SP 500 June Futures Daily Chart at 1:00 PM EDT, and NDX Futures into the Close

Having broken lower from the first decision point, the US equity market has continued lower, presumably towards the support at the lower end of the long term trend channel.

As a reminder, option expiration is tomorrow for stocks, and next week for Comex precious metals options.

Did the Flash Crash probe the way lower? Traders, and I am one, are notoriously superstitious and suspicious about such unexplained movements, suspecting that they are exploratory and will likely be retraced.

Well, we're there. Wash and rinse. Wax on, Wax off. Make it on the way up, and on the way down. As long as you are fleecing the sheep. That is how you gain a perfect trading record, if you are dealing the cards, playing with guaranteed house money, and peeking in everyone's hands, if even only by milliseconds before they make their plays. Get them buying hope, and then selling panic. It's all good if you can keep the money moving across your tables.



If that support does NOT hold, we're not in Kansas anymore Toto. But some sort of bounce seems more likely at the moment. Ben has not yet begun to print. I think they're just negotiating terms and turf right now.

Later: Here are the NDX June Futures going into the NY close of trading. The futures were selling off HARD led by the financials. The SP futures were looking for traction again around that key 1070 support and barely hanging on, with a similar story around 1800 support on the big cap tech NDX. The SP futures have a definite shot at the prior lows in the overnight trade.

Gold and silver spot was holding the exact levels where I would have expected them to find something to hang on. Let's see stocks go into option expiration tomorrow. There are a lot of calls that are going to be expiring worthless. I wonder if they will try and jam the puts for a little whipsaw action.

I will be a little surprised if they let gold up for air before its own expiration next week.

Wall Street Threatens Washington as Reform Vote Approaches; Europe Acts Pre-emptively Against Fraud

Naked shorting is illegal in the US, and for very good reasons. On a larger scale, it is used for price manipulation, and is the equivalent of counterfeiting. The removal of the uptick rule by the SEC on July 6, 2007, which had been created in 1938 as part of the New Deal regulatory reforms, cleared the way for its more heavy handed uses and control frauds.

The ban on naked short selling was not enforced by regulators who were willing to turn a blind eye to blatant market manipulation. Under the DTCC regime it turned epidemic. The alarm was raised by many whistle blowers who were either ignored or vilified by the corporate media.

Let me be clear on this. I am not opposed to short selling. It is a trade that has many legitimate uses. It is naked short selling that lends itself so readily to abuse, particularly when there are not limits on position sizes and massed selling to drive down prices. The deregulatory movement, based on such lofty principles, has become nothing more than a means to a fraud, systematically knocking down all the regulatory safeguards that were put in place to protect the public during the Great Depression.

And this was the result of a long and expensive campaign, led by the wealthy elite and the Wall Street banks, to lobby the Congress and dupe the people to energize their frauds. As such, it shows premeditation and deliberate intent, the organized corruption of one of the most connected of all global resources, the US financial system and control of the international monetary reserves.

It became so outrageous that the US had to intervene during its banking crisis that triggered this global financial crisis, and selectively enforce the law to protect its banks from each other and the packs of unregulated hedge funds led by Goldman Sachs.

Germany recently stepped in to ban NAKED short selling, which was being used to attempt to take down certain prices to trigger the highly lucrative and largely unregulated Credit Default Swaps.

And commentators were outraged and even hysterical over this action by Germany, which was the kind of responsible market regulation that the US reserves to itself, and only when it is in support of protecting its banking oligarchs.

This surprise and shock indicates how low our standards have fallen, and how given over to Stockholm syndrome so many otherwise intelligent people have become regarding the speculators and the banks. Death by professors, chief strategists, and the pampered princes of the corporate media.

I found it interesting that the heavy selling today in US equities, triggered by the selling of large tranches of SP futures near the open, in addition to news indicating the recovery is not gaining traction, and the threat of another flash crash was tied by traders this morning over ‘unease the the Congress has not yet killed Blanche Lincoln’s amendment to prohibit the banks from dealing in Credit Default Swaps.’

Regarding the recent gold action John Brimelow says:

"Waves of selling hit gold on Wednesday in the European and NY midmornings. As noted earlier, apparent CME volume pre-open was 90,000 lots, and estimated volume between 9AM and Noon NY, during which time gold dropped some $21, was a heavy 95,000 lots. ScotiaMocatta simply refers to gold being “bludgeoned down” and Reuters quotes a COMEX gold floor trader, “the big banks just put in sell orders that hit the market."

Anyone close to the market can see this manipulation. It is neither sophisticated nor clever. That is the shame of the regulators and insiders, who find their coverage in pleading ignorance. And what they do in gold they are doing in equities and other markets, while working their way up the food chain to the sovereign debt markets. None are safe when corruption partners with government.

All this pain and uncertainty is designed to maintain their impossibly perfect trading results for their proprietary accounts as their customers bleed for their bonuses. And what makes this such a perfect con is that they are bullying the public using the money taken from the Federal Reserve and the Congress, the public's own money.

I would that Obama and the Congress had half the courage of Merkel. And that commentators and the middle class would realize the sorry state that their economy is in, held hostage by a bunch of spoiled brats and well heeled thugs, and a government by and for the highest bidder.

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst yourselves, and when you lost, you charged it to the Bank... Beyond question this great and powerful institution has been actively engaged in attempting to influence the elections of the public officers by means of its money...

You tell me that if I take the deposits from the Bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin. Should I let you go on, you will ruin fifty thousand families, and that would be my sin. You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, I will rout you out."

Andrew Jackson on The Second Bank of the United States which was the Central Bank of his day.

A dangerously simplistic view? More like common sense, and the plain spoken truth, at last. You have been given a Republic, indeed, if you can keep it, if only for the honor of your fathers, and the sake of your children.

Release the Kraken: Silver Market Price Rebounds After Sharp Price Drop for Options Expiration

"Corruption is a tree, whose branches are
of an immeasurable length: they spread
Everywhere; and the dew that drops from thence
Hath infected some chairs and stools of authority."

Beaumont and Fletcher, The Honest Man's Fortune

The silver market is rallying strongly today, after the recent dip in price below $18 with respect to the options expiration and delivery dates for the May contract earlier this week. When futures options are filled, one is not paid in cash, but instead they receive active futures contracts at the strike price.

The market game is to either get the front month price below the key strike prices before the expiry to make the options worthless, or to take the price down below the strikes the day after to run the stops of the contract holders. The market makers can see the relative levels of holdings in market in near real time, privileged information not permitted to the average investor.



Three or four banks are short more silver on the COMEX than can easily be attributed to legitimate forward sales or hedging for all the miners in the entire world, for years of production. Granted, it is hard to determine what the truth is because they are allowed to hide their actual positions and collateral, so as to be able to make their leverage and risk difficult to determine. It's the obsessive secrecy for improbable positions and returns that is the tell in most market manipulation and schemes such as Madoff's ponzi investments.

Goldman Sachs was able to obtain the exemptions of a hedger in the markets through contrivance, for the purpose of their proprietary speculation. But if Goldman is the vampire squid, then J. P. Morgan is the kraken of the derivatives markets, having less leverage than the squid as a percentage of assets, but significantly more reach and nominal size, positions which seem almost impossible to manage competently against value at risk in the event of a very modest market dislocation. And of course the risk which a miscalculation presents could shake a continent of counterparties. These oversized positions appear to be integral to the misprision of legitimate price discovery that is at the heart of derivatives frauds in other markets.

The 4Q '09 report from the Office of the Comptroller of the Currency reports that "The notional value of derivatives held by U.S. commercial banks increased $8.5 trillion in the fourth quarter, or 4.2%, to $212.8 trillion." J.P. Morgan alone has a total derivatives exposure that is larger than world GDP. Granted, by far most of these derivatives are based on interest rates, which are largely under the nominal control of Wall Street's creature, the Fed, at least for now.

Here is a description of the derivatives market by Carl Levin that seems appropriate to the current situation, but also to other market dislocations such as that of LTCM which foundered through the misapplication of risk management assumptions to enormously outsized positions.

"Ordinarily, the financial risk in a market, and hence the risk to the economy at large, is limited because the assets traded are finite. There are only so many houses, mortgages, shares of stock, bushels of corn, [bars of silver], or barrels of oil in which to invest.

But a synthetic instrument has no real assets. It is simply a bet on the performance of the assets it references. That means the number of synthetic instruments is limitless, and so is the risk they present to the economy...

Increasingly, synthetics became bets made by people who had no interest in the referenced assets. Synthetics became the chips in a giant casino, one that created no economic growth even when it thrived, and then helped throttle the economy when the casino collapsed."

These bets can be used to overwhelm the clearing price of physical bullion. Further, these bets distort markets, and those markets have an impact on the real commodity supplies and the economy, in the form of artificial oil and energy shortages for example as in the case of Enron. And given enough time these distortions can, through misallocation of resources, capital and labor, create real systemic shortages in key commodities that can take years to remedy, in addition to the short term damage and pain they inflict on countries whose economies rely on commodity exports.

Perhaps Senator Levin can reuse this quote when he questions CFTC Chairman Gary Gensler, another Goldman alumnus in government, and Sandy Weil's protege Jamie Dimon, when the Congress holds hearings on the defaults in the commodity markets and the requested bailouts of the banks who were holding enormously leveraged derivatives positions.

Unless, that is, the bailouts are conducted in secret, as Mr. Gordon Brown may have done for the bullion banks when he sold England's gold for a pittance. It is hard to know the facts of that sale because it has been hidden away by the Official Secrets Act. That type of bailout would be hard to do with silver, since the US has long since depleted its official holdings, and has trouble keeping its own mint in supply. But such a bailout might be done with the gold in Fort Knox and West Point, or the oil in the Strategic Reserve. And cash settlement is always an option, since the Fed does own a printing press.

I know this sounds a bit much at times, and there are plenty who will tell you to ignore it and move along. Tinfoil hat and all that. And it is natural to grow tired of it, to wish it would just go away. I know that I do.

But these things have happened, and continue to happen, and if you do not understand even now how the government and the banks are acting together in the the shadows for the benefit of the monied interests, you have not been following the news. Or perhaps you have, since the mainstream media largely ignores it, and investigates little or nothing, preferring the less expensive route of chairing phony debates between vested insiders, shameless promoters and paid position whores known as 'strategists.' The financial medai seems to have led the way on this, turning their 'news coverage' into an extended infomercial.

It is a dirty, shameful lapse in stewardship, and an overall failure in the upholding of oaths and responsibilities in public figures and officials. I have not seen anything like it since the Watergate trials which seemed to drag on interminably, and the scandalous behaviour and abuses that were exposed in the Nixon Administration. And it has only just begun to come out, but slowly. Because this time the US lacks a truly independent press that respects and investigates the evidence provided by whistle blowers, and is willing to question the sham explanations of the powerful insiders in the government and the financial sector.

And no one in power is recording anything for posterity, at least not voluntarily.

SP 500 Daily Chart Looking Toppy, Regulators Looking Sloppy

The SP 500 Chart is looking rather 'toppy' here as the rally extends higher, running on monetary inflation and technical trading, squeezing the shorts.

Make no mistake, if enough specs try to front run this to the short side the hedge funds and Wall Street Banks like JPM can run it higher, since selling volume has not yet picked up. And the government and the Fed are only too happy to facilitate a reflating of a stock bubble as a means of 'soft' market intervention.

This is a factor in how the Banks are making their substantial trading revenues these days, in a return to leverage and subsidized regulatory and monetary easing. Although the example presented here is with regard to commodities and ETFs, the principle applies very well to stock index ETFs.

"Much of this happens because the government is too stupid to see the inherent conflict of interest in what a broker-dealer does. Regulation will not stop gaming the law. Ethics do, and not everybody has ethics. So best you can do is prevent situations of conflict of interest, like the existence of Broker-dealer type entities. Either you trade for yourself, or you trade for others. Period...

You can never know intentions, and no one is bigger than the market, but the consequences of a lack of transparency and the free reign in which banks can tell half-truths to investors is a big factor in enabling strong hands to fleece weak hands with little market risk. It’s all a con game."

In defense of the stupidity of government, quite a few economists, analysts, and even bloggers do not 'get' the inherent conflict of interests involved in the current structure of the broker dealers, or do not care to see it for a variety of personal reasons. Stupidity can often be willfully obtained, bu always for a price. Some of the arguments against financial reform that I have seen appear to be similar to arguments that would be in favor of armed robbery because it stimulates the velocity of money.

The inherent problem with the dealer playing his own hand at the same table with the players, using the house bankroll, and looking at the cards as he deals them, would seem to be pretty much common sense, unless the casino is staffed with very restrained and scrupulous individuals, and some uncommonly good regulators equipped with the right equipment and a willingness to use effective deterrents.

But Wall Street banking is about as bad as it gets when it comes to ethical considerations and self-restraint. The regulators are too busy surfing porn, and the top politicians like Rahm Emmanual are compromised by free wheeling financiers and outrageously weak campaign contributions laws. That is why these lunatics need a strait-jacket like Glass-Steagall. The culture of greed is epidemic and overcomes all other considerations.

So for an opportunity to short this market, wait for it.

And as for serious financial reform, the Republicans are as bad or even worse than the Democrats. Mitch McConnell makes Chris Dodd look like Mahatma Ghandi, so don't hold your breath.

Banks Come Back For Another Bailout in Ireland While the US 'Manages Perceptions'

The whole notion of bank bailouts is a tremendous injustice when not accompanied by personal bankruptcy and civil and criminal prosecution for those banks managers who created them and are found guilty of fraud.

In addition, the owners of the banks, whether through debt or shares, should be wiped out and the bank placed in a proper receivership while its books are sorted out.

The US is an accounting mirage. The notion that it will make money from its stake in Citi is a sleight of hand. The enormous subsidies to the banks both in terms of direct payments, indirect payments through entities like AIG, and subsidies such as the erosion of the currency and the deterioration of the real economy, will never be repaid.

The real model of how to handle a banking crisis is in the Scandinavian nationalization of the banks, or even better, the disposition of the Savings and Loans in the US. during that crisis.

This pragamatic approach, its cheaper just to pay them all off than to sort them out, is a child of the Rubinomics of mid 1990's in the States, in which it was determined to be better to prop up the stock markets, often by buying the SP futures, than it was to allow the market to reach its level, and then deal with the financial carnage of a market crash. Here is a review of a paper by Rubin's protege, and some might say the government's Thomas Cromwell, Larry Summers.

From the Horse's Mouth: Lawrence Summers On Market Manipulation In Times of Crisis

The fourth position, which Summers calls pragmatic, in his own words, “is the one embraced implicitly, if not explicitly by policymakers in most major economies. It holds that central banks must always do whatever is necessary to preserve the integrity of the financial system regardless of whether those who receive support are solvent or can safely pay a penalty rate. This position concedes that some institutions may become too large to fail. While lender-of-last-resort insurance, like any other type of insurance, will have moral hazard effects, I argue that these may be small when contrasted with the benefits of protecting the real economy from financial disturbances”

This is the very essence of the Rubin doctrine. Pragmatic circumvention of the Constitution and the laws of the land by means of market manipulation and government subsidies cloaked in secrecy, misrepresentation, and a public relations campaign.

In addition to this paper, Mr. Summers is also the author of a paper Gibson's Paradox which seems to prescribe the manipulation the price of key commodities including gold in order to influence longer term interest rates. Indeed, we hear that in some recent FOIA act returns there were refusals to disclose papers from the Fed purporting to set out the 'new gold policy of the US' with many charts and pages of text. Indeed, what is the real policy of the US? I thought it was to allow it to sit, unaudited, in Fort Knox and the various Reserve Banks, while leasing it out to some extent.

And while as Obama's current Economic Advisor is talking a good game, the facts seem to indicate that the US is still pursuing a policy of managed perceptions, accounting deceptions, and old fashioned insider dealing and other forms of corruption that always accompany government, but reach a feverish pitch in times of crisis. It is the establishment's form of looting.

As we can easily see, this policy has spawned a series of tremendous financial bubbles in tech, and housing, and now credit, and corporate debt, and the dollar itself, which will eventually veer completely out of control into the improbability of hyperinflation. Inflicting pain on the common taxpayers for the transfressions of the financiers is beyond moral hazard.

The Banks must be restrained, the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.

Guardian UK
Ireland Poised for New Bank Bailout
By Jill Treanor
29 March 2010 18.58 BST

Irish taxpayers face pouring billions more euros into their troubled banking sector on what is being dubbed "bailout Tuesday".

The government is expected to take bigger stakes in Allied Irish Banks and Bank of Ireland as the property lending spree that took place before the 2007 credit crunch continues to knock holes in their battered balance sheets.

But while the Irish taxpayer faces taking on a greater burden from the banking sector – perhaps as much as €16bn (£14bn) – the US began to prepare to sell off its 7.7bn shares in Citigroup, into which the authorities pumped $24bn of cash during the 2008 banking crisis. Those 7.7bn shares were worth $32bn last night - implying a profit for the US treasury if the share price can withstand the sale of such a huge amount of shares.

In Ireland, though, the crisis is yet to abate as the economy weakens and the government follows through on an austerity budget that has imposed cuts in public sector pay after €11bn was injected into the banks.

Shares in Allied Irish Banks closed down 19% in Dublin at €1.37, ahead of announcements when the National Asset Management Agency, a toxic loan body, is due to provide details on the price for taking on the bad loans. Financial regulators will also set out the size of the capital cushions the banks will have to hold in preparation for future losses.

The Irish government took control of Anglo Irish Bank last year and holds stakes of 16% in Bank of Ireland, which runs the Post Office bank in the UK, and 25% of Allied Irish.

Local speculation is focused on the government stake rising to more than 70% in Allied Irish and more than 40% in Bank of Ireland while building societies EBS and Irish Nationwide may also need taxpayer involvement as the authorities continue to tackle the losses caused by bad lending.

Whistleblower Speaks Out On J. P. Morgan's Market Manipulation - Reports Violations to the CFTC in the Silver Market

Do we have another Harry Markopolos here, describing in detail the manipulation of the silver markets by J.P. Morgan to the CFTC? How does this square with the testimony today from the CFTC Commissioners, who seem to indicate that the markets are functioning extremely well, and that investor can have full confidence in them?

I am led to understand that Mr. McGuire had offered to testify before the CFTC today, and that he was refused admittance. I do not know him, or the position he is in within the trading community. I cannot therefore assess his credibility or the validity of any evidence which he may present or possess. But I have the feeling that nothing will come of this.

Remember, there was no action on the Madoff scandal until AFTER his fraud collapsed, and the government was forced to acknowledge Markopolos' existence. He had been ignored and dismissed by the bureaucrats at the SEC for years because of Madoff's power and standing with the trading establishment. And of course by those who had an interest in hiding Madoff's scheme, if nothing else, to promote 'confidence' in the markets.

What seems particularly twisted about this is that JPM is the custodian of the largest silver ETF (SLV). Is anyone auditing that ETF, and watching any conflicts of interest and self-trading? Multiple counterparty claims on the same bullion?

If you ever wanted to see a good reason for the Volcker rule, this is it. These jokers are one of the US' largest banks, with trillions of dollars in unaudited derivatives exposure, and they seem to be engaging in trading practices like Enron did before it collapsed.

Have they lost their minds, or are they just that reckless, immature, short term, and arrogant? Morgan practically holds the keys to the US Treasury, a recent recipient of billions in taxpayer support, and still receiving signficant subsidies from the Fed. They seem to be in dire need of adult supervision. Blatantly and clumsily rigging the silver market, and then bragging about it to people outside their company. What's next, bumping off grannies for their Social Security checks? Three card monte games on the boardwalk?

I was trying to understand why this item struck me so hard this evening. It shocked me in a way that few things do anymore. I think it is because I had unconsciously come to the same conclusion earlier, on my own, in the post where I showed the repeated and obvious bear raids on gold into this option expiration, and it struck a resonant chord when I read McGuire's description of the silver manipulation. I refused to believe it, but apparently there it is. The "Dr. Evil" trading strategy that Citigroup was caught using in the Eurobond markets.

I do not expect the detailed facts on this to ever reach the light of day in my lifetime. The implications are far too political.

ADDITIONAL STATEMENT BY BILL MURPHY, CHAIRMAN OF THE GOLD ANTI-TRUST ACTION COMMITTEE

HEARINGS ON THE METALS MARKETS, MARCH 25, 2010

On March 23, 2010 GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Mr. Maguire, formerly of Goldman Sachs, is a metals trader in London. He has been told first hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets and they bragged how they make money doing so.

In November 2009 he contacted the CFTC enforcement division to report this criminal activity. He described in detail the way in which JPM signals to the market its intention to take down the precious metals<. Traders recognize these signals and make money shorting the metals along side JPM. He explained how there are routine market manipulations at the time of option expiry, Non-farm payroll data releases, and Comex contract rollover as well as other ad hoc events.

On February 3 he gave two days advance warning by email to Mr Eliud Ramirez, a senior investigator of the Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. Then on February 5 as it played out exactly as predicted further emails were sent to Mr. Ramirez in real time while the manipulation was in progress.

It would not be possible to predict such a market move in advance unless the market was manipulated.

In an email on that day Mr. Maguire said "It is 'common knowledge' here in London amongst the metals traders it is JPM's intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC allowing by your own definition an illegal concentrated and manipulative position to continue"

Expiry of the COMEX APRIL call options is today. There was large open interest in strikes from $1100 to $1150 in gold. As always happens month after month HSBC and JPM sell short in large quantities to overwhelm all bids and make unsuspecting option holders lose their money. As predicted in advance by GATA the manipulation started on March 19th when gold was trading at $1126. By last night it traded at $1085.

This is how much the gold cartel fears the enforcement division. They thumb their noses at you because in over a decade of complaints and 18 months of a silver market manipulation investigation nothing has been done to stop them. And this is why JPM’s cocky and arrogant traders in London are able to brag that they manipulate the market.

It is an outrage and we are making available the emails from our whistleblower, Andrew Maguire available to the Press wherein he warns in advance of a manipulative event.

Additionally Mr. Maguire informed us that he has taped recordings of his telephone communications with the CFTC for which we are taking the appropriate legal steps to acquire.

-END-

From: Andrew Maguire
Sent: Tuesday, January 26, 2010 12:51 PM
To: Ramirez, Eliud [CFTC]
Cc: Chilton, Bart [CFTC]
Subject: Silver today

Dear Mr. Ramirez:

I thought you might be interested in looking into the silver trading today. It was a good example of how a single seller, when they hold such a concentrated position in the very small silver market, can instigate a selloff at will.

(Note: This is the "Dr. Evil" trading strategy that got Citi rebuked and fined in the Euro Bond markets, and also got Enron into trouble in the energy markets. - Jesse)

These events trade to a regular pattern and we see orchestrated selling occur 100% of the time at options expiry, contract rollover, non-farm payrolls (no matter if the news is bullish or bearish), and in a lesser way at the daily silver fix. I have attached a small presentation to illustrate some of these events. I have included gold, as the same traders to a lesser extent hold a controlling position there too....

I brought to your attention during our meeting how we traders look for the "signals" they (JPMorgan) send just prior to a big move. I saw the first signals early in Asia in thin volume. As traders we profited from this information but that is not the point as I do not like to operate in a rigged market and what is in reality a crime in progress.

As an example, if you look at the trades just before the pit open today you will see around 1,500 contracts sell all at once where the bids were tiny by comparison in the fives and tens. This has the immediate effect of gaining $2,500 per contract on the short positions against the long holders, who lost that in moments and likely were stopped out. Perhaps look for yourselves into who was behind the trades at that time and note that within that 10-minute period 2,800 contracts hit all the bids to overcome them. This is hardly how a normal trader gets the best price when selling a commodity. Note silver instigated a rapid move lower in both precious metals.

This kind of trading can occur only when a market is being controlled by a single trading entity.

I have a lot of captured data illustrating just about every price takedown since JPMorgan took over the Bear Stearns short silver position.

I am sure you are in a better position to look into the exact details.

It is my wish just to bring more information to your attention to assist you in putting a stop to this criminal activity.

Kind regards,
Andrew Maguire

Read more on this, and some particular examples of silver market manipulation, here.

Market Concentration - Approximately 80% of the Precious Metal Derivatives
This is remniscent of the Oil and Steel Trusts from the turn of the 20th Century

Rumours of an Unexpected Fed Discount Rate Hike Dampen Stocks

Bloomberg reports that rumours of a surprise Fed Discount Rate hike circulated trading desks earlier today, helping to depress stock prices in the land of lotus eaters, almost darkening the colour of the biggest winning streak since August 2009.

The rumour reportedly originated with traders in Chicago. It was so ludicrous that one has to believe that it was indeed started there. You expected something original on the day after St. Patrick's Day? The Fed just raised the discount rate, symbolically I should add, at a regularly scheduled meeting.

Oh that's right, it is options expiration and a quad-witch nonetheless. Is the Chicago Board Option Exchange trying to whistle up some action? Are traders struggling to find an easy trade with the forces of the High Frequency Terminators so ably thinning the herds of small specs?

Why is Wall Street like the Planet of the Apes? Because the gorillas have all the weapons, nets, and horses, and ride around all day shooting the human beings.

There are those of us who remember the disrepute and revulsion in which the US markets were held by the public back in the dark days of the 1970's in the aftermath of the 72-74 bear market. The pit crawlers spent the day throwing paper airplanes at one another, the Dow languished sub-1000, and the brokers talked about the 'return of the small investor to the markets.'

It took the bull market of the 1980's and Reagan's voodoo economics and laws about IRAs and 401K's to bring the public back in for a wash and rinse by the Street.

Just another day in the Pax Dollarous.

China's Mercantilism: Selling Them the Rope

"The Capitalists will sell us the rope with which we will hang them." Vladimir Illyich Lenin

Here is Paul Krugman with a reasonably good explanation of what happens when countries 'manage' their currencies lower. It provides a boost to exports and an impediment to imports. It is not much different than restraints of trade like tariffs and subsidies.

This is not higher math. A few simple price/demand equations with currency exchange factors using high school algebra would suffice to show the power of currency manipulation and a devaluation of 40% as a form of 'competitive advantage.'

Although I am glad that some of the economic sites and economists are willing to discuss this now, and as always respect Paul Krugman for his frankness and learning, the question should be asked, "Where have the American economists been for the past ten years? This is not the first time a major economist has tried to discuss this, and primarily to little effect."

Now that Krugman has made it respectable the more timid are willing to speak, although some of the high profile economic pundits continue to uphold myths and propaganda to support their favorite commercial interests, think tanks, ideologies and honorariums.

It is hard to imagine another modern science that would have tolerated such obvious howlers as economics has recently done, and not only tolerated, but made major tenets and far-reaching public policy out of them. As my crusty statistics professor would say, "economics is sometimes more like marketing than mathematics: self-serving analysis surrounding bullshit assumptions and double-talk."

The Chinese manipulation of their currency was not subtle. China devalued the renminbi significantly in the latter part of the 1990's, and then pegged it to the dollar. It then penetrated the usual safeguards of fair trade laws by obtaining 'favorable' rulings first from Bill Clinton and then from W. Bush.

They ought not to have been granted full trade status until China allowed their currency to float on some prearranged conditions at the very least. One can only speculate on why two US presidents sold them the rope by which to hold the US economy hostage. It is probably nothing more than crony capitalism. As for the economic advisors that surround them, they often have little respect for fair and open markets because they themselves engage in market manipulation to support their policy objectives so much that it becomes a matter of course.

Fair Trade agreements and the WTO are a farce when they permit such dramatic currency manipulation, and this is the direct result of the existing fiat currency regime and a toleration and even encouragement of financial engineering. And globalization is something to always be regulated because of its profound effect on one's domestic markets and public policy. Otherwise the world sinks to the lowest common denominator of the abuses of reckless environmentalism and even slave labor of the worst tyranny for the sake of 'competitiveness.'

Multinational corporations' desires for export revenues and cheap goods do not trump national sovereign preferences for the rights and freedoms of the individual to which a people might commit themselves, and pledge their honor. The natural benefit of unrestrained globalization is a canard similar in nature to the fallacy of naturally efficient markets.

It suited some people to ignore it then because the arrangement provided cheap goods to the US while depressing the domestic manufacturing sector and working class incomes, while boosting the financial sector and masking monetary inflation and asset bubbles. It was a means of empowering and enriching Wall Street at the expense of the productive economy.

Now that China's currency manipulation does not suit them, they are willing to discuss it, since China is not 'playing ball' with the financial engineers and encouraging domestic consumption and adopting Western bankers as their masters.

There is also a realization that their financial engineering has brought the world to the brink of a global crisis of insolvency and a tremendous blow to authentic capitalism from which it may be difficult to recover. And they are afraid.



Of Bubbles and Busts: Which Way for China?

The Financialization of America and Currency Wars in China

And Here Come Those Treasury Auctions

The US equity markets are holding on to the rumour-inspired gains from yesterday, as commodities are hit and the longer end of the bonds slump a bit.

"There is also the matter of the 3, 10, and 30 year Treasury auctions this week. The dollar is often dressed up for the occasion. If not with the fundamentals, then by weakening the 'competition' to make it look prettier than them. If the US stock market cannot move up or hold its ground while the Treasury conducts even modestly successful Treasury auctions, then this is a cautionary indication that Wall Street and the Fed are moving capital in a circle of manipulation to attempt to maintain the illusion of growth, in the manner of a Ponzi scheme." US Dollar Charts Still Technically Strong March 8, 2010

CNN Money
Treasurys dip ahead of auction
By Annalyn Censky
March 10, 2010: 12:12 PM ET

NEW YORK (CNNMoney.com) -- Treasurys traded lower Wednesday morning ahead of a government auction of $21 billion in 10-year notes.

What prices are doing: In mid-day trading, the benchmark 10-year note fell 10/32 to 99-3/32 and its yield rose to 3.741%. Bond prices and yields move in opposite directions.

What's moving the market: After strong demand in the government's $40 billion auction of 3-year notes Tuesday, analysts expect Wednesday's auction of 10-year notes to be well received, but with slightly less demand. Longer term debt like the 10-year note and 30-year bond traditionally see slightly lower demand in auctions, because of their inherent greater risk.

The auctions include a $13 billion offering in 30-year bonds on Thursday...

Propaganda Campaign Attempts to Mask the Economic Risks and Reality

The propaganda campaign by the US government is trying to mask the fact that the economic recovery plan is failing and that America is rapidly losing confidence in Team Obama.

You cannot have a sustained recovery without changing the underlying conditions that caused the failure in the first place.

In addition to the media blitz dissected by Yves Smith in the essay excerpted below, I have never seen such a load of rubbish being put forward with regard to the markets in US financial assets and commodities, and I have seen quite a bit in the last twenty years. In particular, the campaigns against gold and silver in particular are heavy-handed, obvious, and reaching the point of hysteria.

The shorts are trapped, hopelessly trapped, and unable to deliver on their massive short positions. They are only able to manipulate the price in short term bursts, and continue to dig themselves deeper as the world demand continues to drain them.

Whoever heard of a bubble in which the major money center banks are so perilously short it? A bubble requires a broad participation and belief, and the encouragement of the market makers. And now a statement from an "SEC official" that there is a gold bubble. This, from the very people who allegedly could not see the tech, housing and credit bubbles until they fell on top of them.

And of course there are the funds and the wealthy, who mouth the same party line while lining their portfolios with huge positions and personal holdings.

Various exigencies can compel the big players to make statements swearing gold and silver are no good, no store of value against all the evidence of history. But the fact remains that the US dollar reserve currency regime is falling apart, tumbling like the humpty-dumpty construct that it is. And the status quo is shitting their collective pants about it, and the likely backlash from the public when their deceptions are exposed.

Don't expect the Ancien Régime fiancier to fall easily, quietly, or quickly. But it will change; change is the only inevitability. And we all suspect what will remain standing when the dust settles. All this noise seems more like haggling over a larger quantity for a better price, and a clearer path to the exit.

Naked Capitalism
The Empire Continues to Strike Back: Team Obama Propaganda Campaign Reaches a Fever Pitch
By Yves Smith

I’ve seldom seen so much rubbish written by people who ought to know better in a single day. Many able people have heaped the scorn and incredulity on three articles, one a piece on Rahm Emanuel slotted to run in the Sunday New York Times Magazine, another an artfully packed laudatory piece on Timothy Geithner by John Cassidy in the New Yorker and a more even handed looking one (I stress “looking”) in the Atlantic.

Ed Harrison has skillfully shredded parsed the Geithner pieces . Simon Johnson thrashed the New Yorker story. A key paragraph below:

"The main feature of the plan, of course, was – following the stress tests – to communicate effectively that there was a government guarantee behind every major bank or quasi-bank in the United States. Of course this works in the short-term – investors like such guarantees. But there’s a good reason we usually don’t guarantee all financial institutions – or act happy when other countries do the same. Unconditional bailouts lead to trouble, encouraging reckless risk-taking and undermining responsible governance. You can’t run any form of reasonable market system when some big players hold “get out of bankruptcy free” cards."

Banking expert Chris Whalen was so disturbed by the numerous distortions in the New Yorker piece that he had already fired off a long letter to the editor by the time I pinged him, with these starting paragraphs:

"Jack Cassidy tells us that “Timothy Geithner’s financial plan is working—and making him very unpopular.” Unfortunately this is completely wrong. Cassidy’s comment just illustrates why the New Yorker has fallen into such obscurity, namely because it is more Vanity Fair than its vivacious sibling and unable to perform critical journalism.

In fact, the banking system is continuing to sink under bad loans and even worse securities losses. Telling the public that the banks are “fixed” is irresponsible. Unfortunately this false perception is widespread, including among major media such as CNBC and also with a number of my clients in the hedge fund world."

...Yves here. The reason that people who can discern clearly what is afoot are so deeply disturbed is simple, and all the comments touch on it. The campaign to defend Geithner and Emanuel, both architects of the administration’s finance friendly policies has gone beyond what most people would see as spin into such an aggressive effort to manipulate popular perceptions that it is not a stretch to call it propaganda.

This strategy, of relying on propaganda to mask their true intent, has become inevitable, given the strategic corner the Obama Adminstration has painted itself in. And this campaign has become increasingly desperate as the inconsistency between the Adminsitration’s “product positioning” and observable reality become increasingly evident...

Read the rest of this thoughtful and informative piece and its many associated links and references can be read here.

Lord have mercy on us, for what we have done, and what we ought to have done but did not,
and from what we may yet deserve to reap from our misuse and debasement of your bounty.

US Equities Showing Signs of an "Exhaustion Top" Amidst Rumours, Hype, and Shenanigans

The US stock market seems to be getting rather tired after what can only be described as a remarkable rally on light volumes and program trading.

The market is trying to rise here, with announcements like the Cisco backbone router for carriers and the AIG unit sales being hyped incessantly on financial media. The hype over the Cisco backbone router today is almost embarrassing. The anchors on Bloomberg keep saying that the router can download entire movies in 4 seconds, which is a lot faster than the 10 minutes it takes today. To anyone who knows anything about how networks are provisioned this is a howler of the first order, to say the least. For the consumer, the network is only as fast as the last mile.

It has also been reported by Adam Johnson on Bloomberg television that J.P. Morgan, a major broker dealer, stopped lending shares in AIG and Citi today "on rumours that the US government might ban short selling in stocks in which it has a financial interest." This squeezed the shorts and helped give an artificial boost to financial stocks over all. The company has since stopped this self-imposed ban on loaning shares and stocks are falling off their highs.

Needless to say, the SEC is unlikely to investigate this, or advise market makers not to start arbitrarily constraining the supply of stock based on market rumours, especially when they might be trading these same stocks for their own proprietary portfolios. They ought not be able to institute ad hoc bans on buying or selling by manipulating the supply.

Perhaps another leg up, after some consolidation, but this market is now very vulnerable to a reversal. The volumes are light on the rallies, and tend to increase quite a bit on the declines. Today the volume was a little better, in a consolidation perhaps, or a simple distribution. .

As we reported last week, the cash levels in the mutual funds are near record lows. Stocks do not typically rally unless there is large scale buying. All well and good, but until selling volumes show up, the market can continue to drift higher, especially with the support of the monetary magicians and the Wall Street wiseguys.



Don't get in front, wait for it. But start getting defensive if you have not done so already.

The Ides of March are on the 15th.

Front Running the Fed In the Treasury Market

I had a friend from the old neighborhood who was Comptroller of a major casino in Las Vegas in 1970-80s, where I also was married in 1981. Only lasting win from there, ever.

According to this dour son of Italy the way he could spot a problem, besides the more aggressive methods of observation and detection, would be to examine the returns on a table basis. In the short run they will vary, but in the longer term each game will provide a statistical return that rarely deviates from the forecast, unless someone is cheating. We would walk through the casino, and he would point to a table game and say "at the end of the month, this table will bring in xx percent."

It was he who introduced me to Bill Friedman's book, Casino Management, which is a useful read if you wish to learn more about that end of the speculative business from the house perspective.

Attached is some information from a reader. I cannot assess its validity, not being in the bond trading business. But it does sound like someone has tapped into the Fed's buying plans to monetize the public debt and is front running those buys, essentially 'stealing' money from the public. Its what they call 'a sure thing.'

To try and figure out who might be doing it, I would look for some big player who is showing extraordinary returns on their trading, with consistent profit that is not statistically 'normal,' too consistently good. The problem with cheaters is that they sometimes get greedy and call attention to themselves.

In Las Vegas the bigger cheats were often taken out into the desert for further inquiry and final disposition. On Wall Street they are somewhat more arrogant and persistent, defying resolution with that ultimate defiance, "We'll just find other ways to cheat again."

Time for a trip to the desert?

Here are a reader's observations from the bond market.

From a reader:

I used to work for a BB on a prop desk until the financial crisis took hold and they fired the less senior guys on the desk. I now trade US Treasuries, for a small prop firm in xxxxx, to scalp basis trades in mostly on the run securities. Occasionally, I will also take position in the repo markets for off the runs if I see something "mispriced." Your recent article piqued my interest because we too have noticed "shenanigans," of sort, in the QE program of USTs.

What we noticed, especially in smaller issues like the 7 Year Cash is that before a Fed buy back would be announced the price would pop significantly as buyers would run through all the offers on two major electronic exchanges (BGC Espeed and ICAP BrokerTec). This occurred more than several times as the 7 Year Cash would be overvalued both by its BNOC by 20-30 ticks and its relative value to similar off the runs. This buyer(s) would lift every offer they could, driving the price substantially above its "value" for sometimes a week at a time. After this buying would occur, the Fed would then announce the purchase of that security sometimes a handle above its approximate value. This "luck" did not just occur in the on the run 7 Year sector, it also occurred in the 30 Year Cash, 3 Year Cash, and more than several off the runs. Again, it was especially prevalent in the less liquid treasury products. Often the "appetite" for these securities would begin approximately 2 weeks to 1 week before the official Fed announcement. The buying was well organized and done in such a way as to completely knock it off kilter from its relationship with like cash Treasuries and the CME Ten Year Contract. If you examine the charts of some of the selected buy backs before the official announcement, you will see a similar occurrence.

While I have not broken this down into a paper to prove it (and I see nothing positive coming out of contacting the ESS-EEE-SEE about this issue), I can assure you that it was occurring on a consistent basis across the entire curve.

A certain issuance would be bid up through the market (substantially above value, as derived by several metrics) only to be later gobbled up by the Fed at the unreasonable price. These player(s) had substantial pockets as we, the small guys (but with a decent capital base), would take the other side of what seemed to be an obvious fade. While this did not occur in every single issuance of the QE program, it occurred often enough to be obvious to any learned observer.

While I am not sure if this can be attributed to purposeful Fed policy or someone at the Fed talking to his pals, I am certain it transpired."

Corruption is inevitable when the government is engaged in manipulating the markets with public monies. That portion of the Fed's activities needs to be scrutinized by the GAO on a continual basis. And the activities of the Exchange Stabilization Fund and the Treasury in market intervention should be subject to review by the legislative branch on behalf of the people.

Of course another option is to keep the Fed and the Treasury out of the public markets altogether excepting short term interest rates and specifically identified emergencies.

Who Is the 'One Big Bidder' For US Treasuries?

There are a number of possibilities for the identity of the non-primary dealer domestic source of enormous purchases at the longer end of the yield curve in recent US Treasury auctions.

It could be a misclassification, a branch of a bank representing a foreign power. The problem with this theory is that foreign Central Banks have a reluctance to buy the long end of the curve.

It also could be a legitimate domestic purchaser like a pension fund compelled to match duration of obligations, as is required by a little noted ruling of the US government a couple of years ago. They might be shifting out of other long term instruments with similar durations but more risk.

It might even be PIMCO. They certain have the money as the world's biggest bond fund, and they do offer two Treasury ETF's which, although not directly related to the products bought, might be relevant on a cross trade. And PIMCO has recently been talking down Treasuries in favor of corporates, which doesn't mean anything since traders often 'talk their book.' Still, unless it is for the ETFs it is hard to justify buying the long durations straight up in size. And while PIMCO says they do not like Treasuries, Benny and the Fed said they are buying long to keep interest rates lower. Why doubt them?

And of course, it might very well be the Federal Reserve Bank, or the Treasury via the Exchange Stabilization Fund.

It could also be the big bidder who comes in with some regularity and smashes down the price of the precious metals, with the obvious intent of manipulating the market, like clockwork just after the PM fix in London with some frequency.

It might even be the mysterious bidder who stands ready to buy the SP futures at every weakness, maintaining a floor on the market, and a steady drift higher in prices, with no change in fundamental underpinnings. Their hand in the market is apparent.

It is less probable, given the state of market manipulation by a few big proprietary trading desks riding another wave of cheap FEd money, but it might even be the party that entered the US equity market yesterday at 12:03 PM with a HUGE order (228,000 contracts) to buy the SP futures. As Larry Levin noted, "As of now I don't have a firm answer, but whether it was HFT activity, the "Helicopter," or a massive cross trade, it sure set the bottom in for the afternoon. Everyone in the Dow, Nasdaq, and S&P pits were talking about it and nobody was willing to sell into that massive bid." And so the market rallied once again into its current peak. No doubt it will be blamed on Monsieur Fat Fingers. Funny how lucky the big prop traders are with their reckless accidents, with millions gained from gaming the market, and all by accident.

As the article from the Financial Times indicates, it might never be possible to find out who this is, unless there is an audit of the market that is made public. As Edmund Burke noted, "Fraud is the Minister of Injustice" and it is my experience that opacity is the accomplice of fraud. Who has the most to hide these days?

Personally I think the Fed is buying across the yield curve to affect interest rates, and Treasury takes care of stocks and commodities through the Exchange Stabilization Fund, and friends in a few key banks, but who can say for sure, without the power of wiretap, audit, and subpoena?

If this is price manipulation, no matter the intentions or beneficiaries, it is likely that it is mispricing risk in a big way, misallocating investments, and will eventually will fail. Its failure will cause a great deal of pain in the real economy for innocent bystanders, and will end in tears. And when that time comes, expect those who created the crisis to make the public another offer that they think you cannot refuse, in excess of their last demand for 700$ billions, tout de suite.

You decide what is most likely, and what needs to be done about it, if anything.

More than a few people are wondering at the lack of response from the people in various nations, particularly in the UK and the US. Here is some old knowledge that might prove illuminating.

National Madness
Gilbert Keith Chesterton 1910

"This slow and awful self-hypnotism of error is a process that can occur not only with individuals, but also with whole societies. It is hard to pick out and prove; that is why it is hard to cure. But this mental degeneration may be brought to one test, which I truly believe to be a real test.

A nation is not going mad when it does extravagant things, so long as it does them in an extravagant spirit. But whenever we see things done wildly, but taken tamely, then the State is growing insane...

For madness is a passive as well as an active state: it is a paralysis, a refusal of the nerves to respond to the normal stimuli, as well as an unnatural stimulation. There are commonwealths, plainly to be distinguished here and there in history, which pass from prosperity to squalor or from glory to insignificance, or from freedom to slavery, not only in silence, but with serenity."

And in this slow descent into madness, the worst is surely yet to come.

Financial Times
Direct bids for US Treasury notes lead to speculation over buyer
By Michael Mackenzie in New York
January 14 2010 02:00

Auctions of US Treasury notes this week have attracted extremely strong buying from domestic institutional investors, fuelling speculation that "one big bidder" has decided to defy the conventional wisdom on Wall Street that US government debt is due for a fall.

Yesterday, direct bids accounted for 17 per cent of the sales of $21bn in 10-year Treasury notes, far higher than the recent average of 7.4 per cent. It was the highest percentage of direct bids in a 10-year Treasury auction since May 2005.

On Tuesday, direct bids accounted for a record 23.4 per cent of the bidding for $40bn in three-year notes, up from an average direct bid of 6 per cent.

Market participants say the unusually high level of direct bidding suggests that a large investor is looking to accumulate Treasuries without alerting the primary dealers on Wall Street to its intentions.

"It appears to us that someone is trying to hide their apparent interest in owning these auctions from the rest of the market," said David Ader, strategist at CRT Capital.

Rick Klingman, managing director at BNP Paribas, said: "It is unusual to see such a spike in the direct bid and I would imagine it is one big bidder. There is no way we will find out who it is, not now, or ever."

The surge in direct bidding is particularly notable because it comes after predictions that the record levels of Treasury debt issuance would exhaust investor demand, driving yields higher.

Among the most high-profile warnings came from Pimco, manager of the largest bond fund, which raised concerns about the escalating supply of US Treasury debt.

Attention will now focus on whether there is similar direct demand for today's $13bn 30-year bond sale.

The 10-year notes were sold at a yield of 3.754 per cent yesterday, the highest rate awarded for a note sale since June, when they were issued at 3.99 per cent. At the start of the year the yield on 10-year notes briefly traded at 3.90 per cent, as many investors talked down the prospects for Treasuries. The note traded at about 3.70 per cent earlier this week and was at 3.70 per cent late yesterday.

Under the three main classifications of buyers in Treasury debt sales, direct bidders are generally domestic non-primary dealer banks and large institutional investors. Normally their presence at Treasury auctions is small, as they usually buy debt through the primary dealer network, which currently numbers 18 banks and broker/dealers.

Well of Emptiness: Family Day at the New York Stock Exchange

Today was 'Family Day' at the New York Stock Exchange. No it is not the day in which the boys celebrate the families which they have made homeless, the retirements they have ruined, and the faces they have ripped with their lugubrious bump and grind.

It is a day on which the junior people, semi-professional greeters, and B class spokesmodels who are stuck working on a long holiday weekend bring their kids to play on the big empty floor, growing emptier by the day as volume migrates to the Matrix, and the dark pools of the vampire squids. The better to eat you with, my dear.

And befitting a day of low volumes and maximum cynicism, the futures did almost exactly what we thought they might do and, after a well managed performance, absolutely nothing has been decided. We were thankful for a low open and an opportunity cover short positions, and then a nice long drift higher to let the long sides of our hedged positions go. And of course, shorts back on into the close, with moderation we hasten to add. No underestimating Tim and Ben here.

Another Sunday night is in the cards. Remember those? The long nights in which the players hold their collective breath while Asia opens, and then Europe, to see if the rest of the world is buying it, or continuing to sell it. When press releases from corporate giants and their government functionaries begin to leak the true estimates of the damage, shortly after they announce 'the fix' for the problem that they most recently swore great oaths did not exist.

The story of a potential sovereign default such as that of Dubai is not so much which banks are holding the actual loans, but rather, which counterparties are holding the Credit Default Swaps, and to what degree. This is still a derivatively challenged system, oversexed, overlevered, and unfortunately over here.

If it turns out that AIG is a counterparty on the wrong side of the banks again, it really would be a bit much, and Timmy should be fired the following day if he dares to utter the "B word."

There is a lot of theater in the markets and the media, all designed to shape perception, which is the last resort of the financial engineers and their corrupt politicians.

That is not a segway necessarily to the Jobs Summit wherein The One will sequester with the nation's leaders of a sort, and puzzle out what can be done to 'get more jobs.' So far the Obama Administration has resembled that of Herbert Hoover, rather than that of Franklin Roosevelt.

"Hoover quickly developed a reputation as uncaring. He cut unemployment figures that reached his desk, eliminating those he thought were only temporarily jobless and not seriously looking for work. In June 1930 a delegation came to see him to request a federal public works program. Hoover responded to them by saying: "Gentlemen, you have come sixty days too late. The Depression is over." He insisted that "nobody is actually starving" and that "the hoboes...are better fed than they have ever been." He claimed that the vendors selling apples on street corners had "left their jobs for the more profitable one of selling apples." Digital History Herbert Hoover and the 1930s

Have a pleasant weekend, and for our American readers, a tumultuous 'black Friday.' The results of the annual consumer binge will be portrayed and flayed to beat the band in the days to come. Remember that "you get what you pay for" but you also "pay for what you get," unless you are one of the bureaucractically blessed few who receive beyond all bounds of effort and any conceivable personal labour.

Here is the updated scorecard for the markets.

Dumping Equities to Support Bucky and El Bondo Mondo?

As noted last week there will be a record issuance of US Treasuries this week by Team Obama.

So, could money be flowing out of stocks as a reaction to the dumping of support in preparation for the liquidity required by the notes, purposefully by design, as speculated by Denver Dave? In the manner of pushing the investor around, like the vegetables on your plate?

Or not. One can only wonder in this brave new world of opaque quantitative easing and Federal Reserve innovations.

A quick message of inquiry to Treasury Tim and Zimbabwe Ben brought no response, as they are tied up all day in a Working Groups meeting. Lloyd and Jamie are attending on speakerphone to maintain a low profile, obtain status updates, and provide direction as required to their staffs at the Treasury, the Fed, and their proprietary trading desks, not necessarily in that order.

But tonight, I will be having a beer, with the most interesting man in the world.



Unless he must do a new roadshow presentation for his creditors.

Stay thirsty my friends.

How Goldman Sachs Leveraged $70 Billion in Government Money For Record Profits

Guess which two Wall Street banks were acting as informal agents of the government in order to support the bond and stock markets and reinflate them?

Two big banks that are showing record trading profits, and a small group of enablers and assistants.

Its a near layup when the US fronts you the money and then works with you to take the markets higher via its Working Group on Financial Markets. Especially when it is on thin volumes based on 'news' which you help to create and control via frequent calls to young Tim who is your coordinator, in addition to all your other well-placed backchannel sources. You get a heads up, you use the futures to prop the markets. You need some good news, some can be arranged. Just like the good old days when Timmy was riding herd on the NY Fed desk.

All for the good of the country. And if you happen to make a billion per month in trading profits, well, that is the price of freedom for a job well done. Besides, a lot comes back in lobbying and campaign contributions. And you get to be rather porky and demanding about new banking and derivatives regulations because after all, you have a job to do and if they won't let you do it, well its uh oh.

That's what we hear, rumour-wise. Makes as much sense out of this as anything. How about you? Max Keiser thinks it is a fraud, as he describes here.

Below is Dylan Ratigan and his guest's take on this rally and the record profits.

"Let's Just Whack the Oil"

“The markets used to be about capital formation,” said Mr. Quast, the consultant. “Now 80 percent of trading is driven by some form of statistical arbitrage. We are buying into a statistical house of cards that could unravel very quickly.”

Reading the NY Times article excerpted below, one finds that Optiver is a rather small time operation with a wonkish bent operating out of the Netherlands, with profits that barely match a decent US tradering department's annual bonus.

But the method which they are using is similar to the techniques being used by many of the large 'market makers' who are 'providing liquidity' while reaping large and improbably consistent profits by manipulating markets.

The manipulation itself is nothing new. Large Wall Street banks have been using their size to push the markets around for many years, as in the case of Citigroup which was caught manipulating prices in European bond trading. Citigroup Fined Over 'Dr. Evil Bond Strategy

Then of course there was the manipulation of the energy markets by Enron, which held the state of California hostage.

The difference is that in the past the manipulation was implemented using the size of the trades and the deep pockets backing them. Size mattered, and the techiques were not elegant, more like an old-fashioned smash and grab.

Today the bias is towards stealth and speed, and colocation of your trading daemons with the Exchange to obtain an edge on information and execution. Having key regulators and politicians on your payroll is always a plus in any organized criminal activity.

No wonder China is so angry about the derivatives losses being realized by their State Owned Enterpises. The manipulation around key prices and dates in many US markets has been apparent for some time, with a wink and a nod around option expirations for example.

But now this manipulation is getting so blatant and widespread and regular that it is crippling daily market operation, not to mention robbing the general public of millions of dollars every day in their 401K's, pensions, and investment accounts. It has more of the appearance of organized crime than it does of a financial system.

Optiver was guilty of manipulation it appears, but also of being small and Dutch, and a competitor to the larger gangs of New York and London.

It will be more impressive when the CFTC and the SEC finally does something to clean up the markets by taking on the too big to fail banks that are sucking the life out of the US national economy and destroying the integrity of price discovery and the markets around the world.

To accomplish this, the US must dismantle the partnership in profits between Wall Street and the national government, which is morphing into a kind of velvet coup d'etat.

Yes, the markets used to be about capital formation. And capitalism used to involve risk management, with the consequence of profit and loss. But when Robert Rubin, then Treasury Secretary for Bill Clinton decided it was less expensive and more convenient to artificially buy the SP futures market through the Working Group on Markets, and manipulate prices rather than to suffer a messy stock market decline and clean up afterwards, moral hazard was unleashed. And so here we are today

We hope but do not believe that the impetus for reform will come from the US government, or financial industry, or even the voting public which the elites are now ignoring. After all, they don't pay the bills. It will come from the other governments and regulators of the world, who it appears have finally had enough interference and disruption of their economies and markets from US dollar colonialism.


NY Times
Inquiry Stokes Unease Over Trading Firms That Shape Markets
By Landon Thomas Jr.
Published: September 3, 2009

LONDON — Its superfast, supersecret oil trading software was called the Hammer.

And if the Commodity Futures Trading Commission is right, the name fit well with an intricate scheme that allowed commodity traders in Chicago working for Optiver, a little-known company based in Amsterdam, to put their orders first in line and subtly manipulate the price of oil to the company’s advantage.

Transcripts and taped conversations of actions that took place in 2007, included in the commission’s case, reveal the secretive workings of high-frequency trading, a fast-growing Wall Street business that is suddenly drawing scrutiny in Washington. Critics say this high-speed form of computerized trading, which is used in a wide range of financial markets, enables its practitioners to profit at other investors’ expense.

Traders in the Chicago office of Optiver openly talked among themselves of “whacking” and “bullying up” the price of oil. But when called to account by officials of the New York Mercantile Exchange, they described their actions as just “providing liquidity....”

Optiver describes itself as one of the world’s leading liquidity providers, a trading firm that uses its own capital to make markets. It seeks to profit on razor-thin price differences — which can be as small as half a penny — by buying and selling stocks, bonds, futures, options and derivatives. (Derivatives represent about 65 percent of its business, equities 25 percent, and commodities and others make up the remaining 10 percent.)

But the extent to which market making (providing liquidity to markets that need it) and proprietary trading (the pursuit of pure profit with a firm’s own money) can properly coexist has become a thorny question for regulators. They are grappling with an exploding business that makes up as much as half the overall trading in the United States and a growing share in Europe as well...

“These are proprietary trading shops that are masquerading as market makers,” said Tim Quast of Modern IR, a consulting firm that advises corporations on market structure issues.

The Securities and Exchange Commission has opened up an investigation into high-speed-trading practices, in particular the ability of some of the most powerful computers to jump to the head of the trading queue and — in a fraction of a millisecond — capture the evanescent trading spread before the rest of the market does...

Called low-latency trading, this blend of speed and opportunism is the essence of Optiver’s business model.

It deploys a sophisticated software system called F1 that can process information and make a trade in 0.5 milliseconds — using complex algorithms that let its computers think like a trader. And the company is so careful about preserving its secrets that when some traders and engineers left for a rival operation recently, Optiver hired private investigators and subsequently sued the former employees on charges of making off with intellectual property...

Mr. Dowson acknowledges that Optiver was so aggressive in conducting its proprietary trades in some smaller stocks that their activities “were as big as the volume traded on the day.”

It is precisely this — high-powered computers and the swagger of those who operate them — that is causing worries over high-frequency trading’s increasing sway. (No one can touch 'the-bank-that-must-not-be-named' for swagger - Jesse)

“The markets used to be about capital formation,” said Mr. Quast, the consultant. “Now 80 percent of trading is driven by some form of statistical arbitrage. We are buying into a statistical house of cards that could unravel very quickly.”

The Chief Economists

But do they care?

The Gathering Storm: Stay Defensive

"...market is ahead of reality...worry about things particularly going into Ramadan on the 22nd (of August)...there are things gathering around here (the NYSE) that are kind of esoteric, but we could perhaps see historic trading over the next eight weeks...potentially a very exciting period." Art Cashin, 18 Aug 2009

Larry Summers, Tim Geithner, and Ben Bernanke have managed, once again, to place the economy on the edge of a chasm by pandering to Wall Street, which has a narcissistic short-term obsession with stuffing its pockets at any risk or cost, while the corporate media distracts the public with an outrageous parade of disinformation, delusion, and distraction.

The world markets are entering a period of high risk and volatility. No one knows for certain what will come. Professional traders are preparing for it by managing their risks. We are as well.

Federal Reserve August 12 Statement

The following is the Federal Open Market Committee statement following its August policy meeting:

Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. (So much for the "V" recovery - Jesse)

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time. (Dream on - Jesse)

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year.

In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.