Nasdaq 100 Futures at 2:45 PM

“The terrible, cold, cruel part is Wall Street. Rivers of gold flow there from all over the earth, and death comes with it. There, as nowhere else, you feel a total absence of the spirit: herds of men who cannot count past three, herds more who cannot get past six, scorn for pure science and demoniacal respect for the present. And the terrible thing is that the crowd that fills the street believes that the world will always be the same and that it is their duty to keep that huge machine running, day and night, forever." Federico Garcia Lorca

A short term counter trend rally today helped stocks to recover from the recent lows, and continue the intermediate term rally off the lows from earlier this year.

The London office of Goldman Sachs apparently triggered this rally with some upgrades in the banking sector, and a vicious bear raid in the precious metals. The bond also sold off as investors are enticed to buy US equities.

The earnings results of Lowe's were trumpeted heavily by the demimonde of Wall Street, but it is most likely the natural reaction of consumers to seek to improve their infrastructure as they hunker down and cut back on discretionary purchases. It by no means contradicts the overwhelming economic evidence.

Wall Street has a few IPOs it wishes to bring out this week to test the waters for a larger IPO from AIG of one of its units. And of course the banks continue to sell secondary offerings.

If something looks like bait, and smells like bait, it probably has a hook in it somewhere.

The notion of trading in markets against market makers and insiders trading for their own trading profits heavily equipped with zero cost government funds and advantageous information would be almost laughable if it was not such a tragic abuse of productive capitalism and free markets.

Keep that in mind when you trade the short term, or try to interpret the daily actions of the markets. Most short term movements have nothing to do with the fundamentals, and everything to do with the dealers and shills peeking into your hand and running bluffs against the small traders and the funds and institutions.

Most investors have no business trading options or forex or futures at any time.

Everyone's situation is different, but overal this looks like an especially treacherous bear market, made doubly difficult by the actions of the Treasury and the Fed in bankrolling malinvestment, imbalances and corrupted price discovery.

When in doubt, get out. Don't get hooked by greed. And don't step in front of a market operation to run prices up or down. Wait for the longer term trends to assert themselves, and avoid the trap of calling tops and bottoms and attempting to be 'the first' in ahead of a market move.

This rally 'could' have some legs if it becomes a determined effort to reflate the credit bubble supported by the power of the Treasury and the Fed, as we saw in 2003-6, which was a reckless and disgraceful abuse of the Fed's economic responsibilities.

We doubt they can do it again, but never underestimate the power of greed and fear over memory and prudence.

Financially Farcical Friday

Institutional Risk Analytics is one of the best weekly reads around.

Institutional Risk Analytics

"Washington has indeed fixed the solvency problems of the large zombie banks -- not with additional capital or stress tests, as many of us seem to think. Rather, the banks have been stabilized by turning them into GSEs via FDIC guarantees on their debt. Those banks which can end their dependence on federal guarantees will be the visible winners in the post stress test market, and valuations and spreads will reflect this divergence between zombies and viable private banks.

Seen from this perspective, Chrysler, General Motors and the large banks are GSEs rather than private companies, parestatales as they know them in Mexico. To talk about a rally in the equity of large US financials seems truly ridiculous, at least to us, especially true when you look at how the public sector subsidies being applied to the banks have distorted their financial statements."

"We hear from the Big Media, BTW, that Tim Geithner's growing corps of handlers directs media inquiries to Roubini for "an objective view" of the Secretary's handling of the financial crisis. One Democrat asks: Could it be Larry Summers to the Fed, Roubini to the White House?

And speaking of the fall of the elites, FRBNY Chairman Steve Friedman finally resigned yesterday, ending a scandalous period when the greater community of present and past employees of Goldman Sachs, JPMorgan Chase and other dealers was arguably in control of the most important arm of the US central bank. (Ending? With Dudley still in place? - Jesse)

The fact that the Board of Governors appointed former GS ibanker Freidman as a "C" class director, who are meant to represent the public interest and not be past officers of regulated banks, was scandal enough. But then, when GS formally became a bank holding company last year, the Board failed to remove Friedman when his conflict became acute. The Board also failed too to appoint another "C" class director, making it almost seem that the Board wanted to assist in the GS operation to influence the operations of a Federal Reserve Bank."

The Banks must be restrained, and the financial system reformed, before there can be a sustainable economic recovery.

Goldman Sachs Releases Earnings After Hours

Goldman Sachs released their earnings early tonight after hours, instead of tomorrow morning.

Goldman solidly beat both earnings and revenue expectations, and has indicated that they intend to pay back their TARP borrowings as soon as possible.

Matt Miller of Bloomberg TV has used the term 'blowing away' their numbers at least thirty times since they announced their numbers after the close.

The major source of profit for Goldman Sachs was from speculative trading.

There will be no recovery in the real economy until the financial system is reformed and banks are restrained into productive functions within our society.


Goldman posts $1.7 billion profit, plans $5 billion offer
Monday April 13, 2009, 4:28 pm EDT

NEW YORK (Reuters) - Goldman Sachs Group Inc posted first-quarter earnings of $1.66 billion, a higher-than-expected profit helped by strong trading revenue, and said it planned to raise $5 billion of common shares.

The New York-based bank reported net income applicable to common shareholders for the quarter ended March 27 of $3.39 a share. For the quarter ended February 29, 2008, the company posted net income for common shareholders of $1.47 billion, or $3.23 a share.

Analysts had on average expected earnings of $1.49 a share, according to Reuters Estimates.

Goldman said it planned to use proceeds of its share offering plus additional funds to repay the $10 billion of capital it received from the U.S. government under the Troubled Assets Relief Program.

Here Come the Coupon Purchases by the Fed

The Fed made this announcement and the ETF we use to short the Treasury bond, TBT, took a nose dive.

FAQs on Fed Monetization of US Debt





Fed to start buying Treasurys on Wednesday
By Deborah Levine
2:58 p.m. EDT March 24, 2009

NEW YORK (MarketWatch) -- The Federal Reserve Bank of New York will begin making purchases Of U.S. Treasury securities on Wednesday, starting with debt maturing between 2016 and 2019.

It will continue purchases on Friday and next week, with some days dedicated to purchases of maturities as short as 2-year notes with others for debt maturing in 17 to 30 years, it said in a schedule posted on its website Tuesday.

It did not indicate how much it would buy. The Fed announced last Wednesday it would purchase up to $3000 billion in Treasurys over the next six months. Treasurys rallied, with yields on 10-year notes (UST10Y UST10Y) paring an earlier increase to traded up 1 basis point to 2.66%.

Guest Blog: The Cheapest Call Option of All

No doubt Ben and Timmy have it all planned out, how they will use the trickle down machine to reinflate the financial system, and thereby float out loans again, at interest, to the hoi polloi.

From the Irish gnome in Zurich:

The cheapest call option on the planet is being provided by the world's largest HF//Prime broker: the US govt. Its also the best camouflage for a continuing rescue of Citi, GS et al that the Congress and the public cannot penetrate.

TALF Bait and Switch - Zero Hedge

And if it all goes wrong, Geithner is now looking for power to bail out the hedge funds, not to mention Pimco et al.

This sounds like a pretty cheap option to me.

But what has also gone unrecognised is the fact they will all make up this money on their CDS and S&P calls anyway.

If they pay banks their fictional book value, they will be able to pretend that the financial problems were overstated, just a 'liquidity' issue after all.

The banks can claim they HAVE been doing things right and we'll have a huge rally again. Anyone who participates will no doubt reckon on a reduced Prime Brokerage fee and extra leverage from the grateful seller - -which means asset inflation has another leg up.

Remember, ALL banking 'capital' is notional, so it is easy to conjure up the illusion of wealth creation once more.

The Financial Crisis Was Well Under Way in December 2007

Here is one clear indicator of when the Financial Crisis actually started with a vengance, although its roots go back to the Clinton Administration at least and the repeal, in stages, of Glass-Steagall.


Source: Institutional Research Analyst and the FDIC

US Considers a 40% Ownership of Citigroup, Diluting the Common Shares

Citigroup is the prime candidate for receivership.

The only reason to continue this charade, other than to inspire us with confidence in the opaque duplicity of this Administration, is to preserve the shareholders who would almost certainly be wiped out, and the bondholders who would get a high and tight haircut, in the kind of restructuring that Citigroup requires as an insolvent institution.

Larry Summers and Tim Geithner are promoting this crony capitalist approach to preserve the wealth of a few at the expense of the many.

Wall Street Journal
U.S. Eyes Large Stake in Citi
By David Enrich and Monica Langley
February 23, 2009

Taxpayers Could Own Up to 40% of Bank's Common Stock, Diluting Value of Shares

Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said.

Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks.

When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.

The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis. Last week, Citigroup's share price fell below $2 to an 18-year low. Bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide.

Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.

The move wouldn't cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements.

Bank of America Corp. said Sunday that it isn't discussing a larger ownership stake for the government. "There are no talks right now over that issue," said Bank of America spokesman Robert Stickler. "We see no reason to do that. We believe the goal of public policy should be to attract private capital into the bank, not to discourage it...."

Major Banks Will Be Nationalized Eventually: Wall Street's Dirty Little Secret

The dirty little secret that Wall Street does not wish you to understand is that the banking model which the US has had for the past twelve years was unsustainable, it is over and done, and banks must go bank to being banks, and not hedge funds.

Why doesn't the Street wish you to realize this? First and foremost, the days of big bonuses and big earnings are over. Banks will increasingly become, once again, institutions to support savings and lending, with insured depositors accounts as a major source of capital.

The leveraged days and market speculation for the big money center banks is over.

We no longer need big salaries to retain traders in the banks because they won't be doing much trading for their own accounts anymore. That will be left to the brokerages.

They won't be writing insurance, they won't be taking huge short positions in commodities, and they won't be to big to fail, at least not to this degree with single institutions threatening national solvency.

We need to strike a model of what wish to have as a national financial system, and begging to invest towards that, and not try to reflate a bubble that ought never to have existed in the first place.

Nationalization does not mean the banks will be run by the government. It means that they will be taken into receivership, broken up, and made once more into banks. Those which are not nationalized must be constrained by a new "Glass-Steagall" law limiting their ability to imperil the national economy for their own personal gambling interests.

That is the point that is being lost in this opaque analysis and muddled discussion. The Big Money Center Banks will be nationalized one way or the other. The only real variable is how much money they can take out of the system before it happens.


Bloomberg
Dodd Says Short-Term Bank Takeovers May Be Necessary
By Alison Vekshin

Feb. 20 (Bloomberg) -- Senate Banking Committee Chairman Christopher Dodd said banks may have to be nationalized for “a short time” to help lenders including Citigroup Inc. and Bank of America Corp. survive the worst economic slump in 75 years.

“I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd said on Bloomberg Television’s “Political Capital with Al Hunt” to be broadcast later today. “I’m concerned that we may end up having to do that, at least for a short time.”

Citigroup and Bank of America, which received $90 billion in U.S. aid in the past four months, fell as much as 36 percent today on concern they may be nationalized. Citigroup, based in New York, fell as low as $1.61. Bank of America, based in Charlotte, North Carolina, tumbled as low as $2.53.

President Barack Obama’s administration is resisting the idea of nationalizing banks, said Dodd, a Connecticut Democrat. “They prefer not to go that way for all of the reasons that we’re familiar with in terms of the symbolic notion of nationalization of major lending institutions,” he said.

The Obama administration strongly believes a “privately held banking system is the correct way to go,” White House spokesman Robert Gibbs told reporters at a briefing today. “That’s been our belief for quite some time, and we continue to have that,” Gibbs said.

‘Leeway’ on Compensation

Treasury Secretary Timothy Geithner has “an awful lot of leeway” in interpreting the restrictions on executive compensation included in the economic stimulus bill and opposed by the banking industry, Dodd said today.

Treasury officials are still examining how to implement the new compensation restrictions and have not yet determined whether they will apply to participants in the administration’s rescue plan or only to banks and companies that get cash injections from the Troubled Asset Relief Program.

Compensation consultants including Alan Johnson, founder of Johnson Associates Inc. in New York, said the rules may be “catastrophic” to Wall Street’s talent base. The caps made top- producing employees “nervous,” and those who can find other jobs will probably leave, said James Reda, who heads a compensation firm in New York.

“I’m sort of stunned in a way that some people are reacting the way they are about all of this,” Dodd said. “At a time like this, everyone needs to pull in the same direction.”

Dodd also said he doesn’t want U.S. automakers to go through a prepackaged bankruptcy or a “forced merger.” General Motors Corp., Ford Motor Co. or Chrysler LLC risk liquidation with such actions, Dodd said on the broadcast.

"The Worst Is Yet to Come" With Tim and Larry

Howard Davidowitz is one of the best retail industry analysts available. It is always worth listening to him. His outlook on the broader macro level, based on consumer activity, is depressingly gloomy.

The gloomy long-term Depression outlook becoming so popularly accepted that we find ourselves rebelling against it. Perhaps unjustifiably so.

It will come down to what the Obama Administration does about the Banks. If the big Wall Street banks are allowed to absorb the capital vitality of the economy and limp along as insolvent zombies it is highly possible that we will have our own 'lost decade' like the Japanese experience.

Larry Summers is in command as the economic advisor with young Tim as his minion. We can barely imagine the infighting that must be going on between the practical politicos around Obama, probably led by Rahm Emanuel, who must be simply frothing at the boneheaded policy blunders that Geithner and Summers are creating.

A chart of W's popularity shows a decided peak just after 911, and then a steady decline into political oblivion and one of the worst popularity ratings in modern presidential history. It is now being revealed that there was a feeling in the White House that Cheney and Rumsfeld misled the president and cost him, dearly. W became very cool and detached with Cheney and his circle in the last two years, He ignored personal pleas to pardon Cheney's man, Scooter.

There is a real possibility that Larry Summers and Tim Geithner could be the spoilers for Obama despite the enormous wave of popular support which he enjoys today. Betting on the over/under, we suspect that eventually Rahm will put him in a political body bag, with Larry providing plenty of personal assistance in his own demise. But that's just an opinion and it could be wrong. Their failure is definitely not in the best interests of the country. Here is a similar opinion.

Fool Me Once Geithner, Shame on You, Fool Me Twice...

And now for a stiff dose of reality which is even too gloomy for our tastes but may be correct from Howard Davidowitz:


Howard Davidowitz Video Interview

"Worst Is Yet to Come:" Americans' Standard of Living Permanently Changed
by Aaron Task
Feb 17, 2009 12:53pm EST

There's no question the American consumer is hurting in the face of a burst housing bubble, financial market meltdown and rising unemployment.

But "the worst is yet to come," according to Howard Davidowitz, chairman of Davidowitz & Associates, who believes American's standard of living is undergoing a "permanent change" - and not for the better as a result of:

- An $8 trillion negative wealth effect from declining home values.
- A $10 trillion negative wealth effect from weakened capital markets.
- A $14 trillion consumer debt load amid "exploding unemployment", leading to "exploding bankruptcies."

"The average American used to be able to borrow to buy a home, send their kids to a good school [and] buy a car," Davidowitz says. "A lot of that is gone."

Going forward, the veteran retail industry consultant foresees higher savings rate and people trading down in both the goods and services they buy - as well as their aspirations.

The end of rampant consumerism is ultimately a good thing, he says, but the unraveling of an economy built on debt-fueled spending will be painful for years to come.

Time to Put Away Childish Things

When I was a child, I spoke as a child, I understood as a child, I thought as a child: but when I became a man, I put away childish things. 1 Cor 13

'Childish things' in this context refers largely to the level of political discussion about the fall elections that is going around these days, although the behaviour of the US financial system and our government is a close second.

(Before the usual wiseguys chime in, this site is intended to include parody and exaggeration as comic relief and an instrument of satire, in addition to seriously dispassionate commentary, unlike the White house and the Congress and Keith Olbermann and Fox News. - Jesse)

Its all personalities, frivolities, simplistic slogans, appeals to the lowest common denominator, avoidance of the serious issues, and not so subtle propaganda. Its time to start acting like this country is in serious difficulty, and the decisions that we make could affect the world for a generation. We are at a crossroads, a moment in history, and we will now decide the fate of the legacy of freedom granted to us by the blood of our forefathers.

This thoughtful piece by Yves Smith expresses the concerns many have over the Treasury proposal fairly well.

Why You Should Hate the Treasury Bailout Proposal

One thing is of special concern if you think about it a bit. How could the Bush administration have had even the arrogance to put this clause in the draft in the first place? If you think this is some poor wording or just overreach by Henry Paulson you have not been paying attention to current events for the past eight years.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

If this proposal passes, we need to vote out all Republicans and the Democratic leadership, and anyone who votes for this, in the November elections.

"When bad men combine, the good must associate; else they will fall one by one, an unpitied sacrifice in a contemptible struggle..."
Edmund Burke

Time to step back, out of the day to day push and pull of arguments, fears, petty jealousy, prejudice, complacency, sloth, greed and envy. Time to take a stand, to do something. This applies equally to America and to the rest of the world.

As in past moments of history, ultimately there will be no bystanders.