Saturday, April 24, 2010

Stock Market Review - 04/23/2010

Bullishness of Bankruptcy

57 US banks have failed this year. States, counties, cities alike are cutting expenses and scrambling to pay bills from falling tax revenues. Real estate foreclosures have hit an all-time high. Unemployment is still double digits by any measure and so many Americans are on food stamps the grocery stores might want to think about adding a 'Food Stamp' register to go along with their 'Express - 10 items or less' registers. Europe is discovering just how broke they are as Greece continues to reveal their debt mountain is still growing. Derivatives have worked to bankrupt them and yet derivatives are the only savior. As much as the dimwits in Euroland try to convince the world all will soon be well. it is clear they are going to have to ramp up the old Euro printing press. It's the only way out. Well..., they could crack down on derivatives but we all know that these little instruments have become the sole profit machine of global banks. And so therefore, banks rule the world now and derivatives are here to stay. To be sure, there will be some kind of 'financial reform' instituted by our bozo politicians. But, I'm sure that banks will be exempted. So any way, with this backdrop, there is a stock market rally under way.

So this week, I give you a two-month chart of the DIA. This chart shows the tale of two economies and which tale is winning. The first paragraph above is reality. Sovereign nations are failing. Well, at least the ones that don't own a well oiled monetary printing press. Budget cuts are affecting every US city. Taxes are rising to pay for less services. The poor are getting poorer and the rich are getting richer. The rich, like Goldman Sachs and the other global banks, are getting rich by pilfering governments and enslaving them through the promises of 'risk control' by using the magic of derivatives. The banks' bottom lines are improving magnificently through accounting 'adjustments', tax changes that benefit them, and 'investment banking' trading. Fortunately, the investing public is ignorant and suffers from amnesia because no one seems to remember that 'investment banking' and 'trading' is what bankrupted the big banks just two years ago.

But now, they have the central banks on their side. They have the printing press. They have the treasuries of the tax payers. They have the laws and they make the rules. For instance. JP Morgan 'bought' the mortgage giant, WaMu, at a 'going bankrupt' sale in 2008 for $1.9 billion. They then managed to get the tax laws changed so JP can now write off WaMu's losses prior to the purchase date when JP didn't own them. Schazaam! Now JP is due a $1.4 billion tax refund! I feel like they could at least offer us a shower and a cigarette! In addition, the governments run the propaganda machine that spits out ever improving good news about the 'economic recovery'. I won't go down the list but suffice to say, it's all good. In fact, all the economic news is downright dreamy! Thus we have a stock market rally. Obviously the stock market is always going to believe statistics. Reality is what each of us sees everyday. Is the economy really getting better? Small businesses were polled a week ago and 80% of them said things were getting worse, not better. So much for reality. There is a stock market rally of historical proportions going on people. We don't need no stinkin' jobs and we don't need no stinkin' savings. All we need are statistics that tell us what we want to hear.

Now, I like a rally as much as the next guy. Especially, rallies like we now see. There were only 4 down days for the Dow in March. With only 4 days to go in April, there have only been 3 down days in April. And, one of those down days was the Friday drubbing due to the SECs announcement of a fraud lawsuit against Goldman Sachs. Not to worry. As I told all who would listen, the market would forget about it over the weekend and the rally would resume. Presto! It's as if some great power had wrestled controls of the stock market away from investors and hooked it up to a printing press that always buys thus punishing any sellers resulting in a 'buy' only market. Of course it will go up everyday from now on! Besides, the lawsuit against Goldman names only one individual - a Frenchman named Fabrico Tourre. That's french for 'Martha Stewart'. As I have said, the Europeans are miffed that the US doesn't police the big banks and they get to perpetrate scams at will to enrich themselves. Our regulators had to finger someone so they turned to Martha. Apparently she wasn't involved hear so they threw another scapegoat into the ring of accusation. Isn't it odd that the German banks stand to lose the most on Greece's financial distress and we finger a Frenchman as the culprit? You know how much the Germans love the French?

Anyway, look at the chart. It's pretty. It's under control. Yes, the market is a tale of reality and statistics. It also strikes me that a bubble, or balloon, can be inflated in two ways. One, the inflator can exhale into the bubble, pull away to inhale, and then exhale again. The bubble expands in lurches. The other way to blow the bubble is to hook it to a machine, or a compressor, that steadily pumps the air. The smooth ascent of the market looks like the latter. We should all enjoy it until it pops. Keep blowing, Ben!

DIA 2mths ending 4/23/10
Chart courtesy

Friday, April 16, 2010

Stock Market Review - 04/16/2010

Goldman Sachs - Terminal Cancer

If you don't know derivatives, then you don't know jack. Derivatives are leverage and they are at the heart of the cancer of debt that is killing the economy of the world. Yes, yes, I know. The current administration claims the economy is getting stronger and the recession is in the rear view mirror. They have cured the worst financial crisis in history in a matter of months. Yeah, sure. I won't even address that nonsense other than to say this. Small business makes up the vast majority of the economy. They were polled last week and gave an opposite view. In fact, small business says things are getting worse. Only for the liars in charge are things getting better.

Well, that's not counting Goldman Sachs. Goldman Sachs had a tough week. It seems that every time a cancer in the economy is detected, Goldman Sachs turns out to be the infector. The SEC is suing Goldman for fraud related to their derivatives dealing. The charge as I understand it, is that Goldman conspired with a hedge fund to bundle garbage mortgage paper into CDOs that were sold to investors around the world. The hedge fund bought insurance (credit default swaps) that would pay handsomely if the CDOs failed. Goldman made money on both ends. The CDOs failed and the fellow that helped to bundle the garbage made a billion. The SEC announced the suit on Friday morning and the market crumbled. Sure, Goldman took a beating of 12% or so but markets all over the world buckled along with them. The Dow stuck its toe just below the 11,000 mark and then finished at 11,018 or so. As a spectator, I didn't think the Fed would let the Dow fall below this mark. They still have work to do to tack on another 500 points to get back to the pre-Lehman failure mark. The whole thing is a sham of course but investors are happy to be back from the abyss of Dow 7000 back in March of '09. The banking cartel knows that investors will put up with anything as long as the stock market is gaining. Just look at the clown show in Washington.

As for the 'vipers and thieves' that run the country through their banking institutions (only fools think that the fellow sleeping in the White House has any control), JP Morgan and Bank of America both reported earnings this week. Neither makes money through their lending activities anymore. Their profits now come from 'investment banking'. I have a couple of points.

1) In the great financial debacle of 2008, wasn't it the 'investment banking' group that went extinct?
2) Wasn't it 'investment banking' that nearly extinguished the banking banks?
3) How can it be that the banks were so woefully inept and incompetent in the 'investment banking' practice 2 years ago and now they find that department the only profitable one in their business today?
4) Investment banking is all about derivatives and credit default swaps. How is it better that taxpayers saved all these disgusting vipers of deceit from bankruptcy so that they can continue their scams and Ponzi schemes?
5) Why does no one seem to be alarmed that all of our Treasury Secretaries come from Goldman Sachs?
6) Why does it not bother anyone that the taxpayers bailed out a company like Goldman Sachs who continues to participate in fraudulent activities (according to the SEC charge)?

And now we find out that JP Morgan may be due a $1.4 billion dollar tax refund. Why? They bought WaMu in 2008 for $1.9 billion. If you rule the world, you don't pay for things, right? They managed to get the tax laws changed so they could use WaMu's losses for previous years prior to JP's buyout as tax write-0ffs. I guess they are looking to get the other $500 million from the Treasury. It makes you want to go to JP's headquarters and puke all over it. If there are any bodily functions left, save them for Goldman Sachs. The derivative cancer just continues to grow. And, the big banks are the carrier. If capitalism had been left alone (the Bush administration surrendered capitalism in August 2007), it would have rendered these parasites extinct. If you are a thief and a scammer, you don't like capitalism. Congress is an idiot. They are used by the scammers like Goldman to spread the cancer. Now the market heaves. It will all be over on Monday. Hey, it's like bubblevision always says. This is just another buying opportunity. Of course, on Monday morning, you'll have to get in line behind Bernanke. I suspect he will be up bright and early on Monday morning.

The chart below is the DIA year-to-date. We can easily see the PPT savior day when the Dow fell below 10,000. I suspect the PPT will not give up Dow 11,000 now. Get ready to buy alongside the criminals!

DIA - YTD 4/16/10
Chart courtesy

Sunday, April 11, 2010

Stock Market Review - 04/11/2010

"It's not a lie if you believe it." - George Costanza

This was a classic line from the television show, Seinfeld, delivered by the character, George Costanza. Neurotic, pathetic, warped, and completely detached from reality, George constantly tried to reshape and manipulate his world to match his perception. "It's not a lie if you believe it", was a classic example of his attempt to warp reality to his wishes. I couldn't help but to think of it when Ambac Financial came out with their earnings report on Friday. Like the show, Seinfeld, Ambac's earnings are always a comedy act delivered with the deadpan banality of a good straight man. Yet, Ambac is representative of today's stock market. It is the 'new era'. All that matters is the lie. It's all a lie. The lie never ends. The stock market opens with a lie and closes with a lie. The lie is the opening of the greatest con job in history. No one can tell the truth else they risk their head exploding on utterance. But if the lie is a good one, it can do wonders for the stock price. Ambac shot up 71% on Friday. Nope, that is not a misprint. 71% in one day. Granted, the stock price went from $.65 to $1.10 but still - 71%! What could cause such a tremendous rise. Well, it takes a tremendous lie.

Ambac's business was insuring bonds from 1997 to 2007. Not just any bonds. They insured the credit default swaps that underpinned the derivative world that launched the subprime real estate mania that dissolved the financial system of the banker cartel. Don't get too excited about Friday's action. Take a look at the chart below. Ambac used to be a $90 stock before the real estate con became front page news to even the idiots in the mainstream media.

ABK - 18 years monthly
Chart courtesy

As you can see, the stock price collapsed but now it must be in 'recovery' mode like the rest of the financial world. Yeah, sure it is. But let's get to the comedy. The company announced that for the fourth quarter of 2009, they made $558 million in income. Wall Street stopped reading right there and the stock price jumped 71% before bubblevision could prance a talking head out to cheer on the latest bubble de jour. But not me. I kept reading. It seems that the company went on to say that the $558 million was due to a tax law change (imagine the new bankster government of the US changing tax laws to benefit the companies that spent the last decade scamming the world in derivatives trading?) and 'unrealized' gains in derivatives valuations. The change in tax laws benefited Ambac to the tune of $472 million and change in 'fair value' of derivatives was $132 million. They realized losses of $648 million in derivatives but took gains of unrealized nature of $781 million on derivatives. They also admitted that net losses were $384 million due to 'credit deterioration' in portfolios. In other words, they didn't really make any money. They made accounting adjustments to get to the positive number they reported. Well, they earnings weren't really earnings. They were 'statutory' earnings. That means the earnings depended upon whether or not you believe it. A lie is not a lie if you believe it.

The chart below shows the reaction on the Friday of the 'earnings' announcement. Yep - a giant gain with giant volume. Yippee! This is our modern market. It's all built on a lie because no one can deal with the truth. Here it is. Everyone is broke. No one has the money they claim to have. Ambac might still be on the hook for hundreds of billions or even trillions of swaps and derivatives. Good luck to everyone if they have to rely on this insurance. Oh, did I mention that the company's balance sheet shows a book value of negative $7.95? Now how does a company with a negative book value of $7.95 per share claim to make $584 million in a quarter? It' not a lie if you believe it, indeed! After all, the news made the stock price jump for the day. Oh, did I mention that the swaps on the the company themselves are indicating default is imminent? Party on, bubble blowers!!

ABK - 18 days
Chart courtesy

Saturday, April 3, 2010

Stock Market Review - 04/03/2010

Cleared for Take-off!

Set your seats in the upright position and lock up the serving tray. We have been given the clear signal and we are ready for take-off. The chart of the Dow shows a nice cup-and-handle that looks eerily similar to the one of June - July of last year. The charts these days are like everything else. They are prescribed and sanitized for our comfort. This cup-and-handle is perfect because it is the precursor to the assault on Dow 11,000. We are getting the troops ready and the supply lines established. Next week, we will blow through Dow 11,000 and make our way to the pre-Lehman failure mark of 11,400. Hallelujah! The mountain will soon be conquered and the rest of the world can quit bitching about why the Fed let Lehman fail but saved AIG and Goldman Sachs while carving up Bear for JP Morgan and Merrill for BofA. It didn't seem fair nor did it seem logical to the outsiders looking in. But they were wrong. The new owners of the US had personal stakes in AIG and like the serpent in the Garden of Eden, offered fruit to their Eve in the form of investment banks stripped of portfolio derivative cancers and stock prices pummeled to nearly zero. Who could have passed up that deal?

But there is a price to pay and Eve paid with her soul. So shall we. The central bank now has the world in their hand and a loan contract with everyone's name on it. They own the country. Lest any of us offer resistance, they unleash a security buying program feed by the best printing press in the world. Fiat money is free to print and the Fed more active in the markets than a porn actor in an orgy scene. Their goal is to restore the economies of the world through the ebullience of an ever-rising stock market. The latest 'correction' was a one day dip below Dow 10,000. The Fed arrested that fleeting moment of sanity, as Greece threatened to start an avalanche of debt defaulting throughout the EU thus shattering the pretend asset values of the central banks' derivative 'capital', with a furious and voluminous burst of buying not seen since the days of March of '09. Clearly, Dow 10,000 will not be penetrated again. Now, it is time to take out Dow 11,000. Let the bubble expand!

To support the rise in the market indices, the serpent has polished the apple and let the sweet aroma of the fruit waft underneath the nose of its targeted souls. The US governmental department of pathological lying announced on Friday that the economy gained over 162,000 new jobs in March. Outstanding! My home state of North Carolina and sister state of South Carolina both say that state unemployment is now at all-time highs. But nevermind. We all like the government's story better. It's better for the stock market if we think the economy is growing and adding jobs. Maybe it is. Sadly, in the government's report, the sector adding the most jobs was the government at over 40,000. This seems like a used car salesman driving up sales by buying his own cars. Nevertheless, true or not, the media will be fed a Jack and the Beanstalk story of economic recovery and they will eat it up. Nevermind that local municipalities are laying off teachers, closing libraries, laying off social workers, and cutting salaries because the money isn't there. Ask yourself a question. If the government claims that the economy is recovering, consumer spending is increasing, and housing has bottomed, why then are states and counties taking drastic measures to cut expenses? Shouldn't they be enjoying some tax revenue from a recovering economy, increased consumer spending, and a recovering house and labor market? Where is the money? Maybe the numbers are just fantasy.

The bottom line is this. The Fed knows that they can support their sales job as long as the stock market is rising. And, the stock market will rise as long as someone with a big printing press can shovel money into the beast. Once we all see the shiny apple, we forget about being evicted or foreclosed or unemployed or reduced in salary. We are just stupid and the Fed knows it. Don't you want the shiny apple? We all know what Eve did. I think we all know what investors are going to do. Now is not the time to be prudent, intelligent, or rational. Now is the time to ride the rally. Lock in the serving trays and put your seat in the upright position. We are not just taking off. We are going to Bubble-Land!!!

1.5 years of the Dow ending 4/2/10
Chart courtesy