Saturday, August 29, 2009

Stock Market Review - 8/28/2009

The Man with the Golden Printing Press

August, 2009, closes with the Dow closing in on a monthly Fibonacci retracement level of 38%. The chart below shows the Dow in black and the Shanghai Composite in candlesticks. The Shanghai hit its 38% retracement at the very beginning of August. Coincidentally, this coincided with a record 700,000 brokerage accounts opening in a day in China. Some things never change and some things are always right in the stock market. The little man is always wrong at the worst times. And give China credit. They call their rally from March a 'bubble' while we call ours a 'recovery'. But what would you expect. Our government is the lieingest group of people in the history of man. Their latest is there is no inflation in the US. Therefore, social security recipients will not get a cost of living adjustment in the coming year. Really? This is the same government that contends that we need government run health care to control cost that have doubled in the last ten years. Since health care is a fifth of our economy and seniors generally use more health care than non-seniors, this seems to me to be a rather pathetic use of truth when you need it and lie when you don't. Anyway, The Dow maintains a rally. Is it a bear market rally or is there room to go?

Clearly, the stock market is firmly in the hands of the government and their shills. For instance, high frequency trading has been in the news of late as a technique used by big brokerage houses like Goldman Sachs to make tons of money without investing. Did I say 'brokerage house'? Well, they are actually a bank. Well, they became a bank when it was convenient enough to avoid bankruptcy and at the same time, get in on the heist of trillions orchestrated by our Treasury and Federal Reserve. High frequency trading is illegal and it is referred to as 'front-running' in compliance vernacular. It happens when a trading firm picks up a high volume of trades coming to an exchange and the firm uses computer trading to then beat the original trade to the exchange, buy the stocks ahead of the real buyers, and then sell the newly acquired shares at a slightly higher price to the unsuspecting suckers. Well, this used to be illegal before banks ruled the world. Now, it's just more profit for the Fed shills.

Let's get back to the question of the rally. Is there more to come? I believe there is because absent a strong stock rally, there is no economic recovery. Remember, stock gains add to GDP. So does massive government spending. This will allow the government to pretend that there is real growth going on. Other than the areas of the economy that are being subsidized like autos (cash for clunkers), housing (buy now and get $8,000 back in subsidy), banking (make up your own accounting rules to show profits), or big salaries for insurance execs, the average American, from what I see, is still eating spam and pretending it is steak. We are still indebted on a personal level and indebted on a national level such that we are adding an extra million to our debt every seventeen seconds. If debt were the magic seed of prosperity, each of us should have a hundred credit cards and every one should be maxed-out! So, fundamentals are not behind the rally unless we pretend. But oh, what a rally so far. I suspect this bear market rally will peter out but not until the PPT runs the Dow to close to 11,000. Why? This is above a 50% retracement level and it would put the S&P 500 at 1,200. That's the level it was at when former Treasury Sec. Paulson aided the monopoly of his firm, Goldman Sachs, by burning Lehman Brothers to the ground. Granted, all the financials were bankrupt and likely still are if truthful accounting were to be employed. But that's reality. We are not living in reality. We need fantasy to keep the rally going and fantasy is what we'll get.

But right now, Bernanke is serving two masters. The stock market is now purely a function of inflation. Bernanke clearly thinks the golden printing press is the answer to all problems. When the PPT pumps money in, the market rallies. That makes the US dollar fall. That makes bonds sell off and the Chinese don't like that. They hold nearly a trillion so they call up the ignoramus standing at the printing press and demand support. So, Ben has to run over to the bond market and manipulate the yields lower by buying large quantities of Treasuries. He has pledged to buy $300 billion of the garbage by October and he is almost there. After that, hold on to your seats. Who knows what this Chinese puppet will do then. So anyway, when Ben and the boys are busy buying Treasuries, stocks fall because no one with a functioning brain cell thinks any of that crap is worth buying. Ben has to hurry up his Treasury purchases so he can run back over to the NYSE and keep the stock bubble inflating. Did I say 'bubble'? I meant, 'recovery'. Sure, that's it. I say we 'recover' right along with Ben until he gets the Dow back to around 11,000. Then, let's see what other lies these people will tell to perpetuate the biggest scam ever perpetrated on humanity. Look at the chart. With world economies so intertwined, is it possible for the US market to continue to rise while the Chinese market falls? One of these charts has to be wrong. Stay tuned...

6-mths ending 8/28/09 - Dow in black, Shanghai Comp in candlestick
Chart courtesy

Monday, August 24, 2009

Stock Market Review - 8/21/2009

The Less You Know, The Better

Our present day stock market is one that is difficult to navigate for the informed. It is fairly easy for the dumb and uninformed. If you know the truth, you would short this market with all you've got. You would also be losing money. The truth is the banks have a lot of toxic assets still on their books and they are not getting any less toxic as time moves on. Unemployment is still moving higher even as many recipients of unemployment insurance exhaust their benefits and 'disappear' from statistics. The consumer is still heavily in debt and the country in which we live just raised the estimated indebtedness over the next ten years to nine trillion. Since the government put that figure out, I suspect you could double it and get closer to the truth. The only parts of the economy that show green shoots are heavily fertilized by 'stimulus' and government subsidies. 'Cash for Clunkers' has been good for the auto industry but this is merely a subsidy program to get people into cars that they could otherwise not afford and after a year or so of payments, will realize more debt is not their answer to prosperity. Home sales are showing monthly increases while yearly comparisons are still bleak. Sales are up because foreclosed properties sell on the cheap and the Federal Reserve is buying hundreds of billions worth of US Treasury notes to force interest rates lower than they would normally be thereby subsidizing the real estate industry. To date, 81 US banks have now failed and those that haven't, are standing largely due to Federal Reserve subsidies. Ditto for the insurance industry. Let's not even talk about Freddie Mac and Fannie Mae. Both are allowed to report fictitious earnings while hiding potential and eventual losses under the 'AOCI' column as I outlined in the last post. Ditto for banks. And now the Federal Reserve has amassed trillions of agency and government debt on their balance sheets. China and Japan are both closing in on a trillion in US debt as well. The way the Fed raises rates is they sell paper. Uh-oh. That will destroy balance sheets that hold that paper. Talk about a rock and a hard place. Wow! Fed stupidity is infinitesimal. So, the consumer is still broke, foreclosures and bankruptcies continue to rise, we have the world's largest collection of morons for politicians, and most companies would be hard pressed to show profit growth if they had to use honest accounting. Sell, sell, sell.

No, no, no. That's only if you know anything. If you are dumb and blind to the current policy of cheating and scamming, then party on. There is a bull market raging and making money is all investing is about. Since there really isn't anything constructive to point to, the Fed has to goose the stock market higher to sell their notion of economic recovery. See, the stock market is up. The economy must be getting stronger. That's all you have to know. Just buy. Ben and the PPT have your back. And no, you don't have to know anything about anything. What do you buy? Does it matter? Market rallies that are subsidized with a flood of money push everything higher. Yes, even oil. Did I say that? Never mind. You are not supposed to know anything.

The one thing you need to know is who's throwing the party. Like a good guest, we need to know who to thank. The Federal Reserve is of course, the man. Sure their banking buddies and Treasury Department shills are with them but the Fed is stoking the rally flames. Notice the chart below. Last week was a good week. President Ben was distracted a bit with his visit to Jackson Hole, Wyoming and he couldn't stand at the monetary printing press all day to pump up the market. So, other than about an hour or so of trading, the market went down or sideways. There were a couple of big bursts higher that only lasted for a few minutes but that's all it takes. The PPT has put sellers on notice. They are not welcome at this party and they will not be tolerated. So, if you don't know anything about anything, this is your market. Party on. Keep buying right alongside Ben and the PPT and watch your portfolio grow. Nevermind that the fallout will be higher oil prices, higher inflation, higher taxes, and less control over your life. But hey. Sacrifices have to be made. Don't you want the stock market to go up? It's not like it will go up on its own! Ditto for car sales, house sales, banking, insurance...

Oh, you weren't supposed to know that stuff. That could interfere with your 'investing'.

DIA one week ending 8/21/09 (15 minute bars)
Chart courtesy

Sunday, August 16, 2009

Stock Market Review - 8/14/2009

Knock, Knock.

'Who's there?'

Uh-oh. It's the Chinese. And boy are they mad! It seems that they are catching on to our economic scam. You know - in order to report a pretend positive GDP number the United Banks of America print and manufacture money to lend to people that can't repay the loan so they can continue spending at unsustainable rates mainly buying cheap Chinese manufactured products. See the last ten years. We can only expect one of two outcomes. One, we finally buy so much stuff that we don't need anymore and suffer a deflationary spiral fueled by too much capacity and too little demand. Two, the money printing catches up and inflation bursts forth. Either way, the lenders get screwed. The Chinese are finally on to us. What will the Federal Reserve do now?

To become the world's largest debtor nation and beg the world to keep lending is one thing. But then to continue to manifest money out of thin air is another altogether. Our governmental witless nitwits will need to issue a couple of trillion of notes and bonds just this year alone! To put that kind of indebtedness in perspective, two trillion is more than the annual GDP of every country in the world except the top seven - the US, Japan, China, Germany, France, the UK, and Italy. If California was a country, they would be eighth but they are so broke they are issuing IOUs. All this debt and all this printing and all this bank saving and all this insurance and car takeover by our government should have one consequence. Our excessive borrowing should be costing us more in the form of higher interest rates required from our creditors for them to continue to feed our debt addiction. The bond yields should be rising like Jack's Bean Stalk. But, it is becoming very apparent that every time the 10-year yield rises toward 3.9% or so, something dramatic happens. Now, let's see. Who is the biggest sucker in the world? Who is on the hook for nearly a cool trillion in our junk debt? Oh yeah, that would be the Chinese. My guess is they pick up the phone and call the keepers of the US government, the Federal Reserve, and demand action. The Fed and their PPT arm spring to action and buy the yield down. Back to 3.5% or so we go and the Chinese calm down. Of course, the PPT can't manipulate all markets at the same time so when they are busy manipulating the bond market, the stock market suffers. So went this past week.

The Fed had a meeting and declared no change to the zero percent fed funds rate. I suspect this will be the same line 20 years from now. They will never again raise rates. Why? You need a real economy that can actually pay to borrow money. That means that the borrowers have to be able to make money on the money that they borrow. Dig it. We are subsidizing the banking industry, the insurance industry, the car industry, the mortgage industry, and the obamanistas are coming for the health care industry. Under this policy of idiocy, our government claims that GDP was down only 1% for the second quarter and most importantly, all the village idiots stepped forward to declare either an end or an eminent end to the greatest recession since the 'Great One' of the '30's. Hallelujah, the recession is over! If you believe that, then you must also believe that the Fed had to take over the banks for the good of us all. Step back and think about it. What would really have happened if the troubled banks had been allowed to tank? Sure, the FDIC would have been in scramble mode but we all know this is a sham of an insurance provider. They don't have enough money to insure deposits and had to get our real life 'Wizard of Oz', the Fed, to promise access to the printing press to stay alive. Really, what would have happened? I'll tell you what would have happened. The derivatives world would have vanished and all the carnies and con men would have been vanquished from our landscape. Also, the Chinese, the Japanese, the South Koreans, and so on, would have been left holding a balloon full of Federal Reserve bubbles and would be a little more prudent in whom they choose to lend money in the future. Lastly, we would have to go back to buying with cash. If we don't have it, we don't buy it. As a country, if we can't collect it in tax, we don't spend it. The Pelosi's and Reid's of the world seem even more ridiculous than they already are. In the end, we, our economy, would recover because it would again be rooted in assets and not 'conceptual' assets like derivatives. But I digress.

Isn't it odd that this past week was not a good week for the stock market? We celebrated the 'statistic' issued by 'our government' that claimed fewer job losses. The recession was over. Inflation was supposedly lower in July even though gas went from $2.30 or so to $2.50 a gallon. I know, I know. Our government has been pathological in their lying about everything for so long we have no basis anymore to determine reality. All we can do is rely on the markets and charts. The chart below is a ten-year chart of the Dow and the US dollar. The Dow is in blue and the dollar in green. Notice the phenomenal volume the PPT threw on the market in March of this year in an effort to convince us that TARP was good! Wow! What I want to get across is the obvious inverse relationship between the two. For the Dow to rise, the dollar must fall. Why? The Dow is function of inflation. It is not a function of value. We are now Zimbabwe. Zimbabwe is us. Like I previously mentioned, we need to issue more debt this year alone than anyone in the world can absorb. Now, our Federal Reserve has had to step in and buy the Treasury auctions of debt so we can pretend that demand is still strong. It is not. That knock at the door is getting louder and louder. The Chinese are not stupid. They know we are purposely devaluing our currency because the only way to repay our debts is to do so with cheaper currency. We have borrowrd the cow but want to repay it with a 10 ounce sirloin. The Chinese want the cow back. Our Fed knows the American populace is ignorant of all things economic so they distract us with a stock market rally. They occasionally bring forth things like health care reform to woefully and totally distract the idiots that report the news to the idiots that view the news so we won't pay attention to the theft of the country's assets at the hand of the Fed and their banker right arms. Oh, did you see that the big banks all reported grand profits? Hallelujah! Our bankers can reward themselves with billions in bonuses. To the people of the US? More job losses, more asset deflation (houses continue to fall in value), more mortgages under water, higher prices for non-assets, and a currency that will continue to fail. Follow the green line in the chart. There are three distinct triple tops right before plunges in value. We are about to exit the third as I write. What does it mean? Probably, a further stock market rally. Are you happy now? At least we know that interest rates aren't going up. Knock, knock!! Hey, Ben. Get to work. You know who you work for now. Who's your daddy? Who's our daddy? I wonder how you say that in Chinese?

Dow in Blue; US Dollar in Green - 10 yrs
Chart courtesy

Monday, August 10, 2009

Hide and Seek 101: AOCI - Accumulated Other Comprehensive Income

The mortgage-for-all enabler, Freddie Mac, just reported earnings on Friday, August 7, 2009. They claim to have made $768 million for the second quarter. Cheers!! Even a standing-O from Wall Street! Okay, let's talk truth.

After they repaid the TARP extortionists their dividend, Freddie really lost eleven cents. They say they don't need any money from us at the moment as they are issuing debt that they call 'Reference Notes' to the tune of $45 billion so far this year to bring the total to $259 billion. So let's see. They say the made $768 million but they have debt of $259 billion. We have a winner!!

Check the chart below and see if you would like to buy debt in a company like this. Apparently, a lot of people do. But, apparently as well, a lot of people are idiots. As the price of the stock fell from the sixties to the pennies, volume didn't really spike until single digits were reached. We are not dealing with 'jeniuses' here.

So has the mortgage business suddenly gotten better? Even the company admits that their earnings were "driven primarily by $4.3 billion in net interest income mainly due to lower funding costs, as well as $4.2 billion in gains on the company's derivative portfolio and guarantee asset, which were primarily driven by net mark-to-market gains due to increases in long-term interest rate". In other words, through the sorcery of accounting adjustments and invention, they turned a profit. Two things.

First, they are suddenly expert derivative traders. They made over $4 billion in the quarter trading derivatives. They bankrupted their company trading derivatives in the past few years so why the 'steroidal leap' in derivative skill? As I postulated in my newsletter, it helps to be the Federal Reserve's best friend and shill. The Fed trades derivatives and default swaps and they happen to know interest rate movement better than anybody on the planet given their bond market intervention activities. Okay, so the Chinese call the Fed when they get nervous about increasing yields and disintegrating bond values which prompts our Fed to intervene. They pull our chain and we respond. Anyway, don't you think the Fed passes on a little info as to when they are about to intervene so their buddies can front run with their own swap activity? You bet.

Second, since a lot of companies like Freddie have massive bundles of losing security positions on their books, they need to find a way to hide them lest we idiots learn of their pathetic fiscal condition. So, we have changed the accounting rules to allow for as yet unrealized losses to be hidden under a column called 'Accumulated Other Comprehensive Income' or AOCI for short. Got it? Understand the title? The scammers that run our country are counting on your stupidity to first, not to seek the truth, and second, to gloss over this arcane column title. But, some of us are relentless truth seekers. Come to find out that Freddie put another $34 billion under that column for the second quarter and they had $28 billion there in the first quarter. The beauty is that under our new 'accounting rules', that column does not count in the income statement. Isn't that beautiful? That way, even if you have $34 billion in losses, you can still pretend to earn $768 million and stupid stock investors rejoice. So too does the Obama administration as this helps sell their 'economic recovery' story being the administration of change and and transparency they are. The crap is still there. It is just in a column that we no longer count.

Now, look at the chart. Would you lend these people $250 billion? What kind of an idiot would sign up for that? Oh yeah - our government buys this stuff like hot cakes. Hide and seek. Tag. You're it!

FRE 3-year ending 8/7/09
Chart courtesy

Monday, August 3, 2009

Stock Market Review - 7/31/2009

Insanity and Perception Meet

Another week - another record US Treasury issuance. $235 billion this week, to be exact. And no, interest rates are not going up as the 10-year Treasury yield held steady at about 3.5%. Are investors that hungry for bonds? Hardly.

There are several things going on here that are very important. One is that our government has run out of ammunition. The Fed Funds rate is at zero and will likely stay there for a generation or two just like Japan. And now the US descends further and further into debt to keep the 'economic recovery' con game going another week. To continue the debt issuance, the US Treasury needs buyers. When you consider that the Treasury must issue $2 trillion to pay the bills just this year alone, that's a lot of buyers. Only the top seven countries in the world even have a GDP of more than $2 trillion per year (World Bank data, 2008). Who is even capable of buying this much debt? We know our friends in China have now accumulated close to a trillion by themselves and Japan and South Korea continue to support our habit of spending more than we make. Mainly, they support our spending because it is mostly their crap that we are buying and we need credit to continue. Now they are wondering how long the print and borrow game can go on before they are left with a bag of worthless paper with pictures of Americans that would mostly be turning in their graves if they saw what the past few administrations have done. But, they buy. So too does our very own Federal Reserve. But where do they get the money to add a few extra trillion to their balance sheet?

Sure, they make money lending to our Ponzi financial system that we call banks. But I'm talking 'trillions'. As I postulate in my newsletter, it would seem that we could make a few inferences here. The Fed is like a low level drug dealer that smoked the crack they were supposed to sell. They will soon have to face the people that fronted them the drugs and it won't be pretty. Their only recourse is to turn to crime for the cash. Now, we know the Fed deals big time into the credit default swap world of derivatives that now have nominal values north of a quadrillion. We also know that the majority of swaps are interest rate driven and who knows better as to which direction interest rates are going than the Fed? They know how much of the bond offering they are going to buy and they know what time of day they are going to strike. To get a little help, it is possible that they pass this information along to their buddies at the big banks. Follow me here. All the big banks traded themselves into insolvency trading derivatives in 2008 so we know they are all idiots and have no idea what they are doing. During their 'cash crunch' and bailout periods where they were 'raising capital', it is thought that derivative trading dropped by 97%. Now, we learn that these same idiots are earning record profits for the second quarter at the same time that our Fed is buying Treasuries by the hundreds of billions at a time and derivatives trading is back. Suddenly, they are all making gobs of money. Gee, I wonder how?

The other thing that is very important is the Bush administration is closely controlling perception. Uh, I mean the Obama administration. I get the two mixed up. Since they are both identical, why don't we just call Obama 'Bush II'? Anyway, they use the same Nazi-like propaganda tools to continually 'sell' the story that they want us to believe. And that story is 'economic recovery is at hand and we are past the bottom of the recession'. Just listen to our politicians. They are like robots repeating the lines of recovery like they were programmed by whatever source brainwashed them to think Obama was improvement in our political timeline. But here is where sanity meets perception. Sure, it's a nice sentiment to believe that all is well and getting better by the minute and six months of Obama cured all the ills of 20 years of Wall Street stupidity and greed. Second quarter GDP was clocked at minus 1% even though consumer spending (70% of GDP) came in slower than first quarter GDP which was revised to an even slower minus 6.4%. Huh? No, don't even search for logic. Every category of GDP was much worse than minus 1% except for the all important 'government spending'. In other words, any improvement or any slowing of economic deterioration is due to government spending by virtue of debt. In other words, the ultimate economic life support system is the only thing keeping the patient alive.

In contaminating the world with our real estate Ponzi scheme, every country has felt obligated to do the same as us - stimulate, stimulate, stimulate. Of course this means that governments are simply throwing money at economies like frat boys throwing girls in the pool at a keg party. This is insane behavior as Zimbabwe has already proven. Yet, here we are. Now, let's look at the chart below. The two lines are the Shanghai Composite in red and the Dow in blue. I think we would all agree that our two economies are tied together so one cannot prosper without the other and one cannot fail without the other. Likewise, our stock markets have become very similar. In fact, all asset classes are now similar as the governments of the world seek to control the markets to keep our minds off the idea that the banks are relieving us of our gold and real assets. We are stupid and easily fooled. Anyway, you can see that the two indexes are moving in lock step. 2009 is showing a powerful rally from the 2008 lows. Here's the rub. The Chinese government is calling their market a 'bubble' and the US government (the Federal Reserve) is calling theirs a 'recovery'. We are all insane in that we think we can do exactly what Zimbabwe did and expect a different result in the end. No one prints and borrows their way out of an economic abyss. The difference is perception. Look at the chart. One man's 'recovery' is another man's 'bubble'. Who is right? Me personally, I no longer trust anyone that speaks English. All I hear is lies.

5yr monthly - Dow in Blue, Shanghai in Red
Chart courtesy