SP Futures Hourly Chart at 3:45 PM

The rally is looking a bit toppy but its not dead yet.

Watch the changing slopes of the support and resistance channels. If they keep rolling over and the SP breaks that key support at 740 it could be a real sleigh ride lower back down to 700.

The VIX was elevated all day, even at the high, so there is your 'tell' in addition to the shift in the trend channel to a softer slope.

Chances are they dump the market overnight if that is what is going to happen. But until there is a break through 740 this is just a pullback. We'll have to consult with other short term indicators to see if this is a top, or just a bear trap pullback.

Overseas Private Investors Sell US Financial Assets

Non-US private investors fled dollar asset in January, while their central banks continued to buy.

"Monthly net TIC flows were negative $148.9 billion. Of this, net foreign private flows were negative $158.1 billion, and net foreign official flows were $9.2 billion."

Foreign central banks continued to purchase Treasuries while shedding agency debt. This is largely in support of currency pegs for industrial policy and homage from client states like Saudi Arabia.


Treasury International Capital (TIC) Data for January

Washington —The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for January 2009. The next release, which will report on data for February 2009, is scheduled for April 15, 2009.

Net foreign purchases of long-term securities were negative $43.0 billion.

Net foreign purchases of long-term U.S. securities were negative $18.8 billion. Of this, net purchases by private foreign investors were negative $10.2 billion, and net purchases by foreign official institutions were negative $8.5 billion.

U.S. residents purchased a net $24.2 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $60.9 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $30.9 billion. Foreign holdings of Treasury bills decreased $15.4 billion.

Banks’ own net dollar-denominated liabilities to foreign residents decreased $118.9 billion.

Monthly net TIC flows were negative $148.9 billion. Of this, net foreign private flows were negative $158.1 billion, and net foreign official flows were $9.2 billion.

Complete data is available on the Treasury website at www.treas.gov/tic.

AIG: A Scandal of Epic Proportion

"Goldman Sachs had said in the past that its exposure to A.I.G.’s financial trouble was 'immaterial'."

It appears that it was immaterial because Goldman Sachs, through their ex-CEO Hank Paulso, had set things up so they could not lose on their counterparty risk.

This story from last September documents Goldman Sachs involvement, at the highest levels, in the AIG bailout with then Treasury Secretary Hank Paulson.

AIG: A Blind Eye to Risk - NYT Sept 28, 2008

It seems fairly obviously that a relatively small department within AIG, the Financial Products division, was operating under the regulatory radar and was used as a patsy by a number of the Wall Street banks, who had no worries about losses because of their power to obtain the US government as a backstop to losses.

This is a scandal of epic proportion. 'Outrage' barely manages to express the appropriate reaction.

Obama is an educated, intelligent President, and can hardly retreat behind the clueless buffoon defense in vogue with so many CEO's and public officials. He has a directly responsible for this outcome now along with the Bush Administration and the Republicans.

Geithner and Summers should resign over their handling of AIG.

The Fed has no business regulating anything more complex than a checking account.

The difficulty with which we are faced is that despite their mugging for the camera and emotional words the Democrats and Republicans are owned by Wall Street and Big Business because of the existing system of lobbying and campaign funding.

Getting behind a third party for president is symbolic but ineffective. Giving a significant number of congressional seats to a third party will send a chilling and practical message to both the President and the Congress that enough is enough.

And in the meantime--

Contact Your Elected Officials


NY Times
A.I.G. Lists the Banks to Which It Paid Rescue Funds
By MARY WILLIAMS WALSH
March 16, 2009

Amid rising pressure from Congress and taxpayers, the American International Group on Sunday released the names of dozens of financial institutions that benefited from the Federal Reserve’s decision last fall to save the giant insurer from collapse with a huge rescue loan.

Financial companies that received multibillion-dollar payments owed by A.I.G. include

Goldman Sachs ($12.9 billion),
Merrill Lynch ($6.8 billion),
Bank of America ($5.2 billion),
Citigroup ($2.3 billion) and
Wachovia ($1.5 billion).

Big foreign banks also received large sums from the rescue, including

Société Générale of France and
Deutsche Bank of Germany, which each received nearly $12 billion;

Barclays of Britain ($8.5 billion); and
UBS of Switzerland ($5 billion).

A.I.G. also named the 20 largest states, starting with California, that stood to lose billions last fall because A.I.G. was holding money they had raised with bond sales.

In total, A.I.G. named nearly 80 companies and municipalities that benefited most from the Fed rescue, though many more that received smaller payments were left out.

The list, long sought by lawmakers, was released a day after the disclosure that A.I.G. was paying out hundreds of millions of dollars in bonuses to executives at the A.I.G. division where the company’s crisis originated. That drew anger from Democratic and Republican lawmakers alike on Sunday and left the Obama administration scrambling to distance itself from A.I.G.

“There are a lot of terrible things that have happened in the last 18 months, but what’s happened at A.I.G. is the most outrageous,” Lawrence H. Summers, an economic adviser to President Obama who was Treasury secretary in the Clinton administration, said Sunday on “This Week” on ABC. He said the administration had determined that it could not stop the bonuses.

(Among the outrages was the appointment of that sly old fox Larry Summers and his sidekick Tim Geithner by President Obama, and their continued tenure in any so-called reform government. - Jesse)

But some members of Congress expressed outrage over the bonuses. Representative Elijah E. Cummings, a Democrat of Maryland who had demanded more information about the bonuses last December, accused the company’s chief executive, Edward M. Liddy, of rewarding reckless business practices. (Well duh, that was and is the modus operandi of Wall Street Congressman - Jesse)

“A.I.G. has been trying to play the American people for fools by giving nearly $1 billion in bonuses by the name of retention payments,” Mr. Cummings said on Sunday. “These payments are nothing but a reward for obvious failure, and it is an egregious offense to have the American taxpayers foot the bill.” (Hey I have a good idea, lets elect some officials to make the laws and prevent these outrages through regulation. Oh yeah we did. Its you Congress! Its you Obama - Jesse)

An A.I.G. spokeswoman said Sunday that the company would not identify the recipients of these bonuses, citing privacy obligations.

Ever since the insurer’s rescue began, with the Fed’s $85 billion emergency loan last fall, there have been demands for a full public accounting of how the money was used. The taxpayer assistance has now grown to $170 billion, and the government owns nearly 80 percent of the company.

But the insurance giant has refused until now to disclose the names of its trading partners, or the amounts they received, citing business confidentiality.

A.I.G. finally relented after consulting with the companies that received the government support. The company’s chief executive, Edward M. Liddy, said in a statement on Sunday: “Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions.” (How about the threat of subpoena from the Attorney General? - Jesse)

Still, the disclosure is not likely to calm the ire aimed at the company and its trading partners.

The Fed chairman, Ben S. Bernanke, appearing on “60 Minutes” on CBS on Sunday night, said: “Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with A.I.G.” (Considering you are presiding over the looting of the middle class, Ben my man, that speaks volumes - Jesse)

He went on: “Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a — we had a situation where the failure of that company would have brought down the financial system.” (AIG was a setup with the very banks, Goldman Sachs and crew, that you are bending our economy over backwards to save, Ben - Jesse)

In deciding to rescue A.I.G., the government worried that if it did not bail out the company, its collapse could lead to a cascading chain reaction of losses, jeopardizing the stability of the worldwide financial system.

The list released by A.I.G. on Sunday, detailing payments made between September and December of last year, could bolster that justification by illustrating the breadth of losses that might have occurred had A.I.G. been allowed to fail.

Some of the companies, like Goldman Sachs and Société Générale, had exposure mainly through A.I.G.’s derivatives program. Others, though, like Barclays and Citigroup, stood to lose mainly because they were customers of A.I.G.’s securities-lending program, which does not involve derivatives. (There ought to have been the managed unwinding and default on those derivatives - Jesse)

But taxpayers may have a hard time accepting that so many marquee financial companies — including some American banks that received separate government help and others based overseas — benefiting from government money.

The outrage that has been aimed at A.I.G. could complicate the Obama administration’s ability to persuade Congress to authorize future bailouts. (I would hope so. Obama has lost all credibility compliments of Geithner, Summers and Bernanke - Jesse)

Patience with the company’s silence began to run out this month after it disclosed the largest loss in United States history and had to get a new round of government support. Members of Congress demanded in two hearings to know who was benefiting from the bailout and threatened to vote against future bailouts for anybody if they did not get the information.

“A.I.G.’s trading partners were not innocent victims here,” said Senator Christopher J. Dodd, the Connecticut Democrat who presided over one recent hearing. “They were sophisticated investors who took enormous, irresponsible risks.” (Do something about it then you windbag - Jesse)

The anger peaked over the weekend when correspondence surfaced showing that A.I.G. was on the brink of paying rich bonuses to executives who had dealt in the derivative contracts at the center of A.I.G.’s troubles.

Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, implicitly questioned the Treasury Department’s judgment about the whether the bonuses were binding. (I would question if Barney Frank is competent to hold office since he has also been a key player - Jesse)

“We need to find out whether these bonuses are legally recoverable,” Mr. Frank said in an interview Sunday on Fox News.

Many of the institutions that received the Fed payments were owed money by A.I.G. because they had bought its credit derivatives — in essence, a type of insurance intended to protect buyers should their investments turn sour.

As it turned out, many of their investments did sour, because they were linked to subprime mortgages and other shaky loans. But A.I.G. was suddenly unable to honor its promises last fall, leaving its trading partners exposed to potentially big losses.

When A.I.G. received its first rescue loan of $85 billion from the Fed, in September, it forwarded about $22 billion to the companies holding its shakiest derivatives contracts. Those contracts required large collateral payments if A.I.G.’s credit was downgraded, as it was that month.

Among the beneficiaries of the government rescue were Wall Street firms, like Goldman Sachs, JPMorgan and Merrill Lynch that had argued in the past that derivatives were valuable risk-management tools that skilled investors could use wisely without any intervention from federal regulators. Initiatives to regulate financial derivatives were beaten back during the administrations of Presidents Bill Clinton and George W. Bush.

Goldman Sachs had said in the past that its exposure to A.I.G.’s financial trouble was “immaterial.” A Goldman Sachs representative was not reachable on Sunday to address whether that characterization still held. When asked about its exposure to A.I.G. in the past, Goldman Sachs has said that it used hedging strategies with other investments to reduce its exposure.

Until last fall’s liquidity squeeze, A.I.G. officials also dismissed those who questioned its derivatives operation, saying losses were out of the question.

Edmund L. Andrews and Jackie Calmes contributed reporting.

World Buying In Gold Coins Soars

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."
Antony C. Sutton

"Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."
Bernard M. Baruch

World mints report soaring demand for gold coins
Fri Mar 13, 2009 8:36am EDT

LONDON (Reuters) - Mints around the world say demand for gold coins has risen sharply as interest in the precious metal soars on the back of financial instability and concerns over the inflation outlook.

The Royal Canadian Mint, which produces Maple Leaf bullion coins, said it quadrupled its production capacity late last year as demand for gold and silver bullion products leapt.

Gold was one of the few commodities to rise last year as turmoil in the financial sector sharpened investors' appetite for assets seen as a safe store of value, such as bullion.

Spot gold rallied to an 11-month high of $1,005.40 on February 20 as a slide in equity markets increased interest in the precious metal. Demand for physical gold products such as coins and bars has been particularly strong, traders say.

The United States Mint said sales of its one-ounce American Eagle gold bullion coins rocketed to 710,000 ounces in 2008, from 140,000 ounces a year before.

"The demand for gold and silver has been unprecedented," a spokesman for the Mint told Reuters.

The chairman of the French Mint, Christophe Beaux, said sales roughly doubled last year in value terms and are expected to rise by another 50 percent this year.

The 2009 catalog the mint had produced was almost entirely pre-sold, he said. The French Mint produces 100 euro gold coins, and plans to mint 10-ounce and 1-kilo coins this year.

In South Africa -- the world's second-largest gold producer -- Natanya van Niekerk, deputy general manager for numismatics at the South African Mint Company, said she had seen a big increase in demand for gold.

"I think we will see this same trend in this and the next quarter," she said. "Gold surely has been resilient in these times."

Michael O'Kane, head bullion trader at the New Zealand Mint, said many overseas buyers had come into the New Zealand market. "We're seen as a safe-haven market," he said.

He said buying had been strong since the collapse of U.S. investment bank Lehman Brothers in September, as investors moved money from banks into hard assets like gold.

The mint was averaging "a month's transactions in a day," he said, adding he saw demand continuing to rise.

China Central Bank Sees New Gains for Metals, Gold, and Oil

There is a big "if and but" in this forecast from the China Central Bank.

If the government stimulus regenerates aggregate demand, we will see a rebound in the world economies and prices of industrial commodities, as well as gold which will be a hedge during the subsequent monetary inflation.

But if it does not, we may be turning Japanese, and suffer at least a few lost years.

Reuters
China central bank sees rebound in metals, new gold peak
by Zhou Xin, Langi Chiang and Simon Rabinovitch
Fri Mar 13, 2009 8:19am GMT

BEIJING, March 13 (Reuters) - Copper and aluminium prices could rebound in 2009, while gold might scale a new peak and oil could chalk up big gains in the second half of the year, the People's Bank of China said on Friday.

In its annual international financial markets report, the central bank said it expected global demand to continue to weaken this year but held out the hope that the forceful policy response of governments could lead to a turning point in the world economic crisis.

Berkshire Hathaway's Credit Rating Downgraded by Fitch

"Weep over Saul, Who clothed you luxuriously in scarlet, who put ornaments of gold on your apparel." 2 Samuel 1:24


Berkshire has sustained heavy losses in US equities as the value investing approach which Warren Buffett follows has fallen prey to this most vicious of bear markets.

The company still retains exposure to derivatives contracts that concerns Fitch.

Forbes
Buffett Loses Sterling Credit Rating
Peter C. Beller
03.12.09, 08:30 PM EDT

Fitch downgrades billionaire's Berkshire Hathaway to lowly AA because of possible stock and credit market losses.

For decades, one of the brightest banners to fly above Warren Buffett's castle was his company's AAA credit rating, one of a handful in the United States. In his annual letter to shareholders he bragged that Berkshire Hathaway's credit was "pristine." But the financial crisis is laying siege to even the mightiest balance sheets.

In the past year, shares of Berkshire Hathaway the insurance and electricity conglomerate that Buffett controls, have lost 35%. Buffett saw his personal wealth decline by $25 billion. Now Fitch Ratings has snatched away his top-notch rating, downgrading Berkshire to AA.

The full extent of the damage to Berkshire won't be clear until the other two ratings agencies--Standard and Poor's and Moody's (of which Berkshire owns more than 20%)--decide whether to follow with their own downgrades. But conservative lenders often consider the lower of a company's split ratings as the one that counts. A lower rating could hurt Berkshire's business if lenders demand higher interest rates from the company to compensate for increased risk.

Fitch said it downgraded Berkshire because of its large stakes in publicly traded companies, such as Coca-Cola and American Express, as well as huge derivatives contracts that expose it to possible losses in the credit and stock markets. Berkshire's bondholders are also behind insurance policyholders to get paid back if the company runs into trouble. Nothing about that is new; Berkshire has long had major insurance interests. But Fitch said that the financial crisis had led it to reassess the risks to financial firms across the board.

Buffett himself seems to have played a role. Fitch said that the company's success is so dependent on the Oracle of Omaha's ability to choose wise investments that it constitutes a credit risk not "consistent with an AAA rating." The agency also complained that Berkshire management has declined to meet regularly with Fitch analysts in contrast to General Reinsurance, a Berkshire subsidiary. Fitch threatened to drop the AA rating further if stock market declines and earnings shortfalls hurt the firm's capitalization.

Despite the crisis, Buffett has pursued a number of big deals designed to take advantage of lower stock prices and a lack of available capital for struggling firms. Berskhire has plowed billions into Goldman Sachs (nyse: GS - news - people ), General Electric and Swiss Re and opened a municipal bond insurance company.

While Berkshire's net profit last year fell 62.1% to $5.0 billion, Buffett has said that Berkshire will make money in the long run. (See "Buffett Bloodied But Not Bowed") "Our economic system has worked extraordinarily well over time" he wrote in his annual letter to shareholders. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."

SP Futures Hourly Chart at 3 PM

June is now the front month.

Resistance to the countertrend rally is obvious and technically consistent with the major Fibonacci retracement levels.

This is a little too 'pat' for our taste but let's see what happens.

Short Term Indicators Are "Neutral" But With Caution on a Bull Trap

There is a possibility that the counter trend rally may extend into something more significant. The short term indicators have moved to 'neutral.'

We have shifted our hedging bias from slightly short to neutral pending a strong close. But there will be no adding of shorts in size unless the market breaks significant downside support.

Be prepared for this market to turn on a dime. Risk remains high so this trader is hesitant to go long until we see more of this bounce, and potential inverse H&S bottom.

It has to bother one a bit that there are so many 'bottom' calls floating around.

This Cafe is playing a tri-partite hedge involving a mix of longs and shorts in commodities, stocks and government bonds.

Please note that the SP hourly chart has shifted to the June futures which are now the front month.

GE Loses Its 'AAA' Credit Rating as S&P Downgrades

How are the mighty fallen in the midst of the deleveraging!
O Jeff, thou wast downgraded from thine high places. 2 Samuel 1:25

GE, Finance Arm Lose Coveted AAA Long-Term Rating From SP

General Electric Co. (GE) and its finance arm have lost their coveted AAA long-term credit rating from Standard Poor's Ratings Service, which said its view of GE Capital on a stand-alone basis had fallen.

GE had been one of only six non-financial companies with the AAA rating from the agency. The long-term rating of GE and GE Capital was cut one notch each to AA+. Analysts and observers have wondered for months about the company's ability to keep the top rating amid woes at GE Capital, which have driven the company's stock tumbling in recent months.

The stock, down 75% the past year and 48% in 2009 alone, was down 3 cents at $8.46 in recent trading, after rising as much as 4% in the opening minutes of Thursday's session.

SP Futures Hourly Chart @ 3:45 PM

The SP futures front month switches from the March contract to June tomorrow.

This creates some short term noise in the futures as traders adjust their holdings.

So far the breakout attempt has not been confirmed as successful.

The odds of failure remain high and a sell off into the weekend would be in character for this market.

The action in the Treasuries and dollar today are worth noting. We like to follow TBT.

Let's see what happens.

Mr. Pot Calling Mr. Kettle. Mr. Pot Calling Mr. Kettle.

Steve Schwarzman of the Blackstone group blames the Ratings Agencies for the crisis and the historic 'loss of wealth' throughout the world.

Note to Steve. It was not real wealth.

It was a bubble that was created starting in 1996 when Alan Greenspan changed his policy stance towards the markets after a visit from Mr. Rubin. This was around the time of his famous 'irrational exuberance' speech. We can only wonder what was said at that meeting.

Real wealth has substance. It is created by savings and hard work, and is only destroyed by real world events like natural disasters and wars, and of course theft.

The destruction of the real wealth was in the bubble when the middle class was systematically destroyed. This is just the settling of accounts. What we are seeing now is the paint peeling off the rotten economy which the financiers created for their personal benefit.

The ratings agencies and the regulators and the Fed and the media and the Presidency failed in their duties and responsibilities. They failed because they were corrupted. They were enthralled in a deep capture within a climate of fraud and market manipulation. They succumbed to temptation and became participants. And now they are afraid and ashamed of what they have done.

But they were the pawns, the tools. The primary actors are still in place and are still doing their worst for America. Jamie Dimon is on the financial news networks today speaking to the US Chamber of Commerce, weaving a revisionist view of what happened, blaming everyone but the banks in an amazing display of calculated spin.

Until the Wall Street banks are restrained, until real reform is accomplished, there will be no recovery, and the corruption will continue to taint all who come near it. It is already having its way with the new 'reform' administration.


Blackstone CEO: As much as 45% of global wealth is gone
CFA Institute Financial NewsBrief
03/11/2009

Describing the event as "absolutely unprecedented in our lifetime," Stephen Schwarzman, CEO of Blackstone Group, said the credit meltdown has wiped out between 40% and 45% of the world's wealth.

He said credit-rating agencies are partly to blame for the crisis. "What's pretty clear is that if you were looking for one culprit out of the many, many, many culprits, you have to point your finger at the rating agencies," Schwarzman said. Reuters (10 Mar.)