Saturday, February 20, 2010

Op-Ex Crash Didn't Happen. Now What?

The alarming drop in the stock futures overnight didn't result in a huge drop in the regular hours Friday. After the initial drop, all major indices recovered into positive territories. And just like so many Op-Ex (option expiration) day, the market ended basically flat - killing both puts and calls but more puts than calls.

So what was the point of this Fed's exercise of announcing the discount rate hike on Thursday after hours, other than letting Goldman Sachs make a ton of money from fearful investors in the fter hours futures market (I'm guessing, of course)?

As soon as the rate hike was announced, the financial media, particularly CNBC, went on overdrive to spin it positive. It was unreal. Here's one from CNBC, in early Friday morning before the market opened:

Who's Afraid of the Fed? Market Actually Wants Rate Hikes
(Jeff Cox, 2/19/2010 CNBC)

"Forget the cosmetic move of raising the discount rate—the day the Federal Reserve really decides to start putting the brakes on growth could actually be a happy occasion for the stock market.

"Raising interest rates and stemming the flow of liquidity to the economy might otherwise be considered a barrier for stock market growth, but many investors are in fact eagerly anticipating that the move will add another level to investor confidence.

"Though the Fed announced a surprise hike in the discount rate that it charges banks to borrow money, the central bank continues to indicate that its more significant funds rates will stay near zero for the foreseeable future.

""Most people assume that the day the Fed starts tightening, the market goes down. That might be the short-term reaction," says Uri Landesman, head of global growth strategies for ING Investment Management. "I'm going to be happy because it's going to suggest to me that things are starting to get better.""

The article continues, so you can click the link above and be happy that everything will be alright.

I have a hard time swallowing the line. I don't see "the flow of liquidity into the economy", as this CNBC writer clearly does see. If he is defining "the economy" as Wall Street economy, then he may be right. But on Main Street, outside the big corporations, money and credit are not there. Banks continue their utmost effort not to lend to businesses and home buyers. They continue to cut back on credit to consumers. And they continue to prosper.

That's all the Federal Reserve cares, I'm afraid; that its member banks, particularly the big ones, continue to prosper. The Federal Reserve probably couldn't care less about Main Street economy, even if that's supposed to be part of their mandate. Of course they don't say that; instead they say the Federal Reserve must remain "independent" - meaning "independent of the fiscal policies of the government that includes economic well-being of the nation".

Thursday, February 18, 2010

More on Fed Discount Rate Hike - Effect on OpEx

So, just to show how "independent" the Federal Reserve is, the board of governors of the Federal Reserve raised the discount rate by 0.25% to 0.75%.

In front of the Option Expiration Day.

Why couldn't they wait until Friday's market close? I trade, so I totally share the sentiment of Karl Denninger in his post:

Fed Changes Terms In Front of OpEx Again
(2/18/2010 The Market Ticker)

[Here are the paragraphs that Denninger 'interprets' the Fed's statement in italic.]

We just made sure that anyone who was long into Options Expiration - which is tomorrow - especially on index options which cannot be hedged or traded now, is screwed. Just like in August of 2007 when we did the opposite. [Note: The announcement was made at 4:30 PM EST. The stock market closes at 4:00 PM, and options don't trade after hours.]

Of course we couldn't wait until Friday after the close when it wouldn't hose people - instead, we timed this for maximum pain.

We gave no warning either. Ha ha. You did wear your titanium plate in your pants, right?

[Referring to the discount rate hike which is effective tomorrow,] That's "right now", in case you didn't figure it out yet.

This is something we said we'd do, but heh, you gotta love our timing. We make a practice of burning people - a few years ago it was the shorts (who were right), this time it's the longs (who were also right - well up until this evening!

Denninger feels that "this release was intentionally timed to hurt people, just as was the August 2007 one". He continues:

"Bernanke and his pals ought to be run out of town on a rail for this sort of repeated abuse. They seem to think that the markets are their plaything, and all they're doing is destroying confidence with each and every move of this sort.

"It is not what you do, it is how you do it, and this sort of thing is just yet another reason why The Fed must be audited. The timing on this is too damn suspicious - never mind that someone sold a metric ton of SPY right in front of the announcement - literally by seconds, 2 million shares were unloaded."

He has an intraday chart of SPY in the post linked above.

The Fed is "independent" - does that mean it is free to openly mess with the market mechanism like this? I guess so.

I have very inadequate hedge against the market crash that some say will come tomorrow, and I couldn't unload options because options don't trade after hours. In other words, I am one of those who will potentially be "screwed", come tomorrow morning.

Thank you Ben and the hawks at the Fed, including this guy with excellent connections all over who wrote a peculiar op-ed piece on Wall Street journal back in September 2009 declaring the noble and courageous intent of the Fed to do what it thinks is right, regardless of the condition of the financial markets or the general economy.

Normalization? What's there to normalize? The financial markets and the economy are anything but "normal".

May you all rot in hell where the economy is forever trapped in a deflationary spiral no matter what they do. (I guess they could go to Japan right now instead.) Or I could wish them an inflationary spiral no matter what they do to rein in.

Or better yet, I wish them an economy that simply ignores whatever they do. They can squawk all they want, and it won't make a bit of difference.

Now It's Federal Reserve's Fiat: Discount Rate Raised to 0.75%

supposed to curb carry-trades by member banks

Fed hikes discount rate to 0.75% (2/18/2010 Marketwatch)

WASHINGTON (MarketWatch) -- The Federal Reserve announced late Thursday that it was raising its discount rate in order to encourage banks to borrow from the private market for short-term credit instead of from the Fed.

"In a statement, the Fed said it would raise its discount, or primary credit rate, to 0.75% from 0.5% effective on Friday.

"Fed Chairman Ben Bernanke signaled last week that the Fed was mulling the move.

"Fed watchers had expected the move to come at the next Fed meeting in March. Today's action shows a sense of urgency on the part of the Fed officials.

"The Fed said the move is intended to "normalize" its operations as the financial crisis winds down.

"The change is not a tightening and does not signal any change in monetary policy, the Fed said.

"The change in the discount rate was approved by the Fed Board of Governors on requests from all 12 district bank boards.

"Former Fed Gov. Laurence Meyer drew attention to the possibility of a discount rate hike early this year. Meyer said Fed officials were unhappy that banks were engaging in a carry-trade or borrowing from the Fed at ultra-low levels and then reinvesting the money elsewhere."

My question is: WHY NOW?

My second question is: WHAT'S THE POINT?

After hours, stocks and index futures are reversing today's gains. Notable exception is US dollar. Thank you, Ben, for further complicating the Op-Ex week.

Obama "Humphreys" the Deficit by Setting Up a Panel

by executive fiat to study how to reduce federal deficit.

What's "Humphrey", you ask? It's from Sir Humphrey Appleby, a fictional character in a British comedy, a staunch defender of the status quo, who advises a newbie Minister that they form a committee when they don't want to find out about anything.

Obama sets up deficit panel without help from Hill (2/18/2010 AP via Yahoo Finance)

"WASHINGTON (AP) -- President Barack Obama signed an order Thursday unilaterally creating a bipartisan commission to rein in unruly deficits after Congress rejected a similar body with considerably more enforcement power.

"In making the announcement, Obama said that unless lawmakers put aside partisan differences, the continuing red-ink trend could "hobble our economy."

"The federal deficit hit a record $1.4 trillion last year and could grow larger this year as the struggling economy puts a big dent in tax collections.

""It will cloud our future and it will saddle every child in America with an intolerable burden," he said before signing an executive order establishing the commission." [The article continues.]

Is this some kind of sick joke? This guy is surpassing FDR in terms of government spending; he just signed a bill that raised the debt limit by $1.9 billion which may carry us till the end of February; his 2011 budget is $3.8 trillion.

He IS the cause for "the continuing red-ink trend", and he is the one who "will cloud our future and saddle every child in America with an intolerable burden". The red-ink trend will continue not because of partisan differences but because of his government's spending.

I can tell him, so can the majority of this country, how to reduce deficit without wrecking the country's tax-paying middle class and without creating a panel stuffed with some august appointees.

Stop spending.

(By the way, speaking of executive orders, do you remember what Obama's last two executive orders were? One was to confer full diplomatic immunity to INTERPOL, and the other was to create the council of governors for national security.)

Small Plane Crashes into IRS Building in Austin, Texas

That's after the pilot of the plane had set fire to his own house.

UPDATE: Man Sets House On Fire, Then Crashes Stolen Plane Into Austin Office Building (2/18/2010

"AUSTIN (February 18, 2010)—CNN is reporting that a man set his house on fire Thursday, stole a plane from the Georgetown airport and then crashed the aircraft into a multi-story building in Austin that houses Internal Revenue Service offices.

"CNN reported that NORAD launched two F-16s out of Ellington Air Force Base in Houston after the crash “out of an abundance of caution.”

"The plane was registered to Joseph Andrew Stack, the Federal Aviation Administration told an Austin TV station, whose house in north Austin burned Thursday morning.

"A neighbor rescued a woman and a girl from the burning house, according to Austin media reports." [The article continues.]

(... Oh wait, if that was his plane it wasn't a "stolen" plane as the headline indicates, was it?)

Wednesday, February 17, 2010

Connection Between Toyota's Sticking Pedal Problem and US Military

It's two-fold. has an article on Toyota recalls that says, among others, President Obama and his Chief of Staff Rahm Emanuel decided to blow up Toyota's sticking pedal problem in order to pressure the new Japanese administration who wants U.S. military bases out of Okinawa.

It also says something very curious and interesting: Toyota's accelerator assembly made by an American company CTS, who also supplies to GM, Ford and to the U.S. military, is susceptible to "non-civilian" (i.e. "military") frequencies.

Here's the original article that linked:

Obama waging economic warfare on several fronts, including Japan
(Wayne Madsen, 2/12/2010 Online Journal)

"(WMR) -- The Obama administration has expanded its economic warfare against other countries, first reported on January 18 by WMR in the case of an authorized financial campaign against Venezuela. The Obama administration, according to WMR’s Asian sources, is waging an economic warfare campaign, coupled with industrial sabotage, against Japan through a pre-planned operation directed against the Japanese automobile manufacturer, Toyota.

"WMR has learned that the Obama administration authorized the anti-Toyota campaign as a warning shot to Japan over its reformist government’s insistence that the U.S. pull its military troops out of Okinawa. WMR has learned that Obama and his chief of staff, Rahm Emanuel, have decided to turn the screws on Japan, not only for auto market leverage, but also to punish Japan over the insistence by Prime Minister Yukio Hatoyama and the newly-elected anti-U.S. military mayor of Nago on Okinawa to move the U.S. military off of Okinawa."

The article continues, and this is the part where he discusses CTS's accelerator assembly:

"Ironically, Toyota does not make the sensor-equipped accelerator pedal for its recalled vehicles. Elkhart, Indiana-based CTS (formerly known as Chicago Telephone Supply) manufactures the pedals for Toyota, as well as for Ford and GM. China’s Jiangling Motors has complained about sticking gas pedals from CTS and the firm has developed a reputation for faulty accelerator pedals and their associated sensors. CTS’s president and CEO is India-born Vinod Khilnani. Curiously, the Obama administration, which is flush with Indian-Americans at high levels, has not criticized CTS, especially since it supplied the very same accelerator pedals it manufactures for Toyota and GM to the U.S. military."


"The CTS-manufactured accelerator pedal used in Toyotas relies on an electronic pressure sensor. WMR has been informed by knowledgeable sources that the sensors are vulnerable to non-civilian frequencies. The Obama administration, fearful that military transmissions may be responsible for accelerator accidents, may have sought to jump the gun by blaming Toyota for the accelerator problems." [emphasis is mine]

I have no idea whether Mr. Madsen's sources are reliable or telling the truth. I wouldn't have noticed the article if it hadn't been featured at

By the way, that Obama administration's intent is political is evident by the fact that the US government is demanding the data for Toyota's European recalls. Since when has the National Highway Traffic Safety Administration started regulating internationally?

Is the agency demanding the international recall data from GM and Ford, too? Honda? I haven't heard about it. Have you? How about demanding the data from CTS?

Toyota will be fined if it doesn't submit the data within 30 to 60 days.

And the problem may have been caused by the U.S. military frequencies.

Tuesday, February 16, 2010

Bomb Explodes Outside J.P.Morgan Office in Athens, Greece

from Reuters...

ATHENS, Feb 16 (Reuters) - A bomb exploded outside the JP Morgan offices in Athens on Tuesday, causing minor damage to the building, police said.

There were no immediate reports of injuries.

"It was a time-bomb at JP Morgan's offices in central Athens," a police official said. "The explosion damaged the outside door and smashed some windows."

The official said police cordoned off the area after a local newspaper had received a warning call. (Reporting by Renee Maltezou)

AP: Foreign Demand for Treasury Securities Falls

but AP got the number 180-degree wrong for Japan...

AP Economics Writer Martin Crutsinger reports that:

"The Treasury Department reported that foreign holdings of U.S. Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009"; and

"The big drop in China's holdings meant that it lost the top spot in terms of foreign ownership of U.S. Treasuries, dropping to second place behind Japan.

"Japan also reduced its holdings of U.S. Treasuries, cutting them by $11.5 billion to $768.8 billion in December, but that amount was still more than China's December total of $755.4 billion."

Except Japan didn't reduce the holdings.

If you take a look at the Treasury Department's TIC chart, China did reduce its holdings from $789 billion in November to $755 billion in December 2009. However, Japan increased its holdings from $757 billion to $768 billion, an increse of $11 billion.

Aside from Japan, one notable country that increased its US Treasury holdings is United Kingdom. UK's Treasury holdings increased from $277 billion in November to $302 billion in December, $25 billion increase. UK increased the Treasury holdings by 132% in one year.

Monday, February 15, 2010

Spanish Intelligence Suspects Coordinated Attack on Sovereign Debt

They are learning fast.

Spanish intelligence probing debt "attacks"-report
(2/14/2010 Reuters)

"MADRID, Feb 14 (Reuters) - Spain's intelligence services are investigating the role of investors and media in debt market turbulence over the last few weeks, El Pais reported on Sunday.

"Citing unnamed sources, El Pais said the National Intelligence Centre (CNI) was looking into "speculative attacks" on Spain following the Greek debt crisis.

""The (CNI's) Economic Intelligence investigating whether investors' attacks and the aggressiveness of some Anglo-Saxon media are driven by market forces and challenges facing the Spanish economy, or whether there is something more behind this campaign," El Pais said."

Not that there's no reason to worry about Spain. On the contrary. Spain's budget deficit is 11.4% of GDP (note: US's number is 10.6% for 2010); many economists doubt the Spanish government's GDP growth projection of 3% by 2012.

Still, it is reminiscent of the "bear raids" on Bear Stearns and Lehman Brothers in 2008, both of whom collapsed under the intense attacks from certain investors taking naked long positions on the CDSs (credit default swaps) - holding only CDS without holding the underlying debt - and naked shorting of their stocks. These attacks coincided with certain media news that turned out later to be utterly false (news like "Goldman would not accept the counterparty risk of Bear Stearns", as reported by David Faber of CNBC).

The article's last paragraph indicates what kind of "attack" that the Spanish government may be investigating:

"Underscoring those doubts, the premium demanded by investors for buying Spanish rather than German government bonds ES10YT=RR has risen in recent weeks and the cost of insuring Spanish bonds against default by the government has also risen."

In other words, CDS on Spanish sovereign debt.

So who are the "investors" attacking Spain's debt? The usual suspects - Goldman Sachs, J.P.Morgan Chase, Citigroup, etc.? We can probably add Barclays and Deutsche Bank. Maybe HSBC, too. Throw in several big hedge funds, and we can't be very far from truth, can we?

But what could be their end-game? Unlike Bear Stearns and Lehman Brothers, they can't possibly bankrupt the PIIGS countries and still profit from it, can they? Or can they?

Or is it to make sure that PIIGS will be bailed out financially by Germany (who, by the way, rejected the creation of a European fund to bail out the fiscally troubled countries like PIIGS), so that they don't lose on their CDS or their cash flows?

Or is the end-game more geopolitical than just financial? Is the end-game to drain Germany economically and fiscally, by making sure the sovereign debt crisis happens and that it gets worse until Germany pays - whether by setting up a bailout fund or by gorging on the Greek imports as Financial Times' columnist and internationalist Martin Wolf urges?

If it is the last one, it could involve other parties than just greedy bankers.

Who wrote those CDSs on the sovereign debt of PIIGS anyway?

Sunday, February 14, 2010

UK Police Welcomes Armed Robot Drones Soon

This is getting to be too bleak and dismal a future for the rest of us.

Wired U.K. tells us what kind of assistance the Britain's 'coppers' are going to have: surveillance drones and armed robot drones. Not content having CCTV everywhere to monitor everyone, they will have drones to keep track of and attack, albeit non-lethal (supposedly), everyone that moves.

(Skynet cannot be too far away...)

Future police: Meet the UK's armed robot drones
(David Hambling, 2/10/2010 Wired UK)

"Police forces all over the UK will soon be able to draw on unmanned aircraft from a national fleet, according to Home Office plans. Last month it was revealed that modified military aircraft drones will carry out surveillance on everyone from protesters and antisocial motorists to fly-tippers [people who dump waste somewhere other than an authorized landfill], and will be in place in time for the 2012 Olympics.

"Surveillance is only the start, however. Military drones quickly moved from reconnaissance to strike, and if the British police follow suit, their drones could be armed -- but with non-lethal weapons rather than Hellfire missiles.

"The flying robot fleet will range from miniature tactical craft such as the miniature AirRobot being tested by Essex police, to BAE System's new HERTI drone as flown in Afghanistan. The drones are cheaper than police helicopters -- some of which will be retired -- and are as wide as 12m in the case of HERTI."

The article continues to explain what kind of "weapons" are being considered to be mounted on the drones. They include:

  • LRAD (Long Range Acoustic Device), which was used against G20 protesters in Pittsburgh; it can permanently damage hearing.
  • Light-based personnel immobilization device; think strobe light that can make you dizzy and disoriented, or worse, cause seizures.
  • Double-barrelled 44mm Flash-Ball gun
  • Taser, which has killed how many people by now?
The picture is iDrone, developed by a French company.

I can't wait to find out what the U.S. military and law enforcement have in store for us. After all, the U.S. has become such an expert in using drones, blasting funerals and wedding parties in Afghanistan and Pakistan.

OT: Mavericks Huge Wave Pics from 2/13/2010

Click here to go to the slide show at San Jose Mercury News site... I watched the entire live feed yesterday. It is amazing that no one died, particularly when the waves crashed right into the Boneyard...