The US Dollar Rally Will End in a Crisis of Confidence

The constraint on the monetization being done by the Fed and Treasury is the value and acceptibility of the US dollar and bonds.

Export dependent countries should begin to prepare for a collapse in the US import markets. We expect this to happen earlier than 2010.

The invisible hand of the market moves slowly, but inexorably.

We expect this crisis in the US will resemble the crises in Argentina and Russia rather than Japan. The pain will be distributed heavily to those countries dependent on US dollar debt and consumer markets.

Nassim Taleb likes the protection of gold and copper. We prefer gold and silver, as it will be more difficult to increase its supply in the short term.

There will be serious discussion with regard to the annexation of Canada and Mexico into a North American government as the crisis worsens. Mexico should adopt a silver monetary standard and Canada must find its own economic independence again as it did in the Great Depression.

There is a strong likelihood that Obama will be a one term president at most unless he acts quickly to reform the growing corruption in the Democratic Party and within his own Administration.

Dollar Rally Will End, Rogers Says; May Short Stocks
By Chen Shiyin and Haslinda Amin

May 12 (Bloomberg) -- The dollar’s rally is set to end in a “currency crisis,” investor Jim Rogers said, adding that he may bet on a slide in equities after nine weeks of gains.

The advance in the U.S. currency has been driven by investors covering their short sales, Rogers, 66, said in an interview with Bloomberg Television in Singapore. He may consider adding to his holdings of the yen and prefers the euro to the dollar or the pound, the investor added.

“We’re going to have a currency crisis, probably this fall or the fall of 2010,” Rogers said. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”

The dollar has climbed against all of the so-called Group of 10 currencies except the yen over the past 12 months, according to data compiled by Bloomberg. The U.S. currency was at $1.3592 per euro today from $1.3582.

Rogers joins “Black Swan” author Nassim Nicholas Taleb in avoiding the U.S. currency. Taleb told a May 7 conference in Singapore he preferred gold and copper to the dollar and the euro as the global economy faces a “big deflation.”

Gains in U.S. stocks also signal a “correction,” Rogers said. He’s avoiding equities for the next two to three years because prospects haven’t changed, he added.

Disclosure: Jesse is long gold and silver.

SP Futures Hourly Chart at 3:30 PM

Don't Ask Why, Just Buy

The message on Bloomberg Television this morning is loud and clear: "Don't ask why, just buy."

The chief message carrier was a Mr. Brian Belski of Oppenheimer, who suggested that trying to analyze the markets for yourself is a waste of time. Just listen to the experts.

We have a new bull market. Who cares whether it is cyclical or secular. Let's just be happy that the worst is now behind us, and frankly, just buy.

Brian is representing the notion that any sort of gain over 20% is a new bull market.

Well Brian, here's your new bull market. Maybe it will become one. But from this perspective it is just a typical bounce within a powerful bear market. It must prove itself.

So far this looks like hot money from the public (taxes) trying to push up the shell of the Ponzi credit bubble while the insiders continue to hit the exits.

And we do not care what anyone says, the fundamentals are rotten. They are just not falling apart as quickly now after a precipitous revelation of the truth behind the facade of statistical manipulation. There are no green shoots, and there is no recovery.

There has been little or no reform. Just a fresh smear of lipstick on the same old pig, applied by the swineherds of Wall Street and Washington.




And in the meantime, let's buy some gold, silver, food, critical supplies, and party on...








Burn your credit cards, honor your family and friends friends, give to God what is His, live within your means.

Financially Farcical Friday

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

Institutional Risk Analytics

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

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

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

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

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

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

Friedman Resigns as NY Fed Chairman, Had Been Buying Goldman Stock in 2008-9

It just keeps getting more blatant and more brazen.

"And, with respect to Steve’s purchases of Goldman shares in December of 2008 and January of 2009, which have been the object of some attention lately, it is my view that these purchases did not violate any Federal Reserve statute, rule or policy."

Let's see, it is perfectly all right for a Fed Chairman to buy shares in one of the banks he is 'regulating' especially when he is helping to make critical policy decisions directly involving them.

Who writes the Fed's conflicts of interest policy, Alberto Gonzalez?

Yes the Fed would certainly make a very good systemic regulator...

Federal Reserve Bank of New York
Stephen Friedman Resigns as Chairman of the New York Fed’s Board of Directors
May 7, 2009

NEW YORK—The Federal Reserve Bank of New York announced today that Stephen Friedman, chairman of the board of directors of the New York Fed, has informed William C. Dudley, president and chief executive officer of the New York Fed, and the Board of Governors of his decision to resign effective immediately. Consistent with the Federal Reserve Act, Denis M. Hughes, deputy chair of the board, will exercise the powers and duties of the chair.

“My colleagues and I appreciate Steve’s vital service to the Bank during this time of great economic stress,” said Mr. Hughes. “We value his contributions and I know the Bank’s leadership acknowledges his unique perspectives on the economy and his financial market expertise. We all join in thanking him for his service and leadership.” Mr. Hughes added, “This is a remarkable organization at the center of helping the nation through the most difficult economic period since the 1930s. I have watched as the people of the Fed managed the unprecedented financial storms with creativity, energy and integrity.”

Thomas C. Baxter, Jr., executive vice president and general counsel, said, “There is no doubt that 2008 was one of the most challenging years in the New York Fed’s history. We were fortunate to have Steve as our chairman during that time, especially in view of Mr. Geithner’s decision to accept President Obama’s nomination to become Secretary of the Treasury. When the President announced his decision to nominate now-Secretary Geithner on November 24, 2008, Steve immediately stepped into action and formed a search committee of the New York Fed’s board of directors.

During the committee’s often intense deliberations over the next two months, I was privileged to observe closely Steve’s dedication, professionalism and work ethic. He was extraordinary. And, with respect to Steve’s purchases of Goldman shares in December of 2008 and January of 2009, which have been the object of some attention lately, it is my view that these purchases did not violate any Federal Reserve statute, rule or policy. I enjoyed working with Steve, and will miss his contributions in the boardroom.”

“I would like to thank Steve Friedman and his fellow directors on the New York Fed’s board for their service,” said Donald L. Kohn, vice chairman of the Board of Governors of the Federal Reserve System. “I particularly appreciate the very rigorous process Steve established to select the new president of the New York Fed.”

New York, NY 10022
May 7, 2009
Mr. Wiliam C. Dudley
President
Federal Reserve Bank of New York
33 Libert Street
New York, NY 10045

Dear Bill:

By copy of this letter to Chairman Bernanke, I hereby resign as a Class C Director and
Chairman of the Board of the Federal Reserve Bank of New York, effective immediately.
Last Fall, after Goldman Sachs Group, Inc. became a bank holding company, I agreed to
remain on the Board, pursuant to the waiver authority of the Board of Governors of the Federal
Reserve System, to provide continuity durng a time of financial market instability. Today,
although I have been in compliance with the rules, my public service motivated continuation on
the Reserve Bank Board is being mischaracterized as improper. The Federal Reserve System has
importnt work to do and does not need this distraction.

Please convey my appreciation and respect to my fellow Directors and the Reserve Bank
staff for their cooperation and their service. It has been a pleasure to work with you, your
predecessor, and our distinguished Board, as well as the dedicated, hard-working men and
women of the New York Fed. The New York Fed plays an extraordinary and vital role in
restoring stability to the financial system durng this very critical period, and it has been an honor
to be part of the institution's effort. I also am grateful to Chairman Bernanke and the other
Members and staff of the Board of Governors for their advice and support in connection with the
search for a new Chief Executive Officer for the New York Fed.


Stephen Friedman


cc: The Honorable Ben S. Bernane
Chairman
Federal Reserve Board of Govemors
Federal Reserve System
Washington, DC 20551

SP Futures Hourly Chart at the Close

The Problem With Our Regulatory Process

There have been and still are three obvious problems with our regulatory structure.

1. Influence Peddling

2. Conflicts of Interest

3. Corruption

Reorganizing to more fully centralize the regulatory process is exactly the wrong thing to do.

It was often individuals and the individual States, standing against the pressure of federal regulators, which exposed unethical and illegal practices.

And as for the idea that the Fed can take on more of these functions, just remember what will happen the next time a Greenspan gets in that position.

The Fed is a private organization owned by the banks, too often opaque, and with a highly questionable independence and objectivity.

Reorganization to centralize bad decision making and conflicts of interests is right out of the 1990's corporate playbook.


If Obama has a pair of his own he will appoint someone like Eliot Spitzer, Ron Paul, or Dennis Kucinich as the new Chairman of the SEC or the CFTC.

Red Pill or Blue Pill?

You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe.

You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes."

Morpheus in The Matrix

Blue Pill

Dick Bove was on Bloomberg Television this morning justifying a bullish outlook for the big banks, and the Bank of America in particular.

As you know, the story is that Bank of America has to raise many billions of dollars in additional capital according to the stress tests.

Dick Bove reasons that Bank of America will raise this additional capital, handwaving the costs and any contingencies a bit.

This additional capital will be leveraged, so Dick believes, in profitable transactions in trading, lending, and the extension of credit.

These transactions will generate a spectacular boom in bank profits. Mo' capital, mo' profits. Just do the math and including plenty of leverage.

And as we all know, more credit means economic growth and national prosperity.

Red Pill

The problem that the financial system has is an outsized financial sector with too much capacity for credit and financial assets. This excess capacity led to speculation and extension of credit in deals where the risk was not adequately balanced.

Hot money chases unreasonable risks. Too much capacity lowers the bars for deals which cannot possibly be profitable in any realistic model. Bubbles tend to distort the models for growth assumptions.

The only way to achieve a sustained recovery is to reform the financial system, break up the big banks, and return to a more balanced economy.

The elite and their acolytes seem to believe that by sustaining the illusion of the Financial Matrix that we create a confidence that will support a national economic system that is based on a credit bubble and a mass illusion of wealth based on paper.

The money center banks are the instruments of national policy, and the power to control not only the domestic economy but the nations of the world.

All we have to do is believe, and act as though it were true. After all, its so confusing, who can understand it? Better to just believe.

Can we delude ourselves to prosperity? Can a powerful nation and otherwise intelligent people be that venal, faithless and craven?

Yes we can. We have been doing it for years. And it can only continue if we gain more control over the real world and the people in it, and bend them to our increasingly irrational will.

The triumph of the will.

Nasdaq 100 Futures Hourly Chart at 2:30 PM

The artificial reflation aka short squeeze continues. It is centered on the financial stocks and in particular the SP futures. This is a classic Bob Rubin market fix technique from the 1990's. Don't fix the problems paint over them.

At times like these the stodgier Nasdaq100 performs the role of confirming moves up or down led by the SP 500. The broader indices are even more important.

This market is being slapped around in an effort to skin the overlevered small specs, so keep your positions small or even better, cash in your pocket. The banks are having a last gasp at manipulating nearly everything

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