"Unhappy people are better off living in the city. A person can live in the city for a hundred years and not even realize that they are already dead and rotting. They don't have time to realize this on their own; they are too busy."
Leo Tolstoy, The Kreutzer Sonata, 1889
These sorts of wide swings in sovereign debt can be extraordinarily profitable for the trading desks of the banks and hedge funds, especially if the boss has the ear of the Treasury and the Fed. But they play hell with planning and execution in the real economy.
The boys threw a threat on the table today, as Larry Summers, ombudsman for the pigmen, predicted that if the Congress did not pass the President's deal with the Republicans the US economy would suffer a double dip.
I thought it was a rather neat trick how Obama took an obstructionist Republican minority and cut a deal with them, thereby placing the onus on his own party and holding their feet to the fire with some particularly high-handed moralisms and snippy rhetoric on top. No Clinton he who called the Republican bluff and let them shut down the government. Wall Street shill or nincompoop, hard to decide.
Wall Street financials rallied into the close as AIG filed a recapitalization plan to pay back the huge amounts of capital it borrowed from the Treasury and Fed to pay Goldman and its ilk the full amounts of their leveraged bets.
And then Bloomberg TV cut away and spent the next twenty minutes talking about the imperative to cut 'entitlements' like Social Security and Medicare.
See the commentary provided today on the Gold intraday futures chart here.
"You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings." … Professor Wilhelm Hankel, Frankfurt University, The Telegraph, November 25, 2010
I am just thankful that Goldman and its Wall Street cronies did not have to take any losses or suffer cutbacks or austerity because of their dealings with AIG, thanks to the timely actions of their friends at Treasury and the NY Fed.
American International Group, Inc.
Wednesday December 8, 2010, 3:52 pm
NEW YORK--(BUSINESS WIRE)-- American International Group, Inc. (AIG) announced it had filed a Form 8-K earlier today announcing the signing of the Master Transaction Agreement among ALICO Holdings LLC, AIA Aurora LLC, the Federal Reserve Bank of New York, the United States Department of the Treasury, the AIG Credit Facility Trust and AIG, regarding a series of integrated transactions to recapitalize AIG, for which trading on the New York Stock Exchange was briefly interrupted.
Regarding the filing of the Master Agreement, AIG issued the following statement:
"Our filing today that we have signed the definitive recapitalization agreement with the government marks an important step forward in our progress toward completely repaying taxpayers. We remain committed to executing the steps and meeting all conditions in the agreement as soon as possible."
There is an ebb and flow to all markets. While the primary trend is in place these intraday fluctuations are of most concern to speculators and traders with a very short term focus. That is natural.
But there are also those hedge funds and trading desks that seek to spread either panic or euphoria, to promote short term trend changes and churn the market for easy but too often illicit gains through price and information manipulation. This is what I euphemistically call the 'technical trade.' And unfortunately sometimes these trade manipulators are very large and influential with the exchanges, the regulators, and even the politicians. Corruption is corrosive of society and must be contained.
Transparency, position limits, leverage constraints, and trading rules such as the uptick and curbs on frequency and tape painting help to maintain legitimate price discovery and efficient capital allocation. Secrecy, back room insider deals, and self regulation are the allies of corruption.
As was shown in the Congressional investigations following the Crash of 1929, quite a few of the analysts and financial news people covering the Street were implicated by the cancelled checks in the suitcase of a Mr. A. Newton Plummer, who delivered payments from the pools and large trading syndicates to manage perceptions as it were among the thought leaders and purveyors of information to the public. Nowadays checks are out of favor and information, sinecures, and grants are the currency among the white collar criminals.
There are few such investigations today, perhaps because that net is likely to catch quite a few fish larger than red faced analysts, economists, and news people, and some even who may have had a held a long and auspicious tenure in important positions of trust, public and private. Mr. Madoff is not a lone outlier unfortunately. And too often the 'CEO defense' of benign non-involvement or an admission of simple error, plausible deniability as it were, and a self-effacing apology are enough to cover and excuse heinous acts of false stewardship and even betrayal.
After all, we sophisticates no longer believe in the capacity for evil among 'people like us,' but rather in the natural goodness of ourselves and of course others. And so we can suspend common sense and even rational skepticism can be turned against the truth while things are falling down all around us. There is historical precendent for the big lie and a self-destructive loyalty to its bitter end.
For those with the intermediate view one sells strength and buys weakness as indicated on the trend charts. And so this is what I do in one of my accounts with a more intermediate to short term focus.
Those portfolios with the long view do nothing but ride the trend and reap the reward, selling when the fundamental conditions that provoked the bull market no longer remain in place.
To clarify some questions I received, I do not forecast 1455 as a 'top.' It is the minimum measuring objective for the cup and handle formation that will likely be met as long as the financial markets do not undergo a liquidity panic selloff. I would like to reiterate my view that gold and silver will continue to rally while the fundamentals remain unchanged. I do not think 2800 is unlikely but there are too many exogenous variables and no active chart formation to justify a forecast higher than 1455 at this time. But the top trend line on the chart below certainly points the way.
We saw the trend reversal today that I was expecting, as silver in particular was getting rather overextended based on the uptrend it has been following. I do not think this was anything more than profit-taking and a bit of a romp by the perma-bears who were licking their wounds and came back in for another go at the bulls.
So what next? Stocks really did not pull back much, except from the utterly unrealistic rally at the open, closing relatively unchanged. Treasury wants to sell its CITI stock and the Street wants the Chinese IPOs out the door.
Bonds got clipped pretty much on the same trend reversal theme although the 3 year auction did provide a spark by having a weak showing.
This market is without fundamental underpinnings, short term and transactionally oriented, rather like the American president, so let's give it a day to show us what is really going on.
The longer term outlook calls to mind an old quote from Norman Mailer:
"There's a shit storm coming like nothing you ever knew."
Washington Post Obama, Republicans reach deal to extend tax cuts, unemployment benefits By Shailagh Murray
December 6, 2010; 6:40 PM
President Obama and congressional Republicans have agreed to a tentative deal that would extend for two years all the tax breaks set to expire on Dec. 31, continue unemployment benefits for an additional 13 months and cut payroll taxes for workers to encourage employers to start hiring.
The deal has been in the works for more than a week and represents a concession by Obama to political reality: Democrats don't have the votes in Congress to extend only the expiring tax breaks that benefit the middle class. The White House estimates that the proposed agreement would prevent typical families from facing annual tax increases of about $3,000, starting Jan. 1.
Obama was able to extract an agreement from GOP leaders to support an additional 13 months of jobless benefits, a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill.
The deal also would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples. Democrats on Capitol Hill are strongly opposed to setting the cap at that high a level and to the 35 percent rate discussed by Obama and Republicans that would apply to the taxable portion of estates.
The White House is preparing for significant opposition from Democrats and will send Vice President Biden to meet with Senate Democrats on Tuesday. Later on Tuesday, House Democrats are schedule to discuss the proposed deal.
The Street is pricing three big Chinese IPO's this week, and the US Treasury has just announced its intentional to try and unload the rest of its position in Citigroup. So we might see equities hold together a little longer at what appears to me at least to be a lofty level.
I was taking some of my short term gold and silver trading positions off the table today, but added a few equity shorts so net-net came into the close weighted to a light expectation of a trend change in the next five days, in the form of at least a pause or a correction.
My overall portfolio weighting remains heavily invested in bullion as it has been since 2001, with a hedged position now long the US dollar. I do not like US equities here at all, but am trying to keep an open mind since we are so close to all our targets in equities and bullion.
Gold and Silver virtually hit our intermediate targets today. With gold at 1425 it is close enough to the forecast of 1455 we made at around 1150 to take some profits.
Therefore we took some of the short term positions off into the close and adjusted the hedges accordingly, leaving us slightly net short equities.
We do not touch our long term positions here as we are still far from the long term targets. We will hold bullion until the currency war is abating. To put this in perspective, that puts us in about round three of a fight that could easily go the twelve round distance.
Let us pray for those whose hearts are hardened against His grace and loving kindness by greed, fear, and pride, and the seductive illusion and crushing isolation of evil.
We pray that we all may experience the three great gifts of our Lord's suffering and triumph: repentance, forgiveness, and thankfulness. And in so doing, may we obtain abundant life, and with it the peace that surpasses all understanding.
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