The Three Stages of Delusion
by ilene - December 7th, 2010 1:48 pm
Courtesy of John Mauldin, Outside the Box
I am back from the Forbes cruise to Mexico and starting to deal with a thousand things, but first on the list is making sure you get this week’s Outside the Box. And a good one it is. In fact, it is two short pieces coming to us from friends based in London over the pond.
Both of them have to deal with the unfolding crisis that is Europe, which is going to unfold for several years as they lurch from solution to solution. The first is from Dylan Grice of Societe Generale and reminds us why we should put no stock in what leaders say about a crisis. He has lined up the statements of leaders from one crisis after another. He finds a simple, repeating pattern. And shows where we are now.
The second is from hedge fund manager Omar Sayed, who I met last time I was sin London. A very bright chap and good guy. He offers us very succinctly four paths that Europe can take. Some of them are not pretty. It all makes for a very interesting OTB. I trust your week will go well.
Your over-dosed on guacamole (and it was worth it) analyst,
John Mauldin, Editor
Outside the Box
Flashback to Crises Past: Three Stages of Delusion
Popular Delusions
By Dylan Grice
The recent sequence of reassurances from various eurozone policymakers suggests we are in the early, not latter, stages of the euro crisis. Only an Anglo-Saxon style QE will prevent dissolution of the euro. Such a radically un-German solution will only be taken with a full acceptance of how serious the euro’s problems are. But denial persists.
The dawning of reality hurts. Prodded and bullied along a tortuous emotional path by events unforeseen and beyond our control, we descend through three phases: the first is denial that there is a problem; the second is denial that there is a big problem; the third is denial that the problem was anything to do with us.
US policymakers’ three steps during the housing crash fit the template well. Asked in 2005 about the danger posed to the economy by the housing bubble, Bernanke responded: “I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis.” Here was the…
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DiggHey, Since When Is The Dirty Fed In The Loan Sharking Business?
by ilene - December 2nd, 2010 1:31 pm
Courtesy of Jr. Deputy Accountant
The Dirty Fed has been forced to open its books and, not surprisingly, data reveal that money managers capitalized nicely on the Fed’s intentions, as I suppose they well should have seeing as how our friends at 20th and Constitution are so f**king transparent about doing whatever it takes.
Grab the barf bag, you might need it.
HuffPo tells us that some familiar names made a quite awesome profit frontrunning the Fed, something not at all illegal but completely questionable in these troubled times. Is this the transparency you wanted?
The Fed effectively telegraphed its intentions to the Street before buying the bonds. Legendary money manager Bill Gross, who oversees more than $1.2 trillion at Pacific Investment Management Co. said last month during a television interview that part of his success over the last 18 months was due to buying securities in front of the Fed, and selling them to the Fed at a premium, allowing him to profit handsomely. Gross runs PIMCO’s $252.2 billion Total Return Fund.
Morgan Stanley sold the Fed more than $205 billion in mortgage securities from January 2009 to July 2010, while it’s [sic] much bigger rival, Goldman Sachs, sold $159 billion. Citigroup, the nation’s third-largest bank by assets, sold the Fed nearly $185 billion in mortgage bonds. Merrill Lynch/Bank of America sold about $174 billion.
It’s not clear how much these firms profited by engaging in the kind of activity that allowed Gross to profit so well, known as "front running." However, it’s abundantly clear that they did turn a profit.
JPMorgan Chase, the nation’s second-largest bank by assets, sold the Fed about $153 billion worth of mortgage securities.
Other foreign banks with extensive Wall Street operations also profited from the program.
Barclays, the British firm that took over failed investment bank Lehman Brothers, sold about $123 billion in mortgage bonds. UBS, a Swiss lender, sold about $94 billion. BNP Paribas, a French bank, sold about $67 billion.
That’s not all. The data also reveal that the Fed shoved fake money at everyone including McDonald’s, Verizon and Harley-Davidson. McDonald’s still laid off 700 in an attempt to "restructure", leaving any reasonable person to wonder how many they’d have cut if they hadn’t gotten a nice fat Zimbabwe Ben handout. Since when is the Fed in the business of loan sharking to anyone but the…
The Federal Reserve And The Pathology of Power
by ilene - November 18th, 2010 10:50 am
Courtesy of Charles Hugh Smith, Of Two Minds
The Federal Reserve and the Pathology of Power
The Federal Reserve is an example not just of run-of-the-mill hubris but of the far more profound Pathology of Power.
The rule of law has been supplanted in the U.S. by self-serving propaganda campaigns serving State and financial Elites: this is the Pathology of Power. The Federal Reserve is an instructive example because it is so blatant.
Despite the dearth of evidence that goosing the stock market actually generates a "wealth effect" which "trickles down" from the top 10% who own the vast majority of equities to the bottom 90%, the Fed has waged a ceaseless propaganda campaign claiming this policy goal is now essential for the nation’s well-being.
As Ben Bernanke recently made clear: "Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending (that) will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
No mention of its positive effect on Wall Street; cui bono (to whose benefit?) indeed. To better understand the pathology of power, we should turn first to Pathology Of Power by Norman Cousins, published in 1988.
Cousins was particularly concerned with the National Security State, a.k.a. the military-industrial complex, which at that point in U.S. history was engaged in a Cold War with the mighty Soviet Empire.
In a classic case of structural decay and destabilization (including failed coups), the Soviet Empire dissolved in December 1991. Nonetheless, Cousins’ description of the pathology of power is an uncannily accurate account of the Fed and all the Central State fiefdoms.
"Connected to the tendency of power to corrupt are yet other tendencies that emerge from the pages of the historians:
1. The tendency of power to drive intelligence underground;
2. The tendency of power to become a theology, admitting no other gods before it;
3. The tendency of power to distort and damage the traditions and institutions it was designed to protect;
4. The tendency of power to create a language of its own, making other forms of communication incoherent and irrelevant;
5. The tendency of power to set the stage for its own use.
In broader terms, we might add: the tendency of power to manifest hubris, arrogance, bullying and the substitution of…
Banzai7 Periodic Table of Wall St. Criminal Elements
by ilene - November 17th, 2010 3:12 am
Here’s another hilarious piece of artwork by William Banzai7. It was previously reprinted at Zero Hedge, but I somehow missed it. Click on the table to enlarge. – Ilene
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Mr. Obama’s Most Recent “2%” Sellout is his Worst Yet
by ilene - November 15th, 2010 5:14 pm
Mr. Obama’s Most Recent “2%” Sellout is his Worst Yet
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Courtesy of Michael Hudson
Now that President Obama is almost celebrating his willingness to renew the tax cuts enacted under George Bush for the super-rich ten years ago, it is time for Democrats to ask themselves how strongly they are willing to oppose an administration that looks increasingly like Bush-Cheney III. Is this what they expected by his promise of an end to partisan politics?
It is a reflection of how one-sided today’s class war has become that Warren Buffet has quipped that “his” side is winning without a real fight being waged. No gauntlet has been thrown down over the trial balloon that the president and his advisor David Axelrod have sent up over the past two weeks to extend the Bush tax cuts for the wealthiest 2% for “just” two more years. For all practical purposes the euphemism “two years” means forever – at least, long enough to let the super-rich siphon off enough more money to bankroll enough more Republicans to be elected to make the tax cuts permanent.
Mr. Obama seems to be campaigning for his own defeat! Thanks largely to the $13 trillion Wall Street bailout – while keeping the debt overhead in place for America’s “bottom 98%” – this happy 2% of the population now receives an estimated three quarters (~75%) of the returns to wealth (interest, dividends, rent and capital gains). this is nearly double what it received a generation ago – while the rest of the population has been squeezed, and foreclosure time has now arrived.
One would not realize that the financial End Time is here from today’s non-confrontational White House happy-talk. Charles Baudelaire quipped that the devil wins at the point where he manages convince the world that he doesn’t exist. We might paraphrase this today by saying that the financial elites win the class war at the point where voters believe it doesn’t exist – and believe that Mr. Obama is trying to help the middle class, not reduce it to debt peonage and a generation of victimhood as the economy settles into debt deflation.
The first pretense is that “two years” will get us through the current debt-induced depression. The Republican plan is to make more Congressional and Senate gains in 2012 as Mr. Obama’s former supporters “vote with their backsides” and…
Janet Tavakoli On Bank Foreclosure Fraud
by ilene - November 14th, 2010 1:02 am
Janet Tavakoli On Bank Foreclosure Fraud
Courtesy of Karl Denninger of The Market Ticker
h/t The Big Picture
Firms That Fought Dodd-Frank May Profit Under Republican House – Bloomberg
by ilene - November 3rd, 2010 11:55 am
Firms That Fought Dodd-Frank May Profit Under Republican House
By Clea Benson and Phil Mattingly, Bloomberg
Republicans will try to rein in regulators implementing a sweeping overhaul of financial rules and press for a smaller federal role in the mortgage market as they return to a majority in the House of Representatives and a stronger minority in the Senate.
Taking control of the House and bolstering their position in the Senate will increase Republicans’ sway over the direction and independence of the Consumer Financial Protection Bureau and over any technical fixes Congress makes in rules governing the trading of derivatives. Networks projected that Republicans won the seats needed to claim a majority of the House.
Republicans say they will use the House Financial Services Committee to ensure that regulators such as the Commodity Futures Trading Commission and the new consumer protection bureau do not write rules that lawmakers consider too restrictive on the banking industry.
“We don’t want them to regulate capriciously, arbitrarily, without engaging in a cost-benefit analysis,” Representative Jeb Hensarling, a Texas Republican on the panel, said in an interview before the election.
A slowdown in rule making or added pressure on regulators may benefit companies such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp., which lobbied against portions of the Dodd-Frank law and predicted the measure would hurt their financial results.
President Barack Obama called attention to the Republican agenda in his weekly radio and Internet address Oct. 23, saying House and Senate members “are now beating the drum to repeal all of these reforms and consumer protections.”
More here: Firms That Fought Dodd-Frank May Profit Under Republican House – Bloomberg.
PPT Wraps Up Pre-Election Rally: Now What?
by ilene - November 3rd, 2010 11:34 am
PPT Wraps Up Pre-Election Rally: Now What?
Courtesy of Charles Hugh Smith Of Two Minds
Now that the carefully crafted pre-election rally has reached its desired goal, the market is at a crossroads: can QE and bogus employment statistics juice another equities euphoria, or is Goldman Sachs now short the market?
As I predicted in July, the Plunge Protection Team and its proxies drove a low-volume rally up all the way through the elections. The primary mechanism (other than the usual "ramp and camp" pre-market manipulations via proxy purchases of the SPX futures) was to destroy the U.S. dollar with endless propaganda about QE2, the Fed’s quantititaive easing plan to be formally announced today. Notice the strong inverse correlation between the crashing dollar and rising equities:
Gosh, if only they could crush the dollar to zero, then equities would really soar! Uh, right… as for the real economy--never mind that; stocks disconnected from the real economy a long time ago….
I have long suggested the rally might have legs through the election:
Stocks Due for a Bounce, But Long Term…. (May 26, 2010)
Once More Up, Then the Big Down (June 28, 2010)
Will the Stock Market Crash Before the Mid-Term Elections? (July 19, 2010)
Is it really too much to imagine Geithner et al. getting private calls from the White House along the lines of, "Guys, we could really use a hand here with the stock market." After all, propping up the market as a proxy for the U.S. economy has been the strategy all along, and the worst time for the strategy to collapse in a heap is right before the mid-term elections.
The key target, if it were my job to engineer a rally that would last longer than a few days, would be the 1,110-1,130 level of the SPX. Juicing the market above those levels would cause all but the hardiest Bears to cover, and it would trigger gigantic waves of black-box buying as the key levels of resistance would be broken.
Kudos to the Plunge Protection Team for a brilliantly engineered and executed rally on record-low volume in months which are historically bearish. You guys did a remarkable prop job for the incumbents, and the Democrats who survive the mid-term election will be sure to reward your hard work on their behalf.
Had the stock market tanked in September and October--the mind reels…
Goldman Advises Clients To Front Run The Fed Via POMO
by ilene - October 22nd, 2010 12:37 am
Goldman Advises Clients To Front Run The Fed Via POMO
Courtesy of Tyler Durden, Zero Hedge
After a few months of breaking down what the simplest trade in the world is, that would be frontrunning the Fed for the cheap seats, Zero Hedge is happy to advise our readers that finally Goldman Sachs itself has capitulated and is now indirectly telling its clients to frontrun Ben Bernanke via POMO. No complicated value investor nonsense, no pair trades, no cap structure arbitrage, no hedging, no levered beta plays. Buy ahead of POMO. Sell. Rinse. Repeat.
From a GS distribution to clients:
On the interplay between the FED and STOCKS: Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%. in addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day. this compares to a YTD return of 5.8%. the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market’s performance on the 19 non-OMO days: +70bps.
And there you have it – the top in frontrunning the Federal Reserve is now in.
The most recent Fed POMO calendar is linked (there is one tomorrow). Frontrun away.
Oh, and Ben, your criminal organization will one day pay for making a complete manipulated travesty out of capital markets.
A Video Reminder Of Wall Street’s Criminal Activities
by Zero Hedge - October 18th, 2010 12:53 pm
A Video Reminder Of Wall Street’s Criminal Activities
Courtesy of Tyler Durden
As if anyone needed a reminder of how corrupt Wall Street is, here are two easy to digest videos providing some additional perspectives on why the entity that controls the Fed, Congress and the Senate, not to mention the teleprompter in chief, is nothing but a bunch of criminals. While nothing new to regular readers, the NYT’s Louise Story has taken a look at securities lending, dominated by firms such as State Street, BoNY and JPM, which she describes as follows: "funds lend some of their stocks and bonds to Wall Street, in return for cash that banks like JPMorgan then invest. If the trades do well, the bank takes a cut of the profits. If the trades do poorly, the funds absorb all of the losses." In other words, just one more of two magic coin flips in which the US taxpayer always has a 100% chance of losing. The response by JPM on allegations that it entices clients in a rigged game is memorable: "If customers lose money that they have entrusted with the bank, he said, that “can lead to a loss of clients and can affect the reputation of the business." Um, what reputation? And in another clip, the Huffington Post Investigative Fund also takes a look at JPMorgan (is the administration’s former war with Goldman now shifting over to the house of Dimon? That will teach you to turn down that SecTres post Jamie…) in a documentary which look at what it dubs Wall Street’s new sweet spot "as surrogate tax collectors who see profits in tacking on fees and threatening to foreclose when homeowners fall behind on property taxes." Well, at least the whole foreclose bit is off the table for now.
The NYT on the lose/lose of securities lending in a failed Ponzi environment (full video after the jump).
And HuffPo on JPM as a surrogate tax collector:
h/t Mike
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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