Another Eurodollar Squeeze? - Lehman Flashbacks - Crazy Eddie Does the World

"We committed our crimes at Crazy Eddie for fun and profit and simply because we could. We had no empathy whatsoever for our victims...

I eventually pleaded guilty to three felonies: conspiracy to commit securities fraud, conspiracy to commit mail and wire fraud, and obstruction of justice. I was sentenced to only six-months of house arrest, 1,200 hours of community service, and paid approximately $10,000 in fines...In my settlement with the victims of my crimes, I avoided all civil liability...

I did not cooperate with the government and victims because of any sense of morality or remorse for my crimes. I simply cooperated with them to avoid a long prison sentence and reduce potential monetary penalties. If my crimes had remained undetected and the government did not seek to prosecute me, I would probably still be the criminal CFO of Crazy Eddie today."

Sam Antar

This report was at least partly responsible for the plunge in stocks and the rise in gold. It gave the markets a Lehman flashback.

This is the kind of moment where Greenie would announce he was ready to put out any and all fires in the markets with his großen Dollar schlauch.

In Bernanke's defense, when Greenspan was boss the US government was still a going concern, without crazy Uncle GOP trying to crash the car into a ditch to show Babbling Barry who is the boss.

And the politicians are only doing what the Banks have been doing for years.

Say what you will about it, the dollar is still the reserve currency, for now. And the financial system, in addition to the equity market carnival show, is based on nothing more fundamental than greed and fear, and short term positioning. The only capital allocation being done is from the real economy into the pockets of the financiers.

And that is the failure of Monetary Theory, Parts 1 and 2, and the Chicago School of Carny-nomics.

The market action here is a bit cynical, even by current standards, and tailor made for an option expiration this week and next. But the backdrop of danger is real. That makes it a tough play.

Bloomberg reports that 75% of the volume is High Frequency Trading. It adds no real liquidity, it only distorts and extracts. When one needs it, it is either gone or reinforcing the short term trends. That it still exists is a tribute to the dodgy nature of the markets, and the failure of US governance.

I took my profits. When in doubt, stay out.

"We have known for some time that the ECB has been holding both the Euro-based interbank liquidity market and the sovereign bond market together with its balance sheet. But as I reported late last week the international liquidity being provided to banks is drying up and this is an Achilles heel for the European banks. They have been borrowing short in US dollars to fund long term Euro-denominated assets. This means they constantly need a rolling supply of $US in order to meet the repayments on their prior short-term funding obligations as their Euro assets mature more slowly. If the holders of $US no longer think they are a safe bet then they are caught in a good old fashioned banking liquidity trap."

ECB Moves Into FX - Macrobusiness

At least some of the friends of Ben have dollar reserves, but they are hardly enough to hold off a panic, a modern variation of the classic bank run. These Ben Bucks are being used to put a little Spine-a-Cola into their balance sheets. Show-cash. A wad of Tens covered with a C-note.

From Phil's StockWorld's review of Sam Antar.  This is a nice description of what I have called 'the CEO defense.'

The Art of Spinning:

■ Sell people hope. My cousin ‘Crazy Eddie’ Antar taught me that “people live on hope” and their hopes and dreams must be fed through our spin and lies. In any situation, if possible, accentuate the positive.

■ Make excuses as long as you can. Try to have your excuses based on at least one truthful fact even if the fact is unrelated to your actions and argument.

■ When you cannot dispute the underlying facts, accept them as true but rationalize your actions. You are allowed to make mistakes as long as you have no wrongful intent. Being stupid is not a crime.

■ Always say in words you “take responsibility” but try to indirectly shift the blame on other people and factors. You need to portray yourself as a “stand up” guy or gal.

■ When you cannot defend your actions or arguments attack the messenger to detract attention from your questionable actions.

■ Build up your stature, integrity, and credibility by publicizing the good deeds you have done in areas unrelated to the subject of scrutiny.

■ If you can, appear to take the “high road” and have your surrogates do the “dirty work” for you. After all, you cannot control the actions of your zealots.

■ When you can no longer spin, shut up. For example, offer no guidance to investors or resign for “personal reasons.” Your surrogates and so-called friends can still speak on your behalf and defend you.

■ If you are under investigation always say you will “cooperate.” However, use all means necessary legal or otherwise to stifle the investigators. Remember that “people live on hope” and their inclination is to believe you.

■ When called to testify under oath (if you do not exercise your 5th amendment privilege against self-incrimination) have selective memory about your questionable actions. It is harder to be charged with perjury if you cannot remember what you have done rather than testify and lie about it.

■ Try not to have your actions at least appear to rise to the level of criminal conduct or a litigable action. Being stupid or being unethical is not always a crime or tortious action.

Based on my own exposure in the distant past as a consultant to national politicians and news commentators, both Republican and Democrat, Sam Antar is a talented amateur who makes up for a lack of finesse, and a seeming lack of willingness or ability to use blackmail and violence, with chutzpah.

There are many, many good people in government and the financial world who only wish to do the right thing, and serve their country faithfully. I admire them, with gratitude. They stand a lonely watch, unnoticed by the world.

But there are times when the tainted few grab the reins of power for whatever reason, and things get a little crazy, and those are difficult times for the honest individual, to say the least.

SP Futures Intraday - After Many a Summer Dies a Swan

As a reminder, this is an options expiration week for US equities.

Next week is an option expiration for metals on the Comex.

SP futures fell hard on the overnight and early morning to short term trend support. Gold soared.

The economic news sucked out loud.

Stocks must hold 1110 on the futures or they may activate what appears to be a bear flag.

"The woods decay, the woods decay and fall,
The vapours weep their burthen to the ground,
Man comes and tills the field and lies beneath,
And after many a summer dies the swan."

Tennyson, Tithonus

This is probably some portion of an option expiration scam, but the backdrop of financial danger in Europe is real.  So it becomes a difficult play.  The volumes remain light on the upside and heavy on the downside, and if one is playing bounces, a downdraft could take down weeks of profits.  I don't like to play near corners.

Gold Daily and Silver Weekly Charts - The Adventures of Pigman - Döllardämmerung

Gold was resilient again today and even managed to drag its little cousin Silver over the 40 dollar mark.

Mr. Chavez of Venezuela has said he will nationalise his country's gold mining industry for the benefit of those in power there apparently. I doubt that this move will entice much in the way of additional Foreign Direct Investments. And he is also asking for the return of his country's bullion deposits from the Banks.

"Venezuela has about 211 tons of its 365 tons of gold reserves held abroad at institutions including the Bank of England, JPMorgan Chase & Co., Barclays Plc, Standard Chartered Plc and the Bank of Nova Scotia, according to a government document." Bloomberg News

A much more modern approach would be to create an ETF that purports to represent his gold bullion holdings, in fractional reserve multiples of its true quantity, and simply take the money of investors without performing any work.

I doubt that Venezuela has enough bullion on deposit that its withdrawal from the mitts of the Anglo-americans would trigger a Herstatt effect, otherwise known as the infamous dominoes of settlement risk. But you never know.

I suspect strongly that this is a move by the BRIC's to 'persuade' the Anglo-Americans out of their stonewalling on the reconstitution of the SDR, and the replacement of the dollar-centric international payments regime with something more to their liking. And as a major oil exporter to the US, Venezuala may be in a position to help them make that point, if they can survive the retribution which will certainly follow.

The rhetoric is getting thicker, and it appears that Wells Fargo has warned that gold is a bubble and could correct quite hard. Thus they take the other side of that august Caesar of the markets, JP Morgan, which has also recently looked into its crystal ball and said that gold will rise to $2500 by year end.

So which of these book-talking bandits would you like to believe?

It must be options expiration on the Comex metals market next week, and yes, so it is. So first a run up with a follow on bear raid with more margin increases might be expected.

Or the rest of the world's central banks could continue to stand for delivery, and hang the Western banks with the rope which they had sold to them.

If it comes to a default, and there has indeed been some coverup of fraudulent selling by the banks, or even the leasing of national gold surreptitiously to the bullion banks and then irrecoverably into the markets, look for scapegoats, preferably suspicious and foreign, to conveniently appear as if on cue. There will never be an admission of guilt, but dissembling and distraction.

Time for another rogue trader? I doubt they can afford to throw one of the TBTF under the bus, but perhaps a smaller fry, a sacrifice to the market gods.

On the domestic front, Matt Taibbi asks, Is the SEC Covering Up Wall Street Crimes? The shredding machine, compounded with a sudden memory loss, organizational non-involvement, and managerial ennui, is the US version of The Official Secrets Act.

And in the meantime, the common people will probably suffer, regardless of outcome, the hapless victims of serial policy failures and malfeasance in the partnership of corporations and the government.

SP 500 and NDX Futures Daily Charts - Uncertain Seas Ahead

As a reminder there is an options expiration for equities on this Friday.

A reader informs me that OptionsHouse increase the margin requirements for options to 100 percent today. Someone obviously expects some turmoil and wishes to reinforce their extended value at risk.

I was not encouraged by the failure to rally above resistance today, but in the short term anything can happen, especially with plenty of hot money and light volumes at traders' backs.