Friday, January 21, 2011

Obama's In-Your-Face Appointment of GE's Immelt May Have Marked the Stock Market Top

Likes of Kudlow and Cramer and a host of others in MSM financial media have been telling us "See, Obama is pro-business after all!" They also points to the appointment of GE's CEO Jeff Immelt as the head of the newly created (by presidential fiat) Jobs and Competitiveness Board, and scream "See? See? See?"

(It's gotta be a joke of some kind - a sick kind. Immelt is very good at CUTTING JOBS in the US.)

Yes I see it alright. But what I see is not Obama being "pro-business". I see a President giving favors to his buddies and his masters. If that's called "pro-business", sure, it is "pro-large, multinational businesses", aka "crony capitalism".

Take a look at this wonderful picture from the article linked above (first one): Obama, posing as a serious, attentive listener to Immelt, with Valerie "slum lord" Jarret looking on to make sure Barry is striking a right pose for the camera.

I have this feeling that the stock market, however much it has been manipulated by Ben and TBTF friends of his on Wall Street, may have stopped responding to this "economy is great and Obama is pro-business" chorus ever since December 1st. And looking at what has transpired during the Chinese president visit and seeing Immelt appointment, at least the part of the stock market may have thrown in the towel, saying "Ferrrgetit..."

Why do I have this feeling, you ask? The charts. If Obama is pro-business, intent on creating jobs (I'm too tired to even laugh), why are the two particular indices that represent growth and new jobs have been dropping big time?

The top one is Nasdaq, the bottom is Russell 2000. Technology companies and small/medium companies, which would create jobs through growth. They seem to know Obama being "pro-business" simply means he favors his big donors, i.e. large multinational conglomerates who have shipped jobs overseas, mostly to Communist China, and that Obama will bend over backwards to hand his buddies some lucrative contracts (like he just did for GE and Honeywell).

Both Nasdaq and Russell 2000 went down significantly for three days in a row, despite good earnings reports. Note the extremely narrow bollinger band on Russell 2000. Probably the narrowest since March last year. A big move seems to be coming. I don't sense that it is going to be to the upside. How about you?

The indices that represent big caps, Dow Jones Industrial Average and S&P500, both went up yet again today. Dow continues to levitate near the upper bollinger band, while S&P bounced off the mid bollinger band.

To give some credit to the viewership of Kudlow's show, 84% of online respondents do not believe Obama is pro-business.

COMEX Raises Gold/Silver Margins Again

If you are wondering why gold and silver have been selling off for the past few days while the news of shortage of the physicals is everywhere, here's the answer:

The COMEX hiked the margins on gold and silver again, along with a boatload of commodities that are rising thanks to Ben and the Inkjets printing digital money with abandon which is leaking mightily into M2. The new margins will become effective after the market close on Friday.

From Zero Hedge:

Wonder why the smart money was rushing headlong out of gold and silver over the past few days, and especially today in the AM session? Here is your answer: in tried and true fashion the Comex just hiked margins in gold, and silver by about 6%, and threw in a few other commodities to mask things up. And unlike the last time it did it, when it could at least pretend to justify its actions with the surge in gold price, this time with the PM complex dropping, we wonder what excuse the CME will use this time. Initial and Maintenance margins were just increased in everything from 10 Tr Oz Gold Futs, Comex 100 Gold Futures, Comex Miny Gold and Silver, E-mini Gold and Silver, Comex 5000 silver futures to Silver trade at settle. Also added were Copper, Iron Ore, propane, butane, and other nat gas. Most notably, and confirming that the administration and the money printing authorities are terrified by the surge in crude, the CME also hiked margins in various refined products and coal. The official scramble to "contain" the aftermath of Bernanke's lunacy is accelerating. We wonder when REDI, Prime Brokers and E-trade will comparable collapse purchasing margin for stock trading accounts. Of course, as with all other such superficial market interventions, the impact is shallow and is overrun in a matter of days.

And no...there was absolutely no leak this time. We promise.

Oh but gold and silver are "safe haven" commodities, and since the economy is recovering so fast and everything will be OK, or so our dear leaders are telling us, we don't need "safe haven" any more, do we?

Here's M2, from St. Louis Fed's FRED:

Consider it as buying opportunity, if you have fiat money to spare.

Thursday, January 20, 2011

Federal Reserve Makes Own Insolvency Impossible

How, you may ask? It changed the accounting rules (it sets its own accounting rules) so that any loss on the asset side of the balance sheet will be accounted for by creating an entry "interest on Federal Reserve notes due to the Treasury". The Fed will simply put the negative number on this line item to account for a loss on the asset side, instead of taking a hit on the capital, like any other company. If the number is negative, the Fed won't remit interest payments (i.e. profits from the Fed's Treasury holdings) to the Treasury Department.

I thought I saw some big statement when I checked the Fed's then-latest balance sheet in early January, but I skipped it entirely and went to the information I wanted at that time. Note to self: Read anything the Fed has to say.

Someone at Bank of America did, and Zero Hedge reports:

To all who thought that the FASB gives leeway only to banks when fudging their numbers, and boosting their equity capital in ways previously unheard of, we have a surprise. The latest entrant in the "accounting gimmickry" club is none other than the Fed. And since the Fed is not auditable by anyone, it gives itself permission to change and bend the rules in any way it desires. Following on recent speculation that the Fed could in theory have a equity capital deficiency due to its massive asset book, and its tiny equity buffer, both discussed many times previously on Zero Hedge (here and here), the Fed recently announced as part of its January 6 H.4.1 release "an important accounting policy change with the release of its weekly H.4.1 report on January 6 that effectively prevents it from facing a negative capital position even in the event that it incurs substantial losses." Here is how Bank of America's Priya Misra explains this curious, and most certainly politically-motivated development: "The Fed remits most of its net earnings on a weekly basis. Prior to this accounting change, any unremitted earnings due to the Treasury would accrue in the "Other capital" account, but will now be shown in a separate liability line item called "Interest on Federal Reserve notes due to the Treasury.” As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible regardless of the size of the Fed’s balance sheet or how the FOMC chooses to tighten policy." And there you have it: instead of reducing the left side of the balance sheet upon the incurrence of losses, the Fed has decided to fudge the right side. And presto. No more possibility of insolvency ever again. Which only means that the Fed's now ridiculous DV01 of just under $2 billion will in no way prevent the world's biggest hedge fund from taking proactive steps to actually mitigate rate risk, and in fact will likely encourage it to gamble even more with taxpayer capital.

[The article links Bank of America's analysis.]

Wednesday, January 19, 2011

Vallejo Offers 5 - 20 Cents on the Dollar for Unsecured Creditors

And secured creditors are not much better off. They will take 40% haircut if the restructuring plan is approved.

I have some well-to-do friends. They are retired, invested heavily in fixed income including munis. I told them to dump munis and buy gold with that money when gold was slightly below $1,000. Their reaction was all too typical of the rich but not very informed on financial markets and economy in general: Why? Gold is dangerous, too speculative!

That was two years ago, when gold was forming a reverse head and shoulders pattern.

I wish they had listened. They will probably wish the same soon enough. Oh well, I tried. I hope they have secured bonds at least...

From Zero Hedge:

Harbinger Of Muni Bloodbath: Vallejo Offers Unsecured Creditors 5 - 20 Cent Recovery

But, but, munis always pay back almost 100 cents on the dollar, even in bankruptcy, right? Wrong. Bankrupt Vallejo just filed a POR to pay back unsecured creditors between 5 and 20 cents. "The city regrets that it cannot pay a higher percentage,” Vallejo officials said in the court filings. “The city lacks the revenues to do so while maintaining an adequate level of municipal services, such as the provision of fire and police protection and the repairing of the city’s streets." Just wait for the reaction when holders of unsecured debt all those other (hundreds of) insolvent cities, towns, and states realize that a 5 cent recovery is all too possible...

And now for the bad news, from Bond Buyer:

Unsecured creditors will receive 5 cents to 20 cents on the dollar for their claims under a reorganization plan Vallejo, Calif., filed Tuesday in federal court.

The plan to exit bankruptcy outlines the reorganization of debt the city owes its largest creditors, Union Bank and National Public Finance Guarantee. It also sets aside a pool of $6 million to pay unsecured creditors about 5% to 20% of their claims over two years, according to court documents filed in U.S. Bankruptcy Court for the Eastern District in Sacramento.

The formal legal plan is based on a five-year road map City Council members approved at the end of November, tackling $195 million in unfunded city pension obligations, cutting payments for retiree health care, reducing pension benefits for new employees, raising pension contributions for current workers, and creating a rainy-day fund.

Union Bank, the largest creditor, is owed $50 million after holding letters of credit on four series of defaulted COPs. The filing indicates Union Bank will get a new “lease-leaseback” obligation in exchange for canceling the COP series. It will also get $6 million of unspent proceeds from the COPs held under trust agreements.

Union Bank is slated to get 40% less than what it would have received from the original COP scheduled payments, according to the Vallejo filing.

(Damn, there goes Union Bank's free checking...)

Wells Fargo Sues J.P.Morgan Chase for Mortgage Documents in REMIC

which, as the trustee of the REMIC, Wells Fargo should have verified when the trust was created.

Bloomberg reports:

JPMorgan Chase & Co.’s EMC Mortgage, facing homeowner lawsuits over foreclosures, was sued by the trustee of a mortgage portfolio for refusing to turn over documents detailing the quality of loans bought by the trust.

Wells Fargo & Co., the trustee, is seeking access to files for more than 2,000 underlying mortgages in the Bear Stearns Mortgage Funding Trust 2007-AR2, according to the complaint filed today in Delaware Chancery Court in Wilmington.

“The trustee has repeatedly requested that EMC provide access to the subject documents,” Wells Fargo said in the complaint. “EMC has played proverbial ‘rope a dope’ and otherwise continued to drag its feet, and has produced nothing.”

Rope a dope? Now that's funny. Isn't that how Wells, J.P.Morgan Chase, Bank of America, et al has been dealing with frustrated homeowners who try to save their homes over the past 2, 3 years?

According to the article, it was one of the suckers who complained to Wells Fargo after having bought a significant chunk of the certificates issued by this particular trust, under Wells Fargo's loving care. The certificates, or mortgage-backed securities, are most likely not backed by mortgages at all, if the industry practice of the past decade is followed.

An investor in the trust, who owns 42 percent of the outstanding face amount of the portfolio’s certificates, questioned the condition of underlying loans

, Wells Fargo said in the complaint, citing an August letter it received from David Grais, the investor’s attorney.

Grais, a partner at New York-based Grais & Ellsworth LLP, represents the federal Home Loan Banks of Seattle and San Francisco and Charles Schwab Corp. in litigation seeking to force banks including Bank of America Corp. and JPMorgan to repurchase mortgage-backed securities because they allegedly misrepresented the quality of the loans.

42 percent. Ouch.

As to the Bear Stearns Mortgage Funding Trust 2007-AR2, here's the last 10-D filing, in January 2008. The trust issued three classes of securities, A-1, 2, 3, B-1, 2, 3, 4, 5, B-IO, XP, R, R-X (the last three did not have initial certificate balance). The underlying mortgages are Alt-A, short-reset hybrid and/or negative amortization - in other words, junk.

Just out of curiosity, I checked to see if there's any info on the securities.

Here's one, A-1 (CUSIP 07401TAA4), as of August 20, 2008, by Standard & Poor loss assessment: Projected loss = 18.84%.

Here's another A-class, A-3 (CUSIP 07401TAC0), downgraded on August 19, 2009 by S&P from B to CCC, and put on a negative watch.

Tuesday, January 18, 2011

Bill Fleckenstein: US Dollar Will Win the Race ... to the Bottom!

Winning is good, isn't it?

Bill Fleckenstein's interview with Chris Martenson. Worth a listen.

From the podcast transcript at

About bubbles:

You can’t know how high they’re going to go or how long they’re going to go. You just know they’re going to end in disaster. And then consequently they bailed out that bubble with the housing bubble and now we’re trying to print our way to prosperity.

The thing that Greenspan, Bernanke and all the proponents and fans of the Feds continually miss is – it’s the bubble that creates the nasty bust. The busts don’t happen in isolation. Much the same if you drink a quart of water and you get up in the morning, you’re not going to be hung over. But if you drink a quart of Vodka you will. And the Fed does not understand that and they continue to pursue the wrong policies to this day.

About the Fed-think:

First of all, they believe in the infallibility of the Fed. I think it’s probably what draws you to the place and gets inculcated in your viewpoint. Bernanke has been very, very clear that – I’m not going to get his quote exactly right - but he said a few years back that Anna Schwartz and Milton Friedman were right and the Fed caused the Depression and he wasn’t going to let it happen again. Except that they all think the Fed caused the Depression by not pushing the right buttons after all hell broke loose. They do not understand that the reason we had the Depression was partly because of the easy money policies.

And the other thing people don’t understand is when you have a bubble it changes people’s attitudes and the way they behave. In the ‘20s they got leveraged up in bucket shops and we had lots of leverage. In both of our bubbles people abandoned good paying jobs to do something kooky and took on debt. So it’s not just the price action of the bubble that does the damage. It’s the way it modifies people’s behavior when you get misallocation of capital. And that’s part of why bubbles have such long clean up periods. So these guys don’t understand that.

About US dollar:

[The US fights the phantom of deflation by printing like a maniac, while Germany fights to combat inflation.] And the perversity of it all is we get rewarded for using a printing press rather quickly and we believe we don’t have to make many changes. Europe is struggling to fix things and raise retirement ages and all that sort of stuff and yet they get penalized. So I totally agree with you. It’s that German mentality versus our mentality. And in the end if the Euro doesn’t facture, which I don’t think that it will, then the race to the bottom is going to won by the dollar, which at some point is going to cause a huge problem.

I think his comment on how a bubble changes people's attitude and behavior is right on.

Here's the link to the podcast.

He's a Joker, He's a Smoker, He's Barack Obama...

(I don't know if he's a "midnight toker".)

According to the government mouthpiece outfit called CNBC citing Reuters, Obama wants to shed rules that hurt job growth, and he so instructs his courtesans by issuing a presidential fiat called "executive order".


So is he willing to undo all the job-killing, wealth-transferring legislation he and his minions in the House and the Senate enacted in the past two years?

For more on this hilarity, read on:

President Barack Obama Tuesday ordered a government-wide review of regulations with the goal of eliminating those that hurt job creation and make the U.S. economy less competitive.

Obama took action after unveiling his plan in an op-ed piece in the Wall Street Journal in which he said some rules have placed "unreasonable burdens on business — burdens that have stifled innovation and have had a chilling effect on growth and jobs."

The executive order marked Obama's latest move to repair relations with U.S. business, which were frayed amid bitter debate over his overhauls of Wall Street regulations and healthcare that some business leaders said would stymie corporate America.

Obama has struck a more business-friendly tone since his Democrats lost the U.S. House of Representatives and saw their Senate majority reduced in November congressional elections widely seen as a verdict on his handling of the stumbling economy and persistently high unemployment.

It looks he wants to remain president for another term. Anything to get elected again, to feel that lovin' feeling of an enthusiastic crowd cheering him on and on and on and on ....

Q4 Earnings Reporting Season, With or Without Jobs

AAPL dutifully dipped at open at $326, only to reverse and currently trading at $342. "Buy the f--king dip" continues to work.

Apple is reporting its earnings in after hours, and traders are clearly expecting a blowout result, with or without Jobs (and jobs, I suppose).

Here are some of the companies that I track, reporting today after the market close. Place yer bets....

Apple (AAPL)
Western Digital (WDC)

Tomorrow morning,

Goldman Sachs (GS)
US Bancorp (USB)
Wells Fargo (WFC)

Tomorrow after hours:

Ebay (EBAY)
Seagate (STX)

Can Goldman Save Apple (the Stock)?

Steve Jobs goes on a medical leave, and with 190 hedge funds owning AAPL, Goldman Sachs takes it on itself to support the stock so that the exodus does not become a rout.

From Zero Hedge:

Ta-tata-daaaaa: Captain Goldmanerica is here to save the day. Can't have 190 hedge funds checking out from hotel Applecornia, now can we.

From Goldman's Bill Shope, CFA though we are not sure what the F stands for... certainly not Facebook after today...

What's changed

On Monday morning, Apple released an internal email from Steve Jobs where he noted that the board had granted him medical leave from the company to focus on his health. Mr. Jobs will remain CEO and he will continue to be involved in major strategic decisions for the company. He also noted he hopes to be back at Apple full time as soon as possible. Meanwhile, Tim Cook, Apple’s Chief Operating Officer, will be responsible for day to day management of the company in Mr. Jobs’ absence.


While the stock is likely to face near-term pressure, we believe the longterm fundamentals remain intact and we would reiterate our Conviction Buy on any weakness. This is based on the following key points we detail in this note: 1) The management team remains strong, and we believe investors would embrace Tim Cook in any potential succession plan; 2) Apple’s $51 billion in cash and investments could be partially distributed to shareholders to stabilize the shares; 3) The multiple of 15.1X already represents a significant historical discount, and we see no direct risk to earnings from this move. As a result, we are reiterating our CL-Buy on Apple and our 12-month target price of $430.


Our target price represents a 19X P/E multiple on our above-consensus CY2010 EPS estimate or a 19% discount to Apple’ five-year average multiple of 23X.

Key risks

The key risks to our target include: macro deterioration, increased platform competition, potential legal and regulatory restrictions, and uncertain management succession plans.

I wish the best for Mr. Jobs, who said "There's an old Wayne Gretzky quote I love. 'I skate to where the puck is going to be, not to where it's been.' That's what we try to do at Apple." I hope he comes back and comes back soon.

Sunday, January 16, 2011

71% of Americans Oppose Raising Debt Limit

As the purely symbolic fight looms in Congress over whether or not to raise the debt limit (is that even a question?), the American public are dead set against raising, according to Reuters' poll:

The U.S. public overwhelmingly opposes raising the country's debt limit even though failure to do so could hurt America's international standing and push up borrowing costs, according to a Reuters/Ipsos poll released on Wednesday.

Some 71 percent of those surveyed oppose increasing the borrowing authority, the focus of a brewing political battle over federal spending. Only 18 percent support an increase.

The poll underscores the tough task ahead for U.S. lawmakers as the debt nears its current ceiling of $14.3 trillion. Treasury Secretary Timothy Geithner last week warned that a failure to raise the borrowing limit in the coming months could lead to "catastrophic economic consequences."

Brian Riedl, the lead budget analyst at the conservative Heritage Foundation, said the poll findings put "a lot more pressure on those who want to raise the debt limit to make a convincing argument to a very skeptical public."

I don't think they have any clear idea as to what would happen if the debt limit weren't raised, and that's precisely why Congress is in trouble.

So what could be a convincing argument by Congress to sell the debt limit raise to the skeptical public?

International standing? I don't think Americans care too much about that one at this point. Europe is in shambles, China is in a gigantic credit bubble, Japan's been dead for most of the past 20 years.

Social Security and Medicare benefits would be cut otherwise? Good luck with that line, as people simply do not buy that. They've been paying into these ponzi schemes without knowing they've been the ponzi, so they want their money's worth. It's not their problem that the government diverted the funds.

The federal government is going to have another $1.5 trillion deficit year. If the debt limit is reached and is not raised, the government cannot borrow additional funds to pay for stuff.
What stuff, you ask? Let's go find $1.5 trillion from the feds spending (2009):

Defense: $782 billion

Other discretionary (all the other departments and agencies in the executive branch): $437 billion

TARP: $151 billion

Interest: $187 billion

Total: $1.557 trillion

So if we stop the wars and pull out from around the world, abolish all the federal government departments and agencies in the executive branch including the White House and send Congress packing (unless they want to work as a volunteer), and tell the creditors (the largest being the Federal Reserve) that we're not going to pay them the interest, we instantly have a balanced budget.

It is a liberating thought, isn't it?

Deposed Tunisian President Fled with 1.5 Tons of Gold

or so says Tyler at Zero Hedge, citing Le Monde (with Google translation). It seems it was the wife of the president who had the wits about her to grab 22% of Tunisia's gold reserve and run:

The family of ousted President Zine El Abidine Ben Ali of Tunisia would have fled with 1.5 tons of gold. It is an assumption of the French secret services, who try to understand how the day ended on Friday 14 January, which saw the departure of President and his family and the downfall of his regime.

According to information gathered in Tunis, Leila Trabelsi , the president's wife allegedly went to the Bank of Tunisia to look for gold bars. The governor refused. M me Ben Ali had called her husband, who had also initially refused, then surrendered. She then flew to Dubai, according to French news before leaving for Jeddah. "It seems that the wife of Ben Ali is a party with gold" , said a senior French official. "1.5 tonnes gold, that makes 45 million euros" , translated source.

As of December 2010, Tunisia had 6.8 tonnes of gold as the reserve. So the president and his wife simply took 22% of the nation's gold reserve and fled.

Physical gold and silver seem to be disappearing fast from the market, even without the Tunisian president's wife. has run out of silver in Germany.

But don't worry, people, it's just another "bubble", as this expert at this august institution (item No.4) assures us.