anyway?

The FOMC statement or "Bernanke's bluff"


To understand the FOMC statement today, you have to look at Bernanke's speech on January 13 where he touted communication as one of his policy tools:
http://aaronandmoses.blogspot.com/search?q=communication

One important tool is policy communication. Even if the overnight rate is close to zero, the Committee should be able to influence longer-term interest rates by informing the public's expectations about the future course of monetary policy.

So today, the Fed communicated, that it might buy Treasuries. Here's the statement:

The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.

In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee's policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve's balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.
http://www.federalreserve.gov/newsevents/press/monetary/20090128a.htm

Well, I don't trust "ceiling fan" Bernanke.
http://aaronandmoses.blogspot.com/2009/01/what-happened-to-bernankes-quantitative.html

So my New Year's resolution was to SELL Government paper, and it was at the exact top of the bond market!
http://aaronandmoses.blogspot.com/2009/01/new-years-resolution-sell-your.html

Because since when is "is prepared" or "maybe" and "communication" Federal Reserve policy?

Now look at the daily graph of the TLT. Does anybody else think that statement was helpful, or did anyone else on Wall Street thank Bernanke for maybe?

The only thing Bernanke has going for himself is his unpredictability, and a ton of nervous shorts, who with, it seems, along with the rest world are short financials.

Today, they tried to hit the banks after the FOMC statement, but they were met with buying that absorbed all of their selling.

The market is just down too far, to get anyone to puke up stock at these levels.

Even if all we got from Bernanke regarding quantitative easing was just possibilities!

The market script

The whole world was short the financials. And now we won't know the plans of the "bad bank" until a week or so, so the bulls can run rampant. And the shorts will get squeezed. All day.

The next thing is the attempt to weaken gold, and garner confidence in financial assets. This is the head fake.

Use that to get long the commodity stocks, the steels, the infrastructure, and names like CAT tractor. The fertilizer stocks that have been languishing are also buys.

I think the oils will strengthen also. If the banks, which were insolvent, now get the stuff that makes them insolvent off their books, without making them insolvent, of which they will do, then how come these real companies can't get a bid either?

I don't know how long this rally will last. But if the past is any perspective, it will be sharp, vicious and brief.

Good enough for me! The juice plays include the ones I gave in my speculation corner Monday night:

And when we are ready to reverse, we get days like today. Up, and then the sell-off that seems to be concerted, as if the bears are trying to force it down, and then stability when the selling is contained.

That's normally the recipe for a trade. Here's some speculative picks, with cheap prices that guarantees you some action! Hopefully these will be flea market bargains, and not just inventory that's still being wholesaled!

DXO (2.73) The double crude ETF
UYG (3.04) The double financial ETF
DYY (6.06) The double commodity ETF
URE (4.39) The double real estate ETF

http://aaronandmoses.blogspot.com/2009/01/speculation-corner.html

Now make some money today. We are in the honeymoon period of the "stimulus" and "bad bank" plans. We haven't even yet seen how these will look with their clothes off.

So we ramp!

Financials

That word will sum up this market today.

Two words that the shorts will say. "O sh*t!" Three words. "I gotta cover."

The shorts have been leaning completely over the financial ETF's.

That's why you will get this upside. And UYG and FAS will give you that juice.

Which is why I gave them to you yesterday and Monday!

And the strength of the financials will bring up oil, and the material stocks, along with the real estate numbers.

Because the shorts were hiding in these numbers too.

And the pain that will be felt by those short the financials will spread across this market, like a fire in a dry field.

Tuesday, January 27, 2009

Three tells in today's market

Burlington Northern (BNI 67.65) was up four and change after the whole world has been bad mouthing Warren Buffett and his holdings. Berkshire now has over 70 million shares in this number, and the stock never pulled back from the gate. It's earnings were OK last week but the bears laid out on the stock, which Warren took like a kid in a candy store.

Research in Motion (RIMM 53.91) was up three and change today after the hatchet job on this stock in the WSJ yesterday, knocked it down 2 and change. It beat back the bears on that number also.

Crucell NV (CRXL 19.31) was up almost two today, rebounding after Pfizer said they were going to buy Wyeth. Wyeth was in talks to buy CRXL before Pfizer offered them $68 billion to go to the altar. This number was over 23 a week ago, only to fall back to 17, and then it caught a bid today. The catalyst? I think it was the bid of $16 for CVTX by Japanese firm Astellas. Market players probably figured there was more M&A by big pharma for smaller drug companies.

I was going to mention CRXL this morning, but I got distracted with Liveris, so I figured I better mention another number tonite that I think can get a bounce tomorrow.

US Steel bounced after earnings that weren't so bad, but AK Steel (AKS 8.64) didn't. Their earnings were punk. On January 8th, Goldman Sachs put this stock on it's conviction buy list and the stock closed at 13. It's now down over a third in three weeks, and I think you can now buy it here.

With the news of the "bad bank" hitting the market quicker than anticipated and the move in the financials, maybe people will take another look at the Obama stimulus bill being pushed down the pipe. The action in those stocks could be quicker than expected also. The Buy-American of the Federal Highway Administration require all bidders to submit a bid based on furnishing domestic steel and iron materials. This, of course, will help X and NUE

But those workers, will buy some cars, which will help AKS which produces flat-rolled carbon, stainless and electrical steel, for the automotive, appliance, construction and electrical power markets.

Maybe that logic is too much of stretch for the average stock buyer, but I like the entry point at 8 and change way better than Goldman's conviction buy at 13!

Price discovery in the bond market?

Today, was different in mortgage backed bonds. An exceedingly brilliant and also an exceedingly big buyer was attempting "price discovery" in various beaten down tranches of RMBS' today.

FWIW

Citigroup's airplanes

Today, Citi decided not to take delivery of their new $50 million dollar jet, because today they decided that their two other jets, that are ten years old would do. (Only after a call from Treasury though!)

Considering that Southwest is known for their young fleet of planes, would anyone hazard a guess at the average age of their planes? How about 13.8 years. And these are planes that are used everyday! So what's wrong with Citi's planes that were ten years old? Nothing!
http://www.airfleets.net/ageflotte/Southwest%20Airlines.htm

Now Citiflight, Inc., Citi's company that manages Citi's aircraft, has a couple of planes that their executives fly on. Their tail #'s numbers are N588GS, and N399GS.

Now put these numbers into http://flightaware.com/live/ to see where their planes have been. Whoops. That function has been disabled! Instead of a flight plan, you'll get this:
This flight is not available for tracking per request from the owner/operator.

Now think about that. These banks even hide their flight plans. So why would anyone think they weren't hiding losses on their balance sheets?

The difference is, that in a week, you will own the losses of these banks, and these same banks, then won't even give you a loan.

And now, all these bad loans, hidden in conduits, off-balance sheet vehicles, and in Level II and Level III accounting gimmicks, that the banks swore they didn't have, will now, suddenly appear and see the light of day!

So you the taxpayer, can buy them!

Now if these banks get enough scrutiny from the public, they will eventually cave, and start doing business because scrutiny makes it harder for these thieves to steal money.

Think about it. Does anybody really think that John Thain really wanted to reimburse Merrill Lynch for his million dollar decorating job? Or do you think Thain, offered the reimbursement as a proffer for the subpoena he just received on Merrill's early payment of $4 billion of bonuses?

It makes me sick that these banks aren't going to be held accountable for their losses, while these same banks won't lift a finger for the homeowner that is upside down on their mortgage.

But that's the hand we have been dealt with. So the only way to get some coin back from these bankers that have pulverized your net worth, is to play their stocks, or the financial ETF's.

As Gretsky said, "Skate where the puck is going to be, not where it has been."

Even if it makes me want to puke!

Buy the banks

Sorry bears, that's the story with the "bad bank" proposal. It's a recapitalization of the banking system, without dilution.

Anyone have an old huge boxy monitor that would sell for $49 that you paid $499 for? Imagine if you could sell a warehouse full of these monitors for $499. Would that help you out?

It's the same with these banks. You, the taxpayer, are buying these monitors from these banks, but instead of buying monitors, you are buying "assets" from the bank's warehouse that never was, even though they don't have value in the street. So you can bash the banks and their executives, and complain about their excesses, or you can buy the stocks and make some money.

Why should I use monitors for an analogy? Because I'm pretending I'm a banker, and just parsing word etymology to get a point across.

A monitor lizard, is known in latin as Varanus. And their won't be any VAR on the sh*t that the bank is buying.

They are holding these assets to maturity!

The bad bank play

For the most octane, you buy the triple financial ETF (FAS 9.30). Now!

You have a week before they announce the details of the bad bank, but you can just read the details in the post below.

Treasury's "bad bank"

Everyone is talking about the new "bad bank" proposal, and when will we have this so called "bad bank."

Sorry folks, I thought we had it already. I thought it was called the Federal Reserve!

Here's the plan though for the new "bad bank." This bad bank will acquire bad assets, at much higher prices than what they are worth. How is that working?

They will assume that they will hold these assets to maturity, and that the cost of the Government's funding is cheap. Thus, the spread is lower, and you, the taxpayer, take the losses of the banks on your backs!

Call it what it is. It's the Level III bank, funded by taxpayer, that bails out the idiot bankers!

For a more detailed idea of how this will work, click the links:
http://aaronandmoses.blogspot.com/2009/01/bad-bank-makes-its-appearance.html

Or read this story I wrote last week. This is what Treasury is doing:

You can seize the banks, and wipe out their shareholders, and write down their "assets" that aren't worth what the banks say they are, to a level that you will actually find real buyers, and then give debt holders an equity stake, and it won't cost the taxpayer a penny.

But this will cost common and preferred shareholders, and bond holders, will get a haircut and the recapitalized equity.

Or you can get a TARP II, or a "bad bank" that will overpay by buying the toxic assets at prices that are fiction, to recapitalize the banking system and stick the taxpayer with the tab.

Now which plan do you think they will do?
http://aaronandmoses.blogspot.com/2009/01/how-to-recapitalize-banks.html

Lose $34 billion for AIG and you get a $450 million dollar bonus!

When does this end with AIG? Today AIG offered a $450 million retention package to the staff of it's credit derivatives program that lost $34 billion dollars!
http://www.bloomberg.com/apps/news?pid=20601087&sid=avGnUgGMu1q4&refer=home

Now their "retention" bonuses exceed one billion dollars.

Where is the line for the people that want to hire these folks that lost $34 billion????

Dilbert today


Dow's Liveris-The dividend is now on the table

Today Andrew Liveris of Dow Chemical said that the "dividend" is now on the table. (Start at 10:50 in the clip in the link)
http://www.cnbc.com/id/15840232?video=1014358260

The key to Wall Street the past two years is whatever the CEO says, the opposite will happen. Look at his interview on October 23 with the stock at 24.
Start at minute 7:00 on the YouTube clip


Highlights or should I say lowlights of this interview:

---388 consecutive quarters without cutting the dividend...This CEO will never cut this divided

---It is ludicrous our stock price is where it is

---My stock price has nothing to do with the reality of the quality of the balance sheet, the quality of our cash flow, the quality of our cash flow, the quality of our reward to shareholders

Three months later, the stock price is cut in half, and now a dividend cut is on the table.

Which means the dividend cut is just around the corner.

Monday, January 26, 2009

The speculation corner

Here's some speculative picks for those who want some action in this market, in the beaten down areas that are starting to show some signs of life. Today we saw some noticeable weakness in the dollar, and more weakness in Government bonds across the globe. I think this translates into a tradable rally.

We also some some glimmer of life in housing, (existing home sales up 6 1/2%) and the affordability index of homes has increased markedly. And with the Dow showing support down at the 8,000 level, we are due for a rally.

What will cause it? I don't know. But it seems there has been an underlying bid in the latest sell-offs, despite the plethora of bad news that continually hits stocks.

And when we are ready to reverse, we get days like today. Up, and then the sell-off that seems to be concerted, as if the bears are trying to force it down, and then stability when the selling is contained.

That's normally the recipe for a trade. Here's some speculative picks, with cheap prices that guarantees you some action! Hopefully these will be flea market bargains, and not just inventory that's still being wholesaled!

DXO (2.73) The double crude ETF
UYG (3.04) The double financial ETF
DYY (6.06) The double commodity ETF
URE (4.39) The double real estate ETF

Obama's first week


Can you picture the mood of the country if "McSame" would of gotten in?

What happened to Bernanke's "quantitative easing?"

Ben Bernanke dies and goes to heaven. As he stands in front of the Pearly Gates, he sees a huge wall of clocks behind Saint Peter. He asks, "What are all those clocks?" Saint Peter answers, "Those are Lie-Clocks. Everyone on Earth has a Lie-Clock. Every time you lie, the hands on your clock will move. "Oh," says Ben, "whose clock is that?" "Well,” Saint Peter says, “that's Mother Teresa's. The hands have never moved indicating that she never told a lie."

Ben then points at another clock and asks, "Whose clock is that?" Saint Peter answers, "That's Abraham Lincoln's clock. The hands have only moved twice telling us that Abe only told 2 lies in his entire life."

Ben looks inquisitively at Saint Peter and asks, "Where's my clock?" Saint Peter replies, "Oh, your clock is in Jesus' office. He uses it as a ceiling fan."

Well, maybe we'll find out Wednesday....

Math the UBS way

Lose $49 billion in bad bets.
Give $60 billion of your most toxic loans to the Swiss Government.
Pay $1.8 billion fine for money laundering and secret accounts.

Then pay yourself bonuses of $1.6 billion to your bankers for the good year!
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5587271.ece

Maybe John Thain should move to Switzerland. He would fit right in!

What happened to the "ironclad" Rohm & Haas deal?

At least it wasn't "air tight" or "ironclad" here!

The collateral damage is Rohm & Hass. That deal is now over, no matter how "air tight" the merger agreement with Dow Chemical was.

It will be just another footnote on another failed deal, in a credit squeezed recessionary environment, that will crush another arbritrage fund.

http://aaronandmoses.blogspot.com/2008/12/next-collateral-damage-rohm-hass.html

Here was the next stage in this deal. Did those who bought the stock really know anything?

Now Barron's says you should still take a shot with the stock. Why?
http://online.barrons.com/article/SB123300507580816847.html?mod=yahoobarrons&ru=yahoo

If Liveris wanted to buy ROH, he would of done so already. If he wanted to renegotiate a lower price, he would of done so already. All he wants to do is walk away, and walk away at a price that won't cost Dow Chemical $750 million or being forced by gunpoint to acquire the company by the courts.

Dow said that, "Dow has determined that recent material developments have created unacceptable uncertainties on the funding and economics of the combined enterprise."

That is DOW's MAC, along with Kuwait backing out of their deal.

Look what Dow said about the deal in July:

---Dow’s acquisition of Rohm and Haas significantly strengthens and expands its specialty business and results in a decisive step towards establishing Dow as an earnings-growth company, markedly shifting the balance of its portfolio towards higher growth, higher margin specialties businesses.

---Dow expects the transaction to be meaningfully accretive to earnings ...

---Dow also anticipates that the transaction will produce significant revenue synergies...

And Liveris' personal statement on the deal:
---"Rohm and Haas is a first class company with a strong product portfolio, proven research and development capabilities and a highly talented workforce. This acquisition affords us a tremendous opportunity to ensure the New Dow draws from the strengths of each of the two companies, capturing the best practices and the best people from each organization as we pursue our vision of becoming the largest, most profitable and most respected chemical company in the world."

So now DOW will delay, and get the banks nervous with their commitment letters for the $13 billion bridge loan. Liveris sold the banks a bill of goods when Kuwait backed out of their deal with DOW. At that time, he said there was at least "six firm offers" that wanted to take Kuwait's place and that he had divestitures that total "$7.5 billion number, we would seek to get that number again. We would fill that hole not just with this property but with other properties we would divest.."

Liveris so far, has nothing, and nothing is what he will get.

The only good thing about this deal collapse, (and don't kid yourself, it is a collapse) is that we won't see Andrew Liveris and his mug on CNBC!

John Thain's interview


Well, Maria, as you know, over the course of the year-- we continued to have-- positions-- that really were there when I first started-- primarily in mortgage and mortgage-related assets and-- and later in the year in credit and credit related assets-- that-- continued to deteriorate in value. And so over the course of the year that I was at Merrill-- I was constantly shedding assets, selling assets. And then, of course, because-- they continued to fall in value, constantly having to be able-- be able to raise more capital.

And that process really just continued-- into the fourth quarter. The-- the deterioration of the
market-- moved away a little bit from mortgage related products into credit-related products. But-- it was really just a continued declined in asset values and particularly towards the end of the year-- really a complete breakdown in the functioning of the marketplace itself.

So cash assets completely separated from their derivatives. There were huge spreads between the prices of cash assets and credit default swaps as an example. And any type of forced selling drove asset prices down. And we were in a position of owning very illiquid things that really could not be sold and-- and had to be marked down.

It looks like Merrill traders had bought junk debt, and hedged it with credit default swaps that blew out. Thain said that the trades have gotten a little better since the beginning of the year, as in here.

What looked like a profit opportunity evaporated, as the market didn't trust the counter parties selling the credit default swaps. So pricing became worse, and Merrill's hedges lost value. Who would want to sell insurance on bonds that don't have pricing visibility? Weak institutions!

The idea that traders sat idly by and just babysitted the "legacy" assets is just hogwash. Do you really need to pay $50 million for a babysitter?

In Merrill's case, they would of been better off. They paid the traders millions and then they lost billions.

Citigroup gets a new jet for $50 million

More taxpayer $$ being burned up!

The "Pfizer" market

Pfizer "represents" this market.

The dividend that you think is safe, isn't.

The cash that the company has, will be spent.

And employees find out that they don't have job security, because companies grow by purging.

Sunday, January 25, 2009

Britain: Three hours from collapse

Anyone wonder why bankers lie? Britain's City Minister Paul Myners said that Britain's banking system was on the verge of a complete collapse, and if there was going to be a run on RBS, Gordon Brown was going to be forced to nationalize the entire banking system and guarantee all deposits.

Here's the story:

Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.

City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse.


The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals.


Only frantic behind-the-scenes efforts averted financial meltdown.

If the moves had failed, Mr Brown would have been forced to announce that the Government was nationalising the entire financial system and guaranteeing all deposits.


But 60-year-old Lord Myners was accused last night of being 'completely irresponsible' for admitting the scale of the crisis while the recession was still deepening and major institutions such as Barclays remain under intense pressure.


The build-up to 'Black Friday' started on Monday, October 6, when the FTSE 100 dropped by nearly eight per cent as bad news on the economy started to multiply.


The following day, Chancellor Alistair Darling began all-night talks ahead of an announcement on the Wednesday that billions of pounds of taxpayers' money would be used to pour liquidity into the system.

http://www.dailymail.co.uk/news/article-1127278/Revealed-Day-banks-just-hours-collapse.html

Here's the punchline: What makes anyone think that the situation in Britain is now materially better? Has anyone seen the run on the pound? How about the oil industry? How about the banking industry? How was the system insolvent then, and not insolvent now when things are materially worse?

We've already had a run on the banks, but it's been in slow motion. First we had a run on the mortgage industry. Then we had a run on the investment banks, starting with Bear Stearns and then of course Lehman Brothers. We then had a run on the "shadow" banking system. These were the hedge funds that pretended they were banks but weren't. Then we had the run on the weaker banks like WaMu, PNC and Wachovia. Then we had a run on the banking and insurance companies, but this run started with their stock prices. We've already had that run, as their stock prices have already been crushed, and most now are just call options on the franchise value of the banking system. We just haven't had the run where the public has yanked their dollars from the banks, because most of their money is already gone. The banks money, is of course, gone already, but they are pretending that it isn't, until they get the next TARP investment.

The next run, of which we are now in the first inning is the run on Government bonds. We already are getting selective runs in currencies. Look at the pound. The run in the dollar can't start yet, though, until the whole world gets long dollars. Bubbles suck in everybody and now we are still the world's "safe haven" because we still have a lot of dollars overseas that needs to be repatriated over here. An example of this is the merger of Pfizer with Wyeth. Where do you think Pfizer's dollars are and where are they going to go?

Our banking system is already been "Madoffed." Investors with Bernie, still think that they just lost their money on December 12, when he admitted that his investment was just a giant "ponzi" scheme. That money was already lost years ago with Madoff; it's just that was the date when investors found out they were snookered. It's the same with our banks. Your money has already been lost, but it's been covered up in fancy accounting gimmicks and derivatives and off balance sheets conduits and special purpose vehicles. It's just that now, Uncle Sam has guaranteed your deposits, so that the banks losses will be paid back with your grand children's money!

But this guarantee wouldn't work, if the public decided to pull their cash. That's the bank run, we haven't yet seen.

Look at this nugget in the above story:

Ruth Lea, economic adviser to the Arbuthnot Banking Group, said last night that it was 'highly irresponsible' for Lord Myners to reveal the scale of the problems because it could serve to further wreck already fragile levels of confidence.

Banks have no interest in telling you the truth. Jeff Immelt of GE can go on CNBC and tell the world that GE Capital's leverage is only 7 to 1, but he won't tell the world that includes billions and billions of intangible dollars of goodwill, and if that "intangible" capital would be taken out their leverage would then be higher than the levels that pushed the investment banks to fail.

Now Immelt, isn't a banker, and compared to these bankers, he's a straight shooter. So that begs the question. How bad are the banks woes?

In Britain, we now know that answer.

It was three hours.

Credit default swaps: Just another good con

Gretchen Morgenson of the NY Times had a nice article on credit default swaps this weekend with a rather novel approach:

While the amount of credit insurance outstanding is around $30 trillion, Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn., says he believes fully half that amount isn’t problematic because it consists of winning and losing stakes that offset each other.

But that still leaves $15 trillion worth of contracts that may be in need of triage.

What if a company that wrote insurance can’t produce the required payout when a default occurs? The buyer should take the hit, Mr. Arvanitis said.

“If you live in a house and you don’t buy reputable insurance and a fire burns it down, it’s your fault,” he said.

http://www.nytimes.com/2009/01/25/business/25gret.html?ref=business

Now of course we know the buyer isn't taking these hits. It's you, the taxpayer, that will.

As we have seen, every good con needs to take in money to succeed. Without new money coming in, the ponzi scheme collapses. That was the simple approach.

The credit default con was just a bit different. The new approach, was to give money away in the con. These investment banks approached AIG and gave them money to insure their contracts. AIG took the money from everyone. And so did the monoline insurance companies because they needed the money also. It was the same con. It was like insurance without actuarial tables, and with contracts on many lives!

Now that the deals have blown up, as long you you bought your swaps from the same firm Goldman did, you were backstopped by the taxpayer.

In the real world, only one person can have insurance on a home. If the home gets blown away in a hurricane, there is just on payment. But on Wall Street, you have ten guys who all have insurance on the same home, yet all ten guys get paid.

At least, today this scam is finally getting some press. But what good is the credit default swap market if there is transparency? Or if there is transparency in derivatives?

Now Tim Geithner, in his testimony before Congress said he was preparing his entire life for this role. Just like Bernanke studied the depression his entire life.

Here's Geithner idea of preparing his whole life for this job. Our banking system has imploded yet our future Treasury Secretary was studying credit derivatives just this past year:

Yet the banking crisis could not have come at a better time for Mr Geithner. Tipped in Washington as the next US Treasury Secretary in the event of a win by Barack Obama, he has been shown at his best in a crisis in recent months. He has spent the past year getting his head round credit derivatives, with fortuitous timing.
http://business.timesonline.co.uk/tol/business/movers_and_shakers/article4931761.ece

Remember when the Fed was lending money to Lehman? What did Geithner say about Lehman when he was speaking at the San Fransisco Fed in June? He said this:

"A classic problem in financial crises is to distinguish between problems of illiquidity and insolvency." And then Geithner said that the Fed lends only to "solvent institutions." Then wasn't he declaring Lehman solvent? After all, his minions were looking at Lehman's books since April!

Now we want Geithner, the friend of the banks to be the new Secretary of the Treasury? No wonder we find these expletive laced videos on YouTube.com decrying Thain and Geithner as no nothing metrosexuals. But he probably sums up what the blue collar guy feels on what he sees. (Very graphic language)


But it now looks like Geithner has seen the light:

“I believe that our regulatory system failed to adapt to the emergence of new risks,” Mr. Geithner said in a written response to questions that was made public on Friday by Senator Carl Levin, Democrat of Michigan. “The current financial crisis has exposed a number of serious deficiencies in our federal regulatory system.”

The regulatory changes are a major piece of a broader package being prepared by the new administration to address the market crisis. Another piece to be issued soon will provide the strategy for how the government will go about repairing the declining banking industry. Congress recently approved the second $350 billion in spending from the Troubled Assets Relief Program.

http://www.nytimes.com/2009/01/25/us/politics/25regulate.html?_r=1

I guess we'll take the lesser of two evils!

Where have the government debt buyers gone?

Across the globe, nobody seems to want Government debt anymore. Peter Schiff seems to have the proper perspective on what our Government wants:

Barack Obama has spoken often of sacrifice. And as recently as a week ago, he said that to stave off the deepening recession Americans should be prepared to face "trillion dollar deficits for years to come."

But apart from a stirring call for volunteerism in his inaugural address, the only specific sacrifices the president has outlined thus far include lower taxes, millions of federally funded jobs, expanded corporate bailouts, and direct stimulus checks to consumers. Could this be described as sacrificial?

What he might have said was that the nations funding the majority of America's public debt -- most notably the Chinese, Japanese and the Saudis -- need to be prepared to sacrifice. They have to fund America's annual trillion-dollar deficits for the foreseeable future. These creditor nations, who already own trillions of dollars of U.S. government debt, are the only entities capable of underwriting the spending that Mr. Obama envisions and that U.S. citizens demand.

These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)

In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.

http://www.europac.net/

Insider purchases of stock

Bob Steel of Wachovia bought 1,000,000 shares of Wachovia at $16.24 on July 22.
Vikram Pandit of Citigroup bought 750,000 shares at $9.25 on November 13.
Jeffrey Immelt of GE bought 50,000 shares at $16.44 on November 13.

Jamie Dimon bought $11 million worth of JPM stock last week.

Insider purchases of stock is just grandstanding.

Money for nothing

...Whereas George Bush and Tony Blair stood shoulder to shoulder to pursue the war on terror, their successors are battling an altogether different scourge – the cabal of rich bankers who have caused the credit crunch, bankrupted their firms and undermined the global economy...

With the banks propped up by taxpayers’ cash on both sides of the Atlantic, the culture of huge salaries and mega-bonuses is facing a public and political backlash...

..The only people who don’t seem to understand the scale of the backlash are the bankers, said Charles Geisst, author of Wall Street: A History. He said the financial sector had operated under a “sense of entitle-ment” for most of the 20th century but that this had reached epic proportions in recent years. Many top bankers now seemed to be completely out of touch with the political and public mood.

“Bob Dylan said it best – You don’t need a weatherman to know which way the wind blows. These guys don’t have a weatherman between them,” said Geisst. That someone as seemingly sober as Thain could have lost his head shows how far off course they have blown.

But no. Wall Street bonuses declined only 4.7% last year to an average of $180,420 per worker, according to the latest figures from the New York State Comptroller’s office. One of the worst years in Wall Street’s history, a year when three illustrious banks – Bear Stearns, Lehman Brothers and Merrill Lynch – closed, was still one of the best years for bonuses.

“It’s not a popular thing to say this, and Joe Sixpack is never going to get this,” said one Wall Street banker, who wished to remain anonymous, “but if we don’t pay the bonuses, we lose the talent.”

That argument did not stop Lord Turner, chairman of the Financial Services Authority, from attacking the culture of financial innovation for creating profits that fattened bankers’ bonuses but did little to benefit the wider economy.

“If by some terrible accident the world lost the knowledge required to manufacture one of our leading drugs or vaccines, human welfare would be seriously harmed. If the instructions for creating a CDO have now been mislaid, we will, I think, get along quite well without them,” Turner said in a speech last week.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5581070.ece

More Bailout Money coming for the banks

WASHINGTON (Reuters) – U.S. House Speaker Nancy Pelosi said on Sunday the federal government may need to pump more taxpayer funds into the faltering banking system and that taxpayers should receive equity as compensation.

Pelosi told ABC's "This Week" program that "some increased investment" might be needed beyond the $700 billion approved last year under the Troubled Asset Relief Program, or TARP, to stabilize the nation's banks and get them to resume making loans.
http://news.yahoo.com/s/nm/20090125/bs_nm/us_financial_bailout_pelosi_1

US Mint discourages gold ownership

Over the past several months, the United States Mint has announced a series of actions and policy changes that make it more difficult for the average individual to buy gold. There have always been plausible or semi-plausible explanations, but the consequence of each action has been to limit or discourage gold ownership.

The recent actions of the United States Mint in relation to gold are presented below. I have also included the US Mint’s explanation for each situation, taken from official memorandums or press releases.

August 2008: The US Mint suspends sales of Gold Eagle bullion coins. Sales resume two weeks later on a rationed basis.

On August 14, 2008, the US Mint announced that they were suspending sales of American Gold Eagle bullion coins. The suspension was in place until August 25, 2008 when sales resumed under an allocation program. The program divides available gold coins into two pools. The first pool is divided equally among all authorized bullion purchasers. The second pool is allocated based on past sales performance.

When gold coin rationing (termed “allocation”) was introduced, it was presented as a temporary measure. More than four months later, gold coin rationing continues. There has been no indication when authorized bullion purchasers will be able to order unrestricted quantities of gold bullion coins.

US Mint explanation:

The unprecedented demand for American Eagle gold one-ounce bullion coins necessitates our allocating these coins among the authorized purchasers on a weekly basis until we are able to meet demand.

September 2008: The US Mint suspends sales of Gold Buffalo bullion coins. Sales resume more than one month later, but only to clear remaining inventory.

On September 25, 2008, the US Mint announced the sales suspension of 24 karat American Gold Buffalo bullion coins. Sales did not resume until November 2, 2008 when the US Mint was able to offer only its remaining limited inventory on an allocated basis.

US Mint explanation:

Demand has exceeded supply for American Buffalo 24-Karat Gold One-Ounce Bullion Coins, and our inventories have been depleted. We are, therefore, temporarily suspending sales of these coins.

October 6, 2008: The US Mint announces that production will be halted for all but one gold bullion coin option.

Production was immediately halted for one-half ounce and one-quarter ounce American Gold Eagle bullion coins. Production of one tenth-ounce gold bullion coins was halted following depletion of the remaining blank supplies. Production of one ounce Gold Buffalo bullion coins was also halted following depletion of the remaining blank supplies.

These coins represent the US Mint’s only fractional gold bullion coin offerings and the US Mint’s only 24 karat gold bullion offering. The production halt seemed to be a temporary measure that would impact 2008 dated coins. The production halt has continued into 2009. There has been no indication when production will resume.

US Mint explanation:

The United States Mint has worked diligently to attempt to meet demand, however, blank supplies are very limited and it is necessary for the United States Mint to focus remaining bullion production primarily on American Eagle Gold One Ounce and Silver One Ounce Coins.

November 10, 2008: The US Mint announces the discontinuation of numerous gold and platinum numismatic products.

The discontinuation of 22 different gold and platinum numismatic products was included as a broader measure to refocus the US Mint’s line of products for coin collectors. Discontinued gold coin products included fractional uncirculated Gold Buffalo coins, one ounce uncirculated Gold Buffalo coins, fractional proof Gold Buffalo coins, and fractional uncirculated Gold Eagle coins.

Although the US Mint has constantly referred to the “unprecedented demand” for gold, they deemed their gold numismatic products to be “unpopular.” Following the discontinuation announcement, sales of the 2008-dated versions of the discontinued coins surged and all numismatic Gold Buffalo and platinum coin offerings sold out in less than a month.

US Mint explanation:

We are responding to the collector community which has spoken loudly and clearly. Customers have told us there are just too many products. We agree, and it’s time the United States Mint trims down and concentrates on the products our customers love most.

November 24, 2008: The US Mint announces the delayed release of all but one 2009 gold bullion coin option.

This delayed release served to prolong the previously announced production halts for fractional gold bullion coins and the 24 karat Gold Buffalo bullion coins. As noted previously, the production halt continues with no indication of when it might end.

The single 2009 gold bullion offering from the US Mint continues to be subject to rationing. As noted previously, there has been no indication of when the rationing will end.

US Mint statement:

The quantities of blanks that we have been able to acquire from our suppliers continue to be very limited, while demand for bullion coins remains high. As a result, it is necessary for the United States Mint to delay the launch of other bullion coins until later in 2009. We will continue to monitor the situation and keep you informed as additional information becomes available.

January 6, 2009: The US Mint establishes a new pricing policy for gold and platinum numismatic products.

The new US Mint pricing policy adjusts the prices for gold and platinum numismatic products as often as weekly based on the average London AM Fix gold price. The prices for coins are based on a published table which seems to impute higher premiums than the old pricing system.

In the past, prices were established at the start of sales and remained fixed unless there was a significant move in the price of the underlying precious metal. At times gold numismatic products could be purchased for premiums as low as 10%. Under the new policy, prices are adjusted weekly to preserve permanently high premiums. Current premiums run 30% or more depending on the product.


US Mint explanation:

Transparency, agility, and customer service are the catalysts for our new pricing method. The volatile precious metals market prompted our customers to suggest that we re-vamp our process, and we listened.

Conclusion?

The series of incremental changes outlined above has resulted in the following situation:

Production was halted for all of the US Mint’s fractional gold bullion and 24 karat gold bullion offerings several months ago. There has been no indication when production might resume.
The only 2009 gold bullion coin available from the US Mint is the one ounce American Gold Eagle. Sales of this single bullion coin offering remain subject to rationing.

The US Mint’s gold numismatic offerings for 2009 have been significantly reduced from the prior year. The remaining product offerings will be priced at prohibitively high premiums under a newly established pricing policy.

Whether or not it was the US Mint’s intention, every significant action they have taken since August has either limited gold availability, eliminated gold product options, or increased the cost of acquiring gold. Has it all just been a consequence of surging global demand for gold, supply chain mismanagement, and bad timing for policy decisions? Or is there something else going on here?
http://seekingalpha.com/article/116070-u-s-mint-actions-discourage-gold-ownership?source=front_page_most_popular_articles

American Cancer Society scales back Gala

The American Cancer Society Celestial Gala in Jupiter, FL has been scaled back from a sit down black tie affair, to something a bit less formal, and a bit less expensive. Tickets prices have been cut to $250.

The invitation reads, "So we hope that even in these touch economic times you find it in your heart to make cancer fundraising an important priority."

Dick Fuld flips his house to his wife


Dick Fuld understands Wall Street and lawsuits. So the former Lehman chairman has flipped his house in Jupiter Island, Florida, to his wife for $100.
http://cityfile.com/dailyfile/4055

And the Fuld paintings that were sold at Christie's last month? Kathy is a trustee of the NY Museum of Modern Art. So we can be assurred that she owned them too!

And now she owns Dick!

The gold and silver conspiracy

Last May the CFTC said anyone that postulated that their was a manipulation in silver or gold was a fan of Oliver Stone. Here is their "May" report on the large shorting activity in silver:

During the past 20 to 25 years, the Commodity Futures Trading Commission (CFTC or Commission) has received numerous letters, e-mails and phone calls from silver investors alleging that the price of silver futures on NYMEX has been manipulated downward...

Recently, silver commentators and a group of investors that rely upon them have reasserted their allegations that the silver futures market is being manipulated downward by a small group of traders on the short side of the market. As a result, DMO staff decided to revisit this issue by taking a fresh look at activity in the silver futures market.

For each firm interviewed, their futures trading activities are driven primarily by the desires and needs of the firms’ customers to either buy or sell silver or to assume or hedge financial exposure to silver prices.

The silver commentators tend to rely on the Commitments of Traders reports to portray silver shorts as a group of four—possibly eight traders—intent on suppressing prices.

By contrast, today, the net positions of the large shorts in the silver futures market appear to be market neutral, as opposed to the overwhelmingly long position held by the Hunts.


Their conclusion?

--There is no evidence of manipulation in the silver futures market.

--Examine the motives of those giving market advice ( just trust us!)

--Concentration levels for the top four short futures traders in the silver futures market are comparable to those observed in the gold and copper futures markets, and generally are lower than the levels seen in the platinum and palladium futures markets.
http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/silverfuturesmarketreport0508.pdf

The committee found no evidence of manipulation. The same was said in oil, until a position holder of $55 billion of oil was found to be a speculator. That story didn't get any press, but we know the consequences! Here was that story, on August 15th, right before oil collapsed. If the CFTC missed it in oil, how would they catch it in silver. But it's here, before it happened, in the link below.
http://aaronandmoses.blogspot.com/2008/08/oil-speculators-everywhere.html

The CFTC's conclusion in oil, in the same report as silver, came up with this conclusion:

are largely due to fundamental supply and demand factors....Task Force’s preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices.
http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf

Now after the "May report" we found out that the short position in gold and silver had gone off the chart in August:

Facts speak for themselves. Here are the facts. As of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. This is the largest such position by U.S. banks I can find in the data, ever. Between July 14 and August 15th, the price of COMEX silver declined from a peak high of $19.55 (basis September) to a low of $12.22 for a decline of 38%.

For gold, 3 U.S. banks held a short position of 7,787 contracts (778,700 ounces) in July, and 3 U.S. banks held a short position of 86,398 contracts (8,639,800 ounces) in August, an eleven-fold increase and coinciding with a gold price decline of more than $150 per ounce. As was the case with silver, this is the largest short position ever by US banks in the data listed on the CFTC’s site. This was put on as one massive position just before the market collapsed in price
.

You can read that story here:
http://aaronandmoses.blogspot.com/2008/09/gold-ramps-88-dollars.html

So the CFTC started probing the silver market again. You can read that story here:
http://aaronandmoses.blogspot.com/2008/09/cftc-probing-silver-market-manipulation.html

Now however, this new investigation of the short position in silver is being done by the CFTC's Division of Enforecement, instead of the Division of Market Oversight.

Then the CFTC wrote a letter to Congressman Gary Miller, and the CFTC explained that the large position shorts in silver and gold were previous positions that were taken over by an Investment Bank. In other words, Bear Stearns was short gold and silver, and then those positions went on JP Morgan's book, because Bear's positions weren't hedged.

Fortunately at this time, our Government decided to quit selling silver and gold American eagles.
http://aaronandmoses.blogspot.com/2008/05/no-silver-for-you.html

Of course you could always check the Comptroller of the currency for some of the dreivative positions of our banks. And you would also see that in their latest report, (as of 9/30/08) Citigroup had $126 billion, BAC $161 billion and JPM $145 billion of equity capital. (And this was before the TARP!)

And why wouldn't JPM take over Bear's position? JPM has capital of $140 billion, with $1.7 trillion of assets, and $88 trillion of derivatives.
http://www.occ.gov/ftp/release/2008-152a.pdf

So why did they need help for Bear's silver and gold shorts?

Because our Government, wants you to trust in their paper, and JPM is their bank!

And if you buy gold, you are voting against their paper.

Friday, gold was up $40 to $900 an ounce. Two weeks ago, Merrill Lynch put out a report that the rich want to own gold bars, and they have insisted they don't want "paper" proxies like ETF's or promises from a bullion bank. They want to own the gold.
http://aaronandmoses.blogspot.com/2009/01/mother-merrill-rich-want-gold-bars.html

So despite all the short positions in gold and silver, the only asset class that has performed in this dreadful bear market, is the only asset class our Government doesn't want you to own!

And as each day goes by, the ranks of the believers in paper thin, and the ranks of the believers in gold grow.